Ladies and gentlemen, good day, and welcome to the Net 1 UEPS Second Quarter 2015 Earnings. [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, sir.

Thank you, Dylan. Welcome to our second quarter fiscal 2015 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 in 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. And with that, let me turn the call over to Serge.

Thank you, Dhruv. Good morning to all of our shareholders. We kick off by saying our second quarter results were, in my view, very, very impressive. We achieved USD 154.1 million in revenue and USD 57 million -- USD 0.57 in fundamental earnings per share, which translate into a 12% and 43% growth in dollars, respectively, and 24% and 56% growth in rand terms when we compare that to the second quarter of 2014. Our businesses continued to perform at par or above our expectations, and we are pleased to report that our new and potentially massive growth businesses are beginning to scale and are on the verge of earning significantly to our bottom line. Today, Herman will provide the details of our financial performance while I concentrate on some business areas, which I feel are strategic to the group. Our business unit management teams have delivered on our strategy, which was to consolidate our existing businesses, continue to grow these at a decent rate and improve the operating margins. We have been very successful in this endeavor as our results demonstrate. Our CPS business continues to perform well as we are able to reduce cost further and commence the use of our national mobile and fixed infrastructures to address customers who are not grant beneficiaries but who are either unbanked or banked by other South African banks. We are achieving this by making our mobile banking units available to any customers in semi and deep rural areas of South Africa, where ATMs and other banking infrastructures are lacking or simply nonexistent. Our mobile banking units offer cash withdrawal, money transfers, airtime and electricity top-ups, microfinancing and insurance products to all South Africans, resulting in opportunities for us to generate transaction fees, product sales, initiation fees and collection fees at…

Thank you, Serge. I will discuss the key results and trends within our operating segments for the second quarter of 2015 compared to a year ago. For Q2 of 2015, our average rand-dollar exchange rate was ZAR 11.22 compared to ZAR 10.16 a year ago, which negatively impacted our U.S. dollar-based results by approximately 10%. The U.S. dollar, our reporting currency, has continued to strengthen against all major currencies while the rand continues to be plagued by South African-specific risks. The rand is currently trading at around ZAR 11.50 to the $1. And as predicted, the stronger dollar has progressively adversely impacted our fiscal 2015 results thus far. Notwithstanding the reporting currency pressure discussed above, we have continued to sustain our top and bottom line growth during Q2 2015. On a consolidated basis, for the second quarter of 2015, we reported revenue of $154.1 million, an increase of 24% in constant currency. We reported fundamental earnings per share of USD 0.57, which grew by 56% in rand compared to a year ago. Our fully diluted weighted share count for Q2 2015 was 46.6 million shares and includes the positive impact of our repurchased 1.8 million shares from our BEE partners in August 2015. Let me now turn to a discussion of our segments and their financial performance during Q2 2015. South African processing recorded revenue of $58.4 million during Q2 2015, 10% higher in local currency, driven primarily by increased low-margin transaction fee generated from our customers using the South African National Payment System and more intercompany transaction processing activities. In addition, revenue from the distribution of social welfare grants grew modestly during the year and was in line with the increase of 4% to 5% in unique welfare cardholder recipients, net of removal of invalid and fraudulent beneficiaries but…

[Operator Instructions] Our first question comes from Dave Koning of Baird.

And I guess my first question, just -- it sounds like the food bank deal -- I mean, this is the first time I remember you really talking about it, and it sounds like something that could be meaningful near term. And maybe you could just talk a little bit about kind of what the kind of range or type of impact it could have and whether it's in your fiscal '15 guidance at all, some contribution is included.

