Good day, ladies and gentlemen and welcome to the Net 1 Third Quarter 2019 Earnings Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you, Irene. Welcome to our third quarter 2019 earnings call. With me on the call today is our CEO, Herman Kotzé and our CFO, Alex Smith. Our press release and 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 impacted by currency fluctuations between the U.S. dollar and the South African rand. We will have a Q&A session following our prepared remarks. And with that, let me turn the call over to Herman. Herman Kotzé: Thank you, Dhruv and good day to everybody. This morning, I will review our third quarter highlights and specifically the progress on the key focus areas we highlighted on the last call and where we go from here. Following that, Alex will review the third quarter results in more detail, which will be followed by your questions. Net 1 went through transformational changes during Q3 2019 as we implemented a comprehensive restructuring of our business and cost base. We are on target to complete the 2 main objectives we set ourselves, following the mass migration of our EPE cardholder base in Q2. The first being to achieve cash flow breakeven…

Thank you, Herman, and good day to everybody. I’ll be discussing the key results and trends within our operating segments for the third quarter of fiscal 2019 compared to a year ago. For Q3 of 2019, our average rand dollar exchange rate was ZAR14.17 compared to ZAR11.95 a year ago, which adversely impacted our U.S. dollar-based results by approximately 19%. Our fundamental earnings per share declined to a loss of $0.62, which includes $0.44 of non-cash negative impact from the fair value adjustments of Cell C and the impairment of the Cedar Cellular note. Operationally, the fundamental loss was caused by the losses incurred by our South African operations and at IPG. At the end of the quarter, we disposed of 17% of DNI, which changed DNI from a subsidiary to an equity-accounted investment from that date. The results of DNI have been consolidated into our segment operations for the third quarter, but will move into earnings from equity-accounted investments in the fourth quarter. Given the disposal transactions, which I will discuss later, and the call option that has been granted on our remaining DNI investment, we have classified DNI as a discontinued operation for disclosure purposes to provide shareholders with a view of the performance of the remaining business. By segment, South African transaction processing reported revenue of $17.4 million in the third quarter of 2019, down 72% compared to the third quarter of 2018 on a constant currency basis. The decrease is primarily due to the termination of the SASSA contract and to a lesser extent, the reduction in the number of EPE accounts. Our revenue and operating income was also adversely impacted by the significant reduction in the number of SASSA-grant recipients with SASSA-branded Grindrod cards linked to Grindrod Bank accounts as SASSA completed its position to…

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

So, hello, for your South Africa businesses, there is a lot of moving parts, can you give us a sense of where you feel once it stabilizes kind of what a run-rate we are on potentially revenue and profitability? And to what extent, in terms of the EPE-related and the network fees that you do believe you can grow those businesses or more specifically on the EPE that you can do that without getting impacted negatively at all by anything related to SASSA? Thank you. Herman Kotzé: Thanks, Allen. A multifaceted question, I will comment on a part it and I’ll let Alex comment on the numeric aspects of it. I think it’s important to recognize that going forward, towards sort of the end of Q4 and bearing in mind that we are already half way through the fourth quarter, we certainly see a stabilization of the core South African businesses. We certainly do not expect any further major fluctuations, other than the remaining issues that we have with SASSA, and we’ll deal with those as and when they take place. There are some legal processes in place, there are some negotiations in place, but as and when those are concluded, we’ll obviously keep you up-to-date. So the focus going forward for us in South Africa is really to continue with the build-out over EasyPay Everywhere account holder base. And that we want to do in conjunction with Finbond, which is one of our portfolio companies. We obviously in conjunction with Net 1 to focus on the rollout of our financial services offerings, including the micro-lending part of things, the insurance part of things and other value-added services and of course, connected to all of that is the continued rollout and utilization of our point of sale in ATM networks.…

I don’t know. It’s certainly in terms of if you look at the third quarter numbers and strip out the effect of DNI, we have certainly seen revenue on a monthly basis fairly stable, so for the next quarter as that would be approximately about $70 million. As we said that, we are trying to stabilize to a neutral breakeven EBITDA position of that level. So we would look to be seeing growth into 2020, which would move the revenue line with a drop-down into the EBITDA number, given quite a substantial fixed cost base. So a lot of contribution will drop directly to bottom line.

