| Fri 3 Oct 2008, 15:47 | | NT1 - Net 1 UEPS Technologies Inc. - Abridged Pre |
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NT1
NT1 - Net 1 UEPS Technologies, Inc. - Abridged Pre-Listing Statement
Net 1 UEPS Technologies, Inc.
Registered in the state of Florida, USA
(IRS Employer Identification No. 98-0171860)
Nasdaq share code: UEPS
JSE share code: NT1
ISIN: US64107N2062
("Net1" or "the company")
ABRIDGED PRE-LISTING STATEMENT
Abridged Pre-listing Statement relating to the inward listing of Net1 on the
JSE Limited ("JSE") with effect from the commencement of business on October
8, 2008.
This abridged Pre-listing Statement is not an invitation to the public to
subscribe for or an offer to the public to purchase common stock in Net1, but
is issued in compliance with the Listings Requirements of the JSE for the
purpose of giving information to the public with regard to Net1.
1. Introduction
The JSE has approved the application for a listing of 100% of Net1 common
stock in the "Financial Administration" sector of the JSE lists under the
abbreviated name NET1UEPS, with effect from the commencement of trade on
Wednesday, October 8, 2008.
Net1 will retain its current primary listing on the Nasdaq and this listing
on the JSE will be an inward listing. Accordingly, Net1 will continue to
comply with the listing requirements of the Nasdaq and the reporting
requirements of the Securities and Exchange Commission ("the SEC"). In
addition, as a Florida corporation Net1 will operate in accordance with the
Florida Business Corporation Act, its articles and by-laws, each as amended
from time to time. These requirements include, inter alia, quarterly
financial reporting and the issue of an Annual Report on Form 10-K submitted
to the SEC. Net1 reports its financial information in USD using US GAAP as
its accounting framework. Net1`s financial year end is June 30.
Net1 has undertaken that it will comply in full with the Listings
Requirements on an ongoing basis save where such requirements are in direct
contravention of any US Securities Law requirements or any associated
legislation.
2. Incorporation and history
Net1 was incorporated in 1997 as a Florida corporation and is the successor
to operations originally begun in 1989. Below we describe the historical
development of our business, including the June 2004 acquisition of Net1
Applied Technology Holdings Limited ("Aplitec"), which was a South African
public company. Until June 2004, Net1 was a development stage company and its
business consisted only of acquiring a license to the US FTS patent and
obtaining an exclusive marketing agreement for the UEPS technology outside
South Africa, Namibia, Botswana and Swaziland. In 2004, Net1 acquired
Aplitec, a public company listed on the JSE. Aplitec owned the FTS patent in
South Africa, Namibia, Botswana and Swaziland and one of its subsidiaries was
the other party to the marketing agreement described above. The primary
purpose of the Aplitec transaction was to consolidate into one group the
intellectual property rights relating to the FTS patent and the UEPS
technology, to establish a first-mover advantage in developing economies for
the commercialization of the UEPS technology, and to exploit market
opportunities for growth through strategic alliances and acquisitions. The
transaction permitted Aplitec`s shareholders to reinvest their sale proceeds
in Net1, but under South African Exchange Control regulations, shareholders
of Aplitec were not permitted to hold Net1`s securities directly. Therefore,
in order to comply with these regulations, these reinvesting shareholders
received, through an interest in New Aplitec Participation Trust, securities
of a newly-formed Net1 subsidiary that acquired Aplitec ("New Aplitec"),
consisting of the New Aplitec B class loans and the New Aplitec B class
preference shares. The New Aplitec A class loans and the New Aplitec A class
preference shares are held by Net1. These reinvesting holders also obtained
the right to receive, for no additional consideration, the special
convertible preferred stock which are held by the Cayman Trust. We refer to
the New Aplitec B class loans, the New Aplitec B class preference shares and
special convertible preferred stock that we and New Aplitec issued in the
transaction as the "linked units." The special convertible preferred stock is
structured so as to be economically equivalent to Net1 common stock and has
substantially the same rights as Net1 common stock. The special convertible
preferred stock is convertible on a one-for-one basis into our Net1 common
stock upon the occurrence of a trigger event, and holders are entitled to
vote on an as-converted basis. On conversion of the special convertible
preferred stock into Net1 common stock upon the occurrence of a trigger
event, the linked unit holder cedes to Net1 the New Aplitec B class loan and
New Aplitec B class preference shares that were part of the linked unit. A
trigger event includes any of the following events: (1) giving of a
conversion notice by a linked unit holder, (2) the abolition or relaxation of
South African Exchange Control regulations or (3) the liquidation of New
Aplitec or Net1.
