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Net 1 UEPS Technologies, Inc. Reports Second Quarter 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”)
Net 1 UEPS Technologies, Inc. Reports Second Quarter 2019 Results
JOHANNESBURG, February 8, 2019 – Net1 (Nasdaq: UEPS; JSE: NT1) today released results for
the second fiscal quarter ended December 31, 2018.
Q2 2019 Highlights:
- Revenue of $97.2 million and Fundamental EPS of $(0.88);
- Fundamental EPS of ($0.88) includes $0.74 per share of non-cash adjustments, including a $0.41 allowance for
doubtful loans receivable, $0.28 Cell C fair value loss adjustment, and $0.05 Cedar Cell note impairment loss;
- Operating loss was attributable primarily to our rural South African businesses;
- Adjusted negative EBITDA of approximately $25 million including approximately $23 million for allowance for
doubtful loans receivable;
- Korea EBITDA margin improved to 22% from 20% in Q2 2018;
- Net cash of approximately $35 million at December 31, 2018;
- Active EPE accounts declined to 1.1 million as of December 31, 2018.
"This was a very difficult quarter for our company. Our loss for the quarter is primarily attributable to our rural South African
businesses," said Herman Kotzé, CEO. "Our other transaction-driven businesses continue to operate profitably and provide a
meaningful source of EBITDA and free cash flow. We are pleased with the performance of KSNET, DNI, and our EasyPay
financial switch and transaction processing business in South Africa. Our equity investments continued to perform in-line
with expectations."
"Currently, our primary focus is to immediately stem the losses in our South African financial inclusion operations, right size the businesses and
get them to a breakeven level by the end of this fiscal year. The Board and management are squarely focused on reviewing all
options available for the business in South Africa, and will provide updates when there are tangible actions to report. At
this time, we believe that all of the challenges we are facing are contained and can be resolved in the near future, and remain
comfortable with the Company's liquidity position over the next 12 months," concluded Kotzé.
Subsequent Event
On January 29, 2019 the High Court of the Republic of South Africa (Gauteng Division, Pretoria) handed down its final
judgment in our application to direct SASSA to pay social grants into the EPE accounts of recipients who had previously made
biometric elections to receive their grants into their EPE accounts, but had not submitted a SASSA-prescribed form called an
"Annexure C form". The High Court reversed a portion of its November 28, 2018 interim order that directed SASSA to pay
grants into the EPE accounts of recipients who made those biometric elections without submitting a physical Annexure C form.
The effect of the final judgment is that, while SASSA is required to promptly pay social grants into EPE accounts of those
recipients who have submitted the Annexure C form electing to have their grants paid that way, SASSA is not required to pay
grants into the EPE accounts of those recipients who have not submitted the Annexure C form, despite having provided their
previous biometric consent. We are currently evaluating the
options available to it, including an appeal against the judgment.
Summary Financial Metrics
Three months ended December 31,
% change % change
2018 2017 in USD in ZAR
(All figures in USD ‘000s except per share data)
Revenue 97,150 148,416 (35%) (31%)
GAAP operating (loss) income (43,075) 16,307 (364%) (377%)
Adjusted negative EBITDA (1) (24,731) 32,981 (175%) (179%)
GAAP net (loss) income (63,941) 9,622 (765%) (796%)
Fundamental net (loss) income (1) (49,966) 22,405 (323%) (335%)
GAAP (loss) earnings per share ($) (1.13) 0.17 (764%) (795%)
Fundamental (loss)(loss) earnings per share ($) (1) (0.88) 0.39 (326%) (336%)
Fully-diluted shares outstanding (‘000’s) 56,855 56,807 1%
Average period USD/ ZAR exchange rate 14.32 13.67 5%
Non-cash adjustments included (before tax impact): 50,150 - nm
Allowance for doubtful finance loans receivables 23,391 - nm
Change in fair value of equity securities 15,836 - nm
Goodwill impairment loss 8,191 - nm
Impairment of Cedar Cellular note 2,732 - nm
Six months ended December 31,
% change % change
2018 2017 in USD in ZAR
(All figures in USD ‘000s except per share data)
