Cegedim SA

PAR:CGM

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Cegedim conference call. Today's conference is being recorded, and it will be available on the company's website. This presentation will be followed by a question-and-answer session.At this time, I would like to turn the conference over to Mr. Jan Eryk Umiastowski, Cegedim's Chief Investment Officer and Head of Investor Relations. Sir, please go ahead.

[Jan Eryk Umiastowski]

Thank you. Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim's Q1 2018 revenue. You may use the presentation available on the webcast, on our website and our IR app. When the session have closed, it will be followed by a Q&A session.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 and our expectation and prospect and are based on our view as of today, April 26, 2018. Any such statement and projections reflect various estimates and assumptions by management concerning anticipated results.For information concerning important factors that may cause our results to differ materially from expectations and the underlying assumptions, please refer to our registration documents, specifically the Risk Factors section.We undertake no obligation to correct or update these forward-looking statements whether as a result of new information, future events or otherwise.Having this in mind, I will now turn on Page 3 of this presentation.So the key takeaway is quite easy. First, revenue continues to grow. So we are still seeing some increase of revenue of 1.8% on a reported basis and 2.6% on a like-for-like basis, with a mixed situation with the continuing increase and strong performance from Health insurance, HR and e-services, we see revenue growing by 6.4% on a like-for-like basis and a decrease by 3.5% still on a like-for-like basis for Healthcare professionals.On the same time, on this revenue, we applied IFRS 5 norm. So this means all figures presented for 2017 and for 2018 are excluding the Cegelease and Eurofarmat assets that we have sold to Société Générale in end of February. On the same time, we have applied IFRS 15, a new accounting standard for revenue from contracts with customers, and this new norm has no material impact on group revenue. On the same time, we changed a little bit our outlook. We have increased our expectation for the EBITDA for the full year.Before we move further on figures, I would like just to remind you of our strategy. Today's strategy is really that Cegedim is a unique connected ecosystem, connecting doctors, pharmacists, paramedic staff and payers together. You'll see our different number of triumph that we get on our network as that all connects together. And on the same time, we get business for electronic invoicing and digitalization of processes with e-business and the payroll activity as our strong activity also are Cegedim that consider all sectors.And by continuing, by managing our portfolio management, for example, with the disposal of Cegelease and the acquisition of Rue de la Paye at end of March, we continue to improve our portfolio and add more businesses to our activity.We continue to invest on innovation as an increase the stabilization of the level of total R&D budget, and we continue to transform our business model with the development of the SaaS platform for more and more product and more digitalization.So thus, by having more digital workflow, by more cloud and SaaS solution and, at the same time, by explaining more data to the pharmaceutical companies, by having more regulation, for example, for payers and more regulation for doctors, more regulation for the HR and the development of BPO activity, we think that we can get many drivers to ensure profitable growth in the future and to continue to grow.So now moving to specifically the Q1 revenue. So as you may see on Slide 10, revenue increased by 1.8% on a reported basis and by 2.6% on a like-for-like basis, still a significant part done in the Eurozone. The euro represents 86.4% of the total revenue and sterling from U.K. 8 -- 9.8%, and 2.6% from U.S. So 2.6% on a like-for-like basis, we get the negative impacts for currency, mainly from the dollars. 2/3 of the decline is due to the dollars, so 0.8% on a negative. And there are no acquisitions or disposals. So we're on track on it. You'll see that on the first division, Health insurance, HR and e-services revenue get up by 6.3% and 6.4% on a like-for-like basis and on Healthcare professional, a decline by 5.7% on a reported basis. But due to the currency impact, mainly from the dollars, we are down only by 3.5% on a like-for-like basis. The Corporate and others, EUR 1 million, quite stable compared to the same period last year.On Slide 11, you'll see the growth by quarters. So when you look at Health insurance, HR and e-services, you'll see that we are quite strong on revenue with 6.4% on a like-for-like basis. This is more than in the Q4 2017, that was only 5.2%. So the growth rate continue. We see a sustainable growth on this division. So we should continue to be -- have more than 5% in this division.And the second one, Healthcare professional decreased by 3.5%. We'll detail in a few minutes on explaining why it is. So we still see some volatility in the second division from revenue.So on Slide 12, Health insurance, HR and e-services. This is 65% of the total revenue of the group. 