Pioneering ethical micro- fi nance in Africa while unlocking shareholder value ANNUAL REPORT 2008 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Highlights Blue Financial Services Limited • Annual Report 2008 1

Salient highlights

• Loan book increased by 133% from R207 million to R482 million • Earnings increased by 93% from R32 million to R61,7 million • Earnings per share increased by 41% from 10,37 cents to 14,58 cents

Ratios

For the year ended 2008 2007 % change EPS (cents) 14,58 10,37 41 Diluted EPS (cents) 13,93 8,77 59 HEPS (cents) 12,28 11,81 4 Diluted HEPS (cents) 11,86 9,89 20 PE ratio 35,10 31,82 10 PEG ratio 0,95 0,86 10 Cost to income ratio (%) 75,31 64,27 17

NAV (cents) 133,67 125,13 6 Tangible NAV (cents) 55,69 31,36 78 Debt to equity ratio (%) PEG = price earnings divided 78,59 32,50 142 by earnings growth and is During the year calculated by dividing historic under review, Blue PE by the past financial year’s issued 118 279 498 earnings growth rate. new shares.

Turnover Net profit Headline earnings per share (000) (000) (000)

300 000 70 000 14

250 000 60 000 12 50 000 10 200 000 40 000 8 150 000 30 000 6 100 000 20 000 4 50 000 10 000 2 0 0 0 2005 2006 2007 2008 2005 2006 2007 2008 2005 2007 2008

Blue Financial Services vs AltX and Small Cap index on JSE Botswana listing: BFS share price rallies to 650 cps Blue announces formation of BIMFB in Nigeria – share breaks 600 cps for first time

Latest interest rate hikes in South Africa First subprime scares hit market

01/03 22/03 12/04 03/05 24/05 14/06 05/07 26/07 16/08 06/09 27/09 18/10 08/11 29/11 20/12 10/01 31/01 21/02 13/03 03/04 24/04 15/05 05/06 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2008 2008 –– Blue –– AltX –– Small Cap WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Micro-finance in Africa: Past, present and future 2 Blue Financial Services Limited • Annual Report 2008

Different meaning to The principal difference between micro-financing in South Africa and the rest of the different continent is that the South African model traditionally revolved around personal credit to the people unbanked whereas in the rest of Africa micro-finance concentrated around NGOs, charity organisations and co-operative structures with the predominant aim of providing start-up capital for small enterprises.

Salaried employees able to open bank accounts but without access to financial services

HISTORY OF THE MICRO-FINANCE INDUSTRY MICRO-FINANCE IN SOUTH AFRICA Micro-finance is centuries old, but until recently remained Before 1993, most South Africans only had access to savings largely unstructured and informal. Evidence of this is the accounts-type financial products, which were primarily used Susus in Ghana, Chit Fund in India and Tortines in West Africa. for depositing salary payments. These typical South Africans, The advent of formalised micro-financing has its roots in the however, at times had special needs such as educational growth of credit unions in Europe in the 19th Century (Friedrich fees to finance, which many could not extract from their Wilhelm Raiffeisen in Germany 1870 and People Credit Banks savings or monthly salaries. Many inevitably turned to in Indonesia 1895. Latin America also saw significant growth informal lenders, who charged up to 100% interest and in credit unions in the 1900s). weren’t averse to strong-arm collection tactics. Government subsequently pressured existing financial The advent of modern-day micro-finance institutions to offer formal lending products to address these Micro-financing as we know it today developed as a result needs, but the institutions responded by motivating that of lending initiatives to poor farmers and villagers in South limitations imposed by the Usury Act made it unprofitable Asia and Latin America in the mid-1970s. The most notable for them to carry the risk and administrative costs of smaller of these was the Grameen bank in Bangladesh which loans to a lower-income market. developed a successful peer group micro-lending model that As a consequence, on 31 December 1992, the South African was later exported to other countries and copied by donor government promulgated an exemption to the Usury Act that organisations and non-governmental organisations (NGOs) enabled lenders to advance loans of up to R6 000 repayable that lent money for social and charitable causes. In 2006 over 36 months or less, without any limitation being placed the concept earned a Nobel Peace Prize for its originator, on the interest or costs that could be recovered from the Bangladeshi Professor of Economics Muhammad Yunus and borrower. the Grameen bank for their “efforts to create economic and Contrary to expectations, existing financial institutions didn’t social development from below”. seize the opportunity presented through the new legislation. In the early 1990s mainstream financiers started realising The first participants were a number of illegal lenders taking the potential of micro-lending as a profitable business, the opportunity to legitimise illegal lending operations. In and began to develop and offer micro-lending products. the new transparent and legalised environment, however, One of the main drivers of this interest was developments it soon became apparent that the market’s demand for in technology and scoring methodologies which enabled financial products was colossal and could hardly be served risk modelling and mitigation. By 2005 the popularity of by the initial market entrants. This opportunity was seized micro-finance had grown internationally to such an extent by a number of entrepreneurs, and the industry experienced that the United Nations (UN) declared 2005 as the year of unprecedented growth. This was not limited to turnover, micro-credit, to globally promote it as a “bottom up” financial but included an increase in sophistication which attracted approach that could be more effective than “top-down” commercial banks and other major role players. By 1999 development initiatives such as international aid and debt micro-lending had grown from a zero base into a R15 billion per annum industry, leading government to further revise relief at government levels. legislation and introduce a micro-finance regulator to protect WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579

Blue Financial Services Limited • Annual Report 2008 3

consumers. In 2006 the passing of the National Credit Act In this climate of socially responsible credit, micro- (NCA) gathered all credit transactions into the ambit of finance is attracting increasing institutional and individual standardised legislation. As with the earlier 1999 legislation, interest as a dual-purpose investment that delivers both the incoming NCA drove out dubious operators and smaller economic and social returns. operations that could not match the economies of scale of the heavyweight South African micro-financiers that had HOW BIG IS THE MICRO-FINANCING MARKET? emerged from the pack. The short answer is – demand far outstrips supply. In The South African micro-lending industry can now be 2007 the Deutsche Bank estimated that so far up to considered a mature and sophisticated R23 billion per USD25 billion had been loaned out to about 100 million annum (2006 figures) market, with a growth potential that people. The world presently has about 3 billion poor is unlikely to again match the explosive expansion of the people, however, of which about 1 billion are the working 1990s. poor who could support micro-finance products. The funding shortfall is therefore massive, at about MICRO-FINANCE IN SUB-SAHARAN AFRICA USD250 billion at current values. Entirely the reverse is true in greater Africa, however, as the vast majority of these populations remain unbanked and desperately in need of viable micro-lending products. Forecast of institutional and individual Micro-finance is not new in Africa, as NGOs and other investment (USD bn) institutions have been offering loans for decades, but 25 the supply is often mismatched to the demand. In many

instances the potential borrowers are required to comply 20 with very specific circumstances to access the funds. The vast majority of salaried employees, probably in Blue’s 15 opinion the most stable target market, have also for various reasons been excluded. This mismatch is evidenced, 10x for example, in Uganda, where before Blue commenced 10 operations there, the purchase of assets could only be financed through an overdraft facility, which very few 5 Ugandans had the equity to obtain. 0 Blue believes that extending its business throughout Africa 2004 2005 2015 will not only deliver outstanding returns in the medium and n Institutional and individual investments long term, but it will also be instrumental in reviving the n International financial institutions economies of the communities where we become active. Source: Deutsche Bank Research, December 2007

SOCIALLY RESPONSIBLE INVESTMENT (SRI) Bangladesh, where modern-day micro-financing basically SRIs can be described as investments that provide the started, still only has a 35% penetration of its potential financial returns with positive social, environmental and borrowing market. Other countries with huge populations ethical consequences. These investments are made by of poor people such as India, Brazil, Indonesia and foundations, NGOs and increasing numbers of pension funds, Nigeria, have a market penetration of less than 3%. insurance companies, universities and religious institutions. In the following table the 2004 survey conducted by In the USA the volume of SRIs has grown from USD639 billion the Microfinancing Information Exchange (MIX) shows in 1995 to USD2,3 trillion in 2005, while in Europe SRI assets no African country breaching the 3% level, with many grew from EUR501 billion in 2003 to EUR1 trillion in 2006. considerably less than 1%. The African market alone, Today nearly 10% of all professionally managed assets in the beside the massive Asian and Latin American markets, USA are related to SRIs. represents huge untapped potential. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Micro-finance in Africa(continued) 4 Blue Financial Services Limited • Annual Report 2008

As the Group grows in reach and loan book size it increasingly fills the niche between traditional banks and Micro-finance: Current micro-finance outreach by country micro-lenders.

Current micro-finance outreach by country – mix data, 2004 (excludes institutions with fewer than 5 000 borrowers)

Market Total Total Average penetration Number Rural portfolio borrowers loan size Population (borrower/ Country MFIs Type MFI bank/ (millions) (thousands) (USD) (millions) population) credit union/ Total Bank NGO NBFI other

Africa Benin 7 0 5 1 1 149,90 159 955 7,86 2,02% Burkina Faso 1 0 0 1 0 51,50 55 936 13,9 0,40% Cameroon 4 0 0 0 4 17,10 33 605 17,34 0,19% Chad 1 0 0 0 1 2,05 10 205 9,94 0,10% Ethiopia 14 0 3 14 0 110,33 969 98 74,77 1,30% Ghana 3 0 2 1 0 5,12 65 79 22,4 0,29% Guinea 1 0 0 1 0 5,55 128 43 9,69 1,32% Ivory Coast 1 0 0 0 1 27,11 14 1 937 17,65 0,08% Kenya 5 2 1 2 0 79,50 154 407 34,7 0,44% Madagascar 1 0 0 0 1 5,93 19 312 18,59 0,10% Malawi 5 1 2 1 2 21,91 272 173 13,01 2,09% Mali 5 0 2 0 3 36,82 146 275 11,71 1,25% Mozambique 5 2 2 1 0 15,09 39 377 19,68 0,20% Niger 1 0 0 0 1 1,29 7 185 12,52 0,06% Nigeria 3 0 2 1 0 4,38 186 41 131,85 0,14% Rwanda 1 0 0 1 0 0,78 18 44 8,64 0,21% Senegal 4 0 0 0 4 95,75 107 887 11,98 0,89% Sierra Leone 1 0 1 0 0 0,52 9 59 6 0,15% South Africa 5 1 2 2 0 191,12 213 520 44,18 0,48% Tanzania 4 1 3 0 0 27,89 122 330 37,44 0,33% Togo 3 0 1 0 2 27,63 61 372 5,54 1,10% Uganda 9 1 2 6 0 86,24 228 342 28,19 0,81% Zambia 1 0 1 0 0 0,85 13 66 11,5 0,11% Africa Sub-totals and averages 85 8 29 32 20 964 3 027

MFI = Microfinance Institute NGO = Non-governmental organisation NBFI = Non-bank financial institution WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579

Blue Financial Services Limited • Annual Report 2008 5

funding the shortfall Driver 2: LEGISLATIVE REFORMS Blue concurs with the Deutsche Bank research published Micro-finance thrives in countries where the government in December 2007, which anticipates that over the next keeps out of financial markets, passes enabling legislation few years: for credit and allows interest rates to be determined by • More private sector investors will be attracted to micro- the market. financing due to its attractive risk-return profile and social responsibility aspect. This will be reinforced by Driver 3: NEW MICRO-FINANCING PRODUCTS continual growth in broader SRI funding. New products are being developed to address specific • Financial regulatory changes in countries around the social needs. These include: world will encourage retail investors to place funds in • Housing – home loan and home improvement products the micro-financing sector. Public and private sector are quickly gaining popularity. Increasingly standard joint investments will become popular. MFI offerings, these products will deliver improved • Innovative structured debt instruments will allow shelter for millions of poor people. commercial investors to reduce their risk when • Insurance – already an established micro-financing investing in micro-finance. field, market penetration remains surprisingly low. MFIs • Institutional investors such as pension funds, insurance are actively exploring how to improve these products, companies and trusts will increasingly move into therefore expect health and other forms of insurance to micro-financing. become more widespread. • Growing numbers of micro-financing institutions • Education  – loans for education are being made to (MFIs) will be founded to absorb investment funds families for children’s tuition fees, and also to schools and channel these successfully to micro-borrowers. for structural and operational improvements. The top-end MFIs will grow and merge to form major financial institutions. MILLENIUM DEVELOPMENT GOALS 2015 AND ERADICATING POVERTY Coordinated by the United Nations (UN), the Millennium Blue’s business model Development Goals are a roadmap until 2015 designed to As the Group grows in reach and loan book size it address major problems facing humanity such as peace increasingly fills the niche between traditional banks and security, human rights, democracy and governance, and micro-lenders. the environment and poverty. A key aspect is poverty With the continued backing of its financiers Blue will eradication, in terms of which the UN has already called be able to bring affordable, ethical loan products to for “micro-finance projects which meet local community the unbanked ranging from consumer finance to small priorities”. business seed capital and housing finance. Effective and ethical micro-financing is potentially FACTORS THAT WILL DRIVE AND INFLUENCE MICRO- a visionary means of opening access to finance for FINANCING IN THE NEXT FEW YEARS all peoples. It can be the perfect double bottom-line investment, delivering both social and financial returns. Driver 1: technology Not only a vital tool for poverty alleviation, micro-financing Micro-financing is already being transformed by existing features consistent financial returns, low default rates and and incoming technologies such as smartcards, point- a sorely needed form of diversification for large portfolios. of-sale devices, cellphones, credit scoring, data mining and biometric recognition. These are compelling MFIs Importantly, it is the first truly effective “bottom-up” type to redesign their business models and re-educate their of financing that enables poorer people to work hard to staff and clients. The three primary areas of technological help themselves, rather than the blunt and enormously change are in payments, credit underwriting and back- wasteful “top-down” instruments of aid and debt relief end systems. that have mostly just helped the rich and the well- connected to get richer. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive chairman and CEO’s report 6 Blue Financial Services Limited • Annual Report 2008

Dave van Niekerk Chairman and CEO

Delivering the goods scepticism. Blue in fact recorded a profit of R62 million It’s great when a chairman or CEO can present their for this 2007/08 financial year. results or previous year review with a smile – so it’s with These outstanding performances didn’t just happen – they a great deal of pride in our staff and their achievements are the result of years of preparation by an extremely that I present this chairman’s review, as in this past competent management team and supported by the hard 2007/08 financial year we have met and mostly work and enthusiasm of our workforce. As our employee exceeded our ambitious growth, earnings and numbers show, we are steadily swelling our teams, expansion forecasts. leaders and skills at all levels to ensure Blue’s capacity At the end of the previous financial year (28 February to continue growing into its identified markets across 2007), Blue had operations in five African countries. By Africa. 29 February 2008, we were actively trading in nine, with expansion into Africa – the Good and the Bad two more ready to go. In this period our staff complement The Good grew to 1 500 people from the previous total of about Blue’s expansion into Africa quickened this year, with 600, while the number of Blue branches increased from new country operations being opened in Kenya, Lesotho, 130 to 171. Malawi and Namibia and final preparations being made to Blue’s loan book more than doubled in value, open in Nigeria and Swaziland. from R207 million in the previous financial year to The Bad R482 million. I recall at our pre-listing roadshow in 2006 Unfortunately our Kenyan business got off to a rocky start forecasting that Blue would be generating R50 million profits as no one had foreseen the countrywide violence resulting in 2008, which certain analysts obviously took with some from the disputed general election. The tragic death of WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 7

These outstanding performances didn’t just happen – they are the result of years of preparation put in by an extremely competent management team and supported by the hard work and enthusiasm of our workforce. Blue’s loan book more than doubled in value from R207 million to R482 million… and profit of R62 million was recorded.

one of our branch managers prompted us to temporarily Equity options for Millennium European suspend operations and to meet with Mr Raila Odinga, Holdings the current Prime Minister of Kenya. We were reassured In December 2007, Blue’s shareholders overwhelmingly regarding Blue’s future in Kenya and consequently approved the granting of options to Millennium European reopened our branches there. Holdings (MEH), which forms part of MLP Investments, a top 100 international hedge fund. BRINGING A BLUE REVOLUTION TO NIGERIA We have just opened our Nigerian business in partnership The transaction comprised R15 million in equity options, with Intercontinental Bank (ICB), that country’s largest which followed a R30 million debt facility granted to our bank by assets. The micro-financing operation there is the Botswana operations in July 2007. result of 18 months’ hard work in getting to understand This transaction was particularly interesting in that by the that market, finding the right-fitting opportunity, time the ‘corporate adviser’ had completed the statutory negotiating with authorities and potential partners, raising ‘fair and reasonable statement’ in a “rather unfairly and finance and fulfilling regulatory requirements. unreasonably lengthy timeframe”, Millennium needed to Trading as Blue Intercontinental Micro-Finance Bank convert the options. By this time the share price had risen (BIMFB), this new bank’s shareholders are Blue (55%), to such an extent that many shareholders felt we should ICB (35%) and AIG, already a shareholder in both Blue and vote against the option. After all, we had the funding ICB, taking up the remaining 10%. already and could simply make these funds a repayable loan. In our opinion, however, although perfectly legal BIMFB was initially capitalised by shareholder and within our rights, this action would have been unfair contributions of USD21 million, with a further and unethical. All our shareholders supported our view USD60 million debt facility also made available. and Millennium subsequently made a further funding line With the initial entry phases now worked through and available to us at very competitive rates. bedding down, we regard Nigeria as a potential crown jewel of African markets. Here we have a country with A look at the countries an economy that is booming and a population nearly South Africa four times that of South Africa’s, yet most Nigerians In South Africa, the general economic slowdown remain unbanked and about 84% of its money supply has not yet dampened Blue’s business, probably circulates outside of the banking system. because our clients are less exposed to interest rate fluctuations since they don’t own assets such I am extremely optimistic about this new recipe for as homes or vehicles. The process of assimilating the success, with ingredients like the best possible partners, Future Finance business was satisfactory, with unwanted instant distribution in 280 branches and a very large working practices eliminated and the ITC infrastructure funding line – this operation is geared for action. All significantly improved. South Africa will still hold some I can end this part of the discussion with is – watch room for consolidation in the industry and hopefully we this space… will play a role in this. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive chairman and CEO’s report (continued) 8 Blue Financial Services Limited • Annual Report 2008

Botswana Uganda Our performance there was satisfactory against stiff This is a tough market to operate in and has required competition in a small market. We strengthened the intensive investments in infrastructure and staff and management team in this period and have stepped up I believe we will be able to reap the fruits of this in 2008. our marketing efforts. Zambia Kenya Another star performer this year in terms of profitability Blue entered this market by acquiring an existing and loan turnover, the Zambian business opened three operation and debtors’ book. Initial difficulties with staff new branches to help cope with demand. Zambia is also and branch locations were dramatically compounded by a good case study of how the operations can mature and the outbreak of political violence, leading to the tragic deliver the goods. death of a branch manager and the temporary closing of our branches. Our business there is now back on track in Why Blue attracts shareholders and a market offering enormous untapped potential. investors I have been told by numerous people – look after the Lesotho business and the share will look after itself. That being Lesotho offers a small and highly competitive market, said – the moment the price moves, investors are on the but the local population immediately took to our superior phone saying “what are you guys up to?”. Share prices products and service levels, with this operation becoming most definitely reflect to a number of factors – and profitable within its first financial year. we can only control certain factors such as company Malawi performance and stakeholder confidence and belief in Our entry into Malawi’s relatively unserviced market was management and company strategy. immediately successful, with prospective clients queuing The Blue share was one of the higher priced shares on outside Blue’s branches daily. Our range of products the AltX exchange – barely a year after listing – and and quick approvals have now set the benchmark is regarded in some quarters as expensive, but that here. Malawi is currently Blue’s best performer for new certainly isn’t my view. Our shares are highly valued countries in terms of funds loaned and the total number of and in constant demand because of our exceptional loans granted. prospects, as Blue is breaking into markets untapped Namibia by competing financial institutions. We have worked This year Blue acquired an existing micro-financier in out how to successfully enter these pioneer territories Namibia, then broadened its product range and expanded and are bringing financial services to largely unbanked its branch network – with outstanding results. Namibia populations numbering in the hundreds of millions. has quickly become one of Blue’s top performers in terms It is rather ironic that international rather than African of loan numbers and the amount of funds lent out. and South African investors are quick to grasp the scope Tanzania and breadth of Blue’s business planning. European and Performance was satisfactory in a fiercely competitive American investors are excited by the prospects of this market that has been blighted by unscrupulous lenders. emerging market, whereas many South African fund Blue is presently establishing its reputation as an ethical managers are rather slowly seeing the light in terms of financier with the best products. prospects from their “deep and dark” perception of the continent. As I’ve said many times, doing business in WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 9

Our products are incubated and thoroughly tested in South Africa and Botswana, both among Africa’s most sophisticated and regulated financial markets, before being offered to other African countries.

Africa is challenging but not impossible. Once the initial • Branches strategically distributed throughout nine thorough research, planning and legwork through the African countries, (at the year end date) with more regulatory and other processes are done, the rewards are branches constantly being opened. These are serviced worth the effort and costs. These markets desperately by well-trained professional staff in a corporate need our products and eagerly welcome genuine environment similar to that of a retail bank. financiers. • Access to international backing and funding. • Well positioned and active shareholders. Blue hasn’t gone into Africa expecting to be immediately profitable, but in almost every case, the response has Step-by-step with our shareholders and justified our efforts. Having done the hard yards to break investors into these markets, we are way ahead of potential In this past year Blue established a dedicated investor competitors who will need to work through similar relations unit to interact with current and potential learning and regulatory curves before they can open investors and shareholders. Among its other corporate outlets to conduct business in those countries. communications responsibilities, Blue Investor Relations produces and distributes regular digital, SMS and hard Operating across several countries also lowers copy communiqués to our stakeholders on investment Blue’s overall risk. Our revenues are earned in multiple opportunities, events and trends. As far as we are aware, currencies, some of which outperform the South African this depth and breadth of investor communication is unique rand (ZAR). Our presence in newly developing and in our industry. Investor relations also hosts regular functions emerging economies rather than the more developed in which shareholders and investors are briefed on our South African market also makes Blue more attractive to vision and future planning. We go the “extra mile” to interact international development agencies and funds focused on with our shareholders and investors as we view them as these areas. fellow-travellers on our journey to success and rewards. Blue’s competitive advantages Blue’s products and services In summary, compared to competitors in its target Our products are incubated and thoroughly tested in markets, Blue offers: South Africa and Botswana, both among Africa’s most • A large, competent and driven management team (with sophisticated and regulated financial markets, before skin in the game). being offered to other African countries. Although Blue • Simpler to access, yet more socially responsible products are adapted to suit local requirements, products. which are generally less stringent than South Africa, • Superior customer service backed by high-speed ITC we do not compromise on their intrinsic quality and systems enabling rapid (one hour) decisions to be integrity. made on credit/financing applications. • A broader range of products, with some being the first New products – at Blue we are always asking of their kind in Africa. “what’s next”? We are working toward an “every step with you” philosophy, which we are doing through lifestyle type WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive chairman and CEO’s report (continued) 10 Blue Financial Services Limited • Annual Report 2008

products such as education loans, small business loans, and home improvement loans. Although in Africa Help a displaced starving child in Kenya the bulk of micro-financing is currently offered (By donating R5 or more of your next salary to the Red Cross as individual loans, in other world regions, micro- and Blue will match it) financing is more often referred to as “start-up The new Blue operation in Kenya has found a wonderful way capital” and primarily loaned to small businesses. for Blue people to show their solidarity to the displaced and starving people in various parts of Kenya. We are inviting Building the brand every Blue staff member to donate R5 from their next salary, Our business blueprint for success includes a strong and Blue will match or increase the amount to help those element of brand-building, to be applied consistently suffering. Conrad Nortje of Blue Kenya, says: “We will then through all interfaces with current and potential go and purchase items here in Kenya and deliver them to the Red Cross who will then distribute the items to the displaced clients. In this period Blue expanded its marketing people. I have spoken to the Red Cross and the most urgent department, which it tasked with evolving Blue’s brand items are baby/infant food, staple diet items such as maize and establishing a common Blue corporate identity or meal, beans, cooking fat and sugar to name a few. We have “look and feel” throughout all premises and branches. sourced the items, and the local suppliers have given us We are striving to be the top-of-mind financial brand discounts in respect of the relief effort so we are all set to go, we just need your help with raising enough money to make a in our markets, which we have already achieved in sizable difference.” several countries. In the longer term, Blue aims to grow into a household brand name throughout the African There are an estimated 100 000 displaced people in continent. With Blue marketing and branding initiatives Kenya at present. Kenya Red Cross has 58 branches and being launched throughout the continent, you are sure to 69 000 volunteers countrywide, so any provisions provided encounter the Blue brand in the near future. will be shipped at once to the most needy areas.

The global economic slowdown and the Dave van Niekerk, our CEO, has authorised human resources subprime crisis in the USA to deduct R5 from each volunteer staff member’s next salary payment, which he will ensure Blue matches or improves The current economic slowdown was apparently sparked upon. by the subprime property crisis in the USA, but is now sustained by the chilly winds of food- and oil-price-driven In South Africa in particular, rising inflation has exposed inflation. When I reported back a year ago, the world was a post-1990s generation of borrowers to the reality of awash with liquidity looking to be invested, but at this interest rate increases, which has hit the middle and time investors are considerably more cautious. Although lower classes hard. Older borrowers will painfully recall borrowing has become more difficult, Blue isn’t the high interest and inflation rates of the 1990s, with unduly concerned as the pedigree of our institutional prime peaking at 25% and inflation well over 20%. lenders is such that they understand that boom times A younger generation of South Africans, particularly in are inevitably followed by downturns. As long as Blue lower income groups, is now learning the downside of continues to deliver, they are with us for the long haul. credit. My feeling is that the effects of interest rate hikes and the consequences of the National Credit Act (“NCA”), which came into full effect in June 2007, will impact the South African economy for a while yet. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 11

In the countries where it operates, Blue is already the market leader in terms of products, branding, distribution and geographic footprint. Blue’s own internal ITC structure is probably the most sophisticated of its kind among Africa’s micro- financiers

CommencEMENT of South Africa’s National service that is often offered by operators of dubious Credit Act in June 2007 (NCA) reputation. This perception is now being turned on its This legislation in itself caused a massive withdrawal of head as the institutions are realising that micro-lending new credit as major financial institutions came to terms can bring a large segment of previously unbanked people with the ramifications of this legislation.However, Blue into the banking system. Moreover, this form of financing in itself was scarcely affected, as we had already is allowing lower-level salary earners to improve their factored in the NCA’s potential impacts prior to its lives and build assets by leveraging real but previously implementation. unrecognised creditworthiness.

With South Africa’s credit market suddenly shrinking, As a consequence, the who’s who of global financing smaller micro-financiers have been forced – through are now actively investigating micro-financing as acquisitions and mergers – to consolidate themselves into a viable new business channel. An eye-opener was larger companies. This consolidation was also driven by the recent Morgan Stanley conference in the USA that new and more rigorous requirements which have become gathered together micro-financiers from around the considerably more expensive to administer and require world. It was shown that micro-financers already service economies-of-scale to be cost-effective. In the longer a staggering number of clients that may not necessarily term these new collection methods and responsible have links to other banking institutions. lending practices will be fairer to borrowers and are The realities of doing business in Africa positive for the industry. It is challenging to run a service-orientated first world- A major concern is that the National Credit Register type operation in countries still hampered by third world – a key component of the NCA’s jurisdiction – is not and generally rundown infrastructure. Large sums yet in place. We are, however, informed that the National are being invested in rebuilding or upgrading Africa’s Credit Regulator, who is responsible for administering the infrastructure, but this process has a long way to go, provisions of the NCA, is expected to have this function with little real improvement being seen yet in the regions operating soon. where Blue operates. Note that this comment doesn’t exclude South Africa, supposedly the continent’s most Micro-finance in Africa developed economy. Its road network, electricity supply Although micro-financiers are active in most African debacle and dysfunctional municipal services are issues countries, at present only three or four groups, that must be addressed. including Blue, can be considered to be pan-African financiers that operate across entire regions. In What can’t yet be circumvented, however, is the red the countries where it operates, Blue is already tape and slow decision-making that characterises many the market leader in terms of products, branding, African bureaucracies. From our first serious contact distribution and geographic footprint. with an African country – to actually opening our doors there – can take up to two years of obtaining Until recently, micro-financing was generally dismissed by the necessary licences and permissions. the major financial institutions as a second-class financial WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive chairman and CEO’s report (continued) 12 Blue Financial Services Limited • Annual Report 2008

…we respect the principle of rewarding for performance, therefore offer competitive incentives through share options on other award schemes

communication systems performance, but also identifies and contains steps to Recognising that South Africa is presently the most engage sub-par behaviours. advanced country on the continent in digital infrastructure Not everyone joining us has fitted into the hard- and Information Technology and Communications driving Blue culture, but we have full confidence that (ITC) skills, Blue has centralised the bulk of its those passing the test of Blue standards will keep the administration in South Africa, which connects to group on track to achieving our goals. branch offices throughout Africa via a virtual private network (VPN) based on a VSAT system. Blue’s With people continually joining us from all parts of own internal ITC structure is probably also the most Africa, our workforce is exceptionally diverse. This is sophisticated of its kind among Africa’s micro-financiers, both a challenge and a blessing. We are challenged in but we will retain – even enhance – this competitive edge assimilating all into the Blue way but, at the same time, by allocating a significant budget this year to upgrading we gain tremendously from the varied viewpoints, skills ITC systems and replacing obsolete software. and rich cultures that Africans from across the continent are bringing into the Blue family. Human resources and social citizenship Blue’s executive management team We are particularly excited about the Blue Advanced Blue is led by a large and experienced executive team Training (BAT) programme in which we take people from of 40 people whom I personally hold in high regard all the countries we operate in and assimilate cultural as being among the best in the industry. Beside the and operational differences that exist from country to loyalty and discipline that I prize and certainly receive, my country into an integrated cultural and operational style team is proving to be passionate, driven and well capable that we can introduce into all the countries in the group. of taking Blue to greater heights. At Blue we respect the These BAT contributors will be the core of Blue’s principle of rewarding for performance, therefore offer future management and are tasked with returning to competitive incentives through share option or other their respective countries to align their operations award schemes. with the evolving Blue management style and culture.

A rapidly growing, diverse workforce Corporate Social Responsibility Over the past two years, Blue’s workforce has grown Giving back is good business: The nature of its daily dramatically, from less than 300 people to over 600 at the business, in lending money to people who will otherwise end of the 2007 financial year, before more than doubling struggle to raise funds, places Blue in a unique position again to 1 500 people by 29 February 2008 and 1 790 at the to contribute to developing the communities where it time of writing. operates. As an ethical operator we transact with We quickly realised that – particularly as a service-driven our clients in a manner that advances, rather than company – the logical route to assimilating so many exploits, as so many have experienced before. newcomers quickly is to establish a specific corporate We recently established a CSI division, reporting to Blue’s culture and to thoroughly induct all employees into it. head of corporate communications and investor relations, We put much thought into constantly quantifying to coordinate our efforts in this vital area of corporate the values that make Blue outstanding – passion, citizenship. integrity, customer focus, innovation, performance – and are building these into our training modules. This unit is currently driving our “Blue Roof” campaign, We then set up a performance management system through which Blue builds or upgrades venues across throughout that offers generous incentives for excellent Africa for schools, orphanages, hospitals, police stations WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 13

and other community assets. Another channel which I am – Blue receives excellent publicity, and we also value particularly excited and proud of, is an “African Fund” our strong position in the AltX 15 fund. In this past year being set up to invest in communities where we have Blue also climbed to 156th position from 189th of all operations. Again watch this space – Blue will be making companies listed on the JSE, as measured by market a tangible difference in the countries where we operate. capitalisation. This 33-position jump within a year is a Our growing social responsibility activities tie back to real achievement and shows that Blue is undoubtedly our intention to report against the double bottom line of growing as quickly as we had predicted. economic and social results. In escalating our operations we will continue to expand Shareholder participation through a mix of organic and acquisitional growth. On Whereas many companies have difficulty getting their completing our planning and due diligence exercises shareholders to actively support their decision-making for African countries where we intend commencing and forward planning, fortunately the reverse is true at operations, we will launch “greenfield” operations such as Blue. Our individual and institutional shareholders in Malawi, or acquire businesses with the right “fit”, such actively seek opportunities to support and grow as our purchase of Bonus Finance Namibia (Pty) Limited Blue’s business. I therefore take this opportunity to thank to enter the Namibian market in this period. Another entry our shareholders for their invaluable inputs this past year, mechanism was deployed in Nigeria, where we engaged and trust that we can continue to draw on their expertise that micro-financing market by entering into a joint and support. venture with Nigeria’s largest bank, Intercontinental Bank, and with AIG, a key Blue shareholder. Appointment of new designated adviser In early 2008, Blue appointed PSG Capital (Pty) Limited as designated adviser to the company, with immediate effect. Botswana’s Young Tigers wear Blue This new appointment resulted from the prior designated Blue Botswana’s latest sporting coup is to sponsor the adviser, Ernst & Young Sponsors (Pty) Limited, giving Tshabong Young Tigers soccer team. These keen players notice to Blue that it no longer had the minimum number represent the Kgalagadi District, one of seven districts in of JSE-approved executives required in terms of the JSE Botswana. They approached Blue because we are becoming Listings Requirements, therefore could not continue to very well known for our financial services in the area and offer this service. In the short and limited exposure we have a branch in Tshabong, which is a close-knit community. have had to the PSG team, I am pleased to say that their Blue is proud to have this team wearing its colours. People come from far and wide to watch their soccer matches. input and service has been invaluable.

Delivering on promises made Blue’s dual listing strategy commenced with its listing on the Botswana Stock Exchange in May 2008. A listing in Namibia is planned for the near future, with possibly a Zambian listing to follow.

In last year’s report we indicated that we may seek to migrate from AltX to the JSE’s main board this year, but have decided it would be prudent to delay this step. As the top-ranked company on AltX – within a year of listing WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive chairman and CEO’s report (continued) 14 Blue Financial Services Limited • Annual Report 2008

EXPANSION AND GROWTH I personally want to thank Johan for his hard work and Our stated intent to enter new markets will continue this commitment. Grant Chittenden was promoted to financial year. We have gotten good at identifying risks within new director, having worked very closely with Johan as head markets and in showing prudence when entering some of internal audit. Grant is a chartered accountant who new territories. All divisions, departments and staff will articled at PricewaterhouseCoopers prior to a career at continue to evolve, manage and support this constant several banks before joining Blue. expansion and growth. The other member of the executive director team is SOME THANKS AND SOME NEWS Wessel Smit, who is not only a qualified attorney who In this period Riaan Swart, who was Blue’s chief operating knows the industry better than any other legal guru, he officer, resigned to pursue other business interests, has a fundamental understanding of the industry and certain of which will later complement Blue’s business its evolution – having been deeply involved in much of strategy. As a founding member of Blue and a key the South African credit transformation over the last few member of our executive structure, Riaan’s day-to-day years. presence is missed. Riaan demonstrated the courage and Much of Blue’s outstanding performance of the determination to drive much of Blue’s previous expansion past year is due to the clever and hard work of our into new countries in Africa. He is, in fact, the “Indiana management and employees, who have put their Jones of micro-finance” in Africa. Riaan’s decision to shoulders to the wheel to keep Blue delivering on our leave also proves that Blue’s current management team promises. To all the newcomers – welcome onboard. To can successfully continue his key role. As a substantial those who’ve been with us longer – thank you for coping shareholder he continues to offer advice and input. so magnificently while assimilating our new colleagues. Riaan is a classic example of a dynamic entrepreneur who forges ahead in uncharted territory and we WRAPPING UP wholeheartedly wish him well in his new ventures. As I pause to reflect on the past year, I’m aware of varied emotions. I have a strong sense of achievement Johan Maritz was appointed financial director in and pride in an outstanding year of business. I also September 2007 and replaced Mr Johan Coetzee, who feel satisfaction in that promises made to our retired. Under the directorship of this dynamic, driven stakeholders were promises kept, and vindicated in financial director the Group managed to expand its our business model. internal audit and financial management team and reporting structures significantly. Unfortunately family Despite all that, I still feel a strong sense of urgency circumstances placed Johan in a position where he could as Blue is far from where it can be, and we can’t no longer offer Blue the dedication the Group has grown slacken off now – it is imperative that Blue continues accustomed to and Johan decided to step down. After to develop and grow. weeks of in-depth discussion with Johan Maritz, the But, daring as we are, these are also good times to urge executive team had to regrettably accept his resignation. old fashioned caution too. It is obvious that the booming WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 15

world economy of the past few years has slowed, possibly just for a year or two, but who can say for sure. We are fortunate that the large number of young, emerging markets that we serve, should not be as directly affected as those of the developed countries, but we will show prudence and caution as we grow in the next year or two and it isn’t for show that Blue strengthened its executive and risk management structure throughout the Group this past year.

In closing, our strongly developed culture, structure and systems allow us to embrace our one constant – which is growth and change. What we will do in this next financial year is get even better at serving our clients, entering new markets, and developing new products. We will more than double our loan book while continuing to build what can become Africa’s strongest brand.

Yours sincerely

Dave van Niekerk Executive Chairman and CEO WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Board of directors 16 Blue Financial Services Limited • Annual Report 2008

Executive directors

David van Niekerk (Dave) Riaan Swart Wessel Smit

CEO (34) COO (37) Legal Director (40) Appointed to the board 1 October 2005. Appointed to the board 8 March 2006. BProc Dave cut his teeth in the micro-finance Riaan started his business career Appointed to the board 1 October 2005. industry when he joined Unity Financial in partnership with his father in a Wessel practised as an attorney before Services in 1997. Later he became company called GFS Construction, a civil becoming involved in the micro-lending a shareholder and the operational construction company which eventually industry in 1995. He served on the board manager of Unity Financial Services (Pty) employed 800 people, generated of the MLA (Micro-Lending Association), Limited. The shareholding of Unity was turnover in excess of R80 million per a self regulatory entity established by later sold to Sanlam, Theta and Boland year and operated throughout South the industry, for three years, two of these Bank. Eventually 100% was sold to Africa. When this company closed in as elected vice-chairman. Theta Investments which already owned 1999, due to changes in requirements the controlling share in micro-finance of tender issuing and the formation of He was part of the process through companies: King and Altfin. Later, Unity, new local councils, Riaan went on to which presentations to and negotiations King and Altfin were merged with the establish Direct Warehouse. This was a with the government took place resulting old African Bank under the African Bank white goods company which provided in legislative amendments and the brand and Theta then changed its listed goods on credit to the low to moderate appointment of the MFRC (Micro Finance name to African Bank Investments income group. Direct Warehouse was Regulatory Council) as the South African Limited. Dave held senior management funded to a large extent by the micro- industry regulator. posts in African Bank until he left in financing sector and became one of the Wessel also served as the head of the 2001 to begin Blue. biggest users of micro-finance in the legal department of Unity Financial country. Riaan and Dave merged Direct Services (1997 – 1999) during which Warehouse and Blue at the end of 2001 period he was involved in designing under Blue’s brand. products and product documentation. With the incorporation of Unity into Riaan resigned post balance sheet date the ABIL group, he was appointed as on 1 March 2008. head of the legal department of African Bank (2000 – 2003). Thereafter he practised as an attorney specialising in commercial law during which time he provided legal services to Blue, including advice on the legislative position in the various countries of operation.

