Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Hello, everyone. Thanks for attending the presentation. We may wait for a few seconds because we are lacking a few people. We are missing a few people. Okay. A few more seconds and with -- and we'll deep dive into the presentation. Okay. So I suggest that we start this presentation. This first half 2024 earnings presentation. And let's deep dive into the slides we have prepared for you today. So as you know, in the first half, the revenue was EUR 319 million, up 6% reported plus 4.6% like-for-like. The difference between both is largely because of the integration of Visiodent starting on March 1 during this semester. The EBITDA was up 6.9% during the first half at EUR 52.2 million which is EUR 3.4 million more than last year. Very good performance that we'll go into details later on. The recurring operating income is EUR 10.3 million, down EUR 0.4 million to 3.4%. As we'll see later on, this is mainly due to a larger R&D amortization than expected. The net debt goes to EUR 213.9 million, up 28.6%. This is mainly due to the acquisition of Visiodent this year. And the head count is plus 300 people, and we'll see that on the first semester -- first half. It's mainly due to employees in Morocco, for the Allianz contract, but we'll detail later on. So as I mentioned, the revenue is 6% up. You can see that the external expenses are up 9.5%. The main reason for that is the Allianz contract for the BPO division that started last year on April 1, so there's a 1 quarter more than we had last year. These external expenses are mainly due to subcontractors in Mauritius. And the strategy of the group is to internalize this workforce, especially in Morocco, and it will be in the employee cost. So you can see that the employee cost is almost as the growth of revenue, a bit less. Even though we started to have some recruitments in Morocco, so it's a good performance. It also means that in the future, the external expenses should go a bit lower as we have internalized these employees, which has almost -- all recruited in Morocco. So the EBITDA is EUR 52.2 million, so -- in growth of EUR 3.4 million. Also, the EBITDA margin is up. It used to be last year, 16.2% and now 16.4%. And this is even though we had less R&D capitalized that we'll see later on. In the D&A, you can see that it is growing by EUR 3.7 million, out of which EUR 3.1 million is due to R&D amortization, which is stronger than expected and resulting in a recurring operating income of EUR 10.3 million this first half 2024 compared to EUR 10.7 million, last year for the first half. So this is mainly due, as I said before, to stronger R&D amortization. In the nonrecurring operating income and expenses, so it's an expense of EUR 2.6 million. This is mainly due to the cost of the Cegedim going out of the U.K. Doctors in England, Northern Island and Wales and focusing on Scotland, which is the main reason for these NRCs. So the operating income is EUR 7.7 million compared to EUR 9.3 million last year, down EUR 1.6 million. Financial results is a bit better than last year. It's due to more dividend and more profits, financial profits, which overcome the rise in financial expenses. Total tax come back to normal level. Last year, we had a noncash adjustment due to the revision -- downward revision of the estimates of the tax assets. So all in, we have a consolidated net profit or a net loss of EUR 0.1 million compared to EUR 9.2 million last year. As I mentioned before, so the head count went up 300 people. We have payroll cost, which is on a good progression of 5.9% compared to 6% for the sales. And the head count is mainly due to some recruitments for the offshore operations in Morocco, which I mentioned before to place the subcontractors we had in the Allianz contract internalize this workforce. You can see on the first semester that the green part, the offshore recruitments is stronger than the onshore recruitment translating the strategy. So the next slide is very important to us as we can see the capitalized R&D and depreciation and amortization, especially on the R&D. As you can see, we have a bit less capitalized R&D during this first half. This is mainly due to the exit in U.K. Doctors from England and Northern Island and Wales, as I mentioned before. So we have a bit less of R&D there, so a bit less of capitalized R&D. And you can see in the central chart that our R&D amortization went up by EUR 3 million. So the impact on the recurring operating income of this EUR 0.6 million less of R&D capitalized and this growth of EUR 3 million in D&A of R&D has an impact of EUR 3.6 million, meaning that the operating income, the recurring operating income without debt would have been EUR 3.6 million better. So that explains the difference between the EBITDA growth and the slight downwards on the recurring operating income. So for the free cash flow, as you can see, our operating cash flow before cost of net financial debt and tax, is it a bit better than last year by EUR 2 million. The cost of financial debt was a bit better. Also, you can see we have some tax paid. So this is due to the ongoing litigation from which you are quite familiar now. We had a disbursement in February of EUR 10.9 million. So the cash flow generated by -- from operating activities is slightly worse than last year. It was EUR 27.5 million, it's EUR 22.2 million this year. Regarding the intangible assets, the acquisition, we are almost stable regarding tangible assets. We have a growth of EUR 4 million. This is mainly due to the C-media, the marketing subsidiary, which invested a lot in its digital strategy, especially on screen that we can put on pharmacists -- in pharmacists operations. The impact of changes in consolidation scope is mainly due, of course, to the acquisition of Visiodent. All in, this is a net cash flow generated by investment of minus EUR 76.6 million. So the main difference is the integration of Visiodent and this acquisition of tangible assets. As you can see, we had this bond issue actually is the revolving credit facility from which we took EUR 55 million, mainly to finance the acquisition of Visiodent and a bit of debt -- a bit of debt litigation. So it means that we