UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 20172019

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ______________ to _________________________________ To_____________________

Commission file number:000-31203

NET 1 UEPS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

President Place, 4^th Floor, Cnr. Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg 2196, South Africa
(Address of principal executive offices, including zip code)

Registrant’sRegistrant's telephone number, including area code:27-11-343-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer”, “accelerated filer”, “smallerfiler," "accelerated filer," "smaller reporting company”,company," and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act (check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [   ]  NO [X ][X]

As of February 6, 20183, 2020 (the latest practicable date), 56,832,37056,568,425 shares of the registrant’sregistrant's common stock, par value $0.001 per share, net of treasury shares, were outstanding.

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC.INC

Table of Contents

Part I. Financial Informationinformation

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

		Unaudited			(A)
		December 31,			June 30,
		2017			2017
		(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	64,896		$	258,457
Pre-funded social welfare grants receivable (Note 2)		3,300			2,322
Accounts receivable, net of allowances of – December: $1,251; June: $1,255		128,543			111,429
Finance loans receivable, net of allowances of – December: $17,213; June: $7,469		105,697			80,177
Inventory (Note 3)		12,482			8,020
Deferred income taxes (Note 1)		-			5,330
Total current assets before settlement assets		314,918			465,735
Settlement assets (Note 4)		412,177			640,455
Total current assets		727,095			1,106,190
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – December: $136,996; June: $120,212		32,852			39,411
EQUITY-ACCOUNTED INVESTMENTS (Note 6)		147,392			27,862
GOODWILL (Note 7)		199,495			188,833
INTANGIBLE ASSETS, net (Note 7)		34,604			38,764
DEFERRED INCOME TAXES (Note 1)		3,342			-
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and Note 8)		225,463			49,696
TOTAL ASSETS		1,370,243			1,450,756
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities (Note 9)		35,553			16,579
Accounts payable		16,971			15,136
Other payables		39,168			34,799
Current portion of long-term borrowings (Note 10)		50,530			8,738
Income taxes payable		5,311			5,607
Total current liabilities before settlement obligations		147,533			80,859
Settlement obligations (Note 4)		412,177			640,455
Total current liabilities		559,710			721,314
DEFERRED INCOME TAXES (Note 1)		9,866			11,139
LONG-TERM BORROWINGS (Note 10)		19,867			7,501
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8)		2,449			2,795
TOTAL LIABILITIES		591,892			742,749
COMMITMENTS AND CONTINGENCIES (Note 18)
REDEEMABLE COMMON STOCK (Note 1)		107,672			107,672
EQUITY
COMMON STOCK (Note 11)
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - December: 56,832,370; June: 56,369,737		80			80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: -		-			-
ADDITIONAL PAID-IN-CAPITAL		274,961			273,733
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292		(286,951	)		(286,951	)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12)		(123,359	)		(162,569	)
RETAINED EARNINGS		802,381			773,276
TOTAL NET1 EQUITY		667,112			597,569
NON-CONTROLLING INTEREST		3,567			2,766
TOTAL EQUITY (Note 1)		670,679			600,335
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK ANDSHAREHOLDERS’ EQUITY	$	1,370,243		$	1,450,756

Unaudited Condensed Consolidated Balance Sheets

(A) –- Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Operations

NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Comprehensive Income

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

NET 1 UEPS TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statements of Operations

Unaudited Condensed Consolidated Statements of Changes in Equity

NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Changes in Equity

NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Cash Flows

NET 1 UEPS TECHNOLOGIES, INC

Notes to the Unaudited Condensed Consolidated Financial Statements

3

(1) Cash, cash equivalents and restricted cash as of December 31, 2016, includes restricted cash2019 and 2018
(All amounts in tables stated in thousands or thousands of approximately $43.7 million related to the guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division). This cash was placed into an escrow account and was considered restricted as to use and therefore was classified as restricted cash. The restriction lapsed upon expiry of the guarantee.U.S. dollars, unless otherwise stated)

6

1. Basis of Presentation and Summary of Significant Accounting Policies

In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company duly incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited ("FIHRST") for $11.7 million (ZAR 172.2 million). The transaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings - refer to Note 10.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”("GAAP") and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three and six months ended December 31, 20172019 and 2016,2018, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented. During the three months ended December 31, 2017, the Company reclassified redeemable common stock out of total equity because redeemable common stock is required to be presented outside of permanent equity. The Company has restated these amounts in its unaudited condensed consolidated balance sheet as at June 30, 2017 and unaudited condensed consolidated statement of changes in equity for the six months ended December 31, 2017. The reclassification resulted in a decrease in total equity by approximately $107.7 million and an increase in redeemable common stock, presented outside of permanent equity, of approximately $107.7 million. This reclassification had no impact on the Company’s previously reported consolidated income, comprehensive income or cash flows.

