Wrap Text
Reviewed Condensed Consolidated Results And Unaudited Condensed Consolidated Results
Litha Healthcare Group Limited
At the heart of health
(Registration number 2006/006371/06);
Share code: LHG, ISIN: ZAE000144671
(The group or Litha or The company)
REVIEWED CONDENSED CONSOLIDATED RESULTS
for the year ended 31 December 2012
AND UNAUDITED CONDENSED CONSOLIDATED RESULTS FOR THE QUARTER ENDED 31 DECEMBER 2012
- Earnings per share up 57%
- Headline earnings per share down 78%
- Weakening of Rand and once-off costs contributed to decrease in earnings per share
- Delayed forensic tender awarded to Litha just before year-end
- Pharma integration progressing well
The reviewed condensed consolidated results for the year ended 31 December 2012 and the unaudited condensed consolidated results for the quarter ended 31 December 2012 have been prepared by the
groups chief financial officer, Martin Michael Kahanovitz, CA (SA).
The unaudited condensed consolidated results for the quarter and the reviewed condensed consolidated results for the year ended 31 December 2012 have been prepared in accordance with the
framework concepts and the measurement and recognition requirements of the International Financial Reporting Standards.
The results are based on management accounts and contain information required by the International Accounting Standard 34 Interim Financial Reporting IAS 34 and in the manner required by the
Companies Act. However, the Company does not provide comparative figures for the quarter ended 31 December 2012 as formal quarterly reporting processes were only implemented this year.
Comparative information would therefore possibly be misleading and inaccurate. The quarterly results are being prepared as a result of the acquisition of a controlling interest in Litha Healthcare Group
Limited (Litha) by Paladin Labs Inc. on 2 July 2012. Paladin Labs Inc., a Canadian specialty pharmaceutical company listed on the Toronto Stock Exchange, is required to prepare quarterly financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Unaudited Audited
year ended quarter ended year ended
31 December 31 December 31 December
(R000) 2012 2012 2011
Revenue 1 465 799 240 432 1 781 799
Turnover 1 434 460 237 502 1 747 026
Cost of sales (1 007 735) (139 489) (1 358 381)
Gross profit 426 725 98 013 388 645
Operating expenses (376 421) (110 749) (277 680)
Other income 18 213 502 34 773
Profit on deconsolidation 171 530 - -
Operating profit 240 047 (12 234) 145 738
Non-operating interest paid (24 206) (7 464) (7 171)
Profit before taxation 215 841 (19 698) 138 567
Taxation (11 448) 4 632 (27 312)
Profit/(loss) from continuing operations 204 393 (15 066) 111 255
Loss from discontinued operations (7 626) (1 668) (7 347)
Profit/(loss) for the period 196 767 (16 734) 103 908
Other comprehensive income net of tax
Fair value adjustments released to profit for the year - - (964)
Total comprehensive income/(loss) 196 767 (16 734) 102 944
Profit/(loss) attributable to equity holders of Litha Healthcare Group Limited:
Profit/(loss) from continuing operations 173 089 (15 127) 93 648
Loss from discontinued operations (7 626) (1 668) (7 347)
Profit/(loss) attributable to equity holders of Litha Healthcare Group Limited 165 463 (16 795) 86 301
Non-controlling interest 31 304 61 17 607
Total profit 196 767 (16 734) 103 908
Total comprehensive income/(loss) attributable to:
Equity holders of Litha Healthcare Group Limited 165 463 (16 795) 85 337
Non-controlling interest 31 304 61 17 607
Total comprehensive income for the year 196 767 (16 734) 102 944
Earnings per share (cents) 36.2 (3.1) 23.2
From continuing operations 37.9 (2.8) 25.2
From discontinued operations (1.7) (0.3) (2.0)
Diluted earnings per share (cents) 34.6 (3.0) 22.1
From continuing operations 36.2 (2.7) 24.0
From discontinued operations (1.6) (0.3) (1.9)
COMMENTARY TO THE CONSOLIDATION STATEMENT OF COMPREHENSIVE INCOME
Headline earnings reconciliation
Profit from continuing operations 173 089 (15 127) 93 648
Adjusted for:
Write-off of intangible assets 507 507 -
Tax effect of write-off of intangible assets (142) (142) -
Profit on deconsolidation of subsidiary (171 530) - -
