| Fri 7 Nov 2008, 9:00 | | NT1 - Net1 - Announces 2009 First Quarter Results |
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NT1
NT1
NT1 - Net1 - Announces 2009 First Quarter Results
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")
Net 1 UEPS Technologies, Inc. Announces 2009 First Quarter Results
Johannesburg, South Africa (November 6, 2008) - Net 1 UEPS Technologies, Inc.
("Net1" or the "Company") (NASDAQ: UEPS; JSE: NT1) today announced results for
the three months ended September 30, 2008.
Results
Three months ended September 30, 2008 and 2007
GAAP GAAP GAAP Funda- Funda- Funda-
Q1 Q1 Variance mental Q1 mental Q1 mental
2009 2008 % 2009 (1) 2008 (1) Variance
%
Net 26,244 17,928 46% 22,696 19,659 15%
income
(USD`000)
Earnings 46 31 48% 40 34 18%
per
share,
basic (US
cents)
Revenue 67,935 60,259 13% 67,935 60,259 13%
(USD`000)
(1) - Fundamental net income and earnings per share is GAAP net income and
earnings per share excluding the amortization of acquisition-related
intangible assets, net of deferred taxes, stock-based compensation charges
and, where applicable, the effect of the change in the fully distributed tax
rate from 35.45% to 34.55%. In addition, Johannesburg Stock Exchange ("JSE")
listing costs, a bank facility fee and an unrealized foreign exchange gain
related to a short-term investment are also excluded in calculating
fundamental net income and earnings per share.
Since the Company`s reporting currency is the US dollar ("USD") but its
functional currency is the South African rand ("ZAR"), and due to the impact
of currency fluctuations between the USD and the ZAR on the Company`s results
of operations, the Company also analyzes its results of operations in ZAR to
assist investors in understanding the changes in the underlying trends of its
business. The USD was stronger against the ZAR during the three months ended
September 30, 2008, as compared with the prior period. The impact of these
changes on results of operations is shown under the column "Change" in the
tables of key metrics included in Attachment A at the end of this press
release.
GAAP GAAP GAAP Funda-mental Funda-mental Funda-
Q1 Q1 Variance Q1 2009(1) Q1 2008(1) mental
2009 2008 % Variance
%
Net 204,821 127,715 60% 176,673 140,049 26%
income
(ZAR`000)
Earnings 357 224 59% 308 245 26%
per
share,
basic
(ZAR
cents)
Revenue 530,197 429,269 24% 530,197 429,269 24%
(ZAR`000)
(1) - Fundamental net income and earnings per share is GAAP net income and
earnings per share excluding the amortization of acquisition-related
intangible assets, net of deferred taxes, stock-based compensation charges
and, where applicable, the effect of the change in the fully distributed tax
rate from 35.45% to 34.55%. In addition, JSE listing costs, a bank facility
fee and an unrealized foreign exchange gain related to a short-term investment
are also excluded in calculating fundamental net income and earnings per
share.
Use of Non-GAAP measures
US securities 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 presentation of fundamental
earnings and headline earnings per share are non-GAAP measures.
Fundamental earnings
Under US generally accepted accounting principles ("GAAP"), the Company is
required to fair value all intangible assets on the date of acquisition and
amortize these intangible assets over their expected useful lives. In
addition, under GAAP, the Company is required to measure the fair value of
options and other stock-based awards and recognize a stock-based compensation
charge over the requisite service period. The Company`s GAAP net income and
earnings per common share for the three months ended September 30, 2008 and
2007 includes amortization of intangibles and stock-based compensation charges
related to stock options and other stock-based awards, as well as JSE listing
costs, a bank facility fee and an unrealized foreign exchange gain related to
a short-term investment. Finally, the effect of the change in the fully
distributed tax rate from 35.45% to 34.55% in July 2008 is included in the
Company`s net income and earnings per common share for the period ended
September 30, 2008. The Company excludes all of the above-mentioned amounts
when calculating fundamental net income and earnings per common share because
management believes that these adjustments enhance its own evaluation, as well
as an investor`s understanding, of the Company`s financial
performance. Attachment B presents a reconciliation between GAAP and
fundamental net income and earnings per common share.
Headline earnings per share ("HEPS")
The inclusion of HEPS in this press release is a requirement of our listing on
the JSE. HEPS 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. Attachment C presents the reconciliation between our net
income used to calculate earnings per share basic and diluted and headline
earnings per share basic and diluted.
First Quarter Highlights
- Acquisition of BGS Smartcard Systems AG, an Austrian private company on
August 27,2008;
- Successful demonstration of UEPS technology, together with Sberbank, to
the Prime Minister of the Russian Federation at the World Economic
Forum in Sochi;
- Successful launch of our UEPS solution in Iraq for the distribution of
grants;
- Commencement of registration of grant recipients in Botswana;
- Successful launch of our UEPS fleet management system with Wesbank in
South Africa;
- Continued wide-spread implementation of the UEPS technology across
multiple business segments in Ghana;
- Implementation of our wage payments system with our first major
corporate customer;
- Increased revenues and operating income in all provinces where we
distribute social welfare grants;
- Merchant acquiring system transactions increased 20% to $319.4 million
in the first quarter of fiscal 2009 from $266.9 million in the first
quarter of fiscal 2008 and the number of transactions processed per
terminal increased 24% from the first quarter of fiscal 2008;
- The total number of active UEPS smart card-based accounts increased 2%
to 4,039,359 as of September 30, 2008, compared to September 30, 2007;
and
The number of transactions processed by EasyPay increased 14% from the
first quarter of fiscal 2008.
