| Tue 25 May 2010, 8:00 | | BAT - Brait S.A. Societe Anonyme - Reviewed Group Results for the year ended 31 |
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BAT
BRAIT
BAT - Brait S.A. Societe Anonyme - Reviewed Group Results for the year ended 31
March 2010
Brait S.A. Societe Anonyme
(Incorporated in Luxembourg)
(RC Luxembourg B-13861)
Share code: BAT & ISIN: LU0011857645
("Brait")
Reviewed Group Results for the year ended 31 March 2010
Key Highlights
Earnings
- Attributable earnings increased by 11% to R185.6m (2009: R166.6m).
- Private Capital`s operating profit up 145% to R185.6m (2009: R75.8m).
- Group profit from operations increased by 13% to R267.3m (2009: R237.3m).
- Earnings and NAV negatively impacted by the Rand strengthening since 31
March 2009.
Other Financial Highlights
- Dividend per share of 179.54 cents (2009: 178.90 cents).
- Return on equity * 13% (2009: 11%) against long term target of 25%.
- Total assets under management ("AUM") ** declined from R14.1 bn to R13.6 bn
- Cash generated of R232.1m (2009: R415.1m).
- Strong cash position of R281.2m (2009: R430.1m).
Operational and Strategic Highlights
- Commencement of Brait V fundraising with initial R750m local commitments.
- Strong operating performance in Brait III and Brait IV portfolio companies.
- Realisation of Brait III`s Net1 UEPS investment @ 108% IRR and 6.3 times
money.
- Solid fund performance maintained in Public Markets business.
* The ROE calculation methodology was revised from: change in capital / average
capital for the period, to attributable earnings / average capital for the
period.
** The revised AUM measure includes Brait co-investments and undrawn
commitments.
Salient
features
for the year ended 31 March
Supplementary US$ information *
Reviewed Audited
2009 2010 2010 2009 %
US$m US$m Rm Rm Change
26.8 34.1 Profit from operations 267.3 237.3 12.6
8.5 23.6 Private capital 185.6 75.8 144.8
9.8 8.2 Public markets 64.0 86.6
8.5 2.3 Treasury capital 17.7 74.9
(6.7) (6.6) Finance costs (52.1) (59.2)
4.4 0.4 Capital items 3.1 39.1
24.5 27.9 Profit before taxation 218.3 217.2 0.5
(5.7) (4.2) Taxation (32.7) (50.6)
18.8 23.7 Profit for the year / 185.6 166.6 11.4
Attributable earnings
PERFORMANCE MEASURES
Headline earnings per share
(cents)
17.7 22.3 - Basic 174.8 157.0 11.3
17.7 22.1 - Diluted 173.2 156.6 10.5
Attributable earnings per
share (cents)
17.7 22.3 - Basic 174.8 157.0 11.3
17.7 22.1 - Diluted 173.2 156.6 10.5
19.13 23.74 Dividends per share (cents) 179.54 178.90 0.4
8.58 11.85 - Interim paid 89.77 89.45
10.55 11.89 - Final proposed/paid 89.77 89.45
151.0 176.2 Net asset value per share 1,302.4 1,436.4 (9.3)
(cents)
10.8% 13.7% Return on equity (%) ** 12.8% 11.0%
FINANCIAL STATISTICS
122.0 301.2 Market capitalisation (R`m) 2,226.3 1,160.1 91.9
110.5 110.5 Shares in issue (m) 110.5 110.5 -
Weighted average shares in
issue (m)
106.1 106.1 - Basic 106.1 106.1 0.0
106.4 107.2 - Diluted 107.2 106.4 0.8
110.4 272.6 Closing share price (cents 2,015.0 1,050.0 91.9
per share)
Rand/US$ exchange rates
0.1051 0.1353 - closing 7.3926 9.5124
0.1129 0.1274 - average 7.8474 8.8587
* The disclosure above is for information purposes and
does not form part of the Group`s abridged annual financial
statements.
