first half year results 2019 - net1 international · first half year 2019 . page 4 (17) both in...

Net1 International Holdings AS

FIRST HALF YEAR RESULTS 2019

Net1 International Holdings AS First half year 2019

Page 1 (17)

First half year 2019 report

First half year Net1 International Holdings AS (‘the Company’ or ‘the Group’) continued to make steady progress in the first half of 2019.

Indonesia

Our Indonesian subsidiary, Net1 Indonesia, grew its business-to-consumer (B2C) total customer base significantly, passing 50,000 subscribers in H1, a growth of approximately 33% versus the closing customer base on 31 December 2018. Approximately 37% of this base were topping up within a 30-day period. The ARPU of the customers topping up monthly stood at approx. IDR 270,000, i.e. just under USD 20 per subscriber per month. In the second half of 2019, in addition to continued growth in the total subscriber base, we are targeting an increase in the number of customers topping up frequently from our existing base of approx. 50,000. Net1 Indonesia has just less than 600 sites on air covering a population of over 120 million.

In addition, Net1 Indonesia has built up a good pipeline of business-to-government (B2G) projects. It is in advanced stages of securing a coverage on demand contract from the government in respect of building 11 new 4G LTE sites, where the Indonesian government would act as the core customer. These sites will provide connectivity in underserved areas and also act as a terrestrial backhaul route, linking the government’s sizeable sub-sea cable system with other trans-national long distance backhaul systems.

On the business-to-business (B2B) front, Net1 Indonesia has built up another good pipeline of projects, based on a mix of products including capacity on demand, coverage on demand and point of sale solutions with top tier corporates in the mining, banking and air freight sectors.

B2B and B2G currently represent around 7.5% of total revenues. With a very good pipeline of

projects, our hope is that this market will represent a higher proportion of revenues over the coming 12 months.

Overall, Net1 Indonesia posted 6-month total revenues of approx. IDR 40 billion including Data and VAS service revenues of approx. IDR 26 billion for the 6-month period ending 30 June 2019, representing a c30% increase year-on-year. For the same period in the preceding year, Indonesia posted total revenues of approx. IDR 37 billion among which Data and VAS service revenues of approx. IDR 20 billion. For the full calendar year 2018 total revenues were IDR 72 billion, of which IDR 42 billion was related to Data and VAS service revenues.

The board regards this as an acceptable performance, especially when considering the following factors:

• Net1 Indonesia completed the construction of its network at the end of 2018, and H1 2019 represents the first full period under which it provided its core 4G LTE mobile broadband services to home, office, shops and cafés.

• Financing for growth was completed in mid-May 2019, and therefore the company did not have the benefit of growth capital for the full period.

• A significant amount of business development has taken place in the first half of 2019, which has set Net1 Indonesia up for expansion over the next 12 months and beyond. This includes the expansion to almost 2,500 of the number of Mitra outlets selling our data services; whilst we have acquired almost 200 Wi-Fi Kiosks with several hundred more in the pipeline. Finally, as mentioned previously, we have a significant pipeline of B2B and B2G projects building up.


Page 2 (17)

Key figures Indonesia 1) Jan - Jun Jan - Jun

NOK million, except where stated 2019 2018

Total revenues 24.4 21.3 Service revenues (Data, VAS, Voice) 16.2 14.6 EBITDA 2) -125 -113 Net result -163 -100 No. of total subscribers, thousand 51 35 No. of subscribers active within 30 days, thousand 3) 18 10 NOK ARPU (Average Revenue Per User) 30-day active subscribers 161 170

1) The key figures are a pro forma comparison as the group was formed during the second half of 2018; so Jan-

Jun 2018 financials are for Net1 Indonesia prior to its consolidation into the group. 2) Net1 defines EBITDA as operating profit after adjustment of operating expenses for depreciation, amortisation,

impairment, network upgrades, share based compensation expense, non-recurring and other non-operational items. Any effects from business combinations are not included. For details, see the section on Alternative Performance Measures and definitions.

3) No. of subscribers who top up within a 30-day period. Any customers who top up in a 90-day period (‘Active 3’) are registered as subscribers.

Philippines

The core development for Net1 Philippines was the award of significant new spectrum by the regulator. The company received a further 5MHz of bandwidth meaning it occupied a total of 20MHz of bandwidth in the 450MHz frequency. In addition, the company was also awarded 200MHz on the 24450-24650 MHz band.

Operationally, Net1 Philippines is still at a nascent stage of its operational development. The business has 52 sites on air covering about 0.4 million homes. We account for the business on an equity pick-up basis and so do not consolidate its results. The company generated approximately USD 355 thousand revenues in H1 2019 from a subscriber base of approximately 3,500. The company remains fully funded.

