Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2013
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
22,362
|
|
$
|
53,665
|
|
Pre-funded social welfare grants
receivable (Note 2)
|
|
7,971
|
|
|
2,934
|
|
Accounts receivable,
net of allowances of December: $1,326; June: $4,701
|
|
125,062
|
|
|
102,614
|
|
Finance loans receivable, net of
allowances of December: $1,813; June: $-
|
|
42,847
|
|
|
8,350
|
|
Inventory (Note 3)
|
|
13,537
|
|
|
12,222
|
|
Deferred income taxes
|
|
5,001
|
|
|
4,938
|
|
Total current assets before settlement assets
|
|
216,780
|
|
|
184,723
|
|
Settlement assets (Note 4)
|
|
466,599
|
|
|
752,476
|
|
Total
current assets
|
|
683,379
|
|
|
937,199
|
|
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of
|
|
|
|
|
|
|
December: $87,536; June: $84,808
|
|
47,619
|
|
|
48,301
|
|
EQUITY-ACCOUNTED INVESTMENTS
|
|
1,290
|
|
|
1,183
|
|
GOODWILL (Note 6)
|
|
181,111
|
|
|
175,806
|
|
INTANGIBLE ASSETS, net (Note 6)
|
|
73,874
|
|
|
77,257
|
|
OTHER LONG-TERM ASSETS, including
reinsurance assets (Note 7)
|
|
34,271
|
|
|
36,576
|
|
TOTAL ASSETS
|
|
1,021,544
|
|
|
1,276,322
|
|
LIABILITIES
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Bank overdraft (Note 8)
|
|
24,256
|
|
|
-
|
|
Accounts payable
|
|
13,689
|
|
|
26,567
|
|
Other payables
|
|
34,386
|
|
|
33,808
|
|
Current portion of long-term borrowings
(Note 9)
|
|
14,108
|
|
|
14,209
|
|
Income taxes payable
|
|
3,479
|
|
|
2,275
|
|
Total
current liabilities before settlement obligations
|
|
89,918
|
|
|
76,859
|
|
Settlement obligations (Note 4)
|
|
466,599
|
|
|
752,476
|
|
Total current liabilities
|
|
556,517
|
|
|
829,335
|
|
DEFERRED INCOME TAXES
|
|
18,261
|
|
|
18,727
|
|
LONG-TERM BORROWINGS (Note 9)
|
|
57,452
|
|
|
66,632
|
|
OTHER LONG-TERM LIABILITIES, including
insurance policy liabilities (Note 7)
|
|
20,131
|
|
|
21,659
|
|
TOTAL LIABILITIES
|
|
652,361
|
|
|
936,353
|
|
COMMITMENTS AND CONTINGENCIES (Note 17)
|
|
|
|
|
|
|
EQUITY
|
|
COMMON STOCK (Note 10)
|
|
|
|
|
|
|
Authorized: 200,000,000 with $0.001 par value;
|
|
|
|
|
|
|
Issued
and outstanding shares, net of treasury - December:
45,773,342;
June:
45,592,550
|
|
59
|
|
|
59
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
Authorized
shares: 50,000,000 with $0.001 par
value;
Issued
and outstanding shares, net of treasury: December: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL
|
|
164,060
|
|
|
160,670
|
|
TREASURY SHARES, AT
COST: December: 13,455,090; June: 13,455,090
|
|
(175,823
|
)
|
|
(175,823
|
)
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
(96,103
|
)
|
|
(100,858
|
)
|
RETAINED EARNINGS
|
|
476,963
|
|
|
452,618
|
|
TOTAL NET1
EQUITY
|
|
369,156
|
|
|
336,666
|
|
NON-CONTROLLING INTEREST
|
|
27
|
|
|
3,303
|
|
TOTAL EQUITY
|
|
369,183
|
|
|
339,969
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
$
|
1,021,544
|
|
$
|
1,276,322
|
|
(A) Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial
Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands, except
per share data)
|
|
|
(In thousands, except
per share data)
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
137,283
|
|
$
|
111,442
|
|
$
|
260,777
|
|
$
|
223,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing
|
|
|
|
|
|
|
|
|
|
|
|
|
and support
|
|
67,883
|
|
|
47,227
|
|
|
124,442
|
|
|
92,328
|
|
Selling,
general and administration
|
|
40,824
|
|
|
48,756
|
|
|
81,330
|
|
|
96,008
|
|
Depreciation and amortization
|
|
9,774
|
|
|
10,487
|
|
|
19,803
|
|
|
20,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
18,802
|
|
|
4,972
|
|
|
35,202
|
|
|
14,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
3,236
|
|
|
2,589
|
|
|
6,555
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
2,226
|
|
|
2,023
|
|
|
3,978
|
|
|
4,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
19,812
|
|
|
5,538
|
|
|
37,779
|
|
|
15,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (Note 16)
|
|
7,099
|
|
|
2,971
|
|
|
13,584
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE EARNINGS
FROM
EQUITY-ACCOUNTED INVESTMENTS
|
|
12,713
|
|
|
2,567
|
|
|
24,195
|
|
|
9,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM
EQUITY-ACCOUNTED
INVESTMENTS
|
|
47
|
|
|
54
|
|
|
150
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
12,760
|
|
|
2,621
|
|
|
24,345
|
|
|
9,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS (ADD) NET INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO
NON-CONTROLLING
INTEREST
|
|
11
|
|
|
(8
|
)
|
|
-
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO
NET1
|
$
|
12,749
|
|
$
|
2,629
|
|
$
|
24,345
|
|
$
|
9,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, in
United States dollars
(
Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings attributable to
Net1
shareholders
|
|
$0.28
|
|
|
$0.06
|
|
|
$0.53
|
|
|
$0.21
|
|
Diluted
earnings attributable to
Net1
shareholders
|
|
$0.28
|
|
|
$0.06
|
|
|
$0.53
|
|
|
$0.21
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
12,760
|
|
$
|
2,621
|
|
$
|
24,345
|
|
$
|
9,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized income (loss) on
asset
available for
sale, net of tax
|
|
216
|
|
|
258
|
|
|
(39
|
)
|
|
258
|
|
Movement in
foreign currency
translation
reserve
|
|
(2,597
|
)
|
|
5,927
|
|
|
4,972
|
|
|
10,182
|
|
Total
other comprehensive
(loss)
income,
net of taxes
|
|
(2,381
|
)
|
|
6,185
|
|
|
4,933
|
|
|
10,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
10,379
|
|
|
8,806
|
|
|
29,278
|
|
|
19,805
|
|
(Less) Add comprehensive (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
loss attributable to non-controlling interest
|
|
(11
|
)
|
|
8
|
|
|
-
|
|
|
8
|
|
Comprehensive income attributable to Net1
|
$
|
10,368
|
|
$
|
8,814
|
|
$
|
29,278
|
|
$
|
19,813
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS
TECHNOLOGIES,
INC.
Consolidated
Statement
of
Changes
in
Equity (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) income
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2013
|
|
59,047,640
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
|
45,592,550
|
|
$
|
160,670
|
|
$
|
452,618
|
|
$
|
(100,858
|
)
|
$
|
336,666
|
|
$
|
3,303
|
|
$
|
339,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock granted
|
|
187,963
|
|
|
|
|
|
|
|
|
|
|
|
187,963
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
1,904
|
|
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of stock-based compensation charge
|
|
(7,171
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,171
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from vested stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of KSNET non-controlling
interest (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,486
|
|
|
|
|
|
(178
|
)
|
|
1,308
|
|
|
(3,276
|
)
|
|
(1,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,345
|
|
|
|
|
|
24,345
|
|
|
-
|
|
|
24,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,933
|
|
|
4,933
|
|
|
-
|
|
|
4,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2013
|
|
59,228,432
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
|
45,773,342
|
|
$
|
164,060
|
|
$
|
476,963
|
|
$
|
(96,103
|
)
|
$
|
369,156
|
|
$
|
27
|
|
$
|
369,183
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
12,760
|
|
$
|
2,621
|
|
$
|
24,345
|
|
$
|
9,365
|
|
Depreciation and amortization
|
|
9,774
|
|
|
10,487
|
|
|
19,803
|
|
|
20,491
|
|
Earnings from
equity-accounted investments
|
|
(47
|
)
|
|
(54
|
)
|
|
(150
|
)
|
|
(182
|
)
|
Fair value adjustments
|
|
72
|
|
|
1,000
|
|
|
(61
|
)
|
|
707
|
|
Interest payable
|
|
694
|
|
|
1,117
|
|
|
1,666
|
|
|
2,309
|
|
Profit on disposal of property, plant and
equipment
|
|
(15
|
)
|
|
(86
|
)
|
|
(16
|
)
|
|
(86
|
)
|
Stock-based compensation
charge
|
|
968
|
|
|
1,117
|
|
|
1,898
|
|
|
2,233
|
|
Facility fee amortized
|
|
509
|
|
|
76
|
|
|
578
|
|
|
164
|
|
(Increase) Decrease in
accounts receivable, pre-
|
|
|
|
|
|
|
|
|
|
|
|
|
funded social welfare grants receivable and
finance
|
|
|
|
|
|
|
|
|
|
|
|
|
loans receivable
|
|
(37,977
|
)
|
|
(5,061
|
)
|
|
(61,078
|
)
|
|
831
|
|
Increase in inventory
|
|
(2,853
|
)
|
|
(6,250
|
)
|
|
(1,842
|
)
|
|
(7,209
|
)
|
Decrease in accounts payable
and other payables
|
|
(4,883
|
)
|
|
(4,939
|
)
|
|
(13,551
|
)
|
|
(6,288
|
)
|
(Decrease) increase in taxes payable
|
|
(5,559
|
)
|
|
(6,032
|
)
|
|
1,362
|
|
|
(594
|
)
|
Decrease in deferred taxes
|
|
(691
|
)
|
|
(916
|
)
|
|
(1,878
|
)
|
|
(2,932
|
)
|
Net cash (used in ) provided
by operating
activities
|
|
(27,248
|
)
|
|
(6,920
|
)
|
|
(28,924
|
)
|
|
18,809
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(6,845
|
)
|
|
(5,597
|
)
|
|
(12,461
|
)
|
|
(12,050
|
)
|
Proceeds from disposal of
property, plant and
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
|
|
1,953
|
|
|
251
|
|
|
2,001
|
|
|
356
|
|
Acquisitions, net of cash
acquired (Note 2)
|
|
-
|
|
|
(230
|
)
|
|
-
|
|
|
(2,143
|
)
|
Repayment of loan by equity-accounted
investment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Proceeds from maturity of
investments related to
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance business
|
|
-
|
|
|
-
|
|
|
-
|
|
|
545
|
|
Other investing activities
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
-
|
|
Net change in settlement assets
|
|
204,730
|
|
|
(72,835
|
)
|
|
256,503
|
|
|
(12,056
|
)
|
Net cash
provided by (used in) investing
activities
|
|
199,838
|
|
|
(78,411
|
)
|
|
246,042
|
|
|
(25,345
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings obtained
(Note 9)
|
|
71,605
|
|
|
-
|
|
|
71,605
|
|
|
-
|
|
Repayment of long-term borrowings (Note 9)
|
|
(87,008
|
)
|
|
(7,307
|
)
|
|
(87,008
|
)
|
|
(7,307
|
)
|
Payment of facility fee (Note
9)
|
|
(872
|
)
|
|
-
|
|
|
(872
|
)
|
|
-
|
|
Proceeds from bank overdraft
|
|
24,580
|
|
|
-
|
|
|
24,580
|
|
|
-
|
|
Acquisition of interests in
KSNET (Note 10)
|
|
(1,968
|
)
|
|
-
|
|
|
(1,968
|
)
|
|
-
|
|
Proceeds from issue of common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
240
|
|
Net change in settlement
obligations
|
|
(204,730
|
)
|
|
72,835
|
|
|
(256,503
|
)
|
|
12,056
|
|
Net cash (used in) provided
by financing
activities
|
|
(198,393
|
)
|
|
65,528
|
|
|
(250,166
|
)
|
|
4,989
|
|
Effect of exchange rate
changes on cash
|
|
495
|
|
|
375
|
|
|
1,745
|
|
|
540
|
|
Net decrease in cash and cash
equivalents
|
|
(25,308
|
)
|
|
(19,428
|
)
|
|
(31,303
|
)
|
|
(1,007
|
)
|
Cash and cash equivalents
beginning of period
|
|
47,670
|
|
|
57,544
|
|
|
53,665
|
|
|
39,123
|
|
Cash and cash equivalents end of
period
|
$
|
22,362
|
|
$
|
38,116
|
|
$
|
22,362
|
|
$
|
38,116
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the Unaudited Condensed Consolidated
Financial Statements
|
for the three and six months ended December 31, 2013
and 2012
|
(All amounts in tables stated in thousands or
thousands of United States Dollars, unless otherwise stated)
|
1. Basis of Presentation and Summary of Significant
Accounting Policies
Unaudited Interim Financial
Information
The accompanying unaudited
condensed consolidated financial statements include all majority-owned
subsidiaries over which the Company exercises control and have been prepared in
accordance with US generally accepted accounting principles (GAAP) and the
rules and regulations of the Securities and Exchange Commission for quarterly
reports on Form 10-Q and include all of the information and disclosures required
for interim financial reporting. The results of operations for the three and six
months ended December 31, 2013 and 2012, 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, 2013. 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.
The Company has updated its
accounting policy for the allowance for doubtful finance loans receivable as a
result of the increase in its UEPS-based lending book which is included in
finance loans receivable in its unaudited condensed consolidated balance sheet.
