Business context and reporting period
Filing identity differs from the request metadata: the supplied filing is for Net 1 UEPS Technologies, Inc. (ticker UEPS), not Lesaka Technologies Inc. It is a Form 10-Q for the quarter ended March 31, 2020, the third quarter of Net1’s fiscal 2020—not 2019 Q3. The company provides payment processing, financial services and technology products, with substantial South African operations. The report was filed late; the company attributed the delay to COVID-19 disruptions.
Net1 sold its Korean business (KSNET) in March 2020 and classified it as discontinued operations. It also sold FIHRST in December 2019. The remaining DNI interest was sold on April 1, 2020, after quarter-end.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. Prior-year results are restated where indicated.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Continuing-operations revenue | $36.5m vs. $36.6m (2019) | $125.0m vs. $149.2m (2019) |
| Operating loss | $14.2m vs. $23.8m | $31.1m vs. $82.6m |
| Operating loss margin | 38.9% vs. 65.0% | 24.9% vs. 55.4% |
| Net loss from continuing operations | $48.4m vs. $51.5m | $58.6m vs. $128.8m |
| Net loss attributable to Net1 | $34.9m vs. $58.8m | $39.5m vs. $128.0m |
| Basic loss per share | $0.61 vs. $1.03 loss | $0.69 vs. $2.25 loss |
| Cash used in operating activities | $4.2m vs. $14.1m | $18.1m vs. $2.9m |
Quarterly continuing revenue was nearly flat in dollars, while management said it rose 8% in rand, principally on higher South African transaction fees. For the nine-month period, continuing revenue fell 16% in dollars and 6% in rand, reflecting the SASSA contract expiration, migration of EPE accounts, and reduced related fees. Lower expenses and prior-year comparison items helped narrow operating losses. Net loss improvement also reflects disposal gains and the absence of large prior-year fair-value losses; it should not be read as equivalent improvement in recurring operations.
Net1 recorded $6.3m of operating impairment charges in the quarter and nine-month period, including $5.6m related to EasyPay goodwill and $0.7m for a Maltese e-money license. Equity-accounted investment losses were $32.2m for the quarter and $30.6m for nine months, including substantial impairments of Bank Frick and DNI. The nine-month results included a $9.7m gain on the FIHRST sale and a $12.7m after-tax gain on the Korea disposal; discontinued operations contributed $0.7m of net income in the quarter and $6.4m for nine months.
At March 31, 2020, cash and cash equivalents were $209.3m, with a further $51.4m restricted for ATM funding; total assets were $510.2m and total liabilities $143.5m. Current liabilities included $51.4m of ATM-related short-term facilities and $3.2m of current long-term borrowings. The ATM funding balance is paired with restricted cash and is not freely available for general use. Nine-month investing cash flow was $183.7m, largely from the Korea sale; financing cash flow was a $7.4m outflow. Cash, cash equivalents and restricted cash totaled $260.7m at period-end, up from $121.5m at June 30, 2019.
Material changes, outlook and risks
- Disposals and liquidity: Korea sale proceeds were approximately $237.2m before transaction costs and tax withholding; the company reported a $12.7m after-tax gain. Management said the proceeds resolved the previously disclosed going-concern risk and that cash reserves were sufficient for the next 12 months. DNI’s sale closed April 1 for approximately $48.0m of consideration, subject to transaction costs and a reported expected disposal loss.
- COVID-19: South African restrictions suspended branch-based lending and other financial services and limited certain banking fees. Net1 developed a mobile-based loan channel for repeat customers, launched in early May, but could not predict origination levels or when face-to-face lending would resume. It expected forgone ATM cash-withdrawal fees of ZAR 18–20m per month while restrictions persisted.
- Lending and cash: Management expected the lending book to unwind while new lending was constrained, then planned to redeploy cash to grow it to approximately ZAR 800m within 12 months after lending could resume. It cautioned that restarting lending would create a significant operating cash outflow. These are management expectations, not guarantees.
- Other operating pressures: IPG faced lower processing volumes and travel-related limits on business development; South African businesses continued to incur operating losses. Cell C’s investment remained valued at zero. The company also held $15.2m of Cell C airtime subject to resale restrictions and warned that recovery of its carrying value was uncertain.
- Controls and restatement: Disclosure controls were deemed ineffective as of March 31, 2020, in light of insufficient time to assess remediation of a previously reported material weakness. The company restated prior-period presentation and corrected a foreign-currency translation reserve error, increasing the reported 2019 disposal loss by $4.0m and increasing 2019 net loss by the same amount; continuing-operations net loss was unaffected by that correction.
- Legal and regulatory exposure: CPS was placed into South African business rescue after losing its final appeal over repayment of SASSA implementation costs; the outcome was uncertain. The filing also describes pending SASSA-related proceedings, a securities class action that Net1 said it would defend, and a risk that Net1 could be considered an investment company under the Investment Company Act.
Investor facts to verify
- Confirm the issuer and period: this is Net 1 UEPS Technologies’ March 31, 2020 10-Q, not a Lesaka Technologies 2019 Q3 filing.
- Review the continuing-versus-discontinued-operations presentation and the 2019 restatement, particularly the DNI foreign-currency reserve correction.
- Check post-quarter developments and actual cash proceeds from the DNI sale, including settlement of borrowing and the expected disposal loss.
- Assess unrestricted liquidity separately from restricted ATM cash, facility availability, and ongoing operating cash burn.
- Track COVID-19 effects on lending, fee income, loan collections, and the planned expansion of the lending book.
- Review remediation of the material weakness and the status and potential exposure of CPS/SASSA and securities litigation matters.