Comments and Outlook
"I am very pleased with the results of our activities during the first quarter
of fiscal 2009," said Dr. Serge Belamant, Chairman and Chief Executive Officer
of Net1. "The success of our business model is apparent in our financial
results, despite the recent disruptions in the financial markets and concerns
about a weakening global economy. I am particularly pleased to welcome the BGS
team to the Net1 family and we are excited about the new dimension that this
acquisition brings to Net1 to accelerate the global deployment of our
technology," he concluded.
"We maintain our outlook of 15% fundamental earnings per share growth on a
constant currency basis for fiscal 2009," said Herman Kotz?, Chief Financial
Officer of Net1. "Our GAAP earnings per share growth should exceed 25% on a
constant currency basis as a result of the change in tax rates and the foreign
exchange gains on a short-term investment," he concluded.
Conference call
Net1 will host a conference call to review first quarter results on November
7, 2008, at 8:00 a.m. Eastern Standard Time. To participate in the call, dial
1-800-860-2442 (US only), 1-866-519-5086 (Canada only), 0-800-917-7042 (U.K.
only) or 0-800-200-648 (South Africa only) five minutes prior to the start of
the call. Callers should request "Net1 call" upon dial-in. The call will also
be webcast on the Net1 homepage, www.net1ueps.com. Please click on the webcast
link at least 10 minutes prior to the call. A webcast of the call will be
available for replay on the Net1 website through November 28, 2008.
About Net1 (www.net1ueps.com)
Net1 provides its universal electronic payment system, or UEPS, as an
alternative payment system for the unbanked and under-banked populations of
developing economies. The Company 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, the Company 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 Net1`s system can enter into transactions at
any time with other cardholders in even the most remote areas so long as a
portable offline smart card reader 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.
The Company also focuses on the development and provision of secure
transaction technology, solutions and services. The Company`s core
competencies around secure online transaction processing, cryptography and
integrated circuit card (chip/smart card) technologies are principally applied
to electronic commerce transactions in the telecommunications, banking,
retail, petroleum and utilities market sectors. These technologies form the
cornerstones of the "trusted transactions" environment of Prism, a South
African based subsidiary of the Company, and provide the Company with the
building blocks for developing secure end-to-end payment solutions.
Net1 recently acquired 80.1% of BGS Smartcard System AG ("BGS"), an Austrian
company, whose core business consists of developing and integrating smart card-
based offline and online financial transaction systems. Since 1993, BGS has
implemented tailor-made smart card-based payment solutions, focusing on
emerging economies and in cooperation with banks, enterprises and government
authorities. BGS is headquartered in Vienna, Austria, and has subsidiaries in
India and Russia, and a branch office in the Ukraine. Distributors are located
in Asia, Central and South America, the Commonwealth of Independent States and
the Middle East.
Forward-Looking Statements
This announcement contains forward-looking statements that involve known and
unknown risks and uncertainties. A discussion of various factors that could
cause the Company`s actual results, levels of activity, performance or
achievements to differ materially from those expressed in such forward-looking
statements are included in the Company`s filings with the Securities and
Exchange Commission. The Company undertakes no obligation to revise any of
these statements to reflect future circumstances or the occurrence of
unanticipated events.
Contact William Espley at Net1 Investor Relations at:
Telephone: 1-604-484-8750
Toll Free: 1-866-412-NET1 (6381)
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended
September 30,
2008 2007
(In thousands,
except per share
data)
REVENUE $ 67,935 $ 60,259
EXPENSE
COST OF GOODS SOLD, IT PROCESSING, SERVICING 19,236 15,143
AND SUPPORT
SELLING, GENERAL AND ADMINISTRATION 17,998 16,464
DEPRECIATION AND AMORTIZATION 3,423 2,746
OPERATING INCOME 27,278 25,906
UNREALIZED FOREIGN EXCHANGE GAIN RELATED TO 6,076 -
SHORT-TERM INVESTMENT
INTEREST INCOME, net 3,162 2,982
INCOME BEFORE INCOME TAXES 36,516 28,888
INCOME TAX EXPENSE 9,902 10,872
NET INCOME FROM CONTINUING OPERATIONS BEFORE 26,614 18,016
MINORITY INTEREST AND LOSS FROM EQUITY-ACCOUNTED
INVESTMENTS
MINORITY INTEREST 60 (196)
LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (310) (284)
NET INCOME $ 26,244 $ 17,928
Net income per share
Basic earnings, in cents - common stock and 45.7 31.4
linked units
Diluted earnings, in cents - common stock and 45.4 31.2
linked units
NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
Unaudited (A)
September June 30,
30,
2008 2008
(In thousands, except
share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 245,924 $ 272,475
