Good day, ladies and gentlemen, and welcome to the Net 1 UEPS Technologies, Inc. Fourth Quarter and Year-End 2016 Earnings Call. All participants are currently in listen-only mode. There will be an opportunity for you to ask questions later during the conference. [Operator Instructions]. Please also note that this call is being recorded. I would now like to turn the conference over to Mr. Dhruv Chopra. Please go ahead.

Thank you, Chris. Welcome to our fourth quarter fiscal 2016 earnings call. With me today are Serge Belamant, our Chairman and CEO; and Herman Kotze, our CFO. Our press release and Form 10-K is available on our website at www.net1.com. As a reminder, during this call, we will be making certain forward-looking statements. And I ask you to look at the cautionary language contained in our press release and Form 10-K 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-K and in 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. So, with that, let me turn the call over to Serge.

Thank you very much, Dhruv. Good morning, good afternoon, and good evening to all of our shareholders. During our fourth quarter of 2016, we continue to make meaningful strides in safeguarding the long-term strategic, but sustainable growth of Net1 through the provision of technology-based solutions to facilitate financial inclusion. We have built the business model that is defensible, differentiated, and socially responsible, capable of delivering top and bottom line constant currency growth, despite ongoing political and regulatory interference in South Africa, and macroeconomic events globally. Being disruptive is not easy, as challenging the establishment, norms and cartels can result in [people] [ph] and reputational damage, usually obstructing progress at the cost of those who need it the most. This is the environment in which Net1 has always strived. While the weaker end has strengthened meaningfully of its lows, it still is a significant impact on our year-over-year dollar-based results so far, creating a 25% headwind this quarter alone. The rand continues to be volatile and hence the company’s effort to globalize our activities over the course of fiscal 2017 will become even more critical. Quarter four 2016 revenue of $151 million, grew 15% in constant currency and was driven by solid growth in our South African and international transaction processing businesses. While a number of South African Financial inclusion products, such as loans and insurance showed strong growth. Some of the early and sizable offerings like prepaid airtime are starting to reach more normalized levels. And we expect each new value-added product or service will continue to drive waves of growth, as they penetrate the customer base and as the customer base itself grows. Our fundamental EPS in Q4 was $0.51, 10% higher on a constant currency basis, including the impact of the higher share count due to our IFC…

Thank, you, Serge. I will discuss the key results and trends within our operating segments for the fourth quarter of 2016 compared to a year ago. For Q4 of 2016, our average rand dollar exchange rate was ZAR 15.02 compared to ZAR 12.04 a year ago, which negatively impacted our U.S. dollar base results by approximately 25% and the South Korean won was 6% weaker compared to last year’s won rate. We continued to face significant currency headwinds in our operating geographies. While the rand has strengthened in July and early August hitting ZAR 13/$1 at 1 point. This weakened the game to over ZAR 14/$1. Currency side, we have continued to experience good growth in our functional currencies during Q4 and this momentum is expected to continue into fiscal 2017. Over the course of fiscal 2016 to protect our cash reserves, we distributed over ZAR 1.2 billion of our South African cash reserves and continue to do so during Q1 of 2017. As previously stated, this results in reporting another tax-related adjustments, as well as lower tax effected interest income due to the differential between South African rand and U.S. dollar deposit rates, which impacted Q4 2016 EPS by $0.04. Revenue for Q4 2016 grew 15% in constant currency, while our fundamental earnings per share increased by 10%. On a consolidated basis for Q4 of 2016, we reported revenue of $151.3 million and fundamental earnings per share of $51. Our fully diluted weighted share count for Q4 2016 was 51.2 million shares, largely as a result of the issuance of 10 million shares to the IFC in May 2016. Now, on to our segments. In our South African Transaction Processing segment, we reported revenue of $53.6 million in Q4 2016, down 10% compared with Q4 2015 in U.S. dollars,…

Thank you very much, sir. [Operator Instructions] Our first question comes from Dave Koning of Baird. Please go ahead.

Yes, hey guys, thanks for taking my call. I guess first – yes, I guess first of all on KSNET, the new regulations, what part of – I guess a couple of things, what part of the regulation causes your EBIT to be negatively affected. And then when did it start exactly so that we can just understand when that will lap, I guess on a year-over-year basis?