We are focussed on completing the business planning and strategy of the company with a view to expanding its network in 2020. This will enable us to capitalise on the substantial spectrum portfolio the company enjoys, in the 450MHz, 3.5GHz and 24450-24650 MHz bands.

Financing

• In January, Net1 International Holdings AS (‘Net1 International’ or ‘the Company’) and its

Indonesian subsidiary PT Sampoerna Telekomunikasi Indonesia (‘STI’ or ‘Net1 Indonesia’) respectively entered into two bridge loan facilities from its shareholders, totalling USD 15 million for, amongst other things, the funding of Group’s operations in Indonesia.

• In connection with this, the Company also entered into an agreement to acquire all the shares held by its Indonesian JV partner Sampoerna AGRI Resources Pte Ltd (‘Sampoerna’) in the JV company Mobile Internet Holdings B.V. (‘MIH’) in return Sampoerna received new issued shares in Net1 International (‘flip-up’), thereby facilitating a simplified and more transparent ownership structure. This transaction was completed on 29 April 2019. See also note 7.

• In April, the Company successfully carried out a USD 25 million Rights Offering directed towards Sampoerna and the existing shareholders of the company at a subscription price of NOK 0.90 per share. USD 15 million of the USD 25 million rights offering has been secured through converting the loans from bridge loans and the additional USD 10 million was obtained in new cash through certain existing shareholders’ additional subscriptions for cash in the Rights Offering.


Page 3 (17)

• On 24 April 2019, the Group announced that its wholly owned subsidiary, Mobile Internet Holdings B.V. (‘MIH’) had entered into a USD 40 million term loan facilities agreement (with incremental facility) with, amongst others, Gemcorp Capital LLP (‘Gemcorp’) as mandated lead arranger. The Gemcorp loan carries a coupon of 3 months Libor plus 10% (subject to certain adjustments if STI turns EBITDA-positive), amortising over a five-year period, with final maturity date 14 May 2024. The loan is secured by inter alia assets of STI, share pledges over the shares in Net1’s subsidiaries MIH and Net1 International Holdings B.V. (‘Net1 BV’) and guarantees from MIH and Net1 BV. The loan contains Financial Covenants and

tests of key performance indicators (‘KPIs’). The Financial Covenants & KPIs are based on the business plan of the Indonesian operations and include head-room for deviations. The loan also contains change of control provision which is triggered if Rasmussengruppen (or their affiliates) and Access Industries (or their affiliates) cease to hold, between them, at least 40% of the share capital of Net1 at any time and other terms and conditions customary for this type of financing. The funds were being utilised to finance MIH’s 65% subsidiary, Net1 Indonesia. The latter entity is expanding its operations and investing in its 4G LTE network utilizing its efficient 450 MHz spectrum.

Financial review As the Group was formed during the second half of 2018, no comparison numbers for the first half year 2018 is presented in this report.

The adoption of IFRS 16 has impacted the numbers as from 1 January 2019.

Turnover, expenses and profit

The Group reported consolidated first half year service revenues of NOK 16 million and other revenue of NOK 8 million. From having operating expenses, including personnel costs and depreciations and amortisations, of NOK 217 million, the operating result for the period ended at NOK -192 million.

Investments

The Group’s acquisition of non-current assets during the reporting period amounted to NOK 56 million on a consolidated basis. The investments are mainly related to the network build-out project in Indonesia, both on existing and new sites as well as on backbone systems and radio access network expansion.

Cash flows

The cash flow from operating activities for the reporting period was NOK -281 million and cash flows from investing activities and financing

activities were respectively NOK 18 million and NOK 298 million. Investing activities included NOK 73 million repayments of the loan from Ice Group ASA, Financing activities included USD 10 million net proceeds from the issuance of equity under the rights offer. USD 10 million received via shareholder financing and USD 20 million drawn from the USD 40 million financing facility signed with Gemcorp.

Financial position

The total assets of the Group were NOK 2,353 million at the end of the period, of which total non-current assets were NOK 2,032 million. Total equity ended at 979 million. The Group’s cash position ended at NOK 36 million.

MIH still had USD 20 million which was still unutilised from the USD40m Gemcorp facility for continuing investments in Indonesia, as at the end of H1 2019. Subsequently, MIH drew a further USD 2.5m of this facility and will draw-down the full remaining balance by October 2019. In addition, the Company as per end of August 2019, was in advanced stages of securing an additional approximately USD 5.5 million bridge-loan with RG and Sampoerna for further accelerating Net1 Indonesia’s B2C growth and to pursue certain B2B/B2G opportunities.

Personnel and organisation At the end of the period, the number of employees in the Group was 140.

