Investing in Nigeria with Homestrings: Healthcare project by Crystal Thorpe

Crystal Thorpe Healthcare ProjectPresented by Ms Ugonna Ogueri

Managing Director

Table of Content• Introduction to The Crystal Thorpe Project

• The Investment Case

• The Nigerian Economy

• Healthcare Industry in Nigeria

• Presentation of the Company and Parties to the Project

• Business Model and Strategy

• Governance Arrangement

• Environment and Social Impact

• Funding Plan

• Revenue Model

• Healthcare Investment Opportunity• Risk Analysis

Important Notice

Crystal Thorpe accepts responsibility for the information contained in this presentation and to the best of its knowledge has taken reasonable care to ensure that such is the case, such information is in accordance with the facts and does not omit anything likely to affect the import of such information.

The presentation is a summarised version of information related to the transaction described, and should be used in conjunction with, the more detailed information, including the Summary Terms and Conditions of the Financing, appearing elsewhere in our Information Memorandum. Reference is made to “Risk Factors” for a discussion of certain issues that should be considered in evaluating participating in the financing described herein. All capitalised terms used in this presentation that are used in the Project Documents or the Financing Documents are qualified by the meanings given to such term in the applicable Project Document or Financing Document.

Crystal Thorpe is a holding company incorporated in the UK and Nigeria to acquire, develop and manage healthcare facilities in Nigeria.

This project involves the purchase of X Hospital Ltd and the acquisition of run-down facilities in Lagos and Abuja that will be transformed into two hospitals and four polyclinics (the “project”) over a roll-out period.

The project is estimated at N9.8 billion or US$62.48 million, implemented in two phases spreading over a 3-year period: - ❑ Phase 1: involves the purchase of X Hospital Ltd; the construction and development of 1 specialist hospital and 1 polyclinic in Lagos;

❑ Phase 2: involves the acquisition of 1 hospital and 2 polyclinics in Abuja.

Introduction to Hospital Project

Pent up demand for healthcare services in Nigeria with inadequate supply:Nigerians spend around US$1-2 billion annually for healthcare in foreign hospitals, according to the government with orthopedics, cancer and cardiac diseases, accounting for a significant proportion. The supply deficit of healthcare in Nigeria is a strong and positive credit factor.

The healthcare industry in Nigeria presents opportunities for consolidation: Nigeria has few investor-led healthcare groups in the country. The industry lacks the scale and scope economies because of the sole proprietorship structure, which also determines the quality of services, returns on investment, corporate and clinical governance standards.

Penetration rate for healthcare insurance is set to double over the next 3-5 years:3.3 million individuals out of a population of 150 million people, have signed on to medical schemes, according to NHIS. The penetration rate for health insurance in Nigeria is projected to grow to 6 percent, over the next 3-5 years, reducing out-of-pocket payments.

Strong Health Tourism opportunities and PPP arrangement with the governmentNigeria can become a hub for West Africa as centers of excellence are built and Crystal Thorpe is also partnering with both state and federal government via the option of offering its services to the public sector via long-term contracts.

Investment case

Estimated population (millions) 15.22

Estimated population growth rate (%) 1.93

Age structure (as a % of population):

- 0 to 14 years 40.9

- 15 - 64 years 55.9

- 65 years and over 3.1

Source: Central Bank of Nigeria Monthly/Quarterly Reports 2009/2010; EIU Country Report for Nigeria, 2009/2010.

