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BFS
BFS
BFS - Blue Financial Services Limited - Audited abridged consolidated financial
results for the year ended 28 February 2011
BLUE FINANCIAL SERVICES LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 1996/006595/06)
JSE Code: BFS ISIN: ZAE000083655
("Blue" or "the Company" or "the Group")
AUDITED ABRIDGED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY
2011
Condensed Consolidated Income Statement for the year ended 28 February 2011
Audited Audited %
year ended year ended change
28 Feb 2011 28 Feb 2010
R`000 R`000
Interest income 309,034 454,090 (32)
Interest expense (145,609) (173,241) (16)
Net interest income 163,425 280,849 (42)
Administration and 87,092 164,790 (47)
commission income
Other operating income 52,990 99,242 (47)
Operating income 303,507 544,881 (44)
Net impairment of loan (27,440) (548,811) (95)
advances and receivables
Operating expenses (522,084) (715,235) (27)
Goodwill impairments (3,187) (210,054) (98)
Loss before taxation (249,204) (929,219) (73)
Taxation (35,700) (101,409) (65)
Net loss for the year (284,904) (1,030,628) (72)
Attributable to:
Equity holders of the (275,559) (1,019,871) (73)
parent
Non-controlling interest (9,345) (10,757) (13)
(284,904) (1,030,628) (72)
Per share ratios (in
cents)
Loss per share (29.59) (170.25) (83)
Headline loss per share (27.77) (134.96) (79)
Diluted loss per share (29.59) (170.25) (83)
Diluted headline loss per (27.77) (134.96) (79)
share
Net asset value per share 0.01 (3.11) >(100)
Condensed Consolidated Statement of Comprehensive Income for the year ended 28
February 2011
Audited Audited %
year ended year ended change
28 Feb 2011 28 Feb 2010
R`000 R`000
Net loss for the year (284,904) (1,030,628) (72)
Other comprehensive loss:
Exchange differences on (49,888) (138,635) (64)
translation of foreign
operations
Revaluation of land and - 1,660 -
buildings
Income tax relating to - 512 -
components of other
comprehensive income
Other comprehensive income (49,888) (136,463) (63)
for the year, net of
taxation
Total comprehensive loss (334,792) (1,167,091) (71)
Total comprehensive loss
attributable to:
Equity holders of the (332,803) (1,145,854) (71)
parent
Non-controlling interest (1,989) (21,237) (91)
(334,792) (1,167,091) (71)
Condensed Consolidated Statement of Financial Position as at 28 February 2011
Audited Audited %
year ended year ended change
28 Feb 2011 28 Feb 2010
R`000 R`000
Assets
Cash and cash equivalents 232,299 88,492 >100
Loan advances to customers 544,578 783,017 (30)
Trade and other receivables 19,697 35,361 (44)
Inventories 90 - -
Taxation receivable 504 948 (47)
Other financial assets 441 7,767 (94)
Property, plant and equipment 66,540 93,845 (29)
Deferred taxation 19,570 34,310 (43)
Intangible assets 25,190 40,892 (38)
Goodwill 422,093 448,881 (6)
Total Assets 1,331,002 1,533,513 (13)
Equity and Liabilities
Equity
Share capital and premium 1,366,034 928,250 47
Other (deficit)/reserves (62,011) 445 >(100)
Accumulated loss (1,257,460) (948,107) 33
Equity/(deficit) attributable 46,563 (19,412) >(100)
to equity holders of parent
Non-controlling interest 11,563 16,529 (30)
Total Equity 58,126 (2,883) >(100)
Liabilities
Bank overdraft 23,254 110,659 (79)
Derivative financial 19,807 13,280 49
liabilities
Trade and other payables 230,767 149,251 55
Taxation payable 116,621 96,195 21
Finance lease obligations 14,002 19,048 (26)
Long-term liabilities 862,571 1,135,977 (24)
Operating lease liabilities 1,836 3,350 (45)
Deferred taxation 4,018 8,636 (53)
Total Liabilities 1,272,876 1,536,396 (17)
Total Equity and Liabilities 1,331,002 1,533,513 (13)
Condensed Consolidated Statement of Changes in Equity for the year ended 28
February 2011
Share Other (Accumulated
capital reserves/ loss)/
(deficit) retained
income
R`000 R`000 R`000
Balance at 1 March 2009 - 888,566 67,738 131,244
audited
Total comprehensive loss for - (125,983) (1,019,871)
the year
Functional currency change - 59,527 (59,527)
Share-based payment to 2,258 - (169)
employees
Redemption of convertible 37,426 (621) -
redeemable preference shares
Contingency reserve (216) 216
Business combinations - - -
Balance at 28 February 2010 - 928,250 445 (948,107)
audited
Balance at 1 March 2010 - 928,250 445 (948,107)
audited
Total comprehensive loss for - (57,244) (275,559)
the year
Share-based payment to - - 2,732
employees
Issue of ordinary shares due 163,000 - -
to recapitalisation
Issue of ordinary shares on 271,828 - -
debt conversion
Shortfall on convertible 2 956 - (2 956)
redeemable preference shares
