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REVIEWED CONDENSED PROVISIONAL FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2014
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”)
REVIEWED CONDENSED PROVISIONAL FINANCIAL RESULTS FOR THE YEAR ENDED 28
FEBRUARY 2014
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
2014 2013
Figures in R’000 Reviewed Audited
Assets
Non-Current Assets
Property, plant and equipment 2,799 3,485
Goodwill 1,318 1,318
Intangible assets 1,539 3,615
Other financial assets 1,435 1,286
Deferred tax 6,407 4,818
Finance lease receivables 33 158
13,531 14,680
Current Assets
Inventories 647 798
Other financial assets 69 235
Current tax receivable 40 40
Finance lease receivables 53 216
Trade and other receivables 2,993 886
Cash and cash equivalents 1,207 1,991
5,009 4,166
Non-current assets held for
sale and assets of disposal 14,247 14,928
groups
Total Assets 32,787 33,774
Equity and Liabilities
Equity
Share capital 44,961 43,641
Reserves 1,430 1,297
Accumulated loss (41,504) (44,236)
4,887 702
Liabilities
Non-Current Liabilities
Other financial liabilities - 8,793
Finance lease obligation 76 346
Deferred tax 1,503 2,158
1,579 11,297
Current Liabilities
Other financial liabilities 10,782 935
Current tax payable 8 8
Finance lease obligation 269 268
Operating lease liability 20 855
Trade and other payables 3,225 4,577
Bank overdraft 4,113 5,268
18,417 11,911
Liabilities of disposal groups 7,904 9,864
Total Liabilities 27,900 33,072
Total Equity and Liabilities 32,787 33,774
CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME
2014 2013
Figures in R’000 Reviewed Audited
Continuing operations
Revenue 34,277 42,757
Cost of sales (6,547) (11,847)
Gross profit 27,730 30,910
Other income 510 375
Impairment of tangible assets (312) (132)
Impairment of intangible assets (1,614) (173)
Other operating expenses (22,738) (38,427)
Operating profit/(loss) 3,576 (7,447)
Investment revenue 62 109
Finance costs (1,922) (1,587)
Profit/(Loss) before taxation 1,716 (8,925)
Taxation 2,209 386
Profit/(Loss) from continuing
operations 3,925 (8,539)
Discontinued operations
Loss from discontinued operations (1,194) (265)
Profit/(Loss) for the year 2,731 (8,804)
Other comprehensive income:
Fair value adjustments on assets at
fair value through other
comprehensive income 177 1,254
Exchange differences on translating
foreign operations (61) 13
Taxation related to components of
other comprehensive income 17 (3)
Total other comprehensive income for
the year 133 1,264
Total comprehensive income/(loss) 2,864 (7,540)
Attributable to:
Owners of the parent:
Profit/(Loss) for the year from
continuing operations 3,925 (8,539)
Loss for the year from discontinuing
operations (1,194) (265)
Profit/(Loss) for the year
attributable to owners of the parent 2,731 (8,804)
Total comprehensive
profit/(loss)attributable to:
Owners of the parent 2,864 (7,540)
Profit per share
From continuing and discontinued
operations
Basic and diluted earnings/(loss)
1.64 (5.56)
per share (c)
Basic and diluted earnings/(loss)
per share from continuing operations 2.35 (5.39)
(c)
Basic and diluted loss per share
(0.71) (0.17)
from discontinued operations (c)
CONSOLIDATED GROUP STATEMENT OF CHANGES IN EQUITY
Share Accumulated Total
Figures in R’000 capital FCTR FVA loss equity
Balance at 01 March 2012 43,641 33 - (35,432) 8,242
Changes in equity
Total comprehensive
income /(loss) for the - 11 1,253 (8,804) (7,540)
year
Total changes - 11 1,253 (8,804) (7,540)
Balance at 1 March 2013 43,641 44 1,253 (44,236) 702
Changes in equity
Total comprehensive
income /(loss) for the - (44) 177 2,731 2,863
year
Issue of shares 1,320 - - - 1,320
Total changes 1,320 (44) 177 2,731 4,185
Balance at 28 February
44,961 - 1,430 (41,504) 4,887
2014
FCTR – Foreign Currency Translation Reserve
FVA - Fair value adjustments through other comprehensive income reserve
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
2014 2013
Figures in R’000 Reviewed Audited
Cash flows from operating activities
Cash receipts from customers 27,662 44,087
Cash paid to suppliers and employees (25,163) (50,300)
Cash generated from/(utilised
2,499 (6,212)
in)operations
Interest income 62 59
Tax paid (15) (120)
