For Net1 a big profit is a big problem
If the payment of social grants had not become a fraught legal and political matter, Cash Paymaster Services (CPS) and its listed parent company Net1 would have been thrilled at the “results” it released on Tuesday.
Over a period of five years, CPS’ numbers show, it maintained a 12.2% profit margin on its contract with the SA Social Security Agency (Sassa). That equates to a pre-tax profit of R1.1-billion.
But Net1 may yet come to wish that number was much, much smaller.
CPS disclosed the profit on Tuesday in terms of a Constitutional Court order. That order flowed from the complaint of a competitor, a subsidiary of Absa, that the 2012 contract had been awarded unlawfully.
The Concourt agreed.
As Net1 was later at pains to point out, the court never found it had done anything wrong; the unlawfulness flowed from Sassa’s behaviour. But it still would not escape the consequences.
“It is true that any invalidation of the existing contract as a result of the invalid tender should not result in any loss to Cash Paymaster,” the Concourt said in 2014. “The converse, however, is also true. It has no right to benefit from an unlawful contract. And any benefit that it may derive should not be beyond public scrutiny.”
On that basis it ordered the accounting provided by CPS on Tuesday, though it went no further. It effectively left the ultimate decision on whether any profit should be paid back, and if so to what extent, for later.
In the meanwhile, this March, with the original five-year contract due to expire and amid a crisis for which it found social development minister Bathabile Dlamini responsible, the Court said there was no alternative but to extend the CPS contract by another year.
For years Net1 had been criticised about its financial dealings with grant recipients, such as selling them life insurance. But it was the prospect of a crisis in the payment of grants, the chance that “the country will burn” if grants are interrupted, that put CPS at the very top of the national agenda — and started to cause it real trouble.
Outspoken Net1 CEO Serge Belamant would be retiring a year early, this Wednesday, “to facilitate changes to the company’s operating and management structures and also noting the views expressed by certain of the company’s shareholders,” Net1 announced last week.
Major Net1 shareholder Allan Gray had come under severe pressure to act on allegations that Net1 preys on the poorest of the poor, and had a hand in the crisis that saw its contract extended—and unproven and heavily denied allegations of bribery and corruption.
The fact that Belamant, though replaced as CEO, is to continue consulting to Net1 for another two years, went largely unremarked.
That was before the R1-billion figure, however, a number large enough to draw a great deal of attention.
Now Net1 — and its shareholders — face an entirely new round of scrutiny. Civil society organisations were on Tuesday already gearing up with demands to see the underlying numbers to that profit, sure that it was under-stated. Others were considering how to approach the legal demand for repayment. Others still were looking forward to next year, when the current extended contract is due to end, and more profits could theoretically be reclaimed.
Dlamini, on the other hand, will face new questions, which will keep the topic current. Questions such as: did you know about this level of profit, and do you approve of it?
Shareholders, meanwhile, will have their own anxieties. Net1 is flush with cash, but R1 billion is still not small change. Will the company fight tooth and nail to retain that money, and perhaps run up huge legal bills to no effect?
New CEO Herman Kotzé, who officially takes the job on Wednesday, is going to have a lot of explaining to do.