Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and
cash equivalents
|
$
|
123,269
|
|
$
|
117,583
|
|
Pre-funded social welfare grants receivable (Note 3)
|
|
1,560
|
|
|
2,306
|
|
Accounts
receivable, net of allowances of March: $3,538; June: $1,956
(Note 1)
|
|
111,637
|
|
|
121,335
|
|
Finance
loans receivable, net of allowances of March: $4,587; June: $4,227
|
|
43,596
|
|
|
40,373
|
|
Inventory
(Note 4)
|
|
11,555
|
|
|
12,979
|
|
Deferred
income taxes
|
|
5,777
|
|
|
7,298
|
|
Total current assets before settlement assets
|
|
297,394
|
|
|
301,874
|
|
Settlement assets (Note 5)
|
|
484,535
|
|
|
661,916
|
|
Total current assets
|
|
781,929
|
|
|
963,790
|
|
PROPERTY, PLANT AND
EQUIPMENT, net of accumulated depreciation of March: $106,200; June:
$94,014
|
|
56,110
|
|
|
52,320
|
|
EQUITY-ACCOUNTED INVESTMENTS
|
|
11,259
|
|
|
14,329
|
|
GOODWILL (Note 7)
|
|
163,338
|
|
|
166,437
|
|
INTANGIBLE ASSETS, net (Note
7)
|
|
41,870
|
|
|
47,124
|
|
OTHER LONG-TERM ASSETS,
including reinsurance assets (Note 1, Note 6 and Note 8)
|
|
49,299
|
|
|
42,430
|
|
TOTAL
ASSETS
|
|
1,103,805
|
|
|
1,286,430
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts
payable
|
|
14,880
|
|
|
21,453
|
|
Other
payables
|
|
44,748
|
|
|
45,595
|
|
Current
portion of long-term borrowings (Note 10)
|
|
8,752
|
|
|
8,863
|
|
Income
taxes payable
|
|
7,940
|
|
|
6,287
|
|
Total current liabilities before settlement
obligations
|
|
76,320
|
|
|
82,198
|
|
Settlement obligations
(Note 5)
|
|
484,535
|
|
|
661,916
|
|
Total current liabilities
|
|
560,855
|
|
|
744,114
|
|
DEFERRED INCOME TAXES
|
|
9,407
|
|
|
10,564
|
|
LONG-TERM BORROWINGS (Note
10)
|
|
52,269
|
|
|
50,762
|
|
OTHER LONG-TERM LIABILITIES,
including insurance policy liabilities (Note 8)
|
|
1,708
|
|
|
2,205
|
|
TOTAL
LIABILITIES
|
|
624,239
|
|
|
807,645
|
|
COMMITMENTS AND CONTINGENCIES
(Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
COMMON STOCK (Note
11)
Authorized:
200,000,000 with $0.001 par
value;
Issued
and outstanding shares, net of treasury - March: 45,636,435; June:
46,679,565
|
|
64
|
|
|
64
|
|
PREFERRED
STOCK
Authorized
shares: 50,000,000 with $0.001 par
value;
Issued
and outstanding shares, net of treasury: March: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL
|
|
224,347
|
|
|
213,896
|
|
TREASURY
SHARES, AT COST: March: 20,135,140; June: 18,057,228
|
|
(238,432
|
)
|
|
(214,520
|
)
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
(184,382
|
)
|
|
(139,181
|
)
|
RETAINED
EARNINGS
|
|
675,966
|
|
|
617,868
|
|
TOTAL NET1 EQUITY
|
|
477,563
|
|
|
478,127
|
|
NON-CONTROLLING INTEREST
|
|
2,003
|
|
|
658
|
|
TOTAL EQUITY
|
|
479,566
|
|
|
478,785
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
$
|
1,103,805
|
|
$
|
1,286,430
|
|
(A) Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial
Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Operations
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands, except
per share data)
|
|
|
(In thousands, except
per share data)
|
|
REVENUE
|
$
|
134,736
|
|
$
|
151,121
|
|
$
|
439,490
|
|
$
|
461,693
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, IT processing, servicing and support
|
|
63,266
|
|
|
71,094
|
|
|
219,316
|
|
|
217,274
|
|
Selling,
general and administration
|
|
35,998
|
|
|
38,001
|
|
|
108,007
|
|
|
118,122
|
|
Depreciation and amortization
|
|
9,281
|
|
|
10,060
|
|
|
29,982
|
|
|
30,391
|
|
OPERATING INCOME
|
|
26,191
|
|
|
31,966
|
|
|
82,185
|
|
|
95,906
|
|
INTEREST INCOME
|
|
3,345
|
|
|
4,211
|
|
|
11,284
|
|
|
11,888
|
|
INTEREST EXPENSE
|
|
852
|
|
|
941
|
|
|
2,880
|
|
|
3,360
|
|
INCOME BEFORE INCOME TAX
EXPENSE
|
|
28,684
|
|
|
35,236
|
|
|
90,589
|
|
|
104,434
|
|
INCOME TAX EXPENSE (Note 17)
|
|
9,816
|
|
|
10,305
|
|
|
31,306
|
|
|
32,156
|
|
NET INCOME BEFORE EARNINGS
FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
18,868
|
|
|
24,931
|
|
|
59,283
|
|
|
72,278
|
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
2
|
|
|
65
|
|
|
578
|
|
|
233
|
|
NET INCOME
|
|
18,870
|
|
|
24,996
|
|
|
59,861
|
|
|
72,511
|
|
LESS NET INCOME ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
450
|
|
|
638
|
|
|
1,763
|
|
|
1,690
|
|
NET INCOME ATTRIBUTABLE TO
NET1
|
$
|
18,420
|
|
$
|
24,358
|
|
$
|
58,098
|
|
$
|
70,821
|
|
Net income per share, in U.S. dollars
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable
to Net1 shareholders
|
$
|
0.40
|
|
$
|
0.52
|
|
$
|
1.24
|
|
$
|
1.51
|
|
Diluted earnings attributable to Net1
shareholders
|
$
|
0.40
|
|
$
|
0.52
|
|
$
|
1.23
|
|
$
|
1.51
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
18,870
|
|
$
|
24,996
|
|
$
|
59,861
|
|
$
|
72,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized income on asset available for sale, net of tax
|
|
642
|
|
|
648
|
|
|
692
|
|
|
422
|
|
Movement in
foreign currency translation reserve
|
|
14,359
|
|
|
(11,596
|
)
|
|
(46,297
|
)
|
|
(49,182
|
)
|
Total
other comprehensive income (loss), net of taxes
|
|
15,001
|
|
|
(10,948
|
)
|
|
(45,605
|
)
|
|
(48,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
33,871
|
|
|
14,048
|
|
|
14,256
|
|
|
23,751
|
|
Less comprehensive income attributable to non-controlling interest
|
|
(509
|
)
|
|
(601
|
)
|
|
(1,359
|
)
|
|
(1,604
|
)
|
Comprehensive
income attributable to Net1
|
$
|
33,362
|
|
$
|
13,447
|
|
$
|
12,897
|
|
$
|
22,147
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS
TECHNOLOGIES,
INC.
Unaudited
Condensed
Consolidated
Statement
of
Changes
in Equity for the Nine
months
ended March 31, 2016 (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc.
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
shares, net of
|
|
|
Paid-In
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Total Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
treasury
|
|
|
Capital
|
|
|
Earnings
|
|
|
loss
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
Balance July
1, 2015
|
|
64,736,793
|
|
$
|
64
|
|
|
(18,057,228
|
)
|
$
|
(214,520
|
)
|
|
46,679,565
|
|
$
|
213,896
|
|
$
|
617,868
|
|
$
|
(139,181
|
)
|
$
|
478,127
|
|
$
|
658
|
|
$
|
478,785
|
|
Repurchase of common stock
(Note 11)
|
|
|
|
|
|
|
|
(2,077,912
|
)
|
|
(23,912
|
)
|
|
(2,077,912
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,912
|
)
|
|
|
|
|
(23,912
|
)
|
Restricted
stock granted (Note 13)
|
|
319,492
|
|
|
|
|
|
|
|
|
|
|
|
319,492
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
Exercise of stock option (Note
13)
|
|
323,645
|
|
|
-
|
|
|
|
|
|
|
|
|
323,645
|
|
|
3,762
|
|
|
|
|
|
|
|
|
3,762
|
|
|
|
|
|
3,762
|
|
Stock-based
compensation charge (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,645
|
|
|
|
|
|
|
|
|
2,645
|
|
|
|
|
|
2,645
|
|
Income tax benefit from vested
stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
67
|
|
Issue of Smart
Life shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
14
|
|
|
(14
|
)
|
|
-
|
|
T24 acquisition (Note 2)
|
|
391,645
|
|
|
|
|
|
|
|
|
|
|
|
391,645
|
|
|
3,963
|
|
|
|
|
|
|
|
|
3,963
|
|
|
|
|
|
3,963
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,098
|
|
|
|
|
|
58,098
|
|
|
1,763
|
|
|
59,861
|
|
Other comprehensive loss (Note
12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,201
|
)
|
|
(45,201
|
)
|
|
(404
|
)
|
|
(45,605
|
)
|
Balance March
31, 2016
|
|
65,771,575
|
|
$
|
64
|
|
|
(20,135,140
|
)
|
$
|
(238,432
|
)
|
|
45,636,435
|
|
$
|
224,347
|
|
$
|
675,966
|
|
$
|
(184,382
|
)
|
$
|
477,563
|
|
$
|
2,003
|
|
$
|
479,566
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
18,870
|
|
$
|
24,996
|
|
$
|
59,861
|
|
$
|
72,511
|
|
Depreciation and amortization
|
|
9,281
|
|
|
10,060
|
|
|
29,982
|
|
|
30,391
|
|
Earnings from equity-accounted investments
|
|
(2
|
)
|
|
(65
|
)
|
|
(578
|
)
|
|
(233
|
)
|
Fair value adjustments
|
|
(2,387
|
)
|
|
(449
|
)
|
|
613
|
|
|
(270
|
)
|
Interest payable
|
|
343
|
|
|
(23
|
)
|
|
1,697
|
|
|
1,276
|
|
Profit on disposal of
property, plant and equipment
|
|
(29
|
)
|
|
(64
|
)
|
|
(113
|
)
|
|
(295
|
)
|
Gain on fair value of T24 (Note 2)
|
|
(1,909
|
)
|
|
-
|
|
|
(1,909
|
)
|
|
-
|
|
Stock-based compensation
charge
|
|
954
|
|
|
731
|
|
|
2,645
|
|
|
2,682
|
|
Facility fee amortized
|
|
34
|
|
|
36
|
|
|
103
|
|
|
170
|
|
Decrease (Increase) in
accounts receivable, pre- funded social welfare grants receivable and
finance loans receivable
|
|
15,914
|
|
|
3,379
|
|
|
(15,211
|
)
|
|
5,534
|
|
Increase in inventory
|
|
(340
|
)
|
|
(26
|
)
|
|
(495
|
)
|
|
(2,771
|
)
|
Increase (Decrease) in
accounts payable and other payables
|
|
4,009
|
|
|
4,735
|
|
|
1,563
|
|
|
(7,654
|
)
|
Increase in taxes payable
|
|
4,479
|
|
|
7,465
|
|
|
3,444
|
|
|
4,113
|
|
Decrease in deferred taxes
|
|
(19
|
)
|
|
(1,467
|
)
|
|
(256
|
)
|
|
(2,025
|
)
|
Net cash provided
by operating activities
|
|
49,198
|
|
|
49,308
|
|
|
81,346
|
|
|
103,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(8,053
|
)
|
|
(6,307
|
)
|
|
(28,698
|
)
|
|
(24,822
|
)
|
Proceeds from disposal of
property, plant and equipment
|
|
136
|
|
|
163
|
|
|
753
|
|
|
777
|
|
Acquisition of available for sale securities
|
|
(8,900
|
)
|
|
-
|
|
|
(8,900
|
)
|
|
-
|
|
Acquisition of T24, net of
cash acquired (Note 2)
|
|
(1,666
|
)
|
|
-
|
|
|
(1,666
|
)
|
|
-
|
|
Proceeds from sale of business (Note 15)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,895
|
|
Other investing activities
(Note 6)
|
|
(5
|
)
|
|
-
|
|
|
(5
|
)
|
|
(29
|
)
|
Net change in settlement assets
|
|
(130,782
|
)
|
|
(188,315
|
)
|
|
112,047
|
|
|
10,283
|
|
Net cash (used in) provided by investing activities
|
|
(149,270
|
)
|
|
(194,459
|
)
|
|
73,531
|
|
|
(11,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock
(Note 11)
|
|
(12,726
|
)
|
|
-
|
|
|
(23,912
|
)
|
|
(9,151
|
)
|
Proceeds from issue of common stock
|
|
-
|
|
|
791
|
|
|
3,762
|
|
|
1,780
|
|
Long-term borrowings utilized
|
|
-
|
|
|
798
|
|
|
-
|
|
|
2,976
|
|
Repayment of long-term borrowings (Note 10)
|
|
676
|
|
|
-
|
|
|
2,107
|
|
|
(14,128
|
)
|
Sale of equity to
non-controlling interest (Note 11)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,407
|
|
Dividends paid to non-controlling interest
|
|
-
|
|
|
(1,024
|
)
|
|
-
|
|
|
(1,024
|
)
|
Net change in settlement
obligations
|
|
130,782
|
|
|
188,315
|
|
|
(112,047
|
)
|
|
(10,283
|
)
|
Net cash provided
by (used in)
financing activities
|
|
118,732
|
|
|
188,880
|
|
|
(130,090
|
)
|
|
(28,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash
|
|
3,192
|
|
|
(3,708
|
)
|
|
(19,101
|
)
|
|
(10,780
|
)
|
Net increase in cash and cash
equivalents
|
|
21,852
|
|
|
40,021
|
|
|
5,686
|
|
|
52,330
|
|
Cash and cash equivalents
beginning of period
|
|
101,417
|
|
|
70,981
|
|
|
117,583
|
|
|
58,672
|
|
Cash and cash equivalents end of
period
|
$
|
123,269
|
|
$
|
111,002
|
|
$
|
123,269
|
|
$
|
111,002
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the
Unaudited Condensed Consolidated Financial Statements
for the three
and nine months ended March 31, 2016 and 2015
(All amounts in tables
stated in thousands or thousands of U.S. Dollars, unless otherwise stated)
1.
|
Basis of Presentation and Summary of Significant
Accounting Policies
|
Unaudited Interim Financial
Information
The accompanying unaudited condensed consolidated financial
statements include all majority-owned subsidiaries over which the Company
exercises control and have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP) and the rules and regulations of the
United States Securities and Exchange Commission for quarterly reports on Form
10-Q and include all of the information and disclosures required for interim
financial reporting. The results of operations for the three and nine months
ended March 31, 2016 and 2015, 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, 2015. 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. During
the three months ended March 31, 2016, the Company identified a balance sheet
misclassification between current assets and long-term assets of approximately
$27.4 million. The Company has restated these amounts in its unaudited condensed
consolidated balance sheet as at June 30, 2015, and has decreased its accounts
receivable, net of allowances, and increased its other long-term assets by
approximately $27.4 million. This restatement has no impact on the Company's
previously reported consolidated income, comprehensive income or cash flows.
References to the Company refer to Net1 and its consolidated
subsidiaries, unless the context otherwise requires. References to Net1 are
references solely to Net 1 UEPS Technologies, Inc.
Recent accounting pronouncements
adopted
There were no accounting pronouncements
adopted during the three months ended March 31, 2016.
Recent accounting pronouncements not
yet adopted as of March 31, 2016
In May 2014, the FASB issued guidance regarding
Revenue from
Contracts with Customers
. This guidance requires an entity to recognize
revenue when a customer obtains control of promised goods or services in an
amount that reflects the consideration to which the entity expects to receive in
exchange for those goods or services. In addition, the standard requires
disclosure of the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. The guidance was effective for the
Company beginning July 1, 2017, however this date has been extended as per
subsequent guidance issued by the FASB. Early adoption is not permitted. The
Company expects that this guidance may have a material impact on its financial
statements and is currently evaluating the impact of this guidance on its
financial statements on adoption.
