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Unaudited interim results for the six months ended 31 May 2016
STELLAR CAPITAL PARTNERS LIMITED
Incorporated in the Republic of South Africa
Registration number 1998/015580/06
Share code: SCP
ISIN: ZAE000198586
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MAY 2016
INTRODUCTION AND OPERATIONAL UPDATE
Stellar Capital Partners Ltd ("Stellar Capital" or the "Company") presents its unaudited interim results for the six month period
ended 31 May 2016. Despite the extremely difficult trading conditions that were experienced by our largest portfolio company
in this period, the Company has continued to make progress towards its goal of building a unique, scalable and high quality
investment portfolio. This has been achieved via the disposal of further non-core assets; value adding initiatives within the core
portfolio companies; and the identification of new investment opportunities which will be implemented in the coming financial
period.
TORRE
Despite various positive developments across the portfolio, the year to date Net Asset Value per share ("NAVPS") performance
of Stellar Capital has been poor as a result of the Company's large exposure to the South African industrial sector via its
investment in Torre Industries Ltd ("Torre"). The first quarter of 2016 proved to be an exceptionally challenging period for the
markets in which Torre operates and, as a consequence, its results for the full year to 30 June 2016 are expected to be
materially below those of the prior year, as reported in the trading statement issued by Torre on 8 June 2016. Various initiatives
are being undertaken by Torre to bolster its balance sheet, improve its operating margins and grow its revenue and we are
confident these will lead to a recovery in financial performance in the 2017 financial year, regardless of market conditions.
However, prudent accounting principles dictate that the valuation of this listed investment is impacted by market movements
during the period under review and as such, the Company has recorded a mark-to-market fair value adjustment in respect of
this investment. This mark-to-market adjustment has been primarily responsible for causing Stellar Capital's NAVPS to decline
to R1.57.
TELLUMAT AND CADIZ
During the period under review, the Company completed the acquisition of minorities in Tellumat (Pty) Ltd ("Tellumat") and
Cadiz Holdings (Pty) Ltd ("Cadiz"), such that the investments recognised in the results as at 31 May 2016 represent
shareholdings of 100% and 99% respectively. The remaining Cadiz minorities were acquired subsequently in June 2016, such
that the Company's interest has increased to 100%.
Strong operational performance by Tellumat's Air Traffic Management division has been offset by project implementation
delays within the Defence division, while delays in the implementation of the government set-top box project and challenging
operational conditions have impacted trading at Grand Tellumat Manufacturing and Tellumat Integrated Solutions respectively.
A secured pipeline of projects due for implementation during the months of August and September is expected to result in a
Tellumat group EBITDA for the year ended 30 September 2016 of approximately R29 million (30 September 2015: R34.9 million).
A catch up of delayed project work and the benefits of the BEE transaction with Masimong Technologies (Pty) Ltd are
expected to result in a much improved performance in the coming financial period.
The turnaround at Cadiz has continued to gain traction following the stabilization of the investment team and the appointment
of Shawn Stockigt as Chief Executive Officer. The performance of the various funds managed by Cadiz on behalf of clients has
improved continuously and we are confident that the improved performance and the quality and stability of the investment
team will ensure that assets under management increase in the coming periods. In conjunction with the management team of
Cadiz, Stellar Capital is currently assessing strategic options that will assist in enhancing the scale and BEE ownership credentials
of Cadiz. Despite the inevitable speculation following the Company's announcement on 19 July 2016 to acquire a stake in
Prescient Holdings (Pty) Ltd ("Prescient"), it is not the intention of the Company or the management of Prescient to merge the
Cadiz operations with those of Prescient.
PRAXIS AND INTEGRATED EQUIPMENT RENTALS
An operational restructuring and focused new business initiatives at Praxis Financial Services (Pty) Ltd ("Praxis") have resulted
in a successful trading period for this business. Praxis is currently funding approximately 2,300 repair jobs per month, having
reduced its cash cycle from over 45 days to less than 15 days and increasing its profitable job completion rate from 80% to over
95%. A major IT investment programme is currently underway in order to allow Praxis to develop its platform so that it can
continue to scale up and also convert its first mover advantage into an entrenched position in its market. The prospects for this
business are positive and, while the valuation has remained unchanged in the current reporting period, we expect to increase
its valuation in the next period based on the current outlook for the business.
Integrated Equipment Rentals (Pty) Ltd ("IE Rentals") had funded a total number of 41 deals up to 31 May 2016, providing an
average yield of 24.6% on a R37.2 million book. The business continues to perform well, adding approximately two new deals
per month of an average R1 million per deal. The catalyst for a valuation adjustment in this business will be the addition of bank
financing to supplement and / or refinance the shareholder funding that has been provided by Stellar Capital to date.
LOAN PORTFOLIO AND STELLAR CREDIT
In line with Stellar Capital's investment policy, cash drag within the investment portfolio was eliminated during the period
under review by way of investment in high-yielding loans, which have generated strong positive cash flows for the Company.