97% is done in France, small activity from U.K. due to the acquisition of the company called Activus in 2015. So on a like-for-like, on a reported, growth rate is quite similar. Most of this increase of revenue came from Cegedim SRH, our HR platform, that it's increasing quite strongly, mainly from new regulation in France. That put some significant increase of revenue in this division. E-business, that is our SaaS platform for digitalization and data exchange. That continues to see strong growth, mainly coming from electronic invoicing. So these 2 divisions are -- have a digital increase in terms of revenue. And also, a quite robust growth coming from selling data from statistics for pharmaceutical products to pharmaceutical companies that continue to grow quite robustly in France.On the negative side on this division, we get 2 things. First one was software for health insurance companies in France that have been declining a little bit. Mostly this is due to a transition to SaaS that's affecting, of course, our revenue during this transition from a license model to a SaaS model.The second impact is coming from C-Media. C-Media, it's coming from the merger of Futuramedia, it's a digital display at pharmacies; and RNP, that is more paper that we put in front of the window of different pharmacies. And we have a different timing of campaign in both -- in these activities. And on the same time, we're seeing very strong growth coming from the digital advertisement and a small decline from the paper advertisement. So a mixed trend a little bit. So growing at digital [ news space ], a small decline at the paper and, at the same time, we see a different timing on campaigns compared to last year. So as we decline a little bit this quarter, we'll see an increase probably in the second quarter from this division.Now turning to Healthcare professionals division on Slide 13. So it's 34% of the total revenue. It's more international as 30% is coming from the Euro and 8% from mostly U.S. On a like-for-like basis, it declined by 3.5%. The dollar has a negative impact on revenue of 2.1%. And again, virtually, no acquisition. So this leads to a total decrease of 5.7%. Most of the decline came from U.K. and U.S. doctors. So U.S. doctors waiting for the new software product that will be released on SaaS, and we expect this to come in right now. And for U.K. doctors, this will be ready at end of June. So between now and June, of course, doctors just waiting a little bit for this new software. In the U.S., we just launched the product. And the U.K. one, this will be in end of June. If you remember, in December '17, last year, we get some extra revenue from the NHS. So we do not have this extra revenue in the first quarter. And the second one was we have seen some demand from U.K. doctors for our software, the first module of the software. And in the first quarter, we do not see really this demand. Most of the doctors now wait for the full version that will be ready in end of June, and we are very comfortable by regaining growth in the U.K. market from September this year. The second part is that we get some positive news on some of these divisions. The first coming from French doctors, so the capitalization of French doctors still developing quite well for doctors but also for nurses and [ keto ] practice. So this is quite -- developing quite well.And the second thing is that we see some stabilization at French pharmacists. So we already have seen some stabilization last year. And in the last quarter, we have seen a higher growth coming from French pharmacists. Now we're seeing that most of them have updated the software at end of the quarter, last year and this. Now it's a little bit wait and see. And again, we'll probably be able to sell more software to pharmacists at the end of this year. So stabilization of French pharmacists, very important. We continue to see positive growth at French doctors and French nurses, [ keto ] practice and still a decline at U.K. and U.S. doctors that we expect to be able to solve this in the second half of this year.On the BPO side, so good news is coming from the fact that revenue is beginning to stabilize. So we've been at 30% increase between '15 and '16 and '16 and '17, and now we see an increase only of 7%. Most of this is that more and more contract it now on normal level and increased levels, so they're developing. We do not have any more new clients actually on this. So this, of course, will have a positive impact on our margin.So when we look on the outlook, but first, some numbers for the Brexit. Still the same as last month. So this represents 11% of total revenue and 14% of the consolidated EBIT. We just have a translation impact as we'll operate profit on local currency, so no real impact on margin. And there is no specific program from the European Union in U.K. So most of the financing of the U.K. hedge system is coming from the U.K. government only. On our outlook for 2018, so we still expect like-for-like revenue to grow moderately, as we have said, in end of March. And also, we have said at end of March that EBITDA will increase in line with revenue. And now what we say is that EBITDA margin will grow moderately. So you will see an increase of margin -- of EBITDA margin in 2018.So this is, I mean, a little bit improvement on our guidance on EBITDA. So this is most of the point that we'd like to outline on this. Please remember that the first quarter are typically slightly lower in terms of generation of revenue. So most of the revenue generated in the last quarter of the year. This is the first point. The second point is that we continue to see strong growth at the first division. And the second division, it's a little bit going down, but we expect to recover this before the end of the year, mostly in the second half of the year. And we have upgraded a little bit our guidance on EBITDA margin.Thank you for listening. And I will ask now our operator to open the line for the Q&A session.

