Brait S.A. - Interim Results
October 22 1998 - 1:34PM
UK Regulatory
RNS No 7245r
BRAIT S.A.
22nd October 1998
Brait S.A. Societe Anonyme
(formerly Tolux S.A.)
Incorporated in Luxembourg (RC Luxembourg B-13861)
Interim results for the six months ended 30 September 1998
Salient Features
Rand US$
Attributable earnings R65.5 million $11.5 million
Change in attributable + 78.5% + 42.0%
earnings
Earnings per share 70.1 cents 12.3 cents
Change in earnings per + 64.6% + 30.9%
share
Market capitalisation R 1,832.3 million $ 312.1 million
Tangible net asset value 858.1 cents 155.0 cents
per share
Group results
This is the first reporting period of the new group and, in spite
of falling markets and volatile operating conditions since July,
it is pleasing to announce earnings of R65.5 million which is an
increase of 78% on the comparable pro forma result of R36.7
million in 1997.
Private equity has had a successful first half year. It has been
able to enhance its strategic position and maintain sound
operating performance in its portfolio companies. Recent declines
in listed portfolio investments were more than offset by gains
achieved in the first quarter of the financial year. The business
reported earnings of R26.2 million for the six months.
The merchant banking operations have produced a profit of R28.7
million for the half year despite difficult market trading
conditions. The only disappointing performance has been in our
trading operations where a loss was incurred over a period of time
due to a sustained long position in gilts. This was partially
offset by profits on equity trading, resulting in a net trading
loss before tax of R22 million. The bank's secured corporate and
private lending books have grown steadily. The asset based
finance team has settled in quickly and is already producing a
good deal flow. Our corporate finance team has grown
substantially to meet the demands of increased deal flow arising
out of the group's expanded corporate client base. The project
finance team is involved in a number of transactions which will
add to earnings in the next six months. Stockbroking is now well
established in the equity execution business and has produced good
results overall. The merchant banking profit base is now well
diversified and positioned for strong growth for the rest of the
year.
During the period the group realised its interests in its non-
South African equities and bonds to reduce its market risk to
these securities and invested the proceeds of some US$27 million
in cash instruments. Earnings from this source, net of corporate
expenditure and profits realised from the disposal of investments,
amounted to R13.1 million.
The interim results of the property operations shown a
disappointing loss of R2.7 million, primarily because of the
effect on the business of current short-term interest rates.
Action has been taken and a considerably smaller and restructured
operation should be profitable in the next six months.
The group's fund management operations have contributed to
earnings for the first time. Brait Asset Managers has achieved a
satisfactory growth in revenues from a larger base of funds under
management. The South African unit trusts management business has
already achieved a break-even position after only seven months of
operation.
African Alliance, which operates mainly in Swaziland and Botswana,
is now established and will contribute to year end earnings.
Developments
The post merger Brait group strategy and position is now clear.
Brait is set up to partner solutions with the full range of
potential clients across changing corporate South Africa.
Whether it be private equity, advice, treasury, trading or money
management inputs that are required, these experienced
complementary skills sets are in place at Brait. The teams,
individually and collectively, are capable of reaching the
required outcome. From initial concept to final implementation,
Brait has the independence, capital and knowledge to make deals
happen.
South African Private Equity Fund III first closing
During September Brait announced that it had secured commitments
for an initial $325 million towards a target of US$500 million for
its next private equity fund. This fund will make privately
negotiated equity and equity related investments in companies with
business activities located principally in South Africa. Taken
together with Brait's existing funds, this positions the group as
South Africa's foremost private equity fund manager with some $650
million under management. This fund is one of the largest single
direct foreign investments in South Africa this year, and is all
the more notable in that it has been raised in highly volatile
markets at a time of negative sentiment towards emerging markets.
The fund represents a major pool of unspent capital providing an
extraordinary opportunity at a time when equity values are at a
significantly lower level than for many years. The fund is also
Africa's largest ever private equity fund and commitments include
premier US-based emerging market investors and six local
institutions.
Decimax restructuring
Brait has a 55% interest in Decimax and management holds the
balance through its holding company, Decillion Limited, which has
a call on Brait for 20% of Decimax's equity. Decimax is to be
restructured into a broader risk management services group through
Decillion. Brait is very supportive of these developments as they
will substantially enhance the growth opportunities and the value
of our investment. In terms of the deal Brait will reduce its
holding to an investment stake, partly to make way for an
institutional investor who will inject capital and elevate
Decillion's profile in the risk management arena.
Brait Properties restructuring
A decision in principle has been taken to dispose of the mortgage
origination and franchise activities of Brait Properties to
management. The commercial, trading and development businesses
will be restructured into a focused property investment-banking
operation. This disposal and restructuring is expected to be
finalised before the financial year-end.
Asset Managers funds growth
Brait Asset Managers has recently secured the management of an
additional R400 million of retirement funds and a R200 million
unlisted drawdown fund. It is now also managing a further R248
million of the group's unit trusts assets and is positively
awaiting the outcome of the launch of a new small capitalisation
fund in which it has been appointed as asset manager.
