LESAKA TECHNOLOGIES INC
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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DOCUMENTS INCORPORATED BY REFERENCE
Certain
portions
of
the
definitive
Proxy
Statement
for
our
2023
Annual
Meeting
of
Shareholders
are
incorporated by reference into Part III of this Form 10-K.
1
LESAKA TECHNOLOGIES, INC
INDEX TO ANNUAL REPORT ON FORM 10-K
Year
Ended June 30, 2023
Page
PART
I
PART
II
[
PART
III
PART
IV
2
PART
I
FORWARD
LOOKING STATEMENTS
In addition
to historical
information, this
Annual Report
on Form
10-K contains
forward-looking statements
that involve
risks
and uncertainties
that could
cause our
actual results
to differ
materially from
those projected,
anticipated or
implied in
the
forward-
looking statements. Factors
that might cause or
contribute to such differences
include, but are not
limited to, those discussed
in Item
1A—“Risk Factors.”
In some
cases, you
can identify
forward-looking
statements by
terminology such
as “may,”
“will,” “should,”
“could,”
“would,” “expects,”
“plans,”
“intends,” “anticipates,”
“believes,”
“estimates,” “predicts,”
“potential” or
“continue”
or the
negative of such terms and other comparable terminology.
You
should not place undue reliance on these forward-looking statements,
which reflect our
opinions only as of
the date of this Annual
Report. We
undertake no obligation to
release publicly any revisions
to
the forward-looking
statements after
the date
of this
Annual Report.
You
should carefully
review the
risk factors
described in
other
documents we file from
time to time with the Securities
and Exchange Commission (the
“SEC”), including the Quarterly Reports
on
Form 10-Q to be filed by us during our 2024
fiscal year, which runs from July 1, 2023 to June 30, 2024.
All
references
to
“the
Company,”
“we,”
“us,”
or
“our”
are
references
to
Lesaka
Technologies,
Inc.
and
its
consolidated
subsidiaries, collectively, and all references to “Lesaka” are to Lesaka Technologies, Inc. only, except as otherwise indicated or where
the context indicates otherwise.
ITEM 1.
BUSINESS
Overview
At Lesaka, our
core purpose is
to improve people’s lives by
bringing financial inclusion to
South Africa’s underserved consumers
and merchants.
We
achieve
this through
our ability
to efficiently
digitize the
last mile
of financial
inclusion,
providing
a full-service
fintech
platform serving both cash and digital, and facilitating the secular shift from
cash to digital that is currently taking place.
Lesaka uses its proprietary banking and payment technologies
to distribute low-cost financial and value-added
services to small
businesses, primarily
in the
informal sector,
and to
consumers, the
majority of
whom are
grant beneficiaries,
both largely
excluded
from financial services.
Our vision
is to
build and
operate the
leading full-service
fintech platform
in Southern
Africa, offering
cash management
and
digitization, card acquiring and payment processing, Value
Added Services (“VAS”),
and growth capital to micro, small and medium
enterprises
(“MSME”)
merchants
and
financial
services
to
underserved
consumers.
Our
dual-sided
financial
ecosystem
has
two
overlapping divisions: Merchants and Consumers.
3
Customers
—
In
our
B2C
Consumer
Division
we
focus
specifically
on
South
Africa’s
social
grant
beneficiaries,
who
have
historically been
excluded from
traditional financial
services. Our
products are
designed for
consumers at
the lower
socioeconomic
end of the
market within Living
Standards Measures (“LSMs”) 1
to 6, which
comprises approximately 26 million
people. We currently
have approximately 1.3 million active consumers.
In our B2B Merchant Division we
focus on MSME operating in
the informal and formal sectors of
the South African economy.
The informal
sector merchants are
generally smaller
and operate
in rural
areas or in
informal urban
areas and do
not have
access to
traditional banking
products. The
formal merchants
are generally
in urban
areas, have
larger turnovers
and have
access to
multiple
service providers. We operate separate brands in these two sectors of the economy. The informal market consists of approximately 1.4
million
merchants
and
the
formal
market
approximately
700,000
merchants.
Our
Merchant
Division
currently
has
over
82,000
customers using our solutions.
Products
—We offer
a comprehensive set of products and services to our consumer and merchant
customers.
In our Consumer Division, our products include transactional banking, short-term loans, a digital wallet as well as insurance and
various VAS to underserved consumers in South
Africa, aligning with
our purpose of
improving people’s lives and increasing
financial
inclusion. Our value proposition and products are designed to be simple,
relevant and cost effective for our target market.
In our
Merchant Division,
to informal
and formal
MSME customers,
we offer
cash management
and digitization
through our
proprietary vault technology, card acquiring, innovative growth capital, bill and supplier payment solutions, and a wide range of VAS
products for
our merchants
to sell.
To
the larger
enterprise level
merchants, we
offer bill
and supplier
payments and
VAS
products
through our proprietary financial switch, as well as Ingenico point of sale device and maintenance, bank and SIM card production and
other specialized technology products.
4
Market Opportunity
There
are
real
challenges
to
delivering
financial
inclusion
and
digitization
in
the
South
African
market.
One
of
these
major
challenges is
the deep
distrust and
a lack
of understanding
of cash
alternatives, which
is driven
by low
levels of
financial literacy.
Adding to this
challenge are the
relatively high connectivity
costs and the
low smartphone penetration
in South Africa,
where many
South
Africans
still use
older style
feature phones.
Together,
this means
that although
almost 90%
of South
Africans have
a bank
account, a significant majority treat them as post boxes and withdraw all their money in one
transaction. This has real implications for
both merchants and consumers.
For merchants
this means less
than 8% have
access to formal
credit and
less than 4%
of informal
merchants are able
to accept
digital payments. For consumers, only
an estimated 20% of the approximately
26 million South African consumers in
LSM 1-6 have
access to
credit and
savings,
and a
significant majority
of the
12 million
permanent social
grant recipients
require immediate
cash
withdrawals of their grant.
These sources
of friction
and challenges present
a significant market
opportunity for
Lesaka to provide
innovative solutions
to
both merchants
and consumers,
and more
importantly,
to facilitate
wider financial
inclusion and
digitization. Lesaka
has for
a long
time been at the forefront of providing financial inclusion and digitization
for consumers and merchants in this space.
Consumer financial
services for
the unbanked:
approximately
26
million
adults
in
the
country.
Within
that,
we
estimate
there
to
be
approximately
12
million
people
reliant
on
permanent grants.
South Africa is
primarily a
cash-based economy,
with approximately
60% of transactions
still conducted
in cash.
In the Consumer Division, we currently have 1.3 million active account holders which represents approximately 4% share of our total
addressable market.
Our focus is
on South
African government
social grant
recipients the
majority of
whom are
being inadequately
served by the current system. Lesaka is well
placed to address the needs of these consumers with
its large informal market distribution
and affordable financial services.
Merchant payment
solutions and financial
services for MSMEs:
There are
approximately 2.1
million MSMEs in
South Africa,
of which
around 1.4
million operate
in the
informal market,
and it
is estimated
that only
4% of
these can
accept digital
payments.
Lesaka
has
a
comprehensive
product
suite
of
cash
and
digital
solutions
which
provide
a
significant
opportunity
to
assist
these
businesses to grow,
reduce cash related operating
risks and become more
efficient. This is an
underserved market and increasing
our
penetration is
more about
providing solutions
that encourage
the adoption
of more
formalized and
non-cash transacting
than about
taking market share from competitors.
While the informal market presents a major growth opportunity,
Lesaka also has a comprehensive offering to the formal MSME
and enterprise market.
5
Competition
With
our comprehensive
offering
to consumers
and merchants
we compete
with a
wide range
of service
providers. There
are
competitors for
individual products and
services, although
few with an
end-to-end offering,
particularly at
the lower
socioeconomic
end of the consumer market and the informal merchant market, where we
have a significant footprint and penetration.
In our
Consumer Division,
there are
a number
of traditional
and digital
providers of
low-cost transactional
bank accounts
and
micro financial services. These include South African banks such as
FNB, Standard Bank, Absa, Nedbank, African Bank and Capitec,
the South African
Post Bank, and digital
banks such as, Tyme
Bank and Bank
Zero. In the South
African ATM
network market, we
compete against the South African banks, ATM
Solutions and Spark ATM
Systems, which collectively have a market share in excess
of 90%.
In the informal merchant sector, there
are no competitors which offer a comprehensive product
set of cash, card, payment, VAS
and capital
solutions, such
as ours.
In the
formal merchant
sector there
is significantly
more competition,
with banks
and non-bank
fintech companies targeting these merchants.
In card acquiring, competitors include
Yoco,
iKhokha, Sureswipe and the South African
banks; in VAS
and bill payments, they
include Flash, Blue Label, Shop2Shop, Pay@ and Ukeshe; in lending, they
include Lulalend, Merchant Capital, Retail Capital and the
South African banks; and in cash management, they include Fidelity,
G4S, Cashnet and the South African banks.
At an enterprise level, our financial switch and VAS and bill payments business competes with BankservAfrica, Pay@, eCentric
and Transaction Junction.
Human Capital Resources
Over
the
last
two
years
we
have
built
a
diverse
team
of
high-caliber
individuals,
from
different
organizations,
to
form
our
leadership group. This
leadership group is
deeply committed to
building a high-performance
culture that is
based on our core
values
and a commitment to the care and development of our people.
Lesaka’s Core Values:
•
Entrepreneurial spirit;
•
Integrity;
•
Collective wisdom; and
•
A bias to action.
These are our
values that underpin
our mission
to enable
Merchants to compete
and grow,
and Grant
Beneficiaries to improve
their lives, by providing innovative financial technology and value
-creating solutions.
Employee training and skills development
We strongly believe that learning
is an ongoing process and that the majority of learning is in the doing. As such, while we offer
a range of formal
programs (as listed further
below), more importantly,
we continue to encourage
a culture of learning
in everything
that we do.
Sustainable
employee
training and
development
programs impact
employee
retention,
and
we believe
that our
willingness to
invest
in
employee
development
contributes
to
employee
satisfaction
and
belonging.
This
increases
loyalty,
which
will
in
turn
contribute
to employee retention. We
offer the following development programs to enhance employee
performance and skills:
•
unemployed and employed learnerships;
•
internships;
•
leadership development programs;
•
training programs;
•
other in-house and cross-functional training to aid with career advancement;
and
•
succession planning – training interventions.
Equal opportunity
Having an inclusive
and diverse workforce
which reflects our
economically active population
and society in
general, is crucial
for helping the organization attract and retain talent and is important for long-term organizational success. Our
human resources team
emphasizes recruiting
and retaining
a talented
and diverse
workforce with
special focus
on hiring
previously disadvantaged
groups
whenever possible. We
are committed to hiring qualified candidates without regard
to their personal status, while taking into account
the
unique
circumstances
affecting
our
operations
in
South
Africa
and
the
need
to
uplift
previously
disadvantaged
groups.
This
commitment extends to all levels of our organization,
including within senior management and our board of directors.
6
As of June 30, 2023, the composition of our workforce was:
•
55% female and 45% male;
•
35% between 18 and 34 years old, 60% between 35 and 54 years old, and 5% over
55 years old; and
•
67% Black, 11% two or more races, 7% Indian and 15%
White.
We have no
female named executive officers.
We
continue
to strive
to build
a more
inclusive workforce
and to
enhance our
pay structures
by taking
measures to
eliminate
potential remuneration discrimination
and to help close gender pay gaps
to progress towards gender equality
at work. We
have taken
positive strides towards a rewards philosophy that rewards
high performance,
is externally benchmarked and focuses on equal people
for equal work.
Employee compensation programs
We
are committed
to
ensuring
that
all
our
employees
are
paid
fair
and
competitive
remuneration. To
that
end,
we
offer the
following to our employees:
•
Access to a comprehensive medical, dental, and vision plan that our employees
have the option to join;
•
Access to a defined contribution retirement plan that our employees have
the option to join;
•
Paid sick, study, annual
and family responsibility leave;
•
Maternity benefits;
•
Life and disability insurance coverage;
•
Employee assistance programs; and
•
Product discounts.
Annual
increases
and
incentive
compensation
are
based
on
merit,
which
is
communicated
to
employees
at
onboarding
and
documented as part of our annual performance review process.
Our number
of employees
allocated
on a
segmental
and
group
basis as
of the
years ended
June 30,
2023,
2022 and
2021,
is
presented in the table below:
Number of employees
2023
2022
2021
Consumer
(1)
1,306
1,826
2,920
Merchant
(1)
990
824
155
Total segments
2,296
2,650
3,075
Group
(1)
7
7
4
Total
2,303
2,657
3,079
(1) Consumer includes one executive officer for each of fiscal 2023,
2022 and 2021. Merchant includes one executive officer for
each of
fiscal 2023
and 2022
and none
for fiscal
2021.
Group includes
two executive
officers for
fiscal 2023
and three
for each
of
fiscal 2022 and 2021.
On a functional basis,
four of our employees
are our named executive
officers,
332 were employed in
sales and marketing, 253
were employed in finance and administration, 221 were employed in information technology and 1,493 were employed in operations.
Health and safety laws and regulations
We
are
subject
to various
South
African
laws and
regulations
that
regulate
the health
and
safety of
our
South
African-based
workforce, including
those laws monitored
by the
South African
Department of
Employment and
Labour which
stipulates the
legal
framework within
which we
need to
function. This
framework comprises
the Occupational
Health and
Safety Act,
Act 85
of 1993
(“OHSA”),
the
Compensation
for
Occupational
Injuries
and
Diseases
Act,
Act
130
of
1993
(“COIDA”),
the
Basic
Conditions
of
Employment Act,
Act 75
of 1997
(“BCEA”) and
the Labour
Relations Act,
Act 66
of 1995
(“LRA”). Compliance
with COVID-19
regulations remains
regulated by the
National Institute of
Occupational Health (“NIOH”),
and the Occupational
Health Surveillance
System
(“OHSS”),
the
Centre
for
Scientific
Industrial
Research
(“CSIR”)
and
the
National
Institute
for
Communicable
Diseases
(“NICD”).
We
have
implemented
and regularly
update human
capital-related
policies that
are designed
to ensure compliance
with
applicable South African laws and regulations.
7
Our Executive Officers
The table below presents our executive officers, their
ages and their titles:
Name
Age
Title
Chris Meyer
52
Group Chief Executive Officer and Director
Naeem E. Kola
50
Group Chief Financial Officer, Treasurer,
Secretary, and Director
Lincoln C. Mali
55
Chief Executive Officer: Southern Africa, and Director
Steven J. Heilbron
58
Executive, and Director
Christopher
Meyer
the Head of Corporate & Investment Banking and Joint Managing Director at Investec Bank Plc (“Investec”), an LSE-listed specialist
bank
and wealth
manager,
having
served
in many
different
roles
within
the Investec
Group
since 2001.
He was
also
an executive
director for various international and regional subsidiaries of Investec Bank Plc. Mr. Meyer is a member of the
South African Institute
of Chartered Accountants, holds an MSc Finance from the London
Business School and a Post Graduate Diploma in Accounting from
the University of Cape Town.
Naeem E.
Kol
a has
been our
Group Chief
Financial Officer,
Treasurer
and Secretary
since March
1, 2022.
Mr.
Kola has
held
progressively
senior
finance
roles
in
Dubai,
most
notably
as
Chief
Financial
Officer
of
the
Emerging
Markets
Payments
Group
(“EMP”), a high-growth
fintech business that grew
materially and successfully
concluded and integrated
five acquisitions during his
six-year
tenure
as
Chief
Financial
Officer.
Prior
to
becoming
Chief
Financial
Officer,
Mr.
Kola
was
Senior
Vice
President
for
Investments, Strategy and
Business Planning at
EMP.
Since the acquisition
of EMP by Network
International in 2017,
Mr. Kola
has
been an Operations Director
and Strategic Advisor to
the emerging market private equity
firm Actis, where he
again focused on fintech
businesses.
Lincoln
C.
Mali
executive with over 25 years in the
industry. Until April 2021, he was the Head of Group
Card and Payments at Standard Bank
Group,
and previously served
in many different
roles within that
organization since
2001. Mr.
Mali chaired the
board of directors
of Diners
Club South Africa until
April 2021, and was
a member of the Central
and Eastern Europe, Middle
East and Africa Business
Council
for Visa. Mr.
Mali holds Bachelor of Arts (BA) and Bachelor of Laws (LLB) degrees from Rhodes University,
an MBA from Henley
Management College, various diplomas and attended an Advanced
Management Program at Harvard Business School.
Steven J. Heilbron
of Connect in April 2022
in the same capacity.
Mr. Heilbron has two
decades of financial services experience,
having spent 19 years
working
for
Investec in
South
Africa
and
the
UK,
where
he served
as Global
Head
of
Private Banking
and
Joint
Chief
Executive
Officer of Investec. He led a private consortium that acquired Cash Connect
Management Solutions (Pty) Ltd (“CCMS”) in 2013. Mr.
Heilbron has
presided over
significant organic
growth in
the rebranded Connect,
as well
as spearheading
the successful
acquisition
and
integration
of Kazang
and
EFTpos acquired
from
the Paycorp
Group in
February
2020.
He
is a
member
of
the South
African
Institute of Chartered Accountants.
8
Financial Information about Geographical Areas and Operating Segments
Refer
to
Note
21
to
our
audited
consolidated
financial
statements
included
in
this
annual
report
contains
detailed
financial
information about our operating segments for fiscal 2023, 2022 and 2021. Revenues based on the geographic location from which the
sale originated and geographic location where long-lived assets are held for the years ended June 30, are presented in the table below:
Revenue
(1)
Long lived assets
2023
2022
2021
2023
2022
2021
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
505,558
215,046
127,468
300,104
359,725
50,754
India (MobiKwik)
-
-
-
76,297
76,297
76,297
Rest of the world
22,413
7,563
3,318
2,197
2,811
6,962
Total
527,971
222,609
130,786
378,598
438,833
134,013
(1)
Refer
to
Note
16
to
our
audited
consolidated
financial
statements
included
in
this
annual
report
which
contains
detailed
financial information about our revenue for fiscal 2023, 2022
and 2021.
Corporate history
Lesaka was incorporated
in Florida in
May 1997 as
Net 1
UEPS Technologies, Inc. and
changed its name
to Lesaka Technologies,
Inc. on May 12, 2022. In 2004, Lesaka acquired Net1 Applied Technology
Holdings Limited (“Aplitec”), a public company listed on
the Johannesburg
Stock Exchange
(“JSE”). In
2005, Lesaka
completed an
initial public
offering
and listed
on the
NASDAQ Stock
Market. In
2008, Lesaka
listed on
the JSE
in a
secondary listing,
which enabled
the former
Aplitec shareholders
(as well
as South
African residents generally) to hold Lesaka common stock directly.
Available information
We maintain a website at
www.lesakatech.com. Our annual report on Form
10-K, quarterly reports on
Form 10-Q, current
reports
on Form 8-K, and amendments to those
reports,
as well as our proxy statements,
are available free of charge through the
“SEC filings”
portion of our website, as soon
as reasonably practicable after they are filed
with the SEC. The information contained
on, or accessible
through, our website is not incorporated into this Annual Report on Form 10-K.
The SEC
maintains a
website at
www.sec.gov
that contains
reports, proxy
and information
statements, and
other information
regarding issuers that file electronically with the SEC.
9
ITEM 1A. RISK FACTORS
OUR OPERATIONS
AND FINANCIAL
RESULTS
ARE SUBJECT
TO VARIOUS
RISKS AND
UNCERTAINTIES,
INCLUDING
THOSE
DESCRIBED
BELOW,
THAT
COULD
ADVERSELY
AFFECT
OUR
BUSINESS,
FINANCIAL
CONDITION, RESULTS
OF OPERATIONS,
CASH FLOWS, AND THE TRADING PRICE OF OUR COMMON STOCK
Risks Relating to Our Business
To achieve our mission, our
strategy is to
build and operate
the leading South
African full service
fintech
platform offering cash management, payment
and financial services.
Our future success, and our ability
to
return
to
profitability
and
positive
cash
flow
is
substantially
dependent
on
our
ability
to
complete
the
implementation of this strategy successfully.
Our board conducted an extensive
review of our business strategy
and operations in July 2020,
and decided to focus on
our South
African
operations
and
other
business
opportunities
in
South
Africa
and,
to
a
lesser
extent,
the
rest
of
the
African
continent.
The
restructuring
of
the
consumer
business
and
acquisition
of
Connect
were
integral
parts
of
the
strategy
to
return
the
business
to
profitability and positive cash flow. We have made significant progress on both of these initiatives however we cannot assure you that
we will be able to complete our strategy successfully and return to profitability and
positive cash flow.
Even if we do return to profitability, achieving net income does not necessarily
ensure positive cash flows. Future periods of net
losses
from
operations
could
result
in
negative
cash
flow
and
may
hamper
ongoing
operations
or
prevent
us
from
sustaining
or
expanding our business. We cannot assure you that we will achieve, sustain or increase profitability in the future and if we do not, our
business will be materially and adversely affected.
In 2017
and 2018 we
suffered significant
reputational damage
as a result
of irregularities in
the awarding of
the South African
Social Security Agency (“SASSA”)
grant distribution contract in
2012 and allegations of abuse
of group companies’ access to social
grant recipients.
An entirely new
board and management
team were appointed
to develop and
execute the new
strategy however we
cannot provide assurance that issues related to those events will not resurface
and adversely affect the business.
We
have a
significant amount
of indebtedness that
requires us
to comply with
restrictive and financial
covenants. If we are unable to comply with these
covenants, we could default on this debt, which would have
a material adverse effect on our business and financial condition.
As
of
June
30,
2023,
we
had
aggregate
long-term
borrowing
outstanding
of
ZAR
2.5
billion
($133.1
million
translated
at
exchange rates
as of June
30, 2023). We
financed our acquisition
of Connect
in April 2022
through South
African bank borrowings
of ZAR 1.1 billion
($71.7 million, translated at
closing date exchange
rate (as defined in the
Sale Agreement) of $1:ZAR
14.65165).
The borrowings
are secured
by a
pledge of
certain of
our bank
accounts, and
the cession
of Lesaka’s
shareholding
in certain
of its
subsidiaries. These borrowings contain customary covenants that require Lesaka Technologies
(Pty) Ltd (“Lesaka SA”) to maintain a
specified total asset
cover ratio and restrict
the ability of
Lesaka, Lesaka SA,
and certain of its
subsidiaries to make
certain distributions
with respect
to their
capital stock,
prepay other
debt, encumber
their assets,
incur additional
indebtedness,
make investment
above
specified levels, engage in certain business combinations and engage in
other corporate activities.
The loan agreements also include a credit enhancement mechanism of ZAR
350 million ($23.9 million, translated at closing date
exchange rate), which has been provided by investment
funds managed by Lesaka’s
largest shareholder, Value
Capital Partners (Pty)
Ltd (“VCP”)
which includes
a contingent
subscription for
new shares.
There can
be no
assurance that
VCP will
perform under
the
commercially agreed
terms and failure
by it to
fulfil its obligation
under the credit
enhancement mechanism
may put our
funding or
future repayments at risk.
We also
have borrowings through
Connect. Connect’s
credit facilities include (i)
an overdraft facility (general
banking facility)
of ZAR 205.0
million (of which
ZAR 170.0 million
has been utilized);
(ii) Facility A
of ZAR 700.0
million; (iii) Facility
B of ZAR
550.0
million
(both fully
utilized);
and
(iv)
an asset-backed
facility of
ZAR
200.0
million
(of which
ZAR
149.1
million
has been
utilized).
These borrowings are
secured by a
pledge of,
among other things,
Cash Connect Management
Solutions’(“CCMS”) entire
equity interests
in its
subsidiaries and
investments and
any claims
outstanding. These
borrowings contain
customary covenants
that
require CCMS to maintain specified debt service, interest cover and leverage ratios.
Within our merchant lending
operations, we have
borrowing arrangements through
Cash Connect Capital
(Pty) Limited (“CCC”).
CCC has a
ZAR 300
million revolving
credit facility agreement.
We
have utilized
approximately ZAR
222.3 million
as of June
30,
2023.
This
facility
contains
customary
covenants
that
require
the
borrowing
parties
to
collectively
maintain
a
specified
capital
adequacy ratio, restrict the ability of the entities to make certain distributions with respect to their capital stock,
encumber their assets,
incur additional indebtedness, make investments, engage in certain
business combinations and engage in other corporate activities.
10
These security arrangements and covenants may
reduce our operating flexibility or
our ability to engage in
other transactions that
may
be
beneficial
to
us.
If
we
are
unable
to
comply
with
the
covenants,
we
could
be
in
default
and
the
indebtedness
could
be
accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as
a result, our business, financial condition and stock price would suffer.
We
need to
significantly grow
our consumer
operations in
order to
ensure their
profitability and
long-
term sustainability.
Following the conclusion of our contract with SASSA, we
refocused our resources and technology on the
provision of financial
inclusion
services
to
our
target
market
and
currently
have
an
established
base
of
approximately
1.3
million
customers
of
which
approximately
1.1 million
are permanent
grant recipients.
Our strategy
involves significantly
expanding this
base over
the coming
years. While we believe that our financial services offerings are convenient and cost-effective, the success of our strategy will depend
on the extent to which we successfully market our offering to
grow the customer base.
Factors that may prevent us from successfully operating and expanding our
Consumer Division include, but are not limited to:
•
insufficient adoption and utilization of our products and
services;
•
inability to access sufficient funding for our ATM
infrastructure;
•
increased
competition
in
the
marketplace
and
restrictions
imposed
by
SASSA
or
the
South
African
government
on
the
manner in which grant recipients may transact;
•
political interference and changes in the regulatory environment;
•
failure to comply with laws and regulations related to our Consumer lending
business;
•
failure to comply with anti-money laundering and anti-corruption laws and
regulations;
•
cyber-attacks, data breaches and data leaks;
•
further civil unrest similar to that experienced in July 2021;
•
loss of key technical and operations staff;
•
expired property leases disrupting business operations; and
•
logistical and communications challenges, including scheduled and unscheduled
power supply disruptions.
We may undertake acquisitions
that could
increase our
costs or
liabilities or
be disruptive
to our
business.
Acquisitions are
an integral part
of our new
growth strategy
as we seek
to expand our
business and deploy
our technologies
in
new markets
in Southern
Africa. However,
we may
not be
able to
locate suitable
acquisition
candidates at
prices that
we consider
appropriate.
If
we
do
identify an
appropriate
acquisition
candidate,
we
may
not be
able to
successfully
negotiate
the
terms
of
the
transaction, finance it
or, if the
transaction occurs, integrate the
new business into
our existing business.
These transactions may
require
debt financing or additional equity financing, resulting in additional leverage
or dilution of ownership.
Acquisitions of businesses
or other material
operations and the
integration of these
acquisitions or their
businesses will require
significant attention
from members
of our senior
management team,
which may
divert their
attention from
our day-to-day
business.
The difficulties
of integration
may be
increased by
the necessity
of integrating
personnel with
disparate business
backgrounds
and
combining
different
corporate cultures.
We
also may
not be
able to
retain key
employees or
customers
of an
acquired business
or
realize
cost
efficiencies
or
synergies
or
other
benefits
that
we
anticipated
when
selecting
our
acquisition
candidates.
Acquisition
candidates may have liabilities or adverse operating issues that we fail to
discover through due diligence prior to the acquisition.
We
may
need
to record
write-downs
from future
impairments of
goodwill or
other intangible
assets, which
could reduce
our
future reported earnings.
Geopolitical
conflicts,
including
the
conflict
between
Russia
and
Ukraine,
may
adversely
affect
our
business and results of operations.
The
current
conflict
between
Russia
and
Ukraine
is
creating
substantial
uncertainty
about
the
future
of
the
global
economy.
Countries across the globe are instituting sanctions and other
penalties against Russia. The retaliatory measures that
have been taken,
and could
be taken
in the
future, by
the U.S.,
NATO,
and other
countries have
created global
security concerns
that could
result in
broader European military and political conflicts and otherwise have a substantial impact on regional and
global economies, any or all
of which could adversely affect our business.
11
While the broader consequences are
uncertain at this time,
the continuation and/or escalation of
the Russian and Ukraine
conflict,
along
with
any
expansion
of the
conflict
to
surrounding
areas, create
a
number
of risks
that
could
adversely
impact
our
business,
including:
•
increased inflation and significant volatility in the macroeconomic
environment;
•
disruptions to our technology infrastructure, including through cyberattacks,
ransom attacks or cyber-intrusion;
•
adverse changes in international trade policies and relations;
•
disruptions in global supply chains; and
•
constraints, volatility or disruption in the credit and capital markets.
All of these risks could
materially and adversely affect
our business and results of operations.
We are
continuing to monitor the
situation in Ukraine and globally and assessing the potential impact on our business.
A prolonged economic
slowdown or lengthy
or severe recession
in South Africa
or elsewhere could
harm
our operations.
A prolonged economic
downturn or recession
in South Africa
could materially
impact our results
from operations, particularly
in light of
on-going electricity disruptions
during calendar 2022
and 2023, a
significantly weak USD/
ZAR exchange rate
compared
with previous periods, and our strategic decision to focus on our South African operations. Economic confidence in South Africa, our
main operating
environment, is
currently low
and, as
a result, the
risk of
a prolonged
economic downturn
is increased, which
could
have a negative impact on merchants and retailers; mobile phone operators; our account holders; the
level of transactions we process;
the take-up of
the financial services
we offer and
the ability of our
customers to repay
our loans or to
pay their insurance
premiums.
If
financial
institutions
and
retailers experience
decreased
demand
for
their products
and services,
our
hardware,
software,
related
technology sales and processing revenue could decrease.
Our investment in MobiKwik
subjects us to certain
risks, including the possibility
of fluctuations in the
carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in
MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.
We
have elected to
account for our
investment in MobiKwik
at cost minus impairment,
if any,
plus or minus changes
resulting
from observable
price changes
in orderly
transactions for
the identical
or similar
instrument of
the same
issuer because
it does
not
have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments
and estimates and we are required to
base our estimates on assumptions which
we believe to be reasonable, but
these assumptions may
be unpredictable and inherently uncertain. The value of our investment in MobiKwik as of
June 30, 2023 and 2022, was $76.3 million
and was determined
based on a
share issuance concluded
by MobiKwik in
June 2021, implying
a fair
value per equity
share of $12.275.
We
did not identify
any observable price
changes during either
of fiscal 2023
and 2022 and therefore
did not adjust
the value of
our
investment during the years ended June 30, 2023 and 2022. We recorded
a non-cash fair value adjustment of $49.3 million during the
year ended June 30, 2021, which increased the fair value to $76.3
million.
MobiKwik filed its draft
red herring prospectus in July
2021, with the original intention
of completing its initial public
offering
in November 2021. However, MobiKwik decided to delay its initial public offering given
prevailing market conditions at the time and
has indicated its intention to pursue an initial public listing in calendar 2024.
We
may
need to
record a
write-down of
the carrying
value of
our investment
in MobiKwik
in the
future (i)
if it
is unable
to
successfully complete its contemplated initial public offering, (ii) due to fluctuations in its market price upon listing, including during
the lock up
period after its
initial public
offering, or
(iii) if it
has not listed,
there is an
observable transaction
indicating a
fair value
per share
which is
lower than
our
June 30,
2023 price
per share.
Furthermore,
it may
be difficult
to dispose
of some
or all
of our
investment on acceptable terms, if at all, if MobiKwik fails to list.
Our
ability
to
fund
our
ATM
network
requires
that
we
continue
to
have
access
to
sufficient
lending
facilities, which requires compliance with restrictive and financial covenants.
The operational
maintenance
of our
ATM
network,
along with
an increase
in our
consumer
banking
client base,
necessitates
access to large
amounts of cash
to stock the
ATMs
and maintain uninterrupted
service levels. We
have credit facilities
from a South
African
bank
which
includes
security
arrangements
as
well
as
restrictive
and
financial
covenants.
The
security
arrangements
and
covenants included in our lending facilities may reduce our operating flexibility or our ability to engage in other transactions that may
be beneficial to us. If we are unable to comply
with the covenants in South Africa, we could be in default
and the indebtedness could
be accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and
as a result, our business and financial condition would suffer.
12
We may not be able to extend the terms
of these debt facilities or
refinance them, in each case, on
commercially reasonable terms
or at all. Our
ability to continue the
uninterrupted operation of
our ATM
network will be adversely
impacted by our failure
to renew
our debt facilities, any adverse change to the terms
of our credit facilities, or a
significant reduction in the amounts available under our
credit facilities,
or our
failure to
increase our
facilities if
required. We
may also
suffer reputational
damage if
our service
levels are
negatively impacted due to the unavailability of cash.
We
have
purchased
a
significant
amount
of
prepaid
airtime
voucher
inventory
which
exposes
us
to
market risk for this inventory as well as losses if the mobile network operators are unable to perform.
Historically,
we
have
purchased
a
significant
amount
of
prepaid
airtime
inventory
vouchers
in
order
to
take
advantage
of
discounted
pricing for
this inventory.
As of
June 30,
2023, the
carrying
value of
this inventory
is $4.0
million (ZAR
74.7
million
translated at exchange rates applicable as of
June 30, 2023). We expect to sell this inventory
over the next three months which
exposes
us to market risk for this inventory. The underlying service related to these
airtime vouchers is provided by South Africa’s four largest
mobile network
operators operating
in South
Africa and
therefore we
are also
exposed to
performance
risk by
these operators.
We
would be unable
to sell these prepaid
airtime vouchers if
the mobile network
operators were unable
to provide their
services and we
would need to
write this inventory
off. Failure
to recover the
carrying value of
this inventory
may have a
material adverse effect
on
our results of operations or financial condition.
We may be unable to recover the carrying value of certain Cell C
airtime that we own.
We
own a
substantial amount
of Cell
C airtime
inventory ($8.6
million translated
at exchange
rates applicable
as of
June 30,
2023). In support of
Cell C’s liquidity
position and pursuant to Cell
C’s recapitalization
process, we limited the resale
of this airtime
through
our
distribution
channels.
On
September
30,
2022,
Cell
C
concluded
its
recapitalization
process
and
we
entered
into
an
agreement with Cell C under which
Cell C agreed to repurchase, from
October 2023, up to ZAR 10 million
of Cell C inventory from
us per month. The amount to be
repurchased by Cell C will be calculated
as ZAR 10 million less the face
value of any sales made by
the Company during that month. The Company continued to sell a minimum amount of Cell C airtime through its internal channels in
late
fiscal
2022/
early
fiscal 2023
in support
of
Cell C’s
liquidity
position.
However,
our
ability
to
sell this
airtime
has
improved
significantly since
the acquisition
of Connect because
Connect is a
significant reseller
of Cell C
airtime. As
a result, we
sold higher
volumes of airtime through this channel than we did prior to the
Cell C recapitalization, however, continued
sales at these volumes is
dependent on
prevailing conditions continuing
in the airtime
market. If
we are able
to sell at
least ZAR 10
million a month
through
this channel
from October 1,
2023, then
Cell C would
not be required
to repurchase any
airtime from us
during any specific
month.
We
have agreed
to notify
Cell C
prior to
selling any
of this
airtime, however,
there is
no restriction
placed on
us on
the sale
of the
airtime.
Historical and current limitations
on our ability to freely dispose
of this Cell C airtime time
inventory exposes us to market
risk
for this inventory. Due to wholesale discounts in the distribution market for this airtime, it is not readily saleable in the current market
without realising a loss. In light of this, we recorded
a loss of $1.3 million during fiscal 2020, related
to this airtime inventory.
While
no further
losses were
recorded
in fiscal
2023,
2022 and
2021, we
may be
required to
record further
losses in
the future
if we
are
unable to recover the carrying
value of this airtime inventory
or if Cell C is unable
to repurchase the inventory
as per our agreement.
Failure to
recover the
carrying value
of this
inventory may
have a
material adverse
effect
on our
results of
operations or
financial
condition.
Our
consumer
microlending
loan
book
and
merchant
lending
book
expose
us
to
credit
risk
and
our
allowance for doubtful finance loans receivable may not be sufficient to absorb future write-offs.
All of our microfinance loans made are for a period of six months or less and all of our merchant lending through Connect is for
a period
of less
than 12
months. We
have created
an allowance
for doubtful
finance loans
receivable related
to these
books. When
creating the allowance,
management considered
factors including the
period of the
finance loan outstanding,
creditworthiness of
the
customers and the past payment history of the borrower. We consider this policy to be appropriate as it takes into account factors such
as historical bad debts, current
economic trends and changes in our
customer payment patterns. However,
additional allowances may
be required should the ability
of our customers to
make payments when due
deteriorate in the future.
A significant amount of judgment
is required to assess the ultimate recoverability of these microfinance
loan receivables.
We may face competition from other
companies that offer innovative
payment technologies and payment
processing,
which
could
result
in
the
loss
of
our
existing
business
and
adversely
impact
our
ability
to
successfully market additional products and services.
Our primary competitors in
the payment processing
market include other independent
processors, as well
as financial institutions,
independent
sales
organizations,
new
digital
and
fintech
entrants
and,
potentially
card
networks.
Many
of
our
competitors
are
companies who
are larger
than we
are and
have greater
financial and
operational resources
than we
have. These
factors may
allow
them to offer better pricing
terms or incentives to customers, which
could result in a loss of our potential
or current customers and/or
force us to lower our prices. Either of these actions could have a significant effect
on our revenues and earnings.
13
Our
future
success
will
depend
in
part
on
our
ability
to
attract,
integrate,
retain
and
incentivize
key
personnel
and
a
sufficient
number
of
skilled
employees,
particularly
in
the
technical,
sales
and
senior
management areas.
We believe our management team has the right experience
and skills to execute on our strategy. However,
in order to succeed in
our product
development and
marketing efforts,
we may
need to identify
and attract new
qualified technical
and sales personne
l, as
well as motivate and retain our
existing employees. As a result, an
inability to hire and retain such
employees would adversely affect
our ability to
achieve our strategic
goals and maintain
our technological relevance.
We may face difficulty in
assimilating, transitioning
and integrating
newly-hired
personnel or
management of
any future
acquisitions into
our existing
management team,
and this
may
adversely affect
our business. Competitors
may attempt
to recruit
our top
management and
employees. In
order to attract
and retain
personnel in
a competitive
marketplace, we
must provide
competitive pay
packages, including
cash and equity
-based compensation
and
the
volatility
in
our
stock
price
may
from
time
to
time
adversely
affect
our
ability
to
recruit
or retain
employees.
We
do
not
maintain
any
“key
person”
life
insurance
policies.
If
we
fail
to
attract,
integrate,
retain
and
incentivize
key
personnel
and
skilled
employees, our ability to manage and grow our
business could be harmed and our product
development and marketing activities could
be negatively affected.
System failures, including breaches in the security of our system, could harm our business.
We
may experience
system failures
from time
to time,
and any
lengthy interruption
in the availability
of our
back-end system
computers could harm our business and severely affect our customer relationships. Frequent or persistent interruptions in our services
could cause current or potential
customers and users to
believe that our systems are
unreliable, leading them to
avoid our technology
altogether, and could permanently harm our reputation and brands. These interruptions would increase the burden on our staff, which,
in turn, could delay our
introduction of new applications and
services. Finally, because our customers may use our products
for critical
transactions,
any
system
failures
could
result
in
damage
to
our
customers’
businesses.
These
customers
could
seek
significant
compensation from us for their losses. Even if unsuccessful, this type of
claim could be time-consuming and costly for us to address.
Although certain of our systems
have been designed to reduce
downtime in the event of
outages or catastrophic occurrences, they
remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication
failures, terrorist attacks,
computer viruses, computer denial-of-service attacks and similar events. Some of
our systems are not fully
redundant, and our disaster
recovery planning may not be sufficient for all eventualities.
Protection against fraud is of key
importance to the purchasers and end
users of our solutions. We
incorporate security features,
including encryption
software, biometric
identification and
secure hardware,
into our solutions
to protect
against fraud in
electronic
transactions and
to provide for
the privacy and
integrity of cardholder
data. Our solutions
may be vulnerable
to breaches in
security
due to
defects in
the security
mechanisms, the
operating system
and applications
or the
hardware platform.
Security vulnerabilities
could
jeopardize
the
security
of
information
transmitted
using
our
solutions.
If
the
security
of
our
solutions
is
compromised,
our
reputation and marketplace acceptance
of our solutions may be adversely
affected, which would cause our
business to suffer,
and we
may become subject to damage claims. We
have not yet experienced any significant security breaches affecting
our business.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our
system could
result in lengthy interruptions
to our services. Our current
business interruption insurance may
not be sufficient to
compensate us for
losses that may result from interruptions in our service as a result of system failures.
Cash
Paymaster
Services,
or
CPS,
has
been
placed
into
liquidation.
While
no
claim
has
been
made
against Lesaka for CPS’ obligations, we cannot provide assurance that no such claim will be made.
CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While
no claim has been made against Lesaka to be held liable for CPS’ current
obligations or any future obligations under any future court
judgments, and while we do not believe that there would be a legitimate legal basis for any such claims, we cannot assure you that no
such claim
will be
made against
us. If
SASSA or
another
third party
were to
seek and
ultimately succeed
in obtaining
a judgment
against us in respect of CPS’ liabilities, any such judgment would have a material
adverse effect on our financial condition, results of
operations and cash flows.
14
Defending
our
intellectual
property
rights
or
defending
ourselves
in
infringement
suits
that
may
be
brought against us is expensive and time-consuming and may not be successful.
Litigation to
enforce our
patents, trademarks
or other
intellectual property
rights or
to protect
our trade
secrets could
result in
substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish
our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our
intellectual property
rights to
the same
extent as
do the
laws in
countries where
we currently
have patent
protection. Our
means of
protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in
which we operate, may not be
adequate to fully protect our intellectual
property rights. Similarly, if third parties claim that we infringe
their intellectual property rights, we may be required to incur significant costs and
devote substantial resources to the defense of such
claims,
to
discontinue
using
and
selling
any
infringing
technology
and
services,
to
expend
resources
to
develop
non-infringing
technology or
to purchase
licenses or
pay royalties
for other
technology.
In addition,
if we
are unsuccessful
in defending
any such
third-party
claims, we
could
suffer
costly judgments
and
injunctions
that could
materially
adversely
affect
our business,
results of
operations or financial condition.
We
may incur
material losses
in connection
with our
movement of
cash through
our infrastructure
in
South Africa.
In our merchant
business we collect
and process large
volumes of cash
from our customers,
assuming the
risk of loss
from the
moment that cash is
deposited into our vaults.
We are then responsible for its
collection and transportation to
processing centers, which
we outsource to various cash in transit service providers. These services extend
across all areas of South Africa.
South Africa
suffers from
high levels of
crime and in
particular cash in
transit heists. We
cannot insure
against certain risks
of
loss or
theft of
cash from
our delivery
and collection
vehicles and
we will
therefore bear
the full
cost of
certain uninsured
losses or
theft in connection with the cash handling process, and such losses could materially and adversely affect our financial condition, cash
flows and results of operations. We
have not incurred any material losses
resulting from cash distribution in
recent years, but there is
no assurance that we will not incur any such material losses in the future.
We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations,
which could harm our business.
We obtain
our smart cards, ATMs,
POS devices, components for our
safe assets, and the other hardware
we use in our business
from a limited number of
suppliers, and do not
manufacture this equipment ourselves. We generally do not have long-term
agreements
with our manufacturers
or component suppliers.
If our suppliers become
unwilling or unable to
provide us with adequate
supplies of
parts or products when we need
them, or if they increase their
prices, we may not be
able to find alternative sources in
a timely manner
and could be faced
with a critical shortage.
This could harm our
ability to meet customer
demand and cause our
revenues to decline.
Even
if we
are able
to secure
alternative
sources in
a timely
manner,
our costs
could increase
as a
result of
supply or
geopolitical
shocks, which may lead to an increase in the prices of goods and services from third
parties. A supply interruption, such as the current
global shortage of semiconductors, or an increase in
demand beyond current suppliers’ capabilities could harm our ability
to distribute
our equipment and thus
to acquire new customers
who use our technology.
Any interruption in the supply
of the hardware necessary
to operate
our technology,
or our
inability to
obtain substitute
equipment at
acceptable prices
in a
timely manner,
could impair
our
ability to meet the demand of our customers, which would have an adverse
effect on our business.
Our Smart Life business exposes us to risks typically experienced by life assurance companies.
Smart Life is a life insurance company and exposes us to risks typically experienced by life assurance companies. Some of these
risks
include
the
extent
to
which
we
are
able
to
continue
to
reinsure
our
risks
at
acceptable
costs,
reinsurer
counterparty
risk,
maintaining regulatory capital adequacy, solvency and
liquidity requirements, our ability
to price our
insurance products appropriately,
the risk
that actual
claims experience
may exceed
our estimates, the
ability to
recover policy
premiums from
our customers
and the
competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance
at prices that we
consider acceptable, we would have to either
accept an increase in our risk exposure
or reduce our insurance writings. If our reinsurers
are unable
to meet
their commitments
to us
in a
timely manner,
or at
all, we may
be unable
to discharge
our obligations
under our
insurance contracts. As such, we are exposed to counterparty risk, including
credit risk, of these reinsurers.
