The following discussion should be read in conjunction with our Annual Report on
Form 10-K for the year ended
Forward-looking statements
Some of the statements in this Form 10-Q constitute forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed, implied or inferred by these
forward-looking statements. Such factors include, among other things, those
listed under Item 1A.-"Risk Factors" in this report and in our Annual Report on
Form 10-K for the year ended
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.
You should read this Form 10-Q and the documents that we reference herein and
the documents we have filed as exhibits hereto and thereto and which we have
filed with the
Recent Developments
Impact of COVID-19
On
Business and operations
The restrictions limit movement of our customers and employees and govern the access that we and our customers and business partners have to our corporate head office and operating branches and offices. A number of our South African businesses have been classified as essential services and therefore we have been able to operate these businesses, including our EasyPay payment processing and value-added services operations, the operation of bank accounts and our national ATM network.
However, we were required to suspend our South African lending and other
financial services activities to the extent that they operate through branches,
and therefore we were prohibited from marketing and selling loans and other
financial products on a face-to-face basis from the end of
During the three months ended
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We are currently also prohibited from charging certain banking-related fees to
our South African customers. We estimate that we had to forgo cash withdrawal
fees of approximately
Our South African insurance business has not experienced a significant increase in benefit claims, however, its ability to write new policies has been impacted by the temporary closure of our financial services branches and the mandatory requirement for our employees to remain at home.
IPG has been adversely impacted by the pandemic as its business development activities have been negatively affected by travel restrictions and it has been unable to commence direct marketing and the launching of new products and services. Furthermore, the processing volumes on the merchants it does service were affected by the retail operation restrictions in many countries.
We incurred in expenses of approximately
We expect certain supply disruptions once government-imposed restrictions are lifted and there is an increase in consumer demand, however, we currently do not believe that these disruptions will significantly impact our operations.
Employees
We closed a number of our offices and operating locations in order to comply with government regulations and for the general well-being of our employees following the outbreak of the pandemic. Where possible, we have provided the necessary facilities (computer equipment, data cards etc.) for our employees to operate remotely. We have provided the necessary protective equipment and sanitization facilities for those employees that continue to operate within our offices and operating locations.
Cash resources and liquidity
We believe we have sufficient cash reserves to support us through the next
twelve months following the disposal of Net1
Our cash generation will be impacted by our inability to operate unhindered and
by fewer customers visiting our financial services locations. We expect that our
South African cash reserves will increase over the next five months as our
lending book unwinds and repayments are received but we expect to redeploy these
cash reserves back into our lending business as soon as we are able to lend
directly again. Our lending book peaked at approximately
We believe that our South African insurance business is adequately capitalized and do not expect to have to provide additional funding to the business in the foreseeable future. We will continue to fund our European initiatives until they return to profitability.
Financial position and impairments
We do not believe that the pandemic has significantly impacted the carrying value of long-lived assets and equity method investments to date. We recorded non-COVID-19 related impairments in respect of certain of our equity-method investments - refer to Note 7 to our unaudited condensed consolidated financial statements and "-Critical Accounting Policies" below.
Control environment
We do not expect the pandemic to have a significant impact on our internal control environment.
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While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact on our customers and other factors identified in Part II, Item 1A. "Risk Factors-The COVID-19 pandemic has disrupted our business and results of operations. We are unable to ascertain the impact the pandemic will have on our future financial position, operations, cash flows and stock price." in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.
Financial Inclusion Activities in
Having taken dramatic steps to reduce costs in our South African operations in
fiscal 2019, our focus in fiscal 2020 has been to transition our South African
financial inclusion activities towards a business-to-consumer, or B2C, model. We
have developed new banking products in cooperation with Finbond and stabilized
our financial services offerings, while continuing to make our distribution and
infrastructure more efficient. Our ability to expand our account base and
financial services offerings have been constrained by the availability of
sufficient liquidity through
Under the government-imposed restrictions due to COVID-19, we have been unable
to grow our loan book during the lock down period as the face-to-face marketing
and sales of loan and other financial products is prohibited, as well as having
to waive fees on certain types of essential services such as ATM withdrawals by
grant recipients during the lockdown period. The collectability and operations
of existing loans have continued and we have not observed any operational or
risk changes to our customer repayment behavior to date. As a result of these
events, our loan book will shrink over the next quarter because loans will be
repaid but not reissued. During the third quarter of fiscal 2020, we launched
new loan products in collaboration with Finbond utilizing their balance sheet.
