Q1 2018 In Inves esto tor r Pr Pres esen entation tation - - PowerPoint PPT Presentation

Q1 2018 In Inves esto tor r Pr Pres esen entation tation

www.net1.com

Safe Harbor Statement

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The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. The use of words such as “may”, “might”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “project”, “intend”, “future”, “potential” or “continue”, and other similar expressions are intended to identify forward-looking statements. All of these forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, industry, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include those discussed in the Company’s annual report on Form 10-K for the year ended June 30, 2017, on file with the Securities and Exchange Commission, and other factors which may not be known to us. Any forward-looking statement speaks only as of its date. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

Unless specifically noted otherwise within this presentation, the following terms are hereby defined as follows: Constant Currency: We analyze our results of operations both in U.S. dollars, as presented in the consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency

• f the entities which contribute the majority of our profits and is the currency in which the majority of
• ur transactions are initially incurred and measured. Due to the significant impact of currency

fluctuations between the U.S. dollar and ZAR on our reported results and because we use the U.S. dollar as our reporting currency, we believe that the supplemental presentation of our results of

• perations in ZAR is useful to investors to understand the changes in the underlying trends of our
• business. The use of constant currency is a non-GAAP measure.

Adjusted EBITDA: Net income before non-controlling interests, earnings from equity accounted investments, interest, taxation, depreciation and amortization expenses (“EBITDA”) adjusted for share- based compensation expenses, transaction or financing related charges, and other non-operating or non-recurring items that are considered expenses or income under U.S. GAAP . EBITDA and adjusted EBITDA are non-GAAP measures and represent a performance measure that is not intended to represent a liquidity measure. Reconciliation of US GAAP measures to EBITDA, Adjusted EBITDA, Fundamental Earnings and Earnings Per Share: The reconciliation is included in the attached supplemental data. The Company does not provide reconciliation of its forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for GAAP and the related GAAP to non-GAAP reconciliation, including adjustments, that could be made for currency exchange rate fluctuations and other charges reflected in the Company’s reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

Defined T erms

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FINANCIAL HIGHLIGHTS

First Quarter 2018

1Q 2018 Financial Report

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Quarterly Financial Highlights

• Revenue - $152.6 million
• 2% decrease from $155.6 million in 1Q 2017
• 8% decrease on a constant currency basis
• Adjusted EBITDA - $35.5 million
• 13% decrease from $40.8 million in 1Q 2017
• 23% Adjusted EBITDA Margin compared to 26% in 1Q 2017
• Fundamental Net1 Income - $24.5 million
• 5% decrease from $25.8 million in 1Q 2017
• 11% decrease on a constant currency basis
• Fundamental EPS - $0.43
• 10% decrease from $0.48 in 1Q 2017
• 16% decrease on a constant currency basis

Note: Transaction related costs are included in corporate expense and are excluded from Adjusted EBITDA and Fundamental EPS. See reconciliations for additional details.

1Q 2018 Financial Report

Segment Quarterly Revenue Growth

• SATP 2 year const. currency revenue grew 21%
• Growth in ATM and NPS transactions, # of

grants, VAS

• ITP 2 year USD revenue grew 12%
• Growth in MP/T24 offset by regulatory impact

in Korea

• FIAT 2 year const. currency revenue declined 18%
• Growth in Financial services offset by decline

in prepaid airtime/electricity and fewer ad- hoc hardware sales

$38 000 $40 000 $42 000 $44 000 $46 000 $48 000

2016 2017 2018

$41 229 $46 190 $46 022

Thousands 1Q USD ITP revenue

12% (0%) R0 R200 R400 R600 R800 R1 000

2016 2017 2018

R721 R812 R876

Millions 1Q const. currency SATP revenue

13% 8%

R 0 R 200 R 400 R 600 R 800 R 1 000

2016 2017 2018

R873 R896 R716

Millions 1Q const. currency FIAT revenue

3% (20%)

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1Q 2018 Financial Report

Business Segment Results

USD (Millions) Revenue Operating Income Operating Margin

1Q 2018 1Q 2017 1Q 2018 1Q 2017 1Q 2018 1Q 2017 SATP % Change* $ 66.4 $ 57.6 8% $ 12.3 $ 13.5 (15%) 19% 24% ITP % Change* 46.0 46.2 (7%) 5.3 5.8 (15%) 12% 13% FIAT % Change* 54.3 63.5 (20%) 13.9 15.2 (14%) 26% 24% Sub-total % Change* 166.8 167.3 (7%) 31.6 34.5 (15%) 19% 21% Inter-segment Eliminations % Change* (14.2) (11.7) 14% (6.6) (2.4) 159% nm nm Total % Change* $ 152.6 $ 155.6 (8%) $ 25.0 $ 32.2 (27%) 16% 21%