have a net cash flow of EUR 43.9 million on this first half and a change of cash of minus EUR 10.5 million, resulting in a net debt of EUR 213.9 million. So this is the financing, as you have probably seen during the summer, we had a new financing arrangement on July 31. So on the left size -- on the left side, sorry, the former financing arrangement with the Euro PP, the shareholder loan and the RCF. As you can see, you can see the use of RCF, EUR 55 million and the new financing start that we started on July 31, with the bank loan of EUR 180 million and the shareholder loan and not used of the -- we have not used the RCF facility. The balance sheet, not much to mention about it. You can see that the balance sheet grew by EUR 60 million. You can see the integration of Visiodent in the goodwills and this is basically it. Now let's deep dive into the various division of the group. This table as quick table, just to show you all the reclassifications that we made in the -- during the semester. You are now aware of that and the impact on sales and recurring operating income in 2023. So Software & Services. As we saw in July, as we published, the revenue was up by 1%, EUR 1.5 million. And -- the recurring operating income is still negative but growing good by EUR 1.1 million, establishing a loss of EUR 1.4 million. So Cegedim Santé -- first up division. So let me remind you that last year, Cegedim Santé had Ségur de la Santé and had earned EUR 4.4 million on first half 2023. So that impacts the comparison, and also, Cegedim Santé had some more R&D amortization by EUR 1 million. So it makes a bit difficult this first semester, even though -- however, sorry, it's quite stable in sales, going down only by 2.4% and going -- this recurring operating income being down by EUR 0.2 million. It's true that it was partially offset by the integration of Visiodent since March 1. But still, the EBITDA at Cegedim Santé was quite satisfactory. On the other French activities, Insurance and HR performed very well during the first half, both in sales and in recurring operating income. It was a bit tougher for the pharmacists in France, especially as we had a basis -- comparison basis quite difficult compared to last year. Indeed, last year, there was Ségur de la Santé the pharmacist in France and a lot of them had some to renew their equipment. So we have good sales in equipments. And of course, this year, we have -- we are down on the -- on the equipment sold to the pharmacist. However, the subdivision has a growth of 2.7% in sales and a growth of 3.5% in recurring operating income. Last, the international activities, so you can see the sales were almost flat. This is due to the strategy of the group of going down out -- sorry, for the Doctors in U.K., from England, Wales and Northern Island, I guess you got to know right now. And we have some good recurring operating income. Actually, it's progressing by EUR 1.1 million, so it's still a loss but only of EUR 3.3 million. And this is due to the good activities, good momentum in Spain and insurance in the U.K. So overall, the Division has a growth in sales of 1% and a growth in recurring operating income of EUR 1.1 million, which is 42%. The Flow division. So, Flow division is performing very well. So you know we have two sub-divisions there. We have the e-business division, which is -- which has 2 legs, if I may say, both two practices, invoices digitization and health flows, which both had a very -- quite good first half. For the Invoice Digitization, this is due to recovery in the French market. As you remember, the regulation in France was postponed by 2 years. So the previous months were a bit difficult, but now we can see a slight recovery. And also, there's a regulation in Germany, starting on January 1, that helps a lot. Third-party payments, we had a little growth of 3% on the first half. All in, the recurring operating income is up 12.8% for the division. It's mainly due to the third-party payment the Cegedim e-business had a high level of R&D depreciation amortization during this first half, waiting on its recurring operating income. All in, it was a quite a good first half for the Flow division. Data & Marketing division. So we had two very different momentums for our subdivision there. The Data subdivision suffered a bit during the first half, especially in international activities. So it's translated by a little downward in sales by 2.8%, and it weighted on the recurring operating income for the division. As you may know, the Data division has a lot of -- has a very strong fixed cost structure. So less sales translate especially on the recurring operating income. The marketing on this side had a very good first half with a 20% growth, which is EUR 5.2 million and had also a growth in the recurring operating income, even though, as we mentioned before, there have been some amortization of its -- due to its digital investment plan. So two different momentum for this division, resulting in a recurring operating income of EUR 5.3 million. On the Cloud & Support subdivision -- division, so you have the Cloud and then you have also the Support. So we have a growth of 14.5%. So it's EUR 2.3 million. And we had recurring operating income down by EUR 1.3 million on the first half. This is mainly due to the costs associated with the launch of a new cloud offering in cybersecurity, and also the recruitment of new offshore teams, as we had mentioned before. So it weighed a bit on the recurring operating income for the division, also as it's the support for the company, it has some costs which are not built to the other subsidiaries. It could be also R&D and stuff like this. So you have these costs that weighted. Our outlook for the year to come, it's still the same. We haven't changed it. So we're still delivering the growth of -- in the range between 5% to 8% like-for-like, and growth in recurring operating income. And this is the next meeting that we'll have tomorrow, SFAF meeting in Paris in French. And the next presentation will be on October 24 for the revenue of this quarter. So I believe that we could now switch to a question, and please raise your hands. And I can see Gabriel. You can ask your question, please Gabriel.

