UEPS Net 1 Ueps Technologies Inc

JOHANNESBURG, South Africa, Feb. 6 /PRNewswire-FirstCall/ -- Net 1 UEPS Technologies, Inc. ("Net1" or the "Company") (NASDAQ:UEPS) today announced results for the three and six months ended December 31, 2005. Results The Company reported an increase in net income of 14% to $13.9 million for the three months ended December 31, 2005, from $12.2 million for the three months ended December 31, 2004. Earnings per common share and linked unit increased 10% to $0.246 for the three months of December 31, 2005, compared to $0.224 for the three months ended December 31, 2004. Revenue increased 3% from $46.0 million for the second quarter of 2005 to $47.4 million for the second quarter of 2006. The Company reported an increase in net income of 21% to $27.1 million for the six months ended December 31, 2005, from $22.5 million for the six months ended December 31, 2004. Earnings per common share and linked unit increased 17% to $0.481 for the six months of December 31, 2005, compared to $0.410 for the six months ended December 31, 2004. Revenue increased 5% from $89.2 million for the first six months of fiscal 2005 to $93.3 million for the first six months of fiscal 2006. Since the Company's reporting currency is the U.S. dollar ("USD") but its functional currency is the South African rand ("ZAR"), and due to the significant impact of currency fluctuations between the USD and the ZAR on the Company's results of operations, the Company also analyzes its results of operations in ZAR to assist investors in understanding the changes in the underlying trends of its business. During the three and six months ended December 31, 2005, the ZAR was weaker against the USD than during the same periods in the prior year. The impact of these changes on results of operations is shown under the column "Change" in the table of key metrics included at the end of this press release. In ZAR, the Company reported an increase in net income of 23% to ZAR 91.6 million for the three months ended December 31, 2005, from ZAR 74.3 million for the three months ended December 31, 2004. Earnings per common share and linked unit increased 19% to ZAR 1.618 for the three months of December 31, 2005, compared to ZAR 1.360 for the three months ended December 31, 2004. Revenue increased 12% from ZAR 279.3 million for the second quarter of 2005 to ZAR 312.0 million for the second quarter of 2006. In ZAR, the Company reported an increase in net income of 27% to ZAR 177.3 million for the six months ended December 31, 2005, from ZAR 139.6 million for the six months ended December 31, 2004. Earnings per common share and linked unit increased 24% to ZAR 3.146 for the six months of December 31, 2005, compared to ZAR 2.547 for the six months ended December 31, 2004. Revenue increased 10% from ZAR 610.3 million for the first six months of fiscal 2005 to ZAR 554.3 million for the first six months of fiscal 2006. Second Quarter Highlights * $118.4 million in transactions were processed through our merchant acquiring business in the second quarter of fiscal 2006, compared to $10.6 million in the second quarter of fiscal 2005. During the three months ended December 2005, approximately 1,855,192 grants were paid through the Company's terminal base, compared to 176,009 during the three months ended December 31, 2004; * 3,929 terminals were in use at 2,366 participating UEPS retailer locations as of December 31, 2005, compared with 1,266 terminals in use at 700 locations as of December 31, 2004. Although the terminal base declined slightly compared to the installed base as of September 30, 2005 the number of transactions processed per terminals continues to increase as the productivity of the installed base continues to improve; * UEPS transaction-based activities effected 10.4 million payments during the second quarter of fiscal 2006, a 5% increase over the number of payments effected during the second quarter of fiscal 2005; * A total of 3,497,664 UEPS smart card-based accounts were active at December 31, 2005, compared to 3,308,194 active accounts at December 31, 2004; * Hardware totaling approximately $1.5 million was sold to SmartSwitch Namibia (Pty) Ltd during the three months ended December 31, 2005; * Hardware ordered in September 2005 totaling $3.4 million was delivered to Nedbank Limited. The remaining deliveries related to this order are expected to be completed during the third quarter of fiscal 2006; * Martin Shipanga was appointed as the Vice President, African Emerging Markets and David Schwarzbach was appointed as Vice President, Business Development; * International initiatives continue to progress according to our expectations; and * The Company's chief executive officer rang The Nasdaq National Market closing bell on December 7, 2005. Comment and Outlook Serge Belamant, Net1 Chairman and Chief Executive Officer, stated, "I am pleased with our momentum and our solid second quarter results. In particular, I am delighted with the progress made on our SmartSwitch Namibia implementation and look forward to the official launch in mid-February. This is an important step for us. It demonstrates the strength of the UEPS platform and the adoption of our products in new markets. Additionally, the appointment of Martin Shipanga and David Schwarzbach to our executive committee is the next logical step in our international expansion and we look forward to their contribution in the future. "Our third quarter began on an excellent footing with a strong USD / ZAR exchange rate and significant improvement in the migration of our social welfare grant beneficiaries to our merchant acquiring infrastructure, following the summer holidays in South Africa. Based on our performance over the first six months of fiscal 2006, we are revising our guidance on earnings per share to $0.98 to $1.02 for the full year, assuming an exchange rate of ZAR6.50 to $1.00," Dr. Belamant concluded. Conference call Net1 will host a conference call to review second quarter results on February 7, 2006 at 9:30 a.m. EST. To participate in the call, dial 1-800-860- 2442 (U.S. only), 1-866-519-5086 (Canada only), 0-800-917-7042 (U.K. only) or 0-800-200-648 (South Africa only) five minutes prior to the start of the call. The passcode is "Net1." The call will also be webcast on the Net1 homepage, http://www.net1ueps.com/. Please click on the webcast link at least 10 minutes prior to the call. A replay of the call may be accessed through the Net1 website through February 21, 2006. About Net1 (http://www.net1ueps.com/) Net1 provides its universal electronic payment system, or UEPS, as an alternative payment system for the unbanked and under-banked populations of developing economies. The Company believes that it is the first company worldwide to implement a system that can enable the estimated four billion people who generally have limited or no access to a bank account to enter affordably into electronic transactions with each other, government agencies, employers, merchants and other financial service providers. To accomplish this, the Company has developed and deployed the UEPS. This system uses secure smart cards that operate in real-time but offline, unlike traditional payment systems offered by major banking institutions that require immediate access through a communications network to a centralized computer. This offline capability means that users of Net1's system can enter into transactions at any time with other card holders in even the most remote areas so long as a portable offline smart card reader is available. In addition to payments and purchases, Net1's system can be used for banking, health care management, international money transfers, voting and identification. This announcement may contain forward-looking statements pursuant to the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements, such as product demand, market and customer acceptance, the effect of economic conditions, competition, pricing, development difficulties, foreign currency risks, costs of capital, the ability to consummate and integrate acquisitions, and other risks detailed in the Company's SEC filings. The Company undertakes no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events. NET 1 UEPS TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations Three months ended Six months ended December 31, December 31, 2005 2004 2005 2004 (In thousands, (In thousands, except per share except per share data) data) REVENUE $ 47,429 $ 45,995 $ 93,316 $ 89,218 EXPENSE Cost of goods sold, IT processing, servicing and support 12,908 13,978 24,727 28,779 General and administration 11,956 12,092 22,612 22,368 Depreciation and amortization 1,365 1,654 2,903 3,229 Costs related to public offering and Nasdaq listing 27 - 1,504 - OPERATING INCOME 21,173 18,271 41,570 34,842 INTEREST INCOME, net 1,343 548 2,246 1,203 INCOME BEFORE INCOME TAXES 22,516 18,819 43,816 36,045 INCOME TAX EXPENSE 8,577 6,707 16,988 13,915 NET INCOME FROM CONTINUING OPERATIONS BEFORE (LOSS) EARNINGS FROM EQUITY ACCOUNTED INVESTMENT 13,939 12,112 26,828 22,130 (LOSS) EARNINGS FROM EQUITY ACCOUNTED INVESTMENT (7) 124 283 333 NET INCOME $ 13,932 $ 12,236 $ 27,111 $ 22,463 Net income per share Basic earnings, in cents - common stock and linked units 24.6 22.4 48.1 41.0 Diluted earnings, in cents - common stock and linked units 24.2 22.0 47.4 40.4 NET 1 UEPS TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets Unaudited (A) December 31, June 30, 2005 2005 (In thousands, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents $ 183,902 $ 107,749 Pre-funded social welfare grants receivable - 11,567 Accounts receivable 11,689 15,293 Finance loans receivable, net of allowances of - December: $3,672; June: $3,636 10,378 7,760 Deferred expenditure on smart cards 1,458 3,014 Inventory 3,428 1,927 Deferred income taxes 3,309 3,354 Total current assets 214,164 150,664 LONG TERM RECEIVABLE 1,098 969 PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF - December: $23,227; June: $20,624 5,464 6,216 EQUITY ACCOUNTED INVESTMENTS 3,542 1,325 GOODWILL 15,107 14,636 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF - December: $6,221; June: $4,919 7,081 7,944 TOTAL ASSETS 246,456 181,754 LIABILITIES CURRENT LIABILITIES Accounts payable 18,336 20,315 Income taxes payable 9,642 14,038 Total current liabilities 27,978 34,353 DEFERRED INCOME TAXES 15,051 10,399 TOTAL LIABILITIES 43,029 44,752 SHAREHOLDERS' EQUITY COMMON STOCK Authorized: 83,333,333 with $0.001 par value; Issued and outstanding shares - December: 45,451,317; June: 28,548,269 46 29 SPECIAL CONVERTIBLE PREFERRED STOCK Authorized: 50,000,000 with $0.001 par value; Issued and outstanding shares - December: 11,219,263; June: 26,733,521 11 27 B CLASS PREFERENCE SHARES Authorized: 330,000,000 with $0.001 par value; Issued and outstanding shares (net of shares held by the Company) - December: 82,668,272; June: 196,983,841 13 31 ADDITIONAL PAID-IN-CAPITAL 104,196 71,960 ACCUMULATED OTHER COMPREHENSIVE INCOME 14,409 7,314 RETAINED EARNINGS 84,752 57,641 TOTAL SHAREHOLDERS' EQUITY 203,427 137,002 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 246,456 $ 181,754 (A) - amounts derived from audited financial statements NET 1 UEPS TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows Three months ended Six months ended December 31, December 31, 2005 2004 2005 2004 (In thousands) (In thousands) Cash flows from operating activities Cash received from customers $71,810 $80,342 $110,039 $108,969 Cash paid to suppliers and employees (31,206) (37,714) (51,984) (60,499) Cash generated by operations 40,604 42,628 58,055 48,470 Interest received 3,508 4,246 6,323 7,830 Finance costs paid (2,188) (3,681) (4,079) (6,614) Income taxes paid (8,923) (25,803) (18,075) (31,984) Net cash provided by operating activities 33,001 17,390 42,224 17,702 Cash flows from investing activities Capital expenditures (346) (779) (888) (1,722) Proceeds from disposal of property, plant and equipment 80 5 84 21 Acquisition of equity interest in and advance of loans to equity accounted investment - - (1,851) - Net cash used in investing activities (266) (774) (2,655) (1,701) Cash flows from financing activities Proceeds from issue of share capital, net of share issue expenses - - 32,219 - Repayment of bank overdrafts - - - (19) Net cash provided by (used in) financing activities - - 32,219 (19) Effect of exchange