YEARS INTEGRATED REPORT 2015

Transcription

1 YEARS INTEGRATED REPORT 2015

2 MISSION STATEMENT BRIMSTONE INVESTMENT CORPORATION LIMITED SEEKS TO BE PROFITABLE, EMPOWERING AND TO HAVE A POSITIVE SOCIAL IMPACT ON THE BUSINESSES AND THE INDIVIDUALS WITH WHOM IT IS INVOLVED, INCLUDING SHAREHOLDERS, EMPLOYEES, SUPPLIERS, CUSTOMERS AND THE GREATER COMMUNITY. ABOUT THIS REPORT Report Profile This report is for the year ended 31 December This is the seventh integrated report produced by Brimstone. It is intended to continue along this journey of integrated reporting to enable the Company to refine the report to fully comply with King III and the JSE Listings Requirements. For any enquiries on this report please contact Nisaar Pangarker (npangarker@brimstone.co.za), Michael O Dea (modea@brimstone.co.za) or Tiloshani Moodley (tmoodley@brimstone.co.za) at the addresses provided or telephone number Report Scope and Boundary As an investment holding company Brimstone reports on all businesses which it controls. Where it does not enjoy control, it has chosen to influence the principles of sustainability within the context of that business, but will however not report on the landscape and progress. Brimstone currently has three operating subsidiaries, i.e. House of Monatic, Lion of Africa and Sea Harvest. These subsidiaries are unlisted and are operated and managed as independent entities with autonomous boards of directors. Materiality In keeping with our mission statement, we focus on material aspects that impact our ability to be profitable, empowering and have a positive social impact in the communities in which we operate. Material aspects are defined as our material issues and any significant developments that would influence an assessment of Brimstone s performance or opportunities. In achieving our mission, various capitals are consumed. Primary Reporting Framework This report is prepared under the guidance of the International Integrated Reporting <IR> Framework which has been adopted by the Board. Independent Assurance Independent assurance and assessment has been provided over our financial and nonfinancial information presented in this report. Deloitte & Touche as our external auditors has issued an unqualified audit opinion on our consolidated and separate annual financial statements. In addition, Deloitte & Touche has performed an audit-readiness assessment of selected non-financial information as presented. Empowerdex has issued certificates verifying the B-BBEE ratings presented. Report Approval The Board believes that the Integrated Annual Report has been prepared in accordance with best practice, appropriately addresses material aspects of Brimstone s business and is a fair representation of the integrated performance of the Group. THIS INTEGRATED REPORT IS PRINTED ON COCOON SILK. 100% RECYCLED (PCW) / FSC TM 100% RECYCLED CERTIFIED.

3 INTEGRATED REPORT 2015 CORPORATE PROFILE Brimstone is a black controlled and managed investment company incorporated and domiciled in the Republic of South Africa, employing in excess of employees in its subsidiaries and in excess of in its associates and investments. Brimstone seeks to achieve above average returns for its shareholders by investing in wealth creating businesses and entering into strategic alliances to which it contributes capital, innovative ideas, management expertise, impeccable empowerment credentials and a values driven corporate identity. CONTENTS ABOUT THIS REPORT...INSIDE FRONT COVER OUR HISTORY Salient Financial Highlights...4 Five Year Financial Review Year Overview...6 OUR BUSINESS Our Business Model...8 External Factors Impacting Our Business Model...10 Managing Our Material Risks...12 Board of Directors...14 Team Brimstone...16 Chairman s Review...18 Group Profile...22 Executive Directors Report...24 Intrinsic Net Asset Value Report...27 Corporate Social Initiatives...29 Our People s Stories...32 Subsidiary Reports...40 GOVERNANCE Governance Report...46 Social and Ethics Committee Report...51 Remuneration Report...52 Audit and Risk Committee Report...55 AUDITED ANNUAL FINANCIAL STATEMENTS Contents...57 Notes to the Annual Financial Statements...66 Shareholding Information Notice of Annual General Meeting Curriculum Vitae Corporate Information Proxy Form ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 1

4 2015 INTEGRATED REPORT OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS BRIMSTONE INVESTMENT CORPORATION LIMITED GROUP STRUCTURE 2 BRIMSTONE INVESTMENT CORPORATION LIMITED

5 INTEGRATED REPORT 2015 A schematic representation of Brimstone and its operating subsidiaries, including information regarding their number of employees and ownership interest. Only summarised disclosures relating to the profitability, empowerment and positive social impact of Brimstone s operating subsidiaries are provided in this report. Sea Harvest Shareholding: 58.44% Number of employees: Lion of Africa Insurance Shareholding: 100% Number of employees: 144 House of Monatic Shareholding: 100% Number of employees: 841 Associates, Joint Ventures, Investments, and Option Investments Refer to pages 22 to 23 for a detailed Group profile ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 3

6 2015 INTEGRATED REPORT SALIENT FINANCIAL HIGHLIGHTS for the year ended 31 December 2015 % R Change OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Revenue (1) Operating Profit Headline (Loss)/Earnings ( ) (353) Total Assets (4) Weighted average number of shares in issue net of treasury shares (000 s) Shares in issue at end of year net of treasury shares (000 s) (1) Performance per share (cents) Headline (Loss)/Earnings (295.3) (353) Net Asset Value (23) FIVE YEAR FINANCIAL REVIEW 12 months ended 12 months ended 12 months ended 12 months ended 12 months ended 31 December 31 December 31 December 31 December 31 December Operating results (R 000) Revenue Operating Profit Headline (Loss)/Earnings ( ) Financial Position (R 000) Total Assets Net Assets Performance per share (cents) Headline (Loss)/Earnings (295.3) Dividend Special dividend Net Asset Value (NAV) Intrinsic Net Asset Value (INAV) Share statistics Weighted average number of shares in issue net of treasury shares Shares in issue at end of year net of treasury shares Closing share price: Ordinary (cents) Closing share price: N Ordinary (cents) Market capitalisation: Ordinary shares (R 000)* Market capitalisation: N Ordinary shares (R 000)* Total (R 000) *Net of treasury shares 4 BRIMSTONE INVESTMENT CORPORATION LIMITED

7 INTEGRATED REPORT 2015 REVENUE R 000 OPERATING PROFIT R 000 R 000 CENTS TOTAL ASSETS INAV PER SHARE R 000 CENTS R NAV PER SHARE MARKET CAPITALISATION ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 5

8 2015 INTEGRATED REPORT 20 YEAR REVIEW OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS BRT Share Price (cents) BRN Share Price (cents) Incorporated in October Acquired stake in Oceana for R7.5m Raised initial capital of R3m from community shareholders Raised R13m from shareholders Total investments R17.4m Acquired stakes in Plessey Cellular, KFM Radio and Norwich Holdings Restructure of share capital First AGM held Raised R45m from previously disadvantaged shareholders Raised R104m from institutions Special Dividend (cents) Ordinary Dividend (cents) Raised R85m in various share issues Asset base R300m Sold stake in Norwich at profit of R21m Acquired House of Monatic Listed on JSE Sold off noncore assets raising R62m Acquired stake in Sea Harvest Acquired stake in Nandos Group Paid back 150cps to all shareholders Acquired 30% of Lion of Africa Prof Jakes Gerwel appointed as Chairman of board 150 Acquired stake in Peoples Bank Sold stake in KFM Radio Started BrimEquity, a JV with Coronation Capital Received empowerment deal of the year award for Peoples Bank Disposed of property investments Acquisition of further shares in Sea Harvest Market capitalisation drops to below R40m Declared maiden dividend of 4cps Disposed of stake in Nandos Group Acquired 25% in Lenco Holdings for R52m Doubled stake in Sea Harvest to 21.52% for R85.3m Specific share repurchase Paid maiden dividend of 4cps Acquired stakes in Old Mutual and Nedbank Acquired 18% stake in Life Healthcare Clawback offer of R110m 6 BRIMSTONE INVESTMENT CORPORATION LIMITED

9 INTEGRATED REPORT Acquired a further 10% stake in Oceana for R176m Increased stake in Life Healthcare to 21.9% 12 Sold Lenco stake for R203m Acquired 18% stake in Aon Re Africa years on the JSE Acquired Phuthami Nathi shares 32 Increased stake in Sea Harvest to 55.7% Increased stake in Lion of Africa to 74% Acquired option to subscribe for 1% of Tiger Brands 24 Unbundled Life Healthcare to shareholders Acquisition of remaining 26% of Lion of Africa Acquired MTN Zakhele shares Increased stake in Scientific Group to 28.2% 820 Acquired further 8.5m shares in Oceana for R382m Acquired 12.3% of Taste Holdings Disposed of 4.5m shares in Life Healthcare realising R140m Acquired 25.1% of Afena Capital Total assets increase by R1.1bn Acquired 4.97% of Grindrod Acquired further 1.16m MTN Zakhele shares Acquired further 1.1m Phuthuma Nathi shares Subscribed for additional 2.8m shares in Oceana rights offer Acquired further 19.7m shares in Taste Holdings Old Mutual and Nedbank transactions matured Disposed of investment in Scientific Group at a profit of R44.8m Increased shareholding in Grindrod to effective 6.62% Acquired further 1.96m Phuthuma Nathi shares Acquired 10% of Equites for R350m ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 7

10 2015 INTEGRATED REPORT OUR BUSINESS MODEL OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS KEY INPUTS HUMAN CAPITAL Market sensing investment team Strong and committed leadership and back office Professional service providers SOCIAL AND RELATIONSHIP CAPITAL Business networks Unique and broad local shareholder profile Long-term investment focus Proven track record of successful partnering Strong BEE credentials INTELLECTUAL CAPITAL Track record of adding value Reputation for fair and ethical business practices Balance sheet management expertise Optimisation of financial capital FINANCIAL CAPITAL Debt and equity funding Vendor funding Reinvestment of retained earnings Available borrowing facilities OUR ACTIVITIES IDENTIFY INVESTMENT OPPORTUNITIES Leveraging networks Researching publicly available information Approaches from investment banks and corporate finance houses Approaches from businesses seeking BEE partner Restricted BEE equity ownership schemes RIGOROUS EVALUATION OF OPPORTUNITIES Preferred sectors Good growth potential Strong cash flows and record of profitability Minimum hurdle rates met, including Positive Social Impact Minimise discount to INAV Listed vs unlisted and control vs non-control Ethical, competent and like-minded management team Board representation required where possible ROBUST NEGOTIATION AND CONSIDER SOURCES OF FUNDS Robust negotiation for the best terms Optimal funding and investment holding structure Involving necessary specialists in process Approvals framework adhered to MONITORING INVESTMENT PERFORMANCE Board representation and committee involvement Contribution of management expertise to investee Providing strategic insight to investee Dedicated executives assigned to subsidiaries Regular review of performance Robust discussions with investee 8 BRIMSTONE INVESTMENT CORPORATION LIMITED

11 INTEGRATED REPORT 2015 OUR BUSINESS CONTEXT EXTERNAL FACTORS Government s revision of the B-BBEE Codes of Good Practice Government s Black Industrialist s Programme Macro-economic factors on South African economy Increased volatility of equity market OUR MATERIAL RISKS 1 Lion of Africa profitability 2 Commodity price volatility 3 Racial and gender profile of the professional team 4 Investment concentration in highly regulated industries 5 Increase in tax rate and tax burden 6 Sustained market shocks impact on market variables 7 Brimstone is a shareholder of reference in some businesses 8 Quality and succession plan of management 9 Potential loss of the entrepreneurial culture/risk appetite at Brimstone 10 Compliance with ever-changing legislation GOVERNANCE KEY OUTCOMES R78 million Taxes paid to SARS Total workforce in Group R2 029 million Paid to employees and suppliers R3 million CSI spend OUTPUT Financial returns VALUE DELIVERED R174 million Interest paid to financiers 35 cents per share Dividends declared to shareholders R2 143 million Reinvested R4 229 million Intrinsic Net Asset Value ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 9

12 2015 INTEGRATED REPORT OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS BRIMSTONE IS WELL POSITIONED TO PURSUE VALUE ACCRETIVE DEALS IN THE QUALIFYING SECTORS. Revision of the B-BBEE Codes of Good Practice Black Industrialist s Programme Macro-Economic Factors on South African Economy Increased Volatility of Equity Market 10 BRIMSTONE INVESTMENT CORPORATION LIMITED