conversion
Convertible instrument - (4,822) 4,822
reserve
Contingency reserve - (390) 390
Business combinations - - (38,782)
Balance at 28 February 2011 1,366,034 (62,011) (1,257,460)
- audited
Total Non- Total
attributabl controlling equity
e to equity interest
holders of
the parent
R`000 R`000 R`000
Balance at 1 March 2009 - 1,087,548 36,227 1,123,775
audited
Total comprehensive loss for (1,145,854) (21,237) (1,167,091)
the year
Functional currency change - - -
Share-based payment to 2,089 - 2,089
employees
Redemption of convertible 36,805 - 36,805
redeemable preference shares
Contingency reserve - -
Business combinations - 1,539 1,539
Balance at 28 February 2010 - (19,412) 16,529 (2,883)
audited
Balance at 1 March 2010 - (19,412) 16,529 (2,883)
audited
Total comprehensive loss for (332,803) (1,989) (334,792)
the year
Share-based payment to 2,732 - 2,732
employees
Issue of ordinary shares due 163,000 - 163,000
to recapitalisation
Issue of ordinary shares on 271,828 - 271,828
debt conversion
Shortfall on convertible - - -
redeemable preference shares
conversion
Convertible instrument - - -
reserve
Contingency reserve - - -
Business combinations (38,782) (2,977) (41,759)
Balance at 28 February 2011 46,563 11,563 58,126
- audited
Condensed Consolidated Statement of Cash Flows for the year ended 28 February
2011
Audited Audited %
year ended year ended change
28 Feb 2011 28 Feb 2010
R`000 R`000
Cash flows from operating
activities
Cash generated from 225,577 25,222 >100
operations
Interest expense (145,609) (173,241) (16)
Taxation paid (3,642) (42,805) (91)
Net cash generated 76,326 (190,824) >(100)
from/(utilised in)
operating activities
Cash flows from investing
activities
Purchase of property, plant (7,789) (30,524) (74)
and equipment
Disposals of property, 3,937 3,416 15
plant and equipment
Other investing activities 7,326 (5,355) >(100)
Net cash generated 3,474 (32,463) >(100)
from/(utilised in)
investing activities
Cash flows from financing
activities
Proceeds on share issue 150,000 - 100
Net proceeds from long-term 9,708 122,678 (92)
liabilities
Net finance lease/ (4,122) 1,182 >(100)
(repayments)receipts
Net cash generated from 155,586 123,860 26
financing activities
Total cash movement for the 235,386 (99,427) >100
year
Cash at the beginning of (22,167) 94,393 >(100)
the year
Effect of exchange rates (4,174) (17,133) (76)
Total cash at end of the 209,045 (22,167) >(100)
year
Segment report
Audited year ended 28 Feb 2011
South Africa Botswana Zambia Uganda
R`000 R`000 R`000 R`000
Interest income 150,751 70,124 35,700 14,475
- External customers 90,812 39,139 35,617 14,475
- Inter - segment 59,939 30,985 83 -
Interest expense (108,629) (27,437) (18,240 (17,072)
)
Net interest income 42,122 42,687 17,460 (2,597)
Administration and 57,976 5,945 17,161 7,283
commission income
- External customers 23,065 5,945 17,161 7,283
- Inter - segment 34,911 - - -
Other operating income 74,284 15,897 (5,493) (32,681)
Operating income 174,382 64,529 29,128 (27,995)
Net impairment of loan (21,835) (6,788) 9,154 2,020
advances
Operating expenses (354,025) (38,209) (42,578 (14,713)
)
Goodwill impairment - - (3,187) -
Management operating (201,478) 19,532 (7,483) (40,688)
(loss)/profit
Segment result: (201,478) 19,532 (7,483) (40,688)
(Loss)/profit before
taxation
Taxation (8,653) (6,605) (5,176) (19)
(Loss)/profit after (210,131) 12,927 (12,659 (40,707)
taxation )
Net investment in 378 (28,840)
foreign operation - -
adjustment
Management (210,131) 12,927 (12,281 (69,547)
(loss)/profit after )
taxation
Other material non-
cash items included in
segment profit/(loss):
Depreciation on 20,990 812 1,166 387
property, plant and
equipment
Amortisation of 12,833 853 333 60
intangible assets
Segment assets 1,171,018 321,384 130,245 52,450
Segment liabilities (967,078) (209,391) (68,366 (112,344
) )
Non-current assets 718,135 69,899 118,362 27,232
other than financial
instruments and
deferred taxation
Tanzania Malawi Mauritius Nigeria
R`000 R`000 R`000 R`000
Interest income 32,898 18,681 53,519 15,368
- External customers 32,898 18,681 - 15,368
- Inter - segment - - 53,519 -
Interest expense (14,754) (15,038) (62,819) (4,834)
Net interest income 18,144 3,643 (9,300) 10,534
Administration and commission 1,685 3,592 - 2,374
income
- External customers 1,685 3,592 - 2,374
- Inter - segment - - - -
Other operating income (22,727) (8,201) 8,522 (4,214)
Operating income (2,898) (966) (778) 8,694
Net impairment of loan advances 3,152 12,781 - (21,226)
Operating expenses (15,819) (21,121) 3,735 (21,164)