In August 2015, the FASB issued guidance regarding
Revenue
from Contracts with Customers, Deferral of the Effective Date
. This guidance
defers the required implementation date specified in
Revenue from Contracts
with Customers
to December 2017. Public companies may elect to adopt the
standard along the original timeline. The Company expects that this guidance may
have a material impact on its financial statements and is currently evaluating
the impact of this guidance on its financial statements on adoption.
In August 2014, the FASB issued guidance regarding
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going
Concern
. This guidance requires an entity to perform interim and annual
assessments of its ability to continue as a going concern within one year of the
date that its financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the entitys
ability to continue as a going concern. The guidance is effective for the
Company beginning July 1, 2017. Early adoption is permitted. The Company is
currently assessing the impact of this guidance on its financial statements
disclosure.
In February 2015, the FASB issued guidance regarding
Amendments to the Consolidation Analysis
. This guidance amends both the
variable interest entity and voting interest entity consolidation models. The
requirement to assess an entity under a different consolidation model may change
previous consolidation conclusions. The guidance is effective for the Company
beginning July 1, 2016. Early adoption is permitted. The Company is currently
assessing the impact of this guidance on its financial statements disclosure.
7
1.
|
Basis of Presentation and Summary of Significant
Accounting Policies (continued)
|
Recent accounting pronouncements not
yet adopted as of March 31, 2016 (continued)
In July 2015, the FASB issued guidance regarding
Simplifying
the Measurement of Inventory
. This guidance requires entities to measure
most inventory at the lower of cost and net realizable value, thereby
simplifying the current guidance under which an entity must measure inventory at
the lower of cost or market (market in this context is defined as one of three
different measures). The guidance will not apply to inventories that are
measured by using either the last-in, first-out (LIFO) method or the retail
inventory method (RIM). The guidance is effective for the Company beginning
July 1, 2017. Early adoption is permitted. The Company is currently assessing
the impact of this guidance on its financial statements disclosure.
In November 2015, the FASB issued guidance regarding
Balance
Sheet Classification of Deferred Taxes
. This guidance requires that deferred
tax liabilities and assets are to be classified as non-current in a classified
statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and
presented as a single amount is not affected by the amendments in this update.
This guidance is effective for the Company beginning July 1, 2017, with early
adoption permitted on a prospective or retrospective basis. The Company is
currently assessing the impact of this guidance on its financial statements
disclosures.
In January 2016, the FASB issued guidance regarding
Recognition and Measurement of Financial Assets and Financial
Liabilities
. The guidance primarily affects the accounting for equity
investments, financial liabilities under the fair value option and the
presentation and disclosure requirements for financial instruments. In addition,
the guidance clarifies the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on available-for-sale debt
securities. This guidance is effective for the Company beginning July 1, 2018,
and early adoption is not permitted, with certain exceptions. The amendments are
required to be applied by means of a cumulative-effect adjustment on the balance
sheet as of the beginning of the fiscal year of adoption. The Company is
currently assessing the impact of this guidance on its financial statements
disclosure.
In February 2016, the FASB issued guidance regarding
Leases
. The guidance increases transparency and comparability among
organizations by requiring the recognition of lease assets and lease liabilities
on the balance sheet. The amendments to current lease guidance includes the
recognition of assets and liabilities by lessees for those leases currently
classified as operating leases. The guidance also requires disclosures to meet
the objective of enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases. This guidance is
effective for the Company beginning July 1, 2019. Early adoption is permitted.
The Company expects that this guidance may have a material impact on its
financial statements and is currently evaluating the impact of this guidance on
its financial statements on adoption.
In March 2016, the FASB issued guidance regarding
Investments Equity Method and Joint Ventures: Simplifying the Transition to
the Equity Method of Accounting
. The guidance simplifies the equity method
of accounting by eliminating the requirement to retrospectively apply the equity
method to an investment that subsequently qualifies for such accounting as a
result of an increase in the level of ownership interest or degree of influence.
Consequently, when an investment qualifies for the equity method (as a result of
an increase in the level of ownership interest or degree of influence), the cost
of acquiring the additional interest in the investee would be added to the
current basis of the investors previously held interest and the equity method
would be applied subsequently from the date on which the investor obtains the
ability to exercise significant influence over the investee. The guidance
further requires that unrealized holding gains or losses in accumulated other
comprehensive income related to an available for sale security that becomes
eligible for the equity method be recognized in earnings as of the date on which
the investment qualifies for the equity method. This guidance is effective for
the Company beginning July 1, 2017. Early adoption is permitted. The Company is
currently assessing the impact of this guidance on its financial statements
disclosure.
In March 2016, the FASB issued guidance regarding
Improvements to Employee Share-Based Payment Accounting
. The guidance
simplifies several aspects of the accounting for employee share-based payment
transactions for both public and nonpublic entities, including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. This guidance is
effective for the Company beginning July 1, 2017. Early adoption is permitted.
The Company is currently assessing the impact of this guidance on its financial
statements disclosure.
8
Transact24 Limited
On January 20, 2016, the Company acquired the remaining 56% of
the issued and outstanding ordinary shares of Transact24 Limited (T24) for
$3.0 million in cash and through the issue of 391,645 shares of the Companys
common stock with an aggregate issue date fair value of approximately $4.0
million. T24 is a specialist Hong Kong-based payment services company and is now
a wholly-owned subsidiary. The Company acquired approximately 44% of T24 in May
2015. Philip Meyer, Managing Director of T24 and an industry veteran in the
international payments and transaction processing industries, has become an
executive officer of the Company.
The Company elected to settle part of the purchase price in
shares in order to appropriately align the T24 management team with the Company
and its global strategy. The parties have agreed that 50% of the Companys
shares issued in the transaction are contractually restricted as to resale until
after June 30, 2016, and the remaining 50% of the shares are so restricted until
after June 30, 2017.
The preliminary purchase price allocation, translated at the
foreign exchange rates applicable on the date of acquisition, is provided in the
table below:
|
Cash and cash equivalents
|
$
|
1,334
|
|
|
Accounts receivable
|
|
2,356
|
|
|
Property, plant and equipment, net
|
|
154
|
|
|
Deferred tax assets
|
|
1,070
|
|
|
Intangible assets
|
|
4,430
|
|
|
Goodwill (Note 7)
|
|
6,095
|
|
|
Accounts payables and other payables
|
|
(1,898
|
)
|
|
Deferred tax liabilities
|
|
(1,107
|
)
|
|
Fair value of T24 on
acquisition
|
|
12,434
|
|
|
Less: gain on fair value of T24
|
|
(1,908
|
)
|
|
Less: carrying value of
equity-accounted investment at the
|
|
|
|
|
acquisition date
|
|
(3,563
|
)
|
|
Total
purchase price
|
$
|
6,963
|
|
The preliminary purchase price allocation is based on
management estimates as of March 31, 2016, and may be adjusted up to one year
following the closing of the acquisition. The Company expects to finalize the
purchase price allocation on or before June 30, 2016. Pro forma results of
operations have not been presented because the effect of the T24 acquisition was
not material to the Companys results of operations.
During each of the three and nine months ended March 31, 2016,
the Company incurred acquisition-related expenditure of $0.1 million related to
this acquisition. Since the closing of the T24 acquisition, it has contributed
revenue and net income, after acquired intangible asset amortization, net of
taxation, of $2.0 million and $0.3 million, respectively, for the three months
ended March 31, 2016.
3.
|
Pre-funded social welfare grants
receivable
|
Pre-funded social welfare grants receivable represents amounts
pre-funded by the Company to certain merchants participating in the merchant
acquiring system. The April 2016 payment service commenced on April 1, 2016, but
the Company pre-funded certain merchants participating in the merchant acquiring
system on the last two days of March 2016.
The Companys inventory comprised the
following category as of March 31, 2016 and June 30, 2015.
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Finished goods
|
$
|
11,555
|
|
$
|
12,979
|
|
|
|
$
|
11,555
|
|
$
|
12,979
|
|
9
5.
|
Settlement assets and settlement
obligations
|
Settlement assets comprise (1) cash received from the South
African government that the Company holds pending disbursement to recipient
beneficiaries of social welfare grants and (2) cash received from customers on
whose behalf the Company processes payroll payments that the Company will
disburse to customer employees, payroll-related payees and other payees
designated by the customer.
Settlement obligations comprise (1) amounts that the Company is
obligated to disburse to recipient beneficiaries of social welfare grants, and
(2) amounts that the Company is obligated to pay to customer employees,
payroll-related payees and other payees designated by the customer.
The balances at each reporting date may vary widely depending
on the timing of the receipts and payments of these assets and obligations.
6.
|
Fair value of financial
instruments
|
Initial recognition and
measurement
Financial instruments are recognized when the Company becomes a
party to the transaction. Initial measurements are at cost, which includes
transaction costs.
Risk management
The Company seeks to reduce its exposure to currencies other
than the South African Rand (ZAR) through a policy of matching, to the extent
possible, assets and liabilities denominated in those currencies. In addition,
the Company uses financial instruments in order to economically hedge its
exposure to exchange rate and interest rate fluctuations arising from its
operations. The Company is also exposed to equity price and liquidity risks as
well as credit risks.
Currency exchange risk
The Company is subject to currency exchange risk because it
purchases inventories that it is required to settle in other currencies,
primarily the euro and U.S. dollar. The Company has used forward contracts in
order to limit its exposure in these transactions to fluctuations in exchange
rates between the ZAR, on the one hand, and the U.S. dollar and the euro, on the
other hand.
Translation risk
Translation risk relates to the risk that the Companys results
of operations will vary significantly as the U.S. dollar is its reporting
currency, but it earns most of its revenues and incurs most of its expenses in
ZAR. The U.S. dollar to ZAR exchange rate has fluctuated significantly over the
past three years. As exchange rates are outside the Companys control, there can
be no assurance that future fluctuations will not adversely affect the Companys
results of operations and financial condition.
Interest rate risk
As a result of its normal borrowing and leasing activities, the
Companys operating results are exposed to fluctuations in interest rates, which
it manages primarily through regular financing activities. The Company generally
maintains limited investment in cash equivalents and has occasionally invested
in marketable securities.
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.
10
6.
|
Fair value of financial instruments
(continued)
|
Risk management (continued)
UEPS-based microlending credit
risk
The Company is exposed to credit risk in its UEPS-based
microlending activities, which provides unsecured short-term loans to qualifying
customers. The Company manages this risk by performing an affordability test for
each prospective customer and assigns a creditworthiness score, which takes
into account a variety of factors such as other debts and total expenditures on
normal household and lifestyle expenses.
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company
would incur as a result of the volatility in the exchange-traded price of equity
securities that it holds and the risk that it may not be able to liquidate these
securities. The market price of these securities may fluctuate for a variety of
reasons, consequently, the amount the Company may obtain in a subsequent sale of
these securities may significantly differ from the reported market value.
Liquidity risk relates to the risk of loss that the Company
would incur as a result of the lack of liquidity on the exchange on which these
securities are listed. The Company may not be able to sell some or all of these
securities at one time, or over an extended period of time without influencing
the exchange traded price, or at all.
Financial instruments
The following section describes the valuation methodologies the
Company uses to measure its significant financial assets and liabilities at fair
value.
In general, and where applicable, the Company uses quoted
prices in active markets for identical assets or liabilities to determine fair
value. This pricing methodology applies to Level 1 investments. If quoted prices
in active markets for identical assets or liabilities are not available to
determine fair value, then the Company uses quoted prices for similar assets and
liabilities or inputs other than the quoted prices that are observable either
directly or indirectly. These investments are included in Level 2 investments.
In circumstances in which inputs are generally unobservable, values typically
reflect managements estimates of assumptions that market participants would use
in pricing the asset or liability. The fair values are therefore determined
using model-based techniques that include option pricing models, discounted cash
flow models, and similar techniques. Investments valued using such techniques
are included in Level 3 investments.
Asset measured at fair value
using significant unobservable inputs investment in Finbond Group Limited
(Finbond)
The Companys Level 3 asset represents an investment of
197,522,435 shares of common stock of Finbond, which are exchange-traded equity
securities. In March 2016, Finbond completed a rights issue and the Company
acquired an additional 40,733,723 shares for approximately $8.9 million. The
Companys ownership interest in Finbond as of March 31, 2016, is approximately
26%. Finbonds shares are traded on the Johannesburg Stock Exchange (JSE) and
the Company has designated such shares as available for sale investments. The
Company has concluded that the market for Finbond shares is not active and
consequently has employed alternative valuation techniques in order to determine
the fair value of such stock. Finbond issues financial products and services
under a mutual banking licence and also has a microlending offering. In
determining the fair value of Finbond, the Company has considered amongst other
things Finbonds historical financial information (including its most recent
public accounts), press releases issued by Finbond and its published net asset
value. The Company believes that the best indicator of fair value of Finbond is
its published net asset value and has used this value to determine the fair
value.
The fair value of these securities as of March 31, 2016,
represented approximately 1% of the Companys total assets, including these
securities. The Company expects to hold these securities for an extended period
of time and it is not concerned with short-term equity price volatility with
respect to these securities provided that the underlying business, economic and
management characteristics of the company remain sound.
Derivative transactions - Foreign
exchange contracts
As part of the Companys risk management strategy, the Company
enters into derivative transactions to mitigate exposures to foreign currencies
using foreign exchange contracts. These foreign exchange contracts are
over-the-counter derivative transactions. Substantially all of the Companys
derivative exposures are with counterparties that have long-term credit ratings
of BBB or better. The Company uses quoted prices in active markets for similar
assets and liabilities to determine fair value (Level 2). The Company has no
derivatives that require fair value measurement under Level 1 or 3 of the fair
value hierarchy.
11
6.
|
Fair value of financial instruments
(continued)
|
Financial instruments (continued)
The Companys outstanding foreign
exchange contracts are as follows:
As of March 31, 2016
|
|
|
Fair market
|
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
|
EUR 820,758
|
ZAR 15.6514
|
ZAR 16.8311
|
April 20, 2016
|
|
EUR 757,096
|
ZAR 15.7501
|
ZAR 16.9456
|
May 20, 2016
|
|
EUR 739,848
|
ZAR 15.8548
|
ZAR 17.0664
|
June 20, 2016
|
|
EUR 573,765
|
ZAR 15.9587
|
ZAR 17.1860
|
July 20, 2016
|
|
EUR 554,495
|
ZAR 16.0643
|
ZAR 17.3062
|
August 19, 2016
|
|
EUR 465,711
|
ZAR 16.1798
|
ZAR 17.4344
|
September 20, 2016
|
|
EUR 393,675
|
ZAR 16.2911
|
ZAR 17.5576
|
October 20, 2016
|
|
EUR 302,369
|
ZAR 16.4085
|
ZAR 17.6921
|
November 21, 2016
|
As of June 30, 2015
|
|
|
Fair market
|
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
|
EUR 526,263.00
|
ZAR 15.1145
|
ZAR 13.6275
|
July 20, 2015
|
|
EUR 526,263.00
|
ZAR 15.2025
|
ZAR 13.7062
|
August 20, 2015
|
|
EUR 526,263.00
|
ZAR 15.2944
|
ZAR 13.7898
|
September 21, 2015
|
|
EUR 526,263.00
|
ZAR 15.3809
|
ZAR 13.8683
|
October 20, 2015
|
|
EUR 509,516.00
|
ZAR 15.4728
|
ZAR 13.9540
|
November 20, 2015
|
|
EUR 529,865.00
|
ZAR 15.5654
|
ZAR 14.0397
|
December 21, 2015
|
|
EUR 526,663.00
|
ZAR 15.6625
|
ZAR 14.1239
|
January 20, 2016
|
The following table presents the Companys assets measured at
fair value on a recurring basis as of March 31, 2016, 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
|
$
|
525
|
|
$
|
-
|
|
$
|
-
|
|
$
|
525
|
|
|
Investment in Finbond (available for
sale assets included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
16,249
|
|
|
16,249
|
|
|
Foreign exchange
contracts
|
|
-
|
|
|
380
|
|
|
-
|
|
|
380
|
|
|
Other
|
|
-
|
|
|
1,048
|
|
|
-
|
|
|
1,048
|
|
|
Total
assets at fair value
|
$
|
525
|
|
$
|
1,428
|
|
$
|
16,249
|
|
$
|
18,202
|
|
12
6.
|
Fair value of financial instruments
(continued)
|
Financial instruments (continued)
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of June 30, 2015, according to the fair value hierarchy:
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
price in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
markets for
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
identical
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
|
assets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to insurance
business (included in other long-term assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,640
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,640
|
|
|
Investment in Finbond (available
for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets included
in other long-term assets)
|
|
-
|
|
|
-
|
|
|
7,488
|
|
|
7,488
|
|
|
Other
|
|
-
|
|
|
1,259
|
|
|
-
|
|
|
1,259
|
|
|
Total assets at fair value
|
$
|
1,640
|
|
$
|
1,259
|
|
$
|
7,488
|
|
$
|
10,387
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
$
|
-
|
|
$
|
452
|
|
$
|
-
|
|
$
|
452
|
|
|
Total liabilities
at fair value
|
$
|
-
|
|
$
|
452
|
|
$
|
-
|
|
$
|
452
|
|
Changes in the Companys investment in Finbond (Level 3 that
are measured at fair value on a recurring basis) were insignificant during the
three and nine months ended March 31, 2016 and 2015, respectively. There have
been no transfers in or out of Level 3 during the three and nine months ended
March 31, 2016 and 2015, respectively.
