Good day, and welcome to the Net1 Second Quarter 2013 Results. [Operator Instructions] Please also note that this conference is being recorded. I would now like to hand the conference over to Dhruv Chopra. Please go ahead.

Thank you, Dylan. Welcome to our second quarter fiscal 2013 earnings call. With me today are Dr. Serge Belamant, our Chairman and CEO; and Herman Kotze, our CFO. Both our press release and Form 10-Q are available on our website at www.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 and Form 10-Q 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 results of operations in our 10-Q and our press release in rand to assist investors in understanding the underlying trends of our business. As you know, the company's results can be significantly affected by currency fluctuations between the dollar and the rand. We will also provide some commentary on the DOJ and SEC investigations. But since the process is ongoing, we will not be accepting any questions on the subject during the Q&A session. With that, let me turn it over to Serge.

Thank you very much, Dhruv. Good morning to all of our shareholders. On today's call, I will provide an update on our SASSA implementation, the DOJ and SEC investigation, and some trends and developments in our business. Q2 2013. We reported revenue of $111 million, a year-over-year increase of 29% in constant currency. Fundamental EPS in the quarter was $0.18, down 52% in constant currency, as a result of the implementation cost incurred to rollout the new SASSA contract. Our co-established businesses, which include CPS, KSNET and EasyPay, together in Q2 2013, accounted for approximately 80% of our revenue, while our growth businesses were collectively 6% of our revenue. As you know, our national SASSA contract commenced on April 1, 2012, and our Phase II implementation commenced in early July of 2012. During quarter 2 2013, we have paid approximately 9.5 million beneficiaries in excess of ZAR 8.6 billion per month. We also have completed 7 months of registrations on behalf of SASSA, and our technological solutions and platforms have proved extremely reliable, effective and secure to the full extent we had anticipated. Our Phase II experiences have demonstrated that not only does our technology identify and eliminate duplicate ground registrations, but it also leads to a number of illegal beneficiaries returning their existing cards because of their fear of being caught out during the registration process. Based on our experience, it is clear that many recipients have childs support grants do not bring the children in their care for registration, and a number of these instances is material. Our beneficiaries utilize 4 major infrastructures at which they receive payments or/and make purchases for goods and services, namely: our 10,000 pay points, our Net1 participating merchants, the national ATM system, and of course, the national MasterCard merchant network. All recipients…

Thank you, Serge. I will discuss the key results and trends of our significant operating segments for the second quarter of 2013 compared to a year ago. I will also discuss, to the extent possible, the financial implications of the implementation progress made related to our new SASSA contract. For Q2 of 2013, our average rand-dollar exchange rate was ZAR 8.74 compared to ZAR 8.18 a year ago, and negatively impacted our U.S. dollar base results by approximately 7%. The year-over-year comparability of our results for the quarter was impacted by our new sets of contact in Q2 2013 and the changes in South African tax law during Q2 of 2012. On a consolidated basis, for the second quarter 2013, we reported revenue of $111 million, an increase of 29% in constant currency. We reported fundamental earnings per share of $0.18 compared to $0.39 a year ago. Q2 2013 results include $18 million of direct implementation costs and $3 million related to the expensing of the UEPS/EMV smart cards issued to cardholder grant recipients. We measured the group's profitability by analyzing operating income and margin by segment. Within our segments, SA transaction-based activities posted revenue of $61 million during Q2 2013, 40% higher in local currency, driven primarily by higher volume and revenue from our new SASSA contract. Our segment operating margin, excluding amortization of intangibles, declined to 6% from 38% last year, primarily due to SASSA implementation costs including cards and higher low-margin prepaid airtime sales. As previously discussed, we expect profitability in this segment to remain under pressure for at least one more quarter, as we continue to invest in the infrastructure, distribution and personnel required to enroll in these business grants on a national basis before returning to a more normalized and sustainable level in fiscal 2014.…

[Operator Instructions] Our next -- our first question comes from Dave Koning of Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Yes. And, I guess, my first question -- just so we're clear on the implementation cost. I mean, It sounds like next quarter will be the remaining big quarter of implementation cost, so it looks like we'll have about $50 million in total implementation cost by the end of March 31, and that's exclusive of the smart card cost. How much -- I know smart card implementation cost was $3 million this quarter, how much are those going to be next quarter? And then, after that, what's the more ongoing quarterly cost of just ongoing implementation and new beneficiaries and stuff, is there kind of a base level going forward?

