NETGEM (EPA:ALNTG) - H1 2017 Results - Netgem accelerates its development in the cloud and proposes a public share buyback offer of €25 million

Transparency directive : regulatory news

27/07/2017 20:45

H1 2017 Results

Netgem accelerates its development in the cloud and proposes a public share
buyback offer of EUR25 million

Paris - La Défense, 27, July 2017.

Results for the 1st half 2017

Activity, results and financial position

The first half of 2017 was characterized by a very good performance with our
European customers, all of which are continuing to recruit new subscribers to
their entertainment offerings built on Netgem's platform.

The product offering for European customers continues to strengthen thanks to
the increasing penetration of the virtual set-top-box platform (Diamond) and
the first positive feedback for the Soundbox solution.

Soundbox combines the Diamond virtual set-top-box software with an enhanced
version of a soundbar designed with specialist audio partners. This unique
system combines audio and video services within a single application and a
single device for all screens and rooms in a home. Netgem's Telco customers see
it as a way to differentiate their offers, increase their income and reduce
their capex since the system no longer requires set-top boxes. The consumer
gains an innovative solution offering maximum simplicity, limiting the number
of devices, applications and remote controls  necessary to implement a complete
digital entertainment system.

Netgem also announced two new market gains in the Middle East European region
during the past six months, in particular the opening of the German market
where Netgem intends to strengthen its position in the months and years
ahead.

This performance in Europe has offset a temporary slowdown in Asia and the
impact of the transition to software licenses in Mexico.

Consolidated IFRS,
in millions of euros       H1 2017  H1 2016      Change

Revenue                     32.9     39.1     -6.2   -16%
Gross profit                12.7     14.6     -1.9   -13%
Current operating income     2.7      3.4     -0.7   -20%
Operating income             3.1      3.3     -0.2    -6%
Financial income             0.0      1.0     -1.0  -104%
Equity method result        -0.8      0.0     -0.8    ns
Taxes                       -0.9     -1.6     +0.6   -40%
Net profit                   1.3      2.7     -1.3   -50%

For the six months ended June 30, 2017, Netgem announces a consolidated revenue
of EUR 32.9 million and a gross profit of EUR 12.7 million. Revenue and gross
profit for the period were impacted by the strategic agreement for software
license signed with ZTE and Totalplay in Mexico.

The participation in Vitis (service provider of La Fibre VideoFutur) is not
included anymore in the consolidation perimeter for 2017, contrary to 2016. If
Vitis had not been consolidated in 2016, the turnover and the gross profit for
H1 2016 would have amounted to respectively EUR 36.7 million and EUR 14.0
million(1).

Operating income in the first half of the year reached EUR 3.1 million,
confirming the solid return to profitability observed in 2016.

After taking account of an income tax charge of EUR 0.9 million, and the share
of losses under the equity method of EUR 0.8 million for Vitis, the Group
recorded a net profit of EUR 1.3 million for the period.

The sales momentum in our Vitis participation is materializing. The triple-play
"La Fibre Videofutur" service is now available on an addressable park of
318,000 fiber plugs, expected to increase by 180,000 additional plugs in the
second half of the year. The capital contributions of Caisse des Dépôts and
Océinde took place as planned during the semester to finance marketing
investments.

(1) Because of its nature, such pro forma financial information addresses a
hypothetical situation and, therefore, does not represent the company's actual
financial position or results.

Consolidated IFRS,
in millions of euros                H1 2017   H1 2016
Cash flow related to operations -
after tax (A), of which:              9.3       -3.1
- before tax and changes in
  working capital                     2.6        4.9
- taxes paid                         -0.6       -0 3
- decrease (increase) in working
  capital                             7.3       -7.6
Cash flow related to investments (B) -4.5       -0.9
Operating cash flow (A + B)           4.8       -4.0
Cash flow related to financing       -7.5       -6.0
Net change in cash                   -2.7      -10.1

Operating activities generated EUR 9.3 million of cash after tax in H1 2017.
The decrease in working capital of EUR 7.3 million over the six months is
mainly due to the repayment of VAT credits and the implementation of financing
solutions. Cash flow related to investments includes the implementation of
financing solutions and their regular repayment.

Given the strategic decision to migrate to a software model, the Group does not
anticipate having to set up financing operations and outstanding amounts on
past operations should regularly decline due to monthly repayments.

Cash flow related to financing includes a dividend distribution of EUR 5.7
million for the year 2016, share repurchases during the semester and a refund
of EUR 1.9 million of factoring backing the financing mentioned above.

The Group's net cash position reached EUR 30.1 million, down EUR 2.7 million in
the first half. The Group held 7.9% of its capital in treasury at end of June
2017.

