CONTENTS ABOUT THIS REPORT

Transcription

1 INTEGRATED REPORT 2017

2 CONTENTS ABOUT THIS REPORT Inside front cover OUR HISTORY Group Structure Salient Financial Highlights Five Year Financial Review Historic Review OUR BUSINESS Our Business Model External Factors Impacting Our Business Model Managing Our Material Risks Board of Directors Team Brimstone Chairman s Report Chief Executive Officer s Report Group Profile Intrinsic Net Asset Value Report Corporate Social Initiatives Unlisted Subsidiary Reports GOVERNANCE Governance Report Social and Ethics Committee Report Remuneration Report Audit and Risk Committee Report AUDITED ANNUAL FINANCIAL STATEMENTS Contents Notes to the Annual Financial Statements Shareholding Information Notice of Annual General Meeting Curriculum Vitae Proxy Form Corporate Information Inside back cover ABOUT THIS REPORT Report Profile This report is for the year ended 31 December This is the ninth 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 IV and the JSE Limited 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 unlisted businesses which it controls. Where the business is separately listed or Brimstone 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. Sea Harvest is listed and the other two subsidiaries are unlisted but all are operated and managed as independent entities with their own 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 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 the financial and certain non-financial information presented in this report. Deloitte & Touche as our external auditors has issued an unqualified audit opinion on the consolidated and separate annual financial statements. Empowerdex and Premier Verification have issued certificates verifying the B-BBEE ratings presented. Report Approval The Board believes that the Integrated 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 CORPORATE PROFILE BRIMSTONE IS A BLACK CONTROLLED AND MANAGED INVESTMENT HOLDING COMPANY incorporated and domiciled in the Republic of South Africa, employing in excess of employees in its subsidiaries and more than in its associates and companies in which it has invested. 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. 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, e mployees, suppliers, customers and the greater community. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

4 OUR HISTORY GROUP STRUCTURE 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 unlisted operating subsidiaries are provided in this report. Associates, Joint Ventures, Investments, and Option Investments 2 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

5 Shareholding: 54.9% Number of employees: Shareholding: 100% Number of employees: 95 Shareholding: 100% Number of employees: 723 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

6 OUR HISTORY SALIENT FINANCIAL HIGHLIGHTS for the year ended 31 December 2017 Percentage R Change Revenue % Operating Profit (19%) Headline Earnings (77%) Total Assets % Weighted average number of shares in issue net of treasury shares (000 s) (0%) Shares in issue at end of year net of treasury shares (000 s) (0%) Performance per share (cents) Headline Earnings (77%) Net Asset Value % FIVE YEAR FINANCIAL REVIEW Year ended Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 31 December Operating results (R 000) Revenue Operating Profit Headline Earnings/(Loss) ( ) Financial Position (R 000) Total Assets Net Assets Performance per share (cents) Headline Earnings/(Loss) (295.3) Dividend Special dividend Net Asset Value Intrinsic Net Asset Value 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) Restated 2 Net of treasury shares 4 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

7 REVENUE OPERATING PROFIT R R TOTAL ASSETS MARKET CAPITALISATION R R NAV PER SHARE INAV PER SHARE CENTS 600 CENTS BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

8 HISTORIC REVIEW Special Dividend (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 more than R45m from previously disadvantaged shareholders Raised R104m from institutions 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 non-core assets raising R62m Acquired stake in Sea Harvest Paid back 150cps to all shareholders Acquired 30% of Lion of Africa Prof Jakes Gerwel appointed as Chairman of board 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 Acquired a further 10% stake in Oceana for R176m Increased stake in Life Healthcare to 21.9% BRT Share Price (cents) BRN Share Price (cents) Acquired stake in Nandos Group 6 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

9 Sold Lenco stake for R203m Acquired 18% stake in Aon Re Africa years on the JSE Acquired Phuthuma Nathi shares 24 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 32 Unbundled part of Life Healthcare stake to shareholders Acquisition of remaining 26% of Lion of Africa Acquired MTN Zakhele shares 15 Increased stake in Scientific Group to 28.2% Acquired further 8.5m shares in Oceana for R382m 18 Acquired 12.3% of Taste Holdings Disposed of 4.5m shares in Life Healthcare realising R140m Acquired 25.1% of Afena Capital 25 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 Increased stake in Sea Harvest to 85% Disposed of investment in Rex Trueform and African & Overseas realising R51.8m Disposed of investment in Taste Holdings realising R143.4m Disposed of investment in Afena Capital realising R11m Participated in Equites private placement of shares in the amount of R100m Listing of Sea Harvest on the JSE Acquired 17.2m shares in Life Healthcare rights offer Acquired 40m shares in Long4Life ahead of its listing Disposed of investment in MTN Group Acquired 33.8m shares in Stadio BEE transaction Disposed of investment in Tiger Brands Acquired 10% of FPG Property Fund Ordinary Dividend (cents) Acquired 10% of Equites for R350m BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

10 OUR BUSINESS OUR BUSINESS MODEL KEY INPUTS OUR ACTIVITIES 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 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 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 GOVERNANCE 8 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

11 OUR BUSINESS CONTEXT OUTPUT EXTERNAL FACTORS Amendments to B-BBEE Act and Sector Codes 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 Insurance Company profitability 2. Political and economic landscape 3. Reputational risk 4. Investment concentration in highly regulated industries 5. Sustained stock market shock 6. Net asset value volatility 7. Technology, skills and knowledge gap 8. Suitability, affordability and compatibility of deals 9. Succession planning 10. Ineffective oversight of subsidiary companies VALUE DELIVERED P11 P12 FINANCIAL RETURNS KEY OUTCOMES R95 million Taxes paid to SARS Total workforce in Group R2 167million Paid to employees and suppliers R12 million CSI spend (Including R6.4 million worth of shares allotted to BEST) R238 million Interest paid to financiers 42 cents per share Dividends declared to shareholders R1 884 million Reinvested R4 318million Intrinsic Net Asset Value BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

12 OUR BUSINESS EXTERNAL FACTORS IMPACTING OUR BUSINESS MODEL BRIMSTONE WITH ITS 22-YEAR TRACK RECORD OF DEAL-MAKING IS WELL PLACED TO PARTNER WITH COMPANIES LOOKING FOR A B-BBEE PARTNER. Amendments to B-BBEE Act and Sector Codes Black Industrialist s Programme Macro-Economic Factors on South African Economy Increased Volatility of Equity Market 10 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