Profit on deconsolidation of subsidiary attributable to non-controlling interests 29 018 - -
Loss on disposal of property, plant and equipment 30 164 (81)
Tax effect of loss from disposal of property, plant and equipment (8) (45) 23
Headline earnings from continuing operations 30 964 (14 643) 93 590
Loss from discontinued operations (7 626) (1 668) (7 347)
Headline earnings 23 338 (16 331) 86 243
Headline earnings per share (cents) 5.1 (3.0) 23.2
From continuing operations 6.8 (2.7) 25.2
From discontinued operations (1.7) (0.3) (2.0)
Diluted headline earnings per share (cents) 4.9 (2.9) 22.1
From continuing operations 6.5 (2.6) 24.0
From discontinued operations (1.6) (0.3) (1.9)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
31 December 31 December
(R000) 2012 2011
ASSETS
Non-current assets 1 347 499 533 614
Property, plant and equipment 79 278 186 860
Goodwill and intangible assets 869 657 318 500
Investment in associates 5 340 4 201
Investment in joint venture 260 034 -
Loans to joint venture 104 744 -
Deferred taxation asset 21 958 15 734
Other non-current assets 6 488 8 319
Current assets 436 626 901 366
Inventories 194 964 280 763
Trade and other receivables 169 691 442 371
Taxation 22 904 27 995
Cash and cash equivalents 46 687 150 237
Other current assets 2 380 -
Discontinued operations 875 7 765
Total assets 1 785 000 1 442 745
EQUITY AND LIABILITIES
Total equity 1 107 596 512 109
Share capital and premium 760 473 295 473
Reserves attributable to holders of the parent 326 236 138 938
Non-controlling interest 20 887 77 698
Non-current liabilities 393 735 196 871
Other financial liabilities 293 957 178 709
Deferred taxation liability 99 778 18 162
Current liabilities 283 468 733 050
Accounts payable and provisions 139 111 631 913
Other current liabilities 84 260 61 139
Bank overdraft 60 097 40 000
Liabilities of discontinued operations 201 715
Total equity and liabilities 1 785 000 1 442 745
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Available
Share Share-based for sale Reserve Ordinary Non-
capital and payment revaluation on equity Accumulated shareholders controlling
(R000) premium reserve reserve transaction profits interest interest Total
Balance at 1 January 2011 197 447 974 964 - 121 818 321 203 181 053 502 256
Acquisition of non-controlling interests 103 454 - - (70 155) - 33 299 (120 962) (87 663)
Disposal of treasury shares (6 928) - - - - (6 928) - (6 928)
Shares issued 1 500 - - - - 1 500 - 1 500
Total comprehensive income - - (964) - 86 141 85 177 17 607 102 784
Share based payment reserve adjustment - 160 - - - 160 - 160
Balance at 31 December 2011 295 473 1 134 - (70 155) 207 959 434 411 77 698 512 109
Deconsolidation of subsidiary - - - 2 942 - 2 942 (88 115) (85 173)
Share based payments - 18 893 - - - 18 893 - 18 893
Issue of shares 465 000 - - - - 465 000 - 465 000
Total comprehensive income - - - - 165 463 165 463 31 304 196 767
Balance at 31 December 2012 760 473 20 027 - (67 213) 373 422 1 086 709 20 887 1 107 596
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
year ended year ended
31 December 31 December
(R000) 2012 2011
Cash generated by operating activities 137 710 115 495
Cash flows from operating activities 160 564 53 744
Cash flows from investing activities (187 110) (247 594)
Cash flows from financing activities 85 207 73 006
Net (decrease)/increase in cash and cash equivalents 58 661 (120 844)
Cash acquired on acquisition of subsidiary (2 971) 1 014
Cash on deconsolidation of subsidiary (179 337) -
Cash and cash equivalents at beginning of period 110 237 231 513
Cash and cash equivalents at end of period (13 410) 111 683
Cash and cash equivalents included in discontinued operations 377 1 446
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The reviewed condensed consolidated annual results and the unaudited results for the three months ended 31 December 2012 have been prepared in accordance with the Framework concepts and the
measurement and recognition requirements of the International Financial Reporting Standards and containing information required by the IAS 34 Interim Financial Reporting and in the manner required by
the Companies Act.