Pre-funded social welfare grants 64,834 35,434
receivable
Accounts receivable, net of allowances of 42,048 21,797
- September: $243; June: $260
Finance loans receivable, net of 4,114 4,301
allowances of - September: $1,086; June:
$1,007
Deferred expenditure on smart cards 98 78
Inventory 6,840 6,052
Deferred income taxes 6,112 5,597
Total current assets 369,970 345,734
LONG-TERM RECEIVABLE 192 207
PROPERTY, PLANT AND EQUIPMENT, NET OF 8,297 6,291
ACCUMULATED DEPRECIATION OF - September:
$25,759; June: $24,753
EQUITY-ACCOUNTED INVESTMENTS 2,969 2,685
GOODWILL 114,310 76,938
INTANGIBLE ASSETS, NET OF ACCUMULATED 92,344 22,216
AMORTIZATION OF -
September: $18,461; June: $16,486
TOTAL ASSETS 588,082 454,071
LIABILITIES
CURRENT LIABILITIES
Short-term loan facility 110,000 -
Accounts payable 8,379 4,909
Other payables 49,880 57,432
Income taxes payable 17,058 14,162
Total current liabilities 185,317 76,503
DEFERRED INCOME TAXES 38,716 33,474
OTHER LONG-TERM LIABIBILITIES, including
minority interest loans 4,507 3,766
COMMITMENTS AND CONTINGENCIES - -
TOTAL LIABILITIES 228,540 113,743
MINORITY INTEREST 1,898 -
SHAREHOLDERS` EQUITY
COMMON STOCK
Authorized: 83,333,333 with $0.001 par
value;
Issued shares - September: 53,598,304; 52 52
June: 53,423,552
SPECIAL CONVERTIBLE PREFERRED STOCK
Authorized: 50,000,000 with $0.001 par
value;
Issued and outstanding shares -
September: 4,801,291; June: 4,882,429 5 5
B CLASS PREFERENCE SHARES
Authorized: 330,000,000 with $0.001 par
value;
Issued and outstanding shares (net of 6 6
shares held by Net1) - September:
35,377,959; June: 35,975,818
ADDITIONAL PAID-IN-CAPITAL 121,625 119,283
TREASURY SHARES, AT COST: September: (7,950) (7,950)
306,269; June: 306,269
ACCUMULATED OTHER COMPREHENSIVE LOSS (49,090) (37,820)
RETAINED EARNINGS 292,996 266,752
TOTAL SHAREHOLDERS` EQUITY 357,644 340,328
TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY $ 588,082 $ 454,071
(A) - Derived from audited financial
statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
September 30,
2008 2007
(In thousands)
Cash flows from operating activities
Net income $ 26,244 $ 17,928
Depreciation and amortization 3,423 2,746
Loss from equity-accounted investments 310 284
Fair value adjustment related to financial (36) (73)
liabilities
Fair value of FAS 133 derivative adjustments 64 7
Unrealized foreign exchange gain related to (6,076) -
short-term investment
Interest payable 639 117
Loss (Profit) on disposal of property, plant 1 (10)
and equipment
Minority interest 60 (196)
Stock-based compensation charge 1,205 841
Facility fee amortized 748 -
(Increase) Decrease in accounts receivable, pre- (46,141) 5,538
funded social welfare grants receivable and
finance loans receivable
(Increase) Decrease in deferred expenditure on (23) 94
smart cards
Increase in inventory (217) (1,765)
(Decrease) Increase in accounts payable and (14,415) 12,419
other payables
Decrease in taxes payable 3,409 496
(Decrease) Increase in deferred taxes (2,170) 1,817
Net cash (used in) provided by operating (32,975) 40,243
activities
Cash flows from investing activities
Capital expenditures (2,844) (671)
Proceeds from disposal of property, plant and 1 41
equipment
Acquisition of BGS, net of cash acquired (95,328) -
Acquisition of shares in equity-accounted (550) -
investments
Net cash used in investing activities (98,721) (630)
Cash flows from financing activities
Proceeds from issue of share capital, net of 155 150
share issue expenses
Proceeds from short-term loan facility 110,000 -
Payment of facility fee (1,100) -
Proceeds from bank overdrafts 2 9
Repayment of bank overdraft (1) (16)
Net cash provided by financing activities 109,056 143
Effect of exchange rate changes on cash (3,911) 4,039
Net (decrease) increase in cash and cash (26,551) 43,795
equivalents
Cash and cash equivalents - beginning of period 272,475 171,727
Cash and cash equivalents - end of period $245,924 $ 215,522
Net 1 UEPS Technologies, Inc.
Attachment A
Key metrics and statistics at and for the three months ended September 30,
2008 and 2007 and June 30, 2008:
Three months ended September 30, 2008 and 2007 and June 30, 2008
Key statement of operations data, in Q1 `09 Q1 `08 Q4 `08
`000, except EPS
USD USD USD
Revenue $67,935 $60,259 $62,231
Operating income 27,278 25,906 27,604
Income tax expense 9,902 10,872 11,376
Net income $26,244 $17,928 $21,482
Earnings per share,
Basic (cents) 46 31 38
Diluted (cents) 45 31 37
Fundamental earnings per share,
Basic (cents) 40 34 41
Key segmental data, in `000, except
margins
Revenue:
Transaction-based activities $40,344 $38,164 $38,035
Smart card accounts 8,570 9,136 8,445
Financial services 1,784 2,183 1,934
Hardware, software and related technology 17,237 10,776 13,817
sales
Total consolidated revenue $67,935 $60,259 $62,231
Consolidated operating income (loss):
Transaction-based activities $21,638 $20,589 $21,912
Smart card accounts 3,895 4,152 3,840
Financial services 327 446 524
Hardware, software and related technology 4,134 1,940 2,123
sales
Corporate/ Eliminations (2,716) (1,221) (795)
Total operating income $27,278 $25,906 $27,604
Operating income margin (%)
Transaction-based activities 54% 54% 58%