Related party transactions The Group received in January a USD 10 million shareholder loan from Rasmussengruppen AS (‘RG’) and a USD 5 million loan from Sampoerna,


Page 4 (17)

both in connection with the conversion of Rights Issue to equity. In connection with this, the Company issued 48,228,795 new subscription rights to RG and 24,114,397 new subscription rights to Sampoerna, exercisable until 24 April 2022 to NOK 1.20.

In connection with the Rights Issue, the Company acquired all the shares held by Sampoerna in MIH in return for Sampoerna receiving new issued shares in the Company (‘flip-up’). Following this transaction, the Group has no economic minority interests on a consolidated basis. See also note 7.

RG also cancelled 8,020,050 of its original warrants in return for receiving 4,010,025 shares in the company which the company acquired back from AINMT Holdings AB.

For other items, see further details under the section on critical accounting estimates and judgments in the annual report of 2018.

Risks and uncertainties The Group operates in the highly competitive and regulated mobile telecommunications industry in Asia and is exposed to certain risks that could have impact on earnings or its financial position. The Company has defined risk as anything that could have a material adverse effect on the achievement of its goals or activities. Risks can be threats, uncertainties or lost opportunities relating to the Group’s current or future operations. The Company divides the risks into related to the Industry in which it operates, risk related to the Operations of the Group and risks related to Financing of the business.

More information about risks and uncertainties can be found in the 2018 Annual Report.

Guidance and outlook 2019 The full year outlook for 2019 is stable. The Group expects further growth in its Indonesian

subsidiary, whilst the benefits from the award of additional spectrum in Philippines are expected to gradually materialise from 2020 onwards

Events after the reporting period • Net1 Philippines has been awarded additional

5MHz of spectrum on the 450MHz band by theNational Telecommunications Commission(‘NTC’), giving Net1 Philippines access to20MHz of contiguous bandwidth from 450-470MHz in total on that band. In addition, theNTC granted Net1 Philippines with 200MHz offrequency in the 24450MHz-24650MHz band,also for deployment of LTE services

• As at the end of August, the Company was inadvanced stages of securing a bridge loans ofNOK 50m and IDR 21bn from RG andSampoerna. Proceeds of the loan would beutilised to support the acceleration of growthby Net1 Indonesia. The loan is scheduled to berepaid on April 30th 2020. It is secured on theCompany’s shares in its subsidiary, Net1Holdings B.V. The latter owns the shares in the Group’s Philippines operations. The loancarries an interest rate of 1.5% a month andthe Company has committed to arranging anExtraordinary General Meeting in April to seek approval to amend the strike prices of certainwarrants held by Sampoerna and RG, ascompensation for advancing the loan.

Legal disclaimer Certain statements in this report are forward-looking and the actual outcomes may be materially different. In addition to the factors discussed, other factors could have an impact on actual outcomes. Such factors include developments for customers, competitors, the impact of economic and market conditions, national and international legislation and regulations, fiscal regulations, fluctuations in exchange rates and interest rates and political risks.

30 August 2019

The Board of Directors of Net1 International Holdings AS

Jean Daniel Fouchard Chairman

Trygve Lauvdal Board member

Jan Šebor Board member

Amit Vithlani Board member

Chye Chia Chow Board member


Page 5 (17)

CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORTS CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

First half year Full year NOK thousands Note 2019 2018 1)

Service revenue 16,151 7,842 Other operating revenue 8,214 4,010 Total operating revenue 6 24,364 11,852

Operating expenses 2) -141,298 -83,319Employee benefit expenses -25,293 -15,964Depreciation and amortisation -49,980 -24,785Total operating expenses -216,571 -124,068

Operating result -192,207 -112,216

Financial income 59,343 61,674 Financial expense -36,544 -8,050Financial items - net 22,799 53,625

Share of net profit from joint ventures - -157,433

Result before tax -169,408 -216,024

Income taxes 6,667 3,805 Net result for the period -162,741 -212,219

Items that may be subsequently reclassified to profit loss: Translation differences on foreign operations 2 42,420 Other comprehensive income 2 42,420

Total comprehensive income for the period -162,739 -169,799

Net result for the period attributable to: Equity holders of the Parent Company -162,741 -169,856Non-controlling interests - -42,363Net result for the period -162,741 -212,219

Total comprehensive income for the period attributable to: Equity holders of the Parent Company -162,739 -151,040Non-controlling interests - -18,758Total comprehensive income for the period -162,739 -169,799

Earnings per share (NOK), basic -0.50 -1.79

Earnings per share (NOK), diluted -0.38 -1.33

1) Net1 International Holdings AS was established in March 2018 as a holding company. The Group was formed when operational activities were transferred 4September 2018. For more information, see note 4.

2) Operating expenses include other operating income.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.


