Published:
Net 1 UEPS Technologies, Inc. Announces 2008 Fourth Quarter and Year End Results
JOHANNESBURG, South Africa, Aug. 28 /PRNewswire-FirstCall/ -- Net 1 UEPS
Technologies, Inc. ("Net1" or the "Company") (Nasdaq: UEPS) today announced
results for the three months and year ended June 30, 2008.
Results
Three months ended June 30, 2008 and 2007
GAAP GAAP GAAP Fundamental
Q4 Q4 Variance Fundamental Fundamental Variance
2008 2007 % Q4 2008 (1) Q4 2007 (1) %
Net income
(USD'000) 21,482 17,531 23% 23,423 19,086 23%
Earnings
per share,
basic
(US cents) 38 31 23% 41 33 24%
Revenue
(USD'000) 62,231 60,196 3% 62,231 60,196 3%
(1) - Fundamental net income and earnings per share is GAAP net income and
earnings per share excluding the amortization of acquisition-related
intangible assets, net of deferred taxes, stock-based compensation charges
and, where applicable, the effect of the change in the fully distributed tax
rate from 36.89% to 35.45%.
Since the Company's reporting currency is the U.S. dollar ("USD") but its
functional currency is the South African rand ("ZAR"), and due to the impact
of currency fluctuations between the USD and the ZAR on the Company's results
of operations, the Company also analyzes its results of operations in ZAR to
assist investors in understanding the changes in the underlying trends of its
business. The USD was stronger against the ZAR during the three months and
full year ended June 30, 2008, as compared with the prior periods. 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
Q4 Q4 Variance Fundamental Fundamental Variance
2008 2007 % Q4 2008 (1) Q4 2007 (1) %
Net income
(ZAR'000) 167,551 124,793 34% 182,692 135,871 34%
Earnings
per share,
basic
(ZAR cents) 293 219 34% 319 238 34%
Revenue
(ZAR'000) 485,380 428,500 13% 485,380 428,500 13%
(1) - Fundamental net income and earnings per share is GAAP net income and
earnings per share excluding the amortization of acquisition-related
intangible assets, net of deferred taxes, stock-based compensation charges
and, where applicable, the effect of the change in the fully distributed tax
rate from 36.89% to 35.45%.
Years ended June 30, 2008 and 2007
GAAP GAAP GAAP Fundamental Fundamental Fundamental
YE YE Variance YE YE Variance
2008 2007 % 2008 2007 %
Net
income
(USD'000) 86,695 63,679 36% 88,821 69,808 27%
Earnings
per
share,
basic
(US cents) 152 112 36% 155 123 26%
Revenue
(USD'000) 254,056 223,968 13% 254,056 223,968 13%
GAAP GAAP GAAP Fundamental Fundamental Fundamental
YE YE Variance YE YE Variance
2008 2007 % 2008 2007 %
Net
income
(ZAR'000) 632,050 459,126 38% 648,419 503,315 29%
Earnings
per
share,
basic
(ZAR
cents) 1,106 808 37% 1,134 884 28%
Revenue
(ZAR'000) 1,852,188 1,614,809 15% 1,852,188 1,614,809 15%
Use of Non-GAAP measures
Under U.S. generally accepted accounting principles ("GAAP"), the Company
is required to fair value all intangible assets on the date of acquisition and
amortize these intangible assets over their expected useful lives. In
addition, under GAAP, the Company is required to measure the fair value of
options and other stock-based awards and recognize a stock-based compensation
charge over the requisite service period. The Company's GAAP net income and
earnings per common share and linked unit for the three months and year ended
June 30, 2008 and 2007 includes amortization of intangibles relating to our
fiscal 2007 acquisition of Prism Holdings Limited, including the later
acquisition of the remaining 25.1% of EasyPay (Pty) Limited, and stock-based
compensation charges related to stock options and other stock-based awards.
Finally, 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 and linked unit for the year ended June 30, 2008.
The Company excludes these items when calculating fundamental net income and
earnings per common share and linked unit because management believes that
these adjustments enhance its own evaluation, as well as an investor's
understanding, of the Company's financial performance. Attachment B presents a
reconciliation between GAAP and fundamental net income and earnings per common
share and linked unit.
Fourth Quarter Highlights
-- Delivery of hardware and recognition of additional software development
and customization revenues related to the Ghanaian National Switch and Smart
Card Payment System contract;
-- Official launch of our wage payment system in the KwaZulu-Natal
province on May 12, 2008;
-- Merchant acquiring system transactions increased 15% from the fourth
quarter of fiscal 2007;
-- The number of grants paid increased 5% from the fourth quarter of
fiscal 2007;
-- The number of transactions processed per terminal increased 19% from
the fourth quarter of fiscal 2007;
-- The total number of active UEPS smart card-based accounts increased 6%
to 4,022,193 as of June 30, 2008, compared to June 30, 2007; and
-- The number of transactions processed by EasyPay increased 17% from the
fourth quarter of fiscal 2007.
Comments and Outlook
"I am particularly pleased to report excellent earnings and cash flow for
our 2008 fiscal year," said Dr. Serge Belamant, Chairman and Chief Executive
Officer of Net1. "I am delighted with the successful launch of our technology
inIraq, our rapid deployment of the Ghanaian national payment system and our
further advances within the South African market. Global interest in our
technology has never been stronger and presents several tangible opportunities
to achieve our vision," he concluded.
