Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim first quarter 2022 revenue. Before we begin, I would like to remind you that this presentation and conference call may constitute forward-looking statements. These forward-looking statements may include comments about our guidance, our expectation and our prospects, and are based on our view as of today, April 28, 2022. Additional information concerning important factors that may cause our results to differ materially from expectation and underlying assumption, please refer to our investor registration document, specifically Chapter 7 on risk management. Having this in mind, I will turn on Page 3. For the first quarter, 2022 big picture, revenue came to EUR 129.2 million. On a reported basis, this is an increase of 5.5%; on a like-for-like basis, an increase of 5%. So exactly on our guidance on the full year revenue. This is a promising start for the full year for Cegedim. All operating divisions contributed to the first quarter organic growth. About Cegedim Santé, we expect to be able to sign a final agreement in mid-May. And we temporarily suspending our guidance about recurring operating income for the reason that we see more and more inflation, specifically inflation about wage, and it's more complicated to assess how the inflation will move during the first half of this year and during the second half of this year. And regarding that, we prefer to suspend our expectation on guidance. I will give you more color about this at the end of this presentation. So regarding revenue, you see that in 2021 -- first quarter 2021, we've been at EUR 122.5 million, so a small increase compared to 2020. And in 2022, we have an increase of 5.5% to EUR 129.2 million. Organic growth came to 5%. We get the impact of the acquisition of Kobus in June, as the first consolidation period was June 30, 2021. So we have a positive impact of 0.1% and a positive impact from the sterling of 0.4%. As I mentioned before, all operating divisions contributed to this growth. So you see that Software & Services contribute to EUR 4.2 million (sic) [EUR 2.4 million] increase of revenue; the Flow activity, an increase of EUR 1.6 million; Data & Marketing, very strong, an increase of EUR 2.5 million; and the BPO business that you remember that last year was down. This year, this is up by 5% or EUR 0.6 million increase. Corporate & others, very slightly decline of EUR 0.3 million, and this is how we came to EUR 129.2 million. So if we look now division by division, so Software & Services, organic growth came to 2.7%. Organic growth, this is excluding any impact from acquisition, disposal and currency impact. We have a small impact of acquisition from Kobus, 0.2%. And the currency impact, this is the more international division of the group, so a positive impact of 0.6%. So we came to 3.5% or EUR 2.4 million. So at end, we are at EUR 71.2 million of revenue for the [ new ] division in the first quarter. All of the dividend activities turned in to be in solid performance, specifically our HR activity, that's very positive. Our solution for insurance companies as a project-based activity continued to develop quite well in this quarter. We also get positive news from Spain and from U.K. doctors, and from activity from French pharmacies. And very strong commercial activities at Cegedim Santé. However, we still, as expected, waiting for the recovery of all of the business -- U.K. business. The second division for the Flow business, the revenue came to EUR 22.6 million. This is an increase of 7.5% to EUR 1.6 million. There is no structural impact, very small impact from currency. So organic growth came to 7.3%. And you know that on this division, we get 2 big activities. The first one is all the process digitalization and electronic invoicing, et cetera. This business for all kind of companies was very strong in France. And also, we have seen a very clear recovery, a double-digit increase, in Germany and U.K. This was very positive. So all the components of this division contributed to the growth. And the second part of this is the health care flow business related to health care reimbursements in France. And we also have a positive development of this business and positive contribution to the revenue growth of this division. The third division, Data & Marketing. So revenue came to EUR 22.5 million. This is an increase of 12.7% or EUR 2.5 million. The same on organic and on reported as there is no acquisition, disposal and no currency impact. This division posted very strong revenue -- increase of revenue in the first quarter of 2022. And you remember that already in the first quarter of 2021, we get quite high increase of revenue. So this trend continue in 2022. In this division, we get 2 complements, roughly 50-50. All the data activities that we're selling to pharmaceutical companies mostly, and the digital communication of point of sales in the French pharmacies. And both activities contributed positively to the growth. And I will say that the positive impact of both companies roughly the same. So both companies contribute on the same level to the increase of revenue of this division. It's very good performance for this division. The last one, BPO, an increase of 5% on reported and organic, and there is no impact of structure and no impact from currency. You'll remember that last year, we've been down on this division. And this year, we are stable for the insurance -- the BPO for insurance companies in France. And we also get a positive boost from the BPO for HR department. So stable at insurance companies BPO and positive boost on growth from the HR -- BPO for HR department. So a good development on that. On Cegedim Santé, so you remember the deal is that 3 insurance companies, Malakoff Humanis, VYV and PRO BTP. We subscribe to reserved capital increase of EUR 65 million. They will have 18% of -- 1-8, 18% of Cegedim Santé equity. This will give the possibility to Cegedim Santé to accelerate the growth of this business. And on the same time, we'll do acquisition of MesDocteurs. Cegedim Santé contributed 12% of full year 2021 revenue. And the value of post deal, if we have the capital increase of EUR 65 million, this put a this put a [ post-evaluation ] of EUR 361 million. This is below our -- to market cap that was this evening of [ EUR 346 million ] only for 12% of [ proven ]. The final agreement is expected to be signed on mid-May and probably the capital increase will happen at the end of May. Outlook. So we still focus on innovation, financial discipline, M&A, small bolt-on acquisition, continue to develop on R&D, no change on that. Continue to increase customer loyalty and develop business synergies. So we still are very confident to be able to grow Cegedim revenues. So we still expect a revenue increase of 5% like-for-like in 2022 compared to 2021. On the recurring operating income, considering the inflation risk stemming from the current geopolitical situation, and particularly pertaining to wages, we have decided to temporarily suspend the communication regarding the 2022 recurring operating income. The main reason for that is we do not really know where the inflation will be at the end of the first half or the end of the second half. We may have an increase in the first half and then a decrease in the second half. So it's complicated to assess how all of these things moving. And very small changes on that may have some impact on the percentage of recurring operating income increase or decrease. So we prefer not to give any more -- any guidance on this specifically as long as we do not see more visibility on the inflation rate for the full year. However, 26% of the employees are offshore. So 26% of our current employees are offshore. And we continue to hire people mostly offshore, even if we still hire in France and other countries in Europe. But on wages inflation, we'll wait to be at the end of the first half to see if we get more visibility for the second half. This concludes my formal presentation of today, the first quarter 2022 revenue, that came to EUR 129.2 million, an increase of 5.5% on a reported basis and 5% on a like-for-like basis. And now we can turn to the Q&A session.

