Cegedim returned to positive revenue and margin gr

Quarterly Financial Information as of June 30, 2017 IFRS - Regulated Information - Audited

Cegedim returned to positive revenue and margin growth in the first half of 2017

• The business model transformation continues, in line with Group expectations
• Like-for-like revenues rose 6.4%
• EBITDA grew by 23.6%
• FY 2017 revenue target revised upward

Boulogne-Billancourt, France, September 21, 2017 after the market close

Cegedim, an innovative technology and services company, posted consolidated H1 2017 revenues of €230.6 million, up 7.0% on a reported basis and 6.4% like for like compared with the same period in 2016. EBITDA came to €33.2 million in the first half of 2017, up 23.6% year on year. EBITDA margin improved to 14.4% in H1 2017, compared with 12.5% a year earlier.

The business model transformation that began in fall 2015 is starting to pay off, with more rapid like-for-like revenue growth and a return to EBITDA margin improvement in the first half of 2017.

Both operating divisions increased their revenues at comparable exchange rates and Group structure. Revenue grew by 9.8% at the Health insurance, HR and e-services division and 1.4% at the Healthcare professionals division.

Most of the EBITDA growth came from the Healthcare professionals division, which made an impressive recovery with the help of a favorable comparison. The Health insurance, HR and e-services division posted a marginal increase in EBITDA owing to the short-term headwinds of switching products over to SaaS and launching several new BPO offerings.

The business transformation plan, the development of BPO services, the switch to SaaS formats, and R&D efforts will result in greater customer loyalty, closer client relationships, simpler operating processes, more robust offerings and stronger geographic positions. The transformation is now well under way, so its full impact is likely to materialize in 2018.

Simplified income statement

Consolidated revenues for the first half of 2017 amounted to €230.6 million, a 7.0% increase as reported. Excluding an unfavorable currency translation effect of 1.2% and a 1.8% boost from acquisitions, revenues rose 6.4%.

Both of the divisions grew their like-for-like revenues. Health insurance, HR and e-services division revenues rose by 9.8%, and Healthcare professionals division revenues rose by 1.4%.

EBITDA rose €6.3 million, or 23.6%, to €33.2 million. The margin also rose, from 12.5% in the first half of 2016 to 14.4% in the first half of 2017. The EBITDA performance was chiefly the result of higher personnel costs and external costs stemming from recruitment and interim staff brought on to help migrate products over to SaaS formats and develop new offerings.

Depreciation and amortization costs rose €3.1 million to €19.6 million in the first half of 2017 compared with €16.4 million in the first half of 2016. Most of the increase was due to the amortization of €2.1 million of R&D expenses over the period.

EBIT from recurring operations rose €3.2 million in the first half of 2017, or 30.6%, to €13,6 million. The margin improved to 5.9% in the first half of 2017 from 4.8% in the first half of 2016.

Exceptional items amounted to an €11.7 million charge in H1 2017 compared with a €3.7 million charge a year earlier. The increase was mainly attributable to the impact of accelerated amortization of intangible fixed assets in the US amounting to €8.5 million. Without the accelerated amortization, exceptional items at June 2017 would have been virtually the same as at June 2016.

Net cost of financial debt fell by €20.6 million, or 86.3%, to €3.3 million in the first half of 2017 compared with €23.9 million a year earlier. The decline reflects the positive impact of refinancing carried out in the first half of 2016.

Tax costs came to €2.3 million in H1 2017, compared with a €1.7 million charge in H1 2016. The increase was chiefly due to better earnings at French subsidiaries whose results are consolidated with those of Cegedim for tax purposes.

Thus, the consolidated net result from continuing activities came to a loss of €3.7 million at June 30, 2017, compared with a loss of €19.0 million in the year-earlier period. Net profit before special items came to €0.0 loss per share in the first half of 2017, compared with a €1.1 loss a year earlier. Earnings per share were a €0.3 loss compared with a €1.4 loss for the same period in 2016.

Analysis of business trends by division

• Key figures per division

• Health insurance, HR and e-services

The division's H1 2017 revenues rose €15.7 million, or 12.6%, to €140.3 million, compared with €124.6 million in the first half of 2016. Currency translation had a negative impact of 0.3%. The November 2016 Futuramedia acquisition in France made a positive contribution of 3.1%. Like-for-like revenues rose 9.8% over the period. The Health insurance, HR and e-services division represented 60.8% of consolidated revenues, compared with 57.8% over the same period a year earlier. EBITDA rose marginally in the first half of 2017, up €0.3 million or 1.4%, to €18.1 million, compared with €17.9 million in the first half of 2016. EBITDA margin was 12.9% in H1 17, a decrease from the 14.3% generated in H1 2016.