[Operator]

[Operator Instructions] We have a question from Benjamin Terdjman from Kepler Cheuvreux.

[Benjamin Terdjman, Research Analyst]

I have some questions. First, regarding Healthcare professionals. If you could provide more color regarding your expectations for the remaining of the year, especially regarding the French pharmacists and doctors?

[Jan Eryk Umiastowski]

So if you look at it, we are down by 5.7% in the Healthcare professionals. However, half of it is due to the currency impact, so we are down by roughly EUR 1 million in the first -- in the second division. We expect to be able to recover this mostly from -- by seeing some increase at U.K. doctors before the end of the year and probably also from U.S. doctors. For French doctors, this is -- we're growing at a single digit, but it's still growing and only if market is [ decreasing ], so we'll get -- we'll see more -- less and less decreased number of doctors. However, we're able to increase our market share in the French markets with our product, it's developing quite well. And for French pharmacists, we are flat in the first quarter, but we expect to be a little bit up by the end of the year. A small single-digit increase, but this will be some increase at French pharmacists. But most of the increase in the Healthcare professionals division will come from U.K. doctors -- recover U.K. doctors in the last quarter.

[Benjamin Terdjman, Research Analyst]

Okay. Just another question on your Slide 14. When I look at the chart, it seems like the BPO insurance is slightly decreasing between Q1 2017 and Q1 2018. Could you possibly elaborate on that?

[Jan Eryk Umiastowski]

Yes. So you're right. What we really see is a small decrease from RCM [ at closing ] in the U.S., but it's more translation due to the conversion between euro and dollars -- dollars and euros. We see a significant increase at our HR and BPO. So we'll get prospective clients coming in the first quarter, so this expands this increase. And a very small decrease at the BPO insurance activity. This is -- one of our first clients on this BPO, a small contract, however, but it's one -- our first client that have decided to change -- to take a new provider. So it's a bad thing because we have lost 1 client. It's a good thing, on the other hand, as this client was not profitable. So a small -- we have lost 1 client, but it's a nonprofitable client, so this will also have a positive impact on margin. But it was one of the first clients, so that was 5 or 6 years ago.

[Operator]

The next question is from Xavier Regnard from Gilbert Dupont.

[Xavier Regnard, Financial Analyst]

Three questions from my side. The first one is regarding the decrease of the Healthcare professionals division. So I'm noting that the U.K. doctors are waiting for the release of the fuller version in fourth quarter. But as far as I remember, the last quarter was pretty encouraging, particularly for the U.K. So I'd like to understand the reason of this decrease this quarter? And then second question, could you give us some color about the reasons of the delay in the advertisement campaign for C-Media? And the third question, could you give us some details about this audit notification from the French tax authorities? What is your feeling about it? And what can we expect?

