Lesaka Technologies Inc (LSAK) 2009 Q4 法說會逐字稿

Good afternoon, and welcome to the Net1 results conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note that this call is being recorded. At this time I'd like to turn the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you. Good morning and good afternoon to our investors around the world. Thank you for joining us for the fourth-quarter 2009 and full-year 2009 earnings call. On the call with me today are Dr. Serge Belamant, our Chairman and CEO and Herman Kotze, our CFO. Both the press release and our Form 10-K are available on our new website at www.Net1.com.

As a reminder, during this call, we will be making forward-looking statements and I request you to look at our cautionary language contained in our press release and Form 10-K regarding the risks and uncertainties associated with forward-looking statements.

In addition, during this call, we will be using certain non-GAAP financial measures, and we have provided a reconciliation of these measures to the most directly comparable GAAP measures. We will be discussing our results on a constant currency basis as we analyze our results of operation and our latest 10-K and in our press release in South African rand to assist investors in understanding the changes in the underlying trends of our business. As you know, the Company's results can be significantly affected by currency fluctuations between the US dollar and the South African rand. Let me now hand the call over to Serge Belamant.

Thank you very much, Dhruv. Good morning and good afternoon to all of you.

Overall, we produced another strong quarter, which was driven primarily by core business. We believe that we continue to execute on our long-term strategy by making progress on expansion both within and out South Africa, on rolling out new and expanding existing products and services, and, of course, buying back a material amount of our own stock.

For the fourth quarter and the full year of 2009, we reported revenue of $62 million and $247 million, respectively, representing 5% and 19% constant currency year-over-year growth.

Fundamental EPS for the fourth quarter and full-year 2009 was $0.38 and $1.47, respectively, which is a decline of 1% for the quarter and growth of 16% year-over-year on a constant currency basis.

The weaker South African rand versus the US dollar during both periods adversely impacted our dollar-based results by 6% and 23%, respectively.

As of June 30, 2009, we had $221 million of cash on the balance sheet, having generated $107 million in operating cash flow during the fiscal year 2009. We are comfortable with our cash and cash generation potential and as disclosed earlier this month, we repurchased 9.2 million shares from Brait and its affiliate for $125 million.

I will now address the key strategic trends in our business before handing over to Herman, who will discuss our financial results and fiscal 2010 guidance.

Starting with our South African pension and welfare business, effective April 1, 2009, we entered into a new one-year contract with SASSA. Under the terms of the new contract, we granted SASSA a concession on price in exchange for the elimination of our pre-funding requirement. In addition, we have moved to a standardized pricing formula, earning a flat fee per beneficiary paid versus different pricing methodologies in each of our provinces previously. The net financial impact of the changes in our contract is negligible to the bottom line, as the modest reduction in our associated revenue and operating profit is offset by higher interest income and the lower share count.

During the fourth quarter of 2009, we were still able to grow our core pension and welfare revenue into the merchant acquiring by over 10% year over year on a constant currency basis.

Similarly, during the fourth quarter, we kept the Transaction-Based Activities' operating margin, flat year over year at 59%, despite incurring one month of pre-funding costs, which was offset by the continued migration of our pensioners to our merchant acquiring network.

Looking forward, we are confident that we will remain an integral supplier of social welfare grants in South Africa despite the short-term nature of the contracts governing our pension and welfare business for the past several years.

The new administration in South Africa has publicly communicated two key initiatives to the public. First, to continue widening the social welfare net as a tool to alleviate poverty; and second, improved efficiencies in the distribution of social grants, both of which we can help government deliver.

Over the next 12 months, SASSA is expected to issue a new tender, but we believe our current contract expiring March 31, 2010, is likely to be expanded even further potential delays.

To conclude on our pension and welfare business, in fiscal 2010, we expect to generate modest revenue growth in the segment while earning growth should be greatly driven by the expected increase in the number of beneficiaries on welfare, as well as continued migration to our merchant infrastructure. Longer term, we are poised to benefit from government's continued efforts to widen the welfare net and assist its efforts to improve efficiency by leveraging our technology platform on a national basis.

Moving to our other South African initiatives, EasyPay continues to gain share in the merchant processing industry, while driving greater efficiencies of scale, and therefore, profitability. We process roughly 60% of retail transactions in the country. With the acquisition of RMT, one of the three major prepaid electricity providers in the Cape Town area during the fourth quarter of 2009, we are able to offer additional value-added services such as bill payments, insurance, loans, pre-paid utilities any time and the like, driving a higher revenue and profitability going forward. We now have over 300 bill issuers, including all of the largest utility companies on our network. And given our significant distribution base and breadth of products, we would expect further growth and penetration over the next few years, specifically targeting the many smaller benefit issuers in South Africa.

