(AMEI) African Medical Invs

African Medical Investments plc / Index: AIM / Epic: AMEI / Sector: Healthcare

30 November 2011

African Medical Investments plc ('African Medical' or 'the Company')

Interim Results

African Medical Investments plc, the AIM listed company operating in the African healthcare sector, announces its results for the six month period ended 31 August 2011.

HIGHLIGHTS:

·    Successful recovery and turnaround of hospital and healthcare portfolio which consists of AMI Hospital Maputo, AMI Hospital Dar es Salaam, AMI Hospital Harare and AMI Aviation

·   Considerable progress towards objective of becoming a leading provider of private specialist hospitals across Africa, offering high quality in and out patient services

·    180% increase in revenue for the period ended 31 August 2011 to US$5,941,000 (six month period ended 31 August 2010: US$2,099,000)

·    Revenue from existing business units (AMI Hospital Maputo and AMI Hospital Dar es Salaam) increased by 110% for the period ended 31 August 2011 to US$4,342,000

·    58% reduction in head office operating expenditure for the period ended 31 August 2011 to US$1,252,000 (six month period ended 31 August 2010: US$2,989,000)

·    Injection of US$2 million through a private placing of 61,707,130 new ordinary shares subscribed to by the Company's new Chief Executive Officer, Dr. Peter Botha

·    Significant progress made towards expansion strategy - new medical facility opportunities in advanced negotiations in Lusaka, Zambia, and Tete, Mozambique

CHIEF EXECUTIVE OFFICER'S STATEMENT

This has been a transformational period for the Group, during which we have focussed primarily on the recovery and consolidation of our existing operations, which is now translating into growth and expansion across the Group.  The various initiatives which we have instigated across our portfolio are having a dramatic effect on revenue growth in addition to a vast reduction in operating expenses and operating losses. These achievements have ensured that African Medical is positioned strongly as it capitalises on the urgent requirement for quality international standard healthcare, particularly from the emerging middle classes, overseas business investors, governments and health insurers in Africa.

We entered the period under review with two operating facilities, the 35 bed AMI Hospital Maputo and the 30 bed AMI Hospital Dar es Salaam, however we swiftly bolstered this portfolio with the opening of the 18 bed AMI Hospital Harare and the inaugural flight of AMI Aviation, a dedicated air ambulance service, both in March 2011.  The period has been characterised by a strong focus on improving the revenue generation of our hospitals through case mix optimisation, whilst simultaneously reducing operating expenditure and cost of sales, in addition to concentrating on cash flow management through the reduction of debtors and the improvement and standardisation of our billing process.  These processes have been achieved in part through the appointment of a new board of directors at each of the facilities in order to implement the appropriate governance and mandates.  This period of consolidation is now demonstrably bearing fruit for African Medical, through the 180% increase in revenue, with existing business units increasing by 110% and new business units contributing 30% of revenue during the period.  In addition, we achieved a 58% reduction in head office operating expenses and therefore much reduced operating losses compared to the corresponding 2010 period.    

Case mix optimisation is a key tool in improving the revenue generation of any private medical facility and therefore this has played a huge part in improving the financial performance of our hospitals during the period.  Case mix optimisation is based on three primary ingredients: consumer demand, which serves as the highest volume group and consists of patients receiving emergency or primary care; insurance demand, which consists of patients being treated through medical insurance policies for a range of ailments or specific procedures; and lastly supplier induced demand, whereby patients will travel to a particular hospital in order to receive specialist treatment by a high profile expert consultant in the appropriate medical discipline.  By combining these three key elements, a hospital manager ensures a balanced revenue stream ranging from emergency treatment to unique specialist procedures which are much less price sensitive to patients. 