Revenue 223,034 300,974 (26%) (21%)
GAAP operating (loss) income (42,179) 41,313 (202%) (209%)
Adjusted negative EBITDA (1) (11,491) 68,439 (117%) (118%)
GAAP net (loss) income (69,140) 29,105 (338%) (354%)
Fundamental net (loss) income (1) (48,709) 46,875 (204%) (211%)
GAAP (loss) earnings per share ($) (1.22) 0.51 (100%) (100%)
Fundamental (loss)(loss) earnings per share ($) (1) (0.86) 0.83 (204%) (211%)
Fully-diluted shares outstanding (‘000’s) 56,814 56,812 -
Average period USD/ ZAR exchange rate 14.34 13.41 7%
Non-cash adjustments included (before tax impact): 54,553 - nm
Allowance for doubtful finance loans receivables 27,794 - nm
Change in fair value of equity securities 15,836 - nm
Goodwill impairment loss 8,191 - nm
Impairment of Cedar Cellular note 2,732 - nm
(1) Adjusted negative EBITDA, fundamental net (loss) income and (loss)(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)(loss) earnings per share." See Attachment B 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)(loss) earnings per share.
Factors impacting comparability of our Q2 2019 and Q2 2018 results
- Losses incurred resulting from SASSA’s auto-migration of EPE accounts: We experienced a significant decline in
EPE account numbers driven largely by SASSA’s auto-migration of accounts to SAPO, often unilaterally and without
the recipient’s consent. The resultant losses were caused by the loss of monthly income on the relevant EPE accounts,
a $23.4 million allowance for doubtful finance loans receivable as well as losses incurred from maintaining our mobile
payment infrastructure;
- Loss of CPS revenue and operating income due to the expiration of our SASSA contract: The expiration of our
SASSA contract on September 30, 2018, resulted in the loss of all revenue from the contract and, as a result, CPS
recorded no revenue from the SASSA during Q2 2019 compared with the prior year;
- Non-cash impairment loss related to impairment of goodwill: We recorded an impairment loss of $8.2 million
primarily related to goodwill allocated to the international transaction processing operating segment;
- Consolidation of DNI results: DNI contributed to an increase in revenue and operating income during the Q2 2019,
performing in line with expectations;
- Improved contribution from South Korea: Our South Korean operations experienced modest revenue pressures due
to ongoing regulatory changes and macroeconomic factors, though operating income and margin continued to show
improvement compared to Q2 2018;
- High income tax expense due to deferred tax valuation allowance on losses by certain South African businesses:
Our income tax expense included a valuation allowance recorded against the net operating loss deferred tax asset
generated by certain of our South African businesses, including CPS and our microlending business as a result of the
losses incurred during Q2 2019;
- Unfavorable impact from the strengthening of the U.S. dollar against the South African Rand: The U.S. dollar
appreciated 5% against the ZAR during Q2 2019 compared to Q2 2018, which adversely impacted our reported results;
- Higher revenue from Masterpayment and allowance for credit losses in fiscal 2018: During fiscal 2018,
Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to
its cryptocurrency processing launched in December 2017, as well as from its working capital financing and supply
chain solutions;
- Higher depreciation and amortization charges resulting from DNI acquisition: Our depreciation and amortization
charge increased during the Q2 2019, as a result of our acquisition of DNI;
- Loss resulting from Cell C fair value adjustment: We recorded a non-cash pre-tax fair value adjustment loss related
to Cell C of approximately $15.8 million due to lower industry comparable valuations, which adversely impacted our
reported results in fiscal 2019;
- Reduced income from equity-accounted investments: Earnings from equity accounted investments decreased as a
result of the consolidation of DNI from June 30, 2018; and
- Lower interest income and higher interest expense: The movement in net interest expense (before the Cedar Cellular
impairment) was $2.8 million primarily due to lower interest income resulting from the utilization of cash to
fund strategic investments and higher interest expense as a result of the South African lending facilities we obtained,
including a facility to fund our ATMs.