Our
product
pricing
includes
long-term
assumptions
regarding
investment
returns,
mortality,
morbidity,
persistency
and
operating
costs
and
expenses
of
the
business.
Using
the
wrong
assumptions
to
price
our
insurance
products
could
materially
and
adversely affect our financial
position, results of
operations and cash flows.
If our actual
claims experience is
higher than our
estimates,
as we have seen
during the recent COVID-19 pandemic, our
financial position, results of operations and
cash flows could be
adversely
affected. Finally, the South African
insurance industry is
highly competitive. Many
of our competitors
are well-established, represented
nationally and market similar products and we therefore may not be able to
effectively penetrate the South African insurance market.
15
Risks Relating to Operating in South Africa and Other Foreign Markets
Operating in Southern Africa,
an emerging market, subjects
us to greater risks
than those we would
face
if we operated in more developed markets.
Emerging markets such as
Southern Africa are subject
to greater risks
than more developed markets.
While we focus
our business
primarily
on
emerging
markets
because
that
is
where
we
perceive
the
greatest
opportunities
to
market
our
products
and
services
successfully, the political, economic and market conditions these markets present risks that could make it more difficult to operate our
business successfully.
Some of these risks include:
•
political, legal and economic instability,
including higher rates of inflation and currency fluctuations;
•
high levels of corruption, including bribery of public officials;
•
loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
•
a
lack
of
well-developed
legal
systems
which
could
make
it
difficult
for
us
to
enforce
our
intellectual
property
and
contractual rights;
•
logistical, utilities (including electricity and water supply) and communications
challenges;
•
potential
adverse
changes
in
laws
and
regulatory
practices,
including
import
and
export
license
requirements
and
restrictions, tariffs, legal structures and tax laws;
•
difficulties in staffing and managing operations
and ensuring the safety of our employees;
•
restrictions on the right to convert or repatriate currency or export assets;
•
greater risk of uncollectible accounts and longer collection cycles;
•
indigenization and empowerment programs;
•
exposure to liability under the UK Bribery Act; and
•
exposure to
liability under
U.S. securities
and foreign
trade laws,
including the
Foreign Corrupt
Practices Act,
or FCPA,
and regulations established by the U.S. Department of Treasury’s
Office of Foreign Assets Control, or OFAC.
If
we
do
not
achieve
applicable
Broad-Based
Black
Economic
Empowerment
objectives in
our
South
African businesses, we
may be subject
to fines and
we risk losing
our government and/or
private contracts.
In addition,
it is
possible that
we may
be required
to increase
the Black
shareholding of
our company
in a
manner that
could dilute
your ownership
and/or change
the companies
from which
we purchase
goods or
procure services (to companies with a better BEE Status Level).
The legislative framework for the promotion of Broad-Based Black Economic Empowerment (“BEE”), in South Africa
has been
established through
the Broad-Based
Black Economic
Empowerment
Act, No.
53 of
2003, as
amended from
time to
time, and
the
Amended
BEE
Codes
of
Good
Practice,
2013,
or
BEE
Codes,
and
any
sector-specific
codes
of
good
practice,
or
Sector
Codes,
published pursuant
thereto. Sector
Codes are
fully binding
between and
among businesses
operating in
a sector
for which
a Sector
Code has been
published. Achievement
of BEE objectives
is measured by
a scorecard which
establishes a weighting
for the various
elements. Scorecards
are independently
reviewed by
accredited BEE
verification agencies
which issue
a verification
certificate that
presents an
entity’s
BEE Status
Level. This
BEE verification
process must
be conducted
on an
annual basis,
and the
resultant BEE
verification certificate is only
valid for a period
of 12 months from the
date of issue of the verification
certificate.
We currently
have
a level 5 BEE rating for our South African business.
Certain of our South African
businesses are subject to either
the Amended Information and
Communication Technology
Sector
Code, or ICT Sector Code, or the
Amended Financial Services Sector Code,
or the FS Sector Code. The ICT
Sector Code and the FS
Sector Code have been amended and aligned with the new
BEE Codes and were promulgated in November 2016 and December
2017,
respectively.
Licensing
and/
or
regulation
authorities
overseeing
these
South
African
businesses
may
set
minimum
adherence
requirements to BEE standards as a condition for an operating license to trade
.
The BEE scorecard includes
a component relating to management
control, which serves to determine
the participation of Black
people
within
the
board,
as
well
as
at
various
levels
of
management
within
a
measured
entity
(including,
inter
alia
,
Executive
Management, Senior
Management, Middle
Management and
Junior Management).
The BEE
Codes and/or
Sector Codes
define the
terms
"
Senior
Management
",
"
Middle
Management
"
and
"
Junior
Management
"
as
those
occupational
categories
as
determined
in
accordance
with
the
Employment
Equity
Regulations,
with
specific
emphasis
on
improving
participation
in
proportion
to
the
demographics
of the
Economically Active
Population
of South
Africa,
as published
by Statistics
South
Africa,
from time
to time.
Employment Equity legislation
seeks to drive the
alignment of the workforce
with the racial composition
of the economically active
population
of
South
Africa
and
accelerate
the
achievement
of
employment
equity
targets,
introducing
monetary
fines
for
non-
compliance
with
the Employment
Equity
legislation
and misrepresented
submissions.
Annexure
EEA9
to the
Employment
Equity
Regulations sets out the various occupational levels which are determined in accordance with the relevant grading systems applied by
the measured entity and referred to in said Annexure.
16
We
have taken a
number of actions
as a company
to increase empowerment
of Black (as
defined under applicable
regulations)
South Africans.
For instance,
the South
African competition
authorities approved
the Connect
transaction subject
to certain
public
interest conditions
relating to
employment, increasing
the spread
of ownership
by historically
disadvantaged people
(“HDPs”), and
investing
in both
enterprise and
supplier development.
Further to
increasing the
spread of
ownership
by HDPs,
we are
required
to
establish
an
Employee
Share
Ownership
Plan
scheme
(“ESOP”)
within
36
months
of
the
implementation
of
the
transaction
that
complies with certain design principles. This will benefit the workers of the merged entity and result in them receiving a shareholding
in our
company equal
in value
to at
least 3%
of the
issued shares
in our
company as
of April
14, 2022.
If within
24 months
of the
implementation date of the transaction, we generate a positive net profit for three consecutive quarters, the ESOP shall increase to 5%
of the issued
shares in our company
as of April 14,
2022. The final structure
of the ESOP is
contingent on shareholder
approval and
relevant regulatory and
governance approvals. The
ESOP had not been
established as of the
date of this Annual
Report on Form
10-
K.
During fiscal 2023, we
made a donation to
The Association for Savings
and Investment South Africa (“ASISA”),
an organization
which serves as a unifying force for the South
Africa's asset managers, collective investment scheme
management companies, linked
investment service providers, multi-managers, and life insurance companies. We
provided donations to eight of our suppliers in order
to enable
them to
promote growth
and strengthen
their capacity
to provide
valuable products
and services
to the
market they
serve.
We
also contributed
to a
non-profit organization
that focuses
on education,
health services,
and sports
development in
underserved
communities, and we
believe our contribution
creates a positive impact
on society and promoting
holistic development among
those
who face
challenges in accessing
essential resources.
However,
it is possible
that these actions
may not
be sufficient
to enable us
to
achieve the applicable BEE objectives set out for specific
financial years. In that event, in order to
maintain competitiveness with both
government
and
private
sector
clients,
we
may
have
to
seek
to
increase
compliance
through
other
means,
including
by
selling
or
placing additional
shares of Lesaka
or of our
South African subsidiaries
to Black
South Africans
(either directly
or indirectly),
over
and above what
has already been
approved. Such sales
or placements of
shares could have
a dilutive impact
on your ownership
interest,
which could cause the market price of our stock to decline.
We
expect that our
BEE Status Level
will be important
in order for
us to remain
competitive in the
South African marketplace
and we continually
seek ways to
improve our BEE
Status Level, especially
the ownership element
(so-called “equity element”)
thereof.
We
may not be
able to effectively
and efficiently
manage the disruption
to our operations
as a result
of
erratic electricity supply in
South Africa, which could
adversely affect our, financial position, cash flows
and
future growth.
Our businesses in
South Africa are
dependent on electricity
generated and supplied
by the state-owned
utility,
Eskom, in order
to operate, and Eskom has been unable to generate and
supply the amount of electricity required by the South African economy which
has resulted in significant and
often unpredictable electricity supply disruptions. Eskom has
implemented a number of short- and
long-
term mitigation plans
to correct these issues
but supply disruptions
continue to occur
regularly and with
no predictability.
As part of
our
business continuity
programs, we
have
installed back-up
diesel generators
in order
for
us to
continue
to operate
our
core data
processing
facilities
in
the
event
of
intermittent
disruptions
to
our
electricity
supply.
We
have
to
perform
regular
monitoring
and
maintenance of these
generators and also
source and manage
diesel fuel levels.
We
may also be
required to replace
these generators
on a more frequent basis due to the additional burden placed on them.
Our results of operations, financial position, cash flows
and future growth could be adversely affected if Eskom is
unable to raise
sufficient funding to operate
and/or commission new electricity-generating
power stations in accordance with its
plans, or at all, or if
we are unable to effectively and efficiently test, maintain,
source fuel for, and replace, our generators.
Fluctuations in
the value
of the
South African
rand have
had, and
will continue
to have,
a significant
impact
on
our
reported
results
of
operations,
which
may
make
it
difficult
to
evaluate
our
business
performance between reporting periods and may also adversely affect our stock price.
The South
African rand,
or ZAR,
is the
primary operating
currency for
our business
operations while
our financial
results are
reported in U.S. dollars. Therefore, any depreciation in
the ZAR against the U.S. dollar, would negatively impact
our reported revenue
and net
income. The
U.S. dollar/ZAR
exchange rate
has historically
been volatile
and we
expect this
volatility to
continue (refer
to
Item
7—“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations—Currency
Exchange
Rate
Information.”).
Due
to
the
significant
fluctuation
in
the
value
of
the
ZAR
and
its
impact
on
our
reported
results,
you
may
find
it
difficult to
compare our results
of operations between
financial reporting periods
even though we
provide supplemental information
about our
results of
operations determined
on a
ZAR basis.
Similarly,
depreciation in
the ZAR
may negatively
impact the
prices at
which our stock trades.
We generally do not engage in any currency hedging
transactions intended to reduce the
effect of fluctuations in foreign currency
exchange rates on our results of
operations, other than economic hedging
using forward contracts relating to
our inventory purchases
which are settled in U.S.
dollars or euros. We
cannot guarantee that we will
enter into hedging transactions
in the future or,
if we do,
that these transactions will successfully protect us against currency fluctuations.
17
South Africa’s
high levels of
poverty, unemployment
and crime may
increase our costs
and impair our
ability to maintain a qualified workforce
While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment,
relative to peer
countries in Africa
and other emerging
economies, and there
are significant differences
in the level
of economic and
social development among its people,
with large parts of the population,
particularly in rural areas, having limited
access to adequate
education, healthcare, housing and other
basic services, including water
and electricity. In addition, South Africa has
a high prevalence
of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of
citizens
under
previous
governments
may
increase
our
costs and
reduce
our
profitability,
all of
which
could
negatively
affect
our
business.
These
problems
may
prompt
emigration
of
skilled
workers,
hinder
investment
into
South
Africa
and
impede
economic
growth. As a result, we may have difficulties attracting and retaining
qualified employees.
The
economy
of
South
Africa
is
exposed
to
high
rates
of
inflation,
interest
and
corporate
tax,
which
could
increase
our
operating
costs
and
thereby
reduce
our
profitability.
Furthermore,
the
South
African
government requires additional
income to fund
future government
expenditures and may
be required,
among
other things, to
increase existing income
tax rates, including
the corporate income tax
rate, amend existing
tax legislation or introduce additional taxes.
The economy of
South Africa in the
past has been, and
in the future may
continue to be, characterized
by rates of inflation
and
interest that
are substantially
higher than
those prevailing
in the United
States and
other highly-developed
economies. High
rates of
inflation could increase our South African-based costs and decrease our operating margins. High interest rates increase the cost of our
debt financing, though conversely, they also
increase the amount
of income we
earn on any
cash balances. The
South African corporate
income tax rate, of 27%, is higher than the
U.S. federal income tax rate, of 21%. Any increase
in the effective South African corporate
income tax rate would adversely impact our profitability and cash flow generation.
Risks Relating to Government Regulation
We
are required to
comply with
certain laws
and regulations, including
economic and trade
sanctions,
which could adversely impact our future growth.
We
are
subject
to U.S.
and
other
trade
controls,
economic sanctions
and
similar
laws and
regulations,
including
those in
the
jurisdictions
where
we
operate.
Our
failure
to
comply
with
these
laws
and
regulations
could
subject
us
to
civil,
criminal
and
administrative
penalties
and
harm
our
reputation.
These
laws and
regulations
place
restrictions
on
our
operations,
trade
practices,
partners
and
investment
decisions.
In particular,
our operations
are subject
to U.S.
and
foreign
trade
control laws
and
regulations,
including various export controls and economic sanctions programs, such as those administered by OFAC. We monitor compliance in
accordance with
the 10
principles as
set out
in the
United Nations
Global Compact
Principles, the
Organisation
for Economic
Co-
operation and
Development recommendations
relating to
corruption, and
the International
Labor Organization
Protocol in
terms of
certain of the items to be
monitored. As a result of doing business
in foreign countries and with foreign
partners, we are exposed to a
heightened risk of violating trade control laws as well as sanctions regulations.
Violations
of
trade
control
laws and
sanctions
regulations
are
punishable
by civil
penalties,
including
fines,
denial
of export
privileges,
injunctions,
asset seizures,
debarment
from
government
contracts
and revocations
or restrictions
of licenses,
as
well
as
criminal fines and imprisonment.
We have
developed policies and procedures as
part of a company-wide compliance
program that is
designed to
assist our compliance
with applicable
U.S. and international
trade control laws
and regulations,
including trade controls
and sanctions programs administered
by OFAC,
and provide regular training
to our employees to create awareness
about the risks of
violations of trade
control laws and
sanctions regulations and
to ensure compliance
with these laws
and regulations.
However, there
can be no assurance that all of our employees, consultants,
partners, agents or other associated persons will not act in violation
of our
policies and these laws and regulations, or that our policies and
procedures will effectively prevent us from violating these regulations
in every transaction
in which we
may engage, or
provide a defense
to any alleged
violation. In particular,
we may be
held liable for
the actions that our
local, strategic or joint venture
partners take inside or outside
of the United States, even
though our partners may
not be
subject to
these laws.
Such a
violation, even
if our
policies prohibit
it, could
materially and
adversely affect
our reputation,
business,
results
of
operations
and
financial
condition.
Any
expansion
into
developing
countries,
and
our
development
of
new
partnerships and joint venture relationships, could increase the risk
of OFAC violations in the
future.
In addition,
our payment
processing and
financial services
activities are
subject to
extensive
regulation.
Compliance with
the
requirements under the various
regulatory regimes may cause
us to incur significant
additional costs and failure
to comply with such
requirements could result in the shutdown of
the non-complying facility, the imposition of liens, fines and/or civil or
criminal liability.
18
We
are
required
to
comply
with
anti-corruption
laws
and
regulations,
including
the
FCPA
and
UK
Bribery Act, in the
jurisdictions in which we
operate our business, which could
adversely impact our future
growth.
The FCPA prohibits
us from providing anything of value to foreign
officials for the purposes of obtaining or retaining business,
or
securing
any
improper
business
advantage,
and
requires
us
to
keep
books
and
records
that
accurately
and
fairly
reflect
our
transactions.
As part
of
our
business,
we
may
deal
with
state-owned
business
enterprises,
the
employees
of
which
are
considered
foreign
officials
for
purposes of
the FCPA.
The UK
Bribery
Act includes
provisions
that extend
beyond bribery
of foreign
public
officials and also apply to
transactions with individuals not employed
by a government and
the act is also
more onerous than the FCPA
in a number of other respects, including
jurisdiction, non-exemption of facilitation
payments and penalties. Some of the international
locations in which we operate or have investments lack a developed
legal system and have higher than normal levels of corruption.
Any
failure
by
us
to
adopt
appropriate
compliance
procedures
and
ensure
that
our
employees,
agents
and
business
partners
comply with
the anti-corruption
laws and
regulations could
subject us
to substantial
penalties, and
the requirement
that we
comply
with these laws could
put us at a
competitive disadvantage against
companies that are not
required to comply.
For example, in many
emerging
markets,
there
may be
significant
levels
of official
corruption,
and
thus, bribery
of public
officials
may
be
a comm
only
accepted cost
of doing
business. Our
refusal to
engage in
illegal behavior,
such as
paying bribes,
may result
in us not
being able
to
obtain business that we
might otherwise have been able
to secure or possibly
even result in unlawful,
selective or arbitrary action being
taken against us.
Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and
imprisonment. We
have developed policies
and procedures as part
of a company-wide
compliance program that
is designed to assist
our compliance with applicable U.S.,
South African and other international
anti-corruption laws and regulations,
and provide regular
training to our
employees to comply
with these laws
and regulations. However,
there can be
no assurance that
all of our
employees,
consultants, partners, agents or other associated persons will not take actions in violation of our policies or
these laws and regulations,
or that our
policies and procedures
will effectively prevent
us from violating
these regulations in every
transaction in which
we may
engage, or
provide a defense
to any alleged
violation. In
particular,
we may be
held liable for
the actions
that our
local, strategic
or
joint venture
partners take inside
or outside
of the United
States, even though
our partners may
not be subject
to these
laws. Such a
violation,
even
if
our
policies
prohibit
it,
could
materially
and
adversely
affect
our
reputation,
business,
results
of
operations
and
financial condition.
We
do not
have a South
African banking license
and, therefore, we
provide our EPE
solution through
an arrangement with
a third-party bank,
which limits our
control over this
business and the
economic benefit
we derive from it.
If this arrangement were
to terminate, we would
not be able to operate
our EPE business
without alternate means of access to a banking license.
The
South
African
retail
banking
market
is
highly
regulated.
Under
current
law
and
regulations,
our
EasyPay
Everywhere
(“EPE”) business activities require
us to be registered as
a bank in South Africa
or to have access to an
existing banking license.
We
are not currently so registered,
but we have an agreement
with Grindrod Bank, a subsidiary
of African Bank Limited, that
enables us
to implement
our EPE
program in
compliance
with the
relevant laws
and regulations.
If this
agreement
were to
be terminated,
we
would
not
be
able
to
operate
these
services
unless
we
were
able
to
obtain
access
to
a
banking
license
through
alternate
means.
Furthermore, we
have to
comply with
the strict
anti-money laundering
and customer
identification regulations
of the South
African
Reserve Bank (“SARB”),
when we open
new bank accounts
for our customers
and when they
transact. Failure to
effectively implement
and monitor responses to these regulations may result in significant fines or prosecution
of Grindrod Bank and ourselves.
In
addition,
the
South
African
Financial
Advisory
and
Intermediary
Services
Act,
2002,
requires
persons
who
act
as
intermediaries between financial product suppliers and consumers
in South Africa to register
as financial service providers. Smart
Life
was granted an Authorized Financial Service Provider, or FSP,
license on June 9, 2015, and EasyPay Financial Services (Pty) Ltd and
Net1
Mobile
Solutions
(Pty) Ltd
were
each granted
FSP licenses
on
July
11,
2017.
If
our
FSP licenses
are
cancelled,
we
may
be
stopped from continuing our financial
services businesses in South Africa
unless we are able
to enter into a
representative arrangement
with a third party FSP.
Furthermore, the proposed
Conduct of Financial
Institutions Bill will make
significant changes to
the current licensing
regime.
The second
draft of
the Conduct
of Financial
Institutions Bill
was published
for public
comment on
29 September
2020. While
the
proposals currently
indicate that
existing licenses
will be converted,
if we are
not successful in
our efforts
to obtain
a conversion
of
the existing
licenses or
cannot comply
with the
new conduct
standards to
be published
at the
same time
under the
Financial Sector
Regulation Act, No. 9 of 2017, we may be stopped from continuing
our financial services businesses in South Africa.
19
We
may
be
subject
to
regulations
regarding
privacy,
data
use
and/or
security,
which
could
adversely
affect our business.
We are
subject to regulations in
a number of the countries
in which we operate
relating to the processing
(which includes,
inter
alia
, the collection, use, retention, security and transfer) of
personal information about the people (whether natural or juristic)
who use
our products
and services.
The interpretation
and application
of user
data protection
laws are
in a
state of
flux. These
laws may
be
interpreted
and
applied
inconsistently
from
country
to
country
and
our
current
data
protection
policies
and
practices
may
not
be
consistent with those interpretations and applications. Complying
with these varying requirements could cause us to incur
substantial
costs or
require us
to change
our business
practices in
a manner
adverse to
our business.
Any failure,
or perceived
failure, by
us to
comply with any regulatory requirements or international
privacy or consumer protection-related laws and regulations could
result in
proceedings
or
actions
against
us
by
governmental
entities
or
others,
subject
us
to
significant
penalties
and
negative
publicity.
In
addition, as
noted above,
we are
subject to
the possibility
of security
breaches, which
themselves may
result in
a violation
of these
laws.
Amendments to
the NCA
were signed into
law in
South Africa
in August 2019.
Compliance with
these
amendments may adversely impact our micro-lending operations in South Africa.
In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa.
The effective date
of the debt-relief
bill has not
yet been announced
and has been
significantly delayed.
We
believe that the
debt-relief bill will
restrict
the ability of financial services providers to provide lending
products to certain low-income earners and will increase the
cost of credit
to
these
consumers.
As a
result,
compliance
with
the debt
-relief
bill
may
adversely
impact
our
micro-lending
operations
in
South
Africa. Furthermore, we expect that it will take us, and other financial services providers, some time to fully understand, interpret and
implement this new legislation in
our lending processes and practices.
Non-compliance with the provisions of this
new legislation may
result in financial loss and penalties, reputational loss or other administrative
punishment.
Risks Relating to our Common Stock
If we were
deemed an “investment
company” under the
Investment Company Act,
applicable restrictions
could make it impractical for
us to conduct our business as
an operating company and could
have a material
adverse effect on our business.
We
are an operating
company whose business is
focused on developing
and offering payment
solutions, transaction processing
services and financial technologies across
multiple industries directly and through
our wholly-owned subsidiaries. Our conduct,
public
filings and
announcements
hold us
out as
such an
operating
company
and
do not
hold
us out
as being
engaged
in the
business of
investing, reinvesting or trading
in securities. We own, and
in the
past have owned,
certain assets that
may be deemed
to be
“investment
securities” within
the meaning
of Section
3(a)(2) of
the Investment
Company
Act. The
fluctuating
value of
our assets
that may
be
deemed to be investment securities, could cause us to be deemed to be an
“investment company” under the Investment Company Act
if the value of such investment securities exceeds certain defined thresholds.
If we are deemed
an investment company
and not entitled to
an exception or
exemption from registration
under the Investment
Company Act, we would have to register as
an investment company, modify our asset profile or otherwise change our business so that
it falls outside
the definition
of an investment
company under the
Investment Company
Act. Registering as
an investment
company
pursuant to
the Investment
Company Act
could, among
other things,
materially limit
our ability
to borrow
funds or
engage in
other
transactions and
otherwise would
subject us
to substantial
and costly
regulation. Failure
to register,
if required,
would significantly
impair our ability to continue to engage in our business and would have a material
adverse impact on our business and operations.
Our stock price has been and may continue to be volatile.
Our stock price has periodically experienced significant volatility. During the 2023 fiscal year, our stock
price ranged from a low
of $3.02 to a high of $5.97. We
expect that the trading price of our common stock may
continue to be volatile as a result of a number
of factors, including, but not limited to the following:
•
any adverse developments in litigation or regulatory actions in which we are
involved;
•
fluctuations in currency exchange rates, particularly the U.S. dollar/ZAR exchange
rate;
•
announcement
of
additional
BEE
transactions,
especially
one
involving
the
issuance
or
potential
issuance
of
equity
securities or dilution or sale of our existing business in South Africa;
•
quarterly variations in our operating results;
•
significant fair value adjustments or impairment in respect of investments or
intangible assets;
•
announcements of acquisitions or disposals;
•
the timing of, or delays in the commencement, implementation or completion
of major projects;
•
large purchases or sales of our common stock; and
•
general conditions in the markets in which we operate.
20
Additionally,
shares of
our common
stock can
be expected
to be
subject to
volatility resulting
from purely
market forces
over
which we have no control.
The put
right we granted
to the IFC
Investors on the
occurrence of certain
triggering events may
have
adverse impacts on us.
In May
2016, we
issued an
aggregate of
9,984,311
shares of
our common
stock to
the IFC Investors,
of which,
as of
June 30,
2023,
the
IFC
Investors
held
7,366,866
shares.
We
granted
the
IFC
Investors
certain
rights,
including
the
right
to
require
us
to
repurchase
any
share held
by the
IFC Investors
pursuant
to
the
May
2016 transaction
upon
the occurrence
of specified
triggering
events,
which
we refer
to as
a
“put
right.”
The put
price
per share
will be
the higher
of the
price
per share
paid
to us
by
the IFC
Investors and
the volume-weighted
average price
per share prevailing
for the 60
trading days preceding
the triggering
event, except
that with respect
to a put right
triggered by rejection
of a bona
fide offer,
the put price
per share will
be the highest
price offered
by
the offeror.
If a put triggering event occurs, it could adversely impact
our liquidity and capital resources. In addition, the
existence of
the put right could also affect whether or on what terms a third party might in the future offer to purchase our company.
Our response
to any such offer could also be complicated, delayed or otherwise influenced
by the existence of the put right.
Approximately
37%
of
our
outstanding
common
stock
is
owned by
two shareholders.
The
interests of
these shareholders may conflict with those of our other shareholders.
There is a concentration of ownership
of our outstanding common stock because
approximately 37% of our outstanding common
stock is owned by two
shareholders. Based on their most
recent SEC filings disclosing
ownership of our shares, Value Capital Partners
(Pty) Ltd, or VCP,
and IFC Investors, beneficially own approximately 25% and 12% of our outstanding common
stock as of June 30,
2023, respectively.
The interests of
VCP and the
IFC Investors may
be different
from or conflict
with the interests
of our other
shareholders. As a
result of
the significant
combined ownership
by VCP
and the
IFC Investors,
they may
be able,
if they
act together,
to significantly
influence the
voting outcome
of all
matters requiring
shareholder approval.
This concentration
of ownership
may have
the effect
of
delaying or preventing
a change of control of
our company,
thus depriving shareholders
of a premium for
their shares, or facilitating
a change of control that other shareholders may oppose.
We may seek to raise
additional financing by
issuing new securities
with terms or
rights superior to
those
of shares of our common stock, which could adversely affect the market price of such shares.
We
may require
additional financing
to fund future
operations, including
expansion in
current and new
markets, programming
development and acquisition,
capital costs and
the costs of any
necessary implementation of
technological innovations or
alternative
technologies, or to fund acquisitions. We may also wish to raise additional equity funding to
reduce the amount of debt funding on our
balance sheet. Because of the exposure to market risks associated
with economies in emerging markets, we may not
be able to obtain
financing on favorable terms or at all.
If we raise additional funds by
issuing equity securities, the percentage ownership of our
current
shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of
common stock,
which could
adversely affect
the market
price and
voting power
of shares
of common
stock. If
we raise
additional
funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior
to those of the holders of
shares of common stock, and the terms of these debt securities could impose restrictions on operations and
create a significant interest
expense for us.
Issuances
of significant
amounts of
stock in
the future
could potentially
dilute
your equity
ownership
and adversely affect the price of our common stock.
We
believe that
it is necessary
to maintain
a sufficient
number of
available authorized
shares of our
common stock
in order
to
provide
us
with
the flexibility
to
issue shares
for
business
purposes
that
may
arise
from time
to
time.
For example,
we
could
sell
additional shares to raise
capital to fund our
operations, to reduce debt
or to acquire other
businesses, issue shares in
a BEE transaction,
issue additional shares under our stock incentive plan or declare a stock dividend. Our board may authorize
the issuance of additional
shares of common stock without notice to, or further
action by, our shareholders, unless shareholder approval is required by law or the
rules of the NASDAQ Stock
Market. The issuance of additional
shares could dilute the equity
ownership of our current shareholders
and any such additional shares would likely be freely tradable, which could
adversely affect the trading price of our common
stock.
21
Failure to maintain effective internal control over financial
reporting in accordance with Section 404
of the
Sarbanes-Oxley
Act, especially
over companies
that we
may acquire,
could have
a material
adverse
effect on our business and stock price.
Under Section 404
of the Sarbanes-Oxley
Act of 2002,
or Sarbanes, we
are required to
furnish a management
certification and
auditor attestation regarding the
effectiveness of our internal
control over financial reporting.
We are
required to report, among other
things, control deficiencies that constitute a “material weakness”
or changes in internal control that
materially affect, or are reasonably
likely
to
materially
affect,
internal
control
over
financial
reporting.
A
“material
weakness”
is
a
deficiency,
or
a
combination
of
deficiencies, in internal
control over financial
reporting such that
there is a
reasonable possibility that
a material misstatement
of annual
or interim financial statements will not be prevented or detected on
a timely basis.
The
requirement
to
evaluate
and
report
on
our
internal
controls
also
applies
to
companies
that
we
acquire.
Some
of
these
companies may not
be required
to comply with
Sarbanes prior
to the
time we
acquire them.
The integration of
these acquired
companies
into our internal
control over financial
reporting could require
significant time and
resources from our
management and other
personnel
and may increase our compliance costs.
If we fail to successfully
integrate the operations of these
acquired companies into our internal
control over financial reporting, our internal control over financial reporting
may not be effective.
While
we
continue
to
dedicate
resources
and
management
time
to
ensuring
that
we
have
effective
controls
over
financial
reporting, failure to
achieve and maintain
an effective internal
control environment could
have a material
adverse effect on
the market’s
perception of our business and our stock price.
You
may
experience
difficulties
in
effecting
service
of
legal
process,
enforcing
foreign
judgments
or
bringing
original
actions
based
upon
U.S.
laws,
including
federal
securities
laws
or
other
foreign
laws,
against us or certain of our directors and officers and experts.
While Lesaka is incorporated in the state of Florida, United States, the company is headquartered in Johannesburg, South Africa
and substantially all of the company’s
assets are located outside the United
States. In addition, the majority of
Lesaka’s directors
and
all
its
officers
reside
outside
of
the
United
States
and
the
majority
of
our
experts,
including
our
independent
registered
public
accountants, are based in South Africa.
As a
result, even
though you
could effect
service of
legal process
upon Lesaka,
as a
Florida corporation,
in the
United States,
you may not be able
to collect any judgment obtained
against Lesaka in the United
States, including any judgment based
on the civil
liability
provisions
of
U.S.
federal
securities
laws,
because
substantially
all
of
our
assets
are
located
outside
the
United
States.
Moreover, it may not be possible for
you to effect service of legal process upon the majority of
our directors and officers or upon our
experts within
the United
States or
elsewhere outside
South Africa
and any
judgment obtained
against any
of our
foreign directors,
officers and experts in
the United States, including
one based on the
civil liability provisions of the
U.S. federal securities laws,
may
not be collectible in the United States and may not be enforced by a South
African court.
South Africa
is not
a party
to any
treaties regarding
the enforcement
of foreign
commercial judgments,
as opposed
to foreign
arbitral awards. Accordingly, a foreign judgment that
is not recognized in
South Africa has
no extra territorial effect, and
is not directly
enforceable in South Africa, but
constitutes a cause of action
which may be recognized and enforced
by South African courts provided
that:
•
the court which
pronounced the judgment
had international jurisdiction
and competence to entertain
the case according to
the principles recognized by South African law with reference to the jurisdiction
of foreign courts;
•
the judgment is final and conclusive (that is, it cannot be altered by the court which
pronounced it);
•
the judgment has not lapsed;
•
the recognition and
enforcement of the
judgment by South African
courts would not
be contrary to public
policy in South
Africa, including observance of the rules of natural justice which require
that no award is enforceable unless the defendant
was duly served with documents
initiating proceedings, that he
or she was given a
fair opportunity to be
heard and that he
or she enjoyed the right to be legally represented in a free and fair trial before an impartial
tribunal;
•
the judgment was not obtained by improper or fraudulent means;
•
the
judgment
does
not involve
the
enforcement
of a
penal
or
foreign
revenue
law or
any
award
of multiple
or punitive
damages; and
•
the enforcement of the judgment is not otherwise precluded by the provisions of
the Protection of Business Act 99 of 1978
(as amended), of the Republic of South Africa.
It has been the policy
of South African courts to award
compensation for the loss or damage
actually sustained by the person
to
whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as
a result
of a
diminution in
the value
of their
shares based
on various
actions by
the corporation
and its
management. Although
the
award
of punitive
damages
is generally
unenforceable
in the
South
African legal
system, that
does not
mean
that such
awards are
necessarily
contrary
to
public
policy.
The
award
of
punitive
damages
is
governed
by
the
relevant
South
African
legislation,
the
Conventional Penalties Act 15 of 1962 (as amended).
22
Whether a judgment
was contrary to
public policy
depends on the
facts of each
case. Exorbitant,
unconscionable, or
excessive
awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot
act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African court,
it will be
payable in South African currency unless approval is obtained from SARB or an Authorised Dealer of SARB, to settle the judgement
in another
currency.
Also, under
South Africa’s
exchange control
laws, the
approval of
SARB or
an Authorised
Dealer is
required
before a defendant
resident in South Africa
may pay money to
a non-resident plaintiff
in satisfaction of a
foreign judgment enforced
by a court in South Africa.
It is
doubtful
whether an
original action
based on
United States
federal
securities laws
may
be brought
before South
African
courts. A plaintiff who
is not resident in South Africa may
be required to provide security for
costs in the event of proceedings being
initiated in
South Africa.
Furthermore, the
Rules of
the High
Court of
South Africa
require that
documents executed
outside South
Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South
Africa, we consulted with our South African legal counsel, Werksmans
Inc.
23
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We lease our corporate
headquarters facility which consists of approximately 87,000 square feet in Johannesburg,
South Africa.
We also lease properties throughout South
Africa, including an
approximately 36,000 square foot
manufacturing facility in Lazer
Park,
Johannesburg, 194 financial
services branches, 26 financial service
express stores and 22 satellite
branches. We
also lease additional
office space
in Johannesburg,
Cape Town
and Durban, South
Africa; and Gaborone,
Botswana. These leases
expire at various
dates
through
2028,
assuming
the
exercise
of
options
to
extend.
We
believe
that
we
have
adequate
facilities
for
our
current
business
operations.
ITEM 3.
LEGAL PROCEEDINGS
Litigation related to CPS
As
a
result
of
significant
obligations
relating
to,
and
ongoing
litigation
arising
out
of,
CPS’
SASSA
contract,
including
the
exhaustion
of CPS’
legal appeals
against a
court judgment
to repay
additional SASSA
implementation
costs, CPS
was placed
into
liquidation in October
2020. As a
result, CPS’ liquidators
are currently in
control of the CPS
liquidated estate
and are managing
the
affairs in
relation thereto.
We
have proven
our claims
and are
noted as
a creditor
along with
other creditors
in the
liquidated estate.
See Item
1A—“Risk Factors
—Cash Paymaster
Services, or
CPS, has
been placed
into liquidation.
While no
claim has
been made
against Lesaka for CPS’ obligations, we cannot provide assurance that
no such claim will be made” for additional information.
There are no other material pending legal proceedings, other than ordinary
routine litigation incidental to our business, to which
we are a party or of which any of our property is the subject.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
24
PART
II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market information
Our common stock is listed on The NASDAQ Global Select Market, or Nasdaq, in the United States under
the symbol “LSAK”
and on the JSE in South Africa under the symbol “LSK.” The Nasdaq is our
principal market for the trading of our common stock and
we have a secondary listing on the JSE.
Our transfer
agent in
the United
States is
Computershare
Shareowner Services
LLC, 480
Washington
Blvd, Jersey
City,
New
Jersey,
07310.
According
to
the
records
of
our
transfer
agent,
as
of
August
31,
2023,
there
were
8
shareholders
of
record
of
our
common stock.
We
believe that
a substantially
greater number
of beneficial
owners of
our common
stock hold
their shares
though
banks, brokers,
and other financial
institutions (i.e. “street
name”). Our transfer
agent in South
Africa is JSE
Investor Services (Pty)
Ltd, One Exchange Square, 2 Gwen Lane, Sandown, Sandton, 2196,
South Africa.
Dividends
We
have not
paid any
dividends on
shares of
our common
stock during
our last
two fiscal
years and
presently intend
to retain
future earnings to finance the expansion of the
business. We do not anticipate paying any cash dividends in the
foreseeable future. The
future dividend policy will depend on our earnings, capital requirements, debt commitments, expansion plans, financial condition and
other relevant factors.
Issuer purchases of equity securities
On
February
5,
2020,
our
board
of
directors
approved
the
replenishment
of
our
existing
share
repurchase
authorization
to
repurchase up to an aggregate of $100 million of common stock. The authorization
has no expiration date.
The table
below presents
information relating
to purchases
of shares
of our
common stock
during the
fourth quarter
of fiscal
2023:
Period
(a)
Total
number of
shares purchased
(b)
Average price
paid per share ($)
(c)
Total
number of shares
purchased as part of
publicly announced
plans or programs
(d)
Maximum dollar value
of shares that may yet
be purchased under the
plans or programs ($)
April 2023
0
-
-
100,000,000
May 2023
(1)
246,606
3.26
-
100,000,000
June 2023
(1)
2,881
3.96
-
100,000,000
Total
249,487
-
(1) Relates to the delivery of shares of our common
stock to us by certain of our employees to settle their income
tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase
program.
25
Share performance graph
The chart
below compares
the five-year
cumulative return,
assuming the
reinvestment of
dividends, where
applicable, on
our
common stock with that of the S&P 500 Index and the NASDAQ Industrial Index. This graph assumes
$100 was invested on June 30,
2018, in each of our common stock, the companies in the S&P 500 Index, and the companies in the
NASDAQ Industrial Index.
26
ITEM 6.
[RESERVED]
27
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The following
discussion and
analysis should
be read
in conjunction
with Item
8—“Financial Statements
and Supplementary
Data.” In
addition
to historical
consolidated
financial
information,
the following
discussion
and
analysis contains
forward-looking
statements that involve risks, uncertainties and assumptions. See Item 1A—
“Risk Factors” and “Forward Looking Statements.”
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures
and
provide
reconciliations
to
the
most
directly
comparable
GAAP
measures.
We
discuss
why
we
consider
it
useful
to
present these non-GAAP
measures and the
material risks and
limitations of these
measures, as well
as a reconciliation
of these non-
GAAP measures
to the
most directly
comparable GAAP
financial measure
below at
“—Results of Operations
—Use of Non-GAAP
Measures” below.
Overview
We are a provider of financial technology,
or fintech, products and services to unbanked and underbanked individuals and small
businesses, predominantly
in South Africa.
We
have developed and
own most of
our payment technologies,
and where possible,
we
utilize this technology to
provide financial and
value-added services to
our customers by
including them in the
formal financial system.
Sources of Revenue
We
generate our
revenues by
charging
transaction fees
to merchants,
financial service
providers, utility
providers, bill
issuers
and consumers;
by selling
pinned airtime
to merchants;
by providing
loans to
merchants and
consumers, and
insurance products
to
consumers and by selling hardware, licensing software and providing
related technology services to merchants.
We act
as a service provider whereby we
own and operate the technology and
apply it in a system ourselves,
charging one-time
and ongoing fees for the use of the system either on
a fixed or ad valorem basis. For instance, through
the acquisition of Connect, we
now provide cash management and payment services to merchant customers through a digital vault (safe asset) which is located at the
customer’s premises and
generate processing revenue from
the provision of these services.
We also
offer merchant customers
access
to platforms through
which we (a) generate
revenue from the sale
of prepaid airtime and
(b) generate fees from
distribution of VAS,
including prepaid
airtime, prepaid
electricity,
gaming voucher,
and other
services, to
users of
our platforms.
We
also generate
fees
from debit
and credit
card transaction
processing and
interest revenue
from qualifying
merchant
customers
who are
able to
access
short-term loans. The revenue and costs associated with these services and
sales are included in our merchant operating segment.
We
provide consumers with
bank accounts from
which we generate
a monthly fee
and also charge
fees on an ad
valorem basis
for goods
and services
purchased. Usage
of our
bank accounts
also provides
our customers
with access
to short-term
loans and
life
insurance products.
We
also generate
fees from
consumers utilizing
our ATM
network. The
revenue and
costs associated
with this
approach are reflected in our consumer operating segment.
Developments during Fiscal 2023
Fiscal 2023 represents a milestone for Lesaka. We
made significant progress in our turnaround strategy and delivered continued
growth for Lesaka despite challenging macroeconomic and socio-political
conditions.
We
reported a
net loss
attributable to
us of
$35.1 million
(ZAR 629.2
million) during
fiscal 2023
compared with
a net
loss of
$43.9 million (ZAR 666.8 million) during fiscal 2022. Our Consumer Division (“Consumer”) returned to
profitability and contributed
three
sequential
quarters
of
positive
Segment
Adjusted
EBITDA,
with
our
Merchant
Division
“(Merchant”)
continuing
to
display
strong
growth
and
Segment
Adjusted
EBITDA
profitability
during
the
entire
fiscal
year.
We
delivered
Group
Adjusted
EBITDA
profit,
a non-GAAP measure, of ZAR 497.6 million ($27.7 million) in fiscal 2023, compared with a Group Adjusted EBITDA loss of
ZAR 267.7
million ($17.6
million) in
fiscal 2022, demonstrating
successful execution
against a
carefully considered
transformation
and growth strategy.
Group Adjusted EBITDA
is a non-GAAP measure,
refer to reconciliation below
at “—Results of Operations—
Use of Non-GAAP Measures”.
Our mission at Lesaka is
to enable merchants to compete and
grow, and to improve the lives of
South Africa’s grant beneficiaries
by providing access
to innovative financial
technology and value
creating solutions. We
achieve this through our
vision to build
and
operate the
leading full-service
fintech platform
in Southern
Africa, offering
cash management,
payment processing,
Value
Added
Services (“VAS”),
capital and financial services to merchants and underserved consumers.
28
Merchant Division outperformance
Our Merchant Division has
shown significant growth in our offering
to MSME, which is supported
by the robust secular trends
underpinning financial inclusion, cash management and digitalization
for MSMEs.
Performance in our Merchant division has been driven by:
●
Kazang, which is our VAS and Supplier Payments Business, has seen
strong adoption by MSMEs in
the informal sector, with
a 47% year-on-year
growth in the
number of devices
deployed. We
had approximately
75,000 devices deployed
as of June
30, 2023, compared to approximately 51,000 devices one year ago;
●
We
provide card acquiring
solutions in the informal
sector via Kazang
Pay and in
the formal sector we
provide this service
through
Card
Connect.
Card-enabled
POS
devices
increased
to
approximately
44,900
as
of
June
30,
2023,
compared
to
approximately 22,650 a year ago, a growth of 98% in deployed devices;
●
We provide merchants access to credit through Capital
Connect and Kazang Pay
Advance. We continue to see strong demand
for this merchant
credit offering
and disbursed
just over ZAR
1.0 billion
during the
year, compared
to approximately
ZAR
0.6 billion in the comparable period last year, representing
growth of 62%.
●
Our automated cash management and payments business, Cash
Connect, effectively puts the “bank” in approximately
4,390
merchants’ stores (compared to approximately 4,080 merchants’
stores a year ago). Cash
Connect is a provider of
robust cash
vaults in the
formal sector,
and is building
a presence
in the informal
sector.
Cash Connect enables
our merchant
customer
base to significantly mitigate their operational risks pertaining to cash management
and security.
Consumer Division contributing sequential positive Segment Adjusted EBITDA
and poised for growth
Over the past four quarters we have consistently referenced the
three levers underpinning our strategy of returning the Consumer
Division
to
profitability
-
growing
active
EasyPay
Everywhere
(“EPE”)
account
numbers,
increasing
average
revenue
per
user
(“ARPU”) through cross-selling and cost optimization.
The progress on our three key initiatives is as follows:
●
Driving customer acquisition
○
Our total active EPE transactional account base
stood at approximately 1.3 million at
the end of June 2023,
of which
approximately
1.1 million
(or approximately
85%) are
permanent grant
recipients. The
balance
comprises Social
Relief of
Distress (“SRD”)
grant
recipients, which
was introduced
during the
COVID pandemic
and extended
in
calendar 2023. As of the end of June
2023, we increased our permanent grant account base by 2% on
a net basis and
our
total
grant
base
by
10%
on
a
net
basis,
compared
to
the
prior
year.
The
net
growth
of
our
permanent
grant
recipient base has
been slower
than anticipated as
we continue to
transition the business
into a
sales driven, customer-
centric, financial services provider.
