Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Lesaka Technologies disclosed 41 risk factors in its most recent earnings report. Lesaka Technologies reported the most risks in the “Finance & Corporate” category.

Risk Overview Q1, 2023

Risk Distribution

39% Finance & Corporate

22% Macro & Political

17% Legal & Regulatory

10% Production

7% Tech & Innovation

5% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2022

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Lesaka Technologies Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q1, 2023

Main Risk Category

Finance & Corporate

With 16 Risks

Finance & Corporate

With 16 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

1Risks added

0Risks removed

0Risks changed

Since Mar 2023

1Risks added

0Risks removed

0Risks changed

Since Mar 2023

Number of Risk Changed

No changes from last report

S&P 500 Average: 2

No changes from last report

S&P 500 Average: 2

See the risk highlights of Lesaka Technologies in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 41

Finance & Corporate

Total Risks: 16/41 (39%)Above Sector Average

Share Price & Shareholder Rights5 | 12.2%

Share Price & Shareholder Rights - Risk 1

Our stock price has been and may continue to be volatile.

Our stock price has periodically experienced significant volatility. During the 2022 fiscal year, our stock price ranged from a low of $3.84 to a high of $6.97. We expect that the trading price of our common stock may continue to be volatile as a result of a number of factors, including, but not limited to the following: - any adverse developments in litigation or regulatory actions in which we are involved;- fluctuations in currency exchange rates, particularly the U.S. dollar/ZAR exchange rate;- announcement of additional BEE transactions, especially one involving the issuance or potential issuance of equity securities or dilution or sale of our existing business in South Africa;- quarterly variations in our operating results;- significant fair value adjustments or impairment in respect of investments or intangible assets;- announcements of acquisitions or disposals;- the timing of, or delays in the commencement, implementation or completion of major projects;- large purchases or sales of our common stock; and - general conditions in the markets in which we operate. 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. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies, to expand into new markets and to make acquisitions, all of which may be dependent upon our ability to obtain financing through debt and equity or other means.

Share Price & Shareholder Rights - Risk 2

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. We granted the IFC Investors certain rights, including the right to require us to repurchase any share held by the IFC Investors pursuant to the May 2016 transaction upon the occurrence of specified triggering events, which we refer to as a "put right." The put price per share will be the higher of the price per share paid to us by the IFC Investors and the volume-weighted average price per share prevailing for the 60 trading days preceding the triggering event, except that with respect to a put right triggered by rejection of a bona fide offer, the put price per share will be the highest price offered by the offeror. If a put triggering event occurs, it could adversely impact our liquidity and capital resources. In addition, the existence of the put right could also affect whether or on what terms a third party might in the future offer to purchase our company. Our response to any such offer could also be complicated, delayed or otherwise influenced by the existence of the put right.

Share Price & Shareholder Rights - Risk 3

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.

There is a concentration of ownership of our outstanding common stock because approximately 33% of our outstanding common stock is owned by two shareholders. Based on their most recent SEC filings disclosing ownership of our shares, Value Capital Partners (Pty) Ltd, or VCP, and IFC Investors, beneficially own approximately 21% and 12% of our outstanding common stock as of June 30, 2022, respectively. VCP has agreed, pursuant to an Amended Cooperation Agreement dated December 9, 2020, to refrain from acquiring more than 24.9% of our outstanding common stock, excluding shares that may be issued pursuant to a stock purchase agreement dated March 22, 2022, or taking certain actions, including acting in concert with others, that could result in a change of control of the Company. These restrictions remain in effect through to the business day immediately following our 2022 annual meeting of shareholders. The interests of VCP and the IFC Investors may be different from or conflict with the interests of our other shareholders. As a result of the significant combined ownership by VCP and the IFC Investors, 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. This concentration of ownership may have the effect of delaying or preventing a change of control of our company, thus depriving shareholders of a premium for their shares, or facilitating a change of control that other shareholders may oppose.

Share Price & Shareholder Rights - Risk 4

We may seek to raise additional financing by issuing new securities with terms or rights superior to those of shares of our common stock, which could adversely affect the market price of such shares.

We may require additional financing to fund future operations, including expansion in current and new markets, programming development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies, or to fund acquisitions. We may also wish to raise additional equity funding to reduce the amount of debt funding on our balance sheet. Because of the exposure to market risks associated with economies in emerging markets, we may not be able to obtain financing on favorable terms or at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and voting power of shares of common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.

Share Price & Shareholder Rights - Risk 5

Issuances of significant amounts of stock in the future could potentially dilute your equity ownership and adversely affect the price of our common stock.

We believe that it is necessary to maintain a sufficient number of available authorized shares of our common stock in order to provide us with the flexibility to issue shares for business purposes that may arise from time to time. For example, we could sell additional shares to raise capital to fund our operations, to reduce debt or to acquire other businesses, issue shares in a BEE transaction, issue additional shares under our stock incentive plan or declare a stock dividend. Our board may authorize the issuance of additional shares of common stock without notice to, or further action by, our shareholders, unless shareholder approval is required by law or the rules of the NASDAQ Stock Market. The issuance of additional shares could dilute the equity ownership of our current shareholders and any such additional shares would likely be freely tradable, which could adversely affect the trading price of our common stock.

Accounting & Financial Operations2 | 4.9%

Accounting & Financial Operations - Risk 1

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. Our management evaluation and auditor attestation regarding the effectiveness of our internal control over financial reporting as of June 30, 2022, excluded the operations of Connect. If we are not able to integrate Connect's operations into our internal control over financial reporting, our internal control over financial reporting may not be effective.

