0001562762-20-000391 | 10-Q | XBRL Viewer | NET 1 Ueps Technologies INC

Print Document View Excel Document

Document And Entity Information - shares	3 Months Ended
Document And Entity Information - shares	Sep. 30, 2020	Nov. 03, 2020
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	000-31203
Entity Registrant Name	NET 1 UEPS TECHNOLOGIES, INC.
Entity Incorporation State Country Code	FL
Entity Tax Identification Number	98-0171860
Entity Address Line One	President Place, 4
Entity Address Line Two	Cnr. Jan Smuts Avenue and Bolton Road
Entity Address, City or Town	Rosebank, Johannesburg
Entity Address, Postal Zip Code	2196
Entity Address Country	ZA
City Area Code	27
Local Phone Number	11-343-2000
Title of 12(b) Security	Common stock, par value $0.001 per share
Trading Symbol	UEPS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		56,638,725
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001041514
Amendment Flag	false

Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands

Sep. 30, 2020

Jun. 30, 2020

^[1]

CURRENT ASSETS

Cash and cash equivalents

$ 209,185

$ 217,671

Restricted cash related to ATM funding (Note 8)

6,726

14,814

Accounts receivable, net and other receivables (Note 2)

28,314

43,068

Finance loans receivable, net (Note 2)

20,508

15,879

Inventory (Note 3)

18,084

19,860

Total current assets before settlement assets

282,817

311,292

Settlement assets

3,993

8,014

Total current assets

286,810

319,306

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of- September: $31,182 June: $29,524

6,286

6,656

OPERATING LEASE RIGHT-OF-USE (Note 16)

4,848

5,395

EQUITY-ACCOUNTED INVESTMENTS (Note 5)

50,367

65,836

GOODWILL (Note 6)

24,865

24,169

INTANGIBLE ASSETS, NET (Note 6)

548

612

DEFERRED INCOME TAXES

288

358

OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)

30,172

31,346

TOTAL ASSETS

404,184

453,678

CURRENT LIABILITIES

Short-term credit facilities for ATM funding (Note 8)

6,726

14,814

Accounts payable

5,213

6,287

Other payables (Note 9)

25,242

23,779

Operating lease liability - current (Note 16)

1,921

2,251

Income taxes payable

1,298

16,157

Total current liabilities before settlement obligations

40,400

63,288

Settlement obligations

3,993

8,015

Total current liabilities

44,393

71,303

DEFERRED INCOME TAXES

1,859

OPERATING LEASE LIABILITY - LONG TERM (Note 16)

3,105

3,312

OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)

2,074

2,012

TOTAL LIABILITIES

49,663

78,486

REDEEMABLE COMMON STOCK

84,979

EQUITY

COMMON STOCK (Note 10 ) Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury - September: 56,638,725 June: 57,118,925

PREFERRED STOCK Authorized shares: 50,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury: September: - June: -

ADDITIONAL PAID-IN-CAPITAL

301,946

301,489

TREASURY SHARES, AT COST: September: 24,891,292 June: 24,891,292

(286,951)

ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11)

(161,245)

(169,075)

RETAINED EARNINGS

415,712

444,670

TOTAL NET1 EQUITY

269,542

290,213

NON-CONTROLLING INTEREST

TOTAL EQUITY

269,542

290,213

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY

$ 404,184

$ 453,678

[1]	Derived from audited financial statements.

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Condensed Consolidated Balance Sheets [Abstract]
Property, plant and equipment, accumulated depreciation	$ 31,182	$ 29,524
Common stock, shares authorized	200,000,000	200,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares issued	56,638,725	57,118,925
Common stock, shares outstanding	56,638,725	57,118,925
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Treasury shares, shares outstanding	24,891,292	24,891,292

Condensed Consolidated Statements Of Operations - USD ($)
$ in Thousands

3 Months Ended

Sep. 30, 2020

Sep. 30, 2019

^[1]

Condensed Consolidated Statements Of Operations [Abstract]

REVENUE (Note 15)

$ 37,113

$ 47,938

EXPENSE

Cost of goods sold, IT processing, servicing and support

28,437

32,428

Selling, general and administration

18,528

20,622

Depreciation and amortization

923

1,324

OPERATING LOSS

(10,775)

(6,436)

INTEREST INCOME

611

363

INTEREST EXPENSE

747

1,347

LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE

(10,911)

(7,420)

INCOME TAX (BENEFIT) EXPENSE (Note 18)

(1,090)