13 INTEGRATED REPORT 2015 EXTERNAL FACTORS IMPACTING OUR BUSINESS MODEL The Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act 2013 ( the Act ) was proclaimed into law on 24 October 2014 and came into effect on 1 May The Act has significant implications for businesses. One of the consequences of the Act is that all actions that are not aligned to the letter of the Codes of Good Practice and the Sector Codes are considered a punishable offence. A company may be fined up to 10% of its annual turnover. The amended Codes are expected to significantly reduce current compliance levels of companies by two to three levels. The revisions identify priority elements on which companies should concentrate: ownership, skills development and enterprise and supplier development. Failure to comply with a 40% sub-minimum in any of these priority elements leads to an automatic reduction of one level in a company s contribution level. The procurement element is heavily weighted towards procuring from black-owned businesses as opposed to the highest-rated businesses. As a result, Empowerdex has noted a trend of companies working on new ownership trans actions to ensure that they become black-owned and thus be counted in the procurement scorecards of their clients. Brimstone with its strong black ownership credentials of more than 55% black economic interest and its 20 year track record of deal-making is well placed to: partner with companies looking for a B-BBEE partner; and access funding for deals as banks and lending institutions are prioritising the funding of B-BBEE compliant companies. The Black Industrialist s Scheme offers a cost-sharing grant, ranging from 30% to 50%, to approved entities to a maximum of R50 million. The quantum of the grant will depend on the level of black ownership and management control, the economic benefit of the project and the project value. In conventional terms, the concept of Black Industrialist s refers to black people directly involved in the origination, creation, significant ownership, management and operation of industrial enterprises that derive value from the manufacturing of goods and services on a large scale; acting to unlock the productive potential of our country s capital assets for massive employment locally. The following are important elements of being an industrialist : Significant influence in an enterprise or industry; Control of an enterprise through shareholding; Board and executive management control; and Production of products (goods and or services) with significant wide use. The term Black Industrialist, in a general sense refers to black South Africans who own and, through significant shareholding, control an enterprise whose products are significantly used and have significant impact on decent employment and create broad-based economic opportunities. Economic Development Minister Ebrahim Patel announced in parliament in May 2015 that the Independent Development Corporation would set aside R23 billion to fund the Black Industrialist s Programme over the next five years. Brimstone is well positioned to pursue value accretive deals in the qualifying sectors. Economic activity in Sub-Saharan Africa decelerated from 4.6% in 2014 to 3.4% in 2015, the weakest performance since 2009, due to a combination of external shocks and domestic constraints. In South Africa, the economy expanded by 1.3% in 2015 compared with 1.5% in Power supply bottlenecks, compounded by a severe drought and difficult labour relations, weighed heavily on growth. Consumer price inflation remained moderate in South Africa, however, the weakness of the currency contributed to higher inflation. The SARB raised interest rates by 25 basis points in November 2015 and another 50 basis points in January 2016 due to concerns about inflation. The outlook for 2016 is that growth is expected to remain weak in South Africa, as inadequate power supply, low business confidence, difficult labour relations and policy tightening slow activity. While Brimstone s subsidiaries and affiliates which are importers of raw materials are negatively impacted by the weak Rand, those subsidiaries and affiliates exporting product and operating in foreign geographies are well positioned to cope with the weak commodity price cycle and exchange rates. Where appropriate, foreign currency risk exposure is managed by way of forward cover. Higher interest rates negatively impact the Group due to the level of interest-bearing borrowings. Brimstone has significant exposure to investments in listed companies. Consequently, fluctuations in the market price of shares result in significant volatility in the income statement. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 11

14 2015 INTEGRATED REPORT MANAGING OUR MATERIAL RISKS OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS HEAT MAPS Inherent Risk Exposure IMPACT INHERENT RISK EXPOSURE Catastrophic Critical Serious Significant Minor Extreme High Moderate Low Insignificant Rare Unlikely Possible Likely Almost certain Residual Risk Exposure LIKELIHOOD Very good Good Satisfactory CONTROL EFFECTIVENESS Needs improvement Unsatisfactory TOP 10 MATERIAL RISKS (BY RESIDUAL RISK EXPOSURE) 1 Lion of Africa profitability 2 Commodity price volatility 3 4 Racial and gender profile of professional team Investment concentration in highly regulated industries 5 Increase in tax rate and tax burden Sustained market shocks impact on market variables Brimstone is a shareholder of reference in some businesses Quality and succession plan of management Potential loss of the entrepreneurial culture/risk appetite at Brimstone Compliance with ever-changing legislation 12 BRIMSTONE INVESTMENT CORPORATION LIMITED

15 INTEGRATED REPORT 2015 RISK CONTEXT RESPONSE MEASURES Significant losses incurred since the 2013 financial year Inadequate statutory solvency levels Certain investments are significantly impacted by volatility in commodity prices resulting in significant revaluations Need to increase diversity of professional team in terms of race and gender Group has interests in the fishing and insurance industries which are subject to strict regulation Further capitalise business Discontinue unprofitable business lines Form strategic alliance with a technical partner Replace management team and dedicate a Brimstone executive to oversee remediation and transition Review and implement new control disciplines Develop and implement a new client acceptance and retention programme Continuously monitor debt covenants in respect of investments negatively impacted by a fall in commodity prices Appointment of female executive team member to the board of subsidiary Appointment of suitably qualified employment equity candidates Monitor policy and legislative changes, and engage actively with relevant authorities on policy and legislative framework Geographic diversification of sources of revenue Increased CGT and other tax rates Consider impact of announced changes in tax rates on Group in consultation with relevant experts Significant investments in listed companies exposes Group to market volatility Market conditions in relation to interest rates and exchange rates impacting negatively on subsidiaries Increase in interest rates driving up cost of capital Strategic preference for minority stakes in key investments however, Brimstone has due to changing circumstances become the majority shareholder Conduct of subsidiaries may negatively impact on Brimstone s reputation Subsidiaries are very closely related to the Brimstone brand, consequently any reputational damage impacts Brimstone directly Succession planning for key management at subsidiaries Brimstone founding members and leadership retiring in a few years, having developed significant business relationships over the years Investment decision-making process is time consuming and rigorous, which may result in the loss of profitable deals Increased cost of compliance with legislation relative to size of the business Potential impact of revised B-BBEE Act and Codes on Brimstone s B-BBEE status Determine optimal mix of investments Increase exposure to unlisted investments Reduce debt where possible Monitor compliance with foreign exchange hedging policies Continuous engagement with investee companies Avoid controlling stakes going forward and consider divesting from controlling stakes Brimstone executive responsible for the subsidiary, together with the subsidiary board to prevent reputational damage and ensure appropriate staff development for succession Increased involvement of executive team in decision-making and institutionalisation of relationships Succession planning to be a standing item on the remuneration committee agenda Open communication by leadership of the need to maintain the entrepreneurial culture Consultative but agile decision-making process Appointment of Compliance/Risk Officer Consultation with professional service providers ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 13

16 2015 INTEGRATED REPORT BOARD OF DIRECTORS Executive directors OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS F Robertson Executive Chairman Length of service with the Company: 20 years Directorships: Non-executive chairman of Lion of Africa Insurance Company Ltd; Sea Harvest Holdings (Pty) Ltd; House of Monatic (Pty) Ltd and serves on the boards of Remgro Ltd; Aon Re Africa (Pty) Ltd; Old Mutual Emerging Markets Ltd and Novus Holdings Ltd. MA Brey Chief Executive Officer Length of service with the Company: 20 years Directorships: Non-executive chairman of Oceana Group Ltd; Life Health care Group Holdings Ltd and serves on the boards of Lion of Africa Insurance Company Ltd; Aon Re Africa (Pty) Ltd; House of Monatic (Pty) Ltd and International Frontier Technologies SOC Ltd. LZ Brozin Financial Director Length of service with the Company: 19 years Directorships: Nandos Group Holdings Ltd and Sea Harvest Holdings (Pty) Ltd. 14 BRIMSTONE INVESTMENT CORPORATION LIMITED

17 INTEGRATED REPORT 2015 Independent non-executive directors PL Campher Lead Independent Director Date appointed to the Board: 7 March 2006 Qualification: BEcon Directorships: Sun International Ltd; Strate Ltd; Savings and Invest ments Association of South Africa (ASISA); International Investment Funds Association; Equites Property Fund Ltd and JSE Clear (SARCOM). MK Ndebele Date appointed to the Board: 7 March 2006 Qualifications: BA(Economics); MSW(Social Planning) Directorships: Imam Abdullah Haron Education Trust (trustee); Desmond Tutu HIV Foundation (trustee) and Anglican Diocese of Cape Town (Lay Canon and Chancellor). MJT Hewu Date appointed to the Board: 15 September 1997 Qualification: BCom(Hons); BPhil(Hons) Directorships: Kayamnandi Investments and Onyx Financial Services. LA Parker Date appointed to the Board: 1 November 1995 Directorships: FPG Group (Pty) Ltd; FPG Investments (Pty) Ltd; FPG Foods (Pty) Ltd; Suburban Cigarette Distributors (Pty) Ltd; Al Amien Foods (Pty) Ltd and is a member of The Friends of the Children s Hospital N Khan Date appointed to the Board: 1 November 1995 Qualifications: BSc(QS); MAQS; AAArb Directorships: Stonefountain Properties (Pty) Ltd; Perthpark Properties (Pty) Ltd; BTKM Inc; Proman Project Management Services (Pty) Ltd; Business Park Development Company (Pty) Ltd and Equites Property Fund Ltd. FD Roman Date appointed to the Board: 26 March 2008 Qualifications: BA; Post Graduate Secondary Teacher s Diploma Directorship: Direng Investment Holdings; Umlingo (Pty) Ltd and Distinct Few (Pty) Ltd. KR Moloko Date appointed to the Board: 5 November 2013 Qualifications: NDip (Building Survey); BSc(QS); BCom; PGDA; CA(SA) Directorships: The Prescient Foundation; KWV Holdings; Fairvest Property Holdings; Inkari Basadi Investments; Prescient Limited; ESOR Ltd; Holdsport Ltd and Ikamva Labantu Charitable Trust. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 15

18 2015 INTEGRATED REPORT TEAM BRIMSTONE OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Virginia Feleza Nazeema Jogee Takula Tapela Tiloshani Moodley Shameemah Hamit Mike O Dea Sabira Dhansay Mvikeli Hlope Patience Sibanda Nisaar Pangarker Pinkie Njani Lorraine Ramgopaul 16 BRIMSTONE INVESTMENT CORPORATION LIMITED

19 INTEGRATED REPORT 2015 Connie Vanda Muhammad Brey Lumka Mangesi Iqbal Khan Geoff Fortuin Fatima Allie Gerhard Kotze Jeanette Mosia Elke Visagie Sisa Ralarala Tamlyn Brink Sebastian Patel ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 17

20 2015 INTEGRATED REPORT CHAIRMAN S REVIEW OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Fred Robertson Executive Chairman Brimstone s purpose is enshrined in a philosophy based on three tenets. We aim to be profitable, empowering and to have a positive social impact on society. In a period of extreme uncertainty on various fronts including economic, social, political, technological and the natural environment it becomes more challenging to deliver on this philosophy. A track record of delivery to stakeholders over a twenty year period is certainly a major feat for a company that was created from grassroots in 1995 on the Cape Flats. When our first transaction, a R7.5million investment in the Oceana Group, was concluded, little did we imagine that this investment would be an anchor of our investment portfolio twenty years later. Today Oceana is our single largest investment with gross value in excess of R2 billion. By comparison the purchase price of Oceana was 275 cents per share back in 1995, and in 2015 the dividends received from Oceana was 365 cents per share. Brimstone has proven its resilience in volatile markets and difficult trading conditions. Over the long-term we have delivered real growth and value to our shareholders. While Brimstone has stood the test of time we remain acutely aware of our responsibility as a good corporate citizen and our role as a leading Broad Based Black Economic Empowerment group. 18 BRIMSTONE INVESTMENT CORPORATION LIMITED

21 INTEGRATED REPORT 2015 Macro-economic overview According to the World Bank, global growth decreased to 2.4% in 2015 and is expected to recover at a slower pace than previously envisioned. The disappointing performance was mainly due to a continued deceleration of economic activity in emerging and developing economies amid weakening commodity prices, global trade, and capital flows. Their growth forecast is projected to reach 2.9% in 2016, as a modest recovery in advanced economies continues and activity stabilizes among major commodity exporters. A more protracted slowdown across large emerging markets could have substantial spill-overs to other developing economies, and eventually hold back the recovery in advanced economies. The World Bank predicts a challenging short term outlook for Sub Saharan Africa. Commodity prices are expected to stabilize but remain low through The major impediment to growth according to them is electricity supply bottlenecks which are expected to persist. They therefore predict a somewhat weaker recovery in After slowing to 3.4% in 2015, growth is expected to increase to just over 4% in The South African economy is reported to have grown by only 1.3% in 2015, down from 1.5% in 2014 and 2.2% in 2013, according to preliminary estimates of real gross domestic product published by Statistics SA. The main contributor to the slowdown in 2015 was agriculture. Severe drought conditions saw the industry contracting by 8.4%, the largest annual fall in agriculture production since The decrease in 2015 was mainly due to a sharp drop in the production of field crops. The electricity, gas and water supply industry also shrank in size while growth in manufacturing was almost flat in While global risk factors continue to plague the domestic economy, South Africa still has many local structural issues which will impact the economy. The tumultuous end to 2015 have set the economy off to a troubled start as evidenced in declining stock market prices, pressure on the currency, and resultant prospects of a downgrade in South Africa s investment grade credit rating. These factors coupled with increasing interest rates and higher inflation are bound to have a negative impact on business confidence and consumer demand, again adversely impacting the poorest of the poor. Strategic update Our primary objective is to enhance and deliver value to our shareholders. The group s key investment sectors are the defensive sectors of food, financial services, healthcare, and infrastructure. Investments in food and healthcare combined represent about 71% of our Intrinsic Gross Asset Value. Its investments in restricted BEE structures have increased to approximately 12% of Intrinsic Gross Asset Value. For the year under review Brimstone s Total Assets decreased from R7.9 billion to R7.7 billion. Its Intrinsic Net Asset Value (INAV) decreased from R4.86 billion to R4.23 billion. Headline earnings per share decreased from cents per share to a loss of cents per share. The results were negatively impacted mainly by the downward adjustments of listed investments Life Healthcare, Grindrod and losses at subsidiary Lion of Africa Insurance Company. Despite the negative impact of these on the results, the Group is still well resourced with assets of R7.7 billion and total debt of R2.7 billion. During the period under review we invested over R1.2 billion in existing or new investments. This past year also saw dividend income grow and exceed the R300 million for the first time. We believe this is a indicator of sustainable future dividend income. The period under review also saw the maturity of the Old Mutual and Nedbank transactions. These transactions again bear testimony to the long term view we have on investments and relationships. Further to the maturity of these transactions after 10 years, the partners have jointly committed to furthering the business relationships on various levels. I would like to thank the leadership of both Old Mutual and Nedbank for an endearing business relationship based on trust, dedication and real business principles which have all played a part in making this partnership a celebrated one in the landscape of empowerment transactions in South Africa. During the year under review, two of our investments made international acquisitions, with our full support. Our subsidiary Sea Harvest acquired a stake in Mareterram Limited, a vertically integrated agribusiness listed on the Australian Stock Exchange. Similarly, Oceana Group acquired US-based Daybrook Fisheries, also a vertically integrated business. Both acquisitions signal the readiness of local companies in the sector to expand globally as they explore new diversified income streams. The Group has a proven track record of creating and unlocking shareholder value, supported by an experienced team with proven deal-making ability. Brimstone is defined by its bona fide empower ment credentials, and its ability to enhance Net Asset Value and pay dividends. It has proven its ability as a empowerment partner of choice with a capacity to lead broad-based empowerment consortia. The Group will maintain a long-term view and partnership approach to its underlying investments. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 19