The Company does not believe that an allowance for doubtful finance loans
receivable is required for finance loans receivable as of June 30, 2013, because
this was an established book and has been recovered. However, the profile of the
loan book has changed due to the expansion of the UEPS-based lending book during
the six months ended December 31, 2013, and accordingly an allowance for
doubtful finance loans receivable is deemed required by the Company.
Loan provisions and allowance for
doubtful accounts receivable
UEPS-based lending
The Companys policy is to
regularly review the ageing of outstanding amounts due from borrowers and adjust
the provision based on managements estimate of the recoverability of finance
loans receivable. The Company writes off UEPS-based loans and related service
fees if a borrower is in arrears with repayments for more than three months or
dies.
Recent accounting pronouncements
adopted
In February 2013, the FASB issued
guidance regarding
Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income
. This guidance requires entities to present (either on
the face of the statement of operations or in the notes) the effects on the line
items of the statement of operations for amounts reclassified out of accumulated
other comprehensive income. The guidance is effective for the Company beginning
July 1, 2013 and is applied prospectively. The adoption of this guidance did not
have a material impact on the Companys financial statements.
Recent accounting pronouncements
not yet adopted as of December 31, 2013
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. Early adoption is permitted. The Company is currently
evaluating the impact of this guidance on its financial statements on adoption.
2. Pre-funded social welfare grants receivable
Pre-funded social welfare grants
receivable represents amounts pre-funded by the Company to certain merchants
participating in the merchant acquiring system. The January 2014 payment service
commenced on January 1, 2014, but the Company pre-funded certain merchants
participating in the merchant acquiring system during the last two days of
December 2013.
7
3. Inventory
The Companys
inventory comprised the following categories as of December 31, 2013 and June
30, 2013.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2013
|
|
Finished goods
|
$
|
13,537
|
|
$
|
12,222
|
|
|
$
|
13,537
|
|
$
|
12,222
|
|
4. Settlement assets and settlement obligations
Settlement assets comprise (1)
cash received from the South African government that the Company holds pending
disbursement to beneficiaries of social welfare grants, (2) cash received from
health care plans which the Company disburses to health care service providers
once it adjudicates claims and (3) cash received from customers on whose behalf
the Company processes payroll payments that the Company will disburse to
customer employees, payroll-related payees and other payees designated by the
customer.
Settlement obligations comprise
(1) amounts that the Company is obligated to disburse to beneficiaries of social
welfare grants, (2) amounts which are due to health care service providers after
claims have been adjudicated and reconciled, provided that the Company shall
have previously received such funds from health care plan customers and (3)
amounts that the Company is obligated to pay to customer employees,
payroll-related payees and other payees designated by the customer.
The balances at each reporting
date may vary widely depending on the timing of the receipts and payments of
these assets and obligations
5. Fair value of financial instruments and equity-accounted
investments
Fair value of financial instruments
Risk management
The Company seeks to reduce its
exposure to currencies other than the South African rand 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 South African rand, on the one hand,
and the US dollar and the euro, on the other hand.
The Companys
outstanding foreign exchange contracts are as follows: As of December 31, 2013
None.
As of June 30, 2013
|
|
|
|
Fair market
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
USD
|
4,000,000
|
ZAR
|
9.06
|
ZAR
|
10.1397
|
September 30, 2013
|
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 two 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.
8
5. Fair value of financial instruments and equity-accounted
investments (continued)
Fair value of financial instruments
(continued)
Risk management (continued)
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.
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.
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 JSE
Limited (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. Currently, the operations of Finbond
relate primarily to the provision of microlending products. Finbond was recently
issued a mutual banking licence and intends to offer financial products under
this licence. 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 and equity-accounted
investments (continued)
Asset measured at fair
value using significant unobservable inputs investment in Finbond Group
Limited (Finbond) (continued)
The fair value of these
securities as of December 31, 2013, represented approximately 1% of the
Companys total assets, including these securities.
The following table presents the
Companys assets measured at fair value on a recurring basis as of December 31,
2013, 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
|
$
|
1,769
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,769
|
|
|
Investment in Finbond (available for
sale
assets included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
7,721
|
|
|
7,721
|
|
|
Other
|
|
-
|
|
|
139
|
|
|
-
|
|
|
139
|
|
|
Total assets at fair
value
|
$
|
1,769
|
|
$
|
139
|
|
$
|
7,721
|
|
$
|
9,629
|
|
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of June 30, 2013, 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
|
$
|
1,833
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,833
|
|
|
Investment in Finbond (available for sale
assets included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,303
|
|
|
8,303
|
|
|
Other
|
|
-
|
|
|
147
|
|
|
-
|
|
|
147
|
|
|
Total assets at fair value
|
$
|
1,833
|
|
$
|
147
|
|
$
|
8,303
|
|
$
|
10,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
-
|
|
$
|
436
|
|
$
|
-
|
|
$
|
436
|
|
|
Total liabilities at fair value
|
$
|
-
|
|
$
|
436
|
|
$
|
-
|
|
$
|
436
|
|
Changes in the Companys
investment in Finbond (Level 3 that are measured at fair value on a recurring
basis) were insignificant during the three and six months ended December 31,
2013 and 2012, respectively. There have been no transfers in or out of Level 3
during the three and six months ended December 31, 2013 and 2012, 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.
10
5. Fair value of financial instruments and equity-accounted
investments (continued)
Assets
and liabilities measured at fair value on a nonrecurring basis (continued)
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.
6. Goodwill and intangible assets
Goodwill
Summarized below is the movement
in the carrying value of goodwill for the six months ended December 31, 2013:
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Gross value
|
|
|
impairment
|
|
|
value
|
|
|
Balance as of June 30, 2013
|
$
|
218,558
|
|
$
|
(42,752
|
)
|
$
|
175,806
|
|
|
Foreign currency adjustment
(1)
|
|
7,383
|
|
|
(2,078
|
)
|
|
5,305
|
|
|
Balance as of December 31, 2013
|
$
|
225,941
|
|
|
($44,830
|
)
|
$
|
181,111
|
|
(1) the foreign currency
adjustment represents the effects of the fluctuations between the South African
rand and the Korean won, and the US dollar on the carrying value.
Goodwill has been allocated to
the Companys reportable segments as follows:
|
|
|
As of
|
|
|
As of
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2013
|
|
|
2013
|
|
|
SA transaction-based activities
|
$
|
28,749
|
|
$
|
30,525
|
|
|
International transaction-based activities
|
|
122,538
|
|
|
113,972
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
Hardware, software and related technology
sales
|
|
29,824
|
|
|
31,309
|
|
|
Total
|
$
|
181,111
|
|
$
|
175,806
|
|
Intangible assets
Carrying
value and amortization of intangible assets
Summarized below is the carrying
value and accumulated amortization of the intangible assets as of December 31,
2013 and June 30, 2013:
|
|
|
As of December 31, 2013
|
|
|
As of June 30, 2013
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
95,000
|
|
$
|
(35,332
|
)
|
$
|
59,668
|
|
$
|
90,469
|
|
$
|
(29,818
|
)
|
$
|
60,651
|
|
|
Software and unpatented technology
|
|
36,116
|
|
|
(25,531
|
)
|
|
10,585
|
|
|
34,951
|
|
|
(22,151
|
)
|
|
12,800
|
|
|
FTS patent
|
|
3,648
|
|
|
(3,648
|
)
|
|
-
|
|
|
3,873
|
|
|
(3,873
|
)
|
|
-
|
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks
|
|
6,721
|
|
|
(3,100
|
)
|
|
3,621
|
|
|
6,611
|
|
|
(2,805
|
)
|
|
3,806
|
|
|
Customer database
|
|
579
|
|
|
(579
|
)
|
|
-
|
|
|
614
|
|
|
(614
|
)
|
|
-
|
|
|
Total finite-lived
intangible assets
|
$
|
146,570
|
|
$
|
(72,696
|
)
|
$
|
73,874
|
|
$
|
141,024
|
|
$
|
(63,767
|
)
|
$
|
77,257
|
|
Aggregate amortization expense on
the finite-lived intangible assets for the three and six months ended December
31, 2013, was approximately $4.1 million and $7.8 million, respectively (three
and six months ended December 31, 2012, was approximately $4.9 million and $9.6
million, respectively).
11
6. Goodwill and intangible assets (continued) Intangible
assets (continued)
Future estimated annual
amortization expense for the next five fiscal years and thereafter, assuming
exchange rates prevailing on December 31, 2013, 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.
2014
|
$
|
15,793
|
|
2015
|
|
15,742
|
|
2016
|
|
11,361
|
|
2017
|
|
9,023
|
|
2018
|
|
9,023
|
|
Thereafter
|
$
|
20,823
|
|
7. Reinsurance assets and policy holder liabilities under
insurance and investment contracts
Reinsurance assets and
policy holder liabilities under insurance contracts
Summarized below is the movement
in reinsurance assets and policy holder liabilities under insurance contracts
during the six months ended December 31, 2013:
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
|
Balance as of June 30, 2013
|
$
|
19,557
|
|
$
|
(19,711
|
)
|
|
Foreign currency adjustment
(3)
|
|
(1,138
|
)
|
|
1,147
|
|
|
Balance
as of December 31, 2013
|
$
|
18,419
|
|
$
|
(18,564
|
)
|
|
(1)
|
Included in other long-term assets.
|
|
(2)
|
Included in other long-term liabilities.
|
|
(3)
|
The foreign currency adjustment represents the effects of
the fluctuations between the ZAR against the US
dollar.
|
The Company has agreements with
reinsurance companies in order to limit its losses from large insurance
contracts, however, if the reinsurer is unable to meet its obligations, the
Company retains the liability.
The value of insurance contract
liabilities is based on best estimates assumptions of future experience plus
prescribed margins, as required in the markets in which these products are
offered, namely South Africa. The process of deriving the best estimates
assumptions plus prescribed margins includes assumptions related to future
mortality and morbidity (an appropriate base table of standard mortality is
chosen depending on the type of contract and class of business), withdrawals
(based on recent withdrawal investigations and expected future trends),
investment returns (based on government treasury rates adjusted by an applicable
margin), expense inflation (based on a 10 year real return on CPI-linked
government bonds from the risk-free rate and adding an allowance for salary
inflation and book shrinkage of 1% per annum) and claim reporting delays (based
on average industry experience).
Assets and policy holder
liabilities under investment contracts
Summarized below is the movement
in assets and policy holder liabilities under investment contracts during the
six months ended December 31, 2013:
|
|
|
|
|
|
Investment
|
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
|
Balance as of June 30, 2013
|
$
|
953
|
|
$
|
(953
|
)
|
|
Foreign currency adjustment
(3)
|
|
(56
|
)
|
|
56
|
|
|
Balance
as of December 31, 2013
|
$
|
897
|
|
$
|
(897
|
)
|
|
(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.
12
8. Short-term credit facility
During December 2013, the Company
increased its short-term South African credit facility with Nedbank Limited to
ZAR 650 million ($61.9 million, translated at exchange rates applicable as of
December 31, 2013) through March 31, 2014. The short-term facility comprises an
overdraft facility of up to ZAR 500 million and indirect and derivative
facilities of up to ZAR 150 million, which include letters of guarantee, letters
of credit and forward exchange contracts. The overdraft facility of ZAR 500
million will revert to ZAR 250 million on March 31, 2014. As of December 31,
2013, the interest rate on the overdraft facility was 7.35% . The Company has
ceded its investment in Cash Paymaster Services Proprietary Limited (CPS), a
wholly owned South African subsidiary, as security for its repayment obligations
under the facility. A commitment fee of 0.35% per annum is payable on the
monthly unutilized amount of the overdraft portion of the short-term facility.
The Company is required to comply with customary non-financial covenants,
including, without limitation, covenants that restrict the Companys ability to
dispose of or encumber its assets, incur additional indebtedness or engage in
certain business combinations. As of December 31, 2013, the Company had utilized
ZAR 254.8 million ($24.3 million, translated at exchange rates applicable as of
December 31, 2013) of the overdraft facility and ZAR 132.0 million ($12.6
million, translated at exchange rates applicable as of December 31, 2013) of
this facility 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, 2013, the Company
had utilized none of this facility.
9. Long-term borrowings
In October 2013, the Company
refinanced its existing long-term Korean credit facility and signed a new
five-year senior secured facilities agreement (the Facilities Agreement) with
a consortium of Korean banks. The Facilities Agreement provides for three
separate facilities to the Companys wholly owned subsidiary, Net1 Applied
Technologies Korea (Net1 Korea): a Facility A loan of up to KRW 60.0 billion
($56.4 million), a Facility B loan of up to KRW 15 billion ($14.1 million) and a
Facility C revolving credit facility of up to KRW 10.0 billion ($9.4 million)
(all facilities denominated in KRW and translated at exchange rates applicable
as of December 31, 2013).
The Facility A and B loans were
fully drawn on October 29, 2013, and used to repay KRW 75.0 billion ($70.6
million) of the KRW 92.4 billion ($87.0 million) loan outstanding under the
existing facility. The remaining outstanding KRW 17.4 billion ($16.4 million)
balance of that facility was paid from cash on hand on October 29, 2013. In
addition, the Company drew KRW 1.1 billion ($1.0 million) of the revolving
credit facility on October 29, 2013, to pay fees and expenses related to the
Facilities Agreement.
