Lesaka Technologies Inc (LSAK) 2009 Q2 法說會逐字稿

Good afternoon and good morning to those in the US and welcome to the NET 1 Results Conference call. (Operator Instructions) I would now like to hand the conference over to Dr. Serge Belamant. Please go ahead.

Thank you, Leroy, and good morning to our investors in the US and good afternoon to our investors in Europe and, of course, a good afternoon to our colleagues and friends in South Africa. Thank you very much for joining us for our Fiscal 2009 Second Quarter Earnings. As usual with me, Herman Kotze, our CFO. Both our press releases and our 10-Q 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 the SEC rules. Where required by these rules, we have provided the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures as exhibits in the press release dated yesterday.

We will primarily discuss our results in South African rand. We analyze our results of operations in our latest 10-Q and in our press release in South African rand to assist investors in understanding the changes in the underlying trends of our business.

During the second quarter of fiscal 2009, the South African rand was significantly weaker against the US dollar when compared with Q2 of 2008 by approximately 45% and 26% weaker when compared to Q1 of 2009. Taking into consideration the dramatic variation in exchange rates, I am delighted to report on an excellent quarter for the Company specifically when benchmarked against our business activities.

As you are aware, we provide additional non-GAAP measurements, namely fundamental net income and fundamental earnings per share, that eliminate among other adjustments the significant accounting increase required by GAAP for intangible asset amortization, the unrealized gain on the short-term investment and stock-based compensation charges. On this basis we have shown an increase in fundamental net income of 32% from ZAR150.2 million for the three months ended December 31, 2007 to ZAR198.4 million for the three months ended December 31, 2008.

This translates into a fundamental earnings per share increase in South African rand of 53% from ZAR2.63 per share to ZAR3.51 per share. Please note that this is, in fact, a decrease in USD of 8%. This once again demonstrates the weakening of the rand to be around the 40%, 33% plus 8%.

Due to the fact that we continue to expand our business activities, not only in terms of new territory but also in terms of new products, I will today focus my presentation on our restructuring initiative as well as on our most recent business developments. I will also attempt to explain how our various but complementary products which will be now driven by focused teams are beginning to interlace with each other to create new, lucrative, recurring and sustainable income streams.

I will of course give an update on SASSA as well as talk a little bit about the integration and bedding down of our BGS acquisition.

First a few words on our strategic vision. I've always stated that our technology should be seen as a vehicle to facilitate business initiatives in order to conduct business differently and that, therefore, the real financial benefits would lie in the future in the usage of our technology rather than the technology itself.

However, to develop these business lines at the marginal costs, we needed to identify entry points in different territories to implement our technology without incurring the cost ourselves. I believe we did one better and that is to implement our technology in such a way as to generate strong profits from it, knowing that this would create the foundation for newer and larger income streams.

As an example, our social welfare initiative in South Africa has not only created for us a strong and recurring income stream on its own, but more importantly it has allowed us to acquire more than 4 million clients and deploy our own point of sale infrastructure which has created the critical mass that we required to diversify our product offering as well as our client base.

We have now reached a stage in this development whereby we will now be in a position to bank all of our beneficiaries and to therefore be able to market and sell to them a range of financial products which can be sold and managed by our technology at a fraction of the cost of that associated with similar offerings by our competitors.

In addition, this large client base can also be offered all of our supplementary products such as our utility Top Up services, bill payments and money transfers to name only a few which have on their own demonstrated that they can generate substantial income streams.

The combination of our welfare system and our merchant acquiring infrastructure in rural areas and peri-urban areas, our EasyPay switching system, our bill payment subsystem, our Virtual Top Up mobile facility, our fleet management system, our insurance and microlending initiatives as well as our banking partnerships positions us as the most ubiquitous offering, all of which is glued together by our technology core platforms.

This example demonstrates the vision we intend to realize in all of our territories throughout the world. The transactions which will then be possible to effect between these territories will culminate in a further opportunity to generate a new, but this time international, income stream.

I'd like now to spend a bit of time discussing the restructuring of our Company. We have decided to implement a set of independent business units which will each focus on a specific set of products and which will each operate across multiple territories. These business units will include the following local and international activities.

UEPS sales in terms of Africa and a number of countries in the Middle East, which today is represented in our African division and focused on by our Senior Vice President, Brenda Stewart.

Our UEPS sales in the CIS, Eastern Europe and some further countries in the Middle East, which will be driven and represented by our BGS management team of Leonid Delberg, headed by Leonid Delberg.

Our UEPS sales activities in India that we are about to commence, although we already have set up in a small representative office in India, in Delhi.

Our UEPS sales of course in South Africa; and South Africa will remain a territory on its own.

Our UEPS sales head office that will look after, in the meantime, all other territories that have yet to be allocated. These territories will then be allocated at a later stage once we have set up the infrastructure that we require to tackle these particular areas of the world.

We also have decided to launch our EasyPay solution on a worldwide basis as we have now had many different requests for such a system across the world.

We are also making the final preparation to launch our Virtual Top Up as we have been reasonably successful to sell it to MTN South Africa, where it's been implemented through them in seven other African countries, where we have implemented in Vietnam, in Colombia and in Mozambique. And we believe that this product will certainly assist us to again create entry points in territories with our new cellphone technology.

We have just started activities in the US with our virtual credit card or our virtual card system driven by our cellular phone technology. And we have an office and a team of people that are now hard at work officially since the first of February in, in fact, selling and identifying customers along our commercial [niche].

We have also identified and intend to continue to market our SIM, Subscriber Identification Module, manufacturing PIN, for the simple reason that we develop our own cellphone masks which allows us to sell SIMs which encompass the UEPS and our VCC offering.

On the local front we will continue to run our Cash Paymaster Services, EPS, our pension and welfare systems as an independent company. We will continue to market our cryptography and security business as an independent company. And, of course, as an ancillary project we will continue to derive income from purely hardware sales which are either generated because of our technology or simply demanded of us by our existing and long, long-term customers such as, for example, Nedbank.

All of these above businesses, each one of those units, will operate and be responsible for their own P&L which will be determined by both the business and head office on a yearly basis. We believe that this fundamental change in operational structure will go a long way to achieve an accelerated growth rate as it will result in a parallel market attack and eliminate most of our existing bottlenecks.

We do not envisage any material additional expense or staff losses as the result of this infrastructure. If anything, we expect to be in a position to hire more people, as of course each business unit will be in a position to run their business the way they deem fit as long as they take responsibility for, of course, the top line and more importantly the bottom line.

Perhaps let us now address the SASSA development within South Africa. We are all aware that our existing contracts in four provinces will terminate on the 31st of March, 2009, so in around six to seven weeks. We, of course, have been engaging SASSA and SASSA has been engaging us over the last six months since the termination or cancellation of the tender process to arrive at a solution that will allow SASSA to continue to utilize the existing service providers to pay beneficiaries commencing 1st April of 2009.

