Annual Report 2009 Report Annual
Inspired by Nature Annual Report 2009 www.brait.com
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Contents
1The History of Brait 114 Governance Report 2 The Business of Brait 114 Governance Principles 3Brait Group Activities 116 Governance Structures 3 Annual Highlights 122 Board Profile 5Definitions 124 Remuneration Report 7Chairman’s Message 131 Risk Management Review 10 Management Report 136 Sustainability Review 10 Management Review and Analysis 136 Black Economic Empowerment 15 Financial Review 137 Stakeholders 21 Balance Sheet Review 140 Corporate Social Responsibility 24 Private Capital 143 Employee Report 31 Public Markets 146 Environment Report 34 Salient Features 150 Shareholders’ Diary 35 Group Balance Sheets: Five-Year Review 151 Notice of Annual General Meeting 36 Group Income Statements: Five-Year Review 153 Form of Proxy 37 Group Statistics 154 Notes to Proxy 40 Annual Financial Statements 155 Sustainability Review: Feedback Form 108Group Value Added Statement 156 Administration 109 Share Analysis
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Core Purpose, Vision and Values
1 The History of Brait
1991 • Launch of Brait Private Equity Fund I.
1995 • Launch of Brait Private Equity Fund II.
1998 • The Brait Group established from the merger of the merchant banking interests of Capital Alliance Holdings and the private equity interests of the Capital Partners Group with Tolux S.A., an investment holding company, listed in Luxembourg, London and Johannesburg. • Tolux renamed Brait S.A. • Launch of Brait Fund III and the Brait Technology and Innovation Fund. • Advisory and investing operations established in Mauritius.
2000 • Restructure of the Brait Group into strategic business units comprising advisory services, investment banking, lending, private equity and trading. • Acquisition of the corporate advisory business of Rabin van der Berg and Pelkowitz, which as a result extended the Group’s geographic reach by representation in London and Durban. • Brait enters into a private equity joint venture in Australia with a local brokerage firm.
2001 • Brait Specialised Funds established.
2002 • Decision made to cancel banking licence.
2003 • Deregistered as a bank. • Restructure of Group’s business units into Private Equity, Specialised Funds and Corporate Finance.
2004 • Sale of 26% shareholding of Brait South Africa Limited to Sitogo Holding Limited, the Group’s BEE empowerment partner.
2006 • Launch of Brait Private Equity Fund IV.
2008 • Decision taken to discontinue Corporate Finance operations. • Reorganisation of Group’s business units into Private Capital, Public Markets and Treasury Capital.
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Core Purpose, Vision and Values_continued
2 The Business of Brait Brait is an international investment group. Its business is the structuring, raising and management of investment funds classified as Alternative Assets. The current product-set includes private equity funds, mezzanine debt funds and a range of hedge fund solutions. Additionally, Brait deploys its capital in proprietary investment programmes in these product areas. These investments are made predominantly in South Africa and its region. Investors include leading global and South African institutions.
Brait’s business is segmented between Private Capital operations, which incorporate all activities in the private capital markets, and Public Markets operations, which incorporates all activities in the public or highly traded securities markets.
Our Value Proposition Our reason for existence is that we make a return on the capital we manage that meets or exceeds performance expectations. We are able to do this by delivering repeatable alpha to our capital providers through value recognition and conversion.
Vision We aspire to be the most respected manager of alternative assets in our area of operation, as evidenced by the long-term relationships we develop with investors, both in South Africa and globally, and by the calibre of people who develop long-term careers at Brait and the consistent meeting and exceeding of our investment promise.
Values The values that guide our actions and behaviour and which we believe to be fundamental to our future success are:
Partnership We believe in long-term and enduring relationships that require reciprocal value-add, the meeting or exceeding of expectations, integrity and respect. We believe in shared reward that is fair in relation to contributions.
Performance We believe that our environment is competitive, and that to thrive, we need to set and meet ambitious goals, for ourselves and for the outcomes for which we are accountable.
Pioneering We aim to discover new ideas, themes and new ways of achieving investment outcomes. We like to move speedily and thoughtfully to convert on these. Independence is critical to this.
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Group Activities
3 Brait Group Activities
Private Capital Public Markets Private equity funds Multi-management Proprietary investing Capital management Sponsored funds Mezzanine debt Fund of private equity funds
Annual Highlights
Dividends per Share (Excluding Special Dividends) Attributable Earnings Growth 200 420 393,0 60 178,90 360 338,8 45 150,34 300,8 30% 339,1 160 300 26% 26% 30 133,34 301,4 211,7 267,9 119,32 240 15 120 238,2 166,6 89,89 180 0 R m % c ents 80 120 -15 60 -30 40 0 -45 -51% 0 -60 -60 Mar 05Mar 06MMar 07 ar 08 Mar 09 Mar 05Mar 06MMar 07 ar 08 Mar 09
Profit Target Line (12,5% CAGR) Actual vs Target
Relative Brait Share Price versus JSE General Financial Index Index (2001 = 100) 400 350 300 250 200 150 100 50 0 M ar 02 M ar 0 3 M ar 0 4 M ar 0 5 M ar 0 6 M ar 0 7 M ar 0 8 M ar 09 M ar 0 1 S ept 0 1 S ept 02 S ept 0 3 S ept 0 4 S ept 0 5 S ept 0 6 S ept 0 7 S ept 0 8 Brait share price JSE General
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Annual Highlights_continued
4 Financial Strategic Operational • Earnings • ROE of 13% for 2009 and a five-year • Private Capital – Profit from South African rolling return since 31 March 2005 of – Conclusion of an investment by operations increased by 42% to 23%, slightly below the long-term Brait IV in Buildmax, a JSE-listed R241,9 million (2008: 41% target of 25% business well positioned to decrease) leverage off growth in • Attributable earnings compound infrastructure spending, and – Group profit from operations annual earnings growth rate (CAGR), domestic demand for coal decreased by 21% to measured since 31 March 2005, of R237,3 million (2008: 31% (6%), as a result of a 51% fall in – Follow-on investment made in decrease) current year earnings below the Capital Africa Steel – Headline earnings from continuing 12,5% CAGR trend line (see graph – Acquisition of toehold position in operations decreased by 34% to on page 13) a market-leading South African R166,6 million (2008: 8% company decrease) • Assets under management decrease of 9% for 2009, although the four-year – AEP fully committed • Attributable earnings decreased by CAGR from 31 March 2006 is 50%, – Mezzanine Partners completes an 58% to R166,6 million (2008: 16% well ahead of the target CAGR increase) investment in a leading South objective of 20% African company and realises one • Return on equity 13% (2008: 30%) if its investments • Resilient performance of investment • NAV robust at 1 436,4 cents per products in difficult market conditions, • Public Markets share, increased by 0,3% (2008: with all major products meeting or 19% increase) – Management structure exceeding longer-term performance strengthened • Assets under management (fee targets earning) decreased by 9% to – Improved performance of Brait • Balance sheet and liquidity strong R10,5 billion (2008: 20% increase) Absolute South Africa • Cash generated of R415,1 million – Strong performance by CMT, (2008: R117,4 million) compared to with Brait Multi-Strategy fund cash applied of R279,3 million (2008: yielding 29%, and all other R101 million) products meeting or exceeding performance targets • Strong cash position of R430,1 million (2008: R417,7 million) • Treasury • Annual dividend distribution increased – Treasury Capital had a strong by 19% to 178,90 cents per share performance as a result of BMS (2008: 13% increase) returns as well as positive foreign currency translation gains on US dollar cash and cash equivalents
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Definitions
5 Alpha Beta Diluted Headline Earnings per The y-intercept of the linear regression line The slope of the linear regression line Share (cents) between the portfolio and the market. It is between the portfolio and the market. Beta Diluted headline earnings per share are measured as the manager’s return when measures the proportion of the market risk calculated by adjusting the basic the market return is zero. Alpha can be and return captured by the portfolio. attributable earnings by the after-tax interpreted as the part of the total return effect of any changes in income and generated by the manager that is Black Economic Empowerment expenses that would result from the issue independent of the market return. High (BEE) Partners of shares from dilutive instruments. The alpha values are associated with high Means Sitogo Holdings (Proprietary) resultant earnings are divided by the levels of manager skill. Limited, registration number weighted average number of ordinary 2004/08117/07 and its ordinary Assets under Management shares in issue, including all dilutive (AUM) shareholders collectively, Norho Financial instruments, excluding the number of Services (Proprietary) Limited, registration Assets under management or fee treasury shares. number 2003/025829/07, Usante Capital earning funds under management represents the value of assets that (Proprietary) Limited, registration number Direct Taxation the Group manages on behalf of its 2002/007226/07, Africa Vanguard Capital Direct taxation includes normal South investors. This includes undrawn capital (Proprietary) Limited, registration number African and foreign jurisdiction taxation committed by the investors. 2002/019516/07 and Representative on income, withholding taxes, capital Investments (Proprietary) Limited, gains taxes (CGT) and secondary Attributable Earnings registration number 2003/009405/07. tax on companies (STC). Earnings attributable to shareholders’ funds. Cash and Cash Equivalents Dividend Cover Average Shareholders’ Funds Cash and cash equivalents comprise cash Diluted earnings per share divided by The average of the shareholders’ funds at on hand, deposits held with banks on call, the total dividend per share. the beginning and end of the financial year. investments in money market and funds Basic Earnings per invested with Brait’s hedge fund products. Dividend Yield Share (cents) Dividend per share expressed Closing Price Basic earnings per share are calculated as a percentage of the closing share The closing market price of a Brait share by dividing basic earnings attributable price per share. on the JSE Limited at the Group’s financial to ordinary shareholders by the Earnings per Share weighted number of shares in issue year-end. during the period. Basic attributable earnings divided by the Diluted Basic Earnings per weighted average number of shares in Average Cost of Funding Share (cents) issue, less the number of treasury shares, The average cost of funding is calculated Diluted basic earnings per share are expressed in cents. by expressing the finance charge, which calculated by dividing basic earnings includes interest expense and cumulative attributable to ordinary shareholders by Earnings Yield preference dividends, as a percentage of the fully diluted number of ordinary shares Basic earnings per share expressed as a finance charge bearing liabilities. in issue during the period. percentage of the closing price per share.
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Definitions_continued
6 Effective Tax Rate (%) Headline Earnings per Share Net Asset Value (NAV) per Share The effective tax rate is the direct (cents) (cents) taxation charge per the income Headline earnings per share are calculated Ordinary shareholders’ funds divided by statement expressed as a percentage by dividing headline earnings by the the number of ordinary shares in issue of profit before taxation. weighted number of ordinary shares in (less the number of treasury shares). issue during the period. Fund Management Activities Price Earnings Ratio Fund management activities relate to Brait Hedge of a Net Investment in The closing price per share divided by acting as the fund manager in its Public a Foreign Operation the basic earnings per share. Markets business, and as general partner A risk management technique used to in its Private Equity funds on behalf of its insulate the Group’s US dollar capital base Return on Equity (ROE) (%) investors. Inflows include management invested in South Africa from potential Movement in NAV (after adding back fees and fee income. currency risk specific to the rand. dividends) expressed as a percentage of average NAV. Gearing Holding Company/Company Gearing represents the ratio of Means Brait S.A. a limited liability 1929 Shareholders’ Funds average total assets to average public holding company (Société Anonyme Ordinary share capital, share premium and ordinary shareholders’ equity, and Holding) registration number B-13861, all reserves. Ordinary share capital and incorporated in accordance with the laws therefore indicates the extent to share premium have been reduced by of Luxembourg. which the Group uses debt financing ordinary shares held in treasury. to fund assets. IFRS Treasury Shares International Financial Reporting Group/Brait Brait S.A. ordinary shares held by the Standards, as adopted by the International Means Brait S.A. and its subsidiaries company and/or its subsidiaries. Accounting Standards Board (IASB), and and associates from time to time. Interpretations issued by the International Treasury Capital Headline Earnings Financial Reporting Interpretations Treasury capital refers to both the function For the purposes of definition and Committee (IFRIC) of IASB. of managing the funding and capital calculation the guidance given on Investment Management requirements of the Group, including headline earnings, as issued by the Activities investment of surplus cash and cash South African Institute of Chartered Investment management activities entail equivalents, as well as the related treasury Accountants (SAICA) in circular 8/2007 Brait using its shareholders’ funds or assets and borrowings. of July 2007 has been used. Headline Group capital to invest in its Public earnings consist of basic earnings Weighted Average Shares in Markets or Private Capital products, either attributable to ordinary shareholders Issue on its own or alongside third-party The pro forma number of ordinary shares adjusted for goodwill impairments, investors. Inflows include investment in issue at the beginning of the year, plus profits or losses on disposal of fixed income and capital participations. assets and interests in subsidiaries and ordinary shares issued during the year, less associates. The gains or losses on the Key Management treasury shares acquired during the year, hedge of the net investments in a Means directors of Brait S.A., weighted on a time basis for the period foreign operation are included in Brait South Africa Limited and Brait during which they have participated in the headline earnings. International Limited. income of the Group.
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Chairman’s Message
7 Overview There is a higher tax charge this year, The Year Ahead The global financial crisis has been because a greater proportion of the Despite the turbulence in financial markets, evidenced, inter alia, by the declines on Group’s profits were derived from Brait is confident that in the year ahead it major stock exchanges and the number our South African business than in will continue to enjoy positive previous years. of companies that have had rights issues. developments across its business. The vagaries of the financial markets have Through careful management, we have Further, the Group looks forward to an resulted in the year under review being a conserved our cash resources which improved performance in its Public most challenging one for management. amounted to some R430 million at Markets business. Financially, Brait should year-end. have another soft year in 2010 with Brait’s group profit from operations improvements in 2011 and 2012, subject decreased by 21% and headline earnings Dividend to market conditions. from continuing operations by 34%. The Brait regards regular dividend distributions cause of this decline in earnings is mainly as an important part of long-term Appreciation from the Group’s exposure to Net1 UEPS, shareholders’ wealth creation and an I record my and the Board’s appreciation due to the sharp drop in the price of that indication of the health of the Group. for executive management’s efforts during a troubled year. My appreciation, as share and the Group’s investment Further, the payment of dividends is a before, to our strategic partners, investors, programme with Pangea, where the valuable discipline for management. shareholders and other stakeholders for exposure to junior resource stocks has Having regard to our cash position, the their continued support of the Group. been negatively impacted by global events. Board has resolved to recommend a final dividend of 89,45 cents per share for I am comforted by the continuing strength shareholders. This, together with the of the private equity portfolio, the fact that interim dividend of 89,45 cents per share, our public market businesses performed will result in a total annual dividend of considerably better than last year and 178,90 cents per share, an increase of that our net asset value is robust at 19% compared with the prior year annual Mervyn King 1 436,4 cents per share. dividend of 150,34 cents per share. Chairman
Brait Annual Report 2009 Management Report Real Partnerships
Management Report Management Report Real Partnerships
Management Report Brait front Final .qxd 6/22/09 6:26 PM Page 10
Management Report
10 Management Review and Brait’s investment products. At this point, future capital raising prospects of Analysis a short discussion of the role of alternative Alternative Equity Partners (AEP) are The last annual report referred to the 2008 assets in the strategy of large institutional considered to be more constrained. financial year as a year of two halves – the investment pool is warranted. In essence, There have also been some organisational first being the tail end of the bull market, and to varying degrees, alternative assets changes and fine-tuning, including a and second half being the commencement should provide investors with alpha – that restructuring of Brait’s middle and back of the effects of the USA subprime crisis. part of total return generated by office, with a 20% reduction in the At the time that this was written, the extent investment managers that is independent headcount of the affected areas. of the global financial crisis was not fully of the market return. Brait’s businesses are understood. It is fair to say that the extent built to provide investors in the investment Macro Environment over the Past of it, and its impacts, have now been more products with alpha, for which Brait and its Year and the Year Ahead fully felt, and in many respects these have investment teams are compensated. While not immune to the financial been profound. Strategy and Organisation contagion, a well-capitalised and well- Whilst the global financial system is highly During the year under review, the Strategy regulated banking system has enabled integrated, different economies have Committee met four times and gave detailed South Africa to escape the worst of the experienced the effects to a lesser or greater consideration to the following topics: deepening recession the global economy degree. In South Africa, where the majority • The short-, medium- and long-term is experiencing. Former Finance Minister of the Group’s operations are situated, the outlook for the South African Trevor Manuel described the local effects have not been as severe as in many investment environment. economy as not only being “shovel-ready, other countries. For example, the ALSI • The global financial crisis and but had already begun shovelling” by the declined from 29 627 at the commencement associated issues. time it became fashionable for most G-20 of the reporting period, to close 31% down • The attractiveness of investment industrialised economies to spend their at 20 363. The performance of most major markets on the African continent, way out of trouble. stock exchanges was even worse than this. as they pertain to alternative assets. South Africa is in the fortunate position of Importantly also, South Africa’s banking • The performance of Brait’s having started spending on infrastructure system has shown strength, with all its major businesses, their competitive when it did, now in the fourth year of a banks profitable and, to varying degrees, still positions, their strengths and engaging in their primary purpose – lending, cycle that looks more and more like one weaknesses, and the performance that may continue for at least another at a time when their counterparts around the of their Investment products. world are being recapitalised, very often by 10 years. The fiscal stimulation so far their governments. Brait’s strategy remains largely unaltered – announced takes the form of spending on management is committed to its business infrastructure that releases R787 billion In many respects, this scenario is as articulated in this report, and its over the three-year medium-term analogous to Brait’s own South African purpose, vision and values. Taking account estimates the National Treasury has made. business – whilst our counterparts around of a more difficult investment environment, Other fiscal measures see welfare and the world are showing significant write- and anticipating a more challenging capital dependency benefits taken to some downs and losses, the Company has raising environment, management will be 13 million South Africans, mostly the poor remained profitable albeit at reduced levels limiting its resources and its investor who are likely to be the most affected by – and actively engages in its primary marketing activities to investment products developments in the global economy. purpose – making investments and with longer and more successful track Recognising the coordinated role it has to focusing on the performance of its records. As a consequence, management play in its membership of G-20, the South investment products. has reduced its goals with respect to its African Reserve Bank has complemented Therefore, a gratifying feature of the year Sponsored Funds activities, which will now fiscal stimulation with a series of rate cuts, has been the resilient performance of fall under proprietary investing, and the taking its policy rate 250 basis points
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Management Report_continued
11 lower to 9,50% since last December, with the hope of further Graph 2 – ZAR is still losing its link with the Euro accommodation to follow.
With deep contractions experienced in the supply sectors of the ZAR versus Euro Source – INET, Brait economy, predominantly in manufacturing, which is experiencing 13 1.3
its largest slump on record, it seems unavoidable that the 12 1.2 economy may escape a technical recession. However, with 11 1.1 looming sports events this year and next, and the lag from fiscal 10 1.0 and monetary stimulus that must inevitably reach the real 9 8 economy, there is hope that South Africa may post a modest rate 0.9 7 0.8 of growth this year, amidst what is seen as the greatest challenge 6 the global economy is experiencing since the post-depression 5 0.7 1930s. 4 0.6 1999 2001 2003 2005 2007 2009
Green-shoot signs of recovery have begun emerging in the US. USD/ZAR (LHS) Euro Inverted Against USD (RHS) The unwavering commitment of the Obama administration and the US Federal Reserve to shore up its financial system suggests that Graph 3 – Relative international markets – JSE ALSI, Dow Jones, a fragile, albeit sustainably uncertain, recovery may be under way. NASDAQ (based to 1999) At some point, the lurking danger may, however, be the substitution of deflationary pressures with inflationary adjustments Relative International Market Trends that demand a change in monetary stance that favours a Index (1999 = 100) somewhat restrictive bias in policy by key central banks. 600
Graph 1 – Manufacturing 500 400
Manufacturing Falls into Recession 300 Source – INET, Brait 200 20
15 100
10 0
5 Apr 99 Apr 00 Apr 0 1 Apr 02 Apr 0 3 Apr 0 4 Apr 0 5 Apr 0 6 Apr 0 7 Apr 0 8 Apr 09 0 Dow Jones Index NASDAQ Index JSE ALSI Index -5
-10 Global markets have been dominated by the subprime credit crisis
-15 in developed economies, particularly in the US and Europe. As 1990 1995 2000 2005 more and more financial institutions reported subprime mortgage
OECD Industrial Production %YO SA Manufacturing %YOY losses, the US Federal Reserve began taking emergency measures to restore confidence and liquidity into its financial system, slashing its key rate from 5,25% to 2,0% in a matter of nine months.
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Management Report_continued
12 This approach, while acknowledging rising inflation, chose to focus Relative Equity Market Trends (Index 1999 = 100) instead on protecting what growth there is in the economy. This Source – INET, Brait approach was also followed by the Bank of England, which eased 500 its bank lending rate to 5,0%, from 5,75%. The general trend of lower global rates was, however, not followed by the South African 400 Reserve Bank. Notwithstanding the exogenous food and oil price shocks, a global phenomenon, not at all unique to South Africa, 300
the Monetary Policy Committee of the Reserve Bank, chose to be 200 defensive of the inflation target it is mandated to protect, hiking the repo rate by a cumulative 200 basis points during the period under 100 review to 11,5%. A high inflation, high interest rate environment 0 has inevitably weighed on the real economy, with declining price 1999 1992 2005 2008 growth noted in several household consumption indicators. Electricity outages added to the slower momentum in economic JSE ALSI Dow Jones Industry NASDAQ activity, with GDP growing a pedestrian 2,1% in the first quarter Performance Targets of 2008. Brait measures its performance against certain key objectives. Long-term performance targets have been set for: Looking ahead, a key challenge will be the impact the US • return on equity; recession has on developing economies in so far as, amongst • attributable earnings growth; and other things, commodity prices are concerned. The outcome of • assets under management. elections not only in SA, but also in the US, was likely to redefine economic and political thinking for the next four to eight years. Return on Equity After the South African national elections this year, will economic The Group’s objective is to achieve a long-term return on policy be structured in a way which is more supportive of the shareholders’ funds of 25% as measured over any five-year period. needs of a developing economy? Irrespective of the political outcome, investment spending is expected to remain a strong Brait has generated an annual return on equity of 13% for the theme for the local economy for many years to come. As a result 2009 financial year and a five-year rolling return since 31 March of government’s ambitious infrastructural development programme, 2005 of 23%, which is below the long-term target of 25%. This the economy remains somewhat resilient to the repercussions of target is likely to be missed in the next couple of years due to the poorer growth in more developed economies which are suffering general market decline. Management expects this target to be the fallout of the housing crisis. back on track in the 31 March 2012 financial year.
Growth in Construction Remains Robust Return on Equity 20 50 45,0% 45 41,0% 15 40 35 10 31,1% 30% 30,0% 30 29% 28% 25% 5 25 23% % 20 0 15 13,0% 10 -5 5 -10 0 Mar 05Mar 06MMar 07 ar 08 Mar 09 99 4 99 5 99 6 99 7 99 8 999 2000 200 1 2002 200 3 200 4 200 5 200 6 200 7 200 8 1 1 1 1 1 1 ROE LT ROE Long-term Target Construction (% YOY) Overall GDP Growth (%YOY)
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Management Report_continued
13 Attributable Earnings Growth Assets under Management The Group’s objective is to grow its attributable earnings by 14
12,5% per annum compounded (CAGR), as measured over 12 11,6 10,5 any five-year period. This target is an arithmetic consequence 9,4 10 of the 25% ROE target, and the 50% planned dividend 8 payout ratio. 6,1
Rbn 6
Measured since 31 March 2005, the CAGR has been a negative 4 3,6 4,4 2,5 3,0 2,1 2,1 6% to 31 March 2009, largely as a result of current attributable 2 earnings being 51% below the 12,5% CAGR trend line, as shown 0 in the graph on the opposite page. This target is also likely to be Mar 05Mar 06MMar 07 ar 08 Mar 09
missed in the next couple of years due to the reasons noted under ZAR Target Growth (20% CAGR) ROE above. Factors Affecting Performance Attributable Earnings Growth Operating Environment 420 60 393,0 Market Conditions 360 338,8 45 300,8 30% 339,1 300 26% 26% 30 The past year has been particularly challenging for investment 301,4 240 211,7 267,9 15 managers in the South African and global markets. The turmoil 238,2 180 166,6 0 in global financial markets has seen most equity market indices R m % 120 -15 declining by approximately 30%. While South Africa has been 60 -30 relatively insulated, it has not been immune. 0 -45 -51% Global Recessionary Conditions -60 -60 Mar 05Mar 06MMar 07 ar 08 Mar 09 The slowdown in global growth alluded to in the previous annual
Profit Target Line (12,5% CAGR) Actual vs Target report has developed into a full-blown recession in many of the major global economies. In South Africa, the economy is already in Assets under Management (AUM) recession after a contraction in the economy was reported in the Increased and sustainable growth in AUM is critical to achieving two quarters to 31 March 2009. A number of industries have been continued profit growth. Brait’s objective is to double its impacted due to the decline in global demand. AUM every four years (ie achieve a CAGR of 20% in AUM). Economic Uncertainty It also aims to continue to improve the quality of those assets Uncertainty as to the length and depth of the recession makes in terms of duration, security and fee metrics and ensuring investment decision-making difficult, and results in restraint to that each product offering is optimally sized for its allocating new capital. investment mandate. Value Drivers AUM decreased by 9% in the current year due to some R2,5 million Investment Product Performance withdrawals from the Brait Absolute SA Fund in the Public Markets It has been a difficult year to drive investment product business. The four-year CAGR has been 50%, however, which is performance when on the whole market indices well ahead of target. declined by approximately 30%. Most of the Group’s Lumpy growth is anticipated due to the practice in the private equity products have longer-term performance targets, and it business of raising capital pools over three to five-year cycles. Brait is pleasing to report that the Group’s products in the remains on trade with respect to shortening the cycle between the main continue to meet or exceed these targets over raising of successive private equity funds. these longer time frames.
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Management Report_continued
14 In Public Markets, the performance of the the result of the investment strategy, which segment distinguishes between the actual Capital Management Team’s (CMT) favours investing in companies with strong geographical source of income rather than product suite was particularly pleasing, market positions exposed to growth in the the economic environments which have with most products performing ahead of cash consumer and infrastructure similar specific risks and regulations. target, while the performance of the Brait segments. The nature of the operational income, Absolute SA Fund, managed by the Multi- New Product Development expenses and capital flows of the Management Team (MMT) improved after The rate at which the Group is able to principal business segment activities some changes were made to the bring new products to our institutional are as follows: investment process, and is pleasingly now clients is another important value driver. showing better than median performance • Private Capital In last year’s annual report, we reported in relation to its peer group. In Private – Annuity income flows from fixed launching a number of new products, Capital, Brait III and IV delivered a very long-term contracted including Molash I (Brait sponsored funds creditable 4,5%, bearing in mind that Brait management fees. initiatives), Mezzanine Partners 2, AEP IV is still in its “J Curve” phase. – Investment income and capital (Fund of Private Equity Funds), and Brait participations from fund For the year to 31 December 2008 (being High Alpha (subsequently unwound in investments and proprietary the reporting periods for all but Alternative January 2009). These products have not ‘private equity’ styled transactions. Equity Partner (AEP 1)), the following been able to raise the assets that were – Investing income typically includes returns were delivered by Brait’s targeted, due to institutional investor dividends, interest, investment investment products: constraints in the allocation of assets. gains and capital participations, Accordingly, the gains from these products Private Capital which are market and specific will take longer to materialise. Brait III and IV 4,5% investment dependent. AEP 1 4,2% Deployment of Capital in – The cost structure is Mezzanine Partners 1 and 2 17,2% Proprietary Investing predominantly fixed. The Group is well capitalised, and has – Significant capital is coinvested in Public Markets traditionally deployed balance sheet capital the Group’s private equity funds Brait Multi-Strategy Fund 29,2% into proprietary investing in private equity and, to a lesser extent, on Brait Matrix (launched and hedge funds. The organisation, sponsored funds, mezzanine 1 October 2008) 21,3% decision-making and risk management debt, funds of funds and Brait Ruby Fund 20,9% around proprietary investing was tightened proprietary investments. Lauriston Absolute Fund 0,5% up during the 2008 financial year, with the Brait Absolute SA Fund (3,6%) • Public Markets intention of a more purposeful deployment of – Annuity income flows from The important highlight of the above this capital. The challenges of 2009 dictated contracted management fees. performance is that the private equity prudence and, as a consequence, very – Investment income from seed portfolio held up well, given the difficult limited capital was deployed during the year. capital in the Group’s funds. valuation environment. Brait’s private equity Segmental Analysis of Brait’s – Investment returns typically include portfolio companies have, in aggregate, Operations dividends, interest and investment shown strong improvement in operational Segmental analyses of the Group’s results gains, which are market and performance, which has provided a sound have been prepared for the business and specific investment dependent. underpin to the valuation of assets at geographical segments of Brait’s activities – The cost structure is 31 March 2009. This is considered to be on pages 52 to 55. The geographical predominantly fixed.
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Management Report_continued
15 – Seed capital is invested in the IAS 21 – The Effects of Changes in Foreign its tangible capital in US dollars, Brait has Group’s hedge fund products and Exchange Rates. The Group hedges against continued to hedge the majority of its in emerging hedge funds. the potential depreciation of the South South African rand tangible net assets. African rand through the use of call options • Treasury Capital (see currency hedge below) and the On 24 October 2008, as a result – Treasury related income and adoption of hedge accounting will result in of the Group’s newly adopted hedge expenses. the effects of any rand depreciation being accounting policy, the Group had to – Costs related to group capital and accounted for in equity. Other than the reduce its hedging instruments from hedging costs such as finance above changes, the accounting policies US$61 million as reported at 31 March charges and hedge premium are consistent with those applied in the 2008 to US$40 million, the latter being costs. previous year. the revised US$ equivalent of its net Accounting Policies Presentation Currency investment in the South African operations. This realignment of the hedge The financial statements of the Group are The Group has two functional currencies: prepared in accordance with IFRS as SA rand (rand) for its South African resulted in a net cash inflow to the Group adopted by the European Union, on the operations and US dollar (US$) for its of R211,3 million and an accounting profit going-concern basis using historical cost, international operations. The Group’s of R169,8 million. except when otherwise indicated. The Group financial statements are prepared, The net impact of the hedge is that the adopted hedge accounting prospectively in consistent with its previous year, using Group’s South African rand tangible net respect of both interest rate hedging and the rand as its presentation currency. Group’s net investment in foreign operations assets are effectively covered or (ie South African operations) in accordance Currency Hedge maintained in US dollars. The average with IAS 39 – Financial Instruments: In accordance with the Group’s cover for the year, including inherent Recognition and Measurement and consistently applied policy of preserving hedges, exceeded 90%.
In accordance with its current hedging policy, the Group purchased the following currency call option on 24 October 2008:
Option Nominal Spot rate Forward rate premium amount Duration Maturity date to US$ to US$
Call option US$7,6 million US$40,0 million One year October 2009 R11,6 R12,7844
At 31 March 2009 this option was carried Financial Review The following reconciliation between earnings at fair value on the Group’s balance sheet. Headline Earnings and headline earnings at 31 March 2009 The fair value adjustment had a negative Headline earnings for the prior year has been provided for South African users. effect on the Group’s earnings, resulting exclude the R139,3 million gains from The adjustments to the headline earnings in a loss of R79,5 million for the year below do not necessarily bear any relation (2008: gain of R43,5 million). The hedge the Group’s realisation of its investment to the items disclosed under “capital items” accounting policy is against the intrinsic in Bayport as well as the contribution value of the hedging instrument, not time from the discontinued corporate on page 19. These “capital items” are value, and this effectively means any fair finance business. On this basis, considered “non-operating” and, as a value adjustments below the strike price recurring earnings reduced 34% consequence, are disclosed separately from are charged to the Income Statement. from R253,7 million to R166,6 million. the operating results.
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16 31 March 31 March 2009 2008 Rm Rm
Attributable earnings 166,6 393,0 Headline earnings adjustment – (124,2)
Gain on realisation of investment in subsidiary – (124,2)
Headline earnings 166,6 268,8 Discontinued operations – (15,1)
Headline earnings from continuing operations 166,6 253,7
The prior year adjustment of R124,2 million 20% for the nine months to 31 March these companies were exposed to above relates to the gain realised on 2009. Nevertheless, the share price credit retail chains, which have the disposal of the Group’s investment has been affected, declining from experienced a slowdown in sales in its African-based micro-lending $22,50 at 31 March 2008 to $15,21 resulting in reduced levels of business, Bayport. at 31 March 2009. This resulted in a profitability and reduced valuations. R90 million write-down. Discontinued operations in the prior year refer This has resulted in write-downs of • The Group is exposed to junior to the Group’s Corporate Finance business R33 million. resource stocks, as a part of its segment, which ceased trading during the The variance from planned performance latter part of the 2008 financial year. investment programme with Pangea. This programme has served the Group is isolated to the above events, which are Attributable Earnings well over the years – since 2000, unlikely to be permanent, as they are a The Group’s attributable earnings for the R48 million has been invested and result of valuations at a point in time. year were R166,6 million, a 58% decrease R56 million has been returned, with Overview of Financial Results on the R393,0 million recorded in the the residual exposure held at Brait’s business is best analysed by previous year. R60 million. The junior resource sector separating the fund management and An analysis of the results shows that the has been negatively affected by global investment management operations. In shortfall of performance against plan can events – most especially the junior fund management, Brait acts as the fund be attributed to three items: diamond sector, which has affected manager in its Public Markets business, • The Group has a significant exposure the value of these holdings, most and as general partner in its Private Equity to Net1 UEPS, a Brait III portfolio notably Pangea Diamonds, an AIM- funds on behalf of its investors. company, which is listed on NASDAQ. listed company in which the Group has Brait made this investment in June an investment. The write-down on this Investment management operations entail 2004, at a price equivalent to $3,00 portfolio amounted to R53 million. Brait using its shareholders’ funds or per share. Whilst substantial liquidity • During 2008, the Group sponsored the Group capital to invest in its Public was achieved at $24,00 per share, foundation of Molash Capital, a niche Markets or Private Capital products, either Brait III retained a significant investment firm that made a number of on its own or alongside third-party investment. The company continues to investments in the apparel and non- investors. Returns for Brait include perform strongly at an operational perishable fast-moving consumer investment income and capital level, showing rand earnings growth at goods (FMCG) sectors. Some of participations.
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17 An analysis of the Brait financial results on this basis would be as follows: 31 March 31 March 2009 2008 Variance % Year ended Notes Rm Rm Rm change Brait Group income statement Fund management income 1 283,2 216,5 66,7 31 Fund management expenses 2 (231,9) (207,9) (24,0) 12 Profit from fund management operations 51,3 8,6 42,7 497 Investment income 3 226,9 318,8 (91,9) (29) Investment expenses 4 (40,9) (10,2) (30,7) 301 Profit from investment operations 186,0 308,6 (122,6) (40) Group profit from operations 237,3 317,2 (79,9) (25) Finance costs 5 (59,2) (53,8) (5,4) 10 Capital Items 6 39,1 162,9 (123,8) (76) Profit before taxation 217,2 426,3 (209,1) (49) Taxation 7 (50,6) (33,3) (17,3) 52 Profit for the year/attributable to equity holders 166,6 393,0 (226,4) (58) Notes to the analysis of the Brait financial results Note 1: Fund Management Income Management fees 166,2 183,0 (16,8) (9) Fee income 112,9 23,6 89,3 379 Interest received 4,1 9,9 (5,8) (58) Total fund management income283,2 216,5 66,7 31 The decrease in management fees above relates to the loss of R2 billion of assets under management from Brait Absolute during the year. The fee income has increased by R89,3 million as a result of performance fees earned on Public Markets’ CMT products. Interest received is a function of the average cash balances on hand during the year. Note 2: Fund Management Expenses Advertising, marketing and foundation costs (9,9) (8,9) (1,0) 11 Audit fees and other professional fees (17,6) (19,1) 1,5 (8) Communication and computer costs (12,9) (7,4) (5,5) 74 Depreciation (2,0) (1,6) (0,4) 25 Listing and related costs (3,4) (3,0) (0,4) 13 Rent, travel and insurance costs (16,5) (15,3) (1,2) 8 Salaries and related costs (163,1) (146,5) (16,6) 11 Other costs (6,5) (6,1) (0,4) 7 Total fund management expenses(231,9) (207,9) (24,0) 12 Total increase in fund management expenses of R24 million (12%) is largely in line with inflation. The communication and technology costs increased from prior year as a result of investment in a risk and operations management system for the hedge fund business.
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18 31 March 31 March 2009 2008 Variance % Year ended Rm Rm Rm change
Note 3: Investment Income Investment appreciation: unrealised 162,2 88,6 73,6 83 : realised 2,4 154,5 (152,1) (98) Dividend income 9,4 19,0 (9,6) (51) Income from associate 11,6 4,4 7,2 164 Interest received 41,3 52,3 (11,0) (21)
Investment income226,9 318,8 (91,9) (29)
The investment appreciation arises from the increase in value of capital deployed by Brait into its own products (see segment report for the business unit split). The mark-to-market write-down in the listed investments such as NET1 UEPS and Pangea, in addition to Molash, reduced Private Capital contribution by R171 million from R224,5 million in the prior year to R53,5 million.
This loss was partly offset by a R78,5 million increase in investment income for Treasury Capital. This was driven by the performance of the BMS Fund investment, in which Brait holds its surplus cash, which delivered a 10,9% annual return in US dollars. In addition, the US dollar cash and cash equivalents held resulted in a positive R69,9 million foreign currency gain for the year.
Income from associate relates mostly to Brait’s interest in Medu and reflects the proportionate share of management fees and investment returns.
