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STA
STA
STA - StratCorp Limited - Audited abridged financial results for the year ended
28 February 2011
StratCorp Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2000/031842/06)
JSE code: STA ISIN ZAE000034294
("StratCorp" or "the company")
AUDITED ABRIDGED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2011
Consolidated Statement of Financial Position
Audited Audited
2011 2010
R`000 R`000
Non-current assets
Investment property 395 877
Property, plant and equipment 5 687 6 121
Goodwill 1 318 1 318
Intangible assets 3 106 1 938
Finance lease receivables 485 478
Investment in associate 1 794 977
Other financial assets 46 5 824
Deferred tax 11 588 9 103
24 419 26 636
Current assets
Inventories 37 526 36 749
Loans to group companies - 163
Other financial assets 1033 1 243
Finance lease receivables 406 283
Trade and other receivables 6 565 4 420
Cash and cash equivalents 362 196
45 892 43 054
Assets of disposal groups 24 -
Total assets 70 335 69 690
Equity and liabilities
Equity
Share capital 43 641 43 641
Reserves (11) -
(Accumulated loss) (12 012) (5 340)
31 618 38 301
Non-current liabilities
Other financial liabilities - interest 10 633 -
bearing
Finance Lease obligations 587 828
Deferred tax 2 392 844
13 612 1 672
Current liabilities
Other financial liabilities - interest 329 12 648
bearing
Current tax payable 23 458
Finance lease obligations 494 1 307
Operating lease liability 450 825
Trade and other payables 14 680 8 849
Bank overdraft 9 054 5 630
25 030 29 717
Liabilities of disposal groups 76 -
Total liabilities 38 717 31 389
Total equity and liabilities 70 335 69 690
Number of ordinary shares in issue 158 312 158 312
(`000) (note1)
Net asset value per share (cents) 20.0 24.2
Net tangible asset value per share 17.2 22.1
(cents)
Consolidated Statement of Comprehensive Income
Audited Audited
2011 2010
R`000 R`000
Revenue 81 271 60 821
Cost of sales (31 516) (37 318)
Gross profit 49 755 23 503
Other income 924 360
Operating expenses (50 402) (35 667)
Impairment of loans receivable 378 (501)
Operating profit/(loss) 654 (12 305)
Fair value adjustments (4) 551
Income from equity accounted investments 817 727
Investment revenue 301 479
Finance cost (3 168) (690)
Loss before taxation (1 400) (11 238)
Taxation 148 3 494
Loss from continuing operations (1 252) (7 744)
Loss from discontinued operations (236) -
Loss for the year (1 488) (7 744)
Other comprehensive income:
Exchange differences on translating (15) -
foreign operations
Net loss on financial assets at fair (6 027) -
value through other comprehensive income
Tax related components on other 848 -
comprehensive income
(5 194) -
Total comprehensive loss (6 682) (7 744)
Total comprehensive loss attributable
to:
Owners of the parent (6 682) (7 744)
Non-controlling interest - -
(6 682) (7 744)
158 312 158 312
Number of ordinary shares in issue
(`000)(note 1)
Weighted average number of ordinary 158 312 158 314
shares in issue (`000)(note 2)
Basic loss per share (cents) (0.94) (4.89)
Headline loss per share (cents) (0.94) (5.03)
Reconciliation of headline loss net of
tax
Basic loss (1 488) (7 744)
Impairment or profit/loss on disposal of 41 3
property, plant and equipment
Fair value adjustment on investment (38) (221)
properties
Headline loss (1 485) (7 962)
Notes
180 296 330 ordinary shares less 21 984 733 treasury shares (2010: 180 296 330
ordinary shares less 21 984 733 treasury shares).
