Cegedim: Revenues up in Q1 2016, but margin impacted by the transition to an SaaS model and to BPO

Quarterly Financial Information as of March 31, 2016

IFRS - Regulated Information - Not Audited

Cegedim: Revenues up in the first quarter of 2016, but margin impacted by the transition to an SaaS model and to BPO

           Revenues up 5.7% on a reported basis

           Robust investment plan still in place in 2016

           Interest expense expected to fall considerably from Q2 onward

           EBITDA expected to be stable in 2016

Disclaimer: pursuant to IAS 17 as it applies to Cegelease's activities, leases are now classified as financial leases, resulting in an adjustment to the first quarter 2015 figures published in 2015. Readers should refer to the last annex of this press release for full details of the adjustments. All of the figures in this press release reflect the adjustments.

Boulogne-Billancourt, France, May 26, 2016 -- Cegedim, an innovative technology and services company, generated first quarter 2016 consolidated revenues from continuing activities of €106.2 million, up 5.7% on a reported basis and 4.8% like for like compared with the same period in 2015. Despite the ongoing migration of clients over to SaaS / cloud-based models, the Health Insurance, HR and e-services division posted significant growth, and the Healthcare professionals division saw its growth recover modestly.

First-quarter 2016 EBITDA came to €11.1 million, down 24.6% year on year. EBITDA declined at all of the Group's divisions as a result of the investments being made in human resources and innovation in order to speed up the transition of software products to cloud-based models and swiftly roll out the Group's new BPO (Business Process Outsourcing) offerings.

The innovations the Group brought to market in 2015 helped boost first-quarter 2016 revenues despite the ongoing transition to a cloud model.

This revenue trend fully validates the decision management made in mid-2015 to speed up the shift to cloud-based software offerings and rapidly roll out Cegedim's new BPO range. During the transitional period, profitability has naturally taken a hit. For 2016, Cegedim expects at least stable revenue from continuing activities and stability at the EBITDA level.

Further out, Cegedim will enjoy greater customer loyalty, closer client relationships, simpler operating processes, more robust offerings and stronger geographic positions. These changes will also boost the share of recurring revenues, improve sales growth and predictability, and enhance the Group's profitability.

In the first quarter of 2016, Cegedim exercised its call option on the entire 6.75% 2020 bond at a price of 105.0625%, or a premium of €18.0 million. 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. This move will reduce interest expense by around 9 times over the final nine months of 2016 compared with the same period in 2015.

• Simplified income statement

In first quarter 2016, Cegedim posted consolidated revenues from continuing activities of €106.2 million, up 5.7% on a reported basis. Excluding an unfavorable currency translation effect of 0.5% and a 1.3% boost from acquisitions, revenues rose 4.8%.

In like-for-like terms the Health Insurance, HR and e-services and Healthcare professionals divisions' revenues rose by respectively 8.7% and 0.5%, whereas the Activities not allocated division's revenues fell by 3.8%.

EBITDA fell €3.6 million year on year, or 24.6%, to €11.1 million. The margin declined from 14.6% in Q1 2015 to 10.4% in Q1 2016. EBITDA declined at all of the Group's divisions as a result of the investments being 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.

Depreciation charges rose €0.8 million, from €7.3 million in Q1 2015 to €8.1 million in Q1 2016. Special items amounted to a €1.1 million charge in the first quarter compared with a €2.8 million charge a year earlier. The drop was chiefly due to the booking in 2015 of fees related to the sale of the CRM and strategic data division to IMS Health.

EBIT before special items fell €4.4 million in the first quarter of 2016, or 59.4%, to €3.0 million. The margin declined from 7.4% in Q1 2015 to 2.8% in Q1 2016.

The net cost of financial debt increased by €16.3 million or 236.3%, from €6.9 million on March 31, 2015, to €23.2 million at March 31, 2016. This increase reflects the early redemption premium paid of €18 million on the 2020 bond, which was partly offset by a decrease in interest payments attributable to the bond debt restructuring in 2015.

Tax fell from a charge of €0.7 million at March 31, 2015, to a charge of €0.3 million at March 31, 2016, mainly due to the drop in taxable income.

