Wrap Text
Audited Financial Results and Dividend Declaration
AFROCENTRIC INVESTMENT CORPORATION LIMITED
Registration number 1988/000570/06
JSE Code: ACT, ACTP
ISIN: ZAE 000078416, ZAE 000082269
(“Afrocentric” Or “The Company” Or “The Group”)
AUDITED RESULTS
FOR THE YEAR ENDED 30 JUNE 2013
- Revenue up 22.2%
- Operating profit up 28.7%
- Normalised earnings per share up 31.3%
- Dividend per share up 42.9%
- Cash and cash equivalents up 48.9%
- Profit warranty level attained – 90%
Our People
Our Passion
The Board of Directors has pleasure in presenting the Group’s audited
results for the year ended 30 June 2013.
AfroCentric Investment Corporation Limited (“AfroCentric”) is a black-
controlled, diversified investment holding company, listed in the
health-care sector of the JSE. AfroCentric commenced business during
2007, having raised R100 million by way of a rights issue. 51% of the
rights to the ordinary shares were renounced by the promoters in favour
of The AfroCentric Empowerment Trust (“the Trust”), commencing a
cognitive process for transformation, with any enhanced value inter
alia, for the Trust’s BEE beneficiaries. At 30 June 2013, the market
capitalisation value of AfroCentric’s ordinary share capital exceeded
R1 billion.
The year ended 30 June 2013 marks an important milestone for the
Company and the progress of the Group’s investment interests. For a
more meaningful appreciation of the financial performance of the Group
of and the detailed information presented herein, the nature and
context certain significant events surrounding each of the Group’s two
principal investments need to be explained. These are explained
alongside, under the heading: Commentary.
Condensed consolidated statement of financial position
Audited Audited
year ended year ended
30 June 2012 30 June 2013
R’000 R’000
Non-current assets 1 031 881 991 884
Property, plant and equipment 90 349 97 016
Investment property 15 000 10 300
Intangible assets 628 305 611 042
Unlisted investments 280 280
Investment in associates 42 484 86 765
Investment in preference shares 100 000 100 000
Interest bearing loan 74 000 –
Deferred income tax assets 81 463 86 481
Current assets 496 780 371 416
Trade and other receivables 127 279 108 511
Receivables from associates and joint 2 378 14 591
ventures
Current tax asset 6 912 6 404
Cash and cash equivalents 360 211 241 910
Total assets 1 528 661 1 363 300
EQUITY AND LIABILITIES
Capital and reserves 1 002 874 882 815
Issued capital 356 711 349 365
Contingent shares to be issued 137 258 188 540
Share-based awards reserve 49 225 9 357
Treasury shares (2 324) (1 772)
Foreign currency translation reserve 1 254 (646)
Distributable reserve 460 750 337 971
Non-controlling interest 50 205 30 625
Total equity 1 053 079 913 440
Non-current liabilities 268 375 271 968
Deferred income tax liabilities 51 090 47 595
Interest bearing loan 200 000 200 000
Provisions 8 350 8 350
Post-employment medical obligations 3 551 3 504
Accrual for straight lining of leases 5 384 12 519
Current liabilities 207 207 177 892
Borrowings 7 926 8 346
Provisions 8 677 8 779
Trade and other payables 94 246 76 802
Taxation – 4 149
Employment benefit provisions 96 358 79 816
Total liabilities 475 582 449 860
Total equity and liabilities 1 528 661 1 363 300
Condensed consolidated statement of comprehensive income
Audited year Audited year
ended ended
30 June 2013 30 June 2012
%
Change R’000 R’000
Revenue 22.2% 1 770 330 1 448 261
Operating costs (1 436 673) (1 188 960)
Operating profit 28.7% 333 657 259 301
Other income 2 307 14 894
Foreign exchange benefit 1 900 –
Net finance cost 8 168 3 371
Share of associate (losses)/profits - (30 030) 5 988
Jasco
Share of associate profits - 8 553 8 854
Healthcare
Profit before impairment and 324 555 292 408
amortisation
Fair value gain of investment 5 252 1 175
Fair value gain on investment in 7 253 13 162
associate
IFRS 2 compliance adjustment (note 1) (39 868) (9 357)
Profit on sale of investment 51 014 –
Depreciation (37 251) (38,128)
Amortisation of intangible assets (40 098) (36 356)
Profit before income tax 21.5% 270 857 222 904
Income tax expense (84 848) (42 523)
Profit for the year 186 009 180 381
Other comprehensive income – –
Total comprehensive income for the 186 009 180 381
year
Attributable to:
Equity holders of the parent 163 570 164 506
Non-controlling interest 22 439 15 875
186 009 180 381
Note 1: actuarially determined cost of share-based awards in each period
reserved for selected executives of Afrocentric Health Limited (“AHL”)
in terms of the 2008 Acquisition Agreement, categorised for disclosure
herein in terms of IFRS 2.
