| Mon 25 May 2009, 8:00 | | BAT - Brait S.A. - Reviewed group results for the year ended 31 March 2009 |
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BAT
BRAIT
BAT - Brait S.A. - Reviewed group results for the year ended 31 March 2009
Brait S.A.
Societe Anonyme
("Brait" or "the Company")
(Incorporated in Luxembourg)
Registration number: RC Luxembourg B-13861
Registered office: 180 rue des Aubepines, L-1145, Luxembourg
Share code: BAT
ISIN code: LU0011857645
Brait
Reviewed Group Results for the year ended 31 March 2009
Highlights
* Earnings
Profit from South African operations up by 42% to R241,9 million (2008: 41%
decrease)
Group profit from operations decreased by 21% to R237,3 million (2008: 31%
decrease)
Headline earnings from continuing operations decreased by 34% to R166,6 million
(2008: 8% decrease)
Attributable earnings decreased by 58% to R166,6 million (2008: 16% increase)
* Return on equity 13% (2008: 30%)
* NAV robust at 1 436,4 cents per share, increased by 0,3% (2008: 19% increase)
* Assets under management (fee earning) decreased by 9% to R10,5 billion (2008:
20% increase)
* Cash generated of R415,1 million (2008: R117,4 million) compared to cash
applied of R279,3 million (2008: R101 million)
* Strong cash position of R430,1 million (2008: R417,7 million)
* Annual dividend distribution increased by 19% to 178,90 cents per share (2008:
13% increase)
Salient Features
for the year ended 31 March
Supplementary US$ information*
Reviewed Audited
2008 2009 2009 2008 %
US$m US$m Rm Rm change
Performance Measures
Headline earnings per share
from continuing operations
(cents)
33,5 17,7 - Basic 157,0 239,1 (34,3)
33,3 17,7 - Diluted 156,6 237,4 (34,0)
Headline earnings per share
(cents)
35,5 17,7 - Basic 157,0 253,3 (38,0)
35,3 17,7 - Diluted 156,6 251,5 (37,7)
Attributable earnings per
share (cents)
51,9 17,7 - Basic 157,0 370,3 (57,6)
51,6 17,7 - Diluted 156,6 367,7 (57,4)
20,80 19,13 Dividends per share (cents) 178,90 150,34 19,0
9,00 8,58 - Interim paid 89,45 59,07
11,80 10,55 - Final proposed/paid 89,45 91,27
Net asset value per share
176,9 151,0 (cents) 1 436,4 1 431,5 0,3
20,0 (3,0) Return on equity (%) 13,0 29,9
Financial statistics
278,6 117,1 Market capitalisation 1 114,1 2 254,6 (50,6)
106,1 106,1 Shares in issue (m) 106,1 106,1 0,0
Weighted average shares in
issue (m)
106,1 106,1 - Basic 106,1 106,1 0,0
106,9 106,4 - Diluted 106,4 106,9 (0,5)
Closing share price (cents
262,6 110,4 per share) 1 050,0 2 125,0 (50,6)
Rand/US$ exchange rates
0,1236 0,1051 - Closing 9,5124 8,0922
0,1403 0,1129 - Average 8,8587 7,1260
* The disclosure above is for information purposes and does not form part of the
Group`s abridged financial statements.
Abridged group income statements
for the year ended 31 March
Supplementary US$ information
Reviewed Audited
2008 2009 2009 2008
US$m US$m Note Rm Rm
38,3 37,7 Revenue 334,1 272,6
34,1 18,6 Other income 164,4 243,2
72,4 56,3 Total revenue and other income 498,5 515,8
(30,6) (30,8) Operating expenses (272,8) (218,1)
0,6 1,3 Income from associates 11,6 4,4
42,4 26,8 Profit from operations 4 237,3 302,1
(7,5) (6,7) Finance costs (59,2) (53,8)
22,8 4,4 Capital items 5 39,1 162,9
57,7 24,5 Profit before taxation 217,2 411,2
(4,7) (5,7) Taxation (50,6) (33,3)
Profit from continuing
53,0 18,8 operations 166,6 377,9
Profit from discontinued
2,1 - operations* 6 - 15,1
Profit for the
55,1 18,8 year/attributable to equity 166,6 393,0
holders
20,80 19,13 Dividends per share (cents) 178,90 150,34
9,00 8,58 - Interim paid 89,45 59,07
11,80 10,55 - Final proposed/paid 89,45 91,27
Basic attributable earnings
51,9 17,7 per share (cents) 157,0 370,3
Diluted attributable earnings
51,6 17,7 per share (cents) 156,6 367,7
*The Corporate Finance operation was discontinued during the previous year.