David still a bit fluid at this point in time, but effectively the interchange rates in South Korea have been lowered, as we’ve seen in many other places around the world. And the primary target of this obviously of the court issue is in Korea, but as a result of those fees been lowered of course the entire value chain is affected including obviously the VAN companies and the VAN companies in turn has to negotiate how the reduction is going to be shared with agents that are used to distribute the point of sale devices to the retailers. So there are multiple renegotiation happening at the moment between the various VAN companies and over card issuers on the one hand. And the VAN companies and the agents on the other hand, and so the full impact of this will become evident when all of those negotiations have been completed. We expect that to probably be during the second quarter. So October, November of fiscal 2017 for us, which means that I think the full impact will be evident in Q3 and Q4 for us. And then obviously we’ll anniversary the year after that.

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Yes, I think all of the VAN companies in Korea will be equally affected by this. One of the other legislative changes is that all transactions below KRW50,000, which is approximately $45 or so are now no CBM transactions. So – or maybe no CBM transactions and that has an impact obviously also on the smaller agents were the majority of the smaller value transactions take place, the netting effect of this is that the fee that is paid by the smaller merchant for a no CBM transaction is a lot lower when it was before for signature based transactions, because before you had to collect the slips and you had to store them. So the no CBM up to KRW50,000 change in rules has obviously impacted the smaller merchants, which is really a focus area for KSNET as well.

Okay. Thank you.

Our next question is from Jordan Hymowitz of Philadelphia Financial. Please go ahead.

Hey guys, you have the tremendous amount of cash even with these acquisitions and if you believe your stock is undervalued as you say or we see the accelerations both company buybacks and will management finally step in and buy stock as well?

Well, yes, Jordan I think the company’s share buyback strategy will obviously be determined by a number of factors. We have a 10b5-1 plan in place, which expires at the end of August in a couple of days time obviously when we move into our open period again. And going forward, we will obviously have to evaluate the opportunities, as well as specific large investments or corporate activities that we’ve contemplated. So, obviously it would make sense and when the cycle is optimal we will look at continuing our buybacks I think over the last year we’ve demonstrated in a very meaningful way that we believe our stock is undervalued and we’ve spent quite a bit of money so far, on doing the repurchases, we would obviously also have certain volume restrictions that we have to keep in mind. But for us right now the core focus is on expanding the company’s business activities and really focusing on the key structural changes that need to take place going forward.

And how about personally, we you finally be putting your money where the talk is and buy some stock yourself?

Yes, that’s obviously a function of the knowledge that we have. It’s quite difficult for management to be in the market in the company like ours, where most of the time, we are unfortunately busy with certain transactions or we have certain inside information that clearly prohibits us from acquiring those shares. We are meaningful contributors, I think already through our stock incentive plans, those are designed to keep management incentivized, not only for the short-term, but in the long-term and the medium-term. I think the targets that are set are quite strict. They are clearly difficult to achieve. So from that perspective, I think the management team is fully committed and we have high vested interest in the company’s success going forward.

Thank you, sir. [Operator Instructions] We have a question from Bob Napoli of William Blair. Please go ahead.

Thank you. Just a question on the MobiKwik investment and their use of your technology is, when does that take place and what is – do you have any – can you give any metrics on MobiKwik and like what their revenue is and what you think it means for your revenue. Thank you.

We…

What is your ownership percentage? What is that – what were the $40 million, what percentage ownership would you have?

The 40% or - the $40 million, sorry investment will obviously take place over the period of roughly two years. We have not disclosed the ultimate ownership percentages that will obviously also determined on other corporate events from MobiKwik perspective over the next two years. But from our perspective, we anticipate being in a meaningful minority position following the full investment. The agreement basically provides for us to finalize the commercial – the exact commercial terms and the rollout plans around our Virtual Card product over the next 90 days. And so we’ve given ourselves a fairly short term to bed down all of the legal and commercial terms and for full integration to then take place as soon as possible, so obviously we already have it in place by the end of the current calendar year. Just – yes, in terms of metrics, MobiKwik at the moment has roughly 52 million users. They have a 100,000 merchants signed up. We expect that number to grow to over 150 million users over the next three years, and clearly the introduction of the [VC] [ph] pay technology will open up the number of merchants where the wallets maybe used from a 100,000 merchants basically to all merchants in India that accept the standards card scheme cards.