Cash (utilised in)/generated from
(1,616) 7,778
discontinued operations
Cash generated from operating
930 1,504
activities
Cash flows from investing activities
Purchase of property, plant and
equipment - To maintain operating
capacity (478) (363)
Gain on disposal of property, plant and
equipment 14 839
Expenditure on product development (279) (1,196)
Sale of financial assets - 1,302
Cash (utilised in)/generated from
investing activities (743) 582
Cash flows from financing activities
Proceeds on share issue 1,320 -
Proceeds from other financial
liabilities 1,055 -
Repayment of other financial
liabilities - (413)
Finance lease liability payments (310) (1,236)
Finance costs (1,881) (1,451)
Cash generated from/(utilised
in)financing activities 184 (3,100)
Total cash movement for the year 371 (1,014)
Cash at the beginning of the year (3,277) (2,263)
Total cash at end of the year (2,906) (3,277)
HEADLINE AND DILUTED HEADLINE LOSS PER SHARE
Headline earnings/(loss) per share and diluted headline earnings/(loss)
per share are determined by dividing headline earnings/ (loss) and
diluted headline earnings/(loss) by the weighted average number of
ordinary share outstanding during a period.
The group followed SAICA Circular 2/2013 in calculating headline
earnings/ (loss) and diluted headline earnings/ (loss) per share for the
group and company.
Headline earnings and diluted headline earnings are determined by
adjusting basic earnings and diluted earnings by excluding separately
identifiable re-measurement items. Headline earnings and diluted
headline earnings are presented after tax and non-controlling interest.
Diluted headline earnings per share is equal to headline profit per
share because there are no potential dilutive ordinary shares in issue.
Headline earnings per share was based on a headline earnings of the
group of R 4,728,208 (2013: loss of R 8,576,522) and a weighted average
number of ordinary shares of 167,033,595 (2013: 158,311,597).
Headline and diluted headline earnings per share
(c) 2.83 (5.42)
Reconciliation between earnings and headline
earnings R’000
Basic profit/(loss) 2,731 (8,804)
Adjusted for:
Profit on disposal of investment in associate - -
Profit/(loss) recognized on the measurement to
fair value less cost to sell constituting
discontinued operations 853 -
Loss/(Profit) on disposal of investment
properties - -
Loss/(Profit) on disposal of property plant and
equipment (7) 9
Impairment loss on property plant and equipment 312 132
Impairment loss on Intangibles 1,614 173
Tax effect thereon (775) (87)
4,728 (8,577)
Condensed Segmental Analysis
Reviewed Audited
2014 2013
R’000 R’000
Revenue
Continuing operations
Financial products 26,808 30,882
Health & Wellness products 7,298 11,612
General finance 171 263
Corporate services & other - -
34,277 42,757
Discontinued operations 50 15,718
Profit/(Loss)
Continuing operations
Financial products 12,554 7,328
Health & Wellness products (1,272) (1,361)
General finance (139) (161)
Corporate services & other (7,218) (14,345)
3,925 (8,539)
Discontinued operations (1,194) (265)
2,731 (8,804)
Segment assets
Financial products 3,577 2,511
Health & Wellness products 802 823
General finance 196 710
Corporate services & other 4,806 7,412
Assets of disposal groups 14,247 14,929
23,628 26,385
Reconciling items
Unlisted investments 1,435 1,253
Deferred tax 6,407 4,818
Goodwill 1,318 1,318
32,787 33,774
Segment liabilities
Financial products 1,962 2,327
Health & Wellness products 704 1,196
General finance 1 15
Corporate services & other 5,044 7,785
Liabilities of disposal groups 7,904 9,864
15,615 21,187
Reconciling items
Deferred tax 1,503 2,158
Interest bearing liabilities 10,782 9,728
27,900 33,073
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.
As previously reported, a restructuring plan was implemented in May 2012
to reduce the expenses of the group and return the group to
profitability. This plan included the reduction of staff, especially in
the support functions within the group, renegotiating leases for the
branches, sharing of certain premises by the Group companies, reduction
of directors’ remuneration and the disposal of the Soldonné Residential
complex effective from November 2012.