These loans are to the higher , Living Standard Measure, or LSM, customers and
therefore the first of our efforts to move up to a higher income customer
segment. This initiative is also affected by the current lockdown regulations.
We continue to work with
International Activities
IPG - IPG has completed its restructuring, and its newly developed issuing,
acquiring and processing products, together with its new brand are ready for
deployment.
We will continue to collaborate with
Carbon - Prior to the outbreak of the COVID-19 pandemic and its resulting impact
in
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It has been contribution margin positive since
Progress on corporate activities
We have executed a number of corporate actions in accordance with our strategic review over the past nine months:
Sale of KSNET in
Disposal of DNI - On
Cell C - We continued to carry the value of our Cell C investment at
SASSA Contract Expiration
Although we have not been involved operationally with SASSA since
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in
accordance with
Critical accounting policies are those that reflect significant judgments or
uncertainties, and potentially may result in materially different results under
different assumptions and conditions. We have identified the following critical
accounting policies that are described in more detail in our Annual Report on
Form 10-K for the year ended
º Valuation of investment in Cell C; º Business combinations and the recoverability of goodwill; º Intangible assets acquired through acquisitions; º Deferred taxation; º Stock-based compensation; º Accounts receivable and allowance for doubtful accounts receivable; and º Accounting for transactions followingSeptember 2019 Supreme Court ruling.
In addition, we identified the following policy with respect to the recoverability of equity-accounted investments as a new critical accounting policy.
Recoverability of equity-accounted investments
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We review our 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. The determination of the fair value
of our equity-accounted investments requires us to make significant judgments
and estimates. In determining the fair value of certain of our equity-accounted
investments, we have considered (i) for DNI specifically, the fair value of
consideration received on
We performed an impairment assessment as of
Recent accounting pronouncements adopted
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted as of
Refer to Note 1 to our unaudited condensed consolidated financial statements for
a full description of recent accounting pronouncements not yet adopted as of
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 Three months ended Nine months ended Year end March 31, March 31, June 30, 2020 2019 2020 2019 2019
ZAR : $ average exchange rate 15.3728 14.0207 14.9191 14.1319 14.1926 Highest ZAR : $ rate during period 17.9224 14.6337 17.9224 15.4335 15.4335 Lowest ZAR : $ rate during period 13.9996 13.3064 13.8973 13.1528 13.1528 Rate at end of period
17.8922 14.4789 17.8922 14.4789 14.0840 [[Image Removed]] 55
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Translation exchange rates for financial reporting purposes
We are required to translate our results of operations from ZAR to
Three months ended Nine months ended Year end Table 2 March 31, March 31, June 30, 2020 2019 2020 2019 2019
Income and expense items:
Balance sheet items:
Results of operations
The discussion of our consolidated overall results of operations is based on
amounts as reflected in our unaudited consolidated financial statements which
are prepared in accordance with
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 presented in our consolidated financial statements is included in Note 19 to those statements.
We disposed of our Korean operation in the third quarter of fiscal 2020 and it
has been presented as a discontinued operation for fiscal 2020 and 2019. We used
the equity method to account for DNI in fiscal 2020 and accounted for DNI as a
discontinued operation in fiscal 2019. We disposed of FIHRST during the second
quarter of fiscal 2020 and its contribution to our reported results is excluded
from
We analyze our business and operations in terms of three inter-related but independent operating segments: (1) South African transaction processing, (2) International transaction processing and (3) Financial inclusion and applied technologies. In addition, corporate and corporate office activities that are impracticable to ascribe directly to any of the other operating segments, as well as any inter-segment eliminations, are included in corporate/eliminations.
