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Unaudited condensed consolidated interim financial results for six months ended 31 August 2013
STRATCORP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2000/031842/06)
JSE code: STA ISIN ZAE 000034294
(“StratCorp” or “the company” or “the group”)
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX
MONTHS ENDED 31 AUGUST 2013
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Aug 2013 Aug 2012 Feb 2013
Figures in R’000 Unaudited Unaudited Audited
Assets
Non-Current Assets
Property, plant and equipment 3,071 4,834 3,485
Goodwill 1,318 1,318 1,318
Intangible assets 3,401 3,233 3,615
Other financial assets 1,296 67 1,286
Deferred tax 4,410 5,643 4,818
Finance lease receivables 99 173 158
13,595 15,268 14,680
Current Assets
Inventories 621 1,051 798
Other financial assets 64 286 235
Current tax receivable 40 - 40
Finance lease receivables 209 281 216
Trade and other receivables 528 1,100 886
Cash and cash equivalents 236 168 1,991
1,698 2,886 4,166
Non-current assets held for sale
15,329 28,434 14,928
and assets of disposal groups
Total Assets 30,622 46,588 33,774
Equity and Liabilities
Equity
Share capital 43,641 43,641 43,641
Reserves 1,317 - 1,297
Accumulated loss (44,664) (40,503) (44,236)
294 3,138 702
Liabilities
Non-Current Liabilities
Other financial liabilities 8,793 8,793 8,793
Finance lease obligation 209 829 346
Deferred tax 2,055 3,465 2,158
11,057 13,087 11,297
Current Liabilities
Other financial liabilities 1,587 1,646 935
Current tax payable 8 - 8
Finance lease obligation 268 499 268
Operating lease liability - 847 855
Trade and other payables 3,565 5,567 4,577
Bank overdraft 5,014 4,626 5,268
10,442 13,185 11,911
Liabilities of disposal groups 8,829 17,178 9,864
Total Liabilities 30,328 43,450 33,072
Total Equity and Liabilities 30,622 46,588 33,774
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Aug 2013 Aug 2012 Feb 2013
Figures in R’000 Unaudited Unaudited Audited
Continuing operations
Revenue 16,870 24,411 42,757
Cost of sales (3,649) (7,145) (11,847)
Gross profit 13,221 17,266 30,910
Other income 215 895 375
Operating expenses (12,626) (22,129) (38,732)
Operating profit (loss) 810 (3,968) (7,447)
Investment revenue 35 69 109
Finance costs (964) (1,049) (1,587)
Loss before taxation (119) (4,948) (8,925)
Taxation (311) (92) 386
Loss from continuing operations (430) (5,039) (8,539)
Discontinued operations
Profit (loss) from discontinued 2 (65) (265)
operations
Loss for the period (428) (5,104) (8,804)
Other comprehensive income (loss):
Exchange differences on translating 28 - 13
foreign operations
Financial assets at fair value - - 1,253
through other comprehensive income
reserve
Taxation related to components of (8) - (2)
other comprehensive income
Other comprehensive loss for the
20 - 1,264
period net of taxation
Total comprehensive loss for the
(408) (5,104) (7,540)
period
Attributable to:
Owners of the parent:
Loss for the period from continuing (430) (5,039) (8,539)
operations
Loss for the period from 2 (65) (265)
discontinuing operations (3)
Loss for the period attributable to
(428) (5,104) (8,804)
owners of the parent
Total comprehensive loss attributable
to:
Owners of the parent (408) (5,104) (7,540)
Loss per share
From continuing and discontinued
operations
Basic and diluted loss per share (c) (0.27) (3.22) (5.56)
Basic and diluted loss per share from (0.27) (3.18) (5.39)
continuing operations (c)
Basic and diluted loss per share from - (0.04) (0.17)
discontinued operations (c)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Accumulated Total
Figures in R’000 FCTR FVA
capital loss equity
Balance at
1 March 2012 43,641 33 - (35,432) 8,242
Total
comprehensive
loss for the 6 - - - (5,104) (5,104)
months ended 31
August 2012
Transfer between
- (33) - 33 -
reserves
Balance at 31
43,641 - - (40,503) 3,138
August 2012
Total
comprehensive
loss for the 6 - 44 1,253 (3,733) (2,436)
months ended 28
February 2013
Balance at
1 March 2013 43,641 44 1,253 (44,236) 702
Total
comprehensive
for the 6 months - 20 - (428) (408)
