Good afternoon, ladies and gentlemen, and welcome to Net1’s Fourth Quarter 2017 Earning Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please 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, Judith. Welcome to our fourth quarter fiscal 2017 earnings call. With me today is our CEO, Herman Kotze. Our press release and Form 10-K are available on our website, 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-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. Before I hand the call over to Herman, I just wanted to state that we will have a question-and-answer section following our prepared remarks. However, given the current sensitivities, we will not be taking any questions about SASSA or CPS. With that, let me turn the call over to Herman.

Thank you, Dhruv. Good morning to all of our shareholders. It is my privilege to address you as Net1's CEO for the first time. A lot has happened with Net1 since our last earnings call, and I would thus like to focus my discussion today addressing the various key developments articulating our group strategy and expressing my commitment to honor Net1's strong legacy and foundation and how we intend to build on that to create a larger, more diversified and sustainable growth company. But first I would like to thank Serge Belamant, the founder of Net1 and our CEO until this past May, for his contributions over many years of service. We wish him all the best with our gratitude and the peaceful retirement. Back to our results. For Q4 2017, we reported revenue of $155 million which was up 3% in dollars but down 10% in South African rand, while we had positive contributions from our South African transaction processing business including EasyPay and ATMs as well as financial services. These gains were more than offset by lower ad hoc software sales, fewer prepaid airtime sales and regulatory changes in Korea. We also reported $0.41 in fundamental earnings per share, which was adversely impacted by a higher share count, a provision for receivables and a higher tax rate. Together with the board, I am actively reviewing and refining our group strategy, putting the appropriate structures in place, prioritizing the Group's key initiatives and businesses, rationalizing redundant activities or those that do not have the potential to scale into meaningful businesses in their own right or as part of the consolidated offering. The strategic review of the business will also closely incorporate the need to optimize long-term shareholder value. We are currently in the advanced stages of actively recruiting a…

Thank you, Herman. I will discuss the key results and trends within our operating segments for the fourth quarter of 2017 compared to a year ago. For Q4 2017, our average rand/dollar exchange rate was 30.19 compared 15.02 a year ago, which positively impacted a U.S. dollar based results by approximately 12%. The rand/dollar rates continue to be volatile, but for the past few months have traded between 12.80 and 13.50. Revenue of 155 million in Q4 2017 was 3% higher than the prior year, the 10% lower in constant currency. Our fundamental earnings per share decreased 20% relative to Q4 2016. Our fully diluted weighted share count for Q4 2017 was 57.2 million shares, 12% higher than a year ago. Largely as a result of the sale of 5 million shares in Q3 2017 and the full impact of issuance of 10 million shares to the IFC in May 2016 offset by buybacks during 2017 and marginally offset by the repurchase of approximately 1.2 million shares late in Q4. In addition to the share count dilution I just referenced, our 4Q 2017 fundamental EPS was also adversely impacted by higher taxes and the provision we took in Q4 pertaining to the growth in Masterpayment working capital finance business. Excluding the impact of the provisions, 4Q fundamental EPS would have been $0.07 higher. By segment, South African transaction processing segment reported revenue of $67.7 million in Q4 2017, up 26% year-over-year in U.S. dollars and 11% on a constant currency basis. In 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 fee is generated from cardholders using the South African national payment system, increased intersegment transaction processing activities, and…

Thanks, Dhruv. To conclude, the funding impact of our recently concluded Cell C and DNI transactions to be dilutive to our fiscal 2018 fundamental earnings partially offset by DNI's equity accounted earnings but to be accretive on a combined basis on fiscal 2019. We therefore anticipate our fundamental earnings per share for fiscal 2017 to be at least $1.61. Our guidance assumes that our existing contracts with SASSA remains in effect for the full year on the existing terms and conditions and updated constant currency base of ZAR13.62 to the dollar a share count of 56.6 million shares and the tax rate of between 34% and 36%. We will obviously update our guidance, if there is a material change in any of these assumptions. We look forward to visiting our U.S. shareholders during the week of the Labor Day. With that, we will gladly take your questions. But as Dhruv mentioned at the onset, we are unable to take any questions related to SASSA or CPS at this time.