Goodwill impairment - - - -
Management operating (15,565) (9,306) 2,957 (33,696)
(loss)/profit
Segment result: (Loss)/profit (15,565) (9,306) 2,957 (33,696)
before taxation
Taxation (20) (305) (9,900) (91)
(Loss)/profit after taxation (15,585) (9,611) (6,943) (33,787)
Net investment in foreign (20,660) (9,580) - (3,824)
operation adjustment
Management (loss)/profit after (36,245) (19,191) (6,943) (37,611)
taxation
Other material non-cash items
included in
segment profit/(loss):
Depreciation on property, plant 625 963 - 2,127
and equipment
Amortisation of intangible assets 57 - - -
Segment assets 63,051 81,641 459,439 39,996
Segment liabilities (102,440) (116,005) (866,347) (51,530)
Non-current assets other than 14,222 2,336 361,189 4,407
financial instruments and
deferred taxation
CMA Other Elimination Consolidated
R`000 R`000 R`000 R`000
Interest income 53,154 8,890 (144,526) 309,034
- External customers 53,154 8,890 - 309,034
- Inter - segment - - (144,526) -
Interest expense (9,348) (10,699) 143,261 (145,609)
Net interest income 43,806 (1,809) (1,265) 163,425
Administration and 22,490 3,497 (34,911) 87,092
commission income
- External customers 22,490 3,497 - 87,092
- Inter - segment - - (34,911) -
Other operating income 2,642 (15,363) 40,324 52,990
Operating income 68,938 (13,675) 4,148 303,507
Net impairment of loan (6,118) 1,420 0 (27,440)
advances
Operating expenses (28,906) (17,361) 28,077 (522,084)
Goodwill impairment - - - (3,187)
Management operating 33,914 (29,616) 32,225 (249,204)
(loss)/profit
Segment result: 33,914 (29,616) 32,225 (249,204)
(Loss)/profit before
taxation
Taxation (13,016) 9 8,076 (35,700)
(Loss)/profit after 20,898 (29,607) 40,301 (284,904)
taxation
Net investment in foreign - (13,684) 76,210 -
operation adjustment
Management (loss)/profit 20,898 (43,291) 116,511 (284,904)
after taxation
Other material non-cash
items included in
segment profit/(loss):
Depreciation on property, 1,664 1,027 - 29,761
plant and equipment
Amortisation of intangible 176 214 - 14,526
assets
Segment assets 118,525 43,671 (1,150,418) 1,331,002
Segment liabilities (77,722) (104,043) 1,402,390 (1,272,876)
Non-current assets other 18,303 12,472 (832,734) 513,823
than financial instruments
and deferred taxation
Audited year ended 28 Feb 2010
South Africa Botswana Zambia Uganda
R`000 R`000 R`000 R`000
Interest income 260,396 59,063 44,721 14,319
- External customers 194,604 45,768 38,841 14,319
- Inter - segment 65,792 13,295 5,880 -
Interest expense (105,646) (22,923) (21,394) (15,206)
Net interest income 154,750 36,140 23,327 (887)
Administration and commission 172,649 8,605 10,623 5,461
income
- External customers 79,240 8,605 10,623 5,461
- Inter - segment 93,409 - - -
Other operating income 85,928 25,110 2,925 -
Operating income 413,327 69,855 36,875 4,574
Net impairment of loan advances (357,828) (43,501) (15,002) (17,626)
Operating expenses (482,758) (49,820) (61,369) (50,724)
Goodwill impairments (138,816) - (50,488) -
Management operating (566,075) (23,466) (89,984) (63,776)
(loss)/profit
Segment result: (Loss)/profit (566,075) (23,466) (89,984) (63,776)
before taxation
Taxation (102,129) (1,144) 6,456 (4,534)
(Loss)/profit after taxation (668,204) (24,610) (83,528) (68,310)
Net investment in foreign - - 1,721 (20,984)
operation adjustment
Management (loss)/profit after (668,204) (24,610) (81,807) (89,294)
taxation
Other material non-cash items
included in
segment profit/(loss):
Depreciation on property, plant 26,924 572 1,926 421
and equipment
Amortisation of intangible 11,138 920 1,033 70
assets
Segment assets 1,093,674 377,777 183,597 39,979
Segment liabilities (1,025,046) (329,757 (268,738 (112,285
) ) )
Non-current assets other than
financial instruments and
deferred taxation 78,997 16,881 3,687 881
Tanzania Malawi Mauritius Nigeria
R`000 R`000 R`000 R`000
Interest income 40,076 16,554 13,492 34,181
- External customers 40,076 16,554 13,492 34,181
- Inter - segment - - - -
Interest expense (16,478) (11,780) (24,451) (4,134)
Net interest income 23,598 4,774 (10,959) 30,047
Administration and commission 4,725 5,343 - 6,752
income
- External customers 4,725 5,343 - 6,752
- Inter - segment - - - -
Other operating income 26 (3,102) 464 (4,268)
Operating income 28,349 7,015 (10,495) 32,531
Net impairment of loan advances (14,107) (26,837) - (26,620)
Operating expenses (53,711) (45,770) (7,420) (27,480)
Goodwill impairment - - - -
Management operating (loss)/profit (39,469) (65,592) (17,915) (21,569)
Segment result: (Loss)/profit (39,469) (65,592) (17,915) (21,569)
before taxation
