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Net1 Concludes Investments in Cell C and DNI
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”)
Net1 Concludes Investments in Cell C and DNI
Johannesburg, August 7, 2017 – Net1 (NasdaqGS: UEPS; JSE: NT1) today
announced the completion of its 15% investment in Cell C Ltd. (“Cell C”) and 45%
investment in DNI-4PL Contracts (Pty) Ltd. (“DNI”). Cell C is one of the three major
licensed mobile operators in South Africa with over 15 million active subscribers, and
DNI is the leading distributor of mobile subscriber starter packs for Cell C, while also
distributing prepaid airtime through its extensive network of field operatives and
agents. Blue Label Telecoms (“BLT”) also announced today that its investment of
45% in Cell C has been completed.
Strategic Rationale
Net1’s mission has always been to provide a transaction processing solution for the
unbanked and under-banked populations of developing economies, enabling those
who generally have limited or no access to a bank account, to enter affordably into
electronic transactions with each other, government agencies, employers, merchants,
and financial services providers.
The investments in Cell C and DNI are consistent with Net1’s approach of leveraging
its significant and established infrastructures, and pursuing strategic acquisition
opportunities or partnerships to gain access to new markets or complementary
products.
Net1, Cell C and BLT have identified the need to offer customers a truly bespoke,
affordable and comprehensive package that will go beyond basic telephony. An
integrated mobile-based digital product will therefore likely differentiate the offerings
of all the relevant stakeholders in this transaction including Net1. The Cell C and DNI
investments allow us to address the needs of the broader South African population by
owning the value chain including the network, payment, product, distribution and
hardware.
“We are delighted to have finally concluded the investments in Cell C and DNI, and
look forward to the exciting prospects that lie ahead for each of our organizations”
said Herman Kotze, CEO of Net1. “Our technology, products and logistical
capabilities, together with Cell C’s innovative mobile competencies and customer
base, and DNI’s distribution network provide an ideal opportunity to deliver a
comprehensive suite of mobile, transacting and financial services to a large part of the
South African population. Over the past two years, Cell C’s management has built a
demonstrable track record of navigating through a challenging environment while
reinvigorating growth. Along with Blue Label, we are proud to have been a part of the
vital recapitalization process, which has cleared the way for the continued exponential
growth of the business,” he concluded.
“The conclusion of our recapitalization with the introduction of key strategic partners
like Net1 and Blue Label, sets Cell C up to be a disruptor in the traditional mobile
market in South Africa,” said José Dos Santos, CEO of Cell C. “With Net1’s
products, logistical expertise, technology and rural footprint, along with distribution
platforms of Blue Label and DNI, we are confident of picking up a significant amount
of share in an otherwise relatively stagnant industry,” he added.
Transaction details
Cell C:
Net1 has acquired a 15% direct interest in the issued share capital of Cell C for a
consideration of ZAR 2 billion ($151 million based on exchange rates as of August 1,
2017). The purchase consideration was settled using a combination of ZAR 750
million ($57 million) in cash and ZAR 1.25 billion ($95 million) in debt. The debt
facility provided by RMB and Nedbank is a two-year straight-amortizing facility with
quarterly repayments and an interest rate of JIBAR + 2.75% (approximately 10% per
annum at current rates). In terms of the subscription agreement, Net1 has the right to
nominate two directors to the board of Cell C. Net1’s investment in Cell C forms part
of the larger recapitalization plan for Cell C, which has resulted in Cell C’s net
indebtedness being reduced from approximately ZAR 19.5 billion ($1.47 billion) to
less than ZAR 6 billion ($453 million). For the year ended December 31, 2016, Cell
C’s revenue increased 11% to ZAR 14.6 billion ($1.1 billion), while EBITDA grew
59% to ZAR 3.1 billion ($234 million) and it reported its first net profit of ZAR 540
million ($41 million). Cell C’s current year results are tracking higher than the
previous year. Net1 will account for its investment at the purchase consideration paid
for the year ended June 30, 2018, and expects the investment to be mildly dilutive to
fundamental net income* in the 2018 financial year. Thereafter, the investment will
be accounted for at fair value, and is expected to be accretive to fundamental net
income*.