970

NET LOSS BEFORE (LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS

(9,821)

(8,390)

(LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

(19,137)

1,063

NET LOSS FROM CONTINUING OPERATIONS

(28,958)

(7,327)

NET INCOME FROM DISCONTINUED OPERATIONS (Note 20)

2,935

NET LOSS

(28,958)

(4,392)

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

(28,958)

(4,392)

Continuing

(28,958)

(7,327)

Discontinued

$ 0

$ 2,935

Net (loss) earnings per share, in United States dollars (Note 13):

Basic (loss) earnings attributable to Net1 shareholders

$ (0.51)

$ (0.08)

Continuing

(0.51)

(0.13)

Discontinued

0.05

Diluted (loss) earnings attributable to Net1 shareholders

(0.51)

(0.08)

Continuing

(0.51)

(0.13)

Discontinued

$ 0

$ 0.05

[1]	Refer to Note 20 for discontinued operations disclosures

Condensed Consolidated Statements Of Comprehensive (Loss) Income - USD ($)
$ in Thousands

3 Months Ended

Sep. 30, 2020

Sep. 30, 2019

Net loss

$ (28,958)

$ (4,392)

^[1]

Other comprehensive income (loss), net of taxes

Movement in foreign currency translation reserve

6,142

(18,085)

Movement in foreign currency translation reserve related to equity-accounted investments

1,688

2,718

Total other comprehensive income (loss), net of taxes

7,830

(15,367)

Comprehensive loss

(21,128)

(19,759)

Add comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Net1

$ (21,128)

$ (19,759)

[1]	Refer to Note 20 for discontinued operations disclosures

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1A
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=118930883&loc=SL7669619-108580

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 1A
-Subparagraph (a)(1)
-URI http://asc.fasb.org/extlink&oid=109239629&loc=SL4573702-111684

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1B
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=118930883&loc=SL7669625-108580

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 1A
-Subparagraph (c)(1)
-URI http://asc.fasb.org/extlink&oid=109239629&loc=SL4573702-111684

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI http://asc.fasb.org/extlink&oid=115929826&loc=d3e8736-108599

Reference 6: http://www.xbrl.org/2003/role/exampleRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 55
-Paragraph 4J
-URI http://asc.fasb.org/extlink&oid=116874947&loc=SL4591551-111686

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 230
-SubTopic 10
-Section 45
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=118932676&loc=d3e3000-108585

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 45
-Paragraph 19
-URI http://asc.fasb.org/extlink&oid=108774443&loc=SL4569616-111683

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=115929826&loc=d3e8933-108599

Reference 10: http://www.xbrl.org/2003/role/exampleRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 55
-Paragraph 4K
-URI http://asc.fasb.org/extlink&oid=116874947&loc=SL4591552-111686

+ Details

Condensed Consolidated Statement Of Changes In Equity - USD ($)
$ in Thousands

Total

Common And Treasury Stock [Member]

Treasury Stock [Member]

Number Of Shares, Net Of Treasury [Member]

Additional Paid In Capital [Member]

Retained Earnings [Member]

Accumulated Other Comprehensive Loss [Member]

Parent [Member]

Noncontrolling Interest [Member]

Balance, Number of Shares at Jun. 30, 2019

81,459,717

(24,891,292)

56,568,425

Balance at Jun. 30, 2019

$ 317,342

$ 80

$ (286,951)

$ 276,997

$ 523,028

$ (195,812)

$ 317,342

$ 0

Stock-based compensation charge (Note 12)

387

Stock based-compensation charge related to equity-accounted investment (Note 5)

Net loss

(4,392)

Other comprehensive loss (Note 11)

$ (15,367)

(15,367)

Balance, Number of Shares at Sep. 30, 2019

56,568,425

81,459,717

(24,891,292)

56,568,425

Balance at Sep. 30, 2019

$ 298,041

$ 80

$ (286,951)

277,455

518,636

(211,179)

298,041

$ 0

Redeemable Common Stock, Balance at Sep. 30, 2019

107,672

Balance, Number of Shares at Jun. 30, 2020

82,010,217

(24,891,292)

57,118,925

Balance at Jun. 30, 2020

290,213

^[1]

$ 80

$ (286,951)

301,489

444,670

(169,075)

290,213

Redeemable Common Stock, Balance at Jun. 30, 2020

^[1]

84,979

Stock-based compensation charge (Note 12)

682

Reversal of stock-based compensation charge (Note 12)

(283)

Reversal of stock-based compensation charge (Note 12), shares

(480,200)

