RNS Number : 5439V
Brait S.A.
30 May 2008
Brait S.A.
Soci� Anonyme
("Brait" or "the Company")
(Incorporated in Luxembourg)
Registration number: RC Luxembourg B-13861
JSE share code: BAT
LSE share code: BTU
Issuer code: BRAIT
ISIN code: LU0011857645
Reviewed Group results for the year ended 31 March 2008
HIGHLIGHTS
* Earnings
Attributable earnings up by 16% to R393 million (US$55 million, up by 15%)
Profit from operations down by 31% to R302 million (US$42 million, down by 32%)
Headline earnings from continuing operations down by 8% to
R254 million (US$36 million, down by 9%)
* Return on equity 30% (US$ equity: 20%)
* Annual dividend distribution up by 13% to 150,34 cents per share (20,80 US cents per share, up by 14%)
* NAV at 1 432 cents per share, up by 19% (177 US cents per share, up by 6%)
* Assets under management (fee earning) up by 28% from R9,7 billion to R12,4 billion (up by 15% from US$1,34 billion to US$1,54
billion)
Salient features
For the year ended 31 March
Supplementary US$ information**
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007 %
US$m US$m Rm Rm Change
62,3 42,4 Profit from operations 302,1 438,9 (31,2)
35,3 33,8 Private capital 240,7 248,5
6,2 3,8 Public markets 27,1 43,7
20,8 4,8 Group investments 34,3 146,7
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4 13,2
(6,9) (4,7) Taxation (33,3) (48,6)
44,7 53,0 Profit from continuing 377,9 314,8 20,0
operations
6,4 2,1 Profit from discontinued 15,1 45,1
operations***
51,1 55,1 Profit for the year 393,0 359,9
(3,0) * Minority interest * (21,1)
48,1 55,1 Attributable earnings 393,0 338,8 16,0
Performance Measures
Headline earnings per
share from continuing
operations (cents)
38,3 33,5 * Basic 239,1 269,8 (11,4)
36,7 33,3 * Diluted 237,4 258,7 (8,2)
Headline earnings per share
(cents)
44,6 35,5 * Basic 253,3 314,1 (19,4)
42,8 35,3 * Diluted 251,5 301,5 (16,6)
Attributable earnings per
share (cents)
46,9 51,9 * Basic 370,3 330,4 12,0
45,0 51,6 * Diluted 367,7 316,9 16,0
18,24 20,80 Dividends per share (cents) 150,34 133,34 12,8
7,85 9,00 * Interim paid 59,07 59,40
10,39 11,80 * Final proposed 91,27 73,94
166,5 176,9 Net asset value per share 1 431,5 1 208,0 18,5
(cents)
24,7 20,0 Return on equity (%) 29,9 41,3
Financial statistics
425,2 278,6 Market capitalisation 2 254,6 3 084,6 (26,9)
105,6 106,1 Shares in issue (m) 106,1 105,6 0,4
Weighted average shares in
issue (m)
102,5 106,1 * Basic 106,1 102,5 3,5
106,9 106,9 * Diluted 106,9 106,9 0,0
402,5 262,6 Closing share price (cents 2 125,0 2 920,0 (27,2)
per share)
Rand/US$ exchange rates
0,1378 0,1236 * Closing 8,0922 7,2550
0,1420 0,1403 * Average 7,1260 7,0435
* As restated - refer to the schedule of restatements disclosed in the annual report.
