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Short-Form Announcement: Net 1 UEPS Technologies, Inc. Reports Preliminary Fourth Quarter and
Full Year 2019 Results
Net 1 UEPS Technologies, Inc.
Registered in the state of Florida, USA
(IRS Employer Identification No. 98-0171860)
Nasdaq share code:UEPS
JSE share code:NT1
ISIN: US64107N2062
("Net1" or "the Company")
Short-Form Announcement: Net 1 UEPS Technologies, Inc. Reports Preliminary Fourth Quarter and Full Year 2019 Results
Preliminary Q4 2019 Highlights:
- Revenue of $71.2 million, GAAP EPS of $(2.63) and Fundamental EPS of $(2.45)
- Fundamental EPS of $(2.45) includes $125.4 million, or $2.21 per share of non-cash fair value loss adjustments for Cell C,
net of tax, and $13.7 million, or $0.24 per share for impairments of the Cedar Cellular note and goodwill;
- Total revenue from continuing operations in constant currency grew 3.5% compared to Q3 2019, while adjusted EBITDA
loss improved from ($9.4) million in Q3 2019 to a loss of $(0.7) million in Q4 2019;
- South African operations achieved EBITDA breakeven in July 2019; active EPE accounts remained stable at 1.1 million;
and
- KSNET revenue grew 11% compared to Q3 2019 in constant currency, while EBITDA margin improved 200 basis points;
"We are pleased to report that we have stabilized our business in South Africa, and we are focused on returning to growth and
profitability in fiscal 2020. Going forward, we are returning to our roots of providing innovative and affordable financial technology
and services offerings to the unbanked and underbanked, as well as leveraging our deep expertise in cryptography and secure
transactions to introduce new and relevant products," said Herman Kotze, CEO. "We also continue to review our portfolio of
investments for those that do not fit our strategic focus or give us a path to control, and will accordingly be evaluated for
monetization. Building on our disposal of DNI which started in Q3 2019, the Company has now received multiple indicative offers
for KSNET in Korea, and we have engaged FT Partners to assist the Board to determine the appropriate course of action. With the
challenges of the last year and the required repositioning behind us, we are well positioned to unlock shareholder value and improve
capital allocation going forward."
"As we look to fiscal 2020, our progress should be benchmarked to our Q4 2019 results rather than year-over-year comparisons
given the contract termination and business disposals over the course of fiscal 2019. In fiscal 2020, we expect to generate adjusted
EBITDA of at least $16 million using a constant currency base of ZAR 14.27/$1, driven by growth in South Korea and South Africa,
and reduced losses in our IPG business," said Alex Smith, CFO. "We are working closely with Cell C and its stakeholders to
improve its short-term liquidity challenges, conclude its recapitalization and as a result, create a long-term sustainable business. Our
other equity investments continued to perform in line, or ahead of expectations during the quarter."
