Cimas Medical Aid Society Abridged Audited Results
GROUP TURNOVER
US$117million
for the year ended 31 December 2014
~ 6%
Chairman’s Statement
Statements of Financial Position
Dear Member, The country continues to suffer the effects of an underperforming economy. The negative impact on the medical industry is unavoidable as company closures have become common place and the traditional market of the Society is threatened by restricted membership growth. Industry remains constrained by liquidity challenges, unsustainable cost structures and a heavy debt burden. Global trends unfortunately do not favour Zimbabwe, with falling commodity prices and more competitive offshore manufacturing. Our economic fortunes are unlikely to change unless we adopt and implement long-term policies to encourage domestic and foreign investment. It gives me great pleasure, however, to present our annual results for the year ended 31 December 2014. The Society posted a relatively solid performance despite a deteriorating operating environment. Financial Results and Operations Report Group turnover grew by 6% to US$117 million. Medical Aid membership growth has been only 1% to 203,481 members compared to 201,504 members last year. Our membership seems static, largely because we have lost some long standing individuals and firms who can no longer afford to pay their contributions as they face viability challenges. Patronage at our Cimas Healthcare facilities increased by 13% as the “one stop shop” status of the facilities is proving to be very popular. Attendances at Cimas Medical Laboratories were flat relative to last year. The Society posted a surplus of US$4.3 million compared to US$5.5 million in the prior year. Current year performance was weighed down by significant write-downs in respect of non performing contribution receivables as certain member firms had not serviced their accounts for lengthy periods. Non-medical aid activities contributed 68% to the surplus (2013: 62%). The surplus generated in the year has grown our claims reserves (liquid reserves) to 8.7 weeks from 8.1 weeks at the close of the previous financial year. It remains a strategic objective of your Society to achieve the 12 weeks claims reserves as per best practice. We have set a target of achieving this optimal level within the next 3 years. We are pleased to report that we are fully compliant with the regulatory capital requirement (solvency ratio) of 25% of annual medical aid contributions. Accumulated reserves at 31 December 2014 were US$31.5 million being a solvency ratio of 31% (2013: US$27.2 million being a solvency ratio of 28%). Industry Matters The position regarding the lack of an agreed common tariff reached a new low. In terms of the Government General Notice 159 of 2014 gazetted on 23 May 2014 the Minister of Health and Child Care approved increases in consultation, private hospital and associated unit fees. The increases ranged from 5% for private hospital fees to 75% for general practitioner (GP) consultations. We communicated with you when this issue arose to clarify our position. Essentially, through the Association of Healthcare Funders of Zimbabwe (AHFoZ), the medical aid societies sought to engage both the Ministry and the service providers to explain the rather obvious position that medical societies could not afford to pay the new tariffs without increasing membership contributions, which members would find difficult to pay. We are fully aware of the reality that in the current economic environment the majority of our members cannot afford an increase in membership contributions. In October 2014 AHFoZ increased its tariffs by 20% for GPs and 2,5% for private hospitals. This gesture of compromise, unfortunately, was neither acknowledged nor reciprocated by the service providers. Dialogue is continuing with service providers and the Ministry of Health and Child Care. AHFoZ has relentlessly emphasized the affordability challenges health funders face in meeting the gazetted tariffs and the persistent demands for fee increases from service providers. Furthermore, health funders are of the view that such increases lack merit at a time when available economic data confirms that the country is experiencing deflation. The Society believes that fees charged by service providers are unsustainable and will only serve to erode the capacity that your Society has built in the post dollarization era. Your contributions remained constant throughout the year, pegged at 2013 levels, as no increases were effected. The practical reality is that our members face mounting shortfalls. Increasingly we have had to finance members who have elected to seek treatment abroad in instances where specialist services are available in the country but our members cannot afford them. We are currently engaging service providers to explore the implementation of best practice in the structuring and the funding of medical practices to improve costs and patient outcomes. Whilst your Society was granted its operating licence for the 2015 year, repeated threats to cancel or withdraw licences for all health funders not complying with the “gazetted tariffs’’ have been received. Your Society believes that we may need to seek legal recourse if the situation deteriorates, although this a course of action we would like to avoid. Human Resources The staff attrition rate for the year of 2.5% was comparable to the previous year. We continue to retain most of our critical skills, which is testimony to the viability of our competitive remuneration and staff benefits measures. I am happy to report that one of our Divisions (Healthcare) has actually experienced an increase in staff numbers due to its growth programme. This is commendable, given the fact that most corporates are actually downsizing because of the economic challenges that the country is experiencing. During the year under review, Mr. Mafingei W. Nyamwanza, who was the Managing