** The disclosure above is for information purposes and does not form part of the group financial statements.
*** The Corporate Finance operation has been discontinued during the year.
ABRIDGED GROUP INCOME STATEMENTS
For the year ended 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007
US$m US$m Notes Rm Rm
66,8 38,3 Revenue 272,6 470,6
39,2 34,1 Other income 243,2 276,1
106,0 72,4 Total revenue and other income 515,8 746,7
(45,8) (30,6) Operating expenses (218,1) (322,6)
2,1 0,6 Income from associates 4,4 14,8
62,3 42,4 Profit from operations 4 302,1 438,9
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 5 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
(6,9) (4,7) Taxation (33,3) (48,6)
44,7 53,0 Profit from continuing 377,9 314,8
operations
6,4 2,1 Profit from discontinued 6 15,1 45,1
operations
51,1 55,1 Profit for the year 393,0 359,9
Attributable to:
3,0 * * Minority shareowners * 21,1
48,1 55,1 * Equity holders of the parent 393,0 338,8
18,24 20,80 Dividends per share (cents) 150,34 133,34
7,85 9,00 * Interim paid 59,07 59,40
10,39 11,80 * Final proposed 91,27 73,94
46,90 51,92 Basic attributable earnings per 370,34 330,40
share (cents)
45,00 51,56 Diluted earnings per share 367,72 316,90
(cents)
* As restated - refer to the schedule of restatements disclosed in the annual report.
ABRIDGED GROUP BALANCE SHEETS
as at 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited
2007 2008 2008 2007
US$m US$m Notes Rm Rm
ASSETS
146,7 225,0 Non-current assets 1 820,4 1 064,3
135,2 207,3 Investments 7 1 676,9 980,9
11,5 17,7 Other non-current assets 143,5 83,4
173,3 69,5 Current assets 562,4 1 257,3
78,2 51,6 Cash and cash equivalents 8 417,7 567,2
36,3 10,3 Investments 82,8 263,5
44,3 0,3 Loans and advances 2,3 321,4
14,5 7,3 Other 59,6 105,2
320,0 294,5 Total assets 2 382,8 2 321,6
EQUITY AND LIABILITIES
175,9 187,7 Equity and reserves 1 518,8 1 276,1
87,6 79,6 Non-current liabilities 644,4 635,6
62,0 55,6 Redeemable preference shares 9 450,0 450,0
25,6 24,0 Other non-current liabilities 194,4 185,6
56,5 27,2 Current liabilities 219,6 409,9
23,1 1,2 Loans and advances 9,9 167,5
33,4 26,0 Other 209,7 242,4
320,0 294,5 Total equity and liabilities 2 382,8 2 321,6
166,5 176,9 Net asset value per ordinary 1 431,5 1 208,0
share (cents)
ABRIDGED GROUP CASH FLOW STATEMENTS
For the year ended 31 March
Reviewed Audited
2008 2007
Rm Rm
Cash flows from:
Operating activities � 30,3 223,3
Dividends received 19,0 52,1
Interest received 62,2 25,6
Finance costs (53,8) (44,9)
Currency hedge cost (27,9) (2,1)
Taxation paid (4,2) (20,1)
Change in working funds (14,9) (68,5)
Cash generated from operating activities 10,7 165,4
Cash flows generated from investing activities 5,9 27,4
Cash flows generated from operating and investing 16,6 192,8
activities
Dividends paid (175,2) (171,7)
Cash outflows from financing activities (43,7) (34,4)
Net decrease in cash and cash equivalents (202,3) (13,3)
Effects of exchange rate changes on cash and cash 52,8 4,7
equivalents
Cash and cash equivalents at beginning of year 567,2 575,8
Cash and cash equivalents at end of year 417,7 567,2
� Includes Bayport's net interest received.
