Unpacking our strategy and approach

Our strategy aims to expand and diversify our presence in the broader healthcare industry to achieve our ultimate goal of transforming healthcare.

Introduction

AfroCentric is transforming healthcare by making quality healthcare more accessible and affordable to millions of people. We are doing this by expanding the Group's presence in the broader healthcare industry.

During 2020, we achieved key strategic milestones that took us closer to our goals. We have now completed the phase of our strategy largely focused on putting in place the necessary building blocks to achieve our aims. While we remain opportunistic in seeking our acquisitions that will further our endeavours, going forward we are entering the next phase of our strategy.

In this next phase, our focus will primarily be on assimilating the elements of our value chain to leverage the full benefits of being the most diversified healthcare group in Southern Africa. In this way, we believe we will be able to make significant progress towards achieving our vision of transforming healthcare.

Overview of progress against our strategic objectives

In 2020, our phase one strategic objectives continued to guide our actions within a challenging context.

Our phase one strategy was driven by the following strategic objectives and measured against clear KPIs:

Strategic objective		Enhancing shareholder value
What this means for AfroCentric		We create value for shareholders by capturing appropriate growth opportunities, diversifying our revenue sources across the healthcare industry and extracting the synergies by integrating our businesses. To sustain value creation over the long term, we aim to remain relevant to our medical scheme clients and their members by providing value in a changing healthcare environment.
Performance during 2020		The Group's financial position remains sound, cash reserves were applied to working capital needs when necessary and the early repayment of debt resulting in a 21.4% reduction in debt during the year The profits arising from the Group's expanded trading base, including the improved earnings from the Group's established underlying businesses, contributed satisfactorily to the financial results during this period under review The financial performance for the period presents the benefits of the Group's deliberate diversification strategy, revealing the solid growth in the maturing pharmaceutical cluster Achieved headline earnings growth of 15.6% Increase in cash earnings per share of 38.3%
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Headline earnings per share (cents) 55   53   53.42   47.29     Dividend yield (%) 4 – 5   4 – 5   9.2   6.9     Share price (cents) >600   >600   369   495     Normalised headline earnings per share (cents) 55   53   54.63   49.13     Return on equity 15   15   14.7   13.21
Looking ahead		While mindful of the potential difficulties that could lie ahead due to the uncertain impact of Covid-19, the Group is cautiously confident in the future of current Group operations, hopefully to be enhanced going forward by the additional contributions of recent developments and the acquisition of the DENIS Group. The financial position of the Group remains sound, and the Group is sufficiently capitalised for its immediate needs and management will continue in the normal course to promote organic growth and consider compatible bolt-on opportunities for acquisition. The impact and industry consequences of Covid-19 will be closely monitored, and the Group will naturally consider any changes to its plans in response to any such events.

Strategic objective		Maximising growth opportunities
What this means for AfroCentric		We increase our revenue through acquisitions, scheme consolidation, public-private partnerships with government and organic growth. The Group acquires businesses that contribute to our value chain and grow our client base. By integrating them into our organisation, we create opportunities for new acquisitions to grow and decrease healthcare costs.
Performance during 2020		MMed, Scriptpharm and Pharmacy Direct experienced strong growth by securing major contracts or expanding into new markets facilitated by AfroCentric We acquired the remaining 20% of Scriptpharm, effective 1 August 2020 Acquisition of 100% of DENIS, which specialises in dental benefits management Two important contracts were secured for efficient Chronic Medical and HIV management Medscheme secured the contract to administer the MEDiPOS Medical Scheme Challenges included retaining closed scheme clients in a challenging environment
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Number of lives administered (million) 3.8   3.7   3.8   3.7     Revenue growth (%) 15   18   21.6   25.7     Business acquisitions (number) n/a   1   0   4     Business acquisitions revenue contribution (%) n/a   –   –   5.55
Looking ahead		The high risk of buy-downs and member resignations present a challenge to revenue growth. However, we will continue leveraging our diversified offering to grow member value. Furthermore, management continues to assess plans for organic growth and selective acquisition opportunities to complement existing Group trading and service offerings.

Strategic objective		Reducing healthcare costs
What this means for AfroCentric		Achieving healthcare for all in an environment of rising healthcare costs requires a singular focus on cost reduction for our clients and their members. In this regard, aligning medical scheme inflation with consumer price index inflation remains a challenge. Most of our strategic objectives serve the purpose of reducing healthcare costs, and our integrated model is an essential component of the strategy.
Performance during 2020		Successful tariff negotiations to drive down pathology tests, hospital tests and product prices Achieved further integration across the value chain to enhance cost efficiencies Through MMed, secured drastically reduced prices for pharmaceutical, surgical and medical products and devices for scheme members Cost savings achieved through our Scriptpharm contract with an overall 5% reduction in chronic spend by POLMED and Bonitas schemes since the capitation arrangement was implemented Challenges included the ongoing FWA trials
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Weighted scheme solvency (%) >25   >25   36   32     Average scheme contribution increase (%) CPI+1   CPI+1   3.45   5.18     Cost savings based on IFM (R’m) >500   >500   1 000   1 000
Looking ahead		In the current context, managing the impacts of COVID-19 in terms of the pressure placed on healthcare services and the impact this may have on future costs will be of primary importance. Unlocking the opportunities for efficiencies and cost reduction in telemedicine and virtual care will be an ongoing focus. Furthermore, due to oncology spend and dialyses experiencing cost increases, these areas will be a focus in the year ahead. Diabetes treatment management has seen significant advances; however, these treatments may have cost implications that will need to be carefully assessed and managed going forward to deliver affordable, quality healthcare.

Strategic objective		Improving efficiencies through cost consciousness
What this means for AfroCentric		We are committed to making AfroCentric more efficient. We deploy resources appropriately while optimising our costs and maintaining quality client service. By integrating our systems and services and leveraging technology innovations, we improve our efficiencies and those of our clients.
Performance during 2020		Reduced member to staff ratios due to efficiencies Deployed RPA to reduce costs and enhance efficiencies Over a 36-month period, our operating margins in the pharmaceutical business improved as a result of cost efficiencies achieved in the delivery model
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Percentage of operating profit growth (%) 22   35   29.1   8.8
Looking ahead		We believe certain aspects of the COVID-19 pandemic have highlighted areas for improved cost efficiencies, such as the opportunity for certain staff to work remotely. It also accelerated the adoption of digital means of engagement that will improve efficiencies going forward.

Strategic objective		Diversifying revenue sources
What this means for AfroCentric		AfroCentric's non-health administration and health risk management-related services continue generating a significant portion of revenue. Furthermore, the strategy to diversify revenue sources is increasing the Group's presence in the broader healthcare industry.
Performance during 2020		Solid growth in the maturing pharmaceutical cluster, delivering 49% of Group revenue Diversification of membership within Medscheme, including open schemes and closed schemes
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Non-health administration and health risk management-related revenue (%) 28   35   28   34     Pharmaceutical revenue (%) 52   40   49   38
Looking ahead		The private sector segment of the healthcare industry is expected to contract due to the existing poor economic conditions, which were exacerbated by the COVID-19 pandemic. A continued focus on diversification of revenue sources, therefore, remains key, with the aim of growing our non-medical scheme business above 50% of the Group's operating profit.

Strategic objective		Client experience and membership growth
What this means for AfroCentric		AfroCentric is committed to exceptional client service and continuous improvement in our service offerings.
Performance during 2020		Retention and growth of medical scheme membership remained a challenge, especially amid a challenging economic context Rolling out our VirtualCareTM application WhatsApp member functionality to enhance engagement and member experience Use of chatbots and AI to increase efficiencies and enhance member experience We were challenged by the need for a speedy transition of employees to a work-from-home environment. Despite this, we were able to maintain service levels during and following transition We were able to redeploy staff no longer needed in certain areas of the business due to lockdown restrictions into other areas to enhance service delivery in the most critical areas during that time
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Voice of the Customer Survey (%) 90   90   81.82   82.24     Total scheme membership growth (%) 2% volume growth   2% volume growth   1.6   1.4     Retention of clients (%) 100   100   100   100
Looking ahead		Given the significant level and range of uncertainty, our focus going forward, therefore, will be a continued emphasis on delivering further efficiencies through an 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 businesses to leverage the full benefits of being the most diversified healthcare Group in Southern Africa.

Strategic objective		Promoting transformation
What this means for AfroCentric		Transformation is a strategic enabler for AfroCentric to achieve its vision of creating sustainable healthcare. Our commitment to transformation enables us to drive sustainability for all our stakeholders which is central to our value creation story.
Performance during 2020		We maintained a level 1 B-BBEE score during 2020, demonstrating our commitment to driving transformation within the Group and how we do business Significant improvements in the integration of business processes with B-BBEE requirements The formulation of Group policies and procedures with regard to the five B-BBEE elements in place The formulation and implementation of preferential procurement practices that consistently align procurement to B-BBEE imperatives across the Group has improved Increased collaboration and partnership within the Group to achieve B-BBEE priority objectives, emphasising skills development, enterprise and supplier development and ownership Areas for improvement include black female representation in executive management, as well as enhancing subsidiary integration and reporting alignment
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   B-BBEE level 1   1   1   1     ED spend (R’m) 3.8   4.2   2.8   3.5     SED spend (R’m) 8   3.7   3.3   3.5     SD spend (R’m) 7.6   8.3   6   7
Looking ahead		Education and awareness remain a key objective in ensuring that B-BBEE activities are conducted in a manner that promotes transparency, equity, sustainability and transformation within the Group. Our B-BBEE strategy, which addresses our transformation agenda, is closely monitored and adjusted, with effective controls put in place to assist in the implementation thereof. This strategy is under review with a focus on closing any gaps identified and aligning it closer to the Group strategy.

Transformation and B-BBEE in focus

We are committed to corporate citizenship, driving transformation and upholding our social licence to operate.

AfroCentric was established with the philosophy of promoting transformation and empowerment. We are a black-owned company and the most transformed health-related business listed in South Africa. The Group invests in healthcare-related businesses and our contribution to healthcare extends beyond our products and services.

We invest in people, support transformation, benefit society, provide health management to our members, and make healthcare more accessible to all South Africans. Our social impact starts within the Group and extends to the suppliers and communities we directly impact and the broader society impacted by our health management initiatives.

Transformation

The Group's transformation framework supports both national strategic priorities as well as our purpose of creating sustainable health solutions to do good for all stakeholders.

Our commitment to diversity and transformation is demonstrated by managing employment equity (EE) through several divisional EE forums and the National EE Forum. These forums provide a platform for the Group to monitor EE progress and debate related matters. Our EE policy, EE plan and transformation strategy drive the implementation of EE within our business.

Our EE plan can be viewed on our website: https://www.afrocentric-online.co.za/reports/afrocentric-ar2020/pdf/employment-equity-plan.pdf

Our EE policy can be viewed on our website: https://www.afrocentric-online.co.za/reports/afrocentric-ar2020/pdf/employmentequity-policy.pdf

B-BBEE

There are a number of societal issues in South Africa such as imbalances in career, educational and economic opportunities. B-BBEE directly addresses economic transformation in South Africa by increasing the number of black people who manage, own and control the country's economy.

Our level of compliance with the B-BBEE scorecard demonstrates our commitment to driving transformation within the Group and in how we do business.

Element	Weighting		2019¹		2018		2017
Equity ownership	25		25.00		25.00		25.00
Management control	19		12.69		12.79		11.48
Skills development	20		20.10		18.24		15.83
Enterprise and supplier development	40		39.28		33.76		31.73
Socio-economic development	5		5		4.53		5
	109		102.07		94.32		89.04
Total and B-BBEE level			Level 1		Level 3		Level 4

1	The 2019 B-BBEE verification certificate issued on 6 February 2020 is valid until 29 November 2020.

ACT ownership profile (June 2020)	2019/2020		2018/2019
Black exercisable voting rights that flow through to AHL	45.72%		57.41%
Black exercisable voting rights by black women	11.05%		11.38%
Black entitlement to economic interest that flows through to AHL	45.72%		57.38%
Entitlement to economic interest by black women	11.05%		11.43%
Economic interest that flows through to black designated groups	4.97%		4.39%
Involvement of ownership of the Enterprise of black new entrants	2.14		2.08%

Strategic objective		Uplifting our people
What this means for AfroCentric		At AfroCentric, we are committed to empowering our people by investing in training to meet current and future business needs. Uplifting our people is critical in addressing the skills gap within the Company through careful recruitment, as well as providing learning and development opportunities for employees within the Group. We believe that highly skilled and motivated employees are key to delivering on the Group's strategy and in championing our brand.
Performance during 2020		Launched our talent pipeline programme The new AfroCentric leadership competency model was rolled out COVID-19 pandemic required a completely new mode of functioning
KPIs and targets		KPIs 2021 Target   2020 Target   2020 Actual   2019 Actual   Link to executive remuneration   Total employees (number) 5 595   6 115   5 693   5 923     Training spend (R’m) 5.6   10.5   4.5   7.6     Bursary spend (R’000) 400   400   400   650
Looking ahead		The pandemic has forced us to work differently. It has shown us the need to equip our employees with different types of competencies. Developing our new competency model, aligned to our strategy and new way of work, will be a top priority going forward.