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BAT
BRAIT
BAT - Brait S.A. Societe Anonyme - Unaudited Group Results for the six
months ended 30 September 2009
Brait S.A. Societe Anonyme
(Incorporated in Luxembourg)
(RC Luxembourg B-13861)
Share code: BAT & ISIN: LU0011857645
("Brait" or the "Company")
Unaudited Group Results for the six months ended 30 September 2009
Key Highlights
Earnings
- Attributable earnings increased by 6% to R77 million (2008: 73%
decrease)
- Profit from operations decreased by 14% to R126 million (2008:
24%decrease)
- Earnings negatively impacted by a net R71m exchange losses arising
from the Rand strengthening from R9.5 to R7.5 to the USD
Other Financial Highlights
- nterim dividend distribution 89.77 cents per share (2008: 89.45
cents per share)
Return on equity 11% (2008: 10%) **
- NAV at 1 315 SA cents per share, decreased by 7% (2008: 2%
decrease), a result of the exchange losses, translation differences
and dividends exceeding earnings
- Assets under Management (third party, fee earning) decreased by 9%
from R9.8 billion to R8.9 billion (2008: 2% decrease)
- Cash generated of R214 million (2008: R39 million)
- Strong cash position of R353 million (2008: R280 million)
Operational and Strategic Highlights
- Improved operational performance from both Private Capital and
Public Markets
- Strong operating performance in Private Equity portfolio companies
- Realisation of Brait III`s Net 1 UEPS Technologies investment
- Commencement of commitments to Brait V
Salient Features
for the six months ended 30 September
Supplementary US$ information*
Unaudited Audited
Year Six months six months year
ended ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2009 2008 2009 2009 2008 2009
US$m US$m US$m R`m R`m R`m
PERFORMANCE
MEASURES
Headline
earnings per
share (cents)
17.7 8.8 9.0 - Basic 72.8 68.5 157.0
17.7 8.8 8.9 - Diluted 72.7 68.2 156.6
Attributable
earnings per
share (cents)
17.7 8.8 9.0 - Basic 72.8 68.5 157.0
17.7 8.8 8.9 - Diluted 72.7 68.2 156.6
19.13 8.58 11.85 Dividends per 89.77 89.45 178.90
share (cents)
8.58 8.58 11.85 - Interim 89.77 89.45 89.45
proposed/paid
10.55 - - - Final paid - - 89.45
151.0 169.8 175.1 Net asset 1,314.9 1,407.4 1,436.4
value per
share (cents)
10.8% 5.1% 5.5% Return on 10.6% 9.7% 11.0%
Equity **
FINANCIAL
STATISTICS
117.1 229.2 268.5 Market 2,016.3 1,899.5 1,114.1
capitalisation
106.1 106.1 106.1 Shares in 106.1 106.1 106.1
issue (m)
Weighted
average shares
in issue (m)
106.1 106.1 106.1 - Basic 106.1 106.1 106.1
106.4 106.6 106.4 - Diluted 106.4 106.6 106.4
110.4 216.0 253.0 Closing share 1,900.0 1,790.0 1,050.0
price (cents
per share)
- 30 September
(cents)
- 31 March
(cents)
Rand/US$
exchange rates
0.1051 0.1207 0.1332 - Closing 7.5086 8.2884 9.5124
0.1129 0.1285 0.1231 - Average 8.1226 7.7800 8.8587
*The disclosure above is for information purposes and does not form part
of the Group financial statements
** The ROE calculation methodology was revised from: change in capital /
average capital for the period, to attributable earnings / average
capital for the period
Group Statements of Comprehensive Income for the six months ended 30
September
Supplementary US$ information
Unaudited Audited
Year Six months six months year
ended ended
31 30 30 30 30 30 30 31
March Sept Sept Sept Sept Sept Sept March
2009 2007 2008 2009 2009 2008 2007 2009
US$m US$m US$m US$m R`m R`m R`m R`m
32.0 18.9 10.7 10.4 Fund management 84.1 83.6 134.0 283.2
income
(26.2) (11.2) (10.1) (9.3) Fund management (75.6) (79.0) (79.3) (231.9)
