Good day, ladies and gentlemen, and welcome to the Net 1 UEPS Technologies Inc. First Quarter 2022 Earnings Call. All participants, will be in listen-only mode and there will be an opportunity to ask questions later during the conference. [Operator Instructions] Please also note, that this event is being recorded. I would now like to turn the conference over to Ms. Dara Dierks. Please go ahead.

Thank you operator. Welcome to our first quarter 2022 earnings call. With me today are Chris Meyer, Group CEO; Lincoln Mali; South Africa CEO; and Alex Smith, CFO. Our press release and supplementary investor presentation are available on our Investor Relations website at 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 Form 10-Q regarding the risks and uncertainties associated with forward-looking statements. Also we will discuss our results in South African rand, which is non-GAAP. We analyze our results of operations in our press release in rand and investors' understanding of the underlying trends in our business. As you know the company's results can be significantly affected by the currency fluctuations between the US dollar and South African rand. Chris will start the call today with an update on strategy, then Lincoln will provide an update on the turnaround of the South African operations. And finally Alex will go through the results of the first quarter. Following that we'll have a Q&A session. With that, I would like to turn the call over to Chris.

Thank you Dara, and good morning, good afternoon and thank you to all for joining us for our first quarter earnings call today. This earnings call marks my first full quarter. And in essence I suppose my 100 days in the role as Group CEO, and I couldn't be more pleased with the progress and focused execution of the management team and all of the committed Net1 team members in advancing our strategic priorities. As this is my second earnings call as Group CEO, I thought it would be worth repeating what I have stated about the vision and mission of Net1 and our intense focus on repositioning the business for growth. Our vision is to build and operate the leading South African full-service fintech platform, offering payment processing and financial services to underserved merchants and consumers. Aligned with that vision is our core purpose to improve people's lives by bringing financial inclusion to the underserved in South Africa. This is a tremendous growth opportunity in the Southern African market, which is primarily a cash-based economy with approximately 60% of transactions still conducted in cash. We've also previously explained that our mission leads us to a total addressable market of over ZAR150 billion comprising more than 26 million adults in LSMs 1 to 6, as well as approximately 700,000 formal and 1.4 million informal micro small and medium enterprises or MSMEs across South Africa. We plan to address this growth opportunity both organically and through acquisitions such as the transformative acquisition of the Connect Group that was announced last week. The announcement of the Connect Group acquisition marks the start of a transformative opportunity to unlock the next phase of Net1’s growth. And the combined entity provides our stakeholders with the opportunity to -- a part of building the leading…

Thank you, Chris. Thank you for your passion. Thank you for your drive and leadership during the last few months. I'd like to go into much more detail on how we plan to address some of the issues that have been highlighted by Chris in his comments. Our plan will focus on three primary objectives: One, building a sales culture; Two, improving our account performance; and Three, launching new products. First, let me begin by the focus on building a sales culture. We have embarked on an ambitious and necessary journey to change the mindset, service orientation, corporate culture, and skill set of our distribution network from a cash logistics to a client-focused sales driven culture. This mindset is largely based on four important pillars: One, create a cultural communication, engagement, transparency and empowerment among our staff to give them pride and dignity about working for Net 1; Two, develop a focus on individual customer experience. This is about treating our customers with respect and dignity and ensure that we have meaningful conversations about their financial needs. Three, building a sense of accountability about individual team and company performance. And lastly, train and ensure that our teams, align their daily activities and focus areas with our vision and purpose. We have been humbled by the positive response to this new culture by our teams at all levels of the organization. This is evident in the increased visibility of our staffing communities, as well as the reemergence of our brand in the competitive market. I'm humbled by the feedback from our frontline leaders who are daily driving this change on an ongoing basis. Our training program has already been implemented for over 90% of our team and we believe that these ongoing efforts and better visibility of metrics and performance should…