Assets and liabilities measured
at fair value on a nonrecurring basis
The Company measures its assets at fair value on a nonrecurring
basis when they are deemed to be other-than-temporarily impaired. The Company
has no liabilities that are measured at fair value on a nonrecurring basis. The
Company reviews the carrying values of its assets when events and circumstances
warrant and considers all available evidence in evaluating when declines in fair
value are other-than-temporary. The fair values of the Companys assets are
determined using the best information available, and may include quoted market
prices, market comparables, and discounted cash flow projections. An impairment
charge is recorded when the cost of the assets exceeds its fair value and the
excess is determined to be other-than-temporary. The Company has not recorded
any impairment charges during the reporting periods presented herein.
7.
|
Goodwill and intangible assets,
net
|
Goodwill
Summarized below is the movement in the
carrying value of goodwill for the nine months ended March 31, 2016:
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Gross value
|
|
|
impairment
|
|
|
value
|
|
|
Balance as of June 30, 2015
|
$
|
166,437
|
|
$
|
-
|
|
$
|
166,437
|
|
|
Acquisition (Note 2)
|
|
6,095
|
|
|
-
|
|
|
6,095
|
|
|
Foreign
currency adjustment
(1)
|
|
(9,194
|
)
|
|
-
|
|
|
(9,194
|
)
|
|
Balance as of March 31, 2016
|
$
|
163,338
|
|
$
|
-
|
|
$
|
163,338
|
|
(1) The foreign currency adjustment represents the effects of
the fluctuations between the South African rand and the Korean won, and the U.S.
dollar on the carrying value.
Goodwill associated with the acquisition of T24 represents the
excess of cost over the fair value of acquired net assets. The goodwill is not
deductible for tax purposes. See Note 2 for the allocation of the purchase price
to the fair value of acquired net assets. T24 has been allocated to the
Companys International transaction processing operating segment.
13
7.
|
Goodwill and intangible assets, net
(continued)
|
Goodwill (continued)
Goodwill has been allocated to the
Companys reportable segments as follows:
|
|
|
South
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
African
|
|
|
International
|
|
|
inclusion and
|
|
|
|
|
|
|
|
transaction
|
|
|
transaction
|
|
|
applied
|
|
|
Carrying
|
|
|
|
|
processing
|
|
|
processing
|
|
|
technologies
|
|
|
value
|
|
|
Balance as of June 30, 2015
|
$
|
24,579
|
|
$
|
115,519
|
|
$
|
26,339
|
|
$
|
166,437
|
|
|
Acquisition (Note 2)
|
|
-
|
|
|
6,095
|
|
|
-
|
|
|
6,095
|
|
|
Foreign
currency adjustment
(1)
|
|
(4,221
|
)
|
|
(1,444
|
)
|
|
(3,529
|
)
|
|
(9,194
|
)
|
|
Balance as of March 31, 2016
|
$
|
20,358
|
|
$
|
120,170
|
|
$
|
22,810
|
|
$
|
163,338
|
|
(1) The foreign currency adjustment represents the effects of
the fluctuations between the South African rand and the Korean won, and the U.S.
dollar on the carrying value.
Intangible assets, net
T24 intangible assets acquired
Summarized below is the fair value of the T24 intangible assets
acquired, translated at the exchange rate applicable as of January 20, 2016, and
the weighted-average amortization period of the intangible assets:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Fair value
|
|
|
average
|
|
|
|
|
as of
|
|
|
amortization
|
|
|
|
|
January 20,
|
|
|
period (in
|
|
|
|
|
2016
|
|
|
years)
|
|
|
Finite-lived intangible
asset:
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
3,350
|
|
|
5
|
|
|
Software and unpatented
technology
|
$
|
1,080
|
|
|
3
|
|
On acquisition, the Company recognized a deferred tax liability
of approximately $1.1 million related to the acquisition of the intangible
assets.
Carrying value and amortization
of intangible assets
Summarized below is the carrying value and accumulated
amortization of the intangible assets as of March 31, 2016 and June 30,
2015:
|
|
|
As of March 31, 2016
|
|
|
As of June 30, 2015
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
Finite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
(1)
.
|
$
|
88,141
|
|
$
|
(49,325
|
)
|
$
|
38,816
|
|
$
|
88,109
|
|
$
|
(45,312
|
)
|
$
|
42,797
|
|
|
Software and unpatented
technology
(1)
|
|
29,756
|
|
|
(28,766
|
)
|
|
990
|
|
|
29,964
|
|
|
(28,323
|
)
|
|
1,641
|
|
|
FTS patent
|
|
2,583
|
|
|
(2,583
|
)
|
|
-
|
|
|
3,119
|
|
|
(3,119
|
)
|
|
-
|
|
|
Exclusive
licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks
|
|
5,644
|
|
|
(3,580
|
)
|
|
2,064
|
|
|
6,094
|
|
|
(3,408
|
)
|
|
2,686
|
|
|
Total
finite-lived intangible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
$
|
130,630
|
|
$
|
(88,760
|
)
|
$
|
41,870
|
|
$
|
131,792
|
|
$
|
(84,668
|
)
|
$
|
47,124
|
|
(1) Includes the customer relationships and software and
unpatented technology acquired as part of the T24 acquisition in January 2016.
Aggregate amortization expense on the finite-lived intangible
assets for the three months ended March 31, 2016 and 2015, was approximately
$2.3 million and $3.6 million, respectively. Aggregate amortization expense on
the finite-lived intangible assets for the nine months ended March 31, 2016 and
2015, was approximately $8.2 million and $11.3 million, respectively.
14
7.
|
Goodwill and intangible assets, net
(continued)
|
Intangible assets, net (continued)
Future estimated annual amortization expense for the next five
fiscal years and thereafter, assuming exchange rates that prevailed on March 31,
2016, 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.
|
2016
|
$
|
10,972
|
|
|
2017
|
|
9,283
|
|
|
2018
|
|
9,281
|
|
|
2019
|
|
8,793
|
|
|
2020
|
|
8,437
|
|
|
Thereafter
|
$
|
3,493
|
|
8.
|
Reinsurance assets and policy holder liabilities under
insurance and investment contracts
|
Reinsurance assets and policy holder
liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and
policy holder liabilities under insurance contracts during the nine months ended
March 31, 2016:
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
|
assets
(1)
|
|
|
contracts
(2)
|
|
|
Balance as of June 30, 2015
|
$
|
183
|
|
$
|
(567
|
)
|
|
Increase in policy holder
benefits under insurance contracts
|
|
65
|
|
|
(304
|
)
|
|
Claims
and policyholders benefits under insurance contracts
|
|
(46
|
)
|
|
109
|
|
|
Foreign currency
adjustment
(3)
|
|
(32
|
)
|
|
98
|
|
|
Balance as of March 31, 2016
|
$
|
170
|
|
$
|
(664
|
)
|
(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 U.S. dollar.
The Company has agreements with reinsurance companies in order
to limit its losses from large insurance contracts, however, if the reinsurer is
unable to meet its obligations, the Company retains the liability.
Policyholders liabilities under insurance contracts are
derived from actual claims submitted which had not been settled as of March 31,
2016 and June 30, 2015, respectively, and represents managements estimate of
the net present value of future claims and benefits under existing insurance
contracts, offset by probable future premiums to be received (net of expected
service cost).
Assets and policy holder liabilities
under investment contracts
Summarized below is the movement in assets and policy holder
liabilities under investment contracts during the nine months ended March 31,
2016:
|
|
|
|
|
|
Investment
|
|
|
|
|
Assets
(1)
|
|
|
contracts
(2)
|
|
|
Balance as of June 30, 2015
|
$
|
593
|
|
$
|
(593
|
)
|
|
Increase in policy holder
benefits under investment contracts .
|
|
34
|
|
|
(34
|
)
|
|
Foreign
currency adjustment
(3)
|
|
(102
|
)
|
|
102
|
|
|
Balance as
of March 31, 2016
|
$
|
525
|
|
$
|
(525
|
)
|
(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 U.S. dollar.
The Company does not offer any
investment products with guarantees related to capital or returns.
15
9.
|
Short-term credit facility
|
The Companys short-term credit facilities are described in
Note 12 to the Companys audited consolidated financial statements included in
its Annual Report on Form 10-K for the year ended June 30, 2015.
South Africa
The Companys short-term South African credit facility with
Nedbank Limited comprises an overdraft facility of up to ZAR 50 million and
indirect and derivative facilities of up to ZAR 150 million, which include
letters of guarantee, letters of credit and forward exchange contracts. As of
March 31, 2016, the interest rate on the overdraft facility was 9.35% . As of
March 31, 2016 and June 30, 2015, respectively, the Company had not utilized any
of its overdraft facility. As of March 31, 2016, the Company had utilized
approximately ZAR 137.1 million ($9.2 million, translated at exchange rates
applicable as of March 31, 2016) of its ZAR 150 million indirect and derivative
facilities to obtain foreign exchange contracts from the bank and to enable the
bank to issue guarantees, including stand-by letters of credit, in order for the
Company to honor its obligations to third parties requiring such guarantees
(refer to Note 18). As of June 30, 2015, the Company had utilized approximately
ZAR 139.6 million ($11.4 million, translated at exchange rates applicable as of
June 30, 2015) of its indirect and derivative facilities.
Korea
The Company had not utilized any of its KRW 10 billion ($8.8
million, translated at exchange rates applicable as of March 31, 2016) overdraft
facility as of March 31, 2016 and June 30, 2015. As of March 31, 2016, the
interest rate on the overdraft facility was 3.56% . The facility expires in
January 2017.
The Companys Korean senior secured loan facility is described
in Note 13 to the Companys audited consolidated financial statements included
in its Annual Report on Form 10-K for the year ended June 30, 2015. The current
carrying value as of March 31, 2016, is $61.0 million. As of March 31, 2016, the
carrying amount of the long-term borrowings approximated fair value. The
interest rate in effect on March 31, 2016, was 4.75% .
On April 29, 2016, the Company made a scheduled principal
payment of $8.8 million (translated at exchange rates applicable as of March 31,
2016).
Interest expense incurred during the three months ended March
31, 2016 and 2015, was $0.7 million and $0.8 million, respectively. Interest
expense incurred during the nine months ended March 31, 2016 and 2015, was $2.1
million and $2.2 million, respectively. Prepaid facility fees amortized during
each of the three months ended March 31, 2016, and 2015, was $0.04 million,
respectively. Prepaid facility fees amortized during the nine months ended March
31, 2016, and 2015, was $0.1 million and $0.2 million, respectively.
The following table presents reconciliation between the number
of shares, net of treasury, presented in the unaudited condensed consolidated
statement of changes in equity during the nine months ended March 31, 2016 and
2015, respectively, and the number of shares, net of treasury, excluding
non-vested equity shares that have not vested during the nine months ended March
31, 2016 and 2015, respectively:
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Number of shares, net of
treasury:
|
|
|
|
|
|
|
|
Statement
of changes in equity
|
|
45,636,435
|
|
|
46,607,153
|
|
|
Less:
Non-vested equity shares that have not vested (Note 13)
|
|
(589,447
|
)
|
|
(341,529
|
)
|
|
Number
of shares, net of treasury excluding non-vested equity shares that have
not vested
|
|
45,046,988
|
|
|
46,265,624
|
|
16
11.
|
Capital structure
(continued)
|
Common stock repurchases and
transaction with non-controlling interests (continued)
On February 3, 2016, the Companys Board of Directors approved
the replenishment of its share repurchase authorization to repurchase up to an
aggregate of $100 million of common stock. The authorization has no expiration
date. During the three months ended March 31, 2016, the Company repurchased
1,328,699 shares for approximately $12.7 million under its applicable share
repurchase authorizations. During the nine months ended March 31, 2016, the
Company repurchased 2,077,912 shares for approximately $23.9 million under its
share repurchase authorizations. The Company did not repurchase any of its
shares during the three and nine months ended March 31, 2015, under its share
repurchase authorization.
On August 27, 2014, the Company entered into a Subscription and
Sale of Shares Agreement with Business Venture Investments No 1567 Proprietary
Limited (RF) (BVI), one of the Companys BEE partners, in preparation for any
new potential SASSA tender. Pursuant to the agreement: (i) the Company
repurchased BVIs remaining 1,837,432 shares of the Companys common stock for
approximately ZAR 97.4 million in cash ($9.2 million translated at exchange
rates prevailing as of August 27, 2014) and (ii) BVI subscribed for new ordinary
shares of Cash Paymaster Services (Pty) Ltd (CPS) representing 12.5% of CPS
ordinary shares outstanding after the subscription for ZAR 15.0 million in cash
(approximately $1.4 million translated at exchange rates prevailing as of August
27, 2014). In connection with transactions described above, the CPS shareholder
agreement that was negotiated as part of the original December 2013 Relationship
Agreement became effective.
12.
|
Accumulated other comprehensive
loss
|
The table below presents the change in accumulated other
comprehensive (loss) income per component during the nine months ended March 31,
2016:
|
|
|
Nine months ended
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
net
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
Accumulated
|
|
|
income on
|
|
|
|
|
|
|
|
foreign
|
|
|
asset
|
|
|
|
|
|
|
|
currency
|
|
|
available for
|
|
|
|
|
|
|
|
translation
|
|
|
sale, net of
|
|
|
|
|
|
|
|
reserve
|
|
|
tax
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2015
|
$
|
(140,221
|
)
|
$
|
1,040
|
|
$
|
(139,181
|
)
|
|
Movement in foreign
currency translation reserve
|
|
(45,893
|
)
|
|
-
|
|
|
(45,893
|
)
|
|
Unrealized gain on asset
available for sale, net of tax of $159
|
|
-
|
|
|
692
|
|
|
692
|
|
|
Balance as of March 31, 2016
|
$
|
(186,114
|
)
|
$
|
1,732
|
|
$
|
(184,382
|
)
|
There were no reclassifications from accumulated other
comprehensive loss to comprehensive (loss) income during the three and nine
months ended March 31, 2016 or 2015, respectively.
