Good day, ladies and gentlemen, and welcome to Net 1 UEPS Q2 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you, Claudia. Welcome to our second quarter 2020 earnings call. With me today is our CEO, Herman Kotzé, and our CFO, Alex Smith. Our press release is 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… [Technical Difficulty] Herman Kotzé: Sorry, everybody. We had a temporary technical glitch. But thank you to Dhruv and good day to everybody again. We have continued to execute towards our strategy and corporate actions outlined on our fourth quarter 2019 earnings call. I would like to focus today's discussion on our three strategic areas, namely South Africa, Europe and Africa, as well as the progress of our various corporate actions and related to that of our capital allocation. The highlights of our Q2 2020 results include: We reported revenue of $74 million, which was down 2% in constant currency. We are reported adjusted EBITDA of negative $0.7 million, primarily due to the lack of top line growth in South Africa and higher losses in IPG as a result of delays of new product launches. EPE accounts remained relatively stable at $1.04 million as did related financial services. KSNET EBITDA margin remained stable at 22%. And we sold our payroll processing business first for $12 million in December 2019 and more recently announced the sale of KSNET for $257 million in January 2020.…

Thank you, Herman. And good day to everybody. I'll discuss the key results and trends within our operating segments for the second quarter of fiscal 2020 compared to a year ago as well as compared to quarter one 2020 as sequential comparisons are more relevant today, given the changes endured by the group over the past year. For the second quarter of 2020, our average rand-dollar exchange rate was ZAR 14.60 compared to ZAR 14.32 a year ago and ZAR 14.75 in the first quarter. We recorded a fundamental loss per share of $0.10 this quarter compared to the $0.90 fundamental loss per share a year ago, which includes a substantial impairment of our loan book as well as a contribution from DNI. This compares to a fundamental loss per share in the first quarter of $0.02. This deterioration in performance against the previous quarter was mainly due to a reduction in ad hoc revenues in the South African business. By segment, South African transaction and processing reported revenue of $20.4 million in the second quarter of 2020, down 6% compared with the second quarter 2019, but up 4% from the first quarter of 2020 on a constant currency basis. The year-over-year decrease is primarily due to the combination of the SASSA contract, including those with SASSA Grindrod cards and, to a lesser extent, the reduction in the number of EPE accounts. The decreases in revenue and the resulting impact on operating income were partially offset by a higher transaction revenue as a result of increased usage of our ATMs. Our operating margin for the second quarter of 2020 and 2019 was negative 14.6% and negative 53.8% and compared to a negative 17.4% in the first quarter of 2020. The improvement in the operating margin in the latest quarter is…

Thank you. [Operator Instructions]. We have a question from Scott Buck of B. Riley. Please go ahead.

Yeah. Good morning, guys. I'm curious, in the 2020 adjusted EBITDA guide, whether or not there's any contribution from Bank Frick in that $3 million loss number?

No. We haven't incorporated any Bank Frick contribution in that guidance. We'll bring that in once the deal effectively closes.

Okay. But you will be consolidating results beginning in the June quarter, I guess?

Yeah, that's right. So, expect it to close in April. So, from April onwards. Herman Kotzé: Yeah.

Okay, perfect. And then, second, can you remind us of what returns have looked like historically in the core South African business, maybe when you were at kind of 3 million active account level? Herman Kotzé: Scott, it depends across which products and businesses you measure the total returns. I guess the easiest way for us to outline the revenues and the returns is to look at it on a per customer basis. And so, the average sort of revenue that we realized from, let's say, margin that we realized from our South African customers and cardholders and, obviously, excluding the old pension welfare distribution component of it, so focusing on the provision of a bank account, transactional services, loans, insurance products, et cetera, across the entire base, we would anticipate probably around ZAR 25 to ZAR 50 contribution from each one of our cardholders. The margin, obviously, increases exponentially with the amount of clients that are increased because the cost base is relatively fixed as far as the South African core business is concerned. And if you look at the 3 million people that we had, let's say, roughly two years ago, I think the revenues that we had at that point was approximately $250 million. That, obviously, excludes KSNET and the SASSA business. And EBITDA probably in the region of $50 million on that number. So, roughly a margin of, I would say, 20%.