rate changes on cash (1,034) 11,098 4,365 9,052 Net increase in cash and cash equivalents 31,701 27,714 76,153 25,034 Cash and cash equivalents - beginning of period 152,201 77,602 107,749 80,282 Cash and cash equivalents at end of period $183,902 $105,316 $183,902 $105,316 Net 1 UEPS Technologies, Inc. Attachment A Key metrics and statistics at and for the three and six months ended December 31, 2005 and 2004: Three months ended December 31, 2005 and 2004 Three months Three months ended Year ended September ended December 31, Change 30 June 30 Constant 2005 2004 Exchange 2005 2005 US$ US$ Actual Rate(1) US$ US$ Key statement of operations data, in '000, except EPS Revenue $47,429 $45,995 3% 12% $45,887 $176,290 Operating income 21,173 18,271 16% 26% 20,397 71,303 Income tax expense 8,577 6,707 28% 39% 8,411 29,666 Net income $13,932 $12,236 14% 23% $13,179 $44,562 Earnings per share, in cents Basic 24.6 22.4 10% 19% 23.8 81.4 Diluted 24.2 22.0 10% 19% 23.5 79.6 Key segmental data, in '000, except margins Revenue: Transaction-based activities $27,255 $26,426 3% 12% $27,818 $103,653 Smart card accounts 8,744 8,984 (3)% 5% 8,552 34,931 Financial services 3,982 5,240 (24)% (18)% 4,274 20,215 Hardware, software and related technology sales 7,448 5,345 39% 51% 5,243 17,491 Total consolidated revenue $47,429 $45,995 3% 12% $45,887 $176,290 Consolidated operating income (loss): Transaction-based activities $13,517 $10,325 31% 42% $14,132 $44,233 Smart card accounts 3,974 4,083 (3)% 5% 3,887 15,878 Financial services 1,828 2,341 (22)% (15)% 1,844 9,316 Hardware, software and related technology sales 3,874 2,235 73% 88% 4,067 5,689 Corporate/Eliminations (2,020) (713) 183% 207% (3,533) (3,813) Total operating income (loss) $21,173 $18,271 16% 26% $20,397 $71,303 Operating income margin (%) Transaction-based activities 50% 39% 51% 43% Smart card accounts 45% 45% 45% 45% Financial services 46% 45% 43% 46% Hardware, software and related technology sales 52% 42% 78% 33% Overall operating margin 45% 40% 44% 40% Dec. 31 June 30, 2005 2005 Key balance sheet data, in '000 Cash and cash equivalents $183,902 $107,749 71% Total current assets 214,164 150,664 42% Total assets 246,456 181,754 36% Total current liabilities 27,978 34,353 (19)% Total shareholders' equity $203,427 $137,002 48% (1) -- This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the second quarter of fiscal 2006 also prevailed during the second quarter of fiscal 2005. Three months ended December 31, 2005 and 2004 (continued) Three months Three months ended Year ended September ended December 31, Change 30 June 30 2005 2004 2005 2005 Additional information: Transaction based activities: Total number of grants paid: KwaZulu-Natal 4,444,129 4,201,950 6% 4,308,365 16,774,940 Limpopo 2,753,537 2,700,406 2% 2,694,168 10,635,232 North West 787,009 777,910 1% 776,963 3,153,868 Northern Cape 396,750 349,962 13% 389,575 1,459,264 Eastern Cape 2,034,904 1,856,797 10% 1,970,171 7,410,272 10,416,329 9,887,025 5% 10,139,242 39,433,576 Average revenue per grant paid: ZAR ZAR ZAR ZAR KwaZulu-Natal 20.67 18.80 10% 19.21 17.85 Limpopo 15.59 14.95 4% 15.33 15.34 North West 17.21 16.44 5% 18.13 16.43 Northern Cape 18.89 19.60 (4)% 19.02 19.41 Eastern Cape 12.07 12.27 (2)% 12.19 12.35 UEPS merchant acquiring system: Terminals installed at period end 3,929 1,266 nm 3,959 3,235 Number of participating retail locations at period end 2,366 700 nm 2,303 1,880 Value of transactions processed through our merchant acquiring system (US$ '000) 118,396 10,596 nm 118,585 147,331 Average number of grants processed per terminal during the quarter 471 219 455 433 Smart card accounts: Total number of smart card accounts 3,497,664 3,308,194 6% 3,398,516 3,353,603 Hardware, software and related technology sales: Ad hoc significant hardware sales (US$ '000) Nedbank POS's, pin pads, smart cards and other hardware 3,400 3,900 (13)% 2,000 10,400 Smartswitch Namibia hardware and software (before consolidation adjustments) 1,500 - nm 1,200 - Financial services: (US$ '000) Traditional based lending: Finance loans receivable - gross 8,318 13,898 (40)% 8,039 7,212 Allowance