2006 ANNUAL REPORT

PARTNERSHIPS BASED ON PASSION, ENERGY AND www.brait.com A PIONEERING SPIRIT OF ENTERPRISE

GRAPHICOR 34156 06 Brait ANNUAL REPORT

Brait S.A., Société Anonyme, Incorporated in Luxembourg (RC Luxembourg B-13861)

CONTENTS

Page Page The business of Brait 1 Sustainability report 48 Group profile 2 – Introduction 48 Activities 2 – Stakeholders 49 Annual highlights 3 – Group value added statement 51 Senior chairman's statement 4 – Share analysis 52 Group chief executive's report 6 – Performance on the JSE Limited exchange 53 Brait timeline 9 – Social responsibility 54 Group scorecard and performance measurement 10 – Employee report 57 Salient features 11 – Environmental 61 Financial commentary 12 – GRI index 64 Segmental review 17 Group statistics 66 – Private Equity 17 Annual financial statements 71 – Specialised Funds 27 Principal subsidiaries, associated – Corporate Finance 31 companies and joint ventures 108 – Group Investments 33 Shareowners' diary 109 Corporate governance 35 Notice of annual general meeting 110 Board profile 40 Administration 112 Remuneration report 42 Form of proxy (perforated) 113 Risk management review 46 THE BUSINESS OF Brait

Brait is an international investment and financial services group focused on private equity, corporate finance and specialised funds. It is listed on the Luxembourg, London and Johannesburg stock exchanges.

Our core values are reflected in our attitude towards partnerships – to establish fair, positive and enduring relationships that seek shared reward.

FAIR We seek balanced solutions on a foundation of good faith, professionalism and integrity.

POSITIVE We do everything with passion, energy and a pioneering spirit of enterprise.

ENDURING We invest our intellectual and financial capital for long- term value beyond today’s transactions.

SHARED REWARD With our partners we grow and participate in the benefits flowing from discovered opportunities.

Brait Annual Report 2006 1 PROFILE

Brait is an international investment and financial services group and has shown excellent results in its first four years of funds focused on private equity, specialised funds management, corporate management. finance and strategic investing. It is listed on the Luxembourg, London and Johannesburg stock exchanges, with shareowners’ funds of Brait’s corporate finance capability effectively addresses client and US$158 million at 31 March 2006. group needs with the emphasis on debt advisory services focusing on structuring and distribution of debt products. As an international group, we operate and invest in South Africa, sub- Saharan Africa, Europe and North America.We provide a wide range of Brait’s group investment activities houses the group’s strategic investment and specialised financial services to a substantial client investments of which the group’s interest in Bayport, a sub-Saharan base that includes listed and unlisted companies, financial and microlending and financial services provider, is the most significant. government institutions and high net worth individuals. Brait’s earnings are primarily derived from: Our private equity activities involve the management of third party • Private equity management fees and investment returns; capital in a fund format and leveraging our skills, insights and • Alternative funds management fees and investment returns; relationships by making medium to long-term investments in our • Corporate and debt advisory services fees; and private equity funds and proprietary investments. • Group investment returns.

Our specialised funds activities pioneered the formation of a unique hedge funds product designed for South African institutional investors

GROUP ACTIVITIES

Brait’s primary activities are:

Private Equity Specialised Funds Corporate Finance Group Investments

• Private equity funds • Hedge fund • Debt advisory services • Strategic investments management management • Capital structuring • Treasury and capital • Private equity investments • Hedge fund investments management • Funds investments • Multi management

2 Brait Annual Report 2006 ANNUAL HIGHLIGHTS for the year ended 31 March 2006

Financial Operational • Earnings continue to grow strongly • Private Equity – Attributable earnings increased by 38,6% to US$47,0 million – First closing of Brait IV (ZAR300,8 million) – Advanced realisations of Brait III investment programme – Headline earnings increased by 22,4% to US$41,5 million – Unwinding of Brait II substantially complete (ZAR265,5 million) • Specialised Funds • Return on equity increased from 32% to 45,9% – Assets under management grew significantly •Annual dividend distributions increased by 32,7% to 18,24 US cents –Brait Absolute SA Fund continues to outperform three-year per share rolling objectives •NAV improved to 155,7 US cents per share (961,6 SA cents per – In advanced stage of launching a multi-strategy fund • Corporate Finance share) – after adding back dividends paid – Pioneered first euro high yield bond for a South African corporate • Growth in funds under management (fee earning) from – Advised on first South African management buy-out funded by US$508 million to US$1 046 million euro bonds •Group investments – Accelerated advances and earnings growth in Bayport – Establishment of a joint venture mezzanine fund management business

Attributable earnings Dividend per share*

50,0 20,0

40,0 15,0

30,0

10,0 US cents US$ million 20,0

5,0 10,0

0 0 04 05 06 04 05 06 *excluding special dividends

Relative Brait share price versus JSE General Financial Index (2001 = 100) Strategic • Achieve critical mass in Specialised Funds 275 • Debt capital raised of US$72,9 million (ZAR450 million) to leverage organic growth • Reduce earnings dependency on Private Equity 225 • Restructure Corporate Finance to focus on debt and capital advisory services 175 • Increase external debt capital in Bayport Index 125

75

25 Jun 06 Sep 01 Sep 02 Sep 03 Sep 04 Sep 05 Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06

JSE General Financial Index Brait share price

Brait Annual Report 2006 3 SENIOR CHAIRMAN’S STATEMENT

Group results Macro environment At the announcement of the interim results, I reported that the outlook Despite widening global current account imbalances, rising oil prices, for the second half of the year was encouraging. More specifically I and natural disasters, the global economy expanded at a respectable informed shareowners that the prospects for raising Brait’s new Private pace of 3,4% during the course of 2005. This slowdown, somewhat Equity Fund, Brait IV, were good and that Specialised Funds stood to slower than the 4,0% recorded the previous year, was mainly benefit from new capital inflows. Furthermore, the group’s earnings in precipitated by more expensive energy costs, but was also influenced the second half should, subject to market forces, meet or exceed those by capacity constraints in the resources sector and by the effects of reported in the first half of the year. tightening monetary policy in the United States. The relatively faster pace at which China and India grew, compared with the rate by which It pleases me to report that my predictions have been realised. industrialised economies grew, bolstered global financial stability The group’s financial performance continued to improve in the second during 2005. Against this background, the South African economy half as a result of a strong performance in Private Equity and increased registered another impressive performance. specialised funds income, group investment returns and specialised debt advisory service fees. Relative international market trends Index 1999 = 100 The financial results of the year ended 31 March 2006 show attributable earnings growth of 38,6% to US$47 million 350 (ZAR300,8 million), return on equity increased from 32% to 45,9% and growth in fee earning funds under management, from 300 US$508 million to US$1 046 million. 250

Profit from operations 200

60,0 Index 150

50,0 100

40,0 50

0 30,0 US$ millions Oct 99 Oct 00 Oct 01 Oct 02 Oct 03 Oct 04 Oct 05 Apr 00 Apr 01 Apr 02 Apr 03 Apr 04 Apr 05 Apr 06 Apr 99 20,0 Dow Jones Index Nasdaq Index JSE ALSI Index 10,0

One of the most significant achievements for South African 0 04 05 06 policymakers, over the past year, has been the elevation of the country’s sovereign rating to the upper end of the lower investment grade rating. The Baa1 rating by Moody’s and the BBB+ rating by Operationally Brait was voted the best African Private Equity manager Standard & Poors are significant acknowledgements of South Africa’s by Private Equity International in 2005. Investor support for Brait’s new favourable mix of macro-economic, fiscal and monetary policy. These Private Equity Fund, Brait IV,has been strong.The projection is that this ratings, in place for 30 consecutive quarters, acknowledge the upward fund will close, by December 2006, as Brait’s largest fund ever. The trend in economic growth. The 4,9% rate at which gross domestic debt advisory offering continues to show that it is one of the product grew in 2005 is the fastest annual rate of expansion since innovators in funding structures for South African corporations and is 1984. While the economy remained in an upward phase of its business able to conclude large transactions through its international cycle, the longest on record, foreign investors took note that economic relationships. The future growth of Specialised Funds within the Brait activity continued to take place. group is most encouraging, particularly as it has continued to exceed its initial targets, and deliver expected performance. Interest in domestic securities rose to an historic high, and foreign direct investment interest remained encouraging, with two of the Bayport continued to expand its micro-lending and financial service largest inward investments on record, in the banking and operations in Africa. Several strategic partners acquired a portion of the telecommunications sectors, being registered. With the scorecard on Bayport equity which has resulted in Brait’s economic interest reducing key policy issues becoming increasingly impressive, the environment for to 41,66%. private equity investments looks promising.

4 Brait Annual Report 2006 Historical exchange rate movement

1,20 12,25

1,15 11,25 1,10 Brait was voted the 1,05 10,25

1,00 9,25 best African Private 0,95 Euro Rand 8,25 0,90 Equity manager 0,85 7,25 0,80 6,25 0,75

0,70 5,25 eb 04 an 05 Jul 04 J Jun 05 F Apr 02 Sep 02 Dec 05 Mar 03 Aug 03 May 06

Euro invested against USD (LHS) Rand against USD (RHS) board and the remuneration committee, sit on the audit and risk committee, act as the link between the board and management and as The challenges facing policymakers today are generally external in a direct link with the shareowner base of the group. nature, relating to the impact monetary tightening has on emerging markets, such as South Africa. The economy, which is not immune to As part of its evaluation process the board will, however, review developments beyond its control, has shock-absorbers in place which its structure. suggest that it is capable of weathering external influences better than it has in the past, and generally better than many other Dividend developing economies. The inflation targeting mechanism, in place The group’s balance sheet is strong and earnings from operations have since 2001, has been successfully managed, to the extent that increased materially. In light of this the board resolved to recommend a inflation, excluding mortgage rates, has been within its designated final dividend of 10,39 US cents per share to shareowners. This, together range for 31 consecutive months. Inflation averaged 3,9% in 2005, with the interim dividend, will result in a total annual dividend of 18,24 US the lowest on record. Another economic achievement has been the cents per share, if approved at the 2006 annual general meeting. turnaround in reserves, facilitating a more stable outlook towards the currency than previously. The year ahead Brait will continue to focus on its core businesses and to explore The board exciting new business opportunities. The prospect of significant new Our value driver is reflected in our partnership approach from which capital from Brait IV, together with increased inflows to Specialised base we adopt a fair, positive and enduring relationship with our Funds, indicates that earnings growth and equity returns will improve stakeholders. Brait, as a European company, has complied with best in the year ahead. corporate practice in Europe, the United Kingdom and South Africa. In appreciation Critical stakeholders in Brait are its private equity fund investors. In light I record both my and the board’s appreciation of the executive of the leadership change in Brait, following the appointment of John management’s dedication and performance during the year under Coulter as the group’s new Chief Executive Officer during the period review. I thank my board members for their contributions and express under review, these investors requested that Antony Ball and John my appreciation to staff for their efforts. In addition, my appreciation is Gnodde hold senior positions in the group, even though their principal extended to our strategic partners, investors, shareowners and other operational roles would remain in Brait’s private equity business. Having stakeholders for their continued support of the group. regard to this requirement, the board deemed it to be in the best interests of the group to appoint Anthony Ball and John Gnodde to positions where they continue to be seen to operate as leaders in the group, being an important criteria for our fund investor stakeholders. Anthony Ball became Executive Chairman and continues to chair the Brait Private Equity board, whilst playing an active role in the strategic oversight of Brait. John Gnodde became Executive Deputy Chairman and continues to act as CEO of Brait Private Equity. In order to ensure that Mervyn E King independent non-executive oversight of the board continues, I became 19 June 2006 the Senior Chairman of the group and, in this role, continue to chair the Senior Chairman

Brait Annual Report 2006 5 GROUP CHIEF EXECUTIVE’S REPORT

Review of performance At Brait we believe that the future prospects for private equity business 2006 saw Brait build on the sound business platform and strong in South Africa give rise to considerable optimism. The current macro- results of the prior year, producing a set of financial results which have economic environment is the most supportive that it has been for exceeded the performance of 2005.All business units have contributed private equity business, in Brait’s 15-year history. Factors supporting positively to the bottom-line and the prospects are for continued value this include low inflation, a low interest rate environment, strong and to be derived from Brait’s current portfolio of businesses and upwardly trending economic growth, the availability of debt finance investments, and for a growing and more diversified earnings stream structures and amounts that are new for this market, and the in the short to medium-term. transformation of the economy through BEE, which acts as a catalyst for M+A activity.We believe that Brait is extraordinarily well positioned Review of operations to take advantage of this platform, given its existing well performing Private Equity portfolio of assets with considerable residual value, a new fund in Brait Private Equity earnings were marginally up on the prior year’s strong IV providing the capital for future investments, and a healthy pipeline results, with profit from operations increasing by 1%, to of innovative and market significant transactions which are, in many US$39,1 million, producing a return on equity of 40,8% on average cases, in an advanced stage of development. In addition to this, Brait capital employed of US$95,8 million. This performance was primarily has an experienced, cohesive team, capable of delivering on the driven by value recognition in investments in Brait III and growth in opportunities presented and we are confident that Brait Private Equity value of the group’s proprietary investments, against a background of will continue to grow assets and earnings and exceed its ROE targets. a strongly performing economy and capital markets in South Africa, during the period. Corporate Finance The relatively strong improvement in corporate finance earnings, albeit A number of realisations from Brait II investments were achieved a minor contribution in absolute terms, is primarily due to fees earned during the year, which included Shoe City, Prime Cure and Unispan, by the Specialised Debt unit. Fees were generated via Brait’s role as leaving Brait II with one remaining investment prior to being closed advisor and lead arranger in transactions that were innovative and and fully wound up. ground-breaking for the South African debt markets, in particular the Foodcorp and Reclamation transactions. Central to both of these The portfolio companies in Brait III, primarily Net 1, Pepkor, Logical transactions was the raising of debt in amounts and structure relative Options and Wilderness, all performed very well operationally during to equity, on a scale never previously witnessed in South Africa. Both the course of the year. Brait Private Equity management and team transactions enabled the respective companies to restructure their believe that there is still considerable value to be produced from the capital base, thereby reducing their weighted average cost of capital. investments in Brait III. Notable transactions in Brait III, during the They made use of the High Yield bond market in Europe to raise a year, were: significant portion of the debt, and are among the first South African •The listing of Net 1 on Nasdaq which unlocked considerable value companies to do so.Within the Specialised Debt unit, Brait has a highly for shareowners through the rebenchmarking of the Net 1 share to talented team with a track record of closing innovative transactions approximately eight times its prelisting value and in which Brait that have consistently reshaped the parameters of debt transactions in sold 20% of its holding. South Africa. Our intention, going forward, is to build on this platform, • Leveraged recapitalisation of the Reclamation Group, through an and to broaden the capacity and expertise of the team members into MBO facilitated by the raising of debt in the Eurobond market, other debt products and services. which resulted in Brait III’s realisation of five times its original investment in Reclamation. Despite the existence of a promising mid-year pipeline of mandated deals and work in progress, the M+A/advisory business continued to Fundraising for Brait IV continues to exhibit positive momentum, with struggle to conclude transactions and generate fees, resulting in a an increased level of interest being shown in both South Africa and US$2,1 million operational loss for the year from this unit within the private equity, by both new investors and investors in existing Brait Corporate Finance segment. Consequently Brait has decided, post year- funds. The first close of Brait IV, in the first quarter of 2006, gives us end, to restructure this unit to primarily provide internal advisory and great confidence that we are on track to achieve the target of investment support for other Brait business segments. US$500 million (ZAR3,1 billion) for Brait IV which would, to date, make it the largest of the Brait funds and the largest fund raised from third Specialised Funds parties for private equity in South Africa. Specialised Funds’ income, which consists of management and During 2005/2006, private equity grabbed international headlines with performance fees derived from the management of third party capital nearly US$500 billion of private equity backed M+A deals concluded in the group’s hedge funds, and investment returns generated from globally in 2005, and about 33% of all M+A deals in Europe Brait’s own seed capital, increased by 18% to US$6,5 million from generated through private equity. In South Africa, the South African US$5,5 million the prior year. Operating earnings increased by 8% to Venture Capital and Private Equity Association’s (SAVCA) estimate of US$1,3 million from US$1,2 million in 2005. private equity driven M+A activity was approximately ZAR5 billion (2%) for 2005. If South African capital and investment markets follow The focus for Specialised Funds, during 2006, was on building capacity, the international trends, it would indicate significant potential for the and increasing funds under management. Realised revenue and growth of private equity linked transactions in the immediate future. earnings for the year, despite an 8% increase in earnings over 2005,

6 Brait Annual Report 2006 Segmental profit from operations 31 March 2006 31 March 2005

Private Equity 74% Specialised Funds 2% Private Equity 80% Specialised Funds 1% Corporate Finance 2% Group Investments 22% Corporate Finance 2% Group Investments 17% significantly understate the future potential of this business segment. Group Investments Indeed, this year was characterised by an exponential increase in Earnings from the Group Investments segment have again contributed assets under management in the Brait Funds of Hedge Funds, of almost significantly to the group’s earnings performance. Operating earnings 700% from ZAR403,7 million to ZAR3,1 billion at year-end. A large are up by 35,7% to US$11,6 million, giving a return on equity of portion of these funds were committed in the latter half of the financial 16,7%. year. The timing of these large inflows, combined with the group’s policy of not recognising performance fees until 31 December of each Bayport, which provides financial services and micro-lending in sub- year, means the business will only benefit from the fee revenue Saharan Africa, is the largest single contributor to this segment with associated with this new scale of assets under management in the next operating earnings growing by 170% to US$6,4 million. Advances financial year. have grown by 109% to US$33,8 million, with the majority of this growth emanating from its largest businesses in Zambia, Ghana and With ZAR3,1 billion of assets largely invested in its funds of hedge Uganda. The bad debt experience, at 3,5%, is still well below the funds and in emerging fund opportunities, and Brait’s foresight in comparable South African industry average. A number of pilot projects securing nearly ZAR3,1 billion of additional capacity. Brait has firmly are in trial which would add services in existing markets, as well as established itself as the leading Fund of Hedge Fund manager in South expand Bayport’s regional footprint. We anticipate that a number of Africa. Brait’s fund of hedge funds have been designed to appeal to these projects will become operational in the second half of FY 2007. institutional investors as a high yielding, low risk investment alternative to cash and bonds, and have attracted funds from four of Brait’s principal interest in South African micro-lending is through its the top ten pension funds, by size, in the country. Brait Absolute has a investment in Capital Alliance Finance, which was profitable and cash four-year track record of producing cash plus 6% with a correlation generative over the year. and beta to the ALSI of 0,33 and 0,06 respectively, and has recorded 44 consecutive months of positive returns. It should be noted that In November 2005, Brait South Africa Limited established an assets under management, plus commitments, have already exceeded independent mezzanine fund management business, Mezzanine ZAR4,1 billion since year-end. Partners (Pty) Ltd (“Mezzanine Partners”), in a joint venture with Old Mutual Asset Managers (South Africa) (Pty) Ltd and Mezzanine We believe that Specialised Funds is well positioned within a market Partners executive management. At year-end the fund had that is increasingly understanding of, and receptive to, hedge funds as US$45 million capital committed. It concluded its maiden investment an alternative asset class.As investors look to rebalance their portfolios, subsequent to year-end. following the strong gains experienced in equities in recent years, we expect continued significant asset growth in the funds of hedge funds The remaining earnings in this segment were derived from the group’s in 2007, particularly as investors look for more defensive investment treasury activities and other minor investments. strategies should market uncertainty and volatility persist into 2007. Capital During the course of the next financial year, Specialised Funds will The accessibility of unsecured funding for companies has increased, while launch a multi-strategy fund which will utilise a dynamic risk allocation the cost of raising corporate debt finance, has declined significantly in process across multiple investment disciplines.This fund will exhibit risk South Africa, and this has presented a window of opportunity for Brait to and return parameters that differentiate it from the current Brait fund raise a significant amount of low cost, long-term debt, which will meet the of hedge fund products. group’s need or capital to expand its operations.

Brait Annual Report 2006 7 GROUP CHIEF EXECUTIVE’S REPORT CONTINUED

Immediately prior to 31 March 2006, Brait secured a US$73 million partners. The partnership has already created value for all stakeholders. (ZAR450 million) long-term debt facility and has drawn down the For example, the benefit of the partnership to the business was clearly capital in full. felt in the gathering of assets under management this year. Secondly, the original intention in the Sitogo transaction was that forecast Brait intends to use the capital for expansion of existing operations, earnings and cash generation would be sufficient to repay the new organic business activities and BEE investing opportunities. A underpinning financing within six years. Earnings and cash generation small portion may be used for a share buy-back programme. The over the two years of the partnership is 15% ahead of forecast with the deployment of this capital should enhance earnings growth, create expected commensurate benefit to Sitogo. capital efficiencies and improve Brait’s market rating by decreasing earnings dependency on private equity investing income. In terms of broader BEE impact, Brait benchmarks itself against the applicable sections of the Financial Services Charter Scorecard, namely Strategic review and outlook employment equity, procurement, ownership and control and Our 2006 goals were primarily operational in nature and largely built corporate social investment. When measured against these criteria on similar goals for 2005: Brait scored an “A” rating for the year. •Focus on driving value of high impact investment in Private Equity. Brait is a strong supporter of the JSE Limited’s Socially Responsible This was achieved as evidenced by a 40,8% return on equity from Investment (JSE SRI) Index. The JSE SRI Index evaluates companies on that business. their sustainability in terms of governance, economic, environmental • Make substantial progress in raising of Brait Fund IV. A successful and social factors and Brait is pleased to be one of 58 companies first closing of Brait IV, and the positive response received from included in the2005/2006 annual review of the JSE SRI Index. investors gives us confidence that the Fund target of US$500 million (ZAR3,1 billion) will be achieved. Staff and stakeholders • Increase funds under management in Specialised Funds. With The strong relationship we have with all our stakeholders is critical to assets under management increasing by almost 700% to the performance and sustainability of our business. On behalf of the ZAR3,1 billion, this goal was achieved in spectacular fashion. executive and my partners at Brait, I would like to formally thank my • Improve profitability and sustainability of Corporate Finance. Both colleagues at Brait for their hard work and dedication, our objectives were achieved in respect of the Specialised Debt shareowners and BEE partners for their commitment and partnership, business, however, we were disappointed that continued lack of and our clients and private equity and specialised fund investors for profitability in the M+A/advisory unit has led to a need to their loyalty and support. Your partnership is much appreciated and restructure that business unit. important to the current and future success of Brait. • Further develop our investment in Bayport.

For the year ahead, our objectives build on the achievements and solid business platform created over the last few years, and look to utilise the increased pools of capital available to Brait to capitalise on the opportunities we see across all our business segments: • In Private Equity, maximise value in investments in Brait III, finalise Brait IV and begin the investment process in that fund. • In Specialised Funds to build assets under management, secure John Coulter additional hedge fund capacity and launch a multi strategy fund. Group Chief Executive • Within Corporate Finance it is our intention to broaden our product 19 June 2006 and service capabilities in the capital markets. • Develop and leverage our investment in Bayport, and further explore a number of opportunities, primarily in financial services, that are potential additions to our suite of strategic investments.

In conclusion, we believe that the sustainable macro-economic prospects for Brait’s core businesses are as good as they have been in the past decade. In the absence of any unexpected significant negative market or other events outside of the group’s control, we are encouraged as to the prospects for continued earnings growth and the generation of attractive equity returns for our shareowners.

Sustainability The sale of 26% of Brait South Africa Limited (‘Brait”) to Sitogo Holdings (Pty) Ltd (“Sitogo”), a broad-based black empowerment grouping led by a number of entrepreneurial black business people, was concluded in the prior financial year.The partnership between the Sitogo and Brait executives is working well as evidenced by increased interaction and joint exploration of business opportunities between the

8 Brait Annual Report 2006 TIMELINE

Some of the more significant events that have shaped the current structure and position of the Brait S.A. group are listed below:

• Achieved first close of Brait Private Equity Fund IV • Quantum AUM growth – Specialised Funds • Fee earning funds under management in excess of US$1 billion 2006 • US$73 million of new debt capital raised • Bayport loan book doubles to US$33 million • Lead arranger for two of first four High Yield Eurobonds

• Substantial completion of Brait III Investment Programme 2005 • Introduction of BEE partners to Brait South Africa • Initiation of fund raising Brait Private Equity Fund IV

2004 • Distribution of banking capital to shareowners • Reorganisation of Corporate Finance business

• Closure of Banking operations - deregister banking licence 2003 • Reorganisation and focus on core operations • Initial raising of third-party Specialised Funds capital

2001 • Establishment of Brait Specialised Funds 2000 • Completion of Brait II Investment Programme

• Establishment of Brait on the Luxembourg, London and Johannesburg stock exchanges • Merger of Private Equity and banking operations • Establishment of Brait Private Equity Fund III 1998 • Establishment of Braitec Private Equity Fund I • Incorporation of full advisory and investing operations in Mauritius

1996 • Completion of Brait I Investment Programme 1995 • Establishment of Brait Private Equity Fund II 1991 • Establishment of Brait Private Equity Fund I (FCF Fund)

Brait Annual Report 2006 9 GROUP SCORECARD AND PERFORMANCE MEASUREMENT

Objective ROE – average capital To achieve a long-term US dollar return on shareowner’s funds of 20%. 60

Measured as follows: • Annual ROE – measured by growth in NAV, adjusted by dividends, 40

over average capital % • Long-term ROE – IRR on opening and closing NAV plus dividends 20 Progress

Following the restructure and recapitalisation of the group in 2003/ 0 2004, Brait has increased its long-term ROE target to 20% in US dollar 04 05 06 terms (for South African investors this should equate to approximately Return on shareowners’ funds in US$ 25% in rand terms in the current macro-economic environment). This Long-term objective 20% performance has been measured from 1 April 2004 as any comparison prior to this date would be misleading because of the changes that Long-term ROE* have occurred in the group since then. 40

Brait has generated an annual return on equity in 2006 of 45,9% and a cumulative three-year return of 36,2%, which has comfortably 30 outperformed its long-term target of 20%. %

Objective 20 To double alternative asset funds committed, including specialised funds, every four years. 10 04 05 06 Progress Cumulative ROE Long-term objective 20% Brait has a sound base of commitments from which it expects to grow * Adjusted for special dividends its funds under management. The raising of Brait Fund IV in the 2006 financial year and the explosive growth of assets under management in specialised funds have had a major beneficial impact on this deliverable. Alternative assets – funds committed* 1 500

Objective 1 200 To grow alternative asset funds invested at 20% per annum.

900 Progress

Brait has to date exceeded its target of invested funds. New US$ millions 600 investments by the Brait Absolute Fund of Funds have contributed significantly to this performance in the 2006 financial year. 300

0 98 99 00 01 02 03 04 05 06

Funds committed (US$ million)* Funds committed objective

* Original commitment in private equity and year-end commitments in specialised funds

Alternative assets cumulative funds invested

1 000

700 US$ millions 400

100 98 99 00 01 02 03 04 05 06

Invested (US$ million) Investing objective

10 Brait Annual Report 2006 SALIENT FEATURES for the year ended 31 March

Supplementary rand information (Note 1)

2005 2006 2006 2005 Change ZARm ZARm US$m US$m %

302,8 338,6 Profit from operations 52,9 48,5 9,1 242,4 250,2 Private equity 39,1 38,8 0,7 5,8 Corporate finance 0,9 0,1 7,3 8,3 Specialised funds 1,3 1,2 52,4 74,3 Group investments 11,6 8,4 (15,7) (15,4) Finance costs (2,4) (2,5) (69,7) 12,2 Capital items 1,9 (11,2) 217,4 335,4 Profit before taxation 52,4 34,8 50,6 (3,1) (17,3) Taxation (2,7) (0,5) 214,3 318,1 Profit after taxation 49,7 34,3 44,9 (2,6) (17,3) Minority interest (2,7) (0,4) 211,7 300,8 Attributable earnings 47,0 33,9 38,6 PERFORMANCE Headline earnings per share 237,1 291,7 – Basic (cents) 45,8 38,0 20,5 216,7 256,7 – Diluted (cents) 40,3 34,7 16,1 Attributable earnings per share 237,1 331,9 – Basic (cents) 51,9 38,0 36,6 216,7 292,1 – Diluted (cents) 45,6 34,7 31,4 89,89 119,32 Dividends per share 18,24 13,75 32,7 21,47 51,51 – Interim (cents) 7,85 3,50 68,42 67,81 – Final proposed (cents) 10,39 10,25 813,0 961,6 Net asset value per share (cents) 155,7 130,3 19,5 32,0 45,9 Return on equity (%) 45,9 32,0 43,4 FINANCIAL STATISTICS Market capitalisation 1 033,4 2 536,9 – 31 March (m) 410,8 165,6 148,0 88,3 101,5 Shares in issue (m) – excluding treasury shares 101,5 88,3 14,9 Weighted average shares in issue 89,3 90,6 – Basic (m) 90,6 89,3 1,5 97,7 103,0 – Diluted (m) 103,0 97,7 5,4 Closing share price 1 170,0 2 500,0 – 31 March (cents) 404,8 187,5 115,9 ZAR/US dollar exchange rates 6,2395 6,1765 – closing 0,1619 0,1603 6,2503 6,3979 – average 0,1563 0,1600

Note 1: The disclosure above is for information purposes and does not form part of the group financial statements.

Brait Annual Report 2006 11 FINANCIAL COMMENTARY

Headline earnings As International Financial Reporting Standards (“IFRS”) do not 2006 has been provided for illustrative purposes for South African recognise the concept of headline earnings, the following users, based on adjustments required by South African Statements of reconciliation between earnings and headline earnings at 31 March Generally Accepted Accounting Practice.

Supplementary rand information 31 March 31 March 31 March 31 March 2005 2006 2006 2005 ZARm ZARm US$m US$m 211,7 300,8 Attributable earnings 47,0 33,9 – (35,2) Headline earnings adjustments: (5,5) – – (18,6) Profit on disposal of interest in subsidiary (2,9) – – (17,9) Profit on sale of non-current assets held for sale (2,8) – – 1,3 Realisation of translation adjustment 0,2 –

211,7 265,6 Headline earnings 41,5 33,9

Segmental analysis of Brait’s operations •Group capital A segmental analysis of the group’s results have been prepared for the – recurring income from strategic investments and loans in business and geographical segments of Brait’s activities on pages 17 subsidiaries, associates and joint ventures; and to 34. The geographical segments have been changed this year to a – meaningful capital investments. basis of distinguishing between the actual geographical source of income rather than distinguishing between the economic environments Accounting policies which have similar specific risks and regulations. The financial statements of the group are prepared in accordance with IFRS on the going-concern principal and using the historical cost basis, except where otherwise indicated. The nature of the operational income, expenses and capital flows of the principal business segment activities are as follows: The accounting policies are consistent with those applied in the previous year. • Private Equity – annuity income flows from fixed long-term contracted Currency hedge management fees; Brait has consistently applied its policy of hedging the majority of its – investment income and capital participations from fund South African rand tangible net assets into US dollars, which is the investments and proprietary ‘private equity’ styled transactions; presentation and performance measurement currency of Brait S.A.. As – investing income typically includes dividends, interest, investment at 31 March 2006, approximately 88% of the group’s capital, inclusive gains and capital participations, which are market and specific of the currency hedge, was effectively maintained in US dollars. The investment dependent; average cover for the year, including inherent hedges, exceeded 80%. – the cost structure is predominantly fixed; and – significant capital is co-invested in the group’s private equity The purpose of the hedging policy is to protect the US dollar capital of funds and to a lesser extent on proprietary investments. the group against rand weakness for the following reasons: • the group’s functional and presentation currency is in US dollars; • Corporate Finance • the group’s performance measurement targets are set in US dollars – recurring advisory income from specialised financial services; in order to be aligned with its presentation currency; – lumpy participation fees are derived from the specialised finance • the group has a significant international shareholder base which is activities; unique for a predominantly South African focused financial services – the cost structure is variable; and business. The hedging strategy offers these shareowners protection – minimal capital is required. against Rand weakness; and • the hedge provides greater reporting transparency and simplicity of the group results. Without the hedge, the impact of currency • Specialised Funds translation adjustments would obscure the core underlying – annuity income flows from contracted management fees; performance of the group’s operations. – investment income from seed capital in the group’s funds; – investing returns typically include dividends, interest and Included in the 88% US dollar capital cover is a US$35,0 million five year investment gains, which are market and specific investment currency call option, purchased in March 2006, against the tangible net dependent; asset investment by the group in its South African operation.The primary – the cost structure is predominantly fixed; and terms of the option include a maturity date of 25 March 2011 and a – seed capital is invested in the group’s hedge fund products and in forward rate of ZAR7,084 to the US dollar. The spot rate at the emerging hedge funds. acquisition date of the option was ZAR6,235 to the US dollar.

12 Brait Annual Report 2006 The previous currency hedge comprised a US$30,0 million cross currency swap taken out in February 2005 with a settlement date at the end of March 2006, combined with a put option to sell US$30,0 million against the rand at a rate of ZAR5,84 to the US dollar.

The income statement charge for the period of the currency hedge was Earnings continue to US$2,2 million (2005: US$4,1 million). This cost is offset by a gain of US$0,7 million arising from the translation of the group’s non-US dollar assets into US dollars at 31 March 2006 which is disclosed under grow strongly the foreign currency translation reserve in the balance sheet in compliance with IFRS.

An approximate illustrative impact of the currency hedge on the group’s net asset value (’NAV’) in US dollars and rands is set out respectively in the graphs below.

US$ capital before and after hedging

45

Debt capital – US$73 million 40 Capital has traditionally been a scarce resource for Brait and consequently the group has always preserved and managed its capital judiciously. At the same time, Brait has had to balance this resource 35 within the limits of its dividend policy which has been to distribute regular and substantial dividends as part of Brait’s goal of generating Capital 30 incremental long-term wealth accumulation for shareowners.

Brait currently has a US$13,0 million (ZAR80 million) unsecured short- 25 term banking facility which it has utilised to meet its working capital and short-term operational financing needs. This facility though, has not been substantial enough for Brait to pursue its longer term growth 20 strategy. Brait has been reluctant to raise new equity capital to fund its 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 5,75 6,25 6,75 7,25 7,75 8,25 8,75 growth due to the perceived market underpricing of Brait’s equity. ZAR/USD exchange rate

Balance sheet capital (no hedging) Hedging effect Over the last twelve months the accessibility to unsecured funding as well as the cost of raising corporate debt finance has declined significantly in South Africa. Importantly for Brait, this has presented a ZAR capital before and after hedging window of opportunity to raise a significant amount of low cost, long- term debt which will meet the group’s need for capital to expand its 315 operations. 300 Immediately prior to 31 March 2006, Brait secured a long-term debt 285 facility and has drawn down the full capital balance. The principal 270 terms of the facility are as follows: • Amount: ZAR450 million (approximately US$73 million) 255 • Instrument: Redeemable preference shares issued by 240 Brait South Africa Limited ZAR millions • Rate: 78% of the South African prime rate on a 225 floating rate basis

210 •Term: Seven year loan with a redemption schedule commencing annually at the end of the 195 fourth year

180 • Currency: ZAR • Guarantees: Brait S.A. group underpin 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 4,0 • Early redemption: Brait is entitled to an early redemption at ZAR/USD exchange rate any time prior to the specified settlement Rand NAV without hedging effect Rand NAV with hedging effect dates.

