Lesaka Technologies, Inc. (LSAK) Q2 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Net1 UEPS Technologies Second Quarter 2014 Earnings Call. [Operator Instructions] Please also note that this conference is being recorded. I would now like to hand the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you, Dylan. Welcome to our second quarter fiscal 2014 earnings call. With me today are Dr. Serge Belamant, our Chairman and CEO; and Herman Kotze, our CFO. Both our press release and Form 10-Q are available on our website at www.net1.com. As a reminder, during this call, we will be making forward-looking statements, and I ask you to look at the cautionary language contained in our press release and Form 10-Q regarding the risks and uncertainties associated with forward-looking statements. In addition, during this call, we will be using certain non-GAAP financial measures, and we have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. We will discuss our results in South African rand, which is a non-GAAP measure. We analyze our results of operations in our 10-Q and our press release in rand, to assist investors in understanding the underlying trends of our business. As you know, the company's results can be significantly affected by currency fluctuations between the U.S. dollar and the South African rand. We will provide some information on the current status of our constitutional court legal proceedings, but we cannot offer any guidelines around the timing or outcome of the court's remedy. So with that, let me turn the call over to Serge.

Thank you very much, Dhruv. Good morning to all of our shareholders. Perhaps to kick off on the lighter side, I think we were introduced as Net1 UPS. I just want to confirm that we are still Net1 UEPS, and I know some people would like us to go back to a paper-based voucher system, but we decided electronic solutions are probably far better. To kick off, our half-year results, or yearly results, once again, in my view, demonstrate the intrinsic value of our group and our ability to implement the most complex systems on a national basis. I'm particularly pleased of the huge strides we have made in banking, ZAR 10 million, as well as growing all of our core businesses, CPS, KSNET, EasyPay, financial services, as well as our new mobile-focused business unit. For quarter 2 2014, we reported revenues of $137 million, a year-over-year increase of 43% in constant currency. Fundamental EPS in the quarter was USD 0.40, which is an increase of 163% in constant currency. Our traditional core transaction processes, which include CPS, KSNET and EasyPay, together accounted for approximately 75% of our revenue in quarter 2 of 2014. The proportional representation is gradually declining as our financial services and mobile initiatives becomes more meaningful contributors to the group. Similar to quarter 1, in quarter 2 our focus remained on our complementary and supplementary growth areas now that our SASSA registration efforts are finally complete. According to statistics from SASSA, over 500,000 beneficiaries were removed from the payment database in 2013, many of which were child support grants. And therefore, resulted in a savings to the treasury of approximately 2 billion last year alone. I think it must be noted that the 2 billion saving is a recurring yearly saving. Our technology will continue to identify areas of fraud and corruption and, therefore, generate further saving for government, in addition to the saving that government has achieved from the reduction in service fees paid to payment contractors. We believe SASSA will continue to channel the significant portion of their saving to expand government social assistance progress further. As we have highlighted before, our UEPS technology is now 100% EMV compliant, with a crucial additional ability to perform biometric verification and operate both online and off-line. Given that all 9.6 million grant recipients are now part of the formal banking and payment system in South Africa, traditional online banking channels occasionally come under use duress during peak processing times, particularly early in the month. But our off-line UEPS technology faces none of these issues. For example, on the 2nd of January 2014, national processor Bankserv, which is responsible for switching all ATM transactions in the country and the majority of point-of-sale transactions, was down for 2 hours as a result of the volume and therefore created a backlog of pending transactions. During those same 2 hours, however, Net1 paid out almost 550,000 grants through its pay points and point-of-sale infrastructure utilizing off-line UEPS technology. Given the monumental challenges in implementing such a complex national system, we have worked very closely to, first, structure and then execute a very detailed implementation plan with SASSA. Based on SASSA's plan, effective February 1, we have introduced our voice biometric certification to approximately 1.5 million grant recipients, and the balance will be rolled out to the remaining recipients on March 1. We believe that our MasterCard issuing platform, together with our fully integrated banking platform and our myriad of advanced secure mobile solutions has the potential to change the way banking is currently performed in South Africa and in many other developing countries in the world. At Net1, we continue to believe that our disruptive technology will hopefully accelerate inevitable change to business model and updated technological solutions, resulting in lower cost, better functionality, personal security and the financial inclusion of all people, regardless of their financial or their social status. Let me now spend a few minutes addressing the various legal challenges. First, our SASSA contract. Our constitutional court ruled last November that the tender process followed by SASSA in its evaluation process was constitutionally invalid. The court suspended the ruling of invalidity, however, as it required additional information before determining which remedy will be just and equitable to all of the affected parties, especially the social grant recipients. The result, following the court's request, the various parties have submitted written affidavit to respond to the specific questions posed in the court's ruling. The constitutional court will now hear oral arguments on February 11 before determining a just and equitable remedy. We cannot obviously predict the timing or ultimate