| Wed 29 Sep 2010, 7:10 | | ACT/ACTP - Afrocentric Investment Corporation Limited - Audited group results |
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ACT
ACT
ACT/ACTP - Afrocentric Investment Corporation Limited - Audited group results
for the year ended 30 June 2010
Afrocentric Investment Corporation Limited
(Incorporated in the Republic of South Africa)
(Registration number 1988/000570/06)
JSE Code: ACT, ACTP
ISIN: ZAE 000078416, ZAE 000082269
("AfroCentric" or "the Company" or "the Group)
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2010
- Profit of core operations up 120%
- Headline earnings up 131%
- Headline earnings per share up 62%
- Proposed maiden 7,5 cents distribution per share
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Group
Audited Audited
2010 2009
R`000 R`000
Continuing operations
Revenue 1 356 331 519 867
Other income 23 425 8 325
Net finance (costs)/income (2 350) 8 097
Finance income 20 251 17 794
Finance costs (22 601) (9 697)
Administration expenses, other costs and charges (1 300 045) (478 916)
Impairment of investments and intangibles (75 718) -
Net income from operations 1 643 57 373
Share of profit of associates 14 017 9 151
Profit before tax 15 660 66 524
Income tax expense (18 027) (13 607)
(Loss)/profit for the year from continuing (2 367) 52 917
operations
Loss for the year from discontinued operations (847) (2 379)
(Loss)/profit for the year (3 214) 50 538
Other comprehensive income - -
Total comprehensive (loss)/income for the year (3 214) 50 538
Attributable to:
Equity holders of the Company (7 413) 34 701
Minority interest 4 199 15 837
(3 214) 50 538
DISCLOSURES OF KEY OPERATING PERFORMANCE
Group
% 2010 2009
change R`000 R`000
Revenue 1 356 331 519 867
Other income 23 425 8 325
Administration expenses and other costs (1 251 044) (478 916)
Net finance (costs)/income (2 350) 8 097
Finance income 20 251 17 794
Finance costs (22 601) (9 697)
Profit of core operations 120 126 362 57 373
Share of profit of associates 14 017 9 151
Profits before charges set out below 140 379 66 524
Impairments, amortisation and (124 719) -
restructuring costs
Impairment of investment (67 313) -
Impairment of intangible assets (8 405) -
Amortisation of intangible assets (30 291) -
Retrenchment and restructuring costs (18 710) -
Profit before tax 15 660 66 524
Income tax expense (18 027) (13 607)
(Loss)/profit for the year from (2 367) 52 917
continuing operations
Loss for the year from discontinued (847) (2 379)
operations
(Loss)/profit for the year (3 214) 50 538
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Group
Audited Audited
2010 2009
R`000 R`000
ASSETS
Non-current assets 958 794 1 000 008
Property, plant and equipment 125 311 110 639
Investment property 8 543 -
Intangible assets 576 438 600 151
Unlisted investments 280 280
Investment in associates 69 788 127 435
Investment in preference shares 100 000 100 000
Deferred income tax assets 78 434 61 503
Current assets 216 871 228 411
Trade and other receivables 80 123 156 215
Receivables from associates and joint venture 14 224 6 642
Cash and cash equivalents 122 524 65 554
Non-current assets held-for-sale - 515 288
Total assets 1 175 665 1 743 707
EQUITY AND LIABILITIES
Capital and reserves 620 286 622 021
Issued capital 389 440 382 528
Contingent shares to be issued 188 540 188 540
Share based payment reserve - 624
Treasury shares (610) -
Distributable reserves 42 916 50 329
Minority interests 21 777 31 939
Total equity 642 063 653 960
Non-current liabilities 306 575 349 128
Deferred income tax liabilities 42 443 66 532
Borrowings 162 072 160 350