expenses
5.8 7.7 0.6 1.1 Profit from fund 8.5 4.6 54.7 51.3
management
operations
24.3 20.6 19.8 14.0 Investment 113.6 153.4 146.3 215.3
income
(4.6) (1.3) (1.8) 0.2 Investment 1.4 (13.7) (9.4) (40.9)
expenses
19.7 19.3 18.0 14.2 Profit from 115.0 139.7 136.9 174.4
investment
operations
1.3 0.2 0.4 0.3 Income from 2.7 3.3 1.4 11.6
associates
26.8 27.2 19.0 15.6 Profit from 126.2 147.6 193.0 237.3
operations
(6.7) (3.5) (3.8) (3.3) Finance costs (27.2) (29.5) (24.8) (59.2)
4.4 14.7 (2.7) (0.1) Capital items (0.7) (20.3) 104.3 39.1
24.5 38.4 12.5 12.2 Profit before 98.3 97.8 272.5 217.24
taxation
(5.7) (2.1) (3.2) (2.6) Taxation (21.0) (25.1) (14.9) (50.6)
18.8 36.3 9.3 9.6 Profit from 77.3 72.7 257.6 166.6
continuing
operations
- 2.3 - - Profit from - - 16.3 -
discontinued
operations
18.8 38.6 9.3 9.6 Profit for the 77.3 72.7 273.9 166.6
period /
attributable to
equity holders
19.13 9.00 8.58 11.85 Dividends per 89.77 89.45 59.07 178.90
share (cents)
8.58 9.00 8.58 11.85 - Interim 89.77 89.45 59.07 89.45
proposed/paid
10.55 - - - - Final paid - - - 89.45
17.7 36.4 8.8 9.0 Basic 72.8 68.5 258.2 157.0
attributable
earnings per
share (cents)
17.7 36.0 8.8 8.9 Diluted earnings 72.7 68.2 255.3 156.6
per share
(cents)
17.7 19.9 8.8 9.0 Basic headline 72.8 68.5 141.1 157.0
earnings per
share (cents)
17.7 19.7 8.8 8.9 Diluted headline 72.7 68.2 139.8 156.6
earnings per
share (cents)
Abridged Group Statements of Financial Position as at 30 September
Supplementary US$ information
Unaudited Audited
31 30 30 30 Sept 30 Sept 31
March Sept Sept March
2009 2008 2009 2009 2008 2009
US$m US$m US$m R`m R`m R`m
ASSETS
198.1 237.9 238.9 Non-current 1,793.5 1,970.8 1,885.0
assets
192.0 222.2 230.8 Investments 1,732.9 1,840.7 1,826.7
6.1 15.7 8.1 Other 60.6 130.1 58.3
55.2 46.1 56.3 Current 422.5 382.3 525.0
assets
0.1 0.1 0.1 Loans and 0.5 1.0 0.6
advances
3.0 2.7 9.2 Accounts 68.8 22.6 28.9
receivable
6.9 9.5 - Investments - 78.7 65.4
45.2 33.8 47.0 Cash and cash 353.2 280.0 430.1
equivalents
253.3 284.0 295.2 Total assets 2,216.0 2,353.1 2,410.0
EQUITY AND
LIABILITIES
160.2 180.3 185.8 Equity and 1,395.1 1,493.5 1,524.0
reserves
72.8 84.1 88.8 Non-current 666.8 697.0 692.4
liabilities
47.3 54.3 53.9 Redeemable 405.0 450.0 450.0
preference
shares
25.5 29.8 34.9 Other non- 261.8 247.0 242.4
current
liabilities
20.3 19.6 20.6 Current 154.1 162.6 193.6
liabilities
17.0 19.3 13.0 Accounts 97.9 160.1 162.2
payable
- - 6.1 Redeemable 45.0 - -
preference
shares
3.3 0.3 1.5 Other 11.2 2.5 31.4
253.3 284.0 295.2 Total equity 2,216.0 2,353.1 2,410.0
and
liabilities
151.0 169.8 175.1 Net asset 1,314.9 1,407.4 1,436.4
value per
ordinary
share (cents)
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
2009 2008 2009
R`m R`m R`m
Balance at beginning of 1,524.0 1,518.8 1,518.8
period
Net translation adjustments (112.1) 18.6 29.2
Treasury shares - - (0.1)
Delivered share scheme - 0.2 0.2
shares
Attributable earnings 77.3 72.7 166.6
Share entitlements 0.9 0.9 2.0
Fair value adjustment to - (17.0) -
currency hedge
Ordinary dividends paid (95.0) (100.7) (192.7)
Balance at end of period 1,395.1 1,493.5 1,524.0
Abridged Group Cash Flow Statements for the six months ended 30 September
Unaudited Audited
six months year
ended
30 30 Sept 31
Sept March
2009 2008 2009
R`m R`m R`m
Cash flows from:
Operations (10.7) (16.6) 52.2
Dividends received 3.1 1.3 9.4
Interest received 15.8 31.6 43.7
Finance costs (31.8) (29.5) (59.2)
Proceeds from realisation of currency - - 299.4
hedge
Premium paid on currency hedge - - (88.1)
Taxation paid (5.8) (4.2) (17.1)
Change in working capital (65.7) 6.1 10.4
Cash (utilised in)/generated from (95.1) (11.3) 250.7
operating activities
Cash flows generated from /(utilised 195.0 (28.9) (114.9)
in) investing activities
Cash generated from/(utilised in) 99.9 (40.2) 135.8
operating and investing activities
Dividends paid (95.0) (100.7) (188.7)
Cash outflows from financing activities 2.2 (2.7) (4.6)
Net increase/(decrease) in cash and 7.1 (143.6) (57.5)
cash equivalents
Effects of exchange rate changes on (84.0) 5.9 69.9
cash and cash equivalents
Cash and cash equivalents at beginning 430.1 417.7 417.7
of period
Cash and cash equivalents at end of 353.2 280.0 430.1
period
Group Segmental Reports for the six months ended 30 September
Unaudited Audited
six months year
ended
30 Sept 30 Sept 31
March
2009 2008 2009
R`m R`m R`m
BUSINESS ANALYSIS
Segment income from
continuing operations
Fund management income 84.1 83.6 283.2
- Private capital 58.6 54.9 121.2
- Public markets 23.2 29.1 157.1
- Treasury capital 2.3 (0.4) 4.9
Investment income 113.6 153.4 215.3
- Private capital 147.6 140.7 93.8
- Public markets 14.4 5.7 26.3
- Treasury capital (48.4) 7.0 95.2
Total segment income from 197.7 237.0 498.5
continuing operations
Segment result from 126.2 147.6 237.3
operations
- Private capital 139.5 117.9 75.8
- Public markets 11.0 4.4 86.6
- Treasury capital (24.3) 25.3 74.9
Finance costs (27.2) (29.5) (59.2)
Capital items (0.7) (20.3) 39.1
Profit before taxation 98.3 97.8 217.2
Segment assets and
liabilities
Segment assets 2,216.0 2,353.1 2,410.0
- Private capital 1,608.4 1,629.9 1,685.2
- Public markets 201.5 151.5 139.6
- Treasury capital 406.1 571.7 585.2
Total assets per balance 2,216.0 2,353.1 2,410.0
sheet
Segment liabilities 820.9 859.6 886.0
- Private capital 79.1 61.6 65.3
- Public markets 9.5 4.9 25.1
- Treasury capital 732.3 793.1 795.6
Total liabilities per balance 820.9 859.6 886.0
sheet
Group Segmental Reports (continued) for the six months ended 30 September
Unaudited Audited
six months year
ended
30 Sept 30 Sept 31
March
2009 2008 2009
R`m R`m R`m
BUSINESS ANALYSIS
(continued)
Segment net assets 1,395.1 1,493.5 1,524.0
- Private capital 1,529.3 1,568.3 1,619.9
- Public markets 192.0 146.6 114.5
- Treasury capital (326.2) (221.4) (210.4)
Total net assets per 1,395.1 1,493.5 1,524.0
balance sheet
GEOGRAPHICAL ANALYSIS
Segment income from
operations
Fund management income 84.1 83.6 283.2
- International 10.9 6.5 22.1
- South Africa 73.2 77.1 261.1
Investment income 113.6 153.4 215.3
- International (21.9) (32.1) (9.0)
- South Africa 135.5 185.5 224.3
Total segment income 197.7 237.0 498.5
from operations
Segment result from 126.2 147.6 237.3
operations
- International (10.0) (18.5) (4.6)
- South Africa 136.2 166.1 241.9
Finance cost (27.2) (29.5) (59.2)
Capital items (0.7) (20.3) 39.1
Profit before taxation 98.3 97.8 217.2
Segment assets
- International 799.3 811.9 1,089.7
- South Africa 1,416.7 1,541.2 1,320.3
Total assets per 2,216.0 2,353.1 2,410.0
balance sheet
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, on the going concern principle, using the historical cost
basis, except where otherwise indicated. The abridged financial
statements are presented in accordance with IAS 34 (Interim Financial
reporting). The accounting policies and methods of computation are
consistent with those applied in the annual financial statements ended 31
March 2009, except for the change in the hedging policy as per note 4
below.
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 financial statements are prepared, consistent with the annual
financial statements ended 31 March 2009, 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 R7.5086 to US$1 (September 2008:
R8.2884 and March 2009: R9.5124) for the balance sheets and an average
rate of R8.1226 to US$1 (September 2008: R7.7800 and March 2009: R8.8587)
for the income statements.
4. Hedging policy
During the period ended 30 September 2009 the Group made the decision to
terminate its policy of hedging its rand exposure of the net investment
in the South African operations (Brait South Africa Limited) into US
dollars. The policy change has had no effect on the Group`s results for
the period ended 30 September 2009 and the results of the previous year.
5. Subsequent events
No events have taken place since 30 September 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 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 in Brait`s
investment funds include leading global and South African institutions.
Brait`s operations are organised into three business units - Private
Capital, incorporating all activities in the private capital markets;
Public Markets, incorporating all activities in the public or highly
traded securities markets; and Treasury Capital, incorporating all
activities related to managing the Group`s cash and funding requirements.
Operating Environment
The past six months have seen the major economies of the world start to
emerge from the global financial crisis that characterised the preceding
twelve months. Most equity markets have seen considerable improvements,
and the reversal of earnings` declines, especially by the world`s leading
investment banks. There has also been some improvement in the underlying
real economies. Most South African banks held up well during this period,
although tightening liquidity and credit conditions were experienced.
Capital outflows reversed, and liquidity returned to emerging markets,
including South Africa, which contributed to significant Rand
appreciation, aided by demand returning for resources. The JSE saw strong
gains, especially measured in US dollars. The ALSI advanced from 20 314
at 31 March 2009 to 24 911 at 30 September 2009.The South African economy
appeared initially to have avoided much of the real economy contagion,
only to find that the effects came late, highlighted by poor results from
many leading industrial enterprises. The "Green Shoots" witnessed in many
of the leading economies of the world do not appear yet to have arrived
in South Africa.
Value Drivers
Investment Product Performance
The performance of the Group`s investment products was pleasing over the
last six month period, as most either met or exceeded their longer term
targets. Private Capital`s Brait III and IV produced solid performance,
driven largely by improvement in the operating performance of portfolio.
The Public Markets products showed solid performance, particularly for
Brait Multi-Strategy Fund, while Brait Absolute SA Fund continued to show
improved performance over the period.
Assets under Management (AUM)
Brait III`s realisation of Net1 UEPS Technologies on 29 July 2009
resulted in a reduction in AUM of approximately US$124,5m. This, together
with the strengthening of the Rand on the US dollar fund commitments, has
resulted in AUM decreasing from R9.8 billion as at 30 September 2008
(R10,2 billion at 31 March 2009) to R8,9 billion as at 30 September 2009.
Public Markets` AUM has largely held up at R3,1 billion compared to R3,3
billion at 31 March 2009.
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. Since 31 March 2008, we have indicated that this would
have a dampening effect on Private Capital earnings growth for two years,
with the current year being the last one. We still maintain this outlook,
given the strong operating performance recorded in the Brait
IV portfolio as well as the deployment rate of Brait IV, which has been
ahead of schedule. This is likely to shorten the Fund-to-Fund cycle.