Yes, sure. I think I did mention, not the actual company last quarter, but I did mention that we were working on a couple of tenders in unison or in association with MasterCard. And we're obviously very, very pleased that they have decided now, at least, the World Food Association decided that we were the right people to implement technology on a cloud-based -- on a cloud basis across all of these SADC areas. And what was interesting for me is that -- to try to learn a little bit more about how they operated -- and I don't know if you know this, but they actually operate out of Rome. And their model used to be that every country, and I think it still is like this to a great extent, used to decide as to how they were going to distribute their so-called food grants in the whole country that -- you can imagine that raises all sorts of problems. Number one, because their technologies were all different, but more importantly, because I think a lot of the money was simply not going or was not being received by the people to which -- to whom it was intended. So they've now been able to -- with us, to implement a system that can work in any country regardless of what the infrastructure is. It can be the most advanced infrastructure or it can be the most backward infrastructure, and our systems are capable of doing both. Of course, we've got the biometric security, and of course, I don't have to then worry about going to tenders in every single country in order to see what will be the technology that will be utilized. So from that point of view, it's very exciting. When we look at --…

Okay, got you. That's helpful. So this is -- I guess from a financial perspective, it sounds like this could be a tens of millions of dollars of revenue type thing, not just like a couple of million. And is any of that in the fiscal '15 guidance or not yet?

No. So none of that is in the 2015 guidance because we simply don't have exact visibility of when the various countries will take up the program. This is something that we will have more clearance or more clarity on as we progress and as we negotiate with the World Food Programme. So we have not taken that into account at all in our current guidance.

Our next question comes from Tom McCrohan of Sterne Agee.

A quick follow-up question on the World Food Programme. Were any of the card network, Visa/MasterCard, involved or partnered with you in this process?

Yes and no. MasterCard, my understanding -- and of course I think you can see it on their own website, my understanding is that they've got an agreement with the World Food Programme to provide them either with a payment solution or with consultancy vis-à-vis a payment solution. So either way, we work very closely with MasterCard. We certainly tell them what we do. They tell us what it is what that they are doing in that space. And obviously, the technology we're implementing is going to be an EMV MasterCard and chip-based product that either will be the real MasterCard M/Chip 4 product or it will be powered by MasterCard. So we intend to certainly keep MasterCard as our partner simply because at this point in time, we work very well them and they are attempting to open doors even if those doors are more in what I would call is the social environment rather than what I would call purely the business environment. But we all think that one is going to lead to the other.

Will the distribution of monies for the World Food Programme ultimately be given to someone on a piece of plastic card? Or is it going to their mobile device?

It's going to be both. Some people are going to be getting a piece of plastic where they can go to, if there are any, existing ATMs or point-of-sale devices, as there will be an implementation of POS devices by the World Food Programme in specific areas in order to make sure that the money may be spent in specific retail shops. So we're providing that to them as well. But of course, our mobile technology, if it is, of course, available in those territories, specifically if the right mobile phones are available, we would be able to do the tap and go, we'll be able to do the VCC, we'll be able to use any of our other developed mobile applications in those territories as well.

Our next question comes from Jordan Hymowitz of Philadelphia Financial.

Before I ask my question, I just have a request. If you could simply post the transcript of this call on your website, it's been very, very difficult to understand with the accent of -- for a number of people that I've been talking to. My question concerns -- you have a national food program with -- announced with MasterCard. You also said on the last call, there was another country with about 40 million people you were working with. Do you have any update on that?

Yes. What has actually happened is that the country we were talking about is not part of the 12 SADC countries. So we had, in fact, signed a deal already with 1 of the 12 countries, in fact, with the food program. And now I think this has resulted -- instead of us implementing that country on its own, it's now resulted in the World Food Programme actually awarding us with the tender for all 12. So it was part and parcel of that one. Funnily enough -- it's strange that you mention it, because now, we also are now working with another country, which is not part of the WFP, which also has around 35 million to 40 million people, but that is completely -- something completely new and is a completely different tender.

And what country was that just out of curiosity?

At this point, they basically mentioned to us that we should rather speak to the 12 countries. And I don't think -- I think there are some internal politics there, and I think they didn't want us to mention the specific one.

Our next question comes from Russell Anmuth of Gotham Holdings.

This time it's very particularly hard to keep to a limited number of questions, given everything you put forth, but give it a shot here. Just to circle back on something on the old sort of legacy situation. When do you expect the Hawks to come out on South Africa?