The -- we expect the smart card costs, specifically, to be at its highest level in Q3, with the exceptionally high enrollment rate that we're seeing it at the moment, and with us having a pretty good idea what the final number of smart cards that we would have to issue would be. And of course, the caveat there is that there may be some people who don't get reregistered or don't exist. But if we look at what remains to be done, the smart card cost is between $10 million and $12 million in total, and we expect that to be largely completed at the end of Q3. After that, a little bit will be done, I think, in Q4. And in terms of the ongoing implementation expenses, so we expensed $18 million in this last quarter. We look at what we expect to do in Q3. And obviously, we are 1 month in effect, into Q3 already, we will still employ all of our staff members through to the end of March to assist SASSA in achieving its goal of completing bulk enrollment. And again, depending on what the exchange rates will do over the next couple of months, it's been quite volatile over the last few weeks, specifically. That may have an impact, obviously, on the final dollar number. But from Q4 going forward, enrollment will be in the SASSA offices. During Q3, I think that our implementation expenses will not exceed the $18 million level that we've seen in Q2. And in fact, we hope that we may be able to shave 10% to 20% off that number in Q3. If we look at what -- sorry, David. So just as I've been going forward -- going forward after Q4 -- so in Q4, there'll be…

Yes. So obviously, the segments also include some of the other processing activity. But if we talk about the pension and welfare business as a standalone, we do expect to normalize on an EBIT basis where we were before. The margin, obviously, is completely different when we compare it to the revenue lines simply because the volume and the pricing has changed so substantially. So even though the margins would be much lower than what we saw under the previous contract, on an absolute quantitative basis, in South African rand, we should be right back to what we had under the previous contract. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Great. And then just one final question. In the International business, the KSNET business, mainly, you've had decent top line growth, but EBIT has been in a kind of 3.5-ish range every quarter, so we're not seeing any profitability growth despite the revenue growth. Is that something you expect profits to go up over time? And maybe, why isn't profit growing with revenue growth?

Well, there's a couple of factors that payroll -- first, the major factor is that we've seen some pretty fierce competition in the Korean market between the large Ven [ph] company, and the natural sort of result of that has obviously been that we've had to engage in some pretty aggressive pricing policies to make sure that we retain our existing clients and that we can grow the customer base in terms of winning over new clients. So that's why we see the revenue growth, but unfortunately, at the sort of competitive pricing levels that we have to engage in at the moment, the profitability growth of that business is, for the foreseeable future, in my view, going to lag behind the top line growth. And I think that will probably only change once there've been a few reforms that we expect in the Korean marketplace. One of the biggest changes that we anticipate that will take a while to filter through is really the discontinuation of the so-called upfront incentive payment that are traditionally paid to the large retailers in order for them to accept the business. That practice is being discontinued, and it will take a while for us to see the full effect of that, but that will have a positive impact on our operating margins in that business. And we've also moved away, really, from the large retail base. Again, the competition in that area, as you can imagine, is pretty intense, so the smaller and medium merchant that aren't as price-sensitive as the larger guys. And once, I think, when we see a change in the mix of our customer makeup, so in other words, moving away or being late the payment on the larger retailers and having more small to medium retailers that will also increase the operating margin of the business.

Our next question comes from Kevin Tracey of Oberon Asset.

First, I had a couple of questions related to EasyPay. I think it's kind of difficult to kind of understand how the EasyPay business is performing based on your disclosures. All we tend to see is transactions grew slightly. But I was hoping you could comment on how the profitability of EasyPay has grown or not grown over time? And then secondly, if you could kind of explain to us again maybe what the benefits to EasyPay might be for issuing 9 million new cards?

