Lesaka Technologies Inc (LSAK) 2010 Q1 法說會逐字稿

Good afternoon, and welcome to the Net1 conference. All participants are now in listen-only mode, and there will be an opportunity for you to ask questions after today's presentation. (Operator Instructions). Please also note that this conference is being recorded.

I would now like to hand the conference over to Dhruv Chopra. Please go ahead, sir.

Thank you, Dylan. Good morning and good afternoon to our investors around the world. Thank you for joining us for the first quarter 2010 earnings call. On the call with me today are Dr. Serge Belamant, our Chairman and CEO, and Herman Kotze, our CFO. Both our press release and our Form 10-Q 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-Q regarding the risks and uncertainties associated with forward-looking statements.

In addition, during this call, we will be making certain non-GAAP financial measures, and we will have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. We will discuss our results in South African rand, which is a non-GAAP measure.

We analyze our results of operations in our 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. 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 I believe another very strong quarter, which was driven primarily by our core Transaction business, which is really our focus area. We continued to execute on our long-term strategy by making progress on expansion, both within and outside of South Africa, and by rolling out new and expanding existing products and services.

For the first quarter of 2010, we reported revenues of $65 million, year-over-year decline of 3% in constant currency. During the first quarter of last year we recognized $6 million of hardware and software revenues from Ghana and Nedbank, which adversely affected our year-over-year comparisons.

Fundamental EPS for the first quarter 2010 was $0.45, an increase of 15% in constant currency. Movements in the South African rand versus the US dollar had negligible impact on our first quarter 2010 results.

As of September 30, 2009, we had approximately $139 million of cash on the balance sheet, having generated $37 million in operating cash flow during the quarter. We remain, and I specifically remain, very comfortable with our cash and cash generation potential.

I will now address the key strategic trends in our business before handing over to Herman, who will discuss our financial results in more detail.

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 moved to a standardized pricing formula, earning a flat fee per beneficiary paid versus different pricing methodologies in each of our provinces previously while also eliminating our obligation to pre-fund welfare grant in two of our provinces. By the way, those two were the only two in which we were pre-funding.

During the first quarter of 2010, we grew our core pension and welfare revenue, including merchant acquiring, by 12% year-over-year on a constant currency basis. The improvement in our operating results were driven by the inflation adjusted increase in our average revenue per beneficiary when compared to a year ago, modest contributions from ad hoc grant distributors on behalf of SASSA, and continued migrations of beneficiaries to our merchant acquiring platform. Such factors also contributed to the 600 basis point improvement in Transaction-based Activities operating margin, which reached 61% in quarter one 2010, excluding the amortization of intangibles.

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 last several years.

The new administration in South Africa has publicly communicated two key initiatives to the public, and taken step in that direction with a medium-term budget released last week. First, to continue widening the social welfare net as a tool to alleviate poverty, and second, improve efficiencies in the distribution of social grants, both of which we can help government to deliver.

Over the next 12 months, SASSA is expected to issue the new tender, as they have publicized. But we believe our current contract, expiring March 31, 2010, is likely to be extended for a minimum of a further 12 months.

To conclude on our Pension and Welfare business, in fiscal 2010, we expect to generate modest revenue growth in the segment while earnings growth should be greater driven by the expanding welfare net, 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 South African initiatives, EasyPay continues to gain share in the merchant processing industry, while driving greater efficiencies of scale, and therefore, profitability. We process over 60% of retail transactions in the country. Together with the acquisition of RMT, one of the three major prepaid electricity providers in the Cape Town area during quarter four 2009, we are able to offer additional value-added services such as bill payment, insurance, loans, prepaid utilities, and air time, driving higher revenues and profitability going forward.

Despite retail transaction volume being under pressure because of the global recession, EasyPay volumes grew 13% year-over-year during the first quarter of 2010, fuelled by further adoption of our value-added services.

We continue to add additional bill issuers 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 bill issuers in South Africa.

The mandatory upgrade to EMV compliance in South Africa has resulted in an opportunity for us to replace the non-compliant 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.

In order to grow our wage payment initiative, we expect to appoint a new business unit head responsible for growing the business in the very near future, and are also looking to further expand and train our business development teams. Our large corporate clients have employees throughout South Africa, and we are currently in the process of completing the enrolment. We continue to have constructive business development discussions with a number of small and mid-sized organizations, including some our universities who are looking to implement a multifunction system for all their students, staff members, and specific faculty requirements.

