Form 8-K NET 1 UEPS TECHNOLOGIES For: Feb 08
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 8, 2018
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 000-31203 | 98-0171860 |
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
President Place, 4th Floor, Cnr. Jan
Smuts Avenue and Bolton Road
Rosebank, Johannesburg, South Africa
(Address of principal executive offices) (ZIP Code)
Registrant’s telephone number, including area code: 011-27-11-343-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b -2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition.
The following information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition”.
On February 8, 2018, we issued a press release setting forth our financial results for the second quarter December 31, 2017. A copy of the press release is attached as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits.
| (d) |
Exhibits |
| Exhibit | |
| No. | Description |
| 99.1 | Press Release, dated February 8, 2018, issued by Net 1 UEPS Technologies, Inc. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NET 1 UEPS TECHNOLOGIES, INC. | |
| Date: February 8, 2018 | By: /s/ Herman G. Kotzé |
| Name: Herman G. Kotzé | |
| Title: Chief Executive Officer and | |
| Chief Financial Officer |
Exhibit 99.1
Net 1 UEPS Technologies, Inc. Reports Second Quarter 2018 Results
JOHANNESBURG, February 8, 2018 – Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today released results for the second quarter fiscal 2018.
| • | Q2 2018 Revenue of $148 million, 2% lower in USD; |
| • | Q2 2018 FEPS of $0.39, including a $0.02 adverse impact for provisioning for South African loan book expansion; |
| • | International revenue from Masterpayment and Transact24, grew 37% in USD compared to Q2 2017. |
Summary Financial Metrics
| Three months ended December 31, | ||||||||||||
| % change | % change | |||||||||||
| 2017 | 2016 | in USD | in ZAR | |||||||||
| (All figures in USD ‘000s except per share data) | ||||||||||||
| Revenue | 148,416 | 151,433 | (2% | ) | (4% | ) | ||||||
| GAAP net income | 9,622 | 18,641 | (48% | ) | (49% | ) | ||||||
| Fundamental net income (1) | 22,405 | 22,648 | (1% | ) | (4% | ) | ||||||
| GAAP earnings per share ($) | 0.17 | 0.35 | (52% | ) | (53% | ) | ||||||
| Fundamental earnings per share ($) (1) | 0.39 | 0.43 | (9% | ) | (11% | ) | ||||||
| Fully-diluted shares outstanding (‘000’s) | 56,807 | 52,643 | 8% | |||||||||
| Average period USD/ ZAR exchange rate | 13.67 | 13.94 | (2% | ) | ||||||||
| Six months ended December 31, | ||||||||||||
| % change | % change | |||||||||||
| 2017 | 2016 | in USD | in ZAR | |||||||||
| (All figures in USD ‘000s except per share data) | ||||||||||||
| Revenue | 300,974 | 307,066 | (2% | ) | (6% | ) | ||||||
| GAAP net income | 29,105 | 43,273 | (33% | ) | (36% | ) | ||||||
| Fundamental net income (1) | 46,875 | 48,392 | (3% | ) | (8% | ) | ||||||
| GAAP earnings per share ($) | 0.51 | 0.81 | (37% | ) | (40% | ) | ||||||
| Fundamental earnings per share ($) (1) | 0.83 | 0.91 | (9% | ) | (14% | ) | ||||||
| Fully-diluted shares outstanding (‘000’s) | 56,812 | 53,282 | 7% | |||||||||
| Average period USD/ ZAR exchange rate | 13.41 | 14.03 | (4% | ) | ||||||||
(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 Q2 2018 and Q2 2017 results
| • |
Earnings and FEPS dilution impact from issue of additional shares of common stock: Our Q2 2018 fundamental earnings per share was impacted by the issuance of five million shares of our common stock in February 2017; | |
| • |
Favorable impact from the weakening of the U.S. dollar against South African Rand: The U.S. dollar depreciated by 2% against the ZAR and 6% against the KRW during Q2 2018, which positively impacted our reported results; | |
| • |
Growth in insurance and lending businesses: Volume growth and operating efficiencies in our insurance and lending businesses during Q2 2018 resulted in an improved contribution to our financial inclusion revenue and operating income. The significant growth in our South African lending book during December 2017 resulted in a substantial increase in the allowance for doubtful finance loans receivable, in accordance with our policy of providing for doubtful finance loans receivable at the time that a loan is originated; | |
| • |
Ongoing contributions from EasyPay Everywhere: EPE revenue and operating income growth was driven primarily by ongoing EPE adoption as we further expanded our customer base utilizing our ATM infrastructure; | |
| • |
Higher revenue from Masterpayment and new cryptocurrency processing customer: Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to its cryptocurrency processing for Bitstamp launched in December 2017, as well as from its working capital financing and supply chain solutions; |
| • |