Brait Annual Report 2006 13 FINANCIAL COMMENTARY CONTINUED

Brait intends to apply the capital as follows: Income statement • to accelerate growth of existing operations; An analysis of the line item results for the year ended 31 March 2006 – increase Brait IV co-investment as disclosed in the income statement is set out below: – new private equity proprietary investing – additional seed capital and product development in Specialised • Revenue Funds Group revenue for the year was US$44,5 million, marginally down – loan book growth and expansion in Bayport from the US$45,0 million reported for the previous year. • to initiate new organic business activities; and • to facilitate BEE investing opportunities. The following sets out revenue per operating segment for the year under review: Brait may also consider a limited share buyback programme. 31 March 31 March The outcome of the deployment of the additional capital should: 2006 2005 Variance % • enhance earnings growth from investment returns; US$m US$m US$m change • increase the growth in funds under management; • improve Brait’s earnings yield from capital and share buyback Private Equity 11,0 22,8 (11,8) (51,8) efficiencies; and Corporate Finance 7,9 4,1 3,8 92,7 • improve Brait’s market rating by decreasing earnings dependency Specialised Funds 3,9 2,4 1,5 62,5 on private equity investing income. Group Investments 21,7 15,7 6,0 38,2

Brait will continue to follow its stringent investment disciplines before Revenue 44,5 45,0 (0,5) (1,1) investing this new capital. Subsequent to year-end, Brait has deposited a large portion of the capital drawn with the Brait Absolute Fund as a The decrease of 51,8% in revenue from Private Equity, was more cautionary interim investment until such time as it is allocated to the than offset by the increase in other private equity income, and was group’s operations. largely the result of significant dividend received on the disposal of a proprietary investment in the prior year. Operations and performance Brait has continued its strong performance in the previous year with Revenue from Corporate Finance and Specialised Funds, which is improved earnings in all business areas.This performance was primarily predominantly fee income, increased substantially from the previous driven by the private equity and group investment operations. year by 92,75% and 62,5% respectively, albeit off a low base.

Key financial scorecard performance deliverables this year have been: Group Investments’ revenue, comprising primarily of interest • an annual 45,9% return on shareowners’ funds and a cumulative income in Bayport, increased by 38,2% and can be directly long-term ROE since 1 April 2003 of 36% – this substantially attributed to the growth in the underlying business volumes. exceeds the group’s long-term target ROE of 20% in US dollars; • cumulative fund commitments of US$1 529 million exceed the • Other income group objective of US$852 million by 79%; and Other income increased by 50,3% to US$49,3 million from • cumulative funds invested increased by 72% from US$615 million US$32,8 million. to US$1 060 million against the group objective of 20% per annum. The following sets out the other income per operating segment for the year under review: Return on equity (ROE) 31 March 31 March 60,0 2006 2005 Variance % US$m US$m US$m change

Private Equity 45,9 29,8 16,1 54,0 45,0 Corporate Finance (0,1) (0,3) 0,2 66,7 Specialised Funds 2,6 3,1 (0,5) (16,1) Group Investments 0,9 0,2 0,7 >100

% 30,0 Other income 49,3 32,8 16,5 50,3

The increase in other income is predominantly the result of fair 15,0 value recognitions of Private Equity’s underlying funds and proprietary investments. Unrealised fair value gains totalling US$41,9 million are included in this income.

0 04 05 06

14 Brait Annual Report 2006 Revenue and other income • Capital items 2006 2005 100 Capital items include the following: US$m US$m

– The fair value adjustment to the financial 80 liability of US$8,2 million, arising from the 26% sale of the South African operations to Brait’s BEE partner.* (1,4) (7,1) 60 – Profit generated on the disposal of part of Brait’s interest in Bayport Holdings to new strategic partners reducing its US$ millions 40 economic interest to 41,66%. 2,9 – – Currency hedge cost as referred to on page 12. (2,2) (4,1) 20 – Profit generated on the disposal of Brait’s Johannesburg office building and fittings. 2,8 – 0 – Realisation of translation adjustment 04 05 06 following the part repayment of the rand denominated loans granted by Brait S.A. to Sitogo Holdings (Pty) Limited • Operating expenses and Brait South Africa Limited. (0,2) – Operating expenses increased by 38% from US$30,9 million in the Total capital items 1,9 (11,2) previous year to US$42,6 million and is primarily attributable to the following: * The purchase consideration paid by Sitogo to Brait S.A. for its 26% – an increase in Bayport’s operating expenses which accounts for interest in Brait South Africa is accounted for under IFRS as a financial 33% of the total increase; liability and not as a minority shareowner. The financial liability is fair – 25% of the increase relates to non-recurring abnormal charges of valued annually to match the net asset value of Brait South Africa. approximately US$4 million in private equity for: > raising Brait IV •Taxation > new Private Equity accounting and administration The taxation expense for the year of US$2,7 million arises primarily system; and from Brait’s non-South African operations. In South Africa, the > infrastructural costs and performance awards in group has estimated tax losses of some US$38,7 million at Specialised Funds; and 31 March 2006 (2005: US$38,2 million) of which US$8,6 million – the balance of 4% to normal inflationary increases. has been absorbed by the deferred tax asset of US$2,8 million carried at year-end. • Associates Income from associates has increased marginally from Net asset value US$1,6 million to US$1,7 million and comprises largely of the Group net asset value in US dollars has increased by 54,5% after group’s equity income share from its 32% interest in its South adding back dividends paid during the year. African BEE partner holding company, Sitogo Holdings (Pty) Limited. Change in NAV

•Joint ventures 200 The group’s joint venture interests comprise its 50% stake in Capital Alliance Finance (CAF). No income was recorded on the group equity holding in CAF’s micro-lending business during the 160 year as the operation focused on collecting cash to repay shareholders’ loans rather than aggressively pursuing growth in its lending book.A substantial amount of the shareowners’ loans were 120 repaid and this policy will continue until the business is self financing.

US$ millions 80 • Finance costs Finance costs relate largely to interest paid on the shareowners’ 40 loan from Brait’s BEE partner, Sitogo Holdings and the remainder of the financing structure on Brait’s Johannesburg office building that was disposed of during the second half of the financial year. 0 04 05 06

Brait Annual Report 2006 15 FINANCIAL COMMENTARY CONTINUED

Balance sheet Cash flow statement A simplified analysis of the group balance sheet at 31 March 2006 An analysis of the movement in line item results as disclosed in the after deconsolidating Bayport, is depicted below. cash flow statement is set out below:

• Net cash generated from operating and investment NAV activities US$158,0 million (2005: US$115,1 million) – Operating activities Operating cash, including dividend and interest received 100 reduced from US$20,6 million in the previous year to US$12,9 million and is primarily the result of lower dividends 80 received on private equity investments. 60

40 –Working capital Working capital increase reflects the significant growth in the 20 Bayport advances book (US$17,0 million) that was partly offset 0 by decreases in strategic loans and other receivables.

US$ millions -20 – Investing activities -40 The net year-on-year inflow of US$22,0 million on investing activities was largely the result of proceeds received on the -60 realisation of private equity investments and the disposal of -80 Brait’s Johannesburg office building and fittings.

-100 • Cash flows from financing activities

Debt The net year-on-year financing activity inflow of US$61,7 million was Bayport attributed primarily to the raising of US$72,9 million from the issue equivalents seed capital Investment in Private equity Private of redeemable preference shares by the subsidiary company, Brait Cash and cash working capital Specialised funds Net investment in South Africa Limited.The group also applied US$15,1 million to settle Net BEE investment private equity funds private

proprietary investment the outstanding secured liability associated with the funding of the office building and fittings that were disposed of during the year. 2006 2005 At March 2006 the balance sheet was strong with approximately 53% (2005: 16%) of shareowners’ capital held in cash and cash equivalents.This balance includes a large portion of the debt capital drawn just prior to year-end.

An analysis of cash generated and cash applied in operating and investment activities is depicted in the following graphs:

2006 net cash generated from operating investments and investment activities

Cash generated Cash applied US$49,4 million US$25,1 million

Investing actvities US$22,0 million (44%) Bayport US$17,0 million (67%) Working capital US$12,9 million (26%) Finance cost US$2,4 million (10%) Operating activities US$14,5 million (30%) Capital items US$3,5 million (14%) Taxation US$2,2 million (9%)

16 Brait Annual Report 2006 SEGMENTAL REVIEW PRIVATE EQUITY

Performance for the year Cumulative funds committed 2006 2005 US$m US$m 1 200

Revenue and other income 56,9 52,6 1 000 Profit from operations 39,1 38,8 Closing capital employed 109,4 82,2 800 Return on equity before taxation (%) 40,8 47,2 600

Profit from operations US$ millions 400 45 50

45 40 200

35 40 35 0 30 98 99 00 01 02 03 04 05 06 30 25

25 % • Management fees are payable on committed capital independent 20 of the amount drawn or the valuation of the portfolio, representing US$ millions 20 15 a stable long-term revenue stream. As a result, the interests of 15 investor and manager are aligned by allowing a patient and 10 10 considered pace of investment rather than rewarding a rapid deployment of funds. Brait receives annual fees of approximately 5 5 2,0% on committed capital of its private equity funds, reflecting the 0 0 specialisation of the team and the intensity with which it supports 04 05 06 the investment processes; Profit from operations ROE •The funds draw down cash for investment as and when required by the manager and, on realisation, pass proceeds directly back to investors; and Overview of Brait Private Equity • Unrealised capital participations are recognised in income when the The Private Equity business of Brait comprises: return of the fund’s investments exceeds certain threshold returns and •The management of third-party capital committed by a set of are payable only once cash has been returned to investors covering international and South African investors, including Brait and the cash drawn down for investments and fees, together with a preferred team, to its private equity funds; return (generally 8% in US dollar terms). These capital participations, •The management of Brait capital committed through the Proprietary which are dependent on a minimum capital commitment by Brait and Investing Programme in terms of which investments are made in the investment team, typically represent 20% of the returns. The transactions completed by its Private Equity division which fall private equity team shares in these participations equally with Brait, outside the investment mandate of the private equity funds; and again aligning the motivation of all parties. •The deployment of such capital by making medium to long-term investments into corporate South Africa across the various Brief overview of Brait Private Equity Model industries in our economy. Investors Manager Investees Brait’s fund format allows it to leverage its own skills alongside the Managed: Diversified across capital of a premier set of international and South African investors or Third-party • Over 10 years various industries capital invested • Illiquid limited partners. The earnings stream from these operations are of a in corporate SA high quality, comprising predominantly annuity management fees and • Discretionary capital participation returns on invested capital. The economic model followed is true to the principles tried and tested originally in the Economic effect Brait capital on Brait: US and Europe, which are: invested • 2% management •The fund investment holding vehicles are not traded publicly; fee p.a. • Funds are committed for the long-term but are closed-end in • 10% capital nature, usually giving the manager five years in which to draw the Team capital participation invested • >30% IRR on committed capital to make investments, and a total of 10 to 12 invested capital years from the fund’s inception to return the capital to investors. Cumulative commitments to private equity funds under Brait’s Given the long-term nature of the commitment and illiquidity of the fund management currently total over US$1 billion; investment, investors make careful and extensive reviews of the manager. Brait enjoys relationships with a premier group of investors who have made successive commitments to Brait I, Brait II, Brait III and now Brait IV.

Brait Annual Report 2006 17 SEGMENTAL REVIEW PRIVATE EQUITY CONTINUED

During the year, a number of new prestigious international and local International overview* investors have committed to Brait’s new fund, Brait IV. Both new and 2005 was the private equity industry’s biggest year yet with almost existing investors have all formed a positive long-term view of the US$500 billion of private equity firm backed merger and acquisition Brait team, its investment strategy, and ability to continue delivering activity around the world – an increase of 18% over the previous outstanding returns. 12 months. According to Private Equity International, 114 large deals of US$1 billion or more were completed worldwide in 2005 compared Brait I, Brait II and Brait III, all now fully invested, invest in later stage to 78 in 2004. private equity transactions. Brait IV has an investment strategy consistent with these prior funds. Deals such as the US$15 billion leveraged buy out of Hertz, the US$11 billion leveraged buy out of Sun Guard Data Systems, and the Brait I is fully realised, and Brait II needs to exit one further investment and US$10 billion offer for Danish telecommunications operator TDC show will then be fully realised. Brait II was the first South African private equity that the number of companies too big to be touched by private equity fund to raise US capital and the SA vehicle of the fund, after Brait I, will be the second fund to be fully realised. are shrinking. 2005 was also a record year for fundraising, with a number of US$10 billion funds being closed by US buyout firms.A total Braitec, also fully invested, is focused on early-stage technology of US$261 billion was committed to new private equity funds investing, and represents less than 5% of Brait Private Equity’s funds currently under management. Number of private equity M&A deals of more than US$1 billion, worldwide Fair value of fund portfolio investments (cumulative) 120

800 100 700 80 600

500 60

400 US$ millions 40 US$ millions 300 20 200

100 0 98 99 00 01 02 03 04 05 0 98 99 00 01 02 03 04 05 06 Source: Citigroup Global Markets Inc., The Washington Post, Private Equity International Brait II Brait III Braitec

The track record of the Brait Private Equity funds reflects a consistently impressive performance over the past 15 years, as highlighted in the table below:

Investment Fund name Vintage type Size Gross IRR Special features Brait I 1991 Later stage ZAR228 million 29% Rand First fund managed by an independent private equity manager in South Africa. Investment programme complete. Brait II 1995 Later stage US$144 million >30% US$ Pioneered international LPs into South Africa, in partnership with local LPs. Brait III 1999 Later stage US$409 million >30% US$ South Africa’s largest independent private equity fund. Braitec 1999 Early stage ZAR277 million Negative IRR – Brait IV 2006 Later stage Target Not yet closed. First closing in 2005. US$500 million – Proprietary Investing Ongoing Later stage n/a >30% Rand Invests in transactions that fall outside of the investment mandate of the Brait Private Equity Funds.

18 Brait Annual Report 2006 worldwide, nearly US$100 billion more than 2004, which was itself a Brait believes private equity is coming of age in South Africa. There are very successful year for fundraising. In addition, 2005 appears to have very few non-resource South African firms which can be considered been a record year for distributions from private equity funds back to immune from private equity driven strategies due to size. Despite the their investors. There is no doubt that private equity has become a outstanding performance of the JSE over the past two years, Brait major component of economic activity in the US and Western Europe. believes the South African environment is better suited to private equity than at any time previously. There are a number of reasons for (*Source: The Private Equity Annual Review 2005 published by Private this including: Equity International). (i) the stable macro-economic environment with good economic growth, particularly in certain sectors; With respect to emerging markets a large amount of private equity (ii) improved availability of debt finance, both through banks and capital is focusing on China, India, other Asian markets and Eastern bond markets; Europe. However, Brait has during its own Brait IV fundraising process (iii) strong merger and acquisition activity, particularly with respect to seen an increasing amount of interest in South Africa from black economic empowerment transactions, with room for private international limited partners. This is further evidenced by the growing equity to take up a bigger proportion of this activity; and (iv) very healthy and diverse exit environment. number of LP’s visiting South Africa and media attention from industry publications – such as Private Equity International which has now Brait believes 2006 and 2007, should see a number of transactions incorporated an award for African private equity firm of the year for the which form new milestones in the history of the industry in South Africa. first time in its prestigious annual global private equity awards. Brait was voted, by its international peers, as winner of this inaugural award. Why Private Equity? What reasons are there for the explosive growth in private equity South African overview internationally? Why are more institutional investors committing a According to the South African Venture Capital Association (“SAVCA”) greater proportion of their assets under management to private equity? South Africa’s private equity industry had approximately ZAR44 billion under management at 31 December 2005, up from approximately Brait believes private equity enables a company to pursue a long-term ZAR40 billion at 31 December 2004. The increase was largely due to growth strategy, sheltered from the short-term dynamics of the public financial services groups and government related entities increasing market. This is particularly important for (and why private equity is their private equity allocations. SAVCA indicates that there was particularly suited to) companies going through change. The company approximately ZAR5 billion of private equity investment activity in is accountable to a small group of focused shareowners who help South Africa in 2005, which amounts to around 2% of merger and develop, buy into and monitor the companies strategic and operational acquisition activity in South Africa (ZAR269 billion according to Ernst & plans. Private equity owners should be vigilant owners with active Young). Internationally private equity has been generating 20% to access to management and company information. 33% of merger activity in Europe according to the Economist in September 2005, indicating the enormous scope for growth of private In addition, a private equity owned company is in a strong position to equity in South Africa. Although the 2005 SAVCA survey identifies attract, incentivise and remunerate outstanding management teams some 62 entities that may potentially be classified as private equity away from the public spotlight. Increasingly these, and other reasons, firms or are involved in the management of private equity funds, Brait are leading institutional investors, both in South Africa and internationally, to conclude that there is an important place for private believes that due to size, experience and length of track record, there equity in building successful, dynamic companies in an economy. are few funds in South Africa able to compete in the same large transaction space as Brait IV. The fact that top-performing private equity funds with excellent track records tend to continue to perform consistently well through Some of the most significant and largest industry deals which Brait has subsequent funds (compared to the mean reversion which often occurs concluded since 2000 include: with public asset managers) also lowers the investment risk and 1. Afgri ZAR1,3 billion – unique public opportunity (Brait III) demonstrates why internationally and locally good private equity 2. Southern Mining ZAR560 million – expansion capital (Brait III) managers tend to become enduring institutions. 3. Smartcall ZAR500 million – entrepreneurial partnership (Brait III) 4. LogicalOptions ZAR617 million – leveraged buyout (Brait III) Brait Private Equity 5. Pepkor ZAR3,9 billion – entrepreneurial partnership (Brait III and Brait Private Equity will continue to execute the investment Old Mutual) fundamentals which have enabled it to build an outstanding 15-year 6. Net 1 ZAR1,5 billion – entrepreneurial partnership (Brait III) track record. These include an experienced, cohesive team; support from senior industrialists; strong, self-originated dealflow; a large, active pool of capital from a diversified investor base; a diversified portfolio of assets; and a coherent empowerment strategy. In addition, South Africa is experiencing a growing, stable macro-environment and an efficient diverse exit environment – factors which were not always present during the building of Brait’s track record and which should enhance returns further.

Brait Annual Report 2006 19 SEGMENTAL REVIEW PRIVATE EQUITY CONTINUED

Brait believes that successful private equity managers require a healthy mix of the following:

Item Brait position Reflected in . . .

1. Solid sustainable track record ✓ Invested in over 80 companies over the past 14 years which, on an aggregate basis, yielded in excess of 30% IRR 2. Diversified investor base ✓ Brait has managed money for both international (60%) and SA (40%) investors over the past 10 years – 25 key investors 3. Coherent empowerment strategy ✓ Brait has executed a successful four-pronged strategy at various levels: 1) equity ownership 2) employment equity 3) franchise development 4) investee profiles 4. Experienced, cohesive team ✓ 14 investment professionals; leadership group has worked as a team for 8–10years 5. Engaged senior industry advisors ✓ Active involvement with five industrialists 6. Strong originated dealflow ✓ Over 90% of transactions have been originated on an exclusive basis 7. Diversified portfolio ✓ Across all sectors (except typical exclusions, eg: tobacco, gambling, etc) 8. Large, active pool of capital ✓ • SA’s largest and independent player – ZAR1 billion committed funds to date • Brait III is SA’s largest Private Equity fund to date 9. Efficient, growing macro environment ✓ • Macro fundamentals are healthy • Regulatory procedures are strong 10. Efficient, diverse exit environment ✓ • IPO’s; trade sales (domestic and international); leverage recaps

Brait IV will continue to focus on the same types of deals as Brait’s Financial results and commentary prior private equity funds. These are: Private equity earnings for the financial year have once again produced • Entrepreneur Partnering, in which capital is provided in support a solid performance. Profit from operations improved by 1% from of established entrepreneurs in profitable businesses that are US$38,8 million to US$39,1 million. positioned to take advantage of organic growth and acquisition opportunities, including platforms for build-up strategies. Revenue and other income in aggregate have increased by 8% from • Buyouts of private and stock exchange-listed companies, where US$52,6 million to US$56,9 million driven primarily by value Brait believes it has the opportunity to accelerate growth alongside recognition in Brait III and further growth in proprietary investing strong management teams. income. Revenue and other income from Private Equity investing is by • Unique Public Opportunities, where Brait’s skills and network nature volatile and dependent on opportunistic timing and market can be used to take advantage of undervalued strategic conditions. Revenue includes management fees, dividend distributions opportunities, to purchase public shares, enabling Brait to effect and interest income from investing activities. Other income typically change through the board of directors and execute a private equity incorporates realised and unrealised fair value based uplifts. strategy whilst the investee company remains public. Approximately 68% of total private equity income in the period is attributable to unrealised gains on investments. All three transaction types feature the following primary components: • Entry Costs have increased disproportionately by 29% from US$13,8 million • Identify an opportunity that has the ability to significantly to US$17,8 million primarily due to non-recurring charges on raising enhance EBITDA growth and strategic appeal and administering Brait IV.The largest components of the expense line •Thorough due diligence executed by Brait are staff costs, supporting systems and infrastructure. • Develop the value-build plan with management • Development stage Return on equity in private equity was 40,8% on average capital • Help execute the value-build plan; focus on areas where value employed of US$95,8 million. can be added; requires flexible approach •Partnership approach versus head office approach requiring frequent interaction • Exit • Maximise exit opportunity through timing and methodology •Trade sale, IPO, re-leverage the business

20 Brait Annual Report 2006 Operational review Cumulative funds invested Highlights (at cost) In August 2005, the listing of Brait III portfolio company, Net 1 on the Nasdaq realised 20% of the Brait III holding in Net 1 and returned 600 approximately 1,4 times capital invested in Net 1. Brait III continues to hold 80% of its Net 1 holding, which is currently trading at over 500 eight times invested capital with a market value of over US$300 million for Brait III’s remaining holding. This is the first Nasdaq listing to be 400 sponsored by a South African private equity firm. The bookrunners, JP Morgan and Morgan Stanley, labelled it a significant success, being 10 times oversubscribed and priced at US$22 per share, outside the 300 cover range of US$18 to US$20 per share. The share has traded up US$ millions post-listing to a range of US$30 to US$32. 200

Other highlights during the financial year include a number of Brait II 100 exits such as Shoe City, Prime Cure and Unispan. The local Brait II vehicle (SAPET I) is now fully realised and Brait believes this to be the 0 second fully realised closed end private equity fund using third-party 98 99 00 01 02 03 04 05 06 capital in the history of the local private equity market. SAPET I returned a gross rand IRR of approximately 58%. The offshore Brait II fund (SACGF) needs one further realisation before it will be fully Cumulative funds returned realised and wound up. (actual)

The Reclamation Group, a Brait III portfolio company, realisation in 700 early 2006, through a leveraged recapitalisation, was particularly innovative and another South African first. The company issued a 600 Eurobond which enabled management to purchase the company back from Brait III and other shareholders. The Reclamation Group, an 500 environmental services group focused on the secondary metals market, with developing operations in waste paper, glass, rubber and plastic 400 recycling, proved to be a highly successful investment for Brait III 300 returning over five times the original investment and an IRR greater US$ millions than 40%. Brait believes the company has a bright future. 200 Brait continues to apply considerable resources to enhancing strategic plans of existing portfolio companies. Brait III portfolio companies 100 Net I, Pepkor, LogicalOptions and Wilderness have all performed exceptionally well at an operational level during the course of the year. 0 98 99 00 01 02 03 04 05 06

FV of portfolio investments in funds (cumulative)

800

700

600

500

400

US$ millions 300

200

100

0 98 99 00 01 02 03 04 05 06

Brait Annual Report 2006 21 SEGMENTAL REVIEW PRIVATE EQUITY CONTINUED

Investment in Private Equity Funds Proprietary Investment Programme The group has a direct investment of US$44 million in its private equity The portfolio companies within Brait Private Equity’s Proprietary funds (excluding capital participations), primarily invested in Brait III. Investment Programme have continued to perform in accordance with Brait has also committed a minimum of US$23 million to Brait IV, and expectation. Brait has US$42 million invested in the portfolio at given the exceptional current prospects for this fund and the private 31 March 2006. During the year under review a further follow on equity environment, it will probably look to increase this commitment investment was made into Pangea and the group realised its interests significantly before the final closing of the fund capital raising in Dywidag and RMS, Metra Holdings and Aqua Online. programme later this year. Brait continues to be highly selective in adding exposure to its Proprietary Investing Programme targeting special opportunities in the The group has exceeded its ROE targets on its investments into its US$1 million to US$3 million range. private equity funds to date.

IRR – Brait’s investment in its funds IRR – Brait’s investment in proprietary investments

60 90

80 50 70

40 60

50 % 30 % 40

20 30

20 10 10

0 0 Over 7 years Over 5 years Over 3 years Over 1 year Over 7 years Over 5 years Over 3 years Over 1 year

IRR (Rand) IRR (USD) IRR (Rand) IRR (USD)

Sectoral analysis – Brait’s investment in its funds Sectoral analysis – Proprietary investments 31 March 2006 (US$44 million) 31 March 2006 (US$42 million)

Consumer goods 60% Tourism 1% Information technology 39% Manufacturing 46% Information technology 23% Services 9% Mineral resource exploration 12% Tourism 3% Other 7%

22 Brait Annual Report 2006 The aggregate return on Brait’s private equity investing in its funds Braitec and proprietary investments (excluding capital participation) is The Brait Technology and Innovation Fund I (“Braitec”) is fully invested recorded below: and, apart from participating in a small Floppy Sprinkler rights offer, made no significant follow-on investments during the year under review. The focus of the team was on the consolidation of the portfolio IRR – Total private equity return from investments in in difficult markets for small technology companies and to ensure that funds and proprietary programme (weighted average) as many portfolio companies as possible start to generate positive cash 70 flows. Websoft, a provider of software and outsourcing solutions to short-term insurers and insurance brokers, was sold during the year 60 under review. A number of realisations have occurred post year-end which will result in a significant proportion of the remaining value in 50 the portfolio being returned to investors.

40 Medu Capital Private equity fund manager Medu Capital, an empowerment initiative % 30 with Brait which has approximately US$40 million under management, performed well during the year under review. Medu Capital has 20 concluded six transactions including VitalAire (respiratory care), Ampaglass (plastics), Capital Outsourcing (labour broking), Zest (exclusive distributor of WEG electric motors and drivers), Pepkor 10 (retail) and NCS Resins (producer of resins). The portfolio has performed exceptionally well, with most portfolio companies 0 Over 7 years Over 5 years Over 3 years Over 1 year continuing to trade in line with, or ahead of budget. Medu Capital, having successfully deployed the majority of committed capital in its IRR (Rand) IRR (USD) first private equity fund, has commenced with the raising of its second fund, Medu II. On the strength of a sound portfolio and capable management team, Medu Capital is seeking capital commitments from Sectoral analysis – Brait’s investment in its funds domestic institutions. and proprietary investments 31 March 2006 (US$86 million)

Consumer goods 30% Information technology 32% Manufacturing 21% Mineral resource exploration 6% Services 5% Tourism 2% Other 4%

Brait Annual Report 2006 23 SEGMENTAL REVIEW PRIVATE EQUITY CONTINUED

Portfolio of investments The current portfolio of private equity fund and proprietary investments spans a broad range of economic sectors and is summarised in the tables below:

Name of investment Description of business Status

FUND II Freeplay Energy Developer of technology involving the generation and storage of human-generated energy. Expected to be realised shortly. Nortech International A global supplier of manufactured components for detection solutions. Sold during the year. Prime Cure Clinics Provider of high quality, low cost primary healthcare services through a national network Sold during the year. of medical centres. Shoe City Holdings National retailer of discounted formal, casual and sports footwear. Sold during the year. Uni-Span Formwork and Manufacturer and distributor of scaffolding and formwork products to the construction and Sold during the year. Scaffolding International building sector. FUND III LogicalOptions Leading recruitment, staffing and IT services and business with interests in South Africa Follow on investment and North America. made during the year. Metrofile (formerly MGX) A provider of document management services and solutions. – Net I UEPS Technologies Developer of technology utilising smart card technology to provide fully integrated systems Partial sale (20%) to meet the requirements of “under-banked” populations of developing countries. during the year. Pepkor Retailer of clothing and footwear with operations in Africa, Australia and Europe, trading under the names of Pep, Ackermans, Dunns, and Best & Less. – The Reclamation Group Environmental services group focused on the secondary metal market, with developing Sold during the year. operations in waste paper, glass, rubber and plastic recycling. Wilderness Safaris Leading tourism wholesaler and operator of safari camps and related guest logistics. –

24 Brait Annual Report 2006 Name of investment Description of business Status

BRAITEC Breathetex Owner of technology to apply waterproof, breathable membranes to fabric. – Connect One Developer and producer of chips, software and hardware enabling non-PC devices to connect to the internet. – Eastmin Information Provider of hardware and software solutions for the office automation and productivity Technology environments. – Floppy Sprinkler Irrigation technology business which has developed a worldwide patented, low cost sprinkler Follow on investment system. made during the year. Grapevine Interactive Provider of collaborative messaging solutions to the corporate market. – Graphic Data Provider of document management solutions in the UK through the use of a network of scanning and microfilming bureaus. – IBA Health Provider of healthcare information systems in Australia, Singapore, New Zealand and the UK to hospitals and clinics. – Intenda Developer of procurement and tender management software solutions. – Intervate Provider of collaboration and productivity solutions utilising intranet, portal and mobile technologies. – Websoft Provider of software and outsourcing solutions to insurance brokers and short-term insurers. Sold during the year. Unique World Developer of high quality end-to-end technology and e-marketing solutions for Australian businesses. – Tissue Link Developer of medical technology combining radio frequency energy with conductive fluid for use in surgical applications principally in the USA. – PROPRIETARY INVESTMENT PROGRAMME Aqua Online Aqua Online comprises e-strategy consulting, web design, software engineering and systems Sold during the year. integration. – Beverage Packaging Independent beverage contract packing company with facilities to package beverages in cans, glass and PET bottles. – Candy Tops Sugar confectionery manufacturer which targets lower income consumers through a network of principally wholesale customers both in South Africa and in the export market. – Douglas Green Bellingham Producer, distributor and marketer of wine and spirit brands in South Africa and internationally. – Dywidag and RMS Industrial services businesses operating in the roof bolt, steel reinforcing and mesh markets. Sold during the year. Eyeperoptics Supplies spectacles, spectacle frames, contact lenses and other optometric products and administration and management of optometric practices and the manufacture of optometric products. – IBA Health Provider of healthcare information systems in Australia, Singapore, New Zealand and the UK to hospitals and clinics. – Isegen Manufacturer and marketer of plastic additives and resin raw materials, as well as certain food acids used principally for the soft drink, food processing and pharmaceutical industries. – Equine Holdings and Software developer and distributor of virtual online horse racing software. – Race Clubs Metra Holdings Management consulting and services group acting as licensee of Gemini Consulting Sold during the year. in South Africa. Net I UEPS Technologies Developer of technology utilising smart card technology to provide fully integrated systems Partial sale (20%) to meet the requirements of “under-banked” populations of developing countries. during the year. Pangea Exploration Mineral resource exploration company engaged in the development of several resource Follow on investment projects in sub-Saharan Africa. made during the year. Wilderness Safaris Leading tourism wholesaler and operator of safari camps and related guest logistics. –

Brait Annual Report 2006 25 SEGMENTAL REVIEW PRIVATE EQUITY CONTINUED

Prospects Private equity – allocation of capital invested Earnings from Private Equity have consistently increased over the past at 31 March 2006 three years and in aggregate have delivered US$90 million of 140 operational profits. The macro-economic prospects for private equity internationally, and particularly in South Africa are as good as they 120 have ever been in the last 15 years.

100 Importantly, Brait now has in place all the essential tools, which it believes should ensure that it capitalises on the opportunities prevalent 80 in this market. These include: 60 •a uniquely experienced and capable team; • the potential to deliver significant further value in Brait III; US$ millions 40 • substantial new capital and future prospects from Brait IV; and • new low cost capital to expand Brait’s proprietary investment 20 growth.