I like your forwardness. And as you know, and that is something I think that's important. We haven't heard much from the U.S. side at all from the -- from what is referred to as the government, which I assume is the SEC/the DOJ. And the reason is that they are probably waiting for the Hawks to actually finalize their -- their investigation. The latest thing that we've heard -- and again, I don't want to get our hopes to be too high, but we've heard that they have finalized their investigation, and it is now in the hands of the prosecutor. And it is up to the prosecutor now to actually decide what he wants to do. And my understanding is he has a couple of choices: one, he can prosecute; two, he can decide not to prosecute and to say that we've been cleared on all accounts; or three, he could ask, of course, the Hawks to investigate something else. I hope that it's not going to be a further investigation into something else because I fail to understand what it possibly could be. And obviously, we hope very much it's not going to be the first one, namely that he's going to prosecute. So with a bit of luck, in the next few weeks, we may have at least some finality in South Africa and hope that, that finality might assist in translating finality into the U.S. as well.

Okay, okay. May I ask a second question?

If it's a follow-up question. As long as it's a follow-up question. That was part A and this is part B, right?

Well, part B in a different topic. So you talked about Microsoft in Africa, which is very exciting. Now in the past, you've also alluded to doing -- to working with the largest handset company in the world. Are you still talking with them, right, to apply your technology solutions, some of the new undisclosed capabilities that you're referring to? Are...

We haven't given up. We're working, if you remember, with both. We're working with the big one, and we were working with Nokia, if I remember correctly at the time, which is now really Microsoft anyway. So we are chasing both. Obviously, we're not waiting for the one to do the other. We're really excited and I'll be sort of -- I'm even very, very excited about the Microsoft initiative, simply because it allows us to have our VCpay application, VCC application preloaded onto all of those phones. And we know that with Microsoft and advertising and Cell C behind it, those phones are going to start being used. And by definition, we know that then -- that this is going to start really putting our VCC on the map. So that's going to happen in South Africa, first and foremost. First, with Cell C, that in my view I think is going to go outside of the Cell C world as soon as Vodacom and MTN, et cetera, et cetera, are also going to be selling the same phones. But I'm more excited about some of the noises I'm hearing that perhaps there is already some application that Microsoft might be seeing in all of this outside of South Africa. South Africa is still very small. It's great for us to do something here, but we don't want to become a global company when it comes to VCC, not a South African company only. So that's what I'm hoping it's going to go down that route. And I hope that, that small win, for lack of a better word, is also going to push the other players that we are talking to, to perhaps say, "Hey [indiscernible]. Maybe somebody else is not committed to this. We'd better do the same thing." And you will see in the next 2 weeks, we're going to announce 1 or 2 other international or, at least, companies that are international that, in my view, are also keen and are going to commit in the next few weeks to also implement this technology. And that's going to happen. We can't -- we couldn't do it now. We're hoping it's going to be released in the next week to 10 days.

[Operator Instructions] Our next question comes from Jean Pierre Verster of 36ONE Asset Management.

Obviously, in September last year, the Minister of Social Security released a media statement regarding the issues that the Black Sash has found regarding the tender. And on the basis of that, said that they will, for the new tender, set a cap of ZAR 14.50 per month per recipient, which is obviously now this court case and the reissue of the tender regarding this contract. Now without getting into the actual court case, which I assume you don't want to comment too much about, if you look past the court case to 2017 when this contract expires, what would be the impact of a new contract from 2017 in the way that SASSA want to issue it on your business?

It's actually a fairly complex answer to this, but I'll try, if I may. Everybody talks the ZAR 16.50 goes to ZAR 14.50. It's quite easy to understand that there's ZAR 2 missing. And on 10 million people, it's ZAR 20 million a month. So that's not complicated to work it out. What is unknown at this point in time is a number of things. The first one is that, of course, there is growth in beneficiaries. And we know that we are going to be going towards another election, which means the South African government is likely to -- in my view anyway, to register more people and to put more people on welfare than less. SASSA had already projected I think 1 million people that are going to come onboard, and it could be substantially more than that with -- specifically with children. So that's an unknown factor that could easily perhaps make a difference between the ZAR 14.50 and the ZAR 16.50 anyway. So that's point number one. But that's not really -- that's more, for lack of a better word, a sort of defensive approach. To me, what I'm more excited about is the fact that the new contract or the new SASSA SLA, because of the allegations made by organizations such as the Black Sash -- who I think mean well -- but really, in my view, don't quite understand perhaps many of the aspects of financial services and that the fact that when you give people the ability to choose, well, at the end of the day, they might choose correctly or incorrectly. And it takes a lot of education before people that are being given their freedom can actually use that freedom in the best possible way. That doesn't mean, of course, that…

