Cegedim: Release of 2016 Results     PRESS

Full-Year Financial Information as of December 31, 2016 IFRS - Regulated Information - Audited

Cegedim is making great strides on its business model transformation, and the strategic repositioning is starting to pay off

• Revenues up 4.4% like for like in 2016
• Adjusted EBITDA lower over the full year but up in the fourth quarter
• Numerous new product launches
• Growth expected to pick up speed in the fourth quarter of 2017

Boulogne-Billancourt, March 22, 2017

Cegedim , an innovative technology and services company, posted consolidated 2016 revenues of €440.8 million, up 3.4% on a reported basis and 4.4% like for like compared with the same period in 2015. EBITDA came to €61.4 million in 2016, down 21.8% year on year. Adjusted EBITDA came to €65.4 million in 2016, down 16.7% year on year

The business model transformation initiated in fall 2015 is beginning to pay off, as shown by the increase in like-for-like revenue growth to 5.4% in the fourth quarter and 4.4% over the full year 2016. The decline in EBITDA was chiefly attributable to execution of the transformation plan, which includes transitioning to a business process outsourcing (BPO) model and to SaaS formats, and investing in R&D. Due to a change in strategy with respect to two legal disputes with US clients, the Group signed agreements that led it to reclassify significant receivables as losses in 2016. Because these losses cannot be categorized as exceptional expenses under IFRS, the Group is communicating an adjusted EBITDA figure.

In 2016, the transformation project resulted in several changes in senior management within the Healthcare professionals division in the US, UK and France. At the same time, investments devoted to R&D allowed Cegedim to launch a number of new products, notably in SaaS format. For example, the Group began to market its Smart Rx product for French pharmacists, Pulse Cloud Practice Management for US doctors, Vision anywhere for UK doctors, and a full SaaS e-invoicing platform using open source technology. The Group also substantially expanded its BPO offering for US doctors, HR departments and insurance companies, notably signing a major BPO contract with social protection and insurance group KLESIA and at the end of the year with the mutual insurance group YSTIA.

Simplified income statement

In 2016. Cegedim posted consolidated revenues of €440.8 million up 3.4% on a reported basis. Excluding an unfavorable currency translation effect of 1.7% and a 0.8% boost from acquisitions revenues rose 4.4%.

In like-for-like terms the Health Insurance HR and e-services division's revenues rose by 10.5%, whereas the Healthcare professionals division's revenues fell by 2.8%.

EBITDA declined by €17.1 million or 21.8% to €61.4 million. The full year 2016 margin fell to 13.9% from 18.4% a year earlier. It is worth noting that more than 72% of this decline occurred during the first half of 2016.

Adjusted EBITDA amounted to €65.4 million in 2016, down by €13.1 million or 16.5%. The full year 2016 margin fell to 14.8% from 18.4% a year earlier.

Depreciation charges rose €3.9 million from €30.4 million for 2015 to €34.3 million for 2016. Amortization of R&D expenses over the period increased by €1.1 million.

EBIT from recurring operations fell €21.0 million in 2016 or 43.7% to €27.1 million. The margin fell to 6.1% in 2016 from 11.3% in 2015.

Special items amounted to a charge of €24.1 million over 2016 compared with a charge of €6.7 million over 2015. This increase was chiefly due to the €5.4 million increase in restructuring costs due to the implementation of new organizational structures, the €4.6 million fine related to the Tessi litigation,  the € 7.5 million of allowance for legacy software and the impact of moving the corporate headquarters.

The net cost of financial debt amounted to €25.8 million in 2016 compared with €40.8 million in 2015, a decrease of €15.0 million or 36.8%. This figure represented 5.8% of 2016 revenues, compared with 9.6% of 2015 revenues. The decline reflects the positive impact on interest expenses of the early redemption of the bond maturing in 2020 with a coupon of 6.75% in the first quarter of 2016, made possible by the signing of a new revolving credit facility of €200 million with a interest rate of 1.4% in January 2016. During the first half of 2016, interest expenses amounted to €23.9 million compared to €1.9 million in the second half.

Tax amounted to a charge of €4.1 million in 2016 compared with an income of €17.6 million in 2015, a decrease of €21.7 million. This was chiefly due to the non-recognition of deferred tax assets in 2016, contrary to 2015.

