SOURCE: Net 1 UEPS Technologies, Inc.

Net 1 UEPS Technologies, Inc.

February 09, 2017 16:05 ET

Net 1 UEPS Technologies, Inc. Reports Second Quarter 2017 Results

JOHANNESBURG, SOUTH AFRICA--(Marketwired - February 09, 2017) - Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS) (JSE: NT1) today released results for Q2 2017.

  • Q2 2017 Revenue of $151.4 million, an increase of 1%;
  • Q2 2017 Fundamental net income of $22.7 million, an increase of 15%; and
  • Q2 2017 FEPS of $0.43, an increase of 2%, which includes a 12% adverse impact related to higher share count.

Summary Financial Metrics

    
   Three months ended December 31,
   2016  2015  % change in USD  % change in ZAR
(All figures in USD '000s except per share data)         
Revenue  151,433  150,281  1%  (0%)
GAAP net income  18,641  16,658  12%  11%
Fundamental net income (1)  22,648  19,619  15%  14%
GAAP earnings per share ($)  0.35  0.35  0%  (1%)
Fundamental earnings per share ($) (1)  0.43  0.42  2%  2%
Fully-diluted shares outstanding ('000's)  52,643  47,400  12%   
Average period USD/ ZAR exchange rate  13.94  14.12  (1%)   
         
         
   Six months ended December 31,
   2016  2015  % change in USD  % change in ZAR
(All figures in USD '000s except per share data)         
Revenue  307,066  304,754  1%  5%
GAAP net income  43,273  39,678  9%  13%
Fundamental net income (1)  48,392  46,031  5%  9%
GAAP earnings per share ($)  0.81  0.84  (4%)  0%
Fundamental earnings per share ($) (1)  0.91  0.98  (7%)  (3%)
Fully-diluted shares outstanding ('000's)  53,282  47,394  12%  12%
Average period USD/ ZAR exchange rate  14.03  13.49  4%   
         

(1) Fundamental net income and earnings per share are non-GAAP measures and are described below under "Use of Non-GAAP Measures-Fundamental net income and fundamental earnings per share." See Attachment B for a reconciliation of GAAP net income to fundamental net income and earnings per share.

Factors impacting comparability of our Q2 2017 and Q2 2016 results

  • Growth in lending and insurance businesses: We continued to experience volume growth and operating efficiencies in our lending and insurance businesses during Q2 2017, which has resulted in an improved contribution to our financial inclusion revenue and operating income. The growth in our lending book during December 2015 resulted in a substantial increase in the allowance for doubtful finance loans receivable during Q2 2016, in accordance with our policy of providing for doubtful finance loans receivable at the time that a loan is originated;
  • Ongoing contributions from EasyPay Everywhere: Growth in EPE revenue and operating income was driven primarily by ongoing adoption of our EPE offering as we further expanded our customer base utilizing our ATM infrastructure;
  • Masterpayment expansion costs: Masterpayment has incurred additional employment costs as it grows its staff complement to execute its expansion plan into new markets;
  • Impact of changes in specific regulations in South Korea governing fees charged on card transactions: The new regulations governing the fees that may be charged on card transactions have adversely impacted our revenues and operating income in South Korea;
  • Further refund related to industry-wide litigation in South Korea: Our results were positively impacted by a refund of $0.8 million that had been paid several years ago in connection with industry-wide litigation that has now been finalized;
  • Lower prepaid sales resulting from improved security features to our Manje products: The introduction of our new biometric-linking feature was implemented this quarter and adversely impacted the number of transacting users purchasing prepaid products through our mobile channel;
  • Higher transaction-related costs in fiscal 2017: We incurred $1.2 million in transaction-related costs pertaining to various acquisition and investment initiatives pursued during Q2 2017; and
  • Tax impact of dividends from South African subsidiary in fiscal 2016: Our income tax expense for Q2 2016 includes approximately $2.4 million related to the tax impact, including withholding taxes, resulting from distributions from our South African subsidiary during October 2015, which helped reduce the impact of a weakened ZAR on our reported cash balances. The conversion of a significant portion of our ZAR cash reserves to USD negatively impacted our interest income in fiscal 2016 due the material difference between ZAR and USD deposit rates.

