Q1 2020 Investor Presentation - Net1 U.E.P.S. Technology Inc

Q1 2020 Investor PresentationInvestor PresentationInvestor PresentationInvestor Presentation

www.net1.com

Safe Harbor Statement

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-lookingstatements so long as such information is identified as forward-looking and is accompanied bymeaningful cautionary statements identifying important factors that could cause actual results to differmaterially 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 areintended to identify forward-looking statements.

All of these forward-looking statements are based on estimates and assumptions by our managementthat, although we believe to be reasonable, are inherently uncertain. Forward-looking statements involverisks and uncertainties, including, but not limited to, economic, competitive, governmental and

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risks and uncertainties, including, but not limited to, economic, competitive, governmental andtechnological factors outside of our control, that may cause our business, industry, strategy or actualresults 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-Kfor the year ended June 30, 2019, on file with the Securities and Exchange Commission, and other factorswhich may not be known to us. Any forward-looking statement speaks only as of its date. We undertakeno obligation to publicly update or revise any forward-looking statement, whether as a result of newinformation, 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 consolidatedfinancial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities whichcontribute the majority of our revenue and costs, and is the currency in which the majority of our transactions areinitially incurred and measured. Due to the significant impact of currency fluctuations between the U.S. dollar andZAR on our reported results and because we use the U.S. dollar as our reporting currency, we believe that thesupplemental presentation of our results of operations in ZAR is useful to investors to understand the changes inthe underlying trends of our business. The use of constant currency is a non-GAAP measure.

Adjusted EBITDA : Net (loss) income before non-controlling interests, earnings from equity accounted investments,interest, taxation, depreciation and amortization expenses (“EBITDA”) adjusted for impairment losses, transactionor financing related charges, and other non-operating or non-recurring items that are considered expenses orincome under U.S. GAAP. EBITDA and adjusted EBITDA are non-GAAP measures and represent a performancemeasure that is not intended to represent a liquidity measure.

Defined Terms

measure that is not intended to represent a liquidity measure.

Reconciliation of US GAAP measures to EBITDA, Adjusted EBITDA, Fundamental (Loss) Earnings and (Loss)Earnings Per Share: The reconciliation is included in Appendix A.

We do not provide reconciliation of our forward-looking non-GAAP measures to GAAP due to the inherentdifficulty 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 othercharges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience,could be significant.

Discontinued operations: Refer to Note 21 to our Q1 2020 Form 10-Q and Appendix B for discontinued operationdisclosures. Unless otherwise specified, the results of DNI for fiscal 2019 are excluded from analysis included in thispresentation.

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Performance Summary

Q1 2020 Company highlights include:

• Group returned to positive Adj. EBITDA in Q1 2020

• Revenue improved sequentially from Q4 2019, with SA businesses remaining stable

• Progress on KSNET process

Q1 2020 Investment portfolio update:

• Cell C made progress towards its expanded MTN agreement, following which it expects to conclude its recapitalization

• Exercised option to take controlling stake in Bank Frick (to 70%) in March 2020 from 35% currently

• DNI trading performance on plan; acquiring certain related businesses from Blue Label

• OneFi and MobiKwik, ahead of plan and trading towards achieving break-even in this fiscal year

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towards achieving break-even in this fiscal year

Q1 2020 financial summary:

• Revenue of $81 million vs. Q4 2019 revenue of $71 million*

• Adj. EBITDA of $2.8 million, vs. Q4 2019 Adj. EBITDA of $(0.8) million

• Fundamental loss per share of $(0.02)

* Excludes $19.7m net revenue adjustment for SASSA court ruling in Q4 2019

STRATEGIC SUMMARYSTRATEGIC SUMMARYQ1 2020

Return to our roots: Financial Inclusion

FINANCIAL TECHNOLOGYAffordability Accessibility

Micro-loansOffline/security

Providing Innovative and Cost-Effective Solutions

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Unbanked and Under-banked

Micro-loans

Micro-insurance

Working Capital

VAS

Distribution

Omni-channel

Easy-to-use

Net1 is a global fintech player focused on the unbanked

GLOBAL REACH19 office or service locations globally

TECHNOLOGY

• Core UEPS/EMV platform

• Tokenization – virtual card

• Mobile banking/payments (QR)

