Wrap Text
Reviewed condensed consolidated results for the quarter and nine months ended 30 September 2013
LITHA HEALTHCARE GROUP LIMITED
(Registration number 2006/006371/06);
Share code: LHG, ISIN: ZAE000144671
("The Group" or "Litha" or "The Company")
REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE QUARTER AND
NINE MONTHS ENDED 30 SEPTEMBER 2013
- Revenue up 10.6% in Q3 2013 compared to Q3 2012
- EBITDA for the nine months ended 30 September 2013 up 9.1% from the prior year
- Litha Medical Division achieved record revenue in Q3 2013 with the placement
of the first robotic surgery system in South Africa
The reviewed condensed consolidated financial statements for the quarter and the nine months ended 30 September 2013
have been prepared by the Group's Chief Financial Officer, Martin Michael Kahanovitz, CA (SA), who was also
responsible for the preparation of the Annual Financial Statements.
The reviewed condensed consolidated financial statements for the quarter and nine months ended 30 September 2013
have been prepared in accordance with the framework concepts and the measurement and recognition requirements of
the International Financial Reporting Standards ("IFRS").
The results contain information required by the International Accounting Standard 34 Interim Financial Reporting
("IAS 34") and in the manner required by the Companies Act.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
(R'000) 30 September 2013 31 December 2012
ASSETS
Non-current assets 1 309 673 1 347 499
Property, plant and equipment 74 173 79 278
Goodwill and intangible assets 836 297 869 657
Investment in associate 6 470 5 340
Investment in jointly controlled entity 255 617 260 034
Loan to jointly controlled entity 111 019 104 744
Deferred taxation asset 19 609 21 958
Other non-current assets 6 488 6 488
Current assets 592 234 436 626
Inventories 318 140 194 964
Trade and other receivables 216 682 169 691
Income tax receivable 1 707 22 904
Other current assets 14 357 2 380
Cash and cash equivalents 41 348 46 687
Assets of disposal group held-for-sale 901 875
Total assets 1 902 808 1 785 000
EQUITY AND LIABILITIES
Total equity 1 136 745 1 107 596
Stated capital 760 856 760 473
Reserves attributable to holders of the parent 355 664 326 236
Non-controlling interest 20 225 20 887
Non-current liabilities 356 516 393 735
Financial liabilities 269 470 293 957
Deferred taxation liability 87 046 99 778
Current liabilities 409 346 283 468
Trade and other payables 275 019 139 111
Other current liabilities 86 039 84 260
Bank overdraft 48 288 60 097
Liabilities of disposal group held-for-sale 201 201
Total equity and liabilities 1 902 808 1 785 000
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(R'000)
Reviewed three Reviewed three Reviewed nine Unaudited nine
months ended months ended months ended months ended
30 September 30 September 30 September 30 September
2013 2012 2013 2012*
Revenue 266 151 240 644 798 006 1 190 480
Cost of sales (170 891) (137 827) (471 720) (893 130)
Gross profit 95 260 102 817 326 286 297 350
Selling, distribution, regulatory and
administrative expenses (87 823) (84 342) (272 085) (230 979)
Other Income 329 135 310 22 559
Profit on deconsolidation of Biovac - - - 171 530
Net (loss) income from associate (249) 259 626 (432)
Net Income (loss) from investment in jointly
controlled entity 3 175 (6 404) (4 417) (6 404)
Operating profit 10 692 12 465 50 720 253 624
Non-operating interest paid (6 004) (7 785) (18 240) (18 085)
Profit before taxation 4 688 4 680 32 480 235 539
Taxation (2 888) (2 789) (10 860) (16 080)
Profit from continuing operations 1 800 1 891 21 620 219 459
Profit/(loss) from discontinued operations 47 (205) 812 (5 958)
Profit for the period 1 847 1 686 22 432 213 501
Total comprehensive income for the period 1 847 1 686 22 432 213 501
Profit attributable to equity holders of Litha
Healthcare Group Limited:
Profit from continuing operations 1 324 2 851 22 282 188 217
Profit/(loss) from discontinued operations 47 (205) 812 (5 958)
Profit attributable to equity holders of Litha
Healthcare Group Limited 1 371 2 646 23 094 182 259
Non-controlling interest 476 (960) (662) 31 242
Total profit for the period 1 847 1 686 22 432 213 501