These cash flows have ensured that the Company serviced its preference share obligations, management fees and other costs
while still generating excess cash on a monthly basis. The loan exposure has been reduced subsequent to the end of the
reporting period in order to free up cash for the new investments that have been announced by the Company, namely
Prescient and Amalgamated Electronic Corporation Ltd ("Amecor").
Stellar Capital intends to retain a smaller investment in the loan portfolio going forward and has established a management
company to manage this portfolio. This management company, Stellar Credit (Pty) Ltd ("Stellar Credit"), will manage the loan
portfolio via Stellar Specialised Lending (Pty) Ltd ("SSL"), and will generate management fees from external investors who have
already committed to invest in SSL alongside Stellar Capital. Stellar Credit also manages the Inyosi Enterprise and Supplier
Development Funds, which have raised approximately R150 million to lend to SMME's in South Africa.
SHARE CAPITAL
During the period under review, the Company repurchased 10,460,127 ordinary shares under its general authority at an
average price of R1.97 per share. These shares were subsequently utilized in a share swap transaction to increase Stellar
Capital's interest in Torre from 33.86% to 35.46% as announced on 23 June 2016.
The first semi-annual preference share distribution was declared and settled on 31 May 2016 in the amount of R29.1 million,
representing a coupon of 95% of Prime on R600 million face value of the preference shares in issue.
ANNOUNCED TRANSACTIONS
Shareholders are advised that these results do not yet incorporate the effects of:
- the sale of 51.1% of Tellumat to Masimong Technologies (Pty) Ltd for R180.4 million;
- the purchase of an additional 1.60% of Torre and the subsequent Torre mandatory offer;
- the acquisition of a strategic interest in Prescient; and
- the acquisition of 100% of Amecor,
as announced by the Company on SENS on 20 May 2016, 23 June 2016, 19 July 2016 and 11 August 2016 respectively.
PROSPECTS
Despite the challenging operating environment for the Company's industrial assets, the outlook for Stellar Capital is positive.
Torre has used prevailing market conditions to rationalise its cost base and build a more efficient business, while the Company
has taken the opportunity to average down its entry price in Torre and so ensure that it is better positioned to benefit from the
inevitable market recovery when it comes. The capital raised in November 2015 has been deployed into investments in two
high quality, cash generative businesses (Prescient and Amecor) which will increase the quality of the portfolio in their current
form, but which also have the potential to become significant growth platforms in their own right going forward.
SUM-OF-THE-PARTS VALUATION AS AT 31 MAY 2016
Unaudited as Audited as at
at % of 30 November % of
R'000 31 May 2016 portfolio 2015 portfolio
Industrials and technology
Torre Industries Ltd 493,879 25% 900,833 36%
Tellumat (Pty) Ltd 260,643 13% 100,119 4%
Financial Services
Cadiz Holdings (Pty) Ltd(1) 240,643 12% 134,390 6%
Praxis Financial Services (Pty) Ltd(2) 133,997 7% 40,000 2%
Integrated Equipment Rentals (Pty) Ltd(2) 37,272 2% 23,417 1%
Stellar Credit (Pty) Ltd 2,500 0% - 0%
Corporate Assets
Loan portfolio 486,077 24% 73,602 3%
Cash and cash equivalents 305,494 15% 797,760 32%
Financial assets 31,500 2% 370,525 15%
Other assets 11,770 0% 32,631 1%
Total Assets 2,003,775 2,473,277
Preference shares (554,559) (548,478)
Trade and other payables (6,315) (42,778)
Total SOTP value 1,442,901 1,882,021
Net shares in issue ('000) 920,627 925,456
SOTP value per share (Rand) 1.57 2.03
SOTP value per share post preference
share conversion (Rand)(3) 1.76 2.13
Notes:
1. The net investment value of Cadiz Holdings (Pty) Ltd represents the fair value of the investment as at 31 May 2016, less the
liability owing to the investee in respect of the portion of the acquisition price settled by the investee (refer to note 10).
Subsequent to the end of the financial period, a special dividend of excess capital was declared and paid by Cadiz, which
will reduce the carrying value of this investment going forward (refer note 5).
2. The value comprises the sum of the fair value of the equity and the face value of the loans to these portfolio companies.
