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 March 31, 2015
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 |
(IRS Employer |
of incorporation or organization) |
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 May 5, 2015 (the latest practicable date), 46,607,153
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) |
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(In thousands, except share data) |
|
ASSETS |
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
111,002 |
|
$ |
58,672 |
|
Pre-funded social welfare grants
receivable (Note 2) |
|
2,853 |
|
|
4,809 |
|
Accounts receivable,
net of allowances of March: $2,347; June: $1,313 |
|
136,520 |
|
|
148,067 |
|
Finance loans receivable, net of
allowances of March: $4,707; June: $3,083 |
|
44,935 |
|
|
53,124 |
|
Inventory (Note 3) |
|
12,095 |
|
|
10,785 |
|
Deferred income taxes |
|
6,828
|
|
|
7,451
|
|
Total current assets before settlement assets |
|
314,233 |
|
|
282,908 |
|
Settlement assets (Note 4) |
|
651,615 |
|
|
725,987 |
|
Total
current assets |
|
965,848 |
|
|
1,008,895 |
|
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of March: $98,213; June: $91,422 |
|
48,395 |
|
|
47,797 |
|
EQUITY-ACCOUNTED INVESTMENTS |
|
930 |
|
|
878 |
|
GOODWILL (Note 6) |
|
169,433 |
|
|
186,576 |
|
INTANGIBLE ASSETS, net (Note 6) |
|
51,665 |
|
|
68,514 |
|
OTHER LONG-TERM ASSETS, including reinsurance assets (Note
5 and Note 7) |
|
35,781 |
|
|
38,285 |
|
TOTAL ASSETS |
|
1,272,052 |
|
|
1,350,945 |
|
LIABILITIES |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
|
15,341 |
|
|
17,101 |
|
Other payables |
|
41,087 |
|
|
42,257 |
|
Current portion of long-term borrowings
(Note 9) |
|
- |
|
|
14,789 |
|
Income taxes payable
|
|
10,215 |
|
|
7,676 |
|
Total
current liabilities before settlement obligations |
|
66,643 |
|
|
81,823 |
|
Settlement obligations (Note 4) |
|
651,615 |
|
|
725,987 |
|
Total current liabilities
|
|
718,258 |
|
|
807,810 |
|
DEFERRED INCOME TAXES |
|
11,841 |
|
|
15,522 |
|
LONG-TERM BORROWINGS (Note 9) |
|
60,027 |
|
|
62,388 |
|
OTHER LONG-TERM LIABILITIES, including
insurance policy liabilities (Note 7) |
|
20,250 |
|
|
23,477 |
|
TOTAL LIABILITIES |
|
810,376 |
|
|
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 - March: 46,607,153; 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: March: -; June: -
|
|
- |
|
|
- |
|
ADDITIONAL
PAID-IN-CAPITAL |
|
213,264 |
|
|
202,401 |
|
TREASURY SHARES, AT COST: March:
18,057,228; June: 15,883,212 |
|
(214,520 |
) |
|
(200,681 |
) |
ACCUMULATED OTHER
COMPREHENSIVE LOSS |
|
(131,415 |
) |
|
(82,741 |
) |
RETAINED EARNINGS |
|
593,954 |
|
|
522,729 |
|
TOTAL NET1 EQUITY |
|
461,347 |
|
|
441,771 |
|
NON-CONTROLLING INTEREST |
|
329
|
|
|
(23 |
) |
TOTAL EQUITY |
|
461,676 |
|
|
441,748 |
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY |
$ |
1,272,052 |
|
$ |
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 |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(In thousands, except per share
data) |
|
|
(In thousands, except per share
data) |
|
REVENUE |
$ |
151,121 |
|
$ |
138,126 |
|
$ |
461,693 |
|
$ |
398,903 |
|
EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing and support |
|
71,094 |
|
|
63,149 |
|
|
217,274 |
|
|
187,591 |
|
Selling, general and
administration |
|
38,001 |
|
|
40,586 |
|
|
118,122 |
|
|
121,916 |
|
Depreciation and amortization |
|
10,060 |
|
|
10,442 |
|
|
30,391 |
|
|
30,245 |
|
OPERATING INCOME |
|
31,966 |
|
|
23,949 |
|
|
95,906 |
|
|
59,151 |
|
INTEREST INCOME |
|
4,211 |
|
|
3,438 |
|
|
11,888 |
|
|
9,993 |
|
INTEREST EXPENSE |
|
941
|
|
|
1,734
|
|
|
3,360
|
|
|
5,712
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
35,236 |
|
|
25,653 |
|
|
104,434 |
|
|
63,432 |
|
INCOME TAX EXPENSE (Note 16) |
|
10,305 |
|
|
8,535
|
|
|
32,156 |
|
|
22,119 |
|
NET INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS |
|
24,931 |
|
|
17,118 |
|
|
72,278 |
|
|
41,313 |
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS |
|
65
|
|
|
52
|
|
|
233
|
|
|
202
|
|
NET INCOME |
|
24,996 |
|
|
17,170 |
|
|
72,511 |
|
|
41,515 |
|
LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTEREST |
|
638
|
|
|
(12 |
) |
|
1,690
|
|
|
(12 |
) |
NET INCOME ATTRIBUTABLE TO NET1 |
$ |
24,358 |
|
$ |
17,182 |
|
$ |
70,821 |
|
$ |
41,527 |
|
Net income per share, in United States dollars (Note
13) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings attributable to Net1 shareholders |
$ |
0.52 |
|
$ |
0.38 |
|
$ |
1.51 |
|
$ |
0.91 |
|
Diluted
earnings attributable to Net1 shareholders |
$ |
0.52 |
|
$ |
0.37 |
|
$ |
1.51 |
|
$ |
0.90 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Statements of
Comprehensive Income |
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
24,996 |
|
$ |
17,170 |
|
$ |
72,511 |
|
$ |
41,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on
asset available for sale, net of tax |
|
648 |
|
|
327 |
|
|
422 |
|
|
288 |
|
Movement in foreign currency translation reserve |
|
(11,596 |
) |
|
(2,134 |
) |
|
(49,182 |
) |
|
2,838 |
|
Total other comprehensive (loss) income, net of taxes |
|
(10,948 |
) |
|
(1,807 |
) |
|
(48,760 |
) |
|
3,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
14,048 |
|
|
15,363 |
|
|
23,751 |
|
|
44,641 |
|
(Less) Add comprehensive (income)
loss attributable to non-controlling
interest |
|
(601 |
) |
|
12 |
|
|
(1,604 |
) |
|
12 |
|
Comprehensive income attributable to Net1 |
$ |
13,447 |
|
$ |
15,375 |
|
$ |
22,147 |
|
$ |
44,653 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Statement of Changes
in Equity for the nine months ended March 31, 2015 (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) |
|
748,633 |
|
|
1 |
|
|
(336,584 |
) |
|
(4,688 |
) |
|
412,049 |
|
|
6,467 |
|
|
|
|
|
|
|
|
1,780 |
|
|
|
|
|
1,780 |
|
Stock-based compensation
charge (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,682 |
|
|
|
|
|
|
|
|
2,682 |
|
|
|
|
|
2,682 |
|
Income tax benefit from vested stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
483 |
|
Transactions with
non-controlling interest (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,231 |
|
|
404 |
|
|
|
|
|
1,635 |
|
|
(228 |
)
|
|
1,407 |
|
Dividends paid to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
(1,024 |
) |
|
(1,024 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,821 |
|
|
|
|
|
70,821 |
|
|
1,690 |
|
|
72,511 |
|
Other comprehensive loss (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,674 |
) |
|
(48,674 |
) |
|
(86 |
) |
|
(48,760 |
) |
Balance March 31, 2015 |
|
64,664,381 |
|
$ |
64 |
|
|
(18,057,228 |
) |
$ |
(214,520 |
) |
|
46,607,153 |
|
$ |
213,264 |
|
$ |
593,954 |
|
$ |
(131,415 |
) |
$ |
461,347 |
|
$ |
329 |
|
$ |
461,676 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Statements of Cash
Flows |
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
24,996 |
|
$ |
17,170 |
|
$ |
72,511 |
|
$ |
41,515 |
|
Depreciation and amortization |
|
10,060 |
|
|
10,442 |
|
|
30,391 |
|
|
30,245 |
|
Earnings from equity-accounted investments |
|
(65 |
) |
|
(52 |
) |
|
(233 |
) |
|
(202 |
) |
Fair value adjustments |
|
(449 |
) |
|
110 |
|
|
(270 |
) |
|
49 |
|
Interest payable |
|
(23 |
) |
|
30 |
|
|
1,276 |
|
|
1,696 |
|
Profit on disposal of property, plant and
equipment |
|
(64 |
) |
|
(26 |
) |
|
(295 |
) |
|
(42 |
) |
Stock-based compensation charge |
|
731 |
|
|
922 |
|
|
2,682 |
|
|
2,820 |
|
Facility fee amortized |
|
36 |
|
|
79 |
|
|
170 |
|
|
657 |
|
Decrease (Increase) in accounts receivable, pre- funded
social welfare grants receivable and finance loans receivable |
|
3,379 |
|
|
(6,443 |
) |
|
5,534 |
|
|
(67,521 |
) |
(Increase) Decrease in inventory |
|
(26 |
) |
|
2,821 |
|
|
(2,771 |
) |
|
979 |
|
Increase (Decrease) in accounts payable and other payables
|
|
4,735 |
|
|
2,656 |
|
|
(7,654 |
) |
|
(10,895 |
) |
Increase in taxes payable |
|
7,465 |
|
|
8,069 |
|
|
4,113 |
|
|
9,431 |
|
Decrease in deferred taxes |
|
(1,467 |
) |
|
(1,141 |
) |
|
(2,025 |
) |
|
(3,019 |
) |
Net cash provided by
operating activities |
|
49,308 |
|
|
34,637 |
|
|
103,429 |
|
|
5,713 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(6,307 |
) |
|
(4,848 |
) |
|
(24,822 |
) |
|
(17,309 |
) |
Proceeds from disposal of property, plant and equipment |
|
163 |
|
|
123 |
|
|
777 |
|
|
2,124 |
|
Proceeds from sale of business (Note 14)
|
|
- |
|
|
- |
|
|
1,895 |
|
|
- |
|
(Investment in equity in) Repayment of loan by
equity-accounted investment |
|
- |
|
|
(25 |
) |
|
- |
|
|
(25 |
) |
Other investing activities |
|
- |
|
|
571 |
|
|
(29 |
) |
|
570 |
|
Net change in settlement assets |
|
(188,315 |
) |
|
(277,912 |
) |
|
10,283 |
|
|
(21,409 |
) |
Net cash used in investing
activities |
|
(194,459 |
) |
|
(282,091 |
) |
|
(11,896 |
) |
|
(36,049 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term borrowings (Note 9)
|
|
- |
|
|
- |
|
|
(14,128 |
) |
|
(87,008 |
) |
Long-term borrowings utilized |
|
798 |
|
|
1,028 |
|
|
2,976 |
|
|
72,633 |
|
Acquisition of treasury stock (Note 10) |
|
- |
|
|
- |
|
|
(9,151 |
) |
|
- |
|
Sale of equity to non-controlling interest (Note 10) |
|
- |
|
|
- |
|
|
1,407 |
|
|
- |
|
Dividends paid to non-controlling interest
|
|
(1,024 |
) |
|
- |
|
|
(1,024 |
) |
|
- |
|
Proceeds from issue of common stock |
|
791 |
|
|
88 |
|
|
1,780 |
|
|
88 |
|
Payment of facility fee |
|
- |
|
|
- |
|
|
- |
|
|
(872 |
) |
Proceeds from bank overdraft |
|
- |
|
|
- |
|
|
- |
|
|
24,580 |
|
Repayment of bank overdraft |
|
- |
|
|
(23,335 |
) |
|
- |
|
|
(23,335 |
) |
Acquisition of interests in KSNET (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
(1,968 |
) |
Net change in settlement obligations |
|
188,315 |
|
|
277,912 |
|
|
(10,283 |
) |
|
21,409 |
|
Net cash provided (used in) by
financing activities |
|
188,880 |
|
|
255,693 |
|
|
(28,423 |
) |
|
5,527
|
|
Effect of exchange rate changes on cash |
|
(3,708 |
) |
|
274 |
|
|
(10,780 |
) |
|
2,019 |
|
Net increase (decrease) in cash and cash
equivalents |
|
40,021 |
|
|
8,513 |
|
|
52,330 |
|
|
(22,790 |
) |
Cash and cash equivalents beginning of
period |
|
70,981 |
|
|
22,362 |
|
|
58,672 |
|
|
53,665 |
|
Cash and cash equivalents end of period |
$ |
111,002 |
|
$ |
30,875 |
|
$ |
111,002 |
|
$ |
30,875 |
|
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 nine months ended March 31, 2015 and
2014 |
(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
nine months ended March 31, 2015 and 2014, 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 March 31, 2015
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.