Winding down of Mastertrading business and $7.8 million allowance for credit losses: We have determined to exit Masterpayment’s Mastertrading business following a re-evaluation of its operating performance and ongoing viability. During Q2 2018, we recorded an allowance for credit losses related to doubtful working capital finance receivables of $7.8 million. A valuation allowance has been provided for any potential tax benefit from this event as it is unlikely that this amount would be utilized for taxation purposes. | |
| • |
Regulatory changes in South Korea pertaining to fees on card transactions: The regulations governing the fees that may be charged on card transactions have adversely impacted our revenues and operating income in South Korea; | |
| • |
Lower net interest income resulting from investments in Cell C, DNI and Bank Frick: Interest income was $1.8 million lower as a result of cash utilized to purchase minority stakes in Cell C, DNI and Bank Frick, while interest expense increased due to the South African lending facility we obtained in August 2017 to partially fund our 15% investment in Cell C; and | |
| • |
Lower prepaid sales and ad hoc terminal sales: The number of transacting users purchasing prepaid products through our mobile channel decreased due to security features introduced in fiscal 2017. In addition, we had fewer ad hoc terminal sales. |
“There have been a number of exciting developments at Net1 over the past few months. The establishment of a blockchain department at Bank Frick accelerates our ability to reposition our core UEPS solution at the forefront of offline and biometric blockchain technology. Meanwhile our financial inclusion initiatives in South Africa are starting to bear fruit with an acceleration of our EPE offering, continuing realization of certain synergies with Cell C and DNI, and the beta development of our new mobile banking product,” said Herman Kotzé, CEO of Net1. “We achieved all this despite considerable time and effort spent on restructuring of the group, closure of certain business lines, and addressing some of the challenges in South Africa,” he added.
“To reiterate from last quarter, we expect the funding of our Cell C and DNI investments to be dilutive to our fiscal 2018 fundamental earnings, partially offset by DNI’s equity-accounted earnings, but to be accretive on a combined basis from fiscal 2019. We therefore anticipate our fundamental earnings per share for fiscal 2018 to remain at least $1.61. Our guidance assumes no significant disruption in any of our key business units, 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 and does not reflect the recent strengthening of the South African rand,” he concluded.
Mastertrading - Exit from Working Capital Financing and Supply Chain Solutions Business
During the second quarter of fiscal 2018, we re-evaluated the operating performance and ongoing viability of Masterpayment’s working capital financing and supply chain solutions offering and have determined to exit this portion of its business. While we believe we could scale this offering in the medium to long-term by focusing on customers and industries outside our initial target market, this standalone offering does not fit the International Payments Group strategy of providing payment solutions and working capital to small and medium-sized merchants. In order to focus on our stated international strategy, we have decided to wind-down the traditional working capital finance book issued to non-payment solutions customers. The working capital finance book comprises European and U.S. component of $35.8 million and $7.8 million; respectively. In January 2018, we entered into an arrangement with Bank Frick under which it purchased the European book from us at face value. We have created an allowance for doubtful finance loans receivable of $7.8 million related to the U.S. book as repayments have not been received as scheduled and we have not yet been able to negotiate a reasonable settlement plan with them.
Supplemental Presentation for Q2 2018 Results
A supplemental presentation for Q2 2018 will be posted to the Investor Relations page of our website – ir.net1.com one hour prior to our earnings call on Friday, February 9, 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 $64.1 million in Q2 2018, up 7% compared with Q2 2017 in USD, and 5% higher on a constant currency basis. The increase in segment revenue was primarily due to higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities and a modest increase in the number of social welfare grants distributed. Operating income and margin decreased primarily due to an increase in inter-segment charges, the impact of annual salary increases granted to our South African employees in October 2017 and increases in goods and services purchased from third parties. These decreases were partially offset by the aforementioned increases in segment revenue. Our operating income margin for Q2 2018 and 2017 was 21% and 26%, respectively.
