| Fri 31 Oct 2008, 10:28 | | BAT - Brait - Interim Results For The Six Months Ended 30 September 2008 and |
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BAT
BRAIT
BAT - Brait - Interim Results For The Six Months Ended 30 September 2008 and
dividend declaration
Brait S.A. Societe Anonyme
(Incorporated in Luxembourg)
(RC Luxembourg B-13861)
Share code: BAT & ISIN: LU0011857645
("Brait" or the "Company")
Interim results for the six months ended 30 September 2008
Key performance measures
* Interim dividend distribution increased by 51% to 89,45 cents per share
(8,58 US cents per share, 5% decrease)
* Earnings
Profit from operations decreased by 24% to R148 million
(US$19,0 million, 30% decrease)
Headline earnings from continuing operations decreased by 46% to R72,7
million (US$9,3 million, 50% decrease)
Attributable earnings decreased by 73% to R72,7 million
(US$9,3 million, 76% decrease)
* Return on equity 10% (US$ equity 6%)
* NAV at 1 407 SA cents per share, decreased by 2% (170 US cents per share,
4% increase)
* Assets under Management (fee earning) decreased by 12% from
R11,6 billion to R10,2 billion (14% decrease from US$1,43 billion to US$1,23
billion)
Salient features
for the six months ended 30 September
Supplementary US$ information**
Audited
Year Unaudited year
ended Six months six months ended
31 30 30 30 Sept 30 31
March Sept* Sept Sept* March
2008 2007 2008 2008 2007 2008
US$m US$m US$m Rm Rm Rm
Profit from
42,4 27,2 19,0 operations 147,6 193,0 302,1
33,8 20,3 15,2 Private capital 117,9 144,0 240,7
3,8 2,0 0,6 Public markets 4,4 14,2 27,1
4,8 4,9 3,2 Treasury capital 25,3 34,8 34,3
(7,5) (3,5) (3,8) Finance costs (29,5) (24,8) (53,8)
22,8 14,7 (2,7) Capital items (20,3) 104,3 162,9
Profit before
57,7 38,4 12,5 taxation 97,8 272,5 411,2
(4,7) (2,1) (3,2) Taxation (25,1) (14,9) (33,3)
Profit from
continuing
53,0 36,3 9,3 operations 72,7 257,6 377,9
Profit from
discontinued
2,1 2,3 - operations*** - 16,3 15,1
Attributable
55,1 38,6 9,3 earnings 72,7 273,9 393,0
PERFORMANCE
MEASURES
Headline earnings
per share from
continuing
operations (cents)
33,5 17,7 8,8 - Basic 68,5 125,7 239,1
33,3 17,5 8,8 - Diluted 68,2 124,3 237,4
Headline earnings
per share (cents)
35,5 19,9 8,8 - Basic 68,5 141,1 253,3
35,3 19,7 8,8 - Diluted 68,2 139,8 251,5
Attributable
earnings per share
(cents)
51,9 36,4 8,8 - Basic 68,5 258,2 370,3
51,6 36,0 8,8 - Diluted 68,2 255,3 367,7
Dividends per share
20,80 9,00 8,58 (cents) 89,45 59,07 150,34
- Interim proposed/
9,00 9,00 8,58 paid 89,45 59,07 59,07
11,80 - Final paid 91,27
Net asset value per 1 1 1
176,9 180,0 169,8 share (cents) 407,4 236,4 431,5
20,0% 35,8% 6,0% Return on equity 9,9% 25,1% 29,9%
FINANCIAL
STATISTICS
Market
278,6 397,4 229,2 capitalisation 1 899,5 2 730,8 2 254,6
106,1 106,0 106,1 Shares in issue (m) 106,1 106,0 106,1
Weighted average
shares in issue (m)
106,1 106,1 106,1 - Basic 106,1 106,1 106,1
106,9 107,3 106,6 - Diluted 106,6 107,3 106,9
Closing share price
262,6 374,8 216,0 (cents per share) 1 790,0 2 575,0 2 125,0
Rand/US$ exchange
rates
0,1236 0,1455 0,1207 - Closing 8,2884 6,8712 8,0922
0,1403 0,1409 0,1285 - Average 7,7800 7,0952 7,1260
* As restated - refer to note 14.
** The disclosure above is for information purposes and does not form part
of the Group financial statements.
*** The Corporate Finance operation was discontinued during the previous
financial year.
Abridged Group income statements
for the six months ended 30 September
Supplementary US$ information
Audited
Year Unaudited year
ended Six months six months ended
31 30 30 30 30 31
March Sept* Sept Sept Sept* March
2008 2007 2008 2008 2007 2008
US$m US$m US$m Notes Rm Rm Rm
38,3 16,9 15,1 Revenue 117,6 119,9 272,6
34,5 22,6 15,4 Other income 119,4 160,4 245,9
Total revenue and
72,8 39,5 30,5 other income 237,0 280,3 518,5
Operating
(31,0) (12,5) (11,9) expenses (92,7) (88,7) (220,8)
Income from
0,6 0,2 0,4 associates 3,3 1,4 4,4
Profit from
42,4 27,2 19,0 operations 4 147,6 193,0 302,1
(7,5) (3,5) (3,8) Finance costs (29,5) (24,8) (53,8)
22,8 14,7 (2,7) Capital items 5 (20,3) 104,3 162,9
Profit before
57,7 38,4 12,5 taxation 97,8 272,5 411,2
(4,7) (2,1) (3,2) Taxation (25,1) (14,9) (33,3)
Profit from
continuing
53,0 36,3 9,3 operations 72,7 257,6 377,9
Profit from
discontinued
2,1 2,3 - operations 6 - 16,3 15,1
Profit
attributable to
55,1 38,6 9,3 equity holders 72,7 273,9 393,0
Dividends per
20,80 9,00 8,58 share (cents) 89,45 59,07 150,34
- Interim
9,00 9,00 8,58 proposed/paid 89,45 59,07 59,07
11,80 - Final paid 91,27
Basic
attributable
earnings
51,9 36,4 8,8 per share (cents) 68,5 258,2 370,3
Diluted
attributable
earnings per
51,6 36,0 8,8 share (cents) 68,2 255,3 367,7
Basic headline
earnings per
35,5 19,9 8,8 share (cents) 68,5 141,1 253,3
Diluted headline
earnings per
35,3 19,7 8,8 share (cents) 68,2 139,8 251,5
* As restated - refer to note 14.
Abridged Group balance sheets
as at 30 September
Supplementary US$ information
Unaudited Audited
31 30 30 30 30 31
March Sept* Sept Sept Sept* March
2008 2007 2008 2008 2007 2008
US$m US$m US$m Notes Rm Rm Rm
ASSETS
204,5 Non-current
225,0 237,9 assets 1 970,8 1 406,1 1 820,4
207,3 194,1 222,2 Investments 7 1 840,7 1 333,7 1 676,9
17,7 10,4 15,7 Other 130,1 72,4 143,5
69,6 109,6 46,1 Current assets 382,3 752,2 563,1
Loans and
0,3 0,5 0,1 advances 1,0 3,4 2,3
Accounts
7,5 6,2 2,7 receivable 22,6 41,7 60,3
10,2 - 9,5 Investments 78,7 - 82,8
102,9 Cash and cash
51,6 33,8 equivalents 8 280,0 707,1 417,7
294,6 314,1 284,0 Total assets 2 353,1 2 158,3 2 383,5
EQUITY AND
LIABILITIES
190,8 Equity and
187,7 180,3 reserves 1 493,5 1 311,2 1 518,8
Non-current
79,7 94,3 84,1 liabilities 697,0 647,6 645,1
Redeemble 9
preference
55,6 65,5 54,3 shares 450,0 450,0 450,0
Other non-
current
24,1 28,8 29,8 liabilities 247,0 197,6 195,1
Current
27,2 29,0 19,6 liabilities 162,6 199,5 219,6
Borrowings and
accounts
23,9 23,8 19,3 payable 160,1 163,6 192,9
3,3 5,2 0,3 Other 2,5 35,9 26,7
314,1 Total equity
294,6 284,0 and liabilities 2 353,1 2 158,3 2 383,5
Net asset value
180,0 per ordinary
176,9 169,8 share (cents) 1 407,4 1 236,4 1 431,5
*As restated - refer to note 14.
