Net 1 UEPS Technologies Inc. Reports First Quarter 2013 Results
- Performed payments to approximately 9.5 million grant recipients nationally; - Revenue of 111.7 million, increased 30% in constant currency; and - Fundamental EPS of 0.25 including 15.8 million of direct implementation costs, decreased 32% in constant currency.
JOHANNESBURG, SOUTH AFRICA, Nov 08, 2012 (Menafn - MARKETWIRE via COMTEX) --Net 1 UEPS Technologies Inc. UEPS(jse:NT1) todayannounced results for the first quarter fiscal 2013.
Summary Financial Metrics
Three months ended September 30,
----------------------------------------
% change% change
20122011in USDin ZAR
----------------------------------------
(All figures in USD '000s except
per share data)
Revenue111,68299,92612%30%
GAAP net income6,74419,768(66%)(60%)
Fundamental net income (1)11,49819,884(42%)(33%)
GAAP earnings per share ()0.150.44(66%)(61%)
Fundamental earnings per share ()
(1)0.250.44(43%)(33%)
Fully-diluted shares outstanding
('000's)45,59045,0791%
Average period USD/ ZAR exchange
rate8.267.0916%
(1) Fundamental net income and earnings per share is a non-GAAP measureand is described below under "Use of Non-GAAP Measures-Fundamentalnet income and fundamental earnings per share". See Attachment B fora reconciliation of GAAP net income to fundamental net income andearnings per share.
Factors impacting comparability of our Q1 2013 and Q1 2012 results
--Unfavorable impact from the strengthening of the US dollar: The US
dollar appreciated by 16% against the ZAR during Q1 2013 which
negatively impacted our reported results;
--SASSA implementation costs: We continued implementing our SASSA contract
during Q1 2013 and incurred additional implementation and staff costs;
and
--Profit on liquidation of SmartSwitch Nigeria: In fiscal 2012, we
recorded a non-cash profit of 4.0 million on the liquidation of
SmartSwitch Nigeria.
Comments and Outlook
"I am delighted with the progress we have made in the implementationof our SASSA contract and specifically with the efficiency,reliability and security of our platform," said Dr. Serge Belamant,Chairman and Chief Executive Officer of Net1. "In addition, togetherwith our Board we have now developed an extensive strategic plan thatwill drive growth and profitability for the group over the next threeyears. We have identified four key pillars of the strategy, namely(i) South Africa; (ii) NUETS, UEGS and UEPS/EMV; (iii) MobileSolutions; and (iv) KSNET. We expect to provide more details on thisstrategy over the next few months," he concluded.
"We expect our quarterly performance to remain lumpy during the SASSAcontract implementation period. In the first quarter of fiscal 2013,we decided to expense the cost of the smart cards issued to grantrecipients, rather than to capitalize as under our previouscontract," said Herman Kotze, Chief Financial Officer of Net1."Although the estimated number of cards to be issued remains 10million, the number of beneficiaries that SASSA has now asked us toenroll has increased substantially to 21.6 million, which isapproximately 40% higher than SASSA's previous estimate. Therefore,in fiscal year 2013, we now expect fundamental earnings per share tobe at least 1.25, which includes approximately 0.21 per share forthe cost of smart cards. Our guidance also assumes a constantcurrency base of ZAR 7.72/1 and using our fiscal 2012 share count of45 million shares. As a result of expensing the smart cards, we haverevised our estimated SASSA-related capital expenditures lower to 35million," he concluded.
Progress of second phase of our SASSA contract implementation
We commenced the second phase of the enrollment process in early July2012 and plan to be substantially complete by March 2013, inaccordance with the enrollment plan agreed with SASSA. Under ouragreement with SASSA, we have to enroll both the grant recipients, aswell as the grant beneficiaries. While the number of grant recipientson a national basis has consistently been quantified by SASSA at 9.4million individuals, the number of beneficiaries is continually beingrevised by SASSA on an ongoing basis from an initial estimate ofapproximately 15.5 million, to the current estimate of approximately21.6 million.
As of September 30, 2012, we had enrolled approximately 1.7 milliongrant recipients and 1.3 million beneficiaries associated with theserecipients in accordance with our second phase enrollment schedule,and issued them our UEPS/EMV smart card.
