Cegedim: EBITDA Margin Nearly Stable in the First Half of 2014

Regulatory News:

Cegedim, a global technology and services company specializing in the healthcare field, generated consolidated first half 2014 revenues of €428.7 million, down 1.9% on a reported basis and 0.9% like for like.

The 2.8% drop in L-f-L Q1 revenues was partly offset by 1.0% growth in the second quarter.
The decline in L-f-L revenues at the Healthcare professionals division was more than offset by L-f-L growth in revenue at the CRM and strategic data, Insurance and services and GERS Activities and Reconciliation divisions. It is worth noting that the Healthcare professionals division’s sales momentum turned around over the month of June.

EBITDA came to €53.5 million, down €1.9 million compared with the first six months of 2014. The result was a virtually stable EBITDA margin of 12.5% in the first half of 2014, on a par with the 12.7% posted a year earlier. The EBITDA trend reflected declines at the Healthcare professionals and Insurance and services divisions, which were partly offset by a substantial improvement at the CRM and strategic data and GERS activities and Reconciliation divisions.

Net financial debt fell by €11.2 million to €460.0 million.

With respect to the proposed IMS Health transaction announced on June 24^th, consultations of employee representatives have begun, and they are expected to issue an opinion in late September. Thus, the Board of Directors should be able to vote on the offer before the end of October 2014.

• Simplified income statement

Cegedim generated consolidated first half year 2014 revenues of €428.7 million, down 1.9% on a reported basis and 0.9% like for like compared with the same period a year earlier. Acquisitions had a positive impact of 0.2%, and currencies provided a negative impact of 1.2%.

Operating expenses fell by €4.1 million. This trend reflects decreases of €4.3 million in purchases used and €2.6 million in payroll costs, whereas external costs increased by €2.8 million.

EBITDA fell by €1.9 million to €53.5 million, and the margin decreased from 12.7% in the first half of 2013 to 12.5% in first half of 2014.

This EBITDA trend was attributable to drops at the Healthcare professionals and Insurance and services divisions, partly offset by significant EBITDA growth at the CRM and strategic data and GERS Activities and Reconciliation divisions.

Depreciation expenses increased by €2.9 million, and non-recurrent income and expenses, by €5.1 million owing to the €5.7 million fine imposed by the French Competition Authorities. Thus, operating income from recurring operations came to €12.0 million, down €9.9 million compared to the first half of 2013.

The cost of financial debt decreased by €11.6 million, from €36.1 million at June 30, 2013, to €24.4 million at June 30, 2014. This decrease reflects the demanding comparison caused by accounting charges stemming from the 2013 refinancing.

Tax expense increased by €5.7 million, from a credit of €0.4 million to a charge of €5.3 million. This increase is mainly due to the non-capitalization of deferred tax on loss-making companies in 2014 unlike in 2013.

Consolidated net result, Group share, was a loss of €16.8 million, compared with a €12.8 million loss a year earlier. The loss per share from recurring operations went from €0.9 in the first half year of 2013 to €1.2 in the first half year of 2014.

Analysis of business trends by division

• Key figures by division

• CRM and Strategic Data

In the first six months of 2014, the division’s revenues came to €194.5 million, down €4.0 million or 2.0% on a reported basis. Currencies had a negative impact of 3.2%. Like-for-like revenues fell 1.2% over the period.

EBITDA came to €16.0 million, up €3.0 million or 23.0%. The margin came to 8.2%, compared to 6.6% a year earlier.

This increase results mainly from growth in Compliance products and products and services linked to the OneKey database, together with stabilization in the market research activity and ongoing restructuring measures. As a result, EBITDA increased even though revenue decreased.

• Healthcare Professionals

In the first six months of 2014, the division’s revenues amounted to €141.9 million, down €5.7 million or 3.9% on a reported basis. The Webstar and SoCall acquisitions and currencies had positive impacts of respectively 0.5% and 0.6%. Like-for-like revenues were down 5.0% over the period.

EBITDA was €24.3 million, down €4.0 million or 14.2% relative to the same period in 2013. The margin came to 17.1%, compared with 19.2% a year ago.

The decrease in EBITDA reflects mainly the demanding comparison in the computerization of UK doctors caused by an exceptional level of activity with the NHS in 2013 and the temporary decrease in French pharmacists’ investments. Despite uncertainty related to government announcements regarding regulated professions, pharmacists in particular, the order is developing favorably.

It is worth noting the good business momentum in France stemming from products for doctors, which benefit from an enhanced services offering, and for nurses, with the Simply Vitale solution, as well as from the offering for multidisciplinary healthcare facilities.

• Insurance and Services

The division’s first half 2014 revenues came to €78.0 million, up €0.9 million or 1.2% both on a reported basis and like for like. Currencies had virtually no impact and there were no acquisitions or divestments.

EBITDA came to €15.8 million, down €2.6 million or 14.0% year on year. The margin came to 20.2%, compared with 23.8% a year ago.

This decrease in EBITDA is chiefly attributable to the transition from a perpetual license model to an SaaS model at Cegedim Global Payments, part of the e-business activity, and to the significant investment made at Kadrige. It was partially offset by an increase at the Health Insurance companies activity and Cegedim SRH, the provider of human resources management solutions.

• GERS Activities and Reconciliation

The division’s first half 2014 revenues came to €14.3 million, up €0.3 million or 2.1% both on a reported basis and like for like. Currencies had virtually no impact and there were no acquisitions or divestments.

EBITDA came to a loss of €2.6 million, an improvement of €1.7 million or 38.9% year on year. The margin came to (18.3)% compared with (30.5)% a year ago.

This favorable trend in EBITDA reflects the virtual stability of corporate costs and the gradual return to breakeven at GERS activities.

Financial resources

Cegedim’s total consolidated balance sheet at June 30, 2014, was €1,237.8 million, a 1.4% increase compared with the end of 2013.

Goodwill on acquisition was up €6.3 million, at €534.8 million, and represents 43.2% of total assets.

Cash and cash equivalents came to €79.8 million, up €12.9 million. This increase is mainly due to last April’s refinancing. It should be noted that the premium of €7.9 million received from the additional 2020 bond offering made it possible to finance the €8.6 million premium paid for the partial 2015 bond buyback.

Shareholders’ equity fell 3.0% to €335.6 million and represents 27.1% of the total balance sheet.

Net debt came to €460.0 million at the end of the first half of 2014, down €11.2 million compared with end of 2013. Gearing remained relatively stable at end-June 2014 compared to end-December 2013.

Before the cost of net financial debt and taxes, operating cash flow was €43.9 million at the end of the first half of 2014, a slight decrease of €8.1 million compared with the first half of 2013.

Period highlights

• Refinancing operation

On April 7, 2014, Cegedim launched an additional bond offering of €100 million, upsized to €125 million on the issue date, of its 6.75% Senior Notes due 2020. Apart from the date and price of issuance (105.75% plus interest accrued since April 1, 2014), the new bonds are identical to the €300 million of 6.75% Senior Notes due in 2020 that the Group issued on March 20, 2013. It should be noted that Cegedim was able to issue at 5.60%, compared to 6.75% one year earlier.
The proceeds from the offering were used, among other things, to finance the redemption of €105,950,000 of outstanding bonds due 2015 (at a price of 108.102%), pay the premium and any related fees, and repay bank overdraft facilities.

As a result, the Group’s current debt structure is as follows:

• €62.6 million of 7.00% bonds due July 27, 2015;
• €425 million of 6.75% bonds due April 1, 2020;
• €80 million of revolving credit due June 10, 2016, undrawn as of March 31, 2014;
• Overdraft facilities.

When the operation was announced on April 7, 2014, rating agency Standard and Poor’s confirmed its B+ rating with a stable outlook for Cegedim and its two bonds.

• Acquisition

On April 15, 2014, Cegedim acquired the French company SoCall, which is based in Sèvres. Its core activity is providing secretarial and scheduling services for practices of healthcare professionals. The company manages incoming patient calls, messages, scheduling and records of past consultations for around 50 practices. Financed by internal financing, these activities represent annual revenues of less than €0.3 million and are part of the consolidation scope of Cegedim Group from Q2 2014.

• Binding offer received from IMS Health for the new CRM and Strategic Data division

On June 24, 2014, Cegedim announced that it had received a binding offer from IMS Health Inc. to acquire its new CRM and strategic data division in exchange for €385 million in cash¹.

