| Fri 30 May 2008, 9:00 | | BAT - Brait S.A. - Reviewed Group results for the year ended 31 March 2008 |
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BAT
BRAIT
BAT - Brait S.A. - Reviewed Group results for the year ended 31 March 2008
Brait S.A.
Soci?t? Anonyme
("Brait" or "the Company")
(Incorporated in Luxembourg)
Registration number: RC Luxembourg B-13861
Share code: BAT
ISIN code: LU0011857645
Reviewed Group results for the year ended 31 March 2008
HIGHLIGHTS
- Earnings
Attributable earnings up by 16% to R393 million (US$55 million, up by
15%)
Profit from operations down by 31% to R302 million (US$42 million, down
by 32%)
Headline earnings from continuing operations down by 8% to
R254 million (US$36 million, down by 9%)
- Return on equity 30% (US$ equity: 20%)
- Annual dividend distribution up by 13% to 150,34 cents per share (20,80
US cents per share, up by 14%)
- NAV at 1 432 cents per share, up by 19% (177 US cents per share, up by
6%)
- Assets under management (fee earning) up by 28% from R9,7 billion to
R12,4 billion (up by 15% from US$1,34 billion to US$1,54 billion)
Salient features
For the year ended 31 March
Supplementary US$ information**
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007 %
US$m US$m Rm Rm Change
62,3 42,4 Profit from operations 302,1 438,9 (31,2)
35,3 33,8 Private capital 240,7 248,5
6,2 3,8 Public markets 27,1 43,7
20,8 4,8 Group investments 34,3 146,7
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4 13,2
(6,9) (4,7) Taxation (33,3) (48,6)
Profit from continuing
44,7 53,0 operations 377,9 314,8 20,0
Profit from
6,4 2,1 discontinued 15,1 45,1
operations***
51,1 55,1 Profit for the year 393,0 359,9
(3,0) - Minority interest - (21,1)
48,1 55,1 Attributable earnings 393,0 338,8 16,0
Performance Measures
Headline earnings per
share from continuing
operations (cents)
38,3 33,5 - Basic 239,1 269,8 (11,4)
36,7 33,3 - Diluted 237,4 258,7 (8,2)
Headline earnings per
share (cents)
44,6 35,5 - Basic 253,3 314,1 (19,4)
42,8 35,3 - Diluted 251,5 301,5 (16,6)
Attributable earnings
per share (cents)
46,9 51,9 - Basic 370,3 330,4 12,0
45,0 51,6 - Diluted 367,7 316,9 16,0
Dividends per share
18,24 20,80 (cents) 150,34 133,34 12,8
7,85 9,00 - Interim paid 59,07 59,40
10,39 11,80 - Final proposed 91,27 73,94
Net asset value per
166,5 176,9 share (cents) 1 431,5 1 208,0 18,5
24,7 20,0 Return on equity (%) 29,9 41,3
Financial statistics
425,2 278,6 Market capitalisation 2 254,6 3 084,6 (26,9)
105,6 106,1 Shares in issue (m) 106,1 105,6 0,4
Weighted average shares
in issue (m)
102,5 106,1 - Basic 106,1 102,5 3,5
106,9 106,9 - Diluted 106,9 106,9 0,0
Closing share price
402,5 262,6 (cents per share) 2 125,0 2 920,0 (27,2)
Rand/US$ exchange rates
0,1378 0,1236 - Closing 8,0922 7,2550
0,1420 0,1403 - Average 7,1260 7,0435
* As restated - refer to the schedule of restatements disclosed in the annual
report.
** The disclosure above is for information purposes and does not form part of
the group financial statements.
*** The Corporate Finance operation has been discontinued during the year.
ABRIDGED GROUP INCOME STATEMENTS
For the year ended 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007
US$m US$m Notes Rm Rm
66,8 38,3 Revenue 272,6 470,6
39,2 34,1 Other income 243,2 276,1
Total revenue and other
106,0 72,4 income 515,8 746,7
(45,8) (30,6) Operating expenses (218,1) (322,6)
2,1 0,6 Income from associates 4,4 14,8
62,3 42,4 Profit from operations 4 302,1 438,9
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 5 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
(6,9) (4,7) Taxation (33,3) (48,6)
Profit from continuing
44,7 53,0 operations 377,9 314,8
Profit from discontinued 6
6,4 2,1 operations 15,1 45,1
51,1 55,1 Profit for the year 393,0 359,9
Attributable to:
3,0 - - Minority shareowners - 21,1
- Equity holders of the
48,1 55,1 parent 393,0 338,8
18,24 20,80 Dividends per share 150,34 133,34
(cents)
7,85 9,00 - Interim paid 59,07 59,40
10,39 11,80 - Final proposed 91,27 73,94
Basic attributable
46,90 51,92 earnings per share 370,34 330,40
(cents)
Diluted earnings per
45,00 51,56 share (cents) 367,72 316,90
* As restated - refer to the schedule of restatements disclosed in the annual
report.
