Lesaka Technologies Inc (LSAK) 2008 Q4 法說會逐字稿

Good afternoon, and welcome to the Net 1 results. All participants are now in listen-only. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions) Please also note that this conference is being recorded.

I would now like to turn the conference over to Serge Belamant. Please go ahead, sir.

Good morning to investors in the US and good afternoon to investors in Europe and of course South Africa. Thank you for joining us for our fiscal 2008 fourth-quarter and full-year earnings call. As usual, Herman Kotze, our CFO, is with me today. Both our press releases and 10-K are available on our website at www.Net1UEPS.com.

During this call, we will be making forward-looking statements and I call your attention to 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 as defined under SEC rules. We are required by these rules we have provided a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures as exhibits in the press release dated yesterday.

We will (inaudible) discuss our results in South African rands which is a non-GAAP measure. We analyze our results of operations in our latest 10-K and in our press release in South African rand to assist investors in understanding the changes in underlying trends of our business.

The Company's results can be significantly impacted by currency fluctuations within the US dollar and the South African rand and therefore for clarification purposes, I would like to reiterate that the use of South African rand is a non-GAAP measure and the appropriate GAAP presentation is included in the annual report on Form 10-K and press release and we advise our investors and analysts to review the Company's results in terms of US GAAP. During the fourth quarter of fiscal 2008, the South African rand, as we know, was significantly weaker against the US dollar compared with quarter three 2008 and quarter four of 2007.

As you are aware, we also provide additional non-GAAP measurements namely fundamental net income and fundamental earnings per share that eliminate among other adjustments the significant non-cash accounting interest required by GAAP for intangible asset amortization and stock-based compensation charges. On this basis, we have showed an increase in fundamental net income of 34% from ZAR135.9 million for the three months ended June 30, 2007 to ZAR182.7 million for the three months ended June 30, 2008. This translates into a fundamental earnings per share increase in South African rand of 34% from 238 ZAR cents to 319 ZAR cents. Please note that the increase we have achieved in USD, US dollar, is 24%.

On our yearly EPS, we have realized a US$1.52 according to GAAP measure which is a 36% increase on last year's EPS or in fundamental earnings measures, a US$1.55 which is a 26% increase on last year's EPS. As far as I am concerned, this is a testament of the performance of our Company and of course of its people.

At this point, I would like to take the opportunity to complement both my executive team as well as all of the personnel in Net 1 for the passion, dedication and professionalism which they have demonstrated over the last year without which our Company would not be able to achieve its long-term ambitions.

I will now take some time summarizing the activities we have been engaged in during the last year and highlight both the progress we have made and the difficulties we have encountered. And now we have managed to circumvent these when necessary.

I will first comment by discussing the position with SASSA. As we are all aware, SASSA has until the end of September to make up their mind, vis-a-vis the award of the South African tender on the provincial (inaudible) basis. We are still of the opinion that SASSA will in the next two to three weeks finalize this decision. We have also iterated over the last number of quarters that we also believe that whatever outcome SASSA decides upon will not in our view affect our current position within the South African pension and welfare business. If anything, we believe that we have a better than average chance of improving our position in terms of market share and those number of beneficiaries that we are currently servicing.

At this point, we have had no further official statement from SASSA telling us what will be the final date for the final evaluation and tender award. There is still a possibility that this tender may in fact be canceled as we all know the new government namely the ANC Government has already changed hands and new elections will occur in South Africa during the middle of next year. This may be or prove to be (inaudible) difficult period of transition, which may lead to the decision vis-a-vis the SASSA tender to be delayed further.

I must, however, restate that our current position in the South African market is dominant. Any delay in the award of the tender cannot in any form affect our Company or its earnings and we firmly believe that in the short to medium or long term, we will still remain the preferred company by government to deliver such an important service to the country as a whole.

I would like to now talk a little bit about our wage payment system initiatives. We are all aware of the progress we have made vis-a-vis, been able to utilize the banking license and the breakthrough that we have made by being awarded from MasterCard the ability to embed our own UEPS application together with an EMV [dated] application for the MasterCard branded card. The purpose of this initiative was to ensure that any card that we would issue through Grindrod Bank to a new customer base would be able to interoperate with other and existing point-of-sale devices which are already installed within the South African territory.

However, this approval has been reached. MasterCard's procedures appear to be extremely slow to implement. We therefore have been trying to implement the equipment, obtain the correct certification, obtain the test kits and all other equipment and positions that are required for us to be able to comply to MasterCard's regulations. This is something that appears to be taking far longer than we had anticipated. However, we have decided to continue our rollout in order not to delay our customer acquisition. We have therefore established a number of initiatives all mutually exclusive from each other that will allow us to roll out our technology and acquire customers through the bank without the necessary interoperability that is provided or will be provided by a MasterCard branded card.

As an example, we all know that we have already launched in rural areas a number of payment initiatives to the farming community of South Africa. A number of farms have already been signed up and our payment system has proved to be extremely useful and successful in these areas.

We have already tested a project in South African schools where each school pupil will have a bank account and will be issued with a UEPS card that will allow them to make all purchases from canteen facilities, from school books, from the payment of school fees, payment of sports equipment, payment of transportation, and thus remove the necessity for cash in the school environment. This project has already been endorsed by a number of headmasters throughout the country and we certainly intend to roll it out to a minimum of 300 schools throughout the country in the short to medium term.

