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Lesaka (LSAK)

Participants
Dhruv Chopra Head of Investor Relations
Herman Kotze Chief Executive Officer and Chief Financial Officer
Call transcript
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Operator

Good day, ladies and gentlemen, and welcome to the Net 1 UEPS First Quarter 2018 Earnings Call. 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. sir. ahead, go Please

Dhruv Chopra

Welcome me first is on Herman Chris. earnings our fiscal call. Kotze. With the to you, quarter our XXXX CEO, Thank call today

available a release, financial XX-Q press Investor and Our presentation website, Form are on ir.netX.com. our Relations supplementary

during our reminder, will we Form risks regarding press I release call, statements the cautionary and be look the with you and to this at forward-looking forward-looking uncertainties language and a As making ask contained statements. associated in XX-Q

call, this measures provided reconciliation to during In be financial of GAAP will measures addition, certain non-GAAP comparable we and using non-GAAP directly we a the measures. have most these

our We in African trends analyze press rand, rand business. will to measure. understanding South of operations We our in our non-GAAP our discuss which results the is and in underlying release assist results in investors a of XX-Q our

results company's the rand. significantly the U.S. know, and by between the dollar you can South African currency fluctuations be As affected

Herman, we I I prepared Before over to after have remarks. question-and-answer will reiterate our hand session want just a the call to that

taking current the However, be going call to me or questions to that, about are SASSA over Herman. not the sensitivities, CPS. turn we With given any let

Herman Kotze

to of morning eventful QX Good our Dhruv. short in of many period transformational and you, Thank call, have The XX shareholders. our since very days, all earnings been respects.

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by higher a closely $X.XX inflationary board and events, our We and we ones including the true actively performance actions six over some share, appointment will potential prioritize higher our group which And rights not search, their months. that the of fronts to refined those tax considered strategy I and we The have consolidated is the place, increases reflect are in quickly a what earnings review adversely candidates one-time strategic the not business and have count, of an a of have a on impacted also has few near to by that optimize the management, in need add taken own the result long-term capable last a into the The been future. activities initiatives value average being multiple on is given the the shareholder over reported CFO exogenous do are appropriate and Very potential delivering to in what we our the quarters make my of in per a as also a the in financial rate. I a was costs In fundamental and this share of view, and group's or businesses number would currently board. structures do that process, we energizes past the offering. like redundant not of rationalize with shortlist reviewed expect or effort. to continuous meaningful businesses, incorporate currently key part scale the have

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there take aforementioned into by steps of Social insurance is directly intends they paid relate by deductions, the owned million. Assistance Regulation a are take are In estimate is XXA for also over bank paying commercial intends to and governed SASSA including over payments process, beneficiaries, $X SASSA accounts addition to Act. the grants grant which to which the that premiums paid to before to further

plan first appointed expert reservations expressed Briefly, reports and an April and XXXX. timelines provide along the an to contingency role cost of the well-regarded XX. the Second, September veterans, court with of initial was oversight X, regulators comprising quarterly panel legal and absence by the around SAPO panel a early SASSA, their submitted recommendations, constitutional proposed several industry in and experts Constitutional the capabilities by on beyond the Court June to plan,

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monitor and to our updates progress provide will to We continue the shareholders.

developments the I to our discuss businesses. Next, existing South in want African

including in also with our expectations and ongoing SmartLife dependent growth financial continued First, believe physical in branch ATMs of our on expansion services the further line expectations. lending with exceeding see services EPE and ATMs Everywhere EasyPay We and we offering is for growth related infrastructure. and

with we to Additionally, in as through we further Cell C our and implement, expect scale products initiatives our offering. EPE DNI, identify, drive and growth new

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organizations initial deploying procurement, volume our in Our kiosks to services focus cetera. as the such synergies these Cell will flow implement as competitive quarters and obvious bear in C fruit branches, the the to identify This between to was financial through starts et services, efforts. processing start few

have we we insurance the not on guidance, to ago. expect to for our transactional being lifestyle C the airtime Therefore, on these XXXX. earned synergies, always into as adjustments, I an update XXXX. distribution are of From will play financial C, we revenue mildly fiscal discussed November. defined committed to GNI history accretive cash accretion Cell interest product call time, before we our role expense et accounts, XX reiterate lifestyle be the half Cell of and provided data, impact has of to the importantly, first able of products. fiscal initiatives being dilutive absent revising debt C budget of launch marketing Including synergies, weeks products expect fair we at following value the this and to we on end the financing, cetera, the start one and any to also dilution effect a More expect in any this which the bundle and package. integral perspective, in new attractively in market monthly we priced foregone the of interest some Cell now the a dedicated bank last to

