Report on economic position

  • Global economic development

    Compared to last year, CGM has not experienced any material change in its business due to changes in the global economic environment. This can be partially attributed to the resilient and defensive attributes of the healthcare sector and the robust business model of CGM, but also to a relatively stable macroeconomic picture in CGM’s main markets Europe (in particular Germany) and the United States.

    In its most recent Economic Outlook published in November 2013, the OECD provides an analysis of the major economic trends in 2013. Global trade growth has picked up this year relative to the latter half of 2012, helped by stronger final demand in the major OECD economies. Consumption growth has been resilient in the United States and Japan, with on-going improvements to household balance sheets resulting from strong asset price growth, improving labor market outcomes and substantive deleveraging (helped in the United States, by institutions conducive to debt write-downs). In Germany, economic growth continues to strengthen, supported by domestic demand. Real wage gains and low unemployment should sustain consumption growth while improving confidence in the euro area recovery and low interest rates are expected to boost investment spending. In the euro area outside of Germany, household demand has remained much softer, reflecting a mix of weak income growth, high unemployment, declines in property values and debt deleveraging, which has yet to begin in some economies.

    An important development during 2013 is the marked deterioration in financial conditions in the major Emerging Market Economies (EMEs) outside China. This occurred in May to August as US long-term interest rates rose following signals that the tapering of Federal Reserve asset purchases might begin earlier than expected, prompting capital outflows and exposing vulnerabilities that had built up in some EMEs. Reinforced by concerns about growth slowdowns and the sustainability of high external deficits and political tensions in some economies, large portfolio investment outflows contributed to tighter liquidity conditions, sharp declines in bond and stock prices and sizeable currency depreciations. This was especially marked in Brazil, India, Indonesia, South Africa and Turkey, all countries with large external financing needs. Even before the recent tightening in financial conditions, economic growth in the major EMEs had softened steadily over the past eighteen months or so, with aggregate non-OECD GDP growth projected to be around 4¾ per cent in 2013, around 2 percentage points weaker than the annual average observed over the previous decade.

    Forward-looking business surveys and composite leading indicators signal growth in the advanced economies rising towards, or above, trend rates. Signs of activity improvements are particularly apparent in the United Kingdom, Japan and the United States, with a more modest, but broad-based improvement also increasingly visible in the euro area economies. However, a durable exit from the 2008 financial crisis onto a strong growth path is not yet assured and, despite some positive signs of improving growth momentum in the OECD economies, sizeable downside risks remain. Some are longstanding sources of risk that have yet to be tackled fully, such as the fragility of the euro area banking sector and the unsustainable Japanese fiscal situation. These have been augmented by new concerns relating to the potential financial turbulence during a gradual exit from unconventional monetary policies in the United States. In addition to this come the potential spillovers and feedback effects from deteriorating emerging markets on the whole global economy.

    Industry development

    The consistent trend of a growing healthcare sector, including healthcare-specific information technology and related services, was apparent also in 2013. Major factors driving the growth of the healthcare information technology market are the rise in pressure to cut healthcare costs, growing demand to integrate healthcare systems, financial support from the governments and government initiatives, aging population, growing demand to reduce medication errors and rise in incidences of chronic diseases. The high rate of return on investment to solve these challenges through information technology drives a robust and sustainable demand for software and related services within healthcare.

    The overall healthcare IT market in the US is expected to continue to grow at a robust rate, even after the US government concludes its Meaningful Use payments under the HITECH stimulus program. According to a study published by Research and Markets in June 2013, the United States Healthcare IT market is expected to reach USD 31.3 billion by 2017 compared to USD 21.9 billion in 2012.

    The European eHealth industry has assumed a leading role with its personalized healthcare systems, medical equipment and integrated eHealth solutions. Its focus is on two main areas, telemedicine/home care and clinical information systems in the primary healthcare sector. According to a study carried out by PricewaterhouseCoopers (PwC), mobile technologies will be an important factor in the global healthcare market. Revenues from the mHealth (mobile health) area could reach USD 23 billion by 2017.

    Drawing from this study, it follows that Europe will become the largest mHealth region worldwide with revenues of USD 6.9 billion, followed by the Asia-Pacific region with USD 6.8 billion, North America with USD 6.5 billion, Latin America with USD 1.6 billion and Africa with 1.2 billion.

    Overall, it can be said that the healthcare IT market is regarded as a growth market by all studies worldwide. CompuGroup Medical considers itself well-positioned and expects to profit from these developments.

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  • In summary, 2013 was a year with two distinct halves: a relatively weak first six months followed by a strong second half and finish to the year. In terms of segments and geographical markets, it was also a mixed picture with good organic growth and strong development in the high margin European Ambulatory Information Systems business, but lower than average growth in Hospital Information Systems, weakness in the US and lower than expected revenue in the Communication & Data segment.

    As announced in first quarter financial report for the Group published in May, CGM delivered lower than expected revenue and profitability for the first three months of 2013. Despite this start, CGM at the time expected a gradual improvement over the remaining quarters of 2013 based on a solid order backlog and a significant pipeline of opportunities. CGM therefore reaffirmed the outlook which was presented in the 2012 Annual Report.

    Contrary to the expectation in May, the weakness in revenue and profitability continued also in the second quarter. Several management and organizational changes were then implemented but the effects from these measures were not immediate. Reflecting a weaker forecast for the full year, and also factoring in the acquisition of the Italian pharmacy software companies Studiofarma and Quality in Farmacia with consolidation beginning in 1 August, CGM revised the full year 2013 guidance in the second quarter financial report for the Group published in August as follows:

    • Expected Group revenue between EUR 458 million and EUR 463 million (previous guidance between EUR 470 million and EUR 490 million)
    • Expected Group EBITDA between EUR 97 million and EUR 100 million (previous guidance between EUR 115 million and EUR 125 million)

    Following prudent cost measures while still maintaining most on-going growth initiatives, the growth and profitability was back on-track for the third quarter and the full year 2013 guidance from August was reaffirmed in the third quarter financial report for the Group published in November. Another important development in the third quarter was the inclusion of CGM in the German TecDAX index in September.

