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Audited annual results for the year ended 30 June 2018 Dividend declaration and cautionary announcement
AfroCentric Investment Corporation Limited
Incorporated in the Republic of South Africa
Registration number 1988/000570/06
JSE Code: ACT
ISIN: ZAE 000078416
(AfroCentric or the Company or the Group)
Summary of audited annual results for the year ended 30 June 2018
Dividend declaration and cautionary announcement
Highlights
11.3% Total revenue
46.9% Profit before tax
14.3% Dividend increase
Consolidated statement of financial position
Audited Audited
year ended year ended
30 June 2018 30 June 2017
R’000 R’000
Assets
Non-current assets 2 306 326 1 927 272
Property and equipment 255 076 179 731
Land and buildings (Note 1) 120 573 31 973
Investment property 15 418 15 418
Goodwill (note 2) 883 488 855 436
Intangible assets (Note 2) 855 598 608 310
Available for sale investment 9 000 18 444
Listed investment (Note 3) – 36 296
Managed funds and deposits (Note 4) 65 028 59 976
Investment in associates 56 935 38 823
Deferred income tax assets 45 210 82 865
Current assets 823 735 1 141 608
Trade and other receivables 348 527 320 236
Inventory 83 532 73 376
Current tax asset 20 768 25 235
Receivables from associates and joint
venture 5 740 13 388
Managed funds and deposits (Note 4) 152 250 347 635
Cash and cash equivalents (Note 4) 212 918 361 738
Total assets 3 130 061 3 068 880
Equity and liabilities
Capital and reserves 1 940 614 1 793 694
Issued ordinary share capital 18 686 18 686
Share premium 999 058 999 058
Share-based payment reserve (Note 8) 3 501 –
Treasury shares (2 324) (2 324)
Sanlam capital contribution (Note 9) 55 874 –
Foreign currency translation reserve 793 3 454
Distributable reserve 865 026 774 820
Non-controlling interest 679 277 585 359
Total equity 2 619 891 2 379 053
Non-current liabilities 153 860 135 778
Deferred income tax liabilities 121 667 100 627
Non-current provisions 8 350 8 350
Post-employment medical obligations 2 665 2 771
Deferred payment 5 263 5 051
Accrual for straight lining of leases 15 915 18 979
Current liabilities 356 310 554 049
Provisions 8 597 8 947
Second tranche payment (Note 5) – 194 475
Trade and other payables 284 029 264 394
Taxation 13 729 –
Employment benefit provisions 49 955 86 233
Total liabilities 510 170 689 827
Total equity and liabilities 3 130 061 3 068 880
Note 1
The increase in the value of land and buildings reflects the cost of the
new warehouse acquired to accommodate the growth and expansion of trade
by Pharmacy Direct.
Note 2
Carrying Carrying
value value Amortisation Amortisation
2018 2017 2018 2017
Goodwill 883 488 855 436 – –
Goodwill – AfroCentric
Health 409 534 381 482 – –
Goodwill – WAD Acquisition 473 954 473 954 – –
Intangible assets 855 598 608 310 (89 603) (86 450)
AfroCentric Health
intangible PPA 35 226 12 038 (4 992) (3 908)
Customer relationships –
WAD Acquisition 63 385 72 333 (8 948) (8 948)
AfroCentric Health
intangible Software 181 105 124 251 (31 087) (26 293)
AfroCentric Health Nexus 283 111 213 351 (20 058) (26 295)
AfroCentric Health Fusion 150 918 99 024 – –
Insurance Fraud Manager
(Fraud Management Software) 141 853 87 313 (24 518) (21 006)
Note 3
The decrease in value arises as a result of the sale of shares in Jasco
Electronic Holdings Limited.
Note 4
Audited Audited
year ended year ended
30 June 2018 30 June 2017
R’000 R’000
Total Group Cash Resources
Cash and Cash Equivalents 212 918 361 738
Managed funds and deposits (current) 152 250 347 635
Total current cash, managed funds and deposits 365 168 709 373
Managed funds and deposits (non current) 65 028 59 976
Total managed funds and deposits 430 196 769 349
Note 5
The second tranche payment relating to the WAD Asset acquisition was settled
during the year.
Note 6
Given the fulfilment of the Sanlam warranty, the conditional put option
reserve was written back to capital and reserves.
Note 7
The Sanlam subscription agreement provided for an indemnity in the event
that the costs of the Fusion IT system, then in progress, exceeded certain
limits. Indemnity payments relate to such costs in excess of the indemnity
threshold.
Note 8
This relates to the new long term incentive share award plan that was
implemented in the current financial year.
