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

Good morning, ladies and gentlemen, and a very warm welcome to you to the results presentation of Brimstone for the first 6 months ended June 2026. This is our half year overview, as I have said. It's always necessary for us to remind ourselves where we come from, how long we've been around. As you can see, Brimstone has been founded in 1995 and listed in 1998. We wish, as always, to be profitable, empowering and have a positive social impact. On the issues of profitability, the numbers, Geoff and Nisaar will speak to you around that. On the issues of empowerment, we employ more than 10,000 people in our companies across Oceana and Sea Harvest. We're the biggest economic -- Brimstone's Investment companies are the biggest economic drivers on the West Coast of South Africa. We have employment opportunities for our people across the world, especially in the U.S.A. and Australia. Of our investment, people who are invested in us, apart from a broad range of retail investors, asset management, there's also a number of NGOs and PBOs, people who serve more than 2.5 million beneficiaries in South Africa. These beneficiaries are the poorest of the poor in South Africa. The Brimstone Empowerment Share Trust has 44 NGOs and PBOs, serving, as I say, whether it's in food, health care, education or those kind of things, the dividends when we pay it goes directly to those beneficiaries. That's why we have a strong belief in Broad-Based Black Economic Empowerment. And since 1995, our philosophy has been profitability, empowerment and a positive social impact. The business and economic environment during the first 6 months of the year, we faced many headwinds. The global geopolitical tension and ongoing war in the Middle East and higher oil prices have been there, modest GDP growth, increasing inflationary risks and pressures has been prevalent in the marketplace. High persistent, high unemployment, especially youth unemployment. The South African consumer remains under huge pressure and the high crime and persistent corruption levels, as we all see in the Madlanga Commission, which is keeping us captivated is rampant in South Africa. Climate change impacting the ocean agri economies is always present. Those are all headwinds, but we've had a few tailwinds. The rand has been resilient across all major currencies. South Africa's first credit upgrade in 2 decades we've received in these 6 months, the strong commodity prices as well as sustained electricity supply stability. You should even see that Eskom has made a profit over this period. And this is very, very important, as you know, and you remember how we suffered under a period of load shedding, also a few years ago under a period of COVID and businesses are now coming through those periods. We've had a stable government of national unity although there have been many detractors to this, but it is stable and working. There's improved investor sentiment. And we know a number of people or we hear of a number of people and families, who are coming back to South Africa, where they have left to go to the U.K. or to the U.S. or wherever, are now coming back to South Africa, strangely enough for better opportunities for their children. Recovery in logistics and port operations has also been significant so that we can actually get our produce out into the markets. So those have been the tailwinds. And as I say, we often forget as we get wrapped up in a negative environment, we often forget that there are also a number of positive things happening in our business and economic environment. Our investment ethos. Brimstone, as I said, was founded in 1995. We have a long-term view. Brimstone is now 31 years old, formed in 1995. Our first investment was Oceana. We are now invested for 31 years in the Oceana Group. And we're still a significant investor there. Our first shares we bought there was for ZAR 2.50. Sea Harvest was similar. Sea Harvest we invested in 30 years ago in 1996, '97. Also, we are the significant shareholder