Third quarter of fiscal 2020 compared to third quarter of fiscal 2019
The following factors had a significant impact on our results of operations for our continuing operations during the third quarter of fiscal 2020 as compared with the same period in the prior year:
• Higher revenue: Our revenues increased 8% in ZAR primarily due to higher South African transaction fees, partially offset by lower ad-hoc technology sales and lower processing volumes at IPG;
• Ongoing operating losses: While operating costs have reduced significantly, we
continue to experience operating losses in
• Adverse foreign exchange movements: The
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Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with
The following tables show the changes in the items comprising our statements of
operations, both in
In United States Dollars Table 3 (US GAAP) Three months ended March 31, 2020(A) 2019(A) (as restated)(B) $ % $ '000 $ '000 change Revenue 36,514 36,586 (0%) Cost of goods sold, IT processing, servicing and support 25,783 29,423 (12%) Selling, general and administration 17,454 27,597 (37%) Depreciation and amortization 1,153 3,342 (65%) Impairment loss 6,336 - nm Operating loss (14,212) (23,776) (40%) Change in fair value of equity securities - (26,263) nm Interest income 570 1,204 (53%) Interest expense 1,886 3,092 (39%) Impairment of Cedar Cellular note - 2,622 nm Loss before income taxes (15,528) (54,549) (72%) Income tax expense (benefit) 640 (3,551) nm Net loss before loss from equity-accounted investments (16,168) (50,998) (68%) Loss from equity-accounted investments (32,193) (537) 5,895% Net loss from continuing operations (48,361) (51,535) (6%) Net income from discontinued operations 747 1,163 (36%) Gain (Loss) from disposal of discontinued operations, net of tax 12,733 (9,175) nm Net loss (34,881) (59,547) (41%) Less net income attributable to non-controlling interest - (728) nm Continuing - (485) nm Discontinued - (243) nm Net (loss) income attributable to us (34,881) (58,819) (41%) Continuing (48,361) (51,050) (5%) Discontinued 13,480 (7,769) nm
(A) Refer to Note 2 to the unaudited condensed consolidated financial statements for discontinued operations disclosures. (B) Refer to Note 1.
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In South African Rand Table 4 (US GAAP) Three months ended March 31, 2020(A) 2019(A) (as restated)(B) ZAR % ZAR '000 ZAR '000 change Revenue 561,100 518,504 8% Cost of goods sold, IT processing, servicing and support 396,200 416,989 (5%) Selling, general and administration 268,210 391,110 (31%) Depreciation and amortization 17,718 47,363 (63%) Impairment loss 97,363 - nm Operating loss (218,391) (336,958) (35%) Change in fair value of equity securities - (372,204) nm Interest income 8,759 17,064 (49%) Interest expense 28,982 43,820 (34%) Impairment of Cedar Cellular note - 37,160 nm Loss before income taxes (238,614) (773,078) (69%) Income tax expense (benefit) 9,835 (50,325) nm Net loss before loss from equity-accounted investments (248,449) (722,753) (66%) Loss from equity-accounted investments (494,700) (7,610) 6,401%
Net loss from continuing operations (743,149) (730,363) 2% Net income from discontinued operations 11,479
16,482 (30%) Gain (Loss) from disposal of discontinued operations, net of tax 195,664 (130,030) nm Net loss (536,006) (843,911) (36%) Less net income attributable to non-controlling interest - (10,317) nm Continuing - (6,874) nm Discontinued - (3,443) nm
Net (loss) income attributable to us (536,006) (833,594) (36%) Continuing
(743,149) (723,489) 3% Discontinued 207,143 (110,105) nm
(A) Refer to Note 2 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.
(B) Refer to Note 1.
The increase in revenue was primarily due to an increase in South African transaction fees, driven primarily by an increase in ATM transaction volumes, but partially offset by a lower contribution from IPG and fewer technology sales.
The decrease in cost of goods sold, IT processing, servicing and support was primarily due to lower costs incurred to operate our South African infrastructure, following the extensive restructuring performed last year.
The decrease in selling, general and administration expense was primarily due to
lower costs incurred by our
Depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated during the third quarter of fiscal 2020.
During the third quarter of fiscal 2020, we recorded an impairment loss of
Our operating loss margin for the third quarter of fiscal 2020 and 2019 was (38.9%) and (65.0%), respectively. We discuss the components of operating income margin under "-Results of operations by operating segment."