Abridged Group Balance Sheets
as at 31 March
Supplementary US$ information
Reviewed Audited
2008 2009 2009 2008
US$m US$m Notes Rm Rm
Assets
225,0 198,1 Non-current assets 1 885,0 1 820,4
199,3 192,0 Investments* 7 1 826,7 1 612,3
25,7 6,1 Other non-current assets* 58,3 208,1
69,6 55,2 Current assets 525,0 563,1
0,3 0,1 Loans and advances 0,6 2,3
7,5 3,0 Accounts receivable 28,9 60,3
10,2 6,9 Investments 65,4 82,8
51,6 45,2 Cash and cash equivalents 8 430,1 417,7
294,6 253,3 Total assets 2 410,0 2 383,5
Equity and Liabilities
187,7 160,2 Equity and reserves 1 524,0 1 518,8
79,7 72,8 Non-current liabilities 692,4 645,1
55,6 47,3 Redeemable preference shares 9 450,0 450,0
24,1 25,5 Other non-current liabilities 242,4 195,1
27,2 20,3 Current liabilities 193,6 219,6
Borrowings and accounts
23,9 17,0 payable 162,2 192,9
3,3 3,3 Other 31,4 26,7
294,6 253,3 Total equity and liabilities 2 410,0 2 383,5
Net asset value per ordinary
176,9 151,0 share (cents) 1 436,4 1 431,5
* Comparative as reclassified - refer to note 14.
Abridged Group Cash Flow Statements
for the year ended 31 March
Reviewed Audited
2009 2008
Rm Rm
Cash flows from:
Operations 52,2 30,3
Dividends received 9,4 19,0
Interest received 43,7 62,2
Finance costs (59,2) (53,8)
Proceeds from realisation of currency hedge 299,4 -
Premium paid on currency hedge (88,1) (27,9)
Taxation paid (17,1) (4,2)
Changes in working capital (10,4) (15,1)
Cash generated from operating activities 250,7 10,5
Cash flows (utilised in)/generated from investing
activities (114,9) 5,9
Cash flows generated from operating and investing
activities 135,8 16,4
Dividends paid (188,7) (175,2)
Cash outflows from financing activities (4,6) (43,5)
Net decrease in cash and cash equivalents (57,5) (202,3)
Effects of exchange rate changes on cash and cash
equivalents 69,9 52,8
Cash and cash equivalents at beginning of year 417,7 567,2
Cash and cash equivalents at end of year 430,1 417,7
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
premium reserve reserves reserve
Rm Rm Rm Rm
Audited balance
at 31 March 2007 257,4 19,1 27,6 (29,0)
Net translation adjustments - - - 112,0
Sale of Bayport - (0,4) - 2,1
Delivered share scheme
shares 15,5 - - -
Treasury shares purchased (16,8) - - -
Attributable earnings - - - -
Share entitlements - - 1,6 -
Ordinary dividends - - - -
Transfer to/(from) other
reserves - 3,9 - -
Audited balance at
31 March 2008 256,1 22,6 29,2 85,1
Net translation adjustments - - - 29,2
Delivered share scheme
shares 0,2 - - -
Treasury shares purchased (0,1) - - -
Attributable earnings - - - -
Share entitlements - - 2,0 -
Ordinary dividends - - - -
Transfer to/(from) other
reserves - 6,5 - -
Reviewed balance at
31 March 2009 256,2 29,1 31,2 114,3
Total
equity
Retained Minority and
reserves interest reserves
Rm Rm Rm
Audited balance
at 31 March 2007 946,6 54,4 1 276,1
Net translation adjustments - - 112,0
Sale of Bayport (34,9) (54,2) (87,4)
Delivered share scheme shares - - 15,5
Treasury shares purchased - - (16,8)
Attributable earnings 393,0 - 393,0
Share entitlements - - 1,6
Ordinary dividends (175,2) - (175,2)
Transfer to/(from) other reserves (3,9) - -
Audited balance at
31 March 2008 1 125,6 0,2 1 518,8
Net translation adjustments - - 29,2
Delivered share scheme shares - - 0,2
Treasury shares purchased - - (0,1)
Attributable earnings 166,6 - 166,6
Share entitlements - - 2,0
Ordinary dividends (192,7) - (192,7)
Transfer to/(from) other reserves (6,5) - -