During the first quarter of fiscal 2013 we incurred directimplementation expenses of approximately 14.1 million (ZAR 116.6million) including staff, travel, premises hire for enrollment andstationery costs. In line with industry practice, we no longeramortize the cost of the smart cards over the contract period andexpense the cost of the card when issued on enrollment. As a resultof our decision to fully expense the UEPS/EMV smart cards when theyare issued, we expensed 1.7 million (ZAR 14.0 million) related tothe cost of the UEPS/EMV smart cards issued during the quarter, whichis not included in the 14.1 million above. We also incurredapproximately 3.3 million in capital expenditures, primarily toacquire payment vehicles. Since inception of the implementation wehave incurred cumulative capital expenditures of 24.5 million. Weanticipate cumulative capital expenditures related to the ramp of ournational contract to be in the 35 million range. We have lowered ourexpected capital expenditure range related to the implementation ofour SASSA contract given the decision to expense the cost of smartcards rather than capitalize those costs.
Results of Operations by Segment and Liquidity
Our frequently asked questions and operating metrics will be updatedand posted on our website (www.net1.com).
South African transaction-based activities
Segment revenue was 61.4 million in Q1 2013, up 23% compared with Q12012 in USD and up 43% on a constant currency basis. In ZAR, theincreases in segment revenue were primarily due to higher revenuesearned under our new SASSA contract and higher prepaid airtime sales,offset by lower volumes at EasyPay and MediKredit. Segment operatingincome margin was 10% and 40%, respectively, and declined primarilydue to SASSA implementation costs and higher low-margin prepaidairtime sales. Excluding amortization of acquisition-relatedintangibles, Q1 2013 segment operating income margin was 13%,compared to 43% during Q1 2012.
International transaction-based activities
KSNET continues to contribute the majority of our revenues in thisoperating segment. Segment revenue was 31.6 million in Q1 2013, up5% compared with Q1 2012 in USD and 22% on a constant currency basis.Operating margin for the segment is lower than most of our SouthAfrican transaction-based businesses and was negatively impacted byadverse currency movement between the Korean won and the US dollar,additional start-up expenditures related to our XeoHealth launch inthe United States, MVC activities at Net1 UTA and on-going losses atNet1 Virtual Card, but these expenses were partially offset byincreased revenue contributions from KSNET and NUETS' initiative inIraq. Excluding the amortization of intangibles but including thestart-up costs referenced above, Q1 2013 operating income margin was9% compared to 13% during Q1 2012.
Smart card accounts
Segment revenue was 8.4 million in Q1 2013, up 1% compared with Q12012 in USD and 18% on a constant currency basis. Q1 2013 segmentoperating income margin was 29%, compared to 45% during Q1 2012. Wehave reduced our pricing for smart card accounts after taking intoconsideration the lower price and higher volumes of the new SASSAcontract.
Financial services
UEPS-based lending contributes the majority of the revenue andoperating income in this operating segment. Segment revenue was 1.4million in Q1 2013, down 34% compared with Q1 2012 in USD and 22%lower on a constant currency basis, principally due to a decrease inlending activities. Q1 2013 segment operating income margin was 79%compared with 67% during Q1 2012 primarily as a result of an improvedmargin in our UEPS-based lending book resulting from a better lossexperience, offset by start-up expenditures related to Smart Life andother financial services offerings.
Hardware, software and related technology sales
Segment revenue was 8.9 million in Q1 2013, down 5% compared with Q12012 in USD but up 10% on a constant currency basis. In constantcurrency, the increase in revenue and operating income resultedprimarily from an increase in royalty fees, offset by a lowercontribution from all other contributors to hardware and softwaresales. Excluding amortization of all intangibles, segment operatingincome margin was 22% compared to 21% during Q1 2012.
Cash flow and liquidity
At September 30, 2012, we had cash and cash equivalents of 58million, up from 39 million at June 30, 2012. The increase in ourcash balances from June 30, 2012, was primarily from cash generatedfrom operations, offset by implementation costs and capitalexpenditures incurred to implement our SASSA contract and the cashportion of the purchase price of the acquisition of Pbel, a softwaredevelopment firm focused on mobile phones and kiosks, for 1.9million. For Q1 2013, net cash generated by operating activities was25.7 million compared with 27.2 million in Q1 2012.
Excluding the impact of interest received, interest paid under ourKorean debt and taxes paid, the decrease in cash provided byoperating activities resulted from significant implementation costsrelated to our SASSA contract, partially offset by cash generatedfrom operations. Capital expenditures for Q1 2013 and 2012 were 6.5million and 4.5 million, respectively, and have increased primarilydue to acquisition of payment vehicles and other equipment for ournew SASSA contract and payment processing terminals in Korea.
Use of Non-GAAP Measures
US securities laws require that when we publish any non-GAAPmeasures, we disclose the reason for using the non-GAAP measure andprovide reconciliation to the directly comparable GAAP measure. Thepresentation of fundamental net income and fundamental earnings pershare and headline earnings per share are non-GAAP measures.