Stock based-compensation charge related to equity-accounted investment (Note 5)

(40)

Proceeds from disgorgement of shareholders' short-swing profits (Note 21)

Net loss

(28,958)

Other comprehensive loss (Note 11)

$ 7,830

7,830

Balance, Number of Shares at Sep. 30, 2020

56,638,725

81,530,017

(24,891,292)

56,638,725

Balance at Sep. 30, 2020

$ 269,542

$ 80

$ (286,951)

$ 301,946

$ 415,712

$ (161,245)

$ 269,542

Redeemable Common Stock, Balance at Sep. 30, 2020

$ 84,979

[1]	Derived from audited financial statements.

Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands

3 Months Ended

Sep. 30, 2020

Sep. 30, 2019

^[1]

Cash flows from operating activities

Net loss

$ (28,958)

$ (4,392)

Depreciation and amortization

923

4,765

Movement in allowance for doubtful accounts receivable

514

512

Loss (Earnings) from equity-accounted investments (Note 5)

(19,137)

1,063

Movement in allowance for doubtful loans to equity-accounted investments

Fair value adjustment related to financial liabilities

(886)

(87)

Interest payable

(63)

632

Profit on disposal of property, plant and equipment

154

Stock-based compensation charge (Note 12)

399

387

Dividends received from equity accounted investments

1,068

Increase in accounts receivable and finance loans receivable

8,115

5,666

Decrease (Increase) in inventory

(2,359)

12,313

Decrease in accounts payable and other payables

(415)

(3,396)

(Decrease) Increase in taxes payable

(14,917)

1,288

Decrease in deferred taxes

1,755

Net cash used in operating activities

(29,880)

(18,333)

Cash flows from investing activities

Capital expenditures

(275)

(2,624)

Proceeds from disposal of property, plant and equipment

213

Proceeds from disposal of Net1 Korea (Note 2)

20,114

Proceeds from disposal of DNI as equity-accounted investment (Note 2)

329

Loan to equity-accounted investment (Noe 5)

(78)

Investment in equity-accounted investments (Note 5)

(1,250)

Repayment of loans by equity-accounted investments

4,268

Net change in settlement assets

4,068

(13,509)

Net cash provided by (used in) investing activities

24,174

(12,902)

Cash flows from financing activities

Proceeds from bank overdraft (Note 8)

69,146

183,674

Repayment of bank overdraft (Note 8)

76,850

184,829

Long-term borrowings utilized (Note 8)

14,798

Proceeds from disgorgement of shareholders' short-swing profits (Note 21)

Guarantee fee

(148)

Finance lease capital repayments

(26)

Net change in settlement obligations

(4,068)

13,509

Net cash (used in) provided by financing activities

(11,674)

26,978

Effect of exchange rate changes on cash

806

(6,455)

Net decrease in cash, cash equivalents and restricted cash

(16,574)

(10,712)

Cash, cash equivalents and restricted cash - beginning of period

232,485

121,511

Cash, cash equivalents and restricted cash - end of period (Note 14)

$ 215,911

$ 110,799

[1]	Refer to Note 20 for discontinued operations disclosures

Basis Of Presentation And Summary Of Significant Accounting Policies

3 Months Ended

Sep. 30, 2020

Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract]

Basis Of Presentation And Summary Of Significant Accounting Policies

1. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three months ended September 30, 2020 and 2019, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

References to “Net1” are references solely to Net 1 UEPS Technologies, Inc. References to the “Company” refer to Net1 and its consolidated subsidiaries, collectively, unless the context otherwise requires.

Impact of COVID-19 on the Company’s business

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three months ended September 30, 2020, compared to the last four months of the year ended June 30, 2020. Nevertheless, as the date of this report, South Africa remains under various lockdown restrictions, which continue to affect the broader economy and these affect the Company to the extent they affect economic activity levels in South Africa.

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance continue to remain uncertain. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, apart from the two months in April and May 2020 when loan origination was curtailed, the Company is unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and duration of the outbreak, actions that may be taken by governmental authorities, the impact on the Company’s customers and other factors. The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition.

Recent accounting pronouncements adopted

There were no new accounting pronouncements adopted by the Company during the three months ended September 30, 2020.

Recent accounting pronouncements not yet adopted as of September 30, 2020

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2023. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material.

