RNS Number:1538X
Brait S.A.
12 June 2002
Refocused on core activities
• Earnings per share
- continuing operations, 27% up at 210 cents
- before realisation adjustment, unchanged at 200 cents
- after realisation adjustment, down 56% to 89 cents
• Total dividend for year, unchanged at 60 cents per share
• Confirmation of intention to deregister banking licence
Audited Results
for the year ended 31 March 2002
www.brait.com
GROUP PROFILE
Brait is an international investment banking group focused on private equity and
alternative funds management, advisory and specialised finance services, and
proprietary investing. It is listed on the Luxembourg, London and Johannesburg
stock exchanges, with shareowners' funds of R1,2 billion (approximately US$104
million).
Brait's continuing earnings are derived from:
* fees from private equity and alternative funds management;
* fees from corporate and debt advisory services;
* returns on the group's principal investments; and
* direct returns from investment of the group's capital.
STRATEGIC REVIEW
Each of Brait's business units has been reviewed relative to the group's
strategic theme, financial goals, structures, capital and tools available to
support them. The review process is continuous and it is in this context that
Brait recently announced its intention to apply for deregistration of the
banking licence held by the group.
There were weak performances in our trading businesses, for the second year in a
row, and also in our margin business. Both these segments had historically
depended on the banking structure. Management had come to the conclusion that
this dependency was flawed, and that it could successfully develop profitable
trading and debt businesses without a banking structure. Consequently, from the
commencement of the year, Brait set about actively developing a specialised
funds management business (which gives shareowners a much enhanced risk/return
exposure to equity and interest rate markets) and developing the debt businesses
as originators, structurers and arrangers, rather than holders of debt assets.
Parallel to this, management committed itself to making the banking structure
work, by increasing the deposit base and lengthening the term of the deposits.
This was starting to bear fruit, but then the second-tier banking crises
occurred. Deposit taking took an irretrievable setback following adverse ratings
by a rating agency, after a medium sized retail bank was placed into
curatorship. These events have had material adverse consequence on all small
banks operating in South Africa. Brait took the view that the costs of holding a
banking licence exceed its benefits, based on:
• the combination of time and effort to rebuild the deposit base;
• significant infrastructural costs associated with holding a banking licence;
and
• financial risks placed on the group.
The cost of this decision amounts to approximately R165 million, of which R100
million relates to specific provisions and fair value adjustments arising from
the unwinding of bank structure positions and the accelerated realisation of
banking assets. The balance of R65 million will be incurred in future financial
periods and relates to closure and associated costs.
Brait will continue to offer its clients a full range of investment banking
products and services, including debt, and continue to offer its shareowners
access to investment banking related exposure to equity and interest rate
markets.
GROUP RESULTS
As in 2001, Brait experienced a slow start to the financial year. This was
evident in the interim report, which caused the group to express caution on the
outcome for any material growth in earnings for the full financial year unless
market conditions improved. While conditions in the second half did improve
particularly in the advisory, investing and group capital segments, income
declined substantially in the group's trading and margin operations. Funds
management income matched its creditable first half result. The net effect on
attributable income, on a pre-realisation adjustment basis, leaves earnings
unchanged at 200 cents per share for the year, and 89 cents per share after
realisation adjustments. Earnings on continuing operations of R189,8 million are
26% ahead of the comparison of R150,8 million last year.
The group tax position reports a credit of R3,5 million for the year. This
reflects the net effect of normal tax charges in the group's non-banking
operations and a large reversal of the deferred taxation provision in the bank
arising from a release of provisions and taxable losses on the year's trading
results.
Whilst the group sees these results as disappointing, the action taken in
respect of the non-performing activities in the banking structure will serve to
eliminate loss making operations from future results and enhance the group's
return on equity.
The group's cash position improved significantly by R207 million during the year
to R314 million, following the decision to reduce the advances book.