ABRIDGED GROUP BALANCE SHEETS
as at 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited
2007 2008 2008 2007
US$m US$m Notes Rm Rm
ASSETS
146,7 225,0 Non-current assets 1 820,4 1 064,3
135,2 207,3 Investments 7 1 676,9 980,9
11,5 17,7 Other non-current assets 143,5 83,4
173,3 69,5 Current assets 562,4 1 257,3
Cash and cash
78,2 51,6 equivalents 8 417,7 567,2
36,3 10,3 Investments 82,8 263,5
44,3 0,3 Loans and advances 2,3 321,4
14,5 7,3 Other 59,6 105,2
320,0 294,5 Total assets 2 382,8 2 321,6
EQUITY AND LIABILITIES
175,9 187,7 Equity and reserves 1 518,8 1 276,1
87,6 79,6 Non-current liabilities 644,4 635,6
Redeemable preference
62,0 55,6 shares 9 450,0 450,0
Other non-current
25,6 24,0 liabilities 194,4 185,6
56,5 27,2 Current liabilities 219,6 409,9
23,1 1,2 Loans and advances 9,9 167,5
33,4 26,0 Other 209,7 242,4
Total equity and
320,0 294,5 liabilities 2 382,8 2 321,6
Net asset value per
166,5 176,9 ordinary share (cents) 1 431,5 1 208,0
ABRIDGED GROUP CASH FLOW STATEMENTS
For the year ended 31 March
Reviewed Audited
2008 2007
Rm Rm
Cash flows from:
Operating activities # 30,3 223,3
Dividends received 19,0 52,1
Interest received 62,2 25,6
Finance costs (53,8) (44,9)
Currency hedge cost (27,9) (2,1)
Taxation paid (4,2) (20,1)
Change in working funds (14,9) (68,5)
Cash generated from operating activities 10,7 165,4
Cash flows generated from investing activities 5,9 27,4
Cash flows generated from operating and investing
activities 16,6 192,8
Dividends paid (175,2) (171,7)
Cash outflows from financing activities (43,7) (34,4)
Net decrease in cash and cash equivalents (202,3) (13,3)
Effects of exchange rate changes on cash and cash
equivalents 52,8 4,7
Cash and cash equivalents at beginning of year 567,2 575,8
Cash and cash equivalents at end of year 417,7 567,2
# Includes Bayport`s net interest received.
Group statements of changes in equity
For the year ended 31 March
Attributable to equity holders of the parent
Share Foreign
capital currency
and Legal Equity translation Retained
premium reserve reserves reserve reserves
Rm Rm Rm Rm Rm
Balance at 31
March 2006 264,2 18,4 24,3 (150,6) 780,2
Net translation
adjustments - - - 121,6 -
Restructuring of
subsidiary - - - - -
Acquisition of
subsidiary - - - - -
Treasury shares
purchased (56,1) - - - -
Delivered share
scheme shares 49,3 - - - -
Profit for the
year - - - - 338,8
Share entitlements - - 3,3 - -
Ordinary dividends
paid - - - - (171,7)
Transfer between
reserves - 0,7 - - (0,7)
Balance at 31
March 2007 257,4 19,1 27,6 (29,0) 946,6
Net translation
adjustments - - - 114,1 -
Sale of Bayport - (0,4) - - (34,9)
Delivered share
scheme shares 15,5 - - - -
Treasury shares
purchased (16,8) - - - -
Profit for the - - - - 393,0
year
Share entitlements - - 1,6 - -
Ordinary dividends
paid - - - - (175,2)
Balance at 31
March 2008 256,1 18,7 29,2 85,1 1 129,5
Total
equity
Minority and
interest reserves
Rm Rm
Balance at 31 March 2006 39,3 975,8
Net translation adjustments (6,0) 115,6
Restructuring of subsidiary (2,5) (2,5)
Acquisition of subsidiary 2,5 2,5
Treasury shares purchased - (56,1)
Delivered share scheme shares - 49,3
Profit for the year 21,1 359,9
Share entitlements - 3,3
Ordinary dividends paid - (171,7)
Transfer between reserves - -
Balance at 31 March 2007 54,4 1 276,1
Net translation adjustments - 114,1
Sale of Bayport (54,2) (89,5)
Delivered share scheme shares - 15,5
Treasury shares purchased - (16,8)
Profit for the year - 393,0
Share entitlements - 1,6
Ordinary dividends paid - (175,2)
Balance at 31 March 2008 0,2 1 518,8
GROUP SEGMENTAL REPORTS