22 2015 INTEGRATED REPORT CHAIRMAN S REVIEW (CONTINUED) OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Corporate Social Responsibility Our support programmes are primarily directed at developing and empowering previously disadvantaged groupings and in such a way contribute to the restoration of the well-being of marginalised communities. I am pleased to advise that the Brimstone Empowerment Share Trust (BEST) has awarded shares to the Buhle Farmers Academy from Mpumalanga. To date BEST has allotted Brimstone shares to 27 organisations across South Africa. The value of these shares at year end was in excess of R19 million. These shareholders support more than 3.5 million beneficiaries across South Africa (further information on BEST may be found at In addition to this Brimstone supports many other social interventions throughout the year. We will continue to support and rely on these NGO s and PBO s who go the extra mile in servicing the most marginalised communities. These organisations are doing sterling work in delivering on a social mandate and I would like to encourage all our stakeholders to engage them and see how we can further collectively support their efforts in bringing about positive social change. Governance and the Board This is our seventh integrated report and we remain cognisant that corporate governance should be an integral part of the way we do business. For this reason we continuously review, modify or adapt our risk and governance policies to ensure a sustainable, responsible business. Mr PL Campher continues as lead independent nonexecutive director. Dividend distribution The board considered the results and approved a dividend of 35 cents per share, up from 30 cents per share payable to shareholders on 25 April We are proud to advise that this is the 14th consecutive year that the Company will be paying a dividend. Acknowledgements I would like to thank my fellow executive directors, Mustaq Brey and Lawrie Brozin for their continued support over the past 20 years. Lawrie Brozin has been a member of the Brimstone team since 1996 and has seen the company grow from a small Cape-based empowerment company with initial share capital of R3 million to a truly South African company listed on the JSE with assets in excess of R7 billion and a dividend income stream in excess of R300 million. Lawrie will be retiring as Financial Director at the AGM on 9 May We value the significant contribution Lawrie has made to the Group over the years. I wish him well in his retirement and am sure that he will remain a loyal supporter of Brimstone for years to come. We wish to thank Lawrie for his significant contribution to Brimstone over the last 19 years. I wish to thank the entire board of directors for their invaluable good counsel and continued dedication to excellence in corporate governance, always placing the interest of our shareholders first. Thank you to our executive team and staff as well as the management and staff of all our subsidiaries and investee companies for their continued commitment in delivering on our growth strategy. I also thank all our shareholders and stakeholders who continue to support, trust and believe in the Company s ability to deliver to their expectations. We look forward to growing the Company for the benefit of all. Fred Robertson Executive Chairman 20 BRIMSTONE INVESTMENT CORPORATION LIMITED

23 INTEGRATED REPORT 2015 THE GROUP HAS A PROVEN TRACK RECORD OF CREATING AND UNLOCKING SHAREHOLDER VALUE, SUPPORTED BY AN EXPERIENCED TEAM WITH PROVEN DEAL-MAKING ABILITY. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 21

24 2015 INTEGRATED REPORT GROUP PROFILE OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS INTEREST: 5.01% INTEREST: 100% INTEREST:22% INTEREST: 58.44% Listed on the JSE Chief Executive Officer: A Meyer Principal business is acute hospital care and comprises one of the widest geographic spreads of acute care hospitals and day surgical centres in South Africa Investments in India and Poland. Unlisted Joint managing Directors: M Maurer and A Agnello Company involved in the design, marketing and manufacturing of mens and ladies clothing and accessories. C 2 and Carducci retail stores Listed on the JSE (Rex Trueform Clothing Company Ltd and African & Overseas Enterprises Ltd). Chief Executive Officer: C Radowsky Group involved in the marketing and retailing of mens and ladies clothing nationally and internationally. Unlisted Chief Executive Officer: F Ratheb The principal business of Sea Harvest is deep sea trawling of hake. Largest employer on the West Coast. INTEREST: 16.9% INTEREST: 15.22% RE AFRICA INTEREST: 18% Listed on the JSE Chief Executive Officer: F Kuttel Oceana engages in the catching, processing and procurement of marine species including pilchard, sardine anchovy, redeye herring, lobster, horse mackerel, squid, tuna, hake and other deep sea species. Products are sold through international and local marketing channels. In addition, Oceana provides extensive cold storage and fruit handling facilities. Listed on the JSE Chief Executive Officer: C Gonzaga Taste Holdings invests in a portfolio of mainly franchised, category specialist and formula driven, quick service restaurants and retail brands, including St Elmos, Maxis, Scooters Pizza, NWJ, The Fish & Chips Co.; Arthur Kaplan Jewellers and Domino s Pizza. Unlisted Chief Executive Officer: S Chikumba Aon Re Africa is a leading reinsurance and retrocession intermediary in Sub Saharan Africa, based in Johannesburg, South Africa with a subsidiary office in Harare, Zimbabwe BRIMSTONE INVESTMENT CORPORATION LIMITED

25 INTEGRATED REPORT 2015 INTEREST: 100% INTEREST: 28.79% INTEREST: 0.08% INTEREST: 0.94% Unlisted Chief Executive Officer: B Madikiza Formed in August 1999, Lion of Africa is an established, growing insurance brand on the South African insurance landscape. It is the only Level 1 short-term B-BBEE Insurer. Unlisted Chief Executive Officer: K Dlamini Afena Capital is an investment asset manager. They are active, valuation driven long-term investors and generate returns by adhering to a clearly defined investment philosophy. Listed on the JSE and on the London, Zimbabwe, Namibia and Malawi Stock Exchanges. Chief Executive Officer: B Hemphill Diversified financial services, including life insurance, investment management and administration. Listed on the JSE Acting Chief Executive Officer: N Doyle A branded FMCG (Fast Moving Consumer Goods) company that operates mainly in South Africa and selected emerging markets. INTEREST: 6.62% INTEREST: 7.02% INTEREST: 2.71% INTEREST: 10% INTEREST: 25.07% Listed on the JSE Chief Executive Officer: A Olivier Integrated company providing end-to-end solutions for the movement of cargo by road, rail and sea using specialised assets and infrastructure focused on dry-bulk and liquid-bulk commodities, vehicles and containers. OTC market Black-owned investment company that holds 20% of MultiChoice South Africa. OTC market Black-owned investment company that holds approximately 4% of MTN Group. Listed on the JSE Chief Executive Officer: A Taverna-Turisan A specialist logistics property developer and landlord listed as a REIT. Unlisted Chief Executive Officer: S Landman A leading supplier of innovative solutions to healthcare providers and clinicians within sub Saharan Africa ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 23

26 2015 INTEGRATED REPORT EXECUTIVE DIRECTORS REPORT for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Introduction The Company reported a loss for the year under review of R668.1 million compared to a profit of R277.8 million in the prior year. The significant contributor to this reduction in earnings was the downward revaluation of investments, the effect of which can be found in both fair value adjustments and equity accounted losses of associates and joint ventures. This was compounded by poor results from operating subsidiary Lion of Africa. In the period under review Brimstone invested in excess of R1.2 billion in new or existing investments and for the first time earned dividend income in excess of R300 million. Total assets decreased to R7.7 billion from R7.9 billion at 31 December Intrinsic Net Asset Value decreased to R4.2 billion from R4.9 billion at 31 December The Company declared a final dividend of 35 cents per share. Net Asset Value Total assets decreased by 3.5% from R7.9 billion to R 7.7 billion in the year under review. Net asset value decreased by 23.9% from R3.3 billion to R2.5 billion in the year under review. INAV at 31 December 2015 calculated on a line-by-line basis, totalled R4.23 billion, or R17.41 per share (31 December 2014 R4.86 billion or R19.79 per share), representing a decrease of 13% from 2014 (a decrease of 12.0% on a per share basis). On a fully diluted basis INAV per share is R16.48 representing a decrease of 11.3% on the R18.58 reported at 31 December As at 31 December 2015, Brimstone Ordinary shares were trading at a discount of 22.5% to INAV (31 December %). Brimstone N Ordinary shares traded at a discount of 27.1% to Brimstone s INAV (31 December %). The breakdown of INAV is available on the Company s website at Brimstone Portfolio Subsidiaries Sea Harvest Sea Harvest delivered a solid financial performance for the year with operating profit before interest increasing by 11% to R121.7 million, and EBITDA up 9% to R205 million. Revenue was 1% higher than prior year despite a 5% reduction in catch volumes. Fishing conditions were very challenging especially in the second half of the year. Prices for hake remained strong, in addition to 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. In the last two years over R200 million has been invested in vessels and plant upgrades. In December 2015, Sea Harvest acquired a 19.9% stake in Mareterram Limited, a vertically integrated agri-business which listed on the ASX in Australia thereby securing its route to this critical market and providing a platform for future international growth. Lion of Africa Lion of Africa s poor performance continued during the year under review, reporting a loss from operations of R179 million (2014 loss of R180 million). This loss is directly attributable to the following factors: A significant decrease in premium income due to: the credit rating downgrade adversely affecting the amount of corporate business written; the discontinuation of personal lines business; and the introduction of stricter underwriting parameters which have been introduced to reduce claims going forward. Large and attritional claims and one-off charges incurred. A new management team has been put in place. In addition to the remedial action already commenced during the year, management has developed a focused strategy to return the company to profitability over the next few years. Brimstone introduced R200 million in capital during the year under review in order to maintain statutory solvency while the turnaround strategy is taking effect. The investment is carried at R40 million (2014 R20 million) in the books of Brimstone. House of Monatic Revenue increased by 17% to R214 million while net profit increased to R6.4 million. Most of this increase is attributable to the growth of the corporate and retail business. Another three retail stores were opened during the year with two more planned in R6 million of new plant and machinery was acquired during the year funded by way of the DTI capital subsidy to improve productivity and quality. Employment levels remained stable throughout the year. Associates and joint ventures Oceana Brimstone subscribed for an additional 2.8 million shares in a rights offer for R211 million at R75 per share. During the year Oceana acquired Louisiana-based Daybrook Fisheries for $450 million further diversifying its business portfolio. Oceana s share price closed at R per share, up from R per share at 31 December Brimstone received dividends of R80.6 million from Oceana during the year under review and recorded R35.1 million in equity accounted earnings. 24 BRIMSTONE INVESTMENT CORPORATION LIMITED

27 INTEGRATED REPORT 2015 Aon Re Africa Aon Re Africa successfully secured new business across all divisions with impressive organic growth specifically in Africa. Brimstone received dividends of R12.9 million (2014 R4.5 million) from Aon Re Africa and recorded R0.4 million in equity accounted losses during the year under review. Afena Capital Brimstone recorded R0.4 million in equity accounted earnings from Afena Capital. Following the reduction in assets under management, Brimstone has impaired its investment in Afena Capital by a further R12 million to R9.7 million. The Scientific Group/Obsidian Health During the period under review Brimstone disposed of its investment in The Scientific Group realising a profit on disposal of R44.8 million. As part of the transaction, the medical division of The Scientific Group was transferred to a new company Obsidian Health in which Brimstone holds a 25.07% interest. Grindrod During the year Brimstone increased its shareholding in the Grindrod Consortium SPV, which holds 64 million shares, from 59.2% to 72.4%. Due to the shared control in the structure, Brimstone, in its consolidated financial results, accounts for its share of the results in the Consortium SPV as a joint venture. Brimstone also acquired 4.2 million Grindrod shares directly. Grindrod s share price closed at R11.29 at year end. Investments Equites During the year Brimstone subscribed for 28 million shares in Equites Property Fund Limited at R12.50 per share at a total cost of R350 million, representing a 10.0% shareholding. Equites is a specialist logistics property developer and landlord which is listed on the JSE as a REIT. Life Healthcare Life Healthcare s share price closed at R35.07 per share, down from R42.76 per share at 31 December The investment was revalued downwards by R403.8 million. Brimstone received dividends amounting to R80.9 million during the year. Brimstone remains one of the largest shareholders in Life Healthcare which will continue to focus on its growth objectives in India and Poland. MTN Zakhele The share price of MTN Zakhele is affected by the share price performance of MTN Group as well as the dividends paid by MTN Group as MTN Zakhele uses the dividends received to reduce its funding obligations. At year end Brimstone held 2.2 million MTN Zakhele shares, which closed at R73.90 per share, down from R at 31 December The investment was revalued downwards by R75.7 million. Nedbank Following the maturity of the Nedbank transaction Brimstone held 2.3 million Nedbank shares. Brimstone sold all of these shares realising R568.5 million. Old Mutual The Old Mutual transaction matured on 1 May After settlement of debt in terms of the contract, Brimstone held 7.4 million Old Mutual plc shares. Brimstone sold 3.4 million of these shares, realising R131.4 million. The remaining 4 million shares were valued at the closing market price of R41.45 per share and are carried in the books at R165.8 million at 31 December Subsequent to the year end, Brimstone sold the remaining 4 million shares, realising R148.3 million. Phuthuma Nathi Full-year consolidated revenues and core headline earnings grew by 15% and 12% respectively for the year ended March Brimstone acquired a further 1.96 million Phuthuma Nathi shares in 2015 at an average price of R per share and received dividends of R65.0 million from Phuthuma Nathi. At year end Brimstone held 3 million Phuthuma Nathi 1 shares and 1.7 million Phuthuma Nathi 2 shares, which closed at R165 and R163 per share respectively. The investment was revalued upwards by R96 million. Rex Trueform and African & Overseas Enterprises (Queenspark) The market price of all classes of Rex Trueform and African & Overseas Enterprises shares decreased during the year under review resulting in a downward revaluation of R5.1 million. Taste Holdings During 2015 Taste Holdings concluded an exclusive development agreement to roll out Starbucks Coffee outlets in South Africa. For the first time in sub-saharan Africa, Starbucks Coffee will open fullformat stores bringing the entire range of its food and beverages, including its ethically sourced Arabica coffee, to South African consumers. Taste Holdings raised R226 million through a rights issue to partly fund the Starbucks Coffee development and to pursue other opportunities. Brimstone acquired a further 19.7 million Taste Holdings shares during 2015 at an average price of R3.02 per share. The share price closed at R2.95, down from R3.20 per share at 31 December ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 25

