NET 1 UEPS TECHNOLOGIES, INC. Unaudited Condensed Consolidated
Statements of Operations Three months ended Nine months ended March
31, March 31, 2007 2006 2007 2006 (In thousands, (In thousands,
except per except per share data) share data) REVENUE $61,275
$54,584 $163,772 $147,900 EXPENSE COST OF GOODS SOLD, IT
PROCESSING, SERVICING AND SUPPORT 13,940 14,469 38,185 39,196
GENERAL AND ADMINISTRATION 15,515 13,620 44,690 36,232 DEPRECIATION
AND AMORTIZATION 2,752 1,428 8,512 4,331 COSTS RELATED TO PUBLIC
OFFERING AND NASDAQ LISTING - 25 - 1,529 OPERATING INCOME 29,068
25,042 72,385 66,612 INTEREST INCOME, net 735 1,535 2,793 3,781
INCOME BEFORE INCOME TAXES 29,803 26,577 75,178 70,393 INCOME TAX
EXPENSE 11,397 10,074 28,927 27,062 NET INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST AND (LOSS) EARNINGS FROM EQUITY
ACCOUNTED INVESTMENTS 18,406 16,503 46,251 43,331 MINORITY INTEREST
- - 205 - (LOSS) EARNINGS FROM EQUITY ACCOUNTED INVESTMENTS (153)
73 102 356 NET INCOME $18,253 $16,576 $46,148 $43,687 Net income
per share Basic earnings, in cents - common stock and linked units
32.1 29.2 81.1 77.4 Diluted earnings, in cents - common stock and
linked units 31.8 28.8 80.3 76.2 NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets Unaudited (A) March 31, June
30, 2007 2006 (In thousands, except share data) ASSETS CURRENT
ASSETS Cash and cash equivalents $118,890 $189,735 Pre-funded
social welfare grants receivable 39,546 17,223 Accounts receivable,
net of allowances of -- March: $598; June: $159 41,610 21,219
Finance loans receivable, net of allowances of -- March: $4,359;
June: $3,448 6,210 6,713 Deferred expenditure on smart cards 516
656 Inventory 5,376 1,935 Deferred income taxes 8,177 3,237 Total
current assets 220,325 240,718 LONG TERM RECEIVABLE 933 946
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF
-- March: $26,959; June: $16,543 7,864 3,757 EQUITY ACCOUNTED
INVESTMENTS 6,101 4,986 GOODWILL 83,647 13,923 INTANGIBLE ASSETS,
NET OF ACCUMULATED AMORTIZATION OF -- March: $11,753; June: $6,549
32,469 5,649 TOTAL ASSETS 351,339 269,979 LIABILITIES CURRENT
LIABILITIES Bank overdraft 149 20 Accounts payable 404 2,073 Other
payables 40,577 28,575 Income taxes payable 16,058 12,455 Total
current liabilities 57,188 43,123 DEFERRED INCOME TAXES 33,656
17,846 INTEREST BEARING LIABILITIES 3,830 - TOTAL LIABILITIES
94,674 60,969 SHAREHOLDERS' EQUITY COMMON STOCK Authorized:
83,333,333 with $0.001 par value; Issued and outstanding shares --
March: 50,877,323; June: 49,596,879 51 50 SPECIAL CONVERTIBLE
PREFERRED STOCK Authorized: 50,000,000 with $0.001 par value;
Issued and outstanding shares -- March: 6,051,321; June: 7,315,099
6 7 B CLASS PREFERENCE SHARES Authorized: 330,000,000 with $0.001
par value; Issued and outstanding shares (net of shares held by the
Company) -- March: 44,588,706; June: 53,900,752 7 9 ADDITIONAL
PAID-IN-CAPITAL 106,530 105,792 TREASURY SHARES ISSUED: March:
147,973; June: 147,973 (3,958) (3,958) ACCUMULATED OTHER
COMPREHENSIVE INCOME (8,992) (9,763) RETAINED EARNINGS 163,021
116,873 TOTAL SHAREHOLDERS' EQUITY 256,665 209,010 TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY $351,339 $269,979 (A) -
Derived from audited financial statements NET 1 UEPS TECHNOLOGIES,
INC. Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended Nine months ended March 31, March 31, 2007 2006
2007 2006 (In thousands) (In thousands) Cash flows from operating
activities Net income $18,253 $16,576 $46,148 $43,687 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 2,752 1,428 8,512 4,331
Earnings from equity accounted investments 153 (73) (102) (356)
Fair value adjustment related to financial liabilities 25 - 178 6
Fair value of FAS 133 derivative adjustments (58) (23) 19 30
Interest payable 110 - 110 - (Profit) Loss on disposal of property,
plant and equipment (58) 2 (125) 11 Profit on disposal of business
- (10) - (10) Minority interest - - 205 - Stock compensation charge
190 124 686 124 Increase in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable (32,566)
(26,635) (35,118) (10,441) (Increase) Decrease in deferred
expenditure on smart cards (61) 283 133 1,943 Decrease (Increase)
in inventory 210 551 (2,543) (719) Increase in accounts payable and
other payables 11,436 14,098 490 10,861 Increase (Decrease) in
taxes payable 5,649 98 2,271 (5,088) (Decrease) Increase in
deferred taxes (1,898) 2,594 (1,745) 6,858 Net cash provided by
operating activities 4,137 9,013 19,119 51,237 Cash flows from
investing activities Capital expenditures (943) (315) (2,646)
(1,203) Proceeds from disposal of property, plant and equipment 116
16 262 100 Profit on disposal of business - 10 - 10 Acquisition of
Prism Holdings Limited, net of cash acquired (9,713) - (92,043) -
Acquisition of equity interest in and advance of loans to equity
accounted investment (310) (761) (310) (2,612) Net cash used in
investing activities (10,850) (1,050) (94,737) (3,705) Cash flows
from financing activities Proceeds from issue of share capital, net
of share issue expenses - - 50 32,219 Proceeds from bank overdrafts
148 - 61,731 - Repayment of bank overdraft - - (62,272) - Proceeds
from interest bearing liabilities - - 3,513 - Net cash provided by
financing activities 148 - 3,022 32,219 Effect of exchange rate
changes on cash (2,447) 2,032 1,751 6,397 Net (decrease) increase
in cash and cash equivalents (9,012) 9,995 (70,845) 86,148 Cash and
cash equivalents -- beginning of period 127,902 183,902 189,735
107,749 Cash and cash equivalents -- end of period $ 118,890 $
193,897 $ 118,890 $ 193,897 Net 1 UEPS Technologies, Inc.
