Net1 wins five-year social grant tender

Mergers, Acquisitions and Financial Results

Shares in Net1 UEPS last week jumped as much as 37% to an intraday high of R79.50 after the company said its subsidiary, Cash Paymaster Services, had won a five-year tender to distribute social grants in all provinces.

Net1, which is listed on the Nasdaq and JSE, has been paying social grants to 15-million people since 2006 after a tender process. But over the past year, it has had a temporary contract with the South African Social Security Agency (Sassa).

The contract had price and volume reductions, which shrank Net1’s revenue and operating income. This threatened the profitability of Net1’s local operations, which make the bulk of their money from the Sassa contract.

Herman Kotze, the chief financial officer of Net1, has warned that there may be a short-term negative financial effect.

"Given the magnitude of the Sassa tender award, we expect a significant impact on the group’s financial affairs when the contract period commences as a result of new volume and pricing, additional costs, capital expenditure and additional contractual obligations. These may have different financial effects in the short term relative to the long-term benefits to the group," Mr Kotze said.

Net1 beat the big banks that were eyeing the business, which could have opened the door to tenders for banking services.

The number of welfare grant recipients in SA is expected to reach 16,3-million by the end of March. SA plans to spend more than R104bn on grants in the 2012 financial year.

Serge Belamant, the chairman and CEO of Net1, said the company’s biometric technology enabled it to provide Sassa with a comprehensive, cost-effective solution for the payment of about 15-million monthly grants to 10-million recipients in rural and urban areas.