31 March 31 March 2009 2008 Variance % Year ended Rm Rm Rm change
Note 4: Investment Expenses Fund related expenses (27,6) (14,7) (12,9) 88 Loan impairments and other expenses (13,3) 4,5 (17,8) (396)
Total investing activities expenses (40,9) (10,2) (30,7) 301
Investment expenses relate to Brait’s share of expenses in the private equity and hedge funds in which it has invested its own capital. This includes audit fees, bank charges, professional and consulting fees as well as interest paid on debt facilities, which increased by R12,9 million in the current year.
Loan impairments and other expenses have increased by R17,8 million largely as a result of impairment on loans advanced to portfolio companies.
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19 Note 5: Finance Costs Finance costs relate primarily to the funding cost on the Group’s R450 million preference share capital raised in March 2006 to fund Brait’s internal growth strategy, as well as the cost of short-term funding. The following table sets out the finance cost paid by the Group: 31 March 31 March 2009 2008 Variance % Year ended Rm Rm Rm change
Dividends on preference shares1 (54,2) (48,9) (5,3) 11 Interest on shareholder’s loan2 (0,5) (2,5) (2,0) (80) Interest on bank overdraft (4,5) (2,4) (2,1) 88 Total (59,2) (53,8) (5,4) 10
1 The shares carry a dividend coupon rate of 78% of the South African prime rate of interest. In October 2008, Brait entered into an interest rate swap contract for two years, which effectively fixed the rate on R250 million of the abovementioned preference shares at 11,72%, while the other R200 million still carries a coupon rate of 78% of prime. The increase of R5,3 million from the previous year is as a result of movement in the prime interest rate. 2 Interest paid to Sitogo Holdings (Pty) Limited, the Group’s BEE partner. 31 March 31 March 2009 2008 Variance % Year ended Rm Rm Rm change Note 6: Capital Items Capital items comprise: Profit on restructure of the Group’s hedging instruments 169,8 – 169,8 – The Group’s restructure of its two previous hedges with a nominal value of US$61 million into one with a nominal value of US$40 million resulted in net cash inflow of R211,3 million to the Group, and an accounting profit of R169,8 million. Net currency hedge loss (79,5) 43,5 (123,0) (283) Net fair value adjustment associated with the Group’s consistently applied policy of preserving its net tangible capital in US dollars Fair value adjustment of financial liability (16,3) (12,7) (3,6) 28 This relates to the fair value adjustment of the financial liability relating to Brait South Africa’s 26% sale of its equity to Sitogo Holdings (Pty) Ltd (Sitogo) in 2005 as part of its BEE programme. Fair value adjustment of financial asset (34,9) 7,9 (42,8) (542) This relates to the fair value adjustment of the financial asset that arose as a result of Brait securing an interest in Sitogo as part of the BEE deal in 2005. Gain on realisation of investment in subsidiary – 124,2 (124,2) (100) Realisation of Brait’s interest in Bayport, effective 1 April 2007. Total capital items 39,1 162,9 (123,8) (76)
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20 31 March 31 March 2009 2008 Variance % Year ended Rm Rm Rm change Note 7: Taxation Deferred tax provision (31,6) (28,8) (2,8) 10 Current tax expense (15,4) (2,5) (12,9) 516 Prior year underprovision (0,1) – (0,1) – Secondary tax on companies (STC) (3,5) (2,0) (1,5) 75 Taxation (50,6) (33,3) (17,3) 52
The Group incurred an effective tax rate of this does not impair its solvency, or its ability 8,58 US cents per share, paid on 23% in the current year compared to 8% to finance its business plan. This is arrived at 8 December 2008. for the prior year. This is largely attributable by considering an appropriate payout ratio to – For South African resident to the following two factors: be 50% of targeted ROE of 25%. An equal shareholders registered on the • The mark-to-market write-downs on interim and final dividend is anticipated South African register, the declaration investments were largely incurred on the in future. of the final dividend of 89,45 cents international operations, against which A final dividend per share of 89,45 cents per share in respect of the year no deferred taxation credit arises. per share has been declared and, when ended 31 March 2009 and endorse • At 31 March 2009, the South African added to the interim dividend of the payment of the interim dividend operation has utilised all its taxation 89,45 cents per share, equates to a total of 89,45 cents per share, paid on losses carried forward from the dividend for the financial year of 8 December 2008. previous years in respect of which a 178,90 cents per share – an increase of deferred tax asset had been raised, If approved by the shareholders, payment 19% compared to the prior year annual and hence became liable for normal of the final dividend will be effected on dividend of 150,34 cents per share. taxation. This has resulted in a Tuesday, 11 August 2009 to shareholders R12,9 million increase in tax from Shareholders who receive their dividends registered as such on the record date, R2,5 million to R15,4 million. in US dollars are advised that the final Friday, 7 August 2009. The last day to dividend is 10,55 US cents per share, and trade “cum dividend” will be Friday, 31 July Dividend has been determined using the rand/US 2009 and the share will commence trading The Board believes that dividend dollars exchange rate in Luxembourg at “ex dividend” on Monday, 3 August 2009. distributions are an important part of long- 12:00 on 19 May 2009. Share certificates may not be term shareholders’ wealth creation and an dematerialised between Monday, 3 August Dividend Notice indication of the health of the Group. 2009 and Friday, 7 August 2009, both Members will be asked to approve the Because of the cyclicality of short-term days inclusive. following dividend declarations at the earnings and cash flow, the Group’s annual general meeting of the Non-resident shareholders registered on dividend payment policy is committed to Company to be held on the South African register who prefer their signalling performance against its long- Wednesday, 29 July 2009 dividends to be paid in US dollars, are term targets rather than matching short- in Luxembourg: advised to inform their CSDPs/brokers term cyclical performances. – The declaration of the final accordingly and provide their banking Accordingly, the dividend policy adopted by dividend of 10,55 US cents per details to their CSDPs/brokers by the the Board will be to pay annual dividends share in respect of the year ended required deadline in terms of their totalling 12,5% of the opening net asset 31 March 2009 and endorse the agreements entered into with their value, provided the Board is satisfied that payment of the interim dividend of CSDPs/brokers.
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21 Balance Sheet Review Due to the private equity business forming a significant portion of Asset Profile the Group, this entails that most of our capital is invested in long- Brait’s business is management of alternative assets on behalf term assets, which take an average of five to ten years to realise. of third-party investors. In order to align its interests with its As a result, our balance sheet is fairly illiquid and cash inflows are investors as well as to earn deliverable repeatable alpha for its not easily predictable. shareholders, Brait deploys Group capital as seed capital The asset profile as at 31 March 2009 was as follows: alongside its third investors.
Asset Profile – March 2009: Asset Profile – March 2008: R2 410,0 million R2 383,5 million
4% 4% 12% 8% 6%
6%
18%
53% 18% 49%
7% 15%
Private equity funds Public market funds Quoted investments Treasury cash and capital Unquoted investments Other
Treasury Capital and Public Markets funds at R575,6 million (2008: translation gains on the US dollar cash and cash equivalents had R556,8 million) represent 24% (2008: 23%) of short-term assets a positive impact on the profits. whilst the remaining 76% (2008: 77%) are long-term assets, which Treasury Capital will continue to be held in treasury products have an average maturity profile of five to ten years from date of and in hedge funds appropriate to the risk and liquidity initial investments. This maturity profile of assets has a fundamental requirement of the Group. impact on the capital management approach for the business, as well as the dividend policy. At 31 March 2009, Treasury capital was deployed as follows: Treasury Capital Treasury Capital 800 Treasury Capital includes the management of surplus cash and 296,9 cash equivalents for the Group, the debt facilities, hedging 700 226,0 155,1 strategies, listing arrangements and the BEE arrangement with 600 Sitogo. Surplus treasury capital has been invested in Brait’s Capital 500 400 Markets hedge funds and will be utilised to fund new initiatives and 457,4 380,5 303,6
R m 300 growth plans. 200 100 Profits from Treasury Capital operations increased from 43,4 126,5 0 R34,3 million to R74,9 million. The largest contributor to the year’s (39,7) -100 earnings were the yields earned on the Group’s surplus cash in Mar 08 Average FY09 Mar 09
hedge fund investments. In addition, the foreign currency Other Public Markets Hedge Funds Cash
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22 Capital Management Brait is funded by mainly long-term capital so as to match the maturity of funding with that of expected redemption of the assets. The unpredictability of the realisation of private equity investments further limits the extent of gearing, which the business can utilise as there is limited capacity to service the debt from recurring inflows. As a result, the Group holds a significant amount of cash and cash equivalents of R430 million (2008: R418 million) as a buffer. Brait’s debt: equity ratio is 30% (2008: 30%), which is in the form of R450 million redeemable preference shares, with the balance of Group capital coming from shareholders’ equity, and other liabilities, as shown below:
Capital Management March 2009 Capital Management March 2008 R2 410,0 million R2 383,5 million
Other Liabilities Other Liabilities R436,0m (18%) R414,7m (17%)
Equity and Redeemable Reserves Redeemable Equity and Preference R1 524,0m Preference Reserves Shares (63%) R1 518,8m Shares (64%) R450,0m (19%) R450,0m (19%)
The Board considers the Group to be performance of capital allocated. Key NAV), and hence this measure appropriately capitalised. issues Capco considers in the allocation of becomes highly important to the capital include: Group. The required return therefore Cost of Capital and Required Return • cost of capital for the Group; and takes into account: Capital has traditionally been a scarce • required return to meet the target ROE • the Group’s cost of capital (which resource for Brait for the liquidity issues for the shareholders. includes the before tax ROE target noted above and consequently the Group of 25%); has always preserved and managed its Cost of Capital • the Group’s before tax costs; and capital judiciously. At the same time, Brait The Group’s cost of capital is largely • other strategic consideration for the has had to balance this resource within the prime-linked due to the preference shares, investment. limits of its dividend policy, which has been which are 78% of prime, as well as the to distribute regular and substantial return on equity, which takes into account As a result of the above key inputs, the dividends as part of Brait’s goal of the risk-free return and Brait’s beta to the Group’s key focus is to ensure that: generating incremental long-term wealth equities market. • the cost of borrowing is kept low; accumulation for shareholders. • Group costs are well monitored and Required Return do not create pressure on product The Capital Allocation Committee Brait’s required return is aimed at meeting returns; and (Capco), a subcommittee of the Board, is the five-year rolling target of 25% ROE to • assets meet the required return to responsible for allocating capital to the our shareholders. Our dividend policy is ensure ROE and dividend targets Group’s business units and monitoring the based on 50% of ROE (12,5% of opening are met.
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23 Net Asset Value A useful measure to assess returns to shareholders is the growth Change in NAV (After Adding Back Dividends Paid) 2400 2 222,8 240 2 024,8 in NAV after adding back dividends. 700,1 210% 2000 200 506,0 182% Using the 2005 financial year as a base, the Group’s net asset value 1 606,9 1600 160 has increased by 210% from R718,1 million to R2 222,8 million at 330,8 124% 31 March 2009. The latter amount includes the cumulative dividends 1200 1 141,9 120 166,1 R m % paid during the same period of R700,1 million. 800 757,5 80 39,4 59% The graph highlights that Brait’s NAV has achieved three times 400 40
money since 31 March 2005 (including cumulative dividends paid 5% 0 0 out of R700,1 million). This equates to a 30% IRR for shareholders Mar 05 Mar 06Mar 07MMar 08 ar 09 over the same period. NAV Per Year Cumulative Dividends Paid Cumulative Growth to NAV (Base Mar 04)
Group’s Cash Flows A summarised cash flow statement and an analysis of the movements are disclosed below: Year ended 31 March 31 March 2009 2008 Rm Rm Cash flow statement Cash generated from operating activities 250,7 10,5 Cash flows (utilised in)/generated from investing activities (114,9) 5,9 Cash flows generated from operating and investing activities 135,8 16,4 Dividend paid (188,7) (175,2) Cash outflows from financing activities (4,6) (43,5) Net decrease in cash and cash equivalents (57,5) (202,3) Effects of exchange rate changes on cash and cash equivalents 69,9 52,8 Cash and cash equivalents at the beginning of the year 417,7 567,2 Cash and cash equivalents at the end of the year 430,1 417,7
An analysis of the movement in line item results as disclosed in the Capital investment activities during the year. This mostly cash flow statement is set out below: relates to Brait’s share of Brait IV transactions during the year. The lack of major investment realisations in •Operating activities the current year, largely as a result of the depressed Operating cash flows, including dividends and interest received, increased from R10,5 million in the previous year to equities markets, also contributed to the net cash outflow R250,7 million largely as a result of a net positive cash inflow of from investing activities. 211,3 million from the currency hedge restructure. Performance •Cash flows from financing activities fees from the Public Markets also contributed to the positive The net cash outflow of R4,6 million (2008: outflow cash contributions from operating activities. R43,5 million) largely relates to the R4 million repayment of •Investing activities borrowings in the current year. The Group did not have large The net outflow of R114,9 million (2008: inflow of R5,9 million) borrowings due nor repurchase of Brait SA shares in the current is reflective of the R112 million net investment applied to Private year as was the case in 2008.
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24 At 31 March 2009 the balance sheet was strong with Segmental Review approximately 28% (2008: 28%) of shareholders’ capital held in Private Capital cash and cash equivalents. This balance includes R303,6 million Overview (2008: R457,4 million) of excess treasury capital, which is invested Brait Private Capital comprises: with Brait Public Markets hedge fund products and can be • funds – the management of third-party capital committed by redeemed on short notice. a set of American, European and South African investors, • Net cash generated from operating and investment including Brait and the team, to its private equity funds; activities • proprietary investing – the deployment of Brait’s capital for An analysis of cash generated and cash applied in operating investments in private companies of between R20 million and and investment activities is depicted in the following graphs: R50 million with targeted gross returns in excess of 30%; • sponsored funds – sponsorship of niched investment firms;
Cash Generated • debt funds – management of closed-end mezzanine debt R415,1 million funds; and • fund-of-funds – investment management of unlisted fund-of- Working Capital funds that invests in Brait-sponsored and third-party funds. R10,4m Interest (3%) Received R43,7m (10%) Dividends Brait has held a market-leading position in the management of Received R9,4m third-party capital in Private Equity, having raised and invested (2%) a series of four private equity funds since 1990.
Operations R52,2m (13%) Annual Highlights – Private Capital • Strong operational performance was recorded in Brait’s Realisation of Currency principal investment exposures, in a challenging operating Hedge R299,4m (72%) environment. In aggregate, fund portfolio companies are tracking EBITDA growth over comparable periods of in excess of 20%. • Supported by this strong operational performance, solid investment performance in Brait lll and Brait lV. Cash Applied R279,3 million • Brait lV finalised two substantial portfolio company investments, one in Buildmax Limited and another as a toehold investment, both of which are likely to benefit from the infrastructural spend in South Africa. Premium Paid Finance Costs on Currency 59,2 (21%) • Mezzanine Partners 2 made a second investment. Hedge 88,1 (32%) • AEP 1 became fully committed.
Funds Taxation 17,1 (6%) The earnings stream from these operations are of a high quality, comprising predominantly annuity management fees and capital participation returns on invested capital. Funds are committed for the long term, but are closed-end in nature, usually giving the manager five years in which to draw the committed capital to
Investing Activities 114,9 (41%)
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25 make investments, and a total of 10 to 12 years from the fund’s IRR – Brait III inception to return the capital to investors. 60
The final closing for Brait IV, the current fund in Brait’s series of 44,2% 40 funds, was 21 December 2006 and capital committed is in excess 24,9%
of R6,1 billion. 35,8% 20 Rbn 7,9% Brait IV Analysis of Capital Committed 0 (R6,1 billion) Over 5 years Over 3 years (Converted at Year-end Exchange Rates) -20
European Investors IRR (USD) IRR (Rand) (12%) Fund-of-Funds Cycle 82% of Brait IV is invested at year-end or committed to future
South African investments. There is a strong pipeline of current investment Investors US (18%) opportunities and the expectation is that the fund will be close to Investors (58%) full investment at the end of FY2010. The fundraising process for Brait V is expected to commence in the near future.
Brait (8%) Proprietary Investing (Incorporating Sponsored Funds)
Team (4%) In the past, Brait has experienced success investing its own capital in smaller deals with private equity characteristics. These deals were typically managed by the members of the Private Equity Funds Team. Given the growth in the funds business and the need At year-end, Brait IV is 82% invested and the following to ensure strict avoidance conflicts of interest, or the perception seven deals have been completed: thereof, between Brait and fund investors. Brait established a • Consol Holdings Limited separate team focused purely on proprietary investing. • Nature’s Choice Holdings (Pty) Limited • Capital Africa Steel (Pty) Limited During the year under review, the team took over the responsibility • Premier Foods Limited for managing Molash, and for evaluating new sponsored fund • Primedia Holdings 1 Limited opportunities – these being the sponsorship of investment firms • Buildmax Limited that are able to access investment opportunities to which Brait would not ordinarily be exposed. • Toehold position Whilst a number of opportunities were evaluated, prudence prevailed Investment performance and, other than following commitments made to Molash, no further The five-year IRR for Brait lll in rands is in excess of 40%. proprietary investments or sponsorship of new funds were made. The fund’s objective is to achieve above average US dollar investment returns (>30% IRR) over the life of the fund. The Investment Performance – Sponsored Funds performance on Brait IV is too early to determine. A total of R70,6 million was deployed behind the Molash sponsored fund in the current year. The final closing for Molash 1 raised
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26 R150 million. The fund is currently investing and there have been no Committed Capital – Sponsored Funds realisations to date. As such there is no meaningful IRR calculation. A capital allocation of R50 million per year over three years has The performance target is to achieve a ROE of 30% in three to been approved for Sponsored Funds. four years. Relationships – Sponsored Funds Two of the Molash portfolio companies experienced trading Strong, ongoing relationships have been established with Molash challenges over the December/January period, occasioned by and Medu Capital. below expectation sales of their products at a retail level. Remedial Debt Funds action is under way. Brait has recorded an impairment of some Mezzanine Partners’ primary objective is to achieve superior risk- R33 million in the results for the year. adjusted returns by investing in a wide variety of mezzanine Medu Capital Fund II closed at R880 million and to date financial instruments, including: second lien loans, traditional R19 million has been invested in Medu Capital Fund II through mezzanine loans (with and without warrants), convertible loans, Brait IV. Medu Capital Fund I has had a strong investment PIK notes, and preference or ordinary shares. performance with a current IRR in excess of 50%. After having fully invested its first fund, Mezzanine Partners 1, Investment Performance – Proprietary Investing during the 2008 financial year, Mezzanine Partners successfully The five-year IRR in rands is 39,5%. The objective is to achieve raised capital commitments for its second fund, Mezzanine a return in excess of 30%. Partners 2. The first closing of Mezzanine Partners 2 occurred in February 2008, the month in which it made its first investment. During the period under review, Mezzanine Partners 2 made its IRR – Brait Investment in Proprietary Investments second investment, being an R80 million investment in a portfolio 50 company in the mineral and chemicals sector. Mezzanine Partners 40 39,5% 2’s third investment, a R75 million investment in a portfolio
31,1% 30,6% company in the property sector was made subsequent to the end 30 of the period under review. Rbn 20 During the course of its investing activities Mezzanine Partners has 12,3% 10 evaluated numerous investment opportunities and generated significant co-investment opportunities, which have been taken up 0 by investors in its funds. Mezzanine Partners is continuing with its IRR (Rand) IRR (USD) fundraising process in respect of Mezzanine Partners 2. Over 5 years Over 3 years Investment Performance Mezzanine Partners’ performance target is to achieve a gross Deployment Rate – Proprietary Investing return of JIBAR +9% on its investment portfolio. Performance to A capital allocation of R50 million per year over the next three date is on track to achieve the targeted return. years has been approved for deployment in proprietary investments. Current market conditions have resulted in an Funds under Management improved buying environment. Against this, a more competitive Mezzanine Partners 1 was successfully invested in the 2008 environment at this end of the market has been noted. financial year.
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27 The first closing of Mezzanine Partners 2 occurred in February expected. Due to the limited understanding of the asset class and 2008 with in excess of R560 million under management. the lack of publicly available data on the performance of the asset class, the sales cycle to new investors has proven to be longer Market Conditions than anticipated. As such, most of AEP’s marketing efforts have Demand for mezzanine debt funding as well as the pricing been focused on investor education. conditions and contractual terms have improved materially since the global credit crisis. The potential listing of the fund has been abandoned, though this may be reconsidered should there be an improvement in Fund-of-Funds market conditions. Alternative Equity Partners (AEP) is a private equity fund-of-funds which invests in a range of private equity and mezzanine funds, Market Conditions predominantly in South Africa, but with some capacity to invest on The market conditions are attractive from a buyer’s point of view, the continent. leading to confidence in a conclusion of value appreciation in the portfolio over the medium to long term. The fund has a three-part investment strategy: • Primary funds – where the fund commits to funds prior to their Private Capital Trends final closing. Globally, by any measurement, private equity activity has suffered. • Secondary funds – where the fund purchases interests in Fundraising is down across all types of funds, with many traditional established funds from other investors. private equity investors overcommitted to private equity and forced • Co-investments – where the fund participates in direct assets to look for buyers of their interests in the secondary market. Other alongside its primary funds. investors are waiting to see how their portfolios and valuations The potential listing of the fund has been abandoned, though settle before making new commitments. Transaction activity is also this may be reconsidered should there be an improvement in down, with leveraged buyouts, the deal type which fuelled much of market conditions. the boom in private equity activity, at almost a complete standstill. Debt markets remain effectively closed to these transactions. Investment Performance Global transaction activity is likely to continue to remain muted Target is to achieve returns in excess of long-term equities plus over the next year, as private equity firms focus on nurturing 350 basis points. Over the past year AEP Fund I delivered a bruised portfolios. nominal but positive return on its assets, outperforming both its equity benchmark and our own expectations for a fund-of-funds at However, investors are still committed to the asset class with many this stage of its life cycle. AEP Fund I continued to deploy capital indicating that they intend to increase allocations to private equity to a number of primary funds but was also able to conclude its first over the medium term. There is no doubt that the private equity secondary acquisition. To date AEP Fund I has approved in excess industry will execute on some attractive investment opportunities in of R850 million of commitments to nine private equity and the next few years. Many private equity funds will continue to thrive mezzanine funds. Over R350 million of this is currently invested in using a variety of niche strategies in specialised geographies. 35 underlying assets. In South Africa, activity has also decreased although not to the Funds under Management same extent. In fact, South Africa is relatively better positioned AEP’s first closing in the current year raised a total of R630 million. as a destination for private equity capital than it was in the The fundraising environment has proven to be tougher than boom years. A functioning banking system, robust infrastructure
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28 spend, strong growth in various economic subsectors, Profit from Operations conservative balance sheets and management, and reasonable Profit from operations for the year decreased from R240,7 million valuations make South Africa an attractive private equity to R75,8 million as a result of the mark-to-market write-downs in destination relative to the developed world and many other Net1 UEPS Pangea and Molash as noted above. emerging markets. There will be a number of private equity Profit growth has fallen short of the 12,5% annual growth target as success stories originated in these tough times. Those firms measured in any five-year period with the actual current year with strong franchises, deal flow and track records will continue profits 48% short of the trend line. to be able to fundraise successfully.
Transaction and fund sizes are likely to be smaller, inexperienced players will drop out, fundraising will be extremely challenging and Profit from Operations 280 280 deal styles will shift towards growth and expansion opportunities 242,5 250,2 248,5 240,7 230 230 with minimal leverage, but the asset class, thanks to its strong 180 164% 180 return profile, will continue to attract investors and entrepreneurs 147,0 142% 116,2 130,7 130 130 alike, and will continue to thrive. 81,6% 91,8 103,3 84% 75,8 R m 80 114% 80 %
Financial Results and Commentary for Private Capital 30 30 ROCE -20 -20 Private Capital’s return on capital employed for the year was -48% -70 -70 4,9% on average capital employed of R1,5 billion. Average Mar 04 Mar 05Mar 06MMar 07 ar 08 Mar 09 capital employed was 26% up on the previous year as a result Net Profit BT Target Line (12,5% CAGR) Actual vs Target of the two additional Brait IV investments concluded during the year, and the overall valuation impact of Brait III and Brait IV. Assets under Management The fair value of fund portfolio investments for the Private Capital The long-term return on equity is 18% and has fallen behind business (converted at year-end exchange rates) amounted to the Group’s long-term target of 25%. A resumption is only R8,6 billion at year-end. This represents an increase of 16% anticipated to occur in 2011. compared to the prior year figure of R7,4 billion. The significant increase is largely due to the following events in the current year: ROCE 70 • The completion of two additional Brait IV investments. 60 59,4% • Net portfolio valuation appreciation in Brait III. 50 42,1% 38% Fair Value of Fund Portfolio Investments 40 8 566 33% 9 000 % 30,9% 29% 30 23% 8 000 20,4% 24% 25% 7 439 20 7 000 18% 6 000 10 4,9% 5 000 4 187 0 3 550 4 035 Mar 04 Mar 05Mar 06MMar 07 ar 08 Mar 09 R m 4 000 3 000 ROE LT ROE Long-term Target 2 000 1 572 1 000 0 Mar 04 Mar 05Mar 06MMar 07 ar 08 Mar 09
Brait II Brait III Brait IV Braitec Mezz Sponsored Private Equity Fund- Funds of-Funds
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Management Report_continued
29 AUM are also represented by the funds on which Private Capital Plans and Prospects earns a management fee. Total management fee earning funds In relation to the fund’s investment cycle, Private Capital plans have increased by R0,3 billion to R6,7 billion at year-end, mainly to have fully invested Brait IV by the end of FY2010, and to due to the increased rand value of US dollar fund commitments have completed a first closing of Brait V. The focus of effort will and the investments made by the fund-of-funds business. continue to be on driving the performance of portfolio companies to sustain to strong operating performance in a challenging The AUM CAGR of 27% over the last four years is well in excess operating environment. of the Group’s objective CAGR 20% target. A total of R100 million of capital has been allocated to proprietary Assets under Management investing, which now incorporates the sponsored funds’ activities, 10 with a view to making two portfolio company investments, and one 8 sponsored fund investment.The strategic initiative for Debt Funds 6,4 6,7 is to raise R1,5 billion for a new fund, Mezzanine Partners 3, by the 6 5,8 end of December 2010. 4,3 Rbn 4 3,6 3,4 3,0 2,6 The plans for the successor fund to AEP1 are being reconsidered, 2,1 2 due to the challenging capital raising environment. The focus of effort will be to drive investment performance of AEP1, now that 0 Mar 05Mar 06MMar 07 ar 08 Mar 09 the fund is fully committed.
ZAR Target Growth (20% CAGR) In summary, Private Capital is well positioned, yet in a challenging Private Capital Allocation capital raising environment. Current market conditions are, Total capital allocated within the Private Capital business has however, conducive to making investment transactions at attractive increased by 13% compared to the prior year and amounts to prices. Last year, management pointed to muted earnings R1,6 billion at year-end. The increase is a result of direct investments prospects over the next two years due to the six-year gap between in Brait IV and increased capital participations in Brait III. Brait lll and Brait lV, which has been further dampened by the challenging market environment. Management is, however, confident Allocation of Capital of adhering to performance targets as measured over relevant longer- 1 685,2 1800 1 509,9 term time periods. 1600 1400 Case Studies 534,5 533,0 1200 The case for Private Equity – Brait’s buyout of Consol Limited 1000 In April 2007, Brait Fund IV (Brait) led a consortium of leading local
R m 800 600 and international private equity investors to execute the buy-out and 400 subsequent delisting from the JSE of Consol Limited (Consol), Africa’s 924,7 1 120,9 200 premier glass packaging manufacturer. The transaction was the 50,7 0 31,3 March 08March 09 culmination of months of in-house research and analysis that led to Working Capital Direct Investment in Funds and Capital Participation Proprietary Investments Brait approaching the board of Consol with a proposal that created
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Management Report_continued
30 significant shareholder value and resulted in Brait executing the manufacturer in Africa, from a volume, margins and efficiency buyout in a competitive process initiated by the Board. This perspective, with the company retaining its preferred supplier transaction was unique at the time in that it was the largest public-to- status to most of the major players in the food and beverage private transaction in South Africa, later to be surpassed by Bain sectors. Brait is proud to report that this is being achieved and that Capital’s buyout of Edcon. Significantly, the transaction was the first the company is growing from strength to strength despite the more South African public-to-private transaction that utilised a Eurobond. difficult economic conditions. Since the buyout, the company has Consol was very well received by the European investment shown significant growth at both the revenue and the operating community, with the bond being raised at rates lower than expected, profit level, and Brait expects this to continue. having been nine times oversubscribed. The level of interest in Consol A case for investments in niche private equity firms – Medu Capital by the European investment community endorsed Brait’s assessment Brait forms partnerships with niche investment firms, which of Consol as a prize buyout candidate. operate in defined market areas outside of the markets within Brait had come to the conclusion that Consol was an attractive which Brait would normally operate. target due to factors, such as: One such partnership is with Medu Capital, in which Brait holds a • a strong market share in the South African glass packaging 49% shareholding. Medu Capital is a specialised private equity market; company that partners primarily with established unlisted • high barriers to new entrants into the South African market as businesses in the mid-market sector that require replacement and well as the cost and transport complexities of imports; growth equity risk capital. • a strong management team that Brait felt confident partnering with; In February 2003, Brait provided start-up capital to Medu’s • the high correlation between glass volumes and GDP growth, management company and facilitated the capital raising of Medu with glass volumes traditionally growing at a multiple of GDP; Capital’s funding for their first fund (Medu I), when they raised • the increase in disposable income of an emerging middle class R250 million. Medu I is fully invested in nine companies in the resulting in the increase in expenditure in premium products manufacturing, retail, healthcare, engineering and services sectors. which, from a food and drink perspective, are packaged Medu I’s performance has exceeded expectations, with a gross in glass; and IRR in excess of 55% per annum since inception. • an inefficient capital structure. In May 2008, Medu Capital raised its second private equity fund Working with Consol’s management, Brait and its consortium (Medu II) of approximately R900 million from a number of leading partners have aligned the company for significant growth, with the local and international institutions. To date, Medu II has made four company already having invested heavily in production capacity to investments totalling R220 million. enable it to meet the growing demand for its product. Since the Medu Capital is now an established private equity company in the buyout, Consol has invested approximately R700 million to mid-market sector with funds and assets under management in increase its total production capabilities by some 23%, or in terms excess of R1,5 billion. of South African capacity, an increase of 18%. This investment is in addition to the investment made to maintain existing assets. In With significant funds available for investment, Medu Capital 2008, the company announced a further expansion that will is well positioned to provide equity risk capital for transactions increase its total production capabilities by a further 20%, or the in an environment with increased risk aversion and uncertainty. South African capacity by a further 20%, after the completion of Medu Capital is thus well placed to take advantage of attractive stage one of a two stage expansion. asset valuations.
It is the aim of Brait, the consortium, management and the Board Brait continues to be confident in the founders and leaders of to ensure that Consol remains the premium glass packaging Medu Capital and their entrepreneurial spirit.
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Management Report_continued
31 Public Markets Investment Performance Overview Investment performance for the 12 months ended 31 December Brait’s public markets activities are focused on the management of 2008 was exceptional from CMT’s perspective, but disappointing hedge fund products, with the investment management activities from MMT. being undertaken within two business units: a multi-manager and a In CMT, the Brait Multi-Strategy Fund returned 29,2%, the Brait Ruby capital manager. Fund returned 20,9% and the Brait Matrix Fixed Income Fund • Brait’s MMT is responsible for managing the fund-of-hedge fund returned 21,3% over its first six months since being launched. product range, including the flagship Brait Absolute SA Fund. These net returns, which exceed target returns, are similar to those • Brait’s CMT is responsible for managing a range of single generated during the 2008 calendar year, which is the period over and multi-strategy hedge funds, including the Brait Multi- which performance fees are earned. The performance of the fixed Strategy Fund, the Brait Matrix Fixed Income Fund and the income and volatility disciplines, in particular, were outstanding, while Brait Ruby Fund. the short equity discipline performed strongly, taking advantage of the Brait remains a significant participant in the South African hedge fund falling equity markets. industry, despite the current year’s reduction in assets under In MMT, the Brait Absolute SA Fund returned net performance of management. Since the inception of its hedge fund operations in 0,4, which places it ahead of the median of fund-of-hedge funds in 2001, Brait has built up significant experience in the management of the Alexander Forbes Hedge Fund Manager Watch. On a relative hedge fund portfolios, pertaining both to underlying funds and fund- basis, this performance is satisfactory, but remains behind the fund’s of-hedge funds, and developed a detailed understanding of the benchmark performance target. requirements of the South African institutional investor when ROCE considering alternative investments. ROCE at 37% for the financial year exceeded the Group’s 25% target The Company invests capital alongside its clients into these products, return, due to a greater proportion of capital being deployed into utilising both product seeding capital and invested treasury capital. CMT’s high return targeting products. The long-term return on capital The business’s industry experience and considerable investment in employed, remains below the 25% target at 20%. infrastructure and risk management capabilities has enabled the provision of hedge fund solutions that meet the high standards Return on Capital Employed required by institutional investors. 45 40 37% Public Markets’ income comprises: 35 33% 10,5 • fees earned from the management of funds, which are 30 significantly influenced by: 25 25%
% 19% 20% – assets under management and 20 16% 15% – investment performance; and 15 10 • investment returns generated from the investment of Brait’s 6% 7% 5 6% capital in these products. 0 Mar 05Mar 06MMar 07 ar 08 Mar 09 Annual Highlights – Public Markets • Significant improvement in divisional profitability, despite the ROE LT ROE Long-term Target challenging operating environment. • Exceptional investment performance from CMT. Profit from Operations • Successful launch of Brait Matrix Fixed Income Fund on Profit from operations increased by 220% to R86,6 million due to the 1 October 2008. increase in performance fee income earned by CMT products. This • Organisational structure adjusted to realign the focus of positive growth was to a limited extent offset by the reduction in investment teams and business management. management fee income coupled with an increase in the divisional cost base.
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Management Report_continued
32 Growth in profit from operations averages 85,59% measured Trends in the Hedge Fund Industry over the most recent five-year period against the Group’s International Perspective target of 12,5%. Globally, the hedge fund industry has continued to raise assets and grow in influence within the financial markets, with an estimated Profit from Operations 90 86,6 900 US$2 trillion in assets under management. However, the industry has 80 800 come under increasing pressure to address its negative image that 70 700 arises from a perception that it is potentially an unregulated and 641 60 600 unduly powerful force in the financial markets, where for example it 50 500 43,3 has been accused of fuelling the subprime credit crisis. The industry 40 400 % 369 does, however, provide the global financial markets with improved 30 27,1 300 liquidity and investors with an increased opportunity to find alternative 20 8,21% 200 7,3 8,3 9,24% 10,39% 11,69% 10 100 sources of alpha under volatile market conditions, a factor that 1 1 61 0 0 institutional investors recognise. Mar 05Mar 06MMar 07 ar 08 Mar 09 In response to these perceptions, industry participants undertook a Profit Target Line (12,5% CAGR) Actual vs Target review of the industry resulting in two independent reports being issued, one from the United States and the other from the United Assets under Management Kingdom1. These reports provide industry guidance on recommended Third-party AUM decreased by 37,7% to R3,3 billion as a result of best practice when managing a hedge fund business and pre- net outflows of R2,0 billion. At the end of the year, CMT had AUM empting the introduction of regulation by relevant regulators. Both of R1,4 billion, of which the Brait Multi-Strategy Fund comprised reports focus on similar aspects, broadly being disclosure, valuation, 62%, while MMT had AUM of R3,1 billion, all in the Brait Absolute risk, fund governance and shareholder conduct. SA Fund. The successful launch of the Brait Matrix Fixed Income Fund in October 2008 contributed R136,7 million to AUM at the The second half saw the implosion of the US subprime debt markets end of the year. and its negative impact on global credit markets, resulting in the collapse of a number of hedge funds with exposure to these markets. Despite the fact that the Brait Absolute SA Fund managed to protect capital over the period, the fund suffered significant outflows, The subsequent deleveraging of funds and reduction in overall risk principally as a result of not achieving targeted cash plus returns. appetite of investors, particularly in the US and Euro zones, has had a noticeable impact on the industry, most visibly in the heightened Growth in AUM slowed in the current year due to R2,5 billion net attention being paid to the existence of robust risk management withdrawals from Brait Absolute, but overall remains ahead of the practice at hedge fund managers. Despite these challenges the Group’s 20% CAGR target, and currently averaging 82% over the industry is expected to continue to grow through 2008, with five-year period since 31 March 2005. estimated capital inflows of $200 billion2 and expected top investment performance to come from funds focused on the Middle East, North Assets under Management 6 Africa and Asia (ex Japan) and Latin America. 5,3 5 South African Perspective 3,9 4 In South Africa, the hedge fund industry has been largely unaffected 3,3 by the global credit crisis. However, while the South African equity 3 2,7
Rbn markets continued to provide reasonable returns, these have been 2
1 1 Best Practices for the Hedge Fund Industry – Report of the Asset 0,3 0,5 0,6 0,4 0,4 Managers Committee to the President’s Working Group on Financial 0 Mar 05Mar 06MMar 07 ar 08 Mar 09 Markets (April 2008) and Hedge Fund Standards: Final Report – Hedge Fund Working Group (January 2008). AUM Target Growth 2 Deutsche Bank Alternative Investment Survey (May 2008).