Okay, thank you. You didn’t talk about new key management and what management are you looking to hire where and when we talk about explaining the sales force maybe some more color the number of headcount additions?

The new restructure of the company is based around the six products, which I actually defined. And at this point in time, we are looking for three of the verticals with regard to three people that are going to be running three out of the six. And each of these heads are going to have directly responsible to them a number of people in the sales team, as well as, if necessary, in the particular country on operational team. So we’re looking at investor. We are looking at acquiring another between 15 and 20 different people that are going to spend a number of geographies. One of course, being Africa, but not obviously South Africa, which is more center – central and West Africa. We’re also looking at number of people in Europe itself, as well as a number of new people in India and around the T24, which is around the Hong Kong area. We’re going to focus on those geographies first, because we believe that we’ve already got a substantial amount of business. We’re only looking at this point in time a very senior people, with people that are going to be responsible for their own P&L and responsible for the deployment to sell the marketing and the product development that is required in this particular territory. We will, of course, at this point in time, we’re not doing this in a sort of blind fashion. Since we’ve made the decision with our Board around nine months ago to start looking at the possibility of doing this, we’ve already been approached by numerous countries in this particular territory that are very keen on us getting – on us been directly involved with them in supplying our technological solutions. As you’re probably aware, our last business plan was more…

Thank you. Our next question is from Will Settle of Woodmont. Please go ahead.

Yes. I just wonder for the MobiKwik a little more, but obviously it’s a large market, but can you give us any context for expected financial impact as you penetrate, I mean, how meaningful this be obviously you’re investing $40 million over the next couple of years, so expect some return from that?

Well, yes. Obviously, we’re not that sort of company that typically invest our money when we don’t expect to see a decent return. And you probably are aware that and in most of these markets and most of those types of technology custom acquisition happens to be the most costly part of actually penetrating a particular market. And most specifically the wallet, of course, is used in many different ways. But the so-called wallet has been based on purely almost I’m not going to pay, but customer do drain my system. Now, number one, the MobiKwik sort of focus is really different compared to most other people and they do not sponsor for lack of a bit of work with custom acquisitions or at least they dent to rather get retailers to come forward to drain the system and for them to actually want to get market penetration through the MobiKwik customers is, number one. Otherwise, candidly, we would not have gone with MobiKwik, if their model was the same with everyone else. Number two, which is very important for us is that, we know that in order to ramp up our financial product, we need to have a customer base. We did that very successful with SASSA in South Africa. In SASSA, we know it was really a AA sort. It allowed us to get a customer base of 10 million people on one end, and – which was fantastic. And based – and built – and to build on that particular base, all of our financial products that we could then sell to the same customer base. MobiKwik for us is no different. Today is 50 million, 60 million, 90 million, 100 million times, which we believe they can reach. They’re talking up to 200 million. We’re not…

Okay. Just on that you mentioned a couple of times, I have seen working with them obviously got two months into that transaction. Can you give us some examples of how that’s changing the way you’re approaching the market or helping facilitate things?

Well, funded enough, the strengthening is that – are the model that we are now employing the business plan that we put together and certainly their structure. We have been playing with it for quite a while, specifically with direct approach rather than the indirect approach of sales. And candidly, the meetings we had and we had extensive meeting in Washington, which I’ve seen a number of the senior personnel, who by the way were extremely useful to us and very helpful, including a couple of meetings with the World Bank. We were able to actually convince all of us that is, in fact, the direct approach over expensive, because you have to invest another $15 million or $20 million in order to achieve it. But we felt that, that is going to buy many, many, many time, give us the return that we are that that we would like to have. But more importantly is going to allow us with their contacts, the investments in already many different financial organizations, institution, banks and other companies in developing economies, is going to allow us to focus our activities outside of South Africa, because South Africa is still financially a very small country. Sooner or later, it will be saturated in terms of White House in itslef. And I think more importantly, as well, it will remove both currency and country risk, which – yes, we believe is a primary reason why our PE ratio has been so poor and continues to actually degrade. By doing that with the IFC and penetrating and having a fairly sizable – a couple of sizable wins outside of South Africa, and building models similar to the South African model outside of these territory – outside of the South African territory, we hope that we are going to then being proceed by our shareholders in a very, very different light. And therefore, they will be in a position to actually rebuild our PE to where it should be, based not only on our financial performance, which has been strong for many, many years, but breakthroughs in technology, which are well accepted worldwide has been the best of the best. And at the end of the day, our business models, which as you know, provide financial inclusion to the billions of people with very, very few if anyone in the world has been able to achieve successfully until now.