This report has also been prepared in accordance with and containing the information required by AC 500 series as issued by the Accounting Practices Board. The reviewed condensed consolidated
financial statements are prepared on the historical cost basis, with the exception of certain financial instruments which are measured at fair value. These financial statements should be read in conjunction
with the audited financial statements for the year ended 31 December 2011. The condensed consolidated financial statements for the year ended 31 December 2012 have been reviewed, but not audited,
by Mazars, the groups auditors. Their unqualified review report is available for inspection at Lithas registered office during normal business hours.
The condensed consolidated financial statements for the year ended 31 December 2012, not including the unaudited results for the quarter then ended or any comments thereto, and the unaudited results
for the three months ended 31 December 2012 are prepared using the same policies and method of computation as the audited financial statements for the year ended 31 December 2011, except for
applying IFRS 10, Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities as well as IAS 28(R) Investments in Associates and Joint Ventures.
The application of these standards as well as the revised IAS 28 resulted in the group needing to reassess its investments applying the principle of control as defined in IFRS 10. All subsidiaries, excluding
Biovac and Firefly, continue to be consolidated. The investment in Biovac was determined to be a joint venture in accordance with the requirements of IFRS 11, it is now equity accounted in accordance
with the requirements of IAS 28(R). IFRS 12 is a disclosure standard, the full effect of which will be seen in the annual financial statements. The early adoption of these standards has not resulted in a
change in the prior year reported amounts. The preparation of condensed consolidated interim financial statements requires the use of estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at period end and the reported amounts of turnover and expenses during the reporting periods.
Although these estimates are based on managements best knowledge of current events and actions that the group may undertake in the future, actual results may differ from those estimates.
2.WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Unaudited
Reviewed three months Audited
year ended ending year ended
31 December 31 December 31 December
2012 2012 2011
Weighted average number of shares 456 751 782 541 528 868 371 561 020
Weighted average share options outstanding 20 952 818 23 475 335 18 424 242
Diluted weighted average number of shares 477 704 600 565 004 203 389 985 262
3. SUBSEQUENT EVENTS
Lithas board is considering a BEE transaction and other transactions ancillary thereto, to propose a resolution to shareholders authorising a voluntary delisting by Litha from the Exchange operated by the
JSE Limited. Refer to SENS announcement on 26 February 2013.
Other than the above, there have been no events that are material to the understanding of this report that have occurred in the period between 31 December 2012 and the date of this report.
4. RELATED PARTY TRANSACTIONS
All transactions with related parties are carried out in the normal course of operations. The accounts payable to related parties are on normal commercial terms and conditions and are non-interest bearing.
Litha Medical Logistics Proprietary Limited charged cold chain logistics fees of R8.2 million in the fourth quarter and R17.1 million for the six months ended 31 December 2012 to The Biovac Institute, a
joint venture. Prior to the deconsolidation of The Biovac Institute in the second quarter, these logistics fees were eliminated on consolidation.
In May 2012, Litha Medical Proprietary Limited, a 100% held subsidiary of Litha, signed an addendum to the existing lease agreement with Firefly. The terms of the addendum resulted in the classification
of the lease, under the criteria in IAS 17, as a finance lease. Payments related to this finance lease amounted to R4.1 million for the year ended 31 December 2012.
Litha paid R5.0 million underwriting fees in connection with the raising of the R125.0 million RMB loan to Blackstar Limited, a shareholder of the entity, of which the company is an associate.
5. ACQUISITION OF PHARMAPLAN (PTY) LTD (PHARMAPLAN)
Effective 2 July 2012, the group acquired 100% of the issued share capital of Pharmaplan from Paladin Labs Inc. (Paladin) for a total consideration of R590 million. The purchase price was settled
through the issue of 169 090 909 shares at a price of R2.75, the remaining R125 million was settled with cash. The cash portion of this acquisition was financed through the issue of 125,000 redeemable,
no par value Preference Shares at R1,000 per share to RMB.
Pharmaplan is a pharmaceutical company which represents small to medium sized international principals in South Africa and other selected sub-Saharan territories. The company offers a full service of
registering, importing, promoting and distributing the products of its principals exclusively to all wholesalers, hospitals and clinics in South Africa and selected neighbouring countries. According to IMS data,
Pharmaplan is ranked the 8th top generic company in South Africa.
The acquisition of Pharmaplan achieves Lithas objective of becoming a diversified healthcare business and delivers on its strategy of creating scale through acquisitions within Lithas Pharma Division. The
merging of the Litha Pharma Division with Pharmaplan boosts Litha Pharmas current portfolio, broadens its access to international research and development pipelines and improves its current platform for
expansion into new therapeutic markets.