** The ROE calculation methodology was revised from: change
in capital / average capital for the year, to attributable
earnings / average capital for the year.
Group Statements of Comprehensive Income
for the year ended 31
March
Supplementary US$
information
Reviewe Audited Audited
d
2008 2009 2010 2010 2009 2008
US$m US$m US$m Notes Rm Rm Rm
28.3 32.0 27.5 Fund management 216.0 283.2 201.4
income *
(29.2) (26.2) (29.1) Fund management (228.1) (231.9) (207.9)
expenses *
(0.9) 5.8 (1.6) (Loss)/profit from (12.1) 51.3 (6.5)
fund management
operations
44.1 24.3 36.4 Investment income 285.4 215.3 314.4
*
(1.4) (4.6) (1.4) Investment (11.1) (40.9) (10.2)
expenses *
42.7 19.7 35.0 Profit from 274.3 174.4 304.2
investment
operations
0.6 1.3 0.7 Income from 5.1 11.6 4.4
associates
42.4 26.8 34.1 Profit from 267.3 237.3 302.1
operations
(7.5) (6.7) (6.6) Finance costs (52.1) (59.2) (53.8)
22.8 4.4 0.4 Capital items 3.1 39.1 162.9
57.7 24.5 27.9 Profit before 218.3 217.2 411.2
taxation
(4.7) (5.7) (4.2) Taxation (32.7) (50.6) (33.3)
53.0 18.8 23.7 Profit from 185.6 166.6 377.9
continuing
operations
2.1 - - Profit from - - 15.1
discontinued
operations
55.1 18.8 23.7 Profit 185.6 166.6 393.0
attributable to
equity holders
20.80 19.13 23.74 Dividends per 179.54 178.90 150.34
share (cents)
9.00 8.58 11.85 - Interim paid 89.77 89.45 59.07
11.80 10.55 11.89 - Final 89.77 89.45 91.27
proposed/paid
51.9 17.7 22.3 Basic attributable 174.8 157.0 370.3
earnings per share
(cents)
51.6 17.7 22.1 Diluted 173.2 156.6 367.7
attributable
earnings per share
(cents)
* As reclassified - refer to note 5
Abridged Group Statements of Financial Position
as at 31 March
Supplementary US$ information
Reviewed Audited
2009 2010 2010 2009
US$m US$m Notes Rm Rm
ASSETS
198.1 249.1 Non-current assets 1,841.5 1,885.0
192.0 244.6 Investments 1,808.1 1,826.7
6.1 4.5 Other non-current assets 33.4 58.3
55.2 49.8 Current assets 368.5 525.0
6.9 - Current investments - 65.4
3.0 6.9 Accounts receivable 50.8 28.9
0.1 4.9 Other current assets 36.5 0.6
45.2 38.0 Cash and cash equivalents 281.2 430.1
253.3 298.9 Total assets 2,210.0 2,410.0
EQUITY AND LIABILITIES
160.3 187.0 Equity and reserves 1,382.5 1,524.0
72.7 68.4 Non current liabilities 505.2 692.4
47.3 54.8 Redeemable preference 405.0 450.0
shares
25.4 13.6 Other non-current 100.2 242.4
liabilities
20.3 43.5 Current liabilities 322.3 193.6
17.0 7.7 Accounts payable 56.8 162.2
- 6.1 Redeemable preference 45.0 -
shares
3.3 29.7 Other current liabilities 220.5 31.4
253.3 298.9 Total equity and 2,210.0 2,410.0
liabilities
151.0 176.2 Net asset value per 1,302.4 1,436.4
ordinary share (cents)
Abridged Group Cash Flow Statements
for the year ended 31 March
Reviewed Audited
2010 2009
Rm Rm
Cash flows from:
Operations 27.9 52.2
Dividends received 12.7 9.4
Interest received 17.3 43.7
Finance costs (61.8) (59.2)
Proceeds from realisation of currency 299.4
hedge -
Premium paid on currency hedge (88.1)
-
Taxation paid (19.5) (17.1)
Changes in working capital (11.3) 10.4
Cash (utilised in)/generated from (34.7) 250.7
operating activities
Cash flows generated from/(utilised in) 174.2 (114.9)
investing activities
Cash flows generated from operating and 139.5 135.8
investing activities
Dividends paid (195.5) (188.7)
Cash utilised in financing activities (4.6)
-
Net decrease in cash and cash (56.0) (57.5)
equivalents
Effects of exchange rate changes on (92.9) 69.9
cash and cash equivalents
Cash and cash equivalents at beginning 430.1 417.7
of year