In August 2018, the FASB issued guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

Recent accounting pronouncements not yet adopted as of September 30, 2020 (continued)

In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging(Topic 815), and Leases (Topic 842). The guidance provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and Other (ASC 350). The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023, and defers the adoption guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement by the Company from July 1, 2020 to July 1, 2021.

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The guidance clarifies that an entity should consider observable transactions that require an entity to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with U.S GAAP guidance immediately before applying or upon discontinuing the equity method. The guidance also clarifies that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

Accounts Receivable, Net And Other Receivables And Finance Loans Receivable, Net

3 Months Ended

Sep. 30, 2020

Accounts Receivable, Net And Other Receivables And Finance Loans Receivable, Net [Abstract]

Accounts Receivable, Net And Other Receivables And Finance Loans Receivable, Net

2. Accounts receivable, net and other receivables and finance loans receivable, net

Accounts receivable, net and other receivables

The Company’s accounts receivable, net, and other receivables as of September 30, 2020, and June 30, 2020, are presented in the table below:

		September 30,		June 30,
		2020		2020

Accounts receivable, trade, net		$	12,567	$	8,458
Accounts receivable, trade, gross			12,853		8,711
Allowance for doubtful accounts receivable, end of period			286		253
	Beginning of period		253		661
	Reversed to statement of operations		-		(155)
	Charged to statement of operations		32		181
	Utilized		(6)		(151)
	Deconsolidation		-		(178)
	Foreign currency adjustment		7		(105)

Taxes refundable related to sale of Net1 Korea			-		19,796
Loans provided to Carbon			3,000		3,000
Current portion of amount outstanding related to sale of remaining interest in DNI			3,916		2,756
Other receivables			8,831		9,058
	Total accounts receivable, net and other receivables	$	28,314	$	43,068

In January 2020, the Company agreed that the purchaser of Net1 Korea would withhold potential capital gains taxes of approximately $19.8 million (KRW 23.8 billion) from the Net1 Korea transaction price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities. Net1 BV commenced a process to claim a refund from the South Korean tax authorities of the potential amount withheld and received this amount of approximately $20.1 million (KRW 23.8 billion) in September 2020.

On October 26, 2020, DNI settled the full amount outstanding related to sale of the remaining interest in DNI, including the $1.6 million included in other long-term assets, refer to Note 5.

Other receivables include prepayments, deposits and other receivables.

2. Accounts receivable, net and other receivables and finance loans receivable, net (continued)

Finance loans receivable, net

The Company’s finance loans receivable, net, as of September 30, 2020, and June 30, 2020, is presented in the table below:

		September 30,		June 30,
		2020		2020

Microlending finance loans receivable, net		$	20,508	$	15,879
Microlending finance loans receivable, gross			22,785		17,737
Allowance for doubtful finance loans receivable, end of period			2,277		1,858
	Beginning of period		1,858		3,199
	Reversed to statement of operations		-		(492)
	Charged to statement of operations		486		1,211
	Utilized		(119)		(1,451)
	Foreign currency adjustment		52		(609)


Working capital finance loans receivable, gross			5,800		5,800
Allowance for doubtful finance loans receivable, end of period			5,800		5,800
	Beginning of period		5,800		5,800

	Total accounts receivable, net	$	20,508	$	15,879

Gross microlending finance loans receivable as of September 30, 2020, increased compared to June 30, 2020, following subdued lending activity due to COVID-19 restrictions in April and early May 2020. The Company was unable to originate any significant loans in April and early May 2020.

Inventory

3 Months Ended

Sep. 30, 2020

Inventory [Abstract]

Inventory

3. Inventory

The Company’s inventory comprised the following categories as of September 30, 2020, and June 30, 2020

	September 30,			June 30,
		2020		2020

Finished goods	$	13,716	$	15,618
Finished goods subject to sale restrictions		4,368		4,242
	$	18,084	$	19,860

Finished goods subject to sale restrictions represents airtime inventory purchased in March 2020, that may only be sold by the Company from October 1, 2020.

Fair Value Of Financial Instruments

3 Months Ended

Sep. 30, 2020

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

4. Fair value of financial instruments

Initial recognition and measurement

Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs.

Risk management

The Company manages its exposure to currency exchange, translation, interest rate, customer concentration, credit and equity price and liquidity risks as discussed below.

Currency exchange risk

The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.

4. Fair value of financial instruments (continued)

Risk management (continued)

Translation risk

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar has fluctuated significantly against the ZAR over the past three years. As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.

Interest rate risk

As a result of its normal borrowing and lending activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. The Company generally maintains investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities.