In addition, the strategic relationship with Paladin, which now owns 44.5% of the Litha, provides Litha with access to Paladins portfolio of products for the South African and sub-Saharan markets. Paladin
intends to play an active role in opening up international licensing opportunities from a product pipeline and investment perspective. It is anticipated to produce increased deal flow and future product
acquisition success rates for Litha.
Qualitative factors which make up goodwill include: its ability to attract suppliers of innovative and biotechnology pharmaceuticals due to its historic success and reputation over many years; the wealth of
experience of its executive team to source and ultimately commercialise pharmaceutical products within South Africa and its strong relationships with the private and public healthcare sectors. In addition,
the benefits that Pharmaplans scale will bring to the group and the extensive range of products that span across different therapeutic groups can be used as a platform for existing and new product ranges.
The acquisition was accounted for using the acquisition method of accounting and the results of Pharmaplan are included in the Companys consolidated financial statements from 2 July 2012, the effective
date of the transaction. The purchase price was allocated as follows:
2 July 2012
(R000) 100%
Net book value of identifiable assets acquired 65 099
Definite life intangibles 348 498
Indefinite life intangibles 6 325
Future income tax liabilities (97 580)
Goodwill 267 658
Acquisition price 590 000
During the period 2 July 2012 to 31 December 2012, Pharmaplan recorded revenue of R186.9 million and net income of R37.8 million.
Effective date of acquisition for accounting purposes 2 July 2012
Voting equity percentage 100%
At acquisition fair values
(R000)
Non-current assets acquired
Property, plant and equipment 322
Other non-current assets 4 597
Current assets acquired
Inventory 59 553
Trade receivables 54 951
Current liabilities assumed
Accounts payable and provisions (51 353)
Bank overdraft (2 971)
Net asset value 65 099
Total cost of acquisition
Cash 125 000
Issuance of 169 090 909 shares at R2.75 465 000
Goodwill 269 429
Revenue for the period 2 July to 31 December 2012 186 926
Profit for the period 2 July to 31 December 2012 37 820
Revenue for the period 1 January to 31 December 2012 388 829
Profit for the period 1 January to 31 December 2012 72 587
Details of debtors:
Trade receivables 60 072
The average debtors days outstanding are 44 days. Due to the short term nature of the trade receivables, cost is considered to be fair value. All trade receivables are expected to be collected.
6. INVESTMENT IN JOINT VENTURE
Investment in The Biological and Vaccines Institute of Southern Africa Proprietary Limited (Biovac)
On June 30, 2012, the Company re-evaluated the accounting treatment of its investment Biovac. The government, which is a 47.5% shareholder in Biovac, has taken an increasingly significant role in the
business decision-making of Biovac and accordingly, under IFRS 11 - Joint Arrangements, is considered to jointly control Biovac along with Litha. As a result, effective 30 June 2012, Litha deconsolidated its
interest in Biovac and recognised an investment in a joint venture.
The deconsolidation required the Company to measure its share in the fair value of Biovac. The allocation of the fair value of the investment in The Biovac Institute is identified below:
Ownership percentage: 52.5%
(R000)
Lithas portion of fair value 266 034
Lithas portion of definite life intangibles (46 961)
Deferred taxation 13 149
Goodwill 232 222
(R000)
Carrying value, beginning of period -
Recognition at 30 June 2012 266 034
Share of net loss for the period before adjustments (2 619)
Adjustments to net income:
Amortisation of fair value adjustments (4 696)
Deferred taxation effect 1 315
Share of net loss for the period (6 000)
Carrying values, end of period 260 034
The Company is presenting selected financial information derived from Biovacs IFRS compliant unaudited management accounts for the six months ended 31 December 2012.
Biovacs statement of income data (R000)
Turnover 504 091
Cost of sales (480 351)
Gross income 23 740
Operating expenses (26 020)
Earnings before items noted here under (2 280)
Interest, depreciation and income taxes (2 709)
Net income for the period (4 989)
Biovacs Statement of Financial Position data (R000)
Total assets 936 506
Total liabilities 812 079
7. CAPITAL COMMITMENTS
Biovac has entered into agreements to purchase R64.8 million (2011: R35.1 million) of improvements and equipment relating to the manufacturing facility which is expected to take place during the 2013
financial year.
