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Cancelled SASSA contract hurts Cell C shareholder Net1

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 27 Sept 2019
Herman Kotzé, CEO of Net1.
Herman Kotzé, CEO of Net1.

JSE-listed financial technology service provider Net1 has cited the termination of the social grants contract as the biggest reason for its multibillion-rand loss.

The company this morning announced its preliminary fourth quarter and full-year 2019 results, reporting a net loss of $248 million (R3.7 billion).

Net1, which owns a 15% stake in Cell C, delayed the publication of its results awaiting “clarifications” on the transactions at the troubled mobile operator. It acquired the stake for R2 billion in 2017.

Cell C published its results yesterday, posting an R8 billion loss.

Ealier, Net1 had issued a statement, saying it “believes the fair value of Cell C at 30 June (Net1’s fiscal year end) is nil”.

The company added it expects to record a non-cash fair value adjustment to reduce its carrying value in Cell C to zero.

The South African Social Security Agency’s (SASSA’s) business ties with Net1 subsidiary CPS came to a close when the extended contract expired at the end of September last year.

The social security agency had, from 2012, relied on the services of CPS to pay 10.8 million beneficiaries through cash payments, direct deposits and electronic payments.

The post office took over the payment of social grants from the beginning of October.

“We are pleased to report that we have stabilised our business in South Africa, and we are focused on returning to growth and profitability in fiscal 2020,” says Herman Kotze, CEO of Net1.

“Going forward, we are returning to our roots of providing innovative and affordable financial technology and services offerings to the unbanked and underbanked, as well as leveraging our deep expertise in cryptography and secure transactions to introduce new and relevant products.”

Kotze adds the company will continue to review its portfolio of investments for those that do not fit strategic focus or give a path to control, and will accordingly be evaluated for monetisation.

“Building on our disposal of DNI, which started in Q3 2019, the company has now received multiple indicative offers for KSNET in Korea, and we have engaged FT Partners to assist the board to determine the appropriate course of action. With the challenges of the last year and the required repositioning behind us, we are well positioned to unlock shareholder value and improve capital allocation going forward.

“As we look to fiscal 2020, our progress should be benchmarked to our Q4 2019 results rather than year-over-year comparisons given the [SASSA] contract termination and business disposals over the course of fiscal 2019,” says Alex Smith, Net1’s CFO.

“In fiscal 2020, we expect to generate adjusted EBITDA of at least $16 million using a constant currency base of ZAR 14.27/$1, driven by growth in South Korea and South Africa, and reduced losses in our IPG business. 

“We are working closely with Cell C and its stakeholders to improve its short-term liquidity challenges, conclude its recapitalization, and as a result, create a long-term sustainable business. Our other equity investments continued to perform in line, or ahead of expectations during the quarter.”