BLUE FINANCIAL SERVICES LIMITED
Incorporated in the Republic of South Africa
Registration Number: 1996/006595/06
JSE Code: BFS
(“Blue” or “the Company” or “the Group”)
Shareholders are referred to the announcements published on the Stock Exchange
News Service (“SENS”) of the JSE Limited (“JSE”) on 26 June 2013 (“June 2013
SENS”), whereby shareholders were advised of the Company’s voluntary suspension
of trading in Blue securities, 26 August 2013 (“August 2013 SENS”), 31 October 2013
(“October 2013 SENS”), 6 December 2013 (“December 2013 SENS”), 1 April 2014
and 30 April 2014 (“April 2014 SENS”), 30 September 2014 (“September 2014
SENS”), 30 December 2014 (“December 2014 SENS”), 31 March 2015 (“March 2015
SENS”), 20 April 2015 (“April 2015 SENS”), 27 May 2015 (“May 2015 SENS”), 5 June
2015 (“June 2015 SENS”), 20 August 2015 (“August 2015 SENS”) and 28 August 2015
(“2nd August 2015 SENS”) whereby shareholders were updated on the developments
Current Trading Operations
Given the significant setbacks experienced by Blue during its turnaround journey,
specifically the undisclosed liabilities of R191 million, the Leonox matter again detailed
herein below, the decline of the credit market in South Africa and the legacy issues
surrounding Nigeria, Lesotho and Zambia, as addressed herein, the Company but
more specifically it’s various trading entities had, and still has no alternative other than
to use proceeds of its advances book to fund its operational activity and to manage
any and all cash flow mismatches accordingly. This process will continue until such
time as new funding can be injected and / or an alternative structure is put in place.
The Blue Group had the following as turnaround objectives:
1. Reducing the cost base significantly;
2. Changing the operating model from a centralised model to a decentralised one;
3. Creating a track record of successful impairment management in respect of its
lending products with new capital raised since December 2010;
4. Migrating to a more robust loan platform; and
5. Raising funding once the aforementioned objectives had been achieved.
The objectives as set out in 1 – 4 have been achieved and as such the Group has:
1. created an efficient distribution- and collection infrastructure across the African
continent on a localised (per country) basis;
2. reduced the operating costs from 2011 by more than 80%; and
3. achieved a low impairment on the loan assets produced on and after 1
March 2011of less than 3%, equating to an impairment of less than 1% year
The effort placed into developing the aforementioned infrastructure over the last three
and a half years has provided the Blue Group with substantial experience and
knowledge in respect of conducting a business as a micro lender in Africa.
With regards to objective number 5 above, Blue could not obtain support from key
shareholders to participate in a rights issue (or to raise any further funding from existing
and 3rd party funders) due to the lack of published financial information together with
the dispute with DRA Funders. Mayibuye had indicated that it would only be willing to
support a rights issue if a total of 75% of Blue shareholders participated in the rights
issue. As such, Blue is in the process of is exploring a new structure that may assist
with its funding needs for the short to medium term.
The Company, through its subsidiaries, is currently trading and lending in Botswana,
Ghana, Malawi, Namibia, Swaziland, Uganda and Zambia providing mainly unsecured
payroll based loans, but also provides short term or payday loans to its customers.
As previously advised in the April 2014 SENS the relevant subsidiaries have stopped
lending in South Africa and Lesotho and are only collecting the outstanding loan books.
Cessation of certain trading operations
As a direct result of the undisclosed liabilities that forms part of the warranty claim that
Mayibuye exercised in 2012 and as previously reported in the SENS of 6 November
2012, there were undisclosed taxation liabilities which presented an insurmountable
obstacle to the turnaround strategy for Tanzania and as previously reported in the May
2015 SENS, the trading entity in Tanzania has been placed into liquidation.
As per the May 2015 SENS, the Blue Group is also divesting from its operations in
Kenya caused by the same undisclosed taxation liabilities as referred to in respect of
Tanzania. In this regard the operations in Kenya may either be sold to a third party or
alternatively placed into liquidation. Shareholders shall be kept appraised on further
developments in this regard.
Although the Group is divesting its interest in Tanzania and Kenya, it maintains that
the East African Region offers viable opportunities and will continue to investigate and
consider future business opportunities in the region (if and when funding becomes
available and it is appropriate for Blue at that time).
Shareholders are reminded of the April 2014 SENS and May 2015 SENS, whereby the
Company advised that the Nigerian Regulator disputed the extent of the Company’s
investment and resultant shareholding in Blue Micro Finance Bank in Nigeria (“Blue
Nigeria”) caused by transactions effected in 2008 and 2009 i.e. before the turnaround
The Company’s shareholding in the aforementioned entity was finally settled at 8.3%.
