Additional capital needed to stop financial bleeding at Istishari Hospital

AMMAN — Accumulated losses at Consultant and Investment Group, the public shareholding company that operates the Istishari Hospital in Amman are about 51 per cent of the paid-up capital as they reached JD11.23 million at the end of March 2015.

According to auditor Deloitte and Touche (Middle East)-Jordan, the company is also in a liquidity bind with a JD1.4 million deficit in working capital.

"These figures raise concern about the ability of the company to continue [operations], consequently depending on the success of future activities and executing the management's plan to rectify the financial position," Deloitte wrote in a review report.

The profit and loss statement at the end of this year's the first quarter showed a decline in gross profit to JD400,000 from JD700,000 at the end of March 2014, reflecting lower operational earnings which were down to JD2.8 million (JD3.1 million at the end of March 2014).

After taking into consideration administrative and selling expenses, finance costs and depreciation, the net result for the first three months of 2015 was a JD500,000 (200,000) loss.

In 2014, the loss was JD1.6 million, 220 per cent more than the JD500,000 posted in 2013. 

According to the company's balance sheet as of March 31, 2015, net receivables amounted to JD1.7 million (JD1.9 million on March 31, 2015), after setting aside JD3.2 million in both quarters as provisions for doubtful assets.

In other words, gross receivables before deductions were JD4.9 million (JD5.1 million), including JD2 million in both periods owed to the company by the Libyan government and Libyan hospitals.

The Palestinian Authority and the Jordanian Ministry of Health were the other two debtors specified in the list as owing the company JD400,000 and JD200,000 respectively.

Although these amounts owed by the Libyan, Palestinian and Jordanian parties have been due for more than 360 days, the company allocated only JD1.6 million as provisions for doubtful assets , including JD1 million to cover the Libyan debts.

"We could not verify the Libyan receivables because the company's management was unable to specify the party that should be contacted in light of the conditions prevailing in that country," the auditor said.

Deloitte also was unable to determine if the JD2.2 million, representing JD3.2 in total provisions for doubtful assets less the JD1 million provision for Libyan dues, were enough.

It noted in this regard that no statement could show the tenor of the JD2.9 million, that represent the JD4.9 million in receivables less the JD2 million of Libyan dues.

In the company's 19th annual report, Chairman Mazen Albashir listed difficult economic conditions, an increase in indebtedness, weak liquidity and limited bed capacity at the Istishari Hospital as main challenges.

"The considerable increase in electricity charges and in the cost of fuel was beyond expectations and greatly impacted our 2014 financial performance as the rise in expenses was not offset by higher hospital charges," the chairman said.

He added: "The challenges we faced in 2014 were immense in terms of operational costs which went up due to higher energy prices."

Albashir indicated that energy prices last year were 21 per cent above the level in 2013,  resulting in a JD1.24 million bill that represented 12 per cent of the 2014 total operational costs.

According to the chairman, the remaining operational costs surged by JD900,000, or 10 per cent above the amount in 2013, due to salary increases, higher prices of medicines and medical supplies besides costly maintenance.         

He attributed the cash liquidity squeeze on the inability to collect the dues from Libya and Palestine because of  political considerations despite intensive efforts to that end.

To address the various constraints, the auditor mentioned that the company's management intends to restructure the capital by writing off the accumulated losses against the issuance premium, amounting to JD2.4 million, and increasing the capital which has been raised several times before and now stands at JD22 million.

"The plan is to recommend to the general assembly of shareholders an increase in the company's capital by around JD8 million through a public flotation," the auditor said.

In the annual report's foreword, the chairman stressed that the path to financial improvement and profitability was to implement a previous resolution, adopted by the shareholders, to increase the company's capital for the hospital's expansion.

"First steps were buying the lands adjacent to the hospital in order for the expansion plan to proceed," he indicated. "To ensure the success, it is imperative that the capital be restructured and losses be written off through raising the capital."

Notes accompanying the balance sheet as of March 31,2015 show that the company obtained in 2012 a JD2.8 million loan from Bank of Jordan to partly pay for purchases of lands surrounding the hospital within the plan for future expansion. The last instalment of this loan is due in 2016.

Combined with another JD2 million credit, known as advances under current account, the company's outstanding bank debt stood at JD2.4 million at the end of this year's first quarter

This indebtedness burdened the company with JD300,000 in financing costs last year.

Other financial data valued the company's capital investment as of December 31, 2014 at JD15.3 million and the  property and equipment a as of  March 31, 2015 at JD15 million.

Noting that annual operational earnings hovered around JD13 million in the last two years, a breakdown of last year's income reveals that revenue from medical interventions was highest at JD3.6 million, followed by JD3.2 million from other unspecified departments.

The income from the pharmacy totaled JD2.5 million, from medical supplies JD2.4 million, and from hospital admissions JD1.4 million.    

Bank of Jordan, Capital Bank and Tawfiq Shaker Khader Fakhoury top the list of shareholders as they respectively own 35.6 per cent, 13.3 per cent and 8.9 per cent of Consultant and Investment Group, whose workforce comprises 560 employees manning the Istishari Hospital.