Total comprehensive income attributable to:
Equity holders of Litha Healthcare Group
Limited 1 371 2 646 23 094 182 259
Non-controlling interest 476 (960) (662) 31 242
Total comprehensive income for the period 1 847 1 686 22 432 213 501
Earnings per share (cents) 0.3 0.5 4.3 42.1
From continuing operations 0.3 0.5 4.1 43.5
From discontinued operations - - 0.2 (1.4)
Diluted earnings per share (cents) 0.2 0.5 4.0 40.1
From continuing operations 0.2 0.5 3.9 41.4
From discontinued operations - - 0.1 (1.3)
HEADLINE EARNINGS RECONCILIATION
Profit from continuing operations attributable to 2 851 22 282 188 217
equity holders of the Group 1 324
Adjusted for:
Write-off of intangible assets - - 242 -
Profit on deconsolidation of Biovac - - - (144 643)
Discontinued operations - 205 - 5 957
Tax effect of write-off of intangible assets - - (68) -
Profit on disposal of property, plant and
equipment (329) (77) (310) (133)
Tax effect of profit from disposal of property,
plant and equipment 92 22 87 38
Headline earnings from continuing
operations 1 087 3 001 22 233 49 435
Profit/(loss) from discontinued operations 47 (205) 812 (5 957)
Headline earnings 1 134 2 796 23 045 43 478
Headline earnings per share (cents) 0.2 0.5 4.3 10.0
From continuing operations 0.2 0.6 4.1 11.4
From discontinued operations - (0.1) 0.2 (1.4)
Diluted headline earnings per share (cents) 0.2 0.5 4.0 9.6
From continuing operations 0.2 0.5 3.9 10.9
From discontinued operations - - 0.1 (1.3)
* Includes The Biological and Vaccines Institute of Southern Africa Pty Ltd ("Biovac") on a consolidated basis
and excludes Pharmaplan Pty Ltd for the first six months of 2012
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable
Share-based Reserve to equity Non-
payment on equity Accum- holders of the controlling
(R'000) Stated capital reserve transaction ulated profits Group interest Total
Balance at 1 January 2013 760 473 20 027 (67 213) 373 422 1 086 709 20 887 1 107 596
Total comprehensive income - - - 23 094 23 094 (662) 22 432
Exercise of options 383 (65) - - 318 - 318
Share based payment reserve
adjustment - 6 399 - - 6 399 - 6 399
Balance 30 September 2013 760 856 26 361 (67 213) 396 516 1 116 520 20 225 1 136 745
Share-based Reserve Attributable to
payment on equity Accum- equity holders Non-controlling
(R'000) Stated capital reserve transaction ulated profits of the Group interest Total
Balance at 1 January 2012 295 473 1 134 (70 155) 207 959 434 411 77 698 512 109
Issue of shares 465 000 - - - 465 000 - 465 000
Total comprehensive income - - - 182 259 182 259 31 242 213 501
Share based payment reserve
adjustment - 17 321 - - 17 321 - 17 321
Deconsolidation of Biovac - - 2 940 - 2 940 (88 113) (85 173)
Balance at 30 September 2012 760 473 18 455 (67 215) 390 218 1 101 931 20 827 1 122 758
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed three Reviewed three Reviewed nine Unaudited nine
months ended months ended months ended months ended
30 September 30 September 30 September 30 September
(R'000) 2013 2012 2013 2012
Cash flows from operating activities 32 345 (1 647) 50 666 149 113
Cash flows from investing activities (1 146) (126 968) (12 608) (181 334)
Cash flows from financing activities (10 164) 120 903 (31 588) 96 727
Net increase/(decrease) in cash and cash equivalents 21 035 (7 712) 6 470 64 506
Cash acquired on acquisition of subsidiary companies - (2 971) - (2 971)
Cash on deconsolidation - - - (179 337)
Cash and cash equivalents at beginning of period (27 975) 3 118 (13 410) 110 237
Cash and cash equivalents at end of period (6 940) (7 565) (6 940) (7 565)
Cash and cash equivalents included in discontinued
operations 341 377 341 377
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
These reviewed condensed consolidated financial statements for the three and nine months ended
30 September 2013 have been prepared and presented in accordance with the framework concepts and the
measurement and recognition requirements of the International Financial Reporting Standards and contains
information required by the IAS 34 Interim Financial Reporting and the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and in the manner required by the Companies Act.
