Item 1.01 Entry into a Material Definitive Agreement.
On May 3, 2019, Net 1 UEPS Technologies Inc. (
Net1
),
through its wholly owned subsidiary, Net1 Applied Technologies South Africa
Proprietary Limited (
Net1 SA
), entered into an agreement (the
Sale
of Shares Agreement)
pursuant to which Net1 SA further reduced its
shareholding in DNI-4PL Contracts Proprietary Limited (
DNI
) from 38% to
approximately 30% through the sale of 7,605,235 ordinary A
shares (the
Sale Shares
) issued by DNI to FirstRand Bank Limited, acting through its Rand
Merchant Bank division (
RMB
), for a transaction consideration of ZAR
215.0 million ($14.9 million, translated at exchange rates applicable as of May
3, 2019) (the
RMB Transaction
). Net1 SA was required, as a condition to
closing, to use ZAR 15.0 million ($1.0 million, translated at exchange rates
applicable as of May 3, 2019) of its cash reserves to settle a portion of its
outstanding long-term borrowings.
On May 3, 2019, Net1 SA entered into an agreement (the
Call
Option Agreement
) pursuant to which it granted a call option to DNI to
acquire Net1 SAs retained 30% interest in DNI. The option expires on December
31, 2019, and may be exercised at any time during this period. The option strike
price is calculated as ZAR 2.827 billion ($195.2 million, translated at exchange
rates applicable as of May 3, 2019) less any special distribution made by DNI
multiplied by Net1 SAs retained interest (i.e. assuming no special
distribution, the strike price for the 30% retained interest is ZAR 859.3
million, or $59.3 million, translated at exchange rates applicable as of May 3,
2019). The call option may be split into smaller denominations, but Net1 SA
cannot be left with less than 20% unless the whole remaining interest is
disposed of. DNI may nominate another party to exercise the call option in the
place of DNI, provided that the nominated party acquires call options
representing at least 1.0% of DNIs voting and participation interests.
The Sale of Shares Agreement included a condition precedent
that DNI Retail Proprietary Limited, The Starterpack Company Proprietary
Limited, DNI, the shareholders of DNI and RMB enter into a Put and Call Option
Agreement (the
Put/Call Agreement
). Under the Put/Call Agreement, DNI
Retail Proprietary Limited granted to RMB an option to require DNI Retail
Proprietary Limited to purchase all of the Sale Shares, and RMB granted to JAA
Holdings Proprietary Limited, PK Gain Investment Holdings Proprietary Limited,
Sabvest Finance and Guarantee Corporation Proprietary Limited and Sabvest
Investments Proprietary Limited an option to acquire all of the Sale Shares in
the proportions determined by them, from RMB on the further terms and conditions
as set out therein.
The descriptions of the documents above do not purport to be
complete and are qualified in their entirety by reference to the full text
thereof, copies of which are attached hereto as Exhibits 10.99 through 10.101
and are incorporated herein by reference.
On May 3, 2019, the USD/ZAR exchange rate was $1.00 / ZAR
14.46.
Item 2.01. Completion of Acquisition or Disposition of
Assets.
The RMB Transaction closed on May 3, 2019. The ZAR 215.0
million ($14.9 million, translated at exchange rates applicable as of May 3,
2019) portion of the transaction was completed through a cashless process to
settle a portion of Net1 SAs outstanding long-term borrowings and, as described
above, Net1 SA paid ZAR 15.0 million ($1.0 million, translated at exchange rates
applicable as of May 3, 2019) in order to settle the remaining portion of Net1
SAs ZAR 230.0 million outstanding long-term borrowings.
Item 9.01. Financial Statements and Exhibits.
(b)
Pro forma financial information
Unaudited Pro Forma Financial Statements
for Net1 comprising:
|
|
|
|
Unaudited Pro Forma Consolidated Balance
Sheet as of December 31, 2018
|
F-1
|
|
|
Unaudited Pro Forma Consolidated Statement
of Operations for the year ended June 30, 2018
|
F-2
|
|
|
Unaudited Pro Forma Consolidated Statement
of Operations for the six months ended December 31, 2018
|
F-3
|
|
|
Notes to the Unaudited Pro Forma
Consolidated Financial Statements
|
F-4
|
(d) Exhibits
Exhibit
|
|
No.
|
Description
|
10.99
|
Sale of shares agreement dated as of May 3, 2019, between
FirstRand Bank Limited (acting through its Rand Merchant Bank Division)
and Net1 Applied Technologies South Africa Proprietary Limited and DNI-
4PL Contracts Proprietary Limited
|
10.100
|
Call option agreement dated as of May 3, 2019, between
Net1 Applied Technologies South Africa Proprietary Limited and DNI-4PL
Contracts Proprietary Limited
|
10.101
|
Put and call option agreement dated as of May 3, 2019,
between FirstRand Bank Limited (acting through its Rand Merchant Bank
Division), DNI-4PL Contracts Proprietary Limited , DNI Retail Proprietary
Limited, The Starterpack Company Proprietary Limited, Net1 Applied
Technologies South Africa Proprietary Limited, JAA Holdings Proprietary
Limited, Sabvest Finance and Guarantee Corporation Proprietary Limited,
Sabvest Investments Proprietary Limited and PK Gain Investment Holdings
Proprietary Limited
|
99.1
|
Press Release, dated May 7, 2019, issued by Net 1 UEPS
Technologies, Inc.
|
NET 1 UEPS TECHNOLOGIES, INC.