Cash and cash equivalents at end of 281.2 430.1
year
Group statements of
changes in equity
for the year
ended 31
March
Attributable to equity holders of the
parent
Share Foreign Total
capital currency equity
and Legal Equity Transla Retained Minority and
tion
Pre Reser Reser reserve reserves Interest Reser
mium ve ves ves
Rm Rm Rm Rm Rm Rm Rm
Audited 256.1 22.6 29.2 85.1 1,125.6 0.2 1,518.8
Balance at
31 March
2008
Net - - - 29.2 - - 29.2
translation
adjustments
Delivered 0.2 - - - - - 0.2
share scheme
shares
Treasury (0.1) - - - - - (0.1)
shares
purchased
Attributable - - - - 166.6 - 166.6
earnings
Share - - 2.0 - - - 2.0
entitlements
Ordinary - - - - (192.7) - (192.7)
dividends
Transfer - 6.5 - - (6.3) (0.2) -
to/(from)
other
reserves
Audited 256.2 29.1 31.2 114.3 1,093.2 - 1,524.0
Balance at
31 March
2009
Net - - - (133.4) - - (133.4)
translation
adjustments
Attributable - - - - 185.6 - 185.6
earnings
Share - - 1.8 - - - 1.8
entitlements
Ordinary - - - - (195.5) - (195.5)
dividends
Transfer - 19.2 - - (19.2) - -
to/(from)
other
reserves
Reviewed 256.2 48.3 33.0 (19.1) 1,064.1 - 1,382.5
Balance at
31 March
2010
Group segmental reports
for the year ended 31 March
Reviewed Audited Audited
2010 2009 2008
Rm Rm Rm
BUSINESS ANALYSIS
Segment income from continuing
operations
Fund management income * 216.0 283.2 201.4
- Private capital 107.5 121.2 100.2
- Public markets 106.0 157.1 89.4
- Treasury capital 2.5 4.9 11.8
Investment income * 285.4 215.3 314.4
- Private capital 235.9 93.8 273.8
- Public markets 41.0 26.3 8.3
- Treasury capital 8.5 95.2 32.3
Total segment income from 501.4 498.5 515.8
continuing operations
Segment income from
discontinued operations
- Corporate Finance - - 18.7
Total segment income 501.4 498.5 534.5
Segment result from continuing 267.3 237.3 302.1
operations
- Private capital 185.6 75.8 240.7
- Public markets 64.0 86.6 27.1
- Treasury capital 17.7 74.9 34.3
Finance costs (52.1) (59.2) (53.8)
Capital items 3.1 39.1 162.9
Profit before taxation 218.3 217.2 411.2
Segment result from
discontinued operations
- Corporate finance - - 15.1
Segment assets and liabilities
Segment assets 2,210.0 2,410.0 2,383.5
- Private capital 1,636.5 1,685.2 1,509.9
- Public markets 174.9 139.6 159.0
- Treasury capital 398.6 585.2 714.6
Total assets per balance sheet 2,210.0 2,410.0 2,383.5
Segment liabilities 827.5 886.0 864.7
- Private capital 79.0 65.3 79.3
- Public markets 13.2 25.1 21.1
- Treasury capital 735.3 795.6 764.3
Total liabilities per balance 827.5 886.0 864.7
sheet
* As reclassified - refer to note 5
Group segmental reports
(continued)
for the year ended 31 March
Reviewed Audited Audited
2010 2009 2008
Rm Rm Rm
BUSINESS ANALYSIS (continued)
Segment net assets 1,382.5 1,524.0 1,518.8
- Private capital 1,557.5 1,619.9 1,430.6
- Public markets 161.7 114.5 137.9
- Treasury Capital (336.7) (210.4) (49.7)
Total net assets per balance 1,382.5 1,524.0 1,518.8
sheet
GEOGRAPHICAL ANALYSIS
Segment income from
continuing operations
Fund management income * 216.0 283.2 201.4
- International 19.1 25.1 28.2
- South Africa 196.9 258.1 173.2
Investment income * 285.4 215.3 314.4
- International 43.9 (0.4) 137.0
- South Africa 241.5 215.7 177.4
Total segment income from 501.4 498.5 515.8
continuing operations
Segment income from
discontinued operations
Fund management income
- South Africa - - 18.7
Segment result from 267.3 237.3 302.1
continuing operations
- International 37.1 (4.6) 131.6
- South Africa 230.2 241.9 170.5
Finance cost (52.1) (59.2) (53.8)