13 The amendments to the Broad-Based Black Economic Empowerment (B-BBEE) Act of 2003 and the various sector codes have had the effect of reducing the compliance levels of companies by two to three levels. A company will no longer be able to achieve a reasonable level of B-BBEE compliance without meeting the priority elements of the relevant sector code. Ownership remains a critical element in most of the sector codes and the procurement element is heavily weighted towards procuring from black-owned businesses as opposed to the highest-rated businesses. While 2017 has shown an increase over 2016 in the number of transactions to ensure that businesses become black-owned or significantly black-owned, the level of activity in this area is still considered to be low. Increasing political pressure to address the racial wealth gap in South Africa, together with the coming into effect of the amended sector codes and the clarity it brings is likely to lead to an increase in activity in the medium term. Brimstone with its strong black ownership credentials of about 64% black economic interest and 70% black voting rights, together with its 22-year track record of deal-making, is well placed to partner with companies looking for a B-BBEE partner. The Black Industrialist Programme was introduced to transform the structure of the South African economy. The concept of black industrialists 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 Group through its subsidiaries and investee companies is well positioned to benefit from the programme in the area of green technology particularly in the Western Cape which is experiencing a severe drought and in respect of production efficiency projects. South Africa has since 2012 been affected by the decline in international commodity prices for its four key exports: coal, platinum, iron ore and gold. Economic growth slowed, which was exacerbated by domestic structural weaknesses and low investor confidence. Economic growth increased from 0.3% in 2016 to 1.3% in 2017 and is projected to reach 1.5% in 2018 and 2.1% by The most prominent threat to the South African economy in 2016 was a sovereign credit rating downgrade to below investment grade, which materialised in November 2017 by Standard & Poor s downgrading South Africa s sovereign credit rating two steps below investment grade. While Moody s maintains South Africa s sovereign credit rating at investment grade, South Africa will not be removed from the World Government Bond Index, making higher capital outflows unlikely. The improvement in the political landscape in the first quarter of 2018 is expected to prevent a downgrade by Moody s. The South African Reserve Bank reduced interest rates by 25 basis points during 2017 and with a lower inflation forecast and the stronger Rand versus the US Dollar it is widely expected that interest rates will be cut further in While a stronger Rand does negatively impact certain of Brimstone s investments which earn a significant portion of their revenue from exports, it does benefit those entities sourcing raw material globally. Lower interest rates will positively impact the Group due to the level of interest-bearing borrowings. Investments in listed companies represent more than 40% of the intrinsic gross asset value of Brimstone s investment portfolio. Consequently, fluctuations in the market price of listed shares result in significant volatility in the income statement. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

14 OUR BUSINESS MANAGING OUR MATERIAL RISKS Heat maps Top 10 material risks (by residual risk EXPOSURE) Inherent Risk Exposure Catastrophic 1 Lion of Africa Insurance Company profitability IMPACT Critical Serious Political and economic landscape Significant 3 Reputational risk Minor 4 Investment concentration in highly regulated industries Rare Unlikely Possible Likely Almost certain Residual Risk Exposure LIKELIHOOD 5 Sustained stock market shock Extreme 1 INHERENT RISK EXPOSURE Low Moderate High Net asset value volatility 7 Technology, skills and knowledge gap 8 Suitability, affordability and compatibility of deals Insignificant Very good Good Satisfactory Needs improvement Unsatisfactory 9 Succession planning CONTROL EFFECTIVENESS 10 Ineffective oversight of subsidiary companies 12 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

15 Risk context Response measures Significant losses incurred Inadequate statutory solvency levels Risk of credit rating downgrade to sub-investment grade by a third rating agency New political leadership s ability to create policy certainty Government s ability to stabalise state owned entities finances and effectively deal with ongoing allegations of corruption Low investor confidence Sluggish economic growth impacting investment returns Volatility of the Rand Adequate capitalisation to maintain statutory solvency levels Relationship with a technical strategic partner to improve underwriting and credit rating and reduce management expenses Continuous liaison with the regulator Increase sources of foreign income Optimise hedging strategies of group entities exposed to foreign currencies Deleverage balance sheet as much as possible to limit impact of interest rate hikes Prudent cost management Impact of poor brand or reputation in the market based on information in the public domain Inadequate stakeholder engagement Formalise programme for monitoring brand and reputation Implement formal programme for stakeholder engagement Group has interests in the fishing, insurance and healthcare industries which are subject to strict regulation 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 Monitor policy and legislative changes, and engage actively with relevant authorities on policy and legislative framework Geographic diversification of sources of revenue Determine optimal mix of investments Increase exposure to unlisted investments Reduce debt whenever possible Monitor compliance with foreign exchange hedging policies Impact of market perception of Brimstone s investment philosophy Formalise the strategy and plan to enable a more focused investment philosophy Brimstone board representatives inability to question subsidiaries in order to identify disruptive technology risks or similar developments in their markets Lack of growth in investment portfolio and dividend income Ability to appropriately diversify investment portfolio Lack of director and senior management succession planning Team alignment Investment holding company which is removed from the day to day operations of the subsidiaries Lack of transparency in reporting by investee companies Brimstone representatives on subsidiary boards to assess the IT capability on the boards and make recommendations to enhance the collective IT knowledge and skills Maintain relationships with banks and advisors Develop relationships with unlisted company service providers and advisors Investment Committee to determine appropriate investment hedging strategy for offshore investments Formalise succession plan for Board, and all key senior positions Consider staff succession planning at Nomination Committee meetings Group governance framework to be developed and formally adopted by subsidiary boards BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

16 OUR BUSINESS BOARD OF DIRECTORS Executive directors Fred Robertson (63) Executive Chairman Mustaq Brey (64) Chief Executive Officer Iqbal Khan (51) Chief Operating Officer Geoff Fortuin (51) Financial Director Qualifications: DPhil (h.c.) Qualifications: BCompt (Hons); CA(SA) Qualifications: BCompt (Hons); CA(SA) Qualifications: BCom (Acc) (Hons); CA(SA) Date appointed to the Board: 21 October 1995 Member of: Social and ethics committee Directorships: Aon Re Africa (Pty) Ltd; House of Monatic (Pty) Ltd (chairman); Lion of Africa Insurance Company Ltd (chairman); Lion of Africa Life Assurance Company Ltd (chairman); MyDomain (Pty) Ltd; Remgro Ltd; Sea Harvest Group Ltd (chairman); Swiss Re Life and Health Africa Ltd Date appointed to the Board: 1 November 1995 Member of: Social and ethics committee Directorships: Aon Re Africa (Pty) Ltd; Equites Property Fund Ltd; FPG Investments (Pty) Ltd; House of Monatic (Pty) Ltd; International Frontier Technologies SOC Ltd; Life Healthcare Group Ltd (chairman); Lion of Africa Insurance Company Ltd; MyDomain (Pty) Ltd; Oceana Group Ltd (chairman); Western Province Cricket Association Date appointed to the Board: 9 May 2016 Directorships: Cricket South Africa; Lion of Africa Insurance Company Ltd; Sea Harvest Group Ltd Date appointed to the Board: 9 May 2016 Directorships: Oceana Group Ltd; Quantum Foods Holdings Ltd 14 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

