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Annual Report
2002
Brait S.A., Société Anonyme, Incorporated in Luxembourg (R C Luxembourg B-13861)
Annual Report 2002
Contents
Annual highlights 2
Financial performance 3
Profile 4
Group activities and structure 5
Group scorecard and performance
measurement 6
Chairman’s statement 8
Stakeholders 13
Group chief executive’s report 14
Functional review
Funds Management 19
Advisory Services 25
Investing 27
Group Capital 29
Discontinuing operations 30
Financial report 32
Social responsibility 37
Employment report 38
Share analysis 40
Group value added statement 42
Time line 43
Board of directors 44
Board profile 45
Group statistics
Financial definitions 47
Five-year review 48
Group balance sheets –
Five-year review 50
Group income statements –
Five-year review 51
Financial statements 52
Administration 120
THE BUSINESS
OF BRAIT
Brait is an international investment banking
group focused on private equity and funds
management, advisory and specialised
finance services, and proprietary investing.
It is listed on the Luxembourg, London and
Johannesburg stock exchanges.
Our vision is to discover unexplored opportunities, and convert these into
shared financial reward. Our people – the force and energy behind this
vision – are united by a set of common values, rooted in:
• integrity
• partnering
• mutual respect
• dedication
• passion
• pioneering
1
Brait Annual Report 2002
ANNUAL HIGHLIGHTS
for the year ended 31 March 2002
FINANCIAL 300
250
• Earnings per share
200
• continuing operations, 27% up
at 210 cents
Cents
150
• before realisation adjustment,
100
unchanged at 200 cents
• after realisation adjustment, down 50
56% to 89 cents
0
• Total dividend for year unchanged 96 97 98 99 00 01 02
at 60 cents per share
Dividends Earnings
• R100 million of provisions raised Pre-adjusted earnings Continuing operations
against accelerated disposal of assets
• Attributable earnings net of provisions Earnings and dividends per share
R80,4 million
• Shareowners’ funds R1,2 billion
STRATEGIC
• Application to deregister the
banking licence
• Reconfiguration of specialised 140
finance activity
• Closure of Margin and Trading 120
Brait share price (Rands)
operations
• Investment activity commences in 100
Index
specialised funds
80
OPERATIONAL 60
• Solid progress in Funds Management 40
Mar ‘01
Apr ‘01
May ‘01
Jun ‘01
Jul ‘01
Aug ‘01
Sep ‘01
Oct ‘01
Nov ‘01
Dec ‘01
Jan ‘02
Feb ‘02
Mar ‘02
Apr ‘02
business
• Stronger performance from Investing
• 48% growth in joint venture assets JSE Financial
Services Index
Brait share price
under management Relative Brait share price versus
• Strong group liquidity position JSE Financial Services Index
2
Brait Annual Report 2002
FINANCIAL PERFORMANCE
for the year ended 31 March
Profit before Realisation
adjustment adjustments*
2002 2002 2002 2001
Rm Rm Rm Rm %
Profit before taxation 176,8 (100,0) 76,8 186,4 (59)
– Continuing operations 240,6 (54,4) 186,2 154,7 20
Funds Management 61,3 – 61,3 41,4
Advisory Services 23,3 – 23,3 30,2
Investing 69,9 (20,0) 49,9 1,4
Group Capital 86,1 (34,4) 51,7 81,7
– Discontinuing operations (63,8) (45,6) (109,4) 31,7 (445)
Margin 1,2 (45,6) (44,4) 40,9
Trading (65,0) – (65,0) (9,2)
Taxation 3,5 3,5 (3,9) (190)
Minority interest 0,1 0,1 – –
Attributable earnings 180,4 80,4 182,5 (56)
Share performance
Earnings per share (EPS)
– continuing operations – diluted (cents) 210,4 165,4 27
– basic (cents) 200,2 89,2 201,4 (56)
– diluted (cents) 200,0 89,1 200,0 (55)
Dividends per share (cents) 60,0 60,0
Tangible net asset value per share (cents) 1 276,0 1 285,4 (1)
Closing share price – 31 March (Rm) 860 1 145 (25)
Financial statistics
Shares in issue (million) 93,48 93,48
Weighted average shares in issue
– basic (million) 90,1 90,6
– fully diluted (million) 90,2 91,2
Market capitalisation – 31 March (Rm) 804 1 070 (25)
Average shareowners’ funds (Rm) 1 193 1 153 3
Return on shareowners’ funds
– continuing operations (%) 16 13
– total group (%) 15 7 16
Dividend cover 3,3 1,5 3,4
Six year (2001: five year) compound growth
in continuing operations EPS (%) 39 41
Six year (2001: five year) compound growth
in EPS (%) 37 20 47
Six year (2001: five year) compound growth
in EPS in real terms (%) 28 12 37
Brait Merchant Bank
capital adequacy ratio (%) 22,0 23,6
Note: * Following the announcement of the group’s intention to deregister its banking licence, the board has approved an accelerated
disposal of a large proportion of the assets in its banking structure and associated assets, some of which are held in the Group
Capital and Investing segments. This action has necessitated an abnormal non-recurring adjustment to the carrying value of
these assets at 31 March 2002.
3
Brait Annual Report 2002
PROFILE
Brait is an international investment banking group focused In our Investing activities, we leverage our skills, insights
on private equity and funds management, advisory and and relationships by making proprietary investments in
specialised finance services, and proprietary investing. It is our private equity funds, as co-investor in transactions
listed on the Luxembourg, London and Johannesburg completed by Brait’s advisory and private equity divisions,
stock exchanges, with shareowners’ funds of R1,2 billion and in special opportunities involving both private and
(approximately US$104 million). public companies.
As an international group, we operate in South Africa, The group’s residual capital is invested predominantly in
sub-Saharan Africa, North America, Europe and Australia. cash and short-term liquid assets. Traditionally these have
We provide a wide range of investment, advisory, and debt been held for opportunistic investment and as cover
services to a substantial client base that includes listed and against the wide range of risks managed by the group,
unlisted companies, financial and government institutions particularly in its banking operations.
and high net worth individuals.
Brait’s earnings are primarily derived from:
Our Funds Management activities involve the • fees from private equity and other funds management;
management of third-party capital in a fund format, • fees from advisory and specialised finance services;
with particular focus on private equity and specialised • returns on the group’s principal investments; and
funds. In addition, through joint venture partnerships • returns from investment of group capital.
with African Alliance and ipac, Brait manages unit
trusts and other funds, with associated financial and
advisory services.
As a multi-disciplinary business, Brait’s advisory capability
effectively addresses client and group needs by seamlessly
providing commercial, legal, tax, research and
negotiation support. The principal activities within
Advisory Services are mergers and acquisitions, corporate
finance and transactions execution support. Advisory
Services also includes a specialised finance offering which
has been reconfigured during the year to focus on
structuring and distributing of debt products. Activities
include structuring advice, syndicated senior lending,
mezzanine, securitisation and special debt situations.
4
Brait Annual Report 2002
GROUP ACTIVITIES AND STRUCTURE
EUROP E
• Funds Management
• Investing
• Advisory Services
NORTH AMERICA
• Investing
• Specialised funds management
AFRICA OTHER
• Funds Management
• Investing
SOUTH AFRICA • Advisory Services
AUSTRALIA
• Funds Management
• Investing • Funds Management
• Investing
• Advisory and specialised
finance services
Funds Management Advisory Services Investing Group Capital
Private equity funds Corporate finance Strategic investments Management of capital
Unit trust funds Legal, tax and Private equity Allocation of group capital
commercial support
Specialised funds Investment banking
management Structuring
Research and
decision support
Mergers and acquisitions
Specialised finance
5
Brait Annual Report 2002
GROUP SCORECARD AND
PERFORMANCE MEASUREMENT
Objective Measurement
To achieve a rand return on shareowners’ funds of 30%. 35
30
Progress 25
%
20
Brait has underperformed on its long-term ROE target. 15
Earnings and ROE yields in the financial services sector 10
has been under pressure. This has been addressed
5
98 99 00 01 02
through the proposed deregistration of the banking Return on shareowners’ funds* Long-term objective
Annually compounded return
structure which should lead to improved earnings and on shareowners’ funds
* 2002 pre-realisation adjustment
capital efficiency. This action is expected to assist Brait to
Return on shareowners’ funds
reach its long-term ROE goal.
Objective 300
250
To grow earnings per share at a compound rate of 20% in 200
Cents
real terms. 150
100
Progress 50
0
97 98 99 00 01 02
Our real growth objective in earnings per share is on Earnings per share Pre-realisation
Real growth adjustment
track despite recent earnings pressures and should be objective
accelerated by the restructuring process. Earnings per share
Objective
6 000
To double alternative asset funds committed every four 5 000
years. 4 000
Rm
3 000
Progress 2 000
1 000
Brait has a sound base of unspent commitments which
0
98 99 00 01 02
are ahead of the group’s goals and bodes well for
Funds committed Funds committed
medium to longer term growth. New fund initiatives are objective
also in progress.
Alternative assets – funds committed
6
Brait Annual Report 2002
Objective Measurement
To grow alternative asset funds invested at 20% per annum. 3 700
3 200
Progress 2 700
2 200
Rm
1 700
Brait has to date exceeded its investment target of
1 200
committed funds.
700
200
98 99 00 01 02
Invested Investing objective
Alternative assets – funds invested
Objective 100
80
To improve earnings quality and mix.
60
%
40
Progress 20
0
Discontinuing Trading operations has had the effect of
-20
98 99 00 01 02
materially improving the annuity nature of forward
Funds Management Advisory Services
earnings. The mix of annuity type income in Funds Investing Group Capital
Margin Trading
Management and Advisory operations has grown to 48% Functional earnings contribution
(2002 continuing operations)
of overall earnings.
Objective 1 400 60
1 200 50
To deploy capital more actively in our operations and 1 000
40
Capital (Rm)
ROE (%)
investment programmes. 800
30
600
20
Progress 400
200 10
0 0
98 99 00 01 02
Brait has achieved a sound return on its actively
Actively invested capital Total capital
invested capital which has over time met the group’s 30% Return on actively invested capital Return on total capital*
* 2002 pre-realisation adjustment
long-term ROE target. The deregistration of the banking
Deployment of capital
licence is expected to improve returns and efficiency of
the group’s capital.
7
Brait Annual Report 2002
CHAIRMAN’S STATEMENT
Group results and operating
environment
I advised at the half year that its was impossible to predict
with certainty the challenges and opportunities that faced
the Brait group in light of the volatile financial markets.
Since then, the uncertainty has continued to prevail but
there are signs that confidence may slowly be returning to
the economies and sectors that Brait serves.
The global retreat in economic activity in the year under
review contributed to a general decline in the demand for
financial and advisory services; this despite tentative signs
of an international market recovery towards the end of
the year. Brait has contended with the pressures of this
environment and in particular, the group’s South African
banking operations had their own unique challenges in its
market sector. The performance of operations under the
bank structure has had an adverse impact on the financial
results for the year, and the group has moved firmly to
restructure these divisions.
The results show reported earnings per share of
89 cents for the year to 31 March 2002,
down 56% against 200 cents per share
reported in the previous year. These results
should be seen in the context of the
realisation adjustments in the year of some
R100 million against potential losses
on the accelerated disposal of
the group’s lending book and
specific investments. Without these
adjustments, earnings per share would
have matched prior year results. Of more
importance are the results of continuing
operations which have grown by 27% to
210 cents per share.
Mervyn King Chairman
8
Brait Annual Report 2002
Macro-environment
In the broader context, this year was characterised by a The precipitous fall of the rand against the US dollar in
global economic slowdown, sagging investor confidence and December 2001 catapulted the currency into an
negative sentiment towards emerging markets. These trends unenviable position of being the second worst performing
were compounded by the events of September 11, and in an currency against the US dollar in that calendar year. Since
unprecedented move, the US Federal Reserve eased then, however, the rand has clawed back a large part of
monetary policy eleven times during the year and embarked the losses and is now one of the strongest performing
on a concerted programme of fiscal relaxation aimed at international currencies in the 2002 calendar year. This
stimulating the world’s dominant economy. Despite these behaviour serves to highlight the market volatilities in
efforts, responses have been slow and oil price inflation has which the group operates and the resilience of the South
raised misgivings about an early turnaround in the USA. African economy in the face of international market
European economies displayed similar symptoms of lethargy uncertainty. Nonetheless, the challenges for South Africa
and this was aggravated by the continued recessionary spiral continue, particularly the dilemma of rising inflation and
of the Japanese economy which is hamstrung by massive insufficient GDP growth which is entrapping the economy
public debt levels and a protracted banking crisis. and employment creation.
6 600 110 000
13
12,75
6 400 105 000
12
South Africa (Rm)
6 200 100 000
11 11,34
USA ($bn)
ZAR currency
6 000 95 000
10
5 800 90 000
9
5 600 85 000
8
8,01
5 400 80 000
99 00 01 7
Apr ‘01
May ‘01
Jun ‘01
Jul ‘01
Aug ‘01
Sep ‘01
Oct ‘01
Nov ‘01
Dec ‘01
Mar ‘02
Jan ‘02
Feb ‘02
USA ($bn) South Africa (Rm)
Source: US Bureau of Economic Analysis
and South African Reserve Bank
Consumer expenditure (Real) Historic R/$
9
Brait Annual Report 2002
CHAIRMAN’S STATEMENT CONTINUED
The investment environment which evolves from all of group’s financial and human capital is adequately
this reflects a mood of uncertainty and anxiety. During protected. Furthermore, Brait is committed to ensure it
the year the Dow and S&P 500 moved sideways while the operates in accordance with an acceptable code of
Nasdaq recovered marginally but did not demonstrate ethics, good internal controls, sound risk management
any strong return of confidence to new economy stocks. and is an equal opportunity employer. It has a developed
On the JSE, the recovery has been led by resources while sense of stakeholder responsibility as reviewed later in
the rest of the market has been subdued. In general, the this report.
investment climate was negative for Brait in the year.
Although investment opportunities are now more General overview of the year
attractive, exits have been difficult, with IPO and
merger and acquisition (M&A) activity muted. In this Every year seems to have its own unique issues. This year
environment raising new third-party capital will have its was no exception.
own challenges in the future with Brait needing to rely on
its own record and capabilities rather than wider market First was the strategic decision taken to exit from the
momentum. group’s asset-based finance operation, followed by the
flurry of activities affecting our South African banking
200 structure and the decision taken to apply for the
180 deregistration of the banking licence after year-end.
160
140 Outside the banking structure the group has continued to
Index
120 make satisfactory operational progress in its core areas of
100 activity. Funds Management has had a sound year with
80
improved earnings despite subdued equity market
conditions. Advisory Services has demonstrated that, even
60
in a declining transactional and M&A market, the
40
May ‘01
Oct ‘01
Apr ‘99
Sep ‘99
Feb ‘00
Jul ‘00
Dec ‘00
Mar ‘02
business is capable of generating satisfactory earnings on
a small capital base. The newly restructured specialised
JSE ALSI Index Dow Index finance operation has made positive progress in
Nasdaq Index
establishing itself as a debt advisory function as an
Relative international market trends originator, structurer and distributor of debt products and
services and is expected to make a positive contribution in
Licence to operate the near future. Investing activities have been rewarded by
a shift in emphasis from new economy investments and
Brait S.A., as a European company, has complied with the specific performance of some of these interests.
the corporate governance best practice in Europe. Brait Group Capital has been kept liquid and carefully
has adopted an open governance process so as to managed as a hedge against the specific risks which the
provide its stakeholders with the assurance that the group has faced during the year.
10
Brait Annual Report 2002
Dividend The year ahead
Since its inception in 1998 the group has applied a policy The new financial year will initially be one of consolidation
of an annual dividend declaration to its members. This for Brait. The group has the considerable task of realising
policy is founded on the view that the group needs a some R1,5 billion of assets in the near term and
balance between the retention of earnings for investment organisationally settling down into its reshaped structure
opportunities and the establishment of a record of with a reduced staff complement. One of the biggest
consistent dividend servicing, which is an important part challenges will be the retention and attraction of highly
of long-term shareowners’ wealth creation. skilled staff. The repricing of the group employee share
scheme in November 2000 has not been successful given
The board elected to declare an interim dividend of subsequent weakness and a new equity alignment plan is
25 South African cents in November 2001 in view of the
in the process of being evaluated to protect the critical
strong cash generation from the group’s operations and
intellectual resources of the group. In the year ahead we
its healthy financial position. This was favourably received
will articulate the group’s strategy for the capital released
by shareowners and the board has resolved to continue
from discontinued assets once all depositors’ funds have
this policy. Shareowners can therefore expect to receive
been returned.
an interim and a final dividend in future, providing
the financial position of the company and market
Right now in these volatile markets it is impossible to
circumstances can support the declarations.
predict the additional challenges and opportunities which
face us going forward. What is clear though is that Brait
The articles of the company provide the board with the
is becoming more focused. Its strong balance sheet,
authority to declare an interim dividend, whereas the
integrated service offering and its international reach
board may propose a final dividend to shareowners in
should enable it to exploit change and create value for its
general meeting for their approval.
own financial reward as well as for its partners.
Accordingly, after consideration of the financial position
of the company at 31 March 2002, the board has taken The board and appreciation
the decision to propose a final dividend of 35 South
African cents per share to the annual general meeting of This has been another eventful year. The management
shareowners of Brait S.A. to be held on Wednesday, team has had to rise to larger challenges than we
31 July 2001 in Luxembourg. imagined at the beginning of the year and have had to
keep the spirit and competence of the group intact
In aggregate, the declaration of an annual dividend through all of this. The group going forward is well
of 60 South African cents per share is unchanged positioned to break free from the shackles of market
from the prior year and equates to a dividend cover of deflation and the banking crisis, which have detracted
3,3 times (on earnings before realisation adjustment) from its performance objectives for the last two years.
and a cover of 3,5 times on earnings of continuing I record my appreciation for the commitment by
operations. Antony Ball and his team.
11
Brait Annual Report 2002
CHAIRMAN’S STATEMENT CONTINUED
I am fortunate to have been able to count on the
unstinting support of my board members whose wisdom
and contributions have been called upon frequently this
year. During the year Derek Rabin resigned from the
board. Having joined as a non-executive director in
1998, we now have his counsel as a senior executive.
He remains an executive director of Brait South
Africa Limited.
My thanks also go to our staff, strategic partners, investors
and all our stakeholders for their continued enthusiasm
and support. In particular we are saddened to be about
to say farewell to certain team members from our banking
administration, trading and lending operations whose
skills, efforts and loyalty were overtaken by the effects of
sentiment shifts beyond their or our control.
From the harsh environment in the investment markets we
serve and the painful decision to seek to terminate our
South African banking licence, I am confident that Brait
emerges stronger, more stable and relevant. We face an
improving prospect with top-class businesses fitter for the
experience of the difficult times past.
Mervyn King
Chairman
26 June 2002
12
Brait Annual Report 2002
STAKEHOLDERS
We recognise the importance of building and cementing ment with a balance of risk/return features and consistent
reciprocal relationships with our stakeholders. Brait’s and sustainable returns and earnings they are unlikely to
direct stakeholders include shareowners, clients, investors achieve themselves, or with our peer group. Brait has
and employees, while our indirect stakeholders include committed itself to stringent standards of reporting
the communities in which we operate including the transparency and disclosure. This practice is followed not
education fraternity as a source of future employees of only for shareowners but also at client and investor levels.
the group. All our stakeholders play a role in the sustained Investors in our private equity funds receive regular,
success of Brait’s business and we are committed to transparent and full reporting disclosure with regard to
creating wealth and adding value for our stakeholders. their investments. They are represented on advisory
boards and are regularly updated on the investment
Shareowners and providers of strategy of these funds. All investments are fully discussed
capital with our investors at bi-annual meetings. The trust and
confidence of our investors in our private equity team is
Key performance measures for our shareowners are the reflected by the historic record of growth in Brait’s funds
return of superior long-term sustainable growth in under management and their repeated participation in
earnings and dividends and the consistent demonstration Brait’s new fund offerings.
of exceptional returns on shareowners’ equity. 2002 has
been another year of earnings and share price pressures, Employees
but important strategic decisions have been taken to
address these performance issues. On the positive side, Our employees form the foundation of the Brait group
earnings of continuing operations have improved and the and are the drivers behind our success. We reward our
group’s risk exposure has been conservatively managed employees for their performance. We are focused on the
and the underlying strength of our private equity business development of our deep pool of talented people and are
and the good standing of our client franchise has been committed to education and training to improve and
enhanced. extend their skills. Recruitment and retention of good
people is important to the group, and our human capital
Clients base in continuing operations is stable. Employees are
treated with respect and are key partners to the business.
We adopt a partnership approach with our clients and
work hand in hand with them in the creation of shared Community
value. Our approach and objectives fit those of our clients.
In fostering long-term relationships with our clients, we Brait is committed to assisting less fortunate people in the
go the extra mile and respond quickly and innovatively communities in which we operate and to developing
to client needs. Clients appreciate our integrated multi- human capital. We recognise that we have a contribution
disciplinary service offering and our enthusiasm to to make in uplifting communities in which we operate.
co-invest with them in support of our advice and ideas. This is facilitated through the activities of the Brait
Foundation, which has a chief objective to promote,
Investors nurture and develop intellectual capital in these
communities and in working with academic institutions,
Our ability to find and convert opportunities into financial including the grant of tertiary bursaries for employment
reward provides our investors in funds under manage- equity candidates.
13
Brait Annual Report 2002
GROUP CHIEF EXECUTIVE’S REPORT
Results
The challenges faced by companies in our sector have
been well documented elsewhere. Of particular relevance
to Brait have been the crisis in second-tier banking,
reduced levels of corporate activity, the depreciation of the
rand and the associated volatility in the interest rate
market in South Africa.
It is in the context of these challenges that we report
earnings substantially in line with last year at 200 cents
per share before the effect of realisation adjustments
required on the accelerated realisation of discontinued
assets. More importantly for the future though, earnings
of continuing operations have grown by 26% this year to
210 cents per share.
Whilst more detailed reports for each of the functional
areas appear further in the annual report, I make the
following comments:
• whilst it is management’s goal to deploy capital more
actively in operations and investment programmes, it
was considered more prudent in the light of the second-
tier banking challenges to concentrate conservatively on
liquidity above profitability. Accordingly, cash flow was
considerably improved and cash resources at year-end
amounted to R314,2 million (2001: R107,1 million);
• the discontinuing operations of the group, being those
which relied materially on the banking licence, made
losses during the year, which detracted from the overall
performance of the group;
• our Margin and Trading operations had a particularly
weak year, as a result of poor performance in both
equity and interest-rate trading, and due to a deterio-
ration in the quality of the loan book, especially the
asset-based finance portfolio; Antony Ball
Group chief executive
14
Brait Annual Report 2002
• our Advisory Services business had a softer year The review process is continuous and it is in this
than its record 2001 performance, but performed context that Brait recently announced its intention to
commendably in a challenging environment; apply for deregistration of the banking licence held by
• private equity showed improved earnings, with an the group.
improved quality of assets under management and
better performing portfolio companies; and There were weak performances in our Trading business,
• the group tax charge for the year reflects an abnormal for the second year in a row, and also in our Margin
contribution to income arising from the reversal of business. Both these segments had historically depended
deferred tax provisions which have been released as on the banking structure. Management had come to the
a result of the current year’s losses in the banking conclusion that this dependency was flawed, and that it
structure. could successfully develop profitable trading and debt
businesses without a banking structure. Consequently,
from the commencement of the year, Brait set about
100 actively developing a specialised funds management
80 business (which gives shareowners a much enhanced
60 risk/return exposure to equity and interest rate markets)
40 and developing the debt business as originators,
20 structurers and arrangers, rather than holders of debt
Rm
0 assets. Parallel to this, management initially committed
-20 itself to making the banking structure work, by increasing
-40 the deposit base and lengthening the term. This was
-60 starting to bear fruit, but then the second-tier banking
continuing operations discontinuing operations
-80 crisis occurred. This was initiated by the curatorship of
Funds Advisory Investing Group Margin Trading
Management Services Capital Business
Saambou, followed by the A2 banking sector downgrade
2002 2001 by Fitch IBCA, and the irrecoverable withdrawal of
deposits from A1 bank, BoE. Deposit-taking took an
irretrievable setback following adverse ratings. These
Segmental profit before tax
events had material adverse consequence on all small
banks operating in South Africa. Brait took the view that
the cost of holding a banking licence exceeded its
Highlights of the year benefits, based on:
• the combination of time and effort to rebuild the
STRATEGIC REVIEW deposit base;
Each of Brait’s business units is reviewed relative to • significant infrastructural costs associated with holding
the group’s strategic theme, financial goals, a banking licence; and
structures, capital and tools available to support them. • financial risks placed on the group.