Results of Operations by Segment and Liquidity
South African transaction processing
Segment revenue was $21.9 million in Q2 2019, down 66% compared with Q2 2018 in USD, and 64% lower on a constant
currency basis. The 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 fiscal 2019. Our
revenue and operating income was 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.
These decreases in revenue and operating income were partially offset by higher transaction revenue as a result of increased
usage of our ATMs. Our operating (loss) income margin for Q2 2019 and 2018 was (53.8%) and 21.0%, respectively.
International transaction processing
Segment revenue was $38.1 million in Q2 2019, down 14% compared with Q2 2018 in USD. The decrease in segment revenue
and operating income was 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.
Excluding the $7.0 million impairment loss, operating income during Q2 2019 was higher compared to Q2 2018 due to an
improved contribution from KSNET primarily as a result of lower depreciation expense and the Mastertrading allowance for
doubtful working capital finance receivable of $7.8 million recorded during Q2 2018. These increases were partially offset by
a decrease in IPG revenues and ongoing losses at Masterpayment during Q2 2019. Operating loss margin for Q2 2019 and 2018
was 10.6% and 11.3%, respectively. Excluding the goodwill impairment, segment operating income and margin for Q2 2019
were $3.0 million and 7.8%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance
receivables, segment operating income and margin for Q2 2018 were $2.8 million and 6.4% respectively.
Financial inclusion and applied technologies
Segment revenue was $38.8 million in Q2 2019, down 28% compared with Q2 2018 in USD. 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, partially offset by the inclusion of DNI. Operating income was significantly lower than Q2 2018,
primarily due to the allowance for doubtful finance loans receivable of $23.4 million recognized and expenses incurred to
maintain and expand our financial service infrastructure, partially offset by the contribution from DNI. Operating (loss) income
margin for the Financial inclusion and applied technologies segment was (47.8%) and 23.5% during Q2 2019 and 2018,
respectively. Excluding the allowance for doubtful finance loans receivable, segment operating income and margin for fiscal
2019 were $4.9 million and 12.5% respectively.
Corporate/eliminations
Our corporate expenses increased primarily due to higher acquired intangible asset amortization, non-employee director
expenses and external service provider fees, partially offset by lower transaction-related expenditures.
Cash flow and liquidity
At December 31, 2018, our cash and cash equivalents were $69.9 million and comprised mainly KRW-denominated balances
of KRW 31.9 billion ($28.7 million), ZAR-denominated balances of ZAR 376.7 million ($26.2 million), U.S. dollar-
denominated balances of $11.7 million, and other currency deposits, primarily Botswana pula, of $3.4 million, all amounts
translated at exchange rates applicable as of December 31, 2018. The decrease in our 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 the utilization of our debt facilities to fund our ATMs and to
finance our lending to Cell C to fund the construction of mobile telephony network infrastructure, the contribution from the
inclusion of 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 Q2 2019
and 2018 were $2.5 million and $2.1 million, respectively, and have increased primarily due to the acquisition of ATMs in
South Africa, computer equipment to maintain our processing activities and the expansion of our branch network. We made a
scheduled South African debt facility payment of $10.6 million (ZAR 151 million).
Operating metrics and supplemental presentation for Q2 2019 Results
Our updated operating metrics have been posted on our website (www.net1.com). A supplemental presentation for Q2 2019
will be posted to the Investor Relations page of our website – ir.net1.com one hour prior to our earnings call on Friday, February
8, 2019.
Conference Call
We will host a conference call to review these results on February 8, 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 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 February 28, 2019.
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. 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.
EBITDA and adjusted EBITDA
(Loss) Earnings before interest, tax, depreciation and amortization ("EBITDA") is GAAP operating (loss) income
adjusted for depreciation and amortization and, if applicable, impairment losses. Adjusted EBITDA is EBITDA adjusted
for costs related to acquisitions and transactions consummated or ultimately not pursued, an allowance for
doubtful Mastertrading working capital finance loans receivable and profits realized on sale of a business.
