Chief Executive Officer's statement

The Board identified a number of strategic imperatives which it recognised as opportunities to improve the Group’s competitive position.

The past BJM year has been defined by bold strategic action borne out in a transformational transaction.

In undertaking corporate action the Board carefully considered the impact to clients, staff, shareholders and the Company itself.

During the months of October and November BJM traded under cautionary as it negotiated a transaction which was contemplated to broaden the product range to our retail clients as well as add an international offering to the institutional client base. Unfortunately these negotiations became protracted, and the probability of success diminished. In light of this we considered it prudent to withdraw from the transaction. At about the same time BJM received an unsolicited and opportunistic interest from a competitor. In weighing up the merits, we did not believe that the proposed transaction would have necessarily benefited clients, staff or shareholders. I wish to thank the Board and senior staff who showed their mettle in defending the Company when the approach became hostile.

Notwithstanding this episode, we stayed true to our strategic path and I am pleased to report on its first material success. On 3 May 2010, the Group announced that it had concluded negotiations to sell BJM Securities to Renaissance Securities Holdings (SA) (Pty) Ltd, the local franchise of the emerging market bank. This fulfils two strategic goals, firstly it strengthens BJM Securities to compete with the global banks and secondly, it frees BJM Private Clients to pursue its asset management ambitions without fear of conflict. We are confident that both the clients and staff of BJM Securities will be better off and that shareholders saw full value for the business.

Operational performance

I am pleased to report that the business weathered the “great recession” by staying with its "bear market strategy". This entailed managing costs downwards to combat the revenue decline as a result of reduced market activity. It is incumbent upon me to express gratitude to our staff members whose maturity made this possible.

During the year the business experienced some senior management changes, including the CEO of BJM Securities, Corporate Finance and Finsettle Services. While such changes are often disruptive in the short term we are confident that the business can look forward to greater harmony and stability.

Results

Gross revenue decreased by 11,8% year-on-year, whereas costs were managed down by 8,7%. While this represents a squeeze in the pre-tax profit margin, management is comforted by the fact that costs were managed downwards without compromising the franchise's product and service set. Headline earnings per share declined by 44,4% to 24 cents per share. Net asset value decreased from 499 cents per share to 447 cents per share as a consequence of the appreciation of the Rand against the Pound Sterling and US Dollar.

Strategy intact

Following the anticipated sale of the South African institutional business to Renaissance Securities Holdings (SA) (Pty) Ltd, the Group's strategy is to forge ahead with the growth of BJM Private Clients by increasing its product offering to clients.

The future

With the anticipated sale of BJM Securities we expect earnings to be under pressure as the Group will have to manage down its infrastructural cost base to the requisite level for the rest of the businesses.

BJM Securities

Notwithstanding a recovery in equity markets, the turnover value on all exchanges fell for a second consecutive year. Consequently revenues declined in the South African institutional business.

The US and UK offices enjoyed improved fortunes, where revenues were up in their respective currencies. This was driven by management changes (in the UK) and the resumption of risk post the credit crisis.

Andile Mazwai
Chief Executive Officer

BJM Private Clients

Nature of business

BJM Private Clients offers complete financial services solutions to high net worth individuals, including:

• asset management: personal portfolio management, offshore and structured products, alternative investments, multi-managed funds and access to UK property investments;
• stockbroking as a licensed member of the JSE: in listed and unlisted equity securities, bonds, futures, contracts for difference, offshore securities trading and money broking;
• short-term insurance;
• wealth management: financial planning, trust and fiduciary services, retirement products and corporate cash management; and
• charitable giving.

Year in review

Severe recession at the beginning of the period had a major negative impact on markets and trading volumes. Uncertainties persist and a key theme for the year was risk management on behalf of ourselves, our clients and our partners.

Recovery in 2010 vindicated the strategic decision in 2008/2009 to maintain our long-term expansion plans rather than put growth on hold. As the year progressed we drew substantial benefit from increased business volumes across a broader product spectrum. Rather than step up the rate of growth across the business, we preferred to take a largely conservative approach in many areas, complemented by selective growth in others.

There were no additions to the branch network.

A significant milestone was the celebration of our 10th anniversary and a decade of sustained profitability.

In a joint venture with Cornerstone Asset Management we successfully launched the offshore property investment company, British Capital Property Investments, giving clients direct access to growth opportunities in the UK property market. Client response was pleasing.

Simultaneously, we finalised the acquisition of Quadro Executive Estate Planning, a Johannesburg fiduciary services company. The operation has been successfully rebranded as BJM Trust and integrated into our wealth business. Expansion into trust services is a major step in the growth of our franchise and substantiates the brand promise of complete financial services solutions supported by expert advice from highly qualified specialists in every discipline.

One new product was introduced – the Direct Offshore Equity Unit Trust – which has achieved inflows well above expectations.

All teams performed well, driving solid growth in our asset management, wealth and stockbroking businesses. Our position as an independent stockbroker was strengthened by the acquisition of our own JSE stockbroking licence.

Recent achievements include the integration of BJM Insurance Brokers since the time of its 2009 launch. The only constraint on growth was personnel as we refuse to compromise recruitment standards. BJM Insurance Brokers has been integrated into all branches except Durban.

Prospects

The sale of our sister company BJM Securities after the end of our financial year will contribute to greater focus and give further impetus to plans for strategic expansion by BJM Private Clients. The national economy has moved out of recession while investor confidence has improved, creating conditions that will foster judicious growth. Further expansion of our geographic footprint is envisaged. Efforts will also be stepped up to optimise the potential of existing businesses.

Our franchise now covers all significant areas of client need, creating opportunities for significant growth in business volumes as we alert clients to synergies and efficiencies. In 2011 we will also benefit from the full-year effect of the rollout of our short-term insurance and trust businesses.

We are fortunate to have an excellent team of people who bestow considerable competitive advantage on the business. This will be leveraged to the utmost in an aggressive quest for sustained market share gains by a more focused and considerably strengthened business.

Highlights

• Assets under administration rose to R35,5 billion – the highest level yet
• Revenue rose 7,3%, a pleasing result as many equity investors moved to the sidelines as the recession took hold
• Client numbers rose by 3% overall, but growth of 11,3% was achieved among wealth management clients, enhancing our annuity income
• Staff numbers rose by 10%
• Costs were well contained, rising 7,3% overall (below prevailing inflation). The cost base grew by 7,5% while staff costs moved 5,9% higher.

Finsettle Services

Nature of business

A licensed custody services provider of the JSE, Finsettle provides tailored solutions for our clients by intermediating, managing and advising on settlement and custody risk while providing administrative and settlement solutions for stockbrokers, asset managers, fund managers, hedge funds, corporates, individuals and other clients. Our judicious approach to settlement risk is evident, with constant focus on client and business risk. In a climate in which local and foreign stockbrokers and their clients face heightened risk and severe margin pressures, Finsettle adds considerable value through process efficiency and our ability to provide innovative settlement solutions. The business is positioned as a source of strategic advantage for its clients and the Group. The need for proven capacity to manage settlement risk at competitive rates continues, while Finsettle's clients benefit from significant recent investments in our technology and information infrastructure, systems, risk management and operational effectiveness.

Year in review

The last 18 months saw significant global developments and changes in capital and liquidity deployment and management. No less so in the local financial services industry. Banks and related institutions were impacted by Basel 2 and 3 and the changing interest rate environment. Liquidity premium levels since the end of 2008 have remained at elevated levels in South Africa, while international markets have seen improvements in the availability and pricing of funding.

Our total settlement volumes remained fairly constant as some of our stockbroker clients experienced reduced deal flow and a move to alternative structuring, while others experienced a recovery in the equity markets and resultant deal flow.

Internationally, but specifically in Europe and the USA, restrictions and regulatory controls were placed on short selling and securities borrowing activities. Most of these restrictions have now been lifted, but the suppressed levels of those activities have had an overflow into the local environment. South African industry data indicate a contraction of between 40% to 60% in securities lending and borrowing levels. Finsettle was impacted by this, albeit to a lesser extent.

In broad terms the market activity and values were lower due to continued risk aversion. Clients' assets under Finsettle's control and administration grew to R56 billion at the end of March 2010 (R41 billion at March 2009). The business continued to make a positive contribution to the Group.

Prospects

An exciting array of new advisory and service offerings is currently under development. In addition to managing our own capital requirements in a more structured manner, we also advise our clients on their regulatory and operational capital requirements. Management is positive about profitable growth prospects for the coming year and considers Finsettle to be an exciting contributor to the Group's future growth.

Highlights

Our extensive involvement and mutually beneficial relations with the JSE, STRATE and the CSDPs is both a nonnegotiable and a highlight for our team. We represent our clients and their interests on various industry forums, for example our CEO has been appointed to the JSE's Clearing and Settlement Advisory Committee, our involvement as a Business Partner to STRATE and our involvement in the South African Securities Lending Association.

BJM Corporate Finance

Nature of business

BJM Corporate Finance offers a comprehensive range of advisory services to corporate clients, including:

• mergers and acquisition services;
• regulatory and statutory advisory support (including independent expert opinions as demanded by the JSE's Listings Requirements and in terms of the Rules and Code of the Securities Regulation Panel on Takeovers and Mergers);
• capital raisings and corporate restructurings;
• secondary placements;
• listings; and
• JSE sponsor.

Year in review

As a result of the challenging economic environment our industry witnessed an overall decline in the level of corporate activity. Falling business volumes within our sector were particularly evident in the first half of the year.

In these circumstances BJM Corporate Finance did well to maintain the momentum that had built up in the previous period. Activities relating to new JSE listings showed a sharp drop and the emphasis shifted to capital raisings through rights offers – an area of strength for the Corporate Finance team. These opportunities were aggressively pursued and the business exceeded its growth targets.

BJM Corporate Finance currently also acts as JSE Sponsor to approximately 19 JSE main board listed companies.

Continuing success was achieved with the effort to maximise synergies with the Group’s Private Clients and Securities businesses. Providing added value in this way supports our industry positioning as a highly professional and proactive team able to deliver a complete range of solutions.

Staff numbers remained stable.

Prospects

Business confidence is slowly returning as the economy moves out of recession. As the year progressed, the number of enquiries across a wide range of services showed a marked increase. Indications are that deal flow will continue to improve and we are well positioned to benefit from improved industry prospects. We also expect to benefit from the forward momentum of the strengthened BJM Group in the wake of the Renaissance Capital transaction.

The BJM Corporate Finance model has proved itself. We establish strong relationships and aim to add value and exceed expectations. The advantage of dealing with such a focused, service-driven team is becoming increasingly evident and we anticipate another year of growth.

Highlights

• New account gains included work for several blue-chip clients, confirmation of our ability to compete with some of the country’s largest financial service groups
• Pleasing results were achieved with our strategy of growing revenue streams from existing clients by extending the range of advisory work undertaken on their behalf.