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Condensed Interim Results ended 31 December 2017 and Appointments of Chief Financial Officer and Company Secretary
STELLAR CAPITAL PARTNERS LIMITED Incorporated in the Republic of South Africa
Registration number 1998/015580/06 | Share code: SCP | ISIN: ZAE000198586
Condensed Interim Results for the six month period ended 31 December 2017 and Appointments of Chief Financial Officer and Company Secretary
INTRODUCTION
Stellar Capital Partners Limited ("Stellar Capital" or the "Company" or the "Group") presents its unaudited interim results for the
6 month period ended 31 December 2017.
As at 31 December 2017, the net asset value per share (NAVPS) of Stellar Capital is R1.12, representing a decline of 17 cents
per share from 30 June 2017. This decline is primarily driven by the listed share price of Torre, which reduced from R1.49 on
30 June 2017 to R1.00 on 31 December 2017 and a reduction in the valuation of Tellumat.
OPERATIONAL UPDATE
Prescient
Prescient continues to perform well for the period under review and to focus on the quality and variety of its service offerings
to clients. Assets under management grew to R91.1 billion (up from R82.9 billion in June 2017) and assets under
administration grew to R267.9 billion (up from R222.7 billion in June 2017). Prescient is also looking to expand its international
offerings through Europe and China and expects these to be a growth area for the business in the coming years. The regulatory
landscape is continually changing and Prescient is well positioned to ensure that it not only meets, but exceeds all requirements
in this regard and thus feels it is well positioned to take advantage of the changes. Prescient is committed to improving its
empowerment status through a multitude of initiatives which may well include increasing its empowerment ownership.
Cadiz
Cadiz continues to improve and reach commendable rankings in most of its products. The business has stabilised the decline
in assets under management, which are up marginally to R7.3 billion from R7.2 billion in June 2017. In addition, Stellar Capital,
alongside Cadiz management, have made some inroads into cost-rationalisation and continue to focus on the efficient
delivery of solutions to clients. The business continues to look at leveraging the various licenses held internally to create
alternative revenue streams. Stellar believes that a partnership approach with this business will accelerate its growth
potential and as such is exploring various relationships in the financial services space that could lead to accelerated growth
opportunities.
Specialty finance - Praxis and Integrated Equipment Rentals
Praxis continues to focus on higher margin, less capital-demanding parts funding operations and entered into a strategic
partnership with Mettle to assist with the factoring solutions to Praxis' existing client base. The projected growth in the parts
funding operations remains significantly slower than expected as the business transitions to its new strategy, however the
business remains profitable at an EBITDA level. Despite management's best efforts, a capital restructure has not yet been
implemented and as such, the profitability of the business continues to suffer as the cost of capital remains unsustainably
high. For this reason, Stellar Capital has revised the estimated fair value to Rnil as at 31 December 2017 (down from
R29.6 million in June 2017) until such time as the business is more appropriately capitalised.
Stellar Capital took the strategic decision to exit the investment in Integrated Equipment Rentals during the period under review
as it held no equity in the operating business which provided the underlying services to the clients. Stellar Capital was released
from all obligations for the debts of the business as part of the exit.
Greenpoint Capital (previously Stellar Credit) / Inyosi Solutions
During the period under review, the two management teams housed within Stellar Credit were split so as to create two
separate rebranded platforms with distinct focus areas and the ability to incentivise management in each area to grow the
businesses. The mezzanine credit fund, Stellar Specialised Lending, and its manager were rebranded as Greenpoint Capital and
Greenpoint Specialised Lending (GSL) and Stellar is in the process of implementing a management shareholding in the business
in conjunction with an agreed 3 to 5-year strategy to provide credit solutions to the mid-market space in South Africa.
Inyosi Solutions is now the dedicated manager of the Enterprise Development (ED) and Supplier Development (SD) funds
which hold R236.1 million of assets as at 31 December 2017. Stellar has implemented a management shareholding in the business
in conjunction with a medium-term strategy to provide a broader set of solutions in the empowerment space.
Torre
The restructured analytical services segment continues to perform well, whilst the profit in both the Parts and Components and
Capital Equipment segments remain under pressure. Torre has appropriately resized its cost base and reduced its debt and
therefore is well positioned to take advantage of any improvement in the economy. Torre has subsequently collected the final
amount due under the Kanu disposal process in the amount of $12.3 million (approximately R150 million). The Torre board is
considering the best way to utilise these proceeds to optimise value for shareholders.
