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

Good afternoon, everybody. A very warm welcome to you to the Brimstone Investment Corporation's financial results presentation for the 6 months ended 30 June 2025. We are in a position now to present to you a much better result than last time we spoke to you with our year-end results. Just looking back at Brimstone and having a look at our philosophy still remains to be profitable, empowering and having a positive social impact. These things are very important. Obviously, and profitability remains chief of those in our philosophy. The business and economic environment for the period that we are reporting on. The South African consumer remains under pressure, slow economic growth persists, high unemployment, especially and particularly youth unemployment. We are just not finding a solution to this vexing problem. There's fiscal strain, the global trade tension and tariff uncertainty caused by Trump, and America First is also extremely worrying. Domestic political instability is there. However, the GNU remains intact, as you will see. We have a volatile rand, but the other extremely vexing problem worrying is the persistent fraud, rampant corruption and violent crime in our society. This is just not acceptable. It remains a huge, huge problem and couldn't, in fact, stabilize our country. We have, on a positive side, easing inflation. We've had interest rate cuts, the electricity, the grid stability, the grid is stable, and we've had reduced or zero load shedding over an extended period now. The GNU or Government of National Unity remains intact, albeit shaky at times. This is the business and economic environment that we operate under. Our investment ethos, we invest in diversified businesses with a multicurrency income -- income stream, as you will see. We have a long-term view, where investors will take an active participation in our assets. So Mustaq, as actively as Chairman, involved at Oceania and I at Sea Harvest, and we also have a team working with us. We are ESG conscious wherever we participate as an investment, we make sure that the company stick and is ESG conscious as we are. Currently, we are concentrated largely -- our asset base is largely concentrated in the food sector, as you will see, with a growing property investment. We are not invested in alcohol, tobacco, gambling, or micro lending. The group at 30 June 2025, in the food sector, we had Sea Harvest as an investment, Oceana Group Limited and SeaVuna. All of these -- and all three of these companies have an international income stream. Financial Services is AON Re Africa, which is a reinsurance broker that operates throughout Sub-Saharan Africa. FPG Property concentrates and have a range of properties in the convenience shopping centers and really a fantastic portfolio that Mr. Parker -- Liyaqat Parker and his team has built up. FPG Investments is, has investments in, obviously, the property fund, which is 85% of the property fund, but also have about 55 franchise stores in the chicken sector as well as having 30% of ice cream manufacturing company. Restricted BEE structures, it's Multichoice Phuthuma Nathi and MTN Zakhele Futhi. More will be spoken about them later and much is also in the public domain. Obsidian Health is supplies health products into the public and private sector. Our other investments is made up of South African Enterprise Development Fund, Hot Platinum and African Legends. African Legends have a stake, 15% stake of Astron. Those are the -- the petroleum businesses. And the only refinery in South Africa is in Cape Town. The brands associated Lucky Star, it's an exceptional brand. It is seem to be almost in every household as a Lucky Star. It's some Lucky Star. It's one of the top brands in the whole of Africa. They have extended that brand as you will see into -- not only in fish, but into chicken livers and into a corned meat as well. Sea Harvest, largely as ag business, but also as the Saldanha canning business, and they in to -- have an operation in Australia, and they also have operations in Abalone. Oceana has owned Lucky Star, has operation in the U.S.A. in the form of Daybrook. FPG Property Fund, I've told you about. Ladismith Cheese is owned by Sea Harvest and Mooivallei is a subsidiary of Ladismith Cheese and Butter. These are the brands that are -- we are all -- there is Selecta, which is in the Sea Harvest stable and so is the Saldanha. And Polar Ice cream is in the FPG stable. These are the products that they produce. And I'm sure they're familiar to all of you. Our contribution to intrinsic gross asset values, the Food Sector is 76%. Financial Services, as I said, is 15%. Restricted BEE is 2%. Cash is 2%. Other, that is SAED and other developing portfolio of smaller businesses, is 3%, and the Healthcare Sector is 1%. Our core assets is Oceana at ZAR 1.7 billion, Sea Harvest is at ZAR 1.3 billion, FPG properties at ZAR 462 million, FPG Investments at ZAR 54 million, AON Re at ZAR 100 million, and Obsidian Health at ZAR 78 million. The non-core is ZAR 192 million and our cash is at ZAR 64 million, giving us ZAR 3.9 billion. Highlights for the 6 months to June 30. The headline earnings per share increased by 35% to 96.9 cents. Our attributable profit for the period increased to ZAR 252 million from a loss of ZAR 295 million in the prior year. Geoff Fortuin and Nisaar Pangarker will go into more detail about all of these. Sea Harvest's contribution to attributable profit increased by 127% to ZAR 174.2 million, up from 2024 from ZAR 76.6 million. It is a significant jump in profit. We've listened to you and always and said, buy your own shares back. So in the over the period, we have bought back 1.5 million shares for ZAR 7.2 million. We have also not here, but as Geoff will go into it, and so will Nisaar, we have also focused on cost management and head office costs and operational costs have been reduced and managed down significantly. So I will now ask Nisaar to take us further. Geoff will then speak after him, and Mustaq is also with me to answer any questions. Thank you.