Thank you, Lincoln and good morning, everybody. Now let's turn to the financial metrics for the quarter as well as some brief comments on our Connect Group acquisition. Total revenue for the quarter was $34.5 million, which was a 2% decrease year-over-year in U.S. dollar terms and a 14% decrease in rand terms. This was primarily due to fewer prepaid airtime and hardware sales and lower account revenues. The US dollar was 13% weaker against the rand during the first quarter of 2022 compared to the same period in the prior year, which also impacted our reported results. We reported an adjusted EBITDA loss of $10.1 million, which was 4% worse than the $9.7 million EBITDA loss reported for the first quarter of 2021, though 10% better in constant currency. This was mainly as a result of the closure of IPG, which incurred a loss of $2.8 million in the prior period. The core South African operations saw EBITDA losses for the quarter of $8.6 million compared to the $4.3 million in the prior period, primarily due to the lower revenue levels as well as weaker profitability in the Financial Services segment linked to increased insurance claims related to the COVID pandemic. Otherwise, the cost base remains stable and we have significant available capacity. Transaction volumes through our EasyPay switch were up 11% compared to the prior quarter while transaction values also increased by around 4%. This was in line with expectations as this is a higher volume period from a seasonality perspective. But within this portfolio, there is an encouraging sustained growth in bill payment volumes over the previous year. In our Financial Services business, the loan book finished September 30, 2021 at ZAR 346 million versus 384 million on the 30th of September, 2020 and 336 million at…

Thank you, very much sir. [Operator Instructions] Our first question is from Raj Sharma of B. Riley. Please go ahead.

Hi. Good morning guys. Thank you for laying out a definitive plan. Could you talk a little bit about the cost base that you are referring to currently and where that goes to by June? I think it was an 18% to 20% reduction. If you could talk a little bit about that. And then, what do you expect in June, the level of account to be in EPE?

Sure, Raj. So, just to clarify on cost reductions. So we've identified about 185 million of costs that we will be able to take out this fiscal year. And that's predominantly coming out of the fixed cost base. And when we break down and obviously very focused on financial services, because that's where we're looking to achieve the profitability. So, when we break down our cost base between fixed and variable, we estimate that the most of the -- of 185 million is coming out of the fixed cost base and that's about an 18% reduction in the fixed cost base that we'll achieve this year.

Right. And that would be indicative of about 1.5 million EPE accounts by June of -- by the end of the fiscal year. Is that the way to look at it?

So we're targeting less than that in terms of achieving breakeven at the SASSA level, but we estimate that we need to be at 1.55 million to achieve breakeven at the group --

Okay.

-- at the UEPS Group level. So I think in the past we've always indicated breakeven at the SASSA group level. We're now trying to give some guidance around including the cost that we hold at the group level. So that's what lifts the breakeven point up to the 1.55 million account level.

If I could add, Raj, its Chris.

Would the consume…

Sorry, go ahead.

All right.

You’ve got a piece.

Yes. So I think to summarize, the actions taken in this quarter will have moved our breakeven point down by 100,000 accounts. That's what it equates to. And an 18% fall, reduction in the fixed cost base of our financial services business. And I think the other point to add is, we have a number of other areas under review. And we're working very hard on the cost base within the financial services business, the consumer financial services business. And our aim is to bring that breakeven point down, as I was saying earlier, as close to our existing account base as possible. That's what we're trying to do. So I think the important message we're trying to deliver is, I think historically there was purely one lever being focused on which was the lever of grow account numbers. What we're saying is, there are three levers here. Lever one is, let's grow account numbers. But more importantly, we believe we can optimize the cost base in this business or as importantly, we believe we can optimize the cost base in this business. And we are focused on bringing down the breakeven point to as close as possible to our current EPE account -- active EPE account base as possible. So that's very important. And then the third point to add is, to pick up on somewhat Lincoln was saying earlier, we want to -- we're putting a real focus on the average revenue per client and that's through training and focusing our staff across the country in terms of the broader product set, MoneyLine, Smart Life and therefore, offering a greater product offering to our client base and improving that overall revenue per client.

So if I understand it correctly, the 100,000 accounts that is going to be lowered by the end of the fiscal year, it goes from 1.55 to 1.45 is one point -- is that right? 1.55 to 1.4?

1.65 to 1.55.

Got it. And then, by that time, you're saying that's the overall group level that you're going to achieve breakeven. So would -- at that level, would the consumer group be breakeven, it wouldn't be.

