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Summary of audited final results and dividend declaration For the year ended 30 June 2017
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 2017
Highlights
Increase in operating profit up 49.89%
Total revenue up 20.22%
Normalised headline EPS up 42.77%
Dividend growth up 16.67%
Summarised consolidated statement of financial position
Audited Audited
year ended year ended
30 June 2017 30 June 2016
R’000 R’000
Assets
Non-current assets 1 927 272 2 190 076
Property and equipment 211 704 189 362
Investment property 15 418 15 000
Intangible assets (Note 1) 1 463 746 1 388 815
Available for sale investment 18 444 18 444
Listed investments 36 296 37 182
Managed funds and deposits (Note 7) 59 976 411 934
Investment in associates 38 823 24 477
Deferred income tax assets 82 865 104 862
Current assets 1 141 608 850 640
Trade and other receivables 320 236 365 004
Inventory 73 376 72 310
Current tax asset 25 235 19 821
Receivables from associates and joint
venture 13 388 20 437
Cash, managed funds and deposits (Note 7) 709 373 373 068
Total assets 3 068 880 3 040 716
Equity and liabilities
Capital and reserves 1 793 694 1 047 979
Issued ordinary share capital 18 686 18 686
Share premium 999 058 970 358
Share-based payment reserve – 26 604
Treasury shares (2 324) (2 324)
Conditional put option reserve (Note 2) – (727 960)
Foreign currency translation reserve 3 454 7 027
Distributable reserve 774 820 755 588
Non-controlling interest (Note 3) 585 359 515 603
Total equity 2 379 053 1 563 582
Non-current liabilities 135 778 977 573
Deferred income tax liabilities 100 627 82 390
Non-current provisions 8 350 8 350
Post-employment medical obligations 2 771 2 691
Second tranche payment (Note 4) – 134 893
Conditional put option obligation (Note 2) – 727 960
Deferred payment 5 051 –
Accrual for straight lining of leases 18 979 21 289
Current liabilities 554 049 499 561
Provisions 8 947 9 755
Second tranche payment (Note 4) 194 475 –
Trade and other payables 264 394 383 029
Employment benefit provisions 86 233 106 777
Total liabilities 689 827 1 477 134
Total equity and liabilities 3 068 880 3 040 716
Note 1
Carrying value Carrying value
2017 2016
Intangible assets R’000 R’000
Goodwill – AfroCentric Health 381 482 398 124
Goodwill – WAD Acquisition 473 954 473 954
Customer relationships – WAD Acquisition 72 333 81 282
AfroCentric Health intangible assets 535 977 435 455
AfroCentric Health intangible PPA 12 038 15 946
AfroCentric Health intangible Software 436 626 330 889
Insurance Fraud Manager (Fraud Management
Software) 87 313 88 620
1 463 746 1 388 815
Amortisation Amortisation
2017 2016
Intangible assets R’000 R’000
Goodwill – AfroCentric Health – –
Goodwill – WAD Acquisition – –
Customer relationships – WAD Acquisition (8 948) (8 203)
AfroCentric Health intangible assets (77 502) (71 129)
AfroCentric Health intangible PPA (3 908) (13 811)
AfroCentric Health intangible Software (52 588) (39 062)
Insurance Fraud Manager (Fraud Management
Software) (21 006) (18 256)
(86 450) (79 332)
Note 2
Given that the Sanlam target profit undertakings were achieved, the
Conditional put option finance obligation no longer applies. Accordingly
the Sanlam obligation, together with the aggregate interest, notionally
charged thereon through the statement of comprehensive income, has been
reversed to equity.
Note 3
The additional amount represents the increase in the Sanlam
Non-controlling interest, arising through their 28.7% share of the
2017 profits of AfroCentric subsidiary, ACT Healthcare Assets (Pty) Ltd.
The prior year only included six months due to the investment in
December 2015.
Note 4
This amount has been calculated in terms of the contract formula for the
second tranche payment of the WAD Assets acquisitions.
Note 5
This is as a result of the Sanlam transaction resulting in certain
warranties being settled in the new financial year.
Note 6
The impairment mainly relates to IE Business Strategic Consulting (Pty)
Ltd which has stopped trading.
