Ladies and gentlemen, good day, and welcome to the Net1 Q3 2016 Results Conference Call. [Operator Instructions] Please note that this call is being recorded. At this time, I'd like to turn the call over to Dhruv Chopra, Head Of Investor Relations. Please go ahead.

Thank you, Ari. Welcome to our third quarter fiscal 2016 earnings call. With me today are Serge Belamant, Chairman and CEO; and Herman Kotze, our CFO. Our press release is available on our website, www.net1.com. And our Form 10-Q should be available shortly. 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. And 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 impacted by currency fluctuations between the U.S. dollar and the South African rand. So with that, let me turn the call over to Serge.

Thank you very much, Dhruv. Good morning to all of our shareholders. During our third quarter of 2016, we continued to make meaningful strides in safeguarding the long-term strategic but sustainable growth of Net1. Through the ongoing execution of our mature and new businesses, the introduction of new products and services, our new partnership with the IFC and the acquisition of a number of small but focused acquisitions. The weaker rand had its most significant impact on our year-over-year dollar-based results so far, creating a 55% headwind this quarter. Fortunately, the rand has recovered to some extent from its loss, but still remains a material headwind for the next few quarters. As the rand remains unpredictable, it is key for the company to accelerate its plan to achieve internationalization. Quarter 3 2016 revenues of $135 million grew 20% in constant currency and was driven by a combination of our stable recurring businesses aided by further expansion of our new initiatives. A number of these initiatives still require investment to scale and, therefore, the expected contribution to profitability will lag until each of those initiatives achieves critical mass. The good news is that some of our South African initiatives started scaling during the third quarter of fiscal 2016 and should continue into the remainder of the year, while some of our international activities should follow suit during the second half of calendar 2016. Our fundamental EPS in Q3 was USD 0.43, which was meaningfully lower in dollar terms and 1% higher on a constant-currency basis. During the third quarter, we continued the investment we began in quarter 2, given an opportunity to expand our branch networks, ATMs' installation and sales and support staff to capitalize on the demand for our products. These actions, therefore, resulted in a additional costs which we…

Thank you, Serge. I will discuss the key results and trends within our operating segments for the third quarter of 2016 compared to a year ago. For Q3 of 2016, our average rand-dollar exchange rate was ZAR 15.82 compared to ZAR 11.74 a year ago, which negatively impacted our U.S. dollar-based results by approximately 35%. And the South Korean won was 9% weaker compared to last year's won rate. We continue to face significant currency headwinds in our operating geographies. True to form, the rand has maintained its status as one of the world's most volatile currencies. And after trading well below ZAR 15 for a few weeks, the ongoing volatile macroeconomic news has resulted in current trading at the ZAR 15 level again, which will obviously influence our Q4 results. Consistent with the first 3 quarters of this year, we have experience good growth in our functional currencies, and this momentum continues through to Q4. As I mentioned previously, while we do not specifically hedge currency due to the clearly translational nature of its impact on our dollar-denominated results, we are well aware of the associated risks of the weaker rand. We, therefore, decided to convert a further ZAR 500 million of our South African cash balances through a dividend to U.S. dollars at holding company level during February 2016 to reduce currency volatility on our cash reserves. Predictably, this has again resulted in withholding and other tax-related adjustments as well as lower tax-affected interest income due to the differential between South African rand and U.S. dollar deposit rates, which impacted us by approximately USD 0.05 of EPS this quarter. For the full year, we expect a total impact of approximately $0.18 on EPS, including the prior distributions and assuming no further distributions through to June 2016. Revenue for…