Nominal GDP & real growth rate, 2005-2010 Key demographic information

Key economic indicators

The Nigerian Economy

Nigeria has the biggest healthcare market in Africa with a population of around 165 million people growing at approx. 2 percent per annum

Government hospitals accounts for a large share of Nigeria’s hospital market but are grossly under-funded with poor quality

65 percent of healthcare is done in Private cottage-style Hospitals with inadequate capacity to meet the growing demand. The Private Sector Industry is very fragmented with several sole doctor-owned facilities

Nigerians spent $2 bln in Foreign Hospitals last year on Medical Tourism for Heart, Cancer, Kidney, Orthopedics and major Surgeries in the Americas, Dubai, Europe, India and South Africa

Healthcare Industry in Nigeria

Nigeria Africa av.Physician density 3 2Nurse and midwife density 17 11Community health workers 9 n/aHospital beds (2002 – 08) 5 10

Workforce and Facilities 2000 – 07 (per 10,000 population)Nigeria has more doctors than average in Africa but less Hospital beds and a growing disease burden

Healthcare expenditure per capita in emerging economies

Nigerian Healthcare Industry

Nigeria’s disease burden

350,000 new cancer cases every year

Key Drivers of Demand for Private Healthcare in Nigeria

•Increase in Population Growth RateNigeria’s population is projected to grow at an annual average of 2 percent to reach 217 million people by 2025, from 167 million in 2012. Nigeria has a youthful population with around 43 percent of its people less than 15 years of age and 3 percent above 65 years.

•Rapid Urbanization and Emerging Middle ClassRapid urbanization and rising income levels have led to changing lifestyle and stress levels which has contributed to rising levels of diseases such as coronary heart disease, diabetes, hypertension and cancer.

•Increasing Awareness of Available Healthcare Options and Insurance PenetrationPenetration rate for health insurance in Nigeria is projected to grow to 6 percent over the next 3-5 years, from 3.23 percent currently, according to industry experts and executives as more people sign up to medical schemes and large hospital networks develop.

•High Disease BurdenAfrica has 25 percent of global disease burden according to the IFC’s health in Africa report 2007 with a very high incidence of disease. Nigeria suffers from a high burden of diseases particularly women and children health and Malaria. Nigeria’s population suffers from diseases associated with both developing and developed countries.

Healthcare in Nigeria

Key Competition within the Private Healthcare in Nigeria

Small clinics which are mostly out-patient clinics set up by individual doctor or a group of doctors. Our polyclinics is positioned to play in this market, in order to grow our customer network, acts as day-centers and referral clinics and create brand awareness.

The government-owned hospitals which provides sub-standard healthcare to the general public. Our business model includes providing services to the government under a Public Private Partnership arrangement or long-term supply contracts.

Competition from other facilities which include Lagoon Hospitals; Reddington and Eko Hospital. Nigeria has 167 million people with only about 4-main hospitals located in Lagos with different specialties

Customers travelling abroad for services especially those that travel to India and North Africa. Our aim is to provide services that will match those obtained in Europe and America, thereby attract some of the patients going abroad at the moment

Healthcare Industry in Nigeria

Crystal Thorpe is a company registered in the UK and Nigeria to acquire, develop and manage healthcare services within the sub-Saharan African continent. The Company will engage in the acquisition, construction, re-provision and management of hospitals and clinics with the objective of turning them into world-class healthcare centers. Our acquisition targets are run-down facilities; facilities were succession planning is not in place or proprietors are in distress. To begin with, Crystal Thorpe will purchase X Hospital Ltd, Lagos and expand its operation together with two additional run-down facilities in Lagos in need of modernization. We have advanced acquisition negotiations with the owners. The facilities are situated in locations that supports stable customer base and possess location advantage. After reconstruction, the acquired facilities will be transformed into:I. Specialist Hospitals

II. Polyclinics – acts as days centers and feeders to the Specialist HospitalsIII. Pharmacy Services IV. Diagnostic Services

Parties to Crystal Thorpe Project

Other parties to the ProjectAmerican Hospital

Management

Siemens AG

Iroko Securities London

Costain West Africa

MANSAG

AHMC supports Crystal Thorpe in bringing global best practices and training to healthcare service delivery and management to facilities in Nigeria

Siemens Medical AG provides Crystal Thorpe with latest imaging and diagnostic solutions for its hospitals and facilities

Crystal Thorpe has partnered with Costain to procure the hospitals and polyclinics under a design/build FIDIC form of contract. Costain has over 60-years experience in Nigeria.

