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Net1 announces non-reliance on previously issued financial statements and related audit report
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")
Net1 announces non-reliance on previously issued financial statements and related
audit report
Johannesburg, November 9, 2018 - Net1 (NasdaqGS: UEPS; JSE: NT1) today announced
that its Audit Committee has concluded, after careful consideration of the relevant facts and
circumstances and following consultation with the Company's management and Deloitte &
Touche (South Africa), the Company's independent registered public accounting firm, that
the Company's consolidated financial statements for the year ended June 30, 2018, included
in the Company's Annual Report on Form 10-K for the year ended June 30, 2018, should be
restated, and that such consolidated financial statements and Deloitte & Touche (South
Africa)'s audit report thereon should no longer be relied upon, due to the Company's re-
evaluation of the classification of its investment in Cell C Proprietary Limited ("Cell C").
The Company will also make appropriate revisions to the selected financial data for the year
ended June 30, 2018 and the quarterly information for fiscal 2018 to reflect these changes.
Although the Company elected the fair value option on acquisition of its investment in Cell
C, an unlisted company, this investment was incorrectly presented as available-for-sale and
the change in its fair value of $25.2 million, net of taxation of $7.3 million, was incorrectly
recorded in other comprehensive income for the year ended June 30, 2018. The investment in
Cell C should have been accounted for at fair value with changes in fair value recorded in the
statement of operations. The Company's restated consolidated financial statements will
reflect the changes in fair value of the investment in Cell C in the consolidated statement of
operations.
The restatement of the Company's consolidated financial statements does not result in any
change in the carrying value of the Cell C investment or the net asset value of the Company.
The impact of the restatement on the Company's consolidated balance sheet for the year
ended June 30, 2018, is presented in the table below:
Year ended June 30, 2018
Reported Correction Restated
(in thousands)
Accumulated other comprehensive loss $(159,237) $(25,199) $(184,436)
Retained earnings 812,426 25,199 837,625
Total equity $738,430 $- $738,430
The impact of the restatement on the Company's consolidated statement of operations for the
year ended June 30, 2018, is presented in the table below:
Year ended June 30, 2018
Reported Correction Restated
(in thousands, except per share data)
Change in fair value of equity securities $- $32,473 $32,473
Net income before tax 67,893 32,473 100,366
Income tax expense 41,353 7,274 48,627
Net income after tax 26,540 25,199 51,739
Net income attributable to Net1 $39,150 $25,199 $64,349
Net income per share, in United States dollars:
Basic earnings attributable to Net1 shareholders 0.69 0.44 1.13
Diluted earnings attributable to Net1 shareholders 0.69 0.44 1.13
The impact of the restatement on the Company's consolidated statement of comprehensive
income for the year ended June 30, 2018, is presented in the table below:
Year ended June 30, 2018
Reported Correction Restated
(in thousands)
Net income $38,270 $25,199 $63,469
Total other comprehensive income (loss) 3,234 (25,199) (21,965)
Comprehensive income $41,504 $- $41,504
The impact of the restatement on the Company's consolidated statement of changes in equity
for the year ended June 30, 2018, is presented in the table below:
Accumulated
other
Retained comprehensive
earnings loss
(in thousands)
As reported - June 30, 2018 $812,426 $(159,237)
Correction of misstatement 25,199 (25,199)
As restated - June 30, 2018 $837,625 $(184,436)
The impact of the restatement on the Company's consolidated statement of cash flows for the
year ended June 30, 2018, is presented in the table below:
Year ended June 30, 2018
Reported Correction Restated
(in thousands)
Net income $38,270 $25,199 $63,469
Fair value adjustment 212 (32,473) (32,685)
Increase (Decrease) in deferred taxes (1,308) 7,274 5,966
Net cash provided by operating activities $132,605 $- $132,605
The Company is in the process of preparing restated financial statements for the year ended
June 30, 2018, which the Company anticipates filing with the SEC on Form 10-K/A for the
year ended June 30, 2018, as soon as practicable. The Company does not intend to file
amendments to any of its previously filed Quarterly Reports on Form 10-Q.
Background Underlying the Audit Committee's Conclusion
On August 2, 2017, the Company, through its subsidiary, Net1 Applied Technologies South
Africa Proprietary Limited, purchased 75,000,000 class "A" shares of Cell C, a private
limited company incorporated in South Africa, for an aggregate purchase price of ZAR 2.0
billion ($151.0 million) in cash. At the date of purchase, the Company elected the fair value
option for its investment in Cell C in accordance with Accounting Standards Codification
("ASC") 825 Financial Instruments. The Company incorrectly used the guidance in ASC
320 Investments-Debt and Equity Securities regarding available-for-sale equity instruments
with readily determinable fair values. Cell C's equity securities are not listed on an exchange
and therefore there are no sales prices or bid-and-asked quotations that are currently
available on a securities exchange, and therefore it did not meet the scope requirements of an
equity security under ASC 320. As a result, the investment was incorrectly classified as an
available-for-sale equity instrument with the changes in fair value being incorrectly recorded
as part of other comprehensive income rather than through earnings.
The Company's management evaluated the impact of the misstatement on its reported results
for the year ended June 30, 2018, and recommended to its Audit Committee that it should
restate its financial statements for the year ended June 30, 2018. The Audit Committee has
assessed the guidance contained in ASC 825 and determined that a restatement of the
reported results for the year ended June 30, 2018, is required and the disclosures contained in
ASC 250 Accounting Changes and Error Corrections should be contained in its amended
Form 10-K, and that the amended Form 10-K should be filed as soon as is practically
possible.
The Company is currently assessing the impact of this restatement on its internal control over
financial reporting.
Discussion with Independent Accountant
The Audit Committee has discussed the matters disclosed in this SENS with Deloitte &
Touche (South Africa), the Company's independent registered public accounting firm.
About Net1 (www.net1.com)
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 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.
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 - BCW
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com
Johannesburg
November 9, 2018
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Date: 09/11/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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