"There are a number of significant events that will have an impact on our
financial results for fiscal 2009," said Herman Kotze, Chief Financial Officer
of Net1. "These include the financial effects of the BGS acquisition, the
timing of any SASSA tender award and the development of certain international
business prospects. Assuming that our current business activities will
continue as usual, and taking into account the significant contribution from
our activities inGhana during fiscal 2008, we anticipate our fundamental
earnings per share growth rate to exceed 15% for fiscal 2009 on a constant
currency basis," he concluded.
Conference call
Net1 will host a conference call to review fourth quarter results on
August 29, 2008, and discuss the acquisition of BGS Smartcard Systems AG at
8:00 a.m. Eastern Daylight Time. To participate in the call, dial 1-800-860-
2442 (U.S. 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 September 19, 2008.
About Net1 (www.net1ueps.com)
Net1 provides its universal electronic payment system, or UEPS, as an
alternative payment system for the unbanked and under-banked populations of
developing economies. The Company believes that it is the first company
worldwide to implement a system that can enable the estimated four billion
people who generally have limited or no access to a bank account to enter
affordably into electronic transactions with each other, government agencies,
employers, merchants and other financial service providers. To accomplish
this, the Company has developed and deployed the UEPS. This system uses secure
smart cards that operate in real-time but offline, unlike traditional payment
systems offered by major banking institutions that require immediate access
through a communications network to a centralized computer. This offline
capability means that users of Net1's system can enter into transactions at
any time with other cardholders in even the most remote areas so long as a
portable offline smart card reader is available. In addition to payments and
purchases, Net1's system can be used for banking, health care management,
international money transfers, voting and identification.
The Company also focuses on the development and provision of secure
transaction technology, solutions and services. The Company's core
competencies around secure online transaction processing, cryptography and
integrated circuit card (chip/smart card) technologies are principally applied
to electronic commerce transactions in the telecommunications, banking,
retail, petroleum and utilities market sectors. These technologies form the
cornerstones of the "trusted transactions" environment of Prism, a South
African based subsidiary of the Company, and provide the Company with the
building blocks for developing secure end-to-end payment solutions.
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.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 2008, 2007 and 2006
2008 (A) 2007 (A) 2006 (A)
(In thousands, except per share data)
REVENUE $254,056 $223,968 $196,098
Sale of goods 39,021 27,716 17,867
Loan-based interest and fees
received 8,585 11,460 15,017
Services rendered 206,450 184,792 163,214
EXPENSE
Cost of goods sold, IT processing,
servicing and support 67,486 54,417 50,619
Selling, general and
administration 65,362 61,625 48,627
Depreciation and amortization 10,822 11,050 5,710
Costs related to public offering
and Nasdaq listing - - 1,529
OPERATING INCOME 110,386 96,876 89,613
INTEREST INCOME, net 15,722 4,401 5,889
INCOME BEFORE INCOME TAXES 126,108 101,277 95,502
INCOME TAX EXPENSE 39,192 37,574 36,653
NET INCOME BEFORE MINORITY INTEREST
AND (LOSS) EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS 86,916 63,703 58,849
MINORITY INTEREST (815) 205 -
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS (1,036) 181 383
NET INCOME $86,695 $63,679 $59,232
Net income per share
Basic earnings - common stock
and linked units, in $1.52 1.12 1.05
Diluted earnings - common stock
and linked units, in $1.50 1.11 1.03
(A) - derived from audited financial statements.
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
as of June 30, 2008 and 2007
2008 (A) 2007 (A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $272,475 $171,727
Pre-funded social welfare grants receivable 35,434 26,817
Accounts receivable, net 21,797 30,503
Finance loans receivable, net 4,301 5,755
Deferred expenditure on smart cards 78 507
Inventory 6,052 5,645
Deferred income taxes 5,597 7,028
Total current assets 345,734 247,982
LONG-TERM RECEIVABLES 207 54
PROPERTY, PLANT AND EQUIPMENT, net 6,291 7,582
EQUITY-ACCOUNTED INVESTMENTS 2,685 2,992
GOODWILL 76,938 85,871
INTANGIBLE ASSETS, net 22,216 31,609
TOTAL ASSETS 454,071 376,090
LIABILITIES
CURRENT LIABILITIES
Bank overdraft - 16
Accounts payable 4,909 5,879
Other payables 57,432 34,457
Income taxes payable 14,162 14,346
Total current liabilities 76,503 54,698
DEFERRED INCOME TAXES 33,474 36,219
INTEREST BEARING LIABILITIES -- outside
shareholders loans 3,766 4,100
COMMITMENTS AND CONTINGENCIES - -
TOTAL LIABILITIES 113,743 95,017
SHAREHOLDERS' EQUITY
COMMON STOCK
Authorized shares: 83,333,333 with $0.001
par value; Issued and outstanding shares:
2008: 53,423,552; 2007: 51,730,547 52 52
SPECIAL CONVERTIBLE PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001
par value; Issued and outstanding shares:
2008: 4,882,429; 2007: 5,656,110 5 5
B CLASS PREFERENCE SHARES
Authorized shares: 330,000,000 with $0.001
par value; Issued and outstanding shares
(net of shares held by the Company):
2008: 35,975,818; 2007: 41,676,625 6 7
ADDITIONAL PAID-IN CAPITAL 119,283 112,167
TREASURY SHARES, AT COST: 2008: 306,269;
2007: 299,821 (7,950) (7,795)
ACCUMULATED OTHER COMPREHENSIVE LOSS (37,820) (3,915)
RETAINED EARNINGS 266,752 180,552
TOTAL SHAREHOLDERS' EQUITY 340,328 281,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $454,071 $376,090
(A) -- derived from audited financial statements.
