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Reviewed condensed provisional consolidated financial results for the year ended 28 February 2015
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 CONSOLIDATED FINANCIAL RESULTS FOR THE
YEAR ENDED 28 FEBRUARY 2015
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
2015 2014
Figures in R’000 Reviewed Audited
Assets
Non-Current Assets
Property, plant and equipment 2,218 2,799
Goodwill 1,318 1,318
Intangible assets 977 1,539
Other financial assets 2,066 1,435
Deferred tax 6,851 6,407
Finance lease receivables - 33
13,430 13,531
Current Assets
Inventories 523 647
Other financial assets 25 69
Current tax receivable 10 40
Finance lease receivables 36 53
Trade and other receivables 545 2,993
Cash and cash equivalents 136 1,207
1,275 5,009
Non-current assets held for
sale and assets of disposal 7,256 14,247
groups
Total Assets 21,961 32,787
Equity and Liabilities
Equity
Share capital 44,961 44,961
Reserves 1,680 1,430
Accumulated loss (50,003) (41,504)
(3,362) 4,887
Liabilities
Non-Current Liabilities
Other financial liabilities 8,542 -
Finance lease obligation 12 76
Operating lease liabilities 63 -
Deferred tax 1,194 1,503
9,811 1,579
Current Liabilities
Other financial liabilities 3,155 10,782
Current tax payable - 8
Finance lease obligation 64 269
Operating lease liabilities - 20
Trade and other payables 3,557 3,225
Bank overdraft 818 4,113
7,594 18,417
Liabilities of disposal groups 7,918 7,904
Total Liabilities 25,323 27,900
Total Equity and Liabilities 21,961 32,787
CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME
2015 2014
Figures in R’000 Reviewed Audited
Continuing operations
Revenue 24,485 34,277
Cost of sales (4,180) (6,547)
Gross profit 20,305 27,730
Other income 107 510
Impairment of tangible assets (120) (312)
Impairment of intangible assets - (1,614)
Other operating expenses (21,352) (22,738)
Operating (loss)/profit (1,060) 3,576
Investment revenue 65 62
Finance costs (1,568) (1,922)
(Loss)/profit before taxation (2,563) 1,716
Taxation (490) 2,209
(Loss)/profit from continuing
operations (3,053) 3,925
Discontinued operations
Loss from discontinued operations (5,446) (1,194)
(Loss)/profit for the year (8,499) 2,731
Other comprehensive income:
Fair value adjustments on assets at
fair value through other
comprehensive income 636 177
Exchange differences on translating
foreign operations - (61)
Taxation related to components of
other comprehensive income (386) 17
Total other comprehensive income for
the year 250 133
Total comprehensive (loss)/income (8,249) 2,864
Attributable to:
Owners of the parent:
(Loss)/profit for the year from
continuing operations (3,053) 3,925
Loss for the year from discontinuing
operations (5,446) (1,194)
(Loss)/profit for the year
attributable to owners of the parent (8,249) 2,731
Total comprehensive (loss)/profit
attributable to:
Owners of the parent (8,249) 2,864
Profit per share
From continuing and discontinued
operations
Basic and diluted (loss)/earnings
(4.61) 1.64
per share (c)
Basic and diluted (loss)/earnings per
(1.65) 2.35
share from continuing operations (c)
Basic and diluted loss per share
(2.96) (0.71)
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 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
Changes in equity
Total comprehensive
income /(loss) for the - - 250 (8,499) (8,249)
year
Total changes - - 250 (8,499) (8,249)
Balance at 28 February
44,961 - 1,680 (50,003) (3,362)
2015
FCTR – Foreign Currency Translation Reserve
FVA - Fair value adjustments through other comprehensive income reserve
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
2015 2014
Figures in R’000 Reviewed Audited
Cash flows from operating activities
Cash receipts from customers 27,100 33,116
Cash paid to suppliers and employees (23,773) (29,763)
Cash generated from operations 3,327 3,353
Interest income 65 62
Tax paid (3) (15)
Cash utilised in discontinued
(49) (2,470)
operations
Cash generated from operating
3,340 930
activities
Cash flows from investing activities
Purchase of property, plant and
equipment - To maintain operating
capacity (286) (478)
Proceeds on disposal of property, plant
and equipment 128 14
Expenditure on product development (33) (279)
Sale of financial assets - -
Cash utilised in from investing
activities (191) (743)
Cash flows from financing activities
Proceeds on share issue - 1,320
Proceeds from other financial
liabilities 914 1,055
Repayment of other financial
liabilities - -
Finance lease liability payments (270) (310)
Finance costs (1,568) (1,881)
Cash (utilised in) /generated from
financing activities (924) 184
Total cash movement for the year 2,225 371
Cash at the beginning of the year (2,906) (3,277)
Total cash at end of the year (681) (2,906)
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 are equal to headline profit per
share because there are no potential dilutive ordinary shares in issue.