Under Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes, we are required to furnish a management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting. We are required to report, among other things, control deficiencies that constitute a "material weakness" or changes in internal control that materially affect, or are reasonably likely to materially affect, internal control over financial reporting. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The requirement to evaluate and report on our internal controls also applies to companies that we acquire. As a group of private companies, Connect was not required to comply with Sarbanes prior to the time we acquired it. 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. If we fail to successfully integrate the operations of Connect, and any other acquisitions, into our internal control over financial reporting, our internal control over financial reporting may not be effective. While we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, 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.

Accounting & Financial Operations - Risk 2

Fluctuations in the value of the South African rand have had, and will continue to have, a significant impact on our reported results of operations, which may make it difficult to evaluate our business performance between reporting periods and may also adversely affect our stock price.

The South African rand, or ZAR, is the primary operating currency for our business operations while our financial results are reported in U.S. dollars. Therefore, any depreciation in the ZAR against the U.S. dollar, would negatively impact our reported revenue and net income. The U.S. dollar/ZAR exchange rate has historically been volatile and we expect this volatility to continue (refer to Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations-Currency Exchange Rate Information."). Due to the significant fluctuation in the value of the ZAR and its impact on our reported results, you may find it difficult to compare our results of operations between financial reporting periods even though we provide supplemental information about our results of operations determined on a ZAR basis. Similarly, depreciation in the ZAR may negatively impact the prices at which our stock trades. We generally do not engage in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations, other than economic hedging using forward contracts relating to our inventory purchases which are settled in U.S. dollars or euros. We cannot guarantee that we will enter into hedging transactions in the future or, if we do, that these transactions will successfully protect us against currency fluctuations.

Debt & Financing6 | 14.6%

Debt & Financing - Risk 1

We have a significant amount of indebtedness that requires us to comply with restrictive and financial covenants. If we are unable to comply with these covenants, we could default on this debt, which would have a material adverse effect on our business and financial condition.

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. 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. The loan agreements also include a credit enhancement mechanism of ZAR 350 million ($23.9 million, translated at closing date exchange rate), which has been provided by investment funds managed by Lesaka's largest shareholder, Value Capital Partners (Pty) Ltd ("VCP") which includes a contingent subscription for new shares. There can be no assurance that VCP will perform under the commercially agreed terms and failure by it to fulfil its obligation under the credit enhancement mechanism may put our funding or future repayments at risk. 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. 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 security arrangements and covenants may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us. If we are unable to comply with the covenants, we could be in default and the indebtedness could be accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business, financial condition and stock price would suffer.

Debt & Financing - Risk 2

Our investment in MobiKwik subjects us to certain risks, including the possibility of fluctuations in the carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.

We have elected to account for our investment in MobiKwik at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar instrument of the same issuer because it does not have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments and estimates and we are required to base our estimates on assumptions which we believe to be reasonable, but these assumptions may be unpredictable and inherently uncertain. The value of our investment in MobiKwik as of June 30, 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. 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. MobiKwik filed its draft red herring prospectus in July 2021, with the original intention of completing its initial public offering in November 2021. MobiKwik decided to delay its initial public offering given prevailing market conditions and will reassess their options as market conditions change. 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. Furthermore, it may be difficult to dispose of some or all of our investment on acceptable terms, if at all, if MobiKwik fails to list.

Debt & Financing - Risk 3

Our ability to fund our ATM network requires that we continue to have access to sufficient lending facilities, which requires compliance with restrictive and financial covenants.

The operational maintenance of our ATM network, along with an increase in our consumer banking client base, necessitates access to large amounts of cash to stock the ATMs and maintain uninterrupted service levels. We have credit facilities from a South African bank which includes security arrangements as well as restrictive and financial covenants. The security arrangements and covenants included in our lending facilities may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us. If we are unable to comply with the covenants in South Africa, we could be in default and the indebtedness could be accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business and financial condition would suffer. We may not be able to extend the terms of these debt facilities or refinance them, in each case, on commercially reasonable terms or at all. Our ability to continue the uninterrupted operation of our ATM network will be adversely impacted by our failure to renew our debt facilities, any adverse change to the terms of our credit facilities, or a significant reduction in the amounts available under our credit facilities, or our failure to increase our facilities if required. We may also suffer reputational damage if our service levels are negatively impacted due to the unavailability of cash.

Debt & Financing - Risk 4

Our consumer microlending loan book and merchant lending book expose us to credit risk and our allowance for doubtful finance loans receivable may not be sufficient to absorb future write-offs.

All of our microfinance loans made are for a period of six months or less and all of our merchant lending through Connect is for a period of less than 12 months. We have created an allowance for doubtful finance loans receivable related to these books. When creating the allowance, management considered factors including the period of the finance loan outstanding, creditworthiness of the customers and the past payment history of the borrower. We consider this policy to be appropriate as it takes into account factors such as historical bad debts, current economic trends and changes in our customer payment patterns. However, additional allowances may be required should the ability of our customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these microfinance loan receivables.

Debt & Financing - Risk 5

Cash Paymaster Services, or CPS, has been placed into liquidation. While no claim has been made against Lesaka for CPS' obligations, we cannot provide assurance that no such claim will be made.

CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While no claim has been made against Lesaka to be held liable for CPS' current obligations or any future obligations under any future court judgments, and while we do not believe that there would be a legitimate legal basis for any such claims, we cannot assure you that no such claim will be made against us. If SASSA or another third party were to seek and ultimately succeed in obtaining a judgment against us in respect of CPS' liabilities, any such judgment would have a material adverse effect on our financial condition, results of operations and cash flows.

Debt & Financing - Risk 6

We may incur material losses in connection with our movement of cash through our infrastructure in South Africa.

In our consumer business, many cardholders use our services to access cash using their debit cards. We use armored vehicles and our own fixed ATM infrastructure to deliver large amounts of cash across South Africa to enable these cardholders to receive this cash. 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. We are then responsible for its collection and transportation to processing centers, which we outsource to various cash in transit service providers. These services extend across all areas of South Africa. South Africa suffers from high levels of crime and in particular cash in transit heists. We cannot insure against certain risks of loss or theft of cash from our delivery and collection vehicles, 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 have not incurred any material losses resulting from cash distribution in recent years, but there is no assurance that we will not incur any such material losses in the future.

Corporate Activity and Growth3 | 7.3%

Corporate Activity and Growth - Risk 1

We may undertake acquisitions that could increase our costs or liabilities or be disruptive to our business.

Acquisitions are an integral part of our new growth strategy as we seek to expand our business and deploy our technologies in new markets in Southern Africa. However, we may not be able to locate suitable acquisition candidates at prices that we consider appropriate. If we do identify an appropriate acquisition candidate, we may not be able to successfully negotiate the terms of the transaction, finance it or, if the transaction occurs, integrate the new business into our existing business. These transactions may require debt financing or additional equity financing, resulting in additional leverage or dilution of ownership. Acquisitions of businesses or other material operations and the integration of these acquisitions or their businesses will require significant attention from members of our senior management team, which may divert their attention from our day-to-day business. The difficulties of integration may be increased by the necessity of integrating personnel with disparate business backgrounds and combining different corporate cultures. We also may not be able to retain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits that we anticipated when selecting our acquisition candidates. Acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition. We may need to record write-downs from future impairments of goodwill or other intangible assets, which could reduce our future reported earnings.

Corporate Activity and Growth - Risk 2

We may not achieve the expected benefits from our acquisition of Connect.

Our expectations regarding Connect's business and prospects may not be realized, including as a result of changes in the financial condition of the markets that Connect serves. In addition, there are risks associated with Connect's operations, including the risk of reduced cash settlements through Connect's vault infrastructure or higher cash losses, lower than expected growth in Connect's value-added services, lower than expected customer acquisition rates or higher than expected customer churn, lower than expected levels of loan advances or higher credit losses and slower than expected growth in card transactions. Furthermore, attempting to combine and integrate service offerings may be disruptive to us or unsuccessful, and our customers may not use our combined services to the extent that we hope they will. Any such failure could adversely impact our own business as well as Connect's, which could then reduce the value of our investment and adversely impact our other business and operational relationships. Our inability to achieve the expected benefits from the Connect transaction may have a material adverse effect on our business, results of operations or financial condition. For example, our revenues and operating income may be adversely affected and we could be required to impair all, or a part of, our investment in Connect. If some or all of the aforementioned or other risks materialize, our ability to realize the anticipated benefits of the Connect acquisition could be materially impaired, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.

Corporate Activity and Growth - Risk 3

We may not be able to successfully integrate Connect's operations with our business.

On April 14, 2022, we, through our wholly owned subsidiary Lesaka Technologies (Pty) Ltd ("Lesaka SA"), formerly Net1 Applied Technologies South Africa (Pty) Ltd, announced the closing of our ZAR 3.8 billion ($258.9 million) acquisition of Connect. The acquisition of Connect is strategically important for us because we believe that (i) the combination of complementary product offerings will assist us to drive stronger unit economics, (ii) the transaction facilitates expansion of our addressable market in the informal MSME sector, (iii) Connect has an attractive financial profile with a track record of strong and profitable growth opportunities, (iv) we have merged highly skilled teams with complementary expertise, and (v) we will be able to better serve the underserved. Integrating Connect into our company will require significant attention from our senior management, which may divert their attention from our existing businesses. The difficulties of integration may be increased by cultural differences between our two organizations and the potential difficulties in retaining and integrating personnel, including Connect's key employees and management team. The services of these individuals will be important to the continued growth and success of Connect's business and to our ability to integrate the two organizations. If we were to lose the services of these key employees or we fail to sufficiently integrate them, our ability to operate Connect successfully would likely be materially and adversely impacted. As such, if we are unable to successfully integrate Connect's operations into our business we could be required to record material impairments and our financial condition, results of operations, cash flows and stock price could suffer.

Macro & Political

Total Risks: 9/41 (22%)Above Sector Average

Economy & Political Environment5 | 12.2%

Economy & Political Environment - Risk 1

Geopolitical conflicts, including the conflict between Russia and Ukraine, may adversely affect our business and results of operations.

