African Medical Investments PLC Final Results -8-

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