Good day, ladies and gentlemen, and welcome to the Net 1 Second Quarter 2018 Results Conference. All participants are currently in listen-only mode. And 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 Dhruv Chopra. Please go ahead.

Thank you, Chris. Welcome everyone to our second quarter fiscal 2018 earnings call. With me on the call today is our CEO, Herman Kotze. Our press release, Form 10-Q and supplementary financial presentation are available on our Investor Relations website, ir.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-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 rands 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, let me remind you that while we will have a question and answer section following our prepared remarks, 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. We have continued to press forward over the past quarter and we have observed a number of exciting developments as a result of our actions. The establishment of a blockchain department at Bank Frick accelerates our ability to reposition our core UEPS solution at the forefront of offline and biometric blockchain technology. Meanwhile, our core financial inclusion initiatives in South Africa are starting to bear fruit with an acceleration of our EPE offering in late 2017 and early 2018. We have additionally begun to realize certain synergies with Cell C and DNI, and our new mobile banking product is in beta testing. We have achieved all of this despite considerable time and effort spent on restructuring of the group and closure of certain business lines, while of course addressing some of the challenges in South Africa. As we get closer to the March 31, 2018 SASSA contract expiration, we expect that the frenetic pace of activity, news coverage and opinions from all and sundry will only intensify. We will as always lend our support to the most vulnerable citizens of South Africa and government while protecting the interest of the company of 5,500 employees and its shareholders. We are proud of our track record of having delivered the right grant to the right person on time for the past 71 months and having saved the government more than ZAR 10 billion over the contract period which is more than the fees paid to us. For Q2, 2018, we reported revenue of $148 million, which was down 2% in dollars and 4% in South African rand. While we had positive contributions from our South African transaction processing businesses including EasyPay and ATMs as well as financial services and non-Korean international businesses,…

Thank you, Herman. I will discuss the key results and trends within our operating segments for the second quarter of 2018 compared to a year-ago. For Q2 2018, our average rand/dollar exchange rate was ZAR 13.67 to the dollar compared to ZAR 13.90 a year-ago, which positively impacted a U.S. dollar based results by approximately 2%. The rand/dollar cross continue to be volatile and has strengthened significantly in recent weeks to around ZAR 12 to the dollar. Revenue of $148 million in Q2 2018 was down 2% year-over-year in dollars and 4% in constant currency. Our fundamental earnings per share decreased by 9% relative to Q2 2017, and our fully diluted share count for Q2 2018 was 56.8 million shares, 8% higher than last year largely as a result of the sale of 5 million shares in Q3 2017 partially offset by the repurchase of approximately 1.2 million shares late in Q4 2017. Our quarterly results were impacted by an allowance for doubtful working capital finance receivables of $7.8 million. By segment the South African transaction processing reported revenue of $64 million in Q2 up 7% year-over-year in U.S. dollar and 5% on a constant currency basis. In rand, the increase in segment revenues was primarily due to higher EPE transaction revenue, as a result of increased usage of our ATMs, increased inter-segment transaction processing activities, and a modest increase in the number of social welfare grants distributed. Operating income and margin decreased primarily due to an increase in inter-segment charges, the impact of annual salary increases granted to our South African employees in October 2017, and increases in goods and services purchased from third parties. These decreases were partially offset by the aforementioned increases in segment revenue. Our operating income margin for Q2 2018 and 2017 was 21% and…

Thanks, Dhruv. In terms of guidance and to reiterate from last quarter we expect the funding of our Cell C and DNI investments 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 from fiscal 2019. We therefore anticipate our fundamental earnings per share for fiscal 2018 to remain at least $1.61. Our guidance assumes no significant disruption in any of our key business units, a constant currency base of ZAR13.62 to the dollar, a share count of 56.6 million shares and a tax rate of between 34% to 36%. For clarity our guidance is always is on a constant currency basis and does not reflect the recent strengthening of the South African Rand. With that we will gladly take your questions, but as Dhruv mentioned that the onset, we are unable to take any questions related to SASSA or CPS at this time.

Thank you very much. [Operator Instructions] Our first question is from David Koning of Baird. Please go ahead.

Yes. Hey, guys. Thanks for taking my call. I guess first of all, which of the key initiatives that you talk about is really going to move the needle. And I guess my big question here is the international segment and the financial inclusion segments both are declining about 7% to 10%. I’m wondering when does that both of those shift to growth mode, I know the Korea business is part of that, but what really is the catalyst to get those both back to growth mode and what’s the date kind of by which both of those should be growing again?

