Lethimvula interim results point to Medscheme's long-term sustainability

Lethimvula Investments Limited, which acquired Medscheme and Rowan Angel in September last year, today announced strong interim results for the six-month period ended 31 August 2007. 
Although total revenue declined by 9%, largely as a result of Medscheme’s loss of the Medshield Medical Scheme administration contract in April this year, the adjusted healthcare revenue increased by just 1%.

According to Lethimvula CEO Dewald Dempers the increase in healthcare revenue reflects Medscheme’s stable membership environment. “The ongoing migration of public sector employees to the Government Employees’ Medical Scheme (GEMS) has been offset by private membership growth across the open schemes administered by Medscheme,” he said.

The Group’s quality of earnings is further underlined by the adjusted EBITDA (excluding Medshield from both periods) which reflects a growth of 51%, with the margin increasing from 9.3% to 14.4%. As a consequence, profit before tax more than doubled compared to the preceding six-month period ended 28 February 2007.

However, net profit after tax reflects an improvement of 5.7% as the prior period reflected a tax credit as a result of the raising of a deferred tax asset.

The strong operating profit performance was mirrored in an equally strong cash performance which reflected cash generated from operating activities of R83.5 million.  After investing activities and debt repayment, net cash generated totalled R46 million.

Dempers said that although continued focus on operational efficiencies and cost control had positively impacted the performance, the primary focus across the business remains the Group’s competitive positioning and ability to sustain and grow the revenue base.

“The recent report issued by the Council of Medical Schemes confirms that Medscheme’s administration fees for both open and closed schemes are not only competitive but substantially below the market average. Effectively this means that our clients are unlikely to come under pressure from the legislator to reduce non-healthcare related costs.”

Dempers confirmed that Medscheme is considering its position in the wake of the Council for Medical Scheme’s recent investigation into the move of the Medshield administration contract to Old Mutual Healthcare. The investigation found that the scheme’s Board of Trustees had not followed due process stipulated by legislation in awarding the contract to Old Mutual Healthcare.

Commenting on the performance of Medscheme’s operating Divisions, Medscheme CEO, André Meyer said that Medscheme Health, Medscheme’s medical scheme administration operation has, in conjunction  with its open scheme clients, focused on growing private membership through SMME’s, corporates and individual members. “The success of these growth initiatives is evident in the solid increase in total membership between March 2007 and August 2007 after membership losses to GEMS during the same period.”

Medscheme Health Risk Solutions, Medscheme’s managed care operations had also achieved accelerated membership growth driven primarily by the growth of the Government Employees Medical Scheme (GEMS) to which Medscheme provides managed care and HIV/Aids disease management services. “The Division is strongly positioned to define new industry initiatives as a result of its ability to provide differentiated health risk management solutions,” said Meyer. 

Highlighting the solid performance of Medscheme Financial Services, Meyer said that the growth in sales has been matched by pleasing growth in the embedded value of the life company.  “The asset management company has also delivered a pleasing performance and 40% of the current revenue stream relates to clients outside of the Medscheme Group. This reflects the success of the diversification process,” he said.  

Lethimvula’s other acquisition, Rowan Angel has also performed satisfactorily and Dempers believes that through its association with Medscheme, the company is in a position to derive cost efficiencies and synergies which will, in turn, benefit Spectramed.  

“Both Medscheme and Rowan Angel are well positioned to deliver continued satisfactory growth during the six- month period ending 29th February 2008,” concluded Dempers.