International transaction processing
Segment revenue of $44.2 million was slightly higher during Q2 2018 compared with Q2 2017, primarily due to ongoing impact of regulatory changes in South Korea on KSNET’s revenue, largely offset by increased contributions from Masterpayment. Operating income and margin during Q2 2018 was lower due to an allowance for doubtful working capital finance receivable of $7.8 million, a decrease in revenue at KSNET and losses incurred by all other major contributors to the segment.
Operating income and margin for Q2 2017 was positively impacted by a refund of approximately $0.8 million that had been paid several years ago in connection with industry-wide litigation that has now been finalized. Operating (loss) income margin for Q2 2018 and 2017 was (11%) and 9%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance receivables, segment operating income and margin were $2.8 million and 6% respectively.
Financial inclusion and applied technologies
Segment revenue was $54.1 million in Q2 2018, down 9% compared with Q2 2017 in USD and down 10% on a constant currency basis. Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value added services sales, as well as lower ad hoc terminal sales, partially offset by increased volumes in our insurance 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 in the last lending cycle of calendar 2017.
Operating income margin for the Financial inclusion and applied technologies segment was 24% during each of Q2 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 fewer ad hoc terminal and annual salary increases granted to our South African employees and the increase in the allowance for credit losses.
Corporate/eliminations
Our corporate expenses have decreased primarily due to lower transaction-related expenditures, a $0.5 million gain related to the sale of XeoHealth, and lower executive compensation, which was partially offset by a modest increases in U.S. dollar denominated goods and services purchased from third parties and directors’ fees.
Cash flow and liquidity
At December 31, 2017, our cash and cash equivalents were $64.9 million and comprised mainly KRW-denominated balances of KRW 28.1 billion ($24.4 million), ZAR-denominated balances of ZAR 272.0 million ($22.0 million), U.S. dollar-denominated balances of $11.4 million, and other currency deposits, primarily euros, of $7.1 million, all amounts translated at exchange rates applicable as of December 31, 2017. 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 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 was 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 decrease in operating cash flow relates primarily to the expansion of our South African lending book and weaker trading activity during fiscal 2018 compared to 2017, offset partially by the receipt of certain working capital loans outstanding. Capital expenditures for Q2 2018 and 2017 were $2.1 million and $3.1 million, respectively, and have decreased primarily due to the acquisition of fewer payment processing terminals in South Korea. We paid approximately $40.9 million for a 30% interest in Bank Frick and $9.0 million for a 7.625% interest in a listed note. Finally, we made an unscheduled $16.6 million repayment to settle our outstanding South Korean debt facility in full, made a scheduled South African debt facility payment of $14.3 million (ZAR 187.5 million) and repaid $11.4 million of our overdraft 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 (1) the amortization of acquisition-related intangible assets (net of deferred taxes), (2) stock-based compensation charges (reversals) and (3) unusual non-recurring items, including the amortization of South African and Korean debt facility fees and costs related to acquisitions and transactions consummated or ultimately not pursued. Fundamental net income and earnings per share for Q2 2018 also excluded non-recurring allowance for doubtful working capital finance receivables, the amortization of intangibles assets (net of deferred taxes) related to equity accounted investments, a gain realized on the sale of XeoHealth and the impact of changes in tax laws in the U.S. 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 (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 Q2 2018 results on February 9, 2018, at 8:00 Eastern Time. To participate in the call, dial 1-508-924-4326 (US and Canada), 0-333-300-1418 (U.K. only) or 0-800-200-648 (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 March 3, 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. Through Transact24, Net1 offers debit, credit and prepaid processing and issuing services for Visa, MasterCard, ChinaUnionPay, Alipay and WeChat in China and other territories across Asia-Pacific, Europe and Africa, and the United States. Through Masterpayment, Net1 provides payment processing and enables working capital financing in Europe.