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Management Report_continued
33 concentrated in the large market cap resource stocks, while medium Through product innovation that is focused on catering to the and small cap industrial and financial stocks delivered weaker specific requirements of our targeted investors we aim to ensure performance and more volatility. These latter markets are where the that we gather assets from a broad spectrum of investors and majority of hedge fund managers seek opportunity and, as a result, retain our existing assets under management despite the changing industry investment performance on the whole has been muted. needs of these investors. All products have targeted return and risk objectives that are clearly defined and which offer important The increased focus on risk management has not been ignored portfolio diversification benefits to traditional portfolios. in South Africa, with institutional investors and consultants paying more attention to this important aspect when making decisions to The Company invests alongside its clients in its products, place capital with hedge fund managers. with seed and/or treasury capital. Considerable industry experience and significant investment in infrastructure and risk The local industry has continued to grow steadily with an estimated management capabilities across the business has enabled the R30 billion in assets under management, managed in approximately provision of institutionally acceptable hedge fund solutions. 130 funds. This growth represents a 30% increase in assets under management over the prior 12-month period. The investment Prospects strategies that dominate the local market have not changed with The operating conditions discussed under “Factors Affecting equity strategies (long/short and market neutral) being in the majority Performance” on page 13 have presented Brait with some with the next largest group, multi-strategy funds, seeing small growth. challenges, notably reduced fair value of assets, with price/earnings Collectively these strategies account for over 70% of all assets multiples generally reducing in assets held in its portfolio, and a managed3. significantly more constrained investor environment.
From a regulatory perspective a more onerous hedge fund manager The alternative asset industry has been in the spotlight recently, as specific category of licence, which became effective from 1 May concern has been expressed by administrations of many leading 2008, was introduced by the Financial Services Board in terms of the economies about the perceived lack of regulatory oversight of this Financial Advisors and Intermediary Services Act. asset class, particularly hedge funds. This in turn has led to some negative perceptions. Brait retains its conviction in the benefits of Strategic Focus – Public Markets alternative assets to the capital markets, as evidenced by the Brait Public Markets remains focused on delivering performance gains achieved by investors in well structured and managed excellence, primarily in terms of investment returns from its funds, but private equity and hedge funds. Brait is confident that this negative also within its business operations and by its employees. Investment sentiment will dissipate. In the meantime, Brait is actively engaged performance remains the core measurement of success for the in the relevant industry forums, and is working with the relevant business, due to its influence on capital flows and Brait therefore regulatory bodies to further develop the prospects for this employs an experienced and incentivised team of investment asset class. professionals to manage its funds. Brait’s investment teams are market leaders. We have performed Our ability to maintain a premium fee model is based on the well in our primary purpose this year – we have continued to appropriate capital allocation to investment strategies that generate deliver on the performance expectations of our investors and, alpha for investors. To this end Brait’s focus is on making use of where this has not been the case, action has been taken. hedge fund strategies, either directly or via its fund-of-funds, to deliver sustainable alpha to its investors in all market conditions. In this In financial terms, we expect another soft year in 2010, an process Brait aims to identify and secure scarce capacity with improvement in 2011, and a return to the ROE and profit growth exceptional hedge fund managers, through meaningful investment in targets by 2012, dependent of course on market conditions, which their funds and the seeding and support of emerging managers. could either delay or accelerate this process.
3 Novare South African Hedge Fund Survey (October 2007).
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Salient Features for the year ended 31 March
34 Supplementary US$ information1 2008 2009 2009 2008 Change US$m US$m Rm Rm % 42,4 26,8 Profit from operations 237,3 302,1 (21,4) 33,8 8,5 Private Capital 75,8 240,7 3,8 9,8 Public Markets 86,6 27,1 4,8 8,5 Treasury capital 74,9 34,3 (7,5) (6,7) Finance costs(59,2) (53,8) 22,8 4,4 Capital items 39,1 162,9 57,7 24,5 Profit before taxation 217,2 411,2 (47,2) (4,7) (5,7) Taxation (50,6) (33,3) 53,0 18,8 Profit from continuing operations 166,6 377,9 (55,9) 2,1 – Profit from discontinued operations2 – 15,1 55,1 18,8 Profit for the year/attributable earnings 166,6 393,0 (57,6) Performance Measures Headline earnings per share from continuing operations (cents) 33,5 17,7 – Basic 157,0 239,1 (34,3) 33,3 17,7 – Diluted 156,6 237,4 (34,0) Headline earnings per share (cents) 35,5 17,7 – Basic 157,0 253,3 (38,0) 35,3 17,7 – Diluted 156,6 251,5 (37,7) Attributable earnings per share (cents) 51,9 17,7 – Basic 157,0 370,3 (57,6) 51,6 17,7 – Diluted 156,6 367,7 (57,4) 20,80 19,13 Dividends per share (cents) 178,90 150,34 19,0 9,00 8,58 – Interim paid 89,45 59,07 11,80 10,55 – Final proposed/paid 89,45 91,27 176,9 151,0 Net asset value per share (cents) 1 436,4 1 431,5 0,3 20,0 (3,0) Return on equity (%) 13,0 29,9 Financial Statistics 278,6 117,1 Market capitalisation 1 114,1 2 254,6 (50,6) 106,1 106,1 Shares in issue (m) 106,1 106,1 0,0 Weighted average shares in issue (m) 106,1 106,1 – Basic 106,1 106,1 (0,0) 106,9 106,4 – Diluted 106,4 106,9 (0,5) 262,6 110,4 Closing share price (cents per share)1 050,0 2 125,0 (50,6) Rand/US$ exchange rates 0,1236 0,1051 – Closing 9,5124 8,0922 0,1403 0,1129 – Average 8,8587 7,1260 1 The disclosure above is for information purposes and does not form part of the Group financial statements. 2 The Corporate Finance operation was discontinued during the previous year.
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Group Balance Sheets Five-year review
35 2009 2008 2007 2006 2005 Rm Rm Rm Rm Rm Assets Non-current assets 1 885,0 1 820,4 1 247,8 978,8 755,6 Goodwill – – 16,7 15,4 – Property and equipment 3,7 5,0 19,6 11,7 8,1 Investments in associates 27,3 14,0 13,8 38,3 69,3 Private Capital investments 1 653,9 1 459,2 954,7 710,9 516,0 Public Markets investments 145,5 139,1 123,3 111,2 124,1 Financial assets 48,5 192,4 95,8 55,5 – Term loans 6,1 10,7 16,7 18,5 22,5 Deferred tax asset – – 7,2 17,3 15,6 Current assets525,0 563,1 1 074,4 929,1 384,3 Other current investment 65,4 82,8 80,0 98,8 – Loans and advances 0,6 2,3 321,4 234,1 160,4 Accounts receivable 28,9 60,3 105,8 20,4 61,7 Cash and cash equivalents 430,1 417,7 567,2 575,8 111,1 Non-current assets held for sale – – – – 51,1
Total assets 2 410,0 2 383,5 2 322,2 1 907,9 1 139,9 Equities and Liabilities Equity Share capital and premium 256,2 256,1 257,4 264,2 453,2 Legal reserve 29,1 22,6 19,1 18,4 18,4 Foreign currency translation reserve 114,3 85,1 (29,0) (150,6) (144,6) Retained reserves 1 093,2 1 125,6 946,6 780,2 363,7 Equity reserve 31,2 29,2 27,6 24,3 18,6 Minority interest – 0,2 54,4 39,3 8,8 Total equity1 524,0 1 518,8 1 276,1 975,8 718,1 Liabilities Non-current liabilities692,4 645,1 636,2 612,7 180,3 Redeemable preference shares 450,0 450,0 450,0 450,3 – Deferred tax liabilities 70,5 38,9 10,1 – – Financial liability 168,6 152,9 140,0 92,0 – Non-current borrowings 3,3 3,3 36,1 70,4 180,3 Current liabilities193,6 219,6 409,9 319,4 241,5 Accounts payable 94,6 108,1 116,1 102,5 94,3 Provisions 26,7 24,3 38,5 35,8 21,8 Liabilities directly associated with non-current assets held for sale – – – – 82,4 Current borrowings 67,6 84,8 240,8 174,3 36,8 Taxation 4,7 2,4 14,5 6,8 6,2
Total liabilities 886,0 864,7 1 046,1 932,1 421,8 Total equity and liabilities 2 410,0 2 383,5 2 322,2 1 907,9 1 139,9
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Group Income Statements for the year ended 31 March
36 2009 2008 2007 2006 2005 Rm Rm Rm Rm Rm
Revenue 334,1 272,6 470,6 293,1 281,2 Other income 164,4 243,2 276,1 307,1 204,9
Total revenue and other income 498,5 515,8 746,7 600,2 486,1
Profit from operations 237,3 302,1 438,9 326,9 302,8
– Private capital 75,8 240,7 248,5 250,2 242,1 – Corporate finance – – – 5,8 0,6 – Public markets 86,6 27,1 43,7 8,3 7,5 – Treasury capital 74,9 34,3 146,7 62,6 52,6
Finance cost (59,2) (53,8) (45,1) (15,4) (15,7) Capital items 39,1 162,9 (30,4) 23,9 (69,7)
Profit before taxation 217,2 411,2 363,4 335,4 217,4 Taxation (50,6) (33,3) (48,6) (17,3) (3,1)
Profit from continuing operations 166,6 377,9 314,8 318,1 214,3 Profit from discontinued operations – 15,1 45,1 – –
Profit for the year 166,6 393,0 359,9 318,1 214,3 Minority interest – – (21,1) (17,3) (2,6)
Attributable earnings 166,6 393,0 338,8 300,8 211,7 Ruling Exchange Rates
Average rate – R/US$ 8,8587 7,1260 7,0435 6,3979 6,2503 Closing rate – R/US$ 9,5124 8,0922 7,2550 6,1765 6,2395
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Group Statistics Five-year review
37 2009 2008 2007 2006 2005 Rm Rm Rm Rm Rm Share Statistics Shares In issue (total) (m) (including treasury shares) 110,5 110,5 110,5 110,5 102,3 Weighted average – Basic (m) 106,1 106,1 102,5 90,6 89,3 – Diluted (m) 106,4 106,9 106,9 103,0 97,7 nEiarngs per share Headline (cents) – Basic 157,0 253,3 314,1 291,7 237,1 – Diluted 156,6 251,5 301,5 256,7 216,7 Attributable (cents) – Basic 157,0 370,3 330,4 331,9 237,1 – Diluted 156,6 367,7 316,9 292,1 216,7 Dividends (cents) 178,90 150,34 133,34 119,32 89,89
– Interim (paid) 89,45 59,07 59,40 51,51 21,47 – Final (proposed/paid) 89,45 91,27 73,94 67,81 68,42
Dividend cover* (times) 0,9 2,4 2,4 2,4 2,4 Dividend yield•* (%) 17,0 7,1 4,6 4,8 7,7 Net asset value per share (cents) 1 436,4 1 431,5 1 208,0 961,6 813,0 Key Ratios Return on total assets (%) 7,0 16,7 16,0 19,7 21,8 Return on equity (after adding back dividends) (%) 13,0 29,9 41,3 45,4 32,0 Price/earnings ratio (historical) 6,7 5,7 8,8 7,5 4,9 Earnings yield (%) 15,0 17,4 11,3 13,3 20,3 Other Statistics Number of employees at year-end 116 109 93 95 103 Attributable earnings per employee (R’000) 1 436,2 3 605,5 3 643,0 3 166,3 2 055,3 Total assets 2 410,0 2 383,5 2 322,2 1 907,9 1 139,9 Shareholders’ funds 1 524,0 1 518,8 1 276,1 975,8 718,1 Average shareholders’ funds (after adding back dividends) 1 521,37 1 397,5 1 126,0 847,0 638,5 Public Markets assets under management 3 843,8 5 750,0 4 070,8 3 160,9 403,7 Private Capital committed funds 12 143,6 13 406,1 11 448,0 6 636,6 4 325,3 Attributable earnings 166,6 393,0 338,8 300,8 211,7
* On attributable earnings. • Excluding special dividends.
Brait Annual Report 2009 Financial Statements Growing Together 10 20 30 40 50 0 2000 2001 2002 2003 2004
Financial Statements Financial Statements Growing Together 10 20 30 40 50 0 2000 2001 2002 2003 2004
Financial Statements Brait financials final.qxd 6/22/09 6:28 PM Page 40
Contents
40 41 Directors’ Responsibilities and Approval 42 Report of Independent Auditors 43 Directors’ Report 47 Introduction to the Financial Statements 48 Group Income Statements 49 Group Balance Sheets 50 Group Cash Flow Statements 51 Group Statements of Changes in Equity 52 Business and Geographical Segmental Reports 56 Accounting Policies 65 Notes to the Group Financial Statements 105 Principal Subsidiaries and Associated Companies
106 Supplementary Information 108 Group Value Added Statement 109 Share Analysis
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Directors’ Responsibilities and Approval
41 Statement of Directors’ a clearly defined framework, effective The Group consistently adopts appropriate Responsibilities in Relation to accounting procedures and adequate and recognised accounting policies and the Financial Statements segregation of duties; and these are supported by reasonable and The following statement, which should be • the Group Audit and Risk Committee, prudent judgements and estimates on a read in conjunction with the auditors’ together with the external and internal consistent basis. statement on their responsibilities set auditors, plays an integral role in matters relating to financial and The directors have no reason to believe out in their report on page 42, internal control, accounting that the Group as a whole will not be a is made with a view to distinguish for policies, reporting and disclosure. going concern in the year ahead, shareholders the respective responsibilities The Group Audit and Risk Committee based on forecasts and available cash of the directors and auditors in relation to is satisfied that the external auditors resources. These financial statements the financial statements. are independent. have accordingly been prepared on that The directors are responsible for the To the best of their knowledge and belief, basis. The external auditors concur with preparation, integrity and objectivity of the the directors confirm: this statement. consolidated financial statements that fairly • the consolidated financial statements It is the responsibility of the independent present the state of affairs of Brait S.A. of the Group presented in this Annual external auditors to report on the and its subsidiaries (the Group) at the end Report and established in conformity consolidated financial statements. Their of the financial year and the net income with IFRS as adopted in the European report to the members of the Group is set and cash flows for the year, and other Union give a true and fair view of the out on page 42 of this report. information contained in this report. assets, liabilities, financial position and profit of the Group included within the To enable the directors to meet these Approval of Financial consolidation taken as a whole; responsibilities: Statements • the management report includes a fair • the Board and management set The directors’ report and the financial review of the development and standards and management statements of the Group, which appear performance of the business and implements systems of internal control position of the Group included within on pages 43 to 105 were approved by the and accounting and information the consolidation taken as a whole, Board of directors on 19 June 2009 and systems aimed at providing reasonable together with a description of the are signed on its behalf by: assurance that assets are safeguarded principal risks and uncertainties faced and the risk of error, fraud or loss is by the Group; and reduced in a cost-effective manner. • they are satisfied that no material These controls, contained in breakdown in the operation of the established policies and procedures, systems of internal control and ME King AC Ball include the proper delegation of procedures has occurred during the Chairman Group Chief responsibilities and authorities within year under review. Executive
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Report of Independent Auditors
42 Report on the Consolidated Institut des réviseurs d’entreprises. Those performance and its cash flows for the Financial Statements standards require that we comply with year then ended in accordance with We have audited the accompanying ethical requirements and plan and International Financial Reporting Standards consolidated financial statements of Brait perform the audit to obtain reasonable as adopted by the European Union. Société Anonyme Holding Group (the assurance whether the consolidated Group), which comprise the consolidated financial statements are free from Supplementary Information balance sheet as at 31 March 2009, and material misstatement. The supplementary US dollars (US$) information presented in the Group’s the consolidated income statement, An audit involves performing procedures to consolidated statement of changes in consolidated financial statements is obtain audit evidence about the amounts presented for the convenience of the equity and consolidated cash flow and disclosures in the consolidated statement for the year then ended, and a users of these financial statements. This financial statements. The procedures information has not been audited by us summary of significant accounting policies selected depend on the auditor’s and other explanatory notes, as set out on and accordingly we do not express an judgement, including the assessment of opinion thereon. pages 43 to 105 and the remuneration the risks of material misstatement of the report on pages 124 to 130. consolidated financial statements, whether The directors’ report, which is the responsibility of the Board of directors, Board of Directors’ due to fraud or error. In making those risk assessments, the auditor considers is consistent with the consolidated Responsibility for the financial statements. Consolidated Financial internal control relevant to the entity’s Statements preparation and fair presentation of the Deloitte S.A. consolidated financial statements in order The Board of directors is responsible for Réviseur d’ enterprises to design audit procedures that are the preparation and fair presentation of appropriate in the circumstances, these consolidated financial statements in but not for the purpose of expressing accordance with International Financial an opinion on the effectiveness of the Reporting Standards as adopted by the entity’s internal control. European Union. This responsibility includes: designing, implementing and An audit also includes evaluating the Sophie Mitchell maintaining internal control relevant to the appropriateness of accounting policies Partner preparation and fair presentation of used and the reasonableness of 19 June 2009 consolidated financial statements that are accounting estimates made by the Board free from material misstatement, whether of directors, as well as evaluating the due to fraud or error; selecting and overall presentation of the consolidated applying appropriate accounting policies; financial statements. We believe that the and making accounting estimates that are audit evidence we have obtained is reasonable in the circumstances. sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Responsibility Our responsibility is to express an opinion Opinion on these consolidated financial statements In our opinion, the consolidated financial based on our audit. We conducted our statements give a true and fair view of the audit in accordance with International financial position of the Group as of Standards on Auditing as adopted by the 31 March 2009, and of its financial
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Directors’ Report
43 The directors have pleasure in presenting (2008: 2 752 476) that have been R450 million preference share capital to their report to shareholders, together with repurchased by the Company under the provide additional capital to leverage the the audited financial statements for the authority, in terms of the Company’s Group’s internal growth strategy. financial year ended 31 March 2009. Articles of Incorporation, granted at the A total of 450 000 (four hundred and fifty previous annual general meeting. Nature of Business thousand) cumulative redeemable Brait is an international investment Group. Unissued Shares preference shares were issued at a par At the forthcoming annual general Its business is the structuring, raising and value of R0,01 and a premium of R999,99 meeting, members will be asked to place management of investment funds that are per share. These shares carry a dividend the unissued shares in the capital of the typically classified as Alternative Assets. of 78% of the South African prime interest Company under the control of the The Group has its primary listing on the rate and are redeemable (at issue price) in directors in terms of the provisions of the Luxembourg Stock Exchange and also has four tranches on 31 July of each year Company’s Articles of Incorporation. secondary listings on the JSE Limited and commencing in 2010 until 2013. London Stock Exchange. The Group has It should be noted that in terms of the During the current year, the Group entered shareholders’ funds of R1 524 million as at Articles the directors may not issue shares into a variable to fixed interest rate swap 31 March 2009 and diverse earnings from in any one year, whether for cash or contract which effectively fixes the interest the following activities: otherwise, if the issue exceeds 10% of the rate on R250 million of the above • Private equity management fees and Company’s issued ordinary share capital preference shares at 11,72% until investment returns. and such issues shall not in aggregate in 31 October 2010. Hedge accounting is • Specialised funds management fees any three-year period exceed 15% of the and investment returns. Company’s issued ordinary share capital. applied to this swap contract. • Treasury-related income and Including the abovementioned debt raised, capital flows. Renewal of Authority for the Repurchase of Shares the total borrowings in the Group remain well within the maximum limit of 150% of Share Capital The conditions relating to the repurchase the total capital and reserves of the Authorised by the Company of its own shares are Group as stipulated in the Company’s The authorised share capital of the governed by the Company’s Articles of Articles of Incorporation. Company comprises 150 000 000 ordinary Incorporation which provide, inter alia, that this authority shall not extend beyond the shares of no par value. Subsidiary Companies date of the forthcoming annual general The interests in subsidiary and associated Issued meeting (29 July 2009) unless such The issued share capital of the Company authority is renewed by shareholders in companies, where considered to be remains unchanged at 110 487 321 general meeting. At the forthcoming material in light of the Group’s financial ordinary shares of no par value. Of this annual general meeting shareholders will position and results, are set out on number, 4 363 978 (2008: 4 388 817) accordingly be requested to renew this page 105. ordinary shares are held in treasury which authority until the conclusion of the next Financial Results includes 1 055 944 (2008: 1 636 341) held annual general meeting. for delivery of shares granted to The financial results of Brait S.A. Group are management in terms of the Brait S.A. Debt Capital set out in the financial statements and Share Incentive Scheme and the Brait During 2006, a subsidiary of the Group, accompanying notes for the year ended Share Scheme 2005, and 3 308 034 Brait South Africa Limited, raised 31 March 2009.
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Directors’ Report_continued
44 Distribution to Ordinary 3 August 2009 and Friday, 7 August The Brait Share Scheme 2005 permits up Shareholders 2009, both days inclusive. Non- to 19,6% of the Company’s issued share •Interim Dividend 2008 resident shareholders registered on the capital (limited to 20 million ordinary The Board announced an interim South African register, who prefer their shares) to be granted as entitlements. dividend of 89,45 cents (8,58 US dividends to be paid in US dollars, are A summary of the Long-Term Incentive cents for shareowners receiving their advised to inform their CSDPs/brokers dividends in dollar) per ordinary share accordingly and provide their banking Plan, scheme rules and share entitlements on 31 October 2008. The dividend, details to their CSDPs/brokers by the outstanding and granted to directors and which absorbed R94,9 million, was required deadline in terms of their employees of the Group under the various paid on 8 December 2008 to agreements entered into with their schemes are outlined in the Remuneration shareholders registered as such on the CSDPs/brokers. Report section on pages 124 to 130. record date, 5 December 2008. Shareholders will be asked to ratify Distribution to Preference Directorate and confirm the declaration by the Shareholders Biographical details of the directors appear Board and the payment of the interim Cumulative Redeemable on pages 122 to 123. During the year, the dividend at the annual general meeting Preference Shares following executive members were of shareholders of the Company which On 31 July 2008, a dividend of appointed to or resigned from the Brait will be held in Luxembourg on R26,7 million was declared to shareholders S.A. board: Wednesday, 29 July 2009. recorded at the close of business and paid on the same date. Appointed: • Final Dividend S Sithole^ 28 October 2008 The Board has recommended a final On 30 January 2009, a dividend of dividend of 89,45 cents (10,55 US R27,6 million was declared to shareholders Resigned: cents for shareholders receiving their recorded at the close of business and paid MS Masithela* 28 October 2008 dividends in dollar) per ordinary share on the same date. AD Campbell* 10 November 2008 for the year ended 31 March 2009. In terms of the Articles of Incorporation, Share Incentive Schemes ^ Zimbabwean shareholders are required to approve Brait currently operates various share * South African incentive schemes for the purpose of the declaration of the dividend which In terms of the Company’s Articles of will be tabled at the forthcoming incentivising directors, executives and Incorporation, the directors’ terms of office annual general meeting of management of the Group and to align their end immediately after the conclusion shareholders of the Company. If economic interests with shareholders and of the annual general meeting of approved by shareholders, payment retain their services on a long-term basis. shareholders and they may be of the final dividend, in respect of the In the previous year, a structured Long-Term reappointed at that meeting. year ended 31 March 2009 will be Incentive Plan was introduced, with design effected on Tuesday, 11 August 2009 features to provide for a progressive and Accordingly, Messrs AC Ball, PAB Beecroft, to shareholders registered as such on predictable build-up of wealth by the Group’s JE Bodoni, BI Childs, JA Gnodde, ME King, the record date, Friday 7 August 2009. executives in respect of value created from RJ Koch, AM Rosenzweig, HRW Troskie, The last date to trade ‘cum dividend’ future initiatives. will be Friday, 31 July 2009 and the SJP Weber, S Sithole and PL Wilmot retire share will commence trading ‘ex The Brait S.A. Share Incentive Scheme from the Board at the annual general dividend’ on Monday, 3 August 2009. allows for a maximum of 6,7% of the meeting and, being eligible, offer Share certificates may not be Company’s issued share capital to be themselves, with the exception of dematerialised between Monday, granted as entitlements. PL Wilmot, for re-election.
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Directors’ Report_continued
45 Directors’ Interests in Brait S.A. Ordinary Shares According to information available to the Company, after reasonable enquiry, the aggregate interests of the directors at the date of this report, including the holdings of ordinary shares and share entitlements, were as follows:
2009 2008 Beneficial Beneficial Beneficial Beneficial direct indirect direct indirect
Number of shares held AC Ball – 4 038 875 – 4 038 875 BI Childs – 27 500 – 27 500 JA Gnodde 1 344 152 – 1 344 152 – ME King – 100 000 – 100 000 RJ Koch 295 700 – 295 700 – AM Rosenzweig 108 064 – 108 064 – PL Wilmot – 50 000 – 50 000
Total 1 747 916 4 216 375 1 747 916 4 216 375
Number of share scheme entitlements BI Childs 50 000 – 50 000 – SJP Weber 50 000 – 50 000 –
Total 100 000 – 100 000 –
A register of the directors’ interest in the capital of the Company is available on request.
There were no changes to the directors’ interests between 31 March 2009 and the date of this report.
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Directors’ Report_continued
46 Insurance and Directors’ Report’. A register of individual directors’ Composition of Group Indemnity emoluments is maintained at the Committees The Group maintains a comprehensive Company’s offices and is available on The composition of the Board, the Group insurance programme, providing group request at the Company’s offices. Audit and Risk, Remuneration and other cover under professional indemnity, sub-committees of the Board are directors’ and officers’ liability, employment Directors’ and Officers’ Interest disclosed in the “Corporate Governance” practices’ liability, Bankers’ Blanket in Contracts section of this report. Bond/Computer Crime, public liability and During the financial year no contracts were other all risks. entered into in which directors and officers Corporate Governance of the Company had an interest and which Full details regarding the Company’s Major Shareholders significantly affected the business of the commitment to, and its compliance with, According to information available to the Group. The directors had no interest in any appropriate international corporate Company, after reasonable enquiry, the third party or Company responsible for governance practices are set out on pages following shareholders held 5% or more of managing any of the business activities of 114 to 133. the issued capital of the Company as at the Group. 31 March 2009: Auditors Special Resolutions Deloitte S.A. has expressed its willingness Shareholder% No special resolutions were passed during to continue in office and resolutions Public Investment Corporation 13,80 the year under review. proposing its reappointment and State Street Bank & Trust authorising the Audit Commitee to set its Co (Custodian) 6,88 Events Subsequent to the remuneration will be submitted to the Securitas Services 5,48 Balance Sheet Date forthcoming annual general meeting. Mr CS Seabrooke was appointed by Directors’ Emoluments the Board of directors as a director with An analysis of aggregate remuneration of effect from 19 June 2009, replacing executive and non-executive directors is Mr PL Wilmot who resigned on the disclosed under the ‘Remuneration same date.
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Introduction to the Financial Statements
47 Accounting Policies accordance with IFRS, represent more Group using IAS 21– The Effects of The Group financial statements for the appropriately the financial position of the Changes in Foreign Exchange Rates. year ended 31 March 2009 are prepared in Group and the results of its operations and The supplementary US$ results have been accordance with IFRS as adopted by the cash flows and have, accordingly, converted from the rand results using a European Union, on the going-concern consistent with the previous year, adopted closing rate of R9,5124 to US$1 (2008: principle, using the historical-cost basis, IFRS for the Group. R8,0922 to US$1) for the balance sheets except where otherwise indicated. and the average rate of R8,8587 to Supplementary Information US$1 (2008: R7,1260 to US$1) for the In terms of IFRS, as well as international Presentation Currency income statements. trends, unrealised gains as well as The Group has two functional currencies: unrealised losses are recognised in the SA rand (rand) for its South African Currency Conversion Guide period during which these arise. operations and US dollar (US$) for its The approximate rand cost of a unit of the Luxembourg law, following the European international operations. The Group’s following currencies at 31 March 2009 was: Union law, does not permit the recognition financial statements are prepared, 2009 2008 of such unrealised gains. Accordingly, consistent with the previous year, using unrealised gains have only been rand as its presentation currency. US Dollar recognised on consolidation, and not in – closing rate 9,5124 8,0922 the separate annual financial statements Supplementary Dollar Information – average rate 8,8587 7,1260 of the holding company. The balance sheets and income statements of the Group have also been Sterling – closing 13,6105 16,0470 The directors are of the view that the presented in US$ for the convenience of Euro – closing 12,5982 12,7743 Group financial statements, prepared in non-South African stakeholders in the
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Group Income Statements for the year ended 31 March
48 Supplementary US$ Information** 2008 2009 2009 2008 US$m US$m Notes Rm Rm
38,3 37,7 Revenue 1 334,1 272,6 34,1 18,6 Other income 2 164,4 243,2 (30,6) (30,8) Operating expenses 3 (272,8) (218,1) 0,6 1,3 Equity-accounted income 11,6 4,4
42,4 26,8 oProfm opit frerations 237,3 302,1 (7,5) (6,7) Finance costs 4 (59,2) (53,8) 22,8 4,4 Capital items 5 39,1 162,9
57,7 24,5 Profit before taxation 217,2 411,2 (4,7) (5,7) Taxation 6 (50,6) (33,3)
53,0 18,8 oProfm it fr continuing operations 166,6 377,9 2,1 – Profit from discontinued operations 7 – 15,1
55,1 18,8 Profit for the year/attributable earnings 166,6 393,0
US US R R Cents Cents Cents Cents
Attributable earnings per share (cents) 8 51,9 17,7 – Basic 157,0 370,3 51,6 17,7 – Diluted 156,6 367,7
20,80 19,13 Dividends per share (cents) 9 178,90 150,3
9,00 8,58 – Interim paid 89,45 59,07 11,80 10,55 – Final proposed/paid 89,45 91,27
** The disclosure above is for information purposes and does not form part of the Group financial statements.
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Group Balance Sheets as at 31 March
49 Supplementary US$ information** 2008 2009 2009 2008 US$m US$m Notes Rm Rm Assets 225,0 198,1 Non-current assets 1 885,0 1 820,4 – – Goodwill 10 – – 0,6 0,4 Property and equipment 11 3,7 5,0 1,7 2,9 Investments in associates 12 27,3 14,0 180,4 173,8 Private capital investments 13 1 653,9 1 459,2 17,2 15,3 Public markets investments 14 145,5 139,1 23,8 5,1 Financial assets 15 48,5 192,4 1,3 0,6 Term loans 16 6,1 10,7 69,6 55,2 Current assets 525,0 563,1 10,2 6,9 Other current investment 18 65,4 82,8 0,3 0,1 Loans and advances 19 0,6 2,3 7,5 3,0 Accounts receivable 20 28,9 60,3 51,6 45,2 Cash and cash equivalents 21 430,1 417,7
294,6 253,3 Total assets 2 410,0 2 383,5 Equity and Liabilities 187,7 160,3 Equity and reserves 1 524,0 1 518,8 31,7 27,0 Share capital and premium 22 256,2 256,1 2,8 3,1 Legal reserve 23 29,1 22,6 3,6 3,3 Equity reserve 24 31,2 29,2 10,5 12,0 Foreign currency translation reserve 114,3 85,1 139,1 114,9 Retained reserves 1 093,2 1 125,6 – – Minority interest – 0,2 79,7 72,7 Non-current liabilities 692,4 645,1 55,6 47,3 Redeemable preference shares 25 450,0 450,0 4,8 7,4 Deferred tax liability 26 70,5 38,9 18,9 17,7 Financial liability 27 168,6 152,9 0,4 0,3 Non-current borrowings 28 3,3 3,3 27,2 20,3 Current liabilities 193,6 219,6 13,4 9,9 Accounts payable 29 94,6 108,1 3,0 2,8 Provisions 30 26,7 24,3 10,5 7,1 Current borrowings 31 67,6 84,8 0,3 0,5 Taxation 4,7 2,4
294,6 253,3 Total equity and liabilities 2 410,0 2 383,5
** The disclosure above is for information purposes and does not form part of the Group financial statements.
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Group Cash Flow Statements for the year ended 31 March
50 2009 2008 Notes Rm Rm Cash flows from operating activities before changes in working capital 240,3 25,6 Cash generated by operations 36.1 52,2 30,3 Dividends received 9,4 19,0 Interest received 43,7 62,2 Interest paid (59,2) (53,8) Proceeds from disposal of currency hedge 299,4 – Premium on currency hedge (88,1) (27,9) Taxation paid 36.2 (17,1) (4,2) Changes in working capital 36.3 10,4 (15,1) Cash generated from operating activities 250,7 10,5 Cash flows (utilised in)/generated from investing activities (114,9) 5,9 Acquisition of property and equipment (2,4) (1,8) Proceeds on disposal of property and equipment 1,0 – Proceeds on disposal of subsidiary 36.4 – 251,9 Net acquisition of investments (113,5) (244,2) Dividends paid 36.5 (188,7) (175,2) Cash outflows from financing activities (4,6) (43,5) (Repayment of)/proceeds from borrowings (4,3) 7,6 Repurchase of shares (0,1) (16,8) Proceeds from share scheme shares delivered 0,2 4,4 Repayment of non-current borrowings (0,4) (38,7)
Net decrease in cash and cash equivalents (57,5) (202,3) Effects of exchange rate changes on cash and cash equivalents 69,9 52,8 Cash and cash equivalents at the beginning of the year 417,7 567,2 Cash and cash equivalents at the end of the year 21 430,1 417,7
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Group Statements of Changes in Equity for the year ended 31 March
51 Attributable to equity holders of the parent
Share Foreign Total capital currency equity and Legal Equity translation Retained Minority and premium reserve reserves reserve reserves interest reserves Rm Rm Rm Rm Rm Rm Rm
Balance at 31 March 2007 257,4 19,1 27,6 (29,0)946,6 54,4 1 276,1 Net translation adjustments – – – 112,0 – – 112,0 Sale of Bayport – (0,4)– 2,1 (34,9) (54,2) (87,4) Delivered share scheme shares 15,5 – – – – – 15,5 Treasury shares purchased (16,8) – – – – – (16,8) Attributable earnings ––––393,0 – 393,0 Share entitlements – – 1,6 – – – 1,6 Ordinary dividends – – – – (175,2)– (175,2) Transfer between reserves – 3,9––(3,9) – –
Balance at 31 March 2008 256,1 22,6 29,2 85,1 1 125,6 0,2 1 518,8
Net translation adjustments – – – 29,2 – – 29,2 Delivered share scheme shares 0,2 – – – – – 0,2 Treasury shares purchased (0,1) – – – – – (0,1) Attributable earnings – – – – 166,6 – 166,6 Share entitlements – – 2,0 – – – 2,0 Ordinary dividends – – – – (192,7) – (192,7) Transfer between reserves – 6,5 – – (6,3) (0,2) –
Balance at 31 March 2009 256,2 29,1 31,2 114,3 1 093,2 – 1 524,0
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Business and Geographical Segmental Reports for the year ended 31 March
52 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 three operating business units. These business units are the basis on which the Group reports its primary segment information. The segments are as follows: – Private Capital. – Public Markets. – Treasury Capital. Segment information about these businesses is presented below: Private Public Treasury Capital Markets Capital Total 2009 Rm Rm Rm Rm Revenue and Income Revenue 161,8 167,2 5,1 334,1 Other income 53,5 16,1 94,8 164,4 Total revenue and other income 215,3 183,3 99,9 498,5 Result Segment result 75,8 86,6 74,9 237,3 Finance costs (59,2) Capital items 39,1 Profit before taxation 217,2 Taxation (50,6) Profit for the year 166,6 Other Information Assets Segment assets 1 685,2 139,6 585,2 2 410,0 Total assets per balance sheet 2 410,0 Liabilities Segment liabilities 65,3 25,1 795,6 886,0 Total liabilities per balance sheet 886,0 Net assets Segment net assets/(liabilities) 1 619,9 114,5 (210,4) 1 524,0 Total net assets per balance sheet 1 524,0 Other Additions to property and equipment 0,2 1,5 0,7 2,4 Depreciation 0,3 1,2 0,5 2,0 Share entitlement expenses 1,2 0,3 0,5 2,0
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Business and Geographical Segmental Reports_continued for the year ended 31 March
53 Business Segments_continued Private Public TreasuryDiscontinued Capital Markets Capital operations Total 2008 Rm Rm Rm Rm Rm Revenue and Income Revenue 148,5 91,4 32,7 18,7 291,3 Other income 225,7 6,4 11,1 – 243,2
Total revenue and other income 374,2 97,8 43,8 18,7 534,5 Result Segment result 240,7 27,1 34,3 15,1 317,2
Finance costs (53,8) Capital items 162,9
Profit before taxation 426,3 Taxation (33,3)
Profit for the year 393,0 Other Information Assets Segment assets* 1 509,9 159,0 714,6 – 2 383,5
Total assets per balance sheet 2 383,5 Liabilities Segment liabilities* 79,3 21,1 764,3 – 864,7
Total liabilities per balance sheet 864,7 Net assets Segment net assets/(liabilities) 1 430,6 137,9 (49,7) – 1 518,8
Total net assets per balance sheet 1 518,8 Other Additions to property and equipment 0,3 1,1 0,4 – 1,8 Depreciation 0,2 0,7 0,7 – 1,6 Share entitlement expenses 0,7 0,3 0,6 – 1,6
* Comparative as reclassified – refer to note 39.
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Business and Geographical Segmental Reports_continued for the year ended 31 March
54 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: – Mauritian operations. – European operations.
The following table provides the revenue and income per geographical segment: International South Africa Total 2009 Rm Rm Rm Revenue and Income Revenue 44,0 290,1 334,1 Other income (19,3) 183,7 164,4
Total segment income 24,7 473,8 498,5 Result Segment result (4,6) 241,9 237,3
Finance costs (59,2) Capital items 39,1
Profit before taxation 217,2 Taxation (50,6)
Profit for the year 166,6
Other Information Assets Segment assets 1 089,7 1 320,3 2 410,0 Additions to property and equipment 0,1 2,3 2,4
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Business and Geographical Segmental Reports_continued for the year ended 31 March
55 Geographical Segments_continued
International South Africa Continuing Continuing Discontinued Total 2008 Rm Rm Rm Rm Revenue and Income Revenue 56,3 216,3 18,7 291,3 Other income 108,9 134,3 – 243,2
Total segment income 165,2 350,6 18,7 534,5 Result Segment result 131,6 170,5 15,1 317,2
Finance costs (53,8) Capital items 162,9
Profit before taxation 426,3 Taxation (33,3)
Profit for the year 393,0
Other Information Assets Segment assets* 1 034,3 1 349,2 – 2 383,5 Additions to property and equipment 0,1 1,7 – 1,8
* Comparative as reclassified – refer to note 39.