The current conflict between Russia and Ukraine is creating substantial uncertainty about the future of the global economy. Countries across the globe are instituting sanctions and other penalties against Russia. The retaliatory measures that have been taken, and could be taken in the future, by the U.S., NATO, and other countries have created global security concerns that could result in broader European military and political conflicts and otherwise have a substantial impact on regional and global economies, any or all of which could adversely affect our business. While the broader consequences are uncertain at this time, the continuation and/or escalation of the Russian and Ukraine conflict, along with any expansion of the conflict to surrounding areas, create a number of risks that could adversely impact our business, including: - increased inflation and significant volatility in the macroeconomic environment;- disruptions to our technology infrastructure, including through cyberattacks, ransom attacks or cyber-intrusion;- adverse changes in international trade policies and relations;- disruptions in global supply chains; and - constraints, volatility or disruption in the credit and capital markets. All of these risks could materially and adversely affect our business and results of operations. We are continuing to monitor the situation in Ukraine and globally and assessing the potential impact on our business.

Economy & Political Environment - Risk 2

A prolonged economic slowdown or lengthy or severe recession in South Africa or elsewhere could harm our operations.

A prolonged economic downturn or recession in South Africa could materially impact our results from operations, particularly in light of 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. Economic confidence in South Africa, our main operating environment, is currently low and, as a result, the risk of a prolonged economic downturn is increased, which could have a negative impact on merchants and retailers; mobile phone operators; our account holders; the level of transactions we process; the take-up of the financial services we offer and the ability of our customers to repay our loans or to pay their insurance premiums. If financial institutions and retailers experience decreased demand for their products and services, our hardware, software, related technology sales and processing revenue could decrease.

Economy & Political Environment - Risk 3

South Africa's high levels of poverty, unemployment and crime may increase our costs and impair our ability to maintain a qualified workforce

While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment, relative to peer countries in Africa and other emerging economies, and there are significant differences in the level of economic and social development among its people, with large parts of the population, particularly in rural areas, having limited access to adequate education, healthcare, housing and other basic services, including water and electricity. In addition, South Africa has a high prevalence of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of citizens under previous governments may increase our costs and reduce our profitability, all of which could negatively affect our business. These problems may prompt emigration of skilled workers, hinder investment into South Africa and impede economic growth. As a result, we may have difficulties attracting and retaining qualified employees.

Economy & Political Environment - Risk 4

The economy of South Africa is exposed to high rates of inflation, interest and corporate tax, which could increase our operating costs and thereby reduce our profitability. Furthermore, the South African government requires additional income to fund future government expenditures and may be required, among other things, to increase existing income tax rates, including the corporate income tax rate, amend existing tax legislation or introduce additional taxes.

The economy of South Africa in the past has been, and in the future may continue to be, characterized by rates of inflation and interest that are substantially higher than those prevailing in the United States and other highly-developed economies. High rates of inflation could increase our South African-based costs and decrease our operating margins. High interest rates increase the cost of our debt financing, though conversely, they also increase the amount of income we earn on any cash balances. The South African corporate income tax rate, of 28%, is higher than the U.S. federal income tax rate, of 21%. 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.

Economy & Political Environment - Risk 5

If we do not achieve applicable Broad-Based Black Economic Empowerment objectives in our South African businesses, we may be subject to fines and we risk losing our government and/or private contracts. In addition, it is possible that we may be required to increase the Black shareholding of our company in a manner that could dilute your ownership and/or change the companies from which we purchase goods or procure services (to companies with a better BEE Contributor Status Level).

The legislative framework for the promotion of Broad-Based Black Economic Empowerment ("BEE"), in South Africa has been established through the Broad-Based Black Economic Empowerment Act, No. 53 of 2003, as amended from time to time, and the Amended BEE Codes of Good Practice, 2013, or BEE Codes, and any sector-specific codes of good practice, or Sector Codes, published pursuant thereto. Sector Codes are fully binding between and among businesses operating in a sector for which a Sector Code has been published. Achievement of BEE objectives is measured by a scorecard which establishes a weighting for the various elements. Scorecards are independently reviewed by accredited BEE verification agencies which issue a certificate that presents an entity's BEE Contributor Status Level. 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. 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. 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 BEE scorecard includes a component relating to management control, which serves to determine the participation of Black people within the board, as well as at various levels of management within a measured entity (including, inter alia, Executive Management, Senior Management, Middle Management and Junior Management). The BEE Codes and/or Sector Codes define the terms "Senior Management", "Middle Management" and "Junior Management" as those occupational categories as determined in accordance with the Employment Equity Regulations, with specific emphasis on improving participation in proportion to the demographics of the Economically Active Population of South Africa, as determined quarterly by Statistics South Africa. 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. 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. For instance, the South African competition authorities approved the Connect transaction subject to certain public interest conditions relating to employment, increasing the spread of ownership by historically disadvantaged people ("HDPs"), and investing in both enterprise and supplier development. Further to increasing the spread of ownership by HDPs, we are required to establish an Employee Share Ownership Plan scheme ("ESOP") within 24 months of the implementation of the transaction that complies with certain design principles. This will benefit the workers of the merged entity and result in them receiving a shareholding in our company equal in value to at least 3% of the issued shares in our company as of April 14, 2022. If within 24 months of the implementation date of the transaction, we generate a positive net profit for three consecutive quarters, the ESOP shall increase to 5% of the issued shares in in our company as of April 14, 2022. The final structure of the ESOP is contingent on shareholder approval and relevant regulatory and governance approvals. The ESOP had not been established as of the date of this Annual Report on Form 10-K. During fiscal 2022, we provided 10,500 families with flood relief support in response to the devastating impact of the April 2022 KwaZulu-Natal floods, leveraging our branch footprint and proximity to the most affected areas. We have empowered more than 160 young South Africans with learnership opportunities to improve their skills and readiness to participate in the mainstream economy. We have also made an investment into establishing the infrastructure for a multi-year value chain framework that will cut across various BEE pillars and businesses in South Africa. However, it is possible that these actions may not be sufficient to enable us to achieve the applicable BEE objectives set out for specific financial years. In that event, in order to maintain competitiveness with both government and private sector clients, we may have to seek to increase compliance through other means, including by selling or placing additional shares of Lesaka or of our South African subsidiaries to Black South Africans (either directly or indirectly), over and above what has already been approved. Such sales or placements of shares could have a dilutive impact on your ownership interest, which could cause the market price of our stock to decline. We expect that our BEE 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.