Provisions 66 067 79 048
Post-employment medical obligations 3 866 3 930
Accrual for straight lining of leases 32 127 39 268
Current liabilities 227 027 318 195
Borrowings - 11 176
Trade, payables and provisions 126 893 174 169
Taxation 3 224 15 037
Bank overdraft 7 987 53 661
Employment benefit provisions 88 923 64 152
Non-current liabilities held-for-sale - 422 424
Total equity and liabilities 1 175 665 1 743 707
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Group
Audited Audited
2010 2009
R`000 R`000
Balance at 30 June 2009 653 960 212 348
Issue of share capital 6 912 185 808
Contingent shares to be issued - profit warranty - 188 540
Net (loss)/profit for the year (3 214) 50 538
Share of minorities` interest purchased (14 361) -
Acquisition of subsidiary - 17 953
Treasury shares issued (610) -
Dividends paid - (1 851)
Revaluation of share based payment - equity (624) 624
settled
Balance at 30 June 2010 642 063 653 960
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Group
Audited Audited
2010 2009
R`000 R`000
Net cash generated from operating activities 115 834 47 223
Net cash outflow from investing activities (68 554) (165 667)
Net cash (outflow)/inflow from financing (8 782) 179 225
activities
Net cash flow from continuing operations 38 498 60 780
Net cash flow from discontinued operations - 9 951
Net increase in cash and cash equivalents 38 498 70 731
Cash and cash equivalents at beginning of year 76 039 5 308
Cash and cash equivalents at end of year 114 537 76 039
Reconciled as follows:
Cash and cash equivalents on hand 122 524 65 554
Bank overdraft (7 987) (53 661)
Assets held for sale - 64 146
114 537 76 039
NUMBER OF SHARES
Group
Audited Audited
2010 2009
R`000 R`000
Number of ordinary shares in issue 262 432 568 257 999 496
Number of preference shares in issue 16 638 000 16 638 000
Weighted average number of ordinary shares 259 670 381 182 627 122
Weighted average number of ordinary shares, 305 199 704 208 030 900
inclusive ofordinary shares on preference share
conversion
RECONCILIATION OF HEADLINE EARNINGS
Group
Audited Audited
% 2010 2009
change R`000 R`000
(Loss)/profit attributable to equity (7 413) 34 701
holders of the company
Loss from discontinued operations 847 -
Basic earnings (6 566) 34 701
Adjusted by
Shareholders for dividends write off (185) -
Impairment of property, plant and 5 020 -
equipment
Impairment of intangible assets 8 405 -
Impairment of goodwill - 287
Impairment of investment in associate 67 313 -
Minority interest 4 199 -
Loss on disposal of property, plant and - 154
equipment
Loss from discontinued operation (847) 1 600
Headline earnings 131 77 339 33 542
Basic earnings per share (cents) (2,53) 19,00
attributable to ordinary shares
Diluted basic earnings per share (cents) (2,15) 16,68
Headline earnings per share (cents) 62 29,78 18,37
attributable to ordinary shares
Diluted headline earnings per share 57 25,34 16,12
(cents)
SEGMENTAL ANALYSIS
Audited 2010
Profit
before Total
Revenue tax assets
R`000 R`000 R`000
Healthcare administration 1 356 331 17 144 836 519
Electronics - 8 657 -
Treasury activities - 9 034 110 388
Other - including inter-segment - (19 175) 228 758
eliminations
1 356 331 15 660 1 175 665
Audited 2009
Profit
before Total
Revenue tax assets
R`000 R`000 R`000
Healthcare administration 519 867 47 172 1 413 722
Electronics - 7 597 -
Treasury activities - 13 437 110 344
Other - including inter-segment - (1 682) 219 641
eliminations
519 867 66 524 1 743 707
INTRODUCTION
The Board of Directors has pleasure in presenting the audited results for the
fiscal year ended 30 June 2010.
South African businesses have not been immune to the volatile economic
conditions affecting global markets. During fiscal 2010 AfroCentric`s
portfolio companies responded to their market challenges in a proactive and
deliberate manner. These actions have preserved the businesses` sound
commercial foundations and allowed AfroCentric to maintain a satisfactory
growth trend of core earnings. This is most evident in the growth in headline
earnings per share for the year under review and the growth in operating
profit of core business units. The Board Investment Committee`s strict
compliance with its prescribed investment discipline resulted in no material
investments being approved during this past year of uncertainty, the Board
preferring to focus on guiding management in seeking to enhance and optimise
the performance of the businesses under their control.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated group financial statements for the year ended 30
June 2010 are prepared in accordance with International Financial Reporting
Standards ("IFRS"), International Accounting Standard 34, AC 500 Standards, as
issued by the Accounting practices Board, the JSE Limited Listings
Requirements and the South African Companies Act 61 of 1973 as amended. The
condensed consolidated group financial statements are prepared on the
historical cost basis and are consistent with the accounting policies applied
for the year ended 30 June 2009 in terms of IFRS.
NATURE OF BUSINESS
AfroCentric is a black owned investment holding company; its major investments
being in private healthcare, electronics, power and the communications
industries. AfroCentric also has an agreement of co-operation with Rio Tinto
Plc for mineral prospecting and exploration projects, and with Hanwha
Corporation of Korea for the supply and distribution of certain capital
equipment.
OPERATIONAL REVIEW
In February FY2009 AfroCentric acquired a controlling interest in Lethimvula
Investments Limited ("LIL"). LIL`s wholly- owned subsidiary, Medscheme, is the
largest, black-owned, independent medical aid administrator and health risk
solutions provider in South Africa. LIL`s full year performance contributed
towards the increase in operating profits in AfroCentric to R126,4 million
from R57,4 million in 2009. This performance is consistent with the due
diligence exercise and shareholders are reminded that in terms of the LIL
acquisition agreement, the vendors of shares in LIL have warranted profits
after tax for the years ending 30 June 2011, 2012 and 2013 at an average of
R180 million.
In the December 2009 interim report, we reported certain alleged breaches of
governance by Medscheme associated with Bonitas Medical Fund. Since that date,
a letter has been received from Deloitte which states inter alia that any
comments which may have been interpreted to suggest a breach of governance is
contrary to what was envisaged by Deloitte in the report. Our confidence in
Medscheme and its management is further supported by the renewal of
Medscheme`s accreditation by the Council for Medical Schemes, with the
"Bonitas Unit" having achieved an ISO 9001: 2008 certification for quality.
Medscheme has also, for the second consecutive year, achieved the highest
overall scores across all three of PMR.africa`s medical scheme-related
surveys.
During the year under review, and in line with its stated intention,
AfroCentric continued to acquire shares from LIL shareholders who offered
their shares for sale. This has to date enhanced AfroCentric`s shareholding in
LIL to 87,53% (FY2009: 83,8%).
The performance of Jasco Electronics Holdings Limited (Jasco) was less
impressive, contributing attributable earnings of R8,7 million (FY2009: R7,6
million) and preference dividends of R8,3 million (FY2009: R11,4 million).
Jasco`s diversified business units allowed it to remain profitable through the
economic downturn. The electrical and domestic products divisions performed
well in the past year after an unremark-able performance in 2009.
Infrastructure-dependent divisions, in power, telecommunications and security,
experienced challenges through the year but are likely to recover in tandem
with infrastructure spending cycles. AfroCentric`s investment in Jasco Cables
preference shares yielded lower dividend income, owing to a reduced interest
rate environment during the year. The subdued performance of Jasco`s share
price over the past year has necessitated that the investment be impaired
according to IAS36.
AfroCentric`s exploration and prospecting projects in association with Rio
Tinto Plc continue to progress in terms of the Reciprocal Strategic Co-
Operation Agreement. Most promising is a nickel prospect in the North West
Province, which is being assessed for strike length and thickness.
FINANCIAL RESULTS
AfroCentric`s core operating profits increased by 120% from R57,4 million in
2009 to R126,4 million in 2010. Shareholders are referred to the AfroCentric
circular distributed to LIL shareholders dated 27 February 2009. Paragraph 19
of that circular, captioned "Material Changes", records reference to the
agreements concluded by LIL for the acquisition of Old Mutual Healthcare
(Proprietary) Limited ("OMHC") and at the same time, but independently, the
disposal by LIL subsidiary, Medscheme Limited, of its interest in Medscheme
Life Assurance Limited to Old Mutual South Africa Limited. The regulatory
approvals for these transactions were received towards the end of the 2009
financial year and during the 2010 financial year. Accordingly, in terms of
IFRS 3, restructuring and retrenchment costs are recognised in the
consolidated income statement in the 2010 financial year.
Having regard to the earlier references on restructuring and retrenchment
costs and certain other amortisation and impairment charges in the normal
course, including the mark-to-market adjustment on the Jasco investment, the
Group`s basic reported earnings per share ("EPS") declined from 19,00 cents in
2009 to a loss of 2,53 cents in 2010 and the diluted basic EPS declined from
16,68 cents in 2009 to a loss of 2,15 cents in 2010.
However, headline earnings per share ("HEPS"), which excludes certain
impairment and amortisation charges more fully described in the financial
disclosures, increased by 62% from 18,37 cents in 2009 to 29,78 cents in 2010.
A similar pattern is observed in the diluted HEPS which increased by 57% from
16,12 cents in 2009 to 25,34 cents in 2010.
PROSPECTS
The Board of Directors is satisfied with the progress of AfroCentric for the
past year and the Group`s sound platform for future earnings. During the past
three months, there seems to be a greater degree of business confidence
developing in South Africa and the Board Investment Committee will continue to
consider new investment propositions that are presented.
While trends are encouraging, it is too early to judge whether the growth in
earnings and the profit warranty thresholds in the LIL acquisition will be
fulfilled. In the meantime, LIL continues to trade in a robust manner and
consistent with our estimates and expectations at the time of acquisition.
DIRECTORS
The AfroCentric Board of Directors appointed Dr Anna Mokgokong and Mr Joe
Madungandaba to the Board as non-executive directors in 2010. Dr Mokgokong and
Mr Madungandaba are successful entrepreneurs who represent Community
Investment Holdings, a large shareholder of AfroCentric. Their esteemed
inclusion on the AfroCentric Board will enhance strategic thinking and
guidance, particularly in the consideration of future BEE transactions. Mr
Wallace Holmes was appointed Financial Director, taking over that
responsibility from Mr Michael Sacks, who continues to serve as secretary, a
non-executive director and a member of the Board Investment Committee. Ms
Nomhle Canca, Professor Derek Swartz and Mr Mandla Gantsho resigned from the
Board in 2010. The directors wish to express their gratitude for their
contribution to the development and success of AfroCentric since its
inception.
DISTRIBUTIONS
The Board of Directors has proposed the Group`s maiden distribution in the
form of a capital reduction out of share premium of 7,5 cents per ordinary
share, subject to shareholder approval at the annual general meeting.
Preference shareholders participate in distributions on the basis that they
are entitled to 15% of the aggregate distribution payable to preference and
ordinary shareholders. All the salient dates and times for the ordinary shares
and the preference shares will be announced once the annual general meeting
has been held and shareholders` approval has been given.
AUDITOR`S REPORT
The Auditors, SizweNtsaluba VSP have issued an unqualified audit report and a
copy is available for inspection at the Company`s registered office.
By order of the Board
MI Sacks CA(SA), AICPA(ISR)
Company Secretary
Johannesburg
29 September 2010
Directors
NB Bam* (Chairperson), WRC Holmes, MJM Madungandaba**
Dr ATM Mokgokong** JM Kahn*, MI Sacks**#, B Joffe*
*independent non-executive
**non-executive
#company secretary
Registered Office
10 Muswell Road South,
Bryanston, 2191
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 29/09/2010 07:10:01 Produced by the JSE SENS Department.
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