There was no change in the fair value of equity securities during the third
quarter of fiscal 2020. We continue to carry our investment in Cell C at
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Interest on surplus cash decreased to
Interest expense decreased to
During the third quarter of fiscal 2019, we recorded an impairment loss of
Fiscal 2020 tax expense was
Our effective tax rate for fiscal 2019 was adversely impacted by the valuation
allowances created related to the deferred tax assets recognized regarding net
operating losses incurred by our South African businesses, non-deductible
impairment losses, and non-deductible expenses, including transaction-related
expenditure, non-deductible interest on our South African long-term debt
facility, and the tax expense recorded by our profitable businesses in
DNI was accounted for using the equity method during the third quarter of fiscal 2020. Finbond is listed on theJohannesburg Stock Exchange and reports its six-month results during our first quarter and its annual results during our fourth quarter. The table below presents the relative (loss) earnings from our equity accounted investments: Table 5 Three months ended March 31, 2020 2019 $ % $ '000 $ '000 change DNI (10,852) - nm Share of net income 1,563 - nm Amortization of intangible assets, net of deferred tax (419) - nm Impairment (11,996) - nm Bank Frick (18,393) (90) 20,337% Share of net income 15 52 (71%) Amortization of intangible assets, net of deferred tax (147) (142) 4% Impairment (18,261) - nm Other (2,948) (447) 560% Share of net loss (448) (447) 0% Impairment (2,500) - nm (32,193) (537) 5,895%
Refer to Note 7 of our unaudited condensed consolidated financial statements for additional information related to the impairment of certain of our equity-accounted investments.
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Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating income are illustrated below:
Table 6 In United States Dollars (US GAAP) Three months ended March 31, 2020 % of 2019 % of Operating Segment $ '000 total $ '000 total % change Consolidated revenue: South African transaction processing 19,883 36% 17,374 20% 14% International transaction processing 20,608 37% 34,358 40% (40%) Continuing 1,564 3% 2,302 3% (32%) Discontinued 19,044 34% 32,056 37% (41%) Financial inclusion and applied technologies 17,651 32% 36,650 42% (52%) Continuing 17,651 32% 18,808 21% (6%) Discontinued - - 17,842 21% nm Subtotal: Operating segments 58,142 142% 88,382 142% (34%) Corporate/Eliminations (2,584) (42%) (1,898) (42%) 36% Total consolidated revenue 55,558 100% 86,484 100% (36%) Continuing 36,514 66% 36,586 42% (0%) Discontinued 19,044 34% 49,898 58% (62%) Consolidated operating (loss) income: nm South African transaction processing (8,668) 68% (12,954) 60% (33%) International transaction processing (415) 3% 1,909 (9%) nm Continuing (3,168) 25% (1,939) 9% 63% Discontinued 2,753 (22%) 3,848 (18%) (28%) Financial inclusion and applied technologies (927) 7% 3,227 (15%) nm Continuing (927) 7% (4,911) 23% (81%) Discontinued - - 8,138 (38%) nm Subtotal: Operating segments (10,010) 81% (7,818) 27% 28% Corporate/eliminations (2,686) 19% (13,865) 73% (81%) Continuing (1,449) 9% (3,972) 27% (64%) Discontinued (1,237) 10% (9,893) 46% (87%) Total consolidated operating (loss) income (12,696) 100% (21,683) 100% (41%) Continuing (14,212) 112% (23,776) 110% (40%) Discontinued 1,516 (12%) 2,093 (10%) (28%) 60
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Table 7 In South African Rand (US GAAP) Three months ended March 31, 2020 % of 2019 % of Operating Segment ZAR '000 total ZAR '000 total % change Consolidated revenue: South African transaction processing 305,536 36% 246,228 20% 24% International transaction processing 316,677 37% 486,928 40% (35%) Continuing 24,034 3% 32,624 3% (26%) Discontinued 292,643 34% 454,304 37% (36%) Financial inclusion and applied technologies 271,238 32% 519,411 42% (48%) Continuing 271,238 32% 266,551 21% 2% Discontinued - - 252,860 21% nm Subtotal: Operating segments 1,210,128 142% 1,739,495 142% (30%) Corporate/Eliminations (39,708) (42%) (26,899) (42%) 48% Total consolidated revenue 853,743 100% 1,225,669 100% (30%) Continuing 561,100 66% 518,504 42% 8% Discontinued 292,643 34% 707,164 58% (59%) Consolidated operating (loss) income: nm South African transaction processing (133,199) 68% (183,587) 60% (27%) International transaction processing (6,377) 3% 27,055 (9%) nm Continuing (48,682) 25% (27,480) 9% 77% Discontinued 42,305 (22%) 54,535 (18%) (22%) Financial inclusion and applied technologies (14,245) 7% 45,734 (15%) nm Continuing (14,245) 7% (69,600) 23% (80%) Discontinued - - 115,333 (38%) nm Subtotal: Operating segments (153,821) 81% (110,798) 27% 39% Corporate/eliminations (41,275) 19% (196,498) 73% (79%) Continuing (22,266) 9% (56,292) 27% (60%) Discontinued (19,009) 10% (140,206) 46% (86%) Total consolidated operating (loss) income (195,096) 100% (307,296) 100% (37%) Continuing (218,392) 112% (336,958) 110% (35%) Discontinued 23,296 (12%) 29,662 (10%) (21%)
South African transaction processing
The increase in segment revenue was primarily due to an increase in transactions
performed through our ATM network, but partially offset by lower fees as a
result of fewer EPE and SASSA accounts. Our revenue for the third quarter of
fiscal 2020 was adversely impacted by
Our operating loss margin for the third quarter of fiscal 2020 and 2019 was
(43.6%) and (74.6%), respectively. Our operating loss margin for the third
quarter of fiscal 2020 excluding the goodwill impairment of
International transaction-based activities
Segment revenue from continuing operations was lower during the third quarter of fiscal 2020, primarily due to an ongoing contraction in IPG transaction volumes. Operating loss from continuing operations during the third quarter of fiscal 2020 increased compared with fiscal 2019 due to higher operating losses incurred by IPG, reflecting the high fixed costs component of the business.