Summarised consolidated statement of changes in equity
Restated
Audited audited
year ended year ended
30 June 2017 30 June 2016
R’000 R’000
Balance at beginning of the period 1 563 582 1 167 079
Issue of share capital – 445 590
Share-based awards reserve 2 096 6 444
Distribution to shareholders (144 138) (121 963)
Net profit for the year 113 891 145 320
Transferred to conditional put option reserve 45 906 24 960
Conditional put option reserve (45 906) (727 960)
Conditional put option obligation (Note 2) – (703 000)
Transferred from profit and loss (45 906) (24 960)
Profit attributable to minorities 102 372 53 323
Sanlam investment – 703 000
Premium on subscription – 246 737
Changes in ownership – 456 263
Conditional put option obligation reversal
(Note 2) 773 866 –
Conditional put option obligation 2016
balance 727 960 –
Conditional put finance obligation 45 906 –
AHL minorities share buy-back – (122 164)
Increase in shareholding of Klinikka – (525)
Distributions to subsidiary minorities (32 616) (9 522)
Balance at end of the period 2 379 053 1 563 582
Summarised consolidated statement of comprehensive income
Restated
Audited audited
year ended year ended
% 30 June 2017 30 June 2016
change R’000 R’000
Healthcare service revenue 2 715 266 2 399 669
Healthcare service operating costs (2 219 292) (2 055 514)
Healthcare service operating profit 495 974 344 155
Healthcare retail revenue 1 069 435 748 477
Healthcare retail cost of sales (836 734) (588 204)
Healthcare retail gross profit 232 701 160 273
Healthcare retail operating costs (164 566) (128 067)
Total healthcare operating profit 49.89% 564 109 376 361
Net finance and investment income 16 106 29 964
– Finance and investment income 62 773 59 471
– Finance cost: conditional
financial obligation (Note 2) (45 906) (24 960)
– Finance cost (761) (4 547)
Fair value of second tranche
consideration (Note 4) (59 582) –
Impairment of assets (Note 6) (19 851) (21 469)
Sanlam Indemnity provision (Note 5) (14 787) –
Share-based payment expense (2 096) (6 444)
Share of associate profits 14 306 10 118
Profit before depreciation and
amortisation 28.23% 498 205 388 530
Depreciation (45 098) (38 011)
Amortisation of intangible assets
(Note 1) (86 450) (79 332)
Profit before income taxation 35.20% 366 657 271 187
Taxation expense (146 616) (77 515)
Profit for the year after taxation 220 041 193 672
Other comprehensive (loss)/income (3 778) 4 971
Comprehensive net income for the
year 8.87% 216 263 198 643
Attributable to:
Equity holders of the Parent 113 891 145 320
Non-controlling interest (Note 3) 102 372 53 323
216 263 198 643
Note 7
Audited Audited
year ended year ended
30 June 2017 30 June 2016
R'000 R'000
Total Group Cash Resources
Cash and Cash Equivalents 361 738 373 068
Managed funds and deposits (current) 347 635 –
Total current cash, managed funds and
deposits 709 373 373 068
Managed funds and deposits (non current) 59 976 411 934
Total managed funds and deposits 769 349 785 002
Earnings attributable to equity holders
Restated
Audited audited
year ended year ended
30 June 2017 30 June 2016
R’000 R’000
Number of ordinary shares in issue 554 377 328 554 377 328
Weighted average number of ordinary shares 554 377 328 552 958 931
Weighted average number of shares for diluted
EPS 554 377 328 579 151 833
Basic earnings 117 669 140 349
Adjusted by: 6 169 5 218
– Impairment of assets 16 640 10 217
– Fair value gain on Investment property (418) –
– Loss on disposal of assets 681 245
Total tax adjustments (97) (1 429)
Total non-controlling interest adjustments (10 637) (3 815)
Headline earnings 123 838 145 567
Earnings per share (cents)
– Attributable to ordinary shares (cents) 21.23 25.38
– Diluted earnings per share (cents) 21.23 24.23
Headline earnings per share (cents)
– Attributable to ordinary shares (cents) 22.34 26.33
– Diluted earnings per share (cents) 22.34 25.13
Normalised earnings (non IFRS measure)
% 30 June 2017 30 June 2016
change R'000 R'000
Headline earnings 123 838 145 567
Adjusted by: 120 275 24 960
– Conditional put option finance
obligation (Note 2) 45 906 24 960
– Fair value on second tranche
consideration (Note 4) 59 582 –
– Sanlam indemnity provision (Note 5) 14 787 –
Normalised headline earnings 43.15% 244 113 170 527
Normalised headline earnings
per share (cents)
– Attributable to ordinary
shares (cents) 42.77% 44.03 30.84
– Diluted earnings per share (cents) 44.03 29.44
The adjusting amounts have no tax and non-controlling interest implications.