Thank you. We have a follow-up question from Dave Koning. Please go ahead.

Yes. Thanks, guys. I guess this is the first time in probably 10 or more years that you specifically called out in a month, especially $20 million in a month that you would spend kind of in excess on sales ramping. And that makes sense if it’s going to drive growth. But I guess, I’m interested in just the timing, because now that you’ve got the World Food Program as a sales channel the World Bank IFC investment as a channel, you’ve gotten kind of unprecedented help now from other channels. And at the same time you are investing so much more than normal in sales. I’m just – I guess I’m wondering the timing of why now, why hadn’t you done this in the past and is it that you just can’t absorb this much spending through the just normal P&L that you want to call it out or I guess it’s just hard for me why this is the point in 10 years to call this out instead of in the past?

Well, David it’s obviously a very good question, but I think the fundamental reason why we believe that’s worthwhile mentioning and we should mention it is because it is very much a different direction, compared to the way that we used to be thing in the past. And we’ve always been perhaps too careful, perhaps we’ve been far too concerned about going out there and maybe taking a bigger risk for a lack of a bit of word and investing in our own future and in our own people and building a much depth much more depth in our management structure. And perhaps retrospectively that might be a mistake. Talking to organization lot for example the IFC, it has become very clear that when we compare ourselves to many other companies some successful and some not. There’s absolutely no doubt that we’ve been far too thin at the top and in order to penetrate these different new territories we cannot do it with an extremely flat structure and with the centralized management staff. It does a lot of benefit as you can well imagine in terms of controls, but at the end of the day it also strangles, they actually grow up for the company over time. So we believe it’s important to talk about $15 million to $20 million for a number of reasons. One because I’m odd is of the view that we’ve under spent in – in fact the management development of the company and the building of a – let’s call it a larger worldwide infrastructure that allows us to actually penetrate other markets. And in a way the $15 million to $20 million is in fact the KPI that we have to be able to meet and explain to our Board why it is that…

Thank you. Our next question is from Rich Tullo of Albert Fried. Please go ahead.

Hi, thank you very much for taking my question. Really two questions is the MobiKwik investment a down investment, straight equity or is it going to be consolidated on the income statement?

The MobiKwik investment is we’re investing in equity in MobiKwik, so over a period of two years we will hold up our position this means that initially we’ll show it as an investment on our balance sheet, but we’ll not consolidate equity accounts for it. As soon as we cross the relevant remitters that demonstrates significant minority shareholding we will probably equity account for this business in about two years time.

Fair enough. When you discussed Italy and UK could you please provide a little more color on effort those of us who may not present in the story?

So Master Payment I assume you’re referring to our Master Payment business so Master Payment is an acquisition that we did in two tranches over the last year based in Germany and Master Payment to just give you a brief description is really a PSP or a payment services provide in Europe to a number of large online merchants and as a result of the extensive experience in the PSP market identified that there was a specific need amongst merchants for working capital financing. One of the key shoulders in Master Payment was a bank based in Liechtenstein called Bank Frick. And together with Bank Frick Master Payment developed a quite a unique model that allows them to rapidly deploy working capital financing for the merchants that they service. In what we think is a very innovative way and also in a way that really reduces the risk on them as the enabler of this specific product and obviously the recoverability of the working capital finance that is provided is secured by the settlements that they place through their usual PSP acquisition platform. So this is business by Master Payment that’s been running for a couple of years that would be very successful specifically in Germany and after the acquisition of the business we had a strategic session with the management team who really convinced us that there was an opportunity specifically in Western Europe where it’s obviously a factor of investing the correct amount of capital into the business for them to deploy. And one of the key things that that they have to do is to deploy a sales force in the countries where we believe we have low hanging fruit for lack of a better word. Those countries for now include Italy, Spain, and France and the UK. So that’s where we will focus our attention for the Master Payment rollout or the big bang approach. And that’s we’ll also hire some fairly senior business development of sales teams over the next 12 months.

