SUMMARISED AUDITED ANNUAL RESULTS
FOR THE YEAR ENDED 30 JUNE 2024
AfroCentric “ACT” 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 Board presents commentary on AfroCentric’s operating performance for the twelve months ended 30 June 2024. These results demonstrate, in some businesses a sustainable performance while in others we experienced tough trading conditions. The market factors in the pharmaceutical sector are geared towards more competition resulting in the Pharmaceutical Cluster experiencing margin erosion as well as members opting to rather buy cheaper generic medicine that do not impact their medical scheme out of pocket expenses. With this in mind, the Board has decided to take a prudent approach towards its investments in the Pharmaceutical Cluster by impairing some of the historical investment values.
The traditional medical scheme administration business has sustained its continuous growth in terms of revenue and efficient servicing costs, although the activity levels have increased significantly as members return to normalised levels of care. The requirement by our client schemes to make medical aid more affordable is also driving higher servicing costs in the clinical space in order to manage medical claims patterns.
The Group’s profitability has also been affected by the investment in IT system modernisation and infrastructure refresh that is currently underway, as the Group gets ready for a more digitally focused mode of engagement. This creates an exciting opportunity as we remove all legacy systems and allow ourselves to move at pace with consumer demands and further collaboration with Sanlam.
All these shifts, some of which are once-off in nature, have impacted the Group’s operating profit with lower than expected growth.
The Services Cluster, substantially comprising of the medical scheme administration business, has mainly focused on creating certainty with regards to sustainability, innovation and improved member experience at care and service touchpoints. Significant traction has been gained with regards to the digital solutions and enablement capabilities that ensure optimal delivery of our product solutions.
The Cluster has seen a 6.0% growth in revenue linked to net growth in membership in most of the big open and closed schemes under management. This growth has mostly been recorded in the latter part of the financial year as members have selected their medical scheme options for the 2024 calendar year.
The increased costs in clinical servicing of medical claims, investment in new product development capabilities as well as the IT modernisation has however increased in line with our revenue growth resulting in a marginal operating profit growth for the Services Cluster.
The Pharma Cluster operating profit grew by 7.3%, mainly influenced by the low base of operating profit in 2023 due to the closure of the hospital surgical consumables business in the prior year. The growth in operating profit was however diluted by Pharmaceutical sales, which were negatively impacted by a general slowdown in over-the-counter/front-shop sales and specific pharmaceutical products, lower adherence by patients to chronic medicine, a reduction in SEP (regulated medicine pricing), as well as uncertain consumer spending patterns on preventative medicine.
The Activo Group revenue increased by 6.0% but operating profit declined significantly, which necessitated an assessment of the future earnings stream of this subsidiary compared to the expectations of when the company was acquired. Based on this assessment an impairment of R130 million has been recorded on the combined investment value of Activo and Forrester of approximately R868 million.
The Pharmacy Direct business has also seen low growth of 1.8% in operating profit, which required various interventions during the year in order to improve the delivery costs of both the private sector and state contracts being serviced. This included projects to return non-adherent patients, savings on clinical cost by digitising several activities, as well as projects to optimise courier costs. The action plans have already yielded positive results, with a reduction in the overall costs per scripts, and an increase in the number of scripts.
Based on the low growth achieved in 2024 and increasing competition in the pharmacy delivery market, an impairment of R100 million pertaining to Pharmacy Direct and Curasana has been recognised.
The Corporate Solutions Cluster comprises of 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.
Following the acquisition of the Sanlam Gap cover business in 2022, the Sanlam Gap business continues to deliver solid performance and has bolstered the Cluster’s profitability. The Primary Health Insurance book has seen a 25.1% increase off a low base and the Gap cover book size has increased by 27.9%.
The Group’s revenue for the 12 months marginally grew from the prior year. This is attributed to the 2023 revenue of the discontinued surgical business that is now excluded, as well as lower risk income being generated in the pharma cluster after the benefits of prior Covid cycles still prevalent in the 2022 calendar year.
The Group’s deliberate investment in clinical capabilities, digital solutions to enhance member experience, has resulted in costs being incurred to ensure best claims management capabilities as well as IT system modernisation and infrastructure refresh.
Pursuant to these additional costs incurred and impairments recognised (R230 million), the Group’s profit before tax decreased by 51.6% amounting to R207.0 million (2023: R427.4 million). The Group’s profit after tax (PAT) decreased by 74.9% amounting to R74.3 million (2023: R295.5 million).
The Group has also transitioned fully on its share capital structure further to the conclusion of the Sanlam subscription for shares in May 2023 which has resulted in the weighted average shares increasing by 38.9% compared to 2023.
The Headline Earnings have increased by 54.1% to R334.8 million (2023: R217.3 million). Headline Earnings per Share increased by 11.0% to 40.3 cents (2023: 36.34 cents).
Despite the negative impact of the impairments in investments in the Pharma Cluster, the Group will continue with the investment in data capabilities to explore better and more efficient ways in servicing and engaging our customers/members.
Capital management and cashflow generation has been a focus point for the management team over the past few years and 2024 has yielded positive results in the cash and cash equivalents balances reaching R330.3 million (2023: R85.7 million) whilst borrowings remained stable at R628.4 million (2023: R648.0 million).
The cashflow generation has been exceptional in 2024 considering the funding that was granted for additional acquisitions (R131 million) without the use of any additional borrowing costs.
During the period under review, AfroCentric Health acquired the remaining 49% shares in Essential Group effective 22 February 2024. The Essential Group is the licence holder of the primary insurance business which has seen a 24% growth in policies in the past year. The Group’s expectation is that these low-income products will attract bigger demand in future as medical scheme affordability decreases in future.
The Group’s core business remains sound with good diversification in the private and public medical scheme membership. The focus for the remainder of 2024 will be to optimise its spend on IT and resources which will then enable the operations to become more efficient in its service model.
Capital Management has been prudent with good cash generation during 2024 and our total borrowings are now only 52% of the facilities available. This access to funding positions the Group well for future investments in enhancing its product offering and appetite for exploring risk-taking products in the medical scheme services.
The Group’s focus will remain on utilising synergies and 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.
The building blocks for an aligned partnership with Sanlam has been set in motion with improved sales capabilities and product enhancements for both medical scheme and insurance members which will be communicated later in 2024.
The Group declared an interim dividend for the interim period ended 31 December 2023 and communicated its intention of changing its year end to align with Sanlam Limited’s year end of 31 December 2024. With this in mind, a new dividend policy has been set where dividends will be declared annually based on audited results and shareholders are therefore reminded that the next dividend payment will be in May 2025, based on the 2024 calendar year performance.
The following changes were made to the Board during the period under review:
Although these summarised annual results were themselves not audited, they are extracted from the consolidated and separate annual financial statements which were audited by KPMG Inc. who issued an unmodified audit opinion on the financial statements.
The summary consolidated and separate annual financial statements for the year ended 30 June 2024 have been prepared in accordance with the requirements of the Companies Act of South Africa, Act 71 of 2008 (Companies Act) applicable to summary financial statements, the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS® Accounting Standards), 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 the consolidated and separate annual financial statements from which the summary financial statements were derived are in terms of IFRS Standards and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for new policies for IFRS 17 and those policies that were aligned to Sanlam's policies.
The consolidated and separate annual financial statements together with the audit opinion thereon are available on our website (http://www.afrocentric.za.com/invreporting.php), or at our offices upon request. The Board of directors (the Board) takes full responsibility for the preparation of this report.
These consolidated and separate annual financial statements have been prepared under the supervision of Hannes Boonzaaier CA (SA), Group Chief Financial Officer.
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
3 September 2024