Filing identity and reporting period
The supplied filing is Net 1 UEPS Technologies, Inc.’s Form 10-K for the fiscal year ended June 30, 2021—not a Lesaka Technologies filing or a 2020 Q4 filing as the request metadata suggests. Financial amounts below are in U.S. dollars unless noted. The company’s business is fintech, payment processing, consumer banking, micro-lending and insurance, primarily in South Africa.
Financial results and condition
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $130.8 million | $144.3 million, restated |
| Operating loss | $53.9 million | $44.2 million |
| Net loss from continuing operations | $38.1 million | $97.2 million |
| Net loss attributable to Net1, including discontinued operations | $38.1 million | $78.4 million |
| Operating cash flow | $(58.4) million | $(46.0) million |
| Cash from investing activities | $47.8 million | $223.1 million |
| Cash used in financing activities | $(13.1) million | $(48.8) million |
Revenue fell 9% in U.S. dollars and 19% in rand. Management attributed the decline mainly to lower prepaid airtime and hardware sales and reduced transaction and account-fee revenue; lending and insurance revenue increased modestly. Costs remained broadly fixed in rand, contributing to continuing operating losses. The operating-loss margin was (41.2%), versus (30.7%) in FY2020.
The FY2021 net loss includes a $49.3 million non-cash gain from the increase in MobiKwik’s carrying value to $76.3 million. Loss from equity-accounted investments was $24.9 million, including $21.1 million of impairments. FY2020 included discontinued-operation income and disposal gains, so total net-loss comparisons are affected by disposals.
At June 30, 2021, cash and cash equivalents were $198.6 million, with an additional $25.2 million of restricted cash; total cash, cash equivalents and restricted cash were $223.8 million. Total assets were $428.3 million and equity was $276.0 million. There was no long-term debt; $14.2 million of short-term ATM-funding facilities was utilized. The company reported $83.9 million available under its RMB ATM overdraft and $28.4 million of Nedbank short-term facilities, including guarantee and derivative capacity. These facilities have restrictions and covenants.
Fourth-quarter FY2021 revenue was $34.5 million, operating loss was $13.6 million and net income attributable to Net1 was $1.6 million. The comparable FY2020 quarter reported revenue of $24.6 million, operating loss of $13.2 million and net loss attributable to Net1 of $38.9 million.
Material changes and unusual items
- The company’s strategic focus shifted to South Africa and, to a lesser extent, the wider region, with plans to exit or reduce operations elsewhere. It sold its 35% Bank Frick interest for $30 million, with $18.6 million received at closing and the balance due later, and continued winding down IPG.
- FY2021 revenue and cost of sales for the September 2020 quarter were restated downward by $2.0 million each. FY2020 and FY2019 revenue and cost of sales were also restated downward by $6.7 million and $5.6 million, respectively. The company said the error did not affect operating income or loss, net income or loss, the balance sheet or cash flows.
- The company recorded $21.1 million of equity-investment impairments in FY2021, primarily involving Finbond and other investees. Cell C remained valued at zero; the company also reported its investment in Carbon at zero.
- Operating cash use increased year over year, reflecting cash losses, tax payments, a settlement payment and growth in lending. Investing cash inflow largely reflected asset-sale proceeds.
Outlook, commentary and risks
Management gave no formal revenue or earnings guidance. It said cash reserves should support operations for the next 12 months and that existing credit facilities should fund the ATM network. Its strategy aims to grow the South African customer base from approximately one million to at least three million over three years and expand payment services to small and micro businesses. Management cautioned that customer additions do not immediately translate into activity: only about half of gross additions had become active and begun transacting.
Key risks include ongoing operating losses and negative operating cash flow; execution of the South Africa-focused strategy; rand/U.S. dollar movements; COVID-19 effects, including elevated insurance claims; and South African economic, regulatory and political conditions. July 2021 civil unrest damaged 19 company branches and 173 ATMs. The company estimated repair and replacement costs of ZAR 40 million, which it expected insurance to cover, and estimated approximately ZAR 6 million of first-quarter FY2022 transaction-fee revenue would be forgone due to ATM fee waivers.
Contingencies include the National Credit Regulator’s long-running application to cancel Moneyline’s credit-provider registration, with a High Court appeal scheduled for October 2021; and potential claims relating to Cash Paymaster Services (CPS), which is in liquidation. Net1 reported that no claim had been made against it for CPS obligations but could not assure that none would be made. The filing also notes public allegations concerning its South African services, which the company denies and says are without merit.
The company reported effective disclosure controls and internal control over financial reporting as of June 30, 2021, and the auditor issued unqualified opinions. Management stated that a previously identified material weakness concerning review of complex, non-routine transactions had been remediated. The filing does not provide a clear numerical estimate of potential exposure from the CPS matter or the NCR proceeding.
Most important facts for investors to verify
- Confirm the issuer and reporting period: this is Net1 UEPS Technologies, Inc., FY2021, despite the Lesaka/2020 Q4 request metadata.
- Review the audited statements and restatement disclosures, including whether revenue-recognition controls remain effective.
- Assess the sustainability of cash reserves against recurring operating cash use, ATM funding needs and credit-facility covenants.
- Track active customer growth and transaction activity, not just gross account additions, alongside South African segment losses.
- Monitor MobiKwik’s valuation and potential liquidity or impairment risk, and the recoverability of Cell C-related assets and airtime inventory.
- Follow the Moneyline registration case, CPS liquidation-related exposure and insurance recovery for the July 2021 unrest damage.