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2008, 2007 and 2006
2008 (A) 2007 (A) 2006 (A)
(In thousands)
Cash flows from operating activities
Net income $86,695 $63,679 $59,232
Adjustments to reconcile net income to
net cash provide by operating
activities:
Depreciation and amortization 10,822 11,050 5,710
Loss (earnings) from equity-accounted
investments 1,036 (181) (383)
Fair value adjustment related to
financial liabilities (197) 161 6
Fair value adjustments of FAS 133
derivative instruments (72) 25 (90)
Interest payable 434 234 -
Profit on disposal of property, plant
and equipment (110) (286) (210)
Loss on disposal of equity-accounted
investment -- Permit Group 2 (Pty) Ltd - 586 -
Profit on disposal of business - - (10)
Minority interest (815) 205 -
Stock compensation charge, net of
forfeitures 3,971 910 150
Write down of property, plant and
equipment - - 314
Increase in accounts receivable,
pre-funded social welfare grants
receivable and finance loans
receivable (9,983) (9,469) (13,870)
Decrease in deferred expenditure
on smart cards 416 155 3,199
Increase in inventory (1,138) (2,203) (109)
Increase (Decrease) in accounts
payable and other payables 24,353 (1,470) 13,183
Increase (Decrease) in taxes payable 1,369 268 (471)
Increase in deferred taxes 1,979 1,802 9,126
Net cash provided by operating
activities 118,760 65,466 75,777
Cash flows from investing activities
Capital expenditures (3,563) (3,745) (1,821)
Proceeds from disposal of property,
plant and equipment 160 685 336
Proceeds from disposal of business - - 10
Proceeds from disposal of equity-accounted
investment -- Permit Group 2 (Pty) Ltd - 2,301 -
Long-term receivables and loan to
equity-accounted investment repaid - 1,622 -
Acquisition of and advance of loans to
equity-accounted investments (500) (360) (4,030)
Acquisition of Prism Holdings Limited
and remaining 25.1% of EasyPay, net
of cash acquired - (92,043) -
Net cash used in investing
activities (3,903) (91,540) (5,505)
Cash flows from financing activities
Proceeds from issue of common stock 2,845 909 33,661
Acquisition of treasury stock - (1,000) (3,958)
Proceeds from bank overdraft 1,462 84,657 20
Repayment of bank overdraft (1,443) (84,854) -
Proceeds from interest bearing
liabilities - 3,513 -
Net cash provided by financing
activities 2,864 3,225 29,723
Effect of exchange rate changes on cash (16,973) 4,841 (18,009)
Net increase (decrease) in cash and
cash equivalents 100,748 (18,008) 81,986
Cash and cash equivalents --
beginning of year 171,727 189,735 107,749
Cash and cash equivalents at
end of year $272,475 $171,727 $189,735
(A) -- derived from audited financial statements.
Net 1 UEPS Technologies, Inc.
Attachment A
Key metrics and statistics at and for the three months ended June 30, 2008
and 2007 and March 31, 2008:
Three months ended June 30, 2008 and 2007 and March 31, 2008
Change -
constant
Change - exchange
actual rate(1)
Q4 Q4 Q4 Q4
'08 '08 '08 '08
Key statement of vs vs vs vs
operations data, in Q4 Q4 Q3 Q4 Q3 Q4 Q3
'000, except EPS '08 '07 '08 '07 '08 '07 '08
USD USD USD
Revenue $62,231 $60,196 $63,066 3% (1)% 12% 4%
Operating income 27,604 24,491 28,650 13% (4)% 22% 1%
Income tax expense 11,376 8,647 5,156 32% 121% 42% 132%
Net income $21,482 $17,531 $26,967 23% (20)% 33% (16)%
Earnings per share,
Basic (cents) 38 31 47 23% (19)% 33% (15)%
Diluted (cents) 37 31 47 19% (21)% 29% (17)%
Fundamental earnings
per share,
Basic (cents) 41 33 40 24% 3% 34% 8%
Key segmental data, in
'000, except margins
Revenue:
Transaction-based
activities $38,035 $35,834 $37,254 6% 2% 15% 7%
Smart card accounts 8,445 8,840 8,696 (4)% (3)% 3% 2%
Financial services 1,934 2,605 1,999 (26)% (3)% (20)% 2%
Hardware, software
and related
technology sales 13,817 12,917 15,117 7% (9)% 16% (4)%
Total consolidated
revenue $62,231 $60,196 $63,066 3% (1)% 12% 4%
Consolidated operating
income (loss):
Transaction-based
activities $21,912 $17,986 $20,347 22% 8% 32% 13%
Smart card accounts 3,840 4,018 3,953 (4)% (3)% 3% 2%
Financial services 524 593 507 (12)% 3% (4)% 9%
Hardware, software
and related
technology sales 2,123 3,494 5,380 (39)% (61)% (34)% (58)%
Corporate/
Eliminations (795) (1,600) (1,537)(50)% (48)% (46)% (46)%
Total operating
income $27,604 $24,491 $28,650 13% (4)% 22% 1%
Operating income
margin (%)
Transaction-based
activities 58% 50% 55%
Smart card accounts 45% 45% 45%
Financial services 27% 23% 25%
Hardware, software and
related technology
sales 15% 27% 36%
Overall operating
margin 44% 41% 45%
Jun 30, Jun 30,
2008 2007 Change
Key balance sheet data, in '000
Cash and cash equivalents $272,475 $171,727 59%
Total current assets 345,734 247,982 39%
Total assets 454,071 376,090 21%
Total current liabilities 76,503 54,698 40%
Total shareholders' equity $340,328 $281,073 21%
(1) - This information shows what the change in these items would have
been if the USD/ ZAR exchange rate that prevailed during the fourth quarter of
fiscal 2008 also prevailed during the fourth quarter of fiscal 2007 and the
third quarter of fiscal 2008.