Note 9
Capital contribution by Sanlam, relating to the WAD second tranche payment,
in order to retain their non-controlling level of ownership in ACT
Healthcare Assets.
Summarised consolidated statement of cash flows
Audited Audited
year ended year ended
30 June 2018 30 June 2017
R’000 R’000
Net cash inflow from operating activities 290 519 205 188
Cash generated from operations 552 695 450 887
Net finance income 34 869 38 860
Distribution to shareholders (217 857) (176 754)
Dividend received 5 209 5 010
Tax and other payments (84 397) (112 815)
Net cash outflow from investing activities (298 077) (212 945)
Net additions to property and equipment (212 664) (68 802)
Net additions to intangible assets (310 845) (178 020)
Net disposal of financial assets,
investments and subsidiaries 218 166 27 943
Repayment of loan by associate 7 266 5 934
Net cash ouflow from financing activities (138 601) –
Net second tranche settlement (138 601) –
Effect of foreign exchange benefit (2 661) (3 573)
Net increase in cash and cash equivalents (148 820) (11 330)
Cash and cash equivalents at beginning of
the period 361 738 373 068
Cash and cash equivalents at end of the
period (Note 4) 212 918 361 738
Summarised consolidated statement of comprehensive income
Audited Audited
year ended year ended
% 30 June 2018 30 June 2017
change R’000 R’000
Healthcare services revenue 9.8 2 982 284 2 715 266
Healthcare services operating costs 9.7 (2 433 582) (2 219 292)
Healthcare service operating profit 10.6 548 702 495 974
Healthcare retail revenue 1 230 421 1 069 435
Healthcare retail cost of sales (914 305) (836 734)
Healthcare retail gross profit 35.8 316 116 232 701
Healthcare retail operating costs (241 732) (164 566)
Total healthcare operating profit 10.5 623 086 564 109
Loss on sale of investments (2 717) –
Impairment of assets (1 667) (19 851)
Net finance and investment income 43 481 16 106
– Finance and investment income 55 081 63 658
– Fair value loss in listed investment (9 738) (885)
– Finance costs: Conditional put
option (Note 6) – (45 906)
– Finance costs (1 862) (761)
Share-based payment expense (3 501) (2 096)
Fair value of second tranche
consideration (Note 5) – (59 582)
Indemnity expense (Note 7) (3 150) (14 787)
Share of associate profits 23 626 14 306
Profit before depreciation and
amortisation 36.3 679 158 498 205
Depreciation (51 109) (45 098)
Amortisation of intangible assets
(Note 2) (89 603) (86 450)
Profit before taxation 46.9 538 446 366 657
Taxation expense (153 544) (146 616)
Profit for the year after taxation 384 902 220 041
Other comprehensive (loss)/income (2 753) (3 778)
Comprehensive net income for the year 76.7 382 149 216 263
Attributable to:
Equity holders of the Parent 122.9 253 858 113 891
Non-controlling interest 25.3 128 291 102 372
382 149 216 263
Summarised consolidated statement of changes in equity
Audited Audited
year ended year ended
30 June 2018 30 June 2017
R’000 R’000
Balance at beginning of the period 2 379 053 1 563 582
Share-based awards reserve 3 501 2 096
Distributions to shareholders (166 313) (144 138)
Net profit for the period 253 858 113 891
Transferred to conditional put option reserve – 45 906
Conditional put option reserve (Note 6) – (45 906)
Profit attributable to minorities 128 291 102 372
Sanlam capital contribution (Note 9) 55 874 –
Conditional put option obligation reversal
(Note 6) – 773 866
Conditional put option obligation 2017 balance – 727 960
Conditional put option finance obligation – 45 906
Recognition of attributable non-controlling
interest on Tendahealth, Klinnika and
Essential Group 17 171 –
Distributions to non-controlling interests (51 544) (32 616)
Balance at end of the period 2 619 891 2 379 053
Earnings attributable to equity holders
Audited Audited
year ended year ended
% 30 June 2018 30 June 2017
change R’000 R’000
Number of ordinary shares in issue 554 377 328 554 377 328
Weighted average number of ordinary
shares 554 377 328 554 377 328
Weighted average number of shares for
diluted EPS 558 667 328 554 377 328
Basic earnings 256 611 117 669
Adjusted by: 4 305 6 169
– Reversal of impairment 1 285 16 640
– Reversal of fair value gains – (418)
– Loss on disposal of assets 3 428 681
Total tax adjustments 1 325 (97)
Total non-controlling interest
adjustments (1 733) (10 637)
Headline earnings 110.7 260 916 123 838
Earnings per share (cents)
– Attributable to ordinary shares
(cents) 118.0 46.29 21.23
– Fully Diluted EPS (cents) 45.93 21.23
Headline earnings per share (cents)
– Attributable to ordinary shares
(cents) 110.7 47.06 22.34
– Fully Diluted HEPS (cents) 46.70 22.34
Normalised earnings (non IFRS measure)
Audited Audited
year ended year ended
% 30 June 2018 30 June 2017
change R’000 R’000
Headline earnings 260 916 123 838
Adjusted by: 3 150 120 275
– Conditional put option finance
obligation (Note 6) – 45 906
– fair value on second tranche
consideration (Note 5) – 59 582
– Sanlam indemnity expense (Note 7) 3 150 14 787
Normalised Headline earnings 8.2 264 066 244 113
Normalised Headline earnings per
share (cents)
– Attributable to ordinary shares
(cents) 8.2 47.63 44.03
– Fully Diluted HEPS (cents) 47.27 44.03
The adjusting amounts have no tax and non-controlling interest implications.