outcome of such remedy. Second, in late December 2013, a single class action lawsuit was filed in the U.S. district court for the Southern District of New York, alleging that the company and its executive directors violated certain federal securities laws. We believe the allegations have no merit whatsoever, and we will therefore vigorously defend such challenges. Finally, on the U.S. government investigation, we have no new information and will await the U.S. government's instructions or decisions concerning this matter. Our proposed BEE transaction not yet being implemented as we are still awaiting certain regulatory approvals. As a result, both parties have agreed to extend the deadline to March 15, 2014. As I have stressed previously, it is imperative for a South African business to be empowered and express its commitment to the principles and objectives of BEE and to comply with the established codes of good practices and transformation charters. We believe the proposed transaction achieves this goal. I will now review the performance of our key businesses. Within our South African business, CPS was relatively stable during quarter 2 2014 with lower grant recipient numbers, offset by increasing transaction and merchant processing activity. Profitability improved substantially over the comparable period last year, as we did not incur any implementation costs associated with the rand of the SASSA contract. Having effectively facilitated financial inclusion to more -- or for more than 9 million South Africans, we can utilize our infrastructure, technology and expertise to address the similar needs of all the citizens who also require a low-cost banking service with all of its functionality. This includes our biometrically based security, our money transfer system, as well as all of our financial services, which are provided in compliance with all the relevant South African laws and regulations. Net1 mobile solutions continued to build on its success from quarter 1 by driving increased growth in its prepaid airtime business while introducing additional mobile-based products such as prepaid electricity and banking value-added services. The success of these products demonstrate the power of business-to-consumer delivery through our inventive, leading-edge mobile technologies. Furthermore, it also demonstrates that, one, the relevance of the specific product to the customers it services; two, the attractiveness of the affordability of such product; and three, the convenience with which these products are actually accessible. Since launching our mobile-based prepaid airtime solution in quarter 1, we have performed over 45 million transactions. And at peak time, we have processed more than 1.3 million transactions per day. In addition to the success in South Africa, Net1 mobile has just launched its second MVC product in the U.S. in late January named Pay in Private, in association with an e-commerce provider with a few million subscribers. Additionally, we are in final lab testing with our Visa team to launch our MVC product with Axis Bank, 1 of the top 3 private sector banks in India, later this month. There are additionally 3 or 4 other MVC opportunities we are actively pursuing with specific partners, in some cases regionally and others globally. With this momentum, Net1 mobile has grown revenue more than 300% year-over-year and becomes the third-largest transactional contributor to the group after CPS and KSNET. Meanwhile, we remain actively engaged with MasterCard in pursuing opportunities for our UEPS/EMV solution in multiple geographies. Both organizations continued to be extremely proactive in the pursuit of new opportunities globally. We are seeing some ongoing momentum in the initiatives identified, but we have not yet concluded any new joint initiatives outside of South Africa. I would be disappointed if we did not do so in the near future, but sales cycles for large payment systems can be fairly lengthy. Our financial solutions business unit has commenced with a national rollout of its UEPS-based lending activities during the first quarter of 2014 and further expanded lending activities in quarter 2 2014, as we built out our sales force and infrastructure. Similar to our mobile prepaid products, our financial services products solve very specific challenges about are borrowers safe, dramatically improve the affordability and, in many instances, the dignity in the way they are able to conduct business, and facilitate inclusion into the formal financial services sector, while also escaping from the debt spiral than often occurs when borrowing from the informal sector. Finally, for KSNET, in Q2, we posted a 12% local currency revenue growth. And once again, driven by solid gains in our core card VAN business and meaningfully stronger growth in our smaller but higher-margin banking VAN and payment gateway businesses, driving year-over-year revenue and operating income growth. KSNET was not affected by the recent security breach in the Korean card market. KSNET's market standing in Korea has been solidified, following a recent government investigation into business practices in the VAN industry, in which KSNET was found to be fully and completely compliant. During fiscal 2014, we also plan to accelerate the implementation of some of our strategic initiatives in Korea in order to drive incremental, long-term profitable growth. We continued to review some of our small business units, which still require funding and are no longer core, and we are first exploring the possibility to restructure, even sell these, by introducing partners who can add value, not only in financial terms, but also in focused time and in context with potential customers. We may exit certain contracts that does not deliver the intended value in order to focus the business and the group on our key growth areas, which remain at the moment in South Africa, our EMV/UEPS solution, our financial services and our mobile solutions as well, of course, as KSNET. To conclude, we hope to reach finality on the status of our SASSA contract, to continue to grow our financial services business and our mobile initiatives, not only locally, but most importantly, in the United States and other first-world countries. Barring any adverse external events, we are positioned to enter into a new growth period, which can be sustainable and, in my view, over a very long period of time. With that, let me turn over to Herman. Herman, over to you.