Smart card accounts 45% 45% 45%
Financial services 18% 20% 27%
Hardware, software and related technology 24% 18% 15%
sales
Overall operating margin 40% 43% 44%
Sep 30, Jun 30,
2008 2008 Change
Key balance sheet data, in `000
Cash and cash equivalents $245,924 $272,475 (10)%
Total current assets 369,970 345,734 7%
Total assets 588,082 454,071 30%
Total current liabilities 185,317 76,503 142%
Total shareholders` equity $357,644 $340,328 5%
Change - Change -
actual constant
exchange
rate(1)
Key statement of operations data, in Q1 `09 Q1 `09 Q1 `09 Q1 `09
`000, except EPS vs vs vs vs
Q1 `08 Q4 `08 Q1 `08 Q4 `08
Revenue 13% 9% 24% 9%
Operating income 5% (1)% 15% (1)%
Income tax expense (9)% (13)% 0% (13)%
Net income 46% 22% 60% 22%
Earnings per share,
Basic (cents) 48% 21% 63% 21%
Diluted (cents) 45% 22% 59% 22%
Fundamental earnings per share,
Basic (cents) 18% (2)% 29% (2)%
Key segmental data, in `000, except
margins
Revenue:
Transaction-based activities 6% 6% 16% 6%
Smart card accounts (6)% 1% 3% 2%
Financial services (18)% (8)% (10)% -8%
Hardware, software and related technology 60% 25% 75% 25%
sales
Total consolidated revenue 13% 9% 24% 9%
Consolidated operating income (loss):
Transaction-based activities 5% (1)% 15% (1)%
Smart card accounts (6)% 1% 3% 1%
Financial services (27)% (38)% (20)% (38)%
Hardware, software and related technology 113`% 95% 133% 95%
sales
Corporate/ Eliminations 122% 242% 144% 242%
Total operating income 5% (1)% 15% (1)%
(1) - This information shows what the change in these items would have
been if the USD/ ZAR exchange rate that prevailed during the first
quarter of fiscal 2009 also prevailed during the first quarter of fiscal
2008 and the fourth quarter of fiscal 2008.
Change
Additional Q1 `09 Q1 `08 Q4 `08 Q1 Q1
information: `09 `09
vs vs
Q1 Q4
`08 `08
Transaction-based
activities:
Total number of
grants paid:
KwaZulu-Natal 5,230,041 5,040,155 5,182,170 4% 1%
Limpopo 2,958,456 2,935,110 2,957,809 1% -%
North West 1,385,537 1,219,059 1,289,828 14% 7%
Northern Cape 497,726 496,101 496,884 -% -%
Eastern Cape 2,058,236 2,137,975 2,047,136 (4)% 1%
12,129,996 11,828,399 11,973,827 3% 1%
Average revenue per
grant paid: ZAR ZAR ZAR
KwaZulu-Natal 23.89 21.01 23.83 14% -%
Limpopo 18.15 16.76 18.56 8% (2)%
North West 25.68 21.10 22.39 22% 15%
Northern Cape 24.03 19.06 24.05 26% -%
Eastern Cape 16.52 15.02 16.52 10% -%
UEPS merchant
acquiring system:
Terminals installed 4,170 4,305 4,394 (3)% (5)%
at period end
Number of 2,382 2,578 2,454 (8)% (3)%
participating retail
locations at period
end
Value of transactions 2,486,912 1,901,570 2,243,592 31% 11%
processed through POS
devices during the
quarter (in ZAR `000)
Value of transactions 2,288,288 1,900,684 2,178,596 20% 5%
processed through POS
devices during the
completed pay cycles
for the quarter (in
ZAR `000)
Average number of 1,061 858 965 24% 10%
grants processed per
terminal during the
quarter
Average number of 983 858 936 15% 5%
grants processed per
terminal during the
completed pay cycles
for the quarter
EasyPay transaction
fees:
Number of 14% 1%
transactions
processed 135,240,966 119,032,899 133,380,549
Average fee per 5% -%
transaction (in ZAR) 0.22 0.21 0.22
Smart card accounts:
Total number of smart 2% -%
card accounts 4,039,359 3,943,580 4,022,193
Hardware, software
and related
technology sales:
Ad hoc significant
hardware sales (USD
`000)
Nedbank hardware 2,300 - 700 n/m 229%
Ghana - in terms of 3,900 1,000 5,000 290% (22)%
contract
Financial services:
(USD `000)
Traditional
microlending:
Finance loans 2,595 5,249 2,864 (51)% (9)%
receivable - gross
Allowance for (1,086) (3,011) (1,007) (64)% 8%
doubtful finance
loans receivable
Finance loans 1,509 2,238 1,857 (33)% (19)%
receivable - net
UEPS-based lending:
Finance loans 2,605 3,064 2,444 (15)% 7%
receivable - net and
gross (i.e., no
provisions)
Earnings (Loss) from
equity-accounted
investments: (USD
`000)
Beginning of period (2,611) (1,774) (2,389)
Equity-accounted (310) (284) (235)
earnings (loss)
Equity-accounted 6 (6) 11
earnings (loss) -
SmartSwitch
Namibia(1)
Equity-accounted (35) (92) 97
earnings (loss) -
SmartSwitch
Botswana(1)
Equity-accounted (246) (159) (301)
(loss) - VTU Colombia
Equity-accounted (35) (27) (42)
(loss) - VinaPay
Foreign currency 222 (54) 13
adjustment
End of period (2,699) (2,112) (2,611)
nm - Statistic not meaningful
(1) - includes the elimination of unrealized net income
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP results to fundamental results:
Three months ended September 30, 2008
Three months ended September 30,
2008 Amortiza- Stock- Other 2008
GAAP tion of based (3) Funda-
intangible charge mental
assets (2)
(1)
Net income (USD`000) 26,244 1,490 1,205 (6,243) 22,696
Earnings per share, 46 40
basic (USD cents)
Net income (ZAR`000) 204,821 11,631 9,404 (49,184) 176,673
Earnings per share,
basic (ZAR cents) 357 308
(1) Amortization of Prism, EasyPay and BGS intangibles, net of deferred
tax benefit:
$ `000 ZAR `000
Customer relationships 1,203 9,389
Trademarks 87 679
Software and unpatented 851 6,642
technology
Deferred tax benefit (651) (5,079)
1,490 11,631
(2) Includes stock-based compensation charges related to options and non-
vested stock awards.