Condensed consolidated statement of changes in equity
Audited Audited
year ended year ended
30 June 30 June
2013 2012
R’000 R’000
Balance at beginning of the period 913 440 747 635
Issue of share capital 7 345 5 579
Share-based awards reserve 39 868 9 357
Reduction in contingent shares to be issued (51 282) –
Revaluation of treasury shares issued (552) (1 496)
Dividends reclaimed and subsidiary acquisitions – 5 868
Distribution to shareholders (33 219) (28 274)
Net profit for the year 163 570 164 506
Profit attributable to minorities 22 439 15 875
Acquisition of businesses (4 477) –
Distribution to AHL minorities (4 053) (5 610)
Balance at end of period 1 053 079 913 440
Condensed consolidated statement of cash flows
Audited Audited
year ended year ended
30 June 2013 30 June 2012
%
change R’000 R’000
Cash generated from operations 33.4% 340 413 255 152
Net finance income 8 168 3 371
Distribution to shareholders (33 196) (28 274)
Tax and other payments (88 305) (114 044)
Net cash inflow in operating activities 227 080 116 205
Net cash outflow from investing (114 459) (55 321)
activities
Net cash inflow from financing 3 780 8 315
activities
Effect of foreign exchange benefit 1 900 –
Net increase in cash and cash 118 301 69 199
equivalents
Cash and cash equivalents at beginning 241 910 172 712
of the period
Cash and cash equivalents at end of the 48.9% 360 211 241 910
period
Earnings attributable to equity holders
Audited Audited
year year
ended ended
30 June 30 June
% 2013 2013
change R’000 R’000
Headline earnings reconciliation
Number of ordinary shares in issue 270 010 639 268 231 817
Number of preference shares in issue 16 638 000 16 638 000
Weighted average number of ordinary 269 256 170 267 276 657
shares
Weighted average number of shares for
diluted EPS which include shares on
conversion of preference shares, 452 953 162 332 384 302*
share-based awards and second tranche
shares to be issued
Basic earnings 163 570 164 506
Adjusted by:
– Loss/(profit) on disposal of assets (51 014) –
– Fair value gain of investment (5 252) (1 175)
– Fair value adjustment of investment (7 253) (13 162)
in associate
– Adjustment of impairments 30 030 –
recognised by associate
– Loss/(profit) on disposal of assets (440) (566)
– Fair value adjustments (other) (4) (810)
Headline earnings 129 637 148 793
Earnings per share (cents)
– Attributable to ordinary shares (1.3%) 60.75 61.55
(cents)
– Diluted earnings per share (cents) (31.0%) 36.11 52.31
Headline earnings per share (cents)
– Attributable to ordinary shares
(13.5%) 48.15 55.67
(cents)
– Diluted earnings per share (cents) (39.8%) 28.62 47.58
Cash earnings per share generated from
operations (cents)
– Attributable to ordinary shares 32.4% 126.43 95.48
(cents)
– Diluted earnings per share (cents) (2.1%) 75.15 76.77
* The 2012 diluted eps excludes the second
tranche shares to be issued.