28 2015 INTEGRATED REPORT EXECUTIVE DIRECTORS REPORT (CONTINUED) for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Tiger Brands Brimstone s rights to Tiger Brands shares, accounted for as options, have been revalued at year end. The independently calculated option valuation was based on a closing share price of R per share, down from R per share at 31 December The investment was revalued downwards by R91.7 million. These rights mature on 31 December Share repurchases Specific repurchase During the review period Brimstone repurchased Brimstone Ordinary shares at R17.00 per share for a total consideration of R and Brimstone N Ordinary shares at R16.50 per share for a total consideration of R This specific repurchase of shares was from the Brimstone Investment Corporation Limited Share Trust, a trust controlled by Brimstone and as such was done intra-group with no cash flow implications, except for related expenses. The repurchased shares were listed as treasury shares in Brimstone s last annual financial statements and the Company applied to the JSE for the cancellation of these shares, which were duly cancelled and delisted on 12 March Acquisition of treasury shares During November and December 2015, Brimstone acquired, via a wholly-owned subsidiary, 3.95 million Brimstone Ordinary shares and 0.05 million Brimstone N Ordinary shares in the open market for an aggregate consideration of R52.3 million at an average price of R13.06 per share including costs. These shares have been accounted for as treasury shares. Dividend declared Brimstone s board has declared a final dividend of 35 cents per share for the year ended 31 December 2015 ( cents per share) payable on Monday, 25 April The final dividend has been declared out of income reserves. Changes to the board of directors Mr Lawrie Brozin, currently Financial Director of Brimstone will retire as Financial Director at the annual general meeting on 9 May Lawrie 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 million to a JSE-listed company with assets of R7.7 billion. The executive directors wish to thank Lawrie for his unwavering commit ment and dedication to the Company and wish him well for the future. Mr Geoffrey George Fortuin will be appointed as Financial Director and Mr Mohamed Iqbal Khan will be appointed as Chief Operating Officer and Executive Director on 9 May The executive directors wish Geoff and Iqbal well in their new roles at the Company. Their detailed curriculum vitae can be found on page 145 of this integrated report. Prospects The Group has a 20 year track record of creating and unlocking shareholder value in a sustainable way and has the team with the skills and experience to conclude value adding deals. The Group is defined by bona fide empowerment credentials, and its ability to enhance NAV and pay dividends. Brimstone has over the years demonstrated its resilience to withstand tough economic conditions and remains well capitalised to pursue value enhancing transactions based on cash generative quality assets. The Group maintains a long-term view and partnership approach to its underlying investments. Thanks The executive directors, Fred Robertson, Mustaq Brey, and Lawrie Brozin thank their fellow board members, executive team, all staff, stakeholders and shareholders for contributing to the success of Brimstone over the past year. We value the support of all shareholders many of whom have been shareholders for the past 20 years. We trust that we have lived up to their expectations of real value creation over the 20 years and assure them that we will act in their best interests at all times as we grow Brimstone while living our credo of profitability, empowerment and positive social impact. 26 BRIMSTONE INVESTMENT CORPORATION LIMITED

29 INTEGRATED REPORT 2015 INTRINSIC NET ASSET VALUE REPORT for the year ended 31 December 2015 The INAV of Brimstone at 31 December 2015 was R million (2014 R million), translating to cents per share ( cents per share), based on million shares ( million shares) in issue, net of treasury shares. Fully Diluted INAV per share was cents per share ( cents per share), based on million shares ( million) in issue, net of treasury shares after taking into account the notionally realised shares issued in terms of the circular to shareholders dated 18 November 2010 and fully diluted for outstanding share options and invested forfeitable shares. The Book Net Asset Value (Book NAV) of Brimstone on 31 December 2015 was R million (2014 R million), translating to cents per share ( cents per share), based on the respective number of shares in issue. The closing share prices on 31 December 2015 of Brimstone Ordinary and N Ordinary shares on the JSE Limited (JSE) were cents and cents ( cents and cents) per share respectively. 31 Dec Dec 14 INAV of Brimstone (R m) Book NAV (R m) INAV per share (cents) Fully Diluted INAV per share (cents) Book NAV per share (cents) Market price per share (cents) Ordinary shares N Ordinary shares Discount to INAV: Ordinary shares % N Ordinary shares % Oceana The INAV of the 22.9 million shares in Oceana was based on the closing share price of Oceana on the JSE at 31 December 2015 of R per share. Life Healthcare The 5.01% interest was valued at the closing share price of Life Healthcare on the JSE at 31 December 2015 of R35.07 per share. Phuthuma Nathi The 7.02% interest was valued at the closing share price of Phuthuma Nathi on the Over-the-Counter trading platform at 31 December 2015 of R for PN 1 and R for PN 2 per share. Sea Harvest The INAV of the 58.44% shareholding in Sea Harvest was based on an equally weighted average value using public market valuations as a proxy and the discounted cash flow valuation methodology. For the public market valuation an EV/EBITDA multiple of 6 times, representing a 49% discount to the average EV/EBITDA multiple at which listed peers traded at 31 December 2015 was applied. Grindrod The 6.07% interest in Grindrod held via the BEE Consortium was valued at the closing share price of Grindrod on the JSE at 31 December 2015 of R11.29 per share. Due to the limited recourse nature of the Grindrod BEE funding structure, Brimstone s investment is shown at a minimum value of zero. The directly held shareholding in Grindrod of 0.55% is valued at the closing share price of Grindrod on the JSE at 31 December 2015 of R11.29 per share. Equites The 10.00% interest was valued at the closing share price of Equites Property Fund Limited on the JSE at 31 December 2015 of R12.75 per share. Tiger Brands option The rights to Tiger Brands shares are carried as an option which was valued as disclosed in Appendix 4 to the annual financial statements. Taste Holdings The 15.22% interest was valued at the closing share price of Taste Holdings on the JSE at 31 December 2015 of R2.95 per share. Old Mutual The 0.08% interest was valued at the closing share price of Old Mutual plc on the JSE at 31 December 2015 of R41.45 per share. MTN Zakhele The 2.71% interest was valued at the closing share price of MTN Zakhele on the JSE at 31 December 2015 of R73.90 per share. Lion of Africa The INAV of the 100% shareholding in Lion of Africa was based on a price: book multiple of 1.00 times, which equates to a 39% discount to the average price: book multiple at which listed peers traded at 31 December ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 27

30 2015 INTEGRATED REPORT INTRINSIC NET ASSET VALUE REPORT (CONTINUED) for the year ended 31 December 2015 INAV analysis by asset An analysis of the INAV of Brimstone as at 31 December 2015 is set out below, including the valuation basis of each asset. Where applicable, INAV is net of ring-fenced debt and potential CGT relating to that asset. OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Asset % held Valuation basis Gross Value (R 000) Debt (R 000) CGT (R 000) Dec 2015 INAV (R 000) Oceana 16.90% Market value per share ( ) ( ) Life Healthcare 5.01% Market value per share ( ) Phuthuma Nathi 7.02% Market value per share ( ) (32 279) Sea Harvest 58.44% DCF & EV/EBITDA valuation (86 370) Grindrod BEE 6.07% Market value per share, min zero ( ) Grindrod direct 0.55% Market value per share Equites 10.00% Market value per share ( ) (1 305) Tiger Brands option 0.94% Option valuation (44 113) Taste Holdings 15.22% Market value per share (5 953) Old Mutual 0.08% Market value per share (4 443) MTN Zakhele 2.71% Market value per share (57 934) (4 587) Nedbank 0.00% Market value per share Investment properties % Capitalisation rate (20 711) (7 989) Aon Re Africa 18.00% PE valuation (8 654) A&O / Rex Trueform 22% eco Market value per share (3 572) House of Monatic % Book value Other investments Various Book value + PV of proceeds (2 244) Lion of Africa % Price to book valuation Afena Capital 28.79% AUM & PE valuations Funding % Book value (2 400) ( ) (324) ( ) ( ) ( ) INAV per share (cents)* (1 268) (280) Fully Diluted INAV per share (cents)** (1 194) (263) * Based on million shares (December million shares) in issue, net of treasury shares. ** Based on million shares (December million shares) in issue, net of treasury shares after taking into account the notionally realised shares issued in terms of the circular to shareholders dated 18 November 2010 and fully diluted for outstanding share options and invested forfeitable shares. 28 BRIMSTONE INVESTMENT CORPORATION LIMITED

31 INTEGRATED REPORT 2015 CORPORATE SOCIAL INITIATIVES for the year ended 31 December 2015 Nature, scope and effectiveness of all programmes on communities Brimstone s social commitment is an extension of its mission statement of being Profitable, Empowering and to have a Positive Social Impact on the businesses and the individuals with whom it is involved. As presented in this integrated report, the Group s activities and its impact, be it corporate, social or environmental are measured against these yardsticks to ensure long-term sustainability. As the largest employer on the Cape West Coast and one of the largest in the Western Cape Brimstone directly employs in excess of individuals in its subsidiaries and more than in its associates and investments. BRIMSTONE HOSTED A DIALOGUE ON CANCER FOCUSSING ON PROSTATE CANCER, BREAST CANCER, AND BRAIN TUMOURS A large number of these employees have been shareholders in Brimstone since its early start-up days two decades ago, which makes the Group s stakeholder community arguably unique among JSE listed companies. This inevitably means that the nature and scope of Brimstone s involvement in the community also requires a unique approach. For this reason, Brimstone through its own corporate social initiatives and those of its subsidiaries and investments is involved in education, training and development, the arts and the support of specific charitable and social campaigns. Apart from its internal corporate social investment programmes, Brimstone has established The Brimstone Foundation and the Brimstone Empowerment Share Trust to extend the long-term reach and sustainable impact of its initiatives. Brimstone Empowerment Share Trust (BEST) The Brimstone Empowerment Share Trust was established in 2005 with the intention of supporting a broad range of NGOs and not-for-profit organisations through the allotment of Brimstone shares. These shares have a vested value and can be sold by the nominated beneficiaries after a period of ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 29

32 2015 INTEGRATED REPORT CORPORATE SOCIAL INITIATIVES (CONTINUED) for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS TOP, LEFT: CAPE TOWN PHILHARMONIC YOUTH ORCHESTRA PERFORMING AT THE SUID OOSTERFEES, CO-SPONSORED BY BRIMSTONE LEFT: BRIMSTONE HOSTED A CLINIC FOR DISABLED GOLFERS AT THE LION OF AFRICA CAPE TOWN OPEN five years, in tranches of 20% per annum. The beneficiary organisations participate fully in any dividends declared by Brimstone from the date of receipt of the shares. During the year under review the Buhle Farmers Academy (Mpumalanga) was awarded Brimstone N Ordinary shares. Also, during the review period 3 existing beneficiary organisations were awarded a top up of Brimstone N Ordinary shares each. They are: Port Elizabeth Sentraal Khayalethu Youth Centre (Eastern Cape), Missionvale Care Centre (Eastern Cape) and Cheshire Home Summerstrand (Eastern Cape). 30 BRIMSTONE INVESTMENT CORPORATION LIMITED

33 INTEGRATED REPORT 2015 LEFT: MANDELA DAY 2015 On 22 May 2015 Brimstone and the trustees of BEST convened the second discussion forum with the beneficiaries of BEST. The session was well attended and excellent ideas and thoughts were shared between the parties. As a gesture of goodwill, BEST awarded all the beneficiary organisations that attended Brimstone N Ordinary shares each. To date, BEST has allotted Brimstone shares to 27 organisations across South Africa. The market value of these shares as at 31 December 2015 was in excess of R19 million. These shareholders support more than 3.5 million beneficiaries across South Africa. Further information on BEST may be found at Corporate Social Initiatives During the period under review Brimstone contributed to various social initiatives covering the areas of Cultural, Education, Health, Social Cohesion, Welfare and Poverty Relief. Brimstone s total CSI spend was R1.7 million. Cultural Beneficiaries: Suid Oosterfees and Cape Town Festival. Education Beneficiaries: Life Healthcare Nursing College, Spine Road High School, University of Stellenbosch, Western Cape Primary Science, Click Foundation Trust, Progressive Principal Association and Imam Abdullah Haron Education Trust. Healthcare Beneficiaries: Cochlear Implant at Tygerberg Hospital, Mens Foundation of South Africa (Movember) and Dialogue on Cancer. Social cohesion Beneficiaries: District Six Museum Foundation, Human Rights Media Centre Albinism Anti-Discrimination Project and Mapungubwe Institute. Welfare and poverty relief Beneficiaries: Family Life Centre, Mitchells Plain Community Advice Centre, LLitha Lethu Club in Khayelitsha, GH Starke Home for the Elderly, Masanda Educare and Themba Labantwana Children s Home. BELOW: TO START THE 20 YEAR ANNIVERSARY OF BRIMSTONE, THE GROUP PACKED OVER FOOD HAMPERS WHICH WERE DISTRIBUTED TO COMMUNITIES ACROSS THE WESTERN CAPE ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 31