Deployment of Capital in Proprietary Investing
The Group currently aims to deploy R100m a year over the next three years
into private equity deals of R50m or less per transaction as part of its
own on-balance sheet investments. Pleasingly, we are able to report a
first investment by the team, and a strong prospect list.
Financial Results
The Group`s attributable earnings for the six-month period were R77,3
million, a 6% increase on the prior period (2008: 73% decrease). This
result was achieved despite an approximately R71 million charge arising
from the Rand strength`s impact on the Group`s US dollar cash and income
streams. The attributable earnings and ROE targets have not been met for
the reasons stated above, and due to the impact of the global financial
crisis.
The key performance drivers of the financial results are as follows:
Fund management income - R84,1 million (2008: R83,6 million)
In fund management operations, Brait acts as the fund manager in its
Public Markets business, and as general partner in its Private Equity
funds on behalf its investors. Revenue streams under fund management
income for the Group comprise of:
- management fees earned on AUM for both Private Capital and Public
Markets;
- performance fees earned by Brait on the Public Markets products; and
- ad-hoc fee income received by the business units.
Management fees for Private Capital and Public Markets decreased during
the six month period to R75,1 million compared to R83,1 million for the
prior period. This was a result of the impact of the exchange rate on the
US dollar management fees received on non Rand private equity fund
commitments, while the decrease in AUM for Public Markets from R4,24
billion at 30 September 2008 to R3,1 billion negatively impacted
management fees. The balance in fund management income was made up of ad-
hoc fees such as Public Markets performance fees which crystallise on
early redemptions.
Raising of a new private equity fund by Brait will have a direct positive
impact on the fund management income.
Fund management expenses - R75,6 million (2008: R79 million)
This is essentially the operational, recurring expenses for the Group.
Staff costs make up approximately 80% of the Group`s operational
expenditure. There was a R4,4 million decrease in fund management
expenses from the prior period in line with the Group`s cost management
strategy.
Investment Income - R113,6 million (2008: R153,4 million)
Investment management activities 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. It also
includes the returns from its Treasury operations. Income streams from
these activities include: Private Capital recorded investment income of
R147,6 million (2008: R140,7 million) largely driven by solid investment
performance from its Brait III portfolio companies as well as its
proprietary investments. Brait IV is still in the early J-curve stage of
its returns and, despite strong operational performance in the current
period, its value will start coming through next year. Public Markets`
investment income of R14,4 million was a 253% growth on the prior period
(2008: R5.7 million) largely driven by strong performance from Brait
Multi-Strategy Fund and Brait Absolute SA Fund. Treasury Capital recorded
a loss of R48,4 million (2008: profit R7,0 million) as a result of
exchange losses on its US dollar cash holding. The Group had US$53
million in cash or near cash as at 30 September 2009.
Investment Expenses - R1,4 million income (2008: R13,7 million 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,
interest on debt facilities and its share of impairment on loans. The
expenses were positive in the current period largely as a result of the
write-back of previously impaired loans.
Finance Costs - R27,2 million (2008: R29,5 million)
Finance costs relate primarily to the Group`s R450 million preference
share capital raised in March 2006 to fund Brait`s internal growth
strategy. The decrease in funding costs is a result of the fall in the
prime rate as R200 million of these preference shares are at 78% of
prime. The remaining R250 million has a fixed rate of 11.72% through an
interest swap contract which expires in October 2010.
Capital Items - R0,7 million net loss (2008: R20,3 net loss)
- Fair value adjustment of financial liability - R2,2 million loss - The
sale of 26% of Brait South Africa ("BSAL") in the 2005 financial year to
the Group`s Black Economic Empowerment partner (Sitogo Holdings
(Proprietary) Limited ("Sitogo")) 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 R2,2 million.
- Fair value adjustment of financial asset - R9 million gain - Pursuant
to the sale of 26% of BSAL, 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 R9,0 million and equates to the increase in fair value
attached to the specific class of shares held. The exercise of a put
option by Sitogo during the period has resulted in a fair value
adjustment to take into account Brait`s return as secondary financier of
the BEE transaction.
Hedge Accounting
During the six months ended 30 September 2009, the Group has ceased its
practice of hedging the NAV of its South African operations, BSAL, into
US dollars. The hedging policy had been in place since July 2002 and had
the following objectives:
- preserve the Group`s US dollar capital which arose from the merger of
its international private equity operations and local bank operations in
1998;
- retain capacity to invest in international assets as the Group had a
significant proportion of offshore investments;
- listing of the Group in 1998 on the Luxembourg Stock Exchange resulted
in significant international shareholders, and hence the adoption of US
dollar reporting currency. Hedging of the rand assets eliminated
volatility on the reported US dollar profits and key performance
measures.
However, a number of changes have occurred over the years to the Group
operations which have negated the need to continue with the hedging
policy:
- the Group has fewer international assets as it makes most of its
investments in South Africa, reducing the requirements for US dollar
capital;
- the change in the reporting currency from US dollars to Rands in 2008
has eliminated the Rand volatility on the reported results and key
performance measures;
- the Group`s dividend policy, which has seen approximately R700m
dividend paid out between March 2004 and March 2009 on an opening Group
NAV of R711m, effectively sees a return of excess capital to shareholders
as more important than retaining and protecting it within the Group.
Shareholders have the option to maintain their returned capital, in the
form of dividends, in whichever form or currency of their choice.
- During the 2006 year, Brait incurred Rand denominated borrowings of
some R450m, which has resulted in most of the funding servicing needs of
the Group being in Rands.
As a result, the Group will no longer be entering into hedging
transactions to protect the BSAL NAV. The level of US dollar capital
maintained by the Group will be in the form of its international
operations` US dollar treasury cash and cash equivalents, which level
will depend on the Group`s US dollar capital requirements and treasury
needs. The above policy change does not have any accounting impact on
either the results for six months to 30 September 2009 or for the year
ended 31st March 2009.
Taxation - R21,0 million (2008: R25,1 million)
The taxation charge represents a decrease of 16% on the prior period. The
effective tax rate for the Group largely depends on the source of the
investment gains or losses between international and South African
operations as this determines the applicable current and deferred tax
rate.
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. The Group adopted, at the beginning of the 31 March
2009 financial 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. Because of the
cyclicality of short-term earnings and cash flow, the Group`s dividend
payment policy is committed to signaling performance against long-term
targets of the Group rather than matching short-term cyclical
performances. 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
30 September 2009, the Group has cash or near cash balance of over R353
million and the Board has therefore declared an interim dividend of 89.77
cents per share (2008: R89.45 cents).
Segmental Review
Private Capital
Overview
Brait Private Capital comprises:
- Private equity funds - the management of third-party capital committed
by a set of American, European and South African investors, including
Brait and the team;
- Proprietary investing - the deployment of Brait`s capital for
investments in private companies of less than R50m with targeted gross
returns in excess of 30%;
- Sponsored funds - sponsorship of niche` investment firms;
- Debt funds - management of closed-end mezzanine funds; and
- Fund-of-funds - investment management of unlisted fund-of-funds that
invests in Brait-sponsored and third party funds.
Brait holds a market leading position in South Africa in the management
of third-party capital in Private Equity, having raised and invested a
series of four funds since 1990.
Annual Highlights - Private Capital
- Realisation of Net 1 UEPS Technologies investment, achieving an IRR of
102% and 5.5 times money
- Strong growth in fundamental operating performance of Brait lll and IV
portfolio companies, benefitting from intensive portfolio company work by
the investment team, and the sector strategy
- Commitments to Brait V commences from South African institutional
investors
- Full realisation of Premier Foods` mezzanine loan
- Proprietary Investing makes a R15m commitment to a new portfolio
company
- 3rd investment in Mezzanine Partners 2 during second quarter of 2009
Investment performance
The IRR for Brait III in rands is in excess of 30%. The fund`s objective
is to achieve above average investment returns (>30% IRR) over the life
of the Fund. The performance of Brait IV is too early to determine.
Fund-to-funds cycle
The expectation is that Brait IV will be nearly fully invested at the end
of FY 2010. A first closing on Fund V fund is anticipated within the next
year.
Return on Capital Employed (ROCE)
Private Capital`s annualised return on equity for the six-month period
was 18.0% on average capital employed of R1.55 billion. Average capital
employed was 21% up on the previous six- month period as a result of the
Brait IV investment in Buildmax concluded during October 2008 and the
overall net investment appreciation. The long-term return on equity is
22% and has fallen behind the Group`s long term target of 25%.