During 2013, the restructuring plan was further intensified after the
net effect of the 2012 restructuring plan did not yield the required
results. This plan entailed the further reduction of staff on managerial
and support functions, the closure of branches that were not
contributing to Group revenue or profits, a further reduction in
directors’ remuneration, and cancelling of the Head Office lease with
the landlord and moving to much smaller premises.
As a result, the group as a whole managed to return to profitability.
Revenue from continuing operations decreased from R 42.7 million in 2013
to R 34.2 million in 2014 as a result of a decrease in the client bases
in some of the segments of the group. The net profit after tax from
continuing and discontinuing operations increased from a loss of R 8.8
million in 2013 to a profit of R 2.7 million in 2014. The total loss
from discontinued operations for 2014 amounted to R 1.19 million, that
included a revaluation movement amounting to R 0.9 million, compared to
a loss of R 0.3 million for 2013.
ASSETS OF DISPOSAL GROUPS
Shareholders were advised in the 2012 results announcement that the
Board has taken a decision to discontinue its property development
operations, and to reflect its interests in property as part of the
discontinued operations. The group still owns two vacant properties in
Karenpark and Orchards, which is for sale, but only at reasonable
prices. Management believe that the two properties have value and will
reconsider its intention with regards to the two properties over the
next six months.
While the group still owes the vendor of the Orchards property R 4.8
million, the payment terms are linked to the development of that
property, with an amount payable per stand sold and developed. There
are no time constraints imposed on the company to perform with regard to
when the development must commence or be finalised.
CASH FLOWS
A positive cash movement of R 0.3 million, which included the repayment
of debt of R 2.1 million, was recorded for 2014, compared to a cash
outflow of approximately R 1 million for 2013. Cash generated from
operations decreased from R 1.5 million in 2013 to R 0.9 million in 2014
mainly due to a decrease in the client bases in some segments of the
group and the costs of the restructuring exercises that the group
implemented during the 2014 year.
The restructuring plan and the reduction of costs over the past twelve
months have produced positive results for the group, with the group
returning to a positive cash flow position. Cash flow is managed
tightly, and unnecessary expenses have been eliminated to improve
efficiencies within the group.
STRATEGY
The main focus of the board over the past year was to ensure that costs
were brought under control. As is expected with an intensive
restructuring plan, some employees and management in key positions felt
unsure of the group’s future and their own positions and have resigned.
As a result the group has lost valuable support staff. Although this has
put operations and sales functions under pressure, management decided to
see the year through with the limited resources.
Consumer affordability remains the major contributor towards the revenue
of the group, and management continues with its efforts to produce and
deliver affordable value for money products and services to its
customers that meet their needs.
GOING CONCERN
The reviewed condensed provisional consolidated 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 linked unit debentures payable by the group is due for
settlement on 1 December 2014.
The group incurred a net profit of R 2.7 million for the year ended 28
February 2014, compared to a net loss of R 8.8 million for 2013.
The current liabilities of the group exceed its current assets as at 28
February 2014 mainly as a result of the linked units in StratCorp
Property Holdings Ltd that is becoming payable on 1 December
2014.Various strategies are currently being considered to service this
debt.
The profits incurred by the group over the last financial year have
yielded some positive cash flows, to enable the group to continue
operating as a going concern. The group further managed to reduce debt.
Management will focus on revenue and the expansion of the revenue
channels over the next financial year and confirm the going concern of
the group.
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 needs to be defended successfully and the
Regulator investigating the affairs of a major subsidiary must be
resolved. In addition, the threatened application by the Company’s
largest shareholder to place the group under supervision and business
rescue is still uncertain if they will proceed. It is management’s
intentions to resolve these issues amicably and to benefit of all
stakeholders.
STATEMENT OF COMPLIANCE
The reviewed condensed provisional consolidated financial results
comprise a condensed consolidated statement of financial position at 28
February 2014, a condensed consolidated statement of comprehensive
income, a condensed consolidated statement of changes in equity and a
condensed consolidated statement of cash flow for the year ended 28
February 2014. The reviewed condensed provisional consolidated
financial results have been prepared in accordance with the framework
concepts and the measurement and recognition requirements of
International Financial Reporting Standards (“IFRS”),its interpretation
adopted by the International Accounting Standards Board (IASB), 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 financial statements 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 investment properties
that are measured at fair value and non-current assets held for sale and
assets of disposal groups that are measured in terms of IFRS 5.
