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Afrocentric Investment Corp Limited - Interim Results And Dividend Declaration

Release Date: 28/03/2017 13:26
Code(s): ACT
 
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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”)

Unaudited Interim Results and Dividend Declaration
for the six months ended 31 December 2016

Total revenue up 25.51% 
Profit before tax up 45.88% 
Dividends up 16.66%

Summarised consolidated statement of financial position

                                      Unaudited     Unaudited          
                                     six months    six months         Audited
                                          ended         ended      year ended   
                                    31 December   31 December         30 June   
                                           2016          2015            2016
                                          R’000         R’000           R’000
Assets
Non-current assets                    2 121 295     2 157 815       2 190 076
Property and equipment                  208 623       159 689         189 362
Investment property                      15 000        15 000          15 000
Intangible assets (Note 2)            1 440 173     1 417 866       1 388 815
Available for sale investment            18 444        18 444          18 444
Listed investments                       41 608        27 001(1)       37 182
Managed funds and deposits              278 851       396 253(1)      411 934
Investment in associates                 29 374        33 039          24 477
Deferred income tax assets               89 222        90 523         104 862
Current assets                          867 714       838 104         850 640
Trade and other receivables             361 100       348 628         365 004
Inventory                                77 465        79 321          72 310
Current tax asset                        30 792        27 916          19 821
Receivables from associates and
joint venture                            12 637             –          20 437
Cash and cash equivalents               385 720       382 239(1)      373 068
Total assets                          2 989 009     2 995 919       3 040 716
Equity and liabilities
Capital and reserves                  1 081 596     1 140 454       1 047 979
Issued ordinary share capital            18 686        18 686          18 686
Share premium                           970 358       970 358(1)      970 358
Share-based payment reserve              28 700        23 382          26 604
Treasury shares                          (2 324)       (2 324)         (2 324) 
Conditional put option reserve         (750 913)     (703 000)       (727 960) 
Foreign currency translation
reserve                                   4 020         7 370           7 027
Distributable reserve                   813 069       825 982         755 588
Non-controlling interest                549 504       525 194         515 603
Total equity                          1 631 100     1 665 648       1 563 582
Non-current liabilities               1 004 497     1 031 986         977 573
Deferred income tax liabilities          90 394       163 518          82 390
Non-current provisions                    8 350         8 350           8 350
Post-employment medical 
obligations                               2 691         3 134           2 691
Second tranche payment                  134 893       135 970         134 893
Conditional put option obligation       750 913       703 000         727 960
Accrual for straight lining 
of leases                                17 256        18 014          21 289
Current liabilities                     353 412       298 285         499 561
Provisions                               11 406         9 636           9 755
Trade and other payables                288 076       255 762         383 029
Employment benefit provisions            53 930        32 887         106 777
Total liabilities                     1 357 909     1 330 271       1 477 134
Total equity and liabilities          2 989 009     2 995 919       3 040 716

Note 1
(1) Certain amounts have been regrouped for a more meaningful comparison
with the June 2016 audited results.
(2) The audited results for the year ended 30 June 2016 have been restated to 
include an interest accrual in the Statement of Comprehensive Income, relating 
to the conditional put option obligation.

                                   Carrying value   Amortisation   Amortisation 
Note 2                                31 December    31 December    31 December 
Intangible assets                            2016           2016           2015
Goodwill – AfroCentric Health             398 122              –              –
Goodwill – WAD acquisition                473 954              –              – 
Customer relationships – WAD
acquisition                                76 808         (4 474)       (16 824)
AfroCentric Health intangible assets      491 289        (37 661)       (33 892)
AfroCentric Health intangible PPA          25 931         (2 916)        (7 059) 
AfroCentric Health intangible Software    369 214        (24 298)       (18 485) 
Insurance Fraud Manager
(Fraud Management Software)                96 144        (10 447)        (8 348)
                                        1 440 173        (42 135)       (50 716)