Fundamental net (loss) income and fundamental (loss) earnings per share
Fundamental net (loss) income and (loss) earnings per share is GAAP net (loss) income and (loss) 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 and reversals, the amortization of
South African and South Korean debt facility fees and unusual non-recurring items, including the impairment loss, costs related
to acquisitions and transactions consummated or ultimately not pursued.
Fundamental net (loss) income and (loss) earnings per share for fiscal 2019 also includes an adjustment for the non-controlling
interest portion of the amortization of intangible assets (net of deferred taxes).
We provide earnings guidance only on a non-GAAP basis and do not provide a reconciliation of forward-looking fundamental
(loss) 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.
Management believes that the EBITDA, adjusted EBITDA, fundamental net (loss) income and (loss) 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 operating income and EBITDA and adjusted EBITDA; and GAAP net (loss) income and (loss)
earnings per share and fundamental net (loss) income and (loss) earnings per share.
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.
H(L)EPS basic and diluted is calculated as GAAP net (loss) income adjusted for the impairment loss and (profit) loss on sale
of property, plant and equipment. Attachment C presents the reconciliation between our net (loss) income used to calculate
(loss) earnings per share basic and diluted and HE(L)PS basic and diluted and the calculation of the denominator for headline
diluted (loss) earnings per share.
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 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. 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 – BCW
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended Six months ended
December 31, December 31,
2018 2017 2018 2017
(In thousands, except per share data) (In thousands, except per share data)
REVENUE $ 97,150 $ 148,416 $ 223,034 $ 300,974
EXPENSE
Cost of goods sold, IT processing, servicing and support 51,185 73,994 123,501 148,646
Selling, general and administration 70,996 49,392 112,874 93,326
Depreciation and amortization 9,853 8,723 20,647 17,689
Impairment loss 8,191 - 8,191 -
OPERATING (LOSS) INCOME (43,075) 16,307 (42,179) 41,313
CHANGE IN VALUE OF EQUITY SECURITIES (15,836) - (15,836) -
INTEREST INCOME, net of impairment (331) 4,705 1,545 9,749
INTEREST EXPENSE 2,778 2,325 5,537 4,446
(LOSS) INCOME BEFORE INCOME TAX EXPENSE (62,020) 18,687 (62,007) 46,61
INCOME TAX (BENEFIT) EXPENSE (2,298) 10,062 4,192 20,339
NET (LOSS) INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS (59,722) 8,625 66,199) 26,277
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS (1,247) 1,354 126 3,429
NET (LOSS) INCOME (60,969) 9,979 (66,073) 29,706
LESS NET INCOME ATTRIBUTABLE TO NON-
CONTROLLING INTEREST 2,972 357 3,067 601
NET (LOSS) INCOME ATTRIBUTABLE TO NET1 $ (63,941) $ 9,622 $ (69,140) $ 29,105
Net (loss) income per share, in U.S. dollars
Basic (loss) earnings attributable to Net1 shareholders $(1.13) $0.17 $(1.22) $0.51
Diluted (loss) earnings attributable to Net1
shareholders $(1.12) $0.17 $(1.22) $0.51
See Notes to Unaudited Condensed Consolidated Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Consolidated Balance Sheets
Unaudited (A)
December 31, June 30,
2018 2018
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 69,910 $ 90,054
Restricted cash 63,131 -
Pre-funded social welfare grants receivable - 2,965
Accounts receivable, net of allowances of – December: $1,331; June: $1,101 105,007 109,683
Finance loans receivable, net of allowances of – December: $39,850; June: $16,403 25,122 62,205
Inventory 10,272 12,887
Total current assets before settlement assets 273,442 277,794
Settlement assets 65,765 149,047
Total current assets 339,207 426,841
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –December:
$132,191; June: $129,185 23,739 27,054
EQUITY-ACCOUNTED INVESTMENTS 93,561 88,331
GOODWILL 267,964 283,240
INTANGIBLE ASSETS, net of accumulated amortization of – December: $132,061 ; June:
$121,466 115,250 131,132
DEFERRED INCOME TAXES 20,826 6,312
OTHER LONG-TERM ASSETS, including reinsurance assets 219,577 256,380
TOTAL ASSETS 1,080,124 1,219,290
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding 63,131 -
Accounts payable 20,939 35,055
Other payables 73,464 47,994
Current portion of long-term borrowings 24,660 44,695