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Overview
On
July 27, 2017, Net 1 UEPS Technologies, Inc. (Net1 and collectively with its
consolidated subsidiaries, the Company) acquired a 45% voting and economic
interest in DNI-4PL Contracts Proprietary Limited (DNI) and on March 9, 2018,
it increased this interest to 49%. The Company obtained control of DNI on June
30, 2018 and held a 55% interest in DNI as of that date. From that date, the
Company consolidated DNI in its financial statements and ceased accounting for
DNI using the equity method. As previously disclosed, on February 28, 2019, the
Company announced that it had entered into a transaction to reduce its
shareholding in DNI from 55% to 38% (the JAA/ PKG Disposal). The JAA/ PKG
Disposal closed on March 31, 2019 and the Company filed a Current Report on Form
8-K on April 4, 2019, which includes pro forma consolidated financial statements
related to the closing of the JAA/ PKG Disposal. On May 3, 2019, Net1, through
its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary
Limited (Net1 SA), entered into a transaction with FirstRand Bank Limited,
acting through its Rand Merchant Bank division (RMB), in terms of which Net1
SA further reduced its shareholding in DNI from 38% to 30% through the sale of
7,605,235 ordinary A shares issued by DNI, for transaction consideration of
ZAR 215.0 million ($14.9 million, translated at exchange rates applicable as of
May 3, 2019) (the RMB Disposal and, together with the JAA/ PKG Disposal, the
Disposal) to settle a portion of its long-term borrowings. Net1 SA was
required, as a condition to closing, to use ZAR 15.0 million ($1.0 million,
translated at exchange rates applicable as of May 3, 2019) of its cash reserves
to settle a portion of its outstanding long-term borrowings.
The
following unaudited pro forma consolidated financial statements have been
prepared to give effect to two transactions pursuant to which the Company
reduced its shareholding in DNI from 55% to 30%: (a) the sale of a 17% equity
stake in DNI pursuant to the JAA/ PKG Disposal and (b) the sale of an 8% stake
pursuant to the RMB Disposal. The Company has prepared these unaudited pro forma
consolidated financial statements based on (a) its historical unaudited
consolidated financial statements as of and for the six months ended December
31, 2018 (b) its historical audited consolidated financial statements as of and
for the year ended June 30, 2018 and (c) financial information for DNI as of the
same date and for the same period which has been derived as described below. The
unaudited pro forma consolidated financial statements present the pro forma
financial position and results of operations of the consolidated company based
on the historical financial information and after giving effect to the Disposal
and certain adjustments which the Company believes to be (a) directly
attributable to the Disposal, (b) factually supportable, and (c) in the case of
certain income adjustments, expected to have a continuing impact, as described
in the notes to the unaudited pro forma consolidated financial statements. The
Company has combined and presented the JAA/ PKG Disposal and RMB Disposal in
these unaudited pro forma consolidated financial statements because it believes
that it is more meaningful for investors to assess the impact of the Disposal on
the Company on a combined basis rather than separately. The disposal
transactions were negotiated and finalized separately.
The
Company has presented an unaudited pro forma consolidated balance sheet which
removes the historical balance sheet of DNI and the Companys purchase
accounting entries related to the acquisition of DNI from the Company as of
December 31, 2018 (but retains an equity-accounted investment in DNI as
described below), as if the Disposal had occurred on that date. The Company has
presented unaudited pro forma consolidated statement of operations of the
Company and DNI for the six months ended December 31, 2018, and the year ended
June 30, 2018, which removes (a) the historical statements of operations of DNI,
(b) interest income related to cash reserves utilized, (c) a portion of interest
expense incurred under its borrowing facilities, (d) earnings under the equity
method and (e) the Companys purchasing accounting adjustments, from the Company
for the periods presented and includes earnings under the equity method related
to the Companys retained investment in DNI, as if the Disposal had occurred on
July 1, 2017.
The
unaudited pro forma consolidated statement of operations for the year ended June
30, 2018 has been prepared on the basis that the Disposal, and specifically the
RMB Disposal, was concluded on July 1, 2017. The Company has assumed that the
cash reserves used to settle a portion of the ZAR 1.25 billion facility used to
fund the acquisition of Cell C Proprietary Limited as of August 1, 2017, were
paid on August 1, 2017, and therefore the interest reduction included in the pro
forma consolidated statement of operations for the year ended June 30, 2018, is
from August 1, 2017. The Company also assumed that the proceeds from the RMB
Disposal have been applied against the ZAR 1.25 billion facility used to fund
the acquisition of Cell C Proprietary Limited as of August 1, 2017, and has not
recorded any interest income on surplus funds received from the RMB Disposal
during the month of July 2017 in the unaudited pro forma consolidated statement
of operations for the year ended June 30, 2018.
The
financial information of DNI was prepared in accordance with US GAAP, is
unaudited, and is denominated in South African Rand (ZAR). An exchange rate of
$1/ZAR 14.3960 has been used to translate DNIs historical balance sheet as of
December 31, 2018, from ZAR to U.S. dollars, based on the closing exchange rate
as of December 31, 2018, as reported by an independent external source
(www.oanda.com) (Oanda). Exchange rates of $1/ZAR 14.3376 and $1/ZAR 12.6951
have been used to translate DNIs results of operations for the six months ended
December 31, 2018, and the year ended June 30, 2018, respectively, from ZAR to
U.S. dollars, based on the average daily exchange rates for those periods, as
reported by Oanda.
