REPORT OF THE BOARD OF DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2007
Dear Shareholder
The Board has pleasure in reporting on the activities and financial results of your group for the year under review.FINANCIAL PERIOD
VenFin was established on 1 January 2006, with the purchase of all the net assets of the former VenFin group except the 15% interest in Vodacom Group (Pty) Limited, for a total purchase consideration of R5 billion. Thus, the comparative period ended 30 June 2006 consists of six months and is not comparable with the 12-month period ended 30 June 2007.OPERATING ACTIVITIES
VenFin is an investment holding company. The group derives its income mainly from dividends and equity accounted income of associates in which VenFin invested, while interest is earned on cash resources.The investee companies’ operating activities are spread over a broad spectrum which include, but are not limited to telecommunication, technology and media interests. The biggest portion of the individual investments is in South Africa, but a substantial investment held abroad is the 18.2% equity interest in Dimension Data plc.
FINANCIAL REVIEW
Operating results
| Twelve months | Six months | |
| Year ended 30 June: | 2007 | 2006 |
| Normalised headline earnings * (R million) | 233 | 142 |
| Share of net profit of associates (R million) | 155 | 97 |
| Net interest income and other profit (R million) | 78 | 45 |
| – per share (cents) | 83.0 | 48.5 |
| – diluted (cents) | 81.5 | 48.5 |
| Headline earnings (R million) | 233 | 404 |
| – per share (cents) | 83.0 | 137.9 |
| – diluted (cents) | 81.5 | 136.9 |
| Earnings – net profit for the year (R million) | 617 | 240 |
| – per share (cents) | 219.5 | 81.9 |
| – diluted (cents) | 216.7 | 80.9 |
| Dividends ** | ||
| – ordinary – per share (cents) | 30.0 | 25.0 |
| – special – per share (cents) | 50.0 | 25.0 |
| * | In determining normalised headline earnings, the headline earnings is adjusted for non-recurring items. |
| ** | The ordinary and special dividends were declared after the year-end and were therefore not provided for in the annual financial statements. The Company has enough STC credits carried forward to cover such a dividend. The utilisation of these STC credits will, however, lead to the realisation of a deferred tax asset that will be charged to the income statement during the 2008 financial year. |
Details of the operating results are set out in more detail in the general report.
| 2007 | 2006 | |
| Composition of normalised headline earnings | R million | R million |
| Subsidiary companies | 78 | 45 |
| Profits | 84 | 57 |
| Losses | (6) | (12) |
| Associates | 155 | 97 |
| Profits | 166 | 99 |
| Losses | (11) | (2) |
| 233 | 142 |
INVESTMENTS
The most important changes in investments during the year under review were as follows:Tracker Investment Holdings (Pty) Limited (Tracker)
During May 2007 Tracker acquired 100% of Mobile Data (Pty) Limited, in terms of a share-for-share transaction, from Wesbank.VenFin subsequently acquired a further 3 831 Tracker shares for R60.5 million. On 30 June 2007, VenFin’s interest in Tracker was 31.0% (2006: 33.7%).
Idion Technology Holdings Limited (Idion)
On 20 November 2006, Idion made a capital distribution of R3.59 per share, following the disposal of their US subsidiary, Vision Solutions International Inc. VenFin’s share of the distribution amounted to R142.4 million. Subsequent to this distribution, Idion has been delisted and the voluntary winding up of the company has commenced.Sabido Investments (Pty) Limited (Sabido)
During the year under review, Sabido fully repaid its shareholder loan to VenFin. In addition, Sabido made a capital distribution to its shareholders of which VenFin’s share amounted to R65.9 million.Repurchase of VenFin shares
VenFin’s wholly owned subsidiary, VenFin Funding Corporation (Pty) Limited, acquired a further 17.3 million VenFin ordinary shares at an average price of R18.77 per share for a total cost of R325 million. On 30 June 2007, the number of shares in treasury was 21.1 million, or 8.2% of the issued ordinary shares of 1 cent each.Milestone China Opportunities Fund II LP (Milestone II)
VenFin has approved a US$25 million commitment to Milestone II, which is a second fund being raised by Milestone Capital Management Limited, a China-based fund manager. Milestone II will have an investment period of five years and a further five years to exit its investments. This new investment will give VenFin further exposure to the high-growth Chinese economy through a local fund manager with whom VenFin has established a good relationship since 2004. On 30 June 2007, Milestone II has already received US$240 million in capital commitments.VenFin’s actual investment inMilestone II amounted to US$1.3 million on 30 June 2007.