Good afternoon, and welcome to all our viewers online. And my purpose here is to go through some of the underlying investments in our portfolio. We'll start with the Oceana Group, where we this year have been invested for 30 years. In 1995, we made our first initial investment into Oceania. And today, it accounts for about 43% of our intrinsic gross asset value. As at the end of the period, we held 32.7 million shares with a market value of ZAR 1.7 billion down from December, it was recorded at ZAR 2.2 billion, and you can see that closing price difference of ZAR 52.37 at June half year-end compared to ZAR 67.48 at the end of December last year. During the period, we recorded ZAR 115 million in our share of profits of Oceania based on the 6 months numbers up to the 31st of March 2025. And we received dividends from Oceania in the period of ZAR 36 million, also down from ZAR 63.8 million in the prior period, and the latest closing process at last night was ZAR 52.04 per share. Let's move on to the Sea Harvest Group. Sea Harvest, we hold 44.5%, and it accounts for 33% of our intrinsic gross asset value. Important to note in the prior year -- in the prior period, in fact, the effective May 14 last year, Sea Harvest was no longer accounted for as a subsidiary, and that was largely as a result of the Terrasan acquisition, which Sea Harvest did. They completed that in May last year and issued about 60 million new Sea Harvest shares to the Terrasan Group, which resulted in a natural dilution of all shareholders. And as of the 14th of May 2024, in the prior year, since then, we account for Sea Harvest as an associate. And with the result in this period, we recorded ZAR 174.2 million in our share of profits from this associate compared to only ZAR 90.2 million in the prior year, largely based on the explanation I've just given. Currently, we hold 159.6 million shares in Sea Harvest with a market value of ZAR 1.3 billion at the end of June. In December, that was also at ZAR 1.3 billion. We've received cash dividends of ZAR 35.1 million, down from ZAR 63.8 million in the prior period. And this is at a closing price of ZAR 8.15 at the end of June compared to ZAR 8.35 at year-end. Sea Harvest came out with the results last year, and I'm sure many of our viewers view that. They are really very good results. The FPG Property Fund, we have a shareholding of 10%. And as the Chair mentioned, it's largely black-owned and unlisted property fund largely concentrated in the convenience retail shopping center market, and they have about 32 properties in South Africa with an expanded footprint in the U.K. And this investment was revalued upwards by ZAR 21.8 million to ZAR 462.2 million at the period end. FPG Investments, we own a small percentage, 1.4%. FPG Investments is the holding company of FPG Property Fund, where it owns 87% of the fund. And it owns a chain of about 57 fast-food retail outlets, which are franchised, and 30% of Polar Ice Cream, a manufacturing business, which has a vast distribution network of about 100 outlets across the country. This investment was revalued upwards by ZAR 4.1 million to ZAR 54.1 million at the period end. Obsidian Health, our only subsidiary at the moment, we own 70%, and they provide innovative solutions to the private and public healthcare sectors, largely to private and public hospitals. The revenue for the period has grown largely driven by the Life Sciences division, the Point of Care division and a new agency, which they acquired called QuidelOrtho. And they've had improved performance, bearing in mind that most of the product is imported. So the strengthening rand helped improve performance, and they have a vast -- a bigger product mix at the moment. They contributed beautifully to profit this year, ZAR 11.2 million for the period compared to ZAR 6.9 million in the prior period, and we've received a dividend of ZAR 4.9 million from Obsidian in the 6 months. AON Re Africa, it's a very large reinsurance broker operating in the African continent. And our effective shareholding is 18%. We booked equity accounted earnings of ZAR 28.6 million. Received a dividend from them of ZAR 20.2 million, slightly down on last year. And it's recorded at an intrinsic cost asset value of ZAR 100.9 million, nicely up from December where it was at ZAR 87 million. Phuthuma Nathi, that's holding into the Multichoice Group. Everybody knows the scheme, we own still 1.3%. At the end of June, the share price has closed at ZAR 60, quite down from December, we ended at ZAR 81. And this investment was subsequently revalued downwards by ZAR 18.8 million to ZAR 53.7 million at the period end. And the latest closing price at last night was ZAR 63 per Phuthuma Nathi share. MTN Zakhele Futhi, is another Restricted BEE scheme where we hold 1.3%. The closing price at the end of the period was at ZAR 17.10. It was revalued upwards by ZAR 14.2 million to ZAR 26.7 million at the end of June. Post our period end, there was a special distribution of ZAR 20 per share, and we booked ZAR 31.3 million post year from MTN Zakhele Futhi. It has a current residual net asset value of approximately ZAR 4 per share. And as we've seen on, since there will be an unwind distribution and the final amount is still to be determined, but the closing price last night was at ZAR 3.19. SAED, that's the South African Enterprise Development Fund. We still own 25% there. And basically, what they do is they provide equity growth capital to high potential small- and medium-sized enterprises. SAED contributed ZAR 1.8 million in equity accounted earnings -- in equity accounted losses as opposed to ZAR 2 million in the pior. We accrued a dividend of ZAR 1.6 million from SAED compared to ZAR 0.5 million during the prior period. Now I hand over to Geoff Fortuin, who will go through the financial results in further detail. Thank you, Geoff.

