Logo
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2023
2023
2023

COMMENTARY

INTRODUCTION AND REVIEW

AfroCentric is a BEE Level 1 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 at a manageable and affordable cost for the benefit of our stakeholders.

The Board presents commentary on AfroCentric's operational performance for the six months ended 31 December 2023. The past six months have been significant for our organisation driven by several factors, including integration with Sanlam, increased regulatory activities related to NHI, focused key stakeholder engagement and feedback, recovery against the previous financial and operational performance, the leadership transition, and the initiation of the review of the company's strategy to name a few.

These results demonstrate a slight recovery from the 2023 full year operational performance that was characterised by once off costs associated with various corporate activities and business unit restructuring, a significant investment in a complete IT system modernisation and infrastructure refresh, trading in the pharmaceutical cluster normalising back to pre‑Covid levels and therefore decreasing from the high levels experienced in the 2022 year, adverse price adjustments in some of the main product lines of the pharmaceutical cluster, as well as the closure of the Group's operations in the procurement of hospital surgical and consumables through its subsidiary, MMed.

The medical scheme administration business has sustained its continuous growth in terms of revenue and efficient servicing, despite the marginal growth in membership.

The trading in the pharmaceutical cluster has been sustained, however the profitability of the Department of Health (DOH) contract has significantly reduced due to the lower revenue per script earned on the contract.

CLUSTER REVIEW

Services Cluster

The Services Cluster, substantially comprising of the medical scheme administration business has continued with its commitment of continuous improvement, whilst leveraging our diversified business model and enhanced client-centricity to drive superior long-term sustainability. The Cluster has also focused on member retention initiatives for the open schemes. To support this focus, additional resources have been employed to further increase the net retention rate as part of our commitment to our clients.

In the face of a persistently challenging macroeconomic climate, the Cluster remained focused on cost reduction through increased efficiency and an enhanced operating model, seeking to maintain the operating margins while addressing member needs for affordable, quality care. Our unwavering commitment to optimising operations through digital transformation, leveraging technological advancements, data utilisation, and business engineering capabilities has started yielding greater efficiencies.

The overall membership under administration has shown a marginal increase despite challenging economic conditions. This was mainly driven by continued growth in GEMS and Polmed amid successful member retention endeavours. The membership growth is however offset by low growth on open schemes as there have been losses on the traditional high‑cost options and higher growth on low cost options. Despite the volatility of our operating environment, the Cluster has seen a 6% growth in revenue.

The negative impact on the operating profit was also affected by our drive to enhance client-centricity which resulted in increased personnel costs as there were appointments of additional personnel (including the appointment of senior personnel) to improve scheme relationships and service experience. Management is confident that these appointments and change in processes will correct itself in the second six months of trading in the 2024 financial year.

Pharmaceutical Cluster (Healthcare Retail)

The trading in the Pharma Cluster has slightly improved from the challenging trading conditions experienced in 2023 plagued by supply instability from manufacturers leading to out-of-stock issues for some of our main products, lower adherence by patients to chronic medicine, uncertain consumer spending patterns on preventative medicine, as well as the adverse price adjustments in some of the main product lines.

The strategies and projects introduced in the prior year focusing on increasing revenue (e.g., projects to return non adherent patients, and the introduction of new products to curb the out-of-stock issues) have yielded positive results as there has been an increase in the private patients' scripts with a resultant increase in revenue, as well as an increase in pharmaceutical sales from over-the-counter/ front-shop sales.

The overall revenue for the Cluster has however declined by 3.1% – this is mainly impacted by the reduction in the revenue pursuant to the Group's decision to close down its operations in the procurement of hospital surgical consumables through its subsidiary, MMed.

In the face of the challenging trading conditions in 2023, the Cluster embarked on implementation of cost-reduction strategies (e.g., savings on clinical costs by digitising various processes, and projects to optimise courier costs) with an intended reduction of the overall cost per script and an increased number of scripts. Despite the implementation of these cost-reduction strategies, the Cluster's operating profit has declined by 11.0%. The decline has been negatively affected by the reduced profitability on the DOH contract due to the reduced price per script, as well as the increased personnel costs associated with the employment of additional resources to service the additional provinces that were attained on the renewed DOH contract.

On a positive note, the Cluster has focused on enhancing efficient working capital management practices to address both overstock and understock challenges.

Corporate Solutions Cluster

The Corporate Solutions Cluster comprise 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 has been instrumental in implementing the Sanlam Corporate Wellness Strategy. The strategy is progressing well with regards to the sales and marketing of our health products and solutions into the Sanlam channels. We have seen a 29% increase in the Sanlam gap policies and 19% increase in the primary health insurance policies, albeit from a low base.

GROUP MILESTONES

  • AfroCentric Group subsidiary, Medscheme won the Diamond Arrow Award for its outstanding contribution in Disease Management – Asthma, Hospital Utilisation Management and Counseling of High Claimers at the PMR.Africa Awards. Medscheme also won the Golden Arrow Awards across multiple categories, including Alternative Fee Structure/Reimbursement, Chronic Medication Management, Disease Management – Cardiovascular, Health Risk Assessment, Management of Specialists and GPs and Wellness Programme.
  • AfroCentric Group subsidiary, AfA has once more secured the prestigious Diamond Arrow Award in the Disease Management HIV/AIDS category at the PMR.Africa Awards.
  • AfroCentric Group subsidiary, Pharmacy Direct proudly won the Golden Arrow Award in the Pharmacy Network Management category at the PMR.Africa Awards.
  • The AfroCentric Group proudly attained a status as one of South Africa's Top Employers as designated by the globally recognised Top Employers Institute.
  • AfroCentric Health, the Group's main operating subsidiary, retained its Level 1 B-BBEE rating.

FINANCIAL PERFORMANCE

The focus for the past six months has been the recovery against the previous financial and operational performance – this entailed revenue growth as well as cost containment.

The Group's revenue for the six months grew by 1.4% from the prior year – this has mainly been affected by the closure of the Group's operations in the procurement of hospital surgical and consumables through its subsidiary, MMed. The decline in revenue has however been offset by revenue growth in both the Services Cluster and some of the entities in the Pharmaceutical Cluster, despite the marginal membership growth as well as the decline of the DOH contract revenue.

The costs incurred in the current reporting period were well-contained – there were no significant costs incurred. Recurring costs associated with prolonged loadshedding as well as the legal costs incurred on the second arbitration of the NHA matter were in line with the costs incurred in the prior year.

The Group's profit before tax decreased by 3.2% amounting to R262.2 million (2022: R270.9 million). The Group's profit after tax (PAT) decreased by 4.8% amounting to R185.0 million (2022: R194.2 million).

OUTLOOK

Over the next six months, the Group's focus will be to:

  • Continue to implement corrective actions around the Pharma Cluster businesses to return to historic margins.
  • Continue to strengthen the Risk and Governance Control Environment
  • Accelerate the investment in the Corporate Solutions Cluster to scale the non-medical insurance solutions.
  • Finalise the review of the Group strategy with focused implementation around:

    a. Driving closer collaboration and integration with Sanlam.

    b. Introducing new digital and data use cases to improve client experience.

    c. Optimising the human capital and culture journeys and refining our target operating model.

The Group's core business remains sound with good diversification in the private and public medical scheme membership. The Group will continue to optimise the spend on IT which will then enable the operations to become more efficient in its service model.

The Group's focus will remain on yielding synergies and the integration of various businesses and products, as well as enhancing the elements of the Group's businesses to leverage the full benefits of being the most diversified healthcare group in Southern Africa.

DIRECTORS

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

  • Mr A Banderker resigned as the AfroCentric Group CEO and the Executive Director to the Board effective 1 November 2023.
  • Mr GN Van Wyk was appointed as the AfroCentric Group CEO and Executive Director to the Board effective 1 November 2023.
  • Mr WH Britz resigned as a Non-executive Director effective 1 February 2024.

DIVIDENDS

The Board has pleasure in announcing that an interim gross dividend of 11 cents per ordinary share, has been declared for the period ended 31 December 2023. Dividends are subject to Dividends Withholding Tax. The payment date for the dividend is Monday, 13 May 2024.

  • Dividends have been declared out of profits available for distribution.
  • South African Dividends Withholding Tax rate is 20%.
  • The gross dividend amount is 11.00000 cents per ordinary share.
  • Net cash dividend amount is therefore 8.80000 cents per ordinary share.
  • The Company has 828 092 709 ordinary shares in issue as at the declaration date.
  • The Company's income tax reference number is 9600148713.

The salient dates relating to the dividend are as follows:

Last day to trade cum dividend Tuesday, 7 May 2024
Shares commence trading ex-dividend Wednesday, 8 May 2024
Dividend record date Friday, 10 May 2024
Dividend payment date Monday, 13 May 2024

Share certificates for ordinary shares may not be dematerialised or materialised between Wednesday, 8 May 2024 and Friday, 10 May 2024, both days inclusive.

Effective 31 December 2024, the Group will be aligning its financial year end with Sanlam. Going forward, an annual dividend will be declared and paid based on the audited results for the period January to December.

BASIS OF PREPARATION

The Condensed 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 as issued by the International Accounting Standards Board (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 Consolidated 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 2023.

The Board of directors (the Board) takes full responsibility for the preparation of this report. These unaudited and unreviewed Condensed Consolidated Financial Statements have been prepared under the supervision of Hannes Boonzaaier CA (SA), Group Chief Financial Officer. This announcement does not include the information required pursuant to paragraph 16(A) (j) of IAS34, and this is available on our website (http://www.afrocentric.za.com/inv-reporting.php), or at our offices upon request.

RESPONSIBILITY STATEMENT

The AfroCentric Board, individually and collectively, accepts responsibility for the information contained in this announcement insofar as it relates to AfroCentric. In addition, the AfroCentric Board confirms that, to the best of its knowledge and belief, the information contained in this announcement, as it relates to AfroCentric, is true and correct and, where appropriate, does not omit anything that is likely to affect the importance of the information contained herein pertaining to AfroCentric and that all reasonable enquiries to ascertain such information have been made.

On behalf of the Board

Dr ATM Mokgokong
Chairperson

Mr GN van Wyk
Group Chief Executive Officer

Johannesburg
4 March 2024