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Further update to shareholders
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”)
FURTHER UPDATE TO SHAREHOLDERS
1. BACKGROUND
Shareholders are referred to the detailed announcements
published on the Stock Exchange News Service (“SENS”) of the
JSE Limited (“JSE”) on 6 December 2013 (“December 2013
SENS”), 31 October 2013 (“October 2013 SENS”) and 26 August
2013 (“August 2013 SENS”), whereby shareholders were updated
on the developments at Blue. This includes the conversion of
debt in terms of the debt rescheduling agreement (“DRA”),
the restructuring of Blue Financial Services South Africa
Proprietary Limited (“Blue SA”), the forensic investigations
launched in 2010 and 2013 respectively and the status of the
full year February 2013 and six months ended August 2013
financial results. This announcement serves as further
communication to shareholders on the aforementioned matters
where referenced.
2. UPDATE ON FIRST FORENSIC INVESTIGATION COMMISSIONED 2010
Shareholders are referred to previous updates in respect of
this 2010 forensic investigation.
The Group is currently in the process of initiating legal
proceedings against various parties for the recovery of
damages that were identified in this report.
3. UPDATE ON SECOND FORENSIC INVESTIGATION COMMISSIONED 2013
As referred to in the August 2013 SENS, Horwath Forensics SA
was appointed by, amongst other affected parties, the Board
of Directors of Blue (“the Board”) to undertake the
investigation, which includes inter alia investigating
transactions between the Company and Leonox Investments
Proprietary Limited ("Leonox"). Blue has been advised that
the report is expected to be released during April 2014
where after the Company will update Blue shareholders in
this regard.
4. RESULTANT IMPACT OF THE FORENSIC INVESTIGATION 2013
The Board would like to remind shareholders of previous
updates that advised of the complexities of the forensic
investigation and which has resulted in Blue deploying
significant legal and accounting resources, both external
and internal to ensure a complete and accurate analysis of
the specific events.
Some of the implications are as follows:
- The preparation, audit and timely release of the Group’s
Integrated Annual Report for the year ended February 2013
and the subsequent interim results for the six months
ended August 2013 have been significantly delayed whilst
the investigation process was on-going.
- On 21 January 2013 Blue released a cautionary
announcement wherein shareholders were advised that Blue
was in negotiations with its controlling shareholder,
Mayibuye Group Proprietary Limited (“Mayibuye”),
regarding the proposed recapitalisation of Blue. These
negotiations could not be completed with the outcome of
the investigation pending and subsequently negotiations
were suspended and the cautionary was withdrawn on 6
December 2013.
- The timelines for Blue to source new funding whilst the
forensic report was outstanding were negatively impacted.
- Overall, the Group’s strategies and timelines for the
successful completion of its turnaround plans have been
negatively impacted.
5. CONVERSION OF DEBT IN TERMS OF THE DEBT RESCHEDULING
AGREEMENT (“DRA”)
In the August 2013 SENS shareholders were advised that the
DRA funders have notified the Company of their intention to
bring forward the conversion date from January 2014 with the
effective date of conversion being 6th September 2013.
The Company and the DRA funders have not reached agreement
on the implementation of the conversion with the process to
reach agreement further dependent on the completion and
publication of the financial results for the interim period
ended August 2013.
6. TRADING ENVIRONMENT
As part of this update, the Company would like to advise
shareholders of the following developments that occurred in
certain of its trading operations:
- During January 2013, the interest rates that are
permissible to be charged in Zambia were significantly
reduced by the Zambian Regulator. As a result, Blue
took the strategic decision to close down one of its
Zambian lending operation trading under the name and
style of Nedfin Zambia which mainly focused on short-
term loans advances of less than 3 months. Blue will
continue trading through Blue Financial Services
Limited Zambia.
- In Lesotho, Blue has been involved in continuous legal
proceedings regarding the reinstatement of government
payroll deductions. Based on a variety of circumstances
a strategic decision was taken to discontinue all
lending in Lesotho, to review the provisioning for the
Lesotho book and to focus on collecting the outstanding
book.
- As previously advised, the economic landscape prevalent
in South Africa during the 2013 financial year remained
difficult, with consumers burdened by high levels of
indebtedness, energy price increases and food
inflation. Consumer-demand based businesses were
negatively affected by this challenging environment
with the micro finance industry in South Africa being
particularly exposed. In response to this negative
economic climate, the lending operations of Blue SA
were discontinued and the business model was
restructured such that Blue SA will focus on asset
rehabilitation and no longer provide unsecured lending
products in South Africa. Shareholders are referred to
the October 2013 SENS for further information on this
restructuring.
- Shareholders are reminded of previous updates whereby
Blue advised that there are continuing discussions
regarding the investment Blue has in Blue Micro Finance
Bank in Nigeria (“Blue Nigeria”), prompted by the fact
that the Nigerian Regulator disputed the extent of
Blue’s investment and resultant shareholding in Blue
Nigeria in 2008. As a result of the latest outcome of
these discussions, Blue has taken the decision to de-
recognise its controlling equity stake in Blue Micro
Finance Bank by not consolidating Blue Nigeria into its
Group results and to instead reflect its shareholding
as an investment. Once Blue has final clarity on this
issue, shareholders will be updated accordingly.
The Group has further identified certain countries where
the continued offering of sustainable lending products
needs to be based on alternative distribution channels. The
Group is currently busy with the restructure of its
operations in these countries to facilitate this.
Due to a variety of reasons the Group has accelerated its
localization model which in essence implies the reduction of
centralised support services and creating more autonomous
operating entities. This unfortunately resulted in
retrenchments in SA where the group support services are
being conducted from.
7. GOING FORWARD
The Group is dedicated to unlocking its full potential but
whilst it is navigating through arduous times, the Board
will deal with the challenges remaining mindful of the risks
inherent to any turnaround situation.
As such the Board remains committed to the continued focus
on finalising all outstanding items:
- Completion and publication of the financial statements
- Completion of the conversion process with the DRA funders
- Completion of localization strategy coupled with
rationalisation and cost reductions
- Dealing with all legal matters and proceedings.
The Board reiterates that it is fully committed to
implementing those steps it deems are in the best interests
of the Group, its customers, the retention of key staff as
well as all other stakeholders.
8. FEBRUARY 2013 FULL YEAR AND AUGUST 2013 INTERIM FINANCIAL
RESULTS
As referred in the December 2013 SENS, Blue advised that the
financial results for the year ended 28 February 2013 and
the interim results for the six months ended 31 August 2013
would be released during the first quarter of 2014. As soon
as the Board has certainty as to the findings and impact of
the forensic report and remaining matters to be finalised to
allow the auditors to complete their audit, the Company
should be in a position to advise shareholders of the date
for the release of the February 2013 annual results and
August 2013 interim results.
9. TRADING OF SECURITIES
The Board will apply to the JSE to recommence trading of
Blue securities on the stock exchange once the financial
results for the year ended 28 February 2013 and the interim
results for the six months ended 31 August 2013 have been
published. Until such time the voluntary suspension of
trading of Blue’s securities will remain in effect.
Randburg
1 April 2014
Designated Advisor
Grindrod Bank Limited
Date: 01/04/2014 10:05:00 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.
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