| Wed 9 Nov 2011, 7:06 | | BAT - Brait SE - Unaudited interim results for the six months ended |
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BAT
BRAIT
BAT - Brait SE - Unaudited interim results for the six months ended
30 September 2011
Brait SE
(Incorporated in Luxembourg)
(RCS Luxembourg B-13861)
Share code: BAT & ISIN: LU0011857645
("Brait", the "Company" or "Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
Highlights
FINANCIAL HIGHLIGHTS
- Net Asset Value ("NAV") per share up 11,1% for the six month period
- Headline earnings per share up by 302,3% to 346 cents (2010: 86 cents)
- Normalised headline earnings per share up by 161,3% to 209 cents (2010: 80
cents)
- Cash and cash equivalents of R1,7 billion available for new investments
OPERATIONAL AND STRATEGIC HIGHLIGHTS
- New investment company business model implemented
- Successful completion of the R6,4 billion Rights Offer and Private Placement
- Acquisition of significant stakes in Pepkor Holdings Limited ("Pepkor") and
Premier Group(Proprietary) Limited ("Premier")
Abridged Group Statement of Comprehensive Income
for the six months ended
Supplementary US$ information*
Year Six Unaudited Audited
ended months six months year
ended
Restated Restated
31 30 30 30 30 31
March Sept Sept Sept Sept March
2011 2010 2011 2011 2010 2011
US$m US$m US$m R`m R`m R`m
38,4 19,6 140,5 Investment gains 980 146 284
17,6 10,8 22,9 Other investment income 159 80 130
(25,3) (12,6) (8,4) Operating expenses (59) (94) (187)
(6,7) (3,6) (4,2) Finance costs (29) (27) (50)
(4,8) (1,6) (1,8) Taxation (13) (12) (36)
Profit for the
period/attributable
earnings/headline
19,2 12,6 149,0 earnings 1 038 93 141
SALIENT FEATURES
244 242 226 Net asset value per 1 833 1 684 1 650
share (cents)
N/A N/A (15) Net asset value CAGR 23 N/A N/A
(%)#
Headline earnings per
share (cents)
17 12 50 - Basic 346 86 125
17 12 50 Diluted 346 86 123
Attributable earnings
per share (cents)
17 12 50 Basic 346 86 125
17 12 50 - Diluted 346 86 123
16 11 30 Normalised headline 209 80 121
earnings per share
(cents)Function
11,85 10,74 - Dividends per share - 74,24 74,24
(cents)
FINANCIAL STATISTICS
453 459 1 083 Market capitalisation 9 188 2 499 2 231
119 119 506 Shares in issue (m) 506 119 119
(2) (3) (10) Treasury shares (m) (10) (3) (2)
117 116 496 Shares outstanding (m) 496 116 117
Weighted average shares
in issue (m)
112 108 300 - Basic 300 108 112
114 109 300 Diluted 300 109 114
380 386 214 Closing share price **1 815 2 100 1 875
(cents)
Rand/US$ exchange rates
0,1476 0,1435 0,1235 Closing 8,0967 6,9678 6,7740
0,1353 0,1346 0,1434 Average 6,9752 7,4309 7,3926
* The supplementary US$ information does not form part of the Group financial
statements
# Compound Annual Growth Rate "CAGR" is calculated over any three year period
**Share price on 7 October 2011 (date of release of trading statement). Share
price at 30 September 2011 was 1 760 cents, which compares to NAV per share of 1
780 before trading statement
Function Attributable earnings for the period divided by actual shares
outstanding
Abridged Group Statements of Financial Position as at
Supplementary US$ information
Unaudited Audited
Restated Restated
31 30 30 Note 30 30 31
March Sept Sept Sept Sept March
2011 2010 2011 2011 2010 2011
US$m US$m US$m Rm Rm Rm
ASSETS
348,7 318,4 1 088,5 Non-current assets 8 812 2 218 2 362
347,2 316,9 935,0 Investments 7 569 2 208 2 352
- - 152,5 Commercial loan to 3 1 235 - -
Investment Team
1,5 1,5 1,0 Property and 8 10 10
equipment
33,0 50,6 210,0 Current assets 1 700 352 224
7,7 9,4 2,7 Accounts receivable 22 65 52
25,3 41,2 207,3 Cash and cash 1 678 287 172
equivalents
381,7 369,0 1 298,5 Total assets 10 512 2 570 2 586
EQUITY AND
LIABILITIES
284,2 281,4 1 123,9 Equity and reserves 9 099 1 960 1 925
84,0 79,7 166,9 Non-current 1 351 555 570
liabilities
66,4 64,6 - Redeemable - 450 450
preference shares
0,4 0,3 155,8 Loans and 1 261 2 2
borrowings
17,2 14,8 11,1 Deferred taxation 90 103 118
13,5 7,9 7,7 Current liabilities 62 55 91