17 Independent non-executive directors Leon Campher (70) Lead Independent Director Mzwandile Hewu (54) Nazeem Khan (61) Keneilwe Moloko (49) Qualifications: BEcon Date appointed to the Board: 7 March 2006 Member of: Audit and risk committee; Investment committee; Nominations committee; Remuneration committee; Social and ethics committee Directorships: Business Unity South Africa (BUSA); Equites Property Fund Ltd; International Investment Funds Association; Savings and Investments Association of South Africa (ASISA); Sun International Ltd Qualifications: BCom (Hons); BPhil(Hons) Date appointed to the Board: 15 September 1997 Member of: Nominations committee; Remuneration committee Directorships: Elevated 154 Property Investment (Pty) Ltd Qualifications: BSc(QS); MAQS; AAArb Date appointed to the Board: 1 November 1995 Member of: Audit and risk committee; Investment committee; Social and ethics committee Directorships: Bham Tayob Khan Matunda CT Inc; Business Park Development Company (Pty) Ltd; Equites Property Fund Ltd; MyDomain (Pty) Ltd; Perthpark Properties (Pty) Ltd; Proman Project Management Services (Pty) Ltd; Stonefountain Properties (Pty) Ltd Qualifications: NDip (Building Survey); BSc(QS); BCom; PGDA; CA(SA) Date appointed to the Board: 5 November 2013 Member of: Audit and risk committee Directorships: Attacq Ltd; Fairvest Property Holdings Ltd; Long4Life Ltd Mpho Ndebele (69) Qualifications: BA(Economics); MSW(Social Planning) Date appointed to the Board: 7 March 2006 Member of: Nominations committee; Remuneration committee Directorships: Desmond Tutu HIV Foundation Liyaqat Parker (64) Date appointed to the Board: 1 November 1995 Member of: Audit and risk committee; Investment committee Directorships: FPG Foods (Pty) Ltd; FPG Holdings (Pty) Ltd; FPG Investments (Pty) Ltd; FPG Property Fund (Pty) Ltd Felicia Roman (54) Qualifications: BA; Post Graduate Secondary Teacher s Diploma Date appointed to the Board: 26 March 2008 Member of: Audit and risk committee Directorships: Direng Investment Holdings (Pty) Ltd; Distinct Few (Pty) Ltd; Omega Gaming (Pty) Ltd; Signature Gaming (Pty) Ltd; Umlingo (Pty) Ltd BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

18 OUR BUSINESS TEAM BRIMSTONE Mvikeli Hlope Tiloshani Moodley Virginia Feleza Wandile Mlomo Sisonke Dyonta Gerhard Kotze Zaheerah Harribi Fatima Allie Jeanette Mosia Nisaar Pangarker Roxanne Carolissen 16 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

19 Sebastian Patel Zikhona Kwatshana Nangamso Ngoma Nazeema Jogee Thandeka Mankayi Mike O Dea Tamlyn Brink Sabira Dhansay Takula Tapela Connie Vanda Lorraine Ramgopaul BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

20 OUR BUSINESS CHAIRMAN S REPORT 18 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

21 In today s rapidly changing environment, shareholders are looking more than ever before for direction from corporate South Africa, and the responsibility that we feel to our shareholders is even greater than before. Fred Robertson Executive Chairman The World and South Africa When I grew up in District Six in the 1960s, I spent lots of time in my neighbourhood, selling newspapers, fruit, vegetables and fish in the streetss and snacks in the cinema. My universe was small, and not just because I was young, but this treasured community and space of District Six was all I knew. By any account, the world itself was far less complicated or interconnected. A trip out of the city to the suburbs was a luxury, let alone a trip by aircraft. There was no television and we all listened to radio. So was a telephone call, let alone a mobile phone call. A computer meant a room filled with hardware, not a device you could carry in the palm of your hand. Over the next few decades, international trade, globalisation, innovation, and more recently, disruptive technology and the fourth industrial revolution have transformed the world into a more prosperous place for some. The combination of these together with political change have created unprecedented opportunities that I would barely have imagined in the 1960s. Yet the same factors that have created these opportunities have also widened income disparities and have left those isolated from the global economy furtherr behind. Look, for example, at the conflict between traditional taxi operators and Uber operators in many countries. The results can now be seen in a growing sense of frustration and futility. Against this backdrop companies now face a more challenging environment than ever before. The world witnessed significant events in Brexit separation negotiations commenced, increased tension in the Middle East, radical changes in US foreign policy driven by President Donald Trump, the Rohingya crisis, further nuclear testing in North Korea, increased killing and destruction in Syria, and closer to home, the end of Robert Mugabe s reign in Zimbabwe. While these events may have a delayed or more indirect impact on South Africa, we had our fair share of equally significant issues. These include, drought in Cape Town and other parts of the country, Knysna fires, a major cabinet reshuffle, economic downgrades, and the Life Esidimeni tragedy. Much to our disgust and great disappointment, a number of leading corporates were implicated in corrupt dealings. The year climaxed with the hotly contested African National Congress Elective Conference which saw seven candidates running for the presidential position to lead South Africa s ruling party. Cyril Ramaphosa overcame a strong challenge from former African Union chair, Nkosazana Dlamini-Zuma, winning by a slim margin of 179 votes to emerge victorious as the 14th president of Africa s oldest liberation movement. Two months later Cyril Ramaphosa was sworn in as the 5th president of the Republic of South Africa and we can already feel a new wave of optimism and renewed business confidence in the country. This can be seen in the strength of the Rand and general local financial market indicators. President Ramaphosa has promised to deliver good governance, eradicate corruption, and follow economic policies that support employment, transformation and economic growth. Stats SA reported higher than expected GDP growth for South Africa in 2017, showing that the economy grew by 1.3%, exceeding National Treasury s expectation of 1.0%. Whilst National Treasury currently anticipates growth of 1.5% in 2018, rising to 2.1% in 2020, the Organisation for Economic Co-operation and Development (OECD) has revised South Africa s expected GDP growth rate upward to 1.9% in 2018, and 2.1% in 2019 on the back of positive sentiment around the economy and changes to the political landscape. It was clear that South Africans were becoming increasingly frustrated with an economy that failed to live up to its potential, but the pendulum appears to be swinging in a more favorable direction now. Delivering results in a challenging environment 2017 was a turbulent year, especially for investors in South Africa. Nobody could fully predict the year s events. Now, superimpose the global economic and political developments and it causes one to rethink certain assumptions and perceptions of the world. In today s rapidly changing environment, shareholders are looking more than ever before for direction from corporate South Africa, and the responsibility that we feel to our shareholders is even greater than before. While the reporting period highlighted that a variety of BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

22 OUR BUSINESS CHAIRMAN S REPORT (CONTINUED) exogenous factors can impact our investments we remain committed to creating long-term value for our shareholders. The Group s key investment sectors are food, financial services and property, healthcare and infrastructure. During the year under review we successfully entered the private tertiary education sector through our investment in newly listed Stadio Holdings. As part of our value creation strategy, our subsidiary Sea Harvest listed on the JSE on 23 March The Sea Harvest listing resulted in a R786 million increase in the net asset value of Brimstone. Sea Harvest is a leading internationally recognised seafood business with operations in South Africa and Australia that service retail and food service customers in over 22 countries. The listing of Sea Harvest was a natural progression on its trajectory as we grow this business into a vertically integrated global business. Sea Harvest delivered excellent results for the year under review. I would like to congratulate the Sea Harvest team for their dedication and hard work which enabled them to achieve their objectives during the year. Whilst Sea Harvest reported a stellar performance, we felt the strain in the economy through the losses suffered at subsidiaries Lion of Africa Insurance Company and House of Monatic, as well as the decrease in dividends received from investments such as Oceana and Life Healthcare. With the outlook for the economy being more positive for the year ahead, coupled with further interventions at our subsidiaries we anticipate better performance from these investments for the year ahead. Whilst our Book Net Asset Value increased by 14.6% to R 2.8 billion, our Intrinsic Net Asset Value (INAV) decreased by 15.9% to R4.32 billion at year end. Our publicly traded share price does not reflect the share s INAV. At year end, Brimstone Ordinary shares were trading at a discount of 27.8% to INAV and N Ordinary shares traded at a discount of 37.5% to INAV. This discount to INAV is a common feature of investment holding companies. We are continuously looking at ways of narrowing this discount. An important component of delivering value to our shareholders is returning capital in a consistent way. Two key mechanisms of doing this are, paying dividends and repurchasing our undervalued shares. This year the Board considered the results and approved a dividend of 42 cents per share, unchanged from the previous year. In addition, shareholders have the option of receiving the dividend in cash or shares. This is the 16th consecutive dividend declared by Brimstone. During the year under review, the Company also repurchased approximately 2.1 million Brimstone Ordinary shares and 13.5 million Brimstone N Ordinary shares. Social responsibility 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 part of that mission, we seek to be active and engaged corporate citizens of the communities in which we operate. During the year under review Brimstone Empowerment Share Trust (BEST) awarded Brimstone N Ordinary shares to The Sozo Foundation, a non-profit organisation, based in the impoverished community of Vrygrond, Cape Town. This organisation creates opportunities for holistic development through key areas focusing on youth, education, health, and skills development. To date we have allotted shares with a value in excess of R20 million to 30 organisations across South Africa. These NGO/NPO shareholders support more than 3.5 million beneficiaries who come from the poorest of the poor communities across South African society. At Brimstone we aim to remain true to our vision of being profitable, empowering, and to have a positive social impact. Governance and the board This is our 9th Integrated Report and we are committed that good governance should be a cornerstone of our business. For this reason we constantly review, modify or adapt our risk and governance policies to ensure a sustainable, responsible business. Brimstone is fortunate to have an effective board of directors reviewing aspects of the Company s strategy and engaging continuously in detail about the Company s direction. Mr Leon Campher continues to serve as lead independent non-executive director. Thank you Building and growing a company like Brimstone requires total commitment and a team effort. I wish to thank my fellow executive directors and the entire board for their invaluable good counsel and continued dedication to excellence in corporate governance. 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 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 our stakeholders. In conclusion, back in the 1960s a dream of a company like Brimstone was beyond my universe. Today we can proudly confirm that Brimstone has empowered generations who claim their roots back to District Six, in the same way it has empowered communities in Saldanha or Soweto, and individuals across the vast demographic of South Africa irrespective of age, gender, class, social status, or race. May we always do what is in the best interest of our society, all stakeholders, and even of our smallest shareholder. Fred Robertson Executive Chairman 20 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

23 The listing of Sea Harvest was a natural progression on its trajectory as we grow this business into a vertically integrated global business. I would like to congratulate the Sea Harvest team for their dedication and hard work which enabled them to achieve their objectives during the year. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

24 OUR BUSINESS CHIEF EXECUTIVE OFFICER S REPORT 22 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

25 The past year was particularly challenging, operating in an environment of low economic growth and political uncertainty. Despite these conditions we still declared a dividend and for the first time this year are giving shareholders the option to take the dividend in shares. Mustaq Brey Chief Executive Officer Introduction The Group reported a profit for the year under review of R147.1 million compared to a profit of R197.3 million in the prior year. The significant contributors to the movement in earnings were: the excellent result produced by Sea Harvest an increase in fair value gains of R142.2 million losses at Lion of Africa and House of Monatic and a decrease of R117 million in dividends received a decrease in other investment gains and share of profits of associates and joint ventures of R70.4 million was a defining year for our subsidiary Sea Harvest. The company listed on the JSE on 23 March 2017 raising R1.24 billion net of listing costs. This listing resulted in a R786 million increase in the net asset value of Brimstone. Intrinsic Net Asset Value (INAV) INAV at 31 December 2017 calculated on a line-by-line basis, totalled R4.32 billion, or R18.01 per share (31 December 2016: R5.13 billion or R21.40 per share), representing a decrease of 15.9% from 2016 (a decrease of 15.8% on a per share basis). As at 31 December 2017, Brimstone Ordinary shares were trading at a discount of 27.8% to INAV (31 December 2016: 39.3%) and N Ordinary shares traded at a discount of 37.5% to INAV (31 December 2016: 43.9%). The analysis of INAV is available on the Company s website at Brimstone Portfolio Subsidiaries Sea Harvest (54.9%) Sea Harvest reported earnings before interest and tax of R383 million and profit after tax of R267 million for the year ended 31 December 2017, an increase of 53% and 103% respectively on the same period last year, benefiting from the improved performance of its South African operations as a result of strong market demand and exceptional performance of the Saldanha Bay factories. Revenue for the year increased by 10% to R2.1 billion (2016: R1.9 billion). Continued strong global demand for high value, sustainably certified wild caught seafood with limited supply drove strong pricing across all channels and markets, partially offsetting the impact of the stronger Rand. Sea Harvest reported a gross profit of R717 million (2016: R605 million) and gross profit margin expanded to 34% (2016: 31%), benefiting from efficiency improvement projects in the South African operations. Lion of Africa Insurance Company (Lion of Africa) (100%) Lion of Africa reported a net loss for the year under review of R92.3 million compared to a loss of R15.4 million in the prior year. The losses for the year were mainly as a result of larger than anticipated claims experienced, notably on the property, liability and motor classes within the Public Sector business. These claims resulted in a gross loss ratio of 74.3% compared to 66.3% in the prior year. The management team has however been proactive in addressing these losses and has already implemented steps to ensure these losses do not recur. The positive results of these plans were seen during the 4th quarter of 2017 where a reduction in the loss ratio was achieved, from 84.5% for the first 9-months to 74.3% for the full year. House of Monatic (Monatic) (100%) Revenue decreased by 16% to R174.4 million (2016: R207.7 million) and a loss of R14.4 million (2016: Profit R0.04 million) was reported. This is mainly due to the poor retail climate affecting Monatic s own retail outlets and sales to independent retailers, which were exacerbated by independent customers going into liquidation or business rescue. Due to the aforementioned factors, the factory suffered 21 days of short-time, which resulted in the under-recovery of factory overheads of about R17 million. This is in accordance with Monatic s strategy of not producing inventory unless it is necessary to satisfy confirmed orders. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

