Medicover Holding S.A. Interim Report

Medicover Holding S.A. Interim Report January-June 2001 Highlights * The remaining 5 percent minority interest in the former Medicover investment was acquired and it is now 100 percent owned by the Group. * Revenue for the second quarter amounted to E7.6 million (E4.8 million), a 57 percent increase from the same period of 2000, continuing the strong growth from the first quarter of 2001. First-half revenue was E14.4 million (E9.2 million), a 56 percent increase from the first half of 2000. * Medicover's operating result continued to improve and showed an operating loss of E0.1 million (E-0.7 million), down from E0.2 million in the first quarter. For the six months the operating loss was E0.4 million, compared with a first half loss of E1.3 million in 2000. * The overall loss after tax and minority interests was E2.9 million in the second quarter, compared with a loss of E3.7 million in the second quarter of 2000. This equates to a loss of E0.24 per share (E-0.32). The loss on investment activities was due to a provision against our investment in United Entertainment Company, the Polish family entertainment business. For the six-month period, the overall loss was E3.1 million, compared with a loss of E9.0 million in the first half of 2000. This equated to a loss of E0.26 per share (E-0.77). * Prepaid membership remained flat at 81,300. To our shareholders I am pleased to report that we have managed to maintain revenue growth despite a tougher economic situation in Poland. Second-quarter revenue increased by 57 percent from the same period in 2000 and by 11 percent from the first quarter. Revenue for the first half was E14.4 million, a 56 percent increase compared with first-half 2000 revenue of E9.2 million. Notwithstanding the revenue growth to date, Medicover is not immune to the generally more difficult business environment in Poland, and we expect the growth rate to slow in the third and fourth quarters until the Polish economy again picks up strength. This is also reflected in static second-quarter Polish net membership figures, where sales to important new corporate clients were offset by customers who reduced their workforces or discontinued their contracts. The total number of prepaid members remained static at 81,300, compared with 81,100 at the end of the first quarter. The operating result improved, even though we have expanded our marketing and sales efforts in Hungary and Romania. The operating loss was reduced to E0.1 million for the second quarter, against a loss of E0.7 million a year earlier. The six-month loss amounted to E0.4 million, against E1.3 million for the first half last year. The medical business's operating profit before depreciation was E0.4 million, compared with a loss of E0.3 million in the second quarter 2000, and E0.6 million for the first half, compared with a loss of E0.6 million for the first half of 2000. Medical costs amounted to E4.3 million or 57.2 percent of revenue for the quarter, compared with 57.4 percent for the first quarter and 55.3 percent for the second quarter of 2000. Medical costs were E8.3 million for the first half (57.3 percent of revenue), compared with E5.3 million for the first half of 2000 (57.0 percent of revenue). Distribution, selling and marketing costs rose to E1.1 million for the second quarter and E2.0 million for the first half, representing 13.7 percent of revenue. This compares with E0.8 million in the second quarter of 2000 and E1.5 million in the first half of 2000, or 15.9 percent of revenue. Administrative costs continued to decline as a percentage of revenue and for the second quarter amounted to E1.8 million, representing 23.9 percent of revenue, and E3.5 million for the first half, or 24.6 percent of revenue. This compares with E1.6 million for the second quarter of 2000 (34.0 percent of revenue) and E3.1 million for the first half of 2000 (33.5 percent of revenue). Medicover continues to invest in its medical infrastructure, opening a new 1,040 m2 Medical Center in Warsaw and progressing with the opening of a new 530 m2 Medical Center in Budapest in the autumn. Investment