UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
December 31, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition
period from _________ To _________
Commission file number: 000-31203
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida |
98-0171860 |
(State or other jurisdiction of incorporation or
organization) |
(IRS Employer
Identification No.) |
President Place, 4th Floor, Cnr. Jan
Smuts Avenue and Bolton Road
Rosebank, Johannesburg 2196, South Africa
(Address of principal executive offices, including zip code)
Registrants telephone number, including area code:
27-11-343-2000
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [
]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
YES [ X ] NO [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):
[ ] Large accelerated filer |
[ X ] Accelerated filer |
|
|
[ ] Non-accelerated filer |
[ ] Smaller reporting company
|
(do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES [
] NO [ X ]
As of February 3, 2015 (the latest practicable date),
46,547,153 shares of the registrants common stock, par value $0.001 per share,
net of treasury shares, were outstanding.
Form 10-Q
NET 1 UEPS TECHNOLOGIES, INC.
Table of Contents
1
Part I. Financial Information
Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
|
|
Unaudited |
|
|
(A) |
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2014 |
|
|
2014 |
|
|
|
(In thousands,
except share data) |
|
ASSETS
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
70,981 |
|
$ |
58,672 |
|
Pre-funded social
welfare grants receivable (Note 2) |
|
6,254 |
|
|
4,809 |
|
Accounts receivable, net of allowances of December: $2,175; June:
$1,313 |
|
128,338 |
|
|
148,067 |
|
Finance loans
receivable, net of allowances of December: $4,403; June: $3,083 |
|
60,309 |
|
|
53,124 |
|
Inventory (Note 3) |
|
12,501 |
|
|
10,785 |
|
Deferred income
taxes |
|
6,286 |
|
|
7,451 |
|
Total current assets before settlement assets |
|
284,669 |
|
|
282,908 |
|
Settlement assets (Note 4) |
|
480,962 |
|
|
725,987 |
|
Total current assets |
|
765,631 |
|
|
1,008,895 |
|
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of December: $94,376; June: $91,422 |
|
49,361 |
|
|
47,797 |
|
EQUITY-ACCOUNTED
INVESTMENTS |
|
954 |
|
|
878 |
|
GOODWILL (Note 6) |
|
172,237 |
|
|
186,576 |
|
INTANGIBLE ASSETS, net
(Note 6) |
|
55,884 |
|
|
68,514 |
|
OTHER LONG-TERM ASSETS, including
reinsurance assets (Note 5 and Note 7) |
|
35,426 |
|
|
38,285 |
|
TOTAL ASSETS |
|
1,079,493 |
|
|
1,350,945 |
|
LIABILITIES |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
|
15,838 |
|
|
17,101 |
|
Other payables |
|
39,263 |
|
|
42,257 |
|
Current portion of
long-term borrowings (Note 9) |
|
- |
|
|
14,789 |
|
Income taxes payable |
|
3,094 |
|
|
7,676 |
|
Total current liabilities before settlement obligations |
|
58,195 |
|
|
81,823 |
|
Settlement
obligations (Note 4) |
|
480,962 |
|
|
725,987 |
|
Total
current liabilities |
|
539,157 |
|
|
807,810 |
|
DEFERRED INCOME TAXES |
|
12,676 |
|
|
15,522 |
|
LONG-TERM BORROWINGS (Note 9) |
|
59,698 |
|
|
62,388 |
|
OTHER LONG-TERM
LIABILITIES, including insurance policy liabilities (Note 7) |
|
20,831 |
|
|
23,477 |
|
TOTAL
LIABILITIES |
|
632,362 |
|
|
909,197 |
|
COMMITMENTS AND
CONTINGENCIES (Note 17) |
|
|
|
|
|
|
EQUITY |
|
COMMON STOCK (Note 10)
Authorized: 200,000,000 with $0.001 par
value; Issued
and outstanding shares, net of treasury - December:
46,547,153; June:
47,819,299 |
|
64 |
|
|
63 |
|
PREFERRED
STOCK
Authorized
shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: - |
|
- |
|
|
- |
|
ADDITIONAL PAID-IN-CAPITAL |
|
211,743 |
|
|
202,401 |
|
TREASURY SHARES,
AT COST: December: 18,057,228; June: 15,883,212 |
|
(214,520 |
) |
|
(200,681 |
) |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
|
(120,504 |
) |
|
(82,741 |
) |
RETAINED EARNINGS |
|
569,596 |
|
|
522,729 |
|
TOTAL NET1 EQUITY |
|
446,379 |
|
|
441,771 |
|
NON-CONTROLLING INTEREST |
|
752 |
|
|
(23 |
) |
TOTAL EQUITY |
|
447,131 |
|
|
441,748 |
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ |
1,079,493 |
|
$ |
1,350,945 |
|
(A) Derived from audited financial statements
See Notes
to Unaudited Condensed Consolidated Financial Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
|
|
Three months ended |
|
|
Six months ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(In thousands,
except per share data) |
|
|
(In thousands,
except per share data) |
|
|
|
|
|
|
|
|
REVENUE |
$ |
154,131 |
|
$ |
137,283 |
|
$ |
310,572 |
|
$ |
260,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing and support |
|
71,774 |
|
|
67,883 |
|
|
146,180 |
|
|
124,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administration |
|
41,385 |
|
|
40,824 |
|
|
80,121 |
|
|
81,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
10,157 |
|
|
9,774 |
|
|
20,331 |
|
|
19,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
30,815 |
|
|
18,802 |
|
|
63,940 |
|
|
35,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME |
|
3,587 |
|
|
3,236 |
|
|
7,677 |
|
|
6,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
1,107 |
|
|
2,226 |
|
|
2,419 |
|
|
3,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME
TAX EXPENSE |
|
33,295 |
|
|
19,812 |
|
|
69,198 |
|
|
37,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
(Note 16) |
|
10,203 |
|
|
7,099 |
|
|
21,851 |
|
|
13,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS |
|
23,092 |
|
|
12,713 |
|
|
47,347 |
|
|
24,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS |
|
76 |
|
|
47 |
|
|
168 |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
23,168 |
|
|
12,760 |
|
|
47,515 |
|
|
24,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS NET INCOME
ATTRIBUTABLE TO NON-CONTROLLING INTEREST |
|
794 |
|
|
11 |
|
|
1,052 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
ATTRIBUTABLE TO NET1 |
$ |
22,374 |
|
$ |
12,749 |
|
$ |
46,463 |
|
$ |
24,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share, in United States dollars
(Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable
to Net1 shareholders |
$ |
0.48 |
|
$ |
0.28 |
|
$ |
0.99 |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
attributable to Net1 shareholders |
$ |
0.48 |
|
$ |
0.28 |
|
$ |
0.99 |
|
$ |
0.53 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended |
|
|
Six months ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
23,168 |
|
$ |
12,760 |
|
$ |
47,515 |
|
$ |
24,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on asset available for sale, net of tax |
|
- |
|
|
216 |
|
|
(226 |
) |
|
(39 |
) |
Movement in foreign currency translation reserve |
|
(16,401 |
) |
|
(2,597 |
) |
|
(37,586 |
) |
|
4,972 |
|
Total other comprehensive (loss) income, net of taxes |
|
(16,401 |
) |
|
(2,381 |
) |
|
(37,812 |
) |
|
4,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
6,767 |
|
|
10,379 |
|
|
9,703 |
|
|
29,278 |
|
Less comprehensive income attributable to non-controlling interest |
|
(771 |
) |
|
(11 |
) |
|
(1,003 |
) |
|
- |
|
Comprehensive income attributable to Net1 |
$ |
5,996 |
|
$ |
10,368 |
|
$ |
8,700 |
|
$ |
29,278 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated
Statement of Changes in Equity for the six
months ended December 31, 2014 (dollar
amounts in thousands)
|
|
Net 1 UEPS Technologies, Inc.
Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
Number of |
|
|
Additional |
|
|
|
|
|
other |
|
|
|
|
|
Non- |
|
|
|
|
|
|
Number of |
|
|
|
|
|
Treasury |
|
|
Treasury |
|
|
shares, net of |
|
|
Paid-In |
|
|
Retained |
|
|
comprehensive |
|
|
Total Net1 |
|
|
controlling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Shares |
|
|
treasury |
|
|
Capital |
|
|
Earnings |
|
|
loss |
|
|
Equity |
|
|
Interest |
|
|
Total |
|
Balance July 1, 2014 |
|
63,702,511 |
|
$ |
63 |
|
|
(15,883,212 |
) |
$ |
(200,681 |
) |
|
47,819,299 |
|
$ |
202,401 |
|
$ |
522,729 |
|
$ |
(82,741 |
) |
$ |
441,771 |
|
$ |
(23 |
) |
$ |
441,748 |
|
Repurchase of common stock (Note 10) |
|
|
|
|
|
|
|
(1,837,432 |
) |
|
(9,151 |
) |
|
(1,837,432 |
) |
|
|
|
|
|
|
|
|
|
|
(9,151 |
) |
|
|
|
|
(9,151 |
) |
Restricted stock
granted (Note 12) |
|
213,237 |
|
|
|
|
|
|
|
|
|
|
|
213,237 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
- |
|
Exercise of stock option (Note 12) |
|
688,633 |
|
|
1 |
|
|
(336,584 |
) |
|
(4,688 |
) |
|
352,049 |
|
|
5,677 |
|
|
|
|
|
|
|
|
990 |
|
|
|
|
|
990 |
|
Stock-based
compensation charge (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,951 |
|
|
|
|
|
|
|
|
1,951 |
|
|
|
|
|
1,951 |
|
Income tax benefit from vested stock
awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
483 |
|
Transactions with
non-controlling interests (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,231 |
|
|
404 |
|
|
|
|
|
1,635 |
|
|
(228 |
) |
|
1,407 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,463 |
|
|
|
|
|
46,463 |
|
|
1,052 |
|
|
47,515 |
|
Other comprehensive
loss (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,763 |
) |
|
(37,763 |
) |
|
(49 |
) |
|
(37,812 |
) |
Balance December 31, 2014 |
|
64,604,381 |
|
$ |
64 |
|
|
(18,057,228 |
) |
$ |
(214,520 |
) |
|
46,547,153 |
|
$ |
211,743 |
|
$ |
569,596 |
|
$ |
(120,504 |
) |
$ |
446,379 |
|
$ |
752 |
|
$ |
447,131 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
Three months ended |
|
|
Six months ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Cash flows from operating
activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
23,168 |
|
$ |
12,760 |
|
$ |
47,515 |
|
$ |
24,345 |
|
Depreciation and amortization |
|
10,157 |
|
|
9,774 |
|
|
20,331 |
|
|
19,803 |
|
Earnings from
equity-accounted investments |
|
(76 |
) |
|
(47 |
) |
|
(168 |
) |
|
(150 |
) |
Fair value adjustments |
|
(234 |
) |
|
72 |
|
|
179 |
|
|
(61 |
) |
Interest payable |
|
140 |
|
|
694 |
|
|
1,299 |
|
|
1,666 |
|
Profit on disposal of property, plant
and equipment |
|
(109 |
) |
|
(15 |
) |
|
(231 |
) |
|
(16 |
) |
Stock-based
compensation charge |
|
1,035 |
|
|
968 |
|
|
1,951 |
|
|
1,898 |
|
Facility fee amortized |
|
52 |
|
|
509 |
|
|
134 |
|
|
578 |
|
Increase in accounts
receivable, pre-funded social |
|
|
|
|
|
|
|
|
|
|
|
|
welfare grants receivable and finance
loans receivable |
|
(7,315 |
) |
|
(37,977 |
) |
|
2,155 |
|
|
(61,078 |
) |
Increase in inventory |
|
(622 |
) |
|
(2,853 |
) |
|
(2,745 |
) |
|
(1,842 |
) |
Decrease in accounts payable and other
payables |
|
(1,456 |
) |
|
(4,883 |
) |
|
(12,389 |
) |
|
(13,551 |
) |
(Decrease) increase in
taxes payable |
|
(9,963 |
) |
|
(5,559 |
) |
|
(3,352 |
) |
|
1,362 |
|
Decrease in deferred taxes |
|
(168 |
) |
|
(691 |
) |
|
(558 |
) |
|
(1,878 |
) |
Net cash provided
(used in ) by operating activities |
|
14,609 |
|
|
(27,248 |
) |
|
54,121 |
|
|
(28,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(9,137 |
) |
|
(6,845 |
) |
|
(18,515 |
) |
|
(12,461 |
) |
Proceeds from disposal of property,
plant and equipment |
|
373 |
|
|
1,953 |
|
|
614 |
|
|
2,001 |
|
Proceeds from sale of
business (Note 14) |
|
- |
|
|
- |
|
|
1,895 |
|
|
- |
|
Other investing activities |
|
(29 |
) |
|
- |
|
|
(29 |
) |
|
(1 |
) |
Net change in
settlement assets |
|
241,652 |
|
|
204,730 |
|
|
198,598 |
|
|
256,503 |
|
Net cash provided by
investing activities |
|
232,859 |
|
|
199,838 |
|
|
182,563 |
|
|
246,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term borrowings
(Note 9) |
|
(14,128 |
) |
|
(87,008 |
) |
|
(14,128 |
) |
|
(87,008 |
) |
Long-term borrowings
utilized |
|
1,081 |
|
|
- |
|
|
2,178 |
|
|
- |
|
Acquisition of treasury stock (Note
10) |
|
- |
|
|
- |
|
|
(9,151 |
) |
|
- |
|
Sale of equity to
non-controlling interest (Note 10) |
|
- |
|
|
- |
|
|
1,407 |
|
|
- |
|
Proceeds from issue of common stock |
|
- |
|
|
- |
|
|
989 |
|
|
- |
|
Long-term borrowings
obtained |
|
- |
|
|
71,605 |
|
|
- |
|
|
71,605 |
|
Payment of facility fee |
|
- |
|
|
(872 |
) |
|
- |
|
|
(872 |
) |
Proceeds from bank
overdraft |
|
- |
|
|
24,580 |
|
|
- |
|
|
24,580 |
|
Acquisition of interests in KSNET
(Note 10) |
|
- |
|
|
(1,968 |
) |
|
- |
|
|
(1,968 |
) |
Net change in
settlement obligations |
|
(241,652 |
) |
|
(204,730 |
) |
|
(198,598 |
) |
|
(256,503 |
) |
Net cash used in
financing activities |
|
(254,699 |
) |
|
(198,393 |
) |
|
(217,303 |
) |
|
(250,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash |
|
(2,973 |
) |
|
495 |
|
|
(7,072 |
) |
|
1,745 |
|
Net (decrease) increase in cash and
cash equivalents |
|
(10,204 |
) |
|
(25,308 |
) |
|
12,309 |
|
|
(31,303 |
) |
Cash and cash
equivalents beginning of period |
|
81,185 |
|
|
47,670 |
|
|
58,672 |
|
|
53,665 |
|
Cash and cash equivalents end of
period |
$ |
70,981 |
|
$ |
22,362 |
|
$ |
70,981 |
|
$ |
22,362 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the
Unaudited Condensed Consolidated Financial Statements
for the three and six
months ended December 31, 2014 and 2013
(All amounts in tables stated
in thousands or thousands of United States Dollars, unless otherwise stated)
1. |
Basis of Presentation and Summary of Significant
Accounting Policies |
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 US
generally accepted accounting principles (GAAP) and the rules and regulations
of the 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, 2014 and 2013, 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 Companys Annual Report on Form 10-K for
the fiscal year ended June 30, 2014. 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, unless the context otherwise requires.