DNI:
Net1 has acquired a 45% direct interest in the issued share capital of DNI for a
consideration of ZAR 945 million ($72 million). The purchase consideration was
settled utilizing existing cash reserves. Under the terms of the transaction, Net1 is
obliged to pay DNI an additional amount not exceeding ZAR 360 million ($27
million) in cash, subject to DNI achieving certain performance targets. Net1 has a
two-year option to acquire a further 10% interest in DNI. DNI is highly cash
generative and for the 12-month period ending June 2018, DNI expects revenue of
between ZAR 1.6 to ZAR 1.8 billion ($121 million to $136 million) and net income
after tax (using the South African corporate tax rate of 28%) of approximately ZAR
220 million ($17 million). DNI is currently tracking ahead of prior year results,
current year budgets, and the level of earnings needed to achieve the performance
targets. The Company expects to account for its interest in DNI utilizing the equity
method. The investment is expected to be accretive to fundamental net income* in
fiscal 2018.
*Fundamental net income is a non-GAAP financial measure and a reconciliation of
fundamental net income to GAAP net income is provided in the Company’s quarterly
and annual results press releases.
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. Through Transact24, Net1 offers debit, credit and prepaid
processing and issuing services for Visa, MasterCard, ChinaUnionPay, Alipay and
WeChat in China and other territories across Asia-Pacific, Europe and Africa, and the
United States. Through Masterpayment, Net1 provides payment processing and
enables working capital financing in Europe.
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.
Net1 has a primary listing on the NASDAQ and a secondary listing on the
Johannesburg Stock Exchange.
About Cell C
Cell C launched its operations in 2001, seven years after the launch of the two
incumbents, Vodacom and MTN (launched in 1994). A fourth mobile operator,
Telkom Mobile, a business unit of Telkom SOC SA Ltd, launched its operations in
2010. In spite of penetration of over 140% of mobile services in South Africa, growth
- particularly in the prepaid market - continues apace. Cell C itself grew its mobile
subscribers from 9 million in 2012, to over 20 million by July 2015. The momentum
and success of Cell C's pricing strategy over the past two years with its core consumer
values of honesty, simplicity and transparency, has resulted in a positive customer
response.
About DNI
DNI is the largest wholesaler of Cell C starter packs in South Africa. Through its
M4JAM offering it provides a full suite solution for promotional marketing, sales and
distribution within the informal trade sector. M4JAM is a diverse online platform
which allows for people to earn money, purchase goods and services, up-skill
themselves through micro-module learning and connect with others socially and/or
professionally.
Forward-Looking Statements
This press release contains forward-looking statements that involve substantial risks
and uncertainties. All statements, other than statements of historical fact, included in
this press release regarding strategy, future operations, future financial position, future
revenues, projected costs, prospects, plans and objectives of management are forward-
looking statements. The Company may not actually achieve the plans, intentions or
expectations disclosed in its forward-looking statements. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in the
forward-looking statements that the Company makes. Factors that might cause such
differences include, but are not limited to: the possibility that the expected synergies
from the investments in Cell C and DNI will not be realized, or will not be realized
within the expected time period; Cell C and DNI may not achieve the financial results
we expect them to achieve; disruption from the investment making it more difficult to
maintain business and operational relationships; and other factors, many of which are
beyond the Company’s control; and other important factors included in the
Company’s reports filed with the Securities and Exchange Commission, particularly
in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2016, as such Risk Factors may be updated from time to
time in subsequent reports. The Company does not assume any obligation to update
any forward-looking statements, whether as a result of new information, future events
or otherwise.
Investor Relations Contact:
Dhruv Chopra
Head of Investor Relations
Phone: +1-917-767-6722
Email: dchopra@net1.com
Media Relations Contact:
Bridget von Holdt
Business Director – Burson-Marsteller South Africa
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com
Financial Adviser and Transaction Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Legal adviser to Net1
Cliffe Dekker Hofmeyr Inc.
Johannesburg
August 7, 2017
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Date: 07/08/2017 01:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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