Report of the Chairman and Chief Executive Officer

Johann Rupert

VenFin was listed on the JSE on 26 September 2000 and will be “five years old” on
26 September 2005. During this five-year period, the world has faced many challenges and changes. The NASDAQ was trading at a level of 3 800 when VenFin listed, the 9/11 attacks on the World Trade Centre in New York were still in the future, the London underground was a safe place, Enron was a reputable company and oil was trading at $30 a barrel.

Today the NASDAQ is trading at 2 100, oil is trading at $65 a barrel and the executives of Enron are no longer free men. Just as the world has changed materially over the last five years, so has VenFin.

VenFin has been successful in meeting the challenges and changes of the past five years.
Its net asset value per share increased from R25.85 to R43.72, reflecting an annual average growth rate of 11.1%. The portfolio of investments also changed substantially. Although the investment in Vodacom still dominates, a number of the other investments are now making meaningful contributions to income, cash flow and net asset value. VenFin has become a major shareholder in both Dimension Data and Alexander Forbes, and also has a significant investment in e.tv, which is now a successful and profitable commercial television station.
The investments in Psitek, Tracker and FrontRange have all grown substantially in value.
In addition, VenFin has bought back nearly 20% of its own shares at a cost of R1.7 billion. Facilitated by the increase in cash generated by the investment in Vodacom, VenFin was able to start paying dividends in 2003, much earlier than anticipated at the time of the listing.

The success of VenFin’s investment strategies is evidenced in its ability to identify opportunities for value-adding investments. For instance, VenFin stood by its investment in e.tv while it was making losses and is now reaping the rewards. The same can be said for the investment in FrontRange, which illustrates the value that VenFin adds to its investments as the anchor shareholder. In a similar vein, Vodacom’s net profit in 2000 was R1 315 million, compared to R3 861 million for the year ended 31 March 2005. The total subscriber base in 2000 was just over three million and today it is over fifteen million.

The economic outlook for South Africa in 2005 is positive, supported by the robust bull run in the equity market that was fuelled by strong financial performances from the majority of listed companies. The outlook for 2006 remains optimistic, if slightly less rosy. A weaker rand, combined with a widening current account deficit, could put pressure on inflation. This in turn, could cause the SARB to tighten monetary policy in 2006.

Josua Malherbe

On the global front the major risks remain the US dollar and the oil price. The widening US current account deficit increases the possibility of a sharp exchange rate correction although recent trends do not support this likelihood. These uncertainties create a challenging operating environment for corporates, especially if a drop in the US dollar results in a marked sell-off in US securities. This would undoubtedly stem growth globally.

The last five years have also highlighted the fact that we operate in an uncertain environment, which requires businesses to adapt to changes in order to remain successful. For VenFin this means we do not take investment decisions that could put the whole company at risk. Even with stringent due diligence process and active participation in investments, two key elements of VenFin’s investment philosophy, risks can never be completely eliminated, and the investment mandate, inevitably, results in some write-offs. The challenge remains to find the right investments that will enable us to deliver superior growth over the medium to longer term.

Our investment strategy remains focused and we proactively look for opportunities that will make a meaningful difference to VenFin. We also seek to identify future growth areas to ensure that our shareholders are exposed to those areas at an early stage and therefore participate in the full benefits of the rapid growth phase.

FINANCIAL REVIEW

It is pleasing to report that VenFin ended the 2005 financial year with headline earnings per share of R1.90, an increase of 25% over the previous year.

As expected, the majority of the earnings growth was achieved on the back of another exceptional year of performance from Vodacom. The excellent performance from e.tv and Tracker also contributed to the increased earnings. These were offset by a reduction in corporate earnings due to lower cash balances, lower interest rates and tax charges on foreign income that had not been taxable in prior years.

In the year under review the Alexander Forbes bond was redeemed and we used the majority of the proceeds to subscribe for 114.8 million shares in Alexander Forbes, which makes us the largest single shareholder in the company with an effective 25% stake. Due to the timing of the redemption, and the fact that Alexander Forbes’s year-end is different to VenFin’s, the full effect of the earnings upliftment has not flowed through in this year’s earnings.

All our other investments performed according to expectations and it was gratifying to note that the losses at Intervid have decreased significantly from prior years.

OUTLOOK

VenFin continues to evaluate new investment opportunities on a regular basis, both locally and abroad. The focus remains on investments with the potential to make a meaningful contribution to VenFin. Our investment portfolio is evaluated continuously. If the prognosis for any investment changes and it becomes clear that it cannot make a meaningful contribution to VenFin in the long term, the investment is realised. VenFin’s competitive advantage is its access to capital resources both locally and internationally, as well as intellectual capital to evaluate investment opportunities. Well-defined investment criteria support all investment decisions and enhance the probability of success for the investments VenFin makes.

GOVERNANCE

VenFin has maintained and increased its awareness and focus on good corporate practices and governance, and strives to conduct all its affairs in accordance with generally accepted corporate governance standards. As a result of this increased focus, over the past few years, our service company, M&I, has invested in the creation of a risk management capability to service the wider group. VenFin and the group draw on the experience and competence of this service on a regular basis.

DIVIDENDS AND SHARE BUY-BACKS

VenFin’s cash flow has been very strong, with a greater-than-expected dividend payout from Vodacom in the past year. As a result, the Board has recommended increasing the dividend to 50.0 cents per share, an increase of 53.8%, as well as continuing with the share buy-back programme when opportunities arise in the market to add value to shareholders by acquiring VenFin shares at wider discounts.

ACKNOWLEDGEMENTS

We express our sincere gratitude to everybody who contributed to the performance of the group over the past year – the shareholders for their continued support, our fellow directors for their guidance and insights, the management teams in the various group companies and our colleagues at VenFin and M&I.

We are confident that VenFin is well positioned for continued success in the years ahead.


Johann Rupert	Josua Malherbe
Chairman	Chief Executive Officer