Investment holding company AfroCentric reported mixed annual results for the year to end-June. While impairments dragged down the group’s profit for the period, higher headline earnings are an indication the SA pharmaceutical sector is returning to prepandemic levels.
AfroCentric, whose controlling shareholding was acquired by Sanlam in 2023, owns and operates a range of healthcare-related enterprises, servicing both the private and public sectors.
The company reported a 0.4% increase in revenue from the prior year, attributing the marginal improvement to lower risk income being generated by its cluster of pharmaceutical businesses.
Headline earnings per share (HEPS) were up 11% at 40.3c.
While it reported increased HEPS, the group’s profit after tax plummeted 74.9% from the prior year, after significant impairments to its pharmaceutical businesses.
A significant decline in operating profit for the Activo Group led to a R130m impairment on the subsidiary, while Pharmacy Direct and Curasana saw a R100m impairment “based on the low growth achieved in 2024 and increasing competition in the pharmacy delivery market”.
“There results demonstrate, in some businesses, a sustainable performance, while in others we experienced tough trading conditions,” AfroCentric said in its annual results.
“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 medicines that do not impact their medical scheme’s 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.”
On top of the R230m in impairments recognised, the loss in profit was also the result of higher costs being incurred over the period, in line with the group’s strategic investment drive.
“The group’s deliberate investment in clinical capabilities [and] 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,” said AfroCentric.
“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 of servicing and engaging our customers/members.”
The company also reported improved cash flow for the period, with cash and cash equivalents reaching R330.3m from R85.7m in 2023, while borrowings remained stable at R628.4m.
According to AfroCentric, capital management and cash flow generation had been a focus point for the company’s management team over the past few years, which yielded positive results this year.
“The cash flow generation has been exceptional in 2024, considering the funding that was granted for additional acquisitions (R131m) without the use of any additional borrowing costs,” the company said.
“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 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 spend on IT and resources which will then enable the operations to become more efficient,” the company said.
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