| Fri 7 Mar 2014, 8:42 | | LITHA HEALTHCARE GROUP LIMITED - Reviewed condensed consolidated financial statements for the quarter and year ended 31 December 2013 |
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LHG 201403070006A
Reviewed condensed consolidated financial statements for the quarter and year ended 31 December 2013
LITHA HEALTHCARE GROUP LIMITED
(Registration number 2006/006371/06);
Share code: LHG, ISIN: ZAE000144671
("The Group" or "Litha" or "The Company")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER
AND YEAR ENDED 31 DECEMBER 2013
- Revenue up 4.1% in Q4 2013 compared to Q4 2012
- Forex impacts resulted in an operating loss for Q4 2013, although loss
decreased by R8,0 million from Q4 2012
- HEPS decreased to 2.7 cps for the year ended 31 December 2013
The reviewed condensed consolidated financial statements for the quarter and the year ended 31 December 2013 have
been prepared by the Group's Chief Financial Officer, Martin Michael Kahanovitz, CA (SA), who is also responsible for
the preparation of the Annual Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
(R'000) 31 December 2013 31 December 2012
ASSETS
Non-current assets 1 296 670 1 347 499
Property, plant and equipment 73 868 79 278
Goodwill 469 799 469 799
Intangible assets 352 093 399 858
Investment in associate 10 066 5 340
Investment in joint venture 254 026 260 034
Loan to joint venture 113 200 104 744
Deferred taxation asset 18 251 21 958
Long-term financial asset 5 367 6 488
Current assets 647 241 436 626
Inventories 328 789 194 964
Trade and other receivables 214 187 169 691
Income tax receivable 3 006 22 904
Other current assets 17 332 2 380
Cash and cash equivalents 83 927 46 687
Assets of disposal group held-for-sale 389 875
Total assets 1 944 300 1 785 000
EQUITY AND LIABILITIES
Total equity 1 148 521 1 107 596
Stated capital 792 263 760 473
Reserves attributable to holders of the parent 336 272 326 236
Non-controlling interest 19 986 20 887
Non-current liabilities 346 250 393 735
Long-term liabilities 203 231 235 699
Finance lease liability 57 932 58 480
Deferred taxation liability 85 087 99 778
Current liabilities 449 329 283 468
Trade and other payables 275 134 139 111
Other current liabilities 99 435 84 260
Bank overdraft 74 760 60 097
Liabilities of disposal group held-for-sale 200 201
Total equity and liabilities 1 944 300 1 785 000
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed three Reviewed three Reviewed year Audited year
months ended months ended ended ended
31 December 31 December 31 December 31 December
(R'000) 2013 2012 2013 2012*
Revenue 247 326 237 502 1 045 332 1 434 460
Cost of sales (154 255) (139 489) (625 975) (1 007 735)
Gross profit 93 071 98 013 419 357 426 725
Selling, distribution, regulatory and
administrative expenses (93 980) (109 400) (367 530) (378 220)
Other (expenses)/income (63) 502 233 18 213
Profit on deconsolidation of Biovac - - - 171 530
Net income from associate (after taxation) 248 170 875 583
Net (loss)/income from investment in joint
venture (1 591) 404 (6 008) (6 000)
Operating (loss)/profit (2 315) (10 311) 46 927 232 831
Finance income 2 373 2 428 10 034 13 447
Finance expense (8 370) (11 815) (32 793) (30 437)
(Loss)/profit before taxation (8 312) (19 698) 24 168 215 841
Taxation (118) 4 632 (10 978) (11 448)
(Loss)/profit from continuing operations (8 430) (15 066) 13 190 204 393
(Loss)/profit from discontinued operations (520) (1 668) 292 (7 626)
(Loss)/profit for the period (8 950) (16 734) 13 482 196 767
Other comprehensive income - - - -
Total comprehensive income for the period (8 950) (16 734) 13 482 196 767
(Loss)/profit attributable to equity holders of
Litha Healthcare Group Limited:
From continuing operations (8 191) (15 127) 14 091 173 089
From discontinued operations (520) (1 668) 292 (7 626)
(Loss)/profit attributable to equity holders of
Litha Healthcare Group Limited (8 711) (16 795) 14 383 165 463
Non-controlling interest (239) 61 (901) 31 304
Total (loss) / profit for the period (8 950) (16 734) 13 482 196 767
Total comprehensive income attributable to:
