Highlights - Medicover January - June 2002
· Revenue for the second quarter amounted to EURO 8.8 million (EURO
7.6 million), a 16 percent increase from the same period 2001. First
half year revenue was EURO 17.6 million, a 22 percent increase from the
first half of 2001.
· Prepaid membership rose to 99,300 up 4,300 for the quarter and
18,000 or 22 percent versus the corresponding period last year.
· The operating loss (EBIT) amounted to EURO 0.5 million (-EURO 0.1
million) for the quarter and EURO 0.9 million (-EURO 0.4 million) for
the six months.
· The operating profit before depreciation (EBITDA) amounted to EURO
0.2 million (EURO 0.4 million) for the quarter and to EURO 0.5 million
(EURO 0.6 million) for the 6 months.
Approaching 100,000 members
Medicover maintained a satisfactory growth rate despite a continued weak
economic environment in our main Polish market. Second quarter revenue
increased by 16 percent from the same period in 2001 to EURO 8.8
million. Revenue for the first half was EURO 17.6 million, a 22 percent
increase compared with first half 2001 revenue of EURO 14.4 million.
As expected, growth in our Polish operations slowed due to the more
difficult local economic conditions. At the same time, Medicover's other
markets grew more rapidly. For the first 6 months of the year, growth
for the markets outside Poland amounted to 58 percent, which made up
more than 60% of overall growth.
Poland's overall share of revenue for the first half of the year was
reduced to 67 percent versus 74 percent a year earlier. Growth for our
prepaid business for the first 6 months versus last year was 20 percent
overall and 116 percent for the markets outside Poland.
The total number of prepaid members increased by 4,300 for the quarter
to a total of 99,300. This is an increase of 18,000, or 22 percent,
versus the same period last year. Of the year-on-year membership growth,
65 percent comes from outside Poland versus less than 25 percent for the
same period last year. This illustrates the effect on our business of
the slowdown in the Polish economy as well as the increased momentum in
our markets outside Poland.
The operating loss for the quarter amounted to EURO 0.5 million (-0.1
million) and to EURO 0.9 million (-0.4 million) for the first 6 months.
The increase in operating loss despite a 22 percent increase in revenue
is mainly driven by higher depreciation and goodwill amortisation
charges resulting from last year's minority interest acquisition and the
acquisition of the Czech operation, but also by additional spending on
central sales support and information technology.
The operating profit before depreciation amounted to EURO 0.2 million
(EURO 0.4 million) for the quarter and to EURO 0.5 million (EURO 0.6
million) for the first 6 months.
The pre-tax loss for the quarter amounted to Euro 0.9 million (-EURO 2.7
m) and for the six months to EURO 2.9 million (-EURO 2.9 m). Net
investment income for the six months was a negative EURO 0.9 million and
total financial expense was EURO 1.1 million.
It is a heavy burden for Medicover to continue to operate private equity
activities in today's environment where it is very difficult to foresee
the timing of exits and the value of our portfolio. As announced with
our first quarter statement we have decided to sell the entire portfolio
of investments and an Investment Memorandum has been approved by the
board. We will now approach potential parties and hope to finalise this
transaction within the next few months. It is vital that this
transaction can be concluded and that our efforts and focus can be
totally directed towards our Medicover operations and supported by a
liquid balance sheet.
Medical costs amounted to EURO 5.3 million or 60.5 percent of revenue
for the second quarter, compared with 59.8 percent for the first quarter
and 57.2 percent for the second quarter 2001. Medical costs were EURO
10.6 million for the first 6 months (60.2 percent of revenue), compared
with EURO 8.3 million (57.3 percent of revenue) for the first half 2001.
Although the medical cost ratios are higher than the corresponding
periods last year they are in line with expectations.
