| Wed 30 May 2012, 17:45 | | STA - StratCorp Limited - Reviewed condensed provisional financial results |
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STA
STA
STA - StratCorp Limited - Reviewed condensed provisional financial results
for the year ended 29 February 2012
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 29
FEBRUARY 2012
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
Figures in R`000 2012 2011
Assets
NonCurrent Assets
Property, plant and equipment 5,528 5,341
Goodwill 1,318 1,318
Intangible assets 3,425 3,106
Investments in associates - 1,794
Other financial assets 57 46
Deferred tax 11,479 11,826
Finance lease receivables 241 485
22,048 23,916
Current Assets
Inventories 2,235 986
Other financial assets 1,375 1,033
Finance lease receivables 311 406
Trade and other receivables 1,510 5,550
Cash and cash equivalents 1,062 173
6,493 8,148
Non-current assets held for sale 30,539 39,310
and assets of disposal groups
Total Assets 59,080 71,374
Equity and Liabilities
Equity
Share capital 43,641 43,641
Reserves 33 (11)
Accumulated loss (27,806) (12,011)
15,868 31,619
Liabilities
Non-Current Liabilities
Other financial liabilities 8,793 8,883
Finance lease obligation 1,121 587
Deferred tax 3,655 3,434
13,569 12,904
Current Liabilities
Other financial liabilities 1,348 329
Finance lease obligation 593 494
Operating lease liability 756 415
Trade and other payables 7,663 8,817
Bank overdraft 3,325 5,078
13,685 15,133
Liabilities of disposal groups 15,958 11,718
Total Liabilities 43,212 39,755
Total Equity and Liabilities 59,080 71,374
CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME
Figures in R`000 2012 2011
Continuing operations
Revenue 55,252 72,457
Cost of sales (13,985) (27,446)
Gross profit 41,267 45,011
Other income 635 891
Operating expenses (49,051) (44,646)
Profit on sale of associate 2,391 -
Operating (loss) profit (4,758) 1,256
Investment revenue 213 14
Fair value adjustments - (4)
Income from equity accounted investments 1,148 817
Finance costs (1,890) (2,084)
Loss before taxation (5,287) (1)
Taxation (1,092) (539)
Loss from continuing operations (6,379) (540)
Discontinued operations
Loss from discontinued operations (9,213) (948)
Loss for the year (15,592) (1,488)
Other comprehensive loss:
Exchange differences on translating 62 (15)
foreign operations
Financial assets at fair value through - (6,027)
other comprehensive income adjustments
Taxation related to components of other (221) 848
comprehensive income
Other comprehensive loss for the year (159) (5,194)
net of taxation
Total comprehensive loss (15,751) (6,682)
Attributable to:
Owners of the parent:
Loss for the year from continuing (6,379) (540)
operations
Loss for the year from discontinuing (9,213) (948)
operations
Loss for the year attributable to owners (15,592) (1,488)
of the parent
Total comprehensive loss attributable
to:
Owners of the parent (15,751) (6,682)
Loss per share
From continuing and discontinued
operations
Basic and diluted loss per share (c) (9.85) (0.94)
Basic and diluted loss per share from (4.03) (0.34)
continuing operations (c)
Basic and diluted loss per share from (5.82) (0.60)
discontinued operations (c)
CONSOLIDATED GROUP STATEMENT OF CHANGES IN EQUITY
Figures in R`000 Share FCTR FVA Total Accumulate Total
capital reserves d loss equity
Balance at 01 43,641 - - - (5,340) 38,301
March 2010
Changes in equity
Total - (11) (5,183) (5,194) (1,488) (6,682)
comprehensive
income for the
year
Transfer between - - 5,183 5,183 (5,183) -
reserves
Total changes - (11) - (11) (6,671) (6,682)
Balance at 01 43,641 (11) - (11) (12,011) 31,619
March 2011
Changes in equity
Total - 44 (203) (159) (15,592) (15,751)
comprehensive
income for the
year
Transfer between - - 203 203 (203) -
reserves
Total changes - 44 - 44 (15,795) (15,751)
Balance at 29 43,641 33 - 33 (27,806) 15,868
February 2012
FCTR - Foreign Currency Translation Reserve
FVA - Fair value adjustments through other comprehensive income reserve
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
Figures in R`000 2012 2011
Cash flows from operating activities
Cash used in operations (2,792) 7,355
Interest income 213 14
Tax paid (95) -
Cash flows of discontinued operations (928) (213)
Net cash from operating activities (3,602) 7,156
Cash flows from investing activities
Purchase of property, plant and equipment (756) (1,092)
To maintain operating capacity
Sale of property, plant and equipment 224 287
Purchase of other intangible assets To (1,045) (1,692)
maintain operating capacity
Sale of equity accounted business 5,333 -
Loans to associates repaid - 163
Purchase of financial assets (1,152) -
Sale of financial assets 737 220
Net cash from investing activities 3,341 (2,114)
Cash flows from financing activities
Proceeds from other financial liabilities 5,152 -
Repayment of other financial liabilities - (1,687)
Finance lease liability payments (466) (1,466)
