Kachingo! Strathmore puts all its eggs in one basket

By Phil Boeyen, ShareChat Business News Editor

Wednesday 30th January 2002

Tech investment company Strathmore (NZSE: SMR) is getting out of the venture capital business and plans to sell all its investments in the year ahead apart from Global Online, which operates the Kachingo! business.

Chairman Phil Norman outlined the board's future strategy at the company's annual meeting on Wednesday, telling shareholders that it has been reviewing its options over the past few months.

"We have examined a number of options, including the possibility of merging with another listed VC in New Zealand or abroad, restructuring as a fund manager, acquiring an IT business seeking an NZSE listing, and return of capital to shareholders.

"After carefully considering all of these options, and given the difficulty in raising new capital, the board resolved that the best way to maximise value for all shareholders would be to focus activities around Global Online, our best performing and most promising investment, realising all other investments in an orderly fashion."

Mr Norman says the company will not be undertaking any more VC investment and will take active steps to realise is portfolio, with the exception of Global Online, over the next year or so.

He says the company has already begun reducing its holding in communications software company, CommSoft (NZSE: CSG), and at the end of last week held just under 9%, down from around 13.5% previously.

"For the future, the objective is for Strathmore to become an investment company which only holds positions in Global Online Group companies," the chairman says.

"It will operate with a minimal overhead structure and be strongly supported by its cornerstone shareholders Custodian Nominee Company Limited and Genstar Investments Limited."

Strathmore is planning to take immediate steps to reduce operational expenditure and has already started downsizing.

"The key operational cost in a venture capital firm is, of course, people, and the operational burn reduction programme will include the termination of all executive management," says Mr Norman.

"The executive team, which includes Don Cowie, our Executive Director, Peter Saunders, our CFO, and myself will all be concluding our service with the company over the next few months."

Mr Norman will also stand down from the role of chairman and director at the end of March.

"The board, in concert with cornerstone shareholders has begun the process of looking for new directors who will take the company forward in pursuit of this new strategy."

In his speech to shareholders Mr Norman described Global Online as the company's star performer. The investee company runs the customer loyalty programme Kachingo!, which rewards shoppers with the chance to win cash prizes.

"Strathmore currently holds approximately 25% in each of the three Global Group companies, which values its holding on the basis of the latest market valuation at $17.5 million.

"By comparison, our carrying and cost value for this investment is $3.3 million. The point that shareholders should note in regard to Global Online is that the value of Strathmore's shareholding in this Group alone is approximately twice the current market capitalisation of Strathmore, or expressed another way, represents about 10 cents per Strathmore share."

Mr Norman claims that as Global's international operations gain momentum there is every likelihood that its valuation will increase substantially.

"In the venture capital world there is a maxim that says, on average, VC's will have one in ten investments that is a star. We think that Global Online is our star."

Strathmore says Global Online has won several rounds of capital raising in the past year, the most recent of these was at a pre-money valuation of $70 million.

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