[Jan Eryk Umiastowski]

Yes. So starting with the last question, on the tax authorities. Every year, we receive notice from French tax authorities to perform an audit on our accounts and to see what's happening, et cetera. This period covered the divestment of CRM and Strategic Data. So we do not expect any negative news from that. It's just that our auditors asked us to put this information to market, but it's, every year, we get notification from French tax authorities to have a look on our accounts. This time, it covered the period of the divestment of CRM. But with the first contact that we get 2 or 3 weeks ago, we do not expect any negative news and probably nothing will happen from this audit. On the first question regarding Healthcare professionals decrease. Yes, in the last quarter of 2017, we have seen an increase of revenue, I'll just put the slide, of 5.4%. And most of this increase came from U.K. doctors. And we get 2 parts of the increase. Last year, 1 part was some specific development that we have provided to the NHS in the last quarter of 2017. And of course, this specific development done in 2017 have not happened in the first quarter of '18. So this rebound that we have seen in the last quarter of '17 had some part of exceptional revenue that we do not see, of course, in 2018. This is the first part. The second part was also that some doctors in the U.K. -- the complete version of the software, it's a bundle of 5 modules, and we have just released the first 2 modules. And we have seen in the last quarter of 2017, some doctors buying the first 2 modules and then if we have not released the full version, I think it was more earlier doctors for our software. And now we release the full version at end of June, and most of the doctors will switch probably at this time. We also have for the London area, the new approval for the software, so most of the doctors are waiting to see who will be approved. Of course, Cegedim will be approved, there is no issue regarding this. But there are some doctors who just wait to be sure that we get this approval to buy the software. So it's a mix of different things, mostly coming from the U.K. The last point is from French pharmacists. We are seeing some rebound in the last quarter of '17 at French pharmacists. The French pharmacists have been up in the last quarter of 2017. And this increase came from the fact that we get the new regulation in France for French pharmacists starting in January 1. So doctor -- pharmacists have been upgrading their software as of 2017. And of course, this could not happen in the first quarter. Some of the pharmacists have also told us, "We have made some investment at the start of the year. We'll wait a little bit before investing to the new version of the software." So if you take a look at this, some extra revenue from U.K. in the last quarter that did not came in the first quarter, some wait-and-see attitude from U.K. doctors and pharmacists that also waited a bit before investing again on the software. This explains this decrease. And of course, if you look on percentage, it's quite significant, 3.5%. If you look on [ a million of use ] it's EUR 1 million really we get related to business. And we are confident we'll recover this before the end of the year. And the last question was about the delay at C-Media campaign. So our advertisers are buying from advertisement campaigns, so this can be L'Oreal, Estee Lauder, [indiscernible] or Sanofi, and it's depending when they're starting the campaign and when they finish. So this year, we have seen that due to -- that January 1 was in the middle of the week, and that we get some vacation in France, et cetera, most of the campaigns have been postponed for the second quarter. And also, some campaigns that are normally starting early in March due to the spring coming in, et cetera, this year, this was a more cold April season, some of the campaigns have been on March -- some of the campaigns have moved from March to April. So we'll get more revenue in April than in March compared to last year. So this is why we see some small decline of revenue at C-Media.

[Operator]

We have no other questions for the moment. [Operator Instructions] We have a question from Sébastien Bourget from Quaero Capital.

[Sébastien Bourget]

I am just wondering why have you decided to increase your guidance, your margin guidance? What is the effect behind this decision?

[Jan Eryk Umiastowski]

Yes, we have upgraded our EBITDA margin because we are seeing that even if revenue just increased by 2.6% due to a decrease of Healthcare professionals, we really see that the trend on EBITDA that we're seeing in the last quarter continue in the first quarter at a slower rate, of course. But we have seen this improvement of margin. And of course, when we know that our margin, our EBITDA margin, will be better than what was told to the market, we upgrade our margin.

[Operator]

We have no other questions. [Operator Instructions] We have no other questions. Sir, back to you for the conclusion.

[Jan Eryk Umiastowski]

Yes, thank you. So I would like to remind you that the important thing is that revenue growth continue, specifically at the first division. We see a small decline in the second one but we'll recover before the end of the year. So revenue will continue to be up for the full year. We have upgraded a little bit our EBITDA margin guidance. And the transformation of the company continues. I wish you a pleasant evening or a pleasant day. Thank you for listening. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.