180 296 330 weighted average number of ordinary shares less 21 984 733 weighted
average number of treasury shares (2010: 180 296 330 weighted average number of
ordinary shares less 21 982 373 weighted average number of treasury shares)
Consolidated Statement of Changes in Equity
Share Retained
Capital Earnings /
(Accumulated
loss)
R`000 R`000
Balance at 1 March 2009 43 642 2 404
Purchase of treasury shares (1) -
Net loss for the year - (7 744)
Balance at 1 March 2010 43 641 (5 340)
Total comprehensive income for the year - (1 488)
Fair value adjustments transferred to
accumulated loss - (5 184)
Balance at end of period 43 641 (12 012)
Foreign Financial Total
currency assets fair
translation value
reserve adjustments
reserve
R`000 R`000 R`000
Balance at 1 March 2009 - - 46 046
Purchase of treasury shares - - (1)
Net loss for the year - - (7 744)
Balance at 1 March 2010 - - 38 301
Total comprehensive income for the (10) (5 184) (6 682)
year
Fair value adjustments transferred - 5 184 -
to accumulated loss
Balance at end of period (10) - 31 618
Consolidated Statement of Cash Flow
Audited Audited
2011 2010
R`000 R`000
Cash flows from operating activities
Cash received from customers 79 135 60 103
Cash paid to suppliers and employees (74 271) (60 234)
Cash generated from (used in) operations 4 864 (131)
Net interest income (2 911) (54)
Tax (paid)/received (460) 4 265
Cash flows from discontinued operations (114) -
Net cash flows from operating activities 1 379 4 080
Cash flows from investing activities
Purchase of property, plant and equipment (1 347) (1 746)
Sale of property, plant and equipment 294 99
Purchase of investment properties - (58)
Sale of investment properties 438 -
Purchase of intangible assets (1 692) (985)
Loan repaid by/(advanced) to associate 163 (163)
Purchase of financial assets - (517)
Sales of financial assets 335 185
Net cash from investing activities (1 809) (3 185)
Cash flows from financing activities
Proceeds on share issue (buy back) - (1)
Repayment of financial liabilities (1 686) (7 721)
Finance lease payments (1 210) (552)
Net investment in finance lease assets 68 (237)
Net cash from financing activities (2 828) (8 513)
Net increase (decrease) in cash and cash (3 258) (7 618)
equivalents
Cash and cash equivalents at beginning of (5 433) 2 185
the year
Cash and cash equivalents at end of the year (8 691) (5 433)
Condensed Segmental Analysis
Audited Audited
2011 2010
R`000 R`000
Revenue
StratEquity and ICI 43 334 41 359
I-Cura 33 312 10 303
StratFin 76 22
Property development 4 665 9 124
Other 433 375
81 820 61 183
Inter segment eliminations (549) (362)
Continuing operations 81 271 60 821
Discontinued operations 1 092 -
82 363 60 821
Profit / (loss) after tax
StratEquity and ICI 3 911 (5 423)
I-Cura (1 147) (799)
StratFin (799) (433)
Property development (1 239) (6 456)
Corporate (8 542) 3 581
Other 405 (2)
Inter segment eliminations 6 157 1 788
Continuing operations (1 252) (7 744)
Discontinued operations (236) -
(1 488) (7 744)
Segment assets
StratEquity and ICI 3 701 5 488
I-Cura 6 015 1 442
StratFin 1 888 1 576
Property development 41 084 41 235
Corporate 17 646 19 806
Other 1 143
70 335 69 690
Segment liabilities
StratEquity and ICI 4 810 2 635
I-Cura 3 529 1 039
StratFin 90 107
Property development 21 399 19 142
Corporate 8 889 8 466
Other - -
38 717 31 389
OVERVIEW
During the year under review, trading conditions remained difficult. The
operational profit before impairments, fair value adjustments and taxation ("net
operating profit") of R 0.5 million generated during the first 6 months
increased to reflect a total net operating profit of R 0.7 million for the full
year, effectively resulting in a net operating profit of R 0.2 million for the
latter half of the financial year.
Revenue increased from R60.8 million in 2010 to R81.3 million in 2011, mainly
due to the performance of the I-Cura division which increased revenue by 223%
from R10.3 million in 2010 to R33.3 million in 2011. The net loss after tax
decreased from R7.7 million in 2010 to R1.5 million in 2011.
BUSINESS OVERVIEW
StratCorp is an investment holding company, and through its subsidiaries,
operates in market segments with high growth potential, especially in previously
underserved areas.
The Company through its wholly owned subsidiaries, currently operates in four
segments, namely Product Marketing and Distribution through ICI and I-Cura,
Asset (Investment) Management through StratEquity, General Finance through
StratFin and Property investments through StratCorp Property Holdings and its
subsidiaries.