Group statements of changes in equity
For the year ended 31 March
Attributable to equity holders of the parent
Share Foreign
capital currency
and Legal Equity translation Retained
premium reserve reserves reserve reserves
Rm Rm Rm Rm Rm
Balance at 31 March 2006 264,2 18,4 24,3 (150,6) 780,2
Net translation adjustments * * * 121,6 *
Restructuring of subsidiary * * * * *
Acquisition of subsidiary * * * * *
Treasury shares purchased (56,1) * * * *
Delivered share scheme shares 49,3 * * * *
Profit for the year * * * * 338,8
Share entitlements * * 3,3 * *
Ordinary dividends paid * * * * (171,7)
Transfer between reserves * 0,7 * * (0,7)
Balance at 31 March 2007 257,4 19,1 27,6 (29,0) 946,6
Net translation adjustments * * * 114,1 *
Sale of Bayport * (0,4) * * (34,9)
Delivered share scheme shares 15,5 * * * *
Treasury shares purchased (16,8) * * * *
Profit for the year * * * * 393,0
Share entitlements * * 1,6 * *
Ordinary dividends paid * * * * (175,2)
Balance at 31 March 2008 256,1 18,7 29,2 85,1 1 129,5
Total
equity
Minority and
interest reserves
Rm Rm
Balance at 31 March 2006 39,3 975,8
Net translation adjustments (6,0) 115,6
Restructuring of subsidiary (2,5) (2,5)
Acquisition of subsidiary 2,5 2,5
Treasury shares purchased * (56,1)
Delivered share scheme shares * 49,3
Profit for the year 21,1 359,9
Share entitlements * 3,3
Ordinary dividends paid * (171,7)
Transfer between reserves * *
Balance at 31 March 2007 54,4 1 276,1
Net translation adjustments * 114,1
Sale of Bayport (54,2) (89,5)
Delivered share scheme shares * 15,5
Treasury shares purchased * (16,8)
Profit for the year * 393,0
Share entitlements * 1,6
Ordinary dividends paid * (175,2)
Balance at 31 March 2008 0,2 1 518,8
GROUP SEGMENTAL REPORTS
For the year ended 31 March
Supplementary US$ information
Audited Reviewed Reviewed Audited*
2007 2008 2008 2007
US$m US$m Rm Rm
BUSINESS ANALYSIS
Segment income from continuing
operations
66,8 38,3 Revenue 272,6 470,6
24,6 20,9 * Private capital 148,5 173,3
10,5 12,8 * Public markets 91,4 74,0
31,7 4,6 * Group investments 32,7 223,3
39,2 34,1 Other income 243,2 276,1
29,4 31,6 * Private capital 225,7 207,2
2,2 0,9 * Public markets 6,4 15,5
7,6 1,6 * Group investments 11,1 53,4
106,0 72,4 Total segment income from continuing 515,8 746,7
operations
Segment income from discontinued
operations
Revenue
7,9 2,6 * Corporate finance 18,7 55,6
113,9 75,0 Total revenue and other income 534,5 802,3
62,3 42,4 Segment result from continuing 302,1 438,9
operations
35,3 33,8 * Private capital 240,7 248,5
6,2 3,8 * Public markets 27,1 43,7
20,8 4,8 * Group investments 34,3 146,7
(6,4) (7,5) Finance costs (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
Segment result from discontinued
operations
6,4 2,1 * Corporate finance 15,1 45,1
Segment assets and liabilities
305,9 270,7 Segment assets 2 190,4 2 219,4
140,3 186,5 * Private capital 1 509,2 1 018,0
22,9 19,7 * Public markets 159,0 166,1
133,1 64,5 * Group investments 522,2 965,7
9,6 * * Discontinued operations * 69,6
14,1 23,8 Other 192,4 102,2
320,0 294,5 Total assets per balance sheet 2 382,8 2 321,6
56,7 26,0 Segment liabilities 210,4 411,4
11,4 9,7 * Private capital 78,6 82,7
1,9 2,6 * Public markets 21,1 13,8
42,0 13,7 * Group investments 110,7 304,7
1,4 * * Discontinued operations * 10,2
87,4 80,8 Other 653,6 634,1
144,1 106,8 Total liabilities per balance sheet 864,0 1 045,5
249,2 244,7 Segment net assets 1 980,0 1 808,0
128,9 176,8 * Private capital 1 430,6 935,3
21,0 17,1 * Public markets 137,9 152,3
91,1 50,8 * Group investments 411,5 661,0
8,2 * * Discontinued operations * 59,4
(73,3) (57,0) Other (461,2) (531,9)
175,9 187,7 Total net assets per balance sheet 1 518,8 1 276,1
GEOGRAPHICAL ANALYSIS
Segment income from continuing
operations
66,8 38,3 Revenue 272,6 470,6
33,7 8,0 * International 56,3 237,4
33,1 30,3 * South Africa 216,3 233,2
39,2 34,1 Other income 243,2 276,1
14,6 15,3 * International 108,9 102,8
24,6 18,8 * South Africa 134,3 173,3
106,0 72,4 Total segment income from continuing 515,8 746,7
operations
Segment income from discontinued
operations
Revenue
7,9 2,6 * South Africa 18,7 55,6
113,9 75,0 Total revenue and other income 534,5 802,3
62,3 42,4 Segment result from continuing 302,1 438,9
operations
21,6 18,6 * International 131,6 152,3
40,7 23,8 * South Africa 170,5 286,6
(6,4) (7,5) Finance cost (53,8) (45,1)
(4,3) 22,8 Capital items 162,9 (30,4)
51,6 57,7 Profit before taxation 411,2 363,4
Segment result from discontinued
operations
6,4 2,1 * South Africa 15,1 45,1
Segment assets
124,9 118,2 * International 956,7 906,3
195,1 176,3 * South Africa 1 426,1 1 415,3
185,5 176,3 * Continuing operations 1 426,1 1 345,7
9,6 * * Discontinued operations * 69,6
320,0 294,5 Total assets per balance sheet 2 382,8 2 321,6
* As restated - refer to the schedule of restatements disclosed in the annual report.