Preliminary Summary Financial Metrics
Three months ended June 30,
2019 2018
As % change in % change in
restated(1) USD ZAR
(All figures in USD '000s except per share data)
Revenue 71,181 149,194 (52%) (40%)
GAAP operating (loss) income (15,607) 10,072 nm nm
Adjusted (negative) EBITDA(2) (749) 24,301 nm nm
GAAP (loss) earnings per share ($) (2.63) 0.05 nm nm
Continuing (2.63) 0.10 nm nm
Discontinued - (0.05) nm nm
Fundamental (loss) earnings per share ($)(2) (2.45) 0.22 nm nm
Fully-diluted shares outstanding ('000's) 56,804 56,816 (0%)
Average period USD/ ZAR exchange rate 14.29 11.45 25%
Non-cash adjustments included (before tax impact): 140,827 12,834 997%
Allowance for doubtful finance loans receivables 1,148 1,798 (36%)
Change in fair value of equity securities 125,360 5,370 2,234%
Loss on disposal of DNI 631 - nm
Loss on acquisition of DNI - 4,614 nm
Impairment loss 6,249 1,052 494%
Impairment of Cedar Cell note 7,439 - nm
Fiscal year ended June 30,
2019 2018
As % change in % change in
restated(1) USD ZAR
(All figures in USD '000s except per share data)
Revenue 380,699 612,889 (38%) (30%)
GAAP operating (loss) income (79,469) 58,949 nm nm
Adjusted (negative) EBITDA (2) (12,621) 127,155 nm nm
GAAP (loss) earnings per share ($) (4.82) 1.13 nm nm
Continuing (4.80) 1.09 nm nm
Discontinued (0.02) 0.04 nm nm
Fundamental (loss) earnings per share ($)(2) (3.93) 2.00 nm nm
Fully-diluted shares outstanding ('000's) 56,778 56,858 (0%)
Average period USD/ ZAR exchange rate 14.27 12.70 12%
Non-cash adjustments included (before tax impact): 238,554 6,416 3,618%
Allowance for doubtful finance loans receivables 32,786 13,358 145%
Change in fair value of equity securities 167,459 (32,473) nm
Loss on disposal of DNI 5,771 - nm
Loss on acquisition of DNI - 4,614 nm
Impairment loss 19,745 20,917 (6%)
Impairment of Cedar Cell note 12,793 - nm
(1) 2018 restated to correct an error identified by its equity method investment - Finbond Group Limited. The financial information
for the three months and year ended June 30, 2018, have been restated with the effect of decreasing GAAP net (loss) income by
$0.1 million, respectively. GAAP (loss) earnings per share were unaffected.
(2) Adjusted negative EBITDA and fundamental (loss) earnings per share are non-GAAP measures and are described below under "Use of
Non-GAAP Measures—negative EBITDA and Adjusted negative EBITDA, and —Fundamental net (loss) income and fundamental (loss)
earnings per share.". See Attachment B in our full announcement for a reconciliation of GAAP operating (loss) income to negative
EBITDA and Adjusted negative EBITDA, and GAAP net (loss) income to fundamental net (loss) income and (loss) earnings per share.
Factors impacting comparability of our preliminary Q4 2019 and Q4 2018 results
- Decline in revenue: Our revenues declined 41% in ZAR primarily due to the expiration of our SASSA contract, the
significant decline in EPE account numbers driven by SASSA's auto-migration of accounts to SAPO, and a reduction in
EPE-related financial and value-added services and transaction fees due to a smaller customer base;
- Increase in operating losses: Lower revenue, coupled with a high-fixed cost infrastructure, ongoing IPG operating losses,
and a goodwill impairment resulted in an operating loss. We also incurred $1.0 million in retrenchment costs during Q4 2019;
- Non-cash losses, impairments and fair-value adjustments: We incurred a $0.6 million non-cash loss on disposal of an 8%
interest in DNI, a goodwill impairment loss of $6.2 million, a fair value adjustment loss of $125.4 million for Cell C and a
$7.4 million impairment of our Cedar Cell note; and
- Adverse foreign exchange movements: The U.S. dollar appreciated 24% against the ZAR and 10% against the KRW
during Q4 2019, which adversely impacted our reported results.
Preliminary Results of Operations by Segment and Liquidity
South African transaction processing
Segment revenue was $18.9 million in Q4 2019, down 63% on a constant currency basis compared with Q4 2018 but up from $17.4
million in Q3 2019. The year-over-year decrease in segment revenue and operating income was primarily due to the substantial
decrease in the number of SASSA grant recipients paid under our SASSA contract as the contract ended at the end of Q1 2019. Our
revenue and operating income were also adversely impacted by the significant reduction in the number of SASSA grant recipients
with SASSA-branded Grindrod cards linked to Grindrod bank accounts as well as a lower number of EPE accounts in Q2 2019.
These decreases in revenue and operating income were partially offset by higher transaction revenue as a result of increased usage of
our ATMs. Operating income for this operating segment for Q4 2019 included retrenchment costs of $1.0 million (ZAR 14.3
million). Our operating (loss) income margin for Q4 2019 and 2018 was (13.1%) and 6.7%, respectively. Excluding restructuring
costs, the operating loss margin for Q4 2019 and Q3 2019 was (7.5%) and (57.5%) respectively.
