StratCorp Limited HY 2014 results

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StratCorp Limited HY 2014 results

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StratCorp Limited HY 2014 results

  1. 1. (Incorporated in the Republic of South Africa) (Registration number: 2000/031842/06) JSE code: STA ISIN ZAE 000034294 (“StratCorp” or “the company” or “the group”) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS for the 6 months ended 31 August 2013
  2. 2. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Condensed consolidated statement of financial position Aug 2013 Unaudited Aug 2012 Unaudited Feb 2013 Audited Figures in ZAR thousand Assets Non Current Assets Property, plant and equipment 3,071 4,834 3,485 Goodwill 1,318 1,318 1,318 Intangible assets 3,401 3,233 3,615 Other financial assets 1,296 67 1,286 Deferred tax 4,410 5,643 4,818 99 173 158 13,595 15,268 14,680 Finance lease receivables Current Assets Inventories 621 1,051 798 Other financial assets 64 286 235 Current tax receivable 40 - 40 Finance lease receivables 209 281 216 Trade and other receivables 528 1,100 886 Cash and cash equivalents 236 168 1,991 1,698 2,886 4,166 Non-current assets held for sale and assets of disposal groups 15,329 28,434 14,928 30,622 46,588 33,774 43,641 43,641 43,641 1,317 - 1,297 (44,664) (40,503) (44,236) 294 3,138 702 Other financial liabilities 8,793 8,793 8,793 Finance lease obligation 209 829 346 2,055 3,465 2,158 11,057 13,087 11,297 1,587 1,646 935 8 - 8 268 499 268 Total Assets Equity and Liabilities Equity Share capital Reserves Accumulated loss Liabilities Non-Current Liabilities Deferred tax Current Liabilities Other financial liabilities Current tax payable Finance lease obligation Operating lease liability Trade and other payables Bank overdraft - 847 855 3,565 5,567 4,577 Liabilities of disposal groups 5,014 4,626 5,268 10,442 13,185 11,911 8,829 17,178 9,864 Total Liabilities 30,328 43,450 33,072 Total Equity and Liabilities 30,622 46,588 33,774
  3. 3. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Condensed consolidated statement of comprehensive income Aug 2013 Unaudited Aug 2012 Unaudited Feb 2013 Audited Figures in ZAR thousand Continuing operations Revenue 16,870 24,411 42,757 Cost of sales (3,649) (7,145) (11,847) Gross profit 13,221 17,266 30,910 215 895 375 (12,626) (22,129) (38,732) 810 (3,968) (7,447) 35 69 109 Finance costs (964) (1,049) (1,587) Loss before taxation (119) (4,948) (8,925) Taxation (311) (92) 386 Loss from continuing operations (430) (5,039) (8,539) Other income Operating expenses Operating profit (loss) Investment revenue Discontinued operations Profit (loss) from discontinued operations Loss for the period 2 (65) (265) (428) (5,104) (8,804) 28 - 13 - - 1,253 (8) - (2) Other comprehensive income (loss): Exchange differences on translating foreign operations Financial assets at fair value through other comprehensive income reserve Taxation related to components of other comprehensive income Other comprehensive loss for the period net of taxation 20 - 1,264 (408) (5,104) (7,540) (430) (5,039) (8,539) 2 (65) (265) (428) (5,104) (8,804) (408) (5,104) (7,540) Basic and diluted loss per share (c) (0.27) (3.22) (5.56) Basic and diluted loss per share from continuing operations (c) (0.27) (3.18) (5.39) Basic and diluted loss per share from discontinued operations (c) - (0.04) (0.17) Total comprehensive loss for the period Attributable to: Owners of the parent: Loss for the period from continuing operations Loss for the period from discontinuing operations (3) Loss for the period attributable to owners of the parent Total comprehensive loss attributable to: Owners of the parent Loss per share From continuing and discontinued operations
  4. 4. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Condensed consolidated statement of changes in equity Share capital FCTR Accumulated FVA loss Total equity Figures in ZAR thousand Balance at 1 March 2012 43,641 33 - (35,432) 8,242 - - - (5,104) (5,104) Total comprehensive loss for the 6 months ended 31 August 2012 Transfer between reserves Balance at 31 August 2012 - (33) - (33) - 43,641 - - (40,503) 3,138 - 44 1,253 (3,733) (2,436) 43,641 44 1,253 (44,236) 702 - 20 - (428) (408) 43,641 64 1,253 (44,664) 294 Total comprehensive loss for the 6 months ended 28 February 2013 Balance at 1 March 2013 Total comprehensive for the 6 months ended 31 August 2013 Balance at 31 August 2013 FCTR – Foreign Currency Translation Reserve FVA - Fair value adjustments through other comprehensive income reserve Condensed consolidated statement of cash flows Aug 2013 Unaudited Aug 2012 Unaudited Feb 2013 Audited Figures in ZAR thousand Cash flows from operating activities 589 (3,712) (6,274) (1,408) 1,750 7,778 Cash flows from investing activities (232) 903 582 Cash flows from financing activities (449) (1,137) (3,100) Total cash movement for the period (1,501) (2,195) (1,014) Cash at the beginning of the period (3,277) (2,263) (2,263) Total cash at end of the period (4,778) (4,458) (3,277) Cash flows from discontinued operations