Taxation (5,897) (445) (1,402) (1,522)
(Loss)/profit after taxation (45,366) (66,037) (19,317) (23,091)
Net investment in foreign (23,357) (23,143) - (5,139)
operation adjustment
Management (loss)/profit after (68,723) (89,180) (19,317) (28,230)
taxation
Other material non-cash items
included in
segment profit/(loss):
Depreciation on property, plant 858 911 - 1,765
and equipment
Amortisation of intangible assets 70 - - -
Segment assets 76,806 65,433 335,508 80,494
Segment liabilities (123,209 (93,003) (333,808) (47,418)
)
Non-current assets other than
financial instruments and deferred
taxation 1,455 2,919 - 6,832
CMA Other Elimination Consolidated
R`000 R`000 R`000 R`000
Interest income 43,139 13,116 (84,967) 454,090
- External customers 43,139 13,116 - 454,090
- Inter - segment interest - - (84,967) -
Interest expense (25,490) (10,139) 84,400 (173,241)
Net interest income 17,649 2,977 (567) 280,849
Administration and 42,415 1,626 (93,409) 164,790
commission income
- External customers 42,415 1,626 - 164,790
- Inter - segment interest - - (93,409) -
Other operating income - (5,211) (2,630) 99,242
Operating income 60,064 (608) (96,606) 544,881
Net impairment of loan (33,882) (13,408) - (548,811)
advances
Operating expenses (54,669) (44,088) 162,574 (715,235)
Goodwill impairments - (20,750) - (210,054)
Management operating (28,487) (78,854) 65,968 (929,219)
(loss)/profit
Segment result: (28,487) (78,854) 65,968 (929,219)
(Loss)/profit before
taxation
Taxation 7,154 (2,698) 4,752 (101,409)
(Loss)/profit after taxation (21,333) (81,552) 70,720 (1,030,628)
Net investment in foreign - (12,474) 83,376 -
operation adjustment
Management (loss)/profit (21,333) (94,026) 154,096 (1,030,628)
after taxation
Other material non-cash
items included in
segment profit/(loss):
Depreciation on property, 1,414 1,231 - 36,022
plant and equipment
Amortisation of intangible 239 150 - 13,620
assets
Segment assets 180,930 34,000 (934,685) 1,533,513
Segment liabilities (164,213) (93,659) 1,054,740 (1,536,396)
Non-current assets other
than financial instruments
and deferred taxation 4,485 4,315 463,166 583,618
The Group`s reportable segments are geographical business units that offer
comparable business products and solutions, which are managed and measured
regionally.
The Group has nine reportable segments: South Africa, Botswana, Zambia, Uganda,
Tanzania, Malawi, Mauritius, Nigeria and CMA. The segments offer a variety of
products and services as well as equipment sales.
"CMA" comprises the aggregated segment results and financial position of the
`Common Monetary Area` countries outside South Africa, namely Lesotho, Namibia
and Swaziland.
"Other" comprises the aggregated segment information for the remainder of
operations based in Kenya, Cameroon, Rwanda and Ghana.
BASIS OF PREPARATION
The condensed consolidated financial results for the year ended 28 February
2011, comprise a summary of the Group`s audited financial statements for the
company and its subsidiaries.
These financial results have been prepared in accordance with the recognition
and measurement criteria of IFRS, the AC 500 standards as issued by the
Accounting Practices Board or its successor, interpretations issued by the
International Financial Reporting Interpretations Committee (IFRIC), and the
information requirements of International Accounting Standard: Interim Financial
Reporting (IAS34) and the JSE Listings Requirements and South African Companies
Act (as amended). In the preparation of these financial results the Group has
applied key assumptions concerning the future and other indeterminate sources in
recording various assets and liabilities. The Group`s principal accounting
policies and assumptions have been applied consistently over the current and
prior financial year.
1. Other operating income
Audited Audited
year ended year ended
28 Feb 2011 28 Feb 2010
R`000 R`000
Net mobile revenue 11,053 26,790
Profit on disposal of loan 4,500 -
advances
Net profit on exchange 32,457 63,762
differences #
Other 4,980 8,690
52,990 99,242
Net mobile revenue comprises: 11,053 26,790
Gross mobile and related revenue 46,120 70,140
Subscriptions and cost of sales (35,067) (43,350)
Net profit on exchange 32,457 63,762
differences comprises:
Profit on foreign exchange 81,951 81,941
differences
Loss on foreign exchange (49,494) (18,179)
differences
# `Loss on foreign exchange differences`, previously reflected as a component of
operating expenses, was reclassified and offset against `Net profit on foreign
exchange differences within `Other operating income.