    The good results in the third quarter continued in the last three months of the year and CGM delivered a strong finish to the year with higher fourth quarter revenue than in 2012.

    Ambulatory Information Systems (AIS)

    The year started well in the European AIS business with 10 percent organic growth in the first quarter, evenly distributed across all geographical markets. In Germany, a significant part of the growth was related to a new drug database tool, ifap praxisCENTER 3 (ipC3), which is a new generation drug database with a multitude of advanced workflow and decision support utilities for drug prescribing.

    The positive start to the year in Central and Eastern Europe (Germany, Austria, Czech Republic and Slovakia) and South Europe (Italy and France) continued in the second quarter with 12 percent organic growth year-on-year. However, in North Europe (Sweden, The Netherlands, Norway, Denmark and Belgium) organic growth went from 8 percent in the first quarter to a flat year-on-year development in the second quarter. The main reasons behind this development were adjustments which needed to be made to project calculations for roll-out programs in the Swedish regions of Västra Götaland, Stockholm and Skåne, which reduced revenue recognition from these deliveries during the second quarter.

    The delivery issues in Sweden were of a transitory nature and the AIS business in Europe had a good third quarter with 9 percent year-on-year organic growth at constant exchange rates. In July 2013, CompuGroup Medical Italia acquired a majority stake in Tekne S.r.l., located in Ragusa (Italy). Tekne, with its software XDent, is the market leader for Mac OS software for dentists in Italy. It offers not only desktop solutions, but also mobile app solutions to create a link between dentists and their patients. The positive development of the European AIS business continued in the fourth quarter with 8 percent organic growth at constant exchange rates.

    For the business in the United States it was a challenging start to 2013 with lower revenue than expected already in the first quarter. To clearly emphasize the shift to a growth strategy in the US, coming from a period of restructuring and efficiency improvements over the last two years, the management of the US business was changed in April with Dr. Norbert Fischl as new Senior Vice President for North America. Norbert Fischl has successfully managed the North Europe region for CGM during the last 2 years. Despite these changes, significantly lower than expected revenue continued for the rest of the year in the United States. There are significant new market drivers and opportunities in the US, such as Meaningful Use stage 2 and stage 3 (driving further EHR adoption) and ICD-10 (driving PM system upgrades and billing services) but these developments did not create any material impact during 2013.

    MEDISTAR Launches the Electronic Pregnancy Record

    Innovation in the AIS segment continued in 2013 at a high rate. In August 2013, the CGM business unit MEDISTAR introduced the electronic pregnancy record into the German market. The electronic pregnancy record was developed in cooperation with practicing gynecologists and will support them as an intelligent documentation aid in maternity care. Routine tasks are accomplished in a time-saving manner and workflows optimized throughout the maternity care. As a trusted companion throughout the maternity care, the electronic pregnancy record supports the gynecologist with many efficiency-enhancing features, such as the early detection of missing or abnormal findings, particularities and risks as well as aiding in avoiding redundant data collection. Identifying and planning pending examinations, timely disclosure of patient information and quick and partially automatic data entry are some other features which are included in the electronic pregnancy record’s range.

    CGM Add-on: Digital Archiving for Physician’s Practices

    Clean, traceable document management is, also in view of the patients‘ rights laws, becoming increasingly important for every practice. With its products CGM PRAXISARCHIV and CGM DOCUMENTS, CompuGroup Medical provides TÜV certified software, which enables an efficient and clear management of all patient and practice-related documents.

    In 2013, the archiving products achieved one of the most successful sales years in their history. With currently 18,500 archive servers installed in Germany, CGM is the market leader in the branch of medical document management systems with more than three times the installed base compared with the second largest market player. The international roll-out of the product developed in Koblenz is progressing steadily. After successful implementation in Austria at the beginning of 2013, CGM PRAXISARCHIV surpassed other archiving systems in only a few months. The CGM archiving products family was also launched in the South African market during the third quarter as a fully integrated add-on module to the existing products there.

    French laboratory market entry

    In April, CompuGroup Medical signed an agreement to acquire Neurone R&D SAS. The company based in Marseille develops software for laboratories and creates a starting point in the French laboratory market for CompuGroup Medical. The acquired customer base includes many leading laboratory chains and large single laboratories. The web-based laboratory system is distributed as Software as a Service (SaaS).

    Telematics Infrastructure and Electronic Health Card (eGK)

    In December, CGM won the tender advertised by the Society for Telematic Applications for the German Health Card (gematik) in a consortium with Booz & Company and KoCo Connector. The tender is for the online rollout of the first level testing for the telematic infrastructure in one of two test regions in Germany. CompuGroup Medical Deutschland AG’s share of the tender’s contract value is approximately 20 million Euros with all material deliveries in 2014 and 2015. A further approximately EUR 6 million of revenue from this tender award is expected in other Group companies in the same delivery period.

    The tender is for the development, construction, operation and provision all components and services (e.g. connector, card terminal & VPN access service) necessary for the connection to the telematic infrastructure for all participating medical professionals (e.g. doctors, dentists, psychotherapists, hospitals). The term "Telematik" (telematics) is a combination of the German words "Telekommunikation" (telecommunications) and "Informatik" (information technology). Telematics is concerned with networking the IT systems of doctor‘s practices, pharmacies, hospitals and health insurances, thus achieving a cross-sector information exchange. It is a closed network only accessible to those holding a healthcare professional card or a healthcare card.

    The telematic infrastructure is designed in such a way that the existing informational limitations of the healthcare sector will be overcome. Medical confidentiality and the right to informational self-determination shall remain intact. The nationwide roll out for this infrastructure is scheduled to commence after thorough testing and a comprehensive evaluation, both of which should be completed in 2016. It will be designed and implemented by gematik, an organization which was founded by the leading health care provider associations as well as the health insurances of the German healthcare sector.