Notes to the financial statements
For the year ended 31 March
The results for the year ended 31 March 2008 have been reviewed by the Group's auditors Deloitte & Touche, and their unqualified opinion
is available for inspection at the Company's registered office.
1. Basis for preparation
The financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS"). The abridged
financial statements are presented in accordance with IAS 34. The accounting policies and methods of computation are consistent with those
applied in the previous year.
2. Presentation currency
The Group has two functional currencies: SA rand ("rand") for its South African operations and US dollar ("US$") for its international
operations. Due to a change over a period of time in the composition of the Group's geographical business operations, the Group has changed
its presentation currency from US$ to rand. Accordingly, the Group statements at 31 March 2008 have been prepared 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 R8,0922 to US$1
(2007: R7,2550 to US$1) for the balance sheets and an average rate of R7,1260 to US$1 (2007: R7,0435 to US$1) for the income statements.
Reviewed Audited*
2008 2007
Rm Rm
4. Profit from operations include:
Dividends received 9,9 43,6
Interest received 62,2 213,7
Depreciation (1,6) (6,3)
Related party transactions
* Interest received 0,8 2,8
* Dividends received 9,1 8,5
* Interest paid (2,5) (3,1)
* Fees paid (5,3) (10,5)
* Key management (includes directors* remuneration) (29,4) (22,7)
5. Capital items comprise:
Net currency hedge gain/(cost) 43,5 (6,4)
Fair valuation adjustment of financial liability (12,7) (48,3)
Fair valuation adjustment of financial asset 7,9 22,3
Loss on restructuring of subsidiary * (1,1)
Gain on realisation of investment in subsidiary 124,2 *
Gain on realisation of investment * 3,1
Total capital items 162,9 (30,4)
6. Discontinued operations
Following a strategic review of the corporate
finance operations, a decision was taken to
discontinue this activity.
Analysis of the discontinued operation:
Revenue 18,7 55,6
Expense (3,6) (10,5)
Net profit 15,1 45,1
7. Investments
Included in investments, are investments in
unlisted associates:
* Carrying value 14,0 13,7
* Directors* valuation 14,0 49,5
* As restated * refer to the schedule of
restatements disclosed in the annual report.
8. Cash and cash equivalents
Bank balances (39,7) 166,5
Short-term treasury instruments 457,4 400,7
417,7 567,2
9. Redeemable preference shares 450,0 450,0
Brait South Africa Limited (*BSAL*) raised R450
million of preference share capital during the 2006
financial year to provide
additional capital to leverage the Group*s internal
growth strategy. A total of
450 000 (four hundred and fifty thousand)
cumulative redeemable preference shares were issued
at a par value of R0,01 and a premium of R999,99
per share.
These shares carry a dividend of 78% of the South
African prime rate of interest and are redeemable
in four tranches on
31 July of each year commencing in 2010 until 2013.
BSAL has an option to effect early redemption.
