| Fri 8 May 2009, 9:42 | | NT1 - Net 1 UEPS Technologies Inc. Announces 2009 Third Quarter Results |
|
NT1
NT1
NT1 - Net 1 UEPS Technologies, Inc. Announces 2009 Third 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 Third Quarter Results
Johannesburg, South Africa (May 7, 2009) - Net 1 UEPS Technologies, Inc.
("Net1" or the "Company") (NasdaqGS: UEPS; JSE: NT1) today announced results
for the three and nine months ended March 31, 2009. Revenue and net income for
the quarter under US generally accepted accounting principles ("GAAP") were
$55.9 million and $14.4 million, respectively, a decline of 11% and 47%,
respectively, from the three months ended March 31, 2008. On a constant
currency basis, revenue increased by ZAR 89.2 million, or 19%, from 2008 and
fundamental net income increased by ZAR 16.1 million, or 9%.
The following factors significantly affected the comparability of our 2009
third quarter results to last year:
* Reporting currency fluctuations: the South African rand ("ZAR"), the
Company`s functional currency, depreciated 34% against the US dollar
("USD"), its reporting currency, based on average exchange rates during
the periods, which adversely affected 2009 reported revenues and net
income;
* Tax comparison: 2008 results were favorably impacted by a reduction in
the Company`s fully-distributed tax rate which became effective during
the third quarter of 2008;
* BGS acquisition seasonal impact: 2009 includes a loss from BGS, which
the Company did not own during 2008. BGS` operations are highly
seasonal, with its second and fourth quarters typically being its most
profitable and its first and third quarters generally the weakest.
However, in the current financial year the majority of BGS` revenues
were generated during the second quarter of fiscal 2009. The Company
expects higher revenues during the fourth quarter of fiscal 2009
compared with the third quarter, however it does not expect these
revenues to be higher than those of the second quarter of fiscal 2009;
* BGS intangible amortization: 2009 includes intangible asset
amortization related to the BGS acquisition;
* Ghana implementation in 2008: 2008 results were favorably impacted by
revenues the Company recorded from the implementation phase of its UEPS
technology in Ghana; and
* Stock-based compensation: The Company recorded a higher stock-based
compensation charge in 2009 compared with the prior year.
Comments and Outlook
"Once again, our results show the strength of our business model and the power
of our technology and we believe that we are better positioned than ever to
benefit from a difficult worldwide economy," said Dr. Serge Belamant, Chairman
and Chief Executive Officer of Net1. "We have once again completed a quarter
on target with our expectations, and we are delighted to have signed a new
contract with SASSA. We are now positioned to continue our expansion in the
number of people who use our technology and in the breadth of services that we
provide, not only on South African soil but also in numerous world markets. I
remain confident that we will continue to deliver sustainable growth for all
of our stakeholders," he concluded.
"We are especially pleased with the strong growth in the number of
transactions effected using our UEPS technology as evidenced by the 30%
revenue increase and a 43% increase in operating income in our transaction-
based activities segment" said Herman Kotze, Chief Financial Officer of Net1.
"We are well on track to achieve growth of a minimum of 15% in fundamental
earnings on a constant currency basis for fiscal 2009," he concluded.
Results
Three months ended March 31, 2009 and 2008
GAAP GAAP GAAP Funda- Funda- Funda-
Q3 Q3 Variance mental Q3 mental Q3 mental
2009 2008 % 2009 (1) 2008 (1) Variance %
Net 14,379 26,967 (47)% 18,739 23,012 (19)%
income
(USD`000)
Earnings 26 47 (45)% 34 40 (15)%
per
share,
basic (US
cents)
Revenue 55,878 63,066 (11)% 55,878 63,066 (11)%
(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, and stock-based compensation
charges. In addition, the loss on sale of the Company`s traditional
microlending business and the effects of the change in the Company`s fully
distributed tax rate from 36.89% to 35.45% during the third quarter of fiscal
2008 are excluded in calculating fundamental net income and earnings per
share. Attachment B presents the reconciliation between GAAP and fundamental
net income and earnings per common share.
Since the Company`s reporting currency is the USD but its functional currency
is the 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 significantly stronger
against the ZAR during the three months ended March 31, 2009, 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- Funda- Funda-
Q3 Q3 Variance mental Q3 mental Q3 mental
2009 2008 % 2009(1) 2008(1) Variance %
Net 143,241 199,874 (28)% 186,676 170,561 9%
income
(ZAR`000)
Earnings 260 350 (26)% 339 298 14%
per
share,
basic
(ZAR
cents)
Revenue 556,640 467,432 19% 556,640 467,432 19%
(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, and stock-based compensation
charges. In addition, the loss on sale of the Company`s traditional
microlending business and the effects of the change in the Company`s fully
distributed tax rate from 36.89% to 35.45% during the third quarter of fiscal
2008 are excluded in calculating fundamental net income and earnings per
share.
