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Brimstone reduces loss, hopes to be in positive territory by year-end - CEO

Sep 02 2019 20:57
Carin Smith

Brimstone Investment Corporation on Monday reported a loss of R84.3m for the six months ended June 30, 2019.

CEO Mustaq Brey told Fin24 this was a significant improvement from the loss of R227.1m in the prior period, and he is hopeful the group will be in positive territory by the end of the financial year.

Driving down debt

"We are busy driving down our debt and in these tough times we are following a safe approach. From a shareholder point of view, we are still trading at a massive discount," he said.

Profit before net finance costs increased by R378m during the interim period. Furthermore, Brimstone acquired an additional 8 million shares in Oceana for R581m, increasing shareholding to 22.9%.

"We have demonstrated that we are long-term investors. We first invested in Oceana in 1995 with an approximate 2% stake. Oceana remains a core part of our portfolio," said Brey. In the reporting period Brimstone received R108.1m in cash dividends from Oceana.

Cost of Clover exit

The group also raised R1.2bn raised in a share-backed Zero-Cost-Collar funding arrangement. Sea Harvest acquired 100% of Ladismith Cheese and the group exited its Clover transaction.

"When we decided to exit the Clover deal, we knew there would be a cost involved," explained Brey. "Furthermore, some of our dividends only come in the second half of the financial year."

In the food sector, Brey said Sea Harvest had a very positive performance. Sea Harvest reported an 86% increase in revenue for the period to R1.87bn compared to R1bn in the comparative period.

Sea Harvest's profit after tax increased by 44% to R161m from R111m in the comparative period. Brimstone invested another R300m in Sea Harvest in the period and received R64m in dividends from Sea Harvest in the period.

'People are still eating'

"We are very happy with the food sector - people are still eating. Approximately half of our intrinsic gross asset value comprise of investments in the food sector," said Brey.

During the interim period, Brimstone also concluded the acquisition of all the remaining issued shares of its Australian subsidiary Mareterram Limited.

As for House of Monatic - which made the suit worn by President Cyril Ramaphosa at his State of the Nation Address earlier this year - Brey said the process of "right-sizing" the company is continuing.

"There is still space for clothing manufacturing in SA. One of the challenges, however, is that we do not have enough local mills for us to be able to obtain raw materials at proper prices," said Brey.

"If only the situation regarding local mills could be sorted out or if we could buy materials without having to pay import duty..."

Lion of Africa Insurance Company, which was placed into run-off in November last year, reported a net loss of R55.2m for the period. This includes the raising of valuation provisions.

According to Brey, the run-off process is progressing according to plan with a commensurate reduction in policy count, claims and personnel.

Brimstone’s 18% stake in Aon Re Africa, a reinsurance broker licensed and operating in the rest of Africa, delivered a dividend of R9.7m during the period. Brimstone recognised R8.3m as its share of profits of this associate during the period under review.

South African Enterprise Development (SAED), of which Brimstone owns 25%, contributed R1.1m to share of profits of associates. Brimstone’s 25.1% stake in Obsidian Health contributed R1.8m as its share of profits during the period.

As for Brimstone's investments, its equities investment was revalued upwards by R73m and paid a dividend of R24.5m to Brimstone in the period under review.

The investment in FPG Property Fund was revalued upwards by R14.4m to R162.6m at period-end.

Life Healthcare was, however, revalued downwards by R196m to R1.1bn. Brimstone received dividends of R4.1m from Life Healthcare during the period.

"Our investment in Life Healthcare was used as security in a Zero-Cost-Collar funding arrangement enabling a fundraise of R1.2bn," added Brey.Brimstone's investment in MTN Zakhele Futhi was revalued upwards by R10.3m, while investments in Phuthuma Nathi and STADIO were both revalued downwards by R37.5m and R6.5m respectively.

Brimstone expects to receive a dividend of approximately R105m from Phuthuma Nathi later in September this year.

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