Cegedim : Release of Fort-Healf 2016 Earnings

Boulogne-Billancourt, France, Sept. 15, 2016 (GLOBE NEWSWIRE) -- Half-Year Financial Information as of June 30, 2016
IFRS - Regulated Information - Audited

Cegedim: a mixed first-half 2016 marked by revenue growth and margins temporarily pinched by investments and the start of business with new clients

• Interest expense fell considerably in Q2 2016
• Continuing activities returned to positive earnings in Q2 2016
• Robust investment program had an impact
• 2016 revenue target revised upward, but EBITDA expectations revised lower

Boulogne-Billancourt, September 15, 2016

Cegedim , an innovative technology and services company, posted consolidated H1 2016 revenues from continuing activities of €215.5 million, up 4.3% on a reported basis and 3.6% like for like compared with the same period in 2015. EBITDA came to €25.7 million in the first half, down 26.9% year on year.

Like-for-like growth at the Health insurance, HR and e-services division picked up in the second quarter relative to the first despite the ongoing migration of clients over to SaaS/cloud offerings. EBITDA declined at all of the Group's operational 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. 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 upward its target for 2016 revenues. However, as this is a pivotal year in the Group's transformation, Cegedim is also lowering its EBITDA target for 2016.

This new business model will enable 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.

Simplified income statement

In the second quarter of 2016, Cegedim posted consolidated revenues from continuing activities of €109.3 million, up 2.9% on a reported basis. Excluding an unfavorable currency translation effect of 1.3% and a 1.9% boost from acquisitions, revenues rose 2.4%.  In like-for-like terms the Health Insurance, HR and e-services division's revenues rose by 10.3%, whereas the Healthcare professionals division's revenues fell by 6.3%.

In first half 2016, Cegedim posted consolidated revenues from continuing activities of €215.5 million, up 4.3% on a reported basis. Excluding an unfavorable currency translation effect of 0.9% and a 1.6% boost from acquisitions, revenues rose 3.6%. In like-for-like terms the Health Insurance, HR and e-services division's revenues rose by 9.6%, whereas the Healthcare professionals division's revenues fell by 3.0%.

EBITDA declined by €9.4 million, a drop of 26.9%, to €25.7 million. The first-half margin fell to 11.9% from 17.0% a year earlier. The EBITDA trend was attributable to all of the Group's operational divisions and stemmed from 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. Of all the hiring done over the past 12 months, 89% of new contracts started between June 2015 and March 2016.

Depreciation charges rose €1.6 million, from €14.8 million in H1 2015 to €16.4 million in H1 2016.

EBIT from recurring operations fell €11.0 million in the first half of 2016, or 54.4%, to €9.2 million. The margin fell from 9.8% in the first half of 2015 to 4.3% in the first half of 2016.

Special items amounted to a €3.7 million charge in H1 2016 compared with a €4.2 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.

The net cost of financial debt rose by €0.6 million, from €23.2 million in the first six months of 2015 to €23.9 million in the first six months of 2016. The increase reflects the payment of an early reimbursement premium on the 2020 bond amounting to €15.9 million in Q1 2016, which was almost entirely offset by the decrease in interest paid in Q2 2016 owing to the debt restructuring the Group performed in January 2016.

Tax fell from a charge of €2.1 million at June 30, 2015, to a charge of €1.7 million at June 30, 2016, mainly due to deferred tax assets.

Thus, the consolidated net result from continuing activities came to a loss of €19.0 million at end-June 2016, compared with a loss of €8.3 million in the year-earlier period. The Group share of consolidated net result was a loss of €19.8 million at end-June 2016, compared with a profit of €24.2 million at end-June 2015.

Earnings per share before special items came to €1.1 in the first half of 2016, compared with a €0.3 loss a year earlier. Note that Earnings per share before special items came to €0.3 profit in the second quarter, compared with a €0.3 loss a year earlier.

Analysis of business trends by division

• Key figures by division

• Health insurance, HR and e-services

The division's H1 2016 revenues came to €124.6 million, up 12.5% on a reported basis. The July 2015 acquisition of Activus in the UK made a positive contribution of 3.0%. Currencies had virtually no impact. Like-for-like revenues rose 9.6% over the period.
The Health insurance, HR and e-services division represented 57.8% of consolidated revenues from continuing activities, compared with 53.6% over the same period a year earlier.
The division's Q2 2016 revenues came to €64.8 million, up 13.8% on a reported basis. The July 2015 acquisition of Activus in the UK made a positive contribution of 3.5%. Currencies had virtually no impact. Like-for-like revenues rose 10.3% over the period:

This significant H1 2016 revenue growth was chiefly attributable to:

• Cegedim Insurance Solutions, bolstered by robust growth in the business of managing third-party payment flows and by its software and services ranges for personal insurance companies, following the start of operation with new clients which more than offset the 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 at Cegedim e-business following the start of operations with new clients on its Global Invoice 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.

In the first half of 2016, division EBITDA fell €2.9 million, or 14.0%, to €17.8 million. The EBITDA margin came to 14.3%, vs. 18.7% a year earlier.
In the second quarter of 2016, division EBITDA fell €1.5 million, or 12.2%, to €10.7 million. The EBITDA margin came to 16.5%, vs. 21.4% 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;
• Cegedim Insurance Solutions offerings, due to switching the core products over to SaaS format, the start of operations with numerous new clients, and the start of new projects for existing 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.

• Healthcare professionals

The division's H1 2016 revenues came to €89.4 million, down 5.0% on a reported basis. Currency effects made a negative contribution of 2.0%. There was no impact from acquisitions or divestments. Like-for-like revenues fell 3.0% over the period.
The Healthcare professionals division represented 41.5% of consolidated revenues from continuing activities, compared with 45.5% over the same period a year earlier.
The division's Q2 2016 revenues came to €43.7 million, down 9.2% 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 6.3% over the period.

The decline in first-half and second-quarter 2016 revenues was chiefly attributable to:

• Weaker activity in the computerization of UK doctors, as the market is now moving predominantly to cloud-based offerings. The investments now being made in Cegedim's own cloud offering are expected to result in renewed sales growth starting in 2017.
• The negative short-term impact of switching Belgian doctors over to SaaS format.
• The second-quarter impact of the low level of order intake in the pharmacy segment in France in late 2015. The order book weakness has since been reversed, starting in May with the release 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 will allow networks amongst individual pharmacies and links with healthcare professionals. Thus, revenues are likely to resume their growth in the next few months.

These performances were partially offset by:

• Double-digit growth at Pulse in the first half, despite a contraction in June owing to the postponement of certain projects, mainly related to the unit's RCM offerings. The Group also set up a new, more nimble organization in response to a growing and rapidly changing market, particularly in BPO. For example, some changes were made to the local management team, and cloud offerings from Nightingale, acquired in late 2015, are currently being integrated and first modules should be available in a few months and the complete offer in September 2015. These investments efforts will weigh on profitability in the short term, but they will ensure profitable growth over the long run.
• Significant growth in solutions for physical therapists and nurses in the second quarter, which more than made up for the shortfall in the first quarter.

In the first half of 2016, division EBITDA fell €6.7 million, or 47.5%, to €7.4 million. The EBITDA margin came to 8.3%, vs. 15.1% a year earlier.
In the second quarter of 2016, division EBITDA fell €5.3 million, or 68.3%, to €2.5 million. The EBITDA margin came to 5.7%, vs. 16.2% a year earlier.

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

• France, to develop the new hybrid offering for pharmacies, which it launched in May 2016;
• 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 in the second quarter to switch Belgian doctors over to SaaS format and investments done in the US.

• Activities not allocated

The division's H1 2016 revenues came to €1.6 million, down 18.4% 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 Q2 2016 revenues came to €0.8 million, down 29.2% 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.

In the first half of 2016, division EBITDA rose €0.2 million year on year to €0.5 million. In the second quarter of 2016, division EBITDA rose €1.0 million year on year to €1.4 million.

Financial resources

Cegedim's consolidated total balance sheet amounted to €666.3 million, at June 30, 2016,

Acquisition goodwill represented €189.5 million at June 30, 2016, compared with €188.5 million at end-2015. The €0.9 million increase, equal to 0.5%, was mainly attributable to the restatement of expected future earn-out payments on the Activus and Nightingale acquisitions, totaling €4.7 million; these were partly offset by the euro's appreciation against certain foreign currencies, chiefly the British pound, for a total of €3.7 million. Acquisition goodwill represented 28.4% of the total balance sheet at June 30, 2016, compared with 21.8% on December 31, 2015.

Cash and equivalents came to €10.8 million at June 30, 2016, a decrease of €220.5 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 an €10.6 million deterioration in WCR, partly offset by drawing €169.0 million from the €200 million revolving credit facility. Cash and equivalents represented 1.6% of the total balance sheet at June 30, 2016, compared with 26.8% at December 31, 2015.

Shareholders' equity fell by €29.7 million, i.e. 13.0%, to €198.4 million at June 30, 2016, compared with €228.1 million at December 31, 2015. Shareholders' equity represented 29.8% of the total balance sheet at end-June 2016, compared with 26.4% at end-December 2015.

Net financial debt amounted to €216.6 million at end-June 2016, up €48.9 million compared with end-December 2015. It represented 109.1% of Group shareholders' equity at June 30, 2016.

Before the net cost of financial debt and taxes, cash flow was €29.2 million at June 30, 2016, compared with €35.3 million at June 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 13 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.

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.

Significant post-closing transactions and events

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.

Outlook

Despite economic uncertainty and a challenging geopolitical environment, Cegedim is revising its target for 2016 revenues upward. As it indicated in July, the Group is lowering its EBITDA outlook. For the full year 2016, Cegedim expects:

• Like-for-like revenue growth of at least 3% from continuing activities.
• A €10 million decrease in EBITDA compared with 2015. The vast majority of this year-on-year decline occurred in the first half of 2016.

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

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

• 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.

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

Informations additionnelles

Appendices

Balance sheet as June 30, 2016

• Assets as of June 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 June 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 June 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 June 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 and in the Q2 2016 Financial Interim Report in point 2.5.1 on page 17.

Impacts on H1 2015 consolidated financial statements are described below:

• H1 2015 Profit and Loss Statement

(1)       The "Taxes" line was restated pursuant to IFRIC 21 for €1,518 thousand.

• H1 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 €38.6m 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_2Q2016_ENG http://hugin.info/141732/R/2042541/762384.pdf