We continue to fund the group's operations and capital investments utilizing our cash reserves and cash generated from our business activities. We also expect to receive approximately $107.7 million related to the IFC transaction next week and expect to use the proceeds primarily for the expansion of our business and technological solutions deployed in emerging markets across the globe. In addition, during the next 12 months, we also to -- expect to use our existing surplus cash reserves and additional cash generated to fund our Financial Services offerings, investments in our new and high-growth businesses, such as EasyPay Everywhere, Smart Life, ATMs and international expansion, the servicing of our debt, share repurchases and strategic acquisitions. Our effective tax rate for fiscal 2016 was 34.6% and was higher than the South African statutory rate as a result of nondeductible expenses, including consulting and legal fees, and the tax impact, including withholding taxes of approximately $2.1 million attributable to a further distribution from our South African subsidiary, which were intended to further help reduce the impact of a weakening rand on our reported cash balances. We expect our effective rate for 2016 to be in the mid-30% range and remind you that it may be impacted by any further distributions from our foreign operations. Our weighted share count for Q3 2016 was 46.4 million shares. Our share count as of March 31, 2016, was 45.6 million shares, net of the stock repurchase, but the increase to 55.6 million shares as a result of the issuance of 9.98 million shares to the IFC next week. We, therefore, anticipate that our Q4 2016 weighted average share count to be approximately 51.1 million shares, and our fiscal 2016 weighted share count to be approximately 47.9 million shares. The fundamental drivers of our business activities remain strong and robust, and we continue to make tangible progress with diversifying our customer currency and product base. On a like-for-like basis, we expect fundamental earnings per share of at least $2.40 for fiscal 2016, which includes a full year impact of $0.18 per share related to taxes and forgone interest income as a result of our distribution of cash in South Africa to our U.S. parent. Our fiscal 2016 guidance, once again, also assumes a constant currency base of ZAR 11.43 to the dollar and a share count of 57.6 million shares. With that, we will gladly take your questions.

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

My first question, I guess, the EasyPay accounts. We're really starting to see the impact, really for the first time the last couple of quarters on the South African transection segment of the 18% growth. That had been growing kind of in the 10% range. Is that now expected to just continue to accelerate as EasyPay Everywhere accounts keep coming on? And is 18% the starting point? Like, should that be a 20% grower the next several quarters?

Well, Dave, I think, yes, the impact of the EasyPay Everywhere account is obviously, a function also of the rate of the rollout. And I think in Q3, obviously, it's the first time that it's really become visible simply because of the exponential growth that we saw during Q1 and Q2 of the fiscal year. So yes, if you look at the take-up rate, it's not a continued a exponential growth as we obviously saw from the launch date, but it is still a pretty impressive curve going forward. And obviously, as the cards are issued and people start using them and getting used to them, I think we should see continued growth in our South African transaction processing segment as a result of the use of those cards. But also bear in mind that some of the revenues that you see in that segment is a -- the result of the intersegment sort of reallocations. But to conclude, we expect the take-up rate of EasyPay Everywhere to continue, and we expect the impact of it on the segment revenues and incomes to be evident going forward. Until the end of at least this calendar year, I think we'll see a pretty good growth rate.

David, it's Serge here. Just to add on, on what Herman was saying, I think it's quite important, you said when we kicked off EasyPay Everywhere, we were expecting around the registration of about 120,000 people a month with the infrastructure that we were using at the time. Now obviously, we've been maintaining that number. But we can see that, that's probably [ph] we can see it dropping to maybe like 100 and then 90 and then 80. And the reason for that is because the moment we have pushed EPE through our physical branches, and by doing that, it's quite obvious that the people that have access to these branches do not live 150 kilometers away from the branch, so we can see that, that number is now becoming -- is reduced because we pretty much are getting to the end of that registration. The exciting thing, like I mentioned, is that we are now activating our mobile systems. In other words, that we are now going to start going away from the mortar -- brick-and-mortar branches and we're going to go far more -- far much further then what the brick-and-mortar branch can actually give you. And we believe that, that is going to rejuvenate the entire update of EPE and getting back to the numbers of 120,000, 140,000 people a month. Now, that will ensure that we get way over the 2 million customers that we had mentioned before by April of next year or probably we'll be 2.3 million, 2.4 million, maybe a little bit higher than. But more importantly, these customers are starting to transact, and they're starting to transact more and more in our own infrastructures. In other words, with our own ATMs, with our own point-of-sales, through our own USSD portal. We think they are generating more and more profitable transactions for us as we are taking these transactions from the opposition. So we see EPE to be very much a driving force economically for the company in the near term.

Okay, that's great. I guess, and secondly, you mentioned in the press release, you used the words, a watershed year for fiscal '17. We just saw the financial inclusion business, a high-growth business actually decelerate to about 10% growth, it had been 20%-plus for several quarters. But yet, you're talking about next year's a watershed year. I mean, are we going to reaccelerate back to 20%-plus? Or maybe even -- does watershed mean better than what it's been? Like so, I mean, should we get even better growth next year than the last couple of years in the financial inclusion?