The final leg of our strategic plan relates to international expansion and new technologies. Starting with our existing projects, our new UETS team has delivered 1.45 million cards to Iraq. And our local partners have, to date, enrolled over 800,000 pension, welfare, and wage recipients. More than 5,000 new customers are enrolled every single day. Our partners have ordered a further 200 enrolment stations; they have been mandated to increase these enrolments to 10,000 per day in order to catch up with the increasing backlog.

Once enrolled, payments commence within two to three months of registration. We are currently paid $0.11 per funds load, and $0.11 per cashback transaction. We therefore recognize modest Transaction revenues from Iraq during quarter one 2010, but expect this contribution to grow exponentially as additional card holders are enrolled, and payments are effected.

In addition, our partners have now activated a UEPS functionality at merchant stores where sales, money transfer, bill payment and cash advances can now take place. As a result, we are anticipating imminent orders for a further 1,000 point of sale devices, and a further 100 ATMs. More importantly, this new development will increase our transaction fee per cardholder, per month, from $0.22 to around the $0.40 mark over time.

Our adoption rate in Ghana continue to surpass our expectations with more than 2 million cards delivered and 45 banks already participating in the system. Ghana has issued over 385,000 cards to date, but both government and financial institutions are still focusing on building up an NPS, a National Payment System, infrastructure and access points before they commence an aggressive card issuing push.

In 2010, the Central Bank expects 160 small community banks to join the network, likely resulting in an accelerated pace of card issuance. In addition to our recurring maintenance and license fees and additional hardware orders with the Central Bank, we anticipate the rollout of our mobile UEPS technology in Ghana within the next three to six months, generating incremental and recurring transaction fees for the Company.

Financial model includes a monthly fee per customer, per month, of at least $0.50, as well as fees to be generated from all value-added services sold through this new medium. These value-added services will include air time, bill payment, and money transfers.

Namibia has launched their GIPF pilot with an initial 30,000 cards. GIPF is a Namibian Government initiative for the payment of government pensions. We expect the number of cards to exceed 100,000 in the very short term.

Botswana, UETS is deploying its Phase II expansion program through a company called [CARF] to the African Savings Company, which is a JV which includes the largest life insurance and the largest retailer in Botswana, namely Botswana Life and Choppies respectively. A pilot comprising of a further 30,000 cards with an embedded insurance product, as well as a [double UPS] system, will be launched imminently.

In Malawi, more than 500,000 cards have been issued by a number of banks. This project was recently reevaluated by the Central Bank and the financial communities, and compared to other systems such as those sold by Visa and MasterCard, it appears that, as the result of our ability to interoperate with these formal systems, but more importantly our offline functionality and low cost of processing, this has reignited the UEPS as a ubiquitous solution for Malawi.

The UETS as a whole is also very upbeat with a development in new territories, which is building very, very strong momentum. BGS continues to make good progress, but in terms of restructuring the business model towards a transactions 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 during fiscal 2009, and are currently rolling out a number of other pilots in additional provinces. We are also assisting Sberbank through the development phase of what they intend to propose to government, as Russia's national payment system. Given the size and scope of this project however, such negotiations can be expected, and implementation could take some 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 our portfolio, and during quarter one 2010 we made further progress on our business development effort. We continue to expect converting at least one or two of these over the next six to 12 months.

Finally, in terms of new technologies, our virtual card solution completed proof of concept, with live demonstrations in quarter four of 2009. We have engaged in dialogs with a number of interested partners in some developed market, and remain cautiously optimistic about our prospect over the next few quarters.

In summary, we are very pleased with the performance of the Group during the first quarter of fiscal 2010, as we are well positioned to sustain long-term growth, given our pipeline of opportunities.

With that, let me turn it over to Herman for more detail on the financials. Herman, over to you.

Thank you, Serge. I will discuss the key results and trends for the first quarter of 2010, compared to the first quarter of 2009. We have also updated the frequently asked questions and added a new metrics table on our website, www.net1.com.

Again, my discussion will be based on our results in South African rand, as this provides the best indicator of the Group's actual operating performance. In order to review our results in US dollars and in US GAAP, please review our Form 10-Q and our press release, filed yesterday evening.

