Brimstone returns to profit, pays dividend

‘In the 2020 and the 2021 years we repaid about R2bn of debt … and thankfully our underlying investments, including Sea Harvest, Oceana and Obsidian, all came home for us’: CEO Mustaq Brey.

FIFI PETERS: Brimstone, the BEE investment company that was founded in the mid-1990s had a very good story to tell its shareholders today, when it resumed paying dividends in the 2021 financial year. Some of its investee companies include Sea Harvest, the guys that make the Lucky Star tinned fish our former finance minister loved to cook with. They also have stakes in Obsidian Health and hold BEE stakes in Stadio, MTN Zakhele as well as MultiChoice’s Phuthuma Nathi scheme.

We do have the CEO of Brimstone, Mustaq Brey, on the Market Update for more. Sir, thanks so much for your time. It does look like it has been a good year for the group, but I’d like to know if the performance that you delivered today met your own expectations.

MUSTAQ BREY: Yeah, absolutely. It has been long journey since Covid started two years ago. We realised that we were over-borrowed at that stage, because the market went down, the share prices of our listed investments went down; we were then exposed. What we did over there over the next two years, in the 2020 and the 2021 years, we repaid about R2 billion of debt. We sold some of our assets, we right-sized the company again, and thankfully our underlying investments, including Sea Harvest, Oceana and Obsidian all came home for us. They all had good years. So overall it was a very good year for us and managed to repay, and we are going to start paying cash dividends again. After not being able to pay cash dividends for two years we’ve now resumed that. We are very proud of that factor.

FIFI PETERS: Probably a great timing in terms of the focus on debt repayments, just given what interest rates are doing right now. We know that the cost of borrowing and the cost of servicing debt is on the up as the central bankers try to tackle inflation by raising interest rates. But nonetheless, the results that you have delivered today reflect the second and the third waves of Covid-19 in 2021. So some of the lockdowns, the supply disruptions and perhaps even the disruptions caused by the riots in July in Gauteng and KZN – what would you say was the most challenging thing about the year that was?

MUSTAQ BREY: I think not just the year that was. Probably if I look over the Covid period, the national fact, the fact that we had to stop producing goods at House of Monatic. We then sold off the plant and machinery and a lot of our staff to another retailer, who took over our people as well. We were very lucky that they took over our people and we didn’t have to retrench all of them. That was, that was quite a tough decision.

And then during the last year, as well as the fact that Covid with all the additional costs we got with Covid, going to see and checking up on people all the time and those type of things – you can’t recover all those costs. Lately we’ve now with the transport of goods, as well as the [inaudible] and that. I think with Covid, we didn’t have all the flights that were regularly available before to send some of our goods overseas almost on a daily basis. So those were quite challenging times. Importing raw materials has become challenging as well. The cost of transport with containers has run up substantially in the last few months.

And now with the current the war going on between Ukraine and Russia, we find the price of crude, which is a basic commodity we need for all our fishing vessels, that’s gone sky-high as well. So those are part of the challenges which we faced.

FIFI PETERS: I read a headline – I’ll look deeper into the story after our conversation – about the oil price dipping below $100/barrel. I think that is something that is quite welcome for most of us, but it certainly doesn’t take away from the uncertainty that could still lie ahead and the volatility for that. So just the thinking on dealing with the cost pressures then from the supply chain disruptions, and from the increased costs of shipping, and the containers there at the ports, what’s the group strategy to contain and offset cost pressures?

MUSTAQ BREY: Well, we’re trying in whatever way we can to minimise the actual price increases of our commodities going on into the marketplace, but it’s very, very difficult in the current times. We’re trying to look at cost containment all over. There’s inflation as well. We know that there is going to be a demand for salaries and wages to go up, because people are just paying more for everything. I mean, you’ve just got time to refill your car at the moment and you’re quite shocked at the price that you have to pay compared to what you paid a year ago. Just the fuel increases and taxis and transport, and all those things are going up. We are set now to get another increase coming in our electricity price as well. All the signs are showing that we’re going to have inflation coming back quite strongly in our country, which is quite a risk. Then unemployment at the moment – it doesn’t help that either, it just makes things worse.