10. Related party balances
* Liabilities (29,2) (57,0)
* Assets 11,0 27,4
11. Contingent liabilities, commitments and
subordinated loans
11.1 Contingencies
Sureties and guarantees 4,7 1,0
11.2 Commitments
Commitments to invest in funds and proprietary 284,3 439,7
investments
Other 5,0 7,6
Rental commitments 19,5 25,6
* Within one year 6,6 6,1
* Between one and five years 12,9 19,5
11.3 Subordinated loans 8,4 23,6
12. Interest-bearing liabilities
All liabilities are interest bearing except for
R171,2 million (2007: R165,1 million) in respect of
accounts payable,
accruals, provisions and deferred taxation.
13. Headline earnings
Attributable earnings 393,0 338,8
Headline earnings adjustment (124,2) (17,2)
* Gain on realisation of investment in subsidiary (124,2) *
* Loss on restructuring of subsidiary * 1,1
* Gain on realisation of non-current assets held * (18,3)
for sale
Headline earnings 268,8 321,6
* Discontinued operations (15,1) (45,1)
Headline earnings from continuing operations 253,7 276,5
14. Subsequent events
No events have taken place since 31 March 2008 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.
* As restated - refer to the schedule of restatements disclosed in the annual report.
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 include leading global and South African institutions.
Brait's operations are now organised into two business units - Private Capital, incorporating all activities in the private capital
markets; and Public Markets, incorporating all activities in the public or highly traded securities markets.
Factors Affecting Performance
The operating environment changed materially in the second half of the period under review, presenting Brait with both challenges, and
opportunities, which are commented on under Prospects.
Operating Environment
Market Conditions
The past year has been challenging for investment managers in the South African and global markets. The turmoil in global financial
markets, triggered by the US sub-prime credit crisis, has resulted in many investors seeking the security of high quality, low risk
investments. While the South African equity markets continued to provide reasonable returns, these have been concentrated in the large
market cap resource stocks, with the industrial, commercial and mid-cap sectors - where Brait's activities predominate - showing weaker
performance and more volatility.
Slower Growth Rates and Higher Inflation
Global growth is showing signs of slowing down, particularly in the US and Europe, but also in South Africa, with the added challenges
of a curbing of credit-led consumer growth, and the impact of load-shedding
and expectations of electricity shortages in the medium term. At the same time, inflation has risen, particularly in South Africa.
Lower Business Confidence
These factors, combined with an increase in perceived levels of crime and regional instability in Zimbabwe, have led to reduced business
confidence in the region. This should be seen, however, in the context of continuing global appetite for deploying capital in emerging
markets.
Value Drivers
Investment Product Performance
Most of the Group's products have longer term performance targets, and while the Group's products in the main continue to meet or exceed
these targets over these longer term time-frames, this year saw a tapering-off in the performance in some of the Group's investment
products, notably Brait III, due to weaker share price performance in Net 1, and in Brait Absolute, which registered a creditable return
premium over cash, but underperformed against its goal. Additionally, private equity funds typically demonstrate a "J-curve" effect, showing
low returns in early years, due to fee absorption and the time frame required for gains to crystallise. This has been the case in Brait IV.
Assets Under Management ("AUM")
"Lumpy" growth is anticipated due to the practise in the private equity business of raising capital pools over three to five-year
cycles. Nevertheless, the Group grew its AUM by a healthy 29% in the year under review.
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. We anticipate this to have a dampening effect on
Private Capital earnings growth for the forthcoming two years. The deployment rate of Brait IV has been ahead of schedule, with
approximately 60% of the fund drawn or committed. This is likely to shorten the Fund-to-Fund cycle.
New Product Development
The rate at which the Group is able to bring new products to our institutional clients is another important value driver. As well as the
shortening of the Fund-to-Fund cycle in Private Capital, we draw attention to the launch of Medu II, and Molash I (Brait sponsored
initiatives), Mezzanine Partners II, AEP (Fund of Private Equity Funds), Brait Multi-Strategy Fund, Brait High Alpha (newly formed
investment products), and a healthy pipeline of new products.
Deployment of Capital in Proprietary Investing
The Group is well capitalised and has traditionally deployed balance sheet capital into proprietary investing in private equity and
hedge funds. The organisation, decision-making and risk management of this has been focused further, resulting in more purposeful deployment
of this capital. This should impact positively on earnings.