Our operating loss margin for the third quarter of fiscal 2020 and 2019 was (202.6%) and (84.2%), respectively.
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Financial inclusion and applied technologies
In ZAR, segment revenue from continuing operations increased modestly primarily
due to higher terminal sales and insurance revenue. Lending and prepaid sales
were consistent with the third quarter of fiscal 2019. Operating income for the
third quarter of fiscal 2019 included retrenchment costs of
Our operating income margin from continuing operations for the Financial inclusion and applied technologies segment was (5.3%) and (26.1%) during the third quarter of fiscal 2020 and 2019, respectively.
Corporate/Eliminations
Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to acquisitions and investments pursued; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors' fees; employee and executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer's insurance premiums; telecommunications expenses; and elimination entries.
Our corporate expenses decreased primarily due to lower acquired intangible
asset amortization expense related to intangible assets that were fully
amortized during fiscal 2019 and unrealized foreign currency gains recorded
resulting from the strengthening of the
Year to date fiscal 2020 compared to year to date fiscal 2019
The following factors had a significant impact on our results of operations for our continuing operations during the year to date fiscal 2020 as compared with the same period in the prior year:
• Decline in revenue: Our revenues declined 6% in ZAR primarily due to the expiration of our SASSA contract, the decline in EPE account numbers driven by SASSA's auto-migration of accounts to SAPO, and a reduction in EPE-related financial and value-added services and transaction fees due to a smaller customer base, but partially offset by higher terminal and prepaid airtime sales;
• Ongoing operating losses: We continue to experience operating losses primarily
in
• Gain on disposal of FIHRST: We recorded a gain of
• Higher net interest expense: Net interest expense increased due to lower average cash balances and higher short-term borrowing to fund ATMs and utilization of our overdrafts, but was partially offset by the repayment of our long-term debt in the second half of fiscal 2019;
• Adverse foreign exchange movements: The
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Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with
The following tables show the changes in the items comprising our statements of
operations, both in
Table 8 In United States Dollars (US GAAP) Nine months ended March 31, 2020(A) 2019(A) (as restated)(B) $ % $ '000 $ '000 change Revenue 125,019 149,174 (16%) Cost of goods sold, IT processing, servicing and support 86,606 103,471 (16%) Selling, general and administration 59,494 111,004 (46%) Depreciation and amortization 3,651 9,084 (60%) Impairment loss 6,336 8,191 (23%) Operating loss (31,068) (82,576) (62%) Change in fair value of equity securities - (42,099) nm Gain on disposal of FIHRST 9,743 - nm Interest income 2,015 4,436 (55%) Interest expense 6,362 8,201 (22%) Impairment of Cedar Cellular note - 5,354 nm Loss before income taxes (25,672) (133,794) (81%) Income tax expense 2,317 (5,344) nm Net loss before loss from equity-accounted investments (27,989) (128,450) (78%) Loss from equity-accounted investments (30,624) (353) 8,575%
Net loss from continuing operations (58,613) (128,803) (54%) Net income from discontinued operations 6,402
12,358 (48%) Gain (Loss) from disposal of discontinued operations, net of tax 12,733 (9,175) nm Net loss (39,478) (125,620) (69%) Less (Add) net income (loss) attributable to non-controlling interest - 2,339 nm Continuing - (1,362) nm Discontinued - 3,701 nm
Net (loss) income attributable to us (39,478) (127,959) (69%) Continuing
(58,613) (127,441) (54%) Discontinued 19,135 (518) nm
(A) Refer to Note 2 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.