Equity holders of Litha Healthcare Group
Limited (8 711) (16 795) 14 383 165 463
Non-controlling interest (239) 61 (901) 31 304
Total comprehensive income for the period (8 950) (16 734) 13 482 196 767
Earnings per share (cents) (1.6) (3.1) 2.7 36.2
From continuing operations (1.5) (2.8) 2.6 37.9
From discontinued operations (0.1) (0.3) 0.1 (1.7)
Diluted earnings per share (cents) (1.5) (3.0) 2.5 34.6
From continuing operations (1.4) (2.7) 2.4 36.2
From discontinued operations (0.1) (0.3) 0.1 (1.6)
HEADLINE EARNINGS RECONCILIATION
(Loss)/profit from continuing operations
attributable to equity holders of the Group (8 191) (15 127) 14 091 173 089
Adjusted for:
Write-off of intangible assets - 507 242 507
Profit on deconsolidation of Biovac - - - (171 530)
Loss/(profit) on disposal of property, plant and
equipment 63 164 (233) 30
Impact of adjustments on non-controlling
interest - - - 29 018
Tax effect of adjustments (17) (187) (2) (150)
Headline earnings from continuing
operations (8 145) (14 643) 14 098 30 964
(Loss)/profit from discontinued operations (520) (1 668) 292 (7 626)
Headline earnings (8 665) (16 311) 14 390 23 338
Headline earnings per share (cents) (1.6) (3.0) 2.7 5.1
From continuing operations (1.5) (2.7) 2.6 6.8
From discontinued operations (0.1) (0.3) 0.1 (1.7)
Diluted headline earnings per share (cents) (1.6) (2.9) 2.5 4.9
From continuing operations (1.5) (2.6) 2.4 6.5
From discontinued operations (0.1) (0.3) 0.1 (1.6)
* Includes The Biological and Vaccines Institute of Southern Africa Pty Ltd ("Biovac") on a consolidated basis
and excludes Pharmaplan Pty Ltd for the first six months of 2012
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable
Reviewed year ended Share-based Reserve to equity Non-
31 December 2013 payment on equity Accum- holders of the controlling
(R'000) Stated capital reserve transaction ulated profits Group interest Total
Balance at 1 January 2013 760 473 20 027 (67 213) 373 422 1 086 709 20 887 1 107 596
Total comprehensive income - - - 14 383 14 383 (901) 13 482
Exercise of options 31 790 (11 926) - - 19 864 - 19 864
Share-based payment reserve
adjustment - 7 579 - - 7 579 - 7 579
Balance 31 December 2013 792 263 15 680 (67 213) 387 805 1 128 535 19 986 1 148 521
Audited year ended Share-based Reserve Attributable to
31 December 2012 payment on equity Accum- equity holders Non-controlling
(R'000) Stated capital reserve transaction ulated profits of the Group interest Total
Balance at 1 January 2012 295 473 1 134 (70 155) 207 959 434 411 77 698 512 109
Issue of shares 465 000 - - - 465 000 - 465 000
Total comprehensive income - - - 165 463 165 463 31 304 196 767
Share-based payment reserve
adjustment - 18 893 - - 18 893 - 18 893
Deconsolidation of Biovac - - 2 942 - 2 942 (88 115) (85 173)
Balance at 31 December 2012 760 473 20 027 (67 213) 373 422 1 086 709 20 887 1 107 596
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed three Reviewed three Reviewed year Audited year
months ended months ended ended ended
31 December 31 December 31 December 31 December
(R'000) 2013 2012 2013 2012
Cash flows from operating activities 21 700 2 547 64 125 153 921
Cash flows from investing activities (6 313) (5 776) (18 922) (179 968)
Cash flows from financing activities 720 (2 616) (22 626) 83 491
Net increase/(decrease) in cash and cash equivalents 16 107 (5 845) 22 577 57 444
Cash acquired on acquisition of subsidiary companies - - - (2 970)
Cash on deconsolidation of Biovac - - - (179 337)
Cash and cash equivalents at beginning of period (6 940) (7 565) (13 410) 111 453
Cash and cash equivalents at end of period 9 167 (13 410) 9 167 (13 410)
Cash and cash equivalents included in discontinued
operations 388 230 388 230
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
These condensed consolidated financial statements for the three months and the year ended 31 December 2013 have
been prepared and presented in accordance with the requirements of International Financial Reporting Standard,
IAS 34 Interim Financial Reporting, the listing requirements of the JSE Limited and the requirements of the Companies
Act of South Africa.
