Lesaka Technologies Inc (LSAK) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Net 1 UEPS Technologies Inc. Q4 2014 earnings. (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. Welcome to our fourth-quarter fiscal 2014 earnings call. With me today are Dr. Serge Belamant, Chairman and CEO, and Herman Kotze, our CFO. Both our press release and Form 10-K are available on our website at www.net1.com.

As a reminder during this call we will be making forward-looking statements, and I ask you to look at the cautionary language contained in our press release 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, which we have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. We will discuss our results in South African rand, which is a non-GAAP measure. We analyze our results of operations in our 10-K and in our press release in rand, to assist investors in understanding the underlying trends of our business. As you know, the Company's results can be significantly affected by currency fluctuations between the dollar and the rand.

With that let me turn the call over to Serge.

Thank you very much, Dhruv. Good morning to all of our shareholders. Our fourth-quarter results once again demonstrate the group's ability to implement large and complex national projects efficiently and to rationalize our cost structures in order to drive margin improvement.

We are now able to turn our attention to international markets as a critical and integral part of our growth strategy. The strategy is mobile but payment-centric and delivers solutions that incorporate a number of killer applications in the space of money transfers, loyalty programs, electronic wallets, and of course secure card-not-present payments.

Our new streamlined and focused operational teams are ready for significant expansion both locally and internationally. This new drive will allow us to further diversify our risk profile from a geographic, currency, and customer point of view.

Over the past few years we laid out the strategic roadmap for the Company and, to date, have executed exceptionally well against that strategy. In fiscal 2012 and 2013 our overarching focus was the successful implementation of our SASSA contract. Over a period of 15 months we biometrically registered 22 million South Africans, opened 10 million bank accounts, and operationalized a seamless secure and inclusive social grant distribution system for the South African government. The result of our efforts have widely been recognized by the relevant authorities, and annualized savings of ZAR3 billion have sufficiently demonstrated that SASSA chose the most progressive and comprehensive solution along with a service provider with a track record to deliver on its promises.

In fiscal 2014 our focus shifted to leveraging our national infrastructure to introduce relevant, cost-effective, and easy-to-access products and services to our cardholder base. Once again, with mobile transactions posting growth of over 400% and our financial products expanding by over 500% in fiscal 2014, we demonstrated further successes in the execution of our plan.

More important, however, is our success in providing financial inclusion for millions of previously disadvantaged South Africans. Financial inclusion has been spoken about by many, but few have been able to demonstrate any real degree of success.

For our Company, financial inclusion is more than being able to open a bank account, but rather to enable customers to access the type of products which they really require to improve their lives. These products incorporate access to information, first and foremost, which in turn facilitates eligibility and lowers inherent risk, but enables the most affordable pricing model.

These products include savings accounts, micro-financing, insurance, prepaid services, money transfers, loyalty programs, educational services, healthcare, Internet payments, and numerous other life-changing services. What differentiates us from our competitors is that we are able to provide these products and services at the lowest possible price, due to our flexible and secure technological solution, which assists us to minimize the associated risks.

In addition we design each product to target a specific need and price such products accordingly. Our micro-finance products, for example, vary in terms of their cost structures depending on the reason for their requirement, ensuring that critical priorities such as education, healthcare, electricity, and any emergencies can be addressed and be affordable to most South Africans.

We have now reached critical mass and can therefore provide any goods or services sought by our customers at the most competitive price. We often can achieve this goal by entering into loyalty programs with manufacturers or wholesalers, thus once again reducing the cost to our customers without eroding our own margins.

One will see Net 1 entering new fields of business in the short term, all of which are designed to fulfill the needs of our customer base. Such new products will include insurance, basic food products, educational products, only to mention a few.

During 2014 and 2015 we are going to leverage our switches, such as KSNET, EasyPay, to a smaller extent our Namibian and Botswanan programs, together of course with our virtual top-up or VTU technology as implemented by MTN in Nigeria, the Ivory Coast, Cameroon, Rwanda, Swaziland, and South Africa.

We are well placed to use the footprint of these switches to expand our services to incorporate prepaid products, money transfers, bill payments, and of course Internet payments. Our advance airtime successes in Malawi and South Africa demonstrate that such a strategy is sound and successful.

For example our Malawian initiative, which only commenced in March of 2014, a few months back, has already activated in excess of 500,000 users who transact approximately 200,000 transactions per day. In South Africa our mobile offering has now over 5 million distinct individual customers; we effect approximately 2.3 million transactions per day across our airtime, electricity, and of course information services channels.