References to the “Company”"Company" refer to Net1 and its consolidated subsidiaries, collectively, unless the context otherwise requires. References to “Net1”"Net1" are references solely to Net 1 UEPS Technologies, Inc.

Recent accounting pronouncements adoptedConsideration of going concern

In August 2014, the FASB issued guidance regardingDisclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ThisAccounting guidance requires an entitythe Company's management to perform interim and annual assessments of itsassess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year of the date thatafter its unaudited condensed consolidated financial statements are issued. An entity must provideThe Company's management has identified certain disclosures if conditions or events, which, considered in the aggregate, could raise substantial doubt about the entity’sCompany's ability to continue as a going concern including the risk that the Company will be unable to:

• deliver all or a substantial part of the financial results forecast in its fiscal 2020 budget;
• retain its existing borrowings and facilities, as described in Note 10, or obtain additional borrowings and facilities on commercially reasonable terms;
• arrive at a commercial settlement with SASSA, given the September 30, 2019, Supreme Court of Appeal ruling regarding the repayment of the additional implementation costs received to SASSA (refer Note 11) and the ongoing dispute the Company has with SASSA over fees due for the six-month contract extension period in accordance with National Treasury's recommendation;
• dispose of all or a portion of its remaining 30% interest in DNI-4PL Contracts Proprietary Limited ("DNI"). DNI's operations are also significantly dependent on Cell C because it is the largest distributor of Cell C starter packs in South Africa. Therefore, the inability of Cell C to continue to operate through the next 12 months could also have an adverse impact on DNI's operations; or
• dispose of additional investments in order to realize sufficient cash flows.

The Company's management has implemented a number of plans to alleviate the substantial doubt about the Company's ability to continue as a going concern. The guidance is effectiveThese plans include disposing of its Korean business unit, KSNET, as announced in its press release of January 27, 2020, certain non-core assets (refer to Note 3 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the Company beginning July 1, 2017. The adoption ofyear ended June 30, 2019, for additional information regarding a call option granted to DNI), and extending its existing borrowings used to fund its ATMs through September 2020. Provided the KSNET disposal closes, as expected, in March 2020, this guidance did not haveis expected to remove the substantial doubt about the Company's ability to continue as a material impact on the Company’s financial statements disclosures.going concern.

In July 2015,addition, the FASB issued guidance regardingSimplifying the Measurement of Inventory. This guidance requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). The guidance will not apply to inventories that are measured by using either the last-in, first-out (“LIFO”) method or the retail inventory method (“RIM”). The guidance is effective for the Company beginning July 1, 2017. The adoption of this guidance did not haveCompany's management believes it has a material impact on the Company’s financial statements.

In November 2015, the FASB issued guidance regardingBalance Sheet Classification of Deferred Taxes. This guidance requires that deferred tax liabilities and assets are to be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. This guidance is effective for the Company beginning July 1, 2017, and has been applied on a prospective basis. The adoption of this guidance has resulted in the reclassification of current deferred tax assets and liabilities as non-current deferred tax assets and liabilities in the unaudited condensed consolidated balance sheet as of December 31, 2017. Prior period current deferred tax assets have not been reclassified as non-current in the unaudited condensed consolidated balance sheet as of June 30, 2017.

In March 2016, the FASB issued guidance regardingImprovements to Employee Share-Based Payment Accounting. The guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance is effective for the Company beginning July 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements. The Company has elected to continue to estimate the number of forfeitures when an award is made.mitigating actions it can pursue, including (i) limiting the expansion of its microlending finance loans receivable book in South Africa; (ii) implementing further cost cutting measures; (iii) commencing additional asset realizations; (iv) managing its capital expenditures; and (v) accessing alternative sources of capital (including through the issuance of additional shares of its common stock), in order to generate additional liquidity.