Thus, the consolidated net result from continuing activities came to a loss of €25.6 million at end-December 2016 compared with a profit of €19.5 million in the year-earlier period. Earnings per share before special items came to loss of €1.2 at end of December 2016 compared with a €1.6 profit a year earlier.

Analysis of business trends by division

• Key figures by division

• Health insurance. HR and e-services

The division's 2016 revenues came to €262.3 million, up 11.8% on a reported basis. The July 2015 acquisition of Activus in the UK made a positive contribution of 1.4%. Currencies had virtually no impact. Like-for-like revenues rose 10.5% over the period. The Health insurance, HR and e-services division represented 59.5% of consolidated revenues from continuing activities, compared with 55.1% over the same period a year earlier.

This significant 2016 revenue growth was chiefly attributable to:

• Cegedim Insurance Solutions , with double-digit growth in the iGestion BPO business for health insurance companies and mutual insurers, continued robust growth in the third party payment flow management activity, and a very fine performance in software and services devoted to the personal protection insurance sector, including double-digit growth in the fourth quarter despite the impact of transitioning to SaaS format.
• Excellent momentum at the Cegedim e-business unit, and a strong acceleration in the fourth quarter. In addition, Cegedim e-business fully benefited from 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 full year.

The division's 2016 EBITDA came to €43.9 million, down €2.6 million, or 5.7%. The EBITDA margin came to 16.7%. vs. 19.8% a year earlier. It is worth noting that the EBITDA was up €0.5 million in Q4 2016 over the same period a year earlier.

The decline in EBITDA took place entirely in the first half of 2016, with a decrease of €2.9 million. EBITDA increased by €0.5 million in the second half of 2016:

• The start of operations with BPO clients for iGestion ;
• 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 2016 compared to 2015 for RNP .

The impact was partially offset by an increase of activity at Cegedim e-business and Cegedim SRH and the fine performance in processing third-party payment flows for insurance companies.

• Healthcare professionals

The division's 2016 revenues came to €175.2 million, down 6.4% on a reported basis. Currency effects made a negative contribution of 3.7%. There was no impact from acquisitions or divestments. Like-for-like revenues fell 2.8% over the period. The Healthcare professionals division represented 39.7% of consolidated revenues from continuing activities, compared with 43.9% over the same period a year earlier.

The decline in revenues in 2016 and in the last quarter was chiefly attributable to:

·          The transition of clients in certain markets, who are increasingly attracted to cloud-based offerings, over to SaaS versions;

·          In the UK, the fact that the Group only began marketing the new SaaS offering to doctors in January 2017;

·          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. The launch of this new offering, combined with implementation of a new organization, should enable this business to return to growth in the months ahead.

These performances were partially offset by:

• Double-digit growth at Pulse over the full year, despite a contraction in the last quarter owing to the postponement of certain projects, mainly related to the unit's RCM offerings. The Group has implemented a new, more responsive organization that should enable the business to return to a path of sustainable growth, particularly in BPO.
• Robust growth in products and services designed for physical therapists and nurses in France;
• Double-digit growth at Cegelease , which offers financial leases

The division' 2016 EBITDA came to €16.9 million, down €13.2 million, or 43.8%. The EBITDA margin came to 9.6% vs 16.0% a year earlier. The division' 2016 Adjusted EBITDA came to €20.9 million, down €9.2 million, or 30.5%. The EBITDA margin came to 11.9% vs 16.0% a year earlier. It is worth noting that the Adjusted EBITDA was up €0.5 million in Q4 2016 over the same period a year earlier.

The decline in EBITDA was chiefly attributable to investments made to ensure future growth. The Group was mainly 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, to launch a cloud-based offering for UK doctors in 2017.

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

The decline was partially offset by an increase in the computerization of physical therapists and nurses in France

• Activities not allocated

The division's 2016 revenues came to €3.3 million, down 21.6% 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 1.0% over the same period a year earlier.

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

The division' 2016 EBITDA came division EBITDA came to €0.7 million, down €1.3 million over the same period a year earlier. In the third quarter of 2016.

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

Financial resources

Cegedim's consolidated total balance sheet amounted to €709.1 million, at December 31, 2016.

Acquisition goodwill represented €199.0 million at December 31, 2016, compared with €188.5 million at end-2015. The €10.4 million increase, equal to 5.5%, was mainly attributable to the acquisition in November 2016 in France of Futuramedia Group for €17.3 million, partly offset by the euro's appreciation against the British pound, for a total of €4.5 million.  Acquisition goodwill represented 28.1% of the total balance sheet at December 31, 2016, compared with 21.8% on December 31, 2015.

Cash and equivalents came to €20.8 million at December 31, 2016, a decrease of €210.5 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 the €21.4 million impact of changes in consolidation scope, partly offset by drawing €190.0 million from the €200 million revolving credit facility. Cash and equivalents represented 2.9% of the total balance sheet at December 31, 2016, compared with 26.8% at December 31, 2015.

Shareholders' equity fell by €39.1 million, i.e. 17.2%, to €188.9 million at December 31, 2016, compared with €228.1 million at December 31, 2015. Shareholders' equity represented 26.6% of the total balance sheet at end-December 2016, compared with 26.4% at end-December 2015.

Net financial debt amounted to €226.8 million at end-December 2016. up €59.2 million compared with end-December 2015. It is worth noting that 41.6m of €59.2m are related to acquisition and to the bond early redemption. It represented 120.1% of Group shareholders' equity at December 31. 2016.

Before the net cost of financial debt and taxes, cash flow was €57.5 million at December 31. 2016, compared with €76.0 million at December 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.

• Acquisition of Futuramedia Group

Cegedim announced on November 2. 2016, that it had 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. The acquisition was completed on November 30. 2016.

In 2015. Futuramedia Group generated revenues of around €5.4 million. It will have an accretive impact on Cegedim Group's margins and began contributing to the Group's consolidation scope from January 1. 2017.

• Kadrige sale

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

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.

• Tessi litigation

On February 10. 2017. Cegedim was ordered to pay €4.636.000 to the Tessi company for failing to meet certain contractual obligations with respect to an asset sale made on July 2. 2007.

Cegedim has decided to appeal this decision. However, because this was an enforceable decision, the sum of €4.636.000 was recorded as Group debt at December 31. 2016, under the heading "Other non-financial debt", and is expected to be paid in 2017.

• Euris litigation

Cegedim has received notification that it is being sued jointly with IMS Health by Euris for unfair competition. Cegedim has filed a motion claiming that IMS Health should be the sole defendant.

• Partial interest rate hedging

To hedge part of the Group's exposure to euro interest rate fluctuations linked to its RCF, the Group carried out an interest rate swap on February 17. 2016. Under the zero-premium swap agreement. Cegedim receives the 1-month Euribor rate if it exceeds 0%, receives nothing otherwise, and pays a fixed rate of 0.2680%.

• Acquisition of B.B.M Systems in the UK

On February 23. 2017. Cegedim acquired UK company B.B.M. Systems through its Alliadis Europe Ltd subsidiary. The deal strengthens the Group's expertise in developing Cloud-based products for general practitioners.

B.B.M. Systems had 2016 revenues of around €0.7 million and earned a profit. It will contribute to the Group's scope of consolidation from March 1. 2017.

Outlook

Cegedim continues to reinvent itself in 2017, pursuing innovation and investing in business model transformation. Cegedim is making great strides on its transformation. As a result, growth is expected to pick up speed in the fourth quarter of 2017 and lay the groundwork for improving profitability.

Thus, in 2017. Cegedim expects:

• Like-for-like revenue growth between 4.0% and 6.0%;
• EBITDA in a range of €66.0 million to €72.0 million inclusive.

Cegedim expects to see the full positive impact of its investments, reorganization and transformation in 2018.

In 2017, the Group does not expect any significant acquisitions and is not issuing any earnings guidance or estimates

• Potential Brexit impact

In 2016, the UK accounted for 12.7% of consolidated Group revenues and 14.8% 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 2016 Registration Document that will be published no later than March 31. 2017.

Financial calendar

Informations additionnelles

Appendices

Balance sheet as December 31. 2016

• Assets as of December 31. 2016

• Liabilities and shareholders' equity as of December 31. 2016

• Income statements as of December 31. 2016

• Consolidated cash flow statement as of December 31. 2016

Glossary

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