0 If the macro-economic conditions prevail, Brait Private Equity is -20 confident that it will continue to grow its assets and earnings and 05 06 exceed its ROE targets. (US$82,2 million) (US$109,4 million) Direct investment and capital participation in funds Proprietary investments Working capital

Brait’s effective look-through investment into underlying portfolio companies at 31 March 2005 and at 31 March 2006 is detailed in the charts below:

Braits effective investment in underlying porfolio companies

31 March 2005 US$71 million 31 March 2006 US$86 million

Pepkor 28% Net 1 20% DGB 13% Pepkor 23% DGB 16% Medu 8% Net 1 30% Other 6% Reclamation 6% Tradehold 4% Tradehold 3% LogicalOptions 3% Capital Africa Steel 3% LogicalOptions 2% Pangea 5% Isegen 8% Beverage Packaging 2% Isegen 2% Medu 9% Other 9%

26 Brait Annual Report 2006 SEGMENTAL REVIEW SPECIALISED FUNDS

Performance for the year Profit from operations (including investment gain) 2006 2005 and ROE US$m US$m 1,4 10,0

Revenue and other income 6,5 5,5 9,0 Profit from operations 1,3 1,2 1,2 Closing capital employed 75,0 20,6 8,0 Return on equity before 1,0 7,0 taxation (%) 6,7 5,8 6,0 0,8 5,0 Overview of Specialised Funds 0,6 US$ millions 4,0 The Specialised Funds division of Brait comprises:

• the management of South African institutional and high net worth 0,4 3,0 capital) (%) ROE (average third-party capital in hedge fund products; 2.0 • the seeding and supporting of emerging hedge funds, and the 0,2 provision of customised infrastructure, risk management and 1,0 business support to investment boutiques offering hedge fund 0 0 products; and 04 05 06 • private equity investments in select investment boutiques that offer the development potential of a long-term investment franchise Financial Results and Commentary within active management. Specialised funds income, which consists of fees earned from the management of third-party capital in the group’s hedge funds and Brait Specialised Funds is the largest institutional fund of hedge fund investment returns generated from Brait’s own seed capital, increased business in South Africa, with more than five years experience in by 18% to US$6,5 million from US$5,5 million the previous year. seeding and supporting emerging hedge fund managers. We invest Operating earnings increased by 8% to US$1,3 million from alongside our clients in well-diversified products, with specific risk- US$1,2 million the previous year. adjusted return targets, which offer important portfolio diversification benefits to traditional portfolios. Considerable industry experience and Performance during the year was satisfactory, with Brait Absolute SA significant investments in infrastructure and risk management Fund (Brait Absolute) continuing to outperform three-year rolling capabilities are designed to provide institutionally acceptable hedge return objectives, returning 6,6% above cash and 11,8% ahead of fund solutions. inflation, whilst limiting volatility to 2,6%. Brait Absolute extended its consecutive positive monthly returns to 44 months, while correlation and beta to the All Share Index remained very low at 0,25 and Revenue (excluding investment gains) 0,06 respectively. 3,0

2,5 Return over 3 years, 1 year (to March 05) and 1 year (to March 06)

2,0 140,0 20

120,0 1,5 15 US$ millions 100,0 1,0 80,0

0,5 10 % 60,0 Rand millions

0 40,0 04 05 06 5

20,0

0 0 Capital as at: Over 3 yrs 1 yr Over 1 yr March 02 March 05 March 06

Opening capital invested IRR on capital invested

Brait Annual Report 2006 27 SEGMENTAL REVIEW SPECIALISED FUNDS CONTINUED

Operational review The underlying fund managers within the Brait Funds of Funds include: Over the last five years, Specialised Funds has single-mindedly focused on building performance consistency and infrastructure capability Fund Investment strategy Fund manager within our fund of hedge funds, to offer institutional investors a cash Polaris Hedge Fund Long/short equity, Marius van Rooyen plus product that is complementary to traditional equity exposure. relative value, liquid, We have therefore been fortunately positioned to benefit from an low turnover increased focus on portfolio re-balancing within risk management by our target client base, and have emerged as a leader in our Lauriston Absolute Relative value multi- Kevin Cousins particular space. Fund class, neutral, liquid, low turnover Assets under management (AUM) grew significantly, increasing Brait Ruby Fund Short-bias, directional, Craig Butters by 691% since 31 March 2005 to US$512 million, spread across liquid, low turnover 19 hedge funds, chosen by our multi-management team for their Frater Absolute Fund Long-bias equity, Terrance Craig ability to balance risk against investment opportunity. Despite the directional, liquid, considerable growth in AUM, we are fortunate to have secured an low turnover additional R3,1 billion of single strategy capacity with our existing managers, and plan to add to this during the year as we search for new Re:CM Alpha Fund Long-bias equity, Piet Viljoen directional, liquid, sources of alpha. low turnover PSG Quant Fund Managed futures multi- Derick Burger Funds under management class, long-short, directional, highly liquid, 4 500 high turnover

4 000 GyroTerm Fund Fixed-income relative Lourens Pretorius value, highly liquid, 3 500 high turnover 3 000 Investec SA FI Hedge Fixed-income relative Malcolm Charles Fund value, highly liquid, 2 500 high turnover 2 000 Spyglass Focused Long-bias equity, Sean Katz Fund directional, liquid,

UM (millions of Rands) 1 500 A low turnover 1 000 Osborne Flexible Fund Multi-class, long-bias, Niall Brown 500 directional, liquid, low turnover 0 03 04 05 06 Tantalum MNC Fund Multi-class, long-bias, Morne Marais directional, liquid, AUM Commitments after year-end low turnover Spyglass General Equity Equity, long/short, Gary Abrahams directional, liquid, moderate turnover Aeon Multi Strategy Multi-class, long/short, Asief Mohamed Fund directional, liquid, moderate turnover Tantalum Fusion Fund Fixed interest, long/ Melanie Stockigt short, directional – relative value, liquid, moderate turnover Empire Growth Fund Equity, long/short, Roger Williams directional, liquid, low turnover Fairtree Fund Equity, long/short, Andre Malan directional, liquid, low turnover Spyglass Opportunities Equity, long/short, Sean Katz Fund directional, liquid, moderate turnover

28 Brait Annual Report 2006 Comparative returns since inception – November 2001 This increase in utilisation of hedge funds by institutions is confirmed by a survey performed during 2005-2006 by the Russel Investment 280 Group. This survey, which was based on responses from 327 large 260 organisations responsible for managing tax exempt assets, indicated that the utilisation of hedge funds by such institutions had increased 240 from 21% in 2003 to 35% in 2005 in Europe and from 23% in 2003 220 to 27% in 2005 in North America. The results of this survey also suggest that globally alernative assets are poised for rapid growth and 200 are expected to reach record levels by 2007, and that hedge fund

% 180 assets are likely to continue to garner a significant share of increased 160 commitments amongst alternatives. 140 Trends in fee levels: According to an article in Business Standard, there 120 is a clear desire and ability of the newer funds in the global industry to charge higher fees. No longer are funds charging a 1% management 100 fee and 20% performance fee – the norm for the first generation of 80 funds set up in the early 1990’s. an 06 J Oct 01 Oct 02 Oct 03 Oct 04 Oct 05 Apr 02 Apr 03 Apr 04 Apr 05 Increased utilisation of hedge funds by institutions Brait Absolute Cash All Bond Index All Share Index 40

35 Bond comparison: Volatility 2,6% versus 4,9%, Correlation 0,3, Beta 0,14 30

20 200 25

20

15 175 15 % using hedge funds 10 10 150 5

5 125 0 Monthly returns

Cumulative returns Europe North America

0 100 2001 2003 2005

Source: Russell Survey on Alternate Investing 2005 – 2006 -5 75 Oct 01 Oct 02 Oct 03 Oct 04 Oct 05 Apr 02 Apr 03 Apr 04 Apr 05 Growth of US institutional hedge fund capital

Monthly returns Brait Absolute SA ALBI 350

300 International overview In recent years the hedge fund industry has moved into mainstream 250 thinking, due to the ability to offer alternative sources of alpha and meaningful diversification in a world that is contracting due to 200 globalisation. Industry assets top the US$1,3 trillion mark, having 150 grown approximately 25% per annum since 1990, with more than

10 000 funds. Capital invested ($Bn) 100

The key is that specialised strategies and broad mandates allow 50 essentially non-correlated performance, often with lower volatility. According to the Bank of New York, “Institutions, particularly pension 0 funds and endowments, will become the primary source of capital for 01 02 03 04E 05E 06E 07E 08E hedge funds. Their demands will transform the industry.” Source: Casey Quirk & Acito and The Bank of New York

Brait Annual Report 2006 29 SEGMENTAL REVIEW SPECIALISED FUNDS CONTINUED

One of the most notable trends in the international hedge fund arena Strategic initiatives has been the increased scrutiny placed on infrastructure and We remain focused on delivering expected performance within operational risk areas, and the regulatory drive towards valuation specialised mandates utilising hedge fund strategies, and aim to independence. Investment managers focused on portfolio expand our capabilities during the year ahead through specific product management are finding these demands onerous, and are increasingly developments. We are in advanced stages of launching a large multi- utilising outsourced expertise to pass muster. strategy fund, which promises to enhance our abilities to deliver exciting performance whilst minimising operational risk. In addition, South African overview we believe that an increasing client base, including international The EuroHedge Special Report, “South Africa: A new hedge fund investors attracted to South Africa’s macro-economic developments, market emerges”, February 2006, states that “South Africa’s hedge will expect more customised solutions, which our experience in the funds are rapidly evolving into an impressive industry . . ., which stands industry suggests we can now accommodate. out among global emerging markets”. A contributor states, “New funds are being started at a phenomenal rate . . . According to our database, there were about 65 hedge funds one year ago, and now its up to 84 . . .”, and industry assets are estimated at around R12 billion at the end of 2005.

In the section covering funds of hedge funds entitled “Competing hard for distinctive niches”, the following observation is noteworthy: “...Brait has emerged as the largest, and certainly, the most innovative FoHFs manager in South Africa. What distinguishes Brait from its competitors, is that it has pioneered long-term capacity agreements with talented managers and has developed an incubator model that has nurtured 17 hedge funds . . .”

Global and SA hedge fund growth

1 600 60

1 400 50 1 200 40 1 000

800 30 UM (US$ bn) UM (ZAR bn) A 600 A ◆ 20 400 ◆ 10 200 ◆ ◆ 0 0 03 04 05 06

Global assets under management SA assets under management

Source of global assets 2004 – 2005: IFSL estimates based on Europehedge and Hennessee Group data

30 Brait Annual Report 2006 SEGMENTAL REVIEW CORPORATE FINANCE

Performance for the year The Specialised Debt Finance business unit (“SDF”) was the main 2006 2005 generator in fee revenue for Corporate Finance recording operational US$m US$m earnings of US$3,2 million for the period under review. Debt in excess of US$800 million (ZAR5 billion) was raised for clients within a broad Revenue and other income 7,8 3,8 range of transactions and debt types. Profit from operations 0,9 0,1 Closing capital employed (2,3) (0,4) Return on equity before Revenue taxation (%) n/a* n/a* 10,0 * Brait’s Corporate Finance operations are organised and structured to utilise minimal capital 8,0 During the period under review, Brait’s Corporate Finance team has been at the forefront of the development of the debt markets in South Africa. This is best evidenced by Brait’s role as lead arranger for two of 6,0 the first four high yield Eurobonds raised for South African companies.

US$ millions 4,0 Overview of Corporate Finance In the year under review, Brait Corporate Finance provided market leading debt advisory products and services, as well as M&A advisory 2,0 services, to both South African and international companies.

M&A advisory provided advice, execution, process and transaction 0 management for acquisitions and disposals. Services included in these 04 05 06 functions are the provision of strategic advice, valuations, transaction structuring and deal negotiation. Additionally, the team provided Operational review advice on the listing requirements of the JSE Limited and the Securities SDF demonstrated significant market leadership this year in a growing and Regulation Code on Takeovers and Mergers (“the Code”) of the and developing debt market in South Africa. The SDF team was Securities Regulation Panel, capital structure, and selected sponsor instrumental in driving a greater awareness of debt and its potential related activities. impact on corporate capital structure, through innovative structuring and the introduction of new sources and new types of debt to the The services and products provided by Specialised Debt Finance include debt origination and distribution, capital structure optimisation, South African market. structuring of innovative debt solutions, negotiation with third party funders and preparation of and advice on documentation. Following the success of the first Euro high yield bond for a South African corporate, pioneered by SDF, it advised on the first South Financial results and commentary African management buyout funded by Eurobonds. The high volume of Operating earnings for the year from Corporate Finance were up to leveraged transactions internationally has raised the profile of the high US$0,9 million, from US$0,1 million the previous year. yield bond market to such an extent that it is now being considered as a strong alternative source of funding in the local market. This provides Despite a seemingly promising pipeline of transactions mid-year, the South African corporates with the opportunity to tap the international M&A advisory unit failed to convert mandates and work in progress capital markets and serves as a catalyst in the local funding arena, by into fee income, recording a US$2,1 million operational loss for the introducing additional competitive pressure on local institutions. period. This result was disappointing considering the efforts in prior years to refocus the business and the generally positive market Nowhere are these factors more evident than in the advisory and lead environment. This loss, which follows a number of years when the unit arranger role Brait performed in the debt restructuring for Foodcorp, has under-performed, has resulted in the post year-end decision to and in the recapitalisation and management buy-out of the restructure the unit to focus on supporting on-balance sheet Reclamation Group. Both of these transactions involved the investment and providing advisory services internally. restructuring of the company’s capital structure, lowering their weighted average cost of capital, and involved the assumption of debt Brait is currently working with clients and the M&A international of varying seniority from senior to subordinated and mezzanine. The network to determine how best to accommodate each client’s debt package, in both deals, included the raising of a high yield individual circumstances within the new structure. Eurobond in the international capital markets. The Foodcorp Eurobond

Brait Annual Report 2006 31 SEGMENTAL REVIEW CORPORATE FINANCE CONTINUED

reopened the high yield market in June 2005 and both this and the Reclamation bonds, were well received by European investors. They have traded above par, since issuance, and were two of the first four High Yield Eurobonds issued by South African companies.

SDF’s ability to identify opportunities and to design innovative funding structures, using various funding sources and instruments, presents strong opportunities for continued earnings growth. Its market leadership, experience, international relationships and expertise gained through, amongst others, its facilitation of two of the four Eurobond offerings by South African issues to date, should contribute in this regard.

Profit from operations

1,0

0,8

0,6

US$ millions 0,4

0,2

0 04 05 06

Strategic initiatives The immediate focus for Corporate Finance, for the coming year, is to execute a number of interesting, high potential deals which are currently in the pipeline. In addition, Brait will look to further broaden its capacity in capital market products, services and investments.

32 Brait Annual Report 2006 SEGMENTAL REVIEW GROUP INVESTMENTS

Performance for the year relationships with local partners, each of whom has an equity interest 2006 2005 in the local operation. Bayport’s experience in the financial markets in US$m US$m which the African businesses operate, demonstrates the commercial potential for developing micro-lending and financial services offerings Revenue and other income 22,6 15,9 to lower-income earning employees, on a sustainable basis, throughout Profit from operations 11,6 8,4 the African continent. Closing capital employed 77,1 48,6 Return on equity before Bayport on an ongoing basis identifies and evaluates new markets and taxation (%) 18,4 17,3 jurisdictions in which it believes opportunities for expansion and development exist. As and when such opportunities arise, Bayport Overview and operational review of Group Investments establishes projects with a view to fine-tuning the specific business Group Investments comprises largely of Brait’s strategic non-private model and cementing relationships with local partners and other equity managed interest in Bayport, Capital Alliance Finance and the stakeholders. Once such projects have demonstrated the ability to newly established independent joint venture mezzanine fund produce Bayport’s targeted risk-adjusted returns, Bayport will deploy a management business. It also incorporates the group’s central treasury meaningful quantum of its own capital into the operation and will in operations. addition, seek to maximise leverage from local financial institutions.

Profits from operations and ROE Bayport is structured by centrally managing a pool of funds at the Bayport holding company level and allocating these funds judiciously 14 30 across a portfolio of various micro-lending and financial services businesses operating throughout the African continent. 12 25 Brait’s interests in Bayport are held through Bayport Holdings Limited. 10 Bayport Holdings has an interest in Bayport Management Limited, 20 through which the African businesses are conducted and Bayport 8 Holdings (South Africa) (Pty) Ltd, a South African entity through which 15 the South African businesses are conducted. 6 US$ millions During the year Brait completed the sale of a portion of its equity in 10 4 capital) % ROE (average Bayport Holdings to strategic co-investors. In addition, Brait and the minority shareholders in each of the African and South African 5 2 businesses sold a portion of their interests to the Adobe Group, an investment group controlled by Sir Samuel Esson Jonah, a pre-eminent 0 0 businessman and non-executive director and president of AngloGold 04 05 06 Ashanti Limited. He is a director of the African and South African Profit from operations ROE businesses and is actively involved in the strategy and operations of Bayport.

Bayport Pursuant to the sale to the strategic co-investors and to Adobe, Brait Overview effectively owns 41,66% of each of the African and South African Bayport is a group of micro-lending and financial services businesses businesses. Through arrangements with the strategic co-investors, Brait with established operations in Ghana, Uganda and Zambia. It is controls 53,41% of the voting rights, resulting in the consolidation of currently also developing a niche opportunity in South Africa. Bayport’s results, into Brait. Established in 2002 by industry professionals together with capital provided by Brait, Bayport has developed from a start-up operation to Financial results and commentary a well managed and established business, generating attractive risk- The year under review saw significant continued growth in Bayport’s adjusted returns. business. Through additional funding from Brait as well as from funding provided by financial institutions in the jurisdictions in which Following the initial performance of Bayport and given its potential the African businesses have a presence, Bayport has grown its loan growth opportunities, Brait provided additional capital to Bayport in a book by 109% from US$16,2 million to US$33,8 million. At the same blend of equity and interest-bearing debt financing. As Brait is the time bad debts written off have been well controlled and equate to largest debt financier of Bayport, it has voting control of the business. 3,5% of the loan book at year-end. The provision at year-end for bad and doubtful debts equates to 4,5% of the loan book. As the loan At year-end, Brait has invested US$9,9 million in Bayport in a blend of book matures and grows to an optimal size, the bad debts written off equity and interest-bearing debt financing and in addition thereto, has should tend towards the level of the provision. The organisational committed a further US$6,8 million of debt which is available for draw infrastructure in the African business is now considered to be optimal down by Bayport. for the jurisdictions in which it operates. Pre-tax earnings were US$6,4 million for the year, which represents an increase of 276% over Bayport has developed a unique model for each of the jurisdictions in the US$1,7 million earned in the previous year. With average capital which it has established operations and has developed invaluable employed during the year of US$8,2 million, return on equity increased

Brait Annual Report 2006 33 SEGMENTAL REVIEW GROUP INVESTMENTS CONTINUED

Size of book Bayport

40 1,8

35 1,6

30 1,4 1,2 25 1,0 20 0,8 US$ millions 15 US$ millions 0,6 10 0,4

5 0,2

0 0 05 06 05 06

Bad debts written off Provision for bad debts to 40,0% from 28,1% in the previous year. Brait’s share of Bayport’s earnings for the year plus its interest on loan advances was US$3,3 million, 77% up from US$1,9 million in the prior year. During the year under review, the National Credit Regulations were introduced in the newly promulgated National Credit Act to replace the Prospects Usury Act and the Credit Agreements Act. The new regulations have Brait is pleased with the development made by Bayport and its been designed to fix interest rates, to regulate administration and prospects. With an experienced and capable management team, a monthly service fees and prohibit reckless lending. Initial indications sound business model, a stable and fully developed infrastructure and are that the new regulations will have a material impact on the entire strong demand for its products, Bayport aims to be a truly African industry which could lead to a consolidation within the industry. CAF is micro-lending and financial services organisation. Bayport is well in the process of assessing the impact that the regulations will have on positioned to become an even greater contributor to Brait’s earnings its operations and strategy. in future. Mezzanine Partners (Proprietary) Limited Capital Alliance Finance In November 2005, the group established an independent mezzanine The group has a 50% joint venture interest in Capital Alliance Finance fund management business. Mezzanine Partners, a joint venture (“CAF”) with a carry value R17,3 million, represented primarily by a between Brait South Africa Limited, Old Mutual Asset Managers and its loan advance. CAF operates in South Africa and provides affordable executive management, is South Africa’s first independent mezzanine loan products to the lower income market and credit accessibility to its fund manager. At year-end, the fund had committed capital of clients. CAF’s historical target market is typically formal income US$45 million. It concluded its maiden investment subsequent to earners, who were not considered “bankable” by the formal retail year-end. banking sector and are generally employees of the government and private sector. Financial results and commentary Earnings from the group’s strategic investments have increased by CAF’s micro-lending business remained profitable for the year and 38% to US$11,6 million from US$8,4 million with Bayport continuing generated surplus cash. In line with its strategy, business volumes were to be the largest single contributor with the balance coming from CAF maintained at existing levels to allow the cash generated by the and treasury operations. Return on average capital employed of business to be applied in the repayment of shareholder loans. US$62,9 million was 18% compared with 17% in the prior year.

34 Brait Annual Report 2006 CORPORATE GOVERNANCE

Governance principles Brait maintains a zero-tolerance approach to unethical or dishonest General behaviour and any employee found to be acting unethically, is subject Corporate governance encompasses the concept of sound business to disciplinary action/proceedings in accordance with the company’s practice and is an integral part of Brait’s business philosophy. Brait is disciplinary code. The ultimate sanction for breach or non-adherence committed to an open governance process, which provides its would be the dismissal of the employee. The board believes that there shareowners and other stakeholders with the assurance that, in adding has been no material non-adherence to these principles, by any value to and protecting the group’s financial and human investment, employee, during the year under review. the group is being managed ethically in accordance with predetermined risk parameters and in compliance with best In accordance with Brait policies, no donations were made to any international practices. political parties by any of the companies within the Brait group, during this period. The directors of Brait subscribe fully to the principles embodied in appropriate international corporate governance codes including those Employee empowerment contained in the King Report on Corporate Governance for South Africa The group places great emphasis on the development and training of 2002 (“King II”), and believe that these principles have been adhered its people and endeavours to ensure that it offers staff equal to and complied with in the discharge of their duties. Adherence to opportunity and appropriate participation in decision-making sound principles of governance going forward, remains both a board processes. Through its various share incentive schemes, management and management priority. The board believes that even though have ownership in the company and are incentivised in compliance with formal standards of governance is significant, greater their performance. emphasis is placed on ensuring the effectiveness of governance practice, with substance prevailing over form (as and when required). The environment, health and safety While Brait’s direct activities do not pose any significant threat to the Policies, objectives and performance measurement environments in which they operate, the group has mandated its group The philosophy, policies, values and objectives of the group are Environmental Steering Committee to monitor compliance with determined by the board of directors of Brait who, in turn, receive input environmental policies and guidelines dealing specifically with and guidance from the boards of its principal subsidiaries. The board environmental challenges. Brait also seeks to ensure that it invests in sets the strategic objectives of the group and determines investment businesses which conform to environmental standards. Similarly, it and performance criteria. Management is charged with the detailed makes investments where the health and safety of employees and the planning and implementation of that policy in accordance with well being of the communities in which these companies operate is appropriate risk parameters. The achievement of objectives and recognised as an important component of corporate governance. compliance with policies is monitored by the board through mandated reports from management who are accountable for their actions. Reporting Brait is committed to transparent reporting and disclosure. Information Risk management provided to all stakeholders, including financial results and the annual Risk management is central to Brait’s business. The group has report, are presented in a meaningful and relevant manner so as to developed comprehensive systems and risk management processes to enable users to gain a proper and objective perspective of the group. control and monitor all activities in the group. A critical element of Brait’s website is maintained as a relevant means of communicating Brait’s strategy has been the development of skilled professionals who Brait’s message to all its stakeholders. have an established culture of risk management. While ultimate accountability for risk lies with the board of Brait, the management of Share dealings risk is closely monitored by the boards of its primary operating The group adheres to a “closed period” policy, as defined in its listing subsidiaries. In addition, the board has formally mandated the group requirements, in which directors, officers, participants in the share audit and risk committee to include the review of risk management incentive schemes and employees who may have access to price- policies and processes of the group in its terms of reference. sensitive information are prohibited from dealing in Brait shares for the entire closed periods prior to the release of the group’s interim and Business integrity and ethics final results. This is also extended to any period when the company is The group subscribes to a corporate ethos, which requires directors and trading under a cautionary announcement. All board members and employees to adopt the highest personal ethical standards in dealing employees across the group are timeously informed of such closed with all stakeholders in the conduct of the group’s affairs. The periods. In terms of the policy, “shares” also include options. principles to which each individual subscribes, include integrity, openness, accountability, impartiality and honesty, and are embedded Details of directors’ dealings in Brait shares are disclosed to the in the group’s Human Resources Policy document to which each board and to public via the group’s various securities exchange employee is bound. The Brait Group Code of Conduct is being updated news services. and is awaiting board ratification.

Brait Annual Report 2006 35 CORPORATE GOVERNANCE CONTINUED

Directors’ dealings for the year under review were as follows:

Nature of Shares purchased Shares sold Name of director Date of purchase/sale interest Number Price Number Price

BI Childs 11 August 2005 Indirect 6 500 R17,60 BI Childs 18 August 2005 Indirect 5 000 R18,50 BI Childs 30 August 2005 Indirect 16 000 R17,80 AC Ball* 28 March 2006 Indirect 1 000 000 R25,40 JA Gnodde* 28 March 2006 Direct 1 000 000 R25,40 CJ Tayelor* 28 March 2006 Direct 864 000 R25,40 CJ Tayelor* 28 March 2006 Direct 31 307 R24,60

* The above directors have in aggregate made commitments to Brait IV in excess of the net proceeds arising from the disposal of these shares and the primary purpose for the disposals was to fund these obligations.

Company secretary • induction and orientation of new directors; The functions of the company secretary, domiciliary agent and registrar • conduct regarding conflicts of interest; is overseen by Experta Luxembourg S.A.. They are responsible for •evaluation of directors; ensuring compliance with all board procedures. All directors have • board relationship to staff and external advisors, including access to the advice and services of the company secretary. unrestricted access to company books and records; • succession and emergency planning; and Key governance developments • board meetings and procedures. The following developments were important to Brait’s corporate governance process during the year under review: In terms of the board Charter, the directors are to be assessed annually, • ongoing compliance with King II and other international corporate both individually as directors, and collectively as a board. In addition, governance codes; the non-executive members of the board, in consultation with the • the inclusion in the JSE Socially Responsible Investment (SRI) Index chairperson, formally evaluates the performance of the chief executive for the second consecutive year; officer (CEO) on an annual basis. •the implementation of an audit committee self-assessment, which evaluated and assessed the effectiveness of the group audit and In accordance with the company’s Articles of Incorporation, all directors risk committee; are subject to re-election by shareowners at each annual general • ongoing awareness of emerging and international governance meeting. The board comprises people with skills, knowledge and trends, which are considered for implementation if deemed experience who are conscious of their duty to ensure that the group applicable to the business of Brait, taking into account market maintains a high standard of corporate governance. practices and substance over form; and • the implementation of a formal compliance monitoring process The board has ensured that its information needs are well defined and responsible for evaluating the effectiveness of the company’s regularly monitored. A formal orientation programme with members of compliance to regulatory and legal requirements. management is provided to assist all newly appointed directors. Directors have unrestricted access to all group information, records and Governance structures documents and are provided with comprehensive board packs prior to Board of directors each scheduled meeting. If necessary, a board member may take The board meets quarterly and monitors the management, controls, independent professional advice concerning the affairs of the group, at compliance and proper conduct of the business under its direction. the expense of the group. Having due regard for the recommendations by its executive committees, the board determines and monitors matters relating to the Board membership and meeting attendance implementation and/or modification of policies and strategic plans, The board of directors of the company is chaired by an independent group investments and dispositions, major capital expenditure and non-executive director of the company who is supported by an operating and financial budgets. additional six independent non-executive directors and six executive directors. The board is therefore comprised of a majority of non- The board Charter describes the board’s mission, duties and executive, directors who are also independent of management and responsibilities and, in particular, salient aspects concerning promote the interests of stakeholders. The independence of the non- the following: executive directors has been assessed having regard to the criteria set • the fiduciary responsibilities of directors; out in international corporate governance codes, and King II. • board composition and leadership;

36 Brait Annual Report 2006 Serving members of the Brait S.A. board, the date of their appointment, and their attendance at board meetings, are as follows:

Number of meetings attended Date of during Attendance appointment the year record

4 meetings Non-executive directors held ME King (Senior Chairman)* 29 July 1998 4 100% RJ Koch† 29 July 1998 4 100% AM Rosenzweig‡ 29 July 1998 3 75% JE Bodoni** 29 July 1998 3 75% HRW Troskie‡ 27 July 2005 3 100% PL Wilmot* 3 August 1999 4 100% PAB Beecroft† 27 July 2005 3 100% Executive directors AC Ball* 29 July 1998 4 100% JA Gnodde* 27 July 2005 3 100% JJ Coulter° 27 July 2005 3 100% CJ Tayelor* 29 July 1998 4 100% SJP Weber** 28 May 2001 3 75% BI Childs† 27 July 2005 3 100%

* South African, ** Luxembourgish, † British, ‡ Dutch, ° Irish

Risk management and internal control approves audit programmes and plans. The head of internal audit has Responsibility for the group’s risk management, including its systems unrestricted access to the chairman of the audit and risk committee. of internal financial and operational control is recognised and acknowledged by the board as being its responsibility, but specifically External audit monitored by the group audit and risk committee. The foundations for The group’s external auditors are Deloitte S.A. and the independence the group’s internal control process can be found in its governance of the external auditors is recognised, and reviewed with the auditors principles which incorporate ethical behaviour coupled with by the audit and risk committee on an annual basis. compliance with legislation and sound accounting practice. The audit and risk committee meet with the external auditors to review The control systems include clearly defined lines of accountability and the scope of the external audit, budgets and any other matters arising. delegation of authority, and provide for full reporting and analysis against approved budgets. The executive directors are responsible for In accordance with the requirements relating to pre-approval of determining the adequacy, extent and operation of these systems. In services to Securities Exchange Commission (SEC) registrants or their this regard, the executive directors are of the opinion that the systems subsidiaries, the group’s audit and risk committee evaluates the in operation provide reasonable assurance that the assets are services supplied by the external auditors to ensure that the services protected against material loss or unauthorised use and that are not prohibited as defined by the SEC prior to approval by the transactions are properly authorised and documented. committee of these services.

The group’s internal audit process reviews and tests the control of key The external auditors attend the audit and risk committee meetings business risks in the group as well as the assurance of the effectiveness and have unrestricted access to the chairman of the audit and of the internal control systems in operation. The results of these and risk committee. external audit reviews are submitted to the group audit and risk committee for consideration and evaluation of the adequacy of the Compliance primary business risks as well as the systems of internal control in The directors recognise their responsibility to conduct business in operation. It is the responsibility of this committee to inform the accordance with the applicable laws and regulations in the various directors of any material losses which may have arisen as a result of a countries in which the group operates. The responsibility for daily breakdown of the systems in operation, and to report on remedial compliance with laws and regulations within the business areas rests action taken or required. with the various heads of departments.

Internal audit The chief role of group compliance is to assist management in All business and support units within the group are subjected to an complying with all the applicable statutory, regulatory and supervisory independent internal audit on an annual basis.The group follows a risk requirements, and the compliance function forms part of the overall based approach and the audit and risk committee reviews and risk framework. Where applicable, business units have a dedicated

Brait Annual Report 2006 37 CORPORATE GOVERNANCE CONTINUED

compliance officer, with a direct link to the group compliance officer All board committees are chaired by an independent non-executive whose responsibility it is to assist with the implementation and director and are free to obtain independent external professional monitoring of compliance in the particular unit. The business advice in the carrying out their duties as and when required. units follow a self-assessment approach to controls via compliance checklists. Group audit and risk committee The group audit and risk committee has a minimum of three members Board committees all of whom are independent non-executive directors, including the Certain responsibilities of the board have been delegated to board chairperson. Various non-members, including the executive chairman, committees to assist and enable the board to properly discharge its the group chief executive officer, group financial director, duties and responsibilities. These committees comprise the group audit representatives of the finance function, internal auditor and external and risk committee and the remuneration committee, both of which auditor attend meetings by invitation. operate under written terms of reference confirmed by the board. Ad- hoc committees are also mandated to attend to specific business Membership and meeting attendance matters from time to time. The existence of these committees does not, Serving members of the group audit and risk committee, the date of however, reduce the overall responsibility of the board and, therefore, their appointment, and their attendance at the meetings are all committees must report and make recommendations to the board. as follows:

Number of meetings attended Attendance Date of appointment Date of resignation Independent during the year record

4 meetings Members held PL Wilmot* (Chairman) 4 August 1999 Yes 4 100% ME King* 9 September 1998 Yes 4 100% RJ Koch† 9 September 1998 31 May 2006 Yes 4 100% AM Rosenzweig‡ 31 May 2006 Yes 0 n/a

* South African, † British, ‡ Dutch

Objective, duties and primary functions/responsibilities The group’s internal auditors report to an independent internal audit The group audit and risk committee’s primary objective is to provide committee as well as the group audit and risk committee. The main the board with additional assurance regarding the quality and responsibilities of the internal audit function include the examination reliability of the financial information used by the directors and to and evaluation of the effectiveness of operational activities, together assist them in the discharge of their duties. with the attendant business risks and systems of operational and financial control. Material deficiencies, development needs and instances Specific responsibilities in terms of the charter of the group audit and of non-compliance are reported to the audit and risk committee, the risk committee include: external auditors and operational management for resolution. • providing satisfaction to the board that adequate and appropriate financial and operating controls are in place; At certain meetings, time is reserved for separate discussions with the • ensuring compliance with appropriate standards of governance, committee together with management (excluding the external reporting and other regulations; auditors) and the committee together with the external auditors • reviewing and approving internal audit, risk and compliance (excluding management). These separate discussions provide an policies, reports and findings; opportunity for committee members, management and external • ensuring that significant business, financial and other risks have auditors to communicate privately and independently. been identified and are being managed; and • reviewing and recommending to the board the adoption of the The internal and external auditors have unrestricted access to the interim and annual financial statements. group audit and risk committee, ensuring that their independence is maintained at all times. The group audit and risk committee has satisfied their terms of reference for the year under review. Remuneration committee The remuneration committee has three members of whom two, Issues relating to accounting, auditing, internal control and financial including the chairman, are independent. The remuneration committee reporting matters are discussed with the group’s external auditors at has a charter and is mainly charged with the remuneration strategy for meetings convened on a periodic basis. Both the internal and external the group and meets regularly to consider the annual reviews, auditors are afforded unrestricted access to the group audit and remuneration issues, incentives and policy matters. Refer to the risk committee. Remuneration report on page 42 for further detail on remuneration and remuneration policies.

38 Brait Annual Report 2006 Membership and meeting attendance The serving members, the date of their appointment, and attendance at the remuneration committee meetings are as follows:

Number of meetings attended Attendance Date of appointment Independent during the year record

4 meetings Members held ME King* (Chairman) 9 September 1998 Yes 4 100% AC Ball* 9 September 1998 No 3† 100% RJ Koch† 9 September 1998 Yes 4 100%

* South African, † British † AC Ball recused himself from a meeting during the year.

