Medicover Holding S.A. Interim Report

8/17/2001 3:02 AM EST

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