Director of our Medical Services Division, retired after a distinguished career with the Society spanning 12 years. We wish him well in his retirement. Health Education Fund The Health Education Fund was established in 2007 to provide financial and material support for the training of medical personnel. The aim is to create capacity in the healthcare sector and reduce scarcity of critical skills. Going forward, increased emphasis will be placed on areas of specialist training in various medical disciplines. The specialist training programme has already seen the Society sponsor the training of a clinical haematologist. During the year, the Society sponsored seven medical students, five pharmacy students and three medical laboratory students. As part of our plans to complement the direct sponsoring of students, the Society has also embarked on initiatives to build capacity at our local tertiary institutions to enable them to train medical specialists. To this end, the Society started off by donating optometrist equipment worth $120,000 to the University of Zimbabwe’s College of Health Sciences to establish the country’s first Optometry Training Unit. The unit fills a gap not only in optometry training, which was not previously available in Zimbabwe, but also in the provision of optometry services at public health sector charges, which are less than private sector charges. Ex-gratia Awards The Society continues to render financial assistance to members who encounter unexpected medical care costs that are in excess of their annual medical aid limits, where such members cannot afford the required shortfalls. A total of 121 awards with a value of US$121,413 were approved in the year recently ended, compared to 238 awards with a value of US$238,499 in the prior year. Review of Member Benefits and Contributions The membership of your Society has been restricted to around 200,000 over the last few years. During the same period, we have witnessed service provider costs increasing drastically. Membership contributions were not increased in 2014. The Society is also witnessing a high claims costs pattern on the individual member packages. The medical aid fund does not presently command the critical mass of membership enjoyed in previous years that would facilitate subsidies, typical of medical aid fund models. The Society therefore will be obliged to review contributions and benefits of all individual member packages in order to keep the fund viable for all members. This review will most likely result in new and more appropriate member packages. New Initiatives A new clinic was opened in December 2014 at Simon Muzenda Street in Harare. The new clinic is open for twenty-four hours and this has proved to be a much needed service for members. Towards the end of the year we took delivery of our fully kitted leased air ambulance. We believe that this is a significant milestone as Zimbabwe will now have a dedicated air ambulance. Members of the Board It is with great sadness that we note the passing of Mr. Elisha N. Mushayakarara in February 2015. He had been a Board member since 1 March 1994 and served on many Board Committees over the years. At the time of his passing he was a member of the Finance Committee and a director of the subsidiary Healthguard International (Pty) Limited. His wisdom will be greatly missed. Outlook There has been a marked increase in claims costs in the last few months and this undoubtedly places your Society in the most invidious position that we have faced in the last six years. Our claims costs have increased at a time when there was a marginal increase in membership in 2014 and a decline since January 2015. We have identified two disturbing trends; firstly, the costs in some health disciplines have spiraled out of control and secondly, some membership categories are showing unsustainable claims loss ratios that are threatening our business model. There is also evidence of unacceptable behaviour by some pharmacists, other service providers and some of our members which has resulted in inflated claims. For these reasons we have had to take urgent remedial action to arrest the situation and this will remain under review. We wish to remind members that the Society has invested a lot of money in health facilities with the aim of ameliorating some of these excesses. We therefore encourage members to use the facilities that have been developed for their benefit. Generally, we do not anticipate the trading environment, going forward, to be significantly different from what we have seen in recent years. Our business will continue to be challenged by the attrition prevailing in the private sector in the form of job losses and company closures. However, we have continued to make good progress in delivering our long-term strategy by building firm foundations for the future with our substantial investments in information technology and new healthcare facilities and services. Our priority remains delivering complete, affordable and sustainable quality healthcare solutions for the benefit of you, our members. We will continue to increase our presence and scope in the health value chain and to work with partners to improve the cost and patient outcomes. In 2015 we will be opening at least three new clinics and a dental unit. Appreciation I wish to express special thanks to the management team led by Mr Mac Chaora and all our employees for their dedication and efforts to keep the Society going in a testing and difficult year and for striving to ensure that member needs are catered for. I also extend my gratitude to all members of the Board for their wise counsel and strategic insight. My appreciation also goes out to you, our members, for keeping your faith in the Society in these turbulent times and for supporting our health facilities. I am grateful as well to other stakeholders, including our service providers, regulators and partners for your ongoing support.