Headline loss per share was based on a headline loss of the group of
R(3,265,483) (2014: earnings of R 4,691,170) and a weighted average
number of ordinary shares of 184,193,950 (2014: 167,033,595).
Headline and diluted headline (loss)/earnings
per share (c) (1.77) 2.81
Reconciliation between earnings and headline
earnings R’000
Basic (loss)/ profit (8,499) 2,731
Adjusted for:
After tax reversal of impairment recognized on
the measurement to fair value less cost to sell
constituting discontinued operations 5,160 854
(Profit) on disposal of property plant and
equipment (38) (7)
Impairment loss on property plant and equipment 120 312
Impairment loss on Intangibles - 1,614
Reclassification of foreign exchange translation
reserve 15 (37)
Tax effect thereon (23) (776)
Headline (loss)/earnings (3,265) 4,691
Condensed Segmental Analysis
Reviewed Audited
2015 2014
R’000 R’000
Revenue
Continuing operations
Financial products 19,447 31,918
Health & Wellness products 4,931 7,623
General finance 107 171
Corporate services & other 6,887 7,225
Inter segment eliminations (6,887) (12,660)
24,485 34,277
Discontinued operations - -
Profit/(Loss)
Continuing operations
Financial products 2,207 9,579
Health & Wellness products (2,070) (1,638)
General finance 31 (139)
Corporate services & other (4,524) (6,394)
Inter segment eliminations 1,303 2,517
(3,053) 3,925
Discontinued operations (5,446) (1,194)
(8,499) 2,731
Other items included in consolidated results
Depreciation 650 845
Amortisation 596 741
Impairment of property, plant and equipment 120 313
Impairment of intangible assets - 1,614
Segment assets
Financial products 517 3,577
Health & Wellness products 470 801
General finance 91 196
Corporate services & other 3,392 4,806
Assets of disposal groups 7,256 14,247
11,726 23,627
Reconciling items
Unlisted investments 2,067 1,435
Deferred tax 6,850 6,407
Goodwill 1,318 1,318
21,961 32,787
Segment liabilities
Financial products 1,733 1,962
Health & Wellness products 1,092 704
General finance 2 1
Corporate services & other 1,688 5,044
Liabilities of disposal groups 7,918 7,904
12,433 15,615
Reconciling items
Deferred tax 1,194 1,503
Interest bearing liabilities 11,696 10,782
25,323 27,900
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 15 years.
There were a number of factors that negatively affected the performance
of the group in the last financial year:
a. Decline in client bases- The Financial Products’ division experienced
a net decline in the client base over the last year, mainly as a
result of the regulatory changes around the trading platform referred
to in (d) below, and the direct and indirect actions taken by
Selective Empowerment Investments 1 Limited (“SEI1”) and Selective
Empowerment Investments 2 Limited (“SEI2”) (collectively referred to
as the “SEI Companies”) referred to in (b) below. I-Cura (Pty) Ltd’s
(“I-Cura”) subscription client base initially showed an increase
during the latter part of 2014, but the quality of the subscribers
was lacking and most of these new subscribers did not convert into
sustainable sales for the company;
b. Legal and other actions against the group- There was a flurry of
legal proceedings instituted against various companies in the group
over the past year and continuing in the new year, mostly instigated
by the SEI Companies and their directors. (The details are listed
under the “LITIGATION AND ACTIONS” section below);
c. Limited increase in costs relating to Regulatory requirements
specifically- The Company had to appoint a number of non-executive
directors to be compliant with the JSE Listings Requirements and the
requirements stipulated in the King III Report to continue the
governance of the group as a good corporate citizen;
d. Regulatory changes- The Board Notice issued by the Financial Services
Board (“FSB”) during July 2014 that effectively suspended all share
trading operations, had a significant effect on the Revenue of Virtus
Financial Services (Pty) Ltd (“Virtus”). Virtus is in consultation
with the FSB to ensure that its Over The Counter (“OTC”) platform is
in compliance with regulations; and
e. Repayment of overdraft facilities- The group reduced its overdraft
facilities from R4.1 million in February 2014 to R0.8 million in
February 2015. The net effect of this was that the group had limited
resources available to invest in generating revenue.