"During the first half of fiscal 2017, we made demonstrable progress towards building a long-term, sustainable growth business with reduced customer, currency, and political risks," said Serge Belamant, Chairman and CEO of Net1. "In South Africa, while we will continue to provide unwavering support to government and its citizens, our internal reorganization and investments with the likes of Blue Label, should significantly expand our addressable market, and create new business models that in turn we can deploy in other emerging markets. Internationally, we have been putting the pieces of the puzzle together so that we can own the value chain and thus maximize our returns. Our recent investment in Bank Frick plugs the last significant hole in our portfolio, and thus will allow us to facilitate new revenue generating opportunities in Europe, Africa and Asia," he concluded.

"There continues to remain a number of variables that will have an impact on our fiscal 2017 results," said Herman Kotze, Chief Financial Officer of Net1. "These include the status of our SASSA contract and the financial impact of the Blue Label transaction when completed, including the impact of its own acquisition of 45% of Cell C. We currently anticipate our fundamental earnings per share for fiscal 2017 to be at least $1.69. In formulating our guidance, we continue to assume that our existing contract with SASSA remains in effect for the full year on the existing terms and conditions, a constant currency base of ZAR 14.38/$1, a revised share count of 54.5 million shares based on the delay in sale of 5 million shares, and a tax rate between 33%-35%," he concluded.

Recent Developments

SASSA contract

Our contract with SASSA ends on March 31, 2017. In April 2014, the South African Constitutional Court declared the contract constitutionally invalid due to certain administrative irregularities by SASSA during its tender process. The Constitutional Court suspended the invalidity of our contract until SASSA awarded a new five-year contract under a fresh tender process. The Constitutional Court further ruled that if SASSA did not award a new contract, the declaration of invalidity would be further suspended until our contract expired on March 31, 2017, and SASSA was required to report to the Constitutional Court if and when it would be in a position to assume the grant distribution service. SASSA commenced a fresh tender process during 2015 but did not award a new contract as the three responses received were determined to be non-compliant. We did not participate in the 2015 tender process.

At a Parliamentary briefing session on February 1, 2017, SASSA informed the meeting that it will not be ready to assume the payment function on April 1, 2017. SASSA expressed its intention to approach the Constitutional Court to obtain permission to extend our contract.

On February 9, 2017 we received a letter from SASSA stating: "After much deliberation and following due process the South African Social Security Agency (SASSA) is now in a position to formally express its intentions to hold an exploratory meeting with Cash Paymaster Services (Pty) Ltd (CPS) on probabilities to assist in the transition of SASSA operations (while ensuring grant payment continuity) towards a new service model that must be subject to a regular procurement process.

Based on the above stated fact, SASSA requires a principle confirmation from CPS that it is amenable to agree to the proposed meeting to explore the possibilities to avail the company's services as an interim arrangement regarding the payment of social grants for the period extending from 31 March 2017."

We have formally responded to SASSA indicating our willingness to convene an urgent meeting as requested. It is not clear if our contract could be extended under the Public Finance Management Act or if a new transition contract would be required. We cannot predict when or if SASSA will approach the Constitutional Court, what the outcome of such approach would be, or what the terms and conditions of any agreement between SASSA and us would be. We are fully aware of the critical nature of the services we provide to millions of South Africans and the need for uninterrupted service delivery and we remain committed to assist our social grant recipients, SASSA and the South African government within the ambit of all the relevant laws and regulations.

Results of Operations by Segment and Liquidity

Our operating metrics will be updated and posted on our website (www.net1.com).

South African transaction processing

Segment revenue was $60.0 million in Q2 2017, up 13% compared with Q2 2016 in USD, and up 12% on a constant currency basis. In ZAR, the increase in segment revenue and operating income was primarily due to higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities, and a modest increase in the number of social welfare grants distributed. Our operating income margin for Q2 2017 and 2016 was 26% and 23%, respectively. Our fiscal 2017 margin includes higher EPE revenue as a result of increased ATM transactions, an increase in inter-segment transaction processing activities, an increase in the number of beneficiaries paid in Q2 2017, which was partially offset by annual salary increases granted to our South African employees.

International transaction processing

South Korean regulators have recently introduced specific regulations governing the fees that may be charged on card transactions, as is the case in most other developed economies. These regulations have a direct impact on card issuers in South Korea and consistent with global practices, card issuers have renegotiated their fees with South Korean VAN companies, including KSNET, which has had an adverse impact on KSNET's financial performance.