15
Brait Annual Report 2002
GROUP CHIEF EXECUTIVE’S REPORT CONTINUED
4 000 01/03/00 – 22/04/02 – 40 40 fund investments, and has seen a significant
PSG acquires TBB after Nedcor offer to BoE shareholders
threat of curatorship 6-8/05/02 –
Brait and CorpCapital return banking licences improvement in the operational performance of these
portfolio companies. The quarterly review completed at
Brait share price (Rands)
09/02/02 –
3 000 Saambou placed under curatorship 30
01/02/99 –
NRB placed under
curatorship
31 March 2002 showed that all portfolio companies in
28/06/01 –
Regal placed under curatorship
later stage funds were operating at levels ahead of budget
Index
2 000 20
or prior year results.
25/10/99 –
1 000 TFS and FBD 10
placed under 16/07/01 – Limited further investment was made by the private
curatorship RAD takeout by PSG
15/01/02 –
UniFer suspended
14/03/02 –
SARB guarantees equity funds under management, although numerous
BoE depositors
0 0 opportunities were carefully reviewed. The discipline of
1 January 1999 – 31 May 2002
rigidly adhering to carefully thought-through investment
Financial Services Index Brait requirements is considered by the fund investors to be
Source: I-Net Bridge; BoE paramount.
Volatility in the financial services sector
The environment for raising private equity funds is
difficult, especially internationally. A significant slowdown
The cost of this decision amounts to approximately has been experienced in raising private equity funds. In
R165 million, of which R100 million relates to specific the USA, according to the latest KPMG/SAVCA survey,
provisions and fair value adjustments arising from the private equity funds raised in the first half of 2001 were
unwinding of bank structure positions and the accelerated down 34% compared to the same period in the previous
realisation of banking and related assets. The balance of year (using data from Venture Economics).
R65 million will be incurred in future financial periods and
relates to closure and associated costs. Whilst The specialised funds initiative, focusing on absolute
considerable, these costs are in line with the valuation return strategies in the public markets, recorded a
discounts attributed by analysts to the bank structure. The successful year. The Brait Absolute Fund, the pioneer
costs should also be considered in relation to the future fund-of-funds in this unit, successfully launched in
release of approximately R450 million of capital from the the year. An important goal is to raise third-party capital
bank structure, and the potential for consequent in the forthcoming financial year.
improvement in ROCE.
ADVISORY SERVICES
Brait will continue to be able to offer its clients a full range Our Advisory Services business recorded lower profitability
of investment banking products and services, including this year, largely due to declining business volumes. We
debt, and to give its shareowners access to investment have seen an improvement in deal flow and profitability
banking related exposure to equity and interest rate markets. since the beginning of this calendar year, and are
confident of improved levels of profitability.
FUNDS MANAGEMENT
The focus in private equity has been on the enhancement The business is considerably enhanced strategically,
of existing portfolio companies. Brait currently manages having completed a number of high profile mandates,
16
Brait Annual Report 2002
and seeing success in joint venture relationships by the Group Capital function. This segment once again
with Allco and Close Brothers. Its international merger contributed significantly to results for the year on the back
and acquisitions operations have continued to grow and of average capital of R744 million invested predominantly
a number of sizeable and newsworthy crossborder in preference shares and money market instruments.
mandates have been completed. Before realisation adjustments, the average yield on funds
invested for the year was 11,6% (2001: 11,5%). As noted
Our specialised finance capability has built up a full range earlier, this growth of low risk capital deployment was
of debt solutions for clients to lower their cost of capital a temporary but necessary buffer against the risk of
with acceptable risk and is advisory in nature without liquidity shocks threatening our then vulnerable banking
relying on a banking licence. The full spectrum service operations.
comprises arranging of senior lending, securitisation,
structured finance and special situation lending. DISCONTINUING OPERATIONS
Additionally, a successful non-recourse preference share The group’s Trading operations, comprising trading in
book is run. This activity is expected to contribute equities, interest rates, securities, treasury and money
positively to group earnings in the new year with limited market instruments, have been discontinued either during
risk to the group’s balance sheet. the year or as part of the deregistration of the bank. This
also applies to the group’s Margin business, comprising
INVESTING asset-based finance and other balance sheet lending
In a difficult investing environment, we record improved activities. As set out above, realisation adjustments have
returns, influenced by the realisation of the investment in been raised in this financial year, and further closure
a Russian brewer to Heineken, and weakness in the rand. provisions will be made in future financial periods.
Additionally, we made a further four investments, all of
which meet our criteria for on-balance-sheet investing, The combined loss from these discontinuing operations
being outside the scope of our funds under management, for the year amounted to R109,4 million, inclusive of
and offering exceptional risk/return features. realisation adjustments of R45,6 million. Earnings from
the Margin business declined primarily as a result of bad
During this year we made further investments in our debt provisions raised at the interim stage against the
private equity funds in accordance with existing asset-based finance book, and a planned reduction in
commitments. Our investment in the specialised funds advances during the year. Losses from Trading activities in
activities grew to R36 million, and recorded returns in line the second half of the year were substantial, following the
with expectations. sharp increase in bond market yields in December 2001
which resulted in the elimination of profits reported at the
GROUP CAPITAL interim. The equity trading team incurred losses for the
The allocation of active capital to business units and second year in a row in a volatile and generally non-
investment of funds held in group treasury are managed trending market.
17
Brait Annual Report 2002
GROUP CHIEF EXECUTIVE’S REPORT CONTINUED
liquid instruments will no longer be a constraint. The
150
board will address itself to this issue once the capital has
been released.
75
60
Brait is planning for a year of concentrating its efforts on
its existing operations, and on successfully managing
45
down its discontinuing operations. Accordingly, new
30 initiatives outside the scope of current operations are not
15 anticipated.
0
Funds
Management
Advisory
Services
Investing Group
Capital Conclusion
2002 2001
It has been a watershed year for Brait and its
Functional return on equity – stakeholders. We move forward in the confidence that the
before restructuring adjustment
decision to deregister the bank is the right one.
Future strategy I would like to thank all my colleagues for their support
and contribution. I am confident that commitment to the
The surrendering of the banking licence has very limited fundamentals of top-class investing and client advisory
impact on the group strategy. For its clients Brait will principles will be recognised by continued support from all
continue to offer debt solutions as it has in the past, and our stakeholder groups in the years ahead.
for its shareowners, returns from participation in equity
and interest rate markets through its specialised funds
activities. Accordingly, the Brait strategy will continue
similar to the model successfully employed by numerous
successful investment banking operations globally that
operate free of the costs and constraints of a licence to
take deposits.
Antony Ball
There will, however, be an impact on the group’s financial Group chief executive
flexibility, as significant capital will be released and the
requirements for such capital to be held in low risk and 26 June 2002
18
Brait Annual Report 2002
FUNCTIONAL REVIEW –
FUNDS MANAGEMENT
2002 2001 150 100
Performance for the year Rm Rm
80
Net operating income before tax 61,3 41,4
100
Average capital employed 44,6 86,0 60
Rm
Return on equity before tax (%) 137,4 48,1
%
40
Funds Management comprises the management of third- 50
party capital by Brait. The earnings stream is high quality, 20
comprising fees predominantly of an annuity nature
and generating attractive returns on equity. Funds 0 0
98 99 00 01 02
Management also includes our equity accounted interests
ROE Net operating profit
in African Alliance and ipac South Africa. before tax
Brait’s management of third-party capital in a fund Funds Management:
Returns and profitability
format is focused on private equity funds. Brait has
an established team and track record that is recognised
as a leader in the private equity asset class in the 2,0% to 2,5% on committed capital of its private equity
African region. The fund format allows Brait to funds, reflecting the specialisation of the team and the
leverage its own skills alongside the capital of a premier intensity with which it supports the investment
set of investors. The economic model followed is true to processes;
the principles tried and tested originally in the US and • the funds draw down cash for investment as and when
Europe: required by the manager and, on realisation, pass
• the fund investment holding vehicles are not traded proceeds directly back to investors; and
publicly; • carried interest and preferred return participations are
• funds are committed for the long term but are closed- payable once cash has been returned to investors
end in nature, normally giving the manager five years in covering cash drawn down for investments and fees,
which to draw the committed capital to make together with a preferred return (generally of 8% in
investments, and a total of 10 to 12 years from the US dollar terms). These participations represent
fund’s inception to return the capital to investors. 20% to 25% of the gains. The private equity team
Committed private equity funds under management participates in these equally with Brait, again aligning
currently total R5,4 billion; the motivations of all parties.
• management fees are payable on committed capital
independent of the amount drawn or the valuation of Given the long-term nature of the commitment and
the portfolio, representing a secure long-term revenue illiquidity of the fund investment, investors make careful
stream. As a result the interests of investor and and extensive reviews of the manager. Brait enjoys
manager are aligned by allowing a patient and relationships with a premier group of investors that have
considered pace of investment rather than rewarding a formed a long-term view of the Brait team, its investment
rapid deployment of funds. Brait receives annual fees of strategy, and ability to deliver.
19
Brait Annual Report 2002
FUNCTIONAL REVIEW – FUNDS MANAGEMENT CONTINUED
Brait is the leading private equity fund manager investing The continued low ratings achieved in the small
in the southern African region in terms of funds under capitalisation sector of the public markets and the sharp
management. Three of Brait’s funds invest in later stage slowdown in IPO and merger and acquisition activity have
private equity transactions, whilst the fourth is focused on slowed down value recognition for Fund I and Fund II, and
early stage technology investing. Earlier stage investing at we seek to optimise value by increasingly targeting trade
present represents approximately 6% of private equity partners. Our track record entering our eleventh year of
funds under management. operations nevertheless shows internal rates of return in
Funds l and ll continuing to run at attractive levels, with
The readiness to embrace change and adopt a multi- gross annual IRR in rand terms since fund inception at
disciplined approach has positioned Brait as a leader of 30% and 65% respectively based on realistic carrying
the private equity asset class in the region. Brait has values for unrealised positions. The realisation and
ensured that the investment team has a broad base of liquidity process on these funds are expected to be
skills. An important component of this is the ability and complete within one and three years respectively.
readiness to provide ongoing strategic, operational and
financial support to the portfolio companies, which drives In the year Brait Technology and Innovation Fund I
our investment record and provides further differentiation. (“Braitec”) made one further investment completing
An optimal balance of financial and intellectual capital is its early stage portfolio size at 19 investments. The new
key to success. investment was made in GraphicData, a UK company
focused on document management. The portfolio mix is
Considerable resources have been applied in the year to quite broad and dominated by companies with
enhance strategic and operational plans of existing proprietary technology, much of which is not information
portfolio companies and in instances where strategic technology related.
plans have been fully implemented these portfolio
companies have been positioned for realisation. 200
Brait has drawn down approximately 50% of the South
150
African Private Equity Fund III’s capital. The portfolio
represents a healthy blend of transaction-types and
$bn
100
industry diversification. While valuations of unlisted
positions in this fund are generally still held at cost, we
50
have seen healthy development of the business plans of
these existing portfolio companies. All companies in our
three later stage funds are trading ahead of budget or last 0
95 96 97 98 99 00 01
year. This is a remarkable testimony to the management
groups with which we have invested and to the efforts of
the Brait team in building these businesses and their value
in this past year. Commitments to US private equity funds
20
Brait Annual Report 2002
Highlights of the year in Braitec include a number of The current portfolio of fund investments spans a broad
rounds of funding closed for existing investments in the range of economic sectors and is summarised in the
portfolio including Rubico, Tissuelink, Intervate, Unique tables below:
World, Intenda, Maven, Correlate and Connect One. On
balance the Braitec portfolio has held its value through a Name of
difficult year for technology investors, contains many investment Description of business
promising companies, and is positioned for an upturn in
Fund I
technology markets.
Eyeperoptics Wholesaler and retailer of optometric
FINANCIAL RESULTS products and services with its own
Earnings for the year attributable to private equity fund network of nationwide practices
management were ahead of last year. While management Franki Africa Provider of foundation and geo-
fee income was marginally ahead of expectations in rand technical services including soil
investigation, foundation design, piled
terms, carried interest participations were weaker as the
foundations and ground retaining
depreciating rand and continued depressed rating of small
systems
capitalisation stocks on the JSE kept pressure on
Somerset Assembly and distribution of
investment valuations and realisation levels. Brait is
Educational educational products, including
satisfied with the strategic positioning, growth prospects,
revolutionary micro-science kits, to
financial performance and value creation within this well
schools, universities and technikons
diversified and balanced portfolio.
Wasteman Industrial, commercial and municipal
waste removal, disposal, street sweep-
ing, sewer and specialised cleaning
6 000 Fund II
5 000 Astrapak Manufacturer of plastic packaging
products and provider of packaging
4 000
services (small stake also held in Fund I)
Rm
3 000 Freeplay Energy Developer of technology involving the
generation and storage of human-
2 000
generated energy
1 000 Fuel Logistics and parcel distribution of
high value goods and FMCG products
0
98 99 00 01 02 including warehousing, airfreight,
Invested Total committed
courier and supply chain solution
services
Kagiso Media Media group with interests in radio,
Private equity funds under management publishing and trade exhibitions
21
Brait Annual Report 2002
FUNCTIONAL REVIEW – FUNDS MANAGEMENT CONTINUED
Nortech Global supplier of manufactured Smartcall Exclusive and leading Vodacom
components for detection solutions mobile phone airtime reseller
including parking, traffic and focusing on prepaid connection and
headcounting systems airtime packages
Prime Cure Provider of high quality, low Southern Resource exploration company
Clinics cost primary healthcare services Mining currently focused on the evaluation
through a national network of Corporation and development of Corridor Sands,
medical centres the world’s largest titaniferous
Shoe City National retailer of discounted formal, mineral sands deposit
casual and sports footwear The Environmental services group focused
Uni-Span Manufacturer and distributor of Reclamation on the secondary metal market,
Formwork & scaffolding and formwork products to Group with developing operations in waste
Scaffolding the construction and building sector paper, glass, rubber and plastic
recycling
Fund III
Wilderness Leading tourism wholesaler and
Cointel Value-added service provider Safaris operator of safari camps and related
developing systems to provide guest logistics
information to portable hand-held
Braitec
devices in GSM cellular networks
Fine Chemicals High value-add formulator and Breathetex Owner of technology to apply
Corporation manufacturer of active ingredients waterproof, breathable membranes
for pharmaceutical products with to fabric
an FDA rating Connect One Engaged in the development of
Hydrogen Leisure business designing, Inc internet connectivity firmware
Entertainment developing and operating solutions in semi-conductor chips
World amusement facilities Correlate Developer of patented desktop
Logical Options Leading recruitment, staffing and Technologies application software products for the
IT services business with interests in collection and organisation of data
South Africa and North America Eastmin Provider of hardware and software
MGX Provider of IT products and services, Information solutions for the office automation
storage technologies, document Technology and productivity environments
management, disaster recovery and Ecom Institute Systems integrator providing internet
continuity planning, and software solutions including procurement,
development services supply chain and security applications
OTK Agricultural services including handling, ETC White-label aggregator for providing
storing and marketing of cotton and full cycle insurance solutions over the
grain and the supply of production internet
requisites, insurance and finance
22
Brait Annual Report 2002
Floppy Sprinkler Irrigation technology business Rubico Developer and implementer of
which has developed a worldwide component-based object oriented
patented, low cost sprinkler system software providing a software
Grapevine Provider of collaborative messaging assembly environment with configu-
Interactive solutions to the corporate market ration and consulting support
GraphicData Provider of document management Unique World Developer and integrator of web-
solutions in the UK through the use based technology with a focus on
of a network of scanning and retail solutions in Australia
microfilming bureaus Tissue Link Developer of medical technology
IBA Provider of healthcare information combining radio frequency energy
Technologies systems in Australia, Singapore, New with conductive fluid for use in surgical
Zealand and UK markets applications principally in the USA
Intenda Developer of procurement and tender Web-angel UK-based mobile and e-commerce
management software solutions business accelerator providing
Intervate Intranet knowledge management strategy formulation and fundraising
platform, designed to provide a assistance
flexible framework of services and
functionality ipac
Laundresse Developer of a patented wall Brait is involved in retail and institutional funds
International mounted appliance aimed at the management through a joint venture with Australian-based
hospitality and consumer markets ipac. During the past year ipac South Africa grew its
Maven Provider of software and outsourcing funds under advice from R1 462 million to R2 830 million,
Technologies solutions to insurance brokers, short- representing a position of critical mass. The ipac SA service
term insurers and life insurers takes the management of the assets of high net worth
individuals and institutional funds to a strategic level,
3 500
offering leading-edge processes that match investment and
lifestyle objectives with the appropriate asset management
3 000
teams and investment strategies. ipac South Africa
2 500 expanded its partnerships with the leading independent
2 000 financial planners in South Africa, resulting in significant
Rm
flow of business. An implemented consulting division
1 500
servicing the retirement fund industry has also been
1 000
established – a process which ensures unique and effective
500 investment strategies for retirement funds and their
0 members. ipac South Africa has positioned itself to become
98 99 00 01 02
the leading supplier of financial planning to individuals and
investment consulting to financial intermediaries and
Unit trust and specialised funds under management retirement funds.
23
Brait Annual Report 2002
FUNCTIONAL REVIEW – FUNDS MANAGEMENT CONTINUED
AFRICAN ALLIANCE MEZZANINE FINANCE
African Alliance services sub-Saharan financial markets Brait has decided to make its mezzanine arrangements
outside South Africa. It increased its earnings significantly through a “club” arrangement with other investors, and to
over the previous year with all business areas performing focus on structuring and arranging mezzanine finance for
satisfactorily. The introduction of debt origination and private equity transactions.
trading as a new division is expected to add value to
African Alliance’s expansion plans, together with SPECIALISED FUNDS
established areas. Attention to culture and human Specialised funds is Brait’s alternative asset class initiative
resources has increased, bringing expected greater value within the listed markets and has during the year
in years to come. All the teams have been enhanced established a solid platform from which to expand and
further and substantial technology investments have been develop its activities. The investment objective is to
undertaken to support future development. provide absolute returns in all market conditions. The
Brait Absolute Fund, the pioneer fund-of-funds, was
African Alliance remains committed to long-term successfully launched this year. A further range of
development based on an operating philosophy of specialist equity funds has also been launched and is in
integrity, together with sound financial and intellectual the process of building portfolios and a performance track
foundations. Greater emphasis will be placed on building record.
in-house research capacity and ever-expanding focus on
client value delivery.
30% 29%
70% 71%
2002 2001
Independent funds Brait
Total independent funds under management
24
Brait Annual Report 2002
FUNCTIONAL REVIEW –
ADVISORY SERVICES
2002 2001 100 100
Performance for the year Rm Rm
80 80
Net operating income before tax 23,3 30,2
Average capital employed 65,0 47,8
60 60
Return on equity before tax (%) 35,8 63,2
Rm
%
Brait Advisory Services comprises a team of more than 40 40
40 professionals providing an innovative and unique blend
of skills across all facets of deal making and has the ability 20 20
to deliver best advice, technical skills, partnering and
access to capital for its clients. 0 0
98 99 00 01 02
Brait’s Advisory offering is a multi-disciplinary business, ROE Net operating profit
before tax
effectively addressing client needs by providing corporate
finance, commercial, legal, tax, research, negotiation,
technical, corporate finance and execution advice, and Advisory Services:
Returns and profitability
support across the full spectrum of business transactions
both locally and internationally. It also offers specialised
finance services through origination, packaging and
distribution of debt solutions and includes property and
corporate financial structuring as well as a non-recourse increased on the back of the debt advisory operations while
preference share trust. M&A and corporate finance fee income accounted for
approximately 50% of the team’s total revenue for the period.
The advisory group strives to design around each client
relationship a team, service offering and basis for value This year Brait continued the consolidation of its market
participation. The team offers solutions that are both relevant position as one of the leading advisory houses to
and differentiated. This puts Brait in the position of a key entrepreneurs and small to mid-sized public companies in
strategic partner in enhancing the value of clients’ business. the markets in which it operates. It also continued to build
upon its capacity of completing sizeable and newsworthy
Each team draws from the skills and experience across crossborder mandates. Brait was ranked fifth in terms of
five principal areas of activity: number of completed transactions announced in South
• mergers and acquisitions; Africa by the annual Ernst & Young survey for 2001 and is
• corporate finance; well positioned in its other markets.
• advice and execution;
• specialised finance; and The year saw a continued decline in inward investment
• property and commercial financial structuring. into South Africa with a corresponding increase in
outward investment. The net result was a real decline in
Earnings for the year were R23,3 million, down 23% on the corporate activity in South Africa, in line with the declining
record profits of R30,2 million in the prior year. This trend elsewhere in the world. Despite the slow down in
performance is considered very satisfactory in view of the corporate activity, the team was active and the most
corporate market conditions and the start up nature of the notable deals advised on were:
debt advisory services team, which is expected to contribute • a capital raising of US$30 million for Bravo Brewery, a
positively to earnings in the new financial year. Revenue clear beer brewery in Russia;
25
Brait Annual Report 2002
FUNCTIONAL REVIEW – ADVISORY SERVICES CONTINUED
• acquisition of Gearhouse (South Africa) Pty Limited although this was a small part of its total revenue in the
from the mandators Gearhouse PLC; year under review.
• the disposal of Illovo Sugar Limited’s holding in Mon
Tresor and Mon Desert Limited in Mauritius; The specialised finance team was actively involved in the
• several disposals for OTK Limited in South Africa; origination, packaging and distribution of debt into the
• representation of Warner Brothers Inc (USA) in regard financial services market. In excess of R1 billion of debt
to its shareholding in e-TV; was raised and syndicated during the year under review.
• a disposal by Metropolitan Factors to Close Invoice Significant transactions included the raising and placing
Factors, a subsidiary of Close Brothers PLC, United of a R300 million preference share financing facility for
Kingdom; an empowerment company and the origination and
• various disposals by CapeStar Growth Investments structuring of a R240 million funding package for a listed
Limited and its subsequent delisting and winding- company. Since the beginning of the year, the team
up; and has positioned itself to operate without the support
• the management buyout of NCS Resins in South Africa. of a banking licence and to generate a significant fees
revenue base.
The advisory team continues to harvest referrals from its
international associations with Close Brothers, particularly The advisory team enters financial year 2003 with a
out of the UK and Europe, and Allco Structured Finance strong pipeline, in particular some notable crossborder
in Australia. M&A and corporate finance mandates. The specialised
finance team has secured several securitisation and debt
In addition to its external clients the advisory team has origination mandates and is closing out a number of large
continued to support the operations of the Brait group transactions.
60 25 350
50 300
20
Total deal worth (Rbn)
250
Number of deals
40
15
200
Rbn
30
150
10
20
100
5
10 50
0 0 0
97 98 99 00 01 94 95 96 97 98 99 00 01
Number of deals Total deal worth
Source: Mergers & Acquisitions Survey 2001
Ernst & Young
Advisory Services deals
(by calendar year) Trends in South African merger and acquisition activity
26
Brait Annual Report 2002
FUNCTIONAL REVIEW –
INVESTING
2002 2001 100 100
Performance for the year Rm Rm 80 80
Net operating income before tax 69,9* 1,4 60 60
Average capital employed 339,8 307,7 40 40
Return on equity before tax 20,6 0,5 20 20
Rm
%
* Pre-realisation adjustments of R20,0 million 0 0
-20 -20
Investing resides at the core of Brait’s competence. Brait -40 -40
leverages its skills, insights and relationships as an
-60 -60
investor by making proprietary medium-term investments
-80 -80
in its private equity funds, as co-investor in transactions 98 99 00 01 02
completed by its advisory and private equity divisions, and
in special opportunities involving both private and public ROE Net operating profit
before tax
companies. Since inception, Brait has yielded an average
return of 18% on this portfolio against an average of Investing:
0,7% on the JSE Industrial Index, (9)% on the JSE Small Returns and profitability
Cap Index, (35,9)% on the JSE IT Index, (0,03)% on
Nasdaq and 4,1% on the Dow Jones Industrial Index. adopted by Brait, requires all financial assets to be
brought to account on a mark to market and fair value
Brait’s proprietary investing activities have strategically basis. The effect of this leads to volatility in earnings
placed greater emphasis this year on established business reported in the Investing function as is evident in the
opportunities in the industrial and commercial sectors graph above.
rather than new economy investments.
The majority of the Investing portfolio comprises direct
These decisions have proved successful this year as the investment by Brait into private equity funds under its
smaller capitalisation stocks, and in particular the management and co-investment into certain of such
information technology and earlier stage companies, portfolio companies. In addition, Brait has made on-
continued to underperform. The results from Investing balance-sheet direct investment in transactions of a
reflected some general improvement in market indices on private equity nature, the principal commitments of which
the industrial and commercial sectors but more at year-end are summarised below:
particularly the specific performance of Brait’s portfolio.