Since appointing our MD in India, we have now an established local presence and are in the finalization stage of registering our 100%-owned subsidiary, which will drive the business development efforts across Net 1's entire product set. We have recently entered into an agreement with one of the leading prepaid and digital wallet providers in India, with over 1 million users.

Digital wallets in India typically are closed loop, and our MVC solutions will allow these products to become interoperable, thus creating an open-loop system. E-commerce is growing exponentially in India; however 60% of transactions are effected through cash on delivery due to the lack of a widely available and simple-to-use secure electronic payment solutions. With MVC we have a significant opportunity to facilitate these CNP transactions securely.

We expect that by the end of this calendar year we will have two large MVC deployments in India, the other one being with one of India's largest private-sector banks that has in excess of 20 million clients. Due to confidentiality restrictions, we will formally announce these initiatives along with additional details as soon as our partners are ready to disclose this information.

Because we believe that our mobile strategy will be a significant driver of value creation in the near term, let me spend a few minutes outlining our immediate plan. First, our mobile solutions are agnostic to operators, manufacturers, and operating platforms; however, we will continue to pursue strategic partnerships with these major players globally in order to achieve scale as quickly as possible.

Second, our Board has concluded that we should drive customer acquisition directly in order to better control our own destiny and our ramping up of our customer base.

Third, in the past few months we have refined a mobile offering that will offer a comprehensive and integrated set of products which use MVC as a channel to facilitate payments across any existing national payment system. These solutions will allow users to minimize risks across all of their physical cards, consolidate many of their loyalty programs, and leverage our EasyPay expertise to facilitate prepaid utilities and bill payment, money transfers, mass transit, and other ticketing services.

Finally, an integral part of the strategy is to establish an independent subsidiary based in Europe that will be responsible for executing our mobile strategy on a worldwide basis.

Although what I have just mentioned will become our core strategic focus over the next 12 months, we will of course continue to grow and pursue opportunities in South Africa such as CPS, EasyPay, financial, and value-added services, as well as our FIHRST business initiative.

In June SASSA filed an update and timetable with the constitutional court, apprising them of the progress they had made since the remedy was announced in April of 2014. By their schedule, a new tender would be issued as soon as practically feasible; and SASSA would then decide whether the tender, once it had been evaluated, is awarded or not, depending on their readiness to provide the service in-house.

We do not currently have any updates relating to the timing of the tender nor the specifications thereof. If and when the tender is issued, we look forward to participating in the same and remain very confident that our track record, technology, distribution channels, cost structures, and new enhancements will ensure that we remain an integral partner to the South African social welfare environment. This critical social service is continuously being extended to more and more South Africans and will therefore continue to require secure, flexible, and widely accessible solutions at the lowest possible price.

As a result of the above timing, we do not believe that there will be any impact due to the tender process on the Company for fiscal 2015. We continue to engage our BEE partners to formulate our SASSA strategy and to structure CPS in a way that will afford us the greatest chance of success.

The growth in our financial services business demonstrates that there is real demand for our products, and that there are limited alternatives offered from the formal sector, and that our products are the most affordable. As a result of a substantial time and effort, we have agreed to a plan with the FSB, Financial Services Board, that should result in the upliftment of our insurance license suspension. The removal of the suspension will ultimately depend on the FSB approval of our business plan and of its execution.

We feel very confident about this step. As and when we are able to offer our various relevant and affordable insurance products, we will expect to see another leg up in our financial services business.

Shifting now to the prospect of deploying UEPS EMV internationally, we continue to work aggressively with MasterCard on a number of specific projects where we have jointly submitted multiple proposals and continue to await the awarding of such contracts. At this point these various proposals are outside the control of Net 1 and MasterCard, and rests with the relevant authorities in the various territories.

In addition, we have also reached a strategic decision whereby Net 1 will now work more extensively with MasterCard and its global marketing and distribution teams to sell our UEPS EMV solution internationally. MasterCard in some form will therefore act as our indirect salesforce for UEPS EMV, and Net 1 will largely focus directly on those opportunities in territory where we have a physical presence or as part of an expansion of our service offering in a specific geography.

In conclusion, I am extremely pleased with what we have achieved over the past 3 years and more than excited about our prospects for the next 3 years. I strongly believe we now have the right strategic plan, product set, management, and implementation team to ensure that we can achieve a new period of sustained and profitable growth which, in turn, will be driving value creation for, of course, our shareholders.

With that let me turn over to Herman. Herman, over to you.

Thank you, Serge. I will discuss our new operating segments, which we have streamlined to three from five previously, as well as the key results and trends within our operating segments for the fourth quarter of 2014 compared to a year ago.

