| Mon 19 Mar 2012, 8:00 | | LHG - Litha Healthcare Group Limited - Reviewed condensed consolidated results |
|
LHG
LHG
LHG - Litha Healthcare Group Limited - Reviewed condensed consolidated results
for the year ended 31 December 2011 and updated financial effects of
Pharmaplan transaction
LITHA HEALTHCARE GROUP LIMITED
(Registration number 2006/006371/06);
Share code: LHG, ISIN: ZAE000144671
("The group" or "Litha" or "LHG")
REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
AND UPDATED FINANCIAL EFFECTS OF PHARMAPLAN TRANSACTION
- Earnings per share up 40%
- Headline earnings per share up 28%
- Acquisitions of:
- Remaining 49% of Litha Healthcare Holdings
- Goldex Healthcare
- OTC Pharma SA
- Increased stake in the Biovac Consortium
- Announcement of Pharmaplan transaction
The reviewed condensed consolidated results for the year ended 31 December
2011 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) Audited
31
Reviewed 31 December
December 2010
2011
ASSETS
Non-current assets 533 614 392 765
Property, plant and equipment 186 860 77 256
Goodwill and intangible assets 318 500 294 925
Investment in associates 4 201 -
Deferred taxation asset 15 734 17 884
Other non-current assets 8 319 2 700
Current assets 901 366 810 366
Inventories 280 763 228 442
Trade and other receivables 442 371 349 712
Taxation 27 995 206
Cash and cash equivalents 150 237 232 006
Non-current assets held for sale
15 374
7 765
Total assets 1 442 745 1 218 505
EQUITY AND LIABILITIES
Total equity 512 109 502 256
Share capital and premium 295 473 197 447
Reserves attributable to holders of the 138 938 123 756
parent
Non-controlling interest 77 698 181 053
Non-current liabilities 210 357 102 723
Other financial liabilities 192 195 80 901
Deferred taxation liability 18 162 21 822
Current liabilities 719 564 611 890
Accounts payable and provisions 631 913 556 957
Other current liabilities 47 651 54 228
Bank overdraft 40 000 705
Liabilities of disposal groups 715 1 636
Total equity and liabilities 1 442 745 1 218 505
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(R`000)
Reviewed Reviewed year
year ended ended
31 December 31 December
2011 2010
1 781 799 1 290 184
Revenue
Turnover 1 747 026 1 254 873
Cost of sales (1 358 381) (946 464)
Gross profit 388 645 308 409
Operating expenses (277 680) (229 584)
Other income 34 773 48 847
Operating profit 145 738 127 672
Non-operating interest paid (7 171) (6 912)
Profit before taxation 138 567 120 760
Taxation (27 312) (34 005)
Profit for the year from continuing 111 255 86 755
operations
Loss from discontinued operations (7 347) (5 397)
Profit for the year 103 908 81 358
Other comprehensive income for the year
net of tax
Fair value adjustments to available for - 1 892
sale financial assets
Fair value adjustments released to (964) -
profit for the year
Total comprehensive income for the year 102 944 83 250
Profit attributable to equity holders
of Litha Healthcare Group Limited:
Profit from continuing operations 93 648 51 757
Loss from discontinued operations (7 347) (5 397)
Profit attributable to equity holders 86 301 46 360
of Litha Healthcare Group Limited
Non-controlling interest 17 607 34 998
Total profit for the year 103 908 81 358
Total comprehensive income attributable 85 337 47 324
to:
Equity holders of Litha Healthcare
Group Limited
Non-controlling interest 17 607 35 926
Total comprehensive income for the year 102 944 83 250
Earnings per share (cents) 23.2
From continuing operations 25.2 16.6
18.5
From discontinued operations (2.0)
(1.9)
22.1
Diluted earnings per share (cents) 15.9
From continuing operations 24.0
17.8
From discontinued operations (1.9)
(1.9)
COMMENTARY TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Headline earnings reconciliation
Attributable profit from continuing 93 648 51 757
operations
Adjusted for:
Goodwill impairment - 4 250
Profit from disposal of property, plant (81) (98)
and equipment
Tax effect of profit from disposal of 23 27
property, plant and equipment
Headline earnings from continuing 93 590 55 936
operations
Loss from discontinued operations (7 347) (5 397)