2. Loan advances to customers
Audited year Audited
ended 28 Feb year ended
2011 28 Feb 2010
R`000 R`000
Gross loan advances to customers 1,167,122 1,122,920
Less: Deferred initiation fees (21,038) (58,667)
Less: Allowance for impairment of loan (601,506) (281,236)
advances
544,578 783,017
Movement on allowance for impairment
Opening balance (281,236) (147,034)
Net charge for the year (49,280) (142,924)
Reinstatement of written-off (292,187) -
loan advances
Foreign exchange movement 21,197 8,722
(601,506) (281,236)
Analysis of gross loan advances by
territory:
South Africa 681,759 435,340
Rest of Africa 485,363 687,580
1,167,122 1,122,920
Analysis of impairment on loan
advances by territory:
South Africa (452,590) (146,224)
Rest of Africa (148,916) (135,012)
(601,506) (281,236)
3. Goodwill
Audited year ended 28 February 2011
Cost/ Accumulated Carrying
valuation impairment value
R`000 R`000 R`000
Goodwill 679,267 (257,174) 422,093
Audited year ended 28 February 2010
Cost/ Accumulated Carrying
valuation impairment value
Goodwill 702,868 (253,987) 448,881
Reconciliation of goodwill
Audited year ended 28 Feb 2011
Opening Impairment Foreign Total
balance loss exchange
movements
R`000 R`000 R`000 R`000
Goodwill 448,881 (3,187) (23,601) 422,093
Audited year ended 28 Feb 2010
Opening Impairment Foreign Total
balance loss exchange
movements
R`000 R`000 R`000 R`000
Goodwill 703,274 (210,054) (44,339) 448,881
4. Long-term liabilities
Contractual repayment profile of interest bearing debt:
Less than 1 2-5 Years +5 Years Total
Year
R`000 R`000 R`000 R`000
28 Feb 2011* (97,038) (748,237) (17,296) (862,571)
28 Feb 2010 (691,148) (298,497) (146,332) (1,135,977)
*Refer Note 6
The following related party balances were outstanding at the end of the
reporting period:
Audited year Audited
ended 28 Feb year ended
2011 28 Feb 2010
R`000 R`000
D van Niekerk 3,719 3,289
Former Credit U Holdings Limited - 2,520
shareholders
Absa Bank Limited - overdraft facilities - 37,425
Absa Bank Limited - cross currency swap 19,807 13,280
Nederlandse Financierings Maatschappij 169,818 -
voor Ontwikkenlingslanden N.V
International Finance Corporation - 63,587
5. Reconciliation of headline loss
Audited Audited
year ended year ended
28 Feb 2010 28 Feb 2010
R`000 R`000
Loss attributable to equity (275,559) (1,019,871)
holders of parent
Non headline items:
Net (profit)/loss on disposal of (647) 758
non-current assets
Goodwill impairment 3,187 210,054
Intangible asset impairment - 1,160
Impairment of property, plant and 2,007 -
equipment
Settlement expense 13,000 -
Profit on disposal of subsidiary (621) -
Total tax effects of adjustments - (545)
Headline loss (258,633) (808,444)
Number of shares in issue in 5,791.99 624.37
millions
Weighted number of shares in 931.35 599.04
issue in millions
Diluted weighted number of shares 943.18 626.89
in issue in millions
6. Debt rescheduling agreement
During the financial year, the Group has defaulted in the repayment of certain
existing liabilities, and was in breach of various covenant requirements as a
result of the liquidity constraints in the Group.
The Group however concluded a Debt Rescheduling Agreement with existing lenders
as part of the recapitalisation of the Group during December 2010. Group lenders
comprising R974 million agreed to participate in the debt rescheduling of which
R229.4 million of these amounts were further converted into equity during
February 2011. Lenders and overdraft providers comprising R140.3 million were
not party to the agreement. The Debt Rescheduling Agreement further remedied all
long-term liability covenants that had previously been breached by the Group to
these lenders.
7. Commitments and contingencies
Commitments
Blue Intercontinental Microfinance Bank Limited
In terms of the original shareholders agreement on the establishment of Blue
Intercontinental Micro Finance Bank Limited in Nigeria, the Group had an
obligation to subscribe US$7 million in equity capital. In accordance with this
commitment the Group had to date subscribed US$1 million in cash. The Group has
however reached agreement with its fellow shareholders subsequent to the
financial year end, which subject to Regulatory approval, would inter alia
result in the remaining capital requirement for the Group to be reduced to US$1
million.
Blue Financial Services Zambia Limited
The Group is required to capitalise its Zambian subsidiary with an amount of R15
million to meet the minimum regulatory capital adequacy requirements. The Group
has already in accordance with the approval from the Zambian regulatory
authorities, capitalised a portion of the Group loan account to the value of
R101 million.
Contingencies
Various legal matters
There are certain potential claims against the Group, the outcome of which
cannot at present be foreseen. The claims are not regarded as substantial either
on an individual or Group basis considering their estimated probability of
success, and should therefore not exceed R3.5 million (2010: R5 million) in
aggregate.
Taxation
The Group has considered all matters in dispute with the taxation authorities
and has assessed the deductibility of expenses initially disallowed for taxation
purposes. Deferred taxation assets have only been recognised in this regard if
it is probable that the Group will succeed in its disagreements with the
taxation authorities.
Warranty Claims
In terms of the Subscription Agreement, concluded on 10 December 2010, the Group
provided a number of warranties in favour of Mayibuye. Should the Group breach
any of these warranties during a period of up to 3 months in certain instances
or up to 12 months in other instances, after the Subscription Date, and upon a
final determination of the quantum of Mayibuye`s claims, from the Group`s
perspective, by its Board consisting of only directors of the Group who are
independent of Mayibuye, or an order of court or arbitration award (Claim
Amount), Mayibuye will be entitled to the issue of such number of Ordinary
Shares which in aggregate would be equal to the value of the final assessed
Claim Amount.
