31/08/00: Annual Report for the Year Ended 31 August 2000

31/08/00: Annual Report for the year ended 31 August 2000

CORPCAPITAL LIMITED

"WE HAVE ONLY JUST BEGUN TO SCRATCH THE SURFACE OF WHAT IS POSSIBLE."

STEVE BALMER,

PRESIDENT OF MICROSOFT.

GROUP STRUCTURE AND OPERATING ACTIVITIES

FINANCIAL HIGHLIGHTS

12 months ended 31 August
%
2000 / 1999 / change

Income statement

Total income (R000) / 415 507 / 287 119 / 45
Profit before taxation (R000) / 242 109 / 172 721 / 40
Attributable profit (R000) / 133 401 / 100 615 / 33
Headline earnings per share (cents) / 20,6 / 16,1 / 28
Dividend per share (cents) / 2,8 / 2,5 / 12
Cost to income (%) / 29 / 27
Profit before taxation per employee (R000) / 2 576 / 2 399 / 7

Balance sheet

Total shareholders' equity (R000) / 940 409 / 774 755
Ordinary shareholders' equity (R000) / 576 677 / 461 213
ROE (Return on average ordinary
shareholders' equity) (%) / 26 / 24
Net tangible asset value per share (cents) / 87,2 / 72,8

Other

Number of employees / 94 / 72
Share price (cents) / 72 / 140

BOARD OF DIRECTORS

* NEIL LAZARUS (42),

* BENJI LIEBMANN (47),

* JEFF LIEBESMAN (48),

* MARTIN SACKS Managing Director (30),

* † ERROL GROLMAN Executive Chairman (50),

†  WIM TRENGOVE (51).

* Executive Director

† Audit Committee

 Remuneration Committee

"TALENT MAKES CAPITAL DANCE."

J RIDDERSTRALE AND K NORDSTROM,

Global Consultants and Authors of Funky Business.

OUR PEOPLE

Alec Grant, Althea Davids, Amanda Valle, Andrew Brooking, Andrew Jonker, Andrew Kinsey, Andre van Niekerk, Andrew Proctor, Angus Pringle, Ann Kruger, Anne Savage, Anthony Parsons, Ayanda Khumalo, Barry Kalkhoven, Benji Liebmann, Beryl Abrahams, Bill Bamber, Bradley Goodman, Brett Northrup, Bronwyn Bayvel, Carl Nicholson, Charlotte Postma, Clifford Reynolds, Colin Anderson, Colin Gottlieb, Craig Katz, Dalene Pietersen, Daryl Paynter, David Herr, David Leibowitz, David Butler, David Shorrock, Debbie Ruxton, Debra Zietsman, Diana Buys, Errol Grolman, Fergus Lee, Francois Fouche, Gary Itzikowitz, Gary Wild, Glenda Jones, Graeme van der Walt, Graham Croock, Hannah Stegmann, Howard Talpert, Jaco Uys, Jacob Motsoai, Jade Hamburger, Jeff Liebesman, Jerry de Bruin, Johan Testa, Jonathan Welham, Juliette Brown, Kerry Gottlieb, Kevin Joselowitz, Kim Kerr, Kingsley Maesela, Krushika Lalloobhai, Leon Sanderson, Leretia Steenkamp, Lesley Wainer, Leisel Friend, Loraine Navarro, Lorna Andrews, Marc Wainer, Marcelle Batista, Martin Sacks, Mavis Mchunu, Merilyn Kron, Michael Berman, Mike Honiball, Natalie Pestana, Neil Lazarus, Neil Phillips, Nicky Attenborough, Nicola White, Nicole Durell, Nilan Morar, Paul Dalla Torre, Peter Penhall, Peter Friedman, Raneetha Hiralal, Raymond Munitz, Rex Mphala, Richard Behr, Rick Natt, Ronel Judin, Rosemary Mdawu, Ruth Credo, Shane Kidd, Sharon Kotze, Shirley Hershowitz, Suzette Liebenberg, Tanya Gates, Temi Chidi Ofong, Trevor Bossert, Venetia Anthony, Walter Kunene, Warren Lawlor, Wayne Kaplan, WeIna Croucamp, Wim Trengove, Wolf Cesman, Zelda Pringle.

