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What changed in LESAKA TECHNOLOGIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LESAKA TECHNOLOGIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+367 added−383 removedSource: 10-K (2023-09-12) vs 10-K (2022-09-09)

Top changes in LESAKA TECHNOLOGIES INC's 2023 10-K

367 paragraphs added · 383 removed · 236 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeEmployee 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 build a culture of lifelong learning in everything that we do.
Biggest changeAs 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.
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 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.
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 ready access to multiple service providers. We operate separate brands in these two sectors of the 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 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. 8
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
Taken together, this all means that although almost 90% of South Africans have a bank account, a significant majority treat them as post boxes – withdrawing their money in one transaction. This has real implications for both merchants and consumers.
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.
And for consumers, approximately 20% of the estimated 26 million South African consumers in LSM 1-6 have access to credit and savings and a significant majority of the approximately 12 million permanent grant recipients require immediate cash withdrawals of their grant.
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 include the large South African banks such as FNB, Standard Bank, Absa, Nedbank, African Bank and Capitec, the South African Post Office, and digital banks such as, Tyme Bank and Bank Zero.
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.
Lesaka has a comprehensive product suite of cash and digital solutions which provide a significant opportunity to assist these businesses to grow, reduce risks and be more efficient.
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.
We achieve this through our ability to efficiently digitize the last mile of financial inclusion, and to provide a full-service fintech platform across cash and digital, serving the needs of both, while also facilitating the secular shift from cash to digital that is currently taking place.
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.
In the Consumer Segment, we currently have just over 1.1 million active account holders which represents approximately 4% share of our total addressable market. Our focus is on South African government social grant recipients, of which there are over 12 million, the majority of whom are being inadequately served by the current system.
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.
At an enterprise level, our financial switch and VAS and bill payments business competes with BankservAfrica, Pay@, eCentric and Transaction Junction. Human Capital Resources We have hired a diverse team of high-caliber individuals, from different organizations, to form our leadership group.
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.
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 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.
At a larger enterprise level we offer bill and supplier payments and VAS through our proprietary financial switch, as well as point of sale devices and maintenance, bank and SIM card production and other specialized technology products. 2 Market Opportunity There are real challenges to delivering financial inclusion and digitization in the South Africa market.
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.
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 2022 2021 2020 2022 2021 2020 $'000 $'000 $'000 $'000 $'000 $'000 South Africa 215,046 127,468 139,258 359,725 50,754 68,521 Liechtenstein (Bank Frick) - - - - - 29,739 India (MobiKwik) - - - 76,297 76,297 26,993 Rest of the world 7,563 3,318 5,041 2,811 6,962 9,119 Total 222,609 130,786 144,299 438,833 134,013 134,372 (1) Refer to Note 16 to our audited consolidated financial statements included in this annual report contains detailed financial information about our revenue for fiscal 2022, 2021 and 2020.
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.
Lesaka is well placed to address the needs of these consumers with its large informal market distribution and affordable financial services. Merchant payment 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.
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.
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. Alex M.R.
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.
Smith holds a Bachelor of Law (Honours) degree from the University of Edinburgh and is a member of the Institute of Chartered Accountants of Scotland. 7 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 2022, 2021 and 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.
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.
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.
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”). People are ultimately the most important assets in any organization, therefore successfully managing health and safety in the workplace remains paramount.
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”).
Meyer has been our Group Chief Executive Officer since July 1, 2021. Prior to joining Lesaka, Mr. Meyer was 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.
Meyer was 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.
Products —We offer a comprehensive set of products and services to our consumer and merchant customers. In our Consumer Segment, our products include transactional banking, short-term loans, a digital wallet as well as insurance and various VAS to consumers underserved in South Africa, aligning with our purpose of improving people’s lives and increasing financial inclusion.
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.
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 has been the Chief Executive Officer of the Connect Group since 2013 and joined us following the acquisition of Connect in the same capacity.
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.
On the merchant side, less than 8% of merchants have access to formal credit and less than 4% of informal merchants can accept digital payments.
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.
This leadership group is deeply committed to building a high-performance culture that is based on a foundation of care and development for our people.
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.
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, though few with an end-to-end offering, particularly at the lower end of the consumer market and the informal merchant market where we have significant footprint and penetration.
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.
On a functional basis, five of our employees were part of executive management, 254 were employed in sales and marketing, 253 were employed in finance and administration, 237 were employed in information technology and 1,908 were employed in operations. 5 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.
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.
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.
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.
Adding to this challenge is the relatively high connectivity costs in South Africa – airtime is an expensive and prized commodity – and smartphone penetration remains low in South Africa where many South Africans still use older style feature phones.
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.
This is an underserved market and so increasing our penetration is not about taking market share from competitors but rather about providing product sets that encourage the adoption of more formalized and non-cash transacting. 3 While the informal market presents a major growth opportunity, Lesaka also has a comprehensive offering to the formal MSME and enterprise market.