In 2005, Wessel joined Blue as a director and its in-house legal representative. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 17

Johan Christof Maritz Antonios Couloubis (Tony) Financial Director (34) Non-executive director (40) CA(SA), BCom (Hons) CA(SA) Appointed to the board 1 September 2007. Appointed to the board on 1 June 2007. Johan Christof Maritz, a CA(SA) with Tony is a vice-president of AIG Global BCom (Hons) in accounting, has over Investment Group (AIGGIG), and is 10 years of assurance, advisory and based in Johannesburg, South Africa commercial experience, including two and was a representative for the AIG years spent in the United Kingdom. He Africa Infrastructure Fund (AAIF), a completed his accounting apprenticeship USD400 million private equity fund at KPMG in 1997. Prior positions held investing across the African continent. include the following: KPMG (Senior In 2005 Tony became an African Manager) Stanlib Multi-Manager (Pty) representative for the AIG Global Ltd (Head – Operations and Finance); Emerging Fund II, investing in Africa and Deloitte (Consultant) and Dynamo Africa most global emerging markets. Prior to Marketing Services (Pty) Ltd (Financial that Tony was involved in private equity Director). in South East Europe and South Africa. Johan resigned post balance sheet date In South Africa he was with Citigroup on 1 July 2008 and was replaced by Private Equity and also headed the Grant Chittenden. analyst division for Citigroup South Africa. Tony started his career in the auditing profession and held managerial positions with Deloitte & Touche. Tony has served on a number of boards and executive committees of companies. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Board of directors (continued) 18 Blue Financial Services Limited • Annual Report 2008

Non-executive directors

Mpumela J Sondiyazi (Thami) Navin Prabhudas Kanabar André Steyn Independent non-executive Independent non-executive Non-executive director (47) director (53) director (60) MEng, BEng (Hons) CA(SA) Tanzanian Appointed to the board 11 October 2006. Appointed to the board on 8 March 2006. Appointed to the board on 13 March 2007. André currently serves as vice-president Thami currently serves as a director at Navin is the chairman of the NAS Group, of the AIG Global Investment Group Desai Jadwat Sondiyazi Inc, a firm of which comprises Yuasa Battery (EA) (AIGGIG), based in Johannesburg, registered accountants and auditors. He Limited, Nas Tyre Services Limited, South Africa and became the Africa also serves on the main board of British Brakes Tanzania Limited, Omega representative for the AIG African American Tobacco and is committed to Logistics Limited, Unique Financial Infrastructure Fund (AAIF), which the main board, audit and corporate social Services and Brands International is a USD400 million private equity responsibility committees as well as the Kenya Limited. Each of the group fund with the objective of investing Intelligence Services Audit Committee. companies is a market leader in its in infrastructure-related companies Thami also chairs the audit committee of respective segment. The operations of in Africa. In 2005 André became the Blue. the group extend from Tanzania and Africa representative for the AIG Global His previous working experience is with Kenya to Uganda. He is also a director Emerging Fund II which is now investing development of financial institutions with of a number of leading companies in Africa and most global emerging his previous position as general manager and organisations and is one of the markets. at the Industrial Development Corporation most successful and well-respected Before joining AIGGIG, André was where he was involved in the establishment businessmen in Tanzania. responsible for project finance of of the BEE finance unit, as well as serving Despite his busy schedule, Navin is infrastructure-related transactions on various boards such as Siemens, Foskor actively involved in various philanthropic, at FBC Fidelity Investment Bank and Khula Enterprise Finance Limited. community development and social in Johannesburg. From 1994 to causes and has held and continues 1998 André was employed by the to hold several key and responsible Development Bank of Southern Africa positions on various institutions and (DBSA), where he acted in several bodies. management positions responsible for the technical advisers and for rural development. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 19

Genevieve Linda Sangudi Reynier van der Westhuizen

Non-executive director (32) Ex officio BA; MIA – International Affairs; MBA Company Secretary (53) Appointed to the board 20 May 2008. BProc, MBA Genevieve Sangudi is a managing Reynier van der Westhuizen obtained director of ECP and is based in Lagos, his legal degree at the end of 1979 and Nigeria. Ms Sangudi is involved in was admitted as an Attorney of the High deal sourcing, structuring, execution Court of South Africa in April 1981. He and monitoring of investments and holds a Masters degree in Business also plays an active role in marketing Administration and is highly skilled and and investor relations. Previously, experienced in Commercial Law, the Law Ms Sangudi worked in business of Contract, Company Law, Civil Litigation development at Procter & Gamble where and the Law on Customs and Excise, she was part of a cross-functional Agency and Negotiable Instruments, team that oversaw several multi- having represented clients in these fields billion dollar brands. Ms Sangudi is a on both a National and International level. director of Continental Reinsurance Reynier was appointed on 13 August plc. She received a BA from Macalester 2007 to replace Retha Stoltz. College and an MBA and a Masters in International Affairs from Columbia University. Ms Sangudi is a citizen of the US and Tanzania. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Executive committee 20 Blue Financial Services Limited • Annual Report 2008

Greg Niemand, breaking new ground in Micro-insurance SMME loans in Africa specialist Kenneth Fisher WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 21

Eune Engelbrecht André de Jager Grant Chittenden, heading up corporate head of collection new financial finance director WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review

22 Blue Financial Services Limited • Annual Report 2008 2008/07/16 Business Day Page 14 2008/07/16 Business Report Page 17

2008/04/04 Business Day Page 12 2008/07/01 Cover Page 79

2008/07/17 Business Day Page 7

Blue Financial Services appreciates the role the media plays as society’s watchdog. For this reason we actively engage with all sectors of the media on a regular basis. This engagement is not limited to the South African press, but extends to African, European and American news agencies as well. In November 2007 Blue Financial Services featured as part of an in-depth article on micro-finance by Business Week, a prominent business weekly in the USA. This article is available on www.businessweek.com. (Enter Blue Financial Services in the search bar. The relevant article is called Can Greed Save Africa.) WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579

Africa awakes But at last all that is now inthepast. isnow lastallthat But at ofconflhistory ict andwars.” ofthesekingdomsandtribalgroupssharedalong many … withinthebordersofbarelyfortycolonies. Meantime, existed that butindependenttribalassociations stateless tenthousandkingdoms,approximately federations, and Europeancolonialists…crammedthe from thefactthat andentangled. isintricate states This stemsdirectly abouttheinternalpoliticsof “…Everything Africa’s oftheSun”.book “TheShadow Polish inhis1998 the late writerRyszardKapuscinski actually existedontheground, perfectlyby ascaptured borders betweenkingdoms, tribesandpeoplesthat arbitrarily betweenEuropeanpowers, regardlessofthe beingdividedup with thevastmajorityofitsterritory Conference of1885obliterated Africa’s independence, with gunsinsteadofspearsendedallthat. The Berlin But climate change andwarslosttoinvadersarmed would onlydiscovercenturieslater. Europe that learnedscienceandmathematics already of Timbuktu inwestern Africa isalonelymemorial, had kingdoms,Stable andsophisticated ofwhichthecity of thepresent-daySaharadesertwasgreenandfertile. worldandmuch Africa wasthebreadbasketofknown inthedaysofCaesarandCleopatra, recordedthat have emergingfromits Africa isslowly “Dark Age”. Historians and sub-SaharanAfricaingeneralisclawing itswaybackfromrockbottom. itappearsthatthehardlessonshavebeenlearned, ofthe21stcentury From thedawning recognise excellenceingovernance. that ofcorruptionbyconferringawards awareness to governancequality. alsoincrease These organisations governance byrankingsub-Saharancountriesaccording as theMoIbrahimFoundation, ofgood raiseawareness degreesofsuccess.varying New organisations, such itwith tocombat across thecontinentattempting Corruption remainsamajorproblem, withcountries ANDCIVILACTIVISM CORRUPTION freedom andcivillibertiesdecreased. Only inEritrea, Malawi, political andZimbabwehave movedfrom countries have “not free” to “partly free”. been re-gradedfrom “partly free” to “free”, andeight past 10yearsthreesub-Saharan African countrieshave maintained bytheUSA-basedFreedom House, overthe system According tothepoliticalfreedomrating from rockbottom. sub-Saharan Africa ingeneralisclawing itswayback beenlearned, thehardlessonshave that appears and it collapse, ofthe21stcentury butfromthedawning disastrous eraofdictators, coupsandeconomic military After independencesub-Saharan Africa wentthrougha electionin1994. democratic long civilwar, andSouth Africa, whichhelditsfi rst fully of Zimbabwe, in1980aftera whichwasdemocratised achieved theirliberation, withthenotableexceptions By theendof1960smost African countrieshad Morgan Stanley Capital Research2006 Morgan StanleyCapital Morgan St anl l ey CCap itita lRl R ese arc h2h 2 00600 06

Blue FinancialLimited• Services Annual Report2008

Developing markets Developing

Emerging markets Emerging Developed markets Developed

South Africa 23 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 24 Blue Financial Services Limited • Annual Report 2008

Transparency International Corruption Perceptions index

Regional Country Country CPI Score Confidence Surveys Rank Rank Country/Territory 2007 intervals used

38 1 Botswana 5,4 4,8 – 6,1 7 43 2 South Africa 5,1 4,9 – 5,5 9 49 3 Cape Verde 4,9 3,4 – 5,5 3 53 4 Mauritius 4,7 4,1 – 5,7 6 57 5 Namibia Expansion target 4,5 3,9 – 5,2 7 57 5 Seychelles 4,5 2,9 – 5,7 4 61 7 Tunisia 4,2 3,4 – 4,8 6 69 8 Ghana 3,7 3,5 – 3,9 7 71 9 Senegal 3,6 3,2 – 4,2 7 72 10 Morocco 3,5 3,0 – 4,2 7 84 11 Gabon 3,3 3,0 – 3,5 5 84 11 Swaziland 3,3 2,6 – 4,2 5 84 11 Lesotho 3,3 3,1 – 3,5 6 94 14 Madagascar 3,2 2,5 – 3,9 7 94 14 Tanzania 3,2 2,9 – 3,4 8 99 16 Algeria 3,0 2,7 – 3,2 6 105 17 Djibouti 2,9 2,2 – 3,4 3 105 17 Burkina Faso 2,9 2,6 – 3,4 7 105 17 Egypt Expansion target 2,9 2,6 – 3,3 7 111 20 Eritrea 2,8 2,1 – 3,5 5 111 20 Rwanda 2,8 2,3 – 3,3 5 111 20 Mozambique 2,8 2,5 – 3,1 8 111 20 Uganda 2,8 2,5 – 3,0 8 118 24 Mali 2,7 2,4 – 3,0 8 118 24 Malawi 2,7 2,4 – 3,0 8 118 24 Sao Tome and Principe 2,7 2,4 – 3,0 3 118 24 Benin 2,7 2,3 – 3,2 7 123 28 Zambia 2,6 2,3 – 2,9 8 123 28 Comoros 2,6 2,2 – 3,0 3 123 28 Mauritania 2,6 2,0 – 3,3 6 123 28 Niger Expansion target 2,6 2,3 – 2,9 7 131 32 Burundi 2,5 2,0 – 3,0 7 138 33 Ethiopia 2,4 2,1 – 2,7 8 138 33 Cameroon Expansion target 2,4 2,1 – 2,7 8 143 35 Gambia 2,3 2,0 – 2,6 6 143 35 Togo 2,3 1,9 – 2,8 5 147 37 Angola 2,2 1,8 – 2,4 7 147 37 Nigeria 2,2 2,0 – 2,4 8 147 37 Guinea-Bissau 2,2 2,0 – 2,3 3 150 40 Sierra Leone 2,1 2,0 – 2,2 5 150 40 Zimbabwe 2,1 1,8 – 2,4 8 150 40 Côte d’Ivoire 2,1 1,7 – 2,6 6 150 40 Congo Republic of 2,1 2,0 – 2,2 6 150 40 Kenya 2,1 1,9 – 2,3 8 150 40 Liberia 2,1 1,8 – 2,4 4 162 46 Central African Republic 2,0 1,8 – 2,3 5 168 47 Equatorial Guinea 1,9 1,7 – 2,0 4 168 47 Guinea 1,9 1,4 – 2,6 6 168 47 Congo Democratic Republic 1,9 1,8 – 2,1 6 172 50 Sudan 1,8 1,6 – 1,9 6 172 50 Chad 1,8 1,7 – 1,9 7 179 52 Somalia 1,4 1,1 – 1,7 4 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 25

These encouraging political and macroeconomic developments have enhanced the climate for doing business in Africa.

Often suppressed in the past, civil society is increasingly Sub-Saharan African countries: outspoken concerning governance issues and corruption. The public media in many sub-Saharan African countries GDP per capita (Average annual growth, percent) are generally independent and critical, with issues linked 12 1983 – 1987 to corruption being heatedly and openly debated. 9 Berlin-based Transparency International, in its 2007 6 Corruption Perceptions Index, ranks 52 African countries. Its 2007 results show that several African countries, including 3 Namibia, Seychelles, South Africa and Swaziland improved 0 their scores, although Mauritius slipped signifi cantly. – 3 Even so, corruption and a lack of transparency still – 6 remain a serious challenge, with 36 of the ranked African countries scoring below three, which indicates that – 9 corruption is perceived as being rampant, with 14 others Mali Togo Chad Niger

Benin recording between three and fi ve, which indicates that Kenya Gabon Ghana Liberia Angola Guinea Nigeria Malawi Zambia Uganda Burundi Lesotho Ethiopia Senegal Rwanda Namibia Comores Mauritius Botswana Swaziland Cameroon Zimbabwe Seychelles Cape Verde South Africa

Madagascar corruption is perceived as a serious challenge. Only Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso Guinea-Bissau Equatorial Guinea

Congo, Republic of Congo, Botswana and South Africa scored above fi ve, at 5,4 and Central African Rep. São Tomé & Principe Tomé São 5,1 respectively. 12 1993 – 1997 9 Indices of war and political confl ict, 6 sub-Saharan Africa, 1994 – 2004 (Percent) 25 3 20 Political instability 0

– 3 15 Wars – 6 10

– 9 5 Mali Togo Chad Niger Benin Kenya Ghana Gabon Eritrea Liberia Angola Guinea Nigeria Malawi Zambia Uganda Burundi Lesotho Ethiopia Senegal Rwanda Namibia Tanzania Comores Mauritius

Botswana 0 Swaziland Cameroon Zimbabwe Seychelles Cape Verde South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso Guinea-Bissau 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Equatorial Guinea Congo, Republic of Congo, Central African Rep. São Tomé & Principe Tomé São 12 1993 – 1997 Source: International Monetary Fund 9

6 QUICKENING ECONOMIC GROWTH

3 As the dictators and military leaders have exited central stage, the subcontinent’s macroeconomic environment has 0 improved signifi cantly. Sub-Saharan Africa has recorded – 3 an average annual GDP growth rate of 5% over the last – 6 seven years, a growth rate that is forecast to lift further over the next few years. At the same time average infl ation has – 9 dropped from 16% to less than 8%, though this is expected Mali Togo Chad Niger Benin Kenya Gabon Ghana Eritrea Liberia Angola Guinea Nigeria Malawi Zambia Uganda Burundi Lesotho Ethiopia Senegal Rwanda Namibia to pick up again in line with the sharply increasing oil and Tanzania Comores Mauritius Botswana Swaziland Cameroon Zimbabwe Seychelles Cape Verde South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso

Guinea-Bassau food costs that are currently bedevilling the global economy. Equatorial Africa Congo, Republic of Congo, Central African Rep. São Tomé & Principe Tomé São The result is, although large percentages of African

Source: World Bank, World Development Indicators populations remain poverty stricken, that number WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 26 Blue Financial Services Limited • Annual Report 2008

Sub-Saharan Africa has recorded an annual average GDP growth rate of 5% over the last seven years… at the same time average infl ation has dropped from 16% to less than 8%.

is shrinking and many ordinary Africans are getting Sub-Saharan Africa: wealthier. Financial Liberalisation Index IMPROVING BUSINESS ENVIRONMENT 100 1987 These encouraging political and macroeconomic 90 developments have enhanced the climate for doing 80 business in Africa. According to the World Bank’s annual 70 “Doing Business” report, in 2007 Africa ranked third in the 60 world (trailing only the Eastern Europe-Central Asia group 50 and the OECD countries) in its pace of economic reform. 40 Most sub-Saharan African countries made at least one 30 major economic reform in 2006, and Tanzania and Ghana 20 10 ranked among the top 10 reformers worldwide. 0 Foreign investors have taken note, with the net infl ow of Mali Togo Niger Benin C.A.R. Kenya Congo Gabon Ghana Eritrea Angola

Guinea foreign investment expanding from USD6 billion in 2000 to Nigeria Malawi Zambia Ethopia Uganda Lesotho Senegal Namibia Tanzania Comores Mautitius Botswana Swaziland Cameroon Zimbabwe Cape Verde Congo, D.R. Congo, South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire Mozambique Burkina Faso USD18 billion in 2005, which represents an increase from Guinea-Bissau Equatoria Guinea

São Tomé & Principe Tomé São less than 0,5% to about 2% of global foreign investment. 100 1997 Major investment groups such as JP Morgan, Citibank and 90 80 AIG have opened specialised Africa funds, while leading 70 investment fi nanciers are committing up to 20% of their 60 portfolios to the subcontinent. Private equity fl ows to sub- 50 Saharan Africa have increased from a little under USD100 40 million in 2001 to over USD2,3 billion in 2006. 30 20 POVERTY AND DEMOCRACY 10 Empirical political science shows that the odds of 0 sustaining democratic government in a poor society Mali

Togo are much lower than in a relatively wealthy one (Lipset, Niger Benin C.A.R. Kanya Congo Ghana Gabon Eritrea Angola Guinea Nigeria Malawi Zambia Uganda Lesotho Ethiopia Senegal Namibia Tanzania Comores Mauritius Botswana Swaziland Cameroon Zimbabwe Cape Verde Congo, D.R. Congo,

South Africa 1959; Bollen and Jackman, 1989; Przeworski et al, Madagascar Gambia, The Gambia, Côte d’Ivoire Mozambique Burkina Faso Guinea-Bissau

Equatoria Guinea 2000). Poverty is strongly related to the political freedom São Tomé & Principe Tomé São of a country, and changes in poverty levels link directly 100 2004 90 to changes in those freedoms. This fi nding supports 80 Sen’s (1999) arguments about the crucial importance of 70 freedom for development, while Halperin (2005) found a 60 “democracy advantage” for well-being and prosperity. 50 40 Beck, Demirguc-Kunt, and Levine (2004) found that 30 providing fi nance has a substantial and positive impact 20 on the poor, with a signifi cant reduction of income 10 inequalities (Gini coeffi cients) between the poorer and 0 richer levels in a society. Even when controlling for the Mali Togo growth rate of real per capita GDP, as poorer people Benin C.A.R. Kenya Gabon Ghana Eritrea Angola Guinea Nigeria Malawi Zambia Uganda Lesotho Ethiopia Senegal Namibia Tanzania Mauritius Botswana Swaziland Cameroon Zimbabwe Cape Verde South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire

Mozambique access fi nance, Gini coeffi cients fall more rapidly, wealth Burkina Faso Congo, Rep. of Rep. Congo,

Equatorial Guinea creation among the poor grows faster than the national São Tomé & Principe Tomé São average and the percentage of the population living on Source: Gelbard and Leite (1999) and this paper’s authors less than one or two dollars a day falls faster. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 27

Although climbing up off a low base (with the noteworthy exception of Botswana), most are growing at a healthy 5% or more per annum and are liberalising their fi nancial sectors to attract further inward investment.

The implications for Africa are obvious. For these fragile CONCLUSION democracies to survive and fl ower, the right forms of SUB-SAHARAN AFRICA investments need to be made to uplift the poorest of these Most countries in sub-Saharan Africa are on the societies. With increasing prosperity comes deepening rebound after a disastrous 30 to 50 years since their democracy, as governments will be infl uenced to further independence from colonial powers, during which their liberalise their laws and fi nancial systems to retain and economies effectively contracted, infrastructure crumbled attract inward investment, thus creating a virtuous cycle away, and many were ruled by military dictators and of prosperity resulting from democracy and vice versa. autocrats.

Investment landscape in sub-Saharan Africa

The development of capital markets … … has attracted additional foreign capital …

Market capitalisation of top fi ve (of 19) stock Foreign direct investment, exchange markets in sub-Saharan Africa sub-Saharan Africa (USD billion) (USD billion) +17% 18 Namibia 189 14 13 Botswana 98 11 9 Nigeria 58 6 Nine stock exchanges Malawi 12 have opened in sub-Saharan Africa since 1993 Kenya 12 2000 2001 2002 2003 2004 2005

South Africa 800 …even leading to many new equity funds …

Top fi ve private equity funds, … and an increase in fund fl ows … sub-Saharan Africa (USD million) Private equity fundraising, sub-Saharan Africa Brait (2007) 880 (USD million) 2 500 2 353 Ethos (2007) 750 Now called 1 380 EMP (2005) 400 ECP, already an 905 741 investor in Blue Helios (2006) 300 92 151 Citigroup/CDC (2007) 200 2001 2002 2003 2004 2005 2006 2007 (F)

Source: Stock exchange websites; Freedomhouse; Economist Intelligence Unit; Web research; Emerging Markets Private Equity Association; McKinsey analysis. Taken from Section 3, The Business of Health in Africa by the International Finance Corporation, 2007. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 28 Blue Financial Services Limited • Annual Report 2008

Although climbing up off a low base (with the noteworthy exception of Botswana), most are growing at a healthy Sub-Saharan African countries: 5% or more per annum and are liberalising their fi nancial Credit to the private sector-to-GDP ratios (Percent) sectors to attract further inward investment. From being economic basket cases not many years ago, numerous 1983 – 1987 African countries now represent attractive investment 80 opportunities. 70 SOUTH AFRICA 60 South Africa is a fascinating case apart. In a sense, South 50 Africa only entered its “liberation” phase in 1994, with the 40 ending of apartheid and the election of Nelson Mandela’s 30 government. Although by far the dominant economy in 20 Africa, with fi rst world infrastructure and a sophisticated 10 fi nancial sector, the jury is still out on whether South 0

Africa must fi rst sink before it learns to swim, as was the Mali Togo Chad Niger Benin C.A.R. Kenya Congo Ghana Gabon Liberia Nigeria Malawi Ethopia Zambia Uganda Burundi Lesotho Senegal Rwanda Tanzania Comores Mauritius Botswana Swaziland Cameroon Zimbabwe Seychelles experience with African countries further north. Congo D.R. South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso Although relatively developed and macroeconomically Equatorial Guinea 1993 – 1997 stable, the South African economy appears structurally 80 unable to grow faster than 5% per annum, which is 70 less than the minimum of 6% it requires to alleviate the 60 poverty of a large sector of its population. 50 At this time South Africa does show worrying signs 40 of moving towards a “sink” phase, with high profi le 30 corruption and severe failures in government delivery 20 being compounded by foreign policy disasters that 10 have stripped away much of the nation’s credibility as a 0 Mali

regional leader and moral champion. Its society remains Togo Ghad Niger Benin C.A.R. Kenya Congo Ghana Gabon Angola Guinea Nigeria Malawi Zambia Ethopia Uganda Burundi Lesotho Senegal Rwanda Namibia Tanzania Comores Mautitius Botswana Equatorial Swaziland Cameroon Zimbabwe Seychelles Cape Verde South Africa

sharply divided between the “haves” and “have nots”, Madagascar Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso which is evidenced by world-leading levels of violent Guinea-Bissau 2000 – 2004 crime that is driving away skilled people in droves. 80 Although governed within the parameters of one of the 70 world’s most progressive and democratic constitutions, 60 the probable “sink”or “swim” of South Africa in these 50 perilous fi rst decades of its new democracy remains a 40 question yet to be answered. 30 20 PRODUCTS AND SERVICES 10 SALARY ADVANCES 0 Mali Togo Chad Niger Benin C.A.R. Kenya Congo

Salary advances are provided to employees, in Gabon Ghana Angola Guinea Nigeria Malawi Ethopia Zambia Uganda Burundi Lesotho Senegal Rwanda Namibia Tanzania Comores Mauritius São Tomé Botswana Swaziland Cameroon Zimbabwe Seychelles Cape Verde Congo, D.R. Congo, South Africa Madagascar Gambia, The Gambia, Côte d’Ivoire Sierra Leone Mozambique Burkina Faso

partnership with employers. This allows the employer to Guinea-Bissau Equatorial Guinea retain control of salary advances, without placing strain on its own cash fl ow and by avoiding negative issues Source: IMF, International Financial Statistics WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 29

Blue’s diverse product range addresses client needs throughout their evolution to fi nancial security.

that could impact on the employee/employer relationship. instances where banks decline applications due to area or These loans are typically for small amounts in the vicinity credit history. of R1 500 (USD200) (GBP100) (€125). PENSION AND PROVIDENT FUND-BACKED HOME LOANS PERSONAL LOANS Pension fund-backed lending is one of Blue’s most recent These loans are regarded as general-purpose loans. housing products that allow an individual to access the Personal loans are better priced than salary advances, home loan market using their pension or provident fund as the screening and credit approval process is slightly as security. This enables individuals with no security to more rigid and intense. These loans are also dependent fi nance their own property. on Blue’s ability to ensure successful collections based INSURANCE PRODUCTS on employer deduction agreements and/or the ability Blue, through agreements with various insurance to collect from bank accounts through deduction companies, currently makes available the following mechanisms such as debit orders. products in all our companies of operation: INCREMENTAL HOUSING FINANCE (HOME • Credit life insurance: This product mitigates the client’s IMPROVEMENT LOANS) liability in respect of the loan in full in the event of death These loans have specifi cally been developed to fi nance and disability. In South Africa, as opposed to the other the purchase of building material or the payment of countries, instalments are also covered for a period construction-related costs. In order to ensure that the of six months in the event of temporary disability and loans are exclusively applied for these purposes, loan retrenchment. amounts are paid directly to retailers. Funding for this • Funeral cover: This covers the individual and his product has partially been provided by the National immediate family in respect of funeral costs. Additional Housing Finance Corporation (NHFC) in South Africa. cover can also be subscribed to for other family members, the choice of the individuals to be covered Blue recently concluded an agreement with the Cashbuild and the amount of cover is selected by the client. group where the loan is loaded onto a closed system • Life Cover: Insures the life of the client and pays out a lump loyalty card that can only be used by clients in Cashbuild sum in the event of death. It protects the surviving family outlets to purchase building material. This product is against the fi nancial consequences of the loss of income. currently available in Botswana and South Africa, but • Disability: Insures the loss of income incurred by the will soon be available throughout the southern African client upon becoming disabled. The cover could be paid Cashbuild network. as a lump sum or as an annuity with annual escalations. BONDED HOUSING FINANCE Temporary as well as Permanent Disability can be covered. In South Africa, Blue offers bonded home loans through • Dread Disease: Cover is provided in the event of Greenstart, a division of Blue Financial Services (South contracting a life threatening illness. Finances are Africa) (Pty) Limited. provided for the cost of treatment, recuperating and the Greenstart has access to a substantial government funding consequential loss of income. line through the NHFC, enabling it to offer fi nance in WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 30 Blue Financial Services Limited • Annual Report 2008

• Income replacement: Provides cover against the loss of EDUCATION LOAN income incurred due to an accident related incident. The Pay for school fees and uniforms up to tertiary level. benefi t is selected as a weekly or monthly amount and Money is paid directly to the supplier and is at a lower cannot exceed the current income of the client. interest charge than a consumer loan. • Retirement Annuities: This investment vehicle is designed to CONSOLIDATION LOAN ensure that the client has suffi cient savings upon retiring, in Loans can be paid through one easy payment at lower order to provide a fi nancially independent retirement. There instalment rates. are certain tax benefi ts attached to this product. • Education Provider: Provides for suffi cient fi nances in PRODUCTS LAUNCHED (POST BALANCE SHEET DATE) order to educate the child/ren of the client. Essentially it is SMME fi nance – this product was successfully launched an investment vehicle, however, ancillary benefi ts can be post balance sheet date with more than R5 million in selected to provide for ongoing premiums in the event of loans disbursed at time of writing. the death or disability of the client. Loan amounts range from R15 000 to R3 million, with larger • Provident Fund: This group scheme product provides for amounts considered in exceptional cases. All small business the fi nancial retirement needs of staff. loan applications must be accompanied by a business plan • Group Risk: Various options are available, including Group and are assessed in respect of the following criteria: Life, Disability and Dread Disease cover. In addition, Group • Viability of proposed venture Funeral cover could be selected. • Entrepreneurial competence of owners of the small • Buy and Sell agreements: ensures the necessary fi nancial business resources required to buy the partners share of the • A reasonable own contribution by the owner in cash business in the event of their death or disability. or in kind, usually up to a minimum of 5% of the loan • Key Person Assurance: provides for the fi nancial risk to the amount requested. business of losing a key person due to death or disability. • A reasonable amount of tangible collateral or security • Loss of Income: This product is available to self usually between 10% – 50% of the loan value. employed individuals and caters for their personal Loans are structured as follows: loss of income as well as providing fi nances to pay for • Working capital up to three years business overhead costs. • Machinery, plant and equipment, furniture and fi ttings • Commercial Lines: Cover is designed to insure business – 5 to 7 years properties and assets, including furniture, fi ttings, • Land and building – 10 to 20 years. electronic equipment, vehicles and stock. Public Liability, Fidelity Guarantee, Professional Indemnity, Directors’ and The following aftercare service is offered to Blue’s SMME Offi cers’ cover is available. clients, either at a nominal fee or free of charge: • Personal Lines: Cover is designed to ensure individuals • Aftercare assistance from Blue’s loan offi cers and mentors against loss of property and assets, including furniture, • Specifi c mentorship interventions to help solve personal items and vehicles. complicated business situations • Small business training programmes on selected topics. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 31

Product structure TERM SMME LOANS LOANS SALARY SALARY BONDED FINANCE CELLULAR ADVANCES PRODUCTS PRODUCTS INSURANCE HOME LOANS EDUCATIONAL EDUCATIONAL INCREMENTAL INCREMENTAL PENSION BACKED HOUSING FINANCE HOUSING FINANCE

1, 3, 6, 9, 12 15 – 20 5 3 A full range 12 – 24 Finance on Range from Matched to months year term year term year term of insurance months cellphone R15 000 to duration of products handsets R3 million, course, i.e. is offered, business plan, 6 months Various NHFC including: viability and or 1 year. collection Mortgage Pension and funded in R3 000 – owner Carries a lower mechanisms bond provident South Africa Credit Life R15 000 contribution/ interest rate. in SA registered backed loans. Life Insurance collateral Funds paid over property Business dependent directly to Payroll Assurance General institution deductions Personal Lines purpose loan In Africa Payroll and retail Commercial deductions Greenstart collections Lines only home loans Higher cost Home than housing improvement or home Payroll loans improvement deductions loans only WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 32 Blue Financial Services Limited • Annual Report 2008

Lending statistics

Average nett income (ZAR) 6 000

5 000

4 000

3 000

2 000

1 000

0 Uganda Namibia Malawi Kenya Botswana Zambia Lesotho Tanzania South Africa

Average nett income (GBP) 90 000

80 000

70 000

60 000

50 000

40 000

30 000

20 000

10 000

0 Uganda Namibia Malawi Kenya Botswana Zambia Lesotho Tanzania South Africa

Average nett income (USD) 45 000

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0 Uganda Namibia Malawi Kenya Botswana Zambia Lesotho Tanzania South Africa WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 33

Gender split (%) 100 90 80 70 60 50 40 30 20 10 0 Botswana Kenya Lesotho Malawi Namibia South Africa Tanzania Uganda Zambia Blue

■ Female ■ Male

Average age 43 42 41 40 39 38 37 36 35 34 33 32 Uganda Namibia Malawi Kenya Botswana Zambia Lesotho Tanzania South Africa

Client split Uganda 2% Namibia 2% Malawi 5%

Botswana 13%

South Africa 57% Zambia 13%

Lesotho 3% Tanzania 4% WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 34 Blue Financial Services Limited • Annual Report 2008

Country synopsis, prospects

By UN classifi cation South Africa is a middle-income BLUE EMPLOYEE BENEFITS (PTY) LIMITED – country with an abundant supply of resources, well- SOUTH AFRICA developed fi nancial, legal, communications, energy, and Number of branches as at 29 February 2008 transport sectors, a stock exchange (the JSE Limited) that 80 ranks among the top twenty in the world, and a modern New branches established infrastructure supporting an effi cient distribution of goods Four new branches to major urban centres throughout the entire region. South Products as at 29 February 2008 Africa is ranked twentieth in the world in terms of GDP Salary advances, personal loans, home improvement (PPP) as of 2007. loans, home loans, education loans, cellular products, debt consolidation loans and insurance products Advanced development is signifi cantly localised around New products introduced four areas: Cape Town, Port Elizabeth, Durban and Education loans, debt consolidation loans Pretoria/Johannesburg. Beyond these four economic Competitors centres, development is marginal and poverty is still African Bank, Capitec Bank, Real People, Credit-U prevalent despite government efforts. Consequently the Prospects for growth vast majority of South Africans are poor. However, key Expansion in distribution is still aggressive during the next marginal areas have experienced rapid growth recently. 24 months, and will include organic growth and possible acquisitions where it fi ts into the growth strategy. New Such areas include: Mossel Bay to Plettenberg Bay; products are continually researched in order to deliver on Rustenburg area; Nelspruit area; Bloemfontein; Cape West clients’ expectations. The focus will remain on our target Coast; and KwaZulu-Natal’s North Coast amongst others. market and will not have substantial changes in the near future. Even though South Africa has one of the highest per Number of employees capita income in Africa, it suffers from large income gaps SA total staff complement is 289 and a dual economy marking it as a developing country. South Africa has one of the highest rates of income inequality in the world. A decade of continual economic growth has helped to lower unemployment, but daunting economic and social problems remain. The average 4 South African household income decreased considerably between 1995 and 2000. As for racial inequality, Statistics South Africa reported that in 1995 the average white 1 2 3 household earned four times as much as the average black household. In 2000 the average white household 5 6 7 earned six times the average black household. The implementation of affi rmative action policies has seen a rise in black economic wealth and an emerging black 9 middle class. Other problems are crime, corruption, and

8 HIV/Aids. The South African rand (ZAR), the world’s most actively- 1. Gauteng: 13 traded emerging market currency, has joined an elite club 2. Mpumulanga: 10 of fi fteen currencies, the continuous linked settlement 3. North West: 5 (CLS), where forex transactions are settled immediately, 4. Limpopo: 8 lowering the risks of transacting across time zones. The 5. Free State: 6 6. KwaZulu-Natal: 18 rand was the best-performing currency against the United 7. Northern Cape: 4 States dollar (USD) between 2002 and 2005, according to 8. Western Cape: 12 the Bloomberg Currency Scorecard. 9. Eastern Cape: 4 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 35

The volatility of the rand has affected economic activity, although ultimately the government has admitted that it’s falling sharply during 2001 and hitting an historic low at fault for refusing to approve funding for investment in of 13,85 ZAR to the USD, raising fears of infl ation, and infrastructure. (Source: www.wikipedia.org and CIA World Factbook) causing the Reserve Bank to increase interest rates. The REGULATORY IMPACTS rand has since recovered, trading at ZAR 7,13 to the dollar After implementation of the NCA in 2007, the market as of January 2008. However, as exporters are put under has settled down with regards to the Act, the Act had a considerable pressure from a stronger domestic currency, positive effect on regulation in the industry, and further many call for government intervention to help soften education to consumers on the Act is ongoing. the rand. The Act is still playing a important role in stabilising Refugees from poorer neighbouring countries include the industry, with a number of smaller operations forced many immigrants from the DRC, Mozambique, Zimbabwe, out of the market due to lack of economies of scale. Malawi and others, representing a large portion of the informal sector. With high unemployment levels amongst poorer South Africans, xenophobia is prevalent and many people born in South Africa feel resentful of immigrants who are seen to be depriving the native population of jobs, a feeling which has been given credibility by the fact that many South African employers have employed migrants from other countries for lower pay than South African citizens, especially in the construction, tourism, agriculture and domestic service industries. Illegal immigrants are also heavily involved in informal trading. However, many immigrants to South Africa continue to live in poor conditions, and the South African immigration policy has become increasingly restrictive since 1994. South Africa’s principal international trading partners – besides other African countries – include Germany, Japan, Switzerland, the United Kingdom, and the United States. Chief exports include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Machinery and transportation equipment make up more than one-third of the value of the country’s imports. Other imports include chemicals, manufactured goods, and petroleum. After unsuccessful attempts by the government to encourage private construction of electricity generation capacity, in 2007 the state-owned electricity supplier (Eskom) started experiencing a lack of capacity in the electrical generating and reticulation infrastructure. This led to an inability to meet the routine demands of industry and consumers, resulting in countrywide rolling blackouts. Initially the lack of capacity was triggered by a failure at Koeberg nuclear power station, but since then a general lack of capacity became evident. The supplier has been widely criticised for failing to adequately plan for and construct suffi cient electrical generating capacity, WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 36 Blue Financial Services Limited • Annual Report 2008