Segmental analysis
AUDITED RESULTS AUDITED RESULTS
for the year ended 30 June for the year ended 30 June
2013 2012
Profit Total Profit Total
Revenue before assets Revenue before assets
tax tax
R’000 R’000 R’000 R’000 R’000 R’000
Healthcare 1 770 330 337 215 1 276 080 1 448 261 217 086 977 763
administration
Electronics
(including - (30 030) – – – 5 988
investment
income)
Treasury – 6 587 121 584 – 7 758 119 561
activities
Other
(including - (42 915) 130 997 – (7 928) 265 976
inter-segment
elimination)
1 770 330 278 857 1 528 661 1 448 261 222 904 1 363 300
INTRODUCTION
AfroCentric Health (formerly Lethimvula) (AHL)
AfroCentric’s acquisition of AHL in 2008 included a profit warranty
provision. The warranty considers the aggregate profits after taxation
(PAT) (specially fashioned and purposely defined in the acquisition
agreement) (“the 2008 Acquisition Agreement”) over the three-year
period, which ended on 30 June 2013 (the measurement period:). The
quantum and second tranche payments to vendor shareholders (also
defined in the 2008 Acquisition Agreement and the 2008 and 2009
Circulars) is based on the actual PAT delivered over the measurement
period (calculated in terms of the special purpose definition).
The positive results of the warranty measurement and the quantum of the
second tranche shares to be issued and cash to be paid, are clearly set
out elsewhere in this announcement. The second tranche shares to be
issued have been included in the calculation of diluted earnings per
share and diluted headline earnings per share “as if”, the second
tranche shares to be issued were already in issue on 30 June 2013.
Having regard to the three-year duration of the profit warranty and its
measurement period, certain non-recurring and, in certain cases, non-
cash costs (only determinable and qualifying for payment at the end of
the warranty period), have all been provided for in this year which,
not unexpectedly, have had a once-off impact on the Group’s basic and
headline earnings.
The 2008 Acquisition Agreement also contemplated an award of a minimum
of 20 million AfroCentric shares to certain executives of AHL, to be
awarded at the end of the warranty period. During the course of that
period, those executive shares already allocated, have been categorised
as share-based payments in terms of IFRS 2 and the actuarially-
determined “non-cash” costs were provided for in each of the company’s
relevant reporting periods. The Boards of AfroCentric and AHL have, for
the time being, approved an allocation marginally in excess of 20
million shares and the actuarial values only of the confirmed
allocations are disclosed as “non-cash” deductions in the Consolidated
Statement of Comprehensive Income as consistently described in each
year as an IFRS 2 compliance adjustment.
The executive share awards, although still to be issued, will also be
included in the calculation of diluted earnings per share and diluted
headline earnings per share “as if” these share awards were in issue on
30 June 2013. A further allocation of these same share awards have been
reserved for purposes of executive retention going forward.
In addition, shareholders will be aware that the AfroCentric preference
shares (ACTP) are redeemable or convertible prior to 31 December 2013.
In compliance with IFRS, the ordinary shares to be issued on conversion
of the preference shares, have also been included in the calculation of
diluted earnings and diluted headline earnings per share “as if” the
additional ordinary shares (on conversion at 100%) were in issue on 30
June 2013.
Pursuant thereto based on the rights and covenants attaching to the
preference shares, the conversion formula is applied to ordinary shares
already issued, plus those now deemed issued, in respect of the second
tranche issue of shares and the executive share awards.
Technology Associate “Jasco”
AfroCentric has a 27,3% non-controlling interest in JSE-listed Jasco.
Jasco reported its audited results for the year-ended 30 June 2013 on
18 September 2013 and shareholders are respectfully referred to the
Stock Exchange News Services (SENS) under the code: JSC for more
details.
The significant event in the case of Jasco substantially arises from
impairments disclosed in its recent results announcement, more
specifically, the material impairment of Jasco’s 51% investment in
Malesela-Taihan Electric Cables (M-Tech). Apart from a mark to market
fair value adjustment, given the material impairment in M-Tech,
AfroCentric’s consequential share of losses from this associate are
accounted for as part of normal earnings.
