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AFROCENTRIC INVESTMENT CORP LIMITED - Interim results and dividend declaration

Release Date: 17/03/2016 13:37
Code(s): ACT     PDF:  
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Interim results and dividend declaration

AfroCentric Investment Corporation Limited 
Incorporated in the Republic of South Africa 
Registration number 1988/000570/06
JSE Code: ACT
ISIN: ZAE 000078416
(“AfroCentric” or “the Company” or “the Group”)

AfroCentric Group
Unaudited Interim Results for the six months ended 31 December 
2015 and interim dividend declaration

Operating profit up 19.42%
Sales and service revenue up 41.91% 
Interim dividend growth up 20%

Summarised consolidated statement of financial position

                                  Unaudited      Reviewed     Audited
                                 six months    six months        year
                                      ended         ended       ended
                                31 December   31 December     30 June
                                       2015          2014        2015
                                      R’000         R’000       R’000
Assets 
Non-current assets                1 734 561       853 115     991 080
Property and equipment              159 689        96 522     102 639
Investment property                  15 000        15 000      15 000
Intangible assets (Note 1)        1 417 866       623 314     744 487
Available for sale                                        
investment                           18 444             –      18 444
Investment in associates             33 039        66 115      14 873
Deferred income tax assets           90 523        52 165      95 637
Current assets                    1 234 357       652 489     569 738
Trade and other receivables         348 628       216 770     228 884
Investment in preference                                  
share                                     –        90 000           –
Inventory                            79 321         4 610       6 803
Current tax asset                    27 916        20 585           – 
Cash and cash equivalents           778 492       320 523     334 051
Asset held for sale                  27 001             –      24 788
Total assets                      2 995 919     1 505 604   1 585 606
Equity and liabilities 
Capital and reserves              1 140 454     1 083 633   1 104 149
Issued ordinary share capital 
and share premium (Note 4)          286 044       543 454     543 454
Share-based payment reserve          23 382        12 886      20 160
Treasury shares                      (2 324)       (2 324)     (2 324)
Foreign currency 
translation reserve                   7 370         2 350       2 204
Distributable reserve (Note 5)      825 982       527 267     540 655
Non-controlling interest            525 194        45 899      62 930
Total equity                      1 665 648     1 129 532   1 167 079
Non-current liabilities           1 031 986       178 476      86 252
Deferred income tax 
liabilities                         163 518        11 024      54 822
Non-current borrowings                    –       150 000           – 
Non-current provisions                8 350         8 350       8 350
Post-employment medical 
obligations                           3 134         3 440       3 134
Second tranche share issue  
(Note 2)                            135 970             –           – 
Right of redemption and  
repurchase (Note 3)                 703 000             –           –
Accrual for straight lining 
of leases                            18 014         5 662      19 946
Current liabilities                 298 285       197 596     332 275
Borrowings                                –             –      61 224
Provisions                            9 636         8 431       9 211
Trade and other payables            255 762       114 321     146 317
Taxation                                  –             –       4 418
Employment benefit 
provisions                           32 887        74 844     111 105
Total liabilities                 1 330 271       376 072     418 527
Total equity and 
liabilities                       2 995 919     1 505 604   1 585 606

Note 1
Amortisation of intangible assets increased by R29.36 million arising 
through the WAD asset acquisition and the IFM Fraud Detection Platform.

                         Amortisation   Amortisation   Carrying value
                          31 December    31 December      31 December
Intangible assets                2014           2015             2015
Goodwill –   
AfroCentric Health                  –              –          398 123
Goodwill – WAD                      –              –          248 736
Customer         
relationships – WAD                 –        (16 824)         403 784
AfroCentric Health    
intangible assets             (21 177)       (21 350)         275 202
IFM Fraud Detection    
Platform                            –        (12 542)          92 021
                              (21 177)       (50 716)       1 417 866

Note 2
26 401 959 shares to the value of R135.9 million will be issued to
WAD vendors subject to certain profit thresholds being attained. 
These shares will be issued during 2017 and the value thereof has 
already been anticipated by inclusion in Intangible Assets.