17
13.
|
Stock-based compensation
|
Stock option and restricted stock
activity
Options
The following table summarizes stock
option activity for the nine months ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
average
|
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
grant date
|
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
fair value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2015
|
|
2,401,169
|
|
|
15.34
|
|
|
4.74
|
|
|
11,516
|
|
|
|
|
|
Exercised
|
|
(323,645
|
)
|
|
11.62
|
|
|
|
|
|
2,669
|
|
|
|
|
|
Outstanding March 31, 2016
|
|
2,077,524
|
|
|
15.92
|
|
|
3.89
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2014
|
|
2,710,392
|
|
|
14.16
|
|
|
5.38
|
|
|
3,909
|
|
|
|
|
|
Granted under
Plan: August 2014
|
|
464,410
|
|
|
11.23
|
|
|
10.00
|
|
|
2,113
|
|
|
4.55
|
|
|
Exercised
|
|
(748,633
|
)
|
|
8.64
|
|
|
|
|
|
3,750
|
|
|
|
|
|
Outstanding
March 31, 2015
|
|
2,426,169
|
|
|
15.30
|
|
|
4.99
|
|
|
4,570
|
|
|
|
|
No stock options were awarded during the three and nine months
ended March 31, 2016. The fair value of each option is estimated on the date of
grant using the Cox Ross Rubinstein binomial model that uses the assumptions
noted in the following table. The estimated expected volatility is calculated
based on the Companys 250 day volatility. The estimated expected life of the
option was determined based on historical behavior of employees who were granted
options with similar terms. The Company has estimated no forfeitures for options
awarded in August 2014.
The table below presents the range of assumptions used to value
options granted during the nine months ended March 31, 2016 and 2015:
|
|
|
Nine months
ended
|
|
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Expected volatility
|
|
n/a
|
|
|
60%
|
|
|
Expected dividends
|
|
n/a
|
|
|
0%
|
|
|
Expected life (in years)
|
|
n/a
|
|
|
3
|
|
|
Risk-free rate
|
|
n/a
|
|
|
1.0%
|
|
There were no forfeitures during the
three and nine months ended March 31, 2016 or 2015.
The following table presents stock
options vested and expecting to vest as of March 31, 2016:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Vested and expecting to vest
March 31, 2016
|
|
2,077,524
|
|
|
15.92
|
|
|
3.89
|
|
|
654
|
|
These options have an exercise price
range of $7.35 to $24.46.
18
13.
|
Stock-based compensation
(continued)
|
Stock option and restricted stock
activity (continued)
Options (continued)
The following table presents stock
options that are exercisable as of March 31, 2016:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Exercisable March
31, 2016
|
|
1,692,952
|
|
|
17.17
|
|
|
2.91
|
|
|
516
|
|
No stock options became exercisable during the three months
ended March 31, 2016 and 2015. During the nine months ended March 31, 2016 and
2015, respectively, 373,435 and 330,967 stock options became exercisable. No
stock options were exercised during the three months ended March 31, 2016.
During the three months ended March 31, 2015, the Company received approximately
$0.8 million from 60,000 stock options exercised. During the nine months ended
March 31, 2016, the Company received approximately $3.8 million from the
exercise of 323,645 stock options. During the nine months ended March 31, 2015,
the Company received approximately $1.8 million from 176,395 stock options
exercised. The remaining 572,238 stock options were exercised through recipients
delivering 336,584 shares of the Companys common stock to the Company on
September 9, 2014, to settle the exercise price due. The Company issues new
shares to satisfy stock option exercises.
Restricted stock
The following table summarizes
restricted stock activity for the nine months ended March 31, 2016 and 2015:
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
shares of
|
|
|
average grant
|
|
|
|
|
restricted
|
|
|
date fair value
|
|
|
|
|
stock
|
|
|
($000)
|
|
|
Non-vested June 30, 2015
|
|
341,529
|
|
|
1,759
|
|
|
Granted August 2015
|
|
319,492
|
|
|
6,406
|
|
|
Vested August 2015
|
|
(71,574
|
)
|
|
1,435
|
|
|
Non-vested March 31,
2016
|
|
589,447
|
|
|
7,622
|
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2014
|
|
385,778
|
|
|
3,534
|
|
|
Granted August 2014
|
|
141,707
|
|
|
581
|
|
|
Granted November 2014
|
|
71,530
|
|
|
229
|
|
|
Vested August 2014
|
|
(74,152
|
)
|
|
828
|
|
|
Vested February 2015
|
|
(183,334
|
)
|
|
2,400
|
|
|
Non-vested March 31, 2015
|
|
341,529
|
|
|
1,759
|
|
The August 2015 grants comprise 301,537 and 17,955 shares of
restricted stock awarded to employees and non-employee directors, respectively.
The shares of restricted stock awarded to employees in August 2015 are subject
to time-based and performance-based vesting conditions. In order for any of the
shares to vest, the recipient must remain employed by the Company on a full-time
basis on the date that it files its Annual Report on Form 10-K for the fiscal
year ended June 30, 2018. If that condition is satisfied, then the shares will
vest based on the level of Fundamental EPS the Company achieves for the fiscal
year ended June 30, 2018 (2018 Fundamental EPS), as follows:
|
One-third of the shares will vest if the Company achieves
2018 Fundamental EPS of $2.88;
|
|
Two-thirds of the shares will vest if the Company
achieves 2018 Fundamental EPS of $3.30; and
|
|
All of the shares will vest if the Company achieves 2018
Fundamental EPS of $3.76.
|
At levels of 2018 Fundamental EPS greater than $2.88 and less
than $3.76, the number of shares that will vest will be determined by linear
interpolation relative to 2018 Fundamental EPS of $3.30. Any shares that do not
vest in accordance with the above-described conditions will be forfeited. All
shares of restricted stock have been valued utilizing the closing price of
shares of the Companys common stock quoted on The Nasdaq Global Select Market
on the date of grant.
19
13.
|
Stock-based compensation
(continued)
|
Stock option and restricted stock
activity (continued)
Restricted stock (continued)
The August 2014 grants comprise 127,626 and 14,081 shares of
restricted stock awarded to employees and non-employee directors, respectively.
All of the November 2014 grants were awarded to employees. The 127,626 and
71,530 shares of restricted stock will vest in full only on the date, if any,
the following conditions are satisfied: (1) the closing price of shares of the
Companys common stock equals or exceeds $19.41 (subject to appropriate
adjustment for any stock split or stock dividend) for a period of 30 consecutive
trading days during a measurement period commencing on the date that the Company
files its Annual Report on Form 10-K for the fiscal year ended 2017 and ending
on December 31, 2017 and (2) the recipient is employed by the Company on a
full-time basis when the condition in (1) is met. If either of these conditions
is not satisfied, then none of the shares of restricted stock will vest and they
will be forfeited. The $19.41 price target represents a 20% increase, compounded
annually, in the price of shares of the Companys common stock on Nasdaq over
the $11.23 closing price on August 27, 2014.
The 127,626 and 71,530 shares of restricted stock are
effectively forward starting knock-in barrier options with a strike price of
zero. The fair value of these shares of restricted stock was calculated
utilizing an adjusted Monte Carlo simulation discounted cash flow model which
was developed for the purpose of the valuation of these shares. For each
simulated share price path, the market share price condition was evaluated to
determine whether or not the shares would vest under that simulation. The
adjustment to the Monte Carlo simulation model incorporates a jump diffusion
process to the standard Geometric Brownian Motion simulation, in order to
capture the discontinuous share price jumps observed in the Companys share
price movements on stock exchanges on which it is listed. Therefore, the
simulated share price paths capture the idiosyncrasies of the observed Company
share price movements.
In scenarios where the shares do not vest, the final vested
value at maturity is zero. In scenarios where vesting occurs, the final vested
value on maturity is the share price on vesting date. The value of the grant is
the average of the discounted vested values.
The Company used an expected volatility of 76.01%, an expected
life of approximately three years, a risk-free rate of 1.27% and no future
dividends in its calculation of the fair value of the 127,626 shares of
restricted stock. The Company used an expected volatility of 63.73%, an expected
life of approximately three years, a risk-free rate of 1.21% and no future
dividends in its calculation of the fair value of the 71,530 shares of
restricted stock. Estimated expected volatility was calculated based on the
Companys 30 day VWAP share price using the exponentially weighted moving
average of returns.
No shares of restricted stock vested during the three months
ended March 31, 2016. The fair value of restricted stock vesting during the
three months ended March 31, 2015, was $2.4 million. The fair value of
restricted stock vesting during the nine months ended March 31, 2016 and 2015,
respectively, was $1.4 million and $3.2 million.
Stock-based compensation charge and unrecognized
compensation cost
The Company has recorded a stock-based compensation charge of
$1.0 million and $0.7 million, respectively, during the three months ended March
31, 2016 and 2015, which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Three months ended March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
954
|
|
$
|
-
|
|
$
|
954
|
|
|
Total three months ended March 31, 2016
|
$
|
954
|
|
$
|
-
|
|
$
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
731
|
|
$
|
-
|
|
$
|
731
|
|
|
Total three months ended March 31, 2015
|
$
|
731
|
|
$
|
-
|
|
$
|
731
|
|
20
13.
|
Stock-based compensation
(continued)
|
Stock-based compensation charge and
unrecognized compensation cost (continued)
The Company has recorded a stock-based
compensation charge of $2.6 million and $2.7 million, respectively, during the
nine months ended March 31, 2016 and 2015, which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Nine months ended March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
2,645
|
|
$
|
-
|
|
$
|
2,645
|
|
|
Total nine months ended March 31, 2016
|
$
|
2,645
|
|
$
|
-
|
|
$
|
2,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
2,682
|
|
$
|
-
|
|
$
|
2,682
|
|
|
Total nine months ended March 31, 2015
|
$
|
2,682
|
|
$
|
-
|
|
$
|
2,682
|
|
The stock-based compensation charges have been allocated to
selling, general and administration based on the allocation of the cash
compensation paid to the employees.
As of March 31, 2016, the total unrecognized compensation cost
related to stock options was approximately $1.1 million, which the Company
expects to recognize over approximately two years. As of March 31, 2016, the
total unrecognized compensation cost related to restricted stock awards was
approximately $2.0 million, which the Company expects to recognize over
approximately two years.
As of March 31, 2016 and June 30, 2015, respectively, the
Company has recorded a deferred tax asset of approximately $1.7 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 U.S.
Basic earnings per share include shares of restricted stock
that meet the definition of a participating security because these shares are
eligible to receive non-forfeitable dividend equivalents at the same rate as
common stock. Basic earnings per share have been calculated using the two-class
method and basic earnings per share for the three and nine months ended March
31, 2016 and 2015, 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.
Diluted earnings per share have been calculated to give effect
to the number of shares of additional common stock that would have been
outstanding if the potential dilutive instruments had been issued in each
period. Stock options are included in the calculation of diluted earnings per
share utilizing the treasury stock method and are not considered to be
participating securities as the stock options do not contain non-forfeitable
dividend rights. The calculation of diluted earnings per share includes the
dilutive effect of a portion of the restricted stock granted to employees in
February 2012, August 2013, August 2014, November 2014 and August 2015 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 for awards made in August 2015 are discussed in Note 13
and the vesting conditions for all other awards are discussed in Note 18 to the
Companys audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended June 30, 2015.
21
14.
|
Earnings per share
(continued)
|
The following table presents net income attributable to Net1
(income from continuing operations) and the share data used in the basic and
diluted earnings per share computations using the two-class method:
|
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands
except percent
|
|
|
(in thousands
except percent
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
per share
data)
|
|
|
per share
data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Net1
|
$
|
18,420
|
|
$
|
24,358
|
|
$
|
58,098
|
|
$
|
70,821
|
|
|
Undistributed earnings
|
|
18,420
|
|
|
24,358
|
|
|
58,098
|
|
|
70,821
|
|
|
Percent
allocated to common shareholders
(Calculation 1)
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
Numerator for earnings per
share: basic and diluted
|
$
|
18,158
|
|
$
|
24,102
|
|
$
|
57,334
|
|
$
|
70,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average common
shares outstanding
|
|
45,683
|
|
|
46,071
|
|
|
46,171
|
|
|
46,235
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
89
|
|
|
178
|
|
|
288
|
|
|
137
|
|
|
Denominator
for diluted earnings
per
share:
adjusted weighted
average
common
shares outstanding
and
assumed
conversion
|
|
45,772
|
|
|
46,249
|
|
|
46,459
|
|
|
46,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.40
|
|
$
|
0.52
|
|
$
|
1.24
|
|
$
|
1.51
|
|
|
Diluted
|
$
|
0.40
|
|
$
|
0.52
|
|
$
|
1.23
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average
common shares
outstanding (A)
|
|
45,683
|
|
|
46,071
|
|
|
46,171
|
|
|
46,235
|
|
|
Basic
weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
|
|
46,341
|
|
|
46,561
|
|
|
46,786
|
|
|
46,770
|
|
|
Percent allocated to common
shareholders
(A) / (B)
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
|
99%
|
|
Options to purchase 1,041,938 shares of the Companys common
stock at prices ranging from $11.23 to $24.46 per share were outstanding during
the three and nine months ended March 31, 2016, but were not included in the
computation of diluted earnings per share because the options exercise price
were greater than the average market price of the Companys common stock. The
options, which expire at various dates through August 27, 2024, were still
outstanding as of March 31, 2016.
15.
|
Supplemental cash flow
information
|
The following table presents supplemental cash flow disclosures
for the three and nine months ended March 31, 2016 and 2015:
|
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Cash received from interest
|
$
|
3,341
|
|
$
|
4,200
|
|
$
|
11,262
|
|
$
|
11,940
|
|
|
Cash paid for interest
|
$
|
813
|
|
$
|
915
|
|
$
|
2,864
|
|
$
|
3,328
|
|
|
Cash paid for income taxes
|
$
|
4,052
|
|
$
|
3,086
|
|
$
|
28,374
|
|
$
|
28,639
|
|
As discussed in Note 2, on January 20, 2016, the Company issued
391,645 shares of its common stock with an aggregate issue date fair value of
approximately $4.0 million as part consideration for the Companys 56% interest
in T24.
22
15.
|
Supplemental cash flow information
(continued)
|
As discussed in Note 13, during the nine months ended March 31,
2015, employees exercised stock options through the delivery 336,584 shares of
the Companys common stock at the closing price on September 9, 2014 or $13.93
under the terms of their option agreements.
The sale of the Companys NUETS business is described in Note
19 to its audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended June 30, 2015. The Company received cash
sale proceeds of $1.9 million related to this transaction in July 2014.
The Company discloses segment information as reflected in the
management information systems reports that its chief operating decision maker
uses in making decisions and to report certain entity-wide disclosures about
products and services, major customers, and the countries in which the entity
holds material assets or reports material revenues. A description of the
Companys operating segments is contained in Note 23 to the Companys audited
consolidated financial statements included in its Annual Report on Form 10-K for
the year ended June 30, 2015.