○
Our priority
is to grow
our permanent
grant recipient
customers base,
where we
can build
deeper relationships
by
offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant
base due to the temporary nature of the grant.
○
We continue to focus our efforts on designing and implementing products and services that we believe will enhance
the lives of these people and their families. This in turn should improve account
activation and utilization.
●
Progress on cross
selling
EasyPay Loans
o
We originated approximately 850,000 loans in fiscal 2023 with our net consumer loan book increasing 19% to ZAR
415
million
as
of
June
30,
2023,
compared
to
ZAR
349
million
as
of
June
30,
2022.
The
loan
conversion
rate
continues to
improve following
the implementation
of a
number of
targeted loan
campaigns over
the last
quarter.
The portfolio loss ratio,
calculated as the loans
written off during the
period as a percentage
of the total loan book,
remains encouragingly low at approximately 6% per annum.
EasyPay Insurance
o
Our insurance product sales
continues
to grow and
is a material
contributor to the
improvement in our
overall ARPU.
We
have been
able to improve
customer penetration
to approximately
30% of our
active permanent
grant account
base as of June 30, 2023, compared to just below 20% as of June 30, 2022. Over 124,700 new policies were written
during fiscal 2023, compared to approximately 27,600 in the comparable period in fiscal 2022. The total number of
active policies has
grown by 36%
to approximately 335,000 policies
as of June
30, 2023, compared to
June 30, 2022.
o
We
have experienced
a reduction in
the number of
insurance claims incurred
following the cancellation
of certain
offerings and also as a result of reduction in the number of pandemic
-related deaths.
29
ARPU
o
ARPU for our
permanent client base
has increased
to approximately ZAR
80 for the
fourth quarter of
fiscal 2023,
from approximately ZAR 74 in the fourth quarter of fiscal 2022.
●
Cost optimization
o
Successful execution
of the
cost optimization
initiatives has
contributed
to our
achievement of
three consecutive
quarters of positive
Segment Adjusted EBITDA.
These initiatives included
branch rationalizations, deployment
of
our
ATMs
in
third
party
merchant
stores
and
reductions
in
our
cash
management
expenditures.
We
continue
to
evaluate
and
implement
further
optimization
measures,
particularly
around
our
branch
infrastructure
and
ATM
network, as we grow our Consumer Division.
Strengthening our relationships with key
stakeholders
We continue to build our relationship with the South African Social Security Agency (“SASSA”) through proactive engagement
at a local, provincial, and national level.
We
have
also
made
good
progress
in
enhancing
our
relationships
with
our
shareholders,
regulators,
suppliers
and
other
key
participants across our industry.
Economic Environment and Impact of loadshedding
The
trading
environment
remains
challenging
in
South
Africa.
High
interest
rates,
inflation
and
unemployment
are
being
compounded by daily power
cuts (known as load-shedding
in South Africa). The power
disruptions adversely impact our
customers,
especially in our
Merchant Division, where
they lose valuable
trading hours if
they do not
have access to
alternative power supplies
and
back-up
facilities
to
process
electronic
payments
and
value-added
services.
The
negative
impact
is,
however,
to
some
extent
mitigated as our customer base is geographically diversified, and the rotational nature of load-shedding results in
localized power cuts
over shorter time periods.
According to data published by EskomSePush, our customers experienced significantly higher level of load-shedding during the
first six months of calendar 2023 of just over five hours, on average, per day,
compared with just over two hours, on average,
per day
during calendar 2022. Specifically, these power cuts intensified during
the fourth quarter of
fiscal 2023, frequently exceeding 10 hours
per day.
This deterioration
has severely
impacted our
merchant’s
ability to
make up
lost trading
hours and
recharge back
up power
supplies where available.
Notwithstanding
the
challenging
operating
environment
our
teams
have
delivered
growth
in
the
Merchant
and
Consumer
Divisions, demonstrating the resilience of our business model which is firmly underpinned by
the relevance and value of our offering
to our target market.
Improvement in our Broad Based Black Economic
Empowerment (“B-BBEE”) rating to level 5
B-BBEE is
key
strategic priority
for us.
Achievement
of B-BBEE
objectives
is measured
by a
scorecard which
establishes a
weighting
for
various
elements.
Scorecards
are
independently
reviewed
by
accredited
BEE
verification
agencies
which
issue
a
certificate that presents
an entity’s
BEE Contributor Status
Level, with level 1
being the highest and
“no rating” (a level
below level
8) as the lowest.
During fiscal 2023, we
made significant progress in terms
of improving our empowerment credentials
and are pleased
to report
that our
independently
verified
B-BBEE rating
has improved
to a
level 5
rating from
a level
8 rating.
Together
with the
various other B-BBEE initiatives and programmes being
rolled out, including our Youth
Employment Services (“YES”) programme,
we aim to achieve a level 4 rating by the end of fiscal year 2024.
Employee Share Ownership Plan (“ESOP”)
Under
the
South
African
Competition
Tribunal’s
approval
of
the
Connect
acquisition,
we
are
required
to
establish
an
ESOP
within 36 months of
the implementation of the
transaction that complies with certain
design principles. This will
benefit the workers
of the merged
entity and result in
them receiving a shareholding
in our company equal
in value to at
least 3% of the
issued shares in
our company as of April 14, 2022. If within 24 months of the implementation date of the transaction, we generate a positive net profit
for three consecutive
quarters, the
ESOP shall
increase to
5% of
the issued
shares in
our company
as of
April 14,
2022. We
expect
that the majority
of our South African
workforce will be
eligible to participate
in the ESOP.
We
expect that participating
employees
will be required
to earn the
shares awarded over
a period of
time, currently
estimated at approximately
seven years,
but this vesting
period, as well as other
terms of ESOP,
have not been finalized
as of the date of
filing this Annual Report
on Form 10-K and
will be
subject to shareholder approval.
We
currently
expect to
issue up
to 5%
of our
issued share
capital to
the ESOP
and
we believe
that this
transaction
will be
a
qualifying transaction under South Africa’s Broad Based Black Economic Empowerment
Act, and is a key strategic imperative for us
in achieving a target BBEE level 4 rating by 30
June 2024. We are
pleased to report that we progressed well on this
initiative and are
confident that we will achieve this condition of the Connect acquisition within
the time frames agreed.
30
Critical Accounting Policies
Our audited consolidated
financial statements have
been prepared in accordance
with U.S. GAAP,
which requires management
to
make
estimates
and
assumptions
about
future
events
that
affect
the
reported
amount
of
assets
and
liabilities
and
disclosure
of
contingent
assets and liabilities. As future
events and their effects
cannot be determined with
absolute certainty,
the determination of
estimates requires
management’s
judgment based
on a
variety of
assumptions and
other determinants
such as
historical experience,
current
and
expected
market
conditions
and
certain
scientific
evaluation
techniques.
Management
believes
that
the
following
accounting policies
are critical due
to the degree
of estimation required
and the impact
of these policies
on the understandi
ng of the
results of our operations and financial condition.
Business Combinations and the Recoverability of Goodwill
A significant component
of our growth
strategy is to acquire
and integrate businesses
that complement
our existing operations.
The purchase
price of
an acquired
business is
allocated to
the tangible
and intangible
assets acquired
and liabilities
assumed
based
upon their estimated
fair value at the
date of purchase.
The difference between
the purchase price and
the fair value of
the net assets
acquired is
recorded as goodwill.
In determining
the fair value
of assets acquired
and liabilities assumed
in a business
combination,
we use various
recognized valuation methods, including
present value modeling.
Further, we make assumptions
using certain valuation
techniques, including discount rates and timing of future cash flows.
We review the carrying value of goodwill annually
or more frequently if circumstances indicating impairment have occurred. In
performing this review,
we are required to estimate
the fair value of goodwill that
is implied from a valuation of
the reporting unit to
which the goodwill
has been allocated
after deducting the
fair values of
all the identifiable
assets and liabilities
that form part
of the
reporting
unit.
The determination
of
the fair
value
of a
reporting
unit requires
us
to
make
significant
judgments
and estimates.
In
determining the fair value of reporting units for
fiscal 2023
and 2022, we considered entity-specific growth rates, future expected cash
flows
to
be
used
in
our
discounted
cash
flow
model,
and
the
weighted-average
cost
of
capital
applicable
to
peer
and
industry
comparables of the reporting units.
We base
our estimates on assumptions
we believe to be reasonable
but that are unpredictable and
inherently uncertain. In addition, we make
judgments and assumptions in allocating assets
and liabilities to each of
our reporting units.
The results of our impairment tests during fiscal 2023
indicated that the fair value of our reporting units exceeded
their carrying
values,
with
the
exception
of
the
$7.0
million
of
goodwill
impaired
during
fiscal
2023,
as
discussed
in
Note
10
to
our
audited
consolidated financial statements. The
results of our impairment tests
during fiscal 2022
indicated that the fair value
of our reporting
units exceeded their carrying values and so did not require impairment.
Intangible Assets Acquired Through Acquisitions
The
fair values
of the
identifiable
intangible
assets acquired
through
acquisitions
were determined
by management
using
the
purchase
method
of accounting.
We
completed
the acquisition
of
Connect
during
fiscal 2022
where
we
identified
and
recognized
intangible assets. We
used the relief
from royalty
method to value
identified brands
and the multi-period
excess earnings method
to
value the
integrated platform
and identified
customer relationships.
We
have used
the relief
from royalty
method, the
multi-period
excess earnings method, the income approach and the cost approach
to value other historic acquisition-related intangible assets. In so
doing,
we
made
assumptions
regarding
expected
future
revenues
and
expenses
to
develop
the
underlying
forecasts,
applied
contributory asset charges, discount rates, exchange rates,
cash tax charges and useful lives.
The valuations were based on information available at the
time of the acquisition and the expectations and
assumptions that were
deemed reasonable by us. No assurance can be given, however,
that the underlying assumptions or events associated with such assets
will occur as
projected. For these
reasons, among others,
the actual cash
flows may vary
from forecasts of
future cash flows.
To
the
extent actual cash flows vary, revisions to the useful life or impairment of intangible assets may be necessary.
Management assess the
useful life of
the acquired intangible
assets upon initial
recognition and revisions
to the useful
life or impairment
of these intangible
assets may be necessary in the future.
Revenue recognition – principal versus agent considerations
We generate
revenue from the provision of transaction-processing
services through our various platforms
and service offerings.
We
use
these
platforms
to
(a)
sell
prepaid
airtime
and
(b)
distribute
VAS,
including
prepaid
airtime,
prepaid
electricity,
gaming
voucher, and other services, to
users of our
platforms. The determination
of whether we
act as
a principal or
as an agent
when providing
these services
requires a
significant amount
of judgement
and is based
on whether
(i) we
are primarily
responsible for
fulfilling the
promise to provide the specified goods or service, (ii) we have inventory risk before the specified good
or service has been transferred
to a customer
and (iii) we
have discretion
in establishing
the price
for the specified
good or
service. When
we are the
principal in
a
transaction,
such as
when we
purchase (and
thus control
and assume
inventory risk)
prepaid airtime
before selling
it to
customers
utilizing our platform,
revenue is reported
on a gross
basis. When we
are an agent
in a transaction,
such as when
we distribute VAS
on behalf of our customers, and do not control the good or service to be provided, revenue is recognized
based on the amount that we
are contractually entitled to receive for performing the distribution
service on behalf of our customers using our platform.
31
Valuation
of investment in Cell C
We have elected to measure
our investment in
Cell C, an
unlisted equity security, at fair
value using the
fair value option.
Changes
in
the
fair
value
of
this
equity
security
are
recognized
in
the
caption
“change
in
fair
value
of
equity
securities”
in
our
audited
consolidated statements of operations. The tax impact related to the change in
fair value of equity securities is included in income tax
expense in our audited
consolidated statements of operation.
The determination of
the fair value of this
equity security requires us
to
make significant judgments
and estimates.
We base our estimates
on assumptions we
believe to be
reasonable but that
are unpredictable
and inherently uncertain. Refer
to Note 6
of our audited consolidated
financial statements regarding the
valuation inputs and
sensitivity
related to our investment in Cell C.
We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2023 and 2022, and
valued Cell C at
$0.0 (zero) as
of each of
June 30, 2023
and 2022. We
utilized the latest approved
business plan provided
by Cell C
management for
the period
ended December
31, 2025,
for the
June 30,
2023
and 2022
valuations, and
the following
key valuation
inputs were used:
Weighted Average
Cost of Capital:
Between 20% and 31% over the period of the forecast
Long-term growth rate:
4.5% (3% as of June 30, 2022)
Marketability discount:
20% (10% as of June 30, 2022)
Minority discount:
24% (15% as of June 30, 2022)
Net adjusted external debt - June 30, 2023:
(1)
ZAR 8.1 billion ($0.4 billion), no lease liabilities included
Net adjusted external debt - June 30, 2022:
(2)
ZAR 13.5 billion ($0.8 billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2023.
(2) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2022.
We
believe the
Cell C
business plan
is reasonable
based on
the current
performance and
the expected
changes in
the business
model. Refer to the sensitivity analysis included in
Note 6 to our audited consolidated financial statements
related to our valuation of
Cell C as of June 30, 2023.
Recoverability of equity securities and equity-accounted investments
We
review our
equity securities
and equity-accounted
investments for
impairment whenever
events or
circumstances indicate
that the
carrying amount
of the
investment may
not be
recoverable.
In performing
this review,
we are
required to
estimate the
fair
value of our
equity-accounted investments and other
equity securities. The
determination of the
fair value of
these investments requires
us to make significant judgments and estimates.
Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable
fair
values
and
therefore
we
have
elected
to
measure
these
investments
at
cost
minus
impairment,
if
any,
plus
or
minus
changes
resulting
from
observable
price
changes
in
orderly
transactions
for
the
identical
or
a
similar
investment
of
the
same
issuer.
If
we
identify an impairment indicator related
to these equity
securities, we are required
to assess the
carrying value of these
equity securities
against their fair
value. We
did not identify
any impairment indicators
during each
of fiscal 2023,
2022
and 2021,
and therefore did
not recognize any impairment losses related to these equity securities during
those years.
The determination of the fair value of an investment requires us to make significant judgments and estimates. We are required to
base our
estimates on
assumptions
which we
believe to
be reasonable,
but these
assumptions may
be unpredictable
and inherently
uncertain.
The Company did not
identify any observable transactions during
either of the
years ended June 30,
2023
and 2022, and therefore
there was no
change in the
fair value of
MobiKwik during
the year.
During the year
ended June 30,
2021, MobiKwik
entered into a
number of separate
agreements with new
shareholders to raise
additional capital through the
issuance of additional
shares. Specifically,
we used the
following transactions as
the basis for
our fair value
adjustments to our
investment in MobiKwik
during the year
ended
June 30, 2021: (i) in
early November 2020, $135.54 per
share; (ii) in March 2021, $170.33
per share; and (iii) in June
2021, $245.50
per share. We
considered each of these transactions to
be an observable price change in
an orderly transaction for similar or
identical
equity securities issued by MobiKwik. Accordingly,
the carrying value of our investment in MobiKwik increased
from $27.0 million
as of June 30, 2020, to $76.3 million as of June 30, 2021. The change in the fair value
of MobiKwik for the year ended June 30, 2021,
of
$49.3
million,
is
included
in
the
caption
“Change
in
fair
value
of
equity
securities”
in
our
audited
consolidated
statement
of
operations for the year ended June 30, 2021.
We did
not identify any impairment indicators
during fiscal 2022 and therefore
did not recognize any impairment
losses related
to our
equity-accounted investments
during that
year.
We
performed impairment
assessments
during fiscal
2023
and 2021,
for our
investment in
Finbond Group
Limited “(Finbond”)
following the
identification of
certain impairment
indicators. The
results of
our
impairment tests during
fiscal 2023
and 2021, resulted
in impairments of
$1.1 million and
$21.1 million, respectively,
related to our
equity-accounted investments. These impairments are discussed in
Note 9 to our audited consolidated financial statements.
32
For fiscal 2023, in determining the fair value of Finbond,
as it is listed on the Johannesburg Stock Exchange,
its market price as
of the impairment assessment dates,
adjusted for a liquidity discount
of 25%. For fiscal 2021,
in determining the fair value of
certain
of our equity-accounted investments, we
have considered (i) for Finbond
specifically, its market price as of the
impairment assessment
date, adjusted for a liquidity discount of 15%,
and (ii) the net asset
value of the equity-accounted investment being assessed as a proxy
of fair value because reasonable cash flow forecasts were not available.
We
base our estimates on
assumptions we believe to
be reasonable but that
are unpredictable and inherently
uncertain. The fair
value of our investment in Finbond is sensitive to movements in its market price, which is quoted in ZAR, because we use the market
price as the basis of our valuation.
Deferred Taxation
We
estimate
our
tax
liability
through
the
calculations
done
for
the
determination
of
our
current
tax
liability,
together
with
assessing temporary
differences
resulting
from the
different
treatment of
items for
tax and
accounting purposes.
These differ
ences
result in deferred tax assets and liabilities which are disclosed on our balance
sheet.
Management then
has to assess
the likelihood
that deferred tax
assets are more
likely than not
to be realized
in the foreseeable
future. A valuation allowance is
created if it is determined
that a deferred tax asset will not
be realized in the foreseeable
future. Any
change to the valuation allowance
would be charged or
credited to income in the period
such determination is made. In
assessing the
need for a valuation allowance,
historical levels of income, expectations
and risks associated with estimates of
future taxable income
and ongoing prudent and
practicable tax planning strategies
are considered. During fiscal 2023
and 2022, respectively we recorded
a
net decrease
of $8.0 million
and $1.7 million,
to our valuation
allowance, and during
fiscal 2021 we
recorded a net
increase of $1.5
million. As of June 30,
2023 and 2022, the valuation
allowance related to deferred
tax assets was $109.1 million
and $117.1 million,
respectively.
Stock-based Compensation
Management is required to make estimates and assumptions related to our valuation and recording of stock-based
compensation
charges under
current accounting
standards. These standards
require all share-based
compensation to employees
to be recognized
in
the
statement
of
operations
based on
their
respective
grant date
fair
values
over
the requisite
service
periods
and
also
requires
an
estimation of forfeitures when calculating compensation expense.
We utilize the Cox Ross
Rubinstein binomial model to
measure the fair
value of stock
options granted to
employees and directors.
We
have also utilized
a bespoke adjusted Monte
Carlo simulation discounted
cash flow model to
measure the fair value
of restricted
stock with market
conditions granted to
employees and directors.
The stock-based compensation
cost related to
these valuations has
been
recognized
on
a
straight-line
basis.
These
valuation
models
require
estimates
of
a
number
of
key
valuation
inputs
including
expected volatility, expected dividend yield, expected term and
risk-free interest rate. Our
management has estimated forfeitures based
on
historic
employee
behavior
under
similar
compensation
plans.
The
fair
value
of
stock
options
is
affected
by
the
assumptions
selected. The fair value calculation is especially sensitive
to our valuation assumption with respect to expected volatility. For instance,
a 5% increase (to 55%) or decrease (to 45%) in the expected volatility used (of 50%) to value stock options granted in February 2022,
would
result
in a
charge
that was
9%
higher
(if 55%
were used)
or 9%
lower (if
45%
were used).
Net
stock-based
compensation
expense from continuing operations was $7.3 million, $3.0 million and $0.3
million for fiscal 2023, 2022 and 2021, respectively.
33
Accounts Receivable and Allowance for Doubtful Accounts Receivable
We maintain an allowance for doubtful accounts receivable
related to our Merchant
and Consumer segments with respect
to sales
or rental
of hardware,
support and
maintenance
services provided;
or sale
of licenses
to customers;
or the
provision of
transaction
processing services to our customers.
Our
policy
is
to
regularly
review
the
aging
of
outstanding
amounts
due
from
customers
and
adjust
the
provision
based
on
management’s estimate of
the recoverability of the amounts outstanding.
Management
considers
factors including
period outstanding,
creditworthiness
of the
customers, past
payment
history and
the
results
of
discussions
by
our
credit
department
(and
in
some cases
including
our
sales and
finance
teams)
with
the
customer.
We
consider this policy to be appropriate taking into account factors such as historical
bad debts, current economic trends and changes in
our customer
payment patterns.
Additional provisions
may be
required should
the ability
of our
customers to
make payments
when
due
deteriorate
in
the
future.
Judgment
is
required
to
assess
the
ultimate
recoverability
of
these
receivables,
including
ongoing
evaluation of the creditworthiness of each customer.
Lending
Merchant lending
We maintain
an allowance for doubtful finance loans
receivable related to our Merchant services
segment with respect to short-
term loans
to qualifying
merchant
customers.
Our policy
is to
regularly
review
the ageing
of outstanding
amounts due
from
these
merchants and
an allowance is
created for
the full amount
outstanding if
the customer is
in arrears for
more than 15
days. We
write
off
loans and
related
interest and
fees when
it is
evident
that reasonable
recovery
procedures,
including
where
deemed
necessary,
formal legal action, have failed.
Our
risk
management
procedures
include
adhering
to
our
proprietary
lending
criteria
which
uses
an
online-system
loan
application process, obtaining necessary customer transaction-history data and credit bureau checks.
We consider these procedures to
be
appropriate
because
it takes
into
account
a
variety
of
factors
such
as the
customer’s
credit
capacity
and
customer-specific
risk
factors when originating a loan.
Consumer microlending
We maintain an allowance for doubtful finance
loans receivable related to our Consumer services segment with respect to short-
term loans to qualifying customers.
Our policy is to
regularly review the ageing
of outstanding amounts due from
borrowers and adjust
the provision based on management’s
estimate of the recoverability of finance loans receivable. We
write off microlending loans and
related service fees if a borrower is in arrears with repayments for more than three months or
dies.
Credit bureau checks as well as an affordability test are
conducted as part of the origination process, both of which being in
line
with local regulations. We consider this policy to be appropriate because the affordability
test we perform takes into account a variety
of
factors
such
as
other
debts
and
total
expenditures
on
normal
household
and
lifestyle
expenses.
Additional
allowances
may
be
required should the ability of our customers to make payments when
due deteriorates in the future. A significant amount of
judgment
is required to assess the ultimate recoverability of these
finance loan receivables, including ongoing evaluation of the creditworthiness
of each customer.
Recent Accounting Pronouncements
Recent accounting pronouncements adopted
Refer
to
Note
2 of
our
audited consolidated
financial
statements for
a full
description
of recent
accounting
pronouncements,
including the dates of adoption and effects on financial
condition, results of operations and cash flows.
Recent accounting pronouncements not yet adopted as of June 30, 2023
Refer to Note 2
of our audited consolidated
financial statements for a
full description of recent
accounting pronouncements not
yet adopted as of June 30, 2023, including the expected dates of adoption
and effects on financial condition, results of operations and
cash flows.
34
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were
as follows:
Table 1
June 30,
2023
2022
2021
ZAR : $ average exchange rate
17.7641
15.2154
15.4146
Highest ZAR : $ rate during period
19.7558
16.2968
17.6866
Lowest ZAR : $ rate during period
16.2034
14.1630
13.4327
Rate at end of period
18.8376
16.2903
14.3010
Translation Exchange Rates
We are required
to translate our results of operations from ZAR to U.S. dollars on a monthly
basis. Thus, the average rates used
to translate this data for the years ended June 30, 2023, 2022 and 2021, vary slightly from the averages shown in the table above. The
translation rates we use in presenting our results of operations are the rates shown
in the following table:
Table 2
June 30,
2023
2022
2021
Income and expense items: $1 = ZAR
17.9400
15.1978
15.7162
Balance sheet items: $1 = ZAR
18.8376
16.2903
14.3010
35
Results of operations
The discussion
of our
consolidated overall
results of
operations is
based on
amounts
as reflected
in our
audited consolidated
financial statements which are prepared in accordance
with U.S. GAAP.
We analyze our
results of operations both in U.S. dollars, as
presented in the audited consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the
entities which contribute the majority of our results and is the currency
in which the majority of our transactions are initially incurred
and
measured.
Presentation
of
our
reported
results
in
ZAR
is
a
non-GAAP
measure.
Due
to
the
significant
impact
of
currency
fluctuations between
the U.S. dollar
and ZAR on
our reported
results and
because we
use the
U.S. dollar as
our reporting
currency,
we believe that
the supplemental presentation
of our results
of operations in
ZAR is useful
to investors to
understand the changes
in
the underlying trends of our business.
Our
operating
segment
revenue
presented
in
“—Results
of
operations
by
operating
segment”
represents
total
revenue
per
operating segment before intercompany
eliminations. A reconciliation between
total operating segment revenue and
revenue,
as well
as the reconciliation because our segment performance measure and net loss before tax (benefits) expense, is presented in our audited
consolidated financial
statements in
Note 21
to those
statements. Our
chief operating
decision maker
is our
Group Chief
Executive
Officer
and
he
evaluates
segment
performance
based
on
segment
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”), adjusted for
items mentioned in
the next sentence
(“Segment Adjusted EBITDA”)
for each operating
segment. We
do
not
allocate
once-off
items
(as
defined
below),
stock-based
compensation
charges,
depreciation
and
amortization,
impairment
of
goodwill or other intangible
assets, certain lease charges
(“Lease adjustments”), other
items (including gains or
losses on disposal of
investments, fair value adjustments to equity securities, fair value adjustments to currency options), interest
income, interest expense,
income tax
expense or
loss from
equity-accounted investments
to our
reportable segments.
Once-off
items represents
non-recurring
expense items, including costs related to acquisitions and
transactions consummated or ultimately not pursued. The Lease
adjustments
reflect lease charges and the Stock-based compensation adjustments reflect stock-based
compensation expense and are both excluded
from
the
calculation
of
Segment
Adjusted
EBITDA
and
are
therefore
reported
as
reconciling
items
to
reconcile
the
reportable
segments’ Segment Adjusted EBITDA to our loss before income tax
expense.
Group
Adjusted
EBITDA
represents
Segment
Adjusted
EBITDA
after
deducting
group
costs.
Refer
also
“Results
of
Operations—Use of Non-GAAP Measures” below.
Fiscal 2023 includes
Connect for
the entire fiscal
year and
fiscal 2022 includes
consolidation of
Connect from
April 14, 2022.
Refer also to Note 3 to the audited consolidated financial statements for
additional information regarding this transaction.
We analyze our business and operations in terms of two
inter-related but independent operating segments: (1) Merchant Division
and (2)
Consumer Division.
In addition,
corporate activities
that are
impracticable to
allocate directly
to the
operating segments,
as
well as
any inter-segment
eliminations, are
included in
Group costs.
Inter-segment revenue
eliminations are
included in
Corporate/
Eliminations.
Fiscal 2023 Compared to Fiscal 2022
The following factors had
a significant influence on
our results of
operations during fiscal
2023 as compared
with the same
period
in the prior year:
●
Higher revenue:
Our revenues
increased by
180.0% in
ZAR, primarily
due to
the contribution
from Connect
in Merchant
and an increase in account fees and insurance revenues in Consumer;
●
Lower operating
losses:
Operating
losses decreased,
delivering
an improvement
of 55%
in ZAR
compared
with the
prior
period
primarily
due
to
the
contribution
from
Connect,
strong
hardware
sales,
and
the
implementation
of
various
cost
reduction
initiatives
in
Consumer,
which
was
partially
offset
by
an
increase
in
acquisition
related
intangible
asset
amortization;
●
Higher
net
interest
charge:
additional borrowings
incurred in
order to
fund the
acquisition of
Connect as
well as
the debt
acquired within
the Connect
business itself;
●
Significant transaction costs:
and
●
Foreign exchange movements:
reported results.
36
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations,
both in U.S. dollars and in ZAR:
Table 3
In U.S. Dollars
Year
ended June 30,
2023
2022
$ %
$ ’000
$ ’000
change
Revenue
527,971
222,609
137%
Cost of goods sold, IT processing, servicing and support
417,544
168,317
148%
Selling, general and administration
95,050
74,993
27%
Depreciation and amortization
23,685
7,575
213%
Impairment loss
7,039
-
nm
Reorganization costs
-
5,894
nm
Transaction costs related to Connect acquisition
-
6,025
nm
Operating loss
(15,347)
(40,195)
(62%)
Gain related to fair value adjustment to currency options
-
3,691
nm
Loss on disposal of equity-accounted investment
205
376
(45%)
Gain on disposal of equity securities
-
720
nm
Interest income
1,853
2,089
(11%)
Interest expense
18,567
5,829
219%
Loss before income tax (benefit) expense
(32,266)
(39,900)
(19%)
Income tax (benefit) expense
(2,309)
327
nm
Net loss before loss from equity-accounted investments
(29,957)
(40,227)
(26%)
Loss from equity-accounted investments
(5,117)
(3,649)
40%
Net loss attributable to us
(35,074)
(43,876)
(20%)
Table 4
In South African Rand
Year
ended June 30,
2023
2022
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
9,471,800
3,383,166
180%
Cost of goods sold, IT processing, servicing and support
7,490,739
2,558,047
193%
Selling, general and administration
1,705,196
1,139,728
50%
Depreciation and amortization
424,909
115,123
269%
Impairment loss
126,280
-
nm
Reorganization costs
-
89,576
nm
Transaction costs related to Connect acquisition
-
91,567
nm
Operating loss
(275,324)
(610,875)
(55%)
Gain related to fair value adjustment to currency options
-
56,095
nm
Loss on disposal of equity-accounted investment
3,678
5,714
(36%)
Gain on disposal of equity securities
-
10,942
nm
Interest income
33,243
31,748
5%
Interest expense
333,092
88,587
276%
Loss before income tax (benefit) expense
(578,851)
(606,391)
(5%)
Income tax (benefit) expense
(41,423)
4,970
nm
Net loss before loss from equity-accounted investments
(537,428)
(611,361)
(12%)
Loss from equity-accounted investments
(91,799)
(55,457)
66%
Net loss attributable to us
(629,227)
(666,818)
(6%)
Revenue increased by $305.4 million (ZAR 6.1 billion), or 137.2% (in ZAR, 180.0%), primarily due to the inclusion of Connect
for
the entire
fiscal year,
which has
substantial low
margin
prepaid
airtime sales
in addition
to its
core processing
revenue and
an
increase in account fees and insurance revenues.
Cost of
goods sold,
IT processing,
servicing and
support increased
by $249.2
million (ZAR
4.9 billion),
or 148.1%
(in ZAR,
192.8%), primarily due to the inclusion of Connect,
which were partially offset by the benefits of
various cost reduction initiatives in
Consumer and lower insurance-related claims.
37
Selling, general and administration expenses increased by $20.1 million (ZAR 0.6 billion), or 26.7% (in ZAR, 49.6%), primarily
due
to
higher
employee-related
expenses
related
to
the
expansion
of
our
senior
management
team,
the
year-over-year
impact
of
inflationary
increases
on
employee-related
expenses
and
the
inclusion
of
expenses
related
to
Connect’s
operations,
which
were
partially offset by the benefits of various cost reduction initiatives in Consumer.
Depreciation and
amortization expense
increased by $16.1
million (ZAR 0.3
billion), or 212.7%
(in ZAR, 269.1%),
due to the
inclusion of acquisition-related intangible asset amortization related
to intangible assets identified pursuant to
the Connect acquisition,
as well as the inclusion of depreciation expense related to Connect’s
property, plant and equipment.
During fiscal 2023, we
recorded an impairment loss
of $7.0 million related
to the impairment of
our hardware/ software supply
business
unit’s
allocated
goodwill.
Refer
to
Note
10
of
our
audited
consolidated
financial
statements
for
additional
information
regarding these impairment losses.
We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during fiscal
2022.
Transaction
costs related
to Connect
acquisition in
fiscal 2022
includes fees
paid to
external service
providers associated
with
the contract drafting and negotiations; corporate finance advisory services; legal, financial and tax due diligence
activities performed;
warranty and
indemnity insurance
related to the
transaction; and other
advisory services procured;
as well as
our portion
of the fees
paid to competition authorities related to the regulatory filings made in
various jurisdictions.
Our operating loss
margin in fiscal
2023
and 2022
was
(2.9%) and
(18.1%), respectively.
We
discuss the
components of operating
loss margin under “—Results of operations by operating
segment.”
We
did
not
record
any
changes
in
the
fair
value
of
equity
interests
in
MobiKwik
and
Cell
C
during
fiscal
2023
and
2022,
respectively.
We continue
to carry our investment
in Cell C at $0
(zero). Refer to Note
9 to our consolidated financial
statements for
the methodology
and inputs used
in the fair
value calculation for
MobiKwik and Note
6 for the
methodology and
inputs used in
the
fair value calculation for Cell C.
Gain related to fair value adjustment to currency
options represents the realized gain related to foreign exchange
option contracts
entered into in November 2021
in order to manage the risk of
currency volatility and to fix
the USD amount to be utilized
for part of
the Connect purchase
consideration settlement. The
foreign exchange option
contracts matured on
February 24, 2022.
Refer to Note
6 to our consolidated financial statements for additional information
related to these currency options.
We
recorded
a
net
loss
of
$0.2
million
comprising
a
loss
of
$0.4
million
related
to
the
disposal
of
a
minor
portion
of
our
investment in Finbond and a $0.25 million gain related to
the disposal of our entire interest in Carbon
during fiscal 2023. We recorded
a loss of $0.4 million related to the disposal
of a minor portion of our investment in Finbond during fiscal
2022. Refer to Note 9 to our
consolidated financial statements for additional information regarding
these disposals.
We recorded
a gain of $0.7 million related to the disposal of our entire interest
in an equity security during fiscal 2022. Refer to
Note 9 to our consolidated financial statements for additional information
regarding this gain.
Interest on surplus cash decreased to $1.9 million (ZAR
33.2 million) from $2.1 million (ZAR 31.7 million), primarily
due to the
inclusion of Connect, which was partially offset by lower overall surplus
cash balances following the acquisition of Connect.
Interest expense increased
to $18.6 million
(ZAR 333.1 million)
from $5.8 million
(ZAR 88.6 million),
primarily as a result
of
additional
interest
expense
incurred
related
to
borrowings
obtained
to
partially
fund
the acquisition
of
Connect,
interest
expenses
incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our facilities to fund our
ATMs,
which was also coupled with an increase in base interest rates.
Fiscal 2023
tax benefit was $(2.3) million (ZAR (41.4) million) compared
to a tax expense of $0.3 million (ZAR 5.0 million) in
fiscal 2022. Our effective tax rate for fiscal 2023 was impacted by a reduction in
the enacted South African corporate income tax rate
from
28%
to
27%
from
January
2023
(but
backdated
to
July
1,
2022),
the
tax
expense
recorded
by
our
profitable
South
African
operations, a deferred
tax benefit related to
acquisition-related intangible asset
amortization, non-deductible
expenses, a deferred tax
benefit related
to an
expense paid
by Connect
before we
acquired the
business and
which subsequently
has been
determined to
be
deductible
for
tax
purposes,
the
on-going
losses
incurred
by
certain
of
our
South
African
businesses
and
the
associated
valuation
allowances created related to the deferred tax assets recognized regarding
net operating losses incurred by these entities.
Our effective
tax rate
for fiscal
2022 was
impacted by
the tax
expense recorded
by our
profitable South
African operations,
a
deferred
tax
benefit
related
to
acquisition-related
intangible
asset
amortization,
non-deductible
expenses
(including
transaction
expenses
related
to
the
acquisition
of
Connect),
the
on-going
losses
incurred
by
certain
of
our
South
African
businesses
and
the
associated valuation allowances created
related to the deferred
tax assets recognized regarding
net operating losses incurred
by these
entities.
38
Finbond is listed on the Johannesburg Stock Exchange
and reports its six-month results during
our first half and its
annual results
during
our fourth
quarter.
We
recorded
impairment
losses related
to
our investment
in Finbond
in fiscal
2023
following
on-going
losses reported
by Finbond
and its
lower listed
share price.
Refer to
Note 9
to our
consolidated
financial statements
for additional
information regarding the impairments.
The table below presents the relative loss from our equity accounted investments:
Table 5
Year
ended June 30,
2023
2022
$ %
$ ’000
$ ’000
change
Finbond
(5,206)
(3,665)
42%
Share of net (loss) income
(4,096)
(3,665)
12%
Impairment
(1,110)
-
nm
Other
89
16
456%
Share of net income (loss)
89
16
456%
Total
loss from equity-accounted investment
(5,117)
(3,649)
40%
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
(loss) income are illustrated below:
Table 6
In U.S. Dollars
Year
ended June 30,
2023
% of
2022
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Consolidated revenue:
Merchant
463,701
88%
156,689
70%
196%
Consumer
62,801
12%
65,932
30%
(5%)
Subtotal: Operating segments
526,502
100%
222,621
100%
137%
Not allocated to operating segments
1,469
-
-
-
nm
Corporate/Eliminations
-
-
(12)
-
nm
Total
consolidated revenue
527,971
100%
222,609
100%
137%
Group Adjusted EBITDA:
Merchant
33,531
121%
12,646
(72%)
165%
Consumer
(1)
3,314
12%
(21,674)
123%
nm
Group costs
(9,109)
(33%)
(8,587)
49%
6%
Group Adjusted EBITDA (non-GAAP)
(2)
27,736
100%
(17,615)
100%
nm
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes reorganization
cost of $5.9 million.
(2) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation
below at “—Results of Operations—Use of Non-
GAAP Measures”.
39
Table 7
In South African Rand
Year
ended June 30,
2023
% of
2022
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Consolidated revenue:
Merchant
8,318,796
88%
2,381,323
70%
249%
Consumer
1,126,650
12%
1,002,021
30%
12%
Subtotal: Operating segments
9,445,446
100%
3,383,344
100%
179%
Not allocated to operating segments
26,354
-
-
-
nm
Corporate/Eliminations
-
-
(178)
-
nm
Total
consolidated revenue
9,471,800
100%
3,383,166
100%
180%
Group Adjusted EBITDA:
Merchant
601,546
121%
192,197
(72%)
213%
Consumer
(1)
59,453
12%
(329,403)
123%
nm
Group costs
(163,415)
(33%)
(130,503)
49%
25%
Group Adjusted EBITDA (non-GAAP)
(2)
497,584
100%
(267,709)
100%
nm
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes
reorganization cost of ZAR 89.6 million.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Merchant
Segment
revenue
increased
due
to
the
contribution
from
Connect
for
the
full fiscal
year
compared
with
only
two
and a
half
months in fiscal
2022. This increase
was partially offset
by lower hardware
sales revenue given
the lumpy nature
of bulk sales.
The
increase in
Segment Adjusted
EBITDA is
also due
to the inclusion
of Connect,
which was partially
offset by
lower hardware
sales.
Connect records a significant proportion of its airtime sales in revenue and cost of sales, while only earning a relatively small margin.
This significantly depresses the Segment Adjusted EBITDA margins
shown by the business.
Our Segment
Adjusted EBITDA
(loss) margin
(calculated as
Segment Adjusted
EBITDA (loss)
divided by
revenue) in
fiscal
2023
and 2022 was 7.2% and 8.1%, respectively.
Consumer
Segment revenue increased primarily due to higher insurance revenues and higher account holder fees, though this was partially
offset by
lower ATM
transaction fees.
We
embarked on a
retrenchment process
during the third
quarter of fiscal
2022 and recorded
an expense of
$5.9 million which is
included in Segment
Adjusted EBITDA loss. The
cost reduction initiatives
we initiated in
fiscal
2022 delivered
a significant
reduction in
Consumer’s operating
expenses which
resulted in
a significantly
lower Segment
Adjusted
EBITDA
loss
compared
with
fiscal
2022.
Specifically,
expenses
associated
with
operating
a
mobile
distribution
network
were
discontinued
in
early
fiscal
2022,
and
we
have
streamlined
our
fixed
distribution
network
through
reductions
in
certain
expenses
including
employee-related
costs,
security,
guarding
and
premises costs.
In
June
2022
we
recalibrated
our
allowance
for
doubtful
microlending finance
loans receivable
from 10%
of the
lending book
outstanding to
6.5% of
the lending
book, which
resulted in
a
release from the allowance in fiscal 2022.
Our Segment
Adjusted EBITDA loss
margin in
fiscal 2023
and 2022
was 5.3% and
(32.9%), respectively.
After adjusting for
the
reorganization
charge
our fiscal
2022
Segment
Adjusted
EBITDA
loss margin
was
(23.9%).
Segment
Adjusted
EBITDA
loss
margin before the reorganization charge is a non-GAAP measure. We believe that the presentation of our Segment Adjusted EBITDA
loss margin
before the
reorganization
charge
is useful
to investors
to understand
the improvement
in the
operating performance
in
Consumer, before the reorganization
charge, in fiscal 2023 compared with fiscal 2022.
Group costs
Our group
costs primarily
include employee
related costs
in relation
to employees
specifically hired
for group
roles and
costs
related
directly
to
managing
the
US-listed
entity;
expenditures
related
to
compliance
with
the
Sarbanes-Oxley
Act
of
2002;
non-
employee directors’ fees; legal fees; group and US-listed related audit
fees; and directors’ and officers’ insurance premiums.
Our
group
costs
for
fiscal
2023
increased
compared
with
the
prior
period
due
to
higher
employee
costs
and
an
increase
in
directors’ and officers’ insurance premiums.
40
Fiscal 2022 Compared to Fiscal 2021
The following factors had
a significant influence on
our results of
operations during fiscal
2022 as compared with
the same period
in the prior year:
●
Higher revenue:
Our revenues increased
by 64.6% in
ZAR, primarily due
to the contribution
from Connect, an
increase in
hardware
sales,
an
increase
in
merchant
transaction
processing
fees,
and
a
moderate
increase
in
lending
and
insurance
revenues;
●
Lower operating
losses:
Operating
losses decreased,
delivering
an improvement
of 28%
in ZAR
compared
with the
prior
period
primarily
due
to
the
positive
contribution
from
Connect,
the
closure
of
the
loss-making
IPG
operations
and
the
implementation of
various cost reduction
initiatives in our
Consumer business,
which was partially
offset by
an increase in
acquisition
related
intangible
asset
amortization
and
transaction
costs.
During
fiscal
2022,
we
recorded
a
reorganization
charge of $5.9 million related to the retrenchment process we
commenced in January 2022;
●
Significant transaction costs:
and
●
Foreign exchange movements:
reported results.
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 8
In U.S. Dollars
Year
ended June 30,
2022
2021
$ %
$ ’000
$ ’000
change
Revenue
222,609
130,786
70%
Cost of goods sold, IT processing, servicing and support
168,317
96,248
75%
Selling, general and administration
74,993
84,063
(11%)
Depreciation and amortization
7,575
4,347
74%
Reorganization costs
5,894
-
nm
Transaction costs related to Connect acquisition
6,025
-
nm
Operating loss
(40,195)
(53,872)
(25%)
Change in fair value of equity securities
-
49,304
nm
Gain related to fair value adjustment to currency options
3,691
-
nm
Loss on disposal of equity-accounted investment
376
13
2,792%
Gain on disposal of equity securities
720
-
nm
Loss on disposal of equity-accounted investment - Bank Frick
-
472
nm
Interest income
2,089
2,416
(14%)
Interest expense
5,829
2,982
95%
Loss before income tax expense
(39,900)
(5,619)
610%
Income tax expense
327
7,560
(96%)
Net loss before loss from equity-accounted investments
(40,227)
(13,179)
205%
Loss from equity-accounted investments
(3,649)
(24,878)
(85%)
Net loss attributable to us
(43,876)
(38,057)
15%
41
Table 9
In South African Rand
(US GAAP)
Year
ended June 30,
2022
2021
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
3,383,166
2,055,459
65%
Cost of goods sold, IT processing, servicing and support
2,558,047
1,512,653
69%
Selling, general and administration
1,139,728
1,321,151
(14%)
Depreciation and amortization
115,123
68,318
69%
Reorganization costs
89,576
-
nm
Transaction costs related to Connect acquisition
91,567
-
nm
Operating loss
(610,875)
(846,663)
(28%)
Change in fair value of equity securities
-
774,872
nm
Gain related to fair value adjustment to currency options
56,095
-
nm
Loss on disposal of equity-accounted investment
5,714
204
2,701%
Gain on disposal of equity securities
10,942
-
nm
Loss on disposal of equity-accounted investment - Bank Frick
-
7,418
nm
Interest income
31,748
37,970
(16%)
Interest expense
88,587
46,866
89%
Loss before income tax expense
(606,391)
(88,309)
587%
Income tax expense
4,970
118,814
(96%)
Net loss before loss from equity-accounted investments
(611,361)
(207,123)
195%
Loss from equity-accounted investments
(55,457)
(390,988)
(86%)
Net loss attributable to us
(666,818)
(598,111)
11%
Revenue increased
by $91.8
million (ZAR
1.3 billion),
or 70.2%
(in ZAR,
64.6%), primarily
due to
the inclusion
of Connect,
which has
substantial low
margin prepaid
airtime sales
in addition
to its
core processing
revenue, an
increase in
hardware sales,
an
increase in merchant transaction processing fees, and moderate increases in lending
and insurance revenues.
