StratCorp Limited FY 2014 financial results


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StratCorp Limited Listed on the Johannesburg Stock Exchange has released its Full Year Results. Check out
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StratCorp Limited FY 2014 financial results

  1. 1. StratCorp Limited (Incorporated in the Republic of South Africa) (Registration number: 2000/031842/06) JSE code: STA ISIN ZAE 000034294 (“StratCorp” or “the company” or “the group”) REVIEWED CONDENSED PROVISIONAL FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2014 CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION Figures in R’000 2014 Reviewed 2013 Audited Assets Non-Current Assets Property, plant and equipment 2,799 3,485 Goodwill 1,318 1,318 Intangible assets 1,539 3,615 Other financial assets 1,435 1,286 Deferred tax 6,407 4,818 Finance lease receivables 33 158 13,531 14,680 Current Assets Inventories 647 798 Other financial assets 69 235 Current tax receivable 40 40 Finance lease receivables 53 216 Trade and other receivables 2,993 886 Cash and cash equivalents 1,207 1,991 5,009 4,166 Non-current assets held for sale and assets of disposal groups 14,247 14,928 Total Assets 32,787 33,774 Equity and Liabilities Equity Share capital 44,961 43,641 Reserves 1,430 1,297 Accumulated loss (41,504) (44,236) 4,887 702 Liabilities Non-Current Liabilities Other financial liabilities - 8,793 Finance lease obligation 76 346
  2. 2. Deferred tax 1,503 2,158 1,579 11,297 Current Liabilities Other financial liabilities 10,782 935 Current tax payable Finance lease obligation 8 269 8 268 Operating lease liability 20 855 Trade and other payables 3,225 4,577 Bank overdraft 4,113 5,268 18,417 11,911 Liabilities of disposal groups 7,904 9,864 Total Liabilities 27,900 33,072 Total Equity and Liabilities 32,787 33,774 CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME Figures in R’000 2014 Reviewed 2013 Audited Continuing operations Revenue 34,277 42,757 Cost of sales (6,547) (11,847) Gross profit 27,730 30,910 Other income 510 375 Impairment of tangible assets (312) (132) Impairment of intangible assets (1,614) (173) Other operating expenses (22,738) (38,427) Operating profit/(loss) 3,576 (7,447) Investment revenue 62 109 Finance costs (1,922) (1,587) Profit/(Loss) before taxation 1,716 (8,925) Taxation 2,209 386 Profit/(Loss) from continuing operations 3,925 (8,539) Discontinued operations Loss from discontinued operations (1,194) (265) Profit/(Loss) for the year 2,731 (8,804) Other comprehensive income: Fair value adjustments on assets at fair value through other comprehensive income 177 1,254 Exchange differences on translating foreign operations (61) 13 Taxation related to components of other comprehensive income 17 (3) Total other comprehensive income for the year 133 1,264 Total comprehensive income/(loss) 2,864 (7,540)
  3. 3. Attributable to: Owners of the parent: Profit/(Loss) for the year from continuing operations 3,925 (8,539) Loss for the year from discontinuing operations (1,194) (265) Profit/(Loss) for the year attributable to owners of the parent 2,731 (8,804) Total comprehensive profit/(loss)attributable to: Owners of the parent 2,864 (7,540) Profit per share From continuing and discontinued operations Basic and diluted earnings/(loss) per share (c) 1.64 (5.56) Basic and diluted earnings/(loss) per share from continuing operations (c) 2.35 (5.39) Basic and diluted loss per share from discontinued operations (c) (0.71) (0.17) CONSOLIDATED GROUP STATEMENT OF CHANGES IN EQUITY Figures in R’000 Share capital FCTR FVA Accumulated loss Total equity Balance at 01 March 2012 43,641 33 - (35,432) 8,242 Changes in equity Total comprehensive income /(loss) for the year - 11 1,253 (8,804) (7,540) Total changes - 11 1,253 (8,804) (7,540) Balance at 1 March 2013 43,641 44 1,253 (44,236) 702 Changes in equity Total comprehensive income /(loss) for the year - (44) 177 2,731 2,863 Issue of shares 1,320 - - - 1,320 Total changes 1,320 (44) 177 2,731 4,185 Balance at 28 February 2014 44,961 - 1,430 (41,504) 4,887 FCTR – Foreign Currency Translation Reserve FVA - Fair value adjustments through other comprehensive income reserve