Nine months ended March 31, 2009 and 2008
GAAP GAAP GAAP Funda- Funda- Funda-
YTD YTD Variance mental YTD mental YTD mental
2009 2008 % 2009 (1) 2008 (1) Variance %
Net 68,385 65,213 5% 61,589 65,346 (6)%
income
(USD`000)
Earnings 121 114 6% 109 114 (4)%
per
share,
basic (US
cents)
Revenue 185,201 191,825 (3)% 185,201 191,825 (3)%
(USD`000)
GAAP GAAP GAAP Funda Funda Funda
YTD YTD Variance mental mental mental
2009 2008 % YTD YTD Variance
2009(1) 2008(1) %
Net 621,137 465,006 34% 559,406 465,948 20%
income
(ZAR`000)
Earnings 1,103 814 36% 993 816 22%
per
share,
basic
(ZAR
cents)
Revenue 1,682,170 1,367,825 23% 1,682,170 1,367,825 23%
(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, and stock-based compensation
charges. In addition, the effects of the change in the Company`s fully
distributed tax rate from 35.45% to 34.55% in fiscal 2009 (and from 36.89% to
35.45% in fiscal 2008), JSE listing costs, a bank facility fee, an impairment
of goodwill, the loss on sale of the Company`s traditional microlending
business and a foreign exchange gain, net of tax, related to a short-term
investment are 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, fundamental earnings per share and headline earnings per share are
non-GAAP measures.
Fundamental earnings and fundamental earnings per share
Under 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 and nine months ended March
31, 2009 and 2008 include 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, an impairment of goodwill, the
loss on sale of the Company`s traditional microlending business and a foreign
exchange gain, net of tax, 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 nine months ended March 31, 2009 and the effect of the change in
the fully distributed tax rate from 36.89% to 35.45% in January 2008 is
included in the Company`s net income and earnings per common share for the
nine months ended March 31, 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 the 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 is 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. HEPS basic and diluted is calculated as GAAP net income
adjusted for the impairment of goodwill, the loss on the sale of the Company`s
traditional microlending business and loss (profit) on sale of property, plant
and equipment, net of related tax effects. Attachment C presents the
reconciliation between our net income used to calculate earnings per share
basic and diluted and HEPS basic and diluted.
Conference call
Net1 will host a conference call to review third quarter results on May 8,
2009, at 8:00 a.m. Eastern Daylight 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 May 29, 2009.
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
Africa-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 Nine months ended
March 31, March 31,
2009 2008 2009 2008
(In thousands, (In thousands,
except per share except per share
data) data)
REVENUE $ 55,878 $ 63,066 $ 185,201 $ 191,825
EXPENSE
COST OF GOODS SOLD, IT 15,225 16,515 51,636 51,833
PROCESSING, SERVICING AND
SUPPORT
SELLING, GENERAL AND 14,772 15,185 48,081 48,915
ADMINISTRATION
DEPRECIATION AND 4,266 2,716 11,950 8,295
AMORTIZATION
LOSS ON SALE OF 742 - 742 -
MICROLENDING BUSINESS
IMPAIRMENT OF GOODWILL - - 1,836 -
OPERATING INCOME 20,873 28,650 70,956 82,782
FOREIGN EXCHANGE GAIN RELATED - - 26,657 -
TO SHORT-TERM INVESTMENT
INTEREST INCOME, net 2,125 3,754 7,590 10,852
INCOME BEFORE INCOME TAXES 22,998 32,404 105,203 93,634
INCOME TAX EXPENSE 8,543 5,156 35,444 27,816
NET INCOME FROM CONTINUING 14,455 27,248 69,759 65,818
OPERATIONS BEFORE MINORITY
INTEREST AND LOSS FROM EQUITY-
ACCOUNTED INVESTMENTS
MINORITY INTEREST (185) - 577 (196)
LOSS FROM EQUITY-ACCOUNTED 261 281 797 801
INVESTMENTS
NET INCOME $ 14, 379 $ 26,967 $ 68,385 $ 65,213
Net income per share
Basic earnings, in cents - 26.1 47.2 121.4 114.1
common stock and linked units
Diluted earnings, in cents - 26.0 46.7 121.0 113.1
common stock and linked units
NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
Unaudite (A)
d
March June 30,
31,
2009 2008
(In thousands, except
share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 121,025 $ 272,475
Pre-funded social welfare grants 57,891 35,434
receivable
Accounts receivable, net of allowances 40,076 21,797
of - March: $318; June: $260
Finance loans receivable, net of 2,552 4,301
allowances of - March: $-; June:
$1,007
