Net 1 and Visa in Indian roll-out

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Johannesburg - Legally embattled Net 1 UEPS Technologies is directing its efforts to further growth in international markets.

The dual-listed company, which administers South Africa’s social grant distribution nationwide, was pursuing the roll-out of services in India with multinational payments company Visa, Serge Belamant, Net 1’s chief executive and chairman, said on Friday.

Net 1 will extend its universal electronic payment system and virtual credit card technology to India and hopes to leverage co-operative agreements between South Africa, Brazil and India.

“We hope to extend with the assistance of the South African government,” he said on a conference call to investors about the second-quarter results.

Belamant added that the Indian government was interested in biometric verification technology similar to that which Net 1 had applied in rolling out a secure system for social grants in South Africa.

The financial gains to be made from India were not yet clear, Belamant said, and no discussions had yet taken place with Brazil. South Korea and “places in the EU” were interested in the “card not present” technology, he added.

Mastercard, with which Net 1 worked to issue smartcards to social grant recipients in South Africa, might pursue similar projects in “two or three different jurisdictions”, he said.

Diversification of income sources would mitigate the impact of a volatile rand which had a negative impact on results for the second quarter and six months to December last year the company said. The currency depreciated 16 percent to the dollar during the six months under review.

Herman Kotzé, Net 1’s chief financial officer, forecast an adverse impact on earnings for the third quarter as a result of rand volatility. “We can grow our South African businesses at a rate that exceeds the depreciation rate of the rand, which should dampen the effect on our results reported in dollar, and obviously expanding our business presence outside South Africa [will help],” he said.

“Our primary focus is to deploy our solutions in geographies where there is a need and where it can be part of a sustainable business model.”

Group revenue gained 43 percent in constant currency terms to $137.2 million (R1.5bn) during the second quarter compared with the same period in 2012. Fundamental net income jumped 166 percent in constant currency to $18.3m. Growth was derived from an increase in prepaid airtime sales, which has lower margins than Net 1’s other local businesses.

KSNET, a payments subsidiary in South Korea, improved revenue by 13 percent to $37.2m. Net 1 sold more ad hoc computer hardware terminals and cards during the quarter. Fundamental earnings a share gained 2 percent to 40 US cents. The $21m direct implementation costs of the social grant contract were concluded in 2012.

Subsidiaries Cash Paymaster Services, KSNET and payment platform EasyPay contributed 75 percent of profits. This would decline as lending services and mobile prepaid airtime and electricity sales became more meaningful, Belamant said. Net 1 will issue 4.4 million shares next month after concluding two black economic empowerment agreements in December last year.

Shares gained 17.65 percent to close at R100 on Friday, albeit on low volumes traded.

Sasha Naryshkine, an equity analyst at Vestact, said an after-hours trade in the US contributed to a 21 percent rise in the stock. The jump reflected on the JSE was due to the local markets adjusting to Friday’s close. “It’s not that liquid, which is why you get these big moves.”

Another Johannesburg stockbroker, who may not comment in the media, said Net 1 also had few shares, 58 million, in issue. “It adds to the volatility… It’s volatility is terrible.”

The firm remains under investigation by the US Federal Bureau of Investigation and the Securities and Exchange Commission into allegations that Net 1committed corrupt acts to obtain the R10 billion social grant contract. The Constitutional Court declared the award of the contract constitutionally invalid in November last year. Tomorrow it will pronounce an equitable remedy.

Belamant said an imminent US class action suit against Net 1 also over allegations that methods used to obtain the social grant contract violated the Foreign Corrupt Practices Act was without merit and Net 1 would challenge the action. - Business Report


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