ended 31 August
2013
Balance at
31 Aug 2013 43,641 64 1,253 (44,664) 294
FCTR – Foreign Currency Translation Reserve
FVA - Fair value adjustments through other comprehensive income reserve
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Aug 2013 Aug 2012 Feb 2013
Figures in R’000 Unaudited Unaudited Audited
Cash flows from operating activities 589 (3,712) (6,274)
Cash flows from discontinued operations (1,408) 1,750 7,778
Cash flows from investing activities (232) 903 582
Cash flows from financing activities (449) (1,137) (3,100)
Total cash movement for the period (1,501) (2,195) (1,014)
Cash at the beginning of the period (3,277) (2,263) (2,263)
Total cash at end of the period (4,778) (4,458) (3,277)
HEADLINE AND DILUTED HEADLINE LOSS PER SHARE
Aug 2013 Aug 2012 Feb 2013
Unaudited Unaudited Audited
Headline and diluted headline loss per
share (c) (0.38) (3.19) (5.42)
Reconciliation between loss and headline
loss R’000
Basic loss (428) (5,104) (8,804)
Adjusted for:
Gain recognised on the measurement to
fair value less cost to sell constituting (243) - -
discontinued operations
Loss on disposal of property plant and
- 12 9
equipment
Loss on disposal of investments in
- 41 132
subsidiaries
Impairment of intangible assets 173
Tax effect thereon 68 (2) (87)
(603) (5,053) (8,577)
Headline loss per share and diluted headline loss per share are
determined by dividing headline loss and diluted headline loss by the
weighted average number of ordinary share outstanding during a period.
The group followed SAICA Circular 3/2012 in calculating headline loss
and diluted headline loss per share for the group and company.
Headline loss and diluted headline loss are determined by adjusting
basic earnings and diluted earnings by excluding separately identifiable
re-measurement items. Headline loss and diluted headline loss are
presented after tax and non-controlling interest. Diluted headline loss
per share is equal to headline loss per share because there are no
dilutive potential ordinary shares in issue.
Headline loss per share was based on a headline loss of the group of
R603,151 (2013: loss of R8,576,522) and a weighted average number of
ordinary shares of 158,311,597 (2013: 158,311,597).
CONDENSED SEGMENTAL ANALYSIS
Aug 2013 Aug 2012 Feb 2013
Unaudited Unaudited Audited
Restated
R’000
R’000 R’000
Revenue
Continuing operations
Financial products 15,248 19,751 37,053
Health & Wellness products 4,235 7,371 11,612
General finance 99 149 263
Corporate services & other 2,906 4,594 8,801
Inter segment eliminations (5,618) (7,454) (14,972)
Revenue from external customers 16,870 24,411 42,757
EBITDA
Continuing operations
Financial products 7,319 4,989 7,158
Health & Wellness products (89) (526) (1,281)
General finance (47) (31) (160)
Corporate services & other (5,578) (6,960) 52
1,605 (2,528) 5,769
Reconciling items:
Intersegment eliminations 88 (167) (10,959)
Interest received 35 69 109
Finance cost (965) (1,049) (1,587)
Depreciation and amortisation (882) (1,273) (2,257)
Loss before tax and before discontinued
(119) (4,948) (8,926)
operations
Segment assets
Financial products 772 1,889 2,511
Health & Wellness products 555 1,783 823
General finance 420 828 710
Corporate services & other 6,564 6,693 7,412
Assets of disposal groups 15,329 28,434 14,928
23,640 39,627 26,384
Reconciling items:
Unlisted investments 1,254 - 1,253
Deferred tax 4,410 5,643 4,818
Goodwill 1,318 1,318 1,318
Total as per statement of financial 30,622 46,588 33,774
position
Segment liabilities
Financial products 1,871 2,404 2,327
Health & Wellness products 811 2,099 1,196
General finance 8 18 15
Corporate services & other 5,897 6,519 7,785
Liabilities of disposal groups 8,829 17,178 9,864
17,416 28,218 21,187
Reconciling items:
Deferred tax 2,055 3,465 2,158
Interest bearing liabilities 10,857 11,767 9,727
Total as per statement of financial
30,328 43,450 33,073
position
The group has identified 4 reportable segments which represent the
structure used by the Exco to make key operating decisions and assess
performance.