The mandatory upgrade to EMV compliance in South Africa has resulted in an opportunity for us to replace the noncompliant point-of-sale devices with our new biometric UEPS-enabled devices, and we have engaged the largest retailers in this regard. The replacement cycle is expected to take between 24 and 36 months.

Our waste payment initiative is making steady progress. We now have all building blocks in place to make a large-scale marketing push into the marketplace, having received our MasterCard issuing certification during the fourth quarter of 2009. We are currently in the process of enrolling all 30,000 employees for South Africa's largest security card company, and further business development efforts are underway to sign additional corporate customers. We are currently in the process of scaling up our business development team in order to pursue this market opportunity more aggressively. To address this market segment, we are targeting large trade unions, payroll companies, micro lenders and large individual corporate customers.

The final leg of our strategic plan relates to international expansion. And new technologies, starting with our existing projects, our UEPS team has delivered in excess of 1.1 million cards in Iraq out of 1.5 million cards ordered to date. And our local partners have thus far enrolled in excess of 600,000 welfare recipients. We expect Iraq to contribute to our financial results in fiscal 2010. And with the Iraqi government indicating the need for additional cards, ATMs, and point-of-sale terminals, we are very optimistic about the prospects in this country.

Our adoption rates in Ghana continue to surpass our expectations with almost 3 million cards having been delivered and 40 banks already adopting the system. Ghana has issued opportunity 350 cards thus far, but both government and financial institutions are focusing on building up the infrastructure and access points before they take up a more aggressive card issuing push.

In addition to our recurring maintenance and license fees and additional hardware orders with the Central Bank, we are currently exploring incremental opportunities with local partners to pursue transaction-based projects, focusing on specific applications, such as mobile banking, prepaid utilities and bill payments, giving us an EasyPay equivalent network in that country.

Namibia and Botswana have developed -- are deploying Phase II expansion and in Nigeria, we have finally recommenced discussions with additional participants. In Malawi, we have now issued an amount of 600,000 cards, most of which have been used in the WPS environment.

We are also pleased with the progress being made by our BGS acquisition, both in terms of restructuring the business model towards more of a transaction bias and in terms of pursuing new business development opportunities. We expect the transition to a transaction model to take another 12 to 24 months.

We have successfully completed our initial pilot with Sberbank in Erzurum province of Russia, where we issued over 70,000 cards. And we are able to demonstrate the full breadth and depth of our technology, which included transportation, as well as payment, as well as biometric identification.

Sberbank, subsequently asked us to expand the pilot to additional provinces, and we are separately in preliminary discussions with them to set up a joint venture to address Russia's desire to create a national payment system. Given the sudden scope of this project, however, such negotiation and implementation could take time. Outside of Russia, BGS continues to actively pursue new projects in some of its CIS states, as well as other geographies.

Looking ahead to our prospects in other geographies, our new corporate structure allows focused and dedicated teams to pursue multiple opportunities within their targeted geographies. We manage our prospects using a portfolio approach with some countries at early stages of discussion and others at more advanced stages. We have over a dozen prospects in the portfolio, and we would expect to convert at least one or two of these over the next 12 to 18 months.

Finally, in terms of new technologies, our VCC solution completed proof of concept with live demonstration taking place in the fourth quarter of 2009. We have a pipeline of opportunities which we are pursuing in some developed markets and remain cautiously optimistic about our prospects over the next few quarters.

Similarly, we have completed functionality of UEPS in a mobile environment and are actively pursuing potential applications with our existing and potential customers in multiple geographies.

In summary, we are very pleased with the performance of the group in fiscal 2009 and we are well-positioned to sustain long-term growth given our pipeline of opportunities. And with that, let me turn it over to Herman. Herman, over to you.

Thank you, Serge. I will discuss the key results and trends for the fourth quarter of 2009 compared to the fourth quarter of 2008. We have also updated the frequently asked section we historically put in our press release but now can be found on our website, www.Net1.com.

Again, my discussion will be based on our results on a constant currency basis, as this provides the best indicator of the group's actual operating performance.

In order to review our resulting US dollars and in US GAAP, please refer to our Form 10-K and our press release filed yesterday evening.