This “non-cash” share of associate losses is however, disclosed as an
adjustment in the determination of headline earnings. It is common
cause that M-Tech has continually under-performed and has been a
retarding feature of Jasco’s overall progress. Jasco has reported that
M-Tech, (which has a substantial net asset value) has been classified
at 30 June 2013 as an “asset for sale”.
DIRECTIVE
Given the significant events recorded above and the particularly
uncommon and extraordinary impact on earnings, diluted earnings and
headline earnings per share reported herein, in addition to the
disclosures mandated by IFRS, the Board believes the table, under the
heading “Normalised Earnings”, more appropriately presents the
consistency in the Group’s comparable growth in earnings and the
improvement in its comparative quality of earnings.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial statements for the year ended 30
June 2013 are prepared in accordance with the requirements of
International Financial Reporting Standards (“IFRS”), the SAICA
Financial Reporting Guides as issued by the Accounting Practices
Committee, the JSE Limited Listings Requirements, and the South African
Companies Act No 71 of 2008, as amended. The condensed consolidated
financial statements are prepared on the historical cost basis and the
accounting policies are consistent with those adopted and applied for
the year ended 30 June 2012 in terms of IFRS.
GROUP INVESTMENTS
AfroCentric holds a substantial 94.07% majority stake in AfroCentric
Health Limited (“AHL”). AHL owns 100% of the issued share capital in
Medscheme Holdings (Pty) Limited (“Medscheme”), a multi-medical scheme
administrator and managed care provider. As the largest health risk
management services provider and third largest medical scheme
administrator in South Africa, Medscheme’s focus is to achieve
sustainability through innovation, effective health risk management,
complemented by a relentless drive for operational and service
excellence. Medscheme has over 3.2 million lives under management.
Medscheme’s healthcare management expertise has been gained over 41
years, which includes several years of experience with the Government
Employees Medical Scheme (“GEMS”). Although Medscheme is essentially a
South African enterprise, the Group has a meaningful presence in
Botswana, Namibia, Mauritius, Swaziland and Zimbabwe. Furthermore,
Medscheme has recently purchased a 26% stake in Alexander Forbes
Healthcare Limited in Kenya. Medscheme’s operations in Mauritius
continue to provide an excellent platform for further international
expansion and AHL continues to explore other opportunities on the
African continent and elsewhere. Health Management and technical
support services are provided to clients in the Republic of Ireland out
of Mauritius.
As already recorded herein, AfroCentric has a 27.3% non-controlling
interest in JSE-listed Jasco Electronics Holdings Limited (“Jasco”).
Jasco provides solutions, services and products to customers through
three core verticals: Information and Communication Technologies,
Industry Solutions and Energy Solutions. Further information on Jasco
can be found on the JSE lists under the code: JSC.
AfroCentric’s exploration and prospecting relationship with Rio Tinto
PLC continues in terms of the Relationship and Strategic Cooperation
Agreement (RSCA). During the course of the year the Company entered
into a contract in terms of the RSCA for a significant minority
interest in a new iron ore exploration joint venture. The land rights
and prospecting terms remain to be finally approved by the DMR.
OPERATIONAL REVIEW
AfroCentric’s operating profits amounted to R334 million during the
period under review (2012: R259 million) an increase of 29%. The
improved profitability arises primarily from AHL’s increased revenue
growth from expanding operations and continuing efficiency improvements
in the Administration and Health Risk Management business.
Apart from organic growth, notable positive features during the year
were the amalgamation and inclusion of the Pro-Sano Medical Scheme’s 26
000 members into the Bonitas Medical Fund and the sale of Medscheme’s
investment in TradeBridge yielding a profit of R51 million.
In addition as part of AHL’s overall services, certain relationships
were restructured and consolidated to provide improved stimulus for
protection and sustainability, in the interests of Medscheme’s client
base and that of its existing and potential membership.
