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Short-Form Announcement: Net 1 UEPS Technologies, Inc. Reports Fourth Quarter and Full Year 2020 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 Fourth Quarter and Full Year
2020 Results
Q4 2020 Highlights and Recent Developments:
- At June 30, 2020, had unrestricted cash of $218 million and no debt
- Revenue of $26.0 million, excluding the impact of the 2019 SASSA implementation fee refund, was down year-over-year
reflecting effects of the COVID-19 pandemic on fees and financial services;
- GAAP EPS of $(0.68) and Fundamental EPS of $(0.22); and
- Operating loss of $13.2 million and adjusted EBITDA loss of $12.2 million.
Strategic Review:
Following completion of the strategic review, our board has realigned Net1 to focus on, and invest in, its core competencies and
portfolio of assets within the South African market. We aim to renew Net1 by building on the unique suite of financial technology
products that is the profitable heart of our business in order, to provide an end-to-end value proposition for underserved participants
in the economy. We believe that Net1 is extremely well-positioned to be a dynamic, catalyzing and positive force for our customers,
empowering individuals and small businesses with credit, insurance and payment services.
"South Africa is, and always has been, the engine room of Net1," said Alex Smith, Net1’s chief financial officer. "Following our
strategic review, we intend to focus our incremental capital and management resources to scale up our South African businesses, and
return Net1 to a sustainable, cash generative business. Efficient capital allocation will drive our strategy during fiscal 2021 and
beyond in order to generate the best return for the business and for shareholders."
"Economic activity levels in South Africa remain challenging due to the ongoing effects of COVID-19, particularly its wider impact
on the macroeconomic environment. We have, however, begun reinvesting in our South African operations and are pleased with the
demand for our transactional and financial services since the relaxation of lockdown restrictions in June," he added.
Investment Company
As previously communicated, we are in the process of more formally determining our status under the Investment Company Act. We
currently have an authorisation in place to repurchase up to $100 million of shares, however we will not be able to use the
authorisation unless and until we can reliably conclude that we will not be considered to be an investment company. We intend to
return excess capital to shareholders once this matter is resolved.
Succession plan for CEO
On August 5, 2020, we announced that, after 22 years with our company, Herman G. Kotzé will be stepping down on September 30,
2020, as Net1’s CEO and director. Alex Smith will take over as the interim CEO upon Mr. Kotzé’s departure, until the board
finalizes the appointment of a permanent CEO. To ensure a smooth transition, Mr. Kotzé has agreed to provide consulting services
to Net1 through May 31, 2021.
Summary Financial Metrics
Q4 Q4 ’20 vs Q4 ’20 vs Q4 ’20 vs Q4 ’20 vs
Q4 2020 2019(R) Q3 2020 Q4 ’19 Q3 ’20 Q4 ’19 Q3 ’20
(All figures in USD ‘000s except per share USD ‘000’s
data) (except per share data) % change in USD % change in ZAR
Revenue 25,978 17,053 36,514 52% (29%) 86% (20%)
GAAP operating loss (13,180) (52,356) (14,212) (75%) (7%) (69%) 4%
Adjusted EBITDA (loss) (1) (12,184) (72,562) (6,423) (83%) 90% (79%) 113%
GAAP (loss) earnings per share ($) (0.68) (3.22) (0.61) (79%) 12% (74%) 26%
Continuing (0.68) (3.24) (0.85) (79%) (20%) (74%) (10%)
Discontinued (0.00) 0.02 0.24 nm nm nm nm
Fundamental loss per share ($)(1) (0.22) (3.05) (0.11) (93%) 100% (91%) 125%
Fully-diluted shares outstanding (‘000’s) 57,119 56,804 56,568 1% 1% nm nm