Interest on the loans and
revolving credit facility is payable quarterly and is based on the Korean CD
rate in effect from time to time plus a margin of 3.10% for the Facility A loan
and Facility C revolving credit facility; and a margin of 2.90% for the Facility
B loan. The CD rate was 2.66% on December 31, 2013 and therefore the interest
rate in effect as of December 31, 2013, for the Facility A loan and Facility C
revolving credit facility was 5.76% and for the Facility B loan was 5.56%,
respectively. The Company paid facilities fees of approximately KRW 0.9 billion
on October 29, 2013 and amortized approximately $0.1 million during the three
and six months ended December 31, 2013. A commitment fee of 0.3% is payable on
any un-drawn and un-cancelled amount of the revolving credit facility. Total
interest expense related to the new and refinanced facilities during the three
and six months ended December 31, 2013 and 2012, was $1.8 million and $1.8
million; and $3.6 million and $3.6 million, respectively.
The Facility A loan is repayable
in three scheduled annual installments of KRW 10 billion each beginning 30
months after initial drawdown and one final installment of KRW 30 billion on the
maturity date, namely October 29, 2018. The Facility B loan is repayable in full
on October 29, 2014. The Facility C revolving credit facility is repayable in
full on the maturity date. Prepayment of the revolving credit facility may be
withdrawn at any time up to three and six months before the maturity date.
The loans under the Facilities
Agreement are secured by a pledge by Net1 Korea of its entire equity interest in
KSNET and a pledge by the immediate parent of Net1 Korea (also one of the
Companys subsidiaries) of its entire equity interest in Net1 Korea. The
Facilities Agreement contains customary covenants that require Net1 Korea to
maintain agreed leverage and debt service coverage ratios and restricts Net1
Koreas ability to make certain distributions with respect to its capital stock,
prepay other debt, encumber its assets, incur additional indebtedness, or engage
in certain business combinations. The loans under the Facilities Agreement are
without recourse to, and the covenants and other agreements contained therein do
not apply to, the Company or any of the Companys subsidiaries (other than Net1
Korea).
The Companys refinanced KRW 92.4
billion 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, 2013. The Company has expensed
the remaining prepaid facility fees related to the refinanced facility of
approximately $0.4 million during the three and six months ended December 31,
2013. The third scheduled repayment related to this refinanced facility of $7.3
million was paid on October 29, 2012.
13
10. Capital structure
The following table presents
reconciliation between the number of shares, net of treasury, presented in the
consolidated statement of changes in equity during the six months ended December
31, 2013 and 2012, respectively, and the number of shares, net of treasury,
excluding non-vested equity shares that have not vested during the six months
ended December 31, 2013 and 2012, respectively:
|
|
Six months
ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
000
|
|
|
000
|
|
Number of shares, net of treasury:
|
|
|
|
|
|
|
Statement
of changes in equity
|
|
45,773,342
|
|
|
45,600,471
|
|
Less: Non-vested equity
shares that have
not vested
|
|
(569,111
|
)
|
|
(644,750
|
)
|
Number of shares, net of treasury
excluding non-vested equity shares
that have not vested
|
|
45,204,231
|
|
|
44,955,721
|
|
December 2013 Black Economic Empowerment transactions
On December 10, 2013, the Company
entered into definitive agreements relating to two Black Economic Empowerment
(BEE) transactions. Pursuant to the Relationship Agreements dated December 10,
2013 between the Company and its BEE partners, the Company will sell an
aggregate of 4,400,000 shares of its common stock (BEE shares) for a purchase
price of ZAR 60.00 per share. Closing of these BEE transactions is subject to
the satisfaction of certain conditions contained in the Relationship Agreements,
including receipt of any required regulatory approvals (including approval of
the South African Reserve Bank) and the finalization of ancillary agreements.
Closing of one transaction is not contingent on the closing of the other
transaction. As of December 31, 2013, the transactions had not been implemented
because the agreed conditions had not been satisfied. As of January 31, 2014,
the closing conditions had not yet been met and therefore the parties extended
the date to satisfy all closing conditions to March 15, 2014.
The ZAR 60.00 per share purchase
price for the BEE shares, which will be contractually restricted as to resale as
described below, will be paid in ZAR and represents 75% of the closing price of
the Companys common stock on the JSE on December 6, 2013, the date the Company
completed final negotiation of the terms of these BEE transactions.
The Relationship Agreements
provide that the entire purchase price for the BEE shares will be financed
through a five-year loan to be extended to each of the BEE partners by a South
African subsidiary of the Company. The obligations of the BEE partners under the
loans are several, and not joint. Each of the BEE partners will grant the lender
a security interest in all the BEE shares being purchased by such BEE partner to
secure the repayment of its loan. The principal amount of the loans being made
by the subsidiary will be contributed by Net1 to the equity capital of the
subsidiary. As a result of the making of the loans, the net cash position of the
Company after the sale of the BEE shares will remain unchanged.
The loans will bear interest at a
rate equal to the Johannesburg Interbank Rate (550 basis points as of December
31, 2013) plus 300 basis points. Interest on the loans is payable semi-annually
in arrears on January 1 and July 1 of each year. 10% of the outstanding
principal amount of the loans will be payable on each of the first and second
anniversaries of the date of issuance of the BEE shares, 15% of the outstanding
principal amount of the loans will be payable on each of the third and fourth
anniversaries of the date of issuance of the BEE shares and the remaining
outstanding principal amount of the loans will be payable on the fifth
anniversary of the date of issuance of the BEE shares. Further, the entire
outstanding principal amount of the loans will be payable if the price of the
Companys common stock on the JSE equals or exceeds ZAR 120.00 per share at any
time during term of the loans. Upon the occurrence of certain trigger events
with respect to a BEE partner, the BEE shares held by that BEE partner may be
repurchased by the Company or one of its designees. These trigger events include
the following:
-
failure by the BEE partner to pay any amount due on its loan (including
interest) to the lender (in this case, the Company may repurchase only that
number of shares which would raise sufficient funds to settle any amount due
and unpaid);
-
any other breach by the BEE partner (or in certain circumstances its
shareholders) of any provision of the Relationship Agreement, including
without limitation, its failure to maintain its BEE status;
-
the Companys common stock trades at or below ZAR 60.00 on the JSE or at
or below the equivalent trading price on Nasdaq;
-
the occurrence of certain insolvency events or liquidation proceedings
affecting the BEE partner; or
-
the BEE partner fails to satisfy any judgment or arbitration award granted
or made against it within 7 days.
14
10. Capital structure (continued)
December 2013 Black
Economic Empowerment transactions (continued)
If the trigger event involves a
failure by a BEE partner to pay any amount due on its loan, then the repurchase
price is the volume-weighted average price of the Companys common stock on the
Nasdaq for the period of 30 trading days prior to the trigger event, or 30-day
VWAP. In the case of other trigger events, the repurchase price is the lower of
the 30-day VWAP or ZAR 60.00 per share.
The BEE shares will be
contractually restricted as to resale for a period of five years from the date
of issuance, with the exception of periodic sales which may be made to fund the
repayment of principal and interest on the loans. In addition, the Company may
call the BEE shares then owned by the BEE partners, either in exchange for a
minority interest in CPS or for a cash payment equal to the 30-day VWAP.
Further, after the fifth anniversary of the date of issuance of the BEE shares,
the Company will have a right of first refusal on the shares owned by the BEE
partners.
The loans to the BEE partners do
not provide that they are recourse only to the BEE shares. Nevertheless, the
Company expects that the sole source of repayment of the loans will be proceeds
from the sale of its shares by the BEE partners from time to time, in open
market or in privately negotiated transactions.
Acquisition
of KSNET non-controlling interests
The Company acquired
substantially all of the issued share capital of KSNET, Inc. that it did not
previously own for approximately $2.0 million in cash. After the acquisition of
the additional shares, the Company now owns almost 100% of KSNET and intends to
purchase the remaining shares it does not yet own. The Company believes that it
will realize certain Korean tax efficiencies in the future if it is able to
acquire the remaining KSNET shares that it does not own. 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.
11. Accumulated other comprehensive (loss) income
The table below presents the
change in accumulated other comprehensive (loss) income per component during the
six months ended December 31, 2013:
|
|
|
Six months ended
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
|
|
|
|
|
|
|
|
(loss) on
|
|
|
|
|
|
|
|
Foreign
|
|
|
asset
|
|
|
|
|
|
|
|
currency
|
|
|
available
|
|
|
|
|
|
|
|
translation
|
|
|
for sale, net
|
|
|
|
|
|
|
|
reserve
|
|
|
of tax
|
|
|
Total
|
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
Balance as of June 30, 2013
|
$
|
(101,188
|
)
|
$
|
330
|
|
$
|
(100,858
|
)
|
|
Movement in foreign currency
translation reserve
|
|
4,794
|
|
|
-
|
|
|
4,794
|
|
|
Unrealized loss on
asset available for sale, net of tax of $15
|
|
-
|
|
|
(39
|
)
|
|
(39
|
)
|
|
Balance as
of December 31, 2013
|
$
|
(96,394
|
)
|
$
|
291
|
|
$
|
(96,103
|
)
|
There were no reclassification
from accumulated other comprehensive loss to comprehensive (loss) income during
the six months ended December 31, 2013 or 2012, respectively.
15
12. Stock-based compensation
Stock option and
restricted stock activity
Options
The following table summarizes
stock option activity for the three and six months ended December 31, 2013 and
2012:
|
|
|
|
|
|
|
|
|
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, 2013
|
|
2,648,583
|
|
|
15.15
|
|
|
5.98
|
|
|
313
|
|
|
|
|
|
Granted under Plan: August 2013
|
|
224,896
|
|
|
7.35
|
|
|
10.00
|
|
|
568
|
|
|
2.53
|
|
|
Outstanding December 31, 2013
|
|
2,873,479
|
|
|
14.54
|
|
|
5.79
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2012
|
|
2,247,583
|
|
|
16.28
|
|
|
6.43
|
|
|
602
|
|
|
|
|
|
Granted under Plan: August 2012
|
|
431,000
|
|
|
8.75
|
|
|
10.00
|
|
|
1,249
|
|
|
2.90
|
|
|
Exercised
|
|
(30,000
|
)
|
|
7.98
|
|
|
|
|
|
24
|
|
|
|
|
|
Outstanding December 31, 2012
|
|
2,648,583
|
|
|
15.15
|
|
|
6.74
|
|
|
978
|
|
|
|
|
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 historical behavior
of employees who were granted options with similar terms. The Company has
estimated no forfeitures for options awarded in August 2013 and 2012,
respectively. The table below presents the range of assumptions used to value
options granted during the three and six months ended December 31, 2013 and
2012:
|
|
|
Three and six months ended
|
|
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Expected volatility
|
|
50%
|
|
|
49%
|
|
|
Expected dividends
|
|
0%
|
|
|
0%
|
|
|
Expected life (in years)
|
|
3
|
|
|
3
|
|
|
Risk-free rate
|
|
0.9%
|
|
|
0.3%
|
|
The following table presents
stock options vesting and expecting to vest as of December 31, 2013:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Vested and expecting to vest
December
31, 2013
|
|
2,873,479
|
|
|
14.54
|
|
|
5.79
|
|
|
1,037
|
|
These options have an exercise
price range of $6.59 to $24.46.
16
12. Stock-based compensation (continued)
Stock option and
restricted stock activity (continued)
Options
(continued)
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Exercisable
|
|
2,144,917
|
|
|
16.51
|
|
|
4.97
|
|
|
566
|
|
During each of the three months
ended December 31, 2013 and 2012, respectively, 159,666 stock options became
exercisable. During the six months ended December 31, 2013 and 2012,
respectively, 358,333 and 244,666 stock options became exercisable. Included in
the 244,666 stock options are 30,000 stock options with respect to which the
Remuneration Committee of the Board agreed to accelerate vesting, in August
2012, prior to the resignation of a non-employee director. During the six months
ended December 31, 2012, the Company received approximately $0.2 million from
30,000 stock options exercised by the non-employee director that resigned. No
stock options were exercised during the three and six months ended December 31,
2013 or during the three months ended December 31, 2012. The Company issues new
shares to satisfy stock option exercises.
Restricted
stock
The following table summarizes
restricted stock activity for the three and six months ended December 31, 2013
and 2012:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
|
Stock
|
|
|
($000)
|
|
|
Non-vested June 30, 2013
|
|
405,226
|
|
|
4,393
|
|
|
Granted August 2013
|
|
187,963
|
|
|
1,382
|
|
|
Vested August 2013
|
|
(16,907
|
)
|
|
161
|
|
|
Forfeitures October 2013
|
|
(7,171
|
)
|
|
161
|
|
|
Non-vested December
31, 2013
|
|
569,111
|
|
|
5,572
|
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2012
|
|
646,617
|
|
|
7,061
|
|
|
Granted August 2012
|
|
21,569
|
|
|
189
|
|
|
Vested August 2012
|
|
(23,436
|
)
|
|
216
|
|
|
Non-vested December 31, 2012
|
|
644,750
|
|
|
7,021
|
|
No restricted stock vested during
the three months ended December 31, 2013 and 2012, respectively. The fair value
of restricted stock vesting during the six months ended December 31, 2013 and
2012, respectively, was $0.2 million and $0.2 million. A non-employee director
resigned during the three months ended December 31, 2013, and forfeited 7,171
shares of restricted stock. Included in the 23,436 shares of restricted stock
that vested in August 2012 are 8,547 shares with respect to which the
Remuneration Committee of the Board agreed to accelerate vesting prior to the
resignation of a non-employee director.
