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Net 1 UEPS Technologies, Inc. Reports First Quarter 2016 Results
Net 1 UEPS Technologies, Inc.
Registered in the state of Florida, USA
(IRS Employer Identification No. 98-0171860)
Nasdaq share code: UEPS
JSE share code: NT1
ISIN: US64107N2062
(“Net1” or “the Company”)
Net 1 UEPS Technologies, Inc. Reports First Quarter 2016 Results
JOHANNESBURG, November 6, 2015 – Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today released results
for the first quarter of fiscal 2016.
* Q1 2016 Revenue and FEPS of $154.5 million and $0.56, a constant currency increase of 19% and 16% respectively.
* More than 350,000 EPE cards issued and approximately 750 ATMs deployed to October 2015; and
* SASSA cancels tender process resulting in contract to March 2017, and Court dismisses U.S. class action lawsuit.
Summary Financial Metrics
Three months ended September 30,
% change % change
2015 2014 in USD in ZAR
(All figures in USD ‘000s except per share data)
Revenue 154,473 156,441 (1%) 19%
GAAP net income 23,020 24,089 (4%) 15%
Fundamental net income (1) 26,458 28,155 (6%) 16%
GAAP earnings per share ($) 0.49 0.51 (3%) 17%
Fundamental earnings per share ($) (1) 0.56 0.60 (7%) 16%
Fully-diluted shares outstanding (‘000’s) 47,080 47,335 (1%)
Average period USD/ ZAR exchange rate 12.96 10.76 20%
(1) Fundamental net income and earnings per share are non-GAAP measures and are described below under “Use of Non-GAAP
Measures—Fundamental net income and fundamental earnings per share.” See Attachment B for a reconciliation of GAAP net income to
fundamental net income and earnings per share.
Factors impacting comparability of our Q1 2016 and Q1 2015 results
- Unfavorable impact from the strengthening of the U.S. dollar against primary functional currencies: The U.S.
dollar appreciated by 21% against the ZAR and 13% against the KRW during Q1 2016, which negatively impacted
our reported results;
- Increased contribution by KSNET: Our results were positively impacted by growth in our Korean operations;
- Continued growth in financial inclusion services: We continued to grow our financial inclusion services offerings
during Q12016 which has resulted in higher revenues and operating income, primarily from more sales of low-
margin prepaid airtime and an increase in transaction fees;
- Increase in the number of SASSA grants paid: Our revenue and operating income have increased as a result of the
higher number of SASSA UEPS/EMV cardholders paid during Q1 2016 compared with Q1 2015;and
- Launch of EPE and Smart Life: During Q1 2016, we launched our EPE and Smart Life offerings, which
contributed to a marginal increase in revenue in ZAR, as well as an associated increase in establishment costs.
Comments and Outlook
“In addition to the solid results that we have once again achieved, the take-up of our strategic initiatives to date, such as
EasyPay Everywhere and ZAZOO, continues to validate our business strategy,” said Dr. Serge Belamant, Chairman and CEO
of Net1. “The pipeline for both our card-centric and mobile-centric projects augurs well for the continued organic growth of
our business, and the resultant value creation for shareholders,” he concluded.
“We achieved our great Q1 constant currency results despite the resources committed for the roll-out of our EPE, Smart Life
and ATM initiatives,” said Herman Kotzé, Chief Financial Officer of Net1. “For fiscal 2016, we continue to expect
fundamental earnings per share of at least $2.57, assuming a constant currency base of ZAR11.43/$1 and a share count of
46.7 million shares,” he concluded.
SASSA files progress report on the status of a new tender process with the South African Constitutional Court
As a result of SASSA’s decision not to award the new tender, and in accordance with the Constitutional Court’s order,
SASSA filed a report today setting out the relevant information on whether and when it will be ready to assume the duty to
pay grants itself. A full copy of the report is available on our website (www.net1.com).
Results of Operations by Segment and Liquidity
Our operating metrics will be updated and posted on our website (www.net1.com).