7 *% change in constant currency

1Q 2018 Financial Report

Balance Sheet Overview

USD (Millions) Sept 30, 2017 June 30, 2017

Cash $ 138.4 $ 258.5 Investments and Equity Accounted Investments 269.0 52.0 Total Assets 1,343.3 1,450.8 Total Equity 714.2 708.0 Total Debt 94.2 16.2 Book Value / Share 12.59 12.51 Net Cash / Share $ 0.78 $ 4.30 Debt / Equity 0.13 0.02

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Major cash outflows post Sep 30: Bank Frick Investment & Korea debt repayment.

Cash and Debt Movement - Sep 30 2017

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$78m South Africa $16m South Korea

$94m debt $138m cash

$16m Oct debt payment $41m investment in 30% of Bank Frick in Oct $81m available

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% held Balance Sheet Value (Sep 2017) Equity Accounted: DNI 45% $70 million >$70 million (3) Finbond (JSE listed) 26% $20 million $49 million (1) KZ One 25% $5 million >$5 million (3) At Cost: Cell C 15% $147 million >$147 million (3) MobiKwik 12% $27 million $39 million (2) TOTAL $269 million $310 million

1) 205m shares at R3.20 at $1/R13.6 2) 12% of $327m (recent MobiKwik valuation at Bajaj investment) 3) Based on latest trading results Values at carrying value unless stated otherwise

1Q 2018 Financial Report

Key Investments

BUSINESS OVERVIEW

SOUTH AFRICAN TRANSACTION PROCESSING First Quarter 2018

SATP Segment Highlights

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1Q 2018 Financial Highlights

• Revenue - $66.4 million
• 15% increase from $57.6 million in 1Q 2017
• 8% increase on a constant currency basis
• Operating Income - $12.3 million
• 9% decrease from $13.5 million in 1Q 2017
• 15% decrease on a constant currency basis

SATP Segment Highlights (cont.)

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1Q 2018 Key Trends

• Social Grant Distribution
• SASSA continues to evaluate options to in-source distribution of grants

per Constitutional Court’s instructions

• CPS has extended its full support to government and SA citizens and in

the interim continues to deliver uninterrupted service Number of Social Grants Paid

8,8m 9,0m 9,2m 9,4m 9,6m 9,8m 10,0m 10,2m 10,4m 10,6m 10,8m

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CPS has a nationwide distribution footprint and an unmatched distribution network in rural areas. We have the last mile connectivity and presently can reach every South African within a 3-mile radius.

SATP Segment Highlights

1Q 2018 Key Trends

SATP Segment Highlights

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1Q 2018 Key Trends

EasyPay

Number of EasyPay Transactions

20 000 000 40 000 000 60 000 000 80 000 000 100 000 000 120 000 000 140 000 000 Q1FY2016 Q2FY2016 Q3FY2016 Q4FY2016 Q1FY2017 Q2FY2017 Q3FY2017 Q4FY2017 Q1FY2018

BUSINESS OVERVIEW

INTERNATIONAL TRANSACTION PROCESSING First Quarter 2018

ITP Segment Highlights

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1Q 2018 Financial Highlights

• Revenue - $46 million
• Flat compared to $46.2 million in 1Q 2017
• 7% decrease on a constant currency basis
• Operating Income - $5.3 million
• 9% decrease from $5.8 million in 1Q 2017
• 15% decrease on a constant currency basis

36 38 40 42 44 46 48 50 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

Revenue KRW Billions

ITP Segment Highlights

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1Q 2018 Key Trends

• South Korea and Rest of the World (ROW) Growth
• South Korea revenue growth adversely impacted by pricing impact of

interchange regulation

• ROW initiatives and investments starting to reflect in revenue growth

South Korea Revenue Growth ROW* Revenue Growth

*Note: ROW includes Transact24, MasterPayment, XeoHealth and India

• 1

2 3 4 5 6 7 8 9 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

Revenue ROW-ITP USD Millions

ITP Segment Highlights

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1Q 2018 Key Trends

• South Korea Transaction Growth and Cash Flow
• South Korea volume has continued to grow as interchange regulations

have put pressure on smaller players

• Regulations also now prohibit using POS terminals to incentivize

merchants, resulting in lower capex and higher cash flow South Korea Transaction Growth South Korea EBITDA and Capex

