Brimstone Investment : reports solid increase in profit

SALIENT FEATURES

• Revenue R3.3 billion, up from R2.9 billion in prior period
• Operating profit R237.5 million (2022: R279.3 million)
• Profit for the period R188.1 million (2022: R118.1 million)
• Earnings per share 35.6 cents (2022: 10.3 cents)
• Headline earnings per share 35.6 cents (2022: 10.3 cents)

[Cape Town, 04 September 2023] Brimstone today released its Group results for the six month period ended 30 June 2023, reporting a solid increase in profit for the period, despite a sluggish economic environment.

The Group reported revenue growth of 17% to R3.3 billion for the period. Operating profit for the period was down 15% to R237.5 million directly impacted by above inflation increases in the costs of fuel, raw materials and freight, as well as sustained loadshedding. Despite higher finance costs due to higher debt levels and higher interest rates, the Group increased profit for the period by 59% to R188.1 million. This increase is mainly attributable to an increase of R107.7 million in other gains or losses, and an increase of R89.4 million in the share of profits of associates and joint ventures.

"In a period where we experienced rising inflation driven by higher fuel, energy, freight and food prices and increasing interest rates, these outstanding results are testimony to the resilience of the Group and its portfolio companies. The continued loadshedding, increased volatility of the Rand and general consumer pressure added to the complexity of the operations of our major investments, but despite these headwinds the Group has delivered solid results, " says Brimstone's CEO Mustaq Brey.

FOOD SECTOR

Brimstone's portfolio is characterised by two key anchor investments in the food sector which collectively constitute approximately 73% of the portfolio value.

Brimstone's subsidiary, JSE-listed Sea Harvest proved its resilience and defensive nature in the six months to 30 June 2023 by delivering earnings before interest and tax of R352.1 million, up by 23% (2022: R286.9 million), and headline earnings per share of 77 cents, up by 19% (2022: 65 cents). The group increased revenue by 18% to R3.2 billion (2022: R2.7 billion), driven by strong demand and higher selling prices in all markets and channels. This allowed Sea Harvest to partially off-set the significant cost inflation and supply constraints including continued load shedding (which cost the group R22 million) experienced during the period. Sea Harvest increased its shareholding in the Aquaculture segment from 54% to 82%. The fair value of Brimstone's investment in Sea Harvest at period end was R1.6 billion.

"Sea Harvest experienced strong demand for their products in both domestic and international markets. This high demand coupled with a weaker Rand mitigated significant cost inflation which translated into resilient results for the period. FRAP volume losses together with climate change impacted catch rates for the period. In a domestic market where the local consumer is under severe economic pressure Sea Harvest remains conscious of its role as a key provider of healthy food and protein," says Fred Robertson, Executive Chairman of Brimstone.

Brimstone held 32.7 million shares (25.1% stake) in Oceana with a market value of R2.3 billion at period end. Brimstone recognised R94.9 million as its share of profits from Oceana based on Oceana's reported earnings for the six months to 31 March 2023, a significant increase from R38.4 million in the prior period. Brimstone received cash dividends of R42.6 million from Oceana during the period under review. Oceana's iconic Lucky Star brand is the market leader in the canned fish sector in South Africa.

OTHER SUBSIDIARY

Brimstone owns 70% of Obsidian Health, a leading supplier of innovative healthcare solutions to both the private and public healthcare sectors within Sub-Saharan Africa.

Obsidian contributed R2.8 million to Group profit during the period under review, down from R7.1 million in the prior period.

Revenue in the Cardiovascular and Orthopaedic divisions decreased, following the loss of two agencies due to the acquisition by large multinational companies. Profitability was negatively impacted due to a decline in margins driven by large global manufacturer price increases combined with the depreciation of the Rand and increased freight costs.

OTHER ASSOCIATES

Brimstone's 18% stake in Aon Re Africa, a leading reinsurance broker licensed and operating in South Africa and the rest of Africa, contributed R30.2 million in equity accounted earnings during the reporting period, up from R21.2 million in the prior period.

South African Enterprise Development (SAED), an investment vehicle providing equity growth capital to high potential small and medium sized enterprises, of which Brimstone owns 25%, contributed R10 million in equity accounted earnings for the period, up from R0.8 million in the prior period. Brimstone accrued a dividend of R0.8 million from SAED for the period under review.

Brimstone holds a 12.8% stake in Milpark Education, a leading provider of higher education and training qualifications. Milpark contributed R11.6 million in equity accounted earnings during the period, up from R5.5 million in the prior period. Brimstone received a dividend of R13.8 million from Milpark during the period under review.

INVESTMENTS

The Group's investment in Equites (a JSE-listed REIT) was revalued downwards by R74 million to R161.1 million at period end. Brimstone received a dividend of R12.3 million from Equites during the period under review.

FPG Property Fund (FPG) is a Cape-based black-owned and managed unlisted property fund specialising in the retail convenience market. It owns 57 investment properties in South Africa and the United Kingdom, including 26 retail convenience shopping centres in South Africa, and 11 in the United Kingdom. The property portfolio is independently valued in excess of R7.8 billion. Brimstone's stake in FPG was revalued upwards by R19.5 million to R331.9 million at period end.

Brimstone's 1.5% stake in MTN Zakhele Futhi was revalued downwards by R0.3 million to R35 million at period end. This scheme matures in November 2024. Brimstone's 2.8% stake in Phuthuma Nathi was revalued upwards by R1.7 million to R254 million at period end.

Brimstone owns a 5.1% stake in listed higher education group STADIO which was revalued downwards by R0.4 million to R213.5 million at period end. Brimstone received a dividend from STADIO of R3.9 million during the period under review.

"Brimstone has a 28-year track record as a responsible investor, employer, and B-BBEE partner. With over 70% of Brimstone's portfolio invested in the food sector, the theme of food security globally is very important to us. We remain responsible in our activities in the sector by procuring and supplying healthy food, fully aware of the key drivers and requirements of ESG. As a group we continue to navigate the journey of ESG. On the investment side have consciously invested in ethical investments over the years," concluded Robertson.