CEO's review

"We are operating in an environment so drastically different from 2019 that comparison seems somewhat impossible. However, within this context, our products and services – moreover, our vision and purpose – have never been more critical."

AHMED BANDERKER

A year like no other

2020 represented my first full year as Group CEO, and what a year it has been. In August 2019, the NHI bill was tabled at parliament. This represented a significant step towards achieving universal healthcare – the need for which has been starkly highlighted in the face of the COVID-19 pandemic.

Since then, as individuals and as a country, we have faced challenges beyond what we could have believed possible. The truth of the matter, however, is that difficult times test our mettle, revealing strengths and weaknesses that may be concealed in more prosperous periods.

Having come through this year and had the opportunity to reflect, not only on our financial results but the human stories behind them, I can say with confidence that I am proud to be a part of an organisation that lives and breathes its purpose. Despite the challenges they have faced at every turn, our people have dug deep and placed the needs of the members of our schemes and the end-users of our critical healthcare services at the forefront of their everyday endeavours.

Responding strategically to transform healthcare

Despite the context in which we find ourselves, we made great strides towards achieving our ambitions during the year. It is pleasing to note that our diversification strategy has enhanced our business resilience, as our numerous business units have been impacted to differing degrees by the pandemic and resultant lockdown. Moreover, our pharmaceutical cluster showed significant growth and delivered considerable value in meeting stakeholder needs during this time.

For me, a central highlight for the year was completing our strategic review. This process has helped define the path for the business for the next three years within the broader context of our long-term strategic ambition – to innovate a new integrated model that transforms healthcare. As we are all too aware, the status quo cannot remain.

Our strategic review process has also enabled the Board and management to apply a focused lens to the Group's experience and skills requirements, as well as the structure necessary to execute on this next phase of our strategy. These structural and leadership changes were made during the year to support our ongoing growth.

During this next phase of our strategy, our focus will be on integrating the building blocks we acquired over previous years. In this way, we are seeking to maximise the purchasing power of every healthcare spend.

Strategy in action

Recently acquired entities were profitably integrated into our operations during the year. We are pleased to announce that, post year-end, we concluded our acquisition of 100% of DENIS, effective October 2020. DENIS specialises in dental benefits management. The transaction enables the Group to focus on innovation and efficiency management in dental treatment offerings to all South African medical schemes and their members.

Medscheme demonstrated a robust performance in a challenging context and continues to reap the benefits of the acquisitions made throughout the value chain. Further highlights included securing two critical contracts for efficient chronic medical and HIV management, and securing the contract to administer the MEDiPOS Medical Scheme.

Unfortunately, Sasolmed gave notice during the year, with effect from December 2020. Moreover, given the challenges faced in our operations in Zimbabwe and Eswatini, a strategic decision has been taken to exit these areas.

The growth of the pharmaceutical cluster is yet another highlight. MMed turned a profit and Scriptpharm continued to show strong performance. Post year-end, we acquired the remaining 20% of Scriptpharm, effective 1 August 2020. Furthermore, Activo Health registered new dossiers, and we are pleased with the business's growth and prospects.

Throughout the Group, we focused on applying innovative digital applications to drive greater efficiencies to improve the quality of services rendered to our customers, our clients and their medical scheme members. Moreover, the COVID-19 pandemic has amplified the need for digital solutions and accelerated the development of many planned initiatives.

Our prior investment in systems development and increased IT capacity continues to contribute favourably towards our operating results, achieving beneficial cost savings through greater scale and procedural efficiencies. These investments could not have been more timely, considering the necessity for a digital operating model during lockdown and the subsequent restrictions.

Protecting our customers, colleagues and communities

We recognise that our achievements are the product of the people on whom our business depends. Protecting our people is, and will remain, a top-of-mind priority. We are working tirelessly to safeguard our colleagues from the spread of COVID-19 while also providing exceptional service to our clients and supporting the communities in which we operate.

Protecting our colleagues

The pandemic has demonstrated the tremendous endurance of our people and their ability to respond to the challenge of change without resistance but, rather, with resolution and determination. Truly, the fruits of our ACT FIRST culture journey have been aptly demonstrated this year at all levels of the business. For us, ACT FIRST simply means that we must act to enhance the quality of life of our stakeholders and act to transform healthcare in everything we do. I believe the Group's performance in this context is a testament to the people at the heart of our business who live our purpose at every turn.

Creating a safe working environment, whether employees work from home or the office, remains a top priority. It is, therefore, with a heavy heart that I report that in July, August and September 2020, we lost five of our colleagues due to COVID-19-related causes. While we all see the number of infections reported in the news daily, it is the loss of one of our own that brings the impacts of the pandemic home.

To remain responsive, we have a dedicated team in place to offer support in terms of tracking, monitoring and advising the Group on issues around COVID-19. We continually assess the Group's operational situation to ensure that our people's safety is maintained at all times, and that the necessary continuity plans are in place to ensure the services we provide to our clients are not materially impacted.

We are pleased to report that, despite the seemingly sudden nature of the lockdown, our preparation commenced ahead of time when we first anticipated the risk of the virus spreading to South Africa. As a result, we were able to transition the vast majority of our workforce to a work-from-home environment without compromising critical service levels. Furthermore, to support our staff as they made the necessary plans and provisions for lockdown, we provided a once-off gratuity payment to our staff at the end of March.

To date, none of our 5 693 colleagues have been retrenched or furloughed. We are in constant communication with our people concerning critical developments and the way forward for the business within this volatile context.

With the change in restrictions, we will begin moving a small number of employees back to the office environment within the limitations of their childcare and eldercare obligations from October 2020. Initiatives were put in place to protect the health and wellbeing of our staff as we undergo this transition.

Supporting clients

Delivering excellent customer service, despite the challenge of working from home, remained a top priority. We also maintained a high standard of service and customer satisfaction during this time.

Protecting our people, as discussed, was the starting point in ensuring continued service delivery, recognising that our employees are critical to the support system for members and providers.

Another essential focus was on promoting digital access and simplifying processes to ensure access to care is as seamless as possible. One such example includes rolling out a new mobile app that provides a member-focused digital platform to enhance member interaction with their scheme.

Our VirtualCare^TM solution is yet another innovation focused on supporting our clients and their members. The solution allows healthcare providers to connect with patients using a telehealth platform. Furthermore, in response to COVID-19, AfroCentric Technologies developed a WhatsApp solution as an additional communication and self-help platform to educate members and update them on the current status of the COVID-19 situation.

Bolstering communities

As a healthcare business, we have sought to support the healthcare industry and government in fighting the virus on every front. We are working closely with the NDoH and the NICD and continue engaging with them on effective strategies to manage the pandemic.

During the year, in our efforts to support communities who may not have access to telemedicine services, we offered free virtual medical consultations to all South Africans via the Bonitas mobile app. This facility included medical advice about COVID-19, other medical problems, the writing of prescriptions where necessary, and free delivery of chronic medication.

Our business units have also sought ways in which they can adapt to help fight the pandemic. Our MMed business, for example, launched a three-ply disposable surgical mask manufacturing operation during the first week of the COVID-19 lockdown. MMed quickly created capacity by using contract workers within the textile industry, as well as sourcing raw materials internally. The business was able to produce approximately 200 000 three-ply surgical masks weekly and employed over 400 contract workers during a time where many companies had to retrench employees.

Collaboration and partnership

As COVID-19 continues to spread across the world in a unique and unprecedented manner, it has presented a hard-hitting case study for the desperate need to create access to quality healthcare for the most vulnerable in our society.

However, our current context also sets the stage for the massive challenges faced in implementing a system that would achieve the objectives of the NHI. Undoubtedly, dealing with the COVID-19 pandemic would have been the most significant single challenge the NHI would have to have faced were it currently in place, and this amid existing difficulties in the public healthcare sector in areas such as infrastructure funding, service provision and overall health system strengthening.

It is encouraging, however, to see the collaboration that has taken place between the public and private sectors. In fact, should COVID-19 infections spike to unprecedented levels, the NDoH is currently looking at private hospitals to provide the extra beds that may be required if there is a shortfall in the public sector. Indeed, COVID-19 has proven to be a good test for private-public partnerships and the development, testing and implementation of mutually beneficial and innovative healthcare delivery models and solutions.

As a Group, before the current crisis, we had adapted our strategies to align our business model to the government's health policy direction and have successfully demonstrated our abilities in these strategies. A number of our subsidiary entities are already working closely with the government in delivering innovative and sustainable services, such as providing chronic medication to government clinic patients across four provinces. We believe this partnership demonstrated the value AfroCentric can offer in assisting the government in achieving its aims.

There is a saying that one should never let a crisis go to waste. The learnings gained over this time can be applied during the full implementation of NHI after we have defeated COVID-19, serving as a true test for the power of collaboration and the possibility that the two systems could coexist and result in reduced costs and improved quality of care for those who need it most.

Outlook

We are operating in uncertain times, and that requires us to actively and agilely manage risks and capture opportunities as they arise. A key focus for the Group going forward will be on supporting our staff to navigate this uncertainty while adapting to the rapid change required of us all.

We recognise that the full impact of COVID-19 on our economy is not yet known. However, it is clear the unemployment rate will rise in response to the challenges businesses faced during this time, which will likely have an impact on scheme membership.

Given the significant level and range of uncertainty, we are preparing for various scenarios and implementing risk mitigating activities across the Group. Critical to our focus going forward, therefore, will be a continued emphasis on delivering further efficiencies along with stringent capital management strategies. In line with this, non-critical, large capital expenditure (capex) projects will be delayed where possible until we have a clearer picture concerning the full impacts of the pandemic on our business.

COVID-19 has already had a noteworthy impact on consumer behaviour. One of the key elements of the crisis has been the way in which it has accelerated the pace of digital transformation. We see this as an opportunity to further reduce costs going forward, as well as a source of competitive advantage through digital infrastructure already in place.

Our future focus will be on assimilating the elements of the Group's businesses to leverage the full benefits of being the most diversified healthcare group in Southern Africa. Through these efforts, we will make significant progress towards achieving our vision of transforming healthcare.

Appreciation

In this, my first year as CEO, I want to take the opportunity to applaud our people for the way in which they have gone above and beyond. I could not be prouder to be part of the AfroCentric team.

I would also like to thank the members of the Board for their purpose-driven leadership and informed oversight, which has made navigating these uncertain and unprecedented waters possible. Likewise, I extend my thanks to the executive team for their grounded and agile leadership during this time.

Finally, to our shareholders and other stakeholders, thank you for your continued support as we strive tirelessly to deliver on our purpose of enhancing the quality of life.

In the coming months, we will continue working closely with the NDoH in addressing the country's challenges, with the clear understanding that we are in this together. Through the power of collaboration, we will prevail.

Ahmed Banderker

Group CEO