Attachment A Key metrics and statistics at and for the three months
ended March 31, 2007 and 2006: Three months ended March 31, 2007
and 2006 Three months Year Three months ended ended ended March 31,
Change Dec 31, June 30, Constant 2007 2006 Exchange 2006 2006 US$
US$ Actual Rate(1) US$ US$ Key statement of operations data, in
'000, except EPS Revenue $61,275 $54,584 12% 31% $49,571 $196,098
Operating income 29,068 25,042 16% 36% 20,142 89,613 Income tax
expense 11,397 10,074 13% 32% 8,690 36,653 Net income $18,253
$16,576 10% 29% $12,823 $59,232 Earnings per share, Basic (cents)
32.1 29.2 10% 28% 22.5 105.8 Diluted (cents) 31.8 28.8 10% 29% 22.3
103.3 Fundamental earnings per share, Basic (cents) 33.9 29.2 16%
36% 27.0 105.8 Key segmental data, in '000, except margins Revenue:
Transaction-based activities $40,962 $31,767 29% 51% $29,973
$117,186 Smart card accounts 8,655 9,570 (10)% 6% 8,487 36,220
Financial services 2,858 4,200 (32)% (21)% 2,793 16,129 Hardware,
software and related technology sales 8,800 9,047 (3)% 14% 8,318
26,563 Total consolidated revenue $61,275 $54,584 12% 31% $49,571
$196,098 Consolidated operating income (loss): Transaction-based
activities $24,869 $16,428 51% 77% $17,502 $60,653 Smart card
accounts 3,934 4,351 (10)% 6% 3,858 16,464 Financial services 930
1,782 (48)% (39)% 768 6,929 Hardware, software and related
technology sales 991 5,449 (82)% (79)% 581 16,721 Corporate/
Eliminations (1,656) (2,968)(44)% (35)% (2,567) (11,154) Total
operating income $29,068 $25,042 16% 36% $20,142 $89,613 Operating
income margin (%) Transaction-based activities 61% 52% 58% 52%
Smart card accounts 45% 45% 45% 45% Financial services 33% 42% 27%
43% Hardware, software and related technology sales 11% 60% 7% 63%
Overall operating margin 47% 46% 41% 46% Mar 31, Jun 30, 2007 2006
Key balance sheet data, in '000 Cash and cash equivalents $118,890
$189,735 (37)% Total current assets 220,325 240,718 (8)% Total
assets 351,339 269,979 30% Total current liabilities 57,188 43,123
33% Total shareholders' equity $256,665 $209,010 23% (1) This
information shows what the change in these items would have been if
the USD/ ZAR exchange rate that prevailed during the third quarter
of fiscal 2007 also prevailed during the third quarter of fiscal
2006. Three months ended March 31, 2007 and 2006 (continued) Three
months Year Three months ended ended ended March 31, Change Dec 31,
June 30, 2007 2006 2006 2006 Additional information:
Transaction-based activities: Total number of grants paid:
KwaZulu-Natal 5,079,328 4,606,938 10% 5,022,500 18,117,676 Limpopo
2,925,621 2,832,121 3% 2,905,861 11,154,040 North West 833,683
801,524 4% 827,058 3,181,242 Northern Cape 417,990 401,712 4%
416,702 1,585,846 Eastern Cape 2,153,674 2,088,799 3% 2,144,919
8,204,977 11,410,296 10,731,094 6% 11,317,040 42,243,781 Average
revenue per ZAR ZAR ZAR ZAR grant paid: KwaZulu-Natal 19.35 20.19
(4)% 20.18 20.14 Limpopo 16.19 15.42 5% 15.98 15.59 North West
21.19 17.23 23% 19.71 18.10 Northern Cape 18.62 18.84 (1)% 18.67
19.30 Eastern Cape 12.89 11.98 8% 11.81 12.04 UEPS merchant
acquiring system: Terminals installed at period end 4,179 3,905 7%
4,145 4,038 Number of participating retail locations at period end
2,511 2,352 7% 2,443 2,381 Value of transactions processed through
POS devices during the quarter (in ZAR '000) 1,726,532 1,158,546
49% 1,355,399 1,225,168 Value of transactions processed through POS
devices during the completed pay cycles for the quarter (in ZAR
'000) 1,634,410 1,055,203 55% 1,376,509 1,213,026 Average number of
grants processed per terminal during the quarter 845 643 31% 671
643 Average number of grants processed per terminal during the
completed pay cycles for the quarter 807 584 38% 683 639 EasyPay
transaction fees: Number of transactions processed 108,803,479
117,626,419 Average fee per transaction (in ZAR) 0.21 0.21 Smart
card accounts: Total number of smart card accounts 3,803,150
3,601,076 6% 3,790,813 3,653,696 Hardware, software and related
technology sales: Ad hoc significant hardware sales (US$ '000)
Nedbank POS's, pin pads, smart cards and other hardware - 4,400 nm
- 13,300 SmartSwitch Namibia hardware and software (before
consolidation adjustments) - 1,200 nm - 3,900 SmartSwitch Botswana
hardware and software (before consolidation adjustments) 56 - nm -
- Financial services: (US$ '000) Traditional microlending: Finance
loans receivable -- gross 7,112 8,289 (14)% 7,399 7,169 Allowance
for doubtful finance loans receivable (4,359) (3,652) 19% (4,232)
(3,448) Finance loans receivable -- net 2,753 4,637 (41)% 3,167
