Good day, ladies and gentlemen, and welcome to Net 1’s First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Dhruv Chopra. Please go ahead, sir.

Thank you, Juliet. Welcome to our first quarter 2020 earnings call. With me today is our CEO, Herman Kotzé; and our CFO, Alex Smith. Our press release and a supplementary investor presentation are available on our Investor Relations website, www.ir.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 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 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 U.S. dollar and the South African rand. We have a Q&A session following our prepared remarks. But, with that, let me turn the call over to Herman. Herman Kotzé: Thank you, Dhruv, and good day to everybody. There has been no strategic shift since we last reported only six weeks ago. And therefore, I want to focus today's discussion mainly on our European strategy, following the exercise of our option to take the controlling stake in Bank Frick, as well as the development and progress we have made since September. The highlights of our Q1 2020 results include, first, we reported revenue of $81 million, which included approximately $8 million of ad-hoc hardware technology and telecom product sales, but still a nice improvement over Q4 2019 in constant currency. Second, we reported adjusted EBITDA of $2.8 million, finally returning to Group’s positive…

Thank you, Herman, and good day to everybody. I'll be discussing the key results and trends within our operating segments from the first quarter of 2020 compared to a year ago, as well as to the fourth quarter of 2019. Our sequential comparisons are more relevant today given the changes endured by the Group over the past year. For the first quarter of 2020, our average rand-dollar exchange rate was ZAR14.75 compared ZAR14.86 a year ago, and ZAR14.29 in the fourth quarter of 2019. We recorded a fundamental loss per share of $0.02 this quarter compared to the $0.01 fundamental earnings per share a year ago, which included the contribution from DNI. This compares to a fundamental loss per share in the fourth quarter of 2019 of $0.11, if you exclude the impact of Cell C-related fair value adjustment, the Cedar Cell impartment, and the impact of the Supreme Court of Appeal ruling. This sequential improvement is pleasing as we saw the full effects of the restructuring work for the first time. It was also assisted by certain ad-hoc technology and telecom product sales. By segment, South African transaction processing reported revenue of $19.4 million in the first quarter of 2020, down 49% compared with the first quarter of 2019, but up 6% from the fourth quarter of 2019 on a constant currency basis. The year-over-year decrease was primarily due to the termination of SASSA contract including those with SASSA Grindrod cards and to a lesser extent the reduction in the number of EPE accounts. These decreases in revenue and the resulting impact on operating income were partially offset by a higher transaction revenue, as a result of increased usage of our ATMs. Our operating margin for the first quarter of 2020 and 2019 was negative 17.4% and negative 9.3%,…

Thank you very much, sir. [Operator Instructions] The first question comes from Scott Buck of B. Riley.

Hey. Good morning, guys. I appreciate the time. You had a negative court ruling. I guess, you had a court ruling that went against you in the quarter. I'm curious what the next steps there are, and how we should think about the potential liability? Herman Kotzé: Sure. Hi, Scott. We have decided to appeal the ruling to the Constitutional Court. So, that actually sustains the implementation of the Supreme Court of Appeals judgment. So, the next step is that we will be waiting for the decision from the Constitutional Court as to whether they will hear the appeal or not. And as soon as we -- we don’t expect that to take too long. Hopefully, we will get response and the court date set for the early part of 2020, calendar 2020. And so, as soon as we've been through the appeals process, we’ll be able to give more color around the status of that particular claim.

