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Brimstone posts strong interim results

Brimstone Investment Corporation today reported a profit for the six months to June 2016 of R48,3m compared to a loss of R480,1m in the previous comparative period. Whilst revenue increased by 10% to R1.1bn, operating profit increased by 103% to R123m. Total assets at the end of the period were reported at R7,3bn.

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Brimming with confidence

Cape Town based empowerment group Brimstone Investment Corporation has celebrated its 20th anniversary this year – marking the remarkable journey from a community-based initiative with start- up capital of just R3m to a JSE-listed counter with assets of over R7bn. What’s perhaps more impressive that from this humble beginning Brimstone now employs more than 3,500 employees in its subsidiaries and in excess of 24,000 in its associates and investments.

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Current profits buoyed

THE tide still favours the local fishing sector with all four major companies based in the Western Cape once again netting impressive profit hauls.

‘Big fish’ Oceana reported a whopping 76% growth in operating profits to R269m in the half year to end March. The top-line was skewed with the recent acquisition of US-based fish oil and fish meal specialist Daybrook Fisheries, which pushed revenue up 40% to R3,6bn. Gross profits were up 38% to R1,34bn with the gross margin reassuringly steady at 36%.  

If Daybrook was excluded, then Oceana’s revenue – anchored by its Lucky Star canned pilchards’ operation – would have been up 13% to R2,9bn and operating profit would have increased 16% to R437m.

Oceana CEO Francois Kuttel said local sales volumes for Lucky Star were up 13% and overall volumes up 10% with the brand gaining market share in key regions. The Lucky Star improved its market share in the ‘inland regions’ by 7% to a commanding 80,9%, while the market share in the Eastern Cape shifted up 3,5% to 83,6%.

Kuttel said the pilchard canning effort was greatly helped by a significant increase in frozen volumes to local factories. He said Lucky Star increased local canned production from 2,5 million to 5,2 million cartons thanks to the increase in frozen imported pilchards. Kuttel said there was also a material improvement in pilchard landing due to a quota rollover from 2015 season.

Looking ahead, Kuttel said Lucky Star’s prospects were bright as fish was becoming more affordable compared to total food and non-alcoholic beverages. He said Lucky Star had managed to pass a price increase of 6% effective from April, and that an October price increase was under review depending on the Rand exchange rate. Kuttell said there was a strong promotional campaign undertaken by the company to draw market share from the chicken industry - which is still perceived as the cheapest form of protein by consumers.

Premier Fishing, which is controlled by empowerment company (African Empowerment Equity Investments (AEEI) reported revenue up 22% to R170m and operating profits up 21% to R22,5m in the half year to end February. More impressive was that Premier’s cash generated from operations was up almost fourfold to R24m. Premier has a dominant 60% share of the South Coast rock lobster market – but also catches West Coast rock lobster, anchovy, pilchards, squid and hake as well as operating abalone farms.

AEEI CEO Khalid Abdullah said the fishing business was being positioned for growth over the next three years to unlock shareholder value and raise capital to invest into the future growth of the business.

He said key deliverables to grow the business includes the acquisition of small to medium fishing businesses and the expansion of the abalone aquaculture farm in Gansbaai to over 250 tons. Abdullah said Premier Fishing’s target was to grow annual turnover to at least R500m.

Cape Town’s hake fishing stalwarts I&J and Sea Harvest also enjoyed sizeable profit catches despite facing some operational headwinds. I&J, controlled by consumer brands conglomerate AVI, reported a 1,9% increase in revenue to just over R1bn in the half year to end December. But operating profit was up 63% to R160m with the profit margin fattening markedly to 16%.

AVI directors said I&J’s revenue growth reflected the benefit of the weaker Rand on export sales and selling price increases. Profits were helped by the lower fuel price, improved fishing recoveries, additional fishing days (after commissioning new vessels recently) and improved fishing recovery. I& J said it had increased its market share from 44,2% to 46,1%.

I&J said its project to expand its abalone aquaculture to 500 tons was proceeding well.

Sea Harvest, which is controlled by Brimstone Investment Corporation, saw operating profit before interest increasing by 11% to R122m in the year to end December. Revenue was 1% higher than prior year despite a 5% reduction in catch volumes. Sea Harvest noted fishing conditions were very challenging - especially in the second half of the year. But prices for hake remained strong and there was a 10% volume growth in the export market where demand was high.

Sea Harvest continued with its capital investment programme by converting an existing trawler to a freezer trawler as well as upgrading its fresh fish plant. The company pointed out that in the last two years over R200m has been invested in vessels and plant upgrades.