For Q4 2009, our average rand/dollar exchange rate was 6% weaker at ZAR8.26 compared to ZAR7.80 for Q4 of 2008 but an improvement from ZAR9.96 in Q3 of 2009. Over the past few months, the rand has continued to strengthen and is currently trading below ZAR8 to the dollar. Any fluctuation in the Rand obviously influences the dollar equivalent results of our operations, which is why we provide you with constant currency information in our press release as a clearer indicator of our operating drivers.

I am pleased to report another quarter that reflects solid fundamentals of our core business. Apart from the currency depreciation, there were a number of factors that had a significant bearing on the comparability of our year-over-year results. Such factors include adverse currency; lower tax rate last year; contribution from BGS in 2009, which was not part of the group in 2008; increased intangible amortization expenses related to BGS and RMT acquisitions; high margin contributions from Ghana in 2008; and greater stock compensation expenses.

We use a non-GAAP measure, called fundamental earnings-per-share, which eliminates some of these one-off items that impact year-over-year comparisons. We typically exclude the effects of irregular tax changes; amortization of intangibles; stock compensation charges; and unusual non-operating or non-cash flow items when we calculate this measure.

On a consolidated basis for the fourth quarter 2009 and full year 2009, we reported revenue of $62 million and $247 million, an increase of 5% and 19%, respectively, in constant currency. Similarly, fundamental EPS was $0.58 and $1.47, respectively, in the fourth quarter and full year of 2009, representing constant currency decline of 1% and growth of 16%, respectively.

We measure the Group's profitability by looking at operating income and margin by segment. On a consolidated basis, operating margin, adjusting for one-time items and intangible amortization, was 41% during the fourth quarter, a decline from 46% last year, primarily due to lower margins in our hardware and software segment.

Let me now spend a few minutes on our segments. Transaction-Based Activities posted revenue of $39 million during Q4 of 2009, a growth of 9% in local currency. Our core welfare business, including merchant acquiring, grew 11% year over year while the number of EasyPay transactions processed increased 10% to $147 million.

Segment operating income grew 12% from Q4 in 2008, while operating margin improved 90 basis points to 59%. Growth in revenue and profitability was driven by higher pricing on our welfare contracts, continued adoption of our merchant acquiring network and greater contribution of value-added services at EasyPay.

We posted an improvement in segment profitability despite incurring pre-funding costs during the month of April.

Key metrics driving our welfare business during the fourth quarter include, first, the number of beneficiaries paid, which was 3.8% lower compared to the fourth quarter of 2008 and in line with our expectations following our new contract with SASSA during this quarter. As a reminder, we are now contracted to a guaranteed minimum number of beneficiaries paid, thereby limiting any downward pressure on revenue due to a reduction of beneficiaries serviced.

Second, the price concession afforded SASSA, and third, continued strong performance of our merchant acquiring network. In the fourth quarter, we processed a total of ZAR2.9 billion through our network on a completed pay cycle basis, representing 51% year-over-year growth. In addition, the productivity of our 4,427 installed terminals improved to 1,076 transactions processed per point-of-sale device during a completed pay cycle compared to 936 transactions during the fourth quarter of 2008.

While Serge discussed the general mechanics of our new SASSA contract earlier, I want to add one further clarification on the new pricing arrangement in the contract. Our previous contracts included a component associated with the cost of pre-funding in the price, which was passed on to government. Under the new terms, the price concession granted to SASSA largely represents the cost of pre-funding, which is no longer required to be done by us. This is the primary reason why we expect our current contract to be neutral to the bottom line.

In the fourth quarter of 2009, EasyPay processed $147 million transactions with an approximate value of ZAR52 billion, an increase of 11% compared to 153 million transactions worth ZAR51 billion processed a year ago. Growth in the number of transactions was lower than in each of the previous three quarters, primarily as a result of slower retail spending due to the recessionary environment, but offset by growth in our value-added transactions.

South Africa has one of the largest prepaid mobile and utility markets in the world, and we believe through our integrated EasyPay offering, we can generate additional revenue streams from the provision switching services to retailers and other sellers of prepaid -- Eskom in electricity.

The average fee per transaction during the fourth quarter of 2009 was 21 South African cents, consistent with our prior-year period. We expect the average fee per transaction to remain consistent during the first quarter of 2010.

EasyPay operating margins continued to improve as the efficiencies of our new operating platforms and expense management systems bear fruit, and as we continue to sign up more [bold] payment issuers and other value-added service providers.