Three months ended June 30, 2008 and 2007 and March 31, 2008 (continued)
Change
Q4 '08 Q4 '08
Additional vs vs
information Q4 '08 Q4 '07 Q3 '08 Q4 '07 Q3 '08
Transaction-
based
activities:
Total number
of grants
paid:
KwaZulu-
Natal 5,182,170 5,063,452 5,051,827 2% 3%
Limpopo 2,957,809 2,938,435 2,949,459 1% -%
North
West 1,289,828 869,781 1,245,238 48% 4%
Northern
Cape 496,884 421,102 494,664 18% -%
Eastern
Cape 2,047,136 2,141,921 2,151,385 (4)% (5)%
11,973,827 11,434,691 11,892,573 5% 1%
Average revenue
per grant paid: ZAR ZAR ZAR
KwaZulu-Natal 23.83 20.49 21.76 16% 10%
Limpopo 18.56 16.81 18.32 10% 1%
North West 22.39 22.30 22.19 -% 1%
Northern Cape 24.05 18.55 20.26 30% 19%
Eastern Cape 16.52 15.02 16.56 10% -%
UEPS merchant acquiring system:
Terminals
installed at
period end 4,394 4,357 4,222 1% 4%
Number of
participating
retail locations
at period
end 2,454 2,598 2,468 (6)% (1)%
Value of
transactions
processed
through POS
devices during
the quarter
(in ZAR
'000) 2,243,592 1,777,436 1,996,072 26% 12%
Value of
transactions
processed
through POS
devices during
the completed
pay cycles for
the quarter
(in ZAR
'000) 2,178,596 1,777,738 2,022,938 23% 8%
Average number
of grants
processed per
terminal
during
the quarter 965 811 917 19% 5%
Average number
of grants
processed per
terminal during
the completed
pay cycles for
the quarter 936 810 933 16% -%
EasyPay transaction fees:
Number of
transactions
proces-
sed 133,380,549 114,177,612 129,152,205 17% 3%
Average fee
per transaction
(in ZAR) 0.22 0.20 0.20 10% 10%
Three months ended June 30, 2008 and 2007 and March 31, 2008 (continued)
Change
Q4 Q4
'08 '08
vs vs
Q4 Q3
Q4 '08 Q4 '07 Q3 '08 '07 '08
Smart card accounts:
Total number of smart
card accounts 4,022,193 3,812,273 3,956,882 6% 2%
Hardware, software and
related technology sales:
Ad hoc significant
hardware sales (USD '000)
Nedbank hardware 700 2,348 600 (70)% 17%
Ghana -- in terms of
contract 3,400 - 4,300 n/m (21)%
Ghana -- additional
orders 1,600 - - n/m n/m
Financial services:
(USD '000)
Traditional microlending:
Finance loans
receivable -- gross 2,864 5,263 4,611 (46)% (38)%
Allowance for doubtful
finance loans
receivable (1,007) (2,773) (2,667) (64)% (62)%
Finance loans
receivable -- net 1,857 2,490 1,944 (25)% (4)%
UEPS-based lending:
Finance loans receivable
-- net and gross (i.e.,
no provisions) 2,444 3,265 2,986 (25)% (18)%
Earnings (Loss) from equity
accounted investments:
(USD '000)
Beginning of period (2,389) 991 (2,352)
Equity-accounted earnings
(loss) (235) 79 (281)
Equity-accounted
earnings -- Permit - 55 16
Equity-accounted earnings
(loss) -- SmartSwitch
Namibia(1) 11 56 (71)
Equity-accounted earnings
(loss) -- SmartSwitch
Botswana(1) 97 90 (164)
Equity-accounted (loss)
-- VTU Colombia (301) (122) (62)
Equity-accounted (loss)
-- VinaPay (42) - (281)
Sale of Permit - (2,805) -
Foreign currency adjustment 13 (39) 244
End of period (2,611) (1,774) (2,389)
nm -- Statistic not meaningful
(1) -- includes the elimination of unrealized net income
Key metrics and statistics at and for the years ended June 30, 2008 and
2007:
Years ended June 30, 2008 and 2007
Years ended Change
Jun 30, Constant
2008 2007 Exchange
USD USD Actual Rate(1)
Key statement of operations
data, in '000, except EPS
Revenue 254,056 $223,968 13% 15%
Operating income 110,386 96,876 14% 15%
Income tax expense 39,192 37,574 4% 5%
Net income 86,695 $63,679 36% 38%
Earnings per share,
Basic (cents) 152 112 36% 37%
Diluted (cents) 150 111 35% 37%
Fundamental earnings per share,
Basic (cents) 155 123 26% 27%
Key segmental data, in '000,
except margins
Revenue:
Transaction-based
activities $153,444 $139,006 10% 12%
Smart card accounts 35,914 34,562 4% 5%
Financial services 8,251 11,241 (27)% (26)%
Hardware, software and
related technology
sales 56,447 39,159 44% 46%
Total consolidated
revenue $254,056 $223,968 13% 15%
Consolidated operating
income (loss):
Transaction-based
activities $84,229 $78,785 7% 8%
Smart card accounts 16,325 15,710 4% 5%
Financial services 1,935 3,351 (42)% (42)%
Hardware, software and
related technology
sales 11,708 6,115 91% 94%
Corporate/ Eliminations (3,811) (7,085) (46)% (46)%
Total operating
income $110,386 $96,876 14% 15%