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: [email protected]
Media Relations Contact:
Bridget von Holdt
Business Director – Burson-Marsteller South Africa
Phone:
+27-82-610-0650
Email: [email protected]
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Operations
| Three months ended | Six months ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | |||||||||||
| REVENUE | $ | 148,416 | $ | 151,433 | $ | 300,974 | $ | 307,066 | ||||
| EXPENSE | ||||||||||||
| Cost of
goods sold, IT processing, servicing and support |
73,994 | 73,518 | 148,646 | 148,298 | ||||||||
| Selling, general and administration | 49,392 | 41,703 | 93,326 | 80,171 | ||||||||
| Depreciation and amortization | 8,723 | 10,623 | 17,689 | 20,827 | ||||||||
| OPERATING INCOME | 16,307 | 25,589 | 41,313 | 57,770 | ||||||||
| INTEREST INCOME | 4,705 | 5,061 | 9,749 | 9,365 | ||||||||
| INTEREST EXPENSE | 2,325 | 510 | 4,446 | 1,306 | ||||||||
| INCOME BEFORE INCOME TAX EXPENSE | 18,687 | 30,140 | 46,616 | 65,829 | ||||||||
| INCOME TAX EXPENSE | 10,062 | 10,984 | 20,339 | 22,087 | ||||||||
| NET INCOME BEFORE EARNINGS FROM EQUITY- | ||||||||||||
| ACCOUNTED INVESTMENTS | 8,625 | 19,156 | 26,277 | 43,742 | ||||||||
| EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS |
1,354 | 74 | 3,429 | 733 | ||||||||
| NET INCOME | 9,979 | 19,230 | 29,706 | 44,475 | ||||||||
| LESS NET INCOME ATTRIBUTABLE TO NON- | ||||||||||||
| CONTROLLING INTEREST | 357 | 589 | 601 | 1,202 | ||||||||
| NET INCOME ATTRIBUTABLE TO NET1 | $ | 9,622 | $ | 18,641 | $ | 29,105 | $ | 43,273 | ||||
| Net income per share, in U.S. dollars | ||||||||||||
| Basic earnings attributable to Net1 shareholders | $ | 0.17 | $ | 0.35 | $ | 0.51 | $ | 0.81 | ||||
| Diluted earnings attributable to Net1 shareholders | $ | 0.17 | $ | 0.35 | $ | 0.51 | $ | 0.81 | ||||
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Balance Sheets
| Unaudited | (A) | |||||
| December 31, | June 30, | |||||
| 2017 | 2017 | |||||
| (In thousands, except share data) | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 64,896 | $ | 258,457 | ||
| Pre-funded social welfare grants receivable | 3,300 | 2,322 | ||||
| Accounts receivable, net of allowances of – December: $1,251; June: $1,255 | 128,543 | 111,429 | ||||
| Finance loans receivable, net of allowances of – December: $17,213; June: $7,469 | 105,697 | 80,177 | ||||
| Inventory | 12,482 | 8,020 | ||||
| Deferred income taxes | - | 5,330 | ||||
| Total current assets before settlement assets | 314,918 | 465,735 | ||||
|
Settlement assets |
412,177 | 640,455 | ||||
| Total current assets | 727,095 | 1,106,190 | ||||
| PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of – December: $136,996; June: $120,212 |
32,852 | 39,411 | ||||
| EQUITY-ACCOUNTED INVESTMENTS | 147,392 | 27,862 | ||||
| GOODWILL | 199,495 | 188,833 | ||||
| INTANGIBLE ASSETS, net of
accumulated amortization of – December: $121,766 ; June: $108,907 |
34,604 | 38,764 | ||||
| DEFERRED INCOME TAXES | 3,342 | - | ||||
| OTHER LONG-TERM ASSETS, including reinsurance assets | 225,463 | 49,696 | ||||
| TOTAL ASSETS | 1,370,243 | 1,450,756 | ||||
| LIABILITIES | ||||||
| CURRENT LIABILITIES | ||||||
| Short-term credit facilities | 35,553 | 16,579 | ||||
| Accounts payable | 16,971 | 15,136 | ||||
| Other payables | 39,168 | 34,799 | ||||
| Current portion of long-term borrowings | 50,530 | 8,738 | ||||
| Income taxes payable | 5,311 | 5,607 | ||||
| Total current liabilities before settlement obligations | 147,533 | 80,859 | ||||
|
Settlement obligations |
412,177 | 640,455 | ||||
| Total current liabilities | 559,710 | 721,314 | ||||
| DEFERRED INCOME TAXES | 9,866 | 11,139 | ||||
| LONG-TERM BORROWINGS | 19,867 | 7,501 | ||||
| OTHER LONG-TERM LIABILITIES, including insurance policy liabilities | 2,449 | 2,795 | ||||
| TOTAL LIABILITIES | 591,892 | 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 - December: 56,832,370; 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: December: -; June: - |
- | - | ||||
| ADDITIONAL PAID-IN-CAPITAL | 274,961 | 273,733 | ||||
| TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292 | (286,951 | ) | (286,951 | ) | ||
| ACCUMULATED OTHER COMPREHENSIVE LOSS | (123,359 | ) | (162,569 | ) | ||
| RETAINED EARNINGS | 802,381 | 773,276 | ||||
| TOTAL NET1 EQUITY | 667,112 | 597,569 | ||||
| NON-CONTROLLING INTEREST | 3,567 | 2,766 | ||||
| TOTAL EQUITY | 670,679 | 600,335 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,370,243 | $ | 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.