For the year ended 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007
US$m US$m Rm Rm
BUSINESS ANALYSIS
Segment income from continuing
operations
66,8 38,3 Revenue 272,6 470,6
24,6 20,9 - Private capital 148,5 173,3
10,5 12,8 - Public markets 91,4 74,0
31,7 4,6 - Group investments 32,7 223,3
39,2 34,1 Other income 243,2 276,1
29,4 31,6 - Private capital 225,7 207,2
2,2 0,9 - Public markets 6,4 15,5
7,6 1,6 - Group investments 11,1 53,4
Total segment income from
106,0 72,4 continuing operations 515,8 746,7
Segment income from
discontinued operations
Revenue
7,9 2,6 - Corporate finance 18,7 55,6
113,9 75,0 Total revenue and other income 534,5 802,3
Segment result from continuing
62,3 42,4 operations 302,1 438,9
35,3 33,8 - Private capital 240,7 248,5
6,2 3,8 - Public markets 27,1 43,7
20,8 4,8 - Group investments 34,3 146,7
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
Segment result from
discontinued operations
6,4 2,1 - Corporate finance 15,1 45,1
Segment assets and liabilities
305,9 270,7 Segment assets 2 190,4 2 219,4
140,3 186,5 - Private capital 1 509,2 1 018,0
22,9 19,7 - Public markets 159,0 166,1
133,1 64,5 - Group investments 522,2 965,7
9,6 - - Discontinued operations - 69,6
14,1 23,8 Other 192,4 102,2
320,0 294,5 Total assets per balance sheet 2 382,8 2 321,6
56,7 26,0 Segment liabilities 210,4 411,4
11,4 9,7 - Private capital 78,6 82,7
1,9 2,6 - Public markets 21,1 13,8
42,0 13,7 - Group investments 110,7 304,7
1,4 - - Discontinued operations - 10,2
87,4 80,8 Other 653,6 634,1
Total liabilities per balance
144,1 106,8 sheet 864,0 1 045,5
249,2 244,7 Segment net assets 1 980,0 1 808,0
128,9 176,8 - Private capital 1 430,6 935,3
21,0 17,1 - Public markets 137,9 152,3
91,1 50,8 - Group investments 411,5 661,0
8,2 - - Discontinued operations - 59,4
(73,3) (57,0) Other (461,2) (531,9)
Total net assets per balance
175,9 187,7 sheet 1 518,8 1 276,1
GEOGRAPHICAL ANALYSIS
Segment income from continuing
operations
66,8 38,3 Revenue 272,6 470,6
33,7 8,0 - International 56,3 237,4
33,1 30,3 - South Africa 216,3 233,2
39,2 34,1 Other income 243,2 276,1
14,6 15,3 - International 108,9 102,8
24,6 18,8 - South Africa 134,3 173,3
106,0 72,4 Total segment income from 515,8 746,7
continuing operations
Segment income from
discontinued operations
Revenue
7,9 2,6 - South Africa 18,7 55,6
113,9 75,0 Total revenue and other income 534,5 802,3
Segment result from continuing
62,3 42,4 operations 302,1 438,9
21,6 18,6 - International 131,6 152,3
40,7 23,8 - South Africa 170,5 286,6
(6,4) (7,5) Finance cost (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
Segment result from
discontinued operations
6,4 2,1 - South Africa 15,1 45,1
Segment assets
124,9 118,2 - International 956,7 906,3
195,1 176,3 - South Africa 1 426,1 1 415,3
185,5 176,3 - Continuing operations 1 426,1 1 345,7
9,6 - - Discontinued operations - 69,6
320,0 294,5 Total assets per balance sheet 2 382,8 2 321,6
* As restated - refer to the schedule of restatements disclosed in the annual
report.
Notes to the financial statements
For the year ended 31 March
The results for the year ended 31 March 2008 have been reviewed by the
Group`s auditors Deloitte & Touche, and their unqualified opinion is
available for inspection at the Company`s registered office.
1. Basis for preparation
The financial statements of the Group are prepared in accordance with
International Financial Reporting Standards ("IFRS"). The abridged financial
statements are presented in accordance with IAS 34. The accounting policies
and methods of computation are consistent with those applied in the previous
year.
