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| GROUP CHIEF EXECUTIVE'S REPORT (continued) |
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| Group Investments |
Earnings from the Group Investments segment have again contributed
significantly to the group's earnings performance. Operating earnings
are up by 35,7% to US$ 11,6 million,
giving a return on equity of
16,7%.
Bayport, which provides financial services and micro-lending in sub-
Saharan Africa, is the largest single contributor to this segment with
operating earnings growing by 170% to US$6,4 million. Advances
have grown by 109% to US$33,8 million, with the majority of this
growth emanating from its largest businesses in Zambia, Ghana and
Uganda. The bad debt experience, at 3,5%, is still well below the
comparable South African industry average. A number of pilot projects
are in trial which would add services in existing markets, as well as
expand Bayport's regional footprint. We anticipate that a number of
these projects will become operational in the second half of FY 2007.
Brait's principal interest in South African micro-lending is through its
investment in Capital Alliance Finance, which was profitable and cash
generative over the year.
In November 2005, Brait South Africa Limited established an
independent mezzanine fund management business, Mezzanine
Partners (Pty) Ltd ("Mezzanine Partners"), in a joint venture with Old
Mutual Asset Managers (South Africa) (Pty) Ltd and Mezzanine
Partners executive management. At year-end the fund had
US$45 million capital committed. It concluded its maiden investment
subsequent to year-end.
The remaining earnings in this segment were derived from the group's
treasury activities and other minor investments. |
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| Capital |
The accessibility of unsecured funding for companies has increased, while
the cost of raising corporate debt finance, has declined significantly in
South Africa, and this has presented a window of opportunity for Brait to
raise a significant amount of low cost, long-term debt, which will meet the
group's need or capital to expand its operations.
Immediately prior to 31 March 2006, Brait secured a US$73 million
(ZAR450 million) long-term debt facility and has drawn down the
capital in full.
Brait intends to use the capital for expansion of existing operations,
new organic business activities and BEE investing opportunities. A
small portion may be used for a share buy-back programme. The
deployment of this capital should enhance earnings growth, create
capital efficiencies and improve Brait's market rating by decreasing
earnings dependency on private equity investing income. |
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| Strategic review and outlook |
| Our 2006 goals were primarily operational in nature and largely built
on similar goals for 2005: |
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Focus on driving value of high impact investment in Private Equity.
This was achieved as evidenced by a 40,8% return on equity from
that business. |
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Make substantial progress in raising of Brait Fund IV. A successful
first closing of Brait IV, and the positive response received from
investors gives us confidence that the Fund target of
US$500 million (ZAR3,1 billion) will be achieved. |
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Increase funds under management in Specialised Funds. With
assets under management increasing by almost 700% to
ZAR3,1 billion, this goal was achieved in spectacular fashion. |
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Improve profitability and sustainability of Corporate Finance. Both
objectives were achieved in respect of the Specialised Debt
business, however, we were disappointed that continued lack of
profitability in the M+A/advisory unit has led to a need to
restructure that business unit. |
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Further develop our investment in Bayport. |
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| For the year ahead, our objectives build on the achievements and solid
business platform created over the last few years, and look to utilise
the increased pools of capital available to Brait to capitalise on the
opportunities we see across all our business segments: |
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In Private Equity, maximise value in investments in Brait III, finalise
Brait IV and begin the investment process in that fund. |
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In Specialised Funds to build assets under management, secure
additional hedge fund capacity and launch a multi strategy fund. |
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Within Corporate Finance it is our intention to broaden our product
and service capabilities in the capital markets. |
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Develop and leverage our investment in Bayport, and further
explore a number of opportunities, primarily in financial services,
that are potential additions to our suite of strategic investments. |
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| In conclusion, we believe that the sustainable macro-economic
prospects for Brait's core businesses are as good as they have been in
the past decade. In the absence of any unexpected significant negative
market or other events outside of the group's control, we are
encouraged as to the prospects for continued earnings growth and the
generation of attractive equity returns for our shareowners. |
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