3. The conversion assumes an issuance of a maximum 215.8 million ordinary shares at R2.78 per share in settlement of
convertible preference share funding.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2016
Unaudited as at Audited as at Unaudited as at
R'000 Notes 31 May 2016 30 November 2015 31 May 2015
ASSETS
Non-current assets 1,041,724 1,278,806 404,720
Listed investments held at fair value 5 493,879 914,859 241,451
Unlisted investments held at fair value 5 546,807 234,509 100,119
Loan investments - 56,631 59,934
Loans to portfolio companies 6 - 18,978 -
Other financial assets 7 - 46,803 -
Property, plant and equipment 8 1,038 - -
Deferred taxation - 7,026 3,216
Current assets 1,005,072 1,194,471 119,432
Loan investments - 16,971 18,095
Loans to portfolio companies 6 667,255 55,995 46,775
Other financial assets 7 31,500 323,722 49,000
Trade and other receivables 823 23 46
Cash and cash equivalents 305,494 797,760 5,516
TOTAL ASSETS 2,046,796 2,473,277 524,152
EQUITY AND LIABILITIES
Equity 1,442,901 1,882,021 519,480
Equity attributable to owners of the parent 9 1,442,901 1,882,021 533,701
Non-controlling interest - - (14,221)
Non-current liabilities 500,118 497,660 -
Preference share liability 500,118 497,660 -
Current liabilities 103,777 93,596 4,672
Preference share liability 54,441 50,818 -
Liability to investee company 10 43,021 - -
Current tax payable - 204 -
Trade and other payables 11 6,315 42,574 4,672
TOTAL EQUITY AND LIABILITIES 2,046,796 2,473,277 524,152
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 MAY 2016
Unaudited six Audited Unaudited six
months ended year ended months ended
R'000 Notes 31 May 2016 30 November 2015 31 May 2015
Continuing operations
Fair value losses 5 (448,425) (21,334) (15,919)
Interest revenue 12 71,749 24,308 8,753
Dividends received 5 8,638 9 9
Impairment of loan to portfolio company 6 (2,548) - -
Gross (loss) / income from investments (370,586) 2,983 (7,157)
Other income 13 8,431 7,356 78
Finance costs (35,193) (202) (140)
Net (loss) / income before operating expenses (397,348) 10,137 (7,219)
Operating expenses
Management fee (7,084) (8,292) (3,249)
Impairments - (1,173) (445)
Loss on disposal of consolidated
subsidiaries - (13,935) (1,048)
Other operating expenses (12,709) (16,183) (8,201)
Loss before tax (417,141) (29,446) (20,162)
Taxation 14 (14,318) 1,505 421
Loss from continuing operations (431,459) (27,941) (19,741)
Discontinued operations
Net loss from discontinued operations - (8,747) (8,747)
Loss for the period (431,459) (36,668) (28,488)
Loss for the period attributable to:
Equity owners of the parent (431,459) (36,688) (28,488)
Non-controlling interests - - -
Loss from continuing operations
attributable to:
Equity owners of the parent (431,459) (27,941) (19,741)
Non-controlling interests - - -
Loss from discontinued operations
attributable to:
Equity owners of the parent - (8,747) (8,747)
Non-controlling interests - - -
Weighted number of shares in issue 923,139,053 298,534,243 221,740,565
Diluted weighted number of shares in issue 923,139,053 298,534,243 221,740,565
Basic and diluted loss per share (cents) (46.74) (12.29) (12.84)
From continuing operations (46.74) (9.36) (8.90)
From discontinued operations - (2.93) (3.94)
Basic and diluted headline loss per share (cents) (46.74) (5.97) (10.15)
From continuing operations (46.74) (4.69) (8.43)
From discontinued operations - (1.28) (1.72)
RECONCILIATION BETWEEN LOSS AND HEADLINE LOSS ATTRIBUTABLE TO EQUITY OWNERS OF THE PARENT
Unaudited six Audited Unaudited six
months ended year ended months ended
R'000 31 May 2016 30 November 2015 31 May 2015
Continuing operations
Basic loss for the period attributable to equity
owners of the parent (431,459) (27,941) (19,741)
Loss on disposal of consolidated subsidiaries - 13,935 1,048
Headline loss for the period attributable to (431,459) (14,006) (18,693)
equity owners of the parent
Discontinued operations
Basic loss for the period attributable to equity
owners of the parent - (8,747) (8,747)
Loss on sale of disposal group held for sale - 4,847 4,847
Loss on disposal of property, plant and equipment - 109 109
Tax effect of adjustments - (31) (31)
Headline loss for the period attributable to - (3,822) (3,822)
equity owners of the parent
The issue of 600 convertible redeemable preference shares has not been treated as dilutive in calculating diluted earnings and
headline earnings per share as the conversion thereof will result in a decrease in loss per share from continuing operations
(i.e. the conversion is anti-dilutive).
