Notes to the Consolidated And Separate Annual Financial Statements | Note 7

7. INTANGIBLE ASSETS
7.1 Intangible assets
 
            Group          
   Brands and 
intellectual 
property 
R’000 		 Pharmaceutical 
dossiers*
R’000 		 Internally 
developed 
computer 
software 
R’000 		 Computer 
software 
R’000 		 Goodwill 
R’000 		 Customer 
relationships 
R’000 		 Total 
R’000 
RECONCILIATION FOR THE YEAR ENDED 30 JUNE 2024 – GROUP AT 30 JUNE 2023                      
At cost  37 416  525 739  1 478 330  238 369  1 607 941  386 851  4 274 646 
Accumulated amortisation  (37 416) (115 678) (532 586) (162 189) –  (295 303) (1 143 172)
Accumulated impairment  –  –  (13 926) (22 562) (49 445) –  (85 933)
CLOSING CARRYING AMOUNT 30 JUNE 2023  –  410 061  931 818  53 618  1 558 496  91 548  3 045 541 
MOVEMENTS FOR THE YEAR ENDED 30 JUNE 2024                      
Additions  –  10 694  151 409  26 140  –  –  188 243 
Amortisation  –  (35 316) (114 562) (16 835) –  (25 977) (192 690)
Impairment loss recognised (Note 7.2) –  –  –  –  (230 835) –  (230 835)
Write-off  –  (6 060) –  –  –  –  (6 060)
CARRYING AMOUNT AT 30 JUNE 2024   –  379 379  968 665  62 923  1 327 661  65 571  2 804 199 
AT 30 JUNE 2024                       
At cost  37 416  530 371  1 629 738  264 509  1 607 941  386 851  4 456 826 
Accumulated amortisation  (37 416) (150 992) (647 147) (179 024) –  (321 280) (1 335 859)
Accumulated impairment  –  –  (13 926) (22 562) (280 280) –  (316 768)
CLOSING CARRYING AMOUNT  –  379 379  968 665  62 923  1 327 661  65 571  2 804 199 
* Pharmaceutical dossiers relate to a set of documents that contains all the technical data (administrative, quality, non-clinical and clinical) of a pharmaceutical product in order to promote, market, sell, import and distribute the product in a specific territory.

 

   Brands and 
intellectual 
property 
R’000 		 Pharmaceutical 
dossiers*
R’000 		 Internally 
developed 
computer 
software 
R’000 		 Computer 
software 
R’000 		 Goodwill 
R’000 		 Customer 
relationships 
R’000 		 Total 
R’000 
RECONCILIATION FOR THE YEAR ENDED 30 JUNE 2023 – GROUP AT 30 JUNE 2022                      
Cost  37 416  512 862  1 334 228  475 944  1 607 941  386 851  4 355 242 
Accumulated amortisation  (37 416) (84 957) (413 372) (355 102) –  (267 343) (1 158 190)
Accumulated impairment  –  –  (13 926) (57 345) (49 445) –  (120 716)
CLOSING CARRYING AMOUNT 30 JUNE 2022  –  427 905  906 930  63 497  1 558 496  119 508  3 076 336 
MOVEMENTS FOR THE YEAR ENDED 30 JUNE 2023                      
Additions  –  12 877  149 516  21 298  –  –  183 691 
Amortisation  –  (30 721) (119 213) (30 929) –  (27 960) (208 823)
Disposals  –  –  –  (248) –  –  (248)
Write-off  –  –  (5 415) –  –  –  (5 415)
CARRYING AMOUNT AT 30 JUNE 2023  –  410 061  931 818  53 618  1 558 496  91 548  3 045 541 
AT 30 JUNE 2023                      
At cost  37 416  525 739  1 478 330  238 369  1 607 941  386 851  4 274 646 
Accumulated amortisation  (37 416) (115 678) (532 586) (162 189) –  (295 303) (1 143 172)
Accumulated impairment  –  –  (13 926) (22 562) (49 445) –  (85 933)
CLOSING CARRYING AMOUNT 30 JUNE 2023  –  410 061  931 818  53 618  1 558 496  91 548  3 045 541 
* Pharmaceutical dossiers relate to a set of documents that contains all the technical data (administrative, quality, non-clinical and clinical) of a pharmaceutical product in order to promote, market, sell, import and distribute the product in a specific territory.
7.2 Impairments
 

The Group performed an annual impairment test as at 30 June 2024. The test involved assessment of internal and external qualitative factors such as instances of underutilisation, obsolescence, physical damage, or material decline in the economic performance of the assets.
(i) Assets in the scope of IAS 36
 

Goodwill

During the year, partial impairment of goodwill to the value of R230 million was recognised on some of the pharmaceutical assets (Activo Health, Forrester Pharma, Pharmacy Direct, and Curasana Wholesaler).

The goodwill impairment was necessitated by adverse price adjustments in some of the main product lines of the pharmaceutical cluster that have had a negative impact on profitability in the current year and are expected to continue into the medium term. The synergies and expected growth in new pharmaceutical product lines that are lagging on the original acquisition assessments of these assets, as well as the anticipated reduction in profitability pursuant to the lower margins in both the private sector delivery market as well as the chronic medication delivery contract with the public sector.