EXECUTIVE REVIEW

In its second year of operation, Corpcapital has again delivered pleasing results with strong earnings growth and the further development of a base for sustainable long–term growth.

Operating conditions during the year were difficult, particularly due to a fall in confidence in A2 financial institutions, volatile markets and the down–rating of small to mid–sized capitalisation shares.

Notwithstanding these factors, Corpcapital performed strongly, meeting all key financial and business targets. Profit before taxation of R242 million increased by 40%. Attributable profit grew by 33% to R133 million. Headline earnings per share of 20,6 cents increased by 28% from 16,1 cents. Annuity and predictable income sources comprised 47% of total income. Ordinary shareholders' equity increased to R577 million with total shareholders' equity of R940 million. Net tangible asset value per share increased to 87,2 cents. ROE increased from 24% to 26% with a cost to income ratio of 29%. Profit before taxation per employee was R2,6 million. A cash dividend of 2,8 cents per share was declared.

Growth has been entirely organic, driven by the recognition and exploitation of the group's core competencies.

APPOINTMENTS. The group management structure was enhanced by the appointment of Martin Sacks as Managing Director of Corpcapital and Barry Kalkhoven as Managing Director of Corpcapital Bank.

REVIEW. The areas of activity undertaken directly by Corpcapital comprise:

Proprietary Investments.

Corporate Finance & Transaction Support Services.

Private Equity Funds Management (since September 2000).

and through Corpcapital Bank:

Treasury & Structured Financial Products.

Property Asset Management & Finance.

Specialised Finance.

Proprietary investment activities continued to make a significant contribution to earnings despite soft local equity markets. The division focused on working its existing investments harder and taking advantage of select well–priced opportunities. The inherent quality and geographic and industry sector diversity of investments enabled the division to outperform its peers. Investments in the new economy and with global reach performed particularly well. Corpcapital continues to add value to its various investments where its

depth of business experience, strategic, operational, financial and corporate governance expertise contribute to superior sustained performance.

The newly established Corporate Finance division surpassed all reasonable expectations – both as to its financial contribution and its integration into all areas of group activity.

In September 2000 a Private Equity Funds Management division was launched with the objective of providing an accessible pool of capital to take advantage of the group's extensive deal flow, and enhance the predictability of income.

The pro–active direction of Corpcapital's interest in Corpcapital Bank remains a key commitment of management in order to extract optimum returns for all of the Banks stakeholders – particularly in view of the trying conditions under which the Bank, along with all other A2 rated banks, has operated during the past year.

The Treasury & Structured Financial Products division was particularly struck by the adverse market conditions. It nevertheless launched a number of innovative products into the market, many of these in collaboration with Corporate Finance.

Property Asset Management & Finance performed exceptionally well. Its successful listing on the JSE of Redefine Income Fund has altered the nature of the property investment industry, stimulating a wide interest in the sector.

The Specialised Finance division continued to develop its high margin specialised lending activities.

Growth in all areas has been entirely organic, driven by the application of the group's philosophies and operating cultures and through the strategic strengthening of Corpcapital's image and reputation in the market. A corporate advertising campaign, directed at gaining brand recognition for both Corpcapital and Corpcapital Bank, has been introduced with measurable success. The campaign has been extended to successful product–specific messages for Corpcapital Bank.

During the year the group concentrated significant effort on the successful development of key group support services, incorporating risk management, finance and administration, internal audit, information technology, human resources, e–development and marketing. This foundation forms the backbone of the group's future growth.

"WHERE DO GOOD NEW IDEAS COME FROM? 'THAT'S SIMPLE! FROM DIFFERENCES.

CREATIVITY COMES FROM UNLIKELY JUXTAPOSITIONS.

THE BEST WAY TO MAXIMISE DIFFERENCES IS TO MIX AGES, CULTURES AND DISCIPLINES."

NICHOLAS NEGROPONTE,

Co–founder and director of the MIT Media Laboratory.

A group–wide philosophy to employ the best people in every area of operation and to foster excellence and innovation continues to provide a competitive advantage. Corpcapital's operating imperatives include:

a commitment to agility, diversity and learning;

not to be encumbered by convention and hierarchy,

thereby building teams operating without bureaucracy but within the constraints of strict financial and quality controls.