Stellar Capital's valuation of the business is based on the share price of R1.00 per Torre share as at 31 December 2017, which is
a decline from R1.49 per Torre share as at June 2017 and which translates into a loss of 13 cents to the Stellar Capital NAVPS
since June 2017. Lack of liquidity in the listed Torre share price (86% is held by the 3 largest shareholders) is also exacerbating
the disconnect between the traded share price and the intrinsic value of the business in terms of profitability and net asset value
(R1.82 per share as at 31 December 2017).
Amecor
The business continues to deliver exceptional performance and has engaged with both customers and suppliers so as to
improve operational efficiencies even further. The business has forecasted EBITDA of R65 million for the year ending 31 March
2018, up from R52.3 million in the previous financial year and Stellar Capital has revised the estimated sustainable EBITDA,
resulting in an increase of the estimated fair value of the investment to R391.8 million from R359.7 million in June 2017. Stellar
Capital has decided to look at a disposal strategy of the asset pursuant to its medium-term objectives.
Tellumat
The Tellumat Group is still experiencing depressed operating results, particularly in the Defence and Integrated Solutions
divisions which is partially offset by better performance of the Air Traffic Management division. Significant Research and
Development expenditure has been incurred in the period under review in anticipation of a recovery in the sectors Tellumat
serves. The manufacturing division is also showing signs of recovery and this is expected to contribute to better Group results
in the near future. Stellar Capital has revised down the estimated sustainable EBITDA from R28.6 million to R21.2 million,
reducing the estimated fair value to R121.2 million from R178.3 million in June 2017. Stellar Capital has decided to look at a
disposal strategy of the asset pursuant to its medium-term objectives.
Bridge facility
Stellar Capital obtained a further extension on the repayment of the remaining R100 million facility to 30 March 2018 (previously
31 December 2017), at an increased rate of 1-month JIBAR plus 3.50% (up from 1-month JIBAR plus 2.75%), and the facility was
repaid in full on 28 February 2018.
OUTLOOK
The Board's focus remains keenly on the optimisation of the Group's capital structure, which it is anticipated to be finalised
by latest 30 June 2018. The Group has determined that it will reduce its exposure to the Industrial sector in a practical and
organised process. Stellar also has medium-term objectives to hold non-controlling stakes in underlying investments and to
be invested in businesses which can demonstrate growth prospects that meet Stellar Capital's minimum medium-term return
requirements as well as being scalable within the industry they compete in. Thus Stellar Capital continues with its strategic
review of current investments it holds and which will determine the long-term approach to improving shareholder returns and
efficient allocation of capital.
CHANGES TO THE BOARD OF DIRECTORS
Mr. PJ Bishop CA(SA) was appointed as a non-executive director with effect from 18 October 2017.
Shareholders are advised that the Board has appointed Mr. Sean Graham CA(SA), RA, ACMA as permanent Chief Financial
Officer with effect from 26 March 2018. Mr Graham has fulfilled the position of Interim Chief Financial Officer since
30 September 2017.
Ms. Wilma Dreyer has replaced Mr Sean Graham as Company Secretary of Stellar Capital with effect from 26 March 2018. Prior
to the appointment of Ms. Dreyer the Board considered and was satisfied with her competence, qualifications and experience.
Ms. Wilma Dreyer is also the Head of Finance of Stellar Capital since 1 January 2018.
