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BFS - Blue Financial Services Limited - Audited abridged consolidated financial

Release Date: 01/06/2011 07:19
Code(s): BFS
Wrap Text

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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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