For the first quarter of 2010, our average rand/dollar exchange rate was relatively consistent with the year ago period, at $7.82 to the rand. 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. During the first quarter of 2010, currency was largely neutral on a year-over-year basis. However, there were a few items that did impact the comparability between periods. Such factors include $6.2 million of hardware and software revenue to Ghana and Nedbank; and a before tax $6.1 million foreign exchange gain in Q1 of 2009; lower tax rate last year; and increased intangible amortization expenses related to BGS and RMT acquisitions.

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 first quarter of 2010 we reported revenue of $65 million, a decline of 3% in constant currency. Similarly, fundamental earnings per share of $0.45 in the first quarter of 2010, grew 15% in constant currency. 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, improved 200 basis points, to 45% during the first quarter, primarily due to stronger profitability in Transaction-based Activities and Financial services, but partially offset by lower margins in our Hardware and Software segment.

Let me now spend a few minutes on our segments. Transaction-based Activities posted revenue of $45 million during Q1 of 2010. up 12% in local currency. Our core Welfare business, including Merchant Acquiring, grew 12% year-over-year, while the number of EasyPay transactions processed increased 13% to 153 million. In constant currency, segment operating income grew 25% from the first quarter of 2009, while operating margin improved 600 basis points to 61%.

Growth in revenue and profitability was driven by higher pricing on our Welfare contracts, compared to a year ago; a modest benefit from certain ad hoc drought relief and death benefit grants distributed on behalf of SASSA, continued adoption of our Merchant Acquiring network, and greater contribution of value-added services at EasyPay and RMT.

Key metrics driving our Welfare business during Q1 of 2010 include first, the number of beneficiaries paid, which was 6% lower year-over-year, and 2% sequentially, but in line with our expectations, given SASSA's continued focus on the elimination of fraudulent beneficiaries and a temporary suspension of certain types of grants. 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, higher pricing compared to a year ago, but inclusive of the price concession afforded to SASSA at the start of our current contract on April 1, 2009. And third, continued strong performance at our Merchant Acquiring network.

In the first quarter, we processed a total of ZAR2.9 billion through the network, on a completed pay cycle basis, representing 25% year-over-year growth. In addition, the productivity of our 4,528 installed terminals improved to 1,044 transactions processed per POS device during a completed pay cycle, compared to 983 during Q1 of 2009, despite adding another 100 POS terminals to our network in Q1 of 2010.

In Q1 of 2010, EasyPay processed 153 million transactions, with an approximate value of ZAR53 billion, an increase of 13% compared to 135 million transactions, worth ZAR52 billion processed a year ago. While retail spending continues to be pressured by the current recessionary environment, our volumes accelerated from Q4 2009, due to the increasing adoption of our value-added services.

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 of switching services to retailers and other sellers of prepaid air time and electricity. The average fee per transaction during Q1 of 2010 was ZAR0.22, consistent with our prior year period.

During Q1 of 2010, EasyPay operating margin, excluding amortization of intangibles, improved 70 basis points to 53%, as the efficiencies of our new operating platforms and expense management systems bear fruit, as we continued to sign up more bill payment issuers and other value-added service providers.

Our Smart Card account segment posted revenue of $8 million in Q1 2010, a 6% year-over-year decline in constant currency. The total number of active Smart Card accounts was 3.8 million, a decrease of 6% from last year. Operating margin for the segment remained consistent, at 45%.

Turning to our Financial Services segment. Revenue in Q1 of 2010 declined 56% year-over-year in constant currency to $1 million, principally due to the sale of our Traditional Microlending business to Finbond in March 2009. We have signed an agreement with Finbond under which we can install our UEPS technology and POS devices for the marketing of prepaid electricity, air time and bill payments at all of their 178 branches.

We completed this installation over the past 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.

Segment operating margin for Q1 2010 improved to 67% from 18% in Q1 2009, driven by the elimination of the low margin Traditional Microlending business and higher underlying profitability in our UEPS based lending activities.

Our final operating segment is Hardware and Software, which traditionally includes BGS and revenues that occur on an irregular once-off basis, which makes it difficult to predict sales from year-to-year. Segment revenue in Q1 2010 was $12 million, representing a 32% year-over-year decline in constant currency. The decrease was primarily due to cyclical pressure on certain commodity hardware products we sell, non-recurring revenues from Ghana and Nedbank during Q1 of 2009, and lower revenues from BGS.

During Q1 of 2009, Ghana and Nedbank had contributed $6 million to segment revenue. The ever changing contributors to the segment caused volatility in operating margin from quarter-to-quarter. Operating margin for the segment decreased to 15% from 24% in Q1 2009, 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 amortization of intangibles, segment operating margin declined to 7% in Q1 of 2010, from 24% a year ago.