Note 3
Sanlam acquired an effective 27% interest in AHL through AHA, for 
R703 million. The acquisition agreement provides for a performance 
warranty in AHL, any breach of which, entitles Sanlam to claim a 
maximum additional 4.3% interest in the shares of AHA in 
satisfaction of such claim. In the event that the claim 
calculates at an amount in excess of 4.3%, Sanlam has a right to 
require ACT to repurchase the shares owned by Sanlam at Sanlam’s 
initial cost plus interest at the 90 day deposit rate from the 
date of investment to the date of redemption. The Board do not 
expect such conditions to arise, but International Accounting 
Standards (IAS 32) dictates the disclosure of such circumstances 
under Non-current liabilities, rather than Capital and reserves.

Note 4
The reduction in issued ordinary share capital and share premium, 
while inclusive of the shares issued in connection with the 
acquisition of the WAD assets, is reduced by the sum of 
R703 million relating to the IAS 32 disclosure requirements 
set out in Note 3 above.

Note 5
Distributable reserves increased by the extent of the period 
profits including the amount of the profit on sale of the 
AHA shares to Sanlam.

Summarised consolidated statement of comprehensive income

                                  Unaudited     Reviewed
                                 six months   six months     Audited 
                                      ended        ended  year ended
                                31 December  31 December     30 June
                            %          2015         2014        2015 
                       change         R’000        R’000       R’000
Sales and service 
revenue                 41.91     1 442 067    1 016 170   2 098 312
Cost of sales and 
operating costs                  (1 233 505)    (841 520) (1 726 240) 
Operating profit        19.42       208 562      174 650     372 072
Impairment of assets                      –      (10 577)    (36 697) 
Net finance income                    7 999        9 507      18 801
Fair value gain
on investment                         3 231            –           – 
Share of associate 
profits                               2 469        1 642      19 037
Share-based 
payment expense                      (3 222)      (2 120)     (9 395)
Profit before  
depreciation and  
amortisation            26.54       219 039      173 102     363 819
Depreciation                        (17 643)     (17 990)    (35 727) 
Amortisation of        
intangible assets 
(Note 1)                            (50 716)     (21 177)    (48 734) 
Profit before 
income tax              12.50       150 680      133 935     279 358
Income tax expense                  (41 121)     (36 862)   (100 584) 
Profit for the period               109 559       97 073     178 774
Other comprehensive     
income                                5 166        1 013         753
Total comprehensive     
income for the period   16.96       114 725       98 086     179 527
Attributable to:        
Equity holders          
of the Parent                        99 194       94 758     154 785
Non-controlling         
interest                             15 531        3 328      24 742
                                    114 725       98 086     179 527

Earnings attributable to equity holders

                                  Unaudited     Reviewed  
                                 six months   six months      Audited 
                                      ended        ended   year ended
                                31 December  31 December      30 June
                             %         2015         2014         2015 
                        change        R’000        R’000        R’000
Number of ordinary                                        
shares in issue          18.49  554 377 328  467 855 101  467 855 101
Weighted average                                          
number of ordinary                                        
shares                   17.89  551 555 951  467 855 101  467 855 101
Weighted average  
number of shares  
for diluted EPS   
(includes second  
tranche share     
issue)                          577 957 910  467 855 101  467 855 101
Basic earnings                       99 194       94 758      154 785
Adjusted by:                            612        7 412       24 989
– Reversal of                                             
impairment                                –       10 577       36 697
– Loss on disposal                                        
of assets                               928          108          186
Total tax effects                                         
of adjustments                         (260)      (3 273)     (10 327) 
Total NCI effects                                         
of adjustments                          (56)           –       (1 567)
Headline earnings                    99 806      102 170      179 774
Earnings per share 
(cents)            
– Attributable to  
ordinary shares    
(cents)                               17.98        20.25        33.08
– Diluted earnings   
per share (cents)                     17.16        20.25        33.08
Headline earnings  
per share (cents)  
– Attributable to  
ordinary shares    
(cents)                               18.10        21.84        38.43
– Diluted earnings 
per share (cents)                     17.27        21.84        38.43