Reviewed balance at
31 March 2009 1 093,0 0,2 1 524,0
Group Segmental Reports
for the year ended 31 March
Reviewed Audited
2009 2008
Rm Rm
Business Analysis
Segment income from continuing operations
Revenue 334,1 272,6
- Private capital 161,8 148,5
- Public markets 167,2 91,4
- Treasury capital 5,1 32,7
Other income 164,4 243,2
- Private capital 53,5 225,7
- Public markets 16,1 6,4
- Treasury capital 94,8 11,1
Total segment income from continuing operations 498,5 515,8
Segment income from discontinued operations
Revenue
- Corporate finance - 18,7
Total revenue and other income 498,5 534,5
Segment result from continuing operations 237,3 302,1
- Private capital 75,8 240,7
- Public markets 86,6 27,1
- Treasury capital 74,9 34,3
Finance costs (59,2) (53,8)
Capital items 39,1 162,9
Profit before taxation 217,2 411,2
Segment result from discontinued operations
- Corporate finance - 15,1
Notes to the Abridged Financial Statements
for the year ended 31 March
The results for the year ended 31 March 2009 have been reviewed by the Group`s
independent auditors Deloitte S.A., 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) as adopted by the European
Union. The abridged financial statements are presented in accordance with IAS 34
(Interim Financial Reporting). During the year, the Group adopted hedge
accounting in respect of both interest rate hedging and its net investment in
foreign operations (ie South African operations) in accordance with IAS 39
(Financial Instruments: Recognition and Measurement) and IAS 21 (The Effects of
Changes in Foreign Exchange Rates) respectively. Apart from these changes
applied prospectively, 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$) for its international operations. The Group`s
abridged financial statements are prepared, consistent with the previous year,
using rand as its presentation currency.
3. Supplementary dollar information
The balance sheets and income statements of the Group have also been presented
in US$ for the convenience of non-South African stakeholders in the Group and
accordingly have not been reviewed by the Group`s independent auditors. The
supplementary US$ results have been converted from the rand results using a
closing rate of R9,5124 to US$1 (2008: R8,0922 to US$1) for the balance sheets
and an average rate of R8,8587 to US$1 (2008: R7,1260 to US$1) for the income
statements.
Reviewed Audited
2009 2008
Rm Rm
4. Profit from operations include:
Dividend income 9,4 19,0
Interest income 45,4 62,2
Foreign currency gains 54,0 55,5
Depreciation (2,0) (1,6)
Related party transactions
- Interest income 0,2 0,8
- Dividend income - 9,1
- Finance costs (0,5) (2,5)
- Fees paid (3,8) (5,3)
- Key management (includes directors` (31,7) (39,6)
remuneration)
5. Capital items comprise:
Net currency hedge gain 90,3 43,5
Fair valuation adjustment to financial (16,3) (12,7)
liability
Fair valuation adjustment to financial (34,9) 7,9
asset
Gain on realisation of investment in - 124,2
subsidiary
Total capital items 39,1 162,9
6. Profit from 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 - 18,7
Expense - (3,6)
Net profit - 15,1
7. Investments
Included in investments are investments in
unlisted associates:
- Carrying value 27,3 14,0
- Directors` valuation 27,3 14,0
8. Cash and cash equivalents
Bank balances 126,5 (39,7)
Short-term treasury instruments 303,6 457,4
430,1 417,7
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.