FIFI PETERS: Sure. Record unemployment in fact, according to the latest numbers that were released today. But Mustaq, talking back to House of Monatic, in which you say that tough decisions had to be made to ensure that that business was able to keep on going, I do see that what is reflected is a loss this time around of R38.6 million. So just because of the restructuring that did take place and the moving of the manufacturing facility and another supplier taking over most of the operations, what does that mean now for your balance sheet?

MUSTAQ BREY: Well, what it does, what it also includes is part of the retrenchment cost during the last year – the new people didn’t take everybody and we had to retrench some people. That cost is in there as well. We closed a number of our retail stores as well, so all of those costs are in there. That was quite sad. House of Monatic is more than a hundred years old, we had been going for more than hundred years and we had to slowly close it down. We’ve still got the brands in there and we’ll still carry on utilising the brands. We’ve got a lot of interest shown in the brands and we are busy doing some transactions with those. We will rent out our brands on a royalty basis to other manufacturers who want to use the brands.

FIFI PETERS: Sure. One of those brands includes Carducci, and I recall back in 2019 – or somewhere there – where House of Monatic kind of headlined, given the fact that you made the President of South Africa Cyril Ramaphosa’s suit back then.

Right now we’re seeing quite a strong push to localise a lot more industries in this country, particularly retail, to save as many jobs as possible, but to build the manufacturing base to be able to be self-reliant. So to what degree are some of those localisation initiatives quite helpful for some of your investee companies?

MUSTAQ BREY: Well, I think the people who bought over the House of Monatic plant and the people as well, they’ve got more than 2 000 retail stores in the country. They don’t have to source stuff in China and the Far East. They can manufacture locally. And the turnaround time at the moment is much quicker for that, and the current logistical problems of moving containers all over the world don’t come into play anymore.

So those things are there, but it’s quite difficult on the fishing side. We do supply both the local and overseas market. We try to make sure they both are fully supplied.

FIFI PETERS: Your BEE investments – how would you rate the performance of some of your BEE stakes this time around?

MUSTAQ BREY: Well, the MTN one came around quite nicely this year, up quite nicely. And then also Stadio – the university, the education place – came back quite strongly during the year as well. So we are quite happy with those. And Phuthuma Nathi again had a good year. The dividend from there was very strong; I think we got R40-odd million out of dividend from that investment. So overall we are quite happy with those investments, and he cash flow we get from places like Phuthuma Nathi and from other investments we have.

FIFI PETERS: Sure. Mustaq, a final question, because part of the Build Back Better and the economic recovery plan from Covid-19, is one that has to centralise inclusive growth a lot more. We hear the catchphrase ‘leave no one behind’ and it’s more than a catchphrase. It’s what should potentially be a lived reality for all of us. So as an empowerment investor yourself, what’s your take on how to achieve meaningful transformation in this country, and to share and to create shared value.

MUSTAQ BREY: I think one of the biggest issues in is to get more people to buy local, not to buy goods manufactured overseas – as much as we can. I think support local industries in whatever form or format. I think it will help the country, and create more jobs. There’s lots and lots that can be done.

If I look at the tourism industry, we’ve got such a beautiful country, but how many people are travelling locally compared to travelling overseas? If we can encourage all of those types of things – and it’s a small thing to try and encourage people. For instance, on our golf courses that we’ve got, if we can try, when there are foreigners visiting our golf courses, we can try and to ensure that they take a local caddy, which is a simple thing, not a lot of money. But if that creates a man a job, that puts food on the table for another family.

So I think all of those types of things, the simple, small things that we can get into people’s mindset, will help everybody.

FIFI PETERS: I certainly couldn’t agree with you more. We will leave it there. Thanks so much for your time, Mustaq Brey, the CEO at Brimstone.

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