International Operations2 | 4.9%

International Operations - Risk 1

We have decided to prioritize Southern Africa as our core market. 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 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. We cannot assure you that we will be able to implement our new strategy successfully and return to profitability and positive cash flow. Even if we do return to profitability, achieving net income does not necessarily ensure positive cash flows. Future periods of net losses from operations could result in negative cash flow and may hamper ongoing operations or prevent us from sustaining or expanding our business. We cannot assure you that we will achieve, sustain or increase profitability in the future and if we do not, our business will be materially and adversely affected. Additionally, our reputation in South Africa has been tarnished as a result of public accusations against us, which we have publicly denied and believe have no merit, for illegally providing our services and defrauding social welfare grant recipients. We have attempted to refute these allegations and have appointed a public relations firm to assist us in communicating effectively to the public and our stakeholders that our business practices comply with South African law and are fair to the social welfare grant recipients who purchase the financial services products that we offer. If we are unable to communicate this persuasively, our ability to successfully execute our new strategy may be adversely affected.

International Operations - Risk 2

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.

Emerging markets such as Southern Africa are subject to greater risks than more developed markets. While we focus our business primarily on emerging markets because that is where we perceive the greatest opportunities to market our products and services successfully, the political, economic and market conditions these markets present risks that could make it more difficult to operate our business successfully. Some of these risks include: - political, legal and economic instability, including higher rates of inflation and currency fluctuations;- high levels of corruption, including bribery of public officials;- loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;- a lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;- logistical, utilities (including electricity and water supply) and communications challenges;- potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, legal structures and tax laws;- difficulties in staffing and managing operations and ensuring the safety of our employees;- restrictions on the right to convert or repatriate currency or export assets;- greater risk of uncollectible accounts and longer collection cycles;- indigenization and empowerment programs;- exposure to liability under the UK Bribery Act; and - exposure to liability under U.S. securities and foreign trade laws, including the Foreign Corrupt Practices Act, or FCPA, and regulations established by the U.S. Department of Treasury's Office of Foreign Assets Control, or OFAC.

Natural and Human Disruptions2 | 4.9%

Natural and Human Disruptions - Risk 1

We may not be able to effectively and efficiently manage the disruption to our operations as a result of erratic electricity supply in South Africa, which could adversely affect our, financial position, cash flows and future growth.

Our businesses in South Africa are dependent on electricity generated and supplied by the state-owned utility, Eskom, in order to operate, and Eskom has been unable to generate and supply the amount of electricity required by the South African economy which has resulted in significant and often unpredictable electricity supply disruptions. Eskom has implemented a number of short- and long-term mitigation plans to correct these issues but supply disruptions continue to occur regularly and with no predictability. As part of our business continuity programs, we have installed back-up diesel generators in order for us to continue to operate our core data processing facilities in the event of intermittent disruptions to our electricity supply. We have to perform regular monitoring and maintenance of these generators and also source and manage diesel fuel levels. We may also be required to replace these generators on a more frequent basis due to the additional burden placed on them. Our results of operations, financial position, cash flows and future growth could be adversely affected if Eskom is unable to raise sufficient funding to operate and/or commission new electricity-generating power stations in accordance with its plans, or at all, or if we are unable to effectively and efficiently test, maintain, source fuel for, and replace, our generators.

Natural and Human Disruptions - Risk 2

We are unable to ascertain the full impact the COVID-19 pandemic will have on our future financial position, operations, cash flows and stock price.

Our business was impacted by government restrictions and quarantines related to COVID-19. South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive. South Africa is currently not subject to any formal COVID-19 restrictions. However, the pandemic did impact our insurance business during fiscal 2022 and 2021 as we experienced a higher level of benefit claims in these years. Should there be further increases in mortality rates across our customer base, we may see an increase in funeral policy claim payouts. We believe that our business activities may be adversely impacted if strict government-enforced restrictions are reintroduced to combat the spread of COVID-19 or similar pandemics. Some of our employees worked from home following the publication of government-supported initiatives to combat the spread of COVID-19. As a result of the work from home environment, we may face additional challenges providing employees with secure remote access to computer networks as well as initiating and accepting instructions via e-mail or other electronic media should there be a resurgence of the virus or as a result of a similar event requiring our employees to work from home.

Legal & Regulatory

Total Risks: 7/41 (17%)Below Sector Average

Regulation5 | 12.2%

Regulation - Risk 1

Amendments to the NCA were signed into law in South Africa in August 2019. Compliance with these amendments may adversely impact our micro-lending operations in South Africa.

In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa. The effective date of the debt-relief bill has not yet been announced. We believe that the debt-relief bill will restrict the ability of financial services providers to provide lending products to certain low-income earners and will increase the cost of credit to these consumers. As a result, compliance with the debt-relief bill may adversely impact our micro-lending operations in South Africa. Furthermore, we expect that it will take us, and other financial services providers, some time to fully understand, interpret and implement this new legislation in our lending processes and practices. Non-compliance with the provisions of this new legislation may result in financial loss and penalties, reputational loss or other administrative punishment.

