Cegedim SA (ALCGM) Earnings Call Transcript & Summary

We start this presentation. So thanks a lot for attending this first half revenue presentation from the Cegedim Group. I will guide you through the main facts of this first half. So the revenue for the first half for Cegedim was EUR 319 million, growing 6% reported and 4.6% like-for-like. As we will see later on, the main contributors have been digitization solutions, marketing and cloud operation. It is worth noting during this first half that we integrated Visiodent. From March 1, we will see it in our sales. So this is the bridge from H1 2023 to first half 2024. So organic growth, as mentioned before, was 4.6%. [ Structure ] impact was 1.2%, so mainly Visiodent and a slight positive currency impact of EUR 0.5 million, mainly due to the sterling pound. So, this is the split between the various divisions that I used to introduce to you. So the Software and Services grew up reported 1%, the Flow division by 5.8%, Data and Marketing 8%; and BPO, 21.6%, Cloud and Support 14.5%. It is also worth noting, as we mentioned during the first quarter that we reclassified some subsidiaries through other divisions, mainly Cegedim outsourcing and AudiPrint were reclassified from the Software and Services division to the Cloud and Support division. And BSV was also reclassified from the Flow Division to the Cloud & Support division. Now, we'll dive into the various divisions. The first one is the Software and Services division. So it represented 48% of the sales on the first half for Cegedim. It grew up, on a reported basis, by 1% and was down like-for-like by 1.7%. So under subdivision composing this first division, we have Cegedim Santé, which was down like-for-like 11.5% as we had anticipated, because last year it benefited mainly in the first half from the Ségur de la Santé investments, and the group is confident that we would be able to offset the subsidy on the full year, and is confident it will catch up on second half. There's been a positive scope effect for Cegedim Santé in the first half due to the integration of Visiodent since March 1, showing the difference between like-for-like and reported. It is also worth noting that Cegedim Santé was down on first quarter by 17% and the second quarter, I would say, only 5.5% down, showing up that the group is confident to catch up on the full year basis. The other French operation grew up by 2.7%, mainly driven by HR activities, which are still experiencing very strong growth by diversifying the client base and also the insurance activities are doing good. International business was down 1.1% in the first half. Also, this was expected as we had mentioned at first quarter, we decided on the doctor software in U.K. to exit England, Northern Ireland and Wales to stay focused on Scotland. So the first, I would say, impact starting and it's a bit less of sales. It will be, and we'll see in September that it will be good and better for the margin. The positive impact between like-for-like and reported is mainly due to the appreciation of the sterling pound. The second division, the Flow division, which had been 15% of the sales in first half, grew up by 5.8% reported and 5.7% like-for-like. It's 2 businesses experienced growth. First one, [indiscernible] business has experienced a strong growth of 7.6% reported, 7.4% like-for-like on its 2 practices, the invoice digitalization and the health flows. It is worth noting that for the invoice digitalization, we experienced growth from Germany where the reform is to be set up on January 1. And the health flow is still very good. And the third-party payments experienced a growth of 3.1% on this first half. It is worth remembering that the big contract with Allianz had hampered the growth on first quarter by transferring a bit of sales from the Flow Division to the BPO division. And this growth in third-party payments has been very good, thanks to volume on first quarter and especially also on the detection of fraud solution, which experienced a good growth. All in all, as I mentioned, the reported growth on this first half has been 5.8% for the Flow division. On the third division, Data and Marketing, which represented 19% of sales in the first half, experienced a growth of 8% reported in like-for-like. The data part of it has been slightly down in the first half by 2.8%. The French operation, we're having a quite good momentum. [indiscernible] was a bit less in dynamic. On the Marketing subdivision, very good growth still, a 20% growth on the first half, confirming the sound strategy about this phygital strategy and offering to the pharmacies. So all in, this division grew by 8%. The fourth division, as I mentioned before, the BPO division, grew up by 21.6%. The Insurance BPO grew up by 29.5%. So, as I mentioned earlier, the Allianz contract started last year on April 1. So it means that still for the first quarter, we experienced very good, very important growth due to comparison basis. But it's not the only reason for growth in the insurance BPO. It's overflow solution is also experiencing a very good growth, but it's a bit hidden between this Allianz contract impact. Also, the Business Services BPO has experienced growth all along the first half, a growth of 5.1% and it's mainly due to its compliance solution. So all in, the BPO division experienced a growth of 21.6%. Last but not least, our fifth division, the Cloud and Support division, which represented 6% of sales in the first half, grew by 14.5% during this half year. So it confirms the good strategy and the sound strategy for solving cloud activity for which it experiences a strong demand and is growing. As you can see, it was growing 7% on first quarter and 23% on second quarter. All in, it's a 14.5% growth on first half for the Cloud and Support division. The outlook for the group has not changed. We still believe we'll be able to have a growth range of 5% to 8% like-for-like for the year and have a recurring operating income increasing for the whole year, no change on this. Then we have our 2024 financial agenda, the next meetings that we have together. So we'll have more detail on September 26 in which we will release our earnings for the first semester. And the next morning, the next day, you will have a [ fast ] meeting. And then on October 24, we will release our third quarter sales. And now I suggest that we get into questions. Please raise your hand, so that I'm able to give you the floor. Gabriel, you are the first one.

