| Tue 20 Sep 2011, 8:00 | | LHG - Litha Healthcare Group Limited - Reviewed condensed consolidated interim |
|
LHG
LHG
LHG - Litha Healthcare Group Limited - Reviewed condensed consolidated interim
results for the six months ended 30 June 2011
LITHA HEALTHCARE GROUP LIMITED
AT THE HEART OF HEALTH
Registration number: 2006/006371/06
Share code: LHG ISIN: ZAE000144671
("The group")
REVIEWED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE
2011
- Earnings per share up 57% to 11,8 cents
- Headline earnings per share up 26% to 11,8 cents
- Acquisition of remaining 49% of Litha effective 1 January 2011
- Acquisition of Goldex Healthcare effective 1 May 2011
- Increased stake in The Biovac Consortium to 85%
These reviewed condensed consolidated interim results were signed off on 20
September 2011 and have not been audited in accordance with the requirements of
the Companies Act. They have been prepared by the group`s chief financial
officer, Martin Michael Kahanovitz, (CA) SA.
Consolidated Statement of Financial Position
(R`000) Reviewed Reviewed Audited
June 2011 30 June 31
2010 December
2010
ASSETS
Non-current assets 429 065 294 403 394 643
Property, plant and equipment 85 098 74 736 79 134
Goodwill and intangible assets 325 333 216 039 294 925
Deferred taxation asset 15 934 2 633 17 884
Other non-current assets 2 700 995 2 700
Current assets 1 088 138 633 064 821 047
Inventories 337 481 224 323 233 795
Trade and other receivables 484 288 286 678 352 079
Other current assets 10 143 13 924 2 955
Cash and cash equivalents 256 226 108 139 232 218
Non-current assets held-for-sale 2 815 - 2 815
Total assets 1 520 018 927 467 1 218 505
EQUITY AND LIABILITIES
Total equity 465 010 384 257 502 256
Share capital and premium 302 400 194 447 197 447
Reserves attributable to holders of the 98 487 94 938 123 756
parent
Non-controlling interest 64 123 94 872 181 053
Non-current liabilities 182 546 76 899 102 723
Other financial liabilities 162 204 74 230 80 901
Deferred taxation liability 20 342 2 669 21 822
Current liabilities 872 462 466 311 613 526
Accounts payable and provisions 800 265 422 539 558 787
Other financial liabilities 52 175 41 404 54 034
Bank overdraft 20 022 2 368 705
Total equity and liabilities 1 520 018 927 467 1 218 505
Consolidated Statement of Comprehensive Income
(R`000) Reviewed Reviewed Audited
6 months 6 months 31
ended ended December
June 2011 June 2010 2010
Revenue 894 769 416 381 1 290 184
Turnover 888 983 412 060 1 254 873
Cost of sales (688 700) (298 170) (946 464)
Gross profit 200 283 113 890 308 409
Operating expenses (141 367) (80 221) (234 981)
Other income 20 448 8 630 48 847
Operating profit 79 364 42 299 122 275
Non-operating interest received - 3 021 -
Non-operating interest paid (7 054) (4 132) (6 912)
Profit before taxation 72 310 41 188 115 363
Taxation (21 936) (12 536) (34 005)
Profit for the period 50 374 28 652 81 358
Other comprehensive income for the
period net of tax
Fair value adjustments to available for - 1 879 1 892
sale financial assets
Total comprehensive incomefor the period 50 374 30 531 83 250
Profit attributable to:
Equity holders of Litha Healthcare Group 43 790 17 548 46 360
Limited
Non-controlling interest 6 584 11 104 34 998
Total profit for the period 50 374 28 652 81 358
Total comprehensive income attributable
to:
Equity holders of Litha Healthcare Group 43 790 18 506 47 324
Limited
Non-controlling interest 6 584 12 025 35 926
Total comprehensive income for the 50 374 30 531 83 250
period
Earnings per share (cents) 11,8 7,5 16,6
Diluted earnings per share (cents) 11,3 7,4 15,9
COMMENTARY TO THE CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Headline earnings reconciliation
Attributable profit 43 790 17 548 46 360
Adjusted for:
Goodwill impairment - 4 250 4 250