Medical Association of Nigerians across Great Britain. Crystal Thorpe has a partnership with MANSAG to bring back Nigerian doctors and nurses.

Iroko is a UK-based investment bank supporting Crystal Thorpe’s financing activities and hospital development

Support services

- HR - Finance- IT - Legal- Estates and Facilities

• Polyclinics

• Pharmacy

• Diagnostics and Laboratory services

Crystal Thorpe

Hospital

• Gynecology• General Medicine• Oncology services• Pediatrics• Heart disease/Stroke• Neurology• Internal Medicine• Urology• Diabetes

Health Plan and Partnerships with HMOs

CT will operate a HUB and SPOKE model linking each unit with electronic medical records and AHMC as the hospital manager

Business Structure

Analysis of target market

The target market for CT facilities are – the growing middle class and upper middle class in Nigeria, middle and upper middle class from other West African countries, expatriates in Nigeria and surrounding countries and dependants of Nigerians in Diaspora. The target market mentioned above can be classified as below:

• High Income Nigerians: defined as those with annual disposable incomes of US$5,000 or more (the top 2 percent of households, by income).

• Upper Middle Income Nigerians: those with annual disposable incomes between US$1,750 and US$5,000 more (the top 17 percent of households by income – excluding high income Nigerians).

• Affluent Expatriates: foreign nationals who are either 1) tourists and/or 2) employees of Nigerian based firms. Incomes rank with those of upper income Nigerians.

• Affluent West Africans: upper income citizens of one of four high income West African countries (Ghana, Cameroon, Sierra Leone, or Liberia). Incomes are commensurate with those of upper income Nigerians.

Marketing Strategy

Cost and Inventory Management

Revenue Strategy

We will leverage on X Hospital’s existing HMO and corporate clients to roll-out its network. Crystal Thorpe and AHMC has made initial contacts with some foreign missions in Nigeria and oil firms and will extend our reach to cover telecom and power companies

AHMC has a database of healthcare executives that will benefit Crystal Thorpe. We also have strong links with Nigerian doctors and Nurses in Diaspora and at home. X Hospital currently has 15 doctors and over 50 nurses.

We will leverage on X Hospital’s existing supplier relationship and economies of scale to maintain/manage our input cost and the cost of service provision. Economies of scale will help drive cost optimization

HR Strategy

Crystal Thorpe has indications of interest with health insurance to sign re-imbursement agreements. We will aim for contractual arrangements with customers in order to support a smooth running of operations and our debt service obligations. Pre-paid health plans will also form a key part of our revenue strategy

Key operating strategies

Customer Care Payment for Consultation

Triage Nurse Payment for Blood Test

Payment for X-ray or scans required by

doctorDoctor

Deposit on admission

Discharge

Admission status reviewed daily

Admission

Referral to another CT service

Crystal Thorpe Care Pathway

Our expansion project will be implemented in two phases:Phase 1: I. Renovate of new specialist hospital in Lagos

II.Upgrade X Hospital LtdIII.Renovate polyclinic in LagosIV.Installation of medical equipment

Specialist hospital renovation will last 15-18 months while polyclinic renovation will take up to six months. We will require to pay for the purchase of medical equipment in month 12.Phase 2: Commences end of 2016/2017I.Construction of specialist hospital in Abuja

II.Renovation of two polyclinicsIII.Installation of medical equipment

Indicative Implementation Plan

Crystal Thorpe Nigeria Board of Directors

Audit Committee

Clinical Governance and Quality Committee

Capital Investment Committee

Executive Management Team (AHMC)