The group’s reportable segments are operating segments which are
differentiated by the activities that each undertakes products they
manufacture and markets they operate in.
These reportable segments from which each of them derives revenue are
set out below:
Reportable Products and services
Segment
Financial Supply investment and insurance products to clients in
products South Africa.
Health and Supply of health and wellness products to consumers in
wellness South Africa, Botswana and Kenya.
products
General Supply of credit to clients of the Financial products
finance segment as well as structured finance leases to clients
in South Africa.
Corporate Supply of credit, management and information technology
service and support services to all other segments in the group. This
other segment also includes The StratCorp Share Incentive
Trust.
Segmental revenue and results
The Exco assesses the performance of the operating segments based on the
measure of EBITDA. This measure excludes the effects of non-recurring
expenditure from the operating segments such as restructure costs, legal
expenses and goodwill impairments when the impairment is the result of
an isolated, non-recurring event. The measure also excludes the effects
of equity settled share based payments and unrealised gains/losses on
financial instruments. Interest income and expenditure are not allocated
to operating segments, as this type of activity is driven by the central
treasury function. The results of discontinued operations are not
included in the measure of EBITDA. This measure is consistent with all
prior periods which are presented.
Transactions within the group take place on an arm’s length basis. The
segment information provided to the Exco is presented below. The
information presented includes a reconciliation of the group’s EBITDA to
net profit after tax before discontinued operations.
BUSINESS OVERVIEW
StratCorp is an investment holding company that owns and invests in
companies with high growth potential. Its focus is on providing its
subsidiaries with infrastructural support and management services, which
include centralised information technology systems and support, legal
and human resource administration and support, and finance support and
funding facilities. StratCorp also provides its subsidiary companies
with a central client base that has been built up over the past 13
years.
The Group currently operates in four segments, namely Financial Products
through Virtus and WealthNet, Health and Wellness Products through I-
Cura, and General Finance through StratFin and Corporate services and
other through StratCorp and The StratCorp Share Incentive Trust.
It is public knowledge that some of the business units in the group have
been experiencing ongoing losses over the past number of years. There
are also some of the business units that remained profitable despite
declining revenue as a result of a declining subscriber base. On a
consolidated basis the group posted losses over a number of years.
Various product changes and marketing initiatives were implemented over
this period in order to increase revenues.
The culmination of the decreased revenues in the profitable business
units and the loss making units making more losses, lead to the group
started experiencing cash flow deficits during the 2013 financial year.
A restructuring plan to cut costs, together with added initiatives to
increase revenues was implemented in April 2012 in an effort to rectify
this position. Although monthly costs were cut significantly since April
2012, the revenue kept on declining in all the subsidiaries and resulted
in the deficit (although smaller), which could not be cleared.
The board introduced an aggressive cost cutting restructuring plan in
February 2013 that entailed the closure of certain non-performing
branches, employee retrenchments, salary cuts of directors, further
reduction of general expenses and most significantly, the cancellation
of the lease agreement of the group’s head office in Centurion. The
total cost saving after February 2014 taking into consideration the cost
of the new (smaller) premises (occupied since 1 September 2013) would be
in excess of R200 000 per month. Although there is a cost involved in
cancelling the head office lease agreement, the long term cost saving
will be beneficial to the group.
As a result of the various cost cutting initiatives, the group is
collectively experiencing monthly positive cash flows since July 2013
and a consolidated group profit for the months of July and August 2013
were achieved.
Although the amounts referred to above are still small, we are satisfied
that total costs are now under control and the Executive started
focusing their attention to specifically analysing each business unit
with the view to determine the specifics as to the different business
units’ contribution to the group’s financial performance and drain on
the available resources.
Once this process is finalised (which is expected by the end of November
2013), specific strategies (taking into consideration the various
industry and business risks of the different business units) will be
formalised and submitted to the board for approval and implemented
thereafter.