I think we are all aware that there is a pretty strong election campaign in South Africa that has commenced due to the elections that will take place during the month of April. And, therefore, it is our role to ensure on behalf of the South African government that there is no disruption in the payment of beneficiary during this period. We are of the view that SASSA must be seeing these things in exactly the same way as we do, as they are today employed by the South African government.

Looking ahead --- and it is at the moment a little early for me to give categorical answers in terms of what may or may not happen -- but it appears that we will be given the opportunity to bank social beneficiaries in our own bank.

If this happens -- and this happening may be dependent on a number of changes to a number of Acts in South Africa, such as the Social Welfare Act as well as the impact of SASSA's Act -- but assuming that these Acts are changed and we are then able to bank our beneficiaries, we will then be given the opportunity not only to then grow our banking model but also to be able to sell and market a realm of new financial products to a base of 4 million people thus generating new and sustainable income streams for our Company.

We will know during the next four weeks, in my view at most, what decisions will be made by SASSA in terms of, one, extending our current contracts; and we have heard through different channels that certainly an extension of between one and two years, minimum of one, probably a maximum of two, is being contemplated with a number of codicils that would allow us during the same period of extension to convert at least a significant number of urban and peri-urban beneficiaries to our own banking system.

This initiative is of course put in place to allow SASSA to reduce or to save costs, costs which may be in the medium- to long-term carried by the beneficiaries themselves.

We believe that the opportunity that is presented to us may not in the medium-term impact on the profitability of our pension and welfare system, as what we may lose on a month-to-month basis due to a reduction of price will be easily made up by the offering of new and more lucrative financial products to the beneficiary base.

In addition, we firmly believe that because of the infrastructure that we have built, we will even be in a better position to continue to increase our customer acquisition well outside of the beneficiary platform.

Focusing now on the BGS acquisition, we'd like to report that I certainly am very, very pleased with the willingness, cooperation and extremely professional attitude of the BGS management team in terms of understanding the bigger picture of NET1, discussing the strategy of NET1 and planning their migration path to fit in within this particular strategy.

I'd like to report that I think the integration has been incredibly smooth and that even at the technology level, which very often happens to be the most difficult area, there is a common goal that has been defined in order to utilize the UEPS as a flagship, certainly utilizing some of the DUET functionality that currently exists, specifically when it comes to servicing the CIS Republics.

We will continue to add functionality and to migrate the UEPS together with new products or new features onto a global platform utilizing or using the JAVA Applet concept, which will then allow the UEPS to be far easier marketed and far easier supported by many other manufacturers of Smartcards for, in fact, switching systems. We believe this will give us a much bigger chance of covering the world in a much faster rate.

We are also pleased to report that we have agreed with Sberbank to implement a pilot in [Asteron] who happens to be a small province of Russia. And during this pilot we will be in a position to test a number of UEPS facilities and functionalities such as our fingerprint technology, our global platform JAVA Applet as well as our virtual credit card system.

This pilot is a key for us as I believe it has been put and given to us by Sberbank to prove our capability as a company to deliver systems in a fast and efficient manner that will show the way to the building of the URPS which will become the Russian National Payment System.

We believe that the success of this pilot, which will be evaluated possibly during the months of April, May and June of this year 2009, will allow us to conclude our joint venture agreement with Sberbank where the two companies will certainly drive the Russian market towards a UEPS solution in which we will be able to share in all transactions that are conducted through the technology.

I'm not going to discuss in detail what we are doing in all the other countries throughout the world but I will highlight whether it's changed or where we are in countries such as Ghana and Iraq and talk a little bit about some new and more exciting developments.

If we look and kick off at Iraq, the latest update which was given to us on 5th February shows that already 100,000 beneficiaries have been put in place and has been successful and that the government has already commenced the payment of these particular pensions or grants or salaries and those particular tests have also proved to be successful.

The Iraqis have also ordered additional registration workstations in order to increase the number of cards which are issued per day, which currently stands at 3,000 cards per day, to maybe 5,000 or 6,000 cards per day. The intention is to focus on the 2 million pensioners which are shared by the two big banks, government-owned banks, in Iraq which have already changed their method of operation opening their doors to the public 24/7.

Government is obviously trying to get the war victims database sorted out or cleaned out in order to ensure that no duplications can occur. Our [12] map, our [one to many 4A] processor technology has already identified in excess of 8,000 duplicates which, of course, is costing the Iraqi government a fortune if one extrapolates these numbers across the entire database. Three other provinces outside of Baghdad are currently being implemented and seven new provinces have been talked about being implemented in the near future.

Further 200,000 cards and a further 800,000 cards were placed -- orders were placed last year making the total of cardholders to exceed 1.1 million. The pressure has been put by the Iraqis on NET1 to deliver up to 200,000 cards per month commencing mid-February of 2009. Pressure, of course, is on the local teams to register the 1.1 million beneficiaries by July of 2009 which would be a tremendous achievement.

Focusing a little bit on Ghana, it is important to note the following. We have already delivered 1.8 million cards of the 3 million cards that were ordered and I believe that those 1.8 million cards have been ordered by 42 different financial institutions.

An important aspect is that the Deputy Governor, Dr. Bawumia, has resigned from the Bank of Ghana, has participated in the election, and unfortunately was on the wrong side of the team that actually won. He is a man that is extremely well regarded in the All-African region and we believe that Dr. Bawumia will continue to support the UEPS and the E-Switch initiative that commenced and is very, very well received and acclaimed by the new government of Ghana and actually will open doors for us in a number of other African countries.

We continue to develop low cost terminals in our association with terminal manufacturers throughout the world as demand in the tens of thousands has come to us from a number of developing countries.

We are currently in Ghana implementing phase two; and phase three, which incorporates interoperability, is underway. Current negotiations are in place with Stanbank of South Africa for NET1 to port the existing debit/credit card application on to our point of sale devices for Ghana rather than supply two separate point of sale devices to their clients.

This is something that has been requested by E-Switch right at the beginning of the project in order to ensure that all terminals in Ghana, including ATMs, would be able to support the UEPS as a primary function and obviously any other debit or credit application as a secondary functions therefore minimizing the investment in Ghana in point of sale and ATM terminals. We expect our mobile banking to be completed for testing by May of 2009 and to be launched thereafter in the Ghanaian market.

More on the local front. We'd like to state that we have concluded a fairly extensive pilot with WesBank in South Africa that is a subsidiary of First National Bank. WesBank focuses on the management of fleets throughout the country and has as a result huge amounts of influence over most of the fuel sellers in South Africa. We have already successfully implemented numerous garages with out Smart Card technology and this has resulted over the last month further orders of $1.5 million.

