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Net1 eyes SA’s booming fintech sector

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Net1 CEO Herman Kotzé.
Net1 CEO Herman Kotzé.

Smarting from its losses in SA, financial services and technology group Net1 UEPS says it will, this year, scale up operations in the country while remodelling itself as a fintech firm.

Last week, the company announced to shareholders it plans to use part of the proceeds from its R3.4 billion sale of its South Korean payment processor KSNET to grow its operations in SA.

On 27 January, Net1 UEPS agreed to sell 100% of KSNET, a Republic of Korea payment processor, to PayletterHoldings, for approximately $237 million. The transaction, which is not subject to a financing condition, is expected to close in March.

Herman Kotzé, Net1’s CEO, says: “The sale of KSNET marks an important milestone in the reinvention of Net1 as a fintech company focused on the underbanked, as it allows us to inject the appropriate liquidity in our businesses in order to scale our operations in South Africa, Africa and Europe, while also being able to return significant capital to our shareholders.

“Our focus following the injection of liquidity during Q4 2020 will be to drive new account growth and financial services in South Africa, and commence with the scaling up of our new initiatives in Europe; in turn, returning the group to a positive adjusted EBITDA position in fiscal 2021.”

On Friday, Net1 reported revenue of $74.1 million for the second quarter of 2020, with an operating loss of $6.9 million.

Alex Smith, Net1’s chief financial officer, says: “Our focus following the injection of liquidity during Q4 2020 will be to drive new account growth and financial services in South Africa, and commence with the scaling up of our new initiatives in Europe; in turn, returning the group to a positive adjusted EBITDA position in fiscal 2021.

“Given the timing of our various corporate actions and availability of liquidity as well as certain pending European regulatory approvals, there are a number of moving parts in our business this year,” states Smith.

“Using the same assumption of a constant currency base of R14.27/$1, we believe fiscal 2020 adjusted EBITDA is likely to be a loss of approximately $3 million, a decrease from our previously announced guidance of $16 million.

“This decrease is primarily due to an $11 million reduction related to foregone contributions as a result of the sale of KSNET and FIHRST, as well as an $8 million negative impact related to the delayed liquidity injection in South Africa due to the timing of our asset realisations, and IPG’s inability to launch its new products due to the dependencies on Visa’s certification.”

Tough times

The JSE-listed company has had a rough ride in SA.

Net1’s contract to distribute social grants with South African Social Security Agency was cancelled in the second quarter of 2019. The company distributed grants to more than nine million beneficiaries through its subsidiary, Cash Paymaster Services (CPS).

The social security agency had, from 2012, relied on the services of CPS to pay millions of beneficiaries through cash payments, direct deposits and electronic payments.

The post office took over the payment of social grants from the beginning of October last year.

The company suffered further losses in Cell C, as Net1 owns a 15% shareholding in the struggling telco.

In September, Net1 issued a statement, saying it “believes the fair value of Cell C at 30 June (Net1’s fiscal year end) is nil”.

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