References to Net1 are references solely to Net 1 UEPS Technologies, Inc.
Recent accounting pronouncements
adopted
In March 2013, the FASB issued
guidance regarding Parents Accounting for the Cumulative Translation
Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within
a Foreign Entity or of an Investment in a Foreign Entity. This guidance
requires that the parent release any related cumulative translation adjustment
into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary
or group of assets had resided. The guidance is effective for the Company
beginning July 1, 2014, and is applied prospectively. The adoption of this
guidance did not have a material impact on the Companys financial statements.
Recent accounting pronouncements not
yet adopted as of December 31, 2014
In May 2014, the FASB issued
guidance regarding Revenue from Contracts with Customers. This guidance
requires an entity to recognize revenue when a customer obtains control of
promised goods or services in an amount that reflects the consideration to which
the entity expects to receive in exchange for those goods or services. In
addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The
guidance is effective for the Company beginning July 1, 2017. Early adoption is
not permitted. The Company expects that this guidance will have a material
impact on its financial statements and is currently evaluating the impact of
this guidance on its financial statements on adoption.
In August 2014, the FASB issued
guidance regarding Disclosure of Uncertainties About an Entitys Ability to
Continue as a Going Concern. This guidance requires an entity to perform
interim and annual assessments of its ability to continue as a going concern
within one year of the date that its financial statements are issued. An entity
must provide certain disclosures if conditions or events raise substantial doubt
about the entitys ability to continue as a going concern. The guidance is
effective for the Company beginning July 1, 2017. Early adoption is permitted.
The Company is currently assessing the impact of this guidance on its financial
statements disclosure.
2. |
Pre-funded social welfare grants
receivable |
Pre-funded social welfare grants
receivable represents amounts pre-funded by the Company to certain merchants
participating in the merchant acquiring system. The January 2015 payment service
commenced on January 1, 2015, but the Company pre-funded certain merchants
participating in the merchant acquiring system on the last two days of December
2014.
7
The Companys inventory comprised the
following categories as of December 31, 2014 and June 30, 2014.
|
|
|
December 31, |
|
|
June 30, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Finished goods |
$ |
12,501 |
|
$ |
10,785 |
|
|
|
$ |
12,501 |
|
$ |
10,785 |
|
4. |
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 and (2) 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 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.
5. |
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 seeks to reduce its
exposure to currencies other than the South African Rand (ZAR) through a
policy of matching, to the extent possible, assets and liabilities denominated
in those currencies. In addition, the Company uses financial instruments in
order to economically hedge its exposure to exchange rate and interest rate
fluctuations arising from its operations. The Company is also exposed to equity
price and liquidity risks as well as credit risks.
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 US dollar. The Company has used forward
contracts in order to limit its exposure in these transactions to fluctuations
in exchange rates between the ZAR, on the one hand, and the US dollar and the
euro, on the other hand.
Translation risk
Translation risk relates to the risk
that the Companys results of operations will vary significantly as the US
dollar is its reporting currency, but it earns most of its revenues and incurs
most of its expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated
significantly over the past three years. As exchange rates are outside the
Companys control, there can be no assurance that future fluctuations will not
adversely affect the Companys results of operations and financial condition.
Interest rate risk
As a result of its normal borrowing and
leasing activities, the Companys operating results are exposed to fluctuations
in interest rates, which it manages primarily through regular financing
activities. The Company generally maintains limited investment in cash
equivalents and has occasionally invested in marketable securities.
8
5. |
Fair value of financial instruments
(continued) |
Risk management (continued)
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 counterpartys financial condition, credit rating, and other credit
criteria and risk mitigation tools as the Companys management deems
appropriate.
With respect to credit risk on
financial instruments, the Company maintains a policy of entering into such
transactions only with South African and European financial institutions that
have a credit rating of BBB or better, as determined by credit rating agencies
such as Standard & Poors, Moodys and Fitch Ratings.
UEPS-based microlending credit
risk
The Company is exposed to credit risk
in its UEPS-based microlending activities, which provides unsecured short-term
loans to qualifying customers. The Company manages this risk by performing an
affordability test for each prospective customer and assigns 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, consequently, the amount 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 applies 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 are
included in Level 2 investments. In circumstances in which inputs are generally
unobservable, values typically reflect managements 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.
Asset measured at fair value
using significant unobservable inputs investment in Finbond Group Limited
(Finbond)
The Company's Level 3 asset represents
an investment of 156,788,712 shares of common stock of Finbond, which are
exchange-traded equity securities. Finbonds shares are traded on the
Johannesburg Stock Exchange (JSE) and the Company has designated such shares
as available for sale investments. The Company has concluded that the market for
Finbond shares is not active and consequently has employed alternative valuation
techniques in order to determine the fair value of such stock. Finbond issues
financial products and services under a mutual banking licence and also has a
microlending offering. In determining the fair value of Finbond, the Company has
considered amongst other things Finbonds historical financial information
(including its most recent public accounts), press releases issued by Finbond
and its published net asset value. The Company believes that the best indicator
of fair value of Finbond is its published net asset value and has used this
value to determine the fair value.
9
5. |
Fair value of financial instruments
(continued) |
Financial instruments (continued)
Asset measured at
fair value using significant unobservable inputs investment in Finbond Group
Limited (Finbond) (continued)
The fair value of these securities as
of December 31, 2014, represented approximately 1% of the Companys total
assets, including these securities. The Company expects to hold these securities
for an extended period of time and it is not concerned with short-term equity
price volatility with respect to these securities provided that the underlying
business, economic and management characteristics of the company remain sound.
Derivative transactions -
Foreign exchange contracts
As part of the Companys 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 Companys derivative exposures are with counterparties that have
long-term credit ratings of BBB 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 Companys outstanding foreign
exchange contracts are as follows:
As of December 31, 2014
|
|
|
|
|
|
Fair market |
|
|
|
|
|
Notional amount |
|
Strike price |
|
|
value price |
|
|
Maturity |
|
|
EUR 174,424.50 |
|
ZAR 15.6729 |
|
|
ZAR 14.1043 |
|
|
January 20, 2015 |
|
|
EUR 174,424.50 |
|
ZAR 15.8119 |
|
|
ZAR 14.1043 |
|
|
January 20, 2015 |
|
|
EUR 938,834.00 |
|
ZAR 14.7811 |
|
|
ZAR 14.2503 |
|
|
March 20, 2015 |
|
|
EUR 706,205.00 |
|
ZAR 14.8645 |
|
|
ZAR 14.3307 |
|
|
April 20, 2015 |
|
|
EUR 512,865.00 |
|
ZAR 14.9455 |
|
|
ZAR 14.4113 |
|
|
May 20, 2015 |
|
|
EUR 526,263.00 |
|
ZAR 15.0345 |
|
|
ZAR 14.5000 |
|
|
June 22, 2015 |
|
|
EUR 526,263.00 |
|
ZAR 15.1145 |
|
|
ZAR 14.5762 |
|
|
July 20, 2015 |
|
|
EUR 526,263.00 |
|
ZAR 15.2025 |
|
|
ZAR 14.6619 |
|
|
August 20, 2015 |
|
|
EUR 526,263.00 |
|
ZAR 15.2944 |
|
|
ZAR 14.7502 |
|
|
September 21, 2015 |
|
|
EUR 526,263.00 |
|
ZAR 15.3809 |
|
|
ZAR 14.8329 |
|
|
October 20, 2015 |
|
|
EUR 509,516.00 |
|
ZAR 15.4728 |
|
|
ZAR 14.9238 |
|
|
November 20, 2015 |
|
|
EUR 529,865.00 |
|
ZAR 15.5654 |
|
|
ZAR 15.0147 |
|
|
December 21, 2015 |
|
|
EUR 526,663.00 |
|
ZAR 15.6625 |
|
|
ZAR 15.1057 |
|
|
January 20, 2016 |
|
As of June 30, 2014
|
|
|
|
|
|
Fair market |
|
|
|
|
|
Notional amount |
|
Strike price |
|
|
value price |
|
|
Maturity |
|
|
EUR 182,272.50 |
|
ZAR 15.2077 |
|
|
ZAR 14.5803 |
|
|
July 21, 2014 |
|
|
EUR 182,272.50 |
|
ZAR 15.3488 |
|
|
ZAR 14.5803 |
|
|
July 21, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.4228 |
|
|
ZAR 14.6542 |
|
|
August 20, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.2819 |
|
|
ZAR 14.6542 |
|
|
August 20, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.3623 |
|
|
ZAR 14.7367 |
|
|
September 22, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.5041 |
|
|
ZAR 14.7367 |
|
|
September 22, 2014 |
|
|
EUR 181,570.50 |
|
ZAR 15.5739 |
|
|
ZAR 14.8119 |
|
|
October 20, 2014 |
|
|
EUR 181,570.50 |
|
ZAR 15.4316 |
|
|
ZAR 14.8119 |
|
|
October 20, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.6552 |
|
|
ZAR 14.8982 |
|
|
November 20, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.5136 |
|
|
ZAR 14.8982 |
|
|
November 20, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.5970 |
|
|
ZAR 14.9874 |
|
|
December 22, 2014 |
|
|
EUR 180,022.50 |
|
ZAR 15.7391 |
|
|
ZAR 14.9874 |
|
|
December 22, 2014 |
|
|
EUR 174,424.50 |
|
ZAR 15.8119 |
|
|
ZAR 15.0671 |
|
|
January 20, 2015 |
|
|
EUR 174,424.50 |
|
ZAR 15.6729 |
|
|
ZAR 15.0671 |
|
|
January 20, 2015 |
|
10
5. |
Fair value of financial instruments
(continued) |
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of December 31, 2014, according to the fair value hierarchy:
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Price in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to
insurance business (included in
other long-term assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
1,688 |
|
$ |
- |
|
$ |
- |
|
$ |
1,688 |
|
|
Investment in Finbond (available for sale
assets included in other
long-term assets) |
|
- |
|
|
- |
|
|
7,358 |
|
|
7,358 |
|
|
Other |
|
- |
|
|
44 |
|
|
- |
|
|
44 |
|
|
Total
assets at fair value |
$ |
1,688 |
|
$ |
44 |
|
$ |
7,358 |
|
$ |
9,090 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts |
$ |
- |
|
$ |
345 |
|
$ |
- |
|
$ |
345 |
|
|
Total
liabilities at fair value |
$ |
- |
|
$ |
345 |
|
$ |
- |
|
$ |
345 |
|
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of June 30, 2014, according to the fair value hierarchy:
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Price in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to insurance business
(included in
other long-term assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
1,800 |
|
$ |
- |
|
$ |
- |
|
$ |
1,800 |
|
|
Investment in
Finbond (available for sale
assets included in other long-term assets) |
|
- |
|
|
- |
|
|
8,068 |
|
|
8,068 |
|
|
Other |
|
- |
|
|
47 |
|
|
- |
|
|
47 |
|
|
Total assets at fair
value |
$ |
1,800 |
|
$ |
47 |
|
$ |
8,068 |
|
$ |
9,915 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
- |
|
$ |
164 |
|
$ |
- |
|
$ |
164 |
|
|
Total
liabilities at fair value |
$ |
- |
|
$ |
164 |
|
$ |
- |
|
$ |
164 |
|
Changes in the Companys investment in
Finbond (Level 3 that are measured at fair value on a recurring basis) were
insignificant during the three and six months ended December 31, 2014 and 2013,
respectively. There have been no transfers in or out of Level 3 during the three
and six months ended December 31, 2014 and 2013, respectively.
Assets and liabilities measured
at fair value on a nonrecurring basis
The Company measures its assets at fair
value on a nonrecurring basis when they are deemed to be other-than-temporarily
impaired. The Company has no liabilities that are measured at fair value on a
nonrecurring basis. The Company reviews the carrying values of its assets when
events and circumstances warrant and considers all available evidence in
evaluating when declines in fair value are other-than-temporary. The fair values
of the Companys assets are determined using the best information available, and
may include quoted market prices, market comparables, and discounted cash flow
projections. An impairment charge is recorded when the cost of the assets
exceeds its fair value and the excess is determined to be other-than-temporary.
The Company has not recorded any impairment charges during the reporting periods
presented herein.
11
6. |
Goodwill and intangible assets,
net |
|
|
|
Goodwill |
|
|
|
Summarized below is the movement in the
carrying value of goodwill for the three and six months ended December 31, 2014: |
|
|
|
|
|
|
Accumulated |
|
|
Carrying |
|
|
|
|
Gross value |
|
|
impairment |
|
|
value |
|
|
Balance as of June 30, 2014 |
$ |
186,576 |
|
$ |
- |
|
$ |
186,576 |
|
|
Foreign currency adjustment
(1) |
|
(14,339 |
) |
|
- |
|
|
(14,339 |
) |
|
Balance as of December 31, 2014 |
$ |
172,237 |
|
$ |
- |
|
$ |
172,237 |
|
(1) The foreign currency adjustment
represents the effects of the fluctuations between the South African rand and
the Korean won, and the US dollar on the carrying value.