in those. Having helped both those companies chart very, very heavy seas over that period. But we've been there. We've actively -- we involved with management, assisting management and identifying opportunities. We invest in diversified businesses and with multicurrency income streams. Currency income streams for our subsidiaries and associates have been in euros, in U.S. dollars, in the U.K. pound, in Australian dollars and the Chinese yuan. So there's a multicurrency income stream. And as I say, we have -- we actively manage and identify opportunities for our investee companies. We are ESG conscious, and we look after the seas because that's where we really get to our main resource and we do sustainable -- we use sustainable fishing methods. We are currently concentrated in the food sector. We are one of the most significant protein suppliers to the lower LSM through the Lucky Star brand, the Saldanha brand and pilchards. And obviously, people at the higher LSM are also enjoying sustainable fishing or sustainable fish. And these are exported across the world to various countries. We don't invest in alcohol, tobacco, micro lending, or in gambling. As you've all become aware that the new scourge in our communities is gambling, especially online gambling, where they say more than ZAR 1 trillion is taken off the table and out of homes. Our group, as of 30 June 2026, we invested in Food, Oceana Group, Sea Harvest and SeaVuna. Nisaar will speak more to that. Financial services and property sectors is Aon Reinsurance Brokers operates throughout Sub-Saharan Africa. FPG Property Fund is particularly invested in convenience retail centers, and there's a number of that. That fund has grown significantly and we watch with interest how we grow -- how that fund will even grow further. FPG Investments is an investment both in the property fund as well as in the food sector, Polar Ice Cream and also in KFC outlets, both in South Africa as well as in the U.K. Our health care investment is Obsidian, which we've outgrown from a very small company, which we bought a few years ago into a significant contributor now to Brimstone. The Restricted BEE structures are still MultiChoice, and we watch that with bated breath. Other investments, Africa Legends, Hot Platinum and the South African Enterprise Development Fund. Some of our products, if you are out doing shopping this afternoon is [ Lake Phillips ], Lucky Star Pilchard, which is one of the most significant brands in Africa. Polar Ice Cream, as I say, Sea Harvest, Country Fry, there's Lucky Star, Noodles Now. Polar Ice Cream has -- that's an ice cream tub, Lucky Star Corned Meat and also the Saldanha Canned Pilchards, which sits under the Sea Harvest Group and Lucky Star, as we know, sits under the Oceana Group. And then obviously, medical supplies, which is Obsidian. Contribution to the intrinsic asset value. Oceana contributes 36% at ZAR 1.4 billion. Sea Harvest ZAR 1.3 billion at 35%. FPG Property Fund at 14%, ZAR 500 million; FPG Investments, 1.6% Aon Re at 2.7% and Obsidian Health, 3.9%; South African Enterprise development, 1.7%; Monatic 1.1% and other is 1.1% as well. Cash at 2.2%. That is our intrinsic gross asset value percentage and how it is -- makes up the pie. Our highlights for the period for the half year for 6 months -- 6-month period. Our headline earnings per share increased by 4% to ZAR 1.007, up from the 2025 number of ZAR 0.96. Cash dividends received from associates and JVs increased by 76.5% to ZAR 161 million, up from ZAR 91 million in the previous year. Our INAV, intrinsic net asset value per share increased 11.7% to ZAR 11.04. Our finance costs decreased by ZAR 30.7 million over the 6 months. Finance costs decreased by ZAR 30.7 million. You will remember that we actually repaid quite a bit of debt to -- after the sale of a portion of our Oceana shares. The underlying investment performance, I will now leave to Nisaar Pangarker to present to us after him will be followed by Geoff Fortuin, looking at the numbers in more detail. Thank you.

