Ladies and gentlemen, good day and welcome to the Net 1 UEPS Technologies Q1 2017 earnings call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please also note that this conference is being recorded. At this time, I’d like to turn the conference over to Dhruv Chopra, Head of Investor Relations. Please go ahead.

Thank you, Ari. Welcome to our first quarter of fiscal 2017 earnings call. With me today are Serge Belamant, our Chairman and CEO and Herman Kotze, our CFO. Our press release is available on our website at www.net1.com and Form 10-Q is also filed. 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 press release in rand in order 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 to all of our shareholders. For our first quarter and the start of the new fiscal year, I will spend most of my discussions focused on our strategy and are we intent to create a new impetus in our rand and our currency based earnings. At the same time, I will highlight, are we planning to reduce our risk profile by relying far less on government contracts and on the South African rand. Our results are pretty good year-over-year, but EPS was down sequentially, despite bitter exchange rate, share buybacks, repayment of debt and the like. Our international businesses are showing great potential, and as a result of strengthening our management teams, our pipeline is growing meaningfully. But there is of course lag what we have achieved in South Africa thus far. To summarize our Q1 2017 performance, revenue of $156 million grew 10% in constant currency and was driven primarily by higher EPE transaction growth, lending in insurance and our master payment and T24 acquisition internationally. Our fundamental EPS in Q1 was $0.48, down 9% in constant currency, probably due to the issuance of 10 million shares to the IFC. During Q1 2017, we repurchased 3.1 million shares for approximately $32 million, which is more than our repurchases in all of fiscal 2016, while also making an unscheduled debt repayment of approximately $27 million in Korea. Net 1 is a technology company that utilizes its own technological breakthrough and products to provide affordable, flexible and secure financial services to the unbanked population of the world. What must be understood here is that technology changes extremely fast, and as a result, our ability to keep up with global trends and developments and improve our own technological solutions is probably the one of our…

Thank you, Serge. I will discuss the key result and trends within our operating segments for the first quarter of 2017 compared to a year ago. Where appropriate, I will try to provide additional information related to our proposed acquisition of approximately 14.5% stake in Blue Label Telecoms. For Q1 of 2017, our average rand dollar exchange rate was ZAR14.10 compared to ZAR12.96 a year ago, which negatively impacted our US dollar based results by approximately 9%. Our two major functional currencies, the rand and the South Korean won are quite volatile at the moment, primarily due to political developments. The rand has strengthened in recent days to around $13.60 against the dollar currently. Currency aside, we have continued to experience good growth in our functional currencies during Q1 and this momentum is expected to continue through fiscal 2017. Revenue for Q1 2017 grew 10% in constant currency, while fundamental net income grew 4%. However fundamental earnings per share decreased by 9%, mainly due to the dilution caused by the IFC share issue. On a consolidated basis, for Q1 2017, we reported revenue of $155.6 million and fundamental earnings per share of $0.48. Our fully diluted weighted share count for Q1 2017 was 53.8 million shares, largely as a result of the issuance of 10 million shares to the IFC in May 2016, partially offset by our significant share repurchases. By segment, South African transaction processing reported revenue of $57.6 million in Q1 2017, 13% higher on a constant currency basis. In South African rand, the increase in segment revenue and operating income was primarily due to higher EPE transaction revenue as a result of increased usage of our ATMs, more low margin transaction fees generated from card holders using the South African national payment system, increased intersegment transaction processing…

[Operator Instructions] First question is from Dave Koning of Baird. Please go ahead sir.

I guess first of all in the financial inclusion business, I mean it sounds like a lot of great things are happening in developing, the growth had then for several years now kind of mid teens or 50% or I mean very big growth, in this quarter was 3% and I know you explained some of the factors why but is that something that given the pipeline and everything, does that get better, like fast should financial inclusion grow over time and maybe what are a couple of the main things, you talked about so many different things but what are maybe a couple of the things that are material to that growth in the future?