Thanks for your presentation. I've got two questions, the first one -- could you add some color on the sales momentum in H2, as the base effect becomes easier in Q4. And my second one is -- can we have also some news on the wave 2 of Ségur de la Santé? Do you have any news for the deployment, for example?

Okay...

I can speak about Ségur.

Yes.

So nothing will come this year. We will have this year in 2024, we will have no subsidies coming from Ségur de la Santé. It will start again in 2025, on the Para medical professionals, so [indiscernible] and nurses. It is in discussion today. We don't know exactly what will be the amount we will receive per people, it's on discussion. And of course, as you know, we have lived for a certain number of months without any minister. So discussions are a bit delayed. So nothing for this year, anyhow.

Okay, okay. And for the wave 2? Noting there?

Wave 2 on the doctors.

Yes, on doctor or on pharmacist...

It will be -- yes, it will be after the para medicals. So it will be in '26 -- end of '26. For the H2 -- H2 is always much better than H1, okay? And it should be -- we will remain with the same growth rate -- then on H1, so, roughly around 5.5% or 6%. The main positive impact is coming from the Allianz contract. Two events; first of all, we will reduce in a large effect, the fact that we are having external charges with the companies. We have to do -- we had to deal with -- when we started the contract, the companies are in Mauritius. So this will be finished progressively and replaced by our team in Agadir in Morocco. During H1, the team has been built, has been trained, and we only had costs, so we had double costs. The second effect is that we are going -- we have three lots -- [indiscernible] three group of services to migrate to our softwares. The first group will be migrated end of September. Now it's on the way to be done. The fact that our softwares, which has been chosen by the client because they are more effective. And there are more automatization -- optimization. We will have an improvement in the ratio number of people using the software compared to the job they have to do. So we should have an improvement by having less external costs and more profitability on this very big contract.