• Crypto-asset storage

• Card processing gateways

• ACH processing gateway

• SEPA processing gateway

• Pre-paid card Platform

• Utility Vending Solutions (STS)

PARTNERSHIPS

• MasterCard

• Finbond, Cell C, MobiKwik,

Carbon, Zapp

• Bank Frick – Card Acquiring,

Q1 2020 | Global Market Opportunity

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REGULATORY COMPLIANCE

• FCA Licensed AEMI (UK)

• MFA Licensed AEMI (Malta)

• PMI (Mauritius)

• Member of SWIFT

• Credit and Insurance licenses (SA)

• Bank Frick – Card Acquiring,

issuing and Banking services

• China partners for CUP, AliPay

& WeChat

• NACHA member ODFI Bank

partners for USA ACH

• Cashflows (UK) and PSI Pay –

MasterCard and Visa Prepaid

card Issuing

PEOPLE

• 100s years combined leadership experience

• Extensive senior industry network

• Local and global experts

• Entrepreneurial ethos

“Brexit proof”

Q1 2020 | FY 2020 Targets

1) Accelerate transition from B2B to B2C model in South AfricaMetrics:

• Grow active account base by at least 10% from Q4 2019 levels;

• Expand financial and value-added services businesses at least 10% from Q4 2019 levels

2) Introduce and scale up payments and blockchain offerings in EuropeMetrics:

• Launch new IPG brand and bring issuing, acquiring and neo-bank offerings to market;

• Launch new crypto-asset storage products for B2B and B2C

3) Rapidly grow payment solution sales in AfricaMetrics:

• Accelerate market penetration through Net1, ZappGroup and Carbon

4) Implement turnaround plan in Korea and complete strategic evaluationMetrics:

• Return KSNET to revenue growth and introduce new products and cost efficiencies;

• Evaluate indicative offers received and, if appropriate, finalize transaction

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Q1 2020 | Long-term Growth Strategy

Focus on four key pillars to drive long term growth and profitability

KOREA

Improve growth and

profitability

Expand new offerings

Consider strategic

alternatives

EU/ASIA (IPG)

Issuing, Acquiring,

Processing (SMEs)

Blockchain and

Cryptocurrencies

Synergies with Bank Frick

SOUTH AFRICA

Financial Inclusion

(Individuals)

Synergies with Finbond,

Cell C and DNI

POS and ATM network

SUPPORTED BY STRATEGIC INVESTMENTS

AFRICA

Mobile Payments, Digital

Financial services, UEPS

Synergies with ZappGroup

Africa and Carbon

Add Net1 Technologies

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STRATEGIC INVESTMENTSSTRATEGIC INVESTMENTSQ1 2020

BANK Investments

FINBOND (South Africa) Ownership: 29% Carrying Value: $33 MnSouth African mutual bank and lender with 400+ branches. Traded on JSE (Ticker: FGL)

PROJECT 2020: Launch new UEPS/EMV products

Leverage combined branch, ATM and POS infrastructure

DEVELOPMENTS: Reported revenue of ZAR 1.3 billion (+3%) and EBITDA of $ZAR 0.3

billion (+10%) for first half of fiscal 2020

N. American revenue grew 10% and accounts for 66% of total

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N. American revenue grew 10% and accounts for 66% of total

BANK FRICK (Europe) Ownership: 35% Carrying Value: $46 MnFull-service bank, member of Visa/MasterCard, banking leader in blockchain and crypto

PROJECT 2020: Launch new issuing, acquiring and neo-bank products

Launch new crypto-asset storage product

DEVELOPMENTS: Close coordination with IPG to conclude Visa audit

Made further progress on expanding crypto/blockchain banking

MOBILE PAYMENT Investments

MOBIKWIK (India) Ownership: 13% Carrying Value: $27 MnLeading digital fintech and payments company in India with 80+ million customers