Deferred expenditure on smart cards - 78
Inventory 6,983 6,052
Deferred income taxes 6,617 5,597
Total current assets 235,144 345,734
OTHER LONG-TERM ASSETS, including available 7,096 207
for sale securities
PROPERTY, PLANT AND EQUIPMENT, NET OF 6,139 6,291
ACCUMULATED DEPRECIATION OF - March:
$23,264; June: $24,753
EQUITY-ACCOUNTED INVESTMENTS 2,509 2,685
GOODWILL 100,435 76,938
INTANGIBLE ASSETS, NET OF ACCUMULATED 71,509 22,216
AMORTIZATION OF -
March: $23,022; June: $16,486
TOTAL ASSETS 422,832 454,071
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 220 -
Accounts payable 4,221 4,909
Other payables 46,109 57,432
Income taxes payable 15,341 14,162
Total current liabilities 65,891 76,503
DEFERRED INCOME TAXES 33,519 33,474
OTHER LONG-TERM LIABILITIES, including 4,098 3,766
minority interest loans
COMMITMENTS AND CONTINGENCIES - -
TOTAL LIABILITIES 103,508 113,743
MINORITY INTEREST 2,415 -
SHAREHOLDERS` EQUITY
COMMON STOCK
Authorized: 200,000,000 with $0.001
par value;
Outstanding shares - March: 59 52
55,673,186; June: 53,423,552
SPECIAL CONVERTIBLE PREFERRED STOCK
Authorized: 50,000,000 with $0.001 par
value;
Issued and outstanding shares - - 5
March: -; June: 4,882,429
B CLASS PREFERENCE SHARES
Authorized: 330,000,000 with $0.001
par value;
Issued and outstanding shares (net of - 6
shares held by Net1) - March: -; June:
35,975,818
ADDITIONAL PAID-IN-CAPITAL 124,291 119,283
TREASURY SHARES, AT COST: March: 2,726,409; (32,707) (7,950)
June: 306,269
ACCUMULATED OTHER COMPREHENSIVE LOSS (109,871) (37,820)
RETAINED EARNINGS 335,137 266,752
TOTAL SHAREHOLDERS` EQUITY 316,909 340,328
TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY $ 422,832 $ 454,071
(A) - Derived from audited financial
statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended Nine months ended
March 31, March 31,
2009 2008 2009 2008
(In thousands) (In thousands)
Cash flows from operating
activities
Net income $ 14,379 $ 26,967 $ 68,385 $ 65,213
Depreciation and amortization 4,266 2,716 11,950 8,295
Impairment of goodwill - - 1,836 -
Loss from equity-accounted 261 281 797 801
investments
Fair value adjustment related 201 (14) 815 (256)
to financial liabilities
Fair value of FAS 133 286 (11) (2,772) (21)
derivative adjustments
Unrealized foreign exchange - - (1,015) -
gain related to short-term
investment
Interest payable 105 126 336 367
Loss (Profit) on disposal of 9 (23) 9 (109)
property, plant and equipment
Loss on sale of microlending 742 - 742 -
business
Minority interest (185) - 577 (196)
Stock-based compensation 1,317 1,108 3,868 2,860
charge
Facility fee amortized - - 1,100 -
(Increase) Decrease in (17,329) 15,842 (55,120) (2,406)
accounts receivable, pre-
funded social welfare grants
receivable and finance loans
receivable
Decrease in deferred 84 236 57 496
expenditure on smart cards
(Increase) Decrease in (1,538) 1,286 (1,244) (293)
inventory
Increase (Decrease) in 2,215 13,177 (15,374) 13,490
accounts payable and other
payables
Increase in taxes payable 475 7,666 4,659 1,034
(Decrease) Increase in (182) (4,182) (1,601) 574
deferred taxes
Net cash provided by 5,106 65,175 18,005 89,849
operating activities
Cash flows from investing
activities
Capital expenditures (413) (1,004) (3,696) (2,880)
Proceeds from disposal of 1 24 3 142
property, plant and equipment
Acquisition of available for (3,422) - (3,422) -
sale securities
Acquisition of BGS, net of (1,906) - (97,992) -
cash acquired
Acquisition of shares in (150) - (450) -
equity-accounted investments
Net cash used in investing (5,890) (980) (105,557 (2,738)
activities )
Cash flows from financing
activities
Proceeds from issue of share - 25 155 175
capital, net of share issue
expenses
Treasury stock acquired - - (24,752) -
Proceeds from short-term loan - - 110,000 -
facility
Repayment of short-term loan - - (110,000 -
facility )
Payment of facility fee - - (1,100) -
Proceeds from bank overdrafts 2,401 - 2,496 1,462
Repayment of bank overdraft (2,252) (1) (2,252) (1,443)
Net cash provided by (used 149 24 (25,453) 194
in) financing activities
Effect of exchange rate (2,996) (29,330 (38,445) (23,402
changes on cash ) )
Net (decrease) increase in (3,631) 34,889 (151,450 63,903
cash and cash equivalents )
Cash and cash equivalents - 124,656 200,741 272,475 171,727
beginning of period
Cash and cash equivalents - $ 121,025 $ 235,630 $ 121,025 $ 235,630
end of period
Net 1 UEPS Technologies, Inc.