  5. 5. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Headline and diluted headline loss per share Headline and diluted headline loss per share (c) Aug 2013 Unaudited Aug 2012 Unaudited Feb 2013 Audited (0.38) (3.19) (5.42) (428) (5,104) (8,804) (243) - - Loss on disposal of property plant and equipment sell constituting discontinued operations - 12 9 Loss on disposal of investments in subsidiaries - 41 132 68 (2) (87) (603) (5,053) (8,577) Reconciliation between loss and headline loss R’000 Basic loss Adjusted for: Gain recognised on the measurement to fair value less cost to sell constituting discontinued operations Impairment of intangible assets Tax effect thereon 173 Headline loss per share and diluted headline loss per share are determined by dividing headline loss and diluted headline loss by the weighted average number of ordinary share outstanding during a period. The group followed SAICA Circular 3/2012 in calculating headline loss and diluted headline loss per share for the group and company. Headline loss and diluted headline loss are determined by adjusting basic earnings and diluted earnings by excluding separately identifiable re measurement items. Headline loss and diluted headline loss are presented after tax and non controlling interest. Diluted headline loss per share is equal to headline loss per share because there are no dilutive potential ordinary shares in issue. Headline loss per share was based on a headline loss of the group of R603,151 (2013: loss of R8,576,522) and a weighted average number of ordinary shares of 158,311,597 (2013: 158,311,597).
  6. 6. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Condensed Segmental Analysis Figures in ZAR thousand Aug 2013 Unaudited Aug 2012 Unaudited Restated R’000 R’000 Feb 2013 Audited R’000 Revenue Continuing operations Financial products Health & Wellness products General finance Corporate services & other 15,248 19,751 37,053 4,235 7,371 11,612 99 149 263 2,906 4,594 8,801 Inter segment eliminations (5,618) (7,454) (14,972) Revenue from external customers 16,870 24,411 42,757 7,319 4,989 7,158 (89) (526) (1,281) (160) EBITDA Continuing operations Financial products Health & Wellness products General finance (47) (31) (5,578) (6,960) 52 1,605 (2,528) 5,769 Intersegment eliminations 88 (167) (10,959) Interest received 35 69 109 Finance cost (965) (1,049) (1,587) Depreciation and amortisation (882) (1,273) (2,257) Loss before tax and before discontinued operations (119) (4,948) (8,926) Financial products 772 1,889 2,511 Health & Wellness products 555 1,783 823 General finance 420 828 710 6,564 6,693 7,412 Corporate services & other Reconciling items: Segment assets Corporate services & other Assets of disposal groups 15,329 28,434 14,928 23,640 39,627 26,384 Reconciling items: Unlisted investments 1,254 - 1,253 Deferred tax 4,410 5,643 4,818 Goodwill 1,318 1,318 1,318 30,622 46,588 33,774 Total as per statement of financial position Segment liabilities Financial products Health & Wellness products General finance Corporate services & other Liabilities of disposal groups 1,871 2,404 2,327 811 2,099 1,196 8 18 15 5,897 6,519 7,785 8,829 17,178 9,864 17,416 28,218 21,187 Reconciling items: Deferred tax Interest bearing liabilities Total as per statement of financial position 2,055 3,465 2,158 10,857 11,767 9,727 30,328 43,450 33,073
  7. 7. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS The group has identified 4 reportable segments which represent the structure used by the Exco to make key operating decisions and assess performance. The group’s reportable segments are operating segments which are differentiated by the activities that each undertakes products they manufacture and markets they operate in. These reportable segments from which each of them derives revenue are set out below: Reportable Segment Products and services Financial products Supply investment and insurance products to clients in South Africa. Health and wellness Supply of health and wellness products to consumers in South Africa, products Botswana and Kenya. General finance Supply of credit to clients of the Financial products segment as well as structured finance leases to clients in South Africa. Corporate and other Supply of credit, management and information technology support services to all other segments in the group. This segment also includes The StratCorp Share Incentive Trust. service Segmental revenue and results The Exco assesses the performance of the operating segments based on the measure of EBITDA. This measure excludes the effects of non-recurring expenditure from the operating segments such as restructure costs, legal expenses and goodwill impairments when the impairment is the result of an isolated, non-recurring event. The measure also excludes the effects of equity settled share based payments and unrealised gains/losses on financial instruments. Interest income and expenditure are not allocated to operating segments, as this type of activity is driven by the central treasury function. The results of discontinued operations are not included in the measure of EBITDA. This measure is consistent with all prior periods which are presented. Transactions within the group take place on an arm’s length basis. The segment information provided to the Exco is presented below. The information presented includes a reconciliation of the group’s EBITDA to net profit after tax before discontinued operations. 