Vitals accounts revealed ‘material weakness’ and losses in first year of operation

Unknown company granted 30-year-concession to run hospitals paid directors €1 million in fees

Steward has tabled the 2015 and 2016 accounts for Vitals, the former concessionaire
Steward has tabled the 2015 and 2016 accounts for Vitals, the former concessionaire

Steward Malta’s auditors have said Vitals Global Healthcare, the company from which it acquired a 30-year concession three Maltese state hospitals, was already facing a “material weakness [that] may cast a significant doubt on [its] ability to continue as a going concern.” 

The warning was made in the accounts for VGH for 2016, the company’s first full year of operation, which have only been submitted this week by the US healthcare firm Steward.

In 2016, Vitals posted a net loss of €6 million, with total liabilities exceeding assets by €8.9 million. Since then debts are believed to have climbed to over €30 million, but accounts for VGH’s 2017 financial year – the year in which it sold its concession to Steward – have not yet been filed. 

“These events and conditions indicate that a material uncertainty exists that may cast a significant doubt of the group’s ability to continue as a going concern,” the VGH auditor said in his opinion on the figures, which were signed off by Steward directors Armin Ernst and Michael Callum on 13 May 2018.

With just a risible capital of €1,200, by the end of €2016 Vitals was facing accumulated losses of €8.9 million and liabilities (trade payables and accrued expenses) of €17.5 million.

READ MORE • Questions on how Vitals amassed millions in debt after Steward posts accounts

The accounts also show that the Vitals directors at the time – listed as Sri Ram Tumuluri, and Mark Pawley before their resignations in 2018 – were paid €1,037,000 million in directors’ emoluments (€621,918 in 2015). Steward Malta CEO Armin Ernst was also CEO of Vitals in 2016.

The accounts show a total of €6.2 million as payments owed or payable in the future to the company’s immediate parent, Bluestone Investments Malta, whose ownership structure was further located in offshore companies owned by the directors and other investors. The amounts are described as “inter-company transfers” with no fixed repayment date and interest free. 

The government gave Vitals €29.7 million in 2016 as an allocation to run the three hospitals, as well as €416,000 for the air ambulance, €4.2 million registered as revenue from the services concessions agreement, and another €4.4 million registered as ‘other income’ for a total of €38.8 million in revenue. 

Apart from the €1 million in directors’ fees, Vitals incurred €23.8 million in government employees’ salaries, another €945,00 in other wages, and a further €1.98 million for “subcontracted staff”, for a total labour cost of €27.8 million for 1,421 employees. In total it registered €34.1 million in direct costs and a further €9 million in administrative expenses.

Vitals was granted a 30-year concession from the Maltese government in 2015 to take over 712 beds at the St Luke’s, Karen Grech, and Gozo general hospitals. Construction and finishing of the hospitals is expected to be completed during 2022. 

The company, which has since transferred the concession to Steward Malta over an inability to raise the necessary finance for its cash flow, has to run the hospitals in return for the state budget allocated to the three hospitals, together with an agreed premium. 

With no track record in the health industry, Vitals encountered difficulties finding banking institutions to finance its operations and commitments. 

The accounts also make reference to a €9 million performance guarantee that Vitals Global Healthcare bound itself to make as at 31 December 2016, in favour of the Maltese government. 

According to the agreement, Vitals was bound to put in place “an unconditional and irrevocable on demand prime bank guarantee issued by a bank duly licensed to carry out banking activities in Malta or an EU Member State and acceptable to the government of Malta”. 

When it released a copy of the contract with Vitals, the government blacked out the value of the bank guarantee, which had to be made within a month from the signing of the deal. 

According to the contract, the government had the right to call upon the performance guarantee or part of it if Vitals failed to meet its commitments. 

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