Unit trusts launch success
Since the Brait unit trust management operation was launched in
February this year its growth has considerably exceeded
expectations. Although it is the second newest unit trust company
in the industry, its assets under management have grown to place
it 20th out of the 26 management companies. More encouraging,
however, were the net inflows into the group's unit trusts over
the last quarter placing it 7th out of the 26. This was due to
limited outflows rather than excessive inflows. During the period
Brait's net redemption rate was 29% as opposed to an industry rate
of 71%, placing it 6th. This was achieved from a focused
education and marketing effort geared towards the top financial
planners in the country, as well as the performance of Brait Asset
Managers who ensured that the funds performed in line with their
determined benchmarks, despite volatile conditions.
Dividend
As stated in the listing particulars, the directors propose to
maintain a flexible policy regarding the payment of dividends
particularly during the formative and high growth period of the
group's development. The present state of the South African
financial markets presents unique opportunities for the group to
make investments in circumstances which could offer very
attractive returns on capital. Accordingly, no dividend has been
proposed for the six month period ended 30 September 1998.
Prospects
Notwithstanding the current market conditions, the group has
achieved its targets at this interim stage and is well positioned
to have a successful result for the full financial year.
Earnings are expected to increase considerably in the next six
months, but the present volatile market conditions could make the
challenge of meeting the profit forecast more difficult. The
diversity of our earnings base and our significant funds position,
is however encouraging. The US dollar equivalent forecast was
based on an average Rand/Dollar exchange rate of 5.315 and will
most likely be adjusted down in light of the prevailing market
rates.
In the context of its private equity fund, diversified banking
capabilities, and the unique value presently on offer in the
market, the longer term outlook for the group is very positive.
For and on behalf of the Board
M E King M A Barnes
Chairman Group Chief Executive
Group income statement
Rand US$
(millions) Unaudited Unaudited Reviewed Unaudited Unaudited Reviewed
30 Sept 98 30 Sept 97 31 Mar 98 30 Sept 98 30 Sept 97 31 Mar 98
6 months 6 Months 12 months 6 months 6 months 12 months
(Pro forma) (Pro forma) (Pro forma)(Pro forma)
Net banking income 31.1 23.1 50.6 5.5 5.1 10.7
before taxation
Net non-banking
income before
taxation 39.3 21.7 84.0 6.7 4.8 17.9
Net operating income
before taxation 70.4 44.8 134.6 12.2 9.9 28.6
Taxation (4.9) (8.1) (27.3) (0.7) (1.8) (5.8)
Earnings attributable
to ordinary
shareholders 65.5 36.7 107.3 11.5 8.1 22.8
Earnings per share
(cents) 70.1 42.6 124.5 12.3 9.4 26.5
Shares in issue
(weighted average) 93.5 86.2 86.2 93.5 86.2 86.2
Notes:
1. The financial statements have been prepared in accordance with
International Accounting Standards. Where appropriate,
comparative figures have been restated.
2. Brait SA changed its financial year end during the year to 31
March 1999 at which date it will report its results for an 18
month period. Accordingly, this report at 30 September 1998
is the second six month interim report for the financial year
ending 31 March 1999.
3. Currency conversion rates used for Rand: US$ were 1998:
closing rate 5.87, average rate 5.70 (1997: 4.67 and 4.56
respectively).
Group balance sheet at 30 September
Rand US$
(millions) Unaudited Unaudited Reviewed Unaudited Unaudited Reviewed
30 Sept 98 30 Sept 97 31 Mar 98 30 Sept 98 30 Sept 97 31 Mar 98
(Pro forma)(Pro forma) (Pro forma)(Pro forma)
Shareholders' funds
Share capital &
premium 486.3 227.6 487.1 84.9 50.1 107.6
Non-distribu-
table reserves 37.1 35.5 36.9 10.0 9.8 10.2
Foreign currency
translation reserve
51.5 24.2 25.4 (9.1) (4.2) (13.5)
Distributable
reserves 275.9 141.5 209.7 59.1 33.8 48.7
Ordinary shareholders'
interest 850.8 428.8 759.1 144.9 89.5 153.0
Liabilities 1,433.3 1,391.4 1,541.2 244.2 298.3 306.2
Other long term
liabilities 30.0 29.8 26.8 5.1 6.4 5.3
Deferred taxation 25.0 18.5 21.6 4.3 4.0 4.3
Bank overdraft 7.0 1.8 10.6 1.2 0.4 2.1
Other current
liabilities 1,371.3 1,341.3 1,482.2 233.6 287.5 294.5
Assets 2,284.1 1,820.2 2,300.3 389.1 387.8 459.2
Other long term
assets 82.5 43.9 36.2 9.0 9.4 7.2
Intangibles 48.5 42.7 50.8 8.3 9.1 10.5
Property and
equipment 12.8 11.1 14.3 2.2 2.4 2.8
Investments 340.0 246.7 310.6 57.9 52.9 85.1
Cash 165.5 34.8 305.6 28.2 7.5 60.7
Other current
assets 1,634.8 1,441.0 1,582.8 283.5 306.5 292.9
850.8 428.8 759.1 144.9 89.5 153.0
Analysis of attributable earnings
for the six months ended 30 September 1998
Rand %
millions
Merchant banking 28.7 44
Private equity 26.2 40
Corporate 13.1 20
investment
Property services (2.7) (4)
Funds management 0.2 -
65.5 100
END
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