Summarised consolidated statement of comprehensive income

                                        Unaudited      Unaudited       Restated 
                                       six months     six months        audited 
                                            ended          ended     year ended
                                      31 December    31 December        30 June
                                    %        2016           2015           2016
                               change       R’000          R’000          R’000
Healthcare service revenue              1 300 155      1 121 661(1)   2 399 669
Healthcare service
operating costs                        (1 069 204)      (913 173)(1) (2 055 514) 
Healthcare service
operating profit               10.77     230 951         208 488        344 155
Healthcare retail revenue                509 778         320 406(1)     748 477
Healthcare retail cost of
sales                                   (409 909)       (251 219)(1)   (588 204)
Healthcare retail gross
profit                         44.35      99 869          69 187        160 273
Healthcare retail operating
costs                                    (72 070)        (69 113)(1)   (128 067) 
Total healthcare operating
profit                         24.06     258 750         208 562        376 361
Impairment of assets                       2 895               –        (21 469) 
Net finance and investment
income                                     13 150         11 230         29 964
– Finance and investment
income                                     36 130         13 636         59 471
– Finance cost: Conditional               
put option obligation                     (22 953)             –        (24 960)(2)
– Finance cost: Other                         (27)        (2 406)        (4 547)
Share-based payment expense                (2 096)        (3 222)        (6 444) 
Share of associate profits                  9 907          2 469         10 118
Profit before depreciation 
and amortisation                          282 606        219 039        388 530
Depreciation                              (20 652)       (17 643)       (38 011) 
Amortisation of intangible
assets (Note 2)                           (42 135)       (50 716)       (79 332) 
Profit before income
taxation                       45.88      219 819        150 680        271 187
Taxation expense                          (66 600)       (41 121)       (77 573) 
Profit for the period after
taxation                       39.85      153 219        109 559        193 614
Other comprehensive
(loss)/income                              (3 007)         5 166          5 029
Total comprehensive income
for the period                            150 212        114 725        198 643
Attributable to:
Equity holders of the Parent               98 046         99 194        145 320
Non-controlling interest (Note 3)          52 166         15 531         53 323
                                          150 212        114 725        198 643

Note 3
The significant increase in the comparable amount attributable to Non-
controlling interest arises substantially through the subscription by
Sanlam for 28.7% of the shares in ACT Healthcare Assets (Pty) Ltd.

Earnings attributable to equity holders

                                       Unaudited      Unaudited      Restated
                                      six months     six months       audited 
                                           ended          ended    year ended
                                     31 December    31 December       30 June
                                            2016           2015          2016
                                           R’000          R’000         R’000
Number of ordinary shares in issue   554 377 328    554 377 328   554 377 328
Weighted average number of
ordinary shares                      554 377 328    551 555 951   552 958 931
Weighted average number of shares
for diluted EPS (including estimated 
second tranche share
issue to WAD asset vendors)          580 570 230    577 957 910   579 151 833
Basic earnings                            98 046         99 194       145 320
Adjusted by:                              (2 566)           612        11 876
– Reversal of impairment                  (2 895)             –        21 469
– Loss on disposal of assets                (216)           928           245
Total tax effects of adjustments              60           (260)       (1 429)
Total NCI effects of adjustments             485            (56)       (8 409) 
Headline earnings                         95 480         99 806       157 196
Earnings per share (cents)
– Attributable to ordinary shares
(cents)                                    17.69          17.98         26.28
– Diluted earnings per share (cents)       16.89          17.16         25.09
Headline earnings per share (cents)
– Attributable to ordinary shares (cents)  17.22          18.10         28.43
– Diluted earnings per share (cents)       16.45          17.27         27.14

Summarised consolidated statement of cash flows

                                        Unaudited     Unaudited
                                       six months    six months       Audited 
                                            ended         ended    year ended
                                      31 December   31 December       30 June
                                             2016          2015          2016
                                            R’000         R’000         R’000
Cash generated from operations            105 249        23 670       393 851
Net finance income                         20 918         7 999        27 839
Distribution to shareholders             (84 791)       (64 969)     (131 485) 
Dividends received                          5 010             –         4 112
Tax and other payments                   (55 063)       (69 893)     (102 584)
Net cash (outflow)/inflow from 
operating activities                      (8 677)      (103 193)      191 733
Net cash inflow/(outflow) from 
investing activities                      13 640       (495 561)(1)  (645 465) 
Net cash inflow from financing
activities                                 10 696       641 776       487 926
Net increase in cash and cash
equivalents                                15 659        43 022        34 194
Effect of foreign exchange benefit        (3 007)         5 166         4 823
Cash and cash equivalents at
beginning of the period                   373 068       334 051       334 051
Cash and cash equivalents at end of
the period (Note 4)                       385 720       382 239(1)    373 068

