| Wed 30 May 2001, 0:00 | | Brait - Audited Group Results |
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Brait - Audited Group Results
Audited group results for the year ended 31 March 2001
- Fully diluted earnings per share declined 20% to 200 cents
- Attributable earnings declined 21% to R182,5 million
- Tangible net asset value increased 9% to 1 285 cents
- Proposed annual dividend per share 60 cents
Commentary
Group profile
Brait S.A. is an international investment and merchant banking group listed
on the Luxembourg, London and Johannesburg stock exchanges, with
shareowners' funds of R1,2 billion (approximately US$150 million). As an
international group, Brait operates from southern Africa, Mauritius and
Europe, and is currently developing operations in Australia. The group also
has investments in these regions as well as in Israel and North America.
Brait's core areas of activity are Funds Management, Advisory Services,
Investing and Banking and Treasury. Brait's earnings are derived from:
- fees from private equity funds management;
- fees from advisory services;
- returns on the group's principal investments;
- direct returns from investment of the group's capital;
- margin income from money market, corporate banking and asset-based finance
activities; and
- trading in equity and capital markets.
Group results
The group experienced a difficult first six months, as was evident in the
interim report, which caused management to express caution on the outcome
for the full financial year, unless market conditions improved. This
improvement did not materialise, and accordingly fully diluted earnings per
share declined by 20% to 200 cents per share. Whilst disappointing, there
are positive features to these results and the primary reason for the
reduction is clear.
Whereas in the prior year, performance in the Investing area was strong,
this year's results have been poor. A significant proportion of the
investing assets were in new economy and small capitalisation stock sectors
of public markets and as a consequence, significant markdowns have been
taken through the income statement. The swing between last year and this
year accounts for R53,8 million. Nevertheless, we are confident that as in
the past, Brait's investing programmes will deliver a ROE performance over
time in line with our goals.
Banking and Treasury operations recorded reduced profits on a higher capital
base, following a prior history of profit growth. Consistent with our
experience in the Investing area we reported a loss in our equity trading
operations of R3,5 million compared to profit of R32,8 million in the
comparable year (a swing of R36,3 million).
Advisory Services showed improved earnings from R23,4 million to R30,2
million, which is especially commendable in the light of the current
environment in which it operates, and at a time when the business was
significantly reconfigured.
Private Equity showed better earnings, but off a low base, and is still
underperforming relative to its potential. We believe the team to be strong,
and the business well placed for medium to longer-term growth.
Operating highlights
Private Equity Funds
Brait has experienced continued success in the accelerated investment rate
in its funds currently committed. SAPEF III is now 50% invested, and the
Brait Technology and Innovation Fund I is substantially fully invested. The
funds under management have withstood the challenges posed by the tough
environment and continue to report a realised, aggregate IRR since
inception, of over 60% in rand terms.
A pipeline of new fund initiatives are in process, which include a mezzanine
fund, a fund focused on Africa (outside of South Africa), an Australian
fund, and other follow on fund raisings are being planned.
Advisory Services
Brait's advisory services business was positioned to focus on
entrepreneurially managed clients, offering a full range of transaction
services, including mergers and acquisitions, and the successful integration
of Rabin Van Den Berg & Pelkowitz was completed. All this was accomplished
and at the same time, a record set of results was achieved. We were pleased
to have this rewarded in the South African surveys for 2000 of Ernst & Young
and DealMakers, in which Brait recorded the highest number of publicly
announced corporate transactions in the corporate advisors category.
Investing
Despite a lower direct investment rate, the group's investment exposure
increased as a result of the existing commitments to Brait's various private
equity funds and the group believes there is a strong potential for an
upliftment in this portfolio.
Banking and Treasury
The group has further developed Brait's interest rate trading business, as
it embraces a client focus, expanded its investment banking effort,
undertaken new initiatives in its liability development programme by
targeting a wider deposit base and reconfigured its lending business, as it
shifts towards originating and arranging debt packages.