The Group has a variable to fixed interest
rate swap contract which effectively
fixes the interest rate on R250 million of
the above preference shares at 11,72%
until 31 October 2010. Hedge accounting is
applied to this swap contract.
10. Related party balances
- Liabilities (204,4) (256,9)
- Assets 48,5 75,6
11. Contingent liabilities, commitments and
subordinated loans
11.1 Contingencies
Sureties and guarantees 9,5 4,7
11.2 Subordinated loans 8,3 8,4
11.3 Commitments
Commitments to invest in funds and
proprietary investments (to be funded
primarily from cash and operations,
treasury cash and, if necessary, through
additional debt capital raised) 277,0 306,1
Other 0,6 5,0
Rental commitments 12,7 19,5
- Within one year 7,1 6,6
- Between one and five years 5,6 12,9
Total commitments 290,3 330,6
12. Interest-bearing liabilities
All liabilities are interest bearing
except for R436 million (2008: R414,7
million) in respect of accounts payable,
accruals, provisions and deferred
taxation.
13. Headline earnings
Attributable earnings 166,6 393,0
Headline earnings adjustment
- Gain on realisation of investment in
subsidiary - (124,2)
Headline earnings 166,6 268,8
- Discontinued operations - (15,1)
Headline earnings from continuing
operations 166,6 253,7
14. Reclassifications
The following comparative figures have been reclassified to conform to changes
in presentation in the current year and have had no effect on the results of the
previous year.
- Reclassification of financial assets relating to Sitogo
(R64,6 million) from Investments to Other non-current assets
15. Subsequent events
No events have taken place since 31 March 2009 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 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 business is segmented between Private Capital operations, which
incorporate all activities in the private capital markets, and Public Markets
operations, which incorporates all activities in the public or highly traded
securities markets.
Factors Affecting Performance
Operating Environment
Market Conditions
The past year has been particularly challenging for investment managers in South
African and global markets. The turmoil in global financial markets has seen
most equity market indices declining by approximately 30%. While South Africa
has been relatively insulated, it has not been immune.
Global Recessionary Conditions
The slowdown in global growth alluded to in the previous Annual Report has
developed into a full-blown recession in many of the major global economies. In
South Africa, economists are predicting a recession after a contraction in the
economy was reported in the quarter to
31 December 2008. A number of industries are already in recession due to the
decline in global demand.
Economic Uncertainty
Uncertainty as to the length and depth of the recession makes investment
decision-making difficult, and results in restraint to allocating new capital.
Value Drivers
Investment Product Performance
It has been a difficult year to drive investment product performance when on the
whole market indices declined by approximately 30%. Most of the Group`s products
have longer term performance targets, and it is pleasing to report that the
Group`s products in the main continue to meet or exceed these targets over these
longer time-frames.
In Public Markets, the performance of the Capital Management Team`s (CMT)
product suite was particularly pleasing, with most products performing ahead of
target, while the performance of the Brait Absolute SA Fund, managed by the
Multi-Management Team (MMT), improved after some changes were made to the
investment process, and is pleasingly now showing better than median performance
in relation to its peer group. In Private Capital, Brait III and IV delivered a
very creditable 4,5%, bearing in mind that Brait IV is still in its "J Curve"
phase.
For the year to 31 December 2008 (being the reporting periods for all but
Alternative Equity Partners I (AEP I) the following returns were delivered by
Brait`s investment products:
Private Capital
Brait III and IV 4,5%
AEP 1 4,2%
Mezzanine Partners Fund 17,2%
Public Markets
Brait Multi-Strategy (BMS) Fund 29,2%
Brait Matrix (launched 1 October 2008) 21,3%
Brait Ruby Fund 20,9%
Lauriston Absolute Fund 0,5%
Brait Absolute SA Fund (3,6%)
The important highlight of the above performance is that the private equity
portfolio held up well, given the difficult valuation environment. Brait`s
private equity portfolio companies have, in aggregate, shown strong improvement
in operational performance, which has provided a sound underpin to the valuation
of assets at
31 March 2009. This is considered to be the result of the investment strategy,
which favours investing in companies with strong market positions exposed to
growth in the cash consumer and infrastructure segments.