Thank you, Nisaar. And good afternoon, everyone. Just before I go through the numbers, just to once again highlight that the comparability of our results during this period is impacted by the deconsolidation of Sea Harvest in the prior period, after consolidating it for 4 months and then equity accounting shares for 2 months. So please bear with us. I've got a separate slide that also talks to the numbers that should help to understand the comparability between the two periods. Going into the group income statement. Sales and fee income, down by 91% and that is due to Sea Harvest in the prior period being deconsolidated. And for the full 6 months, Sea Harvest has now been equity accounted, so we don't consolidate any of the numbers any longer. In terms of dividends, it's down by 25%. I've got a separate slide talking to that. I'll take you through that shortly. Operating loss versus a profit last year. Once again, last year, Sea Harvest was included as a subsidiary for 4 months. And that's the main reason why there's a drop this year. Fair value gains, I've got a separate slide, decreased by 72%. I'll talk to that shortly, and you'll see what the main reason is for that drop of 72%. Other investment gains in the prior year, we had a gain on sale of Milpark of ZAR 73 million. That was offset by some deal costs that came through Project Libra, the acquisitions of Sea Harvest. So a net ZAR 56 million last year. In the current year, the Other investment gains is purely the disposal of House of Monatic. House of Monatic, it's clothing manufacturer. We made a profit of about ZAR 13.4 million on that disposal. And not to be repeated next line is net loss on deemed disposal of subsidiary, that being Sea Harvest. So we never disposed of anything, but it's considered to have been a deemed disposal, when we diluted as Nisaar mentioned. Last year, we booked a loss of ZAR 562.1 million. This year, no such accounting gymnastics. I've got a separate slide talking to the share of profits of associates and JVs, equity accounted earnings. We'll get to that shortly. There's also a separate slide that talks to the net finance cost. That's down 54% period-on-period. And then the tax expense, it is rather low at 6%, but that's mainly because the equity accounted income is now accounted for net of tax. So it's a reconciling item, but that's why our rate is so low. In terms of headline earnings, it's up by 33%. And you'll see that attributable loss in the prior period, obviously, it's almost ZAR 300 million loss. But because for headline earning purposes -- headline earnings purposes, the ZAR 562.1 million net loss on deemed disposal is excluded. The headline earnings in the prior year was positive, positive ZAR 175 million, but it's up 33% to ZAR 233 million this period and HEPS is up 35%. The reason HEPS is -- the headline earnings per share is slightly more than the 33% is purely because of share buybacks. Moving on to the next slide, that would be Sea Harvest line items included specifically in the Brimstone income statement, consolidated or equity accounted on a line-by-line basis. I'm not going to go through all of them. You can see the share of profit is significantly up on last year, but the bottom line number is that the profit that's attributable to equity holders of the parent, which is Brimstone shareholders is at ZAR 174 million, that Sea Harvest contributed versus ZAR 76.6 million in the prior period. That's the bottom line, 127% increase. But on a line-by-line, you can see it's not really comparable. Moving on to analysis of dividends received. These are the total dividends received. Whatever caveat, there are small accruals, nothing significant. But there are some accruals in here. But year-on-year, last year, we received ZAR 150 million versus ZAR 103 million for this period. The main reason for the decrease, drop in the Sea Harvest dividend from ZAR 63.8 million last period to ZAR 35 million in this period. Similar drop in Oceana's dividend, ZAR 63.8 million compared to ZAR 36 million in this period. That was partially offset by a dividend received finally from Monatic prior to its disposal. From Obsidian ZAR 4.9 million. We did receive a dividend last year from Obsidian, but that was about ZAR 3.5 million in the second half of the year. And from Lion of Africa, the run-off business or the cell captive or the silo, call it what you like, we received a dividend of ZAR 5.8 million on our A ordinary shares that we hold here. We have no voting shares, purely A ordinary shares that deals with the cell captive. Moving on to just a reconciliation, that's a total received. And then we