For the second consecutive year, Brimstone leads the financial services sector in the FM's Top Empowerment Companies survey. But it was a close race for the small-cap, Western Cape-based investment company.
Heavyweight Alexander Forbes closed in impressively, lifting its position from 15th in last year's survey to second.
In terms of total scores, Brimstone's lead was also narrow, with its 60,44% not far ahead of Alexander Forbes' 57,45%.
Brimstone CEO Mustaq Brey acknowledges that competition to stay ahead in the empowerment race is growing. "There are plenty of empowerment companies today; the challenge for us is to maintain our blackness," says Brey.
In the overall ranking, Brimstone slipped from fifth out of 185 companies in 2005 to 18th out of 200 this year.
But overall, last year was again a winning one for Brimstone. Investors scrambled aboard, boosting its share price by 145% and bringing gains over three years to almost 550%.
In the process, eyebrows have been raised by the substantial 145% premium placed on Brimstone's net asset value by the market. Brey says it is a question of how assets are valued, but this also appears to be a clear vote of confidence in management's ability to deliver.
It was a vote of confidence strengthened by the Old Mutual group's decision last year to include Brimstone as one of its two black business partners.
A consortium, in which Brimstone holds 67%, acquired an effective 1,13% interest in Old Mutual's SA operations and a 0,61% holding in the Nedbank Group. With the holdings came highly detailed performance agreements.
Though these agreements are undisclosed, Old Mutual Plc head of strategy Bob Head did reveal that one of the agreements relates to the number of hours executives from Brimstone and its other partner, Wiphold, will spend with each business unit each month.
Another part of the agreement revealed by Head relates to new business targets. One of the targets will be to secure R2,5bn of new business for Old Mutual Employee Benefits each year, with a minimum target of R1bn.
The rewards could be significant. If all performance criteria are met, Brimstone stands to earn up to R14,6m/year, equal to 45% of annualised pretax profit in the six months to June 2005.
But it adds to an already demanding load on Brimstone's management that includes overseas investments in hospital group Life Healthcare (20,3% interest), packaging company Lenco (25%), fishing company Sea Harvest (21,5%), short-term insurer Lion of Africa (39%), risk management and insurance consulting firm Aon SA (18%) and medical equipment supplier The Scientific Group (26%). In addition, Brimstone is the hands-on manager of clothing manufacturer House of Monatic, a wholly owned subsidiary and the only investment consolidated in Brimstone's accounts.
Some may argue that Brimstone has extended its interest on too broad a front for a small management team to handle, more so with the added responsibilities its interests in Old Mutual and Nedbank bring.
Brey disagrees. He believes the key to success lies in the solid partners Brimstone has chosen. "We do not want to get involved in day-to-day management," says Brey. And, he adds, there is focus in Brimstone's chosen areas of investment: industrial, financial services and health care.
Brey says Brimstone's involvement in Lion of Africa, SA's only black-owned short-term insurer, has demonstrated its ability to partner a company starting from scratch.
Lion of Africa was formed in 1999 in partnership with Santam and Commercial Life Holdings and has gone from strength to strength.
Brimstone did not disclose its interim results to June 2005, but it noted that profit growth was strong. This follows a 65% increase in gross premium income to R568m and a 340% increase in net operating income to R31m in 2004.
Another investment that is testing management is Monatic, which is facing the onslaught of cheap Chinese imports.
Brey believes Brimstone has what it takes to counter the threat. "We have invested in world-class equipment and are receiving good support from SA retailers," says Brey.
Though down 25%, operating profit at R4,08m in the six months to June 2005 remained solidly in the black.