Average period USD/ ZAR exchange rate 17.28 14.13 15.37 22% 12% nm nm
F2020 vs F2020 vs
F2020 F2019(R) F2019 F2019
USD ‘000’s % change % change
(All figures in USD ‘000s except per share data) (except per share data) in USD in ZAR
Revenue 150,997 166,227 (9%) 2%
GAAP operating loss (44,248) (134,932) (67%) (63%)
Adjusted EBITDA (loss)(1) (30,389) (64,596) (53%) (47%)
GAAP (loss) earnings per share ($) (1.37) (5.48) (75%) (72%)
Continuing (1.70) (5.49) (69%) (65%)
Discontinued 0.33 0.01 nm nm
Fundamental loss per share ($)(1) (1.04) (4.53) (77%) (74%)
Fully-diluted shares outstanding (‘000’s) 56,764 56,778 (0%) nm
Average period USD/ ZAR exchange rate 15.96 14.27 12% nm
(R) 2019 restated to correct an error identified related to the loss recorded related to the disposal of discontinued operation and to
correct errors identified by our equity method investment – Finbond Group Limited. The financial information for the three months
June 30, 2019, has been restated with the effect of decreasing GAAP net loss by $0.6 million and decreasing GAAP loss per share
by $0.01, respectively. The financial information for the year ended June 30, 2019, has been restated with the effect of increasing
GAAP net loss by $3.4 million and increasing GAAP loss per share by $0.06, respectively
(1) Adjusted EBITDA (loss), fundamental loss and fundamental loss per share are non-GAAP measures and are described below
under "Use of Non-GAAP Measures—EBITDA and Adjusted 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 to EBITDA loss
and Adjusted EBITDA loss, and GAAP net loss to fundamental net loss and loss per share.
Factors impacting comparability of our Q4 2020 and Q4 2019 results
- Higher revenue: Our revenues increased 86% in ZAR primarily due to the impact of the 2019 SASSA implementation fee
reversal, which was partially offset by lower South African transaction fees, lower ad-hoc technology sales and lower
international processing volumes;
- Ongoing operating losses: While operating costs have reduced significantly, we continue to experience operating losses in
South Africa and internationally, as a result of depressed revenues and challenging trading conditions during the COVID-19
outbreak; and
- Adverse foreign exchange movements: The U.S. dollar appreciated 22% against the ZAR compared to Q4 2020, which
adversely impacted our reported results.
Results of Operations by Segment and Liquidity
South African transaction processing
Segment revenue was $14.2 million in Q4 2020, down 9%, compared with Q4 2019 and also down 20% compared to Q3 2020 on a
constant currency basis. The decrease in segment revenue was primarily due to the impact of COVID-19 on our EPE transaction fees
and volumes, as well as the disposal of FIHRST, which were partially offset by higher fees from other transacting businesses. Our
revenue for Q4 2020 was adversely impacted by ZAR 27.0 million ($1.6 million) as a result of the COVID-19 pandemic as we were
unable to charge certain cash withdrawal fees. The higher operating loss in the segment is primarily due to the impact of COVID-19
on our operating activities as discussed above. Our operating loss margin for Q4 2020 and 2019 was (32.1%) and (13.1%),
respectively.
International transaction processing
Segment revenue from continuing operations was $1.4 million in Q4 2020, down 12% on a constant currency basis compared with
Q4 2019 and down from $1.6 million in Q3 2020. Segment revenue from continuing operations was lower during Q4 2020,
primarily due to an ongoing contraction in IPG transaction volumes. Operating loss from continuing operations during Q4 2020
increased compared with fiscal 2019 due to higher operating losses incurred by IPG, reflecting the high fixed costs component of the
business. Our operating loss margin for Q4 2020 and 2019 was (289.6%) and (138.1%), respectively.