Good morning. I'll be taking you through the performance of our underlying investee companies. And just note, we should consider these in the context of the global and the South African operating environment for the first 6 months of this year. So let's go. Oceana, we currently own 16% of Oceana. As at the 30th of June, it accounted for about 36.6% of our gross asset value. You would remember that in the second half of last year, we disposed of some Oceana shares, and that speaks to the lower shareholding in this period. We currently have 20.8 million shares in Oceana with a market value of ZAR 1.4 billion, which is up from ZAR 1.2 billion at the end of December. For the period, we recorded ZAR 72 million in equity accounted earnings from this investment, which was down from ZAR 115.2 million in the prior 6 months and received cash dividends of ZAR 22.9 million, also down ZAR 36 million. And again, this is largely because we've reduced our shareholding there. The closing share price at the end of June of Oceana was ZAR 68.04, which was up significantly from the end of December, where it was ZAR 55.74 and the closing price as of last night was at ZAR 64. Move on to Sea Harvest. We currently own 44.2% of Sea Harvest. You would -- to the market watches out there, you would have seen that Sea Harvest released their results yesterday morning. The HEPS were up by 14% and they also declared -- they made an interim dividend of ZAR 0.24. So currently, Sea Harvest in our world accounts for 35.2% of our intrinsic gross asset value. We hold 159.6 million shares, which at the end of the period was valued at ZAR 1.4 billion, down from ZAR 1.5 billion at the end of December. And we recorded ZAR 160.1 million in equity accounted earnings for the period, that's for the 6 months. We received cash dividends from Sea Harvest handsomely at ZAR 121.3 million, up from ZAR 35.1 million in the last year. And then the share price closed at ZAR 8.51 on the 30th of June, and that was down from ZAR 9.49 at the end of December. The latest closing price of Sea Harvest last night was at ZAR 8.64 per share. FPG Property Fund, we own 10%. And as the Chairman said, it's Western Cape black-owned and managed unlisted property fund, specializing in convenient shopping centers. And the gross assets, they are currently valued at around ZAR 12 billion, and they own a portfolio of about 37 convenience retail shopping centers, both in South Africa and with an expanding footprint in the U.K. This investment in FPG Property Fund was revalued upwards by ZAR 45 million, and it ended at ZAR 538 million at the end of June. FPG Investments, we own a small stake there at 1.3%. And again, this investment holds 87% of the property fund, which I've just spoken to. It owns 87% of FPG Foods, which owns quite a significant footprint of fast food franchise outlets, mainly operating under the KFC brand, both in South Africa and the U.K. And FPG Investments also owns 30% of Polar Ice Cream. They have manufacturing facilities across the country and in excess of 100 retail outlets, some franchised and some company-owned. This investment was revalued upwards by ZAR 5.1 million to ZAR 61.4 million at the end of the period. Obsidian Health, our only operating subsidiary, where we own 70% at the moment. It's a leading supplier in the medical space, supplying both private and public hospitals. They've seen a lovely uptick in revenue from -- largely from the Life Sciences and hospital divisions. And again, being an agency business, they benefited from the stronger rand because many of these -- of the products are imported. They have a favorable product mix and -- but they've also improved the costs in the period. And the machine you see on the left there, it's a machine under the QuidelOrtho agency, and it actually does blood test both in the pathology lab and hospital environment. Obsidian Health contributed ZAR 13.1 million to group profit for the period, and that was up from ZAR 11.2 million in the prior year. And we received a dividend of ZAR 8.4 million from Obsidian Health, which is nearly double what we received last year. Aon Re, this has been in our portfolio for a while. We own 18% of the reinsurance business in Africa. And we've recorded ZAR 34.5 million in equity accounted earnings for the period, up from ZAR 28.6 million in the prior period. And in INAV, you'll see a gross asset value of ZAR 103.4 million, and Geoff will talk to those numbers. Phuthuma Nathi in the MultiChoice stable, nothing much happening here really. We have a closing price of ZAR 46.39 at the end of June and marginally up from December where it ended at ZAR 46. This investment was revalued downwards by ZAR 0.3 million to ZAR 41.5 million at the period end. And the latest closing price as of last night for Phuthuma Nathi was at ZAR 42.06. SAED, that's the South African Enterprise Development Fund. We own 25% of that business. The 2 key underlying investments are in ASG Holdings and Decision Inc. ASG Holdings is in the bicycle components and accessories market in South Africa. They own a few agencies there as well. And Decision Inc is a data analytics business. SAED contributed about ZAR 2.6 million in equity accounted losses for the period and compared to the prior period, where they recorded about ZAR 1.8 million in equity accounted earnings. We have accrued for a dividend from SAED for the first 6 months of ZAR 1.8 million, which is slightly up from ZAR 1.6 million in the prior year. I'm going to hand over now to Geoff, who will take us through the financial results and also talk to the INAV. Thank you, Geoff.