In February 2015, the FASB issued
guidance regarding Amendments to the Consolidation Analysis. This
guidance amends both the variable interest entity and voting interest entity
consolidation models. The requirement to assess an entity under a different
consolidation model may change previous consolidation conclusions. The guidance
is effective for the Company beginning July 1, 2016. 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 April 2015 payment service
commenced on April 1, 2015, but the Company pre-funded certain merchants
participating in the merchant acquiring system on the last two days of March
2015.
7
3. Inventory
The Companys inventory comprised
the following categories as of March 31, 2015 and June 30, 2014.
|
|
March 31, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
Finished goods |
$ |
12,095 |
|
$ |
10,785 |
|
|
$ |
12,095 |
|
$ |
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, and (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 March 31, 2015, 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 March 31, 2015
|
|
Fair market |
|
Notional amount |
Strike price |
value price |
Maturity |
EUR 706,205.00 |
ZAR 14.8645 |
ZAR 13.0822 |
April 20, 2015 |
EUR 512,865.00 |
ZAR 14.9455 |
ZAR 13.1517 |
May 20, 2015 |
EUR 526,263.00 |
ZAR 15.0345 |
ZAR 13.2305 |
June 22, 2015 |
EUR 526,263.00 |
ZAR 15.1145 |
ZAR 13.3002 |
July 20, 2015 |
EUR 526,263.00 |
ZAR 15.2025 |
ZAR 13.3786 |
August 20, 2015 |
EUR 526,263.00 |
ZAR 15.2944 |
ZAR 13.4595 |
September 21, 2015 |
EUR 526,263.00 |
ZAR 15.3809 |
ZAR 13.5353 |
October 20, 2015 |
EUR 509,516.00 |
ZAR 15.4728 |
ZAR 13.6178 |
November 20, 2015 |
EUR 529,865.00 |
ZAR 15.5654 |
ZAR 13.7004 |
December 21, 2015 |
EUR 526,663.00 |
ZAR 15.6625 |
ZAR 13.7827 |
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 March 31, 2015, 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 |
$ |
1,643 |
|
$ |
- |
|
$ |
- |
|
$ |
1,643 |
|
Investment in Finbond (available for sale
assets included in other long-term assets) |
|
- |
|
|
- |
|
|
7,608 |
|
|
7,608 |
|
Other |
|
- |
|
|
1,300 |
|
|
- |
|
|
1,300 |
|
Total assets at fair value |
$ |
1,643 |
|
$ |
1,300 |
|
$ |
7,608 |
|
$ |
10,551 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
- |
|
$ |
819
|
|
$ |
- |
|
$ |
819
|
|
Total
liabilities at fair value |
$ |
- |
|
$ |
819 |
|
$ |
- |
|
$ |
819 |
|
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 nine months ended March 31, 2015
and 2014, respectively. There have been no transfers in or out of Level 3 during
the three and nine months ended March 31, 2015 and 2014, 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 nine months ended March 31, 2015:
|
|
|
|
|
Accumulated |
|
|
Carrying |
|
|
|
Gross value |
|
|
impairment |
|
|
value |
|
Balance as of June 30, 2014 |
$ |
186,576 |
|
$ |
- |
|
$ |
186,576 |
|
Foreign currency adjustment
(1) |
|
(17,143 |
) |
|
- |
|
|
(17,143 |
) |
Balance as of March 31, 2015 |
$ |
169,433 |
|
$ |
- |
|
$ |
169,433 |
|
(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 |
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
South African transaction processing |
$ |
24,974 |
|
$ |
28,517 |
|
International transaction processing |
|
117,788 |
|
|
128,427 |
|
Financial inclusion and applied
technologies |
|
26,671 |
|
|
29,632 |
|
Total |
$ |
169,433 |
|
$ |
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 March 31, 2015
and June 30, 2014:
|
|
As of March 31, 2015 |
|
|
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 |
$ |
89,797 |
|
$ |
(43,972 |
) |
$ |
45,825 |
|
$ |
98,676 |
|
$ |
(41,273 |
) |
$ |
57,403 |
|
Software and
unpatented technology |
|
30,534 |
|
|
(27,585 |
) |
|
2,949 |
|
|
33,604 |
|
|
(26,207 |
) |
|
7,397 |
|
FTS patent |
|
3,169 |
|
|
(3,169 |
) |
|
- |
|
|
3,619 |
|
|
(3,619 |
) |
|
- |
|
Exclusive licenses |
|
4,506 |
|
|
(4,506 |
) |
|
- |
|
|
4,506 |
|
|
(4,506 |
) |
|
- |
|
Trademarks |
|
6,205
|
|
|
(3,314 |
) |
|
2,891
|
|
|
6,890
|
|
|
(3,176 |
) |
|
3,714
|
|
Total finite-lived
intangible assets |
$ |
134,211 |
|
$ |
(82,546 |
) |
$ |
51,665 |
|
$ |
147,295 |
|
$ |
(78,781 |
) |
$ |
68,514 |
|
Aggregate amortization expense on
the finite-lived intangible assets for the three and nine months ended March 31,
2015, was approximately $3.6 million and $11.3 million, respectively (three and
nine months ended March 31, 2014, was approximately $4.6 million and $12.5
million, respectively).
Future estimated annual
amortization expense for the next five fiscal years and thereafter, assuming
exchange rates prevailing on March 31, 2015, 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 |
$ |
14,446 |
|
2016 |
|
10,800 |
|
2017 |
|
8,611 |
|
2018 |
|
8,612 |
|
2019 |
|
8,293 |
|
Thereafter |
$ |
11,507 |
|
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 nine months ended March 31, 2015:
|
|
Reinsurance |
|
|
Insurance |
|
|
|
assets (1) |
|
|
contracts (2) |
|
Balance as of June 30, 2014 |
$ |
21,062 |
|
$ |
(21,478 |
) |
Foreign currency adjustment (3) |
|
(2,617 |
) |
|
2,668
|
|
Balance as
of March 31, 2015 |
$ |
18,445 |
|
$ |
(18,810 |
) |
(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
nine months ended March 31, 2015:
|
|
|
|
|
Investment |
|
|
|
Assets (1) |
|
|
contracts (2) |
|
Balance as of June 30, 2014 |
$ |
688 |
|
$ |
(688 |
) |
Foreign currency adjustment (3) |
|
(85 |
) |
|
85
|
|
Balance as
of March 31, 2015 |
$ |
603 |
|
$ |
(603 |
) |
(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 March 31, 2015, and June
30, 2014, the Company had not utilized any of its ZAR 250.0 million ($20.7
million, translated at exchange rates applicable as of March 31, 2015) overdraft
facility. As of March 31, 2015, the interest rate on the overdraft facility was
8.10%. At March 31, 2015, the Company had utilized approximately ZAR 137.2
million ($11.3 million, translated at exchange rates applicable as of March 31,
2015) 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 ($9.0 million, translated at exchange rates applicable as
of March 31, 2015) overdraft facility as of March 31, 2015 and June 30, 2014. As
of March 31, 2015, the interest rate on the overdraft facility was 3.80%. The
facility expires in January 2016.
9. Long-term borrowings
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 March 31, 2015,
is $60.0 million. As of March 31, 2015, the carrying amount of the long-term
borrowings approximated fair value. The interest rate in effect on March 31,
2015, was 5.22%.