During the period from the completion of the Aplitec transaction through June
30, 2008, an aggregate of 27,278,761 shares of special convertible preferred
stock were converted into an equal number of shares of Net1 common stock, and
the number of outstanding special convertible preferred stock was
correspondingly reduced.
3. Unwinding process
Should a trigger event occur, which includes the relaxation or abolishment of
Exchange Control regulations such that residents of South Africa are
permitted to hold Net1 common stock, which will be the case in the event of
this listing taking place, New Aplitec Participation Trust shall give written
notice to Aplitec Holdings Participation Trust, requesting the distribution
of Net1 special convertible preferred stock to the South African investors in
the ratio of 0.135714285 shares of special convertible preferred stock for
each New Aplitec B class preference share held. Net1 may rely on the
reasonable opinion of South African legal counsel as to the occurrence of a
trigger event as aforesaid.
Upon receipt by New Aplitec Participation Trust of the special convertible
preferred stock, New Aplitec Participation Trust shall notify Net1 that it
wishes to convert the special convertible preferred stock into Net1 common
stock and shall transfer and cede to Net1 the New Aplitec B class preference
shares and New Aplitec B class loans held by it on behalf of the South
African investors. In consideration for the transfer and cession to it of
the New Aplitec B class preference shares and New Aplitec B class loans, Net1
shall convert the special convertible preferred stock into Net1 common stock
on a share for share basis.
The articles of Net1 set out the process and mechanics of conversion.
Conversion takes place upon receipt by Net1 of a notice stating that a
trigger event has occurred, and no further act is required to effect such
conversion. Net1 must provide written notice to the holder of the special
convertible preferred stock stating that the special convertible preferred
stock has been converted to Net1 common stock, specifying the conversion date
(which is the date determined by the Board and set forth in the notice) and
stating that the holder is required to deliver to Net1 on the date set out in
the notice (which shall not be earlier than 14 (fourteen) days from the date
of notice) the share certificates in respect of the special convertible
preferred stock, the certificates in respect of the New Aplitec B class
preference shares and New Aplitec B class loans. The listing of Net1`s common
stock on the JSE is a trigger event and accordingly Net1 shall arrange for
the delivery of dematerialized shares in respect of the Net1 common stock to
the holders upon the inward listing on the JSE.
After conversion of the special convertible preferred stock into Net1 common
stock, New Aplitec Participation Trust shall distribute the Net1 common stock
to the South African investors in the ratio in which they hold units in New
Aplitec Participation Trust, and cancel such units.
Upon all Net1 common stock having been distributed to the South African
investors and all units in New Aplitec Participation Trust having been
cancelled, New Aplitec Participation Trust will be wound up.
On commencement of the listing on the JSE and post the winding up, all the
securities in issue will rank pari passu in every respect, including as to
dividend rights.
4. Movement of Net1 common stock between registers
Net1 common stock is fully fungible and may be transferred between registers.
Eligible South African shareholders may only acquire Net1 common stock, via
the JSE, that is already on the South African share register maintained by
Net1`s South African transfer secretaries. Member brokers of the JSE may
acquire Net1 common stock on foreign exchanges and transfer them to the South
African share register. Non-residents are not subject to the SARB Exchange
Control Regulations and may freely transfer Net1 common stock between
registers.
5. Purpose of the listing on the JSE
Net1 wishes to obtain an inward listing of its common stock on the JSE due to
the various strategic benefits that this could provide to Net1, its
affiliates, and where the context requires, their respective successors-in-
title ("Net1 Group").