EasyPay's operating margin improved to 45% during the fourth quarter of 2009 compared to 33% in the fourth quarter of 2008, mainly due to higher volumes of value-added services processed during the quarter and economies of scale. Excluding the amortization of intangibles, EasyPay margin improved 11 percentage points to 55% when compared to last year.

Our Smart Card Accounts segment posted revenue of $8 million in the fourth quarter of 2009, a 4% year-over-year decline in constant currency. The total number of active Smart Card Accounts were 3.9 million, a decrease of 3.8% from 4 million last year. Operating margins for the second remain consistent at 45%.

Turning to our Financial Services segment, revenue in the fourth quarter of 2009 declined 53% year over year in constant currency to $1 million, primarily reflecting the sale of our traditional marketing business to Finbond in March 2009. We have signed an agreement with Finbond under which we can install our UEPS technology and point-of-sale devices for the marketing of prepaid electricity, airtime and bill payments at all of their 178 branches. We completed this installation over the first couple of months, and now have the ability to leverage the branch and broker network to market our wage payment and EasyPay bill payment solutions. We recorded a $1.2 million gain on the sale of this business.

Segment operating margin, excluding such a gain for the fourth quarter of 2009, improved to 50% from 27% in the fourth quarter of 2008, driven by the elimination of the low-margin traditional micro lending business.

Our final operating segment is Hardware and Software, which traditionally includes BGS and revenues that occur on a an irregular once-off basis and can make it difficult to predict sales from year to year. Segment revenue in the fourth quarter of 2009 was $14 million, representing 7% year-over-year growth in constant currency. Revenue growth was driven by a $6 million contribution from BGS but offset by the absence of over $3 million of high-margin revenue from our Ghana contact in the fourth quarter of 2008.

The ever-changing contributor to the segment cause volatility in operating margin from quarter to quarter. Operating margin for the segment decreased to minus 20% from 15% in the fourth quarter of 2008, mainly due to seasonality in BGS profitability, amortization of intangibles, the absence of high-margin contributions from Ghana and pressure on certain hardware commodity products. Excluding the amortization of intangibles, segment operating profit declined to 3% in the fourth quarter of 2009 from 21% a year ago.

Moving to our equity accounted investments, our JVs in Namibia, Botswana, Columbia, and Vietnam, continued to grow in line with our expectations and are beginning to deliver on our Phase II expansion plans.

Loss from equity accounted investments narrowed to $77,000 in the fourth quarter of 2009 from $235,000 a year earlier. Historically, our cash flow was subject to fluctuations as a result of the timing of commencement of our monthly welfare payment activities and pre-funding requirements. During the fourth quarter of 2009, our cash flow generation improved significantly with the elimination of our pre-funding requirement effective from May 1st, 2009. We continue to provide one to two days pre-funding for the merchants who assist us with the distribution of grants through the merchant acquiring network.

During the fourth quarter of 2009, we generated cash from operating activities of $89 million and incurred capital expenditures of $1 million.

As of June 30, 2009, we had $221 million of cash and cash equivalents on our balance sheet. The business remains very cash generative, and I remain comfortable that we have sufficient liquidity between our cash and short-term facilities to fund our working capital requirements.

Earlier this month, we announced the repurchase of 9.2 million shares owned by Brait and its affiliates for $125 million. Following this transaction, our cash balances stood at $96 million. In addition to the Brait repurchase during the fourth quarter of 2009, we bought back approximately $16 million of our common stock and our previously authorized share repurchase program. Our fully distributed shared count for the fourth quarter of 2009 was 55 million shares. Following the share repurchases, we expect our shared count for fiscal 2010 to be approximately [36.5] million shares.

In conclusion, we are excited about the future opportunities and prospects for our business, both in South Africa and internationally. To that effect, in fiscal 2010, we expect to grow our constant currency fundamental earnings-per-share by at least 20%, which includes the contribution of a lower share count as a result of the Brait repurchase. With that, operator, please open the call for Q&A.

(Operator Instructions). Dave Koning, Baird.

Hey, guys. Great job again. I guess one of the biggest positive surprises to us in the quarter was that sequentially, it looked like revenue per grant was actually up a little bit despite the new contract. And it looks like about ZAR25 per grant during Q4. Is that amount sustainable through fiscal 2010?