Finance costs (1,783) (1,929)
Net cash from financing activities 2,903 (5,082)
Total cash movement for the year 2,642 (40)
Cash at the beginning of the year (4,905) (4,865)
Total cash at end of the year (2,263) (4,905)
HEADLINE AND DILUTED HEADLINE LOSS PER SHARE
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 3/2009 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
remeasurement 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
R17,624,865 (2011: R1,566,957) and a weighted average number of ordinary
shares of 158,311,597 (2011: 158,311,597).
Headline and diluted headline loss (11.13) (0.99)
per share (c)
Reconciliation between loss and
headline loss R`000
Basic loss (15,592) (1,488)
Adjusted for:
Profit on disposal of investment in (2,390) -
associate
Loss (profit) on disposal of 14 (44)
investment properties
Loss/(Profit) on disposal of 15 (48)
property plant and equipment
Loss on disposal of investments in (3) -
subsidiaries
Tax effect thereon 331 13
(17,625) (1,567)
BUSINESS OVERVIEW
StratCorp is an investment holding company that own and invest 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 11 years. This client base that
comprises of more than 130 000 individuals enable the subsidiaries to package
and market their products and services to a captive audience.
The Group currently operates in three segments, namely Financial Products
through Virtus and WealthNet, Health and Wellness Products through ICura, and
General Finance through StratFin. The Board has taken a decision to
discontinue its Property Development operations through StratCorp Property
Holdings Limited ("StratProp"), and accordingly it is reflected as part of
the discontinued operations of the Group in the Financial Statements.
The past year was probably one of the most difficult years from an
operational and cash management point of view. Although the year started off
with two excellent months in March and April 2011 in the Financial Products
and Health and Wellness Divisions, there was a visible negative turnaround
from May 2011 onwards.
In retrospect, the following points probably collectively contributed to the
poor performance.
- In February 2011, the Financial Products and Health and Wellness
divisions experienced significant increases in sales. It was already
decided during the 2011 financial year that when market conditions
change, the various product compilations will be changed to give the
clients certain value-added benefits. This resulted in an increase in
the monthly subscriptions. Due to further above-expected months in March
and April 2011, these "new" products were launched in April 2011 with an
effective implementation date for existing clients in May 2011;
- During the same period we believe non-core inflationary pressures, such
as fuel and electricity price increases, negatively impacted on the
disposable income of consumers. Together with the company`s own
increases, it resulted in increased cancellations from clients;
- The Group further had to ensure that its various businesses comply with
the new Consumer Protection Act ("CPA") and that the Financial Products
Division continues to comply with the Financial Advisors and
Intermediary Services Act ("FAIS"). The services of one of the leading
firms of attorneys were obtained to assist with the interpretation of
the CPA and ensure that all agreements and marketing material comply
with the relevant acts. It also provided an opportunity for them to
analyse the Group`s various business models in the Financial Products
Division with relation to compliance with FAIS. Where it was initially
planned to finalise this process within 6 weeks, this process
unfortunately took more than five months to complete, in which period
all marketing and sales initiatives in the Financial Products Division
came to a near standstill. The legal costs far exceeded budget and we
could also not counter normal and increased client cancellations with
adequate sales as a result of this important process;
- The group also established wholly owned operational infrastructures in
both Botswana and Kenya for I-Cura during 2010 with a combined cost in
excess of R250 000 per month. These operations never performed
satisfactorily, irrespective of management`s best efforts and
initiatives. Continued losses were incurred and we had to support the
cash flow requirements of these operations from local cash flows. These
operations contributed a loss of R2.3 million for the 2012 financial
year;
- Virtus closed its operations in Swaziland in September 2011 because it
was not profitable to remain in that country. The net loss from the
Swaziland operations amounted to R0.6 million; and
- The Property assets were further impaired by an amount of R5.5 million
following the decision by the Board to discontinue these operations and
sell the underlying assets in the 2013 financial year.