Summarised consolidated statement of cash flows
Restated
Audited audited
year ended year ended
30 June 2017 30 June 2016
R’000 R’000
Cash generated from operations 450 887 393 851
Net finance income 38 860 27 839
Distribution to shareholders (176 754) (131 485)
Dividend received 5 010 4 112
Tax and other payments (112 815) (102 584)
Net cash inflow from operating activities 205 188 191 733
Net cash outflow from investing activities (212 945) (677 151)
Net cash inflow from financing activities – 519 612
Effect of foreign exchange benefit (3 573) 4 823
Net increase in cash and cash equivalents (11 330) 39 017
Cash and cash equivalents at beginning of
the period 373 068 334 051
Cash and cash equivalents at end of the
period (Note 7) 361 738 373 068
Segmental analysis
Audited year ended 30 June 2017
Profit
before Total
Revenue tax assets
R’000 R’000 R’000
Healthcare SA 2 378 130 209 843 3 435 646
Healthcare Africa 184 443 46 636 112 401
Healthcare Retail 1 069 435 67 990 353 504
Total Healthcare 3 632 008 324 469 3 901 551
Information technology 561 021 89 922 420 138
Other (including inter-segment
elimination) (408 328) (47 734) (1 252 809)
3 784 701 366 657 3 068 880
Audited year ended 30 June 2016
Profit
before Total
Revenue 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 and review
The Board is pleased to present a summary of AfroCentric’s (“ACT") very
satisfying audited results for the year ended 30 June 2017.
Shareholders will be aware of the consequential corporate actions and
valuable events announced by the Group over the immediate past reporting
periods. These corporate events included, inter alia, the admission of an
esteemed corporate partner into subsidiary, ACT Healthcare Assets (“AHA”),
the acquisition of certain of WAD’s healthcare assets (Acquisition of
100% of Pharmacy Direct, Curasana Wholesaler, Glen Eden and 26% interest
in Activo Health) and not least, the significant growth through new
client medical scheme memberships.
For easy reference and contextual relevance, one of South Africa’s leading
financial institutions, SANLAM, acquired an effective 28.7% interest in
the Group’s wholly owned subsidiary, Medscheme through AHA for R703 million.
In addition, the group acquired Pharmacy Direct, the largest of the WAD
healthcare portfolio assets, both of these transactions, creating new
trading platforms, but more particularly, creating the need for greater
infrastructural scale and capacity, improved technologies, including
further prospects for income enhancing expansion opportunities.
The SANLAM transaction included a number of resolutive conditions, one being
an undertaking to reach a certain profit threshold by the end of the 2017
financial year. In this regard, the Board is delighted to report, that the
Sanlam earnings warranty has been measured and successfully achieved. This
achievement now enables our intended Sanlam joint development initiatives
to be placed on a priority agenda for the ensuing year.
The Board also proudly advises that during the relevant periods, the
significant take-on detail of new client scheme membership was
successfully and seamlessly completed, these new enrolments being, inter
alia, members of the SA Police Service Medical Scheme (POLMED), new members
of the Government Employees Medical Scheme (GEMS), as well as the joining
membership arising through the merger between LMS and Bonitas. These new
scheme entrants, together with the Groups existing client portfolio,
collectively amount to upwards of 3.6 million lives, for which the Group
now provides comprehensive services.
In short, the Group’s health management enterprises and its other health
related operating subsidiaries; continue to make good progress providing a
growing range of health products and health management services. The Group
today extends services to members of medical schemes, including members
of the general public, in both the public and private health sectors of
South Africa.
Accounting policies, basis of preparation and required restatement
The summary consolidated financial statements are prepared in accordance
with the requirements of the JSE Limited Listings Requirements for summary
financial statements, and the requirements of the Companies Act applicable
to summary financial statements. The Listings Requirements require summary
financial statements 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
International Financial Reporting Standards and are consistent with those
accounting policies applied in the preparation of the previous consolidated
annual financial statements.
The comparative June 2016 Audited results have been adjusted and restated
to comply with the misinterpreted demands of International Accounting
Standard 32, where interest accrued on the Sanlam conditional put option
obligation of R24.96 million, was accounted for in 2016 as an adjustment to
equity, instead of being provided for through the Statement of Comprehensive
Income. The restated interest charge for 2016 as well as the notional
interest charge of R45.906 million, in the current year, have become
substantially academic, given the fulfilment of the Sanlam profit
undertakings. The conditional put option and reserve obligations in the
Consolidated Statement of Financial Position have accordingly been
derecognised. During the 2017 financial year a normalised earnings
calculation has been disclosed for a better appreciation of the
trading performance.
In the prior years, AfroCentric calculated the EPS and HEPS using the
total comprehensive income attributable to the parent instead of profit
and loss attributable to the parent and added back impairment of loans
for HEPS purposes. From management’s analysis the change in the EPS is
immaterial but in compliance with IAS 33.
In the prior financial year loans to Group companies was reclassified
from financing activities to investing activities in the statement of
cash flows as this is more appropriate.
Nature of business
AfroCentric is a JSE listed investment holding company which operates in
and provides specialized services to the public and private healthcare
sectors. AfroCentric continues to maintain its deliberate objective of
being the leading exemplar of transformation and empowerment in the South
African healthcare sector. The Group’s principal subsidiary has achieved
a Level 2 B-BBEE rating based on the new codes.
AfroCentric’s operating enterprises also provide 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.
Industry highlights in 2017
* AfroCentric achieved healthcare’s Top ranking B-BBEE status for the fifth
successive year, for a JSE Listed Company.
* Titanium Awards Recognising Excellence in Healthcare in Service
Excellence – Administrators – Medscheme.
* Titanium Awards Recognising Excellence in Healthcare in service to
membership (closed medical schemes) – Nedgroup Medical Aid Scheme.
Financial Performance
Apart from organic growth arising in the normal course, increases in the
Group’s client portfolio and healthy contributions from WAD asset acquisitions,
Group operating profits increased by 49.89% to R564.1 million (2016: R376.3
million) and net profits before tax increased by 35.20% to R366.7 million
(2016: R271.2 million).
For a better appreciation of the Group’s net profits after tax, including
both earnings per share (EPS) and headline earnings per share (HEPS),
shareholders are respectfully directed to the more detailed analysis in
the tables of earnings per share, set out alongside this commentary. The
Group’s normalized earnings table, is particularly relevant, given the
material non-cash, non-trading and non-recurring deductions which have a
significant adverse impact on the profits after taxation. For easy reference,
certain of the more significant deductions, include the notional
interest on the Sanlam put option obligation (simultaneously reversed to
equity) and the fair value adjustment attributable to the WAD second tranche
payment, being part of the cost of the WAD asset acquisitions.
Developments
Frameworks for access and delivery of universal quality and affordable
healthcare to a broader market is a deliberate pursuit of the Group and a
priority objective of the Department of Health. To this end, AfroCentric
has submitted comprehensive healthcare data and cost analyses as part of
its support towards planning the introduction of the National Health Insurance
(“NHI”) Scheme. The Group participated in the commencing NHI pilot programme
and will willingly be available to play a role in any second phase programmes.
The reduction and/or savings in healthcare costs is also a continuing pre-
occupation of Medical Schemes, purposely to enable more citizens to afford
the advantage of participating in such a shared risk model, which provides
medical cover and related benefits in the event of illness or accident.
AfroCentric is particularly sensitive to such economics and at all times,
use their best endeavors, on behalf of their Medical Scheme clients, to manage
costs and claims in the most efficient way. Apart from managed care disciplines,
the leverage of scale for better pricing and service, AfroCentric has also
developed other cost prevention measures to ensure that patient/member claims
are justified, valid and proper.
The analytics provided by AfroCentric’s Insurance Fraud Manager (“IFM”), enables
client scheme’s to identify and assess claims for abuse and fraud, the incidence
of which has over the years, become a matter of material concern. The Group’s
IFM software is now able to better track irregular billing patterns and trends
across many medical disciplines or services. This has become a cost effective
shared economic service, preventing unnecessary or excessive charges,
including in many instances, the recovery of fraudulent claims, with appropriate
measures taken against conniving members and irregular provider claimants.
Pharmacy Direct, the largest of the WAD healthcare asset acquisitions, has also
made impressive progress during the year under review. Pharmacy Direct now procures,
dispenses and distributes chronic medication to public and private patients in
seven provinces of South Africa. The division is efficiently managed, enjoying an
expanding client base and through scale and efficiencies continues to improve
its growth in profits. The division is presently dispensing and distributing
in excess of 500 000 scripts per month.
Prospects
The nature, profile and origins of AfroCentric and its ambitions in the healthcare
sector have not been without challenge. Notwithstanding, the Board and executive
management have worked hard over the years to overcome that struggle and today,
the AfroCentric Group and its operating subsidiaries, are well managed and
sustainable businesses, comfortably capitalised and a leading and respected
group enterprise in the health administration, managed care and related
healthcare services sector.
The Group’s competencies and evolving status and reputation has attracted much
industry and corporate interest, these characteristics substantially attracting
the likes of Sanlam and others who committed to invest in the transformational
vision and values of the AfroCentric Group. Shareholders will be pleased to
learn that the Sanlam profit undertakings have been fulfilled, the protracted
timeframe for fulfilment, perhaps preventing earlier processes for the
commencement of Sanlam’s intended investment purpose. The Board can now
consider the potential for furthercollaborative growth through this
positive relationship.
The AfroCentric Group, like other corporates in South Africa, enter a new
financial year presently characterized by a range of challenges which include,
inter alia, low economic growth, rising unemployment and political uncertainty.
However, the Board has confidence in the leadership team and their enthusiasm
to consider several sector growth opportunities, by way of partnerships,
divisional expansion or acquisition, in a drive towards enhancing value for all
stakeholders. Notwithstanding the current economic circumstances, the Board is
cautiously confident in the prospects for sustainable progress in each of the
Group’s divisions in the year ahead, subject always to no material unexpected
economic or political surprises occurring.
Going forward, the Group is on a deliberate path to acquire further health related
services companies to enhance an integrated management offering to its clients and
to other medical schemes or corporates. Some small acquisitions have already been
concluded since year end, these being Wellness Odyssey, a wellness company providing
wellness days and health awareness to medical schemes and the corporate market in
general, Scriptpharm Risk Management, which manages chronic script claims on the
same basis and Opticlear, a business which manages optical benefits to any medical
scheme and corporate interested in such services. AfroCentric will be considering
other such specialised health related enterprises to expand its platform of services
into the broader markets. Subsequent to year end WAD Holdings chose to receive the
second tranche settlement in cash. New acquisitions and payments in cash will
approximate R250 million in the new financial year.
Directors and officers
During the past financial year, the following changes took place to 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.
* Ms HG Motau was appointed as an Independent Non-Executive Director effective
15 May 2017.
Dividends
The Board has pleasure in announcing that in addition to the interim dividend of
14 cents, a final dividend of 14 cents per ordinary share (gross) has been declared
for the year ended 30 June 2017 to those shareholders recorded in the register of
the Company at the close of business on Friday, 10 November 2017. Dividends are
subject to Dividends Withholding Tax. The payment date for the dividend is Monday,
13 November 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.
* The Company has 554 377 328 ordinary shares in issue as at the declaration date.
* The 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, 7 November 2017
Shares commence trading ex-dividend Wednesday, 8 November 2017
Dividend record date Friday, 10 November 2017
Dividend payment date Monday, 13 November 2017
Share certificates for ordinary shares may not be dematerialised or rematerialised
between Wednesday, 8 November 2017 and Friday, 10 November 2017, both days inclusive.
Basis of preparation
The financial information contained in this report is extracted from audited
information, but is itself not audited. This announcement does not include the
information required pursuant to paragraph 16A(j) of IAS 34. The full provisional
report is available on our website (http://www.AfroCentric.za.com/inv-reporting.php),
and at our offices and upon request to the company secretary Billy Mokale:
billym@afrocentrichealth.com. The Directors take full responsibility for the
preparation of this report and the financial information that 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 auditors’s report
thereon are available for inspection at the Company’s registered office.
The auditor’s report does not necessarily report on all the information contained in
these financial results. Shareholders are therefore advised that in order to obtain
a full understanding of the nature of the auditors’s engagement they should obtain a
copy of the auditor’s report together with the accompanying financial information
from the Company’s registered office.
On behalf of the Board
Dr ATM Mokgokong Mr AV Van Buuren
Chairperson Group Chief Executive Officer
Johannesburg
19 September 2017
Directors
ATM Mokgokong** (Chairperson), AV Van Buuren*** (CEO), JW Boonzaaier*** (CFO),
MJM Madungandaba** (Deputy Chairman), SE Mmakau*, HG Motau*, A Banderker**,
WH Britz***, LL Dhlamini*, JM Kahn*, IM Kirk**, ND Munisi**, MI Sacks*
*independent non-executive **non-executive ***executive
Registered Office
37 Conrad Rd Florida North 1709
Sponsor
Sasfin Capital (a member of the Sasfin Group)
www.afrocentric.za.com
Company Secretary
B Mokale
Group Investor Relations
Nosipho Phewa
investor-relations@afrocentric.za.com
Tel: +27 11 671 2475
Date: 19/09/2017 10:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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