The focus of the group's activities is on low volume, high intellectual input, premium–priced transactions. Risk and opportunity is managed through the integration of assets and liabilities, while value is added to all transactions through the application of experienced financial and business expertise.

Seamless integration between all group activities provides a platform for leveraging the skills base within the group and enables a culture of rapid reaction and quick decision–making – all of which add enormous value to the range and quality of investment activities, financial services and products offered to clients.

INTELLECTUAL CAPITAL. Cognisant of the invaluable role played by its people, the group continues to recruit and develop highly skilled and experienced people and teams. Good progress has been made in this regard.

The group's employment philosophy and remuneration structure, aimed at retaining its executives and their support personnel, is proving successful. There have been no losses at senior level and the group is considered a preferred employer in its sector.

BALANCE OF EARNINGS. In keeping with group strategy, the areas of activity and investments within Corpcapital are diversified to ensure that the aggregate income is balanced as to predictability, complexity, risk and reward – providing the platform for long–term above–average income growth.

RISK MANAGEMENT. The implementation of leading edge technology and systems has progressed the risk management function. The process is enhanced by forums to identify, understand, quantify, limit, price, accept, monitor and manage risk through research and debate.

PROSPECTS. Corpcapital is well positioned to offer flexible, integrated multi–disciplinary services in a creative business environment. Its investment strategies and services are appropriately diversified and subjected to strong financial and operational controls within strictly defined and monitored risk management parameters. We intend to continue delivering sustained real growth in earnings.

ACKNOWLEDGMENTS. Our thanks and appreciation go to our valued clients and business associates as well as to the directors, management and staff for their dedication, effort and commitment throughout this challenging but rewarding year.

OPERATIONAL REVIEW

PROPRIETARY INVESTMENTS. The Proprietary Investments division continues to concentrate its efforts on investments where it is able to add value through its general business experience, professional expertise, strategic vision, market knowledge and financial discipline. The division's current portfolio includes significant minority interests in both listed and unlisted entities – across a diverse range of industries operating locally and abroad.

The down–rating of small to mid–sized capitalisation shares impacted negatively on certain of the division's holdings. Nevertheless, the geographic and industry sector diversity of the division's investments enabled it to perform strongly.

Deal flow has remained buoyant, ranging from new economy venture capital opportunities through industry consolidations, rationalisations and value opportunities in listed companies to LBOs and MBOs. During the year the division's research capability was enhanced to ensure continued quality deal origination. In addition, the division concentrated on expanding and enhancing relationships with equity and debt capital providers.

Among the operating highlights of the year were:

Aqua Online – development of early stage and start–up private equity holdings, including successful third party capital raising, to successful listed global group.

Onelogix – conceptualisation together with premier industry management, sourcing and conversion of appropriate acquisitions, initial funding and listing.

Investments in venture capital Internet businesses.

Forza Limited – acquired minority stake and assisted with tightening of strategic focus, financial disciplines and acquisitions.

Netainment – further development of successful early stage venture capital investment into a leading international online gaming and leisure group.

Sale of the Securedata Trend Business to ERP.com

Corpcapital has emerged as a preferred investment partner. Our proven model of partnering outstanding entrepreneurs and blending their passion, enthusiasm, industry expertise and entrepreneurship with our business experience and our strategic, operational, financial and corporate governance expertise resulted in the further development of exciting groups in fast–growing industries. With corporate governance and profit warning crises reported virtually every day in the small cap sector, we sought to bring a discipline and focus to our investments that would enable them, notwithstanding extremely difficult trading conditions, to outperform their peers.

By way of example, Servest recently reported a 25% growth in headline earnings per share, Aqua Online results were 40% above its pre–listing forecast, and Forza met its forecasts.

Our unlisted investments have performed equally well. Infinex, our emerging financial services group, continued to grow strongly, fast becoming a major niche player in its sector.

Our selective forays into the new economy have been particularly exciting, with notable successes locally and internationally. We will continue to leverage our increasing experience and knowledge in this area.

Heading into our third year of operation, the focus for Corpcapital Investments is on continuing to add value where appropriate, seeking new opportunities and on creating liquidity events for our existing investments. We are constantly assessing our value add, and in line with our focus on liquidity events, will introduce other investment partners when appropriate.

Our services and experience are in high demand. We will continue to increase our capacity to service an ever increasing pool of businesses, entrepreneurs and investors, both private and institutional, who wish to partner us.