381,7 369,0 1 298,5 Total equity and 10 2 570 2 586
liabilities 512
119 119 506 Shares in issue (m) 506 119 119
(2) (3) (10) Treasury shares (m) (10) (3) (2)
117 116 496 Outstanding shares 496 116 117
for NAV calculation
(m)
244 242 226 Net asset value per 1 833 1 684 1 650
share (cents)
Abridged Group Statements of Changes in Equity
for the six months ended 30 September
Unaudited Audited
six year
months ended
Restated Restated
30 Sept 30 Sept 31 March
2011 2010 2011
Note R`m R`m R`m
Balance at beginning of period 1 925 1 383 1 383
Change in accounting policy 1 - 434 468
Sale of treasury shares/rights 10 19 19
Buyback of shares (127) - (9)
Issue of shares - Sitogo unwind - 170 166
Rights Offer and Private Placement
issue ("Transaction") 6 389 - -
Transaction costs (187) - -
Attributable earnings 1 038 93 140
Translation adjustments 51 (44) (61)
Share entitlements - 1 1
Ordinary dividends paid - (96) (182)
Balance at end of period 9 099 1 960 1 925
Group Cash Flow Statements
for the six months ended 30 September
Unaudited Audited
six year
months ended
Restated Restated
30 Sept 30 Sept 31 March
2011 2010 2011
R`m R`m R`m
Cash flows from operating activities:
Purchase of investments (5 192) - -
Sale of investments 1 051 53 17
Interest received 10 15 22
Dividends received 1 12 13
Fees received 46 43 87
Fees received in advance 21 1 66
Operating expenses paid (81) (96) (162)
Interest paid (21) (30) (56)
Taxation paid (46) (4) (3)
Net cash used in operating activities (4 211) (6) (16)
Acquisition of property and equipment - - (2)
Net cash used in investing activities - - (2)
Dividends paid - (96) (182)
Repayment of borrowings - - (4)
Sitogo unwind - - (4)
Net proceeds from long-term borrowings 1 250 - -
Commercial Loan to Investment Team (1 200) - -
Proceeds from Rights Offer and Private 6 389 - -
Placement Issue ("Transaction")
Transaction costs (182) - -
Share scheme dividends paid - - (9)
Buyback of treasury shares (127) - -
Sale of treasury shares/rights 10 19 19
Repayment of redeemable preference shares (450) - -
Net cash from/(used in) financing 5 690 (77) (180)
activities
Net increase/(decrease) in cash and cash 1 479 (83) (198)
equivalents
Effects of exchange rate changes on cash 27 (14) (18)
and cash equivalents
Cash and cash equivalents at beginning of 65 281 281
period
Original cash and cash equivalents at end 1 571 184 65
of period
Reclassification of product investments as 107 103 107
cash
Revised cash and cash equivalents at end of 1 678 287 172
period
Notes to the abridged financial statements
for the six months ended
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 2011, except for the change in the
accounting policies on segment reporting and fair valuation of the asset
management units businesses as explained below:
1.1 Segmental Reporting
- The change in the Group`s business model has resulted in only one business
segment. Segment reporting is therefore no longer required.
1.2 Fair valuation of asset management units
- The Group has changed the basis of accounting for its asset management units,
which include its hedge fund operations, from the consolidation method to
portfolio companies held at fair value through the statements of comprehensive
income. The effect of these changes has been recognised retrospectively,
resulting in the following impact on current year profits and opening retained
income for the periods presented:
Unaudited Audited
six months year ended
30 Sept 30 Sept 31 March
2011 2010 2011
R`m R`m R`m
Decrease in profit from operations (29) (23) (35)
Increase in opening retained
reserves 468 434 468
Total 439 411 433
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 2011, using rand as its presentation currency.
3. Commercial loan to Investment
Team
- The loan to the Investment Team is 1 235 - -
rand-denominated and bears interest
at Johannesburg Inter Bank
Acceptance Rate ("JIBAR") plus 3,5%,
with the right to roll up interest.
The loan is repayable at the end of
its five-year term.