We are also proud to highlight that in a recent national “index of
satisfaction” survey of medical scheme membership in South Africa,
members of Medscheme client, Bonitas Medical Fund were found to be the
most satisfied medical scheme members in so far as value for money and
administration attention and services are concerned.
FINANCIAL RESULTS
The increase in revenue of 22% (2012: 7%) was mainly due to organic
growth, growth in the GEMS administration and managed care contracts as
well as contributions from acquired and expanding divisions. Further
efficiency improvements in the health-care business via greater
economies of scale contributed to an even higher increase in operating
profit of 29% (2012: 16%). It is management’s intention to integrate
and streamline all acquired and expanding divisions to rationalise with
current Medscheme operations going forward. The reduction in other
income is mainly due to the termination of sub-let office space, rental
contracts in the old Bryanston premises. AHL’s core health-care
business has therefore continued its rate of compound growth in
earnings of 35% for the past four years. On a comparative basis net-
profit before tax increased by 21.5% (2012: 29.2%) AfroCentric’s
investment in Jasco was once again disappointing, its losses incurred
primarily as a result of the substantial impairment of its investment
in M-Tech. Given the nature of the associate losses, the amount is
adjusted in headline earnings and not expected to recur. Jasco has
forecast a return to profitability in the 2014 financial year.
The table of normalised earnings per share is set out hereunder
Year Year
ended ended
Normalised earnings attributable to % 30 June 30 June
equity holders change 2013 2012
Normalised earnings per share (cents) 31.3% 75.56 57.57
Diluted normalised earnings per share 31.6% 44.91 34.12
(cents)
Normalised headline earnings per share 21.8% 62.95 51.69
(cents)
Diluted normalised headline earnings 22.2% 37.42 30.63
per share (cents)
In calculating the normalised earnings per share the IFRS 2 charge has
been added back for purposes of calculating basic and headline earnings
for 2012 and 2013. Taxation of 28% has been applied to both years. The
weighted number of shares for the earnings per share in each case was
based on the same amount as per the statutory calculation shown in the
table of “Earnings Attributable to Equity Holders”.
PROFIT WARRANTY AND SECOND TRANCHE PAYMENTS
After a comprehensive analysis of AHL’s profits after tax for the years
2011, 2012 and this 2013 financial year, measured in terms of the
tailored definition of profit after tax, the Board are pleased to
report that a level of 90% of the profit warranty was attained over the
measurement period. The formula applied for the release of the second
tranche issue of shares, on this level of attainment, dictates that 80%
of the contingent shares be issued to vendor shareholders as defined.
Accordingly, 100 805 620 shares in respect thereof will be issued.
The second tranche cash payment of approximately R26 million in the
aggregate is based on the same percentage of shares to be issued to
vendor shareholders and will be paid simultaneously with the release of
the second tranche shares. This payment is made up of the aggregate
distributions by the Company to ordinary shareholders during the
warranty period. The actual amount payable may vary depending on the
date on which vendor shareholders offered their AHL (Lethimvula) shares
to the Company for sale.
The second tranche shares and second tranche cash payments are expected
to be issued and paid respectively in November 2013 and the Company
will, in due course, advise shareholders through announcements on SENS
and in major newspapers regarding the processes to be applied for this
purpose.
PROSPECTS
Now that the acquisition of AHL (Lethimvula) is virtually finalised,
shareholders can take comfort from the fact that AHL has developed into
a significant player in the private health-care industry, a company
with a proven business model, a sound, experienced and talented
management team and a track record revealing a sustainable and
impressive growth trend in earnings. It was gratifying, but not
entirely surprising, that this black-controlled Group, was recently
recognised by the Financial Mail/Accenture and rated fourth best
company for 2013. In retrospect, given the profits of AHL for 2013, at
R250 million after tax, the eventual purchase price paid for AHL
calculates at a PE ratio of less than 4 times earnings.