Thank you, Nisaar, and good morning, everyone. I'll take you through the numbers, so I'll just get straight into it. I'm just delighted that we have a simple income statement compared to the prior years where we've had some incredibly complex transactions. So in terms of the top line, our revenue, our revenue decreased by 5% compared to the prior period, and that's largely because of Obsidian Health in the point-of-care division, where as a result of the loss of U.S.A funding by South Africa, the HIV testing kit sales decreased. However, notwithstanding that, Obsidian managed to do really well this period. Dividends, I have a separate slide, which I'll talk you through shortly. And the same for fair value gains, which increased significantly by 163%. We'll talk through that as well. We've got a separate slide. Other investment gains decreased because last year, we sold Monatic at a profit of about ZAR 13.4 million. Our share of profits of associates and JVs, which I have an analysis of to present to you slightly later, decreased by 20% compared to the prior year period from ZAR 332 million to ZAR 266 million. Obviously, you know that we sold a portion of our Oceana shares. So the equity accounted earnings from them would decrease. Finance costs decreased by 38%. The actual -- that's net finance cost, the actual cost portion decreased by 36% and our finance income increased slightly by 2%, and that's largely a function of the reduction of debt and a small decrease in the lending rates over this period. It came down by about 0.5% and then went up in May by 0.25%. In terms of tax expense, our tax rate is 2% compared to 6% last year. This is largely a function of the tax really sitting in the share of profits of associates and JVs because we bring in after-tax income from our associates. If you look at profit for the period attributable to equity holders of the parent, which is basically our earnings on which earnings per shares based, that decreased by 4%. However, our headline earnings increased by 4% because in 2025, you would have to back out that gain that we made on the sale of Monatic. If we move on to our analysis and recon of the dividends received, Sea Harvest increased from ZAR 35 million in the prior period to ZAR 121 million this period. The declared last period was a ZAR 0.22 dividend and this period was ZAR 0.76 dividend. Oceana, as I mentioned, dividend income decreased from ZAR 36 million in the prior period to about ZAR 23 million this period, and that's predominantly because of the change in our ownership interest. Then total dividends received amounts to about ZAR 165 million compared to ZAR 103 million in the prior period, and that should agree to our cash flow statement, except for SAED at ZAR 1.8 million, that is an accrual of dividends. And right at the bottom, we've reconciled to the income statement, where our dividends received that we recognized in profit or loss is 0 compared to about ZAR 6 million last year. The analysis of our fair value movements. Bottom line, it increased from ZAR 22 million to about ZAR 57 million, predominantly because of the change in fair value of FPG properties from ZAR 22 million to approximately ZAR 46 million. Our share of profits of associates and JVs, Oceana, as expected because of the change in ownership interest decreased by 38% compared to the prior period. Sea Harvest decreased by 8% compared to the prior period, largely because of Brimstone adjustments we make to that line item. Their profits or their earnings, you'll see that they presented yesterday remained fairly flat, slightly up at about 1%. In terms of the balance sheet, not much to report except to say that noncurrent assets increased by 4% because of the equity accounted earnings and fair value gains. And current liabilities increased because of the increase in the short-term portion of long-term debt. However, that is predominantly because we only settled at the end of December last year, and therefore, there's been an increase in the short-term portion. Looking at our ratios, our liquidity ratio shows compared to June 2025, substantially up for the current and the peak ratio. And more impressively, our debt ratio or debt-to-asset ratio that we calculate as debt plus CGT divided by intrinsic gross asset value. So we use fair values to calculate this ratio improved significantly compared to June 2025, where it was 47.5%, December improved to 34.4% and June -- the end of this period, 31.2%. In terms of our INAV, our listed investments comprising Oceana, Sea Harvest and Phuthuma Nathi. This represents about 73% of our total portfolio. Oceana and Sea Harvest, they don't have CGT next to them because their trading values are still below their tax base cost. And on top of that, Sea Harvest, we can still apply Section 46 of the Income Tax Act, where we can unbundle it free of CGT. If we move on to unlisted investments. As I said, a significant increase in the fair value of FPG properties. And then the other item that moved significantly was Obsidian, ZAR 84 million at book value last year and this period, it is at ZAR 150 million, where we adopted the market approach, which is acceptable in terms of what we call IFRS 13, and we apply EV EBITDA multiple. We changed the methodology this year because now we have a track record of profitability. Coming out of COVID, the profits were, we believe, artificially high, and now we've established a pattern of profitability, and that's why we fair valued Obsidian at the end of June. That just shows the split, listed at 73%, unlisted at 25% and cash at about 2%. Other statistics, intrinsic gross asset value increased by 6.6%. That's largely an uptick in the fair value of Oceana, fair value of FPG properties and the fair value of Obsidian. Book NAV increased by 4.3%, while book NAV per share increased by 4.4%. That small percentage difference is because of share buybacks, which wasn't that significant during this period. Intrinsic NAV increased by 11.7% and Intrinsic NAV per share also by 11.7%, and it just speaks to we didn't have a significant buyback of shares. Our market prices per share -- the BRTs or ordinary shares increased by 18%. Our NOs decreased by 5.5%. And consequently, the discount to INAV on the ords narrowed to about 52%. However, the N ords increased or widened to 55%. We are happy to take questions. That's all from me. Thank you very much.