These financial statements should be read in conjunction with the audited financial statements for the year ended
31 December 2012. The reviewed condensed financial statements for the three months and the year ended
31 December 2013 were prepared using the same accounting policies as the audited financial statements for the year
ended 31 December 2012. The condensed consolidated financial statements for the three months and the year ended
31 December 2013 have been reviewed by KPMG Inc., the Group's auditors. In their review report dated 7 March 2014,
which is available for inspection at the Company's Registered Office, KPMG Inc states that their review was conducted
in accordance with the International Standard on Review Engagements 2410, Review of Interim Information Performed
by the Independent Auditor of the Entity. They have expressed an unmodified conclusion on the condensed
consolidated financial statements. The auditor's report does not necessarily report on all of the information contained in
this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of
the nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying
financial information from the issuer's registered office. The directors take full responsibility for the preparation of these
condensed consolidated financial statements and warrant that the financial information herein has been correctly
extracted from the underlying reviewed condensed financial statements for the three months and the year ended
31 December 2013.
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.
2. WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Reviewed three Reviewed three Reviewed Audited
months ended months ended year ended year ended
31 December 2013 31 December 2012 31 December 2013 31 December 2012
Weighted average number of
shares 543 725 904 541 528 868 542 168 100 456 751 782
Weighted average share
options outstanding 31 442 995 23 475 335 33 506 772 20 952 818
Diluted weighted average 575 168 899 565 004 203 575 674 872 477 704 600
number of shares
3. RELATED PARTY TRANSACTIONS
All transactions with related parties are carried out in the normal course of operations and on normal terms and
conditions.
Interest earned on the loan to joint venture (Biovac) was R2,2 million (2012 - R2,1 million) for the three months and
R8,5 million (2012 - R 3,9 million) for the year ended 31 December 2013.
Litha Medical Logistics Proprietary Limited charged cold chain logistics fees to Biovac of R10,1 million (2012 - R8,1
million) and R44,4 million (2012 - R17,1 million) for the three months and the year ended 31 December 2013,
respectively.
Payments made to Firefly Investments 223 Proprietary Limited ("Firefly"), an associate relating to a finance lease for
the Group's head office building in Midrand, were R1,6 million (2012 - R1,5 million) for the three months and R6,3
million (2012 - R6,7 million) for the year ended 31 December 2013.
Litha also paid non-executive director fees to Blackstar Real Estate (Pty) Ltd ("Blackstar") of Rnil (2012 - R0,2 million)
for the quarter and R0,3 million (2012 - R0,6 million) for the year ended 31 December 2013. Litha paid Paladin non-
executive directors' fees of R0,2 million (2012 - Rnil) for the three months and R0,5 million (2012 - Rnil) for the year
ended 31 December 2013.
For the quarter and the year ended 31 December 2012, Litha paid R0,1 million and R0,3 million respectively for
monitoring fees and Rnil and R5,0 million, respectively, for underwriting fees to Blackstar. No underwriting or
monitoring fees were paid to Blackstar during 2013.
4. INVESTMENT IN JOINT VENTURE
Investment in Biovac
The Group holds an effective 44.6% interest in The Biologicals and Vaccines Institute of Southern Africa Proprietary
Limited (Biovac). The Group owns 85.0% of the Biovac Consortium Proprietary Limited, which in turns owns 52.5% of
Biovac. The interest in Biovac is accounted for using the equity method of accounting. There have been no changes in
the risk associated with Biovac during the current financial year. In the prior year, the Group began accounting for
Biovac as a joint venture following increased involvement in the operations of Biovac from its co-shareholder, the
government. Biovac is a joint venture with the Government of South Africa and is involved in the production and
commercialisation of vaccines in South Africa and the Southern African Development Community ("SADC"). Biovac is
situated in Cape Town, South Africa. The joint venture was initially recorded at fair value and adjustments are made to
include the Group's share of Biovac's net income. The Group's share of the net loss from the joint venture is adjusted
to reflect the amortisation of the intangible assets recognised less the deferred taxation effect thereon.