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
| Three months ended | Six months ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| (In thousands) | (In thousands) | |||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income | $ | 9,979 | $ | 19,230 | $ | 29,706 | $ | 44,475 | ||||
| Depreciation and amortization | 8,723 | 10,623 | 17,689 | 20,827 | ||||||||
| Earnings from equity-accounted investments | (1,354 | ) | (74 | ) | (3,429 | ) | (733 | ) | ||||
| Fair value adjustments | (372 | ) | 72 | (281 | ) | (11 | ) | |||||
| Interest payable | (159 | ) | (23 | ) | (247 | ) | 9 | |||||
| Facility fee amortized | 214 | 31 | 347 | 67 | ||||||||
| Loss (Profit) on disposal of property, plant and equipment | 16 | (539 | ) | 121 | (473 | ) | ||||||
| Profit on disposal of business | (463 | ) | - | (463 | ) | - | ||||||
| Stock-based compensation charge (reversal), net | 608 | 635 | 1,435 | (689 | ) | |||||||
| Dividends received from equity accounted investments | 1,253 | - | 2,165 | 370 | ||||||||
| (Increase) Decrease in
accounts receivable, pre-funded social welfare grants receivable and finance loans receivable |
6,005 | 6,585 | (33,136 | ) | 14,351 | |||||||
| Increase in inventory | (2,322 | ) | (3,481 | ) | (3,848 | ) | (3,585 | ) | ||||
| (Decrease) Increase in accounts payable and other payables | (481 | ) | (5,940 | ) | 2,948 | (2,900 | ) | |||||
| Decrease in taxes payable | (9,754 | ) | (11,815 | ) | (916 | ) | (859 | ) | ||||
| Increase (Decrease) in deferred taxes | 1,419 | 386 | 428 | (1,246 | ) | |||||||
| Net cash provided by operating activities | 13,312 | 15,690 | 12,519 | 69,603 | ||||||||
| Cash flows from investing activities | ||||||||||||
| Capital expenditures | (2,103 | ) | (3,126 | ) | (3,576 | ) | (6,549 | ) | ||||
| Proceeds from disposal of property, plant and equipment | 99 | 945 | 415 | 1,014 | ||||||||
| Investment in Cell C | - | - | (151,003 | ) | - | |||||||
| Investment in equity of equity-accounted investments | (40,892 | ) | - | (113,738 | ) | - | ||||||
| Acquisition of held to maturity investment | (9,000 | ) | - | (9,000 | ) | - | ||||||
| Investment in MobiKwik | - | - | - | (15,347 | ) | |||||||
| Loans to equity accounted investments | (10,044 | ) | (10,044 | ) | ||||||||
| Acquisitions, net of cash acquired | - | (4,651 | ) | - | (4,651 | ) | ||||||
| Other investing activities | (154 | ) | - | (154 | ) | - | ||||||
| Net change in settlement assets | 24,519 | 258,166 | 237,168 | 220,772 | ||||||||
|
Net cash (used in) provided by investing activities |
(27,531 | ) | 241,290 | (39,888 | ) | 185,195 | ||||||
| Cash flows from financing activities | ||||||||||||
| Long-term borrowings utilized | - | - | 95,431 | 247 | ||||||||
| Repayment of long-term borrowings | (30,881 | ) | (1,824 | ) | (45,141 | ) | (28,493 | ) | ||||
| Proceeds from bank overdraft | 690 | - | 32,570 | - | ||||||||
| Repayment of bank overdraft | (11,391 | ) | - | (14,343 | ) | - | ||||||
| Guarantee fee paid | - | (1,145 | ) | (552 | ) | (1,145 | ) | |||||
| Acquisition of treasury stock | - | - | - | (32,081 | ) | |||||||
| Dividends paid to non-controlling interest | - | (58 | ) | - | (613 | ) | ||||||
| Net change in settlement obligations | (24,519 | ) | (258,166 | ) | (237,168 | ) | (220,772 | ) | ||||
|
Net cash used in financing activities |
(66,101 | ) | (261,193 | ) | (169,203 | ) | (282,857 | ) | ||||
| Effect of exchange rate changes on cash | 6,857 | (2,225 | ) | 3,011 | 3,306 | |||||||
| Net decrease in cash, cash equivalents and restricted cash | (73,463 | ) | (6,438 | ) | (193,561 | ) | (24,753 | ) | ||||
| Cash, cash equivalents and
restricted cash – beginning of period |
138,359 | 205,329 | 258,457 | 223,644 | ||||||||
| Cash, cash equivalents and restricted cash – end of period (1) | $ | 64,896 | $ | 198,891 | $ | 64,896 | $ | 198,891 | ||||
(1) Cash, cash equivalents and restricted cash as of December 31, 2016, includes restricted cash of approximately $43.7 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.