Thank you, Serge. As usual, I will discuss the key results and trends of our significant operating segments for the second quarter of 2014, compared to year ago. I will also discuss, to the extent possible, the outlook for our business in fiscal 2014. For Q2 of 2014, our average rand-dollar exchange rate was ZAR 10.16 compared to ZAR 8.70 1 year ago, and negatively impacted our U.S. dollar-based results by approximately 16%. The rand remains one of the most volatile currencies in the world and has depreciated significantly over the last month, having reached a low of ZAR 11.32 to the dollar on January 29. It is currently trading at around ZAR 11 to the dollar. We expect this currency headwind to have an adverse impact on Q3 earnings. I am very pleased with the quality of our Q2 financial results, which built on Q1 and Q4 2013, and reflects that our business is starting to fire on all cylinders. On a consolidated basis, for the second quarter of 2014, we reported revenue of $137 million, an increase of 43% in constant currency. We reported fundamental earnings per share of $0.40, which grew by 163% in rand compared to 1 year ago. Our previous year Q2 results included direct implementation and smart card costs of approximately $21 million. Our Q2 2014 results do not include any implementation or significant smart card costs because we substantially completed our SASSA implementation in Q4 2013. Let me now turn to a discussion of our various segment revenues, operating income and margins. Our SASSA transaction-based activity segment posted revenue of $72 million during Q2 2014, 38% higher in local currency, driven primarily by higher volumes from the growth of our Umoya Manje prepaid airtime product and from higher transaction activity through the South African national payment system, both of which have lower margins than our traditional businesses. Our segment operating margin, excluding amortization of intangibles, improved to 19% from 6% last year, primarily due to the elimination of direct implementation costs. CPS volumes were flat year-over-year due to SASSA's suspension of former grant recipient cardholders who had not presented themselves for enrollment during the second quarter of fiscal 2014. These grant recipient cardholders will have to apply for restoration of their grants and present themselves for enrollment should they want to reinstate their grants. These suspensions did not significantly impact our Q2 2014 results. CPS, Grindrod and merchant processing revenue in the aggregate posted modest growth, however, driven by an increase in card transaction activity. We expect inflationary increases to modestly erode our segment profitability over time. Segment margin may vary depending on the mix of products, especially depending on the impact of airtime sales. But on an absolute basis, we expect operating profit to increase in constant currency, assuming a stable beneficiary base. Our international transaction-based activities posted revenue of $37 million during Q2 2014, an increase of 13% in dollars, as a result of growth at KSNET despite tough trading conditions in Korea and the loss of the Iraqi customer. Segment operating income, excluding amortization of intangibles, improved to 13% from 11% last year, and was boosted by a higher contribution from KSNET's smaller yet higher margin businesses. For Q2 2014, KSNET revenue grew 12% in Korean won to $36 million, while the EBITDA margin of 26% was up 200 basis points compared to last year and flat sequentially. For fiscal 2014, we continue to expect continued local currency revenue growth in this segment driven by KSNET. Our smart card accounts segment posted revenue of $11 million, 59% higher in constant currency, based on 9.6 million active cards, up from 6.2 million last year. Segment operating income margin was 29% and 28%, respectively, for Q2 2014 and '13. Our financial services segment revenue for Q2 2014 grew by a substantial 398% year-over-year in constant currency to $6.2 million, principally due to the increase in the number of loans granted as we rolled out our product on a national basis. Segment operating income or margin declined to 28% in Q2 2014, from 72% last year, primarily due to an increase in start-up expenses, establishment of the allowance for doubtful finance loans receivable and the reallocation of UEPS-based lending corporate and administration overhead expenses to this segment. Sequentially, operating margin has improved from 2% to 28%, as we stabilized the establishment cost required for