Interim Report January - September 2002
11/13/2002 2:00 AM EST
Highlights
· Revenue for the third quarter amounted to ? 8.4 million (?7.3
million), a 15 percent increase from the same period 2001. Nine month
revenue was ? 26.0 million (?21.7 million), a 20 percent increase from
the nine months of 2001.
· Prepaid membership rose to 103,300 up 4,000 for the quarter and
19,500 or 23 percent versus the corresponding period last year.
· The operating loss amounted to ? 0.2 million (-? 0.4 million) for
the quarter and ? 1.1 million (-? 0.7 million) for the nine months.
· The operating profit before depreciation and amortisation (EBITDA)
amounted to ? 0.5 million (? 0.2 million) for the quarter and to ? 1.0
million (? 0.8 million) for the 9 months.
· A provision of ? 19.6 million against our portfolio of unlisted
investments, reducing the carrying value to ? 14.4 m. The size of the
provision has been determined by assessing the market value of the
entire portfolio of unlisted investments based on the reactions and
feedback received from potential acquirers.
· In case no binding third party offer has been received by 1st
December 2002, the Chairman of the Board, Mr af Jochnick has made an
irrevocable commitment to make an offer for the portfolio of unlisted
investments, including loan investments but excluding the three fund
investments, of ? 12 m.
Investment Portfolio
As discussed in previous announcements, the Board considers it of
significant importance to the successful development of Medicover, that
the company can divest itself of the investment portfolio and achieve a
more liquid balance sheet, allowing more focus and transparency to
Medicover, reducing central management and financing costs and providing
the required funding to support an ambitious development plan over the
coming two years.
As communicated in our 6-month report, we developed an Investment
Memorandum and over the past 3 months worked with soliciting offers for
our investment portfolio. Approximately 20 institutional investors
active in the region were approached and considered the opportunity. No
binding offer has yet been received.
In the third quarter we have consequently made a provision of ? 19.6
million against our portfolio of unlisted investments, reducing the
carrying value to ? 14.4 million.
The size of the provision has been determined by assessing the market
value of the entire portfolio of unlisted investments based on the
reactions and feedback received from potential acquirers, and
considering the expected value to be realised from a transaction as
described below.
In case no binding third party offer has been received by 1st December
2002, the Chairman of the Board, Mr af Jochnick, who directly controls
or has an interest in 40.1 % of Medicover has made an irrevocable
commitment to make an offer for the portfolio of unlisted investments,
including loan investments but excluding the three fund investments, of
? 12 m. Would any offer on better terms be received, Mr af Jochnick will
not bid higher.
We have reduced the carrying value of the three fund investments that
will remain on our balance sheet from ? 3.6 million to ? 2.4 million,
reflecting the increased uncertainty on underlying asset values and exit
timing.
Should the offer from Mr af Jochnick be submitted, the rules regarding
related party transactions will be activated. These rules require, among
other things, the Board to receive an independent valuation of the
market value of the assets, to thereby assess the fairness of the
related party offer. Based on this, a recommendation will be made by the
Board to the shareholders at an Extraordinary General Meeting, whether
or not to accept the offer.
As a consequence of the Board's decision to proceed with the sales of
the entire portfolio of unlisted investments, the results from the
investment activities are reported as discontinuing operations according
to International Accounting Standards. The cash received from the sale
will be at least ? 12 million, and is likely to be received in the early
part of the new year, subject to the approval of the shareholders.
The sale of our Romanian leasing company Motoractive for carrying value
of ? 0.9 million has been completed and the funds will be received
shortly.
Operations
Medicover continued to grow its underlying business, despite adverse
exchange rate movements showing an reduction in revenues as reported in
Euro. Third quarter revenue increased by 15 percent from the same period
in 2001 to ? 8.4 million. Revenue for the nine months was ? 26.0
million, a 20 percent increase compared with nine months 2001 revenue of
? 21.7 million
Sales - Over 100,000 members
The total number of prepaid members increased by 4,000 for the quarter
to a total of 103,300. This is an increase of 19,500, or 23 percent,
versus the same period last year. Of the year-on-year membership growth,
75.4 percent comes from outside Poland, of which 36.7 percent was
organic and 38.7 was due to the Czech acquisition. For the same period
last year, 25 percent of growth was outside Poland.
Growth in the Polish operations has continued, albeit at a slower rate
due to the economy, with a 3 percent increase in revenue reported in
local currency over the previous quarter. Poland's overall share of
revenue for the nine months of the year was reduced to 66 percent versus
74 percent a year earlier. Growth for our prepaid business for the nine
months versus last year was 18 percent overall and 122 percent for the
markets outside Poland of which 72 percent was organic and 50 percent
for the Czech acquisition
Growth in Medicover's other markets continued, with the best growth in
Romania, which increased revenues by 7 percent over the preceding
quarter. For the nine months growth for the markets outside Poland
amounted to 58 percent, which made up more than 70 percent of overall
growth.
Earnings
The operating loss for the quarter amounted to ? 0.2 million (-? 0.4
million) and to ? 1.1 million (-? 0.7 million) for the nine months.
The operating profit before depreciation amounted to ? 0.5 million (?
0.2 million) for the quarter and to ? 1.0 million (? 0.8 million) for
the nine months.
The pre-tax loss for the quarter amounted to ? 0.4 million (-? 0.7
million) for the continuing operations and to ?20.2 million (-?0.8
million) for the discontinuing operations. For the nine months the pre
tax loss for the continuing operations amounted to ? 2.2 million (-?1.4
million) and to ? 21.3 million (-3.2 million) for the discontinuing
operations. Total financial expense was ? 1.4 million. The large write
down of ? 19.6 million to the unlisted portfolio reflects the likely
proceeds from the disposal.
