Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim First half 2022 Revenue Webcast. 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, July 28, 2022. Additional information concerning important factors that may cause our results to material differ from expectation and underlying assumption, please refer to our investor registration document, specifically Chapter 7 on risk management. Just in mind, I will turn on Page 3 of this presentation. So first, a big picture on the first half of 2022. So revenue came to EUR 267.6 million, an increase of 6.5% on a reported basis, so an increase of 6.1% on a like-for-like basis. And this acceleration in growth came from the fact that we have seen a speed up in growth in the second quarter of 2022. Revenue in the second quarter of 2022 increased by 7.5% on a reported basis and 7% on a like-for-like basis compared to 5% on a like-for-like basis in the first quarter. So growth picked up speed in the second quarter leading to an increase of 6.1% on a like-for-like basis and all operating divisions contribute to this first half organic growth. The second fact is that on Cegedim Sante, we have signed a strategic partnership with 3 social protecting group, representing 25 million beneficiaries in France. The capital increase of EUR 65 million is completed. It's done, have been done in May. And as you remember, at the end of the first quarter, we already mentioned this time that there is some delay offset by some months between wages increase that take place right now and the annual increase in our product that follows some indexation. And of course, this happened only once a year So due to the fact that we have this delay between wages increases and the fact that we can increase pricing only once a year automatically. The second that we continue investment in R&D, and we continue to invest on sales force. This leads that the first half recurring operating income will be down compared to the same period last year. This is only for the first half of the year. And we can later on it. So on Cegedim Sante, as I mentioned, the deal is done. So the street mutual insurance company, Malakoff Humanis, VYV, PRO BTP that covers something like 25 million people in France, have done the reserved capital increase of EUR 65 million. So they now shareholder of Cegedim Sante, 18% equity of Cegedim Sante. We have the store partnership that is in place that will lead to position something to accelerate the growth, and we'll be present for the Ma Sante 2022 program from the government. And on the same time, we have done the acquisition of MesDocteurs from Groupe VYV. And you know already the key metrics for this operation that Cegedim Sante represent 12% of full year 2021 revenue, 5% of operating income and the valuation post deal of EUR 360.9 million, just for 12% of revenue. We'll put down some acquisitions. So MesDocteurs, we already talked from Groupe VYV. MesDocteurs is a leader in teleconsultation and the pioneer in 24/7 telemedicine. We have done also the acquisition in June of Laponi. Laponi is a SaaS solution for managing absenteeism in real time in France for companies. So there is strong synergy with our Cegedim SRH activity, of course. And we have also done post closing. So in July this year of the company called SEDIA that provide tracking software from medical devices and doing this since '85. So the second quarter revenue came up by 7.0% on a like-for-like basis, 7% organic growth, 0.3% from acquisition [ MesDocteurs ] done last June and Laponi done in May. So a very small impact from currency, 0.1%, is sterling. And this lead to an increase on a reported basis of 7.5%. You see that the biggest contributor in terms of million of euros was the Software & Services, EUR 2.9 million contribution and Data & Marketing, EUR 2.7 million contribution. But all of these divisions contribute to the growth in the second quarter. So when we look on the first half of 2022, this lead to an increase of 6.1% on organic growth from an acquisition, a boost of 0.2% and the currency impact still is sterling from 0.2% and still the same impact that you see that the biggest contributor are Software & Services for EUR 5.4 million and Data & Marketing for EUR 5.3 million. And then also, we get strong contribution from PRO EUR 3.5 million and BPO EUR 2.5 million. So now if we look division by division, so starting with Software & Services. So the first quarter we have been up by 2.7% and then an acceleration of growth in the second quarter that we came on organic growth by an increase of 3.3%. So this lead for the first half of an increase of 3% to EUR 145.6 million. And all activities of this division contribute to this good performance with still the exception of the U.K. market that you already know that recovery is expected for the end of the year. So at this stage, it's just got a little negative contribution to the growth rate of this division, but all other insurance -- software for insurance companies, software for doctors, excluding U.K., software for pharmacies, excluding U.K., for all nurses, keto practice, et cetera, are growing quite fast. We also get the boost from Cegedim Sante, of course, and from our SRH activity that is also in this division. So with strong performance and the software is 54.4% of revenue for the first half of this year. Then we have the flow business. So the flow business also have seen an acceleration of growth rates, and we've been at 27.3% in the first quarter. In the second one, we came to an increase