26 OUR BUSINESS CHIEF EXECUTIVE OFFICER S REPORT (CONTINUED) Associates and joint ventures Oceana (17%) Brimstone holds 23 million shares in Oceana with a market value of R1.96 billion. Oceana s share price closed at R85.00 per share, down from R per share at 31 December Brimstone received dividends of R20.7 million (2016: R107.9 million) from Oceana during the year under review and recognised R65.7 million (2016: R67.7 million) in equity accounted earnings based on Oceana s reported full year earnings to 30 September Grindrod (6.7%) Brimstone accounts for its share of the results in the Consortium SPV as a joint venture. Brimstone has written its investment in the consortium down to nil at 31 December 2017 as the value of the debt of the Consortium SPV exceeded the value of the investment, despite Grindrod s share price closing at R13.65 at 31 December 2017, up from R13.45 per share at 31 December At 31 December 2016 the carrying value of the investment via the Consortium SPV was R21 million. Aon Re Africa (18%) Aon Re Africa is a leading reinsurance broker licensed and operating in South Africa and the rest of Africa. Brimstone recorded R3.7 million in equity accounted earnings after receiving a dividend of R5.55 million from Aon Re Africa during the year under review. Obsidian Health (Obsidian) (25.07%) Obsidian is a distributor of medical equipment, medical consumables and pharmaceutical products. The company contributed positively to Brimstone s profits during the year under review. South African Enterprise Development (SAED) (25%) SAED is an investment vehicle providing equity growth capital to high potential small and medium sized enterprises. SAED holds investments in Decision Inc. (Pty) Ltd (a business intelligence and data analytics solutions provider), ASG Holdings (Pty) Ltd (involved primarily in the wholesale distribution of high-end branded cycling products), ZAR X (Pty) Ltd (a newly formed licensed stock exchange), High Duty Castings (Pty) Ltd (an iron foundry involved in the manufacture of castings) and Tombake Holdings (Pty) Ltd (involved in the supply and manufacture of baking and confectionary equipment). SAED made a positive contribution to earnings during the year under review. Vuna Fishing Company (Vuna) (49.8%) Vuna, which holds 100% of SeaVuna Fishing Company (Pty) Ltd, was acquired from Sea Harvest on 1 January Vuna contributed R4.8 million in equity accounted earnings during the year under review. Investments Equites (8.5%) Equites share price closed at R21.00 per share at 31 December 2017, up from R15.80 per share at 31 December Brimstone received a dividend of R40.8 million (2016: R29.6 million) from Equites during the year under review. The investment was revalued upwards by R181.5 million to R732.8 million at year end. Life Healthcare (4.5%) Life Healthcare s share price closed at R27.75 per share at 31 December 2017, down from R32.60 per share at 31 December Brimstone followed its rights in April 2017 in terms of the Life Healthcare rights offer and acquired 17.2 million shares at R24.50 per share for an aggregate R420.5 million. In September 2017, 2.5 million shares were sold at an average price of R23.36 per share. The investment was revalued downwards by R198.5 million to R1 799 million at year end. Brimstone received dividends of R52.8 million from Life Healthcare during the year under review, down from R82.8 million for the prior year. Subsequent to year-end, Brimstone sold 13.5 million shares at an average price of R26.78 per share. Long4Life (4.0%) Brimstone acquired 40 million shares in Long4Life ahead of its listing on the JSE in April 2017 at R5.00 per share. Long4Life s share price closed at R4.90 per share at 31 December In December 2017, 4.5 million shares were sold at an average price of R4.51 per share. The investment was revalued downwards by R5.7 million to R million at year end. MTN Group and MTN Zakhele Futhi (1.5%) Brimstone disposed of its remaining MTN Group shares during March 2017 at an average price of R Brimstone holds MTN Zakhele Futhi shares which are accounted for as options. The independently calculated option valuation was based on a MTN Group closing share price of R per share, up from R per share at 31 December The investment was revalued upwards by R3.8 million to R70.6 million. Phuthuma Nathi (7%) The Phuthuma Nathi 1 shares and Phuthuma Nathi 2 shares closed at R99.90 and R98.00 per share at 31 December 2017 (R and R per share at 31 December 2016) respectively. The investment was revalued downwards by R149.7 million to R470.1 million. Brimstone received a dividend of R91.3 million (2016: R91.3 million) from Phuthuma Nathi during the year under review. Stadio (4.3%) Brimstone acquired 33.8 million shares in Stadio as part of its B-BBEE transaction in November 2017 at R2.96 per share. Stadio s share price closed at R8.05 per share at 31 December The investment was revalued upwards by R172 million to R272 million at year end. 24 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

27 Tiger Brands (0.9%) The lock-in period applicable to Brimstone s Tiger Brands stake ended on 31 December On expiry of the lock-in period, Tiger Brands was entitled to repurchase a number of Tiger Brands shares from Brimstone to settle the outstanding notional vendor funding owing to Tiger Brands that arose in terms of the 2009 Tiger Brands BEE transaction. At year end the number of shares to be repurchased by Tiger Brands was at a price of R7.40 per share. Brimstone s remaining unencumbered shareholding in Tiger Brands was valued at R389.8 million which included a R48.3 million derivative loss as Brimstone had entered into a forward sale transaction enabling it to sell Tiger Brands shares in early 2018 at R per share (Tiger Brands closing price was R at 31 December 2017). Subsequent to year end, Tiger Brands repurchased the aforementioned shares and Brimstone disposed of its residual stake for an aggregate of R387.3 million. Share repurchases During May 2017 Brimstone repurchased Brimstone Ordinary shares at an average price of R14.76 per share and at an average price of R15.00 per share Brimstone N Ordinary shares in terms of a special resolution passed at the annual general meeting on 10 May The shares which were held by wholly-owned subsidiary, Septen Investments (Pty) Ltd, were delisted and cancelled on 23 May During November 2017 Brimstone repurchased Brimstone N Ordinary shares following the exercise of the Unencumbered Brimstone Share Call Option as set out in the circular to shareholders dated 15 August The shares were acquired from The Brimstone Black Executives Investment Trust, The Brimstone General Staff Investment Trust and The Brimstone Broad-Based BEE Trust, in terms of the trust deeds. The average price paid for the shares repurchased in terms of the Brimstone Share Call Option, i.e N Ordinary shares at R per share and N Ordinary shares at R12.10 per share (per listing application dated 15 November 2017). The shares were duly delisted and cancelled on 21 November Acquisition of treasury shares During the year under review Brimstone acquired, via a whollyowned subsidiary, Brimstone N Ordinary shares in the open market for an aggregate consideration of R23.9 million at an average price of R11.75 per share including costs. These shares have been accounted for as treasury shares. Dividend declared Brimstone s board has declared a final cash dividend of 42 cents per share for the year ended 31 December 2017, unchanged from the previous year, payable on Monday, 23 April In addition, shareholders have been provided with an election to receive the cash dividend or the scrip dividend alternative, with the default election being the scrip dividend alternative. This is the 16th consecutive dividend paid by Brimstone, a feat for a truly black owned company. Prospects The Group has a track record of more than 20 years 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 as it has once again shown during the 2017 financial year. Brimstone remains well capitalised to pursue value enhancing transactions based on cash generative quality assets and will continue to maintain a long-term view and partnership approach to its underlying investments. Conclusion The past year was particularly challenging, operating in an environment of low economic growth and political uncertainty. Despite these conditions we still declared a dividend and for the first time this year are giving shareholders the option to take the dividend in shares. I would like to thank my fellow executive directors, non-executive directors, executive team, management and staff for their contributions to the success of Brimstone. I am confident that Brimstone is well positioned to continue to live up to its philosophy of profitability, empowerment and positive social impact. MA Brey Chief Executive Officer BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