Operating income margin (%)
Transaction-based
activities 55% 57%
Smart card accounts 45% 45%
Financial services 23% 30%
Hardware, software and
related technology sales 21% 16%
Overall operating margin 43% 43%
Jun 30, Jun 30,
2008 2007 Change
Key balance sheet data, in '000
Cash and cash equivalents $272,475 $171,727 59%
Total current assets 345,734 247,982 39%
Total assets 454,071 376,090 21%
Total current liabilities 76,503 54,698 40%
Total shareholders' equity $340,328 $281,073 21%
(1) - This information shows what the change in these items would have
been if the USD/ ZAR exchange rate that prevailed during fiscal 2008 also
prevailed during fiscal 2007.
Years ended June 30, 2008 and 2007 (continued)
Years ended
Jun 30, Change
2008 2007
Additional information:
Transaction-based activities:
Total number of grants paid:
KwaZulu-Natal 20,337,526 20,080,685 1%
Limpopo 11,791,095 11,662,537 1%
North West 4,984,479 3,351,477 49%
Northern Cape 1,986,525 1,669,037 19%
Eastern Cape 8,491,929 8,568,506 (1)%
47,591,554 45,332,242 5%
Average revenue per grant paid: ZAR ZAR
KwaZulu-Natal 22.19 20.04 11%
Limpopo 17.76 16.32 9%
North West 21.79 20.73 5%
Northern Cape 20.44 18.64 10%
Eastern Cape 16.05 12.90 24%
UEPS merchant acquiring system:
Terminals installed at
period end 4,394 4,357 1%
Number of participating retail
locations at period end 2,454 2,598 (6)%
Value of transactions
processed through POS
devices during the quarter
(in ZAR '000) 2,243,592 1,777,436 26%
Value of transactions
processed through POS
devices during the
completed pay cycles for
the quarter (in ZAR '000) 2,178,596 1,777,738 23%
Average number of grants
processed per terminal
during the quarter 965 811 19%
Average number of grants
processed per terminal
during the completed pay
cycles for the quarter 936 810 16%
EasyPay transaction fees:
Number of transactions
processed 516,849,006 441,439,169 17%
Average fee per
transaction (in ZAR) 0.21 0.21 -%
Years ended June 30, 2008 and 2007 (continued)
Years ended
Jun 30, Change
2008 2007
Smart card accounts:
Total number of smart card accounts 4,022,193 3,812,273 6%
Hardware, software and related
technology sales:
Ad hoc significant hardware
sales (USD '000)
Nedbank hardware 3,244 4,400 (26)%
Ghana - in terms of contract 14,200 - Nm
Ghana - additional orders 1,600 - Nm
SmartSwitch Botswana hardware and
software (before consolidation
adjustments) - 2,100 Nm
Financial services: (USD '000)
Traditional microlending:
Finance loans receivable - gross 2,864 5,263 (46)%
Allowance for doubtful finance
loans receivable (1,007) (2,773) (64)%
Finance loans receivable - net 1,857 2,490 (25)%
UEPS-based lending:
Finance loans receivable -net and
gross (i.e., no provisions) 2,444 3,265 (25)%
Earnings (Loss) from equity accounted
investments: (USD '000)
Beginning of period (1,774) 874
Equity-accounted earnings (loss) (1,036) 181
Equity-accounted earnings - Permit - 1,415
Equity-accounted earnings (loss) -
SmartSwitch Namibia(1) 15 (262)
Equity-accounted earnings (loss) -
SmartSwitch Botswana(1) (97) (593)
Equity-accounted (loss) - VTU Colombia (792) (379)
Equity-accounted (loss) - VinaPay (162) -
Sale of Permit - (2,805)
Foreign currency adjustment 199 (24)
End of period (2,611) (1,774)
nm - Statistic not meaningful
(1) - includes the elimination of unrealized net income
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP results to fundamental results:
Three months ended June 30, 2008
Three months ended Jun 30,
Amorti-
zation of
Prism and
EasyPay Stock- 2008
2008 intangible based Funda-
GAAP assets(1) charge(2) mental
Net income (USD'000) 21,482 830 1,111 23,423
Earnings per share,
basic (USD cents) 38 41
Net income (ZAR'000) 167,551 6,476 8,665 82,692
Earnings per share,
basic (ZAR cents) 293 319
(1) Amortization of Prism and EasyPay Intangibles, net of deferred tax
benefit:
$ '000 ZAR '000
Customer relationships 337 2,630
Trademarks 87 679
Software and unpatented
technology 852 6,642
Deferred tax benefit (446) (3,475)
830 6,476
(2) Includes stock-based compensation charges related to options and non-
vested stock awards granted under the Amended and Restated Net 1 UEPS
Technologies, Inc. 2004 Stock Incentive Plan and stock options granted to
employees of Prism.