Assets Under Management (AUM)
Assets under management decreased by 9%, largely due to the net redemption of
some R2,5 billion from Brait Absolute, which was partially offset by inflows
into CMT and Mezzanine Partners. Lumpy growth is anticipated due to the practice
in the private equity business of raising capital pools over three to five year
cycles. Brait remains on track with respect to shortening the cycle between the
raising of successive private equity funds.
New Product Development
The rate at which the Group is able to bring new products to our institutional
clients is another important value driver. In last year`s Annual Report, we
reported that a number of new products, including Molash I (Brait sponsored
funds initiatives), Mezzanine Partners II, AEP (Fund of Private Equity Funds),
and Brait High Alpha (subsequently unwound in January 2009) were launched. These
products have not been able to raise the assets that were targeted, due to
institutional investor constraints in the allocation of assets. Accordingly, the
gains from these products will take longer to materialise.
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 around proprietary investing
was tightened up during the 2008 financial year, with the intention of a more
purposeful deployment of this capital. The challenges of 2009 dictated prudence
and, as a consequence, very limited capital was deployed during the year.
Financial Review
The Group`s attributable earnings for the year were R166,6 million, a 58%
decrease on the R393,0 million recorded in the previous year.
Headline earnings for prior year excludes the R139,3 million gains from the
Group`s realisation of its investment in Bayport as well as the contribution
from the discontinued corporate finance business. On this basis, recurring
earnings reduced 34% from R253,7 million to R166,6 million.
An analysis of the results shows that the shortfall in performance against plan
can be attributed to three items:
* The Group has a significant exposure to Net1 UEPS, a Brait III portfolio
company which is listed on NASDAQ. Brait made this investment in June 2004, at a
price equivalent to $3,00 per share. Whilst substantial liquidity was achieved
at $24,00 per share, Brait III retained a significant investment. The company
continues to perform strongly at an operational level, showing rand earnings
growth of 20% for the nine months to 31 March 2009. Nevertheless, the share
price has been affected, declining from $22,50 at 31 March 2008 to $15,21 at 31
March 2009. This resulted in a R90 million write-down.
* The Group is exposed to junior resource stocks, as a part of its investment
programme with Pangea. This programme has served the Group well over the years -
since 2000, R48 million has been invested and R56 million has been returned,
with the residual exposure held at R60 million. The junior resource sector has
been negatively affected by global events - most especially the junior diamond
sector, which has affected the value of these holdings, most notably Pangea
Diamonds, an AIM listed company in which the Group has an investment. The write-
down on this portfolio amounted to R53 million.
* During 2008, the Group sponsored the formation of Molash Capital, a niche
investment firm that made a number of investments in the apparel and non-
perishable FMCG sectors. Some of these companies were exposed to credit retail
chains, which have experienced a slow-down in sales resulting in reduced levels
of profitability and reduced valuations. This has resulted in write-downs of R33
million.
The variance from planned performance is isolated to the above events which are
unlikely to be permanent, as they are a result of valuations at a point in time.
Overview of financial results
Brait`s business is best analysed by separating the fund management and
investment management operations. In fund management, Brait acts as the fund
manager in its Public Markets business, and as general partner in its Private
Equity funds on behalf of its investors.
Investment management operations entail Brait using its shareholders` funds or
Group capital to invest in its Public Markets or Private Capital products,
either on its own or alongside third party investors. Returns for Brait include
investment income and capital participations.