I think it is probably sustainable. In the fourth quarter, there were a number of final adjustments that were made also in accordance with the previous contracts. You recall that the new contract really commenced on April 1. But that some of the final adjustments that were due to us in accordance with our previous five contracts were processed and made, but those were in no way significant enough to have made a significant difference on the average revenue per grant for the quarter. So going forward, I think what you've seen for the fourth quarter is probably in line with what we expect during the next four quarters of 2010.

Great. And do you have any comments that you could share just on the minimum number of beneficiaries that you get paid on? Are you pretty close right now to that minimum beneficiary number, or could it actually go down?

It could go down somewhat. We're above that minimum right now. We actually set the minimum number when we negotiated with SASSA at the level that the beneficiaries were in December 2008. So, we use that as a baseline number to determine going forward the level beyond which it cannot drop.

Okay, good. So in other words, it couldn't possibly go down that much?

Not that much, no.

Okay. And then just on the guidance, just to make sure we get the math right, if we started the $1.47 that you did in fiscal '09, if we grow that 20%, we get to ballpark $1.77. But then with the rand where it is today, it's moved about 10% relative to '09. It seems that that $1.77 could go to $1.90, $1.95. Is that kind of the math that we should be thinking of?

Well, you know for us, we like to think of our guidance in constant currency terms. So I would not want to include any currency appreciation or depreciation effect.

Obviously right now, with the rand having strengthened over 10% in the last quarter or so, your math would make sense. But of course, anything is possible, and the opposite could happen as it did last year. So for us, from an official point of view, we like to stick to the constant currency guidance.

Okay, that's fair. And then just the last thing, on the tax rate, in '09, it ended up averaging about 33%. Are you expecting it to go back to kind of the 34.5% rate for fiscal 2010?

Yes, I do. There are a couple of taxation effects by the way as they relate to the Brait repurchase. As a result of the structure of the transaction, and you may recall that we used our local currency and we did the share trade on the JSE, there may be some dividend implications of having made the transaction in the manner that we did in order to utilize our rand reserve that will become evident during the course of the next year.

Obviously, we have to calculate all of our foreign tax credits. These are fairly complex calculations that our tax advisers will obviously advise us on. But as a general rule of thumb, there is no reason, barring any significant dividend differences, why our tax rate should deviate from the fully distributed rate of 34.55%.

All right, great. Thank you. Good job.

Tim Wojays, Robert W. Baird.

Hi, guys. Nice quarter. Just I guess just with EasyPay in terms of transaction growth, it's been kind of 10% to 15% the last four quarters. With the retail environment, do you think that that could stay in the double digits in fiscal 2010?

The number of transactions that EasyPay -- obviously, we've actually had what I think in my view is quite a weak quarter simply because in South Africa, it's the middle of the winter season. Our first quarter is typically strong depending on when the Easter holidays are. We normally have a pretty strong third quarter, so sort of January to March quarter. And obviously the second quarter being December when we have our farm holidays, those are traditionally the much stronger quarters.

So looking forward, I think that Q1 of 2010 will be fairly slow in my view, given that South Africa is also in the middle of the recessionary cycle right now. But it will probably pick up again significantly towards the end of the year, we would hope. But we are not really that focused right now on growing the number of transactions that we process through EasyPay. That number will continue to grow as debit and credit card adoption increases amongst the general population. For us, it's more important right now to focus on the value-added services that we can process through the EasyPay switch, simply because that's the high-margin business that we would like to pursue.

Can margins continue -- they're about 55% ex the amortization this quarter. Can those be somewhere in the ballpark of 60% to 65% over time?

Over time, yes, we would aim to get to those sort of levels. But I think it will take us another 12 to 24 months to get there.

Okay. And then on BGS, can you just remind us of the Q1 seasonality? I know it's a seasonally weak quarter. And should BGS be profitable in fiscal 2010? I know the amortization is large, but there was a GAAP loss I guess in '09. So just I guess expectations for Q1 of BDS and then just the profitability in fiscal 2010.

Q1 in BGS has traditionally been quite weak. That corresponds with the European holiday season. So a lot of our customers and clients who traditionally would buy from us are not that active during the first quarter of the fiscal year.

Moving into the second quarter, that's typically our strongest quarter in BGS, simply because that's the quarter during which our Russian customers typically do most of their procurement as they move towards the end of their budget and fiscal years. So I think that Q1 will be pretty slow for us, pretty flat. And -- but excluding the effect of the amortization of the intangibles, we would still expect BGS on a full-year basis to be profitable.

Okay, that's helpful. And then finally, you guys still have $2.00 per share of cash. Any thoughts on -- any other deployment there? Are you just comfortable with having that on the balance sheet right now?