STAKEHOLDERS
Stakeholder management and meaningful interaction with the various
stakeholders remain high on our priority list. Although it was difficult
to keep all our stakeholders satisfied during this testing period over
the past 18 months, we believe that the actions taken to save costs were
necessary and correct under the circumstances. The effect of the
specific actions as well as the implementation of the intended
strategies should reflect in the results going forward that will
hopefully in turn restore the trust in the management from our various
stakeholders.
We regard the interaction and feedback from and with the various
Regulators extremely important to ensure existence and long term
sustainability of the business units. Various discussions over the past
year with Regulators and Advisors have lead to us changing applied
marketing methodologies and making product changes to ensure compliance.
OTHER MATTERS
The restructuring program took up a lot of the time of the executives
and unfortunately the program also resulted in unplanned resignations of
employees in key management and senior positions. The executives had to
take over a number of these operational functions due to the vacancies
and a decision was taken not to replace these employees until such time
that stability was restored. Now that there is reasonable certainty that
the group is entering a phase of stability, selective replacements need
to be made responsibly in the near future to ensure the proper
functioning of the remaining businesses.
PROSPECTS
Taking into consideration the intense restructuring process and the
subsequent results thereof (the group making operational profits for the
months of July and August 2013 and positive cash flows being
experienced), the board is satisfied that a reasonable foundation has
been established to launch initiatives in the current business models
that are income generating driven that could ensure the long term
sustainability of the group.
The board is currently developing a revenue growth strategy for the
forthcoming year.
The most important factors for management to get right are to re-align
the current products to attract a higher LSM group or to develop new
products that appeal to a higher LSM group. Management might also adapt
the marketing methods to ensure growth in client base. The network
marketing principle that have been applied by the group over the past 10
years is probably (in its current form) not the most prudent way to
attract new clients.
As a result of the cash flow restraints, it might lead to low or non-
contributing units to close down or being sold. Cash resources will be
applied where the maximum result can be achieved.
There is however a number of significant risks still threatening the
group in its current form. The reported summons served against a major
subsidiary of the group need to be defended successfully and the
Regulator investigating the affairs of a major subsidiary must be
satisfied. It is management’s intentions to resolve both these issues
amicably and to benefit of all stakeholders.
FINANCIAL RESULTS
Although revenue declined compared to the previous period, the
comprehensive loss decreased from R5,104 million(August 2012)to a loss
of R408 000 (August 2013). This is mainly as a result of the decrease of
more than 43% in operating expenses from R22,129 million (August 2012)
to R12,626 million (August 2013). As also mentioned, group profits were
experienced for the months of July and August 2013.
The group is also in the process of reducing its interest bearing
liabilities that is funded from operational cash flow and a recent issue
of shares for cash.
GOING CONCERN
The condensed consolidated interim financial results have been prepared
on the basis of accounting policies applicable to a going concern. This
basis presumes that funds will be available to finance future operations
and that the realisation of assets and settlement of liabilities,
contingent obligations and commitments will occur in the ordinary course
of business. The directors constantly review the business models of the
group and its operating subsidiaries to ensure sustainability and the
ability to operate profitably and generate positive cash flows. Funding
facilities are also reviewed regularly to ensure that the group has
sufficient facilities in place to finance its operations.
The Group incurred a net loss of R 0.4 million for the six months ended
31 August 2013, and the current liabilities of the Group exceed its
current assets at 31 August 2013. The disposal of the Soldonné
Residential complex and the restructuring plan that was implemented to
reduce costs and the issue for cash on 23 October 2013, enables the
Group to continue operating as a going concern. The continued going
concern of the Group is subject to the successful implementation of the
growth strategies of the Group and access to sufficient cash resources
to enable the Group to implement the growth strategy.
BASIS OF PREPARATION
Statement of compliance
The interim condensed group financial results comprise a condensed group
statement of financial position at 31 August 2013, a condensed group
statement of comprehensive income, a condensed group statement of
changes in equity and a condensed group statement of cash flow for the 6
months ended 31 August 2013.
The interim condensed group financial results have been prepared in
accordance with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards
(“IFRS”),SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements as issued by
Financial Reporting Standards Council , the presentation and disclosure
requirements of IAS34 - Interim Financial reporting, the JSE Listings
Requirements and the South African Companies Act 71 of 2008.
The accounting policies applied for the year, which are in terms of
IFRS, are consistent with those of the prior year.