StratCorp was established in 2000 with its main focus then (through its
StratEquity subsidiary) to provide expansion capital to developing companies and
private equity through StratEquity`s client base. Capital was raised from the
client base who invested directly in these opportunities and StratCorp also took
equity positions in some of these projects.
StratCorp furthermore invested in property development during 2006 in the form
of the acquisition of Citadin Holdings Limited (whose name was subsequently
changed to StratCorp Property Holdings Limited), at a time when the market was
still buoyant. During 2008, the Company ceased all property developments because
of the declining market which resulted from the global economic downturn, and no
new property developments have been undertaken since then. StratCorp still has
an investment in property assets, but these have been earmarked for disposal as
soon as the market will allow for the profitable disposal thereof.
In 2007 the directors revisited the business models of StratCorp and its
subsidiaries and decided to focus on its core business, being that of providing
a distribution channel through a network of independent contractors to promote
financial and consumer products, as well as providing these contractors the
opportunity to establish and grow their own businesses with the support of these
companies. The client network contributes a monthly subscription for a pre-
selected product by way of debit order. The collected subscription is allocated
between the products, life benefits, income sharing with the independent
contractors and administration costs of the business.
The product range offered to the network was expanded in 2008 with the
introduction of the I-Cura range of health and lifestyle products.
StratEquity and ICI Marketing
StratEquity, as part of the focused approach decided on in 2007, changed its
business model in April 2008 to no longer provide expansion capital to
developing companies, but to manage investments on behalf of its clients.
StratEquity is registered with the Financial Services Board as a Financial
Services Provider in terms of the Financial Advisory and Intermediary Services
Act.
The investment portion of the monthly subscription received from the client
network is invested in (buying shares in) StratEquity Empowerment Investments 1
Limited and StratEquity Empowerment Investments 2 Limited, (two independent
companies with their own Boards of Directors and Investment Committees). These
two companies in turn invest in well established, JSE listed top 40 companies,
high growth listed companies, Exchange Traded Funds, Money Market Investments
and registered Collective Investment Schemes. Over the last 12 months, these
companies earned returns of 14.7% and 8.2% respectively for its investors.
StratEquity has Management Agreements with these two independent companies and
provide a range of administrative and investment services to them.
Through its ICI Marketing division, administration and infrastructural support
is provided to its network of independent contractors. This includes:
- the promotion of the business opportunity and benefits to its network of
independent contractors;
- marketing and training material to assist the contractors to grow their
respective businesses; and
- administration and infrastructure support, assisting contractors with the
collection of monthly subscriptions, payment of earnings etc, allowing the
contractors to focus on their business.
ICI Marketing offers its member base the opportunity to own and grow their own
businesses through the introduction of new members to the network, but at the
same time also enjoy the financial benefits through the investment portion and
membership benefits from the benefit portions of the monthly subscription. The
target market for this business has predominantly been the LSM 4-7 group of
income earners, with subscribers mainly from the previously underserved
population groups. StratEquity currently operates in South Africa and Swaziland.
The key drivers for StratEquity is to maintain and grow its client base, while
at the same time offering value and services to the clients and network members
by way of inter alia, the introduction of new products to the network, as well
as managing its expenses tightly. StratEquity revised its product offering with
effect from 1 May 2011 to provide clients with enhanced benefits, including
inter alia, death, disability, retrenchment and hospital and other benefits
through registered life benefit providers, in addition to the traditional
investment portion.
Revenue of the StratEquity group increased from R41.4 million for the 2010 year
to R43.3 million in 2011 and from a loss after tax of R5.4 million for 2010 to a
profit after tax of R3.9 million in 2011.
I-Cura
I-Cura operates on a similar basis as StratEquity, but provides its clients with
health and lifestyle products. In addition, I-Cura opted to establish its
footprint through a franchise type model on top of the network model, through
the appointment of Master Distributors. The company currently has 93
distribution points.
This business grew by 223% in the past financial year as it established itself
within its target market, which is similar to that of StratEquity. I-Cura
currently operates in South Africa, Botswana and Kenya.
The key drivers for I-Cura is to maintain and grow its subscription client and
network base, while at the same time offering excellent products at affordable
prices, value and services to the network members by way of inter alia, the
introduction of new products to the network, as well as managing its expenses
tightly.