Achievement of this target is anticipated to occur in 2011.
Profit from operations
Profit from operations for the comparative six month period increased
from R117,9 million to R139,5 million as a result of valuation
appreciation in Brait III and proprietary investing. Profit growth has
fallen short of the target to meet or exceed 12.5% compound growth per
annum, commencing in March 2005, with the actual six month period profits
12% short of the target line.
Assets under Management
The fair value of fund portfolio investments for the Private Capital
business (converted at year end exchange rates) amounted to R7,5 billion
at 30 September 2009. This represents a decrease of 16% when compared to
the comparative of R8,9 billion. This decrease is principally
attributable to:
- the realisation of Net1 UEPS Technologies investment in July 2009;
- Premier`s repayment of its mezzanine loan
AUM are also represented by the funds on which Private Capital earns a
management fee. Total management fee earning funds have decreased by R0.3
billion to R5.7 billion at 30 September 2009, mainly due to the decreased
Rand value of US dollar fund commitments. The AUM CAGR of 35% over the
last four years is well in excess of the Group`s objective of CAGR 20%
target as measured from March 2005.
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 independently managed business units, namely: a multi-manager
and a capital manager.
- Brait`s Multi-Management Team is responsible for managing the fund of
hedge fund product range, including the flagship Brait Absolute SA Fund.
- Brait`s Capital Management Team is responsible for managing a range of
single and multi-strategy hedge funds, including the Brait Multi-Strategy
Fund, the Brait Matrix Fixed Income Fund and the Brait Ruby Fund.
Brait has successfully pioneered the industry since 2001 and remains a
significant participant in the South African hedge fund industry. Brait
has built up significant experience in the management of hedge fund
portfolios, pertaining both to underlying funds and fund of hedge funds,
and developed a detailed understanding of the requirements of the South
African institutional investor when considering alternative investments.
The company invests capital alongside its clients into these hedge fund
products, utilizing both product seeding capital and invested treasury
capital. When combined with significant industry experience and ongoing
investment in infrastructure and risk management capacity Brait provides
hedge funds that meet the high standards required by institutional
investors.
Highlights for the period
- Improved profitability in relation to the comparative period
- Investment performance was generally solid. Brait Multi Strategy Fund
continues to show pleasing results, and Brait Absolute SA Fund`s
performance improved over the period.
Return on Capital Employed (ROCE)
Annualised ROCE at 13.1% for the six months is below the Group`s 25%
target return, but improved on the prior comparative period`s 6.1%. While
capital employed in public markets products increased by 17%, the return
improved at a greater rate, for the reasons shown under Profit from
operations below.
Profit from operations
Profit from operations for the six months increased by 250% to R11.0
million, from the comparable period, due to improved investment revenue,
increased crystallised performance fee revenue on investor redemptions
and a reduction in expenses. Growth in profit from operations of the past
5 years comfortably exceeds the Group`s target of 12.5%, although notably
off a low base.
Assets under Management
Third party AUM decreased by 18.4% to R3.1 billion, since 30 September
2008, principally as a result of previously reported outflows from Brait
Absolute SA Fund in late 2008 and early 2009. As at 30 September 2009,
Capital Management Team has total AUM of R1.4 billion, of which the Brait
Multi Strategy Fund comprised 58%. This AUM is static from 31 March 2009
despite having attracted R68 million into the Brait Matrix Fixed Income
Fund and positive investment performance. Multi-Management Team has AUM
of R2.8 billion in Brait Absolute SA Fund. Growth in AUM is ahead of the
Group`s 20% CAGR target over the five-year period since 30 September
2005.