Profit from disposal of property, plant (27) (11) (98)
and equipment
Tax effect of profit from disposal of 8 3 27
property, plant and equipment
Headline earnings 43 771 21 790 50 539
Headline earnings per share (cents) 11,8 9,4 18,1
Diluted headline earnings per share 11,3 9,2 17,4
(cents)
Consolidated Statement of Cash Flows
(R`000) Reviewed Reviewed Audited
6 months 6 months year ended
ended ended 31
30 June 30 June December
2011 2010 2010
Cash generated/(utilised) by operating 94 558 (28 076) 112 664
activities
Cash flows from operating activities 68 419 (35 593) 119 421
Cash flows from investing activities (130 914) (134 963) (151 710)
Cash flows from financing activities 67 506 94 323 88 825
Net increase/(decrease) in cash and cash 5 011 (76 233) 56 536
equivalents
Cash on acquisition of subsidiary (320) 173 641 166 614
companies
Cash and cash equivalents at beginning 231 513 8 363 8 363
of period
Cash and cash equivalents at end of 236 204 105 771 231 513
period
Consolidated Statement of Changes In Equity
(R`000) Share Share Available Reserve
capital based for sale on equity
and payment revalu- trans-
premium reserve ation actions
reserve
Audited balance at 197 447 974 964 -
1 January 2011
Total comprehensive income - - - -
Share based payment reserve - 201 - -
Acquisition of remainder of non- 103 453 - - (69 260)
controlling interest
Share issue 1 500 - - -
Audited balance at 302 400 1 175 964 (69 260)
30 June 2011
Audited balance at 64 371 704 - -
1 January 2010
Rights issue 95 836 - - -
Acquisition of subsidiary 34 240 - - -
companies
Total comprehensive income - - 958 -
Reviewed balance at 194 447 704 958 -
30 June 2010
(R`000) Accum- Ordinary Non- Total
ulated share- Control-
profits holders ling
interest interest
Audited balance at 121 818 321 203 181 053 502 256
1 January 2011
Total comprehensive income 43 790 43 790 6 584 50 374
Share based payment reserve - 201 - 201
Acquisition of remainder of non- - 34 193 (123 514) (89 321)
controlling interest
Share issue - 1 500 - 1500
Audited balance at 165 608 400 887 64 123 465 010
30 June 2011
Audited balance at 75 728 140 803 - 140 803
1 January 2010
Rights issue - 95 836 - 95 836
Acquisition of subsidiary - 34 240 82 847 117 087
companies
Total comprehensive income 17 548 18 506 12 025 30 531
Reviewed balance at 93 276 289 385 94 872 384 257
30 June 2010
Notes to the Financial Statements
1. ACCOUNTING POLICIES
The reviewed condensed consolidated results have been prepared in
accordance with the Framework concepts and the measurement and recognition
requirements of the International Financial Reporting Standards and
containing information required by the IAS 34 Interim Financial Reporting
and in the manner required by the Companies Act. The interim report has
also been prepared in accordance with and containing the information
required by AC 500 series as issued by the Accounting Practices Board. The
reviewed condensed consolidated financial statements are prepared on the
historical cost basis, with the exception of certain financial instruments
which are measured at fair value. These financial statements should be read
in conjunction with the audited financial statements for the year ended 31
December 2010. The condensed consolidated financial statements for the 6
months ending 31 December 2011 have been reviewed, but not audited, by
Mazars, the group`s auditors. Their unqualified review report is available
for inspection at Litha`s registered office during normal business hours.
The condensed consolidated financial statements are prepared using the same
policies and method of computation as the audited financial statements for
the year ended 31 December 2010, except for the application of IFRS 3,
Business Combinations and IAS 27, Group and Separate Financial Statements.