International transaction processing
Segment revenue was $36.4 million in Q4 2019, down 16% compared with Q4 2018 but up from $34.4 million in Q3 2019. Segment
revenue was lower during Q4 2019, primarily due to a contraction in IPG transactions processed, specifically meaningfully lower
crypto-exchange and China processing activity, and modestly lower KSNET revenue as a result of lower transaction values
processed. Operating income during Q4 2019 was higher compared to fiscal 2018 due to an improved contribution from KSNET,
primarily as a result of a lower depreciation expense, and partially offset by the decrease in IPG revenues. Operating income margin
for Q4 2019 and 2018, and Q3 2019 was 6.1%, 4.8%, and 5.6% respectively.
Financial inclusion and applied technologies
Segment revenue was $17.4 million in Q4 2019, down 59% compared with Q4 2018 in constant currency and Q3 2019 revenue
(excluding DNI) of $18.8 million. Segment revenue decreased primarily due to fewer prepaid airtime and value-added services sales,
lower lending and insurance revenue, and a decrease in inter-segment revenues. Operating income was significantly lower than Q4
2018, primarily due to lower revenue generation and higher expenses incurred to maintain and expand our financial service
infrastructure. Operating (loss) income for this operating segment for Q4 2019 includes a goodwill impairment of $6.2 million.
Operating (loss) income margin for Q4 2019 and 2018 was (61.2%) and 25.5%, respectively. Excluding the goodwill impairment,
segment operating loss and margin for Q4 2019 were ($4.5) million and (26.0%), respectively, and excluding DNI and retrenchment
costs, segment operating loss and margin for Q3, 2019 were ($3.3) million and (17.8%), respectively.
Corporate/eliminations
Our corporate expenses decreased primarily due to a reversal of stock compensation charge of $1.8 million related to stock options
and restricted stock forfeited, partially offset by higher non-employee director expenses, transaction-related expenditures and
external service provider fees.
Cash flow and liquidity
At June 30, 2019, our cash and cash equivalents were $46.5 million and comprised of KRW-denominated balances of KRW 30.1
billion ($26.1 million), ZAR-denominated balances of ZAR 189.9 million ($13.5 million), U.S. dollar-denominated balances of $2.4
million, and other currency deposits, primarily Botswana pula, of $4.5 million, all amounts translated at exchange rates applicable as
of June 30, 2019. The decrease in our unrestricted cash balances from June 30, 2018, was primarily due to significantly weaker
trading activities, scheduled debt repayments, dividend payments to non-controlling interests and capital expenditures, which was
partially offset by cash dividends received from DNI and a decrease in our South African lending book.
Excluding the impact of interest received, interest paid under our South Africa debt and taxes, the decrease in cash provided is
primarily due to significantly weaker trading activity during fiscal 2019 compared to 2018. Capital expenditures for Q4 2019 and
2018 were $2.1 million and $1.9 million, respectively, and primarily relate to the acquisition of additional ATMs in South Africa.
We made an unscheduled South African debt facility payment of $1.0 million (ZAR 15 million) and settled our outstanding South
African long-term borrowings in full.
Use of Non-GAAP Measures
US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP
measures and provide reconciliations to the directly comparable GAAP measures in our full announcement. The presentation of
negative EBITDA, adjusted negative EBITDA, fundamental net (loss) income and fundamental (loss) earnings per share and
headline (loss) earnings per share are non-GAAP measures.
Headline (loss) earnings per share ("H(L)EPS")
The inclusion of H(L)EPS in this press release is a requirement of our listing on the JSE. H(L)EPS basic and diluted is calculated
using net (loss) income which has been determined based on GAAP. Accordingly, this may differ to the headline (loss) earnings per
share calculation of other companies listed on the JSE as these companies may report their financial results under a different
financial reporting framework, including but not limited to, International Financial Reporting Standards.