Remuneration Committee Workforce Board

Business Management Board

Finance Performance Board

Clinical Effectiveness Board

Governance Structure and Accountabilities line

Environmental and Social Impact AnalysisCT is a socially responsible organisation and will uphold high standards of business ethics in compliance with local and international law. CT has an anti-corruption policy in place and will not accept or solicit bribes as part of its business practices. We are an equal opportunity employer and will not discriminate based on gender, religion and ethnicity or disability.Impact Analysis:CT expansion has a strong social impact and a positive return for investors. The fundamental aim of our organization is to grow its business and ensure that investments deliver strong social and financial returns, whilst addressing some of the most pressing healthcare needs in sub-Saharan Africa, particularly Nigeria through the delivery of efficient, quality healthcare services and innovative products to the population. CT service strategy is to deliver care across the healthcare pyramid. The company believes that in order to deliver quality care to the bottom of the pyramid, it needs to deliver care quality care to the higher-income segment of the population.For maximum impact, CT will target women and children, the elderly population and male youths with low skills employed in the formal and informal sector and majority of whom live on less than US$2–US$5 a day.

Crystal Thorpe Impact Analysis

CT will provide access to healthcare for the bottom of pyramid population, treating at least two thousand two hundred (2,200) patients each year, which will include access to latest diagnostic equipment, clinical personnel, and specialist consultants within a modern healthcare environment.For particular type of services e.g. women that require caesarean section during child-birth (presently a common cause of death in pregnancy for majority of women in sub-Saharan Africa and Nigeria in particular) and treating children born with jaundice.Nigeria has growing episodes of cancer amongst its population, according to its cancer registry in the country. No doubt a high proportion of these episodes will be among the bottom of the pyramid segment of the population. CT will promote awareness and in some cases free diagnosis and treatment for this section of the population. Through our relationships with the HMOs we will enhance access to healthcare for low-level staff with basic coverage on the HMO scheme. We will identify and screen bottom of the pyramid patients for service needs through our agreements with HMOs and referrals from government hospitals. CT will monitor service delivery and outcomes using its clinical records system and also capture data which will include demography, diagnosis and cost of service delivery.

Social Impact – Service delivery

Over the last 20 years, Nigeria and sub-Saharan African countries have suffered from brain drain in the healthcare sector. We will create an environment to provide employment for Africans in Diaspora who want to come back home to provide quality healthcare service to people in Africa. By attracting these specialists back home, they will support the development of local clinical staff which will help bridge the skills gap in the sector, thereby addressing the quality of healthcare issues on the continent while also reducing the high disease burden in Africa. The bottom of the pyramid patients will benefit from the expertise that otherwise would have been available only to the higher-income segment of the population.Job creation is fundamental to CT strategy. We are an equal opportunity employer will source a proportion of our staff from the local communities where we operate, thus enhancing income levels and adding value to the society. CT will employ around three hundred (450) medical and non-medical personnel at full capacity, of which eight to ten percent of workers will be auxiliary staff i.e. bottom of the pyramid segment of the community, for example care assistants, cleaners, security staff, and drivers. Also our partnership with global equipment manufacturer Siemens will help develop a technical workforce on how to operate complex medical equipment which is not sufficient in Nigeria. Our business plan has factored in systems to attract, train, support and retain our workforce. Provisions have been made within our financial model for staff training and development. CT will uphold high standards in business ethics and comply with local and international law.

Workforce Impact

CT is conscious of the impact of its business on the environment and will manage such impact through the adherence to the internationally acclaimed BRE Environmental Assessment Method (BREEAM). We are aware of the IFC standards on Environment, Health, and Safety Guidelines for Healthcare Facilities and have incorporated them into our business planning. We are committed to minimizing the impact of our activities on the environment. We propose to reduce carbon emissions from our facilities by applying energy efficient design principles and implementing an energy management strategy. We will use a mix of energy sources for electricity and power generation. For example, our design strategy and building technology are focused on the use of renewable energy which will cut energy cost and reduce carbon emission. While our waste management policy will ensure that we manage and dispose medical waste responsibly.