The effect of the sharp depreciation of the rand on the Bayport International micro-finance group with
group’s non-South African investments also contributed operations commencing in Zambia in
overall to a much improved performance from proprietary conjunction with employer groups
investing activities for the year off a low base. Earnings Douglas Green Producer, distributor and marketer of
before tax and realisation adjustment was R69,9 million Bellingham wine and spirits brands in South Africa
against R1,4 million in the prior period and the average and internationally
return on capital invested for the year on this basis was Dywidag Industrial services businesses operating
20,6%, compared with 0,5% last year. This performance and RMS in the roofbolt, steel reinforcing and
should also be seen in the context of equivalent returns of mesh markets
6,4% on the Dow, 10,5% on the JSE Small Cap Index and Equine Holdings Software developer and distributor of
10,9% on the JSE Industrial Index for the same period. and Raceclubs virtual online horseracing software
Metra Holdings Management consulting and services
The basis for accounting for all investments in terms of group acting as licensee of Gemini
International Accounting Standards, which has been fully Consulting in South Africa
27
Brait Annual Report 2002
FUNCTIONAL REVIEW – INVESTING CONTINUED
NCS Resins South Africa’s leading manufacturer commitments to funds. As Fund I has reached the end of its
and distributor of unsaturated investment period, special opportunities in the R5 million to
polyester resins and gelcoats arising R20 million range sourced by the group are now available
from a management buyout from for selective investment on Brait’s own balance sheet.
Dow Chemicals and simultaneous
merger with the Vereguard group A number of new investments were concluded during the
Promark Sport Representative of rugby and football year under review including Equine Holdings, virtual horse-
International professionals in contracts with clubs racing software website, and NCS Resins, southern Africa’s
and unions largest software manufacturer of unsaturated polyester resins
Web-angel UK-based mobile and e-commerce and gel coats. Also, the group entered into agreements for
business accelerator listed on an investment in Bayport, an African focused micro-finance
London’s AIM market group, which has commenced operations in Zambia. The
NCS Resins transaction typified Brait’s strategy of investing
The most notable was the group’s investment in the on the back of its advisory and debt structuring capability.
Russian brewing group, Bravo, in which Brait co-invested
alongside one of its fund investors. Brait also provided The Investing activity is by definition long in equity risk
advisory services to the group using its specific and by its nature difficult to hedge. While the group
relationships and skills in this industry. The fees from the expects that correlation with public markets is limited by
advisory activities are included in that segment’s results. the special opportunity and privately negotiated nature of
much of this proprietary investing, inevitably in years of
The performance of the group’s investment in the wine volatility in equity markets earnings will not be smooth
and liquor distribution and manufacturing business, DGB, and may be adversely affected by abnormal currency or
in South Africa, which falls outside the mandate of the market sentiment issues.
private equity funds, was also an area of success. This
management buyout, in which Brait both advised and Brait’s ability to back its clients, proprietary insights and
financially structured the transaction, delivered another deal flow with its own capital remains strategically
year of strong results in terms of cash flow and valuable and a differentiator in its target markets.
profitability.
The group still holds some of its new economy investments 10 000 5 000
in the Australian-listed healthcare software group IBA and 4 500
9 000
UK-based mobile and e-commerce business accelerator
4 000
Web-angel, and some small positions in JSE listed stocks.
8 000
Nasdaq Index
In general these business have performed poorly and the 3 500
JSE Indices
loss of value has been recognised through the group’s 7 000 3 000
mark to market accounting policies.
2 500
6 000
The group is satisfied with its investment programme into 2 000
its private equity funds. These investments account for 5 000
1 500
approximately R160 million at fair value at the year-end.
Here the biggest direct exposure is its commitment to 4 000 1 000
May ‘01
Oct ‘01
Apr ‘99
Sep ‘99
Feb ‘00
Jul ‘00
Dec ‘00
Mar ‘02
SAPEF III, which as reported in the funds management
section, is well positioned to deliver value in future years.
JSE Small JSE INDI 25
Nasdaq
In the current unpredictable market, Brait continues to be
careful in adding exposure to its Investing book outside its Relative performance of stock markets
28
Brait Annual Report 2002
FUNCTIONAL REVIEW –
GROUP CAPITAL
40 140
Performance for the year 2002 2001 35 120
30
Net operating income before tax 86,1* 81,7 100
Average capital employed 744,1 712,1 25
80
Rm
Return on equity before tax 11,6 11,5
%
20
60
15
* Pre-realisation adjustments of R34,4 million
40
10
The Group Capital function oversees the performance and 5 20
allocation of Brait’s capital. It also manages all capital
within the group structure, which is not directly allocated 0 0
98 99 00 01 02
to or employed by a business unit. Traditionally this has
included capital allocated to the group’s banking structure ROE Net operating profit
before tax
as this is held predominantly in liquid instruments as
security against the deposit base of the bank. Group Capital:
Returns and profitability
The primary functions of this activity are: capital allocated to these operations on both a specific
• to allocate the group’s capital resources to the and segmental basis.
operating units in the group;
• to set capital return targets for business units; Following the group’s recent decision to cease its Margin
• to measure risk adjusted returns of the capital and Trading activities and the consequent realisation of its
employed by units; corporate lending book and certain assets in its
• to improve capital utilisation efficiency within the proprietary investment portfolio, capital allocated to these
operating units; and assets classes will be returned to the Group Capital
• to manage optimally the investment of unallocated or function for management. This capital will only become
residual capital. available for redeployment once depositor funds have
been settled in full and our banking assets realised. The
Return on capital is the fundamental driver of the strategy for the allocation of this capital will be developed
group’s financial performance objectives. Brait’s capital and refined in the course of the next financial year.
allocation process is committed to achieve maximum risk-
adjusted return on invested equity capital. The group’s Group Capital has in the past been the single largest
equity capital is deployed to provide financial contributor to group earnings. Because the bulk of this
stability, capture business opportunities and leverage capital has been held as cover against the wide range of
the group’s relationships and skills. Essentially, Brait aims to risks managed within the banking structure and the group
put capital behind its own ideas and relationships and at large, it is invested predominantly in cash and short-
as an outcome of this it expects to earn superior investment term assets. Earnings for the period on a pre-adjusted
returns. basis were R86,1 million against R81,7 million in 2001
and the average annualised return on Group Capital for
Brait has implemented an internal capital allocation the year was 11,6% against a comparable return of
programme, which is responsible for controlling and 11,5%. The return is disclosed net of unallocated group
balancing the allocation of capital between business operating costs and provisions which are not allocatable
units. Importantly it offers a measurement for the cost of to other business segments. Foreign currency translation
allocated capital, identifies the related risks involved and adjustments on conversion of non-South African assets
considers alternative sources or mix of capital. The asset into the rand financial statements are included in the
allocation programme also provides a risk weighted income and assets of Group Capital. Translation
analysis of capital employed by units in the group and adjustments in non-integrated operations are reflected in
measures risk adjusted returns on the different classes of average capital but not in income.
29
Brait Annual Report 2002
FUNCTIONAL REVIEW –
DISCONTINUING OPERATIONS
Discontinuing operations comprise the activities of the stage. The recovery of this portion of the book was well-
Margin and Trading businesses carried out in the group’s progressed at year-end.
banking structure.
The business of A2 banking continued to became
Margin business increasingly difficult as the year progressed with the
failure of further small banks, culminating in the
Performance for the year 2002 2001 curatorship of Saambou Bank and the authorities
stepping in to guarantee the deposits of BoE Bank. This
Net operating income before tax 1,2* 40,9
led to the announcement by Brait, soon after year-end, of
* Pre-realisation adjustments of R45,6 million its intention to apply to the South African Reserve Bank
for the deregistration of its banking licence and the
Margin business suffered a torrid 2002 financial year. The consequent decision to cease its deposit-taking activities
results for the year are disclosed as discontinuing by September 2002. At the same time Brait announced
operations as a result of a decision taken by the board that it intended to recover the capital invested in its
of Brait Merchant Bank Limited to apply for the lending book on an accelerated basis and has accordingly
deregistration of its banking licence. provided R45,6 million against the recovery of this book
in the current financial year. The results of the entire
As described in last year’s annual report, developments in Margin lending operation have been treated as a
the financial services industry and internal performance discontinued operation.
and strategic targets within Brait led the group to embark
35
on a new strategy relating to deposit-taking and lending
activities towards the end of the 2001 financial year. The 30
need to maintain high levels of liquidity, in a financial
25
environment characterised by deteriorating perceptions of
20
A2 banks, resulted in the aggregate returns on advances
%
portfolios already at that stage being insufficient for 15
the banking structure to earn its target return on equity
10
from lending activities. These activities were therefore
progressively reduced, and the focus in the year has been 5
building advisory skills in debt structuring, origination, 0
98 99 00 01 02
syndication, securitisation and distribution skills rather
than on margin lending. Brait’s banking capital Regulatory
adequacy ratio requirement
A further review of the group’s banking model during the
year highlighted the inadequate risk/reward relationship Banking operation capital adequacy ratio
in the bank’s asset-based financing area and, as was
reported in the group’s interim report, the decision was At 31 March 2002, the net advances book was
taken to exit this type of business completely. This process R780 million, a decline of 45% on a year previously and
has highlighted the difficulty of recovering a portion of the the deposit book was R1,1 billion, a decline of 29%
book, and additional provisions for doubtful debts compared to 2001. Prospectively, all deposits will be
amounting to R24 million had to be made at the interim returned and the banking licence cancelled on or about
30
Brait Annual Report 2002
30 September 2002. Thereafter certain lending and related The development of our interest rate research capability
activity may be undertaken by Brait in pursuit of investment continued, with the objective of developing a client
banking transactions but these will fall outside the ambit of focused value added interest rate business. It proved
banking regulations and will largely be undertaken to much more difficult to establish our reputation in this area
facilitate principal investment or client advisory activities. than had originally been anticipated, and it was only in
recent months that some benefits in the form of increased
Trading deal flow were seen.
Performance for the year 2002 2001 EQUITY TRADING
Although most South African equity indices showed net
Net operating (loss) before tax (65,0) (9,2)
gains for the year, this conceals what was a volatile and
generally non-trending market. For the second successive
Brait’s trading operations have taken place in a turbulent year Brait equity trading incurred losses and the decision
environment and are also subject to being wound down was taken to reduce operations, particularly in more
following the decision to terminate the banking licence on speculative equity and derivative trading. Certain value
which such operations rely for counterparty lines. and arbitrage holdings are being reduced more gradually
and all positions will be closed or assumed under the
Brait’s primary trading activities fall into two areas: Investing function by September 2002.
INTEREST RATE Furthermore, the group’s stockbroking operation, Brait
During the first eight months of the year the team was Securities, which relied on the group’s proprietary funding
able to exploit a steady bull market and seemed well for a significant portion of its income and activity, will
placed to enjoy a particularly successful year in the also be discontinued following the decision to cease
interest rate trading area. The R150 opened the year at trading activities.
11,73% and the R153 at 12,345%. Our trading
operations successfully read the bull market as lows of
15,0
9,37% and 10,0% respectively were reached in late
14,5
November. The improved results from trading at the
14,0
interim stage were largely derived from the performance
13,5
in the interest rate market.
13,0
%
12,5
This was followed in December by the well-publicised
12,0
collapse in the rand exchange rate, with a corresponding
11,5
vicious increase in bond market yields. In a three-week
11,0
period the yield on the R150 increased 383 points, the
10,5
most notable increase being 177 points within a two hour 10,0
period on 14 December. April 2000 – March 2002
This spike in rates effectively reversed the accumulated
gains to date and the overall results for the year were very
disappointing. Bond market trend: R153
31
Brait Annual Report 2002
FINANCIAL REPORT
The Brait S.A. group financials and the company • Investing – revenues are market and specific investment
financials are included in this annual report. dependent. They are derived from equity and/or
structured performance driven participations in funds
A detailed segmental analysis of the results has been and proprietary ‘private equity’ styled transactions.
prepared for the business and geographical segments of Costs are variable and capital needs are intensive; and
Brait’s activities. The primary business segment reflects • Group Capital – income accrues from low risk, liquid
the internal organisation and risk segments of the group investment of unallocated group capital. Costs are
rather than its legal structures, which are predominantly minimal although abnormal group charges and
‘tools’ to facilitate the operations of the group. The revenues are absorbed by Group Capital from time
geographical segment of the business has been separated to time.
between Europe, South Africa and Africa Other. This
distinguishes between the specific operating, risk and Discontinuing operations:
currency environments in which the group has significant
• Margin business – interest income from credit risk,
activities. Information has been prepared on the basis of
semi-fixed costs with highly regulated and large back
similar regional environments rather than on a particular
office overhead structure. Capital intensive in the
country basis.
A2 banking environment; and
• Trading – market performance income, semi-fixed costs
The results and resources of discontinuing operations
with highly regulated, large back office, expensive
have been separated from the core continuing activities of
systems and overhead structure. Counter-party trading
the group in order to provide a meaningful analysis and
lines require a large indirect capital structure.
benchmark for current and future performance.
ACCOUNTING POLICIES
The segmental operations are deliberately organised
The financial statements of the group have been
around specific risk, skills and product features. These
prepared in compliance with International Accounting
characteristics are as follows:
Standards. The group was incorporated with effect from
1 April 1998 through a merger which has been accounted
Continuing operations:
for as a ‘Uniting of Interests’ in accordance with IAS
• Funds Management – annuity income flows from fixed
long-term management fees and performance 22 ‘Business Combinations’. The company financial
participations. The cost structure is predominantly fixed statements are prepared in accordance with
and the segment requires minimal capital outside its co- Luxembourg law.
investment commitments. The co-investments are
disclosed in Investing; The accounting policies applied in the preparation of the
• Advisory Services – recurring advisory and M&A fee group financial statements are consistent with those of
income from relationship business and specialised the previous year except for the adoption of the statement
financial services. Lumpy participation fees are also on Recognition and Measurement of Financial
derived from the M&A and specialised finance activities. Instruments (IAS 39). The group has committed
The cost structure is semi-fixed cost and the segment considerable time and resource in order to meet the full
has a minimal capital utilisation; compliance obligations of this new statement of
32
Brait Annual Report 2002
accounting practice. IAS 39 significantly increases the use investments in subsidiaries) are taken directly to income.
of fair values in accounting for financial instruments and Prior year translation gains and losses pertaining to
complements IAS 32 which provides for the Disclosure dividends declared from subsidiaries to the holding
and Presentation of Financial Instruments. In due course, company are released from the translation reserve to
South Africa will implement its equivalent statement retained income in the period of declaration.
AC 133 to harmonise with IAS practice in this regard.
Gains and losses on the translation of foreign currencies
It is important for South African users of the financial and exchange transactions in all the group’s operations
statements to recognise that IAS does not apply the are recognised through the income statement. During the
concept of headline earnings. As a consequence, the year the group recorded translation losses on capital
earnings of the group are disclosed inclusive of profits and invested into South Africa as a result of the sharp
losses on disposal of discontinued operations, fixed assets depreciation of the rand. These losses have been included
and trade investments, as well as goodwill amortisations in income and set off against gains in the holding
and impairments, exceptional items of associates, company arising from the translation of assets into rand.
impairment of investments and other items which are of
a non-recurring nature. The financial effects of these The net effect of translation gains disclosed in income
transactions are disclosed in the financial statements. for the year was R68,2 million (2001: R29,8 million).
These gains or losses theoretically represent the interest
REPORTING CURRENCY AND FOREIGN differential between rands and the specific currencies in
CURRENCY TRANSACTIONS which the assets and liabilities of the group are held.
While the holding company reports in US dollars, the
group financial statements are presented in South African The movement on the foreign currency translation reserve
rand, as more transactions are recorded in rand than any for the year primarily reflects the net effect of currency
other single currency in Brait’s operations. In addition, the translation gains on the assets of non-South African
majority of Brait’s shareowners are South African and are subsidiaries and the reversal of pro rata prior year
better served for the time being with rand financial currency translation gains of dividends declared by
statements. For the convenience of non-South African subsidiaries to the holding company.
users, unaudited US dollar income statements and
balance sheets have been included in the notes and the OPERATIONAL PERFORMANCE
financial statements. Conditions for the year have been difficult. The capital
market sectors in which the group is focused through its
For currency reporting purposes, Brait’s principal investing and private equity participations have been
subsidiaries are treated as foreign entities (‘non- volatile. The global economic retreat has contributed to a
integrated’ operations) and gains and losses on general decline in the demand for financial and advisory
translation of the assets and liabilities of these entities into services. These have been compounded by the specific
rand are taken directly to the foreign currency translation problems in the South African A2 banking sector and the
reserve. Gains and losses of the assets and liabilities of group’s decision to apply for the deregistration of its
the holding company on translation into rand (excluding banking licence. Arising out of this, the group will realise
33
Brait Annual Report 2002
FINANCIAL REPORT CONTINUED
its advances book and accelerate the disposal of the assets 500 60
in its banking structure and other assets of a discontinuing 450 50
400
nature. Brait has also taken the decision to cease 40
350
operations in its remaining trading and stockbroking units 20
300
within the banking structure. These operations have also
Rm
%
250 10
been treated as discontinuing in the financial statements. 200 0
This strategy has given rise to a realisation adjustment 150
-10
of R100 million and has been brought to account in the 100
-20
results at 31 March 2002. A further provision of 50
R65 million is expected as a result of closure costs in the 0 -30
99 00 01 02
banking structure, which will be carried against future
Revenue Revenue – continuing
earnings of the group. operations
Movement
in revenue
The results of continuing operations of R189,8 million Growth in revenue
(210 cents per share) were 26% ahead of the comparable
OPERATING EXPENSES AND PROVISIONS
R150,8 million in the prior year. Earnings per share for the
Operating expenses of continuing operations, before
group as a whole before the realisation adjustments were
realisation adjustments, declined marginally by 1% from
unchanged at 200 cents per share while earnings after
R140,0 million to R138,9 million for the year. Funds
the adjustments were 89 cents per share, down 56%
Management costs remained largely unchanged,
compared with last year.
Advisory Services costs increased by additional operating
costs of the new specialised finance team, while Investing
REVENUE and Group Capital expenses declined to more acceptable
Revenue of continuing operations for the year at
levels following some abnormal costs in the prior year.
R379,7 million was 36% ahead of last year. This
accounted for 98% of total revenue which was 4% ahead
400
of the 2001 comparative. An improved performance
from Investing activities made the largest contribution to
300
the revenue increase. Funds Management revenue
recorded an improvement due to the underlying
Rm
performance of the private equity funds and a weaker 200
rand. The increase in Advisory Services revenue was
primarily generated by its newly configured specialised 100
finance operations. In discontinuing operations, revenue
of the margin business declined as the asset-based
0
finance area was closed and the book deliberately 99 00 01 02
reduced during the year. Trading revenue was negative Operating Operating expenses –
expenses continuing operations
following the operating losses in both the equities and
interest-rate trading activities. Movement in operating expenses
34
Brait Annual Report 2002
ASSOCIATES AND JOINT VENTURES TAXATION
Associated income of R8 million for the year includes The net group tax position for the year was a contribution
R7 million (2001: R5 million) of earnings from the to earnings of R3,5 million against a charge of
group’s 50% interest in African Alliance Holdings and R3,9 million in the prior year. The current year contribution
various less significant associated interests. The group’s represents the effect of deferred tax liability reversals arising
joint venture interests comprise its 50% stake in Capital from the significant current year losses in the banking
Alliance Finance and its 50% holding of ipac South Africa. structure, net of normal, deferred and other taxes on the
Income from Capital Alliance Finance’s micro-lending group’s operations outside the bank structure. Brait has
business was R8 million for the year against R12 million reconciled its consolidated tax charge to the South African
for the prior year, following additional general provisions tax rate as the group’s South African operations represent
taken during the year against the loan book. ipac South the largest geographical and single currency operation of
Africa reduced its losses to R2 million for the year from the group at present. This analysis is disclosed on page 96
R4 million in the prior year. in the notes to the annual financial statements.
FINANCE COSTS In the non-banking operations of the group, normal tax
Finance costs represent non-banking and inter-group charges in most activities have increased in line with the
finance charges. The significant increase for the year growth in earnings. The net group position though has
has arisen from the funding costs of the Brait South been distorted by the banking structure losses. The credit
Africa group campus erected in Johannesburg in tax charge is abnormal and not sustainable. Future
March 2001. expected profitability from continuing operations will
cause the group’s long-term tax charge to edge closer
AMORTISATION OF INTANGIBLES towards the South African corporate rate of 30%.
Goodwill arising from acquisitions by the group is However, because many of the group’s operations are
amortised over the period of the economic benefit arising conducted in regions with lower tax rates than South
from the acquisition. During the year the group wrote off Africa, the overall tax rate is expected to settle below 30%.
its goodwill on Brait Securities. The remaining goodwill The rate will also be affected by permanent differences
relates to the group’s interest on the acquisition of Rabin arising from foreign currency translation gains and losses
van den Berg and Pelkowitz, and ipac. This is being and the geographic allocation and employment of future
written off over 10 years. capital released from the banking structure.
35
Brait Annual Report 2002
FINANCIAL REPORT CONTINUED
NET ASSET VALUE 350
The net asset value of the group declined from 300
R1 204 million (1 329 cents per share) to R1 182 million
250
(1 312 cents per share) at the year-end. Before dividends
200
paid of R75 million during this period, the net asset value
Rm
increased by R53 million or 4,4%. 150
100
GROUP CASH POSITION
50
Brait’s net cash position has increased significantly
following the group’s strategic decision at the beginning 0
99 00 01 02
of the year to reduce its lending book. Cash and cash
equivalents were R314 million at 31 March 2002. The net
cash inflow was R207 million for the year after taking to
account an inflow of R550 million from a reduction in Cash and cash equivalents at end of year
advances and net deposit and dividend repayments of
R447 million and R75 million respectively.
36
Brait Annual Report 2002
SOCIAL RESPONSIBILITY
Brait’s Corporate Social Responsibility programme is The Foundation has recently adopted a school in Soweto
centred on the Brait Foundation, a charitable trust that is to introduce the Entrepreneurs on the Move Project. The
resourced by contributions from Brait’s staff of their time aim of this project is to introduce and encourage
together with contributions from its business units. The entrepreneurship amongst students and school leavers.
primary object of the Brait Foundation is to promote, The Foundation has continued its support of promising
nurture and develop intellectual capital in commercial professionals, in the sponsorship of a disabled law student
activities as well as support and foster excellence in the in her final year at the University of the Witwatersrand.
fields of sport and art. We believe that this is necessary as Through the CA’s Eden Trust, the Foundation also
a long-term solution to South Africa’s development supports a third-year BCompt student. In the areas of arts
challenges. and culture we have supported a talented dance student,
and as patron of the Orchestra Company, we have given
As an organisation that recognises and promotes an opportunity to disadvantaged children with a desire
excellence, drive and entrepreneurial spirit, Brait seeks to and the talent to pursue a musical career, by providing
foster individuals whose ability, commitment to learning access to musical instruments, professional tuition and
and determination to overcome barriers can be an performance experience.
example to their peers and ourselves. While we look to
include people with these attributes in our own Our aim is to make a difference and to do more in the
organisation, we support others from a disadvantaged years ahead in ways that are creative and personal,
background who exhibit similar ambition in the academic, and provide more than money to the development of
business, sports or arts and culture arenas. our society.
Entrepreneurialship project at a school in Soweto
37
Brait Annual Report 2002
EMPLOYMENT REPORT
Whilst the past year has seen further focus and Brait will continue to maintain high standards of staff
development of teams of continued operations within the development and selective recruitment. Individual
group, the application for the deregistration of the Brait contributions based on commitment, skill, knowledge,
banking licence saw the closure of certain units within the attitude and professionalism are regularly monitored and
banking structure. A process of extensive consultation measured – these criteria form the foundation of the
with staff in discontinuing operations commenced in May company’s expectations regarding performance and
2002, and a strategy has been agreed in terms of facilitate the process of creative and lateral thinking
effectively winding down the banking operations over the promoted by the Brait culture.
coming months.
Group training and development continues to support the
Whilst the culture of Brait has been tested by the loss of development of staff potential and all staff are encouraged
these team members, the dignified and responsible to take ownership of their personal and skills-based
manner in which affected staff considered and development. Accordingly training is facilitated according
approached their future alternatives positively, reflects the to the individual needs of staff and include study loan
Brait culture and value system. This augurs well for the schemes which are well supported by Brait staff.
ongoing climate within the group.