The fundamental reason for elimination of cash is to remove the ever growing concern that school children utilize cash for the purchasing of drugs. If you remove the cash, it is unlikely that drug pushers are going to continue to show interest where they are no longer capable of obtaining the cash for what they are selling.

Another project which again independently was launched is one concerning micro-financing. Micro-lenders are people that finance small loans at fairly high interest rates. Always have the problem of ensuring that they will be able to collect the repayment on a monthly basis for these loans. These micro-lenders have agreed to to provide their customers with a banking account in Grindrod therefore ensuring that debit orders against these accounts can be insured.

Because of the interoperability, customers will have the ability to transfer any remaining amount from their Grindrod account into any traditional banking account within South Africa. This will allow them in the short term to utilize both the UEPS card to gain access to low interest loans and on the other side, to utilize its additional account to gain access to traditional ATMs or point of sales which have been installed and are currently operated by other financial institutions.

In the longer term, we believe that these customers will remain with Grindrod Bank for all of their services including services such as home loans, longer term loans and overdraft facilities.

Another initiative that is also being concluded is together with a financial arm, [COSATU], which represents around 11 million people in South Africa who are members of one or more of these unions. The concept of COSATU is to provide a package of affordable financial services to their members and to deliver those financial services through the UEPS card technology.

We have reached an MOU with the financial arm of COSATU that the JV would be able to be set on a 50-50 basis between them and ourselves. This JV will allow us to deploy a number such as 2,500 kiosks who are capable of accepting cash, accepting UEPS cards and then able to conduct transactions such as Top Up cellphone vouchers, electricity, water, bill payments and money transfers. These particular kiosks will be implemented in all government offices, (inaudible) and other government departments thus providing an ideal position for huge traffics of feet that will be able to utilize the equipment for their own personal use.

COSATU, of course, will be able to issue bank accounts to employees of these organizations and government institutions in order to grow the customer base and migrate them to UEPS technology, thus generating fees based on a transaction basis for them to reimput into the unions.

The last initiative which I think is worth mentioning is that that we have done with West Bank. West Bank is a company which today issues hundreds of thousands of cards for the purpose of performing the (inaudible) management and fleet management. West Bank has signed with Net 1 to implement the UEPS technology at petrol stations throughout South Africa in order to replace the West Bank current traded [smart card], namely a (inaudible) SmartCard but a UEPS card which will be able to be used with biometric or pen.

The reason beyond the venture is for West Bank to saturize all of these transactions which today are too easily [diverted]. This initiative will simply create a further footprint for Net 1 in South Africa in the areas of petrol stations and stores which are linked to petrol stations simply creating a greater infrastructure for our cardholders to utilize.

I must mention that because of our pension and welfare system, our merchant acquiring infrastructure continues to grow in terms of its usability and access to many millions of our customers as will be seen in our 10-Q and 10-K this year.

Focusing a little bit on EasyPay. You will see that EasyPay continues to command the greater portion of the South African transaction switching system outside of [the banks]. EasyPay continues to offer its services to more and more merchants and EasyPay continues to grow in providing these merchants with additional services such as cellular phone Top Ups, the selling of electricity and water tokens, bill payments and of course the introduction of money transfers. We believe this is an extremely lucrative business which we are totally prepared to share with the merchants that today are happy to implement and to utilize our UEPS merchant infrastructure.

To focus now a little bit on international business. We all are aware of how successful our Ghanaian implementation has been. I am proud to say that I do not recall in my 30 years of IT history any company that has ever been able to sign and implement a national payment system in a total of six months and to do it absolutely successfully. I believe that Ghana is issuing a number of press releases on a daily basis where all participants in Ghana from British Airways to banks to financial institutions to large shopping centers are all permitted and committed to the implementation of the UEPS technology as the national payment system for the entire of Ghana.

Officially Dr. (inaudible) has already published that Ghana towards the end of this year will be the first country in the world to have a national payment system that will also be provided on cellular phone technology where all functionality that UEPS provides on its cards will be made available on the cell phone as well. This together with our virtual credit card concept will allow Ghana to enter the world of card (inaudible) transaction in a complete and utter secure manner, something that has not been achieved anywhere in the world to date.

Moving onto Iraq, we are pleased to report that the Iraqi project, the first project that we have done where a country outsources the processing to South Africa has also been implemented in a period of 90 days completely successfully as well. A number of government institutions with their local partners and local banks have already issued, enrolled, and transacted with a number of their clients and we are pleased to report that the strength of our system in terms of ghost workers, in terms of identifying duplications, in terms of identifying errors, in payment files has already proved incredibly successful and has already highlighted all or at least the best part of the errors that were present in the number of files which of course could have led to losses by the Iraqi government, losses that really belong to the people that deserve to be paid.

Because of our Ghanaian and Iraqi successful implementations, a number of other countries have approached Net 1 and a number of tenders have been issued and we are awaiting the finality in a number of countries such as Liberia, [Zandia], Angola, Mozambique, the Philippines and others. We firmly believe that we are better than well placed to continue to deploy this unique technology which has now huge supporters as the proof that it works and can make a difference to the economy of any country is no longer a debate.

Further afield, our initiatives in Vietnam and Columbia vis-a-vis our VTU system have gone excessively well. The growth is going at the rate that we had predicted and we are now in the position to introduce UEPS on those platforms in order to allow these local businesses to explode as a total technology rather than purely as a Virtual Top Up system.

Lastly, our virtual credit card initiative that has been commenced just about 12 months ago, we believe is now ready for its first pilot which we hope to announce shortly and this pilot will take place in a first-world country. This will achieve of course the proof that UEPS can actually be used in both third-world as well as first-world economies and that VCC will be the link between first- and third-world economies.

