Directors' report
for the year ended 30 JUNE 2020
The AfroCentric Board has pleasure in presenting its report on the activities of AfroCentric for the year ended 30 June 2020, and can confirm that we continue to create value through our diversified portfolio of services and offerings to all of our stakeholders.
NATURE OF BUSINESS
AfroCentric is a black-owned JSE-listed investment holding company which operates in and provides specialised services to the public and private healthcare sectors, making quality healthcare more accessible and affordable to members and beneficiaries in both sectors. A principal objective of the Group, is to ensure the delivery of efficient health management services, the distribution of quality products, all at manageable and affordable cost, for the benefit of scheme clients, scheme members and the Group's growing customer base.
AFROCENTRIC SHARED VALUE
The Group's operating subsidiaries continue to provide value-added complementary services to its traditional medical scheme clients as part of the Group's strategy inclusive of consolidated disruptive and innovative offerings. Through this, the Group continues to preserve shareholder value and provide solutions to healthcare client needs. This has further enabled us to understand both our clients and competitor environment and we can confirm that the Group is geared towards sustainability.
Our strategy is to optimise our Group's products and services to offer organisations and members a seamless service. As part of our growth strategy, the Group contributes to South Africa's sustainable health and welfare by investing in healthcare-related businesses that grow its portfolio and diversify its revenue sources.
DEVELOPMENTS
We are excited to announce that, to further strengthen our capabilities and diversify our service offering, we will acquire the DENIS group of companies, effective 1 October 2020. The unconditional approval was received from the Competition Tribunal on 26 August 2020. DENIS provides and manages sustainable dental benefits for medical scheme members. The Group has further increased its shareholding in Scriptpharm Risk Management Proprietary Limited (Scriptpharm) from 80% to 100% shareholding, effective 1 August 2020. Scriptpharm is a national pharmacy network comprising over 2 000 pharmacies operating throughout South Africa, with provider status of either a preferred provider to medical schemes or a designated service provider.
FINANCIAL REVIEW
- Group consolidated revenue increased by 21.6% to R6 440 billion (2019: R5 296 billion).
- Group headline earnings increased by 15.6% to R306.7 million compared to R265.3 million in the prior year.
- During the 2018 financial year a non-IFRS earnings measure model was adopted given the material non-cash, non-trading and non-recurring deductions which have a significant adverse impact on the earnings. The Group's normalised headline earnings are R313.7 million compared to R275.6 million in the prior year, representing an increase of 13.8%. Normalised headline earnings are earnings after adjustments are made to remove seasonality, revenue and expenses that are unusual or time influenced.
- Profit before tax increased by 16.1% for the year under review amounting to R613.6 million (2019: R528.5 million).
- Profit after tax (PAT) increased by 19.1% compared to prior financial year.
GOING CONCERN
The Group Annual Financial Statements have been prepared on the going concern basis. The Board having performed a review of the Group's ability to continue as a going concern in the foreseeable future and therefore, based on this review, considers the preparation of the Annual Financial Statements on this basis to be appropriate. Refer to Note 34 for COVID-19 impact on going concern.
DIVIDENDS
The Company declared an interim dividend of 17 cents per ordinary share for the six months ended 31 December 2019. The Company further declared a final dividend of 17 cents per ordinary share for the year ended 30 June 2020. This was declared on 10 September 2020. These dividends are subject to the Dividends Withholding Tax in terms of the Income Tax Act (Act 58 of 1962 amended) for which shareholders are liable. The solvency and liquidity requirements were satisfied at passing of the resolution in accordance with Section 46 of the Company's Act.
In accordance with the JSE Listings Requirements, the following additional information is disclosed:
- The dividends have been declared out of profits available for distribution;
- The local Dividends Withholding Tax rate is 20%;
- The gross dividend amount for both declarations in 2020 is 34 cents per ordinary share (17 cents in interim and 17 cents in final);
- For purposes of the final distribution 574 241 248 ordinary shares will be deemed to be in issue on the dividend record date;
- The Company has 574 241 248 ordinary shares in issue on declaration date; and
- The Company's income tax reference number is 9600/148/71/3.
SHARE CAPITAL
The Company's share capital remains at 574 241 248 ordinary shares in the year under review. As per the Companies Act, Section 38, the Board may resolve to issue shares of the Company at any time, but only within the classes, and to the extent, that the shares have been authorised by or in terms of the Company's Memorandum of Incorporation.
SHARE REPURCHASES
During the year, no share repurchases were made by the Company. AfroCentric Health Proprietary Limited holds 1 999 999 treasury shares.
AUDIT AND RISK COMMITTEE
The information relating to the Audit and Risk Committee is set out on Audit and Risk Committee report.
DIRECTORS
The table below illustrates the directors of AfroCentric for the year ended 30 June 2020.
| Director's name | Date of appointment | Designation | |
| ATM Mokgokong (Chairman) | 10 June 2010 | Non-executive | |
| MJ Madungandaba | 10 June 2010 | Non-executive | |
| IM Kirk | 15 December 2015 | Non-executive | |
| ND Munisi | 7 December 2015 | Non-executive | |
| A Banderker | 15 December 2015 | Executive - salaried | |
| T Alsworth-Elvey | 1 July 2019 | Non-executive | |
| SE Mmakau | 30 November 2016 | Executive - salaried | |
| LL Dhlamini | 2 December 2015 | Independent Non-executive | |
| HG Motau | 15 May 2017 | Independent Non-executive | |
| AM le Roux | 25 May 2020 | Independent Non-executive | |
| JW Boonzaaier | 1 August 2015 | Executive - salaried | |
| WH Britz | 1 August 2015 | Executive - salaried | |
| SA Zinn | 23 November 2018 | Independent Non-executive | |
| JB Fernandes | 23 November 2018 | Lead Independent Non-executive | |
| G Allen | 12 September 2019 | Non-executive | |
| M Chauke | 1 June 2020 | Independent Non-executive |
During the year under review, HG Motau resigned as an Independent Non-executive Director on 20 November 2019 and during her absence, Prof SA Zinn stood in as an independent member of the Audit and Risk Committee until the appointment of AM le Roux on 25 May 2020.
G Allen was appointed on 12 September 2019 to replace I Kirk as a Non-executive Director to the Board.
LL Dhlamini resigned on 31 March 2020 as an Independent Non-executive and Lead Independent Director and replaced by M Chauke on 1 June 2020.
The Board appointed JB Fernandes as a Lead Independent Director from 1 June 2020.
The above director movements will be ratified at the 2020 AGM. We confirm that since the end of the financial year and up to the date of this report, the interests of directors have remained unchanged.
During the year under review, no material contracts in which directors have an interest were entered into which significantly impacted the business of the Company.
Directors' ordinary shareholdings as at 30 June 2020
| Director | Direct beneficial |
Indirect beneficial |
Held by associate |
Total | % | |||||
| ATM Mokgokong (Chairman) | – | 140 426 628 | – | 140 426 628 | 24.45 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| MJ Madungandaba | – | 570 266 | – | 570 266 | 0.10 | |||||
| A Banderker | 511 326 | – | – | 511 326 | 0.09 | |||||
| JW Boonzaaier | 30 000 | – | – | 30 000 | 0.01 | |||||
| WH Britz | – | 94 013 355 | – | 94 013 355 | 16.37 | |||||
| ND Munisi | – | 69 564 752 | – | 69 564 752 | 12.11 | |||||
| G Allen | 46 880 | – | – | 46 880 | 0.01 | |||||
| 588 206 | 304 575 001 | – | 305 163 207 | 53.14 |
There were no changes in the directors' interests between the end of the financial year and date of approval of annual financial statements.
Directors' ordinary shareholdings as at 30 June 2019
| Director | Direct beneficial |
Indirect beneficial |
Held by associate |
Total | % | |||||
| ATM Mokgokong (Chairman) | 1 707 926 | 42 172 403 | 9 326 441 | 53 206 770 | 9.60 | |||||
| MJ Madungandaba | – | 97 818 886 | 21 761 697 | 119 580 583 | 21.57 | |||||
| AV Van Buuren | – | 45 972 571 | – | 45 972 571 | 8.2 | |||||
| JW Boonzaaier | 30 000 | – | – | 30 000 | 0.00 | |||||
| WH Britz | – | 45 972 571 | – | 45 972 571 | 8.2 | |||||
| ND Munisi | – | 69 084 752 | – | 69 084 752 | 12.46 | |||||
| JM Kahn | – | 18 535 608 | – | 18 535 608 | 3.23 | |||||
| MI Sacks | – | 17 729 938 | – | 17 729 938 | 3.09 | |||||
| 1 737 926 | 337 286 729 | 31 088 138 | 370 112 793 | 66.35 |
DIRECTORS' REMUNERATION
Remuneration of Non-executive Directors and Board Committee members
Non-executive Directors received the following total remuneration in the year under review:
| Director | Fees R'000 |
|
| ATM Mokgokong (Chairman) | 1 367 | |
|---|---|---|
| MJ Madungandaba | 1 368 | |
| ND Munisi | 429 | |
| IM Kirk | 59 | |
| LL Dhlamini | 326 | |
| HG Motau | 212 | |
| SA Zinn | 300 | |
| JB Fernandes | 500 | |
| G Allen | 183 | |
| AM le Roux | 43 | |
| M Chauke | 21 | |
| T Alsworth-Elvey | 342 | |
| * | The director's remuneration highlighted above reflects their total gross directors' fees received across various subsidiaries within the Group. |
Remuneration of Executive and Non-executive Directors
Details of the remuneration are set out in Note 21 of the Group Financial Statements.
Remuneration of the five highest paid subsidiary executives as at 30 June 2020 who are not directors of AfroCentric
| Employee | Annual cost to Company and incentives R |
|
| AC Edwards | 4 966 525 | |
|---|---|---|
| AA Mahmood | 4 650 992 | |
| N Nyathi | 4 012 907 | |
| M Tati | 3 137 306 | |
| G Erasmus | 2 161 235 |
MATERIAL RESOLUTIONS
In terms of the JSE Listings Requirements the Company noted the following material resolutions passed at the prior AGM and during the financial year under review:
- General approval to repurchase shares;
- Inter-company loans and other financial assistance;
- Fees payable to Non-executive Directors;
- Group Annual Financial Statements for the financial year ended 30 June 2020;
- Audit report for the year ended 2020;
- Re-appointment of independent registered auditor;
- Election and re-election of directors;
- Appointment of members to the Audit and Risk Committee;
- Approval to issue ordinary shares and to sell treasury shares, for cash;
- Endorsement of the remuneration policy; and
- Authority of directors.
Details of these resolutions can be obtained via the Company's website or on request.
LITIGATION STATEMENT
In terms of the JSE Listings Requirements, the directors note that they are not aware of any legal or arbitration proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the Group's financial position, apart from the matters per Note 29 of the Financial Statements.
BORROWING POWERS
In terms of the Memorandum of Incorporation, the borrowing powers of the Company are unlimited. The Company has no restrictive funding arrangements.
INSURANCE
The Group protects itself and the directors against crime and civil liability, and has professional indemnity in place by maintaining a comprehensive insurance policy.
COMPLIANCE
No events or actions during the financial year have led to the Group being non-compliant with the required laws and regulations relevant to the individual business units.
AUDITOR
PwC serves as auditor of the Company.