our partially of Similar the C, XXXX, to within on during our million. of repaid took Cell already date completeness Cell investment, first fund first to DNI. the we've C $XX reiterate for to million years. we For $XX be repaid I'll approximately And quarter guidance two

and equity therefore accounted from DNI, benefit our by distributed will for DNI. We have investments in dividends

from our During new the dividend our first of million flow going DNI, $X.X revenue first quarter streams of forward. XXXX, already through we will statement received income any

to through fundamental to revenue Excluding transaction through specific DNI alone. the earnings year be income the end synergies, itself. years, and statement new three accretive profit of XXXX or fiscal we revenue be three, stream expect flowing our By more to in is

rates We any any benefit receive expect transactions. equity as dividends $X.XX annual this between fundamental ownership result per of of these achieve current and our organization. a be earnings incremental To from income $X.XX would to from at including clear, or excludes share exchange stakes we other

with inbound ATMs business Sunday Year branch Lastly I'll far dependencies like we our within requests, where IFC And South Times Companies Africa, MasterCard, are be we in acquisitions. proud deploying to our become also ceremony and on cards. accelerated to the to Award Net this enabling week. focus in the shareholder the extensive prestigious and/or investments UEPS/EMV are third-parties relied earlier Annual strategies of issuer of international award exciting won a infrastructure, this are business. very substantial Finbond corporation thus international Finbond or to Company the Top has an in and shift now our we X's XXX addition strategy. them at on

an have by Europe, number is will our worked really a intimately dedicated who led new X who effort about We Africa industry which PayPal Net Scheible, familiar Carl why of be excited people separate targeted other extremely by never X the reason economies. Net initiative, for team sales led This had international Moneygram markets. is is with the and in the having are veteran and

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X this concluded gateway issuing, related to the of $XX X, in various be some resources. in leading and October entity acquiring, payment our from of XX% us operational realize areas this able join over of the this by approximately this billion First, stake by strategic JV bit the and provided operational Bank and noise synergies closed We experts, of and E-Money on with with an due We'll We consolidated and industry companies the public Frick the balance and duplication identified details businesses, international provide for season coming commenced leadership bankers. Mr. Apart technological structure structured that initiative, existing from partnerships; with an from and be has particularly is revised plan months, expert equity necessary during and talents strategic veteran new shareholder next our third, this who historically and majority he of operate to relative executed earnings to a and the to of early and excluding Under also our support Meyer, we will private call. We've KSNET technical urgency, attract will believe for universities, the in needs licenses any expected X.X Net our under entity establishment of is our businesses, The interest partnership This system XXXX. a Net initiative, structure, with Bank held we investment and second, and and calendar function to will payments be be Africa. international and strategy himself. founded best recently and people our will retained remove models been veteran organization Frick who as management enforced the the ran is demographics now. activities being in this development South the payment and another X. able Philip have be implementation structure unbanked; team sales already investment. to TransactXX, operational has Carl focus around I business issue million.

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India, Meanwhile, ChinaUnionPay, In December WeChat of the a And in world. that focused to development bank supporting and and only. to or prepaid as Masterpayment. of expanding, million VCC and by likely our XX, invitation anywhere $XX launch multicurrency and on XXXX, the months Bank is live Frick crypto first technology banking currencies; as full-scale is at the prevalent progress to expansion southern accounts early have project first now and the XXXX. acquiring reciprocal the net most the deployments the applications, through is financial of as matter, country and significant our in products roughly international focused expansion client cryptocurrencies. tax reported access largest Meyer $X.X For and Visa, team, and Bank of Pay for such working already base. to even million. virtual, new schemes Frick of well This the new on Frick exchange Alipay, in of users is Bank collaboration and six issuing became MasterCard, June of physical launch and of provision income a is defining In acquiring after to our NAV card of associations, XXXX, been recently technology transacting services of products enabling opportunities of the financing current rate issuing also certificate Philip made in in group's MobiKwik on memberships card expected with and including our the global one has card capital

over roughly out to million include of existing launch million partnerships The as roll we access new the customers. and XXX they will first XX time the phase customers increase MobiKwik's providing

this on will rolled once is call We it fully out. our next updates project on provide further

including in on Additionally, with to partners order our made our banks we in discussions further various have for us India. platform roll out progress local banking