Income taxes payable 6,770 5,742
Total current liabilities before settlement obligations 188,964 133,486
Settlement obligations 65,765 149,047
Total current liabilities 254,729 282,533
DEFERRED INCOME TAXES 52,376 46,606
LONG-TERM BORROWINGS 10,395 5,469
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities 2,515 38,580
TOTAL LIABILITIES 320,015 373,188
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 - December: 56,833,925; June:
56,685,925 80 80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: - - -
ADDITIONAL PAID-IN-CAPITAL 277,463 276,201
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292 (286,951) (286,951)
ACCUMULATED OTHER COMPREHENSIVE LOSS (198,272) (184,436)
RETAINED EARNINGS 768,485 837,625
TOTAL NET1 EQUITY 560,805 642,519
NON-CONTROLLING INTEREST 91,632 95,911
TOTAL EQUITY 652,437 738,430
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,080,124 $ 1,219,290
(A) – Derived from restated audited financial statements filed on Form 10-K/A on December 6, 2018.
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended Six months ended
December 31, December 31,
2018 2017 2018 2017
(In thousands) (In thousands)
Cash flows from operating activities
Net (loss) income $ (60,969) $ 9,979 $ (66,073) $ 29,706
Depreciation and amortization 9,853 8,723 20,647 17,689
Impairment loss 8,191 - 8,191 -
Movement in allowance for doubtful accounts receivable 21,368 9,402 23,958 9,465
Loss (Earnings) from equity-accounted investments 1,247 (1,354) (126) (3,429)
Interest on Cedar Cell note, net of impairment 1,516 (182) 1,360 (182)
Change in fair value of equity securities 15,836 - 15,836 -
Fair value adjustments and re-measurements 83 (190) 1 (99)
Interest payable 131 (159) 241 (247)
Facility fee amortized 68 214 155 347
(Profit) Loss on disposal of property, plant and equipment (139) 16 (266) 121
Profit on disposal of business - (463) - (463)
Stock-based compensation charge, net 598 608 1,185 1,435
Dividends received from equity accounted investments 454 1,253 454 2,165
Decrease (Increase) in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable 18,753 (3,397) 28,755 (42,601)
(Increase) Decrease in inventory (24) (2,322) 2,161 (3,848)
(Decrease) Increase in accounts payable and other payables (11,759) (481) (19,535) 2,948
(Decrease) Increase in taxes payable (7,007) (9,754) 1,347 (916)
(Increase) Decrease in deferred taxes (3,436) 1,419 (7,070) 428
Net cash (used in)provided by operating activities (5,236) 13,312 11,221 12,519
Cash flows from investing activities
Capital expenditures (2,547) (2,103) (5,665) (3,576)
Proceeds from disposal of property, plant and equipment 212 99 486 415
Acquisition of intangible assets (1,384) - (1,384) -
Investment in equity of equity-accounted investments (2,500) (40,892) (2,500) (113,738)
Investment in MobiKwik (1,056) - (1,056) -
Proceeds on return of investment - - 284 -
Investment in Cell C - - - (151,003)
Acquisition of held to maturity investment - (9,000) - (9,000)
Other investing activities - (154) - (154)
Net change in settlement assets 2,031 24,519 77,962 237,168
Net cash (used in) provided by investing activities (5,244) (27,531) 68,127 (39,888)
Cash flows from financing activities
Proceeds from bank overdraft 221,582 690 306,237 32,570
Repayment of bank overdraft (245,726) (11,391) (245,726) (14,343)
Repayment of long-term borrowings (13,551) (30,881) (23,811) (45,141)
Long-term borrowings utilized 3,203 - 11,004 95,431
Dividends paid to non-controlling interest (1,208) - (2,937) -
Payment of guarantee fee (258) - (394) (552)
Net change in settlement obligations (2,031) (24,519) (77,962) (237,168)
Net cash used in financing activities (37,989) (66,101) (33,589) (169,203)
Effect of exchange rate changes on cash (1,823) 6,857 (2,772) 3,011
Net (decrease) increase in cash, cash equivalents and
restricted cash (50,292) (73,463) 42,987 (193,561)
Cash, cash equivalents and restricted cash – beginning of
period 183,333 138,359 90,054 258,457
Cash, cash equivalents and restricted cash –
end of period (1) $ 133,041 $ 64,896 $ 133,041 $ 64,896
See Notes to Unaudited Condensed Consolidated Financial Statements
(1) Cash, cash equivalents and restricted cash as of December 31, 2018, includes restricted cash of approximately $63.1 million related
to cash withdrawn from our various debt facilities to fund ATMs. This cash may only be used to fund ATMs and is considered restricted as
to use and therefore is classified as restricted cash.
