Brimstone Investment Corporation Limited (BRT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, shareholders and all stakeholders. Welcome to the financial results presentation of Brimstone Investment Corporation for the year-ended 31 December, 2024. In the year 2024, the business environment has remained challenging and volatile. Fortunately, our democracy has held firm and our national voting and registration has gone peacefully, and we now have a government of national unity, which seems to be working well. We always seem to be taking our democracy for granted, but we landed as a country has landed on a good place after our voting. At Brimstone, which was founded by Mustaq Brey and myself in 1995, listed in 1998, we have remained true to our founding statement of being profitable, empowering and having a positive social impact. We have also remained true to having a very broad-based black empowerment company. To this point, I must tell you, and I must commend our staff we have found that we had unclaimed dividends by our -- especially our community shareholders. We have located 578 of them out of the 837. You will remember when we founded Brimstone in 1995, we raised our first capital from our communities in Cape Town, Johannesburg and Durban. It was a community organization. And we have been fortunate since 1992 to go out and find those shareholders and give them their dividends, which they -- where they even forgot that they had shares. This was -- I made this point early because in the year 2022, that was well before the JSE even thought of trying to locate shareholders, missing shareholders and try and find a program to get their shares paid to it. There are billions tied up in companies. And we, as a business, generally got to make sure that we find those shareholders and pay them their dividends. That's why I am proud to say our philosophy is to be profitable, empowering and have a positive social impact. The business and economic environment for the year, as I said, was very challenging, persistent high level of unemployment is there. It's even more worrisome when we think about youth unemployment. South African consumer remains under pressure. The rand is volatile. High interest rate environment does not work well for business and for the ordinary citizen. And hopefully, this interest rate can start coming down as it has, but maybe just too little, and we need more of it. Our port, rail and road infrastructure is under pressure and the global geopolitical tensions and conflicts as we have seen play out in the U.S. over this -- in the White House, in fact, over this weekend pass has been extremely worrisome. The high crime rates in South Africa, it just remains unacceptably high. Added to this, there's also worries on water and sanitation infrastructure, which is under pressure. We now hear of a new Mafia operating called the water mafia is unacceptable. Government and the security forces have to do something about it. Climate change is impacting the oceans and the agri sectors. These are the sectors where most of our investment is in. Easing inflation during the latter part of the year has shown positive signs, electricity grid stability and reduced load shedding is commendable and the peaceful elections, as I've said earlier, and the result of GME, we are almost taking for granted. Our investment ethos in diversified businesses with multicurrency income streams, our long-term view that we have on our investments. As you can see, our first investment was Oceana in Brimstone. That is in 1995. We have added significant value there, and Mustaq is the Chairman of that company. Active participation in our investee companies is key to our success, unlike a number of other BEE companies. We are ESG conscious. We are conscious about the environment. We are conscious about our communities, our society. And even today, I have my Lead Independent, Leon Campher sitting in this presentation, and we are conscious about governance. We live it. We live love ESG. It's what we do. We can do ESG and still be profitable. Currently, we are concentrated in the food sector. And you will see some of our -- one of our subsidiaries has even gone -- one of our investee companies have even gone further into it. We don't invest in alcohol, tobacco, gambling, microlending, et cetera. It's worrisome that those industries, especially in gambling, where ZAR 1 trillion is spent on gambling by South Africans. It's destructive to families. It's destructive to people. We're not invested there. The group at 31st December, 2024, our food sector was Sea Harvest, Oceana Group and SeaVuna. In the financial services and property sectors, we have Aon Re, which operates throughout Africa. FPG Property Group, unlisted property group, which has got almost ZAR 10 billion worth of property. Then there's the FPG Investment, which is the