If I could follow up -- obviously, I'm trying to get to how important the SASSA contract is, not just for your transaction processing revenue and profits, but also then for your financial products, which you sell to those same beneficiaries within -- post 2017, you technically would not be able to access via the restricted bank account. So if I want to get a feeling about how important that account is, you did a public interview here in South Africa, late last year with Alec Hogg and the transcript is on the biznews.com website. And Alec asked you what proportion of your income is generated outside of South Africa, and your answer is about 20%. It used to be 20%, now it's closer to 65% to 70%. I just want to confirm that amount because it was difficult for me to tie that up with your financial statements. What proportion of your income is non-South African?

Herman, I think [indiscernible].

Let me get back to you for you to answer this question exactly for you, so that I can be more specific...

Our next question comes from Jordan Hymowitz of Philadelphia Financial.

Most of my follow-up questions have been answered at this point.

Okay. And Dylan, hold on a second, let us just answer the last question because I got cut off. So yes, I mean, I think the reference was the -- what portion of the revenue and income was non-South Africa. I think the inference is not, not South Africa, but it's non-SASSA, yes.

So just to obviously clarify what you had asked, Serge's references to the revenue split, basically what he referred to was non-SASSA revenue. And obviously within South Africa, there are various other businesses that produce or that contribute significantly to the top line and those would include our EasyPay business, as an example, and all of our Umoya Manje product ranges. So the split that he referred to definitely was non-SASSA compared to the rest of the revenues. And so that's -- I think in your question, I think there was also an inference to say, well, what is the dependency on the SASSA account, which obviously is a very good question. And what's interesting is that, today, our financial services we offer, including our, for example, Umoya Manje, airtime and electricity sell [ph] ...

And financial.

And financial services are completely independent of that particular account. That is run through an independent set of people, an independent company and part of these are -- all of the deductions that occur, because of, for example, debit orders, these are actually run through the standard banking system and are not directly connected to the SASSA account itself. So most of that stuff is going to remain regardless of who wins the prize of having the SASSA account at the rate of ZAR 14.50, including that or not. If you take that into consideration with my previous statement, maybe that a number of beneficiaries will then choose to open up what I would call is fully fledged account, we see no reason at all why those beneficiaries would not open those accounts with us considering that our accounts right now are, by far, the cheapest in the market and, candidly of course, the most functionality for the buck that you pay for them.

Our next question comes from David Koning of Baird.

Just a couple of quick financial ones. I think you mentioned something about margin increasing a bit, EBITDA margins increasing a bit in the core South African transaction business. I can't remember what the reason exactly was, but maybe you could just talk about that for a minute.

Yes. The margins in our core South African business, Dave, in terms of operating margin, there's a bit of fluctuation depending obviously on the product mix, and it varies from quarter-to-quarter because there are also some cyclical trends in some of those underlying businesses. What I referenced in my prepared remarks is really looking at the EBITDA margin, specifically, of the South African transaction processing business is something that we hope to stabilize over the next several quarters. One of the prospective projects that may have quite an impact on both -- well, on -- mainly on the operating margin would be the rollout of our mobile ATMs across the country. We plan to roll out quite a significant amount of these fairly expensive machines. But obviously, we've done what we believe is sufficient research and homework in terms of the volumes that we hope to generate through these specific ATMs. Clearly, the depreciation charges on those machines will have an impact on the operating margin. But as far as the EBITDA margin's concerned, we certainly hope to improve on the margin as it currently stands.