The main purposes of the listing on the JSE are to:
- enhance South African investors` awareness of Net1, thereby enlarging
Net1`s potential investor base and increasing trade in its shares;
- provide Net1 with an additional source from which capital to
facilitate growth can be obtained;
- facilitate direct investment in Net1 by South African residents and
the investors utilizing the trading platform operated by the JSE; and
- create additional liquidity for current SA investors.
6. Nature of business and group structure
Net1 provides a universal electronic payment system, the UEPS, as an
alternative payment system for the unbanked and under-banked populations of
developing economies. Net1 believes that it is the first company worldwide to
implement a system that can enable the estimated four billion people who
generally have limited or no access to a bank account to enter affordably
into electronic transactions with each other, government agencies, employers,
merchants and other financial service providers. To accomplish this, Net1 has
developed and deployed the UEPS. This system uses secure smart cards that
operate in real-time but offline, unlike traditional payment systems offered
by major banking institutions that require immediate access through a
communications network to a centralized computer. This offline capability
means that users of the UEPS system can enter into transactions at any time
with other card holders in even the most remote areas so long as a smart card
reader, which is often portable and offline, is available. In addition to
payments and purchases, Net1`s system can be used for banking, health care
management, international money transfers, voting and identification
purposes.
7. Business strategy
Net1 intends to provide the leading system for the world`s estimated four
billion unbanked and under-banked people to engage in electronic transactions
globally. To achieve this goal, Net1 intends to pursue the following
strategies:
Disciplined approach to new markets
Net1 carefully evaluates new opportunities in order to deploy its business
development resources effectively. Net1 believes there are significant
opportunities for the UEPS system in the developing countries of Africa,
Central and South America, the Middle East, the Asia-Pacific Rim and Central
and Eastern Europe, where the unbanked and under-banked comprise a majority
of the population. Where it is considered appropriate, Net1 will use
partnerships or make acquisitions to accelerate entry into new markets. For
instance, during the 2007 and 2006 fiscal year, Net1 established, together
with local investors, companies to create and implement UEPS systems in three
African countries, Namibia, Botswana and Nigeria. In other instances Net1 may
implement UEPS systems in a particular market. For instance, during fiscal
2008 Net1 implemented a National Switch and Smart Card Payment System in
Ghana and entered into a contract with an Iraqi consortium to provide a
customized UEPS banking and payment system that the company will operate on
an outsourced basis.
Unlock target markets with a key product
The first step in establishing the UEPS system within a new province or
country is to establish a broad base of smart card users around a single
application. One of Net1`s preferred routes is to secure contracts to
implement payment systems for government programs having large numbers of
potential card holders. It is considered that another effective route will be
the delivery of medical management applications, such as for HIV/AIDS.
However, Net1 is not dependent on government agencies to establish an initial
base. In South Africa, employers have examined Net1`s system to address their
wage payment challenges and Net1 is currently pursuing opportunities to
deliver this solution. Similarly, banking institutions implement the UEPS
banking application and distribute smart cards to their clients to replace
ageing legacy systems, including paper or book- based systems.
Expansion of product offering within the markets Net1 serves
With the establishment of a strong base of card holders and related
infrastructure, Net1 can then move to providing additional products and
services. As part of broadening card holders` options, Net1 will also sell
smart card readers and POS (point of sale) devices to merchants to enable
them to enter into transactions. Additionally, Net1 will work to establish
relationships with post offices, banks and other financial service providers
with the goal of making the UEPS system ubiquitous in the markets that are
being served.
Provide products and services where the profit potential is compelling
Net1`s system can dramatically reduce transaction costs and improve data
collection for a broad set of products and services. Net1 intends to offer
those products and services where the profit potential is significant. For
instance, Net1 engages in lending in South Africa. Net1 is able to offer this
service at a lower interest rate than competitors due to the ability to
deduct interest and principal directly from a borrower`s smart card and
knowledge of that individual`s payment history.
Establish partnerships or make acquisitions when appropriate
As part of Net1`s disciplined approach to growing its presence globally,
management will evaluate and enter into partnerships or outsourcing
agreements where they can draw on local knowledge and infrastructure to drive
the rapid adoption of its system. Net1 believes that this will enable
management to focus on its core strength in technology as well as product
development and delivery. In some instances, Net1 will make acquisitions
where it is believed that this approach will enable them to gain customers
and realize operational benefits rapidly from the deployment of a more
efficient solution.
