| Fri 1 Jun 2012, 15:54 | | STA - StratCorp Limited - Reviewed condensed provisional financial results for |
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STA
STA
STA - StratCorp Limited - Reviewed condensed provisional financial results for
the year ended 29 February 2012 - Revised
StratCorp Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2000/031842/06)
JSE code: STA ISIN ZAE000034294
("StratCorp" or "the company" or "the group")
The reviewed condensed provisional financial results released on 30 May 2012 did
not contain information on the segment reporting. The only changes to the
results are to include the segment reporting
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 per share (c) (11.13) (0.99)
Reconciliation between loss and
headline loss R`000
Basic loss
(15,592) (1,488)
Adjusted for:
Profit on disposal of investment -
in associate (2,390)
Loss (profit) on disposal of 14
investment properties (44)
Loss/(Profit) on disposal of 15
property plant and equipment (48)
Loss on disposal of investments (3) -
in subsidiaries
Tax effect thereon 331 13
(17,625) (1,567)
Condensed Segmental Analysis
Reviewed Audited
2012 2011*
R`000 R`000
Revenue
Continuing operations
Financial products 33,981 41,804
Health & Wellness products 19,245 30,211
General finance 365 442
Corporate services & other 1,661 -
55,252 72,457
Discontinued operations 4,992 9,085
Profit / (loss)
Continuing operations
Financial products 114 3,665
Health & Wellness products (2,783) 72
General finance (212) (648)
Corporate services & other (3,390) 3,802
Inter segment eliminations 108 (7,431)
(6,379) (540)
Discontinued operations (9,213) (948)
(15,592) (1,488)
Segment assets
Financial products 3,579 4,199
Health & Wellness products 2,921 6,000
General finance 1,431 1,821
Corporate services & other 60,941 59,333
Assets of disposal groups 30,539 39,310
Inter segment eliminations (40,331) (39,289)
59,080 71,374
Segment liabilities
Financial products 4,826 3,957
Health & Wellness products 8,119 6,086
General finance 3,036 3,214
Corporate services & other 33,408 37,255
Liabilities of disposal groups 15,958 11,718
Inter segment eliminations (22,135) (22,475)
43,212 39,755
*Reclassified to reflect the effect of the discontinued operations.
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 register 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 (236) (948)
operations
Loss for the year (1,488) (1,488)
Loss per share
Basic and diluted loss per (0.94) (0.94)
share (c)
From continuing operations (c) (0.80) (0.34)
From discontinued operations (0.14) (0.60)
(c)
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 23 39,310
and 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 (114) (213)
operations
Net cash from operating 1,379 7,156
activities
Cash flows from investing
activities
Purchase of property, plant and (1,348) (1,092)
equipment To maintain operating
capacity
Sale of property, plant and 294 287
equipment
Sale of investment property 439 -
Purchase of other intangible (1,692) (1,692)
assets To maintain operating
capacity
Loans to associates repaid 163 163
Purchase of financial assets - -
Sale of financial assets 336 220
Net cash from investing (1,809) (2,114)
activities
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 (2,828) (5,082)
activities
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: 01/06/2012 15:54:01 Produced by the JSE SENS Department.
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