Okay. So David, again, that's a very, very good question, and there are 2 parts to the answer to the question. Part A is that because we are activating now what we call our non-branch infrastructure, we believe that we are going to see new acceleration in all of our financial products, simply because of the fact that we are now targeting a much larger segment of the population. Even if you look at today at the 10 million people or 11 million people that we actually service. At the moment, we basically have around, well, 5 million people use our USSD portals, but around 1-point-something -- 1.3 million people use our loans, only 1.2 million people have got EPE cards. Now there is no reason for that limitation except for one thing, is that we have to be able to get to those people. And we believe that our mobile solutions now are going to give us the ability to access many more people that today simply can't get to us, but we want to get to them. So that's part 1 of what I think the watershed, in other words, a new impetus in our ability to be able to access more customers and therefore, to be able to sell more financial products and other services like the one that I've just mentioned. Things like, for example, our medical insurance, certainly, our educational portal, all of those have got a -- could have a fundamental change to our earnings over the next year or 2 years, 3 years, without a shadow of a doubt. The second part of the answer is that within a watershed is that we have been looking for a while for a partner like the IFC to give us the opportunity to accelerate our…

Okay. No, that's helpful. And I guess finally, just my last question. Just because next quarter we're going to walk in and we're going to see guidance for next year for the first time, but there's nothing that you would say should decelerate growth next year. If the last 2 years in total have been about 20% constant currency growth, you see no reason, based on all the opportunities, for next year not to be at least that good, if you think of it as a watershed year. Is that fair to say?

I think that you stated, David, is that if we ignore, and I know it's not -- it's difficult to ignore it. But if we ignore things like exchange rate, the range, for example, which certainly impacts [ph] in many, many different ways. But if you look at the expansion program and what we're starting to do, specifically with ZAZOO as well, which is yet to really create a huge amount of impact on our bottom line, we still believe that without a shadow of a doubt, there is no reason to believe that we cannot continue to grow at the 20% mark next year because we're seeing it as the new -- as almost a new fresh start for our technology and our systems, simply because we are more ready now to be able to attack the markets with our European enterprise that allows us to do things like issuance of cards, applying of merchants that we could not do last year. So we really believe that 20% is, without a shadow of a doubt, achievable, and I would be disappointed if that standard did not grow over the next 2 years or so.

[Operator Instructions] We have a question from Jordan Hymowitz from Philadelphia Financial.

Can you guys update us on the status of any other contracts being bid on in South Africa? There's a water contract, there's an electricity contract, there's a contract with small business vendors. Can you just update us on the status of any of the tenders? Are you guys in the finals? Are you working on towards that? Or what's the status there, please?

[Technical Difficulty]

We were doing -- we were going to the question-and-answer session.

That's correct. We did have a question from Mr. Jordan Hymowitz of Philadelphia Financial.

Could you be kind enough to update us on the status of existing tenders in South Africa? There's a water tender, there's an electricity tender, there's a small business tender. Do you know when any of those decisions will be made and how we're looking?

Yes, I can answer the question. There are a number of tenders mainly around the electricity infrastructure in South Africa. Expect there is at least 2 of them that I'm aware of. We've obviously tendered for both. But the first one which went out a little while back, for lack of a better word, we are still awaiting -- my understanding is that there's not too many people left in the tender. And we are waiting for the province to actually make a decision. The second tender, which is very, very similar to the first one, is relatively new, and we've obviously tendered for that as well, and we are waiting for the next step. I did mention during this -- sorry, Jordan?

The first tender's in which the province you said, I'm sorry?

The 2 tenders are electricity-based and both of them, the first one was [indiscernible], in other words, everybody replied. And we are waiting the outcome. In other words, it has been delayed in terms of the outcome, which is not surprising with tenders. And the second one, which is a similar size, we've tendered as well, and we're also waiting for that tender to close. So as I mentioned in my...

The question was the province instead of...

Yes, they're both massive projects.

Are they with a specific province or with the whole country?

No, no, no. This not for the whole country. We're talking about -- normally, municipalities. In other words, you could be looking around the -- for each of them, anything between of 500,000 to sometimes 600,000 meters that has got to be installed and obviously, managed in for that term and for the payment system to be implemented in order to service or to generate the [indiscernible]. So it's -- they're both very, very, very large tenders. But as I mentioned before, Jordan, the important thing here is that we are now the provider of security modules, which are the only one used that are useful going forward to prevent the meltdown of the token generation in South Africa because by 2023, which is I know, it sounds like a long way away, but it's actually not that far away, when you have to update millions and millions of meters. We believe that we are now well placed, in a better place than before to play a major role, if not to win a number of those tenders.

And -- I know. Serge, is these tenders with the whole country or with just a region?

No, it's only for the region of the country. So it could be even a region within a province.

And can you say what regions the tenders are for now?