Thus, the consolidated net result from continuing activities came to a loss of €21.0 million at end-March 2016, compared with a loss of €2.6 million in the year-earlier period. The Group's consolidated net result was a loss of €21.4 million at end-March 2016 compared with a €1.5 million loss at end-March 2015. Net result per share was a €1.5 loss in the first quarter of 2016, compared with a €0.1 loss a year earlier.

Analysis of business trends by division

• Key figures by division

• Health insurance, HR and e-services

The division's Q1 2016 revenues came to €59.7 million, up 11.2% on a reported basis. The July 2015 acquisition of Activus in the UK made a positive contribution of 2.5%. Currencies had virtually no impact. Like-for-like revenues rose 8.7% over the period.

The Health insurance, HR and e-services division represented 56.2% of consolidated revenues from continuing activities, compared with 53.5% over the same period a year earlier.

This significant Q1 2016 revenue growth was chiefly attributable to:

• Cegedim Insurance Solutions, bolstered by robust growth in its business of managing third-party payment flows and from the software and services ranges despite the temporarily negative impact of switching its offering to a cloud format. BPO activities for health insurance, with iGestion, posted double-digit revenue growth. This division was also bolstered by the acquisition of Activus in July 2015.
• Double-digit growth in the operation of the GIS SaaS platform for electronic data flows by Cegedim e-business, including payment platforms.
• The double-digit acceleration of growth in business at Cegedim SRH, the SaaS platform for managing human resources, which started operations with a number of clients.

EBITDA fell €1.4 million year on year, or 16.7%, to €7.1 million. The EBITDA margin came to 11.8%, vs. 15.8% a year earlier.

The drop in EBITDA was mainly due to:

• A temporary decrease in the profitability of the iGestion and Cegedim e-business activities due to the start of operations with numerous BPO clients;
• RNP, the specialist in traditional and digital displays for pharmacy windows in France, which suffered from a change in the timing of promotional campaigns between 2015 and 2016;

This was partly offset by the good performances of:

• The business of managing third-party payment flows;
• Cegedim SRH, despite the start of business with numerous BPO clients;
• The software and services offering for personal insurance, despite the temporary negative impact of switching to the cloud.
   
  • Healthcare professionals

The division's Q1 2016 revenues came to €45.7 million, down 0.5% on a reported basis. Currency effects made a negative contribution of 1.0%. There was no impact from acquisitions or divestments. Like-for-like revenues rose 0.5% over the period.

The Healthcare professionals division represented 43.0% of consolidated revenues from continuing activities, compared with 45.7% over the same period a year earlier.

This modest like-for-like growth was mainly attributable to:

• Growth of more than 60% at Pulse Systems owing to a successful rollout of its Revenue Cycle Management (RCM) offering. This offering will let the Group manage the process of obtaining reimbursement from multiple US insurers on behalf of doctors. Growth also came from the rollout of EHR offerings after a period of some hesitancy by US doctors.
• Growth in the Claude Bernard medication database, whose sales are also growing in the UK.

This performance was partly offset by mainly a slowdown in the UK doctor computerization business owing to the market's migration to cloud-based offerings. That said, investments in developing a cloud offering should make it possible to progressively restore sales momentum in 2017.

In May 2016 the Cegedim subsidiary specializing in French pharmacy IT, one of the market leaders, announced a new comprehensive pharmacy management solution based on a hybrid architecture combining cloud and local computing. It has been designed to facilitate the new kinds of networked collaboration now in favor between pharmacies and healthcare professionals. Healthcare data are hosted in a secure environment, earning Cegedim HDS health data hosting certification from ASIP Santé.

EBITDA came to €5.0 million in the first quarter of 2016, down €1.4 million or 22% compared with the same period in 2015. As a result, the margin came to 10.9% vs 13.8% a year earlier.

The decline in EBITDA was chiefly attributable to investments made to ensure future growth. The Group was in fact penalized chiefly by the investments it made in France to develop the new hybrid offering for pharmacies, which it launched in May 2016.The trend was partly offset by EBITDA growth at the RCM and EHR activities in the US.

• Activities not allocated

The division's Q1 2016 revenues came to €0.8 million, down 3.8% both 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 0.8% over the same period a year earlier.

EBITDA deteriorated by €0.8 million to a loss of €1.0 million, compared with a year-earlier loss of €0.2 million.

This EBITDA weakness partly reflects the costs needed to develop IT infrastructure.

Financial resources

At March 31, 2016, Cegedim's total balance sheet amounted to €666.7 million.

Acquisition goodwill was €185.8 million at March 31, 2016, compared with €188.5 million at end-2015. The €2.8 million decrease, i.e. 1.5%, was mainly due to the euro's appreciation against certain foreign currencies, chiefly the pound sterling for €2.4 million. Acquisition goodwill represented 27.9% of the total balance sheet at March 31, 2016, compared with 21.8% on December 31, 2015.

Cash and equivalents came to €20.2 million at March 31, 2016, a decrease of €211.1 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 €18.0 million in early redemption premium, and an €11.6 million deterioration in WCR, partly offset by drawing €176.0 million from the €200 million revolving credit facility.

Shareholders' equity fell by €28.1 million, i.e. 12.3%, to €200 million at March 31, 2016, compared with €228.1 million at December 31, 2015. The drop was mostly the result of a deterioration in Group earnings and exchange rate gains/losses, by respectively €88.4 million and €6.3 million. Those items were partly offset by a €66.5 million increase in Group reserves. Shareholders' equity represented 30.0% of the total balance sheet at end-March 2016, compared with 26.4% at end-December 2015.

Net financial debt amounted to €209.4 million at end-March 2016, up €41.7 million compared with end-December 2015. It represented 104.7% of Group shareholders' equity at March 31, 2016.

Before the net cost of financial debt and taxes, cash flow was €13.3 million at March 31, 2016, compared with €19.2 million at March 31, 2015.

Highlights

• 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 2.1.1.1 on page 14 of the Q1-2016 Quarterly Financial Report).

Apart from the items cited above, 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.

Significant post-closing transactions and events

• 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.

Apart from the items cited above, to the best of the company's knowledge, there were no events or changes after the accounts were closed that would materially alter the Group's financial situation.

Outlook

For 2016, Cegedim expects at least stable revenue from continuing activities and stability at the EBITDA level.

The Group does not expect any significant acquisitions in 2016 and does not disclose profit projections or estimates.

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 Q1 2016.

Financial calendar

Additional information

The Audit Committee met on May 24, 2016, and the Board of Directors met on May 25, 2016, to review the 2016 first quarter consolidated financial statements.   

The interim financial report for the first quarter of 2016 is available in French and in English in the Finance section of Cegedim's website:

• French: http://www.cegedim.fr/finance/documentation/Pages/rapports.aspx
• English: http://www.cegedim.com/finance/documentation/Pages/reports.aspx

                                     
This information is also available on Cegedim IR, the Group's financial communications app for smartphones and iOS and Android tablets. To download the app, visit: http://www.cegedim.fr/finance/profil/Pages/CegedimIR.aspx.

Appendices

• Balance sheet as March 31, 2016

Assets

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

Liabilities as of December 31, 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 March 31, 2016

1. Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement"
2. The "Taxes" line was restated pursuant to IFRIC 21 for €1,518 thousand.

• Consolidated cash flow statement as of March 31, 2016

1. Restated see note "Correction of the accounting treatment of the finance lease business in the group consolidated financial statement"
2. The "Taxes" line was restated pursuant to IFRIC 21 for €1,518 thousand.
    
   • 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.

Impacts on Q1 2015 consolidated financial statements are described below:

• Q1 2015 Profit and Loss Statement

1. The "Taxes" line was restated pursuant to IFRIC 21 for €1,518 thousand.
    
   • Q1 2015 Cash Flows Statement

1. The "Taxes" line was restated pursuant to IFRIC 21 for €1,518 thousand.
   • Q1 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 of the consolidated revenue of €21m 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.

• Glossary

Cegedim_Results_1Q2016_ENG http://hugin.info/141732/R/2015932/747553.pdf

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