Following
the Disposal, the Company owns 30% of the voting and economic rights of DNI. The
Company will account for its 30% investment in DNI following the Disposal using
the equity method. The remaining 30% investment in DNI has been recorded at fair
value as of the Disposal date which was determined using the implied fair value
of DNI pursuant to the RMB Disposal.
No
account has been taken within these unaudited pro forma consolidated financial
statements of any future changes in accounting policies which may or may not
occur as a result of the Disposal.
The pro forma adjustments are based on information that is currently
available and contain certain preliminary estimates and assumptions and thus the
actual effects of the Disposal may differ from the effects reflected herein.
These unaudited pro forma consolidated financial statements are not intended to
be indicative of the consolidated results of operations or financial position of
the consolidated company that would have been reported had the Disposal been
completed as of the dates presented, and are not representative of future
consolidated results of operations or financial condition of the consolidated
company.
You
should read these unaudited pro forma consolidated financial statements in
conjunction with the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K/A filed on December 6, 2018, and its
unaudited condensed consolidated financial statements included in the Companys
Quarterly Report on Form 10-Q filed on February 7, 2019.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As
of December 31, 2018, in $ 000
|
|
Net1
|
|
|
Pro forma adjustments
|
|
|
Notes
|
|
Pro forma
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,785
|
)
|
|
2 (a)
|
|
|
|
Cash and cash equivalents
|
|
69,910
|
|
|
(1,042
|
)
|
|
2 (b)*
|
|
65,083
|
|
Restricted cash
|
|
63,131
|
|
|
-
|
|
|
|
|
63,131
|
|
|
|
|
|
|
(23,941
|
)
|
|
2 (a)
|
|
|
|
|
|
|
|
|
27,786
|
|
|
2 (c)
|
|
|
|
Accounts receivable, net
|
|
105,007
|
|
|
(27,786
|
)
|
|
2 (c)
|
|
81,066
|
|
Finance loans receivable, net
|
|
25,122
|
|
|
(5,577
|
)
|
|
2 (a)
|
|
19,545
|
|
Inventory
|
|
10,272
|
|
|
(1,324
|
)
|
|
2 (a)
|
|
8,948
|
|
Total current
assets before settlement assets
|
|
273,442
|
|
|
(35,669
|
)
|
|
|
|
237,773
|
|
Settlement assets
|
|
65,765
|
|
|
-
|
|
|
|
|
65,765
|
|
Total current assets
|
|
339,207
|
|
|
(35,669
|
)
|
|
|
|
303,538
|
|
Property, plant and equipment, net
|
|
23,739
|
|
|
(1,149
|
)
|
|
2 (a)
|
|
22,590
|
|
|
|
|
|
|
(172
|
)
|
|
2 (a)
|
|
|
|
Equity-accounted investments
|
|
93,561
|
|
|
59,687
|
|
|
2 (e)*
|
|
153,076
|
|
Goodwill
|
|
267,964
|
|
|
(108,844
|
)
|
|
2 (a)
|
|
159,120
|
|
Intangible assets, net
|
|
115,250
|
|
|
(95,333
|
)
|
|
2 (a)
|
|
19,917
|
|
Deferred income taxes
|
|
20,826
|
|
|
(16,603
|
)
|
|
2 (a)
|
|
4,223
|
|
Other long-term assets, including reinsurance assets
|
|
219,577
|
|
|
(13,023
|
)
|
|
2 (a)
|
|
206,554
|
|
TOTAL ASSETS
|
|
1,080,124
|
|
|
(211,106
|
)
|
|
|
|
869,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Short-term credit facilities
for ATM funding
|
|
63,131
|
|
|
-
|
|
|
|
|
63,131
|
|
Accounts payable
|
|
20,939
|
|
|
(9,319
|
)
|
|
2 (a)
|
|
11,620
|
|
|
|
|
|
|
(11,205
|
)
|
|
2 (a)
|
|
|
|
|
|
|
|
|
996
|
|
|
2 (g)
|
|
|
|
|
|
|
|
|
(27,786
|
)
|
|
2 (c)
|
|
|
|
Other payables
|
|
73,464
|
|
|
70
|
|
|
2 (j)
|
|
35,539
|
|
|
|
|
|
|
(14,153
|
)
|
|
2 (h)*
|
|
|
|
Current portion of long-term borrowings
|
|
24,660
|
|
|
(49
|
)
|
|
2 (h)*
|
|
10,458
|
|
Income taxes payable
|
|
6,770
|
|
|
(529
|
)
|
|
2 (a)
|
|
6,241
|
|
Total current liabilities before
settlement obligations
|
|
188,964
|
|
|
(61,975
|
)
|
|
|
|
126,989
|
|
Settlement obligations
|
|
65,765
|
|
|
-
|
|
|
|
|
65,765
|
|
Total current liabilities
|
|
254,729
|
|
|
(61,975
|
)
|
|
|
|
192,754
|
|
Deferred income taxes
|
|
52,376
|
|
|
(42,608
|
)
|
|
2 (a)
|
|
9,768
|
|
|
|
|
|
|
(8,683
|
)
|
|
2 (a)
|
|
|
|
|
|
|
|
|
(1,823
|
)
|
|
2 (h)*
|
|
|
|
Long-term debt
|
|
10,395
|
|
|
111
|
|
|
2 (h)*
|
|
-
|
|
Other long-term liabilities, including
insurance policy liabilities
|
|
2,515
|
|
|
-
|
|
|
|
|
2,515
|
|
TOTAL LIABILITIES
|
|
320,015
|
|
|
(114,978
|
)
|
|
|
|
205,037
|
|
Redeemable common stock
|
|
107,672
|
|
|
-
|
|
|
|
|
107,672
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
80
|
|
|
-
|
|
|
|
|
80
|
|
Additional paid-in-capital
|
|
277,463
|
|
|
-
|
|
|
|
|
277,463
|
|
Treasury shares
|
|
(286,951
|
)
|
|
-
|
|
|
|
|
(286,951
|
)
|
Accumulated other comprehensive (loss) income
|
|
(198,272
|
)
|
|
2,329
|
|
|
2 (d)*
|
|
(195,943
|
)
|
|
|
|
|
|
(6,509
|
)
|
|
2 (d)*
|
|
|
|
|
|
|
|
|
(996
|
)
|
|
2 (g)
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
2 (h)*
|
|
|
|
Retained earnings
|
|
768,485
|
|
|
(70
|
)
|
|
2 (j)
|
|
760,848
|
|
TOTAL NET1 EQUITY
|
|
560,805
|
|
|
(5,308
|
)
|
|
|
|
555,497
|
|
Non-controlling interest
|
|
91,632
|
|
|
(90,820
|
)
|
|
2 (a)
|
|
812
|
|
TOTAL EQUITY
|
|
652,437
|
|
|
(96,128
|
)
|
|
|
|
556,309
|
|
TOTAL LIABILITIES, REDEEMABLE COMMON
STOCK AND
SHAREHOLDERS EQUITY
|
|
1,080,124
|
|
|
(211,106
|
)
|
|
|
|
869,018
|
|
(*) Pro forma adjustments related to the RMB Disposal.