South African transaction processing
Segment revenue was $55.6 million in Q1 2016, down 8% compared with Q1 2015 in USD and up 11% on a constant
currency basis. In ZAR, the increase in segment revenue was primarily due to more low-margin transaction fees generated
from cardholders using the South African National Payment System and an increase in the number of social welfare grants
distributed, offset by fewer inter-segment transaction processing activities. Our operating income margin for Q1 2016 and
2015 was 24% and 23%, respectively, and has increased primarily due to an increase in the number of beneficiaries paid in
Q1 2016 and a modest increase in the margin of transaction fees generated from cardholders using the South African National
Payment System.
International transaction processing
Segment revenue was $41.2 million in Q1 2016, down 5% compared with Q1 2015 in USD and up 15% on a constant
currency basis. Revenue increased in constant currency primarily due to higher transaction volume at KSNET during Q1
2016. Operating income during the first fiscal quarter of 2016 was higher due to increase in revenue contribution from
KSNET and a positive contribution by XeoHealth, but was partially offset by ongoing ZAZOO start-up costs in the UK and
India. Operating income margin for Q1 2016 and 2015 was 16% and 17%, respectively.
Financial inclusion and applied technologies
Segment revenue was $67.4 million in Q1 2016, up 3% compared with Q1 2015 in USD and 24% on a constant currency
basis. In ZAR, Financial inclusion and applied technologies revenue and operating income increased primarily due to higher
prepaid airtime and other value-added services sales, more ad hoc terminal and card sales and, in ZAR, an increase in inter-
segment revenues. Operating income for Q1 2016, was adversely impacted by establishment costs for EPE and Smart Life.
The South African National Credit Act, made certain industry-wide amendments, which became effective March 13, 2015.
These amendments were introduced primarily to address over-indebtedness of South African consumers and requires lenders
to perform a stricter affordability assessment. Compliance with the amended legislation had a modest impact on our UEPS-
based lending businesses in Q4 2015 and Q1 2016, but should moderate going forward. Operating income margin for the
Financial inclusion and applied technologies segment was 25% and 27%, respectively, during Q1 2016 and 2015, and has
decreased primarily due to the sale of more low-margin prepaid airtime and establishment costs for EPE and Smart Life.
Corporate/eliminations
In USD, our corporate expenses have decreased primarily due to the impact of the stronger USD on goods and services
procured in other currencies, primarily the ZAR, and lower amortization costs, partially offset by modest increases in USD
denominated goods and services purchased from third parties and directors’ fees.
Cash flow and liquidity
At September 30, 2015, we had cash and cash equivalents of $125.6 million, up from $117.6 million at June 30, 2015. The
increase in our cash balances from June 30, 2015, was primarily due to the expansion of all of our core businesses, offset by
provisional tax payments, capital expenditures and the strengthening of the U.S. dollar against our primary functional
currencies.
Excluding the impact of interest received, interest paid under our Korean debt and taxes, the decrease in cash from operating
activities resulted from the timing of receipts of cash from customers. Capital expenditures for Q1 2016 and 2015 were $10.7
million and $9.4 million, respectively, and have increased primarily due to the acquisition of more payment processing
terminals in South Korea and ATMs in South Africa.
Use of Non-GAAP Measures
US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP
measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income
and fundamental earnings per share and headline earnings per share are non-GAAP measures.
Fundamental net income and fundamental earnings per share
Fundamental net income and earnings per share is GAAP net income and earnings per share adjusted for (1) the amortization
of acquisition-related intangible assets (net of deferred taxes), (2) stock-based compensation charges and (3) unusual non-
recurring items, including the amortization of KSNET debt facility fees and US government investigations-related and US
lawsuit expenses. Management believes that the fundamental net income and earnings per share metric enhances its own
evaluation, as well as an investor’s understanding, of our financial performance. Attachment B presents the reconciliation
between GAAP and fundamental net income and earnings per share.