Summarised consolidated statement of cash flows

                                  Unaudited      Reviewed
                                 six months    six months     Audited 
                                      ended         ended  year ended
                                31 December   31 December     30 June
                             %         2015          2014        2015 
                        change        R’000         R’000       R’000
Cash generated   
from operations                      23 670       125 475     396 996
Net finance income                    7 999         9 507      18 802
Distribution to  
shareholders                        (64 969)      (84 214)   (145 445) 
Tax and other
payments                            (69 893)      (56 941)    (92 958)
Net cash (outflow)/ 
inflow from operating  
activities                         (103 193)       (6 173)    177 395
Net cash outflow  
from investing  
activities                          (99 308)      (55 943)   (137 061) 
Net cash inflow/
(outflow)from 
financing         
activities                          641 776        (7 823)    (96 599)    
Effect of                        
foreign exchange                 
benefit                               5 166         1 013         867
Net increase in                  
cash and cash                    
equivalents                         444 441       (68 926)    (55 398) 
Cash and cash                    
equivalents at                   
beginning of the                 
period                              334 051       389 449     389 449
Cash and cash                    
equivalents at                   
end of the                       
period                 142.88       778 492       320 523     334 051

Summarised consolidated statement of changes in equity

                                             Unaudited       Reviewed 
                                            six months     six months 
                                                 ended          ended
                                           31 December    31 December
                                                  2015           2014
                                                 R’000          R’000
Balance at beginning of the              
period                                       1 167 079      1 123 602
Issue of share capital (IFRS 3           
measurement)                                   445 589              – 
Share-based awards reserve                       3 222          2 120
Distribution to shareholders                   (55 438)       (84 214) 
Net profit for the period                       99 194         94 758
Profit attributable to minorities               15 531          3 328
Profit on sale of shares (AHA)                 246 738              – 
NAV attributable to Sanlam (AHA)               456 262              – 
Right of redemption and                  
repurchase                                    (703 000)             –
Distribution to minorities                      (9 529)       (10 063) 
Balance at end of the period                 1 665 648      1 129 531

Segmental analysis

                                               Unaudited
                                        six months ended
                                        31 December 2015
                                                  Profit       Total
                                 Revenue      before tax      assets
                                   R’000           R’000       R’000
Healthcare SA                    968 743         110 414   3 342 946
Healthcare Africa                 87 877          32 710     135 607
Healthcare Retail                355 515          13 582     236 146
Total Healthcare               1 412 135         156 706   3 714 699
Information technology           242 244          14 178     256 119
Other (including inter-                                    
segment elimination)            (212 312)        (20 204)   (974 899)
                               1 442 067         150 680   2 995 919

                                               Reviewed
                                       six months ended
                                       31 December 2014  
                                                 Profit        Total 
                                 Revenue     before tax       assets 
                                   R’000          R’000        R’000
Healthcare SA                    942 060         82 012    1 876 914 
Healthcare Africa                 77 166         25 724      102 690
Healthcare Retail                      –              –            –
Total Healthcare               1 019 226        107 736    1 979 604                
Information technology           188 869         20 165      198 088
Other (including inter-                                   
segment elimination)            (191 925)         6 034     (672 088)
                               1 016 170        133 935    1 505 604

                                               Audited 
                                            year ended
                                          30 June 2015
                                                Profit        Total 
                                 Revenue    before tax       assets 
                                   R’000         R’000        R’000
Healthcare SA                  1 913 529       227 581    2 013 236
Healthcare Africa                157 818        56 056      126 357
Healthcare Retail                      –             –            – 
Total Healthcare               2 071 347       283 637    2 139 593
Information technology           401 454        33 663      465 035
Other (including inter-                                  
segment elimination)            (374 489)      (37 942)  (1 019 022)
                               2 098 312       279 358    1 585 606

