Net 1 UEPS Technologies, Inc. Reports Second Quarter 2013 Results

February 07, 2013 4:05 PM EST | Source: Lesaka Technologies, Inc.

  • Enrolled more than 9.5 million citizens in total by December 31, 2012;
  • Revenue of $111 million, increased 29% in constant currency; and
  • Fundamental EPS of $0.18 including $21 million of direct implementation and smart card costs.

Johannesburg, South Africa--(Newsfile Corp. - February 7, 2013) - Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS) (JSE: NT1) today announced results for the second quarter fiscal 2013.

Summary Financial Metrics

    Three months ended December 31,  
                % change     % change  
    2012     2011     in USD     in ZAR  
(All figures in USD ‘000s except per share data)                        
Revenue   111,442     92,058     21%     29%  
GAAP net income   2,629     25,094     (90% )   (89% )
Fundamental net income (1)   8,051     17,677     (54% )   (51% )
GAAP earnings per share ($)   0.06     0.56     (90% )   (89% )
Fundamental earnings per share ($) (1)   0.18     0.39     (100% )   (52% )
Fully-diluted shares outstanding (‘000’s)   45,567     44,967     1%        
Average period USD/ ZAR exchange rate   8.74     8.18     7%        
                         
    Six months ended December 31,  
                % change     % change  
    2012     2011     in USD     in ZAR  
(All figures in USD ‘000s except per share data)                        
Revenue   223,124     191,984     16%     26%  
GAAP net income   9,373     44,862     (79% )   (77% )
Fundamental net income (1)   19,559     39,309     (50% )   (45% )
GAAP earnings per share ($)   0.21     1.00     (79% )   (78% )
Fundamental earnings per share ($) (1)   0.43     0.87     (100% )   (46% )
Fully-diluted shares outstanding (‘000’s)   45,578     45,026     1%        
Average period USD/ ZAR exchange rate   8.46     7.82     8%        
                         

(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 2013 and Q2 2012 results

  • Unfavorable impact from the strengthening of the US dollar: The US dollar appreciated by 7% against the ZAR during Q2 2013 which negatively impacted our reported results;

  • SASSA implementation costs: We continued implementing our SASSA contract during Q2 2013 and incurred additional implementation and staff costs; and

  • Fiscal 2012 impacted by change in South African tax law: As a result of the change in South African tax law that replaced STC with a dividends withholding tax, Q2 2012 tax expense included a net taxation benefit of $11.8 million, as we recorded a $20.0 million deferred tax benefit which was offset by an $8.2 million foreign tax credit valuation allowance.

Comments and Outlook

“We enrolled 12 million citizens by the end of January as part of our SASSA implementation and remain on track to complete bulk enrollment by the end of March 2013,” said Dr. Serge Belamant, Chairman and Chief Executive Officer of Net1. “We continue to cooperate with the DOJ and SEC on their investigations, but as a result of these investigations, we are experiencing some adverse impact from the damage caused to our reputation, including our ability to execute certain aspects of our strategic plan. The Supreme Court will hear the appeal of the August 2012 High Court judgment on February 15. We believe we have a strong case and look forward to presenting our arguments to the Supreme Court,” he concluded.

“The successful implementation for SASSA is a one-off event and integral for the smooth transition and operation of South Africa's social welfare program. Given the critical importance of this roll out, and the higher number of beneficiaries required to be enrolled in the same time frame, our implementation costs are materially but proportionally higher than anticipated,” said Herman Kotzé, Chief Financial Officer of Net1. “As a result, in fiscal 2013, we expect fundamental earnings per share to be at least $0.95 assuming a constant currency base of ZAR 7.72/ $1 and using our fiscal 2012 share count of 45 million shares,” he concluded.