Page 6 (17)

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

NOK thousands Note 30 Jun 2019 31 Dec 2018

ASSETS Intangible assets 1,343,021 1,321,417 Tangible assets 2 629,435 206,562 Other non-current assets 8 59,236 109,920 Total non-current assets 2,031,692 1,637,899 Inventory 13,421 16,963 Trade receivables 7,363 3,664 Other receivables 1) 8 219,005 29,508 Prepaid expenses and accrued income 2 34,961 7,524 Assets classified as held for sale 10,631 10,623 Cash and cash equivalents 36,155 2,565 Total current assets 321,536 70,847 TOTAL ASSETS 2,353,228 1,708,745 EQUITY AND LIABILITIES Equity attributable to the Parent Company shareholders 978,890 523,502 Equity attributable to non-controlling interests - 392,014 TOTAL EQUITY 978,890 915,516 Borrowings - non-current portion 8 321,950 3,853 Subscription rights 224 57,228 Non-current lease liabilities 2 423,748 - Provisions 7,171 5,086 Deferred tax liabilities 320,529 326,903 Other long-term liabilities 11,811 20,266 Total non-current liabilities 1,085,433 413,336 Borrowings - current portion - 11,287 Trade payables 157,233 224,964 Current lease liabilities 2 3,264 - Other current liabilities 20,271 35,600 Accrued expenses and deferred income 2 108,136 108,042 Total current liabilities 288,905 379,893 TOTAL LIABILITIES 1,374,337 793,229 TOTAL EQUITY AND LIABILITIES 2,353,228 1,708,745


30 August 2019

The Board of Directors of Net1 International Holdings AS

Jean Daniel Fouchard Chairman

Trygve Lauvdal Board member

Jan Šebor Board member

Amit Vithlani Board member

Chye Chia Chow Board member


Page 7 (17)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to shareholders of the Parent

Company

NOK thousands Note Share

capital Reserves Retained earnings Total

Non-controlling

interests Total

equity Opening balance 8 March 2018 30 - - 30 - 30 Net result for the period - - - - - - Other comprehensive income - - - - - - New share issue - - - - - - Change in non-controlling interests - - - - - - Share capital increase - - - - - - Closing balance 30 Jun 2018 30 - - 30 - 30 Net result for the period - - -169,856 -169,856 -42,363 -212,219 Other comprehensive income - 18,815 - 18,815 23,605 42,420 New share issues 25,147 90,396 - 115,543 - 115,543 Effect of Reorganisation under common control 113,908 443,787 - 557,694 409,770 967,464 Other changes 1) 0 1,275 - 1,276 1,002 2,278 Closing balance 31 Dec 2018 139,085 554,273 -169,856 523,502 392,014 915,516 Net result for the period - - -162,741 -162,741 - -162,741 Other comprehensive income - 2 - 2 - 2 Rights offering 217,500 - - 217,500 - 217,500 Purchase of own shares -5,013 - - -5,013 - -5,013 Warrant cancellation 5,013 - - 5,013 - 5,013 Effect of restructuring -Change in non-controlling interests 7 77,474 356,903 -42,363 392,014 -392,014 - Other changes 1) - 8,613 - 8,613 - 8,613 Closing balance 30 Jun 2019 434,059 919,791 -374,959 978,890 - 978,890

1) Relates to an increase in other comprehensive income in a subsidiary owned at 65% but consolidated at 100%.

Please refer to note 3 for explanation of the Reorganisation of the group in 2018.



Page 8 (17)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

First half year Full year NOK thousands Note 2019 2018 1) Result before tax -169,408 -216,024 Depreciation and amortisation of non-current assets 49,980 24,785 Change in provisions 2,095 -24,062 Results from participations in joint ventures - 157,433 Fair value revaluation on subscription rights -57,004 -47,500 Other cash flow adjustments 17,285 7,774 Income tax paid 0 1 Cash flows before changes in working capital -157,053 -97,592 Change in inventory 3,577 -6,440 Change in current receivables -54,612 17,436 Change in current liabilities -73,185 66,049 Cash flows from changes in working capital -124,220 77,045 Cash flows from operating activities -281,272 -20,547 Investments in intangible assets -50,405 -354 Investments in tangible assets -5,818 -23,281 Proceeds from sale of tangible assets 121 5,104 Net cash flows from other financial assets 2) 72,858 -78,902 Interest received 1,564 2,730 Cash flows from investing activities 18,321 -94,702 Financing from shareholders 217,500 115,543 Borrowings 8 344,438 - Repayments -11,369 -12,462 DSRA deposit 8 -22,408 - Escrow 8 -172,406 - Net cash flow from financial leases -5,666 - Net cash flow from other liabilities -15,641 15,436 Financial costs, borrowings -36,579 -683 Cash flows from financing activities 297,869 117,834 Cash flow for the period 34,918 2,586 Cash and cash equivalents at the beginning of the period 2,565 30 Exchange rate difference in cash and cash equivalents -1,328 -51 Cash and cash equivalents at the end of the period 36,155 2,565

1) Net1 International Holdings AS was established in March 2018 as a holding company. The Group was formed when operational activities were transferred 4

September 2018. For more information, see note 3. 2) ‘Net cash flows from other financial assets’ for 2018 includes the cash and cash equivalents transferred during the Reorganisation for NOK 44,545 thousand. Please

refer to note 3.