34 2015 INTEGRATED REPORT OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS MAWABO MJEKULA Apprentice Forklift Technician NONKOLO VOORSLAG Machinist Supervisor NEVILLE NANNES Specialist Cutter/ Supervisor (Retired) IN OUR 2015 INTEGRATED REPORT, WE FOCUSSED ON SOME OF THE MANY PEOPLE WITHIN OUR FAMILY WHO ACTIVELY PUT OUR MISSION STATEMENT INTO ACTION EVERY DAY. LUCINDA KRIGE Learning and Development Business Partner for Fleet 32 BRIMSTONE INVESTMENT CORPORATION LIMITED

35 INTEGRATED REPORT 2015 PROFILE MAWABO MJEKULA Apprentice Forklift Technician Four years ago Mawabo Mjekula (28) from Peddie in the Eastern Cape was an unemployed motor mechanic with basic skills. A suggestion by his brother to send his CV to Sea Harvest would change his life. When the call came to head to the other side of the country Mawabo interrupted his mechanical/technical studies in Port Elizabeth and has not looked back since. His introduction to forklifts opened a whole new world for him. You are dealing with electronics and your mind has to be working all the time you never stop thinking. It s very, very interesting. Site maintenance manager, Johan Venter, immediately recognised his young apprentice s potential. When he came here he could not even change a wheel on a forklift but he came with a very nice attitude. He had a hunger to learn, something that sets him apart from many other young people. And he is an exceptionally hard worker. This desire to learn was rewarded in 2015 when Mawabo was declared Learner of the Year at the Artisan Training Institute in Gauteng after a three-month course in Phase 1 Automotive Training. The way he is going he will definitely be a qualified forklift technician, says Venter. Mawabo is aware of the responsibility that comes with dealing with salt water, metal materials and seafood products: The forklifts get rusted and need to be rebuilt and resprayed. We cannot risk any contamination. Mawabo, who loves the peace of Saldanha Bay, acknowledges how Sea Harvest set him on a new path in life. I can now help with my sister s fees for her studies and contribute to the rest of the family at home in the Eastern Cape. I love my job. It is very challenging. I am very happy to wake up in the morning and to come to work. I know that every day I am going to solve a different problem. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 33

36 2015 INTEGRATED REPORT PROFILE OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS 34 BRIMSTONE INVESTMENT CORPORATION LIMITED

37 INTEGRATED REPORT 2015 NONKOLO VOORSLAG Machinist Supervisor Nonkolo Voorslag had skills, she had determination, but in 2005 she didn t have a job. The seamstress/machinist had left King Williams Town in the Eastern Cape when the jeans manufacturer she was working for closed its doors. But another door opened when she left her name and number at House of Monatic while passing by looking for work. Nonkolo received a call and went for an interview where she was asked to make a bag from material provided. But she immediately realised there was no needle in the machine provided. I got a screwdriver, fixed it, threaded it and made a bag, she remembers. She obviously made an impression and soon she was working as a machinist, learning new skills along the way, both on the factory floor and in training courses. I focussed on everything the manager told me, says Nonkolo. Her work ethic and attitude did not go unnoticed and in 2015 her manager elected her to be a supervisor. Nonkolo s initial reaction was Why me? I am still new! But she did not shy away from the challenge (even though it meant resigning as a shop steward as she was now in a managerial position). She was encouraged to believe in her abilities as she had years of experience now behind her. I was advised to focus, to listen carefully and to do what the customer wants: that way we can always be 100% correct in what we deliver. The customer is the beginning and the end of our existence! Nonkolo is determined to give back in terms of the opportunity presented to her: I must always be an example and must show that we are working as a team. I must be a trusted supervisor and listen to the ideas of others. It is most important to be able to build up your team. She appreciates the lift in life that House of Monatic has given her. I now have something that is inside of me. I know I can do this. Nonkolo can now also provide for the family who sent her, many years ago, with their blessing to seek work in Cape Town. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 35

38 2015 INTEGRATED REPORT PROFILE OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS 36 BRIMSTONE INVESTMENT CORPORATION LIMITED

39 INTEGRATED REPORT 2015 NEVILLE NANNES Specialist Cutter/Supervisor (Retired) When 15-year-old Neville Nannes started work at IL Back (the original name of House of Monatic) as a fabric checker in 1966 he had no idea how long that journey would last. It was a 49-and-a-half-year trip that saw him move up through the ranks of one of Cape Town s most established brands until his retirement in December With an unemployed father and several siblings, Neville was forced to find work at that early age. The R4.71 per week he initially earned at the Parow East factory helped support his family a wage which increased as his r esponsibilities grew. The young man moved on to embroidery machines and from there advanced to interlining cutting after the cutting room manager saw his potential. Neville was learning new skills along the way: I learnt the trade of cutting by observing a colleague and stole with my eyes, he says. As the company moved to Belhar and then Salt River Neville moved too, gaining a wife and seven children along the way his son, Ryan Nannes, has now been with House of Monatic for 23 years. When the company faced retrenchments in 1985 Neville was one of nine people kept on. In 1986 he was promoted to supervisor, specifically in the tricky area of matching stripes and checks correctly. He was also responsible for training and developing all the cutters. His almost half-century at House of Monatic provided Neville with stability, self-worth, company shares and a work community he valued and which valued him. It was the friendliness and the people around you who work with a smile on their face, he says. It was such a positive thing. As a family we had a poor life. I would like to tell the youngsters about what life is worth: you have a choice about where you want to be. Take time to set a goal that way you will achieve a goal. If you don t stick to a goal a day you will run around like a chicken without a head. And who wants to be a chicken without a head! ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 37

40 2015 INTEGRATED REPORT PROFILE OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS 38 BRIMSTONE INVESTMENT CORPORATION LIMITED

41 INTEGRATED REPORT 2015 LUCINDA KRIGE Learning and Development Business Partner for Fleet Lucinda Krige was working as a chamber maid in 2001 when her father showed her a Sea Harvest Corporation job advert looking for engineering cadet trainees. Little did he know that this would be a springboard to her becoming a Chief Marine Engineer and breaking barriers in terms of females in that tough seagoing environment. As a child I told my dad I wanted to be a police officer, because I saw so few women doing that job, laughs Lucinda who is based at the Saldanha Bay Sea Harvest factory in the week and her Kraaifontein home on weekends. He said he was sure there was something else out there for me. He was right. As a cadet she tackled technical and theoretical subjects as well as maritime studies. This prepared her for heading to sea, with her first trip being on the sophisticated trawler Harvest Lindiwe. It was challenging on all fronts, and not least the fact that she was the only female on board. On my first trip on a wet-fish vessel I was called up to the bridge by the vessel chief and the engine room skipper. They said this was the first time in 20 years they had a female on board, recalls Lucinda. They wanted it to work and welcomed me. Lucinda loved everything about marine engineering even though she had never had any technical or seagoing background. I discovered my dream job without even knowing it! I loved being away and working with my hands as well as problem-solving. She has since moved to land-based operations and is in charge of management training for seagoing officers as well as being responsible for new cadets. There is, however, a new challenge on the horizon: Lucinda is hoping to be selected to do a Master of Science in Maritime Studies at the renowned World Maritime University in Sweden. Keith Smith, HR Manager: Learning & Development says, Lucinda is at the forefront in representing the fishing industry in terms of marine engineering. She has also gained a great deal of confidence operating at a managerial level. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 39

42 2015 INTEGRATED REPORT SUBSIDIARY REPORTS House of Monatic (Pty) Limited ( House of Monatic or HOM ) OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS R 000 Introduction House of Monatic was established in 1909 and is a leading brand house incorporating the manufacture, distribution and retailing of suits, jackets shirts and ties in South Africa. The company currently employs 841 staff across all divisions, with the head office and manufacturing plant based in Cape Town. House of Monatic has a lifestyle offering in its retail stores where consumers can experience the tailoring expertise shown in its products. Financial Performance REVENUE % OPERATING PROFIT The increase in revenue is mainly due to an increase in retail sales from own stores of R12 million and an increase in corporate sales of R17 million, resulting in an increase in operating profit of R3.5 million. Growth Strategy and Challenges The company s growth strategy is to increase sales in the divisions of retail, corporate wear and other branded business. Each division has inherent risks that need to be mitigated and are addressed hereunder. Corporate wear the margins achieved when tendering are under significant pressure because of intense local competition in manufacturing. Inconsistent and poor quality raw materials from local mills are a challenge. These suppliers have a monopoly in the local market and are thus in a strong price making position. R % Management at House of Monatic mitigates these risks by meeting with suppliers and building stronger relationships with them to improve the effectiveness and efficiency of the raw material procurement process. Branded business As a high end producer, House of Monatic endeavours to maximise the manufacture of all top-end formal wear brands in South Africa. This entails short manufacturing runs, and a wide variety of fabrics and components which affects efficiency and lowers productivity in the factory. Retail House of Monatic has embarked on a retail expansion for their Carducci and CSquared brands. The objectives of the rollout are to increase visibility of the brands, build brand equity and increase the profitability of the company. The store sites, footfall in the malls, disposable income of consumers and retail competition from international brands as well as high operating costs are risks that pose a challenge. These risks are controlled by a gradual rollout of stores in regional malls after conducting careful market research. The company currently has 5 branded stores with plans to roll out 2 more in Two clearing outlets help mitigate the risk of holding excess or high fashion stock. 40 BRIMSTONE INVESTMENT CORPORATION LIMITED

43 INTEGRATED REPORT 2015 Production Incentive The Production Incentive Scheme offered to the clothing industry by the Department of Trade & Industry has enabled the company to invest R25 million in new plant and machinery which stands it in good stead for the foreseeable future. Our Brands The House of Monatic brands are Viyella (under licence), Carducci, CSquared and Monatic. Carducci has been a much loved designer brand in Southern Africa for the past 37 years. The brand was originally named after Giosue Carducci, a flamboyant Italian poet known for his fresh styles and creative energy. This flamboyant spirit has been translated into the Carducci clothing ranges. The brand is sold in over 300 outlets across Southern Africa and East Africa, including Stuttafords stores across Southern Africa. CSquared is South Africa s latest formalwear brand. This brand is defined by its style, individualism, chicness, tailoring and bold array of colours worn in many ways by people who want to stand out. CSquared aims to capture the imagination of the upwardly mobile young male consumer who is extremely fashion conscious and is experiencing a rapid growth in his disposable income. Viyella has been around since 1786, originating as a unique fabric brand from the English midlands. The brand has been available in South Africa for nearly a century, is synonymous with fine shirting and has evolved to become a complete lifestyle collection. The brand is known for its luxurious fabrics, quirky take on the classics and sits well in any gentleman s wardrobe. The clothing expresses itself through its understated elegance, sophisticated designs and immaculate tailoring. The Monatic brand is a classic brand for the mature client who wants to project a tailored and professional image. The brand evolved from a shirt and sleepwear product mix to a tailored suit. We are expanding the offering by partnering with the Merino Board to proudly make a truly South African product. Empowerment, CSI and Social Impact House of Monatic is a Level 2 B-BBEE contributor with a total CSI spend of R The significance of House of Monatic as a textile industry employer: House of Monatic is one of the largest suit manufacturers in the local clothing industry and is a significant employer in the Western Cape with a staff complement of 841 at 31 December It is estimated that each staff member supports an average of 5 family members and thus the overall reach supported by HOM s employment is circa individuals. 77% of HOM s employees are women, many from the Cape Flats who are breadwinners in their home. House of Monatic plays a significant role in bringing about stability into the lives of staff and families. The local procurement of trims, product and sundry services supports the growth of small businesses in the Western Cape. The use of local CMT operators for products not manufactured in-house further supports the employ of 400 people. Initiatives over the years to decrease dependence on Eskom: The new machinery is energy efficient decreasing usage by 30%. Researching solar power to limit energy consumption from Eskom. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 41

