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Unaudited Condensed Consolidated Interim Financial Results For The Six Months Ended 31 August 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”)
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX
MONTHS ENDED 31 AUGUST 2014
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Aug 2014 Aug 2013 Feb 2014
Figures in R’000 Unaudited Unaudited Audited
Assets
Non-Current Assets
Property, plant and equipment 2,693 3,071 2,799
Goodwill 1,318 1,318 1,318
Intangible assets 1,419 3,401 1,539
Other financial assets 1,430 1,296 1,435
Deferred tax 5,830 4,410 6,407
Finance lease receivables 11 99 33
12,701 13,595 13,531
Current Assets
Inventories 582 621 647
Other financial assets 32 64 69
Current tax receivable 10 40 40
Finance lease receivables 49 209 53
Trade and other receivables 1,362 528 2,993
Cash and cash equivalents 1,033 236 1,208
3,068 1,698 5,010
Non-current assets held for sale
14,064 15,329 14,247
and assets of disposal groups
Total Assets 29,833 30,622 32,788
Equity and Liabilities
Equity
Share capital 44,961 43,641 44,961
Reserves 1,430 1,317 1,430
Accumulated loss (42,062) (44,664) (41,504)
4,329 294 4,887
Liabilities
Non-Current Liabilities
Other financial liabilities 9,772 8,793 -
Finance lease obligation 44 209 76
Operating lease liability 43 - -
Deferred tax 1,486 2,055 1,503
11,345 11,057 1,579
Current Liabilities
Other financial liabilities 1,666 1,587 10,782
Current tax payable - 8 8
Finance lease obligation 164 268 270
Operating lease liability - - 20
Trade and other payables 2,718 3,565 3,225
Bank overdraft 1,698 5,014 4,113
6,246 10,442 18,418
Liabilities of disposal groups 7,913 8,829 7,904
Total Liabilities 25,504 30,328 27,901
Total Equity and Liabilities 29,833 30,622 32,788
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Aug 2014 Aug 2013 Feb 2014
Figures in R’000 Unaudited Unaudited Audited
Continuing operations
Revenue 12,542 16,870 34,277
Cost of sales (2,002) (3,649) (6,547)
Gross profit 10,540 13,221 27,730
Other income 196 215 510
Operating expenses (9,810) (12,626) (22,738)
Impairment of property, plant and
- - (312)
equipment
Impairment of intangible assets - - (1,614)
Operating profit 926 810 3,576
Investment revenue 30 35 62
Finance costs (824) (964) (1,922)
Profit/(loss) before taxation 132 (119) 1,716
Taxation (560) (311) 2,210
Profit/(loss) from continuing
(428) (430) 3,926
operations
Discontinued operations
Profit (loss) from discontinued (130) 2 (1,194)
operations
Profit/(loss) for the period (558) (428) 2,732
Other comprehensive income/(loss):
Exchange differences on translating - 28 (61)
foreign operations
Financial assets at fair value - - 177
through other comprehensive income
reserve
Taxation related to components of - (8) 17
other comprehensive income
Other comprehensive income for the
- 20 133
period net of taxation
Total comprehensive income/(loss) for
(558) (408) 2,865
the period
Attributable to:
Owners of the parent:
Profit/(loss) for the period from (428) (430) 3,926
continuing operations
Income/(loss) for the period from (130) 2 (1,194)
discontinuing operations
Income/(loss) for the period
(558) (428) 2,732
attributable to owners of the parent
Total comprehensive income/(loss)
attributable to:
Owners of the parent (558) (408) 2,865
Earnings/(loss) per share
From continuing and discontinued
operations
Basic and diluted earnings/(loss) per (0.30) (0.27) 1.64
share (c)
Basic and diluted earnings/(loss) per (0.23) (0.27) 2.35
share from continuing operations (c)
Basic and diluted loss per share from (0.07) - (0.71)
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 2013 43,641 44 1,253 (44,236) 702
Total
comprehensive - 20 - (428) (408)
(loss)
Balance at
31 Aug 2013 43,641 64 1,253 (44,664) 294
Total
comprehensive - (64) 177 3,160 3,273
profit
Issue of shares 1,320 - - - 1,320
Balance at
1 March 2014 44,961 - 1,430 (41,504) 4,887
Total - - - (558) (558)
comprehensive
loss
Balance at