3,721 UEPS-based lending: Finance loans receivable -- net and gross
(i.e., no provisions) 3,457 3,855 (10)% 4,429 2,992 Earnings (Loss)
from equity accounted investments: (US$ '000) SmartSwitch Namibia:
Equity owned 50% 50% 50% 50% Beginning of period (764) - (659) -
Equity accounted (loss)(1) (74) (531) (38) (586) Foreign currency
adjustment 28 (12) (67) 70 End of period (810) (543) (764) (516)
SmartSwitch Botswana: Equity owned 50% 50% 50% 50% Beginning of
period (576) - (495) - Equity accounted (loss)(1) (128) - (35) -
Foreign currency adjustment 102 - (46) - End of period (602) -
(576) - nm - Statistic not meaningful (1) - includes the
elimination of unrealized net income Key metrics and statistics at
and for the nine months ended March 31, 2007 and 2006: Nine months
ended March 31, 2007 and 2006 Year Nine months ended ended March
31, Change June 30, Constant 2007 2006 Exchange 2006 US$ US$ Actual
Rate(1) US$ Key statement of operations data, in '000, except EPS
Revenue $163,772 $147,900 11% 25% $196,098 Operating income 72,385
66,612 9% 23% 89,613 Income tax expense 28,927 27,062 7% 21% 36,653
Net income $46,148 $43,687 6% 20% $59,232 Earnings per share, Basic
(cents) 81.1 77.4 5% 19% 105.8 Diluted (cents) 80.3 76.2 5% 19%
103.3 Fundamental earnings per share, Basic (cents) 89.1 77.4 15%
30% 105.8 Key segmental data, in '000, except margins Revenue:
Transaction-based activities $103,172 $86,840 19% 34% $117,186
Smart card accounts 25,722 26,866 (4)% 8% 36,220 Financial services
8,636 12,456 (31)% (22)% 16,129 Hardware, software and related
technology sales 26,242 21,738 21% 37% 26,563 Total consolidated
revenue $163,772 $147,900 11% 25% $196,098 Consolidated operating
income (loss): Transaction-based activities $60,799 $44,077 38% 56%
$60,653 Smart card accounts 11,692 12,212 (4)% 8% 16,464 Financial
services 2,758 5,454 (49)% (43)% 6,929 Hardware, software and
related technology sales 2,621 13,390 (80)% (78)% 16,721 Corporate/
Eliminations (5,485) (8,521)(36)% (27)% (11,154) Total operating
income $72,385 $66,612 9% 23% $89,613 Operating income margin (%)
Transaction-based activities 59% 51% 52% Smart card accounts 45%
45% 45% Financial services 32% 44% 43% Hardware, software and
related technology sales 10% 62% 63% Overall operating margin 44%
45% 46% Mar 31, Jun 30, 2007 2006 Key balance sheet data, in '000
Cash and cash equivalents $118,890 $189,735 (37)% Total current
assets 220,325 240,718 (8)% Total assets 351,339 269,979 30% Total
current liabilities 57,188 43,123 33% Total shareholders' equity
$256,665 $209,010 23% (1) This information shows what the change in
these items would have been if the USD/ ZAR exchange rate that
prevailed during the nine months ended March 31, 2007 also
prevailed during the nine months ended March 31, 2006. Nine months
ended March 31, 2007 and 2006 (continued) Nine months ended Year
ended March 31, Change June 30, 2007 2006 2006 Additional
information: Transaction-based activities: Total number of grants
paid: KwaZulu-Natal 15,017,233 13,359,432 12% 18,117,676 Limpopo
8,724,102 8,279,826 5% 11,154,040 North West 2,481,696 2,365,496 5%
3,181,242 Northern Cape 1,247,935 1,188,037 5% 1,585,846 Eastern
Cape 6,426,585 6,093,874 5% 8,204,977 33,897,551 31,286,665 8%
42,243,781 Average revenue per ZAR ZAR ZAR grant paid:
KwaZulu-Natal 19.90 20.04 (1)% 20.14 Limpopo 16.16 15.38 5% 15.59
North West 20.17 17.01 19% 18.10 Northern Cape 18.67 18.92 (1)%
19.30 Eastern Cape 12.19 12.08 1% 12.04 UEPS merchant acquiring
system: Terminals installed at period end 4,179 3,905 7% 4,038
Number of participating retail locations at period end 2,511 2,352
7% 2,381 Value of transactions processed through POS devices during
the quarter (in ZAR '000) 1,726,532 1,158,546 49% 1,225,168 Value
of transactions processed through POS devices during the completed
pay cycles for the quarter (in ZAR '000) 1,634,410 1,055,203 55%
1,213,026 Average number of grants processed per terminal during
the quarter 845 643 31% 643 Average number of grants processed per
terminal during the completed pay cycles for the quarter 807 584
38% 639 EasyPay transaction fees: Number of transactions processed
327,261,557 Average fee per transaction (in ZAR) 0.21 Smart card
accounts: Total number of smart card accounts 3,803,150 3,601,076
6% 3,653,696 Hardware, software and related technology sales: Ad
hoc significant hardware sales (US$ '000) Nedbank POS's, pin pads,
smart cards and other hardware - 10,900 nm 13,300 SmartSwitch
Namibia hardware and software (before consolidation adjustments) -