EMPLOYMENT EQUITY
CONTINUING OPERATIONS The loss of a substantial number of staff members as a
The year ahead for continuing operations will see ongoing result of closure of certain banking operations has
development of Brait’s philosophy. Business units will impacted Brait’s employment equity strategy.
continue to comprise tightly knit teams differentiated by a Notwithstanding this, Brait’s commitment to employment
partnering approach both with clients and in multi- equity unequivocally remains and transformation over the
disciplinary teams co-operating across business units. past year has been driven on several fronts including
social investment and equity initiatives. Policy on equity
Individualised remuneration and incentive packages form and harassment was formalised and the employment
the cornerstone of employee retention strategies. equity committee was fully constituted and commenced
Continual monitoring and alignment of employee functioning.
performance levels and individual contributions promote
ongoing teamwork and personal development whilst Going forward, the equity strategy will continue to
forthright and open communication provides the build towards targeted representation of previously
cornerstone of business relationships. disadvantaged groups by the 2005 financial year in our
South African operations, with particular emphasis on
Whilst the Brait S.A. Share Incentive Scheme serves the professional and executive levels.
committed participation of all Brait staff in the overall
performance of the group, the value of the scheme has Brait will continue to give preference, wherever possible,
been undermined by the poor performance of the group’s to black candidates in its recruitment and selection
share price. Fresh approaches to the alignment of process. The hiring and development of young black
management and shareowners will be considered, and candidates with potential continued, particularly with the
the motivation and mood of staff members will be closely successful recruitment of three investment professionals
monitored. within our private equity operation.
38
Brait Annual Report 2002
The sponsorship of young executives on secondment differentiation and leadership in continuing operations will
programmes continued and these individuals are serve our people, teams and clients well.
entrusted with imparting their newly acquired knowledge
of international markets and business standards as part of A number of affected staff members have already sourced
ongoing staff development. alterative employment and Brait remains actively
committed to facilitating such opportunities for the
The closure of certain operations within the banking balance of affected staff. Guidance, training and support
structure has challenged the group on many levels necessary to equip staff with the skills and attitude
although strategic goals have been held consistent. Brait necessary to re-enter the labour market will continue to
remains firm in its belief that the sense of focus, be provided.
1 200
7% 2%
25%
1 000 20%
800
Rm
600
400
46%
200
0 20 – 30 50 – 60
98 99 00 01 02 30 – 40 60+
40 – 50
Earnings per employee Age distribution of Brait’s staff
37% 44%
63% 56%
2002 2001
Professional staff Support staff
Braits’ professional and support staff
39
Brait Annual Report 2002
SHARE ANALYSIS
Distribution of shareowners at 31 March 2002
Shareowners Shares held
Number % Number %
Range of shareowning
1 to 10 000 2 852 91,8 2 978 135 3,2
10 001 to 50 000 136 4,4 3 241 234 3,5
50 001 to 100 000 32 1,0 2 340 549 2,5
more than 100 000 88 2,8 84 923 301 90,8
3 108 100,0 93 483 219 100,0
The analysis of shareownings above includes the underlying beneficial shareowners in nominee companies:
Shareowner spread
To the best knowledge of the directors and after reasonable enquiry, as at 31 March 2002, the spread of
shareowners was as follows:
Shareowners Shares held
Number % Number %
Public 3 101 99,8 79 243 759 84,8
Directors 4 0,1 10 409 635 11,1
Other – treasury shares 3 0,1 3 829 825 4,1
3 108 100,0 93 483 219 100,0
Major shareowners
The following major shareowners are directly or indirectly beneficially interested in 5% or more of Brait’s share
capital:
Shares held
Number %
Liberty Group 14 590 524 15,6
Liberty Life 5 616 400 6,0
Liberty Unit Trusts 1 047 500 1,1
Liberty Asset Management on behalf of its clients 7 926 624 8,5
Investec Asset Management on behalf of its clients 9 618 600 10,3
BoE Asset Management on behalf of its clients 5 093 593 5,5
Ball Family Trust 4 993 623 5,3
The Thierry Dalais Family Trust 4 993 623 5,3
Total 39 289 963 42,0
40
Brait Annual Report 2002
SHARE ANALYSIS
Stock exchange performance for the years ended 31 March
2002 2001 2000 1999
Price performance
Traded prices (cents per share)
– year-end closing price 860 1 145 2 200 3 695
– high 1 590 2 200 3 975 5 900
– low 845 1 145 1 790 1 640
– weighted average price per share traded 1 331 1 605 2 628 3 252
Price-earnings ratio (on closing price)* 4,3 5,7 8,7 17,9
Volume performance
Number of shares in issue (000) 93 483 93 483 93 483 93 483
Volume of shares traded (000) 26 758 25 034 37 298 39 057
Number of transactions 3 333 5 268 10 068 10 531
Volume traded as % of average shares in issue 29 27 40 42
Number of shareholders (at 31 March) 3 108 2 184 2 696 3 668
Value performance
Value of shares traded (Rm) 367 394 980 1 270
Market capitalisation at 31 March (Rm) 804 1 070 2 057 3 454
Yield
Earnings yield (%)* 23,3 17,6 11,5 5,6
Dividend yield (%) 7,0 5,2 3,4 1,6
Liquidity rating of securities
Brait’s shares have a class one maximum liquidity rating on the JSE Securities Exchange South Africa.
*2002 earnings before realisation adjustment
2 500 6,0 100
90
5,0
2 000 80
70
4,0
1 500 60
Millions
Cents
Rm
3,0 50
1 000 40
2,0
30
500 20
1,0
10
0 0 0
Apr ‘01
Apr ‘01
Apr ‘01
May ‘01
Jun ‘01
Jul ‘01
Aug ‘01
Sep ‘01
Oct ‘01
Nov ‘01
Dec ‘01
May ‘01
Jun ‘01
Jul ‘01
Aug ‘01
Sep ‘01
Oct ‘01
Nov ‘01
Dec ‘01
May ‘01
Jun ‘01
Jul ‘01
Aug ‘01
Sep ‘01
Oct ‘01
Nov ‘01
Dec ‘01
Jan ‘02
Feb ‘02
Mar ‘02
Jan ‘02
Feb ‘02
Mar ‘02
Jan ‘02
Feb ‘02
Mar ‘02
Average price Volume traded Value traded
The information disclosed above includes all trades on the Luxembourg, London and Johannesburg stock exchanges.
41
Brait Annual Report 2002
GROUP VALUE ADDED STATEMENT
2002 2001
Rm Rm
VALUE ADDED
Fees, investment returns, interest and other revenues 561,6 632,2
Cost of services and interest paid to depositors (346,8) (314,5)
Wealth created 214,8 317,7
DISTRIBUTION OF WEALTH
Employees 118,0 117,0
Salaries, wages and other benefits
Governments – national and regional 9,3 14,7
Taxation and duties
Shareowners 75,2 54,1
Dividends proposed/paid
Retentions for reinvestment 12,3 131,9
Retained earnings and depreciation
214,8 317,7
6%
41%
35%
55% 37%
5%
4% 17%
2002 2001
Employees Governments Shareowners Retentions for reinvestment
Distribution of wealth created
42
Brait Annual Report 2002
TIME LINE
• Establishment of • Discontinuation • Reconfiguration • Announcement
specialised funds of the asset-based
finance business
of a specialised
finance activity
of intention to
deregister banking
2002
licence
2000 – 2001
• Acquisition of the • Consolidation of • Development of a
corporate advisory South African mezzanine finance
business of Rabin businesses into one capability
van den Berg & integrated
Pelkowitz operation
1999
• Disposal of non- • Establishment • Establishment of • Amalgamation • Establishment
core interests in of Australian South African of Brait Unit of Brait
Decillion and Brait operation Private Equity Fund Trusts with ipac Technology and
Asset Managers III – $409 million South Africa Innovation Fund I
of commitments – R305 million of
commitments
1998
Establishment of Brait on the Luxembourg, London
and Johannesburg stock exchanges
• Establishment • Disposal of non-core investments
of full advisory in Brait Properties and Fincorp
and investing businesses
operations in
Mauritius
43
Brait Annual Report 2002
BOARD OF DIRECTORS
Back row left to right
Rick Haller, Allan Rosenzweig, Chris Tayelor, Richard Koch, Serge Weber and
Jean Bodoni
Front row left to right
Peter Wilmot, Mervyn King, Antony Ball and Thierry Dalais
44
Brait Annual Report 2002
BOARD PROFILE
Mervyn Eldred King (64)* Jean Ernest Bodoni (54)+
BA, LLB (cum laude) H Dip Tax (Wits) Commercial engineer
Non-executive chairman – Appointed to the board 1998 Non-executive director – Appointed to the board 1998
Mervyn King is a senior counsel and former Judge of the Jean Bodoni has in excess of 30 years experience in
Supreme Court of South Africa. He is the Chairman of the the Luxembourg banking sector and currently holds
King Committee on Corporate Governance, president the position of senior vice-president with Dexia Banque
of the Commonwealth Association for Corporate Internationale à Luxembourg. Jean is a director of a
Governance, president of the Advertising Standards number of Luxembourg resident companies.
Authority of South Africa and the South African
representative of the ICC International Commercial Frederic Zachary Haller (56)#
Arbitration Court. He is presently chairman of the BA (Econ)
Automobile Association of South Africa, Dunlop Africa Non-executive director – Appointed to the board 2000
Limited and Strate Limited. He is a director of the Rick Haller started his career with Chase Manhattan in
JD Group Limited and Fedsure Limited. New York. He transferred to Libra Bank in London in
1973 where he was a director until he moved his team
Raymond Thierry Dalais (43)* to Morgan Grenfell in 1990. He served on the group
BCom, BAcc, CA(SA) executive committee at Deutsche Bank after its
Executive deputy chairman – Appointed to the board 1998 acquisition of Morgan Grenfell. Rick is currently advisor to
Thierry Dalais was a co-founder of Brait’s private equity the board of Hamilton Bank in Miami, Florida, a trade
business. He has led the formulation of the group’s finance bank and also serves as a director of TVK, a
private equity investment policy, with overall responsibility Hungarian chemical company listed on the London
for transaction structuring and financial engineering. Stock Exchange.
Antony Charles Ball (43)* Richard John Koch (51)*
BCom (Hons), MPhil (Oxon), CA(SA) MA (Oxon), MBA (Wharton)
Group chief executive – Appointed to the board 1998 Non-executive director – Appointed to the board 1998
Antony Ball was a co-founder of Brait’s private equity Richard Koch was a founder of the LEK Partnership, a
business. He has led the raising and governance of the partner of Bain & Co and a consultant with the Boston
group’s principal private equity. He is responsible for Consulting Group, during which period he advised the
numerous of the group’s private equity investments. He chief executive officers and chairmen of many blue-chip
was appointed group chief executive of Brait in March American and European corporations. Richard is an
2000 and has been responsible for leading the author, consultant, investor and promoter in private equity
reorganisation of the Brait group in the past year. investment.
45
Brait Annual Report 2002
BOARD PROFILE CONTINUED
Allan Mark Rosenzweig (47)* Peter Linford Wilmot (62)*
BA, LLB, H Dip Tax CA(SA)
Non-executive director – Appointed to the board 1998 Non-executive director – Appointed to the board 1999
Allan Rosenzweig was an international tax advisor and Peter Wilmot was the chairman of Deloitte & Touche from
corporate financier with PricewaterhouseCoopers 1996 until his retirement in August 1999 after a career
including its New York office and Intertax, a South African spanning 41 years in the auditing profession. Peter has
international tax consultancy. Allan is a director of both chaired the Accounting Practices Committee and
listed and unlisted companies. In 1996, he joined the was president of the Transvaal Society of Chartered
MIH group as executive director of Corporate Finance of Accountants and the South African Institute of Chartered
Nethold B.V. Allan is currently based in the Netherlands, Accountants (SAICA). Currently he is deputy chairman of
where he acts as the MIH group director of corporate the Standards Advisory Council of the International
finance. Accounting Standards board and chairman of the
Accounting Practices Board.
Christopher John Tayelor (45)*
BAcc, CA(SA), AMP (Harvard) Nationality
Finance director – Appointed to the board 1998 * South African
Chris Tayelor was part of the southern African national +
Luxembourgish
technical team at PricewaterhouseCoopers before he ** British
joined Johannesburg Consolidated Investment Company #
USA
Limited (“Johnnies”) in Corporate Finance, which he
headed from 1990 to 1994. Following the unbundling of
Johnnies, Chris was appointed Financial Director of
JCI Limited and to the boards of its listed operations. He
left this position prior to joining Brait in May 1998.
Serge Joseph Pierre Weber (38)+
Business Diploma (ESSEC Business School, Paris)
Executive director – Appointed to the board 2001
Serge Weber is a director of Considar Europe SA, part of
the Luxembourg-based ARBED Steel group. He is the
corporate treasurer and has worked in this capacity
for many years with Renault V.I. in France and
SA Des Minerais, a leading metals and ferro-alloy trading
and marketing group based in Luxembourg. He was
finance director of SA Des Minerais until 1999.
46
Brait Annual Report 2002
GROUP STATISTICS –
FINANCIAL DEFINITIONS
ATTRIBUTABLE EARNINGS from the issue of shares from dilutive instruments. The
Earnings attributable to shareowners’ funds. resultant earnings are divided by the weighted average
number of shares in issue including all dilutive
AVERAGE SHAREOWNERS’ FUNDS instruments assuming they had been in issue from the
Average of the shareowners’ funds at the beginning and beginning of the year, excluding the number of treasury
end of the financial year. shares, expressed in cents.
CAPITAL ADEQUACY RATIO EARNINGS YIELD
Total capital of Brait Merchant Bank expressed as a Basic earnings per share expressed as a percentage of the
percentage of its risk-weighted assets. closing price per share.
CLOSING PRICE NET ASSET VALUE PER SHARE
The closing market price of a Brait share on the Shareowners' funds divided by the number of shares in
JSE Securities Exchange South Africa at the group’s issue excluding the number of treasury shares, expressed
financial year-end. in cents.
DIVIDEND COVER PRICE-EARNINGS RATIO
Earnings per share divided by the proposed dividend per The closing price per share divided by the earnings per
share. share.
DIVIDEND PER SHARE RETURN ON SHAREOWNERS’ FUNDS
The dividend proposed by the directors of Brait S.A., to be Attributable earnings expressed as a percentage of
approved by shareholders at the annual general meeting average shareowners’ funds.
on 31 July 2002, divided by the number of shares in issue
at the group’s financial year-end, excluding the number of RETURN ON TOTAL ASSETS
treasury shares, expressed in cents. Attributable earnings expressed as a percentage of
average total assets.
DIVIDEND YIELD
Dividend per share expressed as a percentage of the SHAREOWNERS’ FUNDS
closing share price per share. Share capital, share premium and all reserves. Share
capital and premium has been reduced by shares held
EARNINGS PER EMPLOYEE in treasury.
Attributable earnings divided by the average number of
employees in service during the year. TREASURY SHARES
Brait S.A. shares held by the company and/or its
EARNINGS PER SHARE subsidiaries.
Basic
Attributable earnings divided by the weighted average WEIGHTED AVERAGE SHARES IN ISSUE
number of shares in issue, excluding the number of The pro forma number of shares in issue at the beginning
treasury shares, expressed in cents. of the year, plus shares issued during the year, less
treasury shares acquired during the year, weighted on a
Diluted time basis for the period during which they have
Attributable earnings adjusted by the after tax effect of participated in the income of the group.
any changes in income and expenses that would result
47
Brait Annual Report 2002
GROUP STATISTICS –
FIVE-YEAR REVIEW
Dis-
Continuing continuing
operations operations Total
2002 2002 2002 2001 2000 1999 1998
Income statement
Net operating income
before taxation (Rm) 186,2 (109,4) 76,8 186,4 244,4 216,9 135,9
Attributable earnings (Rm) 189,8 (109,4) 80,4 182,5 232,0 192,7 107,3
Earnings per share (cents)
– basic 210,5 89,2 201,4 252,7 206,8 124,5
– diluted 210,4 89,1 200,0 250,0 206,8 124,5
– pre-realisation adjustment (diluted) 200,0 200,0 250,0 206,8 124,5
Earnings yield (%) 24,5 10,4 17,6 11,5 5,6
Price earnings ratio 4,1 9,6 5,7 8,7 17,9
Dividends per share (cents)
(declared/proposed) 60,0 60,0 60,0 75,0 60
Dividend cover (times) 3,5 1,5 3,4 3,4 3,4
Dividend yield (%) 7,0 7,0 5,2 3,4 1,6
Six-year compound growth*
– attributable earnings (%) 39,5 48,0 73,3 95,7
– earnings per share (%) 38,5 46,5 70,6 90,7
Balance sheet
Shareowners’ funds (Rm) 1 182,2 1 182,2 1 204,5 1 102,5 912,9 538,6
Average shareowners’ funds (Rm) 1 193,4 1 193,4 1 153,5 1 007,7 853,3 485,0
Return on shareowners’ funds (%) 15,9 6,7 15,8 23,0 22,6 22,1
Total assets (Rm) 2 719,7 2 719,7 3 322,9 2 889,5 3 083,4 2 059,7
Return on total assets (%) 6,3 2,7 5,9 7,8 7,5
Net asset value per share (cents)
– including intangible assets 1 312,1 1 312,1 1 335,4 1 201,0 994,4 624,8
– excluding intangible assets 1 276,0 1 276,0 1 285,4 1 184,2 987,0 603,9
Assets under management (Rm) 8 696 7 131 6 520 5 540
– Private equity commitments 5 400 4 900 4 600 4 200
†
– African Alliance 1 881 1 500 1 300 1 000
– ipac† 1 415 731 620 340
48
Brait Annual Report 2002
Dis-
Continuing continuing
operations operations Total
2002 2002 2002 2001 2000 1999 1998
Share information
Shares in issue (m) 93,5 93,5 93,5 93,5 93,5 93,5
Shares in issue – excluding treasury
shares (m) 90,1 90,1 90,1 90,2 91,8 91,8
Weighted average shares in issue (m) 90,2 90,2 90,2 90,6 91,8 93,2 86,2
Personnel
Number of employees at year-end 229 234 231 201 286
Earnings per employee (R’000)‡ 788 785 1 074 959 375
Brait Merchant Bank Limited
CAPITAL ADEQUACY
Risk-weighted assets (Rm) 2 327,5 2 640,1 1 617,9 1 493,7 888,6
Total capital (Rm) 513,7 676,3 608,3 480,9 170,7
– bank (Rm) 452,9 576,3 508,3 380,9 170,7
– trading (Rm) 60,8 100,0 100,0 100,0
Capital adequacy ratio (%) 22,0 23,6 31,4 25,5 19,2
* Based on actual and pro forma results (2001, 2000 and 1999 five, four and three-year compound growth respectively)
† Brait’s share of assets under management
‡
Pre-realisation adjustment for 2002
49
Brait Annual Report 2002
GROUP BAL ANCE SHEETS
FIVE-YEAR REVIEW
2002 2001 2000 1999 1998
Rm Rm Rm Rm Rm
ASSETS
Non-current assets 1 193,5 1 321,9 1 182,5 1 586,0 758,9
Intangibles 32,5 39,9 15,4 6,8 18,0
Property and equipment 69,9 74,1 44,1 22,4 12,8
Investments 818,9 958,7 1 014,5 1 325,2 728,1
Loans and advances 264,3 241,9 105,4 230,1
Deferred tax asset 7,9 7,3 3,1 1,5
Current assets 1 526,2 2 001,0 1 707,0 1 497,4 1 300,8
Cash and cash equivalents 314,8 110,7 91,2 176,8 75,8
Trading securities 451,7 479,2 350,0 427,4 329,5
Loans and advances 518,3 1 167,4 1 133,6 805,9 739,6
Accounts receivable 241,4 243,7 132,2 87,3 155,9
TOTAL ASSETS 2 719,7 3 322,9 2 889,5 3 083,4 2 059,7
EQUITY AND LIABILITIES
Equity
Share capital and premium 802,1 803,0 832,7 832,7 379,3
Non-distributable reserves 13,7 3,9 37,0 35,8 37,1
Foreign currency translation
reserves 24,0 42,0 23,9 11,2 2,3
Distributable reserves 342,4 355,6 208,9 33,2 120,0
1 182,2 1 204,5 1 102,5 912,9 538,7
Outside shareowners’ interest 0,8 (0,1)
Total equity 1 182,2 1 204,5 1 102,5 913,7 538,6
LIABILITIES
Non-current liabilities 167,6 200,2 53,4 92,7 78,2
Deferred tax liabilities 11,5 22,5 14,5 38,9 37,7
Long-term deposits 29,8 14,5 25,2 53,4 25,8
Other liabilities 126,3 163,2 13,7 0,4 14,7
Current liabilities 1 369,9 1 918,2 1 733,6 2 077,0 1 442,9
Current deposits 1 068,9 1 531,7 1 407,4 1 956,6 1 264,6
Accounts payable 158,6 168,2 48,2 57,9 138,6
Accruals 45,0 48,3 71,0 35,8 28,6
Other liabilities 95,0 162,0 146,8 0,2 0,2
Bank overdraft 0,6 3,6 4,1 3,5 10,4
Taxation 1,8 4,4 56,1 23,0 0,5
Total liabilities 1 537,5 2 118,4 1 787,0 2 169,7 1 521,1
TOTAL EQUITY AND LIABILITIES 2 719,7 3 322,9 2 889,5 3 083,4 2 059,7
50
Brait Annual Report 2002
GROUP INCOME STATEMENTS
FIVE-YEAR REVIEW
Dis-
Continuing continuing
operations operations Total
2002 2002 2002 2001 2000 1999 1998
Rm Rm Rm Rm Rm Rm Rm
Revenue 379,7 6,5 386,2 372,8 473,0 312,6 272,0
Net operating income
before taxation 186,2 (109,4) 76,8 186,4 244,4 216,9 135,9
Funds management 61,3 61,3 41,4 36,6 40,8 55,1
Advisory 23,3 23,3 30,2 23,4 33,7 1,7
Investing 49,9 49,9 1,4 55,2 40,1 (10,4)
Group capital 51,7 51,7 81,7 79,2 130,3 89,5
Margin (44,4) (44,4) 40,9 3,0 12,2 n/a
Trading (65,0) (65,0) (9,2) 47,0 (40,2) n/a
Taxation 3,5 3,5 (3,9) (12,4) (23,9) (28,6)
Net operating income
after taxation 189,7 (109,4) 80,3 182,5 232,0 193,0 107,3
Minority interest 0,1 0,1 (0,3)
Attributable earnings 189,8 (109,4) 80,4 182,5 232,0 192,7 107,3
51
Brait Annual Report 2002
FINANCIAL STATEMENTS
CONTENTS
Corporate governance 53 Group statement of changes in equity 83
Risk management review 58 Group segmental reports 84
Directors’ responsibility 72 Supplementary US dollar financials 88
Report of the independent auditors 73 Accounting policies 90
Directors’ report 74 Notes to the group financial statements 94
Introduction to the financial statements 79 Notes to the company financial statements 115
Group income statements 80 Principal subsidiaries, associated companies and joint ventures 117
Group balance sheets 81 Notice of annual general meeting 118
Group cash flow statements 82 Proxy form Attached
52
Brait Annual Report 2002
CORPORATE GOVERNANCE
GOVERNANCE PRINCIPLES
General
Brait is committed to an open governance process, which provides its shareowners and other stakeholders with
the assurance that, in adding value to and protecting the group’s financial and human investment, the group is being
managed ethically in accordance with predetermined risk parameters and in compliance with best international practices.
The directors of Brait subscribe fully to the principles embodied in appropriate international corporate governance codes,
and they believe that these principles have been adhered to and complied with in the discharge of their duties.
Policies, objectives and performance measurement
The philosophy, policies, values and objectives of the group, as set out in the annual review report, are determined by
the board of directors of Brait who in turn receive input and guidance from the group management committee. The
board sets the strategic objectives of the group and determines investment and performance criteria. Management is
charged with the detailed planning and implementation of that policy in accordance with appropriate risk parameters.
The achievement of objectives and compliance with policies by management is monitored by the board through
mandated reports to the board by management which is accountable for its actions.
Risk management
Risk management is central to Brait’s business. The group has developed comprehensive systems and risk management
processes to control and monitor all activities in the group. A critical element of Brait’s strategy has been the development
of skilled professionals who have an established culture of risk management. While direct responsibility for managing risk
in the group is held by the directors of its subsidiary operations and is closely monitored at the centre, ultimate
accountability lies with the board.
Ethics
Brait is committed to good ethics, which embrace the principles of transparency, honesty and frankness in all dealings.
Employees of the group are bound by the group’s code of conduct governing trade in the company’s shares.
Employee empowerment
The group places great emphasis on the development and training of its people and endeavours to ensure that it offers
staff equal opportunity and appropriate participation in decision-making processes. Through its share incentive scheme,
employees have ownership in the company and are incentivised in their performance.
The environment, health and safety
While the group’s direct activities do not pose any threat to the environments in which they operate, Brait seeks to ensure
that it invests in businesses which conform to environmental standards. Similarly, it makes investments where the health
and safety of employees and the well-being of the communities in which these companies operate is recognised as an
important component of corporate governance.
Reporting
Brait is committed to transparent reporting and disclosure. Information provided to all stakeholders, including financial
results and the annual report, are presented in a meaningful and relevant manner so as to enable users to gain a proper
and objective perspective of the group. Brait’s website is maintained as a relevant means of communicating Brait’s
53
Brait Annual Report 2002
CORPORATE GOVERNANCE CONTINUED
message to all its stakeholders. Brait in 2001 received the Investment Analysts Society award for the second consecutive
year in the financial services category for its investor communications.