28 OUR BUSINESS GROUP PROFILE Company Interest Company information 54.9% Listed on the JSE The Sea Harvest group is a leading, internationally recognised vertically integrated fishing and branded FMCG business established in 1964 with operations in South Africa and Australia. The principal business of the group is fishing of MSC-certified Cape hake and Shark Bay tiger and king prawns, processing of the catch into frozen and chilled seafood, and the marketing of these products, locally and internationally. 17% Listed on the JSE 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 refrigerated warehouse facilities and logistical support services % Unlisted Formed in August 1999, Lion of Africa is an established, growing insurance brand on the South African insurance landscape. It is a Level 1 short-term B-BBEE Insurer. 18% Unlisted Aon Re Africa is a leading reinsurance and retrocession intermediary in Sub-Saharan Africa, based in Johannesburg, South Africa with an office in Harare, Zimbabwe. RE AFRICA 8.5% Listed on the JSE A specialist logistics property developer and landlord listed as a REIT % Listed on the JSE 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, Poland, United Kingdom and Europe % Unlisted A leading supplier of innovative solutions to healthcare providers and clinicians within Sub-Saharan Africa 26 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

29 Company Interest Company information 6.7% Listed on the JSE Integrated logistics 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 liquidbulk commodities, vehicles and containers % Unlisted Company involved in the design, marketing and manufacturing of mens and ladies clothing and accessories. C 2 and Carducci retail stores 4% Listed on the JSE Investment holding company with interests in sports goods retail, beverages, and the wellness sectors % Listed on the JSE Focussed on the acquisition of, investment in, growth and development of higher education institutions. 7% 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. 25% Unlisted Provides equity capital to high growth potential small and medium sized enterprises. 49.8% Unlisted Hake-inshore trawl fishery and processing BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

30 OUR BUSINESS INTRINSIC NET ASSET VALUE REPORT The INAV of Brimstone at 31 December 2017 was R million (2016: R million), translating to cents per share (2016: cents per share), based on million shares (2016: million shares) in issue, net of treasury shares. Fully Diluted INAV per share was cents per share (2016: cents per share), based on million shares (2016: 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 unvested forfeitable shares. The Book Net Asset Value (Book NAV) of Brimstone on 31 December 2017 was R million (2016: R million), translating to cents per share (2016: cents per share), based on the respective number of shares in issue. The closing share prices on 31 December 2017 of Brimstone Ordinary and N Ordinary shares on the JSE were cents and cents (2016: cents and cents) per share respectively. 31 December December 2016 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 % % 37.5% % 43.9% Oceana The INAV of the 23 million shares in Oceana was based on the closing share price of Oceana on the JSE at 31 December 2017 of R85.00 per share. Sea Harvest The INAV of the 54.9% shareholding in Sea Harvest was based on the closing share price of Sea Harvest on the JSE at 31 December 2017 of R12.50 per share. Life Healthcare The 4.5% interest was valued at the closing share price of Life Healthcare on the JSE at 31 December 2017 of R27.75 per share. Equites The 8.5% interest was valued at the closing share price of Equites Property Fund on the JSE at 31 December 2017 of R21.00 per share. Grindrod The 6.1% interest in Grindrod held via the BEE Consortium and the directly held shareholding in Grindrod of 0.6% were valued at the closing share price of Grindrod on the JSE at 31 December 2017 of R13.65 per share. Phuthuma Nathi The 7.0% interest was valued at the closing share price of Phuthuma Nathi on the Over-the-Counter trading platform at 31 December 2017 of R99.90 for PN 1 and R98.00 for PN 2 per share. Tiger Brands The Tiger Brands shares are valued as an option as disclosed in Appendix 4 to the annual financial statements. Stadio The 4.3% interest was valued at the closing share price of Stadio on the JSE at 31 December 2017 of R8.05 per share. Long4Life The 4.0% interest was valued at the closing share price of Long4Life on the JSE at 31 December 2017 of R4.90 per share. Lion of Africa The INAV of the 100% shareholding in Lion of Africa was based on book value. MTN Zakhele Futhi The 1.5% interest was valued as an option as disclosed in Appendix 4 to the annual financial statements. INAV analysis by asset An analysis of the INAV of Brimstone as at 31 December 2017 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. 28 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

31 Asset % held Valuation basis Gross Value (R 000) Debt (R 000) CGT (R 000) INAV (R 000) Oceana 17.0% Market value per share ( ) ( ) Sea Harvest* 54.9% Market value per share Life Healthcare 4.5% Market value per share ( ) ( ) Equites 8.5% Market value per share ( ) (57 686) Grindrod BEE** 6.1% Market value per share ( ) Grindrod direct 0.6% Market value per share Phuthuma Nathi 7.0% Market value per share ( ) Tiger Brands option 0.9% Option valuation (85 728) Stadio 4.3% Market value per share (38 519) Long4Life 4.0% Market value per share Investment properties 100.0% Capitalisation rate (60 675) (22 627) Lion of Africa 100.0% Book value MTN Zakhele Futhi 1.5% Option valuation (2 272) Aon Re Africa 18.0% PE valuation (12 659) House of Monatic 100.0% Book value Other investments Various Book value (8 278) Cash / (net debt) 100.0% Book value (52 944) ( ) ( ) ( ) ( ) INAV per share (cents)*** (1 625) (232) Fully Diluted INAV per share (cents)**** (1 578) (225) * No CGT provided on shareholding in Sea Harvest due to potential use of the corporate relief provisions of the Income Tax Act. ** Due to the limited recourse nature of the Grindrod BEE funding structure, Brimstone s investment is shown at a minimum value of zero. *** Based on million shares (December 2016: million shares) in issue, net of treasury shares. **** Based on million shares (December 2016: 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 unvested forfeitable shares. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