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. The Group currently operates in four segments, namely Financial Products through Virtus and WealthNet, Health and Wellness Products through I-Cura, and General Finance through StratFin, and Corporate services and other through StratCorp and The StratCorp Share Incentive Trust. It is public knowledge that some of the business units in the group have been experiencing ongoing losses over the past number of years. There are also some of the business units that remained profitable despite declining revenue as a result of a declining subscriber base. On a consolidated basis the group posted losses over a number of years. Various product changes and marketing initiatives were implemented over this period in order to increase revenues. The culmination of the decreased revenues in the profitable business units and loss making units making more losses, lead to the group started experiencing cash flow deficits during the 2013 financial year. A restructuring plan to cut costs, together with added initiatives to increase revenues was implemented in April 2012 in an effort to rectify this position. Although monthly costs were cut significantly since April 2012, the revenue kept on declining in all the subsidiaries and resulted in the deficit (although smaller) could not be cleared. The board introduced an aggressive cost cutting restructuring plan in February 2013 that entailed the closure of certain non-performing branches, employee retrenchments, salary cuts of directors, further reduction of general expenses and most significantly, the cancellation of the lease agreement of the group’s head office in Centurion.. The total cost saving after February 2014 taking into consideration the cost of the new (smaller) premises occupied since 1 September 2013) would be in excess of R200 000 per month. Although there is a cost involved in cancelling the agreement, the long term cost saving will be beneficial to the group. As a result of the various cost cutting initiatives, the group is collectively experiencing monthly positive cash flows since July 2013 and a consolidated group profit for the months of July and August 2013 were achieved.
  8. 8. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS Although the amounts referred to above are still small, we are satisfied that total costs are now under control and the Executive started focusing their attention to specifically analysing each business unit with the view to determine the specifics as to the different business units’ contribution to the group’s financial performance and drain on the available resources. Once this process is finalised (which is expected by the end of November 2013), specific strategies (taking into consideration the various industry and business risks of the different business units) will be formalised and submitted to the board for approval and implemented thereafter. STAKEHOLDERS Stakeholder management and meaningful interaction with the various stakeholders remain high on our priority list. Although it was difficult to keep all our stakeholders satisfied during this testing period over the past 18 months, we believe that the actions taken to save costs were necessary and correct under the circumstances. The effect of the specific actions as well as the implementation of the intended strategies should reflect in the results going forward that will hopefully in turn restore the trust in the management from our various stakeholders. We regard the interaction and feedback from and with the various Regulators extremely important to ensure existence and long term sustainability of the business units. Various discussions over the past year with the Regulators have lead to us changing applied marketing methodologies and product changes to ensure compliance. OTHER MATTERS The restructuring program took up a lot of the time of the executives and unfortunately the program also resulted in unplanned resignations of employees in key management and senior positions. The Executives had to take over a number of these operational functions due to the vacancies and a decision was taken not to replace these employees until such time that stability was restored. Now that there is reasonable certainty that the group is stable, selective replacements need to be made responsibly in the near future to ensure the proper functioning of the remaining businesses. PROSPECTS Taking into consideration the intense restructuring process and the subsequent results thereof (the group making operational profits since July 2013 and positive cash flows being experienced), the board is satisfied that a reasonable foundation has been established to launch initiatives in the current business models that are income generating driven that could ensure the long term sustainability of the group. The board is currently developing a revenue growth strategy for the forthcoming year. The most important factors for management to get right are to re-align the current products to attract a higher LSM group or to develop new products that appeal to a higher LSM group. Management might also adapt the marketing methods to ensure growth in client base efforts to attract those clients. The network marketing principle that have been applied by the group over the past 10 years is probably (in its current form) not the most prudent way to attract new clients. As a result of the cash flow restraints, it might lead to low or non- contributing units to close down or being sold. Cash resources will be applied where the maximum result can be achieved. 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 need to be defended successfully and the Regulator investigating the affairs of a major subsidiary must be satisfied. It is management’s intentions to resolve both these issues amicably and to benefit of all stakeholders. FINANCIAL RESULTS Although revenue declined compared to the previous period, the comprehensive loss decreased from R5,104 million(August 2012) to a loss of R408 000 (August 2013). This is mainly as a result of the decrease of more than 43% in operating expenses from R22,129 million (August 2012) to R12,626 million (August 2013). As also mentioned, group profits were experienced for the months of July and August 2013. The group is also in the process of reducing its interest bearing liabilities that is funded from operational cash flow and a recent issue of shares for cash.