Interest expense incurred during
the three and nine months ended March 31, 2015 and 2014, was $0.8 million and
$2.2 million; and $1.1 million and $3.7 million, respectively. Prepaid facility
fees amortized during the three and nine months ended March 31, 2015 and 2014,
was $0.04 million and $0.2 million; and $0.1 million and $0.7 million,
respectively. Prepaid facility fees amortized during the nine months ended March
31, 2014, include the remaining prepaid facility fees related to the refinanced
facility of approximately $0.4 million that were expensed.
The next scheduled principal
payment of $9.0 million (translated at exchange rates applicable as of March 31,
2015) will be made on April 29, 2016.
10. Capital structure
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 nine
months ended March 31, 2015 and 2014, respectively, and the number of shares,
net of treasury, excluding non-vested equity shares that have not vested during
the nine months ended March 31, 2015 and 2014, respectively:
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Number of shares, net of treasury: |
|
|
|
|
|
|
Statement of changes in equity |
|
46,607,153 |
|
|
45,783,342 |
|
Less: Non-vested equity
shares that have not vested (Note 12) |
|
(341,529 |
) |
|
(385,778 |
) |
Number of shares, net of treasury excluding non-vested equity shares that
have not vested |
|
46,265,624 |
|
|
45,397,564 |
|
Common stock repurchases
and transaction with non-controlling interests
The Company did not repurchase
any of its shares during the three and nine months ended March 31, 2015 and
2014, 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 nine months ended
March 31, 2014, the Company acquired all of the issued share capital of KSNET,
Inc. that it did not previously own for approximately $2.0 million in cash. 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
nine months ended March 31, 2015:
|
|
Nine months ended |
|
|
|
March 31, 2015 |
|
|
|
|
|
|
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 |
|
(49,096 |
) |
|
- |
|
|
(49,096 |
) |
Unrealized gain on asset
available for sale, net of tax of $97 |
|
- |
|
|
422 |
|
|
422 |
|
Balance as
of March 31, 2015 |
$ |
(132,455 |
) |
$ |
1,040 |
|
$ |
(131,415 |
) |
There were no reclassifications
from accumulated other comprehensive loss to comprehensive (loss) income during
the three and nine months ended March 31, 2015 or 2014, respectively.
12. Stock-based compensation
Stock option and
restricted stock activity
Options
The following table summarizes
stock option activity for the nine months ended March 31, 2015 and 2014:
|
|
|
|
|
|
|
|
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 |
|
(748,633 |
) |
|
8.64 |
|
|
|
|
|
3,750 |
|
|
|
|
Outstanding March 31, 2015 |
|
2,426,169 |
|
|
15.30
|
|
|
4.99
|
|
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Exercised |
|
(10,000 |
) |
|
8.75 |
|
|
|
|
|
12 |
|
|
|
|
Forfeited |
|
(136,420 |
) |
|
23.51 |
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2014 |
|
2,727,059 |
|
|
14.12
|
|
|
5.63
|
|
|
2,290
|
|
|
|
|
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 nine months ended
March 31, 2015 and 2014:
|
|
Nine months ended |
|
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
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 nine months ended March 31, 2015. During the three and nine months
ended March 31, 2014, terminated employees forfeited 136,420 stock options.
The following table presents
stock options vested and expecting to vest as of March 31, 2015:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Number of |
|
|
price |
|
|
Term |
|
|
Value |
|
|
|
shares |
|
|
($) |
|
|
(in years) |
|
|
($000) |
|
Vested and expecting to vest March 31,
2015 |
|
2,426,169 |
|
|
15.30 |
|
|
4.99 |
|
|
4,570 |
|
These options have an exercise price range of $7.35 to $24.46.
The following table presents stock options that are exercisable
as of March 31, 2015:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Number of |
|
|
price |
|
|
Term |
|
|
Value |
|
|
|
shares |
|
|
($) |
|
|
(in years) |
|
|
($000) |
|
Exercisable March 31, 2015 |
|
1,668,163 |
|
|
17.71 |
|
|
3.24 |
|
|
1,775 |
|
No stock options became
exercisable during the three months ended March 31, 2015 and 2014, respectively.
During the nine months ended March 31, 2015 and 2014, respectively, 330,967 and
358,333 stock options became exercisable. During the three months ended March
31, 2015, the Company received approximately $0.8 million from 60,000 stock
options exercised. During the nine months ended March 31, 2015, the Company
received approximately $1.8 million from 176,395 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. During the three and nine months ended
March 31, 2014, the Company received approximately $0.1 million from 10,000
stock options exercised. 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 nine months ended March 31, 2015 and 2014:
|
|
|
|
|
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 |
|
Vested February 2015 |
|
(183,334 |
) |
|
2,400 |
|
Non-vested March 31, 2015 |
|
341,529 |
|
|
1,759 |
|
|
|
|
|
|
|
|
Non-vested June 30, 2013 |
|
405,226 |
|
|
4,393 |
|
Granted August 2013 |
|
187,963 |
|
|
1,382 |
|
Vested August 2013 |
|
(16,907 |
) |
|
161 |
|
Vested February 2014 |
|
(183,333 |
) |
|
1,742 |
|
Forfeitures October 2013 |
|
(7,171 |
) |
|
84 |
|
Non-vested March 31,
2014 |
|
385,778 |
|
|
3,534 |
|
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 three months ended March 31, 2015 and 2014,
respectively, was $2.4 million and $1.7 million. The fair value of restricted
stock vesting during the nine months ended March 31, 2015 and 2014,
respectively, was $3.2 million and $1.9 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 $0.7 million and $0.9 million, respectively,
during the three months ended March 31, 2015 and 2014, which comprised:
|
|
|
|
|
Allocated to cost |
|
|
|
|
|
|
|
|
|
of goods sold, IT |
|
|
Allocated to |
|
|
|
|
|
|
processing, |
|
|
selling, general |
|
|
|
Total |
|
|
servicing and |
|
|
and |
|
|
|
charge |
|
|
support |
|
|
administration |
|
Three months ended March 31, 2015 |
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$ |
731
|
|
$ |
- |
|
$ |
731
|
|
Total three months ended March 31, 2015 |
$ |
731 |
|
$ |
- |
|
$ |
731 |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$ |
922
|
|
$ |
- |
|
$ |
922
|
|
Total three months ended March 31, 2014 |
$ |
922 |
|
$ |
- |
|
$ |
922 |
|
The Company has recorded a
stock-based compensation charge of $2.7 million and $2.8 million, respectively,
during the nine months ended March 31, 2015 and 2014, which comprised:
|
|
|
|
|
Allocated to cost |
|
|
|
|
|
|
|
|
|
of goods sold, IT |
|
|
Allocated to |
|
|
|
|
|
|
processing, |
|
|
selling, general |
|
|
|
Total |
|
|
servicing and |
|
|
and |
|
|
|
charge |
|
|
support |
|
|
administration |
|
Nine months ended March 31, 2015 |
|
|
|
|
|
|
|
|
|
Stock-based compensation charge |
$ |
2,682
|
|
$ |
- |
|
$ |
2,682
|
|
Total nine months ended March 31, 2015 |
$ |
2,682 |
|
$ |
- |
|
$ |
2,682 |
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
Stock-based compensation charge |
$ |
2,826 |
|
$ |
- |
|
$ |
2,826 |
|
Reversal of stock compensation charge
related to restricted stock forfeited |
|
(6 |
) |
|
- |
|
|
(6 |
) |
Total nine months
ended March 31, 2014 |
$ |
2,820 |
|
$ |
-
|
|
$ |
2,820 |
|
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 March 31, 2015, the total
unrecognized compensation cost related to stock options was approximately $2.1
million, which the Company expects to recognize over approximately three years.
As of March 31, 2015, the total unrecognized compensation cost related to
restricted stock awards was approximately $1.3 million, which the Company
expects to recognize over approximately two years.
As of March 31, 2015 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.
13. Earnings per share
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 nine months ended March 31, 2015 and 2014, 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, August 2014 and November 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 |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands except percent |
|
|
(in thousands except percent |
|
|
|
and |
|
|
and |
|
|
|
per share data) |
|
|
per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Net1 |
$ |
24,358 |
|
$ |
17,182 |
|
$ |
70,821 |
|
$ |
41,527 |
|
Undistributed earnings |
|
24,358 |
|
|
17,182 |
|
|
70,821 |
|
|
41,527 |
|
Percent allocated to common
shareholders (Calculation 1) |
|
99% |
|
|
99% |
|
|
99% |
|
|
99% |
|
Numerator for
earnings per share: basic and diluted |
$ |
24,102 |
|
$ |
16,944 |
|
$ |
70,011 |
|
$ |
40,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share:
weighted-average common shares outstanding |
|
46,071 |
|
|
45,142 |
|
|
46,235 |
|
|
45,070 |
|
Effect of dilutive
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
178 |
|
|
91 |
|
|
137 |
|
|
106 |
|
Denominator for diluted earnings per
share: adjusted
weighted average common shares
outstanding and assumed conversion |
|
46,249 |
|
|
45,233 |
|
|
46,372 |
|
|
45,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.52 |
|
$ |
0.38 |
|
$ |
1.51 |
|
$ |
0.91 |
|
Diluted |
$ |
0.52 |
|
$ |
0.37 |
|
$ |
1.51 |
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common
shares
outstanding (A) |
|
46,071 |
|
|
45,142 |
|
|
46,235 |
|
|
45,070 |
|
Basic
weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B) |
|
46,561 |
|
|
45,776 |
|
|
46,770 |
|
|
45,742 |
|
Percent allocated to common
shareholders (A) / (B) |
|
99% |
|
|
99% |
|
|
99% |
|
|
99% |
|
Options to purchase 1,798,853
shares of the Companys common stock at prices ranging from $11.23 to $24.46 per
share were outstanding during the three and nine months ended March 31, 2015,
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 March 31, 2015.
19
14. Supplemental cash flow information
The following table presents
supplemental cash flow disclosures for the three and nine months ended March 31,
2015 and 2014:
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Cash received from interest |
$ |
4,200 |
|
$ |
3,422 |
|
$ |
11,940 |
|
$ |
9,886 |
|
Cash paid for interest |
$ |
915 |
|
$ |
1,651 |
|
$ |
3,328 |
|
$ |
5,317 |
|
Cash paid for income taxes |
$ |
3,086 |
|
$ |
1,570 |
|
$ |
28,639 |
|
$ |
16,097 |
|
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 nine months ended March 31, 2015, 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
March 31, 2015 and unaudited condensed consolidated statement of changes in
equity for the nine months ended March 31, 2015.
