Report on expected developments
The business model of CompuGroup Medical, with a large installed base of loyal customers, gives a relatively high degree of visibility for future revenue and earnings. The primary source of revenue is annual software maintenance and other recurring service fees from existing customers, with an expected amount of EUR 336 million at the beginning of 2014, compared to EUR 308 million at the beginning of 2013. This corresponds to a 9 percent increase.
Total Group revenue is in 2014 expected to be in the range of EUR 510 million to EUR 520 million, corresponding to a growth rate of 11-13 percent. Acquisitions completed to date are expected to give a 7 percent growth contribution and organic growth is expected to be 4 – 6 percent.
Revenue in the HPS I segment is expected to be in the range of EUR 367 million to EUR 374 million, corresponding to a growth rate of 14-16 percent. Acquisitions completed to date are expected to give a 10 percent growth contribution and organic growth is expected to be 4 – 6 percent. Total revenue in Ambulatory Information Systems, including the first time consolidation of revenue from the vision4health, Imagine Group, Tekne and Neurone acquisitions is expected to be in the range of EUR 294 million to EUR 300 million in 2014. Organic growth in Europe is expected to be above the segment average, driven by new value-added products and services sold to existing customers and the Telematik Infrastruktur project in Germany. In the United States, a flat year-on-year revenue development is expected due to a transition to a more subscription based business model and the ending of some legacy product lines. In Pharmacy Information Systems, organic growth is expected to be similar to the segment average (i.e. 4-6 percent). Including the first time consolidation of the Studiofarma and Qualità in Farmacia acquisitions, total revenue is expected to be in the range of EUR 73 million to EUR 74 million in 2014.
Revenue in the HPS II segment is expected to be in the range of EUR 80 million to EUR 82 million, corresponding to an organic growth rate of 0-2 percent. The slowly growing market for add-on projects for existing customers and new clients experienced during 2013 is expected to continue also in 2014.
Revenue in the HCS segment is expected to be in the range of EUR 58 million to EUR 59 million in 2014, which is a flat year-on-year development. Within Communication & Data, revenue contraction as experienced of over the last 5 years is expected to continue also in 2014, this year at around 10 percent and expected Communication & Data revenue of approximately EUR 21 million in 2014. Declining revenue in Communication & Data comes both from regulatory pressure and changing priorities within pharmaceutical producers which is the main customer group.
The positive developments experienced in Workflow & Decision Support towards the end of 2013 are expected to continue in 2014 and this business area is expected to grow about 10 percent with revenue in the range of EUR 26 million to 27 million in 2014.
Internet Service Provider revenue is expected to grow strongly (approximately 50%) with revenue reaching approximately EUR 16 million in 2014 driven by the consolidation of the company KoKo Connektor AG and their participation in the Telematik Infrastruktur project in Germany.
In terms of profitability, 2014 is expected to be a year of investment with no margin expansion relative to 2013. Operating margin (EBITDA margin) is expected to be in the range of 20-21 percent and will be influenced by:
- Integration of several newly acquired companies which also may incur certain one-off restructuring expenses.
- Investments in product and service line expansion related to the Telematik Infrastruktur project in Germany. Making this project a success is critical for the future growth prospects of CGM and the company will invest what it takes to ensure a successful outcome of this transformational initiative.
- Continued high R&D investments in the G3 HIS ‘fast-track’ and G3 AIS projects. Completing the first R&D cycle and bringing this Group-wide technology platform to the market during 2014 is a key foundation for growth and efficient operating structures in the future.
- Continued investments in product and service improvements, sales and marketing in the United States. No material operating profit is expected from this market in 2014 and any further progress on revenue will be re-invested in growth initiatives.
- Direct expenses related to the roll-out of a single group-wide fully standardized ERP, CRM and CPM system. This solution will greatly increase group-wide transparency and control and enhance the ability to standardize workflows and performance management across the group in the future.
Depreciation of fixed assets is on Group level expected to be approximately EUR 8 million in 2013 and amortization of intangible assets is expected to be approximately EUR 34 million, of which EUR 30 million will come from amortization of purchase price allocations related to past acquisitions. The corresponding Group earnings before interest and tax (EBIT) is in 2014 expected to be in the range of EUR 58 million to EUR 68 million.
The 2014 forecast of the most important financial and non-financial KPIs of the internal management system are shown in the table below.
|Sales revenue||510 – 520||460||+50-60|
|Revenue growth (%)||11 - 13%||2 %||+9%-11%|
|Organic growth (%)||4 - 6%||0%||+4%-6%|
|Recurring revenue growth (%)||10%||6%||+3%|
|EBITDA||100 - 110||98||+2-12|
|EBITDA margin (%)||20-21%||21%||-1%-0%|
|Cash Net Income||54 - 60||52||+2-8|
|Return on Capital (%)||7.4-8.6%||7.9%||-0.5-0.7%|
Looking at the fiscal year 2015 and beyond, Group EBITDA and Group earnings after taxes are expected to record higher growth rates compared to revenue. As a market leader in Europe, and with a significant business in the United States, the company is ideally positioned to benefit from changes in healthcare systems all over the world with demand for software solutions and IT services less sensitive to economic climate. As such, CompuGroup Medical does not expect permanent or long-lasting deterioration of the market conditions in the future. Our strategy is based on a highly resilient business model with high margins and high proportion of recurring revenue from software maintenance and related services combined with high costs for customers to switch and technological barriers preventing competitors to enter the market.
Overall assessment (guidance)
In summary, CompuGroup Medical offers the following guidance for 2014:
- Group revenue is expected to be in the range of EUR 510 million to EUR 520 million.
- Group operating income (EBITDA) is expected to be in the range of EUR 100 million to EUR 110 million.
The foregoing outlook is given as at March 2014 and does not include revenue and costs associated with potential and currently undetermined further acquisitions during 2014. The outlook for 2014 represents management’s best estimate of the market conditions that will exist in 2014 and how the business segments of CompuGroup Medical will perform in this environment.
Guidance for CompuGroup Medical AG
Investment income is expected to develop in line with the planned positive growth in the Group. Net interest incomeis expected to remain at the 2013 level. The Company therefore expects a profit from ordinary activities between EUR 29.0 million and 39.0 million for the local GAAP (HGB) financial statements for 2014. For 2015, no significant changes are expected.