The net result of the above was that revenue from continuing operations
decreased from R 34.2 million in 2014 to R 24.5 million in 2015. The group
recorded a net loss of R 8.5 million in 2015 from continuing and
discontinuing operations compared to a profit of R 2.7 million in 2014.
The negative revaluation of the remaining properties owned by the group
contributed to a loss of R5.2 million towards the loss from discontinued
operations (2014: loss of R0.9 million). Tight cost management during the
year contributed to a lower net loss for the year.
ASSETS OF DISPOSAL GROUPS
Shareholders were advised in the 2014 results announcement that the Board
will consider its intention with regards to the two properties. The board
has decided to sell the properties but only at reasonable prices.
CASH FLOWS
A positive cash movement of R 2.2 million was recorded for 2015, compared
to R 0.3 million for 2014. Cash generated from operations increased from
R 0.9 million in 2014 to R 3.3 million in 2015 despite a decrease in the
client bases in some segments of the group.
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 kept under control. As a result of continuous decline in the client
bases of I-Cura, Virtus and WealthNet (Pty) Ltd (“WealthNet”) in the
previous years, the board decided to expand the internal sales staff in
I-Cura and WealthNet during the financial year and added a range of
insurance related products to the Virtus product range. The latter was
launched in February 2015, with immediate positive results. The net decline
in the client bases of Virtus and WealthNet was turned around in February
2015 and this trend (although relatively small) has continued into the new
financial year. I-Cura (even with the expanded internal sales team that
resulted in a net growth of its subscription client base) did not yield
the expected results until December 2014. Since December 2014 I-Cura has
posted a net positive cash flow. The business model of I-Cura was revised
and implemented during March 2015 and the company is currently sourcing
other products in the beauty segment of the market to expand its offering
to a wider target market.
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.
During the next year, efforts will be concentrated on increasing the
Revenue streams in the operating subsidiaries with new products and
streamlining changes in the business models.
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 group incurred a net loss of R 8.5 million for the year ended 28
February 2015, compared to a net profit of R 2.7 million for 2014.
The negative revaluation of the remaining properties owned by the group
of R 5.2 million resulted in the group results reflecting a negative net
asset value of R3.4 million as at 28 February 2015. The current liabilities
of the group exceed its current assets as at 28 February 2015, due to
inter alia, the nature of the group operations which is mostly cash based.
Management’s focus is restructuring the group through the elimination of
non-essential costs,to secure an injection of capital into the Company and
the expansion of the revenue channels over the next financial year, in
order to confirm the going concern of the group.
There is however a number of significant risks still threatening the group
in its current form, which results in material uncertainty relating to the
Group’s ability to continue as a going concern. The FSB’s longstanding
investigation into Virtus’ affairs needs to be finalised. The strained
relationship between the company and the SEI Companies must also be
resolved in order to ensure a continuing mutually beneficial relationship
where the company and the SEI Companies could exist independently in future
and the shareholders of the SEI Companies (which are mostly clients of
Virtus) do not suffer. It is management’s intentions to resolve these
issues amicably and to the benefit of all stakeholders.
The injection of capital is essential for the continued sustainability of
the company and various options are explored at the moment, including a
rights issue.
STATEMENT OF COMPLIANCE
The reviewed condensed provisional consolidated financial results comprise
a condensed consolidated statement of financial position at 28 February
2015, 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 2015.
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, as a
minimum the presentation and disclosure requirements of IAS34 - Interim
Financial reporting, the JSE Listings Requirements and the Companies Act
71 of 2008 of South Africa.
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.
The directors take full responsibility for the preparation of the
provisional report and that the financial information has been correctly
extracted from the underlying financial statements.
PROPERTY, PLANT AND EQUIPMENT
The group invested R286 000 in fixed assets during 2015, mainly for
leasehold improvements effected at the new warehouse for I-Cura, when the
lease on the previous premises expired during May 2014. The group
furthermore realised excess assets to the amount of R127 000 over the last
year.
ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS
Management are considering various options with regard to the remaining
vacant land still owned by the group. This includes the potential sale or
development of the properties.
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.
BANKING FACILITIES
Over the past financial year StratCorp reduced its over draft facility
with Absa Bank from R4.1 million to R0.8 million. This reduction in
facilities is financed mainly from operational cash flow.
OTHER EVENTS
ANNUAL GENERAL MEETING
At the annual general meeting of the company held on 7 November 2014, all
the special and ordinary resolutions were passed by the requisite
majorities of votes of shareholders present.
