Cegedim : Revenue growth remained robust in the third quarter of 2017

Press Release

Quarterly Financial Information as of September 30, 2017
IFRS - Regulated Information - Not Audited

Cegedim: revenue growth remained robust in the third quarter of 2017

• Like-for-like revenues rose 5.9% in Q3 2017
• Business model transformation is still going strong
• Cegelease divestment under consideration

Boulogne-Billancourt, France, October 26, 2017, after the market close

Cegedim, an innovative technology and services company, posted consolidated Q3 2017 revenues of ?,?109.3 million, up 6.3% on a reported basis and 5.9% like for like compared with the same period in 2016.
Over the first nine months of 2017, Cegedim posted consolidated revenues of ?,?339.9 million, up 6.8% on a reported basis and 6.3% like for like compared with the same period in 2016.

Every division contributed to the Group's positive like-for-like growth over the first nine months of 2017, as compared to the year-earlier period.

Growth at the Health insurance, HR and e-services division remained robust, with year-on-year (y/y) increases of 10.1% in the third quarter and 9.9% over the first nine months of 2017. Nearly all of the division's businesses contributed to the growth.

Over the same period, the Healthcare professionals division experienced a slight decline, with Q3 revenues down 0.5% owing to a less favorable comparison. Over the first nine months of the year, division revenues rose 0.8% like for like compared with the same period in 2016. This trend was chiefly attributable to the doctor computerization business: the business saw growth in the US, but a contraction in the UK pending the release of a full SaaS version.

Part of this growth came from the Group's BPO businesses, most of which are still ramping up their operations.

The business model transformation initiated in fall 2015 is beginning to pay off, and we expect to see the full impact in 2018.

To continue its business model transformation and refocus its strategy, Cegedim is considering a 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.

Revenue trends by division

To clarify which activities are included in the Activities not allocated division, the division has been renamed Corporate and others. The make-up of Cegedim's divisions has not changed

• In the third quarter of 2017

In the third quarter of 2017, Cegedim posted consolidated Group revenues of ?,?109.3 million, up 6.3% on a reported basis. Excluding an unfavorable currency translation effect of 0.9% and a 1.3% boost from acquisitions, revenues rose 5.9%.

The unfavorable currency translation effect of ?,?1.0 million, or 0.9%, was chiefly due to the ?,?0.7 million negative impact of the pound sterling, which represents 10.2% of revenues, and the ?,?0.2 million negative impact of the US dollar, which represents 3.1% of revenues.

The ?,?1.3 million positive impact from acquisitions, or 1.3%, was due to the acquisition of Futuramedia in France in November 2016.

In like-for-like terms, the Health Insurance, HR and e-services division's revenues rose by 10.1%, whereas the Healthcare professionals division's revenues fell by 0.5%.

• In the first nine months of 2017

In the first nine months of 2017, Cegedim posted consolidated Group revenues of ?,?339.9 million, up 6.8% on a reported basis. Excluding an unfavorable currency translation effect of 1.1% and a 1.6% boost from acquisitions, revenues rose 6.3%.

The unfavorable currency translation effect of ?,?3.6 million, or 1.1%, was chiefly due to the ?,?3.5 million negative impact of the pound sterling, which represented 10.7% of revenues.

The ?,?5.2 million positive impact from acquisitions, or 1.6%, was due to the acquisition of Futuramedia in France in November 2016.

Both of the divisions grew their like-for-like revenues. Health insurance, HR and e-services division revenues rose by 9.9%, and Healthcare professionals division revenues rose by 0.8%.

Analysis of business trends by division

• Health insurance, HR and e-services

The division's 9M 2017 revenues came to ?,?208.2 million, up 12.4% on a reported basis. The November 2016 Futuramedia acquisition in France made a positive contribution of 2.8%. Currency translation had a negative impact of 0.2%. Like-for-like revenues rose 9.9% over the period.
The Health insurance, HR and e-services division represented 61.3% of consolidated revenues, compared with 58.2% over the same period a year earlier.

The division's Q3 2017 revenues came to ?,?68.8 million, up 12.1% on a reported basis. The November 2016 Futuramedia acquisition in France made a positive contribution of 2.1%. Currency translation had a negative impact of 0.1%. Like-for-like revenues rose 10.1% over the period.

The increase in the third quarter was chiefly attributable to:

• Continued double-digit growth at Cegedim SRH following the start of work with several new clients of the SaaS platform for HR management;
• Double-digit growth in point-of-sale advertising in pharmacies and health & wellness shops for RNP, which now has a stronger digital offering since acquiring Futuramedia in October 2016;
• 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 again posted double-digit revenue growth in Q3 2017;
• Double-digit growth in iGestion BPO activities for health insurers and mutual insurers;
• Brisk momentum in the business of selling pharmaceutical sales statistics;
• The continuation of positive trends - seen for several quarters now - in sales of third-party payment processing services.

The gains were marginally offset by a decline in software and services for the personal insurance market due to the impact of switching to the SaaS format.

• Healthcare professionals

The division's 9M 2017 revenues came to ?,?128.8 million, down 1.6% on a reported basis. Currencies had a negative impact of 2.4%. There was virtually no impact from acquisitions or divestments. Like-for-like revenues rose 0.8% over the period.
The Healthcare professionals division represented 37.9% of consolidated revenues, compared with 41.1% over the same period a year earlier.
The division's Q3 2017 revenues came to ?,?40.4 million, down 2.6% on a reported basis. Currency translation had a negative impact of 2.1%. There was virtually no impact from acquisitions or divestments. Like-for-like revenues rose 0.5% over the period.

This minor dip in third-quarter revenues was mainly the result of the doctor computerization business in the UK pending the release of a full SaaS version. The first modules to hit the market early this year have received excellent reviews. This performance was offset to some extent by growth in other computerization businesses for:

• French pharmacists, who have embraced the new Smart Rx offering. The strong momentum in second-quarter sales continued in the third quarter;
• Doctors in the US, Belgium and France;
• Nurses, physical therapists, speech therapists, orthoptists, midwives and podiatrists in France;

And accelerated growth in business related to the BCB database, an aid for prescribing and delivering medications and other healthcare products.

• Corporate and others

The division's 9M 2017 revenues came to ?,?2.9 million, up 25.6% on a reported and like-for-like basis. There was no currency impact and no acquisitions or divestments.
The Corporate and others division represented 0.9% of consolidated revenues, compared with 0.7% over the same period a year earlier.
The division's Q3 2017 revenues came to ?,?1.0 million, up 24.3% on a reported and like-for-like basis. There was no currency impact and no acquisitions or divestments.

This positive trend reflects a less demanding comparison and genuine development of the facilities management and hosting activity, including for health records.

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 Isiakl?(C)

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 Isiakl?(C) ?,?9 million for a period of 10 years at an interest rate of 1m Euribor plus a margin of 1.1%. Isiakl?(C) 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. Payment was made on July 21, 2017.

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

• 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 H?(C)relle has been appointed to replace Ms. Val?(C)rie 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 H?(C)relle.

• 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.

• 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.

Significant post-closing transactions and events

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

• Alliadis litigation

On October 20, 2017, the court of Nimes ordered Alliadis to pay a fine of ?,?2 million as part of a case involving a pharmacist from Remoulins, France. Cegedim has asked for the case to be dismissed. A ruling is scheduled for November 24. The ?,?2 million fine is the maximum currently allowed under the law (Article 1741 of the General Tax Code in force on January 1, 2017). But the accusations against Alliadis date back to 2007 and 2008. The version of Article 1741 in force from January 1, 2006, to May 14, 2009, sets a maximum fine of ?,?375,000.

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 pick up in Q4 2017 and lead to improving profitability in the future.

For 2017, Cegedim still expects:

• Like-for-like revenue growth of slightly more than 6.0%;
• EBITDA in a range of ?,?66.0 million to ?,?72.0 million inclusive.

The above outlook does not reflect the potential divestments of Cegelease and Eurofarmat.

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

Annexe

Breakdown of revenue by quarter and division

• Year 2017

• Year 2016

Breakdown of revenue by geographic zone and division

• As of September 30, 2017

Breakdown of revenue by currency and division

• As of September 30, 2017

Glossary

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