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-1
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS
For the six months ended December 31, 2018
(in $
000, except per share data or unless otherwise indicated)
|
|
Net1
|
|
|
Pro forma adjustments
|
|
|
Notes
|
|
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
223,034
|
|
|
(38,111
|
)
|
|
2 (a)
|
|
184,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, IT processing, servicing
and support
|
|
123,501
|
|
|
(19,940
|
)
|
|
2 (a)
|
|
103,561
|
|
Selling, general and
administration
|
|
112,874
|
|
|
(2,322
|
)
|
|
2 (a)
|
|
110,552
|
|
Depreciation and amortization
|
|
20,647
|
|
|
(5,541
|
)
|
|
2 (a)
|
|
15,106
|
|
Impairment losses
|
|
8,191
|
|
|
-
|
|
|
|
|
8,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(42,179
|
)
|
|
(10,308
|
)
|
|
|
|
(52,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of equity securities
|
|
(15,836
|
)
|
|
-
|
|
|
|
|
(15,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(493
|
)
|
|
2 (a)
|
|
|
|
Interest income, net of impairment
|
|
1,545
|
|
|
(33
|
)
|
|
2 (b)*
|
|
1,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(414
|
)
|
|
2 (a)
|
|
|
|
|
|
|
|
|
(839
|
)
|
|
2 (g)
|
|
|
|
|
|
|
|
|
(780
|
)
|
|
2 (h)*
|
|
|
|
Interest expense
|
|
5,537
|
|
|
(91
|
)
|
|
2 (h)*
|
|
3,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
(62,007
|
)
|
|
(8,710
|
)
|
|
|
|
(70,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,947
|
)
|
|
2 (a)
|
|
|
|
|
|
|
|
|
725
|
|
|
2 (a)
|
|
|
|
Income tax (benefit) expense
|
|
4,192
|
|
|
(12
|
)
|
|
2 (b)*
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before earnings from
equity-accounted investments
|
|
(66,199
|
)
|
|
(6,476
|
)
|
|
|
|
(72,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
2 (a)
|
|
|
|
|
|
|
|
|
3,233
|
|
|
2 (a)
|
|
|
|
Earnings from equity-accounted investments
|
|
126
|
|
|
(1,063
|
)
|
|
2 (f)
|
|
2,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(66,073
|
)
|
|
(4,259
|
)
|
|
|
|
(70,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less (Add) net income (loss) attributable
to non-controlling interest
|
|
3,067
|
|
|
(3,909
|
)
|
|
2 (a)
|
|
(842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Net1
|
|
(69,140
|
)
|
|
(350
|
)
|
|
|
|
(69,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
|
|
(1.22
|
)
|
|
|
|
|
|
|
(1.22
|
)
|
Diluted loss
|
|
(1.22
|
)
|
|
|
|
|
|
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of outstanding
shares of common stock used to calculate basic loss per share
|
|
55,962
|
|
|
|
|
|
|
|
55,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of outstanding
shares of common stock used to calculate diluted loss per share
|
|
55,998
|
|
|
|
|
|
|
|
55,998
|
|
(*) Pro forma adjustments related to the RMB Disposal.