activities Investment activities showed a net loss of E2.2 million for the first half, which was comprised of a provision of E2.5 million against UEC, the Polish family entertainment centers, and a positive return of E1.3 million on the Russian portfolio of shares and bonds, offset by investment management costs of E0.8 million and write-off of I-Start of E0.2 million. UEC, which has been caught in the slowdown of discretionary spending in Poland, has performed below expectations in several of its centers. The carrying value of UEC is now at the same level as the cost of the original investment in mid-1999 of E5.3 million. Investment management costs were E0.4 million for the quarter and E0.8 million for the first half, compared with E0.5 million for the second quarter of 2000 and E1.1 million for the first half of 2000. Investment management costs will continue to decline in the third and fourth quarters as investment management activities are reduced. During the quarter E0.6 million was invested in Medinsite. This is the final tranche of the original investment commitment from mid 2000. Medinsite has developed well and we are optimistic regarding the development of this investment. Progress continues with our portfolio of investments as well. Although the climate for exits is difficult at present, we still expect to be able to meet our timetable of exiting these investments within the coming three years. We maintain our expectation to exit two investments during the current year. Minority acquisition The remaining 5 percent of shares in the former Medicover group not owned by Medicover Holding S.A. was acquired on 19 June 2001, and now Medicover is 100 percent owned. These shares were acquired by issuing new shares of Medicover Holding S.A. in the same proportion as the buy- in of the shares in December 1999; 352,245 shares were issued for this exchange. This transaction has generated a goodwill balance of E2.1 million, which will be amortized over 10 years, resulting in an annual amortization charge of E0.2 million. Treasury shares When the former Medicover Group was consolidated for the first time in December 2000, the share option program within the former Medicover Group was discontinued and replaced by increasing the existing share option scheme within Medicover Holding S.A. To make provisions for this program and for the people leaving the company from the investment management side of the business, the Board has issued 358,990 shares to be held as treasury shares for eventual future fulfilment of the share option scheme. Liquidity The group had E12.3 million in current assets at quarter's end, which includes the portfolio of investments in Russia. In the quarter an additional E1.9 million was drawn down on debt facilities to fund investments and fixed assets. The group has a debt facility of E11.0 million, of which E6.1 million remains unutilized. The term loan provided by the IFC has two installments due within one year, totaling E1.4 million. Financial costs The net financial cost for the quarter was E0.1 million, including a net interest charge of E0.2 million and foreign exchange income of E0.1 million. For the first half the net financial cost was E0.4 million, compared with a net cost of E0.6 million in 2000. The net interest charge for the first half was E0.3 million, against E0.4 million for the first half of 2000. Taxation The quarterly tax charge rose to E0.2 million as a result of profitable portfolio positions and amounted to E0.2 million for the first half. We continue to use our tax loss carry forwards in our two profitable countries, Poland and Romania. Operational review Poland Revenue growth continued strongly in Poland, rising 8.3 percent from the first quarter to E5.6 million and up 59 percent from the second quarter of 2000. Revenue for the six months amounted to E10.8 million, an increase of 61 percent versus a year earlier. Polish membership was static over the quarter at 68,700. The weakening economic situation in Poland has forced some customers to reduce their workforces or cut staff costs. We expect the weaker economy to reduce growth rates in Poland