CORPORATE FINANCE. The Corporate Finance division has made excellent progress since its inception on 1 October 1999, characterised by steady deal flow and enhanced functional capabilities. The division has grown from 4 to 11 professionals, with revenue and profits exceeding budgets.

Reflecting the changing orientation of corporate finance transactions towards matters requiring high–level legal expertise, the division's operating capacity comprises senior personnel from the legal community who provide invaluable high–level structuring and transaction support. These skills have been married to the group's existing financial skills which have been expanded through the division's new appointments of professional financial personnel. Coupled with the group's business experience, the division is equipped to offer a one–stop facility which is efficient and cohesive.

Importantly, the broadened skills base caters for the growing requirements of governance, regulatory, statutory and other compliance needs which characterise the increasing sophistication of the South African economy. Corpcapital has successfully leveraged these skills by applying the seamless integration approach favoured by the group. The division has worked closely with other business units within the group to develop innovative products for the South African market – including the establishment of Stripco Limited (rated AAA), whose bonds are listed on the Bond Exchange of South Africa; and SATRIX 40, in collaboration with the Johannesburg Stock Exchange and Gensec, the first index tracking security listed on the JSE.

The concomitant growth in the division's reputation has resulted in a swing away from the greater proportion of corporate finance work being initiated by Corpcapital's investment banking division. There has been a pleasing increase in the volume and value of corporate finance work from external sources. The period under review witnessed the corporate finance division advising on:

Four JSE listings.

One unlisted public capital–raising exercise.

Numerous significant merger and acquisition transactions – locally, in the UK and Australia.

"THE SIGNIFICANT PROBLEMS WE FACE CANNOT BE SOLVED AT THE SAME LEVEL OF THINKING WE WERE AT WHEN WE CREATED THEM."

ALBERT EINSTEIN.

A focus on cross–border transactions has been particularly successful and will be pursued more aggressively in the future. The division is budgeting for substantial growth in income for the year ahead. A business model, which provides both sustained future growth in corporate finance and transaction support services, increased M&A activity, as well as the development of innovative financial products, is evolving in support of this ambition.

CORPCAPITAL BANK. Notwithstanding adverse conditions, Corpcapital Bank continued to perform strongly during the year under review.

TREASURY & STRUCTURED FINANCIAL PRODUCTS. The Treasury & Structured Financial Products division has been challenged by the prevailing investor reluctance to place deposits with A2 financial institutions. Attention has therefore been focused on developing innovative, alternative products, including Equity Linked Deposits, Stripco Limited and Equity Monetization, which have enjoyed increasing acceptance in the market. The division has also successfully launched "white label" structured products through joint ventures with product distributors.

The most significant of these products developed in the division is South Africa's first deposit product offering guaranteed capital, interest and participation in the JSE. Developed entirely in–house, the unique product is delivered by the Internet and has been well accepted since its launch in July 2000.

A limited part of the Bank's own capital continues to be allocated towards equity and related investment opportunities, in particular opportunities introduced and referred to the bank by Corpcapital and its associated companies.

PROPERTY ASSET MANAGEMENT & FINANCE. Corpcapital Bank's property asset management and finance division has made great strides, starting with the listing of the multi–faceted variable loan stock company Redefine Income Fund Limited. Redefine has been awarded a Fitch–IBCA investment grade A1+ rating.

Importantly, the non–traditional approach adopted by Redefine has altered the nature of the property investment industry, stimulating an uprating of the sector and improved performance of listed property investment instruments.

The Property Division consults to and structures property–related projects for several top 100 companies drawing on the extensive skills and innovation of its experienced management team.

SPECIALISED FINANCE. Specialised Finance continued to develop its high margin specialised lending activities, and launched a number of innovative products.

INCOME BALANCE

31 August / 31 August
Source of income / 2000 / % / 1999 / %
R000 / of total / R000 / of total
Treasury, margin and other annuity income / 132 815 / 32 / 171 133 / 60
Commissions and fees / 62 095 / 15 / 11 975 / 4
Investing income / 171 903 / 41 / 79 434 / 27
Trading and arbitrage profit / 48 694 / 12 / 24 577 / 9
Total income / 415 507 / 100 / 287 119 / 100