As a result of the above, Revenue from continuing operations decreased from
R72.3 million in 2011 to R55.2 million in 2012. The net loss after tax from
continuing operations increased from R0.5 million in 2011 to R6.4 million in
2012. The total loss from discontinued operations for the year amounted to
R9.2 million.
CASH FLOWS
Although a net cash inflow of R2.7 million was recorded for the period, the
cash flow had to be managed extremely tightly. Cash generated from operations
decreased from R7.3 million in 2011 to (R2.8 million) in 2012. One of the
major contributors was the losses incurred by the foreign operations which
placed a considerable strain on the Group`s cash flows. Infrastructural
expenses (property, plant and equipment) increased from R1.3 million to R1.8
million, mainly due to an investment in Information Technology infrastructure
to replace old equipment.
RESTRUCTURING
The Directors of the Company have commenced with a restructuring plan to
reduce the operating costs of the Group, reduce its lending facilities and to
increase efficiencies within the Group. The action plan includes the
following:
- Reduction of personnel, especially at administrative and senior
management level, and re-aligning its focus towards the appointment of
income generating personnel. This process was initiated in May 2012 and
should result in an annual cost saving of around R3.6 million;
- Directors` remuneration has been cut by 10% with effect from May 2012;
Review of all costs incurred by the Group to reduce unnecessary and
wasteful expenditure;
- Revisiting the business models of each company within the Group to re-
align and improve efficiencies where possible, or to restructure or
close those businesses that are not contributing to Group results, as
has been done with the Kenya, Botswana and Swaziland businesses;
- Re-evaluating its office space requirements and discussions with the
landlords to reduce the rental space, where applicable. In this regard,
the Group has renegotiated and reduced the rental contracts and space of
most of its branches where the lease agreements were up for renewal
during the year, and is in the process of doing the same for rental
agreements that are up for renewal in the 2013 financial year. The net
annual saving from the renegotiated rentals to date is around R1.0
million, with further savings to be extracted from the remaining leases;
and
- The disposal of the Property Development Division`s assets, which once
finalised, should result in a reduction of the Group`s total interest
bearing debt, and an annual net saving in interest of around R2.5
million;
STRATEGY
General market conditions are expected to improve during the next financial
year, although it is expected to remain sluggish for at least the first
Quarter.
Further to the restructuring program as discussed above, the Board will
concentrate most of its management efforts in the next financial year towards
ensuring that the three main operating subsidiaries, Virtus, WealthNet and I-
Cura become profitable again and are established as long term sustainable
business units.
The Group has changed the product offerings and marketing channels in the
various divisions to give existing and new clients a wider choice of product
types according to their needs, lifestyle and affordability. This process
that was initiated in September 2011 and launched in February 2012, are
starting to show positive results as the clients accepts and subscribe to the
various product offerings. The timeframe from the initial contact with the
client to the first subscription received from the client has been extended
as a result of the requirements of the CPA and FAIS to ensure that clients
are properly informed and aware of the terms of the products and services
offerings they subscribe for.