    With a successful pilot project, the real upside comes with the full rollout (est. begin 2016) with the opportunity for CGM to sell new eGK-compliant online access products to all existing customers in Germany: ~ 44,200 doctors offices (69,400 doctors), ~ 15,000 dentists offices (19,800 dentists), ~4,000 pharmacies (8,000 pharmacists), ~ 100 hospitals, ~ 300 rehabilitation centers and ~ 550 social care institutions. Even more important; the Telematik Infrastructure fits perfectly with CGMs strategy to provide more products and services to its customers, such as eServices, ePrescriptions, eLabOrder, physician networks, online clinical pathways, hosting services etc.

    Pharmacy Information Systems

    In January, by acquiring a majority participation in the company meditec GmbH, the German market leader in point-of-sale media systems, CGM expanded its product and service portfolio for pharmacies. Meditec offers multimedia services in the pharmacy sector with the ‘TeleApotheke’ software as its main product. meditec and CGM already had a cooperation agreement for some years which opened up new distribution channels for ‘TeleApotheke’. The main strategic objectives will now focus on further strengthening the market leadership and taking up cross-selling opportunities with existing CGM ‘WinApo’ customers.

    Overall in the segment, the year started well despite the lower reported revenue in the first half compared to 2012. Different to last year, a more significant part of prospects and opportunities sales in 2013 were to be converted around after the Expopharm trade fair in September, an event in which CGM did not participate last year. Also, significant marketing and sales efforts were spent in the first six months to introduce new products and services such as the Prescription Scanner and WinApo TV. As expected, the pharmacy software business had a good third quarter, with product sales and order bookings reaching record highs at the Expopharm trade fair in Germany and the first time revenue contribution from the newly acquired pharmacy software business in Italy. The strong finish to the year, with 15 percent year-on-year organic growth in the fourth quarter, shows the effects of a successful Expopharm and the successful launch of new products and services to the market.

    The Prescription Scanner

    In the second quarter of 2013, CGM introduced the integrated prescription scan solution, WINAPO Prescription Scanner, into the German market and achieved a strong sales launch with approximately 400 scanners ordered within the few first weeks. The documentation and reviewing of prescriptions is becoming an increasingly important issue for pharmacies. The new solution, consisting of a fast HV scanner and a software module, offers increased security and saves time, thus setting the standard for efficient processes in the pharmacy. It only takes 5 seconds to scan and thoroughly review the prescription including the following: imputing entering the physician’s data and active ingredient regulations, attachments of customer data, customer data synchronization as well as prescription and Noctu (surcharge for emergency prescriptions) identification.

    EXPOPHARM: successful trade fair participation for CGM

    After a low attendance of software providers at last year’s EXPOPHARM trade fair, CGM took advantage and impressed trade fair visitors with a new booth and product innovations in September 2013. Both in terms of resonance with the public and economic results, CGM recorded excellent results. Even before the EXPOPHARM, the scanner solution WINAPO® RezeptScan proved itself as a best seller. At the trade fair, the product built on its previous success. The same can be said for the integrated design hardware WINAPO® ONE where many orders were placed directly at the stand. Further product innovations were able to convince trade fair visitors: the point of sales medium WINAPO® T.V. with its positive effect on the OTC turnover as well as innovative networking solutions which will bring branch networks and cooperatives even more economic success and data security. With its application "meineApotheke", CGM proved its solution competency in the field of smart and mobile customer communication.

    CGM LIFE Pharmacy App “meineApotheke”

    CGM introduced its application “meineApotheke” at the EXPOPHARM trade fair in September of 2013. In order to bring the pharmacy customers closer together with their local pharmacies, the application offers many useful functions such as a complete medication database with drug information package inserts, a medication order system as well as a pharmacy search for emergency pharmacies in the area. The main function of the product is the ordering of medications via smart phone or tablet made possible by a new eService between the patient and pharmacy. Here, the patient selects a local pharmacy where the orders are to be sent. Additionally, the user can also manage his or her own regular medications with the app and synchronize it with his or her CGM LIFE account. The free application was first developed for Android smartphones and tablets and has been available in the Google Play Store since October 2013. An iOS version will be made available in the future.

    Italian Market market entry

    CompuGroup Medical Italia SpA, a 100 percent subsidiary of CGM AG, signed an agreement in July to acquire a majority stake in Studiofarma S.r.l. located in Brescia (Italy) and its largest sales partner, Qualità in Farmacia S.r.l. located in Novara (Italy). Studiofarma S.r.l. develops software solutions for pharmacies in Italy and has over 7,000 customers. With a total market share of approximately 30 percent in its core market, it is the pharmacy software market leader in Italy. Qualità in Farmacia S.r.l., with its approximately 2,000 customers, is the largest distributor for Studiofarma’s software. In addition to this, they also offer hardware and additional services. The total revenue for the combined operations was roughly 18.4 million Euros in 2012 with an EBITDA of approximately 1.2 million Euros.

    Hospital Information Systems

    In the hospital segment, the year started satisfactory with 3 percent organic growth going from the first quarter 2012 to 2013. A strong growth contributor is Poland, driven by continued successful sales and delivery of hospital information systems and the participation in a large public-sector eHealth project. In Germany and Switzerland, slightly lower short-term revenue was realized due to a delayed product launch in German social care and some projects in Switzerland with a later start-up date than originally planned. In other Eastern European markets (Czech Republic, Slovakia), a slowdown in hospital IT spending was experienced during the first quarter.

    In the second quarter, Austria and Switzerland, together representing about 50 percent of CompuGroup’s hospital business, had a flat year-on-year development. In Germany, representing approximately 30 percent of the hospital business, revenue contracted year-on-year due to lower low-margin hardware revenue and a further delay of a scheduled product launch for social care institutions. After this period the hospital business had a good third quarter with 7 percent year-on-year organic growth. The product launch issues in the German social care market that impacted the second quarter were solved and it was also a good quarter in Austria, the largest hospital market for CompuGroup. Even if the finish to the year was relatively weak compared to last year with fourth quarter revenue contraction, it has been a decent full year 2013 for the hospital business in a relatively slow market for add-on projects both for existing customers and new clients.