Goodwill has been allocated to the
Companys reportable segments as follows:
|
|
|
As of |
|
|
As of |
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
|
2014 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
$ |
26,011 |
|
$ |
28,517 |
|
|
International transaction processing |
|
118,689 |
|
|
128,427 |
|
|
Financial inclusion and applied
technologies |
|
27,537 |
|
|
29,632 |
|
|
Total |
$ |
172,237 |
|
$ |
186,576 |
|
Intangible assets, net
Carrying value and amortization
of intangible assets
Summarized below is the carrying value
and accumulated amortization of the intangible assets as of December 31, 2014
and June 30, 2014:
|
|
|
As of December 31, 2014 |
|
|
As of June 30, 2014 |
|
|
|
|
Gross |
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
Net |
|
|
|
|
carrying |
|
|
Accumulated |
|
|
carrying |
|
|
carrying |
|
|
Accumulated |
|
|
carrying |
|
|
|
|
value |
|
|
amortization |
|
|
value |
|
|
value |
|
|
amortization |
|
|
value |
|
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
$ |
90,966 |
|
$ |
(42,445 |
) |
$ |
48,521 |
|
$ |
98,676 |
|
$ |
(41,273 |
) |
$ |
57,403 |
|
|
Software and unpatented |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
technology |
|
30,966 |
|
|
(26,706 |
) |
|
4,260 |
|
|
33,604 |
|
|
(26,207 |
) |
|
7,397 |
|
|
FTS patent |
|
3,301 |
|
|
(3,301 |
) |
|
- |
|
|
3,619 |
|
|
(3,619 |
) |
|
- |
|
|
Exclusive licenses |
|
4,506 |
|
|
(4,506 |
) |
|
- |
|
|
4,506 |
|
|
(4,506 |
) |
|
- |
|
|
Trademarks |
|
6,334 |
|
|
(3,231 |
) |
|
3,103 |
|
|
6,890 |
|
|
(3,176 |
) |
|
3,714 |
|
|
Total finite-lived
intangible assets |
$ |
136,073 |
|
$ |
(80,189 |
) |
$ |
55,884 |
|
$ |
147,295 |
|
$ |
(78,781 |
) |
$ |
68,514 |
|
Aggregate amortization expense on the
finite-lived intangible assets for the three and six months ended December 31,
2014, was approximately $3.9 million and $7.7 million, respectively (three and
six months ended December 31, 2013, was approximately $4.1 million and $7.8
million, respectively).
Future estimated annual
amortization expense for the next five fiscal years and thereafter, assuming
exchange rates prevailing on December 31, 2014, 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.
|
2015 |
$ |
14,605 |
|
|
|
2016 |
|
10,920 |
|
|
|
2017 |
|
8,696 |
|
|
|
2018 |
|
8,696 |
|
|
|
2019 |
|
8,375 |
|
|
|
Thereafter |
$ |
11,644 |
|
|
12
7. |
Reinsurance assets and policy holder liabilities under
insurance and investment contracts |
Reinsurance assets and policy holder
liabilities under insurance contracts
Summarized below is the movement
in reinsurance assets and policy holder liabilities under insurance contracts
during the six months ended December 31, 2014:
|
|
|
Reinsurance |
|
|
Insurance |
|
|
|
|
assets (1) |
|
|
contracts (2) |
|
|
Balance as of June 30, 2014 |
$ |
21,062 |
|
$ |
(21,478 |
) |
|
Foreign currency adjustment
(3) |
|
(1,851 |
) |
|
1,887 |
|
|
Balance as of December 31, 2014 |
$ |
19,211 |
|
$ |
(19,591 |
) |
(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) The foreign currency
adjustment represents the effects of the fluctuations between the ZAR against
the US 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 best estimates 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 future
mortality and morbidity (an appropriate base table of standard mortality is
chosen depending on the type of contract and class of business), withdrawals
(based on recent withdrawal investigations and expected future trends),
investment returns (based on government treasury rates adjusted by an applicable
margin), expense inflation (based on a 10-year real return on CPI-linked
government bonds from the risk-free rate and adding an allowance for salary
inflation and book shrinkage of 1% per annum) and claim reporting delays (based
on average industry experience).
Assets and policy holder liabilities
under investment contracts
Summarized below is the movement in
assets and policy holder liabilities under investment contracts during the six
months ended December 31, 2014:
|
|
|
|
|
|
Investment |
|
|
|
|
Assets (1) |
|
|
contracts (2) |
|
|
Balance as of June 30, 2014 |
$ |
688 |
|
$ |
(688 |
) |
|
Foreign currency adjustment
(3) |
|
(60 |
) |
|
60 |
|
|
Balance as of December 31, 2014 |
$ |
628 |
|
$ |
(628 |
) |
(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) The foreign currency
adjustment represents the effects of the fluctuations between the ZAR against
the US dollar.
The Company does not offer any
investment products with guarantees related to capital or returns.
8. |
Short-term credit facility |
The Companys short-term credit
facilities are described in Note 12 to the Companys audited consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended June 30, 2014.
South Africa
As of December 31, 2014, and June 30,
2014, the Company had not utilized any of its ZAR 250.0 million ($21.5 million,
translated at exchange rates applicable as of December 31, 2014) overdraft
facility. As of December 31, 2014, the interest rate on the overdraft facility
was 8.10% . At December 31, 2014, the Company had utilized approximately ZAR
137.2 million ($11.8 million, translated at exchange rates applicable as of
December 31, 2014) of its ZAR 150 million indirect and derivative facilities to
obtain foreign exchange contracts from the bank and to enable the bank to issue
guarantees, including stand-by letters of credit, in order for the Company to
honor its obligations to third parties requiring such guarantees (refer to Note
17). As of June 30, 2014, the Company had utilized approximately ZAR 139.0
million ($13.1 million, translated at exchange rates applicable as of June 30,
2014) of its indirect and derivative facilities.
13
8. |
Short-term credit facility
(continued) |
Korea
The Company had not utilized any of its
KRW 10 billion ($9.1 million, translated at exchange rates applicable as of
December 31, 2014) overdraft facility as of December 31, 2014 and June 30, 2014.
As of December 31, 2014, the interest rate on the overdraft facility was 4.47% .
The facility expired in January 2015.
The Companys Korean senior secured
loan facility is described in Note 13 to the Companys audited consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended June 30, 2014. The current carrying value as of December 31, 2014, is
$59.7 million. As of December 31, 2014, the carrying amount of the long-term
borrowings approximated fair value. The interest rate in effect on December 31,
2014, was 5.24% .
Interest expense incurred during the
three and six months ended December 31, 2014 and 2013, was $0.9 million and $1.8
million; and $2.0 million and $3.6 million, respectively. Prepaid facility fees
amortized during the three and six months ended December 31, 2014 and 2013, was
$0.1 million and $0.5 million; and $0.1 million and $0.6 million, respectively.
Prepaid facility fees amortized during the three and six months ended December
31, 2013, include the remaining prepaid facility fees related to the refinanced
facility of approximately $0.4 million that were expensed.
The first scheduled principal repayment
of $14.1 million was paid on October 29, 2014. The next scheduled principal
payment of $9.1 million (translated at exchange rates applicable as of December
31, 2014) will be made on April 29, 2016.
The following table presents
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, 2014 and 2013, 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, 2014 and 2013, respectively:
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Number of shares, net of treasury: |
|
|
|
|
|
|
|
Statement of
changes in equity |
|
46,547,153 |
|
|
45,773,342 |
|
|
Less: Non-vested equity shares
that have not vested (Note 12) |
|
(524,863 |
) |
|
(569,111 |
) |
|
Number of
shares, net of treasury excluding non-vested
equity shares that have not
vested |
|
46,022,290 |
|
|
45,204,231 |
|
Common stock repurchases and
transaction with non-controlling interests
The Company did not repurchase any of
its shares during the three and six months ended December 31, 2014 and 2013,
under its share repurchase authorization. However, on August 27, 2014, the
Company entered into a Subscription and Sale of Shares Agreement with Business
Venture Investments No 1567 Proprietary Limited (RF) (BVI), one of the
Companys BEE partners, in preparation for any new potential SASSA tender.
Pursuant to the agreement: (i) the Company repurchased BVIs remaining 1,837,432
shares of the Companys common stock for approximately ZAR 97.4 million in cash
($9.2 million translated at exchange rates prevailing as of August 27, 2014) and
(ii) BVI has subscribed for new ordinary shares of Cash Paymaster Services (Pty)
Ltd (CPS) representing approximately 12.5% of CPS ordinary shares outstanding
after the subscription for ZAR 15.0 million in cash (approximately $1.4 million
translated at exchange rates prevailing as of August 27, 2014). In connection
with transactions described above, the CPS shareholder agreement that was
negotiated as part of the original December 2013 Relationship Agreement became
effective.
Acquisition of KSNET non-controlling
interests
During the three and six months ended
December 31, 2013, the Company acquired substantially all of the issued share
capital of KSNET, Inc. that it did not previously own for approximately $2.0
million in cash. After the acquisition of the additional shares, the Company
owned 99.90% of KSNET. The Company purchased the remaining shares it did not own
during the three months ended March 31, 2014. The transaction was accounted for
as an equity transaction with a non-controlling interest and accordingly, no
gain or loss was recognized in the Companys consolidated statement of
operations. The carrying amount of the non-controlling interest was adjusted to
reflect the change in ownership interest in KSNET. The difference between the
fair value of the consideration paid and the amount by which the non-controlling
interest was adjusted, of $1.5 million, was recognized in equity attributable to
Net1.
14
11. |
Accumulated other comprehensive
loss |
The table below presents the change in
accumulated other comprehensive (loss) income per component during the six
months ended December 31, 2014:
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
unrealized |
|
|
|
|
|
|
|
Accumulated |
|
|
income (loss) |
|
|
|
|
|
|
|
Foreign |
|
|
on asset |
|
|
|
|
|
|
|
currency |
|
|
available for |
|
|
|
|
|
|
|
translation |
|
|
sale, net of |
|
|
|
|
|
|
|
reserve |
|
|
tax |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2014 |
$ |
(83,359 |
) |
$ |
618 |
|
$ |
(82,741 |
) |
|
Movement in foreign currency
translation reserve |
|
(37,537 |
) |
|
- |
|
|
(37,537 |
) |
|
Unrealized
loss on asset available for sale, net of tax of $88 |
|
- |
|
|
(226 |
) |
|
(226 |
) |
|
Balance as of December 31, 2014 |
$ |
(120,896 |
) |
$ |
392 |
|
$ |
(120,504 |
) |
There were no reclassifications from
accumulated other comprehensive loss to comprehensive (loss) income during the
three and six months ended December 31, 2014 or 2013, respectively.
12. |
Stock-based compensation |
Stock option and restricted stock
activity
Options
The following table summarizes stock
option activity for the six months ended December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
|
average |
|
|
Remaining |
|
|
Aggregate |
|
|
Grant |
|
|
|
|
|
|
|
exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
Date Fair |
|
|
|
|
Number of |
|
|
price |
|
|
Term |
|
|
Value |
|
|
Value |
|
|
|
|
shares |
|
|
($) |
|
|
(in years) |
|
|
($000) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2014 |
|
2,710,392 |
|
|
14.16 |
|
|
5.38 |
|
|
3,909 |
|
|
|
|
|
Granted under Plan: August 2014 |
|
464,410 |
|
|
11.23 |
|
|
10.00 |
|
|
2,113 |
|
|
4.55 |
|
|
Exercised |
|
(688,633 |
) |
|
8.24 |
|
|
|
|
|
3,697 |
|
|
|
|
|
Outstanding December 31, 2014 |
|
2,486,169 |
|
|
15.24 |
|
|
5.20 |
|
|
1,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2013 |
|
2,648,583 |
|
|
15.15 |
|
|
5.98 |
|
|
313 |
|
|
|
|
|
Granted
under Plan: August 2013 |
|
224,896 |
|
|
7.35 |
|
|
10.00 |
|
|
568 |
|
|
2.53 |
|
|
Outstanding December 31, 2013 |
|
2,873,479 |
|
|
14.54 |
|
|
5.79 |
|
|
1,037 |
|
|
|
|
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 Companys 250 day volatility. The
estimated expected life of the option was determined based on historical
behavior of employees who were granted options with similar terms. The Company
has estimated no forfeitures for options awarded in August 2013 and 2014,
respectively.
15
12. |
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, 2014 and 2013:
|
|
|
Six months ended |
|
|
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
Expected volatility |
|
60% |
|
|
50% |
|
|
Expected dividends |
|
0% |
|
|
0% |
|
|
Expected life (in years) |
|
3 |
|
|
3 |
|
|
Risk-free rate |
|
1.0% |
|
|
0.9% |
|
There were no forfeitures during the
three and six months ended December 31, 2014 and 2013.
The following table presents stock
options vested and expecting to vest as of December 31, 2014:
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
|
Number of |
|
|
price |
|
|
Term |
|
|
Value |
|
|
|
|
shares |
|
|
($) |
|
|
(in years) |
|
|
($000) |
|
|
Vested and expecting to vest
December 31, 2014 |
|
2,486,169 |
|
|
15.24 |
|
|
5.20 |
|
|
1,842 |
|
These options have an exercise price
range of $7.35 to $24.46.
The following table presents stock
options that are exercisable as of December 31, 2014:
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
|
Number of |
|
|
price |
|
|
Term |
|
|
Value |
|
|
|
|
shares |
|
|
($) |
|
|
(in years) |
|
|
($000) |
|
|
Exercisable December 31, 2014 |
|
1,728,163 |
|
|
17.55 |
|
|
3.51 |
|
|
775 |
|
During the three months ended December
31, 2014 and 2013, respectively, 57,334 and 159,666 stock options became
exercisable. During the six months ended December 31, 2014 and 2013,
respectively, 330,967 and 358,333 stock options became exercisable. During the
six months ended December 31, 2014, the Company received approximately $1.0
million from 116,395 stock options exercised. The remaining 572,238 stock
options were exercised through recipients delivering 336,584 shares of the
Companys common stock to the Company on September 9, 2014, to settle the
exercise price due. No stock options were exercised during the three months
ended December 31, 2014, or during the three and six months ended December 31,
2013. The Company issues new shares to satisfy stock option exercises.
16
12. |
Stock-based compensation
(continued) |
Stock option and restricted stock
activity (continued)
Restricted stock
The following table summarizes
restricted stock activity for the six months ended December 31, 2014 and 2013:
|
|
|
|
|
|
Weighted |
|
|
|
|
Number of |
|
|
Average |
|
|
|
|
Shares of |
|
|
Grant Date |
|
|
|
|
Restricted |
|
|
Fair Value |
|
|
|
|
Stock |
|
|
($000) |
|
|
Non-vested June 30, 2014 |
|
385,778 |
|
|
3,534 |
|
|
Granted August 2014 |
|
141,707 |
|
|
581 |
|
|
Granted November 2014 |
|
71,530 |
|
|
229 |
|
|
Vested August 2014 |
|
(74,152 |
) |
|
828 |
|
|
Non-vested December 31, 2014
|
|
524,863 |
|
|
3,795 |
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2013 |
|
405,226 |
|
|
4,393 |
|
|
Granted August 2013 |
|
187,963 |
|
|
1,382 |
|
|
Vested August 2013 |
|
(16,907 |
) |
|
161 |
|
|
Forfeitures October 2013 |
|
(7,171 |
) |
|
161 |
|
|
Non-vested
December 31, 2013 |
|
569,111 |
|
|
5,572 |
|
The August 2014 grants comprise 127,626
and 14,081 shares of restricted stock awarded to employees and non-employee
directors, respectively. All of the November 2014 grants were awarded to
employees. The 127,626 and 71,530 shares of restricted stock will vest in full
only on the date, if any, the following conditions are satisfied: (1) the
closing price of the Companys common stock equals or exceeds $19.41 (subject to
appropriate adjustment for any stock split or stock dividend) for a period of 30
consecutive trading days during a measurement period commencing on the date that
the Company files its Annual Report on Form 10-K for the fiscal year ended 2017
and ending on December 31, 2017 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 $19.41 price target represents a 20%
increase, compounded annually, in the price of the Companys common stock on
Nasdaq over the $11.23 closing price on August 27, 2014.