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.
Our number of employees allocated on a segmental basis as of the years ended June 30, 2022, 2021 and 2020, is presented in the table below: Number of employees 2022 2021 2020 Consumer (1) 1,833 2,924 2,624 Merchant (1) 807 137 147 Other 17 18 104 Total 2,657 3,079 2,875 (1) Fiscal 2022 Consumer includes three executive officers and Merchant includes two executive officers.
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.
Customers — In our B2C Consumer Segment, our focus is on the lower end of the market that has traditionally been under-banked. Our products are designed for consumers within Living Standards Measures (“LSMs”) 1 to 6, which comprises approximately 26 million people.
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.
Employee compensation programs We are committed to ensuring that all our employees are paid fair and competitive remuneration.
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.
As of June 30, 2022, the composition of our workforce was: • 63% female and 37% male; • 41% between 18 and 34 years old, 56% between 35 and 54 years old, and 3% over 55 years old; and • 72% Black, 18% two or more races, 5% Indian and 5% White. We have no female named executive officers.
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.
Our core purpose is to improve people’s lives by bringing financial inclusion to South Africa’s underserved and underbanked customers, and helping small businesses access the financial services they need to prosper.
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 offer the following development programs to enhance employee performance and skills: • unemployed and employed learnerships; • leadership development programs; • training programs; • mentorship programs; • other in-house and cross-functional training to aid with career advancement; and • succession planning – training interventions. 4 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.
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.
ITEM 1. BUSINESS Overview At Lesaka, our mission and core purpose is to bring financial inclusion to merchants and consumers in Southern Africa by building a world-class fintech platform. Our vision is to build and operate the leading South African full service fintech platform, offering cash management, payment and 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 value proposition and products are designed to be simple, relevant and cost effective for our target market. In our Merchant Segment, to the MSME customers, we offer cash management and digitization, card acquiring, growth capital, VAS and bill and supplier payments.
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.
Meyer 51 Group Chief Executive Officer and Director Naeem E. Kola 49 Group Chief Financial Officer, Treasurer, Secretary, and Director Lincoln C. Mali 54 Chief Executive Officer: Southern Africa, and Director Steven J. Heilbron 57 Chief Executive Officer: Connect Group, and Director Alex M.R. Smith 53 Chief Accounting Officer Christopher G.B.
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 has been our Group Chief Executive Officer since July 1, 2021. Prior to joining Lesaka, Mr.
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We are building a dual-sided financial ecosystem offering banking, lending and insurance to consumers, and cash, card, capital, payment and Value Added Services (“VAS”) solutions to micro, small and medium enterprises (“MSMEs”). Our dual-sided financial ecosystem has two overlapping segments: Merchants and Consumers.
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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.
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We currently have over 1.1 million active customers who are predominantly recipients of social grants offered by the South African Government. In our B2B Merchant Segment, we recently completed the acquisition of the Connect Group during the year ended June 30, 2022, which significantly advanced our vision and is truly transformational for our company.
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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.
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The acquisition adds significant scale to our existing B2B offering which mainly services formal merchants, bringing over 51,000 MSMEs into the Merchant business segment.
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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.
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Through the introduction of a suite of solutions and technologies targeted at the MSME merchant sector where we were previously under-represented, we can address the needs of approximately 1.4 million informal and approximately 700,000 formal MSMEs in South Africa.
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Lesaka is well placed to address the needs of these consumers with its large informal market distribution and affordable financial services.
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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.
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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.
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Lesaka, with its significant distribution footprint of over 58,000 points of presence, across Merchant and Consumer, is well positioned to bring these two sides of the ecosystem together by incentivizing both merchants and consumers to utilize our solutions which will further enhance our growth opportunity.
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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.
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We believe our ability to bring a large consumer base to our merchant customers, and offer our consumers incentives to use our merchants, is a compelling proposition. We do have competitors in parts of our ecosystem. For consumers, there are a number of traditional and digital providers of low-cost transactional bank accounts and micro financial services.
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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.
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As such we are on path towards building an aspirational work environment that is characterized by: • Open and honest engagements; • Flat organizational structures; • Humility and respect; • Embracing diversity, inclusion and a sense of belonging; • A spirit of generosity for our people, customers and our communities; • A willingness to partner with our stakeholders towards common goals; • A deep connection to our shared purpose of inclusive financial services; and • A culture of learning and curiosity.
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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.
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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.
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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.
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This commitment extends to all levels of our organization, including within senior management and our board of directors.
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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.
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We have taken positive strides towards a rewards philosophy that not only allows the corporate hierarchy and its systems to be mapped out in an objective manner, but will reward high performance. In this way, remuneration levels can be set for every function with reference to the external market, and people in similar functions can be paid equally.