GOVERNANCE STRUCTURES
Directorate
The board of directors of the company is chaired by a non-executive director of the company who is supported by five
non-executive directors and four executive directors. The board meets regularly and is responsible for the proper
management, control, compliance and ethical behaviour of the business under its direction. Having due regard for the
recommendations by its management and executive committees, the board determines and monitors matters relating to
the implementation and/or modification of policies and strategic plans, group investments and dispositions, major capital
expenditure and operating and financial budgets.
Serving members of the Brait S.A. board are: M E King (Chairman)†, A C Ball‡, J E Bodoni†, R T Dalais‡, F Z Haller†,
R J Koch†, A M Rosenzweig†, C J Tayelor‡, S J P Weber‡, P L Wilmot†.
Internal control
Responsibility for the group’s systems of internal financial and operational control is recognised and acknowledged
by the board as being its responsibility. The foundations for the group’s internal control process are its governance
principles which incorporate ethical behaviour and compliance with legislation and sound accounting practice.
The control systems include clearly defined lines of accountability and delegation of authority, and provide for full
reporting and analysis against approved budgets. The executive directors are responsible for determining the adequacy,
extent and operation of these systems. In this regard, the executive directors are of the opinion that the systems in
operation provide reasonable assurance that the assets are protected against material loss or unauthorised use and that
transactions are properly authorised and documented.
Comprehensive reviews and testing by the internal auditors ensure the effectiveness of the internal control systems in
operation. The results of these and external audit reviews are submitted to the group audit committee for consideration
and, if applicable, confirmation of the adequacy of the systems of internal control in operation. It is the responsibility of
this committee to inform the directors of any material losses which may have arisen as a result of a breakdown of the
systems in operation and to report on remedial action taken.
Audit committee
The Brait group audit committee has a minimum of three members. At least two members are non-executive directors
and the committee is chaired by a non-executive director.
The committee’s primary objective is to provide the board with additional assurance regarding the quality and reliability
of the financial information used by the directors and to assist them in the discharge of their duties. The committee must
provide satisfaction to the board that adequate and appropriate financial and operating controls are in place; that
significant business; financial and other risks have been identified and are being managed; and that appropriate
standards of governance, reporting and compliance are in operation.
54
Brait Annual Report 2002
Issues relating to accounting, auditing, internal control and financial reporting matters are discussed with the group’s
external auditors at meetings convened on a periodic basis. Both the internal and the external auditors are afforded
unrestricted access to the group audit committee.
The group’s internal audit functions are performed by external practitioners who in turn function under and report to the
audit committee. Major responsibilities allocated to the internal auditors include the examination and evaluation of the
effectiveness of operational activities together with the attendant business risks and the systems of operational and
financial control. Material deficiencies, development needs and instances of non-compliance are reported to the audit
committee, the external auditors and operational management for resolution.
Serving members of the group audit committee are: P L Wilmot (Chairman)†, R T Dalais‡, M E King†.
Remuneration committee
The Brait group remuneration committee has three members of which two are non-executive. It meets at least once a
year and is charged with the assessment of a remuneration strategy for the group. This strategy includes the
determination of incentive pay structures for directors and senior executives in both the short and long term and the
positioning of these levels in accordance with trends in local and international markets.
The committee’s main objective is to provide the board with an assurance that the employees, directors and senior
executives of the group are fairly rewarded for their individual contributions to the group’s performance. The group views
the inclusion of share incentives in the remuneration package as an essential element as it promotes a congruence of
interests with shareowners and incentivises a long-term commitment. Existing or proposed share incentives are reviewed
by the committee which, in addition, is tasked with reviewing fringe benefits.
Serving members of the group remuneration committee are: M E King (Chairman)†, A C Ball‡, R J Koch†.
Group management committee
The Brait group management committee is chaired by the group chief executive and includes the key decision-makers
in the group. The committee meets regularly and on an ad hoc basis for urgent matters of business.
The Brait group management committee is responsible for developing the group’s strategy, its business plan and corporate
policies for board approval, and to monitor the implementation of these in accordance with the board’s directive. In
addition, the board has delegated to this committee the authority to review and approve certain new business investment
decisions and operating expenditure within the limits prescribed by the board and to deal with specific tasks delegated
to it.
Serving members of the group management committee are: A C Ball (Chairman), F Z Haller, R J Koch, R T Dalais,
S J P Weber.
South African executive committee
A South African executive committee has been incorporated as a sub-committee of the group management committee
to carry out specific tasks delegated to it in respect of the South African operations of the group.
†
Non-executive, ‡Executive
55
Brait Annual Report 2002
CORPORATE GOVERNANCE CONTINUED
Serving members of the South African executive committee are: A C Ball (Chairman), P C Botha, P M Carr, R T Dalais,
N O Davies, J A Gnodde, N A Griffith, G Mariouklas, D H Rabin, C J Tayelor.
Risk management and compliance
Risk and compliance is managed at an executive level throughout the group. In the banking structure special purpose
committees have been incorporated to manage and review the following critical areas:
Credit committee
The credit committee, which meets weekly or as required, has the primary responsibility for setting credit policy in the
banking operations. This includes:
• Restrictions on the concentration of advances to particular industry sectors, interbank loan, or by nature of transactions;
• Limits on management’s sanctioning authority;
• Adequacy of security;
• Documentation and procedures; and
• Credit monitoring and maintenance.
This committee, which comprises senior management from within the banking operations and management from the
group, assesses all material loans. Particularly significant advances are referred to the board for approval.
Serving members of the credit committee are: N A Griffith (Chairman), A C Ball , D M Swart, C J Tayelor.
Assets and liabilities committee
The primary function of the assets and liabilities committee is to manage the term structure of the banking operation’s
balance sheet. This takes into account the funding requirement of lending and trading activities, the depositors’ profile
and spread, the bank’s view on future trends in interest rates and expected changes in money market conditions.
This committee is also responsible for approving all investments and commitments which are not specifically reserved for
the board or credit committee of the banking structure.
Serving members of the assets and liabilities committee are: N A Griffith (Chairman), A Louw, C E Newland, T C Polkinghorne.
Risk management committee
The role and function of this committee is to identify risks, formulate controls and solutions to mitigate risks, approve risk
related policies and procedures and to manage the implementation of the risk policies and practices.
Serving members of the risk management committee are: N A Griffith (Chairman), S Arnold, A C Ball, A Louw, D M Swart.
Compliance committee
The purpose of the compliance committee is to manage the regulatory risks of the banking structure. These risks include
compliance with regulators, legislation, best banking practices and the group’s code of conduct. This committee includes
senior management of the banking structure, credit and legal risk experts and a human resources representative
Serving members of the compliance committee are: N A Griffith (Chairman), K Harris, I Danielz, A Louw, D M Swart.
56
Brait Annual Report 2002
DIRECTORS’ EMOLUMENTS FOR BRAIT S.A. AND ITS SUBSIDIARIES
Fees and Other
expenses Cash Performance benefits Other 2002
for the year ended as directors salary bonuses (note 1) (note 2) Total
31 March 2002 Rm Rm Rm Rm Rm Rm
A C Ball 0,1 1,9 1,5 0,1 3,6
J Bodoni
F Z Haller 0,1 0,2 0,3
R T Dalais 0,1 1,7 1,0 2,8
R J Koch 0,1 0,8 0,9
M E King 0,4 0,5 0,9
A M Rosenzweig 0,1 0,2 0,3
S J P Weber 0,2 0,2
C J Tayelor 1,0 1,3 0,2 2,5
P L Wilmot 0,3 0,3
1,2 4,6 3,8 0,3 1,9 11,8
Fees and Other
expenses Cash Performance benefits Other 2001
for the year ended as directors salary bonuses (note 1) (note 2) Total
31 March 2001 Rm Rm Rm Rm Rm Rm
A C Ball 0,1 1,2 1,9 0,1 3,3
J Bodoni
F Z Haller 0,2 0,2
R T Dalais 0,1 1,2 1,6 2,9
R J Koch 0,1 0,7 0,8
M E King 0,3 0,5 0,8
A M Rosenzweig 0,2 0,2
C J Tayelor 0,9 0,8 0,2 1,9
P L Wilmot 0,3 0,3
0,9 3,3 4,3 0,3 1,6 10,4
Note 1 Other benefits represent provident fund contributions, travel allowances, medical aid and group life cover.
Note 2 Other services includes time spent by directors in the management and/or day-to-day activities of the company and/or its
subsidiaries, and/or consulting and advisory services.
2002 2001
Expiry Shares Shares
Share options/entitlements date granted Issue price granted Issue price
A C Ball November 2008 523 914 13,30 523 914 13,30
J Bodoni
F Z Haller November 2008 38 000 13,30 38 000 13,30
R T Dalais November 2008 523 914 13,30 523 914 13,30
R J Koch November 2008 34 000 13,30 34 000 13,30
M E King November 2008 60 000 13,30 60 000 13,30
A M Rosenzweig November 2008 34 000 13,30 34 000 13,30
S J P Weber June 2009 25 000 14,55
C J Tayelor November 2008 325 000 13,30 325 000 13,30
P L Wilmot November 2008 34 000 13,30 34 000 13,30
1 597 828 1 572 828
57
Brait Annual Report 2002
RISK MANAGEMENT REVIEW
Throughout this difficult period for Margin and Trading business in Brait, the group continued to place importance and
priority on its approach to risk management and retained its strong culture of risk management. It recognises that risk
impacts on profitability and is an integral component of most transactions. A comprehensive and independent process
of risk management is in place to effectively identify, evaluate and assess all types of risks and to optimise the risk-reward
trade-off. As part of this process, clearly defined policies have been set and international best practice standards have
been implemented. While the primary risk management functions of the group affect businesses utilising the banking
structure of the group, such processes shall remain in place for so long as such assets and liabilities are held,
notwithstanding the decision to apply for the deregistration of the group’s banking licence.
RISK MANAGEMENT RESPONSIBILITY AND STRUCTURES
Although the ultimate responsibility for the formulation of risk management policies and the systems of control and review
lie with the board of directors at both subsidiary and group level, individual committees and an independent risk
management function focus on specific risk categories. Effective risk management is also achieved through the
decentralisation of responsibilities to managers of risk-taking units, with reporting lines to the risk manager and risk
committees. The risk control structures and reporting lines are summarised in the following diagram:
Board of directors
Managing Risk management
director committee
ALCO
Risk Risk-taking Investment
management units committee
Credit
committee
Compliance
committee
Direct reporting lines
Indirect reporting lines Management
committee
58
Brait Annual Report 2002
Different types of risk are clearly defined and such definitions provide the basis for measuring risk and implementing risk
management processes.
The major risks to which the group are exposed are market risk; credit risk; interest rate and liquidity risk; solvency risk;
operational risk; legal and compliance risk and strategic risk. These risk factors are considered below.
Market risk
Market 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, interest rates, volatilities, convexity, time decay and correlations amongst these
variables.
Primary control of risk is established through a comprehensive limit structure that promotes the alignment of the group’s
risk appetite with trading and investment risk-taking activities. Trading limits are approved by the bank’s board and
reviewed during the financial year depending on market conditions. Dealers are expected to remain within all limits.
The VAR methodology is used to measure the maximum potential loss at different portfolio levels over one day and at
a conservative 99% confidence interval. This implies that there is only a 1% chance (or approximately two trading
days annually) of the actual loss exceeding the VAR estimate. The graph below represents Brait’s VAR for the 2002
financial year.
0
-1
-2
-3
Rm
-4
-5
-6
-7
-8
April 2001 to March 2002
Brait daily trading VAR
59
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
The table below represents Brait’s average and period-end VARs for its total trading portfolio for each of the major
components as well as the maximum and minimum VAR for the period.
Year ended 31 March 2002
Average Minimum Maximum Year-end
VAR VAR VAR VAR
Rm Rm Rm Rm
Interest rate 3,9 1,3 7,1 1,8
Equities 2,8 1,7 4,3 2,1
Total VAR 6,7 3,0 11,4 3,9
Whereas VAR captures exposure under normal market conditions, stress testing discloses the risk under abnormal market
conditions. Stress testing is integral to the risk management process and is equal and complementary to VAR as a risk
management tool. Non-linear risk profiles are applied to capture revenue-generating opportunities during times of normal
market conditions but also limit downside exposure during periods of market turmoil. Potential losses under stress testing
should be at acceptable levels and an assessment is made of the bank’s ability to alter strategies or liquidate positions.
Stress VAR using both the covariance approach and Monte Carlo simulation is measured daily and monitored against
approved limits. The graph below represents Brait’s stress test VAR as a percentage of the approved limit for the 2002
financial year.
80
70
Percentage of stress test limit (%)
60
50
40
30
20
10
0
April 2001 to March 2002
Brait stress test VAR as % of limit
60
Brait Annual Report 2002
The quality of VAR models is continually evaluated through backtesting of the VAR results. This is done on both a
hypothetical basis and a trading outcome basis. Hypothetical backtesting is done by freezing a portfolio and then
applying a history of price changes on the portfolio and comparing the losses to the calculated VAR. In the trading
outcome method the actual trading profit and loss is compared against the calculated VAR for the previous day. The
graph below represents Brait’s trading VAR backtesting for the financial year and illustrates the dramatic impact on the
daily profits and losses of the sudden 9 standard deviation increase in bond rates that occurred on 14 December 2001.
This spike in bond rates accompanied the well publicised collapse in the rand exchange rate at the end of 2001 that
subsequently gave rise to the Myburgh Commission of Enquiry.
8
4
0
-4
Rm
-8
-12
-16
-20
-24
Exceptions 5 (2%) – April 2001 to March 2002
Daily VAR Daily profit and loss
Backtesting of daily VAR
Because no single risk statistic can reflect all aspects of market risk, Brait also uses non-statistical risk measures such as
net open positions, basis point values, option ‘Greeks’ and position concentration. These measures provide additional
information on exposures’ size and direction.
Brait measures the current profit and loss on trading positions by marking them to market on a daily basis. Controls are in
place to ensure that transactions are booked at prevailing market rates and that positions are revalued at current market
prices. Mark to market profit and loss reports and risk reports are compiled and distributed on a daily basis. Risk reporting
is also distributed to the bank’s board and reports include the current risk profile and historical utilisation of market risk limits.
All risk management models and pricing are validated periodically to ensure that they make relevant assumptions and
correct calculations. Model validations are done both internally as well as through comparison with other market
participants.
61
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
Risk management within the bank and the group as a whole operates with clear independence and authority from the
operations and reports to senior management and the board. In general, the market risk management function is
responsible for sound systems, models and procedures.
Since the group announcement to close its banking structure, the group has ceased its equity and interest-rate trading
activities. Current positions are being managed to realisation. Controls and risk management practices will continue to
ensure an orderly and well managed realisation process.
Credit and counterparty risk
Credit and counterparty risk refers to the effects on future cash flows and earnings of borrowers; trading counterparties
or issuers of instruments held either in portfolio or as collateral, defaulting on their obligations. Such risk arises primarily
from lending, trading and investment activities as well as from the settlement of proprietary financial market transactions
and those undertaken on behalf of clients. Brait manages these risks by setting 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 board has established a credit committee in the bank, represented by senior management and executive directors, which
is tasked with the management of credit risk within comprehensive credit risk guidelines that are reviewed annually and
approved by the board. Delegated authority is limited to the chief executive officer of the bank, who signs jointly with one other
member of the credit committee up to an aggregate risk exposure of R5 million. All exposures above R5 million require the
prior written authority of a fully constituted credit committee comprising a quorum of four members. Significant exposures, in
excess of 10% of the bank’s qualifying capital and reserves, are recommended to the board for final approval. Compliance
with pre-approved limits is measured daily, aided by exception reports generated from the loan transacting system and
monitored both internally and independently by the credit risk function. The credit risk management function facilitates the
monitoring and reporting of credit risk information and ensures regular reporting of appropriate information to the credit
committee and the board, including details of portfolio concentration; individual large exposures and compliance with
prudential limits.
In the evaluation of proposed credit exposures, the credit committee takes into account:
• appetite for risk in relation to the bank’s own capital and liquidity;
• the exposure in relation to the client’s financial situation;
• target market, industry and geographic considerations;
• the qualitative aspects of the client;
• the aggregation of exposures across the group and across products; and
• relationships that may exist between current and potential clients.
62
Brait Annual Report 2002
Once established, all limits are subject to regular review at least annually. The underlying illustrations provide a summary
profile of the loan portfolio at year-end.
Classification (Grade 1 – 5)
31 March 2002 31 March 2001
Classification categories Grade Rm % Rm %
Current 1 782,9 83,7 1 158,4 86,3
Special mention 2 34,2 2,6
Substandard 3 21,3 2,3 90,3 6,7
Doubtful 4 49,0 5,2 40,0 3,0
Loss 5 82,5 8,8 19,1 1,4
Total loans and advances 935,7 100,0 1 342,0 100,0
Classification per advances type
Classification category
31 March 2002
Special Sub-
Standard mention standard Doubtful Loss Total
Advances type Rm Rm Rm Rm Rm Rm
Mortgages 2,7 2,7
Instalment sales 7,3 14,5 7,5 29,2
Credit cards
Other loans and advances 656,5 21,3 34,5 75,0 787,4
Investments and other 116,4 116,4
Total gross balance 782,9 21,3 49,0 82,5 935,7
63
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
Portfolio distribution by loan type
4,0% 3,0%
12,5% 14,3%
9,2% 4,2%
0,4%
52,4%
Containers Mortgages
Equity loans Revolving credit facilities
Guarantees Term loans
Overdraft loans Instalment sale facilities
Portfolio distribution by loan type
Single exposures distribution
Value bands 31 March 31 March
(% of bank qualifying 2002 2001
capital and reserves) % %
<1% 16 17
1% – 5% 58 39
5% – 10% 16 22
10% – 25% 10 22
General as well as specific provisions for bad debts are raised throughout the year and at financial year-end these
provisions amounted to R92,8 million (general – R2,9 million, specific, including interest suspended – R89,9 million). In
determining the appropriate level of provisioning, the bank has adopted a credit risk classification methodology that is
aligned to revised regulations relating to banks. The credit committee regularly evaluates the appropriateness of
classifications assigned to problem loans and considers the adequacy of specific provisions based on its assessment of the
reasonable prospects of recovery; the extent of realisable collateral held and the nature and extent of the impairment. The
total provisions as at the year-end constitute 9,92% of total advances which is conservative by industry standards.
64
Brait Annual Report 2002
Apart from the regulatory risk classifications, a further distinction is made in respect of items considered to be categorised
as non-performing loans, defined as those items classified as “doubtful” and “loss”.
Gross Net Net
Analysis of non- non- Value of exposure
non-performing performing Specific performing security at risk/
loans loans provisions loans held (surplus)
Rm Rm Rm Rm Rm
Overdraft and loans 70,2 (51,9) 18,3 (17,2) 1,1
Revolving credit 21,1 (11,9) 9,2 (1,3) 7,9
Term loans 18,2 (16,6) 1,6 (3,3) (1,7)
Instalment sale 21,9 (3,1) 18,8 (18,0) 0,8
Gross non-performing loans 131,4 (83,5) 47,9 (39,8) 8,1
Less: Interest suspended (6,3) (6,3) (6,3)
Total 125,1 (83,5) 41,6 (39,8) 1,8
Coverage as percentage
of non-performing loans % % % % %
Gross NPL 66,8 31,9
Net NPL 33,2 96,1
Non-performing loans as percentage
of total loans and advances
Gross NPL 13,4
Net NPL 4,4
The advances book has been reorganised during the year toward improvement of its overall profitability and return on capital.
Certain loans were identified as non-strategic as they did not meet hurdle rate criteria and further were not optimally matched
to the bank’s funding maturity profile. Through the process certain specific loans have been identified that could potentially
be problematic and resulted in our more conservative view on provisioning to safeguard against any potential re-finance risk
relating to specific loans. The increase in provision is not due to a general decline across the advances book but relates to a
few specific items concentrated.
During the year, the credit risk management function was further strengthened through system enhancements, including
process and control improvements designed to facilitate credit administration and control and achieving reporting
efficiencies in line with more stringent regulatory reporting requirements. The credit philosophy embodies the principle
of a continuous process of improvement toward alignment of organisational practice with international best practice as
advocated by the Basle Committee on banking supervision.
65
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
Since the group announcement to deregister its banking structure, the group has ceased making new advances. The
current book will be realised as and when amounts fall due for repayment or as third party refinancing is arranged.
Controls and risk management practices will continue to ensure an orderly and well managed realisation process.
Interest rate and liquidity risks
Interest rate risk refers to the impact on future cash flows and earnings of assets and liabilities repricing either at different
points in time or on different basis (eg prime overdraft rate as opposed to BA rate). The banking book is defined as all assets
and liabilities intended to be held to maturity in order that they generate margin income over time and thus comprises assets
and earnings streams reported earlier under Margin business. The effect of changes in interest rates on instruments held for
trading purposes is considered to be market risk and is managed as described above.
Liquidity risk arises in the general funding of the bank’s activities when there are mismatches between the sizes and maturities
of assets and liabilities and also in its Trading operation (see graph below for the cumulative liquidity gaps at the end of March
2002). It refers to the ability of the bank to meet its financial obligations as they fall due. It also refers to the ability to liquidate
trading or short-term investment positions in a timely manner at reasonable prices.
The graph below represents the percentage of the short-term liquidity target that was met at month-ends. The target is
set conservatively and is equal to the sum of the top 10 call deposits.
80
60
40
20
Rm
0
-20
-40
-60
1 Month 3 Months 6 Months 12 Months
Cumulative liquidity gap
66
Brait Annual Report 2002
140
120
100
80
%
60
40
20
0
Aug ‘01
June ‘01
July ‘01
May ‘01
Sept ‘01
Oct ‘01
Nov ‘01
Dec ‘01
Jan ‘02
Feb ‘02
Mar ‘02
Apr ‘01
Percentage of short-term liquidity target met
(Target = Top 10 call deposits)
Interest rate and liquidity risks are related in that funding reprices at the time contracted for renewal, replacement or
withdrawal (ie the assets and liability books are structured with both maturity and repricing objectives). Trading positions should
be liquid so as to facilitate the repayment of funding when called upon to do so. The bank has historically traded in only the
more liquid financial instruments and the setting of issuer limits by the credit committee takes into account the marketability
of instruments.
The primary function of the assets and liabilities committee (ALCO) is to manage the term structure of the bank’s balance
sheet. This takes into account the funding requirement of lending and trading activities, the depositors’ profile and spread,
the bank’s view on future trends in interest rates and expected changes in money market conditions, while also allowing for
the unexpected. Liquidity gaps, interest rate gaps and the sensitivity of the balance sheet to interest rate changes are
monitored on a daily basis. The ALCO model measures balance sheet risk on a VAR basis and has stress testing and what-if
capabilities.
The graph below shows the interest rate risk for Margin business and excludes Trading portfolios (calculated on a VAR
basis with 10-day holding period and 99% confidence level) for the previous financial year-end.
67
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
60
50
40
%
30
20
10
0
Apr ‘01
May ‘01
Jun ‘01
Aug ‘01
Sep ‘01
Jul ‘01
Oct ‘01
Nov ‘01
Dec ‘01
Mar ‘02
Feb ‘02
Jan ‘02
Month-end
Interest rate (balance sheet) risk as a % of limit utilised
The bank takes a conservative view on mismatches in its balance sheet structure and holds sufficient liquid and readily
realisable AAA assets to meet possible eventualities.
Solvency risk – capital adequacy
Adequately capitalising the group is important to absorb potential losses in its activities, to maintain the confidence of all
those with whom it does business and to fund the future growth of its operations. It is also important to ensure that losses
in one operation do not contaminate the others. The group has therefore been structured so that distinct operations are
housed in separately capitalised legal entities with transactions between companies in the group being conducted on a
strictly at arm’s length basis.
Capital adequacy is measured by expressing capital as a percentage to risk-weighted assets, including both on and off-
balance-sheet transactions. The South African Reserve Bank has, in accordance with international standards issued by
the Bank of International Settlements (BIS), established minimum standards for the capitalisation of banks taking into
account the particular risks to which each bank may be exposed.
However, in the bank, including wholesale and trading activities in inter-bank and institutional markets requiring limits for
the settlement of significantly large financial market transactions, it has been important to maintain capital considerably
in excess of the requirements of the authorities. The bank’s capital adequacy ratio at the end of March 2002 was 22,0%
compared to the regulatory requirement of 10%.