The table below presents our H(L)EPS for Q4 2019 and Q4 2018
2019 2018
Net (loss) income used to calculate headline earnings (USD'000) ....................................... (142,828) 8,410
Headline (loss) earnings per share: ...................................................................
Basic, in USD ...................................................................................... (2.51) 0.15
Diluted, in USD .................................................................................... (2.51) 0.15
The table below presents our H(L)EPS for fiscal year ended June 30, 2019 and 2018
2019 2018
Net (loss) income used to calculate headline earnings (USD'000) ....................................... (248,413) 89,343
Headline (loss) earnings per share: ...................................................................
Basic, in USD ...................................................................................... (4.38) 1.57
Diluted, in USD .................................................................................... (4.38) 1.57
Short-form announcement
This short-form announcement is the responsibility of the Net1's Board of Directors ("Board") and the contents have been approved
by the Board on September 26, 2019. This short-form announcement released on SENS is a summary of the full announcement
which has been published on Net1's website at www.net1.com and at https://senspdf.jse.co.za/documents/2019/JSE/ISSE/NT1/Q4Res2019.pdf
This short-form announcement does not contain the complete or full announcement details. Any investment decision by investors and/or
shareholders should be based on consideration of the full announcement. The short-form announcement has not been audited or reviewed
by Net1's external auditors. The full announcement is available upon request through enquiries directed to either Net1's Group
Vice President, Investor Relations at dchopra@net1.com or Net1's media relations contact at bridget.vonholdt@bm-africa.com.
Conference Call
We will host a conference call to review these results on September 27, 2019, at 8:00 a.m. Eastern Time. To participate in the call,
dial 1-508-924-4326 (US and Canada), 0333-300-1418 (U.K. only) or 080-020-0648 (South Africa only) ten minutes prior to the
start of the call. Callers should request "Net1 call" upon dial-in. The call will also be webcast on the Net1 homepage,
www.net1.com. Please click on the webcast link at least ten minutes prior to the call. A webcast of the call will be available for
replay on the Net1 website through October 20, 2019.
About Net1
Net1 is a leading provider of transaction processing services, financial inclusion products and services and secure payment
technology. Net1 operates market-leading payment processors in South Africa and the Republic of Korea. Net1 offers debit, credit
and prepaid processing and issuing services for all major payment networks. In South Africa, Net1 provides innovative low-cost
financial inclusion products, including banking, lending and insurance and through DNI is a leading distributor of mobile subscriber
starter packs for Cell C, a South African mobile network operator. Net1 leverages its strategic equity investments in Finbond and
Bank Frick (both regulated banks), and Cell C to introduce products to new customers and geographies.
Net1 has a primary listing on NASDAQ (NasdaqGS: UEPS) and a secondary listing on the Johannesburg Stock Exchange (JSE: NT1).
Visit www.net1.com for additional information about Net1.
Forward-Looking Statements
This announcement contains forward-looking statements that involve known and unknown risks and uncertainties, including
statements concerning our preliminary financial results for our fourth quarter and full year ended June 30, 2019. The preliminary
financial results for our fourth quarter and full year 2019 included in this press release represent the most current information
available to management. Our actual results, when disclosed in our Form 10-K, may differ from these preliminary results as a result
of the completion of our financial closing procedures, final adjustments, completion of the review by our independent registered
public accounting firm and other developments that may arise between now and the disclosure of the final results. A discussion of
various factors that may cause our preliminary actual results, levels of activity, performance or achievements to differ materially
from those expressed in such forward-looking statements are included in our filings with the Securities and Exchange Commission.
We undertake no obligation to revise any of these statements to reflect future events.
Investor Relations Contact:
Dhruv Chopra
Group Vice President, Investor Relations
Phone: +1 917-767-6722
Email: dchopra@net1.com
Media Relations Contact:
Bridget von Holdt
Business Director - BCW
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com
Johannesburg
September 27, 2019
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Date: 27/09/2019 07:05:00
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