Distribution, selling and marketing costs amounted to EURO 1.2 million
(1.1 million) for the second quarter and to EURO 2.3 million (2.0
million) for the first 6 months, representing 12.9 (13.7) percent of
Administrative costs fell for the second consecutive quarter to EURO 2.1
million, representing 23.6 (23.9) percent of revenue and EURO 4.3
million for the first half, or 24.2 (24.6) percent of revenue. We are
currently restructuring several of our administrative functions to
improve efficiencies and cost ratios. In the current quarter, we have
expensed approximately EURO 0.1 million in one-off redundancy costs
Poland- Slowing growth but continued strong new sales
Polish revenue came in at EURO 5.9 million, a 1.3 percent decline from
the first quarter and a modest 5 percent increase from the previous
year. Revenue for the 6 months amounted to EURO 11.8 million, an
increase of 10 percent versus a year earlier. Polish membership was
static over the quarter at 74,500, balancing strong new sales
performance with a continued weak performance within the existing
The development in the annualised value of the total Polish prepaid
benefit plans followed a similar pattern to the last three quarters,
with a strong new sales performance but with a lack of growth from our
existing portfolio of clients due to continued corporate downsizing. The
total value of the Polish prepaid portfolio expressed in Zloty increased
by some 8 percent during the first 6 months of 2002, whereas the value
in EURO decreased some 5 percent compared to end of 2001. As we have
commented previously, our Polish business will not return to its
historic growth rates until we start to see a pick-up in the growth
within our existing portfolio of companies, a trend which will follow on
the back of improving local economic conditions.
Our strategy in the weakening Polish market has been to protect our
average premium levels and not to sacrifice margins for volume. This has
been largely successful with average premiums being stable over the past
12 months expressed in EURO.
During the second quarter we launched a joint product promotion and
marketing campaign with the ING-banking group in Poland as announced
previously. This was our first large-scale initiative to address the
individual market. The campaign received significant interest. We have
received positive customer feedback and encouraging sales results from
the new products launched earlier in the year and commented on in our
first quarter report.
During the quarter we continued to develop our network of independent
network providers. No new fixed medical capacity was taken on during the
The Polish Zloty depreciated by 3 percent versus the EURO during the
second quarter. Polish inflation has continued to fall and was reported
at an annual rate of 2 percent in July 2002. A new Polish Finance
Minister was appointed during the quarter. Among many things, he has re-
affirmed the importance of the independence of the Central Bank.
Romania- A further large prepaid contract for more than 2,000 people
Second quarter Romanian revenue amounted to EURO 1.6 million, a 23
percent increase versus last year. Revenue for the 6 months increased by
33 percent versus last year to EURO 3.3 million. Our prepaid business
showed a growth of 40 percent for the first 6 months compared to last
Prepaid membership increased by 1,500 to a total of 11,600. The
previously announced large contract with two leading companies in the
textile industry became operational during the quarter and the Swedish
Ambassador to Romania officially opened the facility in early June.
Volumes in our laboratory business dropped slightly versus the first
quarter due to budgetary allocations within our contract with the public
health insurance funds.
We are continuing the development of a strong sales and marketing team
in Romania and we are actively building our brand though various media
We are particularly happy to report that during the second quarter we
signed another large contract for more than 2,000 employees at good
premium levels with a leading oil refinery company located on the Black
Sea coast. This contract builds on the concept developed for the textile
industry, and is considered of primary importance since it shows that
domestic Romanian companies recognise the value of providing quality
healthcare to their employees. Construction is under way of a 600 square
meter medical facility in the Constanza region of Romania. The contract
will become operational during the third quarter.
The Romanian economy continues to pick-up, with slowing inflation rates.
Romania's sovereign debt has been upgraded by the rating agencies on the
back of continued evidence of reforms and sustainable improvements. The
European Bank for Development and Reconstruction held its annual meeting
in Bucharest in May and Medicover provided emergency health cover to
delegates and staff of the EBRD attending the conference.
Significant attention is paid to the upcoming NATO Prague-summit in
November, where a possible NATO membership for Romania and several other
countries in the region will be decided.
Hungary-Continued pick up in prepaid business
Hungary continued to report strong growth with second quarter revenue up
47 percent versus last year at EURO 0.5 million. Revenue for the first
half amount to EURO 1.0 million, also a 47 percent increase versus last
year. The prepaid business grew strongly with a 97 percent increase for
the first half compared to last year, whereas the fee-for-service
business was static. We continue to experience good average premium
levels on our new business sold.
Prepaid membership increased to 3,700 by mid-year.