(3) Other includes the following: $ `000 ZAR `000
Tax rate change (3,456) (26,524)
JSE listing costs 441 3,442
Facility fee 748 5,838
Unrealized foreign exchange gain related to a short- (3,976) (31,940)
term investment, net of tax of $2,100
(6,243) (49,184)
Three months ended September 30, 2007
Three months ended September 30,
2007 Amortizatio Stock- 2007
GAAP n of Prism based Funda-
and EasyPay charge mental
intangible (2)
assets
(1)
Net income (USD`000) 17,928 890 841 19,659
Earnings per share,
basic (USD cents) 31 34
Net income (ZAR`000) 127,714 6,344 5,991 140,049
Earnings per share,
basic (ZAR cents) 224 245
(1) Amortization of Prism and EasyPay intangibles, net of deferred tax
benefit:
$ `000 ZAR `000
Customer relationships 369 2,630
Software and 95 679
unpatented technology
Trademarks 932 6,642
Deferred tax benefit (506) (3,607)
890 6,344
(2) Includes stock-based compensation charge.
Net 1 UEPS Technologies, Inc.
Attachment C
Reconciliation of net income used to calculate earnings per share basic and
diluted and headline earnings per share basic and diluted:
Three months ended September 30, 2008 and 2007
2008 2007
Net income (USD`000) $26,244 $17,928
Adjustments:
Profit on sale of property, plant and equipment (1) (10)
(USD`000)
Tax effects on above (USD`000) - 4
Net income used to calculate headline earnings $26,243 $17,922
(USD`000)
Weighted average number of shares used to calculate 57,436 57,110
net income per share basic earnings and headline
earnings per share basic earnings (`000)
Weighted average number of shares used to calculate 57,766 57,453
net income per share diluted earnings and headline
earnings per share diluted earnings (`000)
Headline earnings per share:
Basic earnings - common stock and linked units, in 46 31
US cents
Diluted earnings - common stock and linked units, 45 31
in US cents
Net 1 UEPS Technologies, Inc.
Attachment D
FREQUENTLY ASKED QUESTIONS
1. What is the status of the SASSA tender?
On November 3, 2008, we received the final decision in respect of the Payment
Service Tender from the CEO of the South African Social Security Agency
("SASSA"), advising us that the CEO has decided to: (i) make no award of
tenders submitted in response to SASSA Tender 19/06/BS and to terminate the
procurement process; and (ii) defer a decision about commencing a fresh tender
process for the provision of a social assistance grants payment service. The
CEO cited a number of defects in the original request for proposals published
by SASSA and in the bid evaluation process.
2. How does the cancellation of the tender influence the current contracts?
Our current contracts expire on March 31, 2009. We believe that SASSA`s
statement to defer a decision about commencing a fresh tender process will
necessitate a further extension of our current contracts. The terms and
conditions of our current service level agreements will probably remain
unchanged during any extension period.
3. How does the cancellation of the tender influence your strategic planning?
SASSA may decide to extend our current contracts on a short term renewal
basis. We have the capacity to operate this business without compromising our
high service levels regardless of the period, or frequency, of any extension
periods granted. Our medium and long term strategic goals are not dependent on
our social welfare payments business. Our strategic planning is focused on the
globalization of our technology by following a disciplined approach to new
markets, through careful evaluation of new opportunities. Where we believe it
makes sense, we will use partnerships or make acquisitions to accelerate our
entry into new markets.
Our technology is unique and unlike any other payment system, resulting in
sales cycles that are unpredictable and often stretch over a period of years.
It is therefore particularly difficult to provide clear short term visibility
on our international prospects and the specific product, application or
business model that will ultimately be implemented in a specific country or
territory as a myriad of factors need to be considered, such as the corporate
and regulatory environment, central bank requirements, tax regimes,
compilation of business plans, etc. We have dedicated sales and marketing
teams who focus on our specific target regions of Africa, the Middle East and
Central and Eastern Europe and we plan to introduce dedicated teams for South
America and Asia - Pacific Rim in the near future. We have expanded our
strategic planning to include the BGS activities and prospects, with
particular emphasis on significantly expanding the application of our
technology in the Russian Federation and the CIS Republics with our current
partners as well as other interested organizations. We recently completed a
comprehensive training program of the BGS business development team to ensure
that their activities are aligned with the Net1 group strategy.
4. What was the rationale for acquiring BGS Smartcard Systems AG ("BGS")?
BGS is an Austrian company whose core business consists of developing and
integrating smart card-based offline and online financial transaction systems.
Since 1993, BGS has implemented tailor-made smart card-based payment
solutions, focusing on emerging economies and in cooperation with banks,
enterprises and government authorities. BGS has provided systems to customers
in Russia, Ukraine, Uzbekistan, India and Oman. BGS` system, Dual Universal
Electronic Transactions ("DUET"), was developed by BGS as a derivative of the
first version of our UEPS technology that we licensed to BGS in 1993. BGS`
largest customer is Sberbank, the largest financial institution in Russia,
which owns the remaining 19.9% of BGS.