get to the number that we recognize in the income statement. We eliminate subsidiaries. You can see in the prior year, we eliminated Sea Harvest; in the current year, we eliminate Monatic and Obsidian. And Sea Harvest in this period, we reallocate as it is now an associate. Fair value movements, FPG up, not as much as in the prior period. So the main reason for the drop period-on-period from ZAR 76.2 million to ZAR 21.6 million is in the prior year, you'll see that in other, we have liabilities at fair value to profit and loss. There was a release of about ZAR 30 million, on our obligation for contingencies in the Lion cell captive. Share of profits of associates, Oceana down by 38%, Sea Harvest not comparable increase of 98%, Aon Re up by 15%. And Other significantly up, ZAR 12 million of that relates to SeaVuna, once again, with hake catch rates went through the roof, a magnificent performance by SeaVuna. And you can see, similarly, Sea Harvest performing well due to improved hake catch rates. Net finance costs, most important parts of total finance costs. Brimstone down by about ZAR 20 million compared to the prior period. That's because of lower debt and a small drop in the prime lending rate. Sea Harvest, we don't consolidate anymore up to June last period. We consolidated ZAR 98 million, none in this year or in this period, that would come through the equity accounted earnings these days. The ZAR 27 million interest income, ZAR 21 million relates to Sea Harvest last year -- last period, sorry. Our group balance sheet, completely comparable. Of course, it was adjusted at the end of December. Total assets increased by about 6%, mainly because of the equity accounted income of ZAR 332 million during this period. Total liabilities increased slightly by 3%, and that's mainly because of the roll-up of debt, of interest on our debt. And the current liabilities increased by 19%, because of the short-term portion of the long-term debt of ZAR 72 million -- increased by ZAR 72 million, which obviously then resulted in our current ratios declining compared to the previous periods, but that should be addressed through asset disposals. The debt ratio deteriorated quite a bit compared to December 2024, and that's purely -- it's not a result of debt roll-up or increased debt. It is because of the decline or the drop in the share price of Oceana, that the market value went from ZAR 2.2 billion at December to ZAR 1.7 billion at the end of June, that's ZAR 500 million write-down or fair value adjustment, let's call it that. In terms of our INAV, what I want to point out once again, Oceana at December was ZAR 2.2 billion. And now it is at ZAR 1.7 billion. It took a write-down of ZAR 500 million. Sea Harvest has dropped slightly. Share price at December was ZAR 8.35, at the end of June, it's ZAR 8.15. Today, it's at about ZAR 8.30. Listed investments makes up on a gross basis, about 78% still of our portfolio. So there's very little subjectivity in the valuation of our portfolio. Unlisted. FPG is our biggest unlisted in investment. And unlisted investments makes up 20% of our portfolio. In summary, INAV gross, on a gross basis is ZAR 16.48, with debt of ZAR 7.50 against it and CGT of ZAR 0.34, and INAV is ZAR 8.65. Core versus non-core. Core is 93% of our portfolio, non-core about 5%, and cash 2%. The key stats, as mentioned, intrinsic gross asset value declined 11.3%, largely because of Oceana. Book NAV increased by 8% and book NAV per share increased by 8.3%. The reason there's 8.3% that's purely share buybacks. Intrinsic NAV, down by 22.4%. Intrinsic NAV per share, down by 22.1%. Once again, the difference between the two percentages is buybacks. The market price per share, down by 9.1% -- the ords down by 9.1% and N ords 18.6%, therefore, resulting in a discount. The discount to INAV closing or narrowing as they say, which would be for the wrong reasons. In conclusion and delivering on our commitments or what we promised in the past, we continue to manage our costs, especially our head office cost, as alluded to by Fred. We're committed to paying ZAR 600 million debt over 3 years to December 2025. We've repaid funders ZAR 517 million to December 2024 and a further ZAR 68 million after June, 2025. Our debt reduced from ZAR 2.2 billion at December 2022 to ZAR 1.8 billion at the end of the period, that's 30 June 2025. Fred also mentioned, we repurchased a further 1.5 million shares during the period, which brings our treasury share balance to 12.6 million, which is 4.8% of our issued share capital. Thank you very much for listening. That's it from me. We will move on to questions now.