OPERATING HIGHLIGHTS
Funds management
Results from funds management activities have contributed R61,3 million to the
group profit before tax for the year. This is a 48% increase over the R41,4
million reported in the prior year. The contribution from Brait's associated
operation, African Alliance, also increased to R7 million (2001: R5 million) and
the loss attributable to the joint venture in ipac South Africa declined to R2
million (2001: R4 million).
The private equity funds management focus this year has been to enhance the
prospects and returns on existing portfolio investments. This goal is already
bearing fruit with all portfolio companies in the later stage funds operating
ahead of budget or last year's levels.
The group's new specialised funds management initiative, focusing on absolute
return strategies in the public markets, recorded a successful first year with
the launch earlier in the year of its pioneer fund.
Advisory services
The advisory business had a satisfactory year despite the general decline in
corporate activity. Earnings before tax were R23,3 million, down 23% on last
year's record results of R30,2 million. This is considered a strong performance,
particularly from the growing international merger and acquisition operations.
The group's specialised finance activities have restructured during the year and
comprise a full range of debt advice solutions for clients to lower their cost
of capital with acceptable risk.
Investing
Brait's proprietary investing activities have strategically placed greater
emphasis this year on established business opportunities in the industrial and
commercial sectors rather than new economy investments.
These results reflect general improvement in market indices on the industrial
and commercial sectors but more particularly the specific performance of Brait's
portfolio. Most notable was the profit recorded on the realisation of the
group's investment in a Russian beer brewing group. The effect of the sharp
depreciation of the rand on the group's non-South African investments also
contributed overall to a much improved performance from proprietary investing
activities. Earnings before tax and realisation adjustment was R69,9 million
against R1,4 million in the prior period and the average return on capital
invested for the year on this basis was 21%.
Group capital
Group capital has been held as cover against the wide range of risks managed
within the banking structure and the group at large. It is invested
predominantly in cash and short-term assets, and includes some residual
structured assets. Income for the year arises primarily from interest, dividends
and translation gains on non-South African liquid assets. Earnings before tax
and realisation adjustment for the year were R86,1 million, an increase of 5%
against R81,7 million in 2001. The average annualised return on group capital
for the year, before the realisation adjustments, was 12% (2001: 11%).
Discontinuing operations
The group's Trading operations, comprising of trading in equities, interest
rates, securities, treasury and money market activities, have been discontinued,
either during the year or as part of the deregistration of the bank. This also
applies to the group's Margin business, comprising asset-based finance and other
balance-sheet lending activities. As set out above, realisation adjustments have
been raised in this financial year, and further closure provisions will be made
in future financial periods. The combined loss from these operations for the
year amounted to R109,4 million, inclusive of realisation adjustment provisions
of R45,6 million.
DIVIDEND
The board has proposed a final dividend of 35 South African cents per share
based on the six months results to 31 March 2002. This brings the aggregate
dividend for the year, including the interim dividend declaration of 25 South
African cents per share, to 60 South African cents per share.
Members will be asked to approve the declaration of the final dividend and
endorse the payment of the interim dividend at the general meeting of
shareowners to be held on Wednesday, 31 July 2002, in Luxembourg.
THE YEAR AHEAD
From the harsh environment in the investment markets served by Brait and the
painful decision taken to apply for the deregistration of the group's South
African banking licence, Brait is confident that it emerges stronger, more
stable and relevant. The group faces an improving prospect with top-class
businesses, fitter for the experience of the difficult times past.
The new financial year offers some specific challenges for Brait. The primary
focus will be on returning cash to the group from its banking structure assets,
further investment momentum in Fund III and planning the group's next fund
raising strategies. Financially the group is strong, its risk profile improved
and it is now much better positioned to meet its longer-term earnings growth and
equity return targets.
