Legal View

Net1 claims it saves SA R2bn annually

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This article has been updated to show "Net1 claims it saves SA R2bn". This is after Net1 alerted ITWeb that it had incorrectly supplied the figure as $2 billion (R27 billion), rather than R2 billion.

Net1 UEPS Technologies claims it is saving the South African government R2 billion per annum through the identification and removal of fraudulent beneficiaries.

The company made the revelation this morning when announcing its third quarter (Q3) 2017 results, where it posted revenue of $147.9 million, an increase of 10%, down 8% in constant currency.

Constant currencies are exchange rates that eliminate the effects of exchange rate fluctuations when calculating financial performance numbers for various financial statements. Companies with major foreign operations often use constant currencies when calculating their yearly performance measures.

Net1, which has a primary listing on the Nasdaq in the US and a secondary listing on the Johannesburg Stock Exchange, distributes social grants through its subsidiary, Cash Paymaster Services (CPS).

Invalid contract

CPS has been the sole paymaster of social grants in SA, despite an invalid contract. Over the last few months, CPS, as well as other Net1 subsidiaries, faced a slew of allegations that it authorised deductions on beneficiaries' accounts before their social grants were paid out.

The Constitutional Court has since extended the invalid CPS contract for another year to avert a social grants disaster that would have affected more than 17 million citizens.

Since the ConCourt's decision, there has been a finger-pointing match between social development minister Bathabile Dlamini and SA Social Security Agency CEO Thokozani Magwaza about who should be held responsible for the social grants crisis.

Net1 CEO Serge Belamant.
Net1 CEO Serge Belamant.

Net1's Q3 2017 fundamental net income was $23.5 million, an increase of 19%, down 1% in constant currency; and the company posted flat fundamental net income and earnings per share of $0.43, which includes a 19% adverse impact related to higher share count.

"Our Q3 2017 fundamental earnings per share was impacted by the weighted average issuance of five million shares of our common stock in February 2017 and 10 million shares in Q4 2016, partially offset by buy backs of 5.5 million shares," the company says in a statement.

It adds the US dollar depreciated by 16% against the rand during Q3 2017, which positively impacted its reported results.

Reporting its tax impact of dividends from its South African subsidiary in fiscal 2016, Net1 says its income tax expense for Q3 2016 includes approximately $2.1 million related to the tax impact, including withholding taxes, resulting from distributions from the South African subsidiary during fiscal 2016.

"The last few months have been challenging, aggravated by the tarnishing of our reputation and questioning of our business practices due to frivolous and unsubstantiated public attacks," says Serge Belamant, CEO of Net1.

"Although we devoted a substantial amount of time to manage these issues, we believe that we have made sufficient progress towards the finalisation of our South African and international expansion strategy. Consistent with our service delivery track record over the last five years, the distribution of grants in April and May has gone smoothly and without any delay or interruption and we continue to fulfil our obligations in accordance with the Constitutional Court's order.

"We remain willing to support a smooth transition to SASSA or whomever they determine to be the most suitable service provider when our current contract expires. In the interim, we continue to provide seamless and timely access to grants for beneficiaries and our technology continues to save the South African government an estimated R2 billion per annum through the identification and removal of fraudulent beneficiaries," he adds.

Strategic plan

According to Belamant, Net1 intends to shortly commence with the implementation of its strategic plan to accelerate growth, diversification and geographic footprint.

"In South Africa, we will partner, invest in or acquire the right institutions to expand our addressable market and fuel innovation, which in turn will lead to the creation of new products and business models.

"Internationally, our UEPS/EMV banking platform will be the cornerstone from which we can service the needs of the developed and developing world, while also providing the bridge between the two," he notes.

The company expects to make substantial progress towards completion of a number of investment transactions during the last quarter of fiscal 2017, including Blue Label, DNI and Cell C.

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