holding company of FPG Property Fund, but it also has some other investments, particularly 2 food investments that it has, which I'm sure one of our people will talk about a bit more later. Our restricted BEE shares is multichoice Phuthuma Nathi, which we've reduced our stake in and there's MTN. The Healthcare sector, Obsidian is doing fairly well. And then there's the other investments that we have in the South African Enterprise fund. Those are our investments. I must say that FPG has invested in an ice cream producer, which is doing exceptionally well called Polar Ice Cream. The group and associate brands, the star brand is obviously the one with the yellow on there is Lucky Star, the most recognized brand in Southern Africa for sure. Sea Harvest is also a significant brand, and they have recently acquired the #2 -- canned brand pelagic, which is Saldanha. Lucky Star remains by far the #1. FPG Property Fund, as I have said, is a ZAR 10 billion fund. Their group is the Oceana investment, I don't know if it's now called the Gulf of Mexico or the Gulf of America, but it's depending on how one views it, but they are an American-based company and significant supply of fish oil and fish meal into America. Ladismith Cheese is from the town of Ladismith, one of the biggest employees there. And then there is Mooivallei as well. FPG Polar Ice cream, as you say, has been acquired by FPG Investments. The Desert Diamond Fishing, particularly -- it's an extremely well-known brand in Africa for horse mackerel. DStv we all know . Selecta is sea products is a product of Sea Harvest in the food service areas. Those are some of our group and associate brands. We also have other brands. Can we get to the next slide? Some of the products from the group. As we've seen the Lucky Star, The Taste of Home. You must remember, ladies and gentlemen, this tin fish sells so well into our communities because some of them don't have refrigeration and things like that. And these 2 brands, Lucky Star being the #1 brand and Saldanha being the #2 brand are doing exceptionally well. Lucky Star sardines, Lucky Star corned meat, you now found that Lucky Star has diversified its food offering in the tins. Polar makes the Maxi ice cream, most delicious. Polar Sandwich is there. And then Sea Harvest, fish cakes, fish pops and then Ladismith Cheese and the egg fillets, which we are -- which Sea Harvest is also very well known for. The contribution that these products and brands and companies have done contribution to our intrinsic gross asset value. Our core has ZAR 4.194 billion is our co-investments made up of Oceana, ZAR 2.2 billion; Sea Harvest ZAR 1.3 billion, FPG Investments and FPG Properties, which are 2 different companies. The one is the holding company of the other. But FPG Investments has more diversified investment in the food sector. It also has 52 chicken chain investments in the 52 outlets, which is significant, both in South Africa and in the U.K. The properties are also both in South Africa and in the UK and so is the investments in the chicken chains. Aon Re, a reinsurance broker that operates throughout Sub-Saharan Africa and then -- which is ZAR 87 million. Obsidian Health, we valued about ZAR 75 million. Our non-core is ZAR 185 million, and our cash center is ZAR 91 million, which makes a total of ZAR 4.4 billion. The salient features for the year to 31 December 2024. Our headline earnings per share was 51%, up to ZAR 1.08. In 2023, it was ZAR 0.716. Our dividend declared was unchanged of ZAR 0.40 per share. We very importantly, repaid ZAR 516 million repaid to our funders. This is important because we heard our shareholders say, repay debt, repurchase your shares. We heard you. It's what we did. So subsequent to year-end, we bought and repurchased an additional 861,000 shares for ZAR 4.3 million. That is over and above the shares that we've bought during the year. The deconsolidation of Sea Harvest. You will remember that Sea Harvest bought the fishing operations of Terrasan Holdings. It bought the West Point operation, which owns Saldanha, the Saldanha canning brand, and it bought Aqunion and Marifeed. Aqunion is abalone operation, which we have now merged with the Viking Aquaculture. And Aqunion is our aquaculture at Sea Harvest. On that acquisition, it was paid -- the acquisition of Terrasan was paid with part cash and part shares. It was paid with 60 million Sea Harvest shares to Terrasan. We did not sell any shares. We still hold the same amount of shares of about ZAR 159 million, but we did go down from being 54% shareholder to about 44% shareholder. It deconsolidated -- we deconsolidated Sea Harvest and we deconsolidated their debt. But on that deconsolidation, we had a net loss on deemed disposal of ZAR 562.1 million. Geoff Fortuin will explain that in more detail if needs be. But for now, I hand over to Nisaar.