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2016
Unaudited six Audited Unaudited six
months ended year ended months ended
R'000 31 May 2016 30 November 2015 31 May 2015
Balance at the beginning of the period 1,882,021 179,108 179,108
Loss for the period (431,459) (36,688) (28,488)
Issue of shares 12,951 1,734,313 363,678
Capitalisation of share issue costs (46) (20,641) (5,412)
Acquisition of treasury shares (20,566) - -
Disposal of treasury shares - 1,114 -
Disposal of consolidated subsidiary - 24,815 10,594
Balance at the end of the period 1,442,901 1,882,021 519,480
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 MAY 2016
Unaudited six Audited Unaudited six
months ended year ended months ended
R'000 31 May 2016 30 November 2015 31 May 2015
Net cash flows from operating activities 18,288 45,458 (3,688)
Net cash flows from investing activities (460,875) (279,154) (144,122)
Net cash flows from financing activities (49,679) 1,028,122 150,000
Total cash movement for the period (492,266) 794,426 2,190
Cash and cash equivalents at the
beginning of the period 797,760 3,334 3,334
Disposal of consolidated subsidiary - - (8)
Cash and cash equivalents at the 305,494 797,760 5,516
end of the period
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. REPORTING ENTITY
Stellar Capital Partners Limited is a South African domiciled investment holding company listed on the Main Board of the JSE Ltd
("JSE"). The unaudited condensed consolidated interim financial statements of the Group as at and for the six months ended
31 May 2016 comprise the Company and its consolidated subsidiary, Stellar Management Services (Pty) Ltd (collectively
referred to as the "Group").
The Company has significant interests in two listed investment and five unlisted investments, which are more fully set out in
note 5. The Company's interests in its investments are accounted for on a fair value basis, in accordance with IFRS 10
Consolidated Financial Statements.
2. FINANCIAL PREPARATION AND REVIEW
These condensed consolidated interim financial statements have been prepared in accordance with International Financial
Reporting Standards and specifically the disclosure requirements of IAS 34 Interim Financial Reporting and the Financial
Reporting Guides issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council, as well as the JSE listings requirements and the Companies Act (No 71 of 2008). The
results do not include all of the information required for a full set of annual financial statements and should be read in
conjunction with the consolidated financial statements of the Group for the year ended 30 November 2015, which are available
at http://www.stellarcapitalpartners.co.za/financial-results/.
These condensed consolidated interim financial statements for the six months ended 31 May 2016 have been prepared by
D Hoek CA(SA) under the supervision of CB de Villiers CA(SA), the Chief Financial Officer and have not been audited or reviewed
by the Group's auditors. The Directors take full responsibility for the preparation of this results announcement.
The condensed consolidated interim financial statements were approved by the Board of Directors on 12 August 2016.
3. ACCOUNTING POLICIES
The accounting policies applied by the Group in these condensed consolidated interim financial statements are consistent with
those applied by the Group in the consolidated financial statements for the year ended 30 November 2015.
4. USE OF ESTIMATES AND JUDGEMENTS
Management is required to make estimates and assumptions that affect the amounts represented in the financial statements
and related disclosures. Use of available information and the application of judgement is inherent in the formation of
estimates. Actual results in the future could differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management in
applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to
the consolidated financial statements for the year ended 30 November 2015.
Judgement is primarily exercised by management in respect of:
- the classification of financial assets and liabilities into their relevant categories and in determining their appropriate
measurement and disclosure;
- assessing the impact of the proximity of the acquisition of the investment in Torre to the measurement date and the
impact of the acquisition of the marketable, non-controlling stake (transaction volume) on the fair value of the
investment; and
- assessing the decrease in the volume or level of activity for the Mine Restoration Investments Ltd asset and the
evaluation of the impact thereof on the assessment whether quoted market prices provided by third parties are
developed using current information that reflects orderly transactions.
Estimation uncertainty arises in respect of the:
- fair valuation of financial instruments including portfolio investments held by the Group (refer to note 5); and
- recoverability of loan advances (refer to notes 6 and 7).
5. INVESTMENTS HELD AT FAIR VALUE
Unaudited as at Audited as at Unaudited as at
R'000 31 May 2016 30 November 2015 31 May 2015
Torre Industries Ltd 493,879 900,833 -
Mine Restoration Investments Ltd - 14,026 20,092
Cadiz Holdings (Pty) Ltd(1) - - 44,497
Digicore Holdings Ltd - - 121,932
Goliath Gold Mining Ltd - - 54,930
Listed investments 493,879 914,859 241,451
Tellumat (Pty) Ltd 260,643 100,119 100,119
Cadiz Holdings (Pty) Ltd(1) 283,664 134,390 -
Praxis Financial Services (Pty) Ltd - - -
Integrated Equipment Rentals (Pty) Ltd - - -
Stellar Credit (Pty) Ltd 2,500 - -
Unlisted investments 546,807 234,509 100,119
1,040,686 1,149,368 341,570
Reconciliation of investments at fair value through profit or loss:
Unaudited as at Audited as at Unaudited as at
R'000 31 May 2016 30 November 2015 31 May 2015
Opening balance 1,149,368 3,267 3,267
Acquisitions for cash 277,970 179,250 46,902