For and behalf of the board
M E King A C Ball
Chairman Group Chief Executive 12 June 2002
Group Income Statements
For the year ended 31 March
Continuing operations Discontinuing operations Total
2002 2001 Change 2002 2001 Change 2002 2001 Change
Rm Rm % Rm Rm % Rm Rm %
-----------------------------------------------------------------------------------------------------------------------
Revenue 379,7 279,0 36 6,5* 93,8 (93) 386,2 372,8 4
Operating expenses (193,3) (140,0) 38 (113,1) (59,6) (90) (306,4) (199,6) (54)
Normal operations (138,9) (140,0) (67,5) (59,6) (206,4) (199,6)
Realisation adjustments (54,4) - (45,6) - (100,0) -
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Profit from operations 186,4 139,0 34 (106,6) 34,2 (412) 79,8 173,2 (54)
Finance costs (10,4) (1,7) - - (10,4) (1,7)
Income from associates 8,3 12,2 - - 8,3 12,2
Income from joint
ventures 6,7 8,0 - - 6,7 8,0
Disposal of investment - 5,5 - - - 5,5
Amortisation of
intangibles (4,8) (8,3) (2,8) (2,5) (7,6) (10,8)
-----------------------------------------------------------------------------------------------------------------------
Profit before taxation 186,2 154,7 20 (109,4) 31,7 (445) 76,8 186,4 (59)
Taxation 3,5 (3,9) - - 3,5 (3,9)
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Profit after taxation 189,7 150,8 26 (109,4) 31,7 (445) 80,3 182,5 (56)
Minority interest 0,1 - - - 0,1 -
Attributable earnings 189,8 150,8 26 (109,4) 31,7 (445) 80,4 182,5 (56)
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Earnings per share
- continuing operations - diluted (cents) 210,4 165,4 27
- before realisation adjustment - basic (cents) 200,2 201,4 (1)
- before realisation adjustment - diluted (cents) 200,0 200,0 -
- basic (cents) 89,2 201,4 (56)
- diluted (cents) 89,1 200,0 (55)
Dividends per share (cents) 60,0 60,0
- interim (declared) 25,0
- final (proposed) 35,0
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* Revenue is stated net of losses on trading activities.
Group statement of changes in equity
For the year ended 31 March
2002 2001
Rm Rm
-----------------------------------------------------------------------------------------------------------------------
Balance at beginning of period 1 204,5 1 102,5
Currency translation adjustments (18,0) 18,1
Attributable earnings 80,4 182,5
Dividends (75,2) (68,9)
Treasury shares (9,5) (29,7)
Balance at end of period 1 182,2 1 204,5
Salient features
At 31 March
Profit
before Realisation
adjustment adjustment *
2002 2002 2002 2001
Rm Rm Rm Rm %
-----------------------------------------------------------------------------------------------------------------------
Profit before taxation 176,8 (100,0) 76,8 186,4 (59)
- Continuing operations 240,6 (54,4) 186,2 154,7 20
Funds management 61,3 - 61,3 41,4
Advisory 23,3 - 23,3 30,2
Investing 69,9 (20,0) 49,9 1,4
Group capital 86,1 (34,4) 51,7 81,7
- Discontinuing operations (63,8) (45,6) (109,4) 31,7 (445)
Margin business 1,2 (45,6) (44,4) 40,9
Trading (65,0) - (65,0) (9,2)
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Taxation 3,5 3,5 (3,9)
Minority interest 0,1 0,1 -
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Attributable earnings 180,4 80,4 182,5 (56)
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Financial statistics
Return on shareowners' funds (%) 15 7 16
Six year (2001: five year)
compound growth in EPS (%) 37 20 47
Market capitalisation
- 31 March (Rm) 804 1 070 (25)
Shares in issue (m) 93,5 93,5
Weighted average shares in issue:
- basic (m) 90,1 90,6
- fully diluted (m) 90,2 91,2
Closing share price
- 31 March (cents) 860 1 145 (25)
Tangible net asset value
per share (cents) 1 276,0 1 285,4
Average shareowners'
interest (Rm) 1 193 1 153 3
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Note: * Following the announcement of the group's intention to deregister its
banking licence, the Board has approved an accelerated disposal of a large
proportion of the assets in its banking structure and certain other assets, some
of which are held in the Group Capital and Investing segments. This action has
necessitated an abnormal non-recurring adjustment to the carrying value of these
assets at 31 March 2002.