Oceana’s hake business – much enlarged after the Lusitania and Foodcorp - also looked in fine fettle with good volumes reported and revenue boosted by the weaker exchange rate. Kuttel said profit “materially improved” on the prior year and anticipated continued product demand with exchange rate weakness further contributing to revenue growth.

He said Oceana was exploring Asian markets for its hake.

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Headwinds for Brimstone

LOCAL empowerment group Brimstone Investment Corporation appears to be battling to find its sea legs after an ill-timed foray into shipping and logistics giant Grindrod. The sea has always been central to Brimstone’s investment philosophy – having invested in fishing groups Oceana and Sea Harvest when the empowerment group was launched in the mid-nineties. While the fishing investments have rewarded Brimstone richly over the last two decades, the latest maritime thrust will test Brimstone’s resolve to endure choppy waters.

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Bump and grind for 2016

PROSPECTS for business in the Western Cape for 2016 look daunting. Political ructions have sent the Rand spiralling down against major currencies, the country’s fiscal policies look anything but disciplined and brittle trading conditions, across the board, look overwhelming. But local commerce and industry have proved hardy and resilient over many generations, and CBN expects local business – especially the inventive companies in the Western Cape – to endure tough times thanks to their built-in innovative fortitude. Here are the 16 developments that might bear watching in Western Cape business during 2016.

  • Cash is king for prince of deals Jannie Mouton

Just before 2015 closed out the mighty Stellenbosch-based investment house PSG collected R2,2bn in a book-build offer. Investors literally fell over each other to hurl money at PSG – which has enjoyed huge successes with Capitec Bank and private education venture Curro Holdings. CBN does not expect PSG to sit on that cash for very long, and reckons 2016 could be the year Mouton and his team really move and shake in the deal-making arena. The smart money says watch PSG’s agri-business associate Zeder for new deal-making activities.

  • Private equity appetite

Cape Town-based fresh produce retailer Food Lover’s Market looks set for a growth splurge. The company attracted a R760m investment from private equity investor Actis, which now holds a substantial minority stake in the business (which was founded by local entrepreneurs Brian and Mike Coppin.) Food Lover’s Market has over 120 stores and also operates over 200 FreshStop convenience stores at Caltex service stations. It recently bought artisanal coffee brand Seattle Coffee.
Mike Coppin said the deal with Actis was a great business fit for Food Lovers’ Market’s growth strategy in the future.

  • A word to the Wi(e)se

CBN reckons readers should watch developments at retail tycoon Christo Wiese’s smallest investment – Stellar Capital Partners (SCP.) SCP recently raised R1bn in fresh capital, and is now in the throes of buying full control of Retreat-based electronics manufacturer Tellumat. It seems almost certain SCP will also push for a bigger stake in vibrant industrial company Torre in the year ahead.

  • A steep learning curve

In one of the most unexpected shifts Cape Town investment company Trematon Capital Investments – which owns mainly property investments – made a cautious shift into the private education market by setting up a ‘Generation’ school in Sunningdale - Cape Town’s fast growing north-western suburb. CBN hears the school enrolments for this year were so overwhelming that Trematon is likely to extend the Generation concept to other areas of Cape Town.

  • Taking growth supplements

Steenberg-based health care brands conglomerate Ascendis has more than doubled its market value to close to R5bn since listing in late 2013 after a series of successful acquisitions. CBN understands Ascendis will not be taking a ‘chill-pill’ in 2016, and that several deals – including further offshore forays – are likely to be tabled.

  • Bulking up in the food sector

What chances that 2016 is the year local food companies opt for a consolidation recipe. CBN has a gut feel that the mix of local food companies – ranging from the large like Pioneer Foods and Premier Foods to the more niche offerings of Rhodes Food Group, Quantum Foods and Bounty Brands, Sea Harvest and Premier Fishing – could find new corporate recipes via mergers or takeovers.

  • Flawed but feisty

Parow-headquartered diamond miner Trans Hex Group has struggled through a tough few years. The outlook for diamond prices looks somewhat tarnished, but efforts to bring the recently acquired Namaqualand Mines (acquired from gem giant De Beers) into production could be a critical turning point for Trans Hex.

  • Drinking in new opportunities

Epping-based plastic packaging specialists Bowler Metcalf decision to pour its Quality Beverages soft-drink operations into the larger SoftBev amalgamation looks like it could pay dividends this year. SoftBev hit the ground running by snagging the Pepsi bottling contract, which will test the operational and marketing efficiencies of the new business. If things go as planned SoftBev might look to raising fresh capital to grow the business – an event that might see Bowcalf increase its stake in the company as well as the possible emergence of a new strategic partner.