Progress of second phase of our SASSA contract implementation

We commenced the second phase of the enrollment process in early July 2012 and plan to be substantially complete by March 2013, in accordance with the enrollment plan agreed with SASSA. Under our agreement with SASSA, we have to enroll both the grant recipients (those individuals who receive the actual payment and are issued with our UEPS/EMV smart card), as well as the grant beneficiaries (those individuals who have qualified for the social grant, but are not necessarily the recipient of the grant). While the number of grant recipients on a national basis has consistently been quantified by SASSA at 9.4 million individuals, the number of beneficiaries is continually being revised by SASSA on an ongoing basis from an initial estimate of approximately 15.5 million, to the current estimate of approximately 21.6 million. In order to complete the second phase of the implementation on time, and given the significantly higher number of beneficiaries, we increased the number of temporary employees that we hired for the entire second quarter of fiscal 2013from 2,500 to approximately 5,500. The total number of temporary employees is significantly more than the 2,500 we previously expected at the beginning of fiscal 2013 as the actual number of individuals (grant recipients plus grant beneficiaries) that SASSA has asked us to enroll has increased substantially. During Q2 2013, we enrolled a further 2.7 million grant recipients and an additional 3.8 million beneficiaries.

During Q2 2013 we incurred direct implementation expenses of approximately $18.0 million (ZAR 157.1 million) including staff, travel, temporary infrastructure hire, fixed premises hire for enrollment and stationery costs. We are unable to quantify the value of time spent by our executives and pension and welfare operations managers and staff that service the five provinces in which we operated under the previous contract and that have assisted in the implementation of the national contract. Our implementation expenditure during Q2 2013 was materially higher than we had previously anticipated due to the significant number of grant recipients and beneficiaries that we enrolled during the quarter, especially in the rural and deep rural areas. In order to meet our enrollment obligations in accordance with the timetable agreed with SASSA we incurred higher than anticipated temporary infrastructure hire, travel and staff expenditures. We expect this level of expenditure to reduce slightly during the third quarter of fiscal 2013, as our efforts are now focused primarily on urban areas. We also expensed $3.0 million (ZAR 26.6 million) related to the cost of the UEPS/EMV smart cards issued during the quarter, which is not included in the $18.0 million (ZAR 157.1 million) above.

We also incurred approximately $0.7 million in capital expenditures related to the implementation during Q2 2013. Since inception of the implementation we have incurred cumulative capital expenditures of $25.2 million. We anticipate cumulative capital expenditures related to the ramp of our national contract to be in the $30 million range. We have lowered our expected capital expenditure range related to the implementation of our SASSA contract given the decision to expense the cost of smart cards rather than capitalize those costs.

When we signed our Service Level Agreement with SASSA in February 2012, we anticipated total cash outlays of approximately $68 to $95 million from February 2012 through March 2013, including direct implementation costs of $5-10 million per quarter, as well as capital expenditures of $45-50 million, in order to build our infrastructure, register 15.6 million beneficiaries and roll out our biometrically secure UEPS/EMV technology nationally. With one more quarter of bulk enrollment remaining, our total cash outlay to date has been $74 million for direct implementation expenses, smart card costs and capital expenditures. We therefore would be in-line with the mid-point of our initial total cash outlay range assuming the volume of enrollments had not changed. Having to register the incremental 6 million people and therefore employ our temporary staff for longer, should result in our total cash outlay being between $100 and $105 million by March 2013. We also expect that by the end of the bulk enrollment period, roughly 10-15% of beneficiaries would not have come for reregistration and therefore we would have to rely on SASSA's efforts to encourage those beneficiaries to re-register, which would require us to maintain at least some if not all of our enrollment infrastructure for a couple of months in Q4 2013. Given our enrollment experience to date however, we are unsure of what proportion of un-registered people would ultimately come for re-registration as some of the remainder may be duplicate recipients or recipients that do not exist altogether.

Results of Operations by Segment and Liquidity

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

South African transaction-based activities

Segment revenue was $60.8 million in Q2 2013, up 31% compared with Q2 2012 in USD and up 40% on a constant currency basis. In ZAR, the increases in segment revenue were primarily due to higher revenues earned under our new SASSA contract. Segment operating income margin was 3% and 34%, respectively, and declined primarily due to SASSA implementation costs. Excluding amortization of acquisition-related intangibles, Q2 2013 segment operating income margin was 6%, compared to 38% during Q2 2012.