Just can you give us the detail of organic growth in Q2 and the top-line for Q2, please?

For the various division?

Yes, just for the group.

For the group, on the Q2, the organic growth was 3.3%. And you wanted some more?

No, thanks.

Are there any other questions? [indiscernible] floor is yours.

Yes. And just a quick comment. I am surprised by the very good number of marketing. Can you give us some color [indiscernible] and it should be positive or negative for the margin?

It is positive because the main growth comes from the electronic [indiscernible] of the spots. We have 2 ways of making this business. Either we put communication, so photos into the windows of the pharmacists. And then it means that we send people to make this manual job or we just send spots to the screens we have installed into those pharmacies. And last year, we have invested a lot in the screens. We spent more than EUR 9 million in equipping more and more pharmacists. So this is the main reason why the revenue is growing. It is because the network is growing to be bigger and bigger.

It should be recurring growth? How it works? It's campaign or [indiscernible]

It's not recurring at all. It's campaigns, 2 weeks or 4 weeks campaigns, but what we can say is that we don't have a lot of competitors. What interests and [ answer ] the company which asked us to put their spots is the fact that we have the best screens and the best windows around France.

And it's [indiscernible] with a very high level of margin in this kind of business now.

Yes, it's a very good level of margin. Since we have transferred the business, which was before made by manual installation of communication in the windows, so this electronic network, the margin has grown very positively. Now the question is are we at the maximum possible? This is a question because we have equipped the best pharmacists in France. We have a lot of screens. We throw a lot of spots. For the rest of the year, we are confident, we are ready in our business plan for the use [ factor ]. Will this business grow as fast as now? I can't tell. I can't tell because maybe we are not far from saturation of the market. Since we don't have any significative competitor, it's -- the number of pharmacies we could equip will decrease. But anyhow, it's a very good and profitable business.

That means that if I see a screen in a pharmacy, I can say it's probably a Cegedim.

Yes.

Market share is 90% or?

There is only one competitor, Pharmaflex. They have very huge screens. Maybe I think they have 300 pharmacists and we have 3,000. I'm not sure of my figure but the position is that we have a very strong market share.

That means that on the price, you can do what you want?

No, no. We have some ratio. We know exactly what we can deal to a pharmaceutical company, depending on the number of screens and the duration of the campaign. And you see, we also have contracts with the groups of pharmacists and it is the reverse. It means that we are transferring some cash to them so that they push their pharmacies in the group to accept our screens.

You pay the pharmacy.

Yes.

You don't used to do that.

We pay some very few pharmacy. We pay them because they have wonderful windows.

It's only the windows screen or --

No, no. We have also the screen inside.

Inside what we see.

You can see them, and they are smaller than screens in the windows. And it's not the same spots. The spots into the windows, they are built to push the people who are in the street to enter into the pharmacies. The spot inside the pharmacies are more on to present to buy this product or this product that you see. So it's a combination of marketing communication.