8. SEGMENT INFORMATION
Medical Pharma- Bio-
Segment device ceutical technology
(R000) division division division Group
Year ended
31 December 2012
Turnover (External) 289 045 350 312 795 103 1 434 460
Reportable segment profit 41 603 31 256 226 702 299 561
Head Office costs (59 514)
Operating profit (before taxation) 240 047
Total Assets 315 605 976 963 492 432 1 785 000
Medical Pharma- Bio-
device ceutical technology
(R000) division division division Group
Quarter ended
31 December 2012
Segment 78 584 135 275 23 643 237 502
Reportable segment profit 5 612 9 912 4 705 20 229
Head Office costs (32 464)
Operating profit (before taxation) (12 234)
Total Assets 315 605 976 963 492 432 1 785 000
Medical Pharma- Bio-
device ceutical technology
(R000) division division division Group
Year ended
31 December 2011
Segment 351 287 106 604 1 289 135 1 747 026
Reportable segment profit 82 498 14 561 67 447 164 506
Head Office costs (18 768)
Operating profit (before taxation) 145 738
Total Assets 361 928 134 151 946 666 1 442 745
9. DIVIDEND
No dividend has been recommended or declared for the period. It is anticipated that while the group continues with its investing strategy, it will continue to reinvest any profit generated back into the
businesses. The group will review its dividend declaration policy in the medium term.
For and on behalf of the board
N Sowazi S Kahanovitz
Chairman Chief Executive Officer
Johannesburg
28 February 2012
COMMENTARY
1. NATURE OF BUSINESS
Litha is a diversified healthcare business providing services, products and solutions to public and private hospitals and government healthcare programmes in Southern Africa. It has three divisions - Litha
Biotech (vaccines), Litha Medical (medical devices) and Litha Pharma (pharmaceuticals and complementary medicines).
Introduction
Biovac deconsolidation
As previously disclosed, Biovac has been accounted for as a joint venture from 30 June 2012. Biovacs results have therefore been fully consolidated for the first six months of the year. Its results have been
included in the line Loss from joint venture for the six months ended 31 December 2012.
Pharmaplan acquisition
On 2 July 2012, Litha completed the acquisition of Pharmaplan. Consequently, Pharmaplans results have been consolidated for the six months ended 31 December 2012.
2. FINANCIAL OVERVIEW
Statement of Comprehensive Income
Turnover for the three months ended 31 December 2012 was R237.5 million and R1 434.5 million (2011 R1 747.0 million) for the year ended 31 December 2012. As explained above, the 2012 revenue
includes Biovacs turnover for the first six months, and Pharmaplans turnover for the last six months of the year.
Other income for the year ended 31 December 2012 was R18.2 million (2011: R34.8 million). Other income relates to the groups external logistics fees, income from grants received and sundry income.
The 48% decrease in other income is due to the deconsolidation of Biovac mid-year, which accounted for the majority of the other revenue.
Operating loss before income tax for the three months ended 31 December 2012 was R19.7 million. Operating profit before income tax for the year was R215.8 million (2011: R138.6 million). A large portion
of the increase in operating profit stems from the deconsolidation of Biovac in the second quarter. Upon deconsolidation Litha fair valued its investment in Biovac, which is now accounted for as a joint
venture. This resulted in a R171.5 million gain.
The operating profit for the year was negatively impacted by a number of factors, including:
- The weakness of the Rand which resulted in higher cost of sales and losses on foreign exchange contracts
- Subsequent to year end, Single Exit Price (SEP) adjustment of 5,8% is being implemented quarter one, 2013
- Approximately 60% of Lithas foreign purchases are paid for in United States Dollars, 30% in European Euros and 10% British Pounds.
- The delayed tender in the forensic business unit within Litha Medical
- at year-end the tender was awarded to Manta Forensic
- Impacts from the Pharmaplan transaction
- Once-off transaction and integration costs of R6.4 million
- IFRS adjustment of R4.7 million to stock and cost of sales
- Interest expense of R4.6 million
- Increased amortisation of intangibles relating to Pharmaplan and other recent acquisitions of R20.8 million
Due to the abovementioned factors, (loss)/earnings per share from continuing operations was (2.8) cents per share for the three months ended 31 December 2012 and 37.9 cents for the year ended 31
December 2012. Headline (loss)/earnings per share from continuing operations, which excludes the once-off profit on deconsolidation and other unusual items, was (2.7) cents per share for the fourth
quarter and 6.8 cents per share for the year ended 31 December 2012.