- The above loan was made on commercial terms (as confirmed by an independent
auditor`s opinion at the timeof the Rights Issue as contained in Annexure 12 of
the Circular to Brait shareholders dated 18 April 2011). This loan is not part
of any share scheme or plan as there are no vesting or restrictive conditions of
any sort on the 72,7 million Brait shares acquired by the Investment Team with
the loan, and additional security was provided to the shares acquired with the
loan. In addition to the pledge of 72,7 million shares as security, the
Investment Team provided additional security of R300 million cash (which was
utilised to acquire a further 18,3 million Brait shares, which werealso pledged
to Brait) to achieve a security to loan ratio of 125% at the time of the Rights
Issue. The closing Brait share price of R19,25 two days before this announcement
increases this ratio to 146%.
4. Subsequent events
No events have taken place since 30 September 2011 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.
Management Commentary
The Business of Brait
Brait is a listed investment company that invests in privately held businesses
by taking long-term positions of significant influence. Brait`s capital is
mainly raised through its public shareholder base. The Group also has interests
in management companies that oversee traditional private equity funds.
Operating environment
The period under review has been characterised by significant economic
uncertainties stemming from the European debt crisis as well as the effect of
the sluggish US economy. There has been considerable volatility in stock market
and natural resources prices as well as exchange rates in many emerging
economies. The South African Rand exchange rate to the US dollar has fluctuated
from 6,7740 at 31 March 2011 to 8,0967 at 30 September 2011.
South African equities and bond markets have been similarly impacted, with the
ALSI and ALBI moving from 32 204,06 and 338,35 at 31 March 2011 to 29 674,2 and
361,39 at 30 September 2011 respectively.
The defensive nature of Brait`s portfolio, especially the cash consumer retailer
Pepkor, has been key in the Group`s ability to post a solid performance for the
period under review.
Brait`s new business model
The past six months have seen major changes for Brait. The company has changed
its business model from an alternative asset manager to an investment company.
The highlight of the period was the successful completion of the R6,4 billion
Rights Offer and Private Placement on 4 July 2011. The Group tapped into the
strategic benefits of raising funds from the public equity markets through its
listing, while maintaining and building on the strengths of its private equity
investment model.
Key milestones during the period have included:
- Securing the Titan Group as an anchor shareholder of Brait, with Dr CH Wiese
becoming a non-executive director of Brait;
- Alignment of interests between shareholders and the Investment Team with the
latter`s acquisition of an 18% interest in Brait;
- Successful completion of the internal reorganisation of Brait`s executive
management, with John Gnodde taking over as CEO of Brait South Africa Limited
from Antony Ball;
- Restructuring of the Board of the Company into a European style investment
vehicle which is made up exclusively of non-executive directors that oversee the
Company`s strategy and investment management functions;
- Acquisitions of significant equity and loan stakes in Pepkor and Premier;
- Conversion of the Company`s Asset Management units into fair value portfolio
companies; and
- Successful implementation of cost reduction initiatives and the
corporatisation of the Asset Management units to achieve a gross operating cost
base of approximately R100 million per annum (year ended 31 March 2011: R289
million), which translates to net operating costs of less than R40 million per
annum after management fees.
The directors believe that the Company is now well placed to drive value
annually from its underlying portfolio for the foreseeable future.
Value drivers
The change in the business model has resulted in Brait being valued with
reference to its NAV which is determined by the fair value of its underlying
portfolio. The following are the core value drivers for the business:
- Growth in NAV;
- Low operating costs to assets under management ("AUM");
- Minimal cash drag on the balance sheet;
- Significant cash flow within the underlying assets;
- Dividend to NAV yield; and
- Structural efficiency.