Fundamental net income and fundamental earnings per share
Fundamental net income and earnings per share is GAAP net income andearnings per share to adjusted for (1) the amortization ofacquisition-related intangible assets (net of deferred taxes), (2)stock-based compensation charges and (3) unusual non-recurring items,including the amortization of KSNET debt facility fees,transaction-related costs and the profit on liquidation ofSmartSwitch Nigeria. Management believes that the fundamental netincome and earnings per share metric enhances its own evaluation, aswell as an investor's understanding, of our financial performance.Attachment B presents the reconciliation between GAAP and fundamentalnet income and earnings per share.
Headline earnings per share ("HEPS")
The inclusion of HEPS in this press release is a requirement of ourlisting on the JSE. HEPS basic and diluted is calculated using netincome which has been determined based on GAAP. Accordingly, this maydiffer to the headline earnings per share calculation of othercompanies listed on the JSE as these companies may report theirfinancial results under a different financial reporting framework,including but not limited to, International Financial ReportingStandards.
HEPS basic and diluted is calculated as GAAP net income adjusted forthe profit on sale of property, plant and equipment, net of relatedtax effects, and the profit on liquidation of SmartSwitch Nigeria.Attachment C presents the reconciliation between our net income usedto calculate earnings per share basic and diluted and HEPS basic anddiluted.
Conference Call
We will host a conference call to review Q1 2013 results on November9, 2012, at 8:00 Eastern Time. To participate in the call, dial1-800-860-2442 (U.S. only), 1-866-605-3852 (Canada only),0-800-917-7042 (U.K. only) or 0-800-200-648 (South Africa only) tenminutes prior to the start of the call. Callers should request "Net1call" upon dial-in. The call will also be webcast on our homepage,www.net1.com. Please click on the webcast link at least ten minutesprior to the call. A webcast of the call will be available for replayon our website through November 30, 2012.
About Net1 (www.net1.com)
Net1 is a leading provider of alternative payment systems thatleverage its Universal Electronic Payment System, or UEPS, tofacilitate biometrically secure real-time electronic transactionprocessing to unbanked and under-banked populations of developingeconomies around the world in an online or offline environment. Inaddition to payments, UEPS can be used for banking, healthcaremanagement, payroll, remittances, voting and identification.
Net1 operates market-leading payment processors in South Africa,Republic of Korea, Ghana and Iraq. In addition, Net1's proprietaryMobile Virtual Card technology offers secure mobile payments andbanking services in developed and emerging countries while itsMediKredit and XeoHealth subsidiaries provide its proprietary 5010and ICD-10 compliant real-time claims adjudication system.
Net1 has a primary listing on the Nasdaq and a secondary listing onthe JSE Limited.
Forward-Looking Statements
This announcement contains forward-looking statements that involveknown and unknown risks and uncertainties. A discussion of variousfactors that cause our actual results, levels of activity,performance or achievements to differ materially from those expressedin such forward-looking statements are included in our filings withthe Securities and Exchange Commission. We undertake no obligation torevise any of these statements to reflect future events.
NET 1 UEPS TECHNOLOGIES INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended
------------------------
September 30,
------------------------
20122011
------------------------
(In thousands, except
per share data)
REVENUE111,68299,926
EXPENSE
Cost of goods sold, IT processing, servicing and
support45,10132,944
Selling, general and administration47,25227,057
Depreciation and amortization10,0049,079
------------------------
OPERATING INCOME9,32530,846
INTEREST INCOME3,0911,997
INTEREST EXPENSE2,0712,616
------------------------
INCOME BEFORE INCOME TAXES10,34530,227
INCOME TAX EXPENSE3,72910,552
------------------------
NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS6,61619,675
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS12885
------------------------
NET INCOME6,74419,760
LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO NON-
CONTROLLING INTEREST-(8)
------------------------
NET INCOME ATTRIBUTABLE TO NET16,74419,768
------------------------
------------------------
Net income per share, in United States dollars
Basic earnings attributable to Net1 shareholders0.150.44
Diluted earnings attributable to Net1