  4. 4. CONSOLIDATED GROUP STATEMENT OF CASH FLOWS Figures in R’000 2014 Reviewed 2013 Audited Cash flows from operating activities Cash receipts from customers 27,662 44,087 Cash paid to suppliers and employees (25,163) (50,300) Cash generated from/(utilised in)operations 2,499 (6,212) Interest income 62 59 Tax paid (15) (120) Cash (utilised in)/generated from discontinued operations (1,616) 7,778 Cash generated from operating activities 930 1,504 Cash flows from investing activities Purchase of property, plant and equipment - To maintain operating capacity (478) (363) Gain on disposal of property, plant and equipment 14 839 Expenditure on product development (279) (1,196) Sale of financial assets - 1,302 Cash (utilised in)/generated from investing activities (743) 582 Cash flows from financing activities Proceeds on share issue 1,320 - Proceeds from other financial liabilities 1,055 - Repayment of other financial liabilities - (413) Finance lease liability payments (310) (1,236) Finance costs (1,881) (1,451) Cash generated from/(utilised in)financing activities 184 (3,100) Total cash movement for the year 371 (1,014) Cash at the beginning of the year (3,277) (2,263) Total cash at end of the year (2,906) (3,277)
  5. 5. HEADLINE AND DILUTED HEADLINE LOSS PER SHARE Headline earnings/(loss) per share and diluted headline earnings/(loss) per share are determined by dividing headline earnings/ (loss) and diluted headline earnings/(loss) by the weighted average number of ordinary share outstanding during a period. The group followed SAICA Circular 2/2013 in calculating headline earnings/ (loss) and diluted headline earnings/ (loss) per share for the group and company. Headline earnings and diluted headline earnings are determined by adjusting basic earnings and diluted earnings by excluding separately identifiable re-measurement items. Headline earnings and diluted headline earnings are presented after tax and non-controlling interest. Diluted headline earnings per share is equal to headline profit per share because there are no potential dilutive ordinary shares in issue. Headline earnings per share was based on a headline earnings of the group of R 4,728,208 (2013: loss of R 8,576,522) and a weighted average number of ordinary shares of 167,033,595 (2013: 158,311,597). Headline and diluted headline earnings per share (c) 2.83 (5.42) Reconciliation between earnings and headline earnings R’000 Basic profit/(loss) 2,731 (8,804) Adjusted for: Profit on disposal of investment in associate - - Profit/(loss) recognized on the measurement to fair value less cost to sell constituting discontinued operations 853 - Loss/(Profit) on disposal of investment properties - - Loss/(Profit) on disposal of property plant and equipment (7) 9 Impairment loss on property plant and equipment 312 132 Impairment loss on Intangibles 1,614 173 Tax effect thereon (775) (87) 4,728 (8,577) Condensed Segmental Analysis Reviewed 2014 R’000 Audited 2013 R’000 Revenue Continuing operations Financial products 26,808 30,882 Health & Wellness products 7,298 11,612
  6. 6. General finance 171 263 Corporate services & other - - 34,277 42,757 Discontinued operations 50 15,718 Profit/(Loss) Continuing operations Financial products 12,554 7,328 Health & Wellness products (1,272) (1,361) General finance (139) (161) Corporate services & other (7,218) (14,345) 3,925 (8,539) Discontinued operations (1,194) (265) 2,731 (8,804) Segment assets Financial products 3,577 2,511 Health & Wellness products 802 823 General finance 196 710 Corporate services & other 4,806 7,412 Assets of disposal groups 14,247 14,929 23,628 26,385 Reconciling items Unlisted investments 1,435 1,253 Deferred tax 6,407 4,818 Goodwill 1,318 1,318 32,787 33,774 Segment liabilities Financial products 1,962 2,327 Health & Wellness products 704 1,196 General finance 1 15 Corporate services & other 5,044 7,785 Liabilities of disposal groups 7,904 9,864 15,615 21,187 Reconciling items Deferred tax 1,503 2,158 Interest bearing liabilities 10,782 9,728 27,900 33,073 BUSINESS OVERVIEW StratCorp is an investment holding company that owns and invests in companies with high growth potential. Its focus is on providing its subsidiaries with infrastructural support and management services, which include centralised information technology systems and support, legal and human resource administration and support, and finance support and funding facilities. StratCorp also provides its subsidiary companies with a central client base that has been built up over the past 13 years. As previously reported, a restructuring plan was implemented in May 2012 to reduce the expenses of the group and return the group to profitability. This plan included the reduction of staff, especially in