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Accounting Policies for the year ended 31 March
56 Basis of Presentation each year. Control is achieved where the Goodwill is initially recognised as an asset at The financial statements of the Group are Company has the power to govern the cost and is subsequently measured at cost prepared in accordance with IFRS as financial and operating policies of an less any accumulated impairment losses. adopted by the European Union, on the investee entity so as to obtain benefits The carrying amount of the goodwill is going-concern principle, using the from its activities. On acquisition, the reviewed annually, or more frequently if historical-cost basis, except where assets and liabilities and contingent events or changes in circumstances indicate otherwise indicated. liabilities of a subsidiary are measured at that the carrying value may be impaired. their fair values at the date of acquisition. Adoption of New and Revised Any excess of the cost of acquisition over Negative goodwill, which represents the Standards the fair values of the identifiable net assets excess of the Group’s interest in the fair value of the indentifiable assets and The accounting policies are consistent with acquired is recognised as goodwill. Any liabilities acquired over the cost of those applied in the previous year except shortfall in the cost of acquisition below acquisition, is recognised immediately for the adoption of hedge accounting in the fair values of the identifiable net assets in the income statement. respect of both interest rate hedging and acquired (ie discount on acquisition) is the Group’s net investment in foreign credited to profit and loss in the period of Associated Companies operation (ie South African operations) in acquisition. The interest of minority Associates are those enterprises in which accordance with IAS 39 – Financial shareholders is stated at the minority’s the Group holds a long-term equity Instruments: Recognition and proportion of the fair values of the assets interest and over which it has the ability Measurement and IAS 21 – The Effect of and liabilities recognised. Subsequently, to exercise significant influence, but not Changes in Foreign Exchange Rates any losses applicable to the minority control, and are neither subsidiaries nor respectively. The adoption of hedge interest in excess of the minority interest joint ventures. accounting was applied prospectively and are allocated against the interests of the parent. Equity-accounted income, which is did not have an impact on the prior year included in the carrying values of the reported results. The results of subsidiaries acquired or associates, represents the Group’s disposed of during the year are included proportionate share of the associates’ Principles of Consolidation in the consolidated income statement from Business Combinations profit after tax and after accounting for the effective date of acquisition or up to dividends payable by those associates. Acquisitions are accounted for using the effective date of disposal, as purchase accounting. Where an appropriate. Where necessary, Investments in private equity associates investment in a subsidiary or associated adjustments are made to the financial are designated as at fair value through company is acquired or disposed of during statements of subsidiaries to bring the profit or loss and accounted for in the financial year, its results are included accounting policies used into line with accordance with IAS 39 – Financial from, or to, the date control became, or those used by the Group. All intra-group Instruments: Recognition and ceased to be, effective. Mergers which transactions, balances, income and Measurement. Such investments are took place before 31 March 2004, the expenses are eliminated on consolidation. measured at fair value in accordance with effective date of IFRS 3 – Business IAS 39, with changes in fair value Goodwill Combinations were accounted for using recognised in profit or loss in the period of Goodwill arising on the acquisition of a the uniting of interests method. the change. subsidiary or jointly controlled entity Basis of Consolidation represents the excess of the cost of Joint Ventures The consolidated financial statements acquisition over the Group’s interest in the fair A joint venture is a contractual incorporate the financial statements of the value of the identifiable assets, liabilities and arrangement whereby the Group and other Group and entities controlled by the contingent liabilities of the acquired entity and parties undertake an economic activity Company (its subsidiaries) up to 31 March is recognised at date of acquisition. which is subject to joint control, in which
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57 the Group has a long-term interest. Joint Translation of Financial Revenue Recognition control is where the strategic, financial and Statements of Foreign Entities Revenue comprises income from operating policy decisions relating to the into the Presentation Currency management fees, performance fees, capital activities require the unanimous consent of Assets and liabilities of foreign entities are participation, interest income, dividend the parties sharing control. translated into the Group’s presentation income and investment appreciations. currency, “rand”, at year-end exchange Equity-accounted income, which is Management Fees included in the carrying values of joint rates. The Group has two functional Management fees are recognised as the ventures, represents the Group’s currencies: SA rand (rand) for its South services are rendered based on an agreed proportionate share of the joint ventures’ African operations and US dollar (US$) basis. The services relate to Brait profit after tax and after accounting for for its international operations. The Group performing the role of fund manager in its dividends payable by the joint ventures. has prepared its financial statements, Public Market business, and as general consistent with the previous year, using partner in its Private Equity fund on behalf Treasury Shares the rand as its presentation currency. Ordinary Shares in Brait S.A. held by any of its investors. subsidiary, the Brait Share Scheme 2005 Capital and reserves are translated at The basis of the management fees is and Brait Share Incentive Scheme 2005 historical rates. Income statement items usually an agreed percentage on either the are classified as treasury shares in the are translated at the average exchange market value of assets under management statement of changes in equity, and are rates for the year. (Public Markets), or on value of funds held at cost. Translation differences arising from the committed to the fund (Private Equity) Treasury shares are treated as a deduction translation of foreign operations are taken which is reduced on a sliding scale after a from the issued and weighted average directly to reserves. On disposal of foreign certain period (usually five years) after number of shares in issue and the cost operations, such translation differences are which the fee usually becomes based on price of the shares is presented as a recognised in the income statement as the value of the original cost of the deduction from equity. part of the gain or loss on disposal. remaining fund investments. Dividend received on treasury shares are Performance Fees eliminated on consolidation. Foreign Currency Assets and Liabilities Performance fees are only recognised once they have been “locked in” and Segmental Reporting In preparing the financial statements of the cannot be reversed. The fees are earned A segment is a distinguishable component individual entities, transactions in on outperformance on Public Markets of the Group engaged in providing currencies other than the entity’s functional products at an agreed rate above products or services with a particular currency, are recorded at the rates of the hurdle rate or preferred rate for economic environment, which is subject exchange prevailing on the dates of the the investors. to risks and rewards that are different from transactions. At each balance sheet date, those of other segments. monetary items denominated in foreign Interest Income The Group is organised into three currency are translated at rates prevailing Interest income is accrued on a yield-to- divisions for operational and on the balance sheet date. Non-monetary maturity basis by reference to the principal management purposes, namely, items carried at fair value that are outstanding and the interest rate Private Capital, Public Markets and denominated in foreign currency are applicable. In certain instances where the Treasury Capital. Brait reports its retranslated at the rates prevailing when loan is in arrears an assessment is made primary business segment information the fair value was determined. Non- regarding recoverability of the loan or on this basis and on a secondary monetary items that are measured in terms group of loans and if necessary the basis by geographical locations of of historical costs in a foreign currency are accrual of interest is not recognised in operations. translated at the closing rate. the Income Statement.
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58 Investment Appreciation and sheet liability method for all temporary Financial Instruments Capital Participation differences arising between the tax bases Financial instruments include all financial Investment appreciation and related capital of assets and liabilities and their carrying assets, financial liabilities and equity participations are recognised as earned. This values for financial reporting purposes, instruments including derivative instruments relates to the fair value gains on the capital using tax rates enacted at the balance and certain private equity associates. invested by Brait alongside its investors sheet date. Financial assets and financial liabilities, in either through Public Markets or Private Deferred tax assets are recognised to the respect of financial instruments, are Equity funds, or invested on its own. The fair extent that it is probable that future taxable recognised on the Group’s balance sheet value is determined per IAS 32 and IAS 39 profit will be available, against which the when the Group becomes party to the on Financial Instruments (see details under unused tax losses can be utilised. contractual provisions of the instrument. All Financial Instruments note). transactions, including regular-way Dividend Income Property and Equipment purchases and sales, are recognised at fair Dividend income is recognised only Property and equipment is stated value on trade date. when declared and approved by the at historical cost less accumulated depreciation. Classification investee company. Financial assets are classified into the Depreciation is provided for on the Incremental Costs Directly Attributable following specified categories: financial historical cost, using the straight-line basis, to Securing an Investment assets ‘at fair value through profit or loss’ at rates considered appropriate to write Management Contract (FVTPL), ‘held-to-maturity’ investments, the assets down to their expected residual Incremental costs directly attributable to ‘available-for-sale’ financial assets and value over their estimated useful lives securing an investment management ‘loans and receivables’. which are reassessed at each reporting contract, such as placement fees for third- date. Refer to note 11. Currently, the Group has not chosen to party providers, are written-off to the classify any investments as ‘available-for- Income Statement as they are incurred. Land is not depreciated. sale’ or ‘held-to-maturity’ investments. This is a prudent approach to the option However, as the classification is investment provided by IAS 18 Appendix 14(b) (iii) Non-Current Assets Held specific this does not preclude the use of which allows for such costs to be for Sale these categories in the future. Should recognised as an asset if they are: Non-current assets classified as held for these categories be utilised in the future • incremental and can be identified sale are measured at the lower of the the appropriate accounting treatment as assets’ previous carrying amount and fair separately; specified by IAS 39 will be applied. • measured reliably; and value, less cost to sell. • it is probable that they will be recovered. Financial liabilities are classified as either Non-current assets are classified as held financial liabilities ‘at FVTPL’ or ‘other for sale if their carrying amount will be Taxation financial liabilities’. recovered through a sale transaction rather Income tax for the year comprises current than through continuing use. This Effective Interest Method and deferred tax. Current income tax is the condition is regarded as met only when The effective interest method is a method expected tax payable on the taxable the sale is highly probable and the asset is of calculating the amortised cost of a income for the year, using tax rates available for immediate sale in its present financial asset/liability and of allocating enacted at the balance sheet date, and condition. Management must be interest income over the relevant period. any adjustments to tax payable in respect committed to the sale, which should be The effective interest rate is the rate that of previous years. expected to qualify for recognition as a exactly discounts estimated future cash Deferred tax is provided for on the completed sale, within one year from the receipts/payments (including all fees on comprehensive basis, using the balance date of classification. points paid or received that form an
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59 integral part of the effective interest rate, • it forms part of a contract containing In valuing investments, the directors follow transaction costs and other premiums or one or more embedded derivatives, the principles recommended in the discounts) through the expected life of the and IAS 39 permits the entire International Private Equity and Venture financial asset/liability, or, where combined contract (asset or liability) Capital Valuation Guidelines. Fair value appropriate, a shorter period. to be designated as at FVTPL. represents the amount of which an asset could be exchanged between Interest income/expense is recognised on The Group designates the majority of its knowledgeable, willing parties at arm’s an effective interest basis for instruments financial asset investments as FVTPL as the length. In estimating fair value, the other than those designated as at FVTPL. Group is managed on a fair value basis. As directors use a methodology which is a result of the BEE transaction both a Financial Instruments at FVTPL appropriate in light of the nature, facts and financial asset and financial liability have Financial assets or financial liabilities are circumstances of the investment. Due to been recognised. In order to reduce the classified as at FVTPL where the financial the inherent uncertainties in estimating the resultant accounting asymmetry both asset is either held for trading or it is value of unlisted investments, the directors components of the transaction have been designated as at FVTPL. exercise due caution in applying the designated at FVTPL. See notes 15 and 27. various methodologies. A financial asset/liability is classified as Financial assets at FVTPL are stated at fair held for trading if: The Group applies a number of value, with any resultant gain or loss • it has been acquired principally for the methodologies to determine and assess recognised in profit or loss. The net gain or purpose of selling in the near future; or the reasonableness of the fair value as loss recognised in profit or loss excludes • it is a part of an identified portfolio of determined these methodologies may any dividend or interest earned on the financial instruments that the Group include the following: financial asset. manages together and has a a) Earnings multiple. recent actual pattern of short-term Balance sheet items carried at fair value b) Recent transaction prices. profit taking; or include private capital investments, public c) Net asset value. • it is a derivative that is not designated markets investments, financial assets and d) Discounted cash flow or and effective as a hedging instrument. other current investments. earnings models.
A financial asset/liability other than a The Determination of Fair Value However, the primary valuation model financial asset/liability held for trading may The fair values of financial assets and utilised for unlisted investments is a be designated as at FVTPL upon initial financial liabilities are determined as Maintainable Earnings Multiple Model. The recognition if: follows: earnings multiple is calculated using the • the financial asset forms part of a a) The fair value of financial assets and average of the JSE sector in which peer companies operate and the average of group of financial assets, financial financial liabilities with standard terms direct listed peer companies. Adjustments liabilities or both, which is managed and conditions and traded on active are made for any investment-specific risk and its performance is evaluated on a liquid markets is determined with factors such as nature of operations, type fair value basis, in accordance with the reference to quoted market prices. of market exposure, competitive position, Group’s documented risk management b) The Private Capital investments, which quality of management and capital or investment strategy, and information include listed and unlisted co- structure. The derived multiple is then about the grouping is provided investments and capital participations multiplied by Maintainable Earnings. internally on that basis; or in the Group’s managed funds as well Maintainable Earnings are derived as an • such designation eliminates or as proprietary investments, are valued average of historic and forecasted significantly reduces a measurement or at their estimated fair value as Earnings Before Interest and Tax (EBIT) recognition inconsistency that would determined by the Board at the adjusted for any non-recurring otherwise arise; or reporting date. income/expenditure from the Company’s
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60 annual financial statements. The discount initial recognition of the financial asset, the Derecognition of Financial Assets rate utilised to determine fair value is estimated future cash flows of the The Group derecognises a financial asset dependent on the Group’s ability to exit investment have been impacted. only when the contractual rights to the the transaction while still realising the full cash flows from the asset expire or it fair value of the investment. This ability is For all other financial assets, including transfers the financial asset and determined as a function of the current finance lease receivables, objective substantially all the risks and rewards of shareholding in the unlisted equity. evidence of impairment could include: • significant financial difficulty of the ownership of the asset to another entity. Where a recent investment has been issuer or counterparty; or If the Group neither transfers nor retains made, the cost of the investment may be • default or delinquency in interest or substantially all the risks and rewards of used as an estimate of fair value. An principal payments; or ownership and continues to control the alternative methodology may be used at • it becoming probable that the transferred asset, the Group recognises any time if this is deemed to provide a borrower will enter bankruptcy or its retained interest in the asset and an better assessment of the fair value of financial reorganisation. associated liability for amounts it may have the investment. to pay. If the Group retains substantially all For financial assets carried at amortised In cases where fair value cannot be the risks and rewards of ownership of a cost, the amount of the impairment is the reliably measured, existing book value, transferred financial asset, the Group difference between the asset’s carrying less any impairment, is used as the basis continues to recognise the financial asset amount and the present value of estimated of the valuation. and also recognises a collateralised future cash flows, discounted at the financial borrowing for the proceeds received. Loans and Receivables asset’s original effective interest rate. Trade receivables, loans and other Classification as Debt or Equity receivables that have fixed or determinable The carrying amount of the financial asset Debt and equity instruments are classified payments that are not quoted in an active is reduced by the impairment loss directly as either financial liabilities or as equity in market are classified as loans and only when all legal avenues have been accordance with the substance of the receivables. Loans and receivables are exhausted and there is no possibility of an contractual arrangement. measured at amortised cost using the additional recovery. For all other financial Equity Instruments effective interest method, less any assets considered to be impaired, the An equity instrument is any contract impairment. Interest income is recognised carrying amount is reduced through the by applying the effective interest rate, use of an allowance account. Changes in that evidences a residual interest in the except for short-term receivables when the the carrying amount and subsequent assets of an entity after deducting all recognition of interest would be immaterial. recoveries of amounts previously written of its liabilities. Equity instruments issued off are recognised in profit or loss. by the Group are recorded at the Balance sheet items include term loan proceeds received, net of direct If, in a subsequent period, the amount of investments, trade and other receivables, issue costs. loans and advances and cash and the impairment loss decreases and the bank balances. decrease can be related objectively to an Financial Guarantee Contract event occurring after the impairment was Liabilities Impairment of Financial Assets recognised, the previously recognised Financial guarantee contract liabilities are Financial assets, other than those at impairment loss is reversed through profit measured initially at their fair values and are FVTPL, are assessed for indicators of or loss to the extent that the carrying subsequently measured at the higher of: impairment at each balance sheet date. amount of the investment at the date the • the amount of the obligation under the Financial assets are impaired where there impairment is reversed does not exceed contract, as determined in accordance is objective evidence that, as a result of what the amortised cost would have been with IAS 37 – Provisions, Contingent one or more events that occurred after the had the impairment not been recognised. Liabilities and Contingent Assets; and
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61 • the amount initially recognised less, treated as separate derivatives when their qualify as share-based payments under where appropriate, cumulative risks and characteristics are not closely IFRS 2 – Share-based Payment, and the amortisation recognised in accordance related to those of the host contracts and accounting treatment is explained below. with the revenue recognition policies. the host contracts are not measured at fair In November 2008, changes were made value with changes in fair value recognised by the Group to the LTIP scheme’s equity- Other Financial Liabilities in profit or loss. Other financial liabilities, including settled portion to accommodate a cash borrowings, are initially measured at fair Offsetting bonus that vests over four years and is value, net of transaction costs. Financial assets and liabilities are offset notionally invested in share appreciation and the net amount reported in the rights. The cash bonus attracts leverage Other financial liabilities are subsequently balance sheet when there is a legally (leverage award) of twice the cash bonus measured at amortised cost using the enforceable right to offset the recognised with the total amount (LTIP award) effective interest method, with interest amounts and there is an intention to settle notionally invested in Brait shares. The expense recognised on an effective on a net basis, or realise the asset and following accounting treatment is applied yield basis. settle the liability simultaneously. for the share appreciation rights, including Derecognition of Financial the LTIP awards: Provisions Liabilities Share-Based Payment Provisions are recognised when the Group The Group derecognises financial liabilities The share appreciation rights have a pre- has a present obligation as a result of a when, and only when, the Group’s determined vesting profile, which results past event, which it is probable will result obligations are discharged, cancelled or in a lapse of the instrument if the in an outflow of economic benefits that they expire. employee resigns or is dismissed before can be reasonably estimated. the vesting date. Derivative Financial Instruments The Group enters into a variety of Borrowing Costs In accordance with IFRS 2, where the derivative financial instruments to manage All borrowing costs are recognised in profit equity instruments do not vest until the its exposure to market risk. or loss in the period in which they are employee has completed a specified incurred. period of service, it is assumed that the Derivatives are initially recognised at fair Long-Term Incentive Plan services rendered by the employee, in value at the date a derivative contract is consideration for the equity instruments, The Group’s Long-Term Incentive Plan entered into and are subsequently will be received in the future over the (LTIP) for employees is a continuation of remeasured to their fair value at each vesting period. balance sheet date. The resulting gain or the previous staff retention and loss is recognised in profit or loss remuneration policies whereby share The LTIP award referred to above in immediately unless the derivative is appreciation rights were issued under the respect of the cash bonus and twice designated and effective as a hedging following three equity-settled schemes: leverage invested in notional shares, is measured at fair value at grant date where instrument, in which event the timing of the • Brait Executive Share Trust (liquidated the following are taken into account: recognition in profit or loss depends on the on 31 March 2009). • Cash bonus and leverage award do nature of the hedge relationship. The • Brait Share Scheme 2005. not give rise to an employee benefit at Group has not designated any derivatives • Brait Share Incentive Scheme. as part of an IAS 39 hedging relationship. the award date as this has a four-year vesting period. Further details of derivative financial The share appreciation rights granted under the above schemes entitle the • Each year results in a 25% vesting of instruments are disclosed in note 15. participant to receive the appreciation the cash bonus and in a bonus Embedded Derivatives above the grant value. The rights are not expense to the Income Statement Derivatives embedded in other financial entitlements to purchase the shares at and corresponding liability due to instruments or other host contracts are strike price on grant date. These rights the participant.
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62 • The potential appreciation rights on the participant (leverage award), unvested cash bonus. Any returns on the LTIP award are measured at fair provided total leverage for all the vested cash bonus belong to the value for IFRS 2 purposes to take participants is less than 15% of participant and is not a remuneration account of the interest paid on the Brait’s NAV. expense to Brait. gearing. • The total amount contributed (LTIP • Returns on the leverage portion of the • Disclosure is therefore made of only award) above is invested in the product (participant only paid returns the cash bonus award plus any participant’s business unit products above prime due to the notional appreciation value on the LTIP award (Private Capital or Public Markets), interest) are not an employee benefit in excess of both notional gearing and which has a four-year vesting period. from Brait (and hence not an expense related notional interest payable. • The products do not become the to Brait) as the participant pays a • The notional shares do not become property of the participant at any time, market-related interest expense the property of the participant at any and are merely used as a reference on the leverage. time, and are merely used as a point for the conditional settlement of • The present value of the LTIP vested reference point for the conditional the LTIP at a future date in a manner benefits which have not been paid out settlement of the LTIP at a future date similar to payment of a bonus. are shown as a liability and these are in a manner similar to payment of a • The value of the future conditional calculated with reference to: bonus, only that the actual bonus is payment to the employee is computed – the total expected increase in the paid in shares representing the with reference to cash which is underlying investment product over the four-year vesting period; increase in the equivalent value of the distributed from the products or – the total number of employees appreciation rights since grant date. notional shares, less the value of the expected to remain in employment notional leverage (including any notional The share appreciation instruments granted over the four-year vesting interest payable on the leverage). by the Group are measured at fair value at period; and measurement date using a standard option- The above scheme is accounted under – any other assumptions that may pricing valuation model. The valuation IAS 19 – Employee Benefits for the adjust the total LTIP award to be technique is consistent with generally product as the benefits are not equity- paid to each employee as required accepted valuation methodologies for settled, while the notional shares are by paragraph 73 of IAS 19 – pricing financial instruments and accounted for under Share-based Employee Benefits incorporates all factors and assumptions Payment as noted above. The following knowledgeable and willing market key accounting treatment is followed by Related-party Transactions participants would consider in setting the the Group in relation to the employee All related-party transactions are, unless otherwise disclosed, at arm’s length and price of the equity instrument. benefits relating to the LTIP awards are in the normal course of business. Refer invested in the product: The grant fair value of the share to notes 1, 3, 4 and 38. • Cash bonus and leverage award do appreciation rights is amortised to the not give rise to an employee benefit at Income Statement over the vesting period Retirement Benefit Costs the award date as this has a four-year of the instrument. Payments to defined contribution vesting period. retirement benefit plans are charged Employee Benefits – Products • Each year results in a 25% vesting of as an expense as they fall due. Refer A second part of the LTIP scheme involves the cash bonus and in a bonus to note 3. the following: expense to the Income Statement and • A participant/employee being entitled corresponding liability due to the Comparative Figures to a cash bonus which vests over participant being recorded. Where necessary, comparative figures four years. • A remuneration expense and liability is have been reclassified to conform with • Brait advances notional leverage, at recorded for the portion of the changes in presentation in the prime, of twice the cash bonus to investment returns that relate to the current year. Refer to note 39.
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63 Standard and Interpretations Applicable to the Group not yet Effective.
Standard Standard/Interpretation Effective date IFRS 8 Operating Segments: Annual periods commencing IFRS 8 replaces IAS 14 – Segment Reporting and aligns segment reporting with the on or after 1 January 2009 requirements of SFAS 131 (US Standard). This standard requires an entity to adopt the ‘management approach’ when reporting on the financial performance of its operating segments. The reporting would be based on the information that management uses internally for evaluating segment performance and when deciding how to allocate resources to operating segments. The statement will therefore not impact the results of the Group, but will affect the format of disclosure and measurement of the results of reportable segments. IAS 1 Presentation of Financial Statements: Comprehensive revision including requiring a statement Annual periods commencing of comprehensive income. on or after 1 January 2009 The changes made to IAS 1 require information in financial statements to be aggregated on the basis of shared characteristics and introduce a statement of comprehensive income. The revisions include changes in titles of financial statements to reflect their function more clearly. The main change in the revised IAS 1 is the requirement to present all non-owner transactions in the statement of comprehensive income. The amendment also requires two sets of comparative numbers to be provided for the financial position in any year where there has been a restatement or reclassification of balances. The revised standard will affect the disclosures in the annual report. IFRS 3 IFRS 3 – Business Combinations: Comprehensive revision on applying the acquisition method Revision – Annual periods and consequential amendments to IAS 27 – Consolidated and Separate Financial Statements, commencing on or after IAS 28 – Investments in Associates and IAS 31 – Joint Ventures. 1 July 2009 IAS 27 The revised IFRS 3 retains the basic requirements of IFRS 3 (2004) to apply acquisition accounting IAS 28 for all business combinations within the scope of IFRS 3, to identify the acquirer and to determine the acquisition date for every business combination. The most significant change is to move from a purchase price allocation approach to a fair value measurement principle. The revision applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The amended IAS 27 requires accounting for changes in ownership interest in a subsidiary that Amendment – Annual occur without loss of control to be recognised as an equity transaction. When the Group loses periods commencing control of a subsidiary, any interest retained in the former subsidiary will be remeasured at fair on or after 1 July 2009 value, with the gain or loss recognised in profit and loss. IAS 31 The revision and amendment is applicable prospectively and will not affect past transactions. IAS 23 Borrowing Cost: Annual periods commencing The revised IAS 23 removes the option to expense borrowing costs and requires that an entity on or after 1 January 2009 capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of the asset. The Group will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing costs commences after the effective date. Therefore there will be no impact on prior periods in the Group’s 2010 consolidated financial statements.
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64 Standard Standard/Interpretation Effective date IAS 39 Financial instruments: Recognition and Measurement – Eligible Hedged Items Annual periods commencing The amendment clarifies that inflation may only be hedged in instances where changes in on or after 1 July 2009 inflation are contractually specified portions of cash flows of a recognised financial instrument. It also clarifies that an entity is permitted to designate purchased or net purchased options as a hedging instrument in a hedge of a financial or non-financial item and, to improve effectiveness, an entity is allowed to exclude the time value of money from the hedging instrument. The amendment is not expected to have a significant impact on the Group. IFRS 7 Financial Instruments: Improving Disclosures about Financial Instruments Annual periods commencing The amendments require enhanced disclosures about fair value measurements and liquidity risk. on or after 1 January 2009 The existing IFRS 7 fair value disclosures must be made separately for each class of financial instrument, and additional maturity analysis disclosures are required for derivative financial liabilities. The current maturity analysis for non-derivative financial instruments should include issued financial guarantee contracts. Any change in the method for determining fair value must be disclosed as well as the reasons for the change. The amendments further establish a three-level hierarchy for making fair value measurements, and disclosures in this regard, including any transfers between levels. Additional disclosures are required whenever level 3 is used including a measure of sensitivity to a change in input data. The amendment does not require comparative disclosures in the first year of application. IFRIC 16 Hedges of Net Investment in a Foreign Operation Annual periods commencing The interpretation provides guidance on identifying the foreign currency risks that qualify for on or after 1 October 2008 hedge accounting in the hedge of a net investment, and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment The interpretation is to be applied prospectively and is not expected to have a significant impact on the Group. IFRIC 17 Distribution of Non-cash Assets to Owners Annual periods commencing The interpretation addresses the recognition and disclosure requirements for entities that on or after 1 July 2009 distribute non-cash assets as dividends. The interpretation is to be applied prospectively and is not expected to have a significant impact on the Group. IFRIC 18 Transfers of Assets from Customers Annual periods commencing The interpretation clarifies the requirements for agreements in which an entity receives from a on or after 1 July 2009 customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services. IFRIC 18 also provides guidance on how to account for transfers of cash from customers. The interpretation is to be applied prospectively and is not expected to have a significant impact on the Group. Annual improvements project Annual periods commencing As part of its first annual improvements project, the IASB has issued its edition of annual on or after 1 January 2009 improvements. The annual improvement projects aim to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes with minimal effect on recognition and measurement. There are no significant changes in the current year’s improvement that will affect the Group.
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Notes to the Group Financial Statements for the year ended 31 March
65 2009 2008 Rm Rm 1. Revenue Fee income 279,1 190,6 Dividend income 9,4 19,0 Interest income 45,4 62,2 Interest received on shareholder’s loan 0,2 0,8 Total revenue 334,1 272,6 Revenue includes the following related-party transactions: – Interest and dividends received from BEE partner (Sitogo Holdings) 0,2 9,9 2. Other Income Realised gains on financial assets and instruments 99,9 100,7 – Private Capital 3,2 42,1 – Public Markets – – – Treasury Capital* 96,7 58,6 Net unrealised gains/(losses) on financial assets and instruments 64,5 142,5 – Private Capital 50,2 183,6 – Public Markets 16,1 6,4 – Treasury Capital* (1,8) (47,5)
Total other income 164,4 243,2 Realised gains for Treasury Capital includes R69,9 million (2008: R52,8 million) arising from the effects of exchange rate changes on cash and cash equivalents. 3. Operating Expenses Includes the following: Employee costs 124,7 112,4 Retirement funding costs 7,0 5,8 Auditors’ remuneration 5,7 5,1 Audit fees 4,1 3,7 Prior year under-accrual 0,4 0,6 Other services 1,2 0,8 Directors’ emoluments 29,4 28,3 Executive directors As directors of Brait S.A. 0,6 0,6 Paid by subsidiaries within the Group 22,8 24,2 Non-executive directors As directors of Brait S.A. 2,6 1,1 Paid by subsidiaries within the Group 1,0 1,3 Otherwise in connection with the Group 2,4 1,1
* Comparative as reclassified – refer to note 39.
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Notes to the Group Financial Statements_continued for the year ended 31 March
66 2009 2008 Rm Rm
3. Operating Expenses_continued Depreciation 2,0 1,6 Movement in provisions (refer to note 30) 5,0 6,9 Property lease rentals 7,6 6,5 Foreign currency loss/(profit) 0,4 (2,7) Sale of property and equipment loss 0,7 – Impairments/(recoveries) 12,6 (1,8) Share entitlement expenses (refer to note 34) 2,0 1,6 Professional fees – legal, consulting and management# 11,8 12,4 Travel and insurance costs# 6,9 7,8 Advertising and marketing costs# 9,9 7,2 Fund related expenses# 27,6 14,7 Communication and computer costs# 12,9 7,4 Listing and related costs# 3,4 3,0 Other expenses 3,2 1,9
Total expenses 272,8 218,1
Operating expenses include the following related-party transactions: – Fees paid 3,8 5,3 – Key management (includes directors’ remuneration) 29,4 28,3 – Other Group directors 2,3 11,3 4. Finance Costs Interest on shareholder’s loan 0,4 2,5 Interest paid – other 4,5 2,4 Preference share dividends 54,3 48,9
Total finance costs 59,2 53,8
Finance costs include the following related-party transactions: – Interest paid to BEE partner – Sitogo Holdings (Pty) Limited 0,5 2,5
# The comparative amount shown for these line items was previously included in the total of R54,4 million shown as “Other expenses”.
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 67
Notes to the Group Financial Statements_continued for the year ended 31 March
67 2009 2008 Rm Rm 5. Capital items 5.1 Net currency hedge gain 90,3 43,5 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 US dollar. The Group adopted hedge accounting in October 2008. The amount for 2009 represents the net total arising from the gain on restructuring the Group’s previous two hedges with a nominal value of US$61 million (realised gain of R169,8 million) less the R79,5 million premium cost arising on taking up the replacement hedge with a nominal value of US$40 million (refer note 15.2). 5.2 Fair value adjustment to financial liability (16,3) (12,7) Represents the change in fair value of the financial liability arising from the sale of a 26% share of Brait South Africa Limited (refer to note 27). 5.3 Fair value adjustment to financial asset (34,9) 7,9 Represents the change in fair value of the financial asset arising from the equity investment in Sitogo Holdings (Proprietary) Limited (refer to note 15). 5.4 Profit on disposal of subsidiary – 124,2 Represents the gain on realisation of investment in Bayport. Total capital items 39,1 162,9 6. Taxation 6.1 Taxation Expense Income tax expense – Current 16,7 1,1 – Deferred 31,6 28,8
Total income tax 48,3 29,9 Other taxation Luxembourg 1,5 1,4 Foreign taxation 0,8 2,0
Total taxation expense 50,6 33,3
The Group has reconciled its income tax expense to the income tax rate applicable to the holding company for the year ended 31 March 2009. In the jurisdiction that the holding company is registered, the income tax rate is zero, as other forms of taxation are applied.
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Notes to the Group Financial Statements_continued for the year ended 31 March
68 6. Taxation_continued 6.2 Tax Reconciliation Taxation of foreign operations is calculated at the rates prevailing in the respective jurisdictions. 2009 2008 % %
Average standard tax rate for the Group (0% to 28%) (2008: 0% to 29%)* 25,6 19,3
Effect of non-taxable income Income from associate (1,8) (0,7) Dividends and other exempt income (2,7) (2,2) Effect of non-deductible expenses Preference dividend paid 8,4 7,6 Disallowable expenses and impairment of investments 7,4 3,5 Effect of utilisation of estimated tax losses (3,7) (13,8) Effect of utilisation of STC credits (0,8) – Impact of lower tax rate on capital gains (10,6) (7,7) Effect of withholding and other tax 1,5 2,3
Effective tax rate for the year 23,3 8,3
* Based on the proportionate percentage of the Group’s standard tax rates in Luxembourg, South Africa and Mauritius.
2009 2008 Rm Rm 7. Discontinued Operations Following a strategic review during the previous year of the Corporate Finance operations, a decision was taken to discontinue this activity.
Analysis of the discontinued operation: Revenue – 18,7 Expense – (3,6)
Net profit – 15,1
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 69
Notes to the Group Financial Statements_continued for the year ended 31 March
69 2009 2008 Rm Rm 8. Attributable Earnings per Share The calculation of the basic and diluted earnings per share is based on the following data: – Attributable earnings 166,6 393,0
The weighted average number of shares is calculated as follows: Total number of ordinary shares issued (million) 110,5 110,5 Less: Weighted average number of treasury shares (million) (4,4) (4,4)
Weighted average number of ordinary shares for the purposes of basic earnings per share (million) 106,1 106,1
Basic earnings per share (cents) 157,0 370,3
Diluted earnings Weighted average number of ordinary shares for the purposes of basic earnings per share (million) 106,1 106,1 Adjusted for the following potential dilution: • Share entitlements granted to employees (million) 0,2 0,7 • Share entitlements granted to executive directors (million) 0,1 0,1
Diluted weighted average number of ordinary shares for the purposes of diluted earnings per share (million) 106,4 106,9
Diluted earnings per share (cents) 156,6 367,7
Note: The sale of a 26% share of the Group’s South African operations to Sitogo Holdings (Proprietary) Limited is anti-dilutive. Headline Earnings per Share Attributable earnings 166,6 393,0 Headline earnings adjustment – Gain on realisation of investment in subsidiary – (124,2)
Headline earnings 166,6 268,8 – Discontinued operations – (15,1)
Headline earnings from continuing operations 166,6 253,7
Headline earnings per share from continuing operations (cents) 157,0 239,1
Diluted headline earnings per share from continuing operations (cents) 156,6 237,4
Headline earnings per share (cents) 157,0 253,3
Diluted headline earnings per share (cents) 156,6 251,5
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 70
Notes to the Group Financial Statements_continued for the year ended 31 March
70 R cents R cents
9. Dividends per Share (cents) 178,90 150,34
• An interim dividend of 89,45 cents per share (8,58 US cents per share for shareholders who receive their dividends in US$) was proposed and paid by the Board of directors in respect of the interim period ended 30 September 2008. • The Board has proposed a final dividend of 89,45 cents per share (10,55 US cents per share for shareholders who receive their dividends in US$) for the year ended 31 March 2009.
The shareholders will be asked to ratify the interim dividend paid and approve the payment of the final dividend for the year ended 31 March 2009 at the annual general meeting of shareholders to be held on 29 July 2009 in Luxembourg.
2009 2008 Rm Rm 10. Goodwill Arising on acquisition of subsidiaries – – Cumulative impairments and realisations – –
– –
Reconciliation of goodwill Balance at the beginning of the year – 16,7 Goodwill realised on disposal of subsidiary – (16,7)
Balance at the end of the year – –
Goodwill in the previous year related to Ghana Financial Services (a subsidiary of Bayport). The goodwill was realised when the Group disposed of its investment in Bayport with effect from 1 April 2007.
Brait Annual Report 2009 Brait financials final.qxd 6/25/09 9:30 AM Page 71
Notes to the Group Financial Statements_continued for the year ended 31 March
71 Computer Land and Leasehold Furniture Motor equipment buildings improvements and fittings vehicles and software Total Rm Rm Rm Rm Rm Rm 11. Property and Equipment Cost 2009 Carrying amount at the beginning of the year – – 4,7 0,3 9,5 14,5 Additions – – – 0,3 2,1 2,4 Disposals – – (0,1) (0,1) (1,8) (2,0)
Carrying amount at the end of the year – – 4,6 0,5 9,8 14,9
2008 Carrying amount at the beginning of the year 1,5 1,0 9,9 6,1 21,1 39,6 Additions – – 0,4 0,1 1,3 1,8 Disposals (1,5) (1,0) (5,6) (5,9) (13,0) (27,0) Translation differences – – – – 0,1 0,1
Carrying amount at the end of the year – – 4,7 0,3 9,5 14,5
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 72
Notes to the Group Financial Statements_continued for the year ended 31 March
72 Computer Land andLeasehold Furniture Motor equipment buildingsimprovements and fittings vehicles and software Total Rm Rm Rm Rm Rm Rm 11. Property and Equipment_continued Accumulated depreciation 2009 Carrying amount at the beginning of the year – – 2,3 0,1 7,1 9,5 Charges for the year – – 0,3 0,1 1,6 2,0 Disposals – – – (0,1) (0,2) (0,3)
Carrying amount at the end of the year – – 2,6 0,1 8,5 11,2
2008 Carrying amount at the beginning of the year 0,4 3,9 1,7 14,0 20,0 Charges for the year – 0,3 – 1,3 1,6 Disposals (0,4)(1,9) (1,6) (8,2)(12,1)
Carrying amount at the end of the year – 2,3 0,1 7,1 9,5
Carrying value At 31 March 2009 – – 2,0 0,4 1,3 3,7
At 31 March 2008 ––2,4 0,2 2,4 5,0
Depreciation rates: Furniture and fittings 10%–33% Equipment 10%–20% Computer equipment 20%–50% Computer software 50%–100% Motor vehicles 20%–25%
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 73
Notes to the Group Financial Statements_continued for the year ended 31 March
73 2009 2008 Rm Rm 12. Investments in Associates 12.1 Carrying Values Carrying value at the beginning of the year 14,0 13,8 – Sale of Bayport associate company – (4,2) – Currency translation differences 1,7 – – Share of retained earnings 11,6 4,4
Carrying value of investments in associates 27,3 14,0 (Refer to page 105 for details of principal associates.)