Segmental analysis
Profit
Revenue before tax
% %
Healthcare SA 7.7
Healthcare Africa** 22.9
Healthcare Retail*** 30.6
Total Healthcare
Information technology 87.7
Other (including inter-segment elimination)
11.3
Audited year ended 30 June 2018
Profit
Revenue before tax Total assets
R’000 R’000 R’000
Healthcare SA 2 788 428 225 986* 3 376 318
Healthcare Africa** 184 910 57 302 144 233
Healthcare Retail*** 1 230 421 88 806 437 952
Total Healthcare 4 203 759 372 094 3 958 503
Information technology 580 845 168 779* 511 217
Other (including inter-segment
elimination) (571 899) (2 427) (1 339 659)
4 212 705 538 446 3 130 061
Audited year ended 30 June 2017
Profit
Revenue before tax Total assets
R’000 R’000 R’000
Healthcare SA 2 378 130 209 843* 3 435 646
Healthcare Africa** 184 443 46 636 112 401
Healthcare Retail*** 1 069 435 67 990 353 504
Total Healthcare 3 632 008 324 469 3 901 551
Information technology 561 021 89 922* 420 138
Other (including inter-segment
elimination) (408 328) (47 734) (1 252 809)
3 784 701 366 657 3 068 880
* The change in the profit before tax is a result of a modification in the
IT fee structure between the wholly owned subsidiaries, Medscheme and
Helios.
** Healthcare Africa relates to our businesses in Swaziland, Namibia,
Zimbabwe, Botswana and Mauritius.
*** Healthcare Retail relates to the pharmaceutical businesses of Pharmacy
Direct, Curasana Wholesaler and 26% interest in Activo Health.
Commentary
Introduction to the AfroCentric group
AfroCentric is a black-owned JSE listed investment holding company which
operates in and provides specialised services to the public and private
healthcare sectors. AfroCentric has and continues to maintain its deliberate
objective of being the leading exemplar of transformation and empowerment
in the South African healthcare sector.
AfroCentric’s principal subsidiary is Medscheme, which provides cost-effective
and professional healthcare administration and managed care services to the
growing memberships of its renowned institutional, corporate and government
Medical Scheme clients, with lives presently under management, approximately
3 700 000. The Group is also heavily invested in other essential segments of
the public and private healthcare markets in South Africa, with rapidly
expanding activity and application in its pharmaceutical wholesale supply, its
chronic medication distribution network, specialised disease management,
information technology (IT) solutions, transactional switching, fraud detection
and not least, the development and marketing of tailored health and insurance
solutions and products, in partnership with SANLAM.
The Board is therefore pleased to present a summary of the solid AfroCentric
Audited Results for the year ended 30 June 2018, a period characterised by
improved new business generation, certain complementary acquisitions and
operative developments, which inter alia, included the ongoing consolidation,
rationalisation and cost saving measures within all Group enterprises. We are
also able to report, that all Group divisions and enterprises made a positive
contribution to Group operations and earnings. The prior and continuing
investment in system development and increased IT capacity, has already
contributed favourably towards the current year results, anticipating repeated
cost savings, through greater scale and procedural efficiencies into the 2019
financial year and beyond.
Accounting policies and basis of preparation
The summary consolidated financial statements are prepared in accordance with
the requirements of the JSE Limited Listings Requirements for summary financial
statements, and the requirements of the Companies Act applicable to summary
financial statements.