68
Brait Annual Report 2002
CAPITAL ADEQUACY OF BRAIT MERCHANT BANK LIMITED
2002 2001
Rm Rm
Primary capital
Ordinary share capital 3,3 3,3
Share premium 381,3 381,3
Reserves 126,2 289,7
Total primary capital 510,8 674,3
Secondary capital
General debt provision 2,9 2,0
Total secondary capital 2,9 2,0
Banking 452,9 576,3
Trading 60,8 100,0
Total capital 513,7 676,3
Risk-weighted assets
Banking 1 780,5 2 045,1
Trading 547,0 595,0
Total risk-weighted assets 2 327,5 2 640,1
Banking capital adequacy ratio (%) 25,4 25,6
Trading capital adequacy ratio (%) 11,1 16,8
Total capital adequacy ratio (%) 22,0 23,6
Operational and technology risks
Operational risk is the potential for loss caused by a breakdown in information, communication, transaction processing,
and settlement systems and procedures. The high value and complexity of transactions in financial markets makes the
potential costs of such breakdowns very high. It is therefore critical that the group maintains comprehensive systems of
internal controls, and sound policies and practices in the areas of information technology, human resources, physical
security and insurance. The enforcement and monitoring of compliance with such policies and standards of practice is a
vital component of operational risk management.
The group audit committee, which has responsibility, inter alia, for overseeing of the management of operational risk,
comprises non-executive directors to whom both external and internal auditors have direct access. The functioning of this
committee is dealt with more fully under the corporate governance section of the annual report.
69
Brait Annual Report 2002
RISK MANAGEMENT REVIEW CONTINUED
The specialised nature of the bank’s Trading operations and the need to ensure continual compliance with international
best practice in this area, led to the board’s decision to outsource the internal audit of the bank to reputable professionals
in this field and industry. This is supplemented by management’s commitment to a number of internal control procedures
that are fully documented. With the primary responsibility for operational risk management at business unit level, the
group has also at corporate level ensured that operational risk is minimised through the implementation of sound
accounting methods, administrative controls and a code of conduct.
Utilisation of information technology is guided by the group’s IT steering committee whose purpose is not only to set IT
policy but also to act as the final decision-making authority. The group employs both onsite and offsite disaster recovery
facilities which are tested regularly. Business continuity plans are in place in the case of catastrophic events.
All business processes are supported by software systems, which are kept current with the latest technology trends.
Outsourced internal auditors, who are reputable professionals in this field and report directly to the board, audit all major
IT procedures and processes.
Legal risk
Legal risk is the risk that transactions or agreements with third parties may not be legally enforceable or do not reflect
the deal as approved by the credit committee. Brait recognises the legal risks inherent in banking transactions and has
committed legal resources to each transaction to mitigate such risks. The objective is that each transaction entered into
by the bank accurately reflects the deal approval by the committee and any changes thereto are captured by the
documentation pertaining to the deal.
The legal function also takes cognisance of the ever-changing legal environment in order to ensure the validity and
enforceability of such legal documentation to protect Brait’s interests.
Compliance risk
Compliance or regulatory risk is the risk of non-compliance with regulatory requirements. Brait has established an
independent compliance function as part of its risk management framework. The management of compliance risk is
achieved through independent monitoring, reporting, training and other services. The compliance function reporting to
the group audit committee provides the required level of independence to discharge Brait’s compliance responsibilities.
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Brait Annual Report 2002
Risk management for fund investment
The group acts as manager for a number of funds financed primarily by third party capital. Each of these funds is typically
subject to a number of governance controls with risk management effects, including:
• fund mandates setting out investment parameters including targeted markets, transaction types and investment limits;
• controlled investment processes including appropriate approval by investment committees;
• investor review by way of periodic reporting and performance evaluation;
• advisory committee review for resolution of certain potential conflicts of interest; and
• statutory and regulatory controls.
Brait’s internal control processes ensure that fund mandates are adhered to, and these controls are subject to internal
audit and thus audit committee review. The effect on Brait’s financial position is assessed by applying sensitivity analysis
to material positions held in its funds under management.
CONCLUSION
It should be recognised that, as a result of its chosen position, Brait is exposed to South African domestic risk and, directly and
indirectly, to its equity and interest rate markets in particular. A strong culture of risk awareness is in place and, due to the
dynamic nature of risk management, this capability is continuously expanded to ensure future plans are implemented in a
prudent and controlled manner.
71
Brait Annual Report 2002
DIRECTORS’ RESPONSIBILITY
for financial reporting
The directors are responsible for the preparation, integrity and objectivity of financial statements that fairly present the
state of the affairs of the company and of the group at the end of their financial years and the income and cash flow for
these years, as well as for other information contained in the annual report.
In preparing the financial statements:
• Luxembourg law has been adhered to in respect of the company financial statements;
• International Accounting Standards have been adopted in respect of the group financial statements; and
• reasonable and prudent judgements and estimates have been made.
To enable the directors to meet the financial reporting responsibilities:
• the board and management set standards and the management implements internal control, accounting and
information systems aimed at providing assurance as to the integrity and reliability of the financial statements and to
safeguard, verify and maintain the group’s assets; and
• the group audit committee, together with input from the external auditors, plays an integral role in matters relating to
financial and internal control, accounting policies, reporting and disclosure.
To the best of their knowledge and belief, based on the above, the directors are satisfied that no material breakdown in
the operation of the systems of internal control and procedures has occurred during the year under review. The auditors
concur with this statement.
The directors are of the opinion that Brait S.A. will continue as a going concern in the year ahead and have adopted the
going concern basis in preparing the financial statements. The auditors concur with this opinion.
The group’s external auditors, Deloitte & Touche, have audited the financial statements and their unqualified report
appears on page 73.
The financial statements which appear on pages 74 to 117 were approved by the board of directors on 26 June 2002
and are signed on its behalf by
M E King A C Ball
Chairman Group chief executive
72
Brait Annual Report 2002
REPORT OF THE INDEPENDENT AUDITORS
to the shareowners of Brait S.A.
We have audited the annual financial statements of Brait S.A. as set out on pages 74 to 87 and pages 90 to 117, and
the annual financial statements of the company as set out on pages 115 to 116 for the year ended 31 March 2002 and
have read the directors’ report as set out on pages 74 to 78. These financial statements and directors’ report are the
responsibility of the company’s directors. Our responsibility is to express an opinion on these financial statements based
on our audit and to verify the consistency of the directors’ report with the annual financial statements.
Scope
We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes:
• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
• assessing the accounting principles used and significant estimates made by management; and
• evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, the group financial statements present fairly, in all material respects, the financial position of the group
at 31 March 2002, and the results of its operations, cash flows and changes in equity for the year then ended in
accordance with International Accounting Standards.
In our opinion, the company financial statements present fairly, in all material respects, the financial position of the
company at 31 March 2002, and the results of its operations for the year then ended in conformity with the legal and
regulatory requirements in Luxembourg.
The directors’ report is consistent with the annual financial statements.
Supplementary schedules
The supplementary information on pages 88 to 89 do not form part of the annual financial statements. We have not
audited them and consequently do not express an opinion on them.
Deloitte & Touche SA
26 June 2002
73
Brait Annual Report 2002
DIRECTORS’ REPORT
for the year ended 31 March
The directors have pleasure in presenting their report for the year ended 31 March 2002.
NATURE OF BUSINESS
Brait is an investment banking group with its primary listing on the Luxembourg Stock Exchange. It also has secondary
listings on the Johannesburg and London stock exchanges. The group has shareowners’ funds of R1,2 billion
(approximately US$104 million) and diverse earnings from the following activities:
• Funds Management;
• Advisory Services;
• Investing; and
• Group Capital.
It has announced its intentions since the financial year end to apply for the deregistration of its banking licence and
discontinue the following activities:
• Margin; and
• Trading.
SHARE CAPITAL
Authorised
The authorised share capital of the company comprises 150 000 000 ordinary shares of no par value.
Issued
The issued share capital of the company comprises 93 483 219 ordinary shares of no par value. Of this number,
3 829 825 ordinary shares are held in treasury and are under the control of the directors with the authority to hold these
shares for so long as considered necessary and to dispose of them on terms and conditions which they deem appropriate.
This includes 1 928 763 shares held in the Brait S.A. Share Incentive Trust, which are also under the control of the
directors for the delivery of shares granted to employees in terms of the Brait S.A. Share Incentive Scheme.
Unissued shares
At the forthcoming annual general meeting members will be asked to place the unissued shares in the capital of the
company under the control of the directors in terms of the provisions of the company’s articles of incorporation.
It should be noted that in terms of the articles the directors may not issue shares in any one year, whether for cash or
otherwise, if the issue exceeds 10% of the company’s issued ordinary share capital and such issues shall not in aggregate
in any three-year period exceed 15% of the company’s issued ordinary share capital.
74
Brait Annual Report 2002
RENEWAL OF AUTHORITY FOR THE REPURCHASE OF SHARES
The conditions relating to the repurchase by the company of its own shares are governed by the company’s articles of
incorporation which provide, inter alia, that this authority shall not extend beyond the date of the forthcoming annual
general meeting unless such authority is renewed by shareowners in general meeting. At the forthcoming annual general
meeting shareowners will accordingly be requested to renew this authority until the conclusion of the next annual general
meeting to be held in July 2003.
DIVIDEND
The proposed dividend of 60 South African cents per share in respect of the year ended 31 March 2001 was ratified by
shareowners at the annual general meeting held on 17 July 2001 and the dividend, which absorbed R53 982 283, was
paid on 3 August 2001.
The board declared an interim dividend of 25 South African cents per share on 5 November 2001. The dividend, which
absorbed R22 565 006, was paid on 7 December 2001 to members registered as such on the record date, namely
23 November 2001. Shareowners will be asked to ratify and confirm the declaration by the board and the payment of
the interim dividend at the annual general meeting of shareowners of the company which will be held in Luxembourg on
Wednesday, 31 July 2002.
The board has proposed a final dividend of 35 South African cents per share for the year ended 31 March 2002. In terms
of the articles of incorporation of the company, shareowners are required to approve the declaration of the dividend which
will be tabled at the forthcoming annual general meeting of shareowners of the company. Having obtained the necessary
consent of shareowners, payment of the dividend in respect of the year ended 31 March 2002 will be effected on or about
26 August 2002 to shareowners registered as such on the record date, 23 August 2002.
THE BRAIT S.A. SHARE INCENTIVE SCHEME
The establishment of the Brait S.A. Share Incentive Scheme (“the Scheme”) was approved by members at
an extraordinary general meeting of shareowners held on 29 July 1998. In terms of the scheme, the aggregate number
of ordinary shares in the capital of the company which may be made available for purposes of the scheme shall not,
without prior authority of members in general meeting, exceed 15% of the company’s issued share capital. The Brait S.A.
Share Incentive Trust (“the Trust”) was established for the purposes of the scheme and is composed of a minimum of two
trustees. Messrs A N Leontsinis and A Mitchell were appointed as additional trustees on 15 May 2001 and
Messrs M E King and M J Shaw subsequently resigned as trustees on 31 August 2001. The Trust accordingly comprises
two trustees.
75
Brait Annual Report 2002
DIRECTORS’ REPORT CONTINUED
A summary of shares granted to employees of the group during the period is given below:
GROUP SHARE INCENTIVE SCHEME RECONCILIATION
2002 2001
Options/share entitlements outstanding at beginning of the year 10 480 449 9 914 436
Granted 784 205 11 420 288
Delivered (630 143) (169 143)
Lapsed (1 176 801) (10 685 132)
Options/share entitlements outstanding at end of year 9 457 710 10 480 449
OPTIONS/SHARE ENTITLEMENTS OUTSTANDING AT 31 MARCH 2002
Expiry date Number Strike price
of shares (R)
30 November 2008 8 175 685 13,30
31 March 2009 683 175 11,97
30 June 2009 209 296 14,55
30 September 2009 287 976 13,28
31 December 2009 101 578 12,74
Options/share entitlements outstanding at end of year 9 457 710
DIRECTORATE
Mr S J P Weber was appointed as a director of the company on 28 May 2001 and Messrs J P Montanana and D H Rabin
resigned as directors on 29 October 2001 and 20 February 2002, respectively. No other changes in the composition of
the board of directors have occurred between 31 March 2002 and the date of this report.
In terms of the company’s articles of incorporation, the directors’ terms of office end immediately after the conclusion of
the annual general meeting of shareowners and they may be reappointed at that meeting.
Accordingly, Messrs A C Ball, J E Bodoni, R T Dalais, F Z Haller, M E King, R J Koch, A M Rosenzweig, C J Tayelor,
S J P Weber and P L Wilmot retire from the board at the annual general meeting and, being eligible, offer themselves
for re-election.
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Brait Annual Report 2002
DIRECTORS’ INTERESTS
On 31 March 2002 the directors beneficially held 10 409 635 shares in the company (2001: 10 484 635). The directors’
entitlements under employee ownership initiatives are 1 597 828 (2001: 1 572 828) shares. These are disclosed more
fully in the section on corporate governance.
Details of the directors’ direct and indirect shareholdings in the company’s issued share capital are:
2002 2001
M E King 176 689 176 689
A C Ball 4 993 623 4 993 623
J E Bodoni
R T Dalais 4 993 623 4 993 623
F Z Haller
R J Koch 245 700 320 700
A M Rosenzweig
C J Tayelor
S J P Weber
P L Wilmot
Total 10 409 635 10 484 635
All the above interests are beneficially held and there have been no changes to the above holdings since 31 March 2002
to the date of this report.
A register of the interests of directors in the capital of the company is available on request.
MAJOR SHAREOWNERS
According to information available to the company after reasonable enquiry, the following shareowners held 5% or more
of the issued capital of the company at 31 March 2002:
Shareowner %
Liberty Group 15,6
Liberty Life 6,0
Liberty Unit Trusts 1,1
Liberty Asset Management on behalf of its clients 8,5
Investec Asset Management on behalf of its clients 10,3
BoE Asset Management on behalf of its clients 5,5
Ball Family Trust 5,3
The Thierry Dalais Family Trust 5,3
77
Brait Annual Report 2002
DIRECTORS’ REPORT CONTINUED
for the year ended 31 March
Share Transactions Totally Electronic (“STRATE”)
Share Transactions Totally Electronic (“STRATE”) affects those shareowners who hold their shares on the South African
branch register of the company. It is a project undertaken by the JSE Securities Exchange South Africa (“JSE”) to establish
a new electronic clearing, settlement and custody system for securities listed on the JSE. It is aimed at achieving a secure
electronic settlement environment for transactions on the JSE and for all market trades and allows share transactions to
be settled electronically instead of using share certificates and transfer deeds. In addition its introduction necessitates the
dematerialisation of share certificates and the representation of ownership via an electronic record.
In accordance with this objective the company’s shares were converted to the STRATE system on 10 December 2001
and trading for electronic settlement commenced on 7 January 2002.
SPECIAL RESOLUTIONS
Details of special resolutions passed by the company and its subsidiaries are available on request.
EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On 6 May 2002, the group announced its intention to apply for deregistration of its banking structure licence. Recent
events in the South African A2 banking industry and required levels of gearing, have persuaded the board that the
group’s banking licence is not sustainable at the levels of capitalisation which the group has the means to support. In its
view, deposit-taking prospects have been permanently impaired and, as a result, those structures of the group requiring
a banking licence to operate offer no prospect of meeting the return goals set by the boards. In addition, the board has
concluded that sustaining the banking licence places significant financial risk on the group as a whole.
It is anticipated that this deregistration will occur on or about 30 September 2002.
As a consequence of this decision, the board has resolved to realise a significant component of the banking and
associated assets. This action has been taken to enhance the return on capital of the group through the reduction of
capital deployed following the decision to apply for deregistration of the bank. It is proposed that the realisation should
be done on an accelerated basis. This process is preferable to a protracted disposal, which would have a lesser impact
on earnings, but reflects greater interruption and economic loss to the continuing operations of the group.
The resulting adjustments amounting to R100 million have been made against the carrying value of assets held at
31 March 2002.
Additionally, costs associated with the closure of operations, after consultations have been held with staff, are likely to be
incurred. These costs are in the order of R65 million and the majority is expected to be expensed in the year ending
31 March 2003, against discontinuing operations.
COMPOSITION OF GROUP COMMITTEES
The composition of the board and the group audit, remuneration, management and other sub-committees of the board
are reflected in the section dealing with corporate governance.
CORPORATE GOVERNANCE
Full details regarding the company’s commitment to and its compliance with appropriate international corporate
governance practices are set out on pages 53 to 57.
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Brait Annual Report 2002
INTRODUCTION TO THE FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The group financial statements are prepared in accordance with International Accounting Standards and the company’s
financial statements are prepared in accordance with Luxembourg law for the year ended 31 March 2002.
In terms of International Accounting Standards as well as international trends, unrealised gains as well as unrealised losses
are recognised in the period during which these arose. Luxembourg law, following the European Union law, does not
permit the recognition of such unrealised gains. The directors are of the view that the group financial statements prepared
in accordance with International Accounting Standards represent more appropriately the financial position of the group
and the results of its operations and cash flows and have accordingly adopted International Accounting Standards for the
group.
REPORTING CURRENCY
Company
The financial statements of the company are reported in US dollars as the accounting records as well as the majority of
its assets and liabilities are maintained in US dollars.
Group
The group financial statements are presented in South African rand, as the rand represents the largest single currency in which
the transactions of the group are concluded, and the majority of shareowners reside in South Africa. This decision will be
regularly reviewed in light of the group’s activities and its shareowners listed on the Johannesburg, Luxembourg and London
stock exchanges.
For the convenience of non-South African users, unaudited US dollar income statements and balance sheets have been
presented and prepared using the International Accounting Standards interpretation SIC 30. Translation from reporting
currency to measurement currency. They are not intended to be a presentation in accordance with International Accounting
Standards and are presented solely for the convenience of the users.
Rates
Currency conversion guide
The approximate rand cost of a unit of the following currencies at 31 March was:
2002 2001
US dollar
– closing rate 11,340 8,013
– average rate 9,503 7,325
Sterling 16,161 11,351
Euro 9,881 7,072
Luxembourg/
Belgian franc n/a 0,174
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Brait Annual Report 2002
GROUP INCOME STATEMENTS
for the year ended 31 March
Continuing Discontinuing
operations operations Total
2002 2001 2002 2001 2002 2001
Note Rm Rm Rm Rm Rm Rm
Revenue 1 379,7 279,0 6,5 93,8 386,2 372,8
Operating expenses 2 (193,3) (140,0) (113,1) (59,6) (306,4) (199,6)
Normal operations (138,9) (140,0) (67,5) (59,6) (206,4) (199,6)
Realisation adjustments 5 (54,4) (45,6) (100,0)
Profit from operations 186,4 139,0 (106,6) 34,2 79,8 173,2
Finance costs (10,4) (1,7) (10,4) (1,7)
Income from associates 8,3 12,2 8,3 12,2
Income from joint ventures 6,7 8,0 6,7 8,0
Disposal of investments 5,5 5,5
Amortisation of intangibles 14 (4,8) (8,3) (2,8) (2,5) (7,6) (10,8)
Profit before taxation 186,2 154,7 (109,4) 31,7 76,8 186,4
Taxation 3 3,5 (3,9) 3,5 (3,9)
Profit after taxation 189,7 150,8 (109,4) 31,7 80,3 182,5
Minority interest 0,1 0,1
Attributable earnings 189,8 150,8 (109,4) 31,7 80,4 182,5
Earning per share (cents) 4
– continuing operations – diluted 210,4 165,4
– before realisation adjustment – basic 5 200,2 201,4
– before realisation adjustment – diluted 5 200,0 200,0
– basic 89,2 201,4
– diluted 89,1 200,0
Dividend per share (cents) 6 60,0 60,0
– interim (declared) 25,0
– final (proposed) 35,0 60,0
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Brait Annual Report 2002
GROUP BAL ANCE SHEETS
at 31 March 2002
2002 2001
Note Rm Rm
ASSETS
Non-current assets 1 193,5 1 321,9
Intangibles 14 32,5 39,9
Fixed assets 15 69,9 74,1
Investments 16 818,9 958,7
Loans and advances 17 264,3 241,9
Deferred tax assets 9 7,9 7,3
Current assets 1 526,2 2 001,0
Cash and cash equivalents 18 314,8 110,7
Trading securities 19 451,7 479,2
Loans and advances 17 518,3 1 167,4
Accounts receivable 20 241,4 243,7
TOTAL ASSETS 2 719,7 3 322,9
EQUITY AND LIABILITIES
Equity
Share capital and premium 7 802,1 803,0
Non-distributable reserves 8 13,7 3,9
Foreign currency translation reserves 24,0 42,0
Distributable reserves 342,4 355,6
Total equity 1 182,2 1 204,5
LIABILITIES
Non-current liabilities 167,6 200,2
Deferred tax liabilities 9 11,5 22,5
Deposits 10 29,8 14,5
Other liabilities 11 126,3 163,2
Current liabilities 1 369,9 1 918,2
Current deposits 10 1 068,9 1 531,7
Accounts payable 12 158,6 168,2
Accruals 13 45,0 48,3
Other liabilities 95,0 162,0
Bank overdraft 0,6 3,6
Taxation 1,8 4,4
Total liabilities 1 537,5 2 118,4
TOTAL EQUITY AND LIABILITIES 2 719,7 3 322,9
Net asset value per ordinary share (cents)
– book value 1 312,1 1 329,5
– market and directors’ valuation 1 337,5 1 366,8
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Brait Annual Report 2002
GROUP CASH FLOW STATEMENTS
for the year ended 31 March 2002
2002 2001
Notes Rm Rm
Cash flows from operating activities 35,4 146,0
Cash (utilised)/generated by operations 26.1 (64,1) 48,7
Dividends received 86,5 76,5
Interest received 198,6 247,3
Interest paid (170,6) (171,5)
Taxation paid 26.2 (15,0) (55,0)
Change in working funds 296,4 (133,4)
(Decrease)/increase in other liabilities (67,0) 15,2
Decrease in investments 301,9 71,0
(Increase) in inventories and trading securities (41,4) (152,4)
Decrease/(increase) in loans and advances 550,4 (180,8)
(Decrease)/increase in deposits (447,5) 113,6
Cash generated by operating activities 331,8 12,6
Cash flows from funding activities (121,6) 50,9
Treasury shares (9,5) (29,7)
Dividend paid 26.4 (75,2) (68,9)
(Decrease)/increase in liabilities (36,9) 149,5
Cash flows from investment activities (3,1) (43,5)
Increase in intangibles (0,2) (35,3)
Proceeds on sale of investments 12,0
Acquisition of property and equipment (4,2) (36,4)
Proceeds on sale of property and equipment 1,3 16,2
Net increase in cash and cash equivalents 207,1 20,0
Cash and cash equivalents at beginning of year 107,1 87,1
Cash and cash equivalents at end of year 314,2 107,1
Cash and cash equivalents at end of year 314,2 107,1
Cash and cash equivalents 314,8 110,7
Bank overdraft (0,6) (3,6)
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Brait Annual Report 2002
GROUP STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 March 2002
Foreign
Share capital Other non- currency Group Total
and share Legal distributable translation retained shareowners’
premium reserves reserves reserves earnings interest
Rm Rm Rm Rm Rm Rm
Balance at 31 March 2000 832,7 3,0 34,0 23,9 208,9 1 102,5
Net exchange rate adjustments 18,1 18,1
Attributable earnings 182,5 182,5
Dividends (68,9) (68,9)
Treasury shares (29,7) (29,7)
Transfer to/(from) reserves 0,9 (34,0) 33,1
Balance at 31 March 2001 803,0 3,9 42,0 355,6 1 204,5
Net exchange rate adjustments (18,0) (18,0)
Attributable earnings 80,4 80,4
Dividends (75,2) (75,2)
Treasury shares (0,9) (8,6) (9,5)
Transfer to/(from) legal reserves 9,8 (9,8)
Balance at 31 March 2002 802,1 13,7 24,0 342,4 1 182,2
Treasury shares constitute 1 901 062 shares of Brait S.A. held by subsidiaries and 1 928 763 shares held by the
Brait S.A. Share Incentive Trust. The Trust is consolidated in the group financial statements.
The movement on the foreign currency translation reserve arises primarily from the translation of the reporting
currencies of non-South African foreign entities into South African rand upon consolidation, net of the pro rata
portion of foreign currency translation reserves relating to dividends declared by these subsidiaries to the holding
company.
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Brait Annual Report 2002
GROUP SEGMENTAL REPORTS
for the year ended 31 March 2002
The group’s segmental reports are organised into business and geographical segments. The primary segment is the
business analysis which distinguishes between related services that bear similar risks and returns. The geographical
segment distinguishes between services and capital that are managed in economic environments, which have similar
specific risks and regulations.