• 100

200 300 400 500 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

Number of Transactions (millions)

• 2

4 6 8 10 12 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

EBITDA less Capex (KRW billions)

BUSINESS OVERVIEW

FINANCIAL INCLUSION & APPLIED TECHNOLOGIES First Quarter 2018

FIAT Segment Highlights

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1Q 2018 Financial Highlights

• Revenue - $54.3 million
• 15% decrease from $63.5 million in 1Q 2017
• 20% decrease on a constant currency basis
• Operating Income - $13.9 million
• 8% decrease from $15.2 million in 1Q 2017
• 14% decrease on a constant currency basis
• EPE Accounts
• 2.1 million EPE accounts, 37% increase from 1Q 2017

100000 200000 300000 400000 500000

FIAT Segment Highlights

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1Q 2018 Key Trends Expect growth to be driven by new initiatives with Cell C/DNI Number of EPE Accounts Value of Loans Outstanding Number of SmartLife Policies

R k R 200k R 400k R 600k R 800k R 1000k R 1200k Outstanding Capital Deferred Service Fees

500000 1000000 1500000 2000000 2500000

FIAT Segment Highlights

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1Q 2018 Key Trends

• Key Umoya Manje and Power Manje Trends
• The introduction of our enhanced security features resulted in a short

term reduction in number of prepaid services

• The declines are now starting to bottom out sequentially

Number of Mobile (Manje) Transactions in Millions

m 1m 2m 3m 4m 5m 6m m 20m 40m 60m 80m 100m 120m Q1FY2016 Q2FY2016 Q2FY2016 Q2FY2016 Q1FY2017 Q2FY2017 Q3FY2017 Q4FY2017 Q1FY2018 Airtime Electricity

Airtime Electricity

NET1 OPPORTUNITIES

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South Africa is Net1’s core market, one in which we have maximum expertise, infrastructure and distribution. We intend to expand our customer base as well as the products provided to that base.

#3 Mobile operator in SA – 15m+ subscribers Strategic Rationale:

• Competitively manufacture/supply SIM cards
• Cross-sell “starter packs” – new annuity

streams

• Recharges through EasyPay and Net1 FS

branches

• VAS through EasyPay/Net1 FS
• Provide banking and financial services
• Create cutting-edge mobile banking/payment

products Leading distributor of starter packs for Cell C Strategic Rationale:

• Cross-sell DNI starter packs through Net1
• Cross-sell Net1 products through DNI’s 2,000

agents and 5,000 points of presence

• Provide handset financing to DNI customers
• Offer DNI’s micro-jobbing platform to our

clients

• Assist DNI to establish mobile data

infrastructure in rural areas

South Africa – Biggest Near T erm Opportunity

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Deal terms and financial profile

Acquired 45% of ZAR 945 million in cash. Obligated to pay up to ZAR 360 million additional on meeting certain performance targets. 2 Board Seats. Financial Metrics (Forecast for YE June 30, 2018):

• Revenue of ZAR 1.6-1.8 billion ($121-136 million)
• Net Income of ZAR 220 million ($17 million)

Financial Impact to Net1:

• We will equity account for DNI
• DNI will pay out substantial portion of its earnings
• We expect the DNI transaction to be

approximately $0.10 accretive to FY 2018 Fundamental EPS

South Africa – Biggest Near T erm Opportunity(cont.)

Acquired 15% for ZAR 2 billion (ZAR 750 million cash and ZAR 1.25 billion debt). 2 Board Seats. Financial Metrics (1H Jun17, FY Dec16): Financial Impact to Net1:

• Account for Cell C at purchase price on Balance

Sheet in year 1, and potentially at fair value after

• No equity or dividend income expected
• Interest expense and foregone interest income

expected to be $0.15 - $0.20/share dilutive to FY 2018 Fundamental EPS. Accretive in FY19

1H2017 1H-1H % FY2016 YoY% Revenue R7.7 bn 11% R14.6bn 11% EBITDA R1.6bn 16% R3.1bn 59% 26

South Africa – Biggest Near T erm Opportunity

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By the end of the third-year, we expect $0.25 to $0.50 annual incremental Fundamental EPS contribution as a result of new revenue and profit streams that flow through our income statement) We expect contributions to become accretive starting in FY 2019 EXCLUDING the financial impact of the transactions themselves, i.e. equity income, dividends, debt repayment, etc.:

We expect to realize further synergies from our Cell C and DNI transactions through new revenue and profit streams.

