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Social grants in limbo as Net1 pursues ‘urgent meeting’

Johannesburg - Electronic payments company Net1 UEPS Technologies [JSE:NT1] says it’s unclear if and when its tender to pay millions of South Africans their social grants could be extended.

In an update to shareholders, Johannesburg Stock Exchange (JSE) listed Net1 addressed the controversy surrounding the ending of its contract with the South African Social Security Agency (SASSA) on March 31.

In 2012, Net1 unit Cash Paymaster Services (CPS) won the R10bn tender to electronically distribute social grants to over 10 million recipients in South Africa.

But the contract ran into problems in April 2014 when the Constitutional Court declared it invalid owing to irregularities in the awarding of the deal. The court further ruled that SASSA needed to redo the tender process.

After launching a new tender process in 2015, SASSA subsequently did not award a new contract as it said the bids were non-compliant.

Net1 did not participate in the fresh tender process and at a Parliament briefing last week, SASSA said that it was not ready to assume the payment function itself.

SASSA said it planned to approach the Constitutional Court for permission to extend the Net1 contract.

But Net1 on Friday said it’s unclear if this extension can actually happen after it received a letter from SASSA to have an "exploratory" meeting on the “probabilities to assist in the transition of SASSA operations (while ensuring grant payment continuity) towards a new service model that must be subject to a regular procurement process”.

“We have formally responded to SASSA indicating our willingness to convene an urgent meeting as requested,” said Net1.

“It is not clear if our contract could be extended under the Public Finance Management Act or if a new transition contract would be required.

“We cannot predict when or if SASSA will approach the Constitutional Court, what the outcome of such approach would be,or what the terms and conditions of any agreement between SASSA and us would be,” said Net1.

The company, which is also listed on New York’s Nasdaq, said it remains “committed to assist our social grant recipients, SASSA and the South African government within the ambit of all the relevant laws and regulations”.

Impact on business

Meanwhile, Net1’s chief financial officer Herman Kotze said that the “status of our SASSA contract” is one of the variables that “will have an impact on our fiscal 2017 results”.

For the three months ended December 31, Net1 recorded revenue of $151.4m (R2bn), an increase of 1%.

The company further reported a fundamental net income increase of 15% for the quarter to $22.7m (R300m). The company's fundamental earnings per share also rose to 43 US cents, up 2% from the previous quarter.

“We currently anticipate our fundamental earnings per share for fiscal 2017 to be at least $1.69. In formulating our guidance, we continue to assume that our existing contract with SASSA remains in effect for the full year on the existing terms and conditions, a constant currency base of ZAR 14.38/$1, a revised share count of 54.5 million shares based on the delay in sale of 5 million shares, and a tax rate between 33%-35%," said Kotze.


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