Fair Value Of Financial Instruments

12 Months Ended

Jun. 30, 2024

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value of financial instruments

Initial recognition and measurement

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

which includes transaction costs. 

Risk management

The Company manages its exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price

and liquidity risks as discussed below. 

Currency exchange risk

The Company is subject to currency exchange risk because it purchases components for its vaults, that the Company assembles,

and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar. The Company has used

forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand

(“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.

Translation risk

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting

currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to

the ZAR exchange rate has fluctuated significantly over the past three years. As exchange rates are outside the Company’s control,

there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.

Interest rate risk

As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which

it manages primarily through regular financing activities. Interest rates in South Africa have been trending upwards in recent quarters

but have, as of the date of these consolidated annual financial statements, stabilized and are expected to remain at current levels, or

perhaps even decline moderately towards the last quarter of calendar 2024. Therefore, ignoring the impact of changes to the margin

on its borrowings (refer to Note 12), the Company expects its cost of borrowing to remain stable, or even to decline moderately, in the

foreseeable future, however if the upward trend resumes the Company would expect higher interest rates in the future which will

increase its cost of borrowing. The Company periodically evaluates the cost and effectiveness of interest rate hedging strategies to

manage this risk. The Company generally maintains surplus cash in cash equivalents and held to maturity investments and has

occasionally invested in marketable securities.

Credit risk

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The

Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an

evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the

Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of

entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its

equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

Consumer microlending credit risk

The Company is exposed to credit risk in its Consumer microlending activities, which provides unsecured short-term loans to

qualifying customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of

which are in line with local regulations. The Company considers this policy to be appropriate because the affordability test it performs

takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional

allowances may be required should the ability of its customers to make payments when due deteriorate in the future. Judgment is

required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation of the creditworthiness

of each customer.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Risk management (continued)

Merchant lending

The Company maintains an allowance for doubtful finance loans receivable related to its Merchant services segment with respect

to short-term loans to qualifying merchant customers. The Company’s risk management procedures include adhering to its proprietary

lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit

bureau checks. The Company considers these procedures to be appropriate because it takes into account a variety of factors such as

the customer’s credit capacity and customer-specific risk factors when originating a loan.

Equity price and liquidity risk

Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price

of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the

amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value. 

Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange

on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an

extended period of time without influencing the exchange-traded price, or at all.

Financial instruments

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly

transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or

liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability,

not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk

including the Company’s own credit risk. 

Fair value measurements and inputs are categorized into a fair value hierarchy which prioritizes the inputs into three levels based

on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in

one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are: 

●

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

●

Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar

instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are

observable in the market or can be corroborated by observable market data for substantially the full term of the assets or

liabilities.

●

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market

participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques

that include option pricing models, discounted cash flow models, and similar techniques.

The following section describes the valuation methodologies the Company uses to measure its significant financial assets and

liabilities at fair value.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C

The Company’s Level 3 asset represents an investment of

75,000,000

 class “A” shares in Cell C, a significant mobile telecoms

provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of

its investment in Cell C as of June 30, 2024 and June 30, 2023, respectively, and valued Cell C at $

0.0

 (zero) and $

0.0

 (zero) as of

June 30, 2024, and June 30, 2023, respectively. The Company incorporates the payments under Cell C’s lease liabilities into the cash

flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company has assumed a

the marketability discount of

20

% and a minority discount from of

24

%. The Company utilized the latest business plan provided by

Cell C management for the period ended December 31, 2027, for the June 30, 2024, and June 30, 2023, valuations. Adjustments have

been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its business plan.

The following key valuation inputs were used as of June 30, 2024 and 2023:

Weighted Average Cost of Capital ("WACC"):

Between

21

% and

26

% over the period of the forecast

Long-term growth rate:

4.5

% (

4.5

% as of June 30, 2023)

Marketability discount:

21

% (

20

% as of June 30, 2023)

Minority discount:

24

% (

24

% as of June 30, 2023)

Net adjusted external debt - June 30, 2024:

(1)

ZAR

8

 billion ($

0.4

 billion), no lease liabilities included

Net adjusted external debt - June 30, 2023:

(2)

ZAR

8.1

 billion ($

0.4

 billion), no lease liabilities included

(1) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2024.

(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023.

The fair value of Cell C as of June 30, 2024, utilizing the discounted cash flow valuation model developed by the Company is

sensitive to the following inputs: (i) the ability of Cell C to achieve the forecasts in their business case; (ii) the weighted average cost

of capital (“WACC”) rate used; and (iii) the minority and marketability discount used. Utilization of different inputs, or changes to

these inputs, may result in a significantly higher or lower fair value measurement. 