Headline earnings per share (“HEPS”)
The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated
using net income which has been determined based on GAAP. Accordingly, this may differ to the headline earnings per share
calculation of other companies listed on the JSE as these companies may report their financial results under a different
financial reporting framework, including but not limited to, International Financial Reporting Standards.
HEPS basic and diluted is calculated as GAAP net income adjusted for the profit on sale of property, plant and equipment.
Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and
HEPS basic and diluted and the calculation of the denominator for headline diluted earnings per share.
Conference Call
We will host a conference call to review Q1 2016 results on November 6, 2015, at 8:00 Eastern Time. To participate in the
call, dial 1-855-481-5362 (US and Canada), 0808-162-4061 (U.K. only) or 0-800-200-648 (South Africa only) ten minutes
prior to the start of the call. Callers should request “Net1 call” upon dial-in. The call will also be webcast on the Net1
homepage, www.net1.com. Please click on the webcast link at least ten minutes prior to the call. A webcast of the call will be
available for replay on the Net1 website through November 29, 2015.
About Net1 (www.net1.com)
Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System (“UEPS”) or
utilize its proprietary mobile technologies. The Company operates market-leading payment processors in South Africa
and the Republic of Korea.
UEPS permits the Company to facilitate biometrically secure, real-time electronic transaction processing to unbanked and
under-banked populations of developing economies around the world in an online or offline environment. Net1’s UEPS/EMV
solution is interoperable with global EMV standards that seamlessly enable access to all the UEPS functionality in a
traditional EMV environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll,
remittances, voting and identification.
Net1’s mobile technologies include its proprietary mobile payments solution - MVC, which offers secure mobile-based
payments, as well as mobile banking and prepaid value-added services in developed and emerging countries. The Company
intends to deploy its varied mobile solutions through its ZAZOO business unit, which is an aggregation of innovative
technology companies and is based in the United Kingdom.
Net1 has a primary listing on the NASDAQ and a secondary listing on the Johannesburg Stock Exchange.
Forward-Looking Statements
This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A
discussion of various factors that cause our actual results, levels of activity, performance or achievements to differ materially
from those expressed in such forward-looking statements are included in our filings with the Securities and Exchange
Commission. We undertake no obligation to revise any of these statements to reflect future events.
Investor Relations Contact:
Dhruv Chopra
Head of Investor Relations
Phone: +1 917-767-6722
Email: dchopra@net1.com
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended
September 30,
2015 2014
(In thousands, except per share data)
REVENUE $ 154,473 $ 156,441
EXPENSE
Cost of goods sold, IT processing, servicing and support 77,382 74,406
Selling, general and administration 35,761 38,736
Depreciation and amortization 10,115 10,174
OPERATING INCOME 31,215 33,125
INTEREST INCOME 4,275 4,090
INTEREST EXPENSE 974 1,312
INCOME BEFORE INCOME TAX EXPENSE 34,516 35,903
INCOME TAX EXPENSE 10,897 11,648
NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS 23,619 24,255
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 188 92
NET INCOME 23,807 24,347
LESS NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST 787 258
NET INCOME ATTRIBUTABLE TO NET1 $ 23,020 $ 24,089
Net income per share, in United States dollars
Basic earnings attributable to Net1 shareholders $0.49 $0.51
Diluted earnings attributable to Net1 shareholders $0.49 $0.51
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
Unaudited (A)
September 30, June 30,
2015 2015
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 125,610 $ 117,583
Pre-funded social welfare grants receivable 1,411 2,306
Accounts receivable, net of allowances of – September: $2,767; June: $1,956 153,453 148,768
Finance loans receivable, net of allowances of – September: $3,640; June: $4,227 33,921 40,373