Regulation - Risk 2

If we were deemed an "investment company" under the Investment Company Act, applicable restrictions could make it impractical for us to conduct our business as an operating company and could have a material adverse effect on our business.

We are an operating company whose business is focused on developing and offering payment solutions, transaction processing services and financial technologies across multiple industries directly and through our wholly-owned subsidiaries. Our conduct, public filings and announcements hold us out as such an operating company and do not hold us out as being engaged in the business of investing, reinvesting or trading in securities. We own, and in the past have owned, certain assets that may be deemed to be "investment securities" within the meaning of Section 3(a)(2) of the Investment Company Act. The fluctuating value of our assets that may be deemed to be investment securities, could cause us to be deemed to be an "investment company" under the Investment Company Act if the value of such investment securities exceeds certain defined thresholds. If we are deemed an investment company and not entitled to an exception or exemption from registration under the Investment Company Act, we would have to register as an investment company, modify our asset profile or otherwise change our business so that it falls outside the definition of an investment company under the Investment Company Act. Registering as an investment company pursuant to the Investment Company Act could, among other things, materially limit our ability to borrow funds or engage in other transactions and otherwise would subject us to substantial and costly regulation. Failure to register, if required, would significantly impair our ability to continue to engage in our business and would have a material adverse impact on our business and operations.

Regulation - Risk 3

We are required to comply with certain laws and regulations, including economic and trade sanctions, which could adversely impact our future growth.

We are subject to U.S. and other trade controls, economic sanctions and similar laws and regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation. These laws and regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign trade control laws and regulations, including various export controls and economic sanctions programs, such as those administered by OFAC. We monitor compliance in accordance with the 10 principles as set out in the United Nations Global Compact Principles, the Organisation for Economic Co-operation and Development recommendations relating to corruption, and the International Labor Organization Protocol in terms of certain of the items to be monitored. As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating trade control laws as well as sanctions regulations. Violations of trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have developed policies and procedures as part of a company-wide compliance program that is designed to assist our compliance with applicable U.S. and international trade control laws and regulations, including trade controls and sanctions programs administered by OFAC, and provide regular training to our employees to create awareness about the risks of violations of trade control laws and sanctions regulations and to ensure compliance with these laws and regulations. However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not act in violation of our policies and these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition. Any expansion into developing countries, and our development of new partnerships and joint venture relationships, could increase the risk of OFAC violations in the future. In addition, our payment processing and financial services activities are subject to extensive regulation. Compliance with the requirements under the various regulatory regimes may cause us to incur significant additional costs and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.

Regulation - Risk 4

We are required to comply with anti-corruption laws and regulations, including the FCPA and UK Bribery Act, in the jurisdictions in which we operate our business, which could adversely impact our future growth.

The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business, or securing any improper business advantage, and requires us to keep books and records that accurately and fairly reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. The UK Bribery Act includes provisions that extend beyond bribery of foreign public officials and also apply to transactions with individuals not employed by a government and the act is also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the international locations in which we operate or have investments lack a developed legal system and have higher than normal levels of corruption. Any failure by us to adopt appropriate compliance procedures and ensure that our employees, agents and business partners comply with the anti-corruption laws and regulations could subject us to substantial penalties, and the requirement that we comply with these laws could put us at a competitive disadvantage against companies that are not required to comply. For example, in many emerging markets, there may be significant levels of official corruption, and thus, bribery of public officials may be a commonly accepted cost of doing business. Our refusal to engage in illegal behavior, such as paying bribes, may result in us not being able to obtain business that we might otherwise have been able to secure or possibly even result in unlawful, selective or arbitrary action being taken against us. Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and imprisonment. We have developed policies and procedures as part of a company-wide compliance program that is designed to assist our compliance with applicable U.S., South African and other international anti-corruption laws and regulations, and provide regular training to our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not take actions in violation of our policies or these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition.

Regulation - Risk 5

We do not have a South African banking license and, therefore, we provide our EPE solution through an arrangement with a third-party bank, which limits our control over this business and the economic benefit we derive from it. If this arrangement were to terminate, we would not be able to operate our EPE business without alternate means of access to a banking license.

The South African retail banking market is highly regulated. Under current law and regulations, our 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. If this agreement were to be terminated, we would not be able to operate these services unless we were able to obtain access to a banking license through alternate means. Furthermore, we have to comply with the strict anti-money laundering and customer identification regulations of the South African Reserve Bank ("SARB"), when we open new bank accounts for our customers and when they transact. Failure to effectively implement and monitor responses to these regulations may result in significant fines or prosecution of Grindrod Bank and ourselves. It has recently been announced that Grindrod Bank will be acquired by African Bank which operates across the lower end of the South African financial services market. 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. 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. Furthermore, the proposed Conduct of Financial Institutions Bill will make significant changes to the current licensing regime. The second draft of the Conduct of Financial Institutions Bill was published for public comment on 29 September 2020. While the proposals currently indicate that existing licenses will be converted, if we are not successful in our efforts to obtain a conversion of the existing licenses or cannot comply with the new conduct standards to be published at the same time under the Financial Sector Regulation Act, No. 9 of 2017, we may be stopped from continuing our financial services businesses in South Africa.