Just on your guidance, you maintain the guidance in the communique, [indiscernible] in terms of labor, you are more confident, less confident than [indiscernible]

No, we are okay. The thing is that during the first semester, we have had a decrease in the software for pharmacist business. And in fact, the decrease does not come from the software, it comes from the sale of computers to them. The reason for that is that last year, there was a Ségur de la Santé for the pharmacist during the second half, but to install our new version of the software, which is compliant with Ségur de la Santé, a lot of our clients had to change their hardware. And now they are equipped. So this reduction in terms of revenue has not a strong impact in terms of profit because the margin we are making on the hardware is not that big but it has an impact on our revenue. That's why we maintain the 5% to 8% guidance because we feel that in the second semester, we will have the same effect, less hardware sold to pharmacists.

So you are reasonably cautious on sales, but you are quite more confident on EBITDA.

Yes. Well, EBITDA, we are in our plan, yes.

And the decline of the business in Great Britain is the decline in the loss.

Well, the problem is that not on the first half. The problem we have on first half is that we have made a plan to reduce the number of people, but it has been [ meant ] during the first half. So, we will see the effect in the second half, but not in the first half.

We have [indiscernible].

First of all, on the results of your Data business, it used to grow revenue in the past, now it's lacking a little. I'd like to know why that is? And in connection to that, in the emergence of AI and data analysis, I was wondering if we could expect initiatives on your part to maybe extend the value which you might generate of your data sets? And the second question regards the BPO division. I was wondering -- when you think of the growth of this division, you took over the department of Allianz and I would expect there to be growth in earnings, but I'm not sure on the revenue side. And on the incremental revenue increases from the whole division, and I would expect it is people intensive, but you might want to give me a little bit more color on that.

Okay. On the data side we are late in the international development of this business. We had a business plan rather positive in Germany, and it is not starting. The French business is still growing, but the international business is decreasing. And for this business is not recurring. We have a pharmaceutical company who are asking for a study, for instance. We are not sure that every semester they will repeat their need of having those kind of study. So in France, since we have a very strong position, and we have a lot of years of experience, we know that always there are new studies, new ask, new orders coming from the pharmaceutical company. Outside France, sometimes we have a big contract, and it's good, and then we don't have. And on the first semester, we already had a decrease compared to the first semester of last year. So this will have an impact on the EBIT because whether we have contracts or not, we have to pay for the data. In Germany, we buy the data from Compugroup. In Italy, we buy data from 2 software company for doctors. So we may have during the first semester, a decrease into the profits of this data business. The main business is to deliver data to the pharmaceutical company. And very often, the pharmaceutical companies are making the computation they need to have. We have some artificial intelligence project using those data, for instance, to help doctors to make diagnosis. So, we use data, we can make some statistics, and it helps then the business made with the doctors and the software for doctors, to propose some rules to help them to make diagnosis. But for the time being, I cannot say that it produced a lot of revenue. The main usage we have in the group for artificial intelligence is to improve the efficiency of the people who are working in the BPO organization because the BPO, a lot of the job made by the BPO people is to answer the questions of the clients of our clients. So, when a client is a client of an insurance company, and he has a question on his contract or on his repayments, he asked why the repayments has been made this way and all. And so we are improving the profits of this division by having some help so that our people can answer quicker and better to those people. And we think that we will improve this profitability mainly at the beginning of the next year, '25 because we will launch an internal project based on those techniques so that whether the question comes from an e-mail or comes from a letter, we will have techniques which will be able to analyze the PDF if it's an e-mail or the document if it's a letter, and this internal software will propose an answer to our people so that they can answer much quicker. You had a question on the BPO. The EBIT of BPO for this year will be impacted negatively by the fact that we are in the setup phase for Allianz. So, we are really now into the period where we have to transform the way the Allianz people we have hired, the way they are working, and we have to train them to use our softwares and we know that we have increased the teams, mainly in Morocco, because from the time being, all the figures we are computing to measure the efficiency of those teams are not good enough. Have I answered your question?

Yes, absolutely. And congrats on the good results.

In fact, the results of the global BPO organization will be driven by the HR BPO and by the fact that we have improved our way of doing things for the old clients in the Insurance BPO. So this will be positive, but we will have a negative impact coming from the Allianz contract.