Page 9 (17)

NOTES TO THE FINANCIAL REPORT General information

Net1 International Holdings AS, previously Ice Group International AS, (‘Net1’ or the ‘Company’) was established in March 2018 in preparation of the de-merger of AINMT Holdings AB’s non-Scandinavian operations. The de-merger was made effective on 4 September 2018, where the Company was the takeover party. Access Industries, the controlling party in the de-merger, was the majority shareholder in the Company post de-merger, but subsequently relinquished control after the rights issue in April 2019. The Company is a holding company, currently with investments in telecommunications operations in Indonesia and the Philippines.

Net1’s strategy is to provide mobile data and building complementary networks, operating on low frequency bands to largely provide internet access to customers in suburban and rural areas where existing internet access is poor or non-existent.

The Company’s investments in Indonesia and the Philippines, holds the only nationwide 4G licences for the 450 MHz bands, as well as 3.5 GHz (20 MHz) spectrum in the Philippines. The markets in these countries are both heavily populated with low fixed line internet penetration in rural areas and have topographies where low frequency bands can be particularly effective. The broad coverage of 450 MHz further provides a strong opportunity within the growing M2M/IoT space.

The Company has office premises in Oslo, Norway.

Note 1 – Accounting principles

Basis of preparation

This interim report has been prepared in accordance with IAS 34, Interim Financial Reporting. The report does not contain all the information and disclosures required in an annual financial report and should be read in conjunction with the Group’s annual report for 2018.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to make certain judgments in applying the Group's accounting policies.

The Group prepared its first consolidated interim report as per 30 June 2019, and its first consolidated annual report as per 31 December 2018. Net1 International Holdings AS was originally created as of 8 March 2018, initially named Ice Group International AS, renamed in July 2018 to Net1 International Holdings AS and then listed on Oslo OTC on 11 October 2018, under the ticker symbol ‘NET1’. The company was formed in connection with the Reorganisation de-merger of Ice Group ASA and its, by then, top holding company AINMT Holdings AB. The accounting impact of the Reorganisation is further discussed in note 4 of the annual report for 2018.

The consolidated financial statements for Net1 International Holdings AS have been prepared in accordance with IFRS as adopted by the EU and have been prepared on a going concern basis. The most significant accounting principles applied in these consolidated financial statements are set out below. These policies have been consistently applied, unless otherwise stated.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires Management to make certain judgments in applying the Group's accounting policies, see note 3 Critical accounting estimates and judgements of the 2018 annual report for further details.

There may be figures and percentages in this report that do not always add up correctly due to rounding differences.

Summary of new accounting policies

The interim consolidated financial accounts have been produced in accordance with the accounting policies followed in the Group’s annual financial accounts for the year ended 31 December 2018, with exception for the implementation of the new standard for leases, IFRS 16, which has been implemented as from 1 January 2019. The Group has chosen to adopt the modified approach for transition to IFRS 16, meaning that comparative numbers for 2018 have not been restated. Please see note 2 for the implementation effects.


Page 10 (17)

The accounting principle for leases has been changed to the below.

Leases

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The cost of a right-of-use asset also includes an estimate of costs to be incurred by the Group in dismantling and removing the underlying leased asset (Asset Retirement Cost). Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of use assets are subject to impairment assessments as described in note 1 to the 2018 Annual Report of Net1 International Holdings AS.

Lease liabilities

At the commencement date of the lease, Net1 recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Net1 Group remeasures the lease liability upon the occurrence of certain events. Generally, the amount of remeasurement of the lease liability is recognised as an adjustment to the right-of-use asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. The Group also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Incremental borrowing rate

In calculating the present value of lease payments, Net1 uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. To arrive at the incremental borrowing rate the Group applies the respective country’s risk-free rate for the term corresponding to the lease term, adjusted for own credit risk and adding the external borrowing rates respectively to the lease terms.

Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain to exercise an option to renew a lease contract, considering all relevant factors that create an economic incentive for the Group to exercise the renewal or not exercise an option to terminate. The threshold for being reasonably certain is lower than virtually certain and higher than more likely than not under IAS 37 Provision, contingent liabilities and contingent assets. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to, or not to, exercise the option to renew.


Page 11 (17)

The main part of the Group’s lease contracts, excluding spectrum licenses, relates to the sites with the mobile networks and office property. For assessing the useful life of these assets, the Group considers factors such as technology development, business model and potential business combinations. Hence, the lease term does not affect the Group’s determination of useful life of own assets or other non-removable leasehold improvements determined for the purposes of depreciation charges.

