SHL's financial results for 2006 reflect the improvements effected during the past years through the continued investments made by the company. SHL continued to strengthen its market position in each of the three countries where it is active.
Revenues from the telemedicine segment in 2006 increased by 8.4% to USD 62.8 million bringing total revenues for the year to USD 83.2 million compared to pro-forma revenues of USD 78.2 million. This number excludes the Bikurofe operations sold in mid 2005 with SHL's total revenues for 2005 amounting to USD 85.2 million.
An improvement in the gross margin to 49% in 2006 contributed to an increase in gross profit to USD 40.6 million compared with USD 36.7 million excluding the Bikurofe operations and USD 38.8 million including Bikurofe operations in 2005. This improvement together with the implementation of new systems, IT platforms and processes brought SHL's operating income to USD 5.0 million as against USD 0.2
million excluding Bikurofe operations and USD 1.4 million including Bikurofe operations.
Similarly, the EBITDA for the year reflected the significant improvement in SHL's operations increasing to USD 12.2 million up 67% when excluding Bikurofe operations with total EBITDA for 2005 amounting to USD 8.5. This is above the maximum guideline that the Company forecasted for 2006.
Overall SHL reports an improvement in earnings from continuing operations to USD 0.1 million. This is especially significant considering that in 2005, when excluding Bikurofe operations and the capital gain, net recorded form that sale, SHL recorded a loss from continuing operations of USD 7.4 million.
Taking into account the loss from discontinued operations from the US imaging centers of USD 7.2 million, SHL's overall loss for the year totaled USD 7.1million compared to USD 15.1 million in 2005 excluding Bikurofe operations and the capital gain, net and
USD 7.6 million in 2005 including the above.
Cash Flow
The operational cash flow reached USD 1.8 million compared to a negative cash flow of USD 0.2 million in 2005 that is in spite of the continuing negative impact of the cash requirements for the US imaging operations prior to their divesture. Now with the divestures finalized significant improvement in operating cash flow is expected in the coming year.
Retrospective restatements
- In 2006, the Israeli Accounting Standards Board determined in accordance with IAS 29 that the Israeli economy ceased to be hyper inflationary as of December 31, 2003. Accordingly, the financial statements of SHL in Israel should have been adjusted for the effects of inflation until that date. Those financial statements had
previously been presented, until that date, based on historical cost without adjustment for the effects of inflation.
- In 2006, the Company discovered an error whereby some subscribers which received discounts in prior years and are still receiving service were accounted for as if they cancelled the service. Also the calculation of the accrued severance pay
was amended to reflect the fair value of the plan assets.
The total effect of the retrospective restatement for 2005 is as follows:
- A decrease in revenues of USD 0.2 million
- An increase in net loss of USD 0.1 million
- A decrease in equity of USD 1.8 million
Germany - continued growth
2006 continued to be a year of progress for PHTS, SHL's German telemedicine operations. The realization of further agreements with major German health insurers for the procurement of SHL's telemedicine solutions continued bringing about an ever increasing rate of subscriber recruitment. Amongst other, PHTS has started to provide in 2006 telemedicine services to the Universitätsklinikum Heidelberg and AOK Baden- Würtenberg.
As a result of this progress, revenues for 2006 more than tripled those of 2005. SHL is very pleased with the interest and feedback it is receiving from the German health community and of the growing acceptance there for its telemedicine services and solutions.
The growth in the German market is proceeding at a faster rate than
anticipated however PHTS is not yet contributing to SHL's profit.
US telehealth operations-progress in US telehealth market
The US telehealth operations also reported nice progress. As a result of the implementation of new systems and the integration of new IT platforms the company showed improved operational performance. SHL believes its US telehealth operation's unique platform, strong customer base and introduction of new applications like the
INR@Home monitoring service which achieved good market acceptance and growth during the year provide a sound and solid base for continued leadership and growth.
US medical services operations - divestures and closing of loss making medical imaging centers finalized The US medical imaging division continued its weak performance in 2006, which adversely affected SHL's overall financial results. During the year SHL implemented a restructuring process aimed at limiting the negative impact of the imaging centers on its financial performance by divesting or discontinuing the operations of its imaging centers. As a result of these processes, the imaging activities were categorized as
discontinued operations in the financial statements and are therefore not expected to impact SHL's financial performance in 2007.
Israel - steady growth In Israel SHL's telemedicine operations continued its steady growth with another year of solid financial performance, showing good margins and operating cash flow. At the
beginning of 2007 SHL introduced its next generation of personal ECG devices; the 12 lead digital cellular CardioSen'C. This revolutionary technology transmits digital encoded ECG data and allows for an interference free signal reception through the cellular network.
Looking ahead With the completion of the divestment and discontinuation process of its medical imaging centers, together with the continued growth in Germany, the US and Israel
SHL expects to record an improvement in its financial performance and cash flows in 2007 with EBITDA expected to be in the range of USD 12 - 14 million.
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