No. At this point in time, I think if Menda [ph] is around, he will know the exact region. [indiscernible] why it cannot be mentioned. Let me see if I can see here in the corner of my screen, so maybe he will know what the regions are. Menda [ph], are you around?

I am, Serge. It's in Hargen [ph]. And the second one is also Hargen [ph], which is the western are of Hargen [ph], which is the [indiscernible] of the environment.

Perfect. My second question, you guys have been very good on buying back the stock, and I know there's been some restrictions because of the IFC. What Dhruv has done in the stock, it's such an attractive price. Could we hope that management will join our shareholders in buying some stock personally?

Hi, Jordan, this is Dhruv. Obviously, we have to be aware of the company's blackout periods and other periods where we are precluded from buying the stock, but it's something that we obviously consider whenever the opportunity presents itself. That opportunity hasn't presented itself for quite some time now, unfortunately. But it is something that we take under ongoing consideration.

We have a question from Dave Koning of Baird.

My question, I guess, on the SASSA commentary that you made, that you had a meeting with -- it sounds like they want to take it in-house. I was a little unclear, did you make it sound like they want to take the entire process in-house? I know you made it that, that was very difficult to do. Or does it sound like they might still need to outsource a good chunk to you guys?

David, again, that's a very, very good point. As you know, it's -- something that was discussed during the constitutional court action was in fact, what does that mean SASSA takes in the process in-house, the payment process in-house? And at the moment, we are the ones doing the payment process in totality, from A to Z. So the question is, if SASSA wanted to take the payment process in-house, which piece of the payment process would they actually take? Now we know that right now SASSA is not a bank. So SASSA could not act as a bank. And SASSA is not an insurance company, so they would not be able to act as an insurance company. SASSA is not a micro lending entity, they don't have a [indiscernible] license so they would not be able to act as a -- under the credit regulation. So at the end of the day, if SASSA decided to want the system to remain open -- and what do we mean by open? It means that it would work as if it were part of the banking network, the national payment system. The problem with that is that, that means cards under the South Africa Reserve Bank and the Payment Association of South Africa Regulation. Cards must be issued by a bank, which means if cards are issued by a bank, the account that is associated with a card belongs to the bank. Which means that by definition, SASSA would be, as far as the banking feature is concerned, SASSA would be in exactly the same position as they are today, working with us and having the accounts provided by the retail banks. There will be no difference. In other words, they will not be able to take any of this in-house.…

Our final question comes from Porter Collins of Seawolf Capital.

Do you mind just talking a bit about the strategic investment by IFC? Prior to this, the company had $125 million, $140 million of cash in the balance sheet, generates roughly $80 million in cash flow a year. And now we have an extra $107 million. So this is a company sitting on a lot of cash and a lot of free cash flow. So can you just talk about your thought process of how you're going to -- because you have obviously a lot of organic stuff going on, but just can you talk about how you're going to use all this cash, and how you're thinking about things more strategically?

Yes, it's -- again, it's a very good question. Number one would be interim to negotiations with the IFC. We actually discussed the issue of the fact that are we really interested in $107 million? And the answer was well no, we're not. The money was not the reason why we did the deal with the IFC. It could have been somebody else that could have come forward and say, we'll give you $107 million instead of $1 million at a 20% premium. Would we have taken the money? And the answer is no. Okay. Why? Because we didn't need the money, right? The other big thing is we wanted the IFC because of the fact that number one, they recognize what we had achieved in South Africa and elsewhere, number one; number two, they recognize that our technology is some of the most advanced technology in the world; and number three, there may be something that they can assist us to rent in many other countries, developing economies in the world, where people are attempted to do what we have done and failed miserably. This is what was exciting about the IFC, not the money. Now, of course, is that to come with the money as well because of the fact that they would not invest in our company simply for the sake of assisting us, although they might have done so. So now the question is, what are we going to do with the cash? Well, there is no doubt that with the amount of project that the IFC believes that we can get involved in, there might be a different business model that we can put together that gives us much longer contracts. But longer contracts means we might have to have much larger investments of [indiscernible].…

I appreciate the answers. And I agree, I mean, given the -- I'm not a huge fan of stock buybacks, given the -- a lot of runway, but the stock is very cheap at 5x, 6x earnings. It's a great use of shareholder money, given the fact that your payout ratio on existing cash flow is just still so low. So either increase the dividend and increase share buyback is probably a great shareholder-friendly approach at this point.

Ladies and gentlemen, that concludes the question-and-answer session. Our call is also finished for today. On behalf of Net1, thank you for joining us. You may now disconnect your lines.

Thank you, gentlemen.