These financial statements should be read in conjunction with the audited financial statements for the year ended
31 December 2012. The reviewed condensed financial statements for the three and nine months ended 30 September 2013
were prepared using the same accounting policies as the audited financial statements for the year ended 31 December 2012.
The condensed consolidated financial statements for the quarter and nine months ended 30 September 2013 have been
reviewed by KPMG, the Group's auditors. In their review report dated 13 November 2013, which is available for
inspection at the Company's Registered Office, KPMG Inc states that their review was conducted in accordance with
the International Standard on Review Engagements 2410, Review of Interim Information Performed by the
Independent Auditor of the Entity. They have expressed an unmodified conclusion on the condensed
consolidated interim financial statements.
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 revenue and expenses during the reporting periods. Although these
estimates are based on management's 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
Reviewed three Reviewed three Reviewed nine Unaudited nine
months ended months ended months ended months ended
30 September 2013 30 September 2012 30 September 2013 30 September 2012
Weighted average number of
shares 541 747 838 541 601 720 541 650 427 432 991 747
Weighted average share
options outstanding 33 421 061 28 659 935 34 174 151 21 887 599
Diluted weighted average
number of shares 575 168 899 570 261 655 575 824 578 454 879 346
3. SUBSEQUENT EVENTS
Litha's majority shareholder, Paladin Labs Inc. ("Paladin"), has reached a definitive agreement to be acquired by Endo
Health Solutions, a leading US-based specialty pharmaceutical company. The transaction is set to close in the first
half of 2014. For further detail refer to the SENS announcement released on 6 November 2013.
Other than the above-mentioned transactions, there have been no events that are material to the understanding of
these financial statements that have occurred in the period between 30 September 2013 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 trade and other payables to
related parties are on normal commercial terms and conditions.
Interest earned on the loan to jointly controlled entity was R2,2 million for the quarter and R6,3 million for the nine
months ended 30 September 2013.
Litha Medical Logistics Proprietary Limited charged cold chain logistics fees to Biovac, a jointly controlled entity,
of R11,8 million and R34,3 million for the three and nine months ended 30 September 2013, respectively.
Payments made to Firefly, an associate, relating to a finance lease were R1,6 million for the quarter and R4,9 million
for the nine months ended 30 September 2013.
Litha also paid non-executive director fees to Blackstar and Paladin of R0,1 million for the quarter and R0,3 million for
the nine months ended 30 September 2013 each, both of whom are related parties of the Group.
5. INVESTMENT IN JOINTLY CONTROLLED ENTITY
Investment in Biovac
On 30 June 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
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 jointly
controlled entity.
Reviewed Reviewed Reviewed
Three months ended Three months ended Nine months ended
30 September 2013 30 September 2012 30 September 2013
R'000 R'000 R'000
Carrying value, beginning of period 252 442 266 034 260 034
Share of net profit/(loss) for the period
before adjustments 4 866 (4 713) 654
Adjustments to net income:
Amortisation of fair value adjustments (2 348) (2 348) (7 043)
Deferred taxation effect 657 657 1 972
Share of net income (loss) for the period 3 175 (6 404) (4 417)
Carrying values, end of period 255 617 259 630 255 617
The Company is presenting selected financial information derived from Biovac's IFRS compliant unaudited
management accounts for the three and nine months ended 30 September 2013 and the three months ended