Reconciliation to EBITDA
Management believes that EBITDA (earnings before interest, taxes, depreciation and amortisation) has become a more meaningful measure due to the large amortisation of intangibles and significant
increase in finance costs associated with recent acquisitions.
In the fourth quarter of 2012, amortisation of intangibles was R17.8 million and R35.9 million for the year.
EBITDA does not have a standardised definition under International Financial Reporting Standards (IFRS) and therefore may not be comparable to similar measures presented by other companies. The
company defines EBITDA as earnings before interest income/expense, other expense/income, taxes, amortisation, depreciation, foreign exchange gain/losses, income/loss from joint ventures and equity
accounted investments and unusual items such as write-downs and gains/losses on investments. EBITDA is calculated and presented consistently from period to period. The company believes EBITDA to
be an important measurement that allows it to assess the operating performance of its ongoing business on a consistent basis without the impact of amortisation and depreciation expenses. The company
excludes depreciation and amortisation expenses as their level substantially depends on non-operating factors such as the historical cost of property, plant and equipment and intangible assets.
Comparative figures for 2011 have not been disclosed as Biovac was consolidated for the full year and the Pharmaplan acquisition had not taken place. The information would therefore not be meaningful.
Three months Year
ended ended
31 December 31 December
(R000) 2012 2012
(Loss)/ Profit before taxation (19 698) 215 841
Add back:
Interest expense 11 815 29 658
Depreciation expense 3 880 11 368
Amortisation expense 17 885 35 838
Net (gain)/loss from Joint Venture (404) 6 000
Net (profit)/loss from equity accounted investment (170) 262
Foreign exchange loss 10 079 12 458
Write off of intangible assets 507 507
Other finance expense 357 599
Less:
Interest income (2 428) (13 126)
Profit on deconsolidation of Biovac - (171 530)
EBITDA 21 823 127 875
Non-operating interest expense of R7.5 million for the quarter and R24.2 million for the year, relates to interest expense on the Rand Merchant Bank (RMB), a division of First Rand Bank Limited Preference
Shares, which was raised to fund the cash portion of the acquisition of Pharmaplan, the initial RMB term loan raised in June 2011 and the IDC and Technology and Innovations Agency of South Africa
loans within the Litha Biotech division.
The effective tax rate for the year ended 31 December 2012 was 5.3% (2011: 19.7%), mostly due to the non-taxable profit recognised on deconsolidation of Biovac, which was slightly off-set by the
non-deductibility of interest expense and transaction costs related to the Pharmaplan acquisition.
As outlined in the June 2012 results, the full R7.6 million of the previously disclosed discontinued operations of the Capex and Cardiac business units have been provided for.
Statement of Financial Position
Due to the deconsolidation of Biovac discussed above, the statement of financial position is not comparable in most respects to the prior year.
In May 2012, Litha signed an addendum to the existing lease agreement with Firefly Investments 223 Proprietary Limited (Firefly), an associate. The terms of the addendum resulted in the classification of
the lease, under the criteria in IAS 17, as a finance lease. This resulted in the capitalisation of the building amounting to R63.9 million, with a corresponding liability of R63.9 million.
The increase in goodwill and intangibles arises mainly from the allocation of the purchase price upon acquisition of Pharmaplan; refer to note 5, and the capitalisation of Cpoint capital share based
payments expense.
The increase in investment in associates arises from Lithas 30% share of Firefly, an entity which owns the office/warehousing building in Midrand.
The investment in joint venture relates to the investment in Biovac. Upon deconsolidation of Biovac, Litha fair valued its 52.5% investment in Biovac and recorded a gain of R171.5 million. During the second
half of the year, the investment decreased by R6 million due to losses from Biovac and the related amortisation of intangibles. Refer to note 6 below.
Other non-current assets relates to a social responsibility loan to the Disability Empowerment Concerns Trust.
Other current assets relates to amounts receivable from Biovac for logistics services provided.
The R22.9 million tax receivable relates to the over provision for taxation, which was based on prior year profits, R9.9 million of which has already been refunded subsequent to year end.
Litha raised R125 million through a preference share loan during the period to fund the cash portion of the acquisition of Pharmaplan. The funding for Biovacs manufacturing facility was raised at the
Biovac Consortium Proprietary Limited level, a holding company for Biovac and an 85% held subsidiary of Litha. These funds were on-lent to Biovac, resulting in the loans to joint venture of R104.8 million.