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended December 31, 2017 and 2016 and September 30, 2017
| Change – | |||||||||||||||||||||
| constant | |||||||||||||||||||||
| Change - actual | exchange rate(1) | ||||||||||||||||||||
| Q2 ‘18 | Q2 ‘18 | Q2 ‘18 | Q2 ‘18 | ||||||||||||||||||
| Key segmental data, in ’000, except | vs | vs | vs | vs | |||||||||||||||||
| margins | Q2 ‘18 | Q2 ‘17 | Q1 ‘18 | Q2‘17 | Q1 ‘18 | Q2‘17 | Q1 ‘18 | ||||||||||||||
| Revenue: | |||||||||||||||||||||
| South African transaction processing | $ | 64,148 | $ | 59,862 | $ | 66,437 | 7% | (3% | ) | 5% | 0% | ||||||||||
| International transaction processing | 44,185 | 44,000 | 46,022 | 0% | (4% | ) | (2% | ) | (0% | ) | |||||||||||
| Financial inclusion and applied technologies | 54,131 | 59,258 | 54,313 | (9% | ) | (0% | ) | (10% | ) | 3% | |||||||||||
| Subtotal: Operating segments | 162,464 | 163,120 | 166,772 | (0% | ) | (3% | ) | (2% | ) | 1% | |||||||||||
| Intersegment eliminations | (14,048 | ) | (11,687 | ) | (14,214 | ) | 20% | (1% | ) | 18% | 3% | ||||||||||
|
Consolidated revenue |
$ | 148,416 | $ | 151,433 | $ | 152,558 | (2% | ) | (3% | ) | (4% | ) | 1% | ||||||||
| Operating income (loss): | |||||||||||||||||||||
| South African transaction processing | $ | 13,470 | $ | 15,372 | $ | 12,332 | (12% | ) | 9% | (14% | ) | 13% | |||||||||
| International transaction processing | (4,991 | ) | 3,904 | 5,316 | (228% | ) | (194% | ) | (225% | ) | (197% | ) | |||||||||
| Financial inclusion and applied technologies | 12,737 | 14,107 | 13,920 | (10% | ) | (8% | ) | (11% | ) | (5% | ) | ||||||||||
| Subtotal: Operating segments | 21,216 | 33,383 | 31,568 | (36% | ) | (33% | ) | (38% | ) | (30% | ) | ||||||||||
| Corporate/Eliminations | (4,909 | ) | (7,794 | ) | (6,562 | ) | (37% | ) | (25% | ) | (38% | ) | (22% | ) | |||||||
| Consolidated operating income | $ | 16,307 | $ | 25,589 | $ | 25,006 | (36% | ) | (35% | ) | (38% | ) | (32% | ) | |||||||
| Operating income margin (%) | |||||||||||||||||||||
| South African transaction processing | 21% | 26% | 19% | ||||||||||||||||||
| International transaction processing | (11% | ) | 9% | 12% | |||||||||||||||||
| Financial inclusion and applied technologies | 24% | 24% | 26% | ||||||||||||||||||
| Consolidated operating margin . | 11% | 17% | 16% | ||||||||||||||||||
(1) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the Q2 2018 also prevailed during Q2 2017 and Q1 2018.