Attachment A
Key metrics and statistics at and for the three months ended March 31, 2009
and 2008 and December 31, 2008:
Three months ended March 31, 2009 and 2008 and December 31, 2008
Change - Change -
actual constant
exchange
rate(1)
Key statement Q3 `09 Q3 `08 Q2 `09 Q3 Q3 Q3 Q3
of operations `09 `09 `09 `09
data, in vs vs vs vs
`000, except Q3 Q2 Q3 Q2
EPS `08 `09 `08 `09
USD USD USD
Revenue $55,878 $63,066 $61,388 (11)% (9)% 19% (8)%
Operating 20,873 28,650 22,805 (27)% (8)% (2)% (7)%
income
Income tax 8,543 5,156 16,999 66% (50)% 123% (49)%
expense
Net income $14,379 $26,967 $27,762 (47)% (48)% (28)% (48)%
Earnings per
share,
Basic (cents) 26 47 49 (45)% (47)% (26)% (46)%
Diluted 26 47 49 (45)% (47)% (26)% (46)%
(cents)
Fundamental
earnings per
share,
Basic (cents) 34 40 36 (15)% (6)% 14% (4)%
Key segmental
data, in
`000, except
margins
Revenue:
Transaction- $35,995 $37,254 $32,820 (3)% 10% 30% 11%
based
activities
Smart card 6,676 8,696 6,711 (23)% (1)% 3% 1%
accounts
Financial 1,357 1,999 1,430 (32)% (5)% (9)% (4)%
services
Hardware, 11,850 15,117 20,427 (22)% (42)% 5% (41)%
software and
related
technology
sales
Total $55,878 $63,066 $61,388 (11)% (9)% 19% (8)%
consolidated
revenue
Consolidated
operating
income
(loss):
Transaction- $21,638 $20,347 $17,653 6% 23% 43% 24%
based
activities
Smart card 3,034 3,953 3,050 (23)% (1)% 3% 1%
accounts
Financial (261) 507 (1,570) (151)% (83)% (169)% (83)%
services
Hardware, (1,398) 5,380 5,493 (126)% (125)% (135)% (126)%
software and
related
technology
sales
Corporate/ (2,140) (1,537) (1,821) 39% 18% 87% 19%
Elimi-nations
Total $20,873 $28,650 $22,805 (27)% (8)% (2)% (7)%
operating
income
Operating
income margin
(%)
Transaction- 60% 55% 54%
based
activities
Smart card 45% 45% 45%
accounts
Financial (19)% 25% (110)%
services
Hardware, (12)% 36% 27%
software and
related
technology
sales
Overall 37% 45% 37%
operating
margin
Mar 31, Jun 30,
2009 2008 Change
Key balance
sheet data,
in `000
Cash and cash $121,025 $272,475 (56)%
equivalents
Total current 235,144 345,734 (32)%
assets
Total assets 422,832 454,071 (7)%
Total current 65,891 76,503 (14)%
liabilities
Total $316,909 $340,328 (7)%
shareholders`
equity
(1) - This information shows what the change in these items would have
been if the USD/ ZAR exchange rate that prevailed during the third quarter
of fiscal 2009 also prevailed during the third quarter of fiscal 2008 and
the second quarter of fiscal 2009.
Three months ended March 31, 2009 and 2008 and December 31, 2008 (continued)
Change
Additional Q3 `09 Q3 `08 Q2 `09 Q3 `09 Q3 `09
information: vs vs
Q3 `08 Q2 `09
Transaction-
based
activities:
Total number
of grants
paid:
KwaZulu-Natal 5,253,330 5,051,827 5,277,936 4% -%
Limpopo 2,980,649 2,949,459 2,967,229 1% -%
North West 1,276,789 1,245,238 1,321,175 3% (3)%
Northern Cape 504,587 494,664 504,563 2% -%
Eastern Cape 2,072,621 2,151,385 2,078,602 (4)% -%
12,087,976 11,892,573 12,149,505 2% (1)%
Average ZAR ZAR ZAR
revenue per
grant paid:
KwaZulu-Natal 29.28 21.76 27.64 35% 6%
Limpopo 20.56 18.32 18.09 12% 14%
North West 25.33 22.19 24.31 14% 4%
Northern Cape 22.84 20.26 23.60 13% (3)%
Eastern Cape 19.07 16.56 16.49 15% 16%
UEPS merchant
acquiring
system:
Terminals 4,263 4,222 4,182 1% 2%
installed at
period end
Number of 2,391 2,468 2,385 (3)% -%
participating
retail
locations at
period end
Value of 2,758,391 1,996,072 2,550,082 38% 8%
transactions
processed
through POS
devices during
the quarter
(in ZAR `000)
Value of 2,775,707 2,022,938 2,496,496 37% 11%
transactions
processed
through POS
devices during
the completed
pay cycles for
the quarter
(in ZAR `000)
Average number 1,111 917 1,050 21% 6%
of grants
processed per
terminal
during the
quarter