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Heilbron has been the Chief Executive Officer of the Connect Group since 2013 and joined us following the acquisition of Connect in April 2022 in the same capacity. Mr.
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Successfully managing health and safety in the workplace relies on commitment, consultation, and co-operation.
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In order to maintain OHSA compliance, we ensure that: • Internal health and safety policies remain regularly updated and accessible to all staff; • All departments/branches keep a summary of applicable Health and Safety legislation and display a summary of such at their respective premises for ease of reference; • Each of our branches has a designated health and safety representative, a first aider and fire marshal tasked with ensuring compliance as well as being able to assist in an emergency situation when required, each of whom is trained every two years as per stipulated regulations; • Every branch manager is a delegated official to our Chief Executive Officer: Southern Africa who ensures OHSA compliance and that employees have the necessary knowledge and understanding of applicable health and safety rules and procedures; • Quarterly inspections are conducted by delegated officials at the respective branches so as to report on any non-compliance or health and safety issues which need tending to; • Quarterly meetings are conducted with our National Health and Safety Officer to report in on company-wide compliance and any health and safety issues which require tending to; and • Managers are trained in in the correct reporting procedures and proper incident/ accident investigation. 6 Our Executive Officers The table below presents our executive officers, their ages and their titles: Name Age Title Chris G.B.
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Kol a has been our Group Chief Financial Officer, Treasurer and Secretary since March 1, 2022. Mr.
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Smith has been our Chief Accounting Officer since March 1, 2022, and previously served as our Chief Financial Officer, Treasurer and Secretary from March 1, 2018. Prior to joining Lesaka, Mr.
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Smith was employed by Allied Electronics Corporation Limited (“Altron”), a JSE-listed company, from 2006 to 2018 and, from August 2008 until February 2018, served as a director and its Chief Financial Officer. Prior to joining Altron, Mr. Smith worked in various positions at PricewaterhouseCoopers in Edinburgh, Scotland and Johannesburg from 1991 to 2005. Mr.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese 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.
Biggest changeThis 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 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 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.
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.
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.
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.
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. 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.
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.
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 certificate that presents an entity’s BEE Contributor Status Level.
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.
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. We have taken a number of actions as a company to increase empowerment of Black (as defined under applicable regulations) South Africans.
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.
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 Contributor Status Level).
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).
These transactions may require debt financing or additional equity financing, resulting in additional leverage or dilution of ownership. 10 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.
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.
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. 14 Finally, the South African insurance industry is highly competitive.
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.
Accordingly, a foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which may be 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.
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.
We expect that our BEE Contributor 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 Contributor Status Level, especially the ownership element (so-called “equity element”) thereof.
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.
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. 19 Our stock price has been and may continue to be volatile. Our stock price has periodically experienced significant volatility.
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.
The value of our investment in MobiKwik as of June 30, 2022 and 2021, 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.
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.
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. 13 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.
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.
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 businesses may set minimum adherence requirements to BEE standards as a condition for an operating license to trade.
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 .
We cannot insure against certain risks of loss or theft of cash from our delivery and collection vehicles, ATMs or depots 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 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.
Either of these actions could have a significant effect on our revenues and earnings. 12 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.
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.
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, 2022, the IFC Investors held 7,366,866 shares.
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.
Our response to any such offer could also be complicated, delayed or otherwise influenced by the existence of the put right. Approximately 33% of our outstanding common stock is owned by two shareholders. The interests of these shareholders may conflict with those of our other shareholders.
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.
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 28%, is higher than the U.S. federal income tax rate, of 21%.
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%.
We financed our recent acquisition of Connect 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.
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.
Further to increasing the spread of ownership by HDPs, we are required to establish an Employee Share Ownership Plan scheme (“ESOP”) within 24 months of the implementation of the transaction that complies with certain design principles.
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.
These borrowings 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.
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 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 determined quarterly by Statistics South Africa.
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.
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.
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.
For example, in many emerging markets, there may be significant levels of official corruption, and thus, bribery of public officials may be a commonly accepted cost of doing business.
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.
There is a concentration of ownership of our outstanding common stock because approximately 33% of our outstanding common stock is owned by two 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.
While we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, including with respect to Connect’s operations, 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 .
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.
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, Cliffe Dekker Hofmeyr Inc. 22 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
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.
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.
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.
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 acquisition of Connect is part of this business strategy.
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.
We did not identify any observable price changes during fiscal 2022 and therefore did not adjust the value of our investment during the year ended June 30, 2022. We recorded a non-cash fair value adjustment of $49.3 million during the year ended June 30, 2021.
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.
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 one million customers. Our strategy involves significantly expanding this base over the coming years.
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.
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. 21 South Africa is not a party to any treaties regarding the enforcement of foreign commercial judgments, as opposed to foreign arbitral awards.
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.