Hi, Dave. I think the short answer to that is in the near term our initiative in South Africa around financially inclusion and specifically with Cell C, and DNI are the ones that will contribute meaningfully to the bottom line in the shortest period of time. Most of those are either complete in terms of the development that was required from a product or a tech point of view. And so we expect those to start contributing meaningfully sort of commence in Q3, scaling up in Q4, but definitely during fiscal 2019, I think we will see really meaningful contribution from those specific initiatives. And in second of all, the traction that we’ve now got in the international payments group specifically with the consolidation of the various business activities and units and the sales pipeline that we have in place on the specific market that we are focusing on, those have already started to show significant growth if we look at our processing volumes in December they were already significantly higher than in the previous quarters or months. And so, I expect that those will scale and ramp up as well significant during Q3 and Q4. UEPS international joint venture is a longer term opportunity. The sale cycle as you know for those sort of systems is quite long, so we expect that to be sort of 12 to 18 months initiative before we start seeing real results, but of course once those initiatives are concluded and implemented they have a significant impact just in terms of the scale of what we anticipate to do.

Okay. Good. Thank you. And then I guess within the financial inclusion is that the prepaid airtime, is that continuing to decline and does that – that’s kind of meaningless I guess to the margin side of it, but does that turn and get better at some point or maybe doesn’t matter?

It's flattened up. So if you look at gross that I think we presented on the supplementary slide show. We’ve seen a bottoming out of impact of introducing the biometric identification tools. Those implementations will anniversary I think during Q3 as well in terms of when we first introduced them. So there’s been a flattening out -- and you’re right, it doesn’t have a very big impact on the margin side of things simply because airtime is very low margin product, but obviously it’s got an impact on the revenue side of things. So, the margin impact although small I think has now been stabilized and going forward we will see – I don’t think we’ll see any further declines and with the introduction of the new products and services that we’ve got planned with Cell C, I think we should see an uptake in specifically the sale of prepaid airtime.

Great. And just one last quick one, the margin profile of the company, it looks like the Masterpayment working capital finance [believing] [ph] it’s a small revenue but also small profit dollars, there’s investments and other things. I’m just wondering all the puts and takes, is this something over the next 12 months margin should lift as the mix changes or decline? How are you thinking the margins over the next several quarters?

Well, I think we’re looking at definitely improving the margins. There were a couple of contributors that had a particularly significant impact on lowering the margins over the last few quarters. The key ones obviously we spoke about, the KSNET experience the bit of the margin squeeze as a result of the introduction of the new regulations in Korea and also the no CDM introduction for transaction less than $50. And as you know, KSNET [indiscernible] significant contributor overall to both revenue and the operating margin line. I think that’s now stabilizes and we also anniversary out over the next few quarters. The Masterpayment book obviously had a fairly low marginal impact on us. So the removal of that business should result in our margins improving. And I think the continued focus on costs and the management of the group overheads over the next 12 months there’s obviously an active and conscious attempt to make sure that those are well controlled will also result an improvement in margin. So from my perspective going forward for the next six to 12 months I believe that we can get our margins back to where we use to see them a couple years ago.

Thank you very much. [Operator Instructions] Our next question is from Allen Klee of Sidoti. Please go ahead.

Yes. Hello. For this Cell C and DNI investments can you just walk us through little bit of the time line and potential economics of how you see or how you going to make money there?

Sure. So Cell C obviously just to put it in context is 15% investment for us. So it’s not a controlling stake and it’s even below an equity accounted stake. DNI on the other hand we are a 45% shareholder, so we have significantly influence in DNI and we equity account for that accordingly. And the way we got to look at this is how do we combine the strength, the relative strengths of all three components. So Cell C brings to us the ability to define and come up with products that we believe are missing from the market segment that we service. And so, when we look at the financial inclusion side of the market, the same segment where our EasyPay Everywhere account offering is pitched at, our Smart Life insurance offering are pitched at etcetera, there is an enormous need for specific products that provide a combination of voice and data and social media, communication, capability, these are products that are prepaid and are micro amounts in nature. Our knowledge of that market makes it possible to assist Cell C to define the right products to address that market segment. That is a process that it’s not instantaneous, so although we all know exactly what it is that we want, the definition of those products and the ultimate loading of those products on to the Cell C system obviously takes a couple of months. We ran our first pilots based on what we believe the [indiscernible] products offerings are in December. We are tweaking those, so we think that we can be in a position to launch it in a meaningful way in the next quarter. So Q3 for us is going to be a significant quarter in terms of launching those, what we call lifestyle products.…

Okay, great. And then for your Hong Kong, Chinese related business can you just give us a little more of an update on that?