As previously noted, the debt relating to Biovac operations should not be used in determining the groups gearing as Biovac does not rely on the group to provide funding and is operationally separate. The
table below shows the gearing excluding and including debt related to Biovac.
Excluding Biovac Including Biovac
December December December December
2012 2011 2012 2011
Interest bearing debt (R000) 308 425 95 766 407 919 111 663
Equity (R000) 1 107 596 512 109 1 107 596 512 109
% 27.8% 18.7% 36.8% 21.8%
The large increase in deferred tax liability mostly relates to the deferred tax raised on the intangible assets realised upon the allocation of the purchase price for the acquisition of Pharmaplan. See note 5
below.
The increase in share capital and premium relates to the issue of 169 090 909 shares at R2.75 per share for the share-based portion of the settlement of the Pharmaplan acquisition.
Cash flow
Cash flows from operating activities were R160.6 million from R53.7 million in 2011, an increase of 199%. This stemmed primarily from the collection of outstanding amounts from the Gauteng Department
of Health in the beginning of the year.
Cash outflow from investing activities was R187.1 million for the year (2011: R247.6 million). During the year, Litha purchased property, plant and equipment for the vaccines facility in Cape Town for R48.0
million and invested R7.0 million in products within the Pharmaceutical division. Additionally, R125.0 million of cash was paid to Paladin Labs in connection with the acquisition of Pharmaplan. Other
additions to property, plant and equipment amounted to R8.9 million with the remaining effect being the proceeds on sale of property, plant and equipment.
Cash generated from financing activities was R85.2 million for the year ended 31 December 2012 (2011: R73.0 million). Cash generated arose primarily from the R125.0 million raised to fund the cash
portion of the Pharmaplan transaction and R5.9 million received as compensation for leasehold improvements on the Midrand property from Firefly, partially offset by the repayment of the loans.
Cash and cash equivalents were negative R13.4 million for the year ended 31 December 2012 (2011: Positive R111.6 million) excluding the cash in Biovac of R179 million which arose as a result of the
deconsolidation. With cash generation in 2013, the Company will reduce the overdraft. Net overdraft acquired upon the acquisition of Pharmaplan was R2.9 million.
3. OPERATIONAL OVERVIEW
Litha Biotech
Due to the deconsolidation of Biovac at 30 June 2012, the divisional revenue of R795 million for the 12 months ended 31 December 2012 only includes six months of Biovacs revenue. During the second
half of the year, Biovac was accounted for as an investment in joint venture and, accordingly, Lithas share of Biovacs net loss for the second six months was included in the operating loss for the year.
Lithas share of Biovacs net loss amounted to R6 million for the six months ended 31 December 2012.
The Good Manufacturing Practice (GMP) inspection of the Biovac facility which was anticipated in late 2012 was delayed by the Regulator. The company successfully finalised all pre-audits by quarter three
2012. The inspection is anticipated to take place in the first half of 2013.
Divisional revenue, excluding Biovac, was R24.2 million for the quarter and R132 million for the year ended 31 December 2012 (2011: R114.7 million). The 15% increase during the year was primarily driven
by strong demand of rabies vaccines in Litha Vaccines.
Segment profit was R23.6 million for the fourth quarter and R226.7 million for the year ended 31 December 2012 (2011: R67.5 million). This 236% increase is primarily due to the one-time profit recognised
on the deconsolidation of Biovac. This division contributed 43% to group operating profit (excluding the gain on deconsolidation of Biovac) before head office expenses.
Litha Medical
Litha Medical turnover was R78.6 million for the quarter and R289 million for the year ended 31 December 2012 (2011: R351 million). The 18% decrease year-on-year was due to the delay in adjudication
of the forensic tender which accounted for R33.3 million of revenue in 2011. Revenue was further impacted by a slowdown in government business in 2012 which accounted for R10 million in sales in 2011.
The forensic tender outlined at interim was adjudicated at the beginning of December and the full tender was awarded to Manta Forensic for a two year period. Revenue will start to flow through from the
end of the first quarter of 2013.
Segment profit was R5.6 million for the quarter and R41.6 million for the year ended 31 December 2012 (R82.5 million). In addition to revenue shortfalls, operating profit was impacted by increased cost of
sales due to foreign exchange losses resulting from the weakening of the Rand. Operating costs increased during the year due to investment costs associated with new agency developments. These costs
related to the Intuitive Surgery and Ophthalmic agencies in Earth Medical and are seen as investment costs. The benefits are expected in 2013. This division contributed 32% to group operating profit
(excluding the gain on deconsolidation of Biovac) before head office expenses.