MobiKwik decided to delay its initial public offering given prevailing market conditions and will reassess their options as market conditions change. 11 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, 2022 price per share.
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.
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 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.
As a result of the significant combined ownership by VCP and the IFC Investors, subject to the limitations applicable to VCP contained in the Amended Cooperation Agreement, they may be able, if they act together, to significantly influence the voting outcome of all matters requiring shareholder approval.
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.
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.
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.
Our future success, and our ability to return to profitability and positive cash flow is substantially dependent on our ability to implement this strategy successfully.
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.
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.
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.
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.
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.
During the 2022 fiscal year, our stock price ranged from a low of $3.84 to a high of $6.97.
During the 2023 fiscal year, our stock price ranged from a low of $3.02 to a high of $5.97.
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 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.
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.
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.
Employment Equity legislation seeks to drive the alignment of the workforce with the racial composition of South Africa and accelerate the achievement of employment equity targets, introducing monetary fines for non-achievement and misrepresented submissions. Failing to meet these targets may expose us to fines.
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.
While no further losses were recorded in fiscal 2022 and 2021, we may be required to record further losses in the future or we may be unable to recover the carrying value of this airtime inventory as a result of the business failure of Cell C.
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.
Factors that may prevent us from successfully operating and expanding our South African financial services business 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; • further civil unrest similar to that experienced in July 2021; • loss of key technical and operations staff; and • logistical and communications challenges.
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.
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).
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.
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 21% and 12% of our outstanding common stock as of June 30, 2022, respectively.
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.
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 have decided to prioritize Southern Africa as our core market.
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.
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.
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.
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. 17 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.
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.
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.
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.
We may also wish to raise additional equity funding to reduce the amount of debt funding on our balance sheet. 20 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.
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.
The requirement to evaluate and report on our internal controls also applies to companies that we acquire. As a group of private companies, Connect was not required to comply with Sarbanes prior to the time we acquired it.
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.
Smart Life was granted an Authorized Financial Service Provider, or FSP, license on June 9, 2015, and Moneyline 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.
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.
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.
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.
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.
The second draft of the Conduct of Financial Institutions Bill was published for public comment on 29 September 2020.
The amount available under the general banking facility will reduce to ZAR 125.0 million on March 23, 2023. These borrowings are secured by a pledge of, among other things, 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.
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.
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.
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.
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 . 16 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.
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.
A prolonged economic downturn or recession in South Africa could materially impact our results from operations, particularly in light of severe electricity disruptions in calendar 2022, the July 2021 social unrest in South Africa and our strategic decision to focus on our South African 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.
Under current law and regulations, our 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 that enables us to implement our EPE program in compliance with the relevant laws and regulations.
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.
The integration of Connect into our internal control over financial reporting is expected to require significant time and resources from our management and other personnel and may increase our compliance costs.
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.
We may also suffer reputational damage if our service levels are negatively impacted due to the unavailability of cash. 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 ($13.7 million translated at exchange rates applicable as of June 30, 2022).
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).
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.
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.
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.
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.
It is not yet clear how African Bank will view our current arrangement with Grindrod Bank and whether this changes the risk of termination. 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.
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.
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.
These services extend across all areas of South Africa. South Africa suffers from high levels of crime and in particular cash in transit heists.
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.
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).
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 We may not be able to successfully integrate Connect’s operations with our business.
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.
If we are unable to communicate this persuasively, our ability to successfully execute our new strategy may be adversely affected. We need to significantly grow our consumer operations in order to ensure their profitability and long term sustainability.
We need to significantly grow our consumer operations in order to ensure their profitability and long- term sustainability.
MobiKwik filed its draft red herring prospectus in July 2021, with the original intention of completing its initial public offering in November 2021.
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.
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.
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.
This BEE verification process must be conducted on an annual basis, and the resultant BEE compliance certificate is only valid for a period of 12 months from the conclusion of the verification. 15 Certain of our South African businesses are subject to either the Information, Communications and Technology Sector Code, or ICT Sector Code, or the Financial Services Sector Code, or the FS Sector Code.
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.
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. 9 The Connect credit facilities include (i) an overdraft facility (general banking facility) of ZAR 248.0 million; (ii) Facility A of ZAR 700.0 million (a long-term facility with a bullet repayment); (iii) Facility B of ZAR 350.0 million (a long-term facility with amortizing repayments commencing September 2022); and (iv) an asset-backed facility of ZAR 70.7 million.
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.
However, in order to succeed in our product development and marketing efforts, we may need to identify and attract new qualified technical and sales personnel, 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 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.
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. For example, we saw significant disruption from the civil unrest experienced in early July 2021.
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.
While the South African corporate income tax rate is expected to reduce to 27% in fiscal 2023, any subsequent increase in the effective South African corporate income tax rate would adversely impact our profitability and cash flow generation.
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.