I-Cura`s value proposition is unique and exciting. The technology developed and
used by the Company together with the franchise style model creates the
potential to operate globally.
Revenue of the I-Cura group increased from R10.3 million for the 2010 year to
R33.3 million in 2011, but the loss after tax increased from R0.8 million for
2010 to R1.1 million in 2011, mainly as a result of increased expenditure
incurred by the Group to grow this business and to expand further into Africa.
The major contributor to this loss for 2011 was the Kenyan operations which
recorded a loss of R1.1 million after tax.
StratFin
StratFin provides asset backed finance of between R2 000 and R25 000 to clients,
but higher amounts are considered from time to time. The focus of this business
is on the quality of the lending book and a solid credit record before loans are
advanced. The company constantly looks for new opportunities in the market to
provide focused finance solutions to the consumer and business market in
partnership with selected product providers.
The total loan book of this subsidiary increased from R1.6 million in 2010 to
R1.7 million in 2011. Total revenue (services rendered and interest income)
increased from R0.2 million for 2010 to R0.4 million for 2011, but the loss
after tax increased from R0.4 million in 2010 to R0.8 million for 2011. No
provisions were required for bad debts for the year under review.
Property Development
The StratCorp property group was involved in residential property development
and sales in the middle market segment (R300 000 to R500 000 price range),
mainly in the Pretoria region. As part of its operations the Company acquired
land and completed a number of developments. A decision was made in 2008 by the
Board not to continue with any further property development projects and to sell
off the land and residential units it owns. The residential units owned by this
subsidiary have all been rented out to tenants, covering its costs until such
time as they have been sold.
A dedicated sales team has been appointed to actively market the residential
units, and the land is being offered to a number of developers. The objective is
to sell off all the properties and land by end February 2012, settle all related
debt and close this division.
Revenue from this subsidiary, which consists of rental income on the residential
units and proceeds on the disposal of residential units, decreased from R9.1
million in 2010 to R4.7 million in 2011, mainly as a result of the decrease in
the number of residential units sold. The loss after tax decreased from R6.5
million in 2010 to R1.2 million in 2011.
Although it is management`s intention to sell all property related assets the
Company still owns, this will only be done if it is profitable to the Group.
CASH FLOWS
The group`s cash flow was still tightly managed in the period under review.
Despite this, the Company spent money in support of immediate turnover wherever
necessary as well as on identified future growth initiatives. Cash generated
from operations increased from (R0.1 million) in 2010 to R4.9 million in 2011.
This was mainly due to increased focus on cash flow. Infrastructural expenses
(property, plant and equipment) decreased from R1.7 million to R1.3 million as a
result of the prior year`s spending to establish an infrastructure to cope with
future growth. Although a net cash outflow of R3.3 million was recorded for the
period, it is anticipated that a substantial portion of the cash with regards to
the property operations will flow back to the Company in future.
Total borrowings at year end were R12.0 million (2010: R14.8 million).
HUMAN RESOURCES
The company managed to fill a number of key positions in the past year and the
current human resource infrastructure is adequate to ensure sustained operation
and allow for future growth. The process is ongoing to find suitable candidates
for some vacant key and other positions.
CHANGES TO THE BOARD
HJ van der Merwe resigned as Financial Director of the group on 28 February
2011, and JHP Engelbrecht was appointed as Financial Director on 14 March 2011.
PROSPECTS
General market conditions are expected to remain sluggish for at least the first
half of the new financial year. However, a number of exciting product changes
and changes in the business offerings to the independent contractors in two of
the subsidiaries should result in a turnaround from the losses incurred in the
past three years. In terms of the Listings Requirements of the JSE Limited, this
statement constitutes a profit forecast and the Company accordingly advises that
this statement has not been reviewed or reported on by the Company`s auditors.
Strategy
The Board has decided to concentrate most of its expansion and management
efforts in the next financial year towards ensuring that the two main operating
subsidiaries, StratEquity and I-Cura, become long term sustainable and
profitable business units.
The property division`s activities will be concentrated on the disposal of its
assets, whereafter all property related business operations will cease.