15. Operating segments
The Company discloses segment
information as reflected in the management information systems reports that its
chief operating decision maker uses in making decisions and to report certain
entity-wide disclosures about products and services, major customers, and the
countries in which the entity holds material assets or reports material
revenues. A description of the 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 March 31, 2015 and 2014, respectively, is as follows:
|
|
Revenue |
|
|
|
|
|
|
|
|
|
From |
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
South African transaction processing |
$ |
57,999 |
|
$ |
5,359 |
|
$ |
52,640 |
|
International transaction processing |
|
38,311 |
|
|
- |
|
|
38,311 |
|
Financial inclusion and applied
technologies |
|
66,830 |
|
|
6,660 |
|
|
60,170 |
|
Total for the three months ended March 31, 2015 |
|
163,140 |
|
|
12,019 |
|
|
151,121 |
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
57,397 |
|
|
3,886 |
|
|
53,511 |
|
International transaction processing |
|
35,245 |
|
|
- |
|
|
35,245 |
|
Financial inclusion and applied technologies |
|
56,226 |
|
|
6,856
|
|
|
49,370 |
|
Total for the three months ended
March 31, 2014 |
$ |
148,868 |
|
$ |
10,742 |
|
$ |
138,126 |
|
The reconciliation of the
reportable segments revenue to revenue from external customers for the nine
months ended March 31, 2015 and 2014, respectively, is as follows:
|
|
Revenue |
|
|
|
|
|
|
|
|
|
From |
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
South African transaction processing |
$ |
176,678 |
|
$ |
15,917 |
|
$ |
160,761 |
|
International transaction processing |
|
121,981 |
|
|
- |
|
|
121,981 |
|
Financial inclusion and applied
technologies |
|
199,558 |
|
|
20,607 |
|
|
178,951 |
|
Total for the nine months ended March 31, 2015 |
$ |
498,217 |
|
$ |
36,524 |
|
$ |
461,693 |
|
20
15. Operating segments (continued)
|
|
Revenue |
|
|
|
|
|
|
|
|
|
From |
|
|
|
Reportable |
|
|
Inter- |
|
|
external |
|
|
|
Segment |
|
|
segment |
|
|
customers |
|
South African transaction processing |
$ |
173,312 |
|
$ |
6,866 |
|
$ |
166,446 |
|
International transaction processing |
|
110,524 |
|
|
- |
|
|
110,524 |
|
Financial inclusion and applied
technologies |
|
143,502 |
|
|
21,569 |
|
|
121,933 |
|
Total for the nine months ended March 31, 2014 |
$ |
427,338 |
|
$ |
28,435 |
|
$ |
398,903 |
|
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 nine months ended March 31, 2015 and 2014,
respectively, is as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Reportable segments measure of profit or
loss |
$ |
37,703 |
|
$ |
30,238 |
|
$ |
112,751 |
|
$ |
80,590 |
|
Operating income: Corporate/Eliminations |
|
(5,737 |
) |
|
(6,289 |
) |
|
(16,845 |
) |
|
(21,439 |
) |
Interest income |
|
4,211 |
|
|
3,438 |
|
|
11,888 |
|
|
9,993 |
|
Interest expense |
|
(941 |
) |
|
(1,734 |
) |
|
(3,360 |
) |
|
(5,712 |
) |
Income before income
taxes |
$ |
35,236 |
|
$ |
25,653 |
|
$ |
104,434 |
|
$ |
63,432 |
|
The following tables summarize
segment information which is prepared in accordance with GAAP for the three and
nine months ended March 31, 2015 and 2014:
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$ |
57,999 |
|
$ |
57,397 |
|
$ |
176,678 |
|
$ |
173,312 |
|
International
transaction processing |
|
38,311 |
|
|
35,245 |
|
|
121,981 |
|
|
110,524 |
|
Financial inclusion and applied
technologies |
|
66,830 |
|
|
56,226 |
|
|
199,558 |
|
|
143,502 |
|
Total |
|
163,140 |
|
|
148,868 |
|
|
498,217 |
|
|
427,338 |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
South African
transaction processing |
|
13,218 |
|
|
9,137 |
|
|
39,740 |
|
|
22,726 |
|
International transaction processing
|
|
6,579 |
|
|
4,642 |
|
|
19,671 |
|
|
15,305 |
|
Financial inclusion and
applied technologies |
|
17,906 |
|
|
16,459 |
|
|
53,340 |
|
|
42,559 |
|
Subtotal:
Operating segments |
|
37,703 |
|
|
30,238 |
|
|
112,751 |
|
|
80,590 |
|
Corporate/Eliminations |
|
(5,737 |
) |
|
(6,289 |
) |
|
(16,845 |
) |
|
(21,439 |
) |
Total |
|
31,966 |
|
|
23,949 |
|
|
95,906 |
|
|
59,151 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
1,726 |
|
|
1,653 |
|
|
5,271 |
|
|
5,475 |
|
International
transaction processing |
|
4,560 |
|
|
3,959 |
|
|
13,224 |
|
|
11,822 |
|
Financial inclusion and applied
technologies |
|
207
|
|
|
172
|
|
|
589
|
|
|
495
|
|
Subtotal:
Operating segments |
|
6,493 |
|
|
5,784 |
|
|
19,084 |
|
|
17,792 |
|
Corporate/Eliminations |
|
3,567
|
|
|
4,658
|
|
|
11,307 |
|
|
12,453 |
|
Total |
$ |
10,060 |
|
$ |
10,442 |
|
$ |
30,391 |
|
$ |
30,245 |
|
21
15. Operating segments (continued)
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Expenditures for long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
$ |
1,514 |
|
$ |
303 |
|
$ |
3,678 |
|
$ |
2,903 |
|
International transaction
processing |
|
4,561 |
|
|
4,231 |
|
|
20,167 |
|
|
13,747 |
|
Financial inclusion and applied technologies
|
|
232
|
|
|
314
|
|
|
977
|
|
|
659
|
|
Subtotal:
Operating segments |
|
6,307 |
|
|
4,848 |
|
|
24,822 |
|
|
17,309 |
|
Corporate/Eliminations |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total |
$ |
6,307 |
|
$ |
4,848 |
|
$ |
24,822 |
|
$ |
17,309 |
|
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.
16. Income tax
Income tax in interim
periods
For the purposes of interim
financial reporting, the Company determines the appropriate income tax provision
by first applying the effective tax rate expected to be applicable for the full
fiscal year to ordinary income. This amount is then adjusted for the tax effect
of significant unusual 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 nine months
ended March 31, 2015, the tax charge was calculated using the expected effective
tax rate for the year. The Companys effective tax rate for the three and nine
months ended March 31, 2015, was 29.2% and 30.8%, respectively, and was higher
than the South African statutory rate primarily as a result of non-deductible
expenses (including consulting and legal fees and interest expense related to
the Companys long-term Korean borrowings).
The Companys effective tax rate
for the three and nine months ended March 31, 2014, was 33.3% and 34.9%,
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
The Company increased its
unrecognized tax benefits by $1.2 million during the three and nine months ended
March 31, 2015. As of March 31, 2015, 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 March 31, 2015 and June 30,
2014, the Company has unrecognized tax benefits of $2.3 million and $1.2
million, respectively, 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 March 31, 2015, 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,
results of operations or cash flows.
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 ($11.2 million, translated at
exchange rates applicable as of March 31, 2015) 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 ($10.3 million,
translated at exchange rates applicable as of March 31, 2015). 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 March 31, 2015 and June 30, 2014. The maximum potential amount that
the Company could pay under these guarantees is ZAR 135.0 million ($11.2
million, translated at exchange rates applicable as of March 31, 2015). The
guarantees have reduced the amount available for borrowings under the Companys
short-term credit facility described in Note 8.
Contingencies
Securities
Litigation
On March 6, 2015, the plaintiff
filed an opposition to the Companys motion to dismiss its complaint and the
Company filed a reply brief on March 27, 2015.
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 or 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 thereto 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
Update on SASSA
tender process
As ordered by the South African
Constitutional Court in its April 2014 ruling, SASSA initiated a new tender
process for a five-year contract relating to the payment of social grants by
issuing an initial Request for Proposal, or RFP, in October 2014. 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 Courts ruling
and, in November 2014, we 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, it did order SASSA to issue a draft amended RFP. SASSA issued
amended RFPs on two separate occasions (in December 2014 and February 2015). We
continued to object to deficiencies in the amended RFPs and made further
applications to the Court setting forth our objections. In February 2015, SASSA
applied to the Court for an extension of time to address our objections.
In orders dated March 19 and 24,
2015, the Court ordered SASSA to effect further amendments to the RFP to address
our objections. The Court ordered that, absent further objections (1) SASSA must
circulate a further amended draft RFP by April 17, 2015; (2) all bids must be
submitted by May 17, 2015 and (3) SASSA shall award the new tender by October
15, 2015. The Courts April 2014 ruling does not require SASSA to award a new
tender, though we expect that any decision not to make an award would be subject
to judicial review and scrutiny. On April 17, 2015, SASSA issued and circulated
an amended RFP to all prospective bidders. The amended RFP specifies that
bidders must submit their proposals to SASSA on or before May 18, 2015 and also
states that no part of the contents of the RFP may be used, copied, disclosed or
conveyed in whole or in part to any party in any manner whatsoever other than
for the purpose of the proposal.
We are currently analyzing the RFP to determine whether
it is in the best interest of the Company to participate in the tender process
or to focus on our other financial services businesses without being a
contractor to SASSA. We have not yet made a final determination but expect to do
so by the tender deadline. In any event, we cannot predict 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.
See Part II, Item 1A.Risk
Factors, for additional details.
24
ATMs in South
Africa
We have deployed ATMs, which are
both EMV-and UEPS-compliant, and provide biometric verification as well as proof
of life functionality, in South Africa. We have been able to expand our customer
base because our ATMs accept all EMV-compliant cards. We currently have
approximately 400 operational ATMs and we are actively deploying more ATMs in
high demand areas. We have placed these ATMs with our merchant partners and
within our own branches, creating a new delivery channel that did not exist
before. Although capital intensive, our ATM rollout has already begun to make a
positive contribution to our reported results.