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
compensation charge of $1.0 million and $1.1 million for the three months ended
December 31, 2013 and 2012, respectively, which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Three months ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
974
|
|
|
-
|
|
$
|
974
|
|
|
Reversal of stock compensation
charge related to
restricted stock forfeited
|
|
(6
|
)
|
|
-
|
|
|
(6
|
)
|
|
Total three months ended December 31, 2013 .
|
$
|
968
|
|
$
|
-
|
|
$
|
968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December
31, 2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,117
|
|
$
|
-
|
|
$
|
1,117
|
|
|
Total three months ended December 31, 2012 .
|
$
|
1,117
|
|
$
|
-
|
|
$
|
1,117
|
|
The Company has recorded a stock
compensation charge of $1.9 million and $2.2 million for the six months ended
December 31, 2013 and 2012, respectively, which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Six months ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
1,904
|
|
$
|
-
|
|
$
|
1,904
|
|
|
Reversal of stock compensation charge
related to
restricted stock forfeited
|
|
(6
|
)
|
|
-
|
|
|
(6
|
)
|
|
Total six months ended December 31, 2013
|
$
|
1,898
|
|
$
|
-
|
|
$
|
1,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
2,233
|
|
$
|
-
|
|
$
|
2,233
|
|
|
Total six months ended December 31, 2012
|
$
|
2,233
|
|
$
|
-
|
|
$
|
2,233
|
|
The stock-based compensation
charges have been allocated to selling, general and administration based on the
allocation of the cash compensation paid to the employees.
As of December 31, 2013, the
total unrecognized compensation cost related to stock options was approximately
$1.3 million, which the Company expects to recognize over approximately three
years. As of December 31, 2013, the total unrecognized compensation cost related
to restricted stock awards was approximately $3.6 million, which the Company
expects to recognize over approximately two years.
As of each of December 31, 2013
and June 30, 2013, respectively, the Company has recorded a deferred tax asset
of approximately $1.4 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 six months ended December 31, 2013 and 2012, 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 and August 2013 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 17 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2013.
The following table presents net
income attributable to Net1 (income from continuing operations) and the share
data used in the basic and diluted earnings per share computations using the
two-class method:
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands except percent
|
|
|
(in thousands except percent
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
per share data)
|
|
|
per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Net1
|
$
|
12,749
|
|
$
|
2,629
|
|
$
|
24,345
|
|
$
|
9,373
|
|
|
Undistributed earnings
|
|
12,749
|
|
|
2,629
|
|
|
24,345
|
|
|
9,373
|
|
|
Percent
allocated to common shareholders
(Calculation
1)
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
Numerator for earnings per
share: basic and
diluted
|
$
|
12,594
|
|
$
|
2,597
|
|
$
|
24,075
|
|
$
|
9,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average common
shares
outstanding
|
|
45,221
|
|
|
44,989
|
|
|
45,218
|
|
|
44,981
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance shares related to
acquisition
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Stock options
|
|
156
|
|
|
26
|
|
|
113
|
|
|
37
|
|
|
Denominator
for diluted earnings
per
share:
adjusted weighted
average
common
shares outstanding
and
assumed
conversion
|
|
45,377
|
|
|
45,015
|
|
|
45,331
|
|
|
45,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
$
|
0.06
|
|
$
|
0.53
|
|
$
|
0.21
|
|
|
Diluted
|
$
|
0.28
|
|
$
|
0.06
|
|
$
|
0.53
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted-average common
shares
outstanding (A)
|
|
45,221
|
|
|
44,989
|
|
|
45,218
|
|
|
44,981
|
|
|
Basic weighted-average common
shares
outstanding and unvested
restricted shares
expected to vest
(B)
|
|
45,776
|
|
|
45,550
|
|
|
45,725
|
|
|
45,550
|
|
|
Percent
allocated to common
shareholders
(A) / (B)
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
Options to purchase 1,530,863
shares of the Companys common stock at prices ranging from $13.14 to $24.46 per
share were outstanding during the three and six months ended December 31, 2013,
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 shares. The options, which expire at various dates through
August 21, 2023, were still outstanding as of December 31, 2013.
19
14. Supplemental cash flow information
The following table presents the
supplemental cash flow disclosures for the three and six months ended December
31, 2013 and 2012:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Cash received from interest
|
$
|
3,223
|
|
$
|
2,584
|
|
$
|
6,464
|
|
$
|
5,709
|
|
Cash paid for interest
|
$
|
2,027
|
|
$
|
2,053
|
|
$
|
3,666
|
|
$
|
4,053
|
|
Cash paid for income taxes
|
$
|
14,029
|
|
$
|
10,137
|
|
$
|
14,527
|
|
$
|
10,479
|
|
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
22 to the Companys audited consolidated financial statements included in its
Annual Report on Form 10-K for the year ended June 30, 2013.
The following tables summarize
segment information which is prepared in accordance with GAAP:
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
72,237
|
|
$
|
60,764
|
|
$
|
135,269
|
|
$
|
122,128
|
|
|
International transaction-based
activities
|
|
37,288
|
|
|
33,113
|
|
|
74,105
|
|
|
64,762
|
|
|
Smart card accounts
|
|
11,237
|
|
|
8,219
|
|
|
22,566
|
|
|
16,583
|
|
|
Financial services
|
|
6,199
|
|
|
1,448
|
|
|
8,626
|
|
|
2,832
|
|
|
Hardware, software and
related technology sales
|
|
10,322
|
|
|
7,898
|
|
|
20,211
|
|
|
16,819
|
|
|
Total
|
|
137,283
|
|
|
111,442
|
|
|
260,777
|
|
|
223,124
|
|
|
Inter-company revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
2,957
|
|
|
3,885
|
|
|
5,232
|
|
|
7,868
|
|
|
International
transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
273
|
|
|
401
|
|
|
525
|
|
|
787
|
|
|
Hardware, software and related
technology sales
|
|
349
|
|
|
379
|
|
|
519
|
|
|
587
|
|
|
Total
|
|
3,579
|
|
|
4,665
|
|
|
6,276
|
|
|
9,242
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
13,398
|
|
|
1,933
|
|
|
26,680
|
|
|
8,333
|
|
|
International transaction-based
activities
|
|
1,365
|
|
|
202
|
|
|
3,416
|
|
|
31
|
|
|
Smart card accounts
|
|
3,203
|
|
|
2,342
|
|
|
6,431
|
|
|
4,727
|
|
|
Financial services
|
|
1,727
|
|
|
1,048
|
|
|
1,783
|
|
|
2,145
|
|
|
Hardware, software and
related technology sales
|
|
1,592
|
|
|
795
|
|
|
4,540
|
|
|
2,779
|
|
|
Subtotal: Operating
segments
|
|
21,285
|
|
|
6,320
|
|
|
42,850
|
|
|
18,015
|
|
|
Corporate/Eliminations
|
|
(2,483
|
)
|
|
(1,348
|
)
|
|
(7,648
|
)
|
|
(3,718
|
)
|
|
Total
|
|
18,802
|
|
|
4,972
|
|
|
35,202
|
|
|
14,297
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
International
transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Hardware, software and related
technology sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Subtotal:
Operating segments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Corporate/Eliminations
|
|
3,236
|
|
|
2,589
|
|
|
6,555
|
|
|
5,680
|
|
|
Total
|
$
|
3,236
|
|
$
|
2,589
|
|
$
|
6,555
|
|
$
|
5,680
|
|
20
15. Operating segments (continued)
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
20
|
|
$
|
202
|
|
$
|
43
|
|
$
|
345
|
|
|
International transaction-based activities
|
|
-
|
|
|
-
|
|
|
44
|
|
|
-
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
338
|
|
|
-
|
|
|
389
|
|
|
-
|
|
|
Hardware, software and related
technology sales
|
|
198
|
|
|
56
|
|
|
359
|
|
|
126
|
|
|
Subtotal: Operating segments
|
|
556
|
|
|
258
|
|
|
835
|
|
|
471
|
|
|
Corporate/Eliminations
|
|
1,670
|
|
|
1,765
|
|
|
3,143
|
|
|
3,623
|
|
|
Total
|
|
2,226
|
|
|
2,023
|
|
|
3,978
|
|
|
4,094
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
2,485
|
|
|
3,289
|
|
|
4,932
|
|
|
6,430
|
|
|
International
transaction-based activities
|
|
7,064
|
|
|
7,025
|
|
|
14,470
|
|
|
13,704
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
116
|
|
|
97
|
|
|
233
|
|
|
184
|
|
|
Hardware, software and related technology
sales
|
|
109
|
|
|
76
|
|
|
168
|
|
|
173
|
|
|
Subtotal:
Operating segments
|
|
9,774
|
|
|
10,487
|
|
|
19,803
|
|
|
20,491
|
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
9,774
|
|
|
10,487
|
|
|
19,803
|
|
|
20,491
|
|
|
Income taxation expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
3,746
|
|
|
483
|
|
|
7,458
|
|
|
2,236
|
|
|
International transaction-based activities
|
|
487
|
|
|
(147
|
)
|
|
644
|
|
|
(580
|
)
|
|
Smart card accounts
|
|
896
|
|
|
655
|
|
|
1,799
|
|
|
1,323
|
|
|
Financial services
|
|
393
|
|
|
298
|
|
|
403
|
|
|
610
|
|
|
Hardware, software and related
technology sales
|
|
309
|
|
|
192
|
|
|
1,002
|
|
|
630
|
|
|
Subtotal: Operating segments
|
|
5,831
|
|
|
1,481
|
|
|
11,306
|
|
|
4,219
|
|
|
Corporate/Eliminations
|
|
1,268
|
|
|
1,490
|
|
|
2,278
|
|
|
2,481
|
|
|
Total
|
|
7,099
|
|
|
2,971
|
|
|
13,584
|
|
|
6,700
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
9,632
|
|
|
1,247
|
|
|
19,179
|
|
|
5,751
|
|
|
International
transaction-based activities
|
|
1,049
|
|
|
492
|
|
|
2,986
|
|
|
835
|
|
|
Smart card accounts
|
|
2,307
|
|
|
1,686
|
|
|
4,631
|
|
|
3,402
|
|
|
Financial services
|
|
1,011
|
|
|
769
|
|
|
1,038
|
|
|
1,570
|
|
|
Hardware, software and related technology
sales
|
|
1,088
|
|
|
552
|
|
|
3,183
|
|
|
2,029
|
|
|
Subtotal:
Operating segments
|
|
15,087
|
|
|
4,746
|
|
|
31,017
|
|
|
13,587
|
|
|
Corporate/Eliminations
|
|
(2,338
|
)
|
|
(2,117
|
)
|
|
(6,672
|
)
|
|
(4,214
|
)
|
|
Total
|
|
12,749
|
|
|
2,629
|
|
|
24,345
|
|
|
9,373
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
1,743
|
|
|
1,375
|
|
|
2,299
|
|
|
4,969
|
|
|
International transaction-based activities
|
|
4,682
|
|
|
4,067
|
|
|
9,513
|
|
|
6,770
|
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Financial services
|
|
(14
|
)
|
|
127
|
|
|
186
|
|
|
272
|
|
|
Hardware, software and related
technology sales
|
|
434
|
|
|
28
|
|
|
463
|
|
|
39
|
|
|
Subtotal: Operating segments
|
|
6,845
|
|
|
5,597
|
|
|
12,461
|
|
|
12,050
|
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
|
$
|
6,845
|
|
$
|
5,597
|
|
$
|
12,461
|
|
$
|
12,050
|
|
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.
21
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 six months
ended December 31, 2013, the tax charge was calculated using the expected
effective tax rate for the year. The Companys effective tax rate for the three
and six months ended December 31, 2013, was 35.8% and 35.9%, respectively, and
was higher than the South African statutory rate primarily as a result of
non-deductible expenses (including interest expense related to the Companys
long-term Korean borrowings and stock-based compensation charges). The Companys
effective tax rate for the three and six months ended December 31, 2012, was
53.6% and 42.2%, 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) and South African dividend withholding taxes.
Uncertain tax positions
There were no changes during the
three and six months ended December 31, 2013. As of December 31, 2013, 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.
The Company files income tax
returns mainly in South Africa, Korea, Austria, Botswana, the Russian Federation
and in the US federal jurisdiction. As of December 31, 2013, the Company is no
longer subject to any new income tax examination by the South African Revenue
Service for years before June 30, 2009. In 2011, the Korea National Tax Service
had completed the examination of the Companys returns in Korea related to years
2006 through 2010. The Company is subject to income tax in other jurisdictions
outside South Africa and Korea, none of which are individually material to its
financial position, cash flows, or results of operations.
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 132.0 million ($12.6 million, translated at
exchange rates applicable as of December 31, 2013) and thereby utilizing part of
the Companys short-term facility. The Company in turn has provided nonrecourse,
unsecured counter-guarantees to Nedbank for the same amount. 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 unaudited condensed
consolidated balance sheet as of December 31, 2013. The maximum potential amount
that the Company could pay under these guarantees is ZAR 132.0 million ($12.6
million, translated at exchange rates applicable as of December 31, 2013). The
guarantees have reduced the amount available for borrowings under the Companys
short-term credit facility described in note 8.
Contingencies
Securities
Litigation
On December 24, 2013, Net1, its
chief executive officer and its chief financial officer were named as defendants
in a purported class action lawsuit filed in the United States District Court
for the Southern District of New York alleging violations of the federal
securities laws.