Of course, I would like to stand spend a little more time discussing our latest acquisition, mainly that of BGS, and why this acquisition will be a great benefit to our companies in the short to medium term. The first point that needs to be understood is that BGS's technology, called DUET, is in fact the forerunner of the UEPS. DUET is based on our card-to-card transfer system patents. DUET was created in 1993, 1994 and grew mainly in the CIS Republics including Russia.

We are excited about BGS forming part of NET 1, understanding that the largest customer of BGS today is a bank in Russia named Sberbank Savings Bank. Sberbank have a number of customers they have and the infrastructure they have in Russia probably would be if not the largest certainly in the top two or three of the largest banks in the world. By having a partner that will still own 19.9% of BGS, we believe that we have their commitment to continue to deploy DUET/UEPS technology in Russia understanding that UEPS will give Sberbank further functionality, functionality that is not available on the earlier version of the UEPS, namely DUET.

We believe that by utilizing the infrastructures that have been deployed that accept DUET such as 90,000 point of sale devices, 15,000 ATMs, and millions of cards, it will allow us to provide financial services and other services in these countries as per our Wave 2 initiatives that we normally commence once our technology has become widely accepted.

BGS also offers us the same type of opportunity in other CIS republics where the DUET technology has become pretty much the de facto standard. We firmly believe that in this country the opportunities are even greater as we are able to create joint ventures with local partners that would ensure that we can convert a model which is based on hardware and software sales to one that is based on transaction and recurring revenues.

BGS outside of the CIS has also made some headway in countries in which we are already playing such as Indonesia and Vietnam and in these countries we will obviously consolidate our efforts to ensure that we can deploy faster and better for the benefit of the company. BGS has also entered the world of India with a contractual agreement with a company called FINO. We had in the past discussed the potential of an opportunity with FINO and decided to decline it. With the BGS initiative and the BGS depot in India, we will be able to review our own ideas of what can possibly be done on this huge country where 1.3 billion or 1.4 billion people live.

We are still of the view that we will be trading in India very carefully as we know that it is easy to sign an MOU, it is easy to sign a contract, but it appears to be far more difficult to make any money. We are a Company that is always focused on the bottom line and not simply on making announcements for the sake of it or to simply increase the top line, we [start] guarding and preserving our margins.

BGS also offers us some extremely capable financial business development and technology employees, some of which will actually form part of our executive committee and we intend to utilize them to focus on selling UEPS in new territories, migrating a number of DUET territories into the UEPS concept and format and obviously, to spearhead our Phase 2 which is to start making transactions and generating profits of the financial services such as [air time], electricity, money transfers and bill payments. Of course, they will also focus on introducing our VCC concept to the largest cellular phone operators in Russia such as NTS and a number of others.

We firmly believe that our BGS acquisition is strategically important for Net 1 as in some extents it doubles up the number of countries in which we now operate and doubles up the number of cards that we have issued. As the two technologies fundamentally are the same, it will become simpler and easier to integrate them by taking the best of both and creating a product, UEPS product, that will be easier to sell in many other countries in the world.

In conclusion, and before I hand over to a Herman, I would like to state that once again I am delighted with the results that we have created during this year. Also understand that we have given some guidance for next year, guidance that some analysts have told us was a little low, namely 15%, but on has to understand that the acquisition of the BGS and its implications, the evaluation and conclusion of the SASSA tender, as well as a number of other financial decisions will in fact effect this 15%.

We believe that we have always been reasonably conservative in our approach and what we like to tell our investors. We believe at the end of the day that 15% will certainly be on the low side and that obviously the Company has within itself the power to generate far greater increases during the next year.

I'd like to conclude by handing over to Herman and to wish you all a wonderful weekend. Herman, over to you.

Thank you, Serge, and greetings to our investors around the world. I will discuss the key trends of the fourth quarter of fiscal 2008 compared to the fourth quarter of fiscal 2007 along with the key trends between the fourth and the third quarters of fiscal 2008. I will also discuss certain financial aspects of our acquisition of BGS and the proposed secondary listing on the Johannesburg Stock Exchange in South Africa.

We have also updated the frequently asked questions section in our press release to provide further clarity on the questions we are asked most often by investors and analysts. Again for clarification purposes, I would like to mention that my following discussion will based on our results in South African rands as this provides the best indicator of the Group's actual operational performance and this is a non-GAAP measure. In order to review our results in terms of US dollars and GAAP, please review our annual filings on Form 10-K as will as our earnings press release filed yesterday evening.

For Q4 of 2008 our rand/dollar exchange rate was significantly weaker at [7 rand 80] to the dollar compared to [7 rand 12] to the dollar for Q4 of fiscal 2007. And sequentially from Q3, we also saw a significant weakening from the [7 rand to 41] to the dollar level. Looking at the current situation, the rand has remained relatively steady against the US dollar and is currently trading at around [7 rand 75] to the dollar. Any fluctuation of the rand obviously influences the dollar equivalent result of our South African operations which is why we provide you with constant currency information in our press release and on this call as the core operational drivers are clearly visible from these numbers.

I'm impressed with our fourth-quarter results as we have again achieved record earnings and we have met or exceeded my key financial indicators of continued fundamental earnings growth. Strong operating margins and of course, excellent cash conversion. Revenue for our current quarter was ZAR485.4, up 13% year-over-year. Our gross margin was 74% compared to 75% the same quarter last year and 74% or the same compared to our preceding quarter. However, in our business, gross margin is not the best indicator of the Group's profitability due to our diverse product offering.