PROJECT 2020: Expand financial services offerings – loans, insurance, wealth

Scale virtual card and introduce new Net1 offerings

DEVELOPMENTS: Sep’19 annualized revenue: $60mn. EBITDA breakeven target in FY20

Received central bank approval for MobiKwik to issue virtual cards

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CARBON (Nigeria) Ownership: 25% Carrying Value: $8 MnLeading digital fintech and lending company in Nigeria

PROJECT 2020: Expand product offerings + enter new country

Increase collaboration with Net1 and ZappGroup

DEVELOPMENTS: # of unique customers grew 57% in Q1 2020 vs Q4 2019

Revenue increased 34% in Q1 2020 vs Q4 2019

MOBILE PAYMENT Investments (Cont’d)

V2 Limited Ownership: 50% Carrying Value: $3 Mn

Startup Africa-focused mobile payments company leveraging QR-code technology

PROJECT 2020: Commercially scale operations in Ghana

Enter at least one additional African market

DEVELOPMENTS: Started operations in October 2018

Commercial launch in Ghana expected in Q3 2020

Integrated to the national merchant and interbank switches

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Integrated to the national merchant and interbank switches

TELECOM Investments

Cell C (South Africa) Ownership: 15% Carrying Value: $0 MnThird-largest mobile operator in South Africa

PROJECT 2020: Conclude recapitalization

Implement MTN network sharing agreement and build sustainability

DEVELOPMENTS: Made further progress with conclusion of MTN agreement

Provided shareholder support via purchase of ZAR 220 Mn airtime

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DNI (South Africa) Ownership: 30% Carrying Value: $57 MnLargest distributor of Cell C products including starter packs

PROJECT 2020: Expand product offering across other network operators

Complete management buyout from Net1

DEVELOPMENTS: Profitability and cash flow generation remained strong in Q1 2020

Acquiring two related businesses to diversify and scale further

FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTSQ1 2020

Q1 2020 Financial Report

Q1 2020 Q1 2019 Q4 2019(1)

($ Millions)

Revenue 81 107 71

% change USD (36%) 13%

% change Const. FX (36%) 17%

Adjusted EBITDA 3 13 (1)

% change USD (79%) nm

EBITDA Margin (%) (79%) nm

Q1 2020 Financial Highlights – (DNI included in Q1 2019 only)

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Note:

(1) Q4 2019 revenue adjusted to include $19.7 million related to Sep 19 Supreme Court ruling impact on revenue

(2) Adjusted Negative EBITDA is adjusted for transaction related costs and other adjustments. Fundamental EPS

also includes these and other adjustments; see reconciliations in Appendix A for additional details.

EBITDA Margin (%) (79%) nm

Fundamental Net Income* (1) 1 (173)

% change USD nm nm

% change Const. FX nm nm

Fair value adj. incl. in FNI - (125)

Fundamental EPS $(0.02) $0.01 $(3.05)

% change USD nm nm

% change Const. FX nm nm

Fair value adj. incl. in FEPS $(2.21)


• SATP constant currency revenue grew 6% vs. Q4 2019

• Expiration of SASSA contract and impact of auto-

migration of EPE customers

• ITP constant currency revenue declined 3% vs Q4 2019

• Lower contributions from IPG and South Korea

• KSNET exited certain unprofitable agent/merchant

agreements

200

400

600

800

1,000 R 876

R 561

R 286

ZAR Millions

Q1 constant currency SATP Revenue

(36%)

(49%)

Business Segment Results – Q1 2020

-

100

200

300

400

500

600

700

800

2018 2019 2020

R 716 R 791

R 445

ZAR Millions

Q1 constant currency FIAT Revenue

• FIAT constant currency revenue grew 77% vs Q4 2019

• Q1 2019 includes SASSA, DNI and old EPE base

• Higher ad-hoc technology and telecom sales

-

200

2018 2019 2020

-

10

20

30

40

50

60

2018 2019 2020

$ 46

$ 39$ 34

USD Millions

Q1 USD ITP Revenue

(14%)