22
17. Commitments and
contingencies
(continued)
Contingencies (continued)
Securities
Litigation (continued)
The lawsuit alleges that Net1
made materially false and misleading statements regarding its business and
compliance policies in its SEC filings and other public disclosures. The lawsuit
was brought on behalf of a purported shareholder of Net1 and all other similarly
situated shareholders who purchased its securities between August 27, 2009 and
November 27, 2013. The lawsuit seeks unspecified damages. The Company believes
this lawsuit has no merit and intends to defend it vigorously.
The Company is subject to a
variety of insignificant claims and suits that arise from time to time in the
ordinary course of business.
Management currently believes
that the resolution of these matters, individually or in the aggregate, will not
have a material adverse impact on the Companys financial position, results of
operations and cash flows.
23
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should
be read in conjunction with our Annual Report on Form 10-K for the year ended
June 30, 2013, 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, 2013 and Item 1ARisk Factors and elsewhere in this Form 10-Q. In some
cases, you can identify forward-looking statements by terminology such as may,
will, should, could, would, expects, plans, intends,
anticipates, believes, estimates, predicts, potential or continue or
the negative of such terms and other comparable terminology.
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we do
not know whether we can achieve positive future results, levels of activity,
performance, or goals. Actual events or results may differ materially. We
undertake no obligation to update any of the forward-looking statements after
the date of this Form 10-Q to conform those statements to reflect the occurrence
of unanticipated events, except as required by applicable law.
You should read this Form 10-Q
and the documents that we reference herein and the documents we have filed as
exhibits hereto and which we have filed with the Securities and Exchange
Commission completely and with the understanding that our actual future results,
levels of activity, performance and achievements may be materially different
from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
Recent Developments
AllPay Challenge to
Tender Award
On November 29, 2013, the South
African Constitutional Court ruled that the tender process followed by SASSA in
awarding a five-year social welfare grants distribution contract to us was
constitutionally invalid. However, the Constitutional Court suspended its
declaration of invalidity pending determination of a just and equitable remedy.
The grant of a just and equitable remedy was reserved pending a further hearing,
which has been set for February 11, 2014. As ordered by the Constitutional
Court, the parties have submitted additional information on affidavit. See Part
II, Item 1Legal Proceedings.
December 2013 Black
Economic Empowerment, or BEE, transactions
On December 10, 2013, we entered
into definitive agreements relating to two BEE transactions. Refer to note 10 to
our unaudited condensed consolidated financial statements for a full description
of the BEE transactions.
Growth in mobile
value-added services
Our Net1 Mobile Solutions
business unit introduced a new suite of mobile value-added services, commencing
with a prepaid airtime product called Umoya Manje during the first quarter of
fiscal 2014. We continued to see adoption of this product increase in the second
quarter of fiscal 2014. This product allows our customers in South Africa to
electronically purchase prepaid airtime without having to visit a physical
prepaid airtime vendor.
Traditional prepaid airtime
procurement is usually time consuming for the customer and results in them
having to pay additional costs. Our product allows our customers, many of whom
do not have their own means of transport or ready access to transport, to
purchase prepaid airtime without having to travel. We also believe that our
product is substantially cheaper than traditional prepaid airtime channels,
which often require customers to pay a substantial premium to obtain airtime. At
December 31, 2013, we had over 2.4 million registered users, effecting more than
one million transactions per day during peak periods. In December 2013, Net1
Mobile Solutions launched other mobile value-added services, including prepaid
electricity, and expects the adoption rates of these products to be similar to
its prepaid airtime offering. We believe that these new products are also
cheaper than existing offerings and will make a meaningful difference in the
lives of users of these new products.
24
Expansion of
financial service offering
During the second quarter of
fiscal 2014, our Financial Services business unit continued the national rollout
of our financial services offering in the six provinces in which we did not
offer our product during fiscal 2013.
Acquisition of KSNET
non-controlling interests
We acquired substantially all of
the issued share capital of KSNET that we did not previously own for
approximately $2.0 million in cash. Refer to note 10 to our unaudited condensed
consolidated financial statements for a full description of the acquisition of
KSNET non-controlling interests.
Critical Accounting Policies
Our unaudited condensed
consolidated financial statements have been prepared in accordance with US GAAP,
which requires management to make estimates and assumptions about future events
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities. As future events and their effects cannot be
determined with absolute certainty, the determination of estimates requires
managements judgment based on a variety of assumptions and other determinants
such as historical experience, current and expected market conditions and
certain scientific evaluation techniques.
Critical accounting policies are
those that reflect significant judgments or uncertainties, and potentially may
result in materially different results under different assumptions and
conditions. Management has identified the following critical accounting policies
that are described in more detail in our Annual Report on Form 10-K for the year
ended June 30, 2013:
-
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.
During the first half of 2014, we
created an allowance for doubtful finance loans receivable related to our
financial services segment as a result of UEPS-based loans provided to our
customers. Our policy is to regularly review the ageing of outstanding amounts
due from borrowers and adjust the provision based on managements estimate of
the recoverability of finance loans receivable. We write off UEPS-based loans
and related service fees if a borrower is in arrears with repayments for more
than three months or dies.
This is a new allowance and
management considered factors including the period of the UEPS-loan outstanding,
creditworthiness of the customers and the past payment history and trends of its
established UEPS-based lending book. We consider this policy to be appropriate
taking into account factors such as historical bad debts, current economic
trends and changes in our customer payment patterns. Additional allowances may
be required should the ability of our customers to make payments when due
deteriorate in the future. A significant amount of judgment is required to
assess the ultimate recoverability of these finance loan receivables, including
on-going evaluation of the creditworthiness of each customer.
Recent accounting
pronouncements adopted
Refer to Note 1 to our unaudited
condensed consolidated financial statements for a full description of recent
accounting pronouncements adopted, including the dates of adoption and the
effects on our condensed consolidated financial statements.
Recent accounting
pronouncements not yet adopted as of December 31, 2013
Refer to note 1 to our unaudited
condensed consolidated financial statements for a full description of recent
accounting pronouncements not yet adopted as of December 31, 2013, including the
expected dates of adoption and effects on our financial condition, results of
operations and cash flows.
25
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and
at the end of the periods presented were as follows:
Table 1
|
|
Three months ended
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
ZAR : $ average exchange rate
|
|
10.1603
|
|
|
8.7029
|
|
|
10.0809
|
|
|
8.4836
|
|
|
8.8462
|
|
Highest ZAR : $ rate during period
|
|
10.5730
|
|
|
9.0047
|
|
|
10.5730
|
|
|
9.0047
|
|
|
10.3587
|
|
Lowest ZAR : $ rate during period
|
|
9.7143
|
|
|
8.1933
|
|
|
9.5436
|
|
|
8.0444
|
|
|
8.0444
|
|
Rate at end of period
|
|
10.5037
|
|
|
8.4875
|
|
|
10.5037
|
|
|
8.4875
|
|
|
9.8925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW : $ average exchange rate
|
|
1,065
|
|
|
1,095
|
|
|
1,089
|
|
|
1,116
|
|
|
1,112
|
|
Highest KRW : $ rate during period
|
|
1,077
|
|
|
1,116
|
|
|
1,152
|
|
|
1,156
|
|
|
1,162
|
|
Lowest KRW : $ rate during period
|
|
1,031
|
|
|
1,039
|
|
|
1,031
|
|
|
1,039
|
|
|
1,019
|
|
Rate at end of period
|
|
1,063
|
|
|
1,068
|
|
|
1,063
|
|
|
1,068
|
|
|
1,144
|
|
26
Translation exchange
rates for financial reporting purposes
For financial reporting purposes
we are required to translate our results of operations from ZAR and KRW to US
dollars on a monthly basis. Thus, the average rates used to translate this data
for the three and six months ended December 31, 2013 and 2012, vary from the
averages shown in the table above. The translation rates we use in presenting
our results of operations are the rates shown in the following table:
Table 2
|
|
Three months ended
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Income and expense items: $1 = ZAR .
|
|
10.1592
|
|
|
8.7405
|
|
|
10.0809
|
|
|
8.4571
|
|
|
8.7105
|
|
Income and expense items: $1 = KRW
|
|
1,021
|
|
|
1,084
|
|
|
1,087
|
|
|
1,111
|
|
|
1,072
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Balance sheet items: $1 = ZAR
|
|
10.5037
|
|
|
8.4875
|
|
|
10.5037
|
|
|
8.4875
|
|
|
9.8925
|
|
Balance sheet items: $1 = KRW
|
|
1,063
|
|
|
1,068
|
|
|
1,063
|
|
|
1,068
|
|
|
1,144
|
|
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.
Three and six months ended
December 31, 2012, includes SmartSwitch Botswana from December 1, 2012 and Pbel
from September 1, 2012.
27
We analyze our business and
operations in terms of five inter-related but independent operating segments:
(1) South African transaction-based activities, (2) international
transaction-based activities, (3) smart card accounts, (4) financial services,
and (5) hardware, software and related technology sales. In addition, corporate
and corporate office activities that are impracticable to ascribe directly to
any of the other operating segments, as well as any inter-segment eliminations,
are included in corporate/eliminations.
Second quarter of fiscal
2014 compared to second quarter of fiscal 2013
The following factors had an
influence on our results of operations during the second quarter of fiscal 2014
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 16% against the ZAR during the
second quarter of fiscal 2014 which negatively impacted our reported results;
-
SASSA implementation complete:
Our SASSA contract
implementation is complete. We incurred implementation-related expenditure,
including smart card costs, of approximately $21.0 million during the second
quarter of fiscal 2013;
-
Higher revenue resulting from an increase in low-margin prepaid
airtime sales:
Our revenue has increased as a result of the growth of
our Umoya Manje prepaid airtime offering during the second quarter of fiscal
2014, which has lower margins compared with our other South African
businesses;
-
National rollout of our financial services offering:
We
continued the national rollout of our financial services offering during the
second quarter of fiscal 2014, which resulted in higher revenue from
UEPS-based lending. Profitability in the financial services segment however
was lower due to rollout costs, including hiring and training of additional
staff and infrastructure deployment as well as the creation of an allowance
for doubtful finance loans receivable;
-
Ad hoc hardware sales in fiscal 2014:
We sold more terminals
and cards during the second quarter of fiscal 2014 as a result of ad hoc
orders received from our customers; and
-
Higher DOJ and SEC investigation-related expenses:
We
incurred DOJ and SEC investigation-related expenses of $1.6 million during the
second quarter of fiscal 2014 compared to $0.5 million during 2013.
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 December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
$ %
|
|
|
|
$
000
|
|
|
$
000
|
|
|
change
|
|
Revenue
|
|
137,283
|
|
|
111,442
|
|
|
23%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
67,883
|
|
|
47,227
|
|
|
44%
|
|
Selling, general and administration
|
|
40,824
|
|
|
48,756
|
|
|
(16%
|
)
|
Depreciation and amortization
|
|
9,774
|
|
|
10,487
|
|
|
(7%
|
)
|
Operating income
|
|
18,802
|
|
|
4,972
|
|
|
278%
|
|
Interest income
|
|
3,236
|
|
|
2,589
|
|
|
25%
|
|
Interest expense
|
|
2,226
|
|
|
2,023
|
|
|
10%
|
|
Income before income tax expense
|
|
19,812
|
|
|
5,538
|
|
|
258%
|
|
Income tax expense
|
|
7,099
|
|
|
2,971
|
|
|
139%
|
|
Net income before earnings from equity-accounted
investments
|
|
12,713
|
|
|
2,567
|
|
|
395%
|
|
Earnings from equity-accounted investments
|
|
47
|
|
|
54
|
|
|
(13%
|
)
|
Net income
|
|
12,760
|
|
|
2,621
|
|
|
387%
|
|
Less (Add) net income (loss) attributable
to non-controlling interest
|
|
11
|
|
|
(8
|
)
|
|
nm
|
|
Net income attributable to us
|
|
12,749
|
|
|
2,629
|
|
|
385%
|
|
28
|
|
In South African Rand
|
|
Table 4
|
|
(US GAAP)
|
|
|
|
Three months ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
ZAR %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
1,394,685
|
|
|
974,058
|
|
|
43%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
689,636
|
|
|
412,787
|
|
|
67%
|
|
Selling, general and administration
|
|
414,740
|
|
|
426,152
|
|
|
(3%
|
)
|
Depreciation and amortization
|
|
99,296
|
|
|
91,661
|
|
|
8%
|
|
Operating income
|
|
191,013
|
|
|
43,458
|
|
|
340%
|
|
Interest income
|
|
32,875
|
|
|
22,629
|
|
|
45%
|
|
Interest expense
|
|
22,614
|
|
|
17,682
|
|
|
28%
|
|
Income before income tax expense
|
|
201,274
|
|
|
48,405
|
|
|
316%
|
|
Income tax expense
|
|
72,120
|
|
|
25,968
|
|
|
178%
|
|
Net income before earnings from equity-accounted
investments
|
|
129,154
|
|
|
22,437
|
|
|
476%
|
|
Earnings from equity-accounted investments
|
|
477
|
|
|
472
|
|
|
1%
|
|
Net income
|
|
129,631
|
|
|
22,909
|
|
|
466%
|
|
Less (Add) net income (loss) attributable
to non-controlling interest
|
|
112
|
|
|
(70
|
)
|
|
nm
|
|
Net income attributable to us
|
|
129,519
|
|
|
22,979
|
|
|
464%
|
|
The increase in revenue was
primarily due to a higher contribution from KSNET, more ad hoc terminal and card
sales, more low-margin transaction fees generated from beneficiaries using the
South African National Payment System, higher prepaid airtime sales driven by
the rollout of our Umoya Manje product, and an increase in the number of
UEPS-loans made.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
incurred from increased usage of the South African National Payment System by
beneficiaries and higher prepaid airtime, terminal and card sales. These
increases were offset by the substantial elimination of expenses related to our
SASSA contract implementation, which we completed in the fourth quarter of
fiscal 2013.