Capital items 3.1 39.1 162.9
Profit before taxation 218.3 217.2 411.2
Segment result from
discontinued operations
- South Africa - - 15.1
Segment assets
- International 597.6 1,089.7 1,034.3
- South Africa 1,612.4 1,320.3 1,349.2
Total assets per balance 2,210.0 2,410.0 2,383.5
sheet
* As reclassified - refer to note 5
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 prior year,
except for the change in the hedging policy as per note 4.
2. Presentation currency
The Group has two functional currencies: SA rand (rand) for its South African
operations and US dollar (US$) for its international operations. The Group`s
abridged financial statements are prepared, consistent with the previous year,
using rand as its presentation currency.
3. Supplementary dollar information
The statements of comprehensive income and financial position of the Group have
also been presented in US$ for the convenience of non - South African
stakeholders in the Group and accordingly has 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 R7.3926 to US$1 (2009: R9.5124) for the
statement of financial position and an average rate of R7.8474 to US$1 (2009:
R8.8587) for the statement of comprehensive income.
4. Hedging policy
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 current year and the results of the previous year.
5. 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 period.
Reviewed Audited Audited
2010 2009 2008
5.1 Reclassification of revenue and Rm Rm Rm
other income to fund management
income and investment income:
Revenue and other income
Old basis
Revenue 211.4 334.1 272.6
Other income 290.0 164.4 243.2
Total revenue and other income 501.4 498.5 515.8
New basis
Fund management income 216.0 283.2 201.4
Investment income 285.4 215.3 314.4
Total revenue and other income 501.4 498.5 515.8
Effect of reclassification on profit - - -
from operations
5.2 Reclassification of operating
expenses to fund management expenses
and investment expenses:
Operating expenses
Old basis
Operating expenses (239.2) (272.8) (218.1)
New basis
Fund management expenses (228.1) (231.9) (207.9)
Investment expenses (11.1) (40.9) (10.2)
Total operating expenses (239.2) (272.8) (218.1)
Effect of reclassification on profit - - -
from operations
6. Subsequent events
The Group successfully rolled-over the maturity of its R450 million redeemable
preference shares at a revised coupon rate of 85% of prime. Maturity profiles
have been extended to between 2013 and 2015. The proposed final dividend of
89.77 cents per share (11.89 US cents) was approved by the Board on 18 May 2010.
Other than the above matters, management is not aware of any other event which
would have a material impact on either the financial position or operating
results of the Group.
The results for the year ended 31 March 2010 have been reviewed by the Group`s
independent auditors Deloitte S.A., and their unmodified opinion is available
for inspection at the Company`s registered office. Any reference to future
financial performance, included in this announcement, has not been reviewed or
reported on by the Company`s auditors.
Management Commentary
The Business of Brait
Brait is an international investment Group that manages third party capital
committed by a combination of international and South African investors. Its
business is the raising and management of investment funds classified as
Alternative Assets. The current product set includes private equity, 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.