ZAZOO
We established ZAZOO to oversee
the global expansion of our mobile payments and value-added services businesses,
including the activities currently conducted through our N1MS business unit.
ZAZOOs management is focused on worldwide growth opportunities, especially in
the UK, Europe, the USA, India and other developed and emerging markets. ZAZOO
coordinates all research and development, operations and marketing activities
associated with N1MS mobile businesses.
ZAZOO entered into strategic
collaborations with Uber, Microsoft and Cell C (one of South Africas largest
mobile operators) during the third quarter of fiscal 2015 for our VCPay mobile
application. VCPay is a mobile phone-based application that generates
transaction specific virtual MasterCards that can be used for online purchases,
or in brick-and-mortar retailers, that accept manual Card-Not-Present payments.
Users can also send a virtual card to friends or family anywhere via email, SMS,
MMS or WhatsApp, making it simpler than ever before to send money to third
parties. VCPay is fully interoperable and does not require merchants to change
the way in which payments are accepted online or via mobile applications, like
Uber. We believe that VCPay bridges the electronic payment requirement gap for
online or in-application payments by providing an immediate, safe and secure
payment solution to anybody, regardless of their banking status.
Under the collaboration with Uber
in South Africa, people who do not own credit cards are now able to use VCPay to
pay for the Uber service.
Under the collaboration with
Microsoft and Cell C, ZAZOO agreed to sponsor a R250 VCPay voucher to consumers
who purchase the new Microsoft Lumia 535 on a Cell C contract. The new device
became available on Cell Cs talk and data contracts beginning February 1, 2015,
and the initial batch was packaged with the VCPay voucher for new owners to use
in completing a purchase of their choice when using our VCPay service.
World Food
Program
The Southern Africa Regional
Office of the United Nations World Food Program, or the WFP, has awarded us a
tender for 12 countries that are members of the Southern African Development
Community. The contract is for the distribution of cash and food grants to
hundreds of thousands of WFP beneficiaries in these territories.
Our technology makes use of any
infrastructure present in each territory, and allows for the biometric
verification of all beneficiaries regardless of the infrastructure being
utilized even when such infrastructure is not biometrically enabled. In these
scenarios, we utilize our patented variable PIN technology in conjunction with
fingerprint or voice verification methods using any mobile phone. We do not
expect that this socially responsible initiative will necessarily translate into
a meaningful financial contributor for us in the short term, but we strongly
believe that the exposure and credibility associated with winning and operating
a project of this nature and scale will create further opportunities for us to
implement the same or similar solutions in other contexts. We are currently
finalizing our deployment contract with the WFP office based in South Africa.
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.
25
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 March 31, 2015
Refer to Note 1 to our unaudited
condensed consolidated financial statements for a full description of recent
accounting pronouncements not yet adopted as of March 31, 2015, 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 |
|
|
Nine months ended |
|
|
Year ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
ZAR : $ average exchange rate |
|
11.7422 |
|
|
10.8622 |
|
|
11.2377 |
|
|
10.3375 |
|
|
10.3798 |
|
Highest ZAR : $ rate during period |
|
12.4792 |
|
|
11.2667 |
|
|
12.4792 |
|
|
11.2667 |
|
|
11.2579 |
|
Lowest ZAR : $ rate during period |
|
11.3622 |
|
|
10.4848 |
|
|
10.5128 |
|
|
9.6324 |
|
|
9.6259 |
|
Rate at end of period |
|
12.0907 |
|
|
10.5833 |
|
|
12.0907 |
|
|
10.5833 |
|
|
10.5887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW : $ average exchange rate |
|
1,101 |
|
|
1,071 |
|
|
1,072 |
|
|
1,083 |
|
|
1,068 |
|
Highest KRW : $ rate during period |
|
1,139 |
|
|
1,089 |
|
|
1,139 |
|
|
1,168 |
|
|
1,147 |
|
Lowest KRW : $ rate during period |
|
1,077 |
|
|
1,053 |
|
|
1,009 |
|
|
1,052 |
|
|
1,014 |
|
Rate at end of period |
|
1,106 |
|
|
1,071 |
|
|
1,106 |
|
|
1,071 |
|
|
1,014 |
|
26
ZAR: US $ Exchange Rates
KRW: US $ Exchange Rates
27
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 nine months
ended March 31, 2015 and 2014, 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 |
|
|
Nine months ended |
|
|
Year ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
Income and expense items: $1 = ZAR |
|
11.7218 |
|
|
10.8743 |
|
|
11.2251 |
|
|
10.3801 |
|
|
10.3966 |
|
Income and expense items: $1 = KRW |
|
1,101 |
|
|
1,070 |
|
|
1,064 |
|
|
1,076 |
|
|
1,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items: $1 = ZAR |
|
12.0907 |
|
|
10.5833 |
|
|
12.0907 |
|
|
10.5833 |
|
|
10.5887 |
|
Balance sheet items: $1 = KRW |
|
1,106 |
|
|
1,071 |
|
|
1,106 |
|
|
1,071 |
|
|
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.
Third quarter of fiscal
2015 compared to third quarter of fiscal 2014
The following factors had a
significant influence on our results of operations during the third 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 8% against the ZAR during the
third 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 and a refund of $1.7 million that
had been paid several years ago in connection with industry-wide litigation
that has now been finalized;
- Increase in the number of SASSA grants paid: Our revenue and
operating income have 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 third
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.
28
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:
|
|
In United States Dollars |
|
Table 3 |
|
(US GAAP) |
|
|
|
Three months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
$ % |
|
|
|
$ 000 |
|
|
$ 000 |
|
|
change |
|
Revenue |
|
151,121 |
|
|
138,126 |
|
|
9% |
|
Cost of goods sold, IT processing, servicing and support
|
|
71,094 |
|
|
63,149 |
|
|
13% |
|
Selling, general and administration |
|
38,001 |
|
|
40,586 |
|
|
(6% |
) |
Depreciation and amortization |
|
10,060 |
|
|
10,442 |
|
|
(4% |
) |
Operating income |
|
31,966 |
|
|
23,949 |
|
|
33% |
|
Interest income |
|
4,211 |
|
|
3,438 |
|
|
22% |
|
Interest expense |
|
941 |
|
|
1,734 |
|
|
(46% |
) |
Income before income tax expense |
|
35,236 |
|
|
25,653 |
|
|
37% |
|
Income tax expense |
|
10,305 |
|
|
8,535 |
|
|
21% |
|
Net income before earnings from equity-accounted
investments |
|
24,931 |
|
|
17,118 |
|
|
46% |
|
Earnings from equity-accounted investments
|
|
65 |
|
|
52 |
|
|
25% |
|
Net income |
|
24,996 |
|
|
17,170 |
|
|
46% |
|
Less (Add) net income (loss) attributable
to non-controlling interest |
|
638 |
|
|
(12 |
) |
|
nm |
|
Net income attributable to us |
|
24,358 |
|
|
17,182 |
|
|
42% |
|
|
|
In South African Rand |
|
Table 4 |
|
(US GAAP) |
|
|
|
Three months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
ZAR |
|
|
ZAR |
|
|
ZAR % |
|
|
|
000 |
|
|
000 |
|
|
change |
|
Revenue |
|
1,771,411 |
|
|
1,502,024 |
|
|
18% |
|
Cost of goods sold, IT processing, servicing and support
|
|
833,350 |
|
|
686,701 |
|
|
21% |
|
Selling, general and administration |
|
445,440 |
|
|
441,345 |
|
|
1% |
|
Depreciation and amortization |
|
117,921 |
|
|
113,549 |
|
|
4% |
|
Operating income |
|
374,700 |
|
|
260,429 |
|
|
44% |
|
Interest income |
|
49,360 |
|
|
37,386 |
|
|
32% |
|
Interest expense |
|
11,030 |
|
|
18,856 |
|
|
(42% |
) |
Income before income tax expense |
|
413,030 |
|
|
278,959 |
|
|
48% |
|
Income tax expense |
|
120,793 |
|
|
92,812 |
|
|
30% |
|
Net income before earnings from equity-accounted
investments |
|
292,237 |
|
|
186,147 |
|
|
57% |
|
Earnings from equity-accounted investments
|
|
762 |
|
|
565 |
|
|
35% |
|
Net income |
|
292,999 |
|
|
186,712 |
|
|
57% |
|
Less (Add) net income (loss) attributable
to non-controlling interest |
|
7,479 |
|
|
(130 |
) |
|
nm |
|
Net income attributable to us |
|
285,520 |
|
|
186,842 |
|
|
53% |
|
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, a higher contribution from KSNET and more ad hoc
terminal and card sales.
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 more prepaid airtime sold.
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
third quarter of fiscal 2015 and 2014 was 21% and 17%, respectively. We discuss
the components of operating income margin under Results of operations by
operating segment. The increase is primarily attributable to higher transaction
volumes in South Africa, including prepaid airtime sales, lending and SASSA
grants paid.
29
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 $4.2 million (ZAR 49.4 million) from $3.4 million (ZAR 37.4
million), due primarily to higher average daily ZAR cash balances.