Litigation & Legal Liabilities1 | 2.4%

Litigation & Legal Liabilities - Risk 1

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions based upon U.S. laws, including federal securities laws or other foreign laws, against us or certain of our directors and officers and experts.

While Lesaka is incorporated in the state of Florida, United States, the company is headquartered in Johannesburg, South Africa and substantially all of the company's assets are located outside the United States. In addition, the majority of Lesaka's directors and all its officers reside outside of the United States and the majority of our experts, including our independent registered public accountants, are based in South Africa. As a result, even though you could effect service of legal process upon Lesaka, as a Florida corporation, in the United States, you may not be able to collect any judgment obtained against Lesaka in the United States, including any judgment based on the civil liability provisions of U.S. federal securities laws, because substantially all of our assets are located outside the United States. Moreover, it may not be possible for you to effect service of legal process upon the majority of our directors and officers or upon our experts within the United States or elsewhere outside South Africa and any judgment obtained against any of our foreign directors, officers and experts in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by a South African court. South Africa is not a party to any treaties regarding the enforcement of foreign commercial judgments, as opposed to foreign arbitral awards. Accordingly, a foreign judgment 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. It has been the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as a result of a diminution in the value of their shares based on various actions by the corporation and its management. Although the award of punitive damages is generally unenforceable in the South African legal system, that does not mean that such awards are necessarily contrary to public policy. The award of punitive damages is governed by the relevant South African legislation, the Conventional Penalties Act 15 of 1962 (as amended). Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African court, it will be payable in South African currency unless approval is obtained from SARB or an Authorised Dealer of SARB, to settle the judgement in another currency. Also, under South Africa's exchange control laws, the approval of SARB or an Authorised Dealer is required before a defendant resident in South Africa may pay money to a non-resident plaintiff in satisfaction of a foreign judgment enforced by a court in South Africa. It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South Africa, we consulted with our South African legal counsel, Cliffe Dekker Hofmeyr Inc.

Environmental / Social1 | 2.4%

Environmental / Social - Risk 1

We may be subject to regulations regarding privacy, data use and/or security, which could adversely affect our business.

We are subject to regulations in a number of the countries in which we operate relating to the processing (which includes, inter alia, the collection, use, retention, security and transfer) of personal information about the people (whether natural or juristic) who use our products and services. The interpretation and application of user data protection laws are in a state of flux. These laws may be interpreted and applied inconsistently from country to country and our current data protection policies and practices may not be consistent with those interpretations and applications. Complying with these varying requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Any failure, or perceived failure, by us to comply with any regulatory requirements or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity. In addition, as noted above, we are subject to the possibility of security breaches, which themselves may result in a violation of these laws.

Production

Total Risks: 4/41 (10%)Below Sector Average

Employment / Personnel1 | 2.4%

Employment / Personnel - Risk 1

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.

Our group has undergone a significant change in management over the last twelve months, with various long-serving executives having resigned from the organization and new management joining us through the Connect acquisition. We believe we now have in place a management team that has the right experience and skills to execute on our new strategic direction. 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 may face difficulty in managing the transition to a new management team, including team members from Connect, and assimilating our newly-hired personnel, which may adversely affect our business. Competitors may attempt to recruit our top management and employees. In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation and the volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. We do not maintain any "key person" life insurance policies. If we fail to attract, integrate, retain and incentivize key personnel and skilled employees, our ability to manage and grow our business could be harmed and our product development and marketing activities could be negatively affected.

Supply Chain1 | 2.4%

Supply Chain - Risk 1

We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

We obtain our smart cards, ATMs, POS devices, components for our safe assets, and the other hardware we use in our business from a limited number of suppliers, and do not manufacture this equipment ourselves. We generally do not have long-term agreements with our manufacturers or component suppliers. If our suppliers become unwilling or unable to provide us with adequate supplies of parts or products when we need them, or if they increase their prices, we may not be able to find alternative sources in a timely manner and could be faced with a critical shortage. This could harm our ability to meet customer demand and cause our revenues to decline. Even if we are able to secure alternative sources in a timely manner, our costs could increase as a result of supply or geopolitical shocks, which may lead to an increase in the prices of goods and services from third parties. A supply interruption, such as the current global shortage of semiconductors, or an increase in demand beyond current suppliers' capabilities could harm our ability to distribute our equipment and thus to acquire new customers who use our technology. Any interruption in the supply of the hardware necessary to operate our technology, or our inability to obtain substitute equipment at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

Costs2 | 4.9%

Costs - Risk 1

Added

We have purchased a significant amount of prepaid airtime voucher inventory which exposes us to market risk for this inventory as well as losses if the mobile network operators are unable to perform.

Historically, we have purchased a significant amount of prepaid airtime inventory vouchers in order to take advantage of discounted pricing for this inventory. As of March 31, 2023, the carrying value of this inventory is ZAR 164.0 million ($9.2 million translated at exchange rates applicable as of March 31, 2023). We expect to sell this inventory over the next five months which exposes us to market risk for this inventory. The underlying service related to these airtime vouchers is provided by South Africa's four largest mobile network operators operating in South Africa and therefore we are also exposed to performance risk by these operators. We would be unable to sell these prepaid airtime vouchers if the mobile network operators were unable to provide their services and we would need to write this inventory off. Failure to recover the carrying value of this inventory may have a material adverse effect on our results of operations or financial condition.