31 Aug 2014 44,961 - 1,430 (42,062) 4,329
FCTR – Foreign Currency Translation Reserve
FVA - Fair value adjustments through other comprehensive income reserve
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Aug 2014 Aug 2013 Feb 2014
Figures in R’000 Unaudited Unaudited Audited
Cash flows from operating activities 2,733 589 3,400
Cash flows from discontinued operations 62 (1,408) (2,470)
Cash flows from investing activities (249) (232) (743)
Cash flows from financing activities (305) (449) 184
Total cash movement for the period 2,241 (1,501) 371
Cash at the beginning of the period (2,906) (3,277) (3,277)
Total cash at end of the period (665) (4,778) (2,906)
HEADLINE AND DILUTED HEADLINE LOSS PER SHARE
Aug 2014 Aug 2013 Feb 2014
Unaudited Unaudited Audited
Headline and diluted headline
earnings/(loss) per share (c) (0.30) (0.38) 2.81
Reconciliation between loss and headline
loss R’000
Basic earnings/(loss) (558) (428) 2,732
Adjusted for:
(Profit)/loss recognised on the
measurement to fair value less cost to - (243) 854
sell constituting discontinued operations
Profit/(loss) on disposal of property
- - (7)
plant and equipment
Impairment of property/plant and
- - 312
equipment
Impairment of intangible assets - - 1,614
Reclassification of foreign currency
translation reserve - - (37)
Tax effect thereon - 68 (776)
Headline earnings/(loss) (558) (603) 4,692
Weighted average number of shares in
issue 184,194 158,312 167,034
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 2/2013 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.
CONDENSED SEGMENTAL ANALYSIS
Aug 2014 Aug 2013 Feb 2014
Unaudited Unaudited Audited
R’000 R’000 R’000
Revenue
Continuing operations
Financial products 12,483 15,248 31,918
Health & Wellness products 2,077 4,235 7,623
General finance 56 99 171
Corporate services & other 3,996 2,906 7,225
Inter segment eliminations (6,070) (5,618) (12,660)
Revenue from external customers 12,542 16,870 34,277
Profit/(loss)
Continuing operations
Financial products 1,624 3,779 9,579
Health & Wellness products (945) (73) (1,638)
General finance 20 (47) (139)
Corporate services & other (1,127) (4,152) (6,394)
Inter segment eliminations - 63 2,518
(428) (430) 3,926
Discontinued operations (130) 2 (1,194)
Other disclosable items in Corporate
Depreciation 321 493 845
Amortisation 153 390 741
Impairment of property, plant and
equipment - - 312
Impairment of intangible assets - - 1,614
Segment assets
Financial products 1,884 772 3,577
Health & Wellness products 696 555 802
General finance 120 420 197
Corporate services & other 4,491 6,564 4,805
Assets of disposal groups 14,064 15,329 14,247
Reportable segment assets 21,255 23,640 23,628
Unlisted investments 1,430 1,254 1,435
Deferred tax 5,830 4,410 6,407
Goodwill 1,318 1,318 1,318
Total Group Assets 29,833 30,622 32,788
Segment liabilities
Financial products 1,627 1,871 1,963
Health & Wellness products 494 811 704
General finance 1 8 1
Corporate services & other 2,545 5,897 5,044
Liabilities of disposal groups 7,913 8,829 7,904
Reportable segment liabilities 12,580 17,416 15,616
Deferred tax 1,486 2,055 1,503
Interest bearing liabilities 11,438 10,857 10,782
Total as per statement of financial
25,504 30,328 27,901
position
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating-decision maker. The chief
operating decision-maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified
as the Exco that makes strategic decisions. The Exco assesses the
performance of the operating segments on the basis of profit or loss
from operations. They are managed separately because each segment
offers different products and services to its customers, and requires
different technology and marketing strategies. The results of
discontinued operations are not included in the measure of profit or
loss from operations. Transactions within the group take place on an
arm’s length basis. This measure is consistent with all prior periods
which are presented.