Three months ended June 30, 2007
Three months ended Jun 30,
Costs
Amorti- associated
zation of with
Prism and acqui-
EasyPay Stock- sition 2007
2007 intangible based not Funda-
GAAP assets(1) charge(2) pursued(3) mental
Net income (USD'000) 17,531 890 224 441 19,086
Earnings per share,
basic (USD cents) 31 33
Net income (ZAR'000) 124,793 6,344 1,595 3,139 135,871
Earnings per share,
basic (ZAR cents) 219 238
(1) Amortization of Prism and EasyPay Intangibles, net of deferred tax
benefit:
$ '000 ZAR '000
Customer relationships 369 2,630
Software and unpatented
technology 95 679
Trademarks 933 6,642
Deferred tax benefit (507) (3,607)
890 6,344
(2) Includes stock-based compensation charge related to options granted to
employees of Prism and under the Amended and Restated Net 1 UEPS Technologies,
Inc. 2004 Stock Incentive Plan.
(3) Represents expenses associated with a potential acquisition that Net1
ultimately decided not to pursue during the three months ended December 31,
2006.
Year ended June 30, 2008
Year ended Jun 30,
Amorti-
zation of
Prism and
EasyPay Stock- 2008
2008 intangible based Change in Funda-
GAAP assets(1) charge(2) tax rate(3) mental
Net income (USD'000) 86,695 3,552 3,971 (5,397) 88,821
Earnings per share,
basic (USD cents) 152 155
Net income (ZAR'000) 632,050 25,902 28,951 (38,484) 648,419
Earnings per share,
basic (ZAR cents) 1,106 1,134
(1) Amortization of Prism and EasyPay Intangibles, net of deferred tax
benefit:
$ '000 ZAR '000
Customer relationships 1,443 10,520
Trademarks 372 2,715
Software and unpatented
technology 3,644 26,569
Deferred tax benefit (1,907) (13,902)
3,552 25,902
(2) Includes stock-based compensation charges related to options and non-
vested stock awards granted under the Amended and Restated Net 1 UEPS
Technologies, Inc. 2004 Stock Incentive Plan and stock options granted to
employees of Prism.
(3) Represents the effect of the change in the fully distributed tax rate
from 36.89% to 35.45%.
Year ended June 30, 2007
Year ended Jun 30,
Costs
Amorti- associated
zation of with
Prism and acqui-
EasyPay Stock- sition 2007
2007 intangible based not Funda-
GAAP assets(1) charge(2) pursued(3) mental
Net income (USD'000) 63,679 3,440 1,060 1,629 69,808
Earnings per share,
basic (USD cents) 112 123
Net income (ZAR'000) 459,126 24,801 7,643 11,745 503,315
Earnings per share,
basic (ZAR cents) 806 884
(1) Amortization of Prism and EasyPay Intangibles, net of deferred tax
benefit:
$ '000 ZAR '000
Customer relationships 1,393 10,040
Software and unpatented
technology 368 2,651
Trademarks 3,648 26,303
Deferred tax benefit (1,969) (14,193)
3,440 24,801
(2) Includes stock-based compensation charge related to options granted to
employees of Prism and under the Amended and Restated Net 1 UEPS Technologies,
Inc. 2004 Stock Incentive Plan.
(3) Represents expenses associated with a potential acquisition that Net1
ultimately decided not to pursue during the three months ended December 31,
2006.
Net 1 UEPS Technologies, Inc.
Attachment C
FREQUENTLY ASKED QUESTIONS
1. What is the status of the SASSA tender and on what basis did Net1
submit a proposal?
On June 30, 2008 we received a further notice to bidders from SASSA
advising bidders that the tender evaluation process had still not been
completed. Bidders were advised that the Evaluation Committee appointed to
evaluate the bid proposals had submitted its recommendations to an
Adjudication Committee for consideration, and that the Adjudication Committee
is currently in the process of reviewing the recommendations of the Evaluation
Committee in order to provide a recommendation to the Chief Executive Officer
of SASSA on the preferred bidder(s) for each province. As a result, SASSA
requested tenderers to extend the validity period of their tender responses by
a further three months to September 30, 2008. We have responded in writing
stating that the Company is prepared to extend the validity period of its bid
proposal to September 30, 2008 but that the Company will seek legal guidance
from the South African High Court to ensure the timely and orderly conclusion
of the tender evaluation process.
2. How will the tenders be adjudicated?
The tenders will be adjudicated by a committee appointed by SASSA. The
submissions will be evaluated in terms of the following 100-point scoring
system:
-- Technological solution: 60 points
-- Financial proposal: 30 points
-- Black economic empowerment procurement objectives: 10 points
3. How will the pricing for any future contracts with SASSA change from
the current base?
Our pricing proposals are obviously confidential during this stage of the
tendering process and we can not reveal any details of what we have proposed.