Shell has already showed its interest by stating that they would like our technology to be implemented across all of the garages in South Africa or service stations and, in fact, are also very keen on implementing the same technology in the rest of Africa. The same can be said by a number of other fuel suppliers that are not only aiming at implementing the NET 1 UEPS WesBank solution at home but are seeing the opportunities of implementing the same in other African or maybe out of African territories.

We believe this development will complete our technological footprint in countries such as South Africa, where we can offer our cardholders a one-stop solution where they would be able to translate pretty much everywhere and perform any type of transactions of their liking.

To conclude and before I pass the baton on to Herman, we all know that the state of the world's economy, although disastrous in so many ways, may in fact prove to be the catalyst for us to launch our UEPS in many more territories where the intrinsic weaknesses of many traditional payment systems have now been identified and well understood.

We believe that the combination of our products, the security and the risk management they provide, together with the cost to income ratio of our technology core platform, makes our integrated business solutions more than appealing to all developing economies and more recently and interestingly enough, to a number of developed economies as well.

I'd like to take this opportunity to thank you very much for listening and I'd like to hand over to Herman. Herman, over to you.

Thank you, Serge. Greetings to our investors around the world. I will discuss the key results and trends of the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008 along with the key trends between the second quarter of fiscal 2009 and the first quarter of fiscal 2009.

The results of BGS have been included in our results for the whole of the second quarter of 2009. 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 our investors and analysts.

Again, for clarification purposes, I would like to mention that our following discussion will be based on our results in South African rands as this provides the best indicator of the Group's actual operational performance. In order to review our results in terms of US dollars and US GAAP, please review our quarterly filing on Form 10-Q as well as our earnings press release filed yesterday evening.

For Q2 of 2009 our average rand/dollar exchange rate was 45% weaker at ZAR9.83 to the dollar compared to ZAR6.78 for Q2 of fiscal 2008 and 26% weaker compared to the ZAR7.80 in Q1 of fiscal 2009.

Looking at the current situation, the rand has been extremely volatile over the last four months against the US dollar and has depreciated approximately 28% to its current position of around ZAR10 to the dollar. Any fluctuation of the rand obviously influences the dollar equivalent results 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.

The BGS contribution to the Group results is mainly euro-based, and we will analyze this business separately in the future as the contribution becomes more material.

I am pleased to report on another quarter that reflects the solid fundamentals of our core business and I believe that we are well on track to achieve our 2009 earnings targets.

Revenue for our current quarter was ZAR603.4 million, up 50% year-over-year. Our gross margin was 72% compared to 71% during the same quarter last year and the same as our preceding quarter, but please remember that our gross margin can fluctuate significantly due to our diverse product offering. Our preferred measurement of the Group's profitability is to focus on operating income and operating margin per segment.

Our overall operating income increased by 17% for Q2 2009 compared to Q2 of 2008 and increased by 5% sequentially from Q1 of 2009. The overall operating margin for Q2 of 2009 compared to last year's Q2 decreased to 37% from 41%. Sequentially, the operating margin decreased from 40% in Q1 of 2009 mainly as a result of the inclusion of additional stock-based compensation charges, the impairment of goodwill and the BGS intangible asset amortization.

Let's now analyze the business in more detail using our reported segments.

Our transaction-based activities segment increased its revenues year-over-year by 19% and sequentially by 2% mainly as a result of higher revenue per grants paid from all our provinces and increased grants distributed in four of the provinces where we provide a grant payment service. In addition, the transaction volumes processed at EasyPay increased by 15% compared to Q2 of 2008.

Our operating income increased by 20% compared to the previous year and increased 3% compared to Q1 of 2009. Our operating margin of 54% in the segment was 1% higher than the reported number in Q2 of 2008 and the same as our previous reported quarter mainly as a result of price increases and the opening of the January 2009 pay file in December in KwaZulu-Natal which did not occur during Q2 of fiscal 2008.

We continued to show strong and robust growth from our transaction-based activities through the combination of price increases, growth in the number of beneficiaries and the continued migration of beneficiaries to our merchant-acquiring network.

The total number of payments processed to beneficiaries increased by 2% year-on-year and there was no increase quarter-on-quarter.

During Q2 of 2009 we also received an inflation price adjustment for the KwaZulu-Natal province. In addition, we benefited from the interim increase in the grant amounts paid to all beneficiaries announced by the South African Finance Minister in October of 2008, specifically in the KwaZulu-Natal province where our fee is based on a percentage of the amount disbursed.

The new beneficiary growth rate has slowed during the last year and it is difficult to predict the growth rate for the next few years due to the following factors.

One, the result of our forthcoming elections in April, as Serge mentioned, may result in a shift in government policy regarding grant administration and payment. As a result of the global economic slowdown, tax revenues in South Africa may decline significantly which could result in budgetary constraints for social grant assistance which is one of the three highest government expenditure items.

Conversely as a second factor, the ruling party's election manifesto includes a promise to increase the eligible age for child support grants from 15 to 18 years. And this policy, if adopted, will probably be implemented over a two-year period and add another 2 million child support grants to the system. We believe that a growth rate in beneficiaries of between 3% to 6% per annum is likely.

During Q2 of 2009 our merchant acquiring system continued its strong performance as we processed a total of ZAR2.5 billion in transactions through our merchant acquiring network, an increase of 53% compared to the ZAR1.87 billion during Q2 of 2008 and a sequential increase of 9% compared to the ZAR2.29 billion during Q1 of 2009, all on a completed pay cycle basis.

The productivity of our installed terminal base of 4,182 terminals increased for the first time above a 1,000, to 1,056 (sic - see press release) transactions posted per terminal during the second quarter compared to 851 during Q2 of the previous year and 983 during the preceding or first quarter of fiscal 2009.

During the second quarter of 2009 EasyPay processed 155.7 million transactions with an approximate value of ZAR56.2 billion which is an increase of 15% compared with 135 million transactions worth ZAR50.3 billion processed during Q2 of 2008 and 135.2 million transactions posted with an approximate value of ZAR32 billion during the first quarter of fiscal 2009.

The average fee per transaction during this second quarter and the second quarter of 2008 was approximately ZAR0.21 as opposed to the ZAR0.22 during our preceding quarter. We expect the average fee per transaction to remain between ZAR0.20 and ZAR0.22 during the next few quarters.

EasyPay's operating margins are steadily improving as the efficiencies of our new operating platforms and expense management systems become apparent and as we sign up more [bill] issuers and value added service providers.

The EasyPay operating margin for Q2 of 2009 improved to 47% from 41% in the previous year mainly due to higher volumes of value added services processed during our second quarter of 2009. We expect lower volumes during the third quarter of 2009 as the second quarter numbers reflected traditionally higher retail activities during the South African festive season.