3,900 nm 3,900 SmartSwitch Botswana hardware and software (before
consolidation adjustments) 2,056 - nm - Financial services: (US$
'000) Traditional microlending: Finance loans receivable -- gross
7,112 8,289 (14)% 7,169 Allowance for doubtful finance loans
receivable (4,359) (3,652) 19% (3,448) Finance loans receivable --
net 2,753 4,637 (41)% 3,721 UEPS-based lending: Finance loans
receivable -- net and gross (i.e., no provisions) 3,457 3,855 (10)%
2,992 Earnings (Loss) from equity accounted investments: (US$ '000)
SmartSwitch Namibia: Equity owned 50% 50% 50% Beginning of period
(516) - - Equity accounted (loss)(1) (318) (531) (586) Foreign
currency adjustment 24 (12) 70 End of period (810) (543) (516)
SmartSwitch Botswana: Equity owned 50% 50% 50% Beginning of period
- - - Equity accounted (loss)(1) (683) - - Foreign currency
adjustment 81 - - End of period (602) - - nm -- Statistic not
meaningful Net 1 UEPS Technologies, Inc. Attachment B Key metrics
and statistics for the three months ended March 31, 2007 and 2006
excluding the results of Prism Holdings Limited: Three months ended
March 31, 2007 and 2006 Three months Year Three months ended ended
ended March 31, Change Dec 31, June 30, Constant 2007(1) 2006
Exchange 2006 2006 US$ US$ Actual Rate(2) US$ US$ Key statement of
operations data, in '000, except EPS Revenue $51,711 $54,584 (5)%
11% $40,435 $196,098 Operating income 28,215 25,042 13% 32% 19,431
89,613 Net income(3) $18,689 $16,576 13% 32% $12,802 $59,232
Earnings per share, Basic(3) 32.8 29.2 12% 31% 22.50 105.8 Key
segmental data, in '000, except margins Revenue: Transaction-based
activities $37,806 $31,767 19% 39% $26,506 $117,186 Smart card
accounts 8,655 9,570 (10)% 6% 8,487 36,220 Financial services 2,858
4,200 (32)% (21)% 2,793 16,129 Hardware, software and related
technology sales 2,392 9,047 (74)% 69)% 2,649 26,563 Total
consolidated revenue $51,711 $54,584 (5)% 11% $40,435 $196,098
Consolidated operating income (loss): Transaction-based activities
$23,979 $16,428 46% 71% $16,153 $60,653 Smart card accounts 3,934
4,351 (10)% 6% 3,858 16,464 Financial services 930 1,782 (48)%
(39)% 768 6,929 Hardware, software and related technology sales 626
5,449 (89)% (87)% 902 16,721 Corporate/ Eliminations (1,254)
(2,968) (58)% (51)% (2,250) (11,154) Total operating income $28,215
$25,042 13% 32% $19,431 $89,613 Operating income margin (%)
Transaction-based activities 63% 52% 61% 52% Smart card accounts
45% 45% 45% 45% Financial services 33% 42% 27% 43% Hardware,
software and related technology sales 26% 60% 34% 63% Overall
operating margin 55% 46% 48% 46% (1) Amounts and percentages in
this column exclude the consolidated results of Prism Holdings
Limited. (2) This information shows what the change in these items
would have been if the USD/ ZAR exchange rate that prevailed during
the third quarter of fiscal 2007 also prevailed during the third
quarter of fiscal 2006. (3) Net income and earnings per share --
basic for the three months ended March 31, 2007 are non-GAAP
measures as they exclude the results of Prism for the three months
ended March 31, 2007, the expense related to the amortization of
intangible assets acquired in the Prism acquisition and the
stock-based compensation charge related to options granted to Prism
employees. Accordingly, Prism's net income of $481, or 0.9 cents is
required to be added to the non-GAAP net income and earnings per
shares -- basic measures and the amortization expense of $880, or
1.5 cents, and the stock-based compensation charge of $37, or 0.1
cents, must be subtracted from the non-GAAP net income and earnings
per share -- basic measures provided in order to arrive at GAAP net
income of $18,253, or 32.1 cents. The Company believes it
meaningful to present this information until the Prism integration
is complete and the Company's shareholders are able to better
understand the implications of the Prism acquisition on the
Company's results. Key metrics and statistics for the nine months
ended March 31, 2007 and 2006 excluding the results of Prism
Holdings Limited: Nine months ended March 31, 2007 and 2006 Year
Nine months ended ended March 31, Change June 30, Constant 2007(1)
2006 Exchange 2006 US$ US$ Actual Rate(2) US$ Key statement of
operations data, in '000, except EPS Revenue $137,272 $147,900 (7)%
5% $196,098 Operating income 71,786 66,612 8% 22% 89,613 Net
income(3) $47,908 $43,687 10% 24% $59,232 Earnings per share,
Basic(3) 84.2 77.4 9% 23% 105.8 Key segmental data, in '000, except
margins Revenue: Transaction-based activities $93,526 $86,840 8%