Acquisitions for shares(2) 12,951 1,146,144 208,628
Acquisitions not for cash or shares(3) 49,158 100,119 100,119
Proceeds from disposals for cash - (211,275) (1,427)
Proceeds from disposals for assets - (46,803) -
Realised fair value gains / (losses)
Torre Industries Ltd - 78 78
Digicore Holdings Ltd - 17,100 -
Unrealised fair value gains / (losses)
Torre Industries Ltd (413,091) (11,691) -
Tellumat (Pty) Ltd (19,144) - -
Cadiz Holdings (Pty) Ltd - 5,037 (1,031)
Stellar Credit (Pty) Ltd (2,500) - -
Mine Restoration Investments Ltd (14,026) (14,146) (8,081)
Digicore Ltd - - 2,700
Goliath Gold Mining Ltd - (17,712) (9,585)
1,040,686 1,149,368 341,570
(1)Cadiz Holdings (Pty) Ltd was previously listed as Cadiz Holdings Ltd
(2)During the reporting period 5,631,007 ordinary shares were issued at R2.30 each for the acquisition of 6.86% of Tellumat
(3)During the reporting period a portion of the Cadiz acquisition price was settled by Cadiz (refer to note 10) and R6.1 million
was received as a scrip distribution from Torre
Torre Industries Ltd
Stellar Capital initially acquired its investment in Torre at R5.20 per share, which represented the 30-day volume-weighted
average price ("VWAP") on the date of the announcement of the investment, plus a 16.8% premium ("Transaction Value"). The
market premium reflected the acquisition of a large strategic interest in Torre which made Stellar Capital Torre's largest single
shareholder. Given the proximity of the acquisition to year end during the previous financial year, the investment was held at
fair value through profit or loss ("FVTPL") with the premium maintained and the 30-day VWAP adjusted downwards to reflect
the reduction in the 30-day VWAP from the date of the announcement on 6 July 2015 to the reporting date of
30 November 2015.
Whilst the interim results for Torre for the six months ended 31 December 2015 show substantial growth in revenue as well as
a 5% growth in headline earnings per share ("HEPS"), the impact of a poor first quarter of 2016 resulted in Torre issuing a
trading statement on 8 June 2016 indicating that HEPS for the year to 30 June 2016 would be between 36% and 45% below the
prior comparable period. Given this weak performance and the generally negative outlook for the markets in which Torre
operates, as well as the lapse of time from the acquisition date to the current reporting date, management are of the opinion
that the investment fair valuation estimate can no longer take into account the 16.8% premium paid at the date of the initial
investment and as a result, this has been discarded. The investment has therefore been valued at the closing quoted market
price on 31 May 2016.
As a result of no longer including the market premium as at the reporting date, the investment in Torre has been categorised as
Level 1 within the fair value hierarchy (previously Level 3 as at 30 November 2015).
During the period under review, Stellar Capital received a scrip distribution of R6.1 million from Torre.
Tellumat (Pty) Ltd
The initial investment in Tellumat of 30% was acquired in the previous financial year for R100.1 million, and was subsequently
increased to 100% through further cash acquisitions of R166.7 million and through the issue of 5,631,007 new Stellar Capital
ordinary shares at R2.30 per share in March 2016.
On 19 May 2016, Stellar Capital entered into an agreement to dispose of 51.1% of its investment in Tellumat to Masimong
Technologies (Pty) Ltd ("Masimong Technologies") for R180.4 million on a vendor funded basis, subject to various required
regulatory approvals. Whilst the transaction price implies a total equity value of R352.9 million, it is subject to a downward
adjustment in the event that the disposal price exceeds 7 times the normalised EBITDA of Tellumat for the 12-month period
ending 30 June 2017.
As the required regulatory approvals have not been obtained as at 31 May 2016, Stellar Capital's investment represents 100%
of the equity value of Tellumat.
The Tellumat investment has been estimated using the sustainable earnings model, plus identified excess working capital.
Significant unobservable inputs include:
- EBITDA of R34.9 million (based on the sustainable EBITDA per the latest reported financial results of Tellumat)
- EV/EBITDA multiple of 7x
A 7x multiple is considered to be appropriate as this is within range of the listed peer group multiples and is furthermore
consistent with the multiple used in the recent sale to Masimong Technologies. If the multiple is increased/decreased by 10%,
the estimated fair value of the Tellumat investment would increase/decrease by R24.4 million.
Cadiz Holdings (Pty) Ltd and Stellar Specialised Lending (Pty) Ltd
As at the reporting date, Stellar Capital held 99.99% (net of treasury shares) of the share capital of Friedshelf 1678 Ltd, the sole
shareholder of Cadiz (which incorporates SSL as a wholly-owned subsidiary as at the reporting date). Subsequently in June, the
remaining minorities were acquired for cash such that Cadiz is now held 100% by the Company.
The Company invested a total of R283.6 million to acquire 100% of Cadiz. Of the total acquisition price, R43 million was settled
by Cadiz on behalf of Stellar Capital (refer to note 10), indicating a net investment value of R240.6 million per the sum-of-the-
parts valuation of Stellar Capital. In June R130.4 million was declared and paid as a dividend in specie, resulting in a fair value
adjustment of same to the investment (down from R283.6 million to R153.2 million). Of this dividend, R43 million was settled
by way of extinguishing the liability owing by Stellar Capital to Cadiz, with the remaining R87.4 million being declared out of
excess capital. The remaining investment value of R153.2 million is derived from the estimated fair values of the operations of
Cadiz Asset Management (Pty) Ltd ("CAM") and SSL.