Abridged Group cash flow statements
For the six months ended 30 September
Unaudited Audited
six months year ended
30 Sept 30 Sept 31 March
2008 2007 2008
Rm Rm Rm
Cash flows from:
Operating activities (16,6) 32,1 30,3
Dividends received 1,3 5,7 19,0
Interest received 31,6 28,6 62,2
Finance costs (29,5) (24,8) (53,8)
Currency hedge cost - (27,9) (27,9)
Taxation paid (4,2) (0,4) (4,2)
Change in working funds 6,1 (3,1) (15,1)
Cash (utilised in)/generated from
operating activities (11,3) 10,2 10,5
Cash (utilised in)/generated from
investing activities (28,9) 255,5 5,9
Cash (utilised in)/generated from
operating and investing activities (40,2) 265,7 16,4
Dividends paid (100,7) (102,4) (175,2)
Cash outflows from financing activities (2,7) (6,3) (43,5)
Net (decrease)/increase in cash and
cash equivalents (143,6) 157,0 (202,3)
Effects of exchange rate changes on
cash and cash equivalents 5,9 (17,1) 52,8
Cash and cash equivalents at beginning
of period 417,7 567,2 567,2
Cash and cash equivalents at end of
period 280,0 707,1 417,7
Abridged Group statements of changes in equity
For the six months ended 30 September
Unaudited Audited
six months year ended
30 Sept 30 Sept 31 March
2008 2007 2008
Rm Rm Rm
Balance at beginning of period 1 518,8 1 276,1 1 276,1
Net translation adjustments 18,6 (45,4) 112,0
Treasury shares - (9,8) (16,8)
Delivered share scheme shares 0,2 5,6 15,5
Attributable earnings 72,7 273,9 393,0
Share entitlements 0,9 0,6 1,6
Fair value adjustment to currency hedge (17,0) - -
Ordinary dividends paid (100,7) (102,4) (175,2)
Ordinary shareowners` interest 1 493,5 1 398,6 1 606,2
Disposal of subsidiary - (87,4) (87,4)
Balance at end of period 1 493,5 1 311,2 1 518,8
Group segmental reports
For the six months ended 30 September
Audited
Unaudited year
six months ended
30 Sept 30 Sept* 31 March
2008 2007 2008
Rm Rm Rm
BUSINESS ANALYSIS
Segment income from continuing
operations
Revenue 117,6 119,9 272,6
- Private capital 85,9 63,9 148,5
- Public markets 29,9 31,9 91,4
- Treasury capital 1,8 24,1 32,7
Other income 119,4 160,4 245,9
- Private capital 107,4 136,3 224,5
- Public markets 4,9 8,5 5,1
- Treasury capital 7,1 15,6 16,3
Total segment income from continuing
operations 237,0 280,3 518,5
Segment income from discontinued
operations
Revenue
- Corporate finance - 18,4 18,7
Total revenue and other income 237,0 298,7 537,2
Segment result from continuing
operations 147,6 193,0 302,1
- Private capital 117,9 144,0 240,7
- Public markets 4,4 14,2 27,1
- Treasury capital 25,3 34,8 34,3
Finance costs (29,5) (24,8) (53,8)
Capital items (20,3) 104,3 162,9
Profit before taxation 97,8 272,5 411,2
Segment result from discontinued
operations
- Corporate finance - 16,3 15,1
Segment assets and liabilities
Segment assets 2 166,4 2 049,0 2 191,1
- Private capital 1 629,9 1 089,1 1 502,6
- Public markets 151,5 147,0 149,7
- Treasury capital 385,0 812,9 538,8
Other 186,7 109,3 192,4
Total assets per balance sheet 2 353,1 2 158,3 2 383,5
Segment liabilities 153,3 191,6 211,1
- Private capital 61,6 80,4 79,3
- Public markets 4,9 6,8 21,1
- Treasury capital 86,8 104,4 110,7
Other 706,3 655,5 653,6
Total liabilities per balance sheet 859,6 847,1 864,7
Segment net assets 2 013,1 1 857,4 1 980,0