The minimum Claim Amount must exceed R5 million in aggregate and the maximum
amount is capped at an amount equivalent to the Aggregate Subscription
Consideration being R163 million. The aforegoing maximum limitation does not
apply in respect of a breach by the Group of the warranty contained in the
Subscription Agreement pertaining to regulatory offences.
The Warranty Shares will be allotted and issued to Mayibuye at an issue price
per Warranty Share equal to the 30-day VWAP per Ordinary Share as at 12:00 on
the business day immediately preceding the date on which Mayibuye first notified
the Company of the applicable claim in writing. Upon the allotment and issue of
the Warranty Shares to Mayibuye, the obligation of the company to pay the Claim
Amount shall be deemed to have been set off against Mayibuye`s obligation to pay
the subscription consideration for the Warranty Shares.
The event(s) that may give rise to a risk of warranty claims have been recorded
in the Group`s financial statements. To the extent that the warranty claims are
settled they will not have any impact on the Company`s Income Statement or Net
Asset Value.
A notification of warranty claims has been received from Mayibuye on 9 and 10
March 2011. The following items, raised in the claim letters and subject to
confirmation as described above, are based on the underlying amount of the claim
event recorded in the financial statements at the reporting date:
- Pinebridge Global Emerging Markets Partners II, L.P. (Pinebridge) Agreement
dated 27 October 2010 (R44 million)
As result of a directive issued by the Central Bank of Nigeria, Pinebridge was
required to transfer all of the shares acquired by it in the share capital of
Blue Intercontinental Micro Finance Bank in Nigeria from the Group, back to the
Group at the purchase price originally paid being US$ 5 million plus interest
thereon accruing at a rate of 8.5% per annum from the date the original sale
agreement was concluded until the date of recapitalisation on 10 December 2010.
As a result of the restatement of the annual financial statements of the Group
in respect of the financial year ended 28 February 2009, the number of shares
allotted and issued to Pinebridge pursuant to the conversion of the Class C
Preference Shares held by it was incorrect and consequently required the
allotment and issue of an additional 22,731,279 Blue ordinary shares.
Pinebridge converted both these amounts into ordinary shares as part of the
Groups early debt to equity conversion concluded on 25 February 2011.
- Taxation
The Group identified and recorded additional potential taxation obligations in
the finalisation of its 2011 financial statements relating to charges levied on
Group subsidiaries for shared services costs. (R20 million)
The Group further continued to accrue for interest and penalties on all overdue
taxes in its financial results. (R17.5 million)
The Group is currently in discussions with various taxation authorities
regarding the settlement of the Group taxation obligations.
- Lesotho Interest Rates (R15.2 million)
Following a High Court ruling in Lesotho, the Group may be required to
retrospectively reduce the interest rate charged to customers on loan advances.
- Other (R23.3 million)
8. Going concern
The Group incurred a loss of R284.9 million (2010: R1.0 billion) for the year
ended 28 February 2011. The recapitalisation of the Group during December 2010,
the impact of the Debt Rescheduling Agreement and subsequent debt to equity
conversion implemented in February 2011, resulted in the Group`s assets now
exceeding liabilities by R58.1 million (2010: R2.9 million net liability). The
Group has access to a R300 million facility through the claims purchase
agreement with Leonox (Proprietary) Limited for loan advances. The Debt
Rescheduling Agreement provides for inter alia:
- A stay on principal payments to participating funders for a 3 year period;
- The Group`s ability to settle ongoing operating expenses and the pre-existing
liabilities at the re-capitalisation date through the collections from the loan
advances book existing at that date; and advances book existing at that date;
and
- The utilisation of remaining funds for new loan production after settling
operating expenses and pre-existing liabilities as noted above; and
- The issue of ordinary shares to settle any shortfall between the principal
amounts outstanding to funders after 3 years and the underlying loan advances
book that existed at the date of the recapitalisation (10 December 2010), plus
growth therein over the 3 year period. Therefore, to the extent any shortfall
exists, the Group would not be required to settle these obligations in cash.
As described in note 10 below, the turnaround strategy is well underway and the
business is now on a solid platform to enable it to return to profitability. Key
to this is continuing to manage operating cost levels, growing loan advances,
while managing short term cash requirements to settle pre-existing liabilities.
The Group will further strive to enhance all its business processes, internal
controls and operational efficiencies on an ongoing basis. The consolidated
results have therefore been prepared on a going concern basis.
9. Subsequent events
Nigeria
The Group has reached agreement with its fellow shareholder, Intercontinental
Bank PLC (ICB), in the Groups Nigerian operation, Blue Intercontinental
Microfinance Bank Limited (BIMFB), which subject to the required Regulatory
Approvals, will address the shareholding and operational issues that were raised
by the Central Bank of Nigeria following its review of the entity and industry
during 2009. The discussions will be formalised in a revised shareholders
agreement to achieve the following:
- The Group to hold a 60% shareholding (currently 65%) and ICB 40% (currently
35%);
- The Group`s required further capitalisation to be US$ 1.0 million (currently
US$ 6.0 million);
- The Group to write-off as irrecoverable R27.4 million in costs (including
Group shared service costs) that are being disputed by ICB and reflected as due
to the Group by BIMFB at 28 February 2011. BIMFB is to remain indebted to the
Group for R8.9 million for costs that are not in dispute. The write-off of these
costs by the Group will not impact on the reported earnings for the 2012
financial year, only the allocation of reported earnings attributable to
minorities.