For Q4 of 2014 our average rand/dollar exchange rate was ZAR10.42 compared to ZAR9.19 a year ago, which negatively impacted our US dollar-based results by approximately 13%. The rand remains one of the more volatile currencies in the world and is currently trading at around ZAR10.65 to the dollar. Should the rand remain relatively more stable over the next 12 months, the variation in our US dollar-based results due to currency should be lower in fiscal 2015.

We ended the year with a particularly strong quarter, and I am very pleased with the momentum demonstrated throughout fiscal 2014. On a consolidated basis, for the fourth quarter of 2014 we reported revenue of $183 million, an increase of 76% in constant currency. We reported fundamental earnings per share of $0.91, which grew by 275% in rand compared to a year ago. Our fully diluted weighted share count for Q4 2014 was 49 million shares.

Our fourth-quarter results benefited by the $27 million recovery from SASSA related to our implementation expenses incurred in fiscal 2012 and 2013. We do not expect such recoveries to be recurring. Excluding the SASSA recovery, our revenue and fundamental earnings per share for Q4 2014 was $156 million, an increase of 52%, and fundamental earnings per share for Q4 was $0.52, an increase of 86%.

Our fourth-quarter 2013 results included direct implementation and smart card costs of approximately $9 million.

We have simplified our operating structure and, accordingly, our internal reporting structure has been consolidated from five reportable segments to three. Previously reported information has been restated.

We currently have three reportable segments: one, South African transaction processing; two, international transaction processing; and three, financial inclusion and applied technologies. For further information, please refer to Note 23 to our 2014 financial statements.

Let me now turn to a discussion of our new segments and their financial performance during Q4 2014. South African transaction processing, or SA processing, predominantly reflects our core South African processing businesses including CPS, EasyPay, merchant processing conducted by our UEPS EMV cardholders, and payroll processing through FIHRST.

International transaction processing represents our processing activities outside of South Africa and includes primarily KSNET in Korea. Other contributors include our US and Botswana businesses; and any new non-South African mobile virtual card UEPS EMV initiatives will be included in this segment.

Financial inclusion and applied technologies represents our initiatives that result in the provision of various services and products to customers that result in the inclusion to the formal sector, as well as the provision of our technology -- both hardware and software -- across our broad product portfolio. This segment therefore encompasses smart-card accounts; Net1 Mobile Solutions, including their mobile-driven prepaid solutions; financial services, including lending and insurance; and our hardware and software businesses.

South African processing recorded revenue of $88 million during Q4 2014, 52% higher in local currency, driven primarily by the SASSA recovery and increased merchant processing transactions through the national payment system, or NPS, which are lower-margin transactions generally. Excluding the SASSA recovery, South African transaction processing revenue was $62 million, or 20% year-over-year growth in constant currency.

Growth in the distribution of social grants was modest and largely in line with the increase in welfare cardholder recipients, net of the removal of invalid and fraudulent beneficiaries. South African processing segment operating margin was 44% in Q4 2014 compared to 0% a year ago. Excluding the nonrecurring items -- being the SASSA recovery in Q4 2014 and the implementation cost in Q4 2013 -- segment margin in the fourth quarter was 20%, up from 15% last year.

Q4 2014 results also include MediKredit losses for 2 months, as the business unit was sold in early June 2014. CPS volumes increased to 2% due to the organic growth in the number of beneficiaries added by SASSA, net of the invalid and fraudulent grant recipients removed from the system.

EasyPay volumes were up low single digits despite the fact that, as we continue to expand our value-added services offering through alternate channels such as mobile, the volumes and revenues for the services are recognized by the respective units even though they rely extensively on the EasyPay platform and distribution. Over time, inflationary increases in our costs could modestly pressure our South African processing segment profitability, and segment margin may vary depending on the mix of products, particularly volume of transactions through the national payment system.

We will, however, continue to seek opportunities to become more efficient and rationalize our cost structure in order to try and provide stability for segment margins. Inter-segment transaction processing activities are eliminated on consolidation.

International transaction processing generated revenue of $42 million during Q4 2014, an increase of 32% in rand, mainly as a result of South Korea-based KSNET's continued revenue growth during Q4 2014. Our other international operations are not as material to the segment revenue at present, but have more of an impact on segment margin as most are either in investment phase or not yet achieved scale to be profitable.

Segment operating income improved to 16% from 15% last year, driven primarily by gains in Korea and lower losses in our smaller initiatives. For Q4 2014 KSNET's revenue grew 9% in Korean won to $42 million, while EBITDA margin of 28% was up 100 basis points compared to last year.

Finally, our financial inclusion and applied technologies segment delivered revenue of $64 million, 146% higher on a constant currency basis. The primary drivers of top-line growth were Net1 Mobile and financial services, both of which posted year-over-year constant currency growth in excess of 400%. Segment revenue was also impacted by a sharp increase in inter-segment revenue, which is eliminated on consolidation.