An analysis of the Brait financial results on this basis would be as follows:
31 March 31 March
2009 2008 Variance %
Year ended Notes Rm Rm Rm change
Brait Group income
statement
Fund management income 1 283,2 216,5 66,7 31
Fund management
expenses 2 (231,9) (207,9) (24,0) 12
Profit from fund
management operations 51,3 8,6 42,7 498
Investment income 3 226,9 318,8 (91,9) (29)
Investment expenses 4 (40,9) (10,2) (30,7) 301
Profit from investment
operations 186,0 308,6 (122,6) (40)
Group profit from
operations 237,3 317,2 (79,9) (25)
Finance costs 5 (59,2) (53,8) (5,4) 10
Capital items 6 39,1 162,9 (123,8) (76)
Profit before taxation 217,2 426,3 (209,1) (49)
Taxation 7 (50,6) (33,3) (17,3) 52
Profit for the
year/attributable to
equity holders 166,6 393,0 (226,4) (58)
Notes to the analysis of the Brait financial results:
Note 1: Fund Management Income
The decrease in Public Markets` management fees due to the loss of R2 billion of
third party assets under management during the year was offset by an increase in
performance fees of R89,3 million earned on Public Markets` CMT products.
Note 2: Fund Management Expenses
Total increase in fund management expenses of R24 million (12%) is largely in
line with inflation. In addition, communication and computer costs had an above
inflation increase from prior year as a result of investment in a risk and
operations management system for the hedge fund business.
Note 3: Investment Income
The investment appreciation arises from the increase or decrease in value of
capital deployed by Brait into its own products (see segment report for the
business unit split). The mark to market write-down in the listed investments
such as Net1 UEPS and Pangea, in addition to Molash, reduced Private Capital`s
contribution by R171 million from R224,5 million in the prior year to R53,5
million.
This loss was partly off-set by a R78,5 million increase in investment income
for Treasury Capital. This was driven by the performance of the BMS Fund
investment, in which Brait holds its surplus cash, which delivered a 10,9%
annual return in US dollars. In addition, the US dollar cash and cash
equivalents held resulted in a positive R69,9 million foreign currency gain for
the year.
Income from associate relates mostly to Brait`s interest in Medu and reflects
the proportionate share management fees and investment returns.
Note 4: Investment Expenses
Investment expenses relate to Brait`s share of expenses in the private equity
and hedge funds in which it has invested its own capital. This includes audit
fees, bank charges, professional and consulting fees as well as interest paid on
debt facilities. Interest paid went up by R12,9 million in the current year.
It also includes R13,3 million arising from impairment on loans advanced to
portfolio companies.
Note 5: Finance costs
Finance costs relate primarily to the funding cost on the Group`s R450 million
preference shares as well as the cost of short-term funding.
The increase from the previous year is as a result of movement in the prime
interest rate.
Note 6: Capital Items
Capital items comprise:
Profit on restructure of the Group`s hedging instruments - R169,8 million (2008:
Rnil)
The group`s restructure of its two previous hedges with a nominal value of US$61
million into one with a nominal value of US$40 million resulted in net cash
inflow of R211,3 million to the Group, and an accounting profit of R169,8
million.
Net currency hedge loss - R79,5 million (2008: R43,5 million gain)
Net fair value adjustment associated with the Group`s consistently applied
policy of preserving its net tangible capital in US dollars.
Fair value adjustment of financial liability - R16,3 million loss (2008: R12,7
million loss)
This relates to the fair value adjustment of the financial liability relating to
Brait South Africa`s 26% sale of its equity to Sitogo Holdings (Pty) Limited
("Sitogo") in 2005 as part of its BEE programme.
Fair value adjustment of financial asset - R34,9 million loss (2008:
R7,9 million gain)
This relates to the fair value adjustment of the financial asset that arose as a
result of Brait securing an interest in Sitogo as part of the BEE deal in 2005.
Gain on realisation of investment in subsidiary - Rnil (2008: R124,2 million
gain)
Realisation of Brait`s interest in Bayport, effective 1 April 2007.
Note 7: Taxation
The Group incurred an effective tax rate of 23% in the current year compared to
8% for the prior year as a result of write-downs on investments in the
international operations, against which no deferred taxation credit arises, and
the South African operation having utilised all its taxation losses carried
forward from the previous years hence becoming liable for normal taxation.
Performance targets
Brait measures its performance against certain key objectives. Long-term
performance targets have been set for:
- Return on equity
- Attributable earnings growth
- Assets under Management
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.
Brait has generated an annual return on equity of 13% for the 2009 financial
year and a five-year rolling return since 1 April 2004 of 23%, which is below
the long-term target.