No. No, we're not saying that. So we're saying, those are identified costs that we've already actioned and have managed to reduce the breakeven point to 1.55. Alright. That's the first point. And secondly, our aim, our intention is to get this business to a breakeven point to a run rate breakeven in June 2022 through further actions within those three levers that I've just described to you.

Right. And does the ARPU? And I know that, I think, Lincoln talked about -- you guys talked about ARPU increase. Does that change the metric significantly from 250 in account a month in financing -- in financial and processing? Does that change that? I think the expectation was to go to 3? And I'm talking about dollars per account per month. Has that -- is that also expecting to change, because you're bringing on some light products the EPE Light and the SmarTone [ph] would that lower your ARPU in the business?

Sorry, Raj, just -- could you just repeat that last section?

The last question was you're going to introduce the -- or you have introduced EPE Light and the Smart One. My question is, does the overall ARPU go down, as a result of -- you have the growth in the accounts and you have the growth in the overall revenue levels, but does the ARPU level go down because of offering these late products?

So the EPE Light might dilute slightly, but it won't -- it's unlikely to have a significant effect. The Smart One products is more of a re-branding and repositioning, and actually may enhance our ARPU slightly or can't enhance it quite significantly actually, because we feel that the penetration of insurance products into the base is quite low. And also if I can comment, I think the light product -- the EPE light is intended to broaden our offering beyond the social grant recipient markets. So the numbers we're talking about, this would be in addition to that in a sense.

Yeah. If I could also add Raj if you think about this Smart One also goes beyond the social grant pace. This is again, people who understand alone, who are looking for a funeral policy. And again it breaks the mold that our focus is not only on social grant recipients, but any other person who's looking for a product of that nature. So collectively this should be more positive than negative.

Got it. Thank you. So, on the account growth, you're saying that you're doing about 50,000 new accounts a month? Did I catch that correctly?

Yeah. That's our current run rate. We've seen that for the last few months.

Right. And that's what gets you to the breakeven level of 1.55 million?

No, the 1.55 million at the end of the fiscal year.

Sorry again Raj, so the 1.55 billion is what we would see as a breakeven, based on our cost base and our assumptions on revenues, okay. And we are saying that, our aim is to get to breakeven by June 2022 run rate, breakeven in June 2022 through the combination of three levers, which would be growing our account base as we currently set out secondly, increasing the revenue per client. Thirdly, and probably most materially of the three at this point is the cost levers that we are focused on.

Got it. And then, this account growth are you -- I know that Lincoln was talking about, the initiatives with SASSA and the joint bid, are you -- in any of this account growth is there any number that you're assuming for growth of SASSA accounts the grant account the grant recipients?

No. We have inspected, in the tender, in our projections. The issues, I was talking about was that in our day-to-day interaction. We are seeing more collaboration with SASSA. They are for example environments where SASSA is invited us to be in their offices to help capture the accounts. And that should drive activation to be better. We have also been invited by SASSA in some of the provinces to go with them in their outreach programs so that we can open new accounts in those environments. But for the tender itself, we have not factored that into the numbers, because we want to get a better sense if we are fortunate to be one of the banks that win this. And then obviously we will be in a better situation to kind of assess what the revenue implications are of that win. But we have not factored that in, in the projections of account growth.

Well, Lincoln, that's very helpful.

Yeah.

Are there any, sort of expectation of a certain number of accounts that you could gain over the next year or two years, or is that too early to tell?

Yeah. It's too early to tell Raj, because the biggest thing is, all of the work of changing the culture, all of the work of training the staff, all of the work of changing the mindset from a logistics company to a financial services, all of the work of improving our relationship with SASSA, and all of the work of being in the market competing and launching new products. All of those is early days to be making definitive projections. What we can see now are these three months where a growth of 50,000 accounts that's the earlier stage of what we can see. We want to know whether – when we speak to you in a quarter time is there a much more discernible pattern that's emerging. So it is quite early days to be able to put higher projections, which then do not come to pass, which then reinforces again Chris point that said, of the three levers, the one that is so immediately in our control, and doesn't depend on a number of other variables is the cost that we see that are outsized versus the opportunity. And those costs are costs that we will look at, and do something about those costs, while simultaneously do the other things, of improving our ARPU, and improving our account growth.

That's very helpful. And then just the last bit is on – if you can talk about any synergies related to the Connect Group, are you assuming any increase in customer accounts from the acquisition of Connect Group? Any access to consumer accounts through the merchants to those merchants?

So at this point, Raj, we haven't factored in any synergistic benefits into our account growth, revenue growth forecast at all. We've only looked at this purely on a stand-alone basis. That said, there are some clear synergy that we believe do exist between the two businesses. And we are very focused on. And once the transaction – assuming the transaction gets the approval of the competition commission and the other requirements out of the way we'll be very focused on delivering. And to give you a flavor the things we see in terms of synergies, firstly, there's the opportunity of a payment switch integration between EasyPay and Kazang, it's a real opportunity. Secondly, there's an opportunity in terms of the cost of cash processing between – within the Combined Group, the Connect Group is a generator of cash as a commodity through the Smart Life business, whereas the Net 1 ATM state requires cash. And then thirdly, this is to your point Kazang has a footprint of over 35,000 informal merchants around the country. And we believe there's an opportunity to align and partner better between Net 1 and Kazang, in terms of accessing consumers that would attend those informal merchant sites. And the fourth one is, we have a very strong presence in places like the Eastern Cape and KwaZulu Natal, whereas Kazang traditionally is stronger in the Western Cape and Gauteng. So we feel, there's an opportunity to help rapid growth in those markets. So there are those opportunities. They're not built into these numbers. We've tried to remain conservative. I think just to emphasize another point, I think Lincoln made very adequately, which is this is early days for us Raj. We as a new management team want to give you clarity with as much certainty as possible around where we're going. The trends are starting to become clear in terms of account growth and activation and so forth. And -- but it's a developing picture. So we've got a balance -- trying to give you an earlier view on what we're seeing with the confidence that what we're seeing is deliverable. So that we feel we're moving in that direction and we're very excited about it. But we are just asking. Hopefully, we've given you a lot more than we gave you three months ago. We will want to give you more in another three months.

Yeah. Absolutely. Thank you so much for the detail and thank you for the adding color about Lincoln on the operations as well. I’ll take it offline. Thank you.

Next question is from Kumbirai [ph] Gundani of Standard Bank. Please go ahead. Q – Unidentified Analyst: Thank you. Thanks Lincoln and team for the presentation thus far. I know it's quite early but have we seen any impact from the likes of Worldpay on EasyPay and the numbers? And what's your expectation with mobile money providers looking to get into the space? Thank you.

This is an exciting environment. It's a very competitive environment. We are rebuilding a team there. We have hired a very seasoned executive in Andrew Wilmot, who is repositioning our business in order for it to be able to compete. It's been early days to see what Worldpay has been able to do, but we've got a competitively strong position to maintain in that environment. And if you combine what we've got with what is possible with the Connect Group, the talent and the leadership in both teams, I think we will be a formidable competitor ourselves and we'll be able to compete in that space quite adequately. So we're watching that space quite closely. Some of the people that would be people have certainly worked with I know they are very smart guys very committed guys. So we are not underestimating, what’s out there. But again our focus is, we want to make a real difference in underserved merchants. Particularly in the informal space. And that combination of what we've got and what Kazang Pay brings to the party I think that that's going to be an amazing combination and we look forward to be able to compete on that basis.

Does that answer your question, Kumbi. Q – Unidentified Analyst: Yes, it does, Thank you very much.

Thank you very much. Ladies and gentlemen, we have no further questions in the queue. And I'd like to hand the conference back to Mr. Meyer, for some closing remarks.

Thank you very much, operator. And just to conclude thank you very much everybody for joining us on the call. Thank you for the questions and thank you for the interest in our business. And hopefully, you've heard the excitement that we feel around our transformation turning around the Consumer Financial Services business through the customer acquisition, reduce costs. And our focus on building the leading South African Fintech platform for underserved consumers and merchants. We're all very committed to this and we look forward to sharing more on the journey in future calls. Thank you very much for joining us. Thank you.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference and you may now disconnect.