Moving to our equity accounted investments, our JVs in Namibia, Botswana, Colombia 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 $111,000 in Q1 2010, from $310,000 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 Q1 of 2010, the elimination of our pre-funding requirement fuelled a significant improvement in our cash flow generation. We continued 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 Q1 of 2010, we generated cash from operating activities of $57 million and include capital expenditures of $600,000.

As at September 30, 2009 we had $139 million of cash and 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.

During Q1 of 2010, we also repurchased 9.2 million shares owned by Brait and its affiliates, for $125 million. Our fully distributed share count for Q1 of 2010 was 48.9 million shares, down from 58.4 million shares a year ago. We expect our weighted share count for Q2 of 2010 to be approximately 45.4 million shares, and our weighted share count for fiscal 2010 to be approximately 46.5 million shares.

In conclusion, we are excited about the future opportunities and prospects for our business, both in South Africa and internationally. For fiscal 2010, we reiterate our guidance for at least 20% constant currency fundamental earnings per share growth.

With that, operator, please open the call for Q&A.

Thank you very much, sir. (Operator Instructions) Our first question comes from Dave Koning of Bairds. Please go ahead.

Yes, thanks, guys. A nice quarter again.

Thanks, David.

Yes. I guess first of all, I just want to ask about -- the number of beneficiaries has come down sequentially the last couple of quarters, as the government's purged some fraudulent accounts. It sounds like now you're expecting though, with the government discussions in the last couple of weeks, that there will be the wider net and more beneficiaries will be added. Is it fair to assume that beneficiaries start to pick up again sequentially next quarter and over the next few quarters?

Dave, not necessarily, unfortunately. One of the key things that you have to take into account is the fact that we now get paid on the same basis in all the provinces, which is on a per beneficiary paid basis. And what is invariably the case in a lot of these -- with a lot of these child support grants, is that one person, of course, receives more than one grant because they have more than one child to look after.

So with the expansion of the net to include 16, 17 and 18 year olds, which by the way will be phased in over a three-year period, you may find that the beneficiary that gets paid that grant is the same one that we had before. And as a result, the number of beneficiaries that we will be paying will not increase. The number of grants that we pay to those beneficiaries will increase.

But considering that our pricing formula is now based on the number of beneficiaries paid, it may not have a linear relationship. In other words, if there is a another 2 million people that receive child support grants, it does not imply, necessarily, that we will have 2 million additional beneficiaries that we will be able to invoice for. So although there will be a positive effect, it will not be a direct linear relationship to the number of people that, over the next three years, we'll see added to the system.

Great. Okay, that's helpful. Thank you. And then, on the BGS acquisition, I know that it's pretty lumpy and you're going through the transition to the more transactional-based model there. Is that something that, once we get to the new transactionals in recurring space models, that the margins will be better? And will you get to GAAP margin profit over the next 12 to 18 months, that you won't have these quarters with the GAAP losses?

I think, David, on the BGS side you are quite right. One, it's going to take us a little while to change. If you think about it, they've got a customer base mainly in Russia and the CIS. Now, these people are used to working under the special model, which is really the delivering of what they call hardware and licenses which, for lack of a better word, they're all one-offs. So one is to move from that model, and obviously in every country where they're in, you've got to come in and submit a different proposal that, for lack of a better word, looks better to the customer than the current one.

Now, the only thing that looks better to the customer than the current one is to say well, instead of me taking all of the risk, by buying more equipment, more cards, whatever the case might be, I'm quite happy to actually share that risk with us. But as a reward, we then are happy to share a transaction fee with them.

Now, that funnily enough in some countries who are, let's say, initially trying something, it's very, very easy for them to actually accept that model because they're going in with far less risk. For countries that are already established, they already know how successful the technology is, so it's more difficult to convince them to actually move to a transaction fee basis.

Now, one way or the other, we will find a method and we are finding methods, simply by adding maybe the UEPS functionality, which the DUET functionality did not have. Or, for example, adding the value-added services which, in fact, again DUET did not have. So by adding new products that currently do not exist, all of these new products are now going to be priced or tendered on a fee model.