GDP of USD16,450 in 2007. Economic growth averaged BLUE EMPLOYEE BENEFITS (PTY) LIMITED – over 9% per year from 1966 to 1999. The government has maintained a sound fi scal policy, despite consecutive BOTSWANA budget defi cits in 2002 and 2003, and a negligible level of Number of branches as at 29 February 2008 foreign debt. It earned the highest sovereign credit rating in 12 Africa and has stockpiled foreign exchange reserves (over New branches established during year 1 USD7 billion in 2005/2006) amounting to almost 2 /2 years An additional branch was established in Jwaneng of current imports. Botswana’s impressive economic Products as at 29 February 2008 record has been built on the foundation of wisely using Salary advances, term loans, home improvement loans, educational loans revenue generated from diamond mining to fuel economic development through prudent fi scal policies and a cautious New products introduced during year Home improvement loans foreign policy. Debswana, the largest diamond mining Competitors company operating in Botswana, is 50% owned by the Letshego, Pendrich, First Fund government and generates about half of all government Prospects (in terms of products, branches, etc) revenues. In 2007, signifi cant quantities of Uranium were Additional three branches, insurance portfolio expansion discovered, and mining is projected to begin by 2010. and bonded housing fi nance is envisaged for the year Several international mining corporations have prospected ending 28 February 2008 in Botswana for diamonds, gold, uranium, copper, and even Number of employees oil, many coming back with positive results. 146 However, economic development spending was cut by 10% in 2002/03 as a result of recurring budget defi cits and rising expenditure on healthcare services. Botswana 11 • has been hit very hard by the Aids epidemic; the average life expectancy in Botswana at birth, 1990: 64 years, 9 • 2005: 34 years. This is barely half the 59-year average for

4 • low-income countries, and Botswana residents, along with 7 • 5 • those of Swaziland, have the shortest average lifespan 8 • 12 • in the world. Approximately one in six Batswana has HIV, 2 • giving Botswana the second highest HIV infection rate in 10 • 1 • the world after Swaziland. The government recognises 6 • that HIV/Aids will affect the economy and is trying to 3 • combat the epidemic, including free antiretroviral drug treatment and a nation-wide prevention of mother-to- child transmission programme. Some of Botswana’s budget defi cits can be traced to relatively high military expenditures (about 4% of GDP in 1. Gabarone 7. Ghanzi 2004, according to the CIA World Factbook), which some 2. Mahalapye 8. Serowe critics contend is unnecessary given the low likelihood of 3. Tshabong 9. Maun 4. Francistown 10. Molepolole international confl ict (though the Botswana government 5. Selebi-Phikwe 11. Shakawe also makes use of these troops for multilateral operations 6. Lobatse 12. Kang and assistance efforts). (Source: www.wikipedia.org and CIA World Factbook) REGULATORY IMPACT MACROECONOMIC OUTLOOK FOR COUNTRY The non-banking Act was tabled and approved but has not Since independence, Botswana has had one of the fastest yet been implemented. Blue Employee Benefi ts Botswana growth rates in per capita income in the world. Botswana is already compliant with provisions of the Act. The main has transformed itself from one of the poorest countries thrust of the Act is to protect consumers. in the world to a middle-income country with a per capita WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 37

MACROECONOMIC OUTLOOK FOR COUNTRY Zambia is one of Sub-Saharan Africa’s most highly BLUE FINANCIAL SERVICES ZAMBIA LIMITED – urbanised countries. About one-half of the country’s ZAMBIA 11,5 million people are concentrated in a few urban zones Number of branches as at 29 February 2008 strung along the major transportation corridors, while 12 rural areas are under-populated. Unemployment and New branches established during year Three (Choma, Ndola, Mpika) underemployment are serious problems. Per capita annual incomes are currently at about two-thirds of their levels at Products as at 29 February 08 Salary advances, term loans, funeral products independence, and at USD1400, place the country among the world’s poorest nations. Social indicators continue to New products introduced during year Consolidation loans and educational loans decline, particularly in measurements of life expectancy at birth (about 50 years) and maternal and infant mortality Competitors Bayport, Microfi n, Capital Solutions (Madison Insurance), (85 per 1,000 live births). The high population growth Letshego rate of 2,3% per annum makes it diffi cult for per capita Prospects (in terms of products, branches, etc) income to increase. The country’s rate of economic Consolidation loans, educational loans, bonded housing growth cannot support rapid population growth or the fi nance and insurance products strain which HIV/Aids-related issues (i.e., rising medical Number of employees costs, street children, and decline in worker productivity) 220 places on government resources. For the fi rst time since 1989 Zambia’s economic growth reached the 6% – 7% mark (in 2007) needed to reduce poverty signifi cantly. Privatisation of government-owned copper mines relieved the government from covering 7 • mammoth losses generated by the industry and greatly 8 • improved the chances for copper mining to return to 10 • 5 • profi tability and spur economic growth. Copper output has 4 • increased steadily since 2004, due to higher copper prices 11 • 6 • and the opening of new mines. The maize harvest was 12 • again good in 2005, helping boost GDP and agricultural 3 • 1 • exports. Cooperation continues with international bodies 9 • on programmes to reduce poverty, including a new lending arrangement with the IMF in the second quarter of 2 • 2004. A tighter monetary policy will help cut infl ation, but Zambia still has a serious problem with high public debt. Lack of balance-of-payment support meant the Zambian government did not have resources for capital investment 1. Lusaka 7. Kasama and periodically had to issue bonds or otherwise expand the 2. Livingstone 8. Mansa money supply to try to meet its spending and debt obligations. 3. Mongu 9. Choma 4. Kitwe 10. Mpika The government continued these activities even after balance- 5. Solwezi 11. Ndola of-payment support resumed. This has kept interest rates at 6. Chipata 12. Kabwe levels that are too high for local business, fuelled infl ation, burdened the budget with domestic debt payments, while still falling short of meeting the public payroll and other needs, such as infrastructure rehabilitation. The government was forced to draw down foreign exchange reserves sharply in 1998 to meet foreign debt obligations, putting further pressure on the kwacha and infl ation. Infl ation held at 32% in 2000; WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 38 Blue Financial Services Limited • Annual Report 2008

consequently, the kwacha lost the same value against the dollar over the same period. In mid- to late 2001, Zambia’s BLUE FINANCIAL SERVICES LIMITED – TANZANIA fi scal management became more conservative. As a result, Number of branches as at 29 February 2008 2001 year end infl ation was below 20%, its best result in 11 decades. In 2002 infl ation rose to 26,7%. However in 2007 New branches established during year infl ation hit 8%, the fi rst time in 30 years that Zambia had 11 seen single digit infl ation. Products as at 29 February 2008 There are, however, positive macroeconomic signs, rooted Term loans and educational loans in reforms implemented in the early and mid-1990s. Competitors Zambia’s fl oating exchange rate and open capital markets Instant Credit, Faidika, Tunakopesha, Bayport, Easy Finance, Platinum Credit, Barclays Bank, National Bank have provided useful discipline on the government, while of Commerce, National Microfi nance Bank at the same time allowing continued diversifi cation of Prospects (in terms of products, branches, etc) Zambia’s export sector, growth in the tourist industry, Various products addressing market needs are being and procurement of inputs for growing businesses. Some developed. This include cellular solutions and insurance parts of the Copper Belt have experienced a signifi cant products and home improvement loans revival as spin-off effects from the massive capital Number of employees reinvestment are experienced 194 REGULATORY IMPACT The Citizen Economic Empowerment Act is under review by the Bank of Zambia. The objectives of the Act are to

enable greater business participation and ownership by 2 • Zambian citizens. The Bank of Zambia is further regulating 5 • the micro fi nance industry, weeding out lenders who failed to register by the 1 February deadline. • 10 9 • 8 • 6 • 1 •

3 •

7 • 4 •

1. Dar es Salaam (2) 6. Morogoro 2. Mwanza 7. Songea 3. Mbeya 8. Dodoma 4. Mtwara 9. Tanga 5. Arusha 10. Kigoma

MACROECONOMIC OUTLOOK FOR COUNTRY The economy is mostly based on agriculture, which accounts for more than half of GDP, provides 85% (approximately) of exports, and employs 80% (approximately) of the workforce. Topography and climatic conditions, however, limit cultivated crops to only 4% of WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 39

the land area. Industry is mainly limited to processing agricultural products and light consumer goods. Tanzania BLUE EMPLOYEE BENEFITS LIMITED – UGANDA has vast amounts of natural resources including gold Number of branches as at 29 February 2008 deposits and diamonds and is also known for the 7 branches and 9 satellite branches Tanzanite gemstones. Tanzania has dozens of beautiful New branches established during year national parks like the world famous Serengeti and the Some satellite branches were developed into fully Ngorongoro Conservation Area, that generate income fl edged branches with online connectivity with a large tourism sector that plays a vital part in the Products as at 29 February 2008 economy. Growth from 1991 to 1999 featured a pickup Consolidation loans, salary advances, term loans in industrial production and a substantial increase in New products introduced during year output of minerals, led by gold. Commercial production Educational loans, home improvement and home loans of natural gas from the Songo Songo island in the Indian Competitors Ocean off the Rufi ji Delta commenced in 2004, with Bayport, Trust Uganda, Pride Micro Finance Uganda natural gas being pumped in a pipeline to the commercial Micro Finance (recently acquired by Equity Bank) capital Dar es Salaam, with the bulk of it being converted Prospects (in terms of products, branches, etc) to electricity by the public utility and private operators. A New branches have been established in the towns of Mbarara, Fort Portal and Ginja new gas fi eld is being brought on stream in Mnazi Bay. Number of employees Recent public sector and banking reforms, and revamped 90 and new legislative frameworks have all helped increase private sector growth and investment. Short-term economic progress also depends on curbing corruption and cutting back on unnecessary public spending. Prolonged drought during the early years of the • 12 21st century has severely reduced electricity generation • 6 capacity (some 60% of Tanzania’s electricity supplies • 13 are generated by hydro-electric schemes). During 2006 1 • Tanzania suffered a crippling series of “load-shedding” 5 • 7 • • 14 or power rationing because of the shortfall of generated 9 • 10 • power, largely because of insuffi cient hydro-electric • 15 3 • generation. Plans to increase gas and coal fuelled 4 • • 16 8 • generation capacity are likely to take some years to 11• 2 implement, and growth is forecast to be increased to • seven per cent per year, and perhaps eight or more. (Source: www.wikipedia.org and CIA World Factbook) REGULATORY IMPACT Currently the micro-lending industry are not formally 1. Masindi 9. Fort Portal regulated in Tanzania and the Bank of Tanzania is in the 2. Kabale 10. Jinja 3. Kampala 11. Kisoro process of formulating legislation. There is no timeframe 4. Masaka 12. Moyo attached to fi nalisation and acceptance of legislation. 5. Hoima 13. Nebbi 6. Arua 14. Kiboga 7. Soroti 15. Kasese 8. Mbarara 16. Rukunjiri

MACROECONOMIC OUTLOOK FOR COUNTRY Uganda has substantial natural resources, including fertile soils, regular rainfall, and sizable mineral deposits of copper and cobalt. The country has largely untapped reserves of both crude oil and natural gas. Agriculture is the most important sector of the economy, employing over WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 40 Blue Financial Services Limited • Annual Report 2008

80% of the work force, with coffee accounting for the bulk according to the 1985 NSSF Act. As a result members of export revenues. Since 1986, the government (with the currently get 7% on their savings yet 364 day Treasury support of foreign countries and international agencies) Bill rates yield 12% to 14% and equity returns range from has acted to rehabilitate an economy decimated during 30% to 100% with about 40% in a moderate year. Only the regime of Idi Amin and subsequent civil war. about 300 000 workers out of an estimated labour force of 12 million contribute to any regular formal savings, the During 1990 – 2001, the economy grew because bulk of this is forced savings under the NSSF Act. Long- of continued investment in the rehabilitation of term infrastructure projects seek fi nancing from external infrastructure, improved incentives for production and sources. Uganda is facing crippling energy shortages exports, reduced infl ation, gradually improved domestic estimated at 400MW (about 50% of potential demand). security, and the return of exiled Indian-Ugandan The Bujagali Hydro electric project under construction entrepreneurs between 1990 and 2001. Ongoing Ugandan in Jinja had to seek fi nancing from World Bank, yet the involvement in the war in the Democratic Republic of the USD650 million in pension money could have funded that Congo, corruption within the government, and slippage project. This project will then use local currency income in the government’s determination to press reforms raise streams to service foreign currency loan obligations – a doubts about the continuation of strong growth. In 2000, potential fi nancial nightmare in a market where currency Uganda qualifi ed for the enhanced Heavily Indebted Poor forward agreements only go as far as 12 months and a Countries (HIPC) debt relief initiative worth USD1,3 billion contract is not likely to be bigger than USD20 million on and Paris Club debt relief worth USD145 million. These the interbank over the counter market. amounts combined with the original HIPC debt relief added up to about USD2 billion. Growth for 2001 – 2002 Foreign capital infl ows have risen recently. There are was solid despite continued decline in the price of coffee, private equity infl ows and remittances from Ugandans Uganda’s principal export. According to IMF statistics, abroad which have helped stabilise the foreign exchange in 2004 Uganda’s GDP per-capita reached USD300, a rate for the past two years. much higher level than in the Eighties but still at half of Floods in Uganda have devastated the local farmers. sub-Saharan African average income of 600 dollars per Destroying predictions of increased food productions, year. Total GDP crossed the 8 billion dollar mark in the the heavy rains created landslides that destroyed crops same year. and also spoiled the stored food supply. The result has With the Uganda securities exchange established in 1996, been a big blow to the economy which had been growing several equities have been listed. The government has steadily. During the 12 June budget speech the minister used the stock market as an avenue for privatisation. All announced that infrastructure will take centre stage government treasury issues are listed on the securities with government spending about 26% of its revenues exchange. The Capital Markets Authority has licensed on maintenance and development of the road network, 18 brokers, asset managers and investment advisers currently in appalling condition. including names like African Alliance, AIG Investments, Uganda’s economic growth greatly depends on her Renaissance Capital and SIMMS. As one of the ways neighbouring country Kenya. The country was plunged of increasing formal domestic savings, Pension sector into an economic major distraction after Kenya was reform is the centre of attention. It is widely expected plunged into unrest following the December 2007 that on 12 June 2008 the Minister of Finance will make presidential elections. proposals to set up a separate pension sector regulator. (Source: www.wikipedia.org and CSI World Factbook) Previous delays have been attributed to the need to set up a proper regulatory framework before liberalising REGULATORY IMPACT the sector. Uganda’s long-term capital is not properly No new regulatory impacts are foreseen. Currently intermediated at this time. The NSSF (www.nssfug.org) individuals may only take loans to the value of 50% of has more than 53% of its long-term liability- driven their gross salary. Indications are that this policy will investment in short-term bank fi xed deposits. The credit remain unchanged for the foreseeable future. rate is not refl ective of market conditions and can only be changed with prior approval from the minister of fi nance, WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 41

38,6% of the GDP, accounts for over 80% of the labour force, and represents about 80% of all exports. Nearly 90% of the BLUE EMPLOYEE BENEFITS LIMITED – MALAWI population engages in subsistence farming. Smallholder Number of branches as at 29 February 2008 farmers produce a variety of crops, including maize (corn), 5 beans, rice, cassava, tobacco, groundnuts (peanut) and Products as at 29 February 2008 coffee. The agricultural sector contributes about 63,7% of Personal loans only total income for the rural population, 65% of manufacturing sector’s raw materials, and approximately 87% of total New products introduced during year employment. Malawi’s manufacturing industries are situated Consolidation loans and education loans around the city of Blantyre. Competitors Greenwing Capital and Izwe Financial Malawi’s economic reliance on the export of agricultural commodities renders it particularly vulnerable to external Prospects (in terms of products, branches, etc) SME loans, home improvement loans and retail linked shocks such as declining terms of trade and drought. loans High transport costs, which can comprise over 30% of its total import bill, constitute a serious impediment to Number of employees economic development and trade. Malawi must import 32 all its fuel products. Paucity of skilled labour; diffi culty in obtaining expatriate employment permits, bureaucratic red tape; corruption; and inadequate and deteriorating road, 5 • electricity, water, and telecommunications infrastructure further hinder economic development in Malawi. However, recent government initiatives targeting improvements in the 4 • road infrastructure, together with private sector participation in railroad and telecommunications, have begun to render the investment environment more attractive. Malawi has undertaken economic structural 1 • adjustment programmes supported by the World Bank, the International Monetary Fund (IMF), and other donors since 1981. Broad reform objectives include 3 • stimulation of private sector activity and participation 2 • through the elimination of price controls and industrial licensing, liberalisation of trade and foreign exchange, rationalisation of taxes, privatisation of state-owned enterprises, and civil service reform. Malawi qualifi es for heavily indebted poor countries (HIPC) debt relief. 1. Lilongwe 2. Blantyre In late May 2004 the IMF programme (begun in 2000) was 3. Zomba cancelled and a Staff-Monitored Programme (SMP) was 4. Mzuzu implemented. In the wake of questions about fi scal credibility, 5. Karonga the SMP’s goal is to give Malawi’s newly-elected government the chance to establish a track record of fi scal discipline. Real GDP increased by an estimated 3,9% in 2004, from 4,3% in 2003 and 2,4% in 2002. Infl ation has been largely under control since 2003, averaging 10% in MACROECONOMIC OUTLOOK FOR COUNTRY that year and 11,1% (estimated) in 2004. Discount and Malawi has a per capita GDP of USD596. It is a commercial lending rates also declined from 40% – 45% landlocked, densely populated country. Its economy in 2003 to 25% in early 2004. The Kwacha slid from 90 to is heavily dependent on agriculture. Malawi has few 101 against the United States dollar in mid-2003 and was exploitable mineral resources. Its three most important at 108 to the United States dollar at the end of 2004. export crops are (in order) tobacco, tea and sugar. Malawi’s president recently urged farmers to consider Malawi has bilateral trade agreements with its two major growing other crops, such as cotton, as an alternative trading partners, South Africa and Zimbabwe, both of which to the country’s principal crop, tobacco, as cigarette allow duty-free entry of Malawian products into their countries. consumption in the West continues to decline. (Source: www.wikipedia.org and CIA World Factbook) Traditionally Malawi has been self-suffi cient in its staple food, REGULATORY IMPACT maize, and during the 1980s exported substantial quantities Nil at this time, new FSA expected probably next year. to its drought-stricken neighbours. Agriculture represents WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 42 Blue Financial Services Limited • Annual Report 2008

MACROECONOMIC OUTLOOK FOR COUNTRY Lesotho’s economy is based on exports of water sold to MAKHULONG MULTI FINANCE (PTY) LIMITED – South Africa, manufacturing, agriculture, livestock, and to LESOTHO TRADING AS BLUE LESOTHO some extent the earnings of labourers employed in South Number of branches as at 29 February 2008 Africa. Lesotho also exports diamonds, wool, mohair, clothing, 4 and footwear. One of Levi’s jeans manufacturing facilities is New branches established during year The national branch was expanded to include a retail located there. Lesotho is geographically surrounded by South section Africa and economically integrated with it. The majority of Products as at 29 February 2008 households subsist on farming or migrant labour, primarily Term loans (up to 36 months), home improvement loans, miners who remain in South Africa for three to nine months. salary advances The western lowlands form the main agricultural zone. New products introduced during year Almost 50% of the population earns some income through Insurance (specifi cally funeral cover) crop cultivation or animal husbandry, with over half the Competitors country’s income coming from the agricultural sector. 74 registered fi nancial institutions. The three largest are – Select Management Services; Eduloan; Sechata Water is Lesotho’s only signifi cant natural resource. It is Prospects (in terms of products, branches, etc) utilised through the 21-year, multi-billion-dollar Lesotho In negotiations with Cashbuild to service home highlands water project (LHWP), which began in 1986. The improvement loan clients on their premises LHWP is designed to capture, store, and transfer water Number of employees from the Orange River system to South Africa’s Free State 20 and greater Johannesburg area, which features a large concentration of South African industry, population, and agriculture. Completion of the fi rst phase of the project has made Lesotho almost completely self-suffi cient in the production of electricity and generated approximately USD24 million annually from the sale of electricity and water to South Africa. The World Bank, African Development Bank, European Investment Bank, and many • 3 other bilateral donors fi nanced the project. Lesotho has • 1 taken advantage of the African Growth and Opportunity • 2 Act (AGOA) to become the largest exporter of garments to the US from sub-Saharan Africa. Exports totalled over USD320 million in 2002. Employment reached over 50 000, marking the fi rst time that manufacturing sector workers outnumbered government employees. Lesotho has nearly 6 000 kilometres of unpaved and 1. Maseru (2) modern all-weather roads. There is a short freight rail 2. Mafeteng line linking Lesotho with South Africa that is owned and 3. Maputsoe operated by South Africa. Lesotho has received economic aid from a variety of sources, including the United States, the World Bank, Ireland, the United Kingdom, the European Union, and Germany. (Source: www.wikipedia.org and CIA World Factbook) REGULATORY IMPACT Financial service suppliers are not allowed to advertise in Lesotho. The Central Bank is busy negotiating with government to try to establish a policy in this regard. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 43

MACROECONOMIC OUTLOOK FOR COUNTRY Under the leadership of President Kibaki, who took over BLUE LIMITED – KENYA on 30 December 2002, the government of Kenya began Number of branches as at 29 February 2008 an ambitious economic reform programme and has 13 resumed its cooperation with the World Bank and the IMF. Products as at 29 February 2008 Salary advances and term loans The new national rainbow coalition (NARC) government enacted the Anti-Corruption and Economic Crimes Act New products introduced during year Emergency loans and Public Offi cers Ethics Act in May 2003 aimed at fi ghting graft in public offi ces. Other reforms especially Competitors Real Pay, Equity Bank, local retail banks in the judiciary, public procurement etc., have led to the unlocking of donor aid and a renewed hope at economic Prospects (in terms of products, branches, etc) Currently additional product ranges addressing market revival. In November 2003, following the adoption of needs are being developed key anti-corruption laws and other reforms by the new Number of employees government, donors re-engaged as the IMF approved a 98 three-year USD250 million poverty reduction and growth facility and donors committed USD4,2 billion in support over four years. The renewal of donor involvement has provided a much-needed boost to investor confi dence. The Privatisation Bill has been enacted although the setting up of a privatisation commission is yet to be fi nalised, civil service reform has been implemented and • 10 8 in the year 2007 the country won the UN Public Service • 4 • • 13 5 • reform award. However, a lot of work needs to be done to 7•3 • • 9 6 • • 11 make the country catch up with the rest of the economic 1 • giants especially in the Far East. The main challenges • 12 include taking candid action on corruption, enacting anti-terrorism and money laundering laws, bridging 2 • budget defi cits, rehabilitating and building infrastructure. This hopefully will help in maintaining sound macroeconomic policies, and speed up the rapidly accelerating economic growth, which is projected to grow to 7,2% in 2007. 1. Nairobi City 8. Busia 2. Mombasa 9. Oyugis In 2007, the Kenyan government unveiled Vision 2030, 3. Kisumu 10. Bungoma which is a very ambitious economic blueprint and which, if 4. Eldoret 11. Embu implemented in its entirety, has the potential of putting the 5. Kakamega 12. Machakos country in the same league as the Asian Economic Tigers. 6. Homa Bay 13. Mumias However all these economic projections now hang in the 7. Siaya balance following the political uncertainty occasioned by the aftermath of the 2007 disputed presidential polls, which left the country economically dented. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Operational review (continued) 44 Blue Financial Services Limited • Annual Report 2008

Nairobi continues to be the primary communication and fi nancial hub of East Africa. It enjoys the region’s best BONUS FINANCE NAMIBIA (PTY) LIMITED TRADING transportation linkages, communications infrastructure, AS BLUE FINANCIAL SERVICES NAMIBIA and trained personnel, although these advantages are Number of branches as at 29 February 2008 less prominent than in past years. A wide range of foreign 15 fi rms maintain regional branch or representative offi ces in New branches established during year the city. In March 1996, the presidents of Kenya, Tanzania, Gobabis and Luderitz and Uganda re-established the East African Community Products as at 29 February 2008 (EAC). The EAC’s objectives include harmonising tariffs and Term loans and salary advances customs regimes, free movement of people, and improving New products introduced during year regional infrastructures. In March 2004, the three East Awaiting NamFisa approval on educational and home African countries signed a customs union agreement. improvement loans Early in 2006 Chinese President Hu Jintao signed an oil Competitors Namic, Nedloans, ECB exploration contract with Kenya; the latest in a series of deals designed to keep Africa’s natural resources fl owing Prospects (in terms of products, branches, etc) Six new branches planned and the following products: to China’s expanding economy. education loan, home improvement loan The deal allowed for China’s state-controlled offshore oil Number of employees and gas company, CNOOC Limited., to prospect for oil in 52 Kenya, which is just beginning to drill its fi rst exploratory wells on the borders of Sudan and Somalia and in coastal 4 •• 13 10 • waters. No oil has been produced yet, and there has been 15 • 12 • • 5 no formal estimate of the possible reserves. 6 • (Source: www.wikipedia.org and CIA World Factbook) 11 • 7 • REGULATORY IMPACT • 2 An act has been tabled in parliament, to regulate the • 3 1 • micro fi nance and banking industry further. Currently the industry is divided into three tiers, namely NGOs, 9 • micro-fi nanciers and deposit taking micro fi nanciers.

Suggestions around increasing capital adequacy from • 14 KSG250 million to KSH1 billion is a source of some heated 8 • debate.

1. Windhoek 9. Mariental 2. Swakopmund 10. Katima Mulilo 3. Walvisbaai 11. Outjo 4. Oshakati 12. Ondangwa 5. Rundu 13. Ongwediva 6. Grootfontein 14. Lüderitz 7. Otjiwarongo 15. Opuwo 8. Keetmanshoop WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 45

MACROECONOMIC OUTLOOK FOR COUNTRY people live in rural areas and exist on a subsistence way Namibia’s economy consists primarily of mining and of life. Namibia has one of the highest rates of income manufacturing which together represent 8% of the gross inequality in the world, due in part to the fact that there is domestic product (GDP). Namibia has a 30% – 40% an urban economy and a more rural cashless economy. unemployment rate and passed a labour Act in 2004 to The inequality fi gures thus take into account people protect people from job discrimination stemming from who do not actually rely on the formal economy for their pregnancy and HIV/Aids status. Namibia’s economy is survival. Agreement has been reached on the privatisation tied closely to South Africa’s due to their shared history. of several more enterprises in coming years, with hopes The central plateau serves as a transportation corridor that this will stimulate much needed foreign investment. from the more densely populated north to South Africa, However, reinvestment of environmentally derived the source of four-fi fths of Namibia’s imports. Namibia capital has hobbled Namibian per capita income. One of is the fourth largest exporter of non-fuel minerals in the fastest growing areas of economic development in Africa and the world’s fi fth largest producer of uranium. Namibia is the growth of wildlife conservancies. These There has been signifi cant investment in uranium mining conservancies are particularly important to the rural and Namibia is set to become the largest exporter of generally unemployed population. uranium by 2015. Rich alluvial diamond deposits make (Source: www wikipedia.org and CIA World Factbook) Namibia a primary source for gem-quality diamonds. REGULATORY IMPACT Namibia also produces large quantities of lead, zinc, tin, The introduction of a National Credit Act in Namibia silver, and tungsten. About half of the population depends capping interest rates. However, Blue is well adapted on agriculture (largely subsistence agriculture) for its to the regulations having dealt with a similar Act in livelihood, but Namibia must still import some of its food. South Africa. Although per capita GDP is fi ve times the per capita GDP of Africa’s poorest countries, the majority of Namibia’s WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate social investment 46 Blue Financial Services Limited • Annual Report 2008

“Mr Blue” comic strip

Money sense is one of the most essential lifeskills, yet Blue’s customers often do not have access to such information. The Group puts a high priority on responsible and ethical lending and has created a fun and easy to read comic series equipping readers with the tools to look after their own fi nances and manage their own expenses. “Mr Blue” was fi rst launched in Swaziland as a comic strip in the Swazi Times, before the monthly comic book was distributed. The market responded very favourably to the concept and current rollouts are underway in Lesotho and South Africa. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 47

In essence, Blue’s CSI efforts will be founded on trust, long-term commitments and win-win partnerships.

BACKGROUND Of the CSI spend, 80% will be allocated to social Blue has now taken major strides in formalising and investment/responsibility projects and the remaining intensifying its corporate social investment (“CSI”) and 20% to charitable causes. social responsibility programmes. Until recently CSI had PAN-AFRICAN CONTEXT been the responsibility of the individual country managers, Africa is populated by a wide variety of peoples, tribes and who arbitrarily chose which projects to support in their clans, all with their own particular histories, challenges areas of operations. It became evident that Blue, with its and sensitivities. Blue understands that we can’t African footprint growing steadily larger, needed to lay attempt to engage communities with “one size fi ts all” down a defi nite CSI policy and guidelines. approaches, therefore we will embark on consultation This programme was started with the appointment of a processes in order to grasp the nuances of each full-time CSI manager based at head offi ce whose initial community before deciding how best we can participate task was to draw up a clear-cut Blue CSI policy and an and assist. initial three-year strategy plan. AUDIT OF STAFF INTERESTS FOR PARTICIPATION In essence, Blue’s CSI efforts will be founded on trust, In this period the CSI department will be performing long-term commitments and win-win partnerships. a skills, passions and interests audit of all Blue’s employees to determine where and how they can VISION participate in CSI projects on behalf of Blue. Staff Socially responsible micro-fi nancing should be an members prepared to volunteer their time and skills – effective catalyst for fi nancial liberation, community without remuneration – will be deployed to community development and the self-fulfi lment of individuals. projects in their vicinities. MISSION Corporate social programmes should be implemented CSI focus areas through mutually benefi cial, long-term partnerships with We are keenly aware that the micro-lending industry communities, organisations and funders. in Africa has often been associated with unscrupulous operators and unethical lending practices. FUNDING CRITERIA As a responsible fi nancial services company, Blue believes Blue views its CSI responsibilities as a key element in it can best contribute to Africa by fi nancially educating “triple bottom line” reporting, therefore we approach its clients and communities to handle money wisely CSI in terms of the same sound business principles that and save rather than spend indiscriminately. Financial characterise our other commercial activities. We are “road shows” are already underway that involve hitherto keenly aware of our responsibility to shareholders and fi nancially naive people – with the active support of local investors to conduct effective CSI that accords with our community leaders – in presentations and workshops. business pursuits, while also meeting the genuine needs Financial education is offered with no strings attached – of the communities we serve. participants can choose to take away their newly acquired The CSI offi ce is currently determining project funding knowledge without any further participation in Blue criteria, which will be publicised on Blue’s website and projects. As this programme unfolds we will progress to in relevant circulars. A key principle will be that funding offering life skills, business opportunities and mentorships will not be allocated to emotion-driven “lost causes”, or where possible. to helping people or communities who aren’t prepared to work to help themselves too. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate social investment (continued) 48 Blue Financial Services Limited • Annual Report 2008

Socially responsible mircro-fi nancing should be an effective catalyst for fi nancial liberation, community development and the self-fulfi lment of individuals.

CSI Target markets FIRST TARGET: WOMEN Women are traditionally the educators, nurturers, and infl uencers of communities and are more likely to share information and knowledge. In many instances, because of the migrant labour system, women head the family households while their male partners live at their places of employment and send money home. Women generally shoulder the fi nancial decision-making and often need to create small enterprises to generate additional income for Blue Bredasdorp hosts six-a-side cricket the family. There are few opportunities that unite and excite people as In this respect Blue has already aligned itself with the much as community sports days. Blue sponsored six-a-side Gender Desk in the offi ce of the President of South Africa cricket in December in Bredasdorp. and will also be engaging the New Partnership for Africa’s Development (NEPAD) and other potential partners in Invitations were sent out as far as Grabouw and Swellendam Africa’s public and private sectors. and a huge crowd fi lled the Glaskasteel stadium. Sewende Laan home team were the gold medal winners. Hannatjie Venter, of SECOND TARGET: YOUTH Blue Bredasdorp, handed the trophy to the winners. Support is The current high school age group are our clients of also arranged for young players in the region to take part in such tomorrow, with market research indicating that this group events and benefi t from coaching. has a major infl uence on household expenditure. This age group’s fascination with negative aspects of hip- Die Suidernuus, a local newspaper which reported the event, hop culture, coupled with few positive role models and thanked Blue by saying: “It’s well recognised that taking part in poor community infrastructures, makes these teenagers sport helps keep youngsters off the streets and gives them a vulnerable to crime, drugs, vagrancy and dropping out of chance to be involved in positive character-building activities. school before becoming literate and learning skills. Community involvement and sponsorships are incredibly valuable, and without that support it’s very diffi cult to get such The HIV/Aids pandemic results in many teenagers having projects off the ground.” to manage their homes without assistance and fi nancial support. They need opportunities to earn a living through entrepreneurial initiatives. OTHER TARGETS: STOKVELS, BURIAL SOCIETIES AND TRADE UNIONS THIRD TARGET: SPORTS DEVELOPMENT These are proven and positive community organisations Sport plays a major role in setting standards for healthy that can benefi t from Blue’s support in terms of living, creating positive role models and instilling appropriate fi nancial education and customised products. community pride, sense of belonging and purpose. The South African Stokvel (colloquial term for “collective Blue is identifying sporting fi gures who can slowly and saving”) Association is celebrating its 20th anniversary carefully be developed into “community hero” role this year. This R30 billion industry has 8,2 million models. contributors, of which 41% are presently unbanked. THE BLUE TRUST Blue is setting up a trust fund, at the time of writing provisionally known as “The Blue Trust,” which will support social responsibility projects across Africa such as community centres. This trust will not be linked to any particular Blue project or product, and we welcome the participation of any other ethical organisation or NGO active in Africa. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 49

Blue offi ce furniture benefi ts the disabled Blue Botswana fi lls in for Father Christmas Kungwini Welfare Organisation cares for people with Children in a hospital in Gaborone could be excused for disabilities and offers a range of services including primary mistaking Andre Heunis (Country Director, Botswana) for health care, community development and training and Father Christmas as he, and the Blue team, went from ward educational facilities for the disabled, as well as people to ward handing out presents on Christmas Eve. Seventy suffering from HIV/Aids. presents were handed out and each child received a cuddly bear rucksack fi lled with chips, sweets, a cold drink and a Kungwini is based a few kilometres from the Blue head offi ce Christmas cracker in their present. Many of the children in in Lynnwood, Pretoria. When Blue moved premises, a large the hospital have no family to visit or care for them, and they number of chairs, fi ling cabinets, desks and bookshelves were in awe of the gifts. needed a home. Annemarie Lotter, HO offi ce manager, arranged to have these delivered to Kungwini to help furnish the new training centre.

CSI AND THE ENVIRONMENT As a relatively young and recently listed company, Blue is now getting to grips with its environmental and sustainability impacts, with this responsibility being given to its new CSI offi ce to manage. The CSI offi ce is preparing for a full “green audit” so that a company Blue Zambia celebrates World Teachers’ Day “green scorecard” can be completed in future. The 5th of October is World Teachers’ Day. Teachers in CONCLUSION Zambia joined their colleagues in other parts of the world in Social responsibility and excellent corporate citizenship celebrations to mark this day. Blue branch managers were are central to Blue’s business philosophy, with major actively involved in the preparations and activities for the day. strides being taken to formalise and effectively manage Blue bought and donated bicycles and mattresses to the most these key duties. We have got off to a healthy start deserving and hardworking teachers, who were selected by and expect in our next annual report to record major ministry offi cials in each province. Our branch managers and achievements in this vital area of community and African their teams, along with teachers, joined various march-past collective action. processions, all clad in Blue T-shirts. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Human resources 50 Blue Financial Services Limited • Annual Report 2008

“These outstanding performances didn’t just happen – they are the result of years of preparation by an extremely competent management team and supported by the hard work and enthusiasm of our workforce.” Dave van Niekerk, CEO WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579

their chosencareerpaths. of ourclients, andthetoolstorisehigherlevelsalong gives themtheabilitytodeliverexcellent workonbehalf investingintheskillsofouremployees philosophy isthat development budget. The group’s skillsdevelopment toitstraining andskills costtocompany employee least 2%ofthetotal theequivalentofat Blue allocates SKILLS DEVELOPMENTANDTRAINING mentoring andtrainingneededtosucceed. hard-driving, enthusiasticculturewillbegiventhe People to oftherightbasicattributes “fi t” intoBlue’s qualifimuch asitdoesemployees’ andexperience. cations customers, andawillingnesstobepartoftheteam, as values apositiveattitude, passionforperformance and measured andgoodperformanceiswellrewarded. Blue upper levels. Work performanceinallareasisimpartially and competentwork, cantakethemallthewaytoits that, company energetic andquicklygrowing withhard taking upjobs;they’rebeingofferedcareersinayoung, they’renotsimply mustunderstandthat New employees policies. group andcopiesofallrelevantcompany manual containingaPowerPoint ontheBlue presentation by theCEO. isalsogivenaninduction The newemployee anditsproducts,company andalsoawelcomeaddress ofthe inductionvideoprovidesanoverview A compulsory responsibilities. as wellbeingthoroughlybriefedontheirjob Blue’s vision, mission, values, culture, andcompany theyunderstand induction programmetoensurethat Blueundergoacomprehensive at All newemployees being fi lled. fromthreetosixpeople,grown withmorepositionsstill skillsandhasalready is activelyrecruitingthenecessary doubled inbothofthepasttwoyears, theHRdepartment optimally, morethan totalshave although employee To Blue’s ensurethat HRfunctioncontinuestooperate business model. isakeycomponentofBlue’s that the excellentservice willinturnoffer employees andmotivated well-managed andrequirements,legislation butBlue’s philosophyisthat humanresources(“HR”) hasitsown since eachcountry thiswidespreadworkforceischallenging,Managing 159 branchesdistributedacrossseveral African countries. On 28February 2008, 1319peoplein Blueemployed 2006 to2008: receivedtrainingfrom numberofemployees The following Development Programme(“MDP”). training courses, including Blue’s Management accredited specialisttrainerswhoprovidetherequired The bulkofBlue’s stafftrainingisoutsourcedto levies forthefi nancial year. which alsoenablesBluetoreclaim skillsdevelopment Qualifiwith NQF(National Framework) cation standards, ISETT SETA, complies ourcoursematerial we ensurethat skills.(organisational) As anaccreditedmemberof andcore critical(industry) developing employees’ All trainingis “outcomes-based” andfocuseson bi-monthly,approximately visits. will besentout, witheachbranchreceivingregular, distance learninginstitution. Inothercountries, lecturers is beingofferedthroughanaccreditedandreputable African countriesofoperations. InSouth Africa thiscourse interface learnership, toall whichisbeingmadeavailable The secondprogrammeisaone-yearcertifi customer cate and isbeingextendedtotherestof Africa. development programmewaspilottestedinSouth Africa aninitialcostofR1,5million.at A branchmanager In 2007Bluerolledouttwonewtrainingprogrammes • Customer service. • Performance management. • Product familiarisation. • Inductions. Recent andcurrenttraininghasfocusedon: Total Total female Total male White female White male Indian/Asian female Indian/Asian male Coloured female Coloured male African disabled Race/Gender African female African male 2007 to2008 Blue FinancialLimited• Services Annual Report2008 252 164 107 88 36 40 17 37 4 4 6 1 2006 to2007 37 17 10 93 56 23 30 4 2 2 0 5

South Africa 51 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Human resources (continued) 52 Blue Financial Services Limited • Annual Report 2008

In terms of South Africa’s Employment Equity Act, some 83% of Blue’s workforce is made up of people from previously disadvantaged ethnic groups.

