COMMENTARY

AfroCentric is a Level 1, majority black-owned JSE listed investment holding company, which owns and operates a diverse range of healthcare-related enterprises that provide specialised medical scheme administration and deliver a range of healthcare products and services to the public and private healthcare sectors. The principal objective of the Group is to ensure the delivery of efficient health management services and the distribution of quality products – all at a manageable and affordable cost for the benefit of our stakeholders. AfroCentric has successfully broadened its interests in the industry by continuing to pursue new opportunities to expand and rationalise its presence across the healthcare sector.

The Group's Pharma Cluster experienced significant growth in the prior year during the COVID-19 pandemic, which resulted in high-levels of adherence to chronic medicines by the patients, as well as the increase in the uptake of preventative products like multivitamins. In the current year, we have however observed a significant decline in the adherence to the chronic medicines, and the demand for the preventative products like multivitamins has reverted back to the pre- COVID-19 levels.

In line with the Group's overarching ambition to impact society, AfroCentric worked closely with the government, and utilised its infrastructure to rapidly distribute the procured vaccines – 210 thousand vaccines were administered in some of the major cities in South Africa. The overall performance of Group was partly impacted by the vaccination programme it undertook, as approximately R25 million was invested in this project. Despite some of these changes that have had an impact on the Group's results, the Group has continued to make strides in delivering on our purpose of enhancing the quality of life.

Services Cluster

The Services Cluster substantially comprising the medical scheme administration business has in line with our commitment to continuous improvement, refreshed its approach by leveraging its diversified business model and enhanced client-centricity to drive superior long-term partner sustainability.

It remained focused on cost reduction through increased efficiency and an enhanced operating model. The cluster delivered solid performance, primarily driven by continued optimisation efforts in our operations, utilising our technology, data and business engineering capabilities.

Digitalisation has allowed us to focus on high-quality customer experience initiatives, making significant gains in improving customer experience metrics over the year. The intelligent automation of processes, coupled with automated decisioning remained a priority and will enable efficiency in delivering value-added services that foster a unified experience along the entire servicing continuum.

The following innovations were realised during the year:

• The conclusion of the development of a new Hospital Benefit Management system that enables digital engagement with providers and members seeking hospital authorisations. This system leverages the latest technology in decisioning and, when integrated with the claims decision engine, will make the hospital admission and claims process almost immediate at first submission.
• The launch of AMP, a new digital wellness platform designed to integrate into medical schemes' existing member apps. It places the well-being of scheme members in their own hands, to create a South Africa that is healthier together.
• Medscheme has also leveraged its digital capability to scale its integrated mental health solution, through partnering with a mental health app that improves access to self-care solutions, group sessions and virtual care.
• The roll-out of VirtualCare continued during the year – this innovative platform gives patients access to safe, affordable virtual consultations with registered healthcare professionals. The team continues to improve this service, offering more people safe healthcare, and investing in various business solutions to deliver service excellence in real time and on demand.

The cluster's operating profit declined slightly by 2% due to the once-off investment in the vaccination project.

Pharmaceutical Cluster (Healthcare Retail)

The Pharma Cluster has a presence across manufacturing, wholesale and retail, which provides risk mitigation due to revenue diversification and enables the Group to deliver on its ambition to reduce the cost of healthcare. The Pharma cluster has shown resilient performance against the backdrop of the uncertainty of the global COVID-19 pandemic, which continued to redefine the operating context of our business. Operating profit and profit after tax grew by 10% and 6% respectively.

The sales of preventative medication retracted to pre-COVID-19 levels, which resulted in sluggish profit growth in the pharma cluster. Other factors included reduced script performance due to non-adherence to the renewal of chronic medication scripts, the slower than anticipated progress on the oncology product line, and price pressure to reduce the single-exit price. Encouragingly, the reduction in the private portfolio script performance has been offset by an increase in the National Department of Health (NDoH) script performance.

Management's agile response enabled the cluster to adjust to changes in the market demand by implementing operational efficiencies, driving down costs, growing the customer base and continuing to diversify revenue streams, despite the challenging operating environment.

As part of the effort to enhance efficiencies within the Pharma Cluster, the Robotic Automation of the dispensary reached its final implementation stage in November 2021. The solution is performing well and will allow Pharmacy Direct to scale the business at short notice. In addition, initiatives such as redesigning and digitising the back-office support and clinical processes are underway. These strategic initiatives are yielding positive results with a significant reduction in the cost per script, as well as enhanced patient care and service experience. The implementation of these initiatives resulted in Pharmacy Direct incurring once-off costs, which will be fully realised through improved operational efficiencies in the short to medium term.