Reviewed Reviewed Reviewed Audited
quarter ended quarter ended year ended year ended
31 December 2013 31 December 2012 31 December 2013 31 December 2012
R'000 R'000 R'000 R'000
Carrying value, beginning
of period 255 617 259 630 260 034 -
Deconsolidation of Biovac 266 034
Share of net profit for the
period before adjustments 100 2 094 754 (2 619)
Adjustments to net income:
Amortisation of fair value
adjustments (2 348) (2 348) (9 392) (4 696)
Deferred taxation effect 657 658 2 630 1 315
Share of net (loss)/income
for the period (1 591) 404 (6 008) (6 000)
Carrying values, end of
period 254 026 260 034 254 026 260 034
The Group is presenting selected financial information derived from Biovac's IFRS compliant unaudited management
accounts for the three months and the year ended 31 December 2013 and the three months and the year ended 31
December 2012.
Biovac's statement of Unaudited Unaudited Unaudited Audited
comprehensive income data Three months Three months year ended year ended
ended ended 31 December 31 December
31 December 2013 31 December 2012 2013 2012
R'000 R'000 R'000 R'000
Revenue 305 324 244 411 1 280 241 504 092
Cost of sales (271 069) (248 891) (1 137 609) (480 351)
Gross income 34 255 (4 480) 142 632 23 741
Operating expenses (26 392) 9 407 (124 449) (26 020)
Earnings (loss) before items 7 863 4 927 18 183 (2 279)
noted here-under
Interest, depreciation and income (7 672) (939) (16 745) (2 709)
taxes
Net income (loss) for the period 191 3 988 1 438 (4 988)
Biovac's Statement of Financial
Position data Unaudited Audited
31 December 2013 31 December 2012
R'000 R'000
Current assets 605 450 680 392
Long-term assets 312 844 256 113
Current liabilities (672 292) (695 963)
Long-term liabilities (120 817) (116 795)
Net Assets 125 185 123 747
5. CAPITAL COMMITMENTS
Biovac has entered into agreements to purchase R29,3 million of equipment to complete improvements on the
manufacturing facility. This is expected to take place during 2014. These will be financed through loans that are
currently being negotiated.
6. CONTINGENT LIABILITIES
The contingent liability disclosed in the SENS dated 13 November 2013 was resolved during the quarter in favour of the
Group.
7. SEGMENT INFORMATION
Segment Litha Pharma Litha Medical Litha Biotech Litha Group
(R'000)
Reviewed
Three months ended
31 December 2013
Revenue (External) 127 492 95 366 24 468 247 326
Reportable segment profit 6 547 10 816 4 810 22 173
Head Office costs (24 488)
Operating loss (2 315)
Total Assets 515 712 287 140 1 141 448 1 944 300
(R'000)
Reviewed
Three months ended
31 December 2012
Revenue (External) 135 275 78 584 23 643 237 502
Reportable segment profit 5 450 9 896 4 712 20 058
Head Office costs (30 369)
Operating loss (10 311)
Total Assets 976 963 315 605 492 432 1 785 000
(R'000)
Reviewed
Year ended
31 December 2013
Revenue (External) 543 544 356 263 145 525 1 045 332
Reportable segment profit 64 191 43 922 27 823 135 936
Head Office costs (89 009)
Operating profit 46 927
Total Assets 515 712 287 140 1 141 448 1 944 300
(R'000)
Audited
Year ended
31 December 2012
Revenue (External) 350 312 289 045 795 103 1 434 460
Reportable segment profit 31 256 33 977 226 702 291 935
Head Office costs (59 104)
Operating profit 232 831
Total Assets 976 963 315 605 492 432 1 785 000
8. FINANCIAL ASSETS BY CATEGORY
At fair value though
Loans and receivables profit or loss
R'000 R'000
31 December 2013
Cash and cash equivalents 83 927 -
Loans receivables 4 687 -
Loans to joint venture 113 200 -
Trade and other receivables 185 915 -
Forward exchange contracts** - 16 708
31 December 2012
Cash and cash equivalents 46 687 -
Loans receivables 6 488 -
Loans to joint venture 104 744 -
Trade and other receivables 156 984 -
FINANCIAL LIABILITIES BY CATEGORY
Financial liabilities at At fair value through
Amortised cost profit or loss
R'000 R'000
Litha Group
31 December 2013
Long term liabilities* 317 963 -
Trade and other payables 239 961 -
Bank overdraft 74 760 -
31 December 2012
Long term liabilities* 378 217 -
Trade and other payables 128 869 -
Bank overdraft 60 097 -
Forward exchange contracts** - 10 242
* Included in financial liabilities and other current liabilities
** Included in other current assets or other current liabilities for prior year
FAIR VALUE HIERARCHY DISCLOSURES
Level 1 Level 2 Level 3
R'000 R'000 R'000
31 December 2013
FEC assets (other current assets) - 16 708 -
31 December 2012
FEC assets (other current assets) - 2 106 -
FEC liabilities (other current liabilities) - (12 348) -
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the
fair value measurement of the relevant levels, as follows:
Level 1 - valued using quoted prices in active markets for identical assets
Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices within Level 1; and
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
There have been no transfers during the year between levels 1 and 2.
