Blue fights back after slump

Johannesburg - Blue Financial Services, the R818m micro-lender, said reports it was suffering a corporate governance crisis were exaggerated - claims that have sliced a fifth off its market value.

Blue Financial's share price closed at R1.40/share on Friday, nearly 20% down following reports that said the group had troubled signing off its financial statements and found it difficult to retain its chief financial officers.

"Our big investors are still backing us," said CEO Dave van Niekerk in an interview with Sake24 last week. "It's a few of the smaller shareholders who panicked."

Blue Financial has used three different auditing firms in as many years and has seen a string of chief financial officers resign.

A trading report gaffe earlier this year, and a delay in issuing the company's financial statements have also raised the alarm about its internal processes.

But Van Niekerk said these matters should not be looked at superficially. ?Where we discovered that there were delays or errors we acted immediately and made the necessary adjustments, informing all interested parties."

Auditor KPMG was therefore discharged and the task handed to Deloitte. "Deloitte has quickly come up to speed and is very close to signing off our interim results," said Van Niekerk. Blue Financial also terminated the services of auditor, PKF (Pta), at the request of international financial institutions which preferred Blue to use one of the big four auditing firms.

Grant Chittenden, Blue Financial's former CFO, resigned in July. He was replaced by Shaun Strydom. Chittenden's predecessor resigned to attend to family matters and his predecessor resigned after Blue Financial listed.

According to Van Niekerk the fact that the company has had several people in the seat was insufficient reason to raise eyebrows.

He conceded, however, that Blue Financial's exposure to African-based business was a risk, but the danger did not lie in the fact that African governments no longer pay over employees' salary deductions - an important part of Blue's business model.

"The average default rate is only 2%," said Van Niekerk. Weaker economic growth and how it affected the exchange rates of certain African countries - Blue has operations in 14 - was a bigger concern, he said.

Responding to the criticism regarding Blue Financial's loan book, and the fact that R277m of it is regarded as late repayments, Van Niekerk said there were often administrative problems associated with initiating deductions from government employees' salaries. If the first payments come in only after a month or so, they are classified as arrears.

Blue has long been criticised by analysts for its high price/earnings ratio (p:e). A little more than a year ago it was above 50. By the end of the trading week its p:e was however below 12 ? probably the result of the sharp decline in the share price rather than from earnings growth.

- Sake24.com

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