    G3 strategy successfully implemented in Germany

    In November 2013, the first module of CGM’s newly developed hospital information software G3 was implemented in Germany. Integrated into CGM CLINICA, the CGM G3 Medication Management was deployed at Lahnhöhe Medical Center. The module covers the clinic’s entire medication process, thereby increasing safety of drug therapy and reducing workload on clinic personnel. With the products CGM G3 Medication Management, CGM G3 Electronic Temperature Curve and the mobile solution, CGM G3 MIO, CompuGroup Medical offers many clinics a new perspective on how they can meet their growing requirements with secure, user-friendly and efficient systems. The G3 modules are integrated in CGM CLINICA, available in .mpa and CGM PHOENIX, but also linked with SAP IS-H and prospectively with other hospital information systems. Thus, CGM’s strategy of using a modular approach to expand existing HIS’ with individual CGM G3 modules is proving itself to be successful.

    CGM Poland commissioned for nation-wide electronic patient record

    Starting in 2014, Poland will implement a comprehensive web-based electronic patient record (EPR). The National Centre for Health Information Systems (CSIOZ), a Polish Ministry of Health entity that is involved in the development of an e-health environment for the country, has recently awarded a contract to HP to develop and deploy a digital portal for collecting, analyzing and sharing digital health records across Poland. CGM Poland acts as a sub-contractor to Hewlett Packard and to other companies working for the CSIOZ digital portal project.

    The Polish government is investing millions of Euros in the project to improve patient healthcare. With all data centrally available, the treating physicians can quickly access any previous findings and current treatment options. This knowledge allows them to offer targeted treatment, which avoids unnecessary costs for the healthcare system as well as medical risks i.e. undesirable drug interactions. Physicians in both practices and hospitals can transfer data from their system to the central file and back with only a few simple clicks. Later, pharmacies, laboratories, insurances and other participants will follow suit.

    MediPlanOnline nominated for innovation prize

    MediPlanOnline, CGM’s new web application for networked interdisciplinary medication management, has been nominated for the Elderly Care Innovation Award in 2013 in Germany. The prize is awarded by the Vincentz Network, a leading organizer of trade fairs, and recognizes outstanding ideas, products and services for the future of elderly care.

    With MediPlanOnline, the subsidiary CGM SYSTEMA Deutschland offers a secure medical web application for networked interdisciplinary medication management. Here, assisted living, the home care physician and the pharmacy are networked across disciplines and the prescription management of the client is reorganized. A web-based medication plan replaces the still widespread trend of handwritten prescriptions. Through intense communication with services providers, an efficient solution for the future was developed, which improves the quality of treatment, provides transparency and contributes to increased safety in drug therapy.

    Communication & Data

    The Communication & Data business had a particularly strong first quarter last year which was due to especially favorable short-term market conditions in 2012. Several big drugs came off patent and this drove extra demand from generics producers wanting to introduce new products to the market during the first quarter of 2012. 2013 is a very different year in this respect, with the estimated sales volume of drugs losing patent protection being less than half of the volume in 2012, and this development clearly shows in the generics side of the Communication & Data revenue in the first quarter 2013. In addition, Germany’s Federal Association of Statutory Health Insurance Physicians (Kassenärztliche Bundesvereinigung - KBV) changed the regulatory guidelines for certification of physicians’ software in Germany beginning 1 July 2012. The new guidelines have put new limitations on Communication & Data products and services which again has a negative impact on revenue. The weak start to 2013 basically continued for the rest of the year. In total, revenue contracted -28 percent year-on-year which represents a major shift in this segment.

    Workflow & Decision Support

    Sales of CompuGroup’s new drug database tool ipC3 to 3rd party software vendors were a steady source of growth during 2013. However, this was offset by declining revenue from maintenance of old administrative software applications for German insurance companies, products which were phased-out during 2013. New workflow & decision support contracts are being signed, such as the North Rhine-Westphalia Project and new CardTrust customers, but the pace of such new business is slow with long sales and implementation cycles. The new contracts were able to drive some sequential revenue improvement in the second half of 2013 but not to the level as expected at the beginning of the year.

    Pharmaceutical Treatment and Safe Drug Therapy: North Rhine-Westphalia Project

    In the first quarter report of 2013, CGM reported about the project “Medication Account Record NRW” which began in February. The goal of the cooperation between CGM and the University of Bielefeld Department of Health Economics and Healthcare Management is the improved pharmaceutical treatment through a personalized digital electronic medication account record. The medication account record in the project serves as the basis for a comprehensive medication safety check: directly in the practice of the treating physician, but also by the patients adding medications acquired on their own.

    In key regions of North Rhine-Westphalia, over 3,000 patients consisting of an almost equal number of men and women in and about 40 physicians’ practices will be enrolled in the project. With the start of patient enrollment in July of 2013, older citizens will especially benefit and receive improved safety in the prescription of medication. The participating physicians can conduct a software-supported medication safety check, where not only medications prescribed by the respective physician are considered, but rather from all treating physicians. The scientific evaluation based on the data from the patients will make the results transparent. Here, the focus will be on the aspects of gender difference. Within two years, valuable information will be generated, which will evaluate the overall success and acceptance of the project as well as uncover optimization potential.

    Beginning in the fourth quarter, specialists were included in the project and all prescriptions of participating general practitioners and specialists will be recorded in the patient medication records. A special application will give patients and their families the opportunity to view their personal accounts and to add any self-acquired medications. An AMTS check will immediately inform the patient of any possible dangers in easily understandable language. The offer is complete with patient-specific reminders. Since going live, the “Medication Record NRW” has proven itself to be an innovative and market-ready solution, as evidenced by the large number of interested parties.

