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AFROCENTRIC GROUP
56
GROUP CFO’S REPORT CONTINUED
PERFORMANCE
Please find below the calculation of normalised headline earnings:
NORMALISED EARNINGS (NON IFRS MEASURE)
% change
2017
2016
Headline earnings (R’000)
123 838
145 567
Adjusted by (R’000):
120 275
24 960
– Conditional put option finance obligation (R’000)
45 906
24 960
– Fair value on second tranche consideration (R’000)
59 582
–
– Sanlam indemnity provision (R’000)
14 787
–
Normalised headline earnings (R’000)
43.15%
244 113
177 185
Normalised headline earnings per share (cents)
– Attributable to ordinary shares (cents)
38.30%
44.03
30.84
– Diluted earnings per share (cents)
44.03
29.44
2. Pharmacy Direct will be more efficient with the stabilisation
of script volumes at 500 000 per month which did require
some investment expenditure in 2017.
3. The Group recently won the Hosmed Medical Scheme
tender for healthcare administration services for
approximately 50 000 lives. This will assist the Group to
grow, given the take-on costs that will initially reduce
operating profit on this contract.
4. The addition of Wellness Odyssey in our basket of services
to medical schemes will generate revenue that was not
previously part of our diversification pool.
5. The Group is considering acquiring, by December 2017,
several small companies that will reduce the cost of
healthcare for our medical schemes. They will present
enhanced services that the Group offers outside of the
traditional administration and managed care income
streams.
Our clients are fully supporting and partnering with us in
our relentless drive to bring down the cost of healthcare.
As shown by the new clients, the Group is clearly demonstrating
its current and future capabilities in people and systems which
required investment over the past few years.
I would like to record my thanks to my colleagues in Group
Finance for their commitment to their responsibilities, the timely
completion of the work required to present this Integrated
Report and, generally, for driving excellence in expenditure
control and strategic business initiatives.
Hannes Boonzaaier
Chief Financial Officer
CASH FLOW AND
CAPITAL EXPENDITURE
The Group invested in improving its IT capabilities by improving
its main administration system, Nexus, to become more flexible
and capable of administering more lives (Fusion project).
The total budget for the project is R200 million up to 2019, of
which R99 million has been incurred by the end of the 2017
financial year.
Continuous enhancements and projects through Nexus
amounted to R60 million over and above computer software,
and licensing costs amounting to R49 million.
The Group opted to purchase a warehouse, rather than leasing,
because higher volumes in the healthcare retail business
required more scripts, and the required equipment is highly
specialised.
Therefore, the Group is set to have an annual capital expenditure
of approximately R200 million for 2018 and 2019 – until the
Fusion project is complete.
The Group has no financing liabilities and, therefore, is not
geared at all, which presents a comfortable platform for
expansion by way of acquisition. All liabilities and receivables
are short term, due to the payment cycles of the medical
scheme clients. Therefore, the Group preserved cash
generation at the same level despite paying shareholders higher
dividends.
GROWTH PROSPECTS
The 2018 financial year will yield significant growth for the
Group due to the following:
1. The 110 000 lives added onto the Bonitas Medical Fund will
generate profits for 12 months compared to a previous nine
months, but, more significantly, the take-on costs for
employees and IT will not be incurred again.