Yes, Hugo.

Can you hear me well?

Yes.

Yes.

I may have three questions. And the first one would be on the carve-out or the exit and the refocus of your business in Scotland. Just wondering what was the amount of restructuring fees in H1? And do you expect additional fees in H2? And the second one is a little bit a follow-up of what you just explained. It's regarding the ramp-up of the Allianz contract. What was the loss -- purely associated with this contract also in H1, if you can disclose it? And what do you expect in terms of -- trajectory for the -- your EBIT or your EBITDA on this contract going forward? And last one is regarding your guidance, so you still expect your EBIT to improve this year. Just wondering whether the soft guidance of having an EBIT close to 2021 in absolute number is still valid? Or should we expect an improvement from that given that given -- the exit on the refocus in Scotland and the acceleration in -- for the Allianz contract?

So exit of the U.K. We have had nonrecurring costs on the fact that we had a big plan in reducing staff. The cost of the reducing staff was roughly EUR 1.2 million. But this is nonrecurring. So it does appear in the -- at the level of the EBIT. The thing in the U.K. is that we have to go on producing services to the doctors as long as they have not migrated to software of our competitors. And it seems that the migration is slower than expected. So unfortunately, -- we have a plan to become profitable on the next 3 years, but it seems that for 2024, we will not achieve exactly our plan, meaning that we are going to still have an extra loss in this business. We have the same problem in Scotland. It's the reverse. In Scotland, we have been chosen to be the unique player. So the doctors using software of competitors, they have -- they are pushed by the National Health System, Scotland System. They are pushed to migrate to our system, and in seems to be slower than expected. So on a midterm project, we are still in our plan to become profitable on the next 3 years, but for the time being, we have some delay on this plan. Ramp-up of Allianz, roughly during the first semester we had EUR 800,000 loss per quarter. And we think it will be divided by 2 beginning 1st of October. So we expect an improvement of EUR 400,000 or EUR 500,000 for the year. Guidance. We know that in terms EBITDA. As you can see, we are very comfortable to have an EBITDA better than the one we had in 2021. We are very comfortable with this target. It is not so sure on the EBIT. The reason for that is that the amortization of R&D is stronger than expected. Why? First of all, we have launched new products at a quicker -- on the plan, which is quicker than expected. Second, during this period, we have decided to reduce the number of years of amortization. Usually, those products, the software, they were amortized on 8 to 10 years. Now some of the bricks we are launching today we feel that we should amortize -- we have decided to amortize those bricks on a 5 years period. The reason for that is that on the market -- there is always new products coming on the market. So we have to renew more quickly. So it has a negative impact on the amortization, and it will have a negative impact on the EBIT [indiscernible]. I'm not quite sure that we will reach the EUR 41 million EBIT that we had in 2021. We won't be -- it will be less than that but not far from that. It would be a big improvement compared to the one we had last year. We are on the way to recover and once we will have sold our U.K. problem, we know that it will be on a very good trend. But I cannot say today that we feel very comfortable in the fact that we do not reach EUR 41 million EBIT in 2024. Do I answered your question?

Yes. So I think we had some questions -- written questions in the chat. The first one is how high are the total cash losses expected to be in 2024 for Smart Rx, Allianz, Maiia and Doctor in U.K. And whether these units can breakeven in 2025? I don't know if we give colors -- if you give some details on this, Pierre?

The thing is that we are not able to give any figure on Maiia because now Maiia is a product which is mixed with all the other products for health care professional. Allianz, I have spoken of it, Doctor U.K. and Smart Rx, cash losses should be EUR 12 million to EUR 14 million. Breakeven in 2025, Unfortunately, no, not for Smart Rx and not for Doctor U.K. Doctor U.K., I've explain why. Smart Rx is -- we are launching our new products. We have a target to migrate all our clients on the new product for the end of this year once this will be done, we expect to grow next year, but we will still have losses.

