FINANCIAL REPORT
"SANBS through the dedicated efforts of our staff and stakeholders, in a very challenging time, managed to achieve outstanding financial results for the 2020/2021 financial year."
Tshepi Maesela
CHIEF FINANCIAL OFFICER CA(UK)
The environment in which we are operating
South Africa was placed under Covid-19 lockdown, Level 5, on 26 March 2020, a few days before the end of our 2019/2020 financial year and thus the new financial year began during this Level 5 lockdown. South Africa moved through various levels of the lockdowns, before ending the 2020/2021 financial year on Level 1.
The FY2020/2021 year was an unprecedented year for SANBS, as Covid-19 presented new challenges in managing operations, revenue, expenses, and working capital. Access to hospital beds for surgical and other procedures was severely curtailed by the number of hospitalized Covid-19 patients , resulting in lower issues of blood products and revenue. Blood collections and processing also reduced significantly during the earlier lockdowns and continued to be below budget for rest of the year. Many public hospitals had to reallocate their funds available for blood and related services to efforts aimed at fighting the pandemic. Many private patients faced economic hardship and were unable to settle their outstanding balances.
Reforecasting necessitated by the effects of the pandemic
Noting the significant variances between the actual results during the 1st quarter of the financial year, as compared to the Board approved budget, we presented a revised forecast for the financial year, based on current results to date and projected results for the full year. The revised forecast was approved by the Board in July 2020, which included
The revised forecast resulted in a projected net deficit for year of R72.55m, compared to a budgeted net surplus of R89.10m.
SUMMARY OF SIGNIFICANT FINANCIAL RESULTS FOR THE YEAR ENDING 31 MARCH 2021
Outstanding financial results
SANBS through the dedicated efforts of our staff and stakeholders, in a very challenging time, managed to achieve outstanding financial results for the 2020/2021 financial year, with an overall surplus of R210.5m. The achieved surplus was R283m greater than the forecast deficit for the year. This was however a 28% decrease on prior year surplus of R292.3m. The higher surplus than forecast is a result of continued focus on efficiencies across the business, striving to provide reliable and best quality service to all our areas across the country, at the lowest cost possible.
Decrease in Revenue
Revenue decreased by 4% to R3.2bn during FY 2020/2021, following the 8% increase in FY2018/2019 and 14% increase in FY2019/2020. The decrease was as a result of the decrease in demand for blood and blood products as well as for cellular therapeutic services during the year due to the Covid-19 pandemic. Cellular products, at 75.4% (2020: 76.0%) of total revenue, remained the highest portion of total revenue, and reduced by 4% during the year.
At the year ended 31 March 2021, further agreements with 16 medical aids were agreed and settled. Four were confirmed as liquidated schemes and therefore liability does not remain against any of these legal entities. As at year-end and at the date of signoff of the financial statements, not all settlement agreements with Medical aids have been finalised.
The directors believe the provision of R30m (2020: R108m) is sufficient to cover the liability to the remaining medical aids.
Although it is considered that the accounts receivable balance as at 31 March 2021 is fairly reflected and could be independently verified, there still remains a disclaimer of opinion by the external auditors on the accounts receivable opening balance.
The credit note issue and the disclaimer audit opinions have been an ongoing focus of our Audit Committee who has provided considered oversight and support. For details refer to the Report of the Audit Committee.
IFRS9
We have fully applied IFRS 9 on financial instruments during the year. The application of this accounting standard has been reviewed and accepted by our external auditors, Deloitte & Touche (“Deloitte”).
The independence of our external auditors is very important and any non-audit services performed by Deloitte are approved by the Audit Committee, prior to services being rendered. During the year, Deloitte assisted with the administration of our anonymous tip-off line. Our internal audit function is outsourced to Mazars – having been appointed in this capacity since September 2019.
Decreased Expenses
Expenses decreased by 3% due in part to the moratorium on permanent position recruitment and travel restrictions introduced, as well as the reduction in collection and testing consumables. While variable costs decreased, some fixed costs increased as a percent of total costs.
Other income & Net Interest income
Net interest income decreased from R143.1m to R97.7m, as interest rates and cash balances decreased during the year.
Net working capital
Other income decreased by 33% mainly due to a reduction in research grants received during the year. During this period we replaced a large portion of our vehicle fleet, selling the vehicles to a 3rd party, which contributed R4.2m in proceeds.
Net working capital was R2.26bn as at 31 March 2021, down from R2.47bn on 31 March 2020. Accounts receivable increased during the year, as collection of debt decreased. The total gross amount due at 31 March 2021 was:
| Acounts Receivable | 2021 | - | 2020 | - |
|---|---|---|---|---|
| R000s | % | R000s | % | |
| Private Sector | 845,285 | 51% | 804,121 | 50% |
| Government Sector | 803,567 | 49% | 790,728 | 50% |
| 1,648,852 | 1,594,849 |
Although Debtors Days increased from 151 days to 161 days, efforts to decrease this were very focused. The Debtors task team, which includes the CEO, CFO, COO, and Medical Director, continues to meet weekly to review the debtors balance, collections, and progress on engagement with large debtors. These engagements include discussions with provincial departments of health and some medical aids to ensure that we can collect amounts due to us timeously. The task team is reviewing processes in the Order-to-Pay cycle, noting any gaps that would impact on debtor collections, with special focus on medical aid submissions and rejections. The extent of the impact of Covid-19 on future collections, especially from private patients, remains uncertain, especially as there is a concern that as the economy continues to suffer/deteriorate due to the pandemic, more private patients may not be able to pay their amounts outstanding.
Details of our results are contained in our Annual Financial Statements on the SANBS website.
Update on the credit note irregularity previously reported
We have previously reported control weakness discovered in October 2018 whereby patients belonging to some medical aids, as well as public hospital patients, who were not transfused with all the blood consigned by SANBS, had been incorrectly charged for all blood consigned. For several years credit notes issued in respect of blood returned to SANBS were not sent to public hospitals and, in the case of some medical aids, incorrectly presented as invoices and paid as such by the medical aids. Payments were received and inappropriately allocated to other debtor accounts.
The quantification of the credit notes issued to the 53 medical aid schemes was completed during the 2019 financial year. At the year ended 31 March 2020, agreements with Discovery, Medscheme, and PPSHA group of medical aid schemes were concluded. The liability against Discovery was offset against future payments, while payment of the full amount due to Medscheme and PPSHA medical aid schemes was paid to the respective administrator.
Although it is considered that the accounts receivable balance as at 31 March 2021 is fairly reflected and could be independently verified, there still remains a disclaimer of opinion by the external auditors on the accounts receivable opening balance.
The credit note issue and the disclaimer audit opinions have been an ongoing focus of our Audit Committee who has provided considered oversight and support. For details refer to the Report of the Audit Committee.
FINANCIAL OUTLOOK OVER THE MEDIUM TO LONG TERM
In the medium and longer term, we will continue to review all processes, identifying efficiencies which could further reduce our cost base. A key focus will be on automation of finance processes to eliminate errors that may arise during manual processes and reconciliations. These include automatic customer payment allocations and automated supplier invoice verification. In addition, the completion of the new Inventory Management System will significantly improve our working capital management as we will be able to monitor and report on stock levels at all of our sites, and not just the warehouses at our large sites.
A key focus during the 2021/2022 year will be the review of the Finance people, processes, and technology to ascertain if any gaps exist and if any further controls must be introduced to ensure no further disclaimers of opinion are received. The remaining qualified opinions would relate to the opening balances only. The timely identification of gaps in processes and the prompt remedy of such gaps is a priority.
