Wrap Text
Net 1 UEPS Technologies, Inc. Reports Third Quarter 2018 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")
Net 1 UEPS Technologies, Inc. Reports Third Quarter 2018 Results
JOHANNESBURG, May 11, 2018 - Net1 (Nasdaq: UEPS; JSE: NT1) today released results for the third quarter fiscal 2018.
- Q3 2018 revenue of $163 million, 10% higher in USD and Fundamental EPS of $0.95 (including $0.52 fair value
adjustment related to Cell C investment);
- Q3 2018 cash flow from operations of $85.2 million;
- Reiterate FY 2018 constant currency FEPS guidance of at least $1.61 per share, excluding any fair value adjustments.
Based on recent public statements by the Minister for Social Development, the South African Post Office and SASSA, we
look forward to being released from the social grants payment contract by the end of September 2018. This will allow us to
refocus our considerable skills and experience in delivering commercially compelling services to the unbanked population of
South Africa and in other emerging countries. Our organic growth developments, along with a number of new opportunities,
will enhance the group's future prospects as we close out on the social grants contract that has become a burden on the
management and financial resources of the group. We believe that we are already the market leaders in terms of cost, scale
and distribution in the provision of bank accounts, credit and insurance products in the market segments we serve, and we
intend to further improve our product offering and our unmatched ability as the "last mile" service provider.
Summary Financial Metrics
Three months ended March 31,
% change % change
2018 2017 in USD in ZAR
(All figures in USD '000s except per share data)
Revenue 162,721 147,944 10% (1%)
GAAP net income 3,009 18,392 (84%) (85%)
Fundamental net income (1) 53,759 23,468 129% 109%
GAAP earnings per share ($) 0.05 0.34 (84%) (86%)
Fundamental earnings per share ($) (1) 0.95 0.43 121% 101%
Fully-diluted shares outstanding ('000's) 56,777 54,808 4%
Average period USD/ ZAR exchange rate 11.95 13.22 (10%)
Nine months ended March 31,
% change % change
2018 2017 in USD in ZAR
(All figures in USD '000s except per share data)
Revenue 463,695 455,010 2% (5%)
GAAP net income 32,114 61,665 (48%) (51%)
Fundamental net income (1) 100,656 71,859 40% 30%
GAAP earnings per share ($) 0.57 1.15 (51%) (55%)
Fundamental earnings per share ($) (1) 1.77 1.34 32% 23%
Fully-diluted shares outstanding ('000's) 56,842 53,088 7%
Average period USD/ ZAR exchange rate 12.89 13.77 (6%)
(1) Fundamental net income and earnings per share are non-GAAP measures and are described below under "Use of Non-GAAP
Measures—Fundamental net income and fundamental earnings per share." See Attachment B for a reconciliation of GAAP
net income to fundamental net income and earnings per share.
Factors impacting comparability of our Q3 2018 and Q3 2017 results
- Growth in insurance and lending businesses: Volume growth and operating efficiencies in our insurance and
lending businesses during Q3 2018 resulted in an improved contribution to our financial inclusion revenue.
However, operating income and operating margin during Q3 2018 was adversely impacted by investments to expand
our financial services offering;
- Ongoing contributions from EasyPay Everywhere: EPE revenue and operating income growth was driven
primarily by the further expansion of our customer base driven by our ATM infrastructure;
- Higher equity-accounted earnings related to DNI and Bank Frick: The acquisition of 49% of DNI and 35% of
Bank Frick positively impacted our reported results by approximately $4.4 million, before amortization of intangible
assets, net of deferred taxes;
- Favorable impact from the weakening of the U.S. dollar against South African Rand: The U.S. dollar depreciated
by 10% against the ZAR and 8% against the KRW during Q3 2018, which positively impacted our reported results;
- Higher revenue from Masterpayment and severance payments: Masterpayment contributed higher revenues as a
result of an increase in processing activities, particularly related to its crypto-currency processing launched in
December 2017, which was offset by severance payments to two of its senior managers as a result of our mutual
agreement to terminate their employment;
- Non-cash impairment loss related primarily to Masterpayment intangible assets: We recorded an impairment loss
of $19.9 million related to Masterpayment and Masterpayment Financial Services goodwill;
- Indirect taxes refund in Korea: We received a refund of indirect taxes of approximately $2.5 million during Q3
2018 which positively impacted our reported results;
- Regulatory changes in South Korea pertaining to fees on card transactions: The impact of changes to regulations
governing the fees that may be charged on card transactions continues to adversely impact our revenues and
operating income in South Korea as all parties in the payment process adapt to the new laws and renegotiate their
respective positions in the marketplace;
- Lower net interest income resulting from strategic investments: Interest income was $1.8 million lower due to cash
utilized for strategic investments. Interest expense increased due to the South African lending facility we obtained in
August 2017 and March 2018 to partially fund our investments.