BGS is headquartered in Vienna, Austria, and has subsidiaries in India and
Russia, and a branch office in the Ukraine. Distributors are located in Asia,
Central and South America, the Commonwealth of Independent States and the
Middle East. BGS employs more than 100 people worldwide, including 75 staff
members in the research and development and the technical division. BGS`
approach is to offer its customers an adaptive and flexible turnkey solution
which encompasses modular smart card and back-office solutions, hardware,
consulting services, product customization and integration, installation,
system implementation and technical support and training.
We believe that the acquisition of BGS offers numerous potential strategic
benefits, including the following:
- Increasing Net1`s revenues from providing its financial services and value-
added products to a new cardholder base. BGS has historically employed a
business model which focused on selling its product offering into various
countries. In contrast, Net1`s service-based business model focuses on
generating continuing revenues from its cardholder base through transaction-
based fees, financial services and value-added products. We believe that the
geographical footprint of BGS is now large enough to allow us to overlay our
service-based model onto the various DUET systems operating in Russia and
other countries, thereby creating new revenue streams for BGS and system
operators.
- Enhancing Net1`s product offering by leveraging technology platforms and IT
development resources. We believe that our technological leadership in fields
such as biometric identification and in the integration of its UEPS technology
with GSM will allow us to create new business opportunities for BGS such as
national identification, voting and welfare distribution systems and cell
phone-based payment solutions. Further, the addition of BGS` skilled human
resources in the information technology area should greatly assist us in the
ongoing development of our technologies and maintenance of our existing
systems.
- Increasing the depth of the management team with the addition of
experienced executives. Leonid Delberg and Richard Schweger have led BGS since
1997 and have over 25 years of combined experience in the smart card industry.
Messrs. Delberg and Schweger will continue as senior executives of BGS and
oversee its expansion and integration with Net1. We believe that the expertise
and experience of BGS` senior management will greatly assist us in our global
expansion initiatives.
- Accelerating the rollout of UEPS in Russia and other new territories. There
is little geographical overlap in our and BGS` operations and thus, the
acquisition offers us the opportunity to establish relationships in countries
where we believe there are exciting opportunities for the implementation of
our technology but where we have minimal current relationships. We believe
that having a local partner is important to the success of international
implementation of our systems. We further believe that Sberbank, through its
leading market position in Russia, can offer Net1 its extensive business
network to implement our complete suite of products there and will be
motivated to do so by virtue of its continued participation as a shareholder
in BGS.
5. How was the acquisition of BGS financed?
We obtained a $110 million six-month bank loan facility to fund the cash
portion of the purchase price for the BGS acquisition. We were entitled to
settle the full facility at any time during the six-month period without
incurring a prepayment penalty. During the three months ended September 30,
2008, we utilized approximately $103 million of this facility to pay the cash
portion of the purchase price, the $1.1 million facility fee and transaction-
related costs. The interest rate charged on this facility was LIBOR plus
2.50%.
We paid the lender an upfront facility fee of $1.1 million and we have
amortized the facility fee over the period that the loan was outstanding.
Included in interest income, net for the three months ended September 30,
2008, is $0.7 million related to the facility fee. The remaining $0.4 million
will be expensed during the three months ended December 31, 2008.
On October 16, 2008, the Company used internally generated funds to repay the
loan in full and all collateral security arrangements were terminated. Our
secondary listing on the JSE provided us with the ability to utilize a
substantial portion of our South African cash reserves to settle the loan. In
anticipation of the listing and the subsequent repayment of the loan, we
hedged the currency risk by investing the South African Rands earmarked for
the loan repayment in a 32 day deposit account in Luxembourg. The subsequent
depreciation of the Rand against the US dollar resulted in a realized foreign
exchange gain of ZAR 248.1 million, of which we recognized ZAR 48.8 million as
an unrealized gain during the first quarter.
6. Why did Net1 obtain a secondary listing on the JSE?
The main purposes for our listing on the JSE were to:
- enhance South African investors` awareness of us, thereby enlarging our
potential investor base and increasing trade in our shares;
- provide ourselves with an additional source from which capital to
facilitate growth can be obtained;
- optimize and simplify our capital structure by eliminating the linked
units;
- enable us to externalize our South African reserves when required;
- externalize our South African reserves without incurring significant
leakage;
- facilitate direct investment in our common stock by South African
residents and the investors utilizing the trading platform operated by
the JSE; and
- create additional liquidity for current South African investors.
As a result of our listing on the JSE our shareholders are now able to trade
their share of common stock on the Nasdaq Global Select Market, or Nasdaq, and
the JSE. During the first quarter of fiscal 2009, we incurred expenses of
approximately $0.4 million related to our inward listing on the JSE.
7. Has the volatility in the global equity and credit markets affected your
business prospects?
No. We have sufficient cash reserves and financing arrangements to continue
our current business activities. We do not share the prevailing negative
global sentiment towards emerging markets as our technology is focused on
these territories and remains in demand, especially when the weaknesses of
traditional banking systems have become patently clear. Significant weakness
in our share price caused by the prevailing market conditions could, however,
have an impact on our ability to pursue certain acquisitions that may
accelerate our global expansion.
8. How do you forecast growth in the beneficiary numbers in your social
welfare payment business?