The fair values of CAM and SSL have been estimated using the market approach. CAM is currently valued at a net asset value of
R94 million (including regulatory capital of R55.8 million), which market valuation approach represents approximately 1% of its
assets under management or regulatory capital plus a 1x multiple of annual revenue. The value of SSL is derived from its net
asset value of R59.2 million, being the fair value of its cash, financial assets and loan receivables less its debt obligations.
Subsequent to the period under review, the financial assets were declared and paid as a dividend in specie to Stellar Capital in
the amount of R21.9 million.
Praxis Financial Services (Pty) Ltd
The management team of Praxis are in the process of building the business from the restructuring that took place in the
previous financial year and have made significant progress in the period under review. The company has a niche, high-margin
and scalable business model and the value of this investment is expected to increase significantly over the next few years.
Currently EBITDA sufficiently covers the cash flow required to service its debt obligations (all facilities are provided by Stellar
Capital at Prime plus 8%, reduced from 20% per annum in the prior period) and generate a net profit on a monthly basis. A
planned refinancing is expected to further reduce funding costs and increase bottom line profitability and equity value before
the end of the Company's financial year. At present Praxis trades at a small monthly net profit after servicing the shareholder
funding from Stellar Capital, resulting in a Rnil equity value for the company.
Integrated Equipment Rentals (Pty) Ltd
IE Rentals continues to trade at materially break-even after servicing shareholder funding to Stellar Capital at Prime plus 11%
(previously two facilities at 18% per annum and Prime plus 5% respectively), resulting in a Rnil equity value for the company. IE
Rentals has an innovative business model in which critical technology hardware is bundled with a services contract and all
payments are collected via debit orders. As a result, IE Rentals has never experienced an arrears payment. A refinancing and the
introduction of bank facilities is expected to drive bottom line profitability and an increase in equity value in the coming
reporting periods.
Stellar Credit (Pty) Ltd
Stellar Credit, the appointed manager of the loan portfolio as well as the Inyosi Enterprise Supplier Development Funds, was
acquired in January 2016 for R5 million, and shortly thereafter declared a dividend of excess capital in the amount of
R2.5 million, resulting in a fair valuation downward adjustment by the same amount. The acquisition price was determined with
reference to the realisable underlying assets (market approach). As at 31 May 2016, the fair value of the investment is
considered to fairly represent a price-to-book ratio of 1x.
Mine Restoration Investments Ltd ("MRI")
As previously announced, MRI's operations have been placed under care and maintenance. Furthermore, the anticipated
acquisition of a strategic stake in Iron Mineral Beneficiation Services (Pty) Ltd did not materialise. As a result, the MRI
investment is held at a Rnil fair value. As at 31 May 2016, R9.9 million (after impairment of R2.5 million) was owing by MRI to
the Company (refer to note 6), of which R9.5 million was received subsequent to the end of the period under review.
Reconciliation of investments at fair value categorized as Level 3:
Unaudited as at Audited as at Unaudited as at
R'000 31 May 2016 30 November 2015 31 May 2015
Opening balance 1,149,368 - -
Additions 340,079 1,425,513 100,119
Disposals - (258,078) -
Transfers (to) / from level 1 (906,970) 3,267 -
Total net fair value loss (35,670) (21,334) -
546,807 1,149,368 100,119
6. LOANS TO PORTFOLIO COMPANIES
Unaudited as at Audited as at Unaudited as at
R'000 31 May 2016 30 November 2015 31 May 2015
Stellar Specialised Lending (Pty) Ltd 657,346 - -
Mine Restoration Investments Ltd 9,909 11,556 -
Integrated Equipment Rentals (Pty) Ltd - 23,417 -
Praxis Financial Services (Pty) Ltd - 40,000 43,068
Tellumat (Pty) Ltd - - 3,707
667,255 74,973 46,775
During the period under review Stellar Capital advanced R675.6 million to SSL, a wholly-owned subsidiary of Cadiz, to refinance
a portfolio of loan receivables, including loans owing by IE Rentals and Praxis (R37.2 and R133.9 million respectively as at
31 May 2016) as well as loan investments previously participated in during the prior year. Interest on the loan to SSL is charged at
Prime plus 7% and is serviced monthly in arrears on the 1st day of the following month. During the period under review SSL has
returned R27.8 million in capital repayments.
The loan to SSL is secured by a pledge and cession in securitatem debiti of the shares in SSL as well as the loan claims held by
SSL against the underlying borrowers as a continuing general covering collateral security. The loans by SSL to the underlying
borrowers are secured by cession and pledge of listed and unlisted shares as well as corporate guarantees. The amortization of
the loans by SSL is scheduled to coincide with the Company's announced corporate actions such that Stellar Capital's
investment at the end of the financial year will be reduced to approximately R300 million.