International transaction-based activities

KSNET continues to contribute the majority of our revenues in this operating segment. Segment revenue was $33.1 million in Q2 2013, up 15% compared with Q2 2012 in USD and 23% on a constant currency basis. Operating margin for the segment is lower than most of our South African transaction-based businesses and was negatively impacted by continued competition in the Korean marketplace but was partially offset by increased revenue contributions from KSNET, NUETS’ initiative in Iraq and SmartSwitch Botswana and favorable currency movement between the Korean won and the US dollar. Excluding the amortization of intangibles but including the start-up costs referenced above, Q2 2013 operating income margin was 11% compared to 12% during Q2 2012.

Smart card accounts

Segment revenue was $8.2 million in Q2 2013, up 13% compared with Q2 2012 in USD and 21% on a constant currency basis. Q2 2013 segment operating income margin was 29%, compared to 45% during Q2 2012. We have reduced our pricing for smart card accounts after taking into consideration the lower price and higher volumes of the new SASSA contract.

Financial services

UEPS-based lending contributes the majority of the revenue and operating income in this operating segment. Segment revenue was $1.4 million in Q2 2013, down 26% compared with Q2 2012 in USD and 20% lower on a constant currency basis, principally due to a decrease in lending activities. Q2 2013 segment operating income margin was 72% compared with 53% during Q2 2012 primarily as a result of an improved margin in our UEPS-based lending book resulting from a better loss experience, offset by start-up expenditures related to Smart Life and other financial services offerings.

Hardware, software and related technology sales

Segment revenue was $7.9 million in Q2 2013, up 4% compared with Q2 2012 in USD and 12% on a constant currency basis. In constant currency, the increase in revenue and operating income resulted primarily from an increase in royalty fees, offset by a lower contribution from all other contributors to hardware and software sales. Excluding amortization of all intangibles, segment operating income margin was 10% compared to 12% during Q2 2012.

Cash flow and liquidity

At December 31, 2012, we had cash and cash equivalents of $38 million, down from $39 million at June 30, 2012. The decrease in our cash balances from June 30, 2012, was primarily from implementation costs and capital expenditures incurred to implement our SASSA contract, a scheduled repayment of our Korean debt and the acquisition of Pbel and SmartSwitch Botswana. For Q2 2013, net cash utilized by operating activities was $6.9 million compared with $6.2 million in Q2 2012.

Excluding the impact of interest received, interest paid under our Korean debt and taxes paid, the decrease in cash provided by operating activities resulted from significant implementation costs related to our SASSA contract, partially offset by cash generated from operations. Capital expenditures for Q2 2013 and 2012 were $5.6 million and $5.1 million, respectively, and have increased primarily due to acquisition of payment vehicles and other equipment for our new SASSA contract and payment processing terminals in Korea.

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 KSNET debt facility fees, as well as (a) in fiscal 2013, DOJ and SEC investigations-related expenses and acquisition-related costs; and (b) in fiscal 2012, the effects of a change in South African tax law and the creation of a valuation allowance related to foreign tax credits, the profit on liquidation of SmartSwitch Nigeria and loss on sale of 10% of Smart Life. 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 on sale of property, plant and equipment, net of related tax effects, the loss attributable to the sale of 10% of Smart Life and the profit on liquidation of SmartSwitch Nigeria. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted.

Conference Call

We will host a conference call to review Q2 2013 results on February 8, 2013, at 8:00 Eastern Time. To participate in the call, dial 1-800-860-2442 (U.S. only), 1-866-605-3852 (Canada only), 0-800-917-7042 (U.K. only) or 0-800-200-648 (South Africa only) ten minutes prior to the start of the call. Callers should request “Net1 call” upon dial-in. The call will also be webcast on our 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 our website through March 1, 2013.

About Net1 (www.net1.com)

Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System, or UEPS, 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. In addition to payments, UEPS can be used for banking, healthcare management, payroll, remittances, voting and identification.

Net1 operates market-leading payment processors in South Africa, Republic of Korea, Ghana and Iraq. In addition, Net1’s proprietary Mobile Virtual Card technology offers secure mobile payments and banking services in developed and emerging countries while its MediKredit and XeoHealth subsidiaries provide its proprietary 5010 and ICD-10 compliant real-time claims adjudication system.

Net1 has a primary listing on the Nasdaq and a secondary listing on the JSE Limited.

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.