Consolidated IFRS,
in millions of euros              30/06/2017    31/12/2016
Shareholders' equity and debt
Shareholders' equity, Group share    49.4          54.2
current and non-current financial
liabilities (excluding bank
overdrafts)                           7.4           9.6
A. Cash net of bank overdrafts       30.1          32.8
B. Current financial liabilities      3.0           3.3
C. Current net cash (A) - (B)        27.1          29.5
D. Non-current financial liabilities  4.4           6.3
E. Net cash (C) - (D)                22.7          23.3

The consolidated financial statements were approved by the Board of Directors
on 27 July 2017. Audit procedures have been conducted and the report on the
certification of accounts is being finalized.

Strategy and Outlook

The activity throughout the year should confirm the trends observed in the
first half, with the confirmation of the strong performance in Europe, a return
to normal in Asia and the first deliveries under license in Mexico, allowing
the company to have a good visibility on its business to the end of the year.
The company will confirm in 2017 its return to profits initiated in 2015.

At IBC in September, the Company will present a new partnership program around
Diamond, its virtual set-top box platform. The main objective of this program
is to  enable the company to strengthen its indirect sales presence among
operators aiming to move their historic IPTV offer to the cloud.

The transition to the Microsoft Azure cloud, underlying the Diamond platform,
improves the mutualisation of the innovation effort between customers. As a
consequence, the company is able to continue expanding the scope of services
offered on its platform - TV, video, music, connected home - without a
significant increase in R&D effort.

EUR25 million public share buyback offer (the "Offer")

Background and key terms & conditions of the Offer

Figures for the 1st half 2017 materialize the favorable results of the efforts
by the Company to adapt its product offering to changing consumer expectations
and the needs of operators.

With the Diamond platform, Netgem has the appropriate response to the
inevitable move toward the virtualization of entertainment services and a
gateway to offers addressing the whole connected home. Diamond is now deployed
with several historical customers of the Group and is already enriched with
music services. It has enabled the Group to expand its market to operators
newly entering into entertainment services.

The strategic decision to address this market as publisher of a
software-as-a-service ("SaaS") platform allows to contain R&D investment and
strengthens commercial deployment through a more efficient indirect approach.

In addition, the hive-down of Vits and the strategic agreement with the ZTE
Group significantly reduce the need for investment and the financing of working
capital requirements.

In these circumstances, the Board considers that the Company is able to realize
its development plan, serve its clients and continue to innovate with a
simplified balance sheet structure in an "asset light" model, allowing it to
distribute a large portion of available cash to its shareholders.

The Company will therefore convene an extraordinary shareholders' meeting in
September 2017 to authorize the Offer for a total amount of EUR 25 million.

With the Offer, the Company intends to raise awareness of its new strategy,
provide an opportunity for relution to its shareholders who wish to accompany
the Company in the new stage of its development, in particular the management
and employees shareholders, while providing the possibility of an organized
liquidity to other shareholders.

Summary of key terms and conditions of the Offer subject to approval by
shareholders

The Offer will amount to ten million shares of the Company, 24.2% of its
capital, at the price of EUR2.50 per share representing a premium of 4.6% on
the closing price as at 27 July 2017.

The repurchased shares will be canceled. In addition, the Company may cancel
all or part of its treasury shares. A shareholder owning 1% of the capital and
not tendering his shares to the Offer will result owning 1.34% of the capital,
subject to the success of the latter and before taking into account the
cancellation of any treasury share.

The company will finance the Offer fully with its own funds and available cash.

The two founding shareholders, J2H and Fast Forward, will contribute together
8 million shares to the Offer, or 80% of the total shares under offer, thereby
ensuring the success of the Offer.
J2H's contribution to the Offer will allow it not to cross the 30% threshold in
capital or voting rights, which would result in a mandatory offer. Due to the
existence of double voting rights, J2H will remain the reference shareholder
and will continue supporting the development of the Group.

The Offer will be filed with the Autorités des marchés financiers ("AMF") in
September 2017, and remains subject to (i) the authorization of the
Extraordinary General Meeting of Netgem's shareholders to be convened for this
purpose and (ii) obtaining the notice of compliance from the AMF.

About Netgem
We develop bespoke innovative next-gen connected home digital entertainment
products and services for leading Service Providers. Our extensive experience
and technological assets in software, user experience and security, combined
with our global partnerships in content and device manufacturing and sourcing
make us a unique one-stop partner for the digital transformation of Tier1 and
Tier2 players seeking to increase revenue and build loyalty on an existing
consumer base. Netgem was founded in 1996, and collaborates with leading brands
such as EE, Elisa, Post Luxembourg and Totalplay, which in turn address several
million households in more than 20 countries. Netgem is listed on Euronext
Paris Compartment C (ISIN: FR0004154060, Reuters: ETGM.PA, Bloomberg: NTG:FP)
www.netgem.com

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NETGEM (EPA:ALNTG) - H1 2017 Results - Netgem accelerates its development in the cloud and proposes a public share buyback offer of €25 million

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