  7. 7. the support functions within the group, renegotiating leases for the branches, sharing of certain premises by the Group companies, reduction of directors’ remuneration and the disposal of the Soldonné Residential complex effective from November 2012. During 2013, the restructuring plan was further intensified after the net effect of the 2012 restructuring plan did not yield the required results. This plan entailed the further reduction of staff on managerial and support functions, the closure of branches that were not contributing to Group revenue or profits, a further reduction in directors’ remuneration, and cancelling of the Head Office lease with the landlord and moving to much smaller premises. As a result, the group as a whole managed to return to profitability. Revenue from continuing operations decreased from R 42.7 million in 2013 to R 34.2 million in 2014 as a result of a decrease in the client bases in some of the segments of the group. The net profit after tax from continuing and discontinuing operations increased from a loss of R 8.8 million in 2013 to a profit of R 2.7 million in 2014. The total loss from discontinued operations for 2014 amounted to R 1.19 million, that included a revaluation movement amounting to R 0.9 million, compared to a loss of R 0.3 million for 2013. ASSETS OF DISPOSAL GROUPS Shareholders were advised in the 2012 results announcement that the Board has taken a decision to discontinue its property development operations, and to reflect its interests in property as part of the discontinued operations. The group still owns two vacant properties in Karenpark and Orchards, which is for sale, but only at reasonable prices. Management believe that the two properties have value and will reconsider its intention with regards to the two properties over the next six months. While the group still owes the vendor of the Orchards property R 4.8 million, the payment terms are linked to the development of that property, with an amount payable per stand sold and developed. There are no time constraints imposed on the company to perform with regard to when the development must commence or be finalised. CASH FLOWS A positive cash movement of R 0.3 million, which included the repayment of debt of R 2.1 million, was recorded for 2014, compared to a cash outflow of approximately R 1 million for 2013. Cash generated from operations decreased from R 1.5 million in 2013 to R 0.9 million in 2014 mainly due to a decrease in the client bases in some segments of the group and the costs of the restructuring exercises that the group implemented during the 2014 year.
  8. 8. The restructuring plan and the reduction of costs over the past twelve months have produced positive results for the group, with the group returning to a positive cash flow position. Cash flow is managed tightly, and unnecessary expenses have been eliminated to improve efficiencies within the group. STRATEGY The main focus of the board over the past year was to ensure that costs were brought under control. As is expected with an intensive restructuring plan, some employees and management in key positions felt unsure of the group’s future and their own positions and have resigned. As a result the group has lost valuable support staff. Although this has put operations and sales functions under pressure, management decided to see the year through with the limited resources. Consumer affordability remains the major contributor towards the revenue of the group, and management continues with its efforts to produce and deliver affordable value for money products and services to its customers that meet their needs. GOING CONCERN The reviewed condensed provisional consolidated financial results have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The directors constantly review the business models of the group and its operating subsidiaries to ensure sustainability and the ability to operate profitably and generate positive cash flows. Funding facilities are also reviewed regularly to ensure that the group has sufficient facilities in place to finance its operations. The linked unit debentures payable by the group is due for settlement on 1 December 2014. The group incurred a net profit of R 2.7 million for the year ended 28 February 2014, compared to a net loss of R 8.8 million for 2013. The current liabilities of the group exceed its current assets as at 28 February 2014 mainly as a result of the linked units in StratCorp Property Holdings Ltd that is becoming payable on 1 December 2014.Various strategies are currently being considered to service this debt. The profits incurred by the group over the last financial year have yielded some positive cash flows, to enable the group to continue operating as a going concern. The group further managed to reduce debt.