A summary of Brait`s results as measured by these key value drivers is as
follows:
Net Asset Value
Brait will be targeting to grow its NAV per share at a compound rate of at least
15% per annum (CAGR) over any three-year period. As at 31 March 2011, Brait had
a pro-forma NAV of R16,50 which was the basis of the Rights Offer and Private
Placement concluded on 4 July 2011. Brait`s new NAV per share as at 30 September
2011 is up by 11,1% for the six months to R18,33. The current NAV break-down is
as follows:
September 2011 %
Investments 7 569
Pepkor 5 442 52
Premier 1 086 10
Private Equity Funds 518 5
Other investments 366 4
Asset Management Units (AMU) 157 1
Commercial Loan to Investment Team 1 235 12
Cash and cash equivalents 1 678 16
Property and equipment 8 -
Total Assets 10 490 100
Loans and borrowings (1 261)
Deferred tax liability (90)
Net accruals (40)
Total Liabilities (1 391)
Net Asset Value 9 099
Number of issued shares (`mil, excluding treasury 496,4
shares)
Net asset value per share 18,33
Key highlights of the Group`s portfolio are:
- Pepkor, the Group`s main investment, continued to show strong EBITDA growth
coupled with significant cash generation for its financial year ended 30 June
2011;
- Premier has made key strategic management appointments over the last few
months. Although an increase in commodity prices and severe price competition
have put pressure on margins, the Company should see better performance in the
second half of the year;
- Brait`s investments in Brait IV, its proprietary assets and its former asset
management units have shown steady performance for the period under review;
- Cash and cash equivalents are invested in low yield, liquid investments
available for immediate deployment into new investments for the Group.
Low operating costs to AUM
A key objective of the new Brait model is to have an efficient cost structure.
To achieve this, the Group streamlined its middle and back-office functions and
effected the necessary headcount reductions. Together with the corporatisation
of its former Asset Management Units, the Group reduced its headcount from 95 to
42 as at 30 September 2011 and is on track to achieving its target of
approximately R100 million of annual operating expenses in 2012, which will
translate into less than R40 million net operating costs after management fees
received.
In addition to the absolute level of expenses, the Group has also targeted
keeping its gross operating costs to AUM ratio at 0,85% or less. With the
current Group`s total AUM at R15,2 billion (which includes Brait IV AUM), this
ratio is estimated to be 0,72% for the year, with the net operating costs ratio
after management fees at less than 0,30%.
Minimal balance cash drag
The target cash to NAV percentage is 25% or less, with the current holding at
18,4%. This translates into 16% of total assets, but more importantly, into 7,7%
of net cash holding to NAV. The cash and cash equivalents are invested in low
risk instruments that eliminate term and liquidity risks for the Group.
Significant cash flow within the underlying assets
The directors believe that one of the key strategic benefits of Brait`s new
capital from shareholders is that it provides a permanent form of capital, which
allows for greater flexibility in the investment holding period. The directors
also believe it is critical to demonstrate regular cash flow within the
underlying investments.
Dividend to NAV yield
As a consequence of Brait`s new business model, its dividend policy has changed.
Dividends will be considered annually when the results for each year are
published. The extent of any dividends will be determined relative to net
operating cash flows and to the payments received on the realisation of loans
and investments from time to time and which are not earmarked for new projects
or required for liquidity. The Group will be targeting a dividend to NAV yield
of 1% - 2,5% per annum starting latest in the 2013 financial year to be paid in
either cash or scrip.
Group cash and funding position
The directors believe that the Group is adequately funded, with around R1,7
billion available to fund new investment opportunities.
In addition to shareholders` equity of R9,1 billion, the Group has raised R1,250
billion long-term borrowings. Further, the Group has unutilised overdraft
facilities of R150 million. During the period, the Group redeemed in full its
R450 million preference shares which had been in issue since 2006. In addition,
R127 million was used to buy back Brait`s own shares.
Group outlook
Brait has successfully bedded down the recent corporate actions and internal
reorganisation, leaving it well positioned to capitalise on future investment
opportunities and drive value growth in its underlying portfolio.
For and on behalf of the Board
Phillip Jabu Moleketi
Non-Executive Chairman
9 November 2011
Directors (all non-executive)
PJ Moleketi (Chairman)*
AC Ball*
Dr CH Wiese*
C Keogh
RJ Koch,
CS Seabrooke*
HRW Troskie**
SJP Weber#
*South African
#Luxembourgish
British
**Dutch
The Company is primarily listed on the Euro MTF market of the Luxembourg Stock
Exchange and secondarily listed on the Johannesburg Stock Exchange.
Brait SE
Registration No: RCS Luxembourg B-13861
Registered office
42, rue de Vallee, L-2661, 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
Transfer agent/registrar 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
Maitland, 58, rue Charles Martel, L-2134, Luxembourg
Tel: +352 40 25 05 1
Fax: +352 40 25 05 66
Independent auditors
Deloitte S.A. 560, rue de Neudorf, L-2220 Luxembourg
Domiciliary agent and registrar
Experta Luxembourg S.A., 42, rue de Vallee, L-2661, Luxembourg
Tel: +352 269255 3297
Fax: +352 269255 3642
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Date: 09/11/2011 07:06:21 Produced by the JSE SENS Department.
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