Brait`s operations are organised into three business units - Private Capital,
incorporating all activities in the private equity and debt 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 environment for businesses such as Brait, which depend on the financial
markets to raise capital, acquire and trade securities as well as realise
investments, has been challenging. The year 2009 saw the South African economy`s
recession deepen which resulted in the loss of over 850 000 jobs, slowdown in
consumer expenditure, as evidenced by low retail sales, and the reduction in
credit extension.
The efforts to stimulate the economy by global central banks and the South
African Reserve Bank saw interest rates reduced by 550 basis points in South
Africa to levels last experienced in 1981. Some "green shoots" in the global
economies have emerged, with the South African economy officially coming out of
recession in the last quarter of 2009, while global investment banks on Wall
Street have reported significant profits which have helped global equities
markets reverse losses experienced since September 2008.
There is evidence of capital outflows reversing in the past six months and
liquidity returning to emerging markets, including South Africa. This has also
been accompanied by negative carry trade trends that have led to Rand
strengthening. Clouds still hang over the recovery of the global economy as
unemployment in the USA remains close to 10%, China`s economy still evidences
signs of overheating while Greece and other EU countries grapple with high debt
levels.
Value Drivers
In addition to conditions in the operating environment, Brait`s performance is
affected by the following core value drivers:
- Assets under Management ("AUM");
- Investment product performance;
- Private Equity Fund-to-Fund cycle; and
- New product developments.
A summary of Brait`s results as measured by these key value drivers is as
follows:
Total Assets under Management
The level and growth of AUM is crucial to driving the level of management and
performance fees as well as capital participation income.
While the last twelve months presented difficult fundraising conditions for the
investment world, the following notable achievements were recorded for Brait:
- Overall AUM levels dropped by only R0.5 billion to R13.6 billion (2009:
R14.1 billion) mostly because of sell down;
- Initial R750 million local commitments secured for Brait V;
- Hedge funds AUM remained stable at R4.4 billion (2009: R4.5 billion) with
net outflows of only R0.3 billion during the year. It was pleasing to
record sizeable inflows into Capital Management Team ("CMT")`s Matrix Fixed
Income Fund which increased the Fund size to R560 million (2009: R236
million) at year-end;
- Realisations of Net1 UEPS Technologies and Kelly Limited (both Brait III
investments) reduced AUM at year-end. It was a pleasing outcome for Brait
as Net1 achieved an internal rate of return ("IRR") of 108% and 6.3 times
return on money invested.
Management are pleased with the overall outcome given the challenging economic
environment. A significant portion of the Group`s AUM in private equity is in
the form of USD commitments and this was negatively impacted by the strong Rand
at year-end. The main focus for the F2011 will be to continue driving product
performance while seeking to attract additional inflows.
Investment product performance
The Group recorded strong product performance across the board. This was
particularly noteworthy given the recessionary and unstable economic conditions.
Key highlights include:
- Brait III and IV portfolio companies achieved strong operational
performance growth. In addition, the deliberate sector strategy of
concentrating on the cash consumer retailer and infrastructure segments was
borne out by the growth in revenue and earnings for the portfolio companies
despite tough economic conditions.
- Public Markets funds posted strong results, with CMT`s Brait Multi-Strategy
Fund "BMS Fund") and Matrix Fixed Income Fund achieving net returns of
25.8% and 26.21% respectively (2009: 29.15% and 21.31%). In February 2010,
BMS Fund received the 2009 HedgeNews Africa Multi-Strategy Fund of the Year
award in recognition for its risk adjusted returns for the year.
- The Group`s surplus cash is invested in the BMS Fund and this achieved
returns of 12.7% in US dollars. However, this was more than reversed by the
exchange losses on the Group`s USD cash due to the strengthening of the
rand at year-end.