We focus on operating income which increased by 22% for Q4 2008 compared to Q4 2007. And it increased by 1% sequentially from Q3 2008. The overall operating margin for Q4 2008 compared to last year's Q4 improved to 44% from 41%. Sequentially, the operating margin decreased slightly from the 45% in Q3 mainly as a result of the inclusion of more high margin software development revenue for the Ghana contract in Q3 partially offset by improved margins from our transaction-based activities due to improved training conditions.

Let's now analyze the business in more detail using our reported segments. Our transaction-based activity segment increased its revenues year-over-year by 15% and sequentially by 7%. Our operating income increased by 32% compared to the previous year. Sequentially, our operating margin improved to 58% from 55% in Q3 this year compared to the 50% of Q4 last year mainly as a result of the following three factors. One, price increases received in our social grant payment business in the KwaZulu-Natal and Northern Cape provinces as well as higher volumes in KwaZulu-Natal in the North West specifically. Two, increased volume of pension spending at merchants in Q4 of 2008. And three, increased transaction volumes through the EasyPay switch.

We continue to show strong and robust growth from this business through the combination of price increases, [growing] the number of beneficiaries and the continued migration of beneficiaries to our merchant acquiring network. The total number of payments processed to beneficiaries increased from 11.43 million for Q4 2007 to in 11.97 million for Q4 of 2008 which is an increase of 5%. The increase is mainly due to the transfer of beneficiaries from the post office to ourselves in the North West province during fiscal 2008 which resulted in an increase of approximately 250,000 beneficiaries paid by us in this province.

Contrary to the trend in other provinces, the number of beneficiaries in the Eastern Cape declined slightly due to the intensive anti-fraud campaign launched by government that resulted in the removal of fraudulent beneficiary. During the last week, the Department of Social Welfare in South Africa announced the implementation of new regulations allowing higher wage earners to apply for a different social grants. The most significant aspect is the increase in the income threshold required to qualify for child support grants.

In the past, urban dwellers only qualified for child support grants if they earned ZAR800 or less, while in rural areas it was ZAR1100 or less. This threshold has now been increased to include people earning less than ZAR2200 per month in all areas. According to a segment by the Social Development Minister, over one million people who were excluded before will now be in a position to apply for a social grant. Using a rule of thumb, this implies that at least 400,000 of these potential new grant recipients will be in our current provinces.

These qualifiers would have to apply for the grants and go through the approval process which takes some time and we don't expect to see an increase in numbers due to the these new regulations until Q3 or Q4 of fiscal 2009.

During Q4 of 2008, our merchant acquiring system continued its impressive performance as we processed a total of ZAR2.2 billion in transactions to our merchant acquiring network which is an increase of 24% compared to ZAR1.78 billion during Q4 of 2007 and a sequential increase of 8% compared to the ZAR1.63 billion during Q3 of 2008, all on a completed pay cycle basis.

The productivity of our installed terminal base at 4394 terminals increased to 956 transactions posted per terminal during the fourth quarter of 2008 pay cycles compared to 810 transactions processed during Q4 of 2007 and 953 processed during the preceding quarter. This increased throughput from the comparable period in fiscal 2007 demonstrates the continued rapid acceptance rate of our cardholders as they become familiar with and accustomed to the convenience associated with our merchant acquiring initiative as they can receive and spend their grants at any time of the month.

During Q4 of 2008, EasyPay processed 133.4 million transactions with an approximate value of ZAR51 billion compared with 114.2 million transactions processed with an approximate value of ZAR25.1 billion during Q4 of 2007 and 129.2 million transactions processed with an approximate value of ZAR28 billion during Q3 or the previous quarter of 2008.

The average fee per transaction during Q4 2008 was approximately 22 ZAR cents as opposed to the 20 ZAR cents both Q2 and Q3 of 2008. This increase is a result of the change in product mix during the quarter. We expect the average fee per transaction to remain between 20 ZAR cents and 22 ZAR cents during the first quarter of 2009.

EasyPay's operating margins are steadily improving as the efficiencies of our new operating platforms and expense management systems become apparent. The EasyPay operating margin for Q4 improved to 44% from 34.1% in Q3 mainly due to higher volumes of value-added services processed during the last quarter.

Our Smartcard account segment had revenues of ZAR65.9 million for Q4 2008 which is an increase of 4% year-over-year. The total number of active Smartcard accounts increased by 4% from 3.8 million during Q4 of 2007 to 4 million during Q3 of 2008. Sequentially there was a 2% increase in the number of active Smartcard accounts.

Our financial services business had revenues of ZAR15 million for Q4 of 2008 which is a decrease of 26% compared to Q4 of 2007 and a sequential increase of 1% compared to Q3 of 2008. The revenues from our traditional micro-lending business decreased during the quarter due to increased competition, our strategic decision not to grow this business, and overall lower return on traditional micro-lending loans as a result of compliance with the National Credit Act.

Revenues from UEPS-based lending decreased during Q4 of 2008 compared with Q4 2007 primarily due to the lower number of loans granted. In addition, on average the return on these UEPS-based loans was lower during Q4 2008 compared with Q4 2007.

The final operating segment is our hardware/software and related technology sales segment. This segment traditionally includes revenues that occur on an irregular or once-off basis and it can be difficult to predict sales from year to year. This segment includes the sales of UEPS-related hardware and software as well as the sales of subscriber identity modules or SIM cards, cryptography services and SIM card licenses.