22% $117,186 Smart card accounts 25,722 26,866 (4)% 8% 36,220
Financial services 8,636 12,456 (31)% (22)% 16,129 Hardware,
software and related technology sales 9,388 21,738 (57)% (51)%
26,563 Total consolidated revenue $137,272 $147,900 (7)% 5%
$196,098 Consolidated operating income (loss): Transaction-based
activities $57,761 $44,077 31% 48% $60,653 Smart card accounts
11,692 12,212 (4)% 8% 16,464 Financial services 2,758 5,454 (49)%
(43)% 6,929 Hardware, software and related technology sales 3,915
13,390 (71)% (67)% 16,721 Corporate/ Eliminations (4,080) (8,521)
(52)% (46)% (11,154) Total operating income $72,046 $66,612 8% 22%
$89,613 Operating income margin(%) Transaction-based activities 62%
51% 52% Smart card accounts 45% 45% 45% Financial services 32% 44%
43% Hardware, software and related technology sales 42% 62% 63%
Overall operating margin 52% 45% 46% (1) Amounts and percentages in
this column exclude the consolidated results of Prism Holdings
Limited. (2) This information shows what the change in these items
would have been if the USD/ ZAR exchange rate that prevailed during
the nine months ended March 31, 2007 also prevailed during the nine
months ended March 31, 2006. (3) Net income and earnings per share
-- basic for the nine months ended March 31, 2007 are non-GAAP
measures as they exclude the results of Prism for the nine months
ended March 31, 2006, the expense related to the amortization of
intangible assets acquired in the Prism acquisition and the
stock-based compensation charge related to options granted to Prism
employees. Accordingly, Prism's net income of $1,253, or 2.2 cents
is required to be added to the non-GAAP net income and earnings per
shares -- basic measures and the amortization expense of $2,548, or
4.5 cents, and the stock-based compensation charge of $465, or 0.8
cents, must be subtracted from the non-GAAP net income and earnings
per share -- basic measures provided in order to arrive at GAAP net
income of $46,148, or 81.1 cents. The Company believes it
meaningful to present this information until the Prism integration
is complete and the Company's shareholders are able to better
understand the implications of the Prism acquisition on the
Company's results. Net 1 UEPS Technologies, Inc. Attachment C
Reconciliation of GAAP results to fundamental results: Three months
ended March 31, 2007 and 2006 Three months ended March 31,
Amortiza- tion of Prism and Stock- EasyPay based 2007 2007
intangible charge Funda- 2006 GAAP assets(1) (2) mental GAAP Net
income (US$'000) 18,253 880 190 19,323 16,576 Earnings per share,
basic (US$ cents) 32.1 33.9 29.2 Net income (ZAR'000) 131,586 6,344
1,370 139,300 102,289 Earnings per share, basic (ZAR cents) 231.1
244.7 180.2 (1) Amortization of Prism and EasyPay Intangibles, net
of deferred tax benefit: $'000 ZAR '000 Customer relationships 365
2,630 Software and unpatented technology 94 679 Trademarks 921
6,642 Deferred tax benefit (500) (3,607) 880 6,344 (2) Includes
stock-based compensation charge related to options granted to
employees of Prism and under the Amended and Restated Net 1 UEPS
Technologies, Inc. 2004 Stock Incentive Plan. Nine months ended
March 31, 2007 and 2006 Nine months ended March 31, Expenses
associ- ated Amortiza- with tion of acquis- Prism and ition EasyPay
Stock not 2007 2007 intangible based pursued Funda- 2006 GAAP
assets(1) charge(2) (3) mental GAAP Net income (US$'000) 46,148
2,548 836 1,188 50,720 43,687 Earnings per share, basic (US$ cents)
81.1 89.1 77.4 Net income (ZAR'000) 334,255 18,457 6,055 8,625
367,392 279,706 Earnings per share, basic (ZAR cents) 587.2 645.4
495.60 (1) Amortization of Prism and EasyPay Intangibles, net of
deferred tax benefit: US$ ZAR '000 '000 Customer relationships
1,024 7,410 Software and unpatented technology 272 1,972 Trademarks
2,714 19,661 Deferred tax benefit (1,462) (10,586) 2,548 18,457 (2)
Includes stock-based compensation charge related to options granted
to employees of Prism and under the Amended and Restated Net 1 UEPS
Technologies, Inc. 2004 Stock Incentive Plan. (3) Represents
expenses associated with a potential acquisition that Net1
ultimately decided not to pursue during the three months ended
December 31, 2006. Net 1 UEPS Technologies, Inc. Attachment D
FREQUENTLY ASKED QUESTIONS What is the status of the SASSA tender
and on what basis did Net1 submit a proposal? Net1 submitted ten
proposals in response to the SASSA tender on Friday, May 4, 2007.
We submitted a proposal for each one of South Africa's nine
provinces and a separate proposal for the country as a whole.