Following the termination of the contract of marketing services that AfroCentric Distribution Services (ADS) renders to the Bonitas Medical Scheme, goodwill that was initially recognised on acquisition of ADS to the value of R835 000 was impaired.

Total impairment losses for the year

The total impairment losses are summarised as follows:

  2024
R’000 		2023
R’000
IMPAIRMENT OF GOODWILL    
Afrocentric Distribution Services 835 –
Pharmacy Direct and Curasana 100 000 –
Activo Health 95 900 –
Activo Healthcare Assets 34 100 –
TOTAL GOODWILL 230 835 –
7.3 CGU of the goodwill
 

A summary per CGU of the goodwill allocation is presented below:

  Group
  2024
R’000 		2023
R’000
HEALTHCARE ADMINISTRATION SA CGU 725 874 493 363
Medscheme – Healthcare administration including Glen Eden* 508 318 274 972
Medscheme – Health risk management 104 155 104 155
Aid for AIDS Management Proprietary Limited – Healthcare administration 23 490 23 490
Allegra Proprietary Limited – Healthcare IT support 1 268 1 268
AfroCentric Distribution Services Proprietary Limited – Healthcare marketing support – 835
Klinikka Proprietary Limited – medical equipment supplier 2 435 2 435
TendaHealth – Healthcare insurance broker 1 162 1 162
Scriptpharm – chronic scripts claim 2 699 2 699
Essential Group – Healthcare insurance 9 333 9 333
AfroCentric Integrated Corporate Solutions Group – Healthcare administration 38 096 38 096
Denis Group 34 918 34 918
HEALTHCARE AFRICA CGU 15 535 15 535
Medscheme Mauritius Limited – local administration 4 969 4 969
Medscheme Mauritius Limited – international administration 10 566 10 566
HEALTHCARE RETAIL SA CGU 586 252 1 049 598
Pharmacy Direct and Curasana* 140 608 473 954
Activo and Activo Healthcare Assets Group 445 644 575 644
TOTAL 1 327 661 1 558 496
* Following a review regarding the true substance and benefits associated with the Glen Eden goodwill in the Healthcare Retail SA Cash Generating Unit (CGU), the goodwill relating to Glen Eden, amounting to R233.3 million, was reallocated to the Healthcare Administration SA CGU as it is closely aligned to the Medscheme medical scheme administration services being performed for its clients.

Management determines the recoverable amount of Cash Generating Units (CGUs) as being the higher of fair value less costs to sell or value in use. In the absence of an active market, value in use is used to determine the recoverable amount. A traditional method of discounting management's best estimate of future cash flows attributable to the CGU has been applied to determine the value in use. A growth rate has been applied to cash flow streams to take into account the effect of inflation as well as business-specific expectations.

Assumptions used in the determination of the recoverable amount are as follows:

  • The estimated revenues to be earned from the use of the assets;
  • The forecast period over which those revenues are projected;
  • An average growth rate;
  • The pre-tax discount rate that takes into account the yield on government bonds, Beta and a market risk premium;
  • Risk adjustment factors used in deriving an appropriate discount rate applied to future estimated cash flows;
  • The rate on government bonds (risk-free rate) of 11.40% as at 30 June 2024 (30 June 2023: 9.17%);
  • A market risk premium of 6% (2023: 11.87%) is justified as the overall risk is to the downside; and
  • The Beta (ß) is 0.318 as at 30 June 2024 (30 June 2023: 0.392).

The inputs above were adjusted for geographical and entity specific risk.

The following table sets out the key assumptions for those CGUs that management considers the most significant to the Group:

  Recoverable 
amount 
R'000 		 Excess/ 
(deficit) of 
recoverable 
amount over 
carrying 
value 
R’000  		Discount 
rate 
% 		 Forecast 
period 		 Average 
growth rate 
% 		 Perpetuity 
growth rate 
% 
2024            
Medscheme – admin and managed care*            
including Glen Eden 1 628 469 473 182 14.86 5 years 14% 2%
Activo Group 1 510 352 99 528 13.36 5 years 16% 6%
Pharmacy Direct and Curasana 536 832 (20 543) 13.36 5 years 16% 6%
2023            
Medscheme – admin and managed care 2 681 122 1 863 936 12.55 5 years 8% 5%
Activo 1 797 311 332 105 12.92 5 years 21% 5%
Pharmacy Direct, Curasana and Glen Eden 1 057 664 277 970 12.92 5 years 15% 5%
* Following a review regarding the true substance and benefits associated with the Glen Eden goodwill in the Healthcare Retail SA Cash Generating Unit (CGU), the goodwill relating to Glen Eden, amounting to R233.3 million, was reallocated to the Healthcare Administration SA CGU as it is closely aligned to the Medscheme medical scheme administration services being performed for its clients.

Management has determined the values assigned to each of the above key assumptions as follows:

Assumption Approach used in determining values

Average growth rate (%)

Average annual growth rate over the five-year forecast period; based on past performance and management's expectations of market development is expected to have on future earnings noted below:

Medscheme – admin and managed care including Glen Eden:

  • Business is expected to continue steadily, with membership growth expected to be linked to muted economic growth;
  • Management has embarked on effective cost savings initiatives through early investment in systems development. This increased IT capacity has now been applied to greater scale and through improved procedural efficiencies;
  • The Group will continue with system renewals to explore better and more cost-efficient ways in servicing and engaging its customers/members;
  • These programmes are expected to enable the Group to achieve 7% growth.

Activo Group, Pharmacy Direct and Curasana:

  • Adverse price adjustments in some of the main product lines of the pharmaceutical cluster have had a negative impact on profitability in the current year and this is expected to continue into the medium term.
  • The synergies and expected growth in new pharmaceutical product lines are also lagging in terms of the original acquisition assessments of these assets.
  • The profitability of Pharmacy Direct Proprietary Limited is anticipated to reduce due to lower margins in the private sector delivery market, as well as its new chronic medication delivery contract with the public sector.
  • Both companies are experiencing growing revenue which, has been diluted by higher operating expenses thus resulting in the reduced profitability.

Discount rate (%)

Discount rate the company is expected to pay on average to all its security holders to finance its assets which reflects specific risks to the relevant CGU.

Sensitivity analysis: impact of possible changes in key assumptions (growth rate and discount rate) on the recoverable value.

        Growth rate  
  Discount rate Worst case
R’000
13% 		Base case
R’000
14% 		Best case
R’000
15%
MEDSCHEME – ADMIN AND MANAGED CARE INCLUDING GLEN EDEN 30 JUNE 2024 Worst case 16.30% 1 245 724 1 434 606 1 605 289
  Base case 14.86% 1 447 713 1 628 469 1 839 345
  Best case 14.00% 1 560 981 1 765 860 1 769 625

 

 


Growth rate

  Discount rate Worst case 
R’000 
15% 		Base case 
R’000 
13% 		Best case 
R’000 
12%
PHARMACY DIRECT AND CURASANA 30 JUNE 2024 Worst case 15.50% 321 2241 411 3122 530 319
  Base case 14.50% 355 8543 462 018 605 505
  Best case 13.50% 398 6554 526 331 704 001
ACTIVO GROUP 30 JUNE 2024 Worst case 15.50% 927 7465 1 166 7396 1 482 202
  Base case 14.50% 1 023 5217 1 305 568 1 686 446
  Best case 13.50% 1 141 8678 1 481 611 1 953 961
1 Based on the carrying amount of R457.3 million, the worst case scenario indicates a possible impairment of R136.2 million.
2 Based on the carrying amount of R457.3 million, the base case scenario indicates a possible impairment of R46.1 million.
3 Based on the carrying amount of R457.3 million, the worst case scenario indicates a possible impairment of R101.5 million.
4 Based on the carrying amount of R457.3 million, the worst case scenario indicates a possible impairment of R75.0 million.
5 Based on the carrying amount of R1 280.8 million, the worst case scenario indicates a possible impairment of R353.1 million.
6 Based on the carrying amount of R1 280.8 million, the base case scenario indicates a possible impairment of R114.1 million.
7 Based on the carrying amount of R1 280.8 million, the worst case scenario indicates a possible impairment of R257.3 million.
8 Based on the carrying amount of R1 280.8 million, the worst case scenario indicates a possible impairment of R138.9 million.

If the discount rate of Medscheme admin and managed care including Glen Eden CGU is increased by 4.273% to 19.13%, the recoverable amount will be equal to the carrying amount.

If the company specific risk for the Pharmacy Direct and Curasana CGU is reduced by 2.06% with a resultant reduction in the discount rate to 13.10%, the recoverable amount will be equal to the carrying amount.

If the discount rate for the Activo Group CGU is increased by 0.51% to 13.87%, the recoverable amount will be equal to the carrying amount.

        Growth rate  
  Discount rate Worst case
R’000
10%		 Base case
R’000
15%		 Best case
R’000
20%
MEDSCHEME – ADMIN AND MANAGED CARE 30 JUNE 2023 Worst case 13.80% 2 808 580 2 309 130 2 687 589
  Base case 12.55% 3 070 444 2 681 122 3 182 737
  Best case 11.43% 3 430 023 3 131 649 3 808 226
PHARMACY DIRECT, CURASANA AND GLEN EDEN 30 JUNE 2023 Worst case 14.17% 732 258 913 707 1 158 092
  Base case 12.92% 833 449 1 057 664 1 366 877
  Best case 11.55% 981 008 1 275 050 1 696 343
ACTIVO GROUP 30 JUNE 2023 Worst case 14.17% 1 212 236 1 545 792 1 980 869
  Base case 12.92% 1 386 677 1 797 311 2 348 824
  Best case 11.55% 1 641 466 2 177 606 2 930 145

If the growth rate for Medscheme admin and managed care CGU reduced 3.5%, the recoverable amount will equal the carrying value.

If the growth rate for the Pharmacy Direct, Curasana and Glen Eden CGU reduces by 4.1%, the recoverable amount will equal the carrying value.

If the growth rate for the Activo Group CGU reduces by 0.01%, the recoverable amount will equal the carrying amount.