44 2015 INTEGRATED REPORT SUBSIDIARY REPORTS (CONTINUED) Sea Harvest Holdings Proprietary Limited ( Sea Harvest ) OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS R 000 Introduction Established in 1964 in the fishing village of Saldanha, Sea Harvest has developed into one of the leading whitefish companies in the Southern Hemisphere. The company s principal business is deep-sea trawling of the groundfish species called Hake (Merluccius paradoxus & Merluccius capensis), processing of the catch into frozen and chilled seafood and the marketing of these products both locally and internationally. In an effort to catch hake, Sea Harvest currently operates 12 deep-sea trawler vessels (8 fresh fish and 4 freezers) on the shelf-edge break at distances of between 30 to 100 nautical miles off the South African coast. The fishing grounds in which Sea Harvest operates extends from the Orange River mouth in the west to Algoa Bay in the east off the coast of Port Elizabeth. Financial Performance REVENUE % The company has rights to approximately 26% of the available annual demersal hake allowable catch allocated by the Department of Agriculture, Forestry and Fisheries ( DAFF ) and operates 2 factories in Saldanha, have offices in Cape Town, Durban and Johannesburg and employs people who create a product that is sold in over 22 different countries. OPERATING PROFIT % In 2015 Sea Harvest consolidated the performance and operational improvements made in 2014 by delivering solid profit growth and significant progress against key business transforming initiatives. Despite lower catch rates in 2015, revenue increased by about 1% through price increases and effective forex hedging. Consequently, the company has delivered a solid operating profit margin of 8.9% off the R back of cost containment and lower fuel prices. Growth Strategy and Challenges The company s growth strategy going forward can be summarised as follows: diversifying the earnings base through acquisitions; the growth of earnings through operational efficiencies and the change of the current business model in an effort to create sustainable jobs; and diversifying the revenue line by seeking opportunities in countries with strong currencies and developed markets. All of the strategies are not without their distinct challenges, such as, the leveraged nature of the business which could hinder acquisitions and the limited raw material supply the company currently has which would make it difficult to support retail contracts in an attempt at seeking opportunities in developed markets. Even though the growth strategies are affected by these challenges, Sea Harvest has already begun the process of putting the aforementioned strategies in place such as the Moving to Excellence Programme in order to improve on business efficiencies and by selecting the most profitable markets and geographies in which to sell its catch. In the long-term, the company will continue to seek opportunities for growth and explore avenues which will contribute to the continued sustainability of the business. Fishing Rights Allocation Process ( FRAP ) Critical to Sea Harvest s continued sustainability is the ability to maintain its fishing rights. There is a new FRAP 2015/16 currently underway for 9 species and is being co-ordinated by DAFF. Based on the most recent policies gazetted by DAFF, there is now an added emphasis placed on: Transformation Credentials, Employment Equity, Job Creation and Rural Local Development when scoring potential fishing 42 BRIMSTONE INVESTMENT CORPORATION LIMITED

45 INTEGRATED REPORT 2015 rights applicants. Sea Harvest currently performs well in all these areas and the company s objective is to perform the same if not better leading up to FRAP 2020 for off-shore demersal hake. The company is well placed to score favourably against the 4 pillars mentioned above in the FRAP Empowerment Sea Harvest s commitment to the economic and social transformation of South Africa will never diminish and that is illustrated by the company s continued progression and improvement on its B-BBEE scorecard. The latest results of the 2015 B-BBEE rating exercise reveal a significant overall increase from 87.32% in 2014 to 96% in 2015 for Sea Harvest. The company achieved 100% in the areas of Ownership, Preferential Procurement, Enterprise Development as well as Socio-Economic Development, and has successfully retained its status as a Level 2 B-BBEE contributor. Employee Share Scheme In line with the company s economic transformation initiatives, in 2015, Sea Harvest launched its second employee share scheme. The company gave 4.3 million shares to its employees resulting in employee ownership of approximately 5% of the company. This innovative share scheme was created not only to increase the circle of economic benefit of Sea Harvest and align the interests of Sea Harvest employees with all of those of all other shareholders but ultimately to promote empowerment and wealth-sharing with employees. CSI and Social Impact Over the years Sea Harvest has always displayed an appreciation and responsibility to the community which it operates in. From donations of fish product to financial contributions of up to R20 000, Sea Harvest continues to look for opportunities to enhance the growth, development and empowerment of Saldanha and the broader West Coast community. This year, more than R was invested in various projects and initiatives in the areas of sport, education, health, business and social development throughout the area. It is estimated that each one of the staff of Sea Harvest supports an average of 5 family members and thus the overall reach supported by Sea Harvest s employment is circa individuals, most of whom reside on the West Coast. Sustainability Sea Harvest s and the demersal hake fishery s participation in sustainable fishing practices has been recently strengthened by the industry s recertification by the Marine Stewardship Council ( MSC ) the gold standard in sustainability. This illustrates our continued commitment to an ecosystems approach to fishing and the efforts to uphold the standards we have achieved since our first certification in The company s increased contribution and participation in fishing for the future are further highlighted where Sea Harvest as part of the South African Deep-Sea Trawling Industry Association have voluntarily committed to various initiatives that go above and beyond our MSC requirements by ring-fencing previously trawled fishing grounds, and only fishing in those grounds in an effort to prevent damage to the benthic not previously trawled. Sea Harvest will do its part and continue to ensure that Cape Hake will be available for future generations. In support of its sustainability activities on the water Sea Harvest continually tries to improve on its land-based sustainability. To date multiple plans are being devised or are currently in place in an attempt to reduce the company s carbon emissions primarily on its largest emitter its fishing vessels, recycle more and use less water. As the annual quota of the company decreases over the next couple of years it is expected that the emissions will decrease as it will have fewer vessels at sea. In the interim, Sea Harvest is investigating modern vessel and trawling technologies to keep its fuel emissions under control. Recently a Waste Economy Case Study undertaken on Sea Harvest further reinforced what the company already knew its approach to waste management reinforces its environmental conscience where the company recycles approximately 60% of its waste. Sea Harvest s electricity usage was relatively flat over the past year but there were significant difficulties with the reliability of supply as Saldanha underwent consistent load shedding as part of Eskom s grid stabilisation. Sea Harvest s primary product is perishable so cold storage is essential for the sustainability of the business. The company has installed a 700 KVA generator at its main cold store to ensure that it can maintain the integrity of its frozen stock should there be extended power interruptions. There is also a contingency plan in place for extended load shedding. In an effort to reduce the company s dependence on Eskom there is a project in progress in the Saldanha area for the installation of an Open Cycle Gas Turbine Power Generating facility utilising liquid natural gas for generating approximately 2.4 GW for feeding into the grid. This in the future should enable the West Coast area to run independent of the Eskom generating facilities, but still utilising the Eskom grid for distribution. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 43

46 2015 INTEGRATED REPORT SUBSIDIARY REPORTS (CONTINUED) Lion of Africa Insurance Company Limited ( Lion of Africa or Lion ) OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Introduction Lion of Africa is a South African non-life insurance company, licensed by the Financial Services Board in terms of the Short-Term Insurance Act No 53 of 1998 ( the Act ) on 23 August Since its inception, Lion of Africa has dedicated itself to playing a leading role in empowerment and transformation within the financial services sector, the company is also the first South African short-term insurer to achieve a Level 1 B-BBEE contributor status. Lion of Africa s short-term insurance activities have until recently concentrated primarily in the corporate and commercial property, marine, specialist engineering, casualty and personal lines markets. It is the largest insurer to South Africa s local authorities. Lion s Year Under Review Lion of Africa s poor performance continued during the year under review, reporting a loss from operations of R179 million (2014 loss of R180 million). In addition to challenging market conditions, this loss is directly attributable to a significant decrease in premium income and large and attritional claims and one-off charges incurred. The significant decrease in premium income is due to the following: Credit rating downgrade The credit rating downgrade by Standard & Poor s Ratings Services in the fourth quarter of 2014 caused a reduction in the corporate and large commercial business. Most clients in these markets are required to only place business with insurers that hold a credit rating of above a certain level and in the case of Lion of Africa the downgraded credit rating breached that minimum. The impact of the credit rating downgrade was not so severe in the local authority market, where the company s Level 1 B-BBEE rating countenanced the adverse credit rating. The company was thus able to renew its full complement of existing accounts. With a view of rebuilding the corporate business in particular, the company has established the Lion of Africa Underwriting Company Limited which is underwritten by Zurich Insurance Company South Africa Limited. This enables Lion of Africa to write corporate business on well rated paper in terms of claims paying ability and continue to leverage its strong B-BBEE credentials. Discontinuation of personal lines business The company decided to discontinue the personal lines business during the 2015 financial year. The decision to exit this market was taken due to the intense competition, with the concomitant pricing pressures, that now characterizes this market and the cost of the required technologies such as telematics. All plans to discontinue this line of business were discussed and accepted by the Financial Services Board ( FSB ) as well as by the broker partners. In fact, certain brokers assisted the company with finding alternative placement for the personal lines business. Implementation of new Risk Appetite Grid ( RAG ) During the latter part of the 2015 financial year a new RAG which improved underwriting acceptance criteria was developed and implemented. The RAG provides management with a clear and rigorous way of identifying risks that fall outside of Lion s risk tolerance. This selection process is applied upfront when selecting new risks as well as at policy renewal stage. The impact of the new RAG has already been felt with the reduction in premium income while claims volatility is expected to decline markedly going forward. Large and attritional claims and one-off charges incurred: Claims During the year under review, Lion had a number of large claims in excess of R5 million, with fire being the causal factor. Although there was a reduction on the previous year, once the reinsurance limit has been reached the cost of reinstating the reinsurance is significant. In addition, a large number of attritional claims were paid which is a remnant of past practices. This unfortunate situation is expected to continue for a while longer until the tail of the unprofitable business previously written has completely run-off. As mentioned above, while this tail is runningoff new business is being written in terms of strict underwriting parameters introduced by the new RAG. 44 BRIMSTONE INVESTMENT CORPORATION LIMITED

47 INTEGRATED REPORT 2015 One-off charges Significant effort was expended by the turnaround team (discussed below), including the Brimstone team, to clean up the business and its accounting practices. Consequently, a number of one-off charges were processed to the income statement. These expenses and impairments related to software licences, retention bonuses for key employees and the impairment of software development costs and trade receivables. New Management Team Following the departure of the Lion executive team, either through resignation or dismissal, Brimstone assigned one of its executives and appointed a turnaround team to stabilise the business and take remedial action. This also entailed the appointment of new external and internal auditors. In addition, Brimstone introduced R200 million in capital during the year under review to maintain statutory solvency while the turnaround strategy is underway. A new management team has been appointed, comprising, Bongani Madikiza (Chief Executive Officer), Anees Vazeer (Chief Financial Officer) and Karin Kruger (Chief Operating Officer). In addition to the remedial action already commenced by the turnaround team, management has developed a focussed strategy to return the company to profitability over the next few years. This strategy does not only involve focussing the business model and growth as discussed below, but also the implementation of cost saving initiatives without impairing Lion s ability to deliver a gold standard service to clients. Engagement with the FSB Lion realises the important role the FSB plays in regulating the insurance industry and ensuring compliance with the Act. Consequently, a process of continuous engagement with the FSB and sharing of the company s plans for returning the business to profitability and ensuring capital adequacy was embarked upon at the inception of the turnaround process. All role players are committed to not only ensuring compliance with the Act but also realise the importance of ensuring that Lion as the only Level 1 B-BBEE rated short-term insurer in the country succeeds as a business. Growth Strategy Lion has over the years made significant inroads into the local authority market. It is from this base that Lion is planning to grow its market share further, including the wider public sector. Management is also acutely aware of Lion s strong B-BBEE credentials as a key differentiator in an industry which is not adequately transformed. This not only positions Lion well for growth in the public sector but will enable the company to vigorously pursue opportunities in the private sector, due to the revision of the B-BBEE Codes of Good Practice that places an increased emphasis on procuring from black-owned businesses. Companies procuring from Lion is able to claim 135% of spend in their own B-BBEE score card. CSI The company s CSI programme aspires to cover and support the areas of education, sport, social upliftment, health, and arts & culture. Lion s CSI spend for the financial year amounted to approximately R Skills Development Lion of Africa has, over the years, supported skills development through its offering learnership and graduate programmes. Since inception, Lion has trained over 200 learners. These learners have now acquired technical skills in a highly technical industry. They have gone on to work for some of the larger insurance companies as well as reinsurers in the country. At its core, Lion s philosophy is one of transformation; and the up-skilling of young minds delivers on that philosophy. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 45

48 2015 INTEGRATED REPORT GOVERNANCE REPORT for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Governance and Stakeholder Engagement Governance The highest governing body at Brimstone is the board of directors. The Board remains fully committed to the principles of integrity, transparency and accountability in its dealings with all its stakeholders. It endorses good corporate governance and ensures that the Company is compliant with the Code of Corporate Practices and Conduct contained in the King III Report on Corporate Governance ( King III ). Brimstone is an investment holding company and accordingly all references to the Group in this context denote the Company and its subsidiaries. The Board is satisfied that Brimstone has met the principles of King III as legislatively required throughout the year under review. When a principle of King III has not been adhered to as specified, this is explained where relevant. A summary of all the principles of King III that were not applied is presented below: The Chairman of the Board, Mr F Robertson was appointed as Executive Chairman effective 17 January In line with good corporate governance, best practice and the Listing Requirements of the JSE Limited, Mr PL Campher serves as Lead Independent Director. The nominations committee and board perform evaluations, but have decided not to disclose the overview of the evaluation process, results and action plans in the integrated report due to the potentially sensitive nature. The Board does not intend to institute a formal dispute resolution processes as it believes that the existing processes within the Group operate satisfactorily and do not require a more formal and separate mechanism. Shareholders have remedies in terms of the Companies Act. Non-executive directors board fees are not based on an attendance fee per meeting. Attendance at board meetings has generally been very good and where directors were unable to attend a meeting, they nevertheless contributed to matters to be considered at the relevant meeting. While the social and ethics committee comprises of both executive and non-executive, it does not comprise of a majority of non-executive directors. The Board is satisfied however that the members possess the requisite knowledge and expertise on matters to be considered by the committee in performance of its duties. The Board is further satisfied that the Company has met the requirements of the Companies Act and the JSE Listings Requirements. An index on the Company s application of each King III principle is published on the Company s website at Board of directors The Board has a formal charter setting out, inter alia, its composition, meeting frequency, powers and responsibilities, particularly with regard to financial, statutory, administrative, regulatory and human resource matters. Key responsibilities in terms of the charter include the following: Determining the Company s vision, mission and key objectives; Determining the Group s values and incorporating them into the Code of Conduct; Appointment of new directors; Providing strategic direction to the Company, and taking responsibility for the adoption of strategic plans; Monitoring compliance with laws and regulations and codes of best business practice; Ensuring that relevant and accurate information is timeously communicated to stakeholders; and Evaluating the going concern status of the Company and the Group. The Board is satisfied that it has discharged its duties and obligations as described in the Board charter, during the past financial year. To ensure a balance with no individual having unfettered powers of decision-making, a clear division of responsibilities exists between the Board and executive management. The Board provides effective leadership and vision, aiming to enhance shareholder value and ensure long-term sustainable development and growth of the Company for the benefit of shareholders and other stakeholders over time. The Board meets at least four times a year. Additional meetings are convened as and when necessary. All members of the Board have unlimited access to the services of the Company Secretary and senior management, as well as all Company records. Composition of the Board The composition of the Board reflects a balance of executive and non-executive directors. Taking into account the size of the Board, diversity and demographics, the majority of directors are independent. As at year end the Board consisted of three executive and seven independent non-executive directors (one of whom is the Lead Independent Director). Non-executive directors are selected to serve on the Board for their broader knowledge and experience and are expected to contribute effectively to decision-making and the formulation of policy. The independence of non-executive directors, who have served on the Board for more than nine years, is subject to review by the Board. 46 BRIMSTONE INVESTMENT CORPORATION LIMITED