In line with this, we have made significant progress improving the case mix optimisation across our portfolio, however this is an ongoing process.  In particular, we are actively recruiting specialists to join our AMI Hospital Dar es Salaam as we look to establish this primarily as a specialist hospital.  We are also looking for specialists to join our AMI Hospital Harare in addition to increasing capacity through an increase in bed numbers from the current 18 beds.  Coupled with this continually improving outlook for revenue generation, head office expenses have been reduced by 58% compared to the corresponding period in 2010, with expense levels being maintained at the existing business units despite rapid growth.  This has led to a decrease in operating losses at both group level and at the existing individual business units level as a result of the revised revenue and cost reduction strategies.  The new business units that commenced at the beginning of the period are showing improvements in operating losses as a result of revenue growth, and this trend looks set to continue in line with our further operational improvements.

I am confident that the outlook for African Medical remains extremely positive, as we continue to succeed in filling a crucial and niche role providing international quality healthcare for the emerging middle classes, overseas business investors, governments and health insurers in Africa.  With this in mind, our sights remain firmly set on expanding our offering as we recognise that that there is significant potential for rapid expansion across the continent.  Our objective is to target established private medical markets including Uganda, Kenya and Nigeria in order to enlarge the 'AMI Hospital' brand.  In addition, in the near term we are also in advanced negotiations to secure control of hospital management contracts, including a contract to operate a facility in Lusaka, Zambia, and we also hope to work in conjunction with major resource companies to establish medical clinics, including the establishment of a polyclinic in the booming mining community of Tete, in northern Mozambique.   Furthermore, we will be expanding our AMI Aviation product by introducing a Cessna Citation 5 aircraft for short range medical evacuations.  This will complement the mid-range capability of our Dassault Falcon 20.

I firmly believe that we have defined a robust growth strategy for the Group, set against a background of strong fundamentals for private healthcare in Africa.  In addition, with a market capitalisation currently wholly underpinned by our net asset value, African Medical is in a strong position to rapidly build value for our shareholders.  I would like to take this opportunity to thank our employees and my fellow board members for their tireless dedication, and also to our shareholders for their continued support as we look towards the Group's next phase of growth and value accretion.

Peter Botha

Chief Executive Officer

30 November 2011

** ENDS **

For further information please visit www.amiplc.com or contact:

Condensed Consolidated Income Statement

For the six month period to 31 August 2011

Condensed Consolidated Statement of Comprehensive Income

For the six month period to 31 August 2011

Condensed Consolidated Balance Sheet

As at 31 August 2011

Condensed Consolidated Statement of Changes in Equity

As at 31 August 2011

Condensed Consolidated Statement of Cash Flows

For the six months to 31 August 2011

Notes to the Interim Consolidated Financial Statements

African Medical Investments plc ("the Company") and its subsidiaries (together "the Group") are focused on the African healthcare sector.  The Company is a public limited company incorporated and domiciled in the Isle of Man.  The address of its registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD.

The Company is listed on the AIM Market of the London Stock Exchange plc.

The unaudited interim consolidated financial statements for the six months ended 31 August 2011 were approved for issue by the board on 30 November 2011.

The figures for the six months ended 31 August 2011 and 31 August 2010 are unaudited and do not constitute full accounts. The comparative figures for the period ended 28 February 2011 are extracts from the annual report and do not constitute statutory accounts.

The interim consolidated financial statements have been prepared in US Dollars because this is the currency of the primary economic environment in which the Group operates.

The basis of preparation and accounting policies set out in the Annual Report and Accounts for the year ended 28 February 2011 have been applied in the preparation of these interim condensed consolidated financial statements. These are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and with those of the Standing Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the International Accounting Standards Board ("IASB").  References to IFRS hereafter should be construed as references to IFRS as adopted by the EU.

The interim condensed consolidated financial statements have been prepared on a consistent basis with the accounting policies that are expected to apply in the full year financial statements for the year ending 28 February 2012, which will be prepared in accordance with IFRS as adopted by the EU. The current and comparative periods have been prepared using the accounting policies and practices consistent with those adopted in the annual financial statements for the year ended 28 February 2011.

The financial information set out in this interim report does not constitute statutory accounts.  The financial information for the six month periods ended 31 August 2011 and 2010 is neither audited nor reviewed.  Information relating to the year 28 February 2011 is derived from the statutory accounts for that period, which have been reported on by the Company's auditors.  The auditors' report on those accounts contained a qualified opinion arising from a disagreement about the accounting treatment of the disposal of subsidiary companies and an emphasis of matter in regard to going concern.

The Group's investigations into the alleged financial irregularities which occurred during the tenure of Dr. Solanki, the former CEO of the Group, are continuing with only the Mauritius component of the investigation requiring completion. As a result (and as previously stated), criminal charges have been laid against the former manager of the Harare Trauma Centre and arrest warrants (for fraud and/or theft) remain in place in respect of Dr. Solanki and his appointed manager in South Africa by the South African Police Service.

Furthermore the board has resolved where it would be cost effective and in the best interests of the Group's shareholders to pursue such claims to take civil action to seek compensation for the losses suffered, not only in relation to the fraud and/or theft but also in relation to losses suffered as a result of misstatement of the business at the time of the acquisition of VIP Healthcare Solutions Limited by the Group, in all jurisdictions.

Other than in respect of on-going investigation costs the Group is confident that all other financial losses resulting from the matters referred to above have now been reflected in the Group's income statement.

The current investigation into alleged financial and administrative irregularities identified potential overpayments to certain suppliers for plant and equipment. Independent experts and forensic auditors were engaged to ascertain the likely extent of overpayments. Where indicators of overpayment existed, an impairment provision was raised in the year ended 28 February 2010 and year ended 28 February 2011 based on the assessment by independent experts of the extent of the overpayment, based on market values of fit for purpose equipment acquired.  Impairments arising from potential overpayment were recognised notwithstanding that the recoverable amount based on value in use may be in excess of amounts actually paid.   

Accordingly the impairment provision at the balance sheet dated 28 February 2011 reflects only estimates of overpayments to suppliers complicit in the alleged financial irregularities and carrying values of property, plant and equipment are based on amounts that would have otherwise been paid in arm's length transactions or fair value at date of acquisition.

The review of carrying amounts of property, plant and equipment, intangible assets and loans receivable at 31 August 2011 indicated no further asset impairment write downs were required.

Previous write downs have been detailed below:

(a)     Based on the findings of the forensic investigation and the analysis of independent experts, payments to Dansk Hospital Supplies and Medical Equipment Limited, Higgins Technical Solutions Limited, Marlene Interiors CC and LM Kitchens and Paint Contractors CC appeared to be significantly inflated.  Using a sample of invoices and comparable costs from original equipment manufacturers the extent of overpayment has been estimated and raised as a provision for impairment.  In certain instances, goods and services from these suppliers have been invoiced to the Group but for the benefit of employees who may be complicit in the alleged financial irregularities.  An estimate of such goods and services has also been raised as a provision for impairment.  Equipment not fit for purpose or identified as to be replaced has also been fully provided.

(b)     During the 28 February 2011 financial year end, the directors decided to allocate all impairments related to overpriced assets purchased specifically for the Harare hospital project to the loan account of Autoband (Pvt) Ltd "Autoband", the previous management company responsible for managing the construction and operations of the Harare Hospital Project. The assets in question were then transferred from the Group's management company, VIP Healthcare Solutions, down to its local subsidiary, Streamsliegh Investments (Pvt) Ltd, at the correct fair values as assessed by industry experts. Previously recorded impairments against these assets were then reversed. The remaining balance in the asset accounts represented the overpriced element of the assets purchased for the project. These were then allocated in full to the Autoband loan account. The allocation represents the cost incurred by the Group through Autoband's poor managerial decision making. As a result, it is the opinion of the directors that these costs should be borne by Autoband and repayable to the Group in full. Refer to (g) below for further details on write offs pertaining to this loan account.

(c)     At the 28 February 2011, continuously poor trading conditions at the Dar es Salaam facility led to the internal impairment assessment of the hospital assets. A discounted cash flow valuation was undertaken at year end which identified the assets as being overvalued by $906,000 (2010: US$ Nil). The impairment was allocated pro rata across the assets based on net book value at year end.

The key assumptions for the discounted cashflow valuation calculations are those relating to discount rates, growth rates and cashflow forecasts derived from the most recent financial budgets and forecasts approved by management covering a five year period. Cash flows beyond the five year period are extrapolated using an estimated growth rate of 5.8% which is based on the average long term growth rate for the country. The pre-tax discount rates are based on the Group's weighted average cost of capital. The rate used to discount the forecast cash flows is 13%.

(d)     In August 2010, following a review of operations, the Board decided to focus on the core business of hospitals.  Accordingly the Nairobi clinic project was abandoned and the remaining carrying value of the project is fully impaired. Certain medical equipment was transferred to other sites within the group prior to the impairment charge.

(e)     At 28 February 2011, an independent valuation was done on the net book value of the Falcon 20 aircraft. The result of the valuation indicated that the aircraft was significantly over valued. As a result, an impairment cost was recognised in the year ended 28 February 2011 to realign the carrying value of the plane with the valuation obtained.

(f)      Input VAT previously claimed on the importation of medical equipment has now been deemed to be irrecoverable. This has resulted in the full impairment of this amount.

(g)     Monies receivable from Autoband Investments (Proprietary) Limited, Airport Clinic Johannesburg International (Proprietary) Limited and Airport Clinic and Travel Vaccination Centre Cape Town International Airport (Proprietary) Limited are deemed irrecoverable and have been written off in full.

At 28 February 2011, the Group decided to discontinue its medical insurance arm named African Wellness Solutions. The two companies set up specifically to cater for this service, African Wellness Solutions Tanzania Ltd (AWS TZN) and African Wellness Solutions Mozambique Lda (AWS MOZ), have been dormant over the last two years. It was decided that it is no longer the intention of the Board to provide medical insurance as part of its services.

Consequently, the business of medical insurance has been reclassified as a discontinued operation and its trading results are included in the consolidated income statement as a single line below loss after taxation from continuing operations and the comparatives restated accordingly.

The calculation of basic and diluted loss per share is based on the following data:

Due to the loss incurred in the period, there is no dilutive effect of share options.

(a) On 5 June 2009 30,000,000 ordinary shares plus warrants were issued and fully paid for cash at a price of 10p per share and related warrant.

(b) On 30 September 2009 the Company purchased 100% of EMP Services Limitada, a Mozambican company whose sole asset is the site of the Company's second boutique hospital, trauma centre and Well Woman Clinic. The purchase consideration was a cash payment of US$2.2 million and the issue of 10 million new ordinary shares in the Company.

(c) On the 4 November 2009 74,001,000 ordinary shares were issued to Harbinger Capital Partners Master Fund I, Limited, ("Harbinger") in terms of a £28.7 million (US$47.2 million) equity line agreement with Harbinger. 

(d) On 30 April 2010 and 23 July 2010, 12,500,000 shares (6.5m shares at £0.23 per share and 6m shares at £0.25 per share) and 6,111,111 shares at $0.396 per share respectively were issued to Harbinger Capital Partners Master Fund Limited. These share issues were made pursuant to the 30 October 2009 £28.7 million ($47.2 million) equity line agreement with Harbinger Capital Partners Master Fund Limited, (the "ELA"), which was revised on 20 September 2010 (the "Revised ELA"). Under the terms of the Revised ELA, which replaces the existing ELA, Harbinger Capital Partners Master Fund Limited agreed to subscribe for US$6.5 million worth of shares in the Company in four separate tranches by the end of 2010, after which Harbinger Capital Partners Master Fund Limited would have no further funding obligations to the Company pursuant to the ELA or the Revised ELA.

(e) On 21 September 2010 and 29 October 2010, 24,193,548 shares at $0.124 per share and 14,336,918 shares at $0.14 per share respectively were issued to Harbinger. These share issues were made pursuant to the Revised ELA.

(f) On 1 December 2010 9,384,164 shares (6,451,613 shares at £0.10 per share and 2,932,551 shares at £0.11 per share) were issued to Harbinger. These share issues were made pursuant to the Revised ELA.