The 127,626 and 71,530 shares of
restricted stock are effectively forward starting knock-in barrier options with
a strike price of zero. The fair value of these shares of restricted stock was
calculated utilizing an adjusted Monte Carlo simulation discounted cash flow
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. The
adjustment to the Monte Carlo simulation model incorporates a jump diffusion
process to the standard Geometric Brownian Motion simulation, in order to
capture the discontinuous share price jumps observed in the Companys share
price movements on stock exchanges on which it is listed. Therefore, the
simulated share price paths capture the idiosyncrasies of the observed Company
share price movements.
In scenarios where the shares do not
vest, the final vested value at maturity is zero. In scenarios where vesting
occurs, the final vested value on maturity is the share price on vesting date.
The value of the grant is the average of the discounted vested values. The
Company used an expected volatility of 76.01%, an expected life of approximately
three years, a risk-free rate of 1.27% and no future dividends in its
calculation of the fair value of the 127,626 shares of restricted stock. The
Company used an expected volatility of 63.73%, an expected life of approximately
three years, a risk-free rate of 1.21% and no future dividends in its
calculation of the fair value of the 71,530 shares of restricted stock.
Estimated expected volatility was calculated based on the Companys 30 day VWAP
share price using the exponentially weighted moving average of returns.
The fair value of restricted stock
vesting during the six months ended December 31, 2014 and 2013, respectively,
was $0.8 million and $0.2 million. The fair value of restricted stock is based
on the closing price of the Companys stock quoted on The Nasdaq Global Select
Market on the date of grant.
17
12. |
Stock-based compensation
(continued) |
Stock-based compensation charge and
unrecognized compensation cost
The Company has recorded a stock-based
compensation charge of $1.0 million during each of the three months ended
December 31, 2014 and 2013, respectively, which comprised:
|
|
|
|
|
|
Allocated to cost |
|
|
|
|
|
|
|
|
|
|
of goods sold, IT |
|
|
Allocated to |
|
|
|
|
|
|
|
processing, |
|
|
selling, general |
|
|
|
|
Total |
|
|
servicing and |
|
|
and |
|
|
|
|
charge |
|
|
support |
|
|
administration |
|
|
Three months ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charge |
$ |
1,035 |
|
$ |
- |
|
$ |
1,035 |
|
|
Total
three months ended December 31, 2014 . |
$ |
1,035 |
|
$ |
- |
|
$ |
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charge |
$ |
974 |
|
$ |
- |
|
$ |
974 |
|
|
Reversal of stock compensation charge related
to restricted stock forfeited |
|
(6 |
) |
|
- |
|
|
(6 |
) |
|
Total three months ended December 31, 2013 . |
$ |
968 |
|
$ |
- |
|
$ |
968 |
|
The Company has recorded a stock-based
compensation charge of $2.0 million and $1.9 million, respectively, during the
six months ended December 31, 2014 and 2013, which comprised:
|
|
|
|
|
|
Allocated to cost |
|
|
|
|
|
|
|
|
|
|
of goods sold, IT |
|
|
Allocated to |
|
|
|
|
|
|
|
processing, |
|
|
selling, general |
|
|
|
|
Total |
|
|
servicing and |
|
|
and |
|
|
|
|
charge |
|
|
support |
|
|
administration |
|
|
Six months ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge |
$ |
1,951 |
|
$ |
- |
|
$ |
1,951 |
|
|
Total six
months ended December 31, 2014 |
$ |
1,951 |
|
$ |
- |
|
$ |
1,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge |
$ |
1,904 |
|
$ |
- |
|
$ |
1,904 |
|
|
Reversal of stock compensation charge related to
restricted stock forfeited |
|
(6 |
) |
|
- |
|
|
(6 |
) |
|
Total six months ended December 31, 2013 |
$ |
1,898 |
|
$ |
- |
|
$ |
1,898 |
|
The stock-based compensation charges
have been allocated to selling, general and administration based on the
allocation of the cash compensation paid to the employees.
As of December 31, 2014, the total
unrecognized compensation cost related to stock options was approximately $2.4
million, which the Company expects to recognize over approximately three years.
As of December 31, 2014, the total unrecognized compensation cost related to
restricted stock awards was approximately $1.8 million, which the Company
expects to recognize over approximately two years.
As of December 31, 2014 and June 30,
2014, respectively, the Company has recorded a deferred tax asset of
approximately $1.3 million and $1.6 million related to the stock-based
compensation charge recognized related to employees and directors of Net1 as it
is able to deduct the grant date fair value for taxation purposes in the United
States.
Basic earnings per share include shares
of restricted stock that meet the definition of a participating security because
these shares are eligible to receive non-forfeitable dividend equivalents at the
same rate as common stock. Basic earnings per share have been calculated using
the two-class method and basic earnings per share for the three and six months
ended December 31, 2014 and 2013, reflects only undistributed earnings. The
computation below of basic earnings per share excludes the net income
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.
18
13. |
Earnings per share
(continued) |
Diluted 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
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 earnings per share includes the
dilutive effect of a portion of the restricted stock granted to employees in
February 2012, August 2013 and August 2014 as these shares of restricted stock
are considered contingently returnable shares for the purposes of the diluted
earnings per share calculation and the vesting conditions in respect of a
portion of the restricted stock had been satisfied. The vesting conditions are
discussed in Note 18 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2014.
The following table presents net income
attributable to Net1 (income from continuing operations) and the share data used
in the basic and diluted earnings per share computations using the two-class
method:
|
|
|
Three
months ended |
|
|
Six months
ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
(in thousands
except percent |
|
|
(in thousands
except percent |
|
|
|
|
and |
|
|
and |
|
|
|
|
per share
data) |
|
|
per share
data) |
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Net1 |
$ |
22,374 |
|
$ |
12,749 |
|
$ |
46,463 |
|
$ |
24,345 |
|
|
Undistributed
earnings |
|
22,374 |
|
|
12,749 |
|
|
46,463 |
|
|
24,345 |
|
|
Percent allocated to common
shareholders
(Calculation 1) |
|
99% |
|
|
99% |
|
|
99% |
|
|
99% |
|
|
Numerator for
earnings per share: basic and diluted |
$ |
22,102 |
|
$ |
12,594 |
|
$ |
45,947 |
|
$ |
24,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average common shares outstanding |
|
45,953 |
|
|
45,221 |
|
|
46,352 |
|
|
45,218 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
125 |
|
|
156 |
|
|
117 |
|
|
113 |
|
|
Denominator for diluted earnings
per
share:
adjusted weighted
average common
shares outstanding and
assumed conversion |
|
46,078 |
|
|
45,377 |
|
|
46,469 |
|
|
45,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.48 |
|
$ |
0.28 |
|
$ |
0.99 |
|
$ |
0.53 |
|
|
Diluted |
$ |
0.48 |
|
$ |
0.28 |
|
$ |
0.99 |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common
shares
outstanding (A) |
|
45,953 |
|
|
45,221 |
|
|
46,352 |
|
|
45,218 |
|
|
Basic
weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B) |
|
46,519 |
|
|
45,776 |
|
|
46,873 |
|
|
45,725 |
|
|
Percent allocated to common
shareholders (A) / (B) |
|
99% |
|
|
99% |
|
|
99% |
|
|
99% |
|
Options to purchase 1,858,853 shares of
the Companys common stock at prices ranging from $11.23 to $24.46 per share
were outstanding during the three and six months ended December 31, 2014, but
were not included in the computation of diluted earnings per share because the
options exercise price were greater than the average market price of the
Companys common stock. The options, which expire at various dates through
August 27, 2024, were still outstanding as of December 31, 2014.
19
14. |
Supplemental cash flow
information |
The following table presents
supplemental cash flow disclosures for the three and six months ended December
31, 2014 and 2013:
|
|
|
Three months ended
|
|
|
Six months ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Cash received from interest |
$ |
3,577 |
|
$ |
3,223 |
|
$ |
7,740 |
|
$ |
6,464 |
|
|
Cash paid for interest |
$ |
1,195 |
|
$ |
2,027 |
|
$ |
2,413 |
|
$ |
3,666 |
|
|
Cash paid for income taxes |
$ |
20,393 |
|
$ |
14,029 |
|
$ |
25,553 |
|
$ |
14,527 |
|
The sale of the Companys NUETS
business is described in Note 19 to its audited consolidated financial
statements included in its Annual Report on Form 10-K for the year ended June
30, 2014. The Company received cash sale proceeds of $1.9 million related to
this transaction in July 2014.
As discussed in Note 12, during the six
months ended December 31, 2014, employees exercised stock options through the
delivery 336,584 shares of the Companys common stock at the closing price on
September 9, 2014 or $13.93 under the terms of their option agreements. These
shares are included in the Companys total share count and amount reflected as
treasury shares on the unaudited condensed consolidated balance sheet as of
December 31, 2014 and unaudited condensed consolidated statement of changes in
equity for the six months ended December 31, 2014.
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 Companys operating segments is contained in Note
23 to the Companys audited consolidated financial statements included in its
Annual Report on Form 10-K for the year ended June 30, 2014.
The reconciliation of the reportable
segments revenue to revenue from external customers for the three months ended
December 31, 2014 and 2013, respectively, is as follows:
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
From |
|
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
|
South African transaction processing
|
$ |
58,427 |
|
$ |
5,437 |
|
$ |
52,990 |
|
|
International transaction processing |
|
40,466 |
|
|
- |
|
|
40,466 |
|
|
Financial inclusion and applied
technologies |
|
67,531 |
|
|
6,856 |
|
|
60,675 |
|
|
Total for the three months ended December 31,
2014 |
|
166,424 |
|
|
12,293 |
|
|
154,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
58,754 |
|
|
2,280 |
|
|
56,474 |
|
|
International transaction processing
|
|
37,738 |
|
|
- |
|
|
37,738 |
|
|
Financial inclusion and applied technologies |
|
50,480 |
|
|
7,409 |
|
|
43,071 |
|
|
Total for the three months
ended December 31, 2013 |
$ |
146,972 |
|
$ |
9,689 |
|
$ |
137,283 |
|
The reconciliation of the reportable
segments revenue to revenue from external customers for the six months ended
December 31, 2014 and 2013, respectively, is as follows:
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
From |
|
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
|
South African transaction processing
|
$ |
118,679 |
|
$ |
10,558 |
|
$ |
108,121 |
|
|
International transaction processing |
|
83,670 |
|
|
- |
|
|
83,670 |
|
|
Financial inclusion and applied
technologies |
|
132,728 |
|
|
13,947 |
|
|
118,781 |
|
|
Total for the six months ended December 31,
2014 |
$ |
335,077 |
|
$ |
24,505 |
|
$ |
310,572 |
|
20
15. |
Operating segments
(continued) |
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
From |
|
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
|
South African transaction processing |
$ |
115,915 |
|
$ |
2,980 |
|
$ |
112,935 |
|
|
International transaction processing |
|
75,279 |
|
|
- |
|
|
75,279 |
|
|
Financial inclusion and applied
technologies |
|
87,276 |
|
|
14,713 |
|
|
72,563 |
|
|
Total for the six months ended December 31, 2013 |
$ |
278,470 |
|
$ |
17,693 |
|
$ |
260,777 |
|
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 measure of profit or loss to income
before income taxes for the three and six months ended December 31, 2014 and
2013, respectively, is as follows:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Reportable segments measure of profit or loss |
$ |
36,453 |
|
$ |
25,532 |
|
$ |
75,048 |
|
$ |
50,352 |
|
|
Operating income: Corporate/Eliminations |
|
(5,638 |
) |
|
(6,730 |
) |
|
(11,108 |
) |
|
(15,150 |
) |
|
Interest income |
|
3,587 |
|
|
3,236 |
|
|
7,677 |
|
|
6,555 |
|
|
Interest expense |
|
(1,107 |
) |
|
(2,226 |
) |
|
(2,419 |
) |
|
(3,978 |
)
|
|
Income before income
taxes |
$ |
33,295 |
|
$ |
19,812 |
|
$ |
69,198 |
|
$ |
37,779 |
|
The following tables summarize segment
information which is prepared in accordance with GAAP for the three and six
months ended December 31, 2014 and 2013:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$ |
58,427 |
|
$ |
58,754 |
|
$ |
118,679 |
|
$ |
115,915 |
|
|
International transaction processing
|
|
40,466 |
|
|
37,738 |
|
|
83,670 |
|
|
75,279 |
|
|
Financial inclusion and applied
technologies |
|
67,531 |
|
|
50,480 |
|
|
132,728 |
|
|
87,276 |
|
|
Total |
|
166,424 |
|
|
146,972 |
|
|
335,077 |
|
|
278,470 |
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
12,883 |
|
|
7,128 |
|
|
26,522 |
|
|
13,589 |
|
|
International transaction processing
|
|
5,743 |
|
|
5,139 |
|
|
13,092 |
|
|
10,663 |
|
|
Financial inclusion and applied
technologies |
|
17,827 |
|
|
13,265 |
|
|
35,434 |
|
|
26,100 |
|
|
Subtotal: Operating segments |
|
36,453 |
|
|
25,532 |
|
|
75,048 |
|
|
50,352 |
|
|
Corporate/Eliminations
|
|
(5,638 |
) |
|
(6,730 |
) |
|
(11,108 |
) |
|
(15,150 |
)
|
|
Total |
|
30,815 |
|
|
18,802 |
|
|
63,940 |
|
|
35,202 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
1,823 |
|
|
1,949 |
|
|
3,545 |
|
|
3,822 |
|
|
International transaction processing
|
|
4,292 |
|
|
3,604 |
|
|
8,664 |
|
|
7,863 |
|
|
Financial inclusion and applied
technologies |
|
203 |
|
|
174 |
|
|
382 |
|
|
323 |
|
|
Subtotal: Operating segments |
|
6,318 |
|
|
5,727 |
|
|
12,591 |
|
|
12,008 |
|
|
Corporate/Eliminations |
|
3,839 |
|
|
4,047 |
|
|
7,740 |
|
|
7,795 |
|
|
Total
|
$ |
10,157 |
|
$ |
9,774 |
|
$ |
20,331 |
|
$ |
19,803 |
|
21
15. |
Operating segments
(continued) |
|
|
|
Three months ended
|
|
|
Six months ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Expenditures for long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
$ |
1,482 |
|
$ |
2,044 |
|
$ |
2,164 |
|
$ |
2,600 |
|
|
International transaction processing |
|
7,279 |
|
|
4,685 |
|
|
15,606 |
|
|
9,516 |
|
|
Financial inclusion and applied technologies
|
|
376 |
|
|
116 |
|
|
745 |
|
|
345 |
|
|
Subtotal: Operating segments
|
|
9,137 |
|
|
6,845 |
|
|
18,515 |
|
|
12,461 |
|
|
Corporate/Eliminations |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Total |
$ |
9,137 |
|
$ |
6,845 |
|
$ |
18,515 |
|
$ |
12,461 |
|
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.