    The first standardized physician‘s network software optimizes treatment quality

    With the newly developed software, CGM NET, CGM in cooperation with OptiMedis AG presents the first fully integrated and standardized software for physician’s networks and other treatment networks. Effective as of April 2013, the CGM NET is available to physician’s networks in Germany. Key elements of CGM NET are networking software in the form of a central electronic patient record and digital treatment pathways. In the patient file, all relevant documents, whether they be diagnoses, findings or medication plans, can be accessed by all treating physicians and psychotherapists in a secure and data protection compliant manner. The treatment paths developed in the “Gesundes Kinzigtal” project or in individual networks ensure coordinated and standardized therapy within a physician’s network.

    The IT solution is the result of a one-year development process. Both companies involved have brought their competencies into the partnership: CompuGroup Medical Deutschland AG was responsible for the IT architecture and OptiMedis AG contributed its administration- and networking routines as well as its treatment paths, all of which were developed in the “Gesundes Kinzigtal” project. The software that has been developed in close cooperation with the physicians in the Kinzig valley in South-West Germany has already been installed and tested successfully. As health care does not only take place in the physician’s practice, the network must be continued towards hospitals and non-physician professionals. Both providers can already be linked to the electronic patient record.

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  • Five Year Overview

    2013
    EUR m
    2012
    EUR m
    2011
    EUR m
    2010
    EUR m
    2009
    EUR m
    Group sales 459.6 450.6 397.3 312.4 293.4
    Expenses for goods and services purchased 79.4 82.5 76.1 59.0 61.0
    Personnel expenses 214.9 202.0 188.5 144.3 130.2
    Other expenses 79.6 73.2 68.9 53.6 53.1
    EBITDA 97.8 104.8 74.3 67.0 59.2
    in % 21.3% 23.3% 18.7% 21.4% 20.2%
    EBIT 56.8 64.1 37.9 33.2 24.8
    in % 12.4% 14.2% 9.5% 10.6% 8.5%
    EBT 35.2 48.4 25.7 26.5 18.3
    in % 7.7% 10.7% 6.5% 8.5% 6.2%
    Net profit 21.7 30.4 9.8 16.8 11.7
    in % 4.7% 6.7% 2.5% 5.4% 4.0%

    Revenue

    Consolidated revenue in 2013 was EUR 459-6 million compared to EUR 450.6 million in 2012. This represents an increase of EUR 9.0 million and 2.0 percent respectively. Acquisitions contribute 2.2 percent to growth and organic contraction was -0.2 percent for the year. The strengthening of the EURO in 2013 reduced revenue with EUR 2.9 million compared to last year and organic growth at constant exchange rates was 0.4 percent.

    In the HPS I segment, sales to third parties were EUR 320.4 million compared to EUR 304.8 million in 2012. This represents an increase of approximately 5 percent, of which approximately 2 percent is organic growth. Sales to third parties in Ambulatory Information Systems (AIS) grew at 3 percent, practically all of which is organic growth. Sales to third parties in Pharmacy Information Systems (PCS) grew at 16 percent, of which practically all comes from acquisitions.

    HPS I revenue development (including acquisitions and currency effects):

    EUR m 01.01-31.12
    2013
    01.01-31.12
    2012
    Change
    Ambulatory Information Systems 259.1 251.8 3%
    Pharmacy Information Systems 61.4 53.0 16%
    Sales to third parties 320.4 304.8 5%
    Sales between segments 7.6 10.5  
    Segment sales 328.0 315.3  

    Growth from acquisitions in HPS I resulted from the first-time consolidation of the following entities:

    EUR m First-time
    revenue 2013
    Segment
    Meditec (consolidated from 1 February 2013) 0.8 HPS1 (PCS)
    Studiofarma / QiF (consolidated from 1 August 2013) 7.3 HPS1 (PCS)
    Neurone (consolidated from 1 May 2013) 0.3 HPS1 (AIS)
    Tekne (consolidated from 1 August 2013) 0.2 HPS1 (AIS)
    Total 8.6  

    In the HPS II segment, the development in Hospital Information Systems (HIS) was flat with unchanged external revenue year-on-year.

    HPS II revenue development (including acquisitions and currency effects):

    EUR m 01.01-31.12
    2013
    01.01-31.12
    2012
    Change
    Hospital Information Systems 81.2 81.2 0%
    Sales to third parties 81.2 81.2 0%
    Sales between segments 12.9 7.6  
    Segment sales 94.1 88.8  

    In the HCS segment, revenue was EUR 57.7 million compared to EUR 64.4 million in 2012. This represents a contraction of approximately 10 percent, of which acquisitions contributed 2 percent to growth and the organic contraction was -12 percent.

    HCS revenue development (including acquisitions and currency effects):

    EUR m 01.01-31.12
    2013
    01.01-31.12
    2012
    Change
    Communication & Data 22.5 29.3 -23%
    Workflow & Decision Support 24.6 24.9 -1%
    Internet Service Provider 10.6 10.2 4%
    Sales to third parties 57.7 64.4 -10%
    Sales between segments 4.6 5.9  
    Segment sales 62.3 70.3  

    Growth from acquisitions in HCS resulted from the first-time consolidation of the following entities:

    EUR m First-time
    revenue 2013
    Segment
    InterM / ÄND (consolidated from 1 January 2013) 1.2 HCS (C&D)
    Total 1.2  

    Profit

    Consolidated EBITDA amounted to EUR 97.8 million compared to EUR 105.0 million in 2012. This represents a decrease of EUR 7.2 million and 7 percent respectively. The corresponding operating margin (EBITDA margin) was 21 percent compared to 23 percent in 2012. In the HPS I-Segment, the EBITDA increased from EUR 97.7 million in 2012 to EUR 99.4 million in 2013. The improved EBITDA is a result from higher margins in the doctor software business in France, Italy and the Netherlands. There was also a one-time effect from the release of pension provisions in The Netherlands amounting to EUR 2.9 million. Lower revenue and weaker profits in the US worked in the opposite direction. In the HPS II segment, the EBITDA was EUR 11.7 million in 2013, up from EUR 11.0 million in 2012. With unchanged revenue, this corresponds to normal annual fluctuations in operating expenses. In the HCS segment, the EBITDA went from EUR 12.9 million last year to EUR 5.2 million in 2013. The decreasing profitability in the HCS segment is due to lower revenue in the high-margin Communication & Data business area in Germany. There is also an EBITDA effect in the HCS segment related to the first time consolidation of KoKo Connektor AG of EUR –0.7 million.