of 9.1% on organic growth or like-for-like. And this lead on the full year -- for the full first half of 2022, of an increase of 8.2% on a like-for-like basis to EUR 45.2 million to 16.9% of revenue of the group. So we get 2 parts of this. We get all of solutions for digitalization of processing, including electronic invoicing. So this business continued very strong performance in France, and we have seen a recovery in Germany and U.K. in the first quarter and this recovery continued in the second quarter. This is roughly half of revenue of this division. The second half of revenue division is health care flow business, electronic reimbursement, automatical reimbursement or healthcare reimbursement in France. And we also see an increase of revenue from this part at a smaller rate than electronic invoicing. However, it's still a positive increase, and this is developing quite well in the first and second quarter of this year and this division to an increase of 9.1% on a like-for-like second quarter. Now if we move to Data & Marketing. So Data & Marketing was very strong since recurring. So we've been in the first quarter at an increase of 12.7%, then we will still have an increase of 11% in the second quarter. This lead to an increase of 11.8% on the first half of this year and lead to EUR 50 million of revenue for this division that represents 18.7% of the total group revenue. And you know that on this division, we get 2 activities. We get the data business and the digital communication solution, mostly TV screen that we put in front of the French pharmacists and pharmacy and both have seen an increase of revenues. So both data and digital communication contribute to this increase quite strong of revenue on this division and just reached for the first time the bar of EUR 50.0 million in the front. Then we get the BPO activity. So in first quarter, we've been up by 5%. In the second quarter, we've been up by 16.9%, a strong increase and this lead on the first half of 2022 by an increase of 10.8% on a like-for-like basis circa EUR 25.4 million. So the business for insurance companies was stable in the first quarter, and we have seen a double-digit growth in the second quarter. So now that all the restructuring, et cetera, put on hold or do not exist, we see that -- we see some recovery on this activity. So very strong performance in the second quarter for BPO for insurance company. And BPO for HR department that has been already very strong in the first quarter with double-digit increase of revenue as seen in second quarter, an increase of this double digit increase of revenue. So an acceleration of growth in the second quarter for BPO services for HR department. This lead to an increase of 10.8% circa EUR 25.4 million in the first half of this year and now the BPO activity represents 9.5% of the total group revenue. So this is the end of the presentation of the formal part of revenue and what we have done in the first half of this year. Coming to the outlook. So we still maintain our focus on innovation, financial discipline and M&A. You have seen that we have done 2 acquisitions in the first half, and we already have done 1 in July this year. We continue to reinforce our global leadership to invest on R&D, develop business synergies and make some small acquisition. Having said that, you -- so we are very confident to continue to grow our revenues. So our guidance for the full year 2022, it's still to see an increase by 5% on a like-for-like basis, but we're already at 6.1%. So we already exceeded our guidance at the end of the first half of this year, and we are very confident that the second half of 2022 in terms of revenue will be very positive, too. The second fact is, and we already talked about this in the past is that we see a delay between the wage increases. So we have to increase the wage right now and the new employees that joined the group at the higher salaries that are paying in the group, some time, et cetera. So all of this lead to an increase in inflation in salaries. And on the same time, we are able to increase our pricing on products once a year and all of our contracts have some indexes and mixes on inflation. However, we can review this increase of once a year. So this means that most of the case in January 1, 2023, we will be able to increase our pricing lag inflation. So for example, in France by the [ Suntech ] index, so it is the lag between when we increase salary and when we translate this to our clients. So there will be a catch-up effect in 2023 where we see an increase of pricing and probably more stabilization in wages. So having this in mind plus the fact that we continue to invest in R&D and that we are reinforced for Cegedim Sante mainly our sales team, this lead that in the first half of 2022, and this is only for the first half of 2022, we expect recurring operating income to be down. And we'll provide the guidance for the full year 2022, once we will have released the recurring operating income for the first half. So this means in September '22. This concludes my formal presentation. And now -- so in summary, in revenue increased by 6.1%, growth pickup speed in the second quarter. All operating division contributed to this growth. We have done 3 acquisitions. We'll continue innovation Cegedim Sante. The deal is done, and we have received the money. This is EUR 65 million. And on outlook, I already talked about this. So now I open to take any questions from the floor on the Q&A -- can open the Q&A session.

