Social service contract hurts Net1

Lower revenue from a social service contract in SA impacted its earnings in the first quarter of its new financial year, says Net1 UEPS Technologies.

The company reported revenue down 2%, from $65.5 million to $64.3 million, in the three months to September. Fundamental earnings per share declined 20%, to $0.36, from $0.45 a year ago.

Net1 says lower revenue from a change in terms of a contract with the South African Social Security Agency (SASSA) affected its earnings. Net1 entered into the new deal with the agency at the end of August, to provide its social welfare grants distribution service to SASSA in five of SA's nine provinces.

The new deal allows for a fee-per-transaction and a minimum amount of beneficiaries; however, the amount to be paid and the number of guaranteed beneficiaries are lower than in the previous contract.

Chairman and CEO Serge Belamant says the company's first quarter results were negatively impacted by the reduction in revenue from the agency contract. “Following the recent changes in the South African Cabinet, we expect to work with the new leadership in the ensuing months to define a long-term solution for the administration of social grants in SA.”

CFO Herman Kotze says the company's prediction of fundamental earnings per share of at least $1.50 for the full year depends on the agency contract continuing beyond March. In addition, the predicted earnings are reliant on its KSNet acquisition being incorporated into its results, he says.

Net1 said in September that it would buy 98.7% of KSNet, a payment processing company in the Republic of Korea, for about R1.7 billion.

Net1 benefited from a stronger rand against the dollar during the quarter, and also saw gains from more transactions going through its EasyPay unit. The company also reported increased revenue from its MediKredit and FIHRST business units, although these were at lower operating margins, which weighed on operating profit.

Its operations in Iraq benefited from increased user adoption and transaction revenue improved, it says. Net1 has received new orders for an additional 2 000 biometric EFTPOS devices to be deployed in Iraq.

Net1's universal electronic payment system is used in Iraq to distribute government grants to war victims, government pension payments to beneficiaries, as well as salary and wage distribution and payment to employees of the two state-owned banks.

Belamant adds that the company's “growth initiatives within SA and internationally, specifically in Iraq and Ghana; our new technologies such as Virtual Card and EasyPay Kiosks; and increasing contributions from our acquisitions of KSNET, MediKredit and FIHRST leave us well-positioned to drive long-term revenue, earnings and cash flows”.