JOHANNESBURG, May 7 /PRNewswire-FirstCall/ -- Net 1 UEPS
Technologies, Inc. ("Net1" or the "Company") (NASDAQ: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 Fundamental Fundamental Fundamental Q3 Q3
Variance Q3 Q3 Variance 2009 2008 % 2009 (1) 2008 (1) % Net income
(USD'000) 14,379 26,967 (47)% 18,739 23,012 (19)% Earnings per
share, basic (US cents) 26 47 (45)% 34 40 (15)% Revenue (USD'000)
55,878 63,066 (11)% 55,878 63,066 (11)% (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 Fundamental
Fundamental Fundamental Q3 Q3 Variance Q3 Q3 Variance 2009 2008 %
2009 (1) 2008 (1) % Net income (ZAR'000) 143,241 199,874 (28)%
186,676 170,561 9% Earnings per share, basic (ZAR cents) 260 350
(26)% 339 298 14% Revenue (ZAR'000) 556,640 467,432 19% 556,640
467,432 19% (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
Fundamental Fundamental Fundamental YTD YTD Variance YTD YTD
Variance 2009 2008 % 2009 (1) 2008 (1) % Net income (USD'000)
68,385 65,213 5% 61,589 65,346 (6)% Earnings per share, basic (US
cents) 121 114 6% 109 114 (4)% Revenue (USD'000) 185,201 191,825
(3)% 185,201 191,825 (3)% GAAP GAAP GAAP Fundamental Fundamental
Fundamental YTD YTD Variance YTD YTD Variance 2009 2008 % 2009 (1)
2008 (1) % Net income (ZAR'000) 621,137 465,006 34% 559,406 465,948
20% Earnings per share, basic (ZAR cents) 1,103 814 36% 993 816 22%
Revenue (ZAR'000) 1,682,170 1,367,825 23% 1,682,170 1,367,825 23%
(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, http://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 (http://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. 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, except (In thousands, except per
share data) per share data) REVENUE $55,878 $63,066 $185,201
$191,825 EXPENSE COST OF GOODS SOLD, IT PROCESSING, SERVICING AND
SUPPORT 15,225 16,515 51,636 51,833 SELLING, GENERAL AND
ADMINISTRATION 14,772 15,185 48,081 48,915 DEPRECIATION AND
AMORTIZATION 4,266 2,716 11,950 8,295 LOSS ON SALE OF MICROLENDING
BUSINESS 742 - 742 - IMPAIRMENT OF GOODWILL - - 1,836 - OPERATING
INCOME 20,873 28,650 70,956 82,782 FOREIGN EXCHANGE GAIN RELATED TO
SHORT-TERM INVESTMENT - - 26,657 - 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 OPERATIONS BEFORE MINORITY INTEREST AND LOSS FROM
EQUITY-ACCOUNTED INVESTMENTS 14,455 27,248 69,759 65,818 MINORITY
INTEREST (185) - 577 (196) LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
261 281 797 801 NET INCOME $14,379 $26,967 $68,385 $65,213 Net
income per share Basic earnings, in cents - common stock and linked
units 26.1 47.2 121.4 114.1 Diluted earnings, in cents - common
stock and linked units 26.0 46.7 121.0 113.1 NET 1 UEPS
TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets Unaudited
(A) March 31, June 30, 2009 2008 (In thousands, except share data)
ASSETS CURRENT ASSETS Cash and cash equivalents $121,025 $272,475
Pre-funded social welfare grants receivable 57,891 35,434 Accounts
receivable, net of allowances of - March: $318; June: $260 40,076
21,797 Finance loans receivable, net of allowances of - March: $-;
June: $1,007 2,552 4,301 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 for sale securities 7,096 207 PROPERTY, PLANT AND
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF - March: $23,264;
June: $24,753 6,139 6,291 EQUITY-ACCOUNTED INVESTMENTS 2,509 2,685
GOODWILL 100,435 76,938 INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF - March: $23,022; June: $16,486 71,509 22,216 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 minority interest loans 4,098 3,766
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: 55,673,186; June: 53,423,552 59 52 SPECIAL CONVERTIBLE