SUM-OF-THE-PARTS (SOTP) VALUATION
AS AT 31 DECEMBER 2017
As at As at As at
R'000 31 December 2017 30 June 2017 31 May 2017
Financial Services
Prescient 699 052 697 015 697 015
Cadiz 82 033 86 862 86 862
Praxis - 29 671 29 671
Industrials and Technology
Torre 293 458 435 142 408 858
Amecor 391 808 359 708 359 708
Tellumat(1) 121 284 178 331 178 331
Corporate Assets
Other financial assets(2) 215 052 261 844 352 415
Cash and cash equivalents 81 986 13 554 63 808
Other assets 13 586 7 993 8 487
Total Assets 1 898 259 2 070 120 2 185 155
Preference share liability (576 186) (569 112) (597 671)
Bridge facility (100 000) (100 000) (203 000)
Trade and other payables (20 883) (12 341) (11 804)
SOTP value 1 201 190 1 388 667 1 372 680
Net shares in issue ('000) 1 075 032 1 075 032 1 075 032
NAVPS (Rand) 1.12 1.29 1.28
NAVPS post preference share conversion (Rand) 3 1.38 1.52 1.53
Notes
(1) Value comprises the sum of the investments in Tellumat and Masimong Technologies
(2) Also includes the CAM preference share, Stellar International, Greenpoint Capital and Inyosi Solutions
(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 DECEMBER 2017
Unaudited as at Audited as at Unaudited as at
R'000 Notes 31 December 2017 30 June 2017 31 May 2017
Non-current assets 1 238 352 2 049 590 2 023 963
Listed investments at fair value 7 293 458 435 142 408 858
Unlisted investments at fair value 7 942 022 1 588 724 1 388 795
Other financial assets 8 1 847 24 531 225 031
Property, plant and equipment 801 993 1 013
Deferred taxation 224 200 266
Current assets 659 907 20 530 161 192
Unlisted investments at fair value 7 540 517 - -
Other financial assets 8 24 843 176 90 176
Loans to portfolio companies 3 100 2 385 2 794
Current tax receivable 105 103 -
Trade and other receivables 9 356 4 312 4 414
Cash and cash equivalents 81 986 13 554 63 808
Total assets 1 898 259 2 070 120 2 185 155
Equity attributable to owners of the parent 1 201 190 1 388 667 1 372 680
Ordinary share capital 2 347 806 2 347 806 2 347 806
Preference share capital 32 044 32 044 32 044
Accumulated loss (1 178 660) (991 183) (1 007 170)
Non-current liabilities 523 005 514 657 535 258
Preference share liability 9 523 005 514 657 535 258
Current liabilities 174 064 166 796 277 217
Preference share liability 9 53 181 54 455 62 413
Bridge facility 10 100 000 100 000 203 000
Current tax payable - - 505
Trade and other payables 20 883 12 341 11 299
Total equity and liabilities 1 898 259 2 070 120 2 185 155
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME FOR THE 6 MONTH PERIOD
ENDED 31 DECEMBER 2017
Unaudited 6 month Audited 7 month Unaudited 6 month
period ended period ended period ended
R'000 Notes 31 December 2017 30 June 2017 31 May 2017
Fair value adjustments 11 (252 712) (895 923) (830 638)
Fair value adjustments on listed investments (143 100) (276 768) (303 052)
Fair value adjustments on unlisted investments (52 779) (69 457) (68 897)
Fair value adjustments resulting from
capital distributions (56 833) (549 698) (458 689)
Dividend revenue 12 120 510 579 742 488 733
Capital distributions 56 833 549 698 458 689
Earnings distributions 63 677 30 044 30 044
Interest revenue 1 803 10 214 9 858
Gross loss from investments (130 399) (305 967) (332 047)
Other income 978 1 024 931
Finance costs (41 802) (50 091) (42 271)
Net loss before operating expenses (171 223) (355 034) (373 387)
Management fee 13 (10 454) (6 280) (5 288)
Operating expenses 13 (4 327) (11 691) (10 413)
Transaction costs (1 181) (18 085) (18 013)
Loss before tax (187 185) (391 090) (407 101)
Taxation (292) (513) (489)
Loss for the period (187 477) (391 603) (407 590)
Weighted number of shares in issue ('000) 1 075 032 1 072 433 1 072 004
Loss and headline loss per share (cents) (17.44) (36.52) (38.02)
There are no items which give rise to a dilutive effect on loss and headline loss per share. The issue of 600 convertible
redeemable preference shares has not been treated as dilutive as the conversion thereof will result in a decrease in loss per
share from continuing operations (i.e. the conversion is anti-dilutive).
There are no items required to be excluded from earnings in order to calculate headline earnings for the current and
comparative periods and as such the headline earnings per share is equivalent to the earnings per share in respect of each
period presented.
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY FOR THE 6 MONTH PERIOD ENDED 31 DECEMBER 2017
Unaudited 6 month Audited 7 month Unaudited 6 month
period ended period ended period ended
R'000 31 December 2017 30 June 2017 31 May 2017
Balance at the beginning of the period 1 388 667 1 768 613 1 768 613
Loss for the period (187 477) (391 603) (407 590)
Issue of shares - 11 709 11 709
Capitalisation of share issue costs - (52) (52)
Balance at the end of the period 1 201 190 1 388 667 1 372 680
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE 6 MONTH PERIOD ENDED 31 DECEMBER 2017
Unaudited 6 month Audited 7 month Unaudited 6 month
period ended period ended period ended
R'000 31 December 2017 30 June 2017 31 May 2017
Operating activities 110 668 553 820 464 104
Cash generated from operations and
capital distributions received 109 179 545 104 455 179
Interest revenue 1 803 10 214 9 858
Tax paid (314) (1 498) (933)
Investing activities (7 508) (976 437) (975 846)
Net acquisitions of investments (7 452) (977 887) (687 738)
Net disposals / (acquisitions) of other financial assets 625 233 (289 916)
Net loans (advanced to) / repaid by portfolio companies (715) 1 237 1 828
Disposal / (purchase) of property, plant and equipment 34 (20) (20)
Financing activities (34 728) 53 317 192 696
Share issue costs - (52) (52)
Net proceeds from bridge facility - 100 000 203 000
Preference share financing costs (29 855) (39 513) (4 751)
Bridge facility financing costs (4 797) (7 118) (5 501)
Other finance costs (76) - -
Cash and cash equivalents at the beginning of the period 13 554 382 854 382 854
Cash and cash equivalents at the end of the period 81 986 13 554 63 808
Net increase / (decrease) in cash and cash equivalents 68 432 (369 300) (319 046)
NOTES TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
1. REPORTING ENTITY
Stellar Capital is a South African domiciled investment holding company listed on the main board of the JSE Limited (JSE). The
condensed consolidated interim financial statements of the Group as at and for the 6 month period ended 31 December 2017
comprise the Company and its Consolidated Subsidiary, Stellar Management Services Proprietary Limited.
The Company has significant interests in both listed and unlisted investments, which are more fully set out in note 7. As an
investment holding company, Stellar Capital has applied the investment entity exception and accounts for its investments 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 (IFRS), including the disclosure requirements of IAS 34 Interim Financial Reporting (IAS 34) and
comply with the Financial Reporting Guides as 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 include, as a minimum, the information required by IAS 34 and do not include all the information required for a
complete set of IFRS financial statements and it is advised that these results be read in conjunction with the consolidated annual
financial statements of the Group for the period ended 30 June 2017, which are available at
http://www.stellarcapitalpartners.co.za/financial-results/.
These condensed consolidated interim financial statements have been prepared by DJ Hoek CA(SA) under the supervision of
S Graham CA(SA), the Interim Chief Financial Officer and have not been audited or reviewed by the Group's auditors.
These condensed consolidated interim financial statements were approved by the Board of Directors on 23 March 2018. The
Directors take full responsibility for the preparation of these results.
3. ACCOUNTING POLICIES
The accounting policies applied by the Group in these condensed consolidated interim financial statements are consistent with
those applied in the consolidated annual financial statements for the period ended 30 June 2017.
All subsidiaries classified as portfolio investments are accounted for at fair value through profit or loss (FVTPL) in terms of IAS
39 Financial Instruments: Recognition and Measurement and all associates classified as portfolio investments are accounted
for at FVTPL in terms of the exemption from applying the equity method of accounting provided in IAS 28 Investments in
Associates and Joint Ventures.
4. JUDGEMENTS AND ESTIMATES
Management is required to make estimates and assumptions that affect the amounts presented 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 annual financial statements for the 7 month period ended 30 June 2017.
5. SEGMENT INFORMATION
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.
6. DIVIDENDS
No ordinary dividends were declared during the 6 month period ended 31 December 2017. Preference share dividends are based
on 95% of prime on preference share capital of R600 million. During the period under review, preference share dividends of
R29.8 million were paid, which included a payment of R0.7 million to Mr. CJ Roodt, an independent non-executive director of
Stellar Capital.
7. INVESTMENTS HELD AT FAIR VALUE
All subsidiaries and associates have a principle place of business in South Africa with the exception of Stellar International,
which has a principle place of business in Mauritius.
Listed investments
% HELD % HELD % HELD
NATURE OF 31 DECEMBER 30 JUNE 31 MAY
ENTITY OPERATIONS 2017 2017 2017
Industrial group that provides equipment,
Torre parts and support services to customers in 57% 57% 56%
selected high growth markets
Processing and screening of coal fines, a
MRI by-product of coal mining (under care and 14% 14% 14%
maintenance)
Unlisted investments
% HELD % HELD % HELD
NATURE OF 31 DECEMBER 30 JUNE 31 MAY
ENTITY OPERATIONS 2017 2017 2017
Diversified financial services group
offering investment management, fund
Prescient services, administration, stockbroking, 49% 49% 49%
wealth investment, retail and institutional
and insurance products
Financial services group specialising in
Cadiz(1) institutional and personal investments 100% 100% 100%
Provider of short term finance to the panel
Praxis beating industry to address motor body 60% 60% 60%
repairers' working capital needs
IE Rentals Specialised ICT Asset Finance Solutions - 50% 50%
Greenpoint Capital Provision of management services 100% 100% 100%
A market leading, investment based,
Inyosi Solutions Enterprise and Supplier Development 75% - -
solution
Technology solutions and services in
Amecor security 100% 100% 100%
Technology solutions and services in
manufacturing, air traffic control systems,
Tellumat defence and security and turnkey 49% 49% 49%
infrastructure solutions for the
telecommunications industry
A subsidiary of a diversified B-BBEE
Masimong investment holding company and the 100% 100% 100%
Technologies B-BBEE partner of Stellar Capital relating preference preference preference
to Tellumat shares(2) shares(2) shares(2)
Greenpoint Credit fund specialising in mezzanine
Specialised Lending financing 100% 100% 100%
Holding company for international venture
Stellar International capital investments 100% 100% 100%
CAM preference Preference share investment in a subsidiary sole sole
share of Cadiz preference preference
share share -
(1) Cadiz is held via Friedshelf 1678 Limited, a 100% held subsidiary of Stellar Capital.
(2) The preference shares held in Masimong Technologies are non-cumulative and redeemable at the instance of the issuer.
R'000 31 December 2017 30 June 2017 31 May 2017
Listed 293 458 435 142 408 858
Torre 293 458 435 142 408 858
MRI - - -
Unlisted 1 482 539 1 588 724 1 388 795
Prescient 699 052 697 015 697 015
Cadiz 82 033 86 862 86 862
Praxis - 29 671 29 671
Greenpoint Capital and Inyosi Solutions 8 802 8 802 8 802
IE Rentals - - -
Amecor 391 808 359 708 359 708
Tellumat 59 308 87 204 87 204
Masimong Technologies 61 976 91 127 91 127
Greenpoint Specialised Lending - - -
Stellar International 27 425 28 195 28 406
CAM preference share 152 135 200 140 -
Total 1 775 997 2 023 866 1 797 653
Non-current listed 293 458 435 142 408 858
Non-current unlisted 942 022 1 588 724 1 388 795
Current unlisted 540 517 - -
Total 1 775 997 2 023 866 1 797 653
Torre Industries Limited (Torre)
Stellar Capital acquired an additional 1 417 000 ordinary shares during the period under review in the market at a consideration
of R1.00 each. The investment has been valued at the closing quoted market price of R1.00 per share on 31 December 2017
(R1.49 per share on 30 June 2017 and R1.40 per share on 31 May 2017).
Mine Restoration Investments Limited (MRI)
Management has estimated a Rnil fair value in respect of the 124 113 320 MRI shares held, due to operations still being under care
and maintenance as at 31 December 2017 as well as the share remaining suspended from trading on the JSE.
Prescient Holdings Proprietary Limited (Prescient)
Stellar Capital acquired an additional 2 381 758 ordinary shares during the period under review as part of the finalisation of the
original acquisition.
As at 31 December 2017, the fair value of the investment in Prescient has been estimated by applying a sum-of-the-parts
valuation to the underlying core operating units, which is consistent with the valuation method used at 30 June 2017. The
valuation has remained unchanged from the acquisition price, which management considers to be appropriate given that the
investment has not yet been held for a full audited financial year. Management is not aware of any circumstances which could
result in a material adjustment to the initial valuation.
The operating units have been valued primarily by applying a sustainable earnings model. Management still considers the P/E
multiple to be the most appropriate valuation method. The P/E multiples applied to each underlying business are dependent
on the nature of the operations thereof. Where the sustainable earnings model is not considered to be the most appropriate
valuation method, the underlying business has been valued using a percentage of assets under management (AUM).
The significant unobservable inputs included in the sum-of-the-parts valuation of Prescient are:
- P/E multiple: 8 - 15 times (unchanged from June 2017)
- Estimated percentage of AUM applied to relevant entities: 3% - 5% (unchanged from June 2017)
A reasonable possible change of 5% in the estimated P/E multiples would result in an adjustment to the estimated fair value of
between R30.7 million and R35.9 million. A reasonable possible change of 1% in the Price/AUM would result in an adjustment
to the estimated fair value of R3.3 million.
Cadiz
As at 31 December 2017, the value of the investment in Cadiz is supported by the estimated fair value of the major operating
entities. Collectively, these entities are not yet in a sustainable profit-making position and therefore management does not
consider a sustainable earnings multiple to be an appropriate valuation method. As such, management has used the
consolidated NAV of these entities as the basis for the estimated fair value. The value of the investment represents a discount
of 33% (31% in June 2017) to 90% of the consolidated NAV of R136.0 million as per the latest financial accounts of Cadiz at
31 December 2017 (R140.5 million in June 2017). A reasonable possible increase/decrease by 10% in the discount applied by
would result in an increase/decrease in the estimated fair value of R12.2 million.
Praxis Financial Services Proprietary Limited (Praxis)
As at 31 December 2017, the fair value of the investment in Praxis has been estimated by management to be Rnil. The
investment was previously valued at R29.6 million based on an estimated sustainable net profit after tax of R4.5 million.
However, as a result of the implemented operational changes not yet resulting in the anticipated improved performance as well
as no capital restructuring yet taking place, the entity continues to be loss-making for the time being. As such, a sustainable net
profit after tax of R4.5 million is no longer considered to be a reasonable estimate of the immediate future.
The Company has pledged and ceded in securitatem debiti the shares held in Praxis as a continuing general covering collateral
security in respect of amounts owed by Praxis.
Integrated Equipment Rentals Proprietary Limited (IE Rentals)
During the period under review, Stellar Capital sold its 50% shareholding in IE Rentals to the other 50% shareholder for a
nominal consideration and was released from all obligations for the debts of the company.
Greenpoint Capital Proprietary Limited (Greenpoint Capital) and Inyosi Solutions Proprietary
Limited (Inyosi Solutions)
Stellar Credit Proprietary Limited (now Greenpoint Capital) previously housed the operations of the management of the
Supplier and Enterprise Development Funds held within Inyosi Capital and during the period under review these operations
were transferred to Inyosi Solutions, a newly incorporated entity. Stellar Capital holds 75% of the ordinary share capital of
Inyosi Solutions with the other 25% being held by management.
Amalgamated Electronic Corporation Limited (Amecor)
As at 31 December 2017 the fair value of the investment in Amecor has been estimated by management using the sustainable
earnings model, which is consistent with the valuation method used at 30 June 2017. Management still considers the
EV/EBITDA multiple to be the most appropriate valuation method. The valuation is based on an estimated sustainable EBITDA
of R55.2 million (R50.6 million in June 2017) and an EV/EBITDA multiple of 7.1 times (7.1 times in June 2017). A reasonable
possible change of 5% in either the estimated sustainable EBITDA or the EV/EBITDA multiple would result in an adjustment to
the estimated fair value of R19.6 million.
Management has taken the decision to exit the investment and therefore it has been classified as current as at 31 December
2017.
Tellumat Proprietary Limited (Tellumat)
As at 31 December 2017 the fair value of the investment in Tellumat has been estimated by management using the sustainable
earnings model, which is consistent with the valuation method used at 30 June 2017. Management still considers the
EV/EBITDA multiple to be the most appropriate valuation method. The valuation is based on an estimated sustainable EBITDA
of R21.2 million (R28.6 million in June 2017) and an EV/EBITDA multiple of 5.7 times (6.2 times in June 2017). A reasonable
possible change of 10% in the estimated sustainable EBITDA would result in an adjustment to the estimated fair value of
R12.1 million and a reasonable possible change of 5% in the EV/EBITDA multiple would result in an adjustment to the estimated
fair value of R6.0 million.
