Net1's shares plunge 46% on accounting error over Cell C
JOHANNESBURG – Net1 UEPS Technologies' loss of the lucrative contract to distribute billions of rand to social grants recipients and its poor financial reporting on Friday came back to bite the firm, its stock plunging 46 percent.
The share price closed 46.86 percent lower at R50.54 on the JSE.
The group said it was in the process of preparing restated financial statements for the year ended June 2018, due to it erroneously dotting down its purchase of its stake in Cell C as “available-for-sale” equity instrument. The firm said this resulted in fair value adjustments being recorded in other comprehensive income instead of net income.
Herman Kotzé, Net1 chief executive, said on Friday that the mistake was only picked during the preparation of the results for the latest quarter. He said the restatement had no effect on the carrying value of its Cell C investment, but could not be drawn to reveal how its accounting officers did not pick up the error earlier on.
“The company is currently assessing the impact of this restatement on its internal control over financial reporting… The error is being corrected by moving the $25.2 million (R361m) fair value adjustment from other comprehensive income to nett income for fiscal 2018,” Kotzé said.
Net1 in August last year bought a 15 percent stake in Cell C for R2 billion. Cell C is one of the three major licensed mobile operators in South Africa with more than 15 million subscribers. The group said its audit committee has discussed the error with its auditors with Deloitte & Touche.
Deloitte directed all question to Net1. “Our professional responsibilities, standards and contractual obligations with respect to client confidentiality prevent us from commenting any further…” Deloitte said at the weekend.
The auditing profession has over the past year come under intense scrutiny after KPMG admitted to multiple poor standards. The near collapse of VBS bank and the near destruction of Steinhoff have also undermined the profession.
Deloitte partners have also been accused by the industry’s regulator of having had a blind eye to African Bank incorrectly calculating impairments in its loan book, which led to the collapse of the bank.
Meanwhile, Net1, whose subsidiary Cash Paymaster Services (CPS) contract with South Africa Social Security Agency (Sassa) came to an end in September, reported underwhelming results for the quarter ended September.
It reported revenue of $126m, down 17 percent year-over-year in dollars and fundamental earnings per share of $0.01 (R0.14), including a loss of $0.28 per share related to CPS.