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-2
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS
For the year ended June 30, 2018
(in $ 000,
except per share data or unless otherwise indicated)
|
|
Net1
|
|
|
Pro forma adjustments
|
|
|
Notes
|
|
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
612,889
|
|
|
-
|
|
|
|
|
612,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, IT processing, servicing
and support
|
|
304,536
|
|
|
-
|
|
|
|
|
304,536
|
|
Selling, general and
administration
|
|
193,003
|
|
|
(4,614
|
)
|
|
2 (k)
|
|
188,389
|
|
Depreciation and amortization
|
|
35,484
|
|
|
-
|
|
|
|
|
35,484
|
|
Impairment losses
|
|
20,917
|
|
|
-
|
|
|
|
|
20,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
58,949
|
|
|
4,614
|
|
|
|
|
63,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of equity securities
|
|
32,473
|
|
|
-
|
|
|
|
|
32,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
17,885
|
|
|
(70
|
)
|
|
2 (b)*
|
|
17,815
|
|
|
|
|
|
|
(1,622
|
)
|
|
2 (h)*
|
|
|
|
Interest expense
|
|
8,941
|
|
|
(121
|
)
|
|
2 (h)*
|
|
7,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
100,366
|
|
|
6,287
|
|
|
|
|
106,653
|
|
|
|
|
|
|
1,418
|
|
|
2 (a)
|
|
|
|
Income tax expense
|
|
48,627
|
|
|
(24
|
)
|
|
2 (b)*
|
|
50,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before earnings from
equity-accounted investments
|
|
51,739
|
|
|
4,893
|
|
|
|
|
56,632
|
|
|
|
|
|
|
(9,510
|
)
|
|
2 (i)
|
|
|
|
|
|
|
|
|
2,505
|
|
|
2 (i)
|
|
|
|
|
|
|
|
|
6,333
|
|
|
2 (a)
|
|
|
|
Earnings from equity-accounted investments
|
|
11,730
|
|
|
(2,403
|
)
|
|
2 (f)
|
|
8,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
63,469
|
|
|
1,818
|
|
|
|
|
65,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add net (loss) attributable to
non-controlling interest
|
|
(880
|
)
|
|
-
|
|
|
|
|
(880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Net1
|
|
64,349
|
|
|
1,818
|
|
|
|
|
66,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
1.13
|
|
|
|
|
|
|
|
1.16
|
|
Diluted earnings
|
|
1.13
|
|
|
|
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of outstanding
shares of common stock used to calculate basic earnings per share
|
|
55,860
|
|
|
|
|
|
|
|
55,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of outstanding
shares of common stock used to calculate diluted earnings per share
|
|
55,911
|
|
|
|
|
|
|
|
55,911
|
|
(*) Pro forma adjustments related to the RMB Disposal.
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-3
NET 1 UEPS TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
1. Basis of presentation
The accompanying unaudited pro forma consolidated financial statements
present the pro forma financial position and results of operations of the
consolidated company based on the historical financial information and after
giving effect to the Disposal and certain adjustments which we believe to be (a)
directly attributable to the Disposal, (b) factually supportable, and (c) in the
case of certain income adjustments, expected to have a continuing impact, which
are described in these notes. Please refer to Overview for further discussion
of the basis of presentation of these unaudited pro forma consolidated financial
statements.
2. Pro forma adjustments
The following are descriptions of each of the pro forma adjustments
included in the unaudited pro forma consolidated financial statements:
(a) Deconsolidation of DNI
Consolidated balance sheet as of
December 31, 2018
The table below presents DNIs
unaudited consolidated balance sheet as of December 31, 2018, including the
Companys at acquisition purchase accounting adjustments, including recognition
of the non-controlling interest, goodwill, intangible assets and related tax
effects, in ZAR and $ that has been deconsolidated from the Companys unaudited
pro forma consolidated balance sheet as a result of the Disposal:
|
|
DNI
|
|
|
|
December 31, 2018
|
|
|
|
ZAR 000
|
|
|
$000
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
54,487
|
|
|
3,785
|
|
Accounts receivable, net
|
|
344,662
|
|
|
23,941
|
|
Finance loans receivable, net
|
|
80,279
|
|
|
5,577
|
|
Inventory
|
|
19,056
|
|
|
1,324
|
|
Total
current assets
|
|
498,484
|
|
|
34,627
|
|
Property, plant and equipment, net
|
|
16,540
|
|
|
1,149
|
|
Equity-accounted investments
|
|
2,469
|
|
|
172
|
|
Goodwill
|
|
1,566,921
|
|
|
108,844
|
|
Intangible assets, net
|
|
1,372,417
|
|
|
95,333
|
|
Deferred income taxes
|
|
239,014
|
|
|
16,603
|
|
Other long-term assets, including
reinsurance assets
|
|
187,490
|
|
|
13,023
|
|
TOTAL ASSETS
|
|
3,883,335
|
|
|
269,751
|
|
LIABILITIES
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
134,157
|
|
|
9,319
|
|
Other payables
|
|
161,309
|
|
|
11,205
|
|
Income taxes payable
|
|
7,612
|
|
|
529
|
|
Total current liabilities
|
|
303,078
|
|
|
21,053
|
|
Deferred income taxes
|
|
613,395
|
|
|
42,608
|
|
Long-term debt
|
|
125,000
|
|
|
8,683
|
|
TOTAL LIABILITIES
|
|
1,041,473
|
|
|
72,344
|
|
EQUITY
|
|
|
|
|
|
|
At acquisition Net1 equity
|
|
1,533,969
|
|
|
111,761
|
|
Accumulated other comprehensive loss since acquisition
|
|
-
|
|
|
(5,206
|
)
|
Accumulated loss, net of dividends paid by
DNI, since acquisition
|
|
452
|
|
|
32
|
|
TOTAL NET1 EQUITY
|
|
1,534,421
|
|
|
106,587
|
|
Non-controlling interest
|
|
1,307,441
|
|
|
90,820
|
|