- The Sponsored Funds programme, where Brait sponsors niched investment
firms, recorded commendable performance during the year. Medu`s Fund I has
achieved IRR of more than 50% while the Molash Fund has seen intensive
portfolio work by the investment team, resulting in R9 million of the
impairment recorded in the prior year being reversed;
- On the debt products, Mezzanine Partners`s Fund 1 is on track to achieve
its target gross returns of JIBAR + 9% while Fund 2 has been negatively
impacted by impairments in one of its portfolio companies which has seen
Brait record a R14.6 million impairment.
- The Group`s main proprietary investment, DGB, continues to perform well in
difficult market conditions.
- Alternative Equity Partners, the Group`s fund of private equity funds,
continues to focus on driving value from its R630 million portfolio fund.
Private Equity Fund-to-Fund cycle
Over a billion rands of the Group`s capital is invested in its two private
equity funds, Brait III and IV, to both align interests with investors and
derive value for shareholders. The Group`s profitability is therefore largely
dependent on the performance and the pattern of value extraction from these
funds.
Management have communicated to the market over the past few years to expect low
profitability for the F2009 and F2010 due to the fund-to-fund cycle gap which
potentially causes a lull in the value extraction between funds. There was a 6-7
year gap between Brait III and IV resulting in the value being substantially
extracted from Brait III before Brait IV has an income statement impact. Whilst
there are many factors determining the timing of fund raising, the strongest
consideration will continue to be the interests of the investors in the funds
themselves.
New Product Development
There have been several initiatives to develop new product offerings in the
current year, all aimed at achieving superior investment outcomes as well as
meeting investor demands.
The Group, in the prior year, signalled the resumption of its proprietary
investment programme by setting up a separate team to its private equity
activities. The aim is to deploy R100 million per annum over the next 3-5 years
on deal sizes of between R20 million and R50 million each. It is pleasing to
report that this was achieved in the current financial year through the
acquisition of a 25% interest in Hallcore Drilling (which provides drilling and
other ancillary services to mining companies) for R13.1 million; a 40%
acquisition of Chamber Lane Properties (which undertakes specific and ring-
fenced land acquisition and property developments projects) for a total
consideration of R43.3 million; and a commitment of US$6 million to Adlevo
Capital Africa LLC ("Adlevo"). Adlevo is a private equity Fund focused on
investing in technology-enabled services companies in sub-Saharan Africa, with
an emphasis on the Nigerian market. At first close, the Fund has total
commitments of US$53 million.
Public Markets` Multi-Management Team ("MMT") has embarked on a new strategic
initiative to evolve from a one product hedge fund solution (Brait Absolute) to
a provider of a spectrum of alternative solutions. By understanding client
specific needs and leveraging off existing relationships, MMT aims to diversify
its investment range and target a broader client base. Significant progress has
been made on this initiative, including the recruitment of a senior resource to
drive the process.
Mezzanine Partners are currently fundraising for their next fund, Mezzanine
Partners 3. In addition, a new strategic initiative to have a credit offering
instead of just mezzanine debt, has shown significant promise and plans are
afoot to raise the Credit Fund 1 by December 2010.
The private equity focus on raising Brait V remains` the Group`s primary
objective and, as noted above, initial local commitments of R750 million have
already been secured.
Financial Results
The Group`s attributable earnings of R185.6 million (2009: R166.6 million) was
11% up on prior year. This was a pleasing outcome given the impact of the
exchange losses on USD cash as well as the fund-to-fund cycle, as noted above,
which meant that F2009 and F2010 would be low profit years.
Private Capital`s operating profits were up by 145% to R185.6 million (2009:
R75.8 million) on the back of strong operational performance by portfolio
companies, while Public Markets` operating profits of R64 million (2009: R86.6
million) were weighed down by lower average AUM for the year, when compared to
prior year, despite consistent strong fund performance. Treasury Capital
recorded an operating profit of R17.7 million (2009: R74.9 profit) largely due
to the impact of the strong rand that resulted in an R92.9 million exchange loss
on its USD cash and cash equivalents.
Fund management income R216.0 million (2009: R283.2 million)
Management fees decreased by 14.5% to R142.0 million (2009: R166.2 million) as a
result of the impact of the strong rand on the US dollar Brait III and IV
commitments. In addition, the average AUM was lower for Public Markets in the
current year compared to prior year due to outflows that were experienced at the
back end of 2009.
Performance fees for Public Markets decreased by 36.9% to R69.4 million (2009:
R109.9 million). Although the funds` performance was comparable to 2009, the
fees earned decreased due to lower average AUM in the current year as well as
the adjustment to the fee metrics.
Fund management expenses R228.1 million (2009: R231.9 million)
Expenses declined by 1.6% from prior year due to an emphasis on cost control by
the Group. In addition, lower incentive payments were made during the year in
line with the level of performance fees earned.
Investment income R285.4 (2009: R215.3 million)
Strong operational performance in the private equity portfolio companies
translated into positive investment income for the Group. In addition, Public
Market`s funds` solid performance contributed towards investment income on the
Group`s seed capital as well as on Treasury Capital`s surplus cash invested in
the hedge fund products. The investment income was, however, negatively impacted
by R92.9 million exchanges losses incurred on the Group`s USD cash.
Investment expenses R11.1 (2009: R40.9 million)
There was a positive impact on investment expenses in the current year due to
the release of impairment provisions raised in the prior year.
Finance costs R52.1 million (2009: R59.2 million)
The finance costs relate to the preference dividends on the R450m redeemable
preference shares and interest paid on the R100 million overdraft facility held
by the Group. The decrease in the current year is due to the lower prime rate of
interest as well as the lower utilisation of the overdraft facility.
Taxation R32.7 million (2009: R50.6 million)
The Group`s taxation is largely driven by its long-term investment activities,
which attract capital gains tax rates. Current taxation charge is in line with
the 14-20% effective tax rate.
Capital items R3.1 million (2009: R39.1 million)
The capital items relate to the hedge costs on the Group`s Brait South Africa
Limited`s ("BSAL") Net Asset Value ("NAV") as well as the charges relating to
the Brait`s BEE transaction with Sitogo Holdings Limited.
The hedging costs for the current year were R7.2 million (2009: R90.3 profit)
relating to the residual cost of the call option taken out in October 2008. As
indicated in our half year results in October 2009, the Group has discontinued
its policy of hedging BSAL`s NAV and this cost will not be recurring for the
Group (see Hedging Accounting note below).
The fair value adjustments relating to the Group`s BEE transaction were R10.3
million credit (2009: R51.2 million debit) as a result of final adjustments to
the carrying values of the financial assets and liabilities to reflect the
expected settlement values as at 31March 2010, the effective termination date of
the BEE transaction (see Sitogo Unwind note below).
Hedge Accounting
The Group terminated its practice of hedging the NAV of its South African
operations, BSAL, into USD in the current year. 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.
A number of changes have occurred to the Group`s operations over the years
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 R900 million
dividend paid out between March 2004 and March 2010 on an opening Group NAV of
R711 million, 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 the year ended 31 March 2010 or on
the prior year.
Sitogo Unwind
The Group concluded a BEE transaction in September 2004 which resulted in the
sale of 26% of its South African subsidiary BSAL to Sitogo Holdings Limited for
R124 million. Brait also become a financier to the transaction, together with
Old Mutual, as they both funded Sitogo`s R124 million purchase consideration. As
a result of the structure of the transaction, accounting standards required that
the sale be recorded as a financial liability rather than a sale, and Brait`s
financing interest as a financial asset in line with IAS 32 (Financial
Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments:
Recognition and Measurement). Over the years, an increase in Sitogo`s interest
has been recorded as a capital item charge to the income statement that
increased the financial liability while Brait`s share of the returns as a credit
to the income statement and increase in the financial asset.
The effective unwind date of the transaction is 31 March 2010 as Sitogo has
exercised its put option to Brait for the 26% interest in BSAL. The buy-back by
Brait will be based on the tangible net asset value ("TNAV") of BSAL as at 31
March 2010 with an expected settlement date of 31 July 2010. Brait estimates the
settlement value to both Sitogo and Old Mutual as at 31 March 2010 at R142.1
million, subject to final verification by all three parties.