The Listings Requirements require summary financial statements to be prepared
in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting Standards
Council and to also, as a minimum, contain the information required by IAS 34
Interim Financial Reporting. The accounting policies applied in the preparation
of the consolidated financial statements from which the summarised consolidated
financial statements were derived are in terms of IFRS and are consistent with
those accounting policies applied in the preparation of the previous consolidated
annual financial statements.
AfroCentric corporate highlights in 2018
AfroCentric proudly advise that during the year under review:
* AfroCentric Health (Pty) Ltd, a core operating subsidiary within the Group,
achieved a level 2 B-BBEE status for the sixth consecutive year.
* Medscheme was awarded the Titanium Award for Service Excellence, at the
2018 BHF Titanium Awards ceremony.
* AfroCentric was awarded the Diversity in the Workplace Award at the 15th
Annual National Business Awards ceremony.
Financial Performance
Profit before tax increased by 46.9% for the period under review amounting to
R538.4 million (2017: R366.7 million). Profit after tax (PAT) increased by 74.9%,
a satisfying and positive result delivered through great effort and efficient
management control. Earnings per share (EPS) increased in this period by 118.0%
and headline earnings per share (HEPS), increased by 110.7%. For a better
appreciation of the above earnings statistics, Shareholder attention is drawn to
the two IFRS provisions in the June 2017 Income Statement, one provision relating
to the Sanlam share subscription profit warranty and the second provision pertaining
to the suspensive Tranche 2 payment for the WAD acquisition. Both of these
corporate matters were successfully concluded during the reporting period, making
past IFRS provisions in each case no longer relevant or applicable. Absent the
aforesaid provisions, EPS and HEPS now reveals a realistic measurement of the
performance of the AfroCentric Group.
Developments
Given the years of debate surrounding National Health Insurance (NHI), including
factors presently being considered by the Health Market Inquiry into the Private
Healthcare Sector, AfroCentric have for some time been giving consideration to the
creation of a platform model to establish a value chain of healthcare diagnosis,
treatments, pharma and medical services, to optimise the purchasing power of the
healthcare Rand.
The research dictated a concept through models of integration, consolidation,
mergers, partnerships and incentives, generally to improve the means and matter
of patient care, the most viable and cost effective treatments, not least the
most rational outcomes within the broader healthcare delivery system. Having
regard to the above, certain consolidations, cost reviews and component
initiatives are already in place, several plans for parallel advantage are
in the pipeline and broader discussions on these and other similar initiatives
are in progress for presentation to and application in both the public and private
healthcare sectors.
We report on certain of these component initiatives that are under review, in
progress or have been concluded during the year and since year end:
* Assisted and facilitated the successful consolidation of approximately
5 600 Community Medical Scheme members (COMMED) into Bonitas Medical Scheme.
* Secured the Hosmed Administration contract for Medscheme of approximately
24 000 members, a contract for providing Administration services for a
significant number of members of the South African Local Government
Association (SALGA).
* Acquired 80% of the shares in Scriptpharm Risk Management, a business which
manages chronic script claims, this effective from 1 August 2017.
* The acquisition of 51% of the shares in Essential Group, which provides
healthcare insurance, effective 1 March 2018.
* Recently awarded a license to establish a health administration and insurance
business in Swaziland, Medscheme Health Insurance (Swaziland)
* The identification and recovery of fraudulent or improper claims through our
Fraud Management Software has been a great developmental success, with direct
savings and recoveries to our clients in excess of R500 million.
* Pharmacy Direct, our medication logistics business, was awarded several contracts
by the Department of Health for chronic pharma distribution to its vast provincial
networks, substantially to alleviate congestion at public hospitals and clinics.
Given the renewal of certain of these contracts and certain additional contracts
awarded, AfroCentric invested R100 million in the acquisition and refurbishment
of a larger warehouse to manage the increased script volumes for dispensing and
delivery to state and private patients with chronic conditions.
* Sanlam and AfroCentric management diligently progressed towards the finalisation
of the commencing portfolio of healthcare, life and lifestyle solution products to
be jointly introduced into the broader market.
Prospects
Notwithstanding the South African operating environment being burdened with several
economic and political challenges, the Board is satisfied with AfroCentric’s sound
operating results for the year ended 30 June 2018. Good progress was made by all of
the Group’s business units, in particular the growing divisional interests in
supplementary medical specialities, including the group’s rapidly expanding
pharmaceutical operations. The broad, but adverse commercial impact on consumer
disposable incomes, compounded by the increases in medical costs, has not
unexpectedly focused the attention of all healthcare stakeholders, that
alternative models for more affordable healthcare delivery has become an
imperative. The Group has recognised this state of affairs and references
under Developments above, capture certain of the initiatives and strategic
plans already introduced and being explored by the Group to address the value
chain concept referred to therein. AfroCentric remains well positioned and well
capitalised to continue on its progressive plans for expansion, rationalisation
and synergistic acquisitions, to provide value for money services and long term
compounding shareholder value.