    The main developments in operating expenses in 2013 were:

    • Expenses for goods and services purchased went from EUR 82.5 million to EUR 79.4 million, corresponding to moderate reduction of 4 percent year-on-year.
    • The increase in personnel expenses by EUR 12.9 million is attributable to the increase in the average number of employees by 270 between the two fiscal years. This is mainly due to the employees in acquired companies.
    • Other expenses increased from EUR 73.2 million in 2012 to EUR 79.6 million in 2013. This is mainly due to other expenses in acquired companies.

    Depreciation of tangible fixed assets increased from EUR 7.2 million in 2012 to EUR 7.4 million in 2013. This is mainly due to the first time consolidation of fixed assets depreciation in acquired companies.

    The amortization figure for 2013 in the amount of EUR 33.6 million includes a one-off impairment of goodwill of EUR 1.0 million related to the Company’s subsidiary in Malaysia.

    Financial income decreased from EUR 7.5 million in 2012 to EUR 4.3 million this year due largely special gains on derivative financial instruments and one-off interest income on receivables booked last year.

    The financial expense increased from EUR 22.9 million in 2012 to EUR 25.9 million in 2013. Interest expense on liabilities to banks decreased slightly from EUR 14.4 million in 2012 to EUR 14.1 million in 2013, whereas the other financial expenses are mostly non-cash items arising from changes in non-EURO group internal debt and changes to purchase price liabilities. For more information about financial income and expenses, see the Notes to the Consolidated Financial Statements section, Note 27.

    The effective tax rate was in 2013 unchanged at 37 percent.

    After tax earnings came in at EUR 21.7 million in 2013, compared to EUR 30.4 million in 2012. This broadly mirrors the change in operating profits and profitability plus the change in financial income and expenses between the two years.

    Financial position

    Since the statement of financial position of 31 December 2012, total assets increased by EUR 32.8 million to EUR 684.1 million. Intangible assets represent the largest item of individual asset classes in terms of value and is virtually unchanged between the two balance sheet days (EUR 461.3 million as of 31 December 2013 compared to EUR 455.8 million as of 31 December 2012). Their share of total assets was 67.4 percent (previous year: 70.0 percent). Intangible assets primarily originated from undisclosed reserves from company acquisitions un-covered during purchase price allocations. The uncovered intangible assets mainly pertain to customer relationships, order backlog, software, brand values, and “residual” goodwill.

    The largest changes to individual asset classes are a EUR 8.7 million decrease in other non-current financial assets mainly related to the consolidation of KoKo Connektor AG, a EUR 20.4 million increase in non-financial assets and a EUR 6.0 million increase in trade receivables. The increase in financial assets arises from a prepayment for the acquisition of the ‘Imagine Group’, which was completed post balance sheet on 16 January 2014. The increase in current trade receivables results primarily from new companies acquired and normal fluctuations. For all other assets there are only minor changes during 2013.

    After consolidating EUR 21.7 million in net profit for the period from 1 January to 31 December 2013, group equity was EUR 184.7 million as at 31 December 2013, up from EUR 179.4 million as at 31 December 2012. The increase in equity comes after the effect from a EUR 17.4 million dividend paid to the shareholders of CompuGroup Medical AG and issue of own shares for EUR 2.0 million as consideration for the acquisition of Imagine Group. In addition, the equity effect from changes in currency exchange rates, changes in interest rates (actuarial losses) and change in market value of interest rate swap together amounted to EUR 2.2 million during 2013. The equity ratio decreased slightly from 27.55 percent as at 31.12.2012 to 26.99 percent as at 31.12.2013.

    During the reporting period, only small changes to total current and non-current liabilities occurred going from EUR 471.9 million as at 31.12.2012 to EUR 499.4 million as at 31.12.2013. The biggest changes to individual positions are a reduction in long and short term purchase price liabilities of EUR -17.7 million and a decrease in liabilities associated with derivative financial instruments (interest rate hedging instrument) of EUR 4.4 million. Long and short-term liabilities to banks increased by EUR 52.3 million through the net assumption of new debt.

    Changes in currency exchange rates reduced the net assets of the Group by EUR 1.3 million during the reporting period (previous year increase EUR 4.4 million).

    Cash flow

    Cash flow from operating activities during 2013 was EUR 52.3 million compared to EUR 66.9 million in 2012. The changes compared to 2012 mainly come from the following positions:

    • Group net income came in at EUR 21.7 million in 2013, which is a decrease of EUR 8.7 million compared to 2012
    • Other non-cash income and expenses increased by EUR 8.7 million compared to last year, up to EUR 8.6 million
    • Change in provisions (including income tax liabilities) of EUR -5.3 million (2012: EUR 4.8 million)
    • Change in trade receivables of EUR 0.0 million (2012: EUR -8.7 million)
    • Change in trade payables of EUR 1.6 million (2012: EUR -4.7 million)
    • Change in other current and non-current liabilities of EUR 6.1 million (2012: EUR 3.1 million)

    Cash flow from investment activities during 2013 amounted to EUR -81.8 million compared to EUR -53.2 million in 2012 due to higher expenditures for acquisitions in 2013 compared to 2012.

    Cash flow from financing activities during 2013 amounted to EUR 33.0 million compared to EUR 18.9 million in 2012. Main items which make up the financial cash flow in 2013 is the dividend distribution of EUR 17.4 million and a net assumption of loans of EUR 50.5 million.