(49%)

(14%)

10%

(44%)

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Business Segment Results – Q1 2020 – (excludes DNI)

USD (Millions) 1Q 2020 1Q 2019 1Q 2020 1Q 2019 1Q 2020 1Q 2019

SATP $19 $38 $(3) $(4)

% Change* (49%) (4%)

ITP 34 39 4 3

% Change* (14%) 36%

11% 7%

Revenue Operating Income Operating Margin

(17%) (9%)

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*% change in constant currency

% Change* (14%) 36%

FIAT 30 34 2 3

% Change* (13%) (57%)

Sub-total 84 112 2 3

% Change* (25%) (82%)

Inter-segment Eliminations (3) (4) (5) (7)

% Change* nm (34%)

Total $81 $107 $(3) $(4)

% Change* (25%) (37%)

(17%) (9%)

(3%) 1%

2% 2%

nm nm


Balance Sheet Overview

USD (Millions) Sep 30, 2019 Jun 30, 2019

Net Unrestricted Cash $ 42 $ 46

Investments and Equity Accounted Investments(1) $ 147 $ 178

Total Assets $ 671 $ 673

Total Equity and Redeemable Common Stock $ 408 $ 427

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Note (1): Sep 30, 2019 includes 30% interest in DNI with a carrying value of $57 million

Note (2): Sep 30, 2019 includes $14.5 million related to borrowings obtained to finance the purchase of Cell C airtime

$ 408 $ 427

Total Debt(2) $ 25 $ 10

Book Value / Share $ 7.21 $ 7.55

Net Cash / Share $ 0.30 $ 0.65

Debt / Equity 0.06 0.02

% held Balance Sheet Value

(Sep 2019)

Equity Accounted:

Bank Frick 35% $46 million >$46 million (1)

Finbond (JSE listed) 29% $33 million $59 million (2)

Carbon 25% $8 million $25 million (3)

DNI 30% $57 million $57 million (4)


Key Investments

DNI 30% $57 million $57 million (4)

Investments:

Cell C 15% $0 million $0 million

MobiKwik 13% $27 million $35 million (5)

TOTAL $171 million >$222 million (6)

1) Based on carrying value

2) Sep 30, 2019 value - 269m shares at R3.34 at $1/R15.16

3) Based on peer analysis of other neobanks

4) 30% of DNI subject to an option to dispose for $57 million

5) 13% of $290m (MobiKwik valuation at Bajaj investment)

6) Compared with Net1 market cap of $170 million (56.8M shares x $3.00)

Values at carrying value unless stated otherwise20

BUSINESS OVERVIEWBUSINESS OVERVIEWSOUTH AFRICAN TRANSACTION PROCESSING

Q1 2020

Q1 2020 | SATP Segment Highlights

• Revenue - $19 million

• 49% decrease from $38 million in Q1 2019

• 6% constant currency increase compared to Q4 2019

• Lower transaction revenue from fewer EPE accounts and SASSA

Grindrod accounts

• Partially offset by higher transaction volume from usage of ATMs

Financial Highlights

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• Partially offset by higher transaction volume from usage of ATMs

• Operating Loss – $(3) million

• Significantly reduced cost structure to bring SA operations in line

with current business volumes

• Lower number of EPE and SASSA Grindrod accounts

BUSINESS OVERVIEWBUSINESS OVERVIEWINTERNATIONAL TRANSACTION PROCESSING

Q1 2020

Q1 2020 | ITP Segment Highlights


• 14% decrease compared to Q1 2019

• 4% constant currency decrease compared to Q4 2019

• Exit of certain unprofitable merchant/agent contracts in South Korea

• Contraction in IPG processing activities particularly China processing

and crypto-currency transactions


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and crypto-currency transactions