Net1 Mobile ended the year with 134 million transactions, up from 24 million transactions a year earlier, and driven primarily by the introduction of its prepaid airtime and, more recently, prepaid electricity solutions. Our UEPS-based lending book at the end of Q4 2014 was approximately ZAR560 million, compared to ZAR449 million in Q3 2014 and ZAR83 million in Q4 2013.

Segment operating margin declined to 28% in Q4 2014 from 48% in Q4 2013, but largely in line with the last three quarters. The substantial decline in margin year-over-year is primarily attributable to: a higher UEPS-based lending operating cost base, including the addition of nearly 1,000 employees over the past year; creating a provision for doubtful accounts; higher contribution from hardware sales; and a significant mix shift due to exponential increases in our mobile-based prepaid airtime solutions, which carry materially lower margins than our traditional businesses.

Corporate and eliminations includes amortization of intangibles, stock-based compensation, US legal expenses, and general corporate and overhead costs. In Q4 2014, under US GAAP we were required to recognize a noncash charge of $11.3 million related to the equity instruments issued pursuant to our BEE transactions, and in our segment reporting has been allocated to corporate eliminations.

Our Q4 2014 net interest income increased to $3.1 million, driven primarily by lower average debt outstanding and higher average cash balances during the period. Capital expenditures for Q4 2014 and 2013 were $6.6 million and $5.6 million, respectively, and relate primarily to the acquisition of payment processing terminals in Korea.

At June 30, 2014, we had cash and cash equivalents of $59 million, up from $54 million at June 30, 2013. The increase in our cash balances from June 30, 2013, was primarily due to higher cash generated from our core business and the recovery of implementation costs from SASSA, partially offset by higher tax payments, the expansion of our UEPS-based lending business, capital expenditures, and principal repayments for our Korean debt.

We continue to fund the Group's operations and capital investments utilizing our cash reserve and cash generated from our business activities. During the next 12 months we expect primary uses of cash to be the funding of our financial services offerings, investments in our high-growth businesses, the servicing of our debt, share repurchases, and strategic acquisitions.

Our effective tax rate for Q4 2014 was 37.8% and was higher than the South African statutory rate of 28% as a result of nondeductible expenses, including interest expense related to our long-term Korean borrowings, stock-based compensation charges, and a noncash charge for the issuance of equity instruments pursuant to our BEE transactions. Our tax rate will fluctuate depending on our intention regarding undistributed South African earnings and the timing of any payments, and we expect our effective rate for 2015 to be between 36% to 40%.

As we prepared for any new potential SASSA tender, we reached an agreement a few days ago with one of our BEE partners to repurchase their Net 1 shares; and they agreed to subscribe for a 12.5% shareholding in CPS. As a result of these transactions, our share count is now approximately 46 million shares.

For fiscal 2015 we expect fundamental earnings per share of at least $1.92. Our guidance assumes a cost of currency base now indexed to the fiscal 2014 rate of ZAR10.40 to the dollar and a share count of 46 million shares. Also, our guidance includes the dilutive impact of the 12.5% outside holding in CPS.

Our fiscal 2014 fundamental earnings per share included $0.40 related to the recovery of implementation costs from SASSA, and this will not recur in 2015.

We are very excited about our prospects for the next year, and we look forward to replicating our successful implementations to date with our new product launches across all our segments, from financial inclusive insurance products to new mobile technologies and the rollout of a national biometric ATM network with our partners in South Africa. Some of these new projects are dependent on regulatory approval and may only start to scale during calendar 2015.

To conclude, the Company's executives have not sold any stock for almost 5 years now. However, we need to meet certain financial obligations, with the largest being accumulated tax liabilities on stock awards, which are taxable at 40% in South Africa.

Therefore, in the spirit of full disclosure, I wanted to highlight that over the next year we expect our executives to sell a portion of their holdings to meet their respective obligations. Collectively, we believe the quantum of shares sold in aggregate for all executives could be 500,000 to 600,000 shares, although the final amount will be dependent on the share price.

Please note specifically, this decision by executives is in no way connected to the performance or prospects of the Company. Should any of you have any specific questions around these sales, we are more than happy to address them directly during the Q&A session.

So with that, we will gladly take your questions.

Thanks, Dylan.

(Operator Instructions) Dave Koning, Baird.

Yes. Hey, guys, great job.

Thank you, Dave.

I guess my first question, just in the core South Africa business, the underlying growth has been accelerating through the year. I think you said 20% constant currency this quarter.