12.2 Valuation Investments in associates – Carrying value 27,3 14,0 – Directors’ valuation 27,3 14,0 Directors’ valuation of unlisted investments is based on expected return and other relevant factors.
12.3 Associates The following sets out the Group’s aggregated amount of associate assets, liabilities, income and expenses: Balance sheet Assets 217,9 161,4 Liabilities (172,7) (142,7)
Net asset value 45,2 18,7
Income statement Income 67,1 46,9
Profit for the year 24,9 10,0
Group’s share of profits of associates 11,6 4,4 13. Private Capital Investments Proprietary investments at fair value 533,0 534,5
– Listed 107,4 164,3 – Unlisted 425,6 370,2
Private equity funds investments 1 120,9 924,7
1 653,9 1 459,2
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 74
Notes to the Group Financial Statements_continued for the year ended 31 March
74 2009 2008 Rm Rm 14. Public Markets Investments Unlisted Brait Absolute South Africa Fund 25,2 45,0 Lauriston Opportunity Fund 3,7 6,9 Brait Multi-Strategy Fund 70,2 55,6 Brait Matrix Fixed Income Fund 25,2 – Brait Ruby Fund 21,2 – Brait High Alpha Fund – 20,5 PSGAI Quant Fund – 11,1
Total fair value using underlying market value 145,5 139,1 15. Financial Assets
Sitogo Holdings (Proprietary) Limited 39,8 64,6 Currency hedge 8,7 127,8
48,5 192,4
1) Sitogo Holdings (Proprietary) Limited (Sitogo) Pursuant to the sale by the Company of a 26% share of its South African subsidiary to Sitogo, the Company subscribed for 32,314% in a special class of equity (A ordinary shares) in Sitogo.
The rights attached to the A ordinary shares are as follows: • Allows for early redemption under certain conditions (refer to note 27). • Includes a contractual obligation to settle in cash. • It restricts the holder to a maximum return. • In the event of a default, or for as long as the loan granted to Sitogo remains outstanding or certain conditions have not been met, the ordinary shareholders have ceded their rights to the holders of the A ordinary shares.
The investment has been recorded as a financial asset as it has given rise to a financial instrument which has been disclosed in terms of IFRS 7 – Financial Instruments: Disclosure.
The initial cost of the investment was R17,4 million (US$2,7 million) and has subsequently been fair valued to R39,8 million (US$4,2 million) using a discounted cash flow model based on the following assumptions: • Cost of capital: 24,4% • Average prime rate: 15,06% • Termination date of 30 July 2010 • Conservative growth in South African operations NAV: 11,5% • Minimal credit risk assumed
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 75
Notes to the Group Financial Statements_continued for the year ended 31 March
75 15. Financial Assets_continued 2) Currency Hedge The Group utilises currency derivatives to hedge the tangible capital of its non-US Dollar subsidiaries.
The notional principal disclosed below is the gross value of derivative contracts outstanding at the year-end and serves only as an indicator of the extent of the Group’s derivative activities. The notional principal does not necessarily reflect the amount payable or receivable under a derivative contract.
The fair value of a financial instrument represents the present value of the positive or negative cash flows which would have occurred if the rights and obligations arising from that instrument were closed out by the Group in an orderly market-place transaction at year-end.
2009 2008 Gross Positive Negative Gross Positive Negative notional fairfair notional fair fair principal value value principal value value US$Rm Rm US$ Rm Rm
Hedging derivatives Foreign exchange derivatives Currency call options1 (refer to note 5.1) 40,0 8,7 – 61,0127,8 –
Total derivatives 40,0 8,7 – 61,0127,8 –
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. 1 The currency call option has a forward rate of R12,7844 to the USD and matures in October 2009.
2009 2008 Rm Rm 16. Term loans Sitogo Holdings (Proprietary) Limited 1,1 1,1 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 (Proprietary) Limited 5,0 9,6 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. 13,8 9,6
Less: Impairment raised (8,8) –
Total term loans 6,1 10,7
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 76
Notes to the Group Financial Statements_continued for the year ended 31 March
76 2009 2008 Rm Rm 17. Deferred Tax Asset Deferred tax asset – –
Deferred tax asset reconciliation Balance at the beginning of the year – 7,2 Sale of Bayport – (7,2)
Balance at the end of the year – – 18. Other Current Investment Investment at fair value Listed* 65,4 82,8
* The fair value is based on listed market values.This investment is matched with a R59,3 million (2008: R74,8 million) liability which is included under current liabilities disclosed in note 31. 19. Loans and Advances Current loans and advances 0,7 2,5 Less: Provision for impairment (0,1) (0,2)
Total loans and advances 0,6 2,3
19.1 Maturity Structure One year or less 0,6 2,3
19.2 Geographical Analysis South Africa 0,6 2,3 20. Accounts Receivable Client receivables 16,0 58,6
Clients and other receivables 17,6 60,2 Provision for impairment (1,6) (1,6)
Prepayments and accrued income 12,0 0,9 Other 0,9 0,8
Total accounts receivable 28,9 60,3
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 77
Notes to the Group Financial Statements_continued for the year ended 31 March
77 2009 2008 Rm Rm 21. Cash and Cash Equivalents Balances with banks 126,5 (39,7) Short-term treasury investments* 303,6 457,4
Total cash and cash equivalents 430,1 417,7
* These funds are invested with the Brait Absolute Fund and can be redeemed within 30 days. 22. Share Capital and Premium 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 256,2 256,1
2009 2008 Total number Total number of shares of shares in issue in issue
Issued shares Opening balance 110 487 321 110 487 321 Less: Treasury shares 4 363 978 4 388 817
Opening balance 4 388 817 4 849 479 Treasury shares issued (589 898) (1 173 914) Treasury shares repurchased 565 059 713 252
Shares in issue at 31 March 106 123 343 106 098 504
Treasury shares comprise: The Brait Executive Share Purchase Scheme Trust – 555 557 The Brait S.A. Share Incentive Scheme Trust 1 055 944 1 080 784 Treasury shares held by the Company 3 308 034 2 752 476
Total treasury shares 4 363 978 4 388 817
The unissued ordinary shares are under the control of the directors, subject to certain constraints, until the forthcoming annual general meeting.
At 31 March 2009, the Company has granted options/share entitlements to directors and employees to subscribe for 1 138 720 (2008: 2 566 072) ordinary shares in the Company as set out in note 34.
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Notes to the Group Financial Statements_continued for the year ended 31 March
78 2009 2008 Rm Rm 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 shareholders.
Opening balance 22,6 19,1 Transfer from retained reserves 6,5 3,9 Sale of Bayport – (0,4)
Balance at the end of the year 29,1 22,6 24. Equity Reserve Movement in equity reserve Opening balance 29,2 27,6 Share entitlement expenses in terms of IFRS 2 – Share-Based Payments 2,0 1,6
Total equity reserve 31,2 29,2 25. Redeemable Preference Shares Closing balance 450,0 450,0
Brait South Africa Limited (BSAL) raised R450 million of preference share capital during the 2006 financial year to provide additional capital to leverage the Group’s internal growth strategy. A total of 450 000 (four hundred and fifty thousand) cumulative redeemable preference shares were issued at a par value of R0,01 cents and a premuim of R999,99 per share. These shares carry a dividend of 78% of the South African prime rate of interest and are redeemable in four tranches on 31 July of each year commencing in 2010 as follows: • 31 July 2010 – R45,0 million • 31 July 2011 – R67,5 million • 31 July 2012 – R67,5 million • 31 July 2013 – R270,0 million
BSAL is entitled to effect 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. • The Group has a negative EBIT for any two consecutive years.
None of these events have taken place.
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.
The Group has a variable to fixed interest rate swap contract which effectively fixes the interest rate on R250 million of the above preference shares at 11,72% until 31 October 2010. Hedge accounting is applied to this swap contract.
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Notes to the Group Financial Statements_continued for the year ended 31 March
79 2009 2008 Rm Rm 26. Deferred Tax Liability 26.1 Deferred Tax Analysis Deferred tax liability 78,1 46,7
Unrealised capital gains tax on investments 77,6 39,2 Other timing differences 0,5 7,5
Deferred tax asset (7,6) (7,8)
Estimated taxable losses – (3,6) Expense provisions (2,8) (2,2) Income received in advance (0,6) (0,5) Unutilised secondary tax on companies – (1,5) Other timing differences (4,2) –
Net deferred tax liability 70,5 38,9
26.2 Deferred Tax Reconciliation Deferred tax liability at the beginning of the year 38,9 10,1 Charge to the income statement 31,6 28,8
Estimated taxable losses 3,6 25,5 Expense provisions (0,6) 0,6 Income received in advance (0,1) 0,2 Capital gains tax 34,3 (18,6) Unutilised secondary tax on companies 1,5 12,9 Other timing differences (7,1) 8,2
Net deferred tax liability at the end of the year 70,5 38,9
The deferred tax asset and liability originated from the same entity.
Brait Annual Report 2009 Brait financials final.qxd 6/22/09 6:28 PM Page 80
Notes to the Group Financial Statements_continued for the year ended 31 March
80 2009 2008 Rm Rm 27. Financial Liability Financial instrument – Sitogo Holdings (Proprietary) Limited (Sitogo) 168,6 152,9
Initial recognition The sale by the Company of a 26% share of its South African subsidiary to Sitogo 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 IFRS 7 – Financial Instruments: Disclosures and measured in terms of IAS 39 – Financial Instruments: Recognition and Measurement.
The selling price was determined based on the tangible net asset value of the South Africa subsidiary at sale date and additional fair value adjustments thereto.
Subsequent recognition The fair value adjustment to the liability, which is based on the movement in the tangible net asset value of BSAL from the date of sale until 31 March 2009 equates to R16,3 million (2008: R12,7 million) for the current year (refer to note 5).
Embedded derivatives Conditions contained in the transaction provides the various parties with a number of exit alternatives giving rise to various embedded derivatives. These derivatives however have nominal values attached to them for as long as the fair value of the financial liability equates to the tangible net asset value of the South African subsidiary which is the case at present.
Detailed below is a summary of exit arrangements: • Three-year call option – exercise date 30 September 2007: the call option provided Sitogo with a mechanism, under certain conditions, to sell a portion of its share in the South Africa operation to Brait S.A. to enable Sitogo to settle its liabilities. This option was not exercised on 30 September 2007. • Three-year put option – exercise date 30 September 2007: the put option provided Brait S.A. (secondary financier) and Old Mutual Asset Managers (primary financier) with a mechanism which, under certain conditions, requires Sitogo to settle its liabilities.This option was not exercised on 30 September 2007. • Five-year call option – exercise date 3 July 2009: the call option provides Brait S.A., in certain circumstances, with a mechanism to acquire the total equity of Sitogo. • Five-year put option – exercise date 30 June 2009: the put option provides the ordinary shareholders of Sitogo, subject to certain conditions, with a mechanism for Sitogo to dispose of the total equity in Sitogo to Brait S.A. • Six-year put option – exercise date 31 March 2010: provides the financiers, subject to certain conditions and where the five- year put and call have not been exercised by Brait S.A., or Sitogo, as may be applicable, with a mechanism for Sitogo to sell a portion of its interests in the South African operation to Brait S.A. thereby enabling Sitogo to settle its debt to the financiers.
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Notes to the Group Financial Statements_continued for the year ended 31 March
81 2009 2008 Rm Rm 28. Non-current Borrowings 28.1 Unsecured Loan – Sitogo Holdings (Proprietary) Limited 3,3 3,3 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, one of which is that a 50% majority is required by BSAL shareholders in order to fully or partially settle the loan.
Total non-current borrowings 3,3 3,3
29. Accounts Payable Trade payables 15,5 12,1 Employee costs and benefits 48,0 65,9 Other 31,1 30,1
Total accounts payable 94,6 108,1
30. Provisions Fundraising expenses – 4,7 Private equity rights 1,1 1,4 Commission and other 25,6 18,2
Total provisions 26,7 24,3
Fund- Private raising equity Commission 2009 2008 expenses rights and other Total Total Rm Rm Rm Rm Rm
Movement of provisions The movements for the year in the Group’s provisions were as follows: Balance at the beginning of the year 4,7 1,4 18,2 24,3 38,5 Provisions utilised during the year (5,3)(1,6) (2,4) (9,3) (24,0) Shareholders for unclaimed dividends* – – 4,0 4,0 – Charge to income statement for the year – 1,4 3,6 5,0 6,9
– current year – 1,4 3,6 5,0 6,1 – amounts released to income statement –– –– 0,8
Translation differences 0,6 (0,1) 2,2 2,7 2,9
Balance at the end of the year – 1,1 25,6 26,7 24,3
All provisions are anticipated to be realised within the next 12 months.
* Charge to statement of changes in equity.
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Notes to the Group Financial Statements_continued for the year ended 31 March
82 2009 2008 Rm Rm
31. Current Borrowings Loans from associates – 1,5 Preference shares dividend accrual 8,3 8,5 Other current borrowings* 59,3 74,8
Total current borrowings 67,6 84,8
* Other current borrowings include short-term loans which are matched by an equivalent asset reflected under “Other current investment” in note 18. Both the asset and the liability are expected to be realised within 12 months.
32. Retirement Contribution 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.
33. Contingent Liabilities and Commitments 33.1 Contingencies Sureties and guarantees 9,5 4,7
33.2 Subordinated Loans 8,3 8,4 33.3 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 to note 25) 277,0 306,1 Other 0,6 5,0 Rental commitments* 12,7 19,5
Within one year 7,1 6,6 Between 1 and 5 years 5,6 12,9
Total commitments 290,3 330,6
* The property rental lease agreements are subject to an 8% annual escalation with an option, at the lessees’ discretion, to renew at the end of the five-year lease term for a further five years.
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Notes to the Group Financial Statements_continued for the year ended 31 March
83 2009 2008 Rm Rm
34. 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. The weighted average Brait S.A. share price for the year was R15,30 (2008: R26,71). 34.1 Effect on the Current Year Distributable Earnings Income statement – Share entitlement expense 2,0 1,6 34.2 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 (liquidated on 31 March 2009). • The Brait Share Incentive Scheme 2005. The terms of these schemes are described in the directors’ report. 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. 2009 2008 Share Weighted Share Weighted entitlements average issue entitlements average issue price price R R
The Brait S.A. Share Incentive Scheme Share entitlements outstanding at the beginning of the year 503 209 8,22 1 134 163 8,72 Delivered during the year (34 340) 7,19 (476 666) 9,75 Early vested share entitlements converted into LTIP (181 358) 7,20 –– Forfeited during the year (by resignation, retrenchment or repurchase) (40 049) 7,19 (154 288) 7,20
Share entitlements outstanding at the end of the year 247 462 10,18 503 2098,22
Share entitlements exercisable at the end of the year 211 155 10,17 195 494 7,28
The unvested entitlements outstanding at 31 March 2009 had a weighted average issue price of R10,21 and a weighted average remaining maximum contractual life of approximately three years.
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Notes to the Group Financial Statements_continued for the year ended 31 March
84 2009 2008 Share Weighted Share Weighted entitlements average issue entitlements average issue price price US$ US$
34. Share-Based Payments (IFRS 2)_continued The Brait Executive Share Purchase Scheme Share entitlements outstanding at the beginning of the year ––500 000 1,0062 Issued during the year –––– Delivered during the year ––(500 000) 1,0062 Forfeited during the year (by resignation, retrenchment or repurchase) –––– Share entitlements outstanding at the end of the year –––– Share entitlements exercisable at the end of the year –––– The Brait Share Scheme 2005 “A” shares outstanding at the beginning of the year 2 062 863 18,86 1 973 823 14,92 Issued during the year 655 000 13,38 600 000 28,13 Early vested and converted into LTIP (1 494 330) 16,65 –– Forfeited during the year (by resignation, retrenchment or repurchase) (332 275) 24,70 (510 960) 14,54 Total outstanding at the end of the year 891 258 16,78 2 062 863 18,86 The weighted average issue share price for share options granted during the year was R13,38. The unvested entitlements outstanding at 31 March 2009 had a weighted average issue price of R16,78 and a weighted average remaining maximum contractual life of approximately two years. 2009 2008 The inputs into the Black-Scholes model were as follows: Weighted average share price of new issues during the year (all issues done at market price) 13,38 28,13 Expected volatility 27,55 – 28,63% 27,55 – 27,65% Expected life 5 years 5 years Risk-free rate 8,54 – 10,80% 8,54 – 8,9% Weighted average option value (per option) 6,9 8,3 Strike price for outstanding entitlements 11,83 – 30,35 11,83 – 30,35 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.
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Notes to the Group Financial Statements_continued for the year ended 31 March
85 35. Events Subsequent to the Balance Sheet Date No events have taken place since 31 March 2009 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. 2009 2008 Rm Rm
36. Cash Flow Information 36.1 Cash Generated by Operations Profit for the year 166,6 393,0 Adjustments for: Taxation 50,6 33,3 Dividends received (9,4) (19,0) Interest received# (43,7) (62,2) Interest paid 59,2 53,8 Depreciation 2,0 1,6 Share entitlement expenses 2,0 1,6 Fair value adjustment of financial liability 16,3 12,7 Fair value adjustment of financial asset 34,9 (7,9) Unrealised gains on financial assets and instruments (64,5) (142,5) Equity-accounted income (11,6) (4,4) Profit on sale of subsidiary – (124,2) Loss on disposal of property and equipment 0,7 – Impairments/(recoveries) 12,6 (1,8) Net currency hedge income (90,3) (43,5) Effects of exchange rate changes on cash and cash equivalents (69,9) (52,8) Other (3,3) (7,4)
Total cash generated by operations 52,2 30,3 # Interest received for the current year of R43,7 million excludes accrued interest of R1,7 million capitalised on term loans. 36.2 Taxation Paid Taxation balance at the beginning of the year (2,4) (14,5) Dilution of interest in subsidiary – 13,1 Current tax expense for the year (15,5) (2,9) Secondary tax on companies (STC) paid (3,5) (1,6) Taxation balances at the end of the year 4,7 2,4 Translation differences (0,4) (0,7)
Total taxation paid (17,1) (4,2)
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Notes to the Group Financial Statements_continued for the year ended 31 March
86 2009 2008 Rm Rm
36. Cash Flow Information_continued 36.3 Change in Working Capital Decrease in accounts payable and provisions (24,5) (39,6) Decrease in accounts receivable 32,9 27,7 Decrease/(increase) in loans and advances 2,0 (3,2)
Total change in working capital 10,4 (15,1) 36.4 Proceeds on Disposal of a Subsidiary (refer to note 37.1) Cash consideration received from sale of Bayport – 266,2 Less: Cash and cash equivalents at date of acquisition – (14,3) Net cash inflow from disposal of subsidiary – 251,9 36.5 Dividends Paid Dividends paid represent the final dividend for the year ended 31 March 2008 of 91,27 cents per share paid in August 2008 and the interim dividend of 89,45 cents per share paid in December 2008. (192,7) – Less: Shareholders for unclaimed dividends provision at 31 March 2009 4,0 – The comparative represents the final dividend of 73,94 cents per share paid in August 2007, the interim dividend of 59,07 cents per share paid in November 2007, the dividend paid in 2008 by BSAL to Sitogo of R28,6 million and preference share dividend of R3,5 million paid in 2008 in terms of the share scheme. – (175,2) Total dividends paid (188,7) (175,2)
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Notes to the Group Financial Statements_continued for the year ended 31 March
87 Rm
37. Acquisition and Restructuring of Subsidiaries 37.1 Disposal of Subsidiary 2008 Following a strategic decision by the Group to deploy its capital in the core businesses of the Group, it disposed of its investment in Bayport with effect from 1 April 2007 for a cash consideration of R252 million. Net assets disposed of: Goodwill 16,5 Cash and cash equivalents 14,3 Non-current assets 345,3 Current assets 11,7 Current liabilities (195,6) Non-distributable reserve (0,4) Foreign currency translation reserve 2,1 Minority interests (54,2) Total net assets at disposal 139,7 – Profit on sale of Bayport as per income statement 124,2 – Translation differences 2,3 Cash and cash equivalents on hand (14,3)
Total cash consideration for 100% 251,9
2009 2008 Rm Rm 37.2 Loans and Advances to/(from) Subsidiaries Name Brait South Africa Limited* 9,4 9,4 Capital Partners Group Holding Limited# 238,0 – The Brait Executive Share Trust# – (63,8) Brait International Limited# 0,8 (216,1) Total net loans and advances 248,2 (270,5)
* This loan is rand denominated, bears interest at South African prime overdraft interest rate with fixed quarterly interest payments in arrears and no fixed repayment terms for the capital. # These loans are US$ denominated, have no repayment terms and are interest free.
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Notes to the Group Financial Statements_continued for the year ended 31 March
88 38. Related-party Balances 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, its associates and joint ventures 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 pages 124 to 130. Trading balances During the year, Group companies entered into the following transactions with related parties who are not members of the Group: 2009 2008 Amounts owed Amounts owed Amounts owed Amounts owed by related parties to related parties by related parties to related parties RR RR
38.1 Associates 7,6 (32,4) 9,9 (25,9) 38.2 Other Sitogo Holdings (Proprietary) Limited (refer to note 15, 27 and 28 for further detail) 40,9 (171,9) 65,7 (156,2)
38.3 Key Management –– –(74,8) (Arising in terms of the Brait Executive Share Incentive and Co-investment schemes) 48,5 (204,3) 75,6 (256,9)
39. Comparative Figures The following comparative figures have been reclassified to conform to changes in presentation in the current year and have had no effect on the results of the previous year. Currently Previously stated stated Rm Rm 39.1 Income Statement Other income (note 2) Net realised gains on financial assets and instruments – Treasury Capital 58,6 2,1 Net unrealised (losses)/gains on financial assets and instruments – Treasury Capital (47,5) 9,0 Reclassification of profit on short-term treasury investments from unrealised to realised to more accurately reflect the nature of the balance.
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Notes to the Group Financial Statements_continued for the year ended 31 March
89 Currently Previously stated stated Rm Rm
39. Comparative Figures_continued 39.2 Business Segmental Report Segment assets – Treasury Capital 714,6 522,2 Segment assets – Other unallocated assets – (192,4) Reclassification of hedging instrument financial asset and investment in Sitogo to Treasury Capital to align with the current year’s segmentation. 39.3 Business Segmental Report Segment liabilities – Treasury Capital (764,3) (110,7) Segment liabilities – Other unallocated liabilities – (653,6) Reclassification of preference shares and accrued dividend thereon, deferred tax liability and financial liabilities relating to Sitogo to Treasury Capital to align with the current year’s segmentation. 39.4 Geographical Segmental Report Segment assets – International 1 034,3 956,7 Segment assets – South Africa 1 349,2 1 426,8 Reclassification of listed investment from South Africa to International segment to more accurately reflect the nature of this investment.
40. Analysis of Financial Assets and Liabilities Financial assets and liabilities are measured on an ongoing basis either at fair value or at amortised cost.The summary of significant accounting policies describes how the classes of financial instruments are measured. The following table analyses the carrying amounts of the financial assets and liabilities by category as defined in IAS 39. 40.1 Financial Assets 40.1.1 Analysis of Financial Assets Private Public Treasury Non-financial Capital Markets Capital instruments Total 2009 Rm Rm Rm Rm Rm Non-current assets Private Capital investments 1 653,9 – – – 1 653,9 Public Markets investments – 145,5 – – 145,5 Financial assets – – 48,5 – 48,5 Term loans – 5,0 1,1 – 6,1 Current assets Trade and other receivables – – 28,9 – 28,9 Other current investment – – 65,4 – 65,4 Loans and advances – – 0,6 – 0,6 Cash and cash equivalents – – 430,1 – 430,1 Other assets – – – 31,0 31,0 1 653,9 150,5 574,6 31,0 2 410,0
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Notes to the Group Financial Statements_continued for the year ended 31 March
90 40. Analysis of Financial Assets and Liabilities_continued 40.1 Financial Assets_continued 40.1.1 Analysis of Financial Assets_continued Private Public Treasury Non-financial Capital Markets Capital instruments Total 2009 Rm Rm Rm Rm Rm
Categories of financial instruments Fair value Held for trading – – 8,7 – 8,7 Designated at fair value through profit and loss 1 653,9 145,5 105,2 – 1 904,6
– Listed 258,9 – 65,4 – – Unlisted 1 395,0 145,5 39,8 –
Amortised cost Loans and receivables – 5,0 460,7 – 465,7
Trade receivables – – 28,9 – Term loans – 5,0 1,1 – Loans and advances – – 0,6 – Cash and cash equivalents – – 430,1 –
Other assets – – – 31,0 31,0
1 653,9 150,5 574,6 31,0 2 410,0
2008 Non-current assets Private Capital investments 1 459,2 –––1 459,2 Public Markets investments – 139,1 ––139,1 Financial assets – – 192,4 –192,4 Term loans – 9,6 1,1 –10,7 Current assets Trade and other receivables – – 59,3 1,0 60,3 Other current investment – – 82,8 – 82,8 Loans and advances – – 2,3 –2,3 Cash and cash equivalents – – 417,7 – 417,7 Other assets – – – 19,0 19,0
1 459,2 148,7 755,6 20,0 2 383,5
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Notes to the Group Financial Statements_continued for the year ended 31 March
91 40. Analysis of Financial Assets and Liabilities_continued 40.1 Financial Assets_continued 40.1.1 Analysis of Financial Assets_continued Private Public Treasury Non-financial Capital Markets Capital instruments Total 2008 Rm Rm Rm Rm Rm
Categories of financial instruments Fair value Held for trading – – 127,8 – 127,8 Designated at fair value through profit and loss 1 459,2 139,1 147,4 –1 745,7
– Listed 164,3 –82,8 – – Unlisted 1 294,9 139,1 64,6 –
Amortised cost Loans and receivables – 9,6 480,4 1,0 491,0
Trade receivables – – 59,3 1,0 Term loans – 9,6 1,1 – Loans and advances – – 2,3 – Cash and cash equivalents – – 417,7 –
Other assets – – – 19,0 19,0
1 459,2 148,7 755,6 20,0 2 383,5
2009 2008 Rm Rm
Change in fair value recognised in the income statement Designated fair valued through profit and loss 129,5 251,1
– Realised gains on financial assets and instruments 99,9 100,7 – Unrealised gains on financial assets 64,5 142,5 – Fair value adjustment to financial asset (34,9) 7,9
Derivative instrument through profit and loss 90,3 43,5
219,8 294,6
The fair value of the financial assets carried at amortised cost is approximately equal to their carrying amounts.
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Notes to the Group Financial Statements_continued for the year ended 31 March
92 40. Analysis of Financial Assets and Liabilities_continued 40.1 Financial Assets_continued 40.1.2 Private Capital Assumptions applied in estimating fair value of Private Capital investments The fair values of unlisted Private Capital investments are primarily based on earnings multiple models, offers received and discounted cash flow models.
2009 2008 Rm Rm
Sector analysis for proprietary investments Entertainment, leisure and tourism 59,3 59,3 Information technology 59,5 75,0 Manufacturing 282,7 219,3 Other 131,5 180,9 Private equity funds investments 1 120,9 924,7
1 653,9 1 459,2
Unlisted investments comprise the following shareholding: 2009 2008
Shareholding of 5% – Wilderness Safaris Limited – Wilderness Safaris Limited and less – Nature’s Choice Holdings (Pty) – Nature’s Choice Holdings (Pty) Limited Limited – Capital Africa Steel (Pty) Limited – Capital Africa Steel (Pty) Limited – Consol Holdings Limited – Consol Holdings Limited – Premier Foods (Pty) Limited – Premier Foods (Pty) Limited – Primedia Limited – Primedia Limited – Pan African Resources Plc – Pan African Resources Plc – Pangea Diamondfields Plc – Pangea Diamondfields Plc
Shareholding in the – Candy Tops (Pty) Limited – Candy Tops (Pty) Limited > 5% – 25% range – Pangea Exploration (Pty) Limited – Pangea Exploration (Pty) Limited
Shareholding in the – DGB (Pty) Limited – DGB (Pty) Limited > 25% – 50% range
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Notes to the Group Financial Statements_continued for the year ended 31 March
93 40. Analysis of Financial Assets and Liabilities_continued 40.1 Financial Assets_continued 40.1.3 Public Markets Sensitivity Analysis The table below shows sensitivity over a range of market movements (up or down) to various economic and market factors. The impact is shown with only the indicated assumption being changed, keeping all other market factors constant. In practice, however, this is unlikely to occur as some factors may be correlated.
Assumptions: 2009 2008 Rm Rm Market movement 10% 20% 30% 10% 20% 30%
Market variable Pre-tax income statement impact i) Brait Absolute South Africa Fund Alsi – – 0,1 0,5 1,1 1,6 Top 40 – – 0,1 0,5 0,9 1,4 Mid Cap – – – 0,8 1,6 2,4 Small Cap – 0,1 0,1 0,9 1,7 2,6 Resource – – 0,1 0,2 0,4 0,6 Financials – – – 0,6 1,1 1,7 Industrials – – – 0,6 1,2 1,7 Rand-euro – 0,1 0,1 (0,3) (0,5) (0,8) Rand-dollar – – – (0,3) (0,6) (0,9) Oil – – – – (0,1) (0,1) Gold – 0,1 0,1 – 0,1 0,1 Yield curve move – Butterfly – – – 0,3 0,7 1,0 Yield curve move – Shift – – – 0,6 1,2 1,8 Yield curve move – Twist – 0,1 0,1 0,1 0,1 0,2
ii) Brait High Alpha Fund Alsi n/a* 0,3 0,7 1,0 Top 40 0,3 0,6 0,9 Mid Cap 0,5 0,9 1,4 Small Cap 0,5 1,0 1,4 Resource 0,2 0,3 0,5 Financials 0,3 0,7 1,0 Industrials 0,3 0,7 1,0 Rand-euro (0,1) (0,3) (0,4) Rand-dollar (0,2) (0,3) (0,5) Oil ––– Gold – 0,1 0,1 Yield curve move – Butterfly 0,1 0,2 0,3 Yield curve move – Shift 0,3 0,6 0,9 Yield curve move – Twist 0,1 0,1 0,2
* Brait High Alpha Fund unwound in January 2009.
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Notes to the Group Financial Statements_continued for the year ended 31 March
94 40. Analysis of Financial Assets and Liabilities_continued 40.2 Financial Liabilities FundingOther Designated fair Amortisedvalued through Amortised Non-financial cost profit and loss cost instruments Total 2009 Rm Rm Rm Rm Rm Equity and reserves – – – 1 524,0 1 524,0 Non-current liabilities Redeemable preference shares 450,0 – – – 450,0 Deferred tax liability – – – 70,5 70,5 Financial liability (Sitogo) – 168,6 – – 168,6 Non-current borrowings 3,3 – – – 3,3 Current liabilities Accounts payable – – 64,7 29,9 94,6 Current borrowings 67,6 – – – 67,6 Provisions and taxation – – – 31,4 31,4 520,9 168,6 64,7 1 655,8 2 410,0 2008 Equity and reserves –– –1 518,8 1 518,8 Non-current liabilities Redeemable preference shares 450,0 –– –450,0 Deferred tax liability – – – 38,9 38,9 Financial liability (Sitogo) – 152,9 – – 152,9 Non-current borrowings 3,3 –– –3,3 Current liabilities Accounts payable – – 78,0 30,1 108,1 Current borrowings 10,0 74,8 – – 84,8 Provisions and taxation – – – 26,7 26,7 463,3 227,7 78,0 1 614,5 2 383,5 The fair value of the financial liabilities carried at amortised cost is approximately equal to their carrying amounts. No gain or loss has been recognised in the Income Statement as a result of Brait’s creditworthiness. This is because the items designated through profit and loss are linked directly to the underlying investments.
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Notes to the Group Financial Statements_continued for the year ended 31 March
95 2009 2008 Rm Rm
40. Analysis of Financial Assets and Liabilities_continued 40.2 Financial Liabilities_continued Change in fair value recognised for designated fair valued through profit and loss 16,3 18,8 Finance costs recognised for amortised cost liabilities 59,2 53,8 Net gains/(losses) from amortised cost liabilities – –
41. Financial Risk Management The overall governance structure and high-level policies relating to the manner in which Brait manages the risk it is exposed to have been described in the Risk Management Review* on pages 131 to 133. 41.1 Capital Management The Group’s policy is to maintain a strong capital base so as to maintain investor and market confidence and to sustain the future development of the business. The Group has certain performance targets – one being the objective to achieve a long-term return on shareholders’ funds of 25% as measured over any five-year period. As a consequence, the Board closely monitors the return on shareholders’ funds.
The Board holds the view that dividend distributions are an important part of long-term shareholders’ wealth creation and an indication of the health of the Group. The Group has decided to base its dividend policy on a stable benchmark from 2008 going forward. Dividends will now be based on 12,5% of opening net asset value, as this provides a more stable base due to the cyclicality of short- term earnings and cash flow. Dividend payments are always subject to the Board being satisfied that this does not impair its solvency, or its ability to finance its business plan.
The capitalisation of Brait has been considered in the context of its existing cash and near cash resources, its current debt levels and the redemption obligations associated with the debt, and the Board-approved plans to deploy capital within the planning horizon. The result of this consideration is that Brait is regarded as appropriately capitalised at this time. This will continue to be reviewed rigorously by the Capital Allocation Committee of the Board.
The Group also manages its shareholder capital base by hedging it in US dollars through foreign currency options. 41.2 Market Risk Market risk is the potential change in the value of a financial instrument resulting from changes in market conditions or market parameters such as equity prices, exchange rates or interest rates. The risk of a decrease in the value of the portfolio can be measured by the susceptibility of that portfolio to movements in the overall market conditions or any of the specific parameters. For both Private Capital and Public Markets specific sensitivity analysis is shown to the changes in parameters such as market interest rates and foreign exchange rates.
For Private Capital the sensitivity of the portfolios to equity price variability is quantified using a standard deviation calculation. This measures the degree to which an investment’s price has varied from its mean return over a period given an average change in the overall market conditions. The higher the standard deviation of an investment, the higher the risk that the investment will cause increased loss to investors. This sensitivity analysis shows the value in each portfolio that is susceptible to changes in overall market conditions as well as the Income Statement effect of a change in value by 1 standard deviation. The standard deviation is calculated for each underlying investment in each portfolio and then aggregated for the entire portfolio.
* The Risk Management Review on pages 131 to 133 does not form part of the Group’s financial statements.
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Notes to the Group Financial Statements_continued for the year ended 31 March
96 41. Financial Risk Management_continued 41.2 Market Risk_continued For Public Markets, sensitivity to specific market parameters are shown in detail in note 40.
Brait is exposed to three primary types of market risk, namely equity risk, interest rate risk and currency risk. Each of these risks is monitored by the risk management function which is independent from the operations and reports directly to senior management and the Board.
The specific risk management objectives, policies and procedures relating to each type of market risk is described in the sections below.
41.2.1 Equity Risk Management Equity risk is the potential change in the value of a financial instrument resulting from changes in market conditions. On a portfolio basis, this is the risk of a decrease in the value of the portfolio as a result of an adverse move in market parameters such as equity prices.
The valuation of unquoted investments depend upon a combination of market factors and the performance of the underlying asset. The Group does not currently hedge the price risk inherent in the portfolio but manages asset performance risk on an asset-specific basis.
Brait is exposed to equity risk through three primary sources namely: • proprietary investments in the Brait private equity funds; • hedge fund investment holdings; and • direct proprietary investments in listed and unlisted investments.
Each source of equity risk is managed individually based on the impact of equity risk on the Brait financial results.
Overall control of equity risk is established through a comprehensive limit structure that promotes the alignment of the Group’s risk appetite, primarily for the proprietary investments. Investment limits at each control level are approved by the Private Capital board and reviewed regularly to ascertain their relevance and appropriateness. Management is expected at all times to remain within the prescribed limits.
a) Private Capital Brait’s predominant exposure to market risk is related to its role as investor or investment advisor to the Brait private equity funds and the sensitivities to movements in the fair value of their investments, including the effect on performance fees and allocations and investment income. Management fees are payable based on committed capital and is therefore not exposed to equity risk.
Although the Brait private equity funds share the same overall risk management framework, each of the alternative asset management operations runs its own investment and risk management processes, subject to overall risk tolerance and philosophy.
The investment process of the private equity funds involves a detailed analysis of potential acquisitions, and asset management teams assigned to oversee the strategic development, financing and capital deployment decisions of each portfolio investment.