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended December 31, 2018 and 2017 and September 30, 2018
Change –
constant
Change - actual exchange rate(1)
Q2 ‘19 Q2 ‘19 Q2 ‘19 Q2 ‘19
Key segmental data, in ’000, except vs vs vs vs
margins Q2 ‘19 Q2 ‘18 Q1 ‘19 Q2 ‘18 Q1 ‘19 Q2‘18 Q1 ‘19
Revenue:
South African transaction processing $21,970 $64,148 $37,749 (66%) (42%) (64%) (44%)
International transaction processing. 38,124 44,185 39,387 (14%) (3%) (10%) (7%)
Financial inclusion and applied
technologies...................................... 38,755 54,131 53,206 (28%) (27%) (25%) (30%)
Subtotal: Operating segments.. 98,849 162,464 130,342 (39%) (24%) (36%) (27%)
Intersegment eliminations ........ (1,699) (14,048) (4,458) (88%) (62%) (87%) (63%)
Consolidated revenue ....... $97,150 $148,416 $125,884 (35%) (23%) (31%) (26%)
Operating (loss) income:
South African transaction processing ($11,830) $13,470 ($3,513) nm 237% nm 225%
International transaction processing. (4,043) (4,991) 2,762 (19%) nm (281%) nm
Financial inclusion and applied
technologies...................................... (18,538) 12,737 11,302 nm nm nm nm
Subtotal: Operating segments. . (34,411) 21,216 10,551 nm nm nm nm
Corporate/Eliminations............ (8,664) (4,909) (9,655) 76% (10%) (49%) (13%)
Consolidated operating
(loss) income...................... ($43,075) $16,307 $896 nm nm nm nm
Operating (loss) income margin (%)
South African transaction processing (53.8%) 21.0% (9.3%)
International transaction processing. (10.6%) (11.3%) 7.0%
Financial inclusion and applied
technologies...................................... (47.8%) 23.5% 21.2%
Consolidated operating margin (44.3%) 11.0% 0.7%
(1) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed
during the Q2 2019 also prevailed during Q2 2018 and Q1 2019.
Six months ended December 31, 2018 and 2017
Change –
constant
Change - exchange
actual rate(1)
F2019 F2019
vs vs
Key segmental data, in ’000, except margins F2019 F2018 F2018 F2018
Revenue:
South African transaction processing ............................... $59,719 $130,585 (54%) (51%)
International transaction processing ................................. 77,511 90,207 (14%) (8%)
Financial inclusion and applied technologies ................... 91,961 108,444 (15%) (9%)
Subtotal: Operating segments .................................. 229,191 329,236 (30%) (26%)
Intersegment eliminations ........................................ (6,157) (28,262) (78%) (77%)
Consolidated revenue ....................................... $223,034 $300,974 (26%) (21%)
Operating (loss) income:
South African transaction processing ............................... ($15,343) $25,802 nm nm
International transaction processing ................................. (1,281) 325 nm nm
Financial inclusion and applied technologies ................... (7,236) 26,657 nm nm
Subtotal: Operating segments .................................. (23,860) 52,784 nm nm
Corporate/Eliminations ............................................ (18,319) (11,471) 60% 71%
Consolidated operating (loss) income ............. ($42,179) $41,313 nm nm
Operating (loss) income margin (%)
South African transaction processing ............................... (25.7%) 19.8%
International transaction processing ................................. (1.7%) 0.4%
Financial inclusion and applied technologies ................... (7.9%) 24.6%
Overall operating margin ......................................... (18.9%) 13.7%
(1) – This information shows what the change in these items would have been if the USD/ZAR exchange rate that
prevailed during the first half of fiscal 2019 also prevailed during the first half of fiscal 2018.