- ICB to write-off all claims for cost recoveries against BIMFB for inter alia
the use of ICB`s infrastructure and systems; and
- BIMFB to be governed in accordance with best practice. The Cadbury Report on
Corporate Governance will provide the guiding principles therefore.
ICB has also announced the signing of a Memorandum of Understanding with Access
Bank which could see the merger of the two organisations into one of the largest
financial institutions in Nigeria. Should this merger take place, the Group
believes this would positively impact the future opportunities and prospects for
BIMFB.
Warranty Claims
Refer to note 7 above for further details in this regard.
Recapitalisation of Group Subsidiaries
As part of its turnaround plan, the Group is assessing the solvency and capital
requirements of all its subsidiaries. The Group is in process of correcting this
situation by inter alia capitalising portions of the inter-group loan accounts
between the various Group companies as well as injecting capital where so
required with a view to ensuring that all affected entities are suitably
capitalised.
Refer also to note 7 above for further details on Group capital commitments.
Other than the matters noted above, no subsequent events were identified.
10. Commentary on the results
Nature of business:
The Group is an innovative pan-African financial services provider and the
enabler of progress, upliftment and improvement in people`s lives. The Group
operates in the various jurisdictions inter alia as a registered bank, Insurance
company or micro finance provider. In all the jurisdictions the main product
lines are micro finance, business finance, housing finance, savings products,
insurance and mobile.
On 10 December 2010, the Mayibuye Group (Proprietary) Ltd ("Mayibuye") acquired
a majority stake in the Group and is currently implementing a turnaround
strategy under the leadership of the Group`s new Chief Executive Officer with
support from Mayibuye. The Group, through an arms-length outsourced arrangement,
is further leveraging off the key competencies of the Mayibuye Group
specifically in credit, collections and information technology, which were
identified as key areas of improvement required throughout the Group.
As a cornerstone of the turnaround strategy, the Group has adopted, a new set of
core values being Respect, Reliability and Returns.
During the year under review, the Group operated in 12 countries namely,
Botswana, Ghana, Kenya, Lesotho, Malawi, Namibia, Nigeria, South Africa,
Swaziland, Tanzania, Uganda and Zambia. The Group commenced operations in Ghana
during February 2011. The Group has 213 branches and employed 1800 permanent
staff and contract staff members at the date of this report.
Financial overview:
The Group incurred a loss of R284.9 million for the year ended 28 February 2011
compared to a loss of R1.0 billion in the 2010 financial year. This translates
into a decline in loss per share from 170.25 cents for 2010 to a loss of 29.59
cents per share for 2011. Headline loss per share improved in a similar manner
declining from 134.96 cents per share to a headline loss of 27.77 cents per
share. The Group reported a loss of R168.2 million for the 6 months ended 31
August 2010. The loss for the second half of the financial year of R116.7
million, without removing once-off costs and loan advance write-off`s in excess
of R100 million, is an improvement of 30.6% over that for the first 6 months.
The 2011 financial results represent a significant improvement from those
reported in 2010, a year which signalled severe financial difficulties in the
Group and which brought into question its ability to continue operating as a
going concern.
The recapitalisation of the Group by Mayibuye and the commencement of the key
phases to its turnaround strategy for the Group from September 2010, has yielded
positive and sustainable improvements in financial results and overall business
fundamentals which provide the platform to return the Group to profitability.
The Group has pursuant to this turnaround strategy inter alia:
- Restored the net asset value to R46.6 million from the negative R19.4 million
at February 2010 and negative R205.8 million at 31 August 2010;
- Concluded a Debt Rescheduling Agreement with lenders to the Group comprising
R746.3 million (86.5%) of the Group`s total external funding obligations at the
reporting date. This agreement allows for a three year stay on principal
payments to lenders and remedies all related covenant breaches that existed;
- Successfully converted R274.0 million of debt to equity with shareholder
approval to convert a further R50.0 million. The Group will further benefit
from a reduced interest expense in future years;
- Received a R300 million facility through a claims purchase agreement for
capital funding line for loan advances as part of the Group`s recapitalisation;
-Reduced operating expenses by R193.2 million (27%) or to R22 million per month
by February 2011 from that reported in the 2010 financial year. Operating
expenses for the year include once-off costs in excess of R75 million relating
mainly to costs associated with the recapitalisation of the Group and turnaround
strategy;
- Achieved a reduction in the overall impairment charges on non-performing loan
advances of R49.6 million from that reported for the 6 months ended 31 August
2010 due to focused collection efforts. This reduction was achieved despite
interest written-off amounting to R36.4 million during this period;
- Commenced active new lending totalling R150 million since September 2010.
Total new loans for the year amounted to R280.7 million (2010: R690.0 million);
-Reduced the extent of credit impairments on new lending due to improved credit
scoring; and
- Reduced the cash flow shortfall between the income from collections and that
required to meet the Group`s normal operating expenses and interest obligations.
The elimination of this shortfall is key to ensuring that capital collected from
customers is applied to new loans.
In addition to the above there has been an overall improvement in the Group`s
operational process, governance, internal controls and business sophistication.