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Notes to the Group Financial Statements_continued for the year ended 31 March
97 41. Financial Risk Management_continued 41.2 Market Risk_continued 41.2.1 Equity Risk Management_continued b) Public Markets Hedge fund investments are exposed to currency, interest rate, equity and commodity risk by virtue of the investment strategy applied. The extent to which it is exposed to any of these three risks is dependent on the position taken by the fund. It is for this reason that Brait actively manages its investment (equity risk) and management fees earned through close collaboration and monitoring of the fund management. As a result Brait ensures that the following takes place: • Active and daily review of investments within a tightly controlled risk management framework. • Appropriate policies and procedures are in place to regularly test and validate valuation models, market inputs and to assess the effectiveness of hedging strategies put in place. • The fair value volatility of the positions is managed using multiple methodologies such as sensitivity analyses and value-at-risk models. c) Direct Proprietary Investments Brait measures the current profit and loss on its proprietary investment portfolio monthly, or more regularly if specifically needed. The monthly reports are supplemented by a full quarterly review of all investments. Controls are in place to ensure that other market risk transactions are booked at prevailing market rates and that positions are revalued at current market prices. Carrying value Reasonable Pre-tax income Carrying value exposed to possible statement at year-end equity risk changeimpact 2009 Rm Rm Rm Financial assets Listed proprietary 107,4 107,4 30% – 96% 54,1 Unlisted proprietary 425,6 270,4 9% – 34% 34,3 Private Equity Fund III Listed 119,7 119,7 8% – 33% 36,9 Private Equity Fund III Unlisted 649,9 645,4 9% – 19% 82,0 Private Equity Fund IV Listed 31,7 31,7 18% – 29% 7,4 Private Equity Fund IV Unlisted 209,6 38,8 10% – 34% 13,2 Mezzanine Fund 52,5 – – – Brait Technology Fund 2,9 1,5 not significant not significant Alternative Equity Partners 15,1 11,8 4% – 23% 1,5 Medu Capital Fund 1,3 1,3 not significant not significant Molash Capital 38,2 38,2 7% – 80% 8,9 Brait Absolute South Africa Fund 25,2 25,2 # Brait Multi-Strategy Fund 70,2 70,2 2% 1,2 Brait Matrix Fixed Income Fund 25,2 25,2 0% 0,1 Brait MA Trust 103 (Brait Ruby) 21,2 21,2 2% 0,8 Lauriston Opportunity 3,7 3,7 16% 0,6 Total financial assets 1 799,4 1 411,7 241,0 Financial liability (168,6) (168,6) 10% (16,9)
# Refer to note 40.1.3 for a detailed sensitivity analysis.
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Notes to the Group Financial Statements_continued for the year ended 31 March
98 41. Financial Risk Management_continued 41.2 Market Risk_continued 41.2.1 Equity Risk Management_continued c) Direct Proprietary Investments_continued Carrying value Reasonable Pre-tax income Carrying value exposed to possible statement at year-end market risk change impact 2008 Rm Rm Rm
Financial assets Listed proprietary 164,2 164,2 9% – 16% 18,1 Unlisted proprietary 370,1 185,45% – 19% 13,3 Private Equity Fund III listed 158,4 158,4 8% – 23% 19,2 Private Equity Fund III unlisted 480,3 465,6 7% – 16% 65,5 Private Equity Fund IV 193,5 53,01% – 19% 6,7 Mezzanine Fund 36,6 – n/a – Brait Technology Fund 4,0 3,2 not significant – Alternative Equity Partners 29,4 28,11% – 2% 0,4 Molash Capital 22,7 – n/a – Brait Absolute South Africa Fund# 45,0 45,0 ## Lauriston Opportunity Fund 6,9 6,9 32% 2,2 Brait Multi-Strategy Fund 55,6 55,6 4% 2,0 Brait High Alpha# 20,5 20,5 ## PSGAI Quant Fund 11,1 11,1 11% 1,2
Total financial assets 1 598,3 1 197,0 128,6
Financial liability (152,9) (152,9) 10%(15,3)
# Refer to note 40.1.3 for a detailed sensitivity analysis. 41.2.2 Interest Rate Risk Management Interest rate risk refers to the impact on future cash flows and earnings of assets and liabilities of interest rates repricing either at different points in time or on a different basis. The Group assesses interest rate risk at different levels depending on where the risk arises. Within the private equity funds interest rate risk profiles are matched in order to reduce the impact of interest rate volatility and to match the estimated yield of the underlying assets funded with the borrowings. This is done where it is considered appropriate and may be achieved through either fixed rate funding or interest rate derivative instruments.
Interest rate risk within Public Markets is managed to cater for a number of interest rate changes such are changes in the yield curve which may not necessarily be linear in nature, such as a twist in the yield curve.
The Group itself is not exposed to a significant amount of interest rate risk relative to its exposure to equity risk and therefore the majority of the funding and asset profile is at a variable interest rate.
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Notes to the Group Financial Statements_continued for the year ended 31 March
99 41. Financial Risk Management_continued 41.2 Market Risk_continued 41.2.2 Interest Rate Risk Management_continued
Carrying value Index toPre-tax exposed to whichReasonable income Carrying value interest interest possible statement at year-end rate risk rate is linked changeimpact 2009 Rm Rm Rm
Financial assets Unlisted proprietary 425,6 155,2 Prime 3% Prime 4,7 Private Equity Fund III Unlisted 649,9 0,8 Prime 3% Prime – Private Equity Fund IV Unlisted 209,6 95,9 Prime 3% Prime 2,9 Mezzanine Fund 52,5 52,5 Jibar 3% Jibar 1,6 Brait Technology Fund 2,9 0,7 Prime 3% Prime – Alternative Equity Partners 15,1 2,6 Jibar 3% Jibar 0,1 Total financial assets 1 355,6 307,7 9,3
Financial liabilities Redeemable preference shares 450,0 200,0 Prime 3% Prime 6,0 Borrowings 3,3 3,3 Prime 3% Prime –
Total financial liabilities 453,3 203,3 6,0
2008 Financial assets Unlisted proprietary 370,1184,7 Prime 1,5% Prime 2,8 Private Equity Fund III Unlisted 480,30,1 Prime 1,5% Prime – Private Equity Fund IV Unlisted 193,5 70,4 Prime 1,5% Prime 1,1 Mezzanine Fund 36,6 27,7 Jibar 1,5% Jibar 0.4 Brait Technology Fund 4,00,4 Prime 1,5% Prime – Alternative Equity Partners 29,41,0 Jibar 1,5% Jibar –
Total financial assets 1 113,9 284,34,3
Financial liabilities Redeemable preference shares 450,0 450,0 Prime 1,5% Prime 6,8 Borrowings 3,33,3 Prime 1,5% Prime –
Total financial liabilities 453,3 453,3 6,8
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Notes to the Group Financial Statements_continued for the year ended 31 March
100 41. Financial Risk Management_continued 41.2 Market Risk_continued 41.2.3 Foreign Exchange Rate Risk Management The Group has consistently applied its policy of hedging the majority of its South African rand tangible net assets into US$. The purpose of this hedging policy is to protect the US$ capital of the Group against rand weakness. The change of the Group’s presentation currency from US$ to rand did not effect its current foreign exchange risk policy. The Group continues to maintain operations with US$ and rand being the respective functional currencies. Individual operations in the Group therefore remain exposed to these various currencies and, as a consequence, will continue to apply appropriate foreign exchange risk policies.
The Group is exposed to the following exchange rates, ie USD, GBP, BWP, AUD, SHK, and currently hedges it foreign exchange exposure through US$-denominated currency call options:
Carrying value Pre-tax exposed toReasonable income Carrying value foreign Currencypossible statement at year-end exchange risk exposurechangeimpact 2009 Rm Rm Rm
Financial assets Listed proprietary 107,4 99,6 GBP,USD 10% ZAR 10,0 Unlisted proprietary 425,6 23,4 BWP 10% ZAR 2,3 Private Equity Fund III Listed 119,7 95,8 USD 10% ZAR 9,6 Private Equity Fund III Unlisted 649,9 17,2 BWP 10% ZAR 1,7 Brait Technology Fund 2,9 1,5 SHK,USD 10% ZAR 0,2
Total financial assets 1 305,5 237,5 23,8
Financial liabilities –– –
2008 Financial assets Listed proprietary 164,2 141,1 GBP, USD 10% ZAR 14,1 Unlisted proprietary 370,116,8 BWP 10% ZAR 1,7 Private Equity Fund III Listed 158,4 114,2 USD 10% ZAR 11,4 Private Equity Fund III Unlisted 480,310,3 BWP 10% ZAR 1,0 Brait Technology Fund 4,02,7 GBP, SHK, USD 10% ZAR 0,3
Total financial assets 1 177,0285,128,5
Financial liabilities –– –
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Notes to the Group Financial Statements_continued for the year ended 31 March
101 41. Financial Risk Management_continued 41.3 Credit Risk 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 or as collateral. Such risk arises primarily from lending and investment activities as well as from the settlement of proprietary financial market transactions and those undertaken on behalf of clients. These exposures are managed through prudent credit exposure limits, constantly measuring current credit exposures, estimating maximum potential credit exposures that may arise over the duration of a transaction, and responding quickly when corrective action needs to be taken. The Group’s assets are predominately unsecured investments in unquoted companies. The Group considers the overall risk exposure of the investment as a whole, therefore significant changes in a particular sector or unexpected increases in interest rates could increase the credit risk inherent in the investment. This risk is mitigated through portfolio diversification and active management. Within Public Markets, settlement risk from the potential default of one or several large institutions that are dependent on one another (ie systemic risk) is monitored to ensure that the financial intermediaries that the Group works with are not negatively affected. The Group’s remaining financial assets are mainly in the form of deposits with banks of a high credit rating or are placed with Brait Public Markets hedge funds and can be redeemed within 30 days. Unless otherwise indicated, the maximum exposure to credit risk is the carrying value of the investment. Given the nature of the risk, no additional collateral is taken against the credit risk exposures. The Group very rarely renegotiates the terms of a loan agreement and, where this is considered necessary, the exposure remains classified as either past due or impaired. Public Treasury Capital Other investments Markets Cash and Term Term Loans and cash 2009 loans loans advances Receivables equivalents Total Analysis of credit qualityRm Rm Rm Rm Rm Rm Quantitative analysis (high/medium/low)# low low low low low Financial assets that are neither past due nor impaired – 1,1 0,5 9,8 430,1 441,5 Financial assets that are past due but not yet impaired –– – 3,1 – 3,1 Age analysis >1 – 30 days –– – 0,5 – 0,5 >31 – 60 days –– – 0,1 – 0,1 >61 – 90 days –––––– >90 days –– – 2,5 – 2,5 Financial assets that are impaired 5,0 – 0,1 16,0 – 21,1 Carrying amount 13,8 – 0,2 17,6 – 31,6 Provision for impairment (8,8) – (0,1) (1,6) – (10,5)
Total credit exposure 5,0 1,1 0,6 28,9 430,1 465,7
# The amounts owed are predominately from related parties, hence the credit exposure is rated by management as low.
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Notes to the Group Financial Statements_continued for the year ended 31 March
102 41. Financial Risk Management_continued 41.3 Credit Risk_continued Public Treasury Capital Other investments Markets Cash and Term Term Loans and cash 2009 loans loans advances Receivables equivalents Total Analysis of credit qualityRm Rm Rm Rm Rm Rm Reconciliation of allowance account Balance at the beginning of the year –– 0,2 1,6 – 1,8 Current year charge net of recoveries 8,8 – 0,1 3,7 – 12,6 Loans and advances written off –– (0,2) (3,7) – (3,9) Balance at the end of the year 8,8 – 0,1 1,6 – 10,5 2008 Quantitative analysis (high/medium/low)# low low low low low Financial assets that are neither past due nor impaired 9,6 1,1 2,3 57,8 417,7 488,5 Financial assets that are past due but not yet impaired –– – 0,8 – 0,8 Age analysis >1 – 30 days –– – 0,7 – 0,7 >31 – 60 days –– – 0,1 –0,1 >61 – 90 days – ––––– >90 days – ––––– Financial assets that are impaired –– – 1,7 – 1,7 Carrying amount –– 0,23,3 – 3,5 Provision for impairment –– (0,2)(1,6) – (1,8)
Total credit exposure 9,6 1,1 2,3 60,3 417,7 491,0 Reconciliation of allowance account Balance at the beginning of the year 7,9 – 9,1 0,4 – 17,4 Current year charge net of recoveries –– 0,2 1,2 – 1,4 Loans and advances written off (7,9) ––––(7,9) Sale of Bayport –– (9,8) – – (9,8) Translation differences –– 0,7 – – 0,7 Balance at the end of the year –– 0,2 1,6 – 1,8
# The amounts owed are predominately from related parties, hence the credit exposure is rated by management as low. Furthermore, approximately 87% of the receivables were collected subsequent to year-end.
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Notes to the Group Financial Statements_continued for the year ended 31 March
103 41. Financial Risk Management_continued 41.4 Liquidity Risk Liquidity risk arises in the general funding of the Group’s activities when there are mismatches between the sizes and maturities of assets and liabilities and also in its funds management and trading operations. The liquidity risk refers to the ability of the Group to meet its financial obligations as they fall due.
The Group’s liquidity risk management framework is used as a basis for determining the Group’s short-, medium- to long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The liquidity position and forecast liquidity requirements are based on anticipated changes in the balance sheet. These are tested against various different stress scenarios. The scenarios are used to identify consequences of market rate changes (including extreme but remote changes) and our cash position is evaluated and adjusted accordingly.
In addition to significant cash reserves, the Group also has access to approved banking facilities of R100 million (2008: R100 million). Any cash necessary for future requirements but not required immediately is placed on deposit in Brait Public Markets hedge funds and can be redeemed within 30 days.
As at 31 March 2009, the Group had R303,6 million (2008: R457,4 million) invested as such with the Brait Absolute Fund (refer to note 21).
Liquidity risk analysis of financial liabilities Greater 0 to 3 4 to 6 7 to 12 1 to 2 3 to 5 than Carrying monthsmonthsmonths years years 5 years Total 2009 value Rm Rm Rm Rm Rm Rm Rm
Financial liability 168,6 – – – 168,6 – – 168,6 Redeemable preference shares* 458,3 – 25,6 24,6 98,8 492,8 – 641,8 Non-current borrowings 3,3 0,1 0,1 3,3 – – – 3,5 Accounts payable 64,7 64,7 –––––64,7 Current borrowings 59,3 59,3–––––59,3
754,2 124,1 25,7 27,9 267,4 492,8 – 937,9
2008 Financial liability 152,9 ––––152,9 – 152,9 Redeemable preference shares* 458,5 8,5 25,025,350,6 299,2 284,0 692,6 Non-current borrowings 3,3 0,1 0,1 0,2 3,8 – – 4,2 Accounts payable 78,0 78,0 –––––78,0 Current borrowings 76,3 76,3 –––––76,3
769,0162,9 25,125,554,4 452,1 284,0 1 004,0
* Carrying value of redeemable preference shares includes accrued dividend at year-end of R8,3 million (2008: R8,5 million).
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Notes to the Group Financial Statements_continued for the year ended 31 March
104 2009 2008 Rm Rm
41. Financial Risk Management_continued 41.4 Liquidity Risk_continued Net managed position As indicated in the liquidity policies and procedures above, the Group does not necessarily manage liquidity risk based on an undiscounted contractual cash flow analysis as required by IFRS 7 and disclosed above. Certain assets and liabilities are inextricably linked to one another and these are not included for the purposes of the regular liquidity analysis. The analysis below provides the net liquidity position managed by the Group as at year-end.
Liabilities Total financial liabilities 754,2 769,0 Adjusted for linked financial liabilities Financial liability (Sitogo) (168,6) (152,9) Current borrowing (Net1 UEPS) (59,3) (74,8)
Total managed liabilities 526,3 541,3
Assets Total current financial assets 525,0 562,1 Adjusted for linked financial assets: Financial assets (Sitogo) (39,8) (64,6) Other current investment (Net1 UEPS) (65,4) (82,8)
Total managed current financial assets 419,8 414,7
Net managed liabilities (106,5) (126,6)
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Principal Subsidiaries and Associated Companies for the year ended 31 March
105 Issued ordinary Name andDate of share capital Holding registration number incorporation Nature of business Rm %
Subsidiary Companies Brait South Africa Limitedø 26/10/60 Investment and 3,2 74 1960/003893/06 financial services Capital Partners Group 13/03/98 Holding company 128,7 100 Holdings Limited‡ 271641 Larioja Investmentsø 08/10/02 Holding company – 100 2002/024803/07 Brait International Limited‡ 30/06/98 Investment and – 100 20703/4507 financial services Carrying Date to whichIssued value Name and equity income ordinary 2009 Holding registration number accounted for Nature of business share capital Rm %
Associated Companies Medu Capital (Proprietary) Limitedø 31/03/09 Funds manager – 14,9 49 2003/000273/07 Mezzanine Partners (Pty) Limitedø 2005/013957/07 31/03/09 Funds manager –1,140 CZ-SACGF Holdings Limited* 31/03/09 Investment holding company – 11,3 33,3 * Incorporated in the Cayman Islands. ‡ Incorporated in Mauritius. ø Incorporated in South Africa.
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Supplementary Information for the year ended 31 March
106 2009 2008 US$m US$m Abridged Financial Statements of Brait S.A. Brait S.A. is the holding company of the Group. It was incorporated on 5 May 1976 in the Grand Duchy of Luxembourg in terms of the law of 31 July 1929. Income statements for the year Profit for the year 38,0 19,8 Net financial and other income 37,7 15,6 Currency hedge gain 3,4 6,1 Administrative and other expenses (3,1) (1,9)
Balance sheets Non-current assets 176,6 168,1 Financial assets* 4,7 21,0 Investments 171,9 147,1 Subsidiaries 145,8 145,8 Intercompany advances 26,1 1,3 Other investments* – – Current assets 47,6 56,4 Other current investments* 6,5 9,5 Accounts receivable and prepayments* 0,4 0,1 Cash and cash equivalents* 40,7 46,8
Total assets 224,2 224,5
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Supplementary Information_continued for the year ended 31 March
107 2009 2008 US$m US$m Equity Share capital and premium 158,2 158,7 Legal reserve 4,0 3,3 Distributable reserves* 33,0 18,2 Total equity and reserves 195,2 180,2 Liabilities Non-current liabilities Intercompany loans 21,0 34,6 Current liabilities Accounts payable and other current liabilities 8,0 9,7 Total equity and liabilities 224,2 224,5 Share capital Authorised 150 000 000 (2008: 150 000 000) ordinary shares of no par value Issued 110 487 321 (2008:110 487 321) ordinary shares of no par value 157,9 157,9 Distributable reserves At the beginning of the year* 18,2 28,6 Profit for the year 38,0 19,8 Reclassification of 2008 interim dividend* – (9,7) Dividends paid (23,2) (20,5) At the end of the year 33,0 18,2
Significant accounting policies – Significant accounting policies for the Company are consistent with those disclosed for the Group, except for unrealised gains which are excluded from income in accordance with Luxembourg law. The separate annual financial statements prepared for the Company are in accordance with Luxembourg GAAP. The abridged information presented for the Company above has been prepared in terms of IFRS (unrealised gains are thus included in income), for comparability with the Group’s financial statements. – The carrying value of subsidiaries are reflected at the lower of cost or fair value, where the write-down below cost is considered permanent.
* Reclassifications The following comparative figures have been reclassified to conform to changes in presentation in the current year. – Reclassification of listed investment (US$9,6 million) from Financial assets to Other current investment. – Reclassification of short-term treasury investments (US$46,5 million) from Other investments to Cash and cash equivalents. – Reclassification of previous year’s interim dividend (US$9,7 million) from Prepayments to Distributable reserves. – Reclassification of revaluation on investment (US$2,4 million) from Distributable reserves to Financial assets.
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Group Value Added Statement for the year ended 31 March
108 2009 2008 Notes Rm % Rm % Value added Fees, investment returns, interest and other revenues 1 600,4 714,5 Cost of services 2 (162,9) (87,9) Wealth created 437,5 626,6 Distribution of wealth Employees Salaries, wages and other benefits 161,1 37 146,5 23 Governments – national and regional Taxation and duties 2 19,0 4 4,5 1 Capital providers Lenders – finance costs 2 59,2 14 53,8 9 Shareholders – dividends 192,7 44 175,228 Retentions 5,5 1 246,6 39 Retained earnings and depreciation 2 (26,1) 217,8 Deferred tax 2 31,6 28,8
437,5 100 626,6 100 Notes 1. Interest is included net of interest expense. 2. The comparative amounts shown for these items have been reclassified to conform to changes in presentation in the current year.
Distribution of Wealth Distribution of Wealth 31 March 2009 31 March 2008
Retentions (1%) Employees (23%)
Employees (37%) Retentions (39%) Governments – National and Shareholders Regional (1%) (44%) Lenders (9%)
Governments – national and regional (4%) Lenders (14%) Shareholders (28%)
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Share Analysis
109 Shareholders Shares held Number % Number %
Distribution of shareholders at 31 March 2009 Range of shareowning 1 to 1 000 1 885 68,80 412 399 0,37 1 001 to 10 000 568 20,73 2 012 561 1,82 10 001 to 100 000 174 6,35 6 062 487 5,49 100 001 to 1 000 000 90 3,28 30 209 541 27,34 more than 1 000 000 23 0,84 71 790 333 64,98
2 740 100,00 110 487 321 100,00
The analysis of shareholdings above includes the underlying beneficial shareholders in nominee companies.
Shareholder spread To the best knowledge of the directors and after reasonable enquiry, as at 31 March 2009, the spread of shareholders was as follows:
Non-public 15 0,55 25 577 078 23,15
Directors of the Company holdings 10 0,36 5 964 291 5,40 Strategic holdings (more than 10%) 1 0,04 15 248 810 13,80 Share trusts 4 0,15 4 363 977 3,95
Public 2 725 99,45 84 910 243 76,85
2 740 100,00 110 487 321 100,00
Category/Classification of shareholders Banks 45 1,64 12 575 254 11,38 Close corporations 39 1,42 141 703 0,13 Endowment funds 21 0,77 332 444 0,30 Individuals 2 153 78,58 3 712 837 3,36 Insurance companies 19 0,69 8 814 517 7,98 Investment companies 12 0,44 7 536 423 6,82 Medical aid scheme 3 0,11 67 440 0,06 Mutual funds 80 2,92 21 045 025 19,05 Nominees and trusts 190 6,94 14 968 629 13,55 Other corporations 22 0,80 52 421 0,05 Pension funds 60 2,19 26 791 192 24,25 Private companies 79 2,88 3 972 006 3,59 Public companies 13 0,47 6 113 453 5,53 Share trusts 4 0,15 4 363 977 3,95
2 740 100,00 110 487 321 100,00
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Share Analysis_continued
110 Major shareholders According to the Company’s share register, the following are the 10 largest shareholders as at 31 March 2009: Shares held Number %
Public Investment Corporation 15 248 810 13,80 State Street Bank & Trust Co (Custodian) 7 599 782 6,88 Securitas Services 6 049 544 5,48 Liberty Group 4 809 339 4,35 The Thierry Dalais Family Trust 4 671 645 4,23 The Ball Family Trust 4 085 375 3,70 Battersea Services Limited 3 916 938 3,55 Titan Nominees (Pty) Limited 3 400 016 3,08 Drocheda Limited 3 000 000 2,72 Nedgroup Investment Managed Fund 2 940 385 2,66
Total 55 721 834 50,45
Performance on the JSE Limited* for the years ended 31 March 2009 2008 2007 2006 2005
Price performance Traded prices (South African cents per share) – year-end closing price 1 050 2 125 2 920 2 500 1 170 – high 2 153 3 1903 200 2 630 1 250 – low 935 1 922 1 985 1 170 676 – weighted average price per share traded 1 530,0 2 671 2 412 1 785 892 Price/earnings ratio (on closing price) 6,7 5,7 8,8 7,5 4,9
Volume performance Number of shares in issue (’000) 110 487 110 487 110 487 110 487 102 256 Volume of shares traded (’000) 40 411 67 287 73 735 56 222 29 717 Number of transactions 6 675 10 258 10 291 9 575 3 166 Volume traded as % of average shares in issue 37 61 67 51 29 Number of shareholders (at 31 March) 2 740 3 100 3 715 4 010 2 872
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Share Analysis_continued
111 Performance on the JSE Limited*_continued for the years ended 31 March 2009 2008 2007 2006 2005
Value performance Value of shares traded – ZARm 630 1 7911 784 1 081 265 – US$m 71 251 253 169 42
Market capitalisation at 31 March (m) – ZARm 1 114 2 255 3 085 2 537 1 196 – US$m 117 279 425 411 190
Yield Earnings yield (%) 15,0 17,4 11,3 13,3 20,3 Dividend yield (%) 17,0 7,1 4,4 4,7 7,3
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 Average Price 10 25
8 20
6 15 C ent s M i ll ion s 4 10
2 5
0 0 Jul 08 Jul 08 Ap r 08 Ap r 08 Oc t 08 Ja n 09 Ju n 08 Oc t 08 Ja n 09 Ju n 08 F e b 09 F e b 09 Ma r 09 Ma r 09 D e c 08 Au g 08 N o v 08 D e c 08 Au g 08 N o v 08 May 08 May 08 S e p t 08 S e p t 08
Brait Annual Report 2009 Governance Exceptional Performance Year 2009 Mission Strategy Vision Values Leadership
Governance Governance Exceptional Performance Year 2009 Mission Strategy Vision Values Leadership
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Governance Report
114 Compliance, Legislation and South Africa Policies, Objectives and Regulation •Financial Services Board (FSB): The Performance Measurement Brait S.A. is listed internationally on three introduction of the new amended Fit The policies, values and objectives of the stock exchanges and, being a provider of and Proper requirements for financial Group are determined by the Board of financial services, operates in highly service providers (FSPso), mprpting directors of Brait, which in turn receives regulated environments. Accordingly, the FSB to host their first public input and guidance from the boards of its regulatory and legislative compliance is of conference for FSPs held in Pretoria principal subsidiaries. The Board sets the utmost importance to the Group and a in October 2008. The aim of the strategic objectives of the Group and good relationship with the regulators is requirements is to ensure determines investment and performance vital. The Group compliance officer follows professionalism in the industry. criteria. Management is charged with the a policy of constructive engagement and •Introduction of a “Compliance Corner” detailed planning and implementation of regularly interacts with the applicable in the quarterly staff newsletter, in an board policy in accordance with regulators on both a formal and informal effort to increase staff awareness of appropriate risk parameters. The basis, as and when required. The directors new or amended compliance achievement of objectives and compliance conduct business in accordance with the requirements. with policies is monitored by the Board applicable laws and regulations in the •The review of the Group compliance through mandated reports from various countries in which the Group function by an independent consulting management who are held accountable for operates. The responsibility for daily company in order to ensure adherence their actions. to the latest compliance standards. compliance with laws and regulations Risk Management within the business areas rests with the Governance Principles Risk management is central to Brait’s various departmental heads. General business and the Group has developed Responsibility for compliance oversight Good corporate governance is integral to comprehensive systems and risk falls within the Group risk management Brait and incorporates sound business management processes to control and framework and functions independently of principles and best practice. The Board of monitor all activities in the Group. A critical any business unit. The compliance officer directors recognises the need to conduct element of Brait’s strategy has been the reports to an executive director of the Brait the business with integrity and according development of skilled professionals who S.A. board. The compliance officer has to generally accepted and best have an established culture of risk unrestricted access to the chief executive international corporate practices. Whilst management. While ultimate accountability officer, business unit managers, the compliance with the formal standards of for risk lies with the Board of Brait, the chairman of the Group Audit and Risk governance practice is important, management of risk is closely monitored Committee and the chairman of the emphasis is placed on ensuring the by the boards of its primary operating board. Compliance reports are presented effectiveness of governance practice, with subsidiaries. In addition, thed B oar has at each Group Audit and Risk Committee substance prevailing over form. formally mandated the Group Audit and Risk Committee to include the review of meeting. The primary role of the The Board subscribes to the principles and risk management policies and processes compliance officer is to assist practices embodied in appropriate of the Group in its terms of reference. management in complying with all international corporate governance codes applicable statutory, regulatory and including those contained in the King Business Integrity and Conduct supervisory requirements. The business Report on Corporate Governance for The Group subscribes to a corporate units follow a self-assessment approach to South Africa 2002 (King II). These ethos which requires directors and controls, through compliance checklists. principles and practices have been employees to adopt the highest personal The Group’s key compliance focus areas adhered to and complied with in the ethical standards in dealing with all for the year under review were: discharge of their duties during the year. stakeholders in the conduct of the Group’s
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Governance Report_continued
115 affairs. The principles to which each dealing specifically with environmental directors’ dealings in Brait shares are individual subscribes include integrity, challenges. In addition, Brait seeks to disclosed to the Board and to the public openness, accountability, impartiality and ensure that it invests in businesses which through various securities exchange honesty and are embedded in the Code of conform to environmental standards. news services. Conduct contained in the Group’s Human Similarly, Brait makes investments where Directors’ Dealings for the Year Resources Policy document to which each the health and safety of employees and under Review employee is bound. the well-being of the communities in which There were no directors’ dealings in the these companies operate is recognised. Brait maintains a zero-tolerance approach Company’s shares during the year. to unethical or dishonest behaviour and Reporting Company Secretary any employee found to be acting Brait is committed to transparent reporting The functions of the Company secretary, unethically is subject to disciplinary action and disclosure. Information provided to all domiciliary agent and registrar is overseen in accordance with the Company’s stakeholders, including financial results by Experta Luxembourg S.A. They are disciplinary code. The ultimate sanction for and the annual report, are presented in a responsible for ensuring compliance with breach or non-adherence would be the meaningful and relevant manner so as to all board procedures and the Brait dismissal of the employee. The board enable users to gain a proper and directors have access to the advice and believes that there has been no material objective perspective of the Group. Brait’s services of the Company secretary. non-adherence to these principles, by any website is maintained as a relevant means employee, during the year under review. of communicating Brait’s message to all Key Governance Highlights and its stakeholders. Developments In accordance with Brait policies, no The following were the key highlights and donations were made to any political Share Dealings developments important to Brait’s parties, by any of the companies within the The Group adheres to a “closed period” corporate governance process during the Group, during the year under review. policy, as defined in its listing requirements, in terms of which all directors, officers, year under review: Employee Empowerment participants in the share incentive schemes •Appointment of KPMG as The Group places emphasis on the and employees are prohibited from dealing internal auditors. development and training of its people and in any form of Brait security for the entire •Ongoing compliance with King II and endeavours to ensure that it offers staff closed period prior to the release of the other international corporate equal opportunity and appropriate Group’s interim and final results. This governance codes. participation in decision-making processes. policy is also extended to any period when •The compilation of a provisional Through its various long-term incentive the Company is trading under a cautionary Corporate Governance Charter, which plans and share incentive schemes, announcement. All board members and is fully aligned to the recommendations members of management enjoy direct and employees across the Group are timeously flowing from the 10 corporate notional ownership in the company and informed of closed periods. governance principles published by are incentivised in their performance. the Luxembourg Stock Exchange. The The Group maintains a register of notified Charter is subject to ratification by The Environment, Health and transactions and all employees and thed B.oar Safety directors are required to notify the While Brait’s direct activities do not pose Company secretary in advance of any On completion of this corporate any significant threat to the environment in trading in Brait S.A. shares, any form of governance project, shareholders will which it operates, the Group has Brait S.A. securities on any of its listed be requested to approve an mandated the Environmental Steering stock exchanges or trading in any appropriate amendment of the Committee to monitor compliance with derivative involving Brait S.A. securities, Company’s Articles of Association to environmental policies and guidelines whether listed or unlisted. Details of incorporate the Company’s corporate
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Governance Report_continued
116 governance framework. Any additional •Conduct regarding conflicts of interest. to assist all newly appointed directors. disclosure which may be required •Evaluation of directors. Directors have unrestricted access to all following the completion of the project •Board relationship to staff and external Group information, records and will be incorporated in the Corporate advisors, including unrestricted access documents and are provided with Governance Charter of the Group and to Company books and records. comprehensive board packs prior to each published on the Company’s website. • Succession and emergency planning. scheduled meeting. If necessary, a board Governance Structures •Board meetings and procedures. member may take independent professional advice concerning the affairs Board of Directors In terms of the Board Charter, the directors of the Group, at the expense of the Group. The Board meets quarterly and monitors are to be assessed annually, both the management, controls, compliance individually as directors and collectively as Board Membership and Meeting and proper conduct of the business. a board. In addition, the non-executive Attendance Having due regard for the members of the Board, in consultation with The Board is chaired by an independent recommendations by its executive the chairperson, formally evaluate the non-executive director of the Company committees, the Board determines and performance of the chief executive officer who is supported by an additional six monitors matters relating to the (CEO) on an annual basis. independent non-executive directors and implementation and/or modification of five executive directors. The Board is In accordance with the Company’s Articles policies and strategic plans, Group comprised of a majority of non-executive of Associatione, calltors dir are subject to investments and dispositions, major directors who are independent of re-election by shareholders at each annual capital expenditure and operating and management and promote the interests of general meeting. The Board comprises financial budgets. stakeholders. The independence of the people with skills, knowledge and non-executive directors has been The Board Charter describes the mission, experience who are conscious of their duty assessed with due regard to the criteria duties and responsibilities of the Board and to ensure that the Group maintains a high set out in international corporate salient aspects concerning the following: standard of corporate governance. governance codes, and King II. •The fiduciary responsibilities The Board has ensured that its information of directors. Serving members of the Brait S.A. board, needs are well defined and regularly •Board composition and leadership. during the year and to the balance sheet monitored. A formal orientation programme •Induction and orientation of date, and their attendance at board with members of management is provided new directors. meetings, are as follows:
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Governance Report_continued
117 Date of Date of Meetings attended Attendance appointment resignation during the year record Non-executive directors ME King (Chairman)* 29 July 1998 3/4 75% PAB Beecroft• 27 July 2005 3/4 75% JE Bodoni# 29 July 1998 2/4 50% RJ Koch• 29 July 1998 4/4 100% AM Rosenzweig** 29 July 1998 4/4 100% HRW Troskie** 27 July 2005 4/4 100% PL Wilmot*3 August 1999 4/4 100% Executive directors AC Ball* 29 July 1998 4/4 100% AD Campbell* 20 February 200710 November 2008 2/2 100% BI Childs• 27 July 2005 4/4 100% JA Gnodde* 27 July 2005 4/4 100% MS Masithela*8 August 2007 28 October 2008 2/2 100% S Sithole^ 28 October 2008 2/2 100% SJP Weber# 28 May 2001 3/4 75%
* South African # Luxembourgish • British ** Dutch ^ Zimbabwean
Risk Management and Internal reasonable assurance that the assets are Auditors. The Charter formally defines the Control protected against material loss or purpose, authority and responsibility of the The responsibility for the Group’s risk unauthorised use and that transactions are internal audit function, and oisv appred b y management, including its systems of properly authorised and documented. the Group Audit and Risk Committee. internal financial and operational control is The internal audit function independently The internal audit function reports directly acknowledged as being the responsibility reviews the adequacy and effectiveness of to the chairman of the Audit and Risk of the Board. However, this foundation is the Group’s risk management, control and Committee and has full and unrestricted specifically monitored by the Group Audit governance processes. The results of both access to the CEO and the chairman of and Risk Committee. The foundation for the internal and external audit reviews are the Board. the Group’s internal control process is reported to the Group Audit and Risk All business and support units, found in its governance principles, which Committee for consideration and including significant enterprise-wide incorporate ethical behaviour, compliance evaluation. It is the responsibility of this related processes, are subject to regular legislation and sound accounting practice. committee to inform the directors of any internal audit reviews. Material or material losses which may have arisen as The control systems include clearly defined significant control weaknesses and a result of a breakdown of the systems in lines of accountability and delegation of planned corrective action by management operation, and to report on remedial action authority, and provide for full reporting and is reported to the Group Audit and Risk taken or required. analysis against approved budgets. The Committee. These issuese ar m onitored to executive directors are responsible for Internal Audit ensure that agreed corrective action has determining the adequacy, extent and The Group’s internal audit function been implemented. Overdue issues are operation of these systems. In this regard, operates in accordance with the Internal reported to the Group Audit and the executive directors are of the opinion Audit Charter, which is in line with the Risk Committee on each occasion that Brait’s existing systems provide requirements of the Institute of Internal that it meets.