49 INTEGRATED REPORT 2015 In terms of the MOI of the Company at least one third of the directors must retire by rotation annually and may make themselves available for re-election at an annual general meeting. The roles and responsibilities of the Chairman of the Board and the Chief Executive Officer are separated. One of the principles of King III is that the Chairman of the Board be an independent nonexecutive director. Mr F Robertson was appointed Executive Chairman early in The Board believes that Mr Robertson (who previously served as Executive Deputy-Chairman since 2002) has the required level of expertise and experience to act as Chairman of the Group and oversee the strategy of unlocking shareholder value for the benefit of shareholders. Mr PL Campher serves as Lead Independent Director, in compliance with King III and the JSE Listings Requirements. Evaluation of the Board, board committees and individual directors The Board and subcommittees are evaluated by its members. The results of these evaluations are not disclosed in the integrated report, but the nomination for reappointment of directors only occurs after the evaluation of the performance of the Board. Induction of directors To assist directors, the Board has established a formal orientation programme for new directors which include background material, meetings with executive directors and senior management and visits to the various Group Companies locations. In addition, new directors will also receive information on the Companies Act and the JSE Listings Requirements and the obligations it imposes on directors. Should circumstances arise where a non-executive director needs to obtain independent professional advice in order to act in the best interest of the Company, that director is encouraged to seek such advice with all reasonable costs being borne by the Company. Company Secretary s role and responsibilities All directors have unlimited access to the services of the Company Secretary, Mrs T Moodley, who is responsible to the Board for ensuring that proper corporate governance principles are adhered to and that Board member induction and training is provided where appropriate. The Board has considered and satisfied itself on the competence and qualifications of the Company Secretary. The Company Secretary is not a director of Brimstone and has an arm s length relationship with the Board and the directors. Board committees (see tables overleaf) Specific responsibilities have been delegated to board committees with defined terms of reference set out in their respective charters. Copies of the Board and committee charters, which are reviewed annually, are available on request from the Company Secretary. The current subcommittees of the Board are the audit and risk committee, investment committee, remuneration committee, nominations committee and the social and ethics committee. Notwithstanding the delegation of functions to board committees, the Board remains ultimately responsible for the proper fulfilment of such functions, except for the functions of the audit and risk committee relating to the appointment, fees and terms of engagement of the external auditor. Policy on trading in company securities In accordance with the Listings Requirements, the Company has adopted a Code of Conduct for insider trading. Directors and employees are prohibited from trading in Company securities during prohibited and closed periods. Directors and designated employees may only deal in the Company s securities outside the closed period, with the approval of the Chairman, Chief Executive Officer or Lead Independent Director. Conflicts of interests All directors of the Company and its subsidiaries and senior management, are reminded of the requirement to submit, at least annually, a list of all their directorships and interests in contracts with Brimstone. Directors are required to disclose their personal financial interests, and those of persons related to them, in contracts or other matters in which Brimstone has a material interest or which are to be considered at a Board or committee meeting. Where a potential conflict exists; directors are expected to recuse themselves from relevant discussions and decisions. Risk management The Board is responsible for overseeing governance and risk. The Board charter outlines the directors responsibilities for ensuring that an appropriate system and process of risk management is implemented and maintained. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 47

50 2015 INTEGRATED REPORT GOVERNANCE REPORT (CONTINUED) for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Remuneration committee Audit and Risk Committee Name Role, purpose and principal functions Key focus for the year under review PL Campher (chairman) Appointed: February 2012 MJT Hewu Appointed: July 2013 MK Ndebele Appointed: February 2007 N Khan (chairman) Date first appointed: January 1999 PL Campher Date first appointed: November 2006 LA Parker Date first appointed: January 1999 KR Moloko Date first appointed: November 2013 F Roman Date first appointed: May 2009 Determine, approve and develop the Company s (a) general philosophy on remuneration and (b) specific philosophy in respect of executive remuneration Review and determine the remuneration packages of executives, including bonus incentive schemes, increases and shares Prepare for inclusion in the Company s integrated report a remuneration report setting out the remuneration policy Review the general level of remuneration for directors of the Board, including its committees. Put forward to the Board the necessary proposals in this respect for final approval by shareholders at annual general meeting Approve appointments and promotions of senior executives Annually review the effectiveness of the Company s Code of Conduct Evaluate cases of unethical behaviour by senior managers and executives of the Company Regularly review the Company s Code of Ethics The approval of amendments to the Brimstone Group s share schemes Ensure the Company has proper succession planning in place. Put forward to the Board the necessary proposals Make recommendations to the Board in respect of senior management succession and senior talent development and education The audit and risk committee shall provide an open avenue of communication between the internal auditors, external auditors, and the Board Consider in consultation with external and internal auditors, their audit scope and plans Review with the head of internal audit and the representative of the external auditors the co-ordination of audit effort to ensure completeness of coverage, reduction of redundant efforts and effective use of audit resources The audit and risk committee shall review with the internal and the external auditors: The adequacy and effectiveness of the Company s internal controls, including computerised information system controls and security; The quality of financial information produced to ensure integrity and reliability; Compliance with the requirements for audit and risk committees as set out by the King Report on Corporate Governance; Any related significant findings and recommendations of the internal and external auditors together with management s responses thereto; The effectiveness of the risk management process Oversee the external audit function and internal audit function Examine and review the interim and annual financial statements before submission to the Board and prior to public announcements To review significant cases of employee conflicts of interest, misconduct or fraud Considers other topics as defined by the board of directors from time to time and to investigate any activity which the audit and risk committee, in its sole discretion, considers to fall within the scope of its powers Review the Risk Management Policy for approval by the Board annually Review policies and procedures with respect to senior executive discretionary expenditure including their expense accounts, prerequisites and use of corporate assets and consider the results of any review of these areas by the internal or external auditors. Obtain the requisite resources for the effective discharge of its responsibilities. Review the expertise, resources and experience of the Company s finance function, including satisfying itself of the suitability, expertise and experience of the Chief Financial Officer and disclose the results of the review in the integrated report The committee also considers and satisfies itself of the suitability of the expertise and experience of the Financial Director annually required by the JSE Listings Requirements. Reviewed long-term and short-term incentive payments to executive directors and management Reviewed bonus calculations against approved targets Reviewed remuneration report for inclusion in the integrated report before recommending to the Board for approval Reviewed management s recommendations on proposed increases to nonexecutive directors fees for review by the Board and then approval by shareholders Approved annual salary increases for staff See the full audit and risk committee report on page BRIMSTONE INVESTMENT CORPORATION LIMITED

51 INTEGRATED REPORT 2015 Nominations committee Investment committee Social and Ethics Committee Name Role, purpose and principal functions Key focus for the year under review MJT Hewu (chairman) Appointed: July 2013 PL Campher Appointed: February 2012 MK Ndebele Appointed: February 2007 PL Campher (chairman) Appointed: August 2006 N Khan Appointed: February 2007 LA Parker Appointed: August 2013 F Robertson (chairman) Appointed: February 2013 MA Brey Appointed: November 2012 PL Campher Appointed: November 2012 N Khan Appointed: November 2012 Review the structure, size and composition of the Board Make recommendations to the Board with regard to the appointment of new directors Identify and nominate candidates to fill board vacancies Ensure that formal succession plans for the Chairman, CEO, FD and senior management are developed and implemented Review board charter and the committee charter Provide advice to the Board regarding investment principles, objectives and guidelines Considers and recommends to the Board proposals for the investment of financial resources in new enterprises that are of strategic interest to the Company Advises the Board on policy regarding borrowings, and recommend action to be taken within established policy in relation to requirements per the Company s delegated levels of authority The investment committee, in carrying out its tasks under its terms of reference, may obtain such independent professional advice as it considers necessary to effectively carry out its duties Impact of investments on cash resources Monitors the Company s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice Considers and ensures appropriate resources and committees are in place to ensure transformation within the Group Ensures the promotion of equality, prevention of unfair discrimination and reduction of corruption within the Group Monitors targets in respect of Broad-Based Black Economic Empowerment Act within the Group Considers and ensures appropriate programmes are in place in respect of CSI targets within the Group Assists the Board in ensuring that the Company s ethical standards are integrated into all the Company s strategies and operations Reviewed and monitored implementation of succession plans for executive directors and senior management Reviewed profiles of directors coming up for re-election at annual general meeting Reviewed composition of board committees Considered and recommended to the Board the annual yearend valuation of investments Considered and recommended to the Board the Intrinsic Net Asset Values of investments Considered and accepted management s recommendations for changes to delegated levels of authority relating to guarantees and borrowings for recommendation to the Board Considered and approved further capitalisation of Lion of Africa Considered the Company s exit from the Nedbank and Old Mutual BEE transactions Considered and approved proposals for participation in Oceana Group Limited and Taste Holdings Limited rights offers Considered and approved further investments in Phutuma Nathi and Grindrod Monitored the Company s compliance with debt covenants in respect of its borrowing facilities See the full social and ethics committee report on page 51. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 49

52 2015 INTEGRATED REPORT GOVERNANCE REPORT (CONTINUED) for the year ended 31 December 2015 Directors attendance at meetings OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Attendance by directors Possible Board Attended Audit Committee Possible Attended Investment Committee Possible Attended Remuneration Committee Possible Attended Nominations Committee Possible Attended Social and Ethics Committee F Robertson LZ Brozin 5 5 MA Brey PL Campher MJ Hewu N Khan MK Ndebele LA Parker K Moloko FD Roman Stakeholder Engagement Prescribed engagement activities JSE SENS announcements* The publication of our interim and annual results in printed media The distribution of our integrated report and notice of AGM Posting of our interim and annual financial results on our website Our AGM and other shareholder meetings Possible Targeted groupings All All All All All ordinary shareholders * The JSE s exchange includes an investor service to facilitate a listed company s prescribed and voluntary disclosures to the general investor public. SENS is an acronym for Stock Exchange News Service. Proactive engagement activities Bi-annual results presentations posted on our website Actively participated at the SBG Securities Financials Group conference in 2015 Responded where necessary to analyst and media reports to improve accuracy Press announcements, together with media interviews for interim and annual results Our website provides a wide range of information, including dividend announcements, SENS announcements, share price information and our integrated report 2016 Investor diary Target groupings Institutional investors Analysts and financial media Asset managers and analysts Analysts and financial media All All Ordinary shareholders 2015 Annual financial results 29 February 2015 Dividend payment 25 April Annual general meeting 9 May 2016 Interim results 24 August Attended 50 BRIMSTONE INVESTMENT CORPORATION LIMITED

53 INTEGRATED REPORT 2015 SOCIAL AND ETHICS COMMITTEE REPORT for the year ended 31 December 2015 The Social and Ethics committee ( the committee ) was established to assist in monitoring the Group s performance as a good and responsible corporate citizen and to perform the statutory functions required of a social and ethics committee in terms of the Companies Act, 71 of 2008, as amended ( the Companies Act ). This report is presented by the committee to describe how it has discharged its duties in terms of the Companies Act as well as its additional duties assigned to it by the Board in respect of the financial year ended 31 December Membership The current members are as follows: F Robertson (chairman) MA Brey PL Campher N Khan Composition of the committee For the period under review the committee consisted of executive chairman, Mr F Robertson, lead independent director, Mr PL Campher, non-executive director, Mr N Khan and executive director, Mr MA Brey. The chief executive officer and/or managing directors and/or designated representatives of the Group s three operating subsidiary companies are invited to attend all committee meetings. In terms of the committee s mandate at least two meetings should be held annually. The committee s role and responsibilities Role The committee fulfils an oversight role with accountability to the Board. The main objective of the committee is to assist the Board in monitoring the Group s performance as a good corporate citizen. Responsibilities The committee performs all the necessary functions to fulfil its role as stated above, including the following statutory duties: (a) Monitoring the Group s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters relating to: Social and economic development, including the Group s standing in terms of the goals and purposes of: The 10 principles set out in the United Nations Global Compact Principles; The Organisation for Economic Co-Operation and Development ( OECD ) recommendations regarding corruption; The Employment Equity Act; and The Broad-Based Black Economic Empowerment Act. Good corporate citizenship, including the Group s Promotion of equality, prevention of unfair discrimination, and reduction of corruption; Contribution to the development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and Record of sponsorship, donations and charitable giving. The environment, health and public safety, including the impact of the Group s activities and of its products or services; Consumer relationships, including the Group s advertising, public relations and compliance with consumer protection laws; and Labour and employment, including: The Group s standing in terms of the International Labour Organisation Protocol on decent work and working conditions; and The Group s employment relationships, and its contribution toward the educational development of its employees; (b) Ensure that the Group s ethics risks and opportunities are assessed and that an ethics risk profile is compiled; (c) Ensure that the ethical standards guiding the Group s relationships with internal and external stakeholders are clearly identified; (d) Ensure that the Group s ethical standards are integrated into all the Group s strategies and operations; (e) Ensure that the Group s ethics performance is assessed, monitored, reported and disclosed; (f) To draw matters within its mandate to the attention of the Board as may be required; and (g) To report, through one of its members, to the shareholders at the Company s annual general meeting on matters within its mandate. In addition, the committee performs the following duties delegated by the Board: The Group s integrated report contains a large amount of information reviewed and considered during the course of the committee s activities. The committee will review the content of the integrated report that is relevant to the committee. Detailed information on the irregularities and fraud at Lion of Africa appears on page 56. Report to shareholders The committee has reviewed and is satisfied with the content in the integrated report that is relevant to the activities and responsibilities of the committee. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 51