Loan advances have decreased by 30.4% from R783.0 million in 2010 to R544.6
million at 28 February 2011. The Group was required to focus on implementing
controls and the turnaround strategy as well as utilising funds to meet
operating requirements during the year, thereby restricting the ability to
increase the advance of new loans to customers. The impact of a prudent approach
to new lending is expected to be more evident in subsequent financial periods.
The net impairment charge on loan advances and receivables has reduced following
the focused collection efforts on the non-performing loans. Credit impairments
on gross loans and advances is 51.5% (2010: 25.1%) after taking into account the
reinstatement of loans previously written-off as noted above. The Group is
currently focusing on government payroll deduction loans in all territories
outside of South Africa where the historic credit impairments trends have been
below 5%.
The Group continues to explore ways to minimise its exposure to fluctuations to
foreign currencies which resulted in losses of R49.9 million on the translation
of the financial results of the foreign subsidiaries during the year. The Group
is engaged with taxation authorities across all affected entities to address the
outstanding tax obligations of the Group.
The Group is engaged with taxation authorities across all affected entities to
address the outstanding tax obligations of the Group.
As reported in the Group`s 2010 financial results, the board has launched an
investigation which includes a review of the underlying reasons and causes of
the restatements to its financial results in prior years. The investigation is
ongoing and the Group remains committed to proving its full co-operation to all
relevant authorities regarding the findings.
FORWARD LOOKING STATEMENT
The successful recapitalisation of the Group and improved operational platform
now provides the impetus to grow the business and return to profitability.
Mayibuye turnaround plan is aimed at returning the Group to profitability within
18 months of the transaction. Key components of the turnaround plan include:
- Further cost reductions aimed at reducing the Group`s cash operating
expenditure to sustainable levels commensurate to operational and production
volumes;
- Enhancements in the credit granting and collections processes utilising the
expertise of Mayibuye group companies;
- Controlled growth in loan advances to customers through the utilisation of the
equity and debt capital provided as part of the Mayibuye transaction;
- A specific focus on improvements in customer service;
- Introduction of new complementary service offerings to customers;
- Improvements in governance and compliance structures including, the
reconstitution of the board of directors and key management: and
- An increase in overall operational efficiencies and business sophistication.
The board is confident that these actions will restore the Group to
profitability and ensure that the Group remains well positioned to benefit from
its market position, distribution, brand and products on the continent.
CHANGE TO THE BOARD OF DIRECTORS
With the successful conclusion of the subscription agreement, J Meiring, R
Emslie, A Ber, RM Mashishi, L Fine and T Till was appointed to the board of
directors on 13 December 2010. A Steyn, A Aime, MJ Sondiyazi, W Smit, MG Meehan
and CB Klopper resigned as directors on 13 December 2010. MG Meehan was
reappointed to the board of directors on 18 January 2011.
DIVIDENDS
No dividend has been declared for the period under review.
AUDITORS OPINION
The Group`s independent auditors, Deloitte & Touche, have audited these results
and a copy of their unmodified audit opinion on this set of condensed financial
information as well as their accompanying unmodified audit report on the
consolidated annual financial statements is available for inspection at the
Group`s registered office. An emphasis of matter was added to the audit opinion
as follows:
"We draw attention to the financial statements which indicate that the Group
incurred a net loss of R284.9 million (2010: R1.0 billion) for the year ended 28
February 2011, and to notes 8 and 10 to the condensed financial information
which detail the progress made on the Group`s turnaround strategy and the
actions taken, and still required, in returning the Group to profitability to
ensure its ongoing liquidity and solvency. Our opinion is not qualified in
respect of this matter."
Forward looking statement
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Blue Financial Services
Limited and its group companies, which by their nature involve risk and
uncertainty because they relate to events and depend on circumstances that may
or may not occur in the future. Any forward-looking statement included in this
announcement has not been reviewed or reported on by the Group`s independent
auditors.
POSTING OF ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING
An announcement will be made in due course advising shareholders of the date of
the posting of the annual report and the details of the notice of the annual
general meeting.
For and on behalf of the Board
JM Meiring S Strydom
Chief Executive Officer Chief Financial Officer
31 May 2011
Directors:
J Meiring (CEO); S Strydom (CFO); S Twala *(Chairman); R Emslie *(Deputy
Chairman); A Ber*; A Couloubis*; RM Mashishi*; L Fine*; T Till*; MG Meehan*;
and J French*#
*non-executive # United States of America independent
Registered Office:
Mayibuye Place
355 Kent Avenue
Randburg
PO Box 2731, Randburg, 2125
Auditors:
Deloitte & Touche
Designated Advisor:
Grindrod Bank Limited
Registration number 1994/007994/06
Transfer Secretaries:
Link Market Services South Africa (Pty) Ltd, 13th floor Rennie House, 19
Ameshoff Street Braamfontein.
(PO Box 4844, Johannesburg, 2000)
Company Secretary:
E Waldeck, Mayibuye Place
355 Kent Avenue, Randburg
elisew@blue.co.za Tel: (012) 990 4300
Group head office:
Tel: +27 12 990 8400 Fax: +27 86 637 6033
E-mail: blue@blue.co.za
www.blue.co.za
Date: 01/06/2011 07:19:00 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