"After years of uncertainty and litigation relating to the social services contract held by our subsidiary CPS, we now appear
to have more clarity and are likely to be relieved of our constitutional obligations by September 2018, allowing us to dedicate
all our energies, resources, products and distribution towards our strategy of providing financial inclusion services in South
Africa and internationally," said Herman Kotze, CEO of Net1. "We planned appropriately for this eventuality, and the strides
we have made and traction we have already gained, give us increased confidence that Net1 has never been better positioned
to return to being a sustainable and profitable growth company on an international scale," he concluded.
"For fiscal 2018, we anticipate our fundamental earnings per share to remain at least $1.61 per share excluding any fair value
adjustments and in excess of $2.00 per share including fair value adjustments," said Alex Smith, CFO of Net1. "Our guidance
assumes a constant currency base of ZAR 13.62/$1, a share count of 56.6 million shares, and a tax rate of between 34%-36%
For clarity, our guidance as always is on a constant currency basis," he concluded.
Increase in Cell C carrying value
We have included the fair value adjustment in respect of our Cell C investment within fundamental earnings per share (under
the line item "net unrealized income on asset available for sale, net of tax" on Attachment B) as we believe that the return on
this significant investment made by the company needs to be factored into an assessment of our overall performance. The
uplift in the fair value reflected in the Q3 results reflects the improving operational performance of Cell C during the period
since our investment. On top of this investment return we are also starting to see the introduction of new product sets
developed through collaboration between Cell C and Net 1 which should contribute to our operational performance in future
periods. We will continue to provide guidance on fundamental earnings per share excluding the fair value adjustments.
Supplemental Presentation for Q3 2018 Results
A supplemental presentation for Q3 2018 will be posted to the Investor Relations page of our website - ir.net1.com one hour
prior to our earnings call on Friday, May 11, 2018.
Results of Operations by Segment and Liquidity
Our operating metrics will be updated and posted on our website (www.net1.com)
South African transaction processing
Segment revenue was $73.5 million in Q3 2018, up 15% compared with Q3 2017 in USD, and 4% higher on a constant
currency basis. The increase in segment revenue was primarily due to the continued growth in the number of EPE accounts as
well as higher transaction revenue as a result of increased usage of our ATMs. Operating income decreased however,
primarily due to an increase in inter-segment charges, the impact of annual salary increases granted to our South African
employees in October 2017, increases in goods and services purchased from third parties and declining profitability at CPS
given the fact that its monthly fee per grant recipient has been fixed for the last six years. Our operating income margin for
Q3 2018 and 2017 was 17% and 24%, respectively.
International transaction processing
Segment revenue of $46.2 million grew modestly during Q3 2018 compared with Q3 2017, due to an increase in processing
activities, particularly related to Masterpayment's crypto-currency processing launched in December 2017. Operating income
during Q3 2018 was adversely impacted by the impairment loss, lower operating income generated in Korea as a result of the
impact on us of changes to regulations governing the fees that may be charged on card transactions and severance payments
to Masterpayment managers, partially offset by an ad hoc refund of indirect taxes of $2.5 million in Korea. Operating (loss)
income margin for Q3 2018 and 2017 was (32%) and 5%, respectively. Excluding the Masterpayment impairment and the
refund of indirect taxes, segment operating income and margin were $2 4 million and 5% respectively.
Financial inclusion and applied technologies
Segment revenue was $59.6 million in Q3 2018, up 5% compared with Q3 2017 in USD and down 5% on a constant currency
basis. Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value
added services sales, partially offset by increased volumes in our insurance and lending businesses, and an increase in inter-
segment revenues. Operating income was also impacted by these factors as well as an increase in the allowance for doubtful
finance loans receivable resulting from a commensurate increase in our lending book.
Operating income margin for the Financial inclusion and applied technologies segment was stable at 25% during each of Q3
2018 and 2017, respectively, and was impacted by fewer low margin prepaid product sales, improved revenues from our
insurance businesses and an increase in inter-segment revenues, offset by annual salary increases granted to our South
African employees.
Corporate/eliminations
Our corporate expenses have decreased primarily due to lower transaction-related expenditures and lower executive
compensation, which was partially offset by a modest increase in ZAR denominated goods and services purchased from third
parties and directors' fees.
Cash flow and liquidity
At March 31, 2018, our cash and cash equivalents were $87.2 million and comprised mainly ZAR-denominated balances of
ZAR 528.3 million ($44.7 million), KRW-denominated balances of KRW 32.7 billion ($30.8 million), U.S. dollar-denominated
balances of $4.7 million, and other currency deposits, primarily Botswana pula, of $7.0 million, all amounts
translated at exchange rates applicable as of March 31, 2018. The decrease in our cash balances from June 30, 2017, was
primarily due to our investments in DNI, Bank Frick, Cell C and a $9.0 million listed note, scheduled repayments of our
South African long-term debt, unscheduled repayment of Korean debt in full, growth in our South African lending book, and
capital expenditures, which were partially offset by cash generated by most of our core businesses.
Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes, the increase in
operating cash flow relates primarily to the receipt of certain working capital loans outstanding, offset partially by the
expansion of our South African lending book and weaker trading activity. Capital expenditures for Q3 2018 and 2017 were
$4.2 million and $1.9 million, respectively, and increased primarily due to the acquisition of data processing computer
equipment and payment processing terminals in Korea and ATMs in South Africa. We also paid approximately $11.1 million
for an additional 5% interest in Bank Frick, provided a $10.6 million (ZAR 126.0 million) loan to DNI and paid $7.5 million
(ZAR 89.3 million) for an additional 4% interest in DNI. Finally, we made a scheduled South African debt facility payment
of $17.7 million (ZAR 187.5 million) and also utilized this facility to fund our additional investment in DNI. We also utilized
$9.8 million of our overdraft facilities and repaid $42.6 million of our European facilities
Use of Non-GAAP Measures
US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP
measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income
and fundamental earnings per share and headline earnings per share are non-GAAP measures.
Fundamental net income and fundamental earnings per share
Fundamental net income and earnings per share is GAAP net income and earnings per share adjusted for the amortization of
acquisition-related intangible assets (net of deferred taxes), the amortization of intangible assets (net of deferred taxes) related
to equity-accounted investments, stock-based compensation charges (reversals), the amortization of South African and
Korean debt facility fees and unusual non-recurring items, including costs related to acquisitions and transactions
consummated or ultimately not pursued.
Fundamental net income and earnings per share for fiscal 2018 also includes the Cell C fair value adjustment (net unrealized
income on asset available for sale, net of tax), as well as adjustments for an impairment loss, an allowance for doubtful
working capital finance receivables, refund of indirect taxes in Korea, the impact of changes in tax laws in the U.S and a gain
realized on the sale of XeoHealth. Fundamental net income and earnings per share for fiscal 2017 also includes adjustments
for a refund (net of taxes) related to Korean industry-wide litigation and US government investigations-related expenses.
Management believes that the fundamental net income and earnings per share metric enhances its own evaluation, as well as
an investor's understanding, of our financial performance. Attachment B presents the reconciliation between GAAP and
fundamental net income and earnings per share.
We provide earnings guidance only on a non-GAAP basis and do not provide a reconciliation of forward-looking
fundamental earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent
difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, the amounts of which,
based on past experience, could be material.
Headline 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 income which has been determined based on GAAP. Accordingly, this may differ to the headline 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.
HEPS basic and diluted is calculated as GAAP net income adjusted for the impairment loss and (profit) loss on sale of
property, plant and equipment. Attachment C presents the reconciliation between our net income used to calculate earnings
per share basic and diluted and HEPS basic and diluted and the calculation of the denominator for headline diluted earnings
per share.
Conference Call
We will host a conference call to review these results on May 11, 2018, 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 June 2, 2018.
About Net1 (www.net1.com)
Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System ("UEPS") or
utilize its proprietary mobile technologies. The Company operates market-leading payment processors in South Africa
and the Republic of Korea. Net1 offers debit, credit and prepaid processing and issuing services for Visa, MasterCard,
ChinaUnionPay, Alipay and WeChat across Asia-Pacific, including China, Europe, Africa, and the United States.
UEPS permits the Company to facilitate biometrically secure, real-time electronic transaction processing to unbanked and
under-banked populations of developing economies around the world in an online or offline environment. Net1's UEPS/EMV
solution is interoperable with global EMV standards that seamlessly enable access to all the UEPS functionality in a
traditional EMV environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll,
remittances, voting and identification.
Net1's mobile technologies include its proprietary mobile payments solution - MVC, which offers secure mobile-based
payments, as well as mobile banking and prepaid value-added services in developed and emerging countries.
Net1 has a primary listing on the NASDAQ and a secondary listing on the Johannesburg Stock Exchange.
Forward-Looking Statements
This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A discussion
of various factors that 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
Head of Investor Relations
Phone: +1 917-767-6722
Email: dchopra@net1.com
Media Relations Contact:
Bridget von Holdt
Business Director - Burson-Marsteller South Africa
Phone: +27-82-610-0650
Email: bridget vonholdt@bm-africa.com
Three months ended Nine months ended
March 31 March 31,
2018 2017 2018 2017
(In thousands, except per share data) (In thousands, exceptper share data)
REVENUE $ 162,721 $ 147,944 $ 463,695 $ 455,010
EXPENSE
Cost of goods sold, IT processing, servicing and
support 77,860 70,912 226,506 219,210
Selling, general and administration 48,091 42,195 141,417 122,366
Depreciation and amortization 9,341 10,290 27,030 31,117
Impairment loss 19,865 - 19,865 -
OPERATING INCOME 7,564 24,547 48,877 82,317
INTEREST INCOME 5,154 5,124 14,903 14,489
INTEREST EXPENSE 2,426 467 6,872 1,773
INCOME BEFORE INCOME TAX EXPENSE 10,292 29,204 56,908 95,033
INCOME TAX EXPENSE 10,941 10,233 31,280 32,320
NET (LOSS) INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS (649) 18,971 25,628 62,713
EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS 3,960 45 7,389 778
NET INCOME 3,311 19,016 33,017 63,491
LESS NET INCOME ATTRIBUTABLE TO NON-
CONTROLLING INTEREST 302 624 903 1,826
NET INCOME ATTRIBUTABLE TO NET1 $ 3,009 $ 18,392 $ 32,114 $ 61,665
Net income per share, in U.S. dollars
Basic earnings attributable to Net1 shareholders $0.05 $0.34 $0.57 $1.16
Diluted earnings attributable to Net1 shareholders $0.05 $0.34 $0.56 $1.16
Unaudited Condensed Consolidated Balance Sheets
Unaudited (A)
March 31, June 30,
2018 2017
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 87,172 $ 258,457
Pre-funded social welfare grants receivable 4,643 2,322
Accounts receivable, net of allowances of - March: $966; June: $1,255 120,664 111,429
Finance loans receivable, net of allowances of - March: $17,622; June: $7,469 76,916 80,177
Inventory 11,808 8,020
Deferred income taxes - 5,330
Total current assets before settlement assets 301,203 465,735
Settlement assets 394,138 640,455
Total current assets 695,341 1,106,190
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of -
March: $145,163; June: $120,212 31,592 39,411
EQUITY-ACCOUNTED INVESTMENTS 185,023 27,862
GOODWILL 182,534 188,833
INTANGIBLE ASSETS, net of accumulated amortization of - March: $126,533;
June: $108,907 31,428 38,764
DEFERRED INCOME TAXES 3,363 -
OTHER LONG-TERM ASSETS, including reinsurance assets 271,185 49,696
TOTAL ASSETS 1,400,466 1,450,756
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities 3,400 16,579
Accounts payable 16,995 15,136
Other payables 43,001 34,799
Current portion of long-term borrowings 56,446 8,738
Income taxes payable 14,502 5,607
Total current liabilities before settlement obligations 134,344 80,859
Settlement obligations 394,138 640,455
Total current liabilities 528,482 721,314
DEFERRED INCOME TAXES 17,789 11,139
LONG-TERM BORROWINGS 19,008 7,501
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities 2,901 2,795
TOTAL LIABILITIES 568,180 742,749
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 107,672 107,672
EQUITY
COMMON STOCK
Authorized: 200,000,000 with $0 001 par value;
Issued and outstanding shares, net of treasury - March: 56,855,187; June:
56,369,737 80 80
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 275,536 273,733
TREASURY SHARES, AT COST: March: 24,891,292; June: 24,891,292 (286,951) (286,951)
ACCUMULATED OTHER COMPREHENSIVE LOSS (73,481) (162,569)
RETAINED EARNINGS 805,390 773,276
TOTAL NET1 EQUITY 720,574 597,569
NON-CONTROLLING INTEREST 4,040 2,766
TOTAL EQUITY 724,614 600,335
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,400,466 $ 1,450,756
(A) - Derived from audited financial statements
During Q2, 2018, we reclassified redeemable common stock out of total equity because redeemable common stock is required to be presented outside
of permanent equity. We have restated these amounts in our unaudited condensed consolidated balance sheet as at June 30, 2017. Total equity has
decreased by approximately $107.7 million and we have presented the approximately $107.7 million redeemable common stock outside of permanent
equity. This reclassification has no impact on the Company's previously reported consolidated income, comprehensive income or cash flows.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended Nine months ended
March 31, March 31,
2018 2017 2018 2017
(In thousans) (In thousands)
Cash flows from operating activities
Net income $ 3,311 $ 19,016 $ 33,017 $ 63,491
Depreciation and amortization 9,341 10,290 27,030 31,117
Earnings from equity-accounted investments (3,960) (45) (7,389) (778)
Interest on Cedar Cellular note (587) - (769) -
Fair value adjustments (110) (50) (209) (61)
Interest payable (17) 75 (264) 84
Facility fee amortized 120 27 467 94
(Profit) Loss on disposal of property, plant and equipment (50) (98) 71 (571)
Profit on disposal of business - - (463) -
Stock-based compensation charge (reversal), net 575 621 2,010 (68)
Dividends received from equity-accounted investments 1,946 - 4,111 370
Impairment loss 19,865 - 19,865 -
Decrease (Increase) in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable 42,558 (16,612) 9,422 (2,261)
Decrease (Increase) in inventory 1,072 3,893 (2,776) 308
Increase (Decrease) in accounts payable and other payables 2,827 (1,486) 5,775 (4,386)
Decrease in taxes payable 9,007 6,678 8,091 5,819
Decrease in deferred taxes (653) (506) (225) (1,752)
Net cash provided by operating activities 85,245 21,803 97,764 91,406
Cash flows from investing activities
Capital expenditures (4,225) (1,949) (7,801) (8,498)
Proceeds from disposal of property, plant and equipment 160 330 575 1,344
Investment in Cell C - - (151,003) -
Investment in equity of equity-accounted investments (18,597) - (132,335) -
Loans to equity-accounted investments (10,635) (2,000) (10,635) (12,044)
Acquisition of held to maturity investment - - (9,000) -
Investment in MobiKwik - - - (15,347)
Acquisitions, net of cash acquired - - - (4,651)
Other investing activities - - (154) -
Net change in settlement assets 43,222 (165,945) 280,390 54,827
Net cash provided by (used in) investing activities 9,925 (169,564) (29,963) 15,631
Cash flows from financing activities
Long-term borrowings utilized 17,726 274 113,157 521
Repayment of long-term borrowings (15,826) - (60,967) (28,493)
Repayment from bank overdraft (42,650) - (56,993) -
Proceeds of bank overdraft 9,802 - 42,372 -
Guarantee fee paid (202) - (754) (1,145)
Proceeds from issue of common stock - 45,629 - 45,629
Acquisition of treasury stock - - - (32,081)
Dividends paid to non-controlling interest - - - (613)
Net change in settlement obligations (43,222) 165,955 (280,390) (54,817)
Net cash (used in) provided by financing activities (74,372) 211,858 (243,575) (70,999)
Effect of exchange rate changes on cash 1,478 4,719 4,489 8,025
Net increase (decrease) in cash, cash equivalents and
restricted cash 22,276 68,816 (171,285) 44,063
Cash, cash equivalents and restricted cash - beginning of
period 64,896 198,891 258,457 223,644
Cash, cash equivalents and restricted cash - end of period (1) $ 87,172 $ 267,707 $ 87,172 $ 267,707
(1) Cash, cash equivalents and restricted cash as of March 31, 2017, includes restricted cash of approximately $44.7 million related to the
guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division). This cash was placed into an escrow account and
was considered restricted as to use and therefore was classified as restricted cash. The restriction lapsed upon expiry of the guarantee.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended March 31, 2018 and 2017 and December 31, 2017
Change -
constant
Change - actual exchange rate(1)
Q3'18 Q3'18 Q3'18 Q3'18
Key segmental data, in '000, except vs vs vs vs
margins Q3'18 Q3'17 Q2'18 Q3'17 Q2'18 Q3'17 Q2'18
Revenue:
South African transaction processing $73,508 $63,967 $64,148 15% 15% 4% 0%
International transaction processing 46,240 41,514 44,185 11% 5% 1% (9%)
Financial inclusion and applied
technologies 59,574 56,881 54,131 5% 10% (5%) (4%)
Subtotal: Operating segments 179,322 162,362 162,464 10% 10% (0%) (4%)
Intersegment eliminations (16,601) (14,418) (14,048) 15% 18% 4% 3%
Consolidated revenue $162,721 $147,944 $148,416 10% 10% (1%) (4%)
Operating income (loss):
South African transaction processing $12,719 $15,531 $13,470 (18%) (6%) (26%) (17%)
International transaction processing (14,892) 1,968 (4,991) (857%) 198% (784%) 161%
Financial inclusion and applied
technologies 14,968 14,064 12,737 6% 18% (4%) 3%
Subtotal: Operating segments 12,795 31,563 21,216 (59%) (40%) (63%) (47%)
Corporate/Eliminations (5,231) (7,016) (4,909) (25%) 7% (33%) (7%)
Consolidated operating
income $7,564 $24,547 $16,307 (69%) (54%) (72%) (59%)
Operating income margin (%)
South African transaction processing 17% 24% 21%
International transaction processing (32%) 5% (11%)
Financial inclusion and applied
technologies 25% 25% 24%
Consolidated operating margin 5% 17% 11%
(1) - This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed
during the Q3 2018 also prevailed during Q3 2017 and Q2 2018.
Nine months ended March 31, 2018 and 2017
Change -
constant
Change - exchange
actual rate(1)
F2018 F2018
vs vs
Key segmental data, in '000, except margins F2018 F2017 F2017 F2017
Revenue:
South African transaction processing $204,093 $181,397 13% 5%
International transaction processing 136,447 131,704 4% (3%)
Financial inclusion and applied technologies 168,018 179,681 (6%) (12%)
Subtotal: Operating segments 508,558 492,782 3% (3%)
Intersegment eliminations (44,863) (37,772) 19% 11%
Consolidated revenue $463,695 $455,010 2% (5%)
Operating income:
South African transaction processing $38,521 $44,451 (13%) (19%)
International transaction processing (14,567) 11,689 (225%) (217%)
Financial inclusion and applied technologies 41,625 43,354 (4%) (10%)
Subtotal: Operating segments 65,579 99,494 (34%) (38%)
Corporate/Eliminations (16,702) (17,177) (3%) (9%)
Consolidated operating income $48,877 $82,317 (41%) (44%)
Operating income margin (%)
South African transaction processing 19% 25%
International transaction processing (11%) 9%
Financial inclusion and applied technologies 25% 24%
Overall operating margin 11% 18%
(1) - This information shows what the change in these items would have been if the USD/ ZAR exchange rate that
prevailed during the year to date of fiscal 2018 also prevailed during the year to date of fiscal 2017.