There are no official beneficiary growth forecasts. We forecast beneficiary
numbers using the budgeted expenditure on social welfare grants provided in
the South African government`s budget, taking into account that the amount
budgeted for is a function of beneficiary numbers, as well as the average
amount paid to each beneficiary class. Based on past experience and an
analysis of the information at hand, we anticipate beneficiary growth of
approximately 6% per annum. The growth in beneficiary numbers is fairly
"lumpy" and is influenced by factors such as the government`s marketing and
registration programs and the time taken by SASSA to process new grant
applications.
9. What is the status of the wage payment system implementation with Grindrod
Bank?
We officially launched the wage payment system in the KwaZulu-Natal province
on May 12, 2008 and we have successfully implemented several systems with
smaller employers in the area, mainly in the agricultural sector. During the
first quarter of fiscal 2009, we entered into an agreement with our first
major corporate customer to utilize the wage payment system. Our customer is
the largest provider of security and guarding services in South Africa and
employs approximately 20,000 people. We commenced with the registration
process during the second quarter of fiscal 2009 and we expect to complete the
enrollment of all employees by the end of the third quarter of fiscal 2009.
10. What is the size of the market opportunity for the wage payment system and
how successful will Net1 and Grindrod Bank be in penetrating this market?
The target markets for the wage payment system are the un-banked and under-
banked wage earners in South Africa, estimated at five million people. These
wage earners are typically paid in cash on a weekly, bi-weekly or monthly
basis and have all the risks associated with cash payments, but none of the
benefits associated with having a formal bank account. Net1 and Grindrod Bank
plan to offer these wage earners a UEPS smart card that will allow the card
holder to receive payment, transact and access other financial services in a
secure, cost-effective way.
We market the wage payment system to medium and large employers and to trade
unions. The value proposition presented to employers focuses on the following
key features:
- Safety - Security risks associated with cash transportation and short-
payment disputes are eliminated;
- Cost-effectiveness - Our wage payment solution is significantly cheaper
than the current cost to employers of preparing and distributing cash
pay packets;
- Improved productivity - Our solution obviates the need to set aside
valuable production time to physically pay employees; and
- Convenience - With our system, wages can be distributed off-line at any
time, and financial products, such as cash advances, can be offered to
the employee without placing any administrative burden on the employer.
Our value proposition to unions and employees has the following key elements:
- Safety - The personal safety risk of carrying cash is eliminated;
- Security - Our smart cards can only be used in conjunction with
biometric verification and are completely loss tolerant - no money is
lost if the card is lost or stolen;
- Convenience - Our cards can be used at any participating retailer or
service provider at any time. Card holders can obtain cash from any
participating retailer, eliminating the need to search for an available
ATM;
- Cost effectiveness - Our solution is significantly cheaper than any
other bank product, as we recover our fees mainly from employers,
merchants and service providers; and
Access to credible and affordable facilities, such as money transfers,
loans, interest paying savings, life insurance and third party
payments.
11. Can you provide an update on the Ghana contract?
During the first quarter of fiscal 2009 we continued with the delivery of
hardware including POS devices and the remaining smart cards under our
contract with the Bank of Ghana. In addition, we commenced delivery of smart
cards and ATMs under additional purchase orders we received. During the first
quarter of fiscal 2009 we delivered hardware, including smart cards and
terminals, to the Bank of Ghana and recognized revenue of approximately $3.9
million (ZAR 30.4 million).
12. What is the status of the UEPS deployment in Iraq?
The first UEPS transaction was performed in August 2008, in Baghdad, Iraq,
during the official launch of the UEPS smart card technology with the two
state banks that are part of the consortium to which we are providing a
customized UEPS banking and payment system. Our first project in Iraq is a
pilot involving 100,000 beneficiaries. The pilot calls for implementation of
our UEPS technology across selected bank branches and will enable the
distribution and payment of government grants to war victims and martyrdom
beneficiaries, as well as salary and wage distribution and payment to
employees of the two banks. Approximately 40,000 beneficiaries have been
registered and issued with UEPS cards to date.
We expect to generate revenue in the second quarter of fiscal 2009. Under the
agreement, we will receive ongoing transaction and license fees, as well as
payments for the provision of outsourcing services and the sale of hardware.
13. What is VTU and how does the revenue model work?
VTU, or Virtual Top Up, facilitates mobile phone-based pre-paid airtime
vending. The VTU technology enables prepaid cell users to purchase additional
airtime simply, securely and conveniently through the distribution of airtime
value from a vendor`s cellular handset to that of the customer, as opposed to
through the use of a voucher. We derive revenue from the sale of VTU licenses
to mobile operators and we have recently established VTU businesses in
Colombia and Vietnam, where we are minority shareholders in companies that
provide a VTU service to prepaid cell phone users. These businesses generate
revenue by charging a percentage of the value of the airtime distributed
through VTU.
Our business in Colombia has demonstrated the following growth since April
2008:
Apr-08 May-08 Jun-08 Jul-08
Revenues (COP `000) 456,162 561,689 719,641 1,088,377
Percentage growth (month on month) 23% 28% 51%
Number of transactions 67,973 83,646 105,983 166,009
Percentage growth (month on month) 23% 27% 57%
Aug-08 Sep-08 Oct-08
Revenues (COP `000) 1,304,821 1,469,685 2,006,000
Percentage growth (month on month) 20% 13% 36%
Number of transactions 226,475 281,927 400,000
Percentage growth (month on month) 36% 24% 42%
The average exchange rate during the seven months ended October 31, 2008 was
US$ 1: COP 1919
14. What are your new patents for mobile payments all about?
Our latest patents incorporate our UEPS and SIM card expertise into a system
that will seamlessly bridge mobile phones to existing payment infrastructures
such as ATMs, POS devices, the Internet and voice channels. The application of
these patents will allow any mobile phone user to effect payments that are
generally referred to as "card not present" payments completely securely,
through the utilization of a once off, disposable, virtual credit or debit
card.