8. Prospects
The directors of Net1 are of the opinion that the Net1 Group is well
positioned to deliver financial performance and returns to its stakeholders
through its proven products and services. The company`s target market is the
estimated 4 billion people earning less than the purchasing parity equivalent
of two dollars per day, of which most are unbanked or under-banked. Net1
believes that traditional payment systems offered today by the major banking
institutions do not address the key requirements of the unbanked and under-
banked populations. Net1 believes that it is the first company to enable the
affordable delivery of financial products and services to the world`s
unbanked and under-banked people using an affordable, flexible and secure
electronic payments system called UEPS.
9. Financial information
The report of historical financial information of Net1 for the three
financial years ended June 30, 2008 and the independent reporting
accountants` report thereon, are available on Net1`s website,
www.aplitec.co.za. This information is in the form of the annual consolidated
financial statements, filed with the Annual Report on Form 10-K for the years
ended June 30, 2008 and 2007, as filed with the SEC.
The directors are responsible for the accuracy of the relevant financial
information extracted from the interim and year end statements.
Unless otherwise specified, the financial information presented below is
presented in USD and US GAAP. This information was primarily obtained from
Net1`s 2008 Annual Report on Form 10-K filed with the SEC on August 28, 2008.
Abridged financial information included in the Pre-listing Statement
Consolidated statements of operations
Year ended June 30,
2008 2007 2006
(In thousands, except per share
data)
REVENUE $ 254,056 $223,968 $ 196,098
Sale of goods 39,021 27,716 17,867
Loan-based interest and fees 8,585 11,460 15,017
received
Services rendered 206,450 184,792 163,214
EXPENSE
Cost of goods sold, IT 67,486 54,417 50,619
processing, servicing and
support
Selling, general and 65,362 61,625 48,627
administration
Depreciation and amortization 10,822 11,050 5,710
Costs related to public - - 1,529
offering and Nasdaq listing
OPERATING INCOME 110,386 96,876 89,613
INTEREST INCOME, net 15,722 4,401 5,889
INCOME BEFORE INCOME TAXES 126,108 101,277 95,502
INCOME TAX EXPENSE 39,192 37,574 36,653
NET INCOME BEFORE MINORITY 86,916 63,703 58,849
INTEREST AND (LOSS) EARNINGS
FROM EQUITY-ACCOUNTED
INVESTMENTS
MINORITY INTEREST (815) 205 -
(LOSS) EARNINGS FROM EQUITY- (1,036) 181 383
ACCOUNTED INVESTMENTS
NET INCOME $ 86,695 $63,679 $ 59,232
Net income per share
Basic earnings - common stock 1.52 1.12 1.05
and linked units, in $
Diluted earnings - common 1.50 1.11 1.03
stock and linked units, in $
Headline earnings per share (1)
Basic earnings - common stock 1.51 1.13 1.05
and linked units, in $
Diluted earnings - common 1.50 1.12 1.03
stock and linked units, in $
(1) Headline earnings per share basic and diluted is a non-GAAP measure as
defined under US securities law. These laws require that when we publish any
non-GAAP measures we disclose the reason for using the non-GAAP measure and
provide reconciliation to the directly comparable GAAP measure. The inclusion
of headline earnings per share in this Pre-Listing Statement is a requirement
of its listing on the JSE. Headline earnings per share basic and diluted are
calculated using net Income which has been determined based on US GAAP.
Accordingly, this may differ to the headline earnings per share calculation
of other companies listed on the JSE as these companies may report their
financial results under a different financial reporting framework, including,
but not limited to, International Financial Reporting Standards.