So we're expecting, as we're going along -- obviously, we do not want to kill the existing business of selling hardware; we want to keep that. But we want to slowly but surely transform it into a fee basis, without really taking a hell of a dip while we are busy doing it. So as you saw, the results in the first quarter, which were not great from a hardware point of view, which was to be expected in the first quarter anyway, we certainly expecting the second quarter to be far better than our first quarter. But it's going to be lumpy again and then it might go down again in the third.

So I'm hoping within the next 12 to 18 months that we will have signed a couple of deals not based on transaction fees, and we're then going to start seeing, for lack of a better word, a bit of a smoothing of the earnings, where they're going to become a little bit less lumpy and we're going to be able to build the trend that there's some -- transaction-based obviously. And we'll be able to build the trend like our transactional business today, that you can start predicting in terms of what it's going to do over the next year or two.

So I think your assessment is correct, and I think it will take us another good 12 to 18 months to start seeing the result of the transition of the models.

Okay, that's great. And then, the final question I have is, in Iraq it sounds like you're getting a little better insight now into the number of cards and some of the economics per card and per transaction. And is this something -- I know there's a lot of moving parts still -- but is this business something that can do $5 million to $10 million per year of revenue a year from now, or maybe more? How are you thinking maybe just the bigger picture paper revenue opportunity over the next 12 to 24 months?

I think, David, again you saw -- I think you saw some of the figures that we've showed you guys. And there is no doubt in my mind that Iraq at the moment is the thing that is -- probably the project that's flying the fastest. Obviously, the need is there. And I think the local partners that are really working with the two largest banks, as well as the government, have endorsed the technology fully. And candidly are driving it to solve their own problems at the moment. It was not to solve the local banks' problems, like for example Ghana, but you actually solve the problem of, for example, paying pensions to people, paying grants to -- in welfare, and paying government salaries.

So there is no doubt that we've estimated the minimum amount of cards that should be issued to be in the region of about probably 2 million to 3 million, without a shadow of a doubt, all the numbers like 6 million or 7 million that have been [branded].

Now, if you look at what we've done, 800,000 cards already issued. And remember, the issuance comes first and then two to three months later they start paying. So you've probably got half of those cards which are, in fact, now transacting, with basic UEPS function, which is a funds load basically and a cash withdrawal. At $0.22 to do those two transactions, you're looking at between $60,000, $80,000 a month.

Now, because we know there are twice as many cards already issued, that should already be a guaranteed $150,000 to $200,000 a month, without growing any further. We also know that they are now growing at 5,000 cards a day, and they definitely have ordered another 200 devices, which is going to give them 10,000 cards a day.

So we're expecting this growth of about 150,000 to 200,000 cards a month to continue until we reach maybe 2 million to 3 million. 2 million to 3 million cards at $0.22 would be $0.5 million a month at the minimum. That's without activating, of course, the UEPS functionality at point of sale, which they are currently doing. And we believe that could easily double that again.

So you are quite right. I don't know if you calculated it or if you guessed it, but at the end of the day, you are quite right in saying, the $1 million a month, or $10 million per annum from Iraq, to me, is certainly not outside of being achieved. I actually believe we would be disappointed if we did not achieve that over the next 12 to 18 months, simply because of the growth that the people are putting into it.

If they do issue 200,000 cards a month or 300,000 cards a month, we're going to reach the 3 million very, very quickly within six to 12 months. If we reach that. And even if we're lagging three months behind, we will have approximately probably 2 million cards transacting at $0.22; it's $0.5 million a month. If we now have got point of sale coming in, it's going to grow from $0.22, to $0.25 to $0.27 to $0.30, which means we should get to $0.75 million very quickly.

So I think your assessment is quite right and I do not believe, if things continue to go the way -- the momentum that it's going at the moment, we should achieve those numbers in the next 18 months at least.

That's great. Thank you so much for the color.

No problem, David.

Our next question comes from [David Togut] of First Manhattan. Please go ahead.

Thank you. Good afternoon, gentlemen.

Hello, David.

Serge, it's been almost two years since you signed your last major new country contract, which was Iraq in February 2008. What's been holding up the expansion outside of Africa? And what do you need to do differently to globalize the Company?

David, you always ask me difficult questions. If I really were sure about what I should do to expand globally a lot quicker, I would have done it. So at the end of the day, your two questions are good; they're very valid.

One, I think it's important to know that, in order to grow on a global basis, specifically with deals like Iraq and Ghana, who are really national deals because you're talking about a national payment system, you're talking about central banks, you're talking about governments. And like South Africa, for example, we know that those things have to be bedded down, have to be working, have to be absolutely perfect in delivery, in order to convince anyone else to actually do it.