Estonia- First larger prepaid contracts signed
Revenue in Estonia for the second quarter increased by 20 percent versus
a year earlier to EURO 0.2 million, and for the 6 months to EURO 0.4
million, representing an 18 percent increase. During the second quarter,
we saw the first larger prepaid contracts being sold in Estonia, and
prepaid membership increased by 1,000 to 1,900. Although these contracts
are at lower premium levels than in other countries, we still see this
as an encouraging sign.
Czech Republic- Integration and focus on sales development
Revenue in the Czech Republic amounted to EURO 0.5 million for the
second quarter and to EURO 0.9 million for the first 6 months. Prepaid
membership increased by 1,600 to 7,600.
We have continued our work with integrating the Czech operation, which
was acquired in November 2001, into Medicover. During the third quarter,
we will re-brand the local operation under the Medicover brand which
will be supported by a media campaign.
The sales and marketing team is under development, with a sales manager
Our investment activities have seen a continued good performance on our
remaining Russian listed investments with a return of Euro 0.4 million
for the quarter. For the six months the return is a loss of Euro 0.5
million due to the write down of our unlisted investment Invacorp of
Euro 1.5 million in the first quarter.
Investment management costs was in line with the previous quarter at
Euro 0.2 million and Euro 0.4 million for the six months.
During the quarter we realised Euro 0.9 million through the sale of
Russian listed equities.
After the end of the reporting period we have finalized the sale of our
Romanian leasing company Motoractive for book value of Euro 0.9 million.
Current assets amounted to 8.6 million, including 2.0 million of
listed shares. Payables, including accruals and deferred revenue
amounted to 6.7 million. In addition the Group has unused loan
facilities of 1.2 million. In total the group has 3.3 million in cash
and undrawn loan facilities.
Financial costs for the quarter amounted to a net of 0.6 million (0.1
million). Interest costs have risen in line with the increased level of
debt, however the offset of the reduction in interest bearing bonds and
interest earning assets have increased the net costs. Exchange losses
have been incurred on receivables from trading subsidiaries where the
currencies have weakened against the Euro. The strengthening of the Euro
to the US dollar has offset this partly, however a large part of our US
Dollar exposures are hedged.
The tax charge of 0.1 million, (0.2 million) relates to the release of
deferred tax accruals in Poland, and irrecoverable withholding taxes.
We reiterate our view that our short to mid term outlook in Poland is
closely related to the speed of recovery in the Polish economy. Given
the present adverse trading conditions in Poland we are encouraged by
our new sales results and interpret this as a sign of the strength of
the product and brand. We remain confident that our overall Polish
growth will pick up in line with the domestic economic recovery. We
believe that our present work with strengthening the product and
investing in sales and marketing is wise given the state of the market
and will pay off in the longer run. We will continue our work in
streamlining administrative processes and making the company leaner on
the back of improved information technology support.
We are encouraged by the developments in Romania, both in the economy
and for our local operation. We believe we are in an excellent position
versus future competitors to gain a strong market share in the evolving
Romanian market place. Our developing local sales and marketing
organisation is meeting a much more receptive market place today versus
a year ago.
The Hungarian business continues to improve under new leadership since
earlier this year. Several initiatives are being developed, such as the
launch of a separate health-insurance fund which will significantly
improve the tax situation for the corporations buying our services. We
will be seeking to relocate the original clinic location in Budapest,
replacing this with a modern and well located facility to complement the
well received second facility launched late last year.
The Czech operation will continue its integration into the Medicover
Group. During the third quarter we will be switching all branding and
promotion activity over to the Medicover brand and this will happen in
tandem with a marketing campaign. Our new products will be put in the
market, supported by a strong sales and marketing team which is
presently being assembled under a recently appointed responsible
The early encouraging signs of prepaid business growth in Estonia will
be further supported during the second half of the year with increased
sales and marketing efforts. Estonia is also under new leadership since
earlier this year.
For the region there are two events of historic importance coming to
finalisation during the second half of the year. In November in Prague
NATO will decide on further enlargement of the military alliance and
final agreement on EU enlargement is scheduled to be reached during the
next six month period.
Jonas af Jochnick