Directors' report
for the year ended 30 June 2016
The AfroCentric Investment Corporation Limited (“AfroCentric”) Board of Directors present their integrated annual report for the year ended 30 June 2016.
NATURE OF BUSINESS
The Company is a black-owned, diversified investment holding company which is listed on the JSE and trades under the Healthcare sector under code ACT.
BUSINESS ACTIVITIES
The business activities of the Group are mainly focused on healthcare activities in AfroCentric Health (Pty) Ltd (“AHL”) and ACT Healthcare Assets (Pty) Ltd (“AHA”).
AFROCENTRIC HEALTH
The majority stake held by AHA in AfroCentric Health as at 30 June 2016 was 100% (2015: 94.1%). AfroCentric has over the past years, developed its business, substantially in the healthcare sector; and our average compound annual earnings growth over the period has been more than impressive.
MEDSCHEME HOLDINGS (PTY) LTD
Medscheme is a well-recognised and growing multi-medical schemes administrator with a vision to “empower greater access to sustainable quality healthcare”. This vision statement is aligned to the strategic objectives of the client medical schemes in their pursuit of affordable, accessible and quality healthcare for their members. From an operational process perspective, a strategy of integrating the health administration and health risk management services in each business unit has been pursued, in order to remove inefficient processes.
HELIOS IT SOLUTIONS (PTY) LTD
Originally part of Medscheme, this business has now been operating independently as a stand-alone business for three financial years. The subsidiary provides network connectivity and health-centric technology solutions. Given the significant investment that AfroCentric is making and will continue to make in its core IT systems, it is necessary to have an enhanced focus on ensuring that current and future systems are designed with the most relevant and effective systems architecture; as well as ensuring that existing and future systems across Group companies are seamlessly integrated. Consequently, Helios has clearly defined its operations between infrastructure and software development enhancing focus on technology solutions.
AID FOR AIDS MANAGEMENT (PTY) LTD (“AFA”)
AFA are specialists in AIDS related treatments for medical aids and corporate clients. In order to capitalise on the expertise within Medscheme and the broader AfroCentric Group, as well as enhance the support to AFA in terms of aligning and integrating the product set with the Active Disease Risk Management products being developed by Medscheme, a decision has been taken to reorganise AFA.
THE WAD ACQUISITION AND SANLAM INVESTMENT
The acquisition of Pharmacy Direct (Pty) Ltd, Curasana Wholesaler (Pty) Ltd, Glen Eden Trading 58 (Pty) Ltd and a 26% interest in Activo Health (Pty) Ltd (“WAD acquisition”) and the subscription by Sanlam for a significant minority interest in AfroCentric’s subsidiary ACT Healthcare Assets, is a unique milestone that is proudly celebrated by AfroCentric for several reasons. Apart from the pride in capturing certain of the business assets of WAD, the Sanlam participation in ACT Healthcare Assets represents an exciting opportunity for the Group, as it provides a platform for collaboration with one of the largest financial service groups in South Africa.
The Sanlam Group is one of the largest financial services groups in South Africa, with business interests elsewhere in Africa, Europe, Australia, the United States of America, India and South East Asia. With Sanlam’s extensive local and global distribution network and suite of financial products, together with the medical administration capabilities and membership base under management of AfroCentric Health (Pty) Ltd, the investment by Sanlam will establish a platform for the joint pursuit and expansion of the parties’ traditional activities as part of an expanded administration and managed healthcare business model. The prospects for AfroCentric going forward are (as with most companies) very dependent on the general economy in South Africa, but there is little doubt that appropriate and diligent exploitation of the WAD and Sanlam relationships is expected to add momentum to the Group’s general progress and hopefully contribute positively to the Group’s earnings in the years ahead.
Pharmacy Direct was established 10 years ago and is a designated service provider to a wide range of South African medical aid schemes. The business supplies chronic medication under prescribed minimum benefits regulation and normal chronic benefits to approximately 110 000 patients nationally. Pharmacy Direct and Curasana are businesses that specialise in the wholesaling, dispensing and delivery of chronic medication for an on behalf of private and public sector clients and patients in South Africa.
The WAD Acquisition will not only add diversification to AfroCentric’s investment portfolio, but are complementary to AfroCentric Health’s core business through the provision of services and products to the broader healthcare community.
FINANCIAL REVIEW
Group consolidated Revenue increased by 50.03% to
R3.148 billion. The increase is mainly attributable to the
WAD acquisition.
Group Headline Earnings increased by 1.32% to
R182.2 million compared to R179.8 million in the prior year. Diluted Headline Earnings Per Share decreased by 18.16% to
31.45 cents per share (2015: 38.43 cents per share).
GOING CONCERN
The Group Annual Financial Statements have been prepared on the going concern basis. The Board of Directors having performed a review of the Group’s ability to continue as a going concern in the foreseeable future and therefore, based on this review, consider the preparation of the Group Annual Financial Statements on this basis to be appropriate.
DIVIDENDS
The Company declared an interim dividend of 12 cents per ordinary share as at 16 March 2016. The Company further declared a final dividend of 12 cents per ordinary share for the year ended 30 June 2016. This was declared on 19 September 2016. These dividends are subject to the Dividends Withholding Tax in terms of the Income Tax Act
(Act No. 58 of 1962 amended) for which shareholders are liable.
| In accordance with the JSE Limited 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 for both declarations in 2016 is 24 cents per ordinary share (12 cents in interim and 12 cents in final) |
| • | for purposes of the final distribution 554 377 328 ordinary shares will be deemed to be in issue on the dividend record date |
| • | the Company’s has 554 377 328 ordinary shares in issue on declaration date |
| • | the Company’s income tax reference number is 9600/148/71/3 |
SHARE CAPITAL
The Company’s share capital remained at 554 377 328 ordinary shares in the financial year under review.
The details of the Company’s share capital are set out in Note 15 of these Group Annual Financial Statements.
As per the Companies Act No 71 of 2008, Section 38, the Board of Directors may resolve to issue shares of the Company at any time, but only within the classes, and to the extent, that the shares have been authorised by or in terms of the Company’s Memorandum of Incorporation.
SHARE REPURCHASES
During the year, no share repurchases were made by the Company. AfroCentric Health (Pty) Ltd holds 3 518 605 treasury shares.
AUDIT AND RISK COMMITTEE
The information relating to the Audit and Risk Committee is set out in the Audit and Risk Committee report.
DIRECTORS
The table below illustrates the Director’s attendance at meetings for the year ended 30 June 2016.
| Directors' name | Date of appointment | Designation |
| ATM Mokgokong (Chairperson) | 10 June 2010 | Non-executive |
| MJ Madungandaba | 10 June 2010 | Non-executive |
| JM Kahn | 20 December 2005 | Independent Non-executive |
| MI Sacks | 20 December 2005 | Independent Non-executive |
| JG Appelgryn | 17 September 2013 | Non-executive |
| ND Munisi | 7 December 2015 | Non-executive |
| A Banderker | 15 December 2015 | Non-executive |
| IM Kirk | 15 December 2015 | Non-executive |
| WH Britz | 1 August 2015 | Executive, salaried |
| JW Boonzaaier | 1 August 2015 | Executive, salaried |
| AV Van Buuren | 16 March 2016 | Executive, salaried |
| D Dempers (resigned 2 June 2016) | 5 September 2012 | Executive, salaried |
| GL Napier | 1 September 2011 | Lead Independent Non-executive |
| LL Dhlamini | 2 December 2005 | Independent Non-executive |
| NB Bam | 20 December 2005 | Independent Non-executive |
| Y Masithela (resigned 15 September 2016) | 1 September 2011 | Independent Non-executive |
Directors ordinary shareholdings as at 30 June 2016
| Director | Direct beneficial |
Indirect beneficial | Held by associate | Total | % | |
| ATM Mokgokong (Chairperson) | 1 707 926 | 41 896 880 | 7 292 132 | 50 896 938 | 9.18 | |
|---|---|---|---|---|---|---|
| NB Bam | 150 000 | – | – | 150 000 | 0.03 | |
| JM Kahn | 18 535 608 | – | – | 18 535 608 | 3.34 | |
| MI Sacks | 17 579 938 | – | – | 17 579 938 | 3.17 | |
| MJ Madungandaba | – | 97 759 388 | 17 014 979 | 114 774 367 | 20.70 | |
| Y Masithela (resigned 15 September 2016) | – | – | – | – | – | |
| GL Napier | – | – | – | – | – | |
| D Dempers (resigned 2 June 2016) | 9 000 000 | – | – | 9 000 000 | 1.62 | |
| JG Appelgryn | 1 447 | – | – | 1 447 | 0.00 | |
| JW Boonzaaier | 2 500 | – | – | 2 500 | 0.00 | |
| WH Britz | – | 29 629 896 | – | 29 629 896 | 5.34 | |
| AV Van Buuren | – | 29 629 896 | – | 29 629 896 | 5.34 | |
| LL Dhlamini | – | – | – | – | – | |
| ND Munisi | – | – | – | – | – | |
| IM Kirk | – | – | – | – | – | |
| A Banderker | – | – | – | – | – | |
| 46 977 419 | 198 916 060 | 24 307 111 | 270 200 590 | 48.72 |
Directors ordinary shareholdings as at 30 June 2015
| Director | Direct beneficial |
Indirect beneficial | Held by associate | Total | % | |
| ATM Mokgokong (Chairperson) | 1 707 926 | 41 896 880 | 7 292 132 | 50 896 938 | 10.88 | |
| NB Bam | 150 000 | – | – | 150 000 | 0.03 | |
| JM Kahn | 18 535 608 | – | – | 18 535 608 | 3.96 | |
| MI Sacks | 17 579 938 | – | – | 17 579 938 | 3.76 | |
| MJ Madungandaba | – | 97 759 388 | 17 014 979 | 114 774 367 | 24.53 | |
| Y Masithela | – | – | – | – | – | |
| GL Napier | – | – | – | – | – | |
| D Dempers | 7 626 810 | – | – | 7 626 810 | 1.63 | |
| JG Appelgryn | 1 447 | – | – | 1 447 | 0.00 | |
| 45 601 729 | 139 656 268 | 24 307 111 | 209 565 108 | 44.79 |
Since the end of the financial year and up to the date of this report, the interests of Directors have remained unchanged.
A further detailed analysis of shareholders including majority shareholding is available in the Shareholders analysis.
During the year under review, no material contracts in which Directors have an interest were entered into which significantly impacted the business of the Company.
DIRECTORS’ REMUNERATION
REMUNERATION OF NON-EXECUTIVE DIRECTORS AND BOARD COMMITTEE MEMBERS
Non-executive Directors received the following total remuneration in the year under review:
| Director | Fees R’000 |
|
| ATM Mokgokong (Chairperson) | 833* | |
| MJ Madungandaba (Deputy Chairperson) | 861* | |
| JM Kahn | # | |
| MI Sacks | # | |
| JG Appelgryn | 195 | |
| B Bam | 195 | |
| Y Masithela | 195 | |
| GL Napier | 195 | |
| LL Dhlamini | 100 | |
| ND Munisi | 100 | |
| A Banderker | 399 | |
| IM Kirk | 332 |
| * | The Board Chairperson and Deputy Chairperson’s remuneration highlighted above reflects their total directors fees received across various subsidiaries within the Group. |
| # | Messrs Kahn, and Sacks waived their rights to receive any Director’s fees. |
REMUNERATION OF EXECUTIVE AND NON-EXECUTIVE DIRECTORS
Details of the remuneration are set out fully in Note 24 of the Group Annual Financial Statements.
REMUNERATION OF THE FIVE HIGHEST PAID EMPLOYEES WHO ARE NOT DIRECTORS
| Employee | Annual cost to company R’000 |
|
| KM Aron | 5 308 449 | |
| V Pillay | 4 045 498 | |
| A Pederson | 3 921 235 | |
| A Mahmood | 3 448 998 | |
| T Rametse | 3 345 965 |
COMPANY SECRETARY AND REGISTERED OFFICE
The Board was satisfied that Ms Shireen Lutchan, effective
1 March 2015, is suitably qualified for the position. The Board was satisfied that Ms Lutchan complied with
Section 87 of the Companies Act and that she possesses the necessary skills and experience in her capacity as Company Secretary of the Group. The Company Secretary had an arm’s length relationship with the Board, as required by the Companies Act.
The registered office of the Company is 37 Conrad Street, Florida North, Roodepoort, 1709.
MATERIAL RESOLUTIONS| In terms of the JSE Limited Listings Requirements the Company noted the material resolutions passed at the prior Annual General Meeting and during the financial year under review: | |
| • | General approval to repurchase shares. |
| • | Inter-company loans and other financial assistance. |
| • | Fees payable to Non-executive Directors. |
| • | Financial Statements for the Financial Year ended 30 June 2015. |
| • | Audit Report for the Year ended 2015. |
| • | Re-appointment of Independent Registered Auditors. |
| • | Election and re-election of Directors. |
| • | Appointment of members to the Audit and Risk Committee. |
| • | Approval to issue ordinary shares and to sell Treasury shares, for cash. |
| • | Endorsement of the remuneration policy. |
| • | Authority of Directors. |
Details of these resolutions can be obtained via the Company’s website or on request.
MATERIAL COMMITMENTS, LEASE PAYMENTS
No material capital commitments or lease payments have been contracted for or approved by the Board of Directors.
LITIGATION STATEMENT
In terms of the JSE Limited Listings Requirements, the Directors note that they are not aware of any legal or arbitration proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the Group’s financial position, apart from the matters per Note 32 of the Group Annual Financial Statements.
BORROWING POWERS
In terms of the Memorandum of Incorporation, the borrowing powers of the Company are unlimited.
INSURANCE
The Group protects itself and the Directors against crime and professional indemnity by maintaining a comprehensive insurance programme.
COMPLIANCE
No events or actions during the financial year have led to the Group being non-compliant with the required laws and regulations relevant to the individual business units.
AUDITOR
PricewaterhouseCoopers Inc. serves as auditors of the Company.
The Company’s interest in subsidiaries and investments:
| Company name | Nature of business | Issued ordinary share capital | June 2016 % |
June 2015 % |
||
| AfroCentric Resources (Pty) Ltd | Dormant | Less than 1 000 (100 shares) | 100 | 100 | ||
|---|---|---|---|---|---|---|
| AfroCentric Capital (Pty) Ltd | Dormant | Less than 1 000 (100 shares) | 100 | 100 | ||
| ACT Healthcare Assets (Pty) Ltd | Holding | Less than 1 000 | 71.30 | 100 | ||
| ACT Funding (Pty) Ltd | Financing | Less than 1 000 (100 shares) | 100 | 100 | ||
| Jasco Electronics Holdings Limited | ICT, Industry and Energy | 44 263 793 | 19.30 | 19.30 |
| AFROCENTRIC INVESTMENT CORPORATION LIMITED |
 |