TOTAL EQUITY
|
|
2,841,862
|
|
|
197,407
|
|
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
3,883,335
|
|
|
269,751
|
|
F-4
Consolidated statement of operations for the six months
ended December 31, 2018
The table below presents DNIs consolidated statement of
operations for the six months ended December 31, 2018, including the Companys
amortization of acquired intangible assets and related tax effects, and the
amounts allocated to the non-controlling interest, in ZAR and $ that has been
deconsolidated from the Companys unaudited pro forma consolidated statement of
operations as a result of the Disposal:
|
|
DNI
|
|
|
|
Six months ended
|
|
|
|
December 31, 2018
|
|
|
|
ZAR 000
|
|
|
|
$000
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
546,431
|
|
|
|
38,111
|
|
Expenses
|
|
|
|
|
|
|
|
Cost of goods sold, IT
processing, servicing and support
|
|
285,901
|
|
|
|
19,940
|
|
Selling, general and administration
|
|
33,296
|
|
|
|
2,322
|
|
Depreciation and amortization
|
|
79,441
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
147,793
|
|
|
|
10,308
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
7,069
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
5,931
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
148,931
|
|
|
|
10,387
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
42,248
|
|
|
|
2,947
|
|
|
|
|
|
|
|
|
|
Net income before loss from
equity-accounted investments
|
|
106,683
|
|
|
|
7,440
|
|
|
|
|
|
|
|
|
|
Loss from equity-accounted investments
|
|
(678
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
Net income
|
|
106,005
|
|
|
|
7,393
|
|
|
|
|
|
|
|
|
|
Less net income attributable to
non-controlling interest
|
|
56,053
|
|
|
|
3,909
|
|
Arising from consolidation of subsidiaries by
DNI
|
|
7,100
|
|
|
|
495
|
|
Arising from consolidation of
DNI by Net1
|
|
48,953
|
|
|
|
3,414
|
|
|
|
|
|
|
|
|
|
Net income attributable to DNI
|
|
49,952
|
|
|
|
3,484
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings from equity
accounted investments attributed to 30% of DNI
|
|
|
|
|
|
|
|
Net income generated
|
|
|
|
|
|
7,393
|
|
Less: net income
attributed to DNI non-controlling interest
|
|
|
|
|
|
(495
|
)
|
Add: back acquired
intangible amortization, net
|
|
|
|
|
|
3,741
|
|
Net income of DNI used to calculate attribution to Net1
|
|
|
|
|
|
10,639
|
|
Net income attributed to the Companys
retained 30% interest in DNI
|
|
|
|
|
|
3,233
|
|
Deferred tax effect on 30% of
DNI equity earnings
(1)
|
|
|
|
|
|
725
|
|
(1) represents an increase in the basis difference between the
financial reporting carrying value of DNI and its tax value.
Consolidated statement of operations for the year ended June
30, 2018
DNIs audited consolidated statement of operations for the year
ended June 30, 2018, reflects net income attributable to DNI shareholders of ZAR
264.5 million ($20.8 million, translated at average rate of exchange for the
year ended June 30, 2018). DNI was not consolidated into the Companys
consolidated statement of operations for the year ended June 30, 2018, because
the Company only acquired control of DNI as of June 30, 2018. Therefore, a pro
forma adjustment has not been made to deconsolidate DNIs operations from the
Companys unaudited pro forma statement of operations for the year ended June
30, 2018.
F-5
The Company has included 30% of the
$20.8 million net income attributable to DNI shareholders, or $6.333 million, in
earnings from equity accounted investments in the unaudited pro forma statement
of operations for the year ended June 30, 2018. The Company recorded a deferred
tax adjustment of $1.418 million related to an increase in the basis difference
between the financial reporting carrying value of DNI and its tax value.
(b) Reduction in cash and cash equivalents and interest
income
The Company utilized ZAR 15.0 million
($1.042 million, translated at exchange rates applicable as of December 31,
2018) of its cash reserves to settle a portion of its long-term borrowings
pursuant to the RMB Disposal and the Company has included a pro forma adjustment
to record the reduction in interest income, net of taxation. The table below
presents the interest income reduction, the average interest rate and the
related tax impact for the periods presented:
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
Average
|
|
|
|
|
|
|
|
reduction
(1)
|
|
|
interest rate
(2)
|
|
|
Tax impact
(1)
|
|
|
|
|
$000
|
|
|
(%)
|
|
|
$000
|
|
|
For the six months ended
December 31, 2018
|
|
33
|
|
|
6.35%
|
|
|
12
|
|
|
For the year ended June 30, 2018
(3)
|
|
70
|
|
|
5.93%
|
|
|
24
|
|
|
(1)
|
Translated into $ using the average rate of exchange for
the period presented.
|
|
(2)
|
The average interest rate is the assumed pre-tax South
African interest rate for the period presented.
|
|
(3)
|
The interest income reduction adjustment is for the 11
months ended June 30, 2018, as discussed in the Overview
section.
|
(c) Consideration received on Disposal
The fair value of the consideration
received on JAA/ PKG Disposal was ZAR 400.0 million ($27.8 million, translated
at exchange rates applicable as of December 31, 2018). The purchasers acquired
the DNI shares on loan account and the Company ceded the loan account to settle
the ZAR 400.0 million subscription price due related to the contingent
consideration mechanism.