Average number 1,129 933 1,036 21% 9%
of grants
processed per
terminal
during the
completed pay
cycles for the
quarter
EasyPay
transaction
fees:
Number of 142,584,922 129,152,205 155,697,664 10% (8)%
transactions
processed
Average fee 0.21 0.20 0.21 5% -%
per
transaction
(in ZAR)
Three months ended March 31, 2009 and 2008 and December 31, 2008 (continued)
Change
Q3 `09 Q3 `08 Q2 `09 Q3 `09 Q3 `09
vs vs
Q3 `08 Q2 `09
Smart card
accounts:
Total number of 4,006,847 3,956,882 4,061,100 1% (1)%
smart card
accounts
Hardware, software
and related
technology sales:
Ad hoc significant
hardware sales
(USD `000)
Nedbank hardware - 600 100 (100)% (100)%
Ghana - in terms 800 4,300 3,400 (81)% (76)%
of contract
Financial
services: (USD
`000)
Traditional
microlending:
Finance loans - 4,611 2,368 (100)% (100)%
receivable - gross
Allowance for - (2,667) (1,020) (100)% (100)%
doubtful finance
loans receivable
Finance loans - 1,944 1,348 (100)% (100)%
receivable - net
UEPS-based
lending:
Finance loans 2,552 2,986 2,765 (15)% (8)%
receivable -net
and gross (i.e.,
no provisions)
Earnings (Loss)
from equity-
accounted
investments: (USD
`000)
Beginning of (2,614) (2,352) (2,699)
period
Equity-accounted (261) (281) (226)
earnings (loss)
Equity-accounted 3 16 (9)
earnings (loss) -
SmartSwitch
Namibia(1)
Equity-accounted (16) (71) 5
earnings (loss) -
SmartSwitch
Botswana(1)
Equity-accounted (201) (164) (198)
(loss) - VTU
Colombia
Equity-accounted (47) (62) (24)
(loss) - VinaPay
Foreign currency 171 244 311
adjustment
End of period (2,704) (2,389) (2,614)
(1) - includes the elimination of unrealized net income
Key metrics and statistics at and for the nine months ended March 31, 2009 and
2008:
Nine months ended March 31, 2009 and 2008
Nine months ended Change Year ended
March 31, June 30,
Constant
2009 2008 Exchange 2008
USD USD Actual Rate (1) USD
Key statement of
operations data,
in `000, except
EPS
Revenue $185,201 $191,825 (3)% 23% $254,056
Operating income 70,956 82,782 (14)% 9% 110,386
Income tax 35,444 27,816 27% 62% 39,192
expense
Net income $68,385 $65,213 5% 34% $86,695
Earnings per
share,
Basic (cents) 121 114 6% 35% 152
Diluted (cents) 121 113 7% 36% 150
Fundamental
earnings per
share,
Basic (cents) 109 114 (4)% 22% 155
Key segmental
data, in `000,
except margins
Revenue:
Transaction-based $109,159 $115,409 (5)% 20% $153,444
activities
Smart card 21,957 27,469 (20)% 2% 35,914
accounts
Financial 4,571 6,317 (28)% (8)% 8,251
services
Hardware, 49,514 42,630 16% 48% 56,447
software and
related
technology sales
Total $185,201 $191,825 (3)% 23% $254,056
consolidated
revenue
Consolidated
operating income
(loss):
Transaction-based $60,929 $62,317 (2)% 25% $84,229
activities
Smart card 9,979 12,485 (20)% 2% 16,325
accounts
Financial (1,504) 1,411 (207)% (236)% 1,935
services
Hardware, 8,229 9,585 (14)% 9% 11,708
software and
related
technology sales
Corporate/ (6,677) (3,016) 121% 182% (3,811)
Eliminations
Total operating $70,956 $82,782 (14)% 9% $110,386
income
Operating income
margin (%)
Transaction-based 56% 54% 55%
activities
Smart card 45% 45% 45%
accounts
Financial (33)% 22% 23%
services
Hardware, 17% 22% 21%
software and
related
technology sales
Overall operating 38% 43% 43%
margin
Mar 31, June 30,
2009 2008
Key balance sheet
data, in `000
Cash and cash $121,025 $272,475 (56)%
equivalents
Total current 235,144 345,734 (32)%
assets
Total assets 422,832 454,071 (7)%
Total current 65,891 76,503 (14)%
liabilities
Total $316,909 $340,328 (7)%
shareholders`
equity
(1) - This information shows what the change in these items would have been
if the USD/ ZAR exchange rate that prevailed during the first nine months
of fiscal 2009 also prevailed during the first nine months of fiscal 2008.
