Services Cluster

The Services Cluster, substantially comprising the medical scheme administration business has, through our integrated model, enabled innovative solutions that meet critical needs to protect and optimise the use of healthcare savings and generally, to assist scheme members and employers during the COVID-19 pandemic. In addition, the cluster has escalated use of automation solutions, machine learning and artificial intelligence to refine the group’s operational business model. The cluster has remained focused on cost reductions, for increased efficiencies of the operating model.

In line with this focus, the following innovations were realised:

• The conclusion of a new Hospital Benefit Management system that enables digital engagement with providers and members seeking hospital authorisations. This system leverages the latest technologies and will make hospital admissions and claims processes almost immediate.
• The VirtualCare™ application was introduced, this being an innovative platform that gives patients access to safe, affordable virtual medical consultations with registered healthcare professionals.
• A WhatsApp solution was made available to medical scheme members as an additional communication and self-help platform, to educate members and update them on the current status of the COVID-19 situation.
• The acquisition of Denis Information Systems (“DENIS”) has supported the services cluster in enhancing its dental management capabilities to all clients. The integration process has already yielded benefits with current Medscheme clients being onboarded to these services.
• The additional services being managed for the Government Employees Medical Scheme (“GEMS”) have already contributed positively to the efficient containment of claims, the positive purpose being to limit contribution increases for better affordability.

Despite certain reductions in medical scheme memberships, including the downgrading of medical aid options, the cluster was nevertheless able to increase its operating profit. This commercial gain is largely attributed to the group’s committed new measures for operational excellence and disciplines for more effective cost control.

Pharmaceutical Cluster (Healthcare Retail)

The level of economic uncertainty that was presented by the COVID-19 pandemic, required the Pharma Cluster to become more agile and adaptable to constant changes in market conditions and consumer spending patterns. Increased demand, through greater chronic medication compliance, as well as a desire for preventative products (like vitamins) all contributed to the pharma clusters improved performance. The demand for increased contactless servicing and home deliveries during the pandemic also resulted in a significant surge in script delivery by Pharmacy Direct.

In order to enhance efficiencies of the Pharma Cluster, we introduced partial automation within our Pharmacy Direct facility. In addition, Pharmacy Direct launched an “online shop”, easily accessible by all patients and the public, to best reveal and market the convenience of other products and services provided by the Group, such as VirtualCare™.

Activo, the Group’s pharmaceutical manufacturer, successfully fulfilled its profit warranty during the period under review, a feature of the agreement, on acquiring the remaining 74% of the Activo shares in 2019. The three-year earnings warranty was achieved, having delivered a compound growth of 18% over the warranty period.

Corporate Solutions Cluster

The Corporate Solutions Cluster comprises various entities that support the overall, uniquely integrated, employee-focused health and wellness solutions, offered to corporate and institutional clients. The cluster’s interactions and activities contribute to a reduction in primary healthcare costs, while increasing productivity and delivering tangible savings to employer groups.

The cluster continues to enjoy significant growth, producing improved results with the desired integration and operational efforts being realised. The launch of the new,  low‑cost AfroCentric primary health insurance product for corporates has been a key highlight.

• Aid for Aids, won a Diamond Arrow Award in the category for disease management (HIV/AIDS) for the second year in a row.
• AfroCentric Investment Corporation Limited, maintained its level 1 B-BBEE rating, in November 2020.
• Pharmacy Direct now dispenses approximately 1 million prescriptions per month contributing to increased profitability for the Group.

The financial results for the year, confirm the positive outcome of the Group’s deliberate diversification strategy, particularly evident when measuring the impact of the Pharma Cluster, now productively integrated as a principal unit of Group operations.

The Group’s revenue for the year increased by 25.8% from the prior year. This was mainly the result of a 35.2% increase in revenue from the Pharma Cluster. The medicine management contracts won by Scriptpharm during the previous year, together with the increased volumes in Pharmacy Direct and Activo Health, being the notable contributors.

The Services Cluster increased its revenue by 16.8%, despite the loss of the Sasolmed administration contract during the year, as well as member buy downs on certain medical aid options.

The various initiatives implemented to ensure operational efficiencies, have resulted in the Service Cluster operating profit increasing by 15.3%, and the Pharma Cluster operating profit increasing by 20.8%.

Following Board approval during the prior year, the Group exited the operations in Eswatini and Zimbabwe resulting in a loss from discontinued operations of R14.0million (2020: R8.1million) being incurred.

Group profits before tax, increased by 12.3% amounting to R699.5million (2020: R622.7million). More comprehensive analyses of the financial results are contained in the further notes provided.

AfroCentric has for some time focused on growth initiatives designed to create a value chain of healthcare enterprises to maximise the purchasing power of citizen’s healthcare spend. Through models of co-operative partnerships and collaboration, the objectives are to improve the affordability of patient care, with viable patient outcomes for easier accessibility to a broader community.

In keeping with that principal philosophy, during the period under review and prior to publishing these results:

• ACT Healthcare Assets acquired the remaining 20% of the shares in Scriptpharm Risk Management, effective 1 August 2020.
• ACT Healthcare Assets acquired 100% of the shares in the DENIS Group, a company specialising in dental benefits management, effective 1 October 2020. The transaction will enable the Group to focus on innovation and efficiency management in dental treatment offerings to all South African medical schemes and their members.
• Medscheme was awarded the GEMS Managed Care Contract for a further 5 years, which includes additional services previously not part of the main managed care contract with regards to HIV management, maternity management and expanded services relating to medicine management, effective 1 January 2021.
• Activo Health acquired 100% of the shares in Exeltis SA (the holding company of Forrester Pharma), effective 1 August 2021. The acquisition is consistent with AfroCentric’s growth objectives in the healthcare sector and will serve to strengthen Activo’s product offering to the pharmaceutical market.
• AfroCentric Health (RF) Proprietary Limited, has entered into negotiations with Sanlam Health Solutions Proprietary Limited for the acquisition of a Gap cover business that is supplementary to its current medical scheme offerings.

While almost all South Africans have in one way or another, been affected by COVID-19, the full impact of the pandemic on our economy is not yet measurable. It is anticipated that economic weakness will likely continue in 2022 and beyond, as South Africa strives to overcome the effects of the pandemic and reboot and restore economic activity.

While medical scheme membership was expected to fall dramatically, we have seen members do everything in their power to retain their existing health cover, not only for their own protection, but also for the health needs of their families. Recognising this, and in line with the Group’s strategy to reduce the cost of healthcare, the group will maintain its focus on driving efficiencies and supporting members’ health, with greater emphasis on lifestyle risk management and mental wellbeing.

The financial position of the Group remains sound. We are sufficiently capitalised to meet immediate needs, and management will continue 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.

Our future focus will remain on enhancing each of 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 more affordable healthcare.

The following change was made to the Board during the period under review:

• Mr T Alsworth-Elvey resigned as a Non-Executive Director effective 31 July 2020, and was replaced by Mr JJ Strydom effective 1 August 2020 (Mr. Strydom is a Sanlam representative who is currently the CEO of Sanlam Life and Savings).

The Board has pleasure in announcing that a final gross dividend of 17.00000 cents per ordinary share has been declared for the year ended 30 June 2021. Dividends are subject to Dividends Tax. The payment date for the dividend is Monday, 15 November 2021.

• Dividends have been declared out of profits available for distribution.
• Local Dividends Withholding Tax rate is 20%.
• The gross dividend amount is 17.00000 cents per ordinary share.
• Net cash dividend amount is therefore 13.60000 cents per ordinary share.
• The Company has 574 964 584 ordinary shares in issue as at the declaration date.
• The Company’s income tax reference number is 9600/148/71/3.

The salient dates relating to the dividend are as follows:

Share certificates for ordinary shares may not be dematerialised or rematerialised between Wednesday, 10 November 2021 and Friday, 12 November 2021, both days inclusive.

Although these financial results were themselves not audited, they are extracted from the consolidated and company annual financial statements which were audited by PricewaterhouseCoopers Inc. who issued an unmodified audit opinion on the financial statements. Their audit opinion can be viewed on the Company’s website (http://www.afrocentric.za.com/inv-reporting.php), which also provides more details on the key audit matters on pages 14 – 16 of the annual financial statements.

The Consolidated Financial Statements have been prepared in accordance with and contain disclosure required by IAS34 Interim Financial Reporting, as well as
the SAICA Financial Practices Committee, Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Limited Listings Requirements of the Companies Act of South Africa, No. 71 of 2008, as amended (Companies Act).

The accounting policies applied in the Condensed Financial Statements are the same as those applied in the Group’s Audited Consolidated and Separate Annual Financial Statements for the year ended 30 June 2020.

The annual financial statements are available on our website (http://www.afrocentric.za.com/inv-reporting.php), or at our offices upon request. The Board of directors (the Board) takes full responsibility for the preparation of this report. These Consolidated Financial Statements have been prepared under the supervision of Hannes Boonzaaier CA (SA), Group Chief Financial Officer.

On behalf of the Board