Okay, great. Second, it sounds like some of the businesses are really in a bit of a holding pattern now until you're able to access some liquidity through potential sales divestitures et cetera. Can you talk a little bit about the commercial products, I guess, in South Africa, and kind of what is geared up and ready to go, and maybe what the long-term opportunity is there? Herman Kotzé: Sure. So, in the South African market, our core focus over the next year to two years will be to rebuild our base of account -- bank accountholders, EasyPay Everywhere as we used to call it in the past, accountholders. We have finalized all of the work required to issue the new card in collaboration with Finbond. Finbond, as you may know is investment’s company of Net 1. We own approximately 29% stake in the bank. And so, for obvious reasons, we decided to develop our new product offering in collaboration with one of our investment companies. So, the offering is really very similar to what we’ve discussed in the past. We aim to put together a basket of products that is targeted at the so called unbanked and underbanked markets. So, I think, it's important to differentiate that this is not only what we traditionally service in the form of social grant recipients, we have a broader market and statement that we address with this product. The products within the offering includes a retail bank account, which we think is the lowest cost bank account of its type in the country in terms of service and transaction fees. It includes access to cheap unsecured credits, in line with our current portfolio, so anything between one to six months. Then, it includes access to cheap life insurance or low cost life insurance, and ultimately also access to low cost telephony products. So, for the next year or two, we will focus our efforts on rolling out this basket of products to our target base in collaboration with Finbond. Net 1 has approximately $250 branches or locations across the country. Finbond has approximately 450 branches or locations across the country. So, the distribution network exists, the logistical network exists. All it needs is for us to put all of our financial services products together. That, as we indicated, has now been done in a pilot phase, started that on the 1st of October. We think that we will be ready to do a proper launch including full marketing and advertising by the beginning of calendar 2020, and that will drive a number of revenue lines for the company, will obviously drive the financial services, revenues that we earn as well as the transactional and fee revenues that we earn as our customers also make use of our ATM network, our point-of-sales network, purchasing value-added services, prepaid utilities et cetera, et cetera.

Okay, great. Last one for me. The $8 million benefit from ad-hoc tech sales this quarter, are there additional opportunities there that we could see over the next few quarters, or is that kind of a one-time shot? Herman Kotzé: It’s not always easy to predict these ad-hoc sales with great accuracy. We do have a number of business lines where hardware sales is a component of the revenues that we generate. We have our hardware security module unit, we’ve got our SIM card and chip unit, we’ve got our point-of-sale sales unit. Those are all business that also in addition to generating annuity-based revenues, sell hardware. We have longtime customers that place orders on us from time to time. We believe that those customers will continue to place orders on us. And the way we look at this is, it’s not really a core part of our business, it is an incidental upside, if I can call it that from what we actually provide. But looking forward over the next year, there is no reason to believe that from time to time the same sort of hardware orders will not materialize.

[Operator Instructions] The next question comes from Stephen Ranzini of University Bank.

Good morning, Herman and team. My question is that it seems like there is a great deal of synergy between your South African businesses and Finbond Bank. And it’s clear that you're not hesitant to take full control of a bank as you just done with Bank Frick. It looks like there is a great deal of synergy there. Why would you not emerge your South African businesses into a transaction, a stock transaction as Finbond? What are the considerations that hold you back from doing that? Are there negative consequences under South African law of becoming a bank holding company, or are there issues with shareholders that are unwilling to do that or don't see the synergies there that they're clearly apparent? I'm just curious to hear your thoughts on those. Herman Kotzé: No problem. Thanks for that, Stephen. It's kind of like stating the obvious, I think. It makes a lot of sense for us to cement our South African business also with having unfettered access to a local license, and it certainly is something that is well-considered and discussed on our side in great detail. There are a couple of things or factors that we need to consider in the South African environment, which makes it a little bit more complicated from the European scenario. The first thing is that Finbond is a public listed company. So, it is listed locally here on the Johannesburg Stock Exchange. That means, any transaction will be subject to a number of shoulder approvals, consultations, fairly lengthy and complicated processes, not insurmountable processes, but just time-consuming and relatively complicated when it comes to the documentation and timing processes. We would locally also need to obtain approval from the specific regulators, most specifically, I think the competition authorities. So, that is another factor delaying consideration that we need to take into account. Finbond as a mutual bank in South Africa is obviously also regulated by the South African Reserve Bank. And they would need to be consulted into this process. And, I think the final consideration here is the Finbond actually comprises of two distinct geographical businesses. It has a South African business and in South Africa it owns a mutual banking license. It also has a North American business, which is a significant component of Finbond's current financial results. The last results were published a couple of weeks ago, and they reflect that the North American business contributes roughly two thirds of the Group's profits at this point in time. So, we are looking at the corporate finance elements of things all the time. But, the very specific focus right now is to launch the products together with Finbond in the interim. I think, it's safe to say that the cooperation that we’ve got at operational level in terms of getting the various financial service and products commercialized is really great and is what we would expect from one of our investee companies.

Thanks very much for the color on that, Herman. As a follow-up, does it make sense for Finbond to obtain a U.S. bank license or is that not an option… Herman Kotzé: I think…

To demerge its U.S. operations from its South African operations? Herman Kotzé: I think, logically, that is a step that would make sense in the longer term. But obviously, being part of a South African holding company, we also have some exchange control and other considerations to take into account. But ultimately, it would make sense to have those two businesses separated, in my opinion.

My observation as a bank executive in the United States is that the environment in the United States to obtain a new bank charter is the best that it’s been in probably the last 20 years. And I don’t know if that window of opportunity will stay open after the next election, to be frank. Herman Kotzé: So, that’s something we’ll obviously be keeping a close eye on, Steve.

Great. Thank you very much. Herman Kotzé: Thank you.

The next question comes from Mr. Kaufman [ph] who is a Private Investor.

I would like to know the status of MobiKwik and perhaps you can monetize that investment.

Hi, Alan. This is Dhruv. So, MobiKwik, yes, I think, over time, we would look at that. But, again, the strategic rationale for us to make that investment was to help us with market entry and penetration into a new and sizable market. So, for now, we are still in the early innings of that objective and we’re working in close cooperation. But, in the long term, they have plans to do an IPO. Those sorts of events would have liquidity events. And we can certainly look at monetization according to events at that time.

Over what period of time will they consider the IPO? Is it going to be in five years or year, or six months?

I think, according to what they’ve talked to the press about in India is probably ‘20, ‘21, ‘22.

Thank you very much.

Sure.

The next question comes from Mr. P.J. Solit of Potomac Capital Management.

So, as we look forward a little bit and assume that you do ultimately have some liquidity from divestitures and you can apply that to the two main growth areas that you focused on earlier, the rebuilding the account base at EasyPay Everywhere, and then the European card opportunity, I’m not going to focus on Africa for now. But previously, when EasyPay was ramping towards 3, 4, 5 million subs, that was a business that you had outlined economics of getting to, I think, it was something like $30 million to $50 million in EBITDA at your targets. I guess, my question is, are those types of economics still valid to think about or is it better because we get Finbond or worse? And similarly, can you quantify the European card opportunity over multiyear period as well, just so we have a sense of what this could like as focus shifts to operations in the next few years? Herman Kotzé: Sure. Looking first at the South African side of things, I think, the economics that we held up previously before the great account heist, still stack up. In fact, we expect those economics to be marginally better, specifically because we -- including Finbond in the rollout. There is obviously, on top of the usual transaction fees and financial services fees that we would earn as the service provider, the addition of the profit share effectively or equity accounted share that we have in Finbond. But, I think as a broad measure, you can take the same economics that we have always put forth on the provision of these bank accounts within the South African environment. When we get to the European opportunity, there is -- we obviously need to launch first. That's our focus over the next couple of months. But, we would expect over time, and when I say over time, I mean, the medium to -- let's say three to five years to earn at least $25 million plus in EBITDA. The opportunities in Europe are obviously multipronged, there is not only a card issuing opportunity, but there is the card acquiring and the payment gateway opportunities. It will depend how fast those relevant components ramp up. And each of them has a specific economic metric to it. It's got different cost basis. And we'd like to see exactly what the product mix ends up being. But, for us, the target will be to get to that sort of $25 million EBITDA level in the medium term.

Great. Thank you.

Thank you very much. Ladies and gentlemen, that was the final question. On behalf of NET 1, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.