9. POST BALANCE SHEET EVENT
Subsequent to year end, Litha has entered into negotiations with Rand Merchant Bank (RMB), a division of FirstRand
Bank Limited to restructure its funding facilities. Litha has received approval from RMB in respect of the proposed
restructuring and anticipates that the restructuring will be finalised by the end of March 2014.
On 28 February 2014, Litha's majority shareholder, Paladin Labs Inc. ("Paladin"), concluded an agreement to be
acquired by Endo Health Solutions, a leading US-based specialty pharmaceutical company. For further details, refer to
the Paladin press release dated 28 February 2014, which is available on their website www.paladinlabs.com.
Other than this, there have been no events that are material to the understanding of these financial statements for the
period between 31 December 2013 and the date of this report.
COMMENTARY
1. NATURE OF BUSINESS
Litha Healthcare Group Limited 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 Pharma
(pharmaceuticals and complementary medicines), Litha Medical (medical devices, equipment and consumables) and
Litha Biotech (human vaccines).
2. FINANCIAL OVERVIEW
Introduction
The commentary emphasises variances between Q4 2013 and Q4 2012. The Group is not providing extensive
commentary on changes between the year ended 31 December 2013 and the year ended 31 December 2012 due to
significant changes following the deconsolidation of Biovac on 30 June 2012 and the acquisition of Pharmaplan on
2 July 2012. Comparative information could therefore be misleading.
While in-depth analysis of the comparative year has not been provided, the most relevant indicator of year-on-year
performance is headline earnings per share ("HEPS"), as this excludes the effect of the profit on deconsolidation of
Biovac. Other factors which impacted HEPS are increased interest expense associated with the R125 million loan which
was raised for the acquisition of Pharmaplan and the increased amortisation of intangible assets associated with this
acquisition. Excluding the effect of the increases in interest expense of R3,9 million and amortisation of intangibles of
R22,3 million, HEPS would have been 7,5 cps for the year ended 31 December 2013. This is an 47.1% or 2,4 cps
increase over the HEPS of 5,1 cps for the same period in 2012.
The Group also introduced earnings before interest, tax, depreciation and amortisation ("EBITDA") in the third quarter of
2012, as it is a more meaningful measure of performance due to the large amortisation of intangibles and the significant
increase in finance costs associated with recent acquisitions. EBITDA provides stakeholders with a measure to assess
the operating performance of Litha's ongoing business on a consistent basis without the impact of amortisation and
depreciation expenses. The Group excludes depreciation and amortisation expenses, as these are dependent on non-
operating factors such as the historical cost of property, plant and equipment and intangible assets.
To provide context on the Group's performance in the last three months, a revenue and operating profit comparison is
provided here between Q3 2013 and Q4 2013. Consolidated revenue decreased from Q3 2013 to Q4 2013, mainly due
to a strong quarter in the Medical division in Q3 2013 following the sale of a da Vinci robotics machine. This decrease,
coupled with a slight increase in operating expenses in Litha Pharma contributed to a decrease in operating profit from
Q3 2013 to Q4 2013. Furthermore, in Q4 2013, the Group recognised a loss on revaluation of forward exchange
contracts and a loss from its investment Biovac which resulted in an operating loss of R2,3 million in Q4 2013 compared
to operating income of R10,2 million in Q3 2013.
Reconciliation to EBITDA
EBITDA does not have a standardised definition under IFRS and may therefore not be comparable to similar measures
presented by other companies. The Group defines EBITDA as earnings before interest income/expense, other
expense/income, tax, amortisation, depreciation, foreign exchange gain/losses, income/loss from joint venture and
equity accounted investments and unusual items, such as write-downs and gains/losses on investments. EBITDA is
calculated and presented consistently from period to period.
3 months ended 3 months ended Year ended Year ended
EBITDA reconciliation 31 December 2013 31 December 2012 31 December 2013 31 December 2012
R'000 R'000 R'000 R'000
(Loss)/Profit before taxation (8 312) (19 698) 24 168 215 841
Adjusted for:
Interest expense 8 370 11 815 32 793 29 658
Depreciation expense 2 635 3 880 9 763 11 368
Amortisation expense 14 404 17 885 57 597 35 838
Net loss/(income)/ from joint
venture 1 591 (404) 6 008 6 000
Net (income)/loss from
associate (248) (170) (875) 262
Foreign exchange loss /(gain) 2 623 10 079 (10 406) 12 458
Write off of intangible assets - 507 242 507
Other expense/(income)
income 63 - (233) -
Other finance expense 357 357 1 427 599
Profit on deconsolidation of
Biovac - - - (171 530)
Interest income (2 373) (2 428) (10 034) (13 126)
EBITDA 19 110 21 823 110 450 127 875
Condensed Consolidated Statement of Comprehensive Income
- Group revenue increased by 4.1% to R247,3 million for Q4 2013 from R237,5 million in Q4 2012
- Operating loss decreased by R8,0 million to (R2,3 million) in Q4 2013 from (R10,3) million in Q4 2012
- HEPS increased by 1,4 cps to (1,6 cps) in Q4 2013 from (3,0 cps) in Q4 2012
A brief discussion of the variance between Q3 2013 and Q4 2013 is provided in the introduction above.
Revenue increased in Q4 2013 compared to Q4 2012, mainly due to the strong performance of the Litha Medical
division. Increased revenue in this division was driven by new agencies and the fulfilment of orders on the SAPS
forensic tender. The strong quarter in the Litha Medical division was tempered by weak performance in the Litha
Pharma division, while Litha Biotech revenue increased slightly compared to Q4 2012.
Litha Pharma revenue declined compared to Q4 2012 partly due to continued increased competition on some of its key
generic products which are facing commoditisation and the conclusion of certain tenders towards the end of Q3 2013.
Further divisional analysis is provided in the operational review below.
Group revenue for the year ended 31 December 2013 was R1 045,3 million compared to R1 434,5 million for the same
period in 2012. Revenue for the year ended 31 December 2012 includes revenue of R650,2 million from Biovac prior to
its deconsolidation on 30 June 2012, but excludes R216,2 million revenue from the Pharmaplan acquisition for the first
six months of 2012.
Despite the decrease in gross profit from Q4 2012 to Q4 2013, the Group was able to drive lower operating costs to
contribute to a decrease in the Group operating loss from Q4 2012 to Q4 2013. During the last quarter, a cost cutting
exercise and tighter cost controls were implemented in light of a challenging trading environment which saw the Rand
depreciate against the Group's major trading currencies. The cost cutting programme is anticipated to be completed in
the first half of 2014.
Group operating profit for the year ended 31 December 2013 was R46,9 million compared to R232,8 million for the
same period in the prior year. The decrease was mainly due to a once-off profit on deconsolidation of Biovac of
R172 million, foreign exchange pressures and the commoditisation of certain key generic products.
The effective tax rate before income from the joint venture and loss from associate was 1.7% for Q4 2013, compared to
(22.8%) in Q4 2012.
Discontinued operations (Litha Cardiac and Litha Critical Care) posted a loss of R0,5 million Q4 2013 compared to a
loss of R1,7 million in Q4 2012. The operations showed a profit of R0,2 million for the year ended 31 December 2013
compared to a loss of R7,6 million for the same period in the prior year due to the continued fulfilment of tender
obligations.
Condensed Consolidated Statement of Financial Position
- Inventories increased by R133,9 million to R328,8 million as at 31 December 2013 from R194,9 million as at
31 December 2012
- Trade and other receivables increased by R44,5 million to R214,2 million as at 31 December 2013 from
R169,7 million as at 31 December 2012
- Trade and other payables increased by R136,0 million to R275,1 million as at 31 December 2013 from
R139,1 million as at 31 December 2012
As outlined in previous quarters, inventories increased significantly during the year due to a number of factors, primarily
in the Litha Pharma division:
- Addressing historic tight stock management to ensure continuous supply
- Increased lead times from suppliers, which required the purchase of additional stock to maintain sufficient
inventory on hand
- Increased minimum order quantities imposed by suppliers
The increase in inventory is consistent with the Group's policy of adequately managing inventory, while protecting
against stock-outs and overstocking. The Group actively manages the inventory levels based on the above policies and
will continue to ensure that optimal levels are maintained.
Trade and other receivables increased partially as a result of outsourcing the collection of receivables in the Litha
Pharma division. The division is in the process of negotiating faster collection terms with the supplier. In addition, trade
and other receivables increased as a result of an R17,1 million other receivable which was raised in connection with the
exercise of options under the Group's employee share option plan.
Trade and other payables increased primarily due to the timing of payments made to suppliers in Litha Pharma.
Extended payment terms with certain suppliers have been negotiated in Litha Pharma to offset the longer product
supply lead times.
Overall, net working capital improved from Q3 2013 to Q4 2013 as a result of stricter working capital controls.
The decrease in intangibles of R47,8 million arose primarily from the amortisation of intangible assets. This was partially
offset by the acquisition of registered generic products for R10,1 million in Litha Pharma during the year.
The increase in investment in associate was primarily due to the acquisition of a 25% interest for R3,1 million in a
consortium which owns 80% of The Dental Warehouse. The Dental Warehouse is a leading distributor of dental
consumable merchandise to dentists, private clinics, universities and government agencies in the country. In addition,
the investment in Firefly increased as a result of income of R0,9 million and interest income of R0,7 million from Litha's
30% share of Firefly Investments 223 (Pty) Ltd ("Firefly"), an entity which owns the Group's office/warehousing building
in Midrand.
The investment in the joint venture relates to Litha's 52.5% holding in Biovac. During the year ended 31 December 2013,
the investment decreased by R6,0 million due to negligible income generated by Biovac and the amortisation of
intangibles recognised on the deconsolidation of Biovac. Refer to note 5 above.
Other non-current assets relate to a social responsibility loan to the Disability Empowerment Concerns Trust. The
decrease in non-current assets is due to repayments made on the Disability Empowerment Concerns Trust loan during
the year.
Other current assets relate to pre-payments,deposits and the revaluation of outstanding foreign exchange contracts
The Group raised R125 million through a preference share loan in 2012 to fund the cash portion of the acquisition of
Pharmaplan.
Funding for Biovac's manufacturing facility was raised at The Biovac Consortium Proprietary Limited level, a holding
company for Biovac and an 85% subsidiary of Litha. These funds were on-lent to Biovac, resulting in the loans to the
joint venture. As previously noted, the debt relating to Biovac should not be used in determining the Group's gearing, as
Biovac does not rely on the Group to provide funding and is operationally separate. The table below shows the gearing
excluding and including debt related to Biovac.
Excluding Biovac Including Biovac
December 2013 December 2012 December 2013 December 2012
Interest bearing debt (R'000) 275 398 308 425 392 723 407 919
Equity (R'000) 1 148 521 1 107 596 1 148 521 1 107 596
% 24.0% 27.8% 34.2% 36.8%
Condensed Consolidated Statement of Cash Flows
The Group is pleased with the improvement in its Cash Flow position. Cash flow from operating activities increased by
R19,1 million to R21,7 million in Q4 2013 compared to R2,6 million in Q4 2012. The increase in the cash flow from
operating activities was driven primarily by a working capital improvements. Cash flows from operating activities for the
year ended 31 December 2013 was R64,1 million compared to R153,9 million for same period last year.
Cash outflow from investing activities was R6,3 million in Q4 2013 compared to R5,8 million in Q4 2012. Cash outflow
during Q4 2013 stemmed from a net investment in property, plant and equipment and the investment in The Dental
Warehouse. In Q4 2012 cash outflows were related to a net investment in property, plant and equipment. Cash outflows
were R18,9 million for the year ended 31 December 2013 compared to R179,9 million for the same period last year.
Cash flow from financing activities was R0,7 million in Q4 2013 compared to cash outflow of R2,6 million in Q4 2012.
Cash inflow in Q4 2013 related to an increase in the loan from the joint venture Biovac, partially offset by debt
repayment of R10,3 million, while cash flows in Q4 2012 were primarily related to the repayments of the loan from the
joint venture. Cash outflow from financing activities for the year ended 31 December 2013 was R22,6 million compared
to a cash inflow of R83,5 million for the same period last year.
Cash and cash equivalents, net of overdraft, at the end of December 2013 were R9,2 million compared to
(R13,4 million) as at 31 December 2012.
3. OPERATIONAL OVERVIEW
Condensed Consolidated Litha Healthcare Group Limited
Revenue increased by 4.1% to R247,3 million in Q4 2013 from R237,5 million in Q4 2012. Despite this increase,
EBITDA was down in the fourth quarter compared to prior quarters. This was mainly due to foreign exchange impacts
throughout the Group and the commoditisation of certain key generic products within the Litha Pharma division. Despite
gross margin pressure, the operating loss for the Group decreased by R8,0 million from (R10,3 million) in Q4 2012 to
(R2,3 million) in Q4 2013, primarily due to tighter cost controls.
Litha Pharma - contributed 29.5% to Group operating profit in Q4 2013
- Revenue decreased by 5.8% to R127,5 million for Q4 2013 compared to R135,3 million in Q4 2012
- Operating profit remained stable despite the depreciation of the Rand and pricing pressure associated with
increased commoditisation of certain key generic brands
In Litha Pharma, revenue decreased compared to Q4 2012 mainly due to increased competition, the commoditisation of
certain key generics and the culmination of a tender agreement during 2013. Gross profit continued to be impacted by
the depreciation of the rand, which has declined by approximately 7% against the Group's key currencies in the last six
months. Despite the decreased gross profit, operating profit increased R1,0 million or 18.8% to R6,5 million in Q4 2013
compared to an operating profit of R5,5 million in Q4 2012, partly due to more stringent cost controls implemented in
2013.
Litha Pharma continues to advance its pipeline of molecules, with 14 molecules approved by the Medicines Control
Council ("MCC") during the year. A further 70 molecules await MCC approval. Litha Pharma will be applying to the
MCC for Single Exit Price ("SEP") increases.
Litha Medical - contributed 48.8% to Group operating profit in Q4 2013
- Revenue increased by 21,4% to R95,4 million in Q4 2013 compared to R78,6 million in Q4 2012, mostly due to
forensic tender sales
- Foreign exchange impact on gross profit was tempered by favourable product mix during Q4 2013
The Litha Medical division performed well in Q4 2013. Revenue increased compared to the same quarter in 2012 due to
sales associated with the Group's forensic tender and sales driven by a new agency agreement signed in early
2013. Moreover, losses associated with the depreciation of the Rand were somewhat tempered by a favourable product
mix in Q4 2013.
Operating profit increased by 9% to R10,8 million in Q4 2013 from R9,9 million in Q4 2012, primarily due to increased
revenue.
Medical consumable sales related to the da Vinci Surgical Robotic Systems will continue to flow during 2014, with two
additional orders for the system to be delivered in the first half of 2014.
Litha Biotech - contributed 21.7% to Group operating profit in Q4 2013
- Revenue increased by 3,4% to R24,5 million in Q4 2013 compared to R23,6 million in Q4 2012
- Operating profit increased by 2.1% from Q4 2012 to Q4 2013
In the Litha Biotech division, revenue increased by 3,4% or R0,8 million in Q4 2013 to R24,5 million from R23,6 million
in Q4 2012. The increase in revenue was driven by increased revenue in Litha Logistics, although there were slower
sales in Litha Vaccines associated with backorders on certain products.
Operating profit increased marginally in Q4 2013 to R4,8 million from R4,7 million in Q4 2012. This was driven by an
increased gross margin as Litha Biotech continues to negotiate with suppliers to share foreign exchange risk. This was
partially offset by a weak operating quarter in Biovac, which contributed a loss of R1,6 million for the quarter compared
to a profit of R0,4 million in Q4 2012.
The Department of Health has announced the Human Papilloma Virus ("HPV") national campaign with Biovac. This
campaign is set to be rolled out in the second half of 2014 and is the first of its kind targeting school-going eight year old
girls.
LITHA HEALTHCARE GROUP
Against continued market pressure due to rand volatility, the group has started to refocus its operations through a cost-
cutting and management restructuring programme. The aim of the programme is to simplify the Group structure to
ensure a lower cost base and a nimble organisation to address increasingly challenging market conditions.
The restructure will be complete in the first half of 2014.
DIVIDEND
No dividend has been recommended or declared for the period. It is anticipated that while the Group continues with its
growth 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
N Sowazi, Chairman
S Kahanovitz, Chief Executive Officer
Johannesburg
7 March 2014
Directors: N Sowazi*, S Kahanovitz, M Makhoana, M Kahanovitz, M Mzimba*, F Hendricks*, I Jacobson*#,
V Mcobothi*, M Beaudet*+, M Nawacki*+
(*non-executive) (+Canadian) (#British)
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Registered auditors
KPMG Inc. (Prior year Mazars)
Transfer Secretaries
Computershare Investor Services
Registered Office
106 16th Road
Midrand
1686
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