Chairman's
REPORT

Introduction

As the Board reflects on the past three years, we are confident that we can satisfactorily measure how AfroCentric Group has lived up to its strategic mandate and vision to the benefit of its key stakeholders. AfroCentric is a meaningful contributor to the South African economy healthcare sector. As the largest scheme administrator in South Africa, we are committed to empowering access to sustainable quality healthcare.

Our portfolio is diversified across various products and services covering South Africa, Swaziland, Zimbabwe, Namibia, Botswana, Kenya and Mauritius. We were recently awarded the licence to establish a health insurance business in Swaziland – a milestone for our growth strategy. This proves that AfroCentric is growing as an integrated healthcare company; and we are exploring the prospects of introducing clusters into the Group to improve coordination between our operating subsidiaries.

Our contribution to sustainable, quality and affordable healthcare extends beyond our products and services. As a corporate citizen, we invest in our people, drive transformation and positively impact communities. AfroCentric collaborates with key stakeholders such as our clients, government and regulators to decrease healthcare costs and increase accessibility.

We are gradually winning over investors through the success of our integrated business optimisation strategy; our choice of acquisitions; our clientele retention; our value add services to our existing clients; and the skill force that executes our strategy.

The Board applauds the considerable time and effort that management devotes to ensure that AfroCentric addresses key stakeholders' challenges, issues and concerns in South Africa, as well as our host countries in Africa and abroad.

Our operating environment

It was another challenging year for the South African economy in which we faced weak consumer spending, a volatile currency, high unemployment, and a vast range of other socio-economic issues. Mental health problems, addictions and environmental crises, such as water sanitation, are increasing, and it is imperative that we respond appropriately.

We proactively contributed towards the Western Cape's water crisis by sending bulk litres of water to our Cape Town offices.

The most positive change for the healthcare sector has been government's commitment to universal healthcare, which was reaffirmed in the State of the Nation Address on 16 February 2018. National Treasury subsequently committed an additional R4.2 billion to the National Health Insurance.

The Health Department aims to alleviate congestion at public hospitals and clinics: AfroCentric's courier pharmacy business, Pharmacy Direct, is one of three firms that recently won contracts to supply chronic medicines to collection points at schools, churches and retail pharmacies. AfroCentric has invested R100 million in purchasing and refurbishing a warehouse to distribute medicines to state patients with chronic conditions – a strategy we hope will cement ties with the government as it implements National Health Insurance. The distribution would directly and indirectly create 5 000 jobs as Pharmacy Direct delivers between 700 000 and 800 000 patient packs as per number of scripts per month.

Transformation

Our main operating subsidiary, AfroCentric Health's (AHL's) Level 2 B-BBEE rating underpins the Group's transformation efforts. Our Social and Ethics Committee and Transformation Steering Committee are robust and devoted to the Group's transformation.

The Group recognises the importance of representing women on the Board – the Group Chairman and the Audit and Risk Committee Chairperson are both women. We also ensure that our gender policy is fully implemented to guard against any gender discrimination and to bring about pay parity across the Group.

The health market inquiry has highlighted the barriers to entry in the healthcare market, and AfroCentric has undertaken to mentor new entrants.

We spent over R3 million on socio-economic development (SED) initiatives such as bursaries for medical students, hospitals, schools and maternity clinics. We are particularly proud of our four female medical students' progress towards their Bachelor of Medicine and Surgery degrees at two Tshwane universities. We spent close to R10 million on developing black-owned businesses through our enterprise and supplier development (ESD) programme.

Stakeholder engagement

AfroCentric actively participates in public policy discourse and encourages other employer groups to do the same. Employers are significant contributors, directly or indirectly funding private healthcare, and they need to be active voices to ensure the public's healthcare needs are appropriately catered for.

The health market inquiry signalled a positive step towards addressing escalating healthcare costs in the private healthcare sector. We welcomed the Competition Commission's objective to increase market transparency and to engage with various stakeholders around the cost structure. The Commission has found that, although hospital tariffs have not exceeded the consumer price index, admissions have become significantly more expensive.

Corporate governance

The Board's primary role is to steer the organisation ethically and to ensure sustainable value and profitability. We engaged with the Executive Committee to review the Group's strategy and to assess its relevance.

The Board has provided astute supervision, and I am satisfied that it performed all its duties according to its mandate. It is our responsibility to set the tone for the entire Group, and I believe that the outcomes of these good governance processes will filter through to the Group's operations.

As the Group expands, we are developing collaboration and shared thinking across our operations, and we promote a positive overarching culture. An improved Company culture will breed passionate people, attract and retain employees, enhance efficiencies, further integrate the Group, and promote high performance.

We assessed the skills and composition of our Board and adjusted to the changing needs of the business. Having a Non-executive Director who specialises in IT bodes well for the Group's future.

Outlook

We hope that improved business confidence and consumer spending power will drive our performance. The impending NHI presents a range of opportunities and supports our vision as a Group – to empower greater access to sustainable quality healthcare.

As part of our strategy, we pursue consolidation and value chain optimisation, and intend to optimise the value of the healthcare Rand. This supports our strategic objectives, and, by executing the strategy, we create value for all our stakeholders. We aim to forge partnerships, and acquire and merge with businesses which support our mission.

As part of our diversification strategy, we will continue building on our partnership with Sanlam. The association enables us to package an enhanced product range that offers benefits, rewards and incentives to schemes members.

Appreciation

I am honoured to be involved in such a purposeful organisation that plays a significant role in society.

AfroCentric's existence depends on our shareholders, management team, dedicated employees, clients, partners, service providers and other stakeholders who devote their work to the 3.7 million lives under our care. I humbly thank each of you.

My gratitude extends to our Board, whose supervision and guidance drive the Group forward.

Dr Anna Mokgokong

Chairman