Brait results show impact of stronger rand to pound

Cape Town - Investment company Brait [JSE:BAT] on Tuesday released its results for the financial year ended March 31 2017, showing the impact of the strengthening of the rand against the pound over the year.

Brait has a primary listing on the Euro MTF Market of the Luxembourg Stock Exchange and a secondary listing on the JSE.

Brait received proceeds of R603m from its investment portfolio during the 2017 financial year, comprising R281m from Premier and R322m from the other investments portfolio, which were mostly from DGB. This resulted in Brait generating positive operating cash flows for the 2017 financial year.

The group reported an audited net asset value (NAV) per share at March 31 2017 of R78.15. This is a decrease of 5.2% compared to the NAV per share of R82.45 on December 31 2016 and a decrease of 42.6% compared to the NAV per share of R136.27 on March 31 2016. According to the company it includes the adverse impact of the 20.5% strengthening of the rand against the pound over the year - from R21.21 to R16.87 at March 31 2017.

The three year compound annual growth rate (CAGR) for the reported NAV per share to March 31 2017 is 34.7% per year and including ordinary share dividends it is 35.7%.

"Expressed in Pound Sterling, on the basis that Brait is most invested in this currency, Brait's NAV per share at March 31 2017 is £4.63 compared to £6.43 at March 31 2016, a decrease of 27.9%. The three year Pound Sterling CAGR to March 31 2017 is 36.5% and including ordinary share dividends it is 37.2%," the company said in a statement.

Brait proposes an ordinary share bonus issue, or alternatively, cash dividend of R0.7815 per ordinary share.

Percentages quoted are based on operating expenses of R401m and fee income of R62m for the year ended March 31 2017.

Brait's average assets under management (AUM) for the financial year amounted to R63bn compared to R71bn for the previous financial year. This represents the group's average total assets of R59bn and average Brait IV invested capital under management of R4bn.

The bonus award and cash dividend alternative of the 2017 financial year are subject to shareholder approval at the upcoming annual general meeting. Shareholders electing the cash dividend alternative will this year have the choice to reinvest the cash dividend (net of any dividend withholding taxes that may apply) as a subscription for new shares.

Full details in this regard will be included in a circular and market announcement on or about June 30 2017.

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Virgin Active and other investments

As for key aspects from the group's investment portfolio, Virgin Active revenue and EBITDA measured in constant currency, for continuing operations, increased 6% and 13% respectively during the financial year compared to the previous financial year. Using actual exchange rates, revenue and EBITDA for continuing operations increased by 9% and 12% respectively. Virgin Active operates 46 clubs in the UK, 33 of which are in London.

On a continuing operations basis, 16 clubs were opened during the year, giving a total of 241 clubs at December 31 2016. Thirteen of these club openings were in South Africa, two in Thailand and one in Singapore.

As for Premier, its carrying value is R12.4bn, which represents 26% of Brait's total assets compared to 15% in the 2016 financial year. The baking division had a good performance given the competitive and promotional market. Three new bakeries in Potchefstroom (North West), Pinetown (KwaZulu Natal) and Fort Jackson (Eastern Cape) were commissioned during FY2017, which going forward will enable Premier to meet regional demand as well as cost and quality improvements.

In a first to market in South Africa, Blue Ribbon successfully launched "Sandwich Squares", a sandwich alternative product, in the Gauteng market during February 2017.

As for Iceland Foods, the group reported that the set of strategic initiatives with the aim of differentiating Iceland, changing consumer perceptions and restoring growth, bore fruit in the 2017 financial year, resulting in Iceland Foods being one of the UK's fastest-growing food retailers by year end.

EBITDA growth of 6.3% was driven mainly from growth in sales, while maintaining good control of operating costs, resulting in EBITDA margin of 5.7%. The Online business continues to achieve strong sales growth, leveraging the expertise in Home Delivery, which Iceland Foods has offered since 1996.

In February 2017, Iceland Foods was voted the top UK supermarket retailer for the second consecutive year in the "Which?" annual survey.

The group said Iceland Foods remains highly cash generative, closing the current financial year with an increased cash balance of £193.2m.

The group said the fiscal year 2017 has seen challenging market conditions for its New Look investment, with increasing levels of economic uncertainty and a retail environment now more competitive than ever. UK consumer confidence was impacted during the year by the referendum on Brexit and decision to leave the EU.

"This, compounded by a shift in consumer spending habits, deprioritising clothing purchases to focus on "experiences" has led to a disappointing sales performance. The promotion-led market in the UK and certain womenswear product challenges meant New Look had to discount more than planned," the group said in a statement.

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Group outlook

Virgin Active generated a strong financial performance in 2016 and remains focussed on its strategy of being the leading premium health operator in its chosen markets. The company continues to direct expansion investment in growth markets in Asia and Australia; invest in product innovation across all territories, and invest further in the digital customer journey.

Premier continues to execute on its strategy of brand building, producing consistent quality offerings and product innovation, as well as operational efficiencies. With the normalisation of maize sales volumes and margins expected to resume after the first quarter of 2018 financial year, together with the full year benefits of the 2017 financial year's investment in three new baking plants, Premier's core brands are well positioned to compete in their respective markets, according to the group.

As for Iceland Foods, the Food Warehouse store rollout continues, with 25 openings planned in the 2018 financial year. Based on the positive sales performance, this new Iceland Store concept will be rolled out to further parts of the UK, with 50 to 60 stores planned for the 2018 financial year, predominantly in London, as part of the ongoing programme of store refurbishment.

New Look's 2017 financial year has been a difficult year and conditions are expected to remain challenging through the 2018 financial year. Plans have been set accordingly to address the specific issues experienced in the 2017 financial year and improve business performance, while continuing to focus investment in its strategic diversification initiatives in China, Menswear and Multi-channel.

The group said it continues its focus on strategic value drivers. It sees significant value to be driven through the existing portfolio, which is where the key focus will be for the 2018 financial year.