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Chief Executive Officer's report

In every way, AfroCentric Health is leading the way.

There is a saying: "lead, follow, or get out of the way". AfroCentric Health leads.

In the 2013/14 financial year, the company challenged itself to provide the healthcare sector with even more practical strategies for success, while leading new initiatives that would foster broad change in the business of providing healthcare. We delivered yet another solid set of results.

The key to retaining and growing profitable customer relationships is to integrate and manage three critical elements: client retention, diversification, and expansion into new territories.

Strategic developments

The outlook for the healthcare and technology sectors is robust and exciting. As a large part of the economy struggles to gain any degree of traction, these two sectors are holding their own. AfroCentric Health’s prospects remain promising. Our health business continues to be the preferred service provider to a number of major clients, including the Government Employees Medical Scheme ("GEMS") and the Road Accident Fund ("RAF").

Whilst such contracts have their challenges, our success in rendering services to government provides a solid platform for future business. A major challenge at present is to extract maximum efficiencies within the GEMS contract.

The opposite holds true for the RAF contract, which continues to showcase our expertise both in terms of our systems and skills. The RAF contract remains important to the Group and should serve as a solid platform for further opportunities with government.

Challenges

The medical scheme environment remains challenging, especially in third-party administration.

We continue to review our business to determine whether there is value in what we offer. We always confirm a positive opinion especially in the areas in which we compete. Value comes via the cost-effectiveness of the services and efficiencies we deliver. Whilst our core competencies remain in administration and managed care services, we believe that anti-competitive practices exist within the private health sector.

Anti-competitive environment

We believe, based on imbalances in healthcare generally, this affects us as follows:

In response to these industry challenges, our main focus will be to take our systems and capabilities more into the public space, costing them optimally and making them available whilst explicitly demonstrating how they will lead to cost savings for our stakeholders.

We have successfully demonstrated this through our GEMS and RAF contracts – I am confident that we will continue to do so with all contracts under our management.

In addition, the Group continues to track, assess and adjust to legislative developments, especially around the NHI and RAF. Whilst these have an impact on how we do business, our focus remains on cost containment and efficient provision of healthcare services to GEMS and other stakeholders.

We remain proud of our success with RAF and will continue with our best efforts on this contract. The RAF and COID offices are to leverage and collaborate on their healthcare experiences, focusing on both costs and quantity.

The increasing volumes in the private sector should result in increased margins and through efforts around improved efficiencies should result in reduced costs, albeit with a limited customer base. Bearing this in mind, our strategic direction will place emphasis on working with government and to play a role in positively influencing the cost of healthcare delivery.

Impairment of investment in Sapling

Sapling was acquired during 2013 for the specific purpose of providing services to Medshield. Medshield has been in operation for 27 years. The company grew from a mere 400 to 100 000 members today. The Sapling contract was, however, terminated based on a directive by the Regulator’s office on the basis that Sapling's services did not add value. The number of members remained stagnant for only a short period. Once the Sapling contract was terminated by the directive and when the trustees opposed it, the scheme went into curatorship.

This termination took place irrespective of numerous approaches to the Regulator – after we had acquired the business – in order to determine which aspects or commercial terms of the contract the Regulator believed were not adding value.

Nevertheless, we indicated our willingness to review the terms of the contract. There were numerous interactions with the curator at the time, yet the contract was still terminated on the same basis as aforementioned. We are of the opinion that this process was not in accordance with public administration and that it amounted to abuse of power in terms of the Regulatory Framework. We believe the facts were not all reviewed on an objective basis and there was no willingness to engage constructively.

I am of the view that this was due to the structural and legislative imbalances which affects the smaller competitors in the open schemes market from being competitive in any form.

Medscheme was acquired in 2006 because we identified certain structural inefficiencies, and it was anticipated that this will level out in a competitive environment.

The real value of the Medscheme business will come from consolidation in the market. We believe we have to drive actions on an ongoing basis in order to create a competitive environment because it might be too late once the current investigation into the healthcare industry, which is anticipated to be lengthy and well contested, is eventually concluded. If the current and historic trends are forecasted, indications are that the open scheme market shrinkage will accelerate.

Jasco

We have been observing the restructuring of Jasco and have been anticipating a favourable outcome of the three-year management restructuring programme which is now finalised.

We will be monitoring the Jasco progress very carefully this year to confirm whether it is to be classified as a long-term investment or an investment for sale.

Conclusion

We have delivered consistent growth and we will continue to do so. No matter what environment we're in – today, a year from now, or a few years from now – we are driven to win. We have momentum in our business that's producing top line and bottom line results.

Even in tough and unpredictable economic conditions, there is strength in our businesses. We are making substantial progress in areas that form the foundation for long-term growth and shareholder returns.

We have a business that delivers value for our customers, associates, clients, suppliers, shareholders and communities. That is why anticipated and newly reported transactions will result in a much stronger balance sheet and, more importantly, an increased and better executive management team with sound experience and track record as business developers and entrepreneurs. At Board strategic level, there will be a synergy of greater industry, commercial and business leadership minds.

AfroCentric Health’s efforts are possible only because of dedicated, knowledgeable, and insightful partners and clients that eagerly share their time and expertise. Our partners and clients are the source of AfroCentric Health’s strength.

The core competencies, skills and experience of executive directors centered around the healthcare environment and there is still huge potential value to unlock. AfroCentric Health Limited will be focusing on both capital and human resources for the foreseeable future.

AfroCentric Health will work continuously, determining the path to success and identifying the best course through the labyrinth of industry challenges.

In every way, AfroCentric Health is leading the way.

Dewald Dempers
Group CEO