Net1 confident of hold on social grants contract

Published May 12, 2014

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Johannesburg - Net1 UEPS Technologies is confident that it will maintain a grip on its R10 billion tender to distribute social grants nationally, even though the Constitutional Court recently declared the contract invalid.

On Friday, Net1 chairman and chief executive Serge Belamant said it believed the publication of a new tender, which the court ordered but left to the discretion of the SA Social Security Agency (Sassa), would take time.

Net1 was ready to propose an enhanced version of its biometrically secure solution, “which would continue to provide Sassa with the business functionality which they described in detail during the legal processes”.

He said the technology supplied by Net1 subsidiary Cash Paymaster Services had saved the public purse in excess of R3bn annually following the removal of more than 1 million invalid grants.

“We will continue to optimise our cost structures and focus on the marketing of our complementary and supplementary products in order to diversify our business and enhance our profitability.”

Net1, with a primary listing in the US and a secondary listing on the JSE, reported on Friday a 60 percent rise in revenue in constant currency to $138.1 million (R1.4 trillion) during its third quarter to March. Higher revenue was the result of an increase in low-margin prepaid airtime and electricity sales, the firm said.

The company said that during the quarter it had incurred lower expenses related to an ongoing investigation by the US government into allegations that Net1 bribed people to obtain the social grant contract.

The probe followed complaints by AllPay, a subsidiary of Absa, which lost the bid in 2012. AllPay took its dispute, claiming its scores were irregularly altered during the tender process, from the North Gauteng High Court to the Supreme Court of Appeal and ultimately to the Constitutional Court.

Revenue from Net1’s transaction-based activities in South Africa, including the EasyPay payments platform, rose 10 percent year on year to $64.9m.

Net1’s international business, which includes payment systems in South Korea and Ghana, grew revenue by 6 percent to $34.9m, largely due to higher revenue in South Korea.

Sales of smart cards rose 23 percent to $10m. Group financial lending services grew revenue to $11m compared with $1.6m over the three months to March last year.

The group cost of goods sold, information technology processing, servicing and support rose to $63.15m from $51.5m. Selling, general and administration expenses declined to $40.5m from $53.8m a year ago.

Income before tax was $25.6m from a loss of $4.2m last year. Basic earnings a share was 38 US cents compared with a 10c loss previously.

Cash and cash equivalents fell to $30.9m from $53.7m at year end last June due to expansion of the lending business, working capital changes, repayment of a portion of South Korean debt and acquisition of remaining shares that Net1 did not already own in South Korean subsidiary KSNET.

Chief financial officer Herman Kotze forecast fundamental earnings a share of at least $1.90 for fiscal 2014.

The shares rose 9.83 percent to close at R105 on Friday.

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