This segment had revenues of ZAR107.7 million for Q4 of 2008, which is an increase of 16% year-over-year mainly as the result of the delivery of hardware and customization and development activities performed during the quarter related to the tender to provide Ghana with a national switch in Smartcard systems from which we generated revenues of approximately $3.4 million during Q4. To date, we have recognized revenues amounting to $14.2 million relating to the Ghana contract.

The operating margin of this segment decreased from 27% for Q4 of 2007 to 15% in Q4 2008 mainly as a result of significant high margin sales to Nedbank in Q4 of 2007 as well as the impact of the specific services rendered to Ghana during the last quarter.

In February 2008, the South African Finance Minister announced a reduction in the corporate rate of taxation for the South African companies from 29% to 28%. We only recognize changes in taxation legislation applicable in South Africa in our reported results once it has been promulgated in South Africa. The change in the corporate rate of taxation for South African companies had not been promulgated as of June 30, 2008 at our year end. The change in the corporate rate of taxation for South African companies was in exit on the 22nd of July, 2008 and we will reflect a change in our fully distributed rate during the first quarter of fiscal 2009. Our fully distributed tax rate will [wait] for decrease from 35.45% to 34.55%.

I'm very happy with the progress made by our equity account investments in Namibia, Botswana, Colombia and Vietnam. These fledgling businesses continue to grow and have exciting prospects in terms of business development as Serge indicated before.

On a GAAP basis, our quarterly net income of ZAR167.6 million represents an increase of 54% year-over-year and GAAP earnings per share increased by 54% on a constant currency basis while fundamental earnings per share for Q4 2008 increased by 34% compared to Q4 2007 and also increased by 8% compared to the previous quarter. The GAAP net income for Q3 was significantly higher than in Q4 due to the adjustment of our effective tax rate in Q3 caused by the reduction from 12% to 10% in the STC rate in South Africa.

Before turning to our balance sheet, I would again like to mention that our cash provided by operating activities can and does fluctuate significantly as a result of the timing of the commencement of our monthly welfare payment activities specifically through merchants (technical difficulty). As a general rule, however, we expect 100% or more cash conversion ratio over any completed pay cycle period.

As of June 30, 2008, we had $272.5 million of cash and cash equivalents. The business remains very cash generative and I remain comfortable that we have sufficient liquidity between our cash and cash equivalents and our current credit facilities to fund our working capital requirements for the next four quarters.

As I stated before, I view the balance sheet item called pre-funded social welfare grants receivable as a highly liquid, very short-term receivable best described as a near cash equivalent. We had $35.4 million of pre-funding outstanding at the end of June. The decrease in our accounts receivable compared with June 30, 2007 is largely due to all provincial governments paying us the amounts outstanding before June 30, 2008. Our other payables include amounts due to merchants. The increase is primarily due to merchants receiving settlements of the brand's distributed on the loss for Q4 2008 in the first two days of Q1 2009.

Our default income tax liabilities have decreased significantly mainly as a result of the reduction in our fully distributed tax rate during Q3 of 2008.

As discussed in question 15 of the frequently asked question section of our earnings press release, we believe it most appropriate at this point in time to retain our cash reserves to finance the expansion of the business, to reduce the significant cost of our current and possible future pre-funding of welfare grant obligations, and to execute relevant acquisition opportunities such as the BGS acquisition announced yesterday with which I would like to deal now.

The financial information I am about to provide for BGS is based on Austrian GAAP and measured in euros and is therefore classified as a non-GAAP measurement. We acquired BGS for a total cash consideration of approximately EUR71.5 million and by issuing 40,154 Net 1 shares locked up for a period of one year to the management shareholders of BGS. Our cash offer was based on an earnings multiple of 15 for BGS's most recent fiscal year that ended on December 30 1, 2007 implying a profit after tax number for that year of EUR5.75 million.

During the same fiscal year, the revenue of BGS was EUR17.2 million and the operating margin was 39%. I must emphasize that a significant portion of BGS's activities are similar to those of our hardware and software related technology sales segment, and that the margins are significantly influenced by product mix and customer requirements.

We are in the process of performing the required US GAAP conversion, as well as the allocation of the purchase price, and we intend to file a Form 8K/A with Interceptor financially fixed around mid-November 2008. We expect that a significant portion of the purchase price will be allocated to intangible assets.

The cash acquisition price was financed by a six-month bank loan, as we have South African exchange control restrictions on our ability to use our rand cash reserves for non-South African acquisitions. However, we are in the process of filing an application for a secondary listing of Net 1, also known as an inward listing, on the Johannesburg Stock Exchange in South Africa, or the JSE Securities Exchange.

Our primary listing will remain on the NASDAQ and we will not raise any additional capital as a result of this inward listing. Should we be successful with our application, we will be able to simplify our capital structure by converting all the current special convertible preference shares of which we have approximately 4.9 million to common stock. These shares are already included in our earnings per share calculations, and the conversion will, therefore, not result in any EPS dilution.

We have also received permission from the South African regulators to repay the loan accounts due by our South African subsidiary to the US holding company and to redeem the B+ preferred stock held by the US holding company in its South African subsidiary. These repayments should result in the flow of approximately $108 million at current exchange rates from our South African business to our US holding company.

We will be able to effect these repayments as soon as the secondary listing process is completed, which we anticipate to be during October of 2008. We intend to settle the bank loan we are paying for the BGS acquisition with these proceeds, as there is no penalty for the early settlement of the loan.