The application of IFRS 3, Business Combinations resulted in the business
combination being accounted for using the acquisition method. The revised
IAS 27, Group and Separate Financial Statements resulted in the acquisition
of a non-controlling shareholding being accounted for as an equity
transaction. The preparation of condensed consolidated financial statements
requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at period end and the reported amounts of revenue and expenses
during the reporting periods. Although these estimates are based on
management`s best knowledge of current events and actions that the group
may undertake in the future, actual results may differ from those
estimates.
The accounting policies and methods of computation are consistent with
those applied in the financial statements for the year ended 31 December
2010.
2. WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Reviewed Reviewed Audited
6 months 6 months 31 December
ended ended 2010
June 2011 June 2010
Weighted average number of shares 372 198 148 232 681 697 279 582 073
Diluted weighted average number of 387 442 493 235 678 697 291 057 373
shares
3. SUBSEQUENT EVENTS
Litha Medical (Pty) Limited, a major operating subsidiary of LHG, has
entered into a long term lease of a commercial property in Midrand,
Gauteng, South Africa. LHG, together with Blackstar Real Estate (Pty)
Limited, have purchased the property for R58 million, with the majority
financed through a bond. LHG will effectively own 30% of a new property
holding company with Blackstar Real Estate owning the other 70% of the
ordinary shares.
The lettable area of the property comprises 10,300 square metres and will
be used to consolidate a large part of Litha Healthcare Group`s operations
within Gauteng. In the medium term, the consolidation will produce cost
savings and additional efficiencies to the group. This is also in line with
the group`s strategy of utilising shared services across its businesses to
extract synergies.
In terms of an existing agreement with fellow shareholders, the Group has
increased its stake in the Biovac Consortium by a further 7.5%. This brings
the shareholding in The Biovac Consortium to 85% and effective share in The
Biovac Institute to 44.6%.
No other events material to the understanding of the report have occurred
in the period between 30 June 2011 and the date of this report.
4. RELATED PARTY TRANSACTIONS
The group paid R4.3 million to Blackstar Group (Pty) Ltd for underwriting
and transaction arranging fees as well as for non-executive director fees
for their positions on the LHG board.
As outlined above, the group entered into a property transaction with
Blackstar Real Estate.
5. ACQUISITION OF GOLDEX HEALTHCARE (PTY) LTD
The group acquired 100% of the issued share capital and shareholder loans
of Goldex, a Durban-based pharmaceutical company. The effective date of the
transaction for accounting purposes was 1 May 2011.
Goldex is an approved manufacturer and distributor of its own
pharmaceutical products, as well as an exclusive distributor, under
license, for Unichem Laboratories Ltd, a leading Indian multinational.
Goldex holds 32 active pharmaceutical products, which include mainly
generic as well as some innovator brands. There are also a number of
products awaiting registration at the Medicines Control Council (MCC).
The group paid R28 million for 100% share and was funded through internally
generated cash.
By acquiring and integrating the Goldex product range, the group will build
scale in its Pharmaceutical division and secure product pipelines for the
future.
Qualitative factors which make up goodwill include: High barriers to entry
for their pharmaceutical businesses; strong relationships they have with
the private healthcare sector; scale which Goldex will bring to the group;
an extension of current pharmaceutical product ranges; reputation in the
Market; brand equity of Goldex`s key products.
A purchase price allocation exercise was not completed at the time this
interim results announcement was signed off. Separate intangible assets and
fair values of assets of Goldex have not yet been determined.
The following information was taken from Goldex`s management accounts as at
1 May 2011.
Goldex Healthcare (Proprietary) Limited
Effective date of acquisition for accounting purposes 1 May 2011
Voting equity percentage 100%
At acquisition fair values (At 1 May 2011)
(R`000)
Non-current assets acquired
Property, plant and equipment 27
Intangible assets 5 837
Current assets acquired
Inventory 3 456
Trade receivables 2 600
Other current assets 682
Cash and cash equivalents 7
Current liabilities assumed
Accounts payable and provisions (5 540)
Other current liabilities (3 259)
Bank overdraft (327)
Net asset value 3 483
Total Cost of acquisition - cash 28 013
Goodwill 24 530
Revenue for the period 1 May to 30 June 2011 7 994
Profit for the period 1 May to 30 June 2011 881
Revenue for the period 1 January to 31 December 2011 15 253
Profit for the period 1 January to 31 December 2011 1 321
Details of debtors:
Trade receivables 2 600
The average days outstanding are 45 days. Due to the short term nature of
the trade receivables, the cost is considered to be fair value. All trade
receivables are expected to be collected.