LITIGATION AND ACTIONS
As reported in SENS announcements on several occasions, Virtus is being
investigated by the FSB, which investigation originated from a complaint
received by the FSB in 2007 of the alleged contravention by Virtus of
certain provisions of the Financial Advisory and Intermediary Services Act
(Act no. 37 of 2002). The matter is receiving attention, and Virtus has
been engaging with the Regulator in this regard. As a result of the FSB’s
investigation in Virtus, the FSB has issued a summons against Virtus during
October 2014 for the recovery of the FSB’s alleged inspection costs.
Virtus defended the matter, which has been set down for trial on 3 March
2016 in the North Gauteng High Court.
As reported previously, a summons was served by SEI1 on Virtus during 2013
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 SEI1 in 2008 in a company that was
liquidated in 2010. Virtus acted in an advisory capacity SEI1. Virtus and
the other defendants are defending the matter.
As reported previously the application by one of the Company’s largest
shareholders, Kose-Kose Investments Limited (“Kose-Kose”) during January
2014 to place the group under supervision and business rescue is still
instituted although no further steps have been taken by Kose-Kose since
it was struck form the urgent roll of the North Gauteng High Court on 28
February 2014, with a cost order awarded in favour of StratCorp.
On 13 November 2014, three preference shareholders of StratCorp Property
Holdings Ltd (“Stratprop”) (of which one is also a director in the SEI
Companies) brought an urgent application against Stratprop in the North
Gauteng High Court to stop a general meeting that was scheduled for 18
November 2014 of Stratprop. Stratprop opposed the application. On 17
November 2014 the North Gauteng High Court of South Africa ruled in favour
of Stratprop, dismissed the application and awarded a cost order in favour
of Stratprop.
On 30 October 2014 a preference shareholder of Stratprop (which is also a
director of the SEI Companies) lodged a complaint with the Companies and
Intellectual Properties Commission (“CIPC”) with regards to the procedures
followed by Stratprop regarding the notice to the general shareholders
meeting dated 30 September 2014, which meeting was dismissed by the
Chairman of that meeting on the day. Stratprop received notice of the
complaint on 30 January 2015 and submitted its response to the CIPC on 27
February 2015. Stratprop has not received any further communication in
this regard.
On 10 February 2015, the SEI Companies delivered a motion against Virtus
and StratCorp with regards to a number of issues that relates mainly to
the disclosure, handover and in certain cases the debatement of certain
information. Virtus and StratCorp delivered its answering affidavit to
the SEI Companies’ motion on 23 March 2015 which included, amongst others,
its opposition to providing privileged information to the SEI Companies.
This application is still pending.
On 20 March 2015, the SEI Companies submitted a motion to the CIPC to
inter alia investigate the affairs of Virtus with relation to the sale of
the shares in the SEI Companies and purchasing other investments. Virtus
opposed the motion and submitted its reply to the SEI Companies and to the
CIPC on 21 April 2015 and have not received any further communication in
this regard.
Beside the fact that the legal costs in defending these legal proceedings
have an effect on the cash flows of the group (which amounted to nearly
R600 000 during the financial year), it also takes up valuable time from
the senior management that could have been spent on efforts to increase
revenues. It is the board’s intentions to finalise these various
proceedings during the course of the 2016 financial year.
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
These reviewed condensed provisional consolidated financial results of the
group for the year ended 28 February 2015 have been reviewed by Nexia
SAB&T. The auditors’ review report is available for inspection at the
company’s register office and 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 statements
of StratCorp Limited for the year ended 28 February 2015 are not prepared,
in all material respects, in accordance with the requirements of the JSE
Limited Listings Requirements for provisional reports, as set out in the
compliance paragraph of the condensed provisional consolidated financial
statements, and the requirements of the Companies Act of South Africa.
Emphasis of Matter
Without qualifying our conclusion, we draw attention to these condensed
provisional consolidated financial results which indicates that the total
liabilities of the group exceeded its total assets as at 28 February 2015.
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.”
The auditor’s review report does not necessarily report on all of the
information contained in this announcement/financial results. Shareholders
are therefore advised that in order to obtain a full understanding of the
nature of the auditor’s engagement they should obtain a copy of the
auditor’s review report together with the accompanying financial
information from the issuer’s registered office.
The condensed consolidated annual financial statements are extracted from
reviewed information, but are not itself reviewed.
DIVIDENDS
No dividends were declared or paid to shareholders during the year.
CHANGES TO THE BOARD
MM Patel resigned as a director of the company on 29 June 2015.
On behalf of the board
D B Harington
Chief Executive Officer
30 June 2015
CORPORATE INFORMATION
Non-executive directors: S Coetsee, 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) Ltd
Auditors: Nexia SAB&T
Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd
Date: 30/06/2015 02:57:00 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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