For example, we had Tanzania and we spoke about Tanzania I think, four years ago. You'll probably remember because you've been with us, I think, from day one. So Tanzania is back and Tanzania, I know, officially now, have been visiting, and are visiting, the governor of the Central Bank in Ghana, because they've realized how well the system work. And, therefore, they are revisiting to say hey, why haven't we implemented UEPS as a national payment system.

And fortunately, David, because we are working at these levels things take time. Now, you know as well as I do Governments change; you remember what happened in Nigeria during the so called identification tender that came out. So things can take time. What we're doing in the meantime and while -- this doesn't mean we don't have at least half a dozen to a dozen very good opportunity in our books that we're working on, on a day-to-day basis. And I firmly believe that they -- some bigger countries will be delivered probably sooner than a lot of people think.

But at the end of the day, we have to make sure that while this is going on, because we know the selling cycle can be anything between six months and two years, we know that. Now while this is going on we are consolidating the ones we've got, we are making sure that we define or, for lack of a better word, tune the best possible model, which at the moment looks like a mix between Ghana and Iraqi. In other words the long-term transaction processing but we would also like some money up front.

And I think we're getting to those particular models, even in Ghana by the introduction of mobile, we're now reintroducing or introducing transaction fees, rather than simply selling hardware after we've sold the contracts.

So we are trying to fine-tune those in order to make sure that, when we move into the next bigger country, we don't go in with the model that's not going to be optimal.

So that's what we're doing at the moment David, and I think -- I believe the momentum is picking up more and more. There is no doubt that lots of different countries in the world, after the meltdown of the banking system throughout the world, certainly we've been approached by many of them in order to say, what do we do about minimizing risk, specifically systemic risk, not implementing or putting out systems that have cost an absolute fortune, which are 20 years or 30 years or 40 years old. And therefore moving and leapfrogging what was then in the past, I believe that we are now positioned better than ever before. Not necessarily due to us, due to what is happening in the rest of the world with the traditional system.

So I don't know if that really answers the question, any clearer David, but I think -- but I think we are on the right track, and we keep on tuning that particular track every time that we sign a new deal.

David, I think one of the other things that we've also got to keep in mind, it's true that the last, let's call it organic expansion deal that we did two years ago was Iraq. But in the meantime there was -- we've also taken a bit of a detour from the organic growth route through the acquisition of BGS, which in (inaudible) has took us the better part of six months to really finalize and integrate into the Group. That, of course, has given us in one go an additional six or seven countries where we had a presence through the DUET system etc..

So during the last two years our focus has also been to look at the sort of acquisition opportunities that give us entry points into countries where we can then implement our own business model. So yes, from a traditional NET 1 point of view Iraq was the last deal. But from a Group point of view, of course, we've now got in another six or seven territories with BGS added into the fold where we can explore business opportunities.

Based on your experience over the last couple of years, are you more constructive in pursuing mid-sized countries, say like Ghana or Iraq or do you think the Philippines and Indonesia for example are better prospects? What's the squeeze (inaudible) of the business for you as you expand internationally?

I think again David you -- it's another very, very good question. Because, as you know, initially when we first started any country was good enough and big enough because, candidly, you have to pay salaries, you've got to make money. Today we can be a little bit more discerning about where we go.

Also not forgetting, however, that in order for us to build our model and to become interoperable or at least to be able to do exchange of value across borders, we need to be even in the small countries as well. So we want to be everywhere in any case. However, the amount of time that it takes us to implement in the small countries has very little difference to implementing in a big country.

Now we obviously have also attempted to get into India; it's now the second or the third time that we've moved in to India in order to see what's going on in there, and we've had a couple of opportunities. I'll be honest with you David, I haven't found anything yet in India that excites me. I don't really want to have a 100 million people on my books in order to make a $1 million of profit. I'd rather a sign up [Lesotho] to be quite honest because I'd probably make more money there in the short term than I would in India in the next 10 years.

So we've -- our experience has been that the bigger the country, the Chinas, the Indias, it's incredibly difficult to move in there, in my view, and to actually so called use the 1 billion people that everybody believes, are available to eat out of your hand. We found the 20 million to 30 million/40 million countries, maybe even countries like the Philippines, Indonesia that have got 80 million/140 million people.