We can couple this question with the third one, which was on Cegedim Santé, whether Cegedim Santé has ended its investment phase and there are still some -- and whether the high investment brought some of the expected ROI, return on investment from the divestment?

Next year, Cegedim Santé will be breakeven globally for two reasons. First of all, Visiodent is a positive investment. It makes roughly EUR 2 million EBIT on EUR 10 million revenue. Second, we are improving the P&L by reducing costs. And third, there should be some see secure subsidies on the para medical people. So we have no problem with the fact that we can say that -- this will be breakeven. Of Sébastien, I let you answer because...

So, Sébastien, you're comparing the debt between December and June. You said that it's going up. Let me remind you first that the first semester is the toughest one for us. So it means that we need to -- we generate less. So the second semester is usually better. That's why the debt is higher in June than in December. On your competition, I haven't seen all the thing and you're talking about also the debt from FCB, I guess, -- so it's a junior debt compared to the others. So in 2025, you can see Pierre. The maturity of the -- yes, the bank loan is up to 2031.

The new debts. We have three debts. Tranche A, B and C. Tranche A is 5 years; B is 6 years, C is 7 years. The FCB loan to Cegedim remains. It has been mandatory. It will be 7 years, plus 2 months. Same rate at the C tranche, so exactly the same cost as the costs we have with the market, the debt coming from the market. Difference is that the interest has to be capitalized, meaning that Cegedim will not pay any interest, any interest to FCB during those 7 years. Of course, the level of interest will increase, but this is due to the fact that [indiscernible] is now much higher than 7 years ago when we launched the new -- the old debt. But the margin is roughly the same. The margin we have on top of [indiscernible] is roughly the same as we had 7 years ago. So it's roughly 3.75, depending on the duration of the different tranches.

[ Mr. Sinjan, ] I think you raised your hand, please.

Thank you very much for these explanations. We've mentioned the word seasonality a bit, both in terms of the profitability and in terms of the debt level. Can you just remind us the factors of seasonality on profits? I mean, roughly -- listening to what you're saying about the full year, we get the impression that second half would make profits about the current EBIT level around 2.5x the first half, so maybe EUR 25 million versus EUR 10 million. Can you just explain to us the moving parts there, please?

Maybe I could show you a graph where we show the monthly revenues of last year, and you will say that -- you will see, sorry, that it's always much better in the second half.

Love to see that. I'd love to understand why?

You don't understand why?

And I would also love to understand the main moving parts of why?

So one of the reason is that there are some clients invest in the second semester to have a full year experience of the product that they use from the group. So it means that we have more sales during second half, on various solutions. So it means that last year, for instance, yes, we had more -- it was about for the sales. It was 50%, 55% of the sales, 55%.

Okay. But there are no differences between all the different divisions and activities. It's a general sort of software thing, booking in second half rather than the first half?

Yes. And also, we have always a good business on data, mainly because our clients which are pharmaceutical companies, they are asking for data during the last 2 months of the year, preparing their marketing and their sales organization for the year after.

Okay. And just to understand -- how the buildup for the full year. So in the first half of the year, we see that there are a number of extraordinary items, which whittled the EUR 10 million EBIT down to 0 at the bottom line. Can you just remind us in the second half of the year, if you do circa EUR 25 million versus EUR 10 million? What are the extraordinary items that we've got to take off that in the second half of the year?

Today we don't have any. We don't see any events which should produce -- we always have some nonrecurring costs. So this is a bit strange to say that, but we always have some [indiscernible] -- firing costs always. So this is nonrecurring cost, but in fact, it is recurring. So -- but it will not be very big. But there should not be any enormous event leading such a negative impact than before on the NRC. It should not be.

Okay. Understood. So if anyone would just want to take a have a rough idea online...