Well, thank you, Chair. I'll be talking through the underlying investment performance of the group. And first up, it's the Oceana Group. And as the Chair alluded earlier, we've been invested here for 30 years, so a momentous time for Brimstone this year. At the moment, Oceana accounts for 49% of Brimstone's intrinsic gross asset value. We hold just on 32.7 million shares. And at December -- end of December, it had a market value of ZAR 2.2 billion, slightly down from ZAR 2.3 billion in the prior year. We recorded equity accounted earnings to the September 2024 period of ZAR 299 million. And in the prior year, you noticed the ZAR 366.4 million, much higher than the current year, but that is explained by ZAR 103 million, which is Brimstone share of profit of the ZAR 387 million realized by Oceana on the disposal of the CCS investment. Then during the year, we received cash dividends of ZAR 162 million, and that is up from ZAR 142.4 million in the prior year. And the closing price on Oceana at year-end was ZAR 67.4 down from ZAR 70.67 in the prior year. And the latest closing price as of last night was ZAR 58.70, and shareholders would have seen the trading statement, which Oceana released just last week. Moving on to Sea Harvest. Sea Harvest currently accounts for 30% of Brimstone's intrinsic gross asset value. And as the Chair said earlier, there was the conclusion of the Terrasan acquisition during the year where Sea Harvest acquired some of the subsidiaries of Terrasan and that resulted in the issue of 60 million new Sea Harvest shares to Terrasan as part of the purchase consideration. And as a result of Sea Harvest is no longer a subsidiary of Brimstone. This loss of control resulted in an accounting loss of ZAR 562 million, which Geoff will explain in some more detail later. Importantly, the number of shares which we hold in Sea Harvest is unchanged. We still hold just on 160 million shares in Sea Harvest. And since the effective date of the transaction, the Terrasan transaction, Sea Harvest has since become an associate and Brimstone recognized ZAR 111.4 million as its share of profits of the associate. The closing price at year-end was ZAR 8.35, down from ZAR 9.45 in the prior year. And last night's closing price was ZAR 6.50, and you would have noticed also that Sea Harvest released their results earlier this morning. FPG Property Fund is a Cape-based black-owned and managed unlisted property fund with a property portfolio independently valued in excess of ZAR 10 billion. Importantly, this portfolio is valued on a 3-year rotational basis by an independent expert. Currently, they own about 58 investment properties, which are located in both South Africa and the U.K. and that includes about 38 retail convenience shopping centers in South Africa and 15 properties in the U.K. This investment in the last year was revalued upwards by ZAR 77.8 million to ZAR 440 million at the year-end, and we received a dividend of ZAR 5.3 million from the FPG Property Fund, up from ZAR 4.3 million in the prior year. FPG Investments. This was a recent acquisition for Brimstone. In September 2024, we acquired 1.6 million shares there. That's about 1.4% of FPG Investments, and that was done at a price of ZAR 50 million. FPG Investments, as mentioned earlier, is the holding company of FPG Property Fund. It owns 86.4% of the fund and its other interest include franchise fast food retail outlets and a very popular ice cream manufacturing business. We booked a dividend of ZAR 0.4 million post the acquisition last year. Obsidian Health, our only subsidiary at the moment, where we own 70%. It's a leading supplier of innovative healthcare solutions and products to both the public and private sectors. They showed a really strong revenue growth of 29% last year and EBITDA growth of 63%, which was mainly driven by the new agency, which they acquired, which is called Biosciences Diagnostics. And this amongst other very popular agencies, which they hold, including Ansell, Abbott Point of Care, Becton Dickinson, [indiscernible]. Profitability was very positively impacted last year by margin improvement across the board and also tight cost management. And they contributed ZAR 13.8 million to group profit after tax for the year. That's beautifully up from ZAR 3.7 million in the prior year. And we received a dividend of ZAR 3.5 million from Obsidian during the year. Aon