Cost of goods
sold, IT processing,
servicing and support
increased by $72.1
million (ZAR 1.0
billion), or 74.9%
(in ZAR, 69.1%),
primarily due
to the
inclusion of
Connect, an
increase in
the cost
of hardware
sales, higher
costs related
to transaction
fees and
an
increase in insurance-related claims experience, which
were partially offset by the benefits of various cost reduction
initiatives in our
Consumer business.
Selling, general and administration expenses decreased by $9.1
million (ZAR 0.2 billion), or 10.8% (in ZAR, 13.7%), primarily
due
to
lower
IPG-related
expenses
incurred
following
its
closure,
some
benefits
from
our
cost
reduction
initiatives,
as
well
as
a
recalibration, in June 2022, of
our allowance for doubtful microlending finance loans
receivable, in our Consumer business, from 10%
of the
lending book
outstanding to
6.5% of
the lending
book, which
resulted in
a release
from the
allowance in
fiscal 2022.
These
reductions were partially offset by the
inclusion of expenses related to
Connect’s operations, higher employee-related expenses related
to
the
expansion
of
our
senior
management
team,
and
the
year-over-year
impact
of
inflationary
increases
on
employee-related
expenses.
Depreciation and amortization expense increased by $3.2 million (ZAR 46.8 million), or 74.3% (in ZAR, 68.5%),
increased due
to
the
inclusion
of
acquisition-related
intangible
asset
amortization
related
to
intangible
assets
identified
pursuant
to
the
Connect
acquisition, as well as the inclusion of depreciation expense related to
Connect’s property,
plant and equipment.
We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during
fiscal
2022.
Transaction
costs related
to
Connect
acquisition
includes
fees
paid
to
external
service
providers
associated
with
the
contract
drafting and
negotiations; corporate
finance advisory
services; legal,
financial and
tax due
diligence activities
performed; warranty
and indemnity
insurance related
to the
transaction; and
other advisory
services procured;
as well
as our
portion
of the
fees paid
to
competition authorities related to the regulatory filings made in various jurisdictions
.
Our operating loss margin
in fiscal 2022 and 2021
was
(18.1%) and
(41.2%),
respectively. Adjusting
for the restructuring and
transaction costs incurred, the underlying
operating loss margin in fiscal
2022 was (12.7%). We
discuss the components of operating
loss margin under “—Results of operations by operating
segment.”
The
change
in
fair
value
of
equity
securities
during
fiscal
2021
represents
a
non-cash
fair
value
adjustment
gain
related
to
MobiKwik. We
continue to
carry our investment
in Cell C
at $0 (zero).
Refer to Note
9 to our
consolidated financial
statements for
the methodology
and inputs used
in the fair
value calculation for
MobiKwik and Note
6 for the
methodology and
inputs used in
the
fair value calculation for Cell C.
42
Gain related to fair value adjustment to currency
options represents the realized gain related to foreign exchange
option contracts
entered into in November 2021
in order to manage the risk of
currency volatility and to fix
the USD amount to be utilized
for part of
the Connect purchase
consideration settlement. The
foreign exchange
option contracts matured
on February 24,
2022. Refer to
Note
6 to our consolidated financial statements for additional information
related to these currency options.
We recorded
a gain of $0.7 million related to the disposal of our
entire interest in an equity security during fiscal 2022.
Refer to
Note 9 to our consolidated financial statements for additional information
regarding this gain.
We
recorded a
loss of $0.4
million related
to the
disposal of
a minor
portion of
our investment
in Finbond
during fiscal
2022.
Refer to Note 9 to our consolidated financial statements for additional information
regarding these disposals.
We recorded
a loss of $0.5 million related to the disposal of Bank Frick during fiscal 2021.
Interest on surplus cash decreased to $2.1 million (ZAR
31.7 million) from $2.4 million (ZAR 38.0 million),
primarily due to the
utilization of a significant portion
of our surplus cash
reserves to acquire Connect as
well as lower average daily
cash balances in fiscal
2022.
Interest
expense increased
to $5.8
million (ZAR
88.6) million
from $3.0
million (ZAR
46.9 million),
primarily
as a
result of
additional
interest
expense
incurred
related
to
borrowings
obtained
to
partially
fund
the acquisition
of
Connect,
interest
expenses
incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our facilities to fund our
ATMs
.
Fiscal 2022 tax expense
was $0.3 million (ZAR
5.0 million) compared
to $7.6 million (ZAR
118.8 million)
in fiscal 2021. Our
effective tax rate for fiscal 2022 was impacted
by the tax expense recorded by our profitable South
African operations, a deferred tax
benefit related to acquisition-related intangible asset amortization, non-deductible expenses (including transaction expenses related to
the
acquisition
of
Connect),
the
on-going
losses
incurred
by
certain
of
our
South
African
businesses
and
the
associated
valuation
allowances created related to the deferred tax assets recognized regarding
net operating losses incurred by these entities.
Our effective tax rate for fiscal 2021 was
impacted by the tax effect on the
change in the fair value
of our equity securities, which
is at
a lower
tax rate
than
the South
African
statutory
rate, the
tax charge
related
to our
profitable
South
African operations,
non-
deductible expenses, the on-going losses incurred by certain of our
South African businesses and the associated valuation allowances
created related to the deferred
tax assets recognized regarding net
operating losses incurred by these
entities, which was partially offset
by the reversal of the deferred tax liability related to one of our equity-accounted
investments following its impairment.
The disposal of certain of our equity-accounted investments in
fiscal 2021, as well as a number of impairments,
has impacted the
comparability of our
loss from
equity-accounted investments. We disposed of
our investment
in Bank Frick
in fiscal
2021.
We
recorded
an impairment loss related to our investment in Finbond in fiscal 2021
following a slow-down in its business activity and lower listed
share price.
Refer to Note 9
to our audited consolidated financial statements
for additional information regarding our equity-accounted
investments, including disclosure regarding the disposals and impairments.
The table below presents the relative loss from our equity accounted investments:
Table 10
Year
ended June 30,
2022
2021
$ ’000
$ ’000
$ % change
Finbond
(3,665)
(22,009)
(83%)
Share of net (loss) income
(3,665)
(4,359)
(16%)
Impairment
-
(17,650)
nm
Bank Frick
-
1,156
nm
Share of net income
-
1,156
nm
Other
16
(4,025)
nm
Share of net loss
16
(531)
nm
Impairment
-
(3,494)
nm
Total
loss from equity-accounted investments
(3,649)
(24,878)
(85%)
43
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to
operating income are illustrated below:
Table 11
In U.S. Dollars
Year
ended June 30,
2022
% of
2021
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Consolidated revenue:
Merchant
156,689
70%
62,944
48%
149%
Consumer
65,932
30%
66,149
51%
(0%)
Subtotal: Operating segments
222,621
100%
129,093
99%
72%
Not allocated to operating segments
-
-
1,693
1%
nm
Corporate/Eliminations
(12)
-
-
-
nm
Total
consolidated revenue
222,609
100%
130,786
100%
70%
Group Adjusted EBITDA:
Merchant
12,646
(72%)
5,411
(14%)
134%
Consumer
(1)
(21,674)
123%
(25,962)
68%
(17%)
Not allocated to operating segments
-
-
(10,899)
28%
nm
Group costs
(8,587)
49%
(6,965)
18%
23%
Group Adjusted EBITDA (non-GAAP)
(2)
(17,615)
100%
(38,415)
100%
(54%)
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes
reorganization cost of $5.9 million.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Table 12
In South African Rand
Year
ended June 30,
2022
% of
2021
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Consolidated revenue:
Merchant
2,381,323
70%
989,241
48%
141%
Consumer
1,002,021
30%
1,039,611
51%
(4%)
Subtotal: Operating segments
3,383,344
100%
2,028,852
99%
67%
Not allocated to operating segments
-
-
26,607
1%
nm
Corporate/Eliminations
(178)
-
-
-
nm
Total
consolidated revenue
3,383,166
100%
2,055,459
100%
65%
Group Adjusted EBITDA:
Merchant
192,197
(72%)
85,040
(14%)
126%
Consumer
(1)
(329,403)
123%
(408,024)
68%
(19%)
Not allocated to operating segments
-
-
322,984
28%
nm
Group costs
(130,503)
49%
(109,463)
18%
19%
Group Adjusted EBITDA (non-GAAP)
(2)
(267,709)
100%
(603,738)
100%
(56%)
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes
reorganization cost of ZAR 89.6 million.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Merchant
Segment revenue
increased due
to the
inclusion of
Connect for
two and
a half
months and
an increase
in hardware
sales and
processing fees. The
increase in Segment
Adjusted EBITDA is
primarily due to
the inclusion of
Connect, which was
partially offset
by higher costs related
to processing fees
and higher employee-related expenses. Connect
records a significant proportion
of its airtime
sales in revenue
and cost of
sales, while only
earning a relatively
small margin. This depresses
the Segment Adjusted EBITDA
margins
shown by the business.
44
Our Segment Adjusted EBITDA margin for fiscal 2022
and 2021
was 8.1% and 8.6%, respectively.
Consumer
The underlying decrease in revenue was primarily due to
lower processing fees, partially offset by higher insurance
and lending
revenue
and account
holder fees.
We
embarked
on a
retrenchment process
during
the third
quarter of
fiscal 2022
and recorded
an
expense
of
$5.9
million
which
is
included
in
the
Segment
Adjusted
EBITDA
loss,
refer
to
Note
1
to
our
consolidated
financial
statements for
additional information
regarding this
process.
Segment Adjusted
EBITDA loss,
excluding the
reorganization charge,
has
decreased
primarily
due
to
the
implementation
of
various
cost
reduction
initiatives
and
a
recalibration,
in
June
2022,
of
our
allowance for doubtful microlending finance loans receivable from 10% of the lending book outstanding to 6.5% of the lending book,
which resulted in a release from the allowance in
fiscal 2022, which decreases were partially offset by an increase in
insurance-related
claims experience.
Our Segment Adjusted EBITDA
loss margin for fiscal
2022
and 2021 was
(32.9%) and
(39.2%), respectively.
After adjusting
for the reorganization
charge our fiscal 2022
Segment Adjusted EBITDA loss
margin was (23.9%)
.
We
believe that the presentation
of our Segment Adjusted EBITDA loss margin before
the reorganization charge is useful to investors to understand
the improvement
in the operating performance in Consumer, before
the reorganization charge, in fiscal 2022
compared with fiscal 2021.
Group costs
Our group costs increased primarily due to higher employee
costs, an increase in audit fees and directors’
and officers’
insurance
premiums.
Use of Non-GAAP Measures
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is
a
non-GAAP
measure.
We
provide
this
non-GAAP
measure
to
enhance
our
evaluation
and
understanding
of
our
financial
performance.
Non-GAAP Measures
Group
Adjusted
EBITDA
is
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”),
adjusted
for
non-
operational transactions (including loss on disposal
of equity-accounted investments, gain related to
fair value adjustments to currency
options), (earnings) loss from
equity-accounted investments, stock-based compensation charges, lease
adjustments and once-off items.
Lease
adjustments
reflect
lease
charges
and
once-off
items
represents
non-recurring
expense
items,
including
costs
related
to
acquisitions and transactions consummated or ultimately not pursued.
45
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 13
Years
ended June 30,
2023
2022
2021
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(35,074)
(43,876)
(38,057)
Loss from equity accounted investments
5,117
3,649
24,878
Net loss before loss from equity-accounted investments
(29,957)
(40,227)
(13,179)
Income tax (benefit) expense
(2,309)
327
7,560
Loss before income tax expense
(32,266)
(39,900)
(5,619)
Interest expense
18,567
5,829
2,982
Interest income
(1,853)
(2,089)
(2,416)
Gain on disposal of equity securities
-
(720)
-
Net loss on disposal of equity-accounted investment
205
376
13
Loss on sale of Bank Frick
-
-
472
Gain related to fair value adjustment to currency options
-
(3,691)
-
Change in fair value of equity securities
-
-
(49,304)
Operating loss
(15,347)
(40,195)
(53,872)
Impairment loss
7,039
-
-
PPA amortization
(amortization of acquired intangible assets)
15,149
3,826
360
Depreciation
8,536
3,749
3,987
Stock-based compensation charges
7,309
2,962
344
Lease adjustments
2,906
3,955
4,148
Once-off items
(1)
1,922
8,088
6,618
Unrealized Loss FV for currency adjustments
222
-
-
Group Adjusted EBITDA - Non-GAAP
27,736
(17,615)
(38,415)
(1) The table below presents the components of once-off
items for the periods presented:
Table 14
Years
ended June 30,
2023
2022
2021
$ ’000
$ ’000
$ ’000
Non-recurring revenue not allocated to segments
(1,469)
-
-
Employee misappropriation of company funds
1,202
-
-
Transaction costs
850
6,460
1,879
Expenses incurred related to closure of legacy businesses
639
-
-
Indirect taxes provision
438
-
-
Separation of employee expense
262
-
-
Legacy processing adjustments
-
1,628
-
Allowance for doubtful EMI loans receivable
-
-
4,739
Total once-off
items
1,922
8,088
6,618
Once-off items are non-recurring in nature, however, certain
items may be reported in
multiple quarters. For instance, transaction
costs include costs incurred related to acquisitions and
transactions consummated or ultimately not pursued. The transactions can span
multiple quarters, for instance in fiscal 2022 we
incurred significant transaction costs related to the acquisition Connect over
a number
of quarters, and the transactions are generally non-recurring.
Non-recurring revenue not
allocated to segments
includes once off
revenue recognized that
we believe does
not relate to
either
our Merchant
or Consumer
divisions. Employee
misappropriation of
company funds
represents a
once-off
loss incurred.
Expenses
incurred
related
to
close
of
legacy
businesses
represents
costs
incurred
related
to
subsidiaries
which
we
are
in
the
process
of
deregistering/ liquidation
and therefore we
consider these costs non-operational
and ad hoc in
nature. Indirect tax
provision includes
non-recurring indirect taxes
which have been
provided related to
prior periods following
an on-going
investigation from a
tax authority.
We
incurred separation
costs related
to the
termination of
certain senior-level
employees, including
an executive
officer and
senior
managers, during
the fiscal
year and
we consider
these specific
terminations to
be of
a non-recurring
nature. The
legacy processing
adjustments represents amounts we
identified during fiscal 2022
related to prior
periods that are
payable to third
parties.
The allowance
for doubtful
EMI loans
receivable relates
to provision
created in
fiscal 2021
related to
loan provided
to certain
of our
then equity-
accounted investments.
46
Liquidity and Capital Resources
At June 30,
2023, our unrestricted
cash and cash
equivalents were $35.5
million and comprised
of ZAR-denominated
balances
of ZAR
0.6 million ($29.2
million), U.S. dollar-denominated
balances of $4.5
million, and other
currency deposits, primarily
Botswana
pula, of
$1.8 million,
all amounts translated
at exchange
rates applicable
as of
June 30,
2023. The
decrease in
our unrestricted
cash
balances
from
June
30,
2022,
was
primarily
due
to
the
utilization
of
cash
reserves
to
fund
certain
scheduled
repayments
of
our
borrowings, fully settle our revolving credit facility, purchase ATMs
and safe assets, and to make an investment in working capital in
our
Consumer
and
Merchant
operation,
which
was
partially
offset
by
the
utilization
of
our
available
borrowings
and
a
positive
contribution from Connect and certain of our Consumer operations.
We generally
invest any surplus cash held by our
South African operations in overnight
call accounts that we maintain at
South
African banking institutions,
and any surplus
cash held by
our non-South African
companies in
U.S. dollar-denominated money market
accounts.
Historically,
we have financed
most of our
operations, research and
development, working capital,
and capital expenditures,
as
well
as
acquisitions
and
strategic
investments,
through
internally
generated
cash
and
our
financing
facilities.
When
considering
whether to borrow under our financing
facilities, we consider the cost
of capital, cost of financing, opportunity cost
of utilizing surplus
cash and
availability of
tax efficient
structures to
moderate financing
costs. For
instance, in
fiscal 2022,
we obtained
loan facilities
from RMB
to fund
a portion
of our
acquisition of
Connect.
Following the
acquisition of
Connect, we
now utilize
a combination
of
short
and
long-term
facilities to
fund our
operating
activities and
a long-term
asset-backed
facility to
fund
the acquisition
of POS
devices and
safe assets.
Refer to
Note 12
to our
consolidated financial
statements for
the year
ended June
30, 2023,
for additional
information related to our borrowings.
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
June 30, 2023:
Table 15
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Overdraft
-
-
-
-
10,882
205,000
-
-
Overdraft restricted as to
use
(1)
74,319
1,400,000
-
-
-
-
-
-
Total overdraft
74,319
1,400,000
-
-
10,882
205,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,167
135,000
-
-
8,311
156,556
Total
short-term facilities
available
74,319
1,400,000
7,167
135,000
10,882
205,000
8,311
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,025
170,000
-
-
Overdraft restricted as to
use
(1)
23,021
433,654
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,757
33,100
-
-
112
2,110
Total
short-term facilities
available
23,021
433,654
1,757
33,100
9,025
170,000
112
2,110
Interest rate, based on South
African prime rate
11.75%
11.65%
(1) Overdraft may only be used to fund ATMs
and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward
exchange contracts to support
guarantees issued by RMB and Nedbank to various third parties on our behalf.
47
Long-term borrowings
We have
aggregate long-term borrowing
outstanding of ZAR 2.5 billion
($133.1 million translated at exchange
rates as of June
30, 2023) as
described in Note
12. These borrowings
include outstanding
long-term borrowings
obtained by Lesaka
SA of ZAR
0.9
billion,
including
accrued
interest,
which
was
used
to
partially
fund
the
acquisition
of
Connect.
The
Lesaka
SA
borrowing
arrangements were amended
in March 2023
to include a
ZAR 200 million
revolving credit facility.
The revolving credit
facility had
been repaid in full as of June 30, 2023, and the entire balance is available for utilization. In contemplation of the Connect transaction,
Connect obtained
total facilities
of approximately
ZAR 1.3
billion, which
were utilized
to repay
its existing
borrowings,
to fund
a
portion of its capital expenditures and to settle obligations under the transaction documents, and which has subsequently been upsized
for its
operational requirements
and has
an outstanding
balance as
of June
30, 2023,
of ZAR
1.2 billion,
We
also have
a revolving
credit facility, of ZAR 300.0 million
which is utilized to fund a portion of our merchant finance loans receivable book.
Restricted cash
We
have credit
facilities with RMB
in order
to access cash
to fund
our ATMs
in South Africa.
Our cash, cash
equivalents and
restricted cash
presented in
our consolidated
statement of
cash flows
as of
June 30,
2023, includes
restricted cash
of approximately
$23.0
million
related
to
cash withdrawn
from
our
debt
facility
to
fund
ATMs.
This
cash
may
only
be
used
to
fund
ATMs
and
is
considered restricted as to use and therefore is classified as restricted cash on
our consolidated balance sheet.
We
have also
entered into
cession and
pledge agreements
with Nedbank
related to
our Nedbank
credit facilities
and we
have
ceded and
pledged certain
bank accounts
to Nedbank.
The funds
included in
these bank
accounts are
restricted as
they may
not be
withdrawn without
the express permission
of Nedbank. Our
cash, cash equivalents
and restricted cash
presented in our
consolidated
statement of cash flows as of June 30, 2023, includes restricted cash of approximately
$0.2 million that has been ceded and pledged.
Cash flows from operating activities
Net cash provided
by operating activities
during fiscal
2023
was $0.4 million
(ZAR 7.4 million)
compared to
net cash utilized
by
operating
activities
of
$37.2
million
(ZAR
565.3
million)
during
fiscal
2022.
Excluding
the
impact
of
income
taxes,
our
cash
provided by operating activities
during fiscal 2023
was impacted by
the positive contribution from
Connect and certain
business within
our consumer
business, which was
partially offset
by growth
in our consumer
and merchant finance
loans receivable
books. During
fiscal 2023, we
observed fluctuations in
our working capital, primarily
within our merchant business,
as a result of
monthly changes
in our inventory and prepayment
account balances as a result of
payments made to secure prepaid
airtime inventory.
Certain of these
purchases were funded from our borrowing arrangements and the
impact of the funding is included in financing activities.
Net cash used in operating activities during fiscal 2022 was $37.2 million (ZAR 565.3 million) compared to $58.4 million (ZAR
887.1 million) generated during fiscal
2021. Excluding the impact of income
taxes, our cash used in operating activities during
fiscal
2022 was impacted by
the cash losses incurred by
the majority of our
continuing operations, the reorganization
costs paid during the
third quarter of
fiscal 2022, and
transactions costs paid
related to our
acquisition of Connect.
In fiscal 2022,
we absorbed $5
million
into working capital compared to a $4.7 million release from working capital
in fiscal 2021.
During fiscal 2023,
we paid our
first provisional South
African tax payments
of $3.0 million
(ZAR 50.8 million)
related to our
2023
tax year. During fiscal 2023, we
also made our second
provisional South African tax
payments
of $4.1 million (ZAR
76.1 million
related to our 2023 tax
year and received tax refunds
of $0.2 million (ZAR (3.8)
million). We
also paid taxes totaling $0.4
million in
other tax jurisdictions, primarily in the Botswana.
During fiscal 2022,
we made our
first provisional South
African tax payments
of $0.6 million
(ZAR 9.1 million)
related to our
2022
tax year. During fiscal 2022, we
also made our second
provisional South African tax
payments
of $0.7 million (ZAR
10.9 million
related to our 2022 tax year and made an additional tax payment of $0.0 million (ZAR
0.0 million) related to our 2021 tax year.
During fiscal 2021, we made our first provisional South
African tax payments
of $0.8 million (ZAR 11.9 million)
related to our
2021
tax year. During fiscal 2021, we also
made our second provisional South African
tax payments
of $0.5 million (ZAR 8.0
million)
related to our 2021 tax year and made an additional
tax payment of $0.8 million (ZAR 11.6
million) related to our 2020 tax year.
We
also paid taxes totaling $4.3 million in other tax jurisdictions, primarily in the U.S.
48
Taxes paid during
fiscal 2023, 2022 and 2021 were as follows:
Table 16
Year
ended June 30,
2023
2022
2021
2023
2022
2021
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
First provisional payments
2,955
585
825
50,798
9,142
11,934
Second provisional payments
4,079
691
470
76,089
10,929
8,038
Taxation paid related
to prior years
15
1
782
273
19
11,620
Tax refund received
(210)
(300)
(1,339)
(3,756)
(4,542)
(19,245)
Total South African
taxes paid
6,839
977
738
123,404
15,548
12,347
Foreign taxes paid
361
161
4,263
6,482
2,482
62,302
Total
tax paid
7,200
1,138
5,001
129,886
18,030
74,649
We expect to make additional provisional
income tax payments in South Africa related to our 2023 tax year in the first quarter of
fiscal 2024, however, the amount was not quantifiable
as of the date of the filing of this Annual Report on Form 10-K.
Cash flows from investing activities
Cash used
in investing
activities for
fiscal 2023
included capital
expenditures of
$16.2 million
(ZAR 289.8
million), primarily
due to the
acquisition of ATMs
.
During fiscal 2023,
we received proceeds
of $0.25 million
related to the
first tranche (of
two) from
the disposal of our entire equity interest in Carbon and $0.4 million related to
the sale of minor positions in Finbond.
During fiscal
2022, we
paid approximately
$4.6 million
(ZAR 69.3
million), primarily
due to
the roll
out of
our new
express
branches, acquisitions of ATMs and the acquisition of
computer equipment. During fiscal
2022, we paid approximately
$202.2 million
(ZAR 2.9 billion), net of cash acquired, for 100% of Connect. We
also received funds totaling approximately $11.4
million related to
the sale of Bank
Frick in fiscal
2021, proceeds from sale of
property, plant and equipment of $4.2 million,
and proceeds of $0.9
million
and $0.7 million, respectively, related to the sale of minor positions in Finbond and from the disposal of our entire interest in Revix in
fiscal 2022.
During
fiscal
2021,
we paid
approximately
$4.3 million
(ZAR 65.1
million),
primarily
for
the acquisition
of motor
vehicles,
which largely comprised a fleet of customized mobile ATMs
used to deliver a service to rural communities, computer equipment
and
leasehold improvements in South
Africa. In February 2021, we disposed
of our investment in Bank
Frick and received $18.6 million
of the $30.0 million
sales proceeds, the remainder
of which was expected
to be received in
fiscal 2022 and 2023.
We
received $20.1
million in September 2020 related to the sale of our South Korean
business in fiscal 2020 following the successful refund application
of
the
amounts
withheld
and
paid
to
the
South
Korean
tax
authorities
pursuant
to
that
transaction.
We
received
$6.0
due
on
the
remaining deferred sale proceeds related to the fiscal 2020 sale of DNI. We also extended loan funding of $1.0 million to V2 and $0.2
million to Revix.
Cash flows from financing activities
During fiscal 2023, we utilized approximately $520.1
million from our South African overdraft facilities to fund
our ATMs
and
our cash management business through Connect and repaid
$547.3 million of these facilities. We utilized approximately $24.4 million
of our long-term
borrowings to settle approximately
$10.5 million of our
revolving credit facilities,
fund our merchant
finance loans
receivable business, and to fund the acquisition of certain capital expenditures
.
We repaid approximately
$17.5 million of these long-
term, including approximately $10.5 million to settle our
revolving credit balance in full. We
received $0.5 million from the exercise
of stock options. We also paid $1.3 million to repurchase shares from employees in order for the employees to settle taxes due related
to the vesting of shares of restricted stock and to settle the strike price due and taxes
due related to the exercise of stock options.
During fiscal 2022, we utilized approximately $570.9 million
from our South African overdraft facilities to fund our ATMs
and
our cash management business through Connect and
repaid $525.5 million of these facilities.
We utilized approximately $78.9 million
of our long-term borrowings
to fund a portion
of the acquisition of Connect,
to fund our merchant
finance loans receivable business,
and to fund the acquisition
of certain capital expenditures. We
repaid approximately $5.6 million
of these long-term borrowings.
We
also received $0.8 million from the exercise of stock options.
During fiscal 2021, we utilized approximately $360.1 million
from our South African overdraft facilities to fund our ATMs
and
repaid $365.4 million of these facilities.
49
Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2023:
Table 17
Payments due by Period, as of June 30, 2023 (in $ ’000s)
Total
Less than 1
year
2-3 years
3-5 years
Thereafter
Short-term credit facilities
(A)
32,046
32,046
-
-
-
Long-term borrowings
Principal repayments
(A)(B)
133,118
3,663
68,901
60,554
-
Interest payments
(A)(B)
55,766
16,861
28,313
10,592
-
Operating lease liabilities, including imputed interest
(C)
5,813
2,123
2,055
1,635
-
Purchase obligations
3,010
3,010
-
-
-
Capital commitments
54
54
-
-
-
Other long-term obligations reflected on our balance
sheet
(D)(E)
1,982
-
-
-
1,982
Total
231,789
57,757
99,269
72,781
1,982
Interest payments based on
applicable interest rates as of
June 30, 2023, and expected
outstanding long-term borrowings over
the period. All amounts converted from ZAR to USD using the June 30, 2023,
USD/ ZAR exchange rate.
rates applicable as of June 30, 2023.
Nedbank
to secure
guarantees it
has issued
to third
parties on
our behalf
as the
amounts that
will be
settled in
cash are
not
known and the timing of any payments is uncertain.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
Capital expenditures for the years ended June 30, 2023, 2022 and 2021
were as follows:
Table 18
2023
2022
2021
2023
2022
2021
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
Consumer
3,170
1,712
3,433
56,870
26,019
52,174
Merchant
12,986
2,846
852
232,969
43,253
12,949
Total
16,156
4,558
4,285
289,839
69,272
65,123
Our capital expenditures
for fiscal 2023,
2022 and 2021, are
discussed under “—Liquidity
and Capital Resources—Cash
flows
from investing activities.”
All of our capital expenditures
for the past three fiscal
years were funded through
internally-generated funds, except
for certain
capital
expenditures
of
POS devices
and
safe
assets, made
by
Connect
which
were funded
through
the utilization
of asset-backed
borrowings.
We
had
outstanding
capital commitments
as of
June 30,
2023,
of $0.1
million.
We
expect
to fund
these expenditures
through
internally-generated
funds.
In
addition
to
these
capital
expenditures,
we
expect
that
capital
spending
for
fiscal
2024
will
include acquisition
of POS devices,
safe assets, vehicles,
computer and office
equipment, as well
as for our
ATM
infrastructure and
branch
network
in
South
Africa.
These
assets
will
be
funded
through
the
use
of
internally-generated
funds
and
our
asset-backed
borrowing arrangement.
50
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We seek to manage our exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price and
liquidity risks as discussed below.
Currency Exchange Risk
We
are subject
to currency
exchange risk
because we
purchase components
for safe
assets, that
we assemble,
and inventories
that we
are required
to settle
in other
currencies, primarily
the euro,
renminbi, and
U.S. dollar.
We
have used
forward contracts
in
order to limit our 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.
We
had no outstanding foreign exchange contracts as of June 30,
2023 and 2022.
Translation Risk
Translation risk relates to the risk that our
results of operations will vary significantly as
the U.S. dollar is our
reporting currency,
but we earn a significant amount of our revenues and
incur a significant amount of our expenses in ZAR. The U.S. dollar
to the ZAR
exchange rate has
fluctuated significantly over
the past three
years. As exchange rates
are outside our
control, there can
be no assurance
that future fluctuations will not adversely affect our results
of operations and financial condition.
Interest Rate Risk
As a result
of our normal borrowing
activities, our operating results
are exposed to fluctuations
in interest rates,
which we manage
primarily through regular
financing activities. Interest
rates in South
Africa are trending upwards
and we expect higher
interest rates
in the foreseeable future which will increase our cost of
borrowing. We periodically evaluate the cost and effectiveness of interest rate
hedging strategies
to manage this
risk. We
generally maintain
investments in
cash equivalents and
held to maturity
investments and
have occasionally invested in marketable securities.
We have
short and long-term borrowings in South
Africa as described in Note 12
to our consolidated financial statements which
attract interest
at rates
that fluctuate
based on
changes in
the South
African prime
and 3-month
JIBAR interest
rates. The
following
table illustrates the effect on
our annual expected interest charge,
translated at exchange rates
applicable as of June 30,
2023, as a result
of changes in the South African prime and 3-month JIBAR interest
rates, using our outstanding short and long-term borrowings
as of
June 30, 2023. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in the interest rates applicable to the
borrowings as of June 30,
2023, are shown. The
selected 1% hypothetical change does
not reflect what could be considered
the best-
or worst-case scenarios.
Table 19
As of June 30, 2023
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Impact of
hypothetical
change in
interest rates
($ ’000)
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South Africa borrowings
21,111
1%
1,663
22,774
(1%)
(1,660)
19,451
Credit Risk
Credit risk
relates to
the risk of
loss that we
would incur
as a
result of non-performance
by counterparties.
We
maintain credit
risk
policies
in
respect
of
our
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
our
management
deems
appropriate.
With
respect to
credit risk
on financial
instruments,
we maintain
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.
51
Consumer microlending credit risk
We are exposed
to credit risk in our Consumer microlending activities, which provides unsecured short-term loans
to qualifying
customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of
which are line
with local regulations.
We
consider this policy to be appropriate because the affordability test we perform takes into account a variety
of
factors
such
as
other
debts
and
total
expenditures
on
normal
household
and
lifestyle
expenses.
Additional
allowances
may
be
required should the
ability of our customers
to make payments when
due deteriorate in
the future. A significant
amount of judgment
is required to assess the ultimate recoverability of these
finance loan receivables, including ongoing evaluation of the creditworthiness
of each customer.
Merchant lending
We
maintain an allowance
for doubtful finance
loans receivable related
to its Merchant
services segment with
respect to short-
term loans
to qualifying
merchant customers.
Our risk
management procedures
include adhering
to our
proprietary lending
criteria
which uses an online-system loan
application process, obtaining necessary customer transaction-history data and
credit bureau checks.
We
consider these procedures to be appropriate because it
takes into account a variety of
factors such as the customer’s credit capacity
and customer-specific risk factors when originating a loan.
Equity Securities Price Risk
Equity price risk relates to the risk
of loss that we would incur as
a result of the volatility in the exchange
-traded price of equity
securities that we hold. As of June 30, 2023, we did not have any equity securities that
were exchange-traded and held as available for
sale. Historically, exchange
-traded equity securities held as available for sale were expected to be held for an extended period of time
and we were
not concerned with
short-term equity price volatility
with respect to
these securities provided that
the underlying business,
economic and management characteristics of the company remained
sound.
The market price of these exchange-traded equity securities may fluctuate for a variety of reasons
and, consequently, the amount
we may obtain in a subsequent sale of these securities may significantly differ
from the reported market value.
Equity Securities Liquidity Risk
Equity liquidity risk
relates to the
risk of loss
that we would
incur as a
result of the
lack of liquidity
on the exchange
on which
those securities are
listed.
We
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.
We monitor these investments for impairment and make appropriate reductions in carrying value when an impairment is deemed
to be other-than-temporary.
We hold approximately 27.8% of the issued share capital
of Finbond which are exchange-traded equity
securities, however, from
April 1, 2016,
we have accounted
for them using
the equity method.
The fair value
of these securities
of $4.6 million
as of June
30,
2023,
represented approximately 0.8% of our total assets, including these securities.
52
ITEM 8.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY
DATA
Our
audited
consolidated
financial
statements,
together
with the
report of
our
independent
registered
public
accounting
firm,
appear on pages F-1 through F-72 of this Annual Report on Form 10-K.
53
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls
and procedures
Under the supervision and
with the participation of
our management, including our
Group Chief Executive Officer and
our Group
Chief Financial
Officer,
we conducted
an evaluation
of our
disclosure controls
and procedures,
as such
term is
defined under
Rule
13a-15(e) under the
Securities Exchange Act
of 1934, as amended
(the “Exchange Act”).
Based on this evaluation,
our Group Chief
Executive Officer and Group Chief Financial Officer
concluded that our disclosure controls and procedures
were effective as of June
30, 2023.
Internal Control over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of,
our Group Chief Executive Officer
and Group Chief Financial Officer, or persons performing
similar functions, and effected by our board of directors, management, and
other
personnel,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements for external purposes in accordance with U.S. GAAP.
Internal control over financial reporting includes
those policies and procedures that
(1) pertain to the
maintenance of records that,
in reasonable detail, accurately and fairly
reflect the transactions and dispositions of
our assets; (2) provide reasonable
assurance that
transactions are recorded as
necessary to permit preparation of
financial statements in accordance
with U.S. GAAP,
and that receipts
and expenditures of the company are being made only in accordance with authorizations of our officers and directors; and (3) provide
reasonable assurance regarding prevention
or timely detection of unauthorized
acquisition, use or disposition
of our assets that could
have a material effect on our audited consolidated financial statements.
Inherent Limitations in Internal Control
over Financial Reporting
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of
its inherent
limitations.
Internal
control
over
financial reporting
is a
process that
involves
human
diligence
and
compliance
and
is
subject
to
lapses
in
judgment and
breakdowns
resulting
from human
failures.
Internal
control over
financial
reporting
also
can
be
circumvented by collusion or improper
management override. Because of such
limitations, there is a risk that
material misstatements
may not
be prevented
or detected
on a
timely basis
by internal
control over
financial reporting.
However,
these inherent
limitations
are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards
to reduce, though
not eliminate, this risk.
Management’s
Report on Internal Control Over Financial Reporting
Management, including our Group Chief
Executive Officer and our Group
Chief Financial Officer, is responsible for
establishing
and maintaining
adequate internal control
over our financial
reporting. Management
conducted an evaluation
of the effectiveness
of
internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013) issued
by the
Committee
of Sponsoring
Organizations
of the
Treadway
Commission
(COSO). Based
on this
evaluation, management
concluded
that our internal control over financial reporting was effective as of
June 30, 2023. Deloitte & Touche (South Africa), our independent
registered public accounting firm, has issued an audit report on our internal control
over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended June 30, 2023,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
54
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the shareholders
and the Board of Directors of Lesaka Technologies,
Inc.
Opinion on Internal Control over Financial Reporting
We have audited
the internal control over financial reporting of Lesaka Technologies,
Inc. and subsidiaries (the “Company”) as
of
June
30,
2023,
based
on
criteria
established
in
Internal
Control
—
Integrated
Framework
(2013)
Sponsoring Organizations
of the Treadway
Commission (COSO).
In our
opinion, the
Company maintained,
in all material
respects,
effective internal
control over financial
reporting as of
June 30, 2023,
based on criteria
established in
Internal Control
— Integrated
Framework (2013)
We
have
also audited,
in accordance
with the
standards of
the Public
Company Accounting
Oversight Board
(United States)
(PCAOB), the
consolidated
financial statements
as of
and for
the year
ended June
30, 2023,
of the
Company and
our report
dated
September 12, 2023, expressed an unqualified opinion on those financial
statements.
Basis for Opinion
The
Company’s
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting
and
for
its
assessment of
the effectiveness
of internal
control over
financial reporting,
included in
the accompanying
Management’s
Report on
Internal Control over Financial Reporting. Our
responsibility is to express
an opinion on the Company’s internal control over financial
reporting based
on our
audit. We
are a
public accounting
firm registered
with the
PCAOB and
are required
to be
independent with
respect to the
Company in accordance
with the U.S. federal
securities laws and
the applicable rules
and regulations of
the Securities
and Exchange Commission and the PCAOB.
We conducted
our audit in accordance with
the standards of the PCAOB. Those
standards require that we plan
and perform the
audit to
obtain reasonable
assurance about
whether effective
internal control
over financial
reporting was
maintained in
all material
respects. Our audit
included obtaining an understanding
of internal control over
financial reporting, assessing
the risk that a
material
weakness
exists,
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk,
and
performing such
other procedures as
we considered necessary
in the circumstances.
We
believe that our
audit provides a
reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability of financial
reporting and the
preparation of financial
statements for external
purposes in accordance with
generally accepted
accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted
accounting principles, and that
receipts and expenditures of the
company are being made only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention or timely detection of
unauthorized acquisition, use, or disposition
of the company’s assets that could have
a material effect
on the financial statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Deloitte & Touche
Deloitte & Touche
Registered Auditors
Johannesburg, South Africa
September 12, 2023
55
ITEM 9B.
OTHER INFORMATION
Not applicable.
56
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
Not applicable.
57
PART
III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
about
our
executive
officers
is
set
out
in
Part
I,
Item
1
under
the
caption
“Our
Executive
Officers.”
The
other
information required
by this
Item is incorporated
by reference
to the
sections of
our definitive
proxy statement
for our
2023 annual
meeting of shareholders entitled “Board of Directors and Corporate
Governance” and “Additional Information.”
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2023
annual meeting of shareholders entitled
“Executive Compensation,” “Board of
Directors and Corporate Governance—Compensation
of Directors” and “—Remuneration Committee Interlocks and Insider Participation.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2023
annual
meeting
of
shareholders
entitled
“Security
Ownership
of
Certain
Beneficial
Owners
and
Management”
and
“Equity
Compensation Plan Information.”
ITEM 13.
CERTAIN
RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2023
annual
meeting
of
shareholders
entitled
“Certain
Relationships
and
Related
Transactions”
and
“Board
of
Directors
and
Corporate
Governance.”
ITEM 14.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2023
annual meeting of shareholders entitled “Audit and Non-Audit Fees.”
58
PART
IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
a)
The following documents are filed as part of this report
1. Financial Statements
The following financial statements are included on pages F-1 through F-72.
Report of the Independent Registered Public Accounting Firm
– Deloitte & Touche (South
Africa) (PCAOB
Firm ID 0
)
Consolidated balance sheets as of June 30, 2023 and 2022
F-4
Consolidated statements of operations for the years ended June 30, 2023,
2022 and 2021
2. Financial Statement Schedules
Financial statement schedules have been
omitted since they are
either not required, not
applicable, or the
information is otherwise
included.
59
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
2.1
8-K
10.1
November 2, 2021
3.1
8-K
3.1
May 17, 2022
3.2
8-K
3.2
May 17, 2022
4.1
10-K
4.1
September 9, 2022
4.2
X
10.1*
10-Q
10.49
February 7, 2023
10.2*
10-Q
10.50
February 7, 2023
10.3*
10-Q
10.51
February 7, 2023
10.4*
10-K
10.4
September 9, 2022
10.5*
10-K
10.5
August 24, 2017
10.6*
14A
A
September 30, 2022
10.7*
8-K
10.1
June 30, 2021
10.8*
8-K
10.2
June 30, 2021
10.9*
8-K
10.3
June 30, 2021
10.10*
8-K
10.4
June 30, 2021
10.11*
8-K
10.1
February 11, 2021
10.12*
8-K
10.2
February 11, 2021
10.13*
8-K
10.1
December 10, 2021
10.14*
8-K
10.2
December 10, 2021
10.15*
8-K
10.3
December 10, 2021
60
10.16*
8-K
10.4
December 10, 2021
10.17*
10-Q
10.52
May 9, 2023
10.18*
10-Q
10.53
May 9, 2023
10.19*
8-K
10.80
March 1, 2018
10.20*
8-K
10.81
March 1, 2018
10.21*
8-K
10.82
March 1, 2018
10.22*
8-K
10.83
March 1, 2018
10.23*
8-K
10.5
December 10, 2021
10.24*
8-K
10.6
December 10, 2021
10.25*
8-K
10.1
January 17, 2023
10.26*
8-K
10.2
January 17, 2023
10.27*
8-K
10.7
December 10, 2021
10.28*
8-K
10.2
August 5, 2020
10.29
10-Q
10.25
May 9, 2013
10.30
10-K
10.26
September 9, 2022
10.31
8-K
10.27
December 19, 2013
10.32
certain of its subsidiaries, dated December 7, 2016
8-K
10.50
December 9, 2016
10.33
8-K
10.32
April 12, 2016
61
10.34
8-K
10.1
May 14, 2020
10.35
8-K
10.1
December 10, 2020
10.36
10-K
10.32
September 9, 2022
10.37
10-Q
10.58
May 10, 2022
10.38
8-K
10.3
March 22, 2023
10.39
8-K
10.96
October 2, 2018
10.40
8-K
10.1
August 2, 2021
10.41
8-K
10.1
March 22, 2023
10.42
8-K
10.2
March 22, 2023
10.43
8-K
10.1
December 5, 2022
14
X
21
X
23
X
31.1
X
62
31.2
X
32
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy
Extension Schema
X
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy
Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy
Extension Label Linkbase
X
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase
X
104
Cover Page Interactive Data File (formatted as inline
XBRL and continued in Exhibit 101)
X
* Indicates a management contract or compensatory plan or arrangement.
ITEM 16.
FORM 10-K SUMMARY
None.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, thereunto duly authorized.
LESAKA TECHNOLOGIES, INC.
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer and Director
Date: September 12, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report
has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME
TITLE
DATE
/s/ Kuben Pillay
Chairman of the Board and Director
September 12, 2023
Kuben Pillay
/s/ Chris G.B. Meyer
Group Chief Executive Officer and Director (Principal
Executive Officer)
September 12, 2023
Chris G.B. Meyer
/s/ Naeem E. Kola
Group Chief Financial Officer, Treasurer,
Secretary and
Director (Principal Financial and Accounting Officer)
September 12, 2023
Naeem E. Kola
/s/ Antony C. Ball
Director
September 12, 2023
Antony C. Ball
/s/ Nonkululeko N. Gobodo
Director
September 12, 2023
Nonkululeko N. Gobodo
/s/ Javed Hamid
Director
September 12, 2023
Javed Hamid
/s/ Steven J. Heilbron
Director
September 12, 2023
Steven J. Heilbron
/s/ Lincoln C. Mali
Director
September 12, 2023
Lincoln C. Mali
/s/ Ali Mazanderani
Director
September 12, 2023
Ali Mazanderani
/s/ Sharron Venessa
Naidoo
Director
September 12, 2023
Sharron Venessa
Naidoo
/s/ Monde Nkosi
Director
September 12, 2023
Monde Nkosi
/s/ Ekta Singh-Bushell
Director
September 12, 2023
Ekta Singh-Bushell
F-1
LESAKA TECHNOLOGIES, INC.
LIST OF CONSOLIDATED
FINANCIAL STATEMENTS
Consolidated balance sheets as of June 30, 2023 and 2022
F-4
F-2
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the shareholders
and the Board of Directors of Lesaka Technologies,
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lesaka Technologies,
Inc. and subsidiaries (the “Company”)
as of June 30, 2023 and 2022, the related consolidated statements of operations, comprehensive
(loss) income, changes in equity,
and
cash flows, for each
of the three years
in the period ended June
30, 2023, and the
related notes (collectively referred to as
the “financial
statements”). In our opinion,
the financial statements present
fairly, in
all material respects, the
financial position of the
Company as
of June 30, 2023 and 2022, and the results of its operations
and its cash flows for each of the three
years in the period ended June 30,
2023, in conformity with accounting principles generally accepted in
the United States of America.
We
have
also audited,
in accordance
with the
standards of
the Public
Company Accounting
Oversight Board
(United States)
(PCAOB), the Company's
internal control over financial
reporting as of
June 30, 2023,
based on criteria established
in
Internal Control
— Integrated Framework (2013)
dated September 12, 2023, expressed an unqualified opinion
on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements
are the responsibility
of the Company's
management. Our
responsibility is to express
an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to
be
independent
with
respect
to
the
Company
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the
audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether
due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and
performing procedures that respond to those risks.