Investor Relations Contact:
Dhruv Chopra
Vice President of Investor Relations
Phone: +1-212-626-6675
Email: dchopra@net1.com

NET 1 UEPS TECHNOLOGIES, INC.  
Unaudited Condensed Consolidated Statements of Operations 

    Three months ended     Six months ended  
    December 31,     December 31,  
    2012     2011     2012     2011  
    (In thousands, except per share data)     (In thousands, except per share data)  
REVENUE $  111,442    $ 92,058   $  223,124    $ 191,984  
EXPENSE                        
         Cost of goods sold, IT processing, servicing and support   47,227     34,168     92,328     67,112  
         Selling, general and administration   48,756     28,872     96,008     55,929  
         Depreciation and amortization   10,487     8,790     20,491     17,869  
OPERATING INCOME   4,972     20,228     14,297     51,074  
INTEREST INCOME   2,589     1,820     5,680     3,817  
INTEREST EXPENSE   2,023     2,355     4,094     4,971  
INCOME BEFORE INCOME TAXES   5,538     19,693     15,883     49,920  

INCOME TAX EXPENSE

  2,971     (5,378 )   6,700     5,174  

NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS

  2,567     25,071     9,183     44,746  

EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS

  54     19     182     104  

NET INCOME

  2,621     25,090     9,365     44,850  

LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST

  (8)     (4)   (8)   (12)

NET INCOME ATTRIBUTABLE TO NET1

$

 2,629 

 

$

25,094

 

$

 9,373

 

$

 44,862

 
Net income per share, in United States dollars                        
       Basic earnings attributable to Net1 shareholders $ 0.06   $ 0.56   $ 0.21   $ 1.00  
       Diluted earnings attributable to Net1 shareholders $ 0.06   $ 0.56   $ 0.21   $ 1.00  
                         

NET 1 UEPS TECHNOLOGIES, INC.  
Condensed Consolidated Balance Sheets
  

  Unaudited (A)
  December 31, June 30,
  2012 2012
  (In thousands, except share data)
ASSETS  
CURRENT ASSETS    
     Cash and cash equivalents $  38,116 $  39,123
     Pre-funded social welfare grants receivable 8,024 9,684
     Accounts receivable, net of allowances of – December: $1,027; June: $788 105,104 101,918
     Finance loans receivable 6,979 8,141
     Deferred expenditure on smart cards 8,306 4,587
     Inventory 9,869 6,192
     Deferred income taxes 5,976 5,591
             Total current assets before settlement assets 182,374 175,236
                     Settlement assets 414,621 409,166
                             Total current assets 596,995 584,402

PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF – December: $85,023; June: $74,242

55,746 52,616
EQUITY-ACCOUNTED INVESTMENTS 1,192 1,508
GOODWILL 193,133 182,737
INTANGIBLE ASSETS, net 92,287 93,930
OTHER LONG-TERM ASSETS, including reinsurance assets 41,010 40,700
     TOTAL ASSETS 980,363 955,893
LIABILITIES  
CURRENT LIABILITIES    
     Accounts payable 12,881 13,172
     Other payables 36,960 40,167
     Current portion of long-term borrowings 15,221 14,019
     Income taxes payable 5,317 6,019
             Total current liabilities before settlement obligations 70,379 73,377
                     Settlement obligations 414,621 409,166
                             Total current liabilities 485,000 482,543
DEFERRED INCOME TAXES 20,999 20,988
LONG-TERM BORROWINGS 78,989 79,760
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities 25,107 25,791
     TOTAL LIABILITIES 610,095 609,082
COMMITMENTS AND CONTINGENCIES    
EQUITY  
NET1 EQUITY:    
     COMMON STOCK    
                 Authorized: 200,000,000 with $0.001 par value;    
                 Issued and outstanding shares, net of treasury - December: 45,600,471;    
                 June: 45,548,902 59 59
     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 159,002 155,350
     TREASURY SHARES, AT COST: December: 13,455,090; June: 13,455,090 (175,823 ) (175,823 )
     ACCUMULATED OTHER COMPREHENSIVE LOSS (65,282 ) (75,722 )
     RETAINED EARNINGS 449,014 439,641
             TOTAL NET1 EQUITY 366,970 343,505
             NON-CONTROLLING INTEREST 3,298 3,306
                     TOTAL EQUITY 370,268 346,811
                             TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $  980,363 $  955,893

(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,  
    2012     2011     2012     2011  
    (In thousands)     (In thousands)  

Cash flows from operating activities

                       

Net income

$  2,621   $  25,090   $  9,365   $  44,850  

Depreciation and amortization

  10,487     8,790     20,491     17,869  

(Earnings) Loss from equity-accounted investments

  (54 )   (19 )   (182 )   (104 )

Fair value adjustments

  1,000     (551 )   707     (772 )

Interest payable

  1,117     2,113     2,309     3,775  

Profit on disposal of property, plant and equipment

  (86 )   (26 )   (86 )   (34 )

Net loss on sale of 10% of SmartLife

  -     81     -     81  

Profit on liquidation of SmartSwitch Nigeria

  -     -     -     (3,994 )

Realized loss on sale of SmartLife investments

  -     -     -     25  

Stock-based compensation charge

  1,117     543     2,233     1,039  

Facility fee amortized

  76     83     164     199  

Decrease in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable

  (5,061 )   (19,044 )   831     (15,795 )

(Increase) Decrease in deferred expenditure on smart cards

  (3,668 )   (58 )   (3,701 )   (14 )

Increase in inventory

  (2,582 )   920     (3,508 )   601  

(Decrease ) Increase in accounts payable and other payables

  (4,939 )   (2,679 )   (6,288 )   (2,348 )

Increase (Decrease) in taxes payable

  (6,032 )   (7,355 )   (594 )   (10,962 )

(Decrease) Increase in deferred taxes

  (916 )   (14,088 )   (2,932 )   (13,396 )

Net cash provided by operating activities

  (6,920 )   (6,200 )   18,809     21,020  

 

                       

Cash flows from investing activities

                       

Capital expenditures

  (5,597 )   (5,120 )   (12,050 )   (9,586 )

Proceeds from disposal of property, plant and equipment

  251     174     356     268  

Acquisition of Pbel, net of cash acquired

  (230 )   0     (2,143 )   0  

Acquisition of prepaid business, net of cash acquired

  -     (4,481 )   -     (4,481 )

Acquisition of Smart Life, net of cash acquired

  -     -     -     (1,673 )

Settlement from former shareholders of KSNET

  -     4,945     -     4,945  

Repayment of loan by equity-accounted investment

  -     30     3     63  

Purchase of investments related to insurance business

  -     -     -     (2,320 )

Proceeds from maturity of investments related to insurance business

  -     -     545     2,321  

Net change in settlement assets

  (72,835 )   30,349     (12,056 )   33,796  

Net cash provided by (used in) investing activities

  (78,411 )   25,897     (25,345 )   23,333  

 

                       

Cash flows from financing activities

                       

Repayment of long-term borrowings

  (7,307 )   (7,185 )   (7,307 )   (7,185 )

Proceeds from issue of common stock

  -     0     240     0  

Proceeds on sale of 10% of SmartLife

  -     107     -     107  

Acquisition of treasury stock

  -     0     -     (1,129 )

Net change in settlement obligations

  72,835     (30,349 )   12,056     (33,796 )

Net cash used in financing activities

  65,528     (37,427 )   4,989     (42,003 )

Effect of exchange rate changes on cash

  375     (3,389 )   540     (16,749 )

 

                       

Net increase in cash and cash equivalents

  (19,428 )   (21,119 )   (1,007 )   (14,399 )

Cash and cash equivalents – beginning of period

  57,544     101,983     39,123     95,263  

Cash and cash equivalents – end of period

$  38,116   $  80,864   $  38,116   $  80,864  
                         

Net 1 UEPS Technologies, Inc.

Attachment A

Operating segment revenue, operating income and operating margin:

Three months ended December 31, 2012 and 2011 and September 30, 2012

                                  Change – constant  
                      Change - actual     exchange rate(1)
                      Q2 ‘13     Q2 ‘13     Q2 ‘13     Q2 ‘13  
                      vs     vs     vs     vs  
Key segmental data, in $ ’000,   Q2 ‘13     Q2 ‘12     Q1 ‘13     Q2‘12     Q1 ‘13     Q2‘12     Q1 ‘13  
   Revenue:                                          
       SA transaction-based activities $ 60,764   $ 46,448   $ 61,364     31%     (1% )   40%     5%  
       International transaction-based activities   33,113     28,835     31,649     15%     5%     23%     11%  
       Smart card accounts   8,219     7,264     8,364     13%     (2% )   21%     4%  
       Financial services   1,448     1,944     1,384     (26% )   5%     (20% )   11%  
       Hardware, software and related technology sales   7,898     7,567     8,921     4%     (11% )   12%     (6% )
             Total consolidated revenue $ 111,442   $ 92,058   $ 111,682     21%     0%     29%     6%  
                                           
   Consolidated operating (loss) income:                                          
       SA transaction-based activities $ 1,933   $ 15,766   $ 6,400     (88% )   (70% )   (87% )   (68% )
             Operating income excluding amortization   3,398     17,463     7,849     (81% )   (57% )   (79% )   (54% )
             Amortization of intangible assets   (1,465 )   (1,697 )   (1,449 )   (14% )   1%     (8% )   7%  
       International transaction-based activities   202     241     (171 )   (16% )   (218% )   (10% )   (225% )
             Operating income excluding amortization   3,515     3,369     2,981     4%     18%     12%     25%  
             Amortization of intangible assets   (3,313 )   (3,128 )   (3,152 )   6%     5%     13%     11%  
       Smart card accounts   2,342     3,302     2,385     (29% )   (2% )   (24% )   4%  
       Financial services   1,048     1,026     1,097     2%     (4% )   9%     1%  
       Hardware, software and related technology sales   795     909     1,984     (13% )   (60% )   (6% )   (58% )
             Operating income excluding amortization   878     997     2,072     (12% )   (58% )   (6% )   (55% )
             Amortization of intangible assets   (83 )   (88 )   (88 )   (6% )   (6% )   1%     (0% )
       Corporate/ Eliminations   (1,348 )   (1,016 )   (2,370 )   33%     (43% )   42%     (40% )
             Total operating income $ 4,972   $ 20,228   $ 9,325     (75% )   (47% )   (74% )   (44% )
                                           
   Operating income margin (%)                                          
       SA transaction-based activities   3%     34%     10%                          
       International transaction-based activities   1%     1%     (1% )                

       International transaction-based activities excluding amortization

  11%     12%     9%                  
       Smart card accounts   29%     45%     29%                          
       Financial services   72%     53%     79%                          
       Hardware, software and related technology sales   10%     12%     22%                  
       Overall operating margin   4%     22%     8%                          
                                           

(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 2013 also prevailed during the second quarter of fiscal 2012 and the first quarter of fiscal 2013.

Six months ended December 31, 2012 and 2011

                      Change –  
                      constant  
                Change -     exchange  
                actual     rate(1)
                F2013     F2013  
              vs     vs  
Key segmental data, in ’000, except margins   F2013     F2012     F2012     F2012  
   Revenue:                        
       SA transaction-based activities $ 122,128   $ 96,350     27%     37%  
       International transaction-based activities   64,762     59,090     10%     19%  
       Smart card accounts   16,583     15,516     7%     16%  
       Financial services   2,832     4,055     (30% )   (24% )
       Hardware, software and related technology sales   16,819     16,973     (1% )   7%  
             Total consolidated revenue $ 223,124   $ 191,984     16%     26%  
                         
   Consolidated operating income (loss):                        
       SA transaction-based activities $ 8,333   $ 35,949     (77% )   (75% )
       International transaction-based activities   31     925     (97% )   (96% )
             Operating income excluding amortization   6,499     7,355     (12% )   (4% )
             Amortization of intangible assets   (6,468 )   (6,430 )   1%     9%  
       Smart card accounts   4,727     7,052     (33% )   (28% )
       Financial services   2,145     2,437     (12% )   (5% )
       Hardware, software and related technology sales   2,779     2,846     (2% )   6%  
       Corporate/ Eliminations   (3,718 )   1,865     (299% )   (316% )
             Total operating income   14,297   $ 51,074     (72% )   (70% )
                         
   Operating income margin (%)                        
       SA transaction-based activities   7%     37%              
       International transaction-based activities   0%     2%          
       International transaction-based activities excluding amortization   10%     12%          
       Smart card accounts   29%     45%              
       Financial services   76%     60%              
       Hardware, software and related technology sales   17%     17%          
       Overall operating margin   6%     27%              
                         

(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 2013 also prevailed during the first half of fiscal 2012.

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, 2012 and 2011

                                        EPS,  
    Net income     EPS, basic     Net income     basic  
    (USD’000)   (USD)     (ZAR’000)   (ZAR)  
    2012     2011      2012     2011     2012     2011     2012     2011  
                                                 
GAAP   2,629     25,094     0.06      0.56     22,979     205,148     0.50     4.57  
                                                 
     Intangible asset amortization, net .   3,640     3,656                 31,817     29,893              
     Stock-based compensation charge   1,117     543                 9,763     4,439              
     Facility fees for KSNET debt   76     110                 664     899              
     DOJ and SEC investigations- related expenses   561     -               4,903     -          
     Acquisition-related costs   28     -                 245     -              
     Change in tax law   -     (20,031 )               -     (163,760 )            
     Create FTC valuation allowance   -     8,232                 -     67,298              
     Loss on sale of 10% of Smart Life .   -     73                 -     597              

           Fundamental

  8,051     17,677     0.18      0.39     70,371     144,514     1.55     3.22  
                                                 

Six months ended December 31, 2012 and 2011

                                        EPS,  
    Net income     EPS, basic     Net income     basic  
    (USD’000)   (USD)     (ZAR’000)   (ZAR)  
    2012     2011     2012     2011     2012     2011     2012     2011  
                                                 
GAAP   9,373     44,862     0.21     1.00     79,268     350,808     1.74     7.80  
                                                 
     Intangible asset amortization, net .   7,155     7,196                 60,518     56,268              
     Stock-based compensation charge   2,233     1,040                 18,885     8,132              
     Facility fees for KSNET debt   164     211                 1,387     1,650              
     DOJ and SEC investigations- related expenses 561 - 4,744 -
     Acquisition-related costs   73     -                 617     -              
     Change in tax law   -     (18,315 )               -     (150,373 )            
     Create FTC valuation allowance   -     8,232                 -     67,588              
     Profit on liquidation of subsidiary   -     (3,994 )               -     (31,232 )            
     Loss on sale of 10% of Smart Life .   -     77                 -     602              

           Fundamental

  19,559     39,309     0.43     0.87     165,419     303,443     3.63     6.74  
                                                 

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, 2012 and 2011

    2012     2011  
             
Net income (USD’000)   2,629     25,094  
Adjustments:            
     Loss on sale of 10% of Smart Life   -     73  
     Profit on sale of property, plant and equipment   (86 )   (26 )
     Tax effects on above   24     7  
             
Net income used to calculate headline earnings (USD’000)   2,567     25,148  
             
Weighted average number of shares used to calculate net income per share basic earnings and headline earnings per share basic earnings (‘000)   45,545     44,935  
             
Weighted average number of shares used to calculate net income per share diluted earnings and headline earnings per share diluted earnings (‘000)   45,567     44,967  
             
Headline earnings per share:            
     Basic, in USD   0.06     0.56  
     Diluted, in USD   0.06     0.56  
             

Six months ended December 31, 2012 and 2011

    2012     2011  
             
Net income (USD’000)   9,373     44,862  
Adjustments:            
     Profit on liquidation of SmartSwitch Nigeria   -     (3,994 )
     Loss on sale of 10% of Smart Life   -     77  
     Profit on sale of property, plant and equipment   (86 )   (34 )
     Tax effects on above   24     10  
             
Net income used to calculate headline earnings (USD’000)   9,311     40,921  
             
Weighted average number of shares used to calculate net income per share basic earnings and headline earnings per share basic earnings (‘000)   45,530     44,995  
             
Weighted average number of shares used to calculate net income per share diluted earnings and headline earnings per share diluted earnings (‘000)   45,578     45,026  
             
Headline earnings per share:            
     Basic, in USD   0.20     0.91  
     Diluted, in USD   0.20     0.91  
             
info