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African Medical Investments plc ('AMI') is an AIM listed company (AIM:AMEI) focussed on becoming a leading supplier of private specialist hospitals across Africa offering quality in and outpatient services. Its hospitals fill a crucial role for international standard healthcare demand from the burgeoning middle classes, overseas...Read more
African Medical Investment's new boss Botha already making his markAugust 11 2011, 10:27am
Less than a month into his tenure as boss of African Medical Investments (LON:AMEI) and Peter Botha is already making his mark.
He has a plan to cut costs by 25 per cent and boost revenues – a move that should ensure the hospitals group is cash flow positive by the first quarter of 2012.
Botha doesn’t flinch from a challenge – and this is exactly what he has taken on becoming the chief executive of AMI.
The past year has been the most difficult in the company’s short history following the departure of its previous CEO in July 2010. However, despite a challenging year, Botha decided to join the group as its new CEO and as testament to his confident in its ability to rapidly grow into a pan-African private healthcare company, agreed to take a $2 million stake in the group.
It was a strategic move that said the new CEO was supremely confident in his ability to turn AMI around.
And it had an immediate impact as the shares rocketed in value in a matter of days.
Botha agreed to buy at 2 pence, and today the price is 5.7 pence, which means the AMI chief is already sitting on a substantial paper gain.
Before being recruited for the role at AMI, Botha was the chief executive of Liberty Health, the South African private healthcare company.
After initially considering establishing a hospital investment fund, Botha was introduced to AMI and immediately saw it as an attractive proposal, both from an investment and an operational standpoint.
“This is why I was in a position to invest as I was ready to invest in a hospital fund anyway,” he reveals.
“What we have (in African Medical Investments) is a business that is fundamentally sound and benefits from a strong balance sheet.”
Indeed, Botha is full of praise for the interim and permanent management who stabilised and consolidated the group’s businesses following the departure of the previous CEO.
The company owns and runs three private hospitals – in Harare, Zimbabwe, Maputo in Mozambique and Tanzania’s largest city, Dar es Salaam.
Their net asset value is £12.3 million, which accounts for the majority of the company’s current £15 million market capitalisation.
The trick now is getting the hospitals to perform. Of course the cost cutting drive will help, but it is also a case of sweating the assets.
The hospitals, which have anything between 18 and 35 beds each, have previously been geared towards treating outpatients. Now the focus will be very firmly on turning them into surgical centres of excellence with the emphasis on short stay surgery, like orthopaedics, ear nose and throat and gynaecology. These procedures may require a couple of days hospitalisation, ensuring AMI fully utilises its bed space and generates increased revenues for the group.
This and a marketing drive with local physicians is intended to propel revenues per hospital up to break-even levels very quickly and allow Botha and his team to crack onto the next milestone very quickly.
Already the progress is being registered in the performance of each individual hospital by making what the AMI chief executive describes as some “very simple tweaks”.
And the revenue and cost targets he has put in place appear quite conservative and achievable set against the industry norms.
One of the greatest impediments to the business was the premium prices charged by the hospitals, which had a depressant effect on the volumes of patients it handled.
Botha has bitten the bullet and lowered tariffs in line with competitors in the markets, which has done two things.
Already, demand has begun to pick up. But it has also meant Africa’s health insurers see AMI as a very attractive partner, offering superior medical facilities at acceptable tariffs.
This a reliable income stream, where the company isn’t left, as it is at the moment, chasing up cash patient debts.
“We are now very much focussed on building relationships with health insurance, which are gaining more prominence in the African healthcare market, with big corporate and the multi-nationals giving better social benefits to their employees,” Botha reveals.
“To get good staff and retain them you have to give good benefits. Health is at the forefront of this. So the pre-paid market is at the forefront of this.
“My belief is we should be 75 per cent in pre-paid, which means health insurance, and 25 per cent cash.”
For AMI to succeed, however, it must be a team effort, and Botha plans to bring several new boardroom signings.
The first appointment is expected to be a finance director who in Botha’s words is a “hitter”, followed by a senior non-executive who knows Africa and brings with him “substantial credibility”.
Looking to the future of the group, once the basic operational refinements are completed, then Botha will look at methods of expanding the business.
“Our three hospitals are our calling card to growth,” Botha says.
“We want to create a bigger brand footprint. That can be done very softly by securing hospital management contracts with existing private hospital facilities under the AMI brand.
“Another option to enable expansion is to raise funds on the equity market and build hospitals as we have done in the past.
“It will depend the size of the market and our capital situation.”
Key to the success of AMI will be its ability to raise finance. Botha is candid about this and says at some point the group may ask investors to put their hands in their pockets to finance this growth phase.
“We would raise equity at a much, much higher price than this,” the AMI boss says referring to the current share price.
“We have five years to build a footprint over Africa. Once at this stage, we will review our various options to take AMI and its business to the next level.”