In conclusion, fiscal 2008 was another exceptionally busy year, and we are thrilled with the overall results and the quality of earnings. Given the amount of corporate activities, the timing of the SASSA tender outcome and our various international business initiatives, it is very difficult to provide concise earnings guidance for fiscal 2009 as Serge indicated before.

Based on the assumption that our current business activities and initiatives will continue as usual, we expect to grow our fundamental earnings per share by at least 15% on a constant currency basis for fiscal 2009.

With that, we are now happy to take your questions. Operator, please proceed with the Q&A now.

Thank you very much, sir. (Operator Instructions) Dave Koning, Baird.

Nice job again. First of all, just on the core business in South Africa if you had to look out and kind of think about some of the dynamics that are happening now with inflation and with the price per grant going up and some of the new welfare wage restrictions, I guess the new wage dynamics, and how more grants could go out; how do you see grant growth and revenue per grant growth in South Africa over the next year?

We seemed to have lost the operator there for the last two minutes or so. Can you just repeat the question? Who is this?

Sure. Yes, this is Dave Koning at Baird.

Hi, Dave. Sorry, we couldn't hear anything for the last two minutes.

Sorry, no problem. I'm just wondering as we look out in the core South African business, how do you see grant growth in fiscal '09, and then revenue per grant growth in fiscal '09, just given all the dynamics with inflation, etc., that are going on?

It's a tough one. Obviously, we will be influenced by a number of factors. The inflation rate in South Africa remains very high currently, 12.9% being the latest indicator. And clearly, also with us being in an election year, the chances of the grant amounts being increased by anything less than inflation, I personally think is fairly remote.

So from that point of view, specifically in terms of the KwaZulu Natal province where we get an automatic increase when the grant amounts go up, it certainly will grow the earnings in our biggest province quite significantly. So we will also obviously receive our price increases based on the current inflation rates in the other provinces, as and when they become due, and they are scattered during -- throughout the year. But the key one will be KwaZulu and the increase from the budgets allocation will probably only become effective in the fourth quarter of fiscal 2009.

From a higher volume point of view, I think that is a bit more unclear to us. SASSA doesn't provide us with any specific details. Looking at the press release that we got from the Ministry, they talk about a million people who will now qualify for grants simply because they've increased the minimum thresholds. Again, the time taken to process those applications that will come in from the various provinces, and if we use the rule of thumb and they say a million people, we could probably expect to have at least 400,000 of those in our provinces if not more.

Because I think a high concentration of these guys that will now qualify are probably going to be more rural than urban-based. But be that as it may, the application process, the evaluation process, and I'm told they really and up on the pay file for us to pay them, could be at least four to six months. So again, I don't think that we will see the numbers starting to pick up significantly as a result of this announcement, at least until the end of the third quarter or the beginning of the fourth quarter of 2009.

So overall, we always say that we budget on a 6% growth rate in terms of the beneficiary numbers. I think if you look at the last year, it's slightly less than that. It is 5%. Given all the developments within SASSA and the time they spent on the tender and other processes, obviously, also with the removal of quite a number of beneficiaries from the fraud eradication campaign, I think that that still is probably a fairly conservative guideline to use.

And in terms of price increases, given that our increases in most of the provinces are normally around 80% of the CPI rate, we probably look at a further 10% increase from a price increase point of view. And that number will obviously also be phased in during the months of the year when those increases become due in the various provinces.

Great, that is very helpful commentary. I guess one thing you didn't mention on the call that was interesting out of the 10-K was in Botswana, it looks like you are starting a welfare beneficiary payment program sort of like in South Africa. Granted it is only 100,000 or so beneficiaries. I'm just wondering what are the economics around that? Is it similar to the $3 or so per month that you get paid in South Africa? And how big over time could Botswana be -- is that something that could be one million beneficiaries a couple of years from now?

No, Botswana is not likely to be a million beneficiaries just enough not enough people in Botswana to give us that. We are looking at a country with around --

1.5 million --

-- that's a little bit more than 1.7, 1.8 million. So the first 100,000 beneficiaries obviously we are going to be getting a price which is comparable to what we are getting in South Africa obviously it is in pulas and not in rand. But remember, we only own 50% of the switch which means obviously we will only be getting 50% of whatever the revenue is going to be or the profit will be in that particular switch itself. Personally I think the potential for Botswana in terms of number of people is between 300,000 and 400,000 simply because we are in discussions with a number of organizations including the local savings bank which really was an offshoot of the government or used to be owned by government.

So if we look at the number of people that could be banned namely for example the guys that are now receiving a grant or the people that already bank which have got a savings account or the people that bank through a bank, we are probably looking at about 400,000 to 450,000 people.

So I believe that our numbers will go up from 100,000 to maybe 250,000 to 300,000. But I think by the time it gets to that stage, I think it will be saturated in terms of the number of people. That does not mean of course that those people can only generate the money that is currently being paid to us simply because we are paying them on behalf of government.

Obviously by introducing financial services and all sorts of other products such as specifically bill payments and for example Top Up on cell phones and prepaid electricity and money transfers specifically, I think we can certainly like South Africa probably double the revenue that we are making, double to even 2.5 times the revenue we are making per person in Botswana. So it's the same as looking at this other potential is around 700,000 or 800,000 people if you take it purely by paying them a salary every month.

Great, thanks. Just one final short question. Within your guidance, is BGS looked at as accretive or dilutive or neutral to fiscal '09?