Blue’s staff training and skills development programmes both the employee and company. Winners and achievers are based on the following principles: are publically recognised and rewarded, but those wanting • Job specifi c competencies – training people to be good just another job with minimal effort and a monthly cheque at their respective jobs. will quickly realise that Blue doesn’t compromise on its • Social competence – training people in inter-personal performance-driven working culture. relations. LABOUR RELATIONS • Managerial and business competence – empowering Blue complies with the principles and practices of current people with appropriate management and business labour legislation in all countries where it operates. skills that are focused on the core business objectives Local consultants are engaged in each country to ensure of Blue as a fi nancial services provider. that Blue’s labour practices comply, and that employee • Leadership competence – providing training modules contracts and conditions are correctly drawn up. aimed at encouraging leadership skills and attributes amongst employees. GRIEVANCE AND DISCIPLINARY PROCEDURES • General competence – training people in life skills Blue adheres to the prevailing statutory legislation in all and general knowledge to enable them to develop a operational regions on labour employment and practices, better understanding and approach to their personal and works to foster an environment of openness, environments. consideration and respect in its dealings with employees • Specialist and legislated courses – First Aid, fi re- in handling grievances and disciplinary procedures. fi ghting and other obligatory programmes. Comprehensive policies and procedures have already been adopted in this regard. PERFORMANCE MANAGEMENT As a relatively new company – and one that competes COMMUNICATION AND WORKER REPRESENTATION on its service standards – Blue has linked all jobs in the Blue welcomes its employees as key stakeholders organisation to an effective and transparent performance and acknowledges that its ongoing success is largely management system. In terms of this system all dependent on the maintenance of good employee employees: relations and morale. • Upon induction, agree upfront and sign off with their To ensure enthusiasm as well as compliance with line managers exactly what are their job descriptions all its HR and other commercial policies, Blue will and key performance indicators (“KPIs”). continue a policy of transparency in its communication • Are appraised monthly by their line managers in terms with employees. From corporate strategy through of their KPIs. empowerment opportunities to conditions of employment, • Every six months, with their line managers, review their Blue familiarises employees with company goals and KPIs, which are set to specifi c standards and deadlines. actively encourages employees to share their views and • Annually review their job descriptions with their line opinions. managers. EMPLOYMENT EQUITY Employees that meet – and particularly those that Blue is guided in its relationships with employees by exceed – their performance targets are recognised relevant labour-related legislation, codes of good practice and suitably rewarded. Those falling short in terms of and HR best practices. their KPIs are offered counselling, coaching and/or a specifi c improvement plan to get them back on track. Blue is fi rmly committed to its employment equity (EE) If the employee continues to underperform, specialist and skills development processes. Its management and assistance will be brought in from HR. Should these HR team believes that employment equity helps achieve interventions fail, the employee can be informed that equity in the workplace by promoting equal opportunity termination of service procedures will commence. and fair treatment. In South Africa, employment equity is also about implementing affi rmative action measures to Blue’s performance management system sets the redress the disadvantages in employment experienced by standard in being easy to grasp, transparent and fair to designated groups. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 53

Blue is fi rmly committed to its employment equity (“EE”) and skills development processes.

In terms of South Africa’s Employment Equity Act, some MARKET-RELATED REMUNERATION 83% of Blue’s workforce is made up of people from In South Africa the micro-fi nancing industry is competitive previously disadvantaged ethnic groups. Nevertheless, and growing; therefore people with the right skills and this representation is not yet refl ected through into experience are in demand. As a consequence Blue offers executive management as Blue has grown too quickly highly competitive salaries to retain the expertise that it is in recent years to be able to develop or source suffi cient continually building up within its workforce. previously disadvantaged individuals for these levels. PENSION/PROVIDENT FUND A key responsibility of Blue’s expanding training and skills The offi cial group scheme was launched in 2007 in South transfer programme is to identity and prepare suitable Africa and is automatically included in the packages of employees for all levels of management in the group. new employees. Existing South Africa-based employees are being offered the opportunity to join the scheme, In the African countries north of South Africa, Blue’s which in this fi nancial year will also be rolled out to all standard recruiting procedures ensure that local people African operations. make up the overwhelming majority of its workforce. Experienced managers are usually brought in to establish MEDICAL AID and oversee the initial stages of new operations, but as South Africa-based employees are on Discovery products, these mature, local people will be identifi ed to fi ll senior while employees in other African countries are covered positions. by suitable local medical aid providers. Depending on particular circumstances, and if seconded for periods of LOCAL AND PREFERRED PROCUREMENT time to other countries, senior South African managers In principle Blue is committed to local or preferred can go onto the BUPA International medical scheme. procurement that complies with the spirit and letter of policy in its countries of operation. In South Africa GROUP PERSONAL ACCIDENT COVER (“GPA”) this means giving preference to black economic GPA is offered to all staff in countries where legislation empowerment (BEE) suppliers in terms of the codes requires this cover. of good practice embodied in the Broad Based Black GROUP TRAVEL INSURANCE Empowerment Act. Procurement in other African countries Executive and senior staff are covered internationally by should be from their local, preferably small business, a Group travel insurance policy. Cover extends to road suppliers. and air travel within the borders of countries of service As Blue has only recently listed, procurement to date has and also to cross-border or inter-country trips. Staff enjoy largely been on an ad hoc basis. The group is however numerous benefi ts including life and disability cover, aware of its responsibilities in the area of procurement emergency medical cover and evaluation, loss of luggage, and intends developing a policy in this regard. Preferred money, travel documents or credit cards. suppliers will be required to be credible and able to FUNERAL ASSISTANCE deliver to the high standards that Blue sets for itself. Blue employees in South Africa and their family members EMPLOYEE BENEFITS are covered through a Discovery product. Blue expects its employees to be enthusiastic, hard- GROUP RISK COVER working and professional in everything they do. In return, All staff in all countries of operation are covered at the Blue’s philosophy is to offer market-leading employee same standard for death, disability and dread disease. benefi ts in addition to incentives for meeting performance targets. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Human resources (continued) 54 Blue Financial Services Limited • Annual Report 2008

99% of Blue’s workforce is sourced from each country of operation.

LONG-SERVICE AWARDS cricket team led by a former provincial cricketer, who is As a relatively young group, Blue’s longest serving prepared to coach other departments and branches in this employee has recorded just eight years in its service; energetic and highly sociable sporting activity. therefore long service awards are not yet applicable. HEALTH AND SAFETY HOME-OWNERSHIP SCHEMES Blue conforms to all safety, health, environmental and Blue’s employees are entitled to apply for any of its home quality legislation and regulations in the countries within loan or improvement products, which they can obtain at a which it operates. staff-discounted rate. A comprehensive Group occupational health and safety EMPLOYEE SHARE SCHEMES (OHSA) policy is in force and copies are issued to all Blue’s employees at all levels are subject to signed branches with fi ve or more employees, and made performance agreements, with top performers being well available to smaller workplaces upon request. rewarded with company shares and other incentives. As stipulated in South African OHSA legislation, an STUDY ASSISTANCE SCHEMES OHSA management and reporting structure led by the Employees who, in their own time, wish to pursue CEO’s offi ce has been established at all levels of the Group. educational qualifi cations that can benefi t Blue’s business DIVERSITY AND OPPORTUNITY may apply for study loans that are initially graded as Blue’s workforce is closely aligned to the societal regular staff loans. These loans are partially repayable, demographics of the countries where we have a depending on the pass mark, but wholly repayable for presence, and refl ects their cultures and languages. We failed courses or years. Blue will subsidise 75% of the are actively building a broader Blue culture based on loan for employees passing their exams with a distinction, respect for and taking every opportunity to celebrate and 50% of the loan for those awarded a pass mark. our diversity. A programme already underway involves BLUE FINANCIAL SERVICES MEMORIAL EDUCATION FUND identifying “diversity champions” in each country or Established on 1 September 2007, the fund ensures region and enabling them to assimilate unique aspects that the education costs of children of staff members, of their own particular societies into Blue’s corporate and that pass away in service, are funded for 10 years – this “family” culture. includes prestigious international institutions. HUMAN RIGHTS EMPLOYEE LEISURE AND RECREATION NON-DISCRIMINATION INFORMAL SOCIAL EVENTS Since its inception Blue has employed a multicultural Blue encourages its branches and departments to meet workforce. Our long track record of peaceful employee after hours at regular or monthly social events at which relations proves that Blue people work together in a stable employees can build team spirit in informal settings. and considerate environment. The Group strongly values Get-togethers are also normally held after management this prevailing attitude and will act swiftly and strictly EXCO meetings. against any form of discrimination committed by or towards its employees and service providers. AWARDS CEREMONIES AND CELEBRATIONS At the end of each year a major function is held where FREEDOM OF ASSOCIATION awards are made, among others, to top performing branches Blue complies with labour legislation in all its countries and countries for the year. A note of lightheartedness is also of operation. Our employees may associate with any injected through the award of “fun” trophies. representative organisation or trade union that they choose. RECREATIONAL AND SPORTING OPPORTUNITIES EMPLOYEE WELLNESS AND HIV/AIDS In a similar vein, branches and regions are encouraged Blue has agreed to adopt the comprehensive HIV/ to build camaraderie and team spirit by participating in Aids and general wellness programme developed and sporting events. For example, head offi ce has an action recommended by the International Finance Corporation WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 55

Blue has agreed to adopt the comprehensive HIV/Aids and general wellness programme developed and recommended by the International Finance Corporation (IFC), already a major shareholder and investor in Blue.

(IFC), already a major shareholder and investor in Blue. In Zambia, the decision was taken to appoint the country Realising the dire need for these forms of interventions managers as the HIV/Aids coordinators. In South Africa the in Africa, the IFC has developed its “IFC against Aids” general manager will fi ll this position. programme for associated companies and also the • Appointment of capable service providers to assist with communities where they operate. programme implementation. • Selection and training of 50 peer educators. Already being rolled out in the three pilot countries of Botswana, South Africa and Zambia, the programme is Formal group follow-up sessions will be held by the summarised as follows: selected service provider on a six-monthly basis. Blue’s vision: To have an HIV/Aids controlled and safe At Blue, the role of the trained peer educator will be different environment for our employees and clients. in the sense that they will utilise their knowledge much more Blue’s mission: Blue is committed to the promotion and during client work. Their clients are community based which education of employees and clients on the importance of means that the peer educators will be reaching out directly to wellness and to ensure sustainability. the broader community. This means that the peer educators will do much more informal and one-on-one education. Slogan: Blue, every step with you. However, the trained peer educators will also be responsible The aim is to empower employees with the necessary for the HIV/Aids and wellness activities in the branches. knowledge, skills and tools to assist them in the fi ght Other than through the intranet and website, the company against HIV/Aids and general health challenges in both the plans to reach at least 15% (40 000) of our clients in the workplace and during interaction with clients. next two years. The programme will follow the IFC Against Aids Client engagement process, but with some methodological differences. The company hopes to achieve the following in the next two years: Distribution and promotion of the HIV/Aids policy: Document to be made available on the company intranet, the internal newsletter and visible through posters: • Management to be sensitised and visibly committed. • The appointment of a central HIV/Aids coordinator and country based HIV/Aids coordinators. The central HIV/Aids coordinator has been appointed and will be based in Johannesburg. This person will oversee the entire programme; liaise with the service provider/s, the IFC and all relevant parties, including management. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance 56 Blue Financial Services Limited • Annual Report 2008

As a rapidly growing company Blue implemented various measures to formalise, strengthen and deepen its corporate governance processes.

Introduction THE CODE AND BLUE’S APPROACH TO CORPORATE Blue Financial Services (“Blue” or “the Group”) is GOVERNANCE committed to the principles of the Code of Corporate All entities in the Group are required to subscribe to the Practice and Conduct (the code) as set out in the King spirit and principles of the code. The risk committee and Report on Corporate Governance for South Africa 2002 credit committee, which report to the audit committee, (King II report). review overall Group compliance with the code. The audit committee is the prime entity responsible for corporate The code is designed to ensure the highest levels of governance in Blue. corporate governance in South African commerce. In particular: Due to its overall exposure to local and international • The risk and credit committees review all policies markets and because of its long-term strategies, Blue’s and monitor compliance with statutory and regulatory board of directors and its management understand principles. the importance and responsibility to conduct Blue’s • The audit committee, which reports to the board of business with integrity and in accordance with recognised directors, constantly reviews current and emerging corporate practices and codes. trends in corporate governance and governance We believe that Blue’s code has raised the bar as far as systems. It also benchmarks Blue’s governance corporate governance for MFIs is concerned. systems against national and international codes of corporate best practice. CORPORATE GOVERNANCE DEVELOPMENTS AT BLUE IN The board values substance above mere style in THE YEAR OF REVIEW practising governance, which must be effective at all As a rapidly growing company, Blue implemented various levels and an integral part of Blue’s corporate culture. measures to formalise, strengthen and deepen its corporate governance processes. These included: RISK MANAGEMENT • Ongoing compliance with the code and other specifi c Blue’s risk management approach is set out in its legislation and regulations, in particular the JSE Limited board-approved risk policy, which identifi es specifi c (JSE) Listings Requirements and the National Credit Act risks currently faced by the Group. Steps for managing (NCA). these risks are set out in this policy, and each risk type • Establishing a Blue code of conduct that sets out is managed in terms of a risk control framework and minimum standards of ethical behaviour for all Blue’s policies applicable to that risk area. Particulars of these employees. This process included approving plans, risk policies, methodologies and the risk governance charters and best practices to enhance compliance structure are recorded in the risk management report monitoring, risk monitoring and auditing functions. elsewhere in this report. • Engaging with and assisting consultants on risk analyses and compliance. The board of directors and board • Attendance by directors of the compulsory directors committees programme of the JSE, as presented at the Wits BOARD COMPOSITION Business School. The Group is governed by a unitary board of directors • Keeping up with national and international corporate assisted by the following committees: governance trends and remaining abreast of relevant 1. Audit committee legislation and regulations, in particular the Corporate 2. Risk and compliance committee Laws Amendment Act (No 24 of 2006), the proposed 3. Credit committee new companies bill and the “King 3” regulations that 4. Remuneration committee. should follow. 5. Executive committee. • The fi nalising and implementing in 2008 of new risk management strategies, policies and plans. Each committee acts within agreed terms of reference. The chairpersons of the risk and credit committees Compliance with the code report to the audit committee, which in turn reports to the The directors are of the opinion that Blue has not only board at its scheduled meetings. Where appropriate and complied with but exceeded the requirements of the code applicable, the minutes of any committee may be tabled for the year under review.The company secretary has fi led at board meetings. the compulsory certifi cate in this regard with the JSE. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 57

The chairman of the board is an executive director Interest in contracts and confl ict of and the roles of chairman and chief executive offi cer interest (“CEO”) are not separated as provided for by AltX Listings Directors are required to inform the board timeously Requirements. The current chairman and CEO has a clear of confl icts or potential confl icts of interest they may understanding of the distribution of duties and responsibility have in relation to particular items of business, and between the two functions. All directors are tasked with are obliged to recuse themselves from discussions or contributing their independent thinking and appropriate decisions in relation to such matters. During the current experience to the board’s decision-making processes. period and review, the interests of directors in contracts Where appropriate, independent advice at the cost of or arrangements entered into by the Company, or the Company may be sought by directors in the pursuit subsidiaries of the Company, have been revealed and of proper execution of their duties. Directors have direct shareholdings have been disclosed. and unfettered access to the external auditors, any professional advisers and the advice of the company COMPANY SECRETARY AND ADVICE secretary. Blue’s board currently has eight directors, The company secretary attends all board and board comprising three executive directors, three non-executive committee meetings. directors and two independent non-executive directors. Directors have unlimited access to the company secretary, These appointments are made in terms of formal and who acts as an adviser to the board and its committees on transparent procedures and are subject to confi rmation governance issues, including compliance with rules and by the shareholders at the annual general meeting. Blue procedures, statutory regulations and the code. believes that its board’s current composition in terms The company secretary also oversees the induction of numbers and expertise is effi cient and appropriate to of new directors and assists the CEO and chairman in meet Blue’s current needs at board level. determining the annual board plan, board agendas and INDEPENDENCE formulating governance- and board-related issues. The board applies the code’s guidelines when considering a director’s independence. Insurance Adequate insurance cover for directors and offi cers has AUDIT COMMITTEE been taken out by Blue. No claims under the relevant The audit committee is chaired by a non-executive, policy were lodged during the year under review. independent director who is also a chartered accountant in private practice. DESIGNATED ADVISER The board is also supplemented by the services of a RISK AND COMPLIANCE COMMITTEE designated adviser, which forms an integral part of the board. The risk and compliance committee is chaired by an independent individual with the relevant skills and experience. PSG Capital (Pty) Ltd is the Group’s designated adviser.

Board compilation and attendance BLUE FINANCIAL SERVICES LIMITED Four meetings were held.

Meeting held Meeting held Meeting held Meeting held Attendees 27 May 2007 30 October 2007 30 January 2008 26 February 2008 David van Niekerk ✓✓✓✓ Riaan Swart ✓✓✓absent with apology Wessel Johannes Smit ✓✓✓✓ Johan Christof Maritz not director at time ✓✓✓ André Steyn ✓✓✓✓ Thami Sondiyazi ✓✓absent with apology ✓ Tony Couloubis absent with apology absent with apology ✓✓ Navin Kanabar ✓ absent with apology ✓ absent with apology WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 58 Blue Financial Services Limited • Annual Report 2008

The long-term sustained growth, continued success and reputation of Blue are critically dependent on the quality of risk management.

During the period of review, Ernst & Young was the AUDIT COMMITTEE appointed designated sponsor, with designated advisers, Members Stef Greeff and Marion Degener, alternating at the Thami Sondiyazi – Non-executive independent meetings of 30 October 2007, 30 January 2008 and director (Chairman) 26 February 2008 respectively. Tony Couloubis – Non-executive director BOARD COMMITTEES Stef Greeff/Marion – Representative designated A number of board appointed committees have been Degener advisers established to assist the board in discharging its Reynier van der – Company secretary (ex offi cio) responsibilities. The membership and principal functions Westhuizen of the standing committees appear in the pages that follow. Invitees Johan Maritz – Financial director The board recognises that it is ultimately accountable Grant Chittenden – Head: Internal audit and responsible for the performance and affairs of Blue Financial Services and that the use of delegated JP Tromp – External auditors authorities to board committees and management in no None of the members of the audit committee have way mitigates or dissipates the discharge by the board executive power in Blue. These meetings are also attended and its directors of their duties and responsibilities. by representatives of the external auditors (PKF Pretoria Specifi c responsibilities have been delegated to Incorporated), internal audit representatives and other these committees, which operate under written terms invitees as set out above. Meetings are held at least four confi rmed by the board. There is transparency and full times a year. Internal and external auditors have unrestricted disclosure from board committees to the board. In this access to members of the audit committee, which ensures regard the minutes of the committees are available to that its independent, non-executive status is not impaired. the board, and where necessary, written summaries of Role, purpose and principal functions key issues and decisions taken at committee level may The audit committee assists the board with regard to be tabled at board meetings. Board committees are reporting fi nancial information, the selection and application free to take independent, outside professional advice of accounting policies, monitoring the Group’s internal as and when deemed necessary. The offi ce of company control systems and on compliance-related matters. secretary provides secretarial services to all committees. Specifi c responsibilities include: Notwithstanding the establishment of the various • Reviewing and recommending annual fi nancial board committees and delegated authorities, the board statements to the board. reserves to itself a range of key decisions to ensure • Reviewing and recommending interim fi nancial that it retains proper direction and control of the Group. statements to the board. A comprehensive framework setting out the authorities • Dealing with matters relating to fi nancial and internal and responsibilities with regard to matters affecting the control accounting policies, reporting and disclosure. business of the Group’s boards and committees structures • Dealing with the engagement of the external auditors the decision-making process and ensures the balance and fees payable to them. of power and authority that prevents any individual from • Approving and ensuring compliance with the Group’s wielding unfettered decision-making power. policy on non-audit services. Although the board retains overall responsibility for Group • Reviewing and/or approving internal audit compliance and affairs, the boards of subsidiary companies have key roles forensic services, policies, plans, reports and fi ndings. in the Group’s overall governance and decision-making. • Ensuring compliance with applicable legislation and Blue’s main board has full access to all documentation regulations. generated by boards of subsidiaries. • Evaluating the performance of the external auditors. • Reviewing external audit plans, fi ndings and reports. • Assisting the board in overseeing risk management. • Reviewing and/or improving internal audit- and compliance policies, plans, reports and fi ndings. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 59

• Ensuring compliance with the applicable legislation and Role, purpose and principal functions regulations. Risk-taking in an appropriate manner is an integral part • Making the necessary enquiries to ensure that all risks to of business. Success relies on optimising the trade-offs which the Group is exposed are identifi ed and managed between risk and reward. In the course of conducting in a well defi ned control environment. business, Blue is exposed to a variety of risks, including • Recommending to the board the appointment and credit, market, operational, strategic and reputational dismissal of external auditors and fees payable to the risk. The long-term sustained growth, continued success external auditors. and the reputation of Blue are critically dependent on the • Evaluating the performance of the external auditors. quality of risk management. • Reviewing and/or approving external audit plans, Risk management is one of Blue’s core business principles fi ndings, reports and fees in collaboration with the risk and management is committed to applying international and credit committees. best practices and standards. Blue’s risk philosophy is • Considering issues identifi ed by the risk and credit underpinned by its objective of investor value creation committees. through sustainable and profi table growth, in a manner Blue’s policy on non-audit services, which is reviewed consistent with shareholder expectations, constantly annually by the audit committee, sets out the detail of and bearing in mind Blue’s risk capacity and appetite. which services may or may not be provided to Blue by the Blue has established a risk committee to assist the board external auditors. with regard to risk management and to ensure compliance The policy is largely based on Blue’s governance with the requirements of the NCA and other regulations. The systems and a review of current and emerging trends in principal responsibilities of this committee are to assist the corporate governance. audit committee, and hence the board, in the execution of its duties with regard to risk and capital management, and in The audit committee conducts a formal external auditor particular to assist the board in: evaluation process. This evaluation occurs annually and • Evaluating the adequacy and effi ciency of the risk includes inter alia, various criteria and standards such policies, procedures, practices and controls supplied in as audit planning, technical abilities, audit process and the day-to-day management of Blue’s business. outputs, quality control, business insights, independence • Identifying the build-up and concentration of the key and other general factors. risks and in developing a risk mitigation strategy to The audit committee makes an effort to keep up to date of ensure that Blue manages these risks optimally. any current and emerging trends in accounting standards. • Setting up an independent risk management function These have become a major challenge, particularly with to co-ordinate the globalised monitoring of risk the introduction of International Financial Reporting management and facilitate communication regarding Standards (IFRS). risk policies, procedures, practices and controls and related matters. RISK COMMITTEE • Blue’s risk management approach is that all risks must Members be identifi ed and managed, and that the returns must George Negota – Non-executive independent be commensurate with the risks taken, relative to member (Chairman) Blue’s risk appetite. Wessel Smit – Executive director Risk management within Blue is guided by several Derek de Villiers – Group operations executive principles, including but not limited to: Christo Klopper – Country manager, RSA • Integrity and liability of the fi nancial and operational Neville Strydom – Risk and compliance offi cer information that is used internally and for public Grant Chittenden – Head: Internal audit reporting. • Safeguarding and the maintenance of assets. Andre de Jager – Collection executive • Protection against and minimisation of fraud, potential Reynier van der – Company Secretary (ex offi cio) liability, loss and material misstatements. Westhuizen • Compliance with applicable laws, regulations and policies. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 60 Blue Financial Services Limited • Annual Report 2008

• Effi cient and effective operations. Role, purpose and principal functions • The assignment of appropriate responsibility and Consideration and recommendation to the board on accountability. matters such as succession planning, general staff • The adoption of a framework for integrated risk policies, remuneration and benefi ts, performance management. bonuses, executive remuneration, director remuneration • Comprehensive risk assessment and measurement. and fees. Service contracts and remuneration packages are structured in such a way that short-and long-term This committee establishes a management culture that incentives are linked to the achievement of business is sustained throughout operations so that disciplined objectives and the delivery of value to Blue. Non-executive and effective risk management processes are controlled, directors receive fees for their contribution to the board and adherence to risk management standards and and committees on which they serve. limitations are adhered to. Furthermore it assists and oversees compliance with relevant statutory, regulatory EXECUTIVE COMMITTEE (EXCO) and supervisory requirements. The management of risk is Composition and meeting procedures fundamental to Blue’s business and allows management The EXCO is chaired by the CEO and has regular input to operate more effectively in an environment from executives and managers from operations, sales, characterised by uncertainty and risk. Excellence in fi nance, IT, human resources, risk and compliance, risk management is created from a culture in which investor relations, corporate fi nance, collections, legal and management makes risk identifi cation, risk management the country manager of each subsidiary African company. and the establishment and maintenance of an effi cient Where necessary and applicable, the decisions or control environment an integral part of its regular recommendations of EXCO may be referred to a relevant activities. Overall risk management policies, risk appetite committee for referral to the board and fi nal approval. EXCO and tolerance were established throughout the Group by meets quarterly and is responsible for strategy and operations senior management. These were reviewed and approved of the Group, within the parameters defi ned by the board. by the board of directors. These policies, appetites and tolerances are clearly communicated throughout Group Mini-EXCO meetings are also regularly convened between and apply to all divisions and wholly owned subsidiaries. quarterly meetings. These may comprise country managers having individual sessions with the executive CREDIT COMMITTEE directors and various executives. Members Johan Maritz – Financial director SHARE DEALINGS In terms of JSE Listings Requirements and Blue’s closed Derek de Villiers – Group operations executive period policy, directors, offi cers and employees who may Christo Klopper – Country manager RSA have access to price sensitive information, are precluded Neville Strydom – Risk and compliance offi cer from dealing in Blue shares. This includes trading in any André de Jager – Collection executive fi nancial instrument, options and securities as defi ned in Grant Chittenden – Head: Internal audit the Financial Markets Control Act and Stock Exchanges Control Act. REMUNERATION COMMITTEE Details of directors and offi cers dealings in Blue shares Members are disclosed to the board and the JSE through the JSE’s André Steyn – Chairman Securities Exchange News Service (SENS). Dave van Niekerk – CEO ORGANISATIONAL INTEGRITY AND CODE OF ETHICS Wessel Smit – Executive director (In absence of The media regularly reports unethical behaviour in South Dave van Niekerk) African communities and other countries where Blue is Reynier van der – Company secretary (ex offi cio) in business. Blue does not condone any form of unethical Westhuizen behaviour and has instituted risk control measures and Tanya Roberts – Head: Human Resources procedures to mitigate against any form of unethical behaviour by its employees and to restrict any potential losses arising from such behaviour. Compliance with WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 61

Blue’s code of ethics is monitored and reviewed quarterly REGULATORY COMPLIANCE through appraisal reports collected from throughout the Blue’s board of directors controls and monitors the Group for human resources and the CEO. Group’s business and drives effective corporate governance. The board, through the CEO, delegates its Blue has entrenched and supports its commitment to authority to the company secretary, who in conjunction its code of ethics by rewarding or offering incentives for with the risk and compliance offi cer, ensures that the ethical behaviour, but on the other hand instituting internal compliance process operates effectively and that laws, disciplinary procedures, including criminal and civil regulations and supervisory requirements are adhered to. charges, for unethical or dishonest behaviour. The risk and compliance offi cer independently monitors Blue has introduced a credible whistle blowing policy to the adequacy and effectiveness of the internal controls facilitate the reporting of possible fraudulent, corrupt or implemented to ensure compliance with the applicable unethical behaviour in the Group. This whistle blowing laws, regulations and supervisory requirements. The risk procedure utilises anonymous tip-offs that any person can and compliance offi cer has unrestricted access to the easily make through Blue’s intranet. Whistleblowers will CEO, executive directors, company secretary and heads remain totally anonymous with the company secretary of the audit, risk, credit and remuneration committees, retaining strict control of whistleblowing reports. as well as the internal audit unit and the appointed external auditors. This ensures that compliance remains The prevention of criminal behaviour and ethical independently managed and has the necessary support to behaviour awareness is taught through HR training perform its duties. programmes and regular communication with employees regarding ethics within the Blue Group. INTERNAL CONTROL The board of directors is responsible for ensuring that All employees of Blue are provided with copies of the Blue Blue maintains adequate records that adequately disclose code of ethics to which they must undertake to strictly adhere. the fi nancial performance and position of the Group. All incidents of possible fraudulent activity or transgression Great reliance is placed on the information contained in of policy are formally investigated, with corrective and Blue’s fi nancial statements, by shareholders, the investing appropriate measures taken where necessary. Procedures community, international fi nanciers and the regulatory and measures are amended if necessary to prevent further authorities. incidents of particular forms of dishonest or unethical behaviour. The board is satisfi ed that processes are in place To enable the board to meet these responsibilities, to monitor compliance with Blue’s code of ethics and to act standards are set that management implements together fi rmly against any transgressions thereof. with systems of internal control that comprise policies, standards, procedures, systems and information. These BLUE’S REPUTATION are implemented to: The Blue brand and Blue’s reputation as a good and • safeguard assets and reduce risk of loss, error, fraud or responsible corporate citizen are key drivers to economic other irregularities; and sustainable value, therefore the entire Group is • ensure the accuracy and completeness of accounting constantly motivated to protect and enhance these. A key records; facet of Blue’s business plan is to be an African leader • enable timely preparation of reliable fi nancial in the fi eld of corporate responsibility and to ensure that statements and information in compliance with the all stakeholders are treated appropriately and equitably. relevant legislation and generally accepted accounting The risk committee considers and provides advice on policies and practices. matters that impact Blue’s reputation and will advise on appropriate actions to be taken to maintain ethical Blue’s internal audit function and the external auditors business practice and stakeholder relationships. Blue’s independently appraise the adequacy and effectiveness risk policy on its reputation forms part of the risk and of internal controls. The audit committee, with extensive compliance framework that provides mechanisms to refer input from the internal and external auditors, plays a any issues regarding potential damage to Blue’s brand or major role in assisting directors in satisfying themselves reputation to the risk committee. regarding the adequacy and effectiveness of the WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 62 Blue Financial Services Limited • Annual Report 2008

Blue’s brand and reputation as a responsible corporate citizen are key drivers to economic and sustainable value.

accounting systems, records and internal controls with national and international, individual and institutional in terms of the IFRS. Blue’s current external auditors shareholders, analysts, fund and asset managers. The in respective countries are: Group’s ongoing investor relations programme includes • South Africa – PKF Inc. Pretoria meetings with executive managers, investor road shows, • Swaziland – PKF Swaziland presentations to the investment community and personal • Botswana – KPMG International (Botswana) liaison with individual and private investors. Announcements, • Kenya – KPMG International (Kenya) presentations, SENS announcements, interim and annual • Lesotho – Enslin Auditors reports are also made available on Blue’s website, • Malawi – KPMG International (Malawi) www.blue.co.za. • Namibia – CJ van Wyk Inc At the time of distribution of this annual report, • Nigeria – KPMG International (Nigeria) PSG Capital (Pty) Ltd was acting as Blue’s designated • Tanzania – KPMG International (Tanzania) adviser in compliance with the JSE Listings Requirements. • Uganda – KPMG International (Uganda) • Zambia – KPMG International (Zambia) Shareholder meetings are conducted on the basis of a poll. The results of shareholder meetings are posted The report of the independent auditors for the year under on SENS and shareholders have access to the minutes review is on page 73. of such meetings, in accordance with the stipulations INTEGRATED SUSTAINABILITY REPORTING of the Companies Act. During this reporting period two Blue has adopted the global reporting initiative (GRI) shareholders’ meetings were held on 19 October 2007 guidelines on economic, environmental and social and 5 December 2007, respectively. performance (referred to as the triple bottom line) as NATIONAL CREDIT ACT (NCA) a benchmark for Blue’s sustainable reporting. The The requirements of the National Credit Act were met GRI guidelines represent the most recognised current by Blue’s implementation of various system changes, international standards for sustainability reporting. The process enhancements and employee training. As Group is committed to advancing the principles and from 1 June 2007, Blue has conducted all its credit practices of sustainable development, with a view to transactions within South Africa in terms of the NCA. meeting the needs of the present generation without compromising those of future generations. Blue takes this Risk management role as a leading concerned corporate citizen seriously, a Blue has specialised in two areas that many other fi nancial discussed in the CSI section of this annual report. services providers avoid as being overly risky: micro- STAKEHOLDER COMMUNICATION AND RELATIONSHIPS lending and Africa. Nevertheless, the performance of Blue’s stakeholders include shareholders, employees, companies like Blue has motivated mainstream fi nanciers customers, the community, governments, regulators to offer loans or to enter these markets themselves. and various resource and service providers. The board These fi nanciers will soon discover that micro-lending in recognises the importance of ensuring the appropriate Africa means getting through numerous obstacles before balance in meeting the needs and expectations of all their operations even get off the ground. The massive stakeholders, building lasting relationships with them losses suffered by a mainstream South African bank some and reporting to them in a transparent, balanced and years back demonstrate what can happen when potential understandable manner. Blue recognises the importance clients aren’t correctly assessed in terms of risk. for equal and timely disclosure to shareholders as prescribed by JSE Listings Requirements and guidelines. • Although political revolutions or global economic crises The annual and interim fi nancial reports aside, Blue cannot always be foreseen (ie Kenya), Blue’s executive disseminates information comprehensively through other team, with many collective years in micro-lending, channels of communication such as the printed media, has the proven track record to manage the risk factors radio, television, SENS and its website: www.blue.co.za. inherent in our markets. The team is supported by a Group risk committee driven by a full-time Group risk Blue’s investor relations department is responsible for and compliance offi cer who was recently appointed to ensuring appropriate communication with shareholders and manage risk and compliance throughout the Group. the investment community. Regular contact is maintained WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 63

Blue strengthened its risk function by creating Credit Steering and Risk Steering committees, reporting to the Group Risk Committee

GROUP RISK COMMITTEE THE RISK STEERING COMMITTEE Blue’s standing Group risk committee oversees the risk The risk steering committee deals with all other risks function of the Group and identifi es different types of risks inherent to the conducting of business that do not directly such as client, system, communication, management, relate to the core operations of Blue, such as, for example, political environment, corruption and legislation. It then disciplinary codes and practices. This committee also establishes how to mitigate and manage those risks. oversees Blue’s total risk management function and strategy. This committee is currently headed by Mr George Negota. This committee is staffed by: RESTRUCTURING OF RISK FUNCTIONS • The risk and compliance offi cer In the fi nancial year under review, Blue decided to • Head of operations: Africa strengthen and restructure its all-important risk function • Head of operations: South Africa by creating two new standing risk sub-committees that • Group collections manager would report directly to the Group risk committee. These • Head of internal audit. are the: ROLLOUT OF RISK MATRICES • Credit steering committee. In this fi nancial year, with the implementation of a more • Risk steering committee. rigorous and comprehensive risk management system, all Blue Whereas previously the risk committee was made up of departments, units and branches were required to complete representatives from each country and key department, risk matrices for their operations. These were duly completed this arrangement proved cumbersome in a rapidly and the process of collating all this information into useful risk growing business, therefore these persons now report identifi cation and compliance data commenced in May 2008. through the abovementioned sub-committees. DESIGNING AND IMPLEMENTING THE RISK CHARTER CREDIT STEERING COMMITTEE The redesign of Blue’s risk function went hand-in-hand With responsibility for overseeing operational credit risk, with the development of a risk charter that would in the credit steering committee comprises: future guide all risk-related operations. This charter was • An executive director from the board fi nally approved after the fi nancial year-end, though • A fi nancial director from the board risk activities had already been operating within its • Head of operations: Africa parameters for several months. • Head of operations: South Africa In essence, all risk-related issues are managed in terms • Group risk and compliance offi cer of four distinct phases: • The Group collections manager. • Risk identifi cation – internal and external events This committee’s activities are focused solely on risks affecting achievement of objectives are identifi ed. applicable to Blue’s core activity as fi nancier to previously • Risk assessment – impact and probability of risks. underserved and formerly unbanked persons. As such • Risk management – focus on higher risk items in risk it deals with day-to-day operational credit issues. matrices. These include product-related decision-making and • Risk governance (monitoring) – appropriate implementing policies on various matters applicable to management of risk and regular reviewing of matrices. operational credit and collection issues. These are, for • The diagram set out overleaf highlights key features example, the settling of debt, refunding and providing for of the aforementioned. Specifi cally, it recognises the bad debts. This committee ensures that such policies are important role played by governance structures and the disseminated throughout Blue’s operations. need to focus on performance. Each Blue country and business unit is required to OPERATIONAL MANUALS complete and maintain a matrix on its own particular Blue has operational manuals for all departments, risk factors. These matrices are then collated by both the business units and branches. Each country where Blue credit steering committee and the risk steering committee has its own dedicated operational manual that will detail in respect of their particular mandates, to provide the the required operational practices through all levels, from basis for biannual inspections of each and every Blue head offi ce level down to the furthermost branch. Based business unit or department. on “best practices” and adapted to Blue’s specifi c needs, WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 64 Blue Financial Services Limited • Annual Report 2008

Risk management framework

All employees

Business units

Management in all countries of operation

Risk management

Executive committee

Risk ownership

Risk committee Audit committee

Risk monitoring

Risk Risk Management & Board of directors Management Assurance & Assurance internal and internal and external external auditors auditors WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 65