Okay, thank you. And then moving to your international area, two things, one on KSNET, the revenues are down 13% constant currency or 12% in U.S. dollars. So it seems like there’s things going on there, I guess it’s the regulatory side, but it doesn’t seem like it’s turned around yet. I’m not really sure what this review is doing or that’s changing that, but at one point you thought you could get to $40 million EBITDA next fiscal year that seems quite a stretch at this point. But maybe if you could give us something on to understand that a little better. And then the rest of IPG, it sounds like because you are waiting for Bank Frick to get approval for related SME lending, that maybe we don’t think that, that can become potentially turning around until calendar 2020. Let me know if those things – if that’s a true statement or if I am thinking about that right? Thank you. Herman Kotzé: Okay. So, let’s start with the KSNET side of things. Allen, so I think from the outset, Q3 is a notoriously difficult quarter historically as well as this year from a seasonality point of view to use as an actual benchmark. There is a lot of things happening during the third quarter of every fiscal year. We have a number of holidays. There are all sorts of extraneous factors like the weather that plays a role, the timing of the Lunar New Year holidays etcetera. So just keep that at the back of your mind when looking at Q3 specifically, but I think the key takeaways for us from the last quarter is yes, there was a reduction in the values and the volumes processed. There is some impact if you do the year-on-year comparison…

Can I ask another question? Herman Kotzé: Yes. Sure.

Oh, great. What was what would have the EBITDA loss then in the quarter if you excluded the DNI contribution? Herman Kotzé: Alex?

If you excluded the DNI contribution of timing...

Well, I think because you said that you the loss would be $3 million next quarter, and you said that, that would be an improvement over what it was. So, this quarter, it was $1 million loss. But what would it have been if it – if you’d – so we can look at like apples to apples.

Yes, sure. So, if so DNI basically contributed EBITDA of $8.4 million in the quarter. So, the loss would have been $9.4 million. Herman Kotzé: 100%.

Yes. And that’s based on 100% with DNI. The guidance we gave in the for this quarter, the $5 million loss, basically included 55% of DNI’s EBITDA. So, we were basically directly in line with what with where we guided on the EBITDA line.

Okay thank you very much.

Our next question is from Scott Buck, B. Riley FBR.

First, congrats on the progress to date. I was hoping you might be able to provide some sort of color around what’s your view as strategic or I know you used the term core fintech business on the announcement earlier in the week, I just want to get a sense of rather than trying to read the tea leaves what maybe this business looks like once you shed some of these additional investments and nonstrategic business lines? Herman Kotzé: Okay Scott. I’ve got the strategic review is a process that’s obviously quite complex and time-consuming and it’s one that is currently underway. As we indicated, the core focus for us is really the fintech side of our business. In the South African environment, that really revolves around our EPE offering and the related financial services around that. So, the technology, the tech part of fintech would be the rollout of our UEPS/EMV platform. And the fin part of the fintech would be the offering of financial services. So that includes loans, insurance in and value-added services, prepaid, airtime, utilities, et cetera, et cetera. The same thing, I think, would apply to the IPG business. Obviously, a key part of what we need to consider as part of this review is what the market ability value of any of the potential non-core assets would be. And so that is an exercise that we are currently doing. It is we are assisted by some very capable and competent advisors in this regard. But I think as a key takeaway, the financial technology elements of the business are the ones that we consider core and the others are probably on the list of non-core assets. And once we made our final decisions and we’ve mapped out a plan in terms of how we potentially could realize some of the non-core assets, we will let you know. But this is by no means a fire sale or a dissolving of the company. We want to do this very properly. And we want to make sure that we end up with what we believe is going to be the absolute core focus of the business going forward.

Great. I appreciate the color there. Second, how confident are you in that DNI will exercise the call option? Herman Kotzé: Well, obviously, we would not have granted the, this option for the period that we have unless we had some, I think, indication that the likelihood or the probability of the exercise was something that could happen. Structuring these options and putting together all the legals is also fairly complex and quite time-consuming. And the fact that we went through the effort of doing so, I think indicates that there’s a reasonable possibility that the option will be exercised. I know for a fact that there are number of interested parties. The business is a fantastic cash-generative business. It is highly attractive to any potential investor in the in that market space. And we’ve given ourselves and we’ve given the other side until December to do so, so I wouldn’t want to stick my neck out on exactly what the timing would be. But I do think that it’s highly likely that the option will be exercised.