Excuse me, but I must add something. Due to the fact that we are quitting part of the U.K. Maybe we will have -- maybe I'm not sure, it depends on the calculation and competition. Maybe we will have some impairment tests on some remaining software we still have in the U.K. And you see it's always we have to make simulation on the next profits or on the next revenues. And those simulation has to explain the level of assets. And today, we don't see that there should be any problem because if we had seen some problem -- this kind of problem, we should have done the impairment test on the first half. But I can't say today that we may -- we are sure that we will not have any impairment. So it's a noncash charge but it hasn't come in the NRC.

Okay. Understood. So that means for the second half of the year, there's a noncash impairment maybe will happen. But otherwise, it's just...

Nothing.

Well, you certainly have to pay financial charges and tax, but then you'll have a significantly positive bottom line. That's great. Sorry, if I can just slip in two quick questions; one, I just wanted to make sure in/or get an impression, currently in the U.K., and this is linked to your impairment question, observation. Does the U.K. business excluding Scotland have a positive value?

Yes. We have two main business in the U.K. We have the pharmacist business, which is breakeven. So it's slightly positive, not big, but it is positive. And we have a very positive business, which is Activus. So software for insurance company in the health care coverage. It's another division, and those businesses are profitable and they have some value.

Yes. Okay. But the -- sorry, I meant the business software for doctors, does it have a positive value? Or is it potentially a negative value considering what you've said about having to ensure the service to your existing clients before they migrate?

Yes, It has no value because once we will have definitively quit the 2 countries -- the 3 countries, sorry -- Northern Ireland, Wales and England. Then we, of course, we will keep a rather small business in Scotland but it should be positive. So it may have some value yes. But this will be done in the next 3 years from now. It's a long process.

Okay. Understood. Just last little question. Just wanted to know how in terms of the software business for doctors in France. How has the competitive environment evolved over the last year or so? And I'm thinking of Doctolib here. A lot of private equity companies are now a bit under pressure to not only generate growth, but maybe at some stage, generate a profit. Are you seeing any impact of that competitive environment?

Yes, Doctolib is a new competitor. And we are launching on 1st of January, a smaller and simpler software which will compete directly the Doctolib offer, which is not so sophisticated than the one we are selling today. So it's a competitor. It's a tough market. We have a lot of competitors. And we have decided to launch what we call Maiias Gestion, so it will be a software connected with Maiia, and it has been developed. It's working today in the sense, in the same target that Doctolib, which is a very simple software, which can be launched very quickly and which is more dedicated to doctors which are alone in their cabinet. It cannot be used when you have a group of doctors. And we know that we have a big competitor there.

But have you seen any inflection in the sort of the competitive aggressiveness of Doctolib since their shareholders presumably are trying to get the company to make a profit rather than just to grow at any price. Are they becoming any less aggressive?

Unfortunately, we have not seen -- we were thinking that they would be not so aggressive on the prices. Their price list on Maiia [ Pure ], so on the agenda -- their price list is almost twice of our price. So -- but what we see on the field is that when we are competing. They make a huge reduction, huge discounts. So until now, it's as if they were not targeting the fact that it should become profitable someday. But that's the market today. So it's a tough competitor. They have lost hundreds of millions. They are still losing money. We feel that someday their shareholders will ask for some return. Today, I must say that we don't see it on the market. We don't see that on the market. There is a question about Visiodent.

The EBITDA of Visiodent.

Yes. On the first semester, it made EUR 700,000...

On the operating income?

Yes. But they -- amortization. Yes. EUR 700,000 on 4 months basis.

Okay. Hugo, you had one more question? Or is it just your hand was still raised from your previous question maybe. Okay. Are there any other questions? Well, I believe then we'll end this webcast. I hope we have answered your questions and that you had a -- you could -- were able to understand where we are now for the first half. So let me thank you for attending the presentation. See you tomorrow for the one attending the SFAF presentation in Paris. Or we will see you soon in October for the presentation of the third quarter sales. So thank you very much for attending the presentation, and have a good night, and see you next. Bye-bye.

Thank you. Bye-bye.