Risk assessment

Risk exposure Legal consideration Control options

Risk Risk Risk management identification characterisation decisions

Exposure assessment Other economic and social factors Risk management these manuals are living documents and will be reviewed EXPANDED INTERNAL AUDIT TEAM AND REVISED biannually and amended to include new products, STRUCTURE business process improvements and the results of risk At the end of the 2006/07 fi nancial year Blue had three matrix surveys and internal audit recommendations. internal auditors that focused mainly on South African operations. This was not deemed adequate by the audit INTERNAL AUDIT committee in light of Blue’s growing operations across the An appropriately mandated and functional internal audit African continent during 2007/08. division is integral to strong corporate governance and risk management. It provides independent and objective Grant Chittenden was appointed as Head: Internal Audit opinions to the board and senior management on whether during the period under review. He was commissioned the company’s risks are being acceptably managed via by the audit committee to defi ne a new structure for the appropriate internal controls. internal audit division that would function wherever Blue operates in Africa. Four additional internal auditors were In the 2006/07 fi nancial year, Blue began to formalise and duly recruited and the division’s scope broadened to restructure its internal audit function. This process was largely include all African operations and key Blue business units. completed in the year under review. The internal audit structure has been revised to include INTERNAL AUDIT CHARTER the following portfolios: A key component of formalising Blue internal audit • Blue Financial Services (Pty) Ltd and RSA branches mandate was the drawing up of an internal audit charter • Blue African operations and branches that outlines the functions and responsibilities of the • Blue Group information and communications internal audit division in terms of: technology (ICT) • Mission, objectives and scope • Blue Group Head Offi ce, shared services, training and • Accountability development. • Independence REPORTING AND ACCOUNTABILITY • Responsibility The Head: Internal Audit reports directly to the board and • Authority the audit committee in terms of: • Standards of audit practice • Annually assessing the adequacy and effectiveness of • External relationships. the organisation’s processes for controlling activities The charter was fi nalised toward the end of the year and managing risks. under review and was formally approved by the board. • Reporting on the status and results of the annual audit plan. • Coordinating with and overseeing other control and monitoring functions such as risk management, legislative compliance, security, ethics, equity, occupational health, environmental and external audit. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 66 Blue Financial Services Limited • Annual Report 2008

Risk drivers

M y o if t Cost ni n Credit and t e Management o d Collection r I Management Liquidity

Marketing and Sales

Interest Rate Risk Equity/Debt/ Levels of Funding Capital/ Risk Foreign Exchange

EnvironmentPolitical

Change

Management

Technology Human M e a Regulatory Resources r na u ge Risk s ea M WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 67

RISK-BASED AUDITING National Credit Act (NCA) on 1 June 2007 strained the ICT In this period Blue made signifi cant progress in re-aligning systems of South Africa’s commercial banks, Blue didn’t all its business processes and decision-making functions experience undue diffi culties as its systems were already to a risk-based framework. In terms of this framework, aligned to the NCA’s requirements. internal audit is represented on the risk committee. Both Another risk is the slowing South African economy, of these entities report to the audit committee, although, which has been heavily impacted by electricity outages, when necessary, internal audit has unrestricted access to sharply higher infl ation fi gures due to food and fuel the chief executive offi cer and the chairperson of the audit price increases, and the resultant climb in interest rates. committee. Blue’s business in South Africa hasn’t yet experienced a Risk assessments were performed and key controls consequent slowdown in credit applications. identifi ed for all Group business units and African AFRICAN COUNTRY RISKS operations, following which the annual audit plan was Although for decades Africa was adjudged the riskiest developed. continent on which to do business, this risk is falling in BEST PRACTICES AND EXTERNAL RELATIONSHIPS magnitude by the year. A wave of democracy and political All internal audit practices are designed to meet or exceed stability is sweeping across the continent – although a few the standards for the Professional Practice of Internal aberrations such as Zimbabwe remain – which is being Auditing, the Statement of Responsibilities of Internal accompanied by a tide of new investment from institutions Auditing and the Code of Ethics for Internal Auditing as and countries such as the World Bank, IMF and China. published by the Institute of Internal Auditors. Each country presents a different challenge, therefore Blue conducts studies and weighs up the pros and cons Risk Tolerance carefully before deciding to go into a new country. Factors Risk tolerance is loosely defi ned as the amount of risk to consider include stability, economic growth, accessibility, an organisation will accept within parameters it has set potential markets, legislation, bureaucracy and corruption. for itself. It may even exceed those parameters for short periods if the end objective is deemed worthwhile. There have been instances where government offi cials have been bribed by competitors to keep Blue out of a Although Blue considers itself to be a highly region, but they have not succeeded yet. Where Blue entrepreneurial organisation that is performance driven, feels that legislation is lacking to protect consumers and it has no tolerance for unanalysed risk. Blue believes in ethical lenders, it will lobby to have appropriate regulations thoroughly investigating, and “reconnoitring” as it were, introduced. new opportunities. For example, before Blue enters into a new African country, it will meticulously research all Once the decision to enter a country is taken, Blue opens aspects of it so that a thoroughly informed decision can a local subsidiary, employs local people and works to be made. integrate itself fully into local communities. FORMS OF RISK FINANCIAL RISKS INSURANCE RISK The nature of its business dictates that Blue will face Blue is leveraging its growing branch network to roll numerous fi nancial risks, which are monitored and out a widening spread of insurance products. In Africa, managed by its internal auditors. These risks include insurance is particularly at risk from issues such as HIV/ credit legislative compliance, currency fl uctuations and Aids, fraud, crime and unethical competition. interest rates. SOUTH AFRICA RISKS INFORMATION AND COMMUNICATIONS TECHNOLOGY South Africa’s fi nancial market is the most sophisticated (ICT) RISKS and also the most regulated market in South Africa. ICT risks include potential loss of data, theft of Although much regulation introduced in recent years is information, downtime, and the lack of ICT infrastructure progressive and protects consumers, it is diffi cult and costly in much of Africa. Blue has introduced new ICT technology to implement, particularly in terms of adapting systems that has made its own digital infrastructure more secure and retraining staff. Although the full implementation of the and stable than before. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 68 Blue Financial Services Limited • Annual Report 2008

LEGAL RISKS FOREIGN EXCHANGE RISKS Blue has an in-house legal department staffed by four full In principle, Blue minimises exchange fl uctuation risks time legal offi cers with a collective legal experience of by funding its operations in each country through over 50 years to manage its legal issues such as litigation, locally sourced capital, or wholesale capital raised from trademarks and reputational risk. international investors specifi cally for that particular country. In certain countries such as Botswana and CORPORATE GOVERNANCE RISKS Zambia, however, with interest rates over 20%, it South Africa, where Blue is listed on the JSE Limited, has becomes more prudent to accept the exchange fl uctuation among the world’s most advanced corporate governance risks and bring in signifi cantly cheaper capital from structures. Compliance is therefore complex and closely elsewhere. monitored. A key risk is the involuntary disclosure of price-sensitive information when dealing with the media Although a substantial portion of Blue’s investor funding and investors during closed periods and in one-on-one is received in foreign currencies, its biggest exchange risk meetings. Good corporate governance dictates that all at present is the conversion from South African rand into price-sensitive information should fi rst be communicated local African currencies during transfers between the Blue through the Stock Exchange News Service (SENS), the holding company and country subsidiaries. JSE’s offi cial channel for investor-related information. EQUITY AND DEBT FUNDING RISKS INTEREST RATE AND COST OF LOAN FUNDING RISKS Blue’s share price is at historic highs and it is suffi ciently In Blue’s current countries of operation, South Africa is the capitalised to safely drive and expand planned operations. only country that has a central bank that fi xes its prime As a young and quickly expanding company, investors and interest rate. Most other African countries, in accordance analysts have noted that Blue’s price/earnings (PE) ratio is with World Bank recommendations, allow interest rates not applicable at this stage. PE divided by its annual rate of to fl oat according to market demand and inter-bank growth (PEG) is a more accurate measure. Blue’s PEG fi gure competition in each country. of below one (1) reveals that its share price could be regarded as undervalued and should still attract investor interest. Loans are made to Blue at fi xed interest rates; therefore Blue has to obviously re-lend these funds at higher rates. REGULATORY RISKS There is little risk as long as Blue is making its margin on Many major institutions in South Africa’s fi nancial services the interest rate difference. In South Africa, Blue’s lending industry have been compelled to radically overhaul rates will be linked to the fi xed prime, whereas in other their policies and processes to comply with the 1 June countries it will obviously be infl uenced by prevailing 2007 full implementation date of the National Credit Act market rates. (No 34 of 2005). Blue welcomed the National Credit Act (NCA) as positive legislation that protects consumers, INVESTOR RELATIONS particularly the fi nancially naive, from unscrupulous Blue has established an investor relations department to providers of credit. Blue was fully prepared for the ensure timely, two-way communications with investors, transition, as since 1999 micro-lenders have been shareholders and potential stakeholders. regulated by the Micro Finance Regulatory Council, which Investor relations has forged ahead in fulfi lling its task, was incorporated into the new National Credit Regulator. in the process setting benchmarks in corporate and Blue’s systems required minimal adaptation to become investor communications for other fi nancial institutions fully compliant. Even so, Blue’s position is that the full to follow. Blue regards its ongoing, topical and timely effects of the NCA have not yet completely worked communications with all stakeholders as critical to its through the South African economy. mission and business model, therefore intends further HUMAN CAPITAL RISKS growing this function as the group expands and new Blue is fast growing and has acquired other companies operations commence across Africa. with their staff complements, raising a real risk of worker confusion and dissatisfaction, leading to demoralisation and WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Blue Financial Services Limited • Annual Report 2008 69

underperformance. Blue has tackled this potential risk by Johannesburg. This facility is guaranteed to safeguard bringing in a new head of HR to institute a dynamic Blue data and support business continuity, even in the event of culture based on performance and due recognition. Since power outages or natural disasters. its listing and take-over of Future Finance, the company Blue also has a fully functional disaster recovery site, has devoted signifi cant resources to training, establishing which can host key personnel in the event of a disaster. consistent policies for all aspects of the workplace, and This site is hosted by business continuity specialists, and implementing clear, performance-based career paths has access to business critical servers. through which all Blue employees, irrespective of their backgrounds or previous company, can aspire to the highest Blue’s cross-continent ICT infrastructure is managed levels. by an experienced in-house team that was expanded to 22 personnel this year to effectively handle the SALES RISKS increased workload generated by Blue’s fast-expanding At present the potential lack of sales is a non-issue as businesses. Integr8 IT, a leading South African ICT demand exceeds supply. Blue is entering into emerging service provider, provides 24-hour user support, network rather than mature markets, so its only sales-related risks design, maintenance, implementation, resources and are in effectively marketing its brand of ethical lending administration where necessary. and maintaining its service standards to clients. TECHNOLOGY DEVELOPMENTS COLLECTION MANAGEMENT RISKS Although Blue’s core business is fi nancial services and Blue prides itself on the effi ciency of its collections team not ICT, the board took the view that the Company’s ICT and system, which it views as a major competitive edge. function must be considerably strengthened to maintain Many of Blue’s collection people have considerable the service levels and processes that are such key Blue experience earned at other leading micro-lenders. competitive advantages. A high-level ICT manager was COST MANAGEMENT RISKS recruited to lead the expanded team to structure and As a company that has taken the bold decision to expand develop Blue’s ICT infrastructure and systems into the best aggressively into Africa, Blue does have signifi cant of its kind. start-up and infrastructural costs, particularly as opening Risk and compliance audit of Blue’s ICT offi ces in remote African centres can be expensive. Even Blue took a strategic decision to reorganise all ICT so, costs are closely monitored and comparatively low processes in terms of the internationally accepted COBIT under the circumstances. One-off expansionary costs (Control Objectives for Information and related Technology) will fall away as operations and networks in the various framework. COBIT can be defi ned as, “providing managers, countries mature. It must be mentioned that Blue is now auditors, and ICT users with generally accepted measures, years ahead of its competitors in setting up working indicators, processes and best practices for maximising relationships, infrastructure and networks across Africa. the benefi ts of ICT and developing appropriate ICT DIGITAL SYSTEMS AND COMMUNICATIONS governance in organisations”. Blue’s Information and Communications Technology A subsequent ICT functional audit and risk matrix (ICT) infrastructure is undoubtedly among the most completed by the ICT team delivered results that became sophisticated of any fi nancial business operating in the blueprint for Blue’s next generation of ICT systems. Africa. All offi ces and branches are networked via ADSL ICT strategy is aligned with business requirements and landlines (South Africa) and VSAT satellite transmitters/ additional specialists and resources have been planned for. receivers (rest of Africa). The VSAT technology enables Blue to maintain reliable communications with its Voluntary Microsoft audit branches anywhere without needing to rely on local, often The ICT team took the opportunity to volunteer for an audit unreliable, parastatal networks. by Microsoft to determine if any unlicensed software had entered Blue’s systems. This two-month process identifi ed The Group’s primary business servers are hosted at a few anomalies, which were resolved to make the Group Verizon’s state-of-the-art Business Data Centre in 100% compliant with Microsoft licensing requirements. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Corporate governance (continued) 70 Blue Financial Services Limited • Annual Report 2008

… top-rated fi nancial and server technologies were customised to streamline business processes and further speed up turnaround times on Taking digital delivery to the next level customer loan applications. With certain legacy in-house software systems now reaching the end of their useful lifecycles, new generation systems needed to be sourced and assembled in terms of COBIT standards. Top-rated fi nancial and server technologies were customised to streamline business processes and further speed up turnaround times on customer loan applications. The resulting ICT system is upgradable for years into the future and further sharpens Blue’s competitive edge in service delivery and system fl exibility. This new software platform is already operational in South Africa and will be rolled out to Blue’s other African operations during the course of this next fi nancial year. In this period, a new e-mail archiving solution was also introduced throughout the Group. In conclusion, although Blue’s legacy ICT systems had served it well, it was apparent that our fast-growing organisation had to shift to a new platform that offered upwards scalability and continual improvement within the parameters of consistent, world-class ICT standards. In this period Blue took on this challenge and has laid a robust and integrated ICT foundation that will continue to underpin Blue’s competitiveness for years into the foreseeable future. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Contents as at 29 February 2008 Blue Financial Services Limited • Annual Report 2008 71

For ease of referenece the balance sheet and income statement from page 82 and 83 are repeated on the fold-out flap at the back of the report

ANNUAL FINANCIAL STATEMENTS

72 Directors’ responsibilities and approval 73 Report of the independent auditors 73 Certificate by the Company Secretary 74 Directors’ report 82 Balance sheet 83 Income statement 84 Statement of changes in equity 85 Cash flow statement 86 Notes to the financial statements 134 Group segmental analysis 138 Shareholder analysis 139 General information Loose insert Notice of annual general meeting and proxy WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ responsibilities and approval for the year ended 29 February 2008 72 Blue Financial Services Limited • Annual Report 2008

The directors are required by the Companies Act of South Africa, 1973, to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the annual financial statements.

The annual financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within pre- determined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the Group’s cash flow forecast for the year to 28 February 2009 and, in the light of this review and the current financial position, they are satisfied that the Group has or has access to adequate resources to continue in operational existence for the foreseeable future.

The external auditors are responsible for independently reviewing and reporting on the Group’s annual financial statements. The annual financial statements have been examined by the Group’s external auditors and their report is presented on page 73.

The annual financial statements set out on pages 82 to 135, which have been prepared on the going-concern basis, were approved by the board and were signed on its behalf by:

D van Niekerk WJ Smit

22 July 2008 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Report of the independent auditors for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 73

To the shareholders of Blue Financial Services Limited

Report on the financial statements We have audited the accompanying annual financial statements and Group annual financial statements of Blue Financial Services Limited, which comprise the directors’ report, the balance sheet as at 29 February 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 74 to 135.

Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the annual financial statements and Group annual financial statements present fairly, in all material respects, the financial position of Blue Financial Services Limited as of 29 February 2008, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act in South Africa.

PKF (Pta) Inc. Registered Auditors Chartered Accountants (SA) Registration number 2000/026635/21

JP Tromp Director

22 July 2008

Certificate by the Company Secretary

I certify that, to the best of my knowledge, in accordance with the Companies Act 1973 (as amended), the Company has lodged with the Registrar all such returns as are required by a public company in terms of the Act, for the year ended 29 February 2008 and, furthermore, that all such returns are true, correct and up to date.

Reynier van der Westhuizen Company Secretary

22 July 2008 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report for the year ended 29 February 2008 74 Blue Financial Services Limited • Annual Report 2008

The directors submit their report for the year ended 29 February 2008.

1. Review of activities Main business and operations Blue Financial Services Limited (“Blue”) is a pan‑African financial services supplier, providing ethical, innovative and affordable credit solutions to people within Africa. Blue currently operates in Botswana, Kenya, Lesotho, Namibia, Malawi, South Africa, Tanzania, Uganda and Zambia. The Group currently employs more than 1 500 staff and has more than 170 branches in nine countries in Africa.

Financial results Blue generated earnings of R61,7 million for the year ended 29 February 2008 (2007: R32,4 million), up 93% on the prior year. The loan book increased by 133% to R481,9 million (2007: R207 million). The inclusion of the Micro Access Financial Services (Pty) Ltd (“Future Finance”) operation acquired in December 2006 for the entire reporting period, the success in growing the Botswana and Zambian operations and the development of new operations in Lesotho, Malawi and Namibia were the main drivers of the comparative improvement in these results. The Group’s operating margins have declined in the year under review due to the Company’s extensive expansion into new countries as well as a result of corporate governance and management structures being strengthened to ensure sustainable growth.

The increase in other financial liabilities from R44,9 million to R385,2 million is as result of funding obtained from various international funding institutions such as the Dutch Development Bank (“FMO”) and the International Finance Corporation (“IFC”). These funds were utilised to grow the debtors book mainly in operations outside of South Africa.

2. Going concern The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

3. Post balance sheet events Formation of a subsidiary in Nigeria An agreement, dated 6 March 2008, was entered into between Blue Employee Benefits (Pty) Limited Botswana (“BEB”), Blue, Intercontinental Bank plc (“ICB”) and American International Group (“AIG”) (“the parties“) in terms of which Blue will introduce its products to Nigeria and ICB will expand its product offering to its clients to include Blue’s products. A company, Blue Intercontinental Micro Finance Bank (“BIMFB”) (“the new project”), has been established for this purpose.

BIMFB will not have any liabilities, indebtedness or obligations other than in terms of the agreement. BIMFB will be registered in such a manner that its legal structure meets the requirements of the Central Bank of Nigeria to qualify for a Micro Finance Banking licence (“MFB licence”). In order to obtain a MFB licence, an amount of one billion Nigerian naira (approximately USD8,7 million) was deposited into an account as designated by the Central Bank of Nigeria (“the deposit”). BEB and ICB provided the funding for the deposit as set out below.

Subject to the ICB conditions precedent, the following initial subscriptions will be made for BIMFB ordinary shares: • 520 000 ordinary shares by BEB for a total subscription price of USD1 million; and • 280 000 ordinary shares by ICB for a total subscription price of USD10,8 million.

Subject to the AIG conditions precedent, AIG will purchase from BEB the number of 100 000 ordinary shares which will result in AIG holding 10% of BIMFB for USD5 million.

At the same time as the ordinary shares are sold to AIG, further BIMFB ordinary shares will be subscribed for as follows: • 130 000 ordinary shares by BEB for a total subscription price of USD6 million; and • 70 000 ordinary shares by ICB for a total subscription price of USD3,2 million. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 75

The resulting shareholding in BIMFB will be as follows:

% Shareholder shareholding

BEB or another member of the Blue group of companies (“the BEB ordinary shares”) 55 ICB (“the ICB ordinary shares”) 35 AIG (“the AIG ordinary shares”) 10 100

Acquisition of Nedfin Limited On 8 May 2008, Blue announced that Blue Employee Benefits (Pty) Limited Botswana (“BEB”) a wholly owned subsidiary of Blue, had entered into a sale agreement in terms of which BEB purchased the entire share capital in and claims against Nedfin Limited (“Nedfin”) with effect from 1 April 2008, for a cash consideration of USD9 million.

Nedfin, a company duly incorporated in Zambia under registration number 56964, commenced trading in July 2005 and was granted its Non‑Banking Financial Institution Licence by the Bank of Zambia in September 2005. It is involved in the micro‑lending business, providing small to medium size loans to individuals who are gainfully employed and where repayments in respect of such loans are collected in cash, debit order or through payroll deduction. The business focuses on short‑term lending through its eight Zambian branches. The acquisition of Nedfin will result in Blue having a combined branch network in Zambia of 20 branches and will effectively make Blue the single biggest micro‑financier in Zambia.

Issue of unsecured convertible bonds On 15 April 2008, Blue advised shareholders that the Company had entered into an agreement with foreign investor, EMP Africa FII Investments LLC (“EMP”), in terms of which Blue will issue and sell 10 convertible bonds (“convertible bonds”) for USD10 million.

The terms of the convertible bonds are as follows: • Issue and price: 10 convertible unsecured bonds at an aggregate value of USD10 million. • Interest rate: 10% per annum payable bi‑annually in February and August. • Maturity date: 28 February 2013. • Conversion: All the bonds. • Conversion event: Event of material default/mandatory conversion. • Mandatory conversion: At a price of R5,30 (“conversion price”) per Blue ordinary share operative immediately when the price of Blue’s ordinary shares, based on the weighted average traded price on the JSE, equals or exceeds R5,83 for 30 consecutive days. • Currency: Converts to rand at the actual exchange rate upon initial receipt of the funds. On 14 July 2008 the mandatory conversion was effected, when Blue’s share price traded above R5,83 for 30 consecutive days.

Botswana dual‑listing Effective 15 May 2008, the current share capital of Blue, which is listed on the JSE Limited, became available for trade on the Botswana Stock Exchange (“BSE”) after the Company’s dual listing on the BSE was approved. No additional ordinary shares were issued.

4. Authorised and issued share capital 118 279 438 ordinary shares were issued during the year under review. Of these 938 137 ordinary shares were issued at R2,83 per share for the acquisition of the remaining 85% in Greenstart Homeloans (Pty) Limited and the remaining 12% in Blue Incremental Housing Finance (Pty) Limited. 23 838 384 ordinary shares were issued at R2,97 per share to the International Finance Corporation (IFC) for a total cash consideration of R70,8 million. 5 000 000 ordinary shares were issued to Millennium European Holdings (Millennium) after they exercised 5 000 000 options at R3,00.

140 000 000 convertible redeemable class A preference shares were converted for 88 502 917 ordinary shares by American International Group (“AIG”).

90 000 000 convertible redeemable class B preference shares were issued during the current financial year for a total cash consideration of R35 000 000 to AIG.

During the current financial year 1 747 636 ordinary shares were issued to staff for services rendered. The ordinary shares were issued at a weighted average share price of R2,93 per share. 4 620 606 ordinary shares remain unallocated in the staff share scheme. (Refer to note 18).

As a result of the above issues and conversions, a share premium of R127 211 148 was raised after accounting for share issue expenses of R1 566 951. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 76 Blue Financial Services Limited • Annual Report 2008

5. Share incentive scheme Refer to note 18 for detail about share based payments during the current year.

6. Borrowing limitations In terms of the articles of association of the Company, the directors may exercise all the powers of the Company to borrow money, as they consider appropriate.

7. Purchase Of Minority Interest In line with the Group policy no dividend has been declared for the year under review.

8. Directors The directors of the company during the year and to the date of this report are as follows:

Nationality Changes

Executive directors D van Niekerk South African Appointed 1 October 2005 JC Maritz South African Appointed 1 September 2007 – Resigned 27 June 2008 WJ Smit South African Appointed 1 October 2005 JS Coetzee South African Appointed 1 October 2005 – Resigned 1 September 2007 RA Swart South African Appointed 8 March 2006 – Resigned 1 February 2008 G Chittenden South African Appointed 27 June 2008

Non-executive directors MJ Sondiyazi South African Appointed 8 March 2006 A Steyn South African Appointed 11 October 2006 A Couloubis South African Appointed 1 June 2007 NP Kanabar Tanzanian Appointed 13 March 2007 CW Siwale Zambian Appointed 3 April 2006 – Retired 27 September 2007 GL Sangudi Tanzanian Appointed 20 May 2008 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 77

9. Directors’ emoluments

Other Directors’ Basic benefits fees remuneration Total Director R’000 R’000 R’000 R’000

2008 Executive directors D van Niekerk – – 1 241 1 241 RA Swart – – 1 220 1 220 JS Coetzee – – – – WJ Smit – – 1 422 1 422 JC Maritz – – 432 432

Non-executive directors MJ Sondiyazi – 71 – 71 CW Siwale – 30 – 30 A Steyn – – – – A Couloubis – – – – NP Kanabar – – – – Total – 101 4 315 4 416

2007 Executive directors D van Niekerk 198 – 462 660 RA Swart 198 – 462 660 JS Coetzee – – 154 154 WJ Smit 132 – 308 440

Non-executive directors MJ Sondiyazi – 30 – 30 CW Siwale – 30 – 30 A Steyn – – – – Total 528 60 1 386 1 974

No share options were granted during the current financial year. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 78 Blue Financial Services Limited • Annual Report 2008

10. Directors’ interestS in contracts During the year under review the following transactions involved directors’ interests:

Sale of debtors book On 1 February 2008, Blue Financial Services (South Africa) (Pty) Limited sold a substantial portion of its non‑performing debtors book to Northern Spark 108 (Pty) Limited, a company owned by Mr R Swart, for a total cash consideration of R78 million. The purchase price payable by Northern Spark (108) (Pty) Limited to Blue Financial Services South Africa (Pty) Limited will be settled by means of electronic transfer of funds to Blue Financial Services South Africa (Pty) Limited as follows: • R6 million on or before 29 February 2008; • R2,75 million on the last business day of every month commencing March 2008 and ending February 2010; and • R6 million on or before the last business day of March 2010.

Blue Easy Build (Pty) Limited – Loan During the year under review Blue Financial Services Limited increased its loan to Blue Easy Build (Pty) Limited, a company owned by Messrs R Swart and D van Niekerk from R2,7 million to R14,3 million.

Sale of aircraft On 22 February 2008, Blue Employee Benefits (Pty) Limited – Botswana sold two aircraft (one 1977 Baron 58 and one 1975 T210L Centurion II) to Capital Alliance (Pty) Limited, a company owned by Messrs R Swart and D van Niekerk for a total cash consideration of BWP2 550 000.

11. Directors’ interests in the issued share capital of the company was as follows:

Direct holding Indirect holding Beneficially Non-beneficially Beneficially Non-beneficially Total ’000 ’000 ’000 ’000 ’000

2008 Executive D van Niekerk 78 302 – 18 876 – 97 178 RA Swart – resigned 78 302 – 18 876 – 97 178 JS Coetzee – resigned – – 2 325 – 2 325 WJ Smit 1 000 – – – 1 000 JC Maritz – – – – –

Non-executive MJ Sondiyazi 250 – – – 250 CW Siwale – resigned 50 – – – 50 A Steyn – – – – – A Couloubis – – – – – NP Kanabar 100 – – – 100

2007 Executive D van Niekerk 73 500 – 18 876 – 92 376 RA Swart 73 500 – 18 876 – 92 376 JS Coetzee 4 350 – – – 4 350 WJ Smit 1 000 – – – 1 000

Non-executive MJ Sondiyazi 250 – – – 250 CW Siwale 50 – – – 50 A Steyn – – – – – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 79

12. Resignations and retirement from the board Mr NP Kanabar (Tanzanian) was appointed as non‑executive director on 13 March 2007. Mr A Couloubis from American International Group (“AIG”) joined the board as non‑executive director on 1 June 2007. Mr JC Maritz joined the board on 1 September 2007 as financial director, following the resignation of Mr JS Coetzee as financial director with effect from that date. Mr CW Siwale retired by rotation at the annual general meeting on 27 September 2007. Mr R Swart resigned as an executive director of Blue with effect from 1 February 2008. Ms G Sangudi was appointed as non‑executive director on 20 May 2008. Mr JC Maritz resigned as an executive director of Blue with effect from 27 June 2008 and Mr G Chittenden was appointed as financial director with effect from 27 June 2008.

13. Service contracts with directors All executive directors have signed contracts of employment with Blue Financial Services. Standard restraint of trade and confidentiality agreements form part of the service contract.

14. Secretary Ms M Stoltz resigned as secretary of the company on 13 August 2007 and Mr R van der Westhuizen was appointed on 13 August 2007.

Business address Building 10 107 Haymeadow Street Boardwalk Office Park Faerie Glen, Pretoria South Africa, 0081

Postal address PO Box 72041 Lynnwood Ridge, Pretoria South Africa, 0040 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 80 Blue Financial Services Limited • Annual Report 2008

15. Interest in subsidiaries

Country of Net income (loss) incorporation Percentage Indebtedness after tax Name of subsidiary if not the RSA shareholding R R

2008 Blue Employee Benefits (Pty) Limited 100 – 36 391 225 Blue Incremental Housing Finance (Pty) Limited 100 – 18 024 914 Blue Financial Services (South Africa) (Pty) Limited 100 166 994 394 31 344 461 Blue Employee Benefits (Pty) Limited Botswana 100 24 005 024 9 090 137 Blue Financial Services Zambia Limited Zambia 100 39 905 988 21 367 485 Blue Limited Kenya 100 11 962 277 1 280 900 Blue Employee Benefits Limited Uganda 100 20 412 163 (8 723 303) Blue Investments Limited Cameroon 75 678 970 193 033 Blue Financial Services Limited Tanzania 100 29 070 510 (1 823 437) Blue Financial Services Limited Rwanda 100 – – Greenstart Homeloans (Pty) Limited 100 – 18 708 963 Africa Mobile Cellular (Pty) Limited 100 – 1 781 353 Makhulong Multi Finance (Pty) Limited Lesotho 100 26 991 603 6 398 904 Blue Financial Services Limited Malawi 100 23 157 387 14 173 504 Bonus Finance Namibia (Pty) Limited Namibia 100 18 584 929 2 879 102 Blue Staff Share Scheme 4 620 605 –

2007 Blue Employee Benefits (Pty) Limited 100 15 199 289 8 761 473 Blue Incremental Housing Finance (Pty) Limited 88 6 068 184 3 999 391 Blue Financial Services (South Africa) (Pty) Limited 100 7 126 025 11 025 915 Blue Employee Benefits (Pty) Limited Botswana 100 13 267 092 4 831 511 Blue Financial Services Zambia Limited Zambia 100 11 539 387 6 150 825 Blue Limited Kenya 100 538 259 (570 006) Blue Employee Benefits Limited Uganda 100 3 679 002 (1 427 641) Blue Investments Limited Cameroon 75 6 789 701 (928 281) Blue Financial Services Limited Tanzania 100 3 960 190 (2 300 466) Blue Financial Services Limited Rwanda 100 – – Blue Staff Share Scheme 6 368 241 –

Details of the Company’s investment in subsidiaries are set out in note 11. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Directors’ report (continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 81

16. Annual general meeting Notice of the annual general meeting of shareholders and proxy form appears as a loose insert at the back of this report.

17. Special resolutions Blue Financial Services Limited passed the following special resolutions during the year under review:

1. That the Company is granted general authority in terms of the Act for the acquisition by the Company or any of its subsidiaries of ordinary shares issued by the Company, which authority shall be valid until the earlier of the next annual general meeting of the Company or the variation or revocation of such general authority by special resolution by any subsequent general meeting of the Company, provided that the general authority shall not extend beyond 15 (fifteen) months from the date of the annual general meeting held on 27 September 2007.

2. That the Company consolidates its articles of association to incorporate articles 8A, 8B and 8C of the Company’s articles of association, into one document.

3. That the Company consolidates its articles of association to incorporate new articles 8.1.1 (iii), 8.1.2 (iii) and 8.1.3 (iii).

18. Auditors PKF (Pta) Inc will continue in office in accordance with section 270(2) of the Companies Act.

19. Designated advisEr In term of section 21.13 of the Alternative Exchange Listings Requirements, an issuer is required to appoint a designated adviser (“DA”) and must ensure that it has a DA at all times.

Exchange Sponsors (Pty) Ltd (“Exchange”) was appointed DA prior to the AltX listing during the financial year ending 28 February 2007.

On 30 March 2007 Blue and Exchange decided to part ways following the resignation of an executive of Exchange, who was primarily responsible for Blue and the future requirements of the company with regard to, inter alia, international expansion. In compliance with the Alternative Exchange Listings Requirements, Ernst & Young Sponsors (Pty) Limited was appointed as Blue’s DA as from 1 April 2007.

On 25 April 2008 shareholders were advised that Blue had appointed PSG Capital (Pty) Limited as DA to the Group. The new appointment was as a result of the prior designated adviser, Ernst & Young Sponsors (Pty) Limited, giving notice to Blue that it no longer had the minimum number of JSE approved executives required in terms of the JSE Listings Requirements and therefore could not continue to offer this service. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Balance sheet as at 29 February 2008 82 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 Notes R R R R

Assets Cash and cash equivalents 6 66 975 504 11 832 633 24 657 112 1 002 Loans and advances to customers 7 481 941 481 207 097 532 – – Trade and other receivables 8 8 362 327 2 656 221 5 140 334 – Other financial assets 9 122 841 508 3 778 939 55 489 504 – Investment property 10 – 1 976 288 – – Investments in subsidiaries 11 – – 342 851 637 386 431 778 Loans to Group companies 12 – – 366 383 850 67 886 380 Property, plant and equipment 13 44 100 886 20 306 491 14 667 570 356 990 Current tax receivable 1 495 705 – 1 467 172 – Intangible assets 14 67 514 745 59 058 393 – – Goodwill 15 295 713 696 265 021 692 – – Deferred tax 16 19 785 835 1 303 142 9 548 651 – Total assets 1 108 731 687 573 031 331 820 205 830 454 676 150

Equity and liabilities Equity Share capital 17 526 905 489 399 894 223 531 526 094 406 262 464 Reserves 19 2 058 161 (16 411) – – Retained income 93 799 402 32 057 498 3 401 879 4 429 588 Minority interest (198 440) 539 952 – – 622 564 612 432 475 262 534 927 973 410 692 052 Liabilities Bank overdraft 6 12 835 202 32 306 186 50 196 19 815 304 Trade and other payables 20 22 633 397 14 162 271 8 716 972 6 454 301 Current tax payable 35 748 444 17 463 511 – 318 300 Other financial liabilities 21 385 199 187 44 886 856 268 293 225 11 222 252 Loans from Group companies 12 – – – 6 173 941 Finance lease obligation 22 9 054 857 11 992 709 7 424 260 – Loans from shareholders – 328 074 – – Provisions 23 2 354 788 2 131 068 533 390 – Operating lease liability 830 349 153 243 259 814 – Deferred tax 16 17 510 851 17 132 151 – – 486 167 075 140 556 069 285 277 857 43 984 098 Total equity and liabilities 1 108 731 687 573 031 331 820 205 830 454 676 150 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Income statement for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 83

Group Company 2008 2007 2008 2007 Notes R R R R

Interest income 182 719 929 114 336 674 – – Interest expense 24 (65 985 214) (25 166 858) (24 483 589) (3 976 163) Net interest income 116 734 715 89 169 816 (24 483 589) (3 976 163) Administration and insurance income 148 338 803 32 403 845 36 562 275 24 374 352 Other operating income 16 897 746 4 372 780 570 969 16 574 Operating income 281 971 264 125 946 441 12 649 655 20 414 763

Impairment of loan advances (4 471 786) (3 314 003) – – Operating expenses (212 632 616) (80 947 461) (60 291 569) (18 926 076) Operating profit (loss) 25 64 866 862 41 684 977 (47 641 914) 1 488 687 Investment revenue 26 12 562 691 334 038 30 903 913 3 259 201 Fair value adjustments 27 6 161 641 – 6 161 641 – Profit/(loss) before taxation 83 591 194 42 019 015 (10 576 360) 4 747 888 Taxation 28 21 849 290 9 648 215 (9 548 651) 318 300 Profit/(loss) for the year 61 741 904 32 370 800 (1 027 709) 4 429 588

Attributable to: Equity holders of the parent 61 741 904 32 057 498 (1 027 709) 4 429 588 Minority interest – 313 302 – –

Earnings ratios Earnings per share 39 14,58 10,37 Headline earnings per share 39 12,28 11,81 Diluted earnings per share 39 13,93 8,77 Diluted headline earnings per share 39 11,86 9,89 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Statement of changes in equity for the year ended 29 February 2008 84 Blue Financial Services Limited • Annual Report 2008

Total Foreign attributable to currency equity holders Total share translation Retained of the Group/ Minority Total capital reserve income Company interest equity R R R R R R

Group Balance at 01 March 2006 – – – – – – Changes in equity Currency translation differences – (16 411) – (16 411) – (16 411) Total recognised income and expenses for the year – (16 411) – (16 411) – (16 411) Profit for the year – – 32 057 498 32 057 498 313 302 32 370 800 Total recognised income and expenses for the year – (16 411) 32 057 498 32 041 087 313 302 32 354 389 Issue of shares 393 600 000 – – 393 600 000 – 393 600 000 Purchase of own/treasury shares (6 368 241) – – (6 368 241) – (6 368 241) Issue of preference shares 35 200 000 – – 35 200 000 – 35 200 000 Share issue costs (22 537 536) – – (22 537 536) – (22 537 536) Acquired through business combinations – – – – 226 650 226 650 Total changes 399 894 223 (16 411) 32 057 498 431 935 310 539 952 432 475 262 Balance at 01 March 2007 399 894 223 (16 411) 32 057 498 431 935 310 539 952 432 475 262 Changes in equity Currency translation differences – 2 074 572 – 2 074 572 – 2 074 572 Total recognised income and expenses for the year – 2 074 572 – 2 074 572 – 2 074 572 Profit for the year – – 61 741 904 61 741 904 – 61 741 904 Total recognised income and expenses for the year – 2 074 572 61 741 904 63 816 476 – 63 816 476 Issue of ordinary shares 123 657 498 – – 123 657 498 – 123 657 498 Transfer treasury shares issued to staff 1 747 636 – – 1 747 636 – 1 747 636 Employees share option scheme: Proceeds of ordinary shares issued 3 373 083 – – 3 373 083 – 3 373 083 Redemption of preference shares (35 200 000) – – (35 200 000) – (35 200 000) Issue of preference shares 35 000 000 – – 35 000 000 – 35 000 000 Share issue costs (1 566 951) – – (1 566 951) – (1 566 951) Purchase of minority interest – – – – (738 392) (738 392) Total changes 127 011 266 2 074 572 61 741 904 190 827 742 (738 392) 190 089 350 Balance at 29 February 2008 526 905 489 2 058 161 93 799 402 622 763 052 (198 440) 622 564 612 Company Balance at 01 March 2006 – – – – – – Changes in equity Profit for the year – – 4 429 588 4 429 588 – 4 429 588 Issue of ordinary shares 393 600 000 – – 393 600 000 – 393 600 000 Issue of preference shares 35 200 000 – – 35 200 000 – 35 200 000 Share issue costs (22 537 536) – – (22 537 536) – (22 537 536) Total changes 406 262 464 – 4 429 588 410 692 052 – 410 692 052 Balance at 01 March 2007 406 262 464 – 4 429 588 410 692 052 – 410 692 052 Changes in equity Loss for the year – – (1 027 709) (1 027 709) – (1 027 709) Issue of ordinary shares 123 657 498 – – 123 657 498 – 123 657 498 Employees share option scheme: Proceeds of ordinary shares issued 3 373 083 – – 3 373 083 – 3 373 083 Redemption of preference shares (35 200 000) – – (35 200 000) – (35 200 000) Issue of preference shares 35 000 000 – – 35 000 000 – 35 000 000 Share issue costs (1 566 951) – – (1 566 951) – (1 566 951) Total changes 125 263 630 – (1 027 709) 124 235 921 – 124 235 921

Balance at 29 February 2008 531 526 094 – 3 401 879 534 927 973 – 534 927 973 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Cash flow statementfor the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 85

Group Company 2008 2007 2008 2007 Notes R R R R

Cash flows from operating activities Cash (used in) generated from operations 30 (185 182 738) 4 829 361 (20 432 768) 16 712 427 Interest income 12 562 691 334 038 12 344 687 3 259 201 Interest expense (65 985 215) (25 166 858) (24 483 589) (3 976 163) Tax paid 31 (23 868 698) (7 973 362) (1 785 472) – Other non-cash items 605 785 861 353 – 861 353 Net cash from operating activities (261 868 175) (27 115 468) (34 357 142) 16 856 818 Cash flows from investing activities Purchase of property, plant and equipment 13 (32 185 743) (17 245 568) (15 643 344) (411 344) Sale of property, plant and equipment 6 062 590 211 959 50 630 – Sale of investment property – 7 020 000 – – Acquisition of businesses 32 (41 988 360) (79 164 231) (21 660 996) (84 200 000) Loans advanced to Group companies – – (218 213 548) (62 056 398) Purchase of financial assets (44 931 981) (2 868 222) (55 489 504) – Sale of financial assets – – – – Impairment of loan – (4 438 922) – (4 438 922) Net cash from investing activities (113 043 494) (96 484 984) (310 956 762) (151 106 664) Cash flows from financing activities Proceeds on share issue 84 233 048 82 601 723 84 233 048 82 601 723 Issue on redeemable preference shares 35 000 000 35 200 000 35 000 000 35 200 000 Proceeds on other financial liabilities 333 558 402 (14 674 824) 263 077 814 (4 366 179) Proceeds on debentures – – – 1 000 000 Repayment of shareholders’ loan (328 074) – – – Finance lease payments (2 937 852) – 7 424 260 – Net cash from financing activities 449 525 524 103 126 899 389 735 122 114 435 544 Total cash movement for the year 74 613 855 (20 473 553) 44 421 218 (19 814 302) Cash at the beginning of the year (20 473 553) – (19 814 302) – Total cash at end of the year 6 54 140 302 (20 473 553) 24 606 916 (19 814 302) WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statementsfor the year ended 29 February 2008 86 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES Presentation of annual financial statements The following principal accounting policies have been applied consistently in dealing with items that are considered material in relation to the Blue Financial Services Limited consolidated financial statements as well as the Blue Financial Services Limited financial statements.