In some cases, we also store the cash that will be delivered by the armored vehicles in depots overnight or over the weekend to facilitate delivery to these areas. 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.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 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, 213 financial services branches, 80 financial service express stores and 29 satellite branches.
Biggest changeITEM 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThere 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. 23 PART II
Biggest changeWhile 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.
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.
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.
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.
Removed
ITEM 3. LEGAL PROCEEDINGS Resolution of NCR application for the cancelation of Moneyline’s registration as a credit provider In September 2014, the NCR applied to the South African National Consumer Tribunal, or Tribunal, to cancel the registration of our subsidiary, Moneyline, for breach of the NCA based on an investigation concluded by it.
Removed
We raised a number of procedural points in defense, and argument on these points was heard on November 27, 2015, before three tribunal members. Two ruled against us and one upheld our points. We appealed the majority ruling to the High Court. This matter was heard on December 4, 2018, by a full bench of the Pretoria High Court.
Removed
In opposing this appeal, the NCR contended that our appeal had no basis and they raised, as a procedural point, that we should have joined the Tribunal as a party to the appeal proceedings.
Removed
On August 30, 2019, it was ordered that the Tribunal be included in the appeal proceedings and this appeal was scheduled to be heard on October 27, 2021. The parties settled the matter out of court in mid-October 2021.
Removed
The settlement process included the NCR withdrawing its application to cancel our NCA registration with the Tribunal and we agreed to withdraw our appeal with the High Court. The settlement was made an order of the High Court on October 27, 2021. The parties agreed to pay their own costs related to this matter.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe authorization has no expiration date. We did not repurchase any shares of our common stock during fiscal 2022. 24 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.
Biggest changeThese 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.
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, 2022, there were 8 shareholders of record of our common stock.
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.
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.
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.
This graph assumes $100 was invested on June 30, 2017, in each of our common stock, the companies in the S&P 500 Index, and the companies in the NASDAQ Industrial Index. 25 ITEM 6. [RESERVED] 26
This graph assumes $100 was invested on June 30, 2018, in each of our common stock, the companies in the S&P 500 Index, and the companies in the NASDAQ Industrial Index. 26 ITEM 6. [RESERVED] 27
We believe that a substantially greater number of beneficial owners of our common stock hold their shares though banks, brokers, and other financial institutions (i.e. “street name”). Our transfer agent in South Africa is JSE Investor Services (Pty) Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001, South Africa.
We believe that a substantially greater number of beneficial owners of our common stock hold their shares though banks, brokers, and other financial institutions (i.e. “street name”). Our transfer agent in South Africa is JSE Investor Services (Pty) Ltd, One Exchange Square, 2 Gwen Lane, Sandown, Sandton, 2196, South Africa.
Added
The table below presents information relating to purchases of shares of our common stock during the fourth quarter of fiscal 2023: Period (a) Total number of shares purchased (b) Average price paid per share ($) (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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFiscal 2021 Compared to Fiscal 2020 The following factors had a significant influence on our results of operations during fiscal 2021 as compared with the same period in the prior year: Lower revenue: Our revenues decreased 19% in ZAR primarily due to fewer prepaid airtime and hardware sales and lower transaction and account fee revenue, which was partially offset by modestly higher lending and insurance revenue; Ongoing operating losses: Operating costs were largely in line with the prior period in ZAR due to the largely fixed cost nature of the cost base.
Biggest changeFiscal 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: The net interest charge increased to ZAR 299.9 million from ZAR 56.8 million due to the 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: We expensed $6.0 million of transaction costs related to the Connect acquisition in fiscal 2022; and ● Foreign exchange movements: The U.S. dollar was 18.0% stronger against the ZAR during fiscal 2023, which impacted our reported results. 36 Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S.
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: We expensed $6.0 million of transaction costs related to the Connect acquisition; and Foreign exchange movements: The U.S. dollar was 3% stronger against the ZAR during fiscal 2022, which impacted our reported results.
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: We expensed $6.0 million of transaction costs related to the Connect acquisition in fiscal 2022; and ● Foreign exchange movements: The U.S. dollar was 3.3% stronger against the ZAR during fiscal 2022, which impacted our reported results.
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 EBITDA loss, refer to Note 1 to our consolidated financial statements for additional information regarding this process.
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.
We continue to carry our investment in Cell C at $0 (zero). Refer to Note 9 to our audited 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.
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.
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. 37 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.
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.
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 differences result in deferred tax assets and liabilities which are disclosed on our balance sheet.
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.
(B) – Long-term borrowings principal repayments for the 3-5 year period includes all unamortized fees as of June 30, 2022. Interest payments based on applicable interest rates as of June 30, 2022, and expected outstanding long-term borrowings over the period. All amounts converted from ZAR to USD using the June 30, 2022, USD/ ZAR exchange rate.
(B) – Long-term borrowings principal repayments for the 3-5 year period includes all unamortized fees as of June 30, 2023. 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.