Six months ended December 31, 2017 and 2016
| 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 | $ | 130,585 | $ | 117,430 | 11% | 6% | ||||||
| International transaction processing | 90,207 | 90,190 | 0% | (4% | ) | |||||||
| Financial inclusion and applied technologies | 108,444 | 122,800 | (12% | ) | (16% | ) | ||||||
| Subtotal: Operating segments | 329,236 | 330,420 | (0% | ) | (5% | ) | ||||||
| Intersegment eliminations | (28,262 | ) | (23,354 | ) | 21% | 16% | ||||||
|
Consolidated revenue |
$ | 300,974 | $ | 307,066 | (2% | ) | (6% | ) | ||||
| Operating income: | ||||||||||||
| South African transaction processing | $ | 25,802 | $ | 28,920 | (11% | ) | (15% | ) | ||||
| International transaction processing | 325 | 9,721 | (97% | ) | (97% | ) | ||||||
| Financial inclusion and applied technologies | 26,657 | 29,290 | (9% | ) | (13% | ) | ||||||
| Subtotal: Operating segments | 52,784 | 67,931 | (22% | ) | (26% | ) | ||||||
| Corporate/Eliminations | (11,471 | ) | (10,161 | ) | 13% | 8% | ||||||
| Consolidated operating income | $ | 41,313 | $ | 57,770 | (28% | ) | (32% | ) | ||||
| Operating income margin (%) | ||||||||||||
| South African transaction processing | 20% | 25% | ||||||||||
| International transaction processing | 0% | 11% | ||||||||||
| Financial inclusion and applied technologies | 25% | 24% | ||||||||||
| Overall operating margin | 14% | 19% |
(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 2018 also prevailed during the first half of fiscal 2017.
Earnings from equity accounted investments:
The table below presents the relative earnings (loss) from our equity accounted investments:
| % | % | |||||||||||||||||
| Q2 2018 | Q1 2017 | change | F2018 | F2017 | change | |||||||||||||
| DNI | $ | 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 | ||||||||||||
| Bank Frick | 322 | - | nm | 322 | - | nm | ||||||||||||
| Share of net income | 487 | - | nm | 487 | - | nm | ||||||||||||
|
Amortization of intangible assets, net
of deferred tax |
(165) | - | nm | (165) | - | nm | ||||||||||||
| 1,101 | 930 | 18% | ||||||||||||||||
| Other | (14) | 74 | (119%) | 95 | (197) | (148%) | ||||||||||||
| Earnings from
equity accounted investments |
$ | 1,354 | $ | 74 | 1,730% | $ | 3,429 | $ | 733 | 368% |
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP net income and earnings per share, basic, to fundamental net income and earnings per share, basic:
Three months ended December 31, 2017 and 2016
| EPS, | EPS, | |||||||||||||||||||||||
| Net income | basic | Net income | basic | |||||||||||||||||||||
| (USD’000) | (USD) | (ZAR’000) | (ZAR) | |||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| GAAP | 9,622 | 18,641 | 0.17 | 0.35 | 131,510 | 259,920 | 2.31 | 4.95 | ||||||||||||||||
| Non-recurring Mastertrading
allowance for doubtful accounts |
7,803 | - | 106,647 | - | ||||||||||||||||||||
| Intangible asset amortization, net . | 2,199 | 2,709 | 30,055 | 37,764 | ||||||||||||||||||||
| Intangible asset amortization, net related to equity accounted investments |
951 | - | 10,701 | - | ||||||||||||||||||||
| Change in US tax rate | 860 | 11,754 | ||||||||||||||||||||||
| Transaction costs | 611 | 1,246 | 8,351 | 17,373 | ||||||||||||||||||||
| Stock-based compensation charge | 608 | 635 | 8,310 | 8,854 | ||||||||||||||||||||
| Profit on sale of Xeo | (463 | ) | (6,328 | ) | ||||||||||||||||||||
| Facility fees for debt | 214 | 31 | 2,925 | 432 | ||||||||||||||||||||
| Refund related to
litigation finalized in Korea, net |
- | (643 | ) | - | (8,966 | ) | ||||||||||||||||||
| US government
investigations- related and US lawsuit expenses |
- | 29 | - | 404 | ||||||||||||||||||||