These are the countries that we believe are far easier for us to actually get to the top, to get to the presidents, to get the financial ministers and to say to them guys, you've got these problems, you want to go offline, you've got 80%/90% of the population is un-banked. This is the right thing to do. And these are the countries that we are now targeting. So although we'll keep on looking, we are in fact our own little subsidiary in India that keeps on looking for opportunities.

Right now I'm not even smelling the real value of these particular countries in terms of making money for what I would call the same investment that we normally make in time and money in other countries where we know that we can generate far more a lot quicker. So it's an interesting dilemma, but I can only tell you what we know at this point in time. My view might change in the next six months, depending what our team in India is going to continue to discover.

But right now I think you are right, we will be moving to the countries with, let's call it 20 million plus rather than the countries that have got a hell of a lot less. 20 million plus to anything in 100 million or so would be absolutely perfect rather than the 1 billion countries.

Serge, on VCC what will it take for you to make a breakthrough with the technology in terms of getting a major card issuer, cell phone operator etc., given the technology is purely proprietary?

Again, David, it's a good one and obviously I've got my people round the table that said I should be saying anything, because otherwise I say too much. And then in the next quarter you will come and say, Serge, last month you said this. But I can only tell you what we are doing. We strongly believe -- I told you I was very excited about this product, and I still believe this product is going to be one of our biggest winners over time. There is no doubt in my mind. It's necessary for the world to have this type of a product; it's as simple as that. It does not exist and nobody offers it, regardless of what they might be saying.

Now we have showed and demonstrated to many different organizations, specifically in the US where, as you know, a lot of things are driven, that this product actually works, and we've had fantastic response from all of them. Some of them we're more worried about, yes, yes what is it's going to do to these guys? Other people we're more gees, this is exactly what we're looking for.

How far are we? Now if I had Eric over here who is driving this (inaudible) thing he'll say to me, we're one week away from doing something. I know better than to say that it's going to take just another week for him to finalize maybe one or two of the major deals. But I don't believe that we are that far away.

I also believe that, once we have been that first initial breakthrough, I think this thing is going to fly basically all over the world that we want to go, because there is no barrier to (inaudible). UEPS is a huge infrastructure deployment in order to install it and basically work it. VCC due utilizes the Visa/Mastercard networks that are currently present all over the world and Internet and card not present transactions, which means only the issuer has to actually decide to actually implement the product. So we believe once we've made one big breakthrough, but it has to be a substantial one, I think that we're going to find a hell of a lot of people are going to follow and this thing is going to be explored.

But that's my view, but as I've said the guys have said, don't get over excited. That's why we are cautiously excited and optimistic about the product, which I believe is a normal terminology. I'm a little bit more excited than that.

Serge, just finally you mentioned SASSA. Have there been any conversations with SASSA regarding the implementation of some of your new technologies, for example, [techback] phone or grant administration particularly given the challenging economic conditions that still exist?

Again a good question, and you would think it to be obvious that we should have had this conversation with SASSA and we had -- and we have, and we continue to have. The trick is, as you know, with the new Government coming in, there are still a lot of changes that have happened at the ministerial level, at the Director General level.

As you know Fezile Makiwane is still suspended. In fact my understanding is that his contract has now been terminated as at the end of October. So there are still a lot of changes, which means it's difficult to present any case to anybody within SASSA today whereby these guys that are not currently operating SASSA or running SASSA, they're not likely to be there in the next three to six months.

So their bigger problem right now is to clean up SASSA, to make it actually, let's call it now reliable, an organization with integrity rather than to worry about looking for other ways of actually solving a problem, which at the moment isn't a major problem. So we have done that and we're obviously working with new -- the new governmental officials that have entered the South African political scene.

And certainly we are doing the best we can to make them understand. I think it's not falling on deaf ears. I think treasury, if you look at the South African shortfall of tax next year will probably be around ZAR70 billion to ZAR80 billion. They are certainly looking at every way they know to actually save costs. Which means that it is impossible for them to disregard the proposal that we've put forward.

How long is it going to take David? I don't know. Simply because they don't necessarily react the way you would run your commercial business. Sometimes it's the political decision or there are some politics that interfere with it all, which means that decisions can drag. And sometimes it's easier for them not to make a decision than to make one.

But I still think that, within the right period of time, there can only be one winner in that space, and I believe it can only be us.

Thank you very much.

It's a pleasure, David.