Dave, obviously on a fundamental basis if we exclude the material amortization of the intangibles that will obviously arise and without the benefit of having completed the full US GAAP conversion, using the rule of thumb if we look at the interest that we will forgo on the loan and obviously on the surplus cash that we will then use to repay the loan compared to the earnings that BGS reported last year adjusted for some of the growth prospects, I think the safest bet right now is to say it will probably be neutral. And as soon as we've got the 8-Ka out in November, I think we will be able to give you a bit more color around that.

Great, thanks so much.

Dhurv Chopra, Morgan Stanley.

Good morning, gentlemen. I was wondering if you could help us just understand how should we be thinking about the contributions from Ghana, Iraq, and which payments in fiscal 09?

Ghana, I think, Dhruv, it's a little difficult to put them all in the same pot, right? Because as you know the models are completely different. So from the Ghanaian point of view, we've got to look at the fact that Ghana has been very successful. You are going to be going through there yourself so you can see it. But more importantly, it appears that Ghana is about to place substantial new orders certainly for terminals at this point in time and ATMs as well as cards.

So there is no doubt that we still believe that over the next six months or the next two quarters, we will certainly get new orders coming out of Ghana. The next thing in Ghana that we've got to look at is that if we manage to launch, which I know the Deputy Governor wants us to, the cellular phone technology by the last -- well the last couple of months of this year, there is no doubt that I know that Brenda has negotiated a slightly different deal whereby we would be able to benefit by transaction fees on all transactions that actually occurred through the cell phone technology which is a little bit better than simply selling them a card and waiting to make a margin.

So it's a little bit early to say to you apart from the royalty that we are getting, apart from the maintenance that we are getting, apart from delivering the existing orders of equipment and we've got new orders of a equipment, new orders for ATMs, point-of-sale and cards, there is also the potential of transaction fees as well. As well as one or two JVs that we are currently looking at in Ghana namely for example the JV to set up with Central Bank in terms of providing Top Up facilities for cellular phones.

So all of those, if we had to add them all up it's a question of now transforming Ghana from purely a sales of hardware and software and licenses to a transaction model. And that of course will make a huge difference to what Ghana will be maybe not in 2009 but certainly what Ghana can be come toward the end of 2009 and beginning of 2010.

So that is the Ghanaian thing. And obviously we can't treat Ghana the same as we would treat other wage payments in South Africa because I explained that there are seven different initiatives today in wage payment in South Africa, all of them run independently by different people. And each one of them generates basically an account for us in Grindrod Bank and it's an account which is set at around the ZAR20 which is the $3 per month and of course after that, you are making transaction fees on anything else that is going to be sold or managed to that account. Specifically financial services or any other transacting facilities such as for an example money transfers, bill payments, electricity, water and Top Ups.

So this is a different model entirely and we would have to look and I think we are going to have to spend some time with you and the other analysts to actually explain to you the seven different models because some address micro-finance, some as I see address schools, another one which nobody wants to talk about addresses prisons, which of course you know is something that lots of people don't want to touch. But we are talking about 1.5 to 2 million people.

So all of these things have got different financial parameters attached to them. And obviously Herman over the next couple of months will certainly be able to come out and to explain to them and is first and foremost what these new models look like and are these new models are going to grow in essence a customer base or people that our banks UEPS technology. So I think it is very difficult right now. We thought going into a lot of detail to actually go through and being able to say that this is what is going to happen.

So just to be clear, though, I mean you already forgone or you've got existing orders out there. I think maybe 2.5 million or so of hardware and software rolled over from fiscal '08 (multiple speakers) plus another 8 million of orders I think already placed, right?

Yes.

Other than that, it sounds like you haven't really factored in a lot of these other things in terms of quantification in your expectations for '09? Is that right?

Dhruv, you know that we never factor anything in that we don't already have signed. We don't work that way. We only tell our investors something that we are not -- that we are not percentagewise certain about, we only tell investors what we know we can deliver. So, you are 100% right that at the end of the day, we haven't looked at Iraq, for example. And you know yourself that the Iraqi model is based on transaction revenue kicking off at 10% of the top line.

If what we are hearing from Iraq rack is obviously happens, namely we are looking at 3 million cards to 4 million cards over the next two years and you are looking at a 10% top line on the transaction fee of maybe US$0.70 or US$0.80, that gives you a little feel that Iraq itself can deliver $500,000 to $750,000 a month for us which will be bottom line. Now, that contract is in place that is working and there is no reason why it should not happen. But we tend to be I think a little naive sometimes, too conservative but it's difficult to change what you've been for 25 years.

So you are right. I think we always look at what we know we have, what we know exists and what we know will be delivered. Everything else as far as we are concerned on top of that is just the cream on the top.

Excellent, thank you. I had two other quick questions. One is on SASSA, have you got any feedback from the high courts as you approach them?

We did approach the high courts. The high courts came back to us because ours was an urgent application, as you know. And they told us that in fact the application as far as they were concerned should not be urgent. And their rational wise is that when SASSA awards the tender, if we are not happy with anything in the award of the tender the judge gave us the latitude to then reapproach him as an urgent application this time in order for them to suspend any negotiation of the SLAs until our queries have been resolved.

So in his judgment wise, if SASSA actually awards the tender, your are saying there is the possibility they might actually award a tender that we might like in which case there wouldn't be any point and actually for us to go to court to actually stop the tender from being actually implemented. If on the other hand the tender is awarded and we don't like it, he has given us the latitude to go back as an urgent application to actually say, hey, you are right maybe something out there actually went wrong or should not have happened in this particular manner in which case he will then be able to actually look at the case and to suspend if necessary, the implementation of the contract.