In addition to these strategies, the acquisition of Activo Healthcare Assets Group will strengthen Activo's product offering to the pharmaceutical market.

Corporate Solutions Cluster

The Corporate Solutions Cluster comprises various entities that support the overall aim of offering uniquely integrated, employee-focused health and wellness solutions to corporate and institutional clients. The cluster's interfacing components seek to contribute to a reduction in primary costs while increasing productivity and delivering tangible savings to employer groups.

The cluster continues to show significant growth, producing notably improved results with integration efforts being realised.

It is pleasing to note that the AfroCentric Primary Health Insurance product for corporates that was launched in 2021 grew by 20% year-on-year.

• Medscheme was awarded the full managed healthcare tender for SAMWUMED, effective 1 January 2022.
• AfroCentric Health (RF) (Proprietary) Limited, the Group's main operating subsidiary retained its Level 1 B-BBEE rating.

The Group's revenue for the year increased by 8% from the prior year – this is mainly attributed to the 35% increase in the revenue from the DENIS Group, as it has now been incorporated into the Group results for a full year. The additional services from the GEMS managed care contract, coupled with the growth in the GEMS membership have contributed to a 14% growth in the Services Cluster revenue. The Service Cluster operating profit declined slightly by 2% due to the once-off investment in the vaccination project.

Despite the challenges experienced by the Pharma Cluster in respect of the non-adherence to chronic medicines, the decline in the demand for preventative care medicines, as well as the price reduction in some of the products, the cluster has achieved a 13% increase in revenue.

The investment in the digitisation of the Group, as well as the investment in various new product initiatives, has resulted in a 3.5% decline in Profit before tax to R675.2 million (2021: R699.5 million).

The Group's deliberate diversification strategy and customer centric services during the COVID-19 pandemic has ensured that earnings continued to grow in excess of the 2020 HEPS of 53.42 cents.

AfroCentric has for some time focused on growth initiatives to maximise the purchasing power of a member'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:

• Activo Health concluded its acquisition of Forrester Pharma, effective 1 August 2021, to expand its product offering to the pharmaceutical market. The acquisition is consistent with AfroCentric's growth objectives in the healthcare sector and will strengthen Activo's product offering to the pharmaceutical market.
• AfroCentric Health (RF) Proprietary Limited's acquisition of the Sanlam Gap cover business effective 1 September 2021 is expected to provide supplementary services to the Group's medical scheme offerings.
• AfroCentric Distribution Services acquired the remaining 49% shareholding in Tendahealth. Tendahealth offers investment, health and insurance solutions to protect and enhance health and financial wellness – it plays a critical role in rendering brokerage services on behalf of our medical scheme clients.
• AfroCentric Health acquired the remaining 49% shareholding in AfroCentric Distribution Services (ADS) on 1 July 2022. ADS performs a critical role through its marketing and support services for medical schemes. In preparation for our future growth strategy of marketing integrated products, it has become imperative to own the full distribution capability to market the Group's new generation products and those of our other partners.

AfroCentric has delivered satisfactory operating results for the period ending 30 June 2022, particularly given national economic challenges and the economic uncertainty. While medical scheme memberships are affected by members downgrading their medical aid options, we are seeing members doing everything in their power to retain their existing health cover. However, from a chronic medicine adherence, we have seen a decline in compliance, as the demand for the preventative medicines has reverted to pre-covid levels.

The Group's acquisition activities are largely now completed, and the focus now turns towards yielding synergies and integration with the acquired businesses and products. This organic growth focus is largely linked to our combined effort with Sanlam to offer new healthcare solutions in the South African market.

Our future focus will remain on enhancing 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.

The following changes were made to the Board during the period under review:

• Dr SA Zinn did not avail herself for re-election as an Independent Non-executive Director effective 18 November 2021.
• Mr SE Mmakau resigned as an Executive Director effective 31 January 2022.
• Mr WH Britz stepped down as an Executive Director effective 10 March 2022. He however remained on the Board as a Non-executive Director.
• Ms K Mkhize was appointed as a Non-executive Director effective 20 June 2022.
• Mr JJ Strydom resigned as a Non-executive Director effective 20 June 2022.

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 2022. Dividends are subject to Dividends Tax. The payment date for the dividend is Monday, 14 November 2022.

• 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 576 711 257 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, 9 November 2022 and Friday, 11 November 2022, 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 notes to disaggregated revenue of the annual financial statements.

The Consolidated Financial Statements have been prepared in accordance with and contain disclosure required by IAS34 Interim Financial Reporting, the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), 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 2021.

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

Johannesburg
13 September 2022