- Private capital 1 568,3 1 008,7 1 423,3
- Public markets 146,6 140,2 128,6
- Treasury capital 298,2 708,5 428,1
Other (519,6) (546,2) (461,2)
Total net assets per balance sheet 1 493,5 1 311,2 1 518,8
GEOGRAPHICAL ANALYSIS
Segment income from continuing
operations
Revenue 117,6 119,9 272,6
- International 20,3 31,9 56,3
- South Africa 97,3 88,0 216,3
Other income 119,4 160,4 245,9
- International (42,1) 14,2 111,6
- South Africa 161,5 146,2 134,3
Total segment income from continuing
operations 237,0 280,3 518,5
Segment income from discontinued
operations
Revenue
- South Africa - 18,4 18,7
Total revenue and other income 237,0 298,7 537,2
Segment result from continuing
operations 147,6 193,0 302,1
- International (18,5) 34,7 131,6
- South Africa 166,1 158,3 170,5
Finance cost (29,5) (24,8) (53,8)
Capital items (20,3) 104,3 162,9
Profit before taxation 97,8 272,5 411,2
Segment result from discontinued
operations
- South Africa - 16,3 15,1
Segment assets
- International 811,9 685,2 957,4
- South Africa 1 541,2 1 473,1 1 426,1
Total assets per balance sheet 2 353,1 2 158,3 2 383,5
*As restated - refer to note 14.
Notes to the financial statements
For the six months ended 30 September
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 (Interim Financial
Reporting). During the period, the Group adopted hedge accounting in respect
of the hedging of its net investment in foreign operations (i.e. South
African operations) in accordance with IAS 39 (Financial Instruments:
Recognition and Measurement) and IAS 21 (The Effects of Changes in Foreign
Exchange Rates). Apart from this change, the accounting policies and methods
of computation are consistent with those applied in the annual financial
statements ended 31 March 2008.
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 changed its presentation
currency from US$ to rand during the previous financial year. Accordingly,
the Group statements at 30 September 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 R8,2884 to US$1 (September 2007: R6,8712 to
US$1 and March 2008: R8,0922 to US$1) for the balance sheets and an average
rate of R7,7800 to US$1 (September 2007: R7,0952 to US$1 and March 2008:
R7,1260 to US$1) for the income statements.
Audited
Unaudited year
six months ended
30 Sept 30 Sept 31 March
2008 2007 2008
Rm Rm Rm
4. Profit from operations include:
Dividends received 1,3 1,5 9,9
Interest received 31,6 28,6 62,2
Foreign currency (losses)/gains (14,4) 7,1 2,7
Depreciation (1,1) (0,8) (1,6)
Related party transactions:
- Interest received 0,1 0,6 0,8
- Dividends received - 4,2 9,1
- Interest paid (0,3) (1,7) (0,2)
- Fees paid (3,2) (2,8) (5,3)
- Key management (includes directors`
remuneration) (10,7) (11,3) (39,6)
5. Capital items comprise:
Net currency hedge (cost)/gain (see
note 1) - (18,2) 43,5
Fair valuation adjustment to
financial liability (29,2) (6,6) (12,7)
Fair valuation adjustment to
financial asset 8,9 4,9 7,9
Gain on realisation of investment in
subsidiary - 124,2 124,2
Total capital items (20,3) 104,3 162,9
6. Discontinued operations
Following a strategic review of the
Corporate Finance operations during
the previous financial year, a
decision was taken to discontinue
this activity.
