Legal costs from US probe push Net1 into quarterly lossComment on this story
THE ongoing fallout surrounding Net 1 UEPS Technologies and a R10 billion government tender it holds to distribute social grants in South Africa pushed the technology firm into a net loss of nearly $4.7 million (R42.8m) for its third quarter as it struggled with legal costs.
Legal charges of $4.2m were incurred to comply with investigations by the US Department of Justice (DoJ) and the Securities and Exchange Commission into the contract, Net1 chief financial officer Herman Kotzé said.
“They sent an information request, which was quite broad in its scope. The information was collated, had to be summarised and presented to the DoJ by legal firms in the US,” Kotzé said, adding that the company had now fulfilled all requirements.
The US investigation is continuing despite rulings in favour of Net1 by the North Gauteng High Court in December last year and the Supreme Court of Appeal in March.
It is unclear when the US inquiry will be concluded.
“Our attorney has provided all the judgments. We hope they take cognisance of what’s been said. It’s up to the DoJ to decide at what point they’ve been satisfied,” Kotzé said on Friday.
Rival AllPay, which lost the bid for the social grant tender and challenged the award in court, had invoked the probe by the US, where Net1 maintains a primary listing.
The legal wrangling in South Africa is set to continue as AllPay, a subsidiary of Absa, has sought leave to appeal the contract in the Constitutional Court.
Net 1 is opposing the motion, which the court has not yet responded to. The Hawks will also investigate Net1’s concerns about the source of the allegations of corruption against it.
Meanwhile, Net1 is seeking R478m from AllPay for reputational damage and value destruction of its share price last year after allegations that it won the contract by bribing SA Social Security Agency (Sassa) officials.
Net1 shares in the US fell from about $8 to less than $4 in December after saying it was undergoing a US probe. On the JSE it fell a similar amount from more than R70 to about R40 that month.
In court AllPay also alleged that the tender specifications were altered at the last minute to ensure that Net1 was the only winner.
Net1 said its claim might rise after adding legal costs. It had yet to obtain a court date but did not expect the matter to be heard before June 30.
AllPay attorney Anthony Norton said AllPay had filed a notice of intention to oppose Net1’s lawsuit.
If the 6.06 percent rebound in Net1 shares to close at R70 on the JSE on Friday is any indication, investors have moved on from the drama.
Net1 shares on the Nasdaq rose from $7.73 to $7.80 on Friday. The firm holds 73 percent of its stock in the US.
Baird Equity Research analysts David Koning and Timothy Wojs said in a note on Friday that Net1 was a “good but highly speculative risk/reward” investment depending on the level of ongoing profitability on the Sassa contract and the wrap-up of the US probe.
Profitability during the quarter was hurt by additional costs from the bulk enrolment of social grant beneficiaries. It has registered more than 20 million beneficiaries and issued more than 9.1 million smartcards.
Net1’s total revenue grew 23 percent to $111m for the quarter. The social grant contract contributed about 50 percent of revenue.