Compared to the previous reporting period, the world economy improved in the markets in which our investee companies operate. In South Africa this improvement was also evident and was supported by the stable macroeconomic climate. However, the high real interest rates
and the strength of the rand still affect the ability of small and medium businesses to raise loan finance and to compete effectively against international competitors. The continued strength of the rand has forced local businesses to become more efficient, which, in the longer term, will be positive for South Africa.

Last year I commented on the uncertainties of the markets and the impact thereof on our strategies. We feel more optimistic about the markets in the near future and have adapted our strategy to take this into account. Investee companies are being encouraged to be more proactive and aggressive in their endeavours to grow their respective businesses.

During the year under review the investee companies performed according to our expectations. Details of each company’s performance is given later in this report. VenFin has made further investments in a number of investee companies, bought back more of its own shares and has made three new investments (FrontRange, GEMS and Milestone China) during the year under review. A total amount of R1.0 billion was invested in the repurchase of VenFin shares, R69 million in Idion Technologies, R38 million in FrontRange and $8.1 million in GEMS and Milestone China.

Subsequent to the year-end, VenFin and Alexander Forbes reached agreement on the early redemption of the £100 million bond issued by Alexander Forbes to VenFin and on the subscription by VenFin for 114.8 million new Alexander Forbes shares. VenFin currently has a 25% equity interest in Alexander Forbes. We are confident that the investment will add significant value to VenFin in the medium term.

The benefits of closer co-operation between investee companies are actively explored. We also encourage the leveraging of our relationships with companies in the Remgro and Richemont stables.

BEE
In South Africa there is increasing pressure on business to fast-track black economic empowerment (BEE) initiatives. We support the principles of the process and have shown our commitment to the process throughout our short existence as a listed company. Care should however be taken to ensure that we achieve the real objective, namely to empower our previously disadvantaged citizens economically. Equity ownership of businesses currently receives much more attention than other vital aspects of empowerment such as the creation
and development of small businesses. Neither should education and training be overlooked. Equity ownership without these elements will not achieve the objective.

Equity ownership targets are sometimes unrealistic. The vast majority of white South Africans do not own direct equity in companies at all. The significant shareholders of South African listed companies are pension and provident funds. Their members and beneficiaries are South Africans from all backgrounds.

The ever-increasing complexity of the regulatory environment works against BEE because small businesses do not have the resources to comply with requirements which even established businesses find cumbersome and costly.

Outlook
As already mentioned, we are more confident of the immediate future than we have been for some time. The fundamentals for growth are far better than they have been for the last few years. South African businesses that have adapted to the strong and stable rand and the low inflation environment should be able to use this to their advantage. Our deal flow remains strong and we will continue to focus on opportunities that have the potential to add significant value to our business.

Dividends and share repurchases
VenFin paid a maiden dividend of 25 cents per share in 2003. The VenFin Board has proposed an increase in the dividend of 30.0% to 32.5 cents per share. During the year under review VenFin has acquired a further 51.0 million of its own shares. In total 72.7 million shares, representing 16.2% of the issued ordinary shares of VenFin, have been bought back.

Acknowledgement
VenFin’s success is linked to the performance of its investments and we thank all the people in those businesses for their efforts and hard work. For their support and guidance, we thank our Board. To those shareholders that have remained committed and believe that we will deliver on our strategy, we express our appreciation. Lastly, to my colleagues at VenFin and M&I, I am proud to be your colleague.

Josua Malherbe
Chief Executive Officer