CDMTV Holding Company (CDMTV)
During March 2007, VenFin co-invested US$5 million in CDMTV, a China-based media company, with Milestone II as the lead investor.CDMTV supplies advertising space on digital mobile television channels to a captive viewing environment, e.g. LCD screens located principally in buses.
Kalahari Energy Limited (KE)
VenFin has made an investment of US$6 million in KE for a 9.8% shareholding. VenFin has the option to significantly increase its stake in this company on the achievement of certain milestones. KE, through its wholly owned subsidiary, Sekaname (Pty) Limited, owns leases for coal-bed methane (CBM) exploration in Botswana. CBM is essentially natural gas, which is a versatile energy resource.Mosmart Investments (Pty) Limited (Mosmart)
VenFin has committed approximately R85 million to invest in Mosmart in a phased investment strategy over the next year, ultimately resulting in a 20% shareholding. R19 million has been advanced to 30 June 2007.Mosmart is a South African company with two main activities:
- The cultivation of feedstock and the associated production of bio-diesel across Africa
- The production of an organic media for the absorption of pollutants in various applications
Trina Solar Limited (Trina Solar)
During June 2007, VenFin sold 14% of its direct shareholding in Trina Solar, as part of a follow-on offering by Trina Solar, at an effective price of US$43 per American Depositary Receipt (ADR) for a gross amount of US$1.3 million.On 30 June 2007, VenFin’s direct interest inT rina Solar was 0.7% (2006: 1.3%).
Fynbos Media (Pty) Limited (Fynbos Media)
During September 2006, VenFin invested R1 million, for a 20% interest, in Fynbos Media and a further R0.5 million in preference shares of the company.Fynbos Media is an early-stage Cape Town-based, black controlled, investment holding company. VenFin is involved on a strategic level with the aim to co-fund future investment opportunities.
During April 2007, VenFin invested R4 million to partially fund Fynbos Media’s investment in Phuthuma Nathi 2 (the empowerment vehicle of Naspers Limited with a 7.5% equity holding in MultiChoice Africa) amounting to R8 million.
Resource Energy BV (RE)
During the year under review, VenFin approved the establishment of RE with co-founding shareholders being Compagnie Industriali Riunite, from Italy, and TSB Sugar International.RE addresses renewable energy through the acquisition, development and integration of an international portfolio of biofuel production facilities, with its initial focus on the production of ethanol from sugar cane.
VenFin will initially own 22.5% of RE for an amount of approximately R7 million, with additional investments to be made on a project-by-project basis.
R0.8 million was advanced to 30 June 2007.
One Digital Media (Pty) Limited (ODM)
During June 2007, VenFin approved an investment of up to R52 million in ODM for a 35% interest, subject to the fulfilment of certain suspensive conditions.ODM aims to become a leading digital media network provider to brand owners and retailers, giving them the ability to flight dynamic content via broadcast or narrowcast to multiple environments or single LCD screens. This model therefore provides a platform for tactical local, regional or national marketing opportunities to brand owners.
R4 million was advanced by way of a bridge loan to 30 June 2007.
Subsequent to year-end
Alexander Forbes Limited (Alexander Forbes)
On 13 July 2007, Alexander Forbes announced that all conditions precedent in respect of the buyout transaction has been fulfilled. In terms of this transaction a consortium of private equity investors, led by Actis Africa Fund 2 LP, acquired the entire issued share capital of Alexander Forbes by way of a scheme of arrangement for a cash consideration of R17.33 per share.On 26 July 2007, VenFin received a cash consideration amounting to R2 008.5 million for its shareholding (115.9 million shares) in Alexander Forbes.
Britehouse Group (Britehouse)
VenFin invested R89 million in Britehouse. Dimension Data consolidated three of its investments into Britehouse and sold 30% to VenFin and 30% to a BEE consortium consisting of Convergence Partners and Safika Holdings.Britehouse comprises a 31% shareholding in Paracon Holdings Limited, a 57.6% shareholding in 3fifteen and a 75% shareholding in Pebbletree Consulting.
CDMTV Holding Company (CDMTV)
VenFin invested a further US$5 million in CDMTV. The total investment to date is US$10 million for an equity interest of 7.7%.CIV Fibre Network Solutions (Pty) Limited (CIV FNS)
During August 2007, VenFin committed R50 million to CIV FNS for an equity interest of 30%. CIV FNS is a start-up venture that has two subsidiaries, namely, Dark Fibre Africa (DFA) and Muvoni-Weltex Network Technologies (MWNT).- DFA will provide fibre-optic infrastructures, called Dark Fibre, to licensed telecommunications network operators and service providers.