Interest expense decreased to
$0.9 million (ZAR 11.0 million) from $1.7 million (ZAR 18.9 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 $10.3
million (ZAR 120.8 million) compared to $8.5 million (ZAR 92.8 million) in
fiscal 2014. Our effective tax rate for fiscal 2015, was 29.2% and was higher
than the South African statutory rate as a result of non-deductible expenses
(including consulting and legal fees and the interest expense related to our
long-term South Korean borrowings). Our effective tax rate for fiscal 2014, was
33.3% 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 March 31, |
|
|
|
2015 |
|
|
% of |
|
|
2014 |
|
|
% of |
|
|
% |
|
Operating Segment |
|
$ 000 |
|
|
total |
|
|
$ 000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
57,999 |
|
|
38% |
|
|
57,397 |
|
|
42% |
|
|
1% |
|
International transaction processing |
|
38,311 |
|
|
25% |
|
|
35,245 |
|
|
26% |
|
|
9% |
|
Financial inclusion and applied technologies |
|
66,830
|
|
|
44%
|
|
|
56,226
|
|
|
41%
|
|
|
19% |
|
Subtotal:
Operating segments |
|
163,140 |
|
|
107% |
|
|
148,868 |
|
|
109% |
|
|
10% |
|
Intersegment eliminations |
|
(12,019 |
) |
|
(7% |
) |
|
(10,742 |
) |
|
(9% |
) |
|
12% |
|
Consolidated revenue |
|
151,121 |
|
|
100% |
|
|
138,126 |
|
|
100% |
|
|
9% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
13,218 |
|
|
41% |
|
|
9,137 |
|
|
38% |
|
|
45% |
|
International transaction processing |
|
6,579 |
|
|
21% |
|
|
4,642 |
|
|
19% |
|
|
42% |
|
Financial inclusion and applied
technologies |
|
17,906 |
|
|
56% |
|
|
16,459 |
|
|
69% |
|
|
9% |
|
Subtotal: Operating segments |
|
37,703 |
|
|
118% |
|
|
30,238 |
|
|
126% |
|
|
25% |
|
Corporate/Eliminations |
|
(5,737 |
) |
|
(18% |
) |
|
(6,289 |
) |
|
(26% |
) |
|
(9% |
) |
Consolidated operating income |
|
31,966 |
|
|
100%
|
|
|
23,949 |
|
|
100%
|
|
|
33% |
|
Table 6 |
|
In South African Rand (US GAAP) |
|
|
|
Three months ended March 31, |
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
ZAR |
|
|
% of |
|
|
ZAR |
|
|
% of |
|
|
% |
|
Operating Segment |
|
000 |
|
|
total |
|
|
000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
679,853 |
|
|
38% |
|
|
624,153 |
|
|
42% |
|
|
9% |
|
International transaction processing |
|
449,074 |
|
|
25% |
|
|
383,265 |
|
|
26% |
|
|
17% |
|
Financial inclusion and applied technologies |
|
783,368 |
|
|
44% |
|
|
611,418 |
|
|
41% |
|
|
28% |
|
Subtotal:
Operating segments |
|
1,912,295 |
|
|
107% |
|
|
1,618,836 |
|
|
109% |
|
|
18% |
|
Intersegment eliminations |
|
(140,884 |
) |
|
(7% |
) |
|
(116,812 |
) |
|
(9% |
) |
|
21% |
|
Consolidated revenue |
|
1,771,411 |
|
|
100% |
|
|
1,502,024 |
|
|
100% |
|
|
18% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
154,939 |
|
|
41% |
|
|
99,359 |
|
|
38% |
|
|
56% |
|
International transaction processing |
|
77,118 |
|
|
21% |
|
|
50,478 |
|
|
19% |
|
|
53% |
|
Financial inclusion and applied
technologies |
|
209,891 |
|
|
56% |
|
|
178,980 |
|
|
69% |
|
|
17% |
|
Subtotal: Operating segments |
|
441,948 |
|
|
118% |
|
|
328,817 |
|
|
126% |
|
|
34% |
|
Corporate/Eliminations |
|
(67,248 |
) |
|
(18% |
) |
|
(68,388 |
) |
|
(26% |
) |
|
(2% |
) |
Consolidated operating income |
|
374,700 |
|
|
100% |
|
|
260,429 |
|
|
100% |
|
|
44% |
|
30
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 third quarter of fiscal 2015 and 2014 was 23% and 16%, 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 increased primarily due
to higher transaction volume at KSNET during the third quarter of fiscal 2015.
Operating income during the year to date fiscal 2015 was higher due to increase
in revenue contribution from KSNET, but partially offset by Zazoo start-up costs
in the UK and India. Operating income and margin for the third quarter of fiscal
2015, was also positively impacted by a refund of approximately $1.7 million
that had been paid several years ago in connection with industry-wide litigation
that has now been finalized. Operating income margin for the third quarter of
fiscal 2015 and 2014 was 17% and 13%, respectively, and was higher in fiscal
2015 primarily due to the refund referred to above.
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, more ad hoc terminal and card sales 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.
The South African National Credit
Act, or NCA, made certain industry-wide amendments, which became effective March
13, 2015. These amendments were introduced primarily to address
over-indebtedness of South African consumers and now require lenders to perform
a stricter affordability assessment. We expect that compliance with the amended
legislation will have a modest impact on our UEPS-based lending businesses in
the fourth quarter of fiscal 2015.
Operating income margin for the
Financial inclusion and applied technologies segment was 27% and 29%,
respectively, during of the third quarter of fiscal 2015 and 2014, and has
decreased primarily due to the sale 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.
Year to date fiscal 2015
compared to year to date fiscal 2014
The following factors had a
significant influence on our results of operations during the year to date
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 8% against the ZAR during the
year to date 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 have 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 year
to date fiscal 2015, which has resulted in higher revenues and operating
income from more sales of low-margin prepaid airtime and UEPS-based lending.
31
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:
|
|
In United States Dollars |
|
Table 7 |
|
(US GAAP) |
|
|
|
Nine months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
$ % |
|
|
|
$ 000 |
|
|
$ 000 |
|
|
change |
|
Revenue |
|
461,693 |
|
|
398,903 |
|
|
16% |
|
Cost of goods sold, IT processing, servicing and support
|
|
217,274 |
|
|
187,591 |
|
|
16% |
|
Selling, general and administration |
|
118,122 |
|
|
121,916 |
|
|
(3% |
) |
Depreciation and amortization |
|
30,391 |
|
|
30,245 |
|
|
0% |
|
Operating income |
|
95,906 |
|
|
59,151 |
|
|
62% |
|
Interest income |
|
11,888 |
|
|
9,993 |
|
|
19% |
|
Interest expense |
|
3,360 |
|
|
5,712 |
|
|
(41% |
) |
Income before income tax expense |
|
104,434 |
|
|
63,432 |
|
|
65% |
|
Income tax expense |
|
32,156 |
|
|
22,119 |
|
|
45% |
|
Net income before earnings from equity-accounted
investments |
|
72,278 |
|
|
41,313 |
|
|
75% |
|
Earnings from equity-accounted investments
|
|
233 |
|
|
202 |
|
|
15% |
|
Net income |
|
72,511 |
|
|
41,515 |
|
|
75% |
|
Less (add) net income (loss) attributable
to non-controlling interest |
|
1,690 |
|
|
(12 |
) |
|
nm |
|
Net income attributable to us |
|
70,821 |
|
|
41,527 |
|
|
71% |
|
|
|
In South African Rand |
|
Table 8 |
|
(US GAAP) |
|
|
|
Nine months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
ZAR |
|
|
ZAR |
|
|
ZAR % |
|
|
|
000 |
|
|
000 |
|
|
change |
|
Revenue |
|
5,182,550 |
|
|
4,140,654 |
|
|
25% |
|
Cost of goods sold, IT processing, servicing and support
|
|
2,438,922 |
|
|
1,947,214 |
|
|
25% |
|
Selling, general and administration |
|
1,325,932 |
|
|
1,265,501 |
|
|
5% |
|
Depreciation and amortization |
|
341,142 |
|
|
313,947 |
|
|
9% |
|
Operating income |
|
1,076,554 |
|
|
613,992 |
|
|
75% |
|
Interest income |
|
133,444 |
|
|
103,728 |
|
|
29% |
|
Interest expense |
|
37,716 |
|
|
59,291 |
|
|
(36% |
) |
Income before income tax expense |
|
1,172,282 |
|
|
658,429 |
|
|
78% |
|
Income tax expense |
|
360,954 |
|
|
229,597 |
|
|
57% |
|
Net income before earnings from equity-accounted
investments |
|
811,328 |
|
|
428,832 |
|
|
89% |
|
Earnings from equity-accounted investments
|
|
2,615 |
|
|
2,097 |
|
|
25% |
|
Net income |
|
813,943 |
|
|
430,929 |
|
|
89% |
|
Less (add) net income (loss) attributable
to non-controlling interest |
|
18,970 |
|
|
(125 |
) |
|
nm |
|
Net income attributable to us |
|
794,973 |
|
|
431,054 |
|
|
84% |
|
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, a higher contribution from KSNET and more ad hoc
terminal and card sales.
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 more prepaid airtime sold.
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
year to date fiscal 2015 and 2014 was 21% and 15%, respectively. We discuss the
components of operating income margin under Results of operations by operating
segment. The increase is primarily attributable to higher transaction volumes
in South Africa, including prepaid airtime sales, lending and SASSA grants paid.
32
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 $11.9 million (ZAR 133.4 million) from $10.0 million (ZAR 103.7
million), due primarily to higher average daily ZAR cash balances.