our current implementation plan. For Q2 2014, hardware and software revenue was $10 million, 52% higher on a constant currency basis. The segment operating margin was 15% compared to 10% last year due to more ad hoc terminal and smart card sales to our loyal customer base. Profitability in the segment can vary depending on the timing, quantum and mix of ad hoc hardware and software sales. Corporate and elimination expense in Q2 2014 includes $1.6 million of legal costs we incurred as a result of the U.S. government investigations, bringing the total so far to approximately $9.7 million. In Q2 2013, we incurred legal costs of around $500,000. Our Q2 2014 net interest income increased to $1 million, driven primarily by lower average debt outstanding and higher average cash balance during the period. Capital expenditures for Q2 2014 and 2013 were $6.8 million and $5.6 million, respectively, and have increased primarily due to the acquisition of more payment processing terminal in Korea. In Q2 2014, we acquired substantially all of the issued share capital of KSNET that we did not previously own for approximately $2 million in cash, and we are now just shy of 100%. We intend to purchase the remaining shares that we do not own yet because we believe that we will be able to realize certain Korean tax efficiencies in the future. At December 31, 2013, we had cash and cash equivalents of $22 million, down from $54 million at June 30, 2013. The decrease in our cash balances from June 30, 2013, was primarily due to the repayment of a portion of our Korean debt, the expansion of our UEPS-based lending business and acquisition of substantially all of the remaining shares of KSNET that we did not already own. During December 2013, we increased our short-term South African credit facility with Nedbank to ZAR 650 million through to March 31, 2014. The short-term facility comprises of an overdraft facility of up to ZAR 500 million and indirect and derivative facilities of up to ZAR 150 million, which includes letters of guarantee, letters of credit and forward exchange contracts. The overdraft facility of ZAR 500 million will revert to ZAR 250 million on March 31, 2014. And as of December 31, 2013, we had utilized ZAR 254.8 million of the overdraft facility to fund our working capital requirements and ZAR 132 million of the indirect and derivative facilities. We continue to fund the group's operations and capital investments, utilizing our cash reserves and cash generated from our business activities. During the next 12 months, we expect primary uses of cash to be the servicing of our debt, the funding of our loan book, investments in our high-growth businesses, share repurchases and strategic acquisitions. In October 2013, we refinanced our long-term Korean borrowings. We used 76.1 billion Korean won of the new borrowing and 16.3 billion Korean won of our surplus Korean cash reserves to repay the old facilities. Our effective tax rate for Q2 2014 and 2013 were 36% and 54%, respectively, and was higher than the South African statutory rate as a result of nondeductible expenses, including interest expense related to our long-term Korean borrowings and stock-based compensation charges. And additionally, in 2013, due to South African dividend withholding taxes paid, our tax rate will fluctuate depending on our intention regarding undistributed South African earnings and the timing of any payments and we continue to expect our effective rate for 2014 to be around 30%. To reiterate the financial implications of our proposed BEE transaction, the deal will primarily affect our interest income and share count for the calculation of earnings and fundamental earnings per share. Please note, however, that the actual accounting treatment of this transaction will only be finalized once a definitive agreement is concluded. Our fully diluted weighted share count for Q2 2014 was 46.2 million shares. We have extended the deadline to conclude our BEE transaction to March 15, 2014, in order to have sufficient time to receive the necessary regulatory approvals. Taking into account our anticipated issuance of 4.4 million shares as part of our proposed BEE transactions around March 15, 2014, for fiscal 2014, we expect fundamental earnings per share of at least $1.60, assuming this year's constant currency base of ZAR 8.71 to the dollar. The share count assumption in our guidance includes a little more than 1/4 of the shares related to our proposed BEE transaction. With that, we will gladly take your questions.