Costs
Medical costs amounted to ? 5.0 million or 59.5 percent of revenue for
the third quarter, compared with 60.5 percent for the second quarter and
59.7 percent for the third quarter 2001. Medical costs were ? 15.6
million for the nine months (60.0 percent of revenue), compared with ?
12.6 million (58.1 percent of revenue) for the first nine months 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 ? 0.9 million (?
1.0 million) for the third quarter and to ? 3.1 million (? 3.0 million)
for the nine months, representing 12.1 (13.6) percent of revenue.
Administrative costs were at the same level as in the second quarter at
? 2.1 million, representing 24.4 (24.3) percent of revenue and ? 6.3
million for the nine months, or 24.3 (24.5) percent of revenue.
Poland - Continuing sluggish economy
Polish revenue amounted to ? 5.5 million, a 6 percent decline from the
second quarter and a 2 percent increase from the previous year. Revenue
for the 9 months amounted to ? 17.3 million, an increase of 7.2 percent
versus a year earlier. Polish membership increased by 1,100 over the
quarter to 75,600, with growth easing slightly, but helped by a slight
improvement in performance from the existing portfolio.
The development in the annualised value of the total Polish prepaid
benefit plans has followed a similar pattern for the year with good new
sales performance but with a lack of growth from our existing portfolio
of clients due to continued corporate downsizing.
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 Polish Zloty.
One of the factors behind the change in Euro revenue is a large
depreciation in the exchange rate for the Polish Zloty against the Euro
of 9.7 percent for the third quarter compared to the second quarter. As
a result of this the total value of the Polish prepaid portfolio
expressed in Zloty increased by some 10.4 percent during the nine months
of 2002, whereas the value in Euro showed a small decrease compared to
end of 2001.
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 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 the overall Polish growth
will pick up in line with the domestic economic recovery, however we do
not see this recovery having any strength in the short term. 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.
Romania - A further large prepaid contract for more than 2,000 people
signed
Third quarter revenue amounted to ? 1.7 million, a 29 percent increase
versus last year. Revenue for the nine months increased by 31 percent
versus last year to ? 5.0 million. Our prepaid business showed a growth
of 58 percent for the nine months compared to last year. Prepaid
membership increased by 2,600 to a total of 14,200. The continued good
increase in Romania is based on a contract similar to the one started in
the second quarter, delivering services to the petrochemical industry.
Volumes in our laboratory business were similar to the second quarter
levels. The Romanian economy continues to pick-up, with slowing
inflation rates. Romania's sovereign debt has seen another unexpected
upgrade by the rating agencies on the back of continued evidence of
reforms and sustainable improvements.
We are encouraged by the developments in Romania, both in the economy
and for our local operation. We believe that Medicover is in an
excellent position versus future competitors to gain a strong market
share in the evolving Romanian market place.
Hungary - Continued pick up in prepaid business
Revenue for the quarter was ? 0.5 million, an increase of 43 percent on
the comparative quarter in 2001. Revenue for the nine months amounted to
? 1.4 million, a 46 percent increase versus last year. We continue to
experience good average premium levels on our new business sold. Prepaid
membership increased to 3,950, an increase of 25 over the quarter.
Hungary continued to grow the prepaid business, however the rate has
reduced over the summer period.
Our Hungarian business is still at an early stage of development and we
are under way to establish a new clinic to replace the original clinic
acquired in 1998. Recent statements from the new Hungarian government
indicate strong reform initiatives where private funding and provision
of healthcare will play central roles.
Czech Republic - Integration and focus on sales development
Revenue amounted to ? 0.5 million for the third quarter and to ? 1.3
million for the nine months. Prepaid membership remained static at
7,600. We have continued our work with integrating the Czech operation,
which was acquired in November 2001, into Medicover. The re-branding of
the local operation under the Medicover brand is underway. We are
expanding our services both in Prague and in Brno, the second city in
the Czech republic, where we expect services to commence early in the
new year.
The recently appointed Sales and Marketing Director is developing his
sales team and several larger important contracts were signed during the
quarter with commencement over the coming months .
Estonia - Broad base of occupational health customers
Estonian revenue amounted to ? 0.2 million for the quarter and to ? 0.6
million for the nine months. The third quarter is historically slower
for the cash paid services, but the impact on our still small but
growing prepaid business is visible versus last year.
Our business in Estonia will continue to build on its broad base of
occupational health customers for wider service offerings.
Liquidity
Current assets amounted to ? 9.0 million, including ? 1.1 million of
listed shares and a ? 0.9 million receivable in respect of the sale of
Motoractive. Payables, including accruals and deferred revenue amounted
to ? 7.3 million. Total debt amounts to ? 15.9 million, and debt net of
cash amounts to ? 12.8 million.
Financial costs
Financial costs for the quarter amounted to a net of ? 0.3 million (?
0.4 million).
Outlook
The Irish referendum paved the way for enlarging the European Union with
ten new member states from Central and Eastern Europe and we look
forward to the Copenhagen summit to decide on this historical event,
which will over the years to come have a very strongly positive effect
on the business opportunities within the markets where Medicover
operates.
By divesting ourselves of the investment portfolio, we achieve full
management focus on Medicover's core business, allow better transparency
of the company and secure the funding required for pursuing an ambitious
development agenda over the coming years, all of which will positively
impact Medicover's opportunity to develop a successful business.
Fredrik Ragmark
November 2002