Attributable earnings growth
The Group`s objective is to grow its attributable earnings by 12,5% per annum
compounded (CAGR), as measured over any five year period.
Actual CAGR has been a negative 6% to 31 March 2009, largely as a result of
current attributable earnings being 51% below the 12,5% CAGR trend line.
Assets under Management (AUM)
Increased and sustainable growth in AUM is critical to achieving continued
profit growth. Brait`s objective is to double its AUM every four years (i.e.
achieve a CAGR of 20% in AUM).
AUM decreased by 9% in the current year due to withdrawals from the Brait
Absolute SA Fund in the Public Markets business. The four year CAGR has been
50%, however, which is well ahead of target.
Segmental review
Private Capital
Overview
Brait Private Capital comprises:
* Funds - the management of third-party capital committed by a set of American,
European and South African investors, including Brait and the team, to its
private equity funds.
* Proprietary investing - the deployment of Brait`s capital for investments in
private companies of between R20 million and R50 million with targeted gross
returns in excess of 30%.
* Sponsored funds - sponsorship of niched investment firms.
* Fund-of-funds - investment management of unlisted fund-of-funds that invests
in Brait-sponsored and third party funds.
* Debt funds - management of closed-end mezzanine funds.
Brait has held a market leading position in the management of third-party
capital in Private Equity, having raised and invested a series of four private
equity funds since 1990.
Annual Highlights - Private Capital
* Strong operational performance was recorded in Brait`s primary investment
exposures, in a challenging operating environment. On average, fund portfolio
companies are tracking EBITDA growth in excess of 20% over comparable periods.
* Supported by this strong operational performance, solid investment performance
in Brait III and Brait IV.
* Brait IV finalised two substantial portfolio company investments, one in
Buildmax Limited and another as a toehold investment, both of which are likely
to benefit from the infrastructural spend in South Africa.
* Mezzanine Partners I achieved full investment, and a first investment was made
in Mezzanine Partners II.
* AEP I became fully committed.
Return on Capital Employed (ROCE)
Private Capital`s ROCE for the year was 4,9% on average capital employed of R1,5
billion. The long-term ROCE is 18% and has fallen behind the Group`s long term
target of 25%.
Profit from operations
Profit from operations for the year decreased from R240,7 million to R75,9
million as a result of the mark to market write-downs in Net1 UEPS, Pangea and
Molash as noted above.
Profit growth has fallen short of the 12,5% annual growth target as measured in
any six year period, with the actual current year profits 48% short of the trend
line.
Assets under Management
AUM are represented by the funds on which Private Capital earns a management
fee. Total management fee earning funds have increased by R0,3 billion to R6,7
billion at year end, mainly due to the increased Rand value of USD fund
commitments.
The AUM CAGR of 27% over the last four years is well in excess of the Group`s
objective CAGR 20% target.
Brait Public Markets
Overview
Brait`s public markets activities are focused on the management of hedge fund
products, with the investment management activities being undertaken within two
business units, namely:
* Brait`s MMT is responsible for managing the fund of hedge fund product range,
including the flagship Brait Absolute SA Fund.
* Brait`s CMT is responsible for managing a range of single and multi-strategy
hedge funds, including the BMS Fund, the Brait Matrix Fixed Income Fund and the
Brait Ruby Fund.
The Company invests capital alongside its clients into these products, utilising
both product seeding capital and invested treasury capital.
Annual Highlights - Public Markets
* Significant improvement in divisional profitability, despite challenging
operating environment
* Exceptional investment performance from CMT
* Successful launch of Brait Matrix Fixed Income Fund on 1 October 2008
* Organisational structure adjusted to re-align the focus of investment teams
and business management
Return on Capital Employed (ROCE)
ROCE at 37% for the financial year exceeded the Group`s 25% target return, due
to a greater proportion of capital being deployed into CMT`s high return
targeting products. The long term return on capital employed, remains below the
25% target at 20%.
Profit from operations
Profit from operations increased by 220% to R86,6 million due to the increase in
performance fee income earned on CMT products. This positive growth was to a
limited extent offset by the reduction in management fee income due to Brait
Absolute withdrawals coupled with an increase in the divisional cost base.