6. ACQUISITIONS AND DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT
During the period under review, the group purchased property, plant and
equipment as follows:
Biotechnology division: R9.5 million
Medical device division: R1.8 million
Pharmaceutical division: R0.3 million
There were no material disposals of equipment or other assets.
Provision for stock obsolescence
The group decreased its provision for stock obsolescence as follows during
the period under review:
Biotechnology division: R1.5 million
Medical device division: R0.1 million
Capital commitments
TBI has entered into agreements to purchase Euro 9.6 million (Approximately
R95.7 million) of equipment relating to the manufacturing facility, which
is expected to be incurred by June 2012.
7. SEGMENT INFORMATION
Segment (R`000) Medical Pharma- Bio- Group
device ceutica Tech-
divisio l nology
n divisio
n divisio
n
6 months ended 30 June 2011
Turnover (External) 192 175 50 991 645 817 888 983
Reportable segment profit 58 098 10 214 22 633 90 945
Inter-group services (11
581)
Operating profit (before taxation) 79 364
Total assets 452 908 66 119 998 176 1 517
203
(R`000)
6 months ended 30 June 2010
Turnover (External) 157 295 10 789 243 976 412 060
Reportable segment profit 32 233 2 759 18 721 53 713
Inter-group services (including (11
logistics) 414)
Operating profit (before taxation) 42 299
Total assets 276 863 40 419 610 185 927 467
Year ended 31 December 2010
Turnover (External) 332 922 79 200 842 751 1 254
873
Reportable segment profit 77 135 16 567 50 446 144 148
Head office costs (17
073)
Once-off head office costs (4 800)
Operating profit (before taxation) 122 275
Total assets 387 486 54 119 774 085 1 215
690
DIVIDEND
The board has committed to review its dividend policy at the 2011 year end in
light of the successful consolidation and integration of LHH, whilst taking
into account its short to medium term growth objectives.
For and on behalf of the board
A Bonamour
Chairman
Johannesburg
20 September 2011
Directors: A Bonamour*, S Kahanovitz, M Makhoana, M Kahanovitz,
N Sowazi*, W Marshall-Smith*, M Mzimba*, F Hendricks*, I Jacobson*
(*non-executive)
Sponsor: Java Capital
Auditors: Mazars
Transfer Secretaries: Computershare Investor Services
Registered Office: Manta Place, Turnberry Office Park,
48 Grosvenor Road, Bryanston, 2191
Commentary
1. NATURE OF BUSINESS
Litha Healthcare Group Limited (LHG) is a diversified healthcare business
providing services, products and solutions to public and private hospitals
and government healthcare programmes in Southern Africa. It has three major
divisions - Litha Biotech (biotechnology/vaccines), Litha Medical (medical
devices) and Litha Pharma (pharmaceuticals). For accounting purposes, Litha
Healthcare Holdings (Proprietary) Limited (LHH) and Pharmafrica (Proprietary)
Limited (Pharmafrica) were fully consolidated for the full six months. In
the prior comparable period, the group owned 51% of LHH and an effective
66% of Pharmafrica, with their results included for only two months.
2. OPERATIONAL OVERVIEW
During the period, LHG concluded the acquisition of the remaining 49% of LHH
shares not already owned by the group. In addition, LHH increased its stake in
The Biovac Consortium (Proprietary) Limited, a majority shareholder in The
Biovac Institute (TBI), from 62.5% to 77.5%. This increased the group`s
effective shareholding in TBI from 33% to 41% and is a further move towards the
group`s objective of becoming a meaningful local vaccine manufacturer. The
effective date for these equity transactions was 1 January 2011.
The group also acquired 100% of Goldex Healthcare (Proprietary) Limited
(Goldex) with effect from 1 May 2011. Goldex is a South African pharmaceutical
company which distributes its own pharmaceutical products using local contract
manufacturers, as well as being an exclusive distributor, under license, from
a leading Indian multi-national. The acquisition is in line with the group`s
strategy of building scale in its pharmaceutical division, as well as providing
a platform for servicing the pharmacy and dispensing doctor market.
Litha Biotech
Revenue was R645.8 million (2 months ended 30 June 2010: R243.9 million)
and operating profit was R22.6 million (2 months ended 30 June 2010: R18.7
million).
Litha Biotech continues to focus on rolling out its project plan to manufacture,
through The Biovac Institute, its first vaccine in 2013. The group`s facility
in Cape Town is also being geared for potential technology transfers from
international vaccine manufacturers to ensure utilisation of its manufacturing
facility.
The division experienced strong sales at The Biovac Institute due to the
supply of paediatric vaccines for the Extended Programme on Immunisation
(EPI) in the public sector.
Litha Medical
This division performed exceptionally well, despite pricing pressure from the
public and private healthcare sectors. Revenue increased by 22% from R157
million to R192 million compared to the prior period. With careful management
of operating costs, operating margins also improved. The Manta Forensic business
unit within this division experienced exceptional growth. The other business
units all showed improved performance compared to the prior period.
Litha Pharma
Revenue was R50.9 million compared to the R10.7 million for the two months ended
30 June 2010 and operating profit was R10.2 million (R2.8 million for the
two months ended 30 June 2010).
To optimise market penetration, the pharmaceutical division was split into two
business units - a branded/detailing doctor business unit and a
generic/pharmacy/dispensing doctor-focused business unit. As outlined above,
the purchase of the Goldex Healthcare business was finalised during the period
under review. Continued improvement in scale for these business units remains
a key focus to compete against other listed pharmaceutical businesses.
3. FINANCIAL OVERVIEW
Statement of comprehensive income
Revenue increased by 115% from R416 million to R895 million and operating
profit increased by 88% from R42 million to R79 million, mainly due to the
inclusion of 100% of the LHH and Pharmafrica businesses for the full six months
compared to only two months in the previous comparable reporting period.
Earnings per share increased by 57% to 11,8 cents per share (2010: 7,5 cents)
and headline earnings per share increased by 26% to 11,8 cents (2010: 9,4
cents). The large difference between HEPS and EPS in the prior period was
due to the writing back of the once-off goodwill impairment relating to the
Litha Critical Care business in the headline earnings calculation.
The group`s net operating margin was 8.9% (2010: 10.2%) during the period
under review. As outlined at the year to December 2010 results announcement,
the decline in operating margin was due to a change in product mix from
originally only medical devices to a broader product basket consisting of both
higher and lower margin products. The Biotech division, which contributed 25%
to net operating profit, has lower margins as it is purely an importer and
distributor. However, as manufacturing commences in 2013, margins are expected
to gradually increase. Other income in the period under review relates to the
group`s distribution business, logistics fees revenue and income from government
grants in the Biovac Institute.
The revaluation of the group`s foreign creditors and outstanding foreign
exchange contracts resulted in a negative foreign exchange impact on operating
profit. Of the loss of R11.2 million (2010: R13.0 million profit) in the period
under review, R10.0 million was realised through The Biovac Institute. The
group`s policy is to take out forward cover for approximately 70% of its
estimated foreign purchases for a year in advance. The Biotechnology division
is largely hedged against currency fluctuations due to exchange rate mechanisms
in place with the National Department of Health which results in prices being
adjusted every quarter to the spot rate at the time.
The non-operating interest expense of R7.1 million relates to interest incurred
on the group`s loans, as discussed below.
Statement of financial position
As discussed above, the period under review saw the acquisition of the
remaining 49% of LHH, increasing the group`s stake by 15% in the Biovac
Consortium and acquiring 100% of Goldex. 40% of the purchase price for the 49%
of LHH was settled through cash and the balance through the issue of 48.3
million LHG shares at R2.20 per share. The reserve on equity transactions in
the Statement of Changes In Equity was created as a result of these
transactions. The group raised an R80 million term loan with Rand Merchant
Bank, while at the same time settling its liabilities of R21.3 million to the
vendors of Pharmafrica and its existing term loan of R25.1 million raised
in prior periods as a result of the repurchase of shares from the founding
shareholders of the company. The vast majority of the purchases of property,
plant and equipment was incurred in the Biotechnology division relating to
the manufacturing facility. The Biovac Institute finalised the loan from the
Industrial Development Corporation (IDC) to fund further capital investment
and R35.1 million was drawn down on this loan in the period under review.
The group has an interest bearing debt equity ratio of 31% (2010: 22%)
excluding TBI, which is ring fenced and self-funded as a PPP with government.
The increase in goodwill and intangibles from R294.9 million to R325.3 million
was raised as a result of the Goldex acquisition, mentioned above.
The levels of inventories, accounts payable and accounts receivable were
affected by the large quantity of EPI vaccines which were received and
supplied towards the end of June 2011. This resulted in a temporary increase
in stock and trade payables. Stock levels have normalised post period end.
In addition, significant sales made of the EPI vaccine at the end of the
period resulted in the increase in accounts receivable.
Cash flow
The net cash inflow from operating activities of R94.6 million (2010: outflow
of R28.1 million) for the period under review was as a result of strong cash
generation from the divisions, as well as good working capital management.
The majority of the cash outflow from investing activities of R130.9 million
(2010: R134.9 million) relates to cash payments made to the vendors of LHH
for the 49% stake, as well as payments to the vendors of Goldex. The group
purchased property, plant and equipment to the value of R11.6 million
(2010: R4.1 million).
Most of the cash inflow from financing activities relates to cash raised to
fund the cash portion of the LHH equity transaction and the draw down on the
IDC loan less the settlement of the vendor finances portion of the Pharmafrica
acquisition and the settlement of the previous term loan.
Net cash and cash equivalent at year-end was R236.2 million (2010:
R105.7 million), of which R183.6 million (December 2010: R164.9 million)
relates to TBI.
4. PROSPECTS
The group`s businesses remain well positioned to benefit from increased
government spend on healthcare, as well as to maintain its market share in
the private sector through the delivery of quality products and services.
The focus in the next six months will continue to be on bedding down the
acquisitions which took place in 2010 and early 2011 and on completing the
divisional integration with shared services and logistics across the group.
In the period under review, the group promoted one of its executive team
members, Grant Parker, as the chief operating officer (COO) to drive the
integration process. It has also entered into an agreement to lease premises,
which will result in the majority of the group`s Gauteng operations being
integrated into one building. This will assist with streamlining the
logistics function and will enable the group to harness the benefits of
other synergies between divisions and shared services.
In Litha Biotech, the focus will remain on ensuring momentum in the
construction of the manufacturing facility at The Biovac Institute to meet
the deadlines targeted for 2013.
In Litha Medical, the group will continue to focus on business development
to further increase agencies and therapeutic areas.
In Litha Pharma, the main focus in terms of acquisitive growth will be to
ensure critical mass as the group continues to look for transactions which will
give the division more scale to effectively compete, as well as to develop
a balanced product pipeline of its own. Two business unit heads have been
appointed to drive the expansion of the newly-restructured business units
within this division by using the acquisitions of Pharmafrica and Goldex
Healthcare as its base.
The Group, through its subsidiary Litha Pharma, has recently signed Heads
of Agreements with several top 20 ranked Indian manufacturers as well as a
European manufacturer, which will enable Litha Pharma to submit a pipeline
of 50 products during the next 12 months for commercial rollout from 2014.
The group is also actively looking for other licensing agreements by using
its partnership with Cpoint to add to the existing pipeline.
Management are positive that with the structures of the enlarged group now
in place, Litha is on track to fully extract the anticipated benefits from the
group services strategy and the resultant cost savings.
www.lithahealthcare.co.za
Date: 20/09/2011 08:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