It's Serge, I'll answer the second part of question and Herman can talk about the profitability of it. EasyPay for us is -- gives us the ability to lock in some of the larger retailer footprints throughout the country. And because we've become, for a lack of a better word, their service provider and technology provider in terms of the functionality that they can provide on their terminal network, we are able to then start offering different products on these terminals, which products are targeted or will be targeted to close to 10 million clients that we are currently adding to our banking portfolio. So for us, as you can well imagine, the 10 million clients we have are all very much part of the lower income bracket group in South Africa, and therefore, relatively poor people. What's important, though, is that the products that poor people require are currently not really offered at any real outlet, brick-and-mortar outlet, throughout South Africa simply because on a one-off basis, simply not profitable. So for us, our retail footprint gives us an immediate and automatic footprint through which we would be able to distribute these products. And by cutting in, of course, the merchant still being able to generate some very, very good profit margins while making these products available to the poorest of the poor at a very, very competitive price. And that way we've always seen, as far as that is concerned, the future of EasyPay, or at least the importance of EasyPay, in our plan is to have as many retail outlets as possible through which we can service these clients. On the other side of EasyPay, which often we don't mention, is that we also have of course the bill payment engine, as well as things like, for example, as the viability of being able to sell products such as -- prepaid products like, for example, electricity, water or airtime. Now that is something, of course, that at the end of the day, if you do not want to lose anything in the interchange or that, let's say, having to buy from a third party, we would like to be able to then own the entire chain from A through Zed, and this is really the other side of EasyPay. So on the one side, it's a footprint, on the other side it's products range, which together now, of course with the products offered through the bank, gives us a complete product solution for the 10 million people that we believe that we are and we'll continue to service. Herman, if you want to maybe say a few words on the profitability of the line?

Right. I think that it's important to remember that depending on where we end up in the product mix at EasyPay, we have a significant shift in the operating margin of the business. When there is growth in the value-added product side of the business, so specifically, the sale of prepaid electricity, as well as bill payments, those are all fairly high-margin transactions for us in terms of how much we earn and what the real costs against those transactions are, as the volume base grows. But added to that is when there is significant growth in specifically the prepaid airtime sales business, that has a pretty dramatic effect on the operating margin of EasyPay simply because prepaid airtime sales is done at a very low margin, but the volume is typically quite high, especially if we managed to become a service provider for prepaid airtime to one of the larger retail chains, to give you an example, the revenue would increase substantially from the sale of those products because we effectively own the stock of airtime and we sell that through the retail chain, but we do so at a margin that is often less than 2% or even 1% in some cases. So depending on where the mix is and depending on the size of the retailers that we sign up for specific product types, the margin in EasyPay may fluctuate quite substantially.

Okay. I see. But I guess, could you comment -- and I know you kind of shifted away from low margin activities over the past couple of years, but can you comment on kind of absolute level of EasyPay's profitability over the past year or 2, and has that continued to grow?

So about a year ago, there was a specific line of business that we had discontinued, which was really more of a hosting site. And I think what we've seen over the last 2 quarters -- and, again specifically December for EasyPay, is a strange quarter because of the relatively high level of the summer vacation and Christmas holiday season period in South Africa. But from our perspective, if we look forward and we have to map out the profitability of EasyPay, I would say that what we've seen as an average during the last 6 months is more or less what we think is sustainable without the continued addition, obviously, of any new major retailers or product lines, we would be able to sustain, at the very least, what we've seen in the last 6 months on average. That certainly, from our perspective, is the normal trading pattern at EasyPay. There's been no real abnormal activities for the last 6 months. And I think it's a pretty good benchmark to use as the run rate going forward, without the addition of any significant clients or products.

Okay. Can you give us an idea of what, over the past 6 months, the operating profit of EasyPay was, then?

We don't disclose that separately. But I'm sure Dhruv can assist you with some of the operating metrics in that specific business segment.