                                          Unaudited     Unaudited    Restated
                                         six months    six months     audited
                                              ended         ended  year ended
                                        31 December   31 December     30 June
                                               2016          2015        2016
Note 4
Total Group cash resources
Cash and cash equivalents                   385 720       382 239     373 068
Managed funds and deposits                  278 851       396 253     411 934
                                            664 571       778 492     785 002

Summarised consolidated statement of changes in equity

                                          Unaudited     Unaudited    Restated 
                                         six months    six months     audited 
                                              ended         ended  year ended
                                        31 December   31 December     30 June
                                               2016          2015        2016
                                              R’000         R’000       R’000
Balance at beginning of the period        1 563 582     1 167 079   1 167 079
Issue of share capital                            –       445 589     445 590
Share-based awards reserve                    2 096         3 222       6 444
Distribution to shareholders                (66 525)      (55 438)   (121 963)
Net profit for the period                    98 046        99 194     145 320
Transferred to conditional put
option reserve                               22 953             –      24 960(2)
Conditional put option reserve              (22 953)     (703 000)   (727 960) 
Conditional put option reserve at
inception                                         –      (703 000)   (703 000)
Transferred from distributable reserve      (22 953)            –     (24 960)
Profit attributable to minorities            52 166        15 531      53 323
Sanlam investment                                 –       703 000     703 000
Premium on subscription                           –       246 738     246 738
Changes in ownership                              –       456 262     456 262
AHL minorities share buy-back                     –             –    (122 164) 
Increase in shareholding of Klinikka              –             –        (525) 
Distribution to minorities                  (18 265)       (9 529)     (9 522) 
Balance at end of the period              1 631 100     1 665 648   1 563 582

Segmental analysis
                                               Unaudited six months ended
                                                     31 December 2016
                                                           Profit       Total
                                            Revenue    before tax      assets 
                                              R’000         R’000       R’000
Healthcare SA                             1 134 075       141 231   3 508 397
Healthcare Africa                            76 382        18 025      92 695
Healthcare Retail                           509 778        32 502     305 149
Total Healthcare                          1 720 235       191 758   3 906 241
Information technology                      269 686        33 849     333 855
Other (including inter-segment
elimination)                               (179 988)       (5 788) (1 251 087)
                                          1 809 933       219 819   2 989 009

                                               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                           320 406        13 582     236 146
Total Healthcare                          1 377 026       156 706   3 714 699
Information technology                      242 244        14 178     256 119
Other (including inter-segment
elimination)                               (177 203)      (20 204)   (974 899)
                                          1 442 067       150 680   2 995 919

                                             Restated audited year ended
                                                       30 June 2016
                                                           Profit       Total
                                            Revenue    before tax      assets 
                                              R’000         R’000       R’000
Healthcare SA                             2 066 327       170 115   3 328 479
Healthcare Africa                           180 534        67 166     160 739
Healthcare Retail                           748 477        46 310     238 198
Total Healthcare                          2 995 338       283 591   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       271 187   3 040 716

Commentary

Introduction
The Board is pleased to present the interim results of the AfroCentric Group for the 
six months ended 31 December 2016. Reference to the commentary for the previous corresponding 
reporting period, will reveal the number of determining corporate actions at that time, 
including new clients taken on during that reporting period. The Board is therefore pleased 
to record, that each of those events, has not only contributed towards the Group’s overall 
profitability in this period, but has almost enabled the Group, within a year, to exceed the 
dilution in earnings impact, arising on the subscription by Sanlam for 28.7% (“the Sanlam 
subscription”) of the shares in ACT Healthcare Assets (Pty) Ltd (“AHA”) and the WAD acquisition 
through the issue of AfroCentric shares.