Okay, great. And then the tax rate. The first 2 quarters were kind of below kind of normal rate. I think you're averaging 31% year-to-date. Is that sustainable, that kind of 31%, 32% going forward?

I wish I could say yes, but unfortunately, a big determining factor on the final tax rate for the year is obviously going to be the extent to which we declare or may declare dividends up from the South African company into the U.S. company to pay for expenses or international expansion. And those, in turn, would obviously trigger some utilizations of foreign tax credits, et cetera. That calculation gets done at the year-end stage, and the result of that could have an adverse impact on the tax rate. So for our own perspective right now, we don't think that it will tick up too significantly, but it could go up as much as to the 38% range. But that it will only happen in Q4, right at the end when the final tax comps are finalized.

Our final question comes from Russell Anmuth of Gotham Holdings.

In South Africa, when do you expect to be able to offer life insurance services again, given how important that can be to cash flow?

Yes. As you know, our life insurance company with -- was -- we were issued with a Section 12, which means we haven't been able to sell any insurance for the last, what, 2 years. We've kept it going, and I think we've done everything that the Financial Services Board has asked us to do in order to, for lack of a better word, meet all of their current and future requirements. To be quite honest, I think the DOJ investigation did not do us any favor in this particular aspect because they've been, I think, far more thorough at looking at us and our business plan and what we're doing and how we do it rather than perhaps at other people. We, again, are of the view that we've done everything in our power now as of the last, I think, couple of weeks and we've been dogged by our Managing Director as well as the gentleman that was appointed by the FSB to oversee what we were doing as part of -- who's also in our board and as management. When I'm talking the board, I'm talking the board of the company. And we are hoping to get clearance from them very, very, very shortly now. If that happens, then to be quite honest, we've been ready for a while to actually launch a real attack on the South African market with the product that we've designed. And when we do put our minds to launching a massive attack, we're normally pretty good at it, which means we'd like to get 50,000, 100,000, 150,000 new customers very, very quickly from the date of launch, which means with a bit of luck, by the end of this financial year, end of June, we could already have 50,000 more, 80,000 people in our books, if everything goes according to plan.

Big number.

Yes. Well, you've got to go for big numbers, because we're growing -- in order to grow at the sort of rate that we're growing, we can't do it anymore with small numbers.

The beauty of scale, finally. So just to follow-up to that. So where does -- with all the damage that AllPay has caused the company in all kinds of different arenas, from business in South Africa to the U.S. stock market capitalization and on and on, where do you stand at this point with AllPay, with Barclays, with addressing the situation?

So yes, I didn't catch the last piece of the sentence.

What is your thought process on addressing the damages that AllPay has caused the company across the board, from the U.S. stock market capitalization to business in South Africa?

I understand the question now. And obviously, there's a couple of things. We have mentioned the fact that we have commenced legal action, number one, because we believe that they were fundamental in leaking that information to the press first and then to the DOJ anyway without any substantial evidence of anything, which would've been difficult considering there isn't anything to find. And certainly, we have -- our attorneys have decided that it was better to wait for the Hawks' investigation to conclude because when -- rather than to use the word if, when they actually decide that, in fact, we didn't do anything wrong and that none of our companies were ever involved in any of these particular events of corruption or alleged corruption, then to be quite honest, we're going to be I think on the front foot and we'll be able to go back and start adding everything together and decide how much money have we lost, and have our shareholders lost because of this and, of course, which jurisdiction should we commence a new lawsuit in. Because depending on the legal system, South Africa is not very good at -- as far as collecting damages. Obviously, we'd prefer the U.S. because it sounds like it's in the U.S., you can basically ask for anything from anybody at any time. So there might be an opportunity and we are reviewing that at the moment, knowing that we're hoping to get clearance very, very soon. We will then decide in which jurisdiction we go after Absa, which is really AllPay, which is really Barclays, simply to make sure that this does not happen again, specifically for the wrong reasons.

Ladies and gentlemen, on behalf of Net1 UEPS, that concludes this conference. Thank you for joining us. You may now disconnect your lines.