(B) Refer to Note 1.
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Table 9 In South African Rand (US GAAP) Nine months ended March 31, 2020(A) 2019(A) (as restated)(B) ZAR % ZAR '000 ZAR '000 change Revenue 1,995,253 2,128,295 (6%) Cost of goods sold, IT processing, servicing and support 1,382,198 1,476,241 (6%) Selling, general and administration 949,500 1,583,717 (40%) Depreciation and amortization 58,268 129,603 (55%) Impairment loss 101,120 116,863 (13%) Operating loss (495,833) (1,178,129) (58%) Change in fair value of equity securities - (600,635) nm Gain on disposal of FIHRST 155,494 - nm Interest income 32,159 63,290 (49%) Interest expense 101,535 117,005 (13%) Impairment of Cedar Cellular note - 76,387 nm Loss before income taxes (409,715) (2,035,446) (80%) Income tax expense 36,978 (76,244) nm Net loss before loss from equity-accounted investments (446,693) (1,959,202) (77%) Loss from equity-accounted investments (488,747) (5,036) 9,605%
Net loss from continuing operations (935,440) (1,964,238) (52%) Net income from discontinued operations 102,173
176,314 (42%) Gain (Loss) from disposal of discontinued operations, net of tax 203,214 (130,902) nm Net loss (630,053) (1,918,826) (67%) Less (Add) net income (loss) attributable to non-controlling interest - 33,371 nm Continuing - (19,432) nm Discontinued - 52,803 nm
Net (loss) income attributable to us (630,053) (1,952,197) (68%) Continuing
(935,440) (1,944,806) (52%) Discontinued 305,387 (7,391) nm
(A) Refer to Note 2 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.
(B) Refer to Note 1.
The decrease in revenue was primarily due to the expiration of our SASSA contract, the decline in EPE account numbers driven by SASSA's auto-migration of accounts to SAPO, and a reduction in EPE-related financial and value-added services and transaction fees due to a smaller customer base, but partially offset by higher terminal and prepaid airtime sales.
The decrease in cost of goods sold, IT processing, servicing and support was primarily due to fewer SASSA Grindrod-account grant recipients utilizing the South African National Payment System which resulted in lower transaction costs incurred by us, but partially offset by higher costs related to terminal and prepaid airtime sales.
The decrease in selling, general and administration expense was primarily due to
lower fixed costs (including premises and staff costs) incurred during the year
to date fiscal 2020. Our year to date fiscal 2019 expense includes an increase
in our allowance for doubtful finance loans receivable of approximately
Depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated during the year to date fiscal 2020.
During the year to date fiscal 2020, we recorded an impairment loss of
Our operating loss margin for the year to date fiscal 2020 and 2019 was (24.9%) and (55.4%), respectively. We discuss the components of operating income margin under "-Results of operations by operating segment."
The change in fair value of equity securities represents a non-cash fair value adjustment loss related to Cell C during the year to date fiscal 2019. Refer to Note 6 of our unaudited condensed consolidated financial statements for the methodology and inputs used in the fair value calculation.
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We recorded a gain of
Interest on surplus cash decreased to
Interest expense decreased to
During the year to date fiscal 2019, we recorded an impairment loss of
Fiscal 2020 tax expense was
Our effective tax rate for fiscal 2019 was adversely impacted by the valuation
allowances created related to the deferred tax assets recognized in respect of
net operating losses incurred by our South African businesses, non-deductible
impairment losses, and non-deductible expenses, including transaction-related
expenditure and non-deductible interest on our South African long-term debt
facility, and the tax expense recorded by our profitable businesses in
DNI was accounted for using the equity method during the year to date fiscal
2020. The accounting for DNI as a discontinued operation has adversely impacted
the comparability of our (loss) earnings from equity-accounted investments
during the year to date fiscal 2020. Finbond is listed on the
Table 10 Nine months ended March 31, 2020 2019 $ '000 $ '000 $ % change DNI (9,744) - nm Share of net income 4,676 - nm Amortization of intangible assets, net of deferred tax (1,350) - nm Impairment (13,070) - nm Bank Frick (17,924) (1,895) 846% Share of net income 770 616 25% Amortization of intangible assets, net of deferred tax (433) (427) 1% Impairment (18,261) - nm Other - (2,084) nm Finbond 491 1,875 (74%) Other (3,447) (333) 935% Share of net loss (947) (333) 184% Impairment (2,500) - nm (30,624) (353) nm
Refer to Note 7 of our unaudited condensed consolidated financial statements for additional information related to the impairment of certain of our equity-accounted investments.