Strategy and organisation
Strategic Business Unit Review
Brait has reconfigured its interest rate trading business to enable 50% of
its revenues to be derived from back-to-back trading or brokerage, and 50%
from position taking. Brait is now running numerous research interest rate
products and has commenced an institutional programme that is showing
promising signs of bearing fruit.
Brait's investment banking team has been enlarged to increase the investment
rate of on balance sheet investments. We have reconfigured our lending
businesses to achieve greater leverage off our developed origination
capability and, at the same time, reduce reliance on Brait's balance sheet.
The results of these initiatives should release capital and improve capital
efficiency. In addition to the above, numerous business development
initiatives have commenced, which should have a similar impact.
Mergers and Acquisitions
While Brait has reviewed numerous acquisition opportunities during the year,
none of these opportunities has met our criteria. In particular, whilst
Brait shares trade at the current levels, it appears unlikely that an
acquisition for shares would be economically attractive to Brait's
shareowners.
Internationalisation of Brait
In line with the group's strategy of further internationalisation, Brait has
continued development of its Australian efforts, undertaken further
investment activity in the United Kingdom and Africa and made its first
investment in the USA.
New Initiatives
Numerous new initiatives are under way in each of the business units. Brait
has committed R50 million plus a moderate overhead commitment to seed a
hedge fund effort. Brait aims to add third party capital to these
specialised funds in the course of this financial year and a range of three
to four different strategies and products is anticipated. Whilst management
is confident that the returns on the seeded capital will meet Brait's return
criteria, the returns arising from the management of third party capital are
only likely to materialise in the following financial year.
The Brait Share Price
Brait is trading at a discount to its tangible net asset value and has been
since February 2001. It is also trading well below the target price of all
the principal analysts covering Brait. Management is confident that a
combination of the efforts to improve profitability and capital efficiency,
and the ongoing efforts at business unit and corporate levels will add to
the value of Brait as an investable proposition. A material improvement in
Brait's share price will probably also require a change in capital market
sentiment towards the financial services sector in South Africa, where the
company's shares are actively traded.
Dividend
The board has proposed an annual dividend of 60 South African cents per
share for the period ended 31 March 2001, subject to approval at the annual
general meeting of shareowners of Brait S.A. on 17 July 2001. The group has
an established policy of an annual dividend declaration to its members,
founded on the view that the group needs a balance between the retention of
earnings for investment opportunities, and the establishment of a record of
consistent dividend distribution, which is an important part of long-term
shareowners' wealth creation particularly in volatile capital markets. The
group's financial position is currently strong and the board has decided
this year to maintain its policy of recommending an annual dividend
declaration.
The year ahead
It is impossible to predict with certainty the challenges and opportunities
that face us going forward. Brait is, however, well positioned through its
strong balance sheet, its integrated service offering and its international
reach to exploit change and create value not identified by others for its
own financial reward as well as for its partners. Brait is focused on long-
term value creation, particularly in its private equity business, which to
date, has invested some R3 billion of its clients and its own capital. The
full benefit of this investment should be realised in years to come.
It has been a demanding year for all at Brait and its stakeholders. We are,
however, better positioned than we were a year ago.
For and on behalf of the board
M E King, Chairman A C Ball, Group Chief Executive
30 May 2001
More detailed financial information for the year ended 31 March 2001 is
available on the Brait web site at www.brait.com
The group's 2001 financial statements will be available on 19 June 2001
Registered office: Brait S.A., 69, route d'Esch, L-2953, Luxembourg
Brait South Africa Limited: 9 Fricker Road, Illovo Boulevard, Illovo,
Sandton
Domiciliary and listing agent: Dexia Banque Internationale Luxembourg, 69,
route d'Esch, L-2953, Luxembourg
Registrar: Dexia Banque Internationale Luxembourg, 69, route d'Esch,
L-2953, Luxembourg
Transfer agents: United Kingdom: CAPITA IRG plc, Bourne House, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU, UK
South Africa: Mercantile Registrars Limited, 10th Floor, 11 Diagonal Street,
Johannesburg 2001, SA
Directors:
M E King*, R T Dalais*, A C Ball*, J E Bodoni+, F Z Haller#, R J Kock**, J P
Montanana**, D H Rabin*, A M Rosenzweig*, C J Tayelor*, S J P Weber+, P L
Wilmot*
+Luxembourgish #USA **British *South African
Group income statements
For the years ended 31 March
2001 2000 Change
Rm Rm %
Revenue 420,0 473,0 (11)
Operating expenses (246,8) (235,0)
Profit from operations 173,2 238,0 (27)
Finance costs (1,7) (7,3)
Income from associates 12,2 7,3
Income from joint ventures 8,0 1,9
Disposal of investments 5,5 -
Disposal of subsidiaries - 10,0
Amortisation of intangibles (10,8) (5,5)
Profit before taxation 186,4 244,4 (24)
Taxation (3,9) (12,4)
Attributable earnings 182,5 232,0 (21)
Note to the income statement
1. Taxation
The current taxation charge reflects the impact of foreign tax
differentials, translation currency adjustments and dividend income. This
low rate should not be considered as sustainable.
