AfroCentric Group

AfroCentric is a Level 1 black-owned JSE listed investment holding company, which owns and operates a diverse range of healthcare related enterprises, which include, specialised medical scheme administration, the supply of pharmaceuticals, including a range of healthcare products and services, to both the public and private healthcare sectors. A principal objective of the Group, is to ensure the delivery of efficient health management services and the distribution of quality products, all at manageable and affordable cost, for the benefit of clients and scheme members. AfroCentric has been able to successfully broaden its interests in the industry, by continuing to pursue new opportunities, to expand and rationalise its presence in the healthcare sector.

The Board takes pleasure in presenting commentary on AfroCentric’s (“ACT”) operating performance for the six months ended 31 December 2020. These results have been achieved in a tough economic environment that is plagued by the Covid-19 pandemic. The new variant of the Corona virus, coupled with the restrictions posed by the various levels of lockdown have resulted in the South African economy enduring strain. The health industry is not exempted from this strain as our medical aid clients are facing the pressure of loss of membership, or of members buying down on their medical aid options. Despite the context in which we find ourselves, the Group has made great strides towards achieving our targets.

With all our business units being deemed essential services, we have continued to service our clients throughout the various levels of lockdown. The Group has continued to work tirelessly on developing and implementing innovative ways to ensure that our scheme members are not materially impacted by this pandemic.

• Medscheme concluded the development of a new Hospital Benefit Management (HBM) 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 VirtualCare^TM application development was concluded and rolled out – this application will enable medical scheme members to consult with healthcare providers using a telehealth platform.
• A WhatsApp solution was rolled out 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.
• A full robotic automation of the dispensing of medication is in the process of implementation at Pharmacy Direct for the benefit of our scheme members, with a go live date planned for June 2021.
• As the South African healthcare system strives to fast-track Covid-19 vaccinations before the end of the year, the Group is well placed to play a pivotal role in the distribution of the vaccines. The Group has a national network of over 3000 nurses who will be mobilised to vaccinate frontline and essential workers who are AfroCentric scheme members. These nurses will provide services across South Africa at Medscheme’s member centres, occupational health and primary health clinics nationwide, and will follow-up with members afterwards to monitor their response to the vaccine. Furthermore, the Group’s outreach work-based vaccination programmes will incorporate the use of mobile vehicles or ‘roving’ teams of nurses to deliver vaccines at their point of work, which will also incorporate scheme-sponsored pop-up sites.

Our positive operating results for the six months are in some measure, due to the effective cost savings arising through our early investment in systems development and increased IT capacity, now being applied to greater scale and through improved procedural efficiencies.

• Aid for Aids, won the Professional Market Research (PMR) award for Managed Care.
• AfroCentric Investment Corporation Limited, maintained its level 1 B-BBEE rating, in November 2020.
• Pharmacy Direct dispenses approximately 1 million prescriptions per month resulting in increased profitability for the Group.
• AfroCentric Investment Corporation Limited won the Fledgling/Alt X Merit Award for its 2020 Integrated Report, at the CGISA/JSE Integrated Reporting Awards 2020.

The interim results, confirm the satisfactory results of the Group’s deliberate diversification strategy, particularly evident when measuring the impact of the Retail Segment, now fully integrated into the Group offerings.

The medicine management contracts won by Scriptpharm during the previous year have positively bolstered the profits of the Retail Segment. The increasing volume of activity in Pharmacy Direct and Activo Health’s growth that is continuously boosted by vitamins and chronic medication sales, and the completion of the acquisition of DENIS Group were the notable contributory factors generating growth in comparative segmental operating profits in excess of 20%. The segment is also contributing even more meaningful value and relief in meeting all stakeholder needs, particularly during the stressful time under Covid-19.

The Services Segment, substantially comprising the medical scheme administration business, has also performed extremely well during the period under review. The Group’s continued focus on cost efficiencies and process improvement has yielded satisfactory results. For the six months under review, operating costs increased by 1.6% compared to industry related inflationary costs of approximately 4.4%. The segment has been able to leverage our Group wide capabilities through our integrated model resulting in innovative solutions that meet critical needs while increasing healthcare savings, assisting both medical scheme members and employers during the Covid-19 pandemic, and will be to their benefit in its aftermath. The segment has escalated the use of automation solutions as well as machine learning and Artificial Intelligence (AI) to refine our operational business model. Despite the loss of medical scheme members and/or the members buying down on their medical aid options, the stable and consistent fee structures in this business unit, and the new measures and more effective cost controls described above, this Segment was able to increase its operating profit by a satisfactory 16.4%.

Group profits before tax, increased by 19.1% amounting to R320.1 million (2019: R268.7 million). Group profits after tax (PAT) increased by 13.0% amounting to R226.5 million (2019: R200.5 million).

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.
• AfroCentric Health acquired 100% of the shares in the DENIS group, which specialises in dental benefits management. 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. The transaction became unconditional on 26 August 2020, the effective date was 1 October 2020.
• Medscheme was awarded the GEMS Managed Care Contract 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.
• AfroCentric FastPulse concluded a contract to provide Covid-19 Occupational health and safety support for the Western Cape’s Economic Development and Tourism Department effective January 2021.

AfroCentric has once again delivered satisfactory operating results for the period ended 31 December 2020, particularly given the material disruption and national economic challenges posed by the Covid-19 pandemic. 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 continue in 2021 and beyond, as South Africa strives to overcome the effects of the pandemic and reboot economic activity. While medical scheme membership was expected to fall dramatically, we are seeing members doing everything in their power to retain their existing health cover, not only for their own protection as breadwinners, but also for the health needs of their families. In line with the Group’s strategy to reduce the cost of healthcare, we will maintain focus on supporting members’ health, with greater emphasis on lifestyle risk management and mental wellbeing.

The Group remains comforted that ACT operational subsidiaries have for several years proved their value and resilience in the somewhat defensive healthcare sector. Accordingly, while mindful of the potential difficulties that could lie ahead, ACT is cautiously confident in the future of current Group operations. In light of this caution, the Group is in the process of exiting the Eswatini and Zimbabwe markets, with the exit expected to be concluded by 30 June 2021.

The financial position of the Group remains sound. 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 strategy in response to any such events.

Our future focus will be 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 first issue determined in the arbitration case was Neil Harvey and Associates’ (“NHA”) claim relating to Medscheme’s use, during 2005 to 2007, of a copy of an offline and online broker software module known as the EMI Broker software. The EMI Broker software module was rendered redundant by about 2008 as a result of developments in technology and Medscheme had in any event discontinued the use thereof by that time.

This portion of NHA’s arbitration claims amounted to a claim for approximately R24 million (as a royalty) plus interest which NHA sought to claim from about 2005. The interest claim could have resulted in a substantial addition to the above capital amount of the claim.

The dispute over this issue was heard in July and August 2020 and an award was given during October 2020.

The Board notifies the shareholders that the arbitrator ruled that NHA was entitled to a total of only R2.7m, with interest only from October 2020 to date of payment, and costs. Medscheme had provided the specifications and also assisted in the development of this software and therefore considered it was entitled to use it during the above period. The Arbitrator however found that Medscheme’s contribution fell short of the contribution required for joint authorship and ownership of the software, but as indicated limited NHA’s claim to R2.7m, and costs. The Arbitrator further dismissed NHA’s claims against three of Medscheme’s former executives, with costs and also awarded Medscheme the costs of a previous postponement of the arbitration.

Thus both NHA and Medscheme were ordered to pay costs.

The calculation of the costs relating to the aspect of the arbitration that was heard and resolved in 2020 is now being determined by both parties to assess what the net amount payable by either party will be.

At the time of this announcement the award of R2.7m has been expensed in the interim results and a possible accrual raised for the legal costs. The next part of the case relating to the extension of the licencing agreement of the NHA administration system will most probably commence during the 2021 calendar year.

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 J Strydom effective 1 August 2020 (Mr. Strydom is a Sanlam representative who is currently the CEO of Sanlam Personal Finance).

The Board has pleasure in announcing that an interim gross dividend of 17 cents per ordinary share has been declared for the period ended 31 December 2020. Dividends are subject to Dividends Withholding Tax. The payment date for the dividend is Monday, 17 May 2021.

• Dividends have been declared out of profits available for distribution.
• South African Dividends Withholding Tax rate is 20%.
• The gross dividend amount is 17 cents per ordinary share.
• Net cash dividend amount is therefore 13.60000 cents per ordinary share.
• The Company has 574 951 251 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, 12 May 2021 and Friday, 14 May 2021, both days inclusive.

The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited “Listings Requirements” for summary financial statements, and the requirements of the Companies Act applicable to summary financial statements.

The Listings Requirements require summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of these summarised interim financial statements are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements.

The unaudited and unreviewed interim results have been prepared under the supervision of Mr JW Boonzaaier CA (SA), in his capacity as the Group Chief Financial Officer. This announcement does not include the information required pursuant to paragraph 16A (j) of IAS 34, and this is available on our website (http://www.afrocentric.za.com/inv-reporting.php) or at our offices upon request.