Before Realisation
adjustment adjustments*
2002 2002 2002 2001
Business analysis Rm Rm Rm Rm
1.1 REVENUE
Continuing operations
Funds Management 102,1 102,1 84,3
Advisory Services 94,4 94,4 72,2
Investing 74,5 74,5 8,6
Group Capital 108,7 108,7 113,9
379,7 379,7 279,0
Discontinuing operations
Margin 35,6 35,6 77,1
Trading (29,1) (29,1) 16,7
6,5 6,5 93,8
Total revenue 386,2 386,2 372,8
1.2 OPERATING EXPENSES
Continuing operations
Funds Management 47,0 47,0 46,3
Advisory Services 67,6 67,6 38,5
Investing 12,1 20,0 32,1 24,7
Group Capital 12,2 34,4 46,6 30,5
138,9 54,4 193,3 140,0
Discontinuing operations
Margin 34,4 45,6 80,0 36,2
Trading 33,1 33,1 23,4
67,5 45,6 113,1 59,6
Total operating expenses 206,4 100,0 306,4 199,6
Note: * Following the announcement of the group’s intention to deregister its banking licence, the board has approved an
accelerated disposal of a large proportion of the assets in its banking structure and other associated assets. This action
has necessitated an abnormal non-recurring adjustment to the carrying value of these assets at 31 March 2002.
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Brait Annual Report 2002
Before Realisation
adjustment adjustments*
2002 2002 2002 2001
Business analysis (continued) Rm Rm Rm Rm
1.3 PROFIT BEFORE TAXATION
Continuing operations
Funds Management 61,3 61,3 41,4
Advisory Services 23,3 23,3 30,2
Investing 69,9 (20,0) 49,9 1,4
Group Capital 86,1 (34,4) 51,7 81,7
240,6 (54,4) 186,2 154,7
Discontinuing operations
Margin 1,2 (45,6) (44,4) 40,9
Trading (65,0) (65,0) (9,2)
(63,8) (45,6) (109,4) 31,7
Profit before taxation 176,8 (100,0) 76,8 186,4
Assets Liabilities Net assets Net assets
2002 2002 2002 2001
Rm Rm Rm Rm
1.4 ASSETS AND LIABILITIES
Continuing operations
Funds Management 40,3 (17,7) 22,6 66,5
Advisory Services 76,8 (11,7) 65,1 64,8
Investing 396,9 (32,4) 364,5 315,0
Group Capital 946,2 (216,2) 730,0 735,3
1 460,2 (278,0) 1 182,2 1 181,6
Discontinuing operations
Margin 1 042,4 (1 042,4) 41,0
Trading 217,1 (217,1) 1,5
1 259,5 (1 259,5) 42,5
Total 2 719,7 (1 537,5) 1 182,2 1 224,1
85
Brait Annual Report 2002
GROUP SEGMENTAL REPORTS CONTINUED
for the year ended 31 March 2002
2002 2001
Geographical analysis Rm Rm
2.1 REVENUE
Continuing operations
Europe 53,0 53,8
South Africa 175,3 145,8
Africa Other 151,4 79,4
379,7 279,0
Discontinuing operations
Europe
South Africa 6,5 93,8
Africa Other
6,5 93,8
Total revenue 386,2 372,8
2.2 PROFIT BEFORE TAXATION
Continuing operations
Europe 37,4 13,5
South Africa 5,6 70,3
Africa Other 143,2 70,9
186,2 154,7
Discontinuing operations
Europe
South Africa (109,4) 31,7
Africa Other
(109,4) 31,7
Profit before taxation 76,8 186,4
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Brait Annual Report 2002
Assets Liabilities Net assets Net assets
2002 2002 2002 2001
Geographical analysis Rm Rm Rm Rm
2.3 ASSETS AND LIABILITIES
Continuing operations
Europe 307,3 (7,6) 299,7 83,6
South Africa 795,3 (240,6) 554,7 756,1
Africa Other 357,7 (29,9) 327,8 341,9
1 460,3 (278,1) 1 182,2 1 181,6
Discontinuing operations
Europe
South Africa 1 259,4 (1 259,4) 42,5
Africa Other
1 259,4 (1 259,4) 42,5
Total 2 719,7 (1 537,5) 1 182,2 1 224,1
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Brait Annual Report 2002
SUPPLEMENTARY US DOLL AR FINANCIALS
Introduction
The group income statements and balance sheets are presented below in US dollars for the convenience of users of the annual financial statements.
Users should note the following:
1 The rand financial statements (measurement currency) reflect the economic substance of the underlying events and circumstances of the Brait
S.A. group. The US dollar financials disclosed below are for convenience purposes only.
2 The balance sheet has been translated at the closing rate of R11,340 to $1 (2001: R8,013 to $1).
3 The income statement has been translated at the average rate for the period of R9,503 to $1 (2001: R7,325 to $1).
4 Equity items have been translated at the closing rate.
5 All exchange differences other than net profit for the period, arising from the translation, have been recognised directly in equity.
6 Dividends have been translated at the rate prevailing at date of payment, except for the 2002 final proposed dividend which has been translated
at the closing rate.
Income statement Continuing Discontinuing
for the year ended 31 March operations operations Total
2002 2001 2002 2001 2002 2001
US$m US$m US$m US$m US$m US$m
Revenue 40,0 38,1 0,7 12,8 40,7 50,9
Operating expenses (20,3) (19,1) (11,9) (8,1) (32,2) (27,2)
Normal operations (14,6) (19,1) (7,1) (8,1) (21,7) (27,2)
Realisation adjustment (5,7) (4,8) (10,5)
Profit from operations 19,7 19,0 (11,2) 4,7 8,5 23,7
Finance costs (1,1) (0,2) (1,1) (0,2)
Income from associates 0,9 1,7 0,9 1,7
Income from joint ventures 0,7 1,1 0,7 1,1
Disposal of investments 0,8 0,8
Amortisation of intangibles (0,5) (1,1) (0,3) (0,3) (0,8) (1,4)
Profit before taxation 19,7 21,3 (11,5) 4,4 8,2 25,7
Taxation 0,4 (0,5) 0,4 (0,5)
Attributable earnings 20,1 20,8 (11,5) 4,4 8,6 25,2
Earnings per share (cents)
– continuing operations – diluted 22,1 22,6
– before realisation adjustment – basic 21,1 27,5
– before realisation adjustment – diluted 21,0 27,3
– basic 9,4 27,5
– diluted 9,4 27,3
Dividend per share (cents) 5,4 7,3
– interim (declared) 2,3
– final (proposed) 3,1 7,3
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Brait Annual Report 2002
copy to come
Balance sheet
as at 31 March 2002 2002 2001
US$m US$m
ASSETS
Non-current assets 105,2 165,0
Intangibles 2,9 5,0
Fixed assets 6,1 9,2
Investments 72,2 119,6
Loans and advances 23,3 30,2
Deferred tax assets 0,7 1
Current assets 134,6 249,7
Cash and cash equivalents 27,8 13,8
Trading securities 39,8 59,8
Loans and advances 45,7 145,7
Accounts receivable 21,3 30,4
TOTAL ASSETS 239,8 414,7
EQUITY AND LIABILITIES
Equity
Share capital and premium 70,7 100,2
Non-distributable reserves 1,2 0,5
Foreign currency translation reserves 2,1 5,2
Distributable reserves 30,2 44,4
Total equity 104,2 150,3
LIABILITIES
Non-current liabilities 14,7 25,0
Deferred tax liabilities 1,0 2,8
Long-term deposits 2,6 1,8
Other liabilities 11,1 20,4
Current liabilities 120,9 239,4
Current deposits 94,3 191,2
Accounts payable 14,0 22,5
Accruals 4,0 4,5
Other liabilities 8,3 20,2
Bank overdraft 0,1 0,4
Taxation 0,2 0,6
Total liabilities 135,6 264,4
TOTAL EQUITY AND LIABILITIES 239,8 414,7
Net asset value per ordinary share (cents)
– book value 115,7 165,9
– market and directors’ valuation 117,9 170,6
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Brait Annual Report 2002
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of the group are prepared in accordance with International Accounting Standards and the
financial statements of the company are prepared in accordance with Luxembourg law.
ACCOUNTING POLICIES
The following are the principal accounting policies which are consistent with the previous year, except for changes made
as a result of the implementation of IAS 39, “Recognition and measurement of financial instruments”.
1. PRINCIPLES OF CONSOLIDATION
• Business combinations
Business combinations are accounted for in accordance with the underlying nature of the combination.
Acquisitions are accounted for using purchase accounting and mergers are accounted for using the uniting of
interests method. Where an investment in a subsidiary or associated company is acquired or disposed of during
the financial period, its results are included from, or to, the date control became, or ceased to be, effective.
• Goodwill arising on acquisition
Goodwill arising on acquisition represents the excess of the cost of acquisition over the group’s interest in the
fair value of the identifiable net assets of the subsidiary at the date of acquisition. Goodwill is recognised as an
asset and amortised per accounting policy note 14.
• Basis of merger
The Brait group annual financial statements incorporate the annual financial statements of Brait S.A., and its
subsidiaries. These parties merged their interests with effect from 1 April 1998. The merger has been accounted
for as a “Uniting of Interests” in accordance with IAS 22 “Business Combinations”. All material inter-company
transactions and balances have been eliminated.
• Associated companies
Associates are those enterprises in which the group holds a long-term equity interest and over which it has the
ability to exercise significant influence and which are neither subsidiaries, nor joint ventures.
Equity accounted income, which is included in the carrying values of the associates, represents the
group’s proportionate share of the associates’ profit before tax after accounting for dividends payable by
those associates.
• Joint ventures
A joint venture is a contractual arrangement whereby the group and other parties undertake an economic
activity which is subject to joint control.
Equity accounted income, which is included in the carrying values of joint ventures, represents the
group’s proportionate share of the joint ventures’ profit before tax after accounting for dividends payable by the
joint ventures.
2. TRANSLATION OF FINANCIAL STATEMENTS INTO THE MEASUREMENT CURRENCY
Assets and liabilities of foreign entities are translated into the group’s measurement currency, South African rands,
at year-end exchange rates. Capital and reserves are translated at historical rates. Income statement items are
translated at the average exchange rates for the year.
Subsidiaries have been accounted for as foreign entities as their activities are not an integral part of the holding
company. Translation differences arising from foreign entities are taken directly to reserves. On disposal of foreign
entities, such translation differences are recognised in the income statement as part of the gain or loss on disposal.
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Brait Annual Report 2002
3. FOREIGN CURRENCY ASSETS AND LIABILITIES
Non-South African currency transactions are accounted for at the exchange rates prevailing at the date of
the transactions. Gains and losses resulting from the settlement of such transactions are translated at average
exchange rates during the period. Gains and losses resulting from the translation of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement at year-end exchange rates.
4. TAXATION
Income tax on the profit and loss for the year comprises current and deferred tax. Current income tax is the
expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date,
and any adjustments to tax payable in respect of previous years.
Deferred tax is provided for on the comprehensive basis, using the balance sheet liability method, for all temporary
differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting
purposes, using tax rates enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the unused tax losses can be utilised.
5. GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net assets
of the subsidiary, associate or joint venture at the date of acquisition.
Goodwill arising on the acquisition of subsidiaries, associates or joint ventures which were not part of the merger in
1998, are reported in the balance sheet as an intangible asset and is amortised using the straight-line method over
its estimated useful life, not exceeding 20 years.
Goodwill is carried at cost less any accumulated amortisation. The carrying amount of goodwill is reviewed annually
and written down for impairment where considered necessary.
6. PROPERTY AND EQUIPMENT
Property and equipment is stated at historical cost less accumulated depreciation.
Depreciation is provided on historical cost using the straight-line basis at rates considered appropriate to write the
assets off over their estimated useful lives. Land and buildings are not depreciated.
7. FINANCIAL ASSETS AND INSTRUMENTS
Financial assets and financial liabilities are recognised on the group’s balance sheet when the group has become a
party to the contractual provisions of the instrument.
• Private equity interests
Direct or carried interests in private debt or equity instruments are held at estimated fair value as determined by
the board of directors at the balance sheet date. The resultant increase or decrease in value is recognised in the
income statement. The directors determine the fair value for the group’s interest in private equity funds under
its management by applying the guidelines of the British Venture Capital Association and the valuation indicators
appropriate to the underlying listed or unlisted investments.
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Brait Annual Report 2002
ACCOUNTING POLICIES CONTINUED
• Securities
Investments in securities are recognised on a trade date basis and are initially measured at cost.
At subsequent reporting dates, debt securities that the group has the expressed intention and ability to hold to
maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised
to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a
held-to-maturity security is aggregated with other investment income receivable over the term of the instrument
so that the revenue recognised in each period represents a constant yield on the investment.
Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-
sale, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the
balance sheet date. Where securities are held for trading purposes or available-for-sale investments, unrealised
gains and losses are included in net profit or loss for the period.
Where there is no formal market, insufficient liquidity in the security, or there is a restriction on sale, the fair
value reflects directors’ valuation.
• Repurchase and resale agreements
Where securities are sold subject to repurchase agreements, the securities continue to be recorded as assets in
the financial statements and are valued in terms of the accounting policy for securities investments. The
proceeds from the sale of such securities are treated as deposits. Assets purchased subject to resale agreements
are recorded as loans granted against security and are recorded under loans and advances.
• Endowment policies
Endowment policies are revalued to reflect the redemption value of the policies.
8. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are initially recorded at cost and are remeasured to fair value at subsequent
reporting dates.
Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges
are recognised directly in the income statement.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised
in the income statement as they arise.
9. TRADE RECEIVABLES
Trade receivables are stated at their nominal value, as reduced by appropriate allowances for estimated irrecoverable
amounts.
10. DOUBTFUL LOANS AND ADVANCES
Loans and advances are stated net of specific and general provisions. Specific provisions are made against
specifically identified doubtful loans and advances. A general provision is held to cover potential losses which,
although not specifically identified, are historically proven to be included in the portfolio held. The level of this
general provision is reviewed periodically by the credit committee and the policy is reassessed if the composition of
the book changes materially. Accrual of interest on advances is suspended when the recoverability of an advance
becomes uncertain.
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Brait Annual Report 2002
11. PROVISIONS
Provisions are recognised when the group has a present obligation as a result of a past event which it is probable
will result in an outflow of economic benefits that can be reasonably estimated.
Provisions for restructuring costs are recognised when the group has a detailed formal plan for the restructuring
which has been notified to affected parties.
12. TRADE PAYABLES
Trade payables are stated at their nominal value.
13. BORROWINGS
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance
charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are
added to the carrying amount of the instrument to the extent that they are not settled in the period in which they
arise.
14. REVENUE RECOGNITION
Fee income is recognised when all significant acts relating to services have been executed and the client invoiced.
Interest income is recognised on a basis that reflects the effective yield on the underlying instruments. Gains and
losses on investments and derivatives are recognised as set out above. Realised and unrealised gains and losses on
disposal of trading securities are recognised in revenue. With the exception of preference share investments,
dividends are brought into account as at the last date of registration in respect of listed shares and when declared
in respect of unlisted shares. Where dividends on preference shares are calculated with reference to time and the
ultimate receipt is beyond doubt, dividends are accrued on a daily basis.
15. BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the
cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment
income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the cost of those assets.
All other borrowing costs are dealt with in income in the period in which they are incurred.
16. RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.
17. PROPERTY INVENTORIES
Property inventories are reflected at the lower of cost and net realisable value, on a specific asset basis.
18. COMPARATIVE FIGURES
Where necessary, comparative figures have been restated to conform with changes in presentation in the current
year and changes in accounting policies.
93
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 March
2002 2001
Rm Rm
1. REVENUE
Includes the following:
Fees and participations 207,5 183,6
Banking 30,2 38,8
Other 177,3 144,8
Net interest income 38,4 77,5
Advances 140,4 180,0
Funding costs (160,2) (169,8)
Trading securities 33,8 34,6
Investing securities 24,4 32,7
Dividends 86,6 76,5
Trading securities 16,7 17,8
Investing securities 69,9 58,7
Gains and losses on securities 53,1 35,2
Trading securities 30,0 21,3
Investing securities 23,1 13,9
Miscellaneous 0,6 –
Total revenue 386,2 372,8
Revenue includes related party interest and similar income of
R19,2 million (2001: R31,6 million).
Revenue is inclusive of net currency exchange gains of R68,2 million
(2001: R29,8 million) arising primarily from the translation of foreign
currencies into the group’s measurement currency.
94
Brait Annual Report 2002
2002 2001
Rm Rm
2. OPERATING EXPENSES
Employee costs 105,1 104,2
Retirement funding costs 1,0 0,7
Administration expenses 29,8 21,9
Rental expenditure of operating leases 0,8 3,5
Bank expenses relating to fee income 5,1 3,6
Auditors’ remuneration 3,5 3,9
Audit fees – external 1,9 2,3
– internal 0,6 0,6
Prior year underprovision 0,5 0,4
Other services 0,5 0,6
Directors’ emoluments 11,8 10,4
Executive directors
As directors of Brait S.A. 0,2 0,2
As directors of subsidiaries 8,7 7,9
Non-executive directors
As directors of Brait S.A. 1,0 0,7
Otherwise in connection with the group 1,9 1,6
Provisions against loans and advances 71,1 9,7
Fixed assets 8,8 (8,2)
Loss/(profit) on sale 1,7 (11,7)
Depreciation 7,1 3,5
Other expenses (including realisation adjustments not disclosed above) 69,4 49,9
Total expenses 306,4 199,6
Operating expenses include related party interest and also fee and commission expenses of R0,3 million and
R4,0 million respectively (2001: nil).
95
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
3. TAXATION
3.1 Taxation expense
Current tax expense
– for the year 12,4 9,0
– prior period adjustments 0,1 (5,7)
Deferred tax
– for the year (15,2) 2,2
Tax (credit) relating to associate (0,8) (1,6)
Total taxation (credits)/expense (3,5) 3,9
3.2 Tax rate reconciliation % %
Average effective tax rate (5) 2
Non-deductible expenses (26) (7)
Non-taxable income 69 19
Tax losses utilised (12) –
Tax differential 4 16
Applicable tax rate 30 30
Income tax has been reconciled to the South African corporate
tax rate as the measurement currency of the group has been defined
in South African rand.
3.3 Other Rm Rm
Deductible temporary differences and unutilised tax losses for
which no deferred tax assets are recognised in the balance sheet
as there will be no future taxable income to recognise the asset against 110,7 1,8
Unutilised tax losses available for offset against future profits 126,0 12,7
96
Brait Annual Report 2002
2002 2001
Rm Rm
4. EARNINGS PER SHARE (CENTS)
The calculation of the basic and diluted earnings per share is based on
the following data:
– Attributable earnings 80,4 182,5
– Number of shares
Weighted average number of ordinary shares issued (million) 93,5 93,5
Weighted average number of treasury shares (million) (3,4) (2,9)
– Weighted average number of ordinary shares for the purposes of basic
earnings per share (million) 90,1 90,6
– Dilutive potential of share options granted to employees (million) 0,1 0,6
– Weighted average number of ordinary shares for the purposes of diluted
earnings per share (million) 90,2 91,2
5. DISCONTINUING OPERATIONS AND REALISATION ADJUSTMENTS
On 6 May 2002, the board announced its intention to apply for deregistration of its banking licence by
30 September 2002 and the discontinuance of its Margin business and Trading activities carried out within
this structure. At the same time the board approved an accelerated disposal of the assets of the discontinued
operations and associated activities. This action has necessitated an abnormal R100 million non-recurring
adjustment to the carrying value of these assets at 31 March 2002. It is expected that it will take at least two
years to complete the realisation of these assets.
The financial effects of the discontinuing operations are disclosed in the group income statement and
segmental reports. The net cash flows attributable to the discontinuing operations are as follows:
2002 2001
Rm Rm
Net cash flows from operating activities (67,1) 23,8
Net cash flows from investing activities
Net cash flows from financing activities
A further R65 million of closure costs in the banking structure is expected to be expensed in future financial
periods. The majority of this expense should be incurred in the financial year ending 31 March 2003.
6. DIVIDENDS
In August 2001 an annual dividend of 60 South African cents per share was paid to shareowners. In respect
of the current period, the directors declared an interim dividend of 25 South African cents per share in
November 2001 and have recommended a final dividend of 35 South African cents per share be paid to
shareowners in August 2002. The final 2002 dividend is subject to approval by shareowners at the annual
general meeting and has not been included as a liability in these financial statements. The US dollar
equivalent of the proposed dividend will depend on the rand/US dollar conversion rate at the date of payment.
97
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
7. SHARE CAPITAL
Share capital
Authorised share capital
The authorised share capital of the company is US$225 000 000 represented by 150 000 000 shares of no
par value.
Issued share capital
93 483 219 (2001: 93 483 219) ordinary shares of no par value
The unissued ordinary shares are under the control of the directors, subject to certain constraints, until the
forthcoming annual general meeting.
At 31 March 2002, the company has granted options/share entitlements to directors and employees to
subscribe for 9 457 710 (2001: 10 480 449) ordinary shares in the company as set out on pages 76 and 77.
2002 2001
Rm Rm
8. NON-DISTRIBUTABLE RESERVES
Luxembourg law requires the appropriation of 5% of the unconsolidated
net earnings of Brait S.A. to a legal reserve until such reserve equals
10% of its issued share capital. The legal reserve is not available for
distribution, except upon dissolution of Brait S.A. The transfer to
the legal reserve is subject to the approval of shareowners. 13,7 3,9
9. DEFERRED TAXATION
The components of temporary differences between accounting and
taxation for income and expenditure are as follows:
9.1 Liabilities and assets
Deferred tax liabilities 11,5 22,5
Deferred tax assets (7,9) (7,3)
Net position 3,6 15,2
9.2 Movement in net position
The movement for the year in the group’s net deferred tax balances
was as follows:
Balance at beginning of the year 15,2 11,4
(Addition)/charge to income for the year (15,2) 2,2
Other 3,6 1,6
Balance at end of the year 3,6 15,2
98
Brait Annual Report 2002
9. DEFERRED TAXATION (continued)
9.3 Analysis of liabilities
The following are the major deferred tax liabilities and assets recognised by the group and the
movement thereon during the year:
Unrealised
profit and
losses on
trading
securities,
banking and Prepaid 2002 2001
investments expenses Accruals Total Total
Rm Rm Rm Rm Rm
Deferred tax liabilities:
Balance at beginning of the year 17,3 14,6 (9,4) 22,5 14,5
(Addition)/charge to income
for the year (9,3) (14,6) 9,4 (14,5) 6,4
Foreign currency translation
movement 3,5 3,5 1,6
Balance at end of the year 11,5 11,5 22,5
2002 2001
Total Total
Rm Rm
9.4 Analysis of assets
Deferred tax assets:
Balance at beginning of the year 7,3 3,1
Addition to income for the year 0,6 4,2
Balance at end of the year 7,9 7,3
99
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
10. DEPOSITS
10.1 Category analysis
Negotiable certificates of deposit 55,3 9,4
Deposits received under repurchase agreements 236,9 295,6
Other depositors 806,5 1 241,2
Total deposits 1 098,7 1 546,2
– Current deposits 1 068,9 1 531,7
– Long-term deposits 29,8 14,5
Total deposits 1 098,7 1 546,2
% %
10.2 Maturity and geographical analysis
Less than one month 75 80
One to six months 21 19
Six months to one year 1 1
One to five years 3 –
Total deposits in South Africa 100 100
Rm Rm
10.3 Deposits received from related parties 26,9 35,3
10.4 Fair value
The carrying value of deposits represents fair value as the
majority are variable rate instruments 1 098,7 1 546,2
100
Brait Annual Report 2002
2002 2001
Rm Rm
11. OTHER LIABILITIES
Liabilities subject to finance leases 51,6 59,2
Loans from associates (unsecured) 17,6 44,5
Secured 71,7 70,3
Total liabilities 140,9 174,0
Less: Current finance leases included under current liabilities 14,6 10,8
Total other liabilities 126,3 163,2
The secured liability was raised in 2001 by the issue in two subsidiary companies of compulsory convertible
loans. The conversion rights in respect of these loans was purchased by another group company for
R7,5 million. The loans bear interest at effective rates, based on the capital outstanding, of 13,8% and
14% respectively. The loans are secured over the property and certain fixed assets with a book value of
R58,4 million.
2002 2001
Rm Rm
11.1 Repayment schedule of total liabilities
Repayable in the year ending 31 March:
2004 17,2 10,8
2005 15,1 10,8
2006 13,1 10,8
Thereafter 77,9 97,2
No fixed terms of repayment 17,6 44,4
Total liabilities 140,9 174,0
11.2 Analysis of interest rates payable
0% to 5% 17,6 44,5
10% to 15% 71,7 70,3
15% to 20% 51,6 59,2
Total liabilities 140,9 174,0
101
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
11. OTHER LIABILITIES (continued)
11.3 Amounts owing to related parties 17,5 44,5
11.4 None of the liabilities are subject to repricing and the
carrying value approximates to fair value
12. ACCOUNTS PAYABLE
Trade payables 121,7 151,4
Related parties 1,0 3,9
Deferred income 11,3 7,7
Other payables 24,6 5,2
Total accounts payable 158,6 168,2
13. ACCRUALS
Employee costs and benefits 32,4 32,5
Other accruals 12,6 15,8
Total accruals 45,0 48,3
Movement of accruals
The movement for the year in the group’s total accruals was as follows:
Balance at beginning of the year 48,3 71,0
Provisions utilised during the year (31,0) (48,0)
Charge to income for the year 27,7 25,3
– current year 33,7 31,9
– amounts released to income statement (6,0) (6,6)
Balance at end of the year 45,0 48,3
102
Brait Annual Report 2002
2002 2001
Rm Rm
14. INTANGIBLES
Cost
Balance at beginning of the year 44,7 24,2
Arising on acquisition of business 0,2 35,3
Balance at end of the year 44,9 59,5
Amortisation
Balance at beginning of the year 4,8 8,8
Charge for the year 7,6 10,8
Balance at end of the year 12,4 19,6
Carrying value 32,5 39,9
Intangibles represent goodwill on acquisition. Goodwill is the difference between the cost of acquisition and
the fair value of the net assets acquired. The average write-off period of goodwill is currently 10 years.
103
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
Land Furniture
and and Motor Computer
buildings fittings vehicles equipment Total
Rm Rm Rm Rm Rm
15. FIXED ASSETS
Cost
Balance at beginning of the year 45,5 22,8 0,6 13,3 82,2
Additions 1,9 0,1 2,2 4,2
Disposals (1,2) (0,4) (1,6)
45,5 23,5 0,7 15,1 84,8
Accumulated depreciation
Balance at beginning of the year 0,3 2,2 0,3 5,3 8,1
Charge for the year 3,1 0,1 3,8 7,0
Disposals (0,2) (0,2)
0,3 5,3 0,4 8,9 14,9
Carrying value
– at 31 March 2002 45,2 18,2 0,3 6,2 69,9
– at 31 March 2001 45,2 20,6 0,3 8,0 74,1
15.1 Depreciation rates
Furniture 10% – 33%
Equipment 10% – 20%
Computer equipment 20% – 50%
Computer software 50% – 100%
Motor vehicles 20% – 25%
Partitioning 17%
Land and buildings with a book value of R45,2 million (2001: R12,7 million) is not depreciated.
104
Brait Annual Report 2002
2002 2001
Rm Rm
15. FIXED ASSETS (continued)
15.2 Fixed assets pledged as security
Fixed assets amounting to R58,4 million have been pledged
as security (refer note 11) 58,4 59,6
16. INVESTMENTS
16.1 Carrying values
Investments in joint ventures
Unlisted 16,1 16,3
– cost 4,6 6,4
– share of retained earnings 11,5 9,9
Investments in associates
Unlisted 50,9 73,0
– cost 9,0 0,9
– share of retained earnings 41,9 72,1
Securities
Unlisted 751,9 869,4
– Government 19,2 16,9
– preference shares 585,3 425,1
– other 147,4 427,4
Total carrying value of investments 818,9 958,7
Other unlisted securities primarily comprise money market investments with major banks.
105
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
16. INVESTMENTS (continued)
16.2 Valuation
Investments in unlisted – joint ventures 20,2 42,0
– associates 55,7 78,3
Securities – unlisted 751,9 869,4
Total market value and directors’ valuation of investments 827,8 989,7
Market value approximates fair value and is not necessarily indicative of
values that could be realised on disposal. Directors’ valuation of unlisted
investments is based on expected return and other relevant factors.
16.3 Joint ventures
The following sets out the group’s proportionate share of
joint venture assets, liabilities, income and expenses:
Non-current liabilities 82,1 67,4
Current liabilities 51,6 16,1
Non-current assets 26,4 20,4
Current assets 127,0 83,6
Income 71,6 42,6
Expenses 69,3 36,5
106
Brait Annual Report 2002
2002 2001
Rm Rm
17. LOANS AND ADVANCES
Loans and advances 875,7 1 416,0
Loans granted under resale agreements 0,2 20,5
Less: Provision for doubtful loans and advances (93,3) (27,2)
Total loans and advances net of provisions 782,6 1 409,3
Non-current loans and advances 264,3 241,9
Current loans and advances 518,3 1 167,4
Total loans and advances net of provisions 782,6 1 409,3
17.1 Balance of loans and advances on which interest
has been suspended 6,4 19,1
17.2 Category analysis of loans and advances
Placements with, loans and advances to other banks 117,0 216,7
Loans and advances to customers 604,1 926,6
Loans to directors (all secured and current) 35,5 80,6
Other 26,0 185,4
Total loans and advances net of provisions 782,6 1 409,3
17.3 Provision for doubtful loans and advances
Opening balance 27,2 18,6
Provision for uncollectible loans and advances raised 71,1 9,4
Loans and advances written off (5,0) (0,8)
Provision for doubtful loans and advances 93,3 27,2
General provision 23,1 15,7
Specific provisions 70,2 11,5
Provision for debt loans and advances 93,3 27,2
107
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
% %
17. LOANS AND ADVANCES (continued)
17.4 Maturity profile
Less than one month 48 54
One to six months 11 18
Six months to one year 10 11
One to five years 24 8
More than five years 7 9
Total loans and advances net of provisions 100 100
17.5 Sectoral Rm Rm
Construction and property 192,5 210,0
Finance 257,9 530,9
Manufacturing 80,2 125,9
Services 26,7 45,0
Transport 29,8 13,7
Wholesale 91,6 126,7
Telecommunications, media and technology 102,7 201,8
Other 1,2 155,3
Total loans and advances net of provisions 782,6 1 409,3
17.6 Geographical
Europe 9,8 3,9
South Africa 772,8 1 291,2
Africa Other 114,2
Total loans and advances net of provisions 782,6 1 409,3
108
Brait Annual Report 2002
2002 2001
Rm Rm
17. LOANS AND ADVANCES (continued)
17.7 Advances to related parties
Advances to related parties include advances to associates,
joint ventures, Brait Private Equity Funds, investee companies
and other associated parties.
Secured advances have been made by a group company to directors
and entities controlled by individual directors. These advances are
made on an arm’s length basis in the ordinary course of business.
Total related party advances 124,5 149,8
17.8 Fair value
The carrying value of loans and advances approximates fair value,
as the majority are variable rate instruments which are repriced
on a daily basis.
18. CASH AND CASH EQUIVALENTS
Balances with other banks 301,8 75,8
Money on call 8,5 32,8
Other 4,5 2,1
Total cash and cash equivalents 314,8 110,7
19. TRADING SECURITIES
Real estate for resale 5,7 13,7
Trading securities – listed (government) 80,0 62,5
– other 371,3 393,2
Listed – market value 120,7 181,6
Unlisted – directors’ valuation 250,6 211,6
Option premium marked to market (5,3) 9,8
Total carrying value of inventories and trading securities 451,7 479,2
Market value approximates fair value and is not necessarily indicative of values that could be realised on 1
disposal. Directors’ valuation of unlisted investments approximates fair value.
109
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
20. ACCOUNTS RECEIVABLE
Customers and other receivables 241,2 237,4
Amounts owed by related parties 1,9 4,7
Prepayments and accrued income 1,2 2,0
Provisions held against receivables (2,9) (0,4)
Total accounts receivable 241,4 243,7
21. RETIREMENT BENEFIT COSTS
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.
22. CONTINGENT LIABILITIES AND COMMITMENTS
22.1 Contingencies
Guarantees and other contingent liabilities 159,6 21,0
22.2 Commitments
Commitments to extend credit and invest in funds 191,5 487,8
Capital expenditure authorised and contracted for 14,0
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
Total excess of fair value of financial investments over book value (5,3) 33,8
The accounting policies of the group prescribe that all financial assets and liabilities are stated at fair value
with the exception of investments.
The book values of all other financial assets and liabilities equate to the fair values of the instruments. Fair
values have been determined using available market information and appropriate valuation methodologies
but are not necessarily indicative of the amounts that the group could realise in the normal course of
business.
110
Brait Annual Report 2002
Fair value Fair value Fair value Fair value
Positive Negative Net Net
2002 2002 2002 2001
Rm Rm Rm Rm
24. DERIVATIVES
24.1 Product analysis of derivative
instruments at fair value
Held for trading purposes
Interest rate products 43,6 (48,1) (4,5) 2,8
Forward rate agreements 43,6 (48,1) (4,5) 2,8
Held for hedging purposes
Interest rate products 0,2 (1,0) (0,8)
Swap contracts 0,2 (1,0) (0,8)
Total fair value of interest rate
derivative products held for trading
and hedging purposes 43,8 (49,1) (5,3) 2,8
Derivative instruments held for hedging purposes have been entered into in terms of asset and liability
management strategies. The fair value of a derivative instrument represents the positive or negative
cash flow which would have arisen had the instrument been closed out in normal trading conditions
at the year-end.
111
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
Total
Less More asset and
than Three to One to than Total Trading liability
three twelve five five notional notional manage-
months months years years amount amount ment
Rm Rm Rm Rm Rm Rm Rm
24. DERIVATIVES (continued)
24.2 Maturity analysis
of derivative
instruments
2002
Interest rate products
Over the counter 1 610 500 (1 200) 54 964 910 54
Forward rate
agreements 1 610 500 (1 200) 910 910
Swap contracts 54 54 54
2001
Interest rate products
Over the counter 1 140 3 900 200 62 5 302 5 240 62
Forward rate
agreements 1 140 3 900 200 5 240 5 240
Swap contracts 62 62 62
The notional amount 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 amount does not
necessarily reflect the amount payable or receivable under a derivative contract.
25. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
The directors are not aware of any material event arising since the accounting date, not otherwise dealt with
in this report, that would affect the operations or results of the group.
112
Brait Annual Report 2002
2002 2001
Rm Rm
26. CASH FLOW INFORMATION
26.1 Cash (utilised)/generated by operations
Profit before taxation 76,8 186,4
Dividends received (86,6) (76,5)
Interest received (198,6) (247,3)
Interest paid 160,2 169,8
Finance costs 10,4 1,7
Depreciation 7,1 3,5
Profit on sale of investments (5,5)
Loss/(profit) on sale of fixed assets 1,7 (11,7)
Unrealised gains and losses on securities and currency (98,5) 39,7
Equity accounted earnings and joint ventures (15,0) (20,2)
Movement in provisions and accruals 85,3 (25,2)
Amortisation of intangibles 7,6 10,8
Decrease/(increase) in accounts receivable 2,3 (111,5)
(Decrease)/increase in accounts payable (9,6) 132,5
Other (7,2) 2,2
Total cash (utilised)/generated by operations (64,1) 48,7
26.2 Taxation paid
Taxation balance at beginning of the year (4,4) (56,1)
Current tax expense – for the year (12,4) (3,3)
Taxation balances at end of the year 1,8 4,4
Total taxation paid (15,0) (55,0)
113
Brait Annual Report 2002
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
Rm Rm
26. CASH FLOW INFORMATION (continued)
26.3 Acquisition of subsidiary
Rabin van den Berg & Pelkowitz
On 1 March 2000, the group acquired specific assets of
Rabin van den Berg & Pelkowitz as a going concern, subject
to certain suspensive conditions which have been fulfilled.
Accordingly the effective date of the combination for accounting
purposes is 1 March 2000, a thirteen-month period.
The consideration paid was funded by way of an interest-free loan
by a group company, with no fixed terms of repayment.
26.3.1 Net assets acquired
Fixed assets 0,6
Accounts receivable 1,4
Goodwill 35,2
Total consideration paid 37,2
26.3.2 Consideration paid
– Loan from group company 37,2
26.3.3 Net cash position of transactions
Cash paid (37,2)
Net cash outflow (37,2)
26.3.4 No provisions for restructuring were recognised at the date
of acquisition, nor in the period since that date.
26.3.5 No voting shares were acquired.
26.4 Dividends paid (75,2) (68,9)
Dividends represent the dividend of 60 cents paid in August 2001, being the annual dividend proposed
in the prior year, and the interim dividend of 25 cents paid in November 2001. (2001 represents the
annual dividend of 75 cents paid in July 2000.)
27. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to ensure consistent disclosure in these financial
statements.
114
Brait Annual Report 2002
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March
2002 2001
Notes US$m US$m
28. FINANCIAL STATEMENTS OF BRAIT S.A.
Brait S.A. is the holding company of the group.
It was incorporated on 5 May 1976 in the Grand Duchy of
Luxembourg in terms of the law of 31 July 1929.
28.1 Income statements for the period
Net financial and other income 13,1 25,2
Administrative and other expenses (1,0) (0,5)
Profit for the year 12,1 24,7
28.2 Balance sheets
Assets
Investments
Subsidiaries at cost 607,5 616,0
Current assets 51,9 36,9
Interest-free intercompany advance with no fixed repayment date 25,1 35,4
Accounts receivable and prepayments 2,3 0,1
Cash and cash equivalents 24,5 1,4
TOTAL ASSETS 659,4 652,9
Equity
Share capital and premium 28.4 625,7 625,7
Legal reserve 2,0 0,8
Retained earnings 28.5 30,6 26,2
Total equity 658,3 652,7
Liabilities
Current liabilities
Accounts payable 1,1 0,2
Total liabilities 1,1 0,2
TOTAL EQUITY AND LIABILITIES 659,4 652,9
115
Brait Annual Report 2002
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 March
2002 2001
US$m US$m
28. FINANCIAL STATEMENTS OF BRAIT S.A. (continued)
28.3 Significant accounting policies
Significant accounting policies for the company are consistent with
those disclosed for the group, except for unrealised gains which have
been excluded from income in accordance with Luxembourg law.
The carrying value of subsidiaries is reflected at cost and does
not take account of any possible impairment in the acquisition values.
28.4 Share capital
Authorised
150 000 000 (2001: 150 000 000) ordinary shares of
no par value
Issued
93 483 219 (2001: 93 483 219) ordinary shares of
no par value 140,2 140,2
28.5 Retained earnings
At beginning of the year 26,2 2,4
Profit for the year 12,1 24,7
Dividend paid (6,5) (10,1)
Transfer to legal reserve (1,2) (0,1)
Transfer from non-distributable reserves 9,3
At end of the year 30,6 26,2
116
Brait Annual Report 2002
PRINCIPAL SUBSIDIARIES, ASSOCIATED
COMPANIES AND JOINT VENTURES
Details of subsidiaries, associated companies and joint ventures which are material to the financial position of the group
are stated below:
Issued
ordinary
Name and Date of share capital Holding
registration number incorporation Nature of business Millions %
SUBSIDIARY COMPANIES
Brait Private Equity Limitedø 03/09/91 Funds manager 100
1991/004856/06
Brait Merchant Bank Limitedø 26/10/60 Merchant banking R3,3m 100
1960/003893/06
Brait South Africa Limitedø 01/07/98 Holding company R1,0m 100
1998/012594/06
Capital Partners Group 13/03/98 Funds manager and US$15,9m 100
Holdings Limited* investing
271641
Brait Mauritius Limited‡ 01/04/99 Advisory services 85
507172
Brait International Limited‡ 30/06/98 Advisory services, 100
20703/4507 investment holding company
and funds manager
Brait Investments Limitedø 29/11/96 Investment and lending 100
1996/016949/06
Issued Carrying
Date to which ordinary value
Name and equity income share Holding 2002
registration number accounted for Nature of business capital % Rm
ASSOCIATED COMPANIES
African Alliance Limited† 31/03/02 Holding company 50 12,9
79171C
Capital Partners Group Limited* 31/03/02 Funds manager 49 33,6
158272
JOINT VENTURES
ipac South Africa Limitedø 31/03/02 Financial services R6,3m 50 1,5
1999/008036/06
Capital Alliance Finance
(Pty) Limitedø 31/03/02 Financial services 50 18,8
1998/006840/07
* Incorporated in the British Virgin Islands
† Incorporated in the Isle of Man
‡ Incorporated in Mauritius
ø Incorporated in South Africa
117
Brait Annual Report 2002
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of shareowners will be held at the registered office of
the company, 69, route d’Esch, Luxembourg, L-2953, Grand Duchy of Luxembourg, at 09:30 on Wednesday, 31 July
2002 for the following business:
1. To receive and adopt the consolidated financial statements of the company and of the group for the year ended
31 March 2002, and to receive and adopt the reports of the directors and of the auditors for the year then ended.
2. To ratify transfers to reserves.
3. To ratify and confirm the payment of an interim dividend for the six months ended 30 September 2001.
4. To approve the payment of the final dividend, as recommended by the directors.
5. To grant discharge to the directors, officers and statutory auditors in respect of the execution of their mandates for
the year ended 31 March 2002.
6. To renew and confirm the authority granted to directors, subject to the terms of the articles of incorporation, to issue
further ordinary shares, whether for cash or otherwise, as and when suitable situations arise.
The authority of the directors to allot and issue shares in the company, whether for cash or otherwise, shall be
granted until the fifth anniversary of the adoption of the company’s articles of incorporation, provided that this
authority, unless confirmed by the annual general meeting of shareowners, shall not extend beyond 15 (fifteen)
months from the date of adoption of the articles of incorporation or the date of such confirmation and is subject
to the following limitations:
• a paid press announcement giving details, including the impact on net asset value and earnings per share, will
be published at the time of any such allotment and issue of shares representing, on a cumulative basis within
one year, 5% or more of the number of ordinary shares in issue prior to any such issues;
• that issues (excluding shares to be issued pursuant to any share incentive scheme established for the benefit of
the employees of the company and its subsidiaries (“incentive schemes”)) in aggregate in any one year may not
exceed 10% of the company’s issued ordinary share capital, provided further that such issues (excluding shares
to be issued pursuant to incentive schemes) shall not in aggregate in any three-year period exceed 15% of the
company’s issued ordinary share capital;
• that, in determining the price at which an allotment and issue of shares will be made in terms of this authority,
the maximum discount permitted will be 10% of the average market price of the ordinary shares as determined
over the 30 days prior to the date that the price of the issue is determined or agreed by the directors on all stock
exchanges on which the ordinary shares are listed and have traded during that period; and
• that any such securities so issued for cash shall be made to the “public” and will also not result in an affected
transaction.
118
Brait Annual Report 2002
7. To renew and confirm by way of a general authority that the company may purchase its own shares subject to the
following limitations:
• unless a tender offer is made to all shareowners on the same terms and except in case of an emergency where
the repurchase is carried out to avoid a material loss which the company would otherwise incur, each purchase
shall be made through a stock exchange on which the shares in the company are regularly traded and the
purchase price shall not exceed 5% above the average market value for the shares on all stock exchanges on
which the ordinary shares are listed and have traded for the 10 business days before the purchase;
• if purchases are by tender, tenders must be available to all shareowners alike;
• that this authority shall not extend beyond 18 (eighteen) months from the date of the adoption of these articles
of incorporation but shall be renewable for further periods by resolution of the annual general meeting of the
shareowners from time to time; and
• the maximum number of shares that may be repurchased pursuant to this authority shall not exceed 10% of the
issued share capital of the company from time to time.
8. To re-appoint the directors for a further term of office in accordance with the provisions of the articles of
incorporation.
9. To re-appoint Deloitte & Touche SA as statutory and independent auditors.
10. Miscellaneous.
Any shareowner may, in writing, appoint a proxy, who need not be a shareowner, to represent him at any general
meeting. Any company, being a shareowner, may execute a form of proxy under the hand of a duly authorised officer or
may authorise in writing such person as it thinks fit to act as its representative at the meeting subject to the production
to Brait S.A. of such evidence of authority as the board may require. The instrument appointing a proxy, and the written
authority of a representative, together with evidence of the authority of the person by whom the proxy is signed (except
in the case of a proxy signed by the shareowner), shall be deposited at the registered office of the company or a transfer
office, two clear business days (in the Grand Duchy of Luxembourg or the jurisdiction where the relevant transfer office
is located) before the time for the holding of the meeting or adjourned meeting (as the case may be) at which the person
named in such instrument proposes to vote. No instrument appointing a proxy shall be valid after the expiration of twelve
months from the date of its execution.
A form of proxy is enclosed with this annual report, the completion of which will not preclude a shareowner from
attending and voting at the meeting in person to the exclusion of any proxy appointed.
By order of the board of directors
M E King
Chairman
26 June 2002
119
Brait Annual Report 2002
ADMINISTRATION
Registered office Registrar
Brait S.A. Dexia Banque Internationale à Luxembourg
69, route d’Esch 69, route d’Esch
L-2953, Luxembourg L-2953, Luxembourg
Tel: +352-4590-2180 Tel: +352-4590-2180
Fax: +352-4590-3641 Fax: +352-4590-3641
Brait South Africa Limited Transfer agents
9 Fricker Road United Kingdom
Illovo Boulevard Capita IRG plc
Illovo Bourne House
Sandton 34 Beckenham Road
Tel: +27-11-507-1000 Beckenham
Fax: +27-11-507-1001 Kent, BR3 4TU
United Kingdom
Domiciliary and listing agent Tel: +44-208-639-2000
Dexia Banque Internationale à Luxembourg Fax: +44-208-639-2342
69, route d’Esch
L-2953, Luxembourg South Africa
Tel: +352-4590-2180 Computershare Investor Services Limited
Fax: +352-4590-3641 11 Diagonal Street
Johannesburg, 2001
Independent auditors or
Deloitte & Touche SA PO Box 1053
3, route d’Arlon Johannesburg
L-8009 Strassen 2000
Luxembourg Tel: +27 11 370 5000
Tel: +352-45145-2417 Fax: +27 11 370 5487
Fax: +352-45145-2407
JSE and LSE issuer name and code
Legal advisors to the company Issuer long name – Brait S.A.
Elvinger, Hoss & Prussen Issuer code – BRAIT
2, Place Winston Churchill Instrument alpha code/ticker symbol – BAT
L-2014, Luxembourg JSE ISIN – LU 0011857645
Tel: +352-446-6440
Fax: +352-44-2255 Website: http://www.brait.com
SHAREOWNERS’ DIARY
Announcement of results 12 June 2002
Annual report issued End of June 2002
Annual general meeting 31 July 2002
Proposed final dividend – declaration 31 July 2002
– last date to register 23 August 2002
– payment 26 August 2002
Interim report early November 2002
Interim dividend – declaration and payment November 2002
Financial year-end 31 March 2003
120
Brait Annual Report 2002
PROXY FORM
Form of proxy for the annual general meeting of shareowners to be held at 69, route d’Esch, L-2953 Luxembourg on Wednesday,
31 July 2002 at 09:30.
A shareowner entitled to attend and vote at the annual general meeting is entitled to appoint a proxy, or proxies, to attend, speak and
vote thereat in his/her stead. A proxy need not also be a shareowner of the company.
Number of shares held by the shareowner/shareowners
I/We
of
being a shareowner/shareowners of the abovementioned company, hereby appoint:
or failing him/her
the chairman of the annual general meeting,
to whom he/she gives all powers to represent him/her at the said meeting, to take part in all deliberations and to vote in his/her name according
to the instructions set out below and to perform all acts necessary to give effect to the resolutions contained in the agenda as follows:
1. To receive and adopt the consolidated financial statements of the company and of the group for the year ended 31 March 2002,
and to receive and adopt the reports of the directors and of the auditors for the year then ended.
2. To ratify transfers to reserves.
3. To ratify and confirm the payment of an interim dividend for the six months ended 30 September 2001.
4. To approve the payment of the final dividend, as recommended by the directors.
5. To grant discharge to the directors, officers and statutory auditors in respect of the execution of their mandates for the year ended
31 March 2002.
6. To renew and confirm the limited authority of the directors to issue ordinary shares.
7. To renew and extend the authority of the company to repurchase its own shares until the conclusion of the next annual general
meeting of shareowners which will be held in July 2003.
8. To re-appoint the directors for a further term of office in accordance with the provisions of the company’s articles of incorporation.
9. To re-appoint Deloitte & Touche SA as statutory and independent auditors.
10. Miscellaneous.
Notes
1. In terms of article 17.3 of the company’s articles of incorporation, a shareowner may appoint a proxy who need not be a
shareowner of the company. Any corporation being a shareowner of the company may execute a form of proxy under the hand of
a duly authorised officer.
2. To be effective, the form of proxy, duly completed, must arrive at the registered office of the company or transfer office not less
than 48 hours before the time fixed for the meeting.
Signed at this day of 2002
Address
Signature
Shareowners should please indicate by writing the number of votes in the appropriate spaces below, as to how you wish their votes in
respect of the proposed resolutions to be cast. If you return this form duly signed, without any specific directions, the proxy shall be
entitled to vote as he/she thinks fit.
Number of Number of Number of
votes for votes against abstention votes
Resolution number 1
Resolution number 2
Resolution number 3
Resolution number 4
Resolution number 5
Resolution number 6
Resolution number 7
Resolution number 8
Resolution number 9
Resolution number 10
Brait Annual Report 2002
G R A P H I C O R 2 6 0 7 8
Brait South Africa Limited
Tel: +27-11-507-1000, Fax: +27-11-507-1001
www.brait.com