Mordecai P. Mahlangu CHAIRMAN OF THE BOARD 20 May 2015
Statements of Profit or Loss and Other Comprehensive Income CONSOLIDATED
117 100 365 (96 624 121 )
110 365 324 (91 986 681 )
SOCIETY
116 614 519 (96 271 699 ) 20 342 820 (19 271 883 )
110 140 639 (91 785 999 )
Operating surplus Administration costs Net gain from fair value adjustment on investment property Sundry income Foreign exchange (loss)/gain
20 476 244 (19 769 615 ) 1 007 940 265 415 (1 435 )
120 000 381 900 2 019
1 007 940 210 353 —
120 000 179 512 22 036
Surplus before investment income Investment income
1 978 549 2 220 730
3 354 688 2 565 200
2 289 230 2 568 186
2 098 021 2 893 869
Surplus before income tax 6 Income tax credit/ (expense)
4 199 279 121 370
5 919 888 (425 764 )
4 857 416 —
4 991 890 (17 136 )
Surplus for the year
4 320 649
5 494 124
4 857 416
4 974 754
Other comprehensive (loss) / income Items that will not be reclassified subsequently to profit or loss: Gains on revaluation of property and equipment Items that may be reclassified subsequently to profit or loss: Foreign currency translation loss
18 378 643 (15 527 874 )
US$31.5million
for the year ended 31 December 2014 CONSOLIDATED
SOCIETY
2014 2013 2014 2013 Note US$ US$ US$ US$
6 Surplus before Income Tax Surplus before income tax is shown after charging/ (crediting) the following items:
ASSETS
Non-current assets Property and equipment 7 Investment property 8 Intangible assets Deferred tax assets
7 296 604 5 570 000 1 999 956 179 615
7 207 378 4 420 000 1 585 583 9 401
7 028 891 5 570 000 — —
6 805 542 4 420 000 — —
2014 2013 2014 2013 US$ US$ US$ US$
Total non-current assets
15 046 175
13 222 362
12 598 891
11 225 542
1 847 868 10 004 756
1 569 191 4 884 921
1 722 035 9 719 404
1 451 711 4 664 009
1 109 613 21 911 095
628 774 20 094 384
1 109 613 20 755 321
628 774 19 190 699
Total current assets
34 873 332
27 177 270
33 306 373
25 935 193
Total assets
49 919 507
40 399 632
45 905 264
37 160 735
Revaluation reserve Foreign currency translation reserve Retained earnings
1 997 384 (167 366 ) 29 681 012
1 997 384 (128 363 ) 25 360 363
1 932 684 — 28 100 228
1 932 684 — 23 242 812
Total reserves
31 511 030
27 229 384
30 032 912
25 175 496
Non-current liabilities Deferred tax liabilities
—
2 468
—
—
Current liabilities Current tax liability Provisions for claims outstanding Trade and other payables 10
5 502 8 430 008 9 972 967
158 359 7 730 707 5 278 714
— 8 375 898 7 496 454
— 7 670 953 4 314 286
Total current liabilities
18 408 477
13 167 780
15 872 352
11 985 239
Total liabilities
18 408 477
13 170 248
15 872 352
11 985 239
Total reserves and liabilities
49 919 507
40 399 632
45 905 264
37 160 735
Current assets Inventories Trade and other receivables 9 Financial assets at fair value through profit or loss Cash and bank balances
CONSOLIDATED
Administration costs Employee benefit expenses Marketing and public relations Audit fees Consultancy fees Depreciation and impairment charges Directors fees Motor vehicle expenses Staff training Telephone and internet Software licences Provision for impairment of trade receivables Operating lease instalments Fund administration fees Other expenses (i)
RESERVES AND LIABILITIES
Investment income Interest income Rental income Dividend income Net fair value (loss)/gain on financial assets at FVTPL Brokerage fees on disposal of financial assets at FVTPL
18 354 640 (16 578 167 )
897 635
—
897 635
(39 003 )
(14 523 )
—
—
Other comprehensive (loss) / income for the year, net of tax
(39 003 )
883 112
—
897 635
Total comprehensive income for the year
4 281 646
6 377 236
4 857 416
5 872 389
10 218 645 734 795 110 990 173 248 788 838 109 789 195 934 100 549 393 671 1 820 202 2 734 342 189 000 — 2 199 612
9 677 638 704 702 165 381 197 997 759 216 102 080 105 369 80 241 297 274 62 524 568 079 — — 2 807 373
7 611 054 734 392 100 000 161 542 692 067 109 789 195 934 91 838 237 545 47 361 2 734 342 189 000 5 030 091 1 336 928
6 932 042 404 494 165 381 151 588 540 461 102 080 105 369 48 427 141 149 62 524 568 079 — 6 094 503 1 262 070
1 907 216 391 872 40 062 (118 420 ) —
2 074 988 314 745 8 668 167 145 (346 )
1 854 284 679 826 152 496 (118 420 ) —
1 997 243 602 698 127 129 167 145 (346)
(i) Included in other expenses are operating costs incurred in the day to day running of the business. 7 Property and Equipment
CONSOLIDATED
SOCIETY
2014 2013 2014 2013 US$ US$ US$ US$ 7 207 378 1 006 101 (129 671 ) — (787 204 )
6 267 437 840 629 (39 107 ) 897 635 (759 216 )
6 805 542 969 234 (53 819 ) — (692 067 )
5 885 185 601 835 (38 652 ) 897 635 (540 461 )
Consolidated Statement of Changes in Equity
Balance at end of year
7 296 604
7 207 378
7 028 891
6 805 542
CONSOLIDATED
The revaluations are based on independent valuations performed by an external independent third party.
for the year ended 31 December 2014
Foreign currency Revaluation translation Retained reserve reserve earnings US$ US$ US$
Total US$
8 Investment Property
Year ended 31 December 2013 Balance at 1 January 2013 1 082 881 Surplus for the year — Other comprehensive income Revaluation increase 897 635 Transfer to retained earnings 16 868 Foreign currency translation loss —
(113 840 ) —
19 883 107 5 494 124
— — (14 523 )
— (16 868 ) —
20 852 148 5 494 124 897 635 — (14 523 )
Total comprehensive income
914 503
(14 523 )
5 477 256
6 377 236
Balance at 31 December 2013
1 997 384
(128 363 )
25 360 363
27 229 384
Balance at 1 January 2014 Surplus for the year Other comprehensive income Foreign currency translation loss
1 997 384 — —
(39 003 )
—
Total comprehensive income
—
(39 003 )
4 320 649
4 281 646
Balance at 31 December 2014
1 997 384
(167 366 )
29 681 012
31 511 030
2014 US$
2013 US$
Balance at the beginning of the year Change in fair value Additions
4 420 000 1 007 940 142 060
4 300 000 120 000 —
Balance at the end of the year
5 570 000
4 420 000
Investment properties are valued annually at fair value comprising open market value by a professionally qualified valuer who holds a recognised relevant professional qualification and has recent experience in the locations and categories of the investment properties valued.
(128 363 ) —
25 360 363 4 320 649
27 229 384 4 320 649 (39 003 )
for the year ended 31 December 2014 CONSOLIDATED
SOCIETY
2014 2013 2014 2013 US$ US$ US$ US$
CONSOLIDATED
SOCIETY
2014 2013 2014 2013 US$ US$ US$ US$
Statements of Cash Flows
9 Trade and other receivables
Year ended 31 December 2014
Trade receivables Loans to key management
13 699 617 151 767
5 783 349 262 105
12 097 428 151 767
5 632 034 262 105
Trade receivables Less: provision for impairment of trade receivables
13 851 384 (4 178 477 )
6 045 454 (1 508 040 )
12 249 195 (2 798 230 )
5 894 139 (1 508 040 )
Trade receivables - net Prepayments
9 672 907 331 849
4 537 414 347 507
9 450 965 268 439
4 386 099 277 910
10 004 756
4 884 921
9 719 404
4 664 009
10 Trade and other payables
Cash flow from operating activities Surplus before income tax Adjustments for: Depreciation and amortization Impairment recognised in profit or loss Net gain from fair value adjustment on investment property Net fair value loss/(gain) on financial assets at fair FVTPL Foreign currency translation loss Interest and dividend received (Profit)/loss on disposal of property and equipment
4 199 279
5 919 888
4 857 416
4 991 890
782 927 5 910 (1 007 940 ) 118 420 (39 003 ) (1 947 278 ) (1 941 )
710 078 49 138 (120 000 ) (167 145 ) (14 523 ) (2 083 656 ) 3 482
686 157 5 910 (1 007 940 ) 118 420 — (2 006 780 ) (1 090 )
530 880 9 581 (120 000 ) (167 145 ) — (2 124 372 ) 3 482
2014 2013 2014 2013 US$ US$ US$ US$
Cash generated before working capital changes Increase in trade and other receivables Increase in inventories Increase in claims outstanding Increase in trade and other payables
2 110 374 (5 119 835 ) (278 677 ) 699 301 4 694 253
4 297 262 (951 641 ) (348 642 ) 1 687 857 790 124
2 652 093 (5 055 395 ) (270 324 ) 704 945 3 182 168
3 124 316 (1 557 400 ) (370 064 ) 1 628 103 1 838 290
Cash generated from operating activities Tax paid for the year
2 105 416 (204 169 )
5 474 960 (483 621 )
1 213 487 —
4 663 245 (17 637 )
Net cash generated from operating activities
1 901 247
4 991 339
1 213 487
4 645 608
Cash flows from investing activities Purchase of property and equipment (1 148 161 ) (840 629 ) Proceeds from disposal of property and equipment 131 612 35 625 New software development (416 006 ) (1 351 425 ) (Purchase of)/proceeds from disposal of financial assets at FVTPL (599 259 ) 23 165 Interest and dividend received 1 947 278 2 083 657
(1 111 294 ) 54 909 — (599 259 ) 2 006 780
(601 835 ) 35 170 — 23 165 2 124 372
Net cash (used in)/ generated from investing activities
(84 536 )
(49 607 )
351 136
1 580 872
Net increase in cash and bank balances Cash and bank balances at beginning of the year
1 816 711 20 094 384
4 941 732 15 152 652
1 564 622 19 190 699
6 226 480 12 964 219
Cash and bank balances at end of the year
21 911 095
20 094 384
20 755 321
19 190 699
1 General Information Cimas Medical Aid Society is a Society registered in terms of the Zimbabwe Medical Services Act (Chapter 15:13) 2000. The main business of the Society and its subsidiaries (together “the Group”) is the provision of value added healthcare solutions to members, employees and other stakeholders. 2 Basis of preparation and Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRIC interpretations. The same accounting policies, presentation and methods are followed in the abridged financial results as applied in the Group’s annual financial statements. 3 Accounting Policies Accounting policies are consistent with those used in previous years and with no significant impact, other than presentation, arising from new and revised applicable International Financial Reporting Standards.
CONSOLIDATED
SOCIETY
Trade payables Accrued expenses Provisions for other liabilities and charges
7 252 343 382 164 2 338 460
3 697 569 252 896 1 328 249
5 114 554 198 293 2 183 607
3 149 932 240 605 923 749
9 972 967
5 278 714
7 496 454
4 314 286
All trade and other payables are due within twelve months of the date of the statement of financial position.
11 Operating segments At 31 December 2014, the Group was organised into five main business segments: The following table present segment revenues, costs, profits assets and liabilities for the year ended 31 December 2014: Revenue
Claims and Administration direct costs Costs
Profit / Surplus
Assets
Liabilities
US$
US$
US$
US$
US$
US$
101 416 997
88 757 005
13 072 385
3 674 654
37 916 545
16 841 752
MEDCO
5 030 091
—
5 704 741
(444 803 )
3 447 413
342 218
Medical Services Division
7 524 317
3 964 575
2 747 788
975 407
4 122 778
308 067
Healthcare Services Division
8 159 051
3 902 542
3 296 848
1 063 970
3 115 922
762 880
Shared Services Division
4 220 024
—
4 716 451
1 363 855
1 316 849
153 560
Medical Aid
The following table presents segment revenues, costs, profits assets and liabilities for the year ended 31 December 2013: Revenue
Claims and Administration direct costs Costs
Profit / Surplus
Assets
Liabilities
US$
US$
US$
US$
US$
US$
96 356 966
85 690 677
11 477 946
2 094 840
29 722 554
11 868 309
MEDCO
6 094 503
—
5 635 819
420 288
2 717 450
257 639
Medical Services Division
7 266 586
3 297 906
2 627 667
1 501 010
4 445 353
407 122
Healthcare Services Division
6 741 772
2 998 098
2 976 337
841 478
2 220 188
422 694
Shared Services Division
4 284 613
—
3 711 908
636 508
1 294 087
214 484
Medical Aid
4 Currency of Reporting The abridged financial statements are presented in the United States of America dollar (“US$”), which is the Group’s functional and presentation currency. 5 Report of the Independent Auditors
—
SOCIETY
Balance at beginning of year Additions Disposals Revaluation Depreciation and impairment
for the year ended 31 December 2014
2014 2013 2014 2013 Note US$ US$ US$ US$ Contribution income and fees Claims and direct costs
US$4.3million
Notes to the Abridged Audited Results
for the year ended 31 December 2014
ACCUMULATED RESERVES
Notes to the Abridged Audited Results
as at 31 December 2014
SURPLUS FOR THE YEAR
The auditors have expressed an unqualified opinion on the consolidated financial statements. The complete set of financial results, which includes this opinion, is available at our registered office and on our website. These abridged financial results should be read in conjunction with the complete set of financial statements for the year ended 31 December 2014, which have been audited by Deloitte & Touche.
12 Capital commitments Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows:
CONSOLIDATED 2014 US$
2013 US$
Capital expenditure authorised and contracted for Capital expenditure authorised but not contracted for
— 4 130 639
825 566 3 328 355
4 130 639
4 153 921
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows: