Dual-listed Net1 UEPS Technologies says it may sue AllPay for more than its initial demand of R478 million, as it quantifies the "continued impact of AllPay's action".
Net1 has accused the rival company, which lost out on a social security bid, of being behind a smear campaign, which it says has tarnished its reputation and cost it improved empowerment credentials.
Chairman and CEO Serge Belamant says Net1 continues to cooperate with the US Department of Justice and Securities Exchange Commission in their investigations. "As a result of these investigations, we continue to experience some adverse impact from the damage caused to our reputation, including our ability to execute certain aspects of our strategic plan."
The lawsuit against AllPay, which is a unit of big four bank Absa, was lodged last December. It is unlikely the matter will go to trial before the end of June.
Last year, Net1's subsidiary, Cash Paymaster Services, won a R10 billion tender from the South African Social Security Agency (SASSA), to distribute social welfare payments to 10 million South Africans every month, for five years.
AllPay took the matter to court, arguing that Net1's win of the multimillion-rand deal was unlawful. Last August, the North Gauteng High Court ruled that, while the deal was illegal and invalid, it would remain in place so that payments could continue.
In March, Net1 won a court bid in the South African Supreme Court of Appeal, which handed down a judgment finding the tender process was valid and legal. AllPay has filed leave to appeal with the South African Constitutional Court, says Net1 in a statement.
Net1 is also under investigation by the US Securities and Exchange Commission and the Department of Justice's Criminal Division to determine whether there was bribery involved in the R10 billion contract with SASSA.
Net1's revenue was 32% higher, at $111 million, in the three months to March, but it incurred a net loss of almost $4.7 million. It incurred legal costs of more than $4.2 million related to investigations by US authorities.
Probing the media
Net1 has also filed an application under Section 34 of the South African Prevention of Corrupt Activities Act in SA with the South African Police Service. The section deals with the reporting of suspected fraud, theft, extortion and forgery.
Net1 has accused AllPay of being behind media reports alleging it won the deal unfairly. AllPay has requested leave to appeal the latest ruling.
"We filed the Section 34 application to prompt the Hawks to conduct an investigation into who may have made corruption allegations that appeared in the South African media after we were awarded the SASSA tender in January 2012," says Net1. The application has been accepted for investigation.
Moving ahead
Despite the ongoing legal battle, Net1 is moving ahead with implementing the project. So far, it has wrapped up bulk enrolment, it says in its quarterly results to March, but it says there seem to be about 21.6 million beneficiaries, compared with the initially quantified 9.4 million.
"In order to complete the second phase of the implementation on time, and given the significantly higher number of beneficiaries, we increased the number of temporary employees that we hired in the second quarter of fiscal 2013 from 2 500 to approximately 5 500, and retained the higher employee base through all of the third quarter of fiscal 2013," says Net1.
"We are very pleased with the commitment demonstrated by the Net1 team to complete bulk enrolment for our SASSA implementation on schedule, despite having to register nearly 40% more beneficiaries than originally planned," says chairman and CEO Serge Belamant.
Its temporary employee headcount has since declined to about 3 000 and it enrolled a total of 12.5 million citizens during the quarter, taking registrations to more than 20 million overall. Direct implementation expenses for the project amounted to R140.5 million, which includes staff, travel, temporary infrastructure hire, fixed premises hire for enrolment, and stationery costs.
Net1 also spent R39.3 million on smart cards during the quarter.
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