(d) Loss recognized on Disposal
The table below presents the
calculation of the loss recognized on Disposal:
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCTR
|
|
|
FCTR
(1)
|
|
|
Total
|
|
|
|
|
ZAR 000
|
|
|
|
|
|
|
$000
|
|
|
|
|
|
Fair value of consideration received
|
|
615,000
|
|
|
|
42,720
|
|
|
-
|
|
|
42,720
|
|
|
Fair value of retained interest in 30% of DNI
(2)
|
|
859,260
|
|
|
|
59,687
|
|
|
-
|
|
|
59,687
|
|
|
Carrying value of non-controlling interest
|
|
1,307,441
|
|
|
|
90,820
|
|
|
-
|
|
|
90,820
|
|
|
Subtotal
|
|
2,781,701
|
|
|
|
193,227
|
|
|
-
|
|
|
193,227
|
|
|
Less: carrying value of DNI
|
|
2,841,862
|
|
|
|
197,407
|
|
|
5,206
|
|
|
202,613
|
|
|
Less: retained in Company
|
|
-
|
|
|
|
-
|
|
|
(2,877
|
)
|
|
(2,877
|
)
|
|
Loss recognized
on Disposal, before tax, comprising
|
|
(60,161
|
)
|
|
|
(4,180
|
)
|
|
(2,329
|
)
|
|
(6,509
|
)
|
|
Net loss related to sale of 25% of DNI
|
|
(71,451
|
)
|
|
|
(4,964
|
)
|
|
(2,329
|
)
|
|
(7,293
|
)
|
|
Loss related to sale of 17% of DNI
|
|
(74,276
|
)
|
|
|
(5,160
|
)
|
|
(1,609
|
)
|
|
(6,769
|
)
|
|
Gain
Related to sale of 8% of DNI
|
|
2,825
|
|
|
|
196
|
|
|
(720
|
)
|
|
(524
|
)
|
|
Gain related to fair value adjustment of retained interest in 30% of
DNI
|
|
11,290
|
|
|
|
784
|
|
|
-
|
|
|
784
|
|
|
Taxes related to gain recognized on Disposal
(3)
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Loss recognized on Disposal, after tax
|
|
(60,161
|
)
|
|
|
(4,180
|
)
|
|
(2,329
|
)
|
|
(6,509
|
)
|
|
(1)
|
The Company recorded a foreign currency translation
reserve loss of $5.206 million related to its investment in DNI which was
included within accumulated other comprehensive loss in its consolidated
balance sheet. The Company released $2.329 million from its accumulated
other comprehensive loss related to the Disposal and included this loss in
the determination of the loss on Disposal. The balance of $2.877 million
is retained in accumulated other comprehensive loss.
|
|
(2)
|
The fair value of the retained interest in 30% of DNI has
been calculated using the implied fair value of DNI pursuant to the RMB
Disposal and has been calculated as ZAR 215.0 million divided by 8%
multiplied by 30%, translated to dollars at the December 31, 2018, rate of
exchange.
|
|
(3)
|
The Disposal result in a capital loss for tax purposes of
approximately $4.8 million. The Company has provided a valuation allowance
of $4.8 million against this capital loss because it does not have any
capital gains to offset against this amount.
|
F-6
(e) Components of retained interest in 30% of DNI using the
equity method
The equity-accounted investment in 30%
of DNI comprises the following components:
|
|
$000
|
|
Net carrying value (assets less
liabilities)
|
|
5,778
|
|
Acquired intangibles, net of deferred tax (refer to Note 2
(f))
|
|
19,573
|
|
Goodwill, including re-measurements
|
|
34,336
|
|
Equity-accounted investment
30% of DNI
|
|
59,687
|
|
(f) Acquired intangible assets and amortization expense
included in equity-accounted investments and earnings from equity-accounted
investments
The Company previously recognized
acquired intangible assets related to its acquisition of a controlling stake in
DNI on June 30, 2018. The Company retained a 30% interest in these acquired
intangible assets as a result of the Disposal and this portion of these acquired
intangible assets, net of deferred tax liabilities, is included in the Companys
equity-accounted investments included on the unaudited pro forma balance sheet
as of December 31, 2018. These acquired intangible assets are amortized and an
amount, net of deferred taxes, is included in earnings from equity-accounted
investments in the Companys condensed consolidated statement of operations. The
December 31, 2018, carrying value of these acquired intangible assets, net of
deferred tax liabilities, their expected remaining useful lives, and the
amortization, net, included in equity accounted earnings are presented in the
table below.
|
|
|
December 31, 2018
|
|
|
|
|
|
Amortization expense, net of
|
|
|
|
|
Carrying value of 30% of
|
|
|
|
|
|
deferred tax
(1)
|
|
|
|
|
intangible assets
|
|
|
|
|
|
($ 000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
ended
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
|
useful life
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
(ZAR 000)
|
|
|
($ 000)
|
|
|
(in years)
|
|
|
2018
|
|
|
2018
|
|
|
Finite lived intangibles assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
372,938
|
|
|
25,906
|
|
|
4.514.5
|
|
|
1,335
|
|
|
3,016
|
|
|
Software and unpatented technology
|
|
2,250
|
|
|
156
|
|
|
4.5
|
|
|
17
|
|
|
39
|
|
|
Trademarks
|
|
16,160
|
|
|
1,123
|
|
|
4.5
|
|
|
125
|
|
|
283
|
|
|
Deferred tax
|
|
(109,577
|
)
|
|
(7,612
|
)
|
|
|
|
|
(414
|
)
|
|
(935
|
)
|
|
|
|
281,771
|
|
|
19,573
|
|
|
|
|
|
1,063
|
|
|
2,403
|
|
|
(1)
|
Amortization expense, net has been calculated using the
respective average exchange rate for the six months ended December 31,
2018, and the year ended June 30, 2018, as appropriate. The amortization
expense, net has been offset against earnings from equity-accounted
investments in the consolidated statement of operations for the six months
ended December 31, 2018, and the year ended June 30, 2018, as
appropriate.