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.
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 14
years.
The Group currently operates in four segments, namely Financial Products
through Virtus and WealthNet, Health and Wellness Products through I-
Cura, General Finance through StratFin and Corporate and other services
through StratCorp and The StratCorp Share Incentive Trust.
FINANCIAL RESULTS
Revenue declined compared to the previous period and the total
comprehensive loss increased from R408 000(August 2013) to R558 000
(August 2014), mainly due to a deferred tax charge of R560 000 (2013:
R311 000) for the current period and a loss from discontinued operations
of R130 000 (2013:R2 000 profit). Profit before tax however improved
from a loss of R119 000 in 2013 to a profit of R132 000 mainly due to
reduced operating expenses and interest charges as a result of inter
alia, the restructuring over the last year.
The Group however managed to generate a positive cash flow from
operations during this period, mainly due to the collection of
outstanding accounts receivable and tight management of its liabilities.
Cost control remains a high priority, especially in light of the
decreasing revenue streams in the short term while the growth strategies
of the Group are being implemented.
PROSPECTS
The Financial products division remains profitable. Management has
implemented strategies to stabilise the client outflow experienced in
this division over the past three years as well as to increase revenue
streams. The client acquisition team is in the process of being expanded
to grow the subscriber base and to increase profitability. New enhanced
insurance products have also been finalised to be offered to the
existing base and new clients.
Various strategies have been implemented to return the Health & Wellness
division to profitability. The client acquisition team has been expanded
since May this year to grow the subscriber base, but to date this has
not yielded the required results. Management is looking at adapting the
current business model to include other sources of revenue to return
this division to profitability in the short term.
GENERAL
As previously reported, the cash flow constraints may lead to low or
non-contributing divisions being closed down or sold. Cash resources
will be applied where the maximum result can be achieved.
The growth strategy of the Group includes the diversification of the
investment base through the acquisition of businesses or the
introduction of new business models.
There are still 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 on-
going investigation by the Financial Services Board of the affairs of a
major subsidiary (refer Litigation section below) must be resolved.
Management is working towards resolving both these issues amicably and
for the benefit of all of its stakeholders.
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 Annual Financial Statements of the Group for the year ended 28
February 2014 referred to a material uncertainty regarding the Group’s
ability to continue as a going concern, mainly due to the linked units
in StratCorp Property Holdings Limited that was due for redemption on 1
December 2014. The linked unitholders approved the special resolution
to extend the redemption of the linked units and the payment of interest
until 1 December 2016 at the general meeting of linked unitholders held
on 25 November 2014, and a major portion of the material uncertainty
with regards to the ability of the Group to continue as a going concern
has been alleviated.
The Group incurred a net loss of R 558 000 for the six months ended 31
August 2014, and the current liabilities of the Group exceed its current
assets at 31 August 2014. While the Group managed to generate a positive
cash flow for the six months to 31 August 2014, the cash flows of the
Group remains under pressure due to inter alia, the continued losses
incurred by the Health & Wellness division, the decrease in revenues in
the Financial products division and the committed repayment of the
banking facilities of the Company.
The continued focus on cost management and revenue generation by the
subsidiaries of the Group is expected to stabilise the cash flows of the
Group within the next six months.
Various strategies to recapitalise the Group is being considered by the
directors including, but not limited to a rights issue by the Company to
reduce some of its debt and to finance its working capital requirements
to give effect to its growth strategy. The directors are also looking
at disposing of non-core assets, such as the vacant land the Group owns
as part of its strategy to reduce debt.
The continued going concern of the Group remains subject to the
successful implementation of the growth strategy 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 2014, 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 2014.
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 IAS 34 - 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.
PROPERTY, PLANT AND EQUIPMENT
In order to maintain operating capacity, R249 000 was invested in
leasehold improvements for I-Cura at its relocated warehouse in
Hennopspark.
ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS
Certain of the remaining liabilities amounting to approximately R5.438
million are linked to the sale of the two remaining vacant properties
for development. The Group is still actively marketing the sale of these
properties.
BANKING FACILITIES
The overdraft facilities of the Company with Absa Bank were reduced by
R2.415 million over the period in terms of the repayment schedule agreed
with the bank in August 2013. The redemption of the overdraft facilities
of the bank does however put strain on the cash flows of the Group.
DIVIDENDS
No dividends were declared or paid to shareholders during the period.
POST REPORTING PERIOD EVENTS
Annual General Meeting
At the annual general meeting of the company held on 07 November 2014,
all the ordinary and special resolutions were passed by the requisite
majorities of votes of shareholders present.
Linked units
At the general meeting of linked unitholders of StratCorp Property
Holdings Limited, a wholly-owned subsidiary of the Company, which was
held on 25 November 2014, unitholders holding 81% of the linked units
present in person or by proxy approved the special resolution to extend
the redemption date of the linked units from 1 December 2014 to 1
December 2016, as well as the payment date of the interest due on the
loan portion of the linked units for the periods from 1 December 2013 to
30 November 2016. As this resolution has an effect on an already
existing event as at the reporting period, the capital portion of the
linked units as at 31 August 2014 and the interest accrued for the
period 1 December 2013 to 31 August 2014 has therefore been classified
as Non-Current Liabilities in the Statement of Financial Position of the
Group as an “Adjusting event after the reporting period”.
LITIGATION
As reported in the SENS announcement on several occasions and recently
on 14 May 2014, a major subsidiary of the Company, Virtus Financial
Services is being investigated by the Financial Services Board (“FSB”).
The FSB’s investigation of Virtus Financial Services originated from a
complaint received by the FSB in 2007 of the alleged contravention by
the subsidiary of certain provisions of the FAIS Act. The latest notice
from the FSB was delivered to Virtus Financial Services on 9 May 2014
(the ”2014 Notice”). A report was also received from the FSB on 31 July
2014 that outlines the findings of the onsite visits and risk assessment
conducted by the FSB at Virtus Financial Services on 13 and 14 March
2013 (the “July 2014 Report”). The potential financial effect of this
investigation cannot be estimated at the current moment until the
Company has received an indication from the FSB as to the outcome of its
investigation.
As reported previously, a summons was served in August 2013 on
StratCorp’s wholly-owned subsidiary, Virtus Financial Services and inter
alia the CEO of StratCorp (who was a director in Virtus Financial
Services 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 Financial Services
acted in an advisory capacity to the third party. Virtus Financial
Services and the other defendants are defending the matter.
As reported previously this year on SENS and again on 24 April 2014, the
Company’s largest shareholder Kose-Kose Investments Limited has brought
an urgent application during January 2014 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 Investments Limited
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 Investments Limited 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.
It is estimated that the potential further exposure in terms of legal
expenditure to defend the liability against Selective Empowerment
Investments Limited and Kose-Kose Investments Limited is R250,000 and
R350,000 respectively.
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.
DIRECTORS
David Harington resigned as Chief Executive Officer of StratCorp on 4
August 2014, having lead the Group since its inception in 2000. The
Board however re-appointed David Harington as Chief Executive Officer
with effect from 1 December 2014 for a period of six months to 31 May
2015, to inter alia resolve the matters discussed under the Litigation
section above, to focus on the implementation of a growth strategy for
the underlying businesses and to investigate potential acquisitions to
diversify the investment base of the Group.
The current board of the Company, except for David Harington who was re-
appointed with effect from 1 December 2014, has been appointed since
February 2014 and their appointments have been approved by the
shareholders at the annual general meeting of the Company on 7 November
2014.
On behalf of the board.
DB Harington JHP Engelbrecht
Chief Executive Officer Group Financial Director
12 December 2014
CORPORATE INFORMATION
Non-executive directors: MM Patel* (Chairman), S Coetzee, SI
Kallen*, A Kissoonduth, TM Masasa*, TG Ratau
*Independent
Executive directors: DB Harington (CEO), JHP Engelbrecht (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: 12/12/2014 09:55:00 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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