Thank you David, it’s Serge here, yes, we talked about - it's actually quite simple at the end of the day we reached an asymptote in terms of the number of branches that we've opened and the number of people that we've got up there in the field. We have started deploy some of our mobile units to actually penetrate some of the other markets in South Africa or some of the other areas of South Africa where we are not present because we don't really want to become an organization that builds too much brick and mortar, most banks in the South Africa are closing the branches down in rural areas. So we don't think it's probably the right thing to do for us to build out. So we wanted to use our mobile system, we believe that at the end of the day, SASSA may not simply terminate our engagement what’s planned on the 1st of April, it might take quite some time before this will actually happen, if at all. So, we got very concerned to say well what do we do now, if we go ahead and say well we were relying on being able to use our 600 vehicles and 2,500 people. To go out then basically go where we have not been before, or do we build now, do we have to build our own infrastructure now. We believe the deal we did with Blue Label is going to make us basically jump at the decision evading to actually employ more people now and rather to have already - and already made infrastructure that is going to in my view rekindle our 20% to 25% growth quite easily, simply because we believe now that the growth will be more focused on low income earners rather than purely beneficiaries, which I think is a great thing for a number of reasons, diversification being one but also because those people have far more income or disposable income to be able to buy goods. So we believe that in fact at the moment we have reached almost a little bit of saturation because we are addressing only one market and we only addressing one market in certain areas. As soon as we open that up like for example we've started to do as well with insurance, we can see that the growth at the moment is unlimited, it’s more a question of where are you and much of that market can you seize. So I would be very disappointed if we do not start again realizing growth of 15% to 20% on all of our financial product, an effect on EPE specifically, if we do not get back in signing a 150,000 to 200,000 people a month rather than between 80 and 100.

, :

But in the commentary, 15% to 20% is just kind of a normal growth for the whole business over time around, right, I mean that's kind of the general growth.

There is no doubt that as you can see, through to be quite honest, we can't take the blame for everything but obviously we cannot, at the end of the day we are the ones managing the company. We have to do something in order to rekindle the momentum of the company and you can see by the numbers, the numbers were a little bit too static for my you know for certainly what I wanted to achieve and there's no doubt that we've now put the right things in place from an infrastructure management bandwidth point of view and also to really accept and stop relying purely on saying well you know we do have a beautiful contract with government, who knows it might continue, it might stop what we cannot do is to be half pregnant in this by actually saying well, we're not going to be using that infrastructure to do what we want to do with it or we are not going to be able to use it. And therefore we’re always waiting for this outcome. We've been waiting for an outcome for the last 15 years and I think we shouldn't be counting on that outcome happening in the short term. And therefore we should actually carry on with our business as usual and I really firmly believe that with what we're doing now, are getting back to 15% to 20% growth per annum is actually not going to prove that difficult.

And then one just numbers question for Herman, you mentioned $0.05 to $0.08 potential dilution from Blue Label. If I just do annually - the annualized impact of the share issuance of 5 million shares plus 101 million of debt that's like $0.20. $0.25 something like that dilutive. Are you kind of assuming the dividends are set that to get to your $0.05 o $0.08 dilution number?

Dave, so we assume obviously that would be for no more than half of the year, right, so six months. And obviously you are a tax effect, some of the interest which we will be able to get as a deduction. And of course here you have to make certain assumptions on the utilization of the full facility or not, but if you take into account the six month period and that tax effect of the interest component plus the additional share out it works to roughly sort of $0.05 to $0.08 number that I mentioned.

So basically no income, no dividends just the share issuance and interest expense and tax affected?

Yes.

[Operator Instructions] Our next question is from Porter Collins of Seawolf. Please go ahead.

Two questions for you, operating cash flow was highest in the company’s recent history at two time net income, is that right and is that decent trajectory or somewhere around that $50 million of operating free cash a quarter, a okay level. And then second, on the Blue Label, you talk a lot about the dilution associated with it, but I want to sort of think about it in a bigger context, the $144 million of shareholder money, how are you thinking about your return on investment in that. And obviously that’s a big number, what kind of IRRs and still like to see numbers on that transaction or what kind of return you think you can get on the investment. In the update call, you talked a little bit about synergies and stuff like that. But just in terms of bringing numbers to it, I know it might not be exact, but just can help us frame it for us? Thank you.