Group balance sheets
At 31 March
2001 2000 Change
Rm Rm %
Shareowners' funds
Share capital and premium 803,0 832,7
Non-distributable reserves 3,9 37,0
Foreign currency translation
reserve 42,0 23,9
Distributable reserves 355,6 208,9
Total shareowners' interest 1 204,5 1 102,5 9
Liabilities
Long-term liabilities 200,2 53,4
Current liabilities 1 918,2 1 733,6
Total liabilities 2 118,4 1 787,0 19
Assets
Long-term assets 1 321,9 1 182,5
Current assets 2 001,0 1 707,0
Total assets 3 322,9 2 889,5 15
Net assets 1 204,5 1 102,5 9
Net asset value per share
(cents) 1 329,5 1 201,0 11
Group statement of changes in equity
For the year ended 31 March 2001
Share Other Foreign Total
capital and non-distri- currency Group share-
share butable Legal translation retained owners'
premium reserves reserves reserve earnings interest
Rm Rm Rm Rm Rm Rm
Balance at
beginning of
year 832,7 34,0 3,0 23,9 208,9 1 102,5
Net exchange
rate adjustments - - - 18,1 - 18,1
Attributable
earnings - - - - 182,5 182,5
Dividends - - - - (68,9) (68,9)
Treasury shares (29,7) - - - - (29,7)
Transfer to other
reserves - (34,0) 0,9 - 33,1 -
Balance at end
of year 803,0 - 3,9 42,0 355,6 1 204,5
Cash flow statements
For the years ended 31 March
2001 2000
Rm Rm
Cash flows from operating activities 146,0 286,6
Change in working funds (133,4) (293,2)
Cash generated/(utilised) by operating
activities 12,6 (6,6)
Cash inflows/(outflows) from funding
activities 50,9 (41,6)
Cash outflows from investment activities (43,5) (38,0)
Net increase/(decrease) in cash
and cash equivalents 20,0 (86,2)
Cash and cash equivalents at beginning
of year 87,1 173,3
Balance at end of year 107,1 87,1
Notes
1. The group financial statements have been prepared in accordance with
International Accounting Standards.
2. The functional currency used for the preparation of the group results is
South African rands.
Salient features
At 31 March
2001 2000 Change
%
Operating income (Rm) 186,4 244,4 (24)
Funds management 41,4 36,6
Advisory 30,2 23,4
Investing 1,4 55,2
Banking and treasury 113,4 129,2
Attributable earnings (Rm) 182,5 232,0 (21)
Earnings per share
- basic (cents) 201,4 252,7 (20)
Earnings per share
- diluted (cents) 200,0 250,0 (20)
Dividend per share (cents)
(2001 proposed) 60,0 75,0 (20)
Tangible net asset value
per share (cents) 1 285,4 1 184,2 9
Return on shareowners'
funds (%) 16 23
Five (four) year compound
growth in EPS (%) 47 71
Banking capital adequacy
ratio (%) 21 31
Market capitalisation
- 31 March (Rm) 1 070 2 057 (48)
Shares in issue (m) 93,5 93,5
Shares in issue - excluding
treasury shares (m) 90,6 91,8