It is impractical to disclose revenues
from external customers for each product and service or each group of similar
products and services.
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 or extraordinary 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, 2014, the tax charge was calculated using the expected effective
tax rate for the year. The Companys effective tax rate for the three and six
months ended December 31, 2014, was 30.6% and 31.6%, respectively, and was
higher than the South African statutory rate primarily as a result of
non-deductible expenses (including consulting and legal fees, interest expense
related to the Companys long-term Korean borrowings and stock-based
compensation charges).
The Companys effective tax rate for
the three and six months ended December 31, 2013, was 35.8% and 35.9%,
respectively, and was higher than the South African statutory rate primarily as
a result of non-deductible expenses (including interest expense related to the
Companys long-term Korean borrowings and stock-based compensation charges).
Uncertain tax positions
There were no changes during the three
and six months ended December 31, 2014. As of December 31, 2014, the Company had
accrued interest related to uncertain tax positions of approximately $0.2
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, 2014 and June 30,
2014, respectively the Company has unrecognized tax benefits of $1.1 million and
$1.2 million, all of which would impact the Companys effective tax rate. The
Company files income tax returns mainly in South Africa, South Korea, Austria,
Botswana and in the US federal jurisdiction. As of December 31, 2014, the
Companys South African subsidiaries are no longer subject to income tax
examination by the South African Revenue Service for periods before June 30,
2010. 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.
22
17. |
Commitments and
contingencies |
Guarantees
The South African Revenue Service and
certain of the Companys 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 135.0 million ($11.6 million, translated at
exchange rates applicable as of December 31, 2014) and thereby utilizing part of
the Companys short-term facility. The Company in turn has provided nonrecourse,
unsecured counter-guarantees to Nedbank for ZAR 125.0 million ($10.8 million,
translated at exchange rates applicable as of December 31, 2014). The Company
pays commission of between 0.2% per annum to 2.0% per annum of the face value of
these guarantees and does not recover any of the commission from third
parties.
The Company has not recognized any
obligation related to these counter-guarantees in its consolidated balance sheet
as of December 31, 2014 and June 30, 2014. The maximum potential amount that the
Company could pay under these guarantees is ZAR 135.0 million ($11.6 million,
translated at exchange rates applicable as of December 31, 2014). The guarantees
have reduced the amount available for borrowings under the Companys short-term
credit facility described in Note 8.
Contingencies
Securities Litigation
On January 16, 2015, the Company filed
a motion to dismiss plaintiffs amended complaint for failure to state a claim.
Plaintiff has until March 6, 2015 to file an opposition to the Companys motion.
The Company continues to believe this lawsuit has no merit and intends to defend
it vigorously.
The Company is subject to a variety of
insignificant claims and suits that arise from time to time in the ordinary
course of business.
Management currently believes that the
resolution of these matters, individually or in the aggregate, will not have a
material adverse impact on the Companys financial position, results of
operations and cash flows.
23
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should
be read in conjunction with our Annual Report on Form 10-K for the year ended
June 30, 2014, and the unaudited condensed consolidated financial statements and
the accompanying notes included in this Form 10-Q.
Forward-looking statements
Some of the statements in this
Form 10-Q constitute forward-looking statements. These statements relate to
future events or our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our or our industrys
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed, implied or inferred by these forward-looking statements.
Such factors include, among other things, those listed under Item 1A.Risk
Factors and elsewhere in our Annual Report on Form 10-K for the year ended June
30, 2014, and Item 1A.Risk Factors and elsewhere in this Form 10-Q. In some
cases, you can identify forward-looking statements by terminology such as may,
will, should, could, would, expects, plans, intends,
anticipates, believes, estimates, predicts, potential or continue or
the negative of such terms and other comparable terminology.
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we do
not know whether we can achieve positive future results, levels of activity,
performance, or goals. Actual events or results may differ materially. We
undertake no obligation to update any of the forward-looking statements after
the date of this Form 10-Q to conform those statements to reflect the occurrence
of unanticipated events, except as required by applicable law.
You should read this Form 10-Q
and the documents that we reference herein and the documents we have filed as
exhibits hereto and which we have filed with the Securities and Exchange
Commission completely and with the understanding that our actual future results,
levels of activity, performance and achievements may be materially different
from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
Recent Developments
New SASSA tender
process
As ordered by the South African
Constitutional Court in its April 2014 ruling, SASSA has initiated a new tender
process for a five-year contract for the payment of social grants. SASSA issued
an initial request for proposals (RFP) on October 22, 2014, which required
bidders to submit proposals by December 12, 2014. However, following a detailed
analysis of the tender specifications, we concluded that the tender
specifications were not sufficiently clear regarding a number of critical points
and failed to comply with the RFP requirements specified in the Court's order.
We wrote a letter to SASSA, requesting that the RFP be withdrawn, corrected and
reissued. SASSA declined our request. We then applied to the Court on November
6, 2014, for an order setting aside the RFP and directing SASSA to issue a
corrected RFP. We initiated the request to SASSA, and subsequently to the Court,
in order to ensure that there is no ambiguity in the tender specifications or
conflict with the Court's April 2014 remedy order in an attempt to reduce the
likelihood of another prolonged legal challenge should SASSA award a new tender.
SASSA and AllPay (an unsuccessful bidder during the previous RFP and a party to
the Court's April 2014 ruling) opposed our application.
Following the submission of
further affidavits and arguments to the Court, on December 5, 2014, the Court
ordered SASSA to (1) extend the deadline for the submission of bids to February
27, 2015, (2) circulate and file with the Court a draft amended RFP by December
20, 2014 and (3) issue a bidders notice calling for bidders to furnish SASSA
with objections or questions to the draft amended RFP by January 15, 2015. The
Court also permitted litigating parties to file further affidavits or
submissions by January 27, 2015.
On December 8, 2014, SASSA
extended the bid deadline as ordered and on December 20, 2014, it issued a draft
amended RFP. We analyzed the draft amended RFP in detail and believed that its
specifications were still not sufficiently clear and that it still failed to
comply with the RFP requirements contained in the Courts April 2014 order. We
submitted a list of questions and objections to SASSA on January 15, 2015. SASSA
replied to us on January 19, 2015. However, in our view, SASSA did not provide
sufficient answers to our questions and objections and we therefore submitted a
further affidavit to the Court on January 20, 2015, requesting the Court to set
aside the RFP and to order SASSA to issue a new RFP that complies with the
Courts 2014 ruling. On the same day, SASSA and AllPay submitted affidavits
asking the Court to dismiss our objections and to allow SASSA to proceed with
the amended RFP. Also on January 20, 2015, SASSA issued a second amended RFP. On
January 27, 2015, we made a further submission to the Court arguing that the
second amended RFP remains vague and uncertain in several respect and
non-compliant with the Courts December 5, 2014 order. SASSA and AllPay have
also made further submissions again asking the Court to dismiss our objections
and to allow SASSA to proceed with the second amended RFP. We cannot predict
when or how the Court will rule on our application.
24
We intend to participate in the
tender and to submit a bid. We cannot predict the timing of the tender process
or what the outcome will be.
See Part II, Item 1A.Risk
Factors, for additional details.
Critical Accounting Policies
Our unaudited condensed
consolidated financial statements have been prepared in accordance with US GAAP,
which requires management to make estimates and assumptions about future events
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities. As future events and their effects cannot be
determined with absolute certainty, the determination of estimates requires
managements judgment based on a variety of assumptions and other determinants
such as historical experience, current and expected market conditions and
certain scientific evaluation techniques.
Critical accounting policies are
those that reflect significant judgments or uncertainties, and potentially may
result in materially different results under different assumptions and
conditions. Management has identified the following critical accounting policies
that are described in more detail in our Annual Report on Form 10-K for the year
ended June 30, 2014:
- Business combinations and the recoverability of goodwill;
- Intangible assets acquired through acquisitions;
- Deferred taxation;
- Stock-based compensation and equity instrument issued pursuant to BEE
transaction;
- Accounts receivable and allowance for doubtful accounts receivable; and
- Research and development.
Recent
accounting pronouncements adopted
Refer
to Note 1 to our unaudited condensed consolidated financial statements for
a full description of recent accounting pronouncements adopted, including the
dates of adoption and the effects on our condensed consolidated financial
statements.
Recent accounting
pronouncements not yet adopted as of December 31, 2014
Refer to Note 1 to
our unaudited condensed consolidated financial statements for a full description
of recent accounting pronouncements not yet adopted as of December 31, 2014,
including the expected dates of adoption and effects on our financial condition,
results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange
rates
The actual exchange rates for
and at the end of the periods presented were as follows:
Table 1
|
|
Three months ended
|
|
|
Six months ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
ZAR : $ average exchange rate |
|
11.2236 |
|
|
10.1603 |
|
|
10.9909 |
|
|
10.0809 |
|
|
10.3798 |
|
Highest ZAR : $ rate during period |
|
11.6941 |
|
|
10.5730 |
|
|
11.6941 |
|
|
10.5730 |
|
|
11.2579 |
|
Lowest ZAR : $ rate during period |
|
10.8651 |
|
|
9.7143 |
|
|
10.5128 |
|
|
9.5436 |
|
|
9.6259 |
|
Rate at end of period |
|
11.6088 |
|
|
10.5037 |
|
|
11.6088 |
|
|
10.5037 |
|
|
10.5887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW : $ average exchange rate |
|
1,088 |
|
|
1,065 |
|
|
1,057 |
|
|
1,089 |
|
|
1,068 |
|
Highest KRW : $ rate during period |
|
1,122 |
|
|
1,077 |
|
|
1,122 |
|
|
1,152 |
|
|
1,147 |
|
Lowest KRW : $ rate during period |
|
1,048 |
|
|
1,031 |
|
|
1,009 |
|
|
1,031 |
|
|
1,014 |
|
Rate at end of period |
|
1,098 |
|
|
1,063 |
|
|
1,098 |
|
|
1,063 |
|
|
1,014 |
|
25
26
Translation exchange rates for financial reporting purposes
We are required to translate our
results of operations from ZAR and KRW to US dollars on a monthly basis. Thus,
the average rates used to translate this data for the three and six months ended
December 31, 2014 and 2013, vary slightly from the averages shown in the table
above. The translation rates we use in presenting our results of operations are
the rates shown in the following table:
Table 2
|
|
Three months ended
|
|
|
Six months ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
Income and expense items: $1 = ZAR |
|
11.2066 |
|
|
10.1592 |
|
|
10.9688 |
|
|
10.0809 |
|
|
10.3966 |
|
Income and expense items: $1 = KRW |
|
1,051 |
|
|
1,021 |
|
|
1,036 |
|
|
1,087 |
|
|
1,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items: $1 = ZAR |
|
11.6088 |
|
|
10.5037 |
|
|
11.6088 |
|
|
10.5037 |
|
|
10.5887 |
|
Balance sheet items: $1 = KRW |
|
1,098 |
|
|
1,063 |
|
|
1,098 |
|
|
1,063 |
|
|
1,014 |
|
Results of operations
The discussion of our
consolidated overall results of operations is based on amounts as reflected in
our unaudited condensed consolidated financial statements which are prepared in
accordance with US GAAP. We analyze our results of operations both in US
dollars, as presented in the consolidated financial statements, and
supplementally in ZAR, because ZAR is the functional currency of the entities
which contribute the majority of our profits and is the currency in which the
majority of our transactions are initially incurred and measured. Due to the
significant impact of currency fluctuations between the US dollar and ZAR on our
reported results and because we use the US dollar as our reporting currency, we
believe that the supplemental presentation of our results of operations in ZAR
is useful to investors to understand the changes in the underlying trends of our
business.
Fiscal 2015 does not include
MediKredit and the NUETS business and fiscal 2014 includes MediKredit and the
NUETS business for the entire period.
Our operating segment revenue
presented in Results of operations by operating segment represents total
revenue per operating segment before inter-segment eliminations. A
reconciliation between total operating segment revenue and revenue presented in
our consolidated financial statements is included in Note 15 to those
statements.
We analyze our business and
operations in terms of three inter-related but independent operating segments:
(1) South African transaction processing, (2) International transaction
processing and (3) Financial inclusion and applied technologies. In addition,
corporate and corporate office activities that are impracticable to ascribe
directly to any of the other operating segments, as well as any inter-segment
eliminations, are included in corporate/eliminations.
Second quarter of fiscal 2015 compared to second quarter of
fiscal 2014
The following factors had a
significant influence on our results of operations during the second quarter of
fiscal 2015 as compared with the same period in the prior year:
- Unfavorable impact from the strengthening of the US dollar against
the ZAR: The US dollar appreciated by 10% against the ZAR during the
second quarter of fiscal 2015, which negatively impacted our reported results;
- Increased contribution by KSNET: Our results were positively
impacted by growth in our Korean operations;
- Increase in the number of SASSA grants paid: Our revenue and
operating income has increased as a result of the higher number of SASSA
UEPS/EMV cardholders paid during fiscal 2015 compared with 2014; and
- Continued growth in financial inclusion services: We
continued to grow our financial inclusion services offerings during the second
quarter of fiscal 2015, which has resulted in higher revenues and operating
income from more sales of low-margin prepaid airtime and UEPS-based lending.
27
Consolidated overall results of
operations
This discussion is based on the
amounts which were prepared in accordance with US GAAP.
The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:
Table 3
|
|
In United States
Dollars |
|
|
|
|
|
|
(US GAAP) |
|
|
|
|
|
|
Three months ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
$ % |
|
|
|
$ 000 |
|
|
$ 000 |
|
|
change |
|
Revenue |
|
154,131 |
|
|
137,283 |
|
|
12% |
|
Cost of goods sold, IT processing, servicing and
support |
|
71,774 |
|
|
67,883 |
|
|
6% |
|
Selling, general and administration |
|
41,385 |
|
|
40,824 |
|
|
1% |
|
Depreciation and amortization |
|
10,157 |
|
|
9,774 |
|
|
4% |
|
Operating income |
|
30,815 |
|
|
18,802 |
|
|
64% |
|
Interest income |
|
3,587 |
|
|
3,236 |
|
|
11% |
|
Interest expense |
|
1,107 |
|
|
2,226 |
|
|
(50% |
) |
Income before income tax expense |
|
33,295 |
|
|
19,812 |
|
|
68% |
|
Income tax expense |
|
10,203 |
|
|
7,099 |
|
|
44% |
|
Net income before earnings from equity-accounted
investments |
|
23,092 |
|
|
12,713 |
|
|
82% |
|
Earnings from equity-accounted
investments |
|
76 |
|
|
47 |
|
|
62% |
|
Net income |
|
23,168 |
|
|
12,760 |
|
|
82% |
|
Less net income attributable to
non-controlling interest |
|
794 |
|
|
11 |
|
|
nm |
|
Net income attributable to us |
|
22,374 |
|
|
12,749 |
|
|
75% |
|
Table 4
|
|
In South African Rand
|
|
|
|
|
|
|
(US GAAP) |
|
|
|
|
|
|
Three months ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
ZAR |
|
|
ZAR |
|
|
ZAR % |
|
|
|
000 |
|
|
000 |
|
|
change |
|
Revenue |
|
1,727,284 |
|
|
1,394,685 |
|
|
24% |
|
Cost of goods sold, IT processing, servicing and
support |
|
804,342 |
|
|
689,636 |
|
|
17% |
|
Selling, general and administration |
|
463,785 |
|
|
414,740 |
|
|
12% |
|
Depreciation and amortization |
|
113,825 |
|
|
99,296 |
|
|
15% |
|
Operating income |
|
345,332 |
|
|
191,013 |
|
|
81% |
|
Interest income |
|
40,198 |
|
|
32,875 |
|
|
22% |
|
Interest expense |
|
12,406 |
|
|
22,614 |
|
|
(45% |
) |
Income before income tax expense |
|
373,124 |
|
|
201,274 |
|
|
85% |
|
Income tax expense |
|
114,341 |
|
|
72,120 |
|
|
59% |
|
Net income before earnings from equity-accounted
investments |
|
258,783 |
|
|
129,154 |
|
|
100% |
|
Earnings from equity-accounted
investments |
|
852 |
|
|
477 |
|
|
79% |
|
Net income |
|
259,635 |
|
|
129,631 |
|
|
100% |
|
Less net income attributable to
non-controlling interest |
|
8,898 |
|
|
112 |
|
|
nm |
|
Net income attributable to us |
|
250,737 |
|
|
129,519 |
|
|
94% |
|
The increase in revenue was
primarily due to higher prepaid airtime sales, more low-margin transaction fees
generated from beneficiaries using the South African National Payment System, an
increase in the number of UEPS-based loans, an increase in the number of SASSA
UEPS/ EMV cardholders paid and a higher contribution from KSNET.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
incurred from increased usage of the South African National Payment System by
beneficiaries and higher prepaid airtime.
In ZAR, our selling, general and
administration expense increased due to increases in goods and services
purchased from third parties.
Our operating income margin for
second quarter of fiscal 2015 and 2014 was 20% and 14%, respectively. We discuss
the components of operating income margin under Results of operations by
operating segment. The increase is primarily attributable to higher volumes of
transaction in South Africa, including prepaid airtime sales, lending and SASSA
grants paid.
28
Depreciation and amortization
were higher primarily as a result of an increase in depreciation related to more
terminals used to provide transaction processing in Korea, which was partially
offset by no Eason intangible asset amortization as these intangible assets were
fully amortized at the end of June 2014.
Interest on surplus cash
increased to $3.6 million (ZAR 40.2 million) from $3.2 million (ZAR 32.9
million), due primarily to higher average daily ZAR cash balances.
Interest expense decreased to
$1.1 million (ZAR 12.4 million) from $2.2 million (ZAR 22.6 million), due to a
lower average long-term debt balance on our South Korean debt and a lower
interest rate.
Fiscal 2015 tax expense was $10.2
million (ZAR 114.3 million) compared to $7.1 million (ZAR 72.1 million) in
fiscal 2014. Our effective tax rate for fiscal 2015, was 30.6% and was higher
than the South African statutory rate as a result of non-deductible expenses
(including consulting and legal fees, the interest expense related to our
long-term South Korean borrowings and stock-based compensation charges). Our
effective tax rate for fiscal 2014, was 35.8% and was higher than the South
African statutory rate as a result of non-deductible expenses (including
interest expense related to our long-term Korean borrowings and stock-based
compensation charges).
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income are illustrated
below
Table 5
|
|
|
|
|
In United States Dollars (US GAAP) |
|
|
|
|
|
|
|
|
|
Three months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
% of |
|
|
2013 |
|
|
% of |
|
|
% |
|
Operating Segment |
|
$ 000 |
|
|
total |
|
|
$ 000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
58,427 |
|
|
38% |
|
|
58,754 |
|
|
43% |
|
|
(1% |
) |
International transaction processing |
|
40,466 |
|
|
26% |
|
|
37,738 |
|
|
27% |
|
|
7% |
|
Financial inclusion and applied
technologies |
|
67,531 |
|
|
44% |
|
|
50,480 |
|
|
37% |
|
|
34% |
|
Subtotal: Operating
segments |
|
166,424 |
|
|
108% |
|
|
146,972 |
|
|
107% |
|
|
13% |
|
Intersegment eliminations |
|
(12,293 |
) |
|
(8% |
) |
|
(9,689 |
) |
|
(7% |
) |
|
27% |
|
Consolidated revenue |
|
154,131 |
|
|
100% |
|
|
137,283 |
|
|
100% |
|
|
12% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
12,883 |
|
|
42% |
|
|
7,128 |
|
|
38% |
|
|
81% |
|
International transaction processing |
|
5,743 |
|
|
19% |
|
|
5,139 |
|
|
27% |
|
|
12% |
|
Financial inclusion and applied technologies |
|
17,827 |
|
|
58% |
|
|
13,265 |
|
|
71% |
|
|
34% |
|
Subtotal:
Operating segments |
|
36,453 |
|
|
119% |
|
|
25,532 |
|
|
136% |
|
|
43% |
|
Corporate/Eliminations |
|
(5,638 |
) |
|
(19% |
) |
|
(6,730 |
) |
|
(36% |
) |
|
(16% |
) |
Consolidated operating income |
|
30,815 |
|
|
100% |
|
|
18,802 |
|
|
100% |
|
|
64% |
|
Table 6
|
|
|
|
|
In South African Rand (US GAAP) |
|
|
|
|
|
|
|
|
|
Three months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
ZAR |
|
|
% of |
|
|
ZAR |
|
|
% of |
|
|
% |
|
Operating Segment |
|
000 |
|
|
total |
|
|
000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
654,768 |
|
|
38% |
|
|
596,894 |
|
|
43% |
|
|
10% |
|
International transaction processing |
|
453,486 |
|
|
26% |
|
|
383,388 |
|
|
27% |
|
|
18% |
|
Financial inclusion and applied
technologies |
|
756,793 |
|
|
44% |
|
|
512,836 |
|
|
37% |
|
|
48% |
|
Subtotal: Operating
segments |
|
1,865,047 |
|
|
108% |
|
|
1,493,118 |
|
|
107% |
|
|
25% |
|
Intersegment eliminations |
|
(137,763 |
) |
|
(8% |
) |
|
(98,433 |
) |
|
(7% |
) |
|
40% |
|
Consolidated revenue |
|
1,727,284 |
|
|
100% |
|
|
1,394,685 |
|
|
100% |
|
|
24% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
144,375 |
|
|
42% |
|
|
72,414 |
|
|
38% |
|
|
99% |
|
International transaction processing |
|
64,360 |
|
|
19% |
|
|
52,208 |
|
|
27% |
|
|
23% |
|
Financial inclusion and applied technologies |
|
199,780 |
|
|
58% |
|
|
134,762 |
|
|
71% |
|
|
48% |
|
Subtotal:
Operating segments |
|
408,515 |
|
|
119% |
|
|
259,384 |
|
|
136% |
|
|
57% |
|
Corporate/Eliminations |
|
(63,183 |
) |
|
(19% |
) |
|
(68,371 |
) |
|
(36% |
) |
|
(8% |
) |
Consolidated operating income |
|
345,332 |
|
|
100% |
|
|
191,013 |
|
|
100% |
|
|
81% |
|
29
South African transaction processing
In ZAR, the increase in segment
revenues was primarily due to more low-margin transaction fees generated from
beneficiaries using the South African National Payment System and more
inter-segment transaction processing activities. In addition, revenue from the
distribution of social welfare grants grew modestly during the year and was
in-line with the increase in unique welfare cardholder recipients, net of
removal of invalid and fraudulent beneficiaries, partially offset by the loss of
MediKredit revenue as a result of the sale of that business.
Our operating income margin for
the second quarter of fiscal 2015 and 2014 was 22% and 12%, respectively, and
has increased primarily due to more higher-margin inter-segment transaction
processing activities, the elimination of MediKredit losses and an increase in
the number of beneficiaries paid in fiscal 2015.
International transaction-based activities
Revenue and operating income
increased primarily due to higher transaction volume at KSNET during the second
quarter of fiscal 2015. Operating income and margin for the second quarter of
fiscal 2015, was negatively impacted by ad hoc incentives provided to staff due
to the strong operating performance of KSNET during calendar 2014. Operating
income margin for the segment is lower than for most of our South African
transaction processing businesses. Operating income margin for each of the
second quarter of fiscal 2015 and 2014, was 14%
Financial inclusion and applied technologies
Financial inclusion and applied
technologies revenue and operating income increased primarily due to higher
prepaid airtime sales driven by the rollout of our prepaid airtime product, an
increase in the number of UEPS-based loans as we rolled out our product
nationally, and, in ZAR, an increase in intersegment revenues. Smart Life did
not contribute to operating income in fiscal 2015 and 2014 due to the FSB
suspension of its license.
Operating income margin for the
Financial inclusion and applied technologies segment was 26% during each of the
second quarter of fiscal 2015 and 2014, respectively.
Corporate/ Eliminations
Our corporate expenses generally
include acquisition-related intangible asset amortization; expenditure related
to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors fees;
employee and executive bonuses; stock-based compensation; legal fees; audit
fees; directors and officers insurance premiums; telecommunications expenses;
property-related expenditures including utilities, rental, security and
maintenance; and elimination entries.
The decrease in our corporate
expenses was primarily due to lower US government investigations-related and US
lawsuit expenses, audit fees and other corporate head office-related
expenses.
First half of fiscal 2015 compared to first half of fiscal
2014
The following factors had a
significant influence on our results of operations during the first half of
fiscal 2015 as compared with the same period in the prior year:
- Unfavorable impact from the strengthening of the US dollar against
the ZAR: The US dollar appreciated by 9% against the ZAR during the
first half of fiscal 2015, which negatively impacted our reported results;
- Increased contribution by KSNET: Our results were positively
impacted by growth in our Korean operations;
- Increase in the number of SASSA grants paid: Our revenue and
operating income has increased as a result of the higher number of SASSA
UEPS/EMV cardholders paid during fiscal 2015 compared with 2014; and
- Continued growth in financial inclusion services: We
continued to grow our financial inclusion services offerings during the first
half of fiscal 2015, which has resulted in higher revenues and operating
income from more sales of low-margin prepaid airtime and UEPS-based lending.
30
Consolidated overall results of
operations
This discussion is based on the
amounts which were prepared in accordance with US GAAP.
The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:
Table 7
|
|
In United States
Dollars |
|
|
|
|
|
|
(US GAAP) |
|
|
|
|
|
|
Six months ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
$ % |
|
|
|
$ 000 |
|
|
$ 000 |
|
|
change |
|
Revenue |
|
310,572 |
|
|
260,777 |
|
|
19% |
|
Cost of goods sold, IT processing, servicing and
support |
|
146,180 |
|
|
124,442 |
|
|
17% |
|
Selling, general and administration
|
|
80,121 |
|
|
81,330 |
|
|
(1% |
) |
Depreciation and amortization |
|
20,331 |
|
|
19,803 |
|
|
3% |
|
Operating income |
|
63,940 |
|
|
35,202 |
|
|
82% |
|
Interest income |
|
7,677 |
|
|
6,555 |
|
|
17% |
|
Interest expense |
|
2,419 |
|
|
3,978 |
|
|
(39% |
) |
Income before income tax expense |
|
69,198 |
|
|
37,779 |
|
|
83% |
|
Income tax expense |
|
21,851 |
|
|
13,584 |
|
|
61% |
|
Net income before earnings from equity-accounted
investments |
|
47,347 |
|
|
24,195 |
|
|
96% |
|
Earnings from equity-accounted
investments |
|
168 |
|
|
150 |
|
|
12% |
|
Net income |
|
47,515 |
|
|
24,345 |
|
|
95% |
|
Less net income attributable to
non-controlling interest |
|
1,052 |
|
|
- |
|
|
nm |
|
Net income attributable to us |
|
46,463 |
|
|
24,345 |
|
|
91% |
|
Table 8
|
|
In South African Rand
|
|
|
|
|
|
|
(US GAAP) |
|
|
|
|
|
|
Six months ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
ZAR |
|
|
ZAR |
|
|
ZAR % |
|
|
|
000 |
|
|
000 |
|
|
change |
|
Revenue |
|
3,406,601 |
|
|
2,628,867 |
|
|
30% |
|
Cost of goods sold, IT processing, servicing and
support |
|
1,603,419 |
|
|
1,254,488 |
|
|
28% |
|
Selling, general and administration
|
|
878,830 |
|
|
819,880 |
|
|
7% |
|
Depreciation and amortization |
|
223,006 |
|
|
199,633 |
|
|
12% |
|
Operating income |
|
701,346 |
|
|
354,866 |
|
|
98% |
|
Interest income |
|
84,207 |
|
|
66,080 |
|
|
27% |
|
Interest expense |
|
26,534 |
|
|
40,102 |
|
|
(34% |
) |
Income before income tax expense |
|
759,019 |
|
|
380,844 |
|
|
99% |
|
Income tax expense |
|
239,679 |
|
|
136,939 |
|
|
75% |
|
Net income before earnings from equity-accounted
investments |
|
519,340 |
|
|
243,905 |
|
|
113% |
|
Earnings from equity-accounted
investments |
|
1,843 |
|
|
1,512 |
|
|
22% |
|
Net income |
|
521,183 |
|
|
245,417 |
|
|
112% |
|
Less net income attributable to
non-controlling interest |
|
11,539 |
|
|
- |
|
|
nm |
|
Net income attributable to us |
|
509,644 |
|
|
245,417 |
|
|
108% |
|
The increase in revenue was
primarily due to higher prepaid airtime sales, more low-margin transaction fees
generated from beneficiaries using the South African National Payment System, an
increase in the number of UEPS-based loans, an increase in the number of SASSA
UEPS/ EMV cardholders paid and a higher contribution from KSNET.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
incurred from increased usage of the South African National Payment System by
beneficiaries and higher prepaid airtime.