The products offered by Virtus are exciting, fresh, and affordable for a wide
LSM group and in many instances unique. By offering these products through
its own distribution channels, it will not only add additional revenue
streams, but will mitigate the risk with relation to the reliance of one
channel (Network Marketing from WealthNet).
The WealthNet channel has historically proven to be highly profitable and has
over the years contributed significantly towards revenues. The product and
business offerings implemented on 1 March 2012 are as exciting, if not more
than in the past. The expansion of the Telemarketing team will have a
predictable outcome with relation to re-activation of inactive clients,
additional product sales to existing clients and product sales to new
prospects supplied by the network for their benefit as well.
The business model of StratFin will also be revised to raise further funding
for this company to expand its business and become a sustainable, growing
business that contributes to the overall growth and profitability of the
Group.
As consumer affordability seemed to be a major contributor towards the poor
performance of I-Cura, the product compilations and pricing structures were
reviewed and changes implemented. Other distribution channels were also
implemented to ensure a wider footprint and acceptable service levels to
clients.
GOING CONCERN
The provisional consolidated financial statements 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 15,5 million for the year ended 29
February 2012, and the current liabilities of the Group exceed its current
assets by R 7,2 million as at 29 February 2012. The losses incurred by the
Group over the last financial year, and in the first three months of the
current financial year have placed the cash flows of the Group under a
considerable pressure, which threatens the going concern of the group. A
restructuring plan has been approved by the Board to reduce costs, realise
non-core assets and reduce debt to enable the Group to continue operating as
a going concern. The continued going concern of the Group is subject to the
successful implementation of the restructuring plan and the access to
sufficient cash resources to enable the Group to implement the restructuring
plan.
BASIS OF PREPARATION
Statement of compliance
The reviewed provisional consolidated financial results comprise a
consolidated statement of financial position at 29 February 2012, a
consolidated statement of comprehensive income, a consolidated statement of
changes in equity and a consolidated statement of cash flow for the year
ended 29 February 2012. The reviewed provisional 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
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.
REVIEW OPINION
The Provisional Financial Statements of the company and group have been
reviewed by Nexia SAB&T. The review opinion of the Auditors, which is
available for inspection at the company`s registered office, contains an
emphasis of matter with regard to the going concern of the Group, as follows:
Opinion
Based on our review, except for the possible effects of the matter described
in the Emphasis of Matter paragraph, nothing has come to our attention that
causes us to believe that the annual financial statements do not present
fairly, in all material respects the financial position of StratCorp Limited
as at 29 February 2012 and its financial performance and cash flows for the
year then ended, in accordance with International Financial Reporting
Standards and the requirements of the Companies Act of South Africa.
Emphasis of Matter
Without qualifying our opinion, we draw attention to the Going Concern Report
in these provisional financial results which indicates that the Group
incurred a net loss of R 15,5 million for the year ended 29 February 2012,
and the current liabilities of the Group exceeded its current assets by R 7,2
million as at 29 February 2012. The Going Concern report also indicates that
these conditions, along with other matters, indicate the existence of a
material uncertainty relating to the Group`s ability to continue as a going
concern.
RECLASSIFICATION OF COMPARATIVE FIGURES
Certain comparative figures have been reclassified. All income, expenses and
taxation relating to the discontinued operations have been reclassified to
discontinued operations on the statement of comprehensive income, all assets
of the discontinued operation have been reclassified as non-current assets
held for sale and assets of disposal groups and all liabilities of the
discontinued operations have been reclassified as liabilities of disposal
groups on the statement of financial position.
- Cash flows from operating, investing and financing activities for
discontinued operations have also been reclassified as cash flows from
discontinued operations on the statement of cash flows;
- All deferred tax assets and liabilities and taxation income and expenses
relating to discontinued operations have been reclassified as tax from
discontinued operations; and
- Earnings per share from continuing and discontinued operations have
also been reclassified.
These reclassifications of prior year comparatives were done in terms of IFRS
5.
