Net1 profit down after challenging quarter

Digital e-commerce solutions are set to catch up to traditional payment methods. (Duncan Alfreds, News24)
Digital e-commerce solutions are set to catch up to traditional payment methods. (Duncan Alfreds, News24)

Cape Town - Net1, the company behind Cash Paymaster Services (CPS) that used to run the country's social grant payment system, is upbeat about its future performance after restructuring and addressing challenges in the past quarter.

The payments solutions company group reported lower revenue in its financial results for the three months ended December 31 2017. Revenue of $148m (R1.78bn) was slightly down from the $151m (R1.82bn) reported in 2016.

Operating profit for the period was $16.3m (R196.9m), compared to $25.5m (R308.17m) reported in 2016. Net profit recorded for the period was $9.97m (R120.49m), compared to $19.23m (R232.9m) reported for 2016. Basic earnings per share were down 48.57% to $0.17 (206c).

But in the report CEO Herman Kotzé highlighted some of the developments during the period, including the establishment of a blockchain department.

Of its operations in South Africa, Kotzé said that the financial inclusion initiatives in the country are bearing fruit. These include Net1's acquisition of a 15% stake in Cell C last year. The group has also been developing  a mobile banking product.

"We achieved all this despite considerable time and effort spent on restructuring of the group, closure of certain business lines, and addressing some of the challenges in South Africa," he said.

Last year the Constitutional Court ordered that the South African Social Security Agency (Sassa) cancel its contract with CPS on the grounds that the contract signed in 2012 was illegal and invalid. Sassa has since reached a deal with the South African Post Office to take over the payments.

Net1’s operations in South Africa yielded revenue of $64.1m (R775.62m), up 7% in US dollar terms. Partly contributing to this growth was a “modest increase” in the number of social welfare grants distributed. Other contributors include increased use of ATMs and inter-segment transaction processing activities.

The decline in operating profit margin from 26% reported in 2017 to 21% in 2018 was mainly due to an increase in inter-segment charges, annual salary increases to South African employees in October 2017 and increased goods and services bought from third parties, according to the report.

For its international operations, revenue was higher at $44.2m (R534.83m). The operating profit margin was lower too.

For its financial inclusion and applied technologies segment, the group reported revenue of $54.1m (R654.62m), down 9% in US dollar terms.

The decrease in revenues was mainly due to fewer prepaid airtime and other value-added services sales and lower ad hoc terminal sales, according to the report. This was partially offset by increased volumes in Net1’s insurance businesses and an increase in inter-segment revenues.

The operating profit margin was 24% for the period, the same as that reported in 2017.

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