Other International Opportunities

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Europe/USA – T24/MP/Bank Frick Developing economies – IFC/JV’s India – MobiKwik Nigeria – OneFinance

Recently launched initiatives

29 Total investments ZAR 2.95Bn Mildly dilutive in FY 2018 $0.25-0.50 accretive to FEPS in year 3

EASYPAY EVERYWHERE Cell C/DNI

2+ million a/c’s in 2 years Growing transactions, financial and value-added services 450,000+ users with Oxigen 65 million base with MobiKwik Exclusivity to provide banking to MobiKwik

VIRTUAL CARD/BANKING

• Financial Inclusion JV company established for the rapid commercialization and

internationalization of Net1’s social disbursement payments & identification technology and capabilities.

• 50.1% Net1 majority controlling shareholder
• 49.9% Consortium led by Carl Scheible and equity funding partners
• Carl Scheible will head up the venture and is a fintech industry veteran with previous

executive roles at PayPal, Moneygram, eNett.

• Carl is in the process of hiring a team comprising senior, junior and functional leaders

with industry-specific experience and track record.

• London based for rapid implementation and ramp-up and access to payments talent,

fully operational by Q3 FY 2018.

Joint Ventures

New Joint Venture focused on large scale UEPS/EMV opportunities

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The Opportunity

“Banking the unbanked is a $380bn opportunity…”

10 – 20 countries 50 – 100m people

Market size & demographics Commitment to Social Benefits, Financial Inclusion& ease of entry

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Payment efficiency & digitize

The Potential

We see the potential for 50-100m active account holders in 10-20 markets.

Uniquely Positioned

Net1 is uniquely positioned with proven technology and a track record and a unique set of capabilities and technologies. Robust and scalable technology around Identification and Payment with full feature functionality on core payments platform.

• Issuing & acquiring
• Closed or open loop
• Account creation capability
• Online and offline authentication and transacting
• Card replacement
• Bank switch
• Wallet and spend management
• Reporting
• EMV

, NFC

• Proof of life biometric identification capabilities

Extensive experience in customized hardware solutions

• POS
• Biometric ATMs

Interface and usability features

• Ease of use
• Mobile

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SUMMARY & OUTLOOK

First Quarter 2018

1Q 2018 Summary & Outlook

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• 1Q 2018 Fundamental EPS of $0.43
• SATP – steady growth. Drivers - further ATM network expansion and

more transacting consumers including at EasyPay (POS)

• ITP – expect Korea to decline mid-single digit % in 2018 and return to

positive growth in 2019. ROW revenue should growth though continued investments to continue weighing on segment margins in 2018.

• FIAT – expect growth in financial services. Prepaid services expected to

decline 10-15% in 2018. New products rolled out through Cell C/DNI will provide incremental growth.

• 2018 GUIDANCE: Fundamental EPS of at least $1.61, assuming
• No significant disruptions in any of our key business units
• Modest dilution from Cell C/DNI transactions
• USD/ZAR rate of 13.62
• 56.6 million shares and tax rate of 34-36%

SUPPLEMENTAL INFORMATION

Reconciliation of non-GAAP measures

37 $ '000 EPS, basic $ '000 EPS, basic $ '000 EPS, basic

Fundamental net income (Non-GAAP) 24 446 0,43 25 753 0,48 94 721 1,74 Amortisation of intangible assets, net (2 131) (2 167) (10 491) Transaction costs (1 329) (242) (3 347) Stock-based charge (827) 1 324 (1 982) Amortisation of intangible assets, net - equity accounted investments (543)

• Facility fees for debt

(133) (36) (1 294) Former CEO separation payment, net

• (5 200)

Refund related to litigation finalized in Korea, net

• 643

US government investigations-related and US lawsuit expenses

• (96)

Net income attributable to Net1 (GAAP) 19 483 0,34 24 632 0,46 72 954 1,34 Non-controlling interest 244 613 1 694 Earnings from equity-accounted investments (2 075) (659) (2 664) Interest income (5 044) (4 304) (20 897) Interest expense 2 121 796 3 484 Income tax expense 10 277 11 103 42 472 Depreciation and amortization 8 966 10 204 41 378 EBITDA (Non-GAAP) 33 972 42 385 138 421 Adjusted for: Transaction costs 1 486 242 3 347 Stock-based compensation reversal related to former CEO

• (1 827)

250 Former CEO separation payment

• 8 000

Adjusted EBITDA (Non-GAAP) 35 458 40 800 150 018

Three months ended Sep-17 Sep-16 Jun-17 Year end

Thank you!

www.net1.com