Cautionary announcement
Shareholders will be aware that AfroCentric acquired a 26% interest in
Activo Health (Activo) as a component of the WAD Assets acquisitions in
2015. Shareholders are advised that agreement has been reached in principle
with the Activo vendors to anticipate the exercise of the call option negotiated
at the time, for the remainder of the shares in Activo (74%) not already owned
by AfroCentric. The terms of the call option are substantially dictated by the
valuation formulae and payment options provided for in the WAD Master Agreement.
The acquisition is a related party transaction and is therefore subject inter
alia, to the approval of AfroCentric shareholders in general meeting and an
appropriate Circular with full details will be sent to shareholders, subject
to all other contractual matters being concluded.
Shareholders are therefore advised that should the terms of the exercise of
the call option be successfully concluded, it may have an effect on
AfroCentric’s share price. Accordingly, shareholders are advised to exercise
caution when dealing in the Company’s securities until a further announcement
in this regard is made.
Directors
There were no changes to the Board during the period under review. We do however
wish to advise shareholders that our Founding directors, members and mentors,
Meyer Kahn (79) and Motty Sacks (75), having concluded that their objectives
on behalf of AfroCentric have been achieved, have decided to retire from the
Board. Their retirement has resulted in them not being available as Directors
and will be effective immediately after AfroCentric’s Annual General Meeting,
scheduled to take place during November 2018. The Board would like to thank
them both for their invaluable contribution to the Group. Their experience,
guidance and wisdom will be certainly missed at Board and Committee meetings
and generally within the Group. We wish them well in their retirement.
Dividends
The Board has pleasure in announcing that in addition to the interim gross
dividend per ordinary share of 16 cents, a final gross dividend of
16 cents per ordinary share has been declared for the year ended 30 June
2018. Dividends are subject to Dividends Withholding Tax. The payment date
for the dividend is 12 November 2018.
* Dividends have been declared out of profits available for distribution.
* Local Dividends Withholding Tax rate is 20%.
* The gross dividend amount is 16 cents per ordinary share.
* The net cash dividend amount is therefore 12.8 cents per ordinary share.
* The Company has 554 377 328 ordinary shares in issue as at the declaration
date.
* The Company’s income tax reference number is 9600/148/71/3.
The salient dates relating to the dividend are as follows:
Last day to trade cum dividend Tuesday, 6 November 2018
Shares commence trading ex-dividend Wednesday, 7 November 2018
Dividend record date Friday, 9 November 2018
Dividend payment date Monday, 12 November 2018
Share certificates for ordinary shares may not be dematerialised or
rematerialised between Wednesday, 7 November 2018 and Friday, 9 November
2018, both days inclusive.
Basis of preparation
The financial information contained in this report is extracted from audited
information, but is itself not audited. This announcement does not include
the information required pursuant to paragraph 16A(j) of IAS 34. The full
provisional report is available on our website
(http://www.afrocentric.za.com/inv-reporting.php), at our offices and upon
request. The Directors take full responsibility for the preparation of
this report and the financial information has been correctly extracted from
the underlying annual financial statements. The annual financial statements
were audited by PricewaterhouseCoopers Inc. who expressed an unmodified
opinion thereon. The audited annual financial statements and the auditor’s
report thereon are available for inspection at the Company’s registered
office.
On behalf of the Board
Dr ATM Mokgokong Mr AV Van Buuren
Chairperson Group Chief Executive Officer
Johannesburg
14 September 2018
Directors
ATM Mokgokong** (Chairperson), MJM Madungandaba** (Deputy Chairperson),
AV Van Buuren*** (CEO), JW Boonzaaier*** (CFO), A Banderker**, WH Britz***,
LL Dhlamini*, JM Kahn (lead)*, IM Kirk**, SE Mmakau*, HG Motau*, ND Munisi**,
MI Sacks*
*independent non-executive **non-executive ***executive
Registered Office
37 Conrad Rd Florida North 1709
Sponsor
Sasfin Capital (A member of the Sasfin Group)
www.afrocentric.za.com
Company Secretary
B Mokale
Group Investor Relations
Nosipho Phewa
investor-relations@afrocentric.za.com
Tel: +27 11 671 2475
Date: 14/09/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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