PREFERRED STOCK Authorized: 50,000,000 with $0.001 par value;
Issued and outstanding shares - March: -; June: 4,882,429 - 5 B
CLASS PREFERENCE SHARES Authorized: 330,000,000 with $0.001 par
value; Issued and outstanding shares (net of shares held by Net1) -
March: -; June: 35,975,818 - 6 ADDITIONAL PAID-IN-CAPITAL 124,291
119,283 TREASURY SHARES, AT COST: March: 2,726,409; June: 306,269
(32,707) (7,950) 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
investments 261 281 797 801 Fair value adjustment related to
financial liabilities 201 (14) 815 (256) Fair value of FAS 133
derivative adjustments 286 (11) (2,772) (21) Unrealized foreign
exchange gain related to short-term investment - - (1,015) -
Interest payable 105 126 336 367 Loss (Profit) on disposal of
property, plant and equipment 9 (23) 9 (109) Loss on sale of
microlending business 742 - 742 - Minority interest (185) - 577
(196) Stock-based compensation charge 1,317 1,108 3,868 2,860
Facility fee amortized - - 1,100 - (Increase) Decrease in accounts
receivable, pre-funded social welfare grants receivable and finance
loans receivable (17,329) 15,842 (55,120) (2,406) Decrease in
deferred expenditure on smart cards 84 236 57 496 (Increase)
Decrease in inventory (1,538) 1,286 (1,244) (293) Increase
(Decrease) in accounts payable and other payables 2,215 13,177
(15,374) 13,490 Increase in taxes payable 475 7,666 4,659 1,034
(Decrease) Increase in deferred taxes (182) (4,182) (1,601) 574 Net
cash provided by operating activities 5,106 65,175 18,005 89,849
Cash flows from investing activities Capital expenditures (413)
(1,004) (3,696) (2,880) Proceeds from disposal of property, plant
and equipment 1 24 3 142 Acquisition of available for sale
securities (3,422) - (3,422) - Acquisition of BGS, net of cash
acquired (1,906) - (97,992) - Acquisition of shares in
equity-accounted investments (150) - (450) - Net cash used in
investing activities (5,890) (980) (105,557) (2,738) Cash flows
from financing activities Proceeds from issue of share capital, net
of share issue expenses - 25 155 175 Treasury stock acquired - -
(24,752) - Proceeds from short-term loan facility - - 110,000 -
Repayment of short-term loan facility - - (110,000) - 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 in) financing activities 149 24 (25,453)
194 Effect of exchange rate changes on cash (2,996) (29,330)
(38,445) (23,402) Net (decrease) increase in cash and cash
equivalents (3,631) 34,889 (151,450) 63,903 Cash and cash
equivalents - beginning of period 124,656 200,741 272,475 171,727
Cash and cash equivalents - end of period $121,025 $235,630
$121,025 $235,630 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 Key statement of operations
data, Q3 '09 Q3 '08 Q2 '09 in '000, except EPS USD USD USD Revenue
$55,878 $63,066 $61,388 Operating income 20,873 28,650 22,805
Income tax expense 8,543 5,156 16,999 Net income $14,379 $26,967
$27,762 Earnings per share, Basic (cents) 26 47 49 Diluted (cents)
26 47 49 Fundamental earnings per share, Basic (cents) 34 40 36 Key
segmental data, in '000, except margins Revenue: Transaction-based
activities $35,995 $37,254 $32,820 Smart card accounts 6,676 8,696
6,711 Financial services 1,357 1,999 1,430 Hardware, software and
related technology sales 11,850 15,117 20,427 Total consolidated
revenue $55,878 $63,066 $61,388 Consolidated operating income
(loss): Transaction-based activities $21,638 $20,347 $17,653 Smart
card accounts 3,034 3,953 3,050 Financial services (261) 507
(1,570) Hardware, software and related technology sales (1,398)
5,380 5,493 Corporate/ Eliminations (2,140) (1,537) (1,821) Total
operating income $20,873 $28,650 $22,805 Operating income margin