You can raise your hand if you want -- would like to ask a question. We get a question from Geoff Michalet.

Can you hear me?

Yes.

Good. Just wanted to come back on the first division because I have on the Software division. I had a feeling that given the ramping up of Cegedim Santé, it could have been somehow better. Could you help us to quantify the magnitude of the impact of Cegedim Santé on the one side and on the U.K., let's say, poor performance?

Yes, we do not give specific color -- specific numbers on that. I will just give some colors on that. It's true that Cegedim Santé have a strong ramp-up in terms of commercial activity that will mostly reflect in the second quarter of this year. As you remember that we merged all of this company at the end of the 2021, so the full impact of this new organization of new company started on in the first quarter. So having this ramp-up will have positive impact in the second quarter of 2022 in terms of revenue, even if we have already some impact in the first quarter. But the stronger impact will be in the second part of the year, in second quarter of this year. Regarding U.K., this is more or less in line with what happened last year. Nothing special. As you know, that we're waiting for the NHS to give us the agreement for our software to be able to sell it. As you know, that just have been postponed due to COVID-19. And all of these things means that we'll begin to see some impact in the second half, but most of this impact will be in 2023. Despite that, we have an increase of 2.7%. When we say that we suspend our recurring operating income target, it doesn't mean that we expect a decrease. It doesn't just mean that due to the inflation on wages, and inflation on some computers and other stuff like that, it's complicated to assess exactly how this will affect our salaries. And you also know that on Cegedim Santé, we need to hire quite a lot people on R&D and on sales team. And of course, depending if we find these people in the first half or in the second half, and depending how the inflation on wages will be in the first or second half, et cetera, this may affect a little bit our recurring operating income. And this is the reason why it's very sensitive, EUR 0.5 million have an impact of 2% or 3% or something like that. So at the end, we say that the best way is, okay, due to the lack of visibility on inflation and wages, we just say no communication on [ income impact ]. As soon as we get more visibility on the inflation rates for the full year, we'll resume and give, of course, the guidance on recurring operating income. We get a question from Patrick Jousseaume.

Yes. Can you hear me all right?

Yes.

Okay. So I think you answered to some extent to my written question regarding the potential decrease in recurring operating income. But could you maybe elaborate a bit more on wage inflation? And also on your ability to pass this inflation to the -- to your clients, especially if your contracts have pass-through clauses.

Yes. We have clauses on our contract to be able to increase the pricing on our product by the Syntec Index. This is the index from the IT sectors. However, this index is calculated for -- from 2021. So in January 1, 2022, we have increased the pricing of our products in our contract by the inflation from 2021. And of course, as the inflation accelerate in 2022, we'll be able to transfer and to increase pricing on our product in January 1, 2023, based on inflation from 2022. So we have a translation impact. So when inflation go up, we have 1-year delay between hiring people and increasing salary and reflecting this in our contract. So this is this translation impact that it's not easy to really quantify when you have no more visibility and not too much in visibility on inflation and specifically on wages until the end of the year. But yes, all of our contracts have a clause to be able to increase pricing by Syntec Indexing. The reason my recurring operating income will not increase anyway as fast as the revenue in 2022 is, as we have already explained when we released the earnings for 2021, is that -- the fact that we need to continue to invest on our product and R&D, in the first hand. So this means that we need to hire more people on R&D and more people on the sales team to be able to sell our product to our clients, specifically on Cegedim Santé. So on Cegedim Santé, we'll get EUR 65 million. And most of this cash will be used to hire people on R&D and on sales team, but also to do some smooth bolt-on acquisition. This is why we do not see the exact translation of the direct impact from increase of revenue that will directly reflect on increase on recurring operating income. For the R&D spending, OpEx, CapEx, et cetera, all of the spending, we'll have a little more than last year due to the fact that Cegedim Santé will accelerate a little bit, as I already explained. If we have no more questions, I will just conclude this presentation by saying that all operating divisions, including BPO, contributed to the first quarter in growth, that we have a very promising starting of the year. Cegedim Santé final agreement should be signed in mid-May, with a capital increase at the end of May, reserved to the 3 main insurance company in France that cover 25 million people. We'll continue investment on innovation, and this is the key point of this presentation. Thank you very much. You may join me by e-mail or phone call today or tomorrow to get more color and more information about this conversion and this presentation. Thank you very much. Bye.