Analysis of the discontinued
operation:
Revenue - 18,4 18,7
Expense - (2,1) (3,6)
Net profit - 16,3 15,1
7. Investments
Included in investments, are
investments in unlisted associates:
- Carrying value 18,3 9,8 14,0
- Directors` valuation 18,3 9,8 14,0
8. Cash and cash equivalents
Bank balances (12,8) 307,7 (39,7)
Short-term treasury instruments 292,8 399,4 457,4
280,0 707,1 417,7
9. Redeemable preference shares 450,0 450,0 450,0
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 (286,1) (264,3) (256,9)
- Assets 73,9 68,4 75,6
11. Contingent liabilities, commitments
and subordinated loans
11.1 Contingencies
Sureties and guarantees 4,0 32,3 4,7
11.2 Subordinated loans 8,4 - 8,4
11.3 Commitments
Commitments to invest in funds and
proprietary investments (to be
funded primarily from cash from
operations, treasury cash and, if
necessary, through additional debt
capital raised) 310,3 325,9 306,1
Other 3,6 3,2 5,0
Rental commitments: 16,2 22,8 19,5
- Within one year 6,5 6,3 6,6
- Between one and five years 9,7 16,5 12,9
Total commitments 330,1 351,9 330,6
12. Interest-bearing liabilities
All liabilities are interest bearing
except for R138,6 million (2007:
R134,7 million) in respect of
accounts payable, accruals,
provisions and deferred taxation.
13. Headline earnings
Attributable earnings 72,7 273,9 393,0
Headline earnings adjustment
- Gain on realisation of investment
in subsidiary - (124,2) (124,2)
Headline earnings 72,7 149,7 268,8
- Discontinued operations - (16,3) (15,1)
Headline earnings from continuing
operations 72,7 133,4 253,7
14. Restatements
- Reclassification of Sitogo dividend (R4,2 million) from capital items to
revenue.
- Profit from discontinued Corporate Finance operation (R16,3 million)
disclosed separately.
- Reclassification of hedging instrument (R49,0 million) from accounts
receivable (current) to other (non-current).
15. Subsequent events
During October 2008, the Group has re-aligned its hedge cover in accordance
with the net exposure in its South African operations and, as a consequence,
realised a gain of R169,8 million. Apart from this, no other events have
taken place since 30 September 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.
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 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.
Operating Environment
The turmoil in global financial markets, triggered by the US sub-prime
credit crisis, has become a full scale global financial market crisis. This
has been well documented in the media, as has its impact on global equity
markets, evidenced by declines of most major stock market indices during the
reporting period. Whilst South African banks have held up well, tightening
liquidity and credit conditions are being experienced, especially as
international investors have been scaling down their exposures to the
emerging markets by liquidating their equity and bond market positions. This
capital outflow has created pressure on the South African rand, which lost
more than 30% of its value early in October 2008. Volatility in most
financial market instruments are at high levels. These conditions have made
it most challenging for investment managers globally, and in South Africa.
The real economies of the world have been affected by the global financial
crisis. A number of the leading developed economies are experiencing
substantial economic slowdowns, and are forecasting recessionary conditions.
This will lead to knock-on effects in the developing world and in economies
such as South Africa.
Value Drivers
Investment Product Performance
Most of the Group`s products have longer term performance targets. The
Group`s products in the main continue to meet or exceed these targets over
the relevant timeframes. In particular, strong performance continues in
Brait lll and the Brait lV portfolio shows considerable promise. In Public
Markets, strong performance came through in both Brait Multi Strategy and
Brait Ruby. The performance of Brait Absolute showed an improvement,
particularly in the last quarter, but still fell short of its goals, albeit
in trying market conditions.
Assets under Management (AUM)
Our overall AUM has decreased from R11,6 billion at 31 March 2008 to R10,2
billion as at 30 September 2008. The net decrease was largely a result of
R1,5 billion redemptions from Brait Absolute.
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 had
indicated at the last year-end that this would have a dampening effect on
Private Capital earnings growth for two years, with this being the first
year. On the positive side, the deployment rate of Brait IV has been ahead
of schedule. This is likely to shorten the Fund-to-Fund cycle.
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. Capital of
approximately R255 million has been allocated for deployment this year, and
although only R20 million has been utilised, the prospects for deploying the
capital profitably have improved markedly.
Financial Results
The Group`s attributable earnings for the six-month period were R72,7
million, a 73% decrease on the R273,9 million recorded in the previous
period. A more meaningful comparison, however, is achieved when one excludes
the result from the realisation of the Group`s investment in Bayport in the
previous period, as well as the now discontinued corporate finance business.
This adjusted base shows that the current period earnings of R72,7 million
represent a 46% decrease in relation to the prior period as shown below:
For the six months ended
Actual Actual Pro forma
30 Sept 30 Sept 30 Sept
2008 2007 2007 %
Rm Rm Rm change*
Attributable earnings 72,2 273,9 133,4 (46)
Headline earnings 72,7 149,7 133,4 (46)
* Calculated on current results compared to the pro forma prior period
results.
The key performance drivers of the financial results are as follows:
Revenue - R117,6 million (2007: R119,9 million)
The revenue for the Group is made up of the recurring type income which
comprises of:
* management fees earned on AUM for both Private Capital and Public Markets;
* interest income earned on Treasury Capital as well as debt securities in
both Private Capital and Public Markets products; and
* dividend income received on fund investments.
Management fees for Private Capital and Public Markets remained stable
during the current period at R83,1 million compared to R84,4 million for
prior period in line with the slight decrease in the AUM. Interest income
and dividends were R36,7 million compared to R35,5 million in the prior
period. The reduction in the Treasury cash on hand decreased interest income
from this source, but this was replaced by interest income on the private
equity debt portion of investments in Brait IV.
The capital withdrawals of R1,5 billion from Public Markets will negatively
impact management fees received although we do not expect this to be
material to the Group results.
Other income - R119,4 million (2007: R160,4 million)
Other income for the Group is impacted by market and product performance
volatility as it is comprised of the following:
* gains on either revaluation or sale of long-term investments, be it
proprietary investments or Brait`s interest in the private equity funds;
* investment returns on Brait`s interest in the Public Market funds; and
* performance fees.
This had the biggest impact on the Group results, recording a R41 million
decrease compared to the prior period. The major reason for this was a R55
million depreciation in the market value of listed equity investments during
the last week of September 2008. In addition, the aggregate performance of
the capital invested in Public Markets products resulted in a further R10
million decline in profits.
Operating expenses - R92,7 million (2007: R88,7 million)
The Group`s operating expenses increased by R4 million or 4,5%. The Group`s
focus going forward will be cost efficiency by increasing its investment
assets and AUM as well as managing internal costs.
Capital and Funding Management: Finance costs - R29,5 million (2007: R24,8
million)
The Group has a target return of 25% ROE each year. As part of this business
model, the Group believes that its Weighted Average Cost of Capital (WACC)
is a key component of the 30% hurdle rate used for assessing new investments
in order to achieve the Group`s strategic goals. The Group`s current WACC is
15% based on a 1,6 times gearing. Debt is mainly in the form of R450 million
preference share capital raised in March 2006 to fund Brait`s internal
growth strategy, plus bank overdraft. The finance costs increased from prior
period as a direct result of the increase in prime rate of lending as both
the preference shares and bank overdraft are prime linked.
Capital items - R20,3 million net loss (2007: R104,3 million net gain)
Fair value adjustment of financial liability - R29,2 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 period was a loss of R29,2 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 treated as such.
Fair value adjustment of financial asset - R8,9 million gain - Pursuant to
the sale of 26% of Brait South Africa, an equity investment by Brait S.A. in
Sitogo Holdings of 32,3% 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 period was an
unrealised gain of R8,9 million and equates to the increase in fair value
attached to the specific class of shares held.
Hedge Accounting
With effect from 1 April 2008, the Group has adopted hedge accounting in
respect of its hedge of the net investment in the South African operations,
in accordance with IAS 39 and IAS 21. Since July 2002, the Brait SA Group
took a strategic decision to hedge, through a mixture of US$ and Euro
currency swaps and options, its rand exposure of the net investment in the
South African operations. Subsequent to this, the Group has used US$ call
options to hedge its rand exposure and has now made a decision to hedge
account this arrangement in order to eliminate volatility on the Income
Statement. The movement on the hedge is now being recognised directly in
equity, except for the portion of the change in the hedging instrument that
is in excess to the hedging needs which will be recognised in the Income
Statement.