    Principles and objectives of financial management

    As a general principle, CGM strives to hold as little cash and cash equivalents as practically possible, both on Group level and in the operating subsidiaries. International cash-pooling services are used throughout the Group to manage bank accounts and to optimize and use surplus cash in all group companies to reduce external debt and increase overall liquidity. The main principle of cash-pooling is to hold the top-mother account (pool-leader) in CompuGroup Medical AG - the parent entity of the Group. It is also this entity that generally holds all external debt, including flexible revolving credit facilities and short term credit lines used to manage daily liquidity across the Group.

    The external debt in CompuGroup Medical AG is usually held in EURO currency and on the basis of variable interest rates. The company generally seeks to hedge the interest rate risk through interest rate swap contracts, thereby fixing the interest rates rather than exposing them to market fluctuations. Due to the international focus of the Group, incoming and outgoing payments are performed in various currencies. The Company generally strives to achieve natural hedging by its choice of locations and suppliers and at present the Company does not use any derivative financial instruments to hedge the foreign currency exposure. The development of the relevant positions is monitored regularly to ensure adequate response to significant changes in the positions.

    The company does not have a specific dividend policy, but considers dividends to be tied to long-term sustainable earnings and aims to steadily increase in steps, or at least maintain, the dividend paid per year. Dividends declared and approved by the shareholders are paid annually in conjunction with the annual general meeting usually held in May.

    Capital structure

    CGM primarily uses debt and internally generated cash flows to finance acquisitions. The level of debt in the capital structure is seen in relationship to operating profit and the general principle is to aim for a leverage ratio (net debt to EBITDA) in the range 2.0 – 3.0. In terms of equity, the goal is to manage consolidated profits, dividends and share buy-backs to keep the equity ratio at all times above 25 percent.

    As at 31.12.2013, the Group had gross debt of EUR 321.6 million and held EUR 23.3 million in cash. For more information about the liabilities to banks and the structure of debt, see the Notes to the Consolidated Financial Statements section, Note 14. During 2013, a significant amount of new financing activities took place.

    In May 2013, CGM amended the EUR 330 million syndicated term and multicurrency revolving loan facilities agreement dated 22 December 2010. The acquisition basket (the accumulated net payments for acquisitions) was increased from EUR 150 million to EUR 250 million. The basket for additional financial indebtedness was increased from EUR 70 million to EUR 100 million. A flat equity covenant was introduced, corresponding to the ratio of equity to consolidated total assets not being less than the ratio of 25%. The definition of permitted distributions was changed so that the Company is allowed to propose a dividend in the amount of EUR 0.35 per share.

    In December, CompuGroup Medical AG concluded a loan agreement for a total sum of EUR 15 million with SEB. The loan is a non-amortizing term loan facility which matures on 22 December 2015. Other terms and conditions are similar to the existing syndicated loan from 22 December 2010. The loan value at 31 December 2013 was EUR 15.0 million.

    Also in December, CompuGroup Medical AG concluded a loan agreement for a total sum of EUR 30 million with Commerzbank. The loan is a revolving credit facility which matures on 22 December 2015. Other terms and conditions are similar to the existing syndicated loan from 22 December 2010. The loan value at 31 December 2013 was EUR 18.0 million.

    In December 2013, CGM entered into a financial leasing arrangement with Deutsche Leasing regarding the implementation and roll-out of a group-wide standardized internal IT solution, including a universal ERP/CRM system. The planned total license and implementation costs amount to EUR 16.9 million, divided into 3 system modules and 6 project phases to be implemented until June 2016.

    Finally also in December, CompuGroup Medical Deutschland AG entered into a loan agreement in the amount of EUR 10.0 million to finance the office buildings ‘Maria Trost 25’ and Karl Mand Strasse 17 with Saar LB. The mortgage loan has a term of 10 years and has a fixed interest rate of 2.85 percent. The loan value at 31 December 2013 was EUR 10.0 million.

    Capital expenditures

    In 2013, CompuGroup Medical’s capital expenditure consisted of the following:

    EUR m 2013
    Acquisition of 80% of the shares in Studiofarma and Quality in Farmacia 9.8
    Acquisition of 80% of the shares in Tekne, 100% of ÄND and other acquisitions 6.9
    Purchase of minority interest in UCF Holding (remaining 24.9%) 8.7
    Purchase of minority interest in Lauer-Fischer (remaining 12.5%) 10.0
    Purchase of other minority interests 3.7
    Pre-payment for the acquisition of 100% of the shares in Imagine Group 18.0
    Self developed software and other intangibles 11.8
    Group-wide ERP/CRM system (partial project) 5.6
    Other property plant and equipment (less disposals) 6.0
    Total 80.5

    In addition to the capital expenditure listed above, CGM Lab International GmbH, a 100% owned subsidiary of CGM AG, entered on 21 December 2013 into an agreement, subject to certain conditions, to acquire the vision4health Group with closing due 6 January 2014. The transaction was fully financed through existing and new credit facilities put in place in December.

    Liquidity

    The Group is in a favorable position in terms of liquidity with a strong and stable cash flow from operations and limited need for capital expenditure to sustain the current business and organic growth. The majority of recurring revenue is based on pre-payments with a significant reduction of working capital at the beginning of the annual, quarterly and monthly periods. The company increasingly uses direct-debit for such recurring revenue payments to further increase the visibility and security of incoming liquidity. In the past, the Group has always been able to meet its payment obligations in a planned and orderly manner and the Company does not expect any liquidity problems in the future.

    The strong liquidity profile of the Group has lead to the principle of holding as little cash as practically possible. To absorb normal everyday cash fluctuations, and also buffer the period pre-payments from customers, the Group held as at 31.12.2013 revolving credit facilities of EUR 170 million and other short term credit lines of EUR 23 million that are used in conjunction with the cash-pooling instruments. The unused portion of these credit facilities was EUR 44 million as at 31.12.2013.

