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AfroCentric INTEGRATED ANNUAL REPORT 2016
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Performance overview
As reported on in the 2015 Integrated Annual Report, the
Group is enhancing its core healthcare administration system
over the next few years and incurred R38 million in the
current financial year into this project. This is still the start as
the total project is estimated at R150 million of which
R61 million has been spent to date. The development of this
enhanced asset is being capitalised.
The Group reviewed its strategy of leasing office space and
concluded the purchase of the warehouse and distribution
facility for Pharmacy Direct at year-end. The purchase was
funded through cash.
EARNINGS PER SHARE AND HEADLINE
EARNINGS PER SHARE
The dilutionary impact of the major transactions concluded in
the year affected the Group results as follows:
• The WAD acquisition of the Pharmacy Direct and Curasana
businesses resulted in a 18.5% dilution of shares for
11 months;
• The acquisition of a 28.7% share in AHA effective
15 December 2015 has impacted shareholders return
significantly in the second six months due to the non-
controlling interest component/charge on earnings; and
• The Group concluded the share buyback of the minority
shareholders of AHL on 30 May 2016, and a slight impact
of this change in shareholding will be noticeable in 2016.
2017 will see a 5.9% retention of profits to the AHA
shareholders.
NON-RECURRING EXPENDITURE
The following expenditure items were incurred during the
year, which are substantially regarded as non-recurring
expenditure, all of which have adversely impacted on the
Group’s earnings:
• Transaction and advisory costs relating to both the WAD
assets and Sanlam of R11.5 million.
• Legal costs on the Neil Harvey and Associates matter of
R10.8 million.
• Road Accident Fund (“RAF”) contract losses of
R16.7 million.
• Executive service contract settlement costs of
R20.2 million.
CASH FLOW AND LIQUIDITY
The proceeds received from the Sanlam transaction was
used to settle the long-term loan relating to the original
AfroCentric acquisition of AHL (previously known as
Lethimvula in 2009). The remaining funds have been invested
in a conservative portfolio consisting mainly (80%) of cash
instruments. The Group is currently reviewing various
investment opportunities, but has not concluded anything
significant enough to utilise the cash balance it has at
financial year end.
The most significant cash expenditure item in 2016 was the
AHL share buyback, which cost R79 million. Certain minority
shareholders are still claiming their proceeds for the shares
after completing various confirmation and administrative
processes with the transfer secretaries. The Group envisage
to still pay approximately R45 million in 2017 for shares
already transferred.
Capital expenditure in the Group will be approximately
R130 million for the 2017 year, of which R66 million will be
regarding the enhancement of the administration system.
AfroCentric is a low capital based expenditure business and
therefore cash generation will continue to be positive in the
2017 financial year.
NON-CURRENT LIABILITIES
The three most significant items that have been recorded to
the debt structure of the Group are:
1. The Group settled all its debt with the proceeds received
from Sanlam.
2. Sanlam acquired an effective 28.7% interest in AHA
for R703 million in December 2015. The acquisition
agreement provides for a performance warranty in
AHL of any breach of which entitles Sanlam to claim a
maximum additional 4.3% interest in the shares of AHA
in satisfaction of such claim. In the event that the claim
calculates at an amount in excess of 4.3%, Sanlam has a
right to require ACT to repurchase the shares owned by
Sanlam at Sanlam’s initial cost plus interest at the 90 day
deposit rate from the date of investment to the date of
redemption. The Board do not expect such conditions
to arise but International Accounting Standards (IAS 32)
dictates the disclosure of such circumstances under
Non-current liabilities rather than Capital and reserves.
3. 26 192 902 shares to the value of R134.8 million will
be issued to WAD vendors subject to certain profit
thresholds being attained. These shares will be issued
during 2017/2018 and the value thereof has already been
anticipated by inclusion in Intangible Assets.
GROWTH PROSPECTS
The 2017 financial year will yield significant growth for the
Group as a result of the following:
1. Polmed will be included in the Group results for
12 months on a normalised basis without any once-off
take-on costs.
2. The LMS Medical Fund (previously Liberty Medical
Scheme) consisting of approximately 110 000 lives has
been taken on from 1 August, which represents the
biggest open scheme to join the Group since 2009.
LMS Medical Fund is awaiting approval from the Council
for Medical Schemes (“CMS”) to merge with Bonitas
Medical Fund.