Interest expense decreased to
$3.4 million (ZAR 37.7 million) from $5.7 million (ZAR 59.3 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 $32.2
million (ZAR 361.0 million) compared to $22.1 million (ZAR 230.0 million) in
fiscal 2014. Our effective tax rate for fiscal 2015, was 30.8% and was higher
than the South African statutory rate as a result of non-deductible expenses
(including consulting and legal fees and the interest expense related to our
long-term South Korean borrowings). Our effective tax rate for fiscal 2014, was
34.9% 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) |
|
|
|
Nine months ended March 31, |
|
|
|
2015 |
|
|
% of |
|
|
2014 |
|
|
% of |
|
|
% |
|
Operating Segment |
|
$ 000 |
|
|
total |
|
|
$ 000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
176,678 |
|
|
38% |
|
|
173,312 |
|
|
43% |
|
|
2% |
|
International transaction processing |
|
121,981 |
|
|
26% |
|
|
110,524 |
|
|
28% |
|
|
10% |
|
Financial inclusion and applied technologies |
|
199,558 |
|
|
43%
|
|
|
143,502 |
|
|
36%
|
|
|
39% |
|
Subtotal:
Operating segments |
|
498,217 |
|
|
107% |
|
|
427,338 |
|
|
107% |
|
|
17% |
|
Intersegment eliminations |
|
(36,524 |
) |
|
(7% |
) |
|
(28,435 |
) |
|
(7% |
) |
|
28% |
|
Consolidated revenue |
|
461,693 |
|
|
100% |
|
|
398,903 |
|
|
100% |
|
|
16% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
39,740 |
|
|
41% |
|
|
22,726 |
|
|
38% |
|
|
75% |
|
International transaction processing |
|
19,671 |
|
|
21% |
|
|
15,305 |
|
|
26% |
|
|
29% |
|
Financial inclusion and applied
technologies |
|
53,340 |
|
|
56% |
|
|
42,559 |
|
|
72% |
|
|
25% |
|
Subtotal: Operating segments |
|
112,751 |
|
|
118% |
|
|
80,590 |
|
|
136% |
|
|
40% |
|
Corporate/Eliminations |
|
(16,845 |
) |
|
(18% |
) |
|
(21,439 |
) |
|
(36% |
) |
|
(21% |
) |
Consolidated operating income |
|
95,906 |
|
|
100%
|
|
|
59,151 |
|
|
100%
|
|
|
62% |
|
Table 10 |
|
In South African Rand (US GAAP) |
|
|
|
Nine months ended March 31, |
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
ZAR |
|
|
% of |
|
|
ZAR |
|
|
% of |
|
|
% |
|
Operating Segment |
|
000 |
|
|
total |
|
|
000 |
|
|
total |
|
|
change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
1,983,228 |
|
|
38% |
|
|
1,798,996 |
|
|
43% |
|
|
10% |
|
International transaction processing |
|
1,369,249 |
|
|
26% |
|
|
1,147,251 |
|
|
28% |
|
|
19% |
|
Financial inclusion and applied
technologies |
|
2,240,059 |
|
|
43% |
|
|
1,489,565 |
|
|
36% |
|
|
50% |
|
Subtotal: Operating segments |
|
5,592,536 |
|
|
107% |
|
|
4,435,812 |
|
|
107% |
|
|
26% |
|
Intersegment
eliminations |
|
(409,986 |
) |
|
(7% |
) |
|
(295,158 |
) |
|
(7% |
) |
|
39% |
|
Consolidated revenue |
|
5,182,550 |
|
|
100%
|
|
|
4,140,654 |
|
|
100%
|
|
|
25% |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing |
|
446,085 |
|
|
41% |
|
|
235,898 |
|
|
38% |
|
|
89% |
|
International transaction processing |
|
220,809 |
|
|
21% |
|
|
158,867 |
|
|
26% |
|
|
39% |
|
Financial inclusion and applied technologies |
|
598,747 |
|
|
56%
|
|
|
441,766 |
|
|
72%
|
|
|
36% |
|
Subtotal:
Operating segments |
|
1,265,641 |
|
|
118% |
|
|
836,531 |
|
|
136% |
|
|
51% |
|
Corporate/Eliminations |
|
(189,087 |
) |
|
(18% |
) |
|
(222,539 |
) |
|
(36% |
) |
|
(15% |
) |
Consolidated operating income |
|
1,076,554 |
|
|
100% |
|
|
613,992 |
|
|
100% |
|
|
75% |
|
33
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 year to date fiscal 2015 and 2014 was 22% and 13%, 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 year to
date fiscal 2015. Operating income margin for the year to date 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 March 31, 2015, our cash
balances were $111.0 million, which comprised mainly ZAR-denominated balances of
ZAR 1.2 billion ($103.6 million), KRW-denominated balances of KRW 1.6 billion
($1.5 million) and US dollar-denominated balances of $4.3 million and other
currency deposits, primarily Botswana Pula, of $1.7 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, 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.
34
We have a short-term South
African credit facility with Nedbank Limited of ZAR 400 million ($33.1 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
March 31, 2015, we have used none of the overdraft and ZAR 137.2 million ($11.3
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 March 31, 2015, we had
outstanding long-term debt of KRW 66.4 billion (approximately $60.0 million
translated at exchange rates applicable as of March 31, 2015) 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 (2.12% as of March 31, 2015)
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 nine months ended
March 31, 2015, for additional information related to our long-term borrowings.
Cash flows from operating
activities
Third
quarter of fiscal 2015 and 2014
Net cash provided by operating
activities for the third quarter of fiscal 2015 was $49.3 million (ZAR 578.0
million) compared to cash provided by operating activities of $34.6 million (ZAR
376.2 million) for the third 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.
We paid taxes totaling $0.1
million (ZAR 1.6 million) in South Africa during the third quarter of fiscal
2015. We also paid taxes totaling $3.0 million in other tax jurisdictions,
primarily South Korea. We paid no taxes in South Africa during the third quarter
of fiscal 2014. We paid provisional Korean taxes of $1.6 million related to our
tax year ended December 31, 2013.
Taxes paid during the third
quarter of fiscal 2015 and 2014 were as follows:
Table 11 |
|
Three months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
ZAR |
|
|
ZAR |
|
|
|
000 |
|
|
000 |
|
|
000 |
|
|
000 |
|
First provisional payments |
|
135 |
|
|
- |
|
|
1,564 |
|
|
- |
|
Taxation refunds received |
|
(40 |
) |
|
(36 |
) |
|
(468 |
) |
|
(400 |
) |
Total South
African taxes paid |
|
95 |
|
|
(36 |
) |
|
1,096 |
|
|
(400 |
) |
Foreign taxes paid: primarily
Korea |
|
2,991
|
|
|
1,606
|
|
|
36,042 |
|
|
17,330 |
|
Total tax paid |
|
3,086 |
|
|
1,570 |
|
|
37,138 |
|
|
16,930 |
|
We expect to pay our second
provisional payments in South Africa related to our 2015 tax year in the fourth
quarter of fiscal 2015.
Year
to date fiscal 2015 and 2014
Net cash provided by operating
activities for the year to date fiscal 2015 was $103.4 million (ZAR 1.2 billion)
compared to cash provided by operating activities of $5.7 million (ZAR 59.1
million) for the year to date 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 year to date fiscal
2015, we paid South African tax of $18.9 million (ZAR 217.2 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 $7.6 million in other tax jurisdictions,
primarily South Korea. During the year to date 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 $2.6 million related to our tax year ended December
31, 2013.
35
Taxes paid during the year to
date fiscal 2015 and 2014 were as follows:
Table 12 |
|
Nine months ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
ZAR |
|
|
ZAR |
|
|
|
000 |
|
|
000 |
|
|
000 |
|
|
000 |
|
First provisional payments |
|
18,910 |
|
|
13,292 |
|
|
217,241 |
|
|
137,773 |
|
Taxation paid related to prior years |
|
2,408 |
|
|
228 |
|
|
26,395 |
|
|
2,360 |
|
Taxation refunds received |
|
(317 |
) |
|
(36 |
) |
|
(3,533 |
) |
|
(400 |
) |
Total South African taxes paid
|
|
21,001 |
|
|
13,484 |
|
|
240,103 |
|
|
139,733 |
|
Foreign taxes
paid: primarily Korea |
|
7,638 |
|
|
2,613 |
|
|
86,857 |
|
|
27,507 |
|
Total tax paid |
|
28,639 |
|
|
16,097 |
|
|
326,960 |
|
|
167,240 |
|
Cash flows from investing
activities
Third
quarter of fiscal 2015and 2014
Cash used in investing activities
for the third quarter of fiscal 2015 includes capital expenditure of $6.3
million (ZAR 74.1 million), primarily for the acquisition of payment processing
terminals in Korea and the rollout of ATMs in South Africa.
Cash used in investing activities
for the third quarter of fiscal 2014 includes capital expenditure of $4.8
million (ZAR 52.7 million), primarily for the acquisition of payment processing
terminals in Korea.
Year
to date fiscal 2015 and 2014
Cash used in investing activities
for the year to date fiscal 2015 includes capital expenditure of $24.8 million
(ZAR 278.9 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 year to date fiscal 2014 includes capital expenditure of $17.3 million
(ZAR 178.9 million), primarily for the acquisition of payment processing
terminals in Korea.
Cash flows from financing
activities
Third
quarter of fiscal 2015 and 2014
During the third quarter of
fiscal 2015, we utilized approximately $0.8 million of our Korean borrowings to
pay quarterly interest due and received approximately $0.8 million from the
exercise of stock options. We also paid a dividend of $1.0 million to certain of
our non-controlling interests.
During the third quarter of
fiscal 2014, we utilized approximately $1.0 million of our Korean borrowings to
pay quarterly interest due and received approximately $0.1 million from the
exercise of stock options.
Year
to date fiscal 2015 and 2014
During the year to date 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, received $1.4 million from BVI for 12.5% of CPS issued and outstanding
ordinary shares and paid a dividend of $1.0 million to certain of our
non-controlling interests. We also utilized approximately $3.0 million of our
Korean borrowings to pay quarterly interest due and received approximately $1.8
million from the exercise of stock options during the first quarter of fiscal
2015.
During the year to date fiscal
2014, we refinanced our Korean debt and received $87 million from Korean banks.
In October 2013, we used $72.6 million of these new borrowings and $14.4 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 January 2014, we utilized approximately $1.0
million of these new borrowings to pay quarterly interest due in Korea.
We paid approximately $2.0
million for all of the shares of KSNET we did not already own during the second
quarter of fiscal 2014. We also utilized our South African short-term facility
to fund our working capital requirements.
36
Off-Balance Sheet Arrangements
We have no off-balance sheet
arrangements.
Capital Expenditures
We expect capital spending for
the fourth quarter of fiscal 2015 to primarily include the acquisition of
payment terminals for the expansion of our operations in Korea.
Our historical capital
expenditures for the third 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 March
31, 2015, of $0.4 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 March 31, 2015:
Table 13 |
|
Payments due by Period, as of March 31, 2015 (in $
000s) |
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
than 1 |
|
|
1-3 |
|
|
3-5 |
|
|
than 5 |
|
|
|
Total |
|
|
year |
|
|
years |
|
|
years |
|
|
years |
|
Long-term debt obligations (A) |
|
68,869 |
|
|
3,656 |
|
|
23,007 |
|
|
42,206 |
|
|
- |
|
Operating lease obligations |
|
7,915 |
|
|
3,941 |
|
|
3,451 |
|
|
523 |
|
|
- |
|
Purchase obligations |
|
7,011 |
|
|
7,011 |
|
|
- |
|
|
- |
|
|
- |
|
Capital commitments |
|
403 |
|
|
403 |
|
|
- |
|
|
- |
|
|
- |
|
Other long-term obligations (B)(C) |
|
20,250 |
|
|
- |
|
|
- |
|
|
- |
|
|
20,250 |
|
Total |
|
104,448 |
|
|
15,011 |
|
|
26,458 |
|
|
42,729 |
|
|
20,250 |
|
|
(A) |
Includes $60.0 million of long-term debt and interest
payable at the rate applicable on March 31, 2015, under our Korean debt
facility. |
|
(B) |
Includes policy holder liabilities of $19.4 million
related to our insurance business. |
|
(C) |
We have excluded cross-guarantees in the aggregate
amount of $12.0 million issued as of March 31, 2015, to Nedbank to secure
guarantees it has issued to third parties on our behalf as the amounts
that will be settled in cash are not known and the timing of any payments
is uncertain. |
37
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below,
see Note 5 to the unaudited condensed consolidated financial statements for a
discussion of market risk.