Okay. Porter, I will take the first part of it, in terms the cash flow, obviously the group's cash flows are very timing dependent. And so you just got to look at the components that drive the cash generated, so as an example movements in our lending book as well as the taxes payable components those could have quite a significant impact on the cash flows because obviously get measured at a specific point in time, but overall we are obviously quite happy with the group's cash conversion rate. It has improved, we obviously working hard to make sure that our working capital management is under tight control. Especially as far as the items that are on the direct control is concerned in terms of inventory holdings et cetera. And then obviously looking further down the cash flow statement as I mentioned we anticipate our CapEx expenditures to also reduce over the next 12 months or which will obviously result in a further increase in our cash - ultimate cash holdings out. Yes we are very happy at the moment with the group's cash conversion rate.

And the Blue Label question?

Sorry, Porter, can you just repeat your Blue Label question?

In terms of framing the Blue Label question, it's $144 million of share money. How do you think return on investment, I’m just still looking for more a little bit more concrete numbers, you talk a lot about the dilution effects of it, just how are you thinking about return on investment of this quite large investment? Thanks.

Well, I think there are a few components to this slide, the first, from our perspective I think the most important part revolves around the potential synergies that we believe we can extract from this deal, both synergies as well as new business opportunities. So the ability for us to scale up the distribution of our products and the distribution of Blue Label products through our joint sales forces I think will exponentially accelerate the rollout and the take up rate of those products. There are other synergies in terms of specific cost savings that we believe can be quite material to us. They are supply opportunities in terms of SIM cards, cryptographic solutions et cetera that become particularly relevant in a Net 1 Blue Label tie up. From that perspective alone, we are very confident that the returns that we will realize over time on the investment will be - more than warrants the investment that we will be making. And from a second and a third perspective maybe just from a pure investment point of view obviously we believe that the acquisition of Blue Label of Cell C as well as the expansion of Blue Label’s activities over time will obviously allow the Blue Label share price to increase which means that the basement that we've made which is already I think roughly ZAR400 or ZAR500 to the positive after the subscription price was determined. Obviously just from a pure investment point of view, we believe that the value of our investment will be stable or should increase materially over time. And finally, obviously when Blue Label continues with the payment of dividends as they have over the last many years that in itself will obviously also provide us with some return on the investments before we even consider the impact of the synergies. But by far the potential new business opportunities and the acceleration of our current activities I think are the most important factors that we think about when we calculate the potential return on this investment over time.

To add a little bit to this which I think is, we mustn't miss the limits and miss the fundamentals here. Is that we obviously have a plan, the plan is to grow capital base or at least banking customer base from where it is now 1.7 million to in excess of 5 million, which at end of the day we had planned I think for about 2.5 million was my latest by June next year or March, April next year. We now are saying no, that’s not going to cut it, we think that we can grow much faster than that net, other people will want to grow as well. We believe that the Blue Label is going to - acquisition is going to allow us to achieve that goal and to get to another 2 million or 3 million extra customers which by the way all of which may not or it is a majority this time will not necessary be beneficially, which means that they can add far more to our bottom line than our existing customer base. So for us, the real purpose of the Blue Label acquisition is to ensure that we have another infrastructure that we can ride on. We thought fighting each other rather helping each other for us to make some money out of what they do and for them to make some money out of what we do. But to be able to really drive what we're doing at a much, much faster rate. That’s the principle of it. Already we know like Herman Kotze mentioned it, really if you look at the share price of Blue Label alone, I think we’ve made 500 million range just based on that. Now that's not – that’s not what we were after. We…

[Operator Instructions] Thank you very much. At this time, there are no further questions. This concludes today's conference. Thank you for joining us, you may now disconnect your lines.