32 OUR BUSINESS CORPORATE SOCIAL INITIATIVES 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. Brimstone directly employs in excess of individuals in its subsidiaries and more than in its associates and investments. A large number of these employees have been shareholders in Brimstone since its early start-up days more than 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) BEST 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 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. 30 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

33 TOP: BARISTAS IN TRAINING AT THE SOZO FOUNDATION LEFT: CANCER DIALOGUE WITH CANCER SURVIVORS AND MEDICAL PROFESSIONALS ABOVE: LAUNCH OF BRIMSTONE ITHEKO SPORT ATHLETIC CLUB BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

34 OUR BUSINESS CORPORATE SOCIAL INITIATIVES (CONTINUED) During the year under review, The Sozo Foundation was awarded Brimstone N Ordinary shares. The Sozo Foundation is a non-profit organisation, based in the impoverished community of Vrygrond, Cape Town. This organisation creates opportunities for holistic development through key areas focusing on youth, education, health, and skills development. To date, BEST has allotted Brimstone shares to 30 organisations across South Africa. The market value of these shares as at 31 December 2017 was approximately R19 million. These shareholders support more than 3.5 million beneficiaries across South Africa. Corporate Social Initiatives Brimstone s CSI spend was R2.1 million in cash, in addition to the further R6.4 million worth of shares allotted to BEST. During the year under review Brimstone contributed to various social initiatives covering the areas of Art & Culture, Education, Health & Wellness, Social Cohesion, Sport, Welfare and Poverty Relief. Some of the beneficiaries include: Art & Culture Association of Mouth and Foot Painters, Emerging local artists, Die Suidoosterfees Education Fun Learning for Youth, House of Monatic family members bursaries, Imam Abdullah Haron Education Trust, Life Healthcare Nursing College, Mitchells Plain Bursary and Role Model Trust, Progressive Principal Association, The Click Foundation, University of the Western Cape Health & Wellness CANSA, Dialogue on Cancer, Lifeline SA, SA Red Cross, St Lukes Hospice Social Cohesion Mitchells Plain Community Advice & Development Centre Sport Brimstone Itheko Sport Athletic Club, Langa Cricket Club, Marlin Swimming Club, Siyavuselela Sports and Life Welfare and Poverty Relief Animal Anti-Cruelty League, Blind SA, Operation Winter Warmth, Saabri & Ashrafi Relief Fund, Youth Unemployment Prevention Project 32 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

35 TOP: PIANIST QDEN BLAAUW IN CONCERT WITH THE CAPE TOWN PHILHARMONIC YOUTH ORCHESTRA AT DIE SUIDOOSTERFEES LEFT: RUNNERS REFRESHED BY TEAM BRIMSTONE AT THE OLD MUTUAL TWO OCEANS MARATHON ABOVE: LIFE HEALTHCARE NURSING COLLEGE GRADUATES WITH KURT WILEY, DR SHARON VASUTHEVAN AND BRIONY BERNING. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

36 OUR BUSINESS UNLISTED SUBSIDIARY REPORTS Lion of Africa Insurance Company Limited (Lion of Africa or Lion) 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 on 23 August Since its inception, Lion has committed 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 are primarily focused in public sector, commercial, marine and engineering, and has recently been extended to niche markets which include: Construction guarantees and performance bonds Taxi, Uber, metered cabs, and minibus taxis Wildlife Lion of Africa s vision is to be the preferred insurance partner within its chosen markets. Its mission is to: Provide reliable and innovative insurance solutions to customers Provide the best service at affordable cost Create success for stakeholders by living its values Contribute to the communities it serves Current Market Over the past few years the insurance industry has been preparing for the implementation of Solvency Assessment and Management (SAM). SAM is extremely important for the insurance industry as it will force insurers to have a better understanding of the risks they face and to hold appropriate levels of capital in order to survive catastrophic events. The FSB started the process of developing the new solvency legislation during 2010, and over the past seven the years various consultations and impact assessments were conducted. In addition, insurers have been reporting results on a SAM basis to the FSB in parallel to the current legislative requirements. It is expected that SAM will be implemented with an effective date of 01 July The current market is highly competitive with a few insurers taking up a large part of the market. However, Lion is still the market leader with respect to the Municipality Sector. Although there are new participants in this space, Lion is still the only insurer with a proven track record. The industry is vigorously exploring the use of digital systems in order to offer an improved customer experience. The most extensive use is where the insured can register and track progress of their own claims. Lion has successfully rolled out a new insurance system. The system is web based and will offer many deployment possibilities, chief amongst these will be its ability to integrate with the broker systems. The fires in Knysna, recurring rains as well as the prolonged drought are indisputable proof that the planet is facing a changing climate. Lion expects that this will impact the insurance market as a whole. Through the capabilities of its technical underwriting team, Lion will continue to select risks carefully to mitigate the impact of this risk and will always structure a reinsurance programme that is proactive. Lion s Year Under Review Strategic Review 2016 was the year in which Lion turned around its performance, while 2017 is the year where larger than normal claims were incurred which hampered the results. Management has been able to successfully continue driving the board approved strategy. The organisation s strategy is centred around five pillars, which are: Profitable growth Capability improvement Service excellence Expense management Product development Profitable growth Although the company did not achieve its GWP budget (shortfall of 12%), the Public Sector business unit (which is currently the largest business unit) has far exceeded its budget for the year. Focus will now be to consolidate this book and to target other parts of the Public Sector, specifically SOEs. In addition, the Risk Appetite Grid (RAG) is fully embedded within the Commercial business. The results to date have shown improved loss ratios across this area, indicative that the RAG is operating effectively. Lion has also been able to establish new distribution channels for its Marine and Engineering business, which will be operating as UMAs with separate branding and FSP licences. These entities will operate as UMAs from the beginning of In addition, new relationships were formed during the year with various UMAs to further build partnerships for future growth. Capability improvement As mentioned previously, the RAG has been fully implemented on the Commercial business and the positive impact have already been seen in the results. The actuarial and underwriting teams are enhancing the pricing capabilities within the business, which will be embedded in the underwriting system for all products. The in-house actuarial team have now been employed for 18 months and are making good progress on enhancing the actuarial skills within the business. 34 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