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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 United States Dollars (US GAAP) Nine months ended March 31, 2020 % of 2019 % of % Operating Segment $ '000 total $ '000 total change Consolidated revenue: South African transaction processing 59,632 28% 77,093 25% (23%) International transaction processing 88,988 42% 111,869 36% (20%) Continuing 3,613 1% 7,862 2% (54%) Discontinued 85,375 41% 104,007 34% (18%) Financial inclusion and applied technologies 69,782 33% 128,611 42% (46%) Continuing 69,782 33% 72,274 24% (3%) Discontinued - - 56,337 18% nm Subtotal: Operating segments 218,402 145% 317,573 139% (31%) Corporate/Eliminations (8,008) (45%) (8,055) (39%) (1%) Total consolidated revenue 210,394 100% 309,518 100% (32%) Continuing 125,019 59% 149,174 48% (16%) Discontinued 85,375 41% 160,344 52% (47%) Consolidated operating (loss) income: nm South African transaction processing (15,034) 67% (28,297) 44% (47%) International transaction processing 6,186 (28%) 628 (1%) 885% Continuing (8,382) 37% (13,768) 22% (39%) Discontinued 14,568 (65%) 14,396 (23%) 1% Financial inclusion and applied technologies (304) 1% (4,009) 6% (92%) Continuing (304) 1% (28,409) 44% (99%) Discontinued - - 24,400 (38%) nm Subtotal: Operating segments (9,152) 12% (31,678) 48% (71%) Corporate/eliminations (13,132) 88% (32,184) 52% (59%) Continuing (7,348) 62% (12,102) 21% (39%) Discontinued (5,784) 26% (20,082) 31% (71%) Total consolidated operating (loss) income (22,284) 100% (63,862) 100% (65%) Continuing (31,068) 139% (82,576) 129% (62%) Discontinued 8,784 (39%) 18,714 (29%) (53%) 66
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Table 12 In South African Rand (US GAAP) Nine months ended March 31, 2020 % of 2019 % of Operating Segment ZAR '000 total ZAR '000 total % change Consolidated revenue: South African transaction processing 951,703 28% 1,099,901 25% (13%) International transaction processing 1,420,213 42% 1,596,057 36% (11%) Continuing 57,662 1% 112,168 2% (49%) Discontinued 1,362,551 41% 1,483,889 34% (8%) Financial inclusion and applied technologies 1,113,693 33% 1,834,919 42% (39%) Continuing 1,113,693 33% 1,031,148 24% 8% Discontinued - - 803,771 18% nm Subtotal: Operating segments 3,485,609 145% 4,530,877 139% (23%) Corporate/Eliminations (127,804) (45%) (114,922) (39%) 11% Total consolidated revenue 3,357,805 100% 4,415,955 100% (24%) Continuing 1,995,254 59% 2,128,295 48% (6%) Discontinued 1,362,551 41% 2,287,660 52% (40%) Consolidated operating (loss) income: nm South African transaction processing (239,937) 67% (403,719) 44% (41%) International transaction processing 98,726 (28%) 8,960 (1%) 1,002% Continuing (133,773) 37% (196,431) 22% (32%) Discontinued 232,499 (65%) 205,391 (23%) 13% Financial inclusion and applied technologies (4,852) 1% (57,197) 6% (92%) Continuing (4,852) 1% (405,317) 44% (99%) Discontinued - - 348,120 (38%) nm Subtotal: Operating segments (146,063) 12% (451,956) 48% (68%) Corporate/eliminations (209,581) 88% (459,176) 52% (54%) Continuing (117,271) 62% (172,662) 21% (32%) Discontinued (92,310) 26% (286,514) 31% (68%) Total consolidated operating (loss) income (355,644) 100% (911,132) 100% (61%) Continuing (495,833) 139% (1,178,129) 129% (58%) Discontinued 140,189 (39%) 266,997 (29%) (47%)
South African transaction processing
The decrease in segment revenue was primarily due to fewer transactions
performed at our ATM base and lower fees as a result of fewer EPE and SASSA
accounts. Our South African transaction processing operating segment revenue and
operating loss have been adversely impacted by the loss of EPE customers as a
result of SASSA's auto-migration of accounts to SAPO. Excluding the impact of
the
Our operating loss margin for the year to date fiscal 2020 and 2019 was (25.2%)
and (36.7%), respectively. Our operating loss margin for the year to date fiscal
2020 excluding the goodwill impairment of
International transaction-based activities
Segment revenue from continuing operations was lower during the third quarter of
fiscal 2020, primarily due to an ongoing contraction in IPG transactions
processed, specifically meaningfully lower crypto-exchange and
Our operating loss margin for the year to date fiscal 2020 and 2019 was 7.0% and 0.6%, respectively.