Segment revenue was $44.0 million in Q2 2017, up 8% compared with Q2 2016 in USD, and up 6% on a constant currency basis. Segment revenue increased during Q2 2017, primarily due to the inclusion of T24 and Masterpayment; however, this growth was partially offset by a lower contribution from KSNET due to the regulatory changes described above. Operating income during Q2 2017 was lower due a decrease in revenue and an increase in depreciation expenses at KSNET, losses incurred by Masterpayment as it grows its staff complement to execute its expansion plan into new markets, and ongoing ZAZOO start-up costs in the UK and India, which was partially offset by a positive contribution by T24 and the $0.8 million refund that had been paid several years ago in connection with industry-wide litigation that has now been finalized. Operating income margin for Q2 2017 and 2016 was 9% and 10%, respectively.

Financial inclusion and applied technologies

Segment revenue was $59.3 million in Q2 2017, down 10% compared with Q2 2016 in USD and down 11% on a constant currency basis. In ZAR, Financial inclusion and applied technologies revenue decreased primarily due to the introduction of our new biometric linking feature for prepaid airtime and other value added services, which adversely impacted sales, as well as fewer ad-hoc terminal sales, partially offset by increased volumes in our lending and insurance businesses, an increase in inter-segment revenues and higher card sales. Operating income margin for the Financial inclusion and applied technologies segment was 24% and 21% during Q2 2017 and 2016, respectively, and has increased primarily due to improved revenues from our lending and insurance businesses and an increase in inter-segment revenues and fewer low margin prepaid product sales, offset by fewer ad hoc terminal and annual salary increases granted to our South African employees.

Corporate/eliminations

Our corporate expenses have increased primarily due to higher transaction-related expenditures, higher amortization costs and modest increases in U.S. dollar denominated goods and services purchased from third parties and directors' fees.

Cash flow and liquidity

At December 31, 2016, our cash, cash equivalents and restricted cash were $198.9 million, and includes the $43.7 of restricted cash. The decrease in our cash balances from June 30, 2016, was primarily due to repurchase of shares of our common stock; unscheduled repayments of our Korean debt; payment of taxes; the investment in MobiKwik, C4U and Pros Software; a loan to Finbond and capital expenditures, which was partially offset by the expansion of most of our core businesses.

Excluding the impact of interest received, interest paid under our Korean debt and taxes, the increase in cash from operating activities resulted from improved trading activity during fiscal 2017. Capital expenditures for Q2 2017 and 2016 were $3.1 million and $9.9 million, respectively, and have decreased primarily due to the acquisition of fewer payment processing terminals in South Korea. We provided a $10.0 million loan to Finbond and paid approximately $4.6 million, net of cash received, related to two acquisitions. We also made a $1.8 million unscheduled repayment of our Korean debt and paid a guarantee fee of $1.1 million related to the guarantee issued by RMB.

Use of Non-GAAP Measures

US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income and fundamental earnings per share 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 and earnings per share adjusted for (1) the amortization of acquisition-related intangible assets (net of deferred taxes), (2) stock-based compensation charges and (3) unusual non-recurring items, including the amortization of Korean debt facility fees and US government investigations-related and US lawsuit expenses as well as, in fiscal 2017, a refund (net of taxes) related to Korean industry-wide litigation that has now been finalized and costs related to transactions and acquisition consummated or ultimately not pursued. Management believes that the fundamental net income and earnings per share metric enhances its own evaluation, as well as an investor's understanding, of our financial performance. Attachment B presents the reconciliation between GAAP and fundamental net income and earnings per share.

Headline earnings per share ("HEPS")

The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated using net income which has been determined based on GAAP. Accordingly, this may differ to the headline earnings per share calculation of other companies listed on the JSE as these companies may report their financial results under a different financial reporting framework, including but not limited to, International Financial Reporting Standards.

HEPS basic and diluted is calculated as GAAP net income adjusted for the (profit) loss on sale of property, plant and equipment. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted and the calculation of the denominator for headline diluted earnings per share.