The interim financial results have been prepared on the historical cost
basis, except in the case of financial instruments which are measured
using fair value and amortised cost models and non-current assets held
for sale and assets of disposal groups that are measured in terms of
IFRS 5.
RECLASSIFICATION OF COMPARATIVE FIGURES
The comparative information for the condensed Segmental Analysis for the
6 months ended 31 August 2012 was reclassified as a result in the change
in the manner in which segmental information is reported to the EXCO.
PROPERTY, PLANT AND EQUIPMENT
In order to maintain operating capacity, R232 000 was invested in
computer equipment and information systems.
ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS
During the interim period the group reduced its total liabilities by
R2.7 million mostly from cash received from assets of disposal groups in
the previous financial year.
The group repaid some of the remaining liabilities from the sale of the
Soldonné Complex that was sold during the previous financial year.
Certain of the remaining liabilities amounting to approximately R6
million are linked to the sale of the remaining vacant land for
development. The group is still actively marketing the sale of the
vacant land.
Post 31 August 2013, the loan from Kose-Kose Investments Limited was
settled on 31 October 2013 from the proceeds of the Issue for cash on 23
October 2013.
BANKING FACILITIES
The group has agreed with its bankers to reduce its overdraft facility
by R150 000 per month from 1 August 2013 and other banking facilities by
approximately R145 000 from 01 October 2013. This reduction in
facilities is financed from operational cash flow.
DIVIDENDS
No dividends were declared or paid to shareholders during the year.
POST REPORTING PERIOD EVENTS
General issue for cash
25 882 353 Ordinary shares in the company were issued at an issue price
of 5.1 cents per ordinary share which represented a 8.8% discount to the
30 day volume weighted average price for the period ended 23 October
2013, being the date the issue price was agreed upon by the directors.
The proceeds of the issue for cash were used inter alia to settle an
outstanding loan from Kose-Kose Investments Limited amounting to R900
000.
Annual General Meeting
At the annual general meeting of the company held on 01 November 2013,
all the ordinary resolutions were passed by the requisite majorities of
votes of shareholders present, except for ordinary resolution 7 that was
not passed by the requisite majority of votes of shareholders present
and represented by proxy. The special resolutions were however not
passed.
LITIGATION
As reported in the SENS announcement on several occasions and recently
on 06 November 2013, a major subsidiary of the Company is being
investigated by the Financial Services Board (“FSB”). The FSB’s
investigation of the Company’s subsidiary originated from a complaint
received by the FSB in 2007 of the alleged contravention by the
subsidiary of certain provisions of the Financial Advisory and
Intermediary Services Act (Act no. 37 of 2002. The matter is receiving
attention, and the Company’s subsidiary has been engaging with the
Regulator in this regard.
As reported previously, a summons was served on StratCorp’s wholly owned
subsidiary, Virtus Financial Services (Proprietary) Limited (“Virtus”)
and inter alia the current CEO of StratCorp (who was a director in
Virtus at the time), claiming payment of damages in excess of R23
million. The claim arises from an investment made by a third party in
2008 in a company that was liquidated in 2010. Virtus acted in an
advisory capacity to the third party. Virtus and the other defendants
are defending the matter. Should the plaintiff succeed, it may have a
material effect on the price of StratCorp’s securities and going concern
in future. Shareholders will be updated as and when there are further
developments.
Except for the above, the directors are not aware of any other legal or
arbitration proceedings, pending or threatened against the group, which
may have or have had, in the 12 months preceding the date of this
report, a material effect on the group’s financial position.
On behalf of the board.
D B Harington
Chief Executive Officer
JN de Beer
Group Financial Director
29 November 2013
CORPORATE INFORMATION
Non-executive directors: PJ de Jongh (Chairman), M Patel*
(Chairman of Audit Committee)
*Independent
Executive directors: DB Harington (CEO), JN de Beer (GFD)
Registered address: 3rd Floor, Lakeside Building B, Heuwel Avenue,
Centurion, 0157
Postal address: PO Box 12022, Centurion, 0046
Company secretary: NW Moffatt
Telephone: 087 151 0025
Facsimile: 087 807 5061
Transfer secretaries: Computershare Investor Services (Pty) Limited
Auditors: Nexia SAB&T
Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd
Date: 29/11/2013 03:32:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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