30 September 2012.
Biovac's statement of income data Unaudited three Unaudited three Unaudited nine
months ended months ended months ended
30 September 2013 30 September 2012 30 September 2013
R'000 R'000 R'000
Revenue 333 156 259 680 974 917
Cost of sales (297 905) (231 460) (866 540)
Gross income 35 251 28 220 108 378
Operating expenses (23 757) (35 427) (98 057)
Earnings (loss) before items noted here- 11 494 (7 207) 10 320
under
Interest, depreciation and income taxes (2 227) (1 770) (9 073)
Net income (loss) for the period 9 267 (8 977) 1 247
Biovac's Statement of Financial Position
data Unaudited Unaudited Audited
30 September 2013 30 September 2012 31 December 2012
R'000 R'000 R'000
Current assets 746 383 640 567 680 392
Long-term assets 292 678 259 315 263 519
Current liabilities 781 043 648 785 695 963
Long-term liabilities 120 817 112 923 123 522
6. CAPITAL COMMITMENTS
Biovac has entered into agreements to purchase R63 million of equipment and to make improvements to the
manufacturing facility. This is expected to take place during the rest of 2013 and 2014.
7. CONTINGENT LIABILITIES
A contingent liability exists with respect to a claim by a previous supplier resulting from an alleged breach of an
agreement. The claim is being disputed by management.
8. SEGMENT INFORMATION
Segment Medical division Pharmaceutical Biotechnology Group
division division
(R'000)
Three months ended
30 September 2013
Revenue (External) 108 569 129 788 27 794 266 151
Reportable segment profit 15 882 6 848 11 084 33 814
Head Office costs (23 122)
Operating profit 10 692
Total Assets 386 287 430 029 1 086 492 1 902 808
(R'000)
Three months ended
30 September 2012
Revenue (External) 77 594 132 808 30 242 240 644
Reportable segment profit 11 462 12 411 (3 122) 20 751
Head Office costs (8 286)
Operating profit 12 465
Total Assets 393 582 775 965 563 891 1 733 438
(R'000)
Nine months ended
30 September 2013
Revenue (External) 260 897 416 052 121 057 798 006
Reportable segment profit 33 231 57 364 23 001 113 596
Head Office costs (62 876)
Operating profit 50 720
Total Assets 386 287 430 029 1 086 492 1 902 808
(R'000)
Nine months ended
30 September 2012
Revenue (External) 210 461 215 037 764 982 1 190 480
Reportable segment profit 35 991 21 343 218 539 275 873
Head Office costs (22 249)
Operating profit 253 624
Total Assets 393 582 775 965 563 891 1 733 438
9. FINANCIAL ASSETS BY CATEGORY
Fair value
though profit or Loans and Available for
loss receivables sale
Group R'000 R'000 R'000
September 2013
Cash and cash equivalents - 41 348 -
Loans receivables - 6 488
Loans to jointly controlled entity - 111 019 -
Trade and other receivables - 216 682 -
Forward exchange contracts** 8 688 - -
December 2012
Cash and cash equivalents - 46 687 -
Loans receivables - 6 488 -
Loans to jointly controlled entity - 104 744 -
Trade and other receivables - 156 984 -
FINANCIAL LIABILITIES BY CATEGORY
Financial liabilities at At fair value through profit
Amortised cost or loss
R'000 R'000
Group
September 2013
Long term liabilities* 269 470 -
Trade and other payables 275 019 -
Bank overdraft 48 288 -
December 2012
Long term liabilities* 378 217 -
Trade and other payables 139 111 -
Bank overdraft 60 097 -
Forward exchange contracts** - 10 242
* Included in financial liabilities and other current liabilities
** Included in other current assets or other current liabilities for prior year
FAIR VALUE HIERARCHY DISCLOSURES
Level 1 Level 2 Level 3
Group R'000 R'000 R'000
September 2013
FEC assets *** - 9 767 -
FEC liabilities *** - (1 079) -
December 2012
FEC assets **** - 2 106 -
FEC liabilities **** - (12 348) -
*** Included in other current assets
**** Included in other current liabilities
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the
fair value measurement of the relevant levels, as follows:
Level 1 - valued using quoted prices in active markets for identical assets
Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices within Level 1; and
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
There have been no transfers during the year between levels 1 and 2. A reconciliation of fair value measurement in
level 3 is not required as there are no financial instruments at fair value in that level.
COMMENTARY
1. NATURE OF BUSINESS
Litha Healthcare Group Limited 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 Pharma
(pharmaceuticals and complementary medicines), Litha Medical (medical devices, equipment and consumables) and
Litha Biotech (human vaccines).
2. FINANCIAL OVERVIEW
Introduction
As committed, the Group is able to provide like-for like comparisons with the Q3 2012 quarter results for the first time.
The commentary will accordingly emphasise variances between Q3 2013 and Q3 2012. The Group is not providing
extensive commentary on changes between the nine months ended 30 September 2013 and the nine months ended
30 September 2012 due to significant changes following the deconsolidation of Biovac on 30 June 2012 and the acquisition
of Pharmaplan on 2 July 2012. Comparative information could therefore be misleading.
While in-depth analysis of the comparative nine month periods has not been provided, the most relevant indicator of this
comparative performance is headline earnings per share ("HEPS"), as this excludes the effect of the profit on
deconsolidation of Biovac. Other factors which impacted HEPS are increased interest expense associated with the
R125 million loan which was raised for the acquisition of Pharmaplan and the increased amortisation of intangible
assets associated with this acquisition. Excluding the effect of the increases in interest expense of R5,8 million and
amortisation of intangibles of R26,4 million, HEPS would have been 10,2 cps for the nine months ended 30 September
2013. This is a 0,2 cps increase over the HEPS of 10,0 cps for the same period in 2012.
The Group also introduced earnings before interest, tax, depreciation and amortisation ("EBITDA") in the third quarter of
2012, as it is a more meaningful measure of performance due to the large amortisation of intangibles and the significant
increase in finance costs associated with recent acquisitions. EBITDA provides stakeholders with a measure to assess
the operating performance of Litha's on-going business on a consistent basis without the impact of amortisation and
depreciation expenses. The Group excludes depreciation and amortisation expenses, as these are dependent on non-
operating factors such as the historical cost of property, plant and equipment and intangible assets.
Reconciliation to EBITDA
EBITDA does not have a standardised definition under IFRS and may therefore not be comparable to similar measures
presented by other companies. The Group defines EBITDA as earnings before interest income/expense, other
expense/income, tax, amortisation, depreciation, foreign exchange gain/losses, income/loss from jointly controlled entity
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.
Reviewed Reviewed Reviewed Unaudited
3 months ended 3 months ended 9 months ended 9 months ended
EBITDA reconciliation 30 September 2013 30 September 2012 30 September 2013 30 September 2012
R'000 R'000 R'000 R'000
Profit before taxation 4 688 4 680 32 480 235 539
Adjusted for:
Interest expense 8 270 7 785 24 423 18 085
Depreciation expense 2 468 1 367 7 128 7 672
Amortisation expense 14 397 11 453 43 192 17 954
Net (income)/loss from jointly
controlled entity (3 175) 6 404 4 417 6 404
Net (income)/loss from
associate 249 (259) (626) 432
Foreign exchange (gain)/loss (1 518) (3 807) (13 029) 2 379
Write off of intangible assets - - 242 -
Other income (329) (135) (310) (22 559)
Other finance expense 357 - 1 070 -
Profit on deconsolidation of
Biovac - - - (171 530)
Interest income (2 772) (2 617) (7 661) (10 698)
EBITDA 22 635 24 871 91 326 83 678
Interest expense includes non-operating interest expense of R6 million in Q3 2013 and R18 million for the nine months
ended 30 September 2013 and relates to interest expense on funds, which were raised to fund the cash portion of
previous acquisitions.