(%) Transaction-based activities 60% 55% 54% Smart card accounts
45% 45% 45% Financial services (19)% 25% (110)% Hardware, software
and related technology sales (12)% 36% 27% Overall operating margin
37% 45% 37% Mar 31, Jun 30, 2009 2008 Change Key balance sheet
data, in '000 Cash and cash equivalents $121,025 $272,475 (56)%
Total current assets 235,144 345,734 (32)% Total assets 422,832
454,071 (7)% Total current liabilities 65,891 76,503 (14)% Total
shareholders' equity $316,909 $340,328 (7)% Key statement of
operations data, Change - constant in '000, except EPS Change -
actual exchange rate(1) Q3 '09 Q3 '09 Q3 '09 Q3 '09 vs vs vs vs Q3
'08 Q2 '09 Q3 '08 Q2 '09 Revenue (11)% (9)% 19% (8)% Operating
income (27)% (8)% (2)% (7)% Income tax expense 66% (50)% 123% (49)%
Net income (47)% (48)% (28)% (48)% Earnings per share, Basic
(cents) (45)% (47)% (26)% (46)% Diluted (cents) (45)% (47)% (26)%
(46)% Fundamental earnings per share, Basic (cents) (15)% (6)% 14%
(4)% Key segmental data, in '000, except margins Revenue:
Transaction-based activities (3)% 10% 30% 11% Smart card accounts
(23)% (1)% 3% 1% Financial services (32)% (5)% (9)% (4)% Hardware,
software and related technology sales (22)% (42)% 5% (41)% Total
consolidated revenue (11)% (9)% 19% (8)% Consolidated operating
income (loss): Transaction-based activities 6% 23% 43% 24% Smart
card accounts (23)% (1)% 3% 1% Financial services (151)% (83)%
(169)% (83)% Hardware, software and related technology sales (126)%
(125)% (135)% (126)% Corporate/ Eliminations 39% 18% 87% 19% Total
operating income (27)% (8)% (2)% (7)% (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 Q3 '09 Q3 '09 vs
vs Additional information: Q3 '09 Q3 '08 Q2 '09 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 revenue per grant paid: ZAR ZAR ZAR
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 installed at period end 4,263
4,222 4,182 1% 2% Number of participating retail locations at
period end 2,391 2,468 2,385 (3)% -% Value of transactions
processed through POS devices during the quarter (in ZAR '000)
2,758,391 1,996,072 2,550,082 38% 8% Value of transactions
processed through POS devices during the completed pay cycles for
the quarter (in ZAR '000) 2,775,707 2,022,938 2,496,496 37% 11%
Average number of grants processed per terminal during the quarter
1,111 917 1,050 21% 6% Average number of grants processed per
terminal during the completed pay cycles for the quarter 1,129 933
1,036 21% 9% EasyPay transaction fees: Number of transactions
processed 142,584,922 129,152,205 155,697,664 10% (8)% Average fee
per transaction (in ZAR) 0.21 0.20 0.21 5% -% Three months ended
March 31, 2009 and 2008 and December 31, 2008 (continued) Change Q3
'09 Q3 '09 vs vs Q3 '09 Q3 '08 Q2 '09 Q3 '08 Q2 '09 Smart card
accounts: Total number of smart card accounts 4,006,847 3,956,882
4,061,100 1% (1)% Hardware, software and related technology sales:
Ad hoc significant hardware sales (USD '000) Nedbank hardware - 600
100 (100)% (100)% Ghana - in terms of contract 800 4,300 3,400
(81)% (76)% Financial services: (USD '000) Traditional
microlending: Finance loans receivable - gross - 4,611 2,368 (100)%
(100)% Allowance for doubtful finance loans receivable - (2,667)
(1,020) (100)% (100)% Finance loans receivable - net - 1,944 1,348
(100)% (100)% UEPS-based lending: Finance loans receivable - net
and gross (i.e., no provisions) 2,552 2,986 2,765 (15)% (8)%
Earnings (Loss) from equity-accounted investments: (USD '000)
Beginning of period (2,614) (2,352) (2,699) Equity-accounted
earnings (loss) (261) (281) (226) Equity-accounted earnings (loss)
- SmartSwitch Namibia(1) 3 16 (9) Equity-accounted earnings (loss)