MobiKwik into partners corridors. Lastly, India remittances in providing by to are enacted other in international users such merchants. digital other wallets first and the remittances India TXX as the regulations our to with further permit the working for MobiKwik soon time. Frick Recent initially into million grown international teams and India Meanwhile, Bank Reserve over to Bank itself million and into wallet has X XX directly subsequently begin receive will

we populous expectations provides also very month, to help and success in were the shareholder, The that We is The the number encouraging sophisticated core excited of immaterial are has with this consumer further the proceeds where of with States. that focus paperless mobile to in the the group Nigeria initial app progress XX% a seamless us applications sold about growing credit exponentially, by made the the exceeded which loan algorithms. country. allows XeoHealth PayLater OneFi of are and most is scoring lending launch the app business Earlier Africa's in our United of on also our competencies. we service

transactions. Korea, are in changes, still legislative KSNET the and of authentication of for ramifications for the reducing certain elimination requirements working interchange Lastly, we the low-value through

fiscal smaller and will line next we by products growth to revenue continued services the As there down trying now to phenomenon, of changes further roll affected initially quarters. newer has therefore supplemented longer the players, and as to begun of We be lower KSNET the at out, some and discussions parties These chain. for The scale. we and how an top adverse we that most are will KSNET issuers value-added will particularly they therefore other these believe year. four believe revert are positive the impacts to feel This are continue further taking current another bottom the begin the share on are And value-chain. participants year. pass volume heavily it industry-wide of the negotiations XXXX up in of regulation various have in the will the KSNET are expected. than pick mid-single-digits mostly to profits in the conservatively we On is a value reduction expense basis, multiple to confident much therefore to negotiations that reliant be with market on

also regulations. The the effects CapEx of is, for reduced other is the KSNET which to course, silver-lining due of

enabled pay flow the in off of Korea full to during doubled than QX a holding paying XXXX, dividend has XXXX, in in Korean also debt the company. cash to and while Our us more

Before to the allocation want I for conclude, I business. address capital the

investments of the sizeable on XX our the Given for at we enough investments time. have to past do not months, and have we plates further therefore, made XX we anticipate the this multitude believe next over on any work months,

the generation now unit bulk will towards actively units are are facing our the on the future repayment allocation capital our allocation be future The and our and to as of the go of possible to We decisions capital business years our and investments has to to guide of well each disposals. returns as cash debt growth. growth, fully internal for Cell required which C, two within drive repaid investments

go the but Further to of number first will Day with in opening the a actively past on you. feasibility to of Europe and the save follow, meet up basis. our regular that performance the closing I York for to December forward then share on in in and back detail, and and over the U.S., will our We hosting South will provide Investor opportunity evaluate more guidance details now a repurchases Q&A, I Africa appreciate Dhruv, over over however will it circle need and and months X. shareholders to the the look few New financial Dhruv please date. remarks before metrics

Dhruv Chopra

year-ago. a Herman. you, trends discuss quarter for operating will and Thank results within of segments compared key our to the the I XXXX first

exchange a of currency. year-over-year continue U.S. by the once exchange in impacted our results a over and ZAR positively be rates in $XXX has XXXX volatile Revenue XX.XX which XXXX, ZAR X% based dollar and constant year-ago, in to dollars compared was again million weeks. down QX past QX X% approximately few weakened average was X%. to rand/dollar rate The For XX.X rand/dollar

Our fundamental per QX relative to share XXXX. earnings decreased XX%

of increased increased Operating processing an the usage and the African impact of of due salary employees inter-segment ATMs, weighted million to diluted our in decreased increases year. increased usage parties, higher higher October X% XXXX a ATMs, of the processing and of transaction purchased as shares million XXXX, revenue basis. in charges, EPE the services increase revenue QX a modest in X result in social as revenue, By inter-segment and fully late - a processing a distributed. XXXX increase grants transaction the U.S. shares, and repurchase X% transaction to by number grants was million XXXX. as up X.X transaction in from result South QX primarily in share goods the reported than Our increased primarily in our due activities, a share income of number result of for social of in increases EPE offset In African shares offset XX% last million QX was increase third segment count to inter-segment in partially sale approximately and by $XX our of currency of transaction partially Largely rand, dollars activities welfare annual modest on a year-over-year XXXX, segment, increase revenue and QX South higher distributed. XX.X welfare in of constant granted