For base station locations contracts, although a majority of these lease contracts have exit options, either through active termination of running contracts or not calling on options to prolong the agreement, Management believes Net1 International has economic incentives to exercise the options to prolong the lease terms. Management believes the most relevant end date of the contracts is when the frequency licences expire. As the licences are perpetual, the lease period follows the assumed amortisation plan of the licence value.

Note 2 – New and amended accounting standards adopted 1 January 2019 IFRS 16 Leases, changes the accounting treatment of leases by lessees. The standard is effective from the year beginning on 1 January 2019. The new standard removes the classification of leases as operating leases or finance leases as is required by IAS 17 and, instead introduces a single accounting model. With the implementation of the new standard, the Group’s long-term operating leases are recognised as non-current assets and financial liabilities in the consolidated statement of financial position. Instead of operating lease expenses, Net1 recognises depreciation and interest expenses in the consolidated income statement of comprehensive income.

The total cost over the lease term will remain unchanged after the implementation of IFRS 16, however during the lease term the impact will be material given the number of site leases and the annual spectrum licenses to which the Group is party. The key line items that will be affected by the implementation of IFRS 16 are:

• Operating expenses will decrease due to the reclassification of operational leases as depreciation and interest expenses.

• EBITDA will improve by the same amount as the decrease in operating expenses.

• Depreciation and amortisation will increase due to depreciation of capitalised lease contracts.

• Financial expenses will increase, due to interest expenses on lease liabilities.

• Total non-current assets as well as total non-current liabilities will increase due to the capitalisation of lease contracts.

Net1 International Group has applied the following principles and decisions in relation to the implementation of IFRS 16:

• The Group has chosen to apply the modified retrospective approach, meaning that comparative periods for 2018 have not been restated.

• Fixed non-lease components included in the contracts will not be separated and therefore will be included as part of the lease liability and the capitalised rights-of-use asset. Where this is part of a lease contract for base station locations, this primarily relates to expenses related to power consumption.

• For base station locations contracts, although a majority of these lease contracts have exit options, either through active termination of running contracts or not calling on options to prolong the agreement, Management believes Net1 International has economic incentives to exercise the options to prolong the lease terms. Management believes the most relevant end date of the contracts is when the frequency licences expire. As the licences are perpetual, the lease period follows the assumed amortisation plan of the licence value.

• With the exception of the aforementioned contracts for base station locations, lease contracts of 12 months or less will not be capitalised. Furthermore, lease contracts with low value (primarily relating to office equipment) will not be capitalised.

• Intangible assets (primarily spectrum licenses and the associated annual spectrum fees) will be included as lease agreements and capitalised.

• Contract with less economic life than 12 months or with a total value below NOK 100 thousand are excluded.


Page 12 (17)

IFRS 16 effects on the opening balances of the condensed consolidated statements of financial position Closing Change Opening NOK thousands 31 Dec 2018 IFRS 16 1 Jan 2019 Intangible assets 1,321,417 - 1,321,417 Tangible assets 206,562 436,556 643,118 Other non-current assets 109,920 - 109,920 Current assets 70,847 -4,247 66,599 Total assets 1,708,745 432,308 2,141,054 Equity attributable to the Parent Company shareholders 523,502 - 523,502 Equity attributable to non-controlling interests 392,014 - 392,014 Total equity 915,516 - 915,516 Borrowings - non-current portion 3,853 - 3,853 Other non-current liabilities 409,483 424,745 834,228 Borrowings - current portion 11,287 - 11,287 Other current liabilities 368,606 7,563 376,169 Total equity and liabilities 1,708,745 432,308 2,141,054

Note 3 – Reorganisation 2018 Net1 International Holdings AS, previously Ice Group International AS, (‘Net1’ or the ‘Company’) was established in March 2018 in preparation of the Reorganisation of AINMT Holdings AB (the ‘Reorganisation’) and de-merger of Ice Group ASA (the ‘de-merger’) in the third quarter of 2018.

AINMT Holdings AB was previously the sole shareholder of Net1 International Holdings BV (‘Net1 BV’) with subsidiaries (the ‘International Business’). In the Reorganisation the Company became the majority shareholder of Net1 BV with subsidiaries (together ‘Net1 Group’, ‘the Group’ or ‘Net1 International’). The de-merger was made effective on 4 September 2018, where the Company was the takeover party.

From Net1’s perspective, the Reorganisation of AINMT Holdings AB and the de-merger with Ice Group ASA in practice was performed as below:

AINMT Holdings AB distributed its International Business to its shareholders by ways of a dividend in kind of its shares in Net1 International Holdings BV (‘Net1 BV’).