Sure. So our business in Hong Kong Transact24, now part of the international payments group. So we have consolidated all of the licenses that we have, our e-money licenses as well as all various issuing and acquiring relationships under one umbrella. The founder and CEO of T24 Philip Meyer is now the business unit leader for all of these activities, that’s not only the Hong Kong-based business but the international business when it comes to issuing and acquiring and processing. On the areas that we focus specifically on when it comes to the east or specifically China, the processing volumes that we’ve seen from our Chinese processing activities, there is a slide I think that we’ve provided that shows that there’s been quite an increase in Chinese processing. It is a business that is seasonal and to an extent, so we would expect to see a larger increase during some quarters than during others. But the business is growing and it’s doing well. And of course the introduction of processing for Bitstamp which is European based exchange, not really sort of Hong Kong or China based had a very positive increase overall on the processing volumes for the international payments group. And then the area where you will see, if you look the deck, we’ve had particular strong increase in processing volumes in on the SEPA, which is an acronym I think for Single European Payment areas which is just really the equivalent of ESP debit in the European Union. That’s an area where we’ve spent a lot of time and efforts in terms of getting our systems really to perform those transactions and if you look at the deck you’ll see that there’s been a magnitude of I think three or four times increase in the processing volumes. So, we are excited about the way that all of these individual components that we’ve accumulated over the last two or three years has finally come together. I think that we now have under our control all in association with our investment in Bank Frick, every aspect of what is required to provide and to run through end to end solution as far as international payment, processing, acquiring and issuing is concerned.

Good. If I can ask one other thing, in India you’ve talked about MobiKwik, I miss you were referring to something else after that, if you could just remind me what that was? And then just how you think about the opportunity in the country?

Hi, Allen, this is Dhruv. So what we’d said beyond just a VCC project is that we are making progress in terms of identifying how to deploy our UEPS solution in the country and that obviously requires a number of local stakeholders that have to be educated and brought into the fold. We’ve also made some progress in terms of developing international remittance products which we will start within -- remittances into India and then eventually look at for the group for other countries. And then the last part that we talked about was receiving a ACS certification from Visa within the next 30 days which would allow us to do effectively the second factor authentication which is a requirement for card not present transactions in India. So those are the things that we talked about. I mean, how we think about the market. First of all for the group it’s critical for us to demonstrate success whether we can succeed in India we can succeed anywhere in the world. The second is the margin profile in the country is generally across the board very thin, so it has to be a volume and scale game and that’s where the partnership with MobiKwik is critical for us because they help us bring the scale much faster. And then as we sort of expand on that with the additional product offerings that how we start to build a long-term and sustainable and sizable business model for the group.

Thank you very much sir. [Operator Instructions] Our next question is from Stephen Rossini [ph] from University Bank [ph]. Please go ahead.

Thank you very much for taking my question. First of all, congratulations to you and your team for excellent management progress during the quarter.

Thank you.

My question my question revolves around Bank Frick and the regulatory compliance regime there with respect to the opportunity to outline with cryptocurrencies? I think its obvious that many bankers around the world has thought hard about getting into cryptocurrency business, but local regulatory restriction from their own bank regulators has held them back. Can you describe a little bit the regulatory regime in Liechtenstein? And what practical or legal limitations you do have on your cryptocurrency business there? Or is it truly unlimited?

Unfortunately I think they are having unlimited capabilities from a regulatory point of view are long gone. And so in Liechtenstein specifically there is a very, very active and dynamic rate banking regulator. The country is as you know quite small, which means that – and the number of banks also quite limited, so there is very active oversights in the banking sector. I think what we do have is a regulator that is very progressive in terms of how the emerging trends across the world in terms of payment and currencies emerge. So we have a regulator that’s willing to engage, willing to listen and willing to assist us to figure out what is doable, what is not. Most importantly to come up with fully regulated solution. So if we look specifically at things like cryptotrading and cryptoexchanges it is I think a vital importance these days with all of the various events that we’ve seen and the hacking that’s taken place with some of these – that an absolute requirement for ICOs and exchanges to have the ability to do safe custodianship of the underlying assets. And that something that I think only a bank that is fully regulated can really bring to the party. So that’s a very critical component of what we think Bank Frick can bring. The key thing to understand is that whatever it is that we do is still at a full mercy and oversight of the regulator, but as I said the benefits w have is that we have an accessible regulator that is really willing to listen and to look at any application that is submitted and to debate that no matter what the underlying instrument is.

Thank you very much sir. Ladies and gentlemen, we have no further questions. And with that we will conclude today’s conference. Thank you for joining us and you may now disconnect your lines.