Net 1 UEPS Technologies has released its first quarter ended 30 September 2018 and simultaneously withdrawn its year-end financials for the previous financial year.

For the first quarter, the company reported revenue of $126-million and fundamental EPS of $0.01, which includes a loss of $0.28 per share related to Cash Paymaster Services (CPS).

It had an adjusted EBITDA of $13-million and free cash flow of $13-million, despite CPS losses, with Korea EBITDA margin improving sequentially to 22%, from 20% in Q4 2018.

Net cash increased to $50-million, from $40-million in Q4 2018. Active EPE accounts declined to 1,7-million in October, primarily due to forced migration in August and September.

DNI contributed revenue and operating income of $17,9-million and $7,6-million, ahead of budget, while equity investments performed in line with expectations.

“Our first quarter signaled the end of an era and the advent of an exciting new chapter for Net1 as our SASSA contract finally came to an end after 78 months,” says Herman KotzĂ©, CEO of Net1. “The last six and a half years allowed us to prove the applicability and robustness of our technology and we are proud of our uninterrupted service record, albeit at the expense of the many complex legal and reputational issues that arose during the contract period.

“Despite the many challenges we faced during the last three months, the transformation of our business is well underway as we are now free to focus on the reconfiguration of our unparalleled last-mile distribution network to provide the most affordable transactional and financial services to our target market.

“We are only five weeks into the execution of our new strategy to provide acquiring services to any bank card holder through our unique biometrically-enabled ATM and POS networks (in addition to our card issuing and financial services offerings), and we have already processed more than 2,6-million transactions during this period.

“Our acquiring strategy is complementary to our EPE issuing strategy in terms of serving our market in South Africa and between EPE customers (account holders) and non-EPE customers (acquiring customers), we expect to have 5-million monthly transacting customers within one year.”

Kotze adds that the company experienced difficult trading conditions during the first quarter, as it had to deploy our full infrastructure to ensure seamless service delivery to an undetermined and declining customer base, as SASSA commenced with its phase-out activities.

“As a result, we incurred significant operating losses in anticipation of the proposed fee adjustment being sanctioned by the Constitutional Court, which has not yet been executed,” he says.

“In addition, SASSA performed a forced migration of approximately 900 000 EPE customers to SAPO during the last three months of the contract in order to meet its targets for SAPO, which we consider to be illegal and unfortunately requires further legal action.

“We are disappointed that the last three months of our contract had to end in this manner but, as we have said previously, we expect FY2019 to be both a transitional and transformational year. We are committed to recover from the exogenous shock to our account base during Q1 and to reposition the company to be a commercially-focused service provider that will drive new customer acquisition, new products and in turn higher growth and profitability over time.

“Internationally, the restructuring of IPG was completed during Q1 2019, and as soon as we have received certification from Visa and Mastercard on our new issuing and acquiring platforms, we will be set on a new growth trajectory,” KotzĂ© adds.

In separate news, Net1 has announced that its Audit Committee has concluded that the consolidated financial statements for the year ended 30 June 2018 should be restated.

It cautions that the consolidated financial statements and Deloitte & Touche’s audit report on them should no longer be relied upon, due to the company’s re-evaluation of the classification of its investment in Cell C.

Although Net1 elected the fair value option on acquisition of its investment in Cell C, this investment was incorrectly presented as available-for-sale and the change in its fair value of $25,2-million, net of taxation of $7,3-million, was incorrectly recorded in other comprehensive income for the year ended 30 June 2018.

It has concluded that the investment in Cell C should have been accounted for at fair value with changes in fair value recorded in the statement of operations.

Restated consolidated financial statements will reflect the changes in fair value of the investment in Cell C in the consolidated statement of operations.