Our selling, general and
administration expense decreased due to the substantial elimination of SASSA
contract implementation costs, which were offset by increases in goods and
services purchased from third parties and increase in legal fees to
approximately $1.6 million (ZAR 16.4 million) compared with $0.5 million (ZAR
4.9 million) in connection with the US government investigations.
Our operating income margin for
the second quarter of fiscal 2014 and 2013 was 14% and 4%, respectively. We
discuss the components of operating income margin under Results of operations
by operating segment. The increase is primarily attributable to the elimination
of implementation costs in fiscal 2014.
In ZAR, depreciation and
amortization were higher primarily as a result of an increase in depreciation
related to assets used to service our obligations under our SASSA contract,
which was partially offset by no MediKredit and FIHRST intangible asset
amortization as the these intangible assets were fully amortized at the end of
June 2013. The tables below present the acquisition-related intangible asset
amortization that has been allocated to our operating segments:
|
|
Three months ended
|
|
|
Table 5
|
|
December 31,
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
$
000
|
|
|
|
$
000
|
|
|
Amortization included in depreciation and
amortization expense:
|
|
4,107
|
|
|
|
4,861
|
|
|
South African transaction-based
activities
|
|
518
|
|
|
|
1,465
|
|
|
International
transaction-based activities
|
|
3,518
|
|
|
|
3,313
|
|
|
Hardware, software and related
technology sales
|
|
71
|
|
|
|
83
|
|
|
|
|
Three months ended
|
|
|
Table 6
|
|
December 31,
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
|
Amortization included in depreciation and
amortization expense:
|
|
41,719
|
|
|
|
42,485
|
|
|
South African transaction-based
activities
|
|
5,262
|
|
|
|
12,811
|
|
|
International
transaction-based activities
|
|
35,740
|
|
|
|
28,957
|
|
|
Hardware, software and related
technology sales
|
|
717
|
|
|
|
717
|
|
|
29
Interest on surplus cash
increased to $3.2 million (ZAR 32.9 million) from $2.6 million (ZAR 22.6
million) due primarily to higher average daily ZAR cash balances.
In US dollars, interest expense
increased to $2.2 million (ZAR 22.6 million) from $2.0 million (ZAR 17.7
million) primarily due to the write-off of facilities fees related to the 2010
Korean debt financing, but partially offset by a lower average long-term debt
balance.
Second quarter fiscal 2014 tax
expense was $7.1 million (ZAR 72.1 million) compared to $3.0 million (ZAR 26.0
million) in fiscal 2013. Our effective tax rate for fiscal 2014 was 35.8% and
was higher than the South African statutory rate as a result of non-deductible
expenses (including interest expense related to our long-term Korean borrowings
and stock-based compensation charges). Our effective tax rate for the second
quarter of fiscal 2013 was 53.6% and was higher than the South African statutory
rate primarily as a result of non-deductible expenses (including interest
expense related to our long-term Korean borrowings and stock-based compensation
charges) and South African dividend withholding taxes.
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.
Table 7
|
|
In United States Dollars (US GAAP)
|
|
|
|
Three months ended December 31,
|
|
|
|
2013
|
|
|
|
% of
|
|
|
|
2012
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$
000
|
|
|
|
total
|
|
|
|
$
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
72,237
|
|
|
|
53%
|
|
|
|
60,764
|
|
|
|
55%
|
|
|
19%
|
|
International transaction-based activities
|
|
37,288
|
|
|
|
27%
|
|
|
|
33,113
|
|
|
|
30%
|
|
|
13%
|
|
Smart card accounts
|
|
11,237
|
|
|
|
8%
|
|
|
|
8,219
|
|
|
|
7%
|
|
|
37%
|
|
Financial services
|
|
6,199
|
|
|
|
5%
|
|
|
|
1,448
|
|
|
|
1%
|
|
|
328%
|
|
Hardware, software and related technology
sales
|
|
10,322
|
|
|
|
7%
|
|
|
|
7,898
|
|
|
|
7%
|
|
|
31%
|
|
Total consolidated revenue
|
|
137,283
|
|
|
|
100%
|
|
|
|
111,442
|
|
|
|
100%
|
|
|
23%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
13,398
|
|
|
|
71%
|
|
|
|
1,933
|
|
|
|
39%
|
|
|
593%
|
|
Operating income before
amortization
|
|
13,916
|
|
|
|
|
|
|
|
3,398
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(518
|
)
|
|
|
|
|
|
|
(1,465
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
1,365
|
|
|
|
7%
|
|
|
|
202
|
|
|
|
4%
|
|
|
576%
|
|
Operating income before amortization
|
|
4,883
|
|
|
|
|
|
|
|
3,515
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(3,518
|
)
|
|
|
|
|
|
|
(3,313
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
3,203
|
|
|
|
17%
|
|
|
|
2,342
|
|
|
|
47%
|
|
|
37%
|
|
Financial services
|
|
1,727
|
|
|
|
9%
|
|
|
|
1,048
|
|
|
|
21%
|
|
|
65%
|
|
Hardware, software and related technology sales
|
|
1,592
|
|
|
|
8%
|
|
|
|
795
|
|
|
|
16%
|
|
|
100%
|
|
Operating income before
amortization
|
|
1,663
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(71
|
)
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(2,483
|
)
|
|
|
(12%
|
)
|
|
|
(1,348
|
)
|
|
|
(27%
|
)
|
|
84%
|
|
Total consolidated operating
income
|
|
18,802
|
|
|
|
100%
|
|
|
|
4,972
|
|
|
|
100%
|
|
|
278%
|
|
30
Table 8
|
|
In South African Rand (US GAAP)
|
|
|
|
Three months ended December 31,
|
|
|
|
2013
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
|
total
|
|
|
|
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
733,870
|
|
|
|
53%
|
|
|
|
531,108
|
|
|
|
55%
|
|
|
38%
|
|
International transaction-based activities
|
|
378,816
|
|
|
|
27%
|
|
|
|
289,424
|
|
|
|
30%
|
|
|
31%
|
|
Smart card accounts
|
|
114,159
|
|
|
|
8%
|
|
|
|
71,838
|
|
|
|
7%
|
|
|
59%
|
|
Financial services
|
|
62,977
|
|
|
|
5%
|
|
|
|
12,656
|
|
|
|
1%
|
|
|
398%
|
|
Hardware, software and related technology
sales
|
|
104,863
|
|
|
|
7%
|
|
|
|
69,032
|
|
|
|
7%
|
|
|
52%
|
|
Total consolidated revenue
|
|
1,394,685
|
|
|
|
100%
|
|
|
|
974,058
|
|
|
|
100%
|
|
|
43%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
136,113
|
|
|
|
71%
|
|
|
|
16,895
|
|
|
|
39%
|
|
|
706%
|
|
Operating income before
amortization
|
|
141,375
|
|
|
|
|
|
|
|
29,706
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(5,262
|
)
|
|
|
|
|
|
|
(12,811
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
13,867
|
|
|
|
7%
|
|
|
|
1,766
|
|
|
|
4%
|
|
|
685%
|
|
Operating income before amortization
|
|
49,607
|
|
|
|
|
|
|
|
30,723
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(35,740
|
)
|
|
|
|
|
|
|
(28,957
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
32,540
|
|
|
|
17%
|
|
|
|
20,470
|
|
|
|
47%
|
|
|
59%
|
|
Financial services
|
|
17,545
|
|
|
|
9%
|
|
|
|
9,160
|
|
|
|
21%
|
|
|
92%
|
|
Hardware, software and related technology sales
|
|
16,173
|
|
|
|
8%
|
|
|
|
6,949
|
|
|
|
16%
|
|
|
133%
|
|
Operating income before
amortization
|
|
16,890
|
|
|
|
|
|
|
|
7,666
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(717
|
)
|
|
|
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(25,225
|
)
|
|
|
(12%
|
)
|
|
|
(11,782
|
)
|
|
|
(27%
|
)
|
|
114%
|
|
Total consolidated operating income
|
|
191,013
|
|
|
|
100%
|
|
|
|
43,458
|
|
|
|
100%
|
|
|
340%
|
|
South
African transaction-based activities
In ZAR, the increases in segment
revenue were primarily due to more low-margin transaction fees generated from
beneficiaries using the South African National Payment System, incremental
prepaid airtime sales driven by the rollout of our Umoya Manje product, and
reflect the elimination of inter-company transactions.
Our operating income margin for
fiscal 2014 and 2013 was 19% and 3%, respectively, and has increased primarily
due to the elimination of SASSA implementation costs in fiscal 2014 and
partially offset by the increase in low-margin prepaid airtime sales.
South
African transaction processors:
The table below presents the
total volume and value processed during the second quarter of fiscal 2014 and
2013:
Table 9
|
|
Total volume (000s
)
|
|
|
Total value $ (000
)
|
|
|
Total value ZAR (000
)
|
|
Transaction processor
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
CPS
|
|
28,538
|
|
|
28,373
|
|
|
2,715,356
|
|
|
2,971,163
|
|
|
27,585,846
|
|
|
25,969,448
|
|
EasyPay
|
|
106,772
|
|
|
111,380
|
|
|
2,881,624
|
|
|
2,960,166
|
|
|
29,274,995
|
|
|
25,873,334
|
|
Net1 Mobile Solutions (A)
|
|
39,641
|
|
|
6,178
|
|
|
2,274,810
|
|
|
2,503,633
|
|
|
23,110,247
|
|
|
21,883,006
|
|
MediKredit
|
|
2,245
|
|
|
2,353
|
|
|
200,446
|
|
|
160,204
|
|
|
2,036,370
|
|
|
1,400,261
|
|
(A) during fiscal 2014 FIHRST
was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent
FIHRST only.
CPS volumes were flat year over
year due to SASSAs suspension of former grant recipient cardholders who had not
presented themselves for enrollment during the second quarter of fiscal 2014.
These grant recipient cardholders will have to apply for restoration of their
grant and present themselves for enrollment should they want to reinstate their
grants. Our pension and welfare operations continue to generate the majority of
our revenues and operating income in this operating segment and overall. EasyPay
volumes have decreased due to fewer sales of prepaid airtime, but the decrease
was partially offset by an increase in transaction switching and other
value-added services. Net1 Mobile Solutions volumes and values have increased
due to the launch of Umoya Manje in fiscal 2014.
31
International
transaction-based activities
KSNET continues to contribute the
majority of our revenues and operating income in this operating segment. Revenue
increased primarily due to KSNETs revenue growth during the second quarter of
fiscal 2014 and was partially offset by the expiration and non-renewal of NUETS
contract with its Iraqi customer in the third quarter of fiscal 2013. Operating
income during the second quarter of fiscal 2014 was higher due to increase in
revenue contribution from KSNET, but partially offset by the loss of the NUETS
Iraqi contract as well as ongoing losses related to our XeoHealth launch in the
United States and at Net1 Virtual Card, as well as ongoing competition in the
Korean marketplace.
Operating income margin for the
segment is lower than for most of our South African transaction-based
businesses. Operating income margin for the second quarter of fiscal 2014 and
2013 was 4% and 1%, respectively (excluding intangible amortization, 13% and
11%, respectively.)
Smart
card accounts
In ZAR, our revenue from this
operating segment was higher because the number of smart card-based accounts has
increased as a result of full implementation of the SASSA contract. Operating
income margin from providing smart card accounts for the second quarter of
fiscal 2014 and 2013 was 29% and 28%, respectively.
In ZAR, revenue from the
provision of smart card-based accounts increased in proportion to the increased
number of recipients serviced through our SASSA contract. Approximately 9.6
million smart card-based accounts were active at December 31, 2013 compared to
approximately 6.2 million active accounts as at December 31, 2012.
Financial
services
UEPS-based lending contributes
the majority of the revenue and operating income in this operating segment.
Revenue and operating income increased primarily due to the increase in the
number of loans granted as we rolled out our product nationally. The increase in
operating income was partially offset by an increase in start-up expenses,
establishment of the allowance for doubtful finance loans receivable and the
re-allocation of UEPS-based lending corporate and administration overhead
expenses to this segment. Smart Life did not contribute to operating income in
the second quarter of fiscal 2014 as it is currently unable to issue new
insurance policies as a result of the suspension of its license by the Financial
Services Board, or FSB, in January 2013.
Second quarter of fiscal 2014
includes the re-allocation of UEPS-based lending corporate administration and
overhead expenses to this segment from the South African transaction-based
activities segment. We were not able to accurately quantify these expenses for
last year and therefore did not allocate such costs to this segment during the
second quarter of fiscal 2013.
Operating income margin for the
financial services segment decreased to 28% from 72%, primarily as a result of
the roll-out expenditures, allowance for doubtful finance loans receivable and
corporate overhead expense re-allocation described above.
Hardware,
software and related technology sales
In ZAR, the increase in revenue
and operating income resulted from more ad hoc terminal and smart card sales. We
continue to expect significant quarter over quarter fluctuations in revenue,
operating income and operating margin due to the ad hoc nature of orders in this
operating segment.
Corporate/eliminations
The increase in our corporate
expenses resulted primarily from legal fees we incurred in connection with the
DOJ and SEC investigations and other corporate head office-related expenses.