In determining the fair value of reporting units for fiscal 2022 and 2021, 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.
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.
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 2022, 2021 and 2020, and therefore did not recognize any impairment losses related to these equity securities during those years.
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.
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%) 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 Change in fair value of equity securities - 49,304 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% 36 Table 4 In South African Rand 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%) 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 Change in fair value of equity securities - 774,872 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% The increase in revenue was 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.
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.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2021. We believe the Cell C business plan is reasonable based on the current performance and the expected changes in the business model.
(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, 2022. 31 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.
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.
We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2022 and 2021, and valued Cell C at $0.0 (zero) as of each of June 30, 2022 and 2021.
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.
Management believes that the following accounting policies are critical due to the degree of estimation required and the impact of these policies on the understanding 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.
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 disposal of certain of our equity-accounted investments in fiscal 2021 and 2020, 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.
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.
During fiscal 2021, we paid approximately $4.3 million (ZAR 67.3 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.
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.
Thus, the average rates used to translate this data for the years ended June 30, 2022, 2021 and 2020 , vary slightly from the averages shown in the table above.
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.
Judgment is required to assess the ultimate recoverability of these receivables, including ongoing evaluation of the creditworthiness of each customer. Lending 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.
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.
During fiscal 2020, we made our first provisional South African tax payments of $0.8 million (ZAR 11.9 million) related to our 2020 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.
The largest impairment recorded in fiscal 2021 related to our investment in Finbond 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.
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.
Cash flows from financing activities 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.
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.
The table below presents the relative loss from our equity accounted investments: Table 5 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 income (loss) 16 (531) nm Impairment - (3,494) nm Total loss from equity-accounted investment (3,649) (24,878) (85%) 38 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.
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.
We utilized the latest approved business plan provided by Cell C management for the period ended December 31, 2026, for the June 30, 2022 and 2021 valuations, and the following key valuation inputs were used: Weighted Average Cost of Capital: Between 16% and 24% over the period of the forecast Long-term growth rate: 3% (3% as of June 30, 2021) Marketability discount: 10% Minority discount: 15% Net adjusted external debt - June 30, 2022: (1) ZAR 13.5 billion ($0.8 billion), no lease liabilities included Net adjusted external debt - June 30, 2021: (2) ZAR 11.2 billion ($0.8 billion), no lease liabilities included (1) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 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.
(E) – We have excluded cross-guarantees in the aggregate amount of $5.7 million issued as of June 30, 2022, to RMB and 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.
(E) – We have excluded cross-guarantees in the aggregate amount of $0.1 million issued as of June 30, 2023, to RMB and 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.
For fiscal 2021, in determining the fair value of certain of our equity-accounted investments, we have considered (i) for Finbond specifically, as it is listed on the Johannesburg Stock Exchange, 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.
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.
The translation rates we use in presenting our results of operations are the rates shown in the following table: Table 2 June 30, 2022 2021 2020 Income and expense items: $1 = ZAR 15.1978 15.7162 17.5686 Balance sheet items: $1 = ZAR 16.2903 14.3010 17.3326 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.
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.
The increase in segment 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 EBITDA margins shown by the business.
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.
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, 2022, includes restricted cash of approximately $9.5 million that has been ceded and pledged.
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.
Segment 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. 39 Our EBITDA loss margin in fiscal 2022 and 2021 was (33.7%) and (39.8%), respectively.
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.
(C) – Refer to Note 8 to our audited consolidated financial statements . (D) – Includes policyholder liabilities of $2.3 million related to our insurance business. All amounts are translated at exchange rates applicable as of June 30, 2022.
(C) – Refer to Note 8 to our audited consolidated financial statements. (D) – Includes policyholder liabilities of $1.8 million related to our insurance business. All amounts are translated at exchange rates applicable as of June 30, 2023.
We had outstanding capital commitments as of June 30, 2022, of $0.03 million. We expect to fund these expenditures through internally-generated funds.
We had outstanding capital commitments as of June 30, 2023, of $0.1 million. We expect to fund these expenditures through internally-generated funds.
Our chief operating decision maker 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”).
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 depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), non-recurring 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.
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.
Recent accounting pronouncements not yet adopted as of June 30, 2022 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, 2022, including the expected dates of adoption and effects on financial condition, results of operations and cash flows.
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.
In ZAR, the decrease in selling, general and administration expenses was 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.
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.
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 2021 and 2020, for certain of our equity-accounted investments following the identification of certain impairment indicators.
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 increase in cost of goods sold, IT processing, servicing and support was 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.
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.
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.
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.
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.
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.
In addition, corporate and corporate office activities that are impracticable to ascribe directly to any of the other operating segments, as well as any inter-segment eliminations, are included in Corporate/Eliminations. 35 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 65% 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.