A more detailed preliminary report has been posted to shareowners, placed on the
group's website and is available at the company's offices and agents. The annual
report will be released at the end of June 2002.
Cash flow statements
For the year ended 31 March
2002 2001
Rm Rm
-----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 107,2 146,0
Change in working funds 216,0 (133,4)
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Cash generated by operating activities 323,2 12,6
Cash (outflows)/inflows from funding activities (113,0) 50,9
Cash outflows from investing activities (3,1) (43,5)
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Net increase in cash and cash equivalents 207,1 20,0
Cash and cash equivalents at beginning of year 107,1 87,1
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Balance at end of year 314,2 107,1
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Group balance sheets
At 31 March
2002 2001
Rm Rm
-----------------------------------------------------------------------------------------------------------------------
Shareowners' funds
Share capital and premium 802,1 803,0
Non-distributable reserves 13,7 3,9
Foreign currency translation reserve 24,0 42,0
Distributable reserves 342,4 355,6
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Total shareowners' interest 1 182,2 1 204,5
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Liabilities
Long-term liabilities 167,6 200,2
Current liabilities 1 369,9 1 918,2
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Total liabilities 1 537,5 2 118,4
-----------------------------------------------------------------------------------------------------------------------
Assets
Long-term assets 1 193,5 1 321,9
Current assets 1 526,2 2 001,0
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Total assets 2 719,7 3 322,9
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Net assets 1 182,2 1 204,5
-----------------------------------------------------------------------------------------------------------------------
Net asset value per share (cents) 1 312,1 1 329,5
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Notes to the financial statements
1. The financial statements of the group are prepared in accordance with
International Accounting Standards. The accounting policies are consistent
with the previous financial year. IAS 39 (AC 133): Recognition and
Measurement of Financial Instruments has been fully adopted in the
preparation of the financial statements.
2. Reclassifications have been made to revenue and operating expenditure in
the comparative figures to provide a better appreciation of the results and
consistency with disclosure at 31 March 2002.
Registered office: Brait S.A., 69, route d'Esch, L-2953, Luxembourg, Tel:
09352-4590-2180, Fax: 09352-4590-3641
Brait South Africa Limited: 9 Fricker Road, Illovo Boulevard, Illovo, Sandton,
Tel: +27 11 507 1000 Fax: +27 11 507 1001
JSE and LSE issuer name and code: Issuer long name - Brait S.A., Issuer code -
BRAIT, Instrument alpha code/Ticker symbol - BAT, JSE ISIN - LU 0011857645
Domiciliary and listing agent: Dexia Banque Internationale a Luxembourg, 69,
route d'Esch, L-2953, Luxembourg, Tel: 09352-4590-2180, Fax: 09352-4590-3641
Registrar: Dexia Banque Internationale a Luxembourg, 69, route d'Esch, L-2953,
Luxembourg, Tel: 09352-4590-2180, Fax: 09352-4590-3641
Transfer agents: United Kingdom: Capita IRG plc, Bourne House, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU, United Kingdom, Tel: 0944-208-639-2000, Fax:
0944-208-639-2342
South Africa: Computershare Investor Services Limited, 11 Diagonal Street,
Johannesburg, 2001 or PO Box 1053, Johannesburg, 2000, Tel: +27 11 370 5000 Fax:
+27 11 370 5487
Directors: M E King (Chairman)y*, A C BallY*, J E Bodoniy#, R T DalaisY*, F Z
Hallery(S), R J Kochy*, A M Rosenzweigy*, C J TayelorY*, S J P WeberY#, P L
Wilmoty*
YExecutive yNon-executive *South African #Luxembourgish (S)American *British
GRAPHICOR 26076
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