Good day, ladies and gentlemen, and welcome to the Net 1 UEPS First Quarter 2019 Earnings Conference. All participants are currently in listen-only mode. [Operator Instructions] Please also note that this call is being recorded. I'd now like to turn the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you, Chris. Welcome to our first quarter 2019 earnings call. With me on the call today is our CEO, Herman Kotzé; and our CFO, Alex Smith. Our press release and a supplementary financial presentation are available on our Investor Relations website, ir.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 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 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 US dollar and the South African Rand. We will have a question-and-answer session following our prepared remarks. So with that, let me turn the call over to Herman. Herman Kotzé: Thank you, Dhruv. Good morning to all of our shareholders. October the 1, 2018 marked a new dawn for Net 1, following the expiration of our contract with SASSA on 30 September and the transition to the South Africa Post Office or SAPO. We have now been relieved of our constitutional obligations and are able to dedicate our considerable efforts and resources to the provision of financial inclusion services to the unbanked and underbanked in South Africa and internationally. We are excited to embark on the new journey we have been planning for now that we are able to transform our business in South Africa, free from the constraints…

Thank you, Herman. I would first like to cover the restatement announcement made with the release of our results and will then discuss the key results and trends within our operating segments for the first quarter of 2019 compared to a year ago. We’ve set out the financial statement impacts of the restatement in the 8-K that was filed last night. The restatement relates to a misclassification of the fair value gains made on our Cell C investment in the last fiscal year. $25.2 million or $0.44 of EPS fair value change was incorrectly recorded in our other comprehensive income instead of net income. Our fundamental earnings per share for fiscal 2018 are unchanged. The restatement does not change the carrying value of our Cell C investment or our net asset value. This restatement event has delayed the filing of our 10-Q as we need to close out a number of financial closing steps, before we can file. We are working with our advisors and we’ll file our 10-Q and amended 10-K as soon as is practically possible. Turning to our results, for Q1 of 2019, our average rand dollar exchange rate was ZAR14.86 compared to ZAR13.17 to the dollar a year ago, which adversely impacted our US dollar based results by approximately 13%. Revenue of $126 million in the first quarter of 2019 was down 17% year-over-year in dollars and down 7% in constant currency. Our fundamental earnings per share declined to just $0.01, impacted predominantly by the losses incurred by CPS, the lower EPE customer base and a high tax charge related to CPS’ losses. By segment, South African transaction processing reported revenue of $38 million in the first quarter of 2019, down 36% compared with the first quarter of 2018 on a constant currency basis. While the…

[Operator Instructions] Our first question is from Allen Klee of Maxim Group.

In terms of the EPE customers, can you give us a little more color in terms of why you feel that SASSA or for whatever reason that the number won't go down anymore and to what degree that they can force that to happen. And then for the acquiring customers in the rural area, can you explain a little more, is this that customers actually opening an account with you or is it just that they're transacting on your mobile ATMs or maybe understanding that business competitively, why you're confident that's going to grow? Herman Kotzé: On the first question, the decline in the EPE customer base and how we see this going forward, first of all, I think it's important to note that there was a very dedicated push towards the end of the first quarter, so in August and September from SASSA who were under tremendous pressure to ensure that they would not have to approach the court for a further extension of our contract to convert as many people as possible to the post office account base. Now that the contract has come to an end and obviously there is no further extension and our obligations have ended, we hope that that's also brought an end to SASSA’s activities in terms of trying to do bulk transfers of beneficiaries, including EPE customers to the SAPO banks. And to that extent, we've seen a stabilization in the number of EPE accounts that we have that are active and that receive grants over the last two months. So I think that's a very good indication. The other very positive indication that we have after some intervention from our side, also with some legal ramifications is that SASSA is finally processing the so called Annexure C forms, so these are…

So how do you think of what kind of the total addressable market is for the, first for like the EPE accounts, given the ones that have transferred over to the post office and then also for this newer business with the -- in the rural areas. Herman Kotzé: So I think the opportunity or the market opportunity for us is obviously much greater in the rural areas. Again, the bank ATMs and post offices specifically are very much concentrated in the larger city areas and in the larger towns. And so for us, the key opportunity remains in the rural areas, where we believe there are probably around 5 million potential EPE customers, so people who are unbanked, underbanked and in need of a bank account, in the urban areas, that number is north of 10 million. But the competition, as I’ve said, is much more intense. We still believe that with our pricing and value proposition, we will be able to take some market share in the urban areas as well, but for now, our target as I mentioned in my prepared remarks is to get to roughly a blended combination of 5 million to 6 million customers, whether they are EPE issued customers or whether they just use our infrastructure on a monthly basis towards the end of fiscal 2019.

And then if we move on to KSNET, so you said that there was a timing issue of – or just that of a change in the holiday, how is the process, but you still feel that this business can improve, how is the process of bringing your cross down to the agents that you've been trying to and just kind of your outlook to grow this business? Herman Kotzé: Sure. So in Q1 this year, there was the Korean Thanksgiving holidays, which is typically the biggest -- one of the biggest holidays of the year, I would say. Last year, we had that period in Q2, so there is a bit of a timing mismatch and explains why the revenues were slightly depressed during this specific quarter. In terms of our efforts to look at the underlying cost factors within KSNET and those are mainly driven through our expenses that or commissions rather that we pay on our agent workforce, there is a dedicated project underway. Over the last three months or so, we have engaged also the services of a global consulting firm. We'll give more details around that when the initial results become more evident, but we are busy with an intense overhaul, an overview of the business model specifically as it relates to the use of agents. And from our perspective, I think it's important to note that we believe it's important to place a specific focus on the quality of the agents that we deployed rather than the quantity of the agents that we deployed. Over time, that may well mean that we need to not renew our contract with certain of these agents. That in turn will result in a decrease in the top line, on the revenue line, but will definitely translate into an increase in the bottom line because some of these contracts are simply not sustainable after the fee cut that we got from government. So there's a very dedicated effort underway. We will begin to really get next week to take this forward and we are positive again that we've seen the trough of the effect of the VAN fee cut now that we are anniversarying the last of the cuts that were imposed by the government.