Our Smartcard account segment had revenues of ZAR66 million for Q2 of 2009 which is an increase of 1% year-over-year. The total number of active Smartcard accounts increased by 2% from 4 million during Q2 of 2008 to 4.1 million during Q2 of 2009. Sequentially there was no significant growth in the number of active Smartcard accounts.

Our Financial Services business had revenues of ZAR14.1 million for Q2 of 2009 which is a decrease of 3% compared to the second quarter last year and a sequential increase of 1% compared to Q1 or the previous quarter.

As I have mentioned over the last few years we do not view our traditional microlending business as a core activity and we deliberately scaled down the extent of our activities since 2005. We have decided to dispose of our traditional microlending business, and as a result we recently entered into an agreement to sell this business to an unrelated third party. The sale is subject to, amongst other considerations and conditions, a due diligence review by the purchaser and the various board approvals. We expect the transaction to be concluded in March 2009.

Following the proposed sale the acquirer will have 200 microlending branches across South Africa. And we are structuring the deal on the basis that we will have access to all these locations to market and sell our value added services, including our wage payment offering. As a result of this transaction, we expect to become a minority shareholder of no more than 20% in the acquirer's business.

Revenues from UEPS-based lending increased during Q2 of 2009 compared with Q2 of 2008 primarily due to the lower number of loans granted. In addition, on average the return on these UEPS-based loans was lower during Q1 of 2009 compared with Q1 of 2008.

As a result of the SASSA tender process and the implication that any outcome may have had on our UEPS long-term loans, we have not focused on aggressively growing this activity. The future strategy for this business is closely tied to our social grant payment and wage payment businesses.

We have concluded that it is probable that a portion of the goodwill allocated to this financial services operating segment is impaired as a result of the deteriorating trading conditions of this operating segment and the proposed transaction. We have, therefore, impaired goodwill of around ZAR18 million during Q2 of 2009 which reflects our best estimate as at the end of December.

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.

The current nature of BGS's operations are similar to those performed through NET1's Hardware, Software and Related Technology Sales segment and therefore BGS's results have been included in this segment.

This segment includes the sale of UEPS and now DUET-related hardware and software as well as the sales of SIM cards, cryptography services and SIM card licenses. The amortization of BGS's related intangible assets for the month of December or the quarter ended December of $2.1 million has been included in this segment. This particular segment had revenues of ZAR200.8 million for Q2 of 2009 which is an increase of 77% year-over-year, mainly as a result of the inclusion of BGS's revenue of $10.5 million for Q2 of 2009.

During the second quarter, BGS sold licenses and Smartcards mainly to Sberbank which remains its largest customer. Please note that BGS's revenue fluctuates considerably from quarter-to-quarter and we do not expect the Q2 results to be repeated at every quarter. Historically, BGS has recorded its highest revenues during the October to December period as this coincides with Sberbank's year-end. We expect the BGS contribution to the Group results to be lumpy for the foreseeable future until the BGS business model becomes more transaction-based.

The operating margin of this segment increased from 14% for Q2 of 2008 and from 24% in the previous quarter to 27% in the second quarter of 2009 mainly as a result of the sales by BGS.

Our start-up equity-accounted investments in Namibia, Botswana, Colombia and Vietnam continue to grow in line with our expectations and have exciting prospects in terms of business development.

Following the unrealized foreign exchange gain of $6.1 million recorded in the previous quarter, we recorded a further foreign exchange gain of approximately $20.6 million during the second quarter as a result of an asset swap arrangement in the form of a 32-day call account instrument that we entered into to repay our inter-company loan accounts with the objective to repay the short-term bank financing we had obtained to fund the BGS acquisition. This significant profit has been excluded from our calculation of fundamental earnings.

On a GAAP basis our quarterly net income of ZAR272.9 million represents an increase of 98% year-over-year. And GAAP earnings per share increased by 100% on a constant currency basis, while fundamental earnings per share for Q2 of 2009 increased by 53% compared to Q2 of 2008 and increased by 13% compared to the previous quarter.

Before turning to our balance sheet, the usual reminder that our cash provided by operating activities can and does fluctuate significantly as a result of the timing for the commencement of our monthly welfare payment activities, specifically through merchant stores. As a general rule, however, we expect 100% or more cash conversion ratio over any completed pay cycle period.

As of December 31, 2008 we had $124.7 million of cash and cash equivalents. Our 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 current and expected working capital requirements.

We generated cash from operating activities of $45.9 million during the second quarter, a very high result partially explained by the foreign exchange gain realized of $26.6 million.

In November we announced our new share buy-back program, and during the second quarter we utilized $24.7 million of our cash reserves to acquire 2.4 million shares of our common stock in open market purchases at an average price of $10.23 per share.

Please remember that the balance sheet item called Pre-Funded Social Welfare Grants Receivable is a highly liquid short-term receivable best described as a near cash equivalent. We had $50.8 million of pre-funding outstanding at the end of December. The increase in our accounts receivable compared with June 30 of 2008 is largely due to the inclusion of BGS and the opening of the January 2009 pay file earlier in December compared to June 2008.

We repaid the $110 million facility raised to acquire BGS in full during October of 2008, as our inward listing on the JSE allowed us to utilize our rand cash reserves for the repayment of a large portion, approximately $85 million, of the loan facility, with the balance settled from our foreign cash reserves. Our goodwill and intangible assets have increased as a result of our acquisition of BGS.

Our deferred income tax liabilities have increased as a result of the deferred tax liabilities raised on the intangible assets acquired in the BGS acquisition, partially offset by the release of deferred tax liabilities as a result of the reduction in our fully distributed tax rate to 34.55% during the previous quarter.

As a result of our inward listing on the JSE in October, our balance sheet now reflects the Group's simplified capital structure with only common stock in issue. Our secondary listing also provides us with more flexibility to utilize our rand reserves internationally.

In conclusion, our business fundamentals are solid and our healthy balance sheet reflects our ability and readiness to weather the global economic crisis. Based on the assumption that our current business activities and initiatives will continue as usual, we still expect to grow our fundamental earnings per share by at least 15% on a constant currency basis for fiscal 2009.

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

Thank you, sir. (Operator Instructions) David Koning, Baird.

First of all I just wanted to pursue a little bit on the comments around the number of grant payments and that slowing a little bit, along with the revenue per grant. And did you say even though grants might slow a little it will still be 3% to 6% growth?

And then, secondly, should we still expect revenue per grant to continue to go up pretty rapidly?

Dave, let me give you my thoughts and I'm sure Serge will have his own as well.

Revenue per grant increased during the second quarter specifically because we had -- for the first time actually, the government announced an increase across the board for all grant types in October and that increase was really backdated to October and it was paid in December.