Thank you, Geoff, Nisaar. We are now welcome to present us with your questions.

Matthew Robarts from Blue Quadrant Capital. The question is Obsidian updated value is almost double going from book-to-market approach. Can you please provide some color on the change where the transaction was concluded leading to the change of approach? Or is there a change in intention?

Thank you. Was that Geoff. Geoff can you take that question.

Yes. Thank you, Matthew. Look, as I explained, when we came out of COVID, the profits were very high, artificially high. So we kept on -- kept it at book value, net asset value or carrying amount. But now that we've established a pattern of profitability at a more sustainable level, we have decided to fair value it as opposed to just carrying it at book. And we apply an EV/EBITDA multiple of 5. And I should have added that our valuation has been independently tested by an independent expert valuer.

The next question is from Charles Boles from Titanium Capital. On the fishing companies, can you update us on the status of fishing rights? Have these now been finalized?

Yes. Nisaar, do you want to go on that one?

Yes, I'm happy to answer that, Chair. Fishing rights are at the moment in -- they've been awarded for 15 years. There are a few places where the minister has been taken to court on the actual allocations, right? And those are still subject to review, but they are allowing us to catch as if the 15-year rights are in place.

That review is only under one particular species -- limited. But generally, across the board, the 15-year rights remain in place. So we watch, and we have made presentations or representations to the minister and to the interveners, obviously. But I think we will probably come out with a positive outcome for everybody.

Next question is from [ Jaco Scholes ] from a private company. Given that most REITs trade at or near NAV, will it make sense to list FPG Property Fund? According to your integrated annual report on Page 19, and I quote, our short-term plan is to enhance shareholder value is based on constant cost containment, debt reduction and share buybacks. Brimstone has already made good progress. But looking forward from here onwards, could you please comment on the further progress you intend to make on this plan? The Class A5 preference shares amounting to about ZAR 1.2 billion are redeemable by 7 December 2027. Do you want to repay this debt? Or do you intend to roll it forward?

There are 2 questions there. I think with the FPG, Mustaq, do you want to take that one first?

Yes, I'm happy to talk about the FPG. FPG is a private company at the moment. It's a capital fund. There's no plans in the current or short term to list or to turn it into a REIT. They're very happy with the way they're progressing. And don't forget, we only own about 10% of the fund. We're not the controlling shareholder, and that decision will have to be made by the biggest shareholders or the controlling shareholders in that company. On the -- that's -- they will decide. On the -- on the debt packages and that I think, we had promised our funders to be at about ZAR 1.2 billion debt by the end of December 2026. This is the current year. We actually surpassed that and gave them that number really by the end of December 2025, right? Our current debt package does expire in December 2027, but we're in continuous discussions with them. The bankers, our funders are very happy with our current levels of debt. We -- there's no pressure at all from the current funders, both Nedbank and Standard Bank for us to reduce debt further. But yes, we are in communication with them all the time. And if the right deal does come around, we would further reduce debt, but only at the right prices.

The next question is from [indiscernible] Asset Management. And what historical yield is FPG property valued? And what discount do you apply to the investment as a minority investor?

FPG property fund is valued at net asset value.