Nine months ended March 31, 2009 and 2008 (continued)
Nine months ended Change Year ended
Mar 31, June 30,
2009 2008 2008
Additional
information:
Transaction-based
activities:
Total number of
grants paid:
KwaZulu-Natal 15,761,307 15,155,356 4% 20,337,526
Limpopo 8,906,334 8,833,286 1% 11,791,095
North West 3,983,501 3,694,651 8% 4,984,479
Northern Cape 1,506,876 1,489,641 1% 1,986,525
Eastern Cape 6,209,459 6,444,793 (4)% 8,491,929
36,367,477 35,617,727 2% 47,591,554
Average revenue ZAR ZAR ZAR
per grant paid:
KwaZulu-Natal 26.94 21.63 25% 22.19
Limpopo 18.94 17.49 8% 17.76
North West 25.11 21.58 16% 21.79
Northern Cape 23.49 19.23 22% 20.44
Eastern Cape 17.95 15.90 13% 16.05
UEPS merchant
acquiring system:
Terminals 4,263 4,222 1% 4,394
installed at
period end
Number of 2,391 2,468 (3)% 2,454
participating
retail locations
at period end
Value of 2,758,391 1,996,072 38% 2,243,592
transactions
processed through
POS devices
during the
quarter (in ZAR
`000)
Value of 2,775,707 2,022,938 37% 2,178,596
transactions
processed through
POS devices
during the
completed pay
cycles for the
quarter (in ZAR
`000)
Average number of 1,111 917 21% 965
grants processed
per terminal
during the
quarter
Average number of 1,129 933 21% 936
grants processed
per terminal
during the
completed pay
cycles for the
quarter
EasyPay
transaction fees:
Number of 433,523,552 383,468,457 13% 516,849,006
transactions
processed
Average fee per 0.21 0.20 5% 0.21
transaction (in
ZAR)
Nine months ended March 31, 2009 and 2008 (continued)
Nine months ended Change Year ended
Mar 31, June 30,
2009 2008 2008
Smart card accounts:
Total number of smart 4,006,847 3,956,882 1% 4,022,193
card accounts
Hardware, software and
related technology sales:
Ad hoc significant
hardware sales (USD `000)
Nedbank hardware 2,500 2,600 (4)% 3,244
Ghanaian National Switch 8,100 10,800 (25)% 15,800
and Smart Card Payment
System Contract
Financial services: (USD
`000)
Traditional microlending:
Finance loans receivable - 4,611 (100)% 2,864
- gross
Allowance for doubtful - (2,667) (100)% (1,007)
finance loans receivable
Finance loans receivable - 1,944 (100)% 1,857
- net
UEPS-based lending:
Finance loans receivable 2,552 2,986 (15)% 2,444
-net and gross (i.e., no
provisions)
Earnings (Loss) from
equity accounted
investments: (USD `000)
Beginning of period (2,611) (1,774) (1,774)
Equity-accounted earnings (797) (801) (1,036)
(loss)
Equity-accounted earnings - 4 15
(loss) - SmartSwitch
Namibia(1)
Equity-accounted earnings (46) (194) (97)
(loss) - SmartSwitch
Botswana(1)
Equity-accounted (loss) - (645) (491) (792)
VTU Colombia
Equity-accounted (loss) - (106) (120) (162)
VinaPay
Foreign currency 704 186 199
adjustment
End of period (2,704) (2,389) (2,611)
(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 March 31, 2009 and 2008
Net Income EPS, basic Net Income EPS, basic
(USD `000) (USD cents) (ZAR `000) (ZAR cents)
2009 2008 2009 2008 2009 2008 2009 2008
GAAP 14,379 26,967 26 47 143,241 199,874 260 350
Amortization of 2,301 856 22,923 6,344
intangible
assets(1)
Customer 2,454 355 24,446 2,630
relationships
Software and 667 896 6,642 6,642
unpatented
technology
Trademarks 68 92 679 679
Deferred tax (888) (487) (8,844) (3,607)
benefit
Stock-based 1,317 1,108 13,120 8,212
charge(2)
Loss on sale of 742 - 7,392 -
Moneyline
Change in tax - (5,919) - (43,869)
rate (3)
Fundamental 18,739 23,012 34 40 186,676 170,561 339 298
(1) Amortization of Prism, EasyPay and BGS intangibles, net of deferred tax
benefit:
(2) Includes stock-based compensation charges related to options and non-
vested stock awards.
(3) Represents the effect of the change in the fully distributed tax rate from
36.89% to 35.45% during fiscal 2008.