The Company made at the same time a new share issue to the same shareholders, except Ice Group ASA, who paid them with their shares of Net1 BV.

The de-merger with Ice Group ASA was completed whereby the ownership of its shares in Net1 BV was transferred to the Company.

The Reorganisation was conducted under common control where Access Industries, the controlling party in the de-merger, is also the majority shareholder in the Company post de-merger. This means that, for Net1 Group, the values from the International Business of AINMT Holdings AB group has been used in the Net1 consolidated financial statements.

Note 4 – Going concern The Group has still about USD 17.5 million to utilise from the Gemcorp facility for continuing investments in Indonesia and has per end of August 2019 was scheduled to sign a NOK 50m and a IDR 21bn bridge-loan with RG and Sampoerna respectively. Based on the above, this report is prepared under the assumption of going concern.


Page 13 (17)

Note 5 - Segment information by geographical area The segment information is reported in accordance with the reporting to Group Executive Management (chief operating decision-makers) and is consistent with financial information used by this body for assessing performance and allocating resources and is based on geographical location.

In 2018 Net1 International reports only Indonesia as segment, as the operation in the Philippines is a JV and is not consolidated. This means that the consolidated profit or loss, as a whole, in all material aspects represents the operation in Indonesia. The main customer base in Indonesia is represented by private customers on prepaid subscription basis.

The JV operations in the Philippines are recognised through equity pick-up. This investment was written down to zero in the 2018 year-end closing.

Note 6 – Disaggregation of revenue from contracts with customers The group derives revenue from the transfer of services over time and at a point in time in the following major service lines and geographical region:

2019 First half year Indonesia

NOK thousands Service

revenue Other

revenue Total Revenue from external customer 16,151 8,214 24,364 Timing of revenue recognition

At a point in time 16,186 8,214 24,399 Over time -35 - -35

2018 Full year Indonesia

NOK thousands Service

revenue Other

revenue Total Revenue from external customer 7,842 4,010 11,852 Timing of revenue recognition

At a point in time 7,829 4,010 11,839 Over time 13 - 13

Revenues from external customers comes in all material aspects from service subscriptions, which are over time, and CPE sales which are recognised at the point in time of the sale. Other revenue consists of CPE sales and other operational revenue.


Page 14 (17)

Note 7 – Shareholder restructuring In the period, the Company and its subsidiary Net1 International Holdings B.V. (‘Net1 BV’) entered into an agreement to acquire all the shares held by its Indonesian JV partner Sampoerna AGRI Resources Pte Ltd (‘Sampoerna’) in the JV company Mobile Internet Holdings B.V. (‘MIH’) in return for Sampoerna receiving new issued shares in Net1 International (‘flip-up’). thereby facilitating a simplified and more transparent ownership structure. This transaction was completed on 29 April 2019. Following the flip-up and then the Rights Offering, Sampoerna now holds over 25% of the total shares in Net1.

Effect of the restructuring on the consolidated equity:

Attributable to shareholders of the Parent

Company

NOK thousands Share

capital Reserves Retained earnings Total

Non-controlling

interests Total

equity ‘Flip-up’ of shares 77,474 29,988 - 107,462 - 107,462 Change in non-controlling interests - 326,915 -42,363 284,551 -392,014 -107,462 Effect of restructuring - change of non-controlling interest 77,474 356,903 -42,363 392,014 -392,014 -

The below illustrates the shareholding before and after ‘flip-up’:

The shareholdings were distributed as follows (direct and indirect holdings):

Jun 2019 Dec 2018 Shareholders Shares Ownership % Shares Ownership % Rasmussengruppen 209,560,771 43.5 36,763,904 23.8 Sampoerna Group 130,094,846 27.0 - - Access Industries 80,744,293 16.5 80,744,293 52.2 Others 63,073,987 13.1 37,030,612 24.0 Total 482,287,950 100.0 154,538,809 100.0


Page 15 (17)

Note 8 – Borrowings On 24 April 2019, the Group signed a USD 40 million term loan facilities agreement (with incremental facility) with, amongst others, Gemcorp Capital LLP (‘Gemcorp’) as mandated lead arranger (the ‘Gemcorp loan’).

The Gemcorp loan carries a coupon of 3 months Libor plus 10% (subject to certain adjustments if STI turns EBITDA-positive), amortising over a five-year period, with final maturity date 14 May 2024.

Although only the initial tranche of USD 20 million have been withdrawn, as of 30 June 2019, from this USD 40 million facility, the total loan liability is reflected in the borrowings. The remaining USD 20 million portion was paid out to a secured escrow account under the Gemcorp loan agreement and presented in other current receivables.

The second tranche of USD 10 million was available on or after 16 September 2019 and the third tranche of USD 10 million on or after 16 December 2019, subject to certain KPIs being fulfilled.

