CGM Cegedim

Quarterly Financial Information as of September 30, 2016
IFRS - Regulated Information - Not Audited

Cegedim: robust revenue growth continued in third quarter 2016, and the decline in EBITDA slowed

• Revenue up 4.9% like for like in Q3 2016
• Margins temporarily pinched by investments and the start of operations with BPO clients
• Positive net income of €3.4 million compared with a loss a year ago
• 2016 revenue target revised upward and 2016 EBITDA target maintained

Boulogne-Billancourt, November 29, 2016

Cegedim, an innovative technology and services company, posted consolidated first nine months of 2016 revenues of €318.3 million, up 3.7% on a reported basis and 4.0% like for like compared with the same period in 2015. EBITDA came to €40.6 million in first nine months of 2016, down 22.4% year on year.
In the third quarter 2016, revenues came to €102.8 million, up 2.6% on a reported basis and 4.9% like for like. The Q3 2016 EBITDA came to €14.9 million, down 13.4% year on year.

The revamp of the business model continues and will allow Cegedim to enjoy greater customer loyalty, closer client relationships, simpler operating processes, more robust offerings and stronger geographic positions. The changes now under way will also boost the share of recurring revenues, improve sales growth and predictability, and enhance the Group's profitability. Profitability has been negatively affected during this business model transition. Cegedim expects to begin seeing the initial positive impact of its investments, reorganizations and transformations in 2017, with a full impact in 2018.

As proof that its clients see the relevance of its new strategy, Cegedim is revising its 2016 revenue target upward once again, and reiterates its 2016 EBITDA target. However, there is a chance that recently signed BPO contracts could negatively affect profitability in the fourth quarter of 2016, since related revenues will not be recognized until 2017.

Simplified income statement

Over the third quarter of 2016, Cegedim posted consolidated revenues of €102.8 million, up 2.6% on a reported basis. Excluding an unfavorable currency translation effect of 2.3%, revenues rose 4.9%. There were no disposals or acquisitions. In like-for-like terms the Health Insurance, HR and e-services division's revenues rose by 9.5%, whereas the Healthcare professionals division's revenues fell by 0.7%.

In the first nine months of 2016, Cegedim posted consolidated revenues of €318.3 million, up 3.7% on a reported basis. Excluding an unfavorable currency translation effect of 1.4% and a 1.1% boost from acquisitions, revenues rose 4.0%. In like-for-like terms the Health Insurance, HR and e-services division's revenues rose by 9.5%, whereas the Healthcare professionals division's revenues fell by 2.3%.

EBITDA declined by €11.7 million, or 22.4%, to €40.6 million. The first-nine month's margin fell to 12.7% from 17.0% a year earlier. The EBITDA trend was attributable to investments made in human resources and innovation in order to speed up the transition of software products to cloud-based formats and swiftly roll out the Group's new BPO offerings. It is worth noting that more than 80% of this decline occurred during the first half of 2016.

Depreciation charges rose €2.9 million, from €22.4 million for the first nine months of 2015 to €25.3 million for the first nine months of 2016. Amortization of R&D expenses over the period amounted to 1.0 million.

EBIT from recurring operations fell €14.6 million over the first nine months of 2016, or 48.9%, to €15.3 million. The margin fell from 9.7% for the first nine months of 2015 to 4.8% for the first nine months of 2016.

Special items amounted to a €5.7 million charge over the first nine months of 2016 compared with a €5.0 million charge a year earlier. The increase was chiefly due to the increase in restructuring costs due to the implementation of new organizational structures.

The net cost of financial debt amounted to €25.2 million over the first nine months of 2016 compared to €32.7 million for the first months of 2015, a decrease of €7.5 million, or 22.9%. It represented 7.9% of first nine months 2016 revenues, compared with 10.7% of first nine months 2015 revenues. This decline reflects lower interest expenses in the second and third quarters as a result of the debt restructuring carried out in January and March 2016.

Tax amounted to €1.4 million for the first nine months of 2016, compared with €2.5 million for the first nine months of 2015, a decrease of €1.1 million, or 42.8%. This was chiefly due to the lack of corporate income tax.

Thus, the consolidated net result from continuing activities came to a loss of €15.5 million at end-September 2016, compared with a loss of €9.0 million in the year-earlier period. Earnings per share before special items came to loss of €0.7 at end of September 2016, compared with a €0.3 loss a year earlier. Note that consolidated net result from continuing activities came to €3.4million profit in the third quarter, compared with a €0.7 million loss a year earlier.

Analysis of business trends by division

• Key figures by division

• Health insurance, HR and e-services

Over the first nine months of 2016, division revenues came to €185.2 million, up 11.4% on a reported basis. The July 2015 acquisition of Activus in the UK made a positive contribution of 2.0%. Currencies had virtually no impact. Like-for-like revenues rose 9.5% over the period.
The Health insurance, HR and e-services division represented 58.2% of consolidated revenues from continuing activities, compared with 54.1% over the same period a year earlier.
The division's Q3 2016 revenues came to €60.6 million, up 9.3% on a reported basis. There were no disposals or acquisitions. Currencies had virtually no impact. Like-for-like revenues rose 9.5% over the period:

This significant revenue growth over the first nine months of 2016 was chiefly attributable to:

• Cegedim Insurance Solutions, driven by double-digit growth in its iGestion BPO activities and a brisk increase in third-party payment processing. The start of operations with new clients allowed the software and services business for the personal insurance segment to more than offset the effects of switching over to the cloud.
• Double-digit growth at Cegedim e-business following the start of operations with new clients on its Global Information Services SaaS platform for digital data exchanges, including payment platforms.
• The start of operations with numerous clients on the Cegedim SRH SaaS platform for human resources management, resulting in double-digit revenue growth.

Over the first nine months of 2016, division EBITDA came to €26.8 million, down €3.1 million, or 10.4%. The EBITDA margin came to 14.5%, vs. 18.0% a year earlier.
In the third quarter of 2016, division EBITDA came €9.0 million, slightly down €0.2 million, or 2.1%. The EBITDA margin came to 14.8%, vs. 16.6% a year earlier.

The decline in EBITDA took place almost entirely in the first half of 2016, as third-quarter EBITDA was virtually stable. The decline in the first half was chiefly the result of:

• The start of operations with BPO clients for iGestion and Cegedim e-business;
• Cegedim Insurance Solutions switching its core products over to SaaS format, the start of operations with numerous new clients, and the start of new projects for existing clients;
• A difference in the timing of promotional campaigns in the first half of 2016 compared to 2015 for RNP;

The impact was partially offset by Cegedim SRH's fine performance in processing third-party payment flows

• Healthcare professionals

Over the first nine months of 2016, division revenues came to €130.8 million, down 5.2% on a reported basis. Currency effects made a negative contribution of 2.9%. There was no impact from acquisitions or divestments. Like-for-like revenues fell 2.3% over the period.
The Healthcare professionals division represented 41.1% of consolidated revenues from continuing activities, compared with 45.0% over the same period a year earlier.
The division's Q3 2016 revenues came to €41.5 million, down 5.6% on a reported basis. Currency effects made a negative contribution of 4.9%. There was no impact from acquisitions or divestments. Like-for-like revenues fell 0.7% over the period.

The decline in revenues over the first nine months of 2016 was mainly due to the following:

• A slowing in the UK doctor computerization business in anticipation of the early-2017 launch of a cloud-based offering. Marketing for that offering should restore sales momentum;
• The September 2016 release in France of the new Smart Rx offering - a comprehensive pharmacy management solution built around a hybrid architecture that combines local and cloud-based computing. The new solution allows networks amongst individual pharmacies and links with healthcare professionals. Thus, revenues at the French pharmacy business are likely to resume their growth in the next few months.
• The negative short-term impact of switching Belgian doctors over to SaaS format.

These performances were offset mainly by a double-digit growth:

• At Pulse, driven by the RCM and EHR activities.
• In offerings for physical therapists and nurses in France.

Over the first nine months of 2016, division EBITDA came to €12.1 million, down €9.6 million, or 44.3%. The EBITDA margin came to 9.3%, vs. 15.8% a year earlier.
In the third quarter of 2016, division EBITDA came €4.7 million, slightly down €2.9 million, or 38.2%. The EBITDA margin came to 11.4%, vs. 17.3% a year earlier.

The decline in EBITDA was chiefly attributable to investments made to ensure future growth. The Group was chiefly penalized by the investments it made in:

• France, to develop the new hybrid offering for pharmacies;
• The US, focusing on Revenue Cycle Management (RCM) activities and SaaS electronic health records (EHR);
• The UK, where it aims to have a cloud-based offering for UK doctors in 2017

EBITDA felt a pinch in the short term from efforts to switch Belgian doctors over to SaaS format and reorganize the business in the US.

