Cegedim: organic revenue growth picked up in the fourth quarter of 2016
Boulogne-Billancourt, France, January 26, 2017 at 5:45pm CET Cegedim, an innovative technology and services company, posted consolidated Q4 2016 revenues from continuing activities of €122.5 million, up 2.7% on a reported basis and 5.4% like for like compared with the same period in 2015. For the full year 2016, revenues came to €440.8 million, up 3.4% on a reported basis and 4.4% like for like compared with the same period in 2015. Like-for-like growth at the Health insurance, HR and e-services division picked up yet again in the fourth quarter, to 13.0% following 9.5% in the third quarter, despite the ongoing migration of clients over to SaaS/cloud offerings. On the other hand, the Healthcare professionals division posted a like-for-like decline of 4.2% in the fourth quarter, bringing its decline to 2.8% over the full year. This decline was chiefly attributable to the transition of offerings over to SaaS format, business delays in the US stemming from ongoing reorganization, and the continued impact on UK business, in 2016, of clients awaiting the launch of a new SaaS offer. 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. As a reminder, the Group had revised its forecast upward multiple times during the year and was expecting growth of 4.0%. 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. As we noted earlier, the business model transformation is well under way, so growth momentum is expected to pick up in 2017 and lead to improving profitability in the future. We expect to see the full impact of the transformation in 2018. Further out, Cegedim will 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. As predicted, 2016 was a transitional year. Implementing the transformation plan adversely affected the Group's profitability. Furthermore, Cegedim's management has appointed a new CEO in the US and has decided to change its approach to two disputes with customers in the US. These changes resulted in the Group signing agreements that led to a conversion of receivables into a significant loss in 2016. Because this loss can't be classified as a special item under IFRS, the EBITDA target will not be met in 2016. Revenue trends by division
In the fourth quarter of 2016, Cegedim posted consolidated revenues from continuing activities of €122.5 million, up 2.7% on a reported basis. Excluding an unfavorable currency translation effect of 2.6%, revenues rose 5.4%. There was no impact from acquisitions or divestments. In like-for-like terms the Health Insurance, HR and e-services division's revenues rose by 13.0%, whereas the Healthcare professionals division's revenues fell by 4.2%.
Over the full year 2016, Cegedim posted consolidated revenues from continuing activities 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%. Analysis of business trends by division
The division's Q4 2016 revenues came to €77.1 million, up 12.5% on a reported basis. There was no impact from acquisitions or divestments. Currency effects made a negative contribution of 0.5%. Like-for-like revenues rose 13.0% over the period. This significant 2016 revenue growth was chiefly attributable to:
The division's Q4 2016 revenues came to €44.4 million, down 9.9% on a reported basis. Currency effects made a negative contribution of 5.7%. There was no impact from acquisitions or divestments. Like-for-like revenues fell 4.2% over the period. 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:
The division's Q4 2016 revenues came to €1.0 million, down 33.5% 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.
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.
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).
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.
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 stable outlook.
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.
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 after the accounts were closed that would materially alter the Group's financial situation.
Cegedim has just received a summons from Euris stemming from a decision by the Competition Authority announced in 2015. Cegedim would like to emphasize that it has appealed the decision and a ruling is still pending at the Court of Cassation. Outlook As predicted, 2016 was a transitional year. Implementing the transformation plan adversely affected the Group's profitability. Furthermore, Cegedim's management has appointed a new CEO in the US and has decided to change its approach to two disputes with customers in the US. These changes resulted in the Group signing agreements that led to a conversion of receivables into a significant loss in 2016. Because this loss can't be classified as a special item under IFRS, the EBITDA target will not be met in 2016. It should be close to €60 million. The business model transformation is well under way, so growth momentum is expected to pick up in 2017 and lead to improving profitability in the future. We expect to see the full impact of the transformation in 2018. The Group meets all its bank covenants as of December 2016. The Group does not expect any significant acquisitions in 2017 and does not disclose profit projections or estimates.
In 2015, the UK represented 15.1% of consolidated Group revenue and 19.2% of Group EBIT. Cegedim operates in the UK in local currency, as it does in all the countries where it operates. Thus, the impact on the consolidated Group EBIT margin should be marginal. 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.
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 2015 Registration Document filed with the AMF on March 31, 2016, as well as point 2.4, "Risk factors", of the Interim Financial Reports for Q1, Q2, Q3, and Q4 2016.
Financial calendar
Annexe Breakdown of revenue by quarter and division
Breakdown of revenue by geographic zone and division
Breakdown of revenue by currency and division
Restatement of the accounting treatment of the financial lease business in the group consolidated financial statement Cegelease is a wholly owned subsidiary of Cegedim, which since 2001 has offered financing options through a variety of contracts dedicated to pharmacies and healthcare professionals in France. Initially, these solutions were aimed at serving pharmacists who preferred to lease the pharmacy management software they bought from the Cegedim group rather than pay up front. Over time, Cegelease has diversified its activities. Having started as the exclusive financial lease provider for Cegedim group products, Cegelease is now a broker proposing a variety of leasing solutions (for group products as well as products developed by third parties) 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 these activities in depth 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 filed with the AMF on March 31, 2016, in Chapter 4.4, point 1.3, pages 89 to 94. Impacts on the first, second, third and fourth quarters and on the full year 2015 consolidated financial statements are described below.
(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 by a bank), requires a downward restatement of the Q1 2015 consolidated revenue by €21m, the Q2 2015 consolidated revenue by €18m, the Q3 2015 consolidated revenue by €20m and the Q4 2015 consolidated revenue by €24m. (3) The financial lease business accounts for less than 10% of the consolidated revenue or EBITDA, and as such is no longer isolated within the Group internal reporting. These activities are reported into the "Healthcare professionals" division, where they were classified prior to the 2014 annual closing.
Glossary The English-language version of this document is a free translation of the original, which was prepared in French. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of the information, views or opinions expressed herein, the original language version of the document in French takes precedence over this translation.
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