Such procedures included examining, on a
test basis, evidence
regarding the amounts and
disclosures in the financial statements.
Our audits also included evaluating
the accounting principles used
and significant estimates made by
management, as well as evaluating
the overall presentation of the financial
statements. We
believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated
below are matters arising from
the current-period audit of the financial
statements that
were communicated
or required
to be
communicated
to the
audit committee
and that
(1) relates
to accounts
or disclosures
that are
material to the
financial statements and
(2) involved our
especially challenging, subjective, or
complex judgments. The
communication
of
critical
audit
matters
does
not
alter
in
any
way
our
opinion
on
the
financial
statements,
taken
as
a
whole,
and
we
are
not,
by
communicating
the
critical
audit
matters
below,
providing
a
separate
opinion
on
the
critical
audit
matters
or
on
the
accounts
or
disclosures to which they relate.
Goodwill – Potential impairment of reporting units
Refer to Note 10 to the financial statements
Critical Audit Matter Description
Goodwill
represents
the
cost
in
excess
of
the
fair
value
of
the
identifiable
net
assets
from
the
businesses
that
the
Company
acquired.
The Company's
evaluation
of goodwill
for
impairment
involves
the
comparison
of
the fair
value
of
reporting
unit
to
its
carrying value. The Company uses a discounted cash flow model to estimate the
fair value for each reporting unit, which requires the
Company to make significant estimates
and assumptions related to forecasts of
future cash flows. In
addition, the discounted cash flow
model requires the Company to select an appropriate weighted average cost of capital based on current market conditions. Changes in
these assumptions could have a significant impact on either the fair value, the
amount of any goodwill impairment charge, or both.
How the Critical Audit Matter Was
Addressed in the Audit
Our principal audit procedures related to the assessment of forecasts of cash flows and the computation of the weighted average
cost of capital used by the Company to estimate the fair value of each reporting unit
included the following, among others:
●
Tested the effectiveness of controls over the
Company's goodwill impairment evaluation. This
included controls to the
review
of the Company's forecasts of future cash flows and controls over the computation
of the weighted average cost of capital.
●
Verified
the mathematical accuracy of the Discounted Cash Flow (DCF) calculations used by
the Company.
F-3
●
Evaluated the Company's ability to accurately forecast cash flows by:
◾
Performing sensitivity
analyses of
certain significant
assumptions to
evaluate the
changes in
the fair
value of
the
reporting units that would result from changes in these assumptions;
◾
Determining
the reasonableness
of the
revenue
growth rates
against historic
performance,
approved
budgets, and
expected future performance based on industry and entity-specific factors;
and
◾
Assessing forecast revenue to approved forecasts.
●
With the assistance of our fair value specialists, we evaluated
the weighted average cost of capital used by the Company by:
●
Testing the mathematical
accuracy of the Company's calculation of the weighted average cost of capital; and
●
Developing a range of independent estimates of weighted average cost of capital per reporting unit and comparing this range
to the weighted average cost of capital selected by the Company.
Valuation
of One MobiKwik Systems Limited (Mobikwik) – impairment
considerations
Refer to Note 9 to the financial statements
Critical Audit Matter Description
The investment in Mobikwik
is measured at cost minus
impairment, plus or minus
adjustments resulting from observable
price
changes in orderly transactions
for the identical or
a similar investment of the
same issuer minus impairment,
if any.
The subsequent
measurement section of
FASB ASC
Topic
321: Investments — Equity
Securities requires that because
the Investment in MobiKwik
represents
an
equity
security
without
a
readily
determinable
fair
value,
it
should
be
written
down
to
its
fair
value
if
a
qualitative
assessment indicates that the investment is impaired, and the fair value of
the investment is less than its carrying value.
We
identified the
qualitative assessment
of impairment
of investments
as a
critical audit
matter due
to the
significance of
the
balance
to
the
financial
statements
as
a
whole,
the
limited
availability
of
public
information
related
to
the
investment
and
the
subjectivity
of
the
qualitative
factors
involved
in
the
assessment.
There
were
significant
judgments
and
estimates
made
by
the
Company in their assessment of various factors (including operating
performance, global and country specific industry prospec
ts and
other company-specific information) to consider whether there were indicators
of impairment present.
This
required
complex
auditor
judgment,
and
an
increased
extent
of
audit
effort
in
performing
procedures,
to
evaluate
the
reasonableness of management's judgments in reaching this conclusion.
How the Critical Audit Matter Was
Addressed in the Audit
Our principal
audit procedures over
the relevant factors
to be considered
related to the
valuation of the
Company’s
investment
in Mobikwik as an equity security without a readily determinable fair value included
the following, among others:
●
Inquired of the Company to obtain an understanding of the Company's process in
evaluating the indication of impairment.
●
Tested the effectiveness of controls
over the Company's evaluation of the fair value of the investment in Mobikwik at period
end.
●
Assessed whether there
were any
observable transactions (as
defined in ASC
321) and assessed
the relevant factors
considered
by the Company.
●
Considered the completeness of internal and external factors to be
considered in relation to the value of the investment to be
recognized in the financial statements.
●
With the assistance of
our fair value specialists, we performed
an independent assessment of the factors
to consider whether
or not the investment needed to be impaired.
●
Compared the Company's assessment and conclusion to our independent
assessment.
/s/ Deloitte & Touche
Registered Auditors
September 12, 2023
We have served
as the Company's auditor since 2004.
F-4
June 30,
June 30,
2023
2022
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
$
Restricted cash related to ATM funding
and short-term credit facilities (Note 12)
Accounts receivable, net and other receivables (Note 4)
Finance loans receivable, net (Note 4)
Inventory (Note 5)
Total current assets before settlement assets
Settlement assets
Total current assets
PROPERTY,
PLANT AND EQUIPMENT, NET (Note 7)
OPERATING LEASE RIGHT-OF-USE (Note 8)
EQUITY-ACCOUNTED INVESTMENTS
(Note 9)
GOODWILL (Note 10)
INTANGIBLE ASSETS, NET (Note 10)
DEFERRED INCOME TAXES
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 9 and 11)
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 12)
Short-term credit facilities (Note 12)
Accounts payable
Other payables (Note 13)
Operating lease liability - current (Note 8)
Current portion of long-term borrowings (Note 12)
Income taxes payable
Total current liabilities before settlement obligations
Settlement obligations
Total current liabilities
DEFERRED INCOME TAXES
OPERATING LEASE LIABILITY - LONG TERM (Note 8)
LONG-TERM BORROWINGS (Note 12)
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 11)
TOTAL LIABILITIES
REDEEMABLE COMMON STOCK (Note 14)
EQUITY
COMMON STOCK (Note 14)
Authorized:
Issued and outstanding shares, net of treasury - 2023:
; 2022:
PREFERRED STOCK
Authorized shares:
Issued and outstanding shares, net of treasury:
2023:
-
-
ADDITIONAL PAID-IN-CAPITAL
TREASURY SHARES, AT
COST: 2023:
; 2022:
(
288,238
)
(
286,951
)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 15)
(
195,726
)
(
168,840
)
RETAINED EARNINGS
TOTAL LESAKA EQUITY
NON-CONTROLLING INTEREST
TOTAL EQUITY
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK
AND SHAREHOLDERS’ EQUITY
$
$
See accompanying notes to consolidated financial statements.
LESAKA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
for the years ended June 30, 2023, 2022 and 2021
F-5
2023
2022
2021
(In thousands, except per share data)
REVENUE (Note 16)
$
$
$
Services rendered
Loan-based fees received
Sale of goods
EXPENSE
Cost of goods sold, IT processing, servicing and support
Selling, general and administration
Depreciation and amortization
Reorganization costs
Transaction costs related to Connect acquisition (Note 3)
Impairment loss (Note 10)
OPERATING LOSS
(
15,347
)
(
40,195
)
(
53,872
)
CHANGE IN FAIR VALUE
OF EQUITY SECURITIES (Note 6 and 9)
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 9)
GAIN ON DISPOSAL OF EQUITY SECURITIES (Note 9)
GAIN RELATED TO
FAIR VALUE
ADJUSTMENT TO CURRENCY OPTIONS (Note 6)
LOSS ON DISPOSAL OF BANK FRICK (Note 9)
INTEREST INCOME
INTEREST EXPENSE
LOSS BEFORE INCOME TAX (BENFIT) EXPENSE
(
32,266
)
(
39,900
)
(
5,619
)
INCOME TAX (BENEFIT) EXPENSE (Note 18)
(
2,309
)
LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
(
29,957
)
(
40,227
)
(
13,179
)
LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 9)
(
5,117
)
(
3,649
)
(
24,878
)
NET LOSS FROM CONTINUING OPERATIONS
(
35,074
)
(
43,876
)
(
38,057
)
NET LOSS ATTRIBUTABLE
TO LESAKA
(
35,074
)
(
43,876
)
(
38,057
)
Net loss per share, in United States dollars
(Note 19):
Basic loss attributable to Lesaka shareholders
$
(
0.56
)
$
(
0.75
)
$
(
0.67
)
Diluted loss attributable to Lesaka shareholders
$
(
0.56
)
$
(
0.75
)
$
(
0.67
)
See Notes to audited Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF COMPREHENSIVE (LOSS) INCOME
for the years ended June 30, 2023, 2022 and 2021
F-6
2023
2022
2021
(In thousands)
Net loss
$
(
35,074
)
$
(
43,876
)
$
(
38,057
)
Other comprehensive (loss) income, net of taxes:
Movement in foreign currency translation reserve
(
31,183
)
(
25,413
)
Movement in foreign currency translation reserve related to equity-accounted
investments (Note 15)
(
1,967
)
Release of foreign currency translation reserve related to disposal of
Finbond equity
securities (Note 9 and Note 15)
Release of foreign currency translation reserve related to liquidation of subsidiaries
(Note 15)
Release of foreign currency translation reserve related to disposal of
Bank Frick
(Note 9 and Note 15)
(
2,462
)
Total other comprehensive
(loss) income, net of taxes
(
26,886
)
(
23,119
)
Comprehensive loss
(
61,960
)
(
66,995
)
(
14,703
)
Comprehensive loss attributable to Lesaka
$
(
61,960
)
$
(
66,995
)
$
(
14,703
)
See accompanying notes to consolidated financial statements
LESAKA TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2021 (dollar amounts in thousands)
F-7
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
Balance – July
1, 2020
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
169,075
)
$
$
$
$
Restricted stock granted
-
-
Exercise of stock options
Stock-based compensation charge (Note
17)
Reversal of stock-based compensation
charge (Note 17)
(
674,200
)
(
674,200
)
(
1,086
)
(
1,086
)
(
1,086
)
Stock-based compensation charge related
to equity-accounted investment (Note 9)
(
25
)
(
25
)
(
25
)
Proceeds from disgorgement of
shareholders' short-swing profits (Note
23)
Net loss
(
38,057
)
(
38,057
)
(
38,057
)
Other comprehensive income (Note 15)
Balance – June 30, 2021
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
145,721
)
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2022 (dollar amounts in thousands)
F-8
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
Balance – July 1,
2021
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
145,721
)
$
$
$
$
Stock issued
Restricted stock granted
Exercise of stock options
Stock-based compensation charge (Note
17)
Reversal of stock-based compensation
charge (Note 17)
(
105,542
)
(
105,542
)
(
120
)
(
120
)
(
120
)
Stock-based compensation charge
related to equity-accounted investment
(Note 9)
Transfer from redeemable common
stock to additional paid-in-capital (Note
14)
(
5,550
)
Net loss
(
43,876
)
(
43,876
)
(
43,876
)
Other comprehensive loss (Note 15)
(
23,119
)
(
23,119
)
(
23,119
)
Balance – June 30, 2022
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
168,840
)
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2023 (dollar amounts in thousands)
F-9
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
Balance – July 1,
2022
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
168,840
)
$
$
$
$
Treasury shares repurchased
(
352,994
)
(
1,287
)
(
352,994
)
(
1,287
)
(
1,287
)
Shares issued
-
-
-
Restricted stock granted
Exercise of stock options
Stock-based compensation charge (Note
17)
Reversal of stock-based compensation
charge (Note 17)
(
114,365
)
(
114,365
)
(
364
)
(
364
)
(
364
)
Stock-based compensation charge
related to equity-accounted investment
(Note 9)
Net loss
(
35,074
)
(
35,074
)
(
35,074
)
Other comprehensive loss (Note 15)
(
26,886
)
(
26,886
)
(
26,886
)
Balance – June 30, 2023
$
(
25,244,286
)
$
(
288,238
)
$
$
$
(
195,726
)
$
$
$
$
See accompanying notes to consolidated financial statements.
LESAKA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF CASHFLOWS
for the years ended June 30, 2023, 2022 and 2021
F-10
2023
2022
2021
(In thousands)
Cash flows from operating activities
Net loss
$
(
35,074
)
$
(
43,876
)
$
(
38,057
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Impairment loss (Note 10)
Movement in allowance for doubtful accounts receivable
Fair value adjustment related to financial liabilities
(
20
)
(
466
)
(Profit) Loss on disposal of property, plant and equipment
(
468
)
(
2,849
)
Stock-based compensation charge (Note 17)
Change in fair value of equity securities (Note 6 and 9)
(
49,304
)
Gain on disposal of equity securities (9)
(
720
)
Loss on disposal of equity-accounted investment (9)
Loss on disposal of Bank Frick (9)
Interest payable
(
1
)
Facility fee amortized (Note 12)
Loss from equity-accounted investments (Note 9)
Movement in allowance for doubtful loans to equity-accounted investments
Dividends received from equity-accounted investments
Changes in net working capital
(Increase) Decrease in accounts receivable (Note 20)
(
1,687
)
Increase in finance loans receivable (Note 20)
(
12,353
)
(
2,047
)
(
2,754
)
Decrease (Increase) in inventory
(
4,820
)
Increase (Decrease) in accounts payable and other payables
(
8,851
)
(
335
)
(Decrease) Increase in taxes payable
(
800
)
(
17,210
)
(Decrease) Increase in deferred taxes
(
8,890
)
(
2,324
)
Net cash provided by (used in) operating activities
(
37,198
)
(
58,371
)
Cash flows from investing activities
Capital expenditures
(
16,156
)
(
4,558
)
(
4,285
)
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(
419
)
Proceeds from disposal of equity-accounted investment (Note 9)
Loans to equity-accounted investment (Note 9)
(
112
)
(
1,238
)
Repayment of loans by equity-accounted investments
Acquisitions, net of cash acquired (Note 3)
(
202,159
)
Proceeds from disposal of equity-accounted investment - Bank Frick (Note 9)
Proceeds from disposal of equity securities (Note 9)
Proceeds from disposal of Net1 Korea, net of cash disposed (Note 3)
Proceeds from disposal of DNI as equity-accounted investment (Note 9 and Note 20)
Net change in settlement assets
(
2,036
)
(
4,163
)
Net cash (used in) provided by investing activities
(
16,458
)
(
193,688
)
Cash flows from financing activities
Proceeds from bank overdraft (Note 12)
Repayment of bank overdraft (Note 12)
(
547,271
)
(
525,459
)
(
365,440
)
Long-term borrowings utilized (Note 12)
Repayment of long-term borrowings (Note 12)
(
17,512
)
(
5,581
)
Non-refundable deal origination fees/ guarantee fees (Note 12)
(
100
)
(
1,307
)
Acquisition of treasury stock
(
1,287
)
Proceeds from exercise of stock options
Proceeds from disgorgement of shareholders' short-swing profits (Note 23)
Net change in settlement obligations
(
7,901
)
Net cash (used in) provided by financing activities
(
19,121
)
(
13,081
)
Effect of exchange rate changes on cash
(
10,999
)
(
10,338
)
Net decrease in cash, cash equivalents and restricted cash
(
46,168
)
(
118,965
)
(
8,720
)
Cash, cash equivalents and restricted cash – beginning of period
Cash, cash equivalents and restricted cash – end of period (Note 20)
$
$
$
See accompanying notes to consolidated financial statements
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-11
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Lesaka Technologies, Inc. (“Lesaka” and collectively
with its consolidated subsidiaries, the “Company”), formerly named Net 1
UEPS Technologies, Inc., was incorporated in
the State of
Florida on May
8, 1997. The
Company is a
provider of financial technology,
or fintech, products and services, primarily in South Africa and neighboring
countries,
to unbanked and underbanked consumers, and
fintech solutions for
merchants operating in formal
and informal markets.
The Company provides
cash management and digitization
services and
card acquiring to
merchants,
and has developed
and provides secure
transaction technology
solutions and services,
and
offers transaction processing, including bill payment and value-added services (including prepaid
airtime and electricity products) and
financial solutions to its customers.
Basis of presentation
The accompanying
consolidated financial
statements include
subsidiaries over
which Lesaka
exercises control
and have
been
prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”).
Reorganization charge - financial services restructuring
during the year ended June 30, 2022
The Company has incurred significant losses since its contract to distribute social grants expired in September 2018. A strategic
imperative for the Company is to return its South African consumer business to a breakeven
position and then profitability as soon as
possible. As part of a cost
optimization review completed in late calendar 2021,
the Company performed a review of
its labor structure
and determined that a number of its defined employee roles would need to be terminated due to redundancy. The
Company embarked
on a retrenchment process pursuant to Section 189A
of the South African Labour Relations Act (“Labour
Act”) on January 10, 2022.
The
Company
incurred
cash
costs
of
approximately
$
principally consisting of severance and related
payments and the payment of
unutilized leave days. The Company
recorded an expense
of $
2022. The primary difference between the
reorganization charge amount and the total
cash paid relates to
leave pay which was
accrued
in prior periods.
July 2021 civil unrest in South Africa impacting
the year ended June 30, 2022
Two
of South
Africa’s
nine provinces
experienced significant
civil unrest
in July
2021 resulting
in mass
looting, loss
of life,
disruption of
transport and
supply routes,
and widespread
destruction of
property.
In total
337 South
Africans lost
their lives
in the
unrest
– fortunately
none of
the Company’s
employees were
injured or
harmed. There
was widespread
damage to
bank and
ATM
infrastructure in the affected provinces. In
total approximately 1,800 ATMs
and 300 branches were damaged across the industry,
and
the Banking Association
of South
Africa (“BASA”), estimates
that total
damage to banking
infrastructure amounted to
ZAR 1.6
billion.
The
South
African
Special
Risks
Insurance
Association
(“SASRIA”),
a
public
enterprise
and
a
non-life
insurance
company
that
provides coverage for damage caused
by special risks such as politically
motivated malicious acts, riots, strikes,
terrorism and public
disorders, estimates that the total damage to property
across South Africa will be between
ZAR 19.0 billion and ZAR 20.0
billion. The
Company suffered
damage at
Company’s efforts to grow EPE customer numbers.
The Company also saw an impact on transaction volumes through its ATMs
with
July 2021 volumes
% lower than June 2021, and August 2021
% lower than July 2021.
The Company’s insurance claims to recover the cost to repair and replace its branches and ATMs have been met in full, with the
Company receiving ZAR
As a result
of the disruption
to ATM
coverage and
availability,
BASA and the
South Africa’s
banks agreed
that the fee
which
customers
pay
to utilize
other banks’
ATMs
would be
waived for
August and
September 2021.
The Company
lost transaction
fee
revenue of approximately ZAR
Impact of events involving Russia and Ukraine
The Company
does not
expect its
operations
to be
significantly impacted
by events
unfolding
in the
Ukraine.
The Company
believes that these events may adversely impact South
African gross domestic product and rates
of inflation as a result of
the
increases
in crude oil prices
and food, including staple food, which is likely to
impact economic activity in South Africa and therefore indirectly
affect the Company.
It may also lead to higher input prices for certain of the goods and services the Company
procures.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-12
2.
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The financial statements of
entities which are controlled
by Lesaka, referred to as
subsidiaries, are consolidated. Inter-company
accounts and transactions are eliminated upon consolidation.
The Company, if it is the primary beneficiary,
consolidates entities which are considered to be variable interest entities (“VIE”).
The primary beneficiary is considered
to be the entity that will absorb a
majority of the entity's expected losses,
receive a majority of
the entity's expected residual returns, or both. No entities were required to be consolidated as a result of these requirements during the
years ended
June 30,
Business combinations
The
Company
accounts
for
its
business
acquisitions
under
the
acquisition
method
of
accounting.
The
total
value
of
the
consideration paid
for acquisitions is
allocated to
the underlying
net assets acquired,
based on their
respective estimated fair
values.
The Company uses a number
of valuation methods to determine
the fair value of assets
and liabilities acquired, including
discounted
cash
flows,
external
market
values,
valuations
on
recent
transactions
or
a
combination
thereof,
and
believes
that
it
uses
the
most
appropriate
measure
or
a
combination
of
measures
to
value
each
asset
or
liability.
The Company
recognizes
measurement-period
adjustments in the reporting period in which the adjustment amounts are determined.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
disclosure
of
contingent
assets
and
liabilities
at
the
date
of
the
financial
statements
and
the reported
amounts
of revenues
and
expenses during
the reporting
period.
Actual results
could
differ
from
those
estimates.
Translation of foreign
currencies
The primary
functional currency
of the
consolidated entities
is the
South African
Rand (“ZAR”)
and the
Company’s
reporting
currency is the U.S. dollar.
Assets and liabilities are translated
at the exchange rates in effect
at the balance sheet date. Revenues
and
expenses are translated at average
rates for the period. Translation
gains and losses are reported in
accumulated other comprehensive
income in total
equity.
The Company releases the
foreign currency translation
reserve included in accumulated
other comprehensive
income attributable
to a foreign
entity upon sale
or complete, or
substantially complete,
liquidation of the
investment in that
foreign
entity and includes the release in the gain or loss reported related to the sale or
liquidation of the foreign entity.
Foreign exchange transactions are translated at the spot rate ruling at the date of the transaction. Monetary items are translated at
the closing
spot rate
at the
balance sheet
date. Transactional
gains and
losses are
recognized
in selling,
general and
administration
expense on the Company’s consolidated
statement of operations for the period.
Cash, cash equivalents and restricted cash
Cash and cash equivalents
include cash on hand and funds
deposited in bank accounts with
financial institutions that are
liquid,
unrestricted and readily available.
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The
Company
regularly
reviews the
ageing
of outstanding
amounts
due
from
borrowers
and
adjusts
the
allowance
based
on
management’s
estimate
of
the
recoverability
of
the
finance loans
receivable.
The
Company
writes
off
microlending
finance
loans
receivable and
related service
fees and
interest if
a borrower
is in
arrears with
repayments for
more than
three months
or dies.
The
Company
writes off
merchant and
working capital
finance receivables
and related
fees when
it is
evident that
reasonable recovery
procedures, including where deemed necessary,
formal legal action, have failed.
Allowance for doubtful accounts receivable
A specific
provision is
established where
it is considered
likely that all
or a portion
of the amount
due from customers
renting
safe assets, point of sale (“POS”) equipment, receiving support and maintenance or transaction services
or purchasing licenses or SIM
cards from
the Company
will not
be recovered.
Non-recoverability is
assessed based
on a
review by
management of
the ageing
of
outstanding amounts, the location and the payment history of the customer
in relation to those specific amounts.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-13
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventory
is valued
at the
lower of
cost and
net realizable
value. Cost
is determined
on a
first-in,
first-out basis
and includes
transport and handling costs.
Property, plant
and equipment
Property,
plant and
equipment are
shown at
cost less accumulated
depreciation. Property,
plant and
equipment are
depreciated
on the straight-line basis at rates which
are estimated to amortize the assets to
their anticipated residual values over their useful
lives.
Within the following asset classifications, the expected
economic lives are approximately:
Safe assets
Computer equipment
Office equipment
Vehicles
Furniture and fittings
The gain or loss arising
on the disposal or retirement
of an asset is determined
as the difference between
the sales proceeds and
the carrying amount of the asset and is recognized in income.
Leases
The Company determines whether an arrangement is a lease at inception.
Operating leases are included in operating lease right-
of-use assets (“ROU”),
operating lease liability
- current, and
operating lease liability
– long term
in its consolidated
balance sheets.
The Company
does not
have any
significant finance
leases as
of June
30, 2023
and 2022,
respectively,
but its
policy is
to include
finance leases in property and equipment, other payables, and other
long-term liabilities in its consolidated balance sheets.
A ROU asset
represents the
Company’s
right to use
an underlying
asset for the
lease term and
the lease liabilities
represent its
obligation to
make lease
payments arising
from the
lease arrangement.
Operating lease
ROU assets
and liabilities
are recognized
at
commencement date based on
the present value of
lease payments over the
lease term. As
most of the
Company’s leases do not provide
an implicit rate,
the Company generally
uses its incremental
borrowing rate
based on
the estimated rate
of interest for
collateralized
borrowing over
a similar term
of the lease
payments at commencement
date. The operating
lease ROU asset
also includes any
lease
prepayments made
and excludes lease
incentives. The terms
of the Company’s
lease arrangements may
include options to
extend or
terminate
the
lease
when
it is
reasonably
certain
that
the Company
will exercise
that
option.
Lease
expense
for
lease payments
is
recognized on a straight-line basis over the lease term.
The Company does not recognize right-of-use assets and lease liabilities for lease arrangements with a term of twelve months or
less. The Company
accounts for all
components in a
lease arrangement as
a single combined
lease component. Costs
incurred in the
adaptation of leased properties to
serve the requirements of
the Company (leasehold improvements) are
capitalized and amortized over
the shorter of the estimated useful life of the asset and the remaining term of
the lease.
Equity-accounted investments
The Company uses the equity
method to account for
investments in companies when
it has significant influence but
not control
over
the operations
of the
company.
Under the
equity method,
the Company
initially records
the investment
at cost
and
thereafter
adjusts the carrying value of the investment to recognize its proportional share of the equity-accounted company’s net income or loss.
In addition, when an investment qualifies for the equity
method (as a result of an increase in the level of ownership
interest or degree
of influence),
the cost
of acquiring
the additional
interest in
the investee
is added
to the
current basis
of the
Company’s
previously
held interest and the equity method would be
applied subsequently from the date on which
the Company obtains the ability to exercise
significant influence over the investee.
The Company
releases a
pro rata
portion of
the foreign
currency translation
reserve related
to an
equity-accounted investment
that is
included
in accumulated
other comprehensive
income to
earnings upon
the sale
of a
portion of
its ownership
interest in
the
equity-accounted
investment.
The
release
of
the
pro
rata
portion
of
the
foreign
currency
translation
reserve
is
included
in
the
measurement of
the gain
or loss
on sale
of a
portion of
the Company’s
ownership interest
in the
equity-accounted investment.
The
Company does not recognize cumulative losses in excess of its investment or loans in an equity-accounted
investment except if it has
an obligation to provide additional financial support.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-14
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity-accounted investments (continued)
Dividends received from an equity-accounted investment reduce the carrying value
of the Company’s investment. The Company
has elected to classify distributions received from equity method investees using the nature of the distribution approach.
This election
requires the Company to evaluate
each distribution received on the
basis of the source of the
payment and classify the distribution
as
either
operating
cash
inflows
or
investing
cash
inflows.
The
Company
reviews
its
equity-accounted
investments
for
impairment
whenever events or circumstances indicate that the carrying amount of
the investment may not be recoverable.
Goodwill
Goodwill
represents
the
excess
of
the
purchase
price
of
an
acquired
enterprise
over
the
fair
values
of
the
identifiable
assets
acquired and liabilities assumed. The Company tests for impairment
of goodwill on an annual basis and at any other time if events
or
circumstances change that would more likely than not
reduce the fair value of the
reporting unit’s goodwill below its carrying amount.
Circumstances that
could trigger
an impairment test
include but are
not limited to:
a significant adverse
change in the
business
climate or legal
factors; an adverse
action or assessment
by a regulator;
unanticipated competition; loss
of key personnel;
the likelihood
that a reporting unit or
significant portion of a reporting
unit will be sold
or otherwise disposed; and results
of testing for recoverability
of a significant asset group within a reporting unit. If goodwill is allocated to a reporting unit
and the carrying amount of the reporting
unit exceeds
the fair value
of that reporting
unit, an impairment
loss is recorded
in the statement
of operations.
Measurement of
the
fair value
of a reporting
unit is based
on one
or more
of the following
fair value
measures: the amount
at which the
unit as a
whole
could be
bought or sold
in a current
transaction between
willing parties; present
value techniques
of estimated future
cash flows; or
valuation techniques based on multiples of earnings or revenue, or
a similar performance measure.
Intangible assets
Intangible assets are shown at
cost less accumulated amortization. Intangible assets
are amortized over the following
useful lives:
Customer relationships
Software, integrated platform and unpatented technology
FTS patent
Exclusive licenses
Brands and trademarks
Intangible assets
are periodically
evaluated for
recoverability,
and those
evaluations take
into account
events or
circumstances
that warrant revised estimates of useful lives or that indicate that impairment
exists.
Debt and equity securities
Debt securities
The Company is required to
classify all applicable debt securities
as either trading securities, available
for sale or held
to maturity
upon investment in the security.
Trading
Debt securities
acquired by
the Company
which it
intends
to sell
in the
short-term
are classified
as trading
securities and
are
initially measured
at fair
value. These
debt securities
are subsequently
measured at
fair value
and realized
and unrealized
gains and
losses
from
these
trading
securities
are
included
in
the
Company’s
consolidated
statement
of
operations.
Classification
of
a
debt
security as a trading
security is not precluded
simply because the Company
does not intend to sell
the security in the
short term. The
Company had no debt securities that were classified as trading securities as of June
30, 2023 and 2022, respectively.
Available for sale
Debt
securities
acquired
by the
Company
that
have
readily
determinable
fair values
are classified
as available
for
sale if
the
Company has not classified them as trading securities or if it does not have
the ability or positive intent to hold the debt security until
maturity.
The Company is
required to make
an election to
account for these
debt securities as
available for
sale. These available
for
sale debt securities
are initially measured
at fair value. These
debt securities are
subsequently measured at
fair value with unrealized
gains
and
losses
from
available
for
sale
investments
in
debt
securities
reported
as
a
separate
component
of
accumulated
other
comprehensive income, net of deferred income
taxes, in shareholders’ equity. The Company had no
debt securities that were classified
as available for sale securities as of June 30, 2023 and 2022, respectively.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-15
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Debt and equity securities (continued)
Debt securities (continued)
Held to maturity
Debt securities acquired by the Company which it has the ability and the positive intent to hold to maturity are classified as held
to maturity debt securities. The Company is required to make an election to classify these debt securities as held to maturity and these
securities are carried at amortized cost. The amortized cost
of held to maturity debt securities
is adjusted for amortization of premiums
and accretion of discounts to maturity.
Interest received from the held to
maturity security together with this amortization
is included
in interest income in the Company’s consolidated statement of operations. The Company had
a held to maturity security as of
June 30,
2023 and 2022, respectively,
refer to Note 4.
Impairment of debt securities
The Company’s
available for sale
and held
to maturity debt
securities with unrealized
losses are reviewed
quarterly to identify
other-than-temporary impairments in value.
With regard to available for sale and held to maturity debt securities, the Company considers (i) the ability and intent to hold the
debt security for a
period of time to
allow for recovery of
value (ii) whether it
is more likely than
not that the Company
will be required
to sell the debt security;
and (iii) whether it expects
to recover the entire carrying
amount of the debt security.
The Company records
an impairment
loss in its
consolidated statement
of operations representing
the difference between
the debt securities
carrying value
and the current fair value as
of the date of the impairment
if the Company determines that
it intends to sell the debt
security or if that
it is
more likely
than not
that it
will be
required to
sell the
debt security
before recovery
of the
amortized cost
basis. However,
the
impairment loss
is split
between a
credit loss
and a
non-credit loss
for debt
securities that
the Company
determines that
it does
not
intend to sell or that it is more likely than not that it will
not be required to sell the debt securities before the recovery of the amortized
cost basis. The credit loss portion, which is measured as the difference
between the debt security’s cost
basis and the present value of
expected future cash flows,
is recognized in the Company’s
consolidated statement of operations.
The non-credit loss portion,
which
is measured
as the
difference between
the debt
security’s
cost basis and
its current
fair value,
is recognized
in other
comprehensive
income, net of applicable taxes.
Equity securities
Equity
securities
are
measured
at
fair
value.
Changes
in
the
fair
value
of
equity
securities
are
recorded
in
the
Company’s
consolidated statement
of operations within
the caption titled
“change in fair
value of equity
securities”. The
Company may elect
to
measure equity securities without readily determinable fair
values at its cost
minus impairment, if any, plus or minus changes
resulting
from observable price changes in orderly transactions for the identical or
a similar investment of the same issuer (“cost
minus changes
in observable
prices equity
securities”). Changes
in the fair
value of
the Company’s
cost minus
changes in
observable prices
equity
securities during the year ended June 30,
2023 and 2021, respectively, are discussed in Note 9. There were
no changes in the fair value
of
the
Company’s
cost
minus
changes
in
observable
prices
equity
securities
during
the
year
ended
June
30,
2022.
The
Company
performs a qualitative assessment on a quarterly basis and recognizes
an impairment loss if there are sufficient indicators that
the fair
value of the equity security is less than its carrying value.
Policy reserves and liabilities
Reserves for policy benefits and claims payable
The Company determines its reserves for policy benefits under
its life insurance products using a model which estimates claims
incurred
that have
not been
reported
and
total
present
value
of disability
claims-in-payment
at
the balance
sheet
date. This
model
allows for
best estimate
assumptions based
on experience
(where sufficient)
plus prescribed
margins,
as required
in the
markets in
which these products are offered, namely South Africa.
The best estimate assumptions include (i) mortality and morbidity assumptions reflecting the company’s
most recent experience
and (ii) claim reporting delays reflecting Company specific and industry experience. Most of the disability claims-in-payment reserve
is
reinsured
and
the
reported
values
were
based
on
the
reserve
held
by
the
relevant
reinsurer.
The
values
of
matured
guaranteed
endowments are increased by late payment interest (net of the asset management
fee and allowance for tax on investment income).
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-16
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Policy reserves and liabilities (continued)
Deposits on investment contracts
For the Company’s interest-sensitive
life contracts, liabilities approximate the policyholder’s account
value.
Reinsurance contracts held
The Company enters into reinsurance
contracts with reinsurers under
which the Company is compensated
for the entire amount
or a portion of losses arising on one or more of the insurance contracts it issues.
The expected benefits to which the Company is
entitled under its reinsurance contracts held are recognized as reinsurance
assets.
These assets consist
of short-term
balances due from
reinsurers (classified within
Accounts receivable,
net and other
receivables) as
well as long-term receivables (classified within other long-term assets) that are dependent on the expected claims and benefits arising
under the
related reinsurance
contracts. Amounts
recoverable from
or due
to reinsurers
are measured
consistently with
the amounts
associated with the reinsured contracts and in accordance with the terms of each reinsurance contract. Reinsurance assets are assessed
for impairment at
each balance sheet
date. If there
is reliable
objective evidence that
amounts due may
not be recoverable,
the Company
reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes that impairment loss in its consolidated
statement of operations. Reinsurance premiums are recognized when
due for payment under each reinsurance contract.
Redeemable common stock
Common stock
that is
redeemable (1)
at a
fixed or
determinable price
on a
fixed or
determinable date,
(2) at
the option
of the
holder,
or (3)
upon the
occurrence of
an event
that is
not solely
within the
control of
Company is
presented outside
of total
Lesaka
equity (i.e. permanent equity). Redeemable common stock is
initially recognized at issuance date fair value
and the Company does not
adjust
the
issuance date
fair value
if redemption
is not
probable.
The Company
re-measures
the redeemable
common
stock
to the
maximum
redemption
amount
at
the
balance
sheet
date
once
redemption
is
probable.
Reduction
in
the
carrying
amount
of
the
redeemable common stock is
only appropriate to the
extent that the Company
has previously recorded increases
in the carrying amount
of the
redeemable
equity instrument
as the
redeemable common
stock may
not be
carried at
an amount
that is
less than
the initial
amount reported outside of permanent equity.
Redeemable common stock is reclassified as permanent equity when presentation outside
permanent equity is no longer required
(if, for example, a redemption
feature lapses, or there
is a modification of the
terms of the instrument). The
existing carrying amount
of the redeemable common
stock is reclassified to permanent
equity at the date of
the event that caused the
reclassification and prior
period consolidated financial statements are not adjusted.
Revenue recognition
The
Company
recognizes
revenue
upon
transfer
of
control
of
promised
products
or
services
to
customers
in
an
amount
that
reflects
the
consideration
the
Company
expects
to
receive
in
exchange
for
those
products
or
services.
The
Company
enters
into
contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted
for as separate performance obligations. Revenue is recognized net of allowances
for returns and any taxes collected from customers,
which are subsequently remitted to governmental authorities.
Nature of products and services
Telecom
products and services
The Company
purchases airtime for
resale to customers
and acts as
a principal
in these transactions.
The Company
recognizes
revenue as the airtime is delivered to the customer.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-17
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Nature of products and services (continued)
Processing fees
The Company
earns processing
fees from
transactions processed
for its
customers. The
Company provides
its customers
with
transaction processing services that
involve the collection, transmittal
and retrieval of
all transaction data
in exchange for
consideration
upon completion of
the transaction. In
certain instances, the
Company also
provides a funds
collection and
settlement service for
its
customers.
The
Company
also
provides
customers
with
cash
management
and
digitization
services
which
enables
its
merchant
customers
to
deposit
cash
into
digital
vaults
(safe
assets)
operated
by
the
Company,
after
which
the
funds
are
then
electronically
accessible
by
customers
to
either
transfer
to
their nominated
bank
account
or to
pay
certain
pre-selected
suppliers.
The Company
considers each of these services
as a single performance obligation.
The Company’s
contracts specify a transaction price for
services
provided. Processing
revenue fluctuates
based on
the type
and the
volume of
transactions processed.
Revenue is
recognized on
the
completion of the processed transaction.
Customers that have a bank account managed by the
Company are issued cards that can be
utilized to withdraw funds at an ATM
or to transact
at a merchant
point of sale
device (“POS”). The
Company earns processing
fees from transactions
processed for
these
customers. The
Company’s
contracts specify
a transaction
price for
each service
provided (for
instance, ATM
withdrawal, balance
enquiry,
etc.). Processing
revenue fluctuates
based on
the type
and volume
of transactions
performed
by the
customer.
Revenue is
recognized on the completion of the processed transaction.
The Company,
as a transaction
processor and in
the capacity of
an agent, facilitates
the delivery value
added services (“VAS”)
to its customers (including prepaid
airtime, prepaid electricity and gaming
vouchers) and earns a commission
once these services are
delivered to the customer. Revenue
from these transactions fluctuates based on the volume of VAS
services distributed.
Account holder fees
The Company
provides bank accounts
to customers
and this service
is underwritten
by a regulated
banking institution
because
the Company is not
a bank. The Company
charges its customers
a fixed monthly
bank account administration
fee for all active
bank
accounts regardless of
whether the account
holder has transacted
or not. The
Company recognizes account
holder fees on a
monthly
basis on all active bank accounts. Revenue from account holders’
fees fluctuates based on the number of active bank accounts.
Lending revenue
The
Company
provides
short-term
loans
to
customers
(consumers)
in
South
Africa
and
charges
up-front
initiation
fees
and
monthly service fees.
Initiation fees are
recognized using
the effective interest
rate method, which
requires the utilization
of the rate
of return implicit in the loan, that is, the contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount
existing at the origination or acquisition of
the loan. Monthly service fee
revenue is recognized under the contractual terms
of the loan.
The monthly service fee amount is fixed upon initiation and does not
change over the term of the loan.
Interest earned from
customers
The Company provides short-term loans to merchants in South Africa and levies interest on the amount lent. The Company does
not charge
these customers
up-front initiation
fees or
monthly service
fees. Interest
earned from
customers is
recognized using
the
effective interest
rate method,
which requires
the utilization
of the
rate of
return implicit
in the
loan, that
is, the
contractual interest
rate adjusted
for any net
deferred loan
fees or
costs, premium,
or discount
existing at
the origination
or acquisition
of the
loan. The
interest rate included in the contract with the customer generally changes with changes to benchmark rates of interest set by the South
African Reserve Bank.
Technology
products
The Company supplies hardware and licenses for its customers to use the Company’s
technology. Hardware includes the sale of
POS devices, SIM cards and other consumables which
can occur on an ad
hoc basis. The Company recognizes revenue from hardware
at the transaction price specified
in the contract as the hardware is
delivered to the customer.
Licenses include the right to use
certain
technology developed by the Company and the associated revenue is recognized
ratably over the license period.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-18
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Nature of products and services (continued)
Insurance revenue
The Company writes
life insurance contracts, and
policy holders pay
the Company a
monthly insurance premium at
the beginning
of each month. Premium revenue
is recognized on a monthly basis net of
policy lapses. Policy lapses are provided
for on the basis of
expected non-payment of policy premiums.
Accounts Receivable, Contract Assets and Contract Liabilities
The
Company
recognizes
accounts
receivable
when
its
right
to
consideration
under
its
contracts
with
customers
becomes
unconditional. The Company has no contract assets or contract liabilities.
Research and development expenditure
Research and
development expenditure
is charged
to net
income in
the period
in which
it is
incurred. During
the years
ended
June 30, 2023,
2022 and 2021, the
Company incurred research
and development expenditures
of $
million, respectively.
Computer software development
Product
development
costs in
respect
of
software
intended
for
sale
to
licensees
are
expensed
as
incurred
until
technological
feasibility is attained.
Technological
feasibility is attained
when the Company’s
software has completed
system testing and has
been
determined
to
be
viable
for
its
intended
use.
Once
technological
feasibility
is
reached,
the
Company
capitalized
such
costs
and
amortizes
these costs over
the products’
estimated life. The
time between
the attainment
of technological feasibility
and completion
of software development is generally short with insignificant amounts of development
costs incurred during this period.
Costs in
respect of
the development
of software
for the
Company’s
internal use
are expensed
as incurred,
except to
the extent
that
these
costs
are
incurred
during
the
application
development
stage.
All
other
costs
including
those
incurred
in
the
project
development and post-implementation stages are expensed as incurred.
Income taxes
The
Company
provides
for
income taxes
using
the asset
and
liability
method.
This
approach recognizes
the amount
of taxes
payable
or
refundable
for
the
current
year,
as
well
as
deferred
tax
assets
and
liabilities
for
the
future
tax
consequence
of
events
recognized in the financial statements and tax returns. Deferred income
taxes are adjusted to reflect the effects of changes in tax
laws
or enacted tax rates. There was a change in the South African enacted tax
rate during the year ended June 30, 2023, from
% to
%,
and the
Company measured
its South
African income
taxes and
deferred income
taxes for
the year
ended June
30, 2023,
using the
enacted statutory tax
rate in South Africa
of
%. The Company used
the enacted statutory
tax rate of
% for the years
ended June
30, 2022 and 2021, respectively.
In establishing the appropriate deferred tax asset valuation allowances, the Company assesses the realizability of its deferred tax
assets, and based on all available evidence, both positive
and negative, determines whether it is more likely than not
that the deferred
tax assets or a portion thereof will be realized.
Reserves for uncertain tax positions are recognized in the financial
statements for positions which are not considered more likely
than not
of being
sustained based
on the
technical merits
of the
position on
audit by
the tax
authorities. For
positions that
meet the
more
likely than
not standard,
the measurement
of the
tax benefit
recognized
in the
financial statements
is based
upon
the largest
amount of tax benefit that, in management’s judgement, is greater than 50% likely of being
realized based on a cumulative probability
assessment
of
the
possible
outcomes.
The
Company’s
policy
is
to
include
interest
related
to
unrecognized
tax
benefits
in
interest
expense and penalties in selling, general and administration in the consolidated
statements of operations.
The Company has elected the period cost method
and records U.S. inclusions in taxable income related to global
intangible low
taxed income (“GILTI”)
as a current-period expense when incurred.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-19
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
Stock-based compensation represents the
cost related to
stock-based awards granted.
The Company measures
equity-based stock-
based compensation cost at
the grant date, based on
the estimated fair value of
the award, and recognizes the
cost as an expense on
a
straight-line basis (net of estimated forfeitures) over the requisite
service period. In respect of awards with only service
conditions that
have a graded
vesting schedule, the
Company recognizes compensation
cost on a straight-line
basis over the
requisite service period
for the
entire award.
The forfeiture
rate is
estimated using
historical trends
of the
number of
awards forfeited
prior to
vesting.
The
expense is recorded in
the statement of operations and
classified based on the recipients’
respective functions. The Company
records
deferred tax
assets for awards
that result in
deductions on the
Company’s
income tax returns,
based on the
amount of compensation
cost recognized and the Company’s
statutory tax rate in the jurisdiction
in which it will receive a deduction.
Differences between the
deferred tax
assets recognized
for financial
reporting purposes
and the
actual tax
deduction reported
on the
Company’s
income tax
return are recorded in income tax expense in the consolidated statement
of operations.