Our corporate expenses also
include expenditure related to compliance with Sarbanes; non-executive
directors fees; employee and executive salaries and bonuses; stock-based
compensation; legal and audit fees; directors and officers insurance premiums;
telecommunications expenses; property-related expenditures including utilities,
rental, security and maintenance; and elimination entries.
32
First half of fiscal 2014
compared to first half of fiscal 2013
The following factors had an
influence on our results of operations during the first half of fiscal 2014 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 19% against the ZAR during the
first half of fiscal 2014 which negatively impacted our reported results;
-
SASSA implementation complete:
We incurred
implementation-related expenditure, including smart card costs, of
approximately $36.8 million during the first half of fiscal 2013;
-
Higher revenue resulting from an increase in low-margin prepaid
airtime sales:
Our revenue has increased as a result of the deployment
of our Umoya Manje prepaid airtime offering during the first half of fiscal
2014, which has lower margins compared with our other South African
businesses;
-
National rollout of our financial services offering:
The
national rollout of our financial services offering resulted in higher revenue
from UEPS-based lending. Profitability in the financial services segment
however was lower due to rollout costs, including hiring and training of
additional staff and infrastructure deployment as well as the creation of an
allowance for doubtful finance loans receivable;
-
Ad hoc hardware sales in fiscal 2014:
We sold more terminals
and cards during the first half of fiscal 2014 as a result of ad hoc orders
received from our customers; and
-
DOJ and SEC investigation-related expenses:
We incurred DOJ
and SEC investigation-related expenses of $3.8 million during the first half
of fiscal 2014 compared with $0.5 million in 2013.
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 10
|
|
(US GAAP)
|
|
|
|
Six months ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
$ %
|
|
|
|
$ 000
|
|
|
$ 000
|
|
|
change
|
|
Revenue
|
|
260,777
|
|
|
223,124
|
|
|
17%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
124,442
|
|
|
92,328
|
|
|
35%
|
|
Selling, general and administration
|
|
81,330
|
|
|
96,008
|
|
|
(15%
|
)
|
Depreciation and amortization
|
|
19,803
|
|
|
20,491
|
|
|
(3%
|
)
|
Operating income
|
|
35,202
|
|
|
14,297
|
|
|
146%
|
|
Interest income
|
|
6,555
|
|
|
5,680
|
|
|
15%
|
|
Interest expense
|
|
3,978
|
|
|
4,094
|
|
|
(3%
|
)
|
Income before income tax expense
|
|
37,779
|
|
|
15,883
|
|
|
138%
|
|
Income tax expense
|
|
13,584
|
|
|
6,700
|
|
|
103%
|
|
Net income before earnings from equity-accounted
investments
|
|
24,195
|
|
|
9,183
|
|
|
163%
|
|
Earnings from equity-accounted investments
|
|
150
|
|
|
182
|
|
|
(18%
|
)
|
Net income
|
|
24,345
|
|
|
9,365
|
|
|
160%
|
|
Less (Add) net income (loss) attributable
to non-controlling interest
|
|
-
|
|
|
(8
|
)
|
|
nm
|
|
Net income attributable to us
|
|
24,345
|
|
|
9,373
|
|
|
160%
|
|
33
|
|
In South African Rand
|
|
Table 11
|
|
(US GAAP)
|
|
|
|
Six months ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
ZAR %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
2,628,867
|
|
|
1,886,983
|
|
|
39%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
1,254,488
|
|
|
780,827
|
|
|
61%
|
|
Selling, general and administration
|
|
819,880
|
|
|
811,950
|
|
|
1%
|
|
Depreciation and amortization
|
|
199,633
|
|
|
173,295
|
|
|
15%
|
|
Operating income
|
|
354,866
|
|
|
120,911
|
|
|
193%
|
|
Interest income
|
|
66,080
|
|
|
48,036
|
|
|
38%
|
|
Interest expense
|
|
40,102
|
|
|
34,623
|
|
|
16%
|
|
Income before income tax expense
|
|
380,844
|
|
|
134,324
|
|
|
184%
|
|
Income tax expense
|
|
136,939
|
|
|
56,663
|
|
|
142%
|
|
Net income before earnings from equity-accounted
investments
|
|
243,905
|
|
|
77,661
|
|
|
214%
|
|
Earnings from equity-accounted investments
|
|
1,512
|
|
|
1,539
|
|
|
(2%
|
)
|
Net income
|
|
245,417
|
|
|
79,200
|
|
|
210%
|
|
Less (Add) net income (loss) attributable
to non-controlling interest
|
|
-
|
|
|
(68
|
)
|
|
nm
|
|
Net income attributable to us
|
|
245,417
|
|
|
79,268
|
|
|
210%
|
|
The increase in revenue was
primarily due to a higher contribution from KSNET, more ad hoc terminal and card
sales, more low-margin transaction fees generated from beneficiaries using the
South African National Payment System, higher prepaid airtime sales driven by
the rollout of our Umoya Manje product, and an increase in the number of
UEPS-loans made.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
incurred from increased usage of the South African National Payment System by
beneficiaries and higher prepaid airtime, terminal and card sales. These
increases were offset by the substantial elimination of expenses related to our
SASSA contract implementation, which we completed in the fourth quarter of
fiscal 2013.
In ZAR, our selling, general and
administration expense increased due to increases in goods and services
purchased from third parties and an increase in legal fees to approximately $3.8
million (ZAR 38.0 million) compared with $0.5 million (ZAR 4.9 million) in
connection with the US government investigations, which were offset by the
substantial elimination of SASSA contract implementation costs.
Our operating income margin for
the first half of fiscal 2014 and 2013, was 13% and 6%, respectively. We discuss
the components of operating income margin under Results of operations by
operating segment. The increase is primarily attributable to the substantial
elimination of implementation costs in fiscal 2014.
In ZAR, depreciation and
amortization were higher primarily as a result of an increase in depreciation
related to assets used to service our obligations under our SASSA contract,
which was partially offset by no MediKredit and FIHRST intangible asset
amortization as the these intangible assets were fully amortized at the end of
June 2013. The tables below present the acquisition-related intangible asset
amortization that has been allocated to our operating segments:
|
|
Six months ended
|
|
|
Table 12
|
|
December 31,
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
$
000
|
|
|
|
$
000
|
|
|
Amortization included in
depreciation and amortization expense:
|
|
7,795
|
|
|
|
9,568
|
|
|
South African
transaction-based activities
|
|
1,044
|
|
|
|
2,931
|
|
|
International transaction-based activities
|
|
6,608
|
|
|
|
6,468
|
|
|
Hardware, software and
related technology sales
|
|
143
|
|
|
|
169
|
|
|
|
|
Six months ended
|
|
|
Table 13
|
|
December 31,
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
|
Amortization included in
depreciation and amortization expense:
|
|
78,569
|
|
|
|
80,919
|
|
|
South African
transaction-based activities
|
|
10,519
|
|
|
|
24,783
|
|
|
International transaction-based activities
|
|
66,615
|
|
|
|
54,701
|
|
|
Hardware, software and
related technology sales
|
|
1,435
|
|
|
|
1,435
|
|
|
34
Interest on surplus cash
increased to $6.6 million (ZAR 66.1 million) from $5.7 million (ZAR 48.0
million), due primarily to higher average daily ZAR cash balances.
In US dollars, interest expense
decreased to $4.0 million (ZAR 40.1 million) from $4.1 million (ZAR 34.6
million) due to a lower average long-term debt balance.
First half fiscal 2014 tax
expense was $13.6 million (ZAR 136.9 million) compared to $6.7 million (ZAR 56.7
million) in fiscal 2013. Our effective tax rate for fiscal 2014, was 35.9% and
was higher than the South African statutory rate as a result of non-deductible
expenses (including interest expense related to our long-term Korean borrowings
and stock-based compensation charges). Our effective tax rate for the first half
of fiscal 2013, was 42.2% and was higher than the South African statutory rate
primarily as a result of non-deductible expenses (including interest expense
related to our long-term Korean borrowings and stock-based compensation charges)
and South African dividend withholding taxes.
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.
Table 14
|
|
In United States Dollars (US GAAP)
|
|
|
|
Six months ended December 31,
|
|
|
|
2013
|
|
|
|
% of
|
|
|
|
2012
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$ 000
|
|
|
|
total
|
|
|
|
$ 000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
135,269
|
|
|
|
52%
|
|
|
|
122,128
|
|
|
|
55%
|
|
|
11%
|
|
International transaction-based activities
|
|
74,105
|
|
|
|
28%
|
|
|
|
64,762
|
|
|
|
29%
|
|
|
14%
|
|
Smart card accounts
|
|
22,566
|
|
|
|
9%
|
|
|
|
16,583
|
|
|
|
7%
|
|
|
36%
|
|
Financial services
|
|
8,626
|
|
|
|
3%
|
|
|
|
2,832
|
|
|
|
1%
|
|
|
205%
|
|
Hardware, software and related technology
sales
|
|
20,211
|
|
|
|
8%
|
|
|
|
16,819
|
|
|
|
8%
|
|
|
20%
|
|
Total consolidated revenue
|
|
260,777
|
|
|
|
100%
|
|
|
|
223,124
|
|
|
|
100%
|
|
|
17%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
26,680
|
|
|
|
76%
|
|
|
|
8,333
|
|
|
|
58%
|
|
|
220%
|
|
Operating income before
amortization
|
|
27,724
|
|
|
|
|
|
|
|
11,264
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(1,044
|
)
|
|
|
|
|
|
|
(2,931
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
3,416
|
|
|
|
10%
|
|
|
|
31
|
|
|
|
-
|
|
|
nm
|
|
Operating income before amortization
|
|
10,024
|
|
|
|
|
|
|
|
6,499
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(6,608
|
)
|
|
|
|
|
|
|
(6,468
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
6,431
|
|
|
|
18%
|
|
|
|
4,727
|
|
|
|
33%
|
|
|
36%
|
|
Financial services
|
|
1,783
|
|
|
|
5%
|
|
|
|
2,145
|
|
|
|
15%
|
|
|
(17%
|
)
|
Hardware, software and related technology sales
|
|
4,540
|
|
|
|
13%
|
|
|
|
2,779
|
|
|
|
19%
|
|
|
63%
|
|
Operating income before
amortization
|
|
4,683
|
|
|
|
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(143
|
)
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(7,648
|
)
|
|
|
(22%
|
)
|
|
|
(3,718
|
)
|
|
|
(25%
|
)
|
|
106%
|
|
Total consolidated operating
income
|
|
35,202
|
|
|
|
100%
|
|
|
|
14,297
|
|
|
|
100%
|
|
|
146%
|
|
35
Table 15
|
|
In South African Rand (US GAAP)
|
|
|
|
Six months ended December 31,
|
|
|
|
2013
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
|
total
|
|
|
|
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
1,363,633
|
|
|
|
52%
|
|
|
|
1,032,849
|
|
|
|
55%
|
|
|
32%
|
|
International transaction-based activities
|
|
747,045
|
|
|
|
28%
|
|
|
|
547,699
|
|
|
|
29%
|
|
|
36%
|
|
Smart card accounts
|
|
227,486
|
|
|
|
9%
|
|
|
|
140,244
|
|
|
|
7%
|
|
|
62%
|
|
Financial services
|
|
86,958
|
|
|
|
3%
|
|
|
|
23,951
|
|
|
|
1%
|
|
|
263%
|
|
Hardware, software and related technology
sales
|
|
203,745
|
|
|
|
8%
|
|
|
|
142,240
|
|
|
|
8%
|
|
|
43%
|
|
Total consolidated revenue
|
|
2,628,867
|
|
|
|
100%
|
|
|
|
1,886,983
|
|
|
|
100%
|
|
|
39%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
268,958
|
|
|
|
76%
|
|
|
|
70,473
|
|
|
|
58%
|
|
|
282%
|
|
Operating income before
amortization
|
|
279,477
|
|
|
|
|
|
|
|
95,256
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(10,519
|
)
|
|
|
|
|
|
|
(24,783
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
34,436
|
|
|
|
10%
|
|
|
|
262
|
|
|
|
-
|
|
|
nm
|
|
Operating income before amortization
|
|
101,051
|
|
|
|
|
|
|
|
54,963
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(66,615
|
)
|
|
|
|
|
|
|
(54,701
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
64,830
|
|
|
|
18%
|
|
|
|
39,977
|
|
|
|
33%
|
|
|
62%
|
|
Financial services
|
|
17,974
|
|
|
|
5%
|
|
|
|
18,140
|
|
|
|
15%
|
|
|
(1%
|
)
|
Hardware, software and related technology sales
|
|
45,767
|
|
|
|
13%
|
|
|
|
23,502
|
|
|
|
19%
|
|
|
95%
|
|
Operating income before
amortization
|
|
47,202
|
|
|
|
|
|
|
|
24,937
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(1,435
|
)
|
|
|
|
|
|
|
(1,435
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(77,099
|
)
|
|
|
(22%
|
)
|
|
|
(31,443
|
)
|
|
|
(25%
|
)
|
|
145%
|
|
Total consolidated operating
income
|
|
354,866
|
|
|
|
100%
|
|
|
|
120,911
|
|
|
|
100%
|
|
|
193%
|
|
South
African transaction-based activities
In ZAR, the increases in segment
revenue were primarily due to more low-margin transaction fees generated from
beneficiaries using the South African National Payment System, incremental
prepaid airtime sales driven by the rollout of our Umoya Manje product, and
reflect the elimination of inter-company transactions.
Our operating income margin for
fiscal 2014 and 2013 was 20% and 7%, respectively, and has increased primarily
due to the substantial elimination of SASSA implementation costs in fiscal 2014
and partially offset by the increase in low-margin prepaid airtime sales.