- SmartSwitch Botswana(1) (16) (71) 5 Equity-accounted (loss) - VTU
Colombia (201) (164) (198) Equity-accounted (loss) - VinaPay (47)
(62) (24) Foreign currency adjustment 171 244 311 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 Year ended March 31, Change
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 expense 35,444 27,816 27% 62% 39,192
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 activities $109,159 $115,409 (5)% 20% $153,444
Smart card accounts 21,957 27,469 (20)% 2% 35,914 Financial
services 4,571 6,317 (28)% (8)% 8,251 Hardware, software and
related technology sales 49,514 42,630 16% 48% 56,447 Total
consolidated revenue $185,201 $191,825 (3)% 23% $254,056
Consolidated operating income (loss): Transaction-based activities
$60,929 $62,317 (2)% 25% $84,229 Smart card accounts 9,979 12,485
(20)% 2% 16,325 Financial services (1,504) 1,411 (207)% (236)%
1,935 Hardware, software and related technology sales 8,229 9,585
(14)% 9% 11,708 Corporate/ Eliminations (6,677) (3,016) 121% 182%
(3,811) Total operating income $70,956 $82,782 (14)% 9% $110,386
Operating income margin (%) Transaction-based activities 56% 54%
55% Smart card accounts 45% 45% 45% Financial services (33)% 22%
23% Hardware, software and related technology sales 17% 22% 21%
Overall operating margin 38% 43% 43% Mar 31, June 30, 2009 2008 Key
balance sheet data, in '000 Cash and cash equivalents $121,025
$272,475 (56)% Total current assets 235,144 345,734 (32)% Total
assets 422,832 454,071 (7)% Total current liabilities 65,891 76,503
(14)% Total shareholders' equity $316,909 $340,328 (7)% (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 Year ended Mar 31, Change 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 per
grant paid: ZAR ZAR ZAR 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 installed at period end 4,263
4,222 1% 4,394 Number of participating retail locations at period
end 2,391 2,468 (3)% 2,454 Value of transactions processed through
POS devices during the quarter (in ZAR '000) 2,758,391 1,996,072
38% 2,243,592 Value of transactions processed through POS devices
during the completed pay cycles for the quarter (in ZAR '000)
2,775,707 2,022,938 37% 2,178,596 Average number of grants
processed per terminal during the quarter 1,111 917 21% 965 Average
number of grants processed per terminal during the completed pay
cycles for the quarter 1,129 933 21% 936 EasyPay transaction fees:
Number of transactions processed 433,523,552 383,468,457 13%
516,849,006 Average fee per transaction (in ZAR) 0.21 0.20 5% 0.21
Nine months ended March 31, 2009 and 2008 (continued) Nine months
ended Year ended Mar 31, Change June 30, 2009 2008 2008 Smart card
accounts: Total number of smart card accounts 4,006,847 3,956,882
1% 4,022,193 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 and Smart Card Payment
System Contract 8,100 10,800 (25)% 15,800 Financial services: (USD
'000) Traditional microlending: Finance loans receivable - gross -
4,611 (100)% 2,864 Allowance for doubtful finance loans receivable
- (2,667)(100)% (1,007) Finance loans receivable - net - 1,944
(100)% 1,857 UEPS-based lending: Finance loans receivable - net and
gross (i.e., no provisions) 2,552 2,986 (15)% 2,444 Earnings (Loss)
from equity accounted investments: (USD '000) Beginning of period
(2,611) (1,774) (1,774) Equity-accounted earnings (loss) (797)
(801) (1,036) Equity-accounted earnings (loss) - SmartSwitch
Namibia(1) - 4 15 Equity-accounted earnings (loss) - SmartSwitch
Botswana(1) (46) (194) (97) Equity-accounted (loss) - VTU Colombia
(645) (491) (792) Equity-accounted (loss) - VinaPay (106) (120)