PROPERTY, PLANT AND EQUIPMENT
In order to maintain operating capacity, R356 000 was invested in
computer equipment and information systems.
The group’s head office was relocated to smaller premises during
September 2013. Leasehold improvements totalling approximately R396 000
were incurred.
ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS
During the period the group reduced its total liabilities by R5.1
million mostly from cash received from assets of disposal groups in the
previous financial year as well as operational cash flow in the current
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 R 5.4
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.
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. The other banking
facilities were settled on 1 March 2014. This reduction in facilities is
financed from operational cash flow.
OTHER 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 AND ACTIONS
As reported in the SENS announcement on several occasions and recently
on 14 May 2014, 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. Shareholders will be updated as and when there
are further developments.
As reported previously this year on SENS and again on 24 April 2014, the
company’s largest shareholder Kose-Kose Investments Ltd (Kose-Kose) has
brought an urgent application in the North Gauteng High Court of South
Africa to place the company under supervision and business rescue.
On 28 February 2014 the North Gauteng High Court of South Africa struck
the application by Kose-Kose to place StratCorp under supervision and
business rescue, from the urgent roll as the matter was not urgent and
awarded a cost order in favour of StratCorp.
The company is not aware of any further steps taken by Kose-Kose to
enrol its application to place StratCorp under supervision and business
rescue on the opposed motion roll, after it was struck from the urgent
roll on 28 February 2014 in the North Gauteng High Court.
Shareholders are advised to continue exercising caution when dealing in
the company’s securities until a further announcement is made in this
regard.
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.
REVIEW CONCLUSION
The reviewed condensed provisional consolidated financial results of the
company and group have been reviewed by Nexia SAB&T. The auditors’
review report, which is available for inspection at the company’s
register office, contains an emphasis of matter with regard to the going
concern of the Group, as follows:
CONCLUSION
Based on our review, nothing has come to our attention that causes us to
believe that the condensed provisional consolidated financial results do
not present fairly the consolidated financial position of the entity as
at 28 February 2014, and of its consolidated financial performance and
its cash flows for the year ended in compliance with the JSE Listings
Requirements.
EMPHASIS OF MATTER
Without qualifying our conclusion, we draw attention to these condensed
provisional consolidated financial results which indicates that the
current liabilities of the group exceeded its current assets as at 28
February 2014. The condensed provisional consolidated financial results
indicate that these conditions, along with other matters, indicate the
existence of a material uncertainty which may cast significant doubt on
the group’s ability to continue as a going concern.
DIVIDENDS
No dividends were declared or paid to shareholders during the year.
CHANGES TO THE BOARD
Tumelo Ratau resigned as non-executive director on 17 May 2013 and Henk
Engelbrecht resigned as financial director of the group on 31 May 2013.
Johan De Beer was appointed as financial director on 1 August 2013. Piet
de Jongh resigned as non-executive director and chairman of the board on
30 November 2013. Mitesh Patel resigned as non executive director and
Francois Olivier was appointed as non executive director on 22 January
2014. Stefan Coetsee was appointed as non executive director on 18
February 2014. Subsequent to year end Francois Olivier has resigned as
non executive director and Johan de Beer as financial director on 14
April 2014, and Mitesh Patel has been appointed as a non executive
director on 21 May 2014. In addition, Sangeeta Kallen and Thuto Masasa
have been appointed as non-executive directors on 24 May 2014. Henk
Engelbrecht has been appointed as financial director with effect from 1
July 2014.
On behalf of the board.
D B Harington
Chief Executive Officer
Mitesh Patel
Chairman
13 June 2014
CORPORATE INFORMATION
Non-executive directors: M Patel* (Chairman), SI Kallen*
(Chairperson of Audit Committee); T Masasa*; S Coetsee
*Independent
Executive director: DB Harington (CEO)
Registered address: 3rd Floor, Lakeside Building B, Heuwel Avenue,
Centurion, 0046
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) Ltd
Auditors: Nexia SAB&T
Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd
Date: 13/06/2014 02:20:00 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
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