Board sub-committees Brait South Africa Limited board (“BSAL board”) The Brait S.A. board has established several additional sub-committees The South African holding company board, in addition to its statutory which report either directly or indirectly to the board and whose obligations, is mandated by the Brait S.A. board to carry out specific functions are to manage specific risks and activities of the group.These tasks delegated to it in respect of the South African operations of the sub-committees operate within defined terms of reference, and include group. The serving members of the BSAL board are tabled below: the following: • Private equity proprietary investment committee; Date of Date of • Group internal audit committee; Name appointment resignation • Social investment committee; • Environmental steering committee; Independent non-executive directors •Employment equity committee; and BL Sibiya (Chairman)*1 October 2004 • Marketing committee. OK Chikane* 1 October 2004 ME Gevers* 1 November 2004 Major subsidiary companies I Matthews* 1 November 2004 Brait International Limited board (Alternate to ME Gevers) The Brait International Limited board is, in addition to its statutory BMC Ngcobo* 1 October 2004 28 September 2005 obligations, mandated as a sub-committee of the Brait S.A. board with Reappointed – 25 January 2006 the responsibility to carry out specific tasks delegated to it in respect VV Reddy* 1 October 2004 of the group’s international operations outside South Africa. Serving SDM Zungu* 10 October 2004 members of the international board are: Executive directors Date of Date of AC Ball* 11 July 2000 Name appointment resignation AD Campbell* 6 October 2003 JJ Coulter° 6 June 2005 Executive directors FR de Beer* 25 January 2006 BI Childs (Chairman)† 21 October 2004 DG Field* 11 June 2004 EA Venpin* 22 July 2004 30 March 2006 JA Gnodde* 10 October 2002 D Boodhoo* 10 June 2003 E Guiterrez-Garcia* 1 April 2003 WF Hirzebruch* 1 April 2003 * Mauritian, † British BL MacRobert* 1 January 2003 CL Smart* 1 April 2003 CJ Tayelor* 10 October 2002

* South African, ° Irish

Brait Annual Report 2006 39 BOARD PROFILE

Mervyn Eldred King (68)* Paul Adrian Barlow Beercroft (59)† BA, LLB (cum laude) H Dip Tax (Wits) MA (Oxon) Physics, MBA (Harvard Business School), F. Inst. P Senior Chairman – Appointed to the board 1998 Non-Executive Director – Appointed to the board 2005 Mervyn King is a senior counsel and former Judge of the Supreme Adrian Beercroft has a first class honours degree in physics from the Court of South Africa. He has chaired and been a director of several Queen’s College, Oxford. Following graduation in 1968, he worked for companies listed on the Johannesburg Stock Exchange, including First ICL in the computer industry for five years. In 1974 he went as a National Bank Holdings Limited, Capital Alliance Limited, Metro Cash Harkness Fellow to the Harvard Business School, graduating as a Baker & Carry Limited and Frame Group Holdings. scholar in 1976. He then joined the Boston Consulting Group in London. He was promoted to manager in 1979 and then to vice- In South Africa, he is Professor Extraordinaire at the University of South president of BCG Worldwide in 1982. Africa on Corporate Citizenship, Chairman of the King Committee on Corporate Governance in South Africa, President of the Advertising Adrian joined Apax, the venture capital and private equity investment Standards Authority, First Vice president of the Institute of Directors company, in 1984. He played a major part in the international Southern Africa, a member of the Securities Regulation Panel which expansion of the business, which now has over US$15 billion under oversees all mergers and acquisitions in South Africa, Chairman of the management. Apax is widely recognised as one of the leading private Board of Governors of the Witwatersrand University Foundation and equity houses in Europe. Adrian is the company’s chief investment Chairman of the Appeal Committee of the United Cricket Board of officer and second largest shareholder. He was chairman of the British South Africa. Venture Capital Association in 1991/92. He has represented Apax on the boards of over 20 private and public companies. He is a member of the Private Sector Advisory Group to the World Bank on Corporate Governance, a member of the international advisory Jean Ernest Bodoni (58)** boards of Stern Stewart of the USA,Tomorrows Company of the United Commercial Engineer Kingdom and the Asian Centre of Corporate Governance. He is the Non-Executive Director – Appointed to the board 1998 chairman and a member of the United Nations Steering Committee of Jean Bodoni has in excess of 30 years’ experience in the Luxembourg eminent persons to review the governance and oversight within the banking sector and currently holds the position of President of the United Nations, its funds, programmes and specialised agencies. Executive Board with Experta Luxembourg S.A.. Jean is a director of a number of Luxembourg resident companies. He was the first President of the Commonwealth Association of Corporate Governance, a former Governor of the International Brett Ivor Childs (44)† Corporate Governance Network and the South African representative CA(SA) of the International Chamber of Commerce International Court of Executive Director – Appointed to the board 2005 Arbitration in Paris. Brett Childs, following completion of his training with Deloitte & Touche in 1987, co-founded a small re-insurance consultancy business He is presently Chairman of the Automobile Association of South providing investigative and audit services to the London re-insurance Africa, Strate, the settlement arm of trades in equities and other industry which was sold in 1994. He was one of the first to be instruments in South Africa and a director of JD Group listed approved by Lloyds of London to act in the capacity of Finance Director in Johannesburg. to agencies managing the first corporate capital syndicates admitted to Lloyds of London. He has consulted, advised and spoken on legal, business and corporate governance issues in 28 countries and has received many awards. He joined New Africa Technology Holdings (Proprietary) Limited, the information technology arm of New Africa Investments Limited, in Antony Charles Ball (47)* 1998 as Finance Director. Following a management buy-out in 2000, BCom (Hons), MPhil (Oxon), CA(SA) he managed, the buy-out vehicle realising value for its shareowners Executive Chairman – Appointed to the board 1998 through IPO’s and trade sales. Following this, he started his own Antony Ball was a co-founder of Brait’s Private equity business. He has successful private equity investment company in Mauritius where he led the raising and governance of the group’s principal private equity currently resides. Brett joined Brait in November 2004 as Executive funds. He is responsible for numerous of the groups’ private equity Chairman of its Mauritian operation. investments. He was appointed group Chief Executive of Brait in March 2000 and Executive Chairman in 2005.

40 Brait Annual Report 2006 John Joseph Coulter (44) ° Christopher John Tayelor (49)* Law Degree (Trinity College Dublin), Master’s in Business Studies BAcc, CA(SA), AMP (Harvard) (University College Dublin) Finance Director – Appointed to the board 1998 Group Chief Executive – Appointed to the board 2005 Chris Tayelor was part of the Southern African national technical team After a 20 year career with JPMorgan in London, New York and at Price Waterhouse before he joined Johannesburg Consolidated Johannesburg, John Coulter joined Brait S.A. as the Group Chief Investment Company Limited (“Johnnies”) in Corporate Finance, which Executive Officer in June 2005. Prior to joining Brait, John was he headed from 1990 to 1994. Following the unbundling of Johnnies, Chairman, Investment Banking, for JPMorgan in Central and Eastern Chris was appointed Financial Director of JCI Limited and to the boards Europe, Middle East and Africa from 2004 to 2005. He was the Chief of its listed operations. He left this position prior to joining Brait in Executive Officer of JPMorgan South Africa from 1999 to 2005 with May 1998. functional responsibility for Investment Banking. From 2002 to 2004, John was Chairman of the Foreign Bankers Association. On joining Hermanus Roelof Willem Troskie (36)‡ JPMorgan in 1985, John was employed in Interest Rate, Currency B Juris, LLB, LLM Swaps and Commodity Derivatives businesses in London and then New Non-Executive Director – Appointed to the board 2005 York until 1996 when he returned to London to head JPMorgan’s Herman Troskie, is a director of Maitland, an international professional Commodity Trading businesses. services firm, and resides in Luxembourg. After completing a legal research project at the Vrije Universiteit in Amsterdam, Herman spent John Andrew Gnodde (40)* three years in legal practice in Cape Town before joining the BCom (UCT) Luxembourg office of Maitland in 1998. He specialises in the area of Executive Deputy Chairman – Appointed to the board 2005 international corporate structuring and financing, and has experience John Gnodde, is a director of Brait and CEO of Brait’s private equity in international tax planning for corporate entities and individuals, with business and has overall responsibility for Brait’s private equity funds, a particular focus on Luxembourg and other European cross-border having previously led the management of each of the Predecessor investment structures. His practice also includes the listing of Funds. John joined Brait in 1995 and has been responsible for companies and investment funds. Herman is admitted as a South investments in consumer products, construction, pharmaceutical, African Attorney and as an English Solicitor. manufacture, beverages, resources, mobile telecommunications and recruitment outsourcing among others. Prior to joining Brait, John Serge Joseph Pierre Weber (42)** worked for Goldman Sachs International in London for six years where Business Diploma (ESSEC Business School, Paris) he served in the investment banking division. Executive Director – Appointed to the board 2001 Serge Weber is a director of TRAXYS Europe SA, part of the TRAXYS SA Richard John Koch (55)† Group, a joint-venture created in 2003 between the Luxembourg MA (Oxon), MBA (Wharton) based ARCELOR Group and the Belgian-based UMICORE Group. He is Non-Executive Director – Appointed to the board 1998 the Chief Financial Officer of TRAXYS Europe and the Group Controller Richard Koch was a founder of The LEK Partnership, a partner of Bain for the TRAXYS Group, a leading metals and minerals marketing and & Co and a consultant with the Boston Consulting Group, and has trading group operating worldwide. He has worked in treasury and advised the chief executive officers and chairmen of many blue-chip finance for many years, including Renault Trucks in France and SA des American and European corporations. Richard is an author, investor Minerais in Luxembourg. and promoter in private equity investment. Peter Linford Wilmot (66)* Allan Mark Rosenzweig (51)‡ CA(SA) BA, LLB, H Dip Tax Non-Executive Director – Appointed to the board 1999 Non-Executive Director – Appointed to the board 1998 Peter Wilmot was the chairman of Deloitte & Touche in South Africa Allan Rosenzweig was an international tax advisor and corporate from 1996 until his retirement in August 1999 after a career spanning financier with Price Waterhouse including its New York office and 41 years in the auditing profession. Peter has chaired the Accounting Intertax, a South African international tax consultancy. Allan is a Practices Committee and was President of the Transvaal Society of director of both listed and unlisted companies. He joined the MIH Chartered Accountants and the South African Institute of Chartered Group where he served as Group Director of Corporate Finance. Allan Accountants. He was also the deputy chairman of the Standards is also a founding member of the Ibex Group, which is active in the Advisory Council of the International Accounting Standards Board and field of asset-backed finance. Allan is currently based in New York. is the immediate past Chairman of the Accounting Practices Board.

Nationality * South African ** Luxembourgish † British ‡ Dutch ° Irish

Brait Annual Report 2006 41 REMUNERATION REPORT

The remuneration committee’s main objective is to provide the board Annual bonuses with assurance that the employees, directors and senior executives of Annual bonuses are closely linked to performance and pre-determined the group are fairly rewarded for their individual contributions to the targets on both formulaic and discretionary bases. group’s performance. The group views the inclusion of share incentives as an essential element in the remuneration package, as this promotes Share equity and incentive schemes an alignment of interests with shareowners and incentivises long-term A summary of the scheme rules and share entitlements outstanding commitment. Share incentive schemes and fringe benefit policies are and granted to directors and employees of the group under the various regularly reviewed by the remuneration committee. schemes are as follows:

The remuneration strategy includes the determination of incentive pay Brait S.A. Share Incentive Scheme structures for directors and senior executives, for both the short and Salient features long term, and the positioning of these levels in accordance with •The scheme is a share option scheme with deferred delivery. trends in local and international markets. • Entitlements are granted at market price at the date of grant. •Vesting typically accrues within six years. Non-executive directors •Entitlements expire after eight years. Non-executive directors do not have service agreements. Letters of • Entitlements are forfeited if the participant leaves the group before appointment confirm the terms and conditions of their service. vesting. Remuneration packages of non-executive directors are agreed and determined by the remuneration committee. Directors fees are Entitlements granted under the scheme: structured so as to encourage maximum board and subcommittee 2006 2005 participation. Certain non-executive directors were paid additional fees Share entitlements outstanding varying between US$11 250 and US$36 750 for the year, depending at beginning of year 2 975 262 2 568 624 on the time spent on certain activities of the group. Granted and exercised 150 000 1 374 480 Delivered (808 018) (61 151) The following scale of fees for meeting attendance was in place for Cancelled (by resignation, the year: retrenchment or repurchase) (578 740) (906 691)

• US$2 750 per meeting as a member of the Brait S.A. board Share entitlements outstanding • US$3 150 per meeting as the chairman of the Brait S.A. board at end of year 1 738 504 2 975 262 • US$1 365 per meeting as a member of other board committees • US$2 100 per meeting as the chairman of other board committees Analysis of share entitlements outstanding at 31 March 2006

For the 2007 financial year, a fee increase of 5% was recommended Entitlement expiry date Number of shares Issue price (ZAR) and approved by the board. 31 December 2010 48 750 8,57 Executive directors and employees 31 December 2011 648 690 7,19 30 June 2012 670 964 7,20 Service agreements entered into with executive directors are initially 6 July 2012 220 100 7,22 fixed for a certain term and, thereafter, may be terminated by either 1 October 2013 150 000 18,04 party giving requisite written notice to each other. The terms of employment and remuneration packages are approved by the 1 738 504 remuneration committee. Executive directors are not permitted to accept external remunerative work or board appointments without The Brait Executive Share Purchase Scheme approval of the Brait S.A. board. Salient features •The scheme is structured as a share purchase scheme and Remuneration packages for executive directors and employees participants are offered an opportunity to acquire ordinary shares comprise some or all of the following: in the company at a price fixed on a leveraged, deferred payment and delivery basis. Critically, participants are required to make an • Base salary and benefits upfront contribution equal to one third of the market value of their • Annual bonus entitlements granted. • Long-term equity and/or share incentive plans •Participants are offered ordinary shares at market price. •Participants are offered leverage (loan finance) based on twice the Base salary and benefits value of their contributions. Executive directors and employees are permitted to structure their base •The leverage is subject to an arm’s length related interest rate. salaries and benefits in terms of existing legislation in their •The scheme shares or any rights flowing from such shares vest employment domicilium. Salary packages, including benefits, are over three years. reviewed annually with reference to relevant geographical and industry •Participants may only take delivery of their entitlements under the criteria as a benchmark. Benefits largely include provident fund, group scheme on vesting and full settlement of their loan accounts. life, disability, medical aid and other benefits as dictated by competitive • Loan accounts must be settled within five years of the grant of market practices. shares or the entitlements expire.

42 Brait Annual Report 2006 • Unvested entitlements are forfeited if the participant leaves the Entitlements granted under the scheme: group before vesting. 2006 2005

The executives carry market risk on any decline in the Brait share price Share entitlements outstanding at during the tenure of the scheme up to a maximum limit of their pre- beginning of year 16 563 460 17 296 489 paid contribution and will benefit from any market price increase, but Granted 2 500 000 500 000 only to the extent that the increase exceeds the compounded prime Delivered (12 185 907) (778 105) interest rate on the advance, net of dividends. Cancelled (by resignation, retrenchment or repurchase) – (454 924) Share entitlements outstanding at end of year 6 877 553 16 563 460

Analysis of share entitlements outstanding at 31 March 2006

Prepaid Outstanding Repayment Interest contributions loan account Number of Share date of loan rate by participants balances shares purchase price balance of loan US$ US$ granted US$ 31 March US dollar 2008 Prime 457 605 537 344 1 933 269 0,7101 25 October US dollar 2008 Prime 460 212 550 767 1 944 284 0,7101 13 May US dollar 2009 Prime 167 700 246 053 500 000 1,0062 31 March US dollar 2010 Prime 1 565 833 3 758 062 2 500 000 1,8790 2 651 350 5 092 226 6 877 553

Brait South Africa Share Scheme 2005 Salient features •A new scheme implemented with effect from 1 April 2005. •A vested share appreciation is converted into shares at market •The scheme consists of a management scheme and an executive price. scheme. • Entitlements are granted at market price at the date of grant. •The executive scheme requires a capital contribution on which the •Vesting accrues between three and five years. executive is exposed to market risk. • Entitlements are forfeited if the participant leaves the group before •The scheme is based on a share appreciation right linked to a Brait vesting. S.A. share.

Entitlements granted under the scheme: Management Executive scheme scheme Total Share entitlements outstanding at beginning of year ––– Granted 2 110 823 – 2 110 823 Cancelled (by resignation or retrenchment) – – – Share entitlements outstanding at end of year 2 110 823 – 2 110 823

Brait Annual Report 2006 43 REMUNERATION REPORT CONTINUED

Analysis of share entitlements outstanding at 31 March 2006

Expiry date Number of shares Issue price (ZAR) A shares – 5 years 31 March 2010 1 250 823 11,83 A shares – 5 years 30 September 2010 125 000 18,04 A shares – 5 years 31 December 2010 135 000 18,99 C shares – 3 years 31 March 2008 500 000 11,83 C shares – 3 years 31 December 2008 100 000 18,99 2 110 823

Directors’ emoluments For Brait S.A. and its subsidiaries Remuneration

Fees and expenses Other Other For the year ended as Cash Performance benefits services 2006 31 March 2006 directors salary bonus (note 1) (note 2) Total US$000 US$000 US$000 US$000 US$000 US$000 Executive directors AC Ball 12,4 507,7 781,5 33,4 – 1 335,0 BI Childs 8,3 48,0–––56,3 JJ Coulter (note 3) 8,3 232,0 – 804,6* – 1 044,9 JA Gnodde (note 3) 8,3 298,3 922,6 24,7 – 1 253,9 CJ Tayelor 11,2 339,1 518,0 32,9 – 901,2 SJP Weber ––––36,836,8 48,5 1 425,1 2 222,1 895,6 36,8 4 628,1 Non-executive directors PAB Beecroft 8,3–––14,0 22,3 J Bodoni 8,3––––8,3 ME King 20,1–––184,0 204,1 RJ Koch 17,8–––21,0 38,8 AM Rosenzweig 8,3–––21,0 29,3 HRW Troskie 8,3–––11,2 19,5 PL Wilmot 19,4 – – – 21,0 40,4 90,5 – – – 272,2 362,7 Total US$000 139,0 1 425,1 2 222,1 895,6 309,0 4 990,8

* Mr Coulter was paid a US$750 000 ‘sign-on’ consideration in June 2005. Should he leave the group’s services prior to 1 June 2008, a pro-rata portion will be refundable

Note 1 Other benefits represent provident fund contributions, motor vehicle allowances, medical aid and group life cover. Note 2 Other services represent time spent by directors in the management and/or day-to-day activities of the company and/or its subsidiaries. Note 3 Messrs Coulter and Gnodde were appointed directors of the company on 27 July 2005. Their remuneration is in respect of the eight month period from this date.

44 Brait Annual Report 2006 Directors’ emoluments (continued) For Brait S.A. and its subsidiaries Remuneration Fees and expenses Other Other For the year ended as Cash Performance benefits services 2005 31 March 2005 directors salary bonus (note 1) (note 2) Total US$000 US$000 US$000 US$000 US$000 US$000 For the year ended 2005 31 March 2005 Total Executive directors AC Ball 16,0 461,0 800,0 34,0 – 1 311,0 CJ Tayelor 10,0 307,0 400,0 33,0 – 750,0 SJP Weber ––––36,0 36,0 26,0 768,0 1 200,0 67,0 36,0 2 097,0 Non-executive directors J Bodoni 8,0––––8,0 FZ Haller (resigned 7 February 2005) 12,0–––17,0 29,0 ME King 25,0–––185,0 210,0 RJ Koch 16,0–––20,0 36,0 AM Rosenzweig 10,0–––20,0 30,0 PL Wilmot 39,0––––39,0 110,0–––242,0 352,0 Total US$000 136,0 768,0 1 200,0 67,0 278,0 2 449,0

Share entitlements 2006 2005 (a) Brait S.A. Share Incentive Scheme Expiry date Shares granted Issue price (ZAR) Expiry date Shares grantedIssued price (ZAR) RJ Koch 31 Dec 11 15 300 7,19 31 Dec 11 15 300 7,19 6 July 12 34 700 7,22 6 July 12 34 700 7,22 ME King 31 Dec 11 24 000 7,19 31 Dec 11 24 000 7,19 6 July 12 76 000 7,22 6 July 12 76 000 7,22 AM Rosenzweig 31 Dec 11 15 300 7,19 31 Dec 11 15 300 7,19 6 July 12 34 700 7,22 6 July 12 34 700 7,22 SJP Weber 31 Dec 11 10 000 7,19 31 Dec 11 10 000 7,19 6 July 12 40 000 7,22 6 July 12 40 000 7,22 PL Wilmot 31 Dec 11 15 300 7,19 31 Dec 11 15 300 7,19 6 July 12 34 700 7,22 6 July 12 34 700 7,22 BI Childs 1 Oct 13 50 000 18,04 ––– HRW Troskie 1 Oct 13 50 000 18,04 ––– PAB Beecroft 1 Oct 13 50 000 18,04 ––– 450 000 300 000

(b) Brait Executive Share Purchase Scheme 2006 2005 Prepaid Outstanding Outstanding contribution loan loan by the account Expiry Shares Issue account Expiry Shares Issue participant balance date granted price balance date granted price US$000 US$000 US$ US$000 US$ CJ Tayelor – ––––822 31 Mar 08 1 895 307 0,7101 JA Gnodde 318 373 31 Mar 08 1 342 377 0,7101 –––– JJ Coulter 1 566 3 758 31 Mar 10 2 500 000 1,8790 ––––

Brait Annual Report 2006 45 RISK MANAGEMENT REVIEW

Managing risk to enhance shareowner value goes to the very heart of Investment limits at each control level are approved by the board Brait’s business. The group places great importance and priority on its and reviewed regularly to ascertain their relevance and approach to risk management and has a strong culture of risk appropriateness. Management is expected at all times to remain within management. It recognises that risk impacts on profitability and is an the prescribed limits. integral component of most transactions. A careful process of risk management is employed to effectively identify, evaluate and assess all Brait measures the current profit and loss on its proprietary investment types of risks and to optimise the risk-reward trade-off. portfolio monthly, or more regularly if specifically needed. The monthly reports are supplemented by a full quarterly review of all investments. Risk management responsibility and structures Controls are in place to ensure that other market risk transactions are Ultimate responsibility for the formulation of risk management policies booked at prevailing market rates and that positions are revalued at and the systems of control and review lies with the board of Brait and current market prices. the boards of its primary subsidiaries. There are nonetheless, intervening committees and executives who have designated The risk measurement function in the group operates with clear responsibility for focusing on specific risk categories. Effective risk independence and authority from the operations and reports to senior management is also achieved through the decentralisation of management and the board. responsibilities to managers of risk taking units, with reporting lines to the group Chief Executive and designated risk committees. The risk Credit and counterparty risk control structures are summarised in the following diagram: Credit and counterparty risk refers to the effects on future cash flows and earnings of borrowers defaulting on their obligations. This also covers trading counterparties, issuers of instruments held by the group Brait board of directors Group audit and or as collateral. Such risk arises primarily from lending and investment risk committee activities as well as from the settlement of proprietary financial market transactions and those undertaken on behalf of clients. Employment equity Brait manages these risks by setting prudent credit exposure limits, Group Chief committee constantly measuring current credit exposures, estimating maximum Executive potential credit exposures that may arise over the duration of a Proprietary transaction, and responding quickly when corrective action needs to investment be taken. committee

Primary All material credit exposures are governed by authorisation limits at subsidiary Risk taking units Marketing both subsidiary and Brait S.A. board level. boards of committee directors Impairment provisions for doubtful debts are raised throughout the Group year and approved by the audit and risk committee. Internal audit committee Direct reporting lines Interest rate and liquidity risks Indirect reporting lines Environmental Interest rate risk refers to the impact on future cash flows and earnings steering of assets and liabilities of interest rates repricing either at different committee points in time or on a different basis.

Exposures to interest rate movements are managed by a combination Different types of risks are clearly defined and such definitions provide the of floating and fixed rate instruments, which give the group its desired basis for measuring risk and implementing risk management processes. maturity profile. The interest rates of the majority of the group’s term borrowings have been fixed in order to minimise the risks of interest The group has risk exposures to market risk, credit risk, interest rate and rate volatility and match the estimated yield of the underlying assets liquidity risk, currency risk, solvency risk, operational risk, legal and funded with the borrowings, where applicable. The maturity of compliance risk and strategic risk.These risk factors are considered below. borrowings is disclosed in the notes to the financial statements.

Market risk Liquidity risk arises in the general funding of the group’s activities Market risk is the potential change in the value of a financial when there are mismatches between the sizes and maturities of assets instrument resulting from changes in market conditions. On a portfolio and liabilities and also in its Funds Management and trading basis, this is the risk of a decrease in the value of the portfolio as a operations. The liquidity risk refers to the ability of the group to meet result of an adverse move in market parameters such as equity prices. its financial obligations as they fall due.

Primary control of risk is established through a comprehensive limit Currency risk structure that promotes the alignment of the group’s risk appetite, Although the group’s holding company is domiciled in Luxembourg primarily for proprietary investments. and its financial and reporting currency is the US dollar, it has

46 Brait Annual Report 2006 significant operations and/or investments in South Africa, Europe, Legal risk Mauritius, North America and Australia. The group’s net assets reflect Legal risk is the risk that transactions or agreements with third parties the currency impact on individual investments. Brait has undertaken to may not be legally enforceable or do not reflect the intentions mitigate the currency exposure of these net assets by hedging or approved by the boards or their committees. Brait recognises the legal holding a large portion of its capital in US dollars. At 31 March 2006, risks inherent in complex financial transactions. Brait engages approximately 88% of the net tangible assets of the group was reputable third party legal professionals who are familiar with the covered or held in US dollars. group’s operations and the specific nature of its business for its transactions in order to mitigate such risks. Solvency risk It is essential to ensure that the group is adequately capitalised to Compliance risk absorb potential losses in its activities, to maintain the confidence of Compliance or regulatory risk is the risk of non-compliance with all those with whom it does business and to fund the future growth regulatory requirements. Brait has allocated skilled staff to specific of its operations. The geographical and legal structure of the group compliance functions as part of its risk management framework. The minimises the potential contamination of losses in one segment of management of compliance risk is achieved through monitoring, operation with those of another. The group also has a satisfactory reporting and other services, and reports regularly to the audit and risk capital base to support the operations of its underlying businesses. committee.

The group held some 53% of its capital in short-term cash deposits at Risk management for fund investment 31 March 2006 and has approved banking facilities of US$13,0 million The group acts as manager for several funds financed primarily by third (ZAR80,0 million). party capital. In both Private Equity and Specialised Funds these funds are typically subject to a number of governance controls with risk Operational risk and IT technology management effects, including where appropriate: Operational risk is the potential for loss caused by a breakdown in information, communication and transaction processing systems and • fund mandates setting out investment parameters including procedures. While these risks can never be fully protected, Brait targeted markets, transaction types and investment limits; attempts to reduce them by maintaining comprehensive systems of • controlled investment processes including appropriate approval by internal controls, and sound policies and practices in the areas investment committees; of information technology, human resources, physical security and • investor review by way of periodic reporting and performance insurance. The enforcement and monitoring of compliance with such evaluation; policies and standards of practice is an essential component of • advisory committee review for resolution of certain potential operational risk management. conflicts of interest; and • statutory and regulatory controls. The group has dedicated significant resource and commitment to an internal audit function, which is focused on a business and risk-based Brait’s internal control processes ensure that fund mandates are audit approach. The primary responsibility for operational risk adhered to, and these controls are subject to internal audit and thus management lies at business unit management level. The group also audit and risk committee review. The effect on Brait’s financial position ensures that operational risk is minimised through the implementation is assessed by applying sensitivity analysis to material positions held in of sound accounting methods, administrative controls and a code of its funds under management. conduct. Conclusion The assessment of information technology is in the hands of the The key focus of Brait’s risk management strategy is ongoing executive committee which not only sets IT policies, but also act as the identifying, assessing, managing and monitoring all known forms of final decision making authority. The group employs both onsite and risk resident in its operations. This is a continuous process of offsite disaster recovery facilities which are tested regularly. Business developing and enhancing comprehensive risk and control procedures continuity plans are in place in the case of catastrophic events. All so as to enable the group to effectively identify and monitor all business processes are supported by software systems, which are kept potential risks that it may reasonably be exposed to. current with the latest technology trends.

The group audit and risk committee, which has responsibility, inter alia, for overseeing of the management of operational risk, comprises non- executive directors to whom both the external auditors and internal auditor function have direct access. The functioning of this committee is dealt with more fully under the corporate governance section of the annual report.

Brait Annual Report 2006 47 SUSTAINABILITY REPORT

Introduction Interaction with our stakeholder groups is fundamental to the Brait’s approach to corporate sustainability is to create long-term sustainability process. Brait looks forward to engaging with all its shareowner value by embracing opportunities and managing the risks stakeholders on the issues raised in the report, and encourages derived from economic, social and environmental developments. Brait feedback to advance the company’s approach to sustainability views sustainable development as an essential component in the development and management, in an effort to continually improve in growth and improvement of the group in all its operations. In light of these key areas. this, it strives to find a balance between economic objectives, social upliftment and environmental responsibility (“triple bottom line”), in The framework for reporting on the triple bottom line, in this report, is recognition of the financial and reputational benefits of integrating as follows: sustainability into sound business practice. Stakeholders – Economic performance Brait is pleased to present the group’s third consecutive annual Social responsibility – Social performance sustainability report. The aim of this report is to demonstrate to Employee report – Social performance/occupational stakeholders the group’s continued commitment to operate a health and safety sustainable company, whilst respecting all three aspects of the triple Environmental – Environmental performance bottom line. This report covers the activities of the Brait group, during the 2006 reporting period. Stakeholders Brait recognises the importance of building and cementing long-term The report follows a similar format used for the two previous reports, reciprocal relationships with our stakeholders and views this as integral and draws on the framework of the internationally accepted Global to the success of our business. Our direct stakeholders are Reporting Initiative (GRI) Sustainability Guidelines (2002), as well as shareowners, clients, investors, employees, suppliers, government and the criteria of the JSE Limited’s (JSE) Socially Responsible Investment regulators, whilst our indirect stakeholders include the communities in (SRI) Index, as guides for sustainability reporting on the triple bottom which we operate encompassing the education fraternity which serves line. These criteria have been used for guidance only, with this report as a source of future employees of the group. All our stakeholders play focusing on issues that are specifically material to the the business of a key role in the sustained success of Brait’s business and we regularly Brait. Sustainability is not an isolated undertaking removed from day- engage and consult with them. Brait is committed to creating wealth to-day business activities, and as such, this report should be read in and adding value for all our stakeholders, and further strengthening conjunction with the rest of the annual report to gain a full overview our relationship with them. of the group’s activities. Shareowners and providers of capital As a financial services company, the group’s contribution to promoting Shareowners are our providers of capital and their key performance sustainable development relates largely to its ability to make a positive measures are the achievement of superior long-term sustainable impact on social upliftment, and economic development.The group has growth in earnings and dividends, and the consistent demonstration of thus taken the strategic decision to focus its sustainability activities on exceptional returns on shareowners’ equity. The past year has seen the addressing the challenges that are most material to its business, group meet and exceed these performance measures with a significant namely the responsible provision of its financing, lending and funds increase in earnings, and the declaration of a total dividend of management activities (taking into account both social and 18,24 US cents per share to shareowners. ROE on a performance environmental indirect impacts), the roll-out of its BEE initiatives, scorecard basis improved to 45,9%, exceeding our target of 20%. The the promotion of its CSI motto of “better opportunities through education”, and the implementation and maintenance of sound group’s risk exposure has been conservatively managed and the long- employment practices. Brait nevertheless recognises the importance of term nature of our private equity business and the good standing of the natural environment, and the minimisation of both the direct and our client franchise are still intact. indirect environmental activities of its business. Clients With the increased focus on sustainability, worldwide, Brait has We view our clients as partners and work hand in hand with them benchmarked itself against the criteria of the JSE Socially Responsible in the creation of shared value. They are key to the long-term Investment (SRI) Index, launched in May 2004. This index aims to sustainability of our business. Our approach and objectives fit those of promote and enhance good corporate sustainability practices, in South our clients. In fostering long-term and mutually beneficial relationships Africa, by using a set of predetermined criteria to assess and measure with them, we go the extra mile and respond quickly and innovatively companies’ triple bottom line performance. Participation in the JSE SRI to their needs. Clients appreciate our integrated multi-disciplinary Index is voluntary and limited to the 160 companies listed in the service offering, and our enthusiasm to co-invest with them in support FTSE/JSE All Share Index. Brait has participated in this process, for the of our advice and ideas. third consecutive year, and is proud to be one of the 58 companies included in the JSE SRI Index for 2006.

48 Brait Annual Report 2006 Investors southern Africa. Over the past five years, Brait has been actively We have an obligation to our investors to deliver superior returns and, involved with SAVCA, and has played an integral role in a number of as a result, our ability to find and convert opportunities into financial its key initiatives. Brait is represented on SAVCA’s board of directors, its reward provides our investors in funds under management with a executive committee, as well as on a number of project sub- balance of risk/return profile with consistent and sustainable returns committees.The group also engages with the Micro Finance Regulatory and earnings that they are unlikely to achieve themselves, or within our Council (MFRC) and the Securities Regulation Panel (SRP). peer group. Brait has committed itself to stringent standards of reporting transparency and disclosure.This practice is followed not only Government and public sector officials for shareowners, but also at client and investor levels. Investors in our During the period under review, Brait has engaged with the South private equity funds receive regular, transparent and comprehensive African Deputy Minister of Finance, who has been most supportive in reporting disclosure in regard to their investments. They are terms of the group’s efforts to expose international investors to senior represented on advisory boards and are party to the investment policymakers in government. We have further engaged with the strategy with regard to these funds. All investments are fully discussed with our investors at bi-annual meetings. The trust and confidence of Department of Public Enterprise, the Department of Trade and Industry, our investors in our private equity team is reflected by the historic and other relevant government sectors pertinent to an investor record of growth in Brait’s funds under management and their ongoing company’s business. participation in Brait’s new fund offerings. Suppliers Employees Brait is committed to furthering black economic empowerment, and The intellectual capital of Brait’s employees form the foundation, and has procedures in place to substantially increase the company’s is the key driver behind the success of the group. Recognition of our procurement from black-owned (shareholding), and black-staffed employees performance is aligned with the performance of the group. enterprises. Suppliers are required to submit their employer and We are focused on the development of our pool of talented people and employee profiles and employment equity strategies. The group is also are committed to education and training to improve and extend their dedicated to sourcing suppliers with appropriate environmental skills. Recruitment and retention of good people is important to the policies in place (re-cycling, environmentally-friendly products, etc). group, and our human capital base is stable. Employees are treated with respect and are key partners to the business. Communities and social interest groups Brait is committed to assisting less fortunate people in the Regulators and other industry bodies communities in which we operate, and to developing human capital. The group engages proactively in the regulatory process and pursues We recognise that we have a contribution to make in uplifting these opportunities to interact with various regulators. It engages with all communities. This is primarily facilitated through the activities of the three stock exchanges, on which the group’s shares are listed. Brait Foundation, which has a chief objective to promote, nurture and develop intellectual capital in commercial activities in these Brait is a full member of the Southern African Venture Capital and communities and to work in conjunction with academic institutions, Private Equity Association (SAVCA). The main objective of SAVCA is the including the granting of educational bursaries for employment promotion of the venture capital and private equity industry in equity candidates.

Brait Annual Report 2006 49 SUSTAINABILITY REPORT CONTINUED

Below is a table setting out methods of engagement with each stakeholder group: Stakeholders Methods of engagement Shareowners and providers of capital Shareowners are our providers of capital and their key performance • Media releases measures are the achievement of superior long-term sustainable • Corporate website: www.brait.com growth in earnings and dividends, and the consistent demonstration of •The Stock Exchange News Service (SENS) exceptional returns on shareowners’ equity. • Annual and interim results • Presentations and investor visits • Annual general meeting •The annual report • Analyst briefings, including results presentations • Conference calls Clients (including Fund Investors) Creating lasting and mutually beneficial relationships with our • Advertising and marketing customers with the creation of shared value, and an obligation to • Corporate website deliver superior returns to our investors. • Electronic, telephonic and telefax communication • Corporate hospitality • Client seminars • Daily economic research reports • Quarterly, monthly and weekly Fund reports • Distribution through the M&A Network Inc. • Investor memorandums • Investor visits •Educational seminars • Industry surveys Employees Creating a positive, supportive, healthy and diversity-friendly working •The intranet environment. • Electronic and verbal communication • Internal newsletters •Wellness at work programme •Training and development • Emerging Fund Manager programme • Employment equity and diversity • Staff share schemes •Paid maternity leave • Health and safety (Regular on-site eye assessments, sponsored flu vacinations) •Study loan scheme • Annual appraisal/employee satisfaction surveys Regulators and other industry bodies Brait actively engages with the various stock exchanges on which it is • Electronic, telephonic and telefax communication listed, and other statutory authorities to ensure that the interests of the • Attend road shows and presentations group, its shareholders and customers are properly represented in all • Meetings policy-making and regulatory processes in the development of financial •Forums services markets. • Board representation

Government Through the executive management, Brait engages with government • One-on-one consultations between staff and key government by interacting with key personnel within various government personnel departments relevant to the business of the group. • Economic briefings • Public-Private Partnerships

Suppliers We view our suppliers as business partners and are committed to aligning • Electronic, telephonic and telefax communication with reputable suppliers, and assisting with supplier transformation. • One-on-one consultations between relevant staff and suppliers

Communities Brait is committed to assisting less fortunate people in the •The Brait Foundation communities in which we operate and to developing human capital.

A number of important challenges have emerged from stakeholder feedback: •To raise awareness about the Corporate Social Investment initiatives run by the Brait Foundation. •To achieve diversity at all levels throughout the organisation, particularly within senior management. •To actively communicate the group’s BEE implementation status to ensure awareness of the group’s initiatives amongst stakeholders.

50 Brait Annual Report 2006 GROUP VALUE ADDED STATEMENT

As restated 2006 2005 for the year ended 31 March US$m % US$m % Value added Fees, investment returns, interest and other revenues (note 1) 101,2 79,4 Cost of services (23,7) (25,2) Wealth created 77,5 54,2 Distribution of wealth Employees Salaries, wages and other benefits 24,5 32 18,9 35 Governments – national and regional Taxation and duties 2,8 4 0,6 1 Shareowners Dividends 19,6 25 14,5 27 Retentions for reinvestment Retained earnings and depreciation 30,6 39 20,2 37 77,5 100 54,2 100

Note 1. Interest is included net of interest expense

Distribution of wealth

2006 2005

Employees, 32% Employees, 35% Governments – national and regional, 4% Governments – national and regional, 1% Shareowners, 25% Shareowners, 27% Retentions for reinvestment, 39% Retentions for reinvestment, 37%

Brait Annual Report 2006 51 SHARE ANALYSIS

Distribution of shareowners at 31 March 2006 Shareowners Shares held Number % Number % Range of shareowning 1 to 10 000 3 531 88,1 5 705 038 5,2 10 001 to 50 000 294 7,3 7 019 132 6,4 50 001 to 100 000 54 1,3 4 013 828 3,6 more than 100 000 131 3,3 93 749 323 84,8 4 010 100,0 110 487 321 100,0 The analysis of shareownings above includes the underlying beneficial shareowners in nominee companies.

Shareowner spread To the best knowledge of the directors and after reasonable enquiry, as at 31 March 2006, the spread of shareowners was as follows: Public 3 992 99,6 94 375 333 85,4 Non-public 18 0,4 16 111 988 14,6 Directors and associates 14 0,3 7 107 103 6,4 Share trusts 4 0,1 9 004 885 8,2

4 010 100,0 110 487 321 100,0

Category/classification of shareowners Banks 45 1,1 8 683 519 7,9 Close corporations 97 2,4 451 766 0,4 Endowment fund 18 0,5 522 105 0,5 Individuals 3 048 76,0 10 515 041 9,5 Insurance company 18 0,4 3 004 043 2,7 Investment company 4 0,1 10 492 565 9,5 Mutual fund 88 2,2 19 943 124 18,0 Nominees and trusts 381 9,5 14 797 855 13,4 Other corporations 78 2,0 5 853 683 5,3 Pension fund 49 1,2 8 400 553 7,6 Private companies 171 4,3 15 618 128 14,1 Public companies 9 0,2 3 200 054 2,9 Share trust 4 0,1 9 004 885 8,2 4 010 100,0 110 487 321 100,0

Major shareowners According to the company's share register, the following are the ten largest shareowners as at 31 March 2006: Shares held Number %

Stanlib Group (for and on behalf of clients) 8 322 891 7,5 The Brait Executive Share Purchase Scheme 6 877 552 6,2 Public Investment Commissioner 5 833 254 5,3 Investec Group (for and on behalf of clients) 5 470 722 5,0 Securitas Services Limited 5 344 560 4,8 The Thierry Dalais Family Trust 5 248 408 4,8 Ball Family Trust 5 097 375 4,6 Battersea Services Limited 3 916 938 3,5 Drocheda Limited 3 000 000 2,7 Sanlam Group (for and on behalf of clients) 2 978 332 2,7 Total 52 090 032 47,1

52 Brait Annual Report 2006 Performance on the JSE Limited* for the year ended 31 March 2006 2005 2004 2003 2002 2001 2000 Price performance Traded prices (South African cents per share) – year-end closing price 2 500 1 170 730 650 860 1 145 2 200 – high 2 630 1 250 850 1 170 1 590 2 200 3 975 – low 1 170 676 560 650 845 1 145 1 790 – weighted average price – per share traded 1 785 892 662 921 1 331 1 605 2 628 Price-earnings ratio (on closing price) 7,5 4,9 165,7 (4,4) 3,4 5,2 8,3

Volume performance Number of shares in issue (‘000) 110 487 102 256 102 256 93 483 93 483 93 483 93 483 Volume of shares traded (‘000) 56 222 29 717 37 567 22 773 26 758 25 034 37 298 Number of transactions 9 575 3 166 2 071 1 897 3 333 5 268 10 068 Volume traded as % of average shares in issue 51 29 37 24 29 27 40 Number of shareholders (at 31 March) 4 010 2 872 2 692 2 574 3 108 2 184 2 696

Value performance Value of shares traded – ZAR’m 1 081 265 249 192 367 394 980 – US$’m 169 42 40 24 32 49 150 Market capitalisation at 31 March (m) – ZAR’m 2 762 1 196 746 608 804 1 070 2 057 – US$’m 447 190 119 77 71 134 315

Yield Earnings yield (%) 12,8 20,3 0,6 (23,0) 12,4 19,2 12,0 Dividend yield (%) 4,6 7,3 2,8^ 3,3^ 7,5 5,2 3,4

Liquidity rating of securities Brait's shares have a class one maximum liquidity rating on the JSE Limited

* The performance on the JSE Limited has been analysed as this is the most liquid exchange on which Brait's shares trade. ^ Excluding special dividends

Volume traded Value traded Average price

14 350 3 000

12 300 2 500

10 250 2 000

8 200 1 500 Cents Millions 6 150 ZAR millions 1 000 4 100

500 2 50

0 0 0 eb 06 an 06 Jul 05 eb 06 eb 06 an 06 an 06 Jul 05 Jul 05 J Jun 05 Oct 05 F Sep 05 Dec 05 J J Jun 05 Jun 05 Oct 05 Oct 05 F F Nov 05 Mar 06 Aug 05 Sep 05 Sep 05 Dec 05 Dec 05 May 05 Nov 05 Nov 05 Mar 06 Mar 06 Aug 05 Aug 05 May 05 May 05

Brait Annual Report 2006 53 SOCIAL RESPONSIBILITY

The Brait Foundation was established in July 2000, as a partnership •Brait has sponsored the upgrade of the library facilities at the between the group and its employees. The Foundation’s objective is to school and in partnership with READ (a literacy focused NGO), has provide better opportunities to previously disadvantaged communities managed to ensure that the library is now fully functional. It has in South Africa, through education. It is resourced via financial become a vibrant, integral part of the school. The Foundation contributions from the group’s business units, staff and fundraising continues to fund the purchase of books and provides ongoing initiatives, but its main strength lies in the commitment of its members training to school staff members to ensure the sustainability of the who, together with Brait staff, volunteer their time, energy and library. Once a year, Brait staff are encouraged to donate books, expertise to manage, monitor and assist the various projects which are sorted, covered, catalogued and presented to the library. undertaken by the Foundation. The Foundation is also responsible for the supply and upkeep of computers to the school and the sponsoring of a part-time As an organisation that recognises and promotes excellence, drive and computer teacher. entrepreneurial spirit, Brait seeks to foster individuals whose ability, commitment to learning and determination to overcome barriers can be an example to their peers and the wider community. The Brait •Through the Brait Foundation a number of career guidance Foundation is proud to be associated with individuals, organisations, initiatives have been implemented. These include career and institutions and projects which share the same passion shown by Brait subject choice workshops (run by PACE), together with school and its staff members. outings to businesses and places of interest in various sectors of the economy (the latter organised by Brait Foundation members). Moletsane Secondary School The Foundation has also set up the “PACE” software programme Moletsane School, located in Soweto, was established in 1972 and at Moletsane in order to assist pupils with decisions regarding graduated into a fully fledged senior secondary school in 1976. subject choices and careers. Moletsane currently has 1 330 learners enrolled, supported by 37 educators and three administrative officers. During recent years the • In 2003, Brait and Moletsane participated in the first Cell C “Take Brait Foundation has developed a strong partnership with Moletsane a Girl Child to Work Day”. Brait has continued to support this and has set up a number of successful programmes in conjunction with programme, hosting girls from Moletsane each year, and endorses the school. Cell C’s initiative to “deepen the thinking of the girl child with regard to their infinite roles in society, enhance her self-esteem, The Foundation has over the past five years, assisted Moletsane by inspire and motivate her to reach her full potential and through upgrading school buildings and facilities, and implementing various exposure to diverse careers and positive role models assist her to learning programmes which have assisted and encouraged both prepare for the world of work”. Supporting this kind of learners and teachers alike.This is reflected in the marked improvement programme ties in with the Foundation’s motto of “better in Moletsane’s matric results over the past few years. opportunities through education”. 2001: 46% pass rate 2002: 86,4% pass rate with 35 distinctions • Other projects initiated at Moletsane, by Brait, include the 2003: 93,4% pass rate with 22 distinctions introduction of the Activate Mindset Programme. Activate, a 2004: 91% pass rate (the best Gr 12 results in the Soweto area) channel of the Mindset Network, offers a complete learning plan 2005: 80% pass rate with four distinctions via satellite television with multimedia support. The channel is aimed at supporting teachers and learners with the new FET Moletsane is now much admired, within the Soweto school curriculum. Moletsane is able to access Activate via DStv channel community, for the improvement of its matric results as well as for the 82. The daily broadcasts are supported by print supplements enormous commitment it shows to the continuing education and provided via the Sunday Times. upliftment of both its teachers and pupils. •The Foundation introduced the “Entrepreneurs on the Move” Projects, achievements, milestones, awards: project to the school. The aim of this project is to introduce and encourage entrepreneurship amongst students and school leavers. •Brait annually sponsors seven teams from Moletsane to participate It is focused on business development, mentorship, an in the JSE/Liberty Life Investment Schools Challenge. The entrepreneurship project, job creation and skills development. This competition involves learners from grades 10 and 11 managing programme is currently being successfully run by the school’s listed equity investment portfolios on the JSE, and is aimed at economics teacher. introducing learners to the workings of the stock market and the principles of equity investment. Brait staff mentor the pupils, on a •Towards the end of 2005, the Brait Foundation working together voluntary basis, sharing their extensive investment experience. with “Habitat for Humanity” started building a school hall at Moletsane has taken the competition by storm, having three teams placed in the top 10 in the past three years, and emerging as Moletsane. The hall is able to seat up to 1 200 pupils and is winners in the 2005 competition. The Foundation was attracted expected to become central to the working of the school. Chairs to this project because of the educational benefits to the for the hall were purchased from personal donations received from participating learners and their classmates. Moletsane has Brait’s staff.The new hall will enable the school to hold assemblies, reported improved results in commercial subjects, since the host functions, public speaking events etc, and can also be used as introduction of the competition at the school. extra classroom space, as required.

54 Brait Annual Report 2006 •The school hall project was a great innovator towards team- programme called Endeavour. This programme was set up in the USA building initiatives within the group. Staff volunteers had the in 1997 with the express intention of encouraging entrepreneurship in opportunity to be involved in physically helping to build the hall at developing nations. Having achieved initial success in Argentina and Moletsane, in Soweto. Brait staff worked side-by-side with Chile, Endeavour SA was launched in 2004. Moletsane teachers digging, pushing wheelbarrows, filling building foundations, wielding pickaxes, laying bricks and Each year, approximately 40 entrepreneurs are identified. Interviews generally assisting the contractors with whatever manual and panel discussions are held between the candidates and the labour required. Endeavour Board members (Brait is represented on the board by Mr John Gnodde), following which two or three entrepreneurs are The new Moletsane school hall was officially opened by the selected. Endeavour then offers assistance, advice and demand-driven Honourable Minister of Education, Ms Naledi Pandor, on 22 May 2006, services to these carefully chosen entrepreneurs, ensuring that their when it was announced that Moletsane would now form part of initial ideas expand into major growth and employment benefits. the Education Department’s “Dinaledi” (“Star”) initiative – a proud moment for all involved. During the initial stages of entrepreneur selection, senior Brait Thuthuka Bursary Fund employees assist a number of the candidates in compiling their Brait is a proud sponsor of the Thuthuka Trust initiative, developed by presentations. This programme is re-evaluated on an annual basis. the South African Institute of Chartered Accountants (SAICA), to fund aspirant students from previously disadvantaged communities who are Gordon Institute of Business Science (GIBS) studying towards becoming chartered accountants. A significant At the end of 2004, the Brait Foundation decided to fund the fees for number of Brait’s professional staff are chartered accountants, and a previously disadvantaged student to attend the Gordon Institute of share SAICA’s vision of increasing the number of chartered accountants Business Science’s MBA programme over a period of two years. The from previously disadvantaged backgrounds. In the true spirit of Foundation wanted to foster the idea of excellence in education and partnership, Brait not only provides funding, but also involves its staff GIBS seemed a natural choice given the close links between Brait members in mentoring the bursary students. and GIBS.

PUSH After a rigorous selection process conducted by both institutions, one PUSH is registered as a non-profitable community based organisation full scholarship and two partial scholarships were awarded. with the Department of Social Development. Its approach is to mobilise schools and communities to work together, in partnership, to address The scholarships formed a three way relationship between the Brait key risk factors like HIV/Aids/STI and tuberculosis, early pregnancy and Foundation, the students and GIBS and close contact is maintained behaviour change and to eliminate some of the problems around between the parties. The awarding of this scholarship will be stigma, discrimination and denial, to increase prevention awareness. re-evaluated at the end of 2006. The Foundation decided that HIV/Aids was one of the areas on which it needed to increase its focus and activities and, thus, aligned with PUSH on an HIV/Aids programme. Together, the Foundation and PUSH Rally to Read created an opportunity for Moletsane to receive the necessary teaching Rally To Read, a joint venture between The Financial Mail, McCarthy and education to build awareness, train, treat and monitor Motor Holdings and the READ Educational Trust, has been supporting interventions to combat the epidemic, through regular workshops and rural education since 1998, and has had a direct influence on the lives question and answer sessions. of more than 100 000 school children at 345 remote, rural schools of South Africa. Full sponsorship costs ZAR17 000, of which ZAR11 000 MaAfrika Tikkun buys books, and ZAR6 000 funds teacher training. Annually, during The Foundation made a further commitment to the fight against weekends in May, convoys of off-road vehicles depart from main cities HIV/Aids, during August 2005, when it decided to support the Aids across the country to deliver books and other teaching materials to Educational Centres being set up by MaAfrika Tikkun in the Orange some of the country’s most neglected schools. The project allows for Farm, and Diepsloot, informal settlements. The HIV/Aids caregivers the sponsors to personally deliver portable libraries and other teaching project, managed by MaAfrika Tikkun, encourages members of the aids to remote schools during The Rally weekend. On arrival at the community to train as caregivers to provide home-based care to school, Rally participants meet and interact with the learners and patients who are bedridden and infected by the HIV virus, along with teachers who benefit from the books and subsequent professional additional support for the family. The caregivers are trained in development, provided for three years by the READ Educational Trust. counselling (grief, depression) and data collection, collecting Sponsors return to the same set of schools for three consecutive years information directly from the community. This enables government and and can witness the progression of the teachers and learners. The Brait NGOs to effectively identify the community’s needs, to be able to provide essential services and proactively manage vulnerable families Foundation’s objective to assist impoverished communities with and infected patients. educational initiatives, and to enhance the learning experience for young South Africans, is met in supporting this project. Foundation Endeavour members take part in Rally to Read, annually, with the end goal of Given the extremely high level of unemployment in South Africa the improving the reading and writing skills of hundreds of learners. During Brait Foundation realised that the development of entrepreneurs was May 2006, three Brait teams participated in this project, reporting that an area of high importance. In light of this, it decided to support a it was one of the highlights of the year.

Brait Annual Report 2006 55 SOCIAL RESPONSIBILITY CONTINUED

Student Sponsorship Programme (SSP) Brait Foundation has sponsored the education and uniforms of four In keeping with the Brait Foundation’s theme of investment in boys, enabling them to attend Sparrows Schools. The Foundation has education, the Foundation currently provides financial sponsorship for also donated two computers to the shelter, and Brait has supported the three students from previously disadvantaged backgrounds to attend shelter’s pottery workshop by purchasing pottery artefacts made by Roedean School SA, in Johannesburg. The sponsorship continues until the Twilight Children for the Private Equity investor visits. An annual the students matriculate (the girls are currently in grades 9 and 10). In drive of the sale of Christmas cards, designed by the Twilight Children, addition to financial sponsorship, each student has a mentor from the is also extended throughout Brait. Brait Foundation, who monitors the students’ performance and offers the girls general support and encouragement. We would like to extend our gratitude to all our staff for their contributions and participation in the various projects, and we hope to Cell C Take a Girl Child to Work Day continue to make a difference to the individuals and communities we Cell C launched its Take a Girl Child to Work Day project in 2003 in the assist, as well as to our staff through their involvement with the Brait hope of breaking down the stereotyping of women as having a role in Foundation. the home and not necessarily in the workplace. The Brait Foundation is proud to have participated in this inspirational day since its inception, and 2006 will be the fourth consecutive year Brait is involved in this Corporate social investment – funding allocation worthy project. The Johannesburg offices will host 20 girl learners from Brait’s Corporate Social Investment (CSI) expenditure is funded Moletsane Secondary School in Soweto, and an additional 20 girl by the annual allocation of not less than half a percent of prior learners from Tlakula High School in Kwa-Thema, Springs (spread year attributable earnings from the entire group’s operations. across grades 10 to 12). This day is also open to all Brait staff with daughters in these grades. The full amount allocated during 2006 was managed by The Brait Foundation, and committed to programmes in terms It is an extremely motivating day for both the girl learners and the Brait of section 13 of the Financial Sector Charter. employees, and provides the girls with the opportunity of entering a formal office environment, enabling them to see first hand the variety of roles available to them in a financial services institution. It is a day during which they are encouraged to be all that they can be, and dream of being.

Girls and Boys Town South Africa Nelson Mandela endorsed his support for Boys Town in 1996, praising the work done by Mr Joe Araujo, executive director (and former pupil) of an organisation which has built a reputation for supporting young boys from disadvantaged backgrounds. The organisation has since extended its much-needed activities to include support for both boys and girls across the racial spectrum. The Brait Foundation identified a role it could provide in mentoring children from this background, and sponsors one child within the guidelines prescribed by Girls and Boys Town.

The LEAP Science and Maths School C.T. The LEAP Science and Maths School was established to provide intensive tuition in mathematics and science to promising learners from disadvantaged communities in and around Cape Town. Given the desperate need for maths and science graduates in South Africa, the Brait Foundation decided to support this initiative through financial assistance and via mentorship of the learners.

The Twilight Children’s Shelter The Twilight Children’s Shelter for abused and homeless children was founded in the early 1980’s to help the growing masses of street children from Hillbrow and surrounding areas in Johannesburg. It is a non-profit organisation dedicated to assisting inner city kids, by providing a place of safety, offering shelter, food, clothing, education and protection from the extremely volatile situation on the streets. The shelter provides medical attention, support groups in the form of social workers, skills training and clothing to approximately 70 boys aged eight years up to 20 years. The boys are encouraged to attend school and careworkers assist with their homework in the afternoons. The

56 Brait Annual Report 2006 EMPLOYEE REPORT

Human resources approach Age distribution Our people are our greatest asset.The continued success of the group’s business is dependent on the ability of the leadership to sustain 50 individual excellence within a framework of outcome-oriented 44,5% teamwork. Competitive, innovative and personalised remuneration, 40 together with progressive incentive and profit sharing schemes serve to reward excellence. Accountability and productivity are encouraged and sustained via an environment characterised by trust and mutual 30 respect. 24,4%

% 23,3%

Our celebration of individual differences supports creative and 20 alternative thinking while a spirit of free mindedness is fostered within an environment that is devoid of formal, traditional corporate hierarchy. A flat, integrated organisational structure facilitates 10 7,8% communication between all levels, allowing for a free flow of thought thereby fostering unfettered maneuverability in response to client 0 needs. Under 30 30 – 39 40 – 49 50 + Age Operational guidelines replace formal policy to allow for individualism, and open communication facilitates the understanding of team dynamics and individual strengths. Brait is a lean organisation staffed by a relatively small group of highly qualified, young and energetic individuals who are driven by challenge, achievement, accountability and high work ethics. Brait believes its employees are the driving force behind its reputation, image and results.

Ratio of professional staff to support staff Staff qualifications distribution at 31 March 2006

Professional 59% Support 41% Non-degree 36% Degree 17% Postgraduate qualification 47%

Professional staff Number of employees CA(SA) 21 Other Master’s level qualifications 5 26

Brait Annual Report 2006 57 EMPLOYEE REPORT CONTINUED

Human capital development Transformation and diversity in South Africa Mentorship and coaching initiatives will always be the cornerstone of Brait’s human resource structure continues to focus on the strategy of manpower development within Brait. Learning and development is a recruiting and retaining the best individuals from South Africa’s diverse core part of Brait’s human capital strategy, with two main objectives: population base. Recruitment standards are high and leadership is measured on the recruitment, development and retention of •To grant each employee the opportunity to achieve his or her intellectual talent. potential in pursuit of organisational objectives; and •To provide a challenging work environment and opportunities for There has been strong progress towards the realisation of equity personal growth. objectives. Despite a progressive reduction in employee numbers, Employment Equity targets established in the 2001 Employment Equity This strategy serves to facilitate the effective transfer of essential areas report have been exceeded during this financial year. of knowledge to Brait’s future executives whilst allowing for development of character, values and individualised career Workforce demographics show a progression over the past four-year development. Opportunities exist for staff to develop broad business period which reflects the overall objective and intent of Brait, that skills ranging from financial analysis and valuations, to business and workforce demographics must, more closely, reflect the demographics people management, as well as investor relations. Brait’s emphasis on of the economically active South African population as a whole. This this form of development has resulted in the formation of closely-knit trend will continue as objectives are consistently met. multi-cultural teams joined by strong relationships and commonality of purpose. Standards of performance are clearly understood and team A fully representative Employment Equity committee ensures regular members promote and reinforce the consistent and ethical application workforce analysis to monitor the achievement of defined numerical thereof. Through the introduction of structured and customised Trainee targets and to ensure fair and equitable employment practices. Emerging Manager and employee development programmes, efforts are made to develop the potential of existing staff and provide a future Transformation continues to be driven on several fronts including social channel of potential managerial and senior staff resources for different investment, black economic empowerment initiatives, corporate social areas of the business. investment and employment equity initiatives. Staff are encouraged to continually improve on their levels of skill and Although Brait has progressed well with regard to its transformation personal development. The amount expended on skills development, process, female representation at senior and executive levels remains a during the period under review, was ZAR470 000. In support of this, priority. Overall, females represent 48% of the total group workforce, training and educational programmes are regarded as essential components of the group’s investment in human capital. A closed however, improvement is required with regard to representation at bursary scheme is available to all staff, and an amount of ZAR212 000 senior levels. Strategies have been put in place that are aimed at the has currently been utilised through this scheme. identification of professional female talent in the marketplace, and the Private Equity division has appointed a female director this year. Brait closed bursary scheme Number of employees Certificates/Diplomas 1 Degrees 2 Postgraduate degrees 5 8

Effective communication throughout the organisation is vital to sustain manpower strategies and serves to develop a culture of openness, honesty and trust.

Group headcount at 31 March 2006 Group gender representation at 31 March 2006 250

200

150 Number 100

50

0 02 03 04 05 06 Male 52% Female 48% 58 Brait Annual Report 2006 Group equity representation at 31 March 2006 at 31 March 2003

African 23% Coloured 11% African 16% Coloured 4% Indian 11% White 55% Indian 4% White 76%

ACI representation of total workforce: 45% ACI representation of total workforce: 24%

Changes in workforce demographics are reflected when comparing the HIV/Aids period ended 31 March 2003 to the current period under review, Brait recognises that the scope of the HIV/Aids pandemic in South and ending 31 March 2006, as shown above: Southern Africa is such that it is likely to have a significant impact on the national economy. The board acknowledges the impact that Financial Sector Charter in South Africa HIV/Aids may have on its workforce, and is committed to creating and The Financial Sector Charter (“charter”), as applicable from January maintaining a safe working environment for all employees, and 2004, sets out the commitments of organisations in the financial undertakes to deal with HIV-infected employees and/or employees services sector to achieving the ideals of transformation and with Aids in the same way as with employees suffering from any other empowerment in South African society. The charter provides the life-threatening disease. This is done with due consideration for all framework for promoting black economic empowerment and Brait has stakeholders, whilst addressing the issue in a positive, supportive and made considerable progress in meeting this objective. Brait, as a party non-discriminatory manner. to the charter, is committed to the aims and the full achievement of all applicable requirements, with an internal objective to surpass the Brait continues to commit its full support and co-operation through an charter targets, wherever possible. HIV/Aids policy designed to assist management and employees deal with HIV/Aids issues in the workplace. Strategies will be formulated this year to assess the impact of HIV/Aids on the business and to Performance measurement in respect of the Financial Sector Charter develop plans to mitigate the adverse effect that HIV/Aids will have on Scorecard is fully operational. Achievements to date in respect of the people and business of Brait. ownership and control, corporate social investment and procurement clearly indicate that the group is on track to achieve the 2008 targets The group HIV/Aids policy was reviewed in November 2005. The policy established by the charter. provides for voluntary HIV testing, confidentiality and the privacy of those who are HIV-positive and/or suffering with Aids, HIV/Aids Employee well-being education programmes as well as the management, care and Brait’s most valued asset remains its people and the optimisation counselling of HIV/Aids employees. of their abilities, skills and talents is paramount. An employee wellness programme provides individuals with support mechanisms Brait currently makes use of an Employee Wellness Programme (EWP) necessary to cope with trauma, stress and health, including HIV/Aids with regard to HIV/Aids. This programme offers a comprehensive and other difficult life situations. The programme provides prevention and support approach which includes, inter alia, care and professional, confidential counselling and advisory services, via a support strategies, pre- and post-test counselling, bereavement and 24-hour helpline, and is available to all staff and their immediate loss counselling. Brait employees and their immediate family members family members. have access to telephonic counselling services and up to three face-to- face counselling services. Regular well-being programmes are run in-house to ensure the optimisation of health with the more popular programmes being The EWP provides a specialist network of trauma counsellors eyesight tests and annual flu vaccinations. throughout South Africa who have specific training and experience in the management of trauma. Any individual either self-referred or referred by a supervisor, will be offered individual trauma counselling.

Brait Annual Report 2006 59 EMPLOYEE REPORT CONTINUED

By early 2007, Brait would like to roll out the voluntary HIV/Aids In addition, three members of staff have been trained as first aid testing programme, supervised and managed by our employee officers and are available to deal with any day-to-day emergencies. wellness provider. This programme will incorporate the following: There were no work-related accidents or incidents reported over the past year and, consequently no related man-hours lost. • HIV/Aids education and awareness training for employees, managers and HR consultants; Remuneration and benefits • Support for managers and HR consultants to deal with disclosure, The purpose of the group’s remuneration and reward strategy is to HIV/Aids support and incapacity management; attract, retain and motivate employees. Brait’s ability to inspire and •Voluntary counselling, testing and referral into the various disease retain staff through the joint establishment of outcomes-based reward management programmes offered by three medical aids; structures and participative remuneration assessment, continues to • Support for employees who are infected with or affected by differentiate the group. Guaranteed remuneration is reviewed once a HIV/Aids; year to ensure that employees who contribute to the success of the • One of the crucial components of a comprehensive HIV/Aids group are remunerated competitively. Guaranteed remuneration strategy is the “Know your Status” campaign. Whilst employees consists of a basic salary, company contributions to a retirement fund, can be tested by their private medical doctors or at other facilities, group life and disability insurance, and a flexible portion that can be only a limited number of people make use of this opportunity. To allocated to various benefits, such as a car allowance, and medical aid deal with this problem of participation on-site “Know your Status” contributions. Employees may, once a year during the annual review, programmes will be implemented; elect to have higher levels of group life cover, or increase their • Ongoing coaching and mentoring to managers, supervisors as well retirement funding contributions. as to peer educators; and • Programme management as part of a comprehensive HIV A focused, hands-on management style allows for the formulation of programme. personalised remuneration design. Individualised variable reward structures allow for centred performance targets against which This HIV/Aids programme will ensure adherence to the Code of Good achievement can be monitored monthly. Practice on Key Aspects of HIV and Aids and Employment issued in terms of the Employment Equity Act No 55 of 1998 and the Schedule Performance management ensures the alignment of individual and on HIV testing issued in terms of the National Policy of Health Act No corporate strategy. Informal performance assessment takes place 116 of 1990, and promotes the principles as contained in the ILO Code weekly with formal structures taking place annually. of Practice on HIV/Aids and the World of Work. A remuneration committee comprising executive and non-executive Occupational health and safety representation provides the Brait board with assurance that the Employee health and safety in the workplace remains a group priority, directors, senior executives and staff of Brait are fairly rewarded for and is reviewed and monitored by the health and safety committee on their individual contributions to the group’s performance and a regular basis. The health and safety representative, appointed in demonstrates to stakeholders that such remuneration and reward is set terms of South Africa’s Occupational Health and Safety Act (OHASA), by an independent committee of the board. Remuneration is surveyed conducts regular workplace safety investigations via daily, weekly and annually to ensure the company is ahead of industry practices monthly site inspections of the various different components of the and trends. Johannesburg offices. Potential health hazards, and any related safety or risk issues highlighted are reported and resolved immediately. High- Share incentive schemes align the interests of staff and stakeholders risk matters are reported to line management for follow-up remedial and instill a sense of ownership amongst participants. action and, if necessary, are escalated further. The facilities manager is responsible to ensure that all business units comply with their occupational health and safety.

60 Brait Annual Report 2006 ENVIRONMENTAL

Brait operates in many different regions, some of which have critical Due to the significance of the group’s commitment to the environment, resource bases, which need to be wisely used if they are to provide the group chief executive, assumes direct responsibility for ensuring sustainable support for development. This is particularly applicable in that the group policies in place are appropriate and will lead to the the group’s African operations. It has become increasingly important achievement and maintenance of, as a minimum, the benchmark for organisations worldwide to participate in conserving the practice in all jurisdictions in which the Brait group operates. environment. All companies, to a varying extent, have an impact on environmental resources and therefore need to develop strategies to The environmental steering committee, chaired by the group chief measure and monitor their impact, and implement systems to ensure executive, is mandated to assume responsibility for environmental risks that these resources are used in a responsible manner. across all aspects of the group’s operations and to provide the board of directors with assurance that the group policies and standards in The board recognises that, as a financial services organisation, Brait’s place are appropriate. The committee meets at least twice a year, and environmental impacts are lower than those of other industries, but their brief incorporates the following areas of responsibility: that environmental risk may arise indirectly from the environmental impact of the actions of its suppliers, clients, staff, business partners • Identifying all critical environmental issues and risks; and investment companies. Its strategy and objectives, in terms of the • Setting minimum standards for the group; environment, are based on the premise of ensuring a better life for • Reviewing standards against best industry practice; all the group’s stakeholders and future generations and, in doing so, • Implementing the group’s environmental policy; ensuring that none of the group’s activities have a detrimental • Monitoring the company’s use of natural resources; effect on the environment. The group undertakes to conduct •The development of indicators to assess progress against its business activities in a manner that minimises or eliminates recognised standards; negative impacts, and maximises positive impacts of an environmental • Measuring environmental performance in each of the group’s or socio-economic nature. operations; and • Reporting to the board. The board has committed to ensuring that Brait, and those parties over whom it has influence, set appropriate standards to deal specifically with environmental challenges and the subsequent measures required to reduce any negative impact on the environment.

Achievement against objectives

Objectives set for the 2006 financial year Performance against objectives •Approval of targets for the reduction of energy and water usage. •Targets approved to reduce the electricity and water consumption at the Johannesburg office premises by 15% over a three-year period.

•Continued measurement, and monitoring of energy and water • Accurate consumption figures are available up until the sale of consumption. land and buildings (October 2005). As a tenant, subsequent to this date, we have been unable to obtain exact consumption figures specific to our business, however, our facilities department are addressing this issue with the landlord, and investigating various solutions to obtain accurate measurements in the future.

•Further initiatives to reduce direct environmental impacts. • Redesign of Johannesburg office premises to consolidate and reduce the required space to accommodate the same number of employees, resulting in more effective utilisation (and reduction) of electricity consumption. Comparison between annual figures for 2004 and 2005 (adjusted to accommodate missing readings for Nov and Dec 2005 – post sale of building) reflect that the target for reduction in water consumption was met, whilst the anticipated energy saving from this initiative will only reflect during 2006.

•Enhanced management of indirect environmental impacts. • Increased focus on procurement of suppliers who are both BEE compliant and offer environmentally-friendly solutions (i.e. waste paper collection for re-cycling).