[Operator Instructions] Our first question comes from Tom McCrohan of Janney.

I had a question on the share count. And Herman, can you give us some guidance on how we should be modeling share count given the BEE transaction, either for the fourth, your fiscal fourth quarter, what would be the reasonable number? And for next fiscal 2015, what should we be modeling of the share count?

Sure. For the fourth quarter, we will have the full 4.4 million shares that we anticipate to issue, in issue, so those should be added obviously to the fourth quarter share count. Q3, I think we'll only see maybe 15 days or so of the shares in issue. So a very small proportion, 15 days weighted average on the full quarter number. And of course, for next year, the full 4.4 million shares will be in issue.

Okay. In terms of margins, segment margins in the South African business were solid, 18.5%, but it was down a little bit sequentially from 21.1%. How much of that sequential decline is a function of the growth in the mobile product?

It's quite substantial. Probably the majority of the decline can be ascribed to the impact of the airtime side of the business. As you know, that specific product has a margin that is multiples below the average for the segment or for the South African transaction processes. So the substantial increase that you've seen in the revenue number has really had quite an impact on the overall margin for the segment.

And so, Herman, given the growth there, which has been fantastic, what's the offset to kind of stabilize margins so it doesn't go much further below where we are at current levels?

It will depend on the product mix going forward. We just introduced some of the other value-added services, specifically, prepaid electricity, which obviously runs at a slightly better margin. And I said airtime sales is really in the ranking order of relative margin contribution at the lowest end of the product range. We would obviously not be disappointed if we see continued high growth of the airtime sales business because it's still a very good business even at the very low margins that we have. But from our perspective, we would like to see that we stabilize this specific segment margin between 18% and 20%. And I think that's achievable simply because of the very big impact that we have from the other products, specifically the distribution of grants. And of course, over the next 12 to 24 months, we hope to realize even further efficiencies. Now that the contract is fully implemented, we can start to focus on our cost base and we can further optimize what we have.

That's very helpful. And my last question is just on the pipeline outside of South Africa. Can you give us any visibility into the number of opportunities that you're working on with MasterCard? And any color or commentary around your relationship with MasterCard and anything around that. Are they working with you for your technology expertise or operational expertise, as you try to enter markets outside of South Africa?

It's Serge here. If we look at our focus internationally, with all due respect to MasterCard, we are not spending 90% of our time in order to try to work with them in achieving new sales. We pretty much have got our own strategy in terms of ad hoc products, for example, our Virtual Card, variable PIN and a number of other products and patents that we've got. And we're starting to get some very, very good traction on those, because I think we are driving them directly ourselves. MasterCard for us has always been a great relationship because they have assisted us to implement our SASSA product in South Africa. And I think they, like us, strongly believe that we have 2 very, very strong components to our group, 1 is obviously the technology which pretty much no one else has in the world. But I think more importantly, they have realized, like many other people around the world, that we have this ability, sometimes I think we might be lucky in some cases, but we have a great ability to be able to implement very complex projects and to do it in a very short time frame, and to be able to bypass many problems that normally face a tougher implementation. So the tougher projects that I think we are looking with MasterCard are going to be projects similar or of a similar nature to what we did in South Africa. And it could be in many, many countries in the world. I would think most of the countries will be developing economies by what we're hearing. And I don't want to be too specific because I don't want to make any commitment on behalf of MasterCard specifically, but there are a number of initiatives which they have already discussed with us, in at least 2 or 3 different jurisdictions, which I believe are very, very possible, and quite large jurisdictions, in order to provide, let's call it, social welfare programs. But to be able to implement those in those countries, as well as being able to provide the technology that will not be limited because of the lack of infrastructure. So that's what we're doing with them. But you probably know better than me that they are a very large organization and it takes a long time before the paperwork and the ink is dried and the commitment is made and the money becomes available, there are normally donors [ph] involved and all sorts of other things. So all of that, I still have this very warm feeling that we finally have gotten a good relationship with one of these large organizations such as MasterCard, I'm certainly not building or betting the future of Net1 on what it is that MasterCard may or may not be able to do for us.

[Operator Instructions] Our next question comes from Mamello Masote of City Press.

I just have 2 questions. My first question is, Dr. Belamant, you mentioned in the beginning that 500,000 child grant beneficiaries were removed from the list. I just want to understand why, is it because they didn't show up to be verified or were they duplicate or what was going on there? And also just in terms of the BEE deal. I know that your BEE deals have 2 companies, but is there any way for you to maybe elaborate further on who exactly the beneficiaries are, who are you targeting with your BEE deal? Where are you looking to make a transformation?

