Nasdaq- and Johannesburg-listed Net1 UEPS expects to benefit from the extension of a South African social development tender.
The US-based company provides secure transaction channels between formal business and un-banked and under-banked individuals.
CEO and president Serge Belamant says the South African Social Security Agency (Sassa) is expected to extend the tender beyond March for the provision of a payment mechanism.
Net1 already has a one-year contract from government to process these payments in five provinces, and Belamant says, while these contracts are short-term in nature, the contract seems to be secure. “We remain an integral distributor of welfare grants for the South African government,” he says.
Belamant was speaking during the company's first quarter presentation on Friday, for the three months to September. During the quarter, revenue declined 4% year-on-year to $65.5 million, which translates into a 3% decline in rand terms.
Earnings per share under US generally accepted accounting principles in the first quarter was $0.37, versus $0.45 a year ago, a decline of 18% in dollars and 18% in rands. CFO Herman Kotze says: “We reiterate our guidance of at least 20% constant currency fundamental earnings per share growth for fiscal year 2010.”
Belamant adds that revenue growth will be modest, but will increase as government expands the social welfare net. Late last month, finance minister Pravin Gordhan reaffirmed in his medium-term budget policy speech that the child support grant would be extended up to the age of 18.
The bulk of the company's revenue is earned from transaction-based activities. Revenue in this segment grew 11% in dollars and 12% in rands year-on-year, to $45 million.
Revenue and operating income increased as a result of the standard pricing formula that the company has agreed on with Sassa. This resulted in higher average revenue per grant.
Standardised payments
Net1's new contract with government started on 1 April and expires at the end of March next year. It contains a standard pricing formula for all provinces, based on a transaction fee per beneficiary paid regardless of the number or amount of grants paid per beneficiary. This is calculated on a guaranteed minimum number of beneficiaries per month.
The company's previous contract saw it receive either a fee per grant distributed, or per beneficiary paid, or as a percentage of the total grant amount distributed, which varied from province to province.
“We do not expect that the new contract will materially affect our future results of operations, since the reduced pricing should be offset by the guaranteed minimum number of beneficiaries per month, and the increased interest income we expect to receive as a result of the elimination of our pre-funding requirement,” the company says.
Previously, it had pre-funded the grants, a responsibility that has now been taken over by Sassa.
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