XXXX was and margin XXXX XX% Our respectively. QX income operating for XX%, and

and was increases services inter-segment margin increases purchased parties. third charges, goods adversely XXXX fiscal by Our the in and annual salary from impacted higher

in to be during South range during to and fiscal segment to The pressures costs new expansion our XX%, execute by ongoing XXXX was and XXXX continued was continue base operating XXXX. on it income KSNET's margins its in be South African South our offset cost by margin affected expect revenue, We grew mid into processing rollout in ATMs the of respectively. Operating income incurred our and of XXXX, XX% from largely due by margin inflationary offset low will in Korea revenue to QX regulatory in eliminated Africa. during KSNET, was on and Masterpayment an changes TransactXX. decrease XXXX, continue XXXX. generated increase in positive compared as increased a million Inter-segment to by India, lower which X% for of down meaningful Segment to processing staff QX to processing impact primarily have was partially revenue International in - to due the a during markets, activities on transaction XX% QX lower Masterpayment revenue its moderately losses revenue are ongoing $XX at transaction complement impact and on results. segment QX contribution TXX. XXXX, QX but Operating contributions by consolidation, XXXX the

For to margin XXXX, year. US$XX.X million, to EBITDA in XX% from revenue won last Korean QX XX% KSNET's while declined X% declined

impact we XXs continue mid and continue impact growth expect low EBITDA to XXXX. to fiscal in to the XXXX. changes to adverse reported return the Herman we revenue to in in As our the have in expect in regulations XXXX results Accordingly, of Korean the stabilize stated, an margin fiscal on to

CapEx We fiscal to margins in depreciation income EBITDA which continue less pronounced margins. the to lower on operating forward, result on will much in expect be impact so remain going charges will than lower XXXX,

Europe $XX capital book by And working XXXX. of total XXXX, as has financing $XX book since September June was the million. grown approximately approximately Our million in

We Frick. have funded by provided facilities Bank this growth through the of utilization

in book these We exploring offering, expect with months. opportunities order successful exposure this would Frick six to are to Bank maximize but currently If return to decline the our the in are we we three the in book. in lower negotiations, with next to

arrangement However, we would still in future. generate income from the the

and an businesses other million XXXX intersegment by increased $XX airtime constant basis. as ad prepaid in and in fewer revenues. inclusion our offset terminal QX to currency hoc technologies sales QX revenue well lower XXXX, compared primarily to increase partially services in sales, XX% rand, volumes insurance value-added revenue and was as due on decreased the financial down Our In applied a segment

of approximately comprising at gross deferred and at of QX lending ZAR million ZAR of service end XXX the capital out fees to book QX XXX compared million XXXX. end the XXXX was Our

branch of believe EPE growth we along infrastructures. expansion the and million accounts. services October to ATM commensurate our We financial At with offerings X.XX will approximately sustain XX, had our continue segment's

primarily The from continues an sales, business Our than the and ad sold sustain insurance revenues revenues terminal services operating affected during at more well in increased the low services XX% Africa. the purchased hoc was and due XXX,XXX expenditures and rate to segment, income the increases for momentum our South businesses fewer XXXX modest insurance margin inter-segment primarily respectively, in the goods to has relative the of segment XX% offset third-parties fewer dollar related margin fees. this XXXX, segment Operating and by improved increase contributions increases continue by in of in and as of eliminations of to transaction SmartLife and salary life prepaid have QX margin financial product business, increased the annual XXXX. its and will policies adoption we've various products. to October sales end directors' various from denominated due our Corporate and as and and higher U.S. be

charges. for expenses included of a of compensation million $X.X QX XXXX corporate stock-based for reversal Our