Commentary
Introduction
The Board is pleased to present the Group’s interim results for
the six months ended 31 December 2015. The period under review was
characterised by the implementation of a number of activities within 
the Group operations, permitting the finalisation of certain meaningful 
and determining corporate actions. These included inter alia, the 
accommodation, alignment and integration of the sizeable WAD Holdings 
(Pty) Ltd (“WAD”) asset acquisitions, in particular, Pharmacy Direct, 
the closing and pivotal admission of SANLAM Limited (“SANLAM”) into 
the Group, the costly, but feasible acquisition and roll out of the 
IFM Fraud Detection Platform and not least, the immense task and 
expenditure incurred in preparation for the South African Police 
Service Medical Scheme (“Polmed“) administration contract, which 
went live and became income generative with effect from 
1 January 2016. While each of these investment and operational 
events are expected to be complementary and impact positively on 
the Group’s principal business, the increased costs of investment 
incurred for improved system and IT capacity, including the cost of 
additional staff, accommodation and amortisation in the subject 
period, makes it difficult to measure performance against that 
reported in the prior comparable period.

Accounting policies and basis of preparation
The summarised consolidated financial statements for the six months 
ended 31 December 2015 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 71 of 2008. The summarised 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 2015 in terms of IFRS.

Nature of business
AfroCentric is a black-controlled investment holding company, 
its investment portfolio primarily focused on services to the 
healthcare sector. AfroCentric appears on the healthcare list 
of companies on the exchange operated by the JSE Limited, under 
the code ACT. The more significant Group assets include WAD 
assets, the businesses of which, specialise in pharmaceutical 
wholesaling and pharmaceutical courier distribution services. 
The Group, inter alia, has a material controlling interest in 
Medscheme through its interest in ACT Healthcare Assets (Pty) 
Ltd (“AHA”). Medscheme is a multi-medical scheme administrator 
and health risk solution provider. The Group also has a 
meaningful presence in various African countries, as well 
as Mauritius.

Recent developments
Reference has already been made about the WAD and SANLAM corporate 
actions, including the appointment of Medscheme as the administrator 
of POLMED. These enterprises, associates and new clients are expected 
to add significant value to our South African businesses, providing 
inter alia, user friendly medical scheme features and solutions by 
delivering a more integrated offering, an example of which, is the 
commencing SANLAM “Reality” loyalty programme to members of Bonitas 
and Fedhealth. The POLMED medical scheme is Medscheme’s third largest 
client with approximately 175 000 members.

Financial Performance
Profits before taxation increased by 12.5% for the period under review 
amounting to R150.7 million (2014: R133.9 million). Apart from the 
early unmatched cost to income deficiency in preparation for the 
contractual services to POLMED, a significant increase in amortisation 
was provided for the first time against the intangible asset value 
arising on the WAD assets acquisition and the IFM Fraud Detection 
Platform. Given the number of shares issued to WAD vendors for this 
acquisition, diluted headline earnings per share for the period under 
review declined by 20.92%. While forecasts of WAD stand-alone earnings 
are likely to be marginally accretive, it is expected that the 
intended synergetic co-operation within the Group, will more 
meaningfully contribute to Group earnings going forward.

Other highlights
Below are some of the other notable achievements for the
AfroCentric Group:
* Swazimed administered by Medscheme in Swaziland has, for the 
  second consecutive year, won the PMR Diamond Arrow Award in the 
  Best Medical Aid in the country category.
* The Group has made great strides in the technology space such as the 
  Electronic Health Patient Record which will be implemented during 2016.
* The Group received the sum of R703 million, being the proceeds of 
  the sale to SANLAM of an effective 27% in AfroCentric Health 
  Limited (“AHL”).
* The implementation of the IFM Fraud Detection Platform to our 
  medical aid schemes to enhance the detection of fraudulent claims.
* The achievement of a level two BEE accreditation based on the 
  new BBBEE codes.
* The Group is completely debt free with significant cash resources to 
  finance future growth, potential mergers and acquisitions.
* An initiative has commenced to acquire all the shares in AHL, not already 
  owned by AHA, from the minority shareholders in AHL. A circular has been
  prepared and every indication exists that the process will be successfully 
  completed by the financial year-end.