Brait Annual Report 2006 61 ENVIRONMENTAL CONTINUED

Core objectives for the 2007 financial year: The majority of laser toner cartridges supplied to Brait are recycled •Focus on reducing the use of paper, encouraging electronic cartridges which, once empty, are returned to the supplier for further communication; recycling until the cartridges are no longer viable. • Increasing the percentage of paper recycled; • Implementing an accurate monitoring system to measure use of Redundant office furniture, equipment, carpets and computers are water and energy resources. either sold second-hand to staff via an internal ‘bid/offer’ auction or donated to institutions as approved by the board. References in this report to targets, measurements, consumption and utilisation of resources and materials refer to the Johannesburg offices Emissions, discharges and waste of Brait. As a financial institution, the group is a service provider and the measuring and monitoring of emissions to the air is not material or Direct environmental impacts significant to the business of Brait. Every effort is made to reduce The facilities division of Brait manages Brait’s internal direct vehicle emissions, by regularly maintaining and servicing the company environmental impacts (energy saving, recycling, etc), and also some of fleet of three cars, as prescribed by the manufacturers of the respective Brait’s indirect environmental impacts (via procurement). The vehicles. The group does not operate any trucks or heavy-duty vehicles responsibility for the environmental management of the Johannesburg in its fleet. offices rests with the facilities manager. The division is mandated to eliminate, minimise or control at source any impact the company’s There is a full-time onsite service operator servicing the air- activities might have on the environment by applying appropriate conditioning units in the building. The current air-conditioning system proactive and remedial measures to foster environmentally emits ozone depletion gasses (R22 and 134A), however, disposal to sustainable solutions. the atmosphere is minimised by the recovery, reclamation and recycling of the refrigerant gas as per SABS standards, during regular maintenance procedures conducted by the supplier. In addition, air- The following internal areas of direct impact use, are managed, conditioners are programmed for energy saving to only operate during monitored and measured: normal business hours. • Energy •Water The group produces an insignificant amount of water discharges as it • Materials is a provider of financial products and services, and not a producer or • Emissions, effluents and waste. manufacturer of resources or goods. Water is primarily used for consumption and ablution facilities. Energy and water usage Brait used 2004 as the year for collecting accurate baseline The collection and disposal of waste is contracted to a third party for information to be used as a starting point from which to set preliminary safe disposal. A daily waste disposal service removes waste from the targets for reducing consumption over the coming years. These targets building, in accordance with the safety regulations of (ISO 14000). The will be reviewed and, if required, revised annually as the quality of ISO 14000 standards are a series of international voluntary standards management information continues to improve. on environmental management. The group does not transport, store or trade in hazardous waste, nor recycle or reclaim waste materials, nor Targets were set, during 2005, to reduce electricity and water own any waste disposal sites. consumption by 15% over a three-year period. Notwithstanding the difficulties in obtaining accurate consumption readings since becoming There were no uncontrolled releases, discharges or spills of any kind, a tenant at the end of 2005, comparison of the annual water during the period under review. consumption figures (2004: 2005), adjusted to accommodate the missing readings for November and December 2005, reflect a Biodiversity reduction in excess of the target, whilst the adjusted electricity Brait has no significant impact on biodiversity through land consumption figures (2004: 2005) reflect a 2% increase. The expected occupation, as the group currently occupies (under various lease lowering of energy consumption, as a result of the reduction and re- agreements) existing offices worldwide. design of office space to facilitate more effective utilisation of electricity (completed in November 2005), and the resultant electricity Indirect environmental impacts saving, is only expected to reflect during 2006. The Brait group recognises that as a financial services institution its most significant environmental risk may arise indirectly from the The board has reviewed the company’s use of natural resources, and environmental impact of third parties such as its clients, investors and has decided not to include these results (annual comparable data on business partners. Indirect risks have the potential to cause financial utilisation of resources) in this report. This information, however, is losses and reputational damage. available to any interested stakeholder on request. Clients, investors and business partners Materials Brait addresses the indirect environmental impact of its investor, and Brait utilised 350 boxes/1 750 reams of paper during the period under investee companies, with a stringent set of guidelines designed review, and continues to encourage electronic communication with its specifically for the Private Equity Funds under the management and stakeholders. Waste paper is separated for recycling, shredded on-site administration of the group. Brait, as the fund manager, requires that and collected by companies involved in the recycling of paper. its activities and those of the investee companies in which the funds

62 Brait Annual Report 2006 have or will have an investment, comply with all applicable environmental laws and regulations of the host country and any other countries in which the investee companies may have an operation. In addition, the World Bank/IFC safeguard policies and guidelines are used, in the environmental impact assessment process. Where the environmental risk is considered to be material, a detailed risk assessment and mitigation is required, which would typically entail environmental impact studies undertaken by suitably qualified, independent assessors.

Illovo Property Owners’ Association Due to the sale of the Johannesburg office premises (including the land and buildings), by the group during the period under review, Brait is no longer directly represented in the Illovo Property Owners’ Association, but is represented on the board of the Illovo Boulevard Management District via their landlord’s representative. This association addresses, inter alia, the environmental impact of its members and neighbours on its direct surroundings.

Procurement and supply chain The facilities manager continues to source suppliers who meet certain specified minimum environmental requirements, by practising their in- house environmental policies, re-cycling, utilising environmentally- friendly products, etc, and to promote black economic empowerment through the supply chain. Brait is in the process of modifying the procurement guidelines to include key environmental and social aspects in the evaluation processes, and procurement questionnaires will be updated to stimulate greater environmental responsibility.

Compliance The group has not incurred any fines or penalties for non-conformance or non-compliance with environmental regulations during the period under review.

The Brait group constantly strives to improve on its sustainability and non-financial reporting, on an ongoing basis. In light of this, we value any feedback, recommendations and/or suggestions regarding content that would add to the value of future reports, from our stakeholders.

Please feel free to contact us with your comments and suggestions on Brait’s sustainability reporting as follows:

Luxembourg South Africa Mauritius Myriam Jacoby Veronica Boswell Dhanraj Boodhoo Experta Luxembourg S.A. Brait South Africa Limited Brait International Limited 180, rue de Aubépines Private Bag X1 Suite 509-510 L-1145, Luxembourg Northlands St James Court Johannesburg, 2116 St Denis Str South Africa Port Louis Mauritius

Tel +352 269255 2180 Tel +27 11 507 1230 Tel +230 213 6909 Fax +352 269255 3642 Fax +27 11 507 1231 Fax +230 213 6913 Email [email protected] Email [email protected] Email [email protected]

Brait Annual Report 2006 63 GRI INDEX

The following table provides a summary of Brait’s reporting against the criteria of the Global Reporting Initiatives Sustainability Reporting Guidelines (www.globalreporting.org). Brait is utilising the GRI indicators as a basis for sustainability reporting for the third time, and aims to continue to improve and widen the scope of its reporting. GRI element Page Report section/Additional comment 1. Vision and strategy 1.1 Vision and strategy 1, 48 The business of Brait, Sustainability report – Introduction 1.2 CEO statement 6 – 8 Group Chief Executive’s Report 2. Profile 2.1 Name of organisation – Inside Cover 2.2 Major products and services 2 Profile 2.3 Operational structure 2 Group activities 2.4 Organisational structure 2 Group activities 2.5 Geographic locations 2, 82, 83 Profile and geographical segments 2.6 Nature of ownership/legal form 52 Sustainability report – Share analysis 2.7 Nature of markets served 2 Profile 2.8 Scale of reporting organisations 80 – 83 Business and geographical segmental reports 2.9 List of stakeholders 48, 49 Sustainability report – Stakeholders 2.10 Contact information 63, 112 Administration and sustainability report 2.11 Reporting period 75 Introduction to financial statements 2.12 Date of previous report – March 2005 2.13 Boundaries of report 48 Sustainability report – Introduction 2.14 Significant changes 102 Notes to AFS – Note 36 2.15 Basis for reporting 48 Sustainability report – Introduction 2.16 Restatements of information statements 105 Notes to AFS – Note 40 2.17 Decisions not to apply GRI principles 48 Sustainability report – Introduction 2.18 Criteria/definitions 48 Sustainability report – Introduction 2.19 Significant changes in measurement – None 2.20 Assurance – None at present 2.21 Independent assurance – None at present 2.22 Additional information – None 3. Management systems 3.1 Governance structure 35 – 39 Corporate governance 3.2 Independence, non-executive directors 35 – 41 Board profile and corporate governance 3.3 Board member expertise 40, 41 Board profile 3.4 Board level processes 35 – 39 Corporate governance 3.5 Executive compensation 42 – 45 Remuneration report 3.6 Organisational structure 35 – 39 Corporate governance 3.7 Mission and value statements 1 The business of Brait 3.8 Shareowner communication engagement 48 – 50 Sustainability report – Stakeholders methods of engagement 3.9 – 3.12 Identification of major stakeholders 48 – 50 Sustainability report – Stakeholders 3.13 Precautionary approach – Not reported on 3.14 Externally developed charters, principles, initiatives 8, 35, 59, CEO statement, Corporate governance, GRI Index 64, 65 Sustainability report – Employee 3.15 Principal memberships – Not reported on 3.16 Managing upstream and downstream impacts 59 Financial Sector Charter procurement 3.17 Managing indirect impacts 48, 61 – 63 Sustainability report – Introduction and environmental 3.18 Decisions regarding location and changes in operation 6 – 8 CEO report 3.19 Sustainability programmes and procedures – Not reported on 3.20 Certification status – Not currently measured 4. Economic EC1 Net sales 80 – 83 Business and geographical segmental reports EC2 Geographic breakdown of markets 80 – 83 Business and geographical segmental reports EC3 Cost of goods, materials and services 51 Group value added statement EC4 Contracts paid in accordance with agreed terms 12 – 16 Financial commentary

64 Brait Annual Report 2006 GRI element Page Report section/Additional comment 4. Economic EC5 Payroll and benefits 42 – 45, 88 Remuneration report, Notes to AFS – Note 3 57 – 60 Sustainability report – Employees EC6 Distribution to providers of capital 51 Group value added statement EC7 Retained earnings 51, 79 Group value added statement, statement of changes in equity EC8 Taxes paid 51, 89 Group value added statement, Notes to AFS – Note 6 EC9 Subsidies received – None EC10 Donations to community, civil society and other groups 54 –56 Sustainability report – Social responsibility 5. Environment EN1 Materials used 62 Sustainability report – environmental EN2 Waste from external sources 62 Sustainability report – environmental EN3 Direct energy use 62 Sustainability report – environmental EN4 Indirect energy use 62 Sustainability report – environmental EN5 Total water use 62 Sustainability report – environmental EN6 Land in biodiversity-rich habitats 62 Sustainability report – environmental EN7 Major impacts on biodiversity 62 Sustainability report – environmental EN8 Greenhouse gas emissions 62 Sustainability report – environmental EN9 Ozone-depleting substances 62 Sustainability report – environmental EN10 Air emissions 62 Sustainability report – environmental EN11 Total amount of waste 62 Sustainability report – environmental EN12 Discharges to water – Not applicable EN13 Significant spills of chemicals, oils and fuels – Not applicable EN14 Impact of products and services – Not applicable EN15 Reclaimable product – Not applicable EN16 Incidents of fines 63 Sustainability report – environmental compliance 6. Social LA1 Breakdown of workforce 57 – 59 Sustainability report –Employees LA2 Employment creation 57 – 59 Sustainability report –Employees LA3 Trade union representation – Not applicable LA4 Labour relations 57 – 59 Sustainability report – Employees LA5 Recording of occupational accidents and diseases 60 Sustainability report – Employees LA6 Health and safety committees 35, 60 Corporate governance, sustainability report – Employees LA7 Injury and absentee rates – Not reported on LA8 HIV/Aids 59 – 60 Sustainability report – Employees LA9 Training 57 – 59 Sustainability report – Employees LA10 Equal opportunity 35, 58 Corporate governance, sustainability report – Employees LA11 Diversity 57 – 59 Sustainability report – Employees HR1 Human rights policies – The principles of freedom of association, and HR2 Human rights and investment/procurement – the acknowledgment of human rights, form HR3 Human rights and supply chain – the cornerstone of Brait’s interaction with its HR4 Non-discrimination – stakeholders and are, accordingly, embodied HR5 Freedom of association – in the Group’s value system and culture. HR6 Child labour – HR7 Forced labour – SO1 Community 54 – 56 Sustainability report – Social responsibility SO2 Bribery and corruption 35 Corporate governance – Business integrity and ethics SO3 Political contributions 35 Corporate governance PR1 Customer health and safety – Not reported on PR2 Products and services – Not reported on PR3 Respect for privacy – Not reported on

Brait Annual Report 2006 65 GROUP STATISTICS

Financial definitions Earnings yield Basic earnings per share expressed as a percentage of the closing price Attributable earnings per share. Earnings attributable to shareowners’ funds. Net asset value per share Average shareholders’ funds Shareowners’ funds divided by the number of shares in issue less the Average of the shareowners’ funds at the beginning and end of the number of treasury shares, expressed in cents. financial year. Price earnings ratio Closing price The closing price per share divided by the basic earnings per share. The closing market price of a Brait share on the Johannesburg Stock Exchange at the group’s financial year-end. Return on equity Movement in NAV (after adding back dividends) expressed as a Dividend cover percentage of average NAV. Diluted earnings per share divided by the total dividend per share. Return on shareowners’ funds Dividend yield Attributable earnings expressed as a percentage of average Dividend per share expressed as a percentage of the closing share price shareowners’ funds (after adjusting for dividends). per share. Return on total assets Earnings per employee Attributable earnings expressed as a percentage of average total Attributable earnings divided by the average number of employees in assets. service during the year. Shareowners’ funds Earnings per share Share capital, share premium and all reserves. Share capital and Basic premium has been reduced by shares held in treasury. Attributable earnings divided by the weighted average number of shares in issue, less the number of treasury shares, expressed in cents. Treasury shares Brait S.A. shares held by the company and/or its subsidiaries. Diluted Attributable earnings adjusted by the after tax effect of any changes in Weighted average shares in issue income and expenses that would result from the issue of shares from The pro-forma number of shares in issue at the beginning of the year, dilutive instruments.The resultant earnings are divided by the weighted plus shares issued during the year, less treasury shares acquired during average number of shares in issue, including all dilutive instruments, the year, weighted on a time basis for the period during which they excluding the number of treasury shares, expressed in cents. have participated in the income of the group.

66 Brait Annual Report 2006 GROUP STATISTICS Three-year review (1)

2006 2005 2004 US$m US$m US$m

Share statistics Shares In issue (total) (m) 110,5 102,3 102,3 Weighted average – Basic (m) 90,6 89,3 89,5 – Diluted (m) 103,0 97,7 93,7 Earnings per share Headline (cents) – Basic 45,8 38,0 5,1 – Diluted 40,3 34,7 4,9 Attributable (cents) – Basic 51,9 38,0 0,7 – Diluted 45,6 34,7 0,6 Dividends (cents) 18,24 13,75 35,80 – interim (declared) 7,85 3,50 – – final (proposed) 10,39 10,25 3,30 – special (paid) – – 32,50 Dividend cover (times) 2,5 2,5 n/a Dividend yield• (%) 4,7 7,3 2,8 Net asset value per share (cents) 155,7 130,3 99,2 Key ratios Return on shareowners’ funds (%) 32,1 32,3 0,5 Return on total assets (%) 19,5 21,9 0,4 Return on equity (after adding back dividends) (%) 45,9 32,0 15,8 Price earnings ratio (historical) 7,5 4,9 165,7 Earnings/(loss) yield (%) 13,3 20,3 0,6

Other statistics Number of employees at year-end 95,0 103,0 100,0 Earnings per employee (US$ 000)* 494,7 329,0 – Total assets 299,6 182,7 127,5 Shareowners’ funds 158,0 115,1 88,8 Average shareowners’ funds 136,6 101,9 98,8 Specialised Funds assets under management 511,8 64,7 30,8 Private Equity committed funds 979,7 759,3 654,5 Attributable earnings 47,0 33,9 0,6

(1) In 2003/04 the group was reorganised and restructured following the discontinuation of banking operations. Any comparison of the results prior to this date would not be meaningful in the context of the current group operations. Accordingly no information has been disclosed prior to 2004. • Excluding special dividends

Brait Annual Report 2006 67 GROUP BALANCE SHEETS Three-year review

2006 2005 2004 US$m US$m US$m ASSETS Non-current assets 153,1 118,9 75,8 Goodwill 2,5 –– Property and equipment 1,9 1,3 8,5 Investments in associates and other 11,6 11,1 5,2 Private equity investments 113,3 80,5 44,3 Specialised funds investments 18,0 19,9 15,3 Term loans 3,0 3,6 – Deferred tax assets 2,8 2,5 2,5 Current assets 146,5 55,6 51,7 Private equity investments 1,8 2,2 1,1 Other current investments 16,0 –– Trading investments – – 6,7 Loans and advances 37,9 25,7 14,5 Accounts receivable 6,9 9,9 14,4 Cash and cash equivalents 83,9 17,8 15,0 Non-current assets held for sale – 8,2 – Total assets 299,6 182,7 127,5 EQUITIES AND LIABILITIES Equity and reserves Share capital and premium 36,0 66,6 70,6 Legal reserve 2,6 2,6 2,6 Foreign currency translation reserve (29,4) (30,1) (30,6) Retained reserves 138,9 72,0 43,7 Equity reserves 3,5 2,6 2,5 Minority interest 6,4 1,4 – Total equity 158,0 115,1 88,8 LIABILITIES Non-current liabilities 99,2 28,9 1,1 Deferred tax liabilities – – 1,1 Redeemable preference shares 72,9 –– Non-current borrowings 26,3 28,9 – Current liabilities 42,4 38,7 37,6 Accounts payable 15,4 15,1 17,2 Provisions 7,0 3,5 4,2 Liabilities directly associated with non-current assets held for sale – 13,2 – Current borrowings 18,9 5,9 16,2 Taxation 1,1 1,0 –

Total liabilities 141,6 67,6 38,7 Total equity and liabilities 299,6 182,7 127,5

68 Brait Annual Report 2006 GROUP INCOME STATEMENTS Three-year review

2006 2005 2004 US$m US$m US$m

Revenue 44,5 45,0 28,8 Other income 49,3 32,8 18,1 Total income 93,8 77,8 46,9 Profit from operations 52,9 48,5 21,3 – Private Equity 39,1 38,8 11,4 – Corporate Finance 0,9 0,1 0,3 – Specialised Funds 1,3 1,2 0,9 – Group Investments 11,6 8,4 8,7 Finance cost (2,4) (2,5) (6,3) Capital items 1,9 (11,2) (11,3) Profit before taxation 52,4 34,8 3,7 Taxation (2,7) (0,5) (1,0) Profit after taxation from continuing operations 49,7 34,3 2,7 Discontinued operations – – (2,1) Minority interest (2,7) (0,4) – Attributable earnings 47,0 33,9 0,6

RULING EXCHANGE RATES

Average rate – ZAR/USD 6,3979 6,2503 7,1541 Closing rate – ZAR/USD 6,1765 6,2395 6,2925

Brait Annual Report 2006 69 70 Brait Annual Report 2006 ANNUAL FINANCIAL STATEMENTS for the year ended 31 March

Contents Directors’ responsibility 72 Report of independent auditors 72 Directors’ report 73 Introduction to the financial statements 75 Group income statements 76 Group balance sheets 77 Group cash flow statements 78 Group statements of changes in equity 79 Business and geographical segmental reports 80 Accounting policies 84 Notes to the group financial statements 88 Principal subsidiaries, associated companies and joint ventures 108 Shareowners’ diary 109 Notice of annual general meeting and form of proxy 110 Administration 112 Form of proxy for registered shareowners only (perforated) 113 Notes to proxy (perforated) 114

Brait Annual Report 2006 71 DIRECTORS’ RESPONSIBILITY

The directors are responsible for the preparation, integrity and To the best of their knowledge and belief, based on the above, the objectivity of financial statements that fairly present the state of the directors are satisfied that no material breakdown in the operation of affairs of the group at the end of its financial years and the income, the systems of internal control and procedures has occurred during the cash flow and statement of changes in equity statements for these period under review. The auditors concur with this statement. years, as well as for other information contained in the annual report. The directors are of the opinion that Brait S.A. will continue as a going concern in the year ahead and have adopted the going concern basis In preparing the group financial statements: in preparing the financial statements. The auditors concur with this • International Financial Reporting Standards have been adopted; and opinion. • reasonable and prudent judgements and estimates have been made. The group’s external auditors, Deloitte & Touche, have audited the To enable the directors to meet the financial reporting responsibilities: financial statements and their unqualified report appears below. • the board and management set standards and the management The financial statements which appear on pages 73 to 108 were implements internal control, accounting and information systems approved by the board of directors on 19 June 2006 and are signed on aimed at providing assurance as to the integrity and reliability of its behalf by the financial statements and to safeguard, verify and maintain the group’s assets; and • the group audit and risk committee, together with the external auditors, plays an integral role in matters relating to financial and ME King JJ Coulter internal control, accounting policies, reporting and disclosure. Senior Chairman Group Chief Executive

REPORT OF INDEPENDENT AUDITORS

TO THE SHAREOWNERS OF BRAIT S.A. and changes in equity for the year then ended in accordance with We have audited the accompanying balance sheet of Brait S.A. and its International Financial Reporting Standards. The directors’ report is subsidiaries as at 31 March 2006 and the related group statement of consistent with these group financial statements. income, cash flows and changes in equity set out on pages 73 to 108 The supplementary Rand information presented in the annual financial for the year then ended. These financial statements and the directors’ statements is presented for the convenience of users of these financial report are the responsibility of the group’s directors. Our responsibility statements. It has not been audited by us and, accordingly, we do not is to express an opinion on these financial statements based on our express an opinion thereon. audit and to check the consistency of the directors’ report with them. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial Deloitte SA statements are free of material misstatement. An audit includes Réviseur d’enterprises examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for S Mitchell our opinion. Partner 19 June 2006 In our opinion, the group financial statements present fairly, in all material respects, the financial position of the group at 31 March 2006, and the results of its operations and cash flows

72 Brait Annual Report 2006 DIRECTORS’ REPORT

The directors have pleasure in presenting their report for the year of ZAR0,01 and a premium of ZAR999,99 per share.These shares carry ended 31 March 2006. a dividend of 78% of the South African prime interest rate and are redeemable (at issue price) in four tranches on 31 July of each year NATURE OF BUSINESS commencing in 2010 until 2013. Brait is an investment and financial services group with its primary listing on the Luxembourg Stock Exchange. It also has secondary Including the abovementioned debt raised, the total borrowings in the listings on the Johannesburg and London stock exchanges. The group group remain well within the maximum limit of 150% of the total has shareowners’ funds of US$158 million as at 31 March 2006 and capital and reserves of the group as stipulated in the company’s diverse earnings from the following activities: Articles of Incorporation. • private equity management fees and investment returns; SUBSIDIARY COMPANIES • specialised funds management fees and investment returns; The interests in subsidiary and associated companies, where • corporate and debt advisory services; and considered to be material in the light of the group’s financial position • group investment returns. and results, are set out on pages 108. SHARE CAPITAL FINANCIAL RESULTS Authorised The financial results of Brait S.A. group are set out in the The authorised share capital of the company comprises 150 000 000 financial statements and accompanying notes for the year ended ordinary shares of no par value. 31 March 2006. Issued DIVIDENDS During the year, the company increased its ordinary issued share • Interim dividend 2005 capital from 102 255 732 ordinary shares of no par value by way of a The board announced an interim dividend of 7,85 US cents bonus issue of 8 231 589 ordinary shares to 110 487 321 ordinary (51,51 South African cents) per ordinary share on 3 November 2005. shares of no par value. Of this number, 9 024 663 ordinary shares are The dividend, which absorbed US$8,342,973 was paid on held for delivery of shares granted to management in terms of the Brait 21 November 2005 to shareowners registered as such on the S.A. Share Incentive Scheme, Brait South Africa Share Scheme 2005 record date, 18 November 2005. Shareowners will be asked to ratify and the Brait Executive Share Purchase Scheme. and confirm the declaration by the board and the payment of the interim dividend at the annual general meeting of shareowners of the Unissued shares company which will be held in Luxembourg on Wednesday, At the forthcoming annual general meeting, members will be asked to 26 July 2006. place the unissued shares in the capital of the company under the control of the directors in terms of the provisions of the company’s •Final dividend Articles of Incorporation. The board has recommended a final dividend of 10,39 US cents per share for the year ended 31 March 2006. In terms of the Articles of It should be noted that in terms of the Articles the directors may not Incorporation, shareowners are required to approve the declaration of issue shares in any one year, whether for cash or otherwise, if the issue the dividend which will be tabled at the forthcoming annual general exceeds 10% of the company’s issued ordinary share capital and such meeting of shareowners of the company. If approved by shareowners, issues shall not in aggregate, in any three-year period, exceed 15% of payment of the final dividend, in respect of the year ended 31 March the company’s issued ordinary share capital. 2006 will be effected on Wednesday, 16 August 2006 to shareowners Renewal of authority for the repurchase of shares registered as such on the record date, Friday 11 August 2006. The last The conditions relating to the repurchase by the company of its own date to trade ‘cum dividend’ will be Thursday, 3 August 2006 and the shares are governed by the company’s Articles of Incorporation which share will commence trading ‘ex dividend’ on Friday, 4 August 2006. provide, inter alia, that this authority shall not extend beyond the date Share certificates may not be dematerialised or rematerialised between of the forthcoming annual general meeting unless such authority is Friday, 4 August 2006 and Friday, 11 August 2006 both days inclusive. renewed by shareowners in general meeting. At the forthcoming No transfers between registers may take place between Friday, 28 July annual general meeting shareowners will accordingly be requested to 2006 and Friday, 11 August 2006 both days inclusive. Non-resident renew this authority until the conclusion of the next annual general shareowners registered on the South African register, who prefer their meeting to be held on 25 July 2007. dividends to be paid in US dollars, are advised to inform their CSDPs/brokers accordingly and provide their banking details to their DEBT CAPITAL RAISED CSDPs/brokers by the required deadline in terms of their agreements In March 2006 a subsidiary of the group, Brait South Africa Limited, entered into with their CSDPs/brokers. raised US$72,9 million (ZAR450 million) preference share capital to provide additional capital to leverage the group’s internal growth SHARE INCENTIVE SCHEMES strategy. A total of 450 000 (four hundred and fifty thousand) Brait currently operates various share incentive schemes for the cumulative redeemable preference shares were issued at a par value purpose of incentivising directors, executives and management of the

Brait Annual Report 2006 73 DIRECTORS’ REPORT CONTINUED

group and to align their economic interests with shareowners and A register of the directors’ interest in the capital of the company is retain their services on a long-term basis. available on request. There were no changes to the directors’ interests between 31 March 2006 and the date of this report. The maximum number of entitlements that may be granted in terms of the three schemes are as follows: MAJOR SHAREOWNERS The Brait S.A. Share – 6,7% of the company’s issued According to information available to the company, after reasonable Incentive Scheme share capital. enquiry, the following shareowners held 5% or more of the issued capital of the company as at 31 March 2006: The Brait Executive Share – 19,6% of the company’s issued Purchase Scheme share capital (limited to 20 million Shareowner % ordinary shares). Brait South Africa – The shares granted under this Stanlib Group (for and on behalf of clients) 7,5 Share Scheme 2005 scheme may not in aggregate exceed The Brait Executive Share Scheme 6,2 (new scheme implemented the capacity authorised in the above Public Investment Commissioner 5,3 on 1 April 2005) two schemes. Investec Group (for and on behalf of clients) 5,0

A summary of the scheme rules and share entitlements outstanding and DIRECTORS’ EMOLUMENTS granted to directors and employees of the group under the various An analysis of the remuneration of executive and non-executive schemes are outlined in the ‘Remuneration Report’ section on page 42. directors is disclosed under ‘Remuneration Report’ on page 42. DIRECTORATE Aregister of individual directors’ emoluments is maintained at During the year, the following members were appointed to the Brait the company’s offices and is available on request at the S.A. board: company’s offices. Date of appointment SPECIAL RESOLUTIONS At the extraordinary general meeting held on 27 July 2005 special Non-executive resolutions were passed in terms of which: HRW Troskie** 27 July 2005 • the issued capital was increased from US$153 383 598 to PAB Beecroft• 27 July 2005 US$165 730 981,50 by the issue of 8 231 589 fully paid Brait S.A. Executive shares to the Brait Executive Share Purchase Trust BI Childs• 27 July 2005 •To amend the company’s Articles of Incorporation for the issue JJ Coulter^ 27 July 2005 of the additional Brait S.A. shares persuant to the abovementioned JA Gnodde* 27 July 2005 resolution. * South African, • British, ** Dutch, ^ Irish EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE No other changes in the composition of the board of directors occurred No events have taken place between 31 March 2006 and the date of between 31 March 2006 and the date of this report. In terms of the this report, which would have a material impact on either the financial company’s Articles of Incorporation, the directors’ terms of office end position or operating results of the group. immediately after the conclusion of the annual general meeting of shareowners and they may be re-appointed at that meeting. COMPOSITION OF GROUP COMMITTEES The composition of the board, the group audit and risk, remuneration Accordingly, Messrs AC Ball, PAB Beecroft, JE Bodoni, BI Childs, JJ Coulter, and other sub-committees of the board are disclosed in the corporate JA Gnodde, ME King, RJ Koch, AM Rosenzweig, CJ Tayelor, HRW Troskie, SJP Weber and PL Wilmot retire from the board at the annual general governance section of this report. meeting and, being eligible, offer themselves for re-election. CORPORATE GOVERNANCE DIRECTORS’ INTERESTS Full details regarding the company’s commitment to and its compliance According to information available to the company, after reasonable with appropriate international corporate governance practices are set enquiry, the aggregate interests of the directors and their families at out on pages 35 to 39. the date of this report, including the holdings of ordinary shares and share entitlements, were as follows: 31 March 31 March 2006 2005

Number of shares held • Beneficial 6 999 103 5 711 684 • Non-beneficial 108 000 – Number of share scheme entitlements • Beneficial 4 292 377 2 195 307 • Non-beneficial – –

74 Brait Annual Report 2006 INTRODUCTION TO THE FINANCIAL STATEMENTS

ACCOUNTING POLICIES The group financial statements for the year ended 31 March 2006 are prepared in accordance with International Financial Reporting Standards (IFRS), on the going-concern principle, using the historical cost basis, except where otherwise indicated. In terms of IFRS as well as international trends, unrealised gains as well as unrealised losses are recognised in the period during which these arise. Luxembourg Law, following the European Union law, does not permit the recognition of such unrealised gains. Accordingly, unrealised gains have only been recognised on consolidation, and not in the holding company. The directors are of the view that the group financial statements, prepared in accordance with IFRS, represent more appropriately the financial position of the group and the results of its operations and cash flows and have, accordingly, adopted IFRS for the group. The accounting policies are consistent with those applied in the previous year. SUPPLEMENTARY INFORMATION Presentation currency The group statements as at 31 March 2006 have been prepared using the US Dollar as the presentation currency and are consistent with the previous financial year. The presentation currency and the functional currency of Brait SA are the same. Supplementary Rand information The results of the group have also been presented in Rand for the convenience of South African stakeholders in the group using IFRS interpretation SIC 30. The supplementary Rand results have been converted from the USD measurement results using the closing rate for the balance sheet and the average rate for the income statement.

Currency conversion guide The approximate US Dollar cost of a unit of the following currencies at 31 March 2006 was: 2006 2005

Rand – closing rate 0,1619 0,1603 – average rate 0,1563 0,1600 Sterling – closing 0,5339 1,8905 Euro – closing 0,7827 1,2964

The approximate Rand cost of a unit of the following currencies at 31 March 2006 was: 2006 2005

US Dollar – closing rate 6,1765 6,2395 – average rate 6,3979 6,2503 Sterling – closing 10,7181 11,7955 Euro – closing 7,4738 8,0858

Brait Annual Report 2006 75 GROUP INCOME STATEMENTS for the year ended 31 March

Supplementary Rand information

2005π 2006π 2006 2005 ZARm ZARm Notes US$m US$m

281,2 284,8 Revenue 1 44,5 45,0 204,9 315,4 Other income 2 49,3 32,8 (193,3) (272,5) Operating expenses 3 (42,6) (30,9) 10,0 10,9 Income from associates 1,7 1,6 302,8 338,6 Profit from operations 52,9 48,5 (15,7) (15,4) Finance costs 4 (2,4) (2,5) (69,7) 12,2 Capital items 5 1,9 (11,2) 217,4 335,4 Profit before taxation 52,4 34,8 (3,1) (17,3) Taxation 6 (2,7) (0,5) 214,3 318,1 Profit for the year 49,7 34,3 Attributable to: 2,6 17,3 Minority shareholders 2,7 0,4 211,7 300,8 Equity holders of the parent 47,0 33,9

ZAR ZAR US US Cents Cents Cents Cents

Attributable earnings per share 7 237,1 331,9 – Basic (cents) 51,9 38,0 216,7 292,1 – Diluted (cents) 45,6 34,7 89,89 119,32 Dividends per share 8 18,24 13,75 21,47 51,51 – Interim (cents) 7,85 3,50 68,42 67,81 – Final proposed (cents) 10,39 10,25

π The supplementary Rand information has been translated from US dollars results on the basis set out on page 75.

76 Brait Annual Report 2006 GROUP BALANCE SHEETS as at 31 March

Supplementary Rand information

2005π 2006π 2006 2005 ZARm ZARm Notes US$m US$m

ASSETS 741,9 945,5 Non-current assets 153,1 118,9 – 15,4 Goodwill 9 2,5 – 8,1 11,7 Property and equipment 10 1,9 1,3 69,3 71,6 Investments in associates and other 11 11,6 11,1 502,3 699,8 Private equity investments 12 113,3 80,5 124,1 111,2 Specialised funds investments 13 18,0 19,9 22,5 18,5 Term loans 14 3,0 3,6 15,6 17,3 Deferred tax assets 15 2,8 2,5 346,9 904,8 Current assets 146,5 55,6 13,7 11,1 Private equity investments 16 1,8 2,2 – 98,8 Other current investments 17 16,0 – 160,4 234,1 Loans and advances 18 37,9 25,7 61,7 42,6 Accounts receivable 19 6,9 9,9 111,1 518,2 Cash and cash equivalents 20 83,9 17,8 51,1 – Non-current assets held for sale 21 – 8,2 1 139,9 1 850,3 Total assets 299,6 182,7

EQUITY AND LIABILITIES 718,1 975,8 Equity and reserves 158,0 115,1 415,6 222,4 Share capital and premium 22 36,0 66,6 16,2 16,1 Legal reserve 23 2,6 2,6 16,2 21,6 Equity reserves 24 3,5 2,6 (187,8) (181,7) Foreign currency translation reserve (29,4) (30,1) 449,2 857,9 Retained reserves 138,9 72,0 8,7 39,5 Minority interest 6,4 1,4 180,3 612,7 Non-current liabilities 99,2 28,9 – 450,3 Redeemable preference shares 25 72,9 – 180,3 162,4 Non-current borrowings 26 26,3 28,9 241,5 261,8 Current liabilities 42,4 38,7 94,3 95,1 Accounts payable 27 15,4 15,1 21,8 43,2 Provisions 28 7,0 3,5 36,8 116,7 Current borrowings 29 18,9 5,9 82,4 – Liabilities directly associated with non-current assets held for sale 30 – 13,2 6,2 6,8 Taxation 1,1 1,0

1 139,9 1 850,3 Total equity and liabilities 299,6 182,7 813,0 961,6 Net asset value per ordinary share (cents) 155,7 130,3

Note: Certain amounts have been re-allocated, subsequent to the publishing of the preliminary results. These changes have no material impact on the group balance sheets. π The supplementary Rand information has been translated from US dollars results on the basis set out on page 75.