Thank you. Thank you, Geoff. Thank you, Nisaar. We are open to questions. And each one of us will attempt to answer whatever question you might have. Are there any questions there?

First question we've got is from [ Paka Mesa. ] What is Brimstone's strategy now in the next 12 to 36 months? That's the first question. Second question is, what are the chances of paying an interim dividend in the future? And third question, Hot Platinum used to appear in Brimstone financials as an enterprise development initiative by Brimstone. It later disappeared from the financials. How was -- how has Hot Platinum resurfaced?

Thank you. First question was on the?

Business strategy for the next 12 to 36 months.

Mustaq, do you want to take that one?

Yes. I appreciate that, Chair. We've got a Brimstone strat meeting set up in the next 6 weeks, where management has prepared documents on that, and we're going to our Board in about 6 weeks. Our concentration over the last 2 years has been debt reduction. We're on line to do that as we -- with our funders, that's also been on reducing actual cost at the center. That's been done. So, still work in progress as well. We're still in the process of doing all of those things, but we are going with a new -- with an adjusted strategy to our board members in the next 2 weeks.

Sure. I'll take the Hot Platinum. Yes. [ Paka Mesa, ] you're quite right. It was there many years ago, and it's now resurfaced. Because of late, it started paying us dividends. So we put it back on to the radar.

What are the chance of paying interim dividend?

That depends on how we've dealt with our debt and on our invested companies.

Next question is by Mr. Rajaratnam from MIBFA. What is the central cost on an annual basis?

Last year, it was about net ZAR 66 million. This year, the target is ZAR 50 million. It should be less than that on a net basis. That's the gross number I'm giving.

The next is from Zaid from Wealthvest. What -- how are you able to add value with smaller minority holdings? Is there value to holding these companies?

As we've said in our presentation that we stay close to our businesses. We actively manage our investments. We interact with our executive teams on whether it is in those two major associate companies, being Oceania and Sea Harvest. And as well now with FPG properties. So it's active. We give assistance. We are there. They call us whenever they need, but we don't get interfering any of the operations. So the cost reduction and cost management is not just the Brimstone thing, but we've also looked at Sea Harvest, where there has been also a significant cost reduction done. That was driven largely by the Board. Executive took on that challenge and have gone through line-by-line on their procurement level. And it's just one area. The question of Hot Platinum, we didn't have it -- we didn't focus on it in our report backs for a while, but we've always been involved with it. And Geoff is a director on it, and he's assisting them to look at things differently. They are -- it's a small business. It was an enterprise development, but they even could tender now for supply of their machinery, which they supply into the mining sector. They could tender for -- to supply those machineries into the Australian mining sector. So, we don't leave a business on its own. We don't invest to walk away. We actually do get involved with them all the time. The acquisition of FPG and Polar Ice Cream, Mustaq was very involved in that acquisition.

If I just add on as well with, for example, FPG, where we do take a minority stake. It's a small -- it's not such a small company anymore. But we do try and assist them in corporatizing the business as well and bringing systems and all those type of things. And I think over a period of time, they're developing and becoming bigger companies, and that really helps them as well. We're also trying to help them on the governance issues as another example.

Next question. How much has the central costs being reined in by? Can you give a comparison to the prior?

Year-to-date to June, ZAR 10 million, was ZAR 35 million last year -- ZAR 35 million as of '25. It's about a third down.

The next question is with the lack of liquidity on the JSE for smaller and mid caps, do you still see value in being listed?

Yes. That is a vexing problem. It's also a program -- it's a problem for all businesses like ourselves and even some larger businesses as well. It's also a JSE problem. And it's a South African business environment problem. The issue that pension -- our pension funds are effectively taken -- South African pension funds are taken and invested overseas in tracker funds and those things, is a problem. And one then wonders what is the agenda of the investment community, because certainly, there should be providing capital to businesses, outsized businesses, who create employment. So it's a large discussion than just what's the size of your company, what's the market cap, it's larger discussion than even the JSE. That's my view.

Can you expand on how you cut costs in the center?

Well, it's been all the areas. We've looked at every single, including employment of some of our people. We've had people who've taken packages, and people who have left, haven't replaced. We've cut down on the actual size of the premises. That's not completed. Every level of expenditure we've looked at, including employing professional firms in that, another professional team that we employ, we've looked at every line item. Every line item of expenditure was looked at and was critically a place to see, do we still need it, don't we need it. Can we reduce it? Would it make a difference if we do reduce it? So every single line item has been looked at.

Also, I must say that our staff has come to the party significantly, in that the -- there's been no staff increases and Mustaq and myself has actually taken a salary decrease over that period, to lend the hand in the whole cost reduction.

Can I just to add to that? So did Expo. Expo also take a haircut on salaries.

What are the chances of Grindrod resurfacing on your books?

There's no chance. That entity has been liquidated.

Next question from Mr. Rajaratnam from MIBFA. Is the debt down to a level the bankers and funders are comfortable with any portfolio restructuring?

We are still currently in the process of doing what we promised we would do. We are on target to meet our targets for the end of this calendar year. And we're in continuous discussions with these funders of ours. We fully inform what we're doing, when we're doing it and how we're doing it.

Next question from [ Adrian Keta from PSK Wealth. ] How much debt still needs to be repaid in terms of agreement by the banks and by when? December 2025?

December 2025, we should be down to ZAR 1.6 billion. We're at -- at today's date we're at ZAR 1.75 billion.

Another question from MIBFA. Can you give us a sense of how many people are employed at the head office at the end of this period and the comparable period?

We now -- all staff we're down now to about 12.

That includes everybody.

Everybody. It came down from 15 to 12.

No further questions.

Thank you all for your presence. There are no further questions. Thank you for your interest in our company. Thank you for your questions. And thank you for always being invested in a company such as Brimstone. We have been around -- started in 1995, listed in 1998, and we are still listed. And obviously, a question that was asked, is it still viable to be listed? Those questions are addressed and we question ourselves on that matter, on a continuous basis. But be assured that there's a lot of restructuring going on. There's a lot of reset of Brimstone, and we look forward to reporting to you again at the year-end. Thank you so much for your presence.