  9. 9. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS GOING CONCERN The condensed consolidated interim financial results have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The directors constantly review the business models of the group and its operating subsidiaries to ensure sustainability and the ability to operate profitably and generate positive cash flows. Funding facilities are also reviewed regularly to ensure that the group has sufficient facilities in place to finance its operations. The Group incurred a net loss of R 0.4 million for the six months ended 31 August 2013, and the current liabilities of the Group exceed its current assets at 31 August 2013. The disposal of the Soldonné Residential complex and the restructuring plan that was implemented to reduce costs and the issue for cash on 23 October 2013, enables the Group to continue operating as a going concern. The continued going concern of the Group is subject to the successful implementation of the growth strategies of the Group and access to sufficient cash resources to enable the Group to implement the growth strategy. BASIS OF PRESENTATION Statement of compliance The interim condensed group financial results comprise a condensed group statement of financial position at 31 August 2013, a condensed group statement of comprehensive income, a condensed group statement of changes in equity and a condensed group statement of cash flow for the 6 months ended 31 August 2013. The interim condensed group financial results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”),SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council , the presentation and disclosure requirements of 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 interim financial results have been prepared on the historical cost basis, except in the case of financial instruments which are measured using fair value and amortised cost models and non‑current assets held for sale and assets of disposal groups that are measured in terms of IFRS 5. RECLASSIFICATION OF COMPARATIVE FIGURES The comparative information for the condensed Segmental Analysis for the 6 months ended 31 August 2012 was reclassified as a result in the change in the manner in which segmental information is reported to the EXCO. PROPERTY, PLANT AND EQUIPMENT In order to maintain operating capacity, R232 000 was invested in computer equipment and information systems. ASSETS AND LIABILITIES OF DISPOSAL GROUPS AND DISCONTINUED OPERATIONS During the interim period the group reduced its total liabilities by R2.7 million mostly from cash received from assets of disposal groups in the previous 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 R6 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. Post 31 August 2013, 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. This reduction in facilities is financed from operational cash flow.
  10. 10. STRATCORP LIMITED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS DIVIDENDS No dividends were declared or paid to shareholders during the year. POST REPORTING PERIOD 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. LITIGATION As reported in the SENS announcement on several occasions and recently on 06 November 2013, 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. Should the plaintiff succeed, it may have a material effect on the price of StratCorp’s securities and going concern in future. Shareholders will be updated as and when there are further developments. 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. On behalf of the board. D B Harington Chief Executive Officer JN de Beer Group Financial Director 29 November 2013 CORPORATE INFORMATION Non-executive directors: PJ de Jongh (Chairman), M Patel* (Chairman of Audit Committee) *Independent Executive directors: DB Harington (CEO), JN de Beer (GFD) Registered address: 3rd Floor, Lakeside Building B, Heuwel Avenue, Centurion, 0157 Postal address: PO Box 12022, Centurion, 0046 Company secretary: NW Moffatt Telephone: 087 151 0025 Facsimile: 087 807 5061 Transfer secretaries: Computershare Investor Services (Pty) Limited Auditors: Nexia SAB&T Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd

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