AfroCentric sees affordability as key
AfroCentric Group has its sights set on a bigger slice of SA's open medical aid industry with a plan to make health care more affordable, says CEO Ahmed Banderker. Through Medscheme, the group administrates 39.5% of SA's open and closed medical aid schemes. In comparison, Discovery Health administers just over 40%.Open medical schemes are those that anyone can join whereas schemes for the police (Polmed) and government workers (Gems) have restricted membership. Banderker said this week he would like to see AfroCentric's medical scheme administration market share increase by 25% over the next three years. The group's focus on the supply side of health care and its ownership of businesses throughout the health-care value chain are key to its hoped-for growth, because these give it more control and influence in the pricing of health-care products and services.Banderker said AfroCentric was working on "a new value proposition" that would reduce the cost of health care for medical schemes. With the number of South Africans with medical insurance stagnant at 8.8-million, recruiting has been challenging.But Banderker believes there is scope for AfroCentric to lure the uninsured who have jobs and could afford a product at the lower end of the scale. The strategy of achieving growth through affordability has worked at Gems, which grew its membership by 16,744 to 710,211 in the past year.AfroCentric CFO Hannes Boonzaaier said: "Many members in the government perhaps were still on normal open schemes [and are now] feeling the pinch. They are getting a very good subsidy from the government and hence [Gems] is becoming the best option." Banderker said AfroCentric's diversity of business interests, along with boosting its market share, would cushion revenue and profit from any shocks that might come if and when National Health Insurance (NHI) is fully implemented. The NHI Bill has been a topic of debate and contention as the role of the private sector and the government's ability to roll out and manage NHI continues to be questioned.However, Banderker said he was not "too stressed" about NHI. He said the gap of several years before its implementation - scheduled for 2026 - meant private medical schemes still had a long lifespan ahead of them. "I think you and I know the 2026 time frame is very optimistic and probably unrealistic . That's the one reason for confidence. The second reason for confidence is because we have built a [diverse] business which is now fairly resilient," said Banderker. He added the group did however, support the NHI. In its annual results for the year to end-June, AfroCentric reported that headline earnings had increased by 1.6% to R265.2m.Its health-care services operating profit was R548.4m, down from R555.3m, while health-care retail operating profit rose from R67.8m to R129.2m.Gryphon Asset Management portfolio manager Casparus Treurnicht said AfroCentric was in a good position to take market share from its competitors.However, he added: "In my opinion it does not work to diversify unless it is organic. Usually corporates acquire businesses and in hindsight for the wrong reason, even though it appears sound at first."Referring to AfroCentric's acquisition of a 74% stake in pharmaceutical company Activo Health last year, Treurnicht said he was sceptical because it was a large acquisition and sellers usually had better information than buyers, which was why up to 90% of acquisitions failed.AfroCentric now fully owns Activo, having previously bought 26% of the company.