Environmental Impact

Phase 1 Phase 2

Period 2013-2015 2016

Naira (mln) US$ (mln) Naira (mln) US$ (mln)

Equity & Subordinated Debt 1,648 10.48 2,228 14.17

Debt 3,844 24.45 2,103 13.38

Total 5,492 34.93 4,331 27.55

• Phase 1: the acquisition of X Hospital and the construction and development of 1 specialist hospital and 1 clinic in Lagos; • Phase 2: the acquisition of 1 hospital and 2 clinics in Abuja.CT proposes to fund the project by splitting the debt financing into: 1. The financing of the construction and payment of the cash

consideration to X Hospital2. The financing of the operation and refinancing of (1). 3. The financing of each phase will be systematically refinanced as

stated in (2).

The Funding Plan

Phase 1 Phase 2

Naira

(in millions)

US$

(in millions)

Naira US$ Naira US$

Mezzanine Debt (third party investor)* 1,627 10.35 831 5.29 796 5.06

Contribution of Services Providers

(Costain West Africa and the land seller

via subordinated debt)

837 5.32 349 2.22 488 3.10

CT X Hospital Ltd 365 2.32 349 2.22 16

Mezzanine Debt/Equity

The X Family

1,047 6.66 119 0.76 928* 5.90

TOTAL 3,876 24.65 1,648 10.49 2,228 14.17

Mezzanine debt providers for US$ 5.29 mln include during the construction phase for Phase 1:

* Homestrings Investment* Xplico Insurance Company

Summary of the Equity Financing

Phase 1

Naira

(in millions)

US$

(in millions)

Construction Facility 3.838 24.45

Total 3.838 24.45

Refinancing amount* 4.589 29.23

* Amount includes refinancing for the construction facility and mezzanine providers during the construction phase in Phase 1

* Crystal Thorpe has funding support from two international banks

Summary of Phase 1 Financing

*An LC will be opened to place purchase order with Siemens which will be issued by Ecobank Nigeria in Phase 1. Siemens will paid in month 12 during the construction period.

The Use of Proceeds

Proposed financing structure

Selected Periods 2015 Year 1 2016 Year 2 2017 Year 3(in million US$) (in million US$) (in million US$)

Total Revenues 12.44 14.96 24.58Reimbursement or payments from Insurances Schemes

5.22 42% 6.28 42% 10.32 42%

Corporate 3.48 28%] 5.24 35% 8.60 35%Individuals (out of pocket payment)

9.74 30% 3.44 23% 5.66 23%

Selected Performance Data (US$ million) 2015 2016 2017 2018 2019 2020Revenues 12.44 14.96 24.58 29.41 31.19 34.33

EBITDA 2.40 4.11 6.90 8.39 9.40 9.92

Income Before Tax: (1.71) (1.24) (0.2) (0.8) 1.75 3.62

Projected distribution of revenues by source of payments

(% of Gross Revenue)

General Medical Services 27%

Emergency Medical Services 3%

Maternal and Childcare Services 5%

Diagnostic Services 19%

Specialised Services 5%

Polyclinics 5%

Pharmacy Services 29%

Other Services 7%

(% of Gross Revenue)

Cost of Goods Sold* 22%

Overheads 9%

Staff Costs 28%

Costs of Provision of Care (Year 1)

• Pharmaceutical products are the largest items.

Projected revenue distribution by service (Year 1)

We are pleased to invite prospective investors to participate in the equity and mezzanine financing in the Crystal Thorpe hospital project to the tune of up to US$8 million.

Equity and Mezzanine investment: up to US$8 million

Use of Proceeds

•Medical equipment

•Construction

Investment Opportunity:

Key Risk Factors

The following are the principal risk factors that may adversely affect the debt service performance of CT. However, the probability of occurrence of those risk events is considered very low.