for doubtful finance loans receivable (3,672) (9,524) (61)% (4,053) (3,636) Finance loans receivable - net 4,646 4,374 6% 3,986 3,576 UEPS based lending: Finance loans receivable - net and gross (i.e., no provisions) 5,732 6,291 (9)% 4,479 4,184 nm - Statistic not meaningful Six months ended December 31, 2005 and 2004 Six months Year ended ended December 31, Change June 30 Constant 2005 2004 Exchange 2005 US$ US$ Actual Rate(1) US$ Key statement of operations data, in '000, except EPS Revenue $93,316 $89,218 5% 10% $176,290 Operating income 41,570 34,842 19% 26% 71,303 Income tax expense 16,988 13,915 22% 29% 29,666 Net income $27,111 $22,463 21% 27% $44,562 Earnings per share, in cents Basic 48.1 41.0 17% 23% 81.4 Diluted 47.4 40.4 17% 24% 79.6 Key segmental data, in '000, except margins Revenue: Transaction-based activities $55,073 $50,855 8% 14% $103,653 Smart card accounts 17,296 17,205 1% 6% 34,931 Financial services 8,256 10,320 (20)% (16)% 20,215 Hardware, software and related technology sales 12,691 10,838 17% 23% 17,491 Total consolidated revenue $93,316 $89,218 5% 10% $176,290 Consolidated operating income (loss): Transaction-based activities $27,649 $20,007 38% 45% $44,233 Smart card accounts 7,861 7,820 1% 6% 15,878 Financial services 3,672 4,743 (23)% (19)% 9,316 Hardware, software and related technology sales 7,941 4,270 86% 96% 5,689 Corporate/Eliminations (5,553) (1,998) 178% 193% (3,813) Total operating income (loss) $41,570 $34,842 19% 26% $71,303 Operating income margin (%) Transaction-based activities 50% 39% 43% Smart card accounts 45% 45% 45% Financial services 44% 46% 46% Hardware, software and related technology sales 63% 39% 33% Overall operating margin 45% 39% 40% Dec. 31 June 30, 2005 2005 Key balance sheet data, in '000 Cash and cash equivalents $183,902 $107,749 71% Total current assets 214,164 150,664 42% Total assets 246,456 181,754 36% Total current liabilities 27,978 34,353 (19)% Total shareholders' equity $203,427 $137,002 48% (1) -- This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the first half of fiscal 2006 also prevailed during the first half of fiscal 2005. Six months ended December 31, 2005 and 2004 (continued) Six months ended Year ended December 31, Change June 30 2005 2004 2005 Additional information: Transaction based activities: Total number of grants paid: KwaZulu-Natal 8,752,494 8,211,391 7% 16,774,940 Limpopo 5,447,705 5,318,632 2% 10,635,232 North West 1,563,972 1,576,797 (1)% 3,153,868 Northern Cape 786,325 719,601 9% 1,459,264 Eastern Cape 4,005,075 3,596,290 11% 7,410,272 20,555,571 19,422,711 6% 39,433,576 Average revenue per grant paid: ZAR ZAR ZAR KwaZulu-Natal 19.95 18.66 7% 17.85 Limpopo 15.46 15.09 2% 15.34 North West 16.90 16.55 2% 16.43 Northern Cape 18.96 19.49 (3)% 19.41 Eastern Cape 12.13 12.38 (2)% 12.35 UEPS merchant acquiring system: Terminals installed at period end 3,929 1,266 nm 3,235 Number of participating retail locations at period end 2,366 700 nm 1,880 Value of transactions processed through our merchant acquiring system (US$ '000) 236,981 14,159 nm 147,331 Average number of grants processed per terminal during the quarter 471 219 nm n/a Smart card accounts: Total number of smart card accounts 3,497,664 3,308,194 6% 3,353,603 Hardware, software and related technology sales: Ad hoc significant hardware sales (US$ '000) Nedbank POS's, pin pads, smart cards and other hardware 5,600 8,000 (30)% 10,400 Smartswitch Namibia hardware and software (before consolidation adjustments) 2,700 - nm - Financial services: (US$ '000) Traditional based lending: Finance loans receivable - gross 8,318 13,898 (40)% 7,212 Allowance for doubtful finance loans receivable (3,672) (9,524) (61)% (3,636) Finance loans receivable - net 4,646 4,374 6% 3,576 UEPS based lending: Finance loans receivable - net and gross (i.e., no provisions) 5,732 6,291 (9)% 4,184 nm - Statistic not meaningful DATASOURCE: Net 1 UEPS Technologies, Inc. CONTACT: William Espley, Investor Relations of Net1, +1-604-484-8750, or Toll Free: 1-866-412-NET1 (6381) Web site: http://www.net1ueps.com/

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