15. What is the "pre-funded social welfare grant receivable" line item on the
balance sheet?
We have a unique cash flow cycle due to our obligations to pre-fund the
payments of social welfare grants in the KwaZulu-Natal and Eastern Cape
provinces. We provide the funds required for the grant payments on behalf of
these provincial governments from our own cash resources and are reimbursed
within two weeks by the KwaZulu-Natal and Eastern Cape governments, thus
exposing ourselves to these provinces` credit risk. In addition, through our
merchant acquiring system, we may also pre-fund social welfare grants in the
provinces where we operate. These obligations result in a peak funding
requirement, on a monthly basis, of approximately $48.9 million (ZAR 340
million) for each of the KwaZulu-Natal and Eastern Cape contracts. The funding
requirements are at peak levels for the first three weeks of every month
during the year.
The pre-funded social welfare grant receivable line also includes funding
provided to certain merchants participating in our merchant acquiring system.
This funding is provided in order to provide liquidity during the peak payment
periods of the month (usually the first week of the pay cycle) because the
payment of social welfare grants on our behalf places a burden on the
merchant`s cash resources. In cases where the merchant is not provided pre-
funding during the payment cycle it is reimbursed within 48 hours of the
payment of the social welfare grant on our behalf. The amount paid as social
welfare grants by the merchants on our behalf are available almost immediately
from the provincial governments in the Limpopo, North West and Northern Cape
provinces and within two weeks from the KwaZulu-Natal and Eastern Cape
provincial governments because we pre-fund these two provinces.
The actual quantum of Net1`s cash reserves should be evaluated by regarding
this highly liquid, very short-term receivable as a near-cash equivalent.
16. How are you growing the management team?
During the last year, we made significant progress in strengthening the Net1
management team. Also, our recent acquisition of BGS provides us with two
executives with long experience in the smart card industry and additional IT
professionals to strengthen the Net1 research and development environment.
We have appointed three senior managers to assist Brenda Stewart, our senior
vice-president of marketing and sales with project management, marketing and
implementation activities on a global basis. We have also appointed a senior
manager to oversee the established activities of our international and
SmartSwitch operations and we have created an investment forum to consider all
aspects of prospective investments in new territories.
Our finance, administration, human resources, compliance and treasury
functions are growing continuously to provide a high level of support to the
group.
Our vice president - investor relations recently resigned but we are actively
seeking a replacement to address shareholder queries and improve our investor
relations function.
Finally, we have restructured and strengthened our operations teams to ensure
ongoing effective management of our South African social welfare and wage
payment activities.
We are committed to growing the Net1 management team to ensure that we are
able to capitalize on the myriad of opportunities we are presented with on an
ongoing basis.
17. You are highly cash generative and show a strong cash balance on your
balance sheet, why do you not return some of this money to shareholders?
We have not paid any dividends on our shares of common stock during our last
two fiscal years and presently intend to retain future earnings to finance the
expansion of the business. We do not anticipate paying any cash dividends in
the foreseeable future. The future dividend policy will depend on our
earnings, capital requirements, expansion plans, financial condition and other
relevant factors. We may also consider share buy-backs from time to time,
depending on the prevailing market conditions.
18. What effect will the proposed abolishment of Secondary Taxation on
Companies in South Africa have on Net1?
On February 21, 2007, the South African Minister of Finance announced in his
National Budget speech that the National Government intends to phase out
Secondary Taxation on Companies, or STC, and introduce a dividend tax at a
shareholder level. Currently, South African companies are required to pay STC
at a rate of 10.00% on dividends distributed, subject to certain exemptions.
If a dividend tax is introduced South African companies will no longer be
liable to pay STC and the shareholder will be liable to pay the dividend tax.
Treaty relief would be available for foreign shareholders.
The reform is being implemented in two phases. The first phase entailed a
reduction of the STC rate, effective October 1, 2007, to 10.00% and the second
phase, now expected in calendar 2010 will result in a total conversion to a
dividend tax. It is likely that South African companies will be required to
withhold the dividend tax on all dividends paid.
We can not reasonably determine whether the second phase will be enacted as
proposed and we will comply with that new tax legislation once it has been
enacted. If the announcements made by the South African Minister of Finance in
his National Budget speeches regarding the second phase are enacted, under
current enacted tax legislation, we expect the proposed replacement of STC
with a dividend tax to reduce our current fully distributed rate of 34.55% to
28%. Under US GAAP, we apply the fully distributed tax rate of 34.55% to our
deferred taxation assets and liabilities. We have not yet determined whether
we would qualify for the treaty relief available to foreign shareholders.
19. What effect did the change in the South African tax rate from 29% to 28%
have on your first quarter of fiscal 2009 results?
The change in tax rate was promulgated on July 22, 2008. Our fully distributed
tax rate was reduced to 34.55% from 35.45% during the first quarter of fiscal
2009 and has resulted in an income tax benefit included in our income tax
expense line of $3.5 million.
Johannesburg
7 November 2008
Sponsor to Net1
Deutsche Securities (SA) (Proprietary) Limited
Date: 07/11/2008 09:00:01 Produced by the JSE SENS Department.
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