Financial inclusion and applied technologies
Segment revenue was $12.6 million in Q4 2020, down 13% on a constant currency basis compared with Q4 2020 and also down
from $17.7 million in Q3 2020. Prepaid airtime sales were also modestly lower than Q4 2019. Operating loss for this operating
segment for Q4 2019 included a goodwill impairment of $6.2 million. Operating loss for Q4 2020 improved compared with fiscal
2019 primarily due to better utilization of our infrastructure, which was partially offset by higher fixed costs incurred and includes a
$1.3 million inventory write-down related to Cell C prepaid airtime. The COVID impact on this segment was not significant due to
government assistance largely offsetting the revenue impact. Our operating loss margin for the Financial inclusion and applied
technologies segment was (19.3%) and (61.2%) during Q4 2020 and 2019, respectively. Our operating loss margin for Q4 2020
excluding the $1.3 inventory write-down was (8.9%) and for Q4 2019 excluding the goodwill impairment was (25.9%), respectively.
Corporate/eliminations
Our corporate expenses decreased primarily due to the inclusion of the impact of the 2019 SASSA implementation fee reversal in
Q4 2019 and lower acquired intangible asset amortization expense in Q4 2020 related to intangible assets that were fully amortized
during Q4 2019.
Cash flow and liquidity
At June 30, 2020, our cash and cash equivalents were $217.7 million, which comprised U.S. dollar-denominated balances of $171.3
million, ZAR-denominated balances of ZAR 750.9 million ($43.3 million), and other currency deposits, primarily Botswana pula, of
$3.0 million, all amounts translated at exchange rates applicable as of June 30, 2020. The increase in our unrestricted cash balances
from June 30, 2019, was primarily due to the sale of our Korean operations, FIHRST and the majority of our remaining interest in
DNI for cash; and the repayment of a loan outstanding by DNI as of June 30, 2019; which was partially offset by weak trading
activities, payment of a termination fee to cancel our Bank Frick option, repayment of our short-term borrowings, capital
expenditures, and an additional investment in V2.
Our cash used in operating activities during Q4 2020 was impacted by the cash losses incurred by the majority of our continuing
operations, the payment of the $17.5 million option termination fee and the recommencement of lending activities. We were
permitted to commence origination of loans in June following the relaxation of the temporary COVID-19 restrictions imposed on
our lending activities in March 2020. Capital expenditures for Q4 2020 and 2019 were $1.4 million and $2.1 million, respectively,
with Q4 2020 capital expenditures relating primarily to the acquisition of point of sale devices in South Africa to deploy to
merchants.
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 ("HEPS")
The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated using net
loss 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 HEPS for Q4 2020 and Q4 2019
2020 2019
Net loss used to calculate headline earnings (USD’000) ....................................................... (30,745) (177,029)
Headline loss per share: .........................................................................................................
Basic, in USD .................................................................................................................. (0,54) (3,12)
Diluted, in USD ............................................................................................................... (0,54) (3,12)
The table below presents our HEPS for fiscal year ended June 30, 2020 and 2019
2020 2019
Net loss used to calculate headline earnings (USD’000) ....................................................... (52,321) (282,614)
Headline (loss) earnings per share: ........................................................................................
Basic, in USD .................................................................................................................. (0,92) (4,98)
Diluted, in USD ............................................................................................................... (0,92) (4,98)
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 10, 2020. 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/2020/JSE/ISSE/NT1/Q4Res2020.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@bcw-global.com.
Conference Call
We will host a conference call to review these results on September 11, 2020, 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 010-201-6800 (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 4, 2020.
Participants are now able to pre-register for the September 11, 2020, conference call by navigating to
www.diamondpass.net/2820008. Participants utilizing this pre-registration service will receive their dial-in number upon
registration.
About Net1
Net1 is a multinational financial technology company with a presence in Africa, Asia and Europe. Net1 leverages its proprietary
banking and payment technology to distribute low-cost financial and value-added services to underserved consumers and small
businesses. The Company also provides transaction processing services, including being a leading payment processor and bill
payment platform in South Africa. Net1 leverages its strategic investments in banks, telecom and mobile payment technology
companies to further expand its product offerings or to enter new markets. 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. A discussion of
various factors that may cause our 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@bcw-global.com
Johannesburg
September 11, 2020
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Date: 11-09-2020 07:05:00
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