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AFROCENTRIC INVESTMENT CORP LIMITED - Audited Final Results and Dividend Declaration For the year ended 30 June 2016

Release Date: 19/09/2016 10:00
Code(s): ACT     PDF:  
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Audited Final Results and Dividend Declaration
For the year ended 30 June 2016

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)

Summary of Audited Final Results and Dividend Declaration
For the year ended 30 June 2016

Group earnings up 24.55%
Healthcare service revenue up 14.36% 
Dividend growth up 20%

Summarised consolidated statement of financial position

                                                   Audited     Audited
                                                year ended  year ended
                                                   30 June     30 June
                                                      2016        2015
                                                     R’000       R’000
Assets
Non-current assets                               2 190 076     991 080
Property and equipment                             189 362     102 639
Investment property                                 15 000      15 000
Intangible assets (Note 1)                       1 388 815     744 487
Available for sale investment                       18 444      18 444
Listed investment (Note 2)                          37 182           – 
Managed funds and deposits                         411 934           – 
Investment in associates                            24 477      14 873
Deferred income tax assets                         104 862      95 637
Current assets                                     850 640     569 738
Trade and other receivables                        365 004     228 884
Inventory                                           72 310       6 803
Current tax asset                                   19 821           – 
Receivables from associates and joint venture       20 437           – 
Cash and cash equivalents                          373 068     334 051
Non-current asset held for sale (Note 2)                 –      24 788
Total assets                                     3 040 716   1 585 606
Equity and liabilities
Capital and reserves                             1 047 979   1 104 149
Issued ordinary share capital                       18 686      17 821
Share premium (Note 3)                             970 358     525 633
Conditional put option reserve (Note 4)           (727 960)          – 
Share-based payment reserve                         26 604      20 160
Treasury shares                                     (2 324)     (2 324) 
Foreign currency translation reserve                 7 027       2 204
Distributable reserve                              755 588     540 655
Non-controlling interest                           515 603      62 930
Total equity                                     1 563 582   1 167 079
Non-current liabilities                            977 573      86 252
Deferred income tax liabilities                     82 390      54 822
Non-current provisions                               8 350       8 350
Post-employment medical obligations                  2 691       3 134
Second tranche payment (Note 5)                    134 893           – 
Conditional financial obligation (Note 6)          727 960           – 
Accrual for straight lining of leases               21 289      19 946
Current liabilities                                499 561     332 275
Borrowings                                               –      61 224
Provisions                                           9 755       9 211
Trade and other payables                           383 029     146 317
Taxation                                                 –       4 418
Employment benefit provisions                      106 777     111 105
Total liabilities                                1 477 134     418 527
Total equity and liabilities                     3 040 716   1 585 606

Note 1

                                       Carrying
                                          value Amortisation Amortisation
Intangible assets                          2016         2016         2015
Goodwill – WAD Acquisition              473 954            –            – 
Goodwill – AfroCentric Health           398 124            –            – 
Customer relationships – WAD
Acquisition                              81 282       (8 203)           –
AfroCentric Health intangible assets    435 455      (71 129)     (48 734) 
AfroCentric Health intangible PPA        68 436      (13 811)     (15 951) 
AfroCentric Health intangible
Software                                278 399      (39 062)     (28 589)
Insurance Fraud Manager (Fraud
Management Software)                     88 620      (18 256)      (4 194)
                                      1 388 815      (79 332)     (48 734)

The increase in intangible assets relates to the WAD Acquisition. Refer to 
supporting documentation on the AfroCentric website.

Note 2
The investment in Jasco Electronics Holdings Limited is no longer categorized 
as assets held for sale.

Note 3
The increase relates to the issue of 86.5 million shares amounting to 
R445 million for the acquisition of the WAD assets.

Note 4
The recognition of the conditional put option reserve (R703 million) plus 
interest, an IAS 32 accounting adjustment, is as a result of certain terms 
contained in the SANLAM agreement.

Note 5
26 192 902 shares to the value of R134.8 million will be issued to WAD 
vendors subject to certain profit thresholds being attained. These shares 
will be issued during 2017/2018 and the value thereof has already been 
anticipated by inclusion in Intangible Assets.

