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RNS Number:6690H
Genbel South Africa Ld
30 July 2001
GENBEL
GENBEL SOUTH AFRICA LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1949/032379/06)
RESULTS for 12 months to 30 JUNE 2001
- Impact of future capital gains tax
- 10,4% of assets offshore
- Share buy-back continues
REVIEW
OVERVIEW OF PAST YEAR
The 2000/2001 financial year was a difficult period for those invested in the
financial markets, more exacting and volatile than the previous year which in
itself was challenging. The pending introduction of Capital Gains Tax (CGT)
added a further element of uncertainty for Genbel. Despite our efforts to the
contrary, the authorities have failed to recognise that taxing investment
trusts will expose shareholders to double CGT. This has caused the board to
reassess the long-term strategy of the company.
Genbel invests mostly in shares with exceptional long-term growth prospects.
The portfolio is weighted towards media, information technology (IT), banks
and financial shares and also has a large exposure to smaller companies.
Since August 1998 these types of investments have performed poorly relative to
the benchmark. The past year saw the continuation of that trend, with the IT
and media sectors suffering in line with the worldwide slump.
The board continues to believe that our investment orientation to growth
sectors will outperform the benchmark over the long term and has thus decided
to continue with this strategy.
Global equity markets had a tumultuous time during the period under review
with the international benchmark, the Morgan Stanley World Index, declining by
21%. During the same period, the South African market performed better with
the JSE All Share Index (ALSI) increasing 19,6% while the FINDI returned 0,7%.
The major difference in performance was the strength of the resources sector,
which returned 46% for the period.
Genbel's net asset value declined by 7,9% to 2 043 cents per share while its
benchmark, the FINDI, increased by 0,7%. Genbel's net asset value reached a
high for the year of 2 400 cents per share on 4 September 2000 and a low of 1
820 cents on 3 April 2001. Had the portfolio remained unchanged from the start
of the year, its value would have declined by R123 million. On the opening
portfolio greatest value was lost from our holdings in Dimension Data, Johnnic
Communications, Naspers and Datatec. Sales of Dimension Data, Johnnic
Communications and Moresport added the most value relative to the benchmark
during the past financial year.
The Genbel share price closed at 1 760 cents on 30 June 2001 and reflected a
discount of 13,9% to net asset value. It fluctuated between a high of 2 045
cents per share and a low of 1 450 cents per share over the period.
INVESTMENT RETURNS TO 30 JUNE 2001
1 year 3 year return per 5 year return per
return annum annum
% %
%
Genbel share price (4,9) (14,8) 5,0
Genbel net asset value (7,9) (11,3) 6,4
JSE Financial & Industrial 0,7 (1,8) 2,8
Index
OFFSHORE INVESTMENT STRATEGY
Genbel believes it is important for the company to diversify risk on a
geographical basis to reduce exposure to South Africa's weakening currency.
During the year, Genbel received approval from the South African Reserve Bank
to invest up to 15% of its assets offshore. We have appointed Gensec
International Asset Management as the multi-manager to manage our
international investments and on its recommendation, we have invested in the
Gensec Region Active Equity Fund. This fund measures itself against the Morgan
Stanley World Index and the negative return of 6,2% (in rand terms) achieved
since the investment was made, was in line with this benchmark.
Genbel did not pay any initial fees on this investment and there are no
termination fees. The management fee was 0,85% per annum from which the
underlying investment managers are remunerated.
In his budget speech in February 2001, the Minister of Finance announced an
end to asset swap arrangements and Genbel will not be able to make any further
offshore investments. The R79 million, which had been invested at that date,
has since depreciated to R74 million. The investment represented 10,4% of the
portfolio at 30 June 2001.
RESTRUCTURING
On 5 April 2001, Genbel announced that it had appointed advisors to recommend
future strategies for the company to the board. The advisors have presented
their recommendations to the board which have now been considered.
The apparent need for restructuring stems from the introduction of CGT and the
persistent discount to net asset value that the Genbel share price has been
trading at.
In terms of the legislation, Genbel will be liable for CGT on realised gains
on its portfolio and its shareholders will also be taxed on gains on their
investment in Genbel. Investment gains in unit trusts and certain other
investment vehicles will not be taxed in those vehicles and unit holders will
thus only be liable for CGT on their investment. This puts investors in Genbel
at a relative disadvantage.
The prospective tax inefficiency led the board to conclude that it is no
longer competitive from a tax point of view for Genbel to remain a
closed-ended investment trust. The board therefore decided that it would
reconsider the future of Genbel as an investment trust as soon as the
possibility of accomplishing the following on an acceptable basis can be
determined:
* realising Genbel's unlisted investments, including its interests in the
Gensec NSA Equity Fund, and Genbel Trading; and
* securing Genbel's release from its future commitments, which principally
relate to the Gensec NSA Equity Fund.
This task has been entrusted to Anton Botha, who has accepted the position as
interim managing director of the company from 1 July 2001. He will, in
carrying out this task, work closely with the company's advisors.
The board's aim, with any restructuring, is to deliver maximum value to
shareholders either through alternatives such as an offer to purchase the
company, the liquidation of the company or other appropriate action. The board
has been advised that in the event of liquidation no secondary tax on
companies will be payable.
SHARE BUY-BACKS
Since the share buy-back programme commenced in February 2000, Genbel has
purchased 10,2 million shares in the market, equivalent to 21,1% of the
company's issued shares as at the date of granting of the initial general
authority. During the current year, purchases of approximately 7,7 million
shares (15,8%) were effected at prices between 1 615 and 1 760 cents per
share, for a total consideration of R127,1 million. The average discount of
the share price to the net asset value for the repurchase programme was 20,7%.
We remain convinced that as long as there is a wide discount between the net
asset value and the share price, there is merit in Genbel buying back its
shares.
The company will therefore continue to buy back shares at a discount to net
asset value with the aim of enhancing liquidity and acquiring assets at a
discount. What it means is that Genbel's remaining shareholders are
effectively buying the Genbel portfolio at a discount. Shareholders will again
be requested to approve the buy-back of 20% of the issued shares at the
forthcoming annual general meeting.
DIVIDEND POLICY
In the past Genbel's policy was to make a distribution, which was in line with
the dividend yield of the ALSI. For the 1997 financial year, having made an
interim distribution and in anticipation of moving to a single dividend
distribution policy, Genbel made a final distribution for that year which was
much higher than the yield on the ALSI. For the four annual distributions
since then, including this year's, the directors have not considered it
appropriate to reduce the amount distributed per share. Hence the dividend
distribution this year will again result in a yield that is substantially
higher than that of Genbel's benchmark, the FINDI. The board of directors has
resolved to pay a cash dividend of 70 cents to the holders of ordinary shares
registered at the close of business on 24 August 2001. The dividend will be
paid on 4 October 2001.
GENBEL SHAREPLAN
At present, there are approximately 10 700 shareholders invested through the
Genbel SharePlan. This group of shareholders holds 10,7% of the company with
the number of shares held remaining fairly constant at around 4,7 million
shares.
During the course of the past year, the administration of the SharePlan was
transferred from Nedcor Investment Bank (NIB) to Tasc Administration
(Proprietary) Limited.
Given the current uncertainty regarding Genbel's long term future as a
tax-efficient investment savings vehicle, the board considers it appropriate
to advise shareholders who invest through the Genbel SharePlan to consider the
initial costs associated with this method of investment, before making further
investments through the SharePlan. SharePlan investors are also advised that
in terms of the rules of the SharePlan, the board would be obliged to suspend
or terminate the Plan should any proposal for a take-over or re-organisation
of Genbel be announced.
OUTLOOK
It is likely that financial markets will remain unsettled, especially in the
next quarter, as the weakening of global economies will lead to lower earnings
growth from international companies. As the effects of lower interest rates
start to filter through, we anticipate that international equity markets will
stabilise, and could even rerate, which would be positive for our market and
Genbel. With Genbel's future undecided at this stage and the financial markets
remaining volatile, it is difficult to predict with confidence where Genbel
will be in a year's time.
APPRECIATION
During the year, Rob May who has been a director of Genbel since 1985 retired
as Genbel's managing director. On behalf of Genbel shareholders I would like
to extend our thanks to him for his contributions in what have been
stimulating times for the company. We are pleased that we will continue to
have access to his experience and counsel as he has agreed to remain on as a
non-executive director of the company. As Genbel is facing possible
restructuring, the board decided it would not be appropriate to make a
permanent appointment of a managing director and we thank Anton Botha who has
taken on the responsibility of managing the company through this period of
transition.
I would like to take this opportunity to thank my fellow directors and all the
staff at Gensec for their contributions during this challenging period. I
think it is also fitting to thank our shareholders for their loyalty and
support. It has been a difficult period for all in the investment markets and
we appreciate your goodwill.
TL de Beer AD Botha
Chairman Managing Director
DIVIDEND
A final dividend No. 73 of 70 cents per ordinary share has been declared,
payable on or about 4 October 2001 to shareholders registered at the close of
business on 24 August 2001.
The dividend is payable in the currency of the Republic of South Africa.
Payment from the United Kingdom will be made in United Kingdom currency at a
rate of exchange ruling on 19 September 2001, or on the first day thereafter
on which a rate of exchange is available.
Johannesburg
30 July 2001
The annual report will be posted to shareholders shortly and the full text of
this report can be viewed at www.genbel.com.
Directors: T L de Beer (Chairman), A D Botha, J H Fouche, Dr D Konar,
R Masson, R W May, Dr K D K Mokhele, D K Smith.
Company secretary: M D Bosman.
BALANCE SHEETS
At 30 June 2001 2000
R million
ASSETS
Non-current assets
Investments available for sale 525 352
Current assets
Trading assets 267 417
Receivables and prepayments 11 39
Cash and cash equivalents 104 10
382 466
Total assets 907 818
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 108 218
Revaluation reserves 246 -
Retained earnings 450 388
804 606
Current liabilities
Trading liabilities 80 155
Current tax liabilities 11 -
Trade and other expenses 11 20
Money market liabilities 1 37
103 212
Total equity and liabilities 907 818
Net asset value (R million) 804 1 201
Net asset value per share (cents) 2 043 2 218
No of shares (000) 39 355 46 024
Opening balance (000) 48 487 46 868
Capitalisation award (000) 1 098 1 619
Treasury shares (000) (4 537) (2 463)
Shares cancelled (000) (5 693) -
JSE share price (cents per share) 1 760 1 850
Discount to net asset value (%) 14 17
JSE Financial and Industrial Index 10 951 10 878
CASH FLOW STATEMENTS
For the year ended 30 June 2001 2000
R million
Cash flow from operating activities 257 106
Cash flow from financing activities (163) (146)
Net increase/(decrease) in cash and cash equivalents 94 (40)
Cash and cash equivalents at beginning of year 10 50
Cash and cash equivalents at end of year 104 10
INCOME STATEMENTS
2001 2000
For the year ended 30 June
R million
INCOME
Dividend income 14 18
Interest received 3 1
Net investment gains 235 38
252 57
EXPENSES
Financing costs 1 9
Administration fee 2 3
Other expenses 8 6
11 18
PROFIT BEFORE TAXATION 241 39
Taxation 11 1
NET PROFIT 230 38
Weighted average number of shares in issue (000) 42 588 47 557
Earnings and headline earnings per share (cents) 540 80
Dividends per share (cents) 70 70
STATEMENTS OF CHANGES IN EQUITY
Share Treasury Revaluation Share Retained Total
capital shares reserve election earnings
and reserve
For the year ended 30 June premium
R million
Balance at 30 June 1999 246 30 350 626
Effect of adopting AC107 (30) 33 3
in relation to dividends
Restated balance at 30 246 - - - 383 629
June 1999
Dividends (33) (33)
Capitalisation award 22 22
Purchase of treasury (50) (50)
shares
Net profit 38 38
Balance at 30 June 2000 268 (50) - - 388 606
Effect of adopting AC133 551 (136) 415
Adjusted balance sheet at 268 (50) 551 - 252 1021
30 June 2000
Dividends (34) (34)
Dividends attributable to 2 2
treasury shares
Capitalisation award 17 17
Shares cancelled (93) (93)
Decrease in revaluation (305) (305)
reserve
Purchase of treasury (34) (34)
shares
Net profit 230 230
Balance at 30 June 2001 192 (84) 246 - 450 804
For information about Genbel South Africa or the SharePlan please contact:
Genbel SharePlan Helpdesk at 0800 00 49 35
Genbel South Africa Limited
3A Summit Road, Dunkeld West, Sandton 2196
PO Box 411420, Craighall 2024
Telephone: +27 (11) 778 6000 Facsimile: +27 (11) 778 6990
Toll-free numbers available within South Africa
Telephone: 0800 00 49 35 Facsimile: 0800 00 49 36
Internet address: www.genbel.com
E-mail address: moreinfo@genbel.com
Toll-free line for daily NAV estimates call 0800 11 56 50
London office:
Project Consultants Limited
Walnut House, Walnut Gardens, Claydon
Banbury, Oxon OX17 1NA, United Kingdom
Telephone: +44 (1295) 690180/1
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