Now as you know in KwaZulu-Natal, specifically, we get paid based on a percentage of the amount disbursed. And as a result, because we had all of those backdated increased amounts payable in December, our revenue per grant specifically in the KwaZulu-Natal province went up quite substantially.

And obviously the increased amounts will continue. In fact, during the budget speech next week the South African finance minister may again announce a further increase across the board, obviously to keep in touch with what the inflation rate is in South Africa, of all grant amounts. And that, again, will filter through, specifically in KwaZulu-Natal, in terms of our average revenue per grant.

In the other provinces we are obviously, until our current contracts expire, entitled to the normal CPI or inflation adjustments. The current CPI rate in South Africa remains at around the 10% level; and typically we get around 80% of what the current CPI rate is, so there's no reason for us to believe that our price increases will not be granted at least in terms of our current contract periods up to the end of March.

And, of course, we need to negotiate when SASSA is ready with any potential extensions what the standard price adjustment determinations will be going forward during that extension period. So that's the revenue per grant.

On the growth in the grants rates, that obviously is a lot more difficult for us to predict because there simply isn't any statistical information provided to us by the South African government other than what we can see in the medium-term budget. We do know, also, from the ruling party's election manifesto that they are going to focus on increasing the child support grant age from the current age of 15 to 18.

In other words, currently all kids who qualify below the age of 15 are entitled to a grant. They wish to increase that age up to 18. So instead of removing the children when they reach the age of 15, they will now remain on the pay file up to the age of 18.

That, I think or in my personal opinion, will be phased in over probably a two-year period. It is a fairly lengthy process and a logistically intensive process, but we should add between 2 million to 3 million grants to the current pool of payments. So I think that will be the biggest driver over the next couple of years in terms of the number of new grants added to the system.

The other grant types, I think, should remain fairly stable. We know that the second largest grant pot is the old-age grant closely followed, probably, by the disability grants. And on the old-age grants, frankly, there will also be, I think, a slight increase as the age for males will decrease from the current 65 to 60. And, again, that is phased in over a three-year period.

So it's difficult for us to say; but when we look at historic trends and we look at what is coming out of the election manifestos and the budgets, we still think that 3% to 6% is probably where we will end up over the next couple of years in terms of the growth rate in grants.

Great. That's very helpful. And, secondly, Serge mentioned in the prepared remarks, I think he used the word accelerating growth at some point given all the initiatives that are in place. I'm wondering how we can handicap 2010 in terms of what opportunities that really aren't in '09 or just starting in '09 will have material earnings contributions to 2010.

You mean specifically on the social grants front?

I mean, really I just mean any initiatives. For example, Iraq might not contribute that material to '09 but might contribute ZAR0.05 or ZAR0.10 to 2010. I'm just wondering maybe the two or three initiatives that might actually add significant earnings or material earnings to 2010 that may not have contributed much to '09.

Perhaps let me try to give you a feel for that. As I've said, the intention is to be able to, obviously, accelerate or at least increase the rates of growth specifically outside of the South African territory. I think Herman has discussed what's happening with the social welfare and I think he's working on the assumption that everything will remain the same.

My view is obviously, perhaps, a little different from that, is that we have got to try to strategically project over the next few years. And we know that there will be change in government, or at least a change in presidential representation, leadership and ministerial posts.

And we know that there will be, because of what Herman explained which is quite correct, because of the perhaps collection of tax and the amount of tax that will be collected is going to slow down, which means there's going to be less money in the budget, although they want to try to put on more and more people on welfare.

The two things don't go really well hand in hand, do they? Because somebody is going to have to pay and the money has to come from somewhere.

So we really believe what will happen is that there will be a shift from government paying for distribution of grants to people paying for receiving grants which, today, is not really in the Act. The Act actually prevents any sort of fees to be levied against beneficiaries. But this is something at the end of the day that can be changed by either the existing or whoever is going to be in power after April.

So one way or the other I don't believe this economic condition in South Africa is going to turn and become that positive in the next year. I think we're going in for a three to five year troubled water, as far as I'm concerned.

So we, ourselves, are going to work really hard with SASSA to assist this shift of who actually carries the costs of the distribution and to change the business model whereby one can start making more money out of the ancillary products that can be sold to a large base of people rather than to keep on focusing on getting most of the money out of the [fiscas].

In a way it's the problem with any social welfare system whereby you keep wanting to give more and more money to people on the ground because of inflation; but that does not necessarily assist you in eliminating poverty nor, in fact, in eliminating the number of people that actually now have access to grants.

So I really believe the next two years is going to be a watershed in terms of transforming the way that pension and welfare is being managed and distributed to new different model. And I think it is up to us to use our intellectual capacity to try to work with government in assisting them in, as I say, passing on or at least transferring a portion of the burden to the people that are getting the grants in order to be able to make grants available to more people.

So that is the first thing I think that is going to change, and we're going to see that change very, very soon in terms of where it's going to go. So we'll certainly give you an update to what we think is going to happen.

On an international basis, and I think your points are well taken, the restructuring of the Company has been based or has been designed specifically to focus different teams on obviously accelerating the deployment of UEPS in the (inaudible) technology.

Now we obviously know that, for example, Iraq as you quite correctly pointed out is one of the countries whereby things have started to happen and is picking up momentum. Now unless something goes horribly wrong in those particular countries, like, e.g., people don't like the fact that we can eliminate all the duplications of grants -- which, by the way, happens in many countries in the world -- we do not see any reason why we shouldn't start picking up initially our $0.20 per card per payment per month.

And that should actually go up depending on how many transactions, UEPS transactions, are performed once the money has actually been loaded on the card.

So certainly you are quite right in saying what's going to happen in 2009? I think 2009, as long as we see the monthly growth in card being issued we now know that the big carrot is certainly actually being made available. If the number of people, the number of cards that are being issued slows down, then we will be able to monitor that there's something going wrong. If the cards are being issued, then I think you are right that 2009 and '10 should give us Iraq as a very, very good contributor to the bottom line. There's no doubt about that.

Ghana, and I think we tend to -- because it was a first time national implementation but also what people considered to be a one-off -- I think to some extent it's a little bit misinterpreted for the following reasons.

One is because, yes, we did take lot of money up front because we had to develop and design and put out the system, which we did. And there's no doubt that we're not going to make $20 million a year out of Ghana in the next couple of years.

However, we know that there is recurring revenues. It might only be a couple of million dollars a year in terms of maintenance, licenses, new sales of cards and terminals. We'll take that as well. It's still 4 pence of EPS.

But more importantly, we have been given the opportunity to launch our wave two, which is what I was trying to talk about when I talked about strategy, to say now that we know there's an infrastructure that's been paid by somebody else -- in fact it's been paid to us by somebody else, we have really no restriction to use the infrastructure ourselves to actually start putting out products which, in fact, are not available in Ghana at the moment and certainly this is what we're going to be doing in terms of our wave two.

Now some of these products have really simple products that can be something from a money transfer, it can be something cellphone technology, it could be purely as simple as providing in time Top Up directly from a cellphone onto a cellphone. And if we achieve that you will find out that throughout these African countries you will see that just a simple product like (inaudible) is monumental in terms of how they can actually generate. So it's something that certainly we want to do and I still believe that Ghana, in this case, will certainly continue to actually raise our bottom line even during this year, 2009, and certainly during 2010.

Now apart from the Iraq and Ghanaian ventures, I think there will be certainly over the next 12 to 18 months there will be a couple of new countries that will come on board and will bring us some revenue up front and that is something, of course, that always runs off the numbers on a quarterly basis in a very nice way so that I still believe will happen and it will happen either after the African (inaudible) division or it will certainly happen as well after the new CIS/BGS acquisition. So I think that will still continue to happen and increase our bottom line. But every time we put in another country and every time another six months goes buy, the existing countries become more mature where we can start using this infrastructure to sell new products. And this is where, really, the increasing bottom line in my view will come from.

Of course I'm a strong believer that the VCC activity which is now being taken very seriously certainly trying to be launching it in the US and in Europe, in France at the moment. We will see over the next couple of months I believe this is a world leader and, in my view, if that goes according to plan that certainly will bring us money not this year in 2009 but I think it will start generating once again very good bottom line profit in 2010.

Once again, we can we can monitor it on a quarterly basis to actually see are we getting SIM penetration or not? If we're not getting SIM penetration the base wouldn't be there to generate bottom line. If we are getting SIM penetration, this is something that is recurring, it's something that is low cost to implement but it's something that's got absolutely huge potential.

And then to finally finish that off we still believe that towards the middle of 2009 we will know what is going to happen with our JV with Sberbank in Russia and possibly with the post as well. And, of course, if one of those JVs come about that in my view will generate very, very good bottom line towards the end of 2009 maybe even 2010. There's absolutely no doubt.

We are also aiming at a few new territories, some new and I think focused activity in the Philippines where, as you know, we already have three different NET1 activities taking place including cellphone technology, UEPS and banking. We also know, for example, that we are now looking very seriously at one or two different activities in India that are starting to take shape. Will they generate anything by the end of 2009? Unlikely. But if they occur, certainly they will start generating and producing something to the bottom line in 2010.

So apart from those, there are a number of other things that I think are going to give us some extra cash at the [bottom] especially on the profit level and I think, in my view, towards 2009 we will see it that you meet our numbers and maybe exceed it a little bit. Sometimes Herman's been very conservative which I admire him for because that's his job to do this. But at the end of the day I think it will be -- normally we are a little better than what we always predict and tentatively I think we're going to hit that one stage a couple of breaks which are going to give us constructive interference rather than distractive interference in which case currently the EPS could actually jump quite a bit radically.

So that's my view in general of what's going to happen. I think we'll have a good, above average 2009 and I think we could have a very good 2010.

That's a very good recap. Thank you.

David Togut, First Manhattan.

Serge, could you flush out your comments a little bit on the discussions with SASSA? In particular, your comments that you may give them some price concessions in exchange for being able to bank the 4 million beneficiaries and perhaps even extend your reach to beneficiaries you don't serve with additional financial services?

Yes, thank you, David. I think you've read it correctly. Like I said, I think we're going to have to come forward with, certainly going forward, with some ways of ensuring that the SASSA will assist us at the end of the day because that's really what they are, are we going to be in a position not to continue to get escalating costs in terms of paying fees to contractors that are distributing pensions, the wealthy. And can (inaudible) something we've always known sooner or later was going to happen.

So we don't want that curve to become hypnotic and to become a little bit flat. So the only way that you can actually make that curve go the correct way again is to simply change the business model and, as I say, allow them or the system to actually transfer the liability of receiving pensions on to the particular pensioner himself. And to do that, of course, the easiest way to do that is to bank them.

Now if the law allows them to be banked which, at the moment, it is only at their election not the -- and therefore their choice, if they can change it without and can basically say you will have to have a bank account, then I believe they will achieve that whereby they will be able to now offload a substantial portion of the cost onto the pensioner. In return, of course, the pensioner will now have access to financial product that he cannot get today even with a pension.

So I think the quid pro quo will be because we have structured ourselves and we've ensured that we are beyond always the curve waiting for the pensioners to have access to other services we will be the first people, of course, that will be prepared number one, and number two, that will have the functionality to provide those pensioners with the products that they need being it from insurance policies to market loans to money transfers to Top Up (inaudible) time to the facility to be able to pay bills, school fees, whatever the case might be. We have all of those businesses already running in South Africa and we can activate all of those tomorrow morning.

So we believe that initially it might appear that, in fact, our pension and welfare business margins of profitability might be going down. With that taken into consideration with the extra money or extra funds that we are going to make on the financial products, I think the sum of the two will be greater than the losses. So this is what I'm talking about of changing the business model or the way that we will operate. And so sometimes it's a question of giving up one rate on one side in order to have a go at making one back 50 on the other.

One could say, "Well, let's not do that. Let's rather stick to the one rand as long as we can; but then you could in fact lose the entire 1.50. So I'd rather gamble the $0.50 rather than to gamble the 1 and I think that's the strategy that we've decided to do.

So to implement it this it seems that SASSA would be more inclined to go with the two-year contract because that would give you more time to make up the economics on any price reductions.

I think it would be nice to think that SASSA would be that kind to us by saying that they would give us the two years to make up the economic piece but I don't think SASSA really cares if we make the economic piece up or not, I'll be honest with you.

I think at the end they'll give us two years because I think from their point of view it is unlikely that they will be able to change, in my view, (inaudible), any of the legislation to actually allow this conversion plan to take place in the very short-term. Initially I think it will be by choice and willingness rather than by law. Within the next, who knows, six months or 12 months it might become law which means it will be much, much easier for SASSA to actually migrate the people -- force the migration of those people to let's collect more formal banking where they will then take the (inaudible) or liability for the bank account fees.

So I think it's not -- the timing will be more a timing because it makes sense for them rather than makes sense for us. For us to be (inaudible) two years, certainly will not harm us because over the two-year period it actually gives us a very long window to actually move across or implement our own plan with the blessing of SASSA for thee people that are wishing to come across and, therefore, bring the remaining people across once the legislation or the acceptance of the new method has been accepted by everybody in the country.

So this two-year period, I think, probably will ensure that we stay where we are in terms of profitability and maybe within the next two years we might even have a plan that actually shows us a new growth [bar].

And then how does this set you up for the end game which is to lock in, let's say, a three to five year contract once this interim period is over?

One of the advantages, of course, that the banking of the beneficiary might bring us as well is that once the beneficiary got banked, by definition they actually become part of the banking fraternity rather than the welfare fraternity. So for lack of a better word, what it actually means is that once they've got a bank account the chances are that they will remain with that bank account for a long period of time because there's nothing to stop them to change from one bank to the other. But, as you know, changing a bank account today is almost impossible. Most people don't like to do it. And number two, normally it's more complicated than it looks. So I think once they are all onto a banking system, the chances are they are probably more likely to be sticking to us because now they would have to move on an individual basis rather than today being able to move on a [provisional] basis simply because SASSA might decide to give their [providence] to someone else.

So I think it will protect us long-term to ensure that the beneficiary remain with us for the foreseeable future.

Thank you very much.

Thank you. Tim [Byrne], Robert W. Baird & Company.

Nice quarter, here. Just had a question on EPS here. You adjusted fundamentals $0.36 this quarter and I know next quarter you'll have BGS revs down but the transaction and Smartcard segment should be relatively stable. So can we kind of correlate that into slightly down sequentially EPS if the currency stays the same?

I think it's a pretty accurate assessment depending on what we see with specifically our price increase negotiations as well as the increase of grant amounts, although that will only really filter through in the first quarter. We should see, I think, the 56% fundamental level maintained, maybe slightly weaker depending again, obviously, on what the currency does. But I think you'll read on how to project forward probably some of the most accurate we can subscribe to right now.

That's very helpful. And then just quickly on EasyPay, the margins were 47% this quarter and they improved fairly substantially again. Assuming that -- if volume stays flat next quarter I assume they will stay relatively flat, but over time as volume increases could those become kind of in line with the transaction-based margins?

That's certainly our intention. The EasyPay business model is one that relies on two core drivers. One of course is volume. It is a business that on its protection switching side is entirely volume based. The higher the volume the more profitable it becomes and the volumes in the EasyPay environment will be driven mainly as a result of the continued increase in usage in South Africa, specifically, of debit cards; not too sure what's going to happen to credit card usage in the current economic environment. But we don't have as big a problem here, I think, as in other parts of the world.

But I think more importantly in the EasyPay environment, one of the key drivers is the introduction of value added services specifically on the bill payment side and that's something that we sit and we focus on. The margins on performing bill payment transactions on behalf of the bill issuance in South Africa are certainly a lot better than they are in the pure debit/credit card switching space and at the moment we are focusing on signing up all of the, let's call them medium-sized bill issuers, we already have most of the large ones, and over the next year we hope to sign up many more of the smaller bill issuers. But those are the ones that will result in a margin increase in this business overall.

That's all. Thank you.

Gentlemen, we have two more questions in the queue, would you like to take them?

We've got a bit of time. We can take the last two.

Thank you. Michael Kass, Baron Capital.

Two questions, first on the balance sheet I was just looking at -- could you just give me a little more detail on the receivables? The welfare grant receivable and the accounts receivable. I guess with the currency change they seem to be higher than I might have been expecting and I think maybe it's probably due to the acquisition but if you could just, on the accounts receivable, on both of those lines why those rose so much again?

The welfare grants receivable line will fluctuate wildly from quarter-to-quarter and that really is only an indication of when we open the pay files for the next month. So at the end of December we actually commenced with the payment of the January grant during the last three days of December through our merchant acquiring network and that resulted in a fairly sizeable amount of pre-funding. Obviously, we pre-fund the payments of those grants and effectively what happens is we get reimbursed by the government within a very short period of time, normally within a seven day cycle after the grants have been disbursed.

So when you look at the pre-fund funded grant amount of $50 million, all of that money would have been collected effectively within the first week of January and that's why we always view the pre-funded grant receivable as a cash equivalent because it is such a very short cycle data.

The other account receivable number which has increased from the $21 million to the $51 million level from June to December is mainly due to the inclusion of BGS. That was obviously not there at the end of June. So the BGS data has come into our balance sheet and, again, those are the standard (inaudible) datas, there's absolutely nothing else there that requires any further disclosure.

We have some pretty strict and prudent allowance qualities in the group specifically, I guess, in our micro-finance business which we disclosed separately under the finance loans receivable line. So I think that we are well protected, well provided for in our normal trade receivables and that typically we have no other problem in recovering those monies.

My second question, when you were just walking through the SASSA potential changes, I think Serge mentioned that -- he used -- I think he said if we gave up kind of like a ZAR0.5 to potentially get up to $1.00 later in terms of expanding services. Was that an attempt to try to size what, I mean, I'm just trying -- just directionally I'm trying to understand if you -- you've given sort of a directional sense of what to expect in the core business but I'm not sure I have a sense of the scope of what the price change could be in the short-term?

Yes. No. The example I use is the rand -- ZAR1.50 was just purely an example. Let me be more specific. It's very difficult without going through the -- obviously, we have already some good feel about what might happen. But until it does happen it's difficult to talk about it because they may change their minds on a sort of 30-second basis.

So the way that we believe that this is going to play out is they are going to say let us attempt to migrate a percentage of the beneficiaries during the first year that are willing and able to actually move simply because they believe that the bank account format might be more attractive than simply getting cash out of the till.

And if they think it's more attractive, they therefore will be happy to pay a banking fee which today they do not pay in order to get cash. And, of course, there's lots of other fees if you think about it that cash your checks, like for example, you lose your (inaudible) by actually collecting cash. So sometimes they would rather have the bank account rather than the cash. On top of it, having a bank account does give them access to financial services, for example, like small loans or an insurance policy or the ability to pay for a loan or an insurance policy.

So we believe there will be a number of those people that will migrate. The net result will be that those people are going to be subsidized we believe to some extent by the SASSA. But the amount of the subsidy would be less than what SASSA is paying us today. It could be anything up to 20%, 30%, 40%, 50% less than what they pay us today per grant. However, the banking fee that we will then be able to charge the pensioner will usually make up by the 20%, 30%, 40%, 50% discount, in fact it might not only simply replenish the differential but give us extra money simply because of the money we'll be making after the ancillary products.

So that's the way you've got to try to think about it.

Great. That's very helpful. Thanks. I have one more but I think I've got two already so I'll yield the floor.

Ken [Wichita], Regent Street Company.

Serge, just a clarification. You used when you were talking about some of the additional projects that might add to earnings for 2010, you said something about a world leader and I missed exactly what that was.

We spoke about it about a year and one-half ago. A year and one-half ago we patented a new technology that we called -- a breakthrough which we called the Virtual Card. The Virtual Card is the ability to utilize a cellphone in what we believe is about the only methodology of doing it securely. To be able to make or to effect card-not-present transactions across the internet or across, in fact, a voice call. In other words, the ability to be able to sit on the internet without having any specialized accounts of any form and to be able to use your cellphone as an offline device, in other words a device that cannot be tampered with or interacted with by any third party to be able to generate, for lack of a better word, a standard credit card number or at least what would appear to look like a standard credit card number but that credit card number would in fact morph the ability or the account that you want to debit but pushing it through the envelope of the credit card.