2. Presentation currency
The Group has two functional currencies: SA rand ("rand") for its South
African operations and US dollar ("US$") for its international operations.
Due to a change over a period of time in the composition of the Group`s
geographical business operations, the Group has changed its presentation
currency from US$ to rand. Accordingly, the Group statements at 31 March 2008
have been prepared using rand as its presentation currency.
3. Supplementary dollar information
The balance sheets and income statements of the Group have also been
presented in US$ for the convenience of non-South African stakeholders in the
Group. The supplementary US$ results have been converted from the rand
results using a closing rate of R8,0922 to US$1 (2007: R7,2550 to US$1) for
the balance sheets and an average rate of R7,1260 to US$1 (2007: R7,0435 to
US$1) for the income statements.
Reviewed Audited*
2008 2007
Rm Rm
4. Profit from operations include:
Dividends received 9,9 43,6
Interest received 62,2 213,7
Depreciation (1,6) (6,3)
Related party transactions
- Interest received 0,8 2,8
- Dividends received 9,1 8,5
- Interest paid (2,5) (3,1)
- Fees paid (5,3) (10,5)
- Key management (includes directors`
remuneration) (29,4) (22,7)
5. Capital items comprise:
Net currency hedge gain/(cost) 43,5 (6,4)
Fair valuation adjustment of financial
liability (12,7) (48,3)
Fair valuation adjustment of financial 7,9 22,3
asset
Loss on restructuring of subsidiary - (1,1)
Gain on realisation of investment in
subsidiary 124,2 -
Gain on realisation of investment - 3,1
Total capital items 162,9 (30,4)
6. Discontinued operations
Following a strategic review of the
corporate finance operations, a decision
was taken to discontinue this activity.
Analysis of the discontinued operation:
Revenue 18,7 55,6
Expense (3,6) (10,5)
Net profit 15,1 45,1
7. Investments
Included in investments, are investments
in unlisted associates:
- Carrying value 14,0 13,7
- Directors` valuation 14,0 49,5
* As restated - refer to the schedule of
restatements disclosed in the annual
report.
8. Cash and cash equivalents
Bank balances (39,7) 166,5
Short-term treasury instruments 457,4 400,7
417,7 567,2
9. Redeemable preference shares 450,0 450,0
Brait South Africa Limited ("BSAL") raised
R450 million of preference share capital
during the 2006 financial year to provide
additional capital to leverage the Group`s
internal growth strategy. A total of
450 000 (four hundred and fifty thousand)
cumulative redeemable preference shares
were issued at a par value of R0,01 and a
premium of R999,99 per share.
These shares carry a dividend of 78% of
the South African prime rate of interest
and are redeemable in four tranches on
31 July of each year commencing in 2010
until 2013.
BSAL has an option to effect early
redemption.
10. Related party balances
- Liabilities (29,2) (57,0)
- Assets 11,0 27,4
11. Contingent liabilities, commitments and
subordinated loans
11.1 Contingencies
Sureties and guarantees 4,7 1,0
11.2 Commitments
Commitments to invest in funds and
proprietary investments 284,3 439,7
Other 5,0 7,6
Rental commitments 19,5 25,6
- Within one year 6,6 6,1
- Between one and five years 12,9 19,5
11.3 Subordinated loans 8,4 23,6
12. Interest-bearing liabilities
All liabilities are interest bearing
except for R171,2 million (2007: R165,1
million) in respect of accounts payable,
accruals, provisions and deferred
taxation.
13. Headline earnings
Attributable earnings 393,0 338,8
Headline earnings adjustment (124,2) (17,2)
- Gain on realisation of investment in
subsidiary (124,2) -
- Loss on restructuring of subsidiary - 1,1
- Gain on realisation of non-current
assets held for sale - (18,3)
Headline earnings 268,8 321,6
- Discontinued operations (15,1) (45,1)
Headline earnings from continuing
operations 253,7 276,5
14. Subsequent events
No events have taken place since 31 March 2008 and the date of the release of
this report, which would have a material impact on either the financial
position or operating results of the Group.
* As restated - refer to the schedule of restatements disclosed in the annual
report.
COMMENTARY
The Business of Brait
Brait is an international investment Group. Its business is the structuring,
raising and management of investment funds that are typically classified as
Alternative Assets. The current product-set includes private equity funds,
mezzanine debt funds and a range of hedge fund solutions. Additionally, Brait
deploys its capital in proprietary investment programmes in these product
areas. These investments are made predominantly in South Africa and its
region. Investors include leading global and South African institutions.