I know the SASSA business itself isn't driving a ton of that growth. It's driving some, but not a ton.

What really is causing that acceleration? Is it just transactions through the merchant processing network that are accelerating? And does that continue to be really strong through fiscal 2015?

Yes. Hi, Dave; you're right. The bulk of the South African transaction processing revenue increase has been the continued adoption of utilizing the South African national payment system. Our solution is now fully interoperable, and so we find that a lot of our beneficiaries choose to use all of the elements of the national payment system available to them.

So we've seen quite an uptick in the transaction volumes through other elements of the national payment system. So that's the first component.

Obviously at EasyPay we've also seen some of the growth driven through new initiatives that we have specifically at EasyPay and new clients that we have signed up.

And finally of course, there is also a relatively minor inter-company or inter-segment element to the segment revenues that obviously gets eliminated on consolidation. But that in itself is a far smaller part than the growth that we've seen from just increased adoption of the national payment system as well as transaction growth at EasyPay.

Okay. Great. I guess my second question, the financial inclusion business has been growing sequentially significantly, by many millions of dollars like every quarter really going back now five or six quarters. I know that is really the loan business and the prepaid airtime business.

Will those two continue to drive very strong sequential growth through the next couple years? And are there new products that can be just as significant that are coming on pretty soon that will drive incremental growth?

Hi, David it's Serge here. Again, obviously what you are mentioning is 100% correct. There is no doubt that the loan financing business, specifically the way we do it, has grown hugely and in our view will continue to grow, because there is a demand out there. And there is a demand for product at very, very low cost, which we can provide. That is very, very important.

Two, we talked about airtime. But if we look at what we are doing now in prepaid electricity, and we are starting to do with money transfers, and we continue to do with simply informative channels -- for example, what are my debit orders? Where is it the cheapest for me to go and draw cash from an ATM? In other words, the type of products that certainly will extend the value of the money that our beneficiaries or that our customers actually have, that type of product is also growing exponentially.

And candidly, we are seeing the same sort of exponential growth as we saw a year and a half ago when we launched airtime. So we believe that the 5-million-odd customers we have right now, who are independent customers all using our mobile service, that number will grow still by a couple of million.

And the amount of transactions that each one of those customers is performing we believe is going to double or triple over the next 2 to 3 years. So we really strongly believe that that is a huge growth opportunity.

And then perhaps something that goes back to 2005 when we initially did the roadshow -- and I can't remember who was, what was the (inaudible), we defined a very simple principle which we called the bucket principle. The bucket principle basically was based on the fact that someone's disposable income is put into the bucket; and the bucket obviously leaks depending on who is actually providing the particular service. In other words it doesn't come to us: it goes to third parties.

Our job is to obviously plug those holes and make sure that we are the recipient of those particular products, or at least we are the ones that are going to continue to provide all of the products and services that are utilized by the particular customer using their disposable income. We make it cheaper, and obviously that stretches the money that they have got, which is available to them to do certain things. But more importantly it keeps the money within our particular platform.

Bottom line is, it is more accessible to them, but it stays within our Group rather than actually leaking out to other people. And there we are still seeing a huge amount of opportunities for us.

Like I mentioned even for example in basic food, certainly in educational programs, and other -- lighting or electricity, for that matter, that we're currently doing as well in terms of our social welfare programs. So there is a huge amount of other things that we are entering into simply to almost have a catchall on everything that is happening with our customer base.

Just to add to that, Dave, as we look at the sequential growth in this specific segment, I think there is just a few other factors that we need to consider. One of course is that there is an element of seasonality, specifically on the lending side, where we see demand increase during specific periods of the year compared to others. And that is an element that we have to take into account.

The second one is that we do fund our lending activities very conservatively and very carefully. We only use cash reserves of the Group, so there is no external funding involved in the provision of any of our financial services. And obviously the growth rate is determined by what we believe is the applicable amount of available free cash reserves internal to the Group.

And then lastly, of course, what could be quite a big driver in terms of the growth of this specific segment will be the introduction of some insurance-based products during the course of fiscal 2015. When that will happen is a function of when our license suspension will be uplifted. We are working very hard and very diligently on achieving that, and we hope that at least for the second half of fiscal 2015 we will be in a position to start offering basic insurance products from a financial inclusion point of view to our cardholder base.

Great. One just quick final one. The margins now in that business, in financial inclusion, have been in the high 20%s the last few quarters. I know they came down quite a bit from last year, just the hyper-growth in prepaid stuff.

But are we at a base level now in the high 20%s? Is that pretty sustainable?

I think so. I think over the last year there has been quite a big expansion in the cost base of the business. The biggest component obviously was the deployment of around 1,000 staff members.