Now by doing that, of course, we would open up - not only in the US which I think needs it to be quite honest because of the [forgeries] that occur specifically on the internet and card-not-present transactions - it could make those two channel in my view completely secure and that's where there can be a huge amount of growth not specifically in the US because it's already pretty well used, there it would be a question of simply making them more secure and therefore avoiding or eliminating more (inaudible).

But in every country in the world, specifically developing economies, card-not-present transactions are actually not used simply because they are too easy to actually defraud and we believe that business can be grown in just about every single country in which we're in and even countries we are not in for (inaudible) new retail systems to suddenly make use of this advantage and to start competing at the retail level by selling product without cards.

In other words, we've got enough present transactions we still cannot do today. And we think that that volume should be or should become equivalent to what it is in the US today as a percentage of the number of transactions that are conducted on a yearly basis. And if that even happens to 10% or 20% of what I think can happen and we are the people providing the technology, I think the VCC technology will probably be bigger than what UEPS is today.

Thank you. That's exciting. Could you also, going back on Ghana, I know that you're selling a lot of the equipment and, like, hardware into Ghana and I think the plan over the long-term is to transition that country into more of a sort of a transaction based business for you.

Yes.

Could you just comment on the timing of how long that will take, you think, to ramp up and specifically what initiatives you have ongoing to try to make that conversion work?

Well the first thing as you know, Ghana and perhaps the strongest thing we have in Ghana is it's being implemented by the Central Bank which means it's in the national system that has already ordered in excess of 3 million cards. And I think it's around 50,000 (inaudible) terminals. So they are now for us deploying what they, local banks, they are deploying the UEPS infrastructure. The beauty about it is that the UEPS infrastructure can then be utilized by anyone that wants to use it.

Now already our Senior Vice President of Marketing and Sales, Brenda Stewart, is obviously now already looking and trying to set up deals whereby we will be able to use that infrastructure to actually bring in our wave two which is now profiting, not simply setting the technology but by actually using the technology to make transactions or to effect transactions in which we will obviously have a percentage return rather than simply selling the technology.

EG is an example which a lot of people use and I think you'll understand it immediately, is simply Top Up cellphones. Now this is something in most countries with cellphones that is becoming absolutely huge. In fact to the extent where people are listing companies simply to actually conduct a (inaudible) Top Up. And these companies are worth, in South Africa alone, ZAR2 billion. So it's not an insignificant business.

Now this, through our technology, we will be able through the cellphone to, for example, provide a very low cost alternate (inaudible) of providing companies like the MTMs, the [Votocom], the (inaudible) or whatever the case might be, the cellphone providers, an easy done or automatic way of distributing (inaudible) where people will be able to buy (inaudible), using their cell phone using the (inaudible) from the cellphone and talking it up therefore giving us the opportunity to pick up a 2% to 3% up to 5% margin on every cellphone Top Up transaction.

Now this is just one example about what the second wave is all about in all the countries we're in and that second wave can only be created once we know that we are in a particular country infrastructure which is UEPS-enabled in order for us to ride on it. This is what Ghana is giving us with the 3 million cards. This is what Iraq is going to give us. This is what Russia is going to give us. Now the question is, is to simply apply the new income streams to use that infrastructure. This is what I was talking about in terms of the second wave.

What's the connection between the cellphone technology and the UEPS card technology?

The beauty about it is that the cellphone technology, at least the way we're setting it, is 100% compatible with the card technology except that it has the extra facility to, of course, generate VCC which is the virtual credit card number that I was talking about that can be utilized on the internet or on card-not-present. Therefore, not even to modify any existing infrastructure around the world to conduct these transactions.

So it's UEPS is your base but after UEPS we can net a UEPS transaction to actually look like a virtual credit card transaction or, in fact, a standard Visa/Mastercard transaction as they exist today. And that's really to me the breakthrough is to set your eyes on these transaction using UEPS without needing to change the acquiring network throughout the world.

Good. Well, thank you. One just -- one last quick thing on your share repurchase program. I assume that's ongoing still. Am I correct?

Yes. It is. And in a way it's not nice but in a way we'd like to thank a lot of the shareholders that were kind enough to sell us the shares at an average price of $10 and it's always nice to know that there are some kind-hearted people out there and we'd love that to be possible to continue.

What's the current share count?

Share count currently is about 55.5 million shares.

55.5 million and that -- if I look at it, that was about where it was at the end of the year. Right?

Correct. We've since -- the first of January we are obviously in the closed period and during, up to today, we obviously did not affect any repurchase during our closed period.

And is the plant -- what was it, a $50 million program?

Correct.

The program was set at 50 and we've spent basically half of that amount in the (inaudible).

There were a number of limitations in terms of the rules of the SEC about when you can buy and how much you can buy. We wish we could have bought more but I think we were limited to about 20% of the trading average on a daily basis otherwise we could have probably (inaudible) $10 million a little quicker.

Yes.

It's unfortunate but we might get another shot at it.

Yes. And just one last thing. Serge, I think in either the last call or when you announced the share repurchase program you mentioned that you had a couple of other things you were talking to the Board about in terms of enhancing share value. Am I remembering that right?

As you can understand in these days it's obviously something which is a topic of conversation on a day to day basis. We do have shareholders that have invested a lot of money in our company. We understand from our point of view we are long-term players. We've been in this business a long time and we intend to stay here a long time and we believe that the value will come back.

But in the short-term we have, on behalf of our shareholders, to take every opportunity we can to try to (inaudible) their value and fortunately letting the people that have decided to bail out -- well, suffer, for lack of a better word. And there is nothing we can do about that. So we continuously look at different opportunities. We (inaudible) about the share buy-back is only one way of doing things and we continuously look at opportunities to see how can we, to some extent, capitalize for our shareholders on what is happening in the market conditions today.

But nothing more specific to --

I can't answer your question completely but at least it tells you that we are thinking about it.

Yes. Good. Well, thanks very much for the answers guys.

Gentlemen, there are currently no questions in the queue. Would you like to make any closing comments?

On behalf of NET1, the Board and the management team would like to thank all of you for attending today and we hope that it would give you a little bit of the feel of the color about what we want to do and how we're going to do it. We certainly are still very confident on our side that we will continue to progress with the technology. In fact, probably the markets are probably set up even better for us at this point in time as what they might have been two or three years ago.

So thank you very much for listening and we will be talking to you in the next couple of months. Thank you. Bye-bye.

On behalf of NET1 that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.