Should we be successful with some or all of our proposals, the final pricing
will depend on the options selected by SASSA and the service level agreement
negotiations. As soon as we have finality on these prices upon completion of
the tender process, we will provide a detailed update on the financial
implications for Net1.
4. Can any interested party, such as an investor or analyst, talk to SASSA
about the tenders and the process?
Please refrain from contacting SASSA during the tender process as the
tender evaluation process is conducted in a secure and confidential manner.
5. How do you forecast growth in beneficiary numbers?
There are no official beneficiary growth forecasts. We forecast
beneficiary numbers using the budgeted expenditure on social welfare grants
provided in the South African government's budget, taking into account that
the amount budgeted for is a function of beneficiary numbers, as well as the
average amount paid to each beneficiary class. Based on past experience and an
analysis of the information at hand, we anticipate beneficiary growth of
approximately 6% per annum. The growth in beneficiary numbers is fairly
"lumpy" and is influenced by factors such as the government's marketing and
registration programs and the time taken by SASSA to process new grant
applications.
6. What is the status of the wage payment system implementation with
Grindrod Bank and how will Net1 derive income from the relationship 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. We are
currently negotiating agreements with larger employers and with established
agents who will act as originators of bank accounts in the communities and
industries where they have established relationships. We have concluded
agreements with the relevant financial services providers to ensure that we
offer our customer base a complete suite of financial solutions.
7. 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?
What goals have been set and when will the first customers be signed up?
The target markets for the wage payment system are the un-banked and
under-banked wage earners inSouth 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.
8. Can you provide an update on theGhana contract?
During fiscal 2008 we generated revenue of approximately $14.2 million
under theGhana contract. Initially we expected to generate 2008 revenues
under the contract of approximately $19.0 million, excluding travel related
expenditures. However, we allowed the client to procure approximately $1.6
million of low margin hardware for its data room from local Ghanaian suppliers
and we agreed that the bank will not be required to reimburse us for any loss
of margin. We believe that this concession will improve the already strong
working relationship we have with the client. In addition, at present we
believe that the client will not require us to deliver items with a value of
$0.6 million as they no longer require them. As a result, under the contract,
we are still required to deliver software and hardware with a value of
approximately $2.6 million, which we expect to deliver during the first
quarter of fiscal 2009.
As of June 30, 2008, we had received additional hardware orders from the
bank to the value of approximately $9.9 million of which we have recognized
revenue of approximately $1.6 million during fiscal 2008. We expect to deliver
the remaining additional hardware order during the first two quarters of
fiscal 2009.
9. What is the status of the UEPS deployment inIraq?
The first UEPS transaction was performed in August 2008, inBaghdad, 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 inIraq 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.
We expect to generate revenue in the first quarter of fiscal 2009. Under
the agreement, we will receive ongoing transaction and license fees, as well
as payments for the provision of outsourcing services and the sale of
hardware.
10. What territories are currently being targeted and how long is the
sales cycle?
We target any developing economy where the advantages of our payment
system are obvious and in demand. The sales cycle in any new territory,
although very difficult to predict, generally spans several months (in some
cases, years) as a myriad of factors need to be considered, such as the
corporate regulatory environment, central bank requirements, tax regimes,
compilation of business plans, etc. Our strategic goal is to enter and
introduce our UEPS technology in at least four new territories, of any size,
during a twelve month period.
11. 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 andVietnam, where we are minority shareholders in companies that
provide a VTU service to prepaid cell phone users. These businesses generate
revenue by charging a percentage of the value of the airtime distributed
through VTU.
Our business inColombia has demonstrated the following growth since
January 2008:
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
Revenues (COP '000) 118,073 153,191 273,177 456,162 561,689 719,641
Percentage growth
(month on month) 30% 78% 67% 23% 28%
Number of
transactions 22,999 29,937 43,992 67,973 83,646 105,983
Percentage growth
(month on month) 30% 47% 55% 23% 27%
The average exchange rate during the six months ended June 30, 2008 was
US$ 1: COP 1,862.
12. 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.
13. What is the "pre-funded social welfare grant receivable" line item on
the balance sheet?
We have a unique cash flow cycle due to our obligations to pre-fund the
payments of social welfare grants in the KwaZulu-Natal and Eastern Cape
provinces. We provide the funds required for the grant payments on behalf of
these provincial governments from our own cash resources and are reimbursed
within two weeks by the KwaZulu-Natal and Eastern Cape governments, thus
exposing ourselves to these provinces' credit risk. In addition, through our
merchant acquiring system, we may also pre-fund social welfare grants in the
provinces where we operate. These obligations result in a peak funding
requirement, on a monthly basis, of approximately $48.9 million (ZAR 340
million) for each of the KwaZulu-Natal and Eastern Cape contracts. The funding
requirements are at peak levels for the first three weeks of every month
during the year.
The pre-funded social welfare grant receivable line also includes funding
provided to certain merchants participating in our merchant acquiring system.
This funding is provided in order to provide liquidity during the peak payment
periods of the month (usually the first week of the pay cycle) because the
payment of social welfare grants on our behalf places a burden on the
merchant's cash resources. In cases where the merchant is not provided pre-
funding during the payment cycle it is reimbursed within 48 hours of the
payment of the social welfare grant on our behalf. The amount paid as social
welfare grants by the merchants on our behalf are available almost immediately
from the provincial governments in the Limpopo, North West and Northern Cape
provinces and within two weeks from the KwaZulu-Natal and Eastern Cape
provincial governments because we pre-fund these two provinces.