in the third and fourth quarters. We believe annualized value is the best measure of development of the prepaid business. As illustrated and discussed in our latest annual report, we concentrate on three parameters: · Total annualized benefit plan value · New prepaid benefit plan contracts · Development and extension of existing prepaid benefit plan contracts. New business growth is a function of the number and size of new corporate contracts sold in a particular period. Development and extension of existing contracts is a result of current clients raising or reducing their coverage with Medicover in terms of the number of employees covered and/or level of coverage provided in a particular period. The annualized value of the Polish prepaid benefit plan contracts at 30 June 2001 increased to E21.2 million from E16.7 million at the end of 2000, a gain of 27 percent or E4.5 million. The increase for the comparable period of 2000 was 30 percent or E2.8 million. The annualized value of the Polish prepaid contracts has risen by E9.0 million or 74 percent since 30 June 2000. The increase comes from both new business and gains in existing business. New business sold during the first half of 2001 has an annualized value of E1.9 million, compared with E1.9 million for the comparable period of 2000. Second-quarter 2001 new business growth was by far the strongest ever for Medicover and some 30 percent higher than in the second quarter of 2000. The value of the existing prepaid benefit plan contracts in euros rose by E2.6 million during the six months, compared with a E0.9 million increase for the same period last year. However, foreign exchange-driven gains due to the strengthening of the Polish zloty accounted for a large portion of this increase. In local currency the underlying growth in the value of existing prepaid benefit plan contracts remained fairly flat during the first six months of 2001, against a 13 percent gain for the comparable period of 2000. This is a consequence of business growth from existing clients being offset by a reduction among other clients due to the softer employment environment in Poland. Although the zloty remained strong against the euro in the second quarter, it began to weaken at the beginning of July as Polish interest rates were reduced. We expect to see interest rates come down as inflation pressures moderate. Inflation in Poland fell to 5.2 percent in July, with real interest rate levels of around 9.5 percent. The growth forecast for the Polish economy in 2001 was recently reduced to 2 percent. In zlotys, growth in total revenue for the first six months of 2001 versus the same period of 2000 was 46 percent overall and 52 percent for benefit plans. Romania Second-quarter Romanian revenue rose 8.6 percent from the first quarter to E1.3 million and 44 percent from the second quarter of 2000 (E0.9 million). For the six months revenue was E2.5 million, 38 percent higher than the same period last year. Sales increases were good in both the prepaid and laboratory businesses. Total prepaid members increased to 9,600. Hungary Hungary is showing it has the potential for continued good growth in the prepaid business. Revenue for the six months was E0.7 million, an increase of 52 percent from the same period of 2000 (E0.4 million). Membership increased to 2,400 as of 30 June 2001. Regional expansion Medicover has finalized negotiations and reached an agreement in principle to acquire a business in the Czech Republic, subject to due diligence. The company is the country's largest prepaid healthcare business, run along similar lines to Medicover, and will be a good base to develop the Medicover business model in the Czech Republic. The company's revenue was E1.0 million in 2000. Third quarter outlook The global market is entering a period of falling demand and poorer corporate profits. The markets of Central and Eastern Europe, however, are growing strongly as they benefit from continuing inward investment and a manufacturing expansion. The exception is Poland, which is going through a painful disinflation process. Although the cost to reduce inflation has been higher