Note 6
Sanlam acquired an effective 28.7% interest in AHA for R703 million in
December 2015. 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.

WAD Business combination

                                              Share      Number
                                              price   of shares     R’000
Consideration paid                             5.15 112 715 129   580 483
Fair value of net asset value                                    (106 529) 
Goodwill                                                          473 954

For more detail on the Business Combination (Effective 1 August 2015)
refer to supporting documentation on the AfroCentric website. 

Summarised consolidated statement of comprehensive income

                                                      Audited       Audited
                                                   year ended    year ended
                                              %  30 June 2016  30 June 2015 
                                         change         R’000         R’000
Healthcare service revenue                14.36     2 399 669     2 098 312
Healthcare service operating costs                 (2 055 514)   (1 726 240) 
Healthcare service operating profit                   344 155       372 072
Healthcare retail revenue                             748 477             – 
Healthcare retail cost of sales                      (588 204)            – 
Healthcare retail gross profit                        160 273             – 
Healthcare retail operating costs                    (128 067)            – 
Total healthcare operating profit                     376 361       372 072
Impairment of assets                                  (21 469)      (36 697)
Net finance and investment income                      54 924        18 802
– Finance and investment income                        59 471        28 799
– Finance cost                                         (4 547)       (9 997)
Share-based payment expense                            (6 444)       (9 395) 
Share of associate profits                             10 118        19 037
Profit before depreciation and
amortisation                              13.65       413 490       363 819
Depreciation                                          (38 011)      (35 727)
Amortisation of intangible assets
(Note 1)                                              (79 332)      (48 734) 
Profit before income taxation                         296 147       279 358
Taxation expense                                      (77 573)     (100 584) 
Profit for the year after taxation                    218 574       178 774
Other comprehensive income                              5 029           753
Comprehensive net income for the year     24.55       223 603       179 527
Attributable to:
Equity holders of the Parent                          170 280       154 785
Non-controlling interest                               53 323        24 742
                                                      223 603       179 527
Earnings attributable to equity holders

                                                     Audited      Audited 
                                                  year ended   year ended
                                                     30 June      30 June
                                              %         2016         2015
                                         change        R’000        R’000
Number of ordinary shares in issue        18.49  554 377 328  467 855 101
Weighted average number of ordinary
shares                                    18.19  552 958 931  467 855 101
Weighted average number of shares 
for diluted EPS (anticipating the 
Second Tranche issue of shares)                  579 151 833  467 855 101
Basic earnings                                       170 280      154 785
Adjusted by:                                          11 876       24 989
– Reversal of impairment                              21 469       36 697
– Loss on disposal of assets                             245          186
Total tax effects of adjustments                      (1 429)     (10 327) 
Total NCI effects of adjustments                      (8 409)      (1 567) 
Headline earnings                                    182 156      179 774
Earnings per share (cents)
– Attributable to ordinary shares
  (cents)                                              30.79        33.08
– Diluted earnings per share (cents)                   29.40        33.08
Headline earnings per share (cents)
– Attributable to ordinary shares
  (cents)                                              32.94        38.43
– Diluted earnings per share (cents)                   31.45        38.43

Summarised consolidated statement of cash flows

                                                     Audited      Audited 
                                                  year ended   year ended                                                    
                                                     30 June      30 June   
                                              %         2016         2015
                                         change        R’000        R’000
Cash generated from operations                       393 851      396 996
Net finance income                                    27 839       18 802
Distribution to shareholders                        (131 485)    (145 445) 
Dividend received                                      4 112        1 841
Tax and other payments                              (102 584)     (92 958) 
Net cash inflow from operating
activities                                           191 733      179 236
Net cash outflow from investing
activities                                          (645 465)    (138 902) 
Net cash inflow from financing
activities                                           487 926      (96 599)
Effect of foreign exchange benefit                     4 823          867
Net increase in cash and cash
equivalents                                           39 017      (55 398) 
Cash and cash equivalents at beginning
of the period                                        334 051      389 449
Cash and cash equivalents at end of 
the period                                11.68      373 068      334 051