Litha Pharma
Litha Pharmas revenue was R135.3 million for the quarter and R350.3 million for the year ended 31 December 2012 (2011: R106.6 million). The 229% increase year-on-year is primarily due to new
business acquisitions, mainly the acquisition of Pharmaplan, which contributed R186.9 million to revenue during the last six months.
Segment profit was R9.9 million for the quarter and R31.3 million for the year (2011: R14.6 million). The 115% increase was driven by incremental profit associated with the acquisition of Pharmaplan which
contributed R37.8 million since acquisition. This was partially offset by once-off costs of R6.4 million related to the Pharmaplan transaction, a once-off stock adjustment of R4.7 million also associated with
the acquisition of Pharmaplan and the integration of the entire division. This division contributed 24% to group operating profit (excluding the gain on deconsolidation of Biovac) before head office expenses.
The merger of Litha Pharma and Pharmaplan continues to progress well and the financial systems have been integrated from 1 January 2013.
Litha expects to extract further efficiencies and cost savings as the integration within the Pharma division is reaching finality.
Shared Services
The shared services strategy is rolling out ahead of schedule. During the year, the group conducted a review of all the businesses at the Midrand head office. This process involved developing resourcing
and talent plans and assessing policies and procedures requiring modification.
The recent acquisition of Pharmaplan resulted in a restructuring of the Litha Pharma division to reduce redundancies and allow for a more focused approach to sales through a prescription and a
commercial team to ensure improved support and sales for the same product through both sales teams. Going forward, the Litha Medical division will be restructured to ensure cost containment and the
elimination of duplication. The OTC Pharma SA and Goldex Healthcare acquisitions from 2011 have been fully integrated.
At a group level, an ERP system was implemented and all the businesses have moved onto this platform as of January 2013.
4. PROSPECTS
The strategy of the group is to shift into its next growth phase by growing revenue both organically, through the addition of new products and through signing more agency agreements. Litha is also
continuing to seek to broaden its footprint in the SADC region over the medium term through joint ventures and licensing agreements with regional distributors. Transformation will also be a key objective of
the group to align the business with the anticipated changes to BBBEE legislation.
The GMP inspection at Biovac in the Litha Biotech division is expected to take place in the first half of 2013 and the commercial manufacture of the Hepatitis B vaccine is expected to commence by quarter
four 2013. Moreover, viewing, labelling and packaging as well as the construction of the final infrastructure is expected to be completed and operational by quarter four 2013. Biovac continues to negotiate
additional technology transfers.
The Litha Medical division will be restructured to optimise market reach and improve profitability. Acquiring and developing products and agencies will be core to the divisions strategy. A local assembly,
packaging and sterilisation facility is already in development, which will allow the segment to expand its range of locally assembled medical consumables for the private and public sector.
Litha Pharma anticipates the approval of a significant number of products by the Medicines Control Council (MCC) during 2013. Litha Pharmas regulatory department was expanded in 2012 in anticipation
of the additional resources required to manage its pipeline. Short term growth is expected to be fuelled by organic growth from new products that were launched in 2011 and 2012, while expansion of the
product pipeline through additional licensing agreements during 2013 will bring positive future growth.
The group believes it is poised to take advantage of its existing sales and marketing infrastructure in both Litha Pharma and Litha Medical to organically grow through existing products and for future product
and agency additions. Management is actively implementing processes and efficiencies to increase Lithas EBITDA and reduce the operating costs. The group is looking forward to 2013 being a year of
solid growth with a strong focus on operations and building the product base.
Litha expects revenues to be approximately R1 053 million in the 2013 financial year.
The forecast financial information on which the above is based has not been reviewed or reported on by the groups auditors.
Directors: N Sowazi*, S Kahanovitz, M Makhoana, M Kahanovitz, G Hoogland, AD Bonamour* W Marshall-Smith*, M Mzimba*, F Hendricks*, I Jacobson*#, V Mcobothi*, M Beaudet*+, M Nawacki*+
(*non-executive) (+Canadian) (#British)
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Registered auditors: Mazars
Transfer Secretaries: Computershare Investor Services
Registered Office: 106 16th Road, Midrand, 1686
www.lithahealthcare.co.za
Date: 28/02/2013 08:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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