• Operating income – $4 million

• Excluding non-recurring charges, ITP operating income and margin

improved in Q1 2020 compared to Q1 2019 and Q4 2019, driven by

improved contribution from KSNET and lower costs in IPG

Q1 2020 | ITP Segment Highlights (Cont’d)

• South Korea and Rest of the World (ROW) Growth• South Korea revenue down 4% in KRW compared to Q1 2019

• ROW revenue impacted by contraction in IPG processing activities

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Revenue KRW Billions

9

Revenue ROW (excl Korea) - USD Millions

Key Trends

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-

10

20

30

40

50

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

-

1

2

3

4

5

6

7

8

9

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

BUSINESS OVERVIEWBUSINESS OVERVIEWFINANCIAL INCLUSION & APPLIED TECHNOLOGIES

Q1 2020

Q1 2020 | FIAT Segment Highlights



• 77% constant currency increase compared to Q4 2019

• Benefit from adhoc technology and telecom product sales in Q1 2020

• Operating Profit - $1.5 million


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• Operating Profit - $1.5 million


• Operating loss of $(11) million in Q4 2019

• EPE Accounts

• Active accounts remained relatively stable at 1.06 million vs 1.11

million in Q4 2019 primarily as a result of natural attrition.

• Financial Services

• Stability of loan book and insurance policies, with performance

reverting to historical averages

Q1 2020 | FIAT Segment Highlights (Cont’d)

Average Active EPE accounts Value of Loans Outstanding

0.5

1.0

1.5

2.0

Mil

lio

ns

200

400

600

800

1,000

1,200

1,400

Mil

lio

ns

Key Trends

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Number of Billed SmartLife Policies

0.0

0.5

Q1FY20Q4FY19Q3FY19Q2FY19Q1FY19Q4FY18Q3FY18Q2FY18Q1FY18

As of quarter ended

0

200

Outstanding Capital Deferred Service Fees

0

100,000

200,000

300,000

400,000

500,000

Q1

FY1

6

Q2

FY1

6

Q3

FY1

6

Q4

FY1

6

Q1

FY1

7

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Appendix AAppendix A

Reconciliation of non-GAAP measures

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

Fundamental net (loss) income (Non-GAAP) (1,176) (0.02) 774 0.01

Amortisation of intangible assets, net of tax (1,413) (4,481)

Transaction costs (806) (1,550)

Stock-based charge(2) (387) (587)

Amortisation of intangible assets, net of tax - equity accounted investments (610) (144)

Facility fee (87)

Amortization, net related to non-controlling interest - 876

Net (loss) income attributable to net1 (GAAP) (4,392) (0.08) (5,199) (0.09)

Three months ended

Sep-19 Sep-18

Q1 2020 – Fundamental Net (Loss) Income and EBITDA

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Net (loss) income attributable to net1 (GAAP) (4,392) (0.08) (5,199) (0.09)

Non-controlling interest - 95

Earnings from equity-accounted investments (1,063) (1,373)

Interest income (651) (1,876)

Interest expense 1,355 2,759

Income tax expense 2,017 6,490

Depreciation and amortization 4,765 10,794

(Negative) EBITDA (Non-GAAP) 2,031 11,690

Adjusted for:

Transaction costs 806 1,550

Adjusted (Negative) EBITDA (Non-GAAP) 2,837 13,240

Appendix BAppendix B

Reconciliation of non-GAAP measures

Three months ended September 30, 2018: Continuing Discontinued Total

Operating (loss) income (GAAP) (4,286) 5,182 896

Depreciation and amortization 7,858 2,936 10,794

EBITDA (Non-GAAP) 3,572 8,118 11,690

Adjusted for:

Transaction costs 1,550 1,550

Adjusted EBITDA (Non-GAAP) 5,122 8,118 13,240

Q1 2019 – Adjusted EBITDA (continuing and discontinued operations)

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Q1 2020 Investor Presentation - Net1 U.E.P.S. Technology Inc