Blue Financial Services

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B L U E F I N A N C I A L S E R V I C E S

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South Africa Magazine examines

the remarkable turnaround of Blue financial Services.

By Ian Armitage

af ter turnaround

B l u e p r o f i t s

S o A R

B lue Financial Services is a diversified financial services group. In the year ended February 29, 2012, Blue recorded a profit

after tax of R42 million, significantly up from a loss of R1 billion the previous financial year.

We caught up with Johan Meiring, CEO of Blue Financial Services, who is also Group CEO of Mayibuye Group, the largest shareholder, and who led the turnaround of Blue.

Johan, nice to meet you. The turnaround has been absolutely phenomenal…It has. Blue Financial Services has steadily met and successfully achieved the objectives that were set as part of the turnaround strategy. The business has become more profitable, more cost efficient and, more importantly, a sustainable enterprise.

Blue Financial Services is now poised for growth. We are currently opening up many new distribution points, particularly in East Africa, and we are actively raising lines of capital to fund our growing lending activities and our expanding operational footprint across the continent.

Blue currently operates in 12 African countries, has a presence in 14, and is well positioned to fund future expansion in Africa.

To be profitable and in a good position for growth is pleasing, particularly considering the loss-making position we took over at the end of 2010. I believe that the full potential of Blue as a leading pan-African financial services provider is only starting to be realised. So, from that perspective, we are pleased with what we’ve achieved to date, but still far from content.

When did it all start? And what was actually done?Mayibuye Group took control of Blue in December 2010 and immediately launched the turnaround strategy. Since the takeover, a total of R844.5 million has been injected into the business. This comprises an initial

amount of R163 million made by Mayibuye in December 2010 when it acquired its stake in Blue. This was followed by the Debt Restructuring Agreement which was concluded with funders. This agreement saw the capital repayments on existing debt ring-fenced and delayed by a period of three years. As a result of confidence in the delivery of the planned turnaround process, funders agreed to two separate debt-to-equity conversions - R274.7 million in February 2011, and a further R406.8 million in June 2012 - making themselves shareholders of the business and further strengthening the balance sheet.

Regarding what has been done in the intervening period to date, the answer is that so much has been done that Blue today is a very different organisation compared to pre-December 2010. Starting at the top, the board has been restructured and is now fit-for-purpose to take Blue forward strongly and positively. On the next tier, management has been strengthened, reoriented and up skilled to deliver on and achieve Blue’s new business strategy. Members of staff at all levels have received extensive training and upskilling. New systems and methodologies have been developed and implemented. These include new, leading edge IT facilities that position Blue way ahead of the pack and power our new operational processes to provide unparalleled service and convenience to our customers across Africa. Added to this are new internal controls and cost-optimisation initiatives that we have developed and implemented. These have elevated our credit-granting activities to much more effective levels and have dramatically reduced overall costs, ensuring that Blue is now a far more efficient organisation, delivering superior service to our customers. And the cherry on the top is that we have entirely overhauled and refreshed our existing products while, at the same time, added significant new products that have taken our offerings to new levels.

Blue financial Services focuS Altx

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One Waterloo Technologies has partners (we prefer not to refer to ‘clients’) in various countries, mainly in the financial sector. Our current partners are located in South Africa, Botswana, Mauritius, Zambia, Nigeria, Kenya and Switzerland, and include Blue Financial Services.

We are in the process of expanding into Angola, Tanzania and Uganda.

Our products and services are in the following key focus areas:Our products and services are in the following key focus areas:· Custom Business Solutions· Licensed Software Components in the financial sector· Issuing and Account Hosting Platforms

Innovate, create and unlock value

Tel: 0861 1WATERLOO / 086 119 2837 / Fax: 086 613 1290

6 Cotillion Place, 22 Techno DriveTechnoPark, Stellenbosch, 7601

Email: [email protected]

www.onewaterloo.mu

One Waterloo Technologies has partners (we prefer not to refer to ‘clients’) in various countries, mainly in the financial sector. Our current partners are located in South Africa, Botswana, Mauritius, Zambia, Nigeria, Kenya and Switzerland, and include Blue Financial Services.

We are in the process of expanding into Angola, Tanzania and Uganda.

Our products and services are in the following key focus areas:Our products and services are in the following key focus areas:· Custom Business Solutions· Licensed Software Components in the financial sector· Issuing and Account Hosting Platforms

Innovate, create and unlock value

Tel: 0861 1WATERLOO / 086 119 2837 / Fax: 086 613 1290

6 Cotillion Place, 22 Techno DriveTechnoPark, Stellenbosch, 7601

Email: [email protected]

www.onewaterloo.mu


Blue financial Services focuS Altx

Needless to say, we’re excited about all these developments and all the work that has already been done to position us for our planned expansion.

Has the turnaround process finished?Significant progress has been made in terms of the turnaround strategy. However there is a lot more that needs to be done to transform Blue into the group we now envision for the future. The biggest factor in the business’s growth is our ability to strengthen the balance sheet. We’ve already made considerable progress in this regard, and we continue to work towards further initiatives to gain more ground. As a key business strategy, we need to leverage off a strong balance sheet to raise capital in order to extend our operational footprint and accelerate our lending activities into a very exciting and fast-growing market in Africa. We are currently spending much of

our time and attention on ensuring that we have the necessary lines of credit needed to fund the company’s growth into the future. The focus of our capital-raising programme is to access funding for the growth of the loan book and for expanding the distribution capabilities of existing operations. To date, we have already enjoyed much success in this regard.

Now that you are on a more stable footing, how would you like to see Blue grow?In terms of our pan-African strategy, we have turned our primary focus onto East Africa, where we are currently establishing and expanding our distribution footprint for more aggressive growth. At the same time, we are also focusing on the West African market. These two regions offer the greatest growth opportunities at this point in time. Across the group, the key indicators are starting to look positive. Costs, as a percentage of delivery, have been significantly reduced. The cost of funding too has been reduced, leaving the yield of loans advanced at an attractive and sustainable level. Our traditional customer base comprises largely of government employees, where Blue can collect repayments on its loans via the payroll. This has provided Blue with many benefits and significantly reduced risk. However, to meet our customer growth targets Blue will increasingly need to attract more customers from the retail market. Blue has publicly set itself an ambitious target of increasing its customer base to five million in the next five years. Our distribution, marketing and branding efforts are aligned, and we are preparing the business for this push into an exciting and growing market.

At present, Blue’s product mix is currently skewed towards the shorter-term and unsecured loans. Over time, we will look to diversify the product mix towards larger and longer-term secured loans in the home loan space specifically, while also ramping up our business loan offerings.

www.onewaterloo.mu


So your focus has shifted away from South Africa?Blue Financial Services has in the past year been very clear on its strategy regarding focal areas. As such, we have shifted our focus away from the South African market, which is a less attractive proposition for the group than some of the other African markets in which we operate. As mentioned, we are focusing on growing the business in the East African and West African markets. In order to give effect to this strategy, Blue has, however, needed to concentrate intensely on a number of its key business areas to ensure that costs remain in check, systems are stable and reliable, technology provides convenience, and internal controls allow for constant safety checks with regards to the individual country operations. Blue is keenly aware of the need to address each country’s operations individually, in order to understand each unique set of parameters, including the various social, cultural, economic and regulatory environments, and to generate strategies that relate to the realities encountered and leverage effectively off the opportunities on offer.

In addition to the decentralisation process we have strategically adopted, and the appointment of new local boards and executive management teams in each of the 12 African jurisdictions, Blue has responded to the current economic environment in the following ways:

Channelling capital and operational capacity towards the fastest-growing and most promising jurisdictions in Africa to boost lending activity

Focusing heavily on technology and systems, with a view to automating and streamlining the credit application, disbursal and collections process

Improving access to Blue’s products by opening new distribution points through innovative third-party partnerships

Standardising pricing across the 12 African jurisdictions by introducing the B1 Index – this allows for country-specific inputs into a standard pricing model, which acts as a self-imposed pricing cap to ensure ethical and sustainable lending practices throughout Blue’s pan-African footprint

Working hard to reinvest our time and money back into the communities we serve and to our employees.

Blue’s distribution strategy has been to open up new points of access, but without incurring the hefty capital requirements normally associated with expanding a branch infrastructure. As such, Blue has been able to partner with established third-party distribution networks, and we are delighted with the symbiotic relationships that provide both parties in any one agreement with an enhanced suite of offerings to their combined customer bases. As this strategy is currently working well for us, Blue will continue to operate in this vein for the foreseeable future, and will not deviate from it any time soon.

What are the opportunities for the company?Financial services are a critical enabler of growth in any economy. Providing credit, savings and transaction facilities helps individuals and companies grow and turn their ideas into realities. The opportunity in Africa for financial service providers to play an enabling role in this regard is enormous and Blue is very excited to be an established player in the mix. Africa’s employed population of 500 million is growing faster than any other continent on the planet. Long-term expectations are for this to overtake China and India by 2040. While this is a long way off, the continent is developing fast right now. Those companies that are already on the ground and earning their stripes will be better positioned to reap the benefits of understanding the

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Blue financial Services focuS FINANCE

Blue’S TurNArouNd iN A NuTSHell

Balance sheet significantly strengthened Blue has a new Group Board of Directors Oversight from Group Risk Audit and Remco

chaired by independent directors Deloitte has been retained as external auditors PwC has been appointed as independent

internal auditors New HR policies and procedures have been

formulated and implemented as part of the change management process

A new fit-for-purpose structure has been designed and implemented

Local in-country boards have been constituted Appointment of experienced in-country CEOs

and CFOs is well advanced.

Financial services are a critical enabler

of growth in any economy. Providing credit, savings and

transaction facilities helps individuals and

companies grow and turn their ideas

into realities

subtle differences and the vast diversity between the African countries, and converting this positioning into sustainable business growth into the future. This will also stand us in good stead to benefit from the exciting growth opportunities presenting themselves in the short, medium and long term.

Blue’s products are now well aligned to benefit customers as entrepreneurship (business loans), education (study loans) and urbanisation (home loans) all proliferate across the continent. eND

To learn more visit www.blue.co.za

Building 10 107 Haymeadow Street Boardwalk Office Park Faerie Glen Pretoria, 0081

Tel: +2712 990 4300 Fax: +2712 991 8461 Email: [email protected]

www.blue.co.za

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Blue Financial Services