I'll answer the first part and I will let Herman answer the second part. The first part, which of course your question is very valid because you want to know who are these 500,000 grants. Now there are 2 very simple answers to that. From the beginning, you are aware that we conducted, together with SASSA, a full reregistration process. And the purpose of that was twofold. One was really to go out and find out if those people actually existed. In other words, were they real people or not. And two, how many of these people who got more than one on the actual database. I don't have to explain to you that sometimes in some of our deeper rural areas, they have some interesting business aspects whereby, for example, the child can be borrowed from one family to the other. And therefore, the child could've been registered more than once on the database for someone to be able to get a child grant. So we found that the pressure that came to bear from SASSA in terms of enforcing biometric registration and what we call the one too many, in other words the elimination of duplicates, has done 2 things. Either we've eliminated people, and I don't mean by eliminating them, but from the database. We removed them from the database because they were in fact duplicates. Or what has happened is, as Virginia Petersen, the CEO of SASSA, mentioned, many people have come forward and agreed to be removed from the database for fear of actually being caught, for lack of a better word, as duplicates if they actually continue to have a registration. So that's where the 500,000 people or 500,000 grants actually originated from. And we believe with SASSA that in fact there will be more, we still have a list of approximately further probably 70,000 duplicates that are currently being analyzed, but these must be analyzed forensically, for lack of a better word. So I think there will be more people that will be removed from the database, which, obviously, will result in some very, very serious further savings for SASSA, the fiscus and, candidly, our country as a whole. So I will let Herman quickly answer the question on BEE.

Sure. If you want all the detail on the BEE agreement and the parties and the terms, you can get the agreement as part of the SEC filings section, which is available on our website.

[Operator Instructions] Our next question comes from Russell Anmuth of Gotham Holdings.

I have a handful of questions mostly related to the NVCC. So one, is there any kind of update to the partnership or cooperation that you've been working on with the largest mobile phone handset company?

All right. The answer to that question is that we continue to work with them. You're probably aware that in that area of the world, not unlike the United States, currently there's been huge amounts of fraudulent activity with, again, cards and card-related products and cloning. So that has renewed, I think, the interest of a number of parties to actually look at technologies which are actually far more secure for both card-not-present, which as you know is our VCC base, or even card-present, which happens to be updated on what we call third-party verification and variable PIN. So we are, again, in discussion with them. We have been in discussion, I would say, every second week or so. We have a conference call with them and we still continue to do so in order to integrate or to be able to integrate our technology, our wallets into their wallets. And that seems to be, at the moment, where we stand, although that I believe that we will go forward with our own KSNET infrastructure in Korea in order to launch a couple of these products I've just talked about independently of the actual operator. So that's that part of the world. In the U.S., I mentioned 1 or 2 new initiatives, which I think are very, very interesting with VCC and I think it's starting to pick up. I think the interest from a lot of people that it should've picked up a while back. But sometimes, you know what it's like, you must hit a wall or you must hit a real problem before people will believe that they require a particular solution. I think for whatever reason, strangely enough, it seems to be happening in different parts of the world at the same time. And I think, this is an opportunity for us now to seize that. To seize the day, for lack of a better word, simply because we have had these products, they do work, there are patented and I think people are starting to realize that, in fact, they have to change certain things in order to be able to protect their cardholders, to protect the banks at the end of the day, simply because what's available at the moment is simply too insecure. So I don't know if that answers your question too well, but it's about as much as I can say right now.

Okay. Just to follow up on that, specifically, can you update the U.S. initiative with the VCC that you've been referencing in the past? Is this project ready for commercialization or is it under a beta test now and it's out there, but we're just not aware of it?

No. The product has been going -- well, it has been developed quite a while back. And the product, as far as I'm aware from the people that have requested it from us, they are in the middle of actually launching it in a big way, in fact if you simply go to their website of theirs, you will actually see that the entire initiative of this company is to convert all of their customers to utilizing VCC. And they've got quite a large base of customers who I think understand that, on the one side, to be protected and to be also able to give in an anonymous way is going to help them hugely to be able to conduct their transactions. So we have a good vibe for it, but we have everything in place at this point.

Russell, it's Dhruv. This is one of the projects Serge referenced in his prepared remarks that the site and everything has been launched at the end of January and it's payinprivate.com.

Okay. So is this something that we'll be able to understand a little bit more formally over the coming weeks where you'll be able to explain it, whether in a press release or some such, so we can get a better...

Yes, I'm hoping that in -- I'm really hoping that in the next quarter -- because once again, just like anything, people get excited about something. I get excited once I see the income sheet that comes out of it. So what I can tell you is that it's probably, I would think, one of the -- it would be one of our better margin deals in terms of that type of product simply because people have understood the value, which is not always understood by everyone. So I'm hoping in the next 90 days or by the time we report the next time, we should be able to not only tell you a little bit more about exactly what it does, but more importantly, we should be able to put some numbers to it.