Earnings from equity-accounted investments:
The table below presents the relative earnings (loss) from our equity-accounted investments:
% %
Q3 2018 Q3 2017 change F2018 F2017 change
DNI $3,291 $- nm $5,202 $- nm
Share of net income 3,628 - nm 6,868 - nm
Amortization of intangible assets, net
of deferred tax (337) - nm (1,666) - nm
Bank Frick 653 - nm 975 - nm
Share of net income 747 - nm 1,234 - nm
Amortization of intangible assets, net
of deferred tax (94) - nm (259) - nm
Finbond - - nm 1,101 930 18%
Other 16 45 (64%) 111 (152) (173%)
Earnings from equity-accounted
investments $3,960 $45 nm $7,389 $778 850%
Attachment B
Reconciliation of GAAP net income and earnings per share, basic, to fundamental net income and earnings per share,
basic:
Three months ended March 31, 2018 and 2017
EPS, EPS,
Net income basic Net income basic
(USD'000) (USD) (ZAR'000) (ZAR)
2018 2017 2018 2017 2018 2017 2018 2017
GAAP 3,009 18,392 0.05 0.34 35,951 243,190 0.63 4.45
Net unrealized income on asset
available for sale, net of tax 29,366 - 350,863 -
Impairment loss 19,865 - 237,345 -
Intangible asset amortization, net 2,268 2,772 27,096 36,653
Refund related to litigation
finalized in Korea, net (1,985) - (23,717) -
Stock-based compensation charge 575 621 6,870 8,211
Intangible asset amortization, net
related to equity-accounted
investments 431 - 10,701 -
Facility fees for debt 120 27 1,434 357
Transaction costs 110 1,439 1,314 19,027
US government investigations-
related and US lawsuit expenses - 217 - 2,869
Fundamental 53,759 23,468 0.95 0.43 647,857 310,307 11.40 5.68
Nine months ended March 31, 2018 and 2017
EPS, EPS,
Net income basic Net income basic
(USD'000) (USD) (ZAR'000) (ZAR)
2018 2017 2018 2017 2018 2017 2018 2017
GAAP 32,114 61,665 0.57 1.15 414,058 849,009 7.29 15.82
Net unrealized income on asset
available for sale, net of tax 29,366 - 378,628 -
Impairment loss 19,865 - 256,128 -
Non-recurring Mastertrading
allowance for doubtful accounts 7,803 - 100,607 -
Intangible asset amortization, net 6,644 7,637 85,666 105,124
Transaction costs 2,050 2,928 26,432 40,313
Stock-based compensation charge 2,010 (68) 25,916 (936)
Refund of Korean indirect taxes (1,985) - (25,593) -
Intangible asset amortization, net
related to equity-accounted
investments 1,925 - 17,835 -
Change in US tax rate 860 - 11,088 -
Profit on sale of Xeo (463) - (5,970) -
Facility fees for debt 467 94 6,021 1,294
Refund related to litigation
finalized in Korea, net - (643) - (8,853)
US government investigations-
related and US lawsuit expenses - 246 - 3,387
Fundamental 100,656 71,859 1.77 1.34 1,290,816 989,338 22.73 18.44
Attachment C
Reconciliation of net income used to calculate earnings per share basic and diluted and headline earnings per share
basic and diluted:
Three months ended March 31, 2018 and 2017
2018 2017
Net income (USD'000) 3,009 18,392
Adjustments:
Impairment loss 19,865 -
Profit on sale of property, plant and equipment (50) (98)
Tax effects on above 14 27
Net income used to calculate headline earnings (USD'000) 22,838 18,321
Weighted average number of shares used to calculate net income per share basic earnings
and headline earnings per share basic earnings ('000) 56,716 54,639
Weighted average number of shares used to calculate net income per share diluted
earnings and headline earnings per share diluted earnings ('000) 56,777 54,808
Headline earnings per share:
Basic, in USD 0.40 0.34
Diluted, in USD 0.40 0.33
Nine months ended March 31, 2018 and 2017
2018 2017
Net income (USD'000) 32,114 61,665
Adjustments:
Impairment loss 19,865 -
Profit on sale of business (463) -
Profit on sale of property, plant and equipment (50) (571)
Tax effects on above 14 160
Net income used to calculate headline earnings (USD'000) 51,480 61,254
Weighted average number of shares used to calculate net income per share basic earnings
and headline earnings per share basic earnings ('000) 56,788 52,961
Weighted average number of shares used to calculate net income per share diluted
earnings and headline earnings per share diluted earnings ('000) 56,842 53,088
Headline earnings per share:
Basic, in USD 0.91 1.16
Diluted, in USD 0.91 1.15
Calculation of the denominator for headline diluted earnings per share
Q3'18 Q3'17 2018 2017
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest under GAAP 56,716 54,639 56,788 52,961
Effect of dilutive securities under GAAP 61 169 54 127
Denominator for headline diluted earnings per share 56,777 54,808 56,842 53,088
Weighted average number of shares used to calculate headline earnings per share diluted represent the denominator for basic
weighted-average common shares outstanding and unvested restricted shares expected to vest plus the effect of dilutive
securities under GAAP. We use this number of fully-diluted shares outstanding to calculate headline earnings per share
diluted because we do not use the two-class method to calculate headline earnings per share diluted.
Johannesburg
May 11, 2018
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
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