Preliminary Report 2001

Preliminary Report 2001 Highlights * Revenue for the full year amounted to E30.1 million (19.9 million), an increase of 51 percent versus last year. * Revenue for the last quarter amounted to E8.4 million (5.8 million), a gain of 44 percent versus the corresponding period last year. * Prepaid membership rose to 91,800 by year-end, an increase by 22 percent versus a year earlier. * The operating loss amounted to E1.9 million for the full year, against a loss of E2.4 million in 2000. * Operating profit before depreciation amounted to E0.4 million for the full year, against a loss of E0.8 million in 2000. * Private equity and investment operations produced a net loss of E7.2 million, versus a gain of E9.9 million for 2000. Information dates 2002 * Annual General Meeting 14/5/02 * 3 month report 15/5/02 * 6 month report 22/8/02 * 9 month report 13/11/02 * Preliminary Report 2002 20/2/03 To our shareholders I am pleased to report another year of good growth for Medicover, despite a much tougher economic environment. Revenue increased by 51 percent over last year to E30.1 million and our prepaid membership base rose to 91,800 by year-end. The operating deficit improved to a loss of E1.9 million versus a E2.4 million loss last year. The operating result before depreciation improved to a profit of E0.4 million versus a loss of 0.8 million last year. This is below our expectations, primarily due to significant slow- down in the Polish economy and the effect it has had on our Polish membership growth. Medical costs were higher, especially during the second half of the year, driven by increased service utilisation by members and further investments in medical capacity in both new and existing markets. Four new or expanded facilities came on line in the second half of the year. We achieved a medical cost ratio of 60 percent, which was some three percentage points above last year. We have increased our administrative and sales costs to be able to service a growing business as well as build a strong distribution platform and branding strategy across the region. While the increased expenses are negatively affecting this year's financial results, we see them as an investment to build a strong company and expect to see the impact in improved operating margins as our business volume grows. However, we are continuously reviewing our cost structure, to ensure we stay competitive in a changing environment. Medical costs for the full year came in at our long-term target of 60.0 percent versus 57.2 percent for the previous year. During the year our medical costs increased by E6.7 million or 59 percent. The increase is due to a combination of expanded capacity through new or replacement facilities opened during the year as well as servicing a higher member utilisation. Medical costs have pronounced seasonality with highest utilisation coming in the fourth quarter. The medical cost ratio is critically important and we continue to develop management and tools to ensure we meet our defined targets. Distribution, selling and marketing costs amounted to E4.1 million for the full year, representing 13.6 percent of revenue. This compares with E3.1 million or 15.4 percent of revenue for the full year 2000. The investments in distribution, selling and marketing are aimed at new business and future growth. We believe that controlled distribution is one of our key competitive advantages. Administrative costs amounted to E7.6 million or 25.1 percent of revenue for the full year. This compares with E6.3 million for the full year 2000 or 31.6 percent of revenue. Administrative costs increased in the last quarter to reflect the inclusion of the Czech acquisition and additional investments primarily in information technology-related functions. Administrative costs will continue to fall as a percentage of revenue as volume grows and further investments are made to improve the efficiency of administrative processes. Investment activities The private equity environment in the region was negative throughout the year, with very limited exit opportunities. We reported a disappointing result in this area. We recorded a loss of E7.2 million for the full year as opposed to last year's gain of E9.9 million. This comprises net investment return losses of E5.5 million versus previous-year income of E12.3 million and investment management costs of E1.7 million (2.4 million). The investment return is a result of write-downs in our private equity portfolio of E7.0 million, compensated by net gains on our remaining bond portfolio and Russian listed equities of E1.5 million. The write- downs relate principally to UEC, the Polish family entertainment business that has suffered significantly from the downturn in Polish consumer spending. The company had a high degree of debt funding, which left it exposed to a sharp fall in earnings. We are in the process of negotiating a debt restructuring. We have reduced the carrying value of UEC to E2 million, bringing the total write-down for the year to E5.9 million. In addition, we have reduced our carrying values in Motoractive by E0.4 million and Ukraine Fund by E0.2 million to reflect expected realisation values. Investment management costs fell to E1.7 million from E2.4 million last year and will continue to fall significantly during the coming year. We believe that our private equity portfolio, after these provisions, is fairly valued taking present uncertainties into account. We have liquidated all our Russian bonds and are in the process of liquidating our remaining holdings of Russian listed equity investments. Liquidity Current assets amounted to E10.7 million, including E3.5 million in listed shares. In addition, we have E3.5 million in undrawn loan facilities. In total, the Group has E6.9 million available in cash and undrawn loan facilities. Financial costs The financial expense for the year amounted to E1.5 million (1.0 million), consisting of net interest costs