According to SASSA's published timetable, the final evaluation
process will be completed by July 13, 2007 where after service
level agreements will be negotiated with the winning bidder/s. The
new contract will commence on April 1, 2008. Our existing contracts
in five provinces will therefore continue until March 31, 2008. How
will the tenders be adjudicated? The tenders will be adjudicated by
a committee appointed by SASSA. The submissions will be evaluated
in terms of the following 100-point scoring system: --
Technological solution: 60 points -- Financial proposal: 30 points
-- Black economic empowerment procurement objectives: 10 points How
does Net1 view its chances of success for the SASSA tender and who
are the competitors? We believe that we have a good chance of
remaining a significant player in the social grant payment business
in South Africa for the following main reasons: -- our successful
track record with our provincial government contracts; -- our
unique UEPS technology and biometric identification systems that
enables us to effect secure off-line payments -- especially in
rural areas where communications infrastructure is limited or
non-existent; -- our unique solution that gives SASSA the
flexibility to utilize various distribution methods to conduct
beneficiary registration, electronic voucher generation, electronic
voucher distribution, proof of life and pay-out and payment
transacting. Our solution is based on simplifying the existing
processes and providing significantly improved convenience to
beneficiaries to access and receive their grants; and -- our
financial strength that enables us to arrange finance for the
significant amount of money required to pre-fund social grants in
any, or all of the provinces, which is a requirement of the tender.
However, as this is a competitive tender process, there can be no
assurance that we will retain any or all of our existing contracts.
We believe the other bidders who will participate in the process
consist of the major South African banks and the other contractors
currently engaged in the grant payment business, being Allpay (Pty)
Ltd (a subsidiary of ABSA Bank) and Empilweni Payout Services (Pty)
Ltd. How will the pricing for any future contracts with SASSA
change from the current base? Our pricing proposals are obviously
confidential during this stage of the tendering process and we can
not reveal any details of what we have proposed. Should we be
successful with some or all of our proposals, the final pricing
will depend on the options selected by SASSA and the service level
agreement negotiations. As soon as we have finality on these prices
upon completion of the tender process, we will provide a detailed
update on the financial implications for Net1. Can any interested
party, such as an investor or analyst, talk to SASSA about the
tenders and the process? Please refrain from contacting SASSA
during the tender process as the tender evaluation process is
conducted in a secure and confidential manner. What is the status
of the wage payment system implementation with Grindrod Bank and
how will Net1 derive income from the relationship with Grindrod
Bank? In late January 2007, we signed a co-operation agreement with
Grindrod Bank, a fully registered bank in South Africa, for the
establishment of a retail banking division within Grindrod Bank
that will focus on deploying our wage payment solution in South
Africa. Under the agreement, Grindrod Bank will establish the
division and will be responsible for the human resources,
administration, compliance, risk management and financial affairs
of the division. Net1 will be responsible for the supply and
maintenance of all UEPS hardware and software required to implement
and run its wage payment system, for which it will charge a monthly
fee per smart card account at Net1's cost price, and will receive
ongoing fee payments based on the amount of business transacted by
the division utilizing the UEPS technology. Net1 will assist
Grindrod Bank with the implementation of the business plan and
operational activities and both parties have contributed $0.7
million (ZAR 5 million) to assist with the set-up costs of the
division. The division reports to an executive committee consisting
of two Net1 and two Grindrod representatives. Net1 and Grindrod
Bank commenced with the establishment of the division during the
third quarter of fiscal 2007. During the establishment phase, all
the relevant technological platforms will be installed, where
required, or integrated between Net1 and Grindrod. Grindrod Bank,
with Net1's assistance, has also initiated the process that will
enable it to become a member of the South African National Payment
System and the various payment clearing houses in South Africa. Due
to the focus of Grindrod Bank's activities in the past, membership
of these bodies was not required, but the establishment of a retail
banking division requires this process to be completed. In
parallel, Net1 and Grindrod Bank have defined the products, pricing
and marketing strategy for the wage payment system. We anticipate
that the Grindrod Bank retail division will commence with the
marketing of the wage payment solution during the fourth quarter of
fiscal 2007. What is the size of the market opportunity for the
wage payment system and how successful will Net1 and Grindrod Bank
be in penetrating this market? What goals have been set and when
will the first customers be signed up? The target markets for the
wage payment system are the un-banked and under-banked wage earners
in South Africa which we estimate at five million people. These
wage earners are typically paid in cash on a weekly, bi-weekly or
monthly basis and have all the risks associated with cash payments,
but none of the benefits associated with having a formal bank
account. Net1 and Grindrod Bank plan to offer these wage earners a
UEPS smart card that will allow the card holder to receive payment,
transact and access other financial services in a secure,
cost-effective way. We market the wage payment system to medium and
large employers and to trade unions. The value proposition
presented to employers focuses on the following key features: --
Safety -- Security risks associated with cash transportation and
short-payment disputes are eliminated; -- Cost-effectiveness -- Our
wage payment solution is significantly cheaper than the current
cost to employers of preparing and distributing cash pay packets;
-- Improved productivity -- Our solution obviates the need to set
aside valuable production time to physically pay employees; and --
Convenience -- With our system, wages can be distributed off-line
at any time, and financial products, such as cash advances, can be
offered to the employee without placing any administrative burden
on the employer. Our value proposition to unions and employees has
the following key elements: -- Safety -- The personal safety risk
of carrying cash is eliminated; -- Security -- Our smart cards can
only be used in conjunction with biometric verification and are
completely loss tolerant -- no money is lost if the card is lost or