Financial Results
The Group's attributable earnings for the year were
R393,0 million, a 16% increase on the R338,8 million recorded in the previous year.
The realisation of the Group's investment in Bayport has made comparison with the prior year's reported earnings difficult.
Historically, Bayport has been consolidated rather than fair valued as a proprietary investment. The accounting impact of the realisation
has given rise to a decline in the Group's operating income and revenue for the year on one hand and a significant gain as well as a
positive earnings impact from a reduced taxation charge and the elimination of interests due to minority shareowners on the other hand.
The impact of this is demonstrated in the continuing headline earnings for the year, of R253,7 million, which is 8% lower than the
R276,5 million achieved in the previous year, in that the gain is headline adjusted, and compares to prior reporting periods in which the
consolidated Bayport profit was incorporated in earnings.
Highlights
Profit from Operations - R302,1 million
Profit from operations decreased by 31% to R302,1 million from R438,9 million in the previous year, as a result of a significantly
reduced contribution from Group Investments due to the elimination of Bayport's revenue and earnings. As a result of the sale of Bayport,
Group Investments is reduced to largely a Treasury function. This Treasury function produced a reduced result due to lower interest rates
earned on cash, which was invested mainly in US$ deposits, and to lower yields on hedge fund investments.
Additionally, profit from operations in Private Capital and Public Markets decreased by 3% and 38%, respectively. Private Capital
continued to be the main contributor increasing its contribution to the total operating profit from 57% in the previous year to 80% in the
current year. The operating results of the various business units are separately discussed in the segmental review.
Finance Costs - R53,8 million
Finance costs relate primarily to servicing the R450 million preference share capital raised in March 2006 to fund Brait's internal
growth strategy, as well as the cost of short-term funding.
Capital Items - R162,9 million net gain
Gain on realisation of investment in subsidiary -
R124,2 million - Brait realised its micro-lending interest in Bayport with effect from 1 April 2007 yielding a gain of R124,2 million
over its carrying value.
Net currency hedge gain - R43,5 million - In accordance with the Group's consistently applied policy of preserving its tangible capital
in US$, Brait has continued to hedge the majority of its South African tangible net assets. As a result of the depreciation of the rand
against the US$, a gain of R43,5 million was recorded.
Fair value adjustment of financial liability - R12,7 million loss - The sale of 26% of Brait South Africa in the 2005 financial year to
the Group's Black Economic Empowerment partner (Sitogo Holdings (Proprietary) Limited) 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 year was
a loss of R12,7 million and substantially equates to the portion of earnings that would have been recognised as being attributable to the
minority shareowners had the sale been recognised as such.
Fair value adjustment of financial asset - R7,9 million gain - Pursuant to the sale of 26% of Brait South Africa, an equity investment
by Brait S.A. in Sitogo Holdings 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 year was an unrealised gain of R7,9 million and equates to the
increase in fair value attached to the specific class of shares held.
Taxation - R33,3 million
The taxation charge represents an increase of 27% (after excluding the effect of Bayport's taxation in the prior year tax charge) and is
largely attributable to the increase in the deferred taxation liability in respect of unrealised gains in the South African operations. At
31 March 2008, the South African operation has effectively utilised all its taxation losses carried forward from previous years in respect
of which a deferred tax asset had been raised, and is expected to become liable for normal taxation with effect from the new financial year,
which will have a cash flow impact.
Performance Targets
Return on Equity
The Group's objective is to achieve a long-term return on shareowners' funds of 25% as measured over any five year period. Because of
the structural reporting changes within the group in 2004, which render comparative before this date of little value, the initial measuring
date for Group targets is 1 April 2005.
Brait has generated an annual return on equity of 30% for the 2008 financial year and a four year rolling return since 1 April 2005 of
37% which has outperformed the long-term target of 25%.
Attributable Earnings Growth
The Group's objective is to grow its attributable income by 12,5% p.a. compounded, as measured over any five year period. This target is
an arithmetic consequence of the 25% ROE target, and the 50% planned dividend payout ratio.