of E1.1 million (1.4 million) and foreign exchange losses of E0.4 million (gain of 0.3 million). Net debt at the year-end was E12.0 million. Including the listed equity shares that are now being liquidated, this will bring net debt down to E8.5 million. Operational review Poland Medicover Poland increased its revenue for the full year to E22.0 million, 51 percent growth versus the previous year. We consider this a strong achievement in the weak Polish economy. The number of prepaid customers rose during the last quarter by 1,600 to a year-end total of 72,400, compared with 66,000 at the end of the previous year. Clearly, growth in Polish membership has been adversely affected by the slowdown in the economy, as we have noted in reports throughout the year. The previous trend continued during the second half of the year, with surprisingly strong new sales activity despite the much tougher economic climate, but with no growth or even negative growth in existing accounts as a consequence of corporate downsizing. We are pursuing several new product initiatives which are aimed at further increasing client retention and loyalty. During the year we opened new or expanded medical facilities in Warsaw, Lodz and Gdynia. We are also continuously extending our network of affiliated physician practices. Romania Medicover Romania increased its revenue to E5.2 million for the full year, representing growth of 42 percent. Prepaid membership in Romania rose to 9,800 at year-end versus 7,000 at the end of 2000, and the prepaid operation is starting to gain momentum on the heels of the improved performance of the Romanian economy. We are currently building a stronger distribution platform in Romania. The business in Romania consists of the regular prepaid operation and a stand alone medical laboratory business. Growth has been particularly strong for the laboratory business, with more than 2.3 million tests performed in 2001. Hungary In Hungary, Medicover increased revenue by 62 percent to E1.4 million for the year. Prepaid membership rose to 3,300 by year-end versus 1,700 at the end of 2000. Our second site in Budapest opened in the fourth quarter of the year and has been very well received by customers. Estonia Revenue in Estonia increased by 48 percent to E0.7 million for the full year. The Estonian business is still predominantly cash paid occupational health services for the corporate market, although we are working to introduce our wider prepaid concept to this base of corporate customers. Czech Republic During the second half of the year we finalised the acquisition of 100 percent of First Medical Clinic of Prague, the leading provider of prepaid healthcare services to the corporate market in the Czech Republic. During the fourth quarter we consolidated the results of the Czech operation for the first time. Revenue amounted to E0.3 million. Membership at year-end was 5,600, which represents a strong base for future growth. Outlook 2002 Economic development in our region in general and Poland in particular was much weaker in 2001. This is due to a combination of the global economic downturn, which is affecting both export-driven growth and domestic consumption, as well as homegrown macroeconomic issues. This is evidenced in lower economic growth numbers, higher unemployment and lower consumer confidence. The Polish economy slowed to growth of only 1.1 percent in 2001 versus 4 percent in 2000. Forecasts for 2002 range between 1 and 2 percent. The Polish central bank has been cutting rates, but due to a corresponding fall in inflation, real interest rates have remained high. Year-on-year inflation was reported at 3.5 percent in January 2002. We are pleased with our ability, in this adverse trading environment, to continue to grow revenue. We consider this a result of non-cyclical demand for quality healthcare services and Medicover's market position. We look forward to a year of continued good growth, though at a lower level than 2001, as a consequence of the weaker economy. We are working on extending our product range and service programs, enlarging our medical delivery network and improving and rationalising internal business processes to make Medicover a stronger company. Moreover, we plan to fully integrate Medicover's product and distribution structures into the Czech market. Currently we are recruiting new key management positions to allow the company to grow and develop professionally and we are developing new information technology support for our business. We believe the economy will bottom out during the year and we will see a return to consumer- and export-driven growth, but the timing of the recovery is uncertain. Negotiations regarding entry to the European Union continue for four of the five countries were Medicover operates. Several of the more difficult topics are now on the table, such as agricultural support and access to the open labour market. We believe Medicover will be in an excellent position to take advantage of the improved economic conditions, as we service a large number of loyal corporate customers across the region, all of which are directly affected in their own businesses by the economic climate. The outlook for exits from the unlisted investments is uncertain in today's environment. We continue to believe that we will be able to exit these investments at acceptable valuations. Medicover has a solid balance sheet with adequate liquidity to finance continued strong growth. Medicover is a service company where each and every one of our employees across the region is an ambassador. I would like to extend my appreciation to all of you for your efforts in building Medicover into the leading private healthcare company in our markets. Jonas af Jochnick February 2002 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/26/20020226BIT00030/wkr0001.doc The full year-end report http://www.waymaker.net/bitonline/2002/02/26/20020226BIT00030/wkr0002.pdf The full year-end report