Brait Annual Report 2006 77 GROUP CASH FLOW STATEMENTS for the year ended 31 March

2006 2005 Notes US$m US$m

Cash flows from operating activities 4,8 13,2 Cash generated by operations 37.1 5,7 5,4 Dividends received 1,7 11,3 Interest received 5,5 3,9 Interest paid (2,4) (2,5) Currency hedge cost (3,5) (4,1) Taxation paid 37.2 (2,2) (0,8) Change in working capital 37.3 (2,5) (6,2) Cash generated by operating activities 2,3 7,0 Cash flows from investing activities 22,0 (17,1) Acquisition of property and equipment (1,0) (0,9) Acquisition of subsidiary 37.5 – 0,4 Proceeds on disposal of a portion of subsidiary 1,9 – Proceeds on sale of property and equipment 11,5 – Decrease/(increase) in investments 9,1 (13,0) Loan advanced/(repaid) to associate company 0,5 (3,6) Dividends paid 37.4 (19,8) (6,3) Cash flows from financing activities 61,7 19,2 (Decrease)/increase in borrowings (13,7) 6,4 Repurchase of share entitlements (0,1) (3,4) Proceeds from share scheme shares delivered 7,8 – Increase in non-current borrowings 67,7 16,2

Net increase in cash and cash equivalents 66,2 2,8 Effects of exchange rate changes on cash and cash equivalents (0,1) – Cash and cash equivalents at beginning of year 17,8 15,0 Cash and cash equivalents at end of year 20 83,9 17,8

Note: Certain amounts have been to be re-allocated, subsequent to the publishing of the preliminary results. These changes have no material impact on the group cash flow statements.

78 Brait Annual Report 2006 GROUP STATEMENTS OF CHANGES IN EQUITY for the year ended 31 March

Attributable to equity holders of the parent Share Foreign Total capital currency equity and Legal Equity translation Retained Minority and premium reserve reserves reserve reserve interest reserves US$m US$m US$m US$m US$m US$m US$m

Balance at 31 March 2004 70,6 2,6 2,5 (30,6) 43,7 – 88,8 Net translation adjustments (1) –––0,5––0,5 Profit for the year ––––33,9 0,4 34,3 Share entitlements – – 0,4–––0,4 Foreign currency adjustment on capital loan – – (0,3) – – – (0,3) Ordinary dividends paid ––––(6,3) – (6,3) Treasury shares (3,3) –––––(3,3) Transfer from capital to reserves (0,7) – – – 0,7 – – Acquisition of subsidiary –––––1,01,0 Balance at 31 March 2005 66,6 2,6 2,6 (30,1) 72,0 1,4 115,1 Net translation adjustments (1) –––0,7–0,8 1,5 Restructuring of subsidiary ––––(0,3) (0,3) (0,6) Sale of interest in subsidiary –––––1,81,8 Bonus shares issued (2) 12,3–––––12,3 Treasury shares (3) (12,3) –––––(12,3) Delivered share scheme shares 9,4–––––9,4 Profit for the year ––––47,0 2,7 49,7 Foreign currency adjustment on capital loan ––0,2–––0,2 Share entitlements ––0,7–––0,7 Ordinary dividends paid ––––(19,8) – (19,8) Transfer from capital to reserves (40,0) – – – 40,0 – – Balance at 31 March 2006 36,0 2,6 3,5 (29,4) 138,9 6,4 158,0

(1) Net translation adjustments The movement on the foreign currency translation reserve arises primarily from the translation of the reporting currencies of foreign entities into the USD measurement currency upon consolidation.

(2) Bonus shares During the year, the company issued 8 231 589 bonus shares at a par value of US$12,3 million to the Brait Executive Share Purchase Scheme Trust.

(3) Treasury shares As at 31 March 2006 treasury shares constitute a total of 9 024 663 (2005: 13 933 707) shares of Brait S.A. and are held as follows: – 6 877 553 (2005:10 798 871) shares by The Brait Executive Share Purchase Scheme Trust; and – 2 147 110 (2005: 3 134 836) shares by The Brait S.A. Share Incentive Scheme Trust.

Brait Annual Report 2006 79 BUSINESS AND GEOGRAPHICAL SEGMENTAL REPORTS for the year ended 31 March

BUSINESS SEGMENTS The primary business segments reflect the group’s current organisational structure and its internal financial reporting system. For management purposes, the group is currently organised into four operating business units.These business units are the basis on which the group reports its primary segment information. The principal activities are as follows: – Private Equity; – Corporate Finance; – Specialised Funds; and – Group Investments. Segment information about these businesses is presented below: Private Corporate Specialised Group Equity Finance Funds Investments Total 2006 US$m US$m US$m US$m US$m

REVENUE AND INCOME Revenue 11,0 7,9 3,9 21,7 44,5 Other income 45,9 (0,1) 2,6 0,9 49,3 Total segment income 56,9 7,8 6,5 22,6 93,8

RESULT Segment result 39,1 0,9 1,3 11,6 52,9 Finance costs (2,4) Capital items 1,9 Profit before taxation 52,4 Taxation (2,7) Profit after taxation 49,7

OTHER INFORMATION Assets Segment assets 119,0 0,3 76,1 107,0 302,4 Other unallocated assets (2,8) Total assets per balance sheet 299,6 Liabilities Segment liabilities 9,6 2,6 1,1 29,9 43,2 Other unallocated liabilities 98,4 Total liabilities per balance sheet 141,6 Net assets Segment net assets 109,4 (2,3) 75,0 77,1 259,2 Other unallocated net liabilities (101,2) Total net assets per balance sheet 158,0 Other Capital additions 0,1 – 0,1 0,8 1,0 Depreciation –––0,60,6 Share entitlement expenses 0,4 0,1 0,1 0,1 0,7

80 Brait Annual Report 2006 BUSINESS SEGMENTS (CONTINUED) Private Corporate Specialised Group Equity Finance Funds Investments Total 2005 US$m US$m US$m US$m US$m

REVENUE AND INCOME Revenue 22,8 4,1 2,4 15,7 45,0 Other income 29,8 (0,3) 3,1 0,2 32,8 Total segment income 52,6 3,8 5,5 15,9 77,8

RESULT Segment result 38,8 0,1 1,2 8,4 48,5 Finance costs (2,5) Capital items (11,2) Profit before taxation 34,8 Taxation (0,5) Profit after taxation 34,3

OTHER INFORMATION Assets Segment assets 86,7 1,5 20,8 68,9 177,9 Other unallocated assets 4,8 Total assets per balance sheet 182,7 Liabilities Segment liabilities 4,5 1,9 0,2 20,3 26,9 Other unallocated liabilities 40,7 Total liabilities per balance sheet 67,6 Net assets Segment net assets 82,2 (0,4) 20,6 48,6 151,0 Other unallocated net liabilities (35,9) Total net assets per balance sheet 115,1 Other Capital additions – – – 0,9 0,9 Depreciation 0,1 – 0,1 0,2 0,4 Impairment losses recognised in income – 0,3 – 0,6 0,9

Brait Annual Report 2006 81 BUSINESS AND GEOGRAPHICAL SEGMENTAL REPORTS CONTINUED for the year ended 31 March

GEOGRAPHICAL SEGMENTS The geographical segments of the business have been separated between “International” and “South Africa” to distinguish between operations and assets that are managed in these economic environments. The international segment comprises the following: – Mauritius operations; – Other African operations; – United States of America operations; and – European operations. The following table provides the revenue and income per geographical segment International South Africa Total 2006 US$m US$m US$m

REVENUE AND INCOME Revenue 21,7 22,8 44,5 Other income 9,5 39,8 49,3 Total segment income 31,2 62,6 93,8

RESULT Segment result 11,5 41,4 52,9 Finance costs (2,4) Capital items 1,9 Profit before taxation 52,4 Taxation (2,7) Profit after taxation 49,7 OTHER INFORMATION Segment assets 137,7 161,9 299,6 Additions to property and equipment 0,8 0,2 1,0

82 Brait Annual Report 2006 GEOGRAPHICAL SEGMENTS (CONTINUED) International South Africa Total 2005 US$m US$m US$m

REVENUE AND INCOME Revenue 13,9 31,1 45,0 Other income 2,3 30,5 32,8 Total segment income 16,2 61,6 77,8

RESULT Segment result 13,1 35,4 48,5 Finance costs (2,5) Capital items (11,2) Profit before taxation 34,8 Taxation (0,5) Profit after taxation 34,3 OTHER INFORMATION Segment assets 92,5 90,2 182,7 Additions to property and equipment – 0,9 0,9

Brait Annual Report 2006 83 ACCOUNTING POLICIES for the year ended 31 March

BASIS OF PRESENTATION The financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRS), on the going concern principle, and using its historical cost basis, except where otherwise indicated. ACCOUNTING POLICIES The accounting policies are consistent with those applied in the previous year. PRINCIPLES OF CONSOLIDATION • Business combinations Business combinations are accounted for in accordance with the underlying nature of the combination. Acquisitions are accounted for using purchase accounting. Where an investment in a subsidiary or associated company is acquired or disposed of during the financial year, its results are included from, or to, the date control became, or ceased to be, effective. Mergers which took place before 31 March 2004, the effective date of IFRS 3 “Business Combinations” were accounted for using the uniting of interests method. • Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries) up to 31 March each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (ie discount on acquisition) is credited to profit and loss in the period of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. • Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net assets of its subsidiaries, associates, joint ventures or intangibles at the date of acquisition. Goodwill arising on the acquisition of subsidiaries, associates or joint ventures and intangibles, which were not part of the merger in 1998, and is disclosed as such. The carrying amount of goodwill is reviewed annually and written down for impairment where considered necessary. • Associated companies Associates are those enterprises in which the group holds a long-term equity interest and over which it has the ability to exercise significant influence, but not control, and which are neither subsidiaries, nor joint ventures. Investments in private equity associates are referred to under “Private equity investments” on pages 93 and 94. Equity accounted income, which is included in the carrying values of the associates, represents the group’s proportionate share of the associates’ profit after tax, after accounting for dividends payable by those associates. • Joint ventures A joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity which is subject to joint control. Equity accounted income, which is included in the carrying values of joint ventures, represents the group’s proportionate share of the joint ventures’ profit before tax, after accounting for dividends payable by the joint ventures. TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN ENTITIES INTO THE PRESENTATION CURRENCY Assets and liabilities of foreign entities are translated into the group’s presentation currency, US dollar, at year-end exchange rates. The presentation currency is in accordance with the functional currency of Brait S.A.. Capital and reserves are translated at historical rates. Income statement items are translated at the average exchange rates for the year. Translation differences arising from the translation of foreign operations are taken directly to reserves. On disposal of foreign operations, such translation differences are recognised in the income statement as part of the gain or loss on disposal. FOREIGN CURRENCY ASSETS AND LIABILITIES In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency, are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currency are translated at rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currency are retranslated at the rates prevailing when the fair value was determined. Non-monetary items that are measured in terms of historical costs in a foreign currency are not translated at the current rate.

84 Brait Annual Report 2006 TAXATION Income tax on the profit and loss for the year comprises current and deferred tax. Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Deferred tax is provided for on the comprehensive basis, using the balance sheet liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, using tax rates enacted at the balance sheet date. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. PROPERTY AND EQUIPMENT Property and equipment is stated at historical cost less accumulated depreciation. Depreciation is provided on historical cost, using the straight-line basis at rates considered appropriate to write the assets down to their expected residual value over their estimated useful lives (refer note 10). Land is not depreciated. NON-CURRENT ASSETS HELD FOR SALE Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale, within one year from the date of classification. FINANCIAL INSTRUMENTS Financial instruments refer to all assets and liabilities, including derivative instruments, but exclude investments in subsidiaries, associated companies and joint ventures, property and equipment, deferred taxation, taxation payable, intangible assets and goodwill. Financial assets are initially recorded at cost and are remeasured to fair value at subsequent reporting dates on the group’s balance sheet when the group has become a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or the asset is transferred. • Listed investments Listed investments are carried at their fair values, using quoted prices at year-end. Where an active market does not exist for the quoted investment, estimation techniques are used to determine fair value. Changes in fair value are reflected in the income statement under “other income”. • Private equity investments Private equity investments, which include listed and unlisted co-investments and capital participations in Brait’s managed funds, as well as proprietary investments, are valued at their estimated fair value as determined by the board at the reporting date. The resultant increase or decrease in fair value is recognised as other income in the income statement. The fair value measurement of unrealised capital participations takes into consideration the attrition effect of the preferred return on the future value of the capital participation. This adjustment is measured by discounting the future fair value of the capital participation, at Brait’s cost of equity, for the remaining anticipated life of the fund. In valuing investments, the directors follow the principles recommended in the International Private Equity and Venture Capital Valuation Guidelines. In cases where fair value cannot be reliably measured, existing book value, less any impairment, is used as the basis of valuation. Fair value represents the amount for which an asset could be exchanged between knowledgeable, willing parties at an arm’s length transaction. In estimating fair value, the directors use a methodology which is appropriate in light of the nature, facts and circumstances of the investment. Due to the inherent uncertainties in estimating the value of private equity investments, the directors exercise due caution in applying the various methodologies. The principal methodologies applied in valuing unlisted investments include the following: • Earnings multiple; • Price of recent investment; • Net assets; • Discounted cash flow or earnings (of the underlying business); • Discounted cash flow (from the investment); • Industry valuation benchmarks; and •Available market prices. In applying the earnings multiple methodology, the directors apply a market-based multiple that is appropriate and reasonable to the maintainable earnings of the company.

Brait Annual Report 2006 85 ACCOUNTING POLICIES CONTINUED

FINANCIAL INSTRUMENTS (CONTINUED) Where a recent investment has been made, this price will be used as the estimate of fair value. An alternative methodology may be used at any time if this is deemed to provide a better assessment of the fair value of the investment. • Specialised funds investments These investments represent the group’s share in various specialised funds and are measured at fair value. The underlying investments of these funds comprise cash and various listed equity, bond and derivative investments. Fair values of the various funds are determined using quoted market prices of the underlying investments of these funds at year-end. Changes in fair value are reflected in the income statement under “other income”. •Trading investments Investments held for trading, which includes unlisted investments, are valued at their estimated fair value as determined by the board at the reporting date. The resultant increase or decrease in fair value is recognised in the income statement. • Securities Investments in securities are recognised on a trade date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments, other than held-to-maturity debt securities, are classified as either held for trading or available for sale investments, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the balance sheet date. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. Where securities are classified as available for sale investments, unrealised gains or losses are included in equity until such time as the security is disposed of. On disposal, the amount carried in equity is recognised in the income statement. Where there is no formal market, insufficient liquidity in the security, or there is a restriction on the right of sale, the fair value reflects directors’ valuation. • Loans and advances Loans and advances are stated at amortised cost using the effective interest rate method net of impairment provisions. Impairment provisions are made against specifically identified doubtful loans and advances. • Account receivables Trade receivables are stated at their nominal value, as reduced by appropriate allowances for estimated irrecoverable amounts. • Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash and balances with banks, and short-term cash deposited with the Brait Absolute Fund. • Derivative financial instruments Derivative financial instruments are initially recorded at cost and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges are recognised directly in equity. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Financial liabilities are initially recognised at cost and are re-measured to fair value at subsequent reporting dates on the group’s balance sheet when the group has become a party to the contractual provisions of the instrument. Financial liabilities are de-recognised when the obligation specific in the contract is discharged, cancelled or expires. • Provisions Provisions are recognised when the group has a present, obligation as a result of a past event, which it is probable will result in an outflow of economic benefits that can be reasonably estimated. •Trade payables Trade payables are stated at their nominal value.

86 Brait Annual Report 2006 • Liabilities held for trading Liabilities held for trading are stated at fair value at the reporting date. The resultant increase or decrease in value is recognised in the income statement. • Borrowings Interest-bearing bank loans, overdrafts and other borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. All borrowing costs are expensed in the period in which they are incurred. OFF-SETTING Financial assets and liabilities are off-set and the net amount reported in the balance sheet when there is a legally enforceable right to off-set the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. REVENUE AND INCOME RECOGNITION Fee income is recognised, net of value added tax, once all significant acts relating to services have been executed and the client has been invoiced. Interest income is recognised on a basis that reflects the effective yield on the underlying instruments. With the exception of preference share investments, dividends are brought into account as at the last date of registration in respect of listed shares and when declared in respect of unlisted shares. Where dividends on preference shares are calculated with reference to time and the ultimate receipt is beyond doubt, dividends are accrued on a daily basis. Realised and unrealised gains and losses on trading investments are recognised in other income. Realised and unrealised gains and losses arising from fair value adjustments to private equity and specialised funds investments are recognised in other income. BORROWING COSTS All borrowing costs are recognised in profit or loss in the period in which they are incurred. TREASURY SHARES Shares purchased by subsidiary companies of Brait S.A. are treated as treasury shares and held at cost. In the group financial statements, the cost of treasury shares is deducted from share capital. Dividends received on treasury shares are eliminated on consolidation. SHARE-BASED PAYMENTS The group has applied the requirements of IFRS 2 “Share-based Payments”. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not vested as of 1 January 2005. The group issues equity-settled share-based payments to certain directors and employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of shares that will eventually vest. Fair value is measured by use of a binominal and three-dimensional binominal tree pricing model or the Black Scholes model where applicable. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. RELATED-PARTY TRANSACTIONS All related-party transactions are, unless otherwise disclosed, at arm’s length and in the normal course of business. RETIREMENT BENEFIT COSTS Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. COMPARATIVE FIGURES Where necessary, comparative figures have been restated to conform with changes in presentation in the current year (refer note 40).

Brait Annual Report 2006 87 NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 March

2006 2005 US$m US$m

1. REVENUE Fee income 19,0 16,8 Dividends 1,7 11,3 Rental income 0,4 0,8 Net interest received – micro-lending operations 17,9 12,2 Interest received 5,5 3,9 Total revenue 44,5 45,0 Revenue includes the following related party transactions: – Interest received from associates and joint ventures 1,0 1,9

2. OTHER INCOME Currency gains on operating transactions – 0,3 Realised gains on financial assets and instruments 9,3 3,3 Unrealised gains on financial assets 40,0 29,2 Total other income 49,3 32,8 Unrealised gains from an active market amounted to US$ 34,4 million (2005: US$ 14,8 million).

3. OPERATING EXPENSES Includes the following: Employee costs 18,9 16,0 Retirement funding costs 0,7 0,6 Auditors’ remuneration 0,5 0,5 Audit fees 0,3 0,3 Prior year underprovision 0,1 0,1 Other services 0,1 0,1 Directors’ emoluments 5,0 2,4

Executive directors As directors of Brait S.A. 0,1 0,1 Paid by subsidiaries within the group 4,5 1,9 Non-executive directors As directors of Brait S.A. 0,1 0,1 Paid by subsidiaries within the group 0,2 0,2 Otherwise in connection with the group 0,1 0,1 Depreciation 0,6 0,4 Movement in provisions 4,3 0,8 Property lease rentals 1,2 1,0 Foreign currency profit (0,4) (0,8) Provision net of recoveries raised against loans and advances 0,6 0,8 Share entitlement expenses (refer note 35.1) 0,7 0,4 Other expenses 10,5 8,8 Total expenses 42,6 30,9 Operating expenses includes the following related party transactions: – Fees paid to associates and parties connected to directors (0,6) (0,7)

88 Brait Annual Report 2006 2006 2005 US$m US$m

4. FINANCE COSTS Interest on shareholder’s loan 1,2 0,6 Interest paid other 1,1 0,3 Debt restructuring cost 0,1 1,6 Total finance costs 2,4 2,5 Finance cost includes the following related party transactions: – Interest paid to associates 1,2 0,6 5. CAPITAL ITEMS 5.1 Currency hedge cost (2,2) (4,1) Comprises the net fair value adjustment associated with the group’s policy of hedging the majority of its net tangible assets of its foreign entities into its presentation currency, the US Dollar. 5.2 Fair value adjustment to financial liability (1,4) (7,1) Represents the change in fair value of the financial liability arising from the sale of a 26% share of Brait South Africa Limited. 5.3 Profit on disposal of interest in subsidiary 2,9 – During the year the group introduced new strategic partners to Bayport reducing Brait’s effective economic interest to 41,66%. 5.4 Profit on disposal of property, buildings and fittings 2,8 – The group sold its Johannesburg property and buildings, including fittings, situated at 9 Fricker Road, Illovo and, in terms of the conditions of the sale, entered into a five-year renewable operating lease agreement. 5.5 Realisation of translation adjustment (0,2) – As a result of partial repayments on Rand denominated loans to group companies. Total capital items 1,9 (11,2) 6. TAXATION 6.1 Income tax expense Luxembourg – – Foreign expense 2,3 1,5 Deferred taxation (refer note 15) – Current year expense/(credit) 0,4 (1,0) Total income tax expense 2,7 0,5 The group has reconciled its income tax to the income tax rate applicable to the holding company for the year ended 31 March 2006. In the jurisdiction that the holding company is registered, the income tax rate is zero, as other forms of taxation are applied. One of the group’s subsidiaries, Brait South Africa Ltd, has STC credits amounting to US$34,8 million available for set off against future dividend payments. 6.2 Tax reconciliation Taxation of foreign operations is calculated at the rates prevailing in the respective jurisdictions. The tax expense for the year is reconciled to the profit per the income statement as follows: 2006 2005 US$m % US$m %

Profit before taxation 52,4 34,8 Tax at the Luxembourg income tax rate – – –– Non-deductible expenses 5,1 10 43,5 125 Non-taxable income (7,2) (14) (36,7) (105) Capital gains 0,5 1 –– Deferred tax assets not raised/utilised 0,2 – 1,0 2 Tax differential (0% vs 35%) 4,1 8 (7,3) (21) Tax expense 2,7 0,5 Effective tax rate % for the year 5 1

Brait Annual Report 2006 89 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 2005 US$m US$m

7ATTRIBUTABLE EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on the following data: – Attributable earnings 47,0 33,9

Number Number of shares of shares

The weighted average number of shares is calculated as follows: Total number of ordinary shares issued (million) 110,5 102,3 Less: Weighted average number of treasury shares (million) (19,9) (13,0)

– Weighted average number of ordinary shares for the purposes of basic earnings per share (million) 90,6 89,3 – Dilutive potential of share options granted to: • employees (million) 1,3 0,9 • executive directors (million) 11,1 7,5 – Weighted average number of ordinary shares for the purposes of diluted earnings per share (million) 103,0 97,7

US cents US cents

8. DIVIDENDS PER SHARE 18,24 13,75 – An interim dividend of 7,85 US cents per share (51,51 SA cents per share for shareowners registered on the South African register) was proposed and paid by the board of directors in respect of the interim period which ended 30 September 2005. – The board has recommended a final dividend of 10,39 US cents per share (67,81 SA cents per share for shareowners registered on the South African register) for the year ended 31 March 2006. The shareowners will be asked to ratify the interim dividend paid and approve the payment of the final dividend for the year ended 31 March 2006 at the annual general meeting of shareowners to be held on 26 July 2006 in Luxembourg.

2006 2005 US$m US$m

9. GOODWILL Arising on acquisition of a subsidiary 2,5 – At 31 March 2006 2,5 – The goodwill has been allocated to the cash generating unit of Ghana Financial Services and arose from an additional 20% stake purchased in the company. Reconciliation of goodwill at year-end Balance at beginning of year – – Increase on acquisition of subsidiary 2,6 – Goodwill realised on restructuring of subsidiary (0,1) – Balance at end of year 2,5 – An impairment test was done on the goodwill at year-end using an earnings multiple model.

90 Brait Annual Report 2006 Furniture Land and and Motor Computer buildings fittings vehicles equipment Total US$m US$m US$m US$m US$m

10. PROPERTY AND EQUIPMENT Cost 2006 Carrying amount at beginning of year – 0,7 0,5 2,4 3,6 Additions 0,2 0,2 0,2 0,4 1,0 Disposals ––(0,1) – (0,1) Translation differences 0,1 0,1 0,1 0,1 0,4 Carrying amount at end of year 0,3 1,0 0,7 2,9 4,9

2005 Carrying amount at beginning of year 7,2 3,1 0,1 1,6 12,0 Take on balance – 0,1 0,1 0,3 0,5 Additions – 0,2 0,3 0,4 0,9 Disposals – (0,2) – – (0,2) Translation differences – – – 0,1 0,1 Reclassification as held for sale (7,2) (2,5) – – (9,7) Carrying amount at end of year – 0,7 0,5 2,4 3,6

Accumulated depreciation 2006 Carrying amount at beginning of year – 0,4 0,1 1,8 2,3 Charges for the year – 0,2 0,1 0,3 0,6 Disposals –––– Translation differences –––0,10,1 Reclassification as held for sale Carrying amount at end of year – 0,6 0,2 2,2 3,0

2005 Carrying amount at beginning of year 0,5 1,5 – 1,5 3,5 Take on balance – – – 0,1 0,1 Charges for the year – 0,1 0,1 0,2 0,4 Disposals – (0,1) – – (0,1) Translation differences ––––– Reclassification as held for sale (0,5) (1,1) – – (1,6) Carrying amount at end of year – 0,4 0,1 1,8 2,3

Carrying value – at 31 March 2006 0,3 0,4 0,5 0,7 1,9 – at 31 March 2005 – 0,3 0,4 0,6 1,3 Depreciation rates: Furniture and fittings 10% – 33% Equipment 10% – 20% Computer equipment 20% – 50% Computer software 50% – 100% Motor vehicles 20% – 25% Buildings 2%

Brait Annual Report 2006 91 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 2005 US$m US$m

11. INVESTMENTS IN ASSOCIATES AND OTHER 11.1 Carrying values Investments in associates Unlisted 11,1 8,6 – cost 3,0 3,3 – share of retained earnings and currency adjustments 8,1 5,3 Securities Unlisted – other 0,5 2,5 Joint ventures (carried at nil value) – – Total carrying value of investments 11,6 11,1

(Refer page 108 for details of principal associates)

11.2 Valuation Investments in unlisted – associates 11,1 8,6 Securities – unlisted 0,5 2,5 Directors’ valuation of investments 11,6 11,1 Directors’ valuation of unlisted investments is based on expected return and other relevant factors.

11.3 Joint ventures The following sets out the group’s proportionate share of joint venture assets, liabilities, revenue and expenses: Balance sheet Non-current assets 0,5 0,2 Current assets 12,7 7,6 Non-current liabilities (8,9) (6,5) Current liabilities (4,1) (1,8) Total net asset value 0,2 (0,5)

Income statement Revenue 12,3 4,5 Expenses 9,2 5,2

11.4 Associates The following sets out the group’s aggregated amount of associate assets, liabilities, income and expenses: Balance sheet Assets 25,4 27,6 Liabilities (8,5) (13,3) Net asset value 16,9 14,3

Income statement Revenue 2,9 2,6 Profit for the year 5,1 5,0

92 Brait Annual Report 2006 2006 2005 US$m US$m

12. PRIVATE EQUITY INVESTMENTS Proprietary investments at fair value Listed 18,1 10,7 Unlisted 30,2 27,9 Total proprietary investments at fair value 48,3 38,6 Private equity funds investments 65,0 41,9 113,3 80,5 Carrying values of proprietary investments, per sector: Entertainment, leisure, tourism 1,2 1,2 Information technology 16,7 9,9 Manufacturing 6,6 3,3 Services 11,3 11,5 Other 12,5 12,7 Total private equity proprietary investments 48,3 38,6

12.1 Assumptions applied in estimating fair value of private equity investments The fair values of unlisted private equity investments are primarily based on earnings multiple models.

12.2 Unlisted investments comprise the following: Shareholding of 5% and less UFP Investments (Proprietary) Limited Wilderness Safaris Limited Shareholding in the > 5% to 25% range Raceclubs Holdings Limited Equine Global Holdings N.V. Pangea Diamond Fields Limited Shareholding in the > 25% to 50% range DGB (Proprietary) Limited Candy Tops (Proprietary) Limited Beverage Packaging (Proprietary) Limited Isegen South Africa (Proprietary) Limited Pangea Exploration (Proprietary) Limited

13. SPECIALISED FUNDS INVESTMENTS Unlisted specialised funds Brait Absolute South Africa Fund 15,8 10,9 Brait US Opportunity Fund – 3,9 Emerging Managers Funds 2,2 5,1 Total fair value using the underlying market value 18,0 19,9

Brait Annual Report 2006 93 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 2005 US$m US$m

14. TERM LOANS Sitogo Holdings (Proprietary) Limited 1,4 3,6 This loan is rand denominated, bears interest at South African prime overdraft rate with fixed quarterly interest payment in arrears. This loan has a six-year term subject to accelerated maturity conditions on the third anniversary date in the event of certain ”trigger events”. Brait S.A. has the right to dispose of the loan at any time during the duration of the loan agreement for the face value of the loan plus accrued interest thereon. Renaissance Asset Management (Pty) Limited 0,6 – This loan is rand denominated, bears interest at South African prime overdraft rate with the total interest being payable at maturity. This loan has a five-year term subject to default conditions. Neural Capital 1,0 – This loan is US dollar denominated, bears interest at 5% per annum with capital and interest payments commencing in March 2008. This loan has a four-year term subject to default conditions. Total term loans 3,0 3,6

15. DEFERRED TAX ASSETS 15.1 Assets and liabilities Deferred tax assets 2,8 2,5

15.2 Analysis of assets The following are the major deferred tax assets recognised by the group and the movement thereon during the year: Balance at beginning of year 2,5 2,5 Credit to income for year 0,4 – Translation differences (0,1) –

Balance at end of year 2,8 2,5

In terms of IAS 12, a deferred tax asset should be recognised on unutilised tax losses to the extent that it is probable that profits will be available, against which the deductible temporary differences can be utilised. Based on the estimated cumulative tax losses of US$38,7 million in the group’s operations, a maximum asset amounting to US$11,2 million could have been raised. The deferred tax asset is estimated at US$2,8 million as at year-end, calculated on the budgeted taxable profit in the entities concerned, over the next three years, after taking into consideration current market conditions.

16. PRIVATE EQUITY INVESTMENTS Proprietary investments at fair value Short-term private equity investments 1,8 2,2

Carrying values of proprietary investments, per sector: Information technology – 0,1 Manufacturing 1,8 0,3 Infrastructure – 1,8 Total private equity proprietary investments 1,8 2,2

Assumptions applied in estimating fair value of private equity investments The fair values of unlisted private equity investments are primarily based on earnings multiple models.

94 Brait Annual Report 2006 2006 2005 US$m US$m

17 OTHER CURRENT INVESTMENTS Investment at fair value Listed* 16,0 –

* The fair value was based on the listed market value. US$15,4 million of this investment is matched with a corresponding liability which is included in current liabilities disclosed in note 29. 18. LOANS AND ADVANCES Current loans and advances 39,5 28,5 Less: Provision for impairment (1,6) (2,8) Total loans and advances 37,9 25,7 18.1 Maturity structure** One year or less 38,0 Between one and five years 1,5 More than five years – 39,5 18.2 Geographical analysis** South Africa 11,4 Other African countries 28,1 39,5

** Prior year information not available. 18.3 Movement in provision for impairment Balance at beginning of year 2,8 1,8 Acquisition of subsidiary – 0,2 Current year charge net of recoveries 0,6 0,8 Recoveries of loans previously written off (1,0) – Loans and advances written off (1,2) – Translation differences 0,4 – Balance at end of year 1,6 2,8 19. ACCOUNTS RECEIVABLE Other receivables 3,0 5,7 Clients and other receivables (fully pledged as security – refer note 26) 3,6 5,8 Impairment against receivables (0,6) (0,1) Fair value of currency hedge 3,6 2,3 Prepayments and accrued income 0,1 0,4 Other 0,2 1,5 Total accounts receivable 6,9 9,9 20. CASH AND CASH EQUIVALENTS Balances with banks 36,8 17,8 Bank overdraft (9,3) – Balances invested on short-term notice in Brait Absolute Fund 56,4 – Total cash and cash equivalents 83,9 17,8 21. NON-CURRENT ASSETS HELD FOR SALE Land and buildings – 6,7 Furniture and fittings – 1,4 Translation differences – 0,1 – 8,2 During the current financial year, the property was unconditionally sold. The gain on the disposal of the property was recognised as part of capital items (refer note 5) on the income statement.

Brait Annual Report 2006 95 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

22. SHARE CAPITAL AND PREMIUM 22.1 Share capital Authorised share capital The authorised share capital of the company is US$225 000 000 represented by 150 000 000 shares of no par value (accounting par value of US$1,50 per share).

Issued share capital The issued share capital of the company is 110 487 321 (2005:102 255 732) ordinary shares of no par value. During the current financial year 8 231 589 bonus shares of no par value were issued out of the share premium account. At an extraordinary general meeting of shareholders held on 27 July 2005 it was resolved that an amount of US$40,0 million be appropriated from the ‘Share premium ‘account of the company to the ‘Retained reserves’ account of the company. The unissued ordinary shares are under the control of the directors, subject to certain constraints, until the forthcoming annual general meeting. At 31 March 2006, the company has granted options/share entitlements to directors and employees to subscribe for 10 726 879 (2005: 19 538 722) ordinary shares in the company as set out on page 100.

22.2 Share premium The share premium account of the company at 31 March 2006 is US$3,2 million (2005: US$55,5 million).

2006 2005 US$m US$m

23. LEGAL RESERVE Luxembourg Law requires the appropriation of 5% of the prior year’s unconsolidated net earnings of Brait S.A. to a legal reserve until such reserve equals 10% of its issued share capital. The legal reserve is not available for distribution, except upon dissolution of Brait S.A. The transfer to the legal reserve is subject to the approval of shareowners. Balance at end of year 2,6 2,6

24. EQUITY RESERVES Equity reserves include the following: 24.1 Share entitlement expenses in terms of IFRS 2 (Share-based Payments) Balance at beginning of the year 2,9 2,5 Income statement charge 0,7 0,4 Balance at end of year 3,6 2,9 24.2 Foreign currency adjustment on capital loan (0,1) (0,3)

Total equity reserves 3,5 2,6

25. REDEEMABLE PREFERENCE SHARES Total debt capital 72,9 – In March 2006 a subsidiary of the group, Brait South Africa Limited, raised US$72,9 million (ZAR 450 million) preference share capital to provide additional capital to leverage the group’s internal growth strategy. 450 000 (four hundred and fifty thousand) cumulative redeemable preference shares were issued at a par value of 0,01 cents and a premium of ZAR 999,99 per share. These shares carry a dividend of 78% of the South African prime rate and are redeemable in four tranches on 31 July of each year commencing in 2010 as follows: – 31 July 2010 – ZAR 45,0 million – 31 July 2011 – ZAR 67,5 million – 31 July 2012 – ZAR 67,5 million – 31 July 2013 – ZAR 270,0 million Brait is entitled to early redemption at any time prior to the specified settlement dates. In terms of the agreement, there are a number of early redemption events as set out below: – tangible NAV falls below a specified amount; – earnings/debt service coverage ratio falls below a certain threshold; and – the group has a negative EBIT for any two consecutive years; This liability is secured via a guarantee by Brait S.A. and other subsidiaries. This issue had no significant impact on the earnings per share.