Inventory 12,335 12,979
Deferred income taxes 6,829 7,298
Total current assets before settlement assets 333,559 329,307
Settlement assets 600,195 661,916
Total current assets 933,754 991,223
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –
September: $92,145; June: $94,014 52,048 52,320
EQUITY-ACCOUNTED INVESTMENTS 14,342 14,329
GOODWILL 154,294 166,437
INTANGIBLE ASSETS, net 40,862 47,124
OTHER LONG-TERM ASSETS, including reinsurance assets 13,982 14,997
TOTAL ASSETS 1,209,282 1,286,430
LIABILITIES 81,185
CURRENT LIABILITIES
Accounts payable 15,527 21,453
Other payables 49,011 45,595
Current portion of long-term borrowings 8,359 8,863
Income taxes payable 12,848 6,287
Total current liabilities before settlement obligations 85,745 82,198
Settlement obligations 600,195 661,916
Total current liabilities 685,940 744,114
DEFERRED INCOME TAXES 9,169 10,564
LONG-TERM BORROWINGS 48,561 50,762
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities 2,178 2,205
TOTAL LIABILITIES 745,848 807,645
COMMITMENTS AND CONTINGENCIES
EQUITY
COMMON STOCK
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - September: 47,322,702;
June: 46,679,565 64 64
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: September: -; June: - - -
ADDITIONAL PAID-IN-CAPITAL 218,384 213,896
TREASURY SHARES, AT COST: September: 18,057,228; June: 18,057,228 (214,520) (214,520)
ACCUMULATED OTHER COMPREHENSIVE LOSS (182,545) (139,181)
RETAINED EARNINGS 640,888 617,868
TOTAL NET1 EQUITY 462,271 478,127
NON-CONTROLLING INTEREST 1,163 658
TOTAL EQUITY 463,434 478,785
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ -
1,209,282 $ 1,286,430
(A) – Derived from audited financial statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
September 30,
2015 2014
(In thousands)
Cash flows from operating activities
Net income $ 23,807 $ 24,347
Depreciation and amortization 10,115 10,174
Earnings from equity-accounted investments (188) (92)
Fair value adjustments 1,433 413
Interest payable 709 1,159
Profit on disposal of plant and equipment (95) (122)
Stock-based compensation charge 726 916
Facility fee amortized 34 82
(Increase) Decrease in accounts receivable, pre-funded social welfare grants receivable
and finance loans receivable (17,278) 9,470
Increase in inventory (931) (2,123)
Increase (Decrease) in accounts payable and other payables 2,972 (10,933)
Increase in taxes payable 7,824 6,611
Decrease in deferred taxes (1,026) (390)
Net cash provided by operating activities 28,102 39,512
Cash flows from investing activities
Capital expenditures (10,698) (9,378)
Proceeds from disposal of property, plant and equipment 348 241
Proceeds from sale of business - 1,895
Net change in settlement assets (21,575) (43,054)
Net cash used in investing activities (31,925) (50,296)
Cash flows from financing activities
Proceeds from issue of common stock 3,762 989
Long-term borrowings utilized 720 1,097
Acquisition of treasury stock - (9,151)
Sale of equity to non-controlling interest - 1,407
Net change in settlement obligations 21,575 43,054
Net cash provided by financing activities 26,057 37,396
Effect of exchange rate changes on cash (14,207) (4,099)
Net increase in cash and cash equivalents 8,027 22,513
Cash and cash equivalents – beginning of period 117,583 58,672
Cash and cash equivalents – end of period $ 125,610 $ 81,185
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended September 30, 2015 and 2014 and June 30, 2015
Change – constant
Change - actual exchange rate(1)
Q1 ‘16 Q1 ‘16 Q1 ‘16 Q1 ‘16
vs vs vs vs
Key segmental data, in $ ’000, Q1 ‘16 Q1 ‘15 Q4 ‘15 Q1‘15 Q4 ‘15 Q1‘15 Q4 ‘15
Revenue:
South African transaction processing ........... $55,639 $60,252 $59,774 (8%) (7%) 11% 0%
International transaction processing ............. 41,229 43,204 42,573 (5%) (3%) 15% 4%
Financial inclusion and applied
technologies .................................................. 67,360 65,197 73,042 3% (8%) 24% (1%)
Subtotal: Operating segments .............. 164,228 168,653 175,389 (3%) (6%) 17% 1%
Intersegment eliminations .................... (9,755) (12,212) (11,103) (20%) (12%) (4%) (5%)
Consolidated revenue ................... $154,473 $156,441 $164,286 (1%) (6%) 19% 1%
Operating income (loss):
South African transaction processing ........... $13,511 $13,639 $11,268 (1%) 20% 19% 29%
International transaction processing ............. 6,543 7,349 7,134 (11%) (8%) 7% (1%)
Financial inclusion and applied