Thanks very much gentlemen. [Operator Instructions] The first question comes from David Koning of Baird & Co.

I guess my first question, some of that I guess the financial metrics that have changed the most, the financial inclusion segment you've explained why it continued to get a little worse the ad hoc sales and prepaid. But in the prepaid card specifically, what are the consumers deciding to do that's basically came from the big chunk of revenue away from you? Are they deciding to go through other channels? And then I guess the corollary to that question is, with the Cell C partnership, are a lot of those consumers going to come back to you? Is that kind where you're seeing the accretion from?

Yes, I think that's an accurate assessment. The drop-off in volumes is firstly attributed to a change in the security features that we've incorporated in the mobile platform that is being used today to buy prepaid airtime in micro amounts. As we tighten the rules and the security around it, obviously, we’ve removed access to the platform by sort of quite a few of the previous customer base, that’s resulted in the decline that you’ve seen. But moving forward, we obviously believe that our sort of push into the sale of Cell C starters packs and our further association with DNI expanding our distribution base will be able to regain some, if not all or more, of the declines that you’ve seen over the last three quarters or so. In terms of hardware sale that’s obviously a bit more difficult to project. Those sales are quite lumpy and they are ad hoc. They’re largely reliant on terminal replacement cycles from our larger customers and in South Africa those are mainly the banks. So as the banks go through their terminal replacements programs, we see those sales fluctuate quite significantly. And I think the last cycle really came to an end earlier last year probably in the next year to 18 months, I think we will see a resumption of the terminal rollout and then the commencement probably of another terminal replacement program by the South African banks that we service.

And secondly, when you said by fiscal 19, I think you said $0.25 to $0.50 of EPS accretion just from that one revenue generated from your two investments. Is that -- am I getting this right, that’s probably a 100 million to 200 million of incremental revenue at about 20% margin gets you to $0.25 to $0.50 accretion? Is that kind of the right amount of revenue in margin to come on?

I think so. We obviously would try to target their margin, a blended margin rate that’s better than the 20% level, the mix of the various products and services that we have outlined very significantly. Obviously, the commission that one earns on the sale of airtime and/or on the starter packs are at the low end of the scale, sale of SIM cards similarly is not a hugely so profitable or lucrative business when it comes to margin, but obviously it’s a very high volume business. Whereas the financial services that can be layered on top of the sale of starter packs or really blending it as a lifestyle package is what then really improves the margin. But I think working at a 20% margin for now seems reasonable. And so, if you do the math and the reverse math, and obviously assuming the share count remains the same, I think that, ballpark, your numbers sound about right. But obviously, when we say $0.25 to $0.50 that means that we’ll start ramping up from the $0.25 level over the next year or two after that.

And one, I guess one last one just you gave good EPS guidance with a lot of metrics, but revenue guidance for fiscal ’18. It seems like it’s probably flattish on a constant currency basis declines in the first half growth in the back half. Is that the right way to think of it?

Yes. I think that’s accurate. Obviously, the impact of the DNI and Cell C investments are twofold. So because the equity account for DNI, the impact isn't clearly seen on the revenue line. But obviously on the earnings per share line, and the other key drivers for us in South Africa obviously we have some growth in the beneficiary base that's always been there and that will increase our ATM rollout, continues at a pace that we are comfortable with as well as the adoption of the ATM real estate by our cardholders I think that will drive our revenues. So in terms of the South African revenues, we are targeting a growth but we certainly not looking at double-digit growth, it will be lower single digit growth. On the international side, of course, we have the impact of the new regulations in Korea, which clearly has a pricing implication on KSNET, but we are trying our best to make up for the pricing pressure by the improvements or increasing the volumes. So as far as that concerned, we also think we will be able to paying at least a stable or a flat growth rate with up to the lower single digits.

Thank you. [Operator Instructions] Ladies and gentlemen, there are no questions. On behalf of Net1, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.