Our next question is from [indiscernible].

Do you envisage having to provide any further shareholder support to Cell C over the near term and then on your product, you mentioned in telecoms providing to EPE customers, how exactly will that product look and is it going to be a discounted offering to your EPE customers? Herman Kotzé: On the first question, so Cell C is currently, as you know, in the middle of a recapitalization and refinancing process. We and along with our other shareholders, primarily Blue Label provided the initial recapitalization support when we've made the investment last year. In the meantime, Cell C has commenced with a further restructuring of its bit. It recently refinanced ZAR1.5 of the date with a consortium of South African banks. They dedicated ongoing focus on reducing the cost of date in Cell C. And on -- obviously carefully monitoring the relevant cash flow implications there are. To the extent that we will be required to provide any support and if that is the case, I believe, it will be temporary in nature and not material in nature. We will obviously consider that, but in our view, the master plan in terms of the recapitalization and refinancing, if it’s at Cell C are well underway and well under control. In terms of the second part of your question, the product that we or the products I would rather say that we are designing and some of them we’ve launched for our EPE customers, obviously, we don't want to give away too much by a way of competitive information. But what we are looking to do is to address the core needs of our target market. And if you look at the typical EPE customer who is also normally a social grant percipient, we have a fairly good idea of…

Our next question is a follow-up from Allen Klee.

Just following up on your talking about IPG and the restructuring, can you go over a little what the cost of the restructuring was and then what you see is kind of the opportunity once you're combining the different abilities of the different pieces of it together of what you think the contribution could be longer term from IPG? Herman Kotzé: Sure. So in terms of the costs of the restructuring, we haven't broken that out and given that separately. It is, I think, mainly driven by two major cost factors. The first was that they had to be a right sizing of the staff component and so we include certain retrenchment costs in that regard, which are obviously one-off in nature. The second was that we have optimized the various contracts that we have around support and office infrastructure and we had to terminate some of those early terminate some of those and then had an obvious cost implication. Once this is all done and the reorganization and the restructuring itself is largely done and maybe if I can just give you a bit more color in terms of what that means, we now have -- based all of our operations in terms of reconciliation, settlement, compliance and risk management in Malta, we chose Malta because that is the way we hold our out EU emoney license and we also chose Malta because it is substantially cheaper to run an operated office there, the quality of staff we find is very good. And so going forward, from our Malta office, we will drive our European recon settlement and operational aspects. We also have a small office in London because we have an emoney license in the UK and obviously depending on what the outcome of the Brexit negotiations will…

And then can you just clarify for your debt in South Africa, your timing for when you believe you will have that fully paid down. And do you have an ability to prepay that and so when would that imply that you'd be able to buy back stock? Herman Kotzé: We can’t prepay the debt, we've got restrictions in terms of only segment of the debt. No penalties. The bulk of it will basically be settled by the end of June 2019. The three payments of about 152 million and then there are smaller payments going forward. So we think that by the end of this fiscal year, we would be in a position to, the restrictions in terms of cash, I'd like it to be lifted.

And then if I could ask one more, one MobiKwik, you were discussing that there was some type of change in regulation with Visa and MasterCard that -- could you just explain that a little of what that is and why that makes it more valuable? What they have and you have?

So about three or four weeks ago, the Central Bank issued new guidelines for the digital wallet, which do a number of things. The first, the two most important things it does is one it makes interoperability between wallet and wallets to bank accounts and the second is today issuing -- card issuing is looking to methods typically through banks where the central bank has permitted the digital wallets to directly become issuers through Visa and MasterCard and locally Rupay without necessarily having a bank partner. So in our case, as you can see, with CBCC rollout, we've been constrained by the number of users we can add on because we've got limitations set by the bank because they want to manage that risk because they're going through their own merger. And so if you just look at it from a big picture view, what these regulations do is bring wallets at par with the bank account with the only exception being that the wallet cannot pay interest. [Technical Difficulty] Herman Kotzé: No problem. Well, maybe while we wait for Dhruv to dial back in, I can just complete what he was saying. So now that these regulations have been promulgated in the Indian market, it does make it much easier for wallet operators to conduct their business in a broader sense by also becoming card issuers and acquirers. They are no longer compelled or required to partner with banks in order for them to do so. So from a Net 1 perspective and specifically the issuance of our virtual card, which in India is a Visa card, the way forward for us in terms of having access to a much bigger range of account numbers is obviously much bigger now. We will no longer be constrained in terms of how we can market and sell the product offering. And for us, that is quite a valuable proposition going forward to open up the virtual card offering to all of MobiKwik’s subscribers, which are in excess of 100 million at the moment.

Thank you very much, sir. Ladies and gentlemen, that then concludes this conference call. Thank you for joining us and you may now disconnect your lines.