And more importantly, which is key to our plan is that believe that once again customer acquisition been the most expensive part of any business nowadays that through these motions we can promote the utilization of our Virtual Card simply, because as you know online merchants always suffer from charge backs and fraud and we can eliminate that, in other words by also read into these, we’ve emerged to allow these merchants to actually on sale of VCC products to their own customers, we’ll be able to reduce if not eliminate charge backs in totality and allow these merchants to secure the on business and grow their on business certificate. So we believe again, it is a sort of using a platform in order to sell onto it another product and therefore eliminate the customer acquisition at least once if not twice in the cycle.

Thank you, sir. Our final question is from Ty Carmichael of Gothic Capital. Please go ahead.

Yes, good morning thanks for taking my question. I was hoping you might be able to write some additional perspective on – and a few – I jumped on the call a little late, if you already addressed this, I apologize, but there’s some perspective on the upcoming court case against SASSA in the sense of – if this goes against you what happens at that point I mean and also, I guess more specifically within the context of the guidance you’ve given. How does that change if the court case goes against you?

Right, well the court case you’re obviously talking about is one in October, which is really for lack of a better word, it’s an order that we’re seeking for a Judge to tell us exactly what the Social Assistance Act of 2004 actually means when it refers to a deed action compared to a debit order. Now strangely enough, the word debit order does not occur in the 2004 Assistance Act in South Africa at all. So we all believe that since 2004 most of us at least have understood what the word deduction means. And I think most of us have also understood what the word debit order is. So, we’re not – on my side I’m remotely and concerned. We are not concerned at all about the fact what the judge is going to rule upon, because the answer is obvious that in fact the two things are different. However, to answer your question there’s always a possibility that the court by conduct and say while actually this action is the same as the debit order and therefore if the Act says that debit orders must be prevented then they probably would have to implement such a technological change to our systems. Now in order to do that it probably would take anything between two to six months anyway that’s number one. And we believe as we’re seeing, but now that what that would actually lead to is that most beneficiaries today that enjoyed debit orders, because they actually do need debit orders in order to transact on business, would probably then open bank accounts, such as that doing currently with ourselves as one bank called EPE. And in order to be able to continue to enjoy the flexibility that debit order is actually providing them. So if…

So, just to add to that, in an extreme case, and let’s assume that the use of debit orders and detections and all these things are bend. And people have – don’t have bank accounts, unfortunately, you revert to the only ever method of payment for your products and services, which is cash. And I think what’s important to note is that, Net1, as the company has the most expensive cash acceptance made to work in the country. Through our EasyPay network, we’ve brought in our own point of sale network, we probably got more than 60,000 connected point of sale devices. We’ve got 1,000 ATMs between ourselves and our affiliates. We’ve got more than 500 branches. So, yes, to reach that we have across all of South Africa, I think is much more extensive than any other financial services provide us. So, if it was really had to come to worse, I think that we are in a much better position than any of our competitors or any of the other participants to enable people to still buy and pay for their financial services.

Yes, I think just to conclude on this issue, which is an important one is that, we must think that at the moment, the effect of these sort of court cases actually occur, actually it hurts us simply, because on the price point of view, people ask exactly the logical question like you’re doing at the moment, what will be the impact and what they all this is all about? And that’s the real reason further enough while we’re going to court, simply because we want clarity. So we want everybody in the country and that sort of the country to know what the hell that they mean. At the end of the day, between you and me and above, so if I don’t really care what it means, because it’s not going to make any damn difference to what we do, we do it, or candidly no longer-term, not going to make any difference to how much money we’re going to make, where it will make a difference is that we will not appear in front page of the newspapers on the very needy basis to actually for somebody to say, we’re reaching some sort of the law that we’re not reaching. And that is really the all intent of us going to court is to make sure that we have clarity, which I think would be good for the country as all, it will be good for us, and it will be good for beneficiaries. No other real reason, I think.

Thank you, sir. Ladies and gentlemen, that is all time we have for questions. Thank you for joining us. You may now disconnect your lines.