Equity instruments issued to third parties
Equity instruments issued
to third parties represents
the cost related to
equity instruments granted.
The Company measures this
cost at the grant date, based on the
estimated fair value of the award, and recognizes the cost as
an expense on a straight-line basis (net
of estimated forfeitures) over
the requisite service period. The forfeiture
rate is estimated based on
the Company’s expectation
of the
number of
awards that will
be forfeited
prior to vesting.
The Company
records deferred tax
assets for equity
instrument awards that
result
in
deductions
on
the
Company’s
income
tax
returns,
based
on
the
amount
of
equity
instrument
cost
recognized
and
the
Company’s
statutory
tax
rate
in
the
jurisdiction
in
which
it
will
receive
a
deduction.
Differences
between
the
deferred
tax
assets
recognized for financial reporting purposes and the actual tax deduction reported on the Company’s
income tax return are recorded in
the statement of operations.
Settlement assets and settlement obligations
The Company provides customers with cash management and digitization
services which enable its merchant customers to
deposit cash into digital vaults (safe assets) operated by the Company,
after which the funds are then electronically accessible by
customers to either transfer to their nominated bank account or to
pay certain pre-selected suppliers.
Settlement assets comprise (1) cash received from merchant customers
from cash deposits into the Company’s safe assets, which
are
then
electronically
accessible
by
customers
to
either
transfer
to
their
nominated
bank
account
or
to
pay
certain
pre-selected
suppliers,
and
(2)
cash
received
from
credit
card
companies
(as
well
as
other
types
of
payment
services)
which
have
business
relationships
with
merchants
selling
goods
and
services
that
are
the
Company’s
customers
and
on
whose
behalf
it
processes
the
transactions between various parties.
Settlement
obligations
comprise
(1)
amounts
that
the
Company
is
obligated
to
disburse
to
merchant
customers
or
to
their
nominated pre-selected suppliers, and (2)
amounts that the Company is obligated
to disburse to merchants selling goods
and services
that are the Company’s customers and on whose behalf it processes
the transactions between various parties and settles the funds from
the credit card companies to the Company’s
merchant customers.
The balances
at each reporting
date may vary
widely depending on
the timing of
the receipts and
payments of these
assets and
obligations.
Recent accounting pronouncements adopted
In
October
2021,
the
Financial
Accounting
Standards
Board
(“FASB”)
issued guidance which
amends
guidance
in
Business
Combinations
(Topic
805)
These items are recognized at fair value
on acquisition under current guidance. The new
guidance requires an acquiring entity to apply
guidance
in
Revenue
Recognition
(Topic
606)
combination. The guidance
became effective for
the Company beginning
July 1, 2022.
The adoption of
this guidance did
not have a
material impact on the Company’s
financial statements and related disclosures.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-20
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements not yet adopted
as of June 30, 2023
In
June
2016,
the
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 November
2019,
the FASB
issued guidance
regarding
Hedging
(Topic
815),
and
Leases
(Topic
842).
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
financial statements and related disclosures, but does not expect the impact on its financial
results to be material.
3.
ACQUISITIONS
The Company did not make any acquisitions during the years ended June 30, 2023 and 2021. The cash
paid, net of cash received
related to the Company’s acquisition during
the year ended June 30, 2022, is summarized in the table below:
2022
Total cash paid
$
Less: cash acquired
Total cash paid, net
of cash received
(1)
$
(1) – represents the cash paid, net of cash acquired, to acquire a controlling
interest in the Connect.
2023
Acquisitions
None.
2022
Acquisitions
April 2022 acquisition of Connect
On October 31, 2021, the Company entered into a
Sale of Shares Agreement (the “Sale Agreement”) with the
Sellers (as defined
in
the
Sale
Agreement),
Cash
Connect
Management
Solutions
Proprietary
Limited
(“CCMS”),
Ovobix
(RF)
Proprietary
Limited
(“Ovobix”),
Luxiano
227
Proprietary
Limited
(“Luxiano”)
and
K2021477132
(South
Africa)
Proprietary
Limited
(“K2021”
and
together with CCMS, Ovobix
and Luxiano, “Connect”).
Pursuant to the Sale
Agreement, and subject
to its terms and
conditions, the
Company’s
wholly-owned subsidiary,
Lesaka SA (formerly
named Net1 SA),
agreed to acquire,
and the Sellers agreed
to sell, all of
the outstanding equity interests and certain claims in Connect. The transaction
closed on April 14, 2022.
The total
purchase consideration
was ZAR
contingent
consideration
of
ZAR
Company’s common stock. The contingent
consideration related to
a tax matter
which was resolved
in July 2022,
and the consideration
was
settled
in
cash
in
September
2022.
The
contingent
consideration
is
included
in
the
caption
other
payables
in
the
Company’s
consolidated balance
sheet as of
June 30,
2022, refer
to Note 13.
The
tranches on
each of
the first,
second and
third anniversaries
of the
closing and
was calculated
as ZAR
sum of $
. Refer to Note 14
for issuances during the
year ended June 30, 2023.
The fair value of the purchase
consideration settled in shares of
common stock of
$
NasdaqGS of $
.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-21
3.
ACQUISITIONS (continued)
2022
Acquisitions (continued)
April 2022 acquisition of Connect (continued)
The
closing
of
the
transaction
was
subject
to
customary
closing
conditions,
including
(i)
approval
from
the
competition
authorities of South
Africa, Namibia and
Botswana, (ii) exchange
control approval from
the financial surveillance
department of the
South
African Reserve Bank, and (iii) obtaining certain third-party
consents. In addition, the closing of the transaction was subject to
entry into
definitive financing
agreements by
each of
Lesaka SA
and CCMS
for an
aggregate of
ZAR
provided by Rand Merchant Bank and satisfying the conditions precedent
for funding thereunder, of which ZAR
the financing agreements described below and ZAR
ZAR
definitive loan agreements became effective upon closing the transaction
,
refer to Note 12.
The
South
African
competition
authorities
approved
the
transaction
subject
to
certain
public
interest
conditions
relating
to
employment, increasing the spread
of ownership by
historically disadvantaged people (“HDPs”)
and workers, and investing
in supplier
and enterprise development. Further to increasing the
spread of ownership by
HDPs, Lesaka is required to
establish an employee share
ownership scheme
(“ESOP”) within
principles for the
benefit of the workers
of the merged
entity to receive
a shareholding in Lesaka
equal in value
to at least
% of the
issued
shares,
or
approximately
implementation date of
the transaction, Lesaka generates
a positive net profit
for three consecutive quarters,
the ESOP shall increase
to
% of the issued shares, or approximately
the ESOP is
contingent on
Lesaka shareholder
approval and relevant
regulatory and
governance approvals.
The ESOP had
not been
established as of the date of the consolidated annual financial statements.
The
Company
incurred
transaction-related
expenditures
of
$
acquisition of Connect. On acquisition, the Company recognized
a deferred tax liability of approximately $
acquisition
of
Connect
intangible
assets
during
the
year
ended
June
30,
2022.
The
final
purchase
price
allocation
of
the
Connect
acquisition, translated at the foreign exchange rates applicable on the date
of acquisition, is provided in the table below:
Connect
April 2022
Cash and cash equivalents
$
Accounts receivable
Finance loans receivable
Inventory
Property, plant and equipment
Operating lease right of use asset
Equity-accounted investment
Goodwill
Intangible assets
Deferred income taxes assets
Short term facilities
(
16,903
)
Accounts payable
(
27,914
)
Other payables
(
4,793
)
Operating lease liability – current
(
434
)
Current portion of long – term borrowings
Income taxes payable
(
982
)
Deferred income taxes liabilities
(
50,255
)
Operating lease liability - long-term
(
319
)
Long-term borrowings
(
86,960
)
Settlement assets
Settlement liabilities
(
12,875
)
Fair value of assets and liabilities on acquisition
$
2021 Acquisitions
None.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-22
4.
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
June 30,
2023, and June
30, 2022, are
presented in the
table below:
June 30,
June 30,
2023
2022
Accounts receivable, trade, net
$
$
Accounts receivable, trade, gross
Allowance for doubtful accounts receivable, end of period
Beginning of period
Reallocation to allowance for doubtful finance loans receivable
(1)
(
418
)
Reversed to statement of operations
(
31
)
(
133
)
Charged to statement of operations
Utilized
(
1,646
)
(
154
)
Foreign currency adjustment
(
250
)
Loans provided to Carbon, net of allowance: 2022: $
Current portion of total held to maturity investments
Investment in
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
%
notes
Other receivables
Total accounts receivable,
net
$
$
(1) Represents
reallocation of
a portion
of the
Merchant allowance
for doubtful
finance loans
receivable as
of June
30, 2022,
which was included in the allowance for doubtful accounts receivable as of
June 30, 2022.
Accounts receivable,
trade, gross
includes amounts
due from
customers from
the provision
of transaction
processing services,
from the
sale of hardware,
software licenses and
SIM cards
and rentals
from safe
assets and POS
equipment. The
Company did not
record
any bad
debt expense
during
the year
ended June
30, 202
3
and
2022, respectively
and
bad debts
incurred
were written
off
against the allowance for doubtful accounts receivable.
Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related
to the sale of the Company’s
interest in Carbon Tech
Limited (“Carbon”), an equity-accounted investment of $
allowance for doubtful
loans receivable of
$
value of $
million, refer to Note 9 for additional information.
The loan
of $
payment holiday
as a result
of the impact
of the COVID-19
pandemic on
its business. The
parties had not
agreed to new
repayment
terms as of June 30, 2022. In June 2021, the Company determined to create an allowance for
doubtful loans receivable of $
due to these circumstances and the ongoing operating losses incurred by Carbon.
Investment in
% of Cedar Cellular
Investment 1 (RF) (Pty) Ltd
% notes represents the
investment in a note which was
due to mature
in August 2022 and
forms part of
Cell C’s
capital structure. The
carrying value as
of each of
June 30, 2023 and
2022,
respectively was $
and 2021, respectively.
Interest, if any,
on this investment
will only be
paid, at Cedar
Cellular’s election, on
its maturity which
is in
the process of being extended beyond its original date of August 2022.
The Company does not expect
to recover the amortized cost
basis of the Cedar
Cellular notes due to its
assessment that the equity
in Cell
C currently
has no
value
which
would
result in
there
being
no future
cash flows
to be
collected
from
the debt
security
on
maturity.
The Company could
not calculate an
effective interest
rate on the
Cedar Cellular note
because the carrying
value was zero
($
to be collected from the debt security by discounting these cash flows at the interest rate implicit in the security upon acquisition (at a
rate of
%) because there are no future cash flows to discount.
Other
receivables
includes
prepayments,
deposits,
income taxes
receivable
and other
receivables.
As of
June 30,
2022,
other
receivables also includes transactions-switching funds receivable of $
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-23
4.
ACCOUNTS RECEIVABLE,
net AND OTHER RECEIVABLES
and FINANCE LOANS RECEIVABLE,
net
(continued)
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s
held to maturity investment as of June 30, 2023:
Cost basis
Estimated
fair
value
(1)
Due in one year or less
$
$
Due in one year through five years
(2)
Due in five years through ten years
Due after ten years
Total
$
$
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the
Company’s portion of the assets held by
Cedar Cellular, namely,
Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
Finance loans receivable, net
The Company’s finance
loans receivable, net, as of June 30, 2023, and June 30, 2022, is presented in the table
below:
June 30,
June 30,
2023
2022
Microlending finance loans receivable, net
$
$
Microlending finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reversed to statement of operations
(
805
)
Charged to statement of operations
Utilized
(
1,214
)
(
1,179
)
Foreign currency adjustment
(
200
)
(
239
)
Merchant finance loans receivable, net
Merchant finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reallocation from allowance for doubtful accounts receivable
(1)
Reversed to statement of operations
(
1,268
)
Charged to statement of operations
Utilized
Foreign currency adjustment
(
365
)
(
145
)
Total finance
loans receivable, net
$
$
(1) Represents
reallocation of
a portion
of the
Merchant allowance
for doubtful
finance loans
receivable as
of June
30, 2022,
which was included in the allowance for doubtful accounts receivable as of
June 30, 2022.
Total
finance
loans
receivable,
net,
comprises
microlending
finance
loans
receivable
related
to
the
Company’s
microlending
operations
in South
Africa as
well as
its merchant
finance loans
receivable related
to Connect’s
lending activities
in South
Africa.
Certain merchant
finance loans
receivable have
been pledged
as security
for the
Company’s
revolving credit
facility (refer
to Note
12).
During the year ended June 30, 2022, the Company adjusted its microlending finance loans receivable allowance provision from
% of the gross book to
% of the gross book as a
result of evidence of lower actual losses incurred on the book which
has resulted
in an improvement in the collection rate.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-24
5.
INVENTORY
The Company’s inventory
comprised the following categories as of June 30, 2023, and 2022.
June 30,
June 30,
2023
2022
Raw materials
$
$
Work in progress
Finished goods
$
$
As of June 30, 2023 and 2022, finished goods includes $
that was
previously classified
as finished
goods subject
to sale restrictions.
In support
of Cell C’s
liquidity position
and pursuant
to
Cell C’s
recapitalization process,
the Company
limited the
resale of
this airtime
to its
own distribution
channels. On
September 30,
2022, Cell C concluded its recapitalization process and the Company and Cell
C entered into an agreement under which Cell C
agreed
to
repurchase,
from
October
2023,
up
to
ZAR
repurchased by Cell C will be calculated as ZAR
The Company continued to sell a minimum amount
of Cell C airtime through its internal channels
in late fiscal 2022/ early fiscal 2023
in support
of Cell
C’s
liquidity position.
However,
its ability
to sell
this airtime
has increased
significantly since
the acquisition
of
Connect
because
Connect
is a
significant
reseller of
Cell C
airtime.
As a
result,
the Company
has
sold higher
volumes of
airtime
through
this
channel
than
it
did
prior
to
the
Cell
C
recapitalization,
however,
continued
sales
at
these
volumes
is
dependent
on
prevailing conditions
continuing in
the airtime
market. If
the Company
is able
to sell
at least
ZAR
channel from
October 1,
2023, then
Cell C would
not be
required to
repurchase any
airtime from
the Company
during any
specific
month. The
Company has
agreed to
notify Cell
C prior
to selling
any of
this airtime,
however,
there is
no restriction
placed on
the
Company on the sale of the airtime.
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS
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,
credit, microlending credit and equity price
and liquidity risks as discussed below.
Currency exchange risk
The
Company
is
subject
to
currency
exchange
risk
because
it
purchases
components
for
its
safe
assets,
that
the
Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, 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.
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 to
the ZAR
exchange rate
has fluctuated
significantly 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 activities, the Company’s operating results are exposed to fluctuations in
interest rates, which
it manages primarily through regular financing
activities. Interest rates in
South Africa are trending upwards and
the Company expects
higher interest rates
in the foreseeable future
which will increase its
cost of borrowing.
The Company periodically
evaluates the cost
and
effectiveness
of
interest
rate
hedging
strategies
to
manage
this
risk.
The
Company
generally
maintains
surplus
cash
in
cash
equivalents and held to maturity investments and has occasionally
invested in marketable securities.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-25
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
Risk management (continued)
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
in
respect
of
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.
Consumer microlending credit
risk
The Company
is exposed
to credit
risk in
its Consumer
microlending activities,
which provides
unsecured short-term
loans to
qualifying customers.
Credit bureau
checks as
well as
an affordability
test are
conducted as
part of
the origination
process, both
of
which are in line with local regulations. The Company considers this
policy to be appropriate because the affordability test it
performs
takes into account
a variety of
factors such
as other debts
and total expenditures
on normal household
and lifestyle expenses.
Additional
allowances may
be required
should the
ability of
its customers
to make
payments when
due deteriorate
in the
future. A
significant
amount of
judgment is required
to assess the
ultimate recoverability
of these finance
loan receivables,
including ongoing
evaluation
of the creditworthiness of each customer.
Merchant lending
The Company maintains an allowance for
doubtful finance loans receivable related to
its Merchant services segment with
respect
to short-term loans to qualifying merchant customers. The
Company’s risk management procedures include adhering to its proprietary
lending criteria which uses
an online-system loan application
process, obtaining necessary customer transaction-history
data and credit
bureau checks.
The Company considers
these procedures
to be appropriate
because it takes
into account
a variety of
factors such
as
the customer’s credit capacity and customer-specific
risk factors when originating a loan.
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.
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
those
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
Fair value
is defined
as the price
that would
be received
upon sale
of an
asset or
paid upon
transfer of
a liability
in an orderly
transaction between
market participants
at the
measurement date
and in
the principal
or most
advantageous market
for that
asset or
liability. The
fair value should be calculated based
on assumptions that market participants
would use in pricing the asset
or liability,
not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk
including the Company’s own credit
risk.
Fair value measurements and inputs are categorized into a
fair value hierarchy which prioritizes the inputs into
three levels based
on the
extent to which
inputs used
in measuring
fair value
are observable
in the
market. Each fair
value measurement
is reported in
one of the three levels which is determined by the lowest level input that is significant
to the fair value measurement in its entirety.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-26
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
These levels are:
●
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments
traded in active markets.
●
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in
markets that
are not
active, and
model-based valuation
techniques for
which all
significant assumptions
are
observable
in the
market or
can be
corroborated
by observable
market
data for
substantially the
full term
of the
assets or
liabilities.
●
Level
3
–
inputs
are
generally
unobservable
and
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.
The following
section describes
the valuation
methodologies the
Company uses
to measure
its significant
financial assets
and
liabilities at fair value.
Asset measured at fair value using significant unobservable inputs – investment
in Cell C
The Company’s
Level 3 asset represents
an investment of
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
June 30,
2023 and
June 30, 2022,
respectively,
and valued Cell
C at
$
June 30, 2023, and June 30, 2022, respectively.
The Company incorporates the payments under Cell C’s
lease liabilities into the cash
flow forecasts
and assumes that
Cell C’s
deferred tax
assets would
be utilized over
the forecast period.
The Company has
increased
the
marketability
discount
from
% to
% and
the
minority
discount
from
% to
% due
to
the reduction
in the
Company’s
shareholding percentage from
% to
% as well as current market conditions. The Company utilized the latest revised business plan
provided
by
Cell
C
management
for
the
period
ended
December
31,
2025,
for
the
June
30,
2023,
and
June
30,
2022
valuations.
Adjustments have been made to the WACC
rate to reflect the Company’s
assessment of risk to Cell C achieving its business plan.
The following key valuation inputs were used as of June 30, 2023 and 2022:
Weighted Average
Cost of Capital ("WACC"):
Between
% and
% over the period of the forecast
Long-term growth rate:
% (
% as of June 30, 2022)
Marketability discount:
% (
% as of June 30, 2022)
Minority discount:
% (
% as of June 30, 2022)
Net adjusted external debt - June 30, 2023:
(1)
ZAR
Net adjusted external debt - June 30, 2022:
(2)
ZAR
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
June 30, 2023.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of
June 30, 2022.
The fair value
of Cell C
as of June
30, 2023, utilizing
the discounted
cash flow valuation
model developed
by the Company
is
sensitive to the following inputs: (i) the ability of Cell C to
achieve the forecasts in their business case; (ii) the weighted
average cost
of capital
(“WACC”)
rate used;
and (iii)
the minority
and marketability
discount used.
Utilization of
different inputs,
or changes
to
these inputs, may result in a significantly higher or lower fair value measurement.
The following table presents the impact on the carrying value of
the Company’s Cell C investment
of a
% increase and
%
decrease in the WACC rate and the
EBITDA margins used in
the Cell C valuation
on June 30, 2023,
all amounts translated at
exchange
rates applicable as of June 30, 2023:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
rate
$
$
EBITDA margin
$
$
The fair value of
the Cell C shares as
of June 30, 2023,
represented approximately
% 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.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-27
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
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. Substantially 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 require fair value measurement
under Level 1 or 3 of the fair value hierarchy.
The Company had
Derivative transactions - Foreign exchange option contracts
The Company held a significant amount of U.S. dollars in early fiscal 2022 and intended to use a portion of these funds
to settle
part of the purchase
consideration related to the
Connect acquisition. The purchase
consideration was expected
to be settled in
ZAR.
Accordingly,
the
Company
entered
into
foreign
exchange
option
contracts
with
FirstRand
Bank
Limited
acting
through
its
Rand
Merchant Bank division (“RMB”) in November 2021
in order to manage the risk of currency volatility and to fix
the ZAR amount to
be
utilized
for
part
of
the
purchase
consideration
settlement. These
foreign
exchange
option
contracts,
also
known
as
synthetic
forwards, were over-the-counter derivative transactions (Level 2). RMB’s long
-term credit rating is “BB”. The Company used quoted
prices in active markets for similar assets and liabilities to determine fair value
of the foreign exchange option contracts (Level 2).
The Company
marked-to-market the synthetic
forwards as of
December 31, 2021,
using a Black-Scholes
option pricing model
which determined
the respective fair
value of the
options utilizing
current market
parameters. During
the year ended
June 30, 2022,
the Company recorded a net gain of $
.
million unrealized
loss which
was previously
recognized) recorded
during the
three months
ended March
2022, and
the unrealized
loss of $
to fair value adjustment to currency options in the Company’s consolidated statements of operations for the year ended June 30, 2022.
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2023, 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
Assets
Investment in Cell C
$
$
$
$
Related to insurance business:
Cash, cash equivalents and
restricted cash (included in other
long-term assets)
Fixed maturity investments
(included in cash and cash
equivalents)
Total assets at fair value
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-28
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2022, 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
Assets
Investment in Cell C
$
$
$
$
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
Fixed maturity investments
(included in cash and cash
equivalents)
Total assets at fair value
$
$
$
$
There have been
There was
3, during the years ended June 30, 2023
and 2022. Summarized below is the movement in
the carrying value of assets measured at fair
value on a recurring basis, and categorized within Level 3, during the year
ended June 30, 2023:
Carrying value
Assets
Balance as of June 30, 2022
$
Foreign currency adjustment
(1)
Balance as of June 30, 2023
$
(1) The
foreign currency
adjustment represents
the effects
of the fluctuations
of the South
African rand
against the
U.S. dollar
on the carrying value.
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 year ended June 30, 2022:
Carrying value
Assets
Balance as at June 30, 2021
$
Foreign currency adjustment
(1)
Balance as of June 30, 2022
$
(1) The
foreign currency
adjustment represents
the effects
of the fluctuations
of the South
African rand
against the
U.S. dollar
on the carrying value.
Trade, finance loans and other receivables
Trade,
finance loans
and other
receivables originated
by the
Company
are stated
at cost
less allowance
for doubtful
accounts
receivable. The fair value
of trade, finance loans
and other receivables approximates their
carrying value due to
their short-term nature.
Trade and other payables
The fair values of trade and other payables approximates their carrying amounts, due
to their short-term nature.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-29
6.
FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
Assets and liabilities 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.
Refer
to
Note
9
for
impairment
charges
recorded during the
reporting periods presented
herein. The Company
has
basis.
7.
PROPERTY,
PLANT AND EQUIPMENT,
net
Summarized below
is the cost,
accumulated depreciation
and carrying amount
of property,
plant and
equipment as of
June 30,
2023 and 2022:
June 30,
June 30,
2023
2022
Cost
Safe assets
$
$
Computer equipment
Furniture and office equipment
Motor vehicles
Plant and machinery
Accumulated depreciation:
Safe assets
Computer equipment
Furniture and office equipment
Motor vehicles
Plant and machinery
Carrying amount:
Safe assets
Computer equipment
Furniture and office equipment
Motor vehicles
Plant and machinery
$
$
8.
LEASES
The
Company
has
entered into
leasing
arrangements
classified
as operating
leases under
accounting
guidance.
These leasing
arrangements
relate primarily
to the
lease of
its corporate
head
office,
administration
offices,
a manufacturing
facility,
and branch
locations through which the
Company operates its financial services
business in South Africa.
The Company’s
operating leases have
a remaining
lease term
of between
. The
Company also
operates parts
of its
financial services
business from
locations which it leases for a period of less than
.
The Company’s
operating lease expense
during the years
ended June 30,
2023, 2022 and
2021, was $
and $
The Company
has entered into
short-term leasing
arrangements, primarily
for the lease
of branch
locations and other
locations
to operate
its financial
services business
in South
Africa.
The Company’s
short-term lease
expense during
the years
ended June
30,
2023, 2022 and 2021, was $
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-30
8.
LEASES (continued)
The following
table presents
supplemental
balance sheet
disclosure related
to our
right-of-use assets
and our
operating leases
liabilities as of June 30, 2023 and 2022:
June 30,
June 30,
2023
2022
Right-of-use assets obtained in exchange for lease obligations
Weighted average
remaining lease term (years)
Weighted average
discount rate
%
%
Maturities of operating lease liabilities
2024
$
2025
2026
2027
2028
Thereafter
Total undiscounted
operating lease liabilities
Less imputed interest
Total operating lease liabilities,
included in
Operating lease liability - current
Operating lease liability - long-term
$
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS
Equity-accounted investments
The Company’s ownership percentage
in its equity-accounted investments as of June 30, 2023 and 2022, was as follows:
June 30,
June 30,
2023
2022
Finbond Group Limited (“Finbond”)
28
%
29
%
Sandulela Technology
Proprietary Limited ("Sandulela")
%
%
Carbon
%
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
%
%
Finbond
As of June 30, 2023,
the Company owned
% of its issued and
outstanding ordinary
shares. Finbond
is listed
on the
Johannesburg
Stock Exchange
and its
closing price
on June
30, 2023,
the last
trading day
of the
month, was
ZAR
ZAR
things, its entire equity interest in Finbond as security for the South African facilities
described in Note 12.
Sale of Finbond shares during the years ended
June 30, 2023 and 2022
The
Company
sold
respectively, and recorded a loss of $
consolidated statement of operations for the years ended June 30,
2023 and 2022.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-31
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Equity-accounted investments (continued)
Finbond (continued)
Sale of Finbond shares during the years ended
June 30, 2023 and 2022 (continued)
The following table presents the
calculation of the loss on disposal
of Finbond shares during the
years ended June 30, 2023
and
2022:
Year
ended June 30,
2023
2022
Loss on disposal of Finbond shares:
Consideration received in cash
$
$
Less: carrying value of Finbond shares sold
(
363
)
(
630
)
Less: release of foreign currency translation reserve from accumulated
other
comprehensive loss
(
252
)
(
620
)
Add: release of stock-based compensation charge related
to equity-accounted investment
Loss on sale of Finbond shares
$
(
341
)
$
(
376
)
Finbond impairments
recorded during
the year ended June 30, 2023
The Company
considered the combination
of the ongoing
losses incurred and
reported by Finbond
and its lower
share price as
impairment indicators as of
September 30, 2022. The
Company performed an impairment
assessment of its holding
in Finbond as of
September 30,
2022. The Company
recorded an impairment
loss of $
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 continues
to be limited
trading in
Finbond
shares
on
the
JSE
because
a
small
number
of
shareholders
own
approximately
%
of
its
issued
and
outstanding
shares
between them. The
Company calculated a fair
value per share for
Finbond by applying a
liquidity discount of
% to the September
30,
2022,
Finbond
closing
price
of
ZAR
.
The
Company
increased
the
liquidity
discount
from
%
(used
in
the
previous
impairment
assessment)
to
%
(used
in
the
September
30,
2022
assessment)
as
a
result
of
the
ongoing
limited
trading
activity
observed on the JSE.
Finbond impairments
recorded during
the year ended June 30, 2021
Finbond published its
half-year results to
August 2020 in
October 2020, which
included the financial
impact of the
COVID-19
pandemic on its reported results during that reporting period.
Finbond incurred losses during the six months to
August 2020, primarily
due to a slow-down in its lending activities. Finbond
reported that its lending activities had increased again since
August 2020, 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
$
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
was limited
trading in
Finbond shares
on the
JSE because
it had
% of its issued and outstanding
shares between them. The Company calculated
a fair
value per share for Finbond by applying a liquidity discount of
% to the September 30, 2020, Finbond closing price of ZAR
.
The Company performed a
further impairment assessment
of its holding
in Finbond as
of December 31, 2020,
following a modest
further decline
in its
market price
during the
quarter ended December
31, 2020.
The Company
recorded an
impairment loss
of $
million
during
the
quarter
ended
December
31,
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). The
Company calculated
a fair
value per
share for
Finbond by
applying a
liquidity discount
of
% to the
December 31,
2020, Finbond
closing price
of ZAR
. The
total impairment
charge for
the year
ended June
30, 2021,
was $
million.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-32
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Equity-accounted investments (continued)
Finbond (continued)
August 2023 agreement to sell our entire
stake in Finbond
On
August
10,
2023,
the
Company,
through
its
wholly
owned
subsidiary
Net1
Finance
Holdings
(Pty)
Ltd,
entered
into
an
agreement with Finbond to sell
its remaining shareholding to
Finbond for a cash
consideration of ZAR
exchange rates
applicable as of
June 30,
2023), or
ZAR
regulatory and
shareholder approvals,
and all
conditions are
required to
be fulfilled
on or
before December
31, 2023,
otherwise the
transaction will lapse.
Carbon
In September
2022, the
Company,
through its
wholly-owned subsidiary,
Net1 Applied
Technologies
Netherlands B.V.
(“Net1
BV”),
entered
into
a binding
term
sheet
with the
Etobicoke
Limited
(“Etobicoke”)
to sell
its entire
interest, or
%,
in Carbon
to
Etobicoke for $
interest and
the loan
had a
carrying value
of $
shares purchased as security for the amounts outstanding under the binding term
sheet.
The Company received $
(i) $
in the
caption accounts
receivable, net
and other
receivables in
the Company’s
consolidated balance
sheet as
of June
30, 2023.
The
Company has allocated the $
of the equity interest and then to the loans.
The Company currently
believes that the fair
value of the Carbon
shares provided as security
is $
the carrying value as of June 30, 2022, and has created an allowance for
doubtful loans receivable related to the $
Etobicoke. The Company did not incur any significant
transaction costs. The Company has included the gain of $
to the
sale of
the Carbon equity
interest in the
caption net gain
on disposal of
equity-accounted investments in
the Company’s unaudited
condensed consolidated statements of operations.
The following table presents the calculation of the gain on disposal of Carbon
in September 2022:
Three months
ended
September 30,
2022
Gain on disposal of Carbon shares:
Consideration received in cash in September 2022
$
Less: carrying value of Carbon
Gain on disposal of Carbon shares:
(1)
$
(1) The Company does
not expect to pay taxes
related to the sale of Carbon
because the base cost of
its investment exceeds the
sales consideration received. The Company does not believe that it will be able to utilize
the loss generated because Net1 BV does not
generate taxable income.
Bank Frick
Sale of entire interest in
Bank Frick in February 2021
On February 3, 2021,
the Company, through its wholly-owned subsidiary, Net1 Holdings LI
AG (“Net1 LI”), entered
into a share
sales agreement
with the Frick
Family Foundation
(“KFS”) to sell
its entire interest,
or
%, in Bank
Frick to KFS
for $
Lesaka and certain entities within the
IPG group also entered into an
indemnity and release agreement with KFS
and Bank Frick under
which
the
parties
agreed
to
terminate
all existing
arrangements
with
Bank
Frick
and
settle all
liabilities
related
to
the
Company’s
activities with Bank Frick
through the payment of
$
comprised $
related to IPG’s activities with Bank Frick.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-33
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Equity-accounted investments (continued)
Bank Frick (continued)
Sale of entire interest in
Bank Frick in February 2021 (continued)
The Company included the $
operating activities in the consolidated statement of cash flows for the year
ended June 30, 2021.
The outstanding balance due by KFS was expected to be paid
as follows: (i) $
in the caption accounts receivable, net and other receivables in the
Company’s consolidated balance sheet as of June 30, 2021, and (ii)
the remaining
amount, of
$
caption other
long-term assets,
including reinsurance
assets in
the Company’s
consolidated balance
sheet as
of June
30, 2021.
The
parties entered
into a
security and
pledge agreement
under which
KFS pledged
the Bank
Frick shares
purchased as
security for
the
amounts outstanding under the share sales agreement.
The Company incurred transaction costs of approximately $
on disposal of Bank Frick on February 3, 2021
:
February
2021
Loss on sale of Bank Frick:
Consideration received in cash on February 3, 2021
$
Consideration received with note on February 3, 2021, refer to (Note 4)
Less: transaction costs
(
42
)
Less: carrying value of Bank Frick
(
32,892
)
Add: release of foreign currency translation reserve from accumulated other
comprehensive loss
Loss on sale of Bank Frick
(1)
$
(
472
)
(1) The Company
did not pay taxes
related to the
sale of Bank
Frick because the
base cost of
its investment exceeded
the sales
consideration received. The Company does not believe that it will be able to utilize any capital loss,
if any, generated because Net1 LI
does not own any other capital assets and has since been deregistered.
V2 Limited
The carrying
value of
the Company’s
investment in
V2 Limited
(“V2”) on
July 1,
2020, was
approximately
$
continued to experience
operating losses during
the year ended
June 30, 2021,
and in December
2020, the Company
no longer expected
to recover its carrying value in V2
and impaired its remaining interest in V2,
recording an impairment loss of $
year ended June 30, 2021. The Company sold its investment in V2
on April 22, 2021, for one dollar.
The
Company
had
also
committed
to
provide
V2
with
a
working
capital
facility
of
$
achievement of certain pre-defined objectives, and in June 2020 it provided $
the Company and
V2 agreed to reduce
the $
remaining available $
$
outstanding as of June 30, 2023.
DNI
On March 31, 2020, the Company sold its remaining interest in DNI, an investment accounted for using the
equity method at the
date of disposal, to DNI for ZAR
issue of
an unsecured
note to
the Company.
The transaction
closed on
April 1,
2020. The
note principal
was repayable
in
monthly installments of
ZAR
October 31,
2020. The
Company received
$
October 26, 2020, for total receipts of $
Walletdoc
In November 2020, the Company’s
subsidiary, Net1 SA, signed
an agreement with Walletdoc
under which Walletdoc
agreed to
repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest in
Walletdoc to Walletdoc.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-34
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Equity-accounted investments (continued)
Summarized
below is
the movement
in equity-accounted
investments during
the years
ended June
30, 2023
and 2022,
which
includes the investment in equity and the investment in loans provided
to equity-accounted investees:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2021
$
$
$
Stock-based compensation
Comprehensive loss:
(
2,426
)
(
139
)
(
2,565
)
Other comprehensive income
Equity accounted (loss) earnings
(
3,665
)
(
139
)
(
3,804
)
Share of net (loss) income
(
3,665
)
(
3,649
)
Impairment
(
155
)
(
155
)
Sale of shares in equity-accounted investment
(
630
)
(
630
)
Equity-accounted investment acquired in business combination
Foreign currency adjustment
(2)
(
1,020
)
(
16
)
(
1,036
)
Balance as of June 30, 2022
Stock-based compensation
Comprehensive (loss) income:
(
1,271
)
(
1,182
)
Other comprehensive income
Equity accounted (loss) earnings
(
5,206
)
(
5,117
)
Share of (loss) net income
(
4,096
)
(
4,007
)
Impairment
(
1,110
)
(
1,110
)
Dividends received
(
42
)
(
42
)
Sale of shares in equity-accounted investment
(
506
)
(
506
)
Foreign currency adjustment
(2)
(
971
)
(
17
)
(
988
)
Balance as of June 30, 2023
$
$
$
Investment in loans:
Balance as of June 30, 2021
$
$
$
Foreign currency adjustment
(2)
Balance as of June 30, 2022
Loans repaid
(
112
)
(
112
)
Loans granted
Foreign currency adjustment
(2)
Balance as of June 30, 2023
$
$
$
Equity
Loans
Total
Carrying amount as of :
June 30, 2022
$
$
$
June 30, 2023
$
$
$
(1) Includes Carbon,
Sandulela and SmartSwitch Namibia;
(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.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-35
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Equity-accounted investments (continued)
Summary financial information of equity-accounted investments
Summarized
below
is the
financial
information
of
equity-accounted
investments
(during
the
Company’s
reporting
periods
in
which investments were carried using the equity-method, unless otherwise noted)
as of the stated reporting period of the investee and
translated at the applicable closing or average foreign exchange rates
(as applicable):
Finbond
(1)
Bank Frick
(2)
Other
(3)
Balance sheet, as of
February 28
June 30
Various
Current assets
(4)
2023
$
n/a
$
n/a
$
2022
n/a
n/a
Long-term assets
2023
n/a
2022
n/a
Current liabilities
(4)
2023
n/a
n/a
2022
n/a
n/a
Long-term liabilities
2023
n/a
2022
n/a
Non-controlling interest
2023
n/a
2022
-
Statement of operations, for the period ended
February 28
June 30
(2)
Various
Revenue
2023
n/a
2022
n/a
2021
Operating (loss) income
2023
(
20,941
)
n/a
2022
(
21,017
)
n/a
2021
(
18,980
)
(
2,406
)
(Loss) Income from continuing operations
2023
(
19,780
)
n/a
2022
(
18,379
)
n/a
2021
(
15,466
)
(
2,534
)
Net (loss) income
2023
(
15,858
)
n/a
2022
(
16,432
)
n/a
2021
$
(
17,889
)
$
$
(
2,534
)
(1) Finbond balances included were derived from its publicly available information
and presented for its years ended February;
(2) Bank Frick
disposed of in February
2021. Statement of operations
information for Bank
Frick is for the
period from July 1,
2020 to January 31, 2021, and the full twelve months for fiscal 2020.
(3) Includes Carbon, SmartSwitch Namibia,
Sandulela, Revix, Walletdoc
and V2, as appropriate. Balance sheet
information for
Carbon,
Sandulela, and SmartSwitch Namibia is as
of June 30, 2022 and 2021,
respectively. Statement of operations information
for Carbon, SmartSwitch Namibia, Revix, and V2 for the year ended June 30,
and Walletdoc for
the year ended February 28;
(4) Bank Frick and Finbond are banks and do not present current and
long-term assets and liabilities. All assets and liabilities of
these two entities are included under the long-term caption;
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-36
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of June 30,
2023, and June 30, 2022:
June 30,
June 30,
2023
2022
Total equity investments
$
$
Investment in
% (June 30, 2022:
%) of MobiKwik
(1)
Investment in
% of Cell C (June 30, 2022:
%) at fair value (Note 6)
Investment in
(1)(2)
Policy holder assets under investment contracts (Note 11)
Reinsurance assets under insurance contracts (Note 11)
Total other long-term
assets
$
$
(1)
The Company
determined
that
MobiKwik
and CPS
do not
have
readily
determinable
fair
values and
therefore
elected to
record these investments
at cost minus impairment,
if any,
plus or minus changes
resulting from observable
price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020,
the High Court of
South Africa, Gauteng Division, Pretoria
ordered that CPS be
placed into liquidation.
MobiKwik
The Company
signed a
subscription agreement
with MobiKwik,
which is
one of
India’s
largest independent
mobile payments
networks and buy now
pay later businesses.
Pursuant to the
subscription agreement, the Company agreed
to make an
equity investment
of up to $
-month period. The Company made an
initial $
and a
further
$
Company paid $
Company owned approximately
% of MobiKwik’s issued share capital.
In October
2021, the
Company converted
(at a
rate of
approximately
cumulative
preferences
shares
to
investment
percentage
remained
unchanged
following
the
conversion.
The
Company
did
not
identify
any
observable
transactions
during the years ended June 30, 2023 and 2022, respectively, and therefore there was no change in the fair value of MobiKwik during
these years.
During the year
ended June 30,
2021, MobiKwik
entered into a
number of separate
agreements with new
shareholders to
raise
additional capital through the issuance of additional shares. Specifically, the Company used the following transactions as the basis for
its fair value
adjustments to
its investment in
MobiKwik during
the year ended
June 30, 2021:
(i) in early
November 2020,
$
($
conversion) per share. The Company considered
each of these transactions to be an observable price change
in an orderly transaction
for similar
or identical
equity securities
issued by
MobiKwik. The
Company used
the November
2020 valuation
as the
basis for
its
adjustment to
increase the carrying
value in its
investment in
MobiKwik by $
December 31, 2020. The
Company used the March 2021
valuation as the basis for
its adjustment to increase the
carrying value in its
investment in
MobiKwik by
$
2021 valuation
as the
basis for
its adjustment
to increase
the carrying
value in
its investment
in MobiKwik
by $
$
$
year ended June 30, 2021.
Cell C
On
August
2,
2017,
the
Company,
through
its
subsidiary,
Net1SA,
purchased
aggregate purchase price of ZAR
cash and a
borrowing facility.
Net1 SA has
pledged, among other
things, its entire
equity interest in
Cell C as
security for the
South
African
facilities
described
in
Note
12.
On
September
30,
2022,
Cell C
completed
its recapitalization
process
which
included
the
issuance of additional equity instruments by Cell C. The Company’s effective percentage holding in Cell C’s equity
has reduced from
% to
% following the recapitalization. The Company’s
investment in Cell C is carried at fair value. Refer
to Note 6 for additional
information regarding changes in the fair value of Cell C.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-37
9.
EQUITY-ACCOUNTED
INVESTMENTS AND OTHER LONG-TERM ASSETS (continued)
Other long-term assets (continued)
CPS
The Company
deconsolidated
its investment
in CPS
in May
2020. As
of June
30, 2023
and 2022,
respectively,
the Company
owned
% of CPS’ issued share capital.
Revix
In February 2022,
the Company sold its
entire interest in
Revix UK Limited
for cash of
$
not consider
the investment
core to
its strategy
to operate
primarily
in Southern
Africa. The
Company
had
previously written
this
investment to
$
securities in the Company’s
consolidated statements of operations for the year ended June 30, 2022.
Summarized below
are the components
of the Company’s
equity securities
without readily
determinable fair
value and held
to
maturity investments as of June 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in Mobikwik
$
$
$
$
Investment in CPS
Held to maturity:
Investment in Cedar Cellular notes
Total
$
$
$
$
Summarized below are the components of the Company’s
equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2022:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
$
$
$
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
Total
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-38
10.
GOODWILL AND INTANGIBLE
ASSETS,
net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the years ended June 30, 2023, 2022 and 2021:
Gross value
Accumulated
impairment
Carrying value
Balance as of July 1, 2020
$
$
(
39,025
)
$
Liquidation of subsidiaries
(2)
(
26,629
)
Foreign currency adjustment
(1)
(
1,400
)
Balance as of June 30, 2021
(
13,796
)
Acquisition of Connect (Note 3)
(3)
-
Foreign currency adjustment
(1)
(
21,166
)
(
20,189
)
Balance as of June 30, 2022
(
12,819
)
Impairment loss
(
7,039
)
(
7,039
)
Foreign currency adjustment
(1)
(
22,857
)
(
21,875
)
Balance as of June 30, 2023
$
$
(
18,876
)
$
(1) – The
foreign currency
adjustment represents
the effects
of the
fluctuations between the
South African Rand
and the Euro,
against the U.S. dollar on the carrying value.
(2) – The Company deconsolidated
the goodwill and accumulated impairment
related to entities it
substantially liquidated during
the year ended June 30, 2021.
(3) – Represents
goodwill arising from
the acquisition of
Connect and translated
at the foreign exchange
rate applicable on the
date the transaction became effective. This goodwill has been
allocated to the merchant reportable operating segment
.
Goodwill
associated
with
the
acquisition
of
Connect
represents the
excess
of
cost
over
the
fair
value
of
acquired
net assets.
Connect goodwill
is not deductible
for tax purposes.
See Note 3
for the allocation
of the purchase
price to the
fair value of
acquired
net assets.
Impairment loss
The Company assesses the carrying
value of goodwill for impairment
annually, or
more frequently,
whenever events occur and
circumstances change indicating
potential impairment. The Company
performs its annual impairment
test as at June 30 of
each year.
Except as discussed below,
Year ended
June 30, 2023 goodwill impairment loss
The Company
recognized an
impairment loss
of $
allocated
to
its
hardware/
software
support
business
within
its
merchant
operating
segment.
The
impairment
loss
resulted
from
a
reassessment
of
the
business’
growth
prospects
given
the
change
in
customer
demand
as
a
result
of
the
introduction
of
cheaper
hardware devices which incorporate
software widely adopted by our customers
customer-base, coupled with a challenging
economic
environment
in
South
Africa.
The
impairment
is
included
within
the
caption
impairment
loss
in
the
consolidated
statement
of
operations for the year ended June 30, 2023.
In order to determine the
amount of the goodwill
impairment, the estimated fair value
of our hardware/ software support business
assets and liabilities were compared to the carrying
value of its assets and liabilities.
The Company used a discounted cash flow model
in order
to determine
the fair
value of
the business.
Based on
this analysis,
the Company
determined that
the carrying
value of
the
business’ assets and liabilities exceeded their fair value at the reporting date.
In the event that there is a deterioration in the Company’s operating segments, or in any other of the Company’s
businesses, this
may lead to additional impairments
in future periods.
Furthermore, the difficulties of integrating acquired businesses
may be increased
by
the
necessity
of
integrating
personnel
with
disparate
business
backgrounds
and
combining
different
corporate
cultures.
The
Company also may not
be able to retain key
employees or customers of
an acquired business or realize
cost efficiencies or
synergies
or other
benefits that
it anticipated
when selecting
its acquisition
candidates. Acquisition
candidates may
have liabilities
or adverse
operating
issues that
the
Company
fails
to
discover
through
due
diligence
prior
to
the
acquisition.
These
factors
may
also
lead
to
additional impairments in future periods.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-39
10.
GOODWILL AND INTANGIBLE
ASSETS,
net (continued)
Goodwill (continued)
Goodwill has been allocated to the Company’s
reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of July 1, 2020
$
$
$
Liquidation of subsidiaries
Foreign currency adjustment
(1)
Balance as of June 30, 2021
Acquisition of Connect (Note 3)
Foreign currency adjustment
(1)
(
20,189
)
(
20,189
)
Balance as of June 30, 2022
Impairment loss
(
7,039
)
(
7,039
)
Foreign currency adjustment
(1)
(
21,875
)
(
21,875
)
Balance as of June 30, 2023
$
$
$
(1) –
The foreign
currency adjustment
represents the
effects of
the fluctuations
between the
South African
rand and
the Euro,
against the U.S. dollar on the carrying value.
Intangible assets
Intangible assets acquired
Summarized below
is the
fair value
of intangible
assets acquired,
translated at
the exchange
rate applicable
as of
the relevant
acquisition dates, and the weighted-average amortization period:
Fair value as of
acquisition date
Weighted-average
amortization
period (in years)
Finite-lived intangible asset:
Acquired during the year ended June 30, 2022:
Connect – integrated platform
$
Connect – customer relationships
Connect –brands
$
Impairment loss
The Company
assesses the carrying
value of
intangible assets
for impairment
whenever events
occur or
circumstances change
indicating that the carrying amount of the intangible asset may not be recoverable.
years ended June 30, 2023, 2022 and 2021, respectively.
Summarized below is the carrying value and accumulated amortization of the intangible assets as of June 30, 2023, and June 30,
2022:
As of June 30, 2023
As of June 30, 2022
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
(1)
$
$
(
11,565
)
$
$
$
(
9,140
)
$
Software, integrated
platform and unpatented
technology
(1)
(
13,711
)
(
3,075
)
FTS patent
(
2,034
)
(
2,352
)
Brands and trademarks
(1)
(
2,863
)
(
1,823
)
Total finite-lived
intangible assets
$
$
(
30,173
)
$
$
$
(
16,390
)
$
(1) 2022 balances include the intangible assets acquired as part of the
Connect acquisition in April 2022.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-40
10.
GOODWILL AND INTANGIBLE
ASSETS,
net (continued)
Intangible assets (continued)
Carrying value and amortization of intangible assets (continued)
Aggregate
amortization
expense on
the finite-lived
intangible assets
for
the
years
ended June
30,
2023,
2022
and
2021,
was
approximately $
, respectively.
Future estimated annual amortization expense for the next five
fiscal years and thereafter, using the exchange rates that prevailed
on June
30, 2023, is
presented in the
table below.
Actual amortization
expense in future
periods could differ
from this estimate
as a
result of acquisitions, changes in useful lives, exchange rate fluctuations and other
relevant factors.
Fiscal 2023
$
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Thereafter
Total future
estimated annual amortization expense
$
11.
ASSETS AND POLICYHOLDER LIABILITIES UNDER INSURANCE AND
INVESTMENT CONTRACTS
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and policyholder liabilities under
insurance contracts during the years
ended June 30, 2023 and 2022:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of July 1, 2021
$
$
(
2,011
)
Increase in policy holder benefits under insurance contracts
(
9,540
)
Claims and policyholders’ benefits under insurance contracts
(
1,782
)
Foreign currency adjustment
(3)
(
179
)
Balance as of June 30, 2022
(
1,955
)
Increase in policy holder benefits under insurance contracts
(
5,833
)
Claims and policyholders’ benefits under insurance contracts
(
986
)
Foreign currency adjustment
(3)
(
183
)
Balance as of June 30, 2023
$
$
(
1,600
)
(1) Included in other long-term assets (refer to Note 9);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from large insurance contracts, however,
if
the reinsurer is unable to meet its obligations, the Company retains the liability.
The value of insurance contract liabilities is based on
the best
estimate assumptions
of future
experience plus
prescribed margins,
as required
in the
markets in
which these
products are
offered, namely
South Africa. The
process of deriving
the best estimates
assumptions plus
prescribed margins
includes assumptions
related to claim reporting delays (based on average industry experience).
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-41
11.
ASSETS AND POLICYHOLDER LIABILITIES UNDER INSURANCE AND
INVESTMENT CONTRACTS
(continued)
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets
and policyholder liabilities under investment contracts during the years
ended June
30, 2023 and 2022:
Assets
(1)
Investment
contracts
(2)
Balance as of July 1, 2021
$
$
(
381
)
Increase in policy holder benefits under investment contracts
(
16
)
Foreign currency adjustment
(3)
(
26
)
Balance as of June 30, 2022
(
349
)
Increase in policy holder benefits under investment contracts
(
6
)
Claims and decrease in policyholders’ benefits under investment contracts
(
69
)
Foreign currency adjustment
(3)
(
51
)
Balance as of June 30, 2023
$
$
(
241
)
(1) Included in other long-term assets (refer to Note 9);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees
related to capital or returns.
12.
BORROWINGS
South Africa
The amounts below have been translated at exchange rates applicable as of
the dates specified.
RMB Facilities, as amended, comprising a short-term facility (Facility E) and
long-term borrowings
On July 21,
2017, Lesaka SA
entered into a
Common Terms
Agreement, Subordination
Agreement, Security
Cession & Pledge
and
certain
ancillary
loan
documents
(collectively,
the
“Original
Loan
Documents”)
with
RMB,
a
South
African
corporate
and
investment
bank, and
Nedbank Limited
(acting
through its
Corporate
and Investment
Banking division),
an African
corporate
and
investment bank (collectively, the “Lenders”).
Since 2017, these agreements have been amended to add
additional facilities, including
Facilities G and H, which were obtained to finance the acquisition of Connect (refer to Note 3). Facilities A, B, C, D and F have been
repaid and cancelled. As of June
30, 2023, the only remaining facilities are
Facility G and Facility H (as defined
below), and Facility
E, an overdraft facility.
Available short-term facility -
Facility E
On
September
26,
2018,
Lesaka
SA
revised
its
amended
July
2017
Facilities
agreement
with
RMB
to
include
Facility
E,
an
overdraft facility of up to ZAR
in the Company’s
ATMs.
The Facility E overdraft
facility was subsequently
reduced to ZAR
exchange rates applicable as
of June 30, 2023) in
September 2019. On August
2, 2021, Lesaka SA and
RMB entered into a Letter
of
Amendment to increase Facility
E from ZAR
of June 30, 2023). Interest on the overdraft facility
is payable on the first day of the month following
utilization of the facility and on
the final maturity date based on the South African
prime rate. The overdraft facility amount utilized must be
repaid in full within one
month of utilization and
at least
% of the
amount utilized must be
repaid within
. The overdraft facility
is secured by a
pledge
by Lesaka SA of, among other things, cash and certain bank accounts utilized in the Company’s ATM
funding process, the cession of
Lesaka
SA’s
shareholding
in
Cell
C,
the
cession
of
an
insurance
policy
with
Senate
Transit
Underwriters
Managers
Proprietary
Limited, and
any rights
and claims
Lesaka SA
has against
Grindrod Bank
Limited. As
at June
30, 2023,
the Company
had utilized
approximately ZAR
therefore the overdraft
utilized and converted
to cash to
fund the Company’s
ATMs
is considered restricted
cash. The prime
rate on
June 30, 2023, was
%.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-42
12.
BORROWINGS (continued)
South Africa (continued)
RMB Facilities, as amended, comprising a short-term facility (Facility E) and
long-term borrowings (continued)
Long-term borrowings - Facility G and Facility H
On March
16, 2023,
the Company,
through Lesaka
SA, entered
into a
Fifth Amendment
and
Restatement Agreement,
which
includes, among other agreements, an Amended and
Restated Common Terms Agreement (“CTA”), an Amended and Restated Senior
Facility G Agreement (“Facility
G Agreement”) and an
Amended and Restated Senior
Facility H Agreement (“Facility
H Agreement”)
(collectively,
the “Loan
Documents”) with
RMB. Main
Street 1692
(RF) Proprietary
Limited (“Debt
Guarantor”), a
South African
company incorporated
for the sole
purpose of
holding collateral for
the benefit of
the Lenders and
acting as debt
guarantor is also
a
party to
the Loan
Documents. Pursuant
to the
Facility G
Agreement,
Lesaka SA
may borrow
up to
an aggregate
of approximately
ZAR
Pursuant to the Facility H Agreement, Lesaka SA may borrow up to an aggregate
of approximately ZAR
The Loan
Documents contain
customary
covenants that
require Lesaka
SA to
maintain a
specified total
asset cover
ratio and
restrict the ability of Lesaka, Lesaka SA, and certain of its subsidiaries to make
certain distributions with respect to their capital stock,
prepay
other debt,
encumber their
assets, incur
additional indebtedness,
make investment
above specified
levels, engage
in certain
business combinations and engage in other corporate activities. The
March 16, 2023, amendments to the CTA
include an amendment
to the asset cover
ratio to change the
Covenant Equity Value
(as defined in
the CTA)
definition to include
% of the book
value of
the Lesaka Financial Service Proprietary Limited (formerly known as Moneyline Financial Service Proprietary Limited)
receivables,
and to deduct the net debt
(as defined in the CTA) of Cash Connect Management Solutions
Proprietary Limited (“CCMS”) and K2021
Proprietary Limited (“K2021”) from the respective CCMS and
K2021 valuations. When determining the Covenant Equity Value,
the
value of the aggregate of the CCMS Equity Value
(as defined in the CTA) and the K2021 Equity Value
(as defined in the CTA) must
be at least
K2021 Equity Value
is not at least
aggregate of the CCMS Equity Value and the K2021 Equity Value
is
include the removal of a requirement to maintain a minimum group cash balance.
Interest on
Facility G
and Facility
H (together,
the “Facilities”)
is based
on the
3-month Johannesburg
Interbank Agreed
Rate
(“JIBAR”) in effect from
time to time plus a
margin, as a result
of the amendment, from
January 1, 2023 of:
(i)
% for as long as
the aggregate balance
under the Facilities is
greater than ZAR
% if the aggregate
balance under the Facilities
is
equal to or less than ZAR
% if the aggregate balance under the Facilities is
less than
ZAR
date, provided that the sum of the outstanding facility (including interest and fees) plus any accrued interest does not exceed
of the
Facilities outstanding
balance. Any
interest that
exceeds this
cap must
be settled
in full
on a
quarterly basis.
The JIBAR
rate
was
% on June 30, 2023.
Lesaka SA will pay a quarterly commitment fee computed at a rate of
% of the Applicable Margin (as defined in the CTA) on
the amount of the revolving credit facility outstanding
and such commitment fee will also be capitalized,
subject to the cap discussed
above.
The Facilities are repayable in full on or before December 31, 2025.
The then
available
amounts available
under
the Facilities
were utilized,
in full,
on April
14,
2022,
primarily
to part
fund the
acquisition
of Connect.
In
April 2022,
Lesaka SA
paid
non-refundable
deal
origination
fees of
ZAR
million to the Lenders related to Facility G and Facility H, respectively.
The Facility H
Agreement provides the Lenders
with a right
to discuss the
capitalization of the Lesaka
group with its
management
and Value
Capital Partners Proprietary
Limited (“VCP”) if Lesaka’s
market capitalization on
the NASDAQ Stock Market
(based on
the closing price
on the NASDAQ Stock
Market) on any day
falls below the USD
equivalent of ZAR
to maintain an asset cover ratio above
:1.00, calculated as the total VCP investment fund net
asset value (as defined in the Facility
H agreement) divided by the Facility H borrowings outstanding, measured as of March, June, September and December each year (as
applicable) (each a
“Measurement Date”). The
Lenders require Lesaka
SA to deliver a
compliance certificate procured from
VCP as
of each applicable Measurement Date, which shows the computation
of the asset cover ratio.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-43
12.
BORROWINGS (continued)
South Africa (continued)
Connect Facilities, comprising long-term borrowings and a short-term facility
On March 22, 2023,
the Company, through CCMS, entered
into a First
Amendment and Restatement Agreement, which
includes,
among other
agreements, an
Amended
and Restated
Facilities Agreement
(“CCMS Facilities
Agreement”)
with RMB.
The CCMS
Facilities Agreement was
amended to increase
the Facility B available
under the CCMS Facilities
Agreement by ZAR
to ZAR
been amended, with the first scheduled repayment commencing from
March 31, 2026.
As of June 30,
2023, the Connect
Facilities include (i)
an overdraft facility
(general banking facility)
of ZAR
which ZAR
utilized); and (iv) an asset-backed facility of ZAR
In February 2023, the Company,
through CCMS, obtained a ZAR
period of
equal monthly instalments of ZAR
obtained a ZAR
of prepaid airtime vouchers. This temporary increase was repaid in full in June 2023. Interest at the South Africa prime rate less
%
was payable on a monthly basis on both of these temporary facilities.
CCMS paid a non-refundable structuring fee of approximately ZAR
Facility A and Facility
B is payable quarterly in
arrears based on JIBAR
in effect from time to
time plus a margin.
Interest on the asset-
backed facility is payable quarterly in arrears based on prime in effect
from time to time plus a margin.
Borrowings under
the CCMS
Facilities Agreement
are secured
by a
pledge by
CCMS of,
among other
things, all
of its
equity
shares, its
entire equity
interests in
equity securities
it owns
and any
claims outstanding.
The CCMS
Facilities Agreement
contains
customary covenants that require CCMS to maintain specified debt service, interest
cover and leverage ratios.
CCC Revolving Credit Facility, comprising
long-term borrowings
On
November
29,
2022,
the
Company,
through
its
indirect
South
African
subsidiary
Cash
Connect
Capital
(Pty)
Limited
(“CCC”), entered into
a Revolving Credit
Facility Agreement (the
“CCC Loan Document”)
with RMB
and other Company
subsidiaries
within the Connect Group of companies listed therein, as guarantors. The transaction
closed on December 1, 2022.
The CCC Loan Document contains
customary covenants that require CCC and
K2020 to collectively maintain a
specified capital
adequacy ratio, restrict the ability of the entities to make certain distributions with respect to their capital stock,
encumber their assets,
incur additional indebtedness, make investments, engage in certain business
combinations and engage in other corporate activities.
Pursuant
to
the
CCC Loan
Document,
CCC may
borrow
up to
an aggregate
of ZAR
Facility”) for the sole purposes of funding CCC’s
consumer lending business, providing a limited recourse loan to
K2020, settling up
to ZAR
costs. The Revolving
Credit Facility replaces
K2020’s existing lending arrangement and
increases the
borrowings available to
facilitate
further growth of the
business. Certain merchant finance
loans receivable have been
pledged as security for
the revolving credit
facility
obtained from
RMB. CCMS
also provided
RMB with
an unsecured
limited guarantee
(“the guarantee”)
in respect
of the
revolving
credit facility entered into between
K2020 and RMB. The guarantee is limited
to a maximum aggregate amount of ZAR
and will become due and payable should there be any default on any of K2020’s
payment obligations to RMB.
Interest on
the Revolving
Credit Facility
is payable
on the last
business day
of each
calendar month and
is based on
the South
African prime rate in effect from time to time plus a margin
of
% per annum.
The Company
paid a
non-refundable structuring
and execution
fee of ZAR
taxation, to the Lenders on closing.
As of June 30, 2023, the amount of the CCC
Revolving Credit Facility was ZAR
been utilized).
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-44
12.
BORROWINGS (continued)
South Africa (continued
RMB facility, comprising indirect facilities
As of
June 30,
2023, the
aggregate amount
of the
Company’s
short-term South
African indirect
credit facility
with RMB
was
ZAR
30, 2023
and June
30, 2022,
the Company
had utilized
approximately ZAR
million), respectively,
of its indirect and derivative
facilities of ZAR
bank to issue guarantees, letters of credit and forward exchange contracts (refer
to Note 22).
Nedbank facility, comprising short-term facilities
As of June 30, 2023, the aggregate amount of
the Company’s short-term South African credit facility with Nedbank Limited was
ZAR
million), which include guarantees, letters of credit and forward exchange
contracts.
On November 2, 2020, the Company amended its short-term
South African credit facility with Nedbank Limited to
increase the
indirect
and
derivative
facilities
component
of
the
facility
from
ZAR
Company
further
amended
its short-term
South
African
credit facility
with Nedbank
Limited
to reduce
the indirect
and derivative
facilities component of the facility
from ZAR
facility. During the year ended June 30, 2022,
the Company cancelled its
overdraft facility of up to
ZAR
which was used to fund mobile ATMs
as it no longer operates a mobile ATM
service.
The Company
has entered
into cession
and pledge
agreements with
Nedbank related
to certain
of its
Nedbank credit
facilities
(the general banking
facility and a
portion of the
indirect facility) and
the Company has
ceded and pledged
certain bank accounts
to
Nedbank and also provided a cession of Lesaka SA’s
shareholding in Cell C. The funds included in these bank accounts are restricted
as they may not be withdrawn without the express permission of Nedbank.
The short-term facility
provided Nedbank with
the right to set off
funds held in certain
identified Company bank
accounts with
Nedbank against any amounts owed to Nedbank under the facility.
As of June 30, 2023, these facilities were no longer available.
As of June 30, 2023 and June 30,
2022, the Company had utilized approximately
ZAR
million ($
to enable the bank to issue guarantees, letters of credit and forward exchange
contracts (refer to Note 22).
On June 30,
2022, the Company’s
ZAR
2022, it was replaced with a ZAR
able to release
ZAR
guarantee issued by Nedbank, and the ZAR
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-45
12.
BORROWINGS (continued)
Movement in short-term credit facilities
Summarized below are the Company’s short-term facilities as of June 30, 2023, and the movement in the Company’s
short-term
facilities from as of June 30, 2022 to as of June 30, 2023:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of June
30, 2023
$
$
$
$
$
Overdraft
Overdraft restricted as to use for ATM
funding only
Indirect and derivative facilities
Movement in utilized overdraft facilities:
Balance as of June 30, 2021
Facilities acquired in transaction
-
-
16,903
-
16,903
Utilized
Repaid
(
517,948
)
(
6,189
)
(
1,322
)
(
525,459
)
Foreign currency adjustment
(1)
(
8,547
)
(
1,763
)
(
23
)
(
10,333
)
Balance as of June 30, 2022
Restricted as to use for ATM
funding only
No restrictions as to use
Utilized
Repaid
(
524,766
)
(
22,505
)
(
547,271
)
Foreign currency adjustment
(1)
(
5,154
)
(
1,812
)
(
6,966
)
Balance as of June 30, 2023
Restricted as to use for ATM
funding only
No restrictions as to use
Interest rate as of June 30, 2023 (%)
(2)
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2021
Utilized
Foreign currency adjustment
(1)
Balance as of June 30, 2022
Guarantees cancelled
(3)
(
5,017
)
(
5,017
)
Utilized
Foreign currency adjustment
(1)
(
117
)
(
525
)
(
642
)
Balance as of June 30, 2023
$
$
$
$
$
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less
%.
(3) Represents
the cancellation
of the guarantee
with supplier
amounting to
ZAR
required due the reduction in the volume and value of transactions processed.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-46
12.
BORROWINGS (continued)
Movement in long-term borrowings
Summarized below is the movement in the Company’s
long-term borrowing from as of June 30, 2022, to as of June 30, 2023:
Facilities
G & H
A&B
CCC/ K2020
Asset backed
Total
Opening balance as of June 30, 2021
$
$
$
$
$
Facilities acquired in transaction
Facilities utilized
Facilities repaid
(
4,492
)
(
933
)
(
156
)
(
5,581
)
Non-refundable fees paid
(
1,307
)
(
1,307
)
Non-refundable fees amortized
Foreign currency adjustment
(1)
(
8,112
)
(
7,864
)
(
1,002
)
(
550
)
(
17,528
)
Included in current
Included in long-term
Opening balance as of June 30, 2022
Facilities utilized
Facilities repaid
(
10,543
)
(
2,151
)
(
2,149
)
(
2,669
)
(
17,512
)
Non-refundable fees paid
(
500
)
(
100
)
(
600
)
Non-refundable fees amortized
Capitalized interest
5,078
-
-
-
5,078
Capitalized interest repaid
(514)
-
-
-
(514)
Foreign currency adjustment
(1)
(
8,672
)
(
8,889
)
(
1,716
)
(
921
)
(
20,198
)
Closing balance as of June 30, 2023
Included in current
Included in long-term
Unamortized fees
(
598
)
(
223
)
(
65
)
(
886
)
Due within 2 years
Due within 3 years
Due within 4 years
Due within 5 years
$
$
$
$
$
Interest rates as of June 30, 2023 (%):
Base rate (%)
Margin (%)
Footnote number
(2)(3)(4)
(5)
(6)
(7)
(
1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Prior
to the
amendment in March
2023, interest
on Facility G
was calculated
based on
the 3-month
JIBAR in
effect from
time to
time plus a margin
of (i)
% per annum until January
13, 2023; and then (ii) from
January 14, 2023, (x)
% per annum if the Facility
G balance outstanding
is less than
or equal to
ZAR
% per annum
if the Facility
G balance is between
ZAR
million to
ZAR
% per
annum if
the Facility
G balance
is greater
than ZAR
increase by a further
% per annum in the event of default (as defined in the Loan Documents).
(3) Prior to the amendment in
March 2023, interest on Facility
H is calculated based on JIBAR
in effect from time to
time plus a margin
of
% per annum which increases by a further
% per annum in the event of default (as defined in the Loan Documents).
(4) Interest on Facility
G and Facility H
is calculated based
on the 3-month
JIBAR in effect
from time to time
plus a margin
of, from
January 1, 2023:
(i)
% for as
long as the
aggregate balance under
the Facilities is
greater than ZAR
% if the
aggregate
balance under the Facilities is
equal to or less
than ZAR
% if the aggregate
balance
under the Facilities is less than ZAR
(5) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of
%, in effect from time to time.
(6) Interest is charged at prime plus
% per annum on the utilized balance.
(7) Interest is charged at prime plus
% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the caption interest
expense
on
the
consolidated
statement
of
operations
during
the
years
ended
June
30,
2023
and
2022,
was
$
respectively. There
was
interest expense during the years
ended June 30, 2023 and
2022, was $
facility fee
amortization during
the year
ended June
30, 2021.
Interest expense
incurred under
the Company’s
CCC/K2020 facility
relates
to
borrowings
utilized
to
fund
a
portion
of
the
Company’s
merchant
finance
loans receivable
and
interest
expense
of
$
million
and
$
statement of operations for the years ended June 30, 2023 and 2022, respectively.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-47
13.
OTHER PAYABLES
Summarized below is the breakdown of other payables as of June 30,
2023 and 2022:
June 30,
June 30,
2023
2022
Accruals
$
$
Provisions
Payroll-related payables
Participating merchants' settlement obligation
Value
-added tax payable
Vendor
consideration due to sellers of Connect (Note 3)
Other
$
$
Other includes transactions-switching funds payable, deferred income, client
deposits and other payables.
14.
COMMON STOCK
Common stock
Holders of shares of Lesaka’s common stock are entitled to receive dividends and other distributions when declared by Lesaka’s
board of
directors out
of legally
available funds.
Payment of
dividends and
distributions is
subject to
certain restrictions
under the
Florida Business Corporation Act, including
the requirement that after making
any distribution Lesaka must be
able to meet its debts
as they become due in
the usual course of
its business. Upon voluntary or
involuntary liquidation, dissolution or winding up
of Lesaka,
holders of
common stock
share ratably
in the
assets remaining
after payments
to creditors
and provision
for the
preference of
any
preferred
stock
according
to
its
terms.
There
are
no
pre-emptive
or
other
subscription
rights,
conversion
rights
or
redemption
or
scheduled installment payment provisions relating to shares
of common stock. All of
the outstanding shares of common stock
are fully
paid and non-assessable.
Each holder of
common stock is
entitled to one
vote per share
for the election
of directors and
for all other
matters to be
voted
on by shareholders. Holders
of common stock may
not cumulate their
votes in the
election of directors, and
are entitled to
share equally
and ratably in the dividends that may be declared by the board of directors, but only after payment of dividends required to be paid on
outstanding shares of preferred stock according to its terms. The shares of
Lesaka common stock are not subject to redemption.
Issue of shares to Connect sellers pursuant to April 2022 transaction
The total purchase consideration pursuant to the Connect
acquisition in April 2022 includes
common stock. These shares of
common stock will be issued
in
of the April 14, 2022 closing. The Company legally issued
Connect sellers in April 2023, and this had no impact on the
number of shares, net of treasury, presented in the consolidated statement
of changes during the year ended June 30, 2023 because the
of June 30, 2022, and 2023, respectively.
Impact of non-vested equity shares on number of shares,
net of treasury
The Company’s
number of
shares, net
of treasury,
presented in
the consolidated
balance sheets
and consolidated
statement of
changes in
equity includes
participating non-vested
equity shares (specifically
contingently returnable
shares) as described
below in
Note
17
“—
Amended
and
Restated
Stock
Incentive
Plan—Restricted
Stock—General
Terms
of
Awards”.
The
following
table
presents a reconciliation
between the number
of shares, net of
treasury,
presented in the
consolidated statement of
changes in equity
and the
number
of shares,
net of
treasury,
excluding non-vested
equity shares
that have
not vested
during the
years ended
June 30,
2023, 2022 and 2021:
2023
2022
2021
Number of shares, net of treasury:
Statement of changes in equity – common stock
Less: Non-vested equity shares that have not vested as of end of year (Note
17)
Number of shares, net of treasury excluding non-vested equity shares that have
not vested
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-48
14.
COMMON STOCK (continued)
Redeemable common stock issued pursuant to transaction with the IFC Investors
Holders of redeemable common
stock have all the rights enjoyed by
holders of common stock, however,
holders of redeemable
common
stock
have
additional
contractual
rights.
On
April
11,
2016,
the
Company
entered
into
a
Subscription
Agreement
(the
“Subscription Agreement”)
with International
Finance Corporation
(“IFC”), IFC
African, Latin
American and
Caribbean Fund,
LP,
IFC
Financial
Institutions
Growth
Fund,
LP,
and
Africa
Capitalization
Fund,
Ltd.
(collectively,
the
“IFC
Investors”).
Under
the
Subscription Agreement,
the IFC Investors purchased,
and the Company
sold in the
aggregate, approximately
the
Company’s
common
stock,
par
value
$
approximately $
put option discussed below.
On May
19, 2020,
the Africa
Capitalization Fund,
Ltd sold
its entire
holding of
stock and
therefore the
additional contractual
rights, including
the put
option rights
related to
these
Company reclassified $
during the year ended June 30, 2020.
On August 19, 202
2, the IFC Investors
filed an amended Form
13D/A, amendment no. 2,
with the United
States Securities and
Exchange
Commission
reporting
that
in
October
2017
and
February
2018,
the
IFC
sold
an
aggregate
of
Company’s
common
stock
and therefore
the
additional
contractual
rights,
including
the put
option
rights
related
to
these
shares,
expired.
The
Company
reclassified
$
additional paid-in-capital during the year ended June 30, 2022. Previously reported periods were not amended because the transaction
only impacted equity.
The Company has entered
into a Policy Agreement with
the IFC Investors (the
“Policy Agreement”). The
material terms of the
Policy Agreement are described below.
Board Rights
For so long as the IFC Investors in aggregate beneficially own shares representing at least
% of the Company’s common stock,
the IFC Investors will have the right to nominate one director to the Company’s board of directors. For so long as the IFC Investors in
aggregate beneficially
own shares representing
at least
% of the
Company’s
common stock, the
IFC Investors will
have the right
to appoint
an observer
to the
Company’s
board of
directors at
any time
when they
have not
designated, or
do not
have the
right to
designate, a director.
Put Option
Each IFC Investor will have
the right, upon the occurrence of specified
triggering events, to require the Company
to repurchase
all of the shares
of its common stock purchased by
the IFC Investors pursuant to
the Subscription Agreement (or upon exercise
of their
preemptive rights
discussed below).
Events triggering
this put
right relate
to (1)
the Company
being the
subject of
a governmental
complaint alleging, a court judgment finding or an indictment alleging that the Company (a) engaged in specified corrupt,
fraudulent,
coercive, collusive or obstructive practices; (b) entered into transactions with targets of economic sanctions; or (c) failed to operate its
business in compliance with anti-money laundering and anti-terrorism laws; or (2) the Company rejecting a bona fide offer to acquire
all of its outstanding Common Stock at a time when it has in place or implements a shareholder rights plan, or adopting a shareholder
rights plan triggered by a beneficial ownership
threshold of less than
twenty
price per
share paid
by the
IFC Investors
pursuant to
the Subscription
Agreement (or
paid when
exercising their
preemptive rights)
and the
volume weighted
average price
per share
prevailing for
the
respect to a put right triggered by rejection of a bona fide offer, the put price per share will be the highest price offered
by the offeror.
The Company believes that the
put option has no
value and, accordingly, has not recognized the put
option in its consolidated
financial
statements.
Registration Rights
The Company has agreed
to grant certain registration
rights to the IFC Investors
for the resale of their
shares of the Company’s
common stock, including filing a resale shelf registration statement and
taking certain actions to facilitate resales thereunder.
Preemptive Rights
For so long as the IFC Investors hold in
aggregate
% of the outstanding shares of common stock of
the Company, each Investor
will have the right to purchase its pro-rata share of new issuances of securities by the Company,
subject to certain exceptions.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-49
14.
COMMON STOCK (continued)
Common stock repurchases
Executed under share repurchase authorizations
On
February 5, 2020,
the
Company’s
Board
of Directors
approved
the replenishment
of its
share
repurchase
authorization
to
repurchase
up
to
an
aggregate
of
$
authorization will be
used at
management’s discretion, subject to
limitations imposed by
SEC Rule
10b-18 and other
legal requirements
and subject to price and other internal limitations established by
the Board. Repurchases will be funded from the Company’s available
cash.
Share repurchases
may be
made
through open
market purchases,
privately
negotiated
transactions,
or both.
There can
be no
assurance
that
the
Company
will
purchase
any
shares
or
any
particular
number
of
shares.
The
authorization
may
be
suspended,
terminated or
modified at
any time
for any
reason, including
market conditions,
the cost
of repurchasing
shares, liquidity
and other
factors that management deems appropriate.
The Company did
t repurchase any of its shares during
the years ended June 30, 2023
under
the
authorization,
however,
it did
repurchase
additional information
regarding these
repurchases. The
Company did
t repurchase
any of
its shares
during the
years ended
June
30,,
2022 and 2021, respectively,
either under or outside of the authorization.
15.
ACCUMULATED OTHER
COMPREHENSIVE (LOSS) INCOME
The table below
presents the change
in accumulated other
comprehensive (loss) income
per component during
the years ended
June 30, 2023, 2022 and 2021:
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2020
$
(
169,075
)
$
(
169,075
)
Release of foreign currency translation reserve: the disposal of Bank Frick
(Note 9)
(
2,462
)
(
2,462
)
Release of foreign currency translation reserve: liquidation of subsidiaries
Movement in foreign currency translation reserve related to equity-accounted
investment
(
1,967
)
(
1,967
)
Movement in foreign currency translation reserve
Balance as of July 1, 2021
(
145,721
)
(
145,721
)
Release of foreign currency translation reserve: disposal of Finbond
equity securities
(Note 9)
Release of foreign currency translation reserve: liquidation of subsidiaries
Movement in foreign currency translation reserve related to equity-accounted
investment
Movement in foreign currency translation reserve
(
25,413
)
(
25,413
)
Balance as of July 1, 2022
(
168,840
)
(
168,840
)
Release of foreign currency translation reserve: disposal of Finbond
equity securities
(Note 9)
Movement in foreign currency translation reserve related to equity
-accounted
investment
Movement in foreign currency translation reserve
(
31,183
)
(
31,183
)
Balance as of June 30, 2023
$
(
195,726
)
$
(
195,726
)
During
the
year
ended
June
30,
2023,
the
Company
reclassified
$
(accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to Note 9). During the
year ended
June 30, 2022,
the Company
reclassified $
currency translation reserve)
to net loss related to the
disposal of shares in Finbond
(refer to Note 9). During
the year ended June 30,
2021, the
Company reclassified
the following
amounts from
accumulated other
comprehensive loss
(accumulated foreign
currency
translation reserve) to
net loss: $
liquidation of subsidiaries.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-50
16.
REVENUE
The Company
is a
provider of
digitized cash
management solutions
and merchant
acquiring services,
including an
integrated
platform for
the distribution
of value-added
services; transaction
processing services;
financial inclusion
products and
services, and
secure payment technology. The
Company operates a
payment processor in South
Africa. The Company
offers debit, credit
and prepaid
processing and issuing services for all major payment networks. In South Africa, the Company provides innovative low-cost financial
inclusion products, including banking, lending and insurance.
Disaggregation of revenue
Certain revenue from the Company’s
legacy processing activities which were ceased during the year
ended June 30, 2021, have
not been allocated to the Company’s current reportable operating segments
and are presented as “Unallocated” in
the table for the year
ended June 30, 2021.
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2023:
Merchant
Consumer
Unallocated
Total
Processing fees
$
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic
locations
South Africa
Rest of world
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-51
16.
REVENUE (continued)
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2022:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic locations
South Africa
Rest of world
$
$
$
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2021:
Merchant
Consumer
Unallocated
Total
Processing fees
$
$
$
$
South Africa
Rest of world
Technology
products
Telecom products
and services
Lending revenue
Insurance revenue
Account holder fees
Other
Total revenue, derived
from the following geographic
locations
South Africa
Rest of world
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-52
17.
STOCK-BASED COMPENSATION
Amended and Restated Stock Incentive Plan
On September 7, 2022,
the Company’s
Board further amended and
restated the Company’s
Amended and Restated 2015
Stock
Incentive
Plan (“2015
Plan”), and
on November
16, 2022,
the Company’s
shareholders approved
the Amended
and Restated
2022
Stock Incentive Plan (“2022
Plan”). Amendments included:
(1) increasing the number
of shares available for
issuance by
;
(2) extending
the term of
the plan to
September 7,
2032; (3) addressed
the treatment
of equity awards
upon a change
in control;
(4)
clarified that
all equity
awards will
generally
have a
vesting period
of at
least one
year; (5)
included an
explicit prohibition
on the
payment
of dividends
and dividend
equivalents on
unvested
full value
awards;
(6)
clarified and
updated
repricing
restrictions;
(7)
included mandatory application of
our clawback policy to equity awards under
the 2022 Plan; and (8) removed deadwood
provisions
related to the “performance based
compensation” exemption under Section 162(m) of
the Internal Revenue Code
of 1986, as
amended.
No evergreen provisions are included in the 2022 Plan. This means that the maximum number of
shares issuable under the 2022
Plan is fixed
and cannot
be increased
without shareholder
approval, the plan
expires by
its terms upon
a specified date,
and no
new
stock
options
are
awarded
automatically
upon
exercise
of
an
outstanding
stock
option.
Shareholder
approval
is
required
for
the
repricing of awards or the implementation of any award exchange program.
The Plan permits Lesaka to grant to its employees, directors and consultants incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock, performance-based awards
and other awards based on its
common stock. The Remuneration
Committee of the Company’s Board
of Directors (“Remuneration Committee”) administers the Plan.
The total number
of shares of common
stock issuable under the
Plan is
. The maximum
number of shares for
which
stock options, stock appreciation rights
(other than performance-based awards
that are not options) may be granted
during a calendar
year
to any
participant
is
available for the grant of awards under the 2022 Plan, as well as shares that are delivered to us by the holder to pay withholding taxes
or as payment for
the exercise price of
an award, if permitted
by the Remuneration Committee.
The shares deliverable
in connection
with awards
granted under
the 2022
Plan may
consist, in
whole or
in part,
of authorized
but unissued
shares or
treasury shares.
To
account
for
stock
splits,
stock
dividends,
reorganizations,
recapitalizations,
mergers,
consolidations,
spin-offs
and
other
corporate
events, the 2022 Plan
requires the Remuneration Committee to
equitably adjust the number
and kind of shares
of common stock issued
or reserved pursuant to the plan or outstanding awards, the maximum number of shares
issuable pursuant to awards, the exercise price
for awards,
and other
affected terms
of awards
to reflect
such event.
No awards
may be
granted under
the Plan
after September
7,
2032, but awards granted on or before such date may extend to later dates.
Options
General Terms of
Awards
Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant,
with vesting conditioned upon the recipient’s continuous service through the applicable vesting date and expire
of grant. The options generally become exercisable in accordance with a
vesting schedule ratably over a period of
date of grant. The Company issues new shares to satisfy stock option award exercises but may
also use treasury shares.
Valuation
Assumptions
The
fair
value
of
each
option
is
estimated
on
the
date
of
grant
using the
Cox
Ross
Rubinstein
binomial
model
that
uses the
assumptions
noted
in
the
table
below.
The
estimated
expected
volatility
is
generally
calculated
based
on
the
Company’s
-day
volatility. The
estimated expected life of the
option was determined based on
the historical behavior of employees
who were granted
options with similar terms.
assumptions used to value options granted during the years ended June 30, 2022
and 2021:
2022
2021
Expected volatility
%
%
Expected dividends
%
%
Expected life (in years)
Risk-free rate
%
%
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-53
17.
STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock
General Terms of
Awards
Shares of restricted stock are
considered to be participating non-vested equity shares
(specifically contingently returnable shares)
for the
purposes of
calculating earnings per
share (refer
to Note
19) because, as
discussed in
more detail
below, the recipient is
obligated
to transfer any unvested
restricted stock back to
the Company for no
consideration and these shares
of restricted stock are
eligible to
receive non-forfeitable
dividend equivalents
at the
same rate as
common stock.
Restricted stock
generally vests
ratably over
a
circumstances, the achievement of certain performance targets,
as described below.
Recipients
are
entitled
to
all
rights
of
a
shareholder
of
the
Company
except
as
otherwise
provided
in
the
restricted
stock
agreements. These
rights include the
right to vote
and receive dividends
and/or other
distributions,
however, any
or all dividends
or
other
distributions
paid
related
to
restricted
stock
during
the period
of
such
restrictions
shall
be
accumulated
(without
interest)
or
reinvested in additional shares of common stock, which in either case shall be subject to the same restrictions as the underlying award
or such other restrictions as the Remuneration
Committee may determine.
The restricted stock agreements generally
prohibit transfer
of any
nonvested and
forfeitable restricted
stock. If a
recipient ceases
to be
a member
of the
Board of
Directors or
an employee
for
any reason,
all shares
of restricted
stock that
are not
then vested
and nonforfeitable
will be immediately
forfeited and
transferred to
the
Company
for
no
consideration.
Forfeited
shares
of
restricted
stock
are
available
for
future
issuances
by
the
Remuneration
Committee.
The Company issues new shares to satisfy restricted stock awards.
Valuation
Assumptions
The fair value
of restricted stock
is generally based
on the closing
price of the
Company’s stock
quoted on The
Nasdaq Global
Select Market on the date of grant.
Forfeiture of 150,000 shares
of restricted stock with Market Conditions awarded
in August 2017
In August 2017, the Remuneration Committee approved an award
of
shares of restricted
stock awarded to
executive officers
in August 2017
were subject to
a time-based vesting
condition and a
market
condition and would vest
in full only on
the date, if any,
that the following conditions
were satisfied: (1) the
price of the Company’s
common stock must equal or exceed certain agreed VWAP
levels (as described below) during a measurement period commencing on
the date that
it filed its Annual
Report on Form
10-K for the
fiscal year ended
June 30, 2020
and ending on
December 31, 2020
and
(2) the recipient
is employed by the
Company on a
full-time basis when
the condition in
(1) is met.
If either of
these conditions was
not satisfied, then
none of the
shares of restricted
stock would vest
and they would
be forfeited. The
$
an approximate
% increase, compounded annually,
in the price of the Company’s common stock on
Nasdaq over the $
price on August 23, 2017. The VWAP
levels and vesting percentages related to such levels were as follows:
●
Below $
%
●
At or above $
—
%
●
At or above $
—
%
●
At or above $
—
%
The
.
The fair
value of
these shares
of restricted
stock was calculated
utilizing a
Monte Carlo
simulation model
which was
developed for
the purpose
of the
valuation of
these shares.
For each
simulated share
price path,
the market
share price
condition was
evaluated to
determine whether
or not
the shares would
vest under
that simulation.
A standard
Geometric Brownian
motion process
was used
in
the forecasting
of the share
price instead of
a “jump diffusion”
model, as the
share price volatility
was more stable
compared to
the
highly volatile regime
of previous
years. Therefore, the
simulated share price
paths capture the
idiosyncrasies of the
observed Company
share price movements.
In scenarios where
the shares do not
vest, the final vested
value at maturity is
zero. In scenarios where
vesting occurs, the
final
vested value on maturity is
the share price on vesting date. The
value of the grant is the
average of the discounted vested
values. The
Company used an expected volatility of
%, an expected life of
approximately
, a risk-free rate ranging between
%
to
% and
calculated based on the Company’s
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-54
17.
STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Forfeiture of 150,000 shares
of restricted stock with Market Conditions awarded
in August 2017(continued)
On August 5, 2020,
the Company and its
then chief executive officer and
member of its board
of directors, Mr. Herman G. Kotzé,
entered into
a Separation
and Release of
Claims Agreement
(the “Separation
Agreement”). The
parties agreed
that Mr.
Kotzé’s
last
day
of
employment
with
the Company
would
be
September
30,
2020,
unless
terminated
earlier
by
the
Company
for
cause.
Upon
separation
from
the
Company,
Mr.
Kotzé
forfeited
described above
because he was
no longer
an employee of
the Company as
of the vesting
date. The
VWAP
market conditions were
not achieved and all outstanding shares of restricted stock were forfeited on December
31, 2020.
Market Conditions - Restricted Stock Granted in September 2018 –
all forfeited
In September 2018, the Remuneration Committee approved an award of
The
and a market
condition and vest
in full only
on the
date, if
any, that the following
conditions are
satisfied: (1) the
price of the
Company’s
common stock must equal or exceed certain agreed VWAP
levels (as described below) during a measurement period commencing on
the date that
it files its
Annual Report on
Form 10-K for
the fiscal year
ended June 30,
2021 and ending
on December 31,
2021 and
(2) the recipient is employed by the Company on a full-time basis when the
condition in (1) is met. If either of these conditions is not
satisfied,
then
none
of
the
shares
of
restricted
stock
will
vest
and
they
will
be
forfeited.
The
$
approximate
% increase,
compounded annually,
in the
price of
the Company’s
common stock
on Nasdaq
over the
$
price on September 7, 2018. The VWAP
levels and vesting percentages related to such levels are as follows:
●
Below $
%
●
At or above $
—
%
●
At or above $
—
%
●
At or above $
—
%
The fair value of these shares of restricted stock was calculated using a Monte
Carlo simulation of a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for the Company’s
VWAP
price, but also the observation of the strike structure of
volatility
(i.e.
skew
and
smile)
for
out-of-the
money
calls
and
out-of-the
money
puts
versus
at-the-money
options
for
both
the
Company’s stock and NASDAQ futures.
In scenarios where
the shares do not
vest, the final vested
value at maturity is
zero. In scenarios where
vesting occurs, the
final
vested value on maturity is the share price on
vesting date. In its calculation of the fair value
of the restricted stock, the Company used
an average volatility of
% for the VWAP
price, a discounting based on USD overnight indexed swap rates for
the grant date, and
no future dividends. The average volatility was extracted from the time series for VWAP prices as the standard deviation of log prices
for the
volatility process
were extracted
by regressing
log differences
against log
levels of
volatility from
the time
series for
at-the-money
options
During
the year
ended June
30, 2022,
an executive
officer forfeited
market conditions described above because the performance conditions were not met. During the year ended June 30, 2021, executive
officers forfeited
from the Company.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-55
17.
STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Performance Conditions - Restricted Stock Granted in February 2020
– all forfeited
The
performance-based
vesting
conditions
and
vest
in
full
only
on
the
date,
if
any,
that
the
following
conditions
are
satisfied:
(1)
the
achievement of an agreed return on average net equity per year during a measurement period commencing from July 1, 2021, through
June 30, 2023,
and (2) the recipient
is employed by the
Company on a full-time
basis when the
condition in (1) is
met. Net equity
is
calculated as total equity attributable to the Company’s
shareholders plus redeemable common stock, in conformity with GAAP.
The
net equity as of June 30, 2021, was set as the base year for the measurement period. The average net equity is calculated as the simple
average between
the opening
net equity
and closing
net equity
during each
fiscal year
within the
measurement period.
The targeted
return per year within the measurement period is derived from GAAP net income
attributable to the Company per fiscal year.
The performance-based awards
vest based on the achievement
of the following targeted
return on average net equity
during the
measurement period, of:
●
% per year:
% vest;
●
% per year:
% vest.
%. Calculation
of the
award based
on the
returns between
% and
% will be interpolated on a linear
basis. The Company’s Remuneration Committee was permitted to use its
discretion to adjust any component of the
calculation of the award on a fact-by-fact basis, for
instance, as the result of an acquisition.
During
the
year
ended
June
30,
2023,
an
executive
officer
forfeited
performance
conditions
because
the
performance
conditions
were
not
achieved.
During
the
year
ended
June
30,
2021,
executive
officers forfeited
from the Company.
Market Conditions - Restricted Stock Granted in May 2021 and
July 2021
In May
2021 and
July 2021,
respectively,
the Remuneration
Committee
approved
an award
of
restricted stock to executive officers. These shares of restricted stock awarded to executive officers are subject to a
time-based vesting
condition and a market condition and vest in full
only on the date, if any, that the following conditions are satisfied: (1) a
compounded
annual
% appreciation in the Company’s
stock price over the measurement period commencing on June
30, 2021 through June 30,
2024,
and
(2)
the
recipient
is
employed
by
the
Company
on
a
full-time
basis
when
the
condition
in
(1)
is
met.
If
either
of
these
conditions is not satisfied, then none of the shares
of restricted stock will vest and they will
be forfeited. The Company’s closing stock
price on Nasdaq on June 30, 2021, was $
.
The appreciation levels (times and price) and vesting percentages as of each
period ended related to such levels are as follows:
●
Prior to the first anniversary of the grant date:
%
●
Fiscal 2022, stock price as of June 30, 2022 is
:
%;
●
Fiscal 2023, stock price as of June 30, 2023 is
:
%;
●
Fiscal 2024, stock price as of June 30, 2024 is
) than $
:
%.
The fair value of these shares of restricted stock was calculated using a Monte
Carlo simulation of a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for
the Company’s closing price, but
also the observation of the strike structure of
volatility
(i.e.
skew
and
smile)
for
out-of-the
money
calls
and
out-of-the
money
puts
versus
at-the-money
options
for
both
the
Company’s stock and NASDAQ futures.
In scenarios where the
shares do not vest, the
final vested value at maturity
is zero. In scenarios where
vesting occurs, the final
vested value on maturity is the share price on
vesting date. In its calculation of the fair value
of the restricted stock, the Company used
an average
volatility of
% for the
closing price
(for each
of the
May 2021
and July 2021
awards), a
discounting based
on USD
overnight indexed swap rates for the grant date, and no future dividends. The average volatility was extracted from the time series for
closing prices as the standard deviation of log prices for the three years preceding the grant date. The mean reversion of volatility and
the volatility of volatility parameters of the stochastic volatility process were extracted by
regressing log differences against log levels
of volatility from the time series for at-the-money options
May 5, 2021 (for the May 2021 awards) and July 1, 2021 (for the July 2021 award).
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-56
17.
STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Performance Conditions - Restricted Stock Granted in July 2021
In July 2021, the Remuneration Committee approved an
award of
shares of restricted
stock are subject to
a time-based vesting
condition and a performance
condition and vest
in full only on
the date,
if any,
that the following
conditions are satisfied:
(1) achieving the
Company’s
measurement
period from
June 30,
2021, to
June 30,
2024, and
(2) the
recipient is
employed by
the Company
on a
full-time basis
when the condition in (1) is met. If either of these conditions are not satisfied, then none of the shares of restricted stock will vest and
they will be forfeited. The fair value of these shares of restricted stock was calculated
based on the market price on date of award.
Market Conditions - Restricted Stock Granted in December 2022
In December 2022, the Remuneration
Committee approved an award of
The
condition and vest
in full only
on the date,
if any, that the
following conditions are
satisfied: (1) a
compounded annual
% appreciation
in
the
Company’s
stock
price
off
a
base
price
of
$
December 1, 2025, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is
met. If either of
these conditions is not satisfied, then none of the shares of
restricted stock will vest and they will be
forfeited. The Company’s closing
price on December 1, 2022, was $
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
%;
●
Fiscal 2024, stock price as of December 1, 2023 is
:
%;
●
Fiscal 2025, stock price as of December 1, 2024 is
:
%;
●
Fiscal 2026, stock price as of December 1, 2025 is
) than $4.94:
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo
simulation.
In scenarios where
the shares do not
vest, the final vested
value at maturity is
zero. In scenarios where
vesting occurs, the
final
vested value on maturity is the share price on
vesting date. In its calculation of the fair value
of the restricted stock, the Company used
an equally
weighted volatility
of
% for
the closing
price (of
$
), a discounting
based on
U.S. dollar
overnight indexed
swap
rates for the grant date, and no
future dividends. The equally weighted
volatility was extracted from the
time series for closing prices
as the standard deviation of log prices for the three years preceding the grant date.
Restricted Stock Units
The Remuneration Committee
may approve the
grant of other
stock-based awards. In
April 2022, the
Company granted
shares
of
restricted
stock
to
employees
of
Connect
pursuant
to
the
terms
of
the
acquisition.
The
award
included
an
equalization
mechanism to
maintain a
return of
$
conversion of restricted stock units to shares cannot exceed
% under the terms of the award and therefore no more than
vested,
and
Employees elected
for
shares, in order
to satisfy the withholding
tax liability on
the vesting of
these shares. These
treasury shares.
Stock Appreciation Rights
The Remuneration Committee may also grant stock appreciation rights, either
singly or in tandem with underlying stock
options.
Stock appreciation rights entitle the holder upon exercise to receive an amount in any combination of cash or shares of common stock
(as determined by the Remuneration Committee)
equal in value to the
excess of the fair
market value of the shares
covered by the right
over the grant price.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-57
17.
STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for
the years ended June 30, 2023, 2022 and 2021:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - July 1, 2020
-
Granted – August 2020
Granted – November 2020
Exercised
(
17,335
)
-
-
Forfeited
(
729,484
)
-
Outstanding - June 30, 2021
Granted – February 2022
Exercised
(
249,521
)
-
-
Forfeited
(
256,706
)
-
Outstanding - June 30, 2022
Exercised
(
158,659
)
-
-
Forfeited
(
94,292
)
-
Outstanding - June 30, 2023
These options have an exercise price range of $
.
to employees during the
years ended June 30, 2022
and 2021, respectively.
On August 5, 2020, the Company
granted one of its non-
employee directors, Mr. Ali Mazanderani, in his capacity
as a consultant to
the Company,
of $
. These stock options were subject to the non-employee director’s continuous service through the applicable vesting date, and
half of
the options
vested on
each of
the first
and second
anniversaries of
the grant
date. The
stock options
expired unexercised
on
August 5, 2023.
During
the
years
ended
June
30,
2023,
2022
and
2021,
,
respectively. During the year ended June 30, 2023, an employee delivered
Company’s treasury stock.
The employee also elected to deliver
arising upon exercise of the stock options, and
these shares have also been included in
the Company’s treasury stock. During the years
ended
June 30,
2023, 2022
and 2021,
the Company
received approximately
$
exercise of
,
During
the
years
ended
June
30,
2023,
2022
and
2021,
employees
forfeited
,
,
and
respectively.
The number
of forfeitures
during the
year ended
June 30,
2021, increased
significantly compared
to prior
periods as
a
result of the closure of our IPG operations during the latter half of calendar 2020 and the unrelated (to
the IPG closure) resignation of
various employees
in the
first half
of calendar
2021. The
stock options
forfeited had
strike prices
ranging from
$
. In
addition, the Company’s former chief executive officer forfeited
per share following his separation from the Company during the year
ended June 30, 2021.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-58
17.
STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity
(continued)
Options (continued)
The following table presents stock options vested and expected to vest as of
June 30, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - June 30, 2023
These options have an exercise price range of $
.
The following table presents stock options that are exercisable as of June
30, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - June 30, 2023
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-59
17.
STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity
(continued)
Restricted stock
The following table summarizes restricted stock activity for the years
ended June 30, 2023, 2022 and 2021:
Number of shares of
restricted stock
Weighted average grant
date fair value
($’000)
Non-vested – July 1, 2020
Granted – May 2021
Total vested
(
311,300
)
Vested
– August 2020
(
244,500
)
Vested
– September 2020 - accelerated vesting
(
66,800
)
Total forfeitures
(
674,200
)
Forfeitures - employee terminations
(
644,200
)
Forfeitures – September 2018 awards with market conditions
(
30,000
)
Non-vested – June 30, 2021
Total granted
Granted – July 2021
Granted – August 2021
Granted – November and December 2021
Granted – December 2021
Granted – February 2022
Granted – March 2022
Granted – April 2022
Granted – May 2022
Total granted and vested - November and December 2021
-
-
Granted - November and December 2021
Vested
- November and December 2021
(
71,647
)
Total vested
(
61,861
)
Total forfeitures
(
105,542
)
Forfeitures - employee terminations
(
75,542
)
Forfeitures – September 2018 awards with market conditions
(
30,000
)
Non-vested – June 30, 2022
Total granted
Granted – July 2022
Granted – August 2022
Granted - November 2022
Granted - December 2022
Granted - January 2023
Granted - June 2023
Granted - December 2022 - performance awards
Total vested
(
742,464
)
Vested
– July 2022
(
78,801
)
Vested
– November 2022
(
59,833
)
Vested
– December 2022
(
7,060
)
Vested
– February 2023
(
19,179
)
Vested
– March 2023
(
69,286
)
Vested
– April 2023
(
418,502
)
Vested
– May 2023
(
61,861
)
Vested
– June 2023
(
27,942
)
Granted - December 2022
Vested
- December 2022
(
300,000
)
Total forfeitures
(
114,365
)
Forfeitures - employee terminations
(
34,365
)
Forfeitures – February 2020 award with market condition
(
80,000
)
Non-vested – June 30, 2023
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-60
17.
STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity (continued)
Restricted stock
Awards granted
In July 2022,
December 2022, January
2023 and June
2023, the Company
awarded
,
,
of restricted stock, respectively, to employees
and an executive officer which have time-based vesting conditions. In December
2022,
the Company awarded
conditions related to
share price performance) vesting
conditions. The Company
also agreed to match,
on a
-for-one basis, (1)
an
employee’s purchase of up to $
2022, the Company granted
shares
of
the
Company’s
common
stock,
and
in
November
2022,
the
Company
granted
employee.
These
shares
of
restricted
stock
contain
time-based
vesting
conditions.
The
Company
awarded
executive officer on December 31, 2022, which vested on the date
of the award.
On June 30, 2021, the Company
entered into employment agreements with
Mr. Chris G.B.
Meyer, under which
Mr. Meyer was
appointed Group Chief Executive Officer of the Company effective July
1, 2021. Mr. Meyer was awarded
stock on July
1, 2021, which were
subject to time-based
vesting and vest
in full on June
30, 2024, subject
to Mr.
Meyer’s continued
service to the
Company through June
30, 2024. In
addition, under the
terms of Mr. Meyer’s engagement, the
Company’s Remuneration
Committee also awarded Mr. Meyer
June 30,
2024 if
the performance
conditions are
met and
Mr.
Meyer remains
employed with
the Company
through June
30, 2024.
Vesting
of
half
of
these
awards,
or
services plan during the specific measurement period from June 30, 2021, to June 30, 2024, and the other half is subject to share price
growth
targets,
and only
vest if
the Company’s
share price
is $
awarded
service through
the applicable vesting
date, one
third of which
vests on each
of the first,
second and third
anniversaries of
the grant
date.
In
August
2021,
December
2021,
February
2022,
and
May
2022,
the
Company
awarded
,
,
shares of restricted stock, respectively, to employees which
have time and performance-based (market conditions
related to share price
performance) vesting conditions.
On
April
14,
2022,
the
Company
granted
Agreement. The
award includes
an equalization
mechanism to
maintain a
return of
$
through the issue of restricted stock units. The conversion of restricted stock units to shares cannot exceed
% under the terms of the
award.
Upon joining the Company, each of Messrs. Meyer and Lincoln C. Mali, were entitled to receive an award of shares of restricted
stock which were subject to them purchasing an agreed value of
shares (“matching awards”) in the market during a prescribed period
of time. However, these
executives were unable to
purchase shares in
the market during
that period due
to a Company-imposed
insider-
trading
restriction
placed
on
them.
On
November
15,
2021,
the
Company
amended
the
terms
of
these
awards
in
order
to
put
the
executives into an economically equivalent position, as follows:
(i) assume
that the
executives would
have purchased
their agreed
allocation within
their first
employment had they not been embargoed;
(ii) require the
executives to fulfill
their agreed allocations
within a short
period following release
of the Company’s
Quarterly
Report on Form 10-Q for the three months ended September 30, 2021;
(iii) to the
extent that the
price per share
actually paid is
greater than the
-day volume-weighted
average price (“VWAP”)
in
their respective first
months of employment, award
the executives a
top-up (“top up awards”)
which amounts to
the after-tax difference
between (a) number of shares purchased at
the
-day VWAP in their respective first months of employment and (b) number of
shares
purchased at the actual share price paid. The top-up will be settled as follows: (a)
% in shares of the Company’s common stock and
(b)
%, at the election of
the executive, as either shares
of the Company’s common stock or cash. The top
up awards were not subject
to any vesting conditions and vested immediately; and
(iv)
adjust the initial matching awards to the aggregate number of shares acquired in terms of (ii) and (iii). The matching awards
vest ratably over a period of three years commencing on the first anniversary
of the grant of the matching awards.
The
executives
acquired
shares
during
November
and
December
2021,
and
the
Company
granted
the
executives
matching
awards and
dates from when the
shares were acquired in
November and December 2021
to the anniversary of
the executive’s
date of joining the
Company. The shares
continue to vest ratably over three years on the applicable vesting date.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-61
17.
STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Awards granted
(continued)
Effective January 1,
2022, the Company agreed
to grant an advisor
shares in lieu of
cash for services provided
to the Company
during a contract term that will
expire on December 31, 2022.
The contract could have been terminated
early if certain agreed events
occur,
and the contract was mutually terminated in
November 2022 as no further services
were required. The advisor agreed to
receive
shares if the contract is
terminated early due to the
occurrence of the agreed events.
The
using an
agreed monthly
fee of
$
Select
Market.
The
Company
and
the
advisor
have
agreed
that
the
Company
will
issue
the
shares
to
the
advisor,
in arrears,
on
a
quarterly basis and that the shares
may not be transferred until the
earlier of December 31, 2022, or
the occurrence of the agreed event.
During each
of the years
ended June 30,
2023
and 2022, respectively,
the Company recorded
a stock-based compensation
charge of
$
The
May
2021
grants
comprise
condition (related
to share
price performance)
and time-based
vesting, and
including
based vesting.
The February
2020 grants
comprise
based vesting
and
vesting.
Awards vested
During the years ended June
30, 2023, 2022 and 2021,
respectively,
,
time-based vesting conditions vested.
The fair value of restricted stock
which vested during the years ended June
30, 2023, 2022 and
2021, was $
In July
2022,
satisfy the withholding tax liability on the vesting of
these shares. In May 2023,
vested and he elected for
in November and December 2022 and February, April, May and June 2023, an aggregate of
to employees vested and
they elected for
shares. These
) shares have been included in our treasury shares.
The
to above
and
date of joining the Company.
In connection with the
Company’s former
chief executive officer’s
separation, the Company agreed
to accelerate the vesting of
restricted stock vested on September 30, 2020.
Awards forfeited
During the year ended June 30, 2023,
condition (related to net asset
value targets) was not achieved.
During the year ended
June 30, 2023, employees
forfeited
of restricted stock following their termination of employment with the Company.
During
the
year
ended
June
30,
2022,
condition (related to share price performance) was not achieved and the
following termination of their employment.
The
2021, includes
the Company.
The
was not achieved.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-62
17.
STOCK-BASED COMPENSATION
(continued)
Stock-based compensation charge and unrecognized compensation
cost
The Company has
recorded a net stock
compensation charge
of $
June 30, 2023, 2022 and 2021, respectively,
which comprised:
Total
charge
Allocated to IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Year
ended June 30, 2023
Stock-based compensation charge
$
$
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(
364
)
(
364
)
Total - year ended June
30, 2023
$
$
$
Year
ended June 30, 2022
Stock-based compensation charge
$
$
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(
120
)
(
120
)
Total - year ended June
30, 2022
$
$
$
Year
ended June 30, 2021
Stock-based compensation charge
$
$
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(
1,086
)
(
1,086
)
Total - year ended June
30, 2021
$
$
$
The
stock-based
compensation
charges
and
reversal
have
been
allocated
to
selling,
general
and
administration
based
on
the
allocation of the cash compensation paid to the relevant employees.
As of June
30, 2023, the
total unrecognized
compensation cost related
to stock options
was approximately
$
the
Company
expects
to
recognize
over
approximately
.
As of
June
30,
2023,
the
total
unrecognized
compensation
cost
related to restricted stock awards was approximately $
.
Tax consequences
The Company
recorded a
deferred tax
asset of
approximately $
June 30, 2023 and June 30, 2022. As of June 30, 2023 and 2022,
the Company recorded a valuation allowance of approximately $
million and $
deduction would be utilized as it does not anticipate generating
sufficient taxable income in the United States. The Company
deducts
the difference
between
the market
value
on date
of exercise
by the
option recipient
and the
exercise
price
from income
subject to
taxation in the United States.
18.
INCOME TAX
Income tax provision
The table below presents
the components of (loss)
income before income taxes
for the years
ended June 30, 2023,
2022 and 2021:
2023
2022
2021
South Africa
$
(
21,308
)
$
(
31,266
)
$
(
30,825
)
United States
(
10,755
)
(
8,509
)
(
6,686
)
Liechtenstein
(
509
)
(
810
)
Other
(
203
)
Loss before income taxes
$
(
32,266
)
$
(
39,900
)
$
(
5,619
)
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-63
18.
INCOME TAX (continued)
Income tax provision (continued)
Presented below is the provision
for income taxes by location of
the taxing jurisdiction
for the years ended June 30, 2023,
2022
and 2021:
2023
2022
2021
Current income tax expense (benefit)
$
$
$
South Africa
United States
(
75
)
Other
Deferred taxation (benefit) charge
(
7,442
)
(
2,044
)
South Africa
(
7,490
)
(
2,154
)
(
2,039
)
United States
Other
(
406
)
Foreign tax credits generated – United States
Income tax (benefit) provision
$
(
2,309
)
$
$
The South African
corporate income tax
rate reduced from
% to
%, effective from
July 1, 2022,
for all of
the Company’s
South African
subsidiaries with
income tax
years commencing
on July
1, 2022.
The change
in the
income tax
rate was
enacted on
January 5, 2023,
and accordingly all deferred
taxes assets and
liabilities have been
remeasured to the
new tax rate.
This has resulted
in
the
inclusion
of
an
income
tax
benefit
of
$
statements of operations for each of the year ended June 30, 2023,
as a result of the reversal of a portion of the deferred tax assets and
liabilities recognized as
of December 31, 2022.
There were
2021.
The
Company’s
current income
tax
expense for
the year
ended June
30,
2023,
was higher
than
the previous
year
due
to
the
acquisition of Connect, which is profitable and generates taxable income.
The Company’s
deferred taxation
(benefit) charge
for the year
ended June
30, 2023,
was higher
than the previous
year due
to
the inclusion of
the deferred tax
benefit recorded related
to the amortization
of intangible assets recognized
due to the
acquisition of
Connect. The
amount for
the year
ended June
30, 2023,
also includes
a deferred
tax benefit
related to
an expense
paid by
Connect
before the
Company acquired
the business
and which
subsequently
determined to
be deductible
for tax
purposes of
approximately
$
South African wholly-owned subsidiaries and recorded a deferred taxation benefit related to these losses. However,
the Company has
created a valuation allowance for certain of these net operating
losses which reduced the deferred taxation benefit recorded.
A reconciliation
of income
taxes, calculated
at the
fully-distributed South
African income
tax rate
to the
Company’s
effective
tax rate, for the years ended June 30, 2023, 2022 and 2021, is as follows:
2023
2022
2021
Income taxes at fully-distributed South African tax rates
%
%
%
Movement in valuation allowance
(
17.66
)
%
(
22.05
)
%
(
250.16
)
%
Prior year adjustments
%
%
%
Foreign tax rate differential
(
0.02
)
%
%
%
Change in tax laws – South Africa
%
Non-deductible items
(
13.28
)
%
(
6.59
)
%
(
58.40
)
%
Capital gains differential
(
0.51
)
%
%
%
Release from FCTR
(
0.33
)
%
Income tax provision
%
(
0.83
)
%
(
134.55
)
%
Percentages included in
the 2022
and 2021 columns
in the
reconciliation of income
taxes presented above
are specifically impacted
by the loss incurred
by the Company
during the year
ended June 30, 202
2
and 2021. For
instance, for the year
ended June 30, 2022,
the income tax provision of $
%) multiplied by the net loss before tax of $(
).
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-64
18.
INCOME TAX (continued)
Income tax provision (continued)
Movement in the
valuation allowance for
the year
ended June
30, 2023, includes
allowances created related
to certain net
operating
losses
incurred
during
the
year.
Non-deductible
items
for
the
year
ended
June
30,
2023,
includes
the
goodwill
impairment
loss
recognized and interest expense incurred which the Company cannot deduct
for income tax purposes.
Movement in the valuation allowance
for the year ended
June 30, 2022, includes
allowances created related to
net operating losses
incurred during the
year. Non-deductible items for
the year ended
June 30,
2022, includes the
transaction costs related
to the acquisition
of Connect.
Movement in the valuation allowance
for the year ended
June 30, 2021, includes
allowances created related to
net operating losses
incurred during
the year.
Non-deductible items
for the
year ended
June 30,
2021, includes
the impact
of the
allowance for
doubtful
loans to equity
-accounted investments created
.
The foreign tax
rate differential
relates primarily to
the difference between
the fully-
distributed
South
African
income
tax
rate
and
the
rate
used
(
%)
to
measure
the
deferred
tax
liability
created
related
to
the
fair
adjustment to
the Company’s
investment in
MobiKwik (refer
to Note
9). The
capital gains
differential
for the
year ended
June 30,
2021, represents the impact of the reversal of the
deferred tax liability related to one of the Company’s
equity-accounted investments
following its impairment (refer to Note 9).
Deferred tax assets and liabilities
Deferred
income taxes
reflect the
temporary
differences
between
the
financial
reporting and
tax bases
of assets
and
liabilities
using enacted tax rates
in effect for the
year in which
the differences are expected
to reverse. The
primary components of the
temporary
differences that gave rise to the Company’s
deferred tax assets and liabilities as of June 30, and their classification, were as follows:
June 30,
June 30,
2023
2022
Total
deferred tax assets
Capital losses related to investments
$
$
Net operating loss carryforwards
Foreign tax credits
Provisions and accruals
FTS patent
Other
Total
deferred tax assets before valuation allowance
Valuation
allowances
(
109,120
)
(
117,101
)
Total
deferred tax assets, net of valuation allowance
Total
deferred tax liabilities:
Intangible assets
Investments
Other
Total
deferred tax liabilities
Reported as
Long-term deferred tax assets
Long-term deferred tax liabilities
Net deferred income tax liabilities
$
$
Increase in total net deferred income tax liabilities
Capital losses related to investments
Capital losses as of June 30,
2023 and 2022, comprises the
capital loss arising from the difference
between the amount paid for
Cell C in August 2017 and the its fair value as of the respective year end, of $
CPS in 2004
and the its
fair value
as of the
respective year
end, of
$
relates primarily to the impact of currency changes between the South African
Rand against the United States dollar.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-65
18.
INCOME TAX (continued)
Deferred tax assets and liabilities (continued)
Increase in total net deferred income tax liabilities (continued)
Net operating loss carryforwards
Net operating loss carryforwards have increased due
to losses incurred by certain of the Company’s
subsidiaries and the impact
of currency
changes between
the South
African
Rand against
the United
States dollar,
which
was partially
offset
by net
operating
losses carryforwards forfeited following the substantial liquidation
of certain of the Company’s subsidiaries.
Intangibles assets
Intangible assets include intangible assets recognized related to the acquisition of Connect during the year ended June 30,
2022 (refer to Note 3).
Investments
Investment
includes
our
investment
in
MobiKwik
(refer
to
Note
9),
and
there
were
no
adjustments
to
the
carrying
value
of
investment in MobiKwik during the year ended June 30, 2023.
Decrease in valuation allowance
At June
30, 20223,
the Company
had deferred
tax assets
of $
Management believes,
based on
the weight
of available
positive and
negative evidence
it is
more likely
than not
that the
Company
will realize the benefits of these deductible differences, net of the valuation allowance.
However, the amount of the deferred tax asset
considered realizable could be adjusted in the future if estimates of taxable
income are revised.
At June
30, 2023,
the Company
had a
valuation allowance
of $
assets to estimated
realizable value. The movement
in the valuation
allowance for the years
ended June 30, 2023
and 2022, is
presented
below:
Total
Capital losses
related to
investments
Net operating
loss carry-
forwards
Foreign tax
credits
Other
July 1, 2021
$
$
$
$
$
Charged to statement of operations
Reversed to statement of operations
(
301
)
(
167
)
(
66
)
(
68
)
Utilized
(
1
)
(
1
)
Foreign currency adjustment
(
9,493
)
(
5,126
)
(
4,097
)
(
270
)
June 30, 2022
Charged to statement of operations
Reversed to statement of operations
(
1,701
)
(
579
)
(
510
)
(
612
)
Change in tax rate - South Africa
(
2,351
)
(
1,190
)
(
1,161
)
Foreign currency adjustment
(
9,845
)
(
5,135
)
(
5,023
)
(
125
)
June 30, 2023
$
$
$
$
$
Net operating loss carryforwards and foreign tax credits
South Africa
Net operating loss generated are carried forward indefinitely,
however, South Africa has recently enacted
legislation similar to
the United States which limits the loss carryforward that may be used against future
taxable income to 80% of taxable income before
the net operating loss deduction.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-66
18.
INCOME TAX (continued)
Deferred tax assets and liabilities (continued)
Decrease in valuation allowance (continued)
United States
Net operating loss
generated are carried
forward indefinitely,
but the loss
carryforward that may
be used against
future taxable
income is limited to 80% of taxable income before the net operating loss deduction.
As of June 30, 2023, Lesaka had net operating loss carryforwards that will expire,
if unused, as follows:
Year
of expiration
U.S. net
operating loss
carry
forwards
$
Lesaka had
Uncertain tax positions
As of June 30, 2023 and 2022, the Company had
rate. The
Company files
income tax
returns mainly
in South
Africa,
Botswana, Namibia
and in
the U.S.
federal jurisdiction.
As of
June
30,
2023,
the
Company’s
South
African
subsidiaries
are
no
longer
subject
to
income
tax
examination
by
the
South
African
Revenue Service for periods before June 30,
2019. The Company is subject to income tax in other
jurisdictions outside South Africa,
none of which are individually material
to its financial position, statement of
cash flows, or results of operations.
The Company does
not expect the
change related to
unrecognized tax benefits
will have a
significant impact on
its results of
operations or financial
position
in the next 12 months.
19.
(LOSS) EARNINGS PER SHARE
The Company has
issued redeemable common
stock (refer to Note
14) which is redeemable
at an amount other
than fair value.
Redemption of a class of common stock
at other than fair value
increases or decreases the carrying amount
of the redeemable common
stock
and
is
reflected
in
basic
earnings
per
share
using
the
two-class
method.
There
were
no
redemptions
of
common
stock,
or
adjustments to the
carrying value of the
redeemable common stock during
the years ended
June 30, 2023,
2022 and 2021.
Accordingly,
the two-class method presented below does not include the impact of
any redemption.
Basic (loss) earnings per share
includes shares of restricted stock that
meet the definition of a
participating security because these
shares are eligible
to receive non
-forfeitable dividend
equivalents at the
same rate as
common stock.
Basic (loss) earnings
per share
has been calculated using the two-class method and basic (loss) earnings per share for the years ended June 30,
2023, 2022 and 2021,
reflects only
undistributed
earnings. The
computation below
of basic
(loss) earnings
per share
excludes the
net loss
attributable
to
shares of unvested restricted
stock (participating non-vested
restricted stock) from
the numerator and excludes
the dilutive impact of
these unvested shares of restricted stock from the denominator.
Diluted (loss)
earnings per
share have
been calculated
to give
effect to
the number
of shares
of additional
common stock
that
would have
been outstanding
if the
potential dilutive
instruments had
been issued
in each
period. Stock
options are
included in
the
calculation of diluted (loss) earnings per share utilizing the treasury
stock method and are not considered to be
participating securities,
as the
stock options
do not
contain non-forfeitable
dividend rights.
The calculation
of diluted
(loss) earnings
per share
includes the
dilutive effect
of a portion of
the restricted stock
granted to employees
during the current
and previous fiscal
periods as these
shares
of restricted
stock are
considered contingently
returnable shares
for the
purposes of
the diluted
(loss) earnings
per share
calculation
and the
vesting conditions
in respect
of a
portion of
the restricted
stock had
been satisfied.
The vesting
conditions are
discussed in
Note 17.
The Company
has excluded
employee
stock options
to purchase
calculation
of
diluted
loss
per
share
during
the
year
ended
June
30,
2023
and
2022,
respectively,
because
the
effect
would
be
antidilutive.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-67
19.
(LOSS) EARNINGS PER SHARE (continued)
The following
table presents net
loss attributable
to Lesaka
and the share
data used in
the basic and
diluted (loss)
earnings per
share computations using the two-class method for the years ended
June 30, 2023, 2022 and 2021:
2023
2022
2021
(in thousands except percent and per share data)
Numerator:
Net loss attributable to Lesaka
$
(
35,074
)
$
(
43,876
)
$
(
38,057
)
Undistributed loss
(
35,074
)
(
43,876
)
(
38,057
)
Percent allocated to common shareholders
(Calculation 1)
Numerator for loss per share: basic and diluted
$
(
33,407
)
$
(
43,006
)
$
(
37,825
)
Denominator
Denominator for basic loss per share:
weighted-average common shares outstanding
Effect of dilutive securities:
Stock options
Denominator for diluted loss per share: adjusted weighted average
common shares outstanding and assumed conversion
Loss per share:
Basic
$
(
0.56
)
$
(
0.75
)
$
(
0.67
)
Diluted
$
(
0.56
)
$
(
0.75
)
$
(
0.67
)
(Calculation 1)
Basic weighted-average common shares outstanding (A)
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest (B)
Percent allocated to common shareholders
Options
to
purchase
,
$
2022 and 2021,
respectively, but were not included
in the computation
of diluted (loss)
earnings per share
because the options’
exercise
prices were greater
than the average
market price of
the Company’s common shares.
The options, which
expire at various
dates through
February 3, 2032, were still outstanding as of June 30, 2023.
20.
SUPPLEMENTAL CASH
FLOW INFORMATION
Change in presentation of movement in finance loans receivable
on consolidated statement of cashflows
The movement in
accounts receivable and
finance loans receivable
were previously combined,
however, it was
determined during
the year ended June
30, 2023, to present the
movement in finance loans
receivable as a separate
caption. Previous periods have
been
restated.
The following table presents supplemental cash flow disclosures for
the years ended June 30, 2023, 2022 and 2021:
2023
2022
2021
Cash received from interest
$
$
$
Cash paid for interest
$
$
$
Cash paid for income taxes
$
$
$
As discussed in Note
17, during the year
ended June 30, 2023,
an employee exercised stock
options through the delivery
of
shares of
the Company’s
common stock
at the
closing price
on March
7, 2023
of $
These shares are included in
the Company’s total share count and the
amount is reflected as
treasury shares on the consolidated balance
sheet as of June 30, 2023 and consolidated statement of changes in equity for
the year ended June 30, 2023.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-68
20.
SUPPLEMENTAL CASH
FLOW INFORMATION
(continued)
Disaggregation of cash, cash equivalents and restricted cash
Cash, cash equivalents
and restricted cash
included on
the Company’s
consolidated statement
of cash flows
includes restricted
cash related to
cash withdrawn from
the Company’s
debt facilities to fund
ATMs.
This cash may
only be used
to fund ATMs
and is
considered restricted
as to
use and
therefore is
classified as
restricted cash.
Cash, cash
equivalents and
restricted cash
also includes
cash in certain bank
accounts that have been
ceded to Nedbank. As
this cash has been pledged
and ceded it may
not be drawn
and is
considered restricted as
to use
and therefore is
classified as
restricted cash as
well. Refer to
Note 12 for
additional information regarding
the Company’s
facilities. The following
table presents the disaggregation
of cash, cash equivalents
and restricted cash as
of June 30,
2023, 2022 and 2021:
2023
2022
2021
Cash and cash equivalents
$
$
$
Restricted cash
Cash, cash equivalents and restricted cash
$
$
$
Leases
The following
table presents
supplemental
cash flow
disclosure related
to leases
for the
years ended
June 30,
2023, 2022
and
2021:
2023
2022
2021
Cash paid related to lease liabilities
Operating cash flows from operating leases
$
$
$
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
$
$
21.
OPERATING SEGMENTS
Operating segments
The Company discloses segment information as reflected in the management
information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues.
The
Company
currently
has
Africa.
The
Company’s
reportable
segments
offer
different
products
and
services
and
require
different
resources
and
marketing
strategies but share the Company’s
assets.
The Merchant segment
includes activities related
to the provision
of goods and
services provided to
corporate and other juristic
entities. The Company
earns fees from
processing activities performed
for its customers
and revenue generated
from the distribution
of prepaid airtime. The Company provides cash management and payment services to
merchant customers through a digital vault (safe
asset) which
is located
at the
customer’s
premises and
through
which
the Company
is able
to provide
the services
which
generate
processing
fee
revenue.
The
Company
provides
its
customers
with
transaction
processing
services
that
involve
the
collection,
transmittal
and
retrieval
of all
transaction
data. This
segment
also
includes
sales of
hardware
and
licenses
to
customers.
Hardware
includes the sale of POS
devices, SIM cards and other
consumables which can occur on
an ad hoc basis. Licenses include
the right to
use certain technology developed by the Company.
The Consumer segment
includes activities related
to the provision
of financial services
to customers,
including a bank
account,
loans and
insurance products.
The Company
charges monthly
administration fees
for all
bank accounts.
Customers that
have a
bank
account managed by the Company are issued cards that can be utilized to withdraw funds at an ATM or to transact at a merchant point
of sale device (“POS”). The Company earns processing fees from transactions processed
for these customers. The Company also earns
fees
on
transactions
performed
by
other
banks’
customers
utilizing
its
ATM
or
POS.
The
Company
provides
short-term
loans
to
customers in South Africa
for which it
earns initiation and
monthly service fees.
The Company writes
life insurance contracts,
primarily
funeral-benefit policies, and policy holders pay the Company a monthly
insurance premium.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-69
21.
OPERATING SEGMENTS
(continued)
Reallocation of certain activities in Other to Merchant
During
the second
quarter
of fiscal
2023,
certain
processing
activities
performed
outside
South
Africa
which
were within
the
Company’s
Other
operating
segment
commenced
reporting
to
management
within
its
Merchant
operating
segment
as
part
of
the
integration
of Connect.
The Company
has allocated
these operations
from the
Other reporting
segment to
Merchant in its
reportable
segments during the second quarter of
fiscal 2023. The Company no
longer reports an Other
reporting segment and previously reported
information has been restated.
The reconciliation
of the
reportable segment’s
revenue to
revenue from
external customers
for the
years ended
June 30,
2023,
2022 and 2021, respectively,
is as follows:
Revenue
Reportable
Segment
Inter-segment
Unallocated
From external
customers
Merchant
$
$
$
-
$
Consumer
-
Unallocated
Total for the year
ended June 30, 2023
$
$
$
$
Merchant
$
$
$
-
$
Consumer
-
Total for the year
ended June 30, 2022
$
$
$
-
$
Merchant
$
$
$
-
$
Consumer
-
Unallocated
Total for the year
ended June 30, 2021
$
$
$
$
The
Company
evaluates
segment
performance
based
on
segment
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”), adjusted for items mentioned
in the next sentence
(“Segment Adjusted EBITDA”). The Company
does not allocate once-
off items, stock-based compensation
charges, certain lease
charges (“Lease adjustments”), depreciation
and amortization, impairment
of goodwill or other intangible
assets, other items (including gains
or losses on disposal
of investments, fair value adjustments
to equity
securities,
fair
value
adjustments
to
currency
options),
interest
income,
interest
expense,
income
tax
expense
or
loss
from
equity-
accounted
investments
to
its
reportable
segments.
Group
costs
generally
include:
employee
related
costs
in
relation
to
employees
specifically hired
for group
roles and
related directly
to managing
the US-listed
entity; expenditures
related to
compliance with
the
Sarbanes-Oxley Act of
2002; non-employee directors’
fees; legal
fees; group and
US-listed related
audit fees; and
directors and officer’s
insurance premiums.
Once-off items
represents non-recurring
expense items,
including costs
related to
acquisitions and
transactions
consummated
or
ultimately
not
pursued.
Unrealized
loss
FV
for
currency
adjustments
represents
foreign
currency
mark-to-market
adjustments
on
certain
intercompany
accounts.
The
Lease
adjustments
reflect
lease
charges
and
the
Stock-based
compensation
adjustments reflect stock-based compensation expense
and are both excluded from the calculation of Segment
Adjusted EBITDA and
are therefore
reported as
reconciling items
to reconcile
the reportable
segments’ Segment
Adjusted EBITDA
to the
Company’s
loss
before income tax expense.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-70
21.
OPERATING SEGMENTS
(continued)
The reconciliation of the reportable segments’ measures of profit or loss to loss before income taxes for the years ended June
30,
2023, 2022 and 2021, respectively,
is as follows:
2023
2022
2021
Reportable segments measure of profit or loss
$
$
(
9,028
)
$
(
20,551
)
Operating loss: Unallocated
(
10,899
)
Operating loss: Group costs
(
9,109
)
(
8,587
)
(
6,965
)
Once-off costs
(
1,922
)
(
8,088
)
(
6,618
)
Unrealized Loss FV for currency adjustments
(222)
-
-
Lease adjustments
(
2,906
)
(
3,955
)
(
4,148
)
Stock-based compensation charge adjustments
(
7,309
)
(
2,962
)
(
344
)
Depreciation and amortization
(
23,685
)
(
7,575
)
(
4,347
)
Impairment loss
(
7,039
)
Gain related to fair value adjustment to currency options
Gain on disposal of equity securities
Loss on disposal of equity-accounted investment (Note 9)
(
205
)
(
376
)
(
13
)
Change in fair value of equity securities (Note 3)
Loss on disposal of equity-accounted investment - Bank Frick (Note
9)
(
472
)
Interest income
Interest expense
(
18,567
)
(
5,829
)
(
2,982
)
Loss before income taxes
$
(
32,266
)
$
(
39,900
)
$
(
5,619
)
The following tables summarize segment information for the years ended
June 30, 2023, 2022 and 2021:
2023
2022
2021
Reportable segment revenue
Merchant
$
$
$
Consumer
Total reportable segment
revenue
Segment Adjusted EBITDA
Merchant
Consumer
(1)
(
21,674
)
(
25,962
)
Total Segment Adjusted
EBITDA
(
9,028
)
(
20,551
)
Depreciation and amortization
Merchant
Consumer
Subtotal: Operating segments
Group costs
Unallocated
Total
Expenditures for long-lived assets
Merchant
Consumer
Subtotal: Operating segments
Group costs
Total
$
$
$
(1) Consumer Segment Adjusted EBITDA for the year ended June 30, 2022, includes reorganization costs of $
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-71
21.
OPERATING SEGMENTS
(continued)
The segment
information as
reviewed by
the chief
operating decision
maker does
not include
a measure
of segment
assets per
segment as all of
the significant assets are
used in the operations
of all, rather than
any one, of the
segments. The Company does
not
have dedicated assets
assigned to a
particular operating segment.
Accordingly,
it is not meaningful
to attempt an arbitrary
allocation
and segment asset allocation is therefore not presented.
Long-lived assets based on their geographic location as of June 30, 2023,
2022 and 2021, are presented in the table below:
Long-lived assets
2023
2022
2021
South Africa
$
$
$
India - investment in MobiKwik (Note 9)
Rest of world
Total
$
$
$
22.
COMMITMENTS AND CONTINGENCIES
Capital commitments
As
of
June
30,
2023
and
2022,
the
Company
had
outstanding
capital
commitments
of
approximately
$
million, respectively.
Purchase obligations
As of June 30, 2023 and 2022, the Company had purchase obligations totaling $
purchase
obligations
as
of
June
30,
2023,
primarily
relate
to
POS
devices,
components
for
safe
assets
and
inventory
that
will
be
delivered to the Company and sold to customers in fiscal 2024.
Guarantees
The South African
Revenue Service and
certain of the
Company’s customers,
suppliers and other
business partners have
asked
the Company
to provide
them with
guarantees, including
standby letters
of credit,
issued by
South African
banks. The
Company is
required to procure these guarantees for these third parties to operate
its business.
Nedbank has
issued guarantees
to these
third parties
amounting to
ZAR
applicable
as
of
June
30,
2023)
thereby
utilizing
part
of
the
Company’s
short-term
facilities.
The
Company
pays
commission
of
between
% per annum to
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
RMB has
issued
guarantees
to
these
third
parties
amounting
to
ZAR
applicable as of June 30, 2023) thereby utilizing part of the Company’s
short-term facilities.
The Company has not recognized any obligation related to
these guarantees in its consolidated balance sheet as of
June 30, 2023.
The maximum potential
amount that the Company
could pay under
these guarantees is ZAR
exchange rates applicable
as of June 30, 2023).
As discussed in Note
12, the Company
has ceded and pledged
certain bank accounts
to Nedbank
as security
for these
guarantees
with an
aggregate value
of ZAR
applicable as
of June
30, 2023).
The guarantees
have reduced
the amount
available under
its indirect
and derivative
facilities in
the
Company’s short-term credit facility described
in Note 12.
Contingencies
The
Company
is
subject
to
a
variety
of
insignificant
claims
and
suits
that
arise
from
time
to
time
in
the
ordinary
course
of
business. Management
currently believes
that the
resolution of
these other
matters, individually
or in
the aggregate,
will not
have a
material adverse impact on the Company’s
financial position, results of operations or cash flows.
LESAKA TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2023 and 2022 and 2021
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-72
23.
RELATED PARTY
TRANSACTIONS
VCP Agreement
On March
22, 2022, Lesaka
and Lesaka SA
entered into
a Securities Purchase
Agreement (the
“VCP Agreement”)
with Value
Capital Partners Proprietary Limited (“VCP”) , a
significant shareholder,
whereby VCP will procure that one or more funds under
its
management (the “Purchasing Funds”)
will subscribe for, and
Lesaka will have
the obligation to
issue and sell
to the Purchasing
Funds,
ZAR
pay all outstanding
amounts in respect
of Facility H
on the maturity
date of such
facility, or
(iii) the market
capitalization
of Lesaka
on the
Nasdaq Capital
Market (based
on the
closing price
on such
exchange) falls
and remains
below the
U.S. dollar
equivalent of
ZAR
and covenants from Lesaka and Lesaka SA. In connection
with the VCP Agreement, Lesaka SA agreed to
pay VCP a commitment fee
in an amount equal to ZAR
On March 16, 2023, VCP,
Lesaka and Lesaka SA, entered into an agreement (the “VCP Amendment Agreement”) to amend the
maturity date under
the agreement with
VCP to December
31, 2025, in
order to align
such date with the
maturity date of
Facility H.
In connection with the VCP Amendment Agreement, Lesaka
SA agreed to pay VCP
an additional commitment fee in an
amount equal
to ZAR
% per annum
of the support
provided over the period
of the extension,
as a result of
the
amendment to the maturity date.
Additionally,
Lesaka, Lesaka SA
and VCP entered
into a Step-In
Rights Letter on
March 22, 2022
with RMB, which
provides
RMB with step
in rights to
perform the obligations
or enforce the
rights of Lesaka
and Lesaka SA
under the VCP
Agreement to the
extent that Lesaka and Lesaka SA fail to do so and do not remedy such failure within
two business days of notice of such failure.
Disgorgement proceeds from VCP in fiscal 2021
In late September 2020, VCP notified
the Company that it would make payment
to the Company related to the disgorgement
of
short-swing profits from the purchase of common stock by VCP pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended
and
the
Company’s
insider
trading
policy.
The
Company
recognized
these
proceeds
as
a
capital
contribution
from
shareholders and
recorded an
increase of
$
statement of changes in
equity for the year
ended June 30, 2021. The
gross proceeds of $
from financing activities in the Company’s
consolidated statement of cash flow for the year ended June 30, 2021.
*****************************
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 7 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Currency Exchange RateItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related StockholderItem 6. [reserved]Item 7. Management S Discussion and Analysis Of Financial Condition andNote 9 To Our Consolidated Financial Statements For Additional Information Regarding This GainItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting andItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That PreventPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related Transactions, and DirectorItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k SummaryNote 17 Amended and Restated Stock Incentive Plan Restricted Stock General Terms Of Awards . The Following TableNote 17. The Company Has Excluded Employee Stock Options To Purchase