I think we've reached a plateau in terms of the number of people that we need to employ. We probably still need to employ a few more, but certainly not another 1,000.

So I would expect to our margin to stabilize at around the level where it is currently at, plus or minus a couple of hundred basis points, over the next fiscal year.

Great, thank you. Nice job.

Thank you very much.

(Operator Instructions). Russell Anmuth, Gotham Holdings.

Hi, guys. Well, the quarter number certainly speak for themselves. Question one, I'm wondering, Serge, if you could just elaborate on the MasterCard conversation a little bit. I'm not sure if I got that from your presentation, where you stand with MasterCard and how you are still working with them.

Yes, with pleasure. I think what I tried to say in my presentation is that, as you know, MasterCard is a massive organization that have got their fingers in the pie in many, many -- or in fact just about every country in the world. But they are not necessarily going to be what I call the fastest company to execute anything.

They love our product, of course, in South Africa. There are definitely, without a shadow of a doubt, many other countries that have looked at what we've done here and are keen. And we've made a decision that, if we go into another country, we would go in with MasterCard, simply because we see them as a very easy entry from a political point of view -- for lack of a better word.

They have got the power. They certainly have got the contacts at central banks, at governmental level.

And at the end of the day we have the steak. I like to say they have the sizzle, and we have the steak. Between the two of us we certainly have got a fantastic offer.

So many times now do we talk to them more and more often, that we are entering into tenders with them. A lot of them at the moment are not -- are tenders which are more geared around the social welfare space; for example, food programs or control of management of distribution, being it HIV-AIDS products etc. etc.

We obviously want to try to move that a little bit away from simply what I would call the donation world, but rather the business world. But there are many opportunities.

Now the other decision that we've made is to do two things. In countries where we are not or we have no real business interest at this point in time, we will only enter these countries together with MasterCard. In countries where we already are, then there is no reason why we cannot drive our UEPS EMV directly ourselves, knowing that MasterCard will support a license to whatever local banks happen to be a MasterCard user in that particular territory.

So that is what we have decided to do, simply because we see longer-term huge opportunities to work with MasterCard. But we would rather rely on ourselves to drive the 3 months, 6 months, 9 months' growth in our financial numbers.

Okay. Are there countries that actually have a sincere interest in the MasterCard UEPS solution, which as you noted are [directed] into a real payments infrastructure?

There is absolutely no doubt that there are a number of countries. Because if they are not, then that means our IT department has been wasting a lot of their time answering tenders. So there is no doubt, in my view.

But like I mentioned, because a lot of these products are driven not directly by a bank, which is a MasterCard license in that territory, but often by organizations which are sort of organizations that are providing things, for example, like food assistance -- which means it is not really a bank that is doing it.

So you've got -- it's a four-party agreement. It's a MasterCard, it's us, it's a food program, and it's a local bank, which makes it a little bit more complicated and candidly in my view makes it at least a selling cycle which is 3 to 6 months longer than it would normally be.

And that is why we made the call to say, when they happen I think those things are going to fall down like dominoes. I think when one of them is actually doing it in one country, if there for example there is a food project in 23 countries, we won't get one; we will get all 23. And that is the way I think that that is going to happen.

Right now, how much of those numbers has come into the 190-plus that Herman is talking about I would think is zero, just to be completely blunt about it. So when it happens, it is something that certainly in our view is going to help us to grow even faster.

Okay. So when you construct deals like this in other countries with MasterCard, do you envision putting boots on the ground, so to speak, and deploying the infrastructure like you did in South Africa? Or are these going to be projects that you do with partners, where you are contributing your technology and receiving high-margin royalty technology-type revenue-sharing payments?

Once again -- it's a fantastic question. You should probably come and work for us actually, because you are asking the right questions.

We have tried a number of these models, and right now we know that in South Africa we can be on the ground, because we know the country, we know the culture, we know the people. Korea we can do the same thing. Botswana we can do the same thing. Namibia we can do the same thing.

Are we going to be able to do that in all countries? The answer is: probably not.

If that is the case, we would be more like a technology provider or technology partner than the actual on-the-ground implementers. Now to some extent, that doesn't suit my own ideas because I think we are extremely good implementers; and candidly, we would have to try to look for other companies like ourselves that have got the capacity and the capability to be able to roll out these massive products as well and as fast as we have done so.

So I have got a feeling that when we do do that in these countries, number one obviously is the profitability will not be anywhere as high as what it has been in South Africa. But number two, I think the projects will take substantially longer -- probably in my view 50% to 75% longer than what we've done it here.

Is that a bad thing? Probably not, because with a bit of luck we should be able to run two, three, four, five, or six at a time rather than one. So cumulatively I think it will be just as good, if not better.