• Activities not allocated

Over the first nine months of 2016, division revenues came to €2.3 million, down 15.4% on a reported basis and like for like. There were no currency effects and no acquisitions or divestments.

The Activities not allocated division represented 0.7% of consolidated revenues from continuing activities, compared with 0.9% over the same period a year earlier.

The division's Q3 2016 revenues came to €0.8 million, down 8.7% on a reported basis and like for like. There were no currency effects and no acquisitions or divestments.

This trend reflects the return to a normal level of billing.

Over the first nine months of 2016, division EBITDA came to €1.6 million, up €1.0 million. In the third quarter of 2016, division EBITDA came €1.2 million, up €0.8 million.

Financial resources

Cegedim's consolidated total balance sheet amounted to €659.9 million, at September 30, 2016,

Acquisition goodwill represented €183.8 million at September 30, 2016, compared with €188.5 million at end-2015. The €4.7 million decrease, equal to 2.5%, was mainly attributable to the euro's appreciation against the British pound, for a total of €4.8 million. Acquisition goodwill represented 27.9% of the total balance sheet at September 30, 2016, compared with 21.8% on December 31, 2015.

Cash and equivalents came to €9.1 million at September 30, 2016, a decrease of €222.2 million compared with December 31, 2015. The drop was principally due to the early redemption of the 2020 bond for a nominal value of €340.1 million, payment of a €15.9 million early redemption premium, and an €9.8 million deterioration in WCR, partly offset by drawing €169.0 million from the €200 million revolving credit facility. Cash and equivalents represented 1.4% of the total balance sheet at September 30, 2016, compared with 26.8% at December 31, 2015.

Shareholders' equity fell by €32.7 million, i.e. 14.3%, to €195.4 million at September 30, 2016, compared with €228.1 million at December 31, 2015. Shareholders' equity represented 29.6% of the total balance sheet at end-September 2016, compared with 26.4% at end-December 2015.

Net financial debt amounted to €215.6 million at end-September 2016, up €48.0 million compared with end-December 2015. It represented 110.3% of Group shareholders' equity at September 30, 2016.

Before the net cost of financial debt and taxes, cash flow was €44.6 million at September 30, 2016, compared with €51.5 million at September 30, 2015.

Highlights

Apart from the items cited below, to the best of the company's knowledge, there were no events or changes during the period that would materially alter the Group's financial situation.

• New credit facility

In January 2016, the Group took out a new five-year revolving credit facility (RCF) of €200 million. The applicable interest rate for this credit facility is Euribor plus a margin. The Euribor rate can be the 1-, 3- or 6- month rate; if Euribor is below zero, it will be deemed to be equal to zero. The margin can range from 0.70% to 1.40% depending on the leverage ratio calculated semi-annually in June and December (Refer to point 2.4.1.1 on page 14 of the Q2-2016 Quarterly Financial Report).

• Exercise of the call option on the entire 2020 bond

On April 1, 2016, Cegedim exercised its call option on the entire 6.75% 2020 bond with ISIN code XS0906984272 and XS0906984355, for a total principal amount of €314,814,000.00 and a price of 105.0625%, i.e. a total premium of €15,937,458.75. The company then cancelled these securities. The transaction was financed by drawing a portion of the RCF obtained in January 2016 and using the proceeds of the sale to IMS Health. Following this transaction, the Group's debt comprised the €45.1 million FCB subordinated loan, the partially drawn €200 million RCF, and overdraft facilities.

• S&P has raised Cegedim's rating to BB with positive outlook

After Cegedim announced that it would redeem the entire 6.75% 2020 bond, rating agency Standard and Poor's raised the company's rating on April 28, 2016, to BB with a positive outlook.

Significant post-closing transactions and events

Apart from the items cited below, to the best of the company's knowledge, there were no events or changes during the period that would materially alter the Group's financial situation.

• Cegedim signs heads of agreement to acquire Futuramedia Group

Cegedim announced on November 2, 2016, that it has signed a heads of agreement to acquire Futuramedia Group. This deal will strengthen the digital offerings of its subsidiary RNP, which specializes in pharmacy displays in France.

Last year Futuramedia Group generated revenues of around €5.4 million. It will have an accretive impact on Cegedim Group's margins and will begin contributing to the Group's consolidation scope from December 1, 2016.

• Kadrige sale

The Kadrige business was sold to IMS Health on November 9, 2016.