than necessary due to a mismatch between central bank policy and fiscal policy, the process is working and Poland will come out of it with a stronger economy better able to cope with sustained high growth. Moreover, a rising budget deficit will focus government attention on the cost of the healthcare system. These are medium-term factors that will strongly benefit Medicover's development in Poland. In the short term, the Polish labor market will be soft, and Medicover's growth rates in Poland will most likely be lower in the next two quarters. The outlook for both Hungary and Romania for the second half of 2001 is positive. Jonas af Jochnick Executive Chairman Profit and loss Qtr. by Qtr. 6 6 Qtr. Qtr. Year Qtr. Qtr. Qtr. Qtr. Mont Mont 2 1 4 3 2 1 hs hs E'000 2001 2000 2001 2001 2000 2000 2000 2000 2000 Poland 10,7 6,66 5,59 5,16 14,5 4,28 3,62 3,51 3,15 56 8 2 4 79 3 8 7 1 Romania 2,48 1,80 1,29 1,18 3,65 1,04 808 897 904 0 1 1 9 8 9 Hungary 670 441 350 320 882 266 175 233 208 Estonia 362 234 194 168 473 150 89 159 75 Other 174 97 172 2 289 66 127 36 61 Total 14,4 9,24 7,59 6,84 19,8 5,81 4,82 4,84 4,39 revenue 42 1 9 3 82 4 7 2 9 Medical - - - - - - - - - costs 8,27 5,26 4,34 3,92 11,3 3,45 2,64 2,67 2,58 (excluding 8 6 9 9 64 3 5 8 8 depreciati on) Medical 57 57 57 57 57 59 55 55 59 loss ratio, percent Selling - - - -931 - -847 -737 -777 -693 and 1,98 1,47 1,05 3,05 distributi 2 0 1 4 on costs General - - - - - - - - - and 3,55 3,09 1,81 1,73 6,28 1,58 1,60 1,64 1,44 administra 3 3 6 7 8 5 9 9 4 tive costs Operating 629 -588 383 246 -825 -71 -164 -262 -326 profit before depreciati on Depreciati - -728 -517 -487 - -514 -365 -387 -341 on, 1,00 1,60 excluding 4 7 amortizati on Operating profit/los s before financial -375 - -134 -241 - -585 -529 -649 -667 items 1,31 2,43 6 2 Consolidated Profit & Loss Account Quarter Quarter 6 months 6 months ended 30 ended 30 Ended 30 ended 30 June June June June E'000 2001 2000 2001 2000 Revenue 7,599 4,842 14,442 9,241 Operating expenses Medical (4,349) (2,678) (8,278) (5,266) provision costs Distribution, (1,051) (777) (1,982) (1,470) selling and marketing costs Administrative (1,816) (1,649) (3,553) (3,093) costs Depreciation (517) (387) (1,004) (728) Total (7,733) (5,491) (14,817) (10,557) operational costs Operating loss (134) (649) (375) (1,316) Investment (2,059) 2,346 (1,338) 3,047 (loss)/income Investment (391) (838) management (534) (1,055) costs Net investment (2,450) (2,176) income 1,812 1,992 Amortization - (4,544) - (9,088) of goodwill Interest 116 - 238 - received Less interest (301) (236) (579) (412) paid Foreign 52 (132) (35) (179) exchange loss Total (133) (368) (376) (591) financial expenses Loss before (2,717) (3,749) (2,927) (9,003) tax and minority interests Income tax (162) 7 (215) (40) Minority 12 28 20 interests in 10 result Loss after tax (2,867) (3,732) (3,114) (9,023) and minority interests Per ordinary share information (Loss) per E(0.24) E(0.32) E(0.26) ¤(0.77) share (Loss) per E(0.24) E(0.26) share E0.07 ¤0.01 excluding amortization Diluted (loss) E(0.24) E(0.32) E(0.26) ¤(0.77) per share Diluted (loss) E(0.24) E0.07 E(0.26) E0.01 excluding amortization Consolidated Balance Sheet 30 June 31 December 2001 2000 As at E'000 ¤'000 Non-current assets Goodwill 2,092 - Intangible fixed assets 1,031 803 Tangible fixed assets 8,447 7,765 Total fixed assets 11,570 8,568 Loan investments 1,389 1,365 Unlisted equity investments 37,651 39,082 Total unlisted investments 39,040 40,447 Deferred tax assets 604 448 Total non-current assets 51,214 49,463 Current assets Listed equity shares 2,732 1,334 Inventories 137 131 Receivables 5,377 4,782 Bonds 2,924 2,422 Cash 1,177 807 Total current assets 12,347 9,476 Total assets 63,561 58,939 Share capital and reserves Share capital 66,366 62,368 Treasury shares (2,015) - Additional paid-in capital 27,221 27,221 Translation reserve (171) (633) Retained earnings (47,387) (44,363) Total shareholders' equity 44,014 44,593 Minority interests - 116 Non-current liabilities Loans payable 7,071 6,683 Deferred tax liability 511 382 Total non-current liabilities 7,582 7,065 Current liabilities Loans payable 