The following table illustrates
the effect on our annual expected interest charge, translated at exchange rates
applicable as of March 31, 2015, as a result of changes in the Korean CD. The
effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease
in each of the Korean CD rate as of March 31, 2015, are shown. The selected 1%
hypothetical change does not reflect what could be considered the best or worst
case scenarios.
|
|
As of March 31, 2015 |
|
Table 14 |
|
|
|
|
Hypothetical |
|
|
Estimated annual |
|
|
|
|
|
|
change in |
|
|
expected interest |
|
|
|
|
|
|
Korean CD |
|
|
charge after |
|
|
|
|
|
|
rate or South |
|
|
hypothetical change in |
|
|
|
Annual |
|
|
Africa |
|
|
Korean CD rate or |
|
|
|
expected |
|
|
overdraft |
|
|
South African |
|
|
|
interest |
|
|
facility rate, |
|
|
overdraft facility rate, |
|
|
|
charge |
|
|
as |
|
|
as appropriate |
|
|
|
($ 000) |
|
|
appropriate |
|
|
($ 000) |
|
Interest on Korean long-term debt |
|
3,133 |
|
|
1% |
|
|
3,734 |
|
|
|
|
|
|
(1% |
) |
|
2,533 |
|
The following table summarizes
our exchange-traded equity securities with equity price risk as of March 31,
2015. The effects of a hypothetical 10% increase and a 10% decrease in market
prices as of March 31, 2015, is also shown. The selected 10% hypothetical change
does not reflect what could be considered the best or worst case scenarios.
|
|
As of March 31, 2015 |
|
Table 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
7,608 |
|
|
10% |
|
|
8,369 |
|
|
0.16% |
|
|
|
|
|
|
(10% |
) |
|
6,847 |
|
|
(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 March
31, 2015. 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 March
31, 2015.
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
March 31, 2015, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
38
Part II. Other Information
Item 1. Legal Proceedings
Constitutional Court
Proceedings Relating to SASSA Tender Process
See disclosure under
Managements Discussion and Analysis of Financial Condition and Results of
OperationsRecent DevelopmentsUpdate on SASSA tender process for an update
regarding the proceedings in the Constitutional Court in connection with the new
SASSA tender process.
Challenge to Payment
by SASSA of Additional Implementation Costs
On April 2, 2015, Corruption
Watch, a South African non-profit civil society organization, filed a Notice of
Motion with the High Court of South Africa, notifying the Court that it intends
to apply for an order by the Court to review and set aside the decision of
SASSAs Chief Executive Officer to approve the payment to us of ZAR317 million
(approximately approximately ZAR 277 million, excluding VAT). Corruption Watch
claims that there was no lawful basis for the decision to make the payment to
us, and that the decision was unreasonable and irrational and did not comply
with South African legislation. We have been named as a respondent in the Notice
of Motion. On April 17, 2015 we filed a Notice of Intention to Oppose with the
Court.
As we previously disclosed, in
June 2014, we received approximately ZAR 277 million, excluding VAT, from SASSA,
related to the recovery of additional implementation costs we incurred during
the beneficiary re-registration process in fiscal 2012 and 2013. After we signed
our SASSA contract, SASSA requested that we biometrically register all social
grant beneficiaries (including child grant beneficiaries), in addition to the
grant recipients who were issued with the SASSA-branded UEPS/EMV smart cards. We
agreed to SASSAs request, and as a result, we performed approximately 11
million additional registrations beyond those that we were contractually
required to perform in consideration for our monthly service fee. Accordingly,
we claimed a cost recovery from SASSA, supported by a factual findings
certificate from an independent auditing firm. SASSA agreed to pay us the ZAR
277 million as full settlement of the additional costs we incurred.
We believe that Corruption
Watchs claim is without merit and we intend to defend it vigorously. However,
we cannot predict how the Court will rule on the matter.
United States
securities litigation
On March 6, 2015, plaintiff filed
an opposition to our motion to dismiss its complaint and we filed a reply brief
on March 27, 2015. We continue to believe this lawsuit has no merit and are
defending it vigorously.
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 quarters ended September 30 and
December 31, 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.
We currently derive a
substantial portion of our revenues from our SASSA contract for the payment of
social grants and from the provision of financial and other services to our
cardholder base. SASSA has initiated a new tender process. We have not yet
determined whether we will participate in the process. If either we do not
participate or we participate but do not win any new contract that may be
awarded, we would need to replace the lost revenue from other sources or our
business would suffer significantly. If we do participate and win a new
contract, the terms might be substantially inferior to our current contract.
As ordered by the South African
Constitutional Court in its April 2014 ruling, SASSA initiated a new tender
process for a five-year contract relating to the payment of social grants by
issuing an initial RFP in October 2014. 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 Courts ruling and, in November 2014,
we 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, it did
order SASSA to issue a draft amended RFP. SASSA issued amended RFPs on two
separate occasions (in December 2014 and February 2015). We continued to object
to deficiencies in the amended RFPs and made further applications to the Court
setting forth our objections. In February 2015, SASSA applied to the Court for
an extension of time to address our objections.
39
In orders dated March 19 and 24,
2015, the Court ordered SASSA to effect further amendments to the RFP to address
our objections. The Court ordered that, absent further objections (1) SASSA must
circulate a further amended draft RFP by April 17, 2015; (2) all bids must be
submitted by May 17, 2015 and (3) SASSA shall award the new tender by October
15, 2015. The Courts April 2014 ruling does not require SASSA to award a new
tender, though we expect that any decision not to make an award would be subject
to judicial review and scrutiny. On April 17, 2015, SASSA issued and circulated
an amended RFP to all prospective bidders. The amended RFP specifies that
bidders must submit their proposals to SASSA on or before May 18, 2015.
We are currently analyzing the RFP to determine whether
it is in the best interest of the Company to participate in the tender process
or to focus on our other financial services businesses without being a
contractor to SASSA. We have not yet made a final determination but expect to do
so by the tender deadline. In any event, we cannot predict 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. If we choose not to participate in
the new tender, then our current contract may be canceled in the event that
SASSA awards a new contract to a third party, in which case we would lose the
revenues we currently receive from our SASSA contract. In that event, we would
need to replace the lost revenue with alternate sources of revenues.
As with prior SASSA tenders, any participation in the
new tender, unless it is concluded promptly, will 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. If we do participate in the tender process, we cannot
assure you we will win 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
will likely contain pricing or other terms that would be less favorable to us
than the terms of our current contract.
The Court's November 29, 2013
judgment also stated that CPS is deemed to be an organ of state for the
purpose of the contract concluded pursuant to the previous tender process. The
Court stated that, in this regard, CPS has constitutional obligations that go
beyond its contractual obligations. It is not clear what these obligations may
entail in respect of the current and any potential future government contract in
South Africa. We cannot predict what the financial implications may be if we are
required to continue with the provision of our services without a valid
contract, or during any transitional period required for the orderly transfer of
our current services to the successful bidder.
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.
We are, and in the future
may be, subject to litigation in which private parties may seek to recover, on
behalf of SASSA, amounts paid to us under our SASSA contract. If such litigation
were to be successful and require us to repay substantial monies to SASSA, such
repayment would adversely affect our results of operations, financial position
and cash flows.
On April 2, 2015, Corruption
Watch, a South African non-profit civil society organization, filed a Notice of
Motion with the High Court of South Africa, notifying the Court that it intends
to apply for an order by the Court to review and set aside the decision of
SASSAs Chief Executive Officer to approve the payment to us of ZAR317 million.
Corruption Watch claims that there was no lawful basis for the decision to make
the payment to us, and that the decision was unreasonable and irrational and did
not comply with South African legislation. We have been named as a respondent in
the Notice of Motion. On April 17, 2015 we filed a Notice of Intention to Oppose
with the Court.
As discussed in Item 1Legal
Proceedings, the payments being challenged by Corruption Watch represent
amounts paid to us by SASSA for the costs we incurred in performing additional
beneficiary registrations beyond those that we were contractually required to
perform under our SASSA contract. These amounts were paid in full settlement of
the claim we submitted to SASSA for these additional costs. We believe that
Corruption Watchs claim is without merit and we intend to defend it vigorously.
However, we cannot predict how the Court will rule on the matter.
40
In addition, the April 2014
Constitutional Court ruling ordering SASSA to re-run the tender process requires
us to file with the Court, after completion of our SASSA contract, an audited
statement of our expenses, income and net profit under the contract. It is
conceivable that one or more third parties may in the future institute
litigation challenging our right to retain a portion of the amounts we will have
received from SASSA under our contract. We cannot predict whether any such
litigation will be instituted, or if it is, whether it would be successful.
Any successful challenge to our
right to receive and retain payments from SASSA that requires substantial
repayments would adversely affect our results of operations, financial position
and cash flows.
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 May 7,
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 |
41
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 March 31, 2015;
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: May 7, 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 March 31, 2015;
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: May 7, 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 March 31, 2015, as filed with the Securities and Exchange Commission on
the date hereof (the Report), Dr. Serge Belamant and Herman Kotzé, 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: May 7, 2015 |
/s/: Dr. Serge C. P. Belamant |
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Name: Dr. Serge C. P. Belamant |
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Chief Executive Officer and Chairman |
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of the Board |
|
|
Date: May 7, 2015 |
/s/: Herman Kotzé |
|
Name: Herman Kotzé |
|
Chief Financial Officer, Treasurer and |
|
Secretary |
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