  • Go west young man

The Saldanha Industrial development Zone (IDZ) will hopefully gain further traction this year. The Western Cape economy certainly needs a dedicated industrial hub to provide extra growth impetus and boost job creation. Let’s hope the oil price, which has driven so many African economies and will stimulate shipping/oil rig maintenance and repair activity, starts firming markedly this year. Increased property activity in the Mykonos precinct seems to suggest things are well on track for an encouraging 2016 on the Weskus.

  • Spurring on Burger King

At the end of 2015, CBN could count 51 Burger King stores scattered around the country (albeit mainly concentrated in Cape Town and Johannesburg.) Empowerment investor Grand Parade Investments has carefully rolled out Burger King to ensure margins are suitably succulent and that the balance sheet is not starved of development capital. CBN wonders whether the year ahead will see GPI capitalise on its relationship with Spur Corporation, in which it has a 10% stake, to accelerate the roll-out of Burger King stores? Spur has a muscular balance sheet with plenty cash, and the company’s experienced management could only add flavour to GPI’s efforts to build GPI into a strong fast food brand.

  • Taming the lion

Iconic empowerment group Brimstone will have its work cut out in 2016 to clean-up a rather unsavoury mess at its shot-term insurance subsidiary Lion of Africa. While Brimstone would probably prefer to be scouting for new investment opportunities, a successful turnaround at the Lion would add to its credibility as determined long-term investors that are not afraid to roll up their sleeves and get stuck into the investment portfolio.

  • Armed to the teeth

Just before the end of the year African Empowerment Equity Investments (the old Sekunjalo Group) finalised a R100m deal to take a 25% stake in defence contractor Saab-Grintek. The deal guarantees minimum annual dividends of R18m, which appears to underpin confidence that Saab-Grintek might be a very industrious investment for AEEI.

  • Raiding the vineyards

There were a number of forays by foreign buyers into the wine sector – including the mergence of buyers from China and India. With the Rand tanking against major currencies, the SA winelands must look like bargain real estate compared to the vineyards up for sale in traditional vino areas like California, Australia and France.

  • The runt might save us

The rout in the Rand after the shock dismissal of finance minister Nhlanhla Nene, and the following debacle around the finance ministry, might well have a silver lining for the Western Cape economy. Looking in the bright side … as a tourist destination the Cape becomes cheaper to overseas visitors, our wine and fruit farmers can bring in additional export revenue and the beleaguered clothing manufacturing sector gets a reprieve as imported garments are no longer cheap.

  • Asset test

Cape Town has traditionally been the home of the asset management industry – what with old school ‘wealth managers’ like Old Mutual and Sanlam calling the city home turf. What will be interesting to gauge, however, in 2016 is whether asset management poster child Coronation Fund Managers – for so long the undisputed market leader – is on a slippery slide and whether feisty newcomer Sygnia is about to unleash a revolution that could completely disrupt the wealth management hub.

  • Stoking the brandy war

It looks like brandy heavyweights Distell and KWV could be at each others throats in 2016 in a bid to secure a viable portion of the fast shrinking brandy market. KWV has already fired the first salvo, intimating that Distell – which owns best selling brands like Klipdrift and Richelieu - is betraying the ‘premiumisation’ of the brandy category with dangerous discounting. It will be interesting to see if KWV plugs away in the premium sector with its award winning brandies…or whether it takes the fight to Distell with a mass market offering.

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Brimstone - The company with a soul

  • Published in Videos

Brimstone Investment Corporation began celebrating its 20th anniversary with packing 1,000 food hampers for distribution to people and communities in need.  All parcels were collected from the various beneficiary organisations.

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Ascendis buys diagnostics of Scientific Group

STEENBERG-based health care brands conglomerate Ascendis has snapped up the well-regarded diagnostics of the The Scientific Group (SG) in a R284m deal. The deal will be settled in cash and shares, and interestingly involves iconic Western Cape empowerment company Brimstone as one of the key members of the consortium vending SG.

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Cape industry reinforced for 2015

The past year has been a most trying period for industrial concerns throughout SA – their very viability threatened by a combination of higher energy and labour costs as well as a weak rand and brittle economic conditions locally and abroad.

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Sea Harvest invests R125m on a new trawler on the West Coast

This year Sea Harvest celebrated 50 years since its inception and today it launched its new vessel on Quay 6 at the V&A Waterfront in Cape Town. Fred Robertson, the Chairman of Sea Harvest and majority shareholder Brimstone Investment Corporation was present at the vessel christening ceremony and he christened her saying, “We are gathered here to name the Harvest Atlantic Peace, may she reap a bountiful harvest and may the God keep her and her crew safe on her journeys.”

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