Measured since 1 April 2005, the compounded growth is 23%.
Assets under Management ("AUM")
Increased and sustainable growth in AUM is critical to achieve continued profit growth. Brait's objective is to double its AUM every
four years (i.e. achieve a compound annual growth rate of 20% in AUM). An underlying assumption will be the goal of continuing to improve
the quality of those assets in terms of duration, security and fee metrics and ensuring that each product offering is optimally sized for
its investment mandate.
Segmental Review
Private Capital
Private Capital comprises the management of private equity funds ("Funds"), sponsorship of niche investment firms ("Sponsored Funds"),
management of mezzanine debt funds ("Mezzanine Partners") and Fund of Private Equity Funds ("FoF").
Private Capital earnings for the period have been driven largely by further value recognition in Brait III, further growth in
Proprietary Investment income, value recognition in Medu and management fees earned on Brait IV.
Revenue and other income of R374,2 million was recognised during the period, a 2% decrease on the R380,5 million recognised in the prior
year. Profit from operations for the year decreased from R248,5 million to R240,7 million. The levelling-off of revenue and profit from
operations is largely due to features discussed under "Private Equity Fund-to-Fund Cycle".
Return on Capital Employed
Return on capital employed remains ahead of the Group's five year target of 25% at 28% although reducing to 20% for the year.
Profit from Operations
Profit growth is on track to meet or exceed 12,5% as measured in any five year period, averaging 31% over the measurement period.
Assets under Management
AUM continues to compound ahead of the Group's target at 28% over the last four years, and 24% for the last year.
Some of the notable highlights during the period were:
* The IPO of Kelly Group in early April 2007 on the JSE Limited and the substantial realisation of Brait III's investment in Kelly
Group.
* The conclusion of four further investments in Brait IV: Nature's Choice, Capital Africa Steel, Premier Foods and Primedia, which
together with Consol Glass, gives Brait IV substantial exposure to non-credit consumer growth and infrastructure sectors, these being the
two investment themes of Brait IV.
* Realisation of proprietary investment in Isegen.
* The launch of AEP, Brait's Fund of Private Equity Funds, at R630 million.
* The launch of Sponsored Funds initiatives, with the closing of Medu II at R800 million, and Molash I at R150 million.
* The launch of Mezzanine Partners II, subsequent to successfully fully investing Mezzanine Partners I.
Public Markets
Public Markets undertakes the management of, primarily institutional capital in hedge fund products and the seeding and support of the
emerging hedge funds.
Revenue and other income increased by 9,3% to R97,8 million from R89,5 million the previous year. Profit from operations decreased by
38,0% to R27,1 million from R43,7 million the previous year. The decrease in profitability has largely been due to reduced performance fee
revenue, due to disappointing investment performance, combined with a planned increase in operating costs to support the long-term success
of the division, most notably in terms of employee and technology infrastructure costs.
The business model reflects the intentional strong alignment of business profitability with the delivery of investment performance, and
hence the impact of the past years' poor performance on the organisational performance.
Return on Capital Employed
Return on capital employed remains below Group's five year target at 15% and registered 19% for the year.
Profit from Operations
Profit growth is on track to meet or exceed 12,5% as measured in any five year period, averaging 55% over the measurement period.
Assets Under Management
AUM increases by 36% from 12 months earlier. While the flagship fund of hedge funds, Brait Absolute accounts for the majority of this
capital, there has been continued focus on expanding the product offering, both in single and multi strategy funds and additional fund of
hedge funds.
Brait Absolute underperformed its three-year rolling return objective, returning 2,2% above cash and 4,2% ahead of inflation while
limiting volatility to 4% per annum. Brait Absolute's correlation and beta to the JSE All Share Index were 0,59 and 0,15 respectively. This
performance should be seen against the backdrop of the difficult market conditions, however the focus of our experienced team of investment
professionals is to ensure that going forward the funds achieve their return objectives. Some of the notable highlights of the year were:
* The completion of a first full year track record of the Brait Multi-Strategy Fund, and its raising R676 million;
* The launch of Brait High Alpha Fund near the year end;
* The launch of a partnership with RMF, part of the MAN Group plc, to expand Brait's range of hedge fund solutions to its South African
institutional clients; and
* The compliance by Brait, together with all managers with which it invests, with a more onerous category of license credited in terms
of the Financial Advisory and Intermediaries Act specifically for hedge fund managers.