(Loss) Earnings from equity-accounted investments:
The table below presents the relative (loss) earnings from our equity-accounted investments:
% %
Q2 2019 Q2 2018 change F2019 F2018 change
Bank Frick ............................................... ($1,217) $322 nm ($1,805) $322 nm
Share of net income .......................... 402 487 (17%) 564 487 16%
Amortization of intangible assets, net
of deferred tax ................................... (141) (165) (15%) (285) (165) 73%
Other ................................................. (1,478) - nm (2,084) - nm
DNI(1) ...................................................... - 1,046 nm - 1,911 nm
Share of net income .......................... - 1,832 nm - 3,240 nm
Amortization of intangible assets, net
of deferred tax ................................... - (786) nm - (1,329) nm
Finbond(2) - - nm 1,875 1,101 70%
Other ....................................................... (30) (14) 114% 56 95 (41%)
(Loss) earnings from equity- accounted investments ..... ($1,247) $1,354 (192%) $126 $3,429 (96%)
(1) DNI was accounted for using the equity method in fiscal 2018 and has been consolidated from June 30, 2018, following
the acquisition of a controlling interest in the company. DNI is included in our Financial inclusion and applied
technologies operating segment from the acquisition date.
(2) Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its
annual results during our fourth quarter and we record those results in our results during those quarters
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP operating (loss) income to negative EBITDA and adjusted negative EBITDA:
Three and six months and year ended December 31, 2018 and 2017
Three months ended Six months ended
December 31, December 31,
2018 2017 2018 2017
Operating (loss) income - GAAP ..................................................... (43,075) 16,307 (42,179) 41,313
Depreciation and amortization ...................................................... 9,853 8,723 20,647 17,689
Impairment loss .................................................................... 8,191 - 8,191 -
(Negative) EBITDA .................................................................. (25,031) 25,030 (13,341) 59,002
Transaction costs .................................................................. 300 611 1,850 2,097
Non-recurring Mastertrading allowance for doubtful accounts ........ - 7,803 - 7,803
Profit on sale of Xeo .............................................................. - (463) - (463)
Adjusted (negative) EBITDA ................................................... (24,731) 32,981 (11,491) 68,439
Reconciliation of GAAP net (loss) income and (loss) earnings per share, basic, to fundamental net (loss) income and
(loss) earnings per share, basic:
Three months ended December 31, 2018 and 2017
(L)EPS, (L)EPS,
Net (loss) income basic Net (loss) income basic
(USD’000) (USD) (ZAR’000) (ZAR)
2018 2017 2018 2017 2018 2017 2018 2017
GAAP ....................................... (63,941) 9,622 (1.13) 0.17 (915,866) 131,510 (16.11) 2.31
Impairment loss ........................... 8,191 - 117,325 -
Intangible asset amortization, net 4,510 2,199 64,609 30,055
Intangible asset amortization, net
related to non-controlling interest (909) - (13,020) -
Stock-based compensation charge 598 608 8,566 8,310
Transaction costs ......................... 300 611 4,297 8,351
Intangible asset amortization, net
related to equity accounted
investments .................................. 1,217 951 17,432 10,701
Facility fees for debt .................... 68 214 974 2,925
Non-recurring Mastertrading
allowance for doubtful accounts .. - 7,803 - 106,647
Change in US tax rate .................. - 860 - 11,754
Profit on sale of Xeo .................... - (463) - (6,328)
Fundamental ...................... (49,966) 22,405 (0.88) 0.39 (715,683) 303,925 (12.59) 5.34
Six months ended December 31, 2018 and 2017
(L)EPS, (L)EPS,
Net (loss) income basic Net (loss) income basic
(USD’000) (USD) (ZAR’000) (ZAR)
2018 2017 2018 2017 2018 2017 2018 2017
GAAP ...................................... (69,140) 29,105 (1.22) 0.51 (991,314) 390,375 (17.46) 6.88
Intangible asset amortization, net 9,060 4,354 129,886 58,378
Impairment loss ........................... 8,191 - 117,441 -
Transaction costs ......................... 1,850 1,940 26,525 26,021
Intangible asset amortization, net
related to non-controlling interest (1,815) - (26,023) -
Stock-based compensation charge 1,185 1,435 16,990 19,247
Intangible asset amortization, net
related to equity accounted