$X months year. decreased the long-term XXXX, six quarter. average net two XXXX average expense We in million, because in QX rate lower we million, South therefore after offset recognized the a Frick with generated tax interest XX% $X.X include somewhat last months accounted six our the our South income expect under to to to our the at and to from Cell be $X.X of expect a result obtained on Extrapolating Bank results for for by investments. the August. only net $XX to months' debt for accretive higher XXXX million lower earnings to primarily contributed of driven side surplus results. quarter in Finbond in million interest balance of and from of approximately foregone. QX balances as the provided fund cash fiscal investments compared our interest acquired June received investment And offset African C, Korea. first and interest to DNI impact October $X from XXXX, Frick QX interest onward achieved million fourth of in used to processing-terminals equity investment its on JSE, Frick any XXXX. given listed which Korea. factored already at XXXX to a August the XXXX during October October debt interest expenditures the of moderately we the million this have $X.X income and Bank approximately on six reserves. South And acquisition XXXX, we cash a our million $X.X during XXXX due QX fewer utilizing million months had XXXX during to Finbond June XXXX, we reported Bank our by primarily transaction end approximately Capital income contribution were fiscal in and decreased $X.X guidance earnings before fund Our in lower payment by for Korean of loan we In the a XXXX, our income we and the impact XXXX, we partially interest million QX closed respectively, into the XXXX $X.X for provided And is facility to -

by be than from $XXX We lower and Bank expect in of Francs and repayment At generated scheduled expenditures converted XXXX, the dollar our were expenditures, balances African South investments partially was offset decrease consideration Cell XXXX most XXXX. and businesses. our in in balances of in to mid-September significantly to We quarterly of debt due XXXX transaction continue long-term cash the settle XX, U.S. June cash to September to related to October C core XXXX. Frick capital capital was to which DNI our in Swiss primarily our cash some the by in our early our XXXX order investment reserves million,

offering We during in working Bank Frick capital from Europe also utilized quarter. short-term our grow to our the facilities financing

investments, $XX our group's Apart million facility As out of business XX, $XX our of generated capital utilizing we had Frick. September from fund we utilized reserves lending Bank continue the and activities. operations cash to approximately these from and arrangements, XXXX, off million cash our from

outstanding on and quantum XX%. balance approximately around XXX.X October are to for during is briefly principal multiplied payments margin our investments. the to the In African which ZAR generated the the interest fiscal JIBAR One, facilities based due the I fiscal growth our expect approximately rate, our XXXX, of period, towards at each of the outstanding the XXXX the to the in of remainder equates cash current to repayment outflows million, the by related to which X.XX%, to summarize our fund interest plus And, due and at payable repayments We South end of in generated provides two, quarter. the facilities settle utilize principal South we of interest are interest will million to full. internal our our Korea quarterly in facilities rates, quarterly XXXX. activities. us for long-term lending surplus expansion which facilities these US$XX.X South Korea is South The with At African interest cash surplus repayment and fiscal cash flexibility utilized reserves of of of again greater international a this in cash under point, like majority is go

Our XXXX tax XX% effective XX% was rate for compared last QX to year.

Our QX higher XXXX and the non-deductible expenditure long-term statutory facility. on a including South African interest our result was expenses of effective African transaction-related South than rate rate non-deductible as

for the We XXXX be XX% continue range. to expect our rate to in to effective XX%

Our closing now was for XXXX shares September Q&A. the XXXX, count was which the was impact up open the to QX Herman QX, weighted weighted XX.X was share before million of in well as QX we count for call full inclusion only impacted remarks, due the million of our to XXXX IFC share while XX - I Compared back sold partially X actual share shares, issued share XX.X higher million weighted which count it our Herman? will as hand only to with our shares. XXXX, to the in count. million shares XX partially

Herman Kotze

Dhruv. To conclude guidance, said what on Thanks, we reiterating last quarter.

fiscal be funding accounted DNI investments earnings, fiscal least equity at our earnings be at, a We offset by basis anticipate accretive XXXX. on combined per to but XXXX dilutive the share and our fundamental fiscal We therefore for C our XXXX remain fundamental earnings, to $X.XX. partially Cell to DNI's expect from of to

dollar, no New and With in tax a questions or ZAR your unable Net shares to XX%. a as this of we We of between million constant next of team. that, CPS York XX.X related at count our in XX.XX also onset, look introduce of any assumes and units, of the any many disruption shareholders to rate currency to time. XX% questions. the expanded mentioned guidance SASSA take at forward take Dhruv But to to management our are month will you X gladly share base Our business significant key a to meeting the

Operator

Ladies very you and [Operator appears much, Thank Instructions] no that we questions. it sir. gentlemen, have

conference conclude disconnect you this We lines. now will your And call. then may