Summarised consolidated statement of changes in equity

                                                     Audited      Audited 
                                                  year ended   year ended                                                    
                                                     30 June      30 June   
                                                        2016         2015
                                                       R’000        R’000
Balance at beginning of the period                 1 167 079    1 123 602
Issue of share capital                               445 590            – 
Share-based awards reserve                             6 444        9 395
Net profit for the year                              170 280      154 785
Profit attributable to minorities                     53 323       24 742
Sanlam investment                                    703 000            – 
Premium on subscription                              246 738            – 
Changes in ownership                                 456 262            – 
Conditional Financial Obligation                    (727 960)           – 
AHL minorities share buy-back                       (122 164)           – 
Increase in shareholding of Klinikka                    (525)           – 
Distribution to shareholders                        (121 963)    (130 999) 
Distribution to minorities                            (9 522)     (14 446) 
Balance at end of the period                       1 563 582    1 167 079

Segmental analysis

                                          Audited year ended 30 June 2016
                                                        Profit 
                                                        before      Total       
                                         Revenue      taxation     assets 
                                           R’000         R’000      R’000
Healthcare SA                          2 066 327       195 075  3 328 479
Healthcare Africa                        180 534        67 166    160 739
Healthcare Retail                        748 477        46 310    238 198
Total Healthcare                       2 995 338       308 551  3 727 416
Information technology                   499 411        40 178    310 001
Other (including inter-segment
elimination)                            (346 603)      (52 582)  (996 701)
                                       3 148 146       296 147  3 040 716

                                           Audited year ended 30 June 2015
                                                        Profit 
                                                        before       Total 
                                         Revenue      taxation      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 of AfroCentric is pleased to present the Group’s audited results 
for the year ended 30 June 2016, a watershed year in many respects, given 
the number of corporate actions which occurred and the material growth in 
principal members of Medical Schemes administered by the Group. These 
positive events, substantially occurring in parallel, demanded diligent 
management focus, including considerable capacity building and systems 
development in anticipation of the new scale of Group operations. In 
addition, an enormous management effort was required to ensure the
seamless registration of 175 667 new principal members of the South
African Police Service Medical Scheme (“POLMED”), an administration and 
managed care contract, the preparation for which started during August
2015, but operationally only commenced on 1 January 2016. AfroCentric was
also delighted to finalize SANLAM’s acquisition in subsidiary, ACT 
Healthcare Assets (“AHA”), a premium partnership designed inter alia, 
to broaden SANLAM’s client choices in healthcare and healthcare products. 
In addition, 2016 was the first period of ownership of Pharmacy Direct 
and Curasana, (“WAD Assets”), enterprises of significance, the integration 
process being reasonably seamless, but nevertheless requiring a review 
of divisional authority within the group and management reorganisation.

Accounting policies and basis of preparation
The summary consolidated financial statements are prepared in accordance 
with the requirements of the JSE Limited Listings Requirements for 
provisional reports, and the requirements of the Companies Act applicable 
to summary financial statements. The Listings Requirements require 
provisional reports to be prepared in accordance with the framework 
concepts and the measurement and recognition requirements of International 
Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting 
Guides as issued by the Accounting Practices Committee and Financial 
Pronouncements as issued by the Financial Reporting Standards Council 
and to also, as a minimum, contain the information required by IAS 34 
Interim Financial Reporting. The accounting policies applied in the 
preparation of the consolidated financial statements from which the 
summary consolidated financial statements were derived are in terms of 
IFRS and are consistent with those accounting policies applied in the 
preparation of the consolidated annual financial statements.

Subsequent events and related parties are not material. 