The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the South African Companies Act, 1973, as amended.

In preparing these financial statements, the Company has adopted IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements – Capital Disclosures for the first time. The adoption of IFRS 7 and the amendment to IAS 1 impacted the type and amount of disclosures made in these financial statements, but had no impact on the reported profits or financial position of the Company. In accordance with the transitional requirements of the standards, the Company has provided full comparative information.

The financial statements are presented in South African rand (ZAR), the functional currency of the entity Blue Financial Services Limited. They are prepared on the historical cost basis, except for the following assets and liabilities, which are stated at their fair value: • financial assets and financial liabilities at fair value through equity; • financial assets classified as available-for-sale at fair value through profit or loss; and • investment property and owner-occupied properties which are measured at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 1.1.

1.1 Significant judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

Impairment of loans and advances The Group assesses its loans and advances for impairment at each balance sheet date. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.

The impairment for loans and advances is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period.

Goodwill impairment testing The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value in use calculations and fair values. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumption may change which may then impact the Group’s estimations and may then require a material adjustment to the carrying value of goodwill and tangible assets.

The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 87

The Group determines the recoverable amount, being the higher of the fair value less cost to sell and the value in use, of individual cash- generating units by discounting the expected future cash flows of each of the identified cash-generating units.

The risk adjusted discount rate is approximately 17 percent. The recoverable amount is then compared to the carrying value of the respective cash generating unit and an impairment loss is raised if required. The calculation uses cash flow projections from business plans for the forthcoming five years.

Valuation of intangible assets The fair values of intangible assets were determined by applying various assumptions and judgements. This is as a result of the fact that no active market exists for these assets. Fair value was determined over the estimated useful lives of the assets. In estimating the useful life of an intangible asset, the following factors were considered: • the expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team; • typical product lifecycles for the asset and public information on estimates of useful lives of similar assets that are used in a similar way; • technical, technological, commercial or other types of obsolescence; • the stability of the industry in which the asset operates and changes in the market demand for the products or services output from the asset; • expected actions by competitors or potential competitors; • the level of maintenance expenditure required to obtain the expected future economic benefits from the asset and the entity’s ability and intention to reach such a level; • the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and • whether the useful life of the asset is dependent on the useful life of other assets of the entity.

Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities and assets for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosure of provisions is included in note 23.

Taxation The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Expected manner of realisation for deferred tax Deferred tax is provided for on the fair value adjustments of investment properties based on the expected manner of recovery, ie sale or use. This manner of recovery affects the rate used to determine the deferred tax liability. Refer note 16.

1.2 Investment property Investment property comprises non‑owner occupied buildings used to earn rentals and for capital appreciation. Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the enterprise, and the cost of the investment property can be measured reliably.

Investment property is recognised at cost. Transaction costs are included in the initial measurement.

Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised.

Fair value Subsequent to initial measurement, investment property is measured at fair value.

A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 88 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES (continued) 1.3 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the Company; and • the cost of the item can be measured reliably.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included in the cost of property, plant and equipment.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.

Depreciation is provided on all property, plant and equipment to write down the cost, less residual value, on a straight-line basis over their useful lives as follows: Item Average useful life Furniture and fixtures 5 years Motor vehicles 5 years IT equipment 3 years Aircraft 4 years

The residual value, useful life of each asset and depreciation methods are reviewed annually and adjusted if appropriate. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.4 Goodwill Goodwill is initially measured at cost, being the excess of the business combination over the Company’s interest of the net fair value of the identifiable assets, liabilities and contingent liabilities.

Subsequently goodwill is carried at cost less any accumulated impairment.

The excess of the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of the business combination is immediately recognised in profit or loss.

Internally generated goodwill is not recognised as an asset.

1.5 Intangible assets An intangible asset is recognised when: • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and • the cost of the asset can be measured reliably.

Intangible assets are recognised initially at cost.

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when: • it is technically feasible to complete the asset so that it will be available for use or sale; • there is an intention to complete and use or sell it; • there is an ability to use or sell it; • it will generate probable future economic benefits; • there are available technical, financial and other resources to complete the development and to use or sell the asset; and • the expenditure attributable to the asset during its development can be measured reliably. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 89

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets. For all other intangible assets amortisation is provided on a straight-line basis over their useful lives.

The amortisation period and the amortisation method for intangible assets are reviewed every period end and is listed as part of note 14.

Reassessing the useful life of an intangible asset with a definite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.

Internally generated brands, customer lists and items similar in substance are not recognised as intangible assets.

1.6 Investments in subsidiaries Group annual financial statements The Group annual financial statements include those of the holding company and its subsidiaries. The results of the subsidiaries are included from the date that control is obtained until the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.

On acquisition the Group recognises the subsidiary’s identifiable assets, liabilities and contingent liabilities at fair value, except for assets classified as held for sale, which are recognised at fair value less costs to sell.

Company annual financial statements In the Company’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: • the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Company; plus • any costs directly attributable to the purchase of the subsidiary.

An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

1.7 Financial instruments Initial recognition The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument.

Fair value determination The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Transaction costs are included in the initial carrying value of the financial instruments except for financial instruments classified at fair value through profit and loss.

Loans to shareholders, directors, managers and employees These financial assets are recognised initially at fair value plus direct transaction costs.

Subsequently these loans are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 90 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES (continued) 1.7 Financial instruments (continued) On loans receivable an impairment loss is recognised in profit or loss when there is objective evidence that it is impaired. The impairment is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

Loan advances and trade and other receivables Loan advances and trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a loan advance or trade receivable is uncollectible, it is written off against the allowance account for loan advances or trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement.

Trade and other payables Trade payables are measured initially at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are recorded initially and subsequently at fair value.

Bank overdraft and borrowings Bank overdrafts and borrowings are measured initially at fair value, and are measured subsequently at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs.

Other financial liabilities are measured initially at fair value and subsequently at amortised cost, using the effective interest rate method.

Other loans and receivables Other financial assets classified as loans and receivables are recognised initially at fair value plus transaction costs, and are subsequently carried at amortised cost less any accumulated impairment.

These financial assets are not quoted in an active market and have fixed or determinable payments.

Available-for-sale financial assets These financial assets are non-derivatives that are either designated in this category or not classified elsewhere.

Investments are recognised and derecognised on a trade-date basis where the purchase or sale of an investment is under a contract which terms require delivery of the investment within the timeframe established by the market concerned.

These investments are measured initially and subsequently at fair value. Gains and losses arising from changes in fair value are recognised directly in equity until the security is disposed of or is determined to be impaired.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 91

below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in profit or loss, while translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of “other income”. Dividends on available-for-sale equity instruments are recognised in the income statement as part of “other income” when the Group’s right to receive payments is established.

Equity investments for which a fair value is not determinable are held at cost. Impairments on such investments are not reversed.

1.8 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: • a transaction or event which is recognised, in the same or a different period, directly in equity, or • a business combination.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 92 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES (continued) 1.9 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases – lessee Finance leases are recognised as assets and liabilities in the balance sheet at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.

Operating leases – lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability is not discounted. Any contingent rents are expensed in the period they are incurred.

1.10 Impairment of assets The Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the Group also: • tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period; • tests goodwill acquired in a business combination for impairment annually.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cash- generating units, that are expected to benefit from the synergies of the combination.

An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: • first, to reduce the carrying amount of any goodwill allocated to the cash generating unit; and • then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 93

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.11 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

When the Group acquires its own share capital, the amount of the consideration paid, including directly attributable costs (net of any related tax benefit), is recognised as a change in equity. Shares repurchased by the issuing entity are cancelled. Shares repurchased by Group entities are classified as treasury shares and are held at cost. These shares are treated as a deduction from the issued and weighted average number of ordinary shares and the cost price of the ordinary shares is presented as a deduction from total equity. The par value of the ordinary shares is presented as a deduction from ordinary share capital and the remainder of the cost is presented as a deduction from ordinary share premium.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

1.12 Share-based payments Goods or services received or acquired in a share-based payment transaction are recognised when the goods or as the services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses.

For equity-settled share-based payment transactions, the goods or services received are measured, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably.

If the fair value of the goods or services received cannot be estimated reliably, their value and the corresponding increase in equity, indirectly, are measured by reference to the fair value of the equity instruments granted.

For cash-settled share-based payment transactions, the goods or services acquired and the liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

If the share-based payments granted do not vest until the counterparty completes a specified period of service, the Group accounts for those services as they are rendered by the counterparty during the vesting period, (or on a straight-line basis over the vesting period).

If the share-based payments vest immediately the services received are recognised in full.

For share-based payment transactions in which the terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the components of that transaction are recorded as a cash-settled share-based payment transaction if, and to the extent that, a liability to settle in cash or other assets has been incurred, or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.

1.13 Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 94 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES (continued) 1.14 Provisions and contingencies Provisions are recognised when: • the Group has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

A constructive obligation to restructure arises only when an entity: • has a detailed formal plan for the restructuring, identifying at least: – the business or part of a business concerned; – the principal locations affected; – the location, function, and approximate number of employees who will be compensated for terminating their services; – the expenditures that will be undertaken; and – when the plan will be implemented; and • has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of: • the amount that would be recognised as a provision; and • the amount initially recognised less cumulative amortisation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 34.

1.15 Revenue Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; • the stage of completion of the transaction at the balance sheet date can be measured reliably; and • the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest income The majority of the revenue of the Company consists of interest income, and is recognised on a time proportion basis using the effective interest method.

When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans

is recognised using the original effective interest rate. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 95

Administration fee received Initial administration fees received are recognised on the successful approval of a loan advance. Monthly service fees are recognised on an accrual basis in the period in which the services are rendered.

Insurance income Insurance agency commissions received or receivable are recognised as revenue on the effective commencement or renewal dates of the related policies.

Dividends Dividends are recognised, in profit or loss, when the Company’s right to receive payment has been established.

1.16 Turnover Turnover comprises sales to customers and service rendered to customers. Turnover is stated at the invoice amount and is exclusive of value added taxation.

1.17 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred.

1.18 Translation of foreign currencies Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in rand, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

At each balance sheet date: • foreign currency monetary items are translated using the closing rate; • non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and • non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous annual financial statements are recognised in profit or loss in the period in which they arise.

When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

Cash flows arising from transactions in a foreign currency are recorded in rand by applying to the foreign currency amount the exchange rate between the rand and the foreign currency at the date of the cash flow.

Investments in subsidiaries, joint ventures and associates The results and financial position of a foreign operation are translated into the functional currency using the following procedures: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement item are translated at exchange rates at the dates of the transactions; and • all resulting exchange differences are recognised as a separate component of equity.

Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation are recognised initially in the translation reserve and recognised in profit or loss on disposal of the net investment.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation.

The cash flows of a foreign subsidiary are translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 96 Blue Financial Services Limited • Annual Report 2008

1. ACCOUNTING POLICIES (continued) 1.19 Consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post- acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

1.20 Segment reporting The Group’s primary segments are geographic. The Group policy is to disclose mandatory segmental information under IAS 14 Segment Reporting and to disclose additional supplemental information for each business segment at the Group’s discretion.

The segmental disclosure of results by geography is determined by the origin of business transacted. The accounting policies of the Group’s reported segments are the same as the accounting policies of the Group. Assets, liabilities, revenues or expenses that are not directly attributable to a particular segment are allocated between segments where there is a reasonable basis for doing so.The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 97

2. Statements and interpretations not yet effective Standards and interpretations effective in 2007 but not relevant The following amendment was mandatory for accounting periods beginning on or after 1 January 2007 but is not relevant to the operations of the Group. • IFRIC 11 IFRS 2 – Group and treasury share transactions • IFRIC 12 – Service Concession Arrangements

Standards and interpretations issued but not yet applied The following standards and interpretations were available for early application but have not yet been applied by the Group in these financial statements: • IFRS 8 – Operating segments for years commencing on or after 1 January 2009 • IAS 1 Revised – Presentation of Financial Statements 1 January 2009 • IAS 23 Revised – Borrowing Costs 1 January 2009 • IFRIC 13 – Customer Loyalty Programmes 1 July 2008 • IFRS 3 – Business Combinations Revised (effective July 2009) • IAS 27 Consolidated and Separate Financial Statements Revised (effective July 2009) Management is in the process of assessing the impact of these amendments and standards on the reported results of the Group and the Company.

Financial Fair value Non-financial Loans and liabilities at through profit Available-for- assets and receivables amortised cost or loss sale liabilities Total

3. Group balance sheet – categories of financial instruments The accounting policies for financial instruments have been applied to the line items below: Group 2008 Assets Cash and cash equivalents 66 975 504 – – – – 66 975 504 Loans and advances to customers 481 941 481 – – – – 481 940 551 Trade and other receivables 8 362 327 – – – – 8 362 327 Other financial assets 121 402 528 – – 1 438 980 – 122 841 508 Property, plant and equipment – – – – 44 100 886 44 100 886 Current tax receivable – – – – 1 495 705 1 495 705 Intangible assets – – – – 67 514 745 67 514 745 Goodwill – – – – 295 713 696 295 713 696 Deferred tax – – – – 19 785 835 19 785 835 Total assets 678 681 840 – – 1 438 980 428 610 867 1 108 731 687 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 98 Blue Financial Services Limited • Annual Report 2008

Financial Fair value Non-financial Loans and liabilities at through Available-for- assets and receivables amortised cost profit or loss sale liabilities Total

3. Group balance sheet – categories of financial instruments (continued) Group 2008 Equity and liabilities Ordinary share capital – – – – 491 905 489 491 905 489 Preference share capital – – – – 35 000 000 35 000 000 Reserves – – – – 95 857 563 95 857 563 Minority shareholders’ equity – – – – (198 440) (198 440) Bank overdraft 12 835 202 – – – – 12 835 202 Trade and other payables – 22 633 335 – – – 22 633 397 Current tax payable – – – – 35 748 444 35 748 444 Other financial liabilities – 385 199 187 – – – 385 199 187 Finance lease obligations – 9 054 857 – – – 9 054 857 Provisions – – – – 2 354 788 2 354 788 Operating leases liabilities – – – – 830 349 830 349 Deferred tax – – – – 17 510 851 17 510 851 Total equity and liabilities 12 835 202 416 887 441 – – 679 009 044 1 108 731 687 Group 2007 Assets Cash and cash equivalents 11 832 633 – – – – 11 832 633 Loans and advances to customers 207 097 532 – – – – 207 097 532 Trade and other receivables 2 656 221 – – – – 2 656 221 Other financial assets 2 670 223 – 149 1 108 567 – 3 778 939 Investment property – – – – 1 976 288 1 976 288 Propert, plant and equipment – – – – 20 306 491 20 306 491 Intangible assets – – – – 59 058 393 59 058 393 Goodwill – – – – 265 021 692 265 021 692 Deferred tax – – – – 1 303 142 1 303 142 Total assets 224 256 609 – 149 1 108 567 347 666 006 573 031 331 Equity and liabilities Ordinary share capital – – – – 364 694 223 364 694 223 Preference share capital – – – – 35 200 000 35 200 000 Reserves – – – – 32 041 087 32 041 087 Minority shareholders’ equity – – – – 539 952 539 952 Bank overdraft 32 306 186 – – – – 32 306 186 Trade and other payables – 14 162 271 – – – 14 162 271 Current tax payable – – – – 17 463 511 17 463 511 Other financial liabilities – 44 886 856 – – – 44 886 856 Finance lease obligations – 11 992 709 – – – 11 992 709 Loans from shareholders – 328 074 – – – 328 074 Provisions – – – – 2 131 068 2 131 068 Operating lease liabilities – – – 153 243 153 243 Deferred tax – – – – 17 132 151 17 132 151 Total equity and liabilities 32 306 186 71 369 910 – – 469 355 235 573 031 331 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 99

Financial Fair value Non‑financial Loans and liabilities at through Available-for- assets and receivables amortised cost profit or loss sale liabilities Total

4. Gains and losses per category of financial assets and financial liabilities Group 2008 Interest income 182 719 929 – – – – 182 719 929 Interest expense – (65 985 214) – – – (65 985 214) Administration and insurance income 148 338 803 – – – – 148 338 803 Other operating income – 5 598 129 – – 11 299 617 16 897 746 Net impairment on loans and advances (4 471 786) – – – – (4 471 786) Other operating expenses – – – – (212 632 616) (212 632 616) Investment revenue 12 562 691 – – – – 12 562 691 Fair value adjustment on initial recognition of other financial liabilities – – 6 161 641 – – 6 161 641 Taxation – – – – (21 849 290) (21 849 290) 339 149 637 (60 387 085) 6 161 641 – (223 182 289) 61 741 904 Group 2007 Interest income 114 336 674 – – – – 114 336 674 Interest expense – (25 166 858) – – – (25 166 858) Administration and insurance income 32 403 845 – – – – 32 403 845 Other operating income – 53 839 – – 4 318 941 4 372 780 Net impairment on loans and advances (3 314 003) – – – – (3 314 003) Other operating expenses – – (4 438 922) – (76 508 539) (80 947 461) Investment revenue 334 038 – – – – 334 038 Taxation – – – – (9 648 215) (9 648 215) 143 760 554 (25 113 019) (4 438 922) – (81 837 813) 32 370 800 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 100 Blue Financial Services Limited • Annual Report 2008

5. Risk management Introduction and overview The Group has exposure to the following risks from its use of financial assets and liabilities: • Credit risk • Liquidity risk • Market risks (Foreign exchange risks and interest rate risk) • Operational risks • Capital risk management

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management framework The board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The board has established the Credit Committee, which is responsible for developing and monitoring Group risk management policies in its specified areas. All board committees have both executive and non-executive members and report regularly to the board of directors on their activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Group Audit Committee is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Group’s Audit Committee is assisted in these functions by the Group internal audit department. Group internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s loans and advances to customers. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, and sector risk).

In order to manage this risk the board has a defined credit policy for the Group, which is documented and forms the basis of all credit decisions. The Group structures the levels of credit risks it undertakes, placing limits on the amounts of risk accepted in relation to one borrower, or a group of borrowers. The Group also makes allowance for impairment against non-performing accounts, where recoverability is doubtful.

The board of directors has delegated responsibility for the management of credit risk to its Group Credit Committee. The Group Credit Committee is responsible for oversight of the Group’s credit risk, including: • Formulating credit policies in consultation with business units. • Establishing the authorisation structure for the approval and renewal of credit facilities. • Reviewing and assessing credit risk. • Management evaluates credit risk relating to customers on an ongoing basis. • Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. • Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk.

Impaired loans Impaired loans and securities are loans and securities for which the Company determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan.

Past due but not impaired loans These are loans where contractual interest or principal payments are past due but the Company believes that impairment is not appropriate on the basis of the level of security or the stage of collection of amounts owed to the Company.

Allowances for impairment The Company establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 101

Group 2008 2007 R R

5. Risk management (continued) The table provides details of exposure to credit risk in respect of loan advances to customers: Impaired loans net of provisions Current – 1 809 Past due up to 30 days 613 249 2 680 Past due 31 – 60 days 1 467 118 1 203 844 Past due 61 – 90 days 4 216 331 2 030 184 Past due 91 days plus 25 270 553 3 401 820 Less: Portfolio impairment (31 567 251) (6 640 337) Loan advances past due but not impaired Past due up to 30 days 17 683 785 17 853 608 Past due 31 – 60 days 4 430 818 4 318 970 Past due 61 – 90 days – 2 347 124 Past due 91 days plus – 1 560 892 Loan advances neither past due nor impaired 22 114 603 26 080 594 Salary advance 438 835 251 146 829 093 Incremental loans 14 984 328 34 187 845 Home loans 6 007 299 – 459 826 878 181 016 938 Net loan advances total 481 941 481 207 097 532 The Company is exposed to a number of guarantees for the overdraft facilities of Group companies and for guarantees issued in favour of the creditors of the Group. Refer to notes 6 and 21 for additional details.

Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities. Management, through regular review of the Group’s position, ensures that the Group’s operations can meet the minimum levels of funds required.

The table overleaf analyses the Group’s financial assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the discounted cash flows except if stated otherwise. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 102 Blue Financial Services Limited • Annual Report 2008

> 1 year Non- <1 year < 5 year > 5 year determined Total

5. Risk management (continued) Group 2008 Discounted assets Cash and cash equivalents 66 975 504 – – – 66 975 504 Loans and advances to customers 309 700 558 166 777 563 5 463 360 – 481 941 481 Trade and other receivables 8 362 327 – – – 8 362 327 Property, plant and equipment – – – 44 100 886 44 100 886 Current tax receivable 1 495 705 – – – 1 495 705 Intangible assets – – – 67 514 745 67 514 745 Goodwill – – – 295 713 696 295 713 696 Deferred tax – – – 19 785 835 19 785 835 Undiscounted liabilities Other financial assets 36 334 464 76 983 811 – 17 020 606 130 338 881 Adjustments for undiscounted assets (1620 588) (5 876 785) – – (7 497 373) Total discounted assets 421 247 970 237 884 589 5 463 360 444 135 768 1 108 731 687 Equity Equity 35 000 000 – – 587 564 612 622 564 612 Undiscounted liabilities Bank overdraft 12 835 202 – – – 12 835 202 Trade and other payables 22 633 397 – – – 22 633 397 Current tax payable 35 748 444 – – – 35 748 444 Other financial liabilities 104 394 213 338 995 485 32 652 741 2 500 000 478 542 439 Finance lease obligation 2 961 864 9 359 933 – – 12 321 797 Provisions – – – 2 354 788 2 354 788 Operating lease liabilities – – – 830 349 830 349 Deferred tax – – – 17 510 851 17 510 851 Undiscounted liabilities 213 573 120 348 355 418 32 652 741 610 760 600 1 205 341 879 Adjustments for undiscounted liabilities (18 890 599) (67 431 897) (10 287 696) – (96 610 192) Discounted equity and liabilities 194 682 521 280 923 521 22 365 045 610 760 600 1 108 731 687 Net liquidity gap 226 565 449 (43 038 932) (16 901 685) (166 624 832) – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 103

> 1 year Non- <1 year < 5 year > 5 year determined Total

5. Risk management (continued) Group 2007 Discounted assets Cash and cash equivalents 11 832 633 – – – 11 832 633 Loans and advances to customers 170 988 780 36 108 752 – – 207 097 532 Trade and other receivables 2 656 221 – – – 2 656 221 Investment property – – – 1 976 288 1 976 288 Property, plant and equipment – – – 20 306 491 20 306 491 Intangible assets – – – 59 058 393 59 058 393 Goodwill – – – 265 021 692 265 021 692 Deferred tax – – – 1 303 142 1 303 142 Undiscounted liabilities Other financial assets 1 108 567 – – 2 670 372 3 778 939 Adjustments for undiscounted assets – – – – – Total discounted assets 186 586 201 36 108 752 – 350 336 378 573 031 331 Equity Equity 35 200 000 – – 397 275 262 432 475 262 Undiscounted liabilities Bank overdraft 32 306 186 – – – 32 306 186 Trade and other payables 14 162 271 – – – 14 162 271 Current tax payable 17 463 511 – – – 17 463 511 Other financial liabilities 27 440 733 20 961 754 2 678 893 – 51 081 380 Finance lease obligation 3 072 682 14 295 603 – – 17 368 285 Loans from shareholders 328 074 – – – 328 074 Provisions – – – 2 131 068 2 131 068 Operating lease liabilities – – – 153 243 153 243 Deferred tax – – – 17 132 151 17 132 151 Undiscounted liabilities 129 973 457 35 257 357 2 687 893 416 691 724 584 601 431 Adjustments for undiscounted assets (3 231 960) (7 103 040) (1 235 100) – (11 570 100) Discounted equity and liabilities 126 741 497 28 154 317 1 443 793 416 691 724 573 031 331 Net liquidity gap 59 844 704 7 954 435 (1 443 793) (66 355 346) – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 104 Blue Financial Services Limited • Annual Report 2008

5. Risk management (continued) Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Interest rate risk The Group’s cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in the market interest rates and the fair value interest rate risk is the risk that the value of the financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both the value and cash flow risks.The table below summarises the exposure to interest rate risk. Assets and liabilities are categorised by the earlier of contractual re-pricing or maturity dates.

Non- > 1 year interest <1 year < 5 year > 5 year bearing Total

Group 2008 Assets Cash and cash equivalents 66 975 504 – – – 66 975 504 Loans and advances to customers 309 700 558 166 777 563 5 463 360 – 481 941 481 Trade and other receivables – – – 8 362 327 8 362 327 Other financial assets 34 713 876 71 107 026 17 020 606 – 122 841 508 Property, plant and equipment – – – 44 100 886 44 100 886 Current tax receivable – – – 1 495 705 1 495 705 Intangible assets – – – 67 514 745 67 514 745 Goodwill – – – 295 713 696 295 713 696 Deferred tax – – – 19 785 835 19 785 835 411 389 008 237 884 589 22 483 966 436 973 194 1 108 731 687 Equity and liabilities Equity 35 000 000 – – 587 564 612 622 564 612 Bank overdraft 12 835 202 – – – 12 835 202 Trade and other payables – – – 22 633 397 22 633 397 Current tax payable – – – 35 748 444 35 748 444 Other financial liabilities 86 782 904 273 551 239 22 365 044 2 500 000 385 199 187 Finance lease obligation 1 682 575 7 372 282 – – 9 054 857 Provisions – – – 2 354 788 2 354 788 Operating lease liabilities – – – 830 349 830 349 Deferred tax – – – 17 510 851 17 510 851 136 300 681 280 923 521 22 365 044 669 142 441 1 108 731 687 Interest rate gap position 275 089 257 (43 038 932) 118 922 (232 169 247) – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 105

Non- > 1 year interest <1 year < 5 year > 5 year bearing Total

5. Risk management (continued) Group 2007 Assets Cash and cash equivalents 11 832 633 – – – 11 832 633 Loans and advances to customers 170 988 780 36 108 752 – – 207 097 532 Trade and other receivables – – – 2 656 221 2 656 221 Other financial assets 1 108 567 – 2 670 372 – 3 778 939 Investment property – – – 1 976 288 1 976 288 Property, plant and equipment – – – 20 306 491 20 306 491 Intangible assets – – – 59 058 393 59 058 393 Goodwill – – – 265 021 692 265 021 692 Deferred tax – – – 1 303 142 1 303 142 183 929 980 36 108 752 2 670 372 350 322 227 573 031 331 Equity and liabilities Equity 35 200 000 – – 397 275 262 432 475 262 Bank overdraft 32 306 186 – – – 32 306 186 Trade and other payables – – – 14 162 271 14 162 271 Current tax payable – – – 17 463 511 17 463 511 Other financial liabilities 26 204 230 17 238 833 1 443 793 – 44 886 856 Finance lease obligation 1 801 334 10 191 375 – – 11 992 709 Loans from shareholders 328 074 – – – 328 074 Provisions – – – 2 131 068 2 131 068 Operating lease liabilities – – – 153 243 153 243 Deferred tax – – – 17 132 151 17 132 151 95 839 824 27 430 208 1 443 793 448 317 506 573 031 331 Interest rate gap position 88 090 156 8 678 544 1 226 579 (97 995 279) – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 106 Blue Financial Services Limited • Annual Report 2008

5. Risk management (continued) Interest rate sensitivity analysis At 29 February 2008, if interest rates on • floating rate assets and liabilities held at amortised cost and • assets and liabilities accounted for at fair value through profit or loss

had increased or decreased by 200 basis points with all other variables held constant, the impact on profit or loss would have been as set out in the table below: 2008 2007 Pre-tax Post-tax Pre-tax Post-tax R R R R Decrease (3 614 624) (2 561 636) (706 815) (500 066) Increase 3 614 624 2 561 636 706 815 500 066 Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency. The Group companies are required to hedge their entire foreign exchange risk exposure with the Group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The risk will have no effect on the post‑tax profit as the effect of the translation is recognised directly in the foreign currency translation reserve. The Group, however, will be exposed to currency risk for all rand denominated loans (refer to loans to and from Group companies) in the foreign entities. At 29 February 2008, if all the foreign entity local currencies (Botswana pula, Zambian kwacha, Malawi kwacha, Tanzanian shilling, Uganda shilling, Kenyan shilling and Central Africa franc – Cameroon) had weakened or strengthened by 10% against the rand, with all other variables held constant the impact on profit or loss for the Group would have been as set out in the table below:

2008 2007 Pre-tax Post-tax Pre-tax Post-tax R R R R Weakened (16 576 924) (11 610 265) (2 994 522) (2 108 146) Strengthened 13 562 938 9 499 308 3 627 275 1 841 772 The Group is exposed to potential foreign exchange losses/gains on translation of US dollar denominated borrowings. At 29 February 2008, if the currency had weakened or strengthened by 10% against the US dollar with all other variables held constant the impact on profit or loss would have been as set out in the table below:

2008 2007 Pre-tax Post-tax Pre-tax Post-tax R R R R

Weakened (3 141 326) (2 219 680) 46 488 32 626 Strengthened 3 141 326 2 219 680 (46 488) (32 626) WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 107

Group Company 2008 2007 2008 2007 R R R R

5. Risk management (continued) A summary of the Group’s foreign currency exposure on its financial assets and liabilities in rand is as follows: Foreign currency exposure at balance sheet date Financial assets Cash and cash equivalents Denominated Botswana pula (BWP) 15 422 099 4 943 938 – – Denominated Zambian kwacha (ZMK) 3 574 086 145 108 – – Denominated Malawi kwacha (MWK) 3 797 573 – – – Denominated Tanzanian shilling (TZS) 3 648 166 382 796 – – Denominated Uganda shilling (UGX) 102 932 64 190 – – Denominated Kenyan shilling (KES) 140 081 – – – Denominated US dollar (USD) 5 671 281 527 341 30 589 – Not exposed to currency risk 34 619 286 5 769 260 24 626 523 1 002 66 975 504 11 832 633 24 657 112 1 002 Loans and advances to customers Denominated Botswana pula (BWP) 69 245 035 26 792 996 – – Denominated Zambian kwacha (ZMK) 86 692 313 27 004 343 – – Denominated Malawi kwacha (MWK) 39 103 041 – – – Denominated Tanzanian shilling (TZS) 37 637 404 162 491 – – Denominated Uganda shilling (UGX) 18 578 167 946 161 – – Denominated Kenyan shilling (KES) 801 689 – – – Not exposed to currency risk 229 883 832 152 191 541 – – 481 941 481 207 097 532 – – Trade and other receivables Denominated Botswana pula (BWP) 373 541 193 426 – – Denominated Zambian kwacha (ZMK) 244 897 179 219 – – Denominated Malawi kwacha (MWK) 81 843 – – – Denominated Tanzanian shilling (TZS) 785 510 391 303 – – Denominated Uganda shilling (UGX) 186 171 150 989 – – Denominated Kenyan shilling (KES) 253 415 – – – Not exposed to currency risk 6 436 950 1 741 284 5 140 334 – 8 362 327 2 656 221 5 140 334 – Loans to Group companies Denominated South African rand (ZAR) 366 383 850 67 886 380 – – 366 383 850 67 886 380 Other financial assets Denominated Zambian kwacha (ZMK) 369 155 – – – Denominated Tanzanian shilling (TZS) 529 518 – – – Denominated Uganda shilling (UGX) 159 240 – – – Not exposed to currency risk 121 783 595 3 778 939 55 489 504 – 122 841 508 3 778 939 55 489 504 – Current tax receivable Not exposed to currency risk 1 495 705 – 1 467 172 – 1 495 705 – 1 467 172 – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 108 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 R R R R

5. Risk management (continued) Financial liabilities Bank overdraft Denominated Botswana pula (BWP) (3 779 614) (4 106 424) – – Denominated Zambian kwacha (ZMK) – (6 076 944) – – Denominated Uganda shilling (UGX) – (6 078) – – Denominated US dollar (USD) (1 874 209) – – – Not exposed to currency risk (7 181 379) (22 116 740) (50 196) (19 815 304) (12 835 202) (32 306 186) (50 196) (19 815 304) Trade and other payables Denominated Botswana pula (BWP) (1 131 703) (245 673) – – Denominated Zambian kwacha (ZMK) (768 098) (320 137) – – Denominated Malawi kwacha (MWK) (82 366) – – – Denominated Tanzanian shilling (TZS) (3 037 278) (60 915) – – Denominated Uganda shilling (UGX) (252 693) (87 457) – – Denominated Kenyan shilling (KES) (195 719) – – – Not exposed to currency risk (17 165 540) (13 448 089) (8 716 967) (6 454 301) (22 633 397) (14 162 271) (8 716 967) (6 454 301) Current tax payable Denominated Botswana pula (BWP) (4 959 576) (3 305 685) – – Denominated Zambian kwacha (ZMK) (11 448 862) (569 085) – – Denominated Malawi kwacha (MWK) (5 934 286) – – – Denominated Kenyan shilling (KES) (4 668) – – – Not exposed to currency risk (13 401 052) (13 588 741) – (318 300) (35 748 444) (17 463 511) – (318 300) Other financial liabilities Denominated Botswana pula (BWP) (165 375) (8 915 932) – – Denominated Zambian kwacha (ZMK) (13 810 800) – – – Denominated Kenyan shilling (KES) (913 181) – – – Denominated US dollar (USD) (35 210 337) (62 457) – – Not exposed to currency risk (335 099 494) (35 908 467) (268 293 225) (11 222 252) (385 199 187) (44 886 856) (268 293 225) (11 222 252) Loans from Group companies Denominated South African rand (ZAR) – – – (6 173 941) – – – (6 173 941) Finance lease obligations Denominated Botswana pula (BWP) (670 050) (1 169 401) – – Not exposed to currency risk (8 384 807) (10 823 308) (7 424 260) – (9 054 857) (11 992 709) (7 424 260) – Loans from shareholders Not exposed to currency risk – (328 074) – – – (328 074) – – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 109

Closing Average 2008 2007 2008 2007

5. Risk management (continued) Exchange rates used for conversion of foreign items were: Botswana pula (BWP) 1,193100 1,187600 1,172490 1,202890 Zambian kwacha (ZMK) 0,002031 0,001774 0,001850 0,001970 Malawi kwacha (MWK) 0,054520 – 0,051920 Tanzanian shilling (TZS) 0,006539 0,005847 0,005940 0,005660 Uganda shilling (UGX) 0,004420 0,004162 0,004200 0,003880 Central Africa franc – Cameroon (XAF) 0,17590 0,014970 0,015470 0,014040 Kenyan shilling (KES) 0,113000 0,103000 10,106640 0,097830 Namibia dollar (NAD) 1,000000 – 1,000000 Lesotho loti (LSL) 1,000000 – 1,000000 US dollar (USD) 7,492300 7,13800 Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Company’s operations and are faced by all business entities.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas: • requirements for appropriate segregation of duties, including the independent authorisation of transactions; • requirements for the reconciliation and monitoring of transactions; • compliance with regulatory and other legal requirements; • documentation of controls and procedures; • requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; • requirements for the reporting of operational losses and proposed remedial action; • development of contingency plans; • training and professional development; and • ethical and business standards.

Capital risk management The Group’s objective when managing capital is to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares, or sell assets to reduce debt.