Okay. And then, Herman, very quick housekeeping question. What was the fully diluted share count for the fourth quarter?

Let me just grab my -- it was 58 -- I think you could probably do 69 million shares as a fully diluted number. But Paul will give it to me now. And that includes obviously all of the options, the outstanding options. That is really the only additional actor. So for -- (inaudible) on a weighted average fully diluted number, [57,612,000] and on an unweighted basis it is probably close to I would say 58 --

[58.7].

58.7, no 59. Okay.

Excellent, thank you guys.

We have time for one last question.

Thank you very much, sir. Ryan McGaver, Capstone Investments.

Good morning and good afternoon. The BGS acquisition and the partner, Sberbank, were they the existing shareholder?

Yes, Ryan. The BGS had approximately -- well not approximately -- had nine shareholders of which Sberbank was an existing shareholder. They had 19.9% of the shares in BGS before. When we made the offer to the other shareholders in BGS, we discussed this with Sberbank and we decided with their consent to leave them in as a shareholder and to make the offer only for the other 80.1% of the shares which is obviously what we have now acquired. So Sberbank remains as a very willing, I hope, and happy co-shareholder with us and for us it is very important to have them remain a shareholder.

They are the biggest customer of BGS by a long, long way. They are more than 5 million DUET cards issued through Sberbank in the Russian Federation and we believe that with them as partners in BGS and also being the largest client that there is significant opportunity for us to grow the cardholder base on the one hand and also to implement a variety of value-added services on top of the cards they will already be.

Okay, thank you. Moving quickly here, the wage payment system, how many I guess employers and employees have signed up for that so far? I believe that launched in May.

Right. When we are talking about a wage payment system like I explained, in terms of being able to -- you are looking at for example a number of employers we have been able to sign up and I think the exact number I don't have it but I know we've got something in excess of about 20 farms now that are actually using that technology.

But more important because of this problem we've had with the delay of MasterCard, we have been more focusing of signing up in cardholders in other words employees rather than employers simply because the card in terms of its interoperability cannot really guarantee being used everywhere. So what we tend to do it as we said, if the person is already banked and let's say he has a tender bank or an SMB account, we actually keep that account open for him and we look for somebody that is prepared to carry the cost of $3 a month to ask -- for lack of a better word -- an intermediate account with us.

And a lot of these people happen to be people that today grant short-term loans simply because they are quite happy to carry the $3 a month if the $3 a month gives them the benefit of being able to do a deduction, a debit order whereby they know that they will have a better chance to guarantee to be repaid.

So unfortunately, we haven't been able to strike at the employer level but we are certainly striking in a big way at the employee level. That base however happens to be a base at other closed system like a prison because those people don't have to integrate with anybody which is a lucky thing about that, they don't have interoperate between prisons. The schools, of course are great because these are closed systems which later on can be opened because initially they only work within the school (inaudible). And the rest of the people are people that have to really be whose account has to be funded by somebody else that benefits by paying the $3 a month.

So our initiatives have really changed over the last quarter simply because of the inability of MasterCard to deliver to us the stuff that we need to be able to co-brand this card and to create automatically interoperability in the South African market.

So although the question is focused at the employees, I think we should rather look at the employees and the people that affect our honor system today.

Now if we look at the schools, if we look at the food parcels, the initiative with some [banks] and impairment initiative by the food parcels is another initiative we have done for a lot of our people that have to open an account at Grindrod before they have access to a much lower cost food parcels, we are talking about a couple hundred thousand people which is absolutely fantastic to have. But it is not through the model but we had discussed six months ago which was an employer action rather than an employee action.

While the result is the same at the end of the day, it doesn't really make any difference but the bottom line is that we are still awaiting and we have still got a huge salesforce and people that have committed to come in from an employer point of view but we cannot put that out. Otherwise the system will simply fail because of lack of interoperability.

Okay and real quick before I let you go then. I know it is in the 10-K that the share buyback expired. Are there any plans to renew that?

What we are doing now, as Herman I think mentioned about the second relisting or the inward listing in South Africa, in order for us to make us -- to be able to do a share buyback, we need to have access to our rands in US dollar terms. Now right now we cannot do it because of exchange control. If of course we do -- we manage to lift in South Africa and we manage to repatriate the money that Herman is talking about, we will then also be in a position to pay back dividends. We start the huge leaking or we start needing approval which means then we will be in the position to actually have in place if we wish to have it a share buyback which is a tangible thing that we can really service.

Okay, thank you, guys.

Thank you very much.

Thank you everybody.

Gentlemen, that was our final question. Would you like to make some closing comments?

To everybody on the call, we would like to once again thank you all for number one listening, number two, reading all of the information that we try to provide as concisely as we can. And more importantly, we like to thank our long-term shareholders for continually believing in the company. We know it has been hard, we know the SASSA has thrown a lot of -- unfortunately question marks on our company. We of course being here, don't believe that those question marks are necessarily justified. But we can certainly understand why people will react the way they have.

In conclusion, I am certainly convinced that I do not see any reason at all why our Company will not continue to strive and at the rate that we are going. We really are striving at reaching a point where in fact SASSA over the next couple of years will no longer become part of these discussions.

So thank you very much all of you for listening and we certainly look forward to talking again -- to talking to all of you very soon. Thank you.

Thank you. On behalf of Net 1, that concludes this morning and afternoon's conference. Thank you for joining us. You may now disconnect your lines.