stolen; -- Convenience -- Our cards can be used at any
participating retailer or service provider at any time. Card
holders can obtain cash from any participating retailer,
eliminating the need to search for an available ATM; -- Cost
effectiveness -- Our solution is significantly cheaper than any
other bank product, as we recover our fees mainly from employers,
merchants and service providers; and -- Access to credible and
affordable facilities, such as money transfers, loans, interest
paying savings, life insurance and third part payments. We have
agreed with Grindrod Bank to launch our system in a specific area
where we already have a strong presence in terms of infrastructure,
and where there is a pressing need for our solution from the
mining, agricultural and fishing industries. We have already
initiated contact with the large employers in this area and we
expect to commence with the payment of wages during the first
quarter of fiscal 2008. Our target is to have a customer base of at
least 1.5 million customers after three years of operation. What is
Net1's strategy in expanding the UEPS technology outside South
Africa? Our strategy to introduce the UEPS technology outside of
South Africa consists of the following key components: --
Developing countries -- We believe that our UEPS technology is
ideally suited to "third world" economies where communications
infrastructures are limited and the need for off-line payment
technology is the greatest. Potential users of our technology in
these countries are generally government agencies, employers,
merchants and financial service providers and individuals, who may
have a need for all, or any, of our applications and products. We
analyze potential target countries to determine the most
appropriate entry point in terms of users and applications and we
establish relationships with the most likely customers. We believe
that the most efficient way to deploy our technology in any country
is for a local partner, or partners, to invest in the establishment
of a UEPS switch and for these partners to implement and operate
the technology, with our guidance and assistance. We refer to these
UEPS switches as "SmartSwitch" for the relevant territory. We often
participate as shareholders in the local switch as most partners
prefer the supplier of the technology to have an on-going interest
in the deployment and operation of the technology. In some cases,
we enter new territories as a result of our participation in a
tender process that calls for a solution to which our technology is
ideally suited. In these instances, we are generally not offered a
shareholding. Initially, we have focused our marketing efforts on
the African continent where the need for our technology is arguably
the greatest across the entire continent and because we have a good
understanding of African business methodology and culture. Our
proximity to most African countries, as well as the multiplier
effect of having several implementations across the continent, also
ensures a high amount of interest from the African continent; and
-- Developed world -- We believe that some of our UEPS applications
and products are ideally suited to a "first world" environment,
such as secure internet-based payments and mobile telephony
transacting. We will offer these products to service providers such
as mobile phone operators, financial institutions and
internet-based retailers in the near future. What are the economics
of a new SmartSwitch implementation? The financial implications to
Net1 of a new SmartSwitch implementation consist of the following
elements: -- Sale of hardware and software licenses to the
SmartSwitch: Net1 provides all the necessary hardware and software
licenses to any new SmartSwitch on market related and arms-length
terms, regardless of whether we are a shareholder in the Switch. If
we are a shareholder in the SmartSwitch, we eliminate the
appropriate portion of the profit on the sale of hardware and
software licenses to the SmartSwitch in our reported financial
statements. Any ongoing sales of hardware, additional software
licenses, customization and maintenance services are treated in the
same manner. -- Transaction fees, license fees and profit sharing:
We receive annual license fees from any new switch that has been
licensed with our technology. In some cases, we also negotiate a
transaction fee payable to us for each transaction processed
through the SmartSwitch. If we are a significant minority
shareholder in the SmartSwitch, as is the case with SmartSwitch
Namibia and SmartSwitch Botswana, we will include the financial
results of the SmartSwitch in our reported financial statements on
an equity accounting basis. If we are the majority shareholder in a
SmartSwitch, such as SmartSwitch Nigeria, we consolidate the
financial results of the SmartSwitch as part of the Net1 group. Our
business plans and experience indicate that a SmartSwitch
implementation will generally break even, on an operating profit
basis, after twelve months of operation. We expect the SmartSwitch
to generate revenues of $0.50 per card holder per month after
another year of operation, increasing to $3.00 per cardholder after
five years of operation. These numbers are indicative only and are
dependent on several factors such as the relevant territory's
income per capita, the products and applications launched, currency
strength and the size of the cardholder base. -- Investment in the
SmartSwitch: Where we participate as a shareholder in a
SmartSwitch, we contribute our share of the capital required to
establish and fund the business pro-rata to our shareholding by way
of subscribing for equity and shareholders' loans. What is the
status of SmartSwitch Nigeria? We have completed the SmartSwitch
Nigeria computer room which houses the UEPS backend processing
hardware and software in Nigeria. In addition, the switch has been
commissioned and the required Nigerian staff have been appointed
and trained. Diamond Bank, one of Nigeria's largest banking
institutions, has ordered 50,000 smart cards from us for their
initial deployment into the village community bank. SmartSwitch
Nigeria, together with Diamond Bank, has applied for permission
from the Central Bank of Nigeria to conduct a multi-lateral
clearing and settlement system that will allow other financial
institutions to participate in the switch. One of SmartSwitch
Nigeria's initial objectives is to have an impact on the financial
industry in Nigeria, where approximately 90% of the population of
140 million people is un-banked and transacts in cash. SmartSwitch
Nigeria's other objectives will be to deploy the UEPS technology
through several applications, including banking, health care, money
transfers, pre- paid utilities and telephony and voting.
SmartSwitch Nigeria and selected partners have tendered to provide
the Nigerian government with a multi-purpose smart card. The
multi-purpose card tender comprises a national identity
authentication/ verification system, a government financial
payments for services system and an affordable banking solution.
