Net1, which is listed on both the Johannesburg and Nasdaq bourses, has signed up 22 million social grant recipients, and is rolling out financial and mobile services in the midst of an ongoing court battle on the validity of the deal.
Net1 says it saw top and bottom line growth in the quarter to June, despite a period of heavy investment as it rolled out a national distribution network for social welfare benefits, as part of its contested R10 billion contract with the South African Social Services Agency (SASSA).
Losing bidder AllPay, a unit of big four bank Absa, has turned to the Constitutional Court in yet another attempt to have the multibillion-rand tender process declared invalid. The tender was awarded to Net1 unit Cash Paymaster Services (CPS).
Both CPS and SASSA have opposed AllPay's application and a Constitutional Court hearing has been scheduled for 10 September.
Implementation costs
Chairman and CEO Serge Belamant says the process has been "incredibly complex and complicated", but that its success validates SASSA's "decision to award this nationally critical tender to us".
Belamant said the company had started deploying financial and mobile services, and the early results look "extremely impressive".
Net1, which has registered nearly 22 million South Africans as part of the second phase of bulk enrolments, says the stronger dollar weighed on its results. It reported revenue of $118 million, a 25% gain in constant currency, while fundamental earnings per share came in at $0.28, up 22% in constant currency for the quarter.
For the full year, in rand terms, revenue gained 31%, to $452 million, although fundamental earnings per share dropped to $0.76, from $1.42.
Its temporary employee headcount, which peaked at about 5 500 employees for most of fiscal 2013, dropped to 1 392 at the end of the quarter. It incurred direct implementation costs of $56.2 million, including staff, travel, temporary infrastructure hire, fixed premises hire for enrolment and stationery costs in the 2013 year.
It also spent about $6.9 million in capital expenditure during the year; taking total capital spend to $28.1 million for the overall project. Some 9.5 million cards have been issued for 9.5 million grant recipient cardholders and 12.2 million beneficiaries, and it has 10 000 pay points across SA.
Net1 notes it will experience lost revenue and operating income from the roughly 370 000 beneficiaries on SASSA's database who have not re-registered and whose grants will likely be cancelled in September.
CFO Herman Kotz'e says: "Our one-time implementation costs are now effectively behind us and we, therefore, expect to demonstrate a marked improvement in profitability during fiscal 2014."
At the end of the period, it had cash and cash equivalents of $54 million, up from $39 million a year ago. "The company's cash position improved due to higher cash from operations and lower investments," it says.
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