Taxation - R25,1 million (2007: R14,9 million)
The taxation charge represents an increase of 68% on in the prior period.
This increase is attributable, firstly, to the increase in the deferred
taxation liability in respect of unrealised investment gains from the South
African operations and, secondly, to the fact that a significant portion of
the losses on the listed equities arise from the international operations,
thereby distorting the charge to the Income Statement.
Investment Assets and Group Cash Flows
Brait Group`s total investment assets on the balance sheet remain largely
unchanged at approximately R2,1 billion.
This is comprised of the following:
30 Sept 30 Sept 31 Mar
2008 2007 2008
Rm Rm Rm
Investment assets 2 166,4 2 049,0 2 191,1
- Private capital 1 629,9 1 089,1 1 502,6
- Public markets 151,5 147,0 149,7
- Treasury capital 385,0 812,9 538,8
The returns on the investment assets decreased from the prior period for the
reasons noted under "Other income" above.
The Private Capital investments of R1,6 billion above are split between
Brait`s own proprietary investments of R520 million and R1,1 billion
invested alongside the private equity and debt funds that the Group manages
for investors to ensure alignment of interests with stakeholders. The Public
Markets investments are co-investments in the various hedge funds managed by
the Group.
The significant portion of the Treasury capital investments is cash on hand,
which has declined from R418 million at 31 March 2008 to R280 million at 30
September 2008.
The surplus cash is invested in Public Markets products awaiting further
deployment into either business unit. The returns on the invested capital
have been muted due to the mix of products invested in, and the differing
performance of these products.
Group Cash Flows and Dividend Policy
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.
The Group adopted, at the beginning of the year, a policy to pay a dividend
equivalent to 12,5% of opening NAV, provided the Board is satisfied that
this does not impair its solvency, or its ability to finance its business
plan.
As noted above, the current global financial crisis has adversely affected
the world equity markets. Brait is disinclined to realise assets in this
environment and accordingly will only realise assets when market conditions
improve. Additionally, it may be at these times that the most compelling
investment opportunities present themselves. These factors pose timing
uncertainties on the usage of Brait`s treasury capital.
With this in mind, the Board has carefully assessed the Group`s liquidity
position to ensure that an interim dividend will not impair its solvency, or
its ability to finance its business plan.
As at 29 October 2008, the Group has cash or near cash balance of over R550
million and the Board has therefore recommended the payment of an interim
dividend.
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 and certain Proprietary Investments as well
as management fees earned on Brait IV.
Revenue and other income of R193,3 million was recognised during the period,
a 3% decrease on the R200,2 million recognised in the prior period. Profit
from operations for the period decreased from R144,0 million to R117,9
million. The decrease in revenue and profit from operations is largely due
to unfavourable fair value adjustments as a result of movements in listed
share prices, as well as features discussed under "Private equity Fund-to-
Fund Cycle" above.
Some of the notable highlights during the period were:
* Strong operational performance from all large investment exposures
especially Pepkor, Net 1, Consol and DGB.
* Finalisation of phase 3 of Brait IV investment in Capital Africa Steel
totalling R100 million.
Public Markets
Brait Public Markets is one of the leading hedge fund management businesses
in South Africa, with an investment track record that began in 2001. The
division manages a range of fund of hedge funds, a multi-strategy fund and a
number of single strategy funds - all primarily focused on the investment
requirements of institutional investors.
Public Markets` top line for the first half of the financial year decreased
by 13,9% to R34,8 million from R40,4 million in the comparable prior period,
while operating profits decreased by 69,0% to R4,4 million from R14,2
million. These decreases were principally due to a decline in AUM of 26,3%
from R5,75 billion at 31 March 2008 to R4,24 billion which has negatively
impacted management fees as well as reduced return on invested capital
employed for the half-year of 6,1% on average capital employed of R143,4
million.
As noted above, the investment performance of the Brait Absolute, the
flagship fund of hedge funds, has been disappointing over the past period.