In June 2016, subsequent to the end of the period under review, a dividend in specie of 100% of the share capital of SSL was
declared and paid by Cadiz to Stellar Capital (by then, a 100% shareholder of Cadiz). In conjunction with this restructure, the
loan to SSL was capitalised into an equity contribution in addition to the value of the net asset value already recognized post
the dividend. Accordingly, the returns to Stellar Capital from SSL will be received as dividends instead of interest going forward.
During the period under review the loan to MRI was impaired by R2.5 million. Of the remaining balance, R9.5 million has been
received subsequent to the end of the period under review.
7. OTHER FINANCIAL ASSETS
Unaudited as at Audited as at Unaudited as at
R'000 31 May 2016 30 November 2015 31 May 2015
Deposit with Titan Financial Services (Pty) Ltd - - 49,000
Refundable deposit on acquisitions - 200,000 -
Rights offer receivable - 88,998 -
Goliath Gold Mining Ltd deferred proceeds - 46,803 -
Loan to Lavender Sky Investments (Pty) Ltd - 34,724 -
Loan to Sheerprops 156 (Pty) Ltd 31,500 - -
31,500 370,525 49,000
During the period under review, the refundable deposit on the acquisitions of Cadiz and Tellumat was received in full, as were
the outstanding proceeds on the rights offer.
In the previous financial year, the investment in Goliath Gold Ltd was disposed of and the Company elected to receive the
deferred proceeds of R51.7 million (R1.60 per GGM share). During the period under review, the Company entered into an
agreement to receive an early settlement of the proceeds in the amount of R46.5 million (resulting in a fair value gain of
R0.3 million on the financial instrument).
The loan to Lavender Sky Investments (Pty) Ltd was repaid in full in January 2016. In February, the Company advanced a short
term loan to Sheerprops 156 (Pty) Ltd, an unrelated third party, in order to secure participation in a future potential investment
opportunity. The loan does not bear interest, is secured by unlisted shares and is scheduled to be repaid before the next
reporting date.
8. PROPERTY, PLANT AND EQUIPMENT
During the period under review the Group invested in leasehold improvements.
9. SHARE CAPITAL
During the period under review, the Company issued a total of 5,631,007 ordinary shares of no par value at R2.30 each for the
acquisition of 6.86% of Tellumat.
10. LIABILITY TO INVESTEE COMPANY
As at 31 May 2016, a portion of the acquisition price of Cadiz, being R43 million, was settled by Cadiz on behalf of Stellar
Capital. In June 2016, Cadiz declared a dividend to Stellar Capital, which was partly settled by way of extinguishing the loan
account.
11. TRADE AND OTHER PAYABLES
Trade and other payables comprise management fees due to Thunder Securitisations (Pty) Ltd, the Management Company of
Stellar Capital, in the amount of R3.8m and creditors and accruals of R2.5 million. Trade and other payables were abnormally
high for the previous year ended 30 November 2015 as a result of the fees payable to various parties in respect of the capital
raise.
12. INTEREST REVENUE
Unaudited six Audited year Unaudited six
months ended ended months ended
R'000 31 May 2016 30 November 2015 31 May 2015
Loan investments 16,255 12,506 6,607
Loans to portfolio companies 41,960 8,031 638
Other financial assets 1,822 783 -
Bank 11,712 2,988 1,508
71,749 24,308 8,753
13. OTHER INCOME
In the previous financial year, the Company recognised a provision owing to AfrAsia Special Opportunities Fund (Pty) Ltd
("ASOF") in the amount of R6 million, based on 50% of the value of the MRI shares acquired from ASOF. During the period
under review, the fair value of MRI was impaired to R nil (refer to note 5) and as a result the provision has been reversed given
that no proceeds are expected from the disposal of the MRI investment.
14. TAXATION
The taxation expense for the period ended 31 May 2016 comprises a R7.3 million current tax expense and a reversal of deferred
tax assets of R7 million.
15. RELATED PARTY TRANSACTIONS
During the period under review the Company incurred management fees to Thunder Securitisations (Pty) Ltd in the amount of
R7.1 million (R8.3 million for the year ended 30 November 2015 and R3.2 million for the period ended 31 May 2015) and also
advanced R675.6 million to SSL, a portfolio company, in the ordinary course of business. As at 31 May 2016, loans to portfolio
companies outstanding were owing by SSL and MRI to the Company as well as by IE Rentals and Praxis to SSL (refer to note 6).
Interest earned on loans to portfolio companies is disclosed in note 12.
16. SEGMENTAL REPORTING
As the Group has only one business segment which is managed as a single pool of capital irrespective of the sector in which the
Group's investees trade, segmental reporting is not applicable.