In compliance with regulatory requirements in some jurisdictions, employee representatives are currently being consulted regarding the deal, which will then be submitted to the Board of Directors for a decision before end-October 2014.

If this proposal is accepted, most of the proceeds from the transaction would be used to repay debt and thus strengthen Cegedim's balance sheet and income statement with a debt ratio close to 1 and an improving margin. In addition, the Group would be led to recognize, at the effective time of the sale, an accounting loss with no impact on the Group's cash of approximately €180 million.

The business activities targeted by this proposal represent 47% of non-group revenue, 43% of current EBIT and 41% of EBITDA on the basis of figures at December 31, 2013.
It should be noted that the financial statements closed at June 30, 2014, continue to include all the data relating to the business activities targeted by the IMS proposal. IFRS 5, whose objective is to separately classify activities considered as held for sale, does not apply for the time being. In fact, the sale cannot be considered as "highly probable" as long as the Board of Directors of Cegedim has not made a statement on the transaction, and the business activities cannot be considered as being "immediately available for sale in their current condition", considering that it is first essential to physically separate the data processing centers that support all the Group's operational activities, as well as divide the assets held in legal entities sheltering mixed activities.

Apart from the items cited above, 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.

Significant post-closing transactions and events

Decision no. 14-D-06 of July 8, 2014, by French Competition Authorities imposed a €5.7 million fine on Cegedim based on a complaint brought by Euris. Euris claimed that Cegedim refused to sell its OneKey database to clients using Euris software products. As a reminder, Cegedim’s refusal to do so was related to a lawsuit alleging that Euris has counterfeited its OneKey database.

Cegedim appealed this decision to the Paris Court of Appeals. The French Competition Authorities decision is enforceable, therefore, at the end of June 2014, Cegedim accounted an accrued expenses payable for the amount of the fine.

We note that this risk was cited in paragraph 4.3.24 of the 2013 Annual Report and in the prospectus that accompanied our bond issue in April.

The fine does not in any way affect the terms of the offer made by IMS Health on June 24.

Apart from the items cited above, 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

Cegedim is reconfirming its target for 2014 of at least stable revenue and operating margin from recurring operations.

For the second half of 2014, the group expects a slight slowdown at the CRM and Strategic Data division, and a slight increase in activity at the other divisions. A less demanding comparison level for UK doctors software in the second half of 2014 and a restored order book for French pharmacist software activities point to more positive revenue developments in the second half of the year.

Furthermore, if the IMS Health offer, as previously disclosed, is accepted, at the time of the sale the Group would be led to recognize an accounting loss with no impact on the Group’s cash of approximately €180 million.

Financial calendar

September 19, 2014, at 10:30 am

• SFAF meeting presenting H1 2014 Results (24 rue de Penthièvre, 75008 Paris)

October 28, 2014 (after the stock market closes)

• Q3 2014 Revenue announcement

November 27, 2014 (after the stock market closes)

• Q3 2014 Results announcement

December 16, 2014 - 2:30 pm to 5:30 pm (welcome coffee at 2:00 pm)

• 5^th Investor Summit (Auditorium Cegedim, 17 rue de l’Ancienne Mairie, Boulogne-Billancourt France)

Additional Information

The Audit Committee met on September 15^th, 2014. The Board of Directors met on September 18^th, 2014, to review the 2014 first half consolidated financial statements.

The First Half financial report, including management discussion and analysis, is available in the Finance section of Cegedim’s website:

• In French:
  http://www.cegedim.fr/finance/documentation/Pages/rapports.aspx
• In English:
  http://www.cegedim.com/finance/documentation/Pages/reports.aspx

This information is also available on Cegedim IR, the Group’s financial communications app for smartphones and iOS and Android tablets. To download the app, visit: http://www.cegedim.fr/finance/profil/Pages/CegedimIR.aspx.

Appendices

Balance sheet

Assets

Liabilities

Income statement

Consolidated cash flow statement

(1) Including Impairment of goodwill for 63,300 thousand euros as at December 31, 2013

• Glossary

¹ On a cash-free debt-free basis, subject to certain adjustments based on the Group's net debt at the date of completion, changes in net working capital and 2014 CRM and strategic data division revenue.

Public company with share capital of 13,336,506.43 euros
Trade and Commercial Register: Nanterre B 350 422 622
www.cegedim.com