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INTEGRATED REPORT 2017
The healthcare retail business predominantly grew through the
increased scripts that Pharmacy Direct processed for the NHI
contract. Pharmacy Direct more than doubled its NHI-related
business because state patients took up chronic medication
distribution in conjunction with the efficient registration platform
it created together with the Department of Health (“DOH”).
However, it should be noted that this contract has very small
margins – the medication is supplied by the DOH, and
Pharmacy Direct only receives a distribution fee without any
gross profit margin on medication.
Overall, this was a pleasing result from trading entities
that have contributed to the approximate 50% growth in
operating profit.
NON-RECURRING CORPORATE
TRANSACTIONAL COSTS
The Sanlam transaction included onerous resolute conditions
whereby the Group had to account for the subscription price
received from Sanlam on a liability basis, until the earnings
warranty period ended on 30 June 2017 (as per IAS 32).
Consequently, the Group recorded a non-cash flow and non-
recurring deemed interest charge on the total liability amounting
to R45.9 million. However, upon concluding the earnings
warranty, this expense does not recycle back to the statement
of comprehensive income.
The Group satisfactorily measured and achieved the earnings
warranty, but also indemnified Sanlam from any pre-subscription
expenses up to 30 June 2017. These indemnification expenses
amount to R14.8 million which concludes all funds and
expenses of the Sanlam transaction.
The WAD transaction, concluded in 2015, also entailed a
second tranche payment in 2017 which required fair value
measurement at 30 June 2017. The second tranche was
payable in cash to the WAD vendors and, due to the increase
in the AfroCentric share price and the improved performance
of the WAD assets, the Group incurred a R59.6 million
non-recurring fair value expense.
NORMALISED EARNINGS
Due to the significance of the above corporate transactions and
the Group considering various future investments, it has
become pertinent to highlight the real trading performance of
the Group, excluding the impact of corporate transactions.
The Group has therefore defined a criterion in its financial
statements relating to normalised headline earnings and will
continue reporting on it in future.
The Group’s size and expertise set
the foundation for it to be the most
influential health risk manager for
medical schemes, and the most
effective driver of more affordable
healthcare.
The 2017 financial year will reflect the Group’s South African
consolidation strategy, and the conclusion of the transactions
it entered into during 2015. The Group’s size and expertise,
which are both shown by its operating profit growth, set the
foundation for it to be the most influential health risk manager
for medical schemes, and the most effective driver of more
affordable healthcare.
However, the WAD acquisition and Sanlam’s subscription
impacted earnings per share, due to the non-cash flow and
once off costs that the accounting standards require in our
financial statements. The impact of these transactions is
further explained in the analysis below.
HEALTHCARE OPERATING
PROFIT GROWTH
The 20.22% growth in revenue was mainly because
POLMED medical scheme was included for 12 months,
compared to six months in 2016. Between October 2015
and May 2016, the Group incurred significant costs in taking
on 500 000 lives from POLMED. The Group obtained the
cost efficiencies for administering the scheme during the
2017 financial year.
On 1 October 2016, Liberty Medical Fund merged with
Bonitas Medical Fund, increasing our revenue, by growing
our biggest open scheme client in excess of 17%. In order
to smoothly transition the members of Liberty Medical Fund,
the Group and the previous administrator entered into an
agreement to continue using the administration system up
to June 2017. The transition cost R35 million, and it will
reduce the employee complement from 180 to 90, which
will yield efficiencies and financial returns for the Group in the
2018 financial year.