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Investor Presentation. 26 – 28 May 2008. Contents. Introduction and overview Then and now Investment approach Track record Shareholders Black Economic Empowerment. Directors Corporate governance Financial information Investment portfolio Investment review Prospects Questions.

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investor presentation

Investor Presentation

26 – 28 May 2008

contents
Contents
  • Introduction and overview
  • Then and now
  • Investment approach
  • Track record
  • Shareholders
  • Black Economic Empowerment
  • Directors
  • Corporate governance
  • Financial information
  • Investment portfolio
  • Investment review
  • Prospects
  • Questions
introduction and overview
Introduction and overview
  • Founded by Shaun Rai and others in 1998 and listed on the JSE in the same year
  • Black-controlled, managed and empowered diversified investment holding company with strong broad-based empowerment credentials
  • Listed under “Equity Investment Instruments” on the JSE
  • Sector investments to date include:
    • Property
    • Gaming and leisure
    • Security
    • Information and Communications Technologies (ICT)/Telecoms
    • Financial Services
then and now
Then and now

Future focus will shift to balance growth with cash flow

track record
Track record
  • The last five years has seen a massive pursuit of asset growth
  • Focus will now be on sustainable cash flows
  • Management have an excellent track record of achieving growth and creating value for its shareholders
  • Consistently highly rated by various industry surveys
track record continued
Market Cap (R’000)

NAV (R’000)

NAV per share (cents)

Total assets (R’000)

HEPS (cents)

EPS (cents)

Track record continued
investment approach
Investment approach
  • Focus on buying significant interests in or control of:
    • cash generative and/or undervalued businesses
    • with exceptional growth prospects
    • in attractive high-growth areas of the economy
    • that we know and understand
  • Aim for a constructive partnership with entrepreneurs / management
  • Utilises broad-based empowerment credentials, networks, business skills and intellectual capital to identify value investment opportunities and unlock value and cash flow over short to medium term
  • Match funding mechanisms with underlying cash flow profile of the investment
investment portfolio
Investment portfolio

Property

  • 23% of Ambit Properties Ltd and 22%-26% of Ambit Management
  • Services (Pty) Ltd
  • 25% in African Alliance Real Estate Investment Trust Ltd
  • 25% in African Alliance Management Services (Pty) Ltd
  • 41% interest in Lions Hill Development Company (Pty) Ltd
  • 51% in CII Hotel and Resorts Cape Town (Pty) Ltd
  • 20% in Rapiprop 159 (Pty) Ltd

Gaming and Leisure

  • Economic interest of 13 – 15% in Grand Parade Investments Ltd

Security

  • 24,4% in Command Holdings Ltd
  • 90% in Alexandra Security

Financial Services

  • 6% in Purple Capital Ltd
  • 25% in African Independent Horizons (Pty) Ltd / Summit Fund Solutions

Other

  • 42% in Dynamic Cables RSA Ltd
  • 100% in Sancino Litho (Pty) Ltd
shareholders
Shareholders*

Directors

Institutions**

Purple Capital

Other

21,7%***

20,9%

6,7%

50,7%

Cape Empowerment Trust Ltd

* Register as at 30 April 2008 inclusive of directors’ dealings to 21 May 2008

** Includes Stanlib, Sanlam, RMB, Eskom Pension Fund and others

*** Includes SSF’s and CFD’s

black economic empowerment
Black Economic Empowerment
  • Transformation is best achieved through growth, mutual development and skills transfer
  • Add value to investments by unlocking new markets and applying

sound investment and management principles and to ensure sustainable growth

  • Entrepreneurial approach

Philosophy:

  • CET externally rated as a level 1 contributor with a score of 135% and BEE ownership of 43% in November 2007
  • However, as a listed company with widely traded shares we recognise that ownership profiles may shift
  • Where a transaction requires >50% BEE ownership CET will lead an appropriate consortium and apply proprietary developed and proven deal structures
black economic empowerment continued
Black Economic Empowerment continued
  • Five out of nine directors are black
  • Majority of group employees are black
  • Seven broad-based community groups were founding shareholders:
    • Background
    • Changing ownership patterns
    • Initial 12% of issued share capital
    • Assisting students in need
    • R20 million investment
    • Number of students in scheme: 135
  • The group was not built on typical empowerment transactions
directors
Directors
  • Executive Directors

Shaun L Rai (47)GDA(UCT), CA(SA) – Executive Chairman*#

Jeremy de Villiers (34)B.Rek (cum laude), B.Compt (Hons), H.Dip(Tax), CA(SA) – Managing Director*+

Rorden J McGregor (39)B.Comm– Financial Director and Company Secretary*+

  • Non-Executive Directors
    • Theodore D Rai (49)MBChb(UCT) – Deputy Chairman*
    • Fezile C Calana (35)
    • Peter B Hesseling (40)B.Comm, LLB, HDip Tax*#
    • HaroonTokalia (57)B. Comm (Hons), B Compt, CA(SA), MBA (Wits)+
    • Omar Valley (56)MAdmin, BA (Hons) (Psych)#
    • Mark Barnes (52)

(refer to www.capemp.co.za for abbreviated CV’s)

* Member of Exco + Member of Audit Committee # Member of Remuneration Committee

corporate governance
Corporate governance
  • Comply with King II and JSE Listings Requirements
  • Key committees include
    • Audit Committee
    • Remuneration Committee
    • Executive Committee
  • Exco functions as investment committee subject to board review regarding strategic decisions
  • Managing Director appointed to strengthen the team
financial information highlights
Financial information – Highlights

Reviewed results for the 12 months ended 31 December 2007:

  • Total assets increased by 293% to R1,26 billion
  • 84% increase in NAV per share to 160,7 cents and 160% increase in NAV to R525,5 million
  • 67% increase in attributable profit to R143,1 million
  • 17% increase in EPS to 52,6 cents
  • 104% average compound growth in EPS over five years
  • Maiden dividend of 3 cents per share
  • Increased debt to partly fund growth in assets – e.g. R318 million borrowed to fund investment in Ambit Properties Ltd, of which R286 million is fixed at 11,13% for seven years, the balance is at prime -1%
financial information continued2
Property

Security

Gaming and Leisure

Financial Services

Other

Financial information continued

Profit before tax

Assets

Liabilities

investment review property
Investment review – Property
  • Ambit Properties Ltd (Ambit) and Ambit Management Services (Pty) Ltd (Ambit Manco)
    • Reversed the African Alliance portfolio into Ambit in 2007 – which unlocked value for CET of R92m at a cost of R4m
    • Ambit was identified as a strategic target being undervalued to its peers – this view reinforced by recent market reports
    • Own 23% (110 m linked units) in Ambit – valued at R418m (Dec 07)
    • Entitlement of 22% (with option to increase to 26% as well as scope for further participation) in Ambit Management Services (Pty) Ltd – conservatively valued at R35 million (Dec 07)
    • Expect real distribution growth at least in line with peers
    • Ambit has an aggressive growth strategy and low gearing of which 73% is fixed
investment review property continued
Investment review – Property continued
  • African Alliance Real Estate Investment Trust Ltd (AA REIT) and African Alliance Management Services (Pty) Ltd (AA Manco)
    • 25% founding shareholder in AA Reit, an unlisted black owned and controlled property loan stock company aggressively growing a portfolio of office, commercial and industrial properties
    • Focus on acquiring undervalued properties and unlocking value
    • Participate in selected developments
    • Exponential Return on Investment as no significant capital required to date
    • 25% shareholder in AA Manco, a black owned and controlled property management business also managing AA Reit
    • Other shareholders in AA Reit and AA Manco include Shaun Rai, Steve Phelps and Wayne Arendse
    • Investment in AA Reit and AA Manco valued at R50m (Dec ‘07)
investment review property continued1
Investment review – Property continued
  • Lions Hill Development Company (Pty) Ltd (Lions Hill)
    • 41% economic interest in Lions Hill, a planned R620 million exclusive residential development on the slopes of Lions Head in Cape Town in partnership with Nedbank Property
    • Expected completion in 2010
    • Valued at cost of loan account only – R7 million (Dec ’07)
    • Intrinsic value of investment (including loan account) >R25 million
    • Expected 2 -3 year investment cycle with exponential ROI as no significant capital at risk
    • CET surety limited to R11,7 million for the development finance
investment review property continued2
Investment review – Property continued
  • CII Hotel and Resorts Cape Town (Pty) Ltd (CII)
    • R200 million five star luxury hotel in Cape Town scheduled for completion in 2009
    • 51% interest in CII at a cost of R30 million (valued at cost Dec ’07)
    • Investment case based on an expected IRR of 26% increasing to >30% if expected incentives materialise
    • The first of a chain of hotels to be established and operated in SA by Coral International. Scope for further participation in this roll out
  • Rapiprop 159 (Pty) Ltd (Rapiprop)
    • Acquired 20% in Rapiprop for R10,7 million (valued at cost Dec ’07)
    • Agricultural property-based farming venture with Capespan
    • Acquired a number of distressed farms at below market values
    • Introduced modern farming practises and strong management
    • Intrinsic value estimated at >R20 million
investment review gaming leisure
Investment review – Gaming & Leisure

Grand Parade Investments Ltd (GPI)

  • Expect to have effective control over 17% – 20% and economic interest of 13% – 15% (pre the RAH transaction)
  • CET pursued control over GPI but was unsuccessful
  • GPI listing
  • Valued at R6,25 per GPI share at Dec ’07
  • Market valuations of gaming counters under pressure – GPI won’t escape this in the short term
  • However GPI is well positioned within the sector with exposure to some of the least mature gaming assets
  • Significant value has been extracted from this investment
  • Strong interest expressed in our stake - will only consider a disposal at the right price and the right time
investment review security
Investment review – Security
  • Acquired 24,4% interest in Command Holdings Ltd for R8,3 million – valued at R19,3 million (Dec ’07)
  • Increased our stake in Alexandra Security to 90% at a total cost of R6 million
  • Management owns 10%
  • Alexandra Security expected to generate in excess of R6 million free cash in 2008
  • Massive opportunities to create a large black-owned security and services group
  • Aggressive growth strategy - will be an area of focus over the next 24 months
investment review financial services
Investment review – Financial Services
  • Acquired 6% interest in Purple Capital for R17,5 million (valued at Dec ’07 at R24 million)
    • Invested in asset management, treasury, financial derivatives and micro-financing and administration
    • Recent events well publicised – however, we back management who is competent and financially very committed to the business
    • We like the asset and believe it can and will be fixed
  • Acquired 25% interest in African Independent Horizons (Pty) Ltd for R6,6 million (valued at cost in Dec ’07)
    • Implemented consulting function which consults to R12 billion of assets under management
  • Assets provide a reasonably priced entry point into financial services with good growth prospects
investment review other
Investment review – Other
  • Sancino Litho (Pty) Ltd (Mills Litho)
    • Acquired 100% of Mills Litho for R15 million as a consequence of our involvement with Sancino Projects, the single largest shareholder of GPI and a subsidiary of Cape Empowerment Trust
    • Profitable and cash generative (>R8 million free cash in 2008) business but non-core
    • May consider a disposal if the terms are attractive
  • Dynamic Cables RSA Ltd (Dynamic)
    • Listed subsidiary – performed in line with expectations
    • Our interest has been reduced to 42% as a result of share issues and a BEE transaction – attributable NAV R24,7 million (Dec ’07)
    • Current consideration - repositioning Dynamic as an independent BEE investment group focusing on an aggressive growth strategy of asset growth with leveraged and equity funding
prospects
Prospects
  • Bearish investment sentiment as a result of global volatility, credit crunch, growth and capacity constraints, rising input costs, rising inflation
  • Results in risks and assets being re-priced on a wide scale with asset valuations coming under pressure
  • We are not immune so short term growth will not be at the same level as the last five years
  • Seeing fantastic investment opportunities in undervalued assets exposed to high growth areas of the economy – which we will continue to pursue
  • Shift in focus from pure asset growth to growth balanced with sustainable free cash flows
then and now1
Then and now

Future focus will shift to balance growth with cash flow

the next five years
The next five years
  • Balance asset growth with sustainable cash flows
  • Focus on increasing cash earnings as opposed to mark-to-market gains
  • This should substantially improve dividend payouts
  • Three investment classes:
    • Offering attractive cash flows and growth prospects in the short term in sectors that we have expertise in
    • Strategic in nature that will ultimately be able to generate attractive cash flows and growth
    • Held-for-sale investments that will be monetised within 18 to 24 months and proceeds applied to reduce debt, fund new opportunities
the next five years continued
The next five years continued
  • Core focus will continue to include property, security and services
    • Property: Ambit will provide excellent cash flow and African Alliance Real Estate Investment Trust significant growth together with other value and development opportunities
    • Security and services: We have set ambitious growth targets
  • We will continue to expand the management team
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