- MWNT will provide the civil services to lay the fibre-optics using specialised trenching machines and equipment.
VenFin’s partner in Fibre Network is Community Investment Ventures (CIV), a majority black-owned investment holding company that is focused on the technology sector.
SHARE APPRECIATION RIGHT SCHEME
During the year under review the following share appreciation rights (SAR) were offered to participants (Refer note 11):| Offer | Number of | |
| price | SAR | |
| Grant date | (Rand) | offered |
| 31 July 2006 | 14.20 | 16 611 |
| 15 August 2006 | 14.71 | 6 132 |
| 6 September 2006 | 15.20 | 9 815 |
| 1 November 2006 | 17.30 | 2 339 |
| 34 897 |
The current position of the VenFin Equity Settled Share Appreciation Right Scheme is as follows:
| Average | Number of | |
| offer price | SAR | |
| (Rand) | offered | |
| Offered and accepted during previous financial year | 11.98 | 9 184 017 |
| Offered during current year | 14.78 | 34 897 |
| Resignations and other | (19 991) | |
| Total at 30 June 2007 | 11.99 | 9 198 923 |
– One-third after the third anniversary of the grant date
– Two-thirds after the fourth
– All after the fifth anniversary of the said date
PRINCIPAL SHAREHOLDERS
Business Venture Investments No 1040 (Pty) Limited, a wholly owned subsidiary of the Johann Rupert Trust, holds 19 435 438 of the issued ordinary shares of the Company and 17 753 176 of the issued B ordinary shares of the Company and is entitled to 33.3% of the total votes. Business Venture Investments No 1027 (Pty) Limited, a wholly owned subsidiary of the Hanneli Rupert Trust, holds 19 435 437 of the issued ordinary shares of the Company and 17 753 176 of the issued B ordinary shares of the Company and is entitled to 33.3% of the total votes.Analysis of the shareholders appears here.
SUBSIDIARY COMPANIES AND INVESTMENTS
Particulars of subsidiary companies, associates and other investments are disclosed in Annexures A and B.DIRECTORS
The names of the directors appear here.In terms of the provisions of the articles of association, Messrs G T Ferreira and J Malherbe retire from the Board. These directors are eligible and offer themselves for re-election.
DIRECTORS’ INTERESTS
At 30 June 2007 the aggregate of the direct and indirect interests of the directors in the issued share capital of the Company amounted to 12.7% (2006: 12.7%).An analysis of the directors’ interests in the issued share capital of the Company appears here.
DIRECTORS’ FEES
The Board recommends that directors’ fees for services rendered as directors during the past financial year be fixed at R745 000 (2006: R206 667).SECRETARY
Mrs M Lubbe is the company secretary and her address appears here.AUDITORS
PricewaterhouseCoopers Inc. will continue in office in accordance with section 270(2) of the Companies Act.ACQUISITION OF SHARES OF THE COMPANY
It is recommended that a general authority is granted to the Board for it to acquire, should circumstances warrant it, the Company’s own shares and to approve the acquisition of shares in the Company by any of its subsidiaries, subject to the provisions of the Companies Act (Act 61 of 1973), as amended.Special resolutions to this effect are incorporated in the notice of the annual general meeting that appears here.
DIVIDENDS
Dividend No 2
An ordinary dividend of 30 cents (2006: 25 cents) per share has been declared for the financial year ended 30 June 2007 in respect of both the ordinary shares of one cent each and the B ordinary shares of ten cents each.Special dividend
The Board is of the opinion that, subsequent to the cash proceeds received on the disposal of the investment in Alexander Forbes and after making provision for the payment of an ordinary dividend of 30 cents per share, as well as authorised and committed investment opportunities amounting to R1 146 million, the group will have surplus cash resources available. These surplus cash resources will be utilised by the group to continue its share repurchase programme and to pay a special dividend to its shareholders.A special dividend of 50 cents per share has been declared in respect of both the ordinary shares of one cent each and the B ordinary shares of ten cents each.
Payment
The ordinary and special dividends are payable to shareholders of the Company registered at the close of business on Friday, 12 October 2007.On payment date, Monday, 15 October 2007, if so mandated, dividends will either be transferred electronically to bank accounts, or alternatively, cheques will be posted.
APPROVAL
The annual financial statements have been approved by the Board.Signed on behalf of the Board of Directors.
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| Johann Rupert | Jannie Durand |
| Chairman | Chief Executive Officer |
Stellenbosch
5 September 2007