South
African transaction processors:
The table below presents the
total volume and value processed during the first half of fiscal 2014 and 2013:
Table 16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume (000s)
|
|
|
Total value $ (000)
|
|
|
Total value ZAR (000)
|
|
Transaction processor
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
CPS
|
|
56,863
|
|
|
56,942
|
|
|
5,413,098
|
|
|
6,150,616
|
|
|
54,568,900
|
|
|
52,016,377
|
|
EasyPay
|
|
205,917
|
|
|
213,800
|
|
|
5,540,372
|
|
|
5,706,997
|
|
|
55,851,933
|
|
|
48,264,644
|
|
Net1 Mobile Solutions (A)
|
|
58,631
|
|
|
12,165
|
|
|
4,341,321
|
|
|
4,905,921
|
|
|
43,764,420
|
|
|
41,489,867
|
|
MediKredit
|
|
4,838
|
|
|
4,977
|
|
|
401,982
|
|
|
333,066
|
|
|
4,052,336
|
|
|
2,816,769
|
|
(A) during fiscal 2014 FIHRST
was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent
FIHRST only.
CPS volumes were flat year over
year due to SASSAs suspension of former grant recipient cardholders who had not
presented themselves for enrollment during the first half of fiscal 2014.
EasyPay volumes have decreased due to fewer sales of prepaid airtime, but
partially offset by an increase in transaction switching and other value-added
services. Net1 Mobile Solutions volumes and values have increased due to the
launch of Umoya Manje in fiscal 2014.
36
International
transaction-based activities
Revenue increased primarily due
to KSNETs revenue growth during the first half of fiscal 2014 and was partially
offset by the expiration and non-renewal of NUETS contract with its Iraqi
customer in the third quarter of fiscal 2013. Operating income during the first
half of fiscal 2014 was higher due to increase in revenue contribution from
KSNET, but partially offset by the loss of the NUETS Iraqi contract as well as
ongoing losses related to our XeoHealth launch in the United States and at Net1
Virtual Card, as well as ongoing competition in the Korean marketplace.
Operating income margin for the
first half of fiscal 2014 and 2013 was 5% and 0%, respectively (excluding
intangible amortization, 14% and 10%, respectively.)
Smart
card accounts
In ZAR, our revenue from this
operating segment was higher because the number of smart card-based accounts has
increased as a result of full implementation of the SASSA contract. Operating
income margin from providing smart card accounts for the first half of fiscal
2014 and 2013 was 28% and 29%, respectively.
In ZAR, revenue from the
provision of smart card-based accounts increased in proportion to the increased
number of recipients serviced through our SASSA contract. Approximately 9.6
million smart card-based accounts were active at December 31, 2013 compared to
approximately 6.2 million active accounts as at December 31, 2012.
Financial
services
Revenue increased primarily due
to the increase in the number of loans granted as we rolled out our product
nationally. Operating income decreased primarily as a result of related start-up
expenses, establishment of the allowance for doubtful finance loans receivable
and the re-allocation of UEPS-based lending corporate and administration
overhead expenses to this segment. Smart Life did not contribute to operating
income in the first half of fiscal 2014 due to the FSB suspension.
First half of fiscal 2014
includes the re-allocation of UEPS-based lending corporate administration and
overhead expenses to this segment from the South African transaction-based
activities segment. We were not able to accurately quantify these expenses for
last year and therefore did not allocate such costs to this segment during the
first half of fiscal 2013.
Operating income margin for the
financial services segment decreased to 21% from 76%, primarily as a result of
the roll-out expenditures, allowance for doubtful finance loans receivable and
corporate overhead expense re-allocation described above.
Hardware,
software and related technology sales
In ZAR, the increase in revenue
and operating income resulted from more ad hoc terminal and smart card sales. We
continue to expect significant quarter over quarter fluctuations in revenue,
operating income and operating margin due to the ad hoc nature of orders in this
operating segment.
Corporate/eliminations
The increase in our corporate
expenses resulted primarily from legal fees we incurred in connection with the
US government investigations and other corporate head office-related
expenses.
Our corporate expenses also
include expenditure related to compliance with Sarbanes; non-executive
directors fees; employee and executive salaries and bonuses; stock-based
compensation; legal and audit fees; directors and officers insurance premiums;
telecommunications expenses; property-related expenditures including utilities,
rental, security and maintenance; and elimination entries.
Liquidity and Capital Resources
At December 31, 2013, our cash
balances were $22.4 million, which comprised mainly ZAR-denominated balances of
ZAR 8.9 million ($0.9 million), KRW-denominated balances of KRW 16.4 billion
($15.5 million) and US dollar-denominated balances of $3.9 million and other
currency deposits, primarily euro, of $2.1 million. The decrease in our cash
balances from June 30, 2013, was primarily due to the expansion of our
UEPS-based lending business, working capital changes, the repayment of a portion
of our Korean debt and acquisition of substantially all of the remaining shares
of KSNET that we did not already own.
37
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 and European 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.
During December 2013, we
increased our short-term South African credit facility with Nedbank Limited to
ZAR 650 million ($61.9 million) through March 31, 2014. The short-term facility
comprises of an overdraft facility of up to ZAR 500 million and indirect and
derivative facilities of up to ZAR 150 million, which includes letters of
guarantee, letters of credit and forward exchange contracts. The overdraft
facility of ZAR 500 million will revert to ZAR 250 million on March 31, 2014. As
of December 31, 2013, we have used ZAR 254.8 million ($24.3 million) of the
overdraft facility to fund our working capital requirements and ZAR 132.0
million ($12.6 million) of the indirect and derivative facilities to support
cross-guarantees issued to Nedbank for guarantees issued by Nedbank to various
third parties on our behalf. Refer to note 8 to the unaudited condensed
consolidated financial statements for more information about the terms of our
new short-term South African facility.
As of December 31, 2013, we had
outstanding long-term debt of KRW 71.6 billion (approximately $67.3 million
translated at exchange rates applicable as of December 31, 2013) under credit
facilities with a group of Korean banks. In October 2013, we refinanced our
Korean long-term debt facility with a new KRW 85.0 billion five-year senior
secured term loan and revolving credit facility. The loans bear interest at the
Korean CD rate in effect from time to time (2.66% as of December 31, 2013) 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. Scheduled repayments of the
term loans and loan under the revolving credit facility are as follows: October
2014 (KRW 15 billion), 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 the unaudited condensed consolidated
financial statements for more information about the terms of our new long-term
Korean facility.
Cash flows from operating
activities
Second
quarter of fiscal 2014
Net cash utilized in operating
activities for the second quarter of fiscal 2014 was $27.2 million (ZAR 276.9
million) compared to $6.9 million (ZAR 60.5 million) for the second quarter of
fiscal 2013. Excluding the impact of interest received, interest paid under our
Korean debt and taxes presented in the table below, the decrease in cash from
operating activities resulted from the expansion of our UEPS-based lending book
and the timing of prefunding related to the January 2014 payment cycle, offset
by improved cash generated from operating activities and the substantial
elimination of implementation costs related to our SASSA contract in fiscal
2014.
During the second quarter of
fiscal 2014, we paid South African tax of $13.3 million (ZAR 137.8 million)
related to our 2013 tax year and $0.2 million (ZAR 2.4 million) related to prior
tax years. We also paid provisional Korean taxes of $0.5 million related to our
tax year ended December 31, 2013. During the second quarter of fiscal 2013, we
paid South African tax of $6.3 million (ZAR 54.4 million) related to our 2013
tax year, $3.1 million (ZAR 27.0 million) related to prior tax years and
dividend withholding taxes of $0.4 million (ZAR 3.5 million). We also paid
provisional Korean taxes of $0.4 million related to our tax year ended December
31, 2012.
Taxes paid during the second
quarter of fiscal 2014 and 2013 were as follows:
Table 17
|
|
Three months ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
13,292
|
|
|
6,284
|
|
|
137,773
|
|
|
54,354
|
|
Taxation paid related to prior years
|
|
228
|
|
|
3,110
|
|
|
2,360
|
|
|
26,978
|
|
Taxation refunds received
|
|
-
|
|
|
(63
|
)
|
|
-
|
|
|
(542
|
)
|
Dividend withholding taxation
|
|
-
|
|
|
398
|
|
|
-
|
|
|
3,500
|
|
Total South
African taxes paid
|
|
13,520
|
|
|
9,729
|
|
|
140,133
|
|
|
84,290
|
|
Foreign taxes paid: primarily
Korea
|
|
509
|
|
|
408
|
|
|
5,193
|
|
|
3,533
|
|
Total tax paid
|
|
14,029
|
|
|
10,137
|
|
|
145,326
|
|
|
87,823
|
|
38
First
half of fiscal 2014
Net cash utilized in operating
activities for the first quarter of fiscal 2014 was $28.9 million (ZAR 291.6
million) compared to cash generated from operating activities of $18.8 million
(ZAR 159.1 million) for the first half of fiscal 2013. Excluding the impact of
interest received, interest paid under our Korean debt and taxes presented in
the table below, the decrease in cash from operating activities resulted from
the expansion of our UEPS-based lending book and the timing of prefunding
related to the January 2014 payment cycle, offset by improved cash generated
from operating activities and the substantial elimination of implementation
costs related to our SASSA contract in fiscal 2014.
During the first half of fiscal
2014, we paid South African tax of $13.3 million (ZAR 137.8 million) related to
our 2014 tax year and $0.2 million (ZAR 2.4 million) related to prior tax years.
We also paid provisional Korean taxes of $1.0 million related to our tax year
ended December 31, 2013. During the first half of fiscal 2013, we paid South
African tax of $6.3 million (ZAR 54.4 million) related to our 2013 tax year,
$3.1 million (ZAR 27.0 million) related to prior tax years and dividend
withholding taxes of $0.4 million (ZAR 3.5 million). We also paid provisional
Korean taxes of $0.8 million related to our tax year ended December 31,
2012.
Taxes paid during the first half
of fiscal 2014 and 2013 were as follows:
Table 18
|
|
|
|
|
Three months ended December 31,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
13,292
|
|
|
6,284
|
|
|
137,773
|
|
|
54,354
|
|
Taxation paid related to prior years
|
|
228
|
|
|
3,110
|
|
|
2,360
|
|
|
26,978
|
|
Taxation refunds received
|
|
-
|
|
|
(118
|
)
|
|
-
|
|
|
(1,006
|
)
|
Dividend withholding taxation
|
|
-
|
|
|
398
|
|
|
-
|
|
|
3,500
|
|
Total South
African taxes paid
|
|
13,520
|
|
|
9,674
|
|
|
140,133
|
|
|
83,826
|
|
Foreign taxes paid: primarily
Korea
|
|
1,007
|
|
|
805
|
|
|
10,177
|
|
|
6,812
|
|
Total tax paid
|
|
14,527
|
|
|
10,479
|
|
|
150,310
|
|
|
90,638
|
|
Cash flows from investing
activities
Second
quarter of fiscal 2014
Cash used in investing activities
for the second quarter of fiscal 2014 includes capital expenditure of $6.8
million (ZAR 69.5 million), primarily for the acquisition of payment processing
terminals in Korea.
Cash used in investing activities
for the second quarter of fiscal 2013 includes capital expenditure of $5.6
million (ZAR 47.5 million), primarily for payment vehicles and related equipment
for our new SASSA contract and acquisition of payment processing terminals in
Korea. During the second quarter of fiscal 2013 we paid, net of cash acquired,
$0.2 million for SmartSwitch Botswana.
First
half of fiscal 2014
Cash used in investing activities
for the first half of fiscal 2014 includes capital expenditure of $12.5 million
(ZAR 125.6 million), primarily for the acquisition of payment processing
terminals in Korea.
Cash used in investing activities
for the first half of fiscal 2013 includes capital expenditure of $12.1 million
(ZAR 101.9 million), primarily for payment vehicles and related equipment for
our new SASSA contract and acquisition of payment processing terminals in Korea.
During the first half of fiscal 2013 we paid, net of cash acquired, $1.9 million
(ZAR 16.2 million) for Pbel and $0.2 million for SmartSwitch Botswana.
Cash flows from financing
activities
Second
quarter of fiscal 2014
During the second quarter of
fiscal 2014, we refinanced our Korean debt and received $85 million from Korean
banks. We used $71.6 million of these new borrowings and $15.4 million of our
surplus cash to repay the $87.0 million due under our old facility. In addition,
we paid the facility fees related to our new Korean borrowings of approximately
$0.9 million in October 2013. We also paid approximately $2.0 million for
substantially all of the shares of KSNET we did not already own during the
second quarter of fiscal 2014.
During the second quarter of
fiscal 2013, we made a scheduled $7.3 million long-term debt repayment.
39
First
half of fiscal 2014
We had no cash flows from
financing activities for the first half of fiscal 2014, except as described
above.
In addition to the cash flows
from financing activities during the second quarter of fiscal 2013 described
above, during the first half of fiscal 2013, we received $0.2 million from the
exercise of stock options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Capital Expenditures
We expect capital spending for
the third quarter of fiscal 2014 to primarily include the acquisition of payment
terminals for the expansion of our operations in Korea.
Our historical capital
expenditures for the second quarter of fiscal 2014 and 2013 are discussed under
Liquidity and Capital ResourcesCash flows from investing activities. All of
our capital expenditures for the past three fiscal years were funded through
internally-generated funds. We had outstanding capital commitments as of
December 31, 2013, of $0.1 million related mainly to computer equipment. We
expect to fund these expenditures through internally-generated funds.