96 Brait Annual Report 2006 2006 2005 US$m US$m

26. NON-CURRENT BORROWINGS 26.1 Unsecured loan – Sitogo Holdings (Proprietary) Limited 4,4 11,4 This loan is Rand denominated, bears interest at South African prime overdraft interest rate with fixed quarterly interest payments in arrears and conditional terms of repayment 26.2 Secured loans – Social Security and National Insurance Trust 0,5 1,1 Total liability 1,2 1,7 Less: Portion repayable within 12 months (0,7) (0,6) This loan is Ghanaian Cedi denominated and bears interest at 200 basis points above the Ghana Treasury Bill rate. Interest payments are made quarterly in arrears. Capital is repayable over three years in three equal annual instalments commencing December 2005 with the last payment due December 2007. This loan is secured by a subsidiary’s receivables. – Rural Housing Loan Fund 3,9 1,5 Total liability 3,9 3,2 Less: Portion repayable within 12 months – (1,7) This loan is Rand denominated, repayable over two years and bears interest at 600 basis points above Bond Exchange of South Africa’s bond yield. The loan is secured by a deed of pledge and cession over Bayport’s receivables. – Jawmend Rossi Capital (Proprietary) Limited 1,8 – This loan is Rand denominated, repayable over two years starting on 31 March 2008 and bears interest at 600 basis points above the mid point of the fixed rate swap curve. The loan is secured by a reversionary right to Bayport Financial Services’ cash and receivables. – Barclays Bank of Zambia –– Total liability 0,1 – Less:Portion repayable within 12 months (0,1) – This loan is US dollar denominated, repayable over two years from the 30th of August 2005 and bears interest at a fixed rate of 7,5%. The loan is secured by a mortgage debenture over Stand No 581, Independence Avenue, Lusaka. – Bayport shareholder loans 0,8 – Total liability 0,7 – Less:Portion repayable within 12 months (0,2) – This loan is US dollar denominated, bears interest at 20% per annum repayable in 36 equal instalments commencing in June 2006. The loan is secured by a residual cession of the book debts in Bayport Management. This loan is US dollar denominated, bears interest at 20% per annum repayable in 36 equal instalments commencing in December 2007. The loan is secured by a residual cession of the book debts in Bayport Management. 0,3 – 26.3 Financial liability Financial instrument – Sitogo Holdings (Proprietary) Limited 14,9 14,9 The sale by the company of a 26% share of its South African wholly-owned subsidiary has not been recorded as a sale as it did not meet the accounting requirement for recognition as such. Consequently the sale proceeds have been recorded as a financial liability 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 is based on the net asset value of Brait South Africa Limited as at 31 March 2006 and gave rise to a charge of US$1,4 million for the current year (refer note 5.2). The liability has a potential six-year term subject to accelerated maturity conditions from the third anniversary date should certain “trigger events” arise. Total non-current borrowings 26,3 28,9

Brait Annual Report 2006 97 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 2005 US$m US$m

27. ACCOUNTS PAYABLE Trade payables 3,0 4,2 Employee costs and benefits 8,6 4,1 Pre-paid fees – 0,6 Executive share trust participants’ loan accounts 2,9 4,6 Reclassified as short-term liabilities – (1,9) Other 0,9 3,5 Total accounts payable 15,4 15,1

28. PROVISIONS Leave pay 0,4 0,3 Private equity rights 0,8 1,0 Legal fees – 1,0 Commission expenses 2,1 – Other 3,7 1,2 Total provisions 7,0 3,5

Private Leave Equity Legal Commission 2006 2005 pay rights fees expenses Other* Total Total US$m US$m US$m US$m US$m US$m US$m

Movement of provisions The movements for the year in the group’s provisions were as follows: Balance at beginning of year 0,3 1,0 1,0 – 1,2 3,5 4,2 Provisions utilised during the year – (0,2) (0,7) – (0,6) (1,5) (1,5) Charge to income for the year 0,1 – (0,3) 2,1 3,1 5,0 0,8 – current year 0,1 – – 2,1 3,1 5,3 1,3 – amounts released to income statement – – (0,3) – – (0,3) (0,5)

Balance at end of year 0,4 0,8 – 2,1 3,7 7,0 3,5

* Other provisions include Brait IV fund-raising and foreign withholding tax provisions in Bayport. All provisions are anticipated to realise within the next 12 months. 29. CURRENT BORROWINGS Loans from associates 2,3 1,7 Current portion of non-current secured liabilities (refer note 26) 1,0 2,3 Shareholder loan 0,3 – This loan is US dollar denominated, bears interest at 20% per annum with no fixed repayment terms. Other current borrowings 15,3 1,9 Other current borrowings include short-term loans which are matched by an equivalent asset reflected under ’Other current investments’ in note 17. Both the asset and the liability are expected to be realised within 12 months.

Total current borrowings 18,9 5,9 30. LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE Secured liabilities – 13,2 The loan was directly associated with the group’s Johannesburg property and buildings, including fittings, situated at 9 Fricker Road, Illovo. The loan was settled with the sale of the property.

98 Brait Annual Report 2006 2006 2005 US$m US$m

31 RETIREMENT BENEFIT PLANS Most of the group’s employees are members of its defined contribution retirement funds. The group does not have any defined benefit plans. The majority of the group’s employees also participate in various disability and group life assurance benefits. 32. CONTINGENT LIABILITIES, COMMITMENTS AND SUBORDINATED LOANS 32.1 Contingencies 0,2 1,7 Sureties and guarantees 0,2 0,2 Other contingent liabilities – 1,5 32.2 Commitments Commitments to invest in funds and proprietary investments (to be funded primarily from cash from operations and, if necessary, through debt capital raised – refer note 25) 34,9 9,3 Other 1,1 – Commitments to acquire shares (including employee share schemes) – 10,8 Rental commitments 5,1 0,3 Within one year 1,1 0,3 Between one and five years 4,0 – More than five years – – 32.3 Subordinated loans 5,3 6,8 46,6 28,9 33. FAIR VALUE OF FINANCIAL INSTRUMENTS The accounting policies of the group prescribe that all financial assets and liabilities are measured at fair value. Fair values have been determined using available market information and appropriate valuation methodologies. 34. DERIVATIVE FINANCIAL INSTRUMENTS The group utilises currency derivatives to hedge the tangible capital of its non-US dollar subsidiaries into its measurement currency. It does this by means of foreign currency call options. The notional principal disclosed below is the gross value of derivative contracts outstanding at the year-end and serves only as an indicator of the extent of the group’s derivative activities. The notional principal does not necessarily reflect the amount payable or receivable under a derivative contract. The fair value of a financial instrument represents the present value of the positive or negative cash flows which would have occurred if the rights and obligations arising from that instrument were closed out by the group in an orderly marketplace transaction at year-end. 2006 2005 Gross Positive Negative Gross Positive Negative notional fair fair notional fair fair principal value value principal value value US$m US$m US$m US$m US$m US$m

Hedging derivatives Foreign exchange derivatives Forward foreign exchange contract/currency swaps –––30,0 1,6 – Currency put option –––30,0 0,7 – Currency call option 35,0 3,6 – ––– Total derivatives 35,0 3,6 – 60,0 2,3 – There are no gains or losses on hedging instruments deferred in the balance sheet, nor were there any reclassifications of hedging instruments resulting in gains or losses arising in prior years being recognised in subsequent years. The above foreign exchange derivative matures on 25 March 2011.

Brait Annual Report 2006 99 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

35. SHARE-BASED PAYMENTS (IFRS 2) The following information has been provided to disclose the effect of share-based payments on the group, in terms of the provisions of IFRS 2 to all unvested entitlements granted to participants after 7 November 2002. 35.1 Effect on the current year distributable earnings 2006 2005 US$m US$m

Income statement Share entitlement expense 0,7 0,4 35.2 Equity-settled share entitlement plans The group has three equity-settled share entitlement plans. •The Brait S.A. Share Incentive Scheme; •The Brait Executive Share Purchase Scheme; and •The Brait South Africa Share Incentive Scheme 2005. The terms of these schemes are described in the ‘Remuneration report’ on page 42. In summary, the schemes provide for: • An equity issue price equal to an average quoted market price of Brait shares on the date of grant; •A vesting period, typically staggered over three to six years; • Expiry of options/entitlements which remain unexercised after a period of five to eight years (depending on the scheme) from the date of grant; and •Forfeiture of options/entitlements if the participant leaves the group before vesting. The assumptions applied in determining the income statement effect for each of the group’s share-based payments schemes under IFRS 2 are set out below: 2006 2005 Share Weighted Share Weighted entitle- average entitle- average ments issue ments issue price price ZAR ZAR

The Brait S.A. Share Incentive Scheme Share entitlements outstanding at beginning of year 2 975 262 7,23 2 568 624 7,33 Granted and exercised during the year 150 000 18,04 1 374 480 7,20 Delivered during the year (808 018) 7,25 (61 151) 8,17 Forfeited during the year (by resignation, retrenchment or repurchase) (578 740) 7,20 (906 691) 7,39 Share entitlements outstanding at end of year 1 738 504 8,16 2 975 262 7,23 Share entitlements exercisable at end of year 379 841 7,21 829 335 7,21 The weighted average issue share price for share entitlements granted during the period was ZAR18,04. The unvested entitlements outstanding at 31 March 2006 had a weighted average issue price of ZAR8,16 and a weighted average remaining maximum contractual life of approximately 6,9 years.

100 Brait Annual Report 2006 35. SHARE-BASED PAYMENTS (IFRS 2) (CONTINUED) The inputs into the binominal and 3D binominal tree pricing model were as follows: 2006 2005 ZAR ZAR

Weighted average share price of new issues during year (all issues done at market price) 18,04 7,20 Expected volatility 28,13% 27,53% – 32,35% Expected life 3 years 3 – 5 years Risk free rate 7,37% – 7,57% 7,6% – 12,76% Expected future dividend yield 5% 5% Expected volatility was determined by calculating the historical volatility of the group’s share price from 1 April 2003. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 2006 2005 Share Weighted Share Weighted entitle- average entitle- average ments issue ments issue price price ZAR ZAR

The Brait Executive Share Purchase Scheme Share entitlements outstanding at beginning of year 16 563 460 0,7190 17 296 489 0,7101 Issued during the year 2 500 000 1,8790 500 000 1,0062 Delivered during the year (12 185 907) 0,7101 (778 105) 0,7101 Forfeited during the year (by resignation, retrenchment or repurchase) ––(454 924) 0,7101 Share entitlements outstanding at end of year 6 877 553 1,1564 16 563 460 0,7190 Share entitlements exercisable at end of year 3 877 552 0,7101 10 060 879 0,7101 The weighted average issue share price for share entitlements granted during the period was US$1,8790. The unvested entitlements outstanding at 31 March 2006 had a weighted average issue price of US1,1564 cents and a weighted average remaining maximum contractual life of approximately four years. The inputs into the binominal and 3D binominal tree pricing model were as follows: 2006 2005 US$ US$

Weighted average share price of new issues during year (all issues done at market price) 1,879 1,0062 Expected volatility 29,90% 24,9% – 30,7% Expected life 3 years 3 years Risk free rate 4,33% 2,0% – 3,24% Expected future dividend yield 5% 5% Expected volatility was determined by calculating the historical volatility of the group’s share price from 1 April 2003. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Brait Annual Report 2006 101 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 Weighted Share average entitlements issue price ZAR

35. SHARE-BASED PAYMENTS (IFRS 2) (CONTINUED) The Brait South Africa Share Scheme 2005 Share entitlements outstanding at beginning of year –– Issued during the year 2 110 823 12,99 Delivered during the year –– Share entitlements outstanding at end of year 2 110 823 12,99 The weighted average issue share price for share options granted during the period was ZAR12,99. The unvested entitlements outstanding at 31 March 2006 had a weighted average issue price of ZAR12,99 and a weighted average remaining maximum contractual life of approximately three and a half years. The inputs into the Black Scholes model were as follows: 2006 2005 ZAR ZAR

Weighted average share price of new issues during the year (all issues done at market price) 12,99 – Expected volatility 27,19 % – 29,9 % – Expected life 3 – 5 years – Risk free rate 7,26 % – 7,59 % – Expected volatility was determined by calculating the historical volatility of the group’s share price from 1 April 2003. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

36. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE No events have taken place since 31 March 2006 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. 2006 2005 US$m US$m

37. CASH FLOW INFORMATION 37.1 Cash generated by operations Profit before taxation 52,4 34,8 Adjustments for: Dividends received (1,7) (11,3) Interest received (5,5) (3,9) Interest paid 2,4 2,5 Depreciation 0,6 0,4 Share entitlement expenses 0,7 0,4 Fair value adjustment of financial liability 1,3 7,1 Unrealised gains on financial assets and instruments (40,0) (29,2) Equity accounted earnings of associates and joint ventures (1,7) (1,6) Profit on sale of building (2,8) – Profit on sale of subsidiary (2,9) – Impairment of investment in joint ventures – 0,4 Provision for doubtful debts 1,0 1,7 Currency hedge cost 2,2 4,1 Other (0,3) – Total cash generated by operations 5,7 5,4

102 Brait Annual Report 2006 2006 2005 US$m US$m

37. CASH FLOW INFORMATION (CONTINUED) 37.2 Taxation paid Taxation balance at beginning of year (1,0) – Balance taken on at acquisition of subsidiary – (0,3) Current tax expense for the year (2,3) (1,5) Taxation balances at end of year 1,1 1,0 Total taxation (paid)/received (2,2) 0,8

37.3 Change in working capital Increase/(decrease) in accounts payable and provisions 5,6 (1,4) Decrease in accounts receivable 3,9 7,9 Increase in loans and advances (12,0) (12,7) Total change in working capital (2,5) (6,2)

37.4 Dividends paid Dividends represent the final dividend for the year ended 31 March 2005 of US 10,25 cents per share paid in July 2005 and the interim dividend of US 7,85 cents per share paid in November 2005. The comparative represents the final dividend of US 3,25 cents per share paid in August 2004 and the interim dividend of US 3,50 cents per share paid in November 2004.

37.5 Net cash inflow from acquisition of subsidiary Total consideration – (1,1) Cash and cash equivalents received by the group – 1,5 Net cash inflow from acquisition of subsidiary – 0,4 37.6 Non-cash transactions The disposal of a portion of the group’s interest in Bayport was settled through the receipt of a 20% share in Ghana Financial Services to the value of US$2,8 million. Dividends paid to the employees under the Brait South Africa Share Scheme 2005 were settled with the issuance of treasury shares to the value of US$0,9 million.

38. RELATED PARTY TRANSACTIONS Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates are disclosed below. Transactions between the company and its subsidiaries and associates are disclosed in the company’s separate financial statements. Details of transactions between the group and key management are disclosed under the ‘Remuneration Report’ on page 42. Trading transactions During the year, group companies entered into the following transactions with related parties who are not members of the group: 2006 2005 Amounts Amounts Amounts Amounts owed by owed to owed by owed to related related related related parties parties parties parties

38.1 Associates Sitogo Holdings (Pty) (Limited) (refer note 15 and 27 for further detail) 1,4 (4,3) 3,6 (11,4) Other 2,2 (2,2) 1,4 (1,3) 38.2 Joint ventures Capital Alliance Finance (Pty) (Limited) 2,8 – 5,4 – The loan has no firm repayment date and carries interest at Standard Bank prime, as revised from time to time plus 5%. A total of US$0,6 million interest was received during the year. 38.3 Key management 5,1 (8,0) 7,3 (11,9) (Arising in terms of the Brait Executive Share Incentive Scheme)

Brait Annual Report 2006 103 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

39. SUBSIDIARIES 39.1 Acquisition of subsidiary 2005 On 7 May 2004, the group increased its interest in, Bayport Management Limited, from 49,9% to 62,8%. Book Fair value Fair value adjustments value US$m US$m US$m

i) Net assets acquired – – – Equipment 0,4 – 0,4 Investments and receivables 0,1 – 0,1 Goodwill 0,1 (0,1) – Current assets 3,3 0,2 3,5 Cash and cash equivalents 1,5 – 1,5 Current liabilities (0,6) – (0,6) Non-current liabilities (2,8) – (2,8) Minority interests (0,4) 0,1 (0,3) Total net assets at acquisition 1,6 0,2 1,8 Less: Minority interest of 37,2% (0,7) Total consideration for 62,8% 1,1 At date of After Total for acquisition acquisition current year US$m US$m US$m

ii) Financial effect of business combination Revenue 0,3 8,3 8,6 Profit before taxation for the period 0,1 2,6 2,7

2006 2005 US$m US$m

39.2 Loans and advances to/(from) subsidiaries Name Brait South Africa Limited* 12,3 34,2 Capital Partners Group Holding Limited # (6,3) (8,9) Brait III Investments Limited# – 0,2 SAPEF III International GP Ltd# 1,5 0,7 The Brait Executive Share Trust# – 5,1 Brait International Limited# 3,2 21,1 Total net loans and advances 10,7 52,4

* This loan is Rand denominated, bears interest at South African prime overdraft rate with fixed quarterly interest payments in arrears and no fixed repayment terms for the capital. # These loans are US dollar denominated, have no repayment terms and are interest free.

104 Brait Annual Report 2006 40. COMPARATIVE FIGURES The following comparative figures have been restated to conform to changes in presentation in the current year and had no effect on the results of the previous year. Currently Previously stated stated US$m US$m

40.1 Balance sheet Current liabilities – Accounts payable 15,1 17,0 – Current borrowings 5,9 4,0 The above liability has been re-classified from “Accounts payable” to “Current borrowings” to more appropriately reflect the non-working capital nature of the liability. 40.2 Cash flow Change in working capital (8,1) (6,2) Cash flows from financing activities – Increase in borrowings 24,5 22,6 The impact on the cash flow statement of the re-classified “Current liabilities” in 40.1 above 40.2 Segmental report Segment assets – International 92,5 86,0 – South Africa 90,2 65,0 Revenue and other income – International 2,3 13,0 – South Africa 30,5 19,8 The geographical segments have been changed to a basis distinguishing between the actual geographical source of income rather than between the economic environments which have similar specific rules and regulations.

Brait Annual Report 2006 105 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED for the year ended 31 March

2006 2005 US$m US$m

41. FINANCIAL STATEMENTS OF BRAIT S.A. Brait S.A. is the holding company of the group. It was incorporated on 5 May 1976 in the Grand Duchy of Luxembourg in terms of the law of 31 July 1929.

41.1 Income statements for the period Profit/(loss) for the year 2,2 (3,8)

Net financial and other income 5,0 9,5 Currency hedge cost (2,0) (4,1) Loss on sale of 26% of subsidiary – (8,4) Administrative and other expenses (0,8) (0,8)

41.2 Balance sheets Assets Non-current assets 187,7 220,8 Financial assets 3,6 – Investments 184,1 220,8

Subsidiaries 145,8 151,1 Associates 2,7 2,7 Intercompany advances 19,4 64,8 Other investments 16,2 2,2

Current assets 42,9 9,6

Accounts receivable and prepayments 8,4 6,8 Cash and cash equivalents 34,5 2,8

Total assets 230,6 230,4

Equity Share capital and premium 168,8 208,9 Legal reserve 2,6 2,6 Distributable reserves 34,9 7,2 Total equity and reserves 206,3 218,7

Liabilities Non-current liabilities Intercompany loans 8,6 9,4 Current liabilities Accounts payable and other current liabilities 15,7 2,3 Total equity and liabilities 230,6 230,4

106 Brait Annual Report 2006 2006 2005 US$m US$m

41. FINANCIAL STATEMENTS OF BRAIT S.A. (CONTINUED) 41.3 Share capital Authorised 150 000 000 (2005: 150 000 000) ordinary shares of no par value

Issued 110 487 321 (2005: 102 255 732) ordinary shares of no par value 165,7 153,4

41.4 Distributable reserves At beginning of year 7,2 35,3 Profit/ (loss) for the year 2,2 (3,8) Prior year result to be allocated – (4,2) Dividends paid (14,5) (20,1) Transfer from share premium 40,0 – At end of the year 34,9 7,2

41.5 Significant accounting policies – Significant accounting policies for the company are consistent with those disclosed for the group, except for unrealised gains which have been excluded from income in accordance with Luxembourg Law. – The carrying value of subsidiaries is reflected at the lower of cost or fair value, where the write-down below cost is considered permanent. The sale by the company of a 26% share in its South African operation has been recorded as a sale.

Brait Annual Report 2006 107 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES AND JOINT VENTURES

Issued ordinary Name and Date of share capital Holding registration number incorporation Nature of business US$m %

SUBSIDIARY COMPANIES Brait South Africa Limitedø 26/10/60 Investment and financial services 0,4 74 1960/003893/06 Bayport Holdings Limited‡ 17/11/04 Micro-lending – 53,4 53441 Capital Partners Group 13/03/98 Holding company 15,9 100 Holdings Limited* 271641 Brait Mauritius Limited‡ 01/04/99 Financial services – 100 507172 Brait International Limited‡ 30/06/98 Investment and financial services – 100 20703/4507 Brait Investments Limitedø 29/11/96 Trading and financial services – 100 1996/016949/06

Carrying Date to which Issued value Name and equity income ordinary 2006 Holding registration number accounted for Nature of business share capital US$m %

ASSOCIATED COMPANIES Lauriston Capital (SA) (Proprietary) Limitedø 31/03/06 Funds management –0,1 25,0 2002/026011/07 Lauriston Capital (US) 31/03/06 Funds management –0,2 25,0 (Proprietary) Limited* 517917 Medu Capital (Proprietary) Limitedø 31/03/06 Funds management –0,0 49,0 2003/000273/07 Sitogo Holdings (Proprietary) Limitedø 2004/018117/07 31/03/06 Financial services –5,4 32,3

JOINT VENTURES Capital Alliance Finance (Pty) Limitedø 31/03/06 Financial services ––50,0 1998/006840/07

* Incorporated in the British Virgin Islands. ‡ Incorporated in Mauritius. ø Incorporated in South Africa.

108 Brait Annual Report 2006 SHAREOWNERS’ DIARY

Announcement of results 2 June 2006 Annual report issued beginning July 2006 Annual general meeting 26 July 2006 Proposed final dividend – declaration 26 July 2006 – record date 11 August 2006 – payment 14 August 2006 Interim report early November 2006 Financial year-end 31 March 2006

Brait Annual Report 2006 109 NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the annual general meeting of shareowners of the company will be held at the registered office of the company, 180, rue des Aubépines, L-1145, Grand Duchy of Luxembourg on Wednesday, 26 July 2006 at 14:30 for the following purposes: AGENDA A. Ordinary business 1. To ratify and confirm the payment of an interim dividend on 21 November 2005; 2. To receive and adopt the reports of the directors, statutory auditor and independent auditors for the year ended 31 March 2006; 3. To receive and adopt the statutory financial statements of the company and the consolidated financial statements of the group for the year ended 31 March 2006; 4. To grant discharge to the directors, officers and the statutory auditor in respect of the execution of their mandates to 31 March 2006; The directors, officers and the statutory auditor of the company are appointed by the company with a one-year mandate, in terms of the company’s articles and Luxembourg Law. It is customary practice to discharge the directors, officers and the statutory auditor from their mandate at the annual general meeting, prior to their re-appointment to office for the following year. The discharge of the mandate does not affect the obligations and liability of the directors, officers and statutory auditors in respect of their duties while in office. 5. To re-elect the following directors for a further term of office in accordance with the provisions of the Articles of Incorporation: – Mr AC Ball – Mr PAB Beercroft – Mr JE Bodoni – Mr BI Childs – Mr JJ Coulter – Mr JA Gnodde – Mr ME King – Mr RJ Koch – Mr AM Rosenzweig – Mr CJ Tayelor – Mr HRW Troskie – Mr SJP Weber – Mr PL Wilmot 6. To receive and act on the statutory nomination of the statutory auditor and the independent auditor for a term of one year ending at the annual general meeting in 2007; 7. To allocate the company’s profits; In terms of Luxembourg Law, the company is required to transfer to a legal reserve a minimum of 5% of the unconsolidated net earnings for each financial year until the reserve equals 10% of its issued share capital. The legal reserve is not available for distribution, except upon dissolution of the company. 8. To approve the declaration and payment of a final dividend for the year ended 31 March 2006 of 10,39 US cents per share and 67,81 cents per share for the shareowners registered on the South African register, (to be paid on 16 August 2006 to those shareowners appearing on the share register as at 3 August 2006). 9. To renew the authority granted to the company to purchase its own shares subject to the following limitations: 9.1 unless a tender offer is made to all shareowners on the same terms and except in case of an emergency where the purchase is carried out to avoid a material loss which the company would otherwise incur, each purchase shall be made through a stock exchange on which the shares in the company are regularly traded and the purchase price shall not exceed 5% above the average market value for the shares on all stock exchanges on which the ordinary shares are listed and have traded for the 10 (ten) business days before the purchase; 9.2 if purchases are by tender, tenders must be available to all shareowners alike; and 9.3 the maximum number of shares that may be repurchased pursuant to this authority shall not exceed 10% of the issued share capital of the company from time to time. This authority shall not extend beyond 18 (eighteen) months from the date of this annual general meeting but shall be renewable for further periods by resolution of the annual general meeting of the shareowners from time to time.

110 Brait Annual Report 2006 B. Special business 10. To renew, in terms of the Law of 10 August 1915 on commercial companies, as amended, and the Listing Requirements of the Luxembourg Stock Exchange, London Stock Exchange and JSE Limited, the authority granted to the board, subject to the terms of the Articles of Incorporation, to issue further ordinary shares, whether for cash or otherwise, as and when suitable situations arise, up to the total authorised capital, without reserving for the existing shareowners a preferential subscription right to subscribe to the shares issued, subject to the following limitations: 10.1 that this authority shall not extend beyond 15 (fifteen) months from the date of this annual general meeting but shall be renewable for further periods by resolution of the annual general meeting of the shareowners from time to time; 10.2 that a paid press announcement giving details, including the impact on net asset value and earnings per share, will be published at the time of any such issue of shares representing, on a cumulative basis within one year, 5% or more of the number of ordinary shares in issue prior to any such issues; 10.3 that issues (excluding shares to be issued pursuant to any share purchase or incentive scheme established for the benefit of the employees of the company and its subsidiaries (“incentive schemes”)) in aggregate in any one year may not exceed 10% of the company’s issued ordinary share capital, provided further that such issues (excluding shares to be issued pursuant to incentive schemes) shall not in aggregate in any three-year period exceed 15% of the company’s issued ordinary share capital; 10.4 that, in determining the price at which such an issue of ordinary shares will be made in terms of this authority, the maximum discount permitted will be 10% of the average market price of the ordinary shares as determined over the 30 (thirty) days prior to the date that the price of the issue is determined or agreed by the directors on all stock exchanges on which the ordinary shares are listed and have traded during that period; and 10.5 that any such securities so issued for cash shall be made to the “public” and will also not result in an affected transaction. Without this authority, the board has no capacity in terms of the company’s Articles to issue shares to settle employee share entitlements. For this reason, the board has proposed that its authority to issue shares is significantly restricted so that any material issues of share capital are taken to shareowners for approval. By order of the board of directors

ME King Senior Chairman

19 June 2006

Note: Any shareowner may, in writing, appoint a proxy, who need not be a shareowner, to represent him at any general meeting. Any company, being a shareowner, may execute a form of proxy under the hand of a duly authorised officer or may authorise in writing such person as it thinks fit to act as its representative at the meeting subject to the production to Brait S.A. of such evidence of authority as the board may require. The instrument appointing a proxy, and the written authority of a representative, together with evidence of the authority of the person by whom the proxy is signed (except in the case of a proxy signed by the shareowner), shall be deposited at the registered office of the company or a transfer office, two clear business days (in the Grand Duchy of Luxembourg or the jurisdiction where the relevant transfer office is located) before the time for the holding of the meeting or adjourned meeting (as the case may be) at which the person named in such instrument proposes to vote. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date of its execution.

A form of proxy is enclosed with this annual report, the completion of which will not preclude a shareowner from attending and voting at the meeting in person to the exclusion of any proxy appointed.

Brait Annual Report 2006 111 ADMINISTRATION

Brait S.A. Registration No: RC Luxembourg B-13861 LEGAL ADVISORS TO THE COMPANY Elvinger, Hoss & Prussen REGISTERED OFFICE 2, Place Winston Churchill Brait S.A. L-1340, Luxembourg 180, rue des Aubépines Tel: +352 446 6440 L-1145 Fax: +352 44 2255 Luxembourg Tel: +352 269255 2180 INDEPENDENT AUDITORS Fax: +352 269255 3642 Deloitte S.A. 560, rue de Neudorf Brait South Africa Limited L-2220, Luxembourg 9 Fricker Road Tel: +352 451 451 Illovo Boulevard Fax: +352 451 452 666 Illovo Sandton DOMICILIARY AGENT AND REGISTRAR South Africa Experta Luxembourg S.A. Tel: +27 11 507 1000 180, rue des Aubépines Fax: +27 11 507 1001 L-1145, Luxembourg Tel: +352 269255 2180 LISTING AGENT Fax: +352 269255 3642 Dexia Banque Internationale à Luxembourg 69, route d’Esch South Africa L-2953 Computershare Investor Services 2004 (Pty) Limited Luxembourg 70 Marshall Street Tel: +352 45901 Johannesburg, 2001 Fax: +352 45902010 Or TRANSFER AGENT/REGISTRAR United Kingdom PO Box 61051 Capita IRG plc Marshalltown, 2107 Bourne House Tel: +27 11 370 5000 34 Beckenham Road Fax: +27 11 688 5200 Beckenham Kent, BR3 4TU JSE and LSE issuer name and code United Kingdom Issuer long name – Brait S.A. Tel: +44 208 639 2157 Issuer code – BRAIT Fax: +44 208 639 2342 Instrument alpha code/Ticker symbol – BAT ISIN – LU 0011857645 Website: http://www.brait.com

112 Brait Annual Report 2006 FORM OF PROXY

BRAIT S.A. Société Anonyme (Incorporated in Luxembourg) (the “company”) R.C. Luxembourg B 13.861 Registered Office: 180, rue des Aubépines, L-1145 Luxembourg Share code: BAT ISIN: LU0011857645 FOR USE IN RESPECT OF THE ANNUAL GENERAL MEETING OF SHAREOWNERS TO BE HELD AT THE REGISTERED OFFICE OF THE COMPANY ON 26 JULY 2006 AT 14:30 Brait S.A. shareowners in South Africa who have dematerialised their shares with a CSDP or broker, other than with Own Name Registration, must arrange with the CSDP or broker concerned to provide them with the necessary authorisation to attend the annual general meeting or the Brait S.A. shareowners concerned must instruct them as to how they wish to vote in this regard.This must be done in terms of the agreement entered into between the Brait S.A. shareowner and the CSDP or broker concerned. I/We (BLOCK LETTERS PLEASE) of (address) Telephone (work) ( ) Telephone (home) ( ) being the holder(s) of Brait S.A. shares, appoint (see note 1): 1. or failing him/her, 2. or failing him/her, 3. the chairman of the annual general meeting, as my/our proxy to act on my/our behalf at the annual general meeting which will be held for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at each adjournment thereof and to vote for or against such resolutions or to abstain from voting in respect of the Brait S.A. shares registered in my/our name(s), in accordance with the following instructions (see note 4): Number of votes For Against Abstain Ordinary resolution number 1 (ratification of interim dividend) Ordinary resolution number 2 (adoption of directors and auditors reports) Ordinary resolution number 3 (approval of financial statements) Ordinary resolution number 4 (discharge of mandates) Ordinary resolution number 5 (re-election of existing directors) • Mr AC Ball • Mr PAB Beercroft • Mr JE Bodoni • Mr BI Childs • Mr JJ Coulter • Mr JA Gnodde • Mr ME King •Mr RJ Koch • Mr AM Rosenzweig • Mr CJ Tayelor • Mr HRW Troskie • Mr SJP Weber • Mr PL Wilmot Ordinary resolution number 6 (nomination of auditor) Ordinary resolution number 7 (allocation of profits to legal reserve) Ordinary resolution number 8 (declaration of dividend) Ordinary resolution number 9 (authority to purchase own shares) Special resolution number 10 (board authority to issue further shares) (Please indicate instructions to proxy in the space provided above by the insertion therein of the relevant number of votes exercisable.) Each Brait S.A. shareowner is entitled to appoint one or more proxies (who need not be a Brait S.A. shareowner) to attend, speak and vote in place of that Brait S.A. shareowner at the annual general meeting. Signed at this day of 2006

Signature(s) Capacity and authorisation (see note 7) Please read the notes on the reverse side hereof. •There is no quorum requirement for resolutions number 1 to 9 and these resolutions will be passed by a simple majority of the shares represented at the annual general meeting. •For the passing of resolution number 10, a quorum of 50% of the shares in the company outstanding is required. This resolution requires the consent of two-thirds of the shares represented at the annual general meeting.

Brait Annual Report 2006 113 NOTES TO FORM OF PROXY

1. A member may insert the name of a proxy or the names of two alternate proxies of the members’ choice in the space(s) provided, with or without deleting “the chairman of the annual general meeting”. The person whose name stands first on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. 2. The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person to the exclusion of any proxy appointed in terms hereof, should such member wish to so do. 3. The chairman of the annual general meeting may reject or accept any form of proxy, which is completed and/or received, other than in compliance with these notes. 4. A Brait S.A. shareowner’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that Brait S.A. shareowner in the appropriate space provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the Brait S.A. shareowner’s votes exercisable thereat. A Brait S.A. shareowner or the proxy is not obliged to use all the votes exercisable by the Shareowner or by the proxy, but the total of the votes cast and in respect of which abstention is recorded may not exceed the total of the votes exercisable by the Brait S.A. shareowner or the proxy. 5. Brait S.A. shareowners in South Africa who have dematerialised their shares with a CSDP or broker, other than with Own Name Registration, must arrange with the CSDP or broker concerned to provide them with the necessary authorisation to attend the annual general meeting or the Brait S.A. shareowners concerned must instruct them as to how they wish to vote in this regard. This must be done in terms of the agreement entered into between the Brait S.A. shareowners and the CSDP or broker concerned. 6. Any alteration to this form of proxy, other than the deletion of alternatives, must be initialled by the signatory/(ies). 7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity (eg on behalf of a company, close corporation, trust, pension fund, deceased estate, etc) must be attached to this form of proxy, unless previously recorded by the company or waived by the chairman of the annual general meeting. 8. A minor must be assisted by his/her parent or guardian, unless the relevant documents establishing his/her capacity are produced or have been recorded by the company. 9. Where there are joint holders of shares: • any one holder may sign this form of proxy; and • the vote of the senior joint holder (seniority determined by the order of the names as recorded in the company’s register of members) by proxy or in person will be accepted to the exclusion of the vote(s) of the other joint shareowner(s). 10. Forms of proxy should be lodged at or posted to the: Transfer Secretaries in South Africa Computershare Investor Services 2004 (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg,2001 (PO Box 61051, Marshalltown,2107) Transfer agents in the United Kingdom CAPITA IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU, United Kingdom so as to be received by no later than 11:30 on Monday, 24 July 2006.

114 Brait Annual Report 2006 2006 ANNUAL REPORT

PARTNERSHIPS BASED ON PASSION, ENERGY AND www.brait.com A PIONEERING SPIRIT OF ENTERPRISE

GRAPHICOR 34156 2006 ANNUAL REPORT

PARTNERSHIPS BASED ON PASSION, ENERGY AND www.brait.com A PIONEERING SPIRIT OF ENTERPRISE

GRAPHICOR 34156