Great, that's really helpful. Third, what gives you confidence that without having the SASSA contract as kind of a distribution feeder that you'll be able to grow the account base from just over a million now to 2 million to 3 million over time? Herman Kotzé: It's purely our distribution network that we haven't scaled down as a result of the loss of that contract. So, we have retained – in fact, we've grown our financial services branch infrastructure. We have also deployed sort of semi portable branches through the use of customized containers. And in combination with the Finbond branch infrastructure, if we just look at physical brick and mortar branches, we are just sort of between 700 and 800. These are mainly distributed in the rural and semi-rural areas, which in the South African context is fairly unique and gives us access to a part of the market that few of the other banks or our competitors actually service. The second thing I think that's quite important is that we have the technology that enables us to operate in these rural and deep rural areas in an offline manner where required. We also have the experience of having serviced our customer base for the last 20 years or so, which gives us the unique advantage. And finally, when you just look at the product slate that we offer in terms of the bank accounts, the functionality and the pricing of what we offer, combine that with the financial services, and the fact that these are specifically designed for our target market, we know because we do regular benchmarking that we are still by far the cheapest product set on offer to that customer base. And so, that's effectively the factors that provide me with the confidence that we'll be able to grow back this business.

Super. I appreciate the color there. Last one from me. If I'm doing my math right it looks like you guys should have roughly $160 million or so. If all the proceeds work out with DNI and you keep to the, I guess, investment or capital allocation schedule that you've laid out, how much cash do you need on the balance sheet to run the business? And I guess what I'm really asking is, how much of that $160 million is actually available for repurchases? Herman Kotzé: I think it's – great question, obviously. The $160 million is also a factor of the combination, I guess, of the KSNET and the DNI proceeds. And as you say, net of the investments, as I've outlined, Net 1 historically has been a business that is more comfortable having a net cash position and a safety cushion in order for us to grow specifically the working capital side of things when it comes to the growing of the book, et cetera. At this stage, we don't foresee any specific need for further meaningful material acquisitions. Most of our businesses are CapEx lite. Or the Capex that we required has been invested. And so, we would, I think, be comfortable with a cash buffer of probably between $30 million to $50 million to grow any of our initiatives over time. And at the same time, we obviously have to assume that we've extinguished all of the debt that remains within the group. That is not a material number, but it's something that we will also be attending to. So, we've set up the repurchase limit up to $100 million. And I think as we realize these proceeds from the various investments, which I hope is sort of in the early part of Q4, we will be able to provide more color of the exact quantum and nature of the repurchase program.

Great. I appreciate the time today, guys. Herman Kotzé: Thank you, Scott.

[Operator Instructions]. We have a question from Bill Gordon from Gordon Capital. Please go ahead, sir.

When we complete the Bank Frick deal, what do you see the prospects are for Bank Frick, Visa and the other payments? Herman Kotzé: The answer, I think, is simply that we will then become as Net 1 a principal member through Bank Frick of both Visa and MasterCard. So, we will have unfettered access as a principal member to both the issuing and the acquiring licenses. That enables us to price our products and our offerings to merchants specifically for acquiring at a level which is competitive to those offered by our competitors. Compare that to a situation where we need to leverage of other third-party financial institutions where you are provided with a buy rate and then you still have to markup your offering from that buy rate. I think, for us, that is one of the key important and differentiating matters. It also allows us to launch all of our new technologies that we've been developing over the last two years, ranging from instant onboarding to virtual bank account issuance in a fully regulated environment within the EEA. And finally, also the products that we've developed on the Blockchain and virtual financial asset side, we will be able to offer those through a bank that is a member of the group, which is widely regarded as the leader in the European space within the Blockchain and virtual financial asset space. So. that, in a nutshell, is the benefits that we see – the immediate benefit of completing the transaction.

And how do you see DNI working now? Herman Kotzé: DNI, we've granted the option. It expires on 30 March, as I said. At this point in time, the process – we granted the option effectively to the management team of DNI, and so they are very well advanced in finding the institutional investors who are interested in acquiring our 30% stake. At this stage, the process I think is relatively advanced and we have no reason to believe that the option will not be completed by March 30.

Thank you.

We have no further questions. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.