The reconciliation of the reportable segments revenue to
revenue from external customers for the three months ended March 31, 2016 and
2015, respectively, is as follows:
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
Reportable
|
|
|
Inter-
|
|
|
external
|
|
|
|
|
Segment
|
|
|
segment
|
|
|
customers
|
|
|
South African transaction
processing
|
$
|
50,594
|
|
$
|
5,621
|
|
$
|
44,973
|
|
|
International transaction processing
|
|
40,588
|
|
|
-
|
|
|
40,588
|
|
|
Financial inclusion and
applied technologies
|
|
54,286
|
|
|
5,111
|
|
|
49,175
|
|
|
Total for the three months ended March
31, 2016
|
|
145,468
|
|
|
10,732
|
|
|
134,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
57,999
|
|
|
5,359
|
|
|
52,640
|
|
|
International transaction
processing
|
|
38,311
|
|
|
-
|
|
|
38,311
|
|
|
Financial inclusion and applied technologies
|
|
66,830
|
|
|
6,660
|
|
|
60,170
|
|
|
Total for the three
months ended March 31, 2015
|
$
|
163,140
|
|
$
|
12,019
|
|
$
|
151,121
|
|
The reconciliation of the reportable segments revenue to
revenue from external customers for the nine months ended March 31, 2016 and
2015, respectively, is as follows:
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
Reportable
|
|
|
Inter-
|
|
|
external
|
|
|
|
|
Segment
|
|
|
segment
|
|
|
customers
|
|
|
South African transaction
processing
|
$
|
158,997
|
|
$
|
12,598
|
|
$
|
146,399
|
|
|
International transaction processing
|
|
122,653
|
|
|
-
|
|
|
122,653
|
|
|
Financial inclusion and
applied technologies
|
|
187,332
|
|
|
16,894
|
|
|
170,438
|
|
|
Total for the nine months ended March
31, 2016
|
|
468,982
|
|
|
29,492
|
|
|
439,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
176,678
|
|
|
15,917
|
|
|
160,761
|
|
|
International transaction
processing
|
|
121,981
|
|
|
-
|
|
|
121,981
|
|
|
Financial inclusion and applied technologies
|
|
199,558
|
|
|
20,607
|
|
|
178,951
|
|
|
Total for the nine
months ended March 31, 2015
|
$
|
498,217
|
|
$
|
36,524
|
|
$
|
461,693
|
|
23
16.
|
Operating segments
(continued)
|
The Company does not allocate interest income, interest expense
or income tax expense to its reportable segments. The Company evaluates segment
performance based on segment operating income before acquisition-related
intangible asset amortization which represents operating income before
acquisition-related intangible asset amortization and allocation of expenses
allocated to Corporate/Eliminations, all under GAAP. The reconciliation of the
reportable segments measure of profit or loss to income before income taxes for
the three and nine months ended March 31, 2016 and 2015, respectively, is as
follows:
|
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Reportable segments measure
of profit or loss
|
$
|
29,415
|
|
$
|
37,703
|
|
$
|
95,862
|
|
$
|
112,751
|
|
|
Operating income:
Corporate/Eliminations
|
|
(3,224
|
)
|
|
(5,737
|
)
|
|
(13,677
|
)
|
|
(16,845
|
)
|
|
Interest income
|
|
3,345
|
|
|
4,211
|
|
|
11,284
|
|
|
11,888
|
|
|
Interest expense
|
|
(852
|
)
|
|
(941
|
)
|
|
(2,880
|
)
|
|
(3,360
|
)
|
|
Income
before income taxes
|
$
|
28,684
|
|
$
|
35,236
|
|
$
|
90,589
|
|
$
|
104,434
|
|
The following tables summarize segment information which is
prepared in accordance with GAAP for the three and nine months ended March 31,
2016 and 2015:
|
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
$
|
50,594
|
|
$
|
57,999
|
|
$
|
158,997
|
|
$
|
176,678
|
|
|
International transaction processing
|
|
40,588
|
|
|
38,311
|
|
|
122,653
|
|
|
121,981
|
|
|
Financial inclusion and
applied technologies
|
|
54,286
|
|
|
66,830
|
|
|
187,332
|
|
|
199,558
|
|
|
Total
|
|
145,468
|
|
|
163,140
|
|
|
468,982
|
|
|
498,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
African transaction processing
|
|
13,133
|
|
|
13,218
|
|
|
38,724
|
|
|
39,740
|
|
|
International transaction
processing
|
|
4,813
|
|
|
6,579
|
|
|
15,596
|
|
|
19,671
|
|
|
Financial
inclusion and applied technologies
|
|
11,469
|
|
|
17,906
|
|
|
41,542
|
|
|
53,340
|
|
|
Subtotal:
Operating segments
|
|
29,415
|
|
|
37,703
|
|
|
95,862
|
|
|
112,751
|
|
|
Corporate/Eliminations
|
|
(3,224
|
)
|
|
(5,737
|
)
|
|
(13,677
|
)
|
|
(16,845
|
)
|
|
Total
|
|
26,191
|
|
|
31,966
|
|
|
82,185
|
|
|
95,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
|
1,463
|
|
|
1,726
|
|
|
4,858
|
|
|
5,271
|
|
|
International transaction processing
|
|
5,232
|
|
|
4,560
|
|
|
15,991
|
|
|
13,224
|
|
|
Financial inclusion and
applied technologies
|
|
272
|
|
|
207
|
|
|
844
|
|
|
589
|
|
|
Subtotal: Operating segments
|
|
6,967
|
|
|
6,493
|
|
|
21,693
|
|
|
19,084
|
|
|
Corporate/Eliminations
|
|
2,314
|
|
|
3,567
|
|
|
8,289
|
|
|
11,307
|
|
|
Total
|
|
9,281
|
|
|
10,060
|
|
|
29,982
|
|
|
30,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
African transaction processing
|
|
926
|
|
|
1,514
|
|
|
3,469
|
|
|
3,678
|
|
|
International transaction
processing
|
|
6,864
|
|
|
4,561
|
|
|
23,107
|
|
|
20,167
|
|
|
Financial
inclusion and applied technologies
|
|
263
|
|
|
232
|
|
|
2,122
|
|
|
977
|
|
|
Subtotal:
Operating segments
|
|
8,053
|
|
|
6,307
|
|
|
28,698
|
|
|
24,822
|
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
|
$
|
8,053
|
|
$
|
6,307
|
|
$
|
28,698
|
|
$
|
24,822
|
|
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.
24
Income tax in interim periods
For the purposes of interim financial reporting, the Company
determines the appropriate income tax provision by first applying the effective
tax rate expected to be applicable for the full fiscal year to ordinary income.
This amount is then adjusted for the tax effect of significant unusual or
extraordinary items, for instance, changes in tax law, valuation allowances and
non-deductible transaction-related expenses that are reported separately, and
have an impact on the tax charge. The cumulative effect of any change in the
enacted tax rate, if and when applicable, on the opening balance of deferred tax
assets and liabilities is also included in the tax charge as a discrete event in
the interim period in which the enactment date occurs.
For the three and nine months ended March 31, 2016, the tax
charge was calculated using the expected effective tax rate for the year. The
Companys effective tax rate for the three and nine months ended March 31, 2016,
was 34.2% and 34.6%, respectively, and was higher than the South African
statutory rate as a result of non-deductible expenses (including consulting and
legal fees) and the tax impact, including withholding taxes, of distributions
from subsidiary companies in foreign jurisdictions.
The Companys effective tax rate for the three and nine months
ended March 31, 2015, was 29.2% and 30.8%, respectively, and was higher than the
South African statutory rate primarily as a result of non-deductible expenses
(including consulting and legal fees, interest expense related to the Companys
long-term Korean borrowings and stock-based compensation charges).
Uncertain tax positions
There were no changes to the Companys unrecognized tax
benefits during the three months ended March 31, 2016. The Company increased its
unrecognized tax benefits by approximately $0.2 million during the nine months
ended March 31, 2016. As of March 31, 2016, the Company had accrued interest
related to uncertain tax positions of approximately $0.3 million on its balance
sheet.
The Company does not expect changes related to its unrecognized
tax benefits will have a significant impact on its results of operations or
financial position in the next 12 months.
As of March 31, 2016 and June 30, 2015, the Company has
unrecognized tax benefits of $1.9 million and $2.3 million, respectively, all of
which would impact the Companys effective tax rate. The Company files income
tax returns mainly in South Africa, South Korea, India, the United Kingdom,
Botswana and in the U.S. federal jurisdiction. As of March 31, 2016, the
Companys South African subsidiaries are no longer subject to income tax
examination by the South African Revenue Service for periods before June 30,
2011. The Company is subject to income tax in other jurisdictions outside South
Africa, none of which are individually material to its financial position,
results of operations or cash flows.
18.
|
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 128.4 million ($8.7 million, translated at exchange rates applicable as
of March 31, 2016) and thereby utilizing part of the Companys short-term
facility. The Company in turn has provided nonrecourse, unsecured
counter-guarantees to Nedbank for ZAR 128.4 million ($8.7 million, translated at
exchange rates applicable as of March 31, 2016). The Company pays commission of
between 0.4% per annum to 2.0% per annum of the face value of these guarantees
and does not recover any of the commission from third parties.
The Company has not recognized any obligation related to these
counter-guarantees in its consolidated balance sheet as of March 31, 2016 and
June 30, 2015. The maximum potential amount that the Company could pay under
these guarantees is ZAR 128.4 million ($8.7 million, translated at exchange
rates applicable as of March 31, 2016). The guarantees have reduced the amount
available for borrowings under the Companys short-term credit facility
described in Note 9.
25
18.
|
Commitments and contingencies
(continued)
|
Contingencies
The Company is subject to a variety of insignificant claims and
suits that arise from time to time in the ordinary course of business.
Management currently believes that the resolution of these
matters, individually or in the aggregate, will not have a material adverse
impact on the Companys financial position, results of operations or cash flows.
Acquisition of Masterpayment AG
In early April 2016, the Company acquired a 60% interest in
Masterpayment AG (Masterpayment), a specialist payment services processor
based in Munich, Germany for approximately $10.0 million. Masterpayment provides
payment and acquiring services for all major European debit and credit cards;
and invoicing for online retail, digital goods and content. Masterpayment
currently has a client portfolio of approximately 5,000 registered merchants.
The purchase price allocation has not been finalized, as
management has not yet analyzed in detail the assets acquired and liabilities
assumed. The Company expects to finalize the purchase price allocation on or
before September 30, 2016. Pro forma results of operations have not been
presented because the effect of the Masterpayment acquisition, individually and
in the aggregate, was not material to the Companys results of operations. The
Company has incurred transaction-related expenditures of approximately $0.1
million to date related to this acquisition and expects to incur additional such
expenses during the three months ending June 30, 2016. The Company is currently
unable to quantify the amount of these additional expenditures.
Transaction with the International
Finance Corporation and certain funds managed by IFC Asset Management Company
Subscription Agreement
On April 11, 2016, the Company entered into a Subscription
Agreement (the Subscription Agreement) with International Finance Corporation,
IFC African, Latin American and Caribbean Fund, LP, IFC Financial Institutions
Growth Fund, LP, and Africa Capitalization Fund, Ltd. (collectively, the IFC
Investors). Under the Subscription Agreement, the Investors have agreed to
purchase, and the Company has agreed to sell, in the aggregate, approximately
9.98 million shares of the Companys common stock, par value $0.001 per share,
at a price of $10.79 per share, for gross proceeds to the Company of
approximately $107.7 million. All pre-closing deliverables stipulated in the
Subscription Agreement have been received by and approved by the Investors.
Pursuant to the terms of the Subscription Agreement, the transaction is expected
to close on May 11, 2016.
Policy Agreement
The Company has entered into a Policy Agreement with the IFC
Investors (the Policy Agreement) that becomes effective on the closing under
the Subscription Agreement. The material terms of the Policy Agreement are
described below.
Board Rights
For so long as the IFC Investors in aggregate beneficially own
shares representing at least 5% of the Companys common stock, the IFC Investors
will have the right to nominate one director to the Companys board of
directors. For so long as the IFC Investors in aggregate beneficially own shares
representing at least 2.5% of the Companys common stock, the IFC Investors will
have the right to appoint an observer to the Companys board of directors at any
time when they have not designated, or do not have the right to designate, a
director.
Registration Rights
The Company has agreed to grant certain registration rights to
the IFC Investors for the resale of their shares of the Companys common stock,
including filing a resale shelf registration statement and taking certain
actions to facilitate resales thereunder.
26
19.
|
Subsequent events
(continued)
|
Policy Agreement (continued)
Put Option
Each Investor will have the right, upon the occurrence of
specified triggering events, to require the Company to repurchase all of the
shares of its common stock purchased by the IFC Investors pursuant to the
Subscription Agreement (or upon exercise of their preemptive rights discussed
below). Events triggering this put right relate to (1) the Company being the
subject of a governmental complaint alleging, a court judgment finding or an
indictment alleging that the Company (a) engaged in specified corrupt,
fraudulent, coercive, collusive or obstructive practices; (b) entered into
transactions with targets of economic sanctions; or (c) failed to operate its
business in compliance with anti-money laundering and anti-terrorism laws; or
(2) the Company rejecting a bona fide offer to acquire all of its outstanding
Common Stock at a time when it has in place or implements a shareholder rights
plan, or adopting a shareholder rights plan triggered by a beneficial ownership
threshold of less than twenty percent. The put price per share will be the
higher of the price per share paid by the IFC Investors pursuant to the
Subscription Agreement (or paid when exercising their preemptive rights) and the
volume weighted average price per share prevailing for the 60 trading days
preceding the triggering event, except that with respect a put right triggered
by rejection of a bona fide offer, the put price per share will be the highest
price offered by the offeror.
Preemptive Rights
For so long as the IFC Investors hold in aggregate 5% of the
outstanding shares of common stock of the Company, each Investor will have the
right to purchase its pro-rata share of new issuances of securities by the
Company, subject to certain exceptions.
27
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, 2015, 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, 2015and in this Quarterly Report
on Form 10-Q. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, could, would, expects,
plans, intends, anticipates, believes, estimates, predicts,
potential or continue or the negative of such terms and other comparable
terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we do not know whether we can achieve
positive future results, levels of activity, performance, or goals. Actual
events or results may differ materially. We undertake no obligation to update
any of the forward-looking statements after the date of this Form 10-Q to
conform those statements to reflect the occurrence of unanticipated events,
except as required by applicable law.
You should read this Form 10-Q and the documents that we
reference herein and the documents we have filed as exhibits hereto and thereto
and which we have filed with the Securities and Exchange Commission completely
and with the understanding that our actual future results, levels of activity,
performance and achievements may be materially different from what we expect. We
qualify all of our forward-looking statements by these cautionary statements.
Recent Developments
Progress of financial inclusion
initiatives in South Africa
In June 2015, we began the rollout of EPE our
business-to-consumer, or B2C, offering in South Africa and we have experienced
rapid growth in the number of new customers. At April 30, 2016, we had more than
1,087,000 active EPE accounts, compared to 830,000 at January 31, 2016. EPE is a
fully transactional account created to serve the needs of South Africas
unbanked and under-banked population, and is available to all consumers
regardless of their financial or social status. The EPE account offers customers
a comprehensive suite of financial and various financial inclusion services,
such as prepaid products, in an economical, convenient and secure solution. EPE
provides account holders with a UEPS-EMV debit MasterCard, mobile and internet
banking services, ATM and POS services, as well as loans, insurance and other
financial products and value-added services.
In order for us to address the sizeable opportunity for EPE and
related financial inclusion services in South Africa, we have had to expand our
brick-and-mortar financial services branch infrastructure and supplement our
nationwide distribution with a UEPS/EMV-enabled ATM network, as well as a
dedicated sales force. Such investments have accelerated through fiscal 2016 and
at March 31, 2016, we had 118 branches, 827 ATMs, and 2,001 dedicated employees.
Our deployed ATMs, which are both EMV-and UEPS-compliant,
provide biometric verification as well as proof of life functionality, in South
Africa. We place these ATMs with our merchant partners and within our own
branches, creating a new delivery channel for our products and services that did
not previously exist. The ATM rollout has continued to make a positive
contribution to our reported results and we have been able to expand our
customer base because our ATMs accept all South African issued bank cards. We
will continue to expand our ATM footprint during the remainder of fiscal 2016.
In September 2015, we resumed marketing and business
development activities in selected areas for the distribution of our simple,
low-cost life insurance products and have sold approximately 85,000 new policies
though April 30, 2016, in addition to the basic life insurance policy provided
with every EPE account opened. We recruited additional and oftentimes
specialized staff to expand our insurance activities during the second quarter
of fiscal 2016, and expect the investment in Smart Life staff to continue
through to the end of fiscal 2016.
Following the high sequential growth in our lending book during
the second quarter of fiscal 2016 as a result of high demand for our loans
during the festive season and the opening of new branches, we experienced lower
demand during the third quarter of fiscal 2016. Tougher economic conditions in
South Africa, aggravated by rising food prices as a result of widespread drought
conditions and a weakening currency, has had an impact on the number of clients
who qualify for our loan products.