Prospects
Given all of the events and corporate actions that have occurred during the 
period under review, the Group has positively positioned itself for future 
growth and further development. It has taken some years to reach this point 
of Group sustainability and absent some unforeseen circumstances, it is 
expected that the Group will continue to make progress in all of its 
enterprises. The relationship with SANLAM holds some exciting prospects 
for expansion, not only in South Africa but in destinations on the 
continent of Africa, where SANLAM already has a presence. Notwithstanding 
the above, stakeholders will be acutely aware of the economic challenges 
which lie ahead. Recent increases in interest rates, consequential inflation 
and the volatile Rand exchange rates have all had an effect on the South 
African economy and will likely impact disposable income and business 
confidence. Our talented management team will nevertheless continue 
to diligently manage the Group’s expanded and growing operating portfolio, 
at the same time seeking to optimise the returns and opportunities that 
present themselves for review and consideration.

Directors and officers
Since the last published set of Group results there were five new appointments 
on the Board of Directors:
* Mr Antoine Van Buuren – Group Chief Executive Officer (effective 
  16 March 2016).
* Ms Lindani Dhlamini – Independent Non-executive Director.
* Dr Nkateko Munisi – Non-executive Director (representing Golden
  Pond).
* Mr Ian Kirk – Non-executive Director (representing Sanlam).
* Mr Ahmed Banderker – Non-executive Director (representing
  Sanlam).

During the period, Mr Dewald Dempers stepped down as Group CEO and the 
position was temporarily filled by the Non-Executive Chairman, 
Dr Anna Mokgokong. Mr Dempers will however continue to act as an 
Executive Director on the Board.

Interim Dividend
Given the strong cash position and performance of the Group, the Board 
of directors has pleasure in announcing that the Company’s 
interim dividend of 12 cents per ordinary share (gross) has been 
declared for the six months ended 31 December 2015. Dividends are 
subject to Dividends Withholding Tax. The payment date for the dividend 
is Monday, 16 May 2016. This interim dividend will constitute part of 
the Group’s annual dividend, to be considered with the results for 
the 30 June 2016 year-end.

* Dividends have been declared out of profits available for distribution.
* Local Dividends Withholding Tax rate is 15%.
* Gross dividend amount is 12 cents per ordinary share.
* Net cash dividend amount is therefore 10.2 cents per ordinary share.
* Company has 554 377 328 ordinary shares in issue as at the declaration date.
* Company’s income tax reference number is 9600/148/71/3.

The salient dates relating to the dividend are as follows: 
Last day to trade cum dividend          Friday, 6 May 2016
Shares commence trading ex-dividend     Monday, 9 May 2016
Dividend record date                   Friday, 13 May 2016
Dividend payment date                  Monday, 16 May 2016

Share certificates for ordinary shares may not be dematerialised or 
rematerialised between Monday, 9 May 2016 and Friday, 13 May 2016, 
both days inclusive.

Basis of preparation
The unaudited interim results have been prepared under the supervision 
of Mr JW Boonzaaier CA(SA), in his capacity as the Group Chief 
Financial Officer.

On behalf of the Board

Dr ATM Mokgokong
Chairman

Johannesburg
16 March 2016

Directors
ATM Mokgokong** (Chairman), AV Van Buuren*** (CEO), JW Boonzaaier*** 
(CFO), JG Appelgryn**, NB Bam*, A Banderker**, WH Britz***, 
D Dempers***, LL Dhlamini*, JM Kahn*, IM Kirk**, MJM Madungandaba**, 
Y Masithela*, ND Munisi**, GL Napier*, 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)

www.afrocentric.za.com

Company Secretary
S Lutchan

Group Investor Relations 
Shivani Ramdhani 
shivanir@afrocentric.za.com 
Tel: +27 11 671 2475
Date: 17/03/2016 01:37:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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