The agreement provides Brait with the option to settle this amount through the
issues of shares, which is the most likely outcome at this stage. An issue of
shares at the current levels should be accretive to existing shareholders given
that the share price is trading at a significant premium to the TNAV. Directors
have standing shareholder approval to issue up to 10% of the issued shares which
would be more than adequate for this transaction. The new shares will be listed
through a private placement process to avoid distortion to the share price.
Shareholders will be kept informed of all developments closer to the settlement
date.
Group Cash and Funding Position
Management believe that the Group has adequate cash resources and is adequately
funded. The current year saw the realisation of its interest in Net1 UEPS
Technologies, Kelly Limited, Candy Tops and the partial realisation of
Wilderness Holdings Limited. After deployment of capital into its investing
activities, the net inflow for the Group from investing activities was R174
million (2009: R115 million outflow). The Group has a mature balance sheet which
should see a number of significant realisations in the next 6-18 months,
depending on the market conditions.
Besides shareholder`s equity of R1.4 billion, the Group is also funded by R450
million redeemable preference shares and a R100 million overdraft facility.
Management can confirm that the preference facilities have been rolled-over,
post year-end, to a maturity date of between 2013 and 2015 while its overdraft
facilities have been increased from R100 million to R150 million. The Group has
also kept the option to early settle its current facilities from future
realisation of investments.
Group Outlook
The operating environment still poses uncertainties, especially given the global
economic outlook: USA unemployment, EU debt problems and the situation in
China. In South Africa the 850 000 job losses in 2009 still poses challenges to
consumer demand.
There are, however, are a number of encouraging signs. The upcoming FIFA 2010
World Cup as well as government`s R846 billion infrastructure project should
have a positive impact on the economy.
The Group has emerged from a challenging two year period in a strong and robust
position, well primed for growth. Additionally, Brait is well placed to pursue a
number of strategic initiatives that should provide a timely boost to its
performance over the next few years.
Dividend
The Board believes that dividend distributions are an important part of long-
term shareholders` wealth creation and an indication of the health of the Group.
Because of the cyclical nature 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.
The Board`s dividend policy is 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 89,77 cents has been declared and, when added to
the interim dividend of 89,77 cents per share, equates to a total dividend for
the financial year of 179,54 cents per share, and compares to the prior year
annual dividend of 178,90 cents per share.
Shareholders who receive their dividends in US dollars are advised that the
final dividend is 11.89 US cents per share, and has been determined using the
rand/US dollars exchange rate in Luxembourg at 12:00 noon on 18 May 2010.
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, 28 July 2010 in
Luxembourg:
- The declaration of the final dividend of 11.89 US cents per share in respect
of the year ended 31 March 2010 and endorse the payment of the interim dividend
of 11.85 US cents per share, paid on 7 December 2009.
- For South African resident shareholders registered on the South African
register, the declaration of the final dividend of 89,77 cents per share in
respect of the year
ended 31 March 2010 and endorse the payment of the interim dividend of 89,77
cents per share, paid on 7 December 2009.
If approved by the shareholders, payment of the final dividend will be effected
on Tuesday, 10 August 2010 to shareholders registered as such on the record
date, Friday, 6 August 2010. The last day to trade "cum dividend" will be
Friday, 30 July 2010 and the share will commence trading "ex dividend" on
Monday, 2 August 2010. Share certificates may not be dematerialised between
Monday, 2 August 2010 and Friday, 6 August 2010, both days inclusive.
Non-resident shareholders registered on the South African register who prefer
their dividends to be paid in US dollars, 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 2010
Administration
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
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
PJ Moleketi (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
Luxembourg
25 May 2010
Sponsor
Deloitte & Touche Sponsor Services (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/000034/07)
Date: 25/05/2010 08:00:25 Produced by the JSE SENS Department.
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