Statement of Comprehensive Income
- Group revenue increased by 10.6% to R266,2 million for Q3 2013 from R240,6 million in Q3 2012
- Operating profit decreased by 14.2% to R10,7 million in Q3 2013 from R12,5 million in Q3 2012
- HEPS decreased by 60.0% to 0,2 cps in Q3 2013 from 0,5 cps in Q3 2012
Revenue increased in Q3 2013, compared to Q3 2012, mainly due to the strong performance of the Litha Medical
division. Increased revenue in this division was driven by the sale of a da Vinci® Surgical Robot and the fulfilment of
orders on the SAPS forensic tender.
The strong quarter in the Litha Medical division was tempered by weaker quarters in both the Litha Biotech division and
the Litha Pharma division. In the Litha Biotech division, revenue decreased due to a strong Q3 2012 in which a rabies
outbreak in KwaZulu-Natal contributed to high rabies vaccine sales.
Litha Pharma revenue declined slightly compared to Q3 2012, partly due to increased competition on some of its key
generic products which are facing commoditisation. Further divisional analysis is provided in the operational review
below.
Group revenue for the nine months ended 30 September 2013 was R798,0 million compared to R1 190,5 for the nine
months ended 30 September 2012. Revenue for the nine months ended 30 September 2012 includes revenue of R656
million from The Biological and Vaccines Institute of South Africa ("Biovac") prior to its deconsolidation on 30 June 2012.
The decrease in Group operating profit from Q3 2012 to Q3 2013 was mostly driven by the depreciation of the Rand
and the related pressure on margins, partially mitigated by Litha's share of net income/(loss) from its joint venture,
Biovac.
In Q3 2012, the Group recognised a net loss from its investment, before fair value adjustments and taxation, of
R4,7 million, while in Q3 2013 a profit of R4,8 million was recognised. The Q3 2012 loss in Biovac was attributable to a
substantial foreign exchange loss. Group operating profit for the nine months ended 30 September 2013 was
R50,7 million compared to R253,6 million for the same period in the prior year. The nine months ended 30 September 2012
includes a once-off profit on deconsolidation of Biovac of R172 million.
The effective tax rate before income from the jointly controlled entity and loss from associate was 163.9% for Q3 2013,
compared to 25.8% in Q3 2012. This was mainly due to re-assessments and over-estimation of taxation liabilities in the
prior periods and due to the de-recognition of deferred tax assets related to previously assessed tax losses.
Discontinued operations (Litha Cardiac and Litha Critical Care) showed an insignificant operating profit in Q3 2013
compared to a loss of R0,2 million in Q3 2012. The operations showed a profit of R0,8 million for the nine months ended
30 September 2013 compared to a loss of R6,0 million for the same period in the prior year due to the continued
fulfilment of tender obligations.
Statement of Financial Position
- Inventories increased by R123,2 million to R318,1 million as at 30 September 2013 from R194,9 million as at
31 December 2012
- Trade and other receivables increased by R47,0 million to R216,7 million as at 30 September 2013 from
R169,7 million as at 31 December 2012
- Trade and other payables increased by R135,9 million to R275,0 million as at 30 September 2013 from
R139,1 million as at 31 December 2012
Inventories increased significantly during the first nine months of the year due to a number of factors, primarily in the
Litha Pharma division:
- Addressing historic tight stock management to ensure continuous supply
- Increased lead times from suppliers, which required the purchase of additional stock to maintain sufficient
inventory on hand
- Increased minimum order quantities imposed by suppliers
The increase in inventory is consistent with the Group's policy of adequately managing inventory, while protecting
against stock-outs and overstocking. Management reviews the inventory levels based on the above policies and will
continue to ensure that optimum levels are maintained.
Trade and other payables increased primarily due to the timing of payments made to suppliers in Litha Vaccines. Going
forward, extended payment terms with suppliers have been negotiated in the Litha Pharma division to offset the longer
product supply lead times.
The decrease in goodwill and intangibles of R33,6 million arose primarily from the amortisation of intangible assets. This
was partially offset by the acquisition of registered generic products for R10,1 million in the Litha Pharma division during
the year.
The increase in investment in associate was primarily due to income of R0,6 million and interest income of R0,5 million
from Litha's 30% share of Firefly Investments 223 (Pty) Ltd ("Firefly"), an entity which owns the Group's
office/warehousing building in Midrand.
The investment in the jointly controlled entity relates to Litha's 52.5% holding in Biovac. During the nine months ended
30 September 2013, the investment decreased by R4,4 million due to losses from Biovac and the amortisation of
intangibles recognised on the deconsolidation of Biovac. While Q2 2013 and Q3 2013 have been strong quarters, the
profits recognised have not completely off-set losses from Q1 2013. Refer to note 5 below.
Other non-current assets relate to a social responsibility loan to the Disability Empowerment Concerns Trust.
Other current assets relate to pre-payments and deposits, amounts receivable from the jointly controlled entity for
logistics services provided, shareholder loans and net financial assets realised on the revaluation of outstanding foreign
exchange contracts.
The Group raised R125 million through a preference share loan in 2012 to fund the cash portion of the acquisition of
Pharmaplan. The funding for Biovac's manufacturing facility was raised at The Biovac Consortium Proprietary Limited
level, a holding company for Biovac and an 85% subsidiary of Litha. These funds were on-lent to Biovac, resulting in the
loans to the jointly controlled entity. As previously noted, the debt relating to Biovac should not be used in determining
the Group's 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
September 2013 December 2012 September 2013 December 2012
Interest bearing debt (R'000) 258 966 308 425 374 109 407 919
Equity (R'000) 1 136 745 1 107 596 1 136 745 1 107 596
% 22.8% 27.8% 32.9% 36.8%
Statement of Cash Flows
Cash generated from operating activities increased by R38,3 million to R39,1 million in Q3 2013 from R0,8 million in
Q3 2012. Cash flow from operating activities increased by R33,9 million to R32,3 million in Q3 2013 compared to
(R1,6 million) in Q3 2012. This was primarily due to collection of receivables made throughout the period, partially offset by
increased accounts payable and investment in inventory. Cash flows from operations for the nine months ended
30 September 2013 was R50,7 million compared to R149,1 million for the nine months ended 30 September 2012.
Cash outflow from investing activities was R1,1 million in Q3 2013 compared to R127,0 million in Q3 2012. Cash outflow
during Q3 2013 stemmed primarily from a net investment in property, plant and equipment while in Q3 2012 it was
mostly related to the investment in Pharmaplan. Cash outflows were R12,6 million for the nine months ended
30 September 2012 compared to R181,3 million for the same period last year.
Cash outflow from financing activities was R10,5 million in Q3 2013 compared to cash inflow of R120,9 million in
Q3 2012. Cash was primarily used for debt repayment of R10 million in Q3 2013, while cash inflows in Q3 2012 were
primarily related to the RMB preference share loan which was drawn to finance the acquisition of Pharmaplan. Cash
outflow from financing activities for the nine months ended 30 September 2013 was R31,6 million compared to a cash
inflow of R96,7 million for the same period last year.
Cash and cash equivalents, net of overdraft, at the end of September 2013 were R6,9 million compared to R7,6 million
as at 30 September 2012.
3. OPERATIONAL OVERVIEW
Consolidated Litha Healthcare Group Limited
Revenue increased by 10.6% to R266,2 million in Q3 2013 from R240,6 million in Q3 2012. Despite this increase,
EBITDA was down in the third quarter compared to prior quarters and the same period in 2012. This was mainly due to
foreign exchange impacts throughout the Group, a weaker rabies campaign in the Litha Biotech division and the
commoditisation of certain key generic products within the Litha Pharma division. Operating profit for the Group
therefore decreased by 14.2% from R12,5 million in Q3 2012 to R10,7 million in Q3 2013.