So we get a question from Antoine.

Yes. Jan, can you hear me?

Yes.

Perfect. Congrats for the strong Q2. I have 2 questions on my side. The first one is related to the staff cost increase. You already mentioned that there is a lag between raising prices that you expect by 2023. But currently, what is the percentage of staff cost increase you see in your P&L? And could you split it between the staff cost that is related to new hiring and the pure salary inflation?

Yes. I understand your question, however, it will be difficult to answer right now as we just released revenue. However, we get most impact. So this means we have already increased some salary from existing staff and this depends on the segments of some people have an increase of 2%, other one, it's more than 5% depending on which sector -- and of course, IT people are on a higher increase at other one. And also, we get a strong boost from new employees. We have probably something like 200 more new employees. So part of these new employees are also people based offshore, so in Morocco, in Romania. So with lower cost that there is still some inflation. So we'll provide more color on that when we release the first half earnings.

Okay. And could you give us the sales contribution you are expecting from Laponi and SEDIA for the year?

Yes. So Laponi, it's really a startup -- just start. They get the product. They have some clients. But in terms of revenue, it's a very small contribution. MesDocteurs is the biggest part. We may expect something like EUR 5 million of revenue. So in the first half, we get -- we may have EUR 6 million something like that -- EUR 6 million of revenue. And SEDIA, it's something like EUR 1.5 million more. So an acquisition already done at the end of July. We have a boost on a full year basis of around EUR 7.5 million in terms of revenue. However, Laponi and SEDIA are profitable, so making profit. MesDocteurs is a loss-making company. It's an appointment scaling platform for telemedicine and telemedicine. So it's a loss-making. At this stage, our goal is to turn this to be flat and then make a positive contribution. But of course, the EUR 7.5 million more revenue will lead at end of 2022 with a negative contribution to profit. So we can take another question from the floor. So do not hesitate to raise your hand, and I will open the microphone. So we get the question from Jeremie Couix.

Can you hear me?

Yes.

Perfect. So the first one will be on the Cegedim on the software division. Can you give us an idea of the performance of SRH, Smart Rx as well in France? I think you relaunched the product early this year as well as the performance of Cegedim Sante in terms of growth, in terms of sales?

So we generally do not provide any specific split of performance by division by -- of this specific -- performance of each of the company. However, what we can say is SRH continued a very strong positive momentum. So it's a small single-digit increase in terms of revenue. Smart Rx is picking up. So we see more and more people interested by other software. And of course, we charge only once the installation is done. So we are currently making some installation. So a Smart Rx may have a positive contribution -- Smart Rx. However, software performances in France, but it's a -- there's more contribution -- bigger contribution will be seen in the second half of this year once more installation can have been done. And Cegedim Sante developed quite well in the French market. So this is software for doctors, software for pharmacists, keto practice and medication database. This include all of this. This is going, I would say, after single -- mid-single-digit increase of revenue in the first half of this year.

Okay. So it feels that SRH, Smart Rx and Cegedim Sante are all growing around 5% or more or slightly below. So it means that maybe the U.K. or what are the main detractors to the growth in H1 the U.K.?

Yes.

What would be the performance in the U.K.?

No. The U.K., I would say, negative contribution to the performance of this division in the first half of this year, as expected, I will say. As we have released the new software for -- software for doctors, for GPs, we were waiting for the agreement from NHS. So Laurent Labrune is now in Scotland to get this approval. So probably by 1 hour or 2, we will get this approval from the NHS in Scotland for our software. We get already the approval in other regions in U.K. So when we get all of the software at, the end of August, we'll be able to begin to start selling it. You remember that not just postponed giving approval on software and due to the COVID. So we have 2 years delay on selling our new software on U.K. market. So this will pick up.

So just to have an idea, I mean, what was the contribution of the U.K. and the decline year-on-year in H1? Just to have a feeling if you can give us a rough number.

We can say that excluding U.K. from the first division, the increase will not be of 3%, but probably around 5 -- little more than 5%.

Okay. Then the second thing is on the -- so you said you hired 200 people in the first half of the year. What is the total target for the year? How many people do you plan to hire this year on a net basis?

Most of the hiring have been done in the first half of the year, probably will be some mostly on Cegedim Sante to continue to accelerate the development of -- and the sales team on this part. So we can maybe target something like 100 more in the second half.

Okay. Now a question on Cegedim Sante. Do you plan to carve it out and to show us just the sales number and the EBIT contribution within the group? Because, I mean, actually, the numbers were -- the losses will increase as you invest more in the distribution and so on.

This is in discussion. So we have an open discussion in the group. So the question is always the same. If we provide numbers about Cegedim Sante, we will need to provide also number for Cegedim MesDocteurs, for other one.

I mean, not necessarily, but there are at least showing us the numbers of Cegedim Sante would be helpful.

I know that you say that not necessary, but I know that people...

I mean I would welcome numbers, to be honest there.

Once we give some details, people will say, okay, we get the detail from Cegedim Sante, but the remaining part, the biggest one. So can you give some speed between the insurance, et cetera, et cetera. So this is a discussion that we have in-house and probably will take a decision in September. So when we release earnings at the end of September, we'll have a clear position on that.

I can only reiterate our wishes as a group of shareholders to see these numbers published. And we would welcome this from your side. One last question for me was on the acquisition costs. Can you give us an idea of the acquisition cost of Laponi and SEDIA?

It's a little more than 1x sales in total.

Okay. So we're talking something like EUR 2 million to EUR 3 million for both of them -- for the 2 of them?

Yes. So Laponi, MesDocteurs and SEDIA altogether make something like EUR 7 million to EUR 8 million contribution in revenue on a full year basis. So it's a little more than that in terms of price.