investments .................................. 1,805 1,494 25,880 17,835
Facility fees for debt .................... 155 347 2,222 4,654
Non-recurring Mastertrading
allowance for doubtful accounts .. - 7,803 - 104,659
Change in US tax rate .................. - 860 - 11,535
Profit on sale of Xeo .................... - (463) - (6,210)
Fundamental ...................... (48,709) 46,875 (0.86) 0.83 (698,393) 626,494 (12.30) 11.04
Net 1 UEPS Technologies, Inc.
Attachment C
Reconciliation of net (loss) income used to calculate (loss) earnings per share basic and diluted and headline (loss)
earnings per share basic and diluted:
Three months ended December 31, 2018 and 2017
2018 2017
Net (loss) income (USD’000).......................................................................... (63,941) 9,622
Adjustments: ........................................................................................
Impairment loss ..................................................................................... 8,191 -
Profit on sale of business .......................................................................... - (463)
(Profit) loss on sale of property, plant and equipment .............................................. (139) 16
Tax effects on above ................................................................................ 39 (4)
Net (loss) income used to calculate headline earnings (USD’000) ..................................... (55,850) 9,171
Weighted average number of shares used to calculate net income per share basic (loss)
earnings and headline (loss) earnings per share basic (loss) earnings (‘000) ........................ 56,834 56,755
Weighted average number of shares used to calculate net income per share diluted (loss)
earnings and headline (loss) earnings per share diluted (loss) earnings (‘000) ..................... 56,855 56,807
Headline (loss) earnings per share:..................................................................
Basic, in USD ....................................................................................... (0.98) 0.16
Diluted, in USD ..................................................................................... (0.98) 0.16
Six months ended December 31, 2018 and 2017
2018 2017
Net (loss) income (USD’000).......................................................................... (69,140) 29,105
Adjustments: ........................................................................................
Impairment loss ..................................................................................... 8,191 -
Profit on sale of business .......................................................................... - (463)
(Profit) loss on sale of property, plant and equipment .............................................. (266) 16
Tax effects on above ................................................................................ 74 (4)
Net (loss) income used to calculate headline earnings (USD’000) ..................................... (61,141) 28,654
Weighted average number of shares used to calculate net income per share basic (loss)
earnings and headline (loss) earnings per share basic (loss) earnings (‘000) ........................ 56,778 56,762
Weighted average number of shares used to calculate net income per share diluted (loss)
earnings and headline (loss) earnings per share diluted (loss) earnings (‘000) ..................... 56,814 56,812
Headline (loss) earnings per share:..................................................................
Basic, in USD ....................................................................................... (1.08) 0.50
Diluted, in USD ..................................................................................... (1.08) 0.50
Calculation of the denominator for headline diluted (loss) earnings per share
Q2 ‘19 Q2 ‘18 F2019 F2018
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest under GAAP ............................ 56,834 56,755 56,778 56,762
Effect of dilutive securities under GAAP ............................... 21 52 36 50
Denominator for headline diluted (loss) earnings per share 56,855 56,807 56,814 56,812
Weighted average number of shares used to calculate headline (loss) 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 (loss) earnings per share
diluted because we do not use the two-class method to calculate headline (loss) earnings per share diluted.
Johannesburg
February 8, 2019
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
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