Sassa's offices in Pretoria. Photo: Oupa Mokoena
Sassa's offices in Pretoria. Photo: Oupa Mokoena

Strain on Net1 after loss of Sassa contract

By Sandile Mchunu Time of article published May 13, 2019

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DURBAN – Net1 UEPS has come under pressure in South Africa in the third quarter to end March after its contract with the South Africa Social Security Agency (Sassa) expired in the first quarter of 2019.

The end of the contract led to a 72 percent decline in revenue on a constant currency basis in its South African segment.

“The decrease in segment revenue and operating income was primarily due to the substantial decrease in the number of Sassa grant recipients paid under our Sassa contract as the contract ended at the end of the first quarter in 2019,” the group said.

However, the group said these decreases in revenue and operating income were partially offset by higher transaction revenue as a result of increased usage of its ATMs.

The group's overall revenue declined by 47 percent during the quarter to $86.48 million (R1.22 billion), down from $162.72m compared to the same quarter last year.

Despite the loss of business in the country, chief executive Herman Kotze was upbeat about their business and said the group's core South African operations demonstrated far more stability during the third quarter, allowing them to focus on their extensive cost-containment exercise and reduction of debt.

“The retrenchment of thousands of Net1 family members has been one of the most difficult processes we have ever faced, and we completed the necessary actions to remain on track to achieve a monthly earnings before interest, tax, depreciation and amortisation (Ebitda)-neutral position for our

“South African operations by the end of the fourth quarter of 2019. The board and management remains squarely focused on reviewing all options available for the group and will provide updates when there are tangible actions to report,” Kotze said.

Net1 is a leading provider of transaction processing services, financial inclusion products and services and secure payment technology and it operates market-leading payment processors in the country and the Republic of Korea. The group has a primary listing on the Nasdaq and a secondary listing on the JSE.

During the quarter the group also reported a 12percent decline in revenue in its international business to $34.4m in constant currency.

Kotze said in Korea their advisers were actively engaged with management to execute the near-term action items to drive higher growth and profitability, and in parallel, its board, with financial advisers, was reviewing the strategic alternatives for this business.

Net1 acquired a 15percent stake in Cell C in 2017 for R2bn. In this quarter the group reported a fair value adjustment loss of $26.3m for Cell C.

However, the group said looking ahead, Cell C was focused on managing its near-term liquidity constraints, closing its transaction with a new minority investor and improving the performance of the business.

Net1 shares closed unchanged at R53.06 on the JSE on Friday.


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