The actual quantum of Net1's cash reserves should be evaluated by
regarding this highly liquid, very short-term receivable as a near-cash
equivalent.
14. How are you growing the management team?
During the last year, we made significant progress in strengthening the
Net1 management team. Also, our recent acquisition of BGS provides us with two
executives with long experience in the smart card industry and additional IT
professionals to strengthen the Net1 research and development environment.
We have appointed three senior managers to assist Brenda Stewart, our
senior vice-president of marketing and sales with project management,
marketing and implementation activities on a global basis. We have also
appointed a senior manager to oversee the established activities of our
international and SmartSwitch operations and we have created an investment
forum to consider all aspects of prospective investments in new territories.
Our finance, administration, human resources, compliance and treasury
functions are growing continuously to provide a high level of support to the
group.
Our vice president - investor relations recently resigned but we are
actively seeking a replacement to address shareholder queries and improve our
investor relations function.
Finally, we have restructured and strengthened our operations teams to
ensure ongoing effective management of our South African social welfare and
wage payment activities.
We are committed to growing the Net1 management team to ensure that we are
able to capitalize on the myriad of opportunities we are presented with on an
ongoing basis.
15. You are highly cash generative and show a strong cash balance on your
balance sheet, why do you not return some of this money to shareholders?
We have not paid any dividends on our shares of common stock during our
last two fiscal years and presently intend to retain future earnings to
finance the expansion of the business. We do not anticipate paying any cash
dividends in the foreseeable future. The future dividend policy will depend on
our earnings, capital requirements, expansion plans, financial condition and
other relevant factors. The future dividend policy of our main operating
subsidiary, Net1 Applied Technologies South Africa Limited, also has to comply
with the restrictions placed by the South African Reserve Bank as a condition
of its approval of the 2004 Aplitec transaction. These restrictions will apply
until such time as all of our special convertible preferred stock has been
converted into common stock. These restrictions are described in our SEC
filings.
16. What effect will the proposed abolishment of Secondary Taxation on
Companies inSouth 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. On January 8, 2008, the
Revenue Laws Second Amendment Act (Act 36 of 2007), or the Revenue Laws Act,
was promulgated. The Revenue Laws Act included the enabling legislation to
reduce the rate of STC from 12.50% to 10.00%, effective October 1, 2007. As a
result our fully distributed tax rate was reduced to 35.45% from 36.89% during
fiscal 2008.
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 35.45% to
29%. Under US GAAP, we apply the fully distributed tax rate of 35.45% to our
deferred taxation assets and liabilities. We have not yet determined whether
we would qualify for the treaty relief available to foreign shareholders.
Included in our earnings for the fiscal 2008, is deferred income tax
expense of approximately $4.3 million (ZAR 31.1 million) related to the
application of the fully distributed rate of 35.45% compared with the South
African statutory rate of 29% to our Income before income taxes. The following
table illustrates the effect on our June 30, 2008, income tax expense,
earnings per share and net deferred tax liability as if the second phase
described above had been enacted on July 1, 2007:
Year ended
June 30, 2008
Actual Illustrative
$ '000 effect(1)
except $ '000
percent except
and percent
earnings and
per earnings
share per share
Fully distributed tax rate 35.45% 29.00%
Income tax expense before change in
fully distributed tax rate $44,589 $34,932
Reduction in income tax expense resulting
from change in fully distributed rate
during fiscal 2008 (5,397) -
Income tax expense $39,192 $34,932
Net deferred tax liability reversal
to net income (2) - $27,857
Basic earnings per share, in $ 1.52 1.69
Net deferred tax liability as at June 30, 2008 $27,877 $20
(1) Illustrates the abolishment of STC had this been enacted on July 1,
2007. Accordingly, the fully distributed rate decreases from 36.89% (effective
as at July 1, 2007) to 29%. All South African deferred tax assets and
liabilities would then be measured at 29% which would result in a reversal of
a portion of the net deferred tax liabilities recognized.
(2) The net deferred tax liability reversal to net income represents the
portion of the net deferred tax liability rate adjustment as of June 30, 2008
translated at rates applicable as of June 30, 2008 assuming the fully
distributed tax rate is 29%.
As discussed above, we can not reasonably determine whether, or when, the
phase two amendments will be enacted as proposed and what the ultimate effect
on our reported earnings will be.
17. What effect will the change in the statutory rate of taxation for
South African domiciled companies from 29% to 28% have on your fully
distributed tax rate?
In February 2008, the South African Finance Minister announced a reduction
in the corporate rate of taxation for South African companies from 29% to 28%.
We only recognize changes in taxation legislation applicable inSouth Africa
in our reported results once it has been promulgated inSouth Africa. The
change in the corporate rate of taxation for South African companies had not
been promulgated as of June 30, 2008. The change in the corporate rate of
taxation for South African companies was enacted on July 22, 2008, and we will
reflect the change in our fully distributed rate during the first quarter of
fiscal 2009. Our fully distributed rate will decrease from 35.45% to 34.55% as
a result of the enactment.
If STC is abolished, the effective tax rate for our South African
domiciled subsidiaries will be 28%.
SOURCE Net 1 UEPS Technologies, Inc.
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