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118 The internal audit function is risk based the scope of the external audit, budgets Nominations Committee and the Capital rather than compliance based and and any other matters arising. Allocation Committee, all of which conducts an annual formal enterprise-wide operates under written terms of reference The external auditors attend the Audit and confirmed by the Board. Ad hoc risk assessment, based on inherent risk and Risk Committee meetings and have committees are also mandated to attend management’s assessment of residual risk. unrestricted access to the chairman of the to specific business matters from time to A comprehensive risk-based annual audit Group Audit and Risk Committee. plan is derived from this assessment, which time. The existence of these committees identifies areas of focus based on the Compliance, Legislation and does not reduce the overall responsibility relative degree of the inherent risks Regulation of the Board and, therefore, all committees The directors conduct business in identified during this process. The annual must report and make recommendations accordance with the applicable laws and audit plan is approved by the Group Audit to the Board. All board committees are regulations in the various countries in which chaired by an independent non-executive and Risk Committee and is regularly the Group operates. The responsibility for director and are free to obtain independent reviewed to ensure that it rem ains relevant daily compliance with laws and regulations external professional advice in the carrying given any changes to Brait’s business and within the business areas rests with the out of their duties as and when required. the operating environment within the Group. various department heads. Any changes to the audit plan are approved Group Audit and Risk Committee by the Group Audit and Risk Committee. The compliance department’s primary role The Group Audit and Risk Committee has is to assist management with all applicable a minimum of three members all of whom KPMG was appointed as the Group’s statutory, regulatory and supervisory are independent non-executive directors, Internal Auditors in January 2009, following requirements. The business units follow a including the chairperson. The Group the resignation of the Group’s in-house self-assessment approach to controls, Financial Director is required to attend internal audit manager, to ensure that this through compliance checklists. meetings of the committee and function is independent of management in other non-members, such as the Group addition to ensuring that the Group Responsibility for compliance within the Chief Executive Officer, internal and complies with international best practice. Group has been centralised in the Johannesburg offices. external audit representation, attend External Audit meetings by invitation. The Group’s external auditors are Deloitte & Board Committees Membership and Meeting Touche. The independence of the external Certain responsibilities of the Board have been delegated to board committees to Attendance auditors is recognised and reviewed with assist and enable the Board to properly Serving members of the Group the auditors by the Group Audit and Risk discharge its duties and responsibilities. Audit and Risk Committee, the date Committee on an annual basis. These committees comprise the Group of their appointment and their The Group Audit and Risk Committee Audit and Risk Committee, the attendance at the meetings are meets with the external auditors to review Remuneration Committee, the as follows:
Number of Date ofmeetings attended Attendance Date of appointment resignation Independent during the year record Members PL Wilmot (Chairman)* 4 August 1999 Yes 4/4 100% HRW Troskie** 20 May 2008 Yes 4/4 100% AM Rosenzweig** 31 May 2006 Yes 4/4 100% ME King* 9 September 1998 20 May 2008 Yes 1/1 100%
* South African ** Dutch
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119 Objective, Duties and Primary at its meeting held on 14 May 2009, At certain meetings, time is reserved for Functions/Responsibilities satisfied itself as to the appropriateness of separate discussions with the committee The Group Audit and Risk Committee’s the expertise and experience of the together with management (excluding the primary objective is to provide the Board Financial Director. external auditors) and the committee with additional assurance regarding the together with the external auditors quality and reliability of the financial The Group Audit and Risk Committee has (excluding management). These separate information used by the directors and to satisfied their terms of reference for the discussions provide an opportunity assist them in the discharge of their duties. year under review. for committee members, management and external auditors to communicate Specific responsibilities in terms of the Issues relating to accounting, auditing, privately and independently. Charter of the Group Audit and Risk internal control and financial reporting Committee include: matters are discussed with the Group’s The internal and external auditors • providing satisfaction to the Board that external auditors at meetings convened on a have unrestricted access to the Group adequate and appropriate financial periodic basis. Both the internal and external Audit and Risk Committee, ensuring that and operating controls are in place; auditors are afforded unrestricted access to their independence is maintained at all • ensuring compliance with appropriate the Group Audit and Risk Committee. times. standards of governance, reporting Remuneration Committee and other regulations; The Group’s internal audit function reports The Remuneration Committee has • reviewing and approving internal audit, to the Group Audit and Risk Committee. three members of whom two, risk and compliance policies, reports The main responsibilities of the internal including the chairman, are independent. and findings; audit function include the examination and The Remuneration Committee has a • ensuring that significant business, evaluation of the effectiveness of charter and is primarily responsible financial and other risks have operational activities, together with the for the remuneration strategy for been identified and are being attendant business risks and systems of the Group and meets regularly to managed; and operational and financial control. Material • reviewing and recommending to the consider annual reviews, remuneration deficiencies, development needs and Board the adoption of the interim and issues, incentives and policy matters. instances of non-compliance are reported annual financial statements. Refer to the Remuneration Report on to the Group Audit and Risk Committee, pages 124 to 130 for further detail on In terms of the JSE Listings Requirements, the external auditors and operational remuneration and remuneration policies the Group Audit and Risk Committee had, management for resolution. for the Group. Membership and Meeting Attendance The serving members, the date of their appointment, and attendance at the Remuneration Committee meetings are as follows: Number of Date of meetings attended Attendance Date of appointment resignation Independent during the year record Members RJ Koch• (Chairman) 9 September 1998 Yes 2/2 100% ME King* 9 September 1998 14 May 2008 Yes 1/1 100% AC Ball* 9 September 1998 14 May 2008 No 1/1 100% PAB Beecroft• 14 May 2008 Yes 1/1 100% AM Rosenzweig** 14 May 2008 Yes 1/1 100%
* South African • British ** Dutch
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120 Nominations Committee The Nominations Committee comprises at least three directors, each of whom are independent and non-executive. The committee has a charter and the authority to supervise and review the affairs of Brait as they relate to board and committee composition and leadership, board evaluations and senior executive appointments. The committee meets at least twice a year and may hold additional ad hoc meetings when required.
Number of meetings attended Attendance Date of appointment Independent during the year record
Members ME King* (Chairman)1 April 2007 Yes 2/2 100% AC Ball*1 April 2007No2/2 100% RJ Koch•1 April 2007 Yes 2/2 100%
* South African • British Capital Allocation Committee The Capital Allocation Committee is responsible for the allocation and management of Brait’s capital. The responsibilities include the establishment, implementation and monitoring of governance around the deployment of capital and performance targets relating to the deployment of capital.
Number of meetings attended Attendance Date of appointment Independent during the year record
Members AC Ball* (Chairman)1 April 2008No2/2 100% PAB Beecroft•1 April 2008 Yes 2/2 100% BI Childs•1 April 2008No2/2 100% JA Gnodde*1 April 2008No2/2 100% RJ Koch•1 April 2008 Yes 2/2 100% SJP Weber#1 April 2008No2/2 100% S Sithole^ 28 October 2008No2/2 100%
* South African • British # Luxembourgish ^ Zimbabwean
Board Subcommittees The Brait S.A. board has established several additional subcommittees which report either directly or indirectly to the Board, whose functions are to manage specific risks and activities of the Group. These subcommittees operate within defined terms of reference, which include the following: •Private Equity Proprietary Investment Committee. • Social Investment Committee. •Environmental Steering Committee. •Employment Equity Committee.
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121 Major Subsidiary Companies Brait South Africa Limited board (BSAL board)
The South African holding company board, in addition to its statutory obligations, is mandated by the Brait S.A. board to carry out specific tasks delegated to it in respect of the South African operations of the Group. The serving members of the BSAL board are tabled below: Number of Date ofmeetings attended Attendance Name Date of appointment resignation during the year record Independent non-executive directors BL Sibiya (Chairman)* 1 October 2004 4/4 100% OK Chikane* 1 October 2004 3/4 75% ME Gevers* 1 November 2004 2/4 50% I Matthews* (Alternate to ME Gevers) 1 November 2004 3/4 75% BMC Ngcobo* 25 January 2006 3/4 75% VV Reddy* 1 October 2004 4/4 100% SDM Zungu* 10 October 2004 3/4 75% Executive directors AC Ball* 11 July 2000 4/4 100% AD Campbell*6 October 200310 November 2008 2/3 67% JA Gnodde* 10 October 2002 2/4 50% E Guiterrez-Garcia* 1 April 2003 30 June 2008 0/1 0% BL MacRobert* 1 January 2003 15 July 2008 0/1 0% S Sithole^ 23 July 2008 3/3 100% WH Meyer* 22 January 200730 June 2008 1/1 100% MS Masithela* 14 May 2007 28 October 2008 3/3 100% DS Mashishi* 17 February 2009 1/1 100%
* South African ^ Zimbabwean Brait International Limited board The Brait International Limited board is, in addition to its statutory obligations, mandated as a subcommittee of the Brait S.A. board with the responsibility to carry out specific tasks delegated to it in respect of the Group’s international operations outside South Africa. Serving members of the international board are: Number of Date ofmeetings attended Attendance Name Date of appointment resignation during the year record Executive directors BI Childs (Chairman)• 21 October 2004 5/5 100% D Boodhoo*10 June 2003 5/5 100%
• British, * Mauritian
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122 Board Profile Antony Charles Ball (50)* Group on all financial-related matters, The Board is committed to business integrity, Chief Executive Officer including Group reporting and systems transparency and sustainability in all its Date appointed: 29 July 1998 integrity; treasury and cash management; tax strategy; compliance activities to ensure that all the entities within Qualifications: BCom (Hons), MPhil (Oxon), and corporate governance matters as the Group are managed ethically and CA (SA) •Co-founder of Brait’s Private Equity well as overseeing the investor relations responsibly. business. programme. The current members of the Brait S.A. board •To date, has acted in various leadership •Prior to joining Brait, was a Deloitte & are as follows: capacities in Brait and as its chief Touche Partner for six years, executive officer since 1 October 2006. commencing in Harare (two years) and Mervyn Eldred King (71)* •Has led and played a significant role in then Johannesburg (four years), Chairman the raising and governance of the eventually leaving Deloitte as the Group Date appointed: 29 July 1998 Group’s principal private equity funds. Leader for the Johannesburg financial Qualifications: BA, LLB (cum laude) H Dip •Has been responsible for numerous of services audit practice. Tax (Wits) PhD Law (hc) the Groups’ private equity investments • Served in the financial services division • Senior Counsel and former Judge of the and has represented Brait on the boards of Deloitte & Touche UK, based in London, between September 1999 and High Court of South Africa. of over 18 private and public February 2002. •Professor Extraordinaire at the University companies. •Awarded the Duff Award of Merit by the of South Africa on Corporate •Prior to joining Brait, was a partner at Deloitte & Touche, where he co-founded Institute of Chartered Accountants in Citizenship, Chairman of the King The Strategy Group. Zimbabwe for passing the final qualifying Committee on Corporate Governance, examination in 1998 as the overall best President of the Advertising Standards John Andrew Gnodde (44)* student as well as passing both parts of Authority, First Vice-President of the Executive Director the examination with honours. Institute of Directors Southern Africa, Date appointed: 27 July 2005 Paul Adrian Barlow Beecroft (62)† Joint Deputy Chairman of the Securities Qualifications: BCom (UCT) •Joined Brait in 1995 and has been Non-executive Director Regulation Panel, Chairman of the Date appointed: 27 July 2005 Appeal Committee of the United Cricket responsible for investments in consumer products, construction, pharmaceutical Qualifications: MA (Oxon) Physics, MBA dB,oar Chairm an of Strate. Member of manufacture, beverages, resources, (Harvard Business School), F. Inst. P the Private Sector Advisory Group to the media, mobile telecommunications, and •Joined Apax, widely recognised as one World Bank on Corporate Governance, recruitment outsourcing, amongst of the leading private equity houses in Member of the international advisory others. Europe, in 1984. boards of Stern Stewart (USA), •Represented Brait on the boards of over •Played a major part in the international Tomorrows Company (UK) and the 20 private and public companies. expansion of the business and has Asian Centre of Corporate Go vernance. •Prior to joining Brait, served in the represented Apax on the boards of over 20 private and public companies. •Chairman of the Global Reporting investment banking division of Goldman •Joined the Boston Consulting Group in Initiative (Amsterdam). Sachs International in London. London, promoted to manager in 1979 •Has chaired and has been a director of Samuel Sithole (36)^ and to vice-president in 1982. several companies listed on the Financial Director •Went as a Harkness Fellow to the JSE Limited. Date appointed: 28 October 2008 Hd arBvar usiness School in 1974 and •Has consulted, advised and spoken on Qualifications: B Acc (Hons), CA (SA), ACA, graduated as a Baker scholar in 1976. legal, business and corporate CA (Z) •Postgraduation in 1968, he worked for governance issues in 36 countries and •Group Financial Director responsible for ICL in the computer industry for has been the recipient of many awards. providing strategic direction for the five years.
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123 •Obtained a first-class honours Standards Board and past Chairman of Brett Ivor Childs (47)† degree in physics from the Queen’s the Accounting Practices Board. Executive Director College, Oxford. Date appointed: 27 July 2005 Jean Ernest Bodoni (59)** Qualifications: B Com (Hons), CA (SA) Hermanus Roelof Willem Non-executive Director •Joined Brait in 2004 as executive Troskie (39)‡ Date appointed: 29 July 1998 chairman of its Mauritian operation. Non-executive Director Qualifications: Commercial engineer •Currently runs own successful Date appointed: 27 July 2005 •Currently holds the position of President private equity investment company Qualifications: B Juris, LLB, LLM of the Executive Board with Experta in Mauritius. •A director of Maitland, an international Luxembourg S.A. •Joined New Africa Technology Holdings professional services firm, and resides in •Director of a number of Luxembourg (Pty) Limited, the information technology Luxembourg. resident companies. arm of New Africa Investments Limited, •Postcompletion of a legal research •In excess of 30 year’s experience in the in 1998 as Finance Director. project at the Vrije Universiteit in Luxembourg banking sector. •Postcompletion of training with Deloitte Amsterdam, spent three years in legal & Touche in 1987, co-founded a small Richard John Koch (58)† reinsurance consultancy business practice in Cape Town before joining the Non-executive Director providing investigative and audit services Luxembourg office of Maitland in 1998. Date appointed: 29 July 1998 to the London re-insurance industry. • Specialises in the area of international Qualifications: MA (Oxon), MBA (Wharton) •One of the first to be approved by corporate structuring and financing, and •Founder of The LEK Partnership, Partner Lloyds of London to act in the capacity has experience in international tax of Bain & Co and a consultant with the of Finance Director to agencies planning for corporate entities and Boston Consulting Group. managing the first corporate capital individuals, with a particular focus on •Professional advisor to many blue-chip syndicates admitted to Lloyds of Luxembourg and other European cross- American and European corporations. London. border investment structures. •Author of several best-selling business Serge Joseph Pierre Weber (45)** •His practice also includes the listing of books and a successful private equity Executive Director companies and investment funds. investor on his own account. Date appointed: 28 May 2001 Qualifications: Business Diploma (ESSEC Peter Linford Wilmot (69)* Allan Mark Rosenzweig (54)‡ Business School, Paris) Non-executive Director Non-executive Director •A director of TRAXYS Europe SA, part of Date appointed: 3 August 1999 Date appointed: 29 July 1998 the TRAXYS SA Group, a joint venture Qualifications: CA (SA) Qualifications: BA, LLB, H Dip Tax created in 2003 between the •Currently a non-executive director •International tax advisor and corporate Luxembourg-based ARCELOR Group of Altron. financier with Price Waterhouse, and the Belgian-based UMICORE •Retired as chairman of Deloitte & Touche including its New York office, and Group. (SA) in August 1999 after a career Intertax, a South African international tax •Chief Financial Officer of TRAXYS spanning 41 years in the auditing consultancy. Europe and the Group Controller for the profession. •Director of both listed and unlisted TRAXYS Group, a leading metals and •Previously chaired the Accounting companies. minerals marketing and trading group Practices Committee, was President •Joined the MIH Group where he served operating worldwide. of the Transvaal Society of Chartered as Group Director of Corporate Finance. Nationality Accountants, the South African Institute •Founding member of the Ibex Group, * South African of Chartered Accountants, the deputy which is active in the field of asset- ** Luxembourgish † British chairman of the Standards Advisory backed finance. Currently based in ‡ Dutch Council of the International Accounting New York. ^ Zimbabwean
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124 Remuneration Report between R354 300 and R956 100 for the packages, including benefits, are reviewed Brait’s remuneration policies are year, depending on the time spent on annually with reference to relevant designed to align the interests of certain activities of the Group. geographical and industry criteria as a benchmark. Benefits include provident directors, stakeholders and employees. The following scale of fees for directors fund, group life, disability, medical aid and The policies are designed to build was in place for the year: other benefits as dictated by competitive long-term shareholder value, attract and •R106 304 as a member of the Brait market practices. retain employees of the highest calibre S.A. board. who brace the Group’s values and • R531 522 as the Chairman of the Brait Annual Bonuses dre wc ar ontribution to Brait’s performance. S.A. board. Annual bonuses are closely linked to The long-term nature of the Group’s •R106 304 as a member of the performance and predetermined investment products makes it essential Remuneration Committee. targets on both formula and that the remuneration policies incentivise •R212 609 as the Chairman of the discretionary bases. long-term commitment, hence the Remuneration Committee. Long-Term Incentive Plan introduction of the Long-Term Incentive •R212 609 as a member of the Audit The Board has approved the Plan (LTIP) in 2008. and Risk Committee. implementation of a Long-Term Incentive •R425 218 as the Chairman of the The Remuneration Committee governs the Plan (LTIP), in recognition of the long-term Audit and Risk Committee. remuneration for the Group and ensures that investment cycles of the Group’s the determination of incentive plans and Executive Directors and investment products and the consequent fringe benefit policies are regularly reviewed. Employees need to provide clear long-term planning The remuneration strategy includes the The terms of employment and incentives for the Group’s executives. The determination of incentive pay structures remuneration packages are approved by principal design features are to provide for the Remuneration Committee. Executive for directors and senior executives, for a progressive and predictable build-up of directors are not permitted to accept both short and long-term, and the wealth by the Group’s executives in respect external remunerative work or board positioning of these levels in accordance of value created from future initiatives, while appointments without approval from the also ensuring the shareholders obtain with trends and best practice in local and Brait S.A. board. increased returns from any future larger international markets. fund. Specifically, this will include: Remuneration packages for executive Non-executive Directors • the use of leverage, and phantom directors and employees comprise some Non-executive directors do not have leverage, or the primary form of or all of the following: service agreements. Letters of corporate facilitation, to senior •Base salary and benefits. appointment confirm the terms and executives to purchase investment •Annual bonus. conditions of their service. Remuneration products managed by them, or shares • Long-term incentive plans and/or packages of non-executive directors are in Brait, in terms of the Executive share incentive schemes. agreed and determined by the Variant of the Brait Share Scheme Remuneration Committee. Directors’ fees Base Salary and Benefits 2005. All future equity awards will be are structured so as to encourage Executive directors and employees are in terms of this Executive Variant, maximum board and subcommittee permitted to structure their base salaries requiring one-third capital contribution participation. Certain non-executive and benefits in terms of existing legislation by participating executives. The directors were paid additional fees varying in their employment domicilium. Salary leverage will have recourse to the
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125 Remuneration Report_continued Share Equity and Incentive over this period representing 17,7% of employee’s contribution only and will Schemes the current share capital of the Group. attract interest at prime. The quantum Over the last three years, the Group • Last year – 1,2 million appreciation of this leverage will be capped at 15% has granted minimal new equity to its rights have been awarded over this of the Group’s NAV; executives and management under its period representing 1,1% of the • leverage allowance, offered to senior various share incentive schemes. current share capital of the Group. executives will be based upon an Whereas the schemes were effective annual outperformance incentive in the past, they have needed adaptation A summary of the scheme rules and award. Both the award and leverage to provide the evolving needs of appreciation rights outstanding and granted benefit will vest equally over a four- the Group. to directors and employees of the Group year period; under the various schemes are as follows: • allocations of capital participations to Consequently, a newly formulated employees are subject to a LTIP has been created to focus on Brait S.A. Share Incentive Scheme progressive increase from 50% to a current and future incentive and Salient Features maximum of 75% as the size of future alignment drivers for management and •The scheme is a share option scheme funds (eg Brait V, Brait VI, etc) rises, executives. The LTIP utilises, as one with deferred delivery. ensuring that both executives and of its tools, the equity provisions •Entitlements are granted at market shareholders benefit if larger funds are inherent in the Brait Share price at the date of grant. raised. Existing Private Capital funds Scheme 2005. •Entitlements vest within six years. are unaffected by this; and • allocations of incentive feese ar Aggregate equity granted under all the •Entitlements expire after eight years. similarly subject to a progressive Group’s share schemes are as follows: •Entitlements are forfeited if the increase from 50% to a maximum • Last three years – 20,7 million participant leaves the Group 75%, on the same principal. appreciation rights have been awarded before vesting.
2009 2008 Rm Rm
Entitlements granted under the scheme She ar entitlements outstanding at the beginning of the year 503 209 1 134 163 Granted and exercised – – Delivered during the year (34 340) (476 666) Early vested share entitlements converted into LTIP (181 358) – Cancelled (by resignation, retrenchment or repurchase) (40 049) (154 288)
Share entitlements outstanding at year-end 247 462 503 209
Share entitlements exercisable at the end of the year 211 155 195 494
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126 Remuneration Report_continued
Number Issue of sharesprice (R) Analysis of share entitlements outstanding at 31 March 2009 eSh ar entitlements outstanding 31 December 2010 19 500 8,57 31 December 2011 84 908 7,19 30 June 2012 43 054 7,2 6 July 2012 40 000 7,22 1 October 2013 50 000 18,04 1 January 2014 10 000 24,00 247 462
Brait Share Scheme 2005 •Entitlements vest over five years. have 200% leverage. The leverage The Brait Share Scheme 2005 consists of •Entitlements are forfeited if the will have recourse to the deferred a management scheme and an executive participant leaves the Group bonus amount. variant of the scheme. The characteristics before vesting. •The leverage will attra ct interest at are explained as follows: •The class of share is called the prime. “A share”. •The scheme is based on a share A: Management Scheme appreciation right linked to a Brait Salient features B: Executive Variant of the Scheme •The scheme was introduced from Salient features S.A. share. 1 April 2005. •This is a variation of the scheme •A vested share appreciation is •The management scheme does not introduced on 1 April 2005, and converted into shares at require any capital contribution. amended to incorporate the LTIP market price. •The scheme is based on a share objectives. The first allocations were •Entitlements are granted at market appreciation right linked to a Brait granted with effect from 22 November price at the date of grant. S.A. share. 2008. •Entitlements vest over four years. •A vested share appreciation is •The participant’s LTIP bonus is •Entitlements are forfeited if the converted into shares at market price. deferred and vests over four years participant leaves the Group before •Entitlements are granted at market and the amount is applied to vesting, except for participant’s own price at the date of grant. notional Brait S.A. shares which contribution.
2009 2008 Rm Rm Entitlements granted under the scheme She ar entitlements outstanding “A” shares outstanding at the beginning of the year 2 062 863 1 973 823 Issued during the year 655 000 600 000 Early vested and converted into LTIP (1 494 330) – Cancelled (by resignation) (332 275) (510 960) Share entitlements outstanding at year-end 891 258 2 062 863
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127 Remuneration Report_continued Number Issue price Expiry dateof shares (R) Analysis of share entitlements outstanding at 31 March 2009 Share entitlements outstanding A shares – Five years 31 March 2010 573 758 11,83 A shares – Five years 31 March 2011 25 000 25,29 A shares – Five years 31 December 2011 117 500 24,00 A shares – Five years 31 March 2012 100 000 27,86 A shares – Five years 30 June 201225 000 30,35 A shares – Five years 30 June 2013 50 000 20,82 891 258
The Brait LTIP Scheme The Brait LTIP Scheme makes provision for allocations or awards that are made in a particular year, but where payment is conditional on continued employment, generally over four years, on the basis of 25% per annum. The table below shows the amounts of these awards: Value as at 2009 LTIP Change in LTIP vested Value as at 1 April 2008 awarded value of LTIP and payable LTIP 31 March (Note 1) (Note 2 and 3) (Note 4) forfeited 2009 Rm Rm Rm Rm Rm Rm LTIP awarded to employees for the year ended 31 March 2009 6,926,7 1,4 – – 35,0 Note 1: Relates to the awards under the Brait SA Share Incentive Scheme and The Brait Share Scheme 2005 early vested and converted into an LTIP award during the year. Note 2: The LTIP awards exclude the notional gearing awarded as this attracts interest at prime. Any stock performance above prime will be shown under “Change in value of LTIP” as this would be the benefit due to the employee. Note 3: The 2009 LTIP awards relate to performance for the year ended 31 March 2009 and were approved by Remco on 19 May 2009. Note 4: LTIP awards which have vested and are payable are expensed in the Income Statement and provided as a liability or paid out during the same year.
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128 Remuneration Report_continued Directors’ Emoluments For Brait S.A. and its Subsidiaries i) Remuneration Fees and Other Other expenses Cash Performance benefits benefits Total as directors salarybonus (note 1) (note 2) 2009 For the year ended 31 March 2009 R’000 R’000 R’000 R’000 R’000 R’000 Executive directors AC Ball 106,3 3 380,8 1 006,2 239,7 – 4 733,0 AD Campbell (note 3) 106,3 1 511,7 – 3 132,0 – 4 750,0 BI Childs 106,3 – – – 620,1 726,4 JA Gnodde 106,3 3 123,6 2 656,5 312,1 – 6 198,5 MS Masithela (note 4) 62,0 1 382,6 – 2 173,5 – 3 618,1 S Sithole (note 5) 44,3 834,2 1 800,0 109,0 – 2 787,5 SJP Weber 106,3 – – – 531,5 637,8 637,8 10 232,9 5 462,7 5 966,3 1 151,6 23 451,3
Non-executive directors PAB Beecroft 318,9 – – – 460,7 779,6 JE Bodoni 106,3 – – – – 106,3 ME King 744,1 – – – 956,1 1 700,2 RJ Koch 318,9 – – – 673,2 992,1 AM Rosenzweig 425,2 – – – 354,4 779,6 HRW Troskie 106,3 – – – 566,9 673,2 PL Wilmot 531,5 – – – 354,3 885,8
2 551,2 – – – 3 365,6 5 916,8
Total 3 189,0 10 232,9 5 462,7 5 966,3 4 517,2 29 368,1
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 the directors in the management and/or day-to-day activities of the Company and/or its subsidiaries. Note 3 Mr Campbell resigned as a director of the Company on 10 November 2008. His remuneration is in respect of the period from the beginning of the financial year to this date. His other benefits amount include a R3 million severance package. Note 4 Mr Masithela resigned as a director of the Company on 28 October 2008. His remuneration is in respect of the period from the beginning of the financial year to this date. His other benefits amount include a R2 million severance package. Note 5 Mr Sithole was appointed as a director of the Company on 28 October 2008. His remuneration is in respect of the period from that date to the end of the financial year.
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129 Remuneration Report_continued Directors’ Emoluments_continued For Brait S.A. and its Subsidiaries_continued i) Remuneration_continued Fees and Other Other expenses Cash Performance benefits benefits Total as directors salary bonus (note 1) (note 2) 2008 For the year ended 31 March 2008R’000 R’000 R’000 R’000 R’000 R’000 Executive directors AC Ball 142,5 3 171,6 3 150,0216,4 – 6 680,5 AD Campbell 85,5 2 813,0 3 550,0 187,0 – 6 635,5 BI Childs 85,5 427,6–––513,1 JA Gnodde 85,5 2 810,5 3 080,0269,5 – 6 245,5 CJ Tayelor (note 6) 42,8 459,5 – 57,3 – 559,6 MS Masithela (note 7) 64,1 2 085,0 1 500,0 189,3 – 3 838,4 SJP Weber 85,5 – – – 270,8 356,3 591,4 11 767,2 11 280,0919,5 270,8 24 828,9 Non-executive directors PAB Beecroft 85,5 – – – 199,5 285,0 JE Bodoni 85,5 ––––85,5 ME King 285,1 – – – 1 325,7 1 610,8 RJ Koch 142,6–––199,5 342,1 AM Rosenzweig 171,0 –––199,5 370,5 HRW Troskie 85,5 – – – 270,8 356,3 PL Wilmot 228,0 –––199,5 427,5 1 083,2 –––2 394,5 3 477,7 Total 1 674,6 11 767,2 11 280,0919,5 2 665,3 28 306,6
Note 6 Mr Tayelor resigned as a director of the Company on 8 August 2007. His remuneration is in respect of the period from the beginning of the financial year to this date.
Note 7 Mr Masithela was appointed as a director of the Company on 8 August 2007. His remuneration is in respect of the period from this date.
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130 Remuneration Report_continued Directors’ Emoluments_continued For Brait S.A. and its Subsidiaries_continued ii) LTIP Scheme The allocation to the executive directors for the year ended 31 March 2009 (2008: Nil as first awards were made in 2009) are shown in the table below: 2009 Change LTIP Value as LTIP in value vested Value as at at 1 April 2008 awarded of and payable LTIP 31 March (note 1) (notes 2 and 3) LTIP (note 4) forfeited 2009 R’000 R’000 R’000 R’000 R’000 R’000 LTIP awarded to the executive directors for the year ended 31 March 2009 Executive directors AC Ball – 1 006,2 (677,0) – – 329,2 S Sithole 573,9 1 800,0 (752,0) – – 1 621,9 573,9 2 806,2 (1 429,0) – – 1 951,1
Notes 1. LTIP award under 1 April 2008 relates to the Brait Share Scheme 2005 award to S Sithole on joining the Company, which was converted to an LTIP award during the year. 2. The LTIP awards exclude the notional gearing awarded as this attracts interest at prime. Any stock or product performance above prime will be shown under “Change in value of LTIP” as this would be the benefit due to the executive. 3. The 2009 LTIP awards relate to performance for the year ended 31 March 2009 and were approved by Remco on 19 May 2009. 4. LTIP awards which have vested and are payable are expensed in the income and provided as a liability or paid out during the same year. iii) Share entitlements Brait S.A. Share Incentive Scheme 2009 2008 Expiry Shares Unvested Issue Expiry Shares Unvested Issue date granted option price (R) date granted option price (R) Executive directors 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 BI Childs 1 Oct 13 50 000 – 18,04 1 Oct 13 50 000 50 000 18,04 100 000 – 100 000 50 000
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131 Risk Management Review techniques, evaluating the causes for the Board. As day-to-day risk management Philosophy and Approach corporate failures and constantly striving responsibility rests with the executive The effective management of risk is at the to achieve best practice. The majority of management of each business area, there heart of Brait’s business practice as risk is an these improvements are incremental and are established operational structures and there has not been a significant change in integral component of most transactions and nominated management who have defined the risk management policies and can materially impact Group profitability and responsibility for focusing on specific risk procedures since last year. sustainability. The Group emphasises risk categories. The executive management has management and has a defined risk Responsibility for the formulation of risk direct and indirect reporting lines to the management structure in place to identify, management policies lies with the Board Group chief executive. of Brait and the boards of its primary evaluate and manage all types of risk. The Group’s risk oversight function subsidiaries. The Group Audit and Risk The Group is continually looking to Committee, a subcommittee of the Brait operates with clear independence improve the manner and effectiveness in board, is mandated to review risk from the operational functions, with which it manages risk. This is done by management policies and processes applied appropriate authority and reports evaluating new risk management across the Group’s operations on behalf of to senior management and the Board.
The risk control structures are summarised in the following diagram:
Brait SA Board Group Audit and Risk Committee
Brait South Africa Ltd Board
Group Executive Committee
Group CEO
Group Capital Allocations Committee
Group Strategy Committee
Business Units: Group Support Units: Private Capital and Finance, IT, Human Internal Audit Public Markets Resources and Marketing
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132 Risk Management counterparties, issuers of instruments held at 31 March 2009 and has approved Review_continued by the Group as primary investments or as banking facilities of R100,0 million). Risk categories are clearly defined and collateral against other obligations. Such Foreign exchange rate risk relates to such definitions provide the basis for risk arises primarily from lending and financial losses due to the fluctuation in identifying risk and implementing risk investment activities as well as from the exchange rates. Although the Group’s management processes. The Group has settlement of proprietary financial market holding company is domiciled in exposure to market risk, credit risk, transactions and those undertaken on Luxembourg with its functional currency interest rate and liquidity risk, foreign behalf of clients. in US dollar, it has significant operations exchange rate risk, solvency risk, All credit exposures are governed by and/or investments in South Africa and operational risk, human capital risk, legal authorisation limits at both subsidiary and Mauritius with their respective functional and compliance risk, strategic risk and Brait board level. Where necessary, currencies in South African rand and US reputation risk. impairment provisions for doubtful debts dollar. The Group’s net assets reflect the Each category is considered below. are raised throughout the year. currency impact on individual investments. Brait has undertaken to mitigate the Market risk is the potential change in the Interest rate risk refers to the impact on currency exposure of these net assets by value of a financial instrument resulting future cash flows and earnings of assets hedging or holding a large portion of its from changes in market conditions. On a and liabilities of interest rates repricing capital in US dollars. At 31 March 2009, portfolio basis, this is the risk of a either at different points in time or on a more than 100% of the net tangible assets decrease in the value of the portfolio as a different basis. of the Group was hedged or held in result of an adverse move in market Balance sheet exposures to interest rate US dollars. parameters such as equity prices, interest movements are managed by a rates and exchange rates. combination of floating and fixed rate Solvency risk is the risk that it is not able to meet its financial commitments when Investment limits at each control levele ar instruments, which give the Group its they fall due. It is essential to ensure that approved by the Board and reviewed desired maturity profile. The interest rates the Group is adequately capitalised to regularly to ascertain their relevance and of the majority of the Group’s term absorb potential losses in its activities, to appropriateness. Management is borrowings have been fixed in order to maintain the confidence of all those with expected at all times to remain within minimise the risks of interest rate volatility whom it does business and to fund the the prescribed limits. and match the estimated yield of the underlying assets funded with the future growth of its operations. The Brait measures the current profit and loss borrowings, where applicable. The maturity geographical and legal structure of the on its proprietary investment portfolio of borrowings is disclosed in the notes to Group minimises the potential monthly, or more regularly if specifically the financial statements. contamination of losses in one required. The monthly reports are segment of operation with those of Liquidity risk arises in the general supplemented by a full quarterly review of another. The Group also has a satisfactory funding of the Group’s activities when all investments. Controls are in place to capital base to support the operations of there are mismatches between the sizes ensure that all investments are revalued its underlying businesses. and maturities of assets and liabilities at fair value using latest market prices and also in its funds management and Operational risk is the potential for loss or indicators. trading operations. The liquidity risk refers caused by the inadequacy or failure of Credit and counterparty risk refers to to the ability of the Group to meet its internal procedures, systems and people, the effects on future cash flows and financial obligations as they fall due. or from related external events. Brait earnings of borrowers defaulting on their The Group held approximately 28% of manages these risks by maintaining obligations. This also covers trading its capital in short-term cash deposits comprehensive systems of internal
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133 controls, and sound policies and practices intentions approved by the boards or their this risk rests with the Board and Group in the areas of information technology, committees. Brait recognises the legal Executive Committee. human resources, physical security and risks inherent in complex financial Risk Management for Fund insurance. The primary responsibility for transactions. Brait engages reputable Investments operational risk management lies at third-partyo legalfessionals pr , familiar w ith The Group acts as manager for several business unit management level, where the Group’s operations and the specific funds financed primarily by third-party the enforcement and monitoring of nature of its business, for its transactions capital. In both Private Capital and Public compliance with policies and standards in order to mitigate such risks. Markets these funds are subject to a of practice is an essential component of number of governance controls with risk operational risk management. Compliance or regulatory risk is the risk management effects, including, where of non-compliance with regulatory Business continuity plans are in place to appropriate: requirements. Brait has allocated skilled minimise the impact of catastrophic events •fund mandates setting out investment staff to specific compliance functions as and ensure the continuity of all critical parameters including targeted part of its risk management framework business operations. markets, transaction types and and ensures the effective management of investment limits; The Group has dedicated adequate compliance risk through regular •controlled investment processes resources and commitment to the internal monitoring and reporting and the use of including appropriate approval by audit function, which is utilised as a risk- external services. Group compliance investment committees; based audit approach. reports regularly to the Group Audit and • investor review by way of periodic reporting and performance evaluation; The assessment of risks relating to Risk Committee. • advisory Committee review for information technology utilised within the Taxation risk is the possibility of suffering resolution of certain potential conflicts Group is in the hands of the Executive loss (financial or otherwise) as a result of of interest; and Committee, which sets IT policy and is the ineffective tax planning, coordination and • statutory and regulatory controls. final decision-making authority. The Group strategy, non-compliance with tax laws employs onsite disaster recovery facilities, Brait’s internal control processes ensure and regulations, failure to identify and which are tested regularly. that fund mandates are adhered to, and manage tax risks and maintaining a poor these controls are subject to internal audit, Human capital risk refers to the impact relationship with revenue authorities. Group Audit and Risk Committee review. of the loss of key individuals or groups The identification and measurement The effect on Brait’s financial position is currently employed by Brait. As in any of tax risk resides with the Group Finance assessed by applying sensitivity analysis to financial services organisation our highly function with overall responsibility vesting material positions held in its funds under qualified and experienced people are management. critical to the ongoing success of the with the Board. Conclusion organisation. To manage this risk Brait has Reputation risk is the current and Brait’s risk management strategy a comprehensive human resource prospective impact on earnings and capital is the ongoing identification, programme that aims to attract and retain availability arising from negative public assessment, management and the appropriate skills in the business. opinion and the inability to attract These activities are dealt with more fully monitoring of risk inherent in its investors, employees and suppliers under the employee report section of the operations. This is a continuous to form relationships with the business. annual report. process of developing and enhancing The Group manages this risk through the comprehensive risk and control Legal risk is the risk that transactions or establishment and communication of a procedures that enable the Group to agreements with third parties may not be clear strategy by which it engages with effectively identify and manage those legally enforceable or do not reflect the the public. Responsibility for managing risks to which it may be exposed.