6,371 1,026 Trade and other payables 6,139 5,594 Total current liabilities 7,165 11,965 Total liabilities 19,547 14,230 Total shareholders' equity, 63,561 58,939 liabilities and minority interests Consolidated Statement of Shareholders' Equity Addit Capit Trans- ional al Share Treas paid- Retai profi latio ury in ned ts n E'000 capit share capit earni Reser reser Total al s al ngs ve ve Opening balance - 25,47 (23,5 16,13 - 76,41 as at 58,35 0 42) 4 8 1 January 2000 6 Adjustment to exchange rate at 31 December 4,012 - 1,751 (1,61 1,110 - 5,254 2000 9) Reversal of - - - (14,0 - - (14,0 Medicover 79) 79) revaluation Prior year - - - (10,3 - (68) (10,3 amounts for 29) 97) Medicover Transfer of capital reserve to general reserve upon adoption - - - 17,24 (17,2 - - of IAS 39 4 44) Loss for the - - - (9,02 - - (9,02 period 6) 6) Effect of exchange rate differences on translation - - - (86) - (322) (408) of profit and loss Closing balance - 27,22 (41,4 - (390) 47,76 as at 30 June 62,36 1 37) 2 2000 8 Opening balance - 27,22 (44,3 - (633) 44,59 as at 1 January 62,36 1 63) 3 2001 8 Share capital 3,998 (2,01 - - - - 1,983 increase 5) Purchase of - - - 90 - - 90 minority interest Loss for the - - - (3,11 - - (3,11 period 4) 4) Effect of exchange rate differences on translation - - - - - 462 462 of profit and loss Closing balance (2,01 27,22 (44,3 - (171) 44,01 as at 30 June 66,36 5) 1 87) 4 2001 6 Consolidated Cash Flow Statement 2001 2000 Six months ended 30 June E'000 ¤'000 Loss before tax and minority (2,927) (9,003) interests Adjustments for: Depreciation 1,004 728 Amortization - 9,088 Investment income 1,338 (1,922) Dividends received (5) (124) Interest paid 579 412 Interest received (238) - Foreign exchange (74) (440) Changes in operational assets and liabilities Receivables (263) 968 Payables (1,284) (1,140) Cash utilized by operating (1,870) (1,433) activities Income tax paid - (37) Net cash utilized by operating (1,870) (1,470) activities Investing activities Loans investments (24) (161) repaid/(advanced) Unlisted equity investments (1,418) (520) Purchase of fixed assets (1,214) (1,840) Investment in listed equity shares - (586) Sale of listed equity shares - 1,703 Acquisition of subsidiary shares (2,092) - Dividends received 5 124 Net cash flow from investing (4,743) (1,280) activities Financing activities Share capital increase 1,983 - Loans advanced 5,017 2,562 Interest received 238 - Interest paid (391) (346) Net cash flow from financing 6,847 2,216 activities Net effects of exchange 136 - gain/(loss) on cash balances (Decrease)/Increase in cash and 370 (534) cash equivalents Cash and cash equivalents Cash balance as at 1 January 807 751 Adjustment to 31 December foreign - 52 exchange rates Total cash balance as at 1 January 807 803 Total cash balance as at 30 June 1,177 269 Increase/(decrease) in cash and 370 (534) cash equivalents Basis of preparation The accounting policies used in this report are the same as those in the annual audited financial statements of Medicover Holding S.A. The above figures are unaudited, except for full-year comparatives. The currency of the Group was changed at the end of 2000 from the U.S. dollar to the euro to better reflect the underlying transactions of the Group's subsidiaries. Comparative 2000 figures have been translated for convenience from U.S. dollars to euros using an average rate of 0.9558 and a closing rate as at 31 December 2000 of 0.9422. This interim statement is in compliance with International Accounting Standard 34, "Interim Financial Reporting". A copy of the Annual Report for 2000 and interim reports for 2001 can be obtained from Medicover, c/o Belro Medical S.A.,Waterloo Office Park, Building O, Drève Richelle 161, B-1410 Waterloo, Belgium, or requested through our web site www.medicover.com. Information dates 9-month 14 November interim report 2001 Preliminary 26 February report 2001 2002 Medicover Holding S.A. Phone: +32 2 357 55 77. Fax: +32 2 357 55 05. www.medicover.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/17/20010817BIT00020/bit0002.doc http://www.waymaker.net/bitonline/2001/08/17/20010817BIT00020/bit0003.pdf