RNS Number:4161E
Brait S.A.
30 May 2001
Brait S.A.
30 May 2001
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,
how-ever, 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 a Luxembourg, 69,
route d'Esch, L-2953, Luxembourg
Registrar: Dexia Banque Internationale a 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
capital non- currency Total
and distrib- translation Group share-
share utable Legal reserve retained owners'
premium reserves reserves earnings interest
Rm Rm Rm Rm Rm Rm
Balance at beginning of 832,7 34,0 3,0 23,9 208,9 1 102,5
year
Net exchange rate - - - 18,1 - 18,1
adjustments
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
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