In ZAR, our selling, general and
administration expense increased due to increases in goods and services
purchased from third parties.
Our operating income margin for
first half of fiscal 2015 and 2014 was 21% and 13%, respectively. We discuss the
components of operating income margin under Results of operations by operating
segment. The increase is primarily attributable to higher volumes of
transaction in South Africa, including prepaid airtime sales, lending and SASSA
grants paid.
31
Depreciation and amortization
were higher primarily as a result of an increase in depreciation related to more
terminals used to provide transaction processing in Korea, which was partially
offset by no Eason intangible asset amortization as these intangible assets were
fully amortized at the end of June 2014.
Interest on surplus cash
increased to $7.7 million (ZAR 84.2 million) from $6.6 million (ZAR 66.1
million), due primarily to higher average daily ZAR cash balances.
Interest expense decreased to
$2.4 million (ZAR 26.5 million) from $4.0 million (ZAR 40.1 million), due to a
lower average long-term debt balance on our South Korean debt and a lower
interest rate.
Fiscal 2015 tax expense was $21.9
million (ZAR 239.7 million) compared to $13.6 million (ZAR 136.9 million) in
fiscal 2014. Our effective tax rate for fiscal 2015, was 31.6% and was higher
than the South African statutory rate as a result of non-deductible expenses
(including consulting and legal fees, the interest expense related to our
long-term South Korean borrowings and stock-based compensation charges). Our
effective tax rate for fiscal 2014, was 35.9% and was higher than the South
African statutory rate as a result of non-deductible expenses (including
interest expense related to our long-term Korean borrowings and stock-based
compensation charges).
Results of operations by operating segment
The composition of revenue and the contributions of our
business activities to operating income are illustrated below
Table 9
|
|
|
|
|
In United States Dollars (US GAAP) |
|
|
|
|
|
|
|
|
|
Six months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
% of |
|
|
2013 |
|
|
% of |
|
|
% |
|
Operating Segment |
|
$ 000 |
|
|
total |
|
|
$ 000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
118,679 |
|
|
38% |
|
|
115,915 |
|
|
44% |
|
|
2% |
|
International transaction processing |
|
83,670 |
|
|
27% |
|
|
75,279 |
|
|
29% |
|
|
11% |
|
Financial inclusion and applied
technologies |
|
132,728 |
|
|
43% |
|
|
87,276 |
|
|
33% |
|
|
52% |
|
Subtotal: Operating
segments |
|
335,077 |
|
|
108% |
|
|
278,470 |
|
|
106% |
|
|
20% |
|
Intersegment eliminations |
|
(24,505 |
) |
|
(8% |
) |
|
(17,693 |
) |
|
(6% |
) |
|
39% |
|
Consolidated revenue |
|
310,572 |
|
|
100% |
|
|
260,777 |
|
|
100% |
|
|
19% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
26,522 |
|
|
41% |
|
|
13,589 |
|
|
39% |
|
|
95% |
|
International transaction processing
|
|
13,092 |
|
|
20% |
|
|
10,663 |
|
|
30% |
|
|
23% |
|
Financial inclusion and applied technologies |
|
35,434 |
|
|
55% |
|
|
26,100 |
|
|
74% |
|
|
36% |
|
Subtotal:
Operating segments |
|
75,048 |
|
|
116% |
|
|
50,352 |
|
|
143% |
|
|
49% |
|
Corporate/Eliminations
|
|
(11,108 |
) |
|
(16% |
) |
|
(15,150 |
) |
|
(43% |
) |
|
(27% |
) |
Consolidated operating income |
|
63,940 |
|
|
100% |
|
|
35,202 |
|
|
100% |
|
|
82% |
|
Table 10
|
|
|
|
|
In South African Rand (US GAAP) |
|
|
|
|
|
|
|
|
|
Six months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
ZAR |
|
|
% of |
|
|
ZAR |
|
|
% of |
|
|
% |
|
Operating Segment |
|
000 |
|
|
total |
|
|
000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
1,301,766 |
|
|
38% |
|
|
1,168,527 |
|
|
44% |
|
|
11% |
|
International transaction processing |
|
917,759 |
|
|
27% |
|
|
758,880 |
|
|
29% |
|
|
21% |
|
Financial inclusion and applied
technologies |
|
1,455,867 |
|
|
43% |
|
|
879,821 |
|
|
33% |
|
|
65% |
|
Subtotal: Operating
segments |
|
3,675,392 |
|
|
108% |
|
|
2,807,228 |
|
|
106% |
|
|
31% |
|
Intersegment eliminations |
|
(268,791 |
) |
|
(8% |
) |
|
(178,361 |
) |
|
(6% |
) |
|
51% |
|
Consolidated revenue |
|
3,406,601 |
|
|
100% |
|
|
2,628,867 |
|
|
100% |
|
|
30% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
290,915 |
|
|
41% |
|
|
136,989 |
|
|
39% |
|
|
112% |
|
International transaction processing
|
|
143,604 |
|
|
20% |
|
|
107,492 |
|
|
30% |
|
|
34% |
|
Financial inclusion and applied technologies |
|
388,668 |
|
|
55% |
|
|
263,111 |
|
|
74% |
|
|
48% |
|
Subtotal:
Operating segments |
|
823,187 |
|
|
116% |
|
|
507,592 |
|
|
143% |
|
|
62% |
|
Corporate/Eliminations
|
|
(121,841 |
) |
|
(16% |
) |
|
(152,726 |
) |
|
(43% |
) |
|
(20% |
) |
Consolidated operating income |
|
701,346 |
|
|
100% |
|
|
354,866 |
|
|
100% |
|
|
98% |
|
32
South African transaction processing
In ZAR, the increase in segment
revenues was primarily due to more low-margin transaction fees generated from
beneficiaries using the South African National Payment System and more
inter-segment transaction processing activities. In addition, revenue from the
distribution of social welfare grants grew modestly during the year and was
in-line with the increase in unique welfare cardholder recipients, net of
removal of invalid and fraudulent beneficiaries, partially offset by the loss of
MediKredit revenue as a result of the sale of that business.
Our operating income margin for
the first half of fiscal 2015 and 2014 was 22% and 12%, respectively, and has
increased primarily due to more higher-margin inter-segment transaction
processing activities, the elimination of MediKredit losses and an increase in
the number of beneficiaries paid in fiscal 2015.
International transaction-based activities
Revenue and operating income
increased primarily due to higher transaction volume at KSNET during the first
half of fiscal 2015. Operating income margin for the segment is lower than for
most of our South African transaction processing businesses. Operating income
margin for the first half of fiscal 2015 and 2014, was 16% and 14%,
respectively.
Financial inclusion and applied technologies
Financial inclusion and applied
technologies revenue and operating income increased primarily due to higher
prepaid airtime sales driven by the rollout of our prepaid airtime product, an
increase in the number of UEPS-based loans as we rolled out our product
nationally, and, in ZAR, an increase in intersegment revenues. Fiscal 2014
operating income includes expenses related to the national roll-out of our
UEPS-based lending offering and the establishment of the allowance for doubtful
finance loans in fiscal 2014. Smart Life did not contribute to operating income
in fiscal 2015 and 2014 due to the FSB suspension of its license.
Notwithstanding the national
roll-out expenses incurred in fiscal 2014, operating income margin for the
Financial inclusion and applied technologies segment decreased to 27% from 30%,
primarily as a result of more low-margin prepaid airtime and the sale of
competitively-priced financial inclusion products to address the needs of the
broader market.
Corporate/ Eliminations
Our corporate expenses generally
include acquisition-related intangible asset amortization; expenditure related
to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors fees;
employee and executive bonuses; stock-based compensation; legal fees; audit
fees; directors and officers insurance premiums; telecommunications expenses;
property-related expenditures including utilities, rental, security and
maintenance; and elimination entries.
The decrease in our corporate
expenses was primarily due to lower US government investigations-related and US
lawsuit expenses, audit fees and other corporate head office-related expenses.
Liquidity and Capital Resources
At December 31, 2014, our cash
balances were $71.0 million, which comprised mainly ZAR-denominated balances of
ZAR 643.5 million ($55.4 million), KRW-denominated balances of KRW 10.7 billion
($9.7 million) and US dollar-denominated balances of $4.6 million and other
currency deposits, primarily Botswana Pula, of $1.2 million. The increase in our
cash balances from June 30, 2014, was primarily due to the expansion of all of
our core businesses, and to a lesser extent due to the cash conservation
resulting from the sale of loss-incurring businesses, offset by provisional tax
payments and the scheduled Korean debt repayment in October 2014.
We currently believe that our
cash and credit facilities are sufficient to fund our future operations for at
least the next four quarters.
We generally invest the surplus
cash held by our South African operations in overnight call accounts that we
maintain at South African banking institutions, and surplus cash held by our
non-South African companies in the US money markets. We have invested surplus
cash in Korea in short-term investment accounts at Korean banking
institutions.
Historically, we have financed
most of our operations, research and development, working capital, capital
expenditures and acquisitions through our internally generated cash. When
considering whether to borrow under our financing facilities, we consider the
cost of capital, cost of financing, opportunity cost of utilizing surplus cash
and availability of tax efficient structures to moderate financing costs.
33
We have a short-term South
African credit facility with Nedbank Limited of ZAR 400 million ($34.5 million).
The short-term facility comprises an overdraft facility of up to ZAR 250 million
and indirect and derivative facilities of up to ZAR 150 million, which includes
letters of guarantee, letters of credit and forward exchange contracts. As of
December 31, 2014, we have used none of the overdraft and ZAR 137.2 million
($11.8 million) of the indirect and derivative facilities to obtain foreign
exchange contracts and to support guarantees issued by Nedbank to various third
parties on our behalf. Refer to Note 12 to our audited consolidated financial
statements included in our Annual Report on Form 10-K for the year ended June
30, 2014, for additional information related to our short-term facilities.
As of December 31, 2014, we had
outstanding long-term debt of KRW 65.5 billion (approximately $59.7 million
translated at exchange rates applicable as of December 31, 2014) under credit
facilities with a group of South Korean banks. The loans bear interest at the
South Korean CD rate in effect from time to time (2.14% as of December 31, 2014)
plus a margin of 3.10% for one of the term loan facilities and the revolver and
a margin of 2.90% for the other term loan facility. We repaid the KRW 15 billion
other term loan facility in full in October 2014 in accordance with the
repayment schedule. Scheduled remaining repayments of the term loans and loan
under the revolving credit facility are as follows: April 2016, 2017 and 2018
(KRW 10 billion each) and October 2018 (KRW 30 billion plus all outstanding
loans under our revolving credit facility). Refer to Note 9 to our unaudited
condensed consolidated financial statements for the three and six months ended
December 31, 2014, for additional information related to our long-term
borrowings.
Cash flows from operating activities
Second quarter of fiscal 2015
Net cash provided by operating
activities for the second quarter of fiscal 2015 was $14.6 million (ZAR 163.7
million) compared to cash utilized in operating activities of $27.2 million (ZAR
276.8 million) for the second quarter of fiscal 2014. Excluding the impact of
interest received, interest paid under our Korean debt and taxes presented in
the table below, the increase in cash from operating activities resulted from
improved trading activity during fiscal 2015.
During the second quarter of
fiscal 2015, we paid South African tax of $18.8 million (ZAR 215.7 million)
related to our 2015 tax year. We also paid taxes totaling $1.9 million in other
tax jurisdictions, primarily South Korea. During the second quarter of fiscal
2014, we paid South African tax of $13.3 million (ZAR 137.8 million) related to
our 2013 tax year and $0.2 million (ZAR 2.4 million) related to prior tax years.
We also paid provisional Korean taxes of $0.5 million related to our tax year
ended December 31, 2013.
Taxes paid during the second quarter of fiscal 2015 and 2014
were as follows:
Table 11
|
|
|
|
|
Three months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
$ |
|
|
$ |
|
|
ZAR |
|
|
ZAR |
|
|
|
000 |
|
|
000 |
|
|
000 |
|
|
000 |
|
First provisional payments |
|
18,775 |
|
|
13,292 |
|
|
215,677 |
|
|
137,773 |
|
Taxation paid related to prior years |
|
- |
|
|
228 |
|
|
3 |
|
|
2,360 |
|
Taxation refunds received |
|
(243 |
) |
|
- |
|
|
(2,700 |
) |
|
- |
|
Total South African taxes
paid |
|
18,532 |
|
|
13,520 |
|
|
212,980 |
|
|
140,133 |
|
Foreign
taxes paid: primarily Korea |
|
1,861 |
|
|
509 |
|
|
20,645 |
|
|
5,193 |
|
Total tax paid |
|
20,393 |
|
|
14,029 |
|
|
233,625 |
|
|
145,326 |
|
First half of fiscal 2015
Net cash provided by operating
activities for the first half of fiscal 2015 was $54.1 million (ZAR 593.6
million) compared to cash utilized in operating activities of $28.9 million (ZAR
291.6 million) for the first half of fiscal 2014. Excluding the impact of
interest received, interest paid under our Korean debt and taxes presented in
the table below, the increase in cash from operating activities resulted from
improved trading activity during fiscal 2015.
During the first half of fiscal
2014, we paid South African tax of $18.8 million (ZAR 215.7 million) related to
our 2015 tax year and $2.4 million (ZAR 26.4 million) related to prior tax
years. We also paid taxes totaling $4.6 million in other tax jurisdictions,
primarily South Korea. During the first half of fiscal 2014, we paid South
African tax of $13.3 million (ZAR 137.8 million) related to our 2014 tax year
and $0.2 million (ZAR 2.4 million) related to prior tax years. We also paid
provisional Korean taxes of $1.0 million related to our tax year ended December
31, 2013.
34
Taxes paid during the first half of fiscal 2015 and 2014 were
as follows:
Table 12
|
|
|
|
|
Six months ended December 31, |
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
$ |
|
|
$ |
|
|
ZAR |
|
|
ZAR |
|
|
|
000 |
|
|
000 |
|
|
000 |
|
|
000 |
|
First provisional payments |
|
18,775 |
|
|
13,292 |
|
|
215,677 |
|
|
137,773 |
|
Taxation paid related to prior years |
|
2,408 |
|
|
228 |
|
|
26,395 |
|
|
2,360 |
|
Taxation refunds received |
|
(277 |
) |
|
- |
|
|
(3,065 |
) |
|
- |
|
Total South African taxes
paid |
|
20,906 |
|
|
13,520 |
|
|
239,007 |
|
|
140,133 |
|
Foreign
taxes paid: primarily Korea |
|
4,647 |
|
|
1,007 |
|
|
50,815 |
|
|
10,177 |
|
Total tax paid |
|
25,553 |
|
|
14,527 |
|
|
289,822 |
|
|
150,310 |
|
Cash flows from investing activities
Second quarter of fiscal 2015
Cash used in investing activities
for the second quarter of fiscal 2015 includes capital expenditure of $9.1
million (ZAR 102.6 million), primarily for the acquisition of payment processing
terminals in Korea.