Consistently with others in the industry, the Group monitors capital on the basis of the debt‑to‑adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the balance sheet) less cash and cash equivalents. Adjusted capital comprises all components of equity (ie ordinary shares and retained earnings) other than amounts recognised in equity relating to cash flow hedges, and includes some forms of subordinated debt. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 110 Blue Financial Services Limited • Annual Report 2008

5. Risk management (continued) During 2008, the Company’s strategy was to maintain the debt‑to‑adjusted capital ratio at the lower end of the range 1:1 to 1:2, in order to secure access to finance at a reasonable cost. The debt‑to‑adjusted capital ratios at 29 February 2008 were as follows:

Group 2008 2007 Total debt 486 167 075 140 556 069 Less: cash and cash equivalents (66 975 504) (11 832 633) Net debt 419 191 571 128 723 436 Total equity 622 564 612 432 475 262 Add: subordinated debt instruments – – Less: amounts recognised in equity – cash flow hedges – – Adjusted capital 622 564 612 432 475 262 Debt‑to‑adjusted capital ratio 1:1.49 1:3.36 Apart from internal capital management policies, the Group is also exposed to external capital requirements. The International Finance Corporation sets and monitors capital requirements for the Group as a whole. In implementing current capital requirements, the International Finance Corporation requires the Group to maintain a minimum 20% ratio of total capital to total risk‑weighted assets. The Group’s capital is analysed into two tiers:

Primary (Tier 1) capital, which includes paid‑up common shares, retained earnings, disclosed reserves less all intangible assets, deferred tax in excess of 10% of gross Tier 1 capital, loans secured by shares of the borrowers or relevant sub-borrowers or used to purchase shares of the borrowers or sub-borrowers.

Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves less investments in unconsolidated banking and financial subsidiary companies and investments in capital of other banks and financial institutions.

The Group has complied with all externally imposed capital requirements throughout the year. The table below illustrates the computation of the capital position as imposed by external capital requirements. Group 2008 2007 I Primary (Tier) capital Paid‑up common shares 526 905 489 399 894 223 Eligible preferred shares – – Revaluation reserve – – Retained earnings 93 799 402 32 057 498 General reserve 2 058 161 (16 411) Minority interest (common shareholders’ equity) (198 440) 539 952 Sub Total (Gross Tier 1 capital) 622 564 612 432 475 262 Less: Goodwill and other intangible assets (363 228 441) (324 080 085) Deferred tax in excess of 10% of gross tier 1 capital – – Loans secured by shares of the borrowers or relevant sub-borrowers or used to purchase shares of the borrowers or sub-borrowers – – Sub Total (Tier 1 capital) 259 336 171 108 395 177 II Secondary (Tier 2) capital Eligible subordinated term debt – – Revaluation reserves – – Sub Total (Gross Tier 2 capital) – – Less: Investments in unconsolidated banking and financial subsidiary companies – – Investments in capital of other banks and financial institutions – – Sub Total (Tier 1 capital) 259 336 171 108 395 177

Total capital 259 336 171 108 395 177 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 111

Group Company 2008 2007 2008 2007 R R R R

6. cash and cash equivalents Cash and cash equivalents consist of: Cash on hand 238 387 1 441 129 349 – Bank balances 66 737 117 11 831 192 24 527 763 1 002 Bank overdraft (12 835 202) (32 306 186) (50 196) (19 815 304) 54 140 302 (20 473 553) 24 606 916 (19 814 302) Assets 66 975 504 11 832 633 24 657 112 1 002 Liabilities (12 835 202) (32 306 186) (50 196) (19 815 304) 54 140 302 (20 473 553) 24 606 916 (19 814 302) A number of subsidiaries are incorporated outside the borders of the Republic of South Africa and are subject to exchange controls of that country. These exchange controls limit the amount of funds that can be transferred into the holding company located in the Republic of South Africa. 7. Loans and advances to customers Gross loans and advances 513 508 732 213 737 869 – – Less: provision for impairment of loans and advances (31 567 251) (6 640 337) – – 481 941 481 207 097 532 – – Movement on provision for impairment Opening balance (6 640 337) – – – Provision for impairment (16 555 580) (6 640 337) – – Business combinations (8 371 334) – – – (31 567 251) (6 640 407) – – 8. Trade and other receivables Pre-payments (if immaterial) 3 520 746 439 995 2 563 752 – Deposits 978 860 656 081 10 000 – VAT 1 207 843 1 379 701 948 951 – Other receivables 2 137 620 44 447 1 617 631 – Staff loans 517 258 135 997 – – 8 362 327 2 656 221 5 140 334 – Fair value of trade and other receivables Trade and other receivables 8 362 327 2 656 221 5 140 334 – Trade and other receivables impaired As of 29 February 2008, trade and other receivables of R0 (2007: R0) were impaired and provided for. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 112 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 R R R R

9. Other financial assets Loans and receivables Other financial asset 1 895 484 – 1 543 000 – DS Grieve 2 701 742 – 2 701 742 – Synerstrat (Pty) Ltd 21 586 885 – 21 586 885 – Acquist Projects (Pty) Ltd t/a Blue Development Co 16 396 926 – 16 396 926 – Northern Spark Trading 108 (Pty) Limited 64 502 627 – – – Blue Easy Build (Pty) Limited 14 318 864 2 670 223 13 260 951 – 121 402 528 2 670 223 55 489 504 – Available-for-sale First National Bank 594 672 547 490 – – Capital Alliance Savings 844 308 561 077 – – 1 438 980 1 108 567 – – Fair value through profit or loss Investment in Greenstart Home Loans (Pty) Limited – 149 – – Total other financial assets 122 841 508 3 778 939 55 489 504 – Loans and receivables 121 402 528 2 670 223 55 489 504 – Available-for-sale 1 438 980 1 108 567 – – Fair value through profit or loss – 149 – – 122 841 508 3 778 939 55 489 504 – Loans and receivables 121 402 528 2 670 223 55 489 504 – Available for sale 1 438 890 1 108 567 – – Fair value through profit or loss – 149 – – 122 841 508 3 778 939 55 489 504 – Fair values of loans and receivables Loans and receivables 121 402 528 2 670 223 55 489 504 – Loans and receivables impaired As of 29 February 2008, loans and receivables of R0 (2007: R0) were impaired and provided for. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 113

2008 2007 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Group valuation depreciation value valuation depreciation value

10. Investment property Investment property – – – 1 976 288 – 1 976 288 Reconciliation of investment property Group – 2008 Opening Balance Transfers Total Investment property 1 976 288 (1 976 288) – Reconciliation of investment property Group – 2007 Additions through Opening business balance combinations Disposals Total

Investment property – 9 376 076 (7 399 788) 1 976 288

Pledged as security Carrying value of assets pledged as security: Investment property – 1 976 288 – – The above mentioned property is pledged as security for a mortgage bond over the said property. Refer to note 21. Details of property The property is situated on Plot 21685, Phakalane, Gaborone, Botswana Purchase price: 11 January 2006 – 1 976 288 – – During the current financial year the Group occupied the investment properties. The investment properties were reclassified as property, plant and equipment on the day of occupancy. Refer to note 13.

WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 114 Blue Financial Services Limited • Annual Report 2008

Carrying Carrying % holding % holding amount amount Name of company Held by Feb 2008 Feb 2007 Feb 2008 Feb 2007

11. Investments in subsidiaries Blue Employee Benefits (Pty) Limited Blue Financial Services Limited 100,00% 100,00% 9 433 43 029 796 Blue Incremental Housing Finance (Pty) Limited Blue Financial Services Limited 100,00% 88,00% 100 19 883 890 Blue Employee Benefits (Pty) Limited – Botswana Blue Financial Services Limited 100,00% 100,00% 67 538 419 67 538 419 Blue Financial Services Zambia Limited Blue Financial Services Limited 100,00% 100,00% 54 287 730 54 287 730 Blue Limited – Kenya Blue Financial Services Limited 100,00% 100,00% 27 833 215 27 833 215 Blue Employee Benefits Limited – Uganda Blue Financial Services Limited 100,00% 100,00% 31 803 098 31 803 098 Blue Investments Limited – Cameroon Blue Financial Services Limited 75,00% 75,00% 21 925 979 21 925 979 Blue Financial Services Limited – Tanzania Blue Financial Services Limited 100,00% 100,00% 15 471 531 15 471 531 Blue Financial Services Limited – Rwanda Blue Financial Services Limited 100,00% 100,00% 6 731 042 6 731 042 Blue Financial Services (South Africa) (Pty) Limited Blue Financial Services Limited 100,00% 100,00% 97 927 078 97 927 078 Greenstart Homeloans (Pty) Limited Blue Financial Services Limited 100,00% 15,00% 1 165 149 African Mobile Cellular (Pty) Limited Blue Financial Services Limited 100,00% – 100 – (South Africa) (Pty) Limited Makhulong Multi Finance (Pty) Limited Blue Financial Services Limited 100,00% – 1 441 3987 – Blue Financial Services Limited – Malawi Blue Financial Services Limited 100,00% – 1 – Bonus Finance (Pty) Limited Blue Financial Services Limited 100,00% – 17 881 449 – Investments held by subsidiaries (100) (149) 342 851 637 386 431 778 All investments in subsidiaries are being held by Blue, with the exception of African Mobile Cellular (Pty) Limited, which is held through its wholly owned subsidiary Blue Financial Services (South Africa) (Pty) Limited formerly known as Micro Access Financial Services (Pty) Limited (“Future Finance”). Blue remains on a strong growth curve and the nature of the business is acquisitive. As a result the following consolidation and acquisitions took place: Blue acquired the remaining 12% minority interest in Blue Incremental Housing Finance (Pty) Limited on 1 March 2007 by issuing 100 000 Blue ordinary shares at R3,20 per share. These ordinary shares were issued at a premium of 1,9% to the 30 business day volume weighted average price on 1 March 2007. Blue acquired a 100% holding in African Mobile Cellular (Pty) Limited through its wholly owned subsidiary, Blue Financial Services (South Africa) (Pty) Limited, on 1 March 2007 for a cash consideration of R1 100 000. African Mobile Cellular (Pty) Limited did not actively trade pending outcome of an application to liquidate Blue Cell (Pty) Limited, a company in which Blue was a majority shareholder. The High Court of South Africa granted this order on 9 May 2007. The acquiree’s profit since the acquisition of the interest amounted to R1 718 353. Blue increased its shareholding in Greenstart Homeloans (Pty) Limited from 15% to 100% with effect from 15 March 2007 by issuing 838 197 Blue ordinary shares at R2,78 per share and a cash consideration of R2,337 500. These ordinary shares were issued at the 30 business day volume weighted average price on 31 January 2007. The acquiree’s profit since the acquisition of the interest amounted to R18 708 963. This amount includes capital profit of R11 573 103 on intercompany sale of assets and liabilities as part of the restructuring process. These profits were eliminated on consolidation. Blue acquired 100% of the shareholding in Makhulong Multi Finance (Pty) Limited, incorporated in Lesotho, on 29 March 2007 for a deferred cash consideration of R1 441 398 of which R570 000 has been paid to date. The acquiree’s profit since the acquisition of the interest amounted to R6 398 904. The Company formed Blue Financial Services Limited – Malawi on 1 March 2007 at a formation cost of R539. The acquiree’s profit since the acquisition of the interest amounted to R14 173 504. Blue acquired 100% of the issued ordinary shares in Bonus Finance Namibia (Pty) Limited (“Bonus Finance”) for a cash consideration of R16 100 000 and the business conducted by NFIT 2 Trust, NFIT 3 Trust and NFIT 5 Trust (“the businesses”) in Namibia for a cash consideration of R5 400 000 with effect from 1 October 2007.The acquiree’s profit since the acquisition of the interest amounted to R2 119 731. The Group profits would have been R759 371 higher if this entity was consolidated from the start of the financial year. During the current financial year the businesses of Blue Employee Benefits (Pty) Limited, Blue Incremental Housing Finance (Pty) Limited, Greenstart Homeloans (Pty) Limited and Africa Mobile Cellular (Pty) Limited (“the companies”) were merged into Blue Financial Services South Africa (Pty) Limited. The identifiable assets and liabilities of these companies were sold to Blue Financial Services South Africa (Pty) Limited as a going concern. The companies declared a dividend to Blue Financial Services Limited as part capital redemption and part normal dividend. These companies are currently dormant and in the process of being deregistered. All goodwill attached to these companies has been transferred to Blue Financial Services (South Africa) (Pty) Limited. Refer to note 15. No operations acquired have been subsequently disposed of. The amounts recognised at the acquisition date for each class of the acquiree’s assets, liabilities and contingent liabilities determined in accordance with IFRS immediately before the combination is disclosed in note 32 – Acquisition of Businesses. The initial accounting for the business combination that is reflected in the results is only provisional and will be finalised within the timeframe specified by IFRS 3 Business Combinations. The carrying amounts of subsidiaries are shown net of impairment losses. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 115

Group Company 2008 2007 2008 2007 R R R R

12. Loans to (from) group companies Subsidiaries Blue Employee Benefits (Pty) Limited – Botswana – – 24 005 024 13 267 092 Blue Financial Services (Zambia) Limited – – 39 905 988 11 539 387 Blue Financial Services Limited – Tanzania – – 29 070 510 3 960 190 Blue Employee Benefits Limited – Uganda – – 20 412 163 3 679 002 Blue Limited – Kenya – – 11 962 277 (6 173 741) Blue Financial Services Limited – Malawi – – 23 157 387 – Makhulong Multifinance (Pty) Limited – Lesotho – – 26 991 603 – Bonus Finance Namibia (Pty) Limited – Namibia – – 18 584 929 – The above loans are unsecured, bear interest at 17% (2007: 17%) per annum and have no fixed terms of repayment. Blue Employee Benefits (Pty) Limited – – – 15 199 289 Blue Incremental Housing Finance (Pty) Limited – – – 6 068 184 Blue Investments Limited – Cameroon – – 678 970 678 970 Blue Cell (Pty) Limited – 4 438 922 – 4 438 922 Blue Financial Services (South Africa) (Pty) Limited – – 166 994 394 7 126 025 Blue Staff Share Scheme – – 4 620 605 6 368 241 The above loans are unsecured, bear no interest and have no fixed terms of repayment. Subtotal – 4 438 922 366 383 850 66 151 361 Impairment of loans to subsidiaries – (4 438 922) – (4 438 922) – – 366 383 850 61 712 439 Assets – – 366 383 850 67 886 380 Liabilities – – – (6 173 941) – – 366 383 850 61 712 439

2008 2007 Cost/ Accumulated Carrying Cost/ Accumulated Carrying valuation depreciation value valuation depreciation value

13. Property, plant and equipment Group Buildings 9 646 777 – 9 646 777 – – – Furniture and fixtures 21 012 772 (5 372 783) 15 639 989 10 741 239 (4 239 522) 6 501 717 Motor vehicles 6 776 110 (2 907 874) 3 868 236 5 977 185 (2 266 518) 3 710 667 IT equipment 14 946 545 (5 789 474) 9 157 071 3 994 675 (1 627 148) 2 367 527 Aircraft 6 957 465 (1 168 652) 5 788 813 9 296 054 (1 569 474) 7 726 580 Total 59 339 669 (15 238 783) 44 100 886 30 009 153 (9 702 662) 20 306 491 Company Furniture and fixtures 5 442 903 (604 722) 4 838 181 106 968 (2 083) 104 885 Motor vehicles 1 425 528 (845 345) 580 183 – – – IT equipment 4 323 382 (862 989) 3 460 393 304 376 (52 271) 252 105 Aircraft 6 957 465 (1 168 652) 5 788 813 – – –

Total 18 149 278 (3 481 708) 14 667 570 411 344 (54 354) 356 990 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 116 Blue Financial Services Limited • Annual Report 2008

Additions through Foreign Opening business exchange balance Additions combinations Disposals Transfers movements Depreciation Total

13. Property, plant and equipment (continued) Reconciliation of property, plant and equipment Group – 2008 Buildings – 7 661 336 – – 1 976 288 9 153 – 9 646 777 Furniture and fixtures 6 501 717 12 146 688 59 734 (151 968) (543 733) 159 609 (2 532 058) 15 639 989 Motor vehicles 3 710 667 3 600 172 237 586 (2 058 943) 182 516 68 997 (1 872 759) 3 868 236 IT equipment 2 367 527 8 777 547 208 214 (6 775) 361 217 7 823 (2 558 482) 9 157 071 Aircraft 7 726 580 – – (683 289) – (4 570) (1 249 908) 5 788 813 20 306 491 32 185 743 505 534 (2 900 975) 1 976 288 241 012 (8 213 207) 44 100 886 Group – 2007 Furniture and fixtures – 5 107 998 2 422 819 (61 725) 10 756 (978 131) 6 501 717 Motor vehicles – 2 824 491 2 107 274 (156 178) 28 758 (1 093 678) 3 710 667 IT equipment – 2 118 874 1 055 149 (2 205) 11 451 (815 742) 2 367 527 Aircraft – 7 060 862 1 713 753 – 82 378 (1 130 413) 7 726 580 – 17 112 225 7 298 995 (220 108) 133 343 (4 017 964) 20 306 491 Opening balance Additions Disposals Depreciation Total Reconciliation of property, plant and equipment Company – 2008 Furniture and fixtures 104 885 5 259 969 – (526 673) 4 838 181 Motor vehicles – 635 778 (20 497) (35 098) 580 183 IT equipment 252 105 3 902 726 – (694 438) 3 460 393 Aircraft – 5 844 871 – (56 058) 5 788 813 356 990 15 643 344 (20 497) (1 312 267) 14 667 570 Group – 2007 Furniture and fixtures – 106 968 (2 083) 104 885 IT equipment – 304 376 (52 271) 252 105 – 411 344 (54 354) 356 990 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 117

Group Company 2008 2007 2008 2007 R R R R

13. Property, plant and equipment (continued) Pledged as security Carrying value of assets pledged as security: Land and buildings 9 646 777 – – – Land and buildings are pledged as security for a mortgage bond over the said property. Refer to note 21. Motor vehicles 3 868 236 3 710 667 – – Motor vehicles are pledged as security for a finance lease obligation. Refer to note 22. Aircraft 5 788 813 7 726 580 – – Aircraft are pledged as security for a finance lease obligation. Refer to note 21. Details of properties The property is situated on Plot 21685, Phakalane, Gaborone, Botswana Purchase price: 11 January 2006 1 976 288 – – – This property is situated on Plot 205, Independence Avenue, Gaborone, Botswana Purchase price: 1 December 2005 7 661 336 – – –

2008 2007 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Group valuation amortisation value valuation amortisation value

14. Intangible assets Brand names 52 830 470 (3 893 631) 48 936 839 37 241 741 (1 651 833) 35 589 908 Technology related software 6 705 000 (2 307 000) 4 398 000 6 705 000 (966 000) 5 739 000 Customer relations 19 627 750 (5 447 844) 14 179 906 19 627 750 (1 898 265) 17 729 485 79 163 220 (11 648 475) 67 514 745 63 574 491 (4 516 098) 59 058 393 Additions through Foreign Opening business exchange balance combinations movements Amortisation Total Reconciliation of intangible assets Group – 2008 Brand names 35 589 908 15 588 729 (15 900) (2 225 898) 48 936 839 Technology related software 5 739 000 – – (1 341 000) 4 398 000 Customer relations 17 729 485 – – (3 549 579) 14 179 906 59 058 393 15 588 729 (15 900) (7 116 477) 67 514 745 Additions through Opening business balance combinations Amortisation Total Reconciliation of intangible assets Group – 2007 Brand names – 37 241 741 (1 651 833) 35 589 908 Technology related software – 6 705 000 (966 000) 5 739 000 Customer relations – 19 627 750 (1 898 265) 17 729 485 – 63 574 491 (4 516 098) 59 058 393 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 118 Blue Financial Services Limited • Annual Report 2008

14. Intangible assets (continued) Details of valuation The valuation was based on the fair value of the assets involved. The fair value of an asset is defined as the amount for which an asset could “be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”.

For assets totalling R67 514 745 (2007: R59 058 393) where there was a lack of comparable market data, the valuation was based on discounted cash flows. A calculated weighted average cost of capital was used to discount the cash flows.

Brand names The brand is not likely to have an indefinite life. However, its position in the market and management’s ongoing investment in the brand suggests a long but not indefinite life. A 20 year useful life was adopted and the remaining amortisation period is 18 to 19 years.

Technology related software Unpatented technology within the Blue group companies and Future Finance has considerable strategic and economic value. These technologies have been valued based on management’s best estimate of replacement cost, based on their understanding of alternative systems and processes. It is estimated that the technology will have a useful life of five years, given the current development rates in the industry, and the adaptability of these assets. The remaining amortisation period is three to four years.

Customer relations Based on historical norms the following data was utilised in determining the useful lives: • an average customer contract period of six months for salary advances; • an average customer contract period of two years for home improvement loans; and • a renewal rate of 80% for both salary advances and home improvement loans.

A useful life of five years for salary advances and 10 years for home improvement loans is thus implied. The remaining amortisation period for intangible assets related to salary advances and home improvement loans is three to four years and eight to nine years respectively. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 119

2008 2007 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Group valuation amortisation value valuation amortisation value

15. Goodwill Goodwill 295 713 696 – 295 713 696 265 021 692 – 265 021 692 Additions through Opening business balance combinations Total Reconciliation of goodwill Group – 2008 Goodwill 265 021 692 30 692 004 295 713 696 Reconciliation of goodwill Group – 2007 Goodwill – 265 021 692 265 021 692 Accumulated impairment Carrying Goodwill analysis Cost losses amount

2008 Blue Employee Benefits (Pty) Limited – – – Blue Incremental Housing Finance (Pty) Limited – – – Blue Employee Benefits (Pty) Limited – Botswana 53 195 046 – 53 195 046 Blue Financial Services Zambia Limited 52 711 498 – 52 711 498 Blue Limited – Kenya 23 803 179 – 23 803 179 Blue Employee Benefits Limited – Uganda 30 747 278 – 30 747 278 Blue Investments Limited – Cameroon 20 995 509 – 20 995 509 Blue Financial Services Limited – Tanzania 14 098 231 – 14 098 231 Blue Financial Services Limited – Rwanda 5 879 042 – 5 879 042 Blue Financial Services (South Africa) (Pty) Limited 80 363 375 – 80 363 375 Greenstart Homeloans (Pty) Limited – – – Bonus Finance (Pty) Limited 13 920 538 – 13 920 538 295 713 696 – 295 713 696

2007 Blue Employee Benefits (Pty) Limited 29 940 169 – 29 940 169 Blue Incremental Housing Finance (Pty) Limited 12 756 305 – 12 756 305 Blue Employee Benefits (Pty) Limited – Botswana 53 195 046 – 53 195 046 Blue Financial Services Zambia Limited 52 711 498 – 52 711 498 Blue Limited – Kenya 20 217 949 – 20 217 949 Blue Employee Benefits Limited – Uganda 30 747 278 – 30 747 278 Blue Investments Limited – Cameroon 20 995 509 – 20 995 509 Blue Financial Services Limited – Tanzania 14 098 231 – 14 098 231 Blue Financial Services Limited – Rwanda 5 879 042 – 5 879 042 Blue Financial Services (South Africa) (Pty) Limited 24 480 664 – 24 480 664 265 021 691 – 265 021 691 Goodwill is allocated to individual cash‑generating units based on business activity. Impairment testing is done on a regular basis by comparing the net carrying value of the cash‑generating units to the estimated value in use. The value in use is determined by discounting estimated future cash flows cash‑generating unit. No impairments resulting from impairment testing have been effected for this reporting period. Management regards the useful lives of all cash‑generating units to be indefinite. Refer to note 1.1 for key assumptions made during goodwill impairment testing. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 120 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 R R R R

16. Deferred tax Deferred tax asset (liability) Accelerated capital allowances for tax purposes 1 463 691 1 297 925 (280 303) – Tax losses available for set off against future taxable income 13 828 728 – 9 606 857 – Provisions 3 149 537 – 149 349 – Deferred tax on intangible assets acquired (15 186 428) (17 126 934) – – Unrealised foreign exchange differences (940 528) – – – Other temporary differences (40 016) – 72 748 – 2 274 984 (15 829 009) 9 548 651 – Reconciliation of deferred tax asset (liability) At beginning of the year (15 829 009) – – – Movement in deferred tax taken to income statement 18 743 540 1 980 097 9 548 651 – Increase (decrease) in tax losses available for set off against future 14 171 830 – 9 949 959 – taxable income Movements due to other temporary differences 4 387 853 2 050 128 (60 285) – Rate change 207 673 – (341 023) – Translation difference between income statement and balance sheet (23 816) (70 031) – – Movement in deferred tax not through income statement (639 547) (17 809 106) – – Business combinations (75 032) – – – Intangible asset recognised through business combination (588 331) (17 879 137) – – Translation difference recognised in foreign currency translation reserve 23 816 70 031 – – 2 274 984 (15 829 009) 9 548 651 – Assets 19 785 835 1 303 142 9 548 651 – Liabilities (17 510 851) (17 132 151) – – 2 274 984 (15 829 009) 9 548 651 –

Recognition of deferred tax asset An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when: • the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and • the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates. Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 28% (2007: 29%). WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 121

Group Company 2008 2007 2008 2007 R R R R

17. Share capital Authorised 1 000 000 000 ordinary shares of par value of R0,000001 1 000 1 000 1 000 1 000 140 000 000 Class A preference shares of R0,0001 each – 14 000 – 14 000 90 000 000 Class B preference shares of R0,0001 each 9 000 9 000 9 000 9 000 70 000 000 Class C preference shares of R0,0001 each 7 000 7 000 7 000 7 000 17 000 31 000 17 000 31 000 Reconciliation of number of ordinary shares issued: Reported as at 1 March 2007 345 631 759 – 352 000 000 – Share purchases by staff share scheme – (6 368 241) – – Shares issued out of staff share scheme 1 747 636 – – – Issue of shares – ordinary shares 118 279 438 352 000 000 118 279 438 352 000 000 465 658 833 345 631 759 470 279 438 352 000 000 All unissued ordinary shares are under the control of the directors in terms of a resolution of members passed at the last annual general meeting. This authority remains in force until the next annual general meeting. Issued Ordinary shares 468 352 468 352 Preference Type A – 35 200 000 – 35 200 000 Preference Type B 35 000 000 – 35 000 000 – Share premium 491 905 025 364 693 877 496 525 626 371 062 112 Treasury shares (4) (6) – – 526 905 489 399 894 223 531 526 094 406 262 464 Class A preference shares have been redeemed and cancelled. Class A, B and C – 14% redeemable preference shares Dividends The holders of the redeemable preference shares shall be entitled to receive out of profits of the Company a preferential dividend, at a rate to be negotiated by the directors, and the said dividend shall be preferential to any dividend on ordinary shares not ranking pari passu with the preference shares. Rights on winding up The holders of the preference shares shall have the right, on the winding‑up of the Company, in priority to any payment in respect of ordinary shares in the capital of the Company, to receive the return of paid up capital and share premium, if any, on the preference shares. In the event of there being any surplus on a winding‑up or liquidation, the preference shares shall share pari passu in such surplus with the ordinary shares in the share capital of the Company. Voting rights A holder of any preference share shall, when the holder is entitled to vote in respect of a resolution for which a shareholder’s resolution is required in terms of JSE Listings Requirements: (a) have a number of votes in respect of all preference shares of a class held by that holder, which is calculated pro rata to all the issued preference shares, irrespective of class and which issued preference shares are entitled to vote at the relevant meeting; and (b) have the number of votes referred to in (a) above limited to 25% less one vote, which all shareholders are entitled to cash at the said meeting; (c) it is being recorded that the aggregate number of votes that may be exercised and by all preference shareholders irrespective of the class of preference shares that are held by them shall be limited to 25% less one vote, of the total number of votes which all shareholders are entitled to cast, without prejudice to any voting rights attached to the ordinary shares held by such shareholders in the share capital of the Company. Conversion terms At any time and from time to time, any holder of Class A, B and C shares may convert all or any portion of the Class A, B or C shares held by any such holder into a number of ordinary shares computed by dividing the product of the number of Class A, B or C shares to be converted by the issue price of such shares, by the conversion price then in effect. The conversion price is determined by dividing the product of the net profit of Blue (determined on consolidation basis) for the fiscal year multiplied by eight, by the total number of ordinary shares deemed outstanding as of such date, provided that the aggregate net profit of Blue (determined on consolidation basis) for the fiscal year multiplied by eight shall in no event be less than: • R100 000 000 or greater than R140 000 000 for Class A shares, • R250 000 000 or greater than R350 000 000 for Class B shares; and

• R350 000 000 or greater than R550 000 000 for Class C shares. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 122 Blue Financial Services Limited • Annual Report 2008

18. Share-based payments Shares issued to staff members During the current financial year 1 747 636 ordinary shares were issued to staff for services rendered. The ordinary shares were issued at a weighted average share price of R2,93 per share.Total expenses of R5 120 356 (2007: R9 000 000) related to equity-settled share-based payment transactions which were recognised in profit or loss in 2008 and 2007, respectively.

Group Company 2008 2007 2008 2007 R R R R

19. Foreign currency translation reserve Translation reserve comprises exchange differences on consolidation of foreign subsidiaries. Opening balance (16 411) – – – Originating exchange differences 2 074 572 (16 411) – – 2 058 161 (16 411) – – 20. Trade and other payables Trade payables 12 397 459 1 190 153 7 372 785 – VAT 2 578 194 2 513 612 – 2 629 391 Payroll liabilities 6 439 753 9 406 545 1 344 187 3 000 000 Sundry loans 1 205 949 215 065 – – Other payables – 824 910 – 824 910 Deposits received 12 042 11 986 – – 22 633 397 14 162 271 8 716 972 6 454 301 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 123

Group Company 2008 2007 2008 2007 R R R R

21. Other financial liabilities Held at amortised cost FNB Mortgage Loan – Plot 205 5 555 059 – – – FNB Mortgage Loan – Plot 21685 1 615 660 1 640 470 – – FMO 98 274 931 – 98 274 931 – Other financial liabilities 2 774 710 157 599 969 874 – Standard Chartered Bank (a) 93 548 421 – 93 548 421 – National Housing Finance Corporation 22 966 857 18 585 486 – – Zanaco Bank 4 062 000 – – – IFC 62 987 618 – 62 987 618 – 17% debentures (a) 1 181 704 1 176 256 – – 14,5% debentures (a) 31 232 984 – – – Shareholders – Future Finance – 10 222 252 – 10 222 252 17% debentures (b) 12 512 381 4 284 003 12 512 381 1 000 000 ZSIC – 3 897 940 – – Kaluba – 1 064 400 – – ABC – 3 858 450 – – 14,5% debentures (b) 35 136 470 – – – Redeemable preference shares 2 500 000 – – – 14% debentures 1 101 592 – – – Standard Chartered Bank (b) 9 748 800 – – – 385 199 187 44 886 856 268 293 225 11 222 252

First National Bank Mortgage Loan – Plot 205. The loan is secured over buildings (Plot 205, Independence Avenue, Gaborone) with a carrying amount of R7 661 336. The loan bears interest at 14% per annum and is repayble in equal instalments of R74 914 per month. The loan will be fully repaid on 1 January 2023. First National Bank Mortgage Loan – Plot 21685. The loan is secured over buildings (Plot 21685, Sehudi Close, Gaborone) with a carrying amount of R1 976 288. The loan bears interest at 16% per annum and is repayble in equal instalments of R24 577 per month. The loan will be repaid on 1 March 2021. FMO – Nederlandse Finincieringsmaatschappij voor Ontwikkelingslanden, NV. The loan is repayable in eight bi-annual variable instalments of R12 500 000 capital plus interest. The first instalment is payable on 15 April 2009 and the last instalment on 15 October 2012. The interest payable on the outstanding capital is linked to RSA JIBAR +4% (15,96%) and Bank of Botswana Certificate rate +4,3% (currently 15,46%). Standard Chartered Bank (a). The loan is repayable in 11 variable quarterly installments of R9 090 909 capital plus interest . The first installment is payable on 1 January 2008 and the last installment on 1 July 2010. The interest payable on the outstanding capital is linked to 90 day JIBAR +2,2% (currently 13,49%). National Housing Finance Corporation. A number of individual loans, bearing interest at prime minus 1% over five years and repayable in equal monthly instalments over a five-year period. The current instalment per month amounts to R598 640 plus interest. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 124 Blue Financial Services Limited • Annual Report 2008

21. Other financial liabilities (continued) Zanaco Bank. The loan is repayable in 24 monthly instalments of R206 739 per month. The last instalment is due on 31 December 2009. The loan bears interest at 5% above the bank’s base rate of 15%. Blue Financial Services Limited – Zambia provided the following security for the loan: floating debenture over all Blue Financial Services Limited – Zambia assets to cover the full exposure; guarantee by Blue Employee Benefits Botswana (Pty) Limited; cession of Blue Financial Services Limited – Zambia debtors to the bank in proportion to the loan; charge over loan book to rank pari passu with Standard Chartered Bank (Z) Limited; directors personal guarantees for unlimited amount. IFC – International Finance Corporation. The loan is repayable in 20 variable quarterly instalments of R3 186 000 capital plus interest. The first instalment is payable on 15 September 2009 and the last instalment on 15 June 2014. The interest payable on the outstanding capital is linked 90 day JIBAR +2,15% (currently 13,378%). 17% debentures (a). These unsecured debentures are redeemable on 11 January 2010. The debenture holder has the option to extend the term of the debentures for an additional two years. The final decision to grant such extension vest in the absolute descretion of Blue Employee Benefits (Pty) Limited. 14,5% debentures (a). These unsecured debentures, guaranteed by the holding company, Blue Financial Services Limited, South Africa are redeemable on 24 April 2010 and bear interest at 14,5% per annum. Former shareholders of Blue Financial Services (South Africa) (Pty) Limited formerly known as Micro Access Financial Services (Pty) Limited. The amount was settled in full during the financial year. 17% debentures (b). The debentures are unsecured, bear interest at 17% per annum and are redeemable two years after the issue date. 14,5% debentures (b). The debentures are unsecured, bear interest at 14,5% per annum and are redeemable for cash in June 2008. The debentures are denominated in USA dollars. 14% debentures. These unsecured debentures are redeemable in 12 monthly equal instalments payable from November 2008 and bear interest at 14% per annum. The debenture holder has the option to extend the term of the debentures for an additional two years. The final decision to grant such extension vest in the absolute descretion of Blue Employee Benefits (Pty) Limited. Standard Chartered Bank (b). The loan is repayable in 36 monthly instalments of R324 960 per month. The last instalment is due on 30 June 2010. The loan bears interest at 1% above the bank’s base rate of 19%. Blue Financial Services Limited – Zambia provided the following security for the loan: directors guarantee by Dave Van Niekerk, Derek de Villiers, Wessel Smith, Godfrey Ngula and Webster Ndui; an assignment of Zambian denominated receivables and supplemental debentures of all receivables from payroll-based deductions of employers for R23 397 120 plus interest.

No defaults or breaches of loan terms or payments have taken place in either current or prior periods. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 125

Group Company 2008 2007 2008 2007 R R R R

22. Finance lease obligation Minimum lease payments due – within one year 2 961 864 3 072 682 2 047 261 – – in second to fifth year inclusive 9 359 933 14 295 603 8 273 020 – 12 321 797 17 368 285 10 320 281 – Less: future finance charges (3 266 940) (5 375 576) (2 896 021) – Present value of minimum lease payments 9 054 857 11 992 709 7 424 260 – Present value of minimum lease payments due – within one year 1 682 575 1 801 334 1 037 204 – – in second to fifth year inclusive 7 372 282 10 191 375 6 387 056 – 9 054 857 11 992 709 7 424 260 – The average lease term was three to five years and the average effective borrowing rate varied between 14% – 17% (2007: 12% – 17%). Interest rates are linked to prime at the contract date. All lease instalments fluctuate as they are linked to prime bank rates.

No defaults or breaches of loan terms or payments have taken place in either current or prior periods.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. Refer note 13.