Re, a reinsurance business operating across Sub-Saharan Africa. We have an 18% effective shareholding. We accounted for earnings there of ZAR 21.3 million during the period, slightly down from ZAR 22.5 million in the prior year. And the intrinsic gross asset value of Aon Re in our books at the end of December was ZAR 87 million, up from ZAR 78 million in the prior year, and we received a dividend of ZAR 24.3 million during the year. Phuthuma Nathi, we've held this for quite a while. We currently hold just on 1.3%. Its closing share price at the end of December was ZAR 81.01, down from ZAR 93 in the prior year. And we disposed of 1 million Phuthuma Nathi shares during the year for just on ZAR 100 million. The resulting -- the remaining Phuthuma Nathi shares, of which there are about ZAR 895,000 was revalued downwards by ZAR 10.7 million to ZAR 72.45 million at year-end. And Brimstone received a dividend of ZAR 18.2 million during the year, which was down, but partly due to the disposal. And the latest share prices, share prices came back quite well at ZAR 94 last night. SAED, which is the South African Enterprise Development, a fund which provides high equity growth capital to high potential small and medium-sized enterprises. Two of its major holdings are the ASG Group, which distributes and sells very high-end cycling gear and equipment and Decision Inc., a business involved in data analytics. SAED contributed about just on ZAR 0.2 million in equity accounted earnings, down from ZAR 8.7 million in the prior year. And Brimstone accrued a dividend of ZAR 3.5 million from SAED, up from ZAR 1.6 million in the prior year. I'll now move on to Geoff Fortuin, who will speak in detail about the financial results. Thank you.

Great. Thank you, Nisaar. Good afternoon, everyone. I think before I get into the numbers and especially the group income statement, I just want to preface the presentation by saying that comparability in a year where Sea Harvest goes from a subsidiary to an associate and then comparing it to the prior year makes comparability really difficult. But this presentation is aimed at achieved at comparing as much as we can and where we actually can't and sometimes you're going to have to go do some more work. We've got all the disclosure lined up in the results announcement. So just getting into the numbers. I've also included a separate slide on Sea Harvest to indicate exactly which numbers and on which lines they were included this financial year compared to the prior year. And I'm sure that will help. So in terms of revenue, it's down 66% compared to the prior year, and that is mainly because of us accounting for Sea Harvest as a subsidiary for 4 months of the year. And for 8 months, we accounted for them as an associate. And so for those 8 months, they're coming through share of profits of associates as opposed to each individual line item like when you're consolidating. Notably, Obsidian increased by ZAR 72 million -- its revenue increased by ZAR 72 million. That's an increase of 29% and long may that last. Nisa shared a slide with their performance this year. So that's been a good movement on behalf of Obsidian Health, and you'll see what happened with Sea Harvest in the next slide. In terms of dividends, don't be alarmed by it. It did decrease by 54% year-on-year in terms of what we can recognize in the income statement, but there's a detailed slide where I'll take you through dividends actually received and what our bank account. Operating profit decreased by 86% once again, Sea Harvest, I'm sure that the next slide will explain that. And fair value losses last year decreased significantly. In fact, we've got ZAR 155 million in gains on fair value gains line this year, and I've got a slide explaining that, too. Other investment gains -- in the prior year, Sea Harvest was included. We included a ZAR 93 million gain from purchased loans. In the current year, ZAR 73 million gain was included there as the profit that Brimstone made on the sale of Milpark. Then the big for this year, and that is the net loss on deemed disposal of subsidiary when we disposed of Sea Harvest, a deemed disposal. Essentially, how this works is that we sold a subsidiary and we bought an associate. And the loss that we made comprises 3 components. They're all in Note 10. You can have a look, see there. But essentially, the actual loss is in excess of ZAR 300 million. Add to that the remeasurement loss when you revalue up to fair value and you get a loss of ZAR 645 million. That's offset by a release of the other comprehensive income of ZAR 83 million, and you get down to a net ZAR 562.1 million loss -- net loss on team disposal of subsidiary. Then in terms of share of profits of associates and JVs, looks rather flat, somewhat misleading, but the detailed slide talks to that as well. Finance cost net is down 40%. I've got a slide as well to explain that and why it moved so much. That's a combination, obviously, of Brimstone settling debt and Sea Harvest being included only for 4 months as a subsidiary. The tax expense has got a horrific percentage in it, but that's as a result of the net loss on deemed disposal of subsidiary not being tax deductible. In addition, Brimstone's conservative nature, we've limited the tax losses that we're able to recognize through deferred tax. So we haven't raised assets that we consider to be iffy, and that is what causes a rate reconciling item. Attributable profits is down about 169% year-on-year and which is essentially earnings for EPS purposes and EPS is down by 170% simply because of the net loss on deemed disposal of subsidiary, which we back out to get to our HEPS. And that's why you'll see a loss per share of only ZAR 2.50 on the EPS line and HEPS, we've got a gain or a positive HEPS of ZAR 1.08. That's an increase of 51%. Moving on to the promise of the slide. As you can see that we've only included 4 months. In 2024, operating profit, obviously limited. So that's not directly comparable. What is comparable, however, is the profit for the year. Compared to last year, there's been a decrease of 64%. Attributable profit last year was ZAR 162.7 million and this year, ZAR 98 million, a decrease of 40%. If we move on to the analysis and reconciliation of dividends, sorry, it's a bit busy, but it will be shorter going forward. Sea Harvest, we received an increased dividend of ZAR 64 million compared to ZAR 61 million in '23. Obsidian, we received ZAR 3.5 million compared to no dividend in 2023. And from OGL, Oceana, we received ZAR 162 million dividend versus ZAR 142 million in the prior year. We received reduced dividends on Phuthuma Nathi and Equitas, as explained by Nisa earlier. That's because we sold both -- no, no. We sold ZAR 1 million of Phuthuma Nathi shares. So we've got a reduced dividend, and we sold all of Equitas during the year. So our total dividends received this year versus last year is ZAR 280 million versus ZAR 290 million. And then we back out all kinds of accounting adjustments, we eliminate subsidiaries, we reallocate associates, and that is where Sea Harvest will go next year because we received that dividend from Sea Harvest and it was still a subsidiary. So the bottom line number agrees to the income statement. Analyzing the fair value movements. These are movements. These aren't -- this is what comes through the income statement. The biggest movement was ZAR 78 million of FPG Properties, upward fair value movement, and Nisa mentioned how those properties are valued, but they're externally valued 1/3 every year, in fact, this year, I think 40% was valued externally. Then the next big item is the financial liability, what we call a financial liability with contingent settlement provisions, and that relates to the lion sale. We sold lion in 2021, and we had a liability at that time of about ZAR 100 million. Due to some real hard work, that liability has reduced in our view, and the fair value in this number to about ZAR 40 million. So we've released ZAR 60 million. That is in excess of a small negative net asset value that, that sale has, but we're also estimating some OpEx for 2 years. We don't know when it's exactly going to end, but that is how we've estimated it conservatively, but we then released about ZAR 60 million. STADIO, we sold in its entirety, so all of that ZAR 29 million or just on ZAR 30 million is realized. Equita is small, Phuthuma Nathi has 2 components we realized because we sold a portion, and we wrote down at or revalued at year-end by ZAR 10.8 million. Food is the same thing. So in total, we have gains of ZAR 159 million versus a last year of ZAR 37 million. As promised share of profits of associates, the first line, Nisa did allude to it. Not really comparable on the first line because in 2023, the ZAR 