| Fundamental | 22,405 | 22,648 | 0.39 | 0.43 | 303,925 | 315,781 | 5.34 | 6.01 | ||||||||||||||||
Six months ended December 31, 2017 and 2016
| EPS, | EPS, | |||||||||||||||||||||||
| Net income | basic | Net income | basic | |||||||||||||||||||||
| (USD’000) | (USD) | (ZAR’000) | (ZAR) | |||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| GAAP | 29,105 | 43,273 | 0.51 | 0.81 | 390,375 | 607,084 | 6.88 | 11.42 | ||||||||||||||||
|
Non-recurring Mastertrading allowance for doubtful accounts |
7,803 | - | 104,659 | - | ||||||||||||||||||||
| Intangible asset amortization, net . | 4,354 | 4,867 | 58,378 | 68,256 | ||||||||||||||||||||
| Transaction costs | 1,940 | 1,488 | 26,021 | 20,875 | ||||||||||||||||||||
| Intangible asset
amortization, net related to equity accounted investments |
1,494 | - | 17,835 | - | ||||||||||||||||||||
| Stock-based compensation charge | 1,435 | (689 | ) | 19,247 | (9,666 | ) | ||||||||||||||||||
| Change in US tax rate | 860 | - | 11,535 | - | ||||||||||||||||||||
| Profit on sale of Xeo | (463 | ) | - | (6,210 | ) | - | ||||||||||||||||||
| Facility fees for debt | 347 | 67 | 4,654 | 940 | ||||||||||||||||||||
|
Refund related to litigation finalized in Korea, net |
- | (643 | ) | - | (9,021 | ) | ||||||||||||||||||
| US government
investigations- related and US lawsuit expenses |
- | 29 | - | 407 | ||||||||||||||||||||
| Fundamental | 46,875 | 48,392 | 0.83 | 0.91 | 626,494 | 678,875 | 11.04 | 12.77 | ||||||||||||||||
Net 1 UEPS Technologies, Inc.
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 December 31, 2017 and 2016
| 2017 | 2016 | |||||
| Net income (USD’000) | 9,622 | 18,641 | ||||
| Adjustments: | ||||||
| Profit on sale of business | (463 | ) | - | |||
| Profit on sale of property, plant and equipment | 16 | (539 | ) | |||
| Tax effects on above | (4 | ) | 151 | |||
| Net income used to calculate headline earnings (USD’000) | 9,171 | 18,253 | ||||
| Weighted average number of shares used to calculate net
income per share basic earnings and headline earnings per share basic earnings (‘000) |
56,755 | 52,521 | ||||
| Weighted average number of shares used to
calculate net income per share diluted earnings and headline earnings per share diluted earnings (‘000) |
56,807 | 52,643 | ||||
| Headline earnings per share: | ||||||
| Basic, in USD | 0.16 | 0.35 | ||||
| Diluted, in USD | 0.16 | 0.35 |
Six months ended December 31, 2017 and 2016
| 2017 | 2016 | |||||
| Net income (USD’000) | 29,105 | 43,273 | ||||
| Adjustments: | ||||||
| Profit on sale of business | (463 | ) | - | |||
| Profit on sale of property, plant and equipment | 16 | (473 | ) | |||
| Tax effects on above | (4 | ) | 132 | |||
| Net income used to calculate headline earnings (USD’000) | 28,654 | 42,932 | ||||
| Weighted average number of shares used to calculate net
income per share basic earnings and headline earnings per share basic earnings (‘000) |
56,762 | 53,176 | ||||
| Weighted average number of shares used to
calculate net income per share diluted earnings and headline earnings per share diluted earnings (‘000) |
56,812 | 53,282 | ||||
| Headline earnings per share: | ||||||
| Basic, in USD | 0.50 | 0.81 | ||||
| Diluted, in USD | 0.50 | 0.81 |
Calculation of the denominator for headline diluted earnings per share
| Q2 ‘18 | Q2 ‘17 | 2018 | 2017 | |||||||||
| Basic weighted-average common shares
outstanding and unvested restricted shares expected to vest under GAAP |
56,755 | 52,521 | 56,762 | 53,176 | ||||||||
|
Effect of dilutive securities under GAAP |
52 | 122 | 50 | 106 | ||||||||
| Denominator for headline diluted earnings per share | 56,807 | 52,643 | 56,812 | 53,282 |
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.