shareholders0.150.44
NET 1 UEPS TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
Unaudited(A)
September
30,June 30,
20122012
------------------------
------------------------
(In thousands, except
share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents57,54439,123
Pre-funded social welfare grants receivable8,9719,684
Accounts receivable, net of allowances of -
September: 955; June: 78899,703101,918
Finance loans receivable6,7878,141
Deferred expenditure on smart cards4,6044,587
Inventory7,1296,192
Deferred income taxes6,2235,591
------------------------
Total current assets before settlement assets190,961175,236
Settlement assets347,672409,166
------------------------
Total current assets538,633584,402
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF - September: 80,058; June: 74,24254,47552,616
EQUITY-ACCOUNTED INVESTMENTS1,5711,508
GOODWILL187,570182,737
INTANGIBLE ASSETS, net93,32793,930
OTHER LONG-TERM ASSETS, including reinsurance
assets40,57040,700
------------------------
TOTAL ASSETS916,146955,893
------------------------
------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable14,72213,172
Other payables40,20942,157
Current portion of long-term borrowings14,43814,019
Income taxes payable11,5426,019
------------------------
Total current liabilities before settlement
obligations80,91175,367
Settlement obligations347,672409,166
------------------------
Total current liabilities428,583484,533
DEFERRED INCOME TAXES21,06520,988
LONG-TERM BORROWINGS82,14579,760
OTHER LONG-TERM LIABILITIES, including insurance
policy liabilities25,99825,791
------------------------
TOTAL LIABILITIES557,791611,072
------------------------
COMMITMENTS AND CONTINGENCIES
EQUITY
NET1 EQUITY:
COMMON STOCK
Authorized: 200,000,000 with 0.001 par value;
Issued and outstanding shares, net of treasury
- September: 45,600,471; June: 45,548,9025959
PREFERRED STOCK
Authorized shares: 50,000,000 with 0.001 par
value;
Issued and outstanding shares, net of treasury:
2012: -; 2011: ---
ADDITIONAL PAID-IN-CAPITAL155,895153,360
TREASURY SHARES, AT COST: September: 13,455,090;
June: 13,455,090(175,823)(175,823)
ACCUMULATED OTHER COMPREHENSIVE LOSS(71,467)(75,722)
RETAINED EARNINGS446,385439,641
------------------------
TOTAL NET1 EQUITY355,049341,515
NON-CONTROLLING INTEREST3,3063,306
------------------------
TOTAL EQUITY358,355344,821
------------------------
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY916,146955,893
------------------------
------------------------
(A) - Derived from audited financial statements
NET 1 UEPS TECHNOLOGIES INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
------------------------
September 30,
------------------------
20122011
------------------------
(In thousands)
Cash flows from operating activities
Net income6,74419,760
Depreciation and amortization10,0049,079
Loss from equity-accounted investments(128)(85)
Fair value adjustments(293)(221)
Interest payable1,1921,662
Profit on disposal of property, plant and equipment-(8)
Profit on liquidation of SmartSwitch Nigeria-(3,994)
Realized loss on sale of investments related to
insurance business-25
Stock-based compensation charge1,116496
Facility fee amortized88116
Decrease in accounts receivable, pre-funded social
welfare grants receivable and finance loans
receivable5,8923,248
(Increase) Decrease in deferred expenditure on
smart cards(33)44
Increase in inventory(926)(319)
(Decrease) Increase in accounts payable and other
payables(1,349)331
Increase (Decrease) in taxes payable5,438(3,607)
Increase (Decrease) in deferred taxes(2,016)692
------------------------
Net cash provided by operating activities25,72927,219
------------------------
Cash flows from investing activities
Capital expenditures(6,453)(4,466)
Proceeds from disposal of property, plant and
equipment10594
Acquisition of Pbel, net of cash acquired(1,913)-
Acquisition of Smart Life, net of cash acquired-(1,673)
Repayment of loan by equity-accounted investment333
Purchase of investments related to insurance
business-(2,320)
Proceeds from maturity of investments related to
insurance business5452,321
Net change in settlement assets60,7793,447
------------------------
Net cash provided by (used in) investing
activities53,066(2,564)
------------------------
Cash flows from financing activities
Proceeds from issue of common stock240-
Acquisition of treasury stock-(1,129)
Net change in settlement obligations(60,779)(3,447)
------------------------
Net cash used in financing activities(60,539)(4,576)
------------------------
Effect of exchange rate changes on cash165(13,360)
------------------------
Net increase in cash and cash equivalents18,4216,719
Cash and cash equivalents - beginning of period39,12395,264