The Nigerian government is currently evaluating the tender
submissions. Our consortium is one of the two remaining bidders and
we expect the outcome of the tender to be finalized when the newly
elected Nigerian government resumes with their duties. We expect
SmartSwitch Nigeria to become fully operative during the first
quarter of fiscal 2008. What territories are currently being
targeted and how long is the sales cycle? We are in various stages
of negotiations with partners in Tanzania, Kenya, Mozambique, the
Philippines, Vietnam, Iraq and Malaysia. We have responded to a
tender request for the establishment of a national payment system
in Ghana. The sales cycle in any new territory, although very
difficult to predict, generally spans several months (in some
cases, years) as a myriad of factors need to be considered, such as
the corporate regulatory environment, central bank requirements,
tax regimes, compilation of business plans, etc. What is VTU and
how does the revenue model work? VTU, or Virtual Top Up,
facilitates mobile phone-based pre-paid airtime vending. The VTU
technology enables prepaid cell users to purchase additional
airtime simply, securely and conveniently through the distribution
of airtime value, as opposed to a voucher, from a vendor's cellular
handset to that of the customer. We derive revenue from the sale of
VTU licenses to mobile operators and we have recently established
VTU businesses in Colombia and Vietnam, where we are minority
shareholders in companies that will provide a VTU service to
prepaid cell phone users. These businesses will generate revenue by
charging a percentage of the value of the airtime distributed
through VTU. What are your new patents for mobile payments all
about? Our latest patents incorporate our UEPS and SIM card
expertise into a system that will seamlessly bridge mobile phones
to existing payment infrastructures such as ATM's, POS devices, the
Internet and voice channels. The application of these patents will
allow any mobile phone user to effect payments that are generally
referred to as "card not present" payments completely securely,
through the utilization of a once off, disposable, virtual credit
or debit card. Why is the Net1 Financial Services segment
constantly declining in revenue and profit? We offer UEPS-based
loans to our social welfare cardholders with the primary purpose of
assisting them to repay expensive loans with other loan providers
and to escape the debt spiral that they are trapped in. Once our
UEPS-based loans are repaid, we believe that the beneficiaries have
an enhanced ability to remain debt-free, or take loans in amounts
smaller than the original refinancing facility we offered to them.
In addition, we continuously revise the interest rates charged on
our UEPS-based loans, as part of our ongoing commitment to the
South African government to provide affordable financial services
to the unbanked population of that country. We believe that once
cardholders escape the debt spiral they will have more disposable
income to spend, including through our merchant acquiring base.
Revenues and profit from our traditional microlending business have
decreased due to our strategic decision not to grow this business,
increased competition and lower interest rates charged on
traditional microlending loans. What is the "pre-funded social
welfare grant receivable" line item on the balance sheet? We have a
unique cash flow cycle due to our obligations to pre-fund the
payments of social welfare grants in the KwaZulu-Natal and Eastern
Cape provinces. We provide the funds required for the grant
payments on behalf of these provincial governments from our own
cash resources and are reimbursed within two weeks by the
KwaZulu-Natal and Eastern Cape governments, thus exposing ourselves
to these provinces' credit risk. These obligations result in a peak
funding requirement, on a monthly basis, of approximately $46.7
million (ZAR 340 million) for each of the KwaZulu-Natal and Eastern
Cape contracts. The funding requirements are at peak levels for the
first three weeks of every month during the year. The amount
disbursed through merchants during March 2007 was reimbursed to us
by the provincial governments during the first two weeks of April
2007. We settle our obligation to merchants within 48 hours of the
distribution of the grant by the merchant to the social welfare
beneficiaries, however, the provincial governments reimburse the
amount due to us within two weeks after the distribution date. This
practice results in a significant net cash outflow at the end of a
month, and a quarter, however, the situation is typically reversed
within a week. The actual quantum of Net1's cash reserves should be
evaluated by regarding this highly liquid, very short-term
government receivable as a near- cash equivalent. How does Net1
view its investor relations function? Some of our investors have
advised that we need to establish a permanent investor relations
function to deal with all queries from investors. We believe that
it is not possible to perform a proper investor relations function
if the responsible person is not intricately involved with the
group's daily activities and operations. The process to recruit a
high calibre person that will fit this profile has been underway
for some time, without any success. Once recruited, it will take
such a person some time to fully understand the various aspects of
our business. We will continue to search for the appropriate person
but, in the interim, we have formulated the following plan to
address the immediate needs of our investors: -- Our Vancouver
based IR team, consisting of Randy Saunders and Bill Espley, will
continue to handle all initial communication with prospective
investors and supply investor packs and historical information. The
Vancouver office can be reached at +1 (604) 484-8750 or toll free
at 1-866-412-NET1 (6381). -- We have also set up a communication
matrix that will allow our Vancouver team to access the relevant
persons in Net1 to answer any technical or accounting queries. Any
such queries can be directed to the Vancouver office, from where
Randy and Bill will communicate with the designated person in
Johannesburg to obtain the answers and respond to the query. -- We
understand that our key shareholders have a pressing need to talk
to executive management, regardless of the existence of an IR
function. Any request to talk to the executive management team
should be directed to the Vancouver office, where Randy and Bill
will access our diaries to schedule any meeting requests. -- The
executive management team will continue to visit the United States,
specifically to meet with analysts and investors, when our
schedules and workload allow us to do so. -- We welcome visits by
all shareholders and analysts to our head office and operations in
South Africa. Any scheduling requests should be given to the
Vancouver office and we will confirm the appointment as soon as we
can. DATASOURCE: Net 1 UEPS Technologies, Inc. CONTACT: William
Espley of Net1 Investor Relations, +1-604-484-8750, Toll Free,
+1-866-412-NET1 (6381) Web site: http://www.net1ueps.com/
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