Group Capital Management
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 associated
redemption obligations, and the board approved plans to deploy capital
within the planning horizon. Brait Group`s total investment assets on the
balance sheet has reduced by a net R137,1 million to 2,2 billion (2008:
R2,4 billion). Besides the Net1 realisation, current investment
appreciation and deployment of new capital, this was also impacted by
ZAR/US dollar exchange losses and translation differences. Investment
assets are comprised of the following:
30-Sep 30-Sep 31-Mar
2009 2008 2009
Rm Rm Rm
Investment assets 2 216,0 2 353,1 2 410,0
- Private Capital 1 608,4 1 629,9 1 685,2
- Public Markets 201,5 151,5 139,6
- Treasury Capital 406,1 571,7 585,2
The Private Capital investments of R1,6 billion are split between Brait`s
own proprietary investments of R522 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, in Rand terms, from R430 million at
31 March 2009 to R353 million at 30 September 2009 largely due to R84
million exchange losses on the US dollar cash balances. The surplus cash
is invested in Public Markets products awaiting further deployment into
either business unit. The Group maintains significant cash balances on
hand due to both the illiquid nature of the private equity investments
and the uncertainty of when investments are made. The R2,2 billion assets
are funded by largely long-term sources of funding due to the long-term
nature of the private equity investments. Funding is currently made up of
R1,395 billion shareholders` equity, R450 million preference shares, R100
million overdraft facility as well as other liabilities of R271 million.
The R450 million preference shares, issued in March 2006, are due for
repayment over the next four years, starting with R45 million due on 31st
July 2010 next year. Management has already entered into negotiations
with the holders of the preference shares to roll-forward these
facilities before the first due date next year. A key consideration in
selecting funding instruments is their impact on weighted average cost of
capital ("WACC") as the Group aims to keep its WACC at approximately half
of the target return on equity ("ROE"), which currently is 25%. Group`s
strategy in achieving ROE targets involves meeting product performance
targets (which in turn drives AUM), managing costs and seeking an ideal
capital structure that achieves a low WACC without exposing the Group to
excessive liquidity and solvency risks.
Sitogo put option to Brait
Included in the other liabilities amount of R271 million above is a
financial liability of R172 million due to Sitogo, Brait`s BEE
shareholders, for their share of the 26% in BSAL. This is offset by an
approximately R37 million financial asset representing Brait`s own share
of Sitogo A ordinary shares to compensate Brait for its role as the
secondary financiers to Sitogo. The final net amount due to Sitogo will
be based on the tangible net asset value ("TNAV") for BSAL at 31st March
2010, with settlement date being 31st July 2010. Brait has an option to
settle the amount due either through Brait shares or cash. Management
will communicate both the final settlement amount and option in its 31st
March 2010 results.
Overall Group Prospects
The operating conditions discussed under "Operating Environment" have
presented Brait with some challenges, notably a tougher fundraising
environment, 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 strong operating
performance of the private equity portfolio companies and improved equity
markets should facilitate new inflows into Brait V and the performance of
the products in Public Markets should facilitate inflows into the
relevant products.
Whilst resumption of normal levels of profitability are not anticipated
in this financial year, the improvements noted above when matched with
the inherent strength of the franchise and the investment teams is likely
to lead to a return to the performance measures in the next financial
year, on the assumption that the conditions in the operating environment
continue to improve.
Dividend
As discussed above, the Board has declared a dividend in accordance with
its dividend policy, amounting to 89.77 cents per share (2008: 89.45
cents).
The interim dividend will be paid to shareowners on Monday, 7 December
2009. The record date for the dividend is the close of business on
Friday, 4 December 2009. The last day to trade "cum dividend" will be
Friday, 27 November 2009 and the share will commence trading "ex
dividend" on Monday, 30 November 2009. Share certificates may not be
dematerialised or rematerialised between Monday, 30 November 2009 and
Friday, 4 December 2009, both days inclusive.
Shareowners who receive their dividends in US$, are advised that the
interim dividend is 11.85 US cents per share, and has been determined
using the Rand/US$ exchange rate in Luxembourg at 12:00 on 27 October
2009.
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
29 October 2009
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
? 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 Aub?pines
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
J Moloketi (Chairman)+*, AC Ball (Chief Executive Officer)*, PAB
Beecroft+
, JE Bodoni+#, BI Childs
, JA Gnodde*, RJ Koch?
, AM
Rosenzweig+**, CS Seabrooke+*, S Sithole^, HRW Troskie+**, SJP Weber#,
+Non-executive, *South African, #Luxembourgish,
British, **Dutch,
^Zimbabwean
Date: 29/10/2009 09:00:26 Produced by the JSE SENS Department.
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