AFROCENTRIC INVESTMENT CORP LIMITED – Interim results and dividend declaration

SENS announcement for JSE listed company: ACT
                        

ACT 201703280023A
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’).
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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