Outlook

Cegedim is revising upward its target for 2016 revenues and maintained it 2016 EBITDA target, despite economic uncertainty and a challenging geopolitical environment. Thus for the full year 2016, Cegedim expects:

• Like-for-like revenue growth of 4% instead of at least 3% before.
• EBITDA down by €10 million relative to 2015. However, the signing of a significant BPO contracts in third quarter 2016 could have an impact on Group profitability in fourth quarter 2016, because revenues related to the contract will not be booked until 2017.

Cegedim expects to begin seeing the initial positive impact of its investments, reorganizations and transformations in 2017, with a full impact in 2018.

In 2016, the Group acquired Futuramedia. It currently has no plans for further significant acquisitions. Lastly, the Group does not communicate earnings estimates or forecasts.

• Potential Brexit impact

In 2015, the UK accounted for 15.1% of consolidated Group revenues and 19.2% of consolidated Group EBIT.

Cegedim deals in local currency in the UK, as it does in every country where it is present. Thus, Brexit is unlikely to have a material impact on Group EBIT.

With regard to healthcare policy, the Group has not identified any major European programs at work in the UK and expects UK policy to be only marginally affected by Brexit.

• Quarterly statements

Starting in 2017, Cegedim will only publish half-year and annual results. It will, however, continue to publish quarterly revenues.

The figures cited above include guidance on Cegedim's future financial performances. This forward-looking information is based on the opinions and assumptions of the Group's senior management at the time this press release is issued and naturally entails risks and uncertainty. For more information on the risks facing Cegedim, please refer to points 2.4, "Risk factors and insurance", and 3.7, "Outlook", of the 2015 Registration Document filed with the AMF on March 31, 2016, as well as point 2.4, "Risk factors", of the Interim Financial Report of Q3 2016.

Financial calendar

Informations additionnelles

Appendices

Balance sheet as September 30, 2016

• Assets as of September 30, 2016

1. Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement.

• Liabilities and shareholders' equity as of September 30, 2016

(1)     Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement".

·          Income statements as of September 30, 2016

(1)     Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement.

• Consolidated cash flow statement as of September 30, 2016

(1)     Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement"

• Correction of the accounting treatment of the finance lease business in the group consolidated financial statement

Cegelease is a wholly owned subsidiary of Cegedim which offers since 2001 financing options through a variety of contracts dedicated to pharmacies and healthcare professionals in France. 

Initially, these solutions were aimed at serving the pharmacists, who preferred leasing instead of paying up-front, the pharmacies management system software that they bought from the Cegedim group.

As time passed, Cegelease diversified its activities. Starting as the exclusive finance lease provider for Cegedim group products, Cegelease converted to a broker proposing a variety of leasing solutions (for group products as well as products developed by third parties) offered to a variety of clients (including clients who are not already in business with other group entities).

After the sale of its CRM and strategic data business to IMS Health, Cegedim investigated in depth these activities and found that they had to be reclassified pursuant to IAS 17 on March 23, 2016 when the 2015 accounts were published.

All the impacts on previous accounts are indicated in the 2015 Registration Document filled with the AMF on March 31, 2016 in Chapter 4.4 point 1.3 on page 89 to 94, as well as in the Q1 2016 Financial Interim Report in point 2.5.1 on page 17 to 19, in the Q2 2016 Financial Interim Report in point 2.5.1 on page 17 and in the Q3 2016 Financial Interim Report in point 2.5.1 on page 17.

Impacts for the first nine months of 2015 consolidated financial statements are described below:

• First nine months of 2015 Profit and Loss Statement

(1)       Restated from the IFRS 5 Cegedim Kadrige impact.

• First months of 2015 Cash Flows Statement

(1)       Restated from the IFRS 5 Cegedim Kadrige impact.

• First nine months of 2015 Revenue per division

(1)       The Cegedim Group decided to sell the Kadrige activities. These activities are thus isolated in separate lines of the profit and loss statement and balance sheet, according to the IFRS 5 accounting standard.

(2)       The correct accounting treatment of the Cegelease finance lease business, for all types of contracts (self-financed, sold except process management, or backed against a bank) requires a correction over the first nine months of 2015 consolidated revenue of €58.4m downward.

(3)       The finance lease business accounts for less than 10% of the consolidated revenue or EBITDA, and as such is not isolated anymore within the Group internal reporting. These activities are reported into the « Healthcare professionals » division, where they already belonged until the 2014 annual closing.

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