There are long term plans to expand the business of the General Finance
(StratFin) subsidiary, but with most of the focus being concentrated on
StratEquity and I-Cura this year, limited expansion efforts will be given to
StratFin.
SUBSEQUENT EVENTS
Subsequent to year end the company secured a loan of R2 500 000 from Kose-Kose
Investments. The loan bears interest at 15% per annum payable monthly in
arrears. The loan is repayable in 10 monthly instalments of R250 000 from 31
March 2011, of which the first two instalments have already been paid. Apart
from these events, the directors are not aware of any matter or circumstance
arising since the end of the financial year that could have a material effect on
the group`s consolidated annual financial statements.
BASIS OF PREPARATION
Statement of compliance
The audited abridged financial results comprise a consolidated statement of
financial position at 28 February 2011, a consolidated statement of
comprehensive income, consolidated statement of changes in equity and summarised
consolidated statement of cash flow for the year ended 28 February 2011. The
audited abridged financial results have been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards ("IFRS"), the AC500 standards as
issued by the Accounting Practices Board, the presentation and disclosure
requirements of IAS34 - Interim Financial reporting, the JSE Listings
Requirements and the South African Companies Act 61 of 1973.
The accounting policies applied for the year are consistent with those of the
prior year, except for the early adoption of IFRS 9 with regard to the
classification and measurement of financial assets. The Annual Financial
Statements of the company and group provides further detail of the financial
effects of the above early adoption on the financial results of the company and
group.
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.
AUDIT OPINION
The Annual Financial Statements of the company and group have been audited by
SAB&T Chartered Accountants Inc. The Annual Financial Statements and the
auditors` unqualified audit report in respect thereof are available for
inspection at the company`s registered office.
RECLASSIFICATION OF COMPARATIVE FIGURES
The comparative figures for other financial assets have been reclassified
between current and non-current assets as a result of the early adoption of IFRS
9. The effect of this reclassification on the Statement of Financial Position
as at 28 February 2010 can be summarised as follows:
- Other financial assets - non-current (previous) 155
- Other financial assets - non-current (reclass) 5 824
- Other financial assets - current (previous) 6 912
- Other financial assets - current (reclass) 1 243
Deferred tax assets and liabilities are no longer netted of in the Statement of
Financial Position as deferred tax assets and liabilities does not relate to the
same entities in the group nor does it relate to the same asset and liabilitiy
giving rise to the deferred tax balance. The effect of this reclassification on
the Statement of Financial Position as at 28 February 2010 can be summarised as
follows:
- Deferred tax assets (previous) 8 259
- Deferred tax assets (reclass) 9 103
- Deferred tax liability(previous) -
- Deferred tax liability (reclass) (844)
DIVIDENDS
No dividends have been declared.
STATEMENT ON GOING CONCERN
The Annual Financial Statements of the company and group 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 directors have satisfied themselves that the company and group is in a sound
financial position and that it has access to sufficient borrowing facilities to
meet its foreseeable cash requirements.
ANNUAL REPORT AND ANNUAL GENERAL MEETING
The Annual Report for the year ended 28 February 2011 will be posted to
shareholders on or about 7 June 2011.
Notice is hereby given that the Annual General Meeting of shareholders will be
held at 3rd Floor, Lakeside Building, 2004 Gordon Hood Drive, Centurion at 10:00
on Friday, 8 July 2011, to transact the business as stated in the notice of
annual general meeting forming part of the Annual Report.
On behalf of the board.
D B Harington
Chief Executive Officer
27 May 2011
CORPORATE INFORMATION
Non executive directors: PJ de Jongh (Chairman), M Patel* (Chairman of
Audit Committee), SR Firer*
*Independent
Executive directors: DB Harington (CEO), JHP Engelbrecht (GFD), IM
Wright (CIO)
Registered address: 3rd Floor, Lakeside Building A, 2004 Gordon Hood
Drive, Centurion, 0046
Postal address: PO Box 12022, Centurion, 0046
Company secretary: JPJ Louw
Telephone: (012) 643 7400
Facsimile: (012) 663 2914
Transfer secretaries: Computershare Investor Services (Pty) Limited
Auditors: SAB&T Chartered Accountants Inc
Adviser: Vunani Corporate Finance
Date: 27/05/2011 12:35:01 Produced by the JSE SENS Department.
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