Conference Call

We will host a conference call to review Q2 2017 results on February 10, 2017, at 8:00 Eastern Time. To participate in the call, dial 1-855-481-5362 (US and Canada), 0808-162-4061 (U.K. only) or 0-800-200-648 (South Africa only) ten minutes prior to the start of the call. Callers should request "Net1 call" upon dial-in. The call will also be webcast on the Net1 homepage, www.net1.com. Please click on the webcast link at least ten minutes prior to the call. A webcast of the call will be available for replay on the Net1 website through March 5, 2017.

About Net1 (www.net1.com)

Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System ("UEPS") or utilize its proprietary mobile technologies. The Company operates market-leading payment processors in South Africa and the Republic of Korea. Through Transact24, Net1 offers debit, credit and prepaid processing and issuing services for Visa, MasterCard and ChinaUnionPay in China and other territories across Asia-Pacific, Europe and Africa, and the United States. Through Masterpayment, Net1 provides payment processing and enables working capital financing in Europe.

UEPS permits the Company to facilitate biometrically secure, real-time electronic transaction processing to unbanked and under-banked populations of developing economies around the world in an online or offline environment. Net1's UEPS/EMV solution is interoperable with global EMV standards that seamlessly enable access to all the UEPS functionality in a traditional EMV environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll, remittances, voting and identification.

Net1's mobile technologies include its proprietary mobile payments solution - MVC, which offers secure mobile-based payments, as well as mobile banking and prepaid value-added services in developed and emerging countries. The Company intends to deploy its varied mobile solutions through its ZAZOO business unit, which is an aggregation of innovative technology companies and is based in the United Kingdom.

Net1 has a primary listing on the NASDAQ and a secondary listing on the Johannesburg Stock Exchange.

Forward-Looking Statements

This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A discussion of various factors that cause our actual results, levels of activity, performance or achievements to differ materially from those expressed in such forward-looking statements are included in our filings with the Securities and Exchange Commission. We undertake no obligation to revise any of these statements to reflect future events.

 
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
 
   Three months ended   Six months ended
     December 31,     December 31,
     2016    2015     2016    2015
    (In thousands, except per share data)    (In thousands, except per share data)
                      
REVENUE  $ 151,433  $ 150,281   $ 307,066  $ 304,754
                      
EXPENSE                     
                      
 Cost of goods sold, IT processing, servicing and support    73,518    78,668     148,298    156,050
                      
 Selling, general and administration    41,703    36,248     80,171    72,009
                      
 Depreciation and amortization    10,623    10,586     20,827    20,701
                      
OPERATING INCOME    25,589    24,779     57,770    55,994
                      
INTEREST INCOME    5,061    3,664     9,365    7,939
                      
INTEREST EXPENSE    510    1,054     1,306    2,028
                      
INCOME BEFORE INCOME TAX EXPENSE    30,140    27,389     65,829    61,905
                      
INCOME TAX EXPENSE    10,984    10,593     22,087    21,490
                      
NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS    19,156    16,796     43,742    40,415
                      
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS    74    388     733    576
                      
NET INCOME    19,230    17,184     44,475    40,991
                      
LESS NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST    589    526     1,202    1,313
                      
NET INCOME ATTRIBUTABLE TO NET1  $ 18,641  $ 16,658   $ 43,273  $ 39,678
                      
Net income per share, in U.S. dollars                     
 Basic earnings attributable to Net1 shareholders    $0.35    $0.35     $0.81    $0.84
 Diluted earnings attributable to Net1 shareholders    $0.35    $0.35     $0.81    $0.84
                      
             
             
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
 
   Unaudited  (A)
   December 31,  June 30,
   2016  2016
   (In thousands, except share data)
ASSETS      
CURRENT ASSETS          
 Cash ,cash equivalents and restricted cash  $ 198,891  $ 223,644
 Pre-funded social welfare grants receivable    3,915    1,580
 Accounts receivable, net of allowances of - December: $3,124; June: $1,669    102,499    107,805
 Finance loans receivable, net of allowances of - December: $4,203; June: $4,494    36,721    37,009
 Inventory    14,063    10,004
 Deferred income taxes    6,696    6,956
  Total current assets before settlement assets    362,785    386,998
   Settlement assets    333,242    536,725
    Total current assets    696,027    923,723
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $112,475; June: $99,969    45,876    54,977
EQUITY-ACCOUNTED INVESTMENTS    36,278    25,645
GOODWILL    180,686    179,478
INTANGIBLE ASSETS, net    44,339    48,556
OTHER LONG-TERM ASSETS, including reinsurance assets    39,072    31,121
 TOTAL ASSETS    1,042,278    1,263,500
           
LIABILITIES      
CURRENT LIABILITIES          
 Short-term credit facilities    -    -
 Accounts payable    10,649    14,097
 Other payables    41,180    37,479
 Current portion of long-term borrowings    8,288    8,675
 Income taxes payable    4,426    5,235
  Total current liabilities before settlement obligations    64,543    65,486
   Settlement obligations    333,242    536,725
    Total current liabilities    397,785    602,211
DEFERRED INCOME TAXES    11,139    12,559
LONG-TERM BORROWINGS    14,872    43,134
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities    2,181    2,376
 TOTAL LIABILITIES    425,977    660,280
COMMITMENTS AND CONTINGENCIES          
           
EQUITY      
 COMMON STOCK          
  Authorized: 200,000,000 with $0.001 par value;          
  Issued and outstanding shares, net of treasury - December: 52,521,345; June: 55,271,954    74    74
 PREFERRED STOCK          
  Authorized shares: 50,000,000 with $0.001 par value;          
  Issued and outstanding shares, net of treasury: December: -; June: -    -    -
 ADDITIONAL PAID-IN-CAPITAL    223,272    223,978
 TREASURY SHARES, AT COST: December: 23,621,541; June: 20,483,932    (273,238)    (241,627)
 ACCUMULATED OTHER COMPREHENSIVE LOSS    (188,643)    (189,700)
 RETAINED EARNINGS    743,595    700,322
  TOTAL NET1 EQUITY    505,060    493,047
  REDEEMABLE COMMON STOCK    107,672    107,672
  NON-CONTROLLING INTEREST    3,569    2,501
   TOTAL EQUITY    616,301    603,220
           
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 1,042,278  $ 1,263,500
           
(A) - 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,
     2016    2015    2016    2015
   (In thousands)  (In thousands)
                     
Cash flows from operating activities                    
Net income  $ 19,230  $ 17,184  $ 44,475  $ 40,991
Depreciation and amortization    10,623    10,586    20,827    20,701
Earnings from equity-accounted investments    (74)    (388)    (733)    (576)
Fair value adjustments    72    1,567    (11)    3,000
Interest payable    (23)    645    9    1,354
(Profit) Loss on disposal of property, plant and equipment    (539)    11    (473)    (84)
Stock-based compensation charge (reversal), net    635    965    (689)    1,691
Facility fee amortized    31    35    67    69
Dividends received from equity accounted investments    -    -    370    -
Decrease (Increase) in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable    6,585    (13,847)    14,351    (31,125)
(Increase) Decrease in inventory    (3,481)    776    (3,585)    (155)
Decrease in accounts payable and other payables    (5,940)    (5,418)    (2,900)    (2,046)
Decrease in taxes payable    (11,815)    (8,859)    (859)    (1,035)
Increase (Decrease) in deferred taxes    386    789    (1,246)    (637)
 Net cash provided by operating activities    15,690    4,046    69,603    32,148
                     
Cash flows from investing activities                    
Capital expenditures    (3,126)    (9,947)    (6,549)    (20,645)
Proceeds from disposal of property, plant and equipment    945    269    1,014    617
Investment in MobiKwik    -    -    (15,347)    -
Loans to equity accounted investments    (10,044)    -    (10,044)    -
Acquisitions, net of cash acquired    (4,651)    -    (4,651)    -
Net change in settlement assets    258,166    303,810    220,772    282,227
 Net cash provided by investing activities    241,290    294,132    185,195    262,199
                     
Cash flows from financing activities                    
Acquisition of treasury stock    -    (11,186)    (32,081)    (11,186)
Repayment of long-term borrowings    (1,824)    -    (28,493)    -
Guarantee fee paid    (1,145)    -    (1,145)    -
Dividends paid to non-controlling interest    (58)    -    (613)    -
Long-term borrowings utilized    -    711    247    1,431
Proceeds from issue of common stock    -    -    -    3,762
Net change in settlement obligations    (258,166)    (303,810)    (220,772)    (282,227)
 Net cash used in financing activities    (261,193)    (314,285)    (282,857)    (288,220)
                     
Effect of exchange rate changes on cash    (2,225)    (8,086)    3,306    (22,293)
Net decrease in cash, cash equivalents and restricted cash    (6,438)    (24,193)    (24,753)    (16,166)
Cash, cash equivalents and restricted cash - beginning of period    205,329    125,610    223,644    117,583
Cash, cash equivalents and restricted cash - end of period  $ 198,891  $ 101,417  $ 198,891  $ 101,417
                     
(A) - Net change in settlement assets and net change in settlement assets included in the unaudited condensed consolidated statement of cash flows for each of the three and six months ended December 31, 2015, have been increased by $39.4 million as a result of the restatement described in Note 2-Significant accounting policies-settlement assets and settlement obligations to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016.
                     
             
             

Net 1 UEPS Technologies, Inc.

Attachment A

Operating segment revenue, operating income and operating margin:

Three months ended December 31, 2016 and 2015 and September 30, 2016

            Change - actual  Change - constant exchange rate(1)
Key segmental data, in $ '000,  Q2 '17  Q2 '16  Q1 '17  Q2 '17 vs Q2'16  Q2 '17 vs Q1 '17  Q2 '17 vs Q2'16  Q2 '17 vs Q1 '17
Revenue:                     
South African transaction processing  $59,862  $52,764  $57,568  13%  4%  12%  3%
International transaction processing  44,000  40,836  46,190  8%  (5%)  6%  (6%)
Financial inclusion and applied technologies  59,258  65,686  63,542  (10%)  (7%)  (11%)  (8%)
 Subtotal: Operating segments  163,120  159,286  167,300  2%  (2%)  1%  (4%)
 Intersegment eliminations  (11,687)  (9,005)  (11,667)  30%  0%  28%  (1%)
  Consolidated revenue  $151,433  $150,281  $155,633  1%  (3%)  (0%)  (4%)
                      
Operating income (loss):                     
South African transaction processing  $15,372  $12,080  $13,548  27%  13%  26%  12%
International transaction processing  3,904  4,240  5,817  (8%)  (33%)  (9%)  (34%)
Financial inclusion and applied technologies  14,107  13,519  15,183  4%  (7%)  3%  (8%)
 Subtotal: Operating segments  33,383  29,839  34,548  12%  (3%)  10%  (4%)
 Corporate/Eliminations  (7,794)  (5,060)  (2,367)  54%  229%  52%  226%
  Consolidated operating income  $25,589  $24,779  $32,181  3%  (20%)  2%  (21%)
                      
Operating income margin (%)                     
South African transaction processing  26%  23%  24%            
International transaction processing  9%  10%  13%            
Financial inclusion and applied technologies  24%  21%  24%            
  Consolidated operating margin  17%  16%  21%            
                      
(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 2017 also prevailed during the second quarter of fiscal 2016 and the first quarter of fiscal 2017.
 
 
 

Six months ended December 31, 2016 and 2015

         Change - actual  Change - constant exchange rate(1)
Key segmental data, in '000, except margins  F2017  F2016  F2017 vs F2016  F2017 vs F2016
Revenue:            
South African transaction processing  $117,430  108,403  8%  13%
International transaction processing  90,190  82,065  10%  14%
Financial inclusion and applied technologies  122,800  133,046  (8%)  (4%)
 Subtotal: Operating segments  330,420  323,514  2%  6%
 Intersegment eliminations  (23,354)  (18,760)  24%  29%
  Consolidated revenue  $307,066  304,754  1%  5%
             
Operating income:            
South African transaction processing  $28,920  25,591  13%  18%
International transaction processing  9,721  10,783  (10%)  (6%)
Financial inclusion and applied technologies  29,290  30,073  (3%)  1%
 Subtotal: Operating segments  67,931  66,447  2%  6%
 Corporate/Eliminations  (10,161)  (10,453)  (3%)  1%
  Consolidated operating income  $57,770  55,994  3%  7%
             
Operating income margin (%)            
South African transaction processing  25%  24%      
International transaction processing  11%  13%      
Financial inclusion and applied technologies  24%  23%      
  Overall operating margin  19%  18%      
             
(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 2017 also prevailed during the first half of fiscal 2016.
 
 
 

Net 1 UEPS Technologies, Inc.

Attachment B

Reconciliation of GAAP net income and earnings per share, basic, to fundamental net income and earnings per share, basic:

Three months ended December 31, 2016 and 2015

   Net income (USD'000)  EPS, basic (USD)  Net income (ZAR'000)  EPS, basic (ZAR)
   2016  2015  2016  2015  2016  2015  2016  2015
                         
GAAP  18,641  16,658  0.35  0.35  259,920  235,204  4.95  5.00
                         
 Intangible asset amortization, net  2,709  1,952        37,764  27,572      
 Stock-based compensation (reversal) charge  635  965        8,854  13,625      
 Transaction costs  1,246  -        17,373  -      
 Refund related to litigation finalized in Korea, net  (643)  -        (8,966)  -      
 Facility fees for Korean debt  31  35        432  494      
 US government investigations-related and US lawsuit expenses  29  9        404  127      
  Fundamental  22,648  19,619  0.43  0.42  315,781  277,022  6.01  5.88
                         
                 
                 

Six months ended December 31, 2016 and 2015

   Net income (USD'000)  EPS, basic (USD)  Net income (ZAR'000)  EPS, basic (ZAR)
   2016  2015  2016  2015  2016  2015  2016  2015
                         
GAAP  43,273  39,678  0.81  0.84  607,084  535,281  11.42  11.39
                         
 Intangible asset amortization, net  4,867  4,460        68,256  60,164      
 Stock-based compensation (reversal) charge  (689)  1,691        (9,666)  22,813      
 Transaction costs  1,488  -        20,875  -      
 Refund related to litigation finalized in Korea, net  (643)  -        (9,021)  -      
 Facility fees for Korean debt  67  69        940  931      
 US government investigations-related and US lawsuit expenses  29  133        407  1,794      
  Fundamental  48,392  46,031  0.91  0.98  678,875  620,983  12.77  13.21
                         
                 
                 

Net 1 UEPS Technologies, Inc.

Attachment C

Reconciliation of net income used to calculate earnings per share basic and diluted and headline earnings per share basic and diluted:

Three months ended December 31, 2016 and 2015

   2016  2015
       
Net income (USD'000)  18,641  16,658
Adjustments:      
 (Profit) Loss on sale of property, plant and equipment  (539)  11
 Tax effects on above  151  (3)
       
Net income used to calculate headline earnings (USD'000)  18,253  16,666
       
Weighted average number of shares used to calculate net income per share basic earnings and headline earnings per share basic earnings ('000)  52,521  47,086
       
Weighted average number of shares used to calculate net income per share diluted earnings and headline earnings per share diluted earnings ('000)  52,643  47,400
       
Headline earnings per share:      
 Basic, in USD  0.35  0.35
 Diluted, in USD  0.35  0.35
      
      

Six months ended December 31, 2016 and 2015

   2016  2015
       
Net income (USD'000)  43,273  39,678
Adjustments:      
 Profit on sale of property, plant and equipment  (473)  (84)
 Tax effects on above  132  24
       
Net income used to calculate headline earnings (USD'000)  42,932  39,618
       
Weighted average number of shares used to calculate net income per share basic earnings and headline earnings per share basic earnings ('000)  53,176  47,007
       
Weighted average number of shares used to calculate net income per share diluted earnings and headline earnings per share diluted earnings ('000)  53,282  47,394
       
Headline earnings per share:      
 Basic, in USD  0.81  0.84
 Diluted, in USD  0.81  0.84
      
      

Calculation of the denominator for headline diluted earnings per share

   Q2 '17  Q2 '16  F2017  F2016
             
Basic weighted-average common shares outstanding and unvested restricted shares expected to vest under GAAP  52,521  47,086  53,176  47,007
 Effect of dilutive securities under GAAP  122  314  106  387
  Denominator for headline diluted earnings per share  52,643  47,400  53,282  47,394
           
           

Weighted average number of shares used to calculate headline earnings per share diluted represent the denominator for basic weighted-average common shares outstanding and unvested restricted shares expected to vest plus the effect of dilutive securities under GAAP. We use this number of fully-diluted shares outstanding to calculate headline earnings per share diluted because we do not use the two-class method to calculate headline earnings per share diluted.

Contact Information

  • Investor Relations Contact:
    Dhruv Chopra
    Head of Investor Relations
    Phone: +1 917-767-6722
    Email: dchopra@net1.com