Okay. Okay. And then moving on to KSNET, kind of a follow-up to a previous question. Now you guys purchased KSNET for $230 million a few years ago, and I think based on the disclosures you made, it was for roughly 9x EBITDA. Now I would assume, even though margins have been under pressure, that EBITDA has grown since then. And I guess, I'm wondering, given that you're kind of running a $14 million adjusted operating profit today, and I know that includes some costs related to your other international business, but can you give us an idea of how we can feel comfortable that KSNET is still at least worth the $230 million that you paid for?

Sure. So if we look at the 9x EBITDA multiple that we paid for the business and we use the EBITDA at that time, that we obviously made our decision -- based on decision and evaluation on, the EBITDA remains intact and, in fact, has grown. In terms of how we look at KSNET, specifically, we find that EBITDA is the most appropriate measurement. And if we look at the EBITDA margin, specifically, there's been a slight variation in that margin number, sort of fluctuating between the 24% and 28% levels over the last couple of years, and that's a band that we're quite comfortable with. But if we extrapolate that into sort of real numbers, in quantitative numbers, what we thought we bought in KSNET, in terms of real EBITDA contribution, remains intact and has grown over the last 2 years. And looking forward, we expect that growth to continue. It is, at the moment, as we said, at a pedestrian rate. Although the top line growth is in double digits, I think that we still expect the EBITDA and the operating margin lines to at least continue with high single-digit growth looking forward. So we're pretty comfortable that the metrics that we used to determine the valuation a couple of years ago remain intact and remain valid.

Okay. Okay. And then just lastly, very quickly, on your guidance. I guess, you said at least $0.95 a share, but then you assumed a constant currency basis of ZAR 7.72 to the dollar. Obviously, the exchange rate hasn't been that for the first half, and as it stands today. So I would imagine -- I just wanted to confirm that, that ZAR 7.72 is assumed for the whole year. And then, I guess secondly, if you just kind of add back this onetime implementation cost and adjustment tax today and assume no growth, my math gets us to -- in the neighborhood of $2 per share for, say, June fiscal 2014. I guess, can you give me an idea if my math is somehow wrong there?

Hey, Kevin, it's Dhruv. Yes, the -- all our guidance is in constant currency based on the prior year's exchange rate. If we give it in realtime, it would be moving at every quarter, just based on exchange rates. So yes, I mean, for the full year, we've given ZAR 7.72. As far as the math goes for fiscal '14, obviously there's no specific comment from our side, but there have been some moving parts on the backside. The implementation cost -- I don't know if you can add back the entire month, because there is a component that continues. An example of that is, of the 5,500 temporary staff, we have now -- probably going to keep at least a quarter, which is at least 1,200 to 1,500 people, so that cost will continue. And so you can't just add back the entire amount.

Right. I understand. But I guess, as ballpark, you would think it would be -- I did haircut, that for tax, but there's nothing -- is my math on that number quite wrong, do you guys think?

No, nothing wrong with the logic, otherwise.

Our next question comes from Tom McCrohan of Janney.

On the BBE options set to expire in April at a strike price well above the current market price, it seems like you folks are considering extending those options, and I'm wondering whose decision is that? When will we know and by -- between now and the April expiration date, what action you will take, and is it a possibility that not only would extend the options the lower the strike price?

From a strategic point of view, there are obviously a couple of factors that, as we know, have affected the price negatively, which unfortunately have -- really those factors have come at the wrong time. Now, it is one of the main factors that we are going to the appeals court on the 15th of this month, which is next week, Friday. And we are, by hook or by crook, we would get, we believe, a final answer from the courts, vis-à-vis, this particular contract. We obviously hope and believe that we are lucky to come out the winners. Now this, in my view, should by definition, give the price a new rating. And obviously, depending on the outcome of that new rating, we will then be in a position, if of course the judges give us a TIC before the end of April, which we hope would be the case, that new rating would then be one of the main factors as to how we would treat the current option. In other words, would we simply extend it? Would it simply fall away? Either way, one thing is for certain, according to South African rules and regulation, we, as a company, will have to be BEE compliant and BEE empowered. There is no doubt about that and this is something which is becoming almost a daily newspaper event. So there is no doubt that one way or the other, we will have to either extend or enter into a completely new BEE transaction at the end of April. As I say, depending on where our share price is going to be at that point in time. Only thing I could tell you is that in South Africa, you have a BEE certificate, which rates between basically a 1 and…

So in regards to the gentleman's question before mine, about trying to get -- do kind of a run rate earnings once this implementation is over. The math, any math, should include your share count going up by 9 million shares, is that correct?