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

Consideration of going concern (continued)

The Company's management believes that these plans and mitigating actions alleviate the substantial doubt referred to above and therefore have concluded that the Company remains a going concern.

Recent accounting pronouncements not yet adopted as of December 31, 2017

In May 2014, the FASB issued guidance regardingRevenue from Contracts with Customers. This guidance requires an entity to recognize revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance was originally set to be effective for the Company beginning July 1, 2017, however in August 2015, the FASB issued guidance regardingRevenue from Contracts with Customers, Deferral of the Effective Date. This guidance defers the required implementation date specified inRevenue from Contracts with Customers to December 2017. Public companies may elect to adopt the standard along the original timeline.

The guidance is effective for the Company beginning July 1, 2018. The Company expects that this guidance may have a material impact on its financial statements and is currently evaluating the impact of this guidance on its financial statements on adoption.

In January 2016, the FASB issued guidance regardingRecognition and Measurement of Financial Assets and Financial Liabilities. The guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance requires changes in the fair value of the Company’s equity investments, with certain exceptions, to be recognized through net income rather than other comprehensive income. In addition, the guidance clarifies the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This guidance is effective for the Company beginning July 1, 2018, and early adoption is not permitted, with certain exceptions. The amendments are required to be applied by means of a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

In February 2016, the FASBFinancial Accounting Standards Board ("FASB") issued guidance regardingLeases. The guidance increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. The amendments to current lease guidance include the recognition of assets and liabilities by lessees for those leases currently classified as operating leases. The guidance also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance iswas effective for the Company beginning July 1, 2019. Early adoption is permitted. The Company expects that this guidance may have a material impact on its financial statements and is currently evaluatingRefer to Note 18 for the impact of the adoption of this guidance on itsour condensed consolidated financial statements on adoption.statements.

Recent accounting pronouncements not yet adopted as of December 31, 2019

In June 2016, the FASB issued guidance regardingMeasurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2020. Early adoption is permitted beginning July 1, 2019. The Company is currently assessing the impact of this guidance on its financial statements disclosure.and related disclosures.

In June 2016,August 2018, the FASB issued guidance regardingClassification of Certain Cash Receipts and Cash PaymentsDisclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement.. The guidance is intendedmodifies the disclosure requirements related to reduce diversity in practice and explains how certain cash receipts and payments are presented and classified in the statement of cash flows, including beneficial interests in securitization, which would impact the presentation of the deferred purchase price from sales of receivables.fair value measurement. This guidance is effective for the Company beginning July 1, 2018, and must be applied retrospectively.2020. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

2.Disposal of controlling interest in FIHRST and KSNET

December 2019 disposal of FIHRST

In January 2017, the FASB issued guidance regardingClarifying the Definition of a Business.This guidance provides a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The guidance is effective forNovember 2019, the Company beginning July 1, 2018. Early adoption is permitted.through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company duly incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited ("FIHRST") for $11.7 million (ZAR 172.2 million). The Company is currently assessingtransaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings - refer to Note 10.

2.Disposal of controlling interest in FIHRST and KSNET (continued)

December 2019 disposal of FIHRST (continued)

The table below presents the impact of this guidance on its financial statements disclosure.

In January 2017, the FASB issued guidance regardingSimplifyingdeconsolidation of FIHRST and the Test for Goodwill Impairment.This guidance removes the requirement for an entity to calculate the implied fair value of goodwill (as part of step 2calculation of the current goodwill impairment test) in measuringnet gain recognized on deconsolidation:

(1) Net1 SA recorded a goodwill impairment loss. The guidance is effective forvaluation allowance related to capital losses previously generated but not utilized. A portion of these unutilized capital losses was utilized as a result of the disposal of FIHRST and, therefore, the equivalent portion of the valuation allowance created was released.

Pro forma results of operations related to the FIHRST disposal have not been presented because the effect of the disposal was not material to the Company.