Headline earnings 86 243 50 539
23.2 18.1
Headline earnings per share (cents)
From continuing operations 25.2 20.0
From discontinued operations (2.0) (1.9)
Diluted headline earnings per share 22.1 17.4
(cents)
From continuing operations 24.0 19.2
From discontinued operations (1.9) (1.8)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(R`000) Share Share based
capital and payment Available
premium reserve for sale Reserve on
revaluatio equity
n reserve transaction
Balance at 1 January
2010 64 371 704 - -
Rights issue 95 836 - - -
Acquisition of 34 240 - - -
subsidiary companies
adjustment
Total comprehensive - - 964 -
income
Share based payment - 270 - -
reserve adjustment
Shares issued during 3 000 - - -
the year
Balance at 31 December
2010 197 447 974 964 -
Acquisition of non- 103 453 - - (70 155)
controlling interests
Disposal of treasury (6 928) - - -
shares
Shares issued 1 500 - - -
Total comprehensive - - (964) -
income
Share based payment - 160 - -
reserve adjustment
Balance at 31 December 295 473 1 134 (70 155)
2011 -
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
(R`000) Non- Total
Ordinary controllin
Accum- share- g interest
ulated holders
profits interest
Balance at 1 January
2010 75 728 140 803 - 140 803
Rights issue - 95 836 - 95 836
Acquisition of - 34 240 145 127 179 367
subsidiary companies
adjustment
Total comprehensive 46 090 47 054 35 926 82 980
income
Share based payment - 270 - 270
reserve adjustment
Shares issued during - 3 000 - 3 000
the year
Balance at 31 December
2010 121 818 321 203 181 053 502 256
Acquisition of non- - 33 299 (120 962) (87 663)
controlling interests
Disposal of treasury - (6 928) - (6 928)
shares
Shares issued - 1 500 - 1 500
Total comprehensive 86 141 85 177 17 607 102 784
income
Share based payment - 160 - 160
reserve adjustment
Balance at 31 December 207 959 434 411 77 698 512 109
2011
CONSOLIDATED STATEMENT OF CASH FLOWS
(R`000) Audited
Reviewed year ended
year ended 31
31 December
December 2010
2011
Cash generated by operating activities 115 495 112 664
Cash flows from discontinued operations
Cash flows from operating activities 53 744 119 421
Cash flows from investing activities (247 594) (151 710)
Cash flows from financing activities 73 006 88 825
Net (decrease)/increase in cash and (120 844) 56 536
cash equivalents
Cash acquired on acquisition of 1 014 166 614
subsidiary
Cash and cash equivalents at beginning 231 513 8 363
of period
Cash and cash equivalents at end of 111 683 231 513
period
Cash and cash equivalents included in 110 237 231 301
continuing operations
Cash and cash equivalents included in 1 446 212
discontinued operations
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 divisions -
Litha Biotech (biotechnology/vaccines), Litha Medical (medical devices) and
Litha Pharma (pharmaceuticals and complementary medicines).
Introduction
With effect from 1 January 2011, LHG concluded the acquisition of the
remaining 49% of Litha Healthcare Holdings (LHH) 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
(Proprietary) Limited (Biovac), from 62.5% to 77.5%. On 1 June 2011, the group
further increased its stake in The Biovac Consortium by 7.5% to 85%. This
increased the group`s effective shareholding in Biovac from 33% to 45% and is
a move towards the group`s objective of becoming a meaningful local vaccine
manufacturer.
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 generic pharmaceutical products using local
contract manufacturers, as well as being an exclusive distributor under
license for a leading Indian generics multi-national.
On 1 December 2011, the group acquired 100% of OTC Pharma SA, which markets
and sells complementary medicines to retail pharmacies, health shops and fast
moving consumer goods outlets. It procures its products from three
international companies with the bulk under license from OTC Pharma
International.
These pharmaceutical acquisitions are in line with the group`s strategy of
building scale in its pharmaceutical division and providing a platform for
servicing the pharmacy, general practitioners, specialists and dispensing
doctor market.