Masimong Technologies Proprietary Limited (Masimong Technologies)
As Tellumat is the only significant asset held by Masimong Technologies as at 31 December 2017 (51% held), the fair value of the
preference shareholding in Masimong Technologies has been determined with reference to its share of the estimated fair value
of Tellumat (refer above for details of the valuation).
Management has taken the decision to exit the investments in both Tellumat and Masimong Technologies and therefore these
have been classified as current as at 31 December 2017.
Greenpoint Specialised Lending Proprietary Limited (Greenpoint Specialised Lending or GSL)
The direct equity investment in the fund, previously called Stellar Specialised Lending Proprietary Limited, is valued at Rnil as
all the equity value is attributable to investors of the B Units in the fund, by way of the B Shares. Stellar Capital is invested in
B Units via a CAM preference share (refer below).
Stellar International Limited (Stellar International)
Stellar International has a US Dollar functional currency. As at 31 December 2017 the fair value of the investment in Stellar
International has been estimated by management using the price of recent investment valuation method, based on the most
recent capital raise information of the underlying investments, LifeQ Global Limited (denominated in US Dollars) and Tictrac
Limited (denominated UK Pounds). Management still considers this to be the most appropriate valuation method as both these
investments are still in the early stages of development with no sustainable earnings, no positive cash flows nor any anticipated
short-term earnings. The respective acquisition prices are in line with the latest capital raise levels and are therefore
considered to be an appropriate basis of valuation. Furthermore there has been no indication of an event or circumstance
that would require a change in the estimated fair value. These acquisition prices, along with the balance of cash, have been
converted to Rands using the corresponding spot rates on 31 December 2017.
Management has taken the decision to exit these investments and therefore the investment in Stellar International has been
classified as current as at 31 December 2017.
Cadiz Asset Management (CAM) preference share
Stellar Capital has an investment in Greenpoint Specialised Lending Proprietary Limited (previously Stellar Specialised Lending
Proprietary Limited) (GSL), comprising B Notes and B Shares (B Units), which is held via a preference share in CAM with a value
of R152.1 million (down from R200.1 million in June 2017 due to a capital distribution by CAM with a corresponding downward
fair value adjustment to the investment of R48 million).
GSL is a credit fund and as such, the investment in the CAM preference share is derived from the B Unit value multiplied by the
number of units held in the fund.
Level 3 investments
With the exception of Torre, a listed entity, all portfolio companies are classified as Level 3. The Board of Directors has approved
the valuation methodologies used by management for Level 3 investments. The Company receives the latest available reports
from portfolio companies at each reporting date, either in the form of audited financial statements or unaudited management
accounts, which are then used in the valuation techniques. The table below shows the reconciliation of Level 3 movements:
R'000 31 December 2017 30 June 2017 31 May 2017
Opening balance 1 588 724 1 219 609 1 219 609
Additions 6 035 988 164 697 015
Disposals - - -
Fair value losses (55 387) (69 351) (69 140)
Fair value losses resulting from capital distributions (56 833) (549 698) (458 689)
Closing balance 1 482 539 1 588 724 1 388 795
Transfers to Level 3 occur in instances where management assesses that the quoted market price of a listed investment is
not representative fair value at the measurement date. Similarly, transfers from Level 3 occur where previously management
assessed that the quoted market price of a listed investment was not representative of fair value, but where a change in factors
results in management concluding that the quoted market price is considered to be an appropriate basis for estimating fair
value. There were no transfers between levels during the period under review.
8. OTHER FINANCIAL ASSETS
As at 31 December 2017, management has classified all other financial assets, other than those not expected to become liquid
within 12 months, as current assets as management's intention is to ensure that sufficient funding is available for the Group's
short-term funding obligations.
9. PREFERENCE SHARE LIABILITY
As at 31 December 2017, two financial covenants set out in the Convertible Preference Share Circular, being the asset cover ratio
and net asset value minimum threshold, have not been satisfied. In anticipation of the non-satisfaction of the aforementioned
financial covenants, Stellar Capital obtained waivers of compliance with all preference share financial covenants at 31 December
2017 from preference shareholders holding 549 of 600 preference shares (92%) or R549 million of R600 million, including RMB.
10. BRIDGE FACILITY
The repayment of the facility was extended to no earlier than 15 March 2018. Interest of 1-month JIBAR plus 3.50% per annum
was charged on the facility and payable monthly (previously 1-month JIBAR plus 2.75%). The facility was repaid in full on
28 February 2018.
As security for the bridge facility, Stellar Capital ceded in securitatem debiti and pledged the following:
- Shares in Prescient, Cadiz, Greenpoint Capital, Torre, Amecor, Tellumat and Greenpoint Specialised Lending;
- Any shareholder or loan claims;
- Proceeds from insurances;
- Bank accounts of Stellar Capital and Stellar Management Services (Pty) Ltd;
- Trade and other receivables; and
- Any intellectual property rights.
As part of the extension of the facility, Stellar Management Services Proprietary Limited, which performs the treasury function
of Stellar Capital, guaranteed the performance of Stellar Capital's obligations under the bridge facility agreement.
11. FAIR VALUE ADJUSTMENTS
R'000 31 December 2017 30 June 2017 31 May 2017
Fair value adjustments on listed investments (143 100) (276 768) (303 052)
Torre (143 100) (276 768) (303 052)
Fair value adjustments on unlisted investments (52 779) (69 457) (68 897)
Prescient - - -
Cadiz - - -
Praxis (29 671) - -
Greenpoint Capital and Inyosi Solutions - 868 868
IE Rentals - (5 693) (5 693)
Amecor 32 100 - -
Tellumat (27 896) (37 105) (37 105)
Masimong Technologies (29 151) (23 746) (23 746)
Stellar International (769) (2 104) (1 893)
Greenpoint Specialised Lending - (1 571) (1 571)
Other financial assets 2 608 (106) 243
Fair value losses resulting from capital distributions (56 833) (549 698) (458 689)
Total (252 712) (895 923) (830 638)
12. DIVIDEND REVENUE
R'000 31 December 2017 30 June 2017 31 May 2017
Capital distributions 56 833 549 698 458 689
Cadiz 4 829 3 500 2 500
Greenpoint Capital 4 000 - -
Greenpoint Specialised Lending - 456 189 456 189
CAM preference share 48 004 90 009 -
Earnings distributions 63 677 30 044 30 044
Torre 8 761 - -
Prescient 24 518 - -
Greenpoint Capital 1 066 - -
Amecor 18 000 6 000 6 000
Greenpoint Specialised Lending - 24 044 24 044
CAM preference share 11 332 - -
Total 120 510 579 742 488 733
13. MANAGEMENT FEE AND OPERATING EXPENSES
During the period under review all operational expenses were transferred to Thunder Securitisations Proprietary Limited such
that these costs are now incurred directly by the management company. Previously these costs were incurred by Stellar Capital
and recovered from the management fees payable.
14. RELATED PARTY TRANSACTIONS
Related party transactions are entered into in the ordinary course of business and comprise (i) transactions with portfolio
companies, including loans advanced/repaid, interest income, dividends received and amounts received or paid in respect of
services provided; and (ii) management fees paid to Thunder Securitisations Proprietary Limited (the appointed investment
manager to Stellar Capital).
15. CONTINGENT LIABILITIES
At the reporting date, the Company has issued limited corporate guarantees in favour of the creditors of Praxis for R20.5 million
(R47.5 million as at 30 June 2017). The remaining guarantees provided are subject to 3 months' notice of termination.
16. EVENTS AFTER THE REPORTING PERIOD
The Board of Directors are not aware of any events after the reporting date and until the date of approval, which have a material
impact on the condensed consolidated interim financial statements as presented.
By order of the Board
DD Tabata
Chairman of the Board
26 March 2018
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 Group 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
DIRECTORS
DD Tabata (Chairman)*, PJ Van Zyl (Chief Executive Officer),
S Graham (Chief Financial Officer), CJ Roodt#, MM Ngoasheng*,
MVZ Wentzel*, L Potgieter*, HC Steyn^, PJ Bishop^
#Lead Independent non-executive
*Independent non-executive
^Non-executive
COMPANY SECRETARY
Wilma Dreyer
REGISTERED OFFICE
Fourth 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 Proprietary Limited
SPONSOR
Rand Merchant Bank
(a division of FirstRand Bank Limited)
Date: 26/03/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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