And of course it will give us more countries to split our risk into rather than to be, let's call it South African-centric. Hopefully we will have five or six or seven or 10 different countries that are doing similar things.

So we've got plans with all that. Are we going to change our minds or not? That will depend on the country at the time, and it will depend how successful we can find a local partner or not.

Okay, thank you. Just one more and I will get back in line. Could you expand a little bit -- obviously that would be very -- anything with MasterCard, anything new countries would be an extraordinarily exciting and welcome.

On the India front I am not quite sure if I got it exactly, what Dhruv has been working on, putting together and constructing and such. Is it mobile? Is it strictly on the MVC side? Or is it something that's even more broader and deeper?

It's a little bit broader than that, because obviously we don't want to go with only one product. But at the moment the two deals that will become visible certainly all have MVC as a component. There is absolutely no doubt about that.

But there are a number of other products like we have done in Malawi here, which is the advance airtime product, that is also incorporated into our Indian overall strategy. But also we are also looking at UEPS in India as well, as an alternative payment system. Simply because right now, you are probably aware of the fact that, candidly, they do not have one, specifically one, that is biometrically-based and works in an off-line manner; specifically one that can then interoperate, using MasterCard as an example, as the interoperating brand.

So we are moving in with what we know we can do immediately. But the idea is not to stop at what we do first phase; it is to continue to add and to continue to put in more and more of our products once we've got a customer base.

Okay. India would not be a terrible market for the country, right? 1 billion people. How does that work, let's say, if we can move towards more full UEPS implementation? Do you think that is something that goes province by province, or how do you view that from a top level?

In my view it's definitely -- when people get excited about India because they have got 1.3 billion people, we also get excited. Because you multiply anything by 1.3 billion and it sounds like a big number.

But I think people that think like that -- well, unfortunately the amount of money you're making per person is actually very much lower. So definitely it will be done province by province. There is absolutely no doubt in my mind.

But when we are looking at the only thing that can be ubiquitous across all of India, it has to be a mobile solution. Because that is something that does not require necessary any other piece of hardware or terminals or ATMs. All you require is the phone, and the phones are available.

So we are going to try to drive it the opposite way that we did in the past. Before there were no phones, so we drove it through point-of-sale.

ATM and UEPS.

Now we have got the phone, we can drive it through mobile; and then the UEPS becomes more the supporting infrastructure -- they call it complementary infrastructure -- rather than the original one. So the model is going to be a little bit different, but first we are going to go for volume; low margins, but very low cost of entry; drive the customer acquisition; drive the profitability per customer. And then start investing more money into what I would call more hardware and brick-and-mortar infrastructure, not the other way around.

Okay. It's very exciting you can take advantage of the mobile platform in that way and much less expensive. How does that layout, though, if you look at like the competitive landscape, for example?

You have your unique solution, such as in South Africa. Does that competitive advantage and uniqueness translate onto a mobile phone infrastructure where there is lots of -- you read about lots of different companies that sprout up every day that are trying to do little things on a mobile phone platform.

Your point again is 100% right. We know everybody every day -- I mean I read or people send me documentation about the next mobile wallet. Candidly, I still haven't understood what most of those things actually do.

All I can tell you is that the one we launched 18 months ago, in 18 months we got 5.3 million clients that are using it. I don't know anybody else that has got 5.3 million clients in South Africa that are using their particular wallet on a day-to-day basis. Ours do.

When we launched Malawi 4 months ago, we're doing 200,000 transactions a day. I don't know any other body that does that.

So I am sure that there are other people with competitive products. Candidly, you know, and unfortunately, rightly or wrongly -- and I apologize for that if that upsets anyone. But I've never really looked around all the time to actually see who can do something better than we can. We've always been technologists and we believe that our solutions, our business model, our ability to implement on average is going to be better than most. So for what it is worth, that's the way we've always looked at it.

Serge, you mentioned the digital, the mobile wallet, just to slide over a little bit for a second. You spoke in the past about incorporating, I think it's the MVCC within the digital wallet that's been under development by the largest mobile phone handset company in the world. Is that still an ongoing project?

That's done. That is something that we are looking forward to actually certainly launching in a very, very big way in the next 12 months.

Just give me one second -- yes, we are working with a number of operators. But again like I said in my little writeup, we are independent. We are agnostic to any of those particular people.

In other words, nowadays do we want to work with the operator? Yes. Do we want to work with a cellphone manufacturer? Yes. And we are working with a number of them.

Do we want to be depending on them? The answer is no.

Do we want to be dependent on the actual network? The answer is no.