Accounting policies and basis of preparation
The summarised consolidated interim financial statements for the six months ended 31 December 2016
are prepared in accordance with International Financial Reporting Standard, IAS 34 Interim Financial 
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and 
Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements 
of the Companies Act of South Africa. The accounting policies applied in the preparation of these 
summarised interim financial statements are in terms of International Financial Reporting Standards 
and are consistent with those applied in the previous consolidated annual financial statements.

The Audited June 2016 results have however been restated to take into account, interest accrued on the
conditional put option obligation, accounted for in those results as an adjustment to equity, instead
of being provided for through the Statement of Comprehensive Income. Further detail on the restatement 
is set out below. The restatement has been made in terms of IAS 8.

Nature of business
AfroCentric is a JSE listed investment holding company which operates in and provides specialized 
services to the healthcare sector. AfroCentric continues to maintain its deliberate objective of being 
the leading exemplar of transformation and empowerment in the healthcare sector. The Group has achieved 
a Level 2 B-BBEE rating, based on the new codes and is easily the highest ranked BEE 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 specialty competencies 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 within the healthcare sector, that are aligned with Group 
interests and are likely to contribute to the health and welfare of South Africa’s diverse communities.

Other highlights
- Top ranking B-BBEE status achieved for the fifth successive year, based on the revised codes.
- Titanium Award for Service Excellence – Managed Care for Healthcare entities 2016.
- Titanium Award for Service Excellence – Administration 2016.
- BHF Member of the year 2016. 

Financial Performance
Profits before tax increased by 45.88% for the period under review amounting to R219.8 million 
(2015: R150.7 million). Profits after tax (PAT) increased by 39.85%, a satisfying result through 
great effort and efficient control by the Group’s management and staff. Earnings per share and headline 
earnings per share decreased marginally in this period by 1.61% and 4.86% respectively, substantially 
as a result of the immediate dilutionary impact of the Sanlam subscription.

Restatement of audited results for the year ended 30 june 2016
Sanlam subscribed for 28.7% of the shares in AHA during the 2016 financial year for the sum of R703 million. 
A suspensive term of the transaction included inter alia, that AfroCentric achieve a minimum threshold of 
profit (as defined) for the year ending 30 June 2017 (“the profit warranty”).

In the event that such 2017 warranted profit threshold is not achieved, several adjusting share allocation elections 
become available to Sanlam, including, in certain circumstances, Sanlam’s right to put the 28.7% share interest in 
AHA back to the company at cost plus interest, from the date of the subscription payment, to the date the put option 
is exercised.

Given an error in the accounting treatment of interest accrued under the aforesaid conditional put option obligation,
the Audited June 2016 results have been restated to provide for the interest charge (R25 million) now through the 
Statement of Comprehensive Income and not as previously endorsed, through an interest adjustment direct to equity. 
The required interest accrual (R23 million) has similarly been provided through the Statement of Comprehensive 
Income for this interim period.

The restatement of the Audited 2016 results has the effect of reducing basic earnings from R170.3 million to 
R145.3 million, which translates into a decrease in both basic and diluted earnings per share of 4.51 cents.

While the profit warranty threshold will only be measured after 30 June 2017, the Board is satisfied that, 
absent a material adverse event occurring in the Group during the next three-month period, it is expected 
that the profit warranty threshold will be exceeded, resulting in the last of the Sanlam suspensive transactional 
conditions becoming academic and the Sanlam subscription price of R703 million, which formed the basis of the 
conditional put and reserve obligations will be cancelled.

It is important to note that should this cancellation become applicable, interest accrued on the put option 
obligation will, in terms of IFRS, not be reversible through the Statement of Comprehensive Income, but credited
directly to Equity. Shareholders should be mindful therefore, that in such circumstances, no further restatements 
will become necessary to restore the adverse effect of these present and prior conditional interest costs.

Developments
Having regard to certain of the actions and events already referred to herein, a brief summary of related progress in 
each case is provided hereunder.

Apart from the comprehensive range of services provided in the normal course to the Group’s respected and 
existing client base, management were able to professionally and efficiently capture the data and competently 
provide the administration under the “new Polmed contract”, including completing the sizeable task on the 
amalgamation of the Liberty Medical Scheme into Bonitas. Both of these were significant events, with considerable 
investment demands. The investment appropriations in each case, were made in anticipation of growth in net revenues, 
further overhead rationalisation, not unexpected through the greater economies of scale.

The introduction of the Group’s Insurance Fraud Manager (IFM) software from FICO during the period under review, has also 
proved to be a game changer within the Group’s portfolio of clients, by identifying fraudulent conduct by members and 
providers, detecting waste and abuse within each of the client Medical Schemes, at the same time, contributing to the 
Group’s revenues under a variety of fee structures reciprocally beneficial to the Group’s clients and the company.

Pharmacy Direct has also made impressive progress in the subject period, by successfully securing further contracts 
for the delivery of chronic medication to patients, now in seven provinces of South Africa (previously five provinces). 
This contract has and continues to be efficiently managed, with growth in scripts for dispensing and distribution having
doubled during the past twelve months.

Prospects
While the economic environment within South Africa remains somewhat volatile and uncertain, AfroCentric remains confident 
in pursuing its interest in welcoming and facilitating the current market inclination towards medical administration 
consolidation. The Group also continues its objectives to acquire new and expand existing healthcare enterprises, so
as to broaden its participation in the healthcare sector, ideally under a template of a widening market and better 
patient affordability.

AfroCentric has over the years, established a secure foundation for the future and its partnerships with Sanlam and 
others, present a sound model for sustainability, somewhat dependent on the progress and growth of the South African 
economy, including its political stability, with similar criteria being relevant and applicable in other targeted 
destinations in Africa.

Directors and officers
Since the last published set of Group results there were the following changes on the Board of Directors:
- Dr NB Bam resigned as an Independent Non-executive Director effective 1 November 2016.
- Mr GL Napier resigned as an Independent Non-executive Director effective 1 November 2016.
- Mr JG Appelgryn ceased to serve as a Non-executive Director effective 1 November 2016.
- Ms NV Qangule was appointed as an Independent Non-executive Director effective 30 November 2016 and 
resigned 15 March 2017.
- Mr SE Mmakau was appointed as an Independent Non-executive Director effective 30 November 2016.

Dividends
The Board has pleasure in announcing that an interim dividend of 14 cents per ordinary share (gross) has been declared 
for the six months ended 31 December 2016. Dividends are subject to Dividends Withholding Tax. The payment date for 
the dividend is Monday, 15 May 2017. This interim dividend will constitute part of the Group’s annual dividend, to be
considered in due course with the results for the year ending on 30 June 2017.
- Dividends have been declared out of profits available for distribution.
- Local Dividends Withholding Tax rate is 20%.
- Gross dividend amount is 14 cents per ordinary share.
- Net cash dividend amount is therefore 11.2 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                         Tuesday, 9 May 2017
Shares commence trading ex-dividend                 Wednesday, 10 May 2017
Dividend record date                                   Friday, 12 May 2017
Dividend payment date                                  Monday, 15 May 2017

Share certificates for ordinary shares may not be dematerialised or rematerialised between Wednesday, 
10 May 2017 and Friday, 12 May 2017, 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. This announcement does not include the information 
required pursuant to paragraph 16A(j) of IAS 34. This is however available on our website 
(http://www.afrocentric.za.com/inv-reporting.php), at our offices and upon request.

On behalf of the Board

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

Johannesburg 

27 March 2017

Directors
ATM Mokgokong(2) (Chairperson), MJM Madungandaba(2) (Deputy Chairperson), AV Van Buuren(3) (CEO), 
JW Boonzaaier(3) (CFO), A Banderker(2), WH Britz(3), LL Dhlamini(1), JM Kahn (lead)(1), IM Kirk(2), SE Mmakau(1), 
ND Munisi(2), MI Sacks(1)
(1)independent non-executive (2)non-executive (3)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
Nosipho Phewa
investor-relations@afrocentric.za.com
Tel: +27 11 671 2475

Date: 28/03/2017 01:26:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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