Costs - Risk 2

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). In support of Cell C's liquidity position, we are limiting our resale of this airtime to our own distribution channels until such time as Cell C's recapitalisation process is concluded, which exposes us to market risk for this inventory. Due to wholesale discounts in the distribution market for this airtime, it is not readily saleable in the current market without realising a loss. In light of this, we recorded a loss of $1.3 million during fiscal 2020, related to this airtime inventory. While no further losses were recorded in fiscal 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. Failure to recover the carrying value of this inventory may have a material adverse effect on our results of operations or financial condition.

Tech & Innovation

Total Risks: 3/41 (7%)Below Sector Average

Trade Secrets1 | 2.4%

Trade Secrets - Risk 1

Defending our intellectual property rights or defending ourselves in infringement suits that may be brought against us is expensive and time-consuming and may not be successful.

Litigation to enforce our patents, trademarks or other intellectual property rights or to protect our trade secrets could result in substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws in countries where we currently have patent protection. Our means of protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in which we operate, may not be adequate to fully protect our intellectual property rights. Similarly, if third parties claim that we infringe their intellectual property rights, we may be required to incur significant costs and devote substantial resources to the defense of such claims, to discontinue using and selling any infringing technology and services, to expend resources to develop non-infringing technology or to purchase licenses or pay royalties for other technology. In addition, if we are unsuccessful in defending any such third-party claims, we could suffer costly judgments and injunctions that could materially adversely affect our business, results of operations or financial condition.

Cyber Security1 | 2.4%

Cyber Security - Risk 1

System failures, including breaches in the security of our system, could harm our business.

We may experience system failures from time to time, and any lengthy interruption in the availability of our back-end system computers could harm our business and severely affect our customer relationships. Frequent or persistent interruptions in our services could cause current or potential customers and users to believe that our systems are unreliable, leading them to avoid our technology altogether, and could permanently harm our reputation and brands. These interruptions would increase the burden on our staff, which, in turn, could delay our introduction of new applications and services. Finally, because our customers may use our products for critical transactions, any system failures could result in damage to our customers' businesses. These customers could seek significant compensation from us for their losses. Even if unsuccessful, this type of claim could be time-consuming and costly for us to address. Although certain of our systems have been designed to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. Protection against fraud is of key importance to the purchasers and end users of our solutions. We incorporate security features, including encryption software, biometric identification and secure hardware, into our solutions to protect against fraud in electronic transactions and to provide for the privacy and integrity of cardholder data. Our solutions may be vulnerable to breaches in security due to defects in the security mechanisms, the operating system and applications or the hardware platform. Security vulnerabilities could jeopardize the security of information transmitted using our solutions. If the security of our solutions is compromised, our reputation and marketplace acceptance of our solutions may be adversely affected, which would cause our business to suffer, and we may become subject to damage claims. We have not yet experienced any significant security breaches affecting our business. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our system could result in lengthy interruptions to our services. Our current business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.

Technology1 | 2.4%

Technology - Risk 1

Our Smart Life business exposes us to risks typically experienced by life assurance companies.

Smart Life is a life insurance company and exposes us to risks typically experienced by life assurance companies. Some of these risks include the extent to which we are able to continue to reinsure our risks at acceptable costs, reinsurer counterparty risk, maintaining regulatory capital adequacy, solvency and liquidity requirements, our ability to price our insurance products appropriately, the risk that actual claims experience may exceed our estimates, the ability to recover policy premiums from our customers and the competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance at prices that we consider acceptable, we would have to either accept an increase in our risk exposure or reduce our insurance writings. If our reinsurers are unable to meet their commitments to us in a timely manner, or at all, we may be unable to discharge our obligations under our insurance contracts. As such, we are exposed to counterparty risk, including credit risk, of these reinsurers. Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business. Using the wrong assumptions to price our insurance products could materially and adversely affect our financial position, results of operations and cash flows. If our actual claims experience is higher than our estimates, as we have seen during the recent COVID-19 pandemic, our financial position, results of operations and cash flows could be adversely affected. Finally, the South African insurance industry is highly competitive. Many of our competitors are well-established, represented nationally and market similar products and we therefore may not be able to effectively penetrate the South African insurance market.

Ability to Sell

Total Risks: 2/41 (5%)Below Sector Average

Competition1 | 2.4%

Competition - Risk 1

We may face competition from other companies that offer innovative payment technologies and payment processing, which could result in the loss of our existing business and adversely impact our ability to successfully market additional products and services.

Our primary competitors in the payment processing market include other independent processors, as well as financial institutions, independent sales organizations, new digital and fintech entrants and, potentially card networks. Many of our competitors are companies who are larger than we are and have greater financial and operational resources than we have. These factors may allow them to offer better pricing terms or incentives to customers, which could result in a loss of our potential or current customers and/or force us to lower our prices. Either of these actions could have a significant effect on our revenues and earnings.

Sales & Marketing1 | 2.4%

Sales & Marketing - Risk 1

We need to significantly grow our consumer operations in order to ensure their profitability and long term sustainability.

Following the conclusion of our contract with SASSA, we refocused our resources and technology on the provision of financial inclusion services to our target market and currently have an established base of approximately one million customers. Our strategy involves significantly expanding this base over the coming years. While we believe that our financial services offerings are convenient and cost-effective, the success of our strategy will depend on the extent to which we successfully market our offering to grow the customer base. Factors that may prevent us from successfully operating and expanding our 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.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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