Cegedim SA

PAR:CGM

Earnings Call Transcript 2021-Q1

[Jan Eryk Umiastowski]

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim first quarter 2021 revenue. Before we begin, I would like to remind you that this presentation and conference call may constitute forward-looking statements. These forward-looking statements may include comments about our guidance, our expectation and prospect and are based on our view as of today, April 27, 2021. For additional information concerning important factors that may cause our results to differ materially from expectations and underlying assumptions, please refer to our universal registration document, specifically the Chapter 7, risk management. Having this in mind, I will turn on Page 3 of this presentation. So this is a quick reminder of Cegedim, what we do. So day after day, our more than 5,000 great employees work hard to improve the health of thousands of people every minute. This means that every minute Cegedim is in contact with more than thousands of people by providing different solutions for them to improve their health. Last year, revenue came to less -- a little less than EUR 500 million, more than 5,000 employees present in more than 10 countries and 84% of our revenue are in the health care space. Looking now in the first quarter of 2001 (sic) [ 2021 ], you'll see that the rebound started just after the first lockdown in 2020. In the second quarter of 2020, we've been down by 8% on a like-for-like basis. Then we've seen a growth of 1.9% in Q3, 2.3% in Q4 and in Q1 2021 an increase of 1%. When we compare first quarter 2021 with first quarter 2019, we see an increase of 4.2%. This means that if we exclude 2020, we see that we have the underlying growth rate of Cegedim that is quarter after quarter we should be over year -- around 4% to 5% increase of revenue per year. 2020 was a very specific year. But having this, it means that more or less we should be between 4% and 5%. So we are very confident to achieve our guidance and maybe exceed our guidance at the end of 2021 in term of revenue growth. In the first quarter, we've been impacted by some restrictions, specifically very strict lockdown in UK and Germany and some lockdown in France that have some impact on our businesses as we'll see in a few minutes. However, even with this strict lockdown in Germany and U.K. and some restriction in France, our revenue came up by 1% in the first quarter after 3.3% in 2020. Despite health crisis, we see growth rate. So now if you look more in the first quarter of 2021 revenue came EUR 122.5 million. This is an increase of 1% on organic growth. Then we have no impact on acquisition disposal and a very small impact from British pounds. So on a reported basis, this is an increase of 0.8%. And 90%, 9-0, 90% of our revenue now are in euro and 8.2% on GBP. If we look on the first division, Software & Services division, this is the biggest one. Revenue came to EUR 68.8 million. This is an organic -- a very small decrease of 0.1%, so I would say this is flat on organic. And we get a negative impact from currencies. So on a reported basis, we have minus 0.4% coming mostly from the outstanding that is 13.9% in conforming. When we compare first quarter 2021 with first quarter 2019, