African Medical Investments PLC Final Results -8-
August 31 2012 - 2:01AM
UK Regulatory
Impairment reviews of non-current assets are carried out on each
cash-generating unit identified in accordance with IAS 36
"Impairment of Assets". At each reporting date, where there are
indicators of impairment, the net book value of the cash generating
unit is compared with the associated fair value. In prior periods
investigation into alleged financial and administrative
irregularities has identified potential overpayments to certain
suppliers for plant and equipment. Independent experts and forensic
auditors were engaged to ascertain the likely extent of any
overpayment. In instances where financial irregularities were
quantified, the financial impact was taken to the income statement
as Loss from financial irregularities. Where indicators of
overpayment exist, an impairment provision was raised on an
assessment assisted by independent experts of the extent of the
overpayment, based on market values of fit for purpose equipment
purchased. Due to the nature of the alleged financial
irregularities, the precise overpayments cannot be determined,
however the directors believe the provision is materially adequate
based on the information currently available. In the prior year
assets reviewed for impairment totalled $9,140,127 in the current
year these assets were considered to be at the correct value after
impairment.
Valuation of cash generating units
The Group tests annually whether property, plant and equipment
has suffered any impairment. Determining whether the assets are
impaired requires an estimation of the value in use of the
cash-generating unit (CGU). The value in use calculation requires
estimated future cash flows expected to arise from the CGU to be
discounted at a suitable discount rate in order to calculate the
present value. Actual outcomes could vary significantly from these
estimates. Please refer to note 6 for further information.
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 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 rates used to
discount the forecast cash flows are between 13% and 21%,
reflecting each operations specific risk level.
Convertible loan note valuation
Calculation of the equity element contained within the
convertible loan note valuation contained an estimate from the
board on a market related interest rate for a standard unsecured
loan of $5.7 m at the balance sheet date. This was deemed to be 15%
per annum.
5. Loss from financial irregularities
Prior year investigations into the alleged financial
irregularities which occurred during the tenure of Dr. Solanki, the
former CEO of the Company, resulted in criminal charges being laid
against the former manager of the Harare Trauma Centre. Arrest
warrants were issued in respect of Dr. Solanki and his appointed
manager in South Africa by the South African Police Service.
The board remains committed to further civil action in an
attempt to seek compensation for the losses suffered, not only in
relation to the fraud and/or theft but also in relation to losses
suffered in connection with the acquisition of VIP Healthcare
Solutions Limited by the Company, in all jurisdictions.
Other than in respect of on-going investigation costs the
Company is confident that all other financial losses resulting from
the matters referred to above have now been reflected in the
Group's income statement.
6. Asset Impairment
Current year losses have led to the review of the value of
assets contained within the various cash generating units contained
in the group. Details of any impairments arising from the aforesaid
review are detailed in the note below.
In February 2012 our hospital in Harare, Zimbabwe was illegally
and forcibly occupied by previous members of our management team
led by Dr Vivek Solanki. This has resulted in large scale losses of
revenue from this point onwards and an impairment review of the
hospital assets was carried out, details of which are in the note
below. The group has been awarded a date to appeal the illegal
occupation in mid-September 2012.
Prior year investigations into alleged financial and
administrative irregularities identified potential overpayments to
certain suppliers for plant and equipment in the period 1 March
2010 to 28 February 2011. Independent experts and forensic auditors
were engaged to ascertain the likely extent of overpayment. Where
indicators of overpayment existed, impairment provisions were
raised based on an assessment by independent experts of the extent
of overpayment, based on market values of fit for purpose
equipment. Impairments arising from potential overpayment were
recognised notwithstanding that the recoverable amount based on
value in use may have been in excess of amounts actually paid.
The review of carrying amounts of property, plant and equipment
and intangible assets at 29 February 2012 indicated actual
impairment write downs on the following assets:
Impairment Impairment
write down write down
Basis of recoverable Valuation 29 February 28 February
amount undertaken 2012 2011
by
Asset or Asset Class $'000 $'000
CGU
Note
---------------- ------------------ --------------------------- ----------------- ------------------ ------------------ ----------
Harare Land and Discounted cash Internal 1,779 - (a)
buildings flow valuation assessment
Harare Medical Discounted cash Internal 1,001 - (a)
equipment flow valuation assessment
Harare Motor Discounted cash Internal 65 - (a)
vehicles flow valuation assessment
Harare Other assets Discounted cash Internal 564 - (a)
flow valuation assessment
Harare Assets under Discounted cash Internal 215 - (a)
construction flow valuation assessment
Maputo Medical Fair value Internal 414 - (b)
equipment assessment
Maputo Motor Fair value Internal 4 - (b)
vehicles assessment
Maputo Other assets Fair value Internal 97 - (b)
assessment
Dar es Medical Fair value Internal 162 - (c)
Salaam equipment assessment
Aviation Aircraft Fair value Arm's length 1,057 - (d)
sale
Loan Loans and Internal
receivable receivables Fair value assessment (131) 2,481 (e)
Maputo Land and Fair value Independent - 18 (f)
buildings expert
Maputo Medical Fair value Independent - 129 (f)
equipment expert
Maputo Other assets Fair value Independent - 12 (f)
expert
Harare Assets under Fair value Independent - (1,704) (g)
construction expert
Dar es Medical Discounted cash Internal - 653 (h)
Salaam equipment flow valuation assessment
Dar es Other assets Discounted cash Internal - 218 (h)
Salaam flow valuation assessment
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