Venfin 2004 Interim Report Comments


	INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2004 (UNAUDITED)

	Highlights \|Abridged Consolidated Balance Sheet \|Abridged Consolidated Statement of Changes in Equity \| Abridged Consolidated Cash Flow Statement \| Abridged Consolidated Income Statement \| Earnings Per Share \| Segmental Analysis – Headline Earnings \| Additional Information \| Comments \| Annexure A \| Annexure B \| Dividends \| Directors and Administration \| Downloads

COMMENTS

ACCOUNTING POLICIES

The interim results have been prepared in accordance with accounting statement AC 127 (Interim financial reporting), the Listings Requirements of the JSE Securities Exchange South Africa (JSE) and the South African Companies Act No. 61 of 1973, as amended.

The accounting policies used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 30 June 2004. As previously reported, VenFin adopted AC 140 (Business Combinations) with effect from 1 April 2004. In terms of the provisions of this accounting statement goodwill arising from a business combination for which the agreement date is on or after 31 March 2004, is not amortised but carried at cost less accumulated impairment losses.

As from 1 July 2004 all goodwill that originated prior to 1 April 2004, is also treated in accordance with AC 140.

PRIOR YEAR ADJUSTMENT

Consolidation of The VenFin Share Trust (the “trust”)

As recommended by the JSE, VenFin consolidated the trust on 30 June 2004. Comparative figures for the six months ended 31 December 2003 have been restated accordingly and the 8 369 605 (31 December 2003: 9 055 817) ordinary shares held in the trust for participants are accounted for as if they were treasury shares and are also deducted from the issued number of shares in determining the weighted number of shares. The cost price of the shares has been deducted from equity.

Restatement of comparative figures as a result of above-mentioned prior year adjustment:

	31 December 2003
Balance sheet	R million
Decrease in reserves	(151)
Decrease in investments – other	(151)

Income statement The effect of the prior year adjustment on the income statement is not material, therefore the comparative income statement has not been restated.
	Six months ended
Earnings per share	31 December 2003
Net profit as previously reported (R million)	121
Headline earnings as previously reported (R million)	372

Weighted number of shares in issue as previously reported	503 714 598
Restated weighted number of shares in issue	495 966 247
Basic earnings per share as previously reported (cents)	24.0
Headline earnings per share as previously reported (cents)	73.9
Restated basic earnings per share (cents)	24.4
Restated headline earnings per share (cents)	75.0

FINANCIAL REVIEW

The headline earnings for the six months to 31 December 2004 increased by 9.1% from R372 million to R406 million.

The headline earnings per share for the six months to 31 December 2004, however, increased by 21.7% from an adjusted 75.0 cents to 91.3 cents, reflecting the full effect of the shares repurchased during the second half of the previous financial year.

The increase in headline earnings is largely attributable to:

A 41.6% increase in equity accounted earnings from Vodacom, from R233 million to R330 million, due to steady growth in Vodacom’s interim earnings on the back of a higher subscriber base.
The increased contribution of Sabido (Pty) Limited (e.tv) to VenFin’s headline earnings, from R13 million for the six months to 31 December 2003 to R31 million for the six months to 31 December 2004.

Alexander Forbes Limited (Alexander Forbes)
Alexander Forbes effectively became an associated company at the beginning of September 2004 when VenFin acquired 25% of their issued shares. (Refer to “changes to investments” below)

VenFin has accounted this investment according to the equity method for one month, from 1 September to 30 September 2004, which date coincides with the end of the interim period of Alexander Forbes. Alexander Forbes is a listed company, and in order to comply with the JSE Listings Requirements on price sensitive information, VenFin can only account for financial information disclosed by Alexander Forbes which is also available to the general public, thus the decision to equity account to 30 September 2004.

The attributable earnings from Alexander Forbes for the reporting period thus consist of interest earned on the Bonds for two months to 31 August 2004 and equity accounted earnings from 1 September to 30 September 2004. This has negatively affected the level of increase in headline earnings for the six months to

31 December 2004. Therefore the contribution of the investment in Alexander Forbes to VenFin’s headline earnings per share is not comparable with the six-month period ended 31 December 2003.

Looking forward to 30 June 2005, VenFin will account for its 25% interest in Alexander Forbes according to the equity method from 1 September 2004 to

31 March 2005, the financial year-end of Alexander Forbes. For subsequent years VenFin will equity account its interest in Alexander Forbes over the period 1 April to 31 March of every year. VenFin’s interim results will therefore include the Alexander Forbes results for the period from 1 April to 30 September.

On the basis that the Alexander Forbes transaction had taken place on

1 April 2004 and not on 6 September 2004, VenFin would have equity accounted its 25% interest in Alexander Forbes for the six months from 1 April to

30 September 2004 compared to accounting for interest on the bond for one month and equity accounting the 25% interest for one month. This basis of accounting would be more comparable with the results of the corresponding six months ended 31 December 2003.

On this pro forma basis, Alexander Forbes’s contribution to VenFin’s headline earnings for the six months to 31 December 2004 would have amounted to R81 million instead of the R20 million which was actually included. Based on this pro forma formula, VenFin’s headline earnings per share would have been 105.1 cents – an increase of 40.1% when compared with earnings for the six months ended 31 December 2003 of 75.0 cents per share.

NET ASSET VALUE

The net asset value per share, at market value of listed investments and directors’ valuation of unlisted investments, at 31 December 2004 amounted to R38.81 compared to R28.80 per share at 30 June 2004. This represents an increase of 34.8%.

The following factors, or a combination of them, were taken into account in determining the directors’ valuations of the unlisted investments:

Market value and earnings yield of similar listed shares, discounted for limited tradeability of the unlisted shares
Growth potential and risk factors
Underlying net asset value
Profit history
Cash flow projections

IMPAIRMENT OF INVESTMENTS AND GOODWILL

Provision for impairment of investments and goodwill amounting to R61 million has been made, of which the most significant are the following:

An impairment provision amounting to R14 million has been made against the goodwill created on the investment in Intervid Limited to reflect the risks associated with this investment.
An impairment provision amounting to R36 million has been made against the carrying value of the investment in GenuOne Incorporated.

EXCHANGE RATE DIFFERENCES

Net negative exchange rate differences arising on the translation of the value of foreign entities to SA rand at 31 December 2004 amounted to R27 million (2003: R275 million) and were debited directly to reserves.

CHANGES TO INVESTMENTS

The most significant changes to VenFin’s investment portfolio for the six months ended 31 December 2004 were:

£100 million Alexander Forbes Exchangeable Bonds (the Bonds)

During the period under review, VenFin sold the Bonds to Alexander Forbes Limited (Alexander Forbes) for a cash payment of R1 159.5 million and £12.5 million. The R1 159.5 million was used to subscribe for 114.8 million Alexander Forbes shares.

A further 1.1 million Alexander Forbes shares were acquired in the open market for R12 million during September 2004. At 31 December 2004, VenFin’s effective interest in Alexander Forbes was 25.5%. The investment in Alexander Forbes is accounted for as an associated company.

Repurchase of VenFin shares

VenFin’s wholly-owned subsidiary, VenFin Securities (Pty) Limited, acquired a further 11.2 million VenFin ordinary shares at an average price of R21.11 per share for R236 million. At 31 December 2004, the number of shares in treasury was 36.2 million, or 8.1% of the issued ordinary shares of 1 cent each.

Since the repurchase programme started in the 2002 financial year, a total of 83.8 million ordinary shares (18.7% of the current issued ordinary shares of 1 cent each) were acquired at an average price of R19.23 per share.

		Intervid Limited (Intervid)
		VenFin acquired, through a scheme of arrangement in terms of section 311 of the Companies Act, 1973 (Act 61 of 1973), as amended, all the Intervid shares it did not already own for a cash consideration of R9 million and 99 458 VenFin shares. Intervid became a wholly-owned subsidiary and was delisted on 24 August 2004.

		SAIL Group Limited (SAIL)
		As previously reported, VenFin, as a member of a consortium, made an offer for the shares held by the minority shareholders of SAIL. This transaction was subsequently approved by the competition authorities. On 31 December 2004, this transaction was partly executed, whereby VenFin, on behalf of the consortium, acquired 172.9 million SAIL shares for a total consideration of R71 million. The transaction is in the process of being finalised. Following this transaction, VenFin’s effective interest in SAIL will be 36.5%.

		FrontRange Limited (FrontRange)
		VenFin invested a further R54 million in FrontRange. At 31 December 2004, VenFin’s effective interest in FrontRange was 17.9%.

		Dimension Data Holdings plc (Didata)
		RFS Finance Limited, a wholly-owned offshore subsidiary of VenFin, acquired 69.8 million Didata shares for a consideration of £ 24.3 million. At 31 December 2004, these shares represented a 5.2% interest in Didata.

		Milestone China Opportunities Fund I L.P. (Milestone China)
		VenFin invested a further $2 million in Milestone China. The total investment to date is $2.5 million, with a further $2.5 million committed.

		Cueincident (Pty) Limited (Cueincident)
		VenFin invested R12 million in Cueincident. Cueincident designs, installs, maintains and operates electronic facilities management systems, utilising surveillance technology. Customers include local government, state-owned enterprises and large corporates. At 31 December 2004, VenFin’s interest in Cueincident was 12.4%.

		Inala Technology Investments (Pty) Limited (Inala)
		VenFin disposed of its 33.5% interest in Inala for a consideration of R5 million. A capital surplus of R1 million was realised.

		Psitek (Pty) Limited (Psitek)
		VenFin sold 3.8% of its interest in Psitek to the Psitek share trust for R11 million. A capital surplus of R3 million was realised. At 31 December 2004, VenFin’s interest in Psitek was 28.2%.

*Since 31 December 2004*

		Didata
		VenFin acquired a further 24.2 million shares in Didata for £ 9.4 million. VenFin’s investment of 94.0 million shares represents 7.0% of Didata’s issued shares.

		GEMS Oriental and General Fund II (GEMS)
		During February 2005, VenFin invested a further $1.9 million in GEMS. The total investment to date amounts to $9.5 million.