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 also made our second provisional South African tax payments of $0.7 million (ZAR 10.9 million related to our 2021 tax year and received tax refunds of $0.3 million (ZAR (4.5) million). During fiscal 2021, we made our first provisional South African tax payments of $0.9 million (ZAR 12.7 million) related to our 2021 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 2020, we also made our second provisional South African tax payments of $0.5 million (ZAR 8.0 million) related to our 2020 tax year and made an additional tax payment of $0.8 million (ZAR 11.6 million) related to our 2019 tax year. We also paid taxes totaling $4.3 million in other tax jurisdictions, primarily South Korea.
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.
Taxes paid during fiscal 2022, 2021 and 2020 were as follows: Table 16 Year ended June 30, 2022 2021 2020 2022 2021 2020 $ $ $ ZAR ZAR ZAR ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 First provisional payments 585 853 825 9,142 12,680 11,934 Second provisional payments 691 209 470 10,929 2,907 8,038 Taxation paid related to prior years 1 205 782 19 3,423 11,620 Tax refund received (300) (13) (1,339) (4,542) (225) (19,245) Total South African taxes paid 977 1,254 738 15,548 18,785 12,347 Foreign taxes paid 161 15,354 4,263 2,482 256,616 62,302 Total tax paid 1,138 16,608 5,001 18,030 275,401 74,649 We expect to make additional provisional income tax payments in South Africa related to our 2022 tax year in the first quarter of fiscal 2023, however, the amount was not quantifiable as of the date of the filing of this Annual Report on Form 10-K.
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.
During fiscal 2021, we also made our second provisional South African tax payments of $0.2 million (ZAR 2.9 million related to our 2021 tax year and made an additional tax payment of $0.2 million (ZAR 3.4 million) related to our 2020 tax year. We also paid taxes totaling $15.4 million in other tax jurisdictions, primarily in the U.S.
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.
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.
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.
The Lease adjustments reflect lease charges excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as a reconciling item to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss before income tax expense.
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.
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, 2022 2021 2020 ZAR : $ average exchange rate 15.2154 15.4146 15.6775 Highest ZAR : $ rate during period 16.2968 17.6866 19.0569 Lowest ZAR : $ rate during period 14.1630 13.4327 13.8973 Rate at end of period 16.2903 14.3010 17.3326 34 Translation Exchange Rates We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis.
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.
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.
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.
Accounts Receivable and Allowance for Doubtful Accounts Receivable We maintain an allowance for doubtful accounts receivable related to our Consumer and Merchant 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.
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.
The results of our impairment tests during fiscal 2021 and 2020, resulted in impairments of $21.1 million and $33.8 million, respectively, related to our equity-accounted investments. These impairments are discussed in Note 9 to our audited consolidated financial statements.
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.
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.
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.
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.
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.
In addition to these capital expenditures, we expect that capital spending for fiscal 2023 will include limited investments into our ATM infrastructure and branch network in South Africa as well as IT equipment, and through Connect, spending for POS devices, safe assets, vehicles, computer and office equipment.
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
Depreciation and amortization expense increased in fiscal 2022 compared with fiscal 2021 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.
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.
Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of June 30, 2022, includes restricted cash of approximately $51.3 million related to cash withdrawn from our debt facility to fund ATMs.
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.
We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
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.
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.
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.
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.
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 Company did not identify any observable transactions during the year ended June 30, 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.
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.
(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. Long-term borrowings We obtained long-term borrowings of ZAR 1.1 billion to partially fund the acquisition of Connect.
(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.
Refer to Note 3 to our audited consolidated financial statements for additional information related to the acquisition.
Refer to Note 6 to our consolidated financial statements for additional information related to these currency options.
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.
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.
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.
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.
Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before intercompany eliminations. A reconciliation between total operating segment revenue and revenue presented in our audited consolidated financial statements is included in Note 21 to those statements.
Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before intercompany eliminations.
Cash flows from investing activities Cash used in investing activities for fiscal 2022 included capital expenditures of $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 $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.
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.
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.
During fiscal 2022, we recorded a net decrease of $1.7 million, to our valuation allowance, and during fiscal 2021 and 2020, respectively, we recorded a net increase of $1.5 million and $13.4 million.
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.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 49 Capital Expenditures Capital expenditures for the years ended June 30, 2022, 2021 and 2020 were as follows: 2022 2021 2020 2022 2021 2020 $ $ $ ZAR ZAR ZAR ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 Consumer 1,712 3,433 2,540 26,019 53,954 39,919 Merchant 2,811 829 1,193 42,721 13,029 18,749 Other 35 23 702 532 361 11,033 Total 4,558 4,285 4,435 69,272 67,344 69,701 Our capital expenditures for fiscal 2022, 2021 and 2020, 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.
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.
As of June 30, 2022 and 2021, the valuation allowance related to deferred tax assets was $117.1 million and $118.8 million, respectively. 32 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.