I think it's, unfortunately, too early. There are some new rules that have been publicized at the moment and talked about in terms of what would be the correct shareholding that a BEE partner should have of an international company. And those rules haven't been fixed in concrete at this point in time. So would it be 20%, would it be 13%, would it be 10%, we're not 100% sure what it will be. What we'll have to make sure is that whether we do is good in terms of percentage. What we want to make, 100% sure, is that it's going to be something, or else we cannot be -- we cannot afford to become half-pregnant with this. Either we're going to do a BEE deal that is going to give us the rating that we require, which is at least, like I said, a 3 or a 4; otherwise, candidly, we would actually be wasting the money spent on the BEE rating. So worst-case scenario, you're probably right, it would be 20%. Best-case scenario, it's likely to be 10%. So I would figure the answer is probably in between.

Okay. I know in your prepared remarks, you were hesitant to talk about the DOJ. I'm just looking for, not specifics, just a timetable. Is there any way you can give us any sense of when that investigation would be resolved?

The only thing that we can say on this is that we have been cooperating to the best of our ability. And candidly, I think, in our view, we've done a very good job to supply the DOJ with anything they've been wanting, and we've been doing it as quickly as possible, as quickly as we can. However, it is not in our hands at all in terms of the speed of resolution. And I'll be honest with you, we -- this is very much a first for us, so we really have absolutely no expertise on our side to even have a guess of what this process entails. So we are very much in the hands of our attorneys, and our attorneys, of course, are telling us, "Well, it depends." So we are waiting for the next set of results from -- or the next raised questions or discoveries or whatever it is that they are called. And hopefully, we obviously try to press, to try to have it resolved as quickly as possible, but it's about as much as I can throw in terms of giving you any sort of -- for what it's worth, that's the only thing I can possibly tell you, because I really don't have a clue.

Our next question comes from Marc Heilweil of Spectrum Advisory Services.

Can you elaborate a little bit more on the comment of the manner in which these investigations have hindered your strategic plans? And when you referred to the damage to the your reputation, are you referring to entry into other markets?

Yes, sure. One must understand that South Africa is obviously not the United States, and certainly, we are not used, in this country, to this type of investigation. So they do tend to come as a very big shock to all concerned. And there is absolutely no doubt that a lot of regulators, for example, the people that regulate insurance companies, for example, are at the moment, we were looking at making certain acquisitions, which again need regulatory approval. And obviously, these regulators are certainly looking at these transactions very much differently now. Because like the previous caller, they would also like to know what is the timing of the resolution of these events and what will be the resolution of these events. So this, for lack of a better word, is certainly slowing down a huge amount of our initiative simply because the people, or potential customers, are not sure about timing. They're not sure of the outcome and they're not sure of how the outcome may or may not affect the company. So on the one hand, that's why I said the reputation. Unfortunately, when these things come out, people immediately assume the worst, although they don't understand that this is an investigation, not a conclusion. But from their point of view, they say, "Well, what if?" So it's only natural that people are going to be cautious, people are going to delay decisions, people not even decide because they can delay a decision -- to go with a competitor, because they want to make a decision right now. So on the one end, we've got this sort of thing -- although I hate, for lack of a better word, that makes it very difficult for us to operate in, what I would call, in a sterile environment.…

We have time for one last question.

Gentlemen, we actually have no further questions. Therefore, on behalf of Net1, that concludes this conference. Thank you for joining us, you may now disconnect the lines.