Subsequent to the reporting period, the Group received a waiver to withdraw USD 2.5 million from the second tranche. In addition, the Group was due to receive a further waiver to withdraw the full remaining $17.5m by October 2019.

The loan is secured by inter alia assets of STI, share pledges over the shares in Net1’s subsidiaries MIH and Net1 International Holdings B.V. (‘Net1 BV’) and guarantees from MIH and Net1 BV. The loan contains Financial Covenants and tests of key performance indicators (‘KPIs’). The Financial Covenants & KPIs are based on the business plan of the Indonesian operations and include head-room for deviations. The loan also contains change of control provision which is triggered if Rasmussengruppen (or their affiliates) and Access Industries (or their affiliates) cease to hold, between them, at least 40% of the share capital of Net1 at any time and other terms and conditions customary for this type of financing.

Also, in accordance with Gemcorp loan agreement, the company has secured USD 2.6 million to a Debt Service Reserve Account (‘DSRA’) which is presented within other non-current assets.

The loan will be repaid according to the repayment schedule as set out in the table below.

Repayment date Repayment

instalment % Date falling 18 months from the utilisation date 2.5 Date falling 24 months from the utilisation date 2.5 Date falling 30 months from the utilisation date 12.5 Date falling 36 months from the utilisation date 12.5 Date falling 42 months from the utilisation date 15 Date falling 48 months from the utilisation date 15 Date falling 54 months from the utilisation date 20 Date falling 60 months from the utilisation date 20

Costs necessary to obtain this loan facility including legal and accounting fees, notary fees, processing fees, etc amounts to USD 2,8 million. These loan costs have been capitalised with the loan and amortised over the duration of the loan.


Page 16 (17)

ALTERNATIVE PERFORMANCE MEASURES AND DEFINITIONS Alternative Performance Measures Net1’s financial information is prepared in accordance with IFRS. In addition to the ordinary financial performance measures prepared in accordance with IFRS, it is management's intent to provide alternative performance measures (‘APM’) to enhance the understanding of the Group’s underlying performance.

Financial APMs are intended to enhance comparability of the results and cash flows from period to period, and Net1 Group believes that these are frequently used by analysts, investors and other parties. These measures are adjusted IFRS measures, defined, calculated and used in a consistent and transparent manner over the years and across the company where relevant. The alternative performance measures take into consideration items regarded as special due to their nature and include among others provision for non-recurring or non-operational items as technical migrations, restructurings, write-downs, strategic processes, refinancing and share-based compensation expenses.

• Financial APMs should not be considered as a substitute for measures of performance in accordance with IFRS.

• APMs may be calculated differently by other companies.

EBITDA EBITDA (Earnings Before Interests, Taxes, Depreciations and Amortisations) is a financial parameter that the Group considers to be relevant to an investor who wants to understand the generation of earnings before investment in fixed assets. Net1 defines EBITDA as operating profit after adjustment of expenses for depreciation, amortisation and impairment losses, foreign exchange differences recognised in income pertaining to revaluation of items in the balance sheet, non-recurring and non-operational items. Any effects from business combinations are not included.

First half year Full year Reconciliation - NOK thousands 2019 2018 Operating result -192,207 -112,216 Depreciation and amortisation 49,980 24,785 EBITDA -142,227 -87,431

NIBD Net1 Group considers NIBD (Net Interest-Bearing Debt) to be an important measure to be able to understand the Group’s indebtedness. NIBD presented below is based on the total group for continuing operations and is defined as Gross Interest-Bearing Debt less Cash and cash equivalents.

NOK thousands 30 Jun 2019 31 Dec 2018 Borrowings non-current 321,950 3,853 Adjusted for: Amortised costs 23,073 - Borrowings current - 11,287 Gross interest-bearing debt 345,023 15,140 Cash and cash equivalents -36,155 -2,565 Net interest-bearing debt (NIBD) 308,868 12,575


Page 17 (17)

CONTACT DETAILS Address: Nydalsveien 18 B

0484 Oslo Norway

E-mail: [email protected] Web: https://net1.international/

PricewaterhouseCoopers AS, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 MVA, www.pwc.no

Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap

To the Board of Directors of Net1 International Holdings AS

Report on Review of Interim Financial Information

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of Net1 International Holdings AS as of 30 June 2019, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of this interim financial information in accordance with IAS 34 Interim Financial Reporting. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISAs), and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information does not present fairly, in all material respects, the financial position of the entity as at 30 June 2019, and its financial performance and its cash flows for the six-month period then ended in accordance with IAS 34 Interim Financial Reporting.

Oslo, 30 August 2019 PricewaterhouseCoopers AS

Øystein B. Sandvik State Authorised Public Accountant

first half year results 2019 - net1 international · first half year 2019 . page 4 (17) both in...

Documents