For accounting purposes, LHH and Pharmafrica were fully consolidated for the
full 12 months, with Goldex and OTC Pharma being consolidated only for eight
and one month respectively. In the prior comparable period, the group owned
51% of LHH and an effective 66% of Pharmafrica, with their results being
included for only eight months.
During the period, the businesses of Litha Critical Care (LCC) and Litha
Cardiac were discontinued. As these were small businesses, this did not have a
material impact on the group. The bulk of LCC revenue came from the public
sector where tight budgets, particularly on medical capital equipment,
hampered. The need for highly specialised technical employees also made
servicing of equipment uncompetitive. The board therefore made the decision to
close this business unit after continued operating losses. The investment in
Litha Cardiac was not significant and required product registration; delays
experienced in registering the drug eluting stents made the business non-
viable and was thus also closed.
The group is required to account for the above two businesses as discontinued
operations and Non-Current Asset Held for Sale. Accounting practice requires
the comparatives reported in this announcement to be restated to reflect the
effect of discontinuance as a loss from discontinued operations on those
periods.
2. FINANCIAL OVERVIEW
Statement of comprehensive income
Revenue increased by 38% from R1 290 million to R1 782 million and operating
profit increased by 14% from R128 million to R146 million, mainly due to the
inclusion of 100% of the LHH and Pharmafrica businesses for the full year
compared to only eight months in the previous comparable reporting period.
Earnings per share increased by 40% to 23.2 cents per share (2010: 16.6 cents
per share) and headline earnings per share increased by 28% to 23.2 cents
(2010: 18.1 cents per share). As was outlined at interim results, the
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.
Operating profit was negatively impacted by a R26,8 million foreign exchange
revaluation of the group`s foreign creditors and outstanding foreign exchange
contracts. In the comparable period, these revaluations had a R15,1 million
positive impact on operating profit. R24.7 million of the above loss was
attributed to 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. This results in prices being adjusted every quarter to
the spot rate at the time. However, large fluctuations experienced within the
first quarter of 2011 resulted in the large forex loss in Biovac.
The group`s net operating margin was 8.3% (2010: 10.2%) during the period
under review. As outlined at the year to December 2010, 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 41% before head
office costs to net operating profit, has lower margins as it is purely an
importer and distributor. During the year, margin was also impacted by the
negative foreign exchange adjustments, as described above.
Other income in the period relates to the group`s distribution business,
logistics fees revenue, dividend revenue and income from grants received in
Biovac.
The non-operating interest expense of R7.2 million relates to interest
incurred on the group`s loans, as discussed below.
The effective tax rate of 20.8% is as a result of Biovac being entitled to
allowances on research and development expenditure.
Statement of financial position
The majority of purchases of property, plant and equipment occurred in the
Biotechnology division with the investment in the vaccine manufacturing
facility in Cape Town, which is subject to regulatory approval.
The purchase of the remaining 49% of LHH was settled 40% in cash, with the
balance being settled through the issue of 48.3 million LHG shares at R2.20
per share. The majority of the reserve on equity transactions in the Statement
of Changes in Equity was created as a result of this transaction. 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. The Biovac Institute finalised
the loan from the Industrial Development Corporation (IDC) to fund further
capital investment and R75 million was drawn down on this loan in the period
under review.
The net non-current assets held for sale of R7 million relates to the Litha
Critical Care and Litha Cardiac discontinued operations.
The investment in associate relates to an investment of 30% in a new property
holding company together with Blackstar Real Estate (Pty) Ltd, which owns the
remaining 70%. The property company purchased a property for R58 million
during the period under review, with the majority financed through a bond. The
group leases this property from the property holding company. 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. This is also in line with the group`s strategy of utilising shared
services across its businesses to extract synergies.
Other non-current assets relate to a non interest bearing loan to the
Disability Empowerment Concerns Trust as part of the group`s socio-economic
empowerment (SED) initiatives.
The group has an interest bearing debt equity ratio of 24% (2010: 12%)
excluding TBI, which is ring fenced and self-funded as a private public
partnership (PPP) with government. Including Biovac, the debt equity ratio was
45% (2010: 22%).
The increase in goodwill and intangibles from R295 million to R318 million is
as a result of the Goldex and OTC Pharma acquisitions mentioned above.