Consolidated balance sheets
As of June 30,
2008 2007 2006
(In thousands, except share
data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $272,475 $ 171,727 $ 189,735
Pre-funded social welfare 35,434 26,817 17,223
grants receivable
Accounts receivable, net 21,797 30,503 21,219
Finance loans receivable, net 4,301 5,755 6,713
Deferred expenditure on smart 78 507 656
cards
Inventory 6,052 5,645 1,935
Deferred income taxes 5,597 7,028 3,237
Total current assets 345,734 247,982 240,718
LONG-TERM RECEIVABLES 207 54 946
PROPERTY, PLANT AND EQUIPMENT, 6,291 7,582 3,757
net
EQUITY-ACCOUNTED INVESTMENTS 2,685 2,992 4,986
GOODWILL 76,938 85,871 13,923
INTANGIBLE ASSETS, net 22,216 31,609 5,649
TOTAL ASSETS 454,071 376,090 269,979
LIABILITIES
CURRENT LIABILITIES
Bank overdraft - 16 20
Accounts payable 4,909 5,879 2,073
Other payables 57,432 34,457 28,575
Income taxes payable 14,162 14,346 12,455
Total current liabilities 76,503 54,698 43,123
DEFERRED INCOME TAXES 33,474 36,219 17,846
INTEREST BEARING LIABILITIES - 3,766 4,100 -
outside shareholders loans
COMMITMENTS AND CONTINGENCIES - - -
TOTAL LIABILITIES 113,743 95,017 60,969
SHAREHOLDERS` EQUITY
COMMON STOCK
Authorized shares: 83,333,333
with $0.001 par value;
Issued and outstanding 52 52 50
shares: 2008: 53,423,552;
2007: 51,730,547; 2006:
49,744,852
SPECIAL CONVERTIBLE PREFERRED
STOCK
Authorized shares: 50,000,000
with $0.001 par value;
Issued and outstanding 5 5 7
shares: 2008: 4,882,429;
2007: 5,656,110; 2006:
7,315,099
B CLASS PREFERENCE SHARES
Authorized shares:
330,000,000 with $0.001 par
value;
Issued and outstanding shares 6 7 9
(net of shares held by the
Company): 2008: 35,975,818;
2007: 41,676,625; 2006:
53,900,752
ADDITIONAL PAID-IN CAPITAL 119,283 112,167 105,792
TREASURY SHARES, AT COST: 2008: (7,950) (7,795) (3,958)
306,269; 2007: 299,821; 2006:
147,973
ACCUMULATED OTHER COMPREHENSIVE (37,820 (3,915) (9,763)
LOSS )
RETAINED EARNINGS 266,752 180,552 116,873
TOTAL SHAREHOLDERS` EQUITY 340,328 281,073 209,010
TOTAL LIABILITIES AND $454,071 $ 376,090 $ 269,979
SHAREHOLDERS` EQUITY
10.Directors and management
Dr Serge Christian Pierre Belamant Chairman and Chief Executive
Officer
Herman Gideon Kotze Chief Financial Officer,
Secretary and Treasurer
Christopher Stefan Seabrooke Non-executive director
Anthony Charles Ball Non-executive director
Alasdair Jonathan Kemsley Pein Non-executive director
Paul Edwards Non-executive director
Tom Collier Tinsley Non-executive director
Brenda Lynn Stewart Senior Vice President Marketing
and Sales
Nitin Soma Senior Vice President of
Information Technology
11.Copies of the Pre-listing Statement
Copies of the Pre-listing Statement will be available in English only and may
be obtained during normal business hours from Tuesday, October 7, 2008 at the
following addresses:
Net1: President Place, 4th Floor, Cnr Jan Smuts Avenue and Bolton Road,
Rosebank;
Deutsche Securities (SA) (Proprietary) Limited: 3 Exchange Square, 87 Maude
Street, Sandton;
Morgan Stanley South Africa (Proprietary) Limited: 1st Floor, S.W. Wing, 160
Jan Smuts Avenue, Rosebank; and
Link Market Services South Africa (Proprietary) Limited: 11 Diagonal Street,
Johannesburg.
Johannesburg
3 October 2008
Financial adviser and sponsor to Net1
Deutsche Securities (SA) (Proprietary) Limited
Co-advisor to Net1
Morgan Stanley South Africa (Proprietary) Limited
Legal advisors to Net1
DLA Cliffe Dekker Hofmeyr Inc.
Reporting accountants and auditors to Net1
Deloitte & Touche (South Africa)
Transfer secretaries to Net1
Link Market Services South Africa (Proprietary) Limited
Date: 03/10/2008 15:47:01 Produced by the JSE SENS Department.
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