28
The graph below presents the growth of the number of EPE cards
and Smart Life policies:
ZAZOO
WorldRemit
We processed our first transactions as a result of our
relationship with WorldRemit during the third quarter of fiscal 2016. ZAZOO has
entered into an agreement with WorldRemit, a global money transfer services
provider, to enable South Africans to instantly receive international money
transfers directly into their personal bank accounts. WorldRemits has developed
an application, or app, that enables people to transfer money to friends and
family using a smartphone, tablet or computer at any time or from anywhere.
ZAZOO will enable WorldRemit to offer this service in South Africa by using
technology developed and customized by FIHRST, an authorized systems operator
and third-party processor. FIHRSTs technology streamlines the relationship
between the payer and payee and ensures data integrity using sophisticated
encryption routines with secure dedicated lines to South Africas major
banks.
South Africans receive inbound remittances of more than USD 1
billion per year. According to the
Remittance Prices Worldwide
report
published by the World Bank, the average global cost for remittances is 7.68% of
the transaction value, with Sub-Saharan Africa listed as the most expensive
region in the world at 9.74% . These numbers emphasize the opportunity that
exists in South Africa to attract customers through the introduction of highly
efficient financial technology, namely lowering cost and increasing
accessibility.
In addition, unbanked recipients have the option of opening an
EPE account. Should a recipient select to receive their funds into their EPE
account, ZAZOO will enable that recipient to make use of its Mobile Virtual
Card, or MVC, technology to create a virtual MasterCard to spend digitally for
any online purchase in South Africa.
Oxigen Services India Pvt. Ltd, or
Oxigen
ZAZOO has recently entered into an agreement with Oxigen, a
payment solutions provider in India, to seamlessly integrate its MVC technology
to power VIRTUALe into Oxigen Wallet in association with RBL Bank as sponsor
bank and co-branding partner. The Oxigen Wallet utilizes ZAZOOs MVC technology
to power the VIRTUALe Visa Prepaid card securely and off-line for card-not-present
transactions, such as e-commerce or m-commerce purchases. The MVC technology
runs as an application on any mobile phone, transforming it into a cashless,
secure and convenient electronic payment device that eliminates the risks of
theft, phishing, skimming, spoofing and other fraudulent activities. Oxigen
Wallet customers are able to use the application to make any purchases or bill
payments at online merchants, or send virtual gift cards to friends and family.
We launched the beta version of our MVC technology with Oxigen
during January 2016 and as at April 30, 2016 we had approximately
180,000 users and processed transaction value of INR 35 million (approximately
$0.5 million translated at exchange rates prevailing as of April 30, 2016).
29
Acquisitions
Transact24 Limited
On January 20, 2016, we acquired the remaining 56% of the
issued and outstanding ordinary shares of T24 for $3 million in cash and through
the issue of 391,645 shares of our common stock. T24 is a specialist Hong
Kong-based payment services company and is now our wholly-owned subsidiary. We
originally acquired approximately 44% of T24 in May 2015. Philip Meyer, the
Managing Director of T24 and an industry veteran in the international payments
and transaction processing industries, has become an executive officer of our
company.
Masterpayment AG
In early April 2016, we acquired a 60% interest in
Masterpayment, a specialist payment services processor based in Munich, Germany
for approximately $10.0 million. Masterpayment provides payment and acquiring
services for all major European debit and credit cards; and invoicing for online
retail, digital goods and content. Masterpayment currently has a client
portfolio of approximately 5,000 registered merchants.
In collaboration with Bank Frick & Co. AG, a
Liechtenstein-based bank, Masterpayment provides its e-commerce merchants with
working capital optimization by providing a flexible form of financing, which
employs a trading transaction instead of traditional bank credit.
Masterpayments Finetrading product enables the seamless financing of a
merchants inventory orders, resulting in accelerated payment settlement and the
elimination of the requirement for a merchant to maintain rolling reserves or
cash advances.
As part of the transaction, we, together with Masterpayment,
entered into a long term co-operation agreement with Bank Frick, in terms of
which Bank Frick will become our strategic banking partner and will provide us
with the support and banking services required to deploy our products and
services, including VCPay, Finetrading and money remittances in Europe. The
management team of Masterpayment and a Bank Frick-affiliate will retain the
remaining 40% interest in Masterpayment. We have negotiated an option to
purchase the remaining 40% shareholding upon the achievement of certain
milestones.
Share Repurchases
During the third quarter of fiscal 2016, we repurchased
1,328,699 shares of our common stock for approximately $12.7 million under our
share repurchase program.
Issue of shares to the International Finance Corporation
and certain funds managed by IFC Asset Management Company, or, collectively, IFC
Investors
We entered into a subscription agreement with the IFC Investors
and expect to receive approximately $107.7 million from the IFC Investors on May
11, 2016, related to the issuance of approximately 9.98 million shares of our
common stock at a subscription price of $10.79 per share to them. Refer to Note
19 to our unaudited condensed consolidated financial statements for additional
detail regarding the transaction.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have
been prepared in accordance with U.S. 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, 2015:
|
|
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.
|
30
Recent accounting pronouncements
adopted
Refer to Note 1 to our unaudited condensed consolidated
financial statements for a full description of recent accounting pronouncements
adopted, including the dates of adoption and the effects on our condensed
consolidated financial statements.
Recent accounting pronouncements not
yet adopted as of March 31, 2016
Refer to Note 1 to our unaudited condensed consolidated
financial statements for a full description of recent accounting pronouncements
not yet adopted as of March 31, 2016, including the expected dates of adoption
and effects on our financial condition, results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at
the end of the periods presented were as follows:
Table 1
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
Year ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
ZAR : $ average exchange rate
|
|
15.8201
|
|
|
11.7422
|
|
|
14.3395
|
|
|
11.2377
|
|
|
11.4494
|
|
Highest ZAR : $ rate during period
|
|
16.8231
|
|
|
12.4792
|
|
|
16.8231
|
|
|
12.4792
|
|
|
12.5779
|
|
Lowest ZAR : $ rate during
period
|
|
14.8330
|
|
|
11.3622
|
|
|
12.1965
|
|
|
10.5128
|
|
|
10.5128
|
|
Rate at end of period
|
|
14.8330
|
|
|
12.0907
|
|
|
14.8330
|
|
|
12.0907
|
|
|
12.2854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW : $ average exchange rate
|
|
1,201
|
|
|
1,101
|
|
|
1,176
|
|
|
1,072
|
|
|
1,078
|
|
Highest KRW : $ rate during
period
|
|
1,245
|
|
|
1,139
|
|
|
1,245
|
|
|
1,139
|
|
|
1,139
|
|
Lowest KRW : $ rate during period
|
|
1,143
|
|
|
1,077
|
|
|
1,122
|
|
|
1,009
|
|
|
1,009
|
|
Rate at end of period
|
|
1,143
|
|
|
1,106
|
|
|
1,143
|
|
|
1,106
|
|
|
1,128
|
|
31
Translation exchange rates for
financial reporting purposes
We are required to translate our results of operations from ZAR
and KRW to U.S. dollars on a monthly basis. Thus, the average rates used to
translate this data for the three and nine months ended March 31, 2016 and 2015,
vary slightly from the averages shown in the table above. The translation rates
we use in presenting our results of operations are the rates shown in the
following table:
Table 2
|
|
Three
months ended
|
|
|
Nine months
ended
|
|
|
Year ended
|
|
|
|
March 31,
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Income and expense items: $1
= ZAR .
|
|
15.8185
|
|
|
11.7218
|
|
|
14.1683
|
|
|
11.2251
|
|
|
11.4275
|
|
Income and expense items: $1 = KRW
|
|
1,198
|
|
|
1,101
|
|
|
1,178
|
|
|
1,064
|
|
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items: $1 = ZAR
|
|
14.8330
|
|
|
12.0907
|
|
|
14.8330
|
|
|
12.0907
|
|
|
12.2854
|
|
Balance sheet items: $1 = KRW
|
|
1,143
|
|
|
1,106
|
|
|
1,143
|
|
|
1,106
|
|
|
1,128
|
|
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 U.S.
GAAP. We analyze our results of operations both in U.S. 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 U.S. dollar and ZAR on our reported results and because
we use the U.S. dollar as our reporting currency, we believe that the
supplemental presentation of our results of operations in ZAR is useful to
investors to understand the changes in the underlying trends of our
business.
Fiscal 2016 includes the results of T24
from the third quarter of fiscal 2016. Fiscal 2015 does not include T24.
32
Our operating segment revenue presented in Results of
operations by operating segment represents total revenue per operating segment
before inter-segment eliminations. Reconciliation between total operating
segment revenue and revenue presented in our consolidated financial statements
is included in Note 16 to those statements.
We analyze our business and operations in terms of three
inter-related but independent operating segments: (1) South African transaction
processing, (2) International transaction processing and (3) Financial inclusion
and applied technologies. In addition, corporate and corporate office activities
that are impracticable to ascribe directly to any of the other operating
segments, as well as any inter-segment eliminations, are included in
corporate/eliminations.
Third quarter of fiscal 2016
compared to third quarter of fiscal 2015
The following factors had a significant influence on our
results of operations during the third quarter of fiscal 2016 as compared with
the same period in the prior year:
|
|
Unfavorable impact from the strengthening of the
U.S. dollar against primary functional currencies:
The U.S. dollar
appreciated by 35% against the ZAR and 9% against the KRW during the third
quarter of fiscal 2016, which negatively impacted our reported results;
|
|
|
Continued growth in airtime revenue and transaction
fees:
We continued to grow our financial inclusion services
offerings during the third quarter of fiscal 2016, which has resulted in
higher revenues and operating income, primarily from more sales of
low-margin prepaid airtime and an increase in transaction fees;
|
|
|
Ongoing contributions from EPE and Smart Life and
expansion of branch network:
Our EPE and Smart Life offerings
contributed to an increase in revenue in ZAR, as well as an associated
increase in establishment costs for our branch network;
|
|
|
Gain on acquisition of T24:
We recognized a
fair value adjustment gain of $1.9 million related to the acquisition of
T24. We accounted for T24 as an equity method investment prior to
obtaining control and recognized a gain arising from the consolidation and
purchase accounting adjustments related to the T24 acquisition;
|
|
|
Tax impact of dividends from South African
subsidiary:
Our income tax expense includes approximately $2.1
million related to the tax impact, including withholding taxes, resulting
from further distributions from our South African subsidiary during fiscal
2016, which helped reduce the impact of a weakened ZAR on our reported
cash balances. The conversion of a significant portion of our ZAR cash
reserves to USD has again negatively impacted our interest income due to the
material difference between ZAR and USD deposit rates; and
|
|
|
Third quarter of fiscal 2015 results include a
refund related to Korean industry-wide litigation:
Our results for
the third quarter of fiscal 2015 were positively impacted by a refund of
$1.7 million that had been paid several years ago in connection with
industry-wide litigation that has now been finalized.
|
33
Consolidated overall results of
operations
This discussion is based on the amounts
which were prepared in accordance with U.S. GAAP.
The following tables show the changes
in the items comprising our statements of operations, both in U.S. dollars and
in ZAR:
|
|
In U.S. Dollars
|
|
Table 3
|
|
(U.S. GAAP)
|
|
|
|
Three
months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
$ %
|
|
|
|
$ 000
|
|
|
$ 000
|
|
|
change
|
|
Revenue
|
|
134,736
|
|
|
151,121
|
|
|
(11%
|
)
|
Cost of goods sold, IT processing, servicing
and support
|
|
63,266
|
|
|
71,094
|
|
|
(11%
|
)
|
Selling, general and
administration
|
|
35,998
|
|
|
38,001
|
|
|
(5%
|
)
|
Depreciation and amortization
|
|
9,281
|
|
|
10,060
|
|
|
(8%
|
)
|
Operating income
|
|
26,191
|
|
|
31,966
|
|
|
(18%
|
)
|
Interest income
|
|
3,345
|
|
|
4,211
|
|
|
(21%
|
)
|
Interest expense
|
|
852
|
|
|
941
|
|
|
(9%
|
)
|
Income before income tax expense
|
|
28,684
|
|
|
35,236
|
|
|
(19%
|
)
|
Income tax expense
|
|
9,816
|
|
|
10,305
|
|
|
(5%
|
)
|
Net income before earnings from
equity-accounted investments
|
|
18,868
|
|
|
24,931
|
|
|
(24%
|
)
|
Earnings from
equity-accounted investments
|
|
2
|
|
|
65
|
|
|
(97%
|
)
|
Net income
|
|
18,870
|
|
|
24,996
|
|
|
(25%
|
)
|
Less net income attributable
to non-controlling interest
|
|
450
|
|
|
638
|
|
|
(29%
|
)
|
Net income attributable to us
|
|
18,420
|
|
|
24,358
|
|
|
(24%
|
)
|
|
|
In South African Rand
|
|
Table 4
|
|
(U.S. GAAP)
|
|
|
|
Three
months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
ZAR %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
2,131,321
|
|
|
1,771,411
|
|
|
20%
|
|
Cost of goods sold, IT processing, servicing
and support
|
|
1,000,774
|
|
|
833,350
|
|
|
20%
|
|
Selling, general and
administration
|
|
569,435
|
|
|
445,440
|
|
|
28%
|
|
Depreciation and amortization
|
|
146,811
|
|
|
117,921
|
|
|
24%
|
|
Operating income
|
|
414,301
|
|
|
374,700
|
|
|
11%
|
|
Interest income
|
|
52,913
|
|
|
49,360
|
|
|
7%
|
|
Interest expense
|
|
13,477
|
|
|
11,030
|
|
|
22%
|
|
Income before income tax expense
|
|
453,737
|
|
|
413,030
|
|
|
10%
|
|
Income tax expense
|
|
155,274
|
|
|
120,793
|
|
|
29%
|
|
Net income before earnings from
equity-accounted investments
|
|
298,463
|
|
|
292,237
|
|
|
2%
|
|
Earnings from
equity-accounted investments
|
|
32
|
|
|
762
|
|
|
(96%
|
)
|
Net income
|
|
298,495
|
|
|
292,999
|
|
|
2%
|
|
Less net income attributable
to non-controlling interest
|
|
7,118
|
|
|
7,479
|
|
|
(5%
|
)
|
Net income attributable to us
|
|
291,377
|
|
|
285,520
|
|
|
2%
|
|
In ZAR, the increase in revenue was primarily due to higher
prepaid airtime sales, more low-margin transaction fees generated from
cardholders using the South African National Payment System, more fees generated
from our new EPE and ATM offerings, an increase in the number of SASSA UEPS/ EMV
beneficiaries paid, and a higher contribution from KSNET, partially offset by
fewer ad hoc terminal sales and lower lending service fees.
In ZAR, 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,
expenses incurred to roll-out our new EPE and ATM offerings and expanding our
branch network, and more prepaid airtime sold.
In ZAR, our selling, general and administration expense
increased primarily due to a higher staff complement resulting from our EPE
roll-out, annual salary increases for our South African employees, as well as
increases in goods and services purchased from third parties, partially offset
by a $1.9 million gain related to the T24 acquisition.
34
Our operating income margin for third quarter of fiscal 2016
and 2015 was 19% and 21% respectively. We discuss the components of operating
income margin under Results of operations by operating segment. The decrease
was primarily attributable to the higher cost of goods sold, IT processing,
servicing and support referred to above and an increase in depreciation
expenses. Specifically, the majority of the expenses incurred to grow our new
offerings are fixed and we expect that these expenses will impact on our margin
in the short-term until we scale these new businesses sufficiently to offset the
effect of these investments.
In ZAR, depreciation and amortization increased primarily as a
result of an increase in depreciation related to more terminals used to provide
transaction processing in Korea and the roll-out of EPE ATMs and an increase in
acquisition-related intangible asset amortization resulting from the T24
transaction, all partially offset by lower overall amortization of intangible
assets that are fully amortized.
