Net 1 UEPS Technologies, Inc.: Form 8-K - Filed by newsfilecorp.com

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


Net 1 UEPS Technologies, Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

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: dchopra@net1.com

Media Relations Contact:
Bridget von Holdt
Business Director – Burson-Marsteller South Africa
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com


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.