17. CHANGES TO THE BOARD OF DIRECTORS
With effect from 11 April 2016, Marco Wentzel replaced Christina Wiese as an alternate director to Clare Wiese and
subsequently replaced Clare Wiese as an independent non-executive director with effect from 29 July 2016. There have been
no other changes to the Board of Directors.
18. FINANCIAL ASSISTANCE
Notice is hereby given in terms of section 45(5)(a) of the Companies Act that the Board of Directors have authorised and
ratified the Company to provide financial assistance to its subsidiary investee company, Stellar Credit (Pty) Ltd, in terms of
section 45 of the Companies Act, pursuant to the authority granted to the Board by shareholders on 3 June 2016.
19. EVENTS AFTER THE REPORTING PERIOD
19.1. On 22 June 2016, Stellar Capital announced that it had acquired an additional 8,368,102 Torre shares via the issue of
10,460,127 ordinary Stellar Capital shares (held as treasury shares as at 31 May 2016). This acquisition increased the
Company's interest in Torre above 35% and accordingly on 23 June 2016 a mandatory offer to acquire all of the ordinary
shares in Torre not already held by the Company was made. The swap ratio proposed to Torre shareholders is 1.25 new
ordinary Stellar Capital shares for every 1 Torre share in issue. The offer circular was posted to Torre shareholders on
27 July 2016 and the offer is expected to close on 7 October 2016, which close date may change following determination of
acceptances of the offer that may require Stellar Capital to obtain approval from Competition Commission authorities.
19.2. On 27 June 2016, Stellar Capital announced the acquisition of the last remaining shares in Cadiz, held via Friedshelf 1678 Ltd,
bringing its shareholding up to 100%. The final shares were acquired for R8.1 million, which was settled by Cadiz on
behalf of Stellar Capital resulting in an increase in the liability owing to Cadiz (refer to note 10). The full liability was
subsequently extinguished by way of the dividend declaration by Cadiz in June 2016.
19.3. On 19 July 2016, Stellar Capital and Prescient Ltd issued a joint announcement outlining the proposed transaction terms
for the acquisition of a strategic interest in Prescient by Stellar Capital. Upon completion of the various corporate
actions, including a BEE transaction by Prescient, which are subject to the required regulatory approvals and relevant
announcements, Stellar Capital will hold an investment in Prescient (comprising the financial services operations of
Prescient Ltd) alongside Prescient management, resulting in an initial maximum acquisition price of R856.7 million,
prior to the introduction of the BEE party. The valuation for Prescient has been calculated as 11 times annualised budgeted
net profit after tax for the period ending 31 March 2017, plus an agreed level of excess capital.
19.4. On 11 August 2016, Stellar Capital issued a firm intention announcement outlining the proposed acquisition of 100% of
the issued ordinary shares (excluding treasury shares) of Amecor for a total consideration of R267.6 million to be settled
at the election of each Amecor shareholder either i) via a payment of R3.80 per share in cash or ii) through the issue of
two new Stellar Capital shares for every one Amecor share held or (iii) a combination of cash and Stellar Capital shares.
20. OUTLOOK
Stellar Capital has a strong shareholder register, permanent capital base and a focus on sectors where its management team
has expertise and a track record, namely industrials and financial services. Utilising these strengths, the Company is actively
adding value to its portfolio companies via corporate initiatives, strategic direction and management support. The key focus is
to achieve scale in the portfolio as well as to ensure the quality of each investment in terms of the strength of its management
team, its ability to generate cash, its brand and its growth prospects (incorporating international expansion). While the sector
focus on industrials and financial services has now been defined, certain investee companies do not yet meet the criteria that
have been set for scale and quality. However, management is confident that the plans in place will ensure that they do so in the
near future.
By order of the board
Charles Pettit
CEO
15 August 2016
CORPORATE INFORMATION
Forward-looking statements
Any forward-looking statements included in this results announcement involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements of the Company to differ materially from any
future results, performance or achievements expressed or implied by such forward-looking statements. Any reference to
forecast information included in this results announcement does not constitute an earnings forecast and has not been reviewed
or reported on by the Group's external auditors.
Directors
DD Tabata (Chairman)*^, CE Pettit (Chief Executive Officer), CB de Villiers (Chief Financial Officer), CJ Roodt*^, PJ Van Zyl^,
L Mangope*^, J de Bruyn*^, M Wentzel*^
(* Independent) (^ Non–executive)
Company Secretary
The Secretarial Company
Empire Park
Parktown
Johannesburg
2193
Registered office
Third Floor
The Terraces
25 Protea Road
Claremont
Cape Town
7708
Postal address
Suite 229, Private Bag X1005
Claremont
Cape Town
7735
Transfer Secretaries
Computershare Investor Services (Pty) Ltd
70 Marshall Street
Johannesburg
2001
Sponsor
Rand Merchant Bank (a division of First Rand Bank Ltd)
Date: 15/08/2016 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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