Nine months ended March 31, 2009 and 2008
Net Income EPS, basic Net income EPS, basic
(USD`000) (USD (ZAR`000) (ZAR cents)
cents)
2009 2008 2009 2008 2009 2008 2009 2008
GAAP 68,385 65,213 121 114 621,137 465,006 1,103 814
Amortizatio 6,068 2,670 55,111 19,032
n of
intangible
assets(1)
Customer 6,070 1,107 55,130 7,890
relation-
ships
Software 2,194 2,795 19,926 19,927
and
unpatente
d
technolog
y
Trademark 224 286 2,036 2,036
s
Deferred (2,420) (1,518) (21,981) (10,821)
tax
benefit
Stock-based 3,868 2,860 35,133 20,394
charge(2)
JSE listing 495 - 4,496 -
costs
Facility 1,100 - 9,991 -
fee
Foreign (17,447) - (158,469) -
exchange
gain
related to
a short-
term
investment,
net of tax
of $6,028
Loss on 742 - 6,740 -
sale of
Moneyline
Impairment 1,836 - 16,676 -
of goodwill
Change in (3,458) (5,397) (31,409) (38,484)
tax rate
(3)
Fundamental 61,589 65,346 109 114 559,406 465,948 993 816
(1) Amortization of Prism, EasyPay and BGS intangibles, net of deferred tax
benefit:
(2) Includes stock-based compensation charges related to options and non-
vested stock awards.
(3) Represents the effect of the change in the fully distributed tax rate
from 35.45% to 34.55% during fiscal 2009 and 36.89% to 35.45% during fiscal
2008.
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 March 31, 2009 and 2008
2009 2008
Net income (USD`000) 14,379 26,967
Adjustments:
Loss on sale of traditional microlending business 742 -
Loss (Profit) on sale of property, plant and 9 (23)
equipment (USD`000)
Tax effects on above (USD`000) (3) 8
Net income used to calculate headline earnings 15,127 26,952
(USD`000)
Weighted average number of shares used to 55,075 57,141
calculate net income per share basic earnings and
headline earnings per share basic earnings (`000)
Weighted average number of shares used to 55,200 57,685
calculate 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 27 47
US cents
Diluted earnings - common stock and linked units, 27 47
in US cents
Nine months ended March 31, 2009 and 2008
2009 2008
Net income (USD`000) 68,385 65,213
Adjustments:
Loss on sale of traditional microlending business 742 -
Impairment of goodwill 1,836 -
Loss (Profit) on sale of property, plant and 9 (109)
equipment (USD`000)
Tax effects on above (USD`000) (3) 40
Net income used to calculate headline earnings 70,969 65,144
(USD`000)
Weighted average number of shares used to 56,336 57,129
calculate net income per share basic earnings and
headline earnings per share basic earnings (`000)
Weighted average number of shares used to 56,529 57,643
calculate 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 126 114
US cents
Diluted earnings - common stock and linked units, 126 113
in US cents
Net 1 UEPS Technologies, Inc.
Attachment D
FREQUENTLY ASKED QUESTIONS
1. How does the new contract with SASSA impact your results of operations?
We have entered into a new one year contract with the South African Social
Security Agency, or SASSA, for the payment of social welfare grants in the
five provinces where we currently provide a grant payment service. The new
contract commenced on April 1, 2009 and expires on March 31, 2010.
The new contract contains a standard pricing formula for all provinces based
on a transaction fee per beneficiary paid regardless of the number or amount
of grants paid per beneficiary, calculated on a guaranteed minimum number of
beneficiaries per month. Under our previous contracts, depending on the
province, we received either a fee per grant distributed, or per beneficiary
paid, or as a percentage of the total grant amount distributed. In addition,
SASSA will assume responsibility for the pre-funding of all social welfare
grants with effect from the May 2009 pay cycle. We will continue to pre-fund
certain merchants who facilitate the distribution of grants through our
merchant acquiring system.
We do not expect that the new contract will materially affect our future
results of operations since the reduced pricing should be offset by the
guaranteed minimum number of beneficiaries per month and the increased
interest income we expect to receive as a result of the elimination of our pre-
funding requirement.
2. How does the cancellation of the tender influence your strategic planning?
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 growth strategy does not exclusively rely on growth of
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.
3. 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 3% to
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.
4. What was the rationale for acquiring 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. What does the foreign exchange gain of $26.7 million relate to?
The Company entered into an asset swap arrangement (in the form of a $110
million 32-day call account instrument) in order to facilitate the short-term
loan facility required for the BGS acquisition, however this asset swap
arrangement was not linked to the loan facility and did not require redemption
on the same date as the repayment of the loan facility. The Company earned
interest at a rate of one month LIBOR plus 0.25% on this instrument. The
Company gave a call notice to the obligor on September 10, 2008, and the
capital of $110 million (or ZAR 1,100.7 million) and interest on this
instrument was repaid on October 16, 2008. The Company has realized a foreign
exchange gain of approximately $26.7 million in the second quarter of fiscal
2009.
6. Why did you sell your traditional microlending business and how does your
investment in Finbond strengthen you growth strategy?