Cash used in investing activities
for the second quarter of fiscal 2014 includes capital expenditure of $6.8
million (ZAR 69.5 million), primarily for the acquisition of payment processing
terminals in Korea.
First half of fiscal 2015
Cash used in investing activities
for the first half of fiscal 2015 includes capital expenditure of $18.5 million
(ZAR 203.5 million), primarily for the acquisition of payment processing
terminals in Korea. We also received approximately $1.9 million resulting from
the sale of NUETS business.
Cash used in investing activities
for the first half of fiscal 2014 includes capital expenditure of $12.5 million
(ZAR 125.6 million), primarily for the acquisition of payment processing
terminals in Korea.
Cash flows from financing activities
Second quarter of fiscal 2015
During the second quarter of
fiscal 2015, we made a scheduled Korean debt repayment of $14.1 million
utilizing available cash reserves. We also utilized approximately $1.1 million
of our Korean borrowings to pay quarterly interest due.
During the second quarter of
fiscal 2014, we refinanced our Korean debt and received $85 million from Korean
banks. We used $71.6 million of these new borrowings and $15.4 million of our
surplus cash to repay the $87.0 million due under our old facility. In addition,
we paid the facility fees related to our new Korean borrowings of approximately
$0.9 million in October 2013. We also paid approximately $2.0 million for
substantially all of the shares of KSNET we did not already own during the
second quarter of fiscal 2014.
First half of fiscal 2015
During the first half of fiscal
2015, we made a scheduled Korean debt repayment of $14.1 million, repurchased
BVIs remaining 1,837,432 shares of Net1 common stock for approximately $9.2
million and received $1.4 million from BVI for 12.5% of CPS issued and
outstanding ordinary shares. We also utilized approximately $2.2 million of our
Korean borrowings to pay quarterly interest due and received approximately $1.0
million from the exercise of stock options during the first quarter of fiscal
2015.
We had no cash flows from financing activities for the first
half of fiscal 2014, except as described above.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Capital Expenditures
We expect capital spending for
the third quarter of fiscal 2015 to primarily include the acquisition of payment
terminals for the expansion of our operations in Korea.
35
Our historical capital
expenditures for the second quarter of fiscal 2015 and 2014 are discussed under
Liquidity and Capital ResourcesCash flows from investing activities. All of
our capital expenditures for the past three fiscal years were funded through
internally-generated funds. We had outstanding capital commitments as of
December 31, 2014, of $0.3 million related mainly to computer equipment. We
expect to fund these expenditures through internally-generated funds.
Contingent Liabilities, Commitments and Contractual
Obligations
The following table sets forth our contractual obligations as
of December 31, 2014:
Table 13
|
|
Payments due by Period, as of December 31, 2014 (in $
000s) |
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
than 1 |
|
|
1-3 |
|
|
3-5 |
|
|
than 5 |
|
|
|
Total |
|
|
year |
|
|
years |
|
|
years |
|
|
years |
|
Long-term debt obligations (A) |
|
71,091 |
|
|
3,152 |
|
|
24,131 |
|
|
43,808 |
|
|
- |
|
Operating lease obligations |
|
8,753 |
|
|
4,165 |
|
|
4,205 |
|
|
383 |
|
|
- |
|
Purchase obligations |
|
10,788 |
|
|
10,788 |
|
|
- |
|
|
- |
|
|
- |
|
Capital commitments |
|
270 |
|
|
270 |
|
|
- |
|
|
- |
|
|
- |
|
Other long-term obligations (B)(C)
|
|
20,831 |
|
|
- |
|
|
- |
|
|
- |
|
|
20,831 |
|
Total |
|
111,733 |
|
|
18,375 |
|
|
28,336 |
|
|
44,191 |
|
|
20,831 |
|
(A) Includes $59.7 million of long-term debt and interest
payable at the rate applicable on December 31, 2014, under our Korean debt
facility.
(B) Includes policy holder liabilities of $20.2 million related
to our insurance business.
(C) We have excluded cross-guarantees in the
aggregate amount of $12.0 million issued as of December 31, 2014, to Nedbank to
secure guarantees it has issued to third parties on our behalf as the amounts
that will be settled in cash are not known and the timing of any payments is
uncertain.
36
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below,
see Note 5 to the unaudited condensed consolidated financial statements for a
discussion of market risk.
The following table illustrates
the effect on our annual expected interest charge, translated at exchange rates
applicable as of December 31, 2014, as a result of changes in the Korean CD. The
effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease
in each of the Korean CD rate as of December 31, 2014, are shown. The selected
1% hypothetical change does not reflect what could be considered the best or
worst case scenarios.
Table 14
|
|
As of December 31, 2014 |
|
|
|
|
|
|
Hypothetical
|
|
|
Estimated annual
|
|
|
|
|
|
|
change in |
|
|
expected interest
|
|
|
|
|
|
|
Korean CD |
|
|
charge after
|
|
|
|
|
|
|
rate or South
|
|
|
hypothetical change
in |
|
|
|
Annual |
|
|
Africa |
|
|
Korean CD rate or
|
|
|
|
expected |
|
|
overdraft |
|
|
South African
|
|
|
|
interest |
|
|
facility rate,
|
|
|
overdraft facility
rate, |
|
|
|
charge |
|
|
as |
|
|
as appropriate
|
|
|
|
($ 000) |
|
|
appropriate |
|
|
($ 000) |
|
Interest on Korean long-term debt |
|
3,128 |
|
|
1% |
|
|
3,725 |
|
|
|
|
|
|
(1% |
) |
|
2,531 |
|
The following table summarizes
our exchange-traded equity securities with equity price risk as of December 31,
2014. The effects of a hypothetical 10% increase and a 10% decrease in market
prices as of December 31, 2014, is also shown. The selected 10% hypothetical
change does not reflect what could be considered the best or worst case
scenarios. Indeed, results could be far worse due both to the nature of equity
markets and the aforementioned liquidity risk.
Table 15
|
|
|
|
|
As of December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hypothetical |
|
|
|
|
|
|
|
|
|
Estimated fair |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
value after |
|
|
Increase |
|
|
|
Fair |
|
|
|
|
|
hypothetical |
|
|
(Decrease) in |
|
|
|
value |
|
|
Hypothetical |
|
|
change in price |
|
|
Shareholders |
|
|
|
($ 000) |
|
|
price change |
|
|
($ 000) |
|
|
Equity |
|
Exchange-traded equity securities |
|
7,358 |
|
|
10% |
|
|
8,094 |
|
|
0.16% |
|
|
|
|
|
|
(10% |
) |
|
6,622 |
|
|
(0.16% |
) |
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision and with
the participation of our management, including our chief executive officer and
our chief financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as of
December 31, 2014. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, the chief executive officer and the chief financial
officer concluded that our disclosure controls and procedures were effective as
of December 31, 2014.
Changes in Internal Control over Financial Reporting
There have not been any changes
in our internal control over financial reporting during the fiscal quarter ended
December 31, 2014, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
37
Part II. Other Information
Item 1. Legal Proceedings
United States securities litigation
On January 16, 2015, we filed a
motion to dismiss plaintiffs amended complaint for failure to state a claim.
Plaintiff has until March 6, 2015 to file an opposition to our motion. We
continue to believe this lawsuit has no merit and are defending it vigorously.
Application to Constitutional Court
See disclosure under
Managements Discussion and Analysis of Financial Condition and Results of
Operations regarding the application we made to the Constitutional Court in
connection with the new SASSA tender process.
Item 1A. Risk Factors
See Item 1A RISK FACTORS in
Part I of our Annual Report on Form 10-K for the fiscal year ended June 30,
2014, for a discussion of risk factors relating to (i) our business, (ii)
operating in South Africa and other foreign markets, (iii) government
regulation, and (iv) our common stock. Except as set forth below and in Item 1A
RISK FACTORS in Part II of our Form 10-Q for the quarter ended September 30,
2014, there have been no material changes from the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30,
2014.
SASSA has initiated a new
tender process for the payment of social grants. As a result, we cannot predict
whether our current SASSA contract will remain in effect for the remainder of
its five-year term. We derive a substantial portion of our revenues from this
contract and from the provision of financial and other services to our
cardholder base. If we were to lose our SASSA contract or we were to obtain a
new contract on terms that are substantially inferior to our current contract,
our business would suffer significantly.
As ordered by the South African
Constitutional Court in its April 2014 ruling, SASSA has initiated a new tender
process for a five-year contract relating to the payment of social grants. SASSA
issued an initial RFP on October 22, 2014, which required bidders to submit
proposals by December 12, 2014. As discussed above in more detail under
Managements Discussion and Analysis of Financial Condition and Results of
OperationsRecent DevelopmentsNew SASSA Tender Process, we identified
ambiguities and other deficiencies in the tender specifications and applied to
the Court for an order setting aside the RFP and directing SASSA to issue a
corrected RFP. Although the Court did not set aside the RFP, on December 5,
2014, it did order SASSA to extend the bid deadline to February 27, 2015 and to
issue a draft amended RFP. Since that ruling, SASSA has issued amended RFPs on
two separate occasions, and we have continued to object to the RFP, as amended,
on the grounds that it remains vague and uncertain in several respects and that
it does not comply with the Courts rulings. SASSA and AllPay have asked the
Court to dismiss our objections and to allow SASSA to proceed with the amended
RFP.
We cannot predict when or how the
Court will rule on our application for withdrawal of the amended RFP, what the
timing or ultimate outcome of the tender process will be, or if a new tender
award will be made at all after the process is complete. We intend to
participate in the new tender, which, as with prior SASSA tenders, will continue
to consume a substantial amount of our managements time and attention and
impact their ability to focus on other matters, including other South African
and international business development activities. We cannot assure you that the
current tender process will result in our receiving a contract to continue to
distribute social welfare grants nationally. If a new contract is awarded and we
are not the winning bidder, we would lose the benefit of the remaining portion
of our current contract. Even if we win the tender and do receive a new
contract, we cannot predict the terms that such contract will contain. Any new
contract we receive may contain pricing or other terms that would be less
favorable to us than the terms of our current contract.
In addition to the revenue
generated by CPS from our SASSA contract we also earn revenue from a variety of
innovative financial and other services, such as provision of UEPS-based loans
and sale of prepaid airtime to customers, including, at their election, certain
social welfare recipient cardholders. Although we believe that our offerings
frequently represent the lowest-cost alternative for our customers for these
types of services, if we were to lose our SASSA contract or if our SASSA
contract were to limit the provision of these services, it might be less
convenient for our cardholder customers to purchase these services from us and
thus, we may have difficulty growing or even maintaining this aspect of our
South African business, which would negatively affect our future operating
performance.
38
Further, in connection with the
litigation challenging the award of the previous SASSA tender to us, we included
our entire 2011 SASSA tender submission in the court record, which court record
is in the public domain. Our previous tender submission contained competitively
sensitive business information. As a result of this disclosure, our existing and
future competitors have access to this information which could adversely affect
our competitive position in the current tender process to the extent that such
information continues to remain competitively sensitive.
Finally, if we were to be awarded
one or more contracts by SASSA, an unsuccessful tenderor could seek to challenge
the award, which could result in the contract being set aside or could require
us to expend time and resources in an attempt to defeat any such challenge.
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on February
5, 2015.
|
NET 1 UEPS TECHNOLOGIES, INC. |
|
|
|
By: /s/ Dr. Serge C.P. Belamant |
|
|
|
Dr. Serge C.P. Belamant |
|
Chief Executive Officer, Chairman of the Board and Director |
|
|
|
By: /s/ Herman Gideon Kotzé |
|
|
|
Herman Gideon Kotzé |
|
Chief Financial Officer, Treasurer and Secretary, Director |
39
Exhibit 31.1
CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A)
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Serge Belamant, certify that: |
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of Net
1 UEPS Technologies, Inc. (Net1) for the quarter ended December 31,
2014; |
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Net1 as of, and for, the periods presented in this report; |
|
|
4. |
Net1s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for Net1 and have: |
|
(a) |
Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information
relating to Net1, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of Net1s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in Net1s
internal control over financial reporting that occurred during Net1s most
recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, Net1s internal control over financial
reporting; and |
5. |
Net1s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial |
|
reporting, to Net1s auditors and the Audit
Committee of Net1s Board of Directors (or persons performing the
equivalent functions): |
|
(a) |
All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect Net1s ability
to record, process, summarize and report financial information; and |
|
|
|
|
(b) |
Any fraud, whether or not material, that
involves management or other employees who have a significant role in
Net1s internal control over financial reporting. |
Date: February 5, 2015 |
/s/ Dr. Serge C. P. Belamant |
|
Dr. Serge C. P. Belamant |
|
Chief executive officer
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL
FINANCIAL OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A)
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Herman Kotzé, certify that: |
|
|
1. |
I have reviewed this quarterly report on Form
10-Q of Net 1 UEPS Technologies, Inc. (Net1) for the quarter ended
December 31, 2014; |
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Net1 as of, and for, the periods presented in this report; |
|
|
4. |
Net1s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for Net1 and have: |
|
(a) |
Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information
relating to Net1, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of Net1s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in Net1s
internal control over financial reporting that occurred during Net1s most
recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, Net1s internal control over financial
reporting; and |
5. |
Net1s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to Net1s auditors and the Audit Committee of Net1s
Board of Directors (or persons performing the equivalent functions):
|
|
(a) |
All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect Net1s ability
to record, process, summarize and report financial information; and |
|
|
|
|
(b) |
Any fraud, whether or not material, that
involves management or other employees who have a significant role in
Net1s internal control over financial reporting. |
Date: February 5, 2015 |
/s/ Herman Gideon Kotzé |
|
Herman Gideon Kotzé |
|
Chief financial officer
|
Exhibit 32
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the quarterly report of Net 1 UEPS Technologies, Inc. (Net1)
on Form 10-Q for the quarter ended December 31, 2014, as filed with the
Securities and Exchange Commission on the date hereof (the Report), Dr. Serge
Belamant and Herman Kotz, Chief Executive Officer and Chief Financial Officer,
respectively, of Net1, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:
|
1. |
The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
|
|
|
|
2. |
The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of Net1. |
Date: February 5, 2015 |
/s/: Dr. Serge C. P. Belamant |
|
Name: Dr. Serge C. P. Belamant |
|
Chief Executive Officer and Chairman |
|
of the Board |
|
|
Date: February 5, 2015 |
/s/: Herman Kotzé |
|
Name: Herman Kotzé |
|
Chief Financial Officer, Treasurer and |
|
Secretary |
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