At this point in time, we still staring at the blank left by the $165 million share repurchases over the last six months. So, but there's always a use of cash for us, whether it's for our M&A strategy; we obviously like to have a bit of a warchest in place. Or, whether we decide to recommence our share repurchase program when it makes sense to do so. There is a method in the madness in keeping that amount of cash on the balance sheet.

Sounds good. Great job, guys.

Sean Cain, Morgan Keegan.

Thank you. I have a couple questions. First of all, what do you see, including all components for sales in BGS? And then secondly, can you give us an update on your card not present initiative with MasterCard?

On the sale of BGS, I think in the next 12 months, we will every transform the business from being one that is primarily focused on the sale of hardware and software licenses into something that is similar to the rest of the Net1 group. In other words, a transaction-focused, a transaction-based activity.

The contribution made by the sales of hardware and software will continue to be important to us, obviously, as we transform it. But having said that, we are not going to put all of our efforts and energies into the sales of a segment that we want to transform. So there could be a weakening in terms of the revenue or the sales numbers that we see reported from BGS as we transform into the financial or the transaction-based processing side.

The margins may differ materially as well over the next year as we transform from the one business model to the other. But I think it's important to note that the existing customer base that BGS services obviously remains in place. They have a number of customers in a number of countries, and those remain loyal customers. They are continuously exploring new opportunities in other geographies, which obviously the sales cycles in these territories can't be long, so it's difficult for us to put any specific -- putting it in the projection.

But all new projects that we are evaluating right now, whether it's from the BGS side or whether it's from the other businesses within it, one focusing on new geographies point of view, those are all transaction-based initiatives, where we would obviously like to earn a transaction fee based on the number of transactions processed rather than on the sale of hardware and software.

Okay. And can you give us a quick update on your card-not-present with MasterCard initiative?

Yes, well, if we now focus on the VCC a little bit, the first thing we have to clarify is that the MasterCard relationship is based on the fact that we are -- we cannot issue MasterCard-branded credit cards. So MasterCard themselves have nothing to do with VCC. So I don't want to sort of imply or hope we have not implied that we have any sort of agreement with MasterCard with the VCC.

What we use the MasterCard credit card for is because we require a MasterCard issuing facility for us to be able to prove that VCC can work from anywhere in the world by routine card-not-present transactions through the Visa or the MasterCard networks without any changes being required.

On top of it, as you know, we also use the MasterCard in South Africa as part of our [green-road] initiative in order for us to be able to brand some of our cards with the MasterCard logo. But this is a different initiative to VCC.

Now going back to VCC, what's important to understand is that we have now made contact with numerous institutions, organizations in the US as well as in Mexico. We have been talking definitely to most of the large cellular phone providers in order for us to get a feel in terms of their own strategy vis-a-vis card or payments, let's call them, via cell phones rather than any other method.

We've also been talking to a number of the large card issuers to try to also understand are they believe that payments should be handled over cell phones.

Now, at this stage, without mentioning any sort of names, and we're talking about some organizations that they've got 20, 30, 40 million accounts, so we're talking about some large players, there is absolutely no doubt that we have had more than positive replies from about 80% of all the people that we have spoken to, vis-a-vis our VCC solution. They believe it is incredibly innovative.

They believe it is something that would be easily picked up by customers unlike many of the other technologies which they have been using at this point in time or even considering to use. And, therefore, we feel very confident that we are going to make a breakthrough in a very short term with at least one or two customers with a little bit of luck.

Obviously, these type of sales cycles take time for the simple reason that you have got to convince sometimes an issuing bank. You may have to convince a cell phone operator, and, of course, you need to be able to have a financial model that suits both of them.

But at this brand, we feel quite good about the fact that VCC is demonstrable, actually operates, that people like what they see, and candidly, between the US and of course I'm being keen on actually penetrating the US first and foremost, we know we will have some successes outside of the US as well. But at the moment we're really trying to see if we can't get a breakthrough in the United States itself and then focus, perhaps, on countries like Mexico and Europe.

Great. Thank you very much.

David Togut, First Manhattan Corp.

Thank you. Good afternoon, gentlemen. Herman, your guidance indicates that you expect meaningful contributions in fiscal '10 from new country implementation. Is that based on business you've already signed, or is it based -- and/or based on business you expect to sign in fiscal '10?

It's -- there's certainly business we expect to sign in fiscal 2010. There are a number of initiatives underway between Brenda and her team, the BGS team, and our other business units who are active internationally; as an example our VTU and our [sim] team.