Nature of business
AfroCentric is a JSE listed investment holding company which operates 
in and provides services to the healthcare sector. AfroCentric is one 
of very few JSE listed companies that is black owned and controlled,
fulfilling the Group’s principal philosophy of transformation and 
empowerment. The Group enjoys a Level 2 B-BBEE rating, based on the 
new codes and is easily the most empowered healthcare-related enterprise 
on the JSE. AfroCentric’s core business is to provide health administration 
and health risk management solutions to its Medical Scheme clients. 
Through other speciality competences within its integrated network of 
health services, AfroCentric provides a range of complementary services 
which include, inter alia, information technology (“IT”) solutions; 
fraud detection, transactional switching; specialised disease management; 
pharmaceutical wholesaling and courier distribution services. AfroCentric 
continues to seek new and expansion opportunities in the healthcare sector 
that are aligned with Group strategy and are likely to contribute to the 
health and welfare of South African communities.

Other highlights of the year
Level 2 B-BBEE status achieved for the fourth successive year, based on 
the revised codes.
Medscheme appointed as health administrator and health risk management 
provider to POLMED.
BHF member of the year.
Medscheme achieved the Service Excellence award for Health
Administration and Health Risk Management from the BHF.
Medscheme Swaziland (Swazimed Medical Scheme) received the PMR Diamond 
Arrow Award for the best Medical Scheme in the country for the second 
consecutive year.
AfroCentric Health (AHL) repurchased the 5.9% minority interest held by 
its minority shareholders, the effect being that AHA now owns 100% of AHL.
SANLAM owns 28.7% of AHA.

Financial Performance
Given the positive nature and extent of the corporate actions and activities 
during the year, management in each business unit were continually under 
pressure, to ensure the seamless integration of the new and/or expanded 
operations without compromising service levels. In the event, management 
were able to rise to the challenge and their efforts are revealed in certain 
key financial statistics disclosed herein. It is common cause that AfroCentric 
and most other companies in South Africa, have unfortunately had to endure a 
consistently difficult and unstable economy, often punctuated by discordant 
politics and further affected by volatile currency conversion rates. In such 
prevailing circumstances, the results for the 2016 year, are regarded by 
the Board as highly satisfactory.

Comprehensive Net Income for the year increased by 24.55%, notwithstanding that 
early costs incurred in preparation for the Polmed contract have been absorbed. 
Income arising through Polmed, is only reflected for the latter six months of 
the year. The dilution through the issue of 86.5 million AfroCentric ordinary 
shares to the vendors of the WAD assets, including the dilution arising from 
the sale to SANLAM of 28.7% of the shares in AHA, all occurring during the year, 
earnings per share and headline earnings per share only reduced by 6.92% and 14.27% 
respectively. The WAD asset acquisitions performed as expected and the future 
WAD earnings, including the contributions expected through the SANLAM relationship, 
suggest that both business relationships will be earnings enhancing.

Operational review
The following expenditure items were incurred during the year which are substantially 
regarded as non-recurring expenditure, all of which have adversely impacted on 
the Group’s earnings:
Transaction and advisory costs relating to both the WAD assets and
Sanlam of R11.5 million.
Legal costs on the Neil Harvey and Associates matter of R10.8 million
Road Accident Fund (RAF) contract losses of R16.7 million
Executive service contract settlement costs of R20.2 million.

Prospects
During this past financial year, AfroCentric has successfully admitted, merged and/or 
integrated a number of commercial concerns, associates and new clients into the Group 
enterprise. These initiatives, in certain cases, required an early investment in 
capacity and infrastructure, were highly demanding of management, the reward however, 
being a broader beneficial spread of synergistic health sector interests. All of these 
enhancing health related steps were concluded with, or in association with, well known 
and respectable institutions, equally committed to the same objective of enabling easier 
healthcare access and more affordable delivery. The Group’s growth, its BEE status and 
its regular industry award winning competencies, have attracted significant market interest, 
evidenced earlier this year by Group subsidiary, Medscheme, appointed as administrators to 
POLMED and more recently, being approved administrators of the LMS Medical Fund with 
110 000 lives (previously Liberty Medical Scheme), awaiting merger approval with Bonitas 
Medical Fund. All of these positive growth events are likely to add value to Group 
revenues in the future, hopefully to be translated into an enhanced level of earnings 
going forward. The Group is substantially debt free, is more than adequately capitalized, 
is systematically improving and increasing its IT capacity and will continue to seek 
related earnings enhancing acquisitions and partnerships. AfroCentric also stands 
ready and receptive to facilitate and participate in medical scheme consolidation 
which is seemingly taking place in the sector at this time. Notwithstanding the current 
market volatility and general economic challenges facing South Africa, the Board remains 
cautiously confident in the group’s growth prospects.

Directors and officers
The variety of corporate actions which became effective during the year under review, 
inevitably saw several changes occurring, both in Executive management appointments and 
on the Board of Directors.

Having regard thereto, the following changes took place during the year, in certain 
respects, reflecting the fulfilment of certain contractual undertakings.

Mr WRC Holmes retired as Executive Director and Group Chief Financial
Officer effective 1 August 2015.
Mr D Dempers stepped down as Group Chief Executive Officer on 
15 December 2015.
Mr D Dempers resigned as an Executive Director effective 2 June 2016.
Mr JW Boonzaaier was appointed as an Executive Director and Group Chief
Financial Officer effective 1 August 2015.
Mr AV Van Buuren was appointed as an Executive Director and Group Chief
Executive Officer effective 16 March 2016.
Mr WH Britz was appointed as an Executive Director effective 
1 August 2015.
Ms LL Dhlamini was appointed as an Independent Non-executive Director and 
a member of the Audit and Risk Committee effective 2 December 2015.
Dr ND Munisi was appointed as a Non-executive Director effective 
7 December 2015.
Mr IM Kirk was appointed as a Non-executive Director effective 
15 December 2015.
Mr A Banderker was appointed as a Non-executive Director effective 
15 December 2015.
Ms Y Masithela resigned as an Independent Non-executive Director 
effective 15 September 2016.

Dividends
The Board of Directors has pleasure in announcing that in addition to the
interim dividend of 12 cents per share already declared and paid during
the year, a final dividend of 12 cents per ordinary share (gross) has been
declared for the year ended 30 June 2016. 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 12 cents per ordinary share.
The net cash dividend amount is therefore 10.2 cents per ordinary share.
The company has 554 377 328 ordinary shares in issue at 30 June 2016.
The company’s income tax reference number is 9600/148/71/3.

The salient dates relating to the ordinary dividend are as follows:
Last day to trade cum dividend                Tuesday, 8 November 2016
Shares commence trading ex-dividend           Wednesday, 9 November 2016
Dividend record date                          Friday, 11 November 2016
Dividend payment date                         Monday, 14 November 2016

Share certificates for ordinary shares may not be dematerialised or rematerialised 
between Wednesday 9 November 2016 and Friday, 11 November 2016 both days inclusive.

Basis of preparation
This summarised report is extracted from audited information but is not itself 
audited. This announcement does not include the information required pursuant 
to paragraph 16A(j) of IAS 34. The full provisional report is available on the 
our website (http://www.afrocentric.za.com/inv-reporting.php), at our offices and 
upon request. The directors take full responsibility for the preparation of this 
report and the financial information has been correctly extracted from the underlying 
annual financial statements. The annual financial statements were audited by 
PricewaterhouseCoopers Inc. who expressed an unmodified opinion thereon. The audited 
annual financial statements and the auditor’s report thereon are available for 
inspection at the company’s registered office.

On behalf of the Board

Dr ATM Mokgokong                               Mr AV Van Buuren
Chairperson                                    Group Chief Executive Officer

Directors
ATM Mokgokong++ (Chairperson) AV Van Buuren+++ (CEO) JW Boonzaaier+++ (CFO) 
MJM Madungandaba++ (Deputy Chairman) JG Appelgryn++ NB Bam+
A Banderker++ WH Britz+++ LL Dhlamini+ JM Kahn+ IM Kirk++ ND Munisi++ 
GL Napier+ MI Sacks+
+independent non-executive   ++non-executive    +++executive

Registered Office
37 Conrad Rd Florida North 1709

www.afrocentric.za.com

Company Secretary
S Lutchan

Group Investor Relations
Shivani Ramdhani

shivanir@afrocentric.za.com
Tel: +27 11 671 2475

Johannesburg 
19 September 2016

Sponsor
Sasfin Capital (A division of Sasfin Bank Limited)
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