Okay, okay. That would be terrific. Next, the entry into India with Axis Bank. So that was a first step in the puzzle for getting end-user traction and for building the business in India?

Well, I think you've got it. As you know, we've played around in India for a little while. And one thing we've learned is that although there are a billion-plus people, I think it's very, very difficult to get into India without the right local partner, and to be able to actually then actually make any profit. It's easy to go and spend a lot of money there, not easy to actually make a lot of profit. So our entry with Axis Bank, number one, it's the third-largest, one of the -- probably the largest acquiring bank or one of the biggest acquiring bank in India, that's number one. Number two, they've got huge credibility. And number three, we saw an opportunity to actually play around a little bit with Visa rather than MasterCard and see what traction that might -- actually, we might be able to derive from that. I mean, after all, they are meant to be competitors as well. Now more importantly, what we're doing India as well, I think, has attracted to some extent, not only for what we're doing there, but as a result of what we've done here. I think the Indian government, by what we read and talking to some of our people that are on the ground, certainly, I believe they've got the same sort of philosophical ideas we have, vis-à-vis, biometric technology, and the ability to use biometrics as a means of card verification or in fact of eliminating the card entirely. So we hope that we will continue to prove what we can do and to develop a working relationship. As you know, we already have one between South Africa, Brazil and India. There is an agreement whereby those 3 countries work closely together. And we're hoping to be able to extend that with, of course, the assistance of our South African government as well. Because at the end of the day, we have delivered the SASSA project and I think it's becoming well known on a worldwide basis that this project is in fact a huge success. And the Indian people have obviously realized that as well and would like to draw maybe on some of our experiences. Too early to say how that will translate into money because it's obviously what's important here. But certainly, again, I think it's a great opportunity for us to enter the territory.

Okay. So if I'm following you right, it's possible that the opportunity exists in India to set up a UEPS system, as well as a VCC infrastructure, is that correct?

100%.

Okay. And the same potentially goes for Brazil?

Brazil at this point, we've been there once or twice, we're certainly not as close to them as what we are to India. But we believe that, again, if things work as they have here and we can penetrate India, that chances are the Brazilian will also look at what we've got. And very possibly say, "Well, why not also do the same thing?" Nothing has happened in Brazil, I just want to make that clear, but we're certainly not eliminating them from the possibility.

Okay. With the whole wave of breaches, right, Target, Neiman Marcus and such, have you seen inquiries for the VCC from new parties? Is the whole broad constituency of potential customers in the United States aware that this solution exists and what it can do?

That's, again, a very good question. Initially, we focused on what we call the developing countries. And to be totally honest, it was probably initially a mistake simply because card-not-present transactions are normally better performed or mainly performed in developed countries. So we turned that around and that's why we started to focus on the U.S. because it's probably the leading economy in the world when it comes to card-not-present transactions. We now are, of course, looking at places like Korea and a number of countries in Europe. But then what we found out is that in fact in developing economies, we found that in fact the Internet accessibility is growing at a serious pace, specifically on cell phones, not so much on PCs, and that is now giving us the opportunity to actually reintroduce VCC in order to securitize transactions and to make sure these transactions can be conducted without being defrauded or cards cloned, et cetera, et cetera. So we're now pretty much in both markets. I would like to have a big penetration in the U.S. because I still think that's where things can originate from and burgeon and grow, but that does not mean that the rest of the world is shut out from VCC. Longer term, medium to long term, it's probably a greater, bigger market than what the U.S. will be.

Does Africa care about the VCC, given the whole growth in mobile services, Kenya and other countries?

Absolutely. And I think your point is -- the point I was trying to make just now, which concerns yours, is very valid, is that Africa is becoming very big in terms of Internet access, but it's Internet access on mobile. And as you know, our VCC solution is on mobile. So if you can add secure payment onto an Internet site, rather than to have to enter a credit card number, which of course is a complete and utter disaster anywhere you like in the world, then suddenly you've got something that is going to make that market explode even further simply because you're removing the chargebacks and you're removing the potential for fraud.

Ladies and gentlemen, as we have no further questions, on behalf of Net1 UEPS Technologies, that concludes this conference. Thank you for joining us. You may now disconnect your lines.