The following table presents the impact on the carrying value of the Company’s Cell C investment of a

1.0

% decrease and

1.0

%

increase in the WACC rate and the EBITDA margins used in the Cell C valuation on June 30, 2024, all amounts translated at exchange

rates applicable as of June 30, 2024:

Sensitivity for fair value of Cell C investment

1.0% increase

1.0% decrease

WACC rate

$

-

$

1,010

EBITDA margin

$

607

$

-

The fair value of the Cell C shares as of June 30, 2024, represented approximately

0

% of the Company’s total assets, including

these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price

volatility with respect to these shares particularly given the current situation of Cell C’s business.

Derivative transactions - Foreign exchange contracts

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to

foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative

transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B”

(or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value

(Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy. 

The Company had

no

 outstanding foreign exchange contracts as of June 30, 2024 and June 30, 2023, respectively.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Financial instruments (continued)

Derivative transactions - Foreign exchange option contracts during the year ended June 30, 2022

The Company held a significant amount of U.S. dollars in early fiscal 2022 and intended to use a portion of these funds to settle

part of the purchase consideration related to the Connect acquisition. The purchase consideration was expected to be settled in ZAR.

Accordingly, the Company entered into foreign exchange option contracts with FirstRand Bank Limited acting through its Rand

Merchant Bank division (“RMB”) in November 2021 in order to manage the risk of currency volatility and to fix the ZAR amount to

be utilized for part of the purchase consideration settlement. These foreign exchange option contracts, also known as synthetic

forwards, were over-the-counter derivative transactions (Level 2). RMB’s long -term credit rating is “BB”. The Company used quoted

prices in active markets for similar assets and liabilities to determine fair value of the foreign exchange option contracts (Level 2). 

The Company marked-to-market the synthetic forwards as of December 31, 2021, using a Black-Scholes option pricing model

which determined the respective fair value of the options utilizing current market parameters. During the year ended June 30, 2022,

the Company recorded a net gain of $

3.7

 million, which comprised a net gain of $

6.1

 million (which includes the reversal of the $

2.4

.

million unrealized loss which was previously recognized) recorded during the three months ended March 2022, and the unrealized

loss of $

2.4

 million recorded during the three months ended December 31, 2021. The net gain is included in the caption gain related

to fair value adjustment to currency options in the Company’s consolidated statements of operations for the year ended June 30, 2022.

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2024, according to

the fair value hierarchy:

Quoted Price in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

Assets

Investment in Cell C

$

-

$

-

$

-

$

-

Related to insurance business: 

Cash, cash equivalents and

restricted cash (included in other

long-term assets) 

216

-

-

216

Fixed maturity investments

(included in cash and cash

equivalents)

4,635

-

-

4,635

Total assets at fair value 

$

4,851

$

-

$

-

$

4,851

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2023, according to

the fair value hierarchy:

Quoted Price in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

Assets

Investment in Cell C

$

-

$

-

$

-

$

-

Related to insurance business

Cash and cash equivalents

(included in other long-term

assets)

258

-

-

258

Fixed maturity investments

(included in cash and cash

equivalents)

3,119

-

-

3,119

Total assets at fair value 

$

3,377

$

-

$

-

$

3,377

6. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Financial instruments (continued)

There have been

no

 transfers in or out of Level 3 during the years ended June 30, 2024, 2023 and 2022, respectively.

There was

no

 movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level

3, during the years ended June 30, 2024 and 2023. Summarized below is the movement in the carrying value of assets measured at fair

value on a recurring basis, and categorized within Level 3, during the year ended June 30, 2024:

Carrying value

Assets

Balance as of June 30, 2023

$

-

Foreign currency adjustment

(1)

-

Balance as of June 30, 2024

$

-

(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar

on the carrying value.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and

categorized within Level 3, during the year ended June 30, 2023:

Carrying value

Assets

Balance as at June 30, 2022

$

-

Foreign currency adjustment

(1)

-

Balance as of June 30, 2023

$

-

(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar

on the carrying value.

Trade, finance loans and other receivables

Trade, finance loans and other receivables originated by the Company are stated at cost less allowance for doubtful accounts

receivable. The fair value of trade, finance loans and other receivables approximates their carrying value due to their short-term nature.

Trade and other payables

The fair values of trade and other payables approximates their carrying amounts, due to their short-term nature.

Assets and liabilities measured at fair value on a nonrecurring basis 

The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The

fair values of these investments are determined based on valuation techniques using the best information available, and may include

quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of

the asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 9 for impairment charges

recorded during the reporting periods presented herein. The Company has

no

 liabilities that are measured at fair value on a nonrecurring

basis.