This significant H1 2017 revenue growth, combined with slight EBITDA growth, was chiefly attributable to:

• Continued double-digit growth at Cegedim SRH , as work began with several new clients of the SaaS platform for HR management, which is temporarily impeding margin improvement.
• Strong sales momentum leading to the start of work with several new clients of the SaaS platform for electronic data exchange, Global Information Services , including payment and process digitalization platforms. For example, Cegedim e-business posted double-digit revenue growth combined with strong improvement in profit margins.
• Double-digit growth in iGestion BPO activities for health insurers and mutual insurers. These launches are having a negative short-term effect on profitability.
• The continuation of positive trends - seen for several quarters now - in revenues of third-party payment processing services. On the other hand, developing products and services aimed at hospitals is having a negative short-term effect on profitability.
• Modest growth in software and services for the personal insurance market, despite the impact of switching to the SaaS format. However, the transition is having a negative short-term effect on the business' profitability.
  • Healthcare professionals

The division's H1 2017 revenues fell by €1.0 million, or 1.1%, to €88.4 million, compared with €89.4 million in the first half of 2016. Currency effects had a negative impact of 2.5%. There was virtually no impact from acquisitions or divestments. Like-for-like revenues rose 1.4% over the period. The Healthcare professionals division represented 38.3% of consolidated Group revenues, compared with 41.5% over the same period a year earlier. EBITDA grew by €6.8 million, or 80.2%, to €15.4 million in the first half of 2017, compared with €8.5 million in the first half of 2016. EBITDA margin was 17.4% in H1 17, up from the 9.5% generated in H1 2016.

This robust first-half performance was chiefly attributable to:

·          The Pulse doctor computerization and revenue cycle management (RCM) business in the US. RCM is a BPO-type business and is growing rapidly, with double-digit growth over the first half. In spite of the strong development, EBITDA grew substantially owing to a favorable comparison.

·          Robust revenue and profit growth in the computerization of doctors in France, Belgium and Spain.

·          Good revenue and profit at the financial lease business, Cegelease .

·          A brisk business in computerizing nurses, physical therapists, speech therapists, orthoptists, midwives and podiatrists in France.

·          Renewed revenue growth in the second quarter for the computerization of pharmacists in France thanks to the new Smart Rx offering launched last year. The EBITDA trend is encouraging.

This performance was partly offset by a decline in revenue and profitability for the computerization of doctors in the UK pending the release of a full SaaS version of that product. The first few modules were launched at the start of the year and have been very well received by the market.

• Activities not allocated

The division's H1 2017 revenues rose €0.4 million, or 26.2%, to €2.0 million, compared with €1.6 million in the first half of 2016. There were no currency impacts, and no acquisitions or divestments. The Activities not allocated division represented 0.9% of consolidated revenues, compared with 0.7% over the same period a year earlier. EBITDA fell by €0.8 million, or 167.6%, to a loss of €0.3 million in the first half of 2017, compared with a €0.5 million profit in the first half of 2016. The negative EBITDA trend was principally due to the impact of rent charges related to moving the corporate headquarters in 2016.

Financial resources

At 30 June, 2017, Cegedim's consolidated total balance sheet amounted to €702.1 million.

Acquisition goodwill amounted to €201.0 million at June 30, 2017, compared with €199.0 million at December 31, 2016. The €2.0 million increase, or 1.0%, was mainly due to the €3.1 million acquisitions of B.B.M. Systems and Adaptive Apps in the UK. The €3.1 million was partly offset by the euro's appreciation against certain foreign currencies, notably the Pound Sterling for €0.8 million. Acquisition goodwill represented 28.6% of the total balance sheet at June 30, 2017, compared with 28.1% at December 31, 2016.

Cash and equivalents came to €18.1 million at June 30, 2017, a decrease of €2.7 million compared with December 31, 2016. The decline was principally due to the generation of €34.1 million in cash from operations before the net cost of financial debt and tax, the payment of €2.2 million in tax, a €3.8 million reduction of WCR, and the generation of €3.9 million in cash from financing operations, mainly from drawing upon the revolving credit facility. These developments were partially offset by €41.9 million in cash disbursements related to investment transactions.

Shareholders' equity fell by €5.4 million, i.e. 2.8%, to €183.6 million at June 30, 2017, compared with €188.9 million at December 31, 2016. Shareholders' equity represented 26.1% of the total balance sheet at end-June 2017, compared with 26.6% at end-December 2016.

Net financial debt amounted to €237.0 million at end-June 2017, up €10.2 million compared with end-December 2016. It represented 129.1% of Group shareholders' equity at June 30, 2017, compared with 120.0% at December 31, 2016.

After the net cost of financial debt and taxes, cash flow was €28.4 million at June 30, 2017, compared with €3.6 million at June 30, 2016.

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.

• Non-recourse factoring agreement

On May 22, 2017, the Group signed a factoring agreement with a French bank. The non-recourse agreement covers aggregated total receivables of €38.0 million. The operating units involved in the arrangement are Cegedim SA , Cegedim Activ , Cegedim SRH and CETIP . The factoring agreement is open-ended, but either party may terminate it at any time, subject to a three-month notice period.

It applies to trade receivables denominated in euros payable by clients located in France. The amount of trade receivables sold under the agreement came to €18.8 million at June 30, 2017.

• Partial interest rate hedging

To hedge part of its exposure to euro interest rate fluctuations arising from its RCF, the Group carried out an interest rate swap on February 17, 2017. 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% for a notional amount of €50 million, starting on February 28, 2017, and maturing February 26, 2021.

To hedge part of its exposure to euro interest rate fluctuations arising from its RCF, the Group carried out an interest rate swap on May 11, 2017. 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 0.2750% for a notional amount of €30 million, starting on May 31, 2017, and maturing December 31, 2020.

• GIE Isiaklé

As part of the BPO contract Cegedim signed with the Klesia group in September 2016, the two companies created an economic interest group (GIE), held 50/50. In January 2017, Cegedim lent Isiaklé €9 million for a period of 10 years at an interest rate of 1m Euribor plus a margin of 1.1%. Isiaklé will use the loan to purchase from Klesia a €9 million software package necessary for it to perform its services. The GIE is accounted for in Cegedim's consolidated accounts using the equity method.

• Tessi litigation

On February 10, 2017, Cegedim was ordered to pay €4,636,000 to the Tessi company for failing to meet certain obligations with respect to an asset sale made on July 2, 2007.

Cegedim has decided to appeal this decision.

• 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 contributes to the Group's scope of consolidation from March 1, 2017.

• Changes to Cegedim SA's Board of Directors

In March 2017, in keeping with the wishes of Bpifrance, Ms. Anne-Sophie Hérelle has been appointed to replace Ms. Valérie Raoul-Desprez on the Board of Directors. The permanent representative of Bpifrance, is now Ms. Marie Artaud-Dewitte, Deputy Head of Legal Affairs at Bpifrance Investissements. She replaces Ms. Anne-Sophie Hérelle.

• Acquisition of Adaptive Apps in the UK

On May 3, 2017, Cegedim acquired UK company Adaptive Apps through its In Practice Systems Limited subsidiary. The deal strengthens the Group's expertise in developing cloud-based and mobile products for healthcare professionals.

Adaptive Apps had 2016 revenues of around €1.5 million and earned a profit. It contributes to the Group's scope of consolidation from May, 2017.

• Euris litigation

Cegedim, jointly with IMS Health, is being sued by Euris for unfair competition. Cegedim has filed a motion claiming that IMS Health should be the sole defendant. After consulting with its external legal counsel, the Group has decided not to record any provisions.

Significant post-closing transactions and events

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

• Tessi litigation

On July 21, 2017, Cegedim paid €4,636,000 to the Tessi company to comply with a court ruling of February 10, 2017.

Cegedim has decided to appeal this decision. The appeal is currently under way

• Cegelease contemplated disposal

As part of the business model transformation plan that the Group initiated in fall 2015, Cegedim is contemplating divestment of its Cegelease and Eurofarmat subsidiaries. These subsidiaries operate principally in the financial domain, are highly valued, and require additional resources to continue pursuing and accelerating their development for the benefit of their clients and employees.

The two businesses have 24 employees in France. In 2016 they contributed €5.4 million to Group consolidated EBITDA. The subsidiaries' standalone EBITDA amounted to €18.1 million in 2016.

If the Group receives satisfactory offers and is able to obtain the necessary approvals, it plans to close the deal in the second half of 2017. The Group in no way guarantees that a deal will be carried out.

A successful sale would give the Group a portfolio of businesses that fit well together and generate strong synergies. Cegedim is not planning any further divestments.

Assisting Cegedim on this transaction are the consulting firm of Ohana & Co and the law firm of Freshfields Bruckhaus Deringer.

Outlook

Cegedim continues to reinvent itself in 2017, pursuing innovation and investing in the future by transforming its business model. The business model transformation is well under way, so growth momentum is expected to continue and lead to improving profitability in the future.

As a result, for FY 2017, Cegedim had expected:

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

Based on its H1 2017 performances, the Group reiterates its EBITDA forecast and is raising its outlook for like-for-like revenue growth, which is likely to be slightly above the previously announced forecast range.

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

The Group does not expect any significant acquisitions in 2017 and does not disclose earnings projections or estimates.

• Potential impact of Brexit

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.

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 filed with the AMF on March 29, 2017, under number D.17-0255.

Financial calendar

Additional information

Appendices

Balance sheet as June 30, 2017

• Assets as of June 30, 2017

• Liabilities and shareholders' equity as of June 30, 2017

Income statements as of June 30, 2017

(1) Restatement of the Income of equity-accounted affiliates

Consolidated cash flow statement as of June 30, 2017

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