The Group’s investment in Jasco has been unfortunate, the effect
though, arising substantially through the poor performance and
impairment of M-Tech. The decision to categorise M-Tech as an asset for
sale may well be the right decision. M-Tech has a substantial
production capacity and net asset value and its fortunes could easily
be reversed in the right economic circumstances.
The Group’s balance sheet is largely ungeared, its cash flows have
always been strong and the Board remains confident in the Group’s
positive direction for 2014.
PREFERENCE SHARE CONVERSIONS
The Company will also soon be notifying preference shareholders of the
means by which they can elect to convert their AfroCentric preference
shares (ACTP) into AfroCentric ordinary shares (ACT). The communication
to preference shareholders will be in the form of a SENS announcement
and press announcements in major newspapers early in October 2013
together with a Circular that will be posted to AfroCentric preference
shareholders on the same day, which Circular will include the form of
exercise, surrender and acceptance.
Directors
During the year NB Bam retired as Chairperson, but will continue to act
as a Non-Executive Director of the Company. Dr AT Mokgokong was
appointed Chairperson and D Dempers was appointed Chief Executive
Officer. Save for the appointment of Mr J Appelgryn as an Independent
Non-Executive Director on 17 September 2013, there have been no further
changes to the AfroCentric Board.
DIVIDENDS
The Board of Directors takes pleasure in announcing that a dividend of
15 cents per ordinary share (gross) (2012: 10.5 cents) has been
declared for the year ended 30 June 2013. No preference dividend is
provided for as the ordinary dividend will be paid after the date on
which the preference shares are converted or redeemed. Dividends are
subject to Dividends Withholding Tax. In accordance with the provisions
of the JSE Listings Requirements, the following additional information
is disclosed.
- the dividends have been declared out of profits available for
distribution
- the local Dividends Withholding Tax rate is 15%
- the gross dividend amount is 15 cents per ordinary share
- the STC credits available for utilisation is 1.36 cents per ordinary
share
- STC credits to be utilised during this current dividend cycle is 1.36
cents per ordinary share
- given the use of the STC credits, the Dividend Withholding Tax is
calculated at 2.046 cents, resulting in a net cash dividend of 12.954
cents per ordinary share for those shareholders who are not exempt from
Dividends Tax
- for purposes of the distribution 468 018 863 ordinary shares will be
deemed to be in issue on the dividend record date
- the company has 270 010 639 ordinary shares in issue on declaration
date
- the company has 16 638 000 preference shares in issue on declaration
date
- the company’s income tax reference number is 9600/148/71/3
The salient dates relating to the ordinary dividends are as follows;
- Last day to trade cum dividend Friday, 7 February 2014
- Shares commence trading ex dividend Monday, 10 February 2014
- Dividend record date Friday, 14 February 2014
- Dividend payment date Monday, 17 February 2014
Share certificates for ordinary shares may not be dematerialised or
rematerialised between Monday 10 February 2014 and Friday 14 February
2014, both days inclusive.
AUDIT OPINION AND DIRECTORS RESPONSIBILITY STATEMENT
The audited year-end results have been audited by SizweNtsalubaGobodo
Inc. under the supervision of Mr WRC Holmes CA(SA), in his capacity as
the Group Chief Financial Officer and their unqualified report and the
audited results are available for inspection for 28 days at
Afrocentric’s registered office from 30 September 2013.
The directors take full responsibility for the preparation of these
audited results and that the financial information has been correctly
extracted from the underlying Annual Financial Statements.
By Order of the Board
Statucor (Pty) Ltd
Company secretary
Johannesburg
26 September 2013
Directors
AT Mokgokong** (Chairperson), D Dempers (CEO)***, WRC Holmes (CFO)***,
NB Bam**, B Joffe**, JM Kahn**, MJ Madungundaba**, Y Masithela*, G
Napier*, MI Sacks**
*independent non-executive **non-executive ***executive
Registered Office
37 Conrad Rd
Florida North 1709
27 September 2013
Johannesburg
Sponsor
Sasfin Capital (A division of Sasfin Bank Limited)
Date: 27/09/2013 04:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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