54 2015 INTEGRATED REPORT REMUNERATION REPORT for the year ended 31 December 2015 This report deals with matters covered by the remuneration committee. OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Remuneration policy It is the policy of the Company to attract and retain employees of the highest calibre through its remuneration practices. The committee annually reviews fixed remuneration to ensure that employees who contribute to the success of the Company receive market related remuneration. Executive directors, top and senior managers receive short and long-term incentives. The incentive scheme sets targets for management and focuses on growth in Intrinsic Net Asset Value, deal creation, achievement of strategic issues and cash management. The short-term incentive, payable in cash, is limited to a maximum of 95% of annual cost to company depending on the level of performance and seniority of the participant. Effective 1 January 2015, the long-term incentive was changed with approval from shareholders from share-option awards to a forfeitable share plan. This plan is based on market best practice and aligns the objectives of the Company and its employees. In determining the annual bonuses to be paid and forfeitable shares to be awarded, the Company utilises the services of external consultants and auditors to compute or verify the correctness of payments or awards. These reports are presented to the Remuneration Committee for consideration. That Committee in turn recommends payments or awards to the board of directors for final approval. Executive directors remuneration The committee utilised the services of remuneration consultants to set the level of remuneration for executive directors. Their earnings were benchmarked against recognised remuneration surveys R 000 Paid by the Company Other Name Basic salary Bonus benefits* Total MA Brey F Robertson LZ Brozin Paid by Subsidiaries for services as directors MA Brey 215 F Robertson Total Executive directors Paid by the Company Other Name Basic salary Bonus benefits* Total MA Brey F Robertson LZ Brozin Paid by Subsidiaries for services as directors MA Brey 204 F Robertson Total Executive directors * Company contributions to retirement fund and medical aid. 52 BRIMSTONE INVESTMENT CORPORATION LIMITED

55 INTEGRATED REPORT 2015 Non-executive directors remuneration Non-executive directors receive fees for membership of the Brimstone Investment Corporation Limited Board. They also receive fees for work done on committees of the Board R 000 Paid by Company Committee Name Board fees fees Total PL Campher MJT Hewu N Khan MK Ndebele K Moloko LA Parker F Roman Paid by Subsidiaries PL Campher N Khan Total Non-executive directors Total Directors remuneration Paid by Company Committee Name Board fees fees Total PL Campher MJT Hewu N Khan MK Ndebele K Moloko LA Parker F Roman Paid by Subsidiaries PL Campher N Khan Total Non-executive directors Total Directors remuneration Prescribed officers The Board has determined that there are no prescribed officers in the employ of the Company as defined by the Companies Act No.71 of ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 53

56 2015 INTEGRATED REPORT REMUNERATION REPORT (CONTINUED) for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS Share incentive scheme The share option scheme was discontinued with effect from 1 January Up to this date, share option allocations to directors, top and senior managers were considered periodically. The Brimstone Investment Corporation Share Trust makes allowances for the granting of options to directors of the Company who do not hold salaried employment or office to acquire shares in the Company. The options issued can only be exercised on the basis of a maximum of 20% per annum and must be exercised within 6 years from date of grant. The Company adopted a forfeitable share plan which was approved by shareholders on 18 December In terms of the forfeitable share plan, executive directors, top and senior managers will be awarded performance shares in the Company. The performance shares are linked to a requirement of continued employment over the prescribed period, the Company s performance and strategic, individual performance conditions which have to be met. Share Option details of executive directors N Ordinary Shares 2015 Balance at 31 Dec 14 Granted during the year Exercise Price Date of Grant Expiry Date Exercised during the year Gain on exercise of share options Balance at 31 Dec 15 Exercisable at 31 Dec 15 Name Number Number Cents Number R 000 Number Number MA Brey Feb LZ Brozin Feb F Robertson Feb Balance at 31 Dec 13 Granted during the year Exercise Price Date of Grant Expiry Date Exercised during the year Gain on exercise of share options Balance at 31 Dec 14 Exercisable at 31 Dec 14 Name Number Number Cents Number R 000 Number Number MA Brey Feb Feb LZ Brozin Feb Feb F Robertson Feb Feb N Ordinary Exercise shares price Share Option details of staff No. Cents There were no share options granted to staff during The following options were granted to staff during 2014: Shares awarded in terms of the forfeitable share plan MA Brey F Robertson LZ Brozin Staff BRIMSTONE INVESTMENT CORPORATION LIMITED

57 INTEGRATED REPORT 2015 AUDIT AND RISK COMMITTEE REPORT for the year ended 31 December 2015 Introduction The Brimstone audit and risk committee is a formal committee of the Board. The responsibilities of the committee are outlined in its written terms of reference which are reviewed annually and are in line with the Companies Act, King III and the JSE Listings Requirements. The committee has an independent role with accountability to the Board and shareholders. This report of the audit and risk committee is presented to the shareholders in terms of section 94(7)(f) of the Companies Act and as recommended by King III. The members of the committee were recommended by the Board and appointed by shareholders for the 2015 financial year. Committee members and attendance at meetings The Committee comprises five independent non-executive directors (as set out in the table below) and is chaired by Mr N Khan. All the committee members are suitably skilled and experienced. The committee meets at least three times per year. Composition of the committee and attendance at meetings Number of meetings held Number of meetings attended Committee member N Khan (chairman) 3 3 PL Campher 3 3 KR Moloko 3 3 LA Parker 3 3 FD Roman 3 2 The executive directors and senior management make themselves available to attend meetings and answer questions. Representatives from Brimstone s subsidiary companies attend the meetings by invitation. The audit committee chairman and Brimstone s lead independent director are representatives at the subsidiaries finance committees. Roles and responsibilities The committee has a charter approved by the Board. The charter is reviewed annually and was updated during the year under review. The committee s roles and responsibilities include its statutory duties in accordance with the Companies Act, as well as the responsibilities assigned to it by the Board. The audit or finance committees of Brimstone s operating subsidiary companies, namely, Lion of Africa, Sea Harvest and House of Monatic report to this committee at each meeting by way of report backs via the respective chairperson of the subsidiary s audit or finance committee or invited representatives. In the case of Lion of Africa, a wholly-owned subsidiary, its own audit committee comprises three independent non-executive directors and consequently fulfils its responsibilities independent of the committee. Statutory duties In the conduct of its duties, the committee has performed the following statutory duties: Nominated Deloitte & Touche and Mr Lester Peter Cotten, who in the opinion of the committee, are both independent of the Company, for re-appointment as the external auditor for the ensuing year to the shareholders; Determined the fees to be paid to the external auditor and their terms of engagement; Ensured that the appointment of the external auditor complies with the provisions of the Companies Act and any other legislation relating to the appointment of the external auditor; Determined the nature and extent of any non-audit services; and Pre-approved any proposed agreement with the auditors for the provision of non-audit services. Appointment of external and internal auditors The committee is satisfied that the Company s external auditor, Deloitte & Touche is independent of the Company and is able to conduct their audit functions without any influence from the Company. The committee has rules regulating the services and conditions of use of non-audit services provided by the external auditors. In terms of its charter this committee is responsible for the appointment of the Company s internal auditors. KPMG performed this function for the past year and were reappointed as internal auditors for the 2015 financial year. ANNUAL FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS OUR HISTORY BRIMSTONE INVESTMENT CORPORATION LIMITED 55

58 2015 INTEGRATED REPORT AUDIT AND RISK COMMITTEE REPORT (CONTINUED) for the year ended 31 December 2015 OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS The committee meets at least three times a year with the Company s internal and external auditors together with management to review accounting, internal and external auditing, internal control and financial reporting issues. Both the internal and external auditors enjoy unrestricted access to the audit and risk committee and vice versa. The committee chairman meets at least three times per year with both internal and external audit without management being present. The committee approves the fees and scope of external and internal audit services. It is responsible for the maintenance of a professional relationship with both the external and internal auditors and oversees co-operation between these two parties. Internal financial controls Brimstone is responsible for ensuring that a sound system of internal control exists to safeguard shareholders investments and the assets of the Group. The Group s internal controls, systems and procedures are designed to provide reasonable, but not absolute assurance as to the integrity and reliability of the annual financial statements, that assets are adequately safeguarded against material loss and that transactions are properly authorised and recorded. Expertise and experience of the Financial Director, Chief Financial Officer and finance function The committee has satisfied itself of the appropriateness and experience of the Financial Director, Mr LZ Brozin and the Chief Financial Officer, Mr M O Dea. The committee has furthermore considered and has satisfied itself of the appropriateness of the expertise and adequacy of resources of the Company s finance function and the experience of the senior members of management responsible for the finance function. Financial statements and going concern The committee reviewed the annual financial statements and consolidated annual financial statements and is satisfied that they comply with International Financial Reporting Standards and the requirements of the Companies Act, and that the accounting policies used are appropriate. The committee has also reviewed a documented assessment by management of the going concern premise of the Company before recommending to the Board that the Company will be a going concern for the foreseeable future. Risk management In giving effect to risk management responsibilities the Group has implemented a continuous risk management review programme to ensure a coherent governance approach throughout the Group. The Group has ensured that no undue, unexpected or unusual risks have been undertaken in pursuit of reward. Irregularities and fraud at Lion of Africa During the year under review it was discovered that fraud was being perpetrated at Lion of Africa Insurance Company Limited. Five executives were either dismissed or resigned and a turnaround team was appointed. In addition, ENS Forensics (Pty) Limited was appointed to carry out a forensic investigation. The investigation revealed a number of irregularities and fraudulent activities which gave rise to a duty to report in terms of the Prevention and Combatting of Corrupt Activities Act. Consequently cases have been opened with the South African Police Service. In addition, recovery proceedings are underway to recover losses suffered by the company from various parties. Control weaknesses which were exploited in respect of the identified irregularities have been addressed and the control environment at Lion of Africa has been improved to prevent a recurrence of such irregularities. Compliance The committee is responsible for reviewing any major breach of relevant legal, regulatory and other responsibilities. The committee is satisfied with the compliance to these standards and with the applicable laws and regulations. Furthermore, the committee is satisfied that it has complied with all its legal, regulatory and other responsibilities during the year under review. Recommendation of the integrated report for approval by the Board The committee has reviewed and considered the integrated report, including the annual financial statements and consolidated annual financial statements, and has recommended it for approval by the Board. N Khan Chairman of the Audit and Risk Committee 15 March BRIMSTONE INVESTMENT CORPORATION LIMITED

59 2015 OUR HISTORY I N T E G R AT E D R E P O RT CONTENTS Directors Approval of Annual Financial Statements, Preparation of Annual Financial Statements Independent Auditor s Report Directors Report Statements of Other Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows SUPPLEMENTARY REPORTS ON INVESTMENTS Interest in Subsidiaries (Appendix 1) GOVERNANCE Notes to the Annual Financial Statements Investments in Associate Companies and Joint Ventures (Appendix 2) Investments (Appendix 3) Valuation of Option (Appendix 4) Directors Interests in Shares (Appendix 5) Shareholding Information Notice of Annual General Meeting Curriculum Vitae Corporate Information Proxy Form B R I M S T O N E I N V E S T M E N T C O R P O R AT I O N L I M I T E D 57 ANNUAL FINANCIAL STATEMENTS AUDITED ANNUAL FINANCIAL STATEMENTS Income Statements OUR BUSINESS and Certificate by Secretary

60 2015 INTEGRATED REPORT DIRECTORS APPROVAL OF ANNUAL FINANCIAL STATEMENTS, PREPARATION OF ANNUAL FINANCIAL STATEMENTS AND CERTIFICATE BY SECRETARY OUR HISTORY OUR BUSINESS GOVERNANCE ANNUAL FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation, integrity and objectivity of the consolidated and separate annual financial statements as well as for all other information contained in this integrated report. To fulfil this responsibility, the Company and Group maintain controls to provide reasonable assurance that assets are safeguarded and that records accurately reflect the transactions of the Company and Group. The consolidated and separate annual financial statements are prepared in terms of International Financial Reporting Standards and have been reported on by our auditors in conformity with International Standards on Auditing. The consolidated and separate annual financial statements for the year ended 31 December 2015 which appear on pages 55 and 56 and 60 to 140 were approved by the Board and authorised for issue on 15 March On behalf of the Board: F Robertson Executive Chairman MA Brey Chief Executive Officer Preparation of financial statements The consolidated and separate annual financial statements of Brimstone Investment Corporation Limited for the year ended 31 December 2015 have been prepared and supervised by LZ Brozin (Financial Director) BCom BAcc CA(SA) and M O Dea (Chief Financial Officer) BCom CA(SA). Certificate by secretary In terms of section 88 (2)(e) of the Companies Act, I certify that the Company has lodged with the Commissioner all such returns and notices as are required by the Companies Act and that all such returns and notices are true, correct and up to date. T Moodley Company Secretary 15 March BRIMSTONE INVESTMENT CORPORATION LIMITED