    Financial covenants have been agreed for essentially all credit facilities. If the Group breaches any of these covenants, the loans can be recalled immediately. This creates liquidity and refinancing risks, which are further described in the risk report section. To date, the Company has never breached any financial covenant in any credit agreement and has always been able to refinance its credits in a timely manner.

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  • The financial and non-financial KPIs of the internal management system for the Group are shown in the table below for 2013 and 2012.

    EUR million 2013 2012 Change
    Sales revenue 459.6 450.6 +9.0
    Revenue growth (%) 2.2% 13.4% -11.2%
    Organic growth (%) -0.2% 3.6% -3.8%
    Recurring revenue 306.2 290.2 +16.0
    Growth in recurring revenue (%) 5.7% n/a n/a
    EBITDA 97.8 105.0 -7.2
    EBITDA-margin (%) 21.3% 23.3% -2.0%
    Cash Net Income 51.7 60.0 -8.3
    Leverage (ratio) 3.03 2.39 +0.64
    Return on Capital (%) 7.9% 9.0% -1.1%
    Customer base (Providers at year-end) 335,000 295,000 +40,000

    As shown by most indicators above, 2013 was a weaker year than 2012. In terms of growth, zero organic growth is significantly below the historical average and also below the strategic goal for the business. The reasons behind this development are declining revenues in the United States and in the Communication & Data business area, as well as lower than average growth in Hospital Information Systems. 2013 was also a year with relatively low impact from acquisitions which further accentuates the limited growth in overall sales revenue in the reporting period. On the positive side, the growth in recurring revenue and larger customer base is a strong foundation for future growth and also underpins the sustainability objective. The customer growth comes both from company acquisitions and from sales of existing product and services to new customers. In terms of profitability and financial returns, the outcome in 2013 also came in below the previous year. A two percentage point contraction in operating margin is contrary to the long-term margin expansion objective of the Company. This development is mostly attributable to the first half of 2013 and after corrective measures had been put in place the operating margin in the last 6 months of 2013 was higher than in the same period last year. The main reasons behind the weaker margins during the first half are declining revenue and profitability in the US, adjustments made to project calculations in Sweden, declining revenue in Communication & Data as well as delays in product launches for the hospital market and within the Workflow & Decision Support area.

    The increase in leverage represents the effects of acquisitions made during and towards the end of the year. The lower return on capital is a direct consequence of the lower operating profit in 2013 compared to 2012.

    Employee satisfaction indicators and social commitment

    Employee absenteeism due to illness remained at a low level throughout the Group in the 2013 financial year. This is an indication of a high degree of contentment and commitment among the workforce. In this context, CompuGroup Medical, in cooperation with the Company physician, regularly offers its employees the possibility of flu vaccinations, cancer screenings and eye examinations.

    Since its opening on 4 September 2009, the children’s daycare center – which is located in CompuGroup’s Koblenz Technology Park – has met with very high acceptance, with all 32 places in this comprehensive facility being occupied as of 31 December 2013. Six experienced teachers look after the children.

    In September 2012, CompuGroup Medical opened the CGM Health Center in Koblenz. The new center, which is 850 m² in size, offers employees a wealth of sports, preventive and health activities. The CGM Health Center was developed in conjunction with renowned fitness experts and scores highly with innovative health concepts in the work environment. For example, the strength training and endurance equipment is electronically linked, allowing employees to control and document training sessions in order to ensure safe and effective training. Employees can review their physical activities at any time and can assess their progress and adjust personal training plans together with trainers. What’s more, employees can use the endurance and strength training equipment free of charge. In addition, the CGM Health Center offers a range of various classes, physical therapy and massages. CGM is continuously expanding its corporate health management program.

    Thanks to the establishment of these facilities, employees now benefit from measures to ensure safety at work and to provide an ergonomic workplace, preventive medical care such as eye exams, flu shots and sports events, or from healthy nutrition in the Company’s own bistro. In addition, the daycare center helps young parents to return to work.

    Personnel recruitment and development

    Due to a continuously rising requirement of highly-skilled specialists and managers, the recruitment of new qualified employees is an important responsibility of human resources management.

    The employees of CompuGroup Medical are one of the Group’s major success factors. Their high degree of identification with the Company and great commitment to its objectives is one of the most important contributions to the Company’s success. The potential of all employees is wanted and nurtured on an ongoing basis by giving them a high degree of responsibility. CompuGroup Medical’s employees are highly qualified and have collected a large amount of knowledge within their industry over time. This enables CompuGroup Medical to fill the majority of national and international management positions from its own ranks. This keeps existing know-how within the Company and makes it possible to expand it further. For this purpose, CompuGroup Medical has implemented various processes to be able to act effectively. CompuGroup Medical has set up its own internal Business Academy to prepare qualified employees already within the Group for a career in middle and upper management. By its nature and with respect to quality, the Business Academy of CompuGroup Medical is a unique internal continuing education facility in the area served by the Koblenz Chamber of Industry and Commerce.

    In addition, CompuGroup Medical carries out a regular performance evaluation of employees in order to evaluate whether training programs are needed and in what scope. The human resources department coordinates and supports employees in the selection and performance of their individually-coordinated programs. The effectiveness of the training programs is also analyzed and measures taken to increase quality.

    Employees

    At year-end 2013, CompuGroup Medical employed 3,949 persons worldwide. Compared to the previous year, this reflects an increase of 386 employees or approximately 11 percent. With regard to the development in the number of employees for the period 2008 to 2013, the average annual increase was approximately 9 percent per year.

    In Germany alone, which is currently the largest market, CompuGroup Medical had 1,753 employees in the 2013 financial year, representing 45 percent of the total number of employees worldwide.

    A significant part of human resources management within the Group involves integrating new employees in the Group of companies. In 2013, the workforce grew primarily as a result of acquisitions.

    Within the Group, employees work in Software Development, Sales, Administration, Professional Service and Support. The graph below shows the number of employees per area at the end of the reporting year in comparison to the year before:

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