Okay. But MesDocteurs, you had to actually pay it or it was part of the deal?

Yes, it's part of the deal, but -- so we get a question that people are asking why some of our competitors have been able to increase the pricing earlier than Cegedim. The fact is that in our contract, we increased pricing once a year. It's a big difference that we're selling product to our clients. And once we sell the product, we have closed in all of our contracts, I'd say that once a year, on a anniversary date, we're able to -- just is not able, but we increased price by inflation. And depending by country, the inflation is calculated differently. In France, it's a Sante. So -- and most of the contract is exist that we increased pricing in January 1. So we already have increased our pricing in January 1, 2022, but based on inflation from 2021. So now to reflect inflation from 2022, we'll increase our pricing in January 1, 2023. So we'll get a boost in terms of revenue in 2023 by the fact that we have increased pricing more than others due to direct inflation is quite high. So the close put is once a year. And again, we're selling products. So we do not provide people to work on them, et cetera. So this is why the close this once a year. But we do not spread the contract over the year. We signed a contract once when we get the client. So depending on we get more contracts at the beginning of the year and the end of the year. For SRH, for example, most of the contract is starting at the end of the year. So the anniversary date is at the end of the year. And then in most of the contracts -- most of the company asked that the fact that we can change the pricing to be down in January 1, even if we signed, for example, in September, so the anniversary date in September, they will say, okay, we agree to that you increase pricing but do this in January 1. And over the past year, this has been not a problem that inflation was quite low, inflation in salary also. So of course, we get this effect every year, but the impact was quite small. And this year, of course, impacted much higher. So we can take another question if may have some.

Hello, can you hear me? It's Jeremie again.

Yes.

Just a follow-up on your guidance for the EBIT margin in -- for the EBIT in H1. So your guidance is for a decline in H1, not the EBIT to be negative in H1. Is it correct?

Yes, it's a decline compared to last year in H1.

Okay. And we are talking the references, the EUR 10 million you generated last year. So 10 -- sorry, if I lost the number, EUR 10.7 million is the reference. Is it correct?

Checking for the exact number. So yes, the count is EUR 10.7 million.

Okay. And so your guidance at the beginning of the year was for EBIT to be flat or EBITA to be flat over the year. So now with H1 in decline, you're not cutting the guidance for the full year to say the full year will be in decline. You wait until you have H1 number, and you have more visibility in September to see how the EBIT will be for the full year, but it will either be flat or negative.

Just to say it in other words, yes, the H1, the recurring operating income will be down compared to last year, but it will be positive, but it will be down. And our previous guidance was to be flat on recurring operating income for the full year. Then on April 28, we say we have no more visibility in terms of wage increases, et cetera. So we prefer to postpone and to suspend the guidance, and we'll see later. And now what we say the first half will be down. And then end of September, we'll be able having the first half recurring operating income to give a guidance for the full year and see if on the full year will be flat or in the full year will be a little bit down due to the fact that first half is done.

Okay. And the magnitude of the decline in H1 is double digit?

Probably. If we have no more question on the Pro -- so we get the question is our guidance -- to do our guidance, we already include a [indiscernible] in second half in Q4. Our guidance at the beginning of the year that could be flat have say something that it will be difficult in the first half and maybe more stable in the second half. However, at this stage, we do not see any significant impact in second half, excluding wages increase. So we have to hire something like 100 people more employees on the group. Maybe there will be some tension on inflation on that answer, maybe less, maybe a little bit more, but it's less people. On all the parameters, we still see positive driver from the market. More doctors need software -- doctor need more sophisticated software. We get incentive from all governments in Europe, U.K., in France, U.K., Spain, Italy and Belgium for doctors to be equipped with newer software. We get accreditation in the U.K. So positive news. Insurance companies become more and more sophisticated, so they need more sophisticated software. We do not expect any negative impact from COVID-19 on reimbursement and BPO activity in the second half. So for us the second half of the year, we do not see any big distraction or any big impact -- negative impact, excluding the fact still the same as in the first one is that we have to hire some people, and we have to increase a little bit salary from these new people. Is there any more question. I remind you that in the first half of this year, revenue increased on a like-for-like basis 6.1% compared to our guidance of 5%. Cegedim Sante deal is done, and we have received EUR 65 million from the reserve factor increase. We have done 3 acquisitions. We continue to make investments and due to this a negative impact from the fact that we see some increase on wages and that we can translate it in our product on price increase only -- mostly only in January. We have this negative impact in the first half of this year on recurring operating income. The full first half earnings will be disclosed on September 20. I'm ready to answer any questions, yet you may have by phone calls or by e-mail. You can join me, and I wish you a pleasant summer break and see you in September. Have a happy day and evening. Thank you. Bye.