Growth in profit from operations averages 85,59% over the most recent five year
period against the Group`s target of 12,5%.
Assets under management
Third-party AUM decreased by 37,7% to R3,3 billion for the year as a result of
net outflows of R2,0 billion. CMT had total AUM of R1,4 billion, of which the
BMS Fund comprised 62%, while MMT had total AUM of R3,1 billion, all in the
Brait Absolute SA Fund. The successful launch of the Brait Matrix Fixed Income
Fund in October 2008 contributed R136.7 million to AUM at the end of the year.
Although growth in AUM slowed in the current year, overall growth remains ahead
of the Group`s 20% CAGR target, currently averaging 82% over the five year
period since 31 March 2005.
Group Capital Management
Brait is funded by mainly long-term capital so as to match the maturity of
funding with that of expected redemption of its long-term assets. The
unpredictability of the realisation of private equity investments further limits
the extent of gearing which the business can utilise as there is limited
capacity to service the debt from recurring inflows.
As a result, the Group holds a significant amount of cash and cash equivalents -
R430 million (2008: R418 million) as a buffer. Brait`s debt equity ratio is 30%
(2008: 30%) which is in the form of R450 million redeemable preference shares.
The Board considers the Group to be appropriately capitalised. Treasury capital
will continue to be held in treasury products and in hedge funds appropriate to
the risk and liquidity requirements of the Group.
Prospects
The operating conditions discussed under "Factors Affecting Performance" have
presented Brait with some challenges, notably lower fair value of assets, with
Price/Earnings multiples generally reducing in assets held in its portfolio, and
a significantly more constrained investor environment.
The alternative asset industry has been in the spotlight recently, as concern
has been expressed by administrations of many leading economies about the
perceived lack of regulatory oversight of this asset class, particularly hedge
funds. This in turn has led to some negative perceptions. Brait retains its
conviction in the benefits of alternative assets to the capital markets, as
evidenced by the gains achieved by investors in well structured and managed
private equity and hedge funds. Brait is confident that this negative sentiment
will dissipate over time. In the meantime, Brait is actively engaged in the
relevant industry forums, and is working with the relevant regulatory bodies to
further develop the prospects for this asset class.
Brait`s investment teams are market leaders. We have performed well in our
primary purpose this year - we have continued to deliver on the performance
expectations of our investors and, where this has not been the case, action has
been taken.
Dividend
The Board believes that dividend distributions are an important part of long-
term share-owners` 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 its long-
term targets 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 in future.
A final dividend per share of 89,45 cents per share has been declared and, when
added to the interim dividend of 89,45 cents per share, equates to a total
dividend for the financial year of 178,90 cents per share - an increase of 19%
compared to the prior year annual dividend of 150,34 cent per share.
Shareowners who receive their dividends in US$, are advised that the final
dividend is 10,55 US cents per share, and has been determined using the Rand/US$
exchange rate in Luxembourg at 12:00 on 19 May 2009.
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, 29 July 2009 in
Luxembourg:
- The declaration of the final dividend of 10,55 US cents per share in respect
of the year ended 31 March 2009 and endorse the payment of the interim dividend
of 8,58 US cents per share, paid on 8 December 2008, and
- for South African resident shareholders registered on the South African
register, the declaration of the final dividend of 89,45 cents per share in
respect of the year ended 31 March 2009 and endorse the payment of the interim
dividend of 89,45 cents per share, paid on 8 December 2008.
If approved by the shareowners, payment of the final dividend will be effected
on Tuesday, 11 August 2009 to shareowners registered as such on the record date,
Friday 7 August 2009. The last day to trade "cum dividend" will be Friday, 31
July 2009 and the share will commence trading "ex dividend" on Monday, 3 August
2009. Share certificates may not be dematerialised between Monday, 3 August 2009
and Friday, 7 August 2009 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
25 May 2009
Registered office
Brait S.A.
180, rue des Aubepines
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
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 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#, 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 2009 is also available on the
Brait website at
www.brait.com
Date: 25/05/2009 08:00:01 Produced by the JSE SENS Department.
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