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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.
*****************************