Credit risk

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

Microlending credit risk

The Company is exposed to credit risk in its microlending activities, which provide unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigning a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

Equity price and liquidity risk

Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds and the risk that it may not be able to liquidate these securities. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which these securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange traded price, or at all.

Financial instruments

The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value.

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments.

4. Fair value of financial instruments (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C

The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of September 30, 2020, and June 30, 2020, and valued Cell C at $0.0 (zero) at September 30, 2020, and June 30, 2020. The Company believes the Cell C business plan utilized in the Company’s valuation is reasonable based on the current performance and the expected changes in Cell C’s business model. The Company utilized the latest approved business plan provided by Cell C management for the period ending December 31, 2024, and the following key valuation inputs were used as of September 30, 2020 and June 30, 2020:

	Weighted Average Cost of Capital ("WACC"):	Between 16% and 21% over the period of the forecast
	Long term growth rate:	3 % (3% as of June 30, 2020)
	Marketability discount:	10%
	Minority discount:	15%
	Net adjusted external debt - September 30, 2020:⁽¹⁾	ZAR 15.1 billion ($0.9 billion), includes R4.2 billion of lease liabilities
	Net adjusted external debt - June 30, 2020:⁽²⁾	ZAR 15.8 billion ($0.9 billion), includes R4.4 billion of lease liabilities
	Deferred tax (incl, assessed tax losses) - September 30, 2020:⁽¹⁾	ZAR 2.9 billion ($172.3 million)
	Deferred tax (incl, assessed tax losses) - June 30, 2020:⁽²⁾	ZAR 2.9 billion ($167.3 million)

(1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2020.

(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2020.

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 2.0% increase and 2.0% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on September 30, 2020, all amounts translated at exchange rates applicable as of September 30, 2020:

Sensitivity for fair value of Cell C investment		2.0% increase^(A)		2.0% decrease^(A)
WACC rate	$	-	$	6,786
EBITDA margin	$	2,881	$	-

(A) the carrying value of the Cell C investment is not impacted by a 1.0% increase or a 1.0% decrease and therefore the impact of a 2.0% increase and a 2.0% decrease is presented.

The fair value of the Cell C shares as of September 30, 2020, represented approximately 0% of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given the current situation of Cell C’s business.

Derivative transactions - Foreign exchange contracts

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. All of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that are measured under Level 1 or 3 of the fair value hierarchy. The Company had no outstanding foreign exchange contracts as of September 30, 2020, or June 30, 2020.

4. Fair value of financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2020, according to the fair value hierarchy:

			Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
					Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investment in Cell C		$	-	$	-	$	-	$	-
Related to insurance business:
	Cash, cash equivalents and restricted cash (included in other long-term assets)		510		-		-		510
	Fixed maturity investments (included in cash and cash equivalents)		1,758		-		-		1,758
	Total assets at fair value	$	2,268	$	-	$	-	$	2,268

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2020, according to the fair value hierarchy:


				Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
						Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investment in Cell C			$	-	$	-	$	-	$	-
Related to insurance business
	Cash and cash equivalents (included in other long-term assets)			490		-		-		490
	Fixed maturity investments (included in cash and cash equivalents)			4,198		-		-		4,198
		Total assets at fair value	$	4,688	$	-	$	-	$	4,688

There have been no transfers in or out of Level 3 during the three months ended September 30, 2020 and 2019, respectively.

There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2020.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the

			Carrying value
Assets
Balance as of June 30, 2020			$	-
	Foreign currency adjustment⁽¹⁾			-
		Balance as of September 30, 2020	$	-

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

4. Fair value of financial instruments (continued)

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2019:

			Carrying value
Assets
Balance as at June 30, 2019			$	-
	Foreign currency adjustment⁽¹⁾			-
		Balance as of September 30, 2019	$	-

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

Assets measured at fair value on a nonrecurring basis

The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value and the excess is determined to be other-than-temporary. The Company has not recorded any impairment charges during the reporting periods presented herein. The Company has no liabilities that are measured at fair value on a nonrecurring basis.

Equity-Accounted Investments And Other Long-Term Assets

3 Months Ended

Sep. 30, 2020

Equity-Accounted Investments And Other Long-Term Assets [Abstract]

Equity-Accounted Investments And Other Long-Term Assets

5.Equity-accounted investments and other long-term assets

Refer to Note 10 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding its equity-accounted investments and other long-term assets.

