Losses from Lion of Africa Insurance and substantial write-downs in the valuations of Life Healthcare and Grindrod saw investment holding company Brimstone Investment Corporation report a loss for the year to December 2015 of R668.1 million compared with a profit of R277.8 million in the prior year.
This translated into a diluted headline earnings loss of 295.3 cents/share compared with a profit of 99.8cps in the previous year.
However, despite the tough economic climate faced by its investee companies, dividend income was healthy, with strong flows from Oceana, Life Healthcare and Phuthuma Nathi, the Multichoice BEE investment. For a company with thousands of small investors, sustainable dividend flows are very important.
In this regard Brimstone earned R370 million in dividends in the last year, up from R240 million (which included a special dividend from Life) in the previous year. This translates to 35c/share, up from 30c.
However as a result of the write-downs, which also included Tiger Brands, MTN and Athena Capital, intrinsic net asset value totalled R4.23 billion (R17.41/share) at the end of the year – a decrease of 12% from R4.86 billion (R19.79 per share).
Brimstone is conservative in the way it values its assets, preferring to err on the side of caution, says CEO Mustaq Brey.
Brimstone ordinary shares are now trading at a discount of 22.5% to intrinsic NAV.
The company has taken the necessary steps to clean up Lion of Africa where mismanagement, poor systems and allegations of fraud resulted in a second year of losses – R179 million compared with a R180 million loss in the previous year.
Lion was downgraded by credit ratings companies, which saw corporate business and premium income decline even further last year.
“We tackled three key areas – I call them the three M’s,” says Brey: “Man, money and machinery.”
From a people perspective Brimstone has sought out industry expertise in the form of recently appointed Lion CEO Bongani Madikiza, formerly a divisional MD at Old Mutual.
Brimstone introduced R200 million in capital during the year under review in order to maintain statutory solvency while the turnaround strategy is taking effect.
With these steps taken, Brey believes the insurer can return to profitability in the next financial year.
Losses at Lion aside, Brimstone subsidiaries Sea Harvest and House of Monatic both reported profits in challenging market conditions.
At Sea Harvest, the company increased operating profit by 10% to R121.6 million and Ebitda by 9% to R205 million. Revenue grew by 1% despite a 5% reduction in fish catch volumes. “Sea Harvest continued with its capital investment programme by investing in an additional freezer trawler as well as upgrading its fresh fish plant. In the last two years over R200 million has been invested in vessels and plant upgrades,” says Fred Robertson, executive chairman of Brimstone.
Sea Harvest acquired a 19.9% stake in Mareterram Limited: a vertically integrated agri-business which listed on the ASX in Australia. This is an investment that, Robertson says, secures Sea Harvest’s route to a critical market and provides a platform for future international growth.
During the six months, Brimstone sold its investment in The Scientific Group for a profit of R44.8 million. It also increased its shareholding in the Grindrod Consortium SPV from 59.2% to 72.4% and acquired 4.2 million Grindrod shares directly. “This is a fantastic company that is trading well below its NAV,” says Brey. “We have faith in Grindrod’s long-term story.”
Brimstone also subscribed for 28 million shares in JSE-listed specialist logistics property developer and owner, Equites Property Fund for R350 million, representing a 10% shareholding in Equites.
The company sold its shares in Nedbank realising R568.5 million, while in Old Mutual, Brimstone’s BEE transaction had matured on May 1 2015 – which left Brimstone with 7.4 million shares after repaying its debt. It has since sold the balance of these shares for a profit of R279.7 million.
Brey says it is optimistic about the year ahead. “We have taken the medicine as prescribed and I believe that we are now fighting fit.”
In a separate development, the chairman announced the imminent retirement of long-standing FD Lawrie Brozin, in May this year. Brozin joined the company in 1996 and has seen the group grow from a small unlisted Cape-based empowerment group with start-up capital of R3.5 million to a JSE-listed company with assets in excess of R7.6 billion.
Geoffrey Fortuin, former external audit partner, will be appointed as FD.
The company’s shares ended Monday day flat at R12 per ordinary share.