Strategically, we viewed our traditional microlending business as non-core as
our main intention was to gain an understanding of the dynamics of the
microlending industry in order to develop the appropriate products and
applications which have now become part of our UEPS-based microlending
activities. During the third quarter of fiscal 2009, we entered into an
agreement with Finbond Property Finance Limited, or Finbond, for the sale of
our traditional microlending business with effect from March 1, 2009. The
payment consideration was settled through the issuance of new Finbond shares
and we also exercised an option to increase our shareholding in Finbond to
approximately 20%.
Finbond has a national network of 178 branches following the sale of our
traditional microlending business to them. We have signed an agreement with
Finbond under which we have agreed to install our UEPS technology and point of
sale devices for the marketing of pre-paid electricity, pre-paid cell phone
air time and bill payments into all of Finbond`s branches. In addition,
Finbond will utilize its branch and broker network to market our wage payment
and EasyPay bill payment solutions. Our investment in Finbond gives us access
to a national brick and mortar infrastructure and allows us to participate in
the future success of our joint initiatives.
7. 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 shares of common stock on the Nasdaq Global Select Market, or Nasdaq,
and the JSE. During the nine months ended March 31, 2009, we incurred expenses
of approximately $0.5 million related to our inward listing on the JSE.
8. 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. Fluctuations in our
share price caused by continued stock market volatility could, however,
negatively impact our ability to pursue certain acquisitions that may
accelerate our global expansion.
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 our 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 third quarter of fiscal 2009 and we expect to complete the
enrolment of all employees by the end of the fourth 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?
We have substantially completed our Ghana contract and have provided the
majority of the software and hardware related to this contract. We expect to
generate additional revenues from the sale of smart cards during the fourth
quarter of fiscal 2009 and license fees from fiscal 2010.
During fiscal 2009 we have 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 nine months ended March 31,
2009, we delivered hardware, including smart cards and terminals, to the Bank
of Ghana and recognized revenue of approximately $8.1 million (ZAR 71.5
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.
In December 2008 we received an order for an additional 800,000 smart cards to
be issued to war victim beneficiaries and pension payment recipients. This
additional order follows the recent order of 200,000 smart cards received
during October 2008. The total cards ordered from Net1 to date amount to 1.1
million. Delivery of the 1 million cards will be 200,000 per month between
December 2008 and May 2009. Completion of cardholder registration is
anticipated for June 2009.
We expect to generate revenues in the fourth quarter of fiscal 2009 from sale
of additional smart cards. In addition, we expect to commence generating
license fees under this contract from the first quarter of fiscal 2010.
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.
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. We have recently established an office in Dallas, Texas that will focus
on the marketing of this technology.
15. Will you continue to show the "pre-funded social welfare grant receivable"
line item on the balance sheet now that you have a new contract with SASSA?
Through April 2009, we were required to pre-fund payment of social welfare
grants in the KwaZulu-Natal and Eastern Cape provinces. We provided the funds
required for the grant payments on behalf of these provincial governments from
our own cash resources and were reimbursed within two weeks by the
governments. In addition, when grants are paid at merchant locations before
the start of the payment service at pay points, we pre-fund these payments to
the merchants distributing the grants on our behalf. We typically reimburse
these merchants within 48 hours after they distribute the grants to the social
welfare beneficiaries, however, the provincial governments reimburse the
amount due to us within two weeks after the distribution date. Pre-funding
results in a significant net cash outflow at the end of a month (and thus, at
the end of the fiscal quarter) as the payment service generally commences in
the last few days of the month preceding new payment cycle month (for
instance, for the last two years, the January payment service commenced in the
last week of December at merchant locations and in January at pay points)
Our new SASSA contract relieves us of the obligation to pre-fund social
welfare grants in the KwaZulu-Natal and Eastern Cape provinces beginning in
May 2009. Under the new contract, we will receive the grant funds 48 hours
prior to the provision of the service; any interest earned on these amounts
will be for the benefit of SASSA. We expect a significant increase in our cash
and cash equivalents as of the end of each fiscal quarter resulting from the
change in our pre-funding obligation and a corresponding decrease in the "pre-
funded social welfare grant receivable" line item. We will continue to pre-
fund certain merchants who facilitate the distribution of grants through our
merchant acquiring system.
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 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.
We are actively seeking a new vice president-investor relations 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 presently intend to retain future earnings to finance the expansion of the
business. Our future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
Our Board has authorized a $50 million share repurchase program. During the
second quarter of fiscal 2009, we used approximately $24.7 million of this
authorization. Whether or not we use the remaining authorization will depend
on prevailing market conditions and other factors.
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 year to date 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 nine months ended March
31, 2009 and has resulted in an income tax benefit included in our income tax
expense line of $3.5 million.
Johannesburg
8 May 2009
Sponsor to Net1
Deutsche Securities (SA) (Proprietary) Limited
Date: 08/05/2009 09:42:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