I think we have written questions from [ Dr. Besman ]. 2 are regarding Cegedim Santé . Mr. [ Besman ] needs to know whether we have a target EBIT margin for the coming years? And would like to have a bit more details on the competition with and whether Maiia gained market share? So, I don't think we gave any guidance on Cegedim Santé EBIT margin. Speaking to your control care on this. And for the Maiia – for the Doctolib competition, so yes, Doctolib has entered the practice software management for doctors. Has Maiia gained market share? I will let you on this.

We are signing a lot of clients on Maiia and on Maiia for [indiscernible] for doctors, but we have a big churn. So the net number of users is increasing, but we need to focus on the fact that we are losing too many clients. So, the competition with Doctolib is a real competition because they are the leader and -- but we still grew, and you see the figures from Cegedim Santé. If you put apart the fact that last year, we had EUR 5 million subsidies coming from Cegedim Santé , you can see that there is growth. But our goal today is to act to keep all those new clients we are signing. We keep the target we have decided to reach for this year, is to compensate the fact that we won't have the EUR 5 million subsidies coming this year. And we are in the plan today that okay, the competition is tough with Doctolib.

The EUR 5 million are in the first half?

Yes.

And on the full year, it was?

It was EUR 5 million. Everything has been on the first half. So Cegedim Santé will still be loss-making in 2024 but very less than the year before, so we are improving. We are always on the scheme where it will break even next year in 2025. If we had to -- Cegedim Santé, the EBIT of Visiodent and the EBIT of [indiscernible] is the company, which sell the drug database. [indiscernible], this is a physiological group. You say it's [indiscernible] Santé , then it will be profitable in 2024. But the acquisition of the Visiodent is permitting this positive result. Aim to breakeven [ Smart Rx business]. Unfortunately, I must say that it will be a longer process. We have lost a lot of clients during those 5 years. Now we're in a situation where we are losing clients, but we are gaining clients and somehow the number of pharmacies is flat. We are launching a new version of the software, which will be fully secure which seems to receive a good feedback from pharmacists, but it will be our own process. The Smart Rx business has a big interest for us because through our software, we are collecting data from the pharmacist to feed databases on of the data business. But anyhow, we should at least be breakeven on Smart Rx and then make the profit on the database in the data business. And this is not the case today. But as we have said, we are working on the deficits we have in the U.K., and we are working on the deficit we have on Smart Rx, but we cannot say that it will be a positive EBIT during the next 3 years. I'm sure we won't be able to do that.

Are there any other questions from the audience?

Just on BPO, the cost of Allianz , the higher cost of Allianz is going to be compensated by the work you have done on the other BPO business?

Yes.

That means that the total BPO should be flat in terms of profits [indiscernible]?

Yes. Not on the first half because Allianz, they were using people in Mauritius but they were paying a very high price for that, and we had to go on with those people. But we are building now a big team in [ Agadir ]. The problem today we have on the first half is that we are paying the 2 teams because we are still paying Mauritius because this team is working for us and we are paying the team we are building in Agadir because we have to train those people. And the transfer will become in September. So in September, the cost of the Mauritius team will decrease strongly. But on the first half, we are paying the 2 teams. So, I feel confident in the fact that on the year, we'll have a profit of BPO equivalent to the one we had last year. But on the first half, I think it will not be the case.

And I think we have one question regarding FCB. Could you indicate the percentage of share of FCB lease because there are a lot of buys since 4 months? So I will give it to you straight away. [indiscernible] So FCB has about 55 points. Let me be clear, FCB has 54.9% of the shares of Cegedim.

As of today?

No, as of June 30. So it's a bit above 55% as of today. Are there any more questions? No other questions? So thank you, everyone, for attending the presentation. Thank you for your question, of your interest for the Cegedim Group. So as you saw before, next meeting will happen on September 26, for which we'll have the earnings for the first half. And so we wish you a very pleasant summer and very good August month, and we'll see you by the end of September, September 26. Thank you, everyone. Have a good evening, and see you next time.

Thank you. Bye-bye.