This meant that Blue’s shareholding as reported at the Mayibuye subscription date
was decreased from 65% to 8.3%. This resulted in the Group having to derecognise
its Nigerian operation from its consolidation and report it as an investment.
Publication of Financial Information:
As previously advised, the Board has elected to publish the Company’s financial
results for the six months to June 2015 in the form of unaudited management accounts.
The management accounts will be published shortly.
The reasons for the delay in the audit has been addressed in the August 2015 SENS,
however, same can be summarised as follows:
To date the Company has been hampered in its efforts to publish financial information
since April 2013 as a consequence of several factors, including but not limited to the
As previously reported the recapitalisation of the Blue Group by Mayibuye in
2011, was premised and conditional on the conclusion of the Debt Rescheduling
Agreement (“DRA”) and the Blue Claim Purchase Agreement (“BCPA”).
The forensic event that came to the attention of the Company in April 2013
(“Forensic Event”), led to Mayibuye, Old Mutual and the Company
commissioning a forensic investigation by Horwath Forensics (“Horwarth”). The
delay in the finalization of audited results of the Company mostly related to the
uncertainty that the Forensic Event brought about.
As reported in the April 2015 SENS, due to the complexity of the Forensic Event,
the first forensic report took approximately 15 months to conclude and was
issued in August 2014. Unfortunately, although this report allowed the Company
further insight into the relevant matters it left sufficient grounds to believe that
some further work was required to fully understand the relationship not just
between the Company and Leonox Investments (Pty) Ltd (in liquidation)
(“Leonox”), but also between Leonox and the Housing Impact Fund of South
Africa (“HIFSA”) and various ancillary matters. As a consequence, several
additional reports were commissioned by the Company from Horwath in order to
clarify the outstanding aspects.
As reported to the market in terms of the March 2015 SENS, June 2015 SENS
and April 2015 SENS respectively, the subsequent forensic reports indicated that
the Blue Group was not involved in the fraudulent transactions/activities forming
part of the April 2013 forensic event (April 2015 SENS), but rather was a victim
of the fraudulent actions committed. As a consequence of the fraudulent
activities the Blue Group has suffered considerable damages and in this regard
have taken the necessary action to recover such damages (refer May 2015
One of the consequences of the fraudulent activities identified through the
commissioned forensic reports was that the transfer of ownership in respect of
the sale of assets by the Blue Group to Leonox, in terms of the funding structure
put in place, never occurred. As a consequence, thereof, these assets had to be
re-recognised in the books of the Blue Group (refer March 2015 SENS and
June 2015 SENS).
Due in large part to the aforementioned items on the financial position of the
Company, it was unable to make significant progress with the audit until the final
forensic reports were finalised. The last forensic report was only published in
April 2015. Although the Company now has reasonable certainty on the way
forward, there is still a number of cardinal issues that are subject to litigation and
as such allowance needs to be made for the contingency that a court of law might
have a different interpretation to that of the Company and its legal advisors.
2. Debt Rescheduling Agreement
As previously advised in the April 2015 SENS, the DRA is in effect a
recapitalisation agreement. At the end date, the surfeit of assets versus liabilities
is converted into equity at the Company level. Although the DRA was originally
intended to have an end date three years after its conclusion, the signatories to
the DRA have, under certain conditions, the right to accelerate the end date. The
effect of accelerating the end date is that the conversion of the surfeit of assets
versus liabilities is accelerated. In August 2013, the Company received notice
from the lenders under the DRA of their intention to accelerate the end date. In
terms of the notice, the end date was designated to be 6 September 2013.
In terms of the DRA and the accelerated end date, the Company submitted to
the lenders a Distribution/Conversion Plan in November 2013. Upon review of
the Distribution/Conversion Plan the DRA lenders through the constitute Lender
Committee, filed a notice disputing the contents of the Distribution/Conversion
Plan. The basis for the dispute at the time was due to uncertainty in respect of
the financial statements of the Blue Group as well as the consequent uncertainty
regarding the figures provided in terms of the Distribution/Conversion Plan.
In line with the provisions of the DRA, Deloitte, as the appointed auditors of the
Company at the time, was appointed as the Transactional Auditor and tasked
with review of the Distribution/Conversion Plan in order to provide resolution to
the dispute filed.
As a consequence of the uncertainties resulting from the Forensic Event and the
consequent outstanding financial information, Deloitte was unable to fulfil its
functions in this regard and the matter was tabled until finalisation of the forensic
report. As reported herein below, Deloitte had subsequently advised that they
would not be available for the 2013 audit and as such a new Transactional
Auditor would need to be appointed.
This matter is currently still unresolved. The Company will shortly submit an
amended Distribution- and Conversion Plan to the DRA lenders based on the
finalisation information now available to it.
Once the Company have provided the amended plan, the DRA lenders will need
to advise if they intend filing a fresh dispute in terms of the DRA or whether they
will accept the consequences of the amended plan as presented to them.
3. Finalisation of February 2012 Annual Financial Statements by Deloitte
The financial results for the full year ended February 2013, the six months ended
31 August 2013, the full year ended February 2014, the six months ended 31
August 2014, the ten months ended 31 December 2014 and the six months
ended 30 June 2015 are outstanding.
The financial results are dependent upon Deloitte finalising the audits for certain
of the African subsidiaries up to the end of the February 2012 financial year,
which in some instances include audits of financial statements going back to
February 2011, as well as the audit of the financial statements of the South
African entities for the February 2012 financial year.
Full details in respect of this and the relationship between the Company and
Deloitte were provided in the 2nd August 2015 SENS. Since then there has been
significant progress in respect of the finalisation of the audits although same has
not yet been completed.
Deloitte will remain appointed as the auditors for the full year ended 29 February
2012 until the audits of certain subsidiary company annual financial statements
have been completed.
Significant Events Since 2013
The Board wished to remind shareholders of the following significant events that took
place and were reported on since the Forensic Event:
1. Voluntary suspension of Blue shares (June 2013 SENS)
The Company applied to the JSE for the voluntary suspension of its shares from
trading due to its inability to publish financial information based on significant
uncertainties as stated above.
2. Restructuring of Blue SA business model (October 2013 SENS)
Restructuring of Blue Financial Services (South Africa) (Pty) Ltd (“Blue SA”)
business model in order for Blue SA to focus on asset rehabilitation as the core
of its business. This was done based on the economic climate in South Africa at
that time, with consumers burdened by high levels of indebtedness, energy price
increases and food inflation which negatively affected the micro finance industry
in South Africa, and resulted in Blue SA no longer providing unsecured loans in
In this regard and to ensure the success of the refocused business strategy the
Company, with agreement and contributions from Mayibuye, implemented such
steps as were required to equip itself with the necessary staff, systems and
processes to allow to focus on the rehabilitation of its assets.
As a consequence of the fraudulent transactions/activities referred to earlier in
this announcement, the Company will continue with the process in Blue SA of
the recovery of its assets including continuing to pursue legal claims already
instituted as well as instituting further claims to recover damages
3. Shut down and discontinuance of certain non SA lending businesses and
derecognition of a controlling equity stake (April 2014 SENS)
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 operations
trading under the name and style of Nedfin Zambia which mainly focused on
short term loans advances of less than three months. Blue continued trading
through Blue Financial Services Limited Zambia.
In Lesotho, Blue had 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 fully impair the entire Lesotho book and to only focus on collecting
the outstanding book in Lesotho. The Company is currently considering whether
legal action should be instituted against the government of Lesotho in respect of
With respect to the Nigeria operations, and the fact that the Nigerian Regulator
disputed the extent of Blue’s investment and resultant shareholding in Blue Micro
Finance Bank in Nigeria (“Blue Nigeria”), the Company took the decision to
derecognise its controlling equity stake in Blue Nigeria into its Group results and
to instead reflect its shareholding as an investment.
4. Disposal of BAS Zambia (May 2015 SENS)
Shareholders were advised that Blue Financial Services (Zambia) Limited (“BFS
Zambia”) and Blue Employee Benefits (Botswana) Limited (“BFS Botswana”),
wholly owned subsidiaries of the Company, entered into a sale agreement with
Regent Life Botswana Limited to dispose of 100% in Blue Assurance Services
(Zambia) Limited (“BAS Zambia”).
As part of the restructure process announced in the SENS issued by the
Company on 20 April 2015, the Group has decided to dispose of BAS Zambia
which operates a long term insurance license in Zambia. BAS Zambia was the
only long term insurance license holder in the Group and as such was not part
of the Group’s core business.
5. Rights Issue (March 2015 SENS)
Shareholders are reminded that the group proposed to key shareholders to
support a rights issue of R300 million as this was essential to ensure the
sustainability of the Company. One of the key stumbling blocks to being able to
proceed with the said rights issue was the dispute with the DRA funders (and
lack of published financial information). As a consequence this strategy could
not be continued.
6. Alternative Funding Structure (April 2015 SENS)
Shareholders are further reminded that Blue announced that it is exploring a new
structure that can assist with its funding needs. An announcement in respect of
this will be made once this funding structure has been finalised and ready to be
7. Goodwill Impairment
As per the April 2015 SENS a goodwill impairment to an aggregate amount of
R396 million, mostly attributable to the impairment of goodwill previously carried
in South Africa, Tanzania, Kenya, Botswana, Zambia, Namibia and Uganda was
passed. Shareholders are reminded that in 2010 the goodwill was written down
to R427 million from R750 million which the Company subsequently wrote down
in 2013 to zero.
8. Impairment on Loan Books
As reported in the April 2015 SENS an increase in impairments of R308 million
during the 2013 financial year on the advances book mostly as a result of
impairments in South Africa, Lesotho and Zambia.
9. Audit post 2012
a. Statutory Audit of the South African Subsidiaries
Deloitte are currently performing the final audit procedures on certain of the South
African trading entities for the periods ended February 2010, 2011 and 2012. Upon
finalisation of these procedures, the outstanding annual financial statements for
financial periods up to and including February 2012 can be signed.
b. Statutory Audit of the African Subsidiaries from February 2013 up to December
A summary of the statutory audits of the African Subsidiaries from February 2013
up to December 2014, as well as the relevant auditors appointed in respect of these
audits and the respective status of these audits are provided below:
Company February 2013 February 2014 December 2014
Blue Financial UHY Voscon UHY Voscon UHY Voscon
Services Ghana Ltd
Complete Complete Complete
Blue Financial Grant Thornton Grant Thornton Grant Thornton
Services Zambia Ltd
Fieldwork mainly Fieldwork mainly Fieldwork mainly
done. done. done.
Blue Employee BDO BDO BDO
(Pty) Ltd Fieldwork done Fieldwork done Fieldwork done
Blue Kenya Ltd Mbaya and Mbaya and Mbaya and
Associates Associates Associates
Fieldwork done Fieldwork done Fieldwork done
remains a February
2015 financial year
end. Due to
date can only be
previous AFS have
Blue Employee BDO BDO BDO
Ltd In the process of In the process of In the process of
finalising the audit finalising the audit finalising the audit
Blue Financial Ernst & Young Ernst & Young Ernst & Young
Services Malawi Ltd
Field work not Ready for sign-off Ready for sign-off
9 November 2015
Blue Financial BDO BDO BDO
Namibia (Pty) Ltd Audit not yet Field work mainly Audit not yet
commenced. BDO complete commenced
awaiting Deloitte sign
off of 2012 and
resignation prior to
Blue Financial Synergy Synergy Synergy Synergy
(Pty) Ltd Fieldwork completed. Fieldwork completed. Fieldwork completed.
Blue Financial Enslins Enslins Enslins
Services Lesotho Ltd
Audit not yet Audit not yet Audit not yet
commenced. Awaiting commenced. commenced.
Deloitte sign off of Awaiting Deloitte Awaiting Deloitte sign
2012 and resignation sign off of 2012 and off of 2012 and
prior to resignation prior to resignation prior to
commencement commencement commencement
Nexia Baker and Nexia Baker and Nexia Baker and
Arenson Arenson Arenson
Audit has Audit has Audit has
commenced. commenced. commenced.
c. Group Consolidated Financial Statements for the 2013 financial year and
The Company is still in discussions with SizweNtsalubeGobodo (“SNG”) to
understand the best way of completing all subsequent consolidations (which is
dependent on the outcome of their audit) in respect of the Group Consolidated
Financial Statements for the 2013 financial year and subsequent periods.
Shareholders are reminded that the finalisation of the subsidiary annual financial
statements for periods up to December 2014 is imperative to enable SNG to
Currently the Company is in ongoing discussions with stakeholders in order to ensure
that all possible alternatives and options – legal or otherwise - are considered and
investigated to ensure that the most appropriate course of action is implemented with
respect to the outstanding obligations of the Company and in best interest of the all
Changes to the Blue operating model may be required to ensure that through a
proposed structure the Company and its various subsidiaries will continue providing
lending products to its customers.
The Group has started discussions with key stakeholders to establish support.
We anticipate to be able to advise shareholders shortly as to the outcome of these
Shareholders are reminded that in the event that new capital is not injected and / or
the alternative structure as stated above is not supported, the Company will proceed
to settle outstanding obligations through the disposal of assets and trading entities as
As previously indicated the Board of Directors intends to schedule an Annual General
Shareholders Meeting (“AGM”). The exact date is dependent upon the finalisation of
the audit of the financial statements for the relevant subsidiaries for the 2012 financial
year, the finalisation of the audit of the financial statements for the subsidiaries for the
subsequent periods and the finalisation of the audit on a consolidated basis for the
Company for December 2014. Shareholders will be kept informed.
28 October 2015
Grindrod Bank Limited
Date: 28/10/2015 10:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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