Equity-accounted investments

The Company’s ownership percentage in its equity-accounted investments as of September 30, 2020, and June 30, 2020, was as follows:

	September 30,			June 30,
	2020			2020
Bank Frick & Co AG (“Bank Frick”)		35	%	35	%
Finbond Group Limited (“Finbond”)		31	%	31	%
Carbon Tech Limited (“Carbon”)		25	%	25	%
Revix (“Revix”)		25	%	25	%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)		50	%	50	%
V2 Limited (“V2”)		50	%	50	%
Walletdoc Proprietary Limited (“Walletdoc”)		20	%	20	%

Finbond

As of September 30, 2020, the Company owned 268,820,933 shares in Finbond representing approximately 31% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 30, 2020, the last trading day of the month, was ZAR 1.04 per share. The market value, using the September 30, 2020, closing price, of the Company’s holding in Finbond on September 30, 2020, was ZAR 279.6 million ($16.6 million translated at exchange rates applicable as of September 30, 2020).

Finbond recently published its half-year results to August 2020, which included the financial impact of the COVID-19 pandemic on its reported results during the reporting period. Finbond incurred losses during the six months to August 2020, and experienced a slow-down in its lending activities. Finbond reported that its lending activities have increased again, albeit at a slower pace compared with the prior calendar period. Finbond’s share price declined substantially during the period from its fiscal year end (February 2020) to September 30, 2020, and the weakness in its traded share price continued post September 30, 2020. The Company considered the combination of the slow-down in business activity and the lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020. The Company recorded an impairment loss of $16.8 million during the quarter ended September 30, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). There is limited trading in Finbond shares on the JSE because it has three shareholders that own approximately 90% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the September 30, 2020, Finbond closing price.

5.Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

V2 Limited

In June 2020, V2 Limited drew down $0.5 million of the $5.0 million working capital facility granted by the Company to V2. In September 2020, the Company agreed to grant V2 an option to acquire the Company’s entire interest in V2 for an option price of $5.0 million plus the face value of the outstanding working capital facility. The option expires on December 31, 2020, and may be exercised at any time through the expiration date. The Company and V2 also agreed to reduce the $5.0 million working capital facility to $1.5 million. In October 2020, V2 drew down the remaining available $1.0 million of the working capital facility.

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the three months ended September 30, 2020:

					Bank Frick		Finbond		Other⁽¹⁾		Total
Investment in equity
	Balance as of June 30, 2020				$	29,739	$	30,876	$	4,601	$	65,216
		Stock-based compensation				-		(40)		-		(40)
		Comprehensive (loss) income:				481		(17,773)		(157)		(17,449)
			Other comprehensive income			-		1,688		-		1,688
			Equity accounted (loss) earnings			481		(19,461)		(157)		(19,137)
				Share of net (loss) income		481		(2,617)		(157)		(2,293)
				Impairment		-		(16,844)		-		(16,844)
		Dividends received				-		-		(57)		(57)
		Foreign currency adjustment⁽²⁾				925		1,091		57		2,073
	Balance as of September 30, 2020				$	31,145	$	14,154	$	4,444	$	49,743

Investment in loans:
	Balance as of June 30, 2020				$	-	$	-	$	620	$	620
		Loans granted				-		-		78		78
		Allowance for doubtful loans				-		-		(78)		(78)
		Foreign currency adjustment⁽²⁾				-		-		4		4
	Balance as of September 30, 2020				$	-	$	-	$	624	$	624

							Equity		Loans		Total
Carrying amount as of :
		June 30, 2020					$	65,216	$	620	$	65,836
		September 30, 2020					$	49,743	$	624	$	50,367

(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc;

(2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR, Nigerian naira and Namibian dollar, against the U.S. dollar on the carrying value.

Other long-term assets

Summarized below is the breakdown of other long-term assets as of

		September 30,			June 30,
			2020		2020

Total equity investments		$	26,993	$	26,993
	Investment in 15% of Cell C, at fair value (Note 4)		-		-
	Investment in 12% of MobiKwik		26,993		26,993
	Investment in 87.5% of CPS⁽¹⁾		-		-
Total held to maturity investments			-		-
	Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes		-		-
Long-term portion of amount due from DNI related to sale of remaining interest in DNI			1,635		2,857
Policy holder assets under investment contracts (Note 7)			511		490
Reinsurance assets under insurance contracts (Note 7)			1,033		1,006
	Total other long-term assets	$	30,172	$	31,346

Cost basis

Unrealized holding

Carrying

gains

losses

value

Equity securities:

Investment in MobiKwik

26,993