Iraq obviously will become I think a much bigger contributor to the group's results in the next fiscal year. And that's going to be one of the drivers that will drive the sort of 20% guidance that we've given. And added to that, of course, the reduced share count as well as the increase in our activities in South Africa, we feel fairly comfortable that we can get to that 20% level.

But given the long sales cycles you have had on some of these international deals, is the 20% an extremely conservative number, or is there risk around timing of some of these new deal signings?

There always is a bit of risk, but we typically try to be as conservative as we can be. And bearing in mind that there is at least, as we said during the call, when we announced the Brait buyback, a 10% kicker in terms of the reduced share count. You know, for us, I don't think it's going to be too hard or we're not too reliant on having to absolutely sign a major new territory in order to achieve our target.

And then --

And David, just maybe to help you out a little bit because you've been with us for a very long time. I think it's important to note that Brenda's as well -- her initiatives in places like Iraq and Ghana I think have been vetted down extremely well. That doesn't mean that she is not actively involved right now in a number of other territories without naming any of them, but there are a number of territories that she's been technically in for quite a while and are certainly maturing very fast.

But she's recognized at the end of the day the potential of countries like Iraq, where today they are issuing in excess of 6.5 thousand cards a day, which does account for a substantial amount of cards to be issued in a very short space of time. And considering that that revenue model is based on transaction fees, whereby we are getting a percentage of the transaction fees that are being charged, plus, of course, the price of the money that we made out of the cards and the sales of terminals, etc., etc.; I think Brenda has realized and certainly to me as my full backing, that we should certainly vet down these incredible growth areas in order to get them into basically operational mode, where they can keep -- start spitting out cash the way that our cash payment systems in South Africa are spitting out cash. And really that's where we want to go to.

In the meantime, of course, whatever extra time they have, they are obviously putting down a board of activities or let's call it potential countries in which they can go into, some of which are fairly sizable. And of course, the idea would be to convert them into Ghana or Iraqi-type models.

So I think when you say are we being conservative and you mentioned 20 -- you did mention 10 that came out of simply the question that we have less shares. Therefore, in theory, the number determined put forward, all things being equal, should be conservative rather than aggressive. So like usual, we would be a little disappointed if we did not do a little bit better. But we know that with you guys out there, it's always better to be rather under than over.

And then Serge, on WPS, this has been in development for quite a while, and you now finally have the MasterCard license. When will this become material? Years ago, you talked about having I think 1.5 million accounts over a multi-year period. Is that still a reasonable objective?

Once again, I think you have put your finger on the whole thing. One of the things that candidly we have been, as you know, working on and getting was all -- to put all of our ducks in a row, to be able to do the job. And I don't think we are short of customers, and I don't think we are short of the opportunities. What we didn't have, we didn't have the banking license. We didn't have the certification from MasterCard. We didn't have the certification in [Tupaza], which is the South African, basically, banking regulatory processes.

And all of this, believe it or not, by hook or by crook, by intent or by simply anything else, took us quite a bit longer than we thought. And there is no doubt that the fact that that fact that the four South African banks here do run, for lack of a better word, a very, very close team. They don't particularly like it when other people are going to challenge their space.

We've broken through all of this, and now we are able to actually roll out. I think Herman did mention that we've already got a fairly large customer that is around 30,000 employees. And I know that that particular deal is done, and that is actually rolling out very, very, very fast.

Now we believe that those particular deals are going to come now fast and furious to us. We've been -- there are a lot of people that have been waiting for us to be able to do it. We did not want to actually launch anything on a large scale until we knew that we could support the initiatives.

You only get one shot at this, and if you don't do it properly from the beginning, you will end up with a bad reputation, and then you will end up by not getting any extra business. We believe we're pretty ready now to actually do this.

I don't want to upset you in any way, but you know that now there is also an EMV certification that we are also getting. So at the moment, we have been certified by MasterCard and a number of other players of course for our [Mextra] technology, which is all we need for now.

We are also now getting our EMV certification as well, because we know that sooner or later we're going to move across. But at least we now have a product that we can actually sell and deploy without any impediments. And that, to me, is the big starting piece.

The actual customers have always been there, and candidly, the South African portfolio has not changed. The people that were not banked last year or the year before are still not banked today. So it's an open market for us to really make big penetration.