Great. Last one. What kind of time line can we expect in terms of additional announcements like this? Are we talking months, quarters, years or probably all of the above? Herman Kotzé: Probably all of the above. Some of these are shorter-term initiatives and some of them are a lot easier to execute. Again, it’s all a function of when you look at the strategic review, there’s a function of marketability, valuation and interested parties. When you look at the product side of things, I think that there will be a lot more being announced rather in a matter of months than years. But we will, obviously, keep you fully abreast of any developments, and we will announce any of these transactions as and when they take place.

Perfect. One more, I lied, guys. Are there any additional significant cash outlays in regards to further retrenchment costs expected during the fourth quarter? I know you’ve kind of laid out what some of the cash requirements are for the business. But kind of outside of that, any outsized cash requirements during Q4?

There may be a few more restructuring costs, but we’re not talking about outsized ones more than we think. Herman Kotzé: Yes. I think we’re largely complete. It’s tying up all the loose ends up. But by and large, I think, we know we’re close to expecting what we’ve seen in Q3, which was the absolute sort of water-shaped quarter as far as those costs were concerned.

Perfect thank you guys.

Our next question is from Josh Rosen of Peter Street.

Hi, thank you for taking my question and congratulations on the process that you have made. You went through a pretty rapid shift between finding majority position in DNI, and now you’re looking to sell that entire position. Could you talk about the strategic shift there? How does it affect the strategy to bundle financial products with South East starter packs? And what does it imply for the investment in Cell C? Thanks. Herman Kotzé: Sure. Josh, we obviously went through the initial acquisition, as you say, of DNI, that then was increased to a control position towards the end of last year. I think squarely as a result of the events that took place over the October to February period and the dramatic impact that it had on the South African business, we obviously had to take a long and hot and fresh look at exactly what we needed to focus on. We needed to understand what we could do to resolve the pretty dire situation that we have found ourselves in. And obviously, as I said before, exactly what the core focus of the business will be going forward. DNI is a fantastic business as I’ve said from a profitability and a cash generation point of view. We’ve got a fabulous management team. And it is very much involved on the telecom side of things. It has a distribution network, that we believe is complementary to the one that we have built up. But also, we get the full analysis of where we wanted to go and how we could rapidly resolve the situation that we could that we found ourselves in. We also looking took into account which businesses we would be able to work together with, without necessarily being a majority shareholder in that specific business.…

Great. Thank you. And just as a secondary question. I know there was talk of re-segmenting the business. Now that you no longer have the SASSA contract, is that still something that you are looking at? And if so, when will we expect you to implement it? Thank you.

Yes. We are still looking at it. We’re, obviously and as we’ve indicated, we’re going through this strategic review. And we think it’s appropriate to finalize that first and then look at re-segmentation at that point in time. We’re still looking at the business as we have done historically at the moment. So, it will be driven by this strategic review process.

Our last question is from Allen Klee.

Sorry, I have two questions that don’t have anything to do with each other. The first one is could you give us what the EBITDA would have been in the quarter from the not – kind of what you said last quarter, they’re annualized. If you excluded the trouble businesses, what that would be? And then second, could you talk a little bit more about how you think about the value of the network you have in South Africa and the processing fees you get from that? Maybe we can understand the value of that? Thank you.

So, I think just on the first question, the EBITDA run rate of the so transaction-type businesses, so that’s KSNET, EasyPay, first in the ATM business, would be in the region of $25 million to $30 million. And then I think as Herman mentioned, we would also be looking at receiving dividend from DNI going forward based on the 30% holding. And that’s probably about $4 million of dividend flow annually out of the remaining 30% investment that we have now. So that’s all based on Q3 run rate in terms of those 4 operations that I discussed. So, in particular, the KSNET run rate for Q3. So that’s kind of the EBITDA sense in terms of how we look at the value of the infrastructure. We obviously see that as critical for the future of the South African business. But there’s a strong infrastructure that’s being built out over the last 20 years as part of servicing the SASSA contract. We’ve got a significant reach into the South African population. And in particular into that un-banked and under-serviced population, we think we’re probably within 3 miles of most of the South African population. And it’s really around leveraging that infrastructure. And from that, we can generate a combination of ATM fees, interchange fees, issuing fees and then the related financial services, particularly the loans and the insurance products. And then on top of that I mean having worked about the fact that we can look to continue working with DNI regardless of the state of the size of our stake. And so there is also opportunities in terms of leveraging telecoms and lifestyle type products into that mix into that infrastructure. And all of that with the cost of a strong network effect should leave the higher incremental margins as we grow the customer base again.

Ladies and gentlemen that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.