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Financial inclusion and applied technologies
In ZAR, segment revenue from continuing operations increased due to higher
terminal and prepaid airtime sales, partially offset by lower lending revenue
and insurance revenue as a result of fewer customers, and a decrease in
inter-segment revenues. Our lending and insurance books have improved through
fiscal 2020, and the positive contribution from terminal sales as well as our
cost reduction efforts of the last 12 months have contributed to a reduction in
the segment's operating loss. Operating loss from continuing operations for the
year to date fiscal 2019 includes an allowance for doubtful finance loans
receivable of
Our operating loss margin from continuing operations for the Financial inclusion
and applied technologies segment was (0.4%) and (39.3%) during the year to date
fiscal 2020 and 2019, respectively. Our operating loss margin for the year to
date fiscal 2019 excluding the allowance for doubtful finance loans receivable
of
Corporate/Eliminations
Our corporate expenses decreased primarily due to lower acquired intangible
asset amortization expense related to intangible assets that were fully
amortized during fiscal 2019, partially offset by higher transaction-related
expenditures and a
Liquidity and Capital Resources
At
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
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.
Available short-term borrowings
We have a short-term South African credit facility with Nedbank of up to
We also have a short-term South African credit facility with RMB of
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Restricted cash
We have credit facilities with RMB and Nedbank in order to access cash to fund
our ATMs in
Cash flows from operating activities
Third quarter
Net cash used in operating activities during the third quarter of fiscal 2020
was
During the third quarter of fiscal 2020, we paid South African tax of
Taxes paid during the third quarter of fiscal 2020 and 2019 were as follows:
Table 13 Three months ended March 31, 2020 2019 2020 2019 $ $ ZAR ZAR '000 '000 '000 '000 First provisional payments 60 205 890 2,850 Second provisional payments 26 - 388 - Tax refund received (1,311 ) (6 ) (18,853 ) (68 ) Total South African taxes (refunded) paid (1,225 ) 199 (17,575 ) 2,782 Foreign taxes paid: Korea 1,870 2,212 28,190 30,536 Total tax paid 645 2,411 10,615 33,318 Year to date
Net cash used in operating activities during the year to date fiscal 2020 was
During the year to date fiscal 2020, we paid South African tax of
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Taxes paid during the year to date fiscal 2020 and 2019 were as follows:
Table 14 Nine months ended March 31, 2020 2019 2020 2019 $ $ ZAR ZAR '000 '000 '000 '000 First provisional payments 800 6,450 11,547 91,994 Second provisional payments 26 - 388 -
Taxation paid related to prior years 782 1,399 11,620 20,488 Tax refund received
(1,339 ) (102 ) (19,245 ) (1,445 ) Total South African taxes paid 269 7,747 4,310 111,037 Foreign taxes paid: Korea 4,263 4,786 62,302 67,248 Total tax paid 4,532 12,533 66,612 178,285
Cash flows from investing activities
Third quarter
Cash used in investing activities for the third quarter of fiscal 2020 included
capital expenditures of
Cash used in investing activities for the third quarter of fiscal 2019 included
capital expenditures of
Year to date
Cash used in investing activities for the year to date fiscal 2020 included
capital expenditures of
Cash used in investing activities for the year to date fiscal 2019 included
capital expenditures of
Cash flows from financing activities
Third quarter
During the third quarter of fiscal 2020, we utilized approximately
During the third quarter of fiscal 2019, we utilized approximately
Year to date
During the year to date fiscal 2020, we utilized approximately
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During the year to date fiscal 2019, we utilized approximately
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Capital Expenditures
We expect capital spending for the fourth quarter of fiscal 2020 to primarily be to maintain our capital equipment.
Our capital expenditures for the third quarter of fiscal 2020 and 2019 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. We had outstanding capital
commitments as of
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