Completion Risk

This is the risk that the two hospitals and four clinics are not built on time and within budget. The reason why the technical risk is considered low because Costain West Africa, the contractor, has an established track record of executing a wide range of building and civil engineering projects in Nigeria.

There is also an alignment of interest between Costain West Africa, the sponsor and the funding providers. By subscribing the subordinated debt issued by CT, it is the interest of Costain West Africa that the construction is finalized within the time limit as this affects its overall return. Costain West Africa will more easily find a solution to potential problems as the failure to do so will adversely affect its position as investor in the project.

Under the design and build contract, Costain West Africa will issue a completion bond via Ecobank Nigeria for the contract sum, mitigating the risk of completion. Hence there is no risk of cost overrun as the contract is a fixed price contract. All unforeseen risks related to the sites are born by Costain West Africa. Appropriate insurance cover will be taken by Costain West Africa and CT in order to reduce and manage risks.

Hospital Management Risk

This is the risk that the running of the hospitals and polyclinics does not deliver a good quality of support services which itself may result in a poor delivery of quality of care.

Under a management and service agreement, AHMC will be responsible for managing the hospital and polyclinic facilities. The company is a professional healthcare manager.

It focuses on the admission, management and development of world class hospitals and healthcare system. It is very active in Latin America where it manages six hospitals, in Africa and in India. Through its network of hospitals, AHMC is able to deliver scale economies not available to stand alone hospitals.

Through the partnership with CT, AHMC will take a small equity stake in CT and will subordinate some of its performance fees to interest due to senior lenders. This partnership arrangement creates a strong alignment of interest between AHMC, CT and the lenders.

AHMC is involved with CT in the construction management, namely the design and development and equipment planning. It is working with CT on the preparation of the business plan, financial analysis and projections, the determination of the scope of services and on staff planning. It will also be involved in the pre-operation and commissioning of the hospitals and polyclinics.

Operational Risk

This is the risk that the quality of care is not provided due to the (i) lack of personnel or staff, (ii) lack of funding and (iii) lack of equipment.• Staff RiskIt is acknowledged that in Nigeria, there is a shortage of trained health workers. CT and AHMC are aware of this situation. AHMC intends to leverage its network to address CT’s staffing requirement. In addition, the management and service agreement have provisions for recruitment, training and supervision of CT’s employees.CT’s believes staffing risk will be mitigated further through attractive remuneration, conducive work environment, good medical facilities and equipment.• Lack of FundingThe financing transaction described above covers the CAPEX and working capital requirements of the project.• Lack of EquipmentCT understands the need for complex medical equipment to ensure quality and modern medical services. The equipment will be purchased from Siemens AG, a major manufacturer in the health industry. The equipment will support clinicians to make diagnosis and treat complex medical conditions. CT and Siemens AG will put in place a maintenance agreement to ensure that the equipment is optimized.

Reimbursements or Payments under Private and Public Insurances and Corporate Schemes

CT business model is geared towards offering its services to patients covered by insurance schemes and corporate schemes with strong credit standing. Public sector counterparty risk will be covered through insurance policies taken with providers of political risk cover.

Regulatory RiskThe risk is that the federal government, the state governments or the local governments introduce rules that may have an adverse effect on CT business.Rules may target quality standards, insurance schemes, pricing of pharmaceuticals and medical products to name just a few examples.CT intends to support the improvement of healthcare service delivery during its operation and pursue quality enhancing initiatives.

AHMC Global Experience

VIP Hospital

How can you get involved?

• Invest– access the deal and make a commitmentHomestrings.com/VehiclePreview/a03F0000009uUc3IAE

• Promote– Your own project, fund or bond on Homestrings

• Participate

– Diaspora Investment Symposium

– Investing in East Africa, July - London

Contacts

• Eric V. Guichard – Founder and [email protected]@homestrings.com

• Ugonna Ogueri – Crystal [email protected]

• Web: www.Homestrings.com

• @Homestrings & facebook.com/Homestrings