  9. 9. Management will focus on revenue and the expansion of the revenue channels over the next financial year and confirm the going concern of the group. There is however a number of significant risks still threatening the group in its current form. The reported summons served against a major subsidiary of the group needs to be defended successfully and the Regulator investigating the affairs of a major subsidiary must be resolved. In addition, the threatened application by the Company’s largest shareholder to place the group under supervision and business rescue is still uncertain if they will proceed. It is management’s intentions to resolve these issues amicably and to benefit of all stakeholders. STATEMENT OF COMPLIANCE The reviewed condensed provisional consolidated financial results comprise a condensed consolidated statement of financial position at 28 February 2014, a condensed consolidated statement of comprehensive income, a condensed consolidated statement of changes in equity and a condensed consolidated statement of cash flow for the year ended 28 February 2014. The reviewed condensed provisional consolidated financial results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”),its interpretation adopted by the International Accounting Standards Board (IASB), SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council , the presentation and disclosure requirements of IAS34 - Interim Financial reporting, the JSE Listings Requirements and the South African Companies Act 71 of 2008. The accounting policies applied for the year, which are in terms of IFRS, are consistent with those of the prior year. The financial statements have been prepared on the historical cost basis, except in the case of financial instruments which are measured using fair value and amortised cost models, and investment properties that are measured at fair value and non-current assets held for sale and assets of disposal groups that are measured in terms of IFRS 5. PROPERTY, PLANT AND EQUIPMENT In order to maintain operating capacity, R356 000 was invested in computer equipment and information systems. The group’s head office was relocated to smaller premises during September 2013. Leasehold improvements totalling approximately R396 000 were incurred.
  10. 10. ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS During the period the group reduced its total liabilities by R5.1 million mostly from cash received from assets of disposal groups in the previous financial year as well as operational cash flow in the current financial year. The group repaid some of the remaining liabilities from the sale of the Soldonné Complex that was sold during the previous financial year. Certain of the remaining liabilities amounting to approximately R 5.4 million are linked to the sale of the remaining vacant land for development. The group is still actively marketing the sale of the vacant land. The loan from Kose-Kose Investments Limited was settled on 31 October 2013 from the proceeds of the Issue for cash on 23 October 2013. BANKING FACILITIES The group has agreed with its bankers to reduce its overdraft facility by R150 000 per month from 1 August 2013 and other banking facilities by approximately R145 000 from 01 October 2013. The other banking facilities were settled on 1 March 2014. This reduction in facilities is financed from operational cash flow. OTHER EVENTS GENERAL ISSUE FOR CASH 25 882 353 Ordinary shares in the company were issued at an issue price of 5.1 cents per ordinary share which represented a 8.8% discount to the 30 day volume weighted average price for the period ended 23 October 2013, being the date the issue price was agreed upon by the directors. The proceeds of the issue for cash were used inter alia to settle an outstanding loan from Kose-Kose Investments Limited amounting to R900 000. ANNUAL GENERAL MEETING At the annual general meeting of the company held on 01 November 2013, all the ordinary resolutions were passed by the requisite majorities of votes of shareholders present, except for ordinary resolution 7 that was not passed by the requisite majority of votes of shareholders present and represented by proxy. The special resolutions were however not passed.
