Net1 bemoans damage to its reputation

Net1 UEPS Technologies, a provider of alternative payment systems, says an investigation by the US Department of Justice (DOJ) Criminal Division and the SEC, into possible acts of corruption in South Africa, has had an adverse impact on its reputation.

However, on Friday (8 February), the group reported a 21% rise in revenue for the three months ended December 2012, to $111 million.

Commenting on the group’s operations in South Africa, Serge Belamant, chairman and CEO of Net1, said: “We enrolled 12 million citizens by the end of January as part of our Sassa implementation and remain on track to complete bulk enrollment by the end of March 2013.”

The DOJ and the FBI are investigating whether the company made corrupt payments to South African government officials to secure a contract with the South African Social Security Agency (Sassa).

Net1 was awarded a R10 billion contract in February 2012, but rival bidder AllPay set about legal proceedings. This led to the North Gauteng High Court granting leave to appeal a judgment handed down on August 28, 2012, in which it ruled that the tender process followed by the Sassa was illegal and invalid, but that the award of the tender to a Net 1  subsidiary would not be set aside and therefore remained valid.

“We continue to cooperate with the DOJ and SEC on their investigations, but as a result of these investigations, we are experiencing some adverse impact from the damage caused to our reputation, including our ability to execute certain aspects of our strategic plan,” Belamant said.

Court date

The company chief said that the Supreme Court will hear the appeal of the August 2012 High Court judgment on February 15. “We believe we have a strong case and look forward to presenting our arguments to the Supreme Court,” he concluded.

“The successful implementation for Sassa is a one-off event and integral for the smooth transition and operation of South Africa’s social welfare program. Given the critical importance of this roll out, and the higher number of beneficiaries required to be enrolled in the same time frame, our implementation costs are materially but proportionally higher than anticipated,” said Herman Kotzé, CFO of Net1.

Progress of Sassa second phase

In the meantime, Net1 says it commenced the second phase of the enrollment process in early July 2012 and plans to be substantially complete by March 2013.

The group says that while the number of grant recipients on a national basis has consistently been quantified by Sassa at 9.4 million individuals, the number of beneficiaries is continually being revised on an ongoing basis from an initial estimate of approximately 15.5 million, to the current estimate of approximately 21.6 million.

Net1 says it has therefore increased the number of temporary employees for the entire second quarter of fiscal 2013 from 2,500 to approximately 5,500.

During Q2 2013, it enrolled a further 2.7 million grant recipients and an additional 3.8 million beneficiaries at a cost of $18.0 million (ZAR 157.1 million) including staff, travel, temporary infrastructure hire, fixed premises hire for enrollment and stationery costs.

“We expect this level of expenditure to reduce slightly during the third quarter of fiscal 2013, as our efforts are now focused primarily on urban areas,” the group said.

Net1 says it also expensed $3.0 million (ZAR 26.6 million) related to the cost of the UEPS/EMV smart cards issued during the quarter, which is not included in the $18.0 million.

Net1 says it initially anticipated total cash outlays of approximately $68 to $95 million from February 2012 through March 2013, however, having to register an incremental six million people and therefore employ temporary staff for longer, should result in that  outlay increasing up to $105 million by March 2013.

More on Net1

Net1 set for legal action against AllPay

Net1 shares slump 55% on corruption probe

Net1 under FBI investigation for corruption in SA

Court grants leave to appeal in Sassa case

Net1 reaches biometric cards milestone

Net1 concludes Sassa contract agreement

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