Just finally, Serge, can you take us inside what SASSA is thinking at this point? Zuma has been in power now for a number of months. What's the likelihood that they might actually use your tech backbone and some of the grant administration technology over the next year or two?

Again, a good question. I know you've been following SASSA for quite a while, and you know that they hit a few new problems within SASSA, whereby they are to suspend the managing director, you know, our close friend, [Fasili Makuwani], as well as a number of these sort of chairmen or managing director stuff. So once again, they are going through a little bit of troubled water, whereby new people is coming into SASSA to sort of do a bit of care management and to try to unwind what has been happening under the sort of reign of Fasili. And that will take them in our view a good three to six months before they even actually get to a stage of being able to say this is where we are and that's the way we should go forward.

So what's upsetting to us is that we would have loved it for them to make a final decision and to say let's go for this thing and actually let's get it done, let's put in a new tender, let's put a tender out because that's the only way we are going to be able to grow this business. And let's see if we capture other provinces from other parties.

All that's happening to us at the moment is that all of these delays are simply regiving us what we've already got for another period of time, which, candidly, between you and me, could be unlimited. It could be the next year, two years, three years, four years, five years.

So we're just hoping that under the new Zuma government, the changes will be of such a nature whereby they will be positive and definitive direction in terms of what is it that SASSA wants to achieve.

Now we don't believe that those goals have changed. And therefore we do not believe for one second that we would not be the number one provider, either directly of technology or of payment services on behalf of SASSA or any new government entity that is going to be given the task of actually performing that.

So we are a little bit frustrated that we haven't been given the opportunity yet to take over the whole country. And certainly that is something that we would be welcoming, whereby if there was a process that could run from A to Z and actually being finished, we know we should come out better than where we are now.

In the meantime, we've got to simply keep on doing what we are doing and keep on making the sort of income that we've been making out of SASSA. We're not going to be able to create very big until we have the opportunity to take over more of the territories.

So if you fast forward to March of 2010, what sort of economics do you expect on another one-year renewal with SASSA?

Nothing is going to change, David. You are right. I mean obviously you've been thinking about this. The chances are that there will be another extension simply because of what has happened within SASSA. So these guys aren't going to be able to do anything in terms of providing, developing, even publishing a tender, let alone adjudicating and awarding anything in the next 12 months or 18 months. So in my view, there's no doubt there's going to be a further extension, very possibly for another 12 months, maybe even for longer. I hope it's not too much longer because otherwise it would keep us out of actually growing this business even faster, if we're actually being kept out of it by simply -- by then giving us another 12 months.

In terms of the economics, I don't believe the economies are going to change at all from now on until a new tender is out. And once a new tender is out, we know that our economical -- let's say the way that we have tendered in the past, is that certainly we will reduce our fees, but by definition, we would double the number of beneficiaries. So at the end of the day, we're not going to reduce the fees by half, but if we can double the beneficiaries, we have the capacity in the network. We would lend it by making substantially more money than what we are making now simply because we are the contractor that today has 9,000 points of service and 65% of the point of sales that can actually draw a picture and welfare through retail. So there is no one else that can actually do this job.

And every year that goes past, David, we actually become bigger and bigger in terms of infrastructure, not smaller and smaller. So it's actually making it even more and more difficult for any of our competitors if we really add any real ones to actually come into this market and compete simply because they don't have that infrastructure. And that's not only a question of having infrastructure through money. Signing up the largest retailers in the country is not something that happens over a couple of weeks or a couple of months.

So we feel pretty good that the economics will remain the same, and hopefully, hopefully, with a little bit of the new tender coming through, we might then be able to actually with a bit of luck to increase once and for all to get a bigger chunk of that market for ourselves.

Thank you very much.

(Operator Instructions). David Koning, Baird.

Just a follow-up on one of David's questions about the contribution from newer contracts. Is the best way to think about the 20% EPS growth this year, the 10% from share repurchase and then maybe half each of the rest, I guess 5% each from kind of the core business and then 5% from newer country wins? Is that maybe a simple way to think about the contribution?

Dave, it's Dhruv. I don't think we're going to go into more details than we've already provided. So I think we've said that 10% will come from the share buyback and then the balance will be a mix of contributions from the various sources.

That's fair enough. Thank you.

Thanks. Operator, we have time for one last question.

There are no further questions. Thank you.

Okay. Thank you for joining us on the call. A webcast should be -- a replay for the webcast should be available on our website, www.Net1.com. Thank you.

Thank you. On behalf of Net1, that concludes today's call. You may now disconnect your line.