Brait`s operations are now organised into two business units - Private
Capital, incorporating all activities in the private capital markets; and
Public Markets, incorporating all activities in the public or highly traded
securities markets.
Factors Affecting Performance
The operating environment changed materially in the second half of the period
under review, presenting Brait with both challenges, and opportunities, which
are commented on under Prospects.
Operating Environment
Market Conditions
The past year has been challenging for investment managers in the South
African and global markets. The turmoil in global financial markets,
triggered by the US sub-prime credit crisis, has resulted in many investors
seeking the security of high quality, low risk investments. While the South
African equity markets continued to provide reasonable returns, these have
been concentrated in the large market cap resource stocks, with the
industrial, commercial and mid-cap sectors - where Brait`s activities
predominate - showing weaker performance and more volatility.
Slower Growth Rates and Higher Inflation
Global growth is showing signs of slowing down, particularly in the US and
Europe, but also in South Africa, with the added challenges of a curbing of
credit-led consumer growth, and the impact of load-shedding
and expectations of electricity shortages in the medium term. At the same
time, inflation has risen, particularly in South Africa.
Lower Business Confidence
These factors, combined with an increase in perceived levels of crime and
regional instability in Zimbabwe, have led to reduced business confidence in
the region. This should be seen, however, in the context of continuing global
appetite for deploying capital in emerging markets.
Value Drivers
Investment Product Performance
Most of the Group`s products have longer term performance targets, and while
the Group`s products in the main continue to meet or exceed these targets
over these longer term time-frames, this year saw a tapering-off in the
performance in some of the Group`s investment products, notably Brait III,
due to weaker share price performance in Net 1, and in Brait Absolute, which
registered a creditable return premium over cash, but underperformed against
its goal. Additionally, private equity funds typically demonstrate a "J-
curve" effect, showing low returns in early years, due to fee absorption and
the time frame required for gains to crystallise. This has been the case in
Brait IV.
Assets Under Management ("AUM")
"Lumpy" growth is anticipated due to the practise in the private equity
business of raising capital pools over three to five-year cycles.
Nevertheless, the Group grew its AUM by a healthy 29% in the year under
review.
Private Equity Fund-to-Fund Cycle
The profitability derived from private equity funds is materially impacted by
the duration of the period between successive funds. The period between Brait
III and Brait IV was six years, resulting in a situation in which the
profitability arising from Brait III has been substantially extracted, before
meaningful profitability is recognised from Brait IV. We anticipate this to
have a dampening effect on Private Capital earnings growth for the
forthcoming two years. The deployment rate of Brait IV has been ahead of
schedule, with approximately 60% of the fund drawn or committed. This is
likely to shorten the Fund-to-Fund cycle.
New Product Development
The rate at which the Group is able to bring new products to our
institutional clients is another important value driver. As well as the
shortening of the Fund-to-Fund cycle in Private Capital, we draw attention to
the launch of Medu II, and Molash I (Brait sponsored initiatives), Mezzanine
Partners II, AEP (Fund of Private Equity Funds), Brait Multi-Strategy Fund,
Brait High Alpha (newly formed investment products), and a healthy pipeline
of new products.
Deployment of Capital in Proprietary Investing
The Group is well capitalised and has traditionally deployed balance sheet
capital into proprietary investing in private equity and hedge funds. The
organisation, decision-making and risk management of this has been focused
further, resulting in more purposeful deployment of this capital. This should
impact positively on earnings.
Financial Results
The Group`s attributable earnings for the year were
R393,0 million, a 16% increase on the R338,8 million recorded in the previous
year.
The realisation of the Group`s investment in Bayport has made comparison with
the prior year`s reported earnings difficult. Historically, Bayport has been
consolidated rather than fair valued as a proprietary investment. The
accounting impact of the realisation has given rise to a decline in the
Group`s operating income and revenue for the year on one hand and a
significant gain as well as a positive earnings impact from a reduced
taxation charge and the elimination of interests due to minority shareowners
on the other hand.
The impact of this is demonstrated in the continuing headline earnings for
the year, of R253,7 million, which is 8% lower than the R276,5 million
achieved in the previous year, in that the gain is headline adjusted, and
compares to prior reporting periods in which the consolidated Bayport profit
was incorporated in earnings.
Highlights
Profit from Operations - R302,1 million
Profit from operations decreased by 31% to R302,1 million from R438,9 million
in the previous year, as a result of a significantly reduced contribution
from Group Investments due to the elimination of Bayport`s revenue and
earnings. As a result of the sale of Bayport, Group Investments is reduced to
largely a Treasury function. This Treasury function produced a reduced result
due to lower interest rates earned on cash, which was invested mainly in US$
deposits, and to lower yields on hedge fund investments.
Additionally, profit from operations in Private Capital and Public Markets
decreased by 3% and 38%, respectively. Private Capital continued to be the
main contributor increasing its contribution to the total operating profit
from 57% in the previous year to 80% in the current year. The operating
results of the various business units are separately discussed in the
segmental review.
Finance Costs - R53,8 million
Finance costs relate primarily to servicing the R450 million preference share
capital raised in March 2006 to fund Brait`s internal growth strategy, as
well as the cost of short-term funding.
Capital Items - R162,9 million net gain
Gain on realisation of investment in subsidiary -
R124,2 million - Brait realised its micro-lending interest in Bayport with
effect from 1 April 2007 yielding a gain of R124,2 million over its carrying
value.
Net currency hedge gain - R43,5 million - In accordance with the Group`s
consistently applied policy of preserving its tangible capital in US$, Brait
has continued to hedge the majority of its South African tangible net assets.
As a result of the depreciation of the rand against the US$, a gain of R43,5
million was recorded.
Fair value adjustment of financial liability - R12,7 million loss - The sale
of 26% of Brait South Africa in the 2005 financial year to the Group`s Black
Economic Empowerment partner (Sitogo Holdings (Proprietary) Limited) has not
been recorded as such as it has given rise to a financial instrument which
has been disclosed in terms of IAS 32 (Financial Instruments: Disclosure and
Presentation) and measured in terms of IAS 39 (Financial Instruments:
Recognition and Measurement). The fair value adjustment of the financial
instrument for the year was a loss of R12,7 million and substantially equates
to the portion of earnings that would have been recognised as being
attributable to the minority shareowners had the sale been recognised as
such.
Fair value adjustment of financial asset - R7,9 million gain - Pursuant to
the sale of 26% of Brait South Africa, an equity investment by Brait S.A. in
Sitogo Holdings has given rise to a financial instrument, which has been
disclosed in terms of IAS 32 and measured in terms of IAS 39. The fair value
adjustment of the financial instrument for the year was an unrealised gain of
R7,9 million and equates to the increase in fair value attached to the
specific class of shares held.
Taxation - R33,3 million
The taxation charge represents an increase of 27% (after excluding the effect
of Bayport`s taxation in the prior year tax charge) and is largely
attributable to the increase in the deferred taxation liability in respect of
unrealised gains in the South African operations. At 31 March 2008, the South
African operation has effectively utilised all its taxation losses carried
forward from previous years in respect of which a deferred tax asset had been
raised, and is expected to become liable for normal taxation with effect from
the new financial year, which will have a cash flow impact.
Performance Targets
Return on Equity
The Group`s objective is to achieve a long-term return on shareowners` funds
of 25% as measured over any five year period. Because of the structural
reporting changes within the group in 2004, which render comparative before
this date of little value, the initial measuring date for Group targets is 1
April 2005.
Brait has generated an annual return on equity of 30% for the 2008 financial
year and a four year rolling return since 1 April 2005 of 37% which has
outperformed the long-term target of 25%.
Attributable Earnings Growth
The Group`s objective is to grow its attributable income by 12,5% p.a.
compounded, as measured over any five year period. This target is an
arithmetic consequence of the 25% ROE target, and the 50% planned dividend
payout ratio.
Measured since 1 April 2005, the compounded growth is 23%.
Assets under Management ("AUM")
Increased and sustainable growth in AUM is critical to achieve continued
profit growth. Brait`s objective is to double its AUM every four years (i.e.
achieve a compound annual growth rate of 20% in AUM). An underlying
assumption will be the goal of continuing to improve the quality of those
assets in terms of duration, security and fee metrics and ensuring that each
product offering is optimally sized for its investment mandate.
Group funds under management increased by R2,7 billion rand (28%).
Segmental Review
Private Capital
Private Capital comprises the management of private equity funds ("Funds"),
sponsorship of niche investment firms ("Sponsored Funds"), management of
mezzanine debt funds ("Mezzanine Partners") and Fund of Private Equity Funds
("FoF").
Private Capital earnings for the period have been driven largely by further
value recognition in Brait III, further growth in Proprietary Investment
income, value recognition in Medu and management fees earned on Brait IV.
Revenue and other income of R374,2 million was recognised during the period,
a 2% decrease on the R380,5 million recognised in the prior year. Profit from
operations for the year decreased from R248,5 million to R240,7 million. The
levelling-off of revenue and profit from operations is largely due to
features discussed under "Private Equity Fund-to-Fund Cycle".
Return on Capital Employed
Return on capital employed remains ahead of the Group`s five year target of
25% at 28% although reducing to 20% for the year.
Profit from Operations
Profit growth is on track to meet or exceed 12,5% as measured in any five
year period, averaging 31% over the measurement period.
Assets under Management
AUM continues to compound ahead of the Group`s target at 28% over the last
four years, and 24% for the last year.
Some of the notable highlights during the period were:
- The IPO of Kelly Group in early April 2007 on the JSE Limited and the
substantial realisation of Brait III`s investment in Kelly Group.
- The conclusion of four further investments in Brait IV: Nature`s Choice,
Capital Africa Steel, Premier Foods and Primedia, which together with
Consol Glass, gives Brait IV substantial exposure to non-credit consumer
growth and infrastructure sectors, these being the two investment themes
of Brait IV.
- Realisation of proprietary investment in Isegen.
- The launch of AEP, Brait`s Fund of Private Equity Funds, at R630
million.
- The launch of Sponsored Funds initiatives, with the closing of Medu II
at R800 million, and Molash I at R150 million.
- The launch of Mezzanine Partners II, subsequent to successfully fully
investing Mezzanine Partners I.
Public Markets
Public Markets undertakes the management of, primarily institutional capital
in hedge fund products and the seeding and support of the emerging hedge
funds.
Revenue and other income increased by 9,3% to R97,8 million from R89,5
million the previous year. Profit from operations decreased by 38,0% to R27,1
million from R43,7 million the previous year. The decrease in profitability
has largely been due to reduced performance fee revenue, due to disappointing
investment performance, combined with a planned increase in operating costs
to support the long-term success of the division, most notably in terms of
employee and technology infrastructure costs.
The business model reflects the intentional strong alignment of business
profitability with the delivery of investment performance, and hence the
impact of the past years` poor performance on the organisational performance.
Return on Capital Employed
Return on capital employed remains below Group`s five year target at 15% and
registered 19% for the year.
Profit from Operations
Profit growth is on track to meet or exceed 12,5% as measured in any five
year period, averaging 55% over the measurement period.
Assets Under Management
AUM increases by 36% from 12 months earlier. While the flagship fund of hedge
funds, Brait Absolute accounts for the majority of this capital, there has
been continued focus on expanding the product offering, both in single and
multi strategy funds and additional fund of hedge funds.
Brait Absolute underperformed its three-year rolling return objective,
returning 2,2% above cash and 4,2% ahead of inflation while limiting
volatility to 4% per annum. Brait Absolute`s correlation and beta to the JSE
All Share Index were 0,59 and 0,15 respectively. This performance should be
seen against the backdrop of the difficult market conditions, however the
focus of our experienced team of investment professionals is to ensure that
going forward the funds achieve their return objectives. Some of the notable
highlights of the year were:
- The completion of a first full year track record of the Brait Multi-
Strategy Fund, and its raising R676 million;
- The launch of Brait High Alpha Fund near the year end;
- The launch of a partnership with RMF, part of the MAN Group plc, to
expand Brait`s range of hedge fund solutions to its South African
institutional clients; and
- The compliance by Brait, together with all managers with which it
invests, with a more onerous category of license credited in terms of
the Financial Advisory and Intermediaries Act specifically for hedge
fund managers.
Capitalisation
The capitalisation of Brait has been considered in the context of its
existing cash and near cash resources, its current debt levels and the
redemption obligations associated with the debt, and the board approved plans
to deploy capital within the planning horizon. The result of this
consideration is that Brait is regarded as appropriately capitalised at this
time. This will continue to be reviewed rigorously by the Capital Allocation
Committee, a committee of the Board.
Treasury capital will continue to be held in money market accounts, and in
hedge funds appropriate to the risk and liquidity requirement of the Group.
Prospects
The operating conditions discussed under "Factors Affecting Performance" have
presented Brait with some challenges, notably reduced fair value of assets,
with price/earnings multiples generally reducing in assets held in its
portfolio, but also numerous opportunities, as investors seek solutions in
structured and hedge fund investments, and the ability to purchase private
equity assets at attractive valuations.
In this context, it is noteworthy that in South Africa, the SA Venture
Capital and Private Equity Association survey shows that private equity funds
under management have grown by 46% in 2007, with the hedge fund industry also
showing a positive trend. The Group has strong market positions in these
areas and is organised to deploy capital into both its flagship businesses
and the many new initiatives that have been seeded. Accordingly, Brait finds
itself well positioned to capitalise on these trends.
Brait remains confident of continuing to meet its performance targets over
the relevant periods, yet cautions that short-term earnings prospects are
likely to be muted due to the negative effects of the environment cited
above, the leveling off of earnings in Private Capital, and due to the
strategic emphasis on business building.
Dividend
The Board holds the view that dividend distributions are an important part of
long-term shareowners` wealth creation and an indication of the health of the
Group. Because of the cyclicality of short-term earnings and cash flow, the
Group`s dividend payment policy is committed to signalling performance
against long-term targets of the Group rather than matching short-term
cyclical performances.
Accordingly, the dividend policy adopted by the Board will be to pay annual
dividends totalling 12,5% of the opening Net Asset Value, provided the Board
is satisfied that this does not impair its solvency, or its ability to
finance its business plan. This is arrived at by considering an appropriate
payout ratio to be 50% of targeted ROE of 25%. An equal interim and final
dividend is anticipated.
The Board proposes to pay a final dividend of 91,27
cents per share. When added to the interim dividend of 59,07 cents per share,
this equates to an annual dividend of 150,34 cents per share - an increase of
12,75% compared to the prior year annual dividend of 133,34 cents per share.
Shareowners who receive their dividends in US$, are advised that the final
dividend is 11,80 US cents per share, and has been determined using the
Rand/US$ exchange rate in Luxembourg at 12:00 on 27 May 2008.
Dividend Notice
Members will be asked to approve the following dividend declarations at the
Annual General Meeting of the Company to be held on Wednesday, 30 July 2008
in Luxembourg.
- the declaration of the final dividend of 11,80 US cents per share in
respect of the year ended 31 March 2008 and endorse the payment of the
interim dividend of 9,00 US cents per share, paid on 3 December 2007,
and
- for South African resident shareholders registered on the South African
register, the declaration of the final dividend of 91,27 cents per share
in respect of the year ended 31 March 2008 and endorse the payment of
the interim dividend of 59,07 cents per share, paid on 3 December 2007.
If approved by the shareowners, payment of the final dividend will be
effected on Monday, 11 August 2008 to shareowners registered as such on the
record date, Friday, 8 August 2008. The last day to trade "cum dividend" will
be Friday, 1 August 2008 and the share will commence trading "ex dividend" on
Monday, 4 August 2008. Share certificates may not be dematerialised between
Monday, 4 August 2008 and Friday, 8 August 2008 both days inclusive.
Non-resident shareowners registered on the South African register, who prefer
their dividends to be paid in US$, are advised to inform their CSDPs/brokers
accordingly and provide their banking details to their CSDPs/brokers by the
required deadline in terms of their agreements entered into with their
CSDPs/brokers.
For and on behalf of the Board
AC Ball
Chief executive officer
30 May 2008
Registered office
Brait S.A.
180, rue des Aub?pines
L-1145, Luxembourg
Tel: +352 269255 3297
Fax: +352 269255 3642
Brait South Africa Limited
9 Fricker Road
Illovo Boulevard, Illovo, Sandton
South Africa
Tel: +27 11 507 1000
Fax: +27 11 507 1001
Listing agent
Dexia Banque Internationale
? Luxembourg
69, route d`Esch
L-2953, Luxembourg
Tel: +352 45901
Fax: +352 45902010
Transfer agent/Registrar
United Kingdom
Capita IRG plc
Bourne House
34 Beckenham Road
Beckenham
Kent, BR3 4TU
United Kingdom
Tel: +44 208 639 2157
Fax: +44 208 639 2342
South Africa
Computershare Investor Services (Pty) Limited
70 Marshall Street
Johannesburg, 2001
or
PO Box 61051, Marshalltown, 2107
Tel: +27 11 370 5000
Fax: +27 11 668 5200
Legal advisors to the company
Elvinger, Hoss & Prussen
2, Place Winston Churchill
L-1340, Luxembourg
Tel: +352 446 6440
Fax: +352 44 2255
Directors
ME King (Chairman)?*, AC Ball*, PAB Beecroft?,
JE Bodoni?#, AD Campbell*, BI Childs, JA Gnodde*,
RJ Koch?, MS Masithela*, AM Rosenzweig?**,
HRW Troskie?**, SJP Weber#, PL Wilmot?*
?Non-executive, *South African, #Luxembourgish, British, **Dutch
Financial information for the year ended 31 March 2008
is also available on the Brait website at
www.brait.com
Date: 30/05/2008 09:00:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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employees and agents accept no liability for (or in respect of) any direct,
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