37 Service excellence All employees have formalised performance contracts which is in line with the strategy of the company, as well as KPIs aligned to best practice. A Customer Experience Specialist was employed since December 2016 to specifically deal with customers. Complaints and compliments are now actively managed. The Lion website was relaunched in July 2017 Formalised internal newsletters as well as broker welcome packs rolled out during the year. A TCF (Treating Customers Fairly) forum has been established which is represented by all areas of the business. The new underwriting and accounting systems which were implemented at the end of 2016 are now fully functional and efficiencies have already been seen. Product development Water loss scheme for municipalities was launched on Public Sector policies. Niche products have been rolled out during the year with new niche products planned to be rolled out during the course of Expense management Management were successful in reducing the expense ratio to 24% of GWP, previous year at 27%, which will be reduced further in A dedicated resource has been assigned to manage salvages and recoveries. Highlights of 2017 GWP exceeding the prior year and close to budget Maintained level 1 BEE status Improved credit rating Successful renewal of reinsurance program Successful public sector renewal Relaunched website Public Sector broker indaba held at the end of 2017 Improvement in claims processes Standard operating procedures completed across the business Binder audits conducted by Lion compliance team Financial Performance Review Lion has produced adverse results compared to 2016, reporting a net loss of R92.3 million compared to a net loss of R15.4 million in the prior year. The resultant losses are largely as a result of increased claims experienced, specifically within the public sector business unit, notably on property, liability and motor claims. The Lion team have however been proactive in addressing these losses and have already implemented steps to ensure these losses do not recur. Ratings: B-BBEE and Credit Lion has renewed its B-BBEE level 1 rating. This achievement once again confirms Lion as the first short-term insurer to achieve this accolade. This rating further affirms that Lion stands for all that is transformation in the financial services sector as well as respecting and embracing the transformation aspirations of the country. In May 2017, Global Credit Ratings (GCR) assigned an initial national scale claims paying ability rating to Lion of BBB(ZA), with the outlook accorded as Stable. The rating and outlook issued by GCR is as a result of the strategic turnaround implemented during the previous 24 months, which includes the exiting of the corporate and personal lines businesses, effective implementation of the RAG (Risk Appetite Grid), as well as enhancing the underwriting skills and pricing capabilities. In addition, the focus on strengthening the balance sheet and resultant improvement in solvency gives comfort that Lion can cover its claims. Financial Services Board Management adopted a proactive approach and scheduled regular stakeholder engagements with the Financial Services Board (FSB). The engagements with the FSB have proven very valuable and the management team have been able to build a good relationship with the regulator. Skills Development Lion has, over the years, supported skills development through the offering of learnerships 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 transforming the insurance industry through the up-skilling of young minds. Lion has for the past few years also offered financial literacy programmes to its staff. Employees have enjoyed interventions in the areas of retirement planning, wills and estate planning and debt management. Through these interventions, the company has been able to reduce the number of staff that have adverse judgments and those with garnishee or emolument attachment orders against them. The ideal is to have employees that are not weighed down by bad financial decisions. BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT

38 OUR BUSINESS UNLISTED SUBSIDIARY REPORTS House of Monatic (Pty) Limited (House of Monatic or Monatic) House of Monatic, is a medium sized business that was founded in 1909 and is known for its tailoring heritage. It now has 723 employees with its head office in Cape Town. There are 9 retail stores located in premium shopping malls across the country, a factory located in Salt River, three depots in Cape Town, Johannesburg and Durban respectively and two outlet stores. Financial Performance Revenue (R) Operating Loss ( ) ( ) Operating Margin (16.12%) (0.86%) The poor retail environment within South Africa heavily affected not only Monatic s retail stores but also its retail customers. The continued downturn in trade resulted in some of Monatic s larger customers going into liquidation or business rescue during The market for corporate clothing and chains has as a result of the overall poor economic conditions become a lot more aggressive on pricing as manufacturers compete for available work. In order to mitigate the effects of the downturn in the economy, short-time was introduced in the production facility which contributed approximately R17 million to the loss suffered through unabsorbed overheads. The pressure on available cash flow resulted in a deferment of capital expenditure, and therefore a delay in the claiming of funding from the Department of Trade and Industry, which resulted in a lower than prior year recognised grant income of approximately R4 million. Growth Strategy and Challenges 2017 presented the business with many great challenges, but despite these conditions, the business was able to achieve the majority of its action plans that were defined in the Strategy and Action Plan. Key challenges: Weak economic conditions Challenging and competitive corporate market Volatile currency Aggressive market entrants Loss of independent market Expensive fixed cost structure Poor retail sales With some challenges there have been some achievements under difficult circumstances: Sustained cash availability Expanded product offering through retail stores Investment in an ERP system, including the hardware requirements Investment in a new website and development of e-commerce Investment in direct marketing activities Engaged overseas markets Careful management and reduction of costs Critical evaluation of major supply agreements Restructuring of external financing Empowering and Social Impact House of Monatic employs over 700 staff, with 75% being women. Many of the women employed by the company are breadwinners in their homes and have come to rely on the sustainable income from the company. Training and development of staff remains key in the various divisions of House of Monatic. During 2017, training hours have been spent on those employed by the company, as well as on unemployed people particularly on sewing machine learnerships, amounting to R1.6 million. The training centre at House of Monatic houses 2 experienced training officers who continuously upskill the staff in the factory in sewing skills to improve the quality offering. House of Monatic partners with technical universities on placing young undergraduate and recently qualified fashion design learners within the various departments in the business to allow them to gain much needed experience for their futures. For 2017 House of Monatic maintained its level 2 B-BBEE rating. House of Monatic s social involvement varied from community projects to sponsoring individuals to enhance their careers particularly in music. 36 BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT 2017

39 Brands Brand description Carducci is a much-loved designer brand in Southern Africa since being established in The flamboyant spirit of the Italian poet Giosue Carducci, was the original inspiration for the brand which is sold in over 300 outlets across Southern Africa and East Africa. C2 is South Africa s cutting edge formalwear brand. The retail stores house a bold array of colourful product for the buck-cool IT guys in South Africa. C2 aims to capture the imagination of the upwardly mobile young male consumer who is extremely status conscious and not afraid to stand out. Viyella is originally a unique fabric brand from the English midlands. The brand has been available in South Africa for nearly a century, synonymous with fine shirting, and has evolved to become a complete lifestyle collection. The brand is known for its luxurious fabrics and quirky take on the classics. The clothing expresses itself through its understated elegance, sophisticated designs and immaculate tailoring The Monatic brand is a classic brand for the client who wants to project a tailored and professional image. This brand is used under corporate wear and is known for its premium quality. Brand offering Suits, tailored jackets, trousers, casual wear, shoes & accessories Suits, tailored jackets, trousers, casual wear, shoes & accessories Suits, tailored jackets, trousers, casual wear, shoes & accessories Corporate wear clothing LSM category Upper Across all from Band 5 and up Upper Across all bands Retail stores Yes Yes No No Number of stores multi brand store Store m BRIMSTONE INVESTMENT CORPORATION LIMITED INTEGRATED REPORT