It has experienced redemptions resulting in a decrease in the Fund`s size to
R3,7 billion at 30 September 2008 (R5,4 billion at 31 March 2008). In
response to this, changes have been made to the investment process, leading
to a streamlining of the base of underlying managers.
These underlying funds are selected by our investment team on the basis of
their ability to positively contribute to the Fund delivering on its
investment objective in the current volatile markets.
For the Capital Management Team, which manages the individual hedge funds,
the performance of its fixed income team has been very positive, enabling
the successful launch of the Brait Matrix Fixed Income Fund on 1 October
2008.
While the Public Markets division has not performed at the levels expected
during the period under review it remains on a solid footing, positioned as
a meaningful participant in the hedge fund industry. In an effort to
accelerate the development of this business, certain management changes have
been made. The team has been bolstered by the hiring of a new Chief
Investment Officer of the Multi-Manager business.
Capitalisation
The capitalisation of Brait is rigorously reviewed by the Capital Allocation
Committee, a committee of the Board, on a regular basis and considers its
capital requirements 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.
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.
Subsequent Events
As a result of its newly adopted policy of hedge accounting the Group`s net
exposure to the South Africa operations, the Group had to reduce its hedging
instruments from US$61 million to US$40 million, the latter being the
revised US$ equivalent of its net investment in the South African
operations. This re-alignment of the hedging instrument resulted in a
realised accounting gain of R169,8 million during October 2008 which will be
reported on in the Group`s Income Statement at year-end.
Overall 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.
The Group believes it is well placed to earn good returns in the long-term:
Brait`s assets are of a high quality, its teams are strong and it is well
capitalised.
Nevertheless, market conditions are unpredictable, making short-term
prospects pronouncements difficult. In the circumstances, it is sensible to
express caution about the impact of these events on short-term earnings and
on the prospect of the Group`s ability to meet performance targets in the
short terms.
Dividend
As discussed above, the Board proposes to pay an interim dividend in
accordance with its dividend policy, amounting to 89,45 cents per share
which equates to an increase of 51,4% compared to the prior year interim
dividend of 59,07 cents per share.
The interim dividend will be paid to shareowners on Monday, 8 December 2008.
The record date for the dividend is the close of business on Friday, 5
December 2008. The last day to trade "cum dividend" will be Friday, 28
November 2008 and the share will commence trading "ex dividend" on Monday, 1
December 2008. Share certificates may not be dematerialised or
rematerialised between Monday, 1 December 2008 and Friday, 5 December 2008,
both days inclusive.
Shareowners who receive their dividends in US$, are advised that the interim
dividend is 8,58 US cents per share, and has been determined using the
Rand/US$ exchange rate in Luxembourg at 12:00 on 28 October 2008.
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
31 October 2008
ADMINISTRATION
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
Brait International Limited
Suite 520, 5th Floor, Barkly Wharf, Le Caudan Waterfront, Port Louis,
Mauritius
Tel: +230 213 6909
Fax: +230 213 6913
Listing agent
Dexia Banque Internationale a 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
Independent auditors
Deloitte & Touche S.A., 560, rue de Neudorf, L-2220, Luxembourg
Domiciliary agent and registrar
Experta Luxembourg S.A., 180, rue des Aubepines, L-1145, Luxembourg
Tel: +352 269255 3297
Fax: +352 269255 3642
JSE and LSE issuer name and code
Issuer long name - Brait S.A.
Issuer code - BRAIT
Instrument alpha code/Ticker symbol - BAT
ISIN - LU 0011857645
Directors
ME King (Chairman)?*, AC Ball (Chief Executive Officer)*, PAB Beecroft?>, JE
Bodoni?#, AD Campbell*, BI Childs>, JA Gnodde*, RJ Koch?>, AM Rosenzweig?**,
S Sithole^, HRW Troskie?**, SJP Weber#,
PL Wilmot?*
?Non-executive, *South African, #Luxembourgish, >British, **Dutch,
^Zimbabwean
Financial information for the year ended 31 March 2008
is also available on the Brait website at www.brait.com
Date: 31/10/2008 10:28:02 Produced by the JSE SENS Department.
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