The effects of the reclassifications on the 2011 financial results were as
follows:
Statement of comprehensive income
R`000 Previously Reclassified
stated
Continuing operations
Revenue 81,271 72,457
Cost of sales (31,516) (27,446)
Gross profit 49,755 45,011
Other income 924 891
Operating expenses (50,403) (44,646)
Operating profit 654 1,256
Investment revenue 301 14
Fair value adjustments (4) (4)
Finance cost (3,169) (2,084)
Loss before taxation (1,400) (1)
Taxation 148 (539)
Loss from continuing operations (1,252) (540)
Discontinued operations
Loss from discontinued operations (236) (948)
Loss for the year (1,488) (1,488)
Loss per share
Basic and diluted loss per share (c) (0.94) (0.94)
From continuing operations (c) (0.80) (0.34)
From discontinued operations (c) (0.14) (0.60)
Statement of financial position
R`000 Previously Reclassified
stated
Assets
Non-current assets
Investment property 395 -
Property, plant and equipment 5,688 5,341
Goodwill 1,318 1,318
Intangible assets 3,106 3,106
Investment in associates 1 794 1,794
Other financial assets 46 46
Deferred tax 11,588 11,826
Finance lease receivables 484 485
24 419 23,916
Current assets
Inventories 37,526 986
Other financial assets 1,033 1,033
Finance lease receivables 406 406
Trade and other receivables 6,566 5,550
Cash and cash equivalents 362 173
45,893 8,148
Non-current assets held for sales and 23 39,310
assets of disposal groups
Total assets 70,335 71,374
Equity and Liabilities
Equity
Share capital 43,641 43,641
Reserves (11) (11)
Accumulated loss (12,011) (12,011)
31,619 31,619
Liabilities
Non-Current Liabilities
Other financial liabilities 10,633 8,883
Finance lease obligation 587 587
Deferred tax 2,392 3,434
13,612 12,904
Current Liabilities
Other financial liabilities 328 329
Current tax payable 23
Finance lease obligation 494 494
Operating lease liability 449 415
Trade and other payables 14,680 8,817
Bank overdraft 9,054 5,078
25,028 15,133
Liabilities of disposal groups 76 11,718
Total Liabilities 38,716 39,755
Total Equity and Liabilities 70,335 71,374
Statement of cash flows
R`000 Previously Reclassified
stated
Cash flows from operating activities
Cash used in operations 4,864 7,355
Interest income 103 14
Finance cost (3,014) -
Tax paid (461) -
Cash flows of discontinued operations (114) (213)
Net cash from operating activities 1,379 7,156
Cash flows from investing activities
Purchase of property, plant and (1,348) (1,092)
equipment To maintain operating
capacity
Sale of property, plant and equipment 294 287
Sale of investment property 439 -
Purchase of other intangible assets (1,692) (1,692)
To maintain operating capacity
Loans to associates repaid 163 163
Purchase of financial assets - -
Sale of financial assets 336 220
Net cash from investing activities (1,809) (2,114)
Cash flows from financing activities
Proceeds from other financial -
liabilities
Repayment of other financial (1,687) (1,687)
liabilities
Finance lease liability payments (1,209) (1,466)
Finance lease assets receipts 68 -
Finance costs - (1,929)
Net cash from financing activities (2,828) (5,082)
Total cash movement for the year (3,258) (40)
Cash at the beginning of the year (5,433) (4,865)
Total cash at end of the year (8,691) (4,905)
DIVIDENDS
No dividends were declared or paid to shareholders during the year.
LITIGATION
The directors are not aware of any 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.
CHANGES TO THE BOARD
Tumelo Ratau was appointed as a non-executive director to the Board on 16
August 2011, and Steven Firer resigned as a director on 12 May 2012. There
were no other changes to the Board during the financial year.
On behalf of the board.
D B Harington
Chief Executive Officer
JHP Engelbrecht
Group Financial Director
30 May 2012
CORPORATE INFORMATION
Non executive directors: PJ de Jongh (Chairman), M Patel*
(Chairman of Audit Committee), TG Ratau
*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: Nexia SAB&T
Designated Adviser: Vunani Corporate Finance
Date: 30/05/2012 17:45:01 Produced by the JSE SENS Department.
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