366 million comprises continuing operations and discontinued operations being the sale of cold stores. Our portion was ZAR 104 million. So if you exclude that, then the continuing operations share of profits is up very nicely. In fact, last year was ZAR 262 million. Sea Harvest, yes, last year, it had its own associates. This year, it's coming through on the associate line 109, ZAR 109 million. And bottom line, that's why you drop off last year and you add Sea Harvest this year, that's why share of profits of associates and JV is fairly flat, but there's big movements in between. Net finance costs, Brimstone, nicely down by ZAR 26 million year-on-year, and that's a function of the settlement of debt, very tiny reduction in the interest rate. That's mostly the settlement of debt. And Sea Harvest not comparable. It's 4 months versus 12 months, but we booked ZAR 98 million in finance costs. That's our portion [indiscernible]. The balance sheet in the face of the income statement changed, so did the balance sheet. All I want to say is, once again, it's because of the Sea Harvest deconsolidation, we have a detailed note of the assets that dropped off at acquisition date or date of sale. And we deconsolidated and then we equity accounted Sea Harvest, and that's what we will continue to do until things change. Then in terms of debt, decreased as a result of the deconsolidation of Sea Harvest and, of course, our repayment of our debt. In terms of the ratios, the current ratios using the balance sheet is down to 1.43x after dropping of Sea Harvest, we consider that to be wholly acceptable. The debt ratio is down to 40%, and that is calculated based on debt plus CGT over intrinsic gross asset value. So we use fair values. We don't use the balance sheet for that calculation. Just briefly on INAV, Oceana, 25.1%. Very important, you'll see that there's no CGT against Oceana. There's no CGT against Sea Harvest. That's because we can potentially apply Section 46 of the Income Tax Act and unbundle free of CGT. However, if there is a disposal at current prices, if we sold either one of them or part of them, a portion, whatever percentage, the base cost is in excess of the trading price. So there would be a capital loss. This is a schedule of our unlisted investments. And most of them you'll find on the core. If you look at the summary of listed versus unlisted. Listed makes up 81% and unlisted 17%. Cash is 2% of gross intrinsic net asset value. On a core, non-core basis, core is 94% of our portfolio. Non-core is 4% and of course, cash will stay 2%. Some key stats. I just want to talk to book NAV versus book NAV per share. The one decreases by 9.5%, the other by 8%. The reason for that is the effect of share buybacks. The same with intrinsic NAV decreased 10%. NAV intrinsic NAV per share decreased by 8.5%, the effect of share buybacks. And our discount to INAV at year-end has narrowed from about 58% last year to 55% this year, 60% last year to about 55% for end. In conclusion, so in terms of delivering on our commitments made to our shareholders, in 2022, we committed to paying back about ZAR 600 million of our preference share debt, and that was to happen over 3 years to the end of December 2025. We have to date repaid -- during this year, we paid ZAR 570 million to our funders. So we are on track. By disposals of Milpark, Equites and STADIO in its entirety and part sales of Phuthuma Nathi and MTN Zakhele Futhi. We've continued to buy back our shares. As Brey said, our shareholders asked us to buy back our shares, and we continue to do that. And in terms of already commenced and rationalization. In terms of I looked at our head office costs, we're looking at 2024 before stripping out non-cash items, ZAR 66 million. And that is, I think, on par with our 2020 numbers. That's it from me. We're happy to take questions.

We have questions. And as Geoff said, that we have delivered on our commitments to you. You asked the questions, you said, repay debt, buy back your shares. And that's what we've done. And the cost-cutting exercise has begun, and it will be significant. So questions to you, and thank you all for your interest and presence. Questions? Can we give them a question -- some time? No questions. Okay. Well, then you've covered everything very well, Geoff. Thank you, Nisaar. Thank you. Thank you for your presence. Leon, thank you for your presence.