(162) Foreign currency adjustment 704 186 199 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 (USD '000) (USD cents) 2009
2008 2009 2008 GAAP 14,379 26,967 26 47 Amortization of intangible
assets(1) 2,301 856 Customer relationships 2,454 355 Software and
unpatented technology 667 896 Trademarks 68 92 Deferred tax benefit
(888) (487) Stock-based charge(2) 1,317 1,108 Loss on sale of
Moneyline 742 - Change in tax rate (3) - (5,919) Fundamental 18,739
23,012 34 40 Net Income EPS, basic (ZAR '000) (ZAR cents) 2009 2008
2009 2008 GAAP 143,241 199,874 260 350 Amortization of intangible
assets(1) 22,923 6,344 Customer relationships 24,446 2,630 Software
and unpatented technology 6,642 6,642 Trademarks 679 679 Deferred
tax benefit (8,844) (3,607) Stock-based charge(2) 13,120 8,212 Loss
on sale of Moneyline 7,392 - Change in tax rate (3) - (43,869)
Fundamental 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 (USD'000) (USD cents) 2009 2008 2009 2008 GAAP 68,385 65,213
121 114 Amortization of intangible assets(1) 6,068 2,670 Customer
relationships 6,070 1,107 Software and unpatented technology 2,194
2,795 Trademarks 224 286 Deferred tax benefit (2,420) (1,518)
Stock-based charge(2) 3,868 2,860 JSE listing costs 495 - Facility
fee 1,100 - Foreign exchange gain related to a short-term
investment, net of tax of $6,028 (17,447) - Loss on sale of
Moneyline 742 - Impairment of goodwill 1,836 - Change in tax rate
(3) (3,458) (5,397) Fundamental 61,589 65,346 109 114 Net income
EPS, basic (ZAR'000) (ZAR cents) 2009 2008 2009 2008 GAAP 621,137
465,006 1,103 814 Amortization of intangible assets(1) 55,111
19,032 Customer relationships 55,130 7,890 Software and unpatented
technology 19,926 19,927 Trademarks 2,036 2,036 Deferred tax
benefit (21,981) (10,821) Stock-based charge(2) 35,133 20,394 JSE
listing costs 4,496 - Facility fee 9,991 - Foreign exchange gain
related to a short-term investment, net of tax of $6,028 (158,469)
- Loss on sale of Moneyline 6,740 - Impairment of goodwill 16,676 -
Change in tax rate (3) (31,409) (38,484) Fundamental 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 equipment (USD'000) 9 (23) Tax effects
on above (USD'000) (3) 8 Net income used to calculate headline
earnings (USD'000) 15,127 26,952 Weighted average number of shares
used to calculate net income per share basic earnings and headline
earnings per share basic earnings ('000) 55,075 57,141 Weighted
average number of shares used to calculate net income per share
diluted earnings and headline earnings per share diluted earnings
('000) 55,200 57,685 Headline earnings per share: Basic earnings -
common stock and linked units, in US cents 27 47 Diluted earnings -
common stock and linked units, in US cents 27 47 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 equipment (USD'000) 9 (109) Tax effects on
above (USD'000) (3) 40 Net income used to calculate headline
earnings (USD'000) 70,969 65,144 Weighted average number of shares
used to calculate net income per share basic earnings and headline
earnings per share basic earnings ('000) 56,336 57,129 Weighted
average number of shares used to calculate net income per share
diluted earnings and headline earnings per share diluted earnings
('000) 56,529 57,643 Headline earnings per share: Basic earnings -
common stock and linked units, in US cents 126 114 Diluted earnings
- common stock and linked units, in US cents 126 113 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.
DATASOURCE: Net 1 UEPS Technologies, Inc. CONTACT: William Espley
of Net1 Investor Relations, +1-604-484-8750, or Toll Free,
+1-866-412-NET1 (6381) Web Site: http://www.net1ueps.com/
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