Net1 slumps on customer loss
Dual-listed Net1 UEPS Technologies has reversed the profit it made a year ago in the first three months of the new financial year, due to the loss of a large customer.
Net1 provides a universal electronic payment system (UEPS) as an alternative payment system for the unbanked and under-banked populations of developing economies.
Results for the third quarter to March indicate that revenue improved 28% year-on-year in US currency, but only 19% in constant currency, to $92.8 million. However, the company reported a net loss of $21.6 million, compared with a profit of $18.8 million a year ago.
So far, revenue for the year is $246.1 million, a year-on-year improvement of 16% in US terms, and 8% in constant currency. The company's net loss for the year so far is $4.2 million, compared with a profit of $56 million for the first nine months of 2010.
The company's results were impacted by an impairment loss of $41.8 million related to a UTA customer relationship, which led to a reversal of a deferred tax liability of $10.4 million. Its contract with the SA Social Security Agency also weighed on revenue and operating income because of lower volumes.
Chairman and CEO Serge Belamant says: “We have taken actions to return Net1 UTA to at least break even in the near term, and remain cautiously optimistic about its prospects given its pipeline of opportunities.”
The company is “disappointed, though not surprised” with the decision of one of Net1 UTA's largest customers to move away from a Net1 platform, says Belamant. He says the unit is moving to a transaction-based revenue stream as opposed to the sale of hardware and software, a move that not all customers will buy into.
“Our results for the third quarter of fiscal 2011 represent the performance by our established businesses, namely pension and welfare, KSNET and EasyPay, which were consistent with management's expectations, as well as investments in Net1 Virtual Card and MediKredit to drive accelerating growth in those businesses,” says Belamant.
Net1 benefited from a weak US currency, and revenue gains from KSNet, a payment processing company in the Republic of Korea, although these were at lower operating margins than Net 1's legacy businesses, which reduced overall operating margins, it says.
EasyPay saw increased transaction volumes at EasyPay, but MediKredit's revenue for the third quarter of the year was lower than a year ago, which led to an expected operating loss.
Payroll payment provider FIHRST generated higher revenue, but at lower operating margins than other South African transaction-based businesses, which dragged down overall operating margins. Net1 recorded increased transaction revenue at Net1 Universal Electronic Technological Solutions, thanks to adoption of the company's UEPS technology in Iraq.
However, the hardware, software and related technology sales segment was adversely impacted by lower revenue at NUETS, partially offset by increased sales by Net1 UTA.