  11. 11. LITIGATION AND ACTIONS As reported in the SENS announcement on several occasions and recently on 14 May 2014, a major subsidiary of the company is being investigated by the Financial Services Board (“FSB”). The FSB’s investigation of the company’s subsidiary originated from a complaint received by the FSB in 2007 of the alleged contravention by the subsidiary of certain provisions of the Financial Advisory and Intermediary Services Act (Act no. 37 of 2002. The matter is receiving attention, and the company’s subsidiary has been engaging with the Regulator in this regard. As reported previously, a summons was served on StratCorp’s wholly owned subsidiary, Virtus Financial Services (Proprietary) Limited (“Virtus”) and inter alia the current CEO of StratCorp (who was a director in Virtus at the time), claiming payment of damages in excess of R23 million. The claim arises from an investment made by a third party in 2008 in a company that was liquidated in 2010. Virtus acted in an advisory capacity to the third party. Virtus and the other defendants are defending the matter. Shareholders will be updated as and when there are further developments. As reported previously this year on SENS and again on 24 April 2014, the company’s largest shareholder Kose-Kose Investments Ltd (Kose-Kose) has brought an urgent application in the North Gauteng High Court of South Africa to place the company under supervision and business rescue. On 28 February 2014 the North Gauteng High Court of South Africa struck the application by Kose-Kose to place StratCorp under supervision and business rescue, from the urgent roll as the matter was not urgent and awarded a cost order in favour of StratCorp. The company is not aware of any further steps taken by Kose-Kose to enrol its application to place StratCorp under supervision and business rescue on the opposed motion roll, after it was struck from the urgent roll on 28 February 2014 in the North Gauteng High Court. Shareholders are advised to continue exercising caution when dealing in the company’s securities until a further announcement is made in this regard. Except for the above, the directors are not aware of any other legal or arbitration proceedings, pending or threatened against the group, which may have or have had, in the 12 months preceding the date of this report, a material effect on the group’s financial position. REVIEW CONCLUSION The reviewed condensed provisional consolidated financial results of the company and group have been reviewed by Nexia SAB&T. The auditors’ review report, which is available for inspection at the company’s
  12. 12. register office, contains an emphasis of matter with regard to the going concern of the Group, as follows: CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed provisional consolidated financial results do not present fairly the consolidated financial position of the entity as at 28 February 2014, and of its consolidated financial performance and its cash flows for the year ended in compliance with the JSE Listings Requirements. EMPHASIS OF MATTER Without qualifying our conclusion, we draw attention to these condensed provisional consolidated financial results which indicates that the current liabilities of the group exceeded its current assets as at 28 February 2014. The condensed provisional consolidated financial results indicate that these conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt on the group’s ability to continue as a going concern. DIVIDENDS No dividends were declared or paid to shareholders during the year. CHANGES TO THE BOARD Tumelo Ratau resigned as non-executive director on 17 May 2013 and Henk Engelbrecht resigned as financial director of the group on 31 May 2013. Johan De Beer was appointed as financial director on 1 August 2013. Piet de Jongh resigned as non-executive director and chairman of the board on 30 November 2013. Mitesh Patel resigned as non executive director and Francois Olivier was appointed as non executive director on 22 January 2014. Stefan Coetsee was appointed as non executive director on 18 February 2014. Subsequent to year end Francois Olivier has resigned as non executive director and Johan de Beer as financial director on 14 April 2014, and Mitesh Patel has been appointed as a non executive director on 21 May 2014. In addition, Sangeeta Kallen and Thuto Masasa have been appointed as non-executive directors on 24 May 2014. Henk Engelbrecht has been appointed as financial director with effect from 1 July 2014. On behalf of the board. D B Harington Chief Executive Officer
  13. 13. Mitesh Patel Chairman 13 June 2014 CORPORATE INFORMATION Non-executive directors: M Patel* (Chairman), SI Kallen* (Chairperson of Audit Committee); T Masasa*; S Coetsee *Independent Executive director: DB Harington (CEO) Registered address: 3rd Floor, Lakeside Building B, Heuwel Avenue, Centurion, 0046 Postal address: PO Box 12022, Centurion, 0046 Company secretary: NW Moffatt Telephone: (087) 151 0025 Facsimile: (087) 807 5061 Transfer secretaries: Computershare Investor Services (Pty) Ltd Auditors: Nexia SAB&T Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd