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Financial results - interims
AfroCentric Investment Corporation Limited
Registration number 1988/000570/06
JSE Code: ACT
ISIN: ZAE 000078416, ZAE 000082269
(“AfroCentric” or “the Company” or “the Group”)
Unaudited Interim Results
for the six months ended 31 December 2013
Headline Earnings 34%
cash & cash equivalents 52%
Basic earnings 20%
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 December 2013 31 December 2012 30 June 2013
% Change R’000 R’000 R’000
Non-current assets 1,388,192 1,027,820 1,031,881
Property, plant and equipment 97,113 96,137 90,349
Investment property 15,000 10,300 15,000
Intangible assets (Note 1) 989,780 661,007 628,305
Unlisted investments 280 280 280
Investment in associates 54,100 88,470 42,484
Investment in preference shares 100,000 100,000 100,000
Interest bearing loan 63,652 - 74,000
Deferred income tax assets 68,266 71,626 81,463
Current assets 483,945 367,746 496,780
Trade and other receivables 138,494 116,733 127,279
Short term portion on interest bearing loan 7,000 - 2,378
Receivables from associates and joint venture - 12,260 -
Current tax asset 20,227 29,756 6,912
Cash and cash equivalents 52% 318,225 208,997 360,211
Total assets 1,872,137 1,395,566 1,528,661
EQUITY AND LIABILITIES
Capital and reserves 1,409,074 924,841 1,002,874
Issued capital (Note 1) 901,000 352,669 356,711
Contingent shares to be issued - 188,540 137,258
Share-based awards reserve 2,793 20,759 49,225
Treasury shares (2,324) (2,701) (2,324)
Foreign currency translation reserve 1,437 (171) 1,254
Distributable reserve 506,167 365,745 460,750
Non-controlling interest 54,540 38,449 50,205
Total equity 1,463,614 963,290 1,053,079
Non-current liabilities 261,139 278,685 268,375
Deferred income tax liabilities 39,044 51,846 51,090
Interest bearing loan 200,000 200,000 200,000
Provisions 8,350 8,350 8,350
Post-employment medical obligations 3,551 3,504 3,551
Accrual for straight lining of leases 10,194 14,985 5,384
Current liabilities 147,385 153,591 207,207
Borrowings - - 7,926
Provisions 7,068 7,181 8,677
Trade and other payables 78,975 92,644 94,246
Employment benefit provisions 61,342 53,766 96,358
Total liabilities 408,523 432,276 475,582
Total equity and liabilities 1,872,137 1,395,566 1,528,661
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 December 2013 31 December 2012 30 June 2013
% Change R’000 R’000 R’000
Revenue 14% 937,170 822,422 1,770,330
Operating costs (792,479) (687,239) (1,436,673)
Operating profit 144,691 135,183 333,657
Other income 4,995 4,482 2,307
Foreign exchange benefit 183 - 1,900
Net finance income/(cost) 5,384 (893) 8,168
Share of associate profits/(losses) – Jasco 1,889 3,881 (30,030)
Share of associate profits – Healthcare 759 3,210 8,553
Profit before impairment and amortisation 157,901 145,863 324,555
Fair value gain of investment - - 5,252
Fair value gain/(loss) in associate (7,884) (308) 7,253
IFRS 2 share-based awards (2,793) (11,402) (39,868)
Profit on sale of investment - - 51,014
Depreciation (20,236) (17,744) (37,251)
Amortisation of intangible assets (23,435) (17,706) (40,098)
Profit before income tax 103,553 99,732 270,857
Income tax expense (26,109) (30,917) (84,848)
Profit for the year 12% 77,444 68,815 186,009
Other comprehensive income
Total comprehensive income for the year 77,444 68,815 186,009
Attributable to:
Equity holders of the Parent 20% 71,153 59,529 163,570
Non-controlling interest 6,291 9,286 22,439
77,444 68,815 186,009
Note 1: The significant increase in Intangible assets and Issued share capital is due to
the 100,805,395 shares issued in terms of the second tranche payment provisions. In terms
of IFRS, this share issue has been accounted for at market value.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 December 2013 31 December 2012 30 June 2013
R’000 R’000 R’000
Balance at beginning of the period 1,053,079 913,440 913,440
Issue of share capital 544,450 3,304 7,345
Share-based awards reserve (46,432) 11,402 39,868
Reversal of contingent shares to be
issued (Note 1) (137,258) - (51,282)
Revaluation of treasury shares issued - (453) (552)
Second tranche cash payments (26,740)
Redemption of preference shares at par (166)
Dividends paid/Distribution to shareholders - (33,218) (33,219)
Net profit for the period (year) 71,153 59,529 163,570
Profit attributable to minorities 6,291 9,286 22,439
Acquisition of businesses - - (4,477)
Distribution to AHL minorities (763) - (4,053)
Balance at end of the period 1,463,614 963,290 1,053,079
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 December 2013 31 December 2012 30 June 2013
% Change R’000 R’000 R’000
Cash generated from operations 80,015 115,180 340,413
