Net1’s revenues nearly halve after Sassa contract expires
Third-quarter revenue falls to $86.5m but CEO Herman Kotzé says the group’s core SA operations demonstrated more stability
Net1 plans to focus more heavily on its fintech strategy as the technology company continues the search for stability in a post-social-grants era.
The company said on Friday its revenues fell as much as 47% in the three months ended March after its contract to distribute social grants in SA expired.
Third-quarter revenue dropped to $86.5m from $162.7m a year before, the group said. It made a net loss of $54.8m, from a $32.4m profit a year before.
Net1 previously distributed grants on behalf of the SA Social Security Agency (Sassa).
Revenue at its SA transaction-processing business declined 72% on a constant-currency basis “primarily due to the substantial decrease in the number of Sassa grant recipients paid under our Sassa contract as the contract ended at the end of the first quarter of 2019”.
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But Net1 CEO Herman Kotzé said the group’s core SA operations “demonstrated far more stability during the third-quarter”.
This allowed the company to focus on cutting costs, reducing debt, “and the first steps towards the realisation of value of some of our assets”.
The company retrenched thousands of staff, he said.
Meanwhile, Net1 reduced the value of its Cell C investment by $26.3m. The company bought 15% of the struggling mobile operator in 2017.
“Cell C is focused on managing its near-term liquidity constraints, closing its transaction with a new minority investor and improving the performance of the business,” Kotzé said.
He said Cell C’s performance was hampered by a tough economic environment negatively affecting consumers and the mobile operator’s networking sharing agreements proved expensive.
Net1 has shifted its attention to fintech, saying on Thursday it has sold 8% of DNI to Rand Merchant Bank for R215m. CFO Alexander Smith said numbers from DNI will no longer be included in Net1 financials from the fourth-quarter.
Kotzé said they were quite confident DNI would take up a call option granted by Net1 to DNI to acquire its remaining 30.4% interest, worth R859m. The option expires at the end of 2019.
Kotze said the company’s strategy is to go forward with EasyPay, their electronic payment software unit for SA. This will allow Net1 to continue focusing on the underbanked market, providing access to financial services for those in the country’s lower-income tiers.
Owing to debt reductions, Net1 is “comfortable with our liquidity position for the next 12 months”, he said.