• H1 23A results snapshot: Revenue growth was subdued, up 1% y/y (+1% h/h), driven by the Group Admin business (+2% y/y), while Healthcare Retail revenue was broadly flat. EBITDA was down 9% y/y (-18% h/h), with profitability in Healthcare Retail under the most pressure. Accordingly, the Group margin contracted by 131bps y/y to 11.2%. Reported normalised diluted HEPS (ND. HEPS) declined by 10% y/y to R 23.07/share (adjusted for once-off costs of R12.2mn related to the Sanlam transaction).
  • Significant once-off and extraordinary costs adversely impacted the results: If we adjust for legal costs (R14mn) related to the Neil Harvey and Associates case, ND. HEPS was only down 3% y/y to R 25.15. The results were impacted cumulatively by extraordinary costs of R 37mn (R 0.06/share pre-tax), including IT modernisation (R15mn), load-shedding related (R5mn), improved system licences (R13mn) and IT forex changes (R4mn).
  • Excluding the Information Technology business, the Group Admin business would have had a strong performance with EBITDA up 8% y/y (63% of Group EBITDA): Overall revenue was up 1% y/y, with all businesses contributing to growth, especially the Denis Group (+4% y/y) and Healthcare Africa (+12% y/y). Despite this, EBITDA declined by 7% y/y, largely explained by reduced profitability in the Information Technology business (-31% y/y) from increased spend (expensed and not capitalised) on improving IT infrastructure. The operating environment is likely to remain tough with membership retention to be increasingly more challenging with rising interest rates (impacting bond and car instalments), planned/announced retrenchments and the adverse impact on GDP from continued loadshedding in South Africa.
  • Healthcare Retail segment (28% of Group EBITDA) experienced a tough six months (EBITDA -18% y/y): Revenue was flat y/y, with gains in Activo (+14%) and Mmed (+5%), while Pharmacy Direct and Scriptpharm saw declines of 5% and 4%, respectively. Profitability was down across all businesses and has prompted ACT to review the Mmed (Surgical and Consumer Retail) business model in order to drive improvements and maximise value from the business. Headwinds persist from declines in the average revenue per script and pressure on ARV pricing.
  • Net working capital (NWC) continues to increase: This was mainly driven by an increase in receivables days to 41 days (H1 23A: 22). NWC reached 7.4% (H1 22A: 5.3%) of annualized revenue, while NWC increased by 45% y/y, equal to an increase of approximately R200mn. This increase is explained by outstanding receivables related to the DOH (R 125mn) and Surgical and Consumables (R95mn).
  • Reduced profitability and an increase in NWC adversely impacted gearing and finance costs: Net debt increased by 30% y/y (+52% h/h) to just under R800mn, with net debt/EBITDA of 0.8x. Accordingly, net finance costs increased by 17% y/y (+10% h/h). Encouragingly, CapEx levels have normalised, with CapEx down 24% y/y.
  • Dividends suspended due to the significant increase in trade receivables: A final dividend will be considered in June post the Sanlam transaction and will be based on the FY 23E results.
  • Sanlam transaction on track to be concluded in Q2 23E (CY): The partial offer was confirmed as unconditional on 16 February 2023 with level of acceptance reaching 46.4% of issued share capital. 28 March is the last trading date to be eligible to participate in the partial offer.
  • Our forecasts and valuation are under review.

Download H1 23A Insights