Brait Annual Report 2009 Sustainability Secure Foundation Intellect Partnership Tenacious Performance Creative Insight Brait Meticulous Pioneering Resolve
Sustainability Sustainability Secure Foundation Intellect Partnership Tenacious Performance Creative Insight Brait Meticulous Pioneering Resolve
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136 Introduction initiatives in disadvantaged the JSE SRI Index is voluntary and Brait creates long-term shareholder value communities – the main thrust invitations are extended to, inter alia, all by embracing opportunities and managing of the Group’s corporate social companies listed on the FTSE/JSE All risk. As a responsible corporate citizen, investment; and Share Index. Brait has participated Brait recognises that a primary focus of its • acknowledging that the challenges in this process since its inception and is business is to maximise shareholder value, of climate change extend beyond proud to be one of the 2008 JSE SRI while always considering the broader the environment, to impact on Index constituents. both the social and economic social and environmental impact of the Interaction with Brait’s stakeholder sectors of business. Group and its activities on other groups is fundamental to a sustainable stakeholder constituencies. As such, This report covers the activities of business model. The Group encourages Brait manages, monitors and reports the the Brait Group during the 2009 feedback to advance its commitment economic, social and environmental reporting period and has been condensed to sustainability. issues relevant to its business – the ‘triple into a high-level sustainability review, bottom line’. Brait’s framework for reporting on the triple similar to the format of the previous year. bottom line is as follows: It draws on the framework of the Sustainability for the business is •Stakeholders – Economic performance internationally accepted Global Reporting characterised by its entrepreneurial culture, •Social responsibility – Social Initiative (GRI) Sustainability Guidelines, commitment to sound governance performance and the criteria of the JSE Limited’s (JSE) principles, leading market position and •Employee report – Social Socially Responsible Investment (SRI) clearly articulated investment propositions. performance/Occupational health Index, as guides for sustainability For the community in which Brait operates and safety reporting. These criteria have been used and where it acts as custodians for future •Environmental – Environmental for guidance only, focusing this report on generations, Brait’s commitment to performance issues that are material to the business of sustainability includes: Brait. Sustainability is not an isolated Highlights in 2009 • providing responsible financing, undertaking removed from day-to-day • Brait’s Chairman, Prof Mervyn E King lending and fund management business activities and, as such, this report SC, is the current Chairman activities (taking into account indirect should be read in conjunction with the rest of the GRI Board of Directors; impact on both the social and of the annual report to gain a full overview • 2008 JSE SRI Index constituent; and environmental landscape); of the Group’s activities. •Group companies and global • rolling out BEE and transformation staff support the 2009 Earth initiatives for the company and for Brait has benchmarked itself against the Hour climate change initiative. investee companies; JSE SRI Index which promotes good • implementing and maintaining sound corporate sustainability practices in South Black Economic Empowerment employment practices; Africa using a set of predetermined criteria Brait believes that promoting black • promoting better opportunities for to assess and measure companies’ triple economic empowerment (BEE) in South employment, through education bottom line performance. Participation in Africa is a business imperative and thus
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137 ascribes a high degree of importance to underpinning financing within six years. and performance in these areas. As a its BEE initiatives. This goal remains on track. result of the nature of the Group’s business operations, Brait is classified as a low Brait is a member of the South African Board – The main Brait board includes impact organisation and is pleased to be Venture Capital and Private Equity one black member of management, the one of 61 companies successfully included Association (SAVCA), which is not yet a financial director, while the Brait South in the 2008 annual review of the JSE SRI signatory to the Financial Services Charter Africa board has six black directors. Index. The Brait Foundation, through (FSC) that governs black economic Management – Two of the four Executive which Brait drives its corporate social empowerment in the financial services responsibility initiatives, has had an active sector. As Brait anticipates being a Committee members of Brait South Africa year with many highlights. Notable signatory to the FSC in the future, it are black. Furthermore, as detailed in the accomplishments, during the period under subjects itself to a “shadow” FSC rating. employment report section, Brait has In terms of broader BEE impact Brait made important strides in terms of equity review, included the upgrading of benchmarks itself against the applicable representation. classrooms at the Warburton School, Mpumalanga, and the full-time sections of the FSC Scorecard, namely Procurement – Brait South Africa employment of the first 12 sponsored employment equity, procurement, screens its suppliers for BEE compliance trainees, who completed the bricklaying ownership and control, and corporate and, during the period under review, programme conducted by the Men on the social investment. Brait South Africa R9,9 million of the total discretionary Side of the Road project. Both these measured itself against these criteria spend of R14,1 million was expended projects indicate the Brait Foundation’s and scored an “A” rating for the year. utilising BEE suppliers (over 70%). Highlights of its BEE initiatives include: continued commitment to the importance Corporate Social Investment – The of EDUCATION and EMPLOYMENT in Ownership – During 2005, Brait sold a Group invests 0,5% of its profits from disadvantaged communities. 26% interest in its South African operation operations in corporate social investment Stakeholders as well as certain participation entitlements initiatives, primarily in the Southern Brait recognises the importance to its international operations to a BEE African region. consortium called Sitogo. The consortium of building and sustaining long-term is made up of a number of entrepreneurial Brait remains a company that constantly reciprocal relationships with black business people led by Brait South strives to be economically viable, socially stakeholders. Direct stakeholders are Africa Chairman, Bheki Sibiya. The responsible and environmentally sound. It shareholders, clients, investors, partnership between the Sitogo and BSAL is a committed supporter of the JSE employees, suppliers, government and executives is working well, as evidenced Limited’s Socially Responsible Investment regulators, whilst indirect stakeholders by increased interaction and joint (JSE SRI) Index, which evaluates include the communities in which Brait exploration of business opportunities companies on their sustainability in terms operates as well as the education between the partners. The original of governance, economic, environmental fraternity, which serves as a source of intention of the Sitogo transaction was and social factors. In order to qualify as a future employees for the Group. Regular that forecast earnings and cash generation constituent of the Index, companies must consultation and engagement is would be sufficient to repay the demonstrate a high standard of reporting undertaken with this audience.
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138 Below is a table setting out a summary of Brait’s engagement with direct stakeholders:
Stakeholders Methods of Engagement
Shareholders and providers of capital Shareholders are Brait’s providers of capital and their key • The Stock Exchange News Service (SENS) performance measures are long-term sustainable growth in •Media releases earnings, dividend payments and consistent, exceptional returns •Corporate website: www.brait.com on shareholders’ equity. •Annual and interim results communications and presentations • Presentations and investor visits •Annual general meeting • The annual report •Analyst briefings • Conference calls
Clients (including fund investors) Creating lasting and mutually beneficial relationships with •Advertising and marketing customers by the creation of shared value and obligation to •Corporate website deliver superior returns to Brait’s investors. • Electronic, telephonic and telefax communication • Corporate hospitality • Client seminars •Daily economic research reports •Quarterly, monthly and weekly fund reports • Investor memoranda • Investor visits •Educational seminars • Industry surveys
Employees Creating a positive, supportive, healthy and diverse working •The intranet environment.•Electronic and verbal communication • Internal newsletters •Employee wellness programme (EWP) • Training and development •Emerging Fund Manager programme •Employment equity and diversity •Staff share and LTIP schemes • Paid maternity leave •Health and safety (annual sponsored onsite eye assessments, flu vaccinations, hearing assessments, company agreement for preferential rates for gym membership) •Study bursary scheme • Bi-annual appraisals •Employee climate survey • Private equity trainee development programme
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139 Stakeholders Methods of Engagement
Regulators and other industry bodies Brait engages with the various stock exchanges on which it is listed • Roadshow and presentation attendance and other statutory authorities to ensure that the interests of the •Meetings Group, its shareholders and customers are properly represented in •Forums all policy-making and regulatory processes.•Board representation
Government Through the executive management, Brait engages with key • One-on-one consultations between staff and key government personnel of the various government departments relevant to the personnel business of the Group.•Economic briefings • Public-Private Partnerships
Suppliers Brait engages reputable suppliers and works with them to •One-on-one consultations between relevant staff and promote transformation. suppliers
Some important comments which emerged from stakeholder feedback: • To continue to ensure sufficient and appropriate commitment to shareholders and providers of capital. • To monitor employee satisfaction levels and ensure that Brait remains an employer of choice. • To ensure Brait’s perspective is considered in evolving regulatory environments. • To continue to raise awareness about the Corporate Social Investment initiatives run by the Brait Foundation and the Mauritius office. • To continue to strive to achieve diversity at all levels throughout the organisation, particularly within senior management.
Group Value Added Statement See the report on page 108 which shows how the wealth created by the Group has been distributed amongst the various stakeholders.
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140 Corporate Social Responsibility • Rally to Read Programme: Five vehicles driven by Brait staff South Africa and their families participated in the 2008 Rally to Read in The social responsibility programme run by the Brait Foundation Mpumalanga, revisiting the three schools from the previous focuses on education, employment, health and welfare and year, taking with them books for the pupils and teaching general wellbeing. materials for the staff. All who participated found the Education experience both humbling and uplifting. The Foundation hopes Highlights of this programme include the following: to send another five vehicles in 2009. • The Student Sponsorship Programme: Maryanne Nhlambula, •Warburton School, Mpumalanga: The Foundation’s input at one of its sponsored students from 2008 and a pupil at this impoverished rural school continued with the renovation of Roedean School, passed Grade 12 with two distinctions. the classrooms and the staffroom. Three classrooms have This year the Foundation continues its sponsorship of three been renovated, with 12 still needing work. In February 2009, outstanding senior school pupils. the Foundation arranged for two representatives from the • PACE Commercial College, Soweto: The matric pass rate South African Institute for Entrepreneurship (SAIE) to visit increased from 82% to 93%, largely due to the commitment of Warburton, where they set up a training programme for staff the headmaster, Mr Dan Zimba, and his staff. The Foundation and learners. is proud of having been able to make a contribution. •GIBS: The 2007/2008 student, Zingisa Mtshazo, passed her MBA degree with two distinctions in December 2008. Zingisa was a great brand ambassador for the GIBS MBA programme as well as for Brait. Mercy Mureithi, a new student on the GIBS MBA programme, was awarded a full scholarship for 2009/2010.
Warburton School Grade 3 learners counting crocodiles • The Brait Everard Read Art Award: Both students previously sponsored through this award participated in the Johannesburg Art Fair. A new student, Anthea Moys, won the award in February 2009 and will be exhibiting at the Everard Read Gallery in July. The Foundation believes art sponsorship GIBS scholarship recipients is important as it is visible and immediate and a good way to From left to right: Annemarie Spies, Mercy Mureithi and bring together people from all walks of life. Neil Moodley
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141 Lapdesk: Staff from Brait’s Johannesburg office were overwhelmed by the enthusiasm of learners and staff at the Mpethuto Primary School in Magaliesburg when they presented them with 760 desks
• Thuthuka: The Foundation continues to support this initiative • Christel House: The school’s new premises in Ottery, by the South African Institute of Chartered Accountants Cape Town, were recently inaugurated. Brait sponsored (SAICA) to provide bursaries for students from previously equipment for the maths and science laboratory at the disadvantaged backgrounds who want to become chartered school, which aims to break the cycle of poverty by accountants. In 2008, third-year Thuthuka students providing quality education to impoverished nchildre . achieved a 66% pass rate; second-year students had • LEAP School of Maths and Science: The model for a 93% pass rate; and first-year students an 87% pass this school proved so successful that it has been extended rate. A total of 28 Thuthuka students were awarded from its original base in Cape Town to Alexandra in honours degrees and have gone on to traineeships. Johannesburg. The school’s 2008 matric year achieved a • Cell C Take a Girl Child to Work Day: Brait staff mentored 100% pass rate with a class average of 62% for maths. 40 learners at the Johannesburg offices in May 2008.
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142 Employment Through the annual Foundation’s “Put a Smile on Somebody’s The Foundation supported three projects, namely: Face” campaign, Brait employees are encouraged to nominate a • Men on the Side of the Road: A total of 24 trainees have been charity they feel is deserving of funding. The nominated charities taught bricklaying during a 50-day course. The first batch of do not have to belong to any specific category, falling under the 12 trainees are employed full-time. aegis of GENERAL WELFARE. All charities nominated were considered by the Brait Foundation Committee and R225 000 was distributed between 17 of them. Representatives of the charities were invited to a handing-over ceremony at Brait’s Johannesburg offices, which also gave them the opportunity to network and compare notes. A percentage breakdown of the total donations allocated to the four main areas of the Brait Foundation’s focus is as follows:
Year Ended 31 March 2009
Employment (19%)
Education (51%) MSR Bricklayers’ Graduation – June 2008 Health and Wealth (18%) •Learn to Earn: The Foundation sponsors trainees in the crafts of garment making and carpentry. Approximately 80% of graduates of this programme attain full employment. • Ma Afrika Tikkun: The Foundation continues to support this
worthwhile enterprise, which aims to empower disadvantaged General Welfare (12%) communities to generate their own income.
Health and Well-being Communities hardest hit by the HIV/Aids pandemic are given priority: • PUSH: With the help of the Foundation, PUSH was able to visit schools in Soweto and continue their education around HIV/Aids, TB and teenage pregnancy. • Ma Afrika Tikkun: The Foundation sponsors three pre-school teachers at the Orange Farm site. • The Family Reunion Centre: The Foundation assists in sponsoring feeding programmes for around 800 children in sub-economic areas in the Boland and on the West Coast.
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143 Corporate Social Investment – Funding Allocation individuals. Human capital is the driving force behind Brait's’ The South African operation’s corporate social investment (CSI) reputation and results. expenditure is funded by the annual allocation of at least half a Employee Profile percent of prior year attributable earnings from the entire Group’s The graphs depict the changes in headcount over recent years operations. The full amount allocated, during the year ended and provide the employee demographics as at the year ended 31 March 2009, of R1,9 million (2008: R1,7 million) was managed 31 March 2009. by The Brait Foundation and committed to programmes in terms of Section 13 of the Financial Sector Charter. Mauritius Group Headcount – 31 March 2009 Brait International Limited (BIL), located in Port Louis in Mauritius, 120 115 116 105 100 continued to support three causes, namely: 100 96 • Society for the Welfare of the Deaf: This non-governmental 80 organisation (NGO) supports members of the deaf community in Mauritius, especially children, through education and 60 training, and helps to integrate them into mainstream society. 40
The financial sponsorship from BIL went towards upgrading 20 the facilities of the ear mould laboratory and setting up a stock 0 of hearing aids. Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 • SOS Children’s Villages Mauritius: This programme provides disadvantaged children with a safe haven. They are placed in Age Distribution a ‘family house’ where they are given consistent loving 60 support. The donation from BIL contributed to the running 53 costs of family house No 10 of SOS Children’s Village Beau 50
Bassin for a period of six months during 2008. The family 40 consists of an SOS mother and aunt, caring for six children 30 28 aged between 10 and 13. 22
Number of staff 20 • Amour Sans Frontière et l’Ècole: This is a school for children 13 and young adults with special needs. BIL helped fund wages 10
and equipment. 0 Employee Report Under 30 30 – 39 40 – 49 50+ Human Capital Approach The focus of Human Resources is to provide an environment for Tenure with the Organisation staff to perform to the high standards that are expected of them. 80 78 The celebration of individual differences supports creative and free 70 thinking and a flat, integrated organisational structure facilitates 60 communication between all managerial levels, business units and 50 support functions. 40 30 While operating strictly within the confines of legislative compliance Number of staff 24 20 and good practice, the Group actively fosters a spirit of 9 10 5 entrepreneurship amongst staff. Brait is a lean organisation staffed 0 by a small group of highly qualified, energetic and accountable < 5 years 5 – 9 10 – 14 15+ Number of years
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144 Staff Qualifications Distribution Brait’s workplace skills plan, as well as its subsequent report. As a result, 50% of the Skills Development Levy was paid back to the Company, the maximum allowed by the SETA. This sum was distributed among the business units to encourage ongoing training and development.
Non-degree The training expenditure during the period under review was (38%) Postgraduate a total of R900 000,00. Utilisation under the closed bursary Degree (47%) scheme available to all staff amounted to R375 000.
The Brait Private Equity analysts’ two-year internship programme to identify and train suitably qualified young black South Africans recruited a candidate during the year, bringing the number of black trainee analysts to three.
Degree HR Strategic Priorities for 2009 (15%) Brait will continue to focus on the following key areas: • Retention and engagement of key staff. HR Initiatives 2009 •Aligned remuneration structures across the Group. Climate survey: 68% responded to a Group climate survey exercise that Brait embarked on during the early part of the current Transformation and Diversity in South Africa financial year. The results of the survey indicated that the overall Brait recruits and retains the best individuals from South Africa’s majority of employees have expressed a positive experience of diverse population base. The achievement of its employment “working for Brait” and “working at Brait”. equity targets and realisation of equity objectives continues according to the EE plan. The performance appraisal process has been homogenised across the Group so that all employees receive a standardised form. 360 The Employment Equity Committee ensures regular review process: The leadership team took part in a new initiative workforce analysis to monitor the achievement of defined whereby their colleagues, subordinates, superiors, clients and numerical targets and to ensure fair and equitable employment investors submitted assessments of their interactions with them. practices. The committee is presided over by the Chairman The Brait competency framework was used to guide this process, of Brait South Africa Limited and has representation from all levels which went a long way towards introducing a culture of feedback of the organisation. and highlighting areas for potential leadership growth. The transformation of the traditional demographic make-up of Brait Human Capital Development is a key strategic imperative, and necessitates a multi-faceted FASSET (Sector Education Authority for Financial, Accounting, approach including corporate social investment, black economic Management Consulting and other Financial Services) approved empowerment and employment equity initiatives.
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145 Group Equity Representation Group Gender Representation – 31 March 2009 Equity Representation – 31 March 2004
Coloured Indian (6%) (3%)
African (16%) Male (50%) Female (50%)
Financial Sector Charter in South Africa White (75%) The Financial Sector Charter (Charter), applicable from 1 January 2004, sets specific industry empowerment Equity Representation – 31 March 2009 targets for organisations in the financial services sector over a 10-year period.
Coloured Indian Brait is committed to meaningful empowerment of the (12%) (9%) previously disadvantaged and commits the South African organisation to the achievement of all applica ble requirements, with an internal objective to surpass the Charter targets wherever possible.
Performance measurement in respect of the Financial African Sector Charter Scorecard is fully operational. The scorecard (33%) is updated monthly, with measurable achievements. The Charter
White (46%) categories of ownership and control, corporate social investment and procurement indicate that the company is on track to achieve the established targets.
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146 Employee Well-being of ‘Pause” areas for staff, and encourages company package consists of a basic Brait introduced a professional wellness employees to utilise these dedicated salary, company contributions to a service to all staff members and their relaxation areas during lunch breaks. Early retirement fund, group life and disability immediate families. The wellness service in 2008, a building audit of the insurance, and a flexible portion that can provides individuals with support Johannesburg offices was completed by be allocated to various benefits, such as a mechanisms to cope with trauma, stress independent assessors to ensure strict car allowance and medical aid and health, such as HIV/Aids and other compliance with the requirements of contributions. Employees may, during the difficult life situations. The programme OHSA and all outstanding items annual review, elect to have higher levels offers professional, confidential counselling highlighted by the audit report were of group life cover, or increase their and advisory services. attended to, including additional signage retirement funding contributions. and OHSA compliance documentation. HIV/Aids and Life-threatening A Remuneration Committee comprising The Cape Town premises underwent a Diseases executive and non-executive directors of similar exercise including, inter alia, staff Brait has adopted a holistic approach the Company provides the Brait board and training and evacuation plans. towards addressing the plight of HIV/Aids other stakeholders with assurance that the and other life-threatening diseases. Brait F or the reported period, Brait had nine directors, senior executives and staff of lends support through an HIV/Aids policy qualified members of staff to act as Brait are fairly rewarded for their designed to assist employees to address emergency first-aid officers in the South contributions to the Group’s performance. HIV/Aids issues in the workplace. The African premises, available to deal with any In addition, the committee demonstrates policy provides for voluntary HIV testing, day-to-day emergencies, and six trained to stakeholders that such remuneration guarantees confidentiality to those who are fire marshals. All fire marshals are and reward is set by an independent HIV-positive and/or suffering with AIDS, equipped with emergency kit. The first-aid committee of the Board. and provides for the management, care bags and boxes were audited and stock and counselling of HIV/Aids-affected A Long-Term Incentive Plan (LTIP) has replenished, and inventories of first-aid employees. been rolled out across the different supplies conducted monthly. business units. The LTIP and share Occupational Health and Safety There were three work-related accidents or incentive scheme was welcomed as a Brait prioritises the health, safety and well- incidents reported to the human resources means of achieving a sense of partnership being of its staff. Employee health and department at the Johannesburg offices, and commitment. safety in the workplace is reviewed, over the past year, resulting in 79 working addressed and monitored by the Health Environment Report and Safety Committee, which is chaired by days lost (2008: Nil). Brait manages its environmental impact the Facilities Manager. Continued efforts Remuneration and Benefits and supply chain while seeking new are made to go beyond the legislative The remuneration and benefits strategy initiatives to improve its resource efficiency. requirements prescribed for working manages and retains the best people Resources have become an area of focus conditions in South Africa’s Occupational through outcomes-based reward in the South African operations due to an increased demand nationally for electricity, Health and Safety Act No 85 of 1993 structures and participative remuneration plus the prospect of possible clean water (OHSA), and other relevant legislation, with assessment. regard to health and safety compliance. supply shortages in the future. The Group The health and safety representative, Brait participates in industry-wide is mindful of the effects of climate change appointed in terms of OHSA, conducts remuneration surveys to ensure the and environmental deprivation and regular workplace safety investigations of company is ahead of industry trends. continues to search and, where possible, the various different components of the Guaranteed remuneration is reviewed once implement measures to mitigate the direct Johannes burg office. During the period a year to ensure that employees are impact that Brait’s operations may have on under review, Brait introduced the concept remunerated competitively. The cost to the environment.
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Sustainability Review_continued
147 The Board recognises that, as a financial activities have a detrimental effect Highlights in 2009 services organisation, Brait’s environmental on the environment. The Group •Group companies and staff support of impacts are lower than those of other undertakes to conduct its business Earth Hour 2009. industries, but that environmental risk may activities in a manner that minimises • Increase in glass recycling initiative to arise indirectly from the actions of its or eliminates destructive impacts on 11 889 units (2008: 6 216 units). suppliers, clients, staff, business partners the environment. •Substantial reduction in newspaper and and investment companies. Brait’s strategy business magazine subscriptions as a The Board has committed to ensuring and objectives are based on the premise waste, cost and paper-saving exercise. that Brait, and those parties over which of ensuring a better life for all the Group’s • Increase in paper recycling – 30 trees it has influence, sets appropriate stakeholders and future generations and saved from destruction ( 2008: 25 trees). standards to deal specifically with ensuring that none of the Group’s •Sponsorship of WWF-SA Annual Review. environmental challenges.
Achievement against objectives
Objectives set for the 2009 financial year Performance against objectives
•Focus on energy-saving initiatives •Low voltage downlighters and energy-saving Osram fluorescent tubes (which consume 25% less power than industry standard lamps) installed in meeting rooms, passages, cloakrooms and auditorium. • Thermometer of geysers lowered. • PC screens replaced with more energy-efficient LCD screens. •Staff commitment to electricity saving demonstrated through the enthusiastic support and participation in Earth Hour 2009.
•Further energy-efficient lighting solutions •A sensor lighting system was investigated and found to be cost- prohibitive in the current economic climate. • The redesign of the Johannesburg offices enable many staff to work with natural light during daylight hours, obviating the need to switch the main office lights on when skeleton staff are working, ie over weekends.
• Investigation of environmental-friendly systems for •Due to the economic climate, during the period under planned office refurbishment in Johannesburg review, the Board decided to curtail the Johannesburg office refurbishment refurbishment.
Core objectives for the 2010 financial year: • Continue to investigate and, if appropriate, implement energy-saving projects to meet the electricity provider’s immediate term objective of reducing consumption by 10%. • Investigate initiatives to reduce business travel, in an effort to reduce Brait’s carbon emissions. • Increase staff awareness of Company environmental initiatives. • Introduce a holistic programme, involving staff, to minimise Brait’s carbon footprint and in turn benefit some of the communities supported by the Brait Foundation.
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Sustainability Review_continued
148 Direct Environmental Impacts impact of third parties such as its clients, impact studies undertaken by suitably The Group’s operations have a direct impact investors and business partners. Indirect qualified, independent assessors. risks have the potential to cause financial on the environment arising through the Illovo Boulevard Management losses and reputational damage. consumption of energy and other resources District (IBMD) used in daily business activities, or through Clients, Investors and Business Brait is represented on the Board the Group’s supply chain. The facilities Partners of the IBMD by their landlord’s division of Brait manages Brait’s internal Brait addresses the indirect environmental representative. This association addresses direct environmental impacts (ie energy impact of its investor and investee the environmental impact of its members saving, recycling, etc), and some of Brait’s companies with a stringent set of and neighbours on its direct surroundings indirect environmental impacts, through guidelines designed specifically for the and requires all contractors on the procurement. The division is mandated to private equity funds under the boulevard to adhere to the environment eliminate, minimise or control at source any management and administration of the policy as contained in the development impact the Company’s activities might have Group. Brait, as the fund manager, plan of the area. on the environment by applying appropriate requires that its activities and those of the Procurement and Supply Chain proactive and remedial measures to foster investee companies in which the funds Brait sources suppliers who meet certain environmentally sustainable solutions. have, or will have, an investment comply specified minimum environmental with all applicable environmental laws and The following internal areas of direct requirements (practise in-house regulations of the host country and any impact use are managed, monitored and, environmental policies, recycling, use other countries in which the investee where possible, measured: environmental-friendly products) and to companies may have an operation. An •Energy promote black economic empowerment environmental officer is appointed from •Water through the supply chain. within the Private Capital division and The • Materials World Bank/IFC safeguard policies and Compliance •Emissions, discharges and waste guidelines are used in the environmental The Group has not incurred any penalties • Biodiversity impact assessment and due-diligence for non-conformance or non-compliance Indirect Environmental Impacts processes. Where the environmental risk is with environmental regulations and there As a financial services institution, Brait’s considered to be material, a detailed risk have been no accidents or other significant most significant environmental risk may assessment and mitigation is required, environmental incidents during the period arise indirectly from the environmental which would typically entail environmental under review.
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Sustainability Review_continued
149 Feedback Brait values any feedback, recommendations and suggestions regarding content, from its stakeholders, that would add to the value of future reports. A sustainability feedback form can be found on page 155.
Alternatively, please feel free to contact Brait with comments and suggestions on Brait’s sustainability reporting as follows:
Luxembourg South Africa Mauritius Guy Kettmann Veronica Boswell Brett Childs Experta Luxembourg S.A. Brait South Africa Limited Brait International Ltd 180, rue de Aubépines Private Bag X1 Suite 520 L-1145, Luxembourg Northlands 5th Floor Tel: +352 269255 3297 Johannesburg, 2116 Le Caudan Waterfront Fax: +352 269255 3642 South Africa Port Louis Email: [email protected] Tel: +27 11 507 1000 Mauritius Fax: +27 11 507 1231 Tel: +230 213 6909 Email: [email protected] Fax: +230 213 6913 Email:[email protected]
This review sets out Brait’s sustainability highlights for the year ended 31 March 2009. The Group’s full sustainability report will, in due course, be available on Brait’s website, www.brait.com.
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Shareholders’ Diary
150 Announcement of results 25 May 2009
Annual report issued 30 June 2009
Annual General Meeting 29 July 2009
Proposed final dividend – declaration 29 July 2009 – record date 7 August 2009 – payment 11 August 2009
Interim report 31 October 2009
Financial year-end 31 March
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Notice of Annual General Meeting
151 Notice is hereby given that the annual mandate does not affect the a legal reserve a minimum of 5% of general meeting of shareholders of the obligations and liability of the the unconsolidated net earnings for Company will be held at the registered directors, officers and statutory each financial year until the reserve office of the Company, 180, rue des auditors in respect of their duties equals 10% of its eissued shar Aubépines, L-1145, Grand Duchy of while in office. capital. The legal reserve is not Luxembourg, on Wednesday, 29 July 2009 available for distribution, except 5. To ratify the appointment by the at 14:30 for the following purposes: upon dissolution of the Company. Board of directors on 28 October Agenda 2008 of Mr S Sithole as a director of 9. To approve the declaration and A. Ordinary Business the Company to replace payment of a final dividend for the 1. To ratify and confirm the payment of Mr M Masithela, who resigned on year ended 31 March 2009 of 10,55 an interim dividend for the year 28 October 2008, and the US cents per share and 89,45 cents ended 31 March 2009 of 8,58 US appointment on 19 June 2009 of per share for the shareholders cents per share and 89,45 cents Mr CS Seabrooke as a director of registered on the South African per share, which was paid on the Company to replace register to be paid on Tuesday, 8 December 2008. Mr PL Wilmot, w ho resigned 11 August 2009 to those on the same date. 2. To receive and adopt the reports of shareholders appearing on the the directors, statutory auditor and 6. To re-elect the following directors for share register as at 7 August 2009. independent auditors for the year a further term of office in 10. To renew the authority granted to ended 31 March 2009. accordance with the provisions of the Company to purchase its own the Articles of Incorporation: 3. To receive and adopt the statutory shares subject to the following – Mr AC Ball financial statements of the Company limitations: – Mr PAB Beecroft and the consolidated financial – Mr JE Bodoni 10.1 Unless a tender offer is made to all statements of the Group for the year – Mr BI Childs shareholders on the same terms ended 31 March 2009. – Mr JA Gnodde and except in case of an emergency 4. To grant discharge to the directors, – Mr ME King where the purchase is carried out to officers and the statutory auditor in – Mr RJ Koch avoid a material loss, which the respect of the execution of their – Mr AM Rosenzweig Company would otherwise incur, mandates to 31 March 2009. – Mr HRW Troskie each purchase shall be made – Mr SJP Weber through a stock exchange on which The directors, officers and the – Mr S Sithole the shares in the Company are statutory auditor of the Company – Mr CS Seabrooke regularly traded and the purchase are appointed by the Company with price shall not exceed 5% above the 7. To receive and act on the statutory a one-year mandate, in terms of the average market value for the shares nomination of the statutory auditor Company’s articles and on all stock exchanges on which the Luxembourg Law. It is customary and the independent auditor for a ordinary shares are listed and have practice to discharge the directors, term of one-year ending at the traded for the 10 (ten) business officers and the statutory auditor annual general meeting in 2010. days before the purchase. from their mandate at the annual 8. To allocate the Company’s profits. general meeting, prior to their re- 10.2 If purchases are by tender, tenders appointment to office for the In terms of Luxembourg law, the must be available to all shareholders following year. The discharge of the Company is required to transfer to alike.
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Notice of Annual General Meeting_continued
152 10.3 The maximum number of shares made in terms of this authority, be adjourned meeting (as the case may be) at that may be repurchased pursuant based on the weighted average which the person named in such to this authority shall not exceed market price of the ordinary shares instrument proposes to vote. No 10% of the issued share capital of as determined over the 7 (seven) instrument appointingo axy pr shall be the company from time to time. days prior to the date of issue on all valid after the expiration of 12 months from stock exchanges on which the the date of its execution. This authority shall not extend beyond ordinary shares are listed and have 18 (eighteen) months from the date of this A form of proxy is enclosed with this traded during that period. annual general meeting but shall be annual report, the completion of which will renewable for further periods by resolution By order of the Board of directors not preclude a shareholder from attending of the annual general meeting of the and voting at the meeting in person to the shareholders from time to time. exclusion ofo anxyy pr appointed. B. Special Business 11. To renew, in terms of the Law of ME King 10 August 1915 on commercial Chairman companies, as amended, and the 19 June 2009 listing requirements of the Luxembourg Stock Exchange, Note: London Stock Exchange and JSE Any shareholder may, in writing, appoint a Limited, the authority granted to the proxy, who need not be a shareholder, to Board, subject to the terms of the represent him/her at any general meeting. Articles of Incorporation, to issue Any company, being a shareholder, may further ordinary shares to be execute a form of proxy under the hand of delivered to participants under the a duly authorised officer or may authorise Group’s share incentive schemes, in writing such person as it thinks fit to act without reserving for the existing as its representative at the meeting subject shareholders a preferential to the production to Brait S.A. of such subscription right to subscribe to evidence of authority as the Board may the shares issued, subject to the require. The instrument appointing a proxy, following limitations: and the written authority of a representative, together with evidence of 11.1 That this authority shall not extend the authority of the person by whom the beyond 15 (fifteen) months from the proxy is signed (except in the case of a date of this annual general meeting proxy signed by the shareholder), shall be but shall be renewable for further deposited at the registered office of the periods by resolution of the annual Company or a transfer office, two clear general meeting of the shareholders business days (in the Grand Duchy of from time to time. Luxembourg or the jurisdiction where the 11.2 That the price at which such an relevant transfer office is located) before issue of ordinary shares will be the time for the holding of the meeting or
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Form of Proxy
BRAIT S.A. Société Anonyme (Incorporated in Luxembourg) (the “Company”) R.C. Luxembourg B-13861 Registered Office: 180, rue des Aubépines, L-1145 Luxembourg 153 Share code: BAT ISIN: LU0011857645 For use in respect of the annual general meeting of shareholders to be held at the registered office of the Company on 29 July 2009 at 14:30 Brait S.A. shareholders 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. shareholders 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. shareholder 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 (ratify appointment of new directors) • Mr S Sithole • Mr CS Seabrooke Ordinary resolution number 6 (re-election of existing directors) • Mr AC Ball • Mr PAB Beecroft • Mr JE Bodoni • Mr BI Childs • Mr JA Gnodde • Mr ME King • Mr RJ Koch • Mr AM Rosenzweig • Mr HRW Troskie • Mr SJP Weber • Mr S Sithole • Mr CS Seabrooke Ordinary resolution number 7 (nomination of auditor) Ordinary resolution number 8 (allocation of profits to legal reserve) Ordinary resolution number 9 (declaration of dividend) Ordinary resolution number 10 (authority to purchase own shares) Special resolution number 11 (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. shareholder is entitled to appoint one or more proxies (who need not be a Brait S.A. shareholder) to attend, speak and vote in place of that Brait S.A. shareholder at the annual general meeting. Signed at this day of 2009. Signature(s) Capacity and authorisation (see note 7) Please read the notes on the reverse side hereof. • There is no quorum requirement for resolution numbers 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.
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Notes to Proxy
154 Notes to Proxy Brait S.A. shareholder’s votes or waived by the chairman of the 1. A member may insert the name of a exercisa ble thereat. A Brait S.A. annual general meeting. shareholder or the proxy is not obliged proxy or the names of two alternate 8. A minor must be assisted by his/her to use all the votes exercisable by the proxies of the members’ choice in the parent or guardian, unless the relevant shareholder or by the proxy, but the space(s) provided, with or without documents establishing his/her total of the votes cast and in respect deleting "the chairman of the annual capacity are produced or have been of which abstention is recorded may general meeting". The person whose recorded by the Company. name stands first on this form of proxy not exceed the total of the votes an d who is present at the annual exercisable by the Brait S.A. 9. Wheree ther are joint holders of general meeting will be entitled to act shareholder or the proxy. shares: • any one holder may sign this form as proxy to the exclusion of those 5. Brait S.A. shareholders in South Africa of proxy; and whose names follow. who have dematerialised their shares • the vote of the senior joint holder with a CSDP or broker, other than with 2. The completion and lodging of this form (seniority determined by the order of Own Name Registration, must arrange of proxy will not preclude the relevant the names as recorded in the with the CSDP or broker concerned to member from attending the annual Company’s register of members) by provide them with the necessary general meeting and speaking and proxy or in person will be accepted authorisation to attend the annual voting in person to the exclusion of any to the exclusion of the vote(s) of the general meeting or the Brait S.A. proxy appointed in terms hereof, should other joint shareholder(s). shareholders concerned must instruct such member wish to so do. them as to how they wish to vote in 10. So as to be received by no later than 3. The chairman of the annual general this regard. This must be done in 11:30 on Monday, 27 July 2009, forms meeting may reject or accept any form terms of the agreement entered into of proxy should be lodged at or of proxy, which is completed and/or between the Brait S.A. shareholders posted to the: and the CSDP or broker concerned. received, other than in compliance Transfer Secretaries in South with these notes. 6. Any alteration to this form of proxy, Africa other than the deletion of alternatives, 4. A Brait S.A. shareholder’s instructions Computershare Investor Services must be initialled by the signatory/(ies). to the proxy must be indicated by the (Pty) Limited, Ground Floor, insertion of the relevant number of 7. Documentary evidence establishing 70 Marshall Street, Johannesburg, 2001 votes exercisable by that Brait S.A. the authority of a person signing this (PO Box 61051, Marshalltown, 2107) shareholder in the appropriate space form of proxy in a representative Transfer Agents in the United provided. Failure to comply with the capacity (eg on behalf of a company, Kingdom above will be deemed to authorise the close corporation, trust, pension fund, proxy to vote or to abstain from voting deceased estate, etc) must be CAPITA IRG plc, Bourne House, at the annual general meeting as attached to this form of proxy, unless 34 Beckenham Road, Beckenham, he/she deems fit in respect of all the previously recorded by the Company Kent BR3 4TU, United Kingdom
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2009 Sustainability Review – Feedback Form
155 Fax: +27 11 507 1001
Your opinion matters. Please let us have your views of the concise review format of Brait’s sustainability review as contained in the 2009 Annual Report. The Group’s full sustainability report will, in due course, be available on Brait’s website: www.brait.com
Please identify which stakeholder group you belong to:
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For further information please contact: Veronica Boswell at Brait South Africa Limited Tel: +27 11 507 1230 Email: [email protected] Brait Annual Report 2009 Sustainability .qxd 6/22/09 6:30 PM Page 156
Administration
156 Brait S.A. Registration No: Transfer Agent/Registrar Independent Auditors RC Luxembourg B-13861 United Kingdom Deloitte S.A. Capita IRG plc 560, rue de Neudorf Registered Office Bourne House L-2220 180, rue des Aubépines 34 Beckenham Road Luxembourg L-1145, Luxembourg Beckenham Domiciliary Agent and Registrar Tel: +352 269255 3297 Kent, BR3 4TU Experta Luxembourg S.A. Fax: +352 269255 3642 United Kingdom 180, rue des Aubépines Tel: +44 208 639 2157 Brait South Africa Limited L-1145, Luxembourg Fax: +44 208 639 2342 9 Fricker Road Tel: +352 269255 3297 Illovo Boulevard, Illovo, Sandton South Africa Fax: +352 269255 3642 South Africa Computershare Investor Services (Pty) JSE and LSEIssuer Name and Tel: +27 11 507 1000 Limited Code Fax: +27 11 507 1001 70 Marshall Street Issuer long name – Brait S.A. Johannesburg, 2001 Listing Agent Issuer code – BRAIT or Dexia Banque Internationale Instrument alpha code/ PO Box 61051, Marshalltown, 2107 à Luxembourg Ticker symbol – BAT Tel: +27 11 370 5000 69, route d’Esch ISIN – LU 0011857645 L-2953, Luxembourg Fax: +27 11 668 5200 Tel: +352 45901 Legal Advisors to the Company Fax: +352 45902010 Elvinger, Hoss & Prussen 2, Place Winston Churchill L-1340, Luxembourg Tel: +352 446 6440 Fax: +352 44 2255
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DESIGNED BY SWITCH PRODUCED BY GRAPHICOR 40645 Annual Report 2009 Report Annual
Inspired by Nature Annual Report 2009 www.brait.com
13.2%
26.5%
12.2%
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09.2%
07.1%
27.3%
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