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.
In addition, we make judgments and assumptions in allocating assets and liabilities to each of our reporting units. 30 The results of our impairment tests during fiscal 2022 and 2021 indicated that the fair value of our reporting units exceeded their carrying values and so did not require impairment.
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.
Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2022, for additional information related to our borrowings. 46 Available short-term borrowings Summarized below are our short-term facilities available and utilized as of June 30, 2022: 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 - - - - 15,221 247,954 - - Overdraft restricted as to use (1) 85,941 1,400,000 - - - - - - Total overdraft 85,941 1,400,000 - - 15,221 247,954 - - Indirect and derivative facilities (2) - - 8,287 135,000 - - 9,610 156,566 Total short-term facilities available 85,941 1,400,000 8,287 135,000 15,221 247,954 9,610 156,566 Utilized short-term facilities: Overdraft - - - - 14,880 242,399 - - Overdraft restricted as to use (1) 51,338 836,310 - - - - - - Indirect and derivative facilities (2) - - 313 5,097 - - 5,654 92,099 RMB interest rate, based on South African prime rate 8.25% 8.15% (1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash.
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.
In contemplation of the Connect transaction, Connect obtained total facilities of ZAR 1.3 billion which were utilized to repay its existing borrowings and to fund a portion of its capital expenditures and to settle obligations under the transaction documents.
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.
Our net cash used in operating activities during fiscal 2020 includes the contribution from our South Korean operations for eight months of $14.6 million (refer to Note 24). During fiscal 2022, we paid 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 made our first provisional South African tax payments of $0.6 million (ZAR 9.1 million) related to our 2022 tax year.
Our EBITDA (loss) margin for the Other segment was 29.7% and (312.7%) during fiscal 2022 and 2021, respectively.
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%) .
After adjusting for the reorganization charge our fiscal 2022 EBITDA loss margin was (24.8%). 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.
(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.
In fiscal 2022, we absorbed $5 million into working capital compared to a $4.7 million release from working capital in fiscal 2021. Net cash used in operating activities during fiscal 2021 was $58.4 million (ZAR 917.4 million) compared to $46.0 million (ZAR 723.7 million) generated during fiscal 2020.
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.
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.
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.
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.
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 a loss of $0.5 million related to the disposal of Bank Frick during fiscal 2021, refer to Note 9 to our audited consolidated financial statements for additional information regarding this transaction. 42 We recorded a gain of $9.7 million related to the disposal of FIHRST during fiscal 2020, which was partially offset by a $1.0 million loss on the disposal of our remaining interest in DNI and a $7.1 million loss on the deconsolidation of CPS.
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.
Contractual Obligations The following table sets forth our contractual obligations as of June 30, 2022: Table 17 Payments due by Period, as of June 30, 2022 (in $ ’000s) Total Less than 1 year 2-3 years 3-5 years Thereafter Short-term credit facilities (A) 66,218 66,218 - - - Long-term borrowings Principal repayments (A)(B) 141,646 6,804 86,628 48,214 - Interest payments (A)(B) 29,701 10,745 11,964 6,992 - Operating lease liabilities, including imputed interest (C) 9,819 2,896 3,207 1,991 1,725 Purchase obligations 10,998 10,998 - - - Capital commitments 33 33 - - - Other long-term obligations reflected on our balance sheet (D)(E) 2,466 - - - 2,466 Total 260,881 97,694 101,799 57,197 4,191 (A) – Refer to Note 12 to our audited consolidated financial statements .
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 (A) – Refer to Note 12 to our audited consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+3 added−1 removed8 unchanged
Biggest changeInterest 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.
Biggest changeAs 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.
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 Microlending Credit Risk We are exposed to credit risk in our microlending activities, which provides unsecured short-term loans to qualifying customers.
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.
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, 2022.
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.
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, 2022, are shown. The selected 1% hypothetical change does not reflect what could be considered the best- or worst-case scenarios.
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.
The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of June 30, 2022, 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, 2022.
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.
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, 2022, we did not have any equity securities that were exchange-traded and held as available for sale.
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.
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 affordability test takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.
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.
We hold approximately 29.3% 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 $7.5 million as of June 30, 2022, represented approximately 1.1% of our total assets, including these securities. 52
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 $4.6 million as of June 30, 2023, represented approximately 0.8% of our total assets, including these securities. 52
Table 20 As of June 30, 2022 Annual expected interest charge ($ ’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 11,885 1% 1,428 13,313 (1%) (1,432) 10,453 Credit Risk Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties.
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 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.
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.
Our outstanding foreign exchange contracts as of June 30, 2021 were as follows: Table 19 Notional amount ('000) Strike price Fair market Maturity EUR 5.7 USD 1.1911 USD 1.1859 July 2, 2021 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.
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.
Removed
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.
Added
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.
Added
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.
Added
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.

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