|
(g) Adjustments in respect of the Companys DNI contingent
liability
Under the terms of its subscription
agreements with DNI, the Company agreed to pay to DNI an additional amount of up
to ZAR 400.0 million ($27.8 million, translated at exchange rates applicable as
of December 31, 2018), in cash, subject to the achievement of certain
performance targets by DNI. The Company expected to pay the contingent
consideration during the first quarter of the year ended June 30, 2020, and
recorded an amount of ZAR 385.6 million ($26.8 million), in other payables in
its consolidated balance sheet as of December 31, 2018, which amount represents
the present value of the ZAR 400 million to be paid. The present value of ZAR
385.6 million has been calculated using the following assumptions (a) the
maximum additional amount of ZAR 400 million would be paid on August 1, 2019 and
(b) an interest rate of 6.3 % (the rate used to calculate interest earned by the
Company on its surplus South African funds) has been used to discount the ZAR
400.0 million to its present value as of December 31, 2018. Utilization of
different inputs, or changes to these inputs, may result in significantly higher
or lower fair value measurement.
As a result of the JAA/ PKG Disposal
additional interest of ZAR 14.4 million ($0.996 million translated at exchange
rates applicable as of December 31, 2018) has been recognized in the unaudited
pro forma consolidated balance sheet to accrete the present value amount of
R385.6 million to the ZAR 400 million settled.
F-7
The Company has reversed interest
accreted and included in interest expense in the unaudited pro forma
consolidated statement of operations for the six months ended December 31, 2018,
of ZAR 12.0 million ($0.839 million), in respect of the contingent liability.
(h) Interest expense adjustment related to RMB Disposal
The RMB Disposal, including the
utilization of cash reserves discussed in note 2 (b), resulted in a reduction in
the Companys long-term borrowings of ZAR 230.0 million ($16.0 million), of
which ZAR 203.8 million ($14.2 million) has been applied against the current
portion of the long-term borrowings and ZAR 26.2 million ($1.8 million) has been
applied against long-term borrowings. The interest expense is not deductible for
tax purposes. The table below presents the long-term borrowings repaid per
facility, the respective average interest rate and the pro forma impact on
interest expense for the six months ended December 31, 2018, and the year ended
June 30, 2018:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
Long-term
|
|
|
Average
|
|
|
For the six months
|
|
|
For the year ended
|
|
|
|
|
borrowing
|
|
|
interest
|
|
|
ended December 31,
|
|
|
June 30, 2018
(2)
|
|
|
|
|
repaid
|
|
|
rate
(1)
|
|
|
2018
(2)
|
|
|
$000
|
|
|
|
|
$000
|
|
|
(%)
|
|
|
$000
|
|
|
|
|
|
Facility A and B
|
|
15,976
|
|
|
9.73%
|
|
|
780
|
|
|
n/a
|
|
|
Facility A and B
|
|
15,976
|
|
|
9.77%
|
|
|
n/a
|
|
|
1,622
|
|
(1) The average interest rate is
calculated based on an average margin of 2.75% plus the applicable average JIBAR
rate for the periods presented.
(2) Interest expense has been translated
into $ using the average rate of exchange for the period presented.
The Company reallocated prepaid
facility fees of $0.111 million from long-term borrowings to current portion of
long-term borrowings. The Company expensed prepaid facility fees of $0.062
million as a result of the repayment of its long-term borrowings as of December
31, 2018. The result of these transactions is a net movement in the current
portion of long-term borrowings of $0.049 million ($0.111 million less $0.62
million). The Company also reversed amortization of prepaid facility fees
related to long-term borrowings settled of $0.091 million and $0.121 million
during the six months ended December 31, 2018 and the year ended June 30, 2018,
respectively.
(i) Elimination of recorded earnings from equity accounted
investments attributed to interest in DNI for the year ended June 30, 2018
The Company accounted for its interest
in DNI using the equity method from August 1, 2017, until June 30, 2018, the
date upon which it acquired control of DNI. The Company recognized earnings from
DNI of $7.0 million in earnings from equity-accounted investments during the
year ended June 30, 2018, which comprised the Companys share of DNIs net
income of $9.510 million, net of amortization of intangible assets, net of
$2.505 million ($3.480 million amortization less net of deferred tax of $0.975
million). These earnings have been eliminated in the unaudited pro forma
statement of operations for the year ended June 30, 2018.
(j) Transaction costs incurred subsequent to December 31,
2018
Represents the Companys estimate of
the expected disposal costs of ZAR 1.0 million ($0.07 million) owing to external
professional advisors for services provided which are not reflected in the
Companys December 31, 2018 consolidated balance sheet. These costs have been
accrued as a current liability. The Company does not expect to deduct these
expenses for tax purposes. Because the Company is required to expense these
costs as they are incurred, it has charged them to retained earnings as of
December 31, 2018. No adjustment has been made to the unaudited pro forma
consolidated statement of operations for these costs as they are non-recurring.
(k) Reversal of loss on re-measurement of previously held
non-controlling interest during the year ended June 30, 2018
At the time the Company obtained
control of DNI in June 2018, it recognized a non-cash loss of $4.614 million
related to the re-measurement of its previously held non-controlling interest in
DNI, at 49%, upon acquisition in June 2018. The remeasurement loss was included
in selling, general and administration expenses in the consolidated statement of
operations for the year ended June 30, 2018, and has been reversed in the
unaudited pro forma consolidated statement of operations.
F-8