In ZAR, interest on surplus cash increased to $3.3 million (ZAR
52.9 million) from $4.2 million (ZAR 49.4 million), due primarily to higher
average daily ZAR cash balances and ZAR interest rates, partially offset by the
lower interest earned on the USD cash reserves that we converted from ZAR
through distributions from our South African subsidiary.
In USD, interest expense decreased to $0.85 million (ZAR 13.4
million) from $0.94 million (ZAR 11.0 million), due to a lower interest rate on
our South Korean debt.
Fiscal 2016 tax expense was $9.8 million (ZAR 155.3 million)
compared to $10.3 million (ZAR 120.8 million) in fiscal 2015. Our effective tax
rate for fiscal 2016, was 34.2% and was higher than the South African statutory
rate as a result of non-deductible expenses (including consulting and legal
fees) and the tax impact, including withholding taxes, of approximately $2.1
million attributable to a further distribution from our South African
subsidiary, which were intended to further help reduce the impact of a weakening
ZAR on our reported cash balances. Our effective tax rate for fiscal 2015, was
29.2% and was higher than the South African statutory rate as a result of
non-deductible expenses (including consulting and legal fees and interest
expense related to the Companys long-term Korean borrowings).
Results of operations by operating
segment
The composition of revenue and the
contributions of our business activities to operating income are illustrated
below:
Table 5
|
|
In U.S. Dollars (U.S.
GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
% of
|
|
|
2015
|
|
|
% of
|
|
|
%
|
|
Operating
Segment
|
|
$ 000
|
|
|
total
|
|
|
$ 000
|
|
|
total
|
|
|
change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
|
50,594
|
|
|
38%
|
|
|
57,999
|
|
|
38%
|
|
|
(13%
|
)
|
International transaction processing
|
|
40,588
|
|
|
30%
|
|
|
38,311
|
|
|
25%
|
|
|
6%
|
|
Financial inclusion and
applied technologies
|
|
54,286
|
|
|
40%
|
|
|
66,830
|
|
|
44%
|
|
|
(19%
|
)
|
Subtotal:
Operating segments
|
|
145,468
|
|
|
108%
|
|
|
163,140
|
|
|
107%
|
|
|
(11%
|
)
|
Intersegment eliminations
|
|
(10,732
|
)
|
|
(8%
|
)
|
|
(12,019
|
)
|
|
(7%
|
)
|
|
(11%
|
)
|
Consolidated
revenue
|
|
134,736
|
|
|
100%
|
|
|
151,121
|
|
|
100%
|
|
|
(11%
|
)
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
13,133
|
|
|
50%
|
|
|
13,218
|
|
|
41%
|
|
|
(1%
|
)
|
International transaction
processing
|
|
4,813
|
|
|
18%
|
|
|
6,579
|
|
|
21%
|
|
|
(27%
|
)
|
Financial inclusion and applied technologies
|
|
11,469
|
|
|
44%
|
|
|
17,906
|
|
|
56%
|
|
|
(36%
|
)
|
Subtotal: Operating segments
|
|
29,415
|
|
|
112%
|
|
|
37,703
|
|
|
118%
|
|
|
(22%
|
)
|
Corporate/Eliminations
|
|
(3,224
|
)
|
|
(12%
|
)
|
|
(5,737
|
)
|
|
(18%
|
)
|
|
(44%
|
)
|
Consolidated operating income
|
|
26,191
|
|
|
100%
|
|
|
31,966
|
|
|
100%
|
|
|
(18%
|
)
|
35
Table 6
|
|
In South African Rand (U.S.
GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
% of
|
|
|
ZAR
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
total
|
|
|
000
|
|
|
total
|
|
|
change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
|
800,321
|
|
|
38%
|
|
|
679,853
|
|
|
38%
|
|
|
18%
|
|
International transaction processing
|
|
642,041
|
|
|
30%
|
|
|
449,074
|
|
|
25%
|
|
|
43%
|
|
Financial inclusion and
applied technologies
|
|
858,723
|
|
|
40%
|
|
|
783,368
|
|
|
44%
|
|
|
10%
|
|
Subtotal:
Operating segments
|
|
2,301,085
|
|
|
108%
|
|
|
1,912,295
|
|
|
107%
|
|
|
20%
|
|
Intersegment eliminations
|
|
(169,764
|
)
|
|
(8%
|
)
|
|
(140,884
|
)
|
|
(7%
|
)
|
|
20%
|
|
Consolidated
revenue
|
|
2,131,321
|
|
|
100%
|
|
|
1,771,411
|
|
|
100%
|
|
|
20%
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
207,744
|
|
|
50%
|
|
|
154,939
|
|
|
41%
|
|
|
34%
|
|
International transaction
processing
|
|
76,134
|
|
|
18%
|
|
|
77,118
|
|
|
21%
|
|
|
(1%
|
)
|
Financial inclusion and applied technologies
|
|
181,422
|
|
|
44%
|
|
|
209,891
|
|
|
56%
|
|
|
(14%
|
)
|
Subtotal: Operating segments
|
|
465,300
|
|
|
112%
|
|
|
441,948
|
|
|
118%
|
|
|
5%
|
|
Corporate/Eliminations
|
|
(50,999
|
)
|
|
(12%
|
)
|
|
(67,248
|
)
|
|
(18%
|
)
|
|
(24%
|
)
|
Consolidated
operating income
|
|
414,301
|
|
|
100%
|
|
|
374,700
|
|
|
100%
|
|
|
11%
|
|
South African transaction processing
In ZAR, the increase in segment revenue and operating income
was primarily due to higher EPE transaction revenue as a result of increased
usage of our ATMs, more low-margin transaction fees generated from card holders
using the South African National Payment System, increased inter-segment
transaction processing activities, and a modest increase in the number of social
welfare grants distributed.
Our operating income margin for the third quarter of fiscal
2016 and 2015 was 26% and 23%, respectively, and was higher primarily due to
higher EPE revenue as a result of increased ATM transactions, an increase in
inter-segment transaction processing activities, an increase in the number of
beneficiaries paid in the third quarter of fiscal 2016 and a modest increase in
the margin of transaction fees generated from cardholders using the South
African National Payment System, partially offset by annual salary increases
granted to our South African employees.
International transaction-based
activities
Revenue increased in constant currency primarily due to higher
transaction volume at KSNET during the third quarter of fiscal 2016 and the
inclusion of T24 from January 2016. Operating income during the third quarter of
fiscal 2016 was lower due to an increase in depreciation expenses at KSNET and
ongoing ZAZOO start-up costs in the UK and India, but was partially offset by
increase in revenue contribution from KSNET and a positive contribution by T24
and XeoHealth.
Operating income and operating income margin for the third
quarter of fiscal 2015, was positively impacted by a refund of approximately
$1.7 million that had been paid several years ago in connection with
industry-wide litigation. Operating income margin for the third quarter of
fiscal 2016 and 2015 was 12% and 17%, respectively.
Financial inclusion and applied
technologies
In ZAR, Financial inclusion and applied technologies revenue
and operating income increased primarily due to higher prepaid airtime and other
value-added services sales, and, in ZAR, an increase in inter-segment revenues,
offset by fewer ad hoc terminal and card sales and lower lending service fees.
Operating income for the third quarter of fiscal 2016, was adversely impacted by
establishment costs for Smart Life and expansion of our branch network as well
as an increase in inter-segment charges.
Operating income margin for the Financial inclusion and applied
technologies segment was 21% and 27%, respectively, during the third quarter of
fiscal 2016 and 2015, and has decreased primarily due to establishment costs for
Smart Life, expansion of our branch network, annual salary increases for our
South African employees and an increase in inter-segment charges.
Corporate/ Eliminations
Our corporate expenses generally include acquisition-related
intangible asset amortization; expenditure related to compliance with the
Sarbanes-Oxley Act of 2002; non-employee directors fees; employee and executive
bonuses; stock-based compensation; legal fees; audit fees; directors and
officers insurance premiums; telecommunications expenses; property-related
expenditures including utilities, rental, security and maintenance; and
elimination entries.
36
Our corporate expenses have decreased primarily due to the
impact of the stronger USD on goods and services procured in other currencies,
primarily the ZAR, the gain related to the acquisition of T24 and lower
amortization costs, partially offset by modest increases in USD denominated
goods and services purchased from third parties and directors fees.
Year to date fiscal 2016 compared to
year to date fiscal 2015
The following factors had a significant influence on our
results of operations during the year to date fiscal 2016 as compared with the
same period in the prior year:
|
|
Unfavorable impact from the strengthening of the
U.S. dollar against primary functional currencies:
The U.S. dollar
appreciated by 26% against the ZAR and 11% against the KRW during the year
to date fiscal 2016, which negatively impacted our reported results;
|
|
|
Continued growth in airtime revenue and transaction
fees:
We continued to grow our financial inclusion services
offerings during the year to date fiscal 2016, which has resulted in
higher revenues and operating income, primarily from more sales of
low-margin prepaid airtime and an increase in transaction fees;
|
|
|
Launch of EPE and Smart Life:
During the
year to date fiscal 2016 we launched our EPE and Smart Life offerings,
which contributed to a marginal increase in revenue in ZAR, as well as an
associated increase in establishment costs for our branch network;
|
|
|
Increased contribution by KSNET:
Our
results were positively impacted by growth in our Korean operations; and
|
|
|
Tax impact of dividends from South African
subsidiary:
Our income tax expense includes approximately $5.0
million related to the tax impact, including withholding taxes, resulting
from distributions from our South African subsidiary which helped reduce
the impact of a weakened ZAR on our reported cash balances. The conversion
of a significant portion of our ZAR cash reserves to USD negatively
impacted our interest income due to the material difference between ZAR and
USD deposit rates.
|
Consolidated overall results of
operations
This discussion is based on the amounts
which were prepared in accordance with U.S. GAAP.
The following tables show the changes
in the items comprising our statements of operations, both in U.S. dollars and
in ZAR:
|
|
In U.S. Dollars
|
|
Table 7
|
|
(U.S. GAAP)
|
|
|
|
Nine months
ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
$ %
|
|
|
|
$ 000
|
|
|
$ 000
|
|
|
change
|
|
Revenue
|
|
439,490
|
|
|
461,693
|
|
|
(5%
|
)
|
Cost of goods sold, IT processing, servicing
and support
|
|
219,316
|
|
|
217,274
|
|
|
1%
|
|
Selling, general and
administration
|
|
108,007
|
|
|
118,122
|
|
|
(9%
|
)
|
Depreciation and amortization
|
|
29,982
|
|
|
30,391
|
|
|
(1%
|
)
|
Operating income
|
|
82,185
|
|
|
95,906
|
|
|
(14%
|
)
|
Interest income
|
|
11,284
|
|
|
11,888
|
|
|
(5%
|
)
|
Interest expense
|
|
2,880
|
|
|
3,360
|
|
|
(14%
|
)
|
Income before income tax expense
|
|
90,589
|
|
|
104,434
|
|
|
(13%
|
)
|
Income tax expense
|
|
31,306
|
|
|
32,156
|
|
|
(3%
|
)
|
Net income before earnings from
equity-accounted investments
|
|
59,283
|
|
|
72,278
|
|
|
(18%
|
)
|
Earnings from
equity-accounted investments
|
|
578
|
|
|
233
|
|
|
148%
|
|
Net income
|
|
59,861
|
|
|
72,511
|
|
|
(17%
|
)
|
Less net income attributable
to non-controlling interest
|
|
1,763
|
|
|
1,690
|
|
|
4%
|
|
Net income attributable to us
|
|
58,098
|
|
|
70,821
|
|
|
(18%
|
)
|
37
|
|
In South African Rand
|
|
Table 8
|
|
(U.S. GAAP)
|
|
|
|
Nine months
ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
ZAR %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
6,226,825
|
|
|
5,182,550
|
|
|
20%
|
|
Cost of goods sold, IT processing, servicing
and support
|
|
3,107,334
|
|
|
2,438,922
|
|
|
27%
|
|
Selling, general and
administration
|
|
1,530,276
|
|
|
1,325,932
|
|
|
15%
|
|
Depreciation and amortization
|
|
424,793
|
|
|
341,142
|
|
|
25%
|
|
Operating income
|
|
1,164,422
|
|
|
1,076,554
|
|
|
8%
|
|
Interest income
|
|
159,875
|
|
|
133,444
|
|
|
20%
|
|
Interest expense
|
|
40,805
|
|
|
37,716
|
|
|
8%
|
|
Income before income tax expense
|
|
1,283,492
|
|
|
1,172,282
|
|
|
9%
|
|
Income tax expense
|
|
443,553
|
|
|
360,954
|
|
|
23%
|
|
Net income before earnings from
equity-accounted investments
|
|
839,939
|
|
|
811,328
|
|
|
4%
|
|
Earnings from
equity-accounted investments
|
|
8,189
|
|
|
2,615
|
|
|
213%
|
|
Net income
|
|
848,128
|
|
|
813,943
|
|
|
4%
|
|
Less net income attributable
to non-controlling interest
|
|
24,979
|
|
|
18,970
|
|
|
32%
|
|
Net income attributable to us
|
|
823,149
|
|
|
794,973
|
|
|
4%
|
|
In ZAR, the increase in revenue was primarily due to higher
prepaid airtime sales, more low-margin transaction fees generated from
cardholders using the South African National Payment System, more fees generated
from our new EPE and ATM offerings, an increase in the number of SASSA UEPS/ EMV
beneficiaries paid, a higher contribution from KSNET and more ad hoc terminal
sales, partially offset by lower UEPS-loans fees.
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, expenses incurred
to roll-out our new EPE and ATM offerings and expanding our branch network, and
more prepaid airtime sold.
In ZAR, our selling, general and administration expense
increased due to a higher staff complement resulting from our EPE roll-out, as
well as increases in goods and services purchased from third parties.
Our operating income margin for year to date fiscal 2016 and
2015 was 19% and 21% respectively. We discuss the components of operating income
margin under Results of operations by operating segment. The decrease is
primarily attributable to the higher cost of goods sold, IT processing,
servicing and support referred to above and an increase in depreciation
expenses.
In ZAR, depreciation and amortization increased primarily as a
result of an increase in depreciation related to more terminals used to provide
transaction processing in Korea and the roll-out of EPE ATMs.
In ZAR, interest on surplus cash increased to $11.3 million
(ZAR 159.9 million) from $11.9 million (ZAR 133.4 million), due primarily to
higher average daily ZAR cash balances and ZAR interest rates, partially offset
by the lower interest earned on the USD cash reserves that we converted from ZAR
through distributions from our South African subsidiary.
Interest expense decreased to $2.9 million (ZAR 40.8 million)
from $3.4 million (ZAR 33.7 million), due to a lower average long-term debt
balance on our South Korean debt and a lower interest rate.
Fiscal 2016 tax expense was $31.3 million (ZAR 443.6 million)
compared to $32.2 million (ZAR 361.0 million) in fiscal 2015. Our effective tax
rate for the year to date fiscal 2016, was 34.6% and was higher than the South
African statutory rate as a result of non-deductible expenses (including
consulting and legal fees) and the tax impact, including withholding taxes, of
approximately $5.0 million attributable to distributions from our South African
subsidiary. Our effective tax rate for fiscal 2015, was 30.8% and was higher
than the South African statutory rate as a result of non-deductible expenses
(including consulting and legal fees and interest expense related to the
Companys long-term Korean borrowings).
38
Results of operations by operating
segment
The composition of revenue and the
contributions of our business activities to operating income are illustrated
below:
Table 9
|
|
In U.S. Dollars (U.S.
GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2016
|
|
|
% of
|
|
|
2015
|
|
|
% of
|
|
|
%
|
|
Operating
Segment
|
|
$ 000
|
|
|
total
|
|
|
$ 000
|
|
|
total
|
|
|
change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
|
158,997
|
|
|
36%
|
|
|
176,678
|
|
|
38%
|
|
|
(10%
|
)
|
International transaction processing
|
|
122,653
|
|
|
28%
|
|
|
121,981
|
|
|
26%
|
|
|
1%
|
|
Financial inclusion and
applied technologies
|
|
187,332
|
|
|
43%
|
|
|
199,558
|
|
|
43%
|
|
|
(6%
|
)
|
Subtotal:
Operating segments
|
|
468,982
|
|
|
107%
|
|
|
498,217
|
|
|
107%
|
|
|
(6%
|
)
|
Intersegment eliminations
|
|
(29,492
|
)
|
|
(7%
|
)
|
|
(36,524
|
)
|
|
(7%
|
)
|
|
(19%
|
)
|
Consolidated
revenue
|
|
439,490
|
|
|
100%
|
|
|
461,693
|
|
|
100%
|
|
|
(5%
|
)
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
38,724
|
|
|
47%
|
|
|
39,740
|
|
|
41%
|
|
|
(3%
|
)
|
International transaction
processing
|
|
15,596
|
|
|
19%
|
|
|
19,671
|
|
|
21%
|
|
|
(21%
|
)
|
Financial inclusion and applied technologies
|
|
41,542
|
|
|
51%
|
|
|
53,340
|
|
|
56%
|
|
|
(22%
|
)
|
Subtotal: Operating segments
|
|
95,862
|
|
|
117%
|
|
|
112,751
|
|
|
118%
|
|
|
(15%
|
)
|
Corporate/Eliminations
|
|
(13,677
|
)
|
|
(17%
|
)
|
|
(16,845
|
)
|
|
(18%
|
)
|
|
(19%
|
)
|
Consolidated operating income
|
|
82,185
|
|
|
100%
|
|
|
95,906
|
|
|
100%
|
|
|
(14%
|
)
|
Table 10
|
|
In South African Rand (U.S.
GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
% of
|
|
|
ZAR
|
|
|
% of
|
|
|
%
|
|
Operating
Segment
|
|
000
|
|
|
total
|
|
|
000
|
|
|
total
|
|
|
change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction
processing
|
|
2,252,717
|
|
|
36%
|
|
|
1,983,228
|
|
|
38%
|
|
|
14%
|
|
International transaction processing
|
|
1,737,784
|
|
|
28%
|
|
|
1,369,249
|
|
|
26%
|
|
|
27%
|
|
Financial inclusion and
applied technologies
|
|
2,654,176
|
|
|
43%
|
|
|
2,240,059
|
|
|
43%
|
|
|
18%
|
|
Subtotal:
Operating segments
|
|
6,644,677
|
|
|
107%
|
|
|
5,592,536
|
|
|
107%
|
|
|
19%
|
|
Intersegment eliminations
|
|
(417,852
|
)
|
|
(7%
|
)
|
|
(409,986
|
)
|
|
(7%
|
)
|
|
2%
|
|
Consolidated
revenue
|
|
6,226,825
|
|
|
100%
|
|
|
5,182,550
|
|
|
100%
|
|
|
20%
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
548,653
|
|
|
47%
|
|
|
446,085
|
|
|
41%
|
|
|
23%
|
|
International transaction
processing
|
|
220,969
|
|
|
19%
|
|
|
220,809
|
|
|
21%
|
|
|
-
|
|
Financial inclusion and applied technologies
|
|
588,580
|
|
|
51%
|
|
|
598,747
|
|
|
56%
|
|
|
(2%
|
)
|
Subtotal: Operating segments
|
|
1,358,202
|
|
|
117%
|
|
|
1,265,641
|
|
|
118%
|
|
|
7%
|
|
Corporate/Eliminations
|
|
(193,780
|
)
|
|
(17%
|
)
|
|
(189,087
|
)
|
|
(18%
|
)
|
|
2%
|
|
Consolidated operating income
|
|
1,164,422
|
|
|
100%
|
|
|
1,076,554
|
|
|
100%
|
|
|
8%
|
|
South African transaction processing
In ZAR, the increase in segment revenue and operating income
was primarily due to higher EPE transaction revenue as a result of increased
usage of our ATMs, more low-margin transaction fees generated from card holders
using the South African National Payment System, increased inter-segment
transaction processing activities, and a modest increase in the number of social
welfare grants distributed.
Our operating income margin for the year to date fiscal 2016
and 2015 was 24% and 22%, respectively, and has increased primarily due to an
increase in the number of beneficiaries paid in fiscal 2016 and a modest
increase in the margin of transaction fees generated from cardholders using the
South African National Payment System.
39
International transaction-based
activities
Revenue increased in constant currency primarily due to higher
transaction volume at KSNET during the year to date fiscal 2016. Operating
income during the year to date fiscal 2016 was lower due to an increase in
depreciation expense and ongoing ZAZOO start-up costs in the UK and India, but
was partially offset by to increase in revenue contribution from KSNET and a
positive contribution by XeoHealth.
Operating income and operating income margin for the year to
date fiscal 2015, was positively impacted by a refund of approximately $1.7
million that had been paid several years ago in connection with industry-wide
litigation. Operating income margin for the year to date fiscal 2016 and 2015
was 13% and 16%, respectively.
Financial inclusion and applied
technologies
In ZAR, Financial inclusion and applied technologies revenue
and operating income increased primarily due to higher prepaid airtime and other
value-added services sales, more ad hoc terminal and card sales and, in ZAR, an
increase in inter-segment revenues, offset by lower lending service fees.
Operating income for the year to date fiscal 2016, was adversely impacted by
establishment costs for Smart Life and expansion of our branch network.
Operating income margin for the Financial inclusion and applied
technologies segment was 22% and 27%, respectively, during the year to date
fiscal 2016 and 2015, and has decreased primarily due to the sale of more
low-margin prepaid airtime and establishment costs for Smart Life and expansion
of our branch network.
Corporate/ Eliminations
Our corporate expenses generally include acquisition-related
intangible asset amortization; expenditure related to compliance with the
Sarbanes-Oxley Act of 2002; non-employee directors fees; employee and executive
bonuses; stock-based compensation; legal fees; audit fees; directors and
officers insurance premiums; telecommunications expenses; property-related
expenditures including utilities, rental, security and maintenance; and
elimination entries.
In USD, our corporate expenses have decreased primarily due to
the impact of the stronger USD on goods and services procured in other
currencies, primarily the ZAR, and lower amortization costs, partially offset by
modest increases in USD denominated goods and services purchased from third
parties and directors fees.
Liquidity and Capital Resources
At March 31, 2016, our cash balances were $123.3 million, which
comprised mainly ZAR-denominated balances of ZAR 798.3 million ($53.8 million),
U.S. dollar-denominated balances of $53.2 million, KRW-denominated balances of
KRW 9.0 billion ($7.9 million) and other currency deposits, primarily euros of
$8.4 million. The increase in our cash balances from June 30, 2015, was
primarily due to the expansion of all of our core businesses, partially offset
by the strengthening of the U.S. dollar against our primary functional
currencies, repurchase of shares of our common stock, provisional tax payments,
acquisitions and capital expenditures.
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
U.S. dollar denominated money market accounts. 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.
We have a short-term South African credit facility with Nedbank
Limited of ZAR 400 million ($27.0 million), which consists of (i) a primary
amount of up to ZAR 200 million, which is immediately available, and (ii) a
secondary amount of up to ZAR 200 million, which is not immediately available.
The primary amounts comprise an overdraft facility of up to ZAR 50 million and
indirect and derivative facilities of up to ZAR 150 million, which includes
letters of guarantee, letters of credit and forward exchange contracts. As of
March 31, 2016, we have used none of the overdraft and ZAR 137.1 million ($9.2
million) of the indirect and derivative facilities to obtain foreign exchange
contracts and to support guarantees issued by Nedbank to various third parties
on our behalf. Refer to Note 12 to our audited consolidated financial statements
included in our Annual Report on Form 10-K for the year ended June 30, 2015, for
additional information related to our short-term facilities.
40
As of March 31, 2016, we had outstanding long-term debt of KRW
69.7 billion (approximately $61.0 million translated at exchange rates
applicable as of March 31, 2016) under credit facilities with a group of South
Korean banks. The loans bear interest at the South Korean CD rate in effect from
time to time (1.65% as of March 31, 2016) plus a margin of 3.10% for one of the
term loan facilities and the revolver. Scheduled remaining repayments of the
term loans and loan under the revolving credit facility are as follows: April
2016, 2017 and 2018 (KRW 10 billion each) and October 2018 (KRW 30 billion plus
all outstanding loans under our revolving credit facility). Refer to Note 13 to
our audited consolidated financial statements included in our Annual Report on
Form 10-K for the year ended June 30, 2015 and Note 10 to our unaudited
condensed consolidated financial statements for the three and nine months ended
March 31, 2016, for additional information related to our long-term borrowings.
Cash flows from operating activities
Third quarter of fiscal 2016
Net cash provided by operating activities for the third quarter
of fiscal 2016 was $49.2 million (ZAR 778.3 million) compared to $49.3 million
(ZAR 578.0 million) for the third quarter of fiscal 2015. Excluding the impact
of interest received, interest paid under our Korean debt and taxes presented in
the table below, in ZAR, the increase in cash from operating activities resulted
from improved trading activity during fiscal 2016.
During the third quarter of fiscal 2016, we paid South African
tax of $0.1 million (ZAR 1.8 million) related to our 2016 tax year in South
Africa. We paid dividend withholding taxes of $1.6 million (ZAR 25.0 million)
during the third quarter of fiscal 2016. We also paid taxes totaling $2.4
million in other tax jurisdictions, primarily South Korea. We paid taxes
totaling $0.1 million (ZAR 1.6 million) in South Africa during the third quarter
of fiscal 2015. We also paid taxes totaling $3.0 million in other tax
jurisdictions, primarily South Korea.
Taxes paid during the third quarter of
fiscal 2016 and 2015 were as follows:
Table 11
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
115
|
|
|
135
|
|
|
1,812
|
|
|
1,564
|
|
Taxation refunds received
|
|
-
|
|
|
(40
|
)
|
|
-
|
|
|
(468
|
)
|
Dividend withholding taxation
|
|
1,573
|
|
|
-
|
|
|
25,000
|
|
|
-
|
|
Total South
African taxes paid
|
|
1,688
|
|
|
95
|
|
|
26,812
|
|
|
1,096
|
|
Foreign taxes paid, primarily South Korea
|
|
2,364
|
|
|
2,991
|
|
|
36,846
|
|
|
36,042
|
|
Total tax paid
|
|
4,052
|
|
|
3,086
|
|
|
63,658
|
|
|
37,138
|
|
Year to date fiscal 2016
Net cash provided by operating activities for the year to date
fiscal 2016 was $81.4 million (ZAR 1.2 billion) compared to $103.4 million (ZAR
1.2 billion) for the year to date fiscal 2015. 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 lending book, offset by cash inflows from improved trading
activity during fiscal 2016.
During the year to date fiscal 2016, we paid South African tax
of $16.0 million (ZAR 239.9 million) related to our 2016 tax year and $3.4
million (ZAR 46.8 million) related to prior tax years. We paid dividend
withholding taxes of $4.2 million (ZAR 60.0 million) during the year to date
fiscal 2016. We also paid taxes totaling $5.0 million in other tax
jurisdictions, primarily South Korea. During the year to date fiscal 2015, we
paid South African tax of $18.9 million (ZAR 217.2 million) related to our 2015
tax year and $2.4 million (ZAR 26.4 million) related to prior tax years. We also
paid taxes totaling $7.6 million in other tax jurisdictions, primarily South
Korea.
41
Taxes paid during the year to date
fiscal 2016 and 2015 were as follows:
Table 12
|
|
Nine months ended March 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
15,956
|
|
|
18,910
|
|
|
239,939
|
|
|
217,241
|
|
Taxation paid related to prior years
|
|
3,436
|
|
|
2,408
|
|
|
46,840
|
|
|
26,395
|
|
Taxation refunds received
|
|
(176
|
)
|
|
(317
|
)
|
|
(2,402
|
)
|
|
(3,533
|
)
|
Dividend withholding taxation
|
|
4,183
|
|
|
-
|
|
|
60,000
|
|
|
-
|
|
Total South African taxes paid
|
|
23,399
|
|
|
21,001
|
|
|
344,377
|
|
|
240,103
|
|
Foreign taxes
paid: primarily Korea
|
|
4,975
|
|
|
7,638
|
|
|
74,602
|
|
|
86,857
|
|
Total
tax paid
|
|
28,374
|
|
|
28,639
|
|
|
418,979
|
|
|
326,960
|
|
Cash flows from investing activities
Third quarter of fiscal 2016
Cash used in investing activities for the third quarter of
fiscal 2016 includes capital expenditure of $8.1 million (ZAR 127.4 million),
primarily for the acquisition of payment processing terminals in Korea. In
addition, we exercised our rights under the Finbond Group Limited, or Finbond,
rights offer and paid approximately $8.9 million (ZAR 136.1 million) for
40,733,723 shares. We also paid approximately $1.7 million, net of cash
received, for approximately 56% of T24s ordinary shares that we did not
previously own.
Cash used in investing activities for the third quarter of
fiscal 2015 includes capital expenditure of $6.3 million (ZAR 74.1 million),
primarily for the acquisition of payment processing terminals in Korea.
Year to date fiscal 2016
Cash used in investing activities for the year to date fiscal
2016 includes capital expenditure of $28.7 million (ZAR 411.5 million),
primarily for the acquisition of payment processing terminals in Korea and the
rollout of ATMs in South Africa. In addition, we exercised our rights under the
Finbond rights offer and paid approximately $8.9 million (ZAR 136.1 million) for
40,733,723 shares. We also paid approximately $1.7 million, net of cash
received, for approximately 56% of T24s ordinary shares that we did not own.
Cash used in investing activities for the year to date fiscal
2015 includes capital expenditure of $24.8 million (ZAR 278.9 million),
primarily for the acquisition of payment processing terminals in Korea. We also
received approximately $1.9 million resulting from the sale of NUETS business.
Cash flows from financing activities
Third quarter of fiscal 2016
During the third quarter of fiscal 2016, we acquired 1,328,699
shares of our common stock for approximately $12.7 million and utilized
approximately $0.7 million of our Korean borrowings to pay quarterly interest
due.
During the third quarter of fiscal 2015, we utilized
approximately $0.8 million of our Korean borrowings to pay quarterly interest
due and received approximately $0.8 million from the exercise of stock options.
We also paid a dividend of $1.0 million to certain of our non-controlling
interests.
Year to date fiscal 2016
During the year to date fiscal 2016, we received approximately
$3.8 million from the exercise of stock options, acquired 2,077,912 shares of
our common stock for approximately $23.9 million, and utilized approximately
$2.1 million of our Korean borrowings to pay quarterly interest due.
During the year to date fiscal 2015, we made a scheduled Korean
debt repayment of $14.1 million, repurchased BVIs remaining 1,837,432 shares of
Net1 common stock for approximately $9.2 million, received $1.4 million from BVI
for 12.5% of CPS issued and outstanding ordinary shares and paid a dividend of
$1.0 million to certain of our non-controlling interests. We also utilized
approximately $3.0 million of our Korean borrowings to pay quarterly interest
due and received approximately $1.8 million from the exercise of stock options
during the first quarter of fiscal 2015.
42
Off-Balance Sheet Arrangements
We have no off-balance sheet
arrangements.
Capital Expenditures
We expect capital spending for the fourth quarter of fiscal
2016 to primarily include the acquisition of payment terminals for the expansion
of our operations in Korea and expansion of our ATM infrastructure and branch
network in South Africa.
Our historical capital expenditures for the third quarter of
fiscal 2016 and 2015 are discussed under Liquidity and Capital ResourcesCash
flows from investing activities. All of our capital expenditures for the past
three fiscal years were funded through internally-generated funds. We had
outstanding capital commitments as of March 31, 2016, of $0.5 million related
mainly to the procurement of ATMs. We expect to fund these expenditures through
internally-generated funds.