------------------------
Cash and cash equivalents - end of period57,544101,983
------------------------
------------------------
Net 1 UEPS Technologies Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended September 30, 2012 and 2011 and June 30,2012
Change -
constant
Change -exchange
actualrate(1)
----------------------------
Q1'13Q1'13Q1'13Q1'13
Key segmental data, invsvsvsvs
'000,Q1'13Q1'12Q4'12Q1'12Q4'12Q1'12Q4'12
-----------------------------------------------------
Revenue:
SA transaction-based
activities61,36449,90258,43423%5%43%8%
International
transaction-based
activities31,64930,25531,0035%2%22%5%
Smart card accounts8,3648,2528,1891%2%18%5%
Financial services1,3842,1111,777(34%)(22%)(24%)(20%)
Hardware, software
and related
technology sales8,9219,4068,213(5%)9%10%12%
-------------------------
Total consolidated
revenue111,68299,926107,61612%4%30%7%
-------------------------
Consolidated operating
(loss) income:
SA transaction-based
activities6,40020,1835,181(68%)24%(63%)27%
-----------------------------------------------------
Operating income
excluding
amortization7,84921,5896,809(64%)15%(58%)19%
Amortization of
intangible assets (1,449) (1,406)(1,628)3%(11%)20%(8%)
-----------------------------------------------------
International
transaction-based
activities(171)684137nmnmnmnm
-----------------------------------------------------
Operating income
excluding
amortization2,9813,9913,130(25%)(5%)(13%)(2%)
Amortization of
intangible assets (3,152) (3,307)(2,993)(5%)5%11%8%
-----------------------------------------------------
Smart card accounts2,3853,7502,333(36%)2%(26%)5%
Financial services1,0971,411951(22%)15%(9%)19%
Hardware, software
and related
technology sales1,9841,9372,0742%(4%)19%(2%)
-----------------------------------------------------
Operating income
excluding
amortization2,0722,0382,1642%(4%)18%(2%)
Amortization of
intangible assets(88)(101)(90)(13%)(2%)1%1%
-----------------------------------------------------
Corporate/
Eliminations(2,370)2,881 (13,078)nm(82%)nm(81%)
-------------------------
Total operating
income9,32530,846(2,402)(70%)nm(65%)nm
-------------------------
Operating income
margin (%)
SA transaction-based
activities10%40%9%
International
transaction-based
activities(1%)2%0%
International
transaction-based
activities excluding
amortization9%13%10%
Smart card accounts29%45%28%
Financial services79%67%54%
Hardware, software
and related
technology sales22%21%25%
Overall operating
margin8%31%(2%)
(1) - This information shows what the change in these items would have been
if the USD/ ZAR exchange rate that prevailed during 1Q 2013 also prevailed
during 1Q 2012 and 4Q 2012.
Net 1 UEPS Technologies Inc.
Attachment B
Reconciliation of GAAP net income and earnings per share, basic, tofundamental net income and earnings per share, basic:
Three months ended September 30, 2012 and 2011
EPS,
Net incomeEPS, basicNet incomebasic
(USD'000)(USD)(ZAR'000)(ZAR)
-----------------------------------------------------
20122011201220112012201120122011
-----------------------------------------------------
GAAP6,744 19,7680.150.4455,709 140,2321.223.11
Intangible asset
amortization, net3,5013,49828,91724,816
Stock-based
compensation
charge1,1164969,2193,519
Facility fees for
KSNET debt89116735823
Acquisition-
related costs48-396-
Profit on
liquidation of
SmartSwitch
Nigeria- (3,994)- (28,333)
-----------------------------
Fundamental11,498 19,8840.250.4494,976 141,0572.093.13
-----------------------------
-----------------------------
Net 1 UEPS Technologies Inc.
Attachment C
Reconciliation of net income used to calculate earnings per sharebasic and diluted and headline earnings per share basic and diluted:
Three months ended September 30, 2012 and 2011
20122011
--------------------
Net income (USD'000)6,74419,768
Adjustments:
Profit on liquidation of SmartSwitch Nigeria
(USD'000)-(3,994)
Profit on sale of property, plant and equipment-(8)
Tax effects on above-3
--------------------
Net income used to calculate headline earnings
(USD'000)6,74415,769
--------------------
--------------------
Weighted average number of shares used to calculate net
income per share basic earnings and headline earnings
per share basic earnings ('000)45,51545,055
Weighted average number of shares used to calculate net
income per share diluted earnings and headline earnings
per share diluted earnings ('000)45,59045,085
Headline earnings per share:
Basic, in USD0.150.35
Diluted, in USD0.150.35
Contacts:
Net 1 UEPS Technologies Inc.
Dhruv Chopra
Vice President of Investor Relations
1-212-626-6675
dchopra@net1.com
www.net1.com
SOURCE: Net 1 UEPS Technologies Inc.
mailto:dchopra@net1.com
http://www.net1.com
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