Net finance income 5,384 7,329 8,168
Distribution to shareholders - (8,222) (33,196)
Tax and other payments (38,272) (39,310) (88,305)
Net cash inflow in operating activities 47,127 74,977 227,080
Net cash outflow from investing activities (83,348) (70,096) (114,459)
Net cash inflow from financing activities (5,948) (37,794) 3,780
Effect of foreign exchange benefit 183 1,900
Net (decrease)/increase in cash and
cash equivalents (41,986) (32,913) 118,301
Cash and cash equivalents at beginning
of the period 360,211 241,910 241,910
Cash and cash equivalents at end of
the period 52% 318,225 208,997 360,211
EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 December 2013 31 December 2012 30 June 2013
% Change R’000 R’000 R’000
Headline earnings reconciliation
Number of ordinary shares in issue 467,797,446 269,154,524 270,010,639
Number of preference shares in issue - 16,638,000 16,638,000
Weighted average number of ordinary shares 302,656,582 268,894,005 269,256,170
Weighted average number of shares
for diluted EPS
*Calculated in anticipation of
dilution on maximum second tranche
payments and maximum preference
share redemption election 302,656,582 334,333,038 *452,953,162
Basic earnings 20% 71,153 59,529 163,570
Adjusted by:
- Loss/(profit) on disposal of assets - - (51,014)
- Fair value gain on investment - (929) (5,252)
- Fair value adjustment of investment
in associate 7,884 308 (7,253)
- Adjustment of impairment recognised
by associate - - 30,030
- Loss/(profit) on disposal of assets (62) 35 (440)
- Fair value adjustments (other) - - (4)
Headline earnings 34% 78,976 58,943 129,637
Basic earnings per share (cents)
- Attributable to ordinary shares (cents) 23.51 22.14 60.75
- Diluted (cents) 23.51 17.81 36.11
Headline earnings per share (cents)
- Attributable to ordinary shares (cents) 26.09 21.92 48.15
- Diluted (cents) 26.09 17.63 28.62
SEGMENTAL ANALYSIS
Unaudited interim results Unaudited interim results Audited results
for the six months ended for the six months for the year ended
31 December 2013 ended 31 December 2012 30 June 2013
Profit Profit Profit
before Total before Total before Total
Revenue tax assets Revenue tax assets Revenue tax assets
R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Healthcare
administration 937,170 128,888 1,303,263 822,422 119,708 1,064,448 1,770,330 337,215 1,276,080
Jasco (including
Jasco investment
income) - 1,889 - - 3,881 - - (30,030) -
Treasury
Activities - 397 140,598 - 3,705 113,559 - 6,587 121,584
Other (including
inter-segment
elimination) -(27,621) 428,276 - (27,562) 217,559 - (42,915) 130,997
937,170 103,553 1,872,137 822,422 99,732 1,395,566 1,770,330 270,857 1,528,661
COMMENTARY
INTRODUCTION
The AfroCentric Group’s (“AfroCentric”) interim financial results are set out alongside this
commentary. The Board selected this long format for publication substantially for shareholders
to gain a more detailed appreciation of the outcome and impact of the long-awaited AHL profit
warranty calculations, including the resultant second tranche share issues and cash payments.
In addition, by 31 December 2013 preference shareholders were obliged to either elect the
redemption option for ordinary shares, or have their preference shares redeemed in cash. The
outcome of this process, only effective after the reporting date, is nevertheless highlighted
and explained in the commentary below.
In a period of somewhat volatile and unpredictable economic direction, the Group satisfactorily
continued its past trend of growth in earnings and comparable market presence. The detailed
operational review is also set out hereunder.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial statements for the six months ended 31 December 2013 are
prepared in accordance with the requirements of International Financial Reporting Standards
(“IFRS”), IAS 34 – Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee, the JSE Limited Listings Requirements, and the Companies
Act 71 of 2008, as amended. The condensed consolidated interim 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 2013 in terms of IFRS.
NATURE OF BUSINESS
AfroCentric is a black-controlled, diversified investment holding company. It is listed on the
Johannesburg Stock Exchange (“JSE”) in the Healthcare Sector under the code: ACT. AfroCentric
holds a substantial 94.1% majority stake in 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, Kenya and Zimbabwe. Medscheme’s operations in Mauritius provide an excellent
platform for further international expansion. Health Management and technical support services
are provided to clients in the Republic of Ireland out of the Medscheme Mauritius office.
OPERATIONAL REVIEW AND FINANCIAL RESULTS
Notwithstanding early costs incurred for additional capacity anticipating new business in
early 2014, AfroCentric’s operating profits increased by 7% to R145 million (2012: R135 million).
The improved profitability arises through strong organic revenue growth of 14% to R937 million
(2012: R822 million). In addition, the improved operating profit reveals AHL’s continuing
efficiences in all of its business units through a focus on cost containment and overhead
rationalisation arising inter alia, through economies of scale. AHL’s administration and
managed care contracts are reviewed annually in January and accordingly, profits of AHL are
normally favourably weighted towards the second period January to June in each year.
AfroCentric’s basic earnings increased by 19,5% to R71 million (2012: R59 million) and
headline earnings increased by 34% to R79 million (2012: R59 million). The Group once again
generated strong cash flows with cash and cash equivalents increasing by 52% to R318 million
(2012: R209 million). Jasco Electronic Holdings Limited (“Jasco”), the listed entity in which
AfroCentric holds a 27,3% interest, returned to profitability during the period. However,
the decline in market price of a Jasco share at 31 December 2013 required a negative fair value
adjustment of R7,9 million.
PROFIT WARRANTY, SECOND TRANCHE PAYMENTS AND EXECUTIVE SHARE AWARDS
The profit warranty undertakings by AHL vendors in 2008 were finally measured during the period
under review. Given the 90% level of attainment, 100,805,395 ordinary shares were issued to the
original vendors, together with a cash consideration of R26 million calculated in terms of the
second tranche payments formula in the acquisition agreement. In addition, 27 000 000 ordinary
shares were issued to selected AHL management who participated in the warranty incentive programme.
Shareholders will be pleased to note that the final acquisition price of AHL based on the 2013
results calculates at a PE ratio of less than four times earnings.
PREFERENCE SHARE REDEMPTION
By close of business on 31 December 2013 (the final election date), virtually all preference
shareholders had elected to have their preference shares redeemed through the issue of AfroCentric
ordinary shares. This was done in terms of the preference share covenants and the process applicable
to such redemption. Accordingly, on the first available date after 31 December 2013, 69,981,412
ordinary shares were issued to the preference shareholders. In compliance with IFRS, the ordinary
shares issued pursuant hereto, have been included in the calculation of the weighted average number
of shares in issue for purposes of calculating diluted earnings and diluted headline earnings per
share “as if” these shares were issued on 31 December 2013.
PROSPECTS
The high level attainment of the profit warranty provides a sense of reassurance on the earning
capacity of the Group’s principle subsidiary AHL. These interim results reflect the continuing
growth pattern of profits after tax. Additional shares have been issued, both under the second
tranche payment provisions and the preference share redemptions, the effect of which could have a
dilutionary impact on the basic and headline earnings per share going forward. Notwithstanding
the aforesaid, there exists a reasonably secure foundation for the health-related portfolio
businesses. Having regard to the marginal profits of Jasco in this period the Group remains
vigilant of its performance and will seek to support the company in its intended disposal of
its investment in M-Tec.
There has been no further development in the status of the Group’s proposed iron-ore joint
venture project with Rio Tinto PLC and the Group awaits the relevant approval of rights from
the Department of Mineral Resources.
SUBSEQUENT EVENTS
The Board is pleased to advise shareholders that Medscheme was appointed a service provider
to the Road Accident Fund for the purpose of assessing and validating third party road accident
claims. This service has commenced. No other significant events have occurred between the
reporting date and the date of this announcement.
DIRECTORS
Mr Brian Joffe, a founder director of AfroCentric tendered his resignation from the Board with
effect from 3 March 2014. The Board is highly appreciative of his contribution over the years.
DIVIDENDS
The policy of the Board is to review profits available for distribution to shareholders at the
end of each financial year. Accordingly no distribution has been considered at this time.
BASIS OF PREPARATION
The unaudited interim results have been prepared under the supervision of Mr WRC Holmes CA (SA),
in his capacity as the Group Chief Financial Officer.
By Order of the Board
Wilbert Mhlanga
Company secretary
Johannesburg
24 March 2014
Directors
AT Mokgokong** (Chairperson), D Dempers (CEO)***, WRC Holmes (CFO)***, NB Bam**, JM Kahn**,
MJ Madungundaba**, Y Masithela*, G Napier*, J Appelgryn*, MI Sacks**
*independent non-executive **non-executive ***executive
Registered Office
37 Conrad Rd
Florida North 1709
Sponsor
Sasfin Capital (A division of Sasfin Bank Limited)
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