Litha Pharma - 20% of Group operating profit before head office expenses in Q3 2013
- Revenue decreased by 2.3% to R129,8 million for Q3 2013 compared to R132,8 million in Q3 2012
- Operating margin continued to be affected by the depreciation of the Rand and pricing pressure associated with
increased commoditisation on certain key generic brands
Litha Pharma had a disappointing quarter, with revenue falling short of expectations against challenging market
conditions and a milder than expected winter. The South African Pharmaceutical market during Q3 2013 was down
3.7% in Rands and down 4.57% in volume (as per IMS) versus Q3 2012. Consequently operating margin dropped from
9.4% in Q3 2012 to 5.3% in Q3 2013. Operating margin was further impacted by increased competition on certain
generic medicines and foreign exchange rate fluctuations which continue to affect imported stock items.
Litha Pharma launched its first proprietary generic in September 2013 from the diverse product pipeline it has been
building over the past three years. In addition to the launch of this proprietary product, a further six generics and two
complementary products were launched during the nine months ended 30 September 2013, resulting in a total of nine
products launched to date in 2013. It is expected that these products will gradually contribute to group revenue and
operating profit in 2014.
Prospects
Litha Pharma continues to advance its pipeline of molecules with 96 molecules that are pending approval with the
Medicines Control Council of which, 37 have been submitted in 2013.
Litha Medical - 47% of Group operating profit before head office expenses in Q3 2013
- Revenue increased by 40% to R108.6 million in Q3 2013 compared to R77.6 million in Q3 2012, mostly due to
forensic tender sales and the sale of a da Vinci surgical robot
- The sale of the da Vinci surgical robot, while positively impacting revenue, was at lower margin
- Operating margin also continues to be impacted by the depreciation of the Rand
The Litha Medical division posted record revenue in Q3 2013. This was driven by strong sales associated with the
Group's forensic tender and the sale of a da Vinci surgical robot. The first successful installation took place at The
Urology Hospital in Pretoria, with a number of successful procedures performed soon after the installation.
Operating profit increased 39% to R15,9 million in Q3 2013 from R11,5 million in Q3 2012. This increase is driven by
the increased revenue.
Prospects
Sales of forensic kits to government are expected to continue into Q4 2013. Consumable sales related to the da Vinci
machine will start to flow this year. In addition, the Phaco and Vitrectomy business housed in Earth Medical continues to
show positive market share growth with the Oertli product range.
Litha Biotech - 33% of Group operating profit before head office expenses in Q3 2013
- Revenue decreased by 8% to R27,8 million in Q3 2013 compared to R30,2 million in Q3 2012 due to
exceptionally strong rabies sales in Q3 2012 following an outbreak in KwaZulu-Natal
- Operating margin increased from a loss of R3,1 million to a profit of R11,1 million
Despite strong sales from many of its products, the Litha Biotech division ended the quarter weaker than Q3 2012. This
was driven by an exceptionally strong quarter in 2012 as a result of a rabies outbreak.
Operating profit increased by R14,2 million in Q3 2013 to R11,1 million from (R3,1 million loss) in Q3 2012 due primarily
to increased income from its jointly controlled entity, Biovac. Biovac has in the past suffered from exchange rate
volatility. However, steps have been taken over the past year to renegotiate contracts to share the foreign exchange
exposure with suppliers. This had a positive impact on Biovac's results.
Prospects
The Department of Health has announced the Human Papilloma Virus ("HPV") campaign through Biovac as their sole
distributor. This campaign is set to be rolled out in the second half of 2014 and is the first of its kind targeting school
going eight year old girls.
DIVIDEND
No dividend has been recommended or declared for the period. It is anticipated that while the Group continues with its
growth 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, Chairman
S Kahanovitz, Chief Executive Officer
Johannesburg
14 November 2013
Directors: N Sowazi*, S Kahanovitz, M Makhoana, M Kahanovitz, 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
KPMG Inc. (Prior year Mazars)
Transfer Secretaries
Computershare Investor Services
Registered Office
106 16th Road
Midrand
1686
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