Today, funnily enough, unlike 10 years ago where you needed to know the SIM card, you needed to know how to work with a phone, you needed to have access to operating systems, today all of that is actually available. It is basically open source, which means we can pretty much do whatever we want and drive our solution directly to the customer.

Which is again what I've said in my strategy, is that the Board has made the decision that we are going to go ourselves for customer acquisition directly, rather than to go through the operators, rather than to go through the cellphone manufacturers. So it's a little bit of a change of approach, but it doesn't mean we can't do both.

Right. Being embedded, for example, in the largest mobile phone handset maker's product, doesn't that help exposure, drive usage? (multiple speakers)

Of course it does. Of course it does, and it would be absolutely fantastic if we can land up by doing a deal with one of those.

I don't know if you remember, but a couple of years ago we did the deal with a mobile operator in the United States and they were doing exactly that. We landed up having MVC loaded on 2 million or 3 million phones. At the end of the day, sure, we had it on the phones; but very few people were using it.

So I want to try if possible to remove what I would call the normal marketing -- for lack of a better word; I apologize for the word -- but the (expletive) part of what people talk about, about saying: Geez, we have this application everywhere.

I would rather have 100,000 people that use it rather than 10 million people that have it. Like I've got so many on my phone I couldn't even tell you what they are.

Right. Okay. That is what I was driving to understand.

And you got it.

Okay, thank you very much.

You're certainly in line with what we are thinking.

Thank you.

(Operator Instructions) Dave Koning, Baird.

Yes. Hey, guys. Just, I guess, a couple of things on the, I guess, just the balance sheet and share count and stuff. One is, now that you significantly ramped the loan book, I mean is it fair for us to look at that? I mean, those are receivables -- that is really going to be, if you ever liquidate it, that is a year of cash. I mean, that is value to the Company.

We often just look at your usable cash. But is it fair for us to think about that as like a true balance sheet value, because you are truly owed that money, right?

Right. So, Dave, it's a short-term -- for lack of, if I had to coin a phrase -- it is a short-term cash-equivalent instrument. None of our loans have a longer tenure than 6 months. So the average outstanding period on the lending book is probably at any given point of time between 4 and 5 months.

So you can definitely sort of look at the receivables balance as a quasi-cash equivalent.

And what's -- the loan experience I remember from the past is extremely good, right? I mean, your collection rate is like 99% or something, right?

Yes. We have a very rigorous process that we have put in place and that we require our staff members to adhere to. There is a comprehensive affordability study that is done before any credit is granted. So we are very fortunate that our bad debt experience has been quite low compared to most of the other operators in this area.

David, just to give you just a little bit of color on this, there is also a reason for that. And the reason for that is because we don't simply nilly-willy just grant loans to people that happen to want one. We are a little bit more specific about what loan do they want and for what reason do they want the loan.

We are driving our entire sales department to actually make sure that they understand the need for the loan, so we can actually make sure that the loan is paid directly to the person to whom the money is going to go to. And we are able then to negotiate these loyalty schemes with them and been able to then be a lot cheaper for the guy that is actually requiring the loan.

So we tend to focus on women, number one, because they normally look after the children and they are more responsible. Number two, we looked after educational loans, medical loans, and any emergency loan. These are the ones that are the key to actually improving the lives of people.

And that is why these people are always prepared to repay the loan, because they actually happen to be the responsible part of the market.

Yes, got you. Okay. Then the one other thing, because you've gone through the hyper-growth period of that lending business, and now the cash flow dynamics, now that that has continued to grow well but not probably quite as fast, it seems like the cash flow dynamics are getting better. I mean, you had a really nice sequential growth in your cash.

Why wouldn't you almost go and buy back General Atlantic and just get that -- any selling pressure there, just get that out of the way? And then also just buy back shares from you guys individually that need to cover the taxes. Just get all that selling pressure out of the way, given just the big momentum of the business.

That's a great point, David, and obviously something that we are considering internally at the moment. Looking at our cash flow forecast, you are correct; the lending book really took a big bite out of the free cash flows for the last 12 months. As our book is now seasoned, for lack of a better word, at least once and probably close to being seasoned a second time, the cash flow generating dynamics of the business in its entirety is probably such that we can now consider using the cash specifically on the repurchasing side, if it makes sense for us.

As I mentioned, we just bought back 1.8 million shares from our BEE partners for cash. So it is certainly something that is at the forefront of our mind when we consider what the best uses of our surplus cash would be at this point in time.

Okay, great. Thank you.

Thank you. Ladies and gentlemen, on behalf of Net 1 UEPS Technologies Inc., that concludes this conference. Thank you for joining us. You may now disconnect your lines.