technologies .................................................. 16,554 17,607 19,385 (6%) (15%) 13% (8%)
Subtotal: Operating segments .............. 36,608 38,595 37,787 (5%) (3%) 14% 4%
Corporate/Eliminations ........................ (5,393) (5,470) (5,174) (1%) 4% 19% 12%
Consolidated operating income ... $31,215 $33,125 $32,613 (6%) (4%) 14% 3%
Operating income margin (%)
South African transaction processing ........... 24% 23% 19%
International transaction processing ............. 16% 17% 17%
Financial inclusion and applied
technologies .................................................. 25% 27% 27%
Consolidated operating margin ............ 20% 21% 20%
(1) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during
the first quarter of fiscal 2016 also prevailed during the first quarter of fiscal 2015 and the fourth quarter of fiscal 2015.
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP net income and earnings per share, basic, to fundamental net income and earnings per share,
basic:
Three months ended September 30, 2015 and 2014
EPS, EPS,
Net income basic Net income basic
(USD’000) (USD) (ZAR’000) (ZAR)
2015 2014 2015 2014 2015 2014 2015 2014
GAAP................................................ 23,020 24,089 0.49 0.51 298,300 258,789 6.36 5.48
Intangible asset amortization, net. 2,554 2,941 39,886 31,601
Stock-based compensation charge 726 916 9,408 9,854
Facility fees for KSNET debt ...... 34 82 441 882
US government investigations-
related and US lawsuit expenses .. 124 127 1,607 1,366
Fundamental ...................... 26,458 28,155 0.56 0.60 349,642 302,492 7.45 6.41
Net 1 UEPS Technologies, Inc.
Attachment C
Reconciliation of net income used to calculate earnings per share basic and diluted and headline earnings per share
basic and diluted:
Three months ended September 30, 2015 and 2014
2015 2014
Net income (USD’000).......................................................................................................... 23,020 24,089
Adjustments: ..........................................................................................................................
Profit on sale of property, plant and equipment ............................................................... (95) (122)
Tax effects on above ........................................................................................................ 27 34
Net income used to calculate headline earnings (USD’000) ................................................. 22,952 24,001
Weighted average number of shares used to calculate net income per share basic earnings
and headline earnings per share basic earnings (‘000) .......................................................... 46,620 47,226
Weighted average number of shares used to calculate net income per share diluted
earnings and headline earnings per share diluted earnings (‘000) ......................................... 47,080 47,335
Headline earnings per share:..................................................................................................
Basic, in USD .................................................................................................................. 0.49 0.51
Diluted, in USD ............................................................................................................... 0.49 0.51
Calculation of the denominator for headline diluted earnings per share
2015 2014
Basic weighted-average common shares outstanding and unvested restricted shares
expected to vest under GAAP .......................................................................................... 46,620 47,226
Effect of dilutive securities under GAAP ................................................................... 460 109
Denominator for headline diluted earnings per share .............................................. 47,080 47,335
Weighted average number of shares used to calculate headline earnings per share diluted represent the denominator for basic
weighted-average common shares outstanding and unvested restricted shares expected to vest plus the effect of dilutive
securities under GAAP. We use this number of fully-diluted shares outstanding to calculate headline earnings per share
diluted because we do not use the two-class method to calculate headline earnings per share diluted.
Johannesburg
November 6, 2015
Sponsor:
Deutsche Securities (SA) Proprietary Limited
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