AfroCentric Group

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.

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.

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.

• 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.

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 increased marginally in this period by 6.92% and 6.12% respectively,, substantially as a result of the immediate dilutionary impact of the Sanlam subscription.

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.

In the prior years, AfroCentric calculated the EPS and HEPS using the total comprehensive income attributable to the parent instead of the 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.

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.

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.

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.

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.

Share certificates for ordinary shares may not be dematerialised or rematerialised between Wednesday, 10 May 2017 and Friday, 12 May 2017, both days inclusive.

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.

The June 2017 audited results will be published post this publication.

On behalf of the Board

Johannesburg
19 September 2017