The levels of inventories, accounts payable and accounts receivable were
affected by the large quantity of Expanded Programme on Immunisation (EPI)
vaccines which were received and supplied during the period under review. The
increase in accounts receivable relates to increased sales as well as overdue
amounts receivable from the Gauteng Department of Health at year end. However,
towards the end of March this year, the department made significant payments
on these overdue amounts and they have committed to settle the balance by the
end of June 2012.
Treasury shares disposed of in the statement of changes in equity relates to
treasury shares held by LHH in LHG that were sold during the period under
review.
Cash flow
Cash generated by operating activities before the effects of working capital
changes and taxation payments increased by 22% to R149 million (2010: R121
million). Cash inflow from operating activities of R54 million (2010: R119
million) for the period under review was affected by the working capital
challenges discussed above. However, it is expected to normalise in the first
half of the current financial year with the settlement of the overdue accounts
by the Gauteng Department of Health.
The majority of the cash outflow from investing activities of R248 million
(2010: R151 million) related to purchases of property, plant and equipment
amounting to R120 million (2010: R4.7 million) for the manufacturing facility
in the Biotech division and cash payments made to the vendors of LHH, Goldex
and OTC Pharma.
Most of the cash inflow from financing activities related 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 equivalents at year-end was R112 million (2010: R232
million), of which R96 million (December 2010: R165 million) related to TBI,
which is ring-fenced.
3. OPERATIONAL OVERVIEW
In line with the group`s focus on driving a shared services strategy across
the group, Litha appointed a Chief Operating Officer in 2011 to focus on
ensuring traction in terms of delivering on the efficiencies that shared
services will allow the group.
During the latter part of the year, group head office and Manta Medical moved
into the new premises in Midrand in Gauteng. The move and consolidation of
the various business units into one premises\ will continue to the middle of
2012 when the bulk of the Gauteng-based business units will be operating from
one facility. As committed last year, the group commenced with the
implementation of a single Enterprise Resource Planning (ERP) system during
this year. This will significantly improve the management of data and
financial information across all business units and divisions within the
organisation.
Litha Biotech
Litha Biotech continued to experience strong sales in the supply of paediatric
vaccines for the Extended Programme on Immunisation in the public sector.
Turnover was R1 289 million (8 months ended 31 December 2010: R843 million)
and operating profit was R67 million (8 months ended 31 December 2010: R50
million). The division contributed 43% to group operating profit before head
office costs.
The business continued to focus on the installation of equipment and utilities
in the commercial manufacturing facility in preparation certification. It will
be performing a self assessment audit in two months to establish readiness
towards MCC inspection in 2012. The preparation of the site for the transition
from that of a sales and distribution business to a manufacturing organisation
will continue, as well as negotiations and finalisation of technology
transfers with international vaccine manufacturers.
Biovac has partnered with the World Health Organisation through a grant
received of US$1.4 million that will go towards preparation for influenza
vaccine production in the next few years.
Litha Medical
This division performed well, despite continued pricing pressure from the
public and private healthcare sectors. Revenue increased by 5% from R333
million to R351 million. Litha Medical contributed 48% towards group operating
profit before head office expenses. The Litha Critical care and Litha Cardiac
business units within this division were exited towards the end of the
financial year due to the continued losses being incurred.
Agencies acquired in 2010 were successfully integrated.
In the coming six months the business units Earth Medical, ICU Medical SA and
Manta Forensic will be moved into the group`s Midrand head office, which will
provide further cost savings and reduce duplication of costs. Each business
unit will increase its product portfolio as well as take advantage of
increasing cross-selling opportunities within the enlarged group.
Litha Pharma
Revenue was R107 million compared to the R79 million for the eight months
ended 31 December 2010 and operating profit was R15 million (R17 million for
the eight months ended 31 December 2010). The division contributed 9% to group
operating profit before head office expenses. In line with the group`s
strategy of bulking up in this division, Pharma continued to invest in sales
and marketing employees as well as business development. This resulted in an
increase in overheads, which had an impact on results during the period. With
the acquisitions of OTC Pharma SA towards the end of 2011 and the pending
Pharmaplan transaction (as outlined below), the benefits of this investment
are anticipated to come through in 2012 and 2013.
To optimise market penetration and broaden coverage, 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 and OTC Pharma SA
business were finalised during the period under review. Continued improvement
in scale for these business units remains a key focus to compete against other
pharmaceutical businesses in the South African market.
Going forward, the business will focus on completing the integration and
consolidation of Pharmafrica, Goldex Healthcare and OTC Pharma SA into the
division. The finalisation of the Pharmaplan transaction and the restructuring
of the division to optimise its growth opportunities going forward now that it
has sufficient scale will be a key focus area over the next year.
4. STRATEGIC PARTNERSHIP TRANSACTION WITH PHARMAPLAN
As announced on SENS on 21 February 2012, Litha and other parties entered into
transaction agreements, which include purchasing 100% of Pharmaplan shares
from Paladin Labs Inc., a Canadian speciality pharmaceutical company focused
on acquiring or in-licensing innovative pharmaceutical products for the
Canadian and world markets.
Pharmaplan deals with some of the top pharmaceutical companies in their
respective countries, drawing from their innovation and expertise to register
and market products in a range of therapeutic areas. Pharmaplan is ranked the
8th largest by revenue (IMS Sept`11) as a generic company in South Africa with
a proven track record in the specialist prescription medicine market. The
business has enjoyed a 24.7% compound annual gross growth over the past four
years, which is almost double that of the South African pharmaceutical market
of 12.9% for the same period.
With the acquisition of Pharmaplan, the Litha Pharma division will become
Litha`s second largest division by revenue and the most profitable. (Refer to
the financial effects below.).
The merging of the Litha Pharma division with Pharmaplan will not only boost
current product portfolio revenues, but will also broaden Litha`s access to
international research and development pipelines and improve its current
platform for expansion into new markets, including biogenerics, oncology,
specialist, generic and aesthetic medicine.
As a listed company on the Toronto Stock Exchange, Paladin intends to play an
active role in opening up international licensing opportunities from a product
and pipeline perspective. It envisages this to result in increased deal flow
and future product acquisition success rates for Litha. The group will
further benefit from the business and industry expertise of the Paladin
executives who will join the Litha board of directors.
Pharmaplan will benefit from Litha`s locally empowered business as well as
experience in dealing with the public healthcare sector through its vaccines
business, as it seeks opportunities in the rapidly growing African markets.
5. PRO FORMA FINANCIAL EFFECTS OF THE PHARMAPLAN TRANSACTION
The table below sets out the unaudited pro forma financial effects of the
Transaction on Revenue, earnings per share ("EPS"), headline EPS ("HEPS"),
Diluted EPS, Diluted HEPS, net asset value ("NAV") and net tangible asset
value ("NTAV") per share and diluted EPS and HEPS based on the reviewed
results of the Company and Pharmaplan for the year ended 31 December 2011.
The unaudited pro forma financial effects are the responsibility of the
directors and have been prepared for illustrative purposes only to provide
information about how the Transaction may have impacted Litha shareholders on
the relevant reporting date and because of its nature may not give a fair
reflection of the Company`s financial position, changes in equity, results of
operations or cash flows after implementation of the Transaction or of the
Company`s future earnings.
Before the After the Change
Transaction(1 Transaction (%)
) (2,3)
Revenue (Rand` 000) 1 747 2 107 21%
EPS (cents) 23.2 26.5 14%
Headline EPS (cents) 23.2 26.6 14%
Diluted EPS (cents) 22.1 25.7 16%
Diluted headline EPS 22.1 25.7 16%
(cents)
NAV per share 115.9 165.6 43%
(cents)
NTAV per share 30.9 15.7 (49%)
(cents) 374 672 314 543 763 223 45%
Number of shares in
issue 371 561 020 540 651 929 45%
Weighted average
number of shares in
issue
Notes:
1. The pro forma Statement of Financial Position and Statements of
Comprehensive Income are based on the published financial
information of Litha for the year ended 31 December 2011.
2. The "Pharmaplan 31 December 2011" column reflects the audited
results of Pharmaplan for the year ended 31 December 2011
3. The adjustments column reflects the adjustments in respect of the
implementation of the transaction, including:
- The goodwill that would arise from the difference between the
acquisition price and the net asset value of Pharmaplan
- The increase in share capital and premium resulting from the issue
of 169 090 909 Litha shares at R2.20 each
- The liability that would result from the R125 000 000 cash payment,
less underwriting fees of R3 500 000 accounted for in terms of
IAS 39.9
- A reduction in retained earnings and corresponding increase in trade
and other payables of R2 505 000 for transaction costs incurred
- The R3 500 000 short term liability arising from the underwriting
fees
- The effect of the once off transaction costs totalling R2 505 000 on
the operating expense line item
- The interest expense that would be incurred had the loan of
R125 000 000 been raised at 1 January 2011 amounting to R11 250 000.
The interest rate assumed is 9%.
- The tax effect of the above costs calculated at 28%
4. The pro forma Statement of Financial position figures illustrate the
possible financial effects if the transaction had taken place on 31
December 2011
5. The pro forma statement of Comprehensive Income figures illustrate
the possible financial effects if the transaction had taken place on
1 January 2011
6. No post balance sheet event requires adjusting the pro-forma
financial effects
6. PROSPECTS
The group`s businesses remain well positioned in the private and public sector
through the delivery of quality products and services.
The transaction with Pharmaplan represents the most significant strategic
corporate expansion initiative to date for both Litha and Paladin and is a
decisive move to build critical mass and competitive differentiation in the
South African pharmaceutical market. It will achieve Litha`s objectives of
being a diversified healthcare business and delivers on its stated strategy of
creating scale within its Pharma division through acquisitions. With
significant presence already in the vaccine and medical device markets, the
acquisition of Pharmaplan will give Litha the appropriate scale across all
three divisions and in turn the group as a whole. The merged group will look
to synergise and strengthen its business model in South Africa, as well as
continue developing its long term strategy to expand its footprint in the sub-
saharan African healthcare market.
In the coming period, Litha will continue to drive its shared services
strategy and rolling out its internal programme to drive a unified culture,
"the Litha Way". These initiatives will ensure the extraction of benefits and
continued integration process which over time will improve cost savings and
reduce duplication of expenses.
Litha is confident that notwithstanding competitive markets, it is on track to
fully extract the anticipated benefits and cost savings from the group
services strategy now that the structures of the enlarged group are in place.
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.
This 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 year ended 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 IAS 24, Related
Party Disclosures which clarifies the definition of a related party to
simplify the identification of such relationships and to eliminate the
inconsistencies in its application. This did not have an impact on the amounts
and disclosures in this results announcement. 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 year 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.
2. WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Audited
Year
Reviewed ended
year 31
ended December
December 2010
2011
Weighted average number of shares 371 561 279 582
020 073
Diluted weighted average number of 389 985 291 057
shares 262 373
3. SUBSEQUENT EVENTS
Subsequent to 31 December 2011, Litha and other parties have entered into a
number of indivisible transaction agreements, including a sale of shares and
subscription agreement with Paladin Labs Inc. in terms of which Litha will
purchase all Pharmaplan Proprietary Limited shares from Paladin for a total
consideration of R590 million. This will be settled through a cash portion of
R125 million and the remainder through the issue of 169 090 909 shares in
Litha at R2.75.
The transaction is subject to both South African competition review and
approval by shareholders of Litha.
No other events material to the understanding of the report have occurred in
the period between 31 December 2011 and the date of this report.
4. RELATED PARTY TRANSACTIONS
The group paid R4.9 million to Blackstar Group (Pty) Ltd for underwriting and
transaction arranging fees.
Litha Medical (Pty) Ltd, a major operating subsidiary of LHG, 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.
5. ACQUISITION OF GOLDEX HEALTHCARE (PTY) LTD (GOLDEX) AND OTC PHARMA SA
(PROPRIETARY) LIMITED (OTC PHARMA)
Effective 1 May 2011, the group acquired, 100% of the issued share capital and
shareholder loans of Goldex for R28 million. In addition, the group acquired a
100% share in OTC Pharma for a cash payment of R11.5 million. This was also
funded through internally generated cash.
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
brands. There are also a number of products awaiting registration at the
Medicines Control Council (MCC).
By acquiring and integrating the Goldex product range, the group is building
scale in its Pharmaceutical division and securing product pipelines for the
future.
Qualitative factors which make up goodwill include: High barriers to entry for
their pharmaceutical businesses; strong relationships with the private
healthcare sector; scale which Goldex will bring to the group; an extension of
current pharmaceutical product ranges; reputation in the market and brand
equity of Goldex`s key products.
OTC Pharma currently sells complementary pharmaceutical products to fast
moving consumer goods outlets. It procures its products from three
international companies with the bulk coming from OTC Pharma International.
Its flagship product is called "Marcus Rohrer Spirulina", which makes up 40%
of its turnover. This is an over the counter nutritional supplement product.
Qualitative factors which make up goodwill include: The well established sales
force which was voted the top sales force by a leading retail pharmacy chain
recently and the brand equity of OTC Pharma and its products.
A purchase price allocation exercise has not been completed for both
acquisitions at the time of this results announcement. Separate intangible
assets and fair values of assets of Goldex and OTC Pharma have not yet been
determined.
The following information was taken from Goldex`s management accounts as at 1
May 2011 and from OTC Pharma`s management accounts on 1 December 2011.
Goldex OTC Pharma
Healthcare
Effective date of acquisition for 1 May 2011 1 December
accounting purposes 2011
Voting equity percentage 100% 100%
At acquisition fair values
(R`000)
Non-current assets acquired
Property, plant and equipment 27 425
Intangible assets 5 837 171
Current assets acquired
Inventory 3 456 13 497
Trade receivables 2 600 4 948
Other current assets 682 1 177
Cash and cash equivalents 7 1 334
Current liabilities assumed
Accounts payable and provisions (5 540) (19 248)
Other current liabilities (3 259) -
Bank overdraft (327) -
Net asset value 3 483 2 304
Total Cost of acquisition - cash 28 013 11 450
Goodwill 24 530 9 146
Revenue for the period 1 May 2011(for 7 994 4 030
Goldex) and 1 December (for OTC Pharma)
to 31 December 2011
Profit for the period 1 May 2011(for 881 1 504
Goldex) and 1 December (for OTC Pharma)
to 31 December 2011
Revenue for the period 1 January to 31 15 253 42 140
December 2011
Profit for the period 1 January to 31 1 321 107
December 2011
Details of debtors:
Trade receivables 2 600 4 948
The average debtors days outstanding are 45 days for Goldex and 42 days for
OTC Pharma. Due to the short term nature of the trade receivables, cost is
considered to be fair value.
All trade receivables are expected to be collected.
6. CAPITAL COMMITMENTS
TBI has entered into agreements to purchase R35.1 million of equipment
relating to the manufacturing facility which is expected to take place during
the 2012 financial year.
7. SEGMENT INFORMATION
Segment Discontinued Medical Pharmaceutical Biotechnolo Group
operations device division gy division
division
(R`000)
Year ended
31
December
2011
Turnover 13 321 337 966 106 604 1 289 135 1 747 026
(External)
Reportable (7 347) 82 498 14 561 67 447 157 159
segment
profit
Head (18 768)
Office
costs
Operating 138 391
profit
(before
taxation)
Total 7 765 354 163 134 151 946 666 1 442 745
Assets
(R`000)
Year ended
31
December
2010
Turnover 12 837 320 085 79 200 842 751 1 254 873
(External)
(5 397) 82 532 16 567 50 446 144 148
Reportable
segment
profit
(17 073)
Head
Office
costs
(4 800)
Once off
head
office
costs
Operating 122 275
profit
(before
taxation)
Total 9 618 825 706 31 468 351 713 1 218 505
Assets
DIVIDEND
No dividend has been recommended or declared for the period. It is anticipated
that while the group continues with its acquisition strategy, it will continue
to reinvest any profit generated back into the businesses. The group will
review its dividend declaration policy in the medium term.
For and on behalf of the board
AD Bonamour, Chairman
S Kahanovitz, Chief Executive Officer
Johannesburg
19 March 2012
Directors: AD Bonamour*, S Kahanovitz, M Makhoana, M Kahanovitz, N Sowazi*, W
Marshall-Smith*, M Mzimba*, I Jacobson*, F Hendricks*
(*non-executive)
Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Registered auditors
Mazars
Transfer Secretaries
Computershare Investor Services
Registered Office
106 16th Road
Midrand
1686
Date: 19/03/2012 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.