Disposal of KSNET

On January 23, 2020, the Company, beginning July 1,through its wholly owned subsidiary Net1 Applied Technologies Netherlands B.V. ("Net1 BV"), a limited liability private company duly incorporated in The Netherlands, entered into an agreement with PayletterHoldings LLC, a limited liability private company duly incorporated in the Republic of Korea, in terms of which Net1 BV agreed to sell its entire shareholding in Net1 Applied Technologies Korea Limited, a limited liability private company incorporated in the Republic of Korea and the sole shareholder of KSNET, Inc. for $237.2 million. The transaction is subject to customary closing conditions and is expected to close in March 2020. Early adoptionThe transaction is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact of this guidance.not subject to a financing condition.

1. Basis of Presentation3.Accounts receivable, net and Summary of Significant Accounting Policies (continued)other receivables and finance loans receivable, net

Recent accounting pronouncements not yet adoptedAccounts receivable, net and other receivables

The Company's accounts receivable, net, and other receivables as of December 31, 2017 (continued)

In May 2017, the FASB issued guidance regardingCompensation—Stock Compensation (Topic 718): Scope of Modification Accounting.The guidance amends the scope of modification accounting for share-based payment arrangements2019, and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The guidanceJune 30, 2019, is effective for the Company beginning July 1, 2018. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

2. Pre-funded social welfare grants receivable

Pre-funded social welfare grants receivable represents primarily amounts pre-funded by the Company to certain merchants participatingpresented in the merchant acquiring system. table below:

The January 2018 payment service commenced on January 2, 2018, but the Company pre-funded certain merchants participatingloan provided to DNI was repaid in full in July 2019. Other receivables include prepayments, deposits and other receivables.

Finance loans receivable, net

The Company's finance loans receivable, net, as of December 31, 2019, and June 30, 2019, is presented in the merchant acquiring systems on December 30, 2017. The July 2017 payment service commenced on July 1, 2017, but the Company pre-funded certain merchants participating in the merchant acquiring systems on the last day of June 2017.table below:

4. Inventory

The Company’sCompany's inventory comprised the following categorycategories as of December 31, 20172019, and June 30, 2017.2019.

4. Finished goods subject to sale restrictions represent airtime inventory purchased and held for sale to customers that may only be sold by the Company after March 31, 2020, and only with the express permission of certain South African banks. As discussed in Note 10, the Company obtained additional borrowings from its existing bankers to purchase Cell C airtime from an independent distributor of Cell C airtime. The Company did not pay the vendor for the airtime inventory directly because the parties (the vendor, Cell C, the Company and certain South African banks) agreed that the Company would pay the amount to Cell C to settle amounts payable to Cell C by the vendor in order to inject additional liquidity into Cell C. The Company may not return any unsold airtime inventory to either the vendor or Cell C. The Company agreed to mandatory prepayment terms, which require the Company to use the proceeds from the sale of the airtime inventory to settle certain borrowings. For more information about the amended finance documents, refer to Note 10.

5.Settlement assets and settlement obligations

Settlement assets comprise (1) cash received from the South African government that the Company holds pending disbursement to recipient cardholders of social welfare grants (2) cash received from credit card companies (as well as other types of payment services) which have business relationships with merchants selling goods and (2)services via the internet that are the Company's customers and on whose behalf it processes the transactions between various parties, and (3) cash received from customers on whose behalf the Company processes payroll payments that the Company will disburse to customer employees, payroll-related payees and other payees designated by the customer.

Settlement obligations comprise (1) amounts that the Company is obligated to disburse to recipient cardholders of social welfare grants, (2) amounts that the Company is obligated to disburse to merchants selling goods and (2)services via the internet that are the Company's customers and on whose behalf it processes the transactions between various parties and settles the funds from the credit card companies to the Company's merchant customers, and (3) amounts that the Company is obligated to pay to customer employees, payroll-related payees and other payees designated by the customer.

The balances at each reporting date may vary widely depending on the timing of the receipts and payments of these assets and obligations.

5. 6. Fair value of financial instruments

Fair value of financial instruments

Initial recognition and measurement

Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs.

Risk management

The Company seeks to reducemanages its exposure to currencies other than the South African rand through a policy of matching, to the extent possible, assets and liabilities denominated in those currencies. In addition, the Company utilized financial instruments in order to economically hedge its exposure tocurrency exchange, rate and interest rate fluctuations arising from its operations. The Company is also exposed to translation, interest rate, customer concentration, credit and equity price and liquidity risks.risks as discussed below.

Currency exchange risk

The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand ("ZAR"), on the one hand, and the U.S. dollar and the euro, on the other hand.