Utilised Opening during balance Additions the year Total R R R R

23. Provisions Reconciliation of provisions – Group 2008 Payroll provisions 2 131 068 2 354 788 (2 131 068) 2 354 788

Utilised Reversed Opening during during balance Additions the year the year Total

Reconciliation of provisions – Group 2007 Payroll provisions – 3 057 727 (260 000) (666 659) 2 131 068

Opening balance Additions Total

Reconciliation of provisions – Company 2008 Payroll provisions – 533 390 533 390 The Group provides for leave accrued and bonuses earned based on performances by permanent employees. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 126 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 R R R R

24. Interest expense Debentures 25 260 306 16 635 775 – 278 827 Other financial liabilities 18 700 657 1 998 275 14 575 633 – Preference dividends 5 357 227 2 835 288 5 357 227 2 835 288 Finance leases 972 688 960 330 26 322 – Bank 15 066 588 1 875 837 3 896 659 695 Imputed interest charge 627 748 861 353 627 748 861 353 65 985 214 25 166 858 24 483 589 3 976 163 25. Operating profit (loss) Operating profit for the year is stated after accounting for the following: Income from subsidiaries Dividends – – 18 559 226 – Operating lease charges Premises – Contractual amounts 15 341 479 5 666 948 861 957 192 540 Motor vehicles – Contractual amounts 158 202 – – – Equipment – Contractual amounts 3 099 603 1 860 114 590 939 297 818 Software – Contractual amounts 450 455 – – – 19 049 739 7 527 062 1 452 896 490 358 Profit (loss) on sale of property, plant and equipment 3 161 615 (8 149) 30 133 – Profit on sale of investment property – 3 868 462 – – Profit on sale of other financial assets 3 540 813 – – – Impairment on loans to Group companies – 4 438 922 – 4 438 922 Loss on exchange differences (1 514 656) (39 773) – – Amortisation on intangible assets 7 116 478 4 516 098 – – Depreciation on property, plant and equipment 8 213 207 4 017 964 1 312 267 54 354 Employee costs 75 095 748 26 454 179 22 840 357 9 169 455 26. Investment revenue Dividend revenue Subsidiaries – local – – 18 559 226 – Interest revenue Bank 12 562 691 334 038 12 344 687 3 259 201 12 562 691 334 038 30 903 913 3 259 201 27. Fair value adjustments Other financial liabilities – Fair value through profit or loss 6 161 641 – 6 161 641 – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 127

Group Company 2008 2007 2008 2007 R R R R

28. Taxation Major components of the tax expense (income) Current Normal company tax – local 15 911 092 8 555 728 – 318 300 Secondary company tax – local 9 844 – – – Normal company tax – foreign 24 671 894 3 072 584 – – 40 592 830 11 628 312 – 318 300 Deferred Normal company tax – local (14 921 081) (1 967 339) (9 548 651) – Normal company tax – foreign (3 822 459) (12 758) – – (18 743 540) (1 980 097) (9 548 651) – 21 849 290 9 648 215 (9 548 651) 318 300 Reconciliation of the tax expense Reconciliation between accounting profit and tax expense Accounting (loss) profit 83 591 194 42 019 015 (10 576 360) 4 747 888 Tax at the applicable tax rate of 29% (2007: 29%) 24 318 760 12 179 814 (3 067 144) 1 376 888 Tax effect of adjustments on taxable income Income not subject to taxation (3 010 391) (4 144 505) – (1 058 588) Dividends received – – (5 382 176) – Prior year under/(over) provision (658 597) 563 453 – – Expenses not deductible 3 889 509 1 306 739 346 522 – Differences between foreign taxation rates and South African taxation rate 1 426 194 (278 291) – – Fair value adjustments (1 786 876) – (1 786 876) – Tax rate change of future value in use of deferred tax asset (207 673) – 341 023 – Tax losses utilised (2 131 480) (1 520 699) – – Secondary tax on companies 9 844 – – – Deferred tax asset not recognised – 1 541 704 – – 21 849 290 9 648 215 (9 548 651) 318 300 29. Auditors’ remuneration Fees 1 265 587 353 354 488 259 201 495 Adjustment for previous year – (349 873) – – Other services 75 000 – – – Tax and secretarial services – – – – Expenses – – – – 1 340 587 3 481 488 259 201 495 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 128 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 R R R R

30. Cash (used in) generated from operations Profit (loss) before taxation 83 591 194 42 019 015 (10 576 360) 4 747 888 Adjustments for: Depreciation and amortisation 15 329 685 8 534 062 1 312 267 54 354 Profit on sale of assets (6 702 428) (3 860 313) (30 133) – (Profit) loss on foreign exchange (2 292 421) – 154 800 – Dividends received – – (18 559 226) – Interest received (12 562 691) (334 038) (12 344 687) (3 259 201) Interest expense 65 985 214 25 166 858 24 483 589 3 976 163 Fair value adjustments (6 161 641) – (6 161 641) – Impairment (reversals) loss (418 931) 4 438 922 – 4 438 922 Movements in operating lease assets and accruals 677 106 153 243 259 814 – Movements in provisions 72 894 (743 466) 533 390 – Foreign currency differences 1 825 642 (16 411) – – Realisation of revaluation through profit (loss) – 4 248 250 – – Other non-cash items directors expenses 5 120 719 300 000 3 373 088 300 000 Changes in working capital: Inventories 13 853 – – – Increase in loan advances and accounts receivables (337 037 683) (82 023 668) (5 140 334) – Trade and other payables 7 376 750 6 946 907 2 262 665 6 454 301 (185 182 738) 4 829 361 (20 432 768) 16 712 427 31. Tax paid Balance at beginning of the year (17 463 511) – (318 300) – Current tax for the year recognised in income statement (40 592 830) (11 628 312) – (318 300) Adjustment in respect of businesses sold and acquired during the year including exchange rate movements (65 096) (13 808 561) – – Balance at end of the year 34 252 739 17 463 511 (1 467 172) 318 300 (23 868 698) (7 973 362) (1 785 472) – WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 129

Group Company 2008 2007 2008 2007 R R R R

32. Acquisition of businesses Fair value of assets acquired Property, plant and equipment 505 534 7 298 995 – – Intangible assets 15 588 729 63 574 491 – – Other financial assets 288 244 910 717 – – Investment properties – 9 376 076 – – Deferred tax (663 364) (17 879 137) – – Goodwill 30 692 004 265 021 692 – – Negative goodwill (418 931) – – – Trade and other receivables 10 862 232 127 730 087 – – Inventory 13 853 – – – Other financial liabilities (10 779 140) – – – Cash and cash equivalents (2 953 532) 5 035 769 – – Shareholders loans – (11 898 449) – – Amounts owing to related parties – (7 046 660) – – Long-term liabilities – (38 348 922) – – Provisions (150 826) (2 874 533) – – Taxation (65 096) (13 738 530) – – Trade and other payables (1 094 373) (7 215 368) – – Outside shareholders 738 392 (226 650) – – 42 563 726 379 719 578 – – Consideration paid Cash (39 034 828) (84 200 000) (21 660 996) (84 200 000) Equity – 281 972 500 ordinary shares in Blue Financial Services Limited – (281 792 500) – – Deferred payments – fair value (871 398) (13 727 078) – – Equity – 938 197 ordinary shares in Blue Financial Services Limited (2 657 500) – (2 657 500) – (42 563 726) (379 719 578) – – Net cash outflow on acquisition Cash consideration paid (39 034 828) (84 200 000) (21 660 996) (84 200 000) Cash acquired (2 953 532) 5 035 769 – – (41 988 360) (79 164 231) (21 660 996) (84 200 000) 33. Commitments Operating leases – as lessee (expense) Minimum lease payments due – within one year 12 589 953 5 485 648 1 880 838 188 000 – in second to fifth year inclusive 24 522 851 11 403 769 7 708 674 – – later than five years 4 133 888 – – – 41 246 692 16 889 417 9 589 512 188 000 The Group leases various offices and equipment under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. 34. Contingencies The Group and its directors are not aware of the existence of any possible contingencies at date of signature of these annual financial statements. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 130 Blue Financial Services Limited • Annual Report 2008

35. Related parties Relationships Entity of which the directors are also directors of that company Blue Easybuild (Pty) Limited Shareholder of entity with significant influence Northern Spark Trading 108 (Pty) Limited Entity of which the directors are also directors of that company Capital Alliance (Pty) Limited Subsidiaries Refer to note 11 and 12

Group 2008 2007 R R

Related-party balances Loan accounts – owing (to) by related parties Blue Easybuild (Pty) Limited 14 318 864 2 670 223 Northern Spark Trading 108 (Pty) Limited 64 502 627 – Blue Developments (Pty) Limited 16 396 926 – Related-party transactions Sale of debtors book Northern Spark Trading 108 (Pty) Limited 70 890 675 – Sale of aircraft Capital Alliance (Pty) Limited 3 042 405 – Compensation to key management Short-term employee benefits 10 668 928 2 126 889 Termination benefits – – Share-based payments 5 120 356 9 000 000 15 789 284 11 126 889

Group Company 2008 2007 2008 2007 R R R R

36. Prior period error The investment in Blue Limited – Kenya has been incorrectly disclosed as R21 121 015 in the accounting records of Blue Financial Services Limited in 2007. This error occured due to the fact that the issued share capital in Blue Limited – Kenya was incorrectly stated as 600 000 Kenyan shilling. The correct amount is 60 000 000 Kenyan shilling. The correction of the error(s) results in adjustments as follows: Balance sheet Investments in subsidiaries – – – 6 712 000 Loans to Group companies – – – (6 712 000) WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 131

37. Going concern The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. 38. Post-balance sheet events Formation of a subsidiary in Nigeria An agreement, dated 6 March 2008, was entered into between Blue Employee Benefits (Pty) Limited – Botswana (“BEB”), Blue, Intercontinental Bank plc (“ICB”) and American International Group (“AIG”) (“the parties“), in terms of which Blue will introduce its products to Nigeria and ICB will expand its product offering to its clients to include Blue’s products. A company, Blue Intercontinental Micro Finance Bank (“BIMFB”) was established for this purpose.

BIMFB will not have any liabilities, indebtedness or obligations other than in terms of the agreement. BIMFB will be registered in such a manner that its legal structure meets the requirements of the Central Bank of Nigeria to qualify for a micro finance banking licence (“MFB licence”). In order to obtain an MFB licence, an amount of one billion Nigerian naira (approximately USD8,7 million) was deposited into an account as designated by the Central Bank of Nigeria (“the deposit”). BEB and ICB provided the funding for the deposit as set out below.

Subject to the ICB conditions precedent, the following initial subscriptions will be made for BIMFB shares: • 520 000 ordinary shares by BEB for a total subscription price of USD1 million; and • 280 000 ordinary shares by ICB for a total subscription price of USD10,8 million.

Subject to the AIG conditions precedent, AIG will purchase from BEB 100 000 ordinary shares which will result in AIG holding 10% of BIMFB for USD5 million.

At the same time as the shares are sold to AIG, further BIMFB shares will be subscribed for as follows: • 130 000 ordinary shares by BEB for a total subscription price of USD6 million; and • 70 000 ordinary shares by ICB for a total subscription price of USD3,2 million.

The resulting shareholding in BIMFB will be as follows:

% Shareholder shareholding BEB or another member of the Blue group of companies (“the BEB shares”) 55 ICB (“the ICB shares”) 35 AIG (“the AIG shares”) 10 100 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 132 Blue Financial Services Limited • Annual Report 2008

38. Post-balance sheet events (continued) Acquisition of Nedfin Limited On 8 May 2008, Blue announced that Blue Employee Benefits (Pty) Limited – Botswana (“BEB”), a wholly owned subsidiary of Blue, had entered into a sale agreement in terms of which BEB purchased the entire share capital in and claims against Nedfin Limited (“Nedfin”) with effect from 1 April 2008, for a cash consideration of USD9 million.

Nedfin, a company duly incorporated in Zambia under registration number 56964, commenced trading in July 2005 and was granted its Non-Banking Financial Institution Licence by the Bank of Zambia in September 2005. It is involved in the micro-lending business, providing small- to medium-size loans to individuals who are gainfully employed and where repayments in respect of such loans are collected in cash, debit order or through payroll deduction. The business focuses on short-term lending through its eight Zambian branches. The acquisition of Nedfin will result in Blue having a combined branch network in Zambia of 20 branches and will effectively make Blue the single biggest micro-financier in Zambia. Due to the impracticality of access to the detailed financial information of the purchased subsidiary, no financial information as per IFRS 3 par 66 (b) is being presented as part of post-balance sheet disclosures.

Issue of unsecured convertible bonds On 15 April 2008, Blue advised shareholders that the Company had entered into an agreement with foreign investor, EMP Africa FII Investments LLC (“EMP”), in terms of which Blue will issue and sell 10 convertible bonds (“convertible bonds”) for USD10 million.

The terms of the convertible bonds are as follows: • Issue and price: 10 convertible unsecured bonds at an aggregate value of USD10 million. • Interest rate: 10% per annum payable bi-annually in February and August. • Maturity date: 28 February 2013. • Conversion: All the bonds. • Conversion event: Event of material default/mandatory conversion. • Mandatory conversion: At a price of R5,30 (“conversion price”) per Blue ordinary share, operative immediately when the price of Blue’s ordinary shares, based on the weighted average traded price on the JSE equals or exceeds R5,83 for 30 consecutive days. • Currency: Converts to rand at the actual exchange rate upon initial receipt of the funds. On 14 June 2008 the mandatory conversion was effected as Blue’s share price traded above R5,83 for 30 consecutive days.

Botswana dual listing Effective 15 May 2008, the current share capital of Blue which is listed on the JSE Limited became available for trade on the Botswana Stock Exchange (“BSE”) after the Company’s dual listing on the BSE was approved. No additional shares were issued. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the annual financial statements(continued) for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 133

Group 2008 2007

39. EARNINGS Reconciliation of headline earnings Profit after tax 61 741 904 32 370 800 Less minority interest – 313 302 Attributable to shareholders 61 741 904 32 057 498 Adjusted for: Impairment of Loan Blue Cell 4 438 922 Fair value adjustments (6 161 641) – Profit on sale of property, plant and equipment (3 161 613) – Negative goodwill (418 392) – Headline earnings 52 000 258 36 496 420 Reconciliation of diluted earnings Profit after tax 61 741 904 32 370 800 Less minority interest – 313 302 Attributable to shareholders 61 741 904 32 057 498 Adjusted for: Interest paid on Class A and B convertible preference shares 3 803 631 2 835 000 Diluted earnings 65 545 535 34 892 498 Weighted average number of ordinary shares 423 520 447 309 138 608 Adjusted for: Conversion of Class B preference shares 47 027 949 – Conversion of Class A preference shares – 88 550 608 Diluted weighted average number of ordinary shares 470 548 396 397 689 216 Earnings per share 14,58 10,37 Headline earnings per share 12,28 11,81 Diluted earnings per share 13,93 8,77 Diluted headline earnings per share 11,86 9,89 Basic earnings and headline earnings per share are calculated by dividing the relevant earnings amount by the weighted average number of shares in issue. Diluted earnings and diluted headline earnings per share are calculated by dividing the relevant earnings by the weighted average number of shares in issue after taking the dilutive impact of potential ordinary shares to be issued into account. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Group segmental analysis for the year ended 29 February 2008 134 Blue Financial Services Limited • Annual Report 2008

South Africa Botswana Zambia Malawi Other Eliminated Consolidated Notes R R R R R R R

For the year ended 29 February 2008 Interest income 109 619 308 30 331 876 20 597 894 3 749 547 18 421 304 – 182 719 929 Interest expense (35 621 106) (15 499 427) (7 291 375) (1 676 577) (5 896 729) – (65 985 214) Net interest income 73 998 202 14 832 449 13 306 519 2 072 970 12 524 575 – 116 734 715 Administration and insurance income 56 776 348 21 153 187 43 855 287 21 713 756 23 300 131 (18 459 906) 148 338 803 External administration and insurance income 38 316 442 21 153 187 43 855 287 21 713 756 23 300 131 – 148 338 803 Internal administration and insurance income 18 459 906 – – – – (18 459 906) – Other operating income 8 316 000 2 818 592 947 981 1 237 571 3 577 602 – 16 897 746 Operating income 139 090 550 38 804 228 58 109 787 25 024 297 39 402 308 (18 459 906) 281 971 264 Impairment of loan advances 2 311 020 (2 683 605) (2 339 911) (327 572) (1 431 718) – (4 471 786) Operating expenses (142 166 914) (24 786 731) (23 270 658) (4 302 965) (36 565 254) 18 459 906 (212 632 616) Operating profit (765 344) 11 333 892 32 499 218 20 393 760 1 405 336 – 64 866 862 Investment revenue 12 562 691 – – – – – 12 562 691 Fair value adjustment 6 161 641 – – – – – 6 161 641 Segment result: profit before tax 1 17 958 988 11 333 892 32 499 218 20 393 760 1 405 336 – 83 591 194 Taxation (21 849 290) Profit after taxation 61 741 904 Other disclosures Segment assets 2 709 679 287 92 867 944 91 616 672 44 681 002 165 254 451 (366 394 549) 737 704 807 Segment liabilities 3 (497 583 946) (66 963 949) (55 334 662) (23 862 900) (158 813 279) 366 394 549 (436 164 187) Fair value adjustments 6 161 641 – – – – – 6 161 641 Depreciation and amortisation 9 822 354 2 042 809 1 090 394 91 586 2 282 542 – 15 329 685 Capital expenditure 10 328 733 8 144 090 981 392 1 764 812 10 966 716 – 32 185 743 For the year ended 28 February 2007 Interest income 82 076 167 22 791 149 9 396 943 – 72 415 – 114 336 674 Interest expense (12 908 240) (7 011 438) (5 183 796) – (63 384) – (25 166 858) Net interest income 69 167 927 15 779 711 4 213 147 – 9 031 – 89 169 816 Administration and insurance income 14 489 771 8 755 275 13 137 549 – 82 256 (4 060 900) 32 403 951 External administration and insurance income 10 428 871 8 755 275 13 137 549 – 82 256 – 32 403 951 Internal administration and insurance income 4 060 900 – – – – (4 060 900) – Other operating income 4 045 314 273 627 53 839 – – – 4 372 780 Operating income 87 703 012 24 808 613 17 404 535 – 91 287 (4 060 900) 125 946 547 Impairment of loan advances (1 805 738) (1 061 079) (400 414) – (46 772) – (3 314 003) Operating expenses (50 971 321) (17 745 613) (11 020 621) – (5 270 912) 4 060 900 (80 947 567) Operating profit 34 925 953 6 001 921 5 983 500 – (5 226 397) – 41 684 977 Investment revenue 334 038 – – – – – 334 038 Segment result: profit before tax 1 35 259 991 6 001 921 5 983 500 – (5 226 397) – 42 019 015 Taxation (9 648 215) Profit after taxation 32 370 800 Other disclosures Segment assets 2 215 768 364 32 189 334 28 588 178 – 4 764 131 (33 662 901) 247 647 106 Segment liabilities 3 (75 119 163) (22 204 960) (26 920 074) – (15 379 112) 33 662 901 (105 960 408) Depreciation and amortisation 6 537 624 1 207 403 627 500 – 161 535 – 8 534 062

Capital expenditure 12 915 164 776 749 1 175 133 – 2 378 522 – 17 245 568 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the Group segmental analysis for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 135

Group 2008 2007

1. The segment result of South Africa comprises contributing profit (loss) for Group holding company and operating activities as follows: Contributing profit from operational activities 68 006 880 56 760 675 Contributing loss from Group holding company activities (50 047 892) (21 500 684) Segment result: Profit before taxation 17 958 988 35 259 991 2. Reconciliation of segment assets and assets per balance sheet Assets per segments 1 104 099 356 281 310 007 Intercompany loans eliminated (366 394 549) (33 662 901) Sub total 737 704 807 247 647 106 Goodwill 295 713 696 265 021 692 Intangible assets 67 514 745 59 058 393 Deferred tax assets 7 798 439 1 303 142 Assets per balance sheet 1 108 731 687 573 030 333 3. Reconciliation of segment liabilities and liabilities per balance sheet Liabilities per segment (802 558 736) (139 623 309) Intercompany loans eliminated 366 394 549 33 662 901 Sub total (436 164 187) (105 960 408) Deferred tax liabilities (15 750 149) (17 132 151) Income tax liabilities (34 252 739) (17 463 510) Liabilities per balance sheet (486 167 075) (140 556 069) WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Notes to the Group segmental analysis for the year ended 29 February 2008 Balance sheet as at 29 February 2008 Blue Financial Services Limited • Annual Report 2008 135 136 Blue Financial Services Limited • Annual Report 2008

Group Company 2008 2007 2008 2007 Notes R R R R

Assets Cash and cash equivalents 6 66 975 504 11 832 633 24 657 112 1 002 Loans and advances to customers 7 481 941 481 207 097 532 – – Trade and other receivables 8 8 362 327 2 656 221 5 140 334 – Other financial assets 9 122 841 508 3 778 939 55 489 504 – Investment property 10 – 1 976 288 – – Investments in subsidiaries 11 – – 342 851 637 386 431 778 Loans to Group companies 12 – – 366 383 850 67 886 380 Property, plant and equipment 13 44 100 886 20 306 491 14 667 570 356 990 Current tax receivable 1 495 705 – 1 467 172 – Intangible assets 14 67 514 745 59 058 393 – – Goodwill 15 295 713 696 265 021 692 – – Deferred tax 16 19 785 835 1 303 142 9 548 651 – Total assets 1 108 731 687 573 031 331 820 205 830 454 676 150

Equity and liabilities Equity Share capital 17 526 905 489 399 894 223 531 526 094 406 262 464 Reserves 19 2 058 161 (16 411) – – Retained income 93 799 402 32 057 498 3 401 879 4 429 588 Minority interest (198 440) 539 952 – – 622 564 612 432 475 262 534 927 973 410 692 052 Liabilities Bank overdraft 6 12 835 202 32 306 186 50 196 19 815 304 Trade and other payables 20 22 633 397 14 162 271 8 716 972 6 454 301 Current tax payable 35 748 444 17 463 511 – 318 300 Other financial liabilities 21 385 199 187 44 886 856 268 293 225 11 222 252 Loans from Group companies 12 – – – 6 173 941 Finance lease obligation 22 9 054 857 11 992 709 7 424 260 – Loans from shareholders – 328 074 – – Provisions 23 2 354 788 2 131 068 533 390 – Operating lease liability 830 349 153 243 259 814 – Deferred tax 16 17 510 851 17 132 151 – – 486 167 075 140 556 069 285 277 857 43 984 098 Total equity and liabilities 1 108 731 687 573 031 331 820 205 830 454 676 150

This balance sheet is a duplicate of the one that appears on page 82. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Income statement for the year ended 29 February 2008 Blue Financial Services Limited • Annual Report 2008 137

Group Company 2008 2007 2008 2007 Notes R R R R

Interest income 182 719 929 114 336 674 – – Interest expense 24 (65 985 214) (25 166 858) (24 483 589) (3 976 163) Net interest income 116 734 715 89 169 816 (24 483 589) (3 976 163) Administration and insurance income 148 338 803 32 403 845 36 562 275 24 374 352 Other operating income 16 897 746 4 372 780 570 969 16 574 Operating income 281 971 264 125 946 441 12 649 655 20 414 763

Impairment of loan advances (4 471 786) (3 314 003) – – Operating expenses (212 632 616) (80 947 461) (60 291 569) (18 926 076) Operating profit (loss) 25 64 866 862 41 684 977 (47 641 914) 1 488 687 Investment revenue 26 12 562 691 334 038 30 903 913 3 259 201 Fair value adjustments 27 6 161 641 – 6 161 641 – Profit/(loss) before taxation 83 591 194 42 019 015 (10 576 360) 4 747 888 Taxation 28 21 849 290 9 648 215 (9 548 651) 318 300 Profit/(loss) for the year 61 741 904 32 370 800 (1 027 709) 4 429 588

Attributable to: Equity holders of the parent 61 741 904 32 057 498 (1 027 709) 4 429 588 Minority interest – 313 302 – –

Earnings ratios Earnings per share 39 14,58 10,37 Headline earnings per share 39 12,28 11,81 Diluted earnings per share 39 13,93 8,77 Diluted headline earnings per share 39 11,86 9,89

This income statement is a duplicate of the one that appears on page 83. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Shareholder analysis as at 29 February 2008 138 Blue Financial Services Limited • Annual Report 2008

Number % of total Number % of total issued of holders shareholders of shares share capital

Analysis of shareholdings 1 – 1 000 229 21,30 147 211 0,03 1 001 – 10 000 607 56,47 2 592 246 0,55 10 001 – 100 000 169 15,72 5 612 669 1,19 100 001 – 1 000 000 35 3,26 10 602 425 2,25 1 000 001 – and above 35 3,26 451 324 947 95,97 Totals 1 075 100,00 470 279 498 100,00

Categories of shareholders Banks 8 0,74 111 308 811 23,67 Insurance companies 1 0,09 5 621 518 1,20 Collective investment schemes and mutual funds 20 1,86 67 736 023 14,40 Trusts 35 3,26 5 041 325 1,07 Pension funds and medical schemes 4 0,37 13 528 887 2,88 Private companies and close corporations 51 4,74 84 093 182 17,88 Individuals 955 88,84 177 839 523 37,82 Share trust 1 0,09 5 110 229 1,09 Totals 1 075 100,00 470 279 498 100,00

Shareholder spread Non-public 4 0,37 211 556 003 44,99 Share trust 1 0,09 5 110 229 1,09 Over 10% of issued capital 1 0,09 69 445 774 14,77 Directors and associates 2 0,19 137 000 000 29,13

A.I.G. Public 1 071 99,63 258 723 495 55,01 Totals 1 075 100,00 470 279 498 100,0

Major shareholders (5% and more of the shares in issue) Mellon Bank N.A. (A.I.G.) 69 445 774 14,77 R Swart 68 500 000 14,57 D van Niekerk 68 500 000 14,57 Broker Proprietary 41 828 228 8,89 Capital Alliance 37 752 214 8,03 CBNY: International Finance Corporation 23 838 384 5,07 African Holdings Limited 18 477 520 3,93 Settled Investment Three Pty Ltd 18 147 222 3,86 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 General information Blue Financial Services Limited • Annual Report 2008 139

Corporate information Independent reporting accountants and auditors Blue Financial Services Limited PKF (Pta) Inc. Registration number: 1996/006595/06 Registered Auditors JSE share code: BFS Chartered Accountants (SA) Botswana Stock Exchange share code: Blue Registration number: 2000/026635/21 ISIN ZAE 000083655 105 Club Avenue Waterkloof Heights 0065 Date of incorporation PO Box 98060 28 May 1996 Waterkloof Heights 0065

Place of incorporation Transfer secretaries South Africa Link Market Services South Africa (Pty) Limited Registration number: 2000/007239/07 Nature of business and principal activities 11 Diagonal Street The Company provides financial services to individuals Johannesburg, 2001 PO Box 4844 Registered office Johannesburg 2000 Building 10 Boardwalk Office Park Legal advisers 107 Haymeadow Street Jowell, Glyn & Marais Faerie Glen 72 Grayston Drive Pretoria 0081 Sandown South Africa PO Box 652361 Benmore 2010 Postal address PO Box 72041 Bankers Lynnwood Ridge First National Bank Pretoria 0040 ABSA South Africa Secretary Group head office contact details R van der Westhuizen Tel: +27 (0) 12 990 8400 Fax: +27 (0) 86 637 6033 Directors E-mail: [email protected] D van Niekerk* Website: www.blue.co.za G Chittenden* WJ Smit* Investor relations MJ Sondiyazi# Morne Reinders A Steyn# Mobile +27 (01) 82 480 4541 A Couloubis# NP Kanabar# Designated adviser GL Sangudi#

PSG Capital (Pty) Limited *Executive directors Registration number: 2006/015817/07 #Non-executive directors PO Box 987 Parklands, 2121 WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Pr o o f 10 27 Au g u s t Pr o o f 10 27 Au g u s t

Notice of annual general meeting 2 Blue Financial Services Limited • Annual Report 2008

Notice is hereby given that the annual general meeting of members of Blue Financial Services Limited will be held at the Blue Conference Centre, Building 13, Boardwalk Office Park, 107 Haymeadow Street, Faerie Glen, Pretoria, Gauteng on Monday, 22 September 2008 at 12:00 for purposes of considering and, if deemed fit, passing with or without modification, the resolutions set out below:

1. Ordinary Resolution Number 1 (Approval of Annual Financial Statements) RESOLVED: To receive and approve the annual financial statements of the Company and the Group for the financial year ended 29 February 2008, together with the reports of the directors and auditors.

2. Ordinary Resolution Number 2 (Re-election of directors) RESOLVED: To re-elect and/or ratify the appointment of each of the directors referred to in paragraphs 2.1 to 2.5 below.

The curriculum vitae for each of these directors appear on pages 17 to 19 of the annual financial report.

2.1 RESOLVED: André Steyn who retires in accordance with the Company’s articles of association and being eligible, offers himself for re-election, be re-elected as director of the Company with immediate effect.

2.2 RESOLVED: James Mpumela Sondiyazi who retires in accordance with the Company’s articles of association and being eligible, offers himself for re-election, be re-elected as director of the Company with immediate effect.

2.3 RESOLVED: Antonios Couloubis who retires in accordance with the Company’s articles of association and being eligible, offers himself for re‑election, be re-elected as director of the Company with immediate effect.

2.4 RESOLVED: Navin Prabhudas Kannabar who retires in accordance with the Company’s articles of association and being eligible, offers himself for re-election, be re-elected as director of the Company with immediate effect.

2.5 RESOLVED: The appointment of Genevieve Linda Sangudi as a director of the Company on 20 May 2008 be hereby ratified and confirmed.

3. Ordinary Resolution Number 3 (Directors’ Remuneration) RESOLVED: That the remuneration paid to the directors of the Company as set out in the financial statements for the financial year ended 29 February 2008 is ratified.

4. Ordinary Resolution Number 4 (Re-appointment of Auditors) RESOLVED: PKF be reappointed as auditors of the Company and the directors be authorised to determine the remuneration of the auditors.

5. Ordinary Resolution Number 5 (Placing the unissued shares under the control of directors) RESOLVED: That the authorised but unissued shares in the capital of the Company be placed under the control of the directors of the Company to allot or issue such shares at their discretion, subject to the provisions of sections 221 and 222 of the Companies Act, No. 61 of 1973 and the Listings Requirements of the JSE.

6. Ordinary Resolution Number 6 (General Authority to issue shares for cash) RESOLVED: that the directors be and are hereby authorised, subject to the Listings Requirements and until the conclusion of the next annual general meeting of the Company but in any event not later than 15 months from the date of this meeting, to issue, at their discretion, ordinary shares for cash, other than by way of a rights offer, provided that: (a) the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such shares or rights that are convertible into a class already in issue; (b) the shares so issued shall be issued only to public shareholders (as defined in paragraphs 4.25 to 4.27 of the Listings Requirements) and not to related parties; (c) the number of shares so issued shall not in any one year exceed 20% of the number of ordinary shares in issue at the time the issue is made; and (d) in determining the price at which an issue of shares for cash will be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price on the JSE of the Company’s shares over the 30 business days prior to the date that the issue price is determined or agreed by the Company’s directors.

Should shares be issued for cash in terms of this authority representing, on a cumulative basis within a financial year, 5% or more of the number of shares in issue prior to that issue, an announcement shall be published in accordance with the provisions of the Listings Requirements.

This resolution requires the approval of not less than 75% of the votes cast by shareholders present or represented by proxy and entitled to vote at the meeting, excluding the votes of the Company’s designated adviser and controlling shareholders of the Company, together with their associates. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Pr o o f 10 27 Au g u s t Pr o o f 10 27 Au g u s t

Blue Financial Services Limited • Annual Report 2008 3

7. Ordinary Resolution Number 7 (General authority to create and issue convertible securities and or options) RESOLVED: that the board of directors be and is hereby authorised in terms of clause 6 of the articles of association of the Company to create and issue convertible debentures, bonds or other convertible instruments in the capital of the company provided that such issue may not exceed 20% of the number of ordinary shares in issue at the time the issue was made and further provided that such issue shall be subject to such conversion and other terms and conditions as they may determine in their sole and absolute discretion, but subject further at all times to the rules and requirements of the JSE.

That, in determining the price at which the Company creates and issues convertible debentures, bonds or other convertible instruments in terms of this general authority, the maximum discount permitted will be 10% (ten percent) of the volume weighted average price at which the Company’s ordinary shares are traded on the JSE over the 30 (thirty) business days immediately prior to the date that the issue price of such convertible debentures, bonds or other convertible instruments is determined or agreed by the Company’s directors.

This resolution requires the approval of not less than 75% of the votes cast by shareholders present or represented by proxy and entitled to vote at the meeting.

8. Ordinary Resolution Number 8 RESOLVED: That any director or the Company Secretary of the Company be and is hereby authorised to sign all such documentation and do all such things as may be necessary for or incidental to the implementation of special resolution number 1 and ordinary resolutions numbers 1, 2, 3, 4, 5 and 6 which are passed by the members in accordance with and subject to the terms thereof.

1. Special Resolution Number 1 (Acquisition of the company’s own shares) RESOLVED: That the Company hereby approves, as a general approval contemplated in sections 85 (2) and 85 (3) of the Act and in terms of the Company’s articles of association the acquisition, by the Company or any of its subsidiaries from time to time of the issued ordinary shares of the Company, upon such terms and conditions and in such amounts as the directors of the Company may from time to time determine, but subject to the articles of association of the Company, the provisions of the Companies Act, No. 61 of 1973 (as amended) and the Listings Requirements of JSE Limited (“the JSE”) as presently constituted and which may be amended from time to time and provided:

That any such acquisition of ordinary shares shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counterparty;

That this general authority shall only be valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution;

That an announcement will be published as soon as the Company or its subsidiaries has/have acquired ordinary shares constituting, on a cumulative basis, 3% (three percent) of the number of ordinary shares in issue prior to the acquisition pursuant to which the 3% (three percent) threshold is reached and in respect of every 3% (three percent) thereafter, which announcement shall contain full details of such acquisitions;

That acquisitions by the Company and its subsidiaries of ordinary shares in the aggregate in any one financial year may not exceed 20% (twenty percent) of the Company’s issued ordinary share capital from the date of the grant of this general authority;

That, in determining the price at which the Company’s ordinary shares are acquired by the Company in terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten percent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the 5 (five) business days immediately preceding the date of repurchase of such ordinary shares by the Company;

That the Company may at any point in time only appoint one agent to effect any repurchase(s) on its behalf;

That the Company may only undertake a repurchase if, after such a repurchase it shall still comply with the spread requirements of the JSE Listings Requirements; and

That the Company may not repurchase securities during a prohibited period, as defined in the JSE Listings Requirements.

The reason for the special resolution is to grant the Company a general authority in terms of the Act for the acquisition by the Company or any of its subsidiaries of shares issued. The passing and registration of this special resolution will have the effect of authorising the Company or any of its subsidiaries to acquire shares issued by the Company. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Pr o o f 10 27 Au g u s t Pr o o f 10 27 Au g u s t

Notice of annual general meeting (continued) 4 Blue Financial Services Limited • Annual Report 2008

Explanatory notes The following, which is required by the JSE Listings Requirements, appears on the following pages of the annual financial statements to which this notice of general meeting is attached, namely:

Directors of the company pages 16 to19 Major shareholders page 138 Directors’ interests in securities page 78 Share capital of the Company page 121

Litigation There are no legal or arbitration proceedings, either pending or threatened against the Company or its subsidiaries of which the Company is aware which may have, or have had in the last 12 months, a material effect on the financial position of the Company or its subsidiaries.

Material changes Save as disclosed in the report of the directors, there has been no material change in the financial and trading position of the Company or of its subsidiaries since 29 February 2008.

Directors’ responsibility statement The directors, whose names are provided on pages 16 to 19 of the annual report, collectively and individually accept full responsibility for the accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading and that all reasonable enquiries to ascertain such facts have been made and that the annual report and notice of annual general meeting contains all the information required by the JSE Listings Requirements.

Statement by the board of directors of the Company That the method by which the Company intends to repurchase its securities and the date on which its securities and the date on which such repurchase will take place, has not yet been determined.

An acquisition of the Company’s own shares is not contemplated at the date of this notice. However, the board believes it to be in the interests of the Company that shareholders grant a general authority to provide the board with optimum flexibility to repurchase the Company’s shares as and when an opportunity that is in the best interests of the Company arises.

That after considering the effect of a maximum permitted repurchase of securities:

The Company and the Group will be able to pay their debts as they become due in the ordinary course of business for a period of 12 months after the date of the annual general meeting;

That the consolidated assets of the Company and the Group, fairly valued in accordance with generally accepted accounting practice, will be in excess of the consolidated liabilities of the Company and the Group for a period of 12 months after the date of the annual general meeting;

That the issued share capital and reserves of the Company and the Group will be adequate for the purposes of the business of the Company and the Group for a period of 12 months after the date of the annual general meeting;

That the working capital available to the Company and the Group will be sufficient for the Company and the Group’s requirements for a period of 12 months after the date of the annual general meeting; and

That the Company will provide its designated adviser and the JSE with all documentation as required in terms of the JSE Listings Requirements and will not commence any repurchase programme until the designated adviser has signed off on the adequacy of its working capital and advised the JSE accordingly. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 ✂ Pr o o f 10 27 Au g u s t Pr o o f 10 27 Au g u s t

Form of proxy Blue Financial Services Limited • Annual Report 2008 5

Blue Financial Services Limited (Incorporated in the Republic of South Africa) (Registration number 1996/006595/06) (“Blue” or “the Company”)

For use only by certificated shareholders and own name dematerialised shareholders at the annual general meeting of the Company to be held at the Blue Conference Centre, Building 13, Boardwalk Office Park, 107 Haymeadow Street, Faerie Glen, Pretoria, Gauteng on Monday, 22 September 2008 at 12:00 and at any adjournment thereof.

I/We (Please print name in full)

of address

being a holder of ordinary shares hereby appoint

1. or failing him/her

2. the chairman of the general meeting

as my/our proxy to act for me/us at the general meeting for the purposes of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at each adjournment or postponement thereof, and to vote for and/or against such resolutions and/or abstain from voting in respect of the ordinary shares in the issued capital of Blue registered in my/our name as follows:

In favour Against Abstain

Ordinary Resolution 1 To approve the annual financial statements

Ordinary Resolution 2 To re-elect or ratify the following directors:

2.1 André Steyn

2.2 James Mpumela Sondiyazi

2.3 Antonios Couloubis

2.4 Navin Prabhudas Kannabar

2.5 Genevieve Linda Sangudi

Ordinary Resolution 3 To ratify directors’ remuneration

Ordinary Resolution 4 To re-appoint PKF as auditors of the Company

Ordinary Resolution 5 To place the unissued shares under the control of the directors

Ordinary resolution 6 General authority to issue shares for cash

Ordinary Resolution 7 General authority to create and issue convertible securities and or options

Ordinary Resolution 8 To authorise signature of documentation

Special Resolution 1 Acquisition of the Company’s own shares

Signed at on 2008

Signature Full name

Assisted by (if applicable)

See reverse side WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579 Pr o o f 10 27 Au g u s t

Notes to the form of proxy 6 Blue Financial Services Limited • Annual Report 2008

Any member entitled to attend and vote, is entitled to appoint a proxy to attend, speak and vote in his stead and the person so appointed need not be a member. A form of proxy is attached for use by certificated and own name dematerialised shareholders who cannot attend the meeting and wish to be represented thereat. A form of proxy may be obtained from the registered office of the Company. The attention of members is drawn to the fact that, to be effective, the completed proxy form must reach the transfer secretaries of the Company, Link Market Services SA (Pty) Limited, 5th Floor, 11 Diagonal Street, Johannesburg, 2000, 48 hours before the scheduled time of the meeting. Shareholders whose shares have been dematerialised (other than by own name registration) must inform their Central Securities Depository Participant (“CSDP”) or broker of their intention to attend the meeting and obtain the necessary authorisation from the CSDP or broker to attend the meeting, or provide the CSDP or broker with voting instructions in terms of the custody agreement between them.

A form of proxy is only to be completed by those shareholders who are: 1.1 Holding shares in certificated form; or 1.2 Recorded in dematerialised form on the electronic sub‑register in “own name”.

All other beneficial owners who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker and wish to attend the annual general meeting, must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement entered into between them and the CSDP or broker in the manner and cut-off time stipulated therein.

A shareholder may insert the name of a proxy of the shareholder’s choice in the space provided, with or without deleting “the chairman of the annual general meeting”, but any such deletion must be initialled by the shareholder. The person whose name stands first on the form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. In the event that no names are filled in, the proxy shall be exercised by the chairman of the annual general meeting.

A shareholder’s instruction to the proxy must be indicated by the insertion of the relevant number of votes exercised by that shareholder in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or abstain from voting at the annual general meeting as he deems fit in respect of all the shareholder’s votes exercised thereat. A shareholder or his proxy is not obliged to use all the votes exercisable by the shareholder or by his proxy, but the total of the votes cast and in respect of which abstentions are recorded may not exceed the total votes exercisable by the shareholder or his proxy.

Forms of proxy must be lodged with or posted to the transfer secretaries; Link Market Services SA (Pty) Limited, 5th Floor, 11 Diagonal Street, Johannesburg 2000 by no later than 12:00 on Wednesday, 17 September 2008 in accordance with the instructions thereon.

The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting, speaking and voting in person thereat to the exclusion of any proxy appointed in terms thereof.

Documentary proof establishing the authority of the person signing this form of proxy in a representative or other legal capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries of the Company or waived by the chairman of the annual general meeting.

Any alterations to the form of proxy must be initialled by the signatories. WorldReginfo - 6c98614c-4207-4165-a060-85bf4831b579