Our next question comes from Sean Cain of Morgan Keegan. Please go ahead.

Good afternoon gentlemen. I have a question -- hello, my question is back to the color you were providing earlier for the gentleman from Baird. Would you be able to share some of those same kind of comments about what you expect to happen with the developments going on in Vietnam?

Okay so you -- obviously in Vietnam we've got -- through BGS we've had a couple of initiatives. We've got a very small initiative that's been there for quite a while. It's a very small bank, which is a -- well we've got a VTU and we've got a very small bank. And [essentially] that's given us a foothold, which is great because you get to know the local people and who's what and who is doing what.

There are one or two opportunities that we may or may not have mentioned before with much larger banks, which probably would implement a UEPS solution in excess of 1 million/1.5 million cards. And obviously the model we're building now, in all of these new territories, is some form of a JV or some form of a transaction-based model.

So we're going to try to get the best of both worlds. We're going to try to maybe reduce the money that we normally make up front, e.g. like in Ghana, where we get a nice chunk of cash up front but very little afterwards unless we can turn the model around again, like we're currently doing. But in Vietnam we'd rather get a little bit less up front, but certainly get a bigger chunk of transaction piece as we go along. So that model in Vietnam, I believe we have a better than average chance of actually doing something in Vietnam in the short term. That's my view.

Certainly we are there, we are on the ground and things are looking very, very good, but the model will be the new model.

I think Vietnam was only -- virtually the only territory where both NET 1 and BGS prior to the merger had -- already had operations in some way or form. NET 1 obviously had its BTU initiative; we are a 50% shareholder in a VTU operator in Vietnam. This is a business that we've been involved with over the last couple of years.

In honesty I don't think that our VTU business in Vietnam has grown at the rate that we would have wanted it to grow at. Simply because the incidence of physical paper voucher usage in Vietnam is still extremely high, compared to the rest of the world.

So there is -- there seems to be reluctance from the mobile operators in Vietnam to move away from the physical vouchers to a virtual pop up product, and that certainly has hampered our growth in that area. But we've got certain strategies to try and mitigate that risk.

But I think the key thing was that, through our partners in Vietnam, and through the activities that BGS had with a bank in Vietnam, we managed to get together and to forge some relationships that we hope will result in much bigger future opportunities that will involve actual payments and payment system implementation. And that we hope to do in the next -- again over the next 12 to 18 months.

Okay. One other thing just a comment, I've been onboard with you guys for quite a while, and it just seems like we've been reluctant about making press releases. I appreciate what you're doing on the website and it's great to go there and look. But I don't know if you're going to charge Dhruv with doing more of this, but do you guys plans to share more of what you're doing publicly as opposed to just on the calls?

Once again we -- as you know we've not been on the NASDAQ for the last five years or so. And the first year that we came on our lawyers basically told us we're not allowed to say anything at all about anything to anybody. After five years we're starting to understand that perhaps they are the rules.

But the rules have got a lot of gray area, and I think it is time now for us to start, perhaps without infringing obviously any rules, to start trying to make our shareholders like yourself, and a number of others, to give them maybe -- I think that we owe them to give them a little bit more color about why we are doing things the way we're doing them, and what we're trying to at least achieve in the general winner. And fortunately, that's never really in my view perhaps been explained well enough, simply because we have been restricted by disclosure committees, but attorneys and a number of other people who say, guys you're not allowed to do this.

Now we believe that at the end of the day without, of course giving our competitors information, specifically price sensitive information, we have to find a way to be able to show you guys, which is the investors in our Company, that what we do do as a strategy, as a direction and at the end of the day should bear fruit. And I think you'll start then looking at us in a slightly different way, and maybe to measure the successes we have in a different manner. Because it is a piece, everything we do forms a piece of a bigger puzzle, and I don't think the bigger puzzle has ever been clearly explained, due to this limitation.

So your point is taken, and the website was just the beginning of what we want to do. But we believe that we've (inaudible) on the ground, the website and a few other things we want to put in place. The picture I hope should become a little bit clearer. On top of it I think the picture made by the puzzle should become a little bit clearer as well.

Thank you, that's appreciated in the you all guys keep up the good work.

Thank you.

Thanks very much.

We have time for one last question.

Gentlemen, we actually have no further questions. Would you like to make some closing comments?

Just thank you to all of our investors around the world for taking the time again today and we'll talk to you again in the new year, thank you.

Thank you very much to all of you. Bye bye.

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