Capitalisation
The capitalisation of Brait has been considered in the context of its existing cash and near cash resources, its current debt levels and
the redemption obligations associated with the debt, and the board approved plans to deploy capital within the planning horizon. The result
of this consideration is that Brait is regarded as appropriately capitalised at this time. This will continue to be reviewed rigorously by
the Capital Allocation Committee, a committee of the Board.
Treasury capital will continue to be held in money market accounts, and in hedge funds appropriate to the risk and liquidity requirement
of the Group.
Prospects
The operating conditions discussed under "Factors Affecting Performance" have presented Brait with some challenges, notably reduced fair
value of assets, with price/earnings multiples generally reducing in assets held in its portfolio, 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.
In this context, it is noteworthy that in South Africa, the SA Venture Capital and Private Equity Association survey shows that private
equity funds under management have grown by 46% in 2007, with the hedge fund industry also showing a positive trend. The Group has strong
market positions in these areas and is organised to deploy capital into both its flagship businesses and the many new initiatives that have
been seeded. Accordingly, Brait finds itself well positioned to capitalise on these trends.
Brait remains confident of continuing to meet its performance targets over the relevant periods, yet cautions that short-term earnings
prospects are likely to be muted due to the negative effects of the environment cited above, the leveling off of earnings in Private
Capital, and due to the strategic emphasis on business building.
Dividend
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. Because of the cyclicality of short-term earnings and cash flow, the Group's dividend payment policy is
committed to signalling performance against long-term targets of the Group rather than matching short-term cyclical performances.
Accordingly, the dividend policy adopted by the Board will be 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.
The Board proposes to pay a final dividend of 91,27
cents per share. When added to the interim dividend of 59,07 cents per share, this equates to an annual dividend of 150,34 cents per
share - an increase of 12,75% compared to the prior year annual dividend of 133,34 cents per share.
Shareowners who receive their dividends in US$, are advised that the final dividend is 11,80 US cents per share, and has been determined
using the Rand/US$ exchange rate in Luxembourg at 12:00 on 27 May 2008.
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, 30 July 2008 in Luxembourg.
- the declaration of the final dividend of 11,80 US cents per share in respect of the year ended 31 March 2008 and endorse the payment
of the interim dividend of 9,00 US cents per share, paid on 3 December 2007, and
- for South African resident shareholders registered on the South African register, the declaration of the final dividend of 91,27 cents
per share in respect of the year ended 31 March 2008 and endorse the payment of the interim dividend of 59,07 cents per share, paid on 3
December 2007.
If approved by the shareowners, payment of the final dividend will be effected on Monday, 11 August 2008 to shareowners registered as
such on the record date, Friday, 8 August 2008. The last day to trade "cum dividend" will be Friday, 1 August 2008 and the share will
commence trading "ex dividend" on Monday, 4 August 2008. Share certificates may not be dematerialised between Monday, 4 August 2008 and
Friday, 8 August 2008 both days inclusive.
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
ME King AC Ball
Chairman Chief executive officer
30 May 2008
Administration
Registered office
Brait S.A.
180, rue des Aubines
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
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 & Touche S.A.
560, rue de Neudorf
L-2220
Luxembourg
Domiciliary Agent and registrar
Experta Luxembourg S.A.
180, rue des Aubpines
L-1145, Luxembourg
Tel: +352 269255 3297
Fax: +352 269255 3642
Directors
ME King (Chairman)**, AC Ball*, PAB Beecroft**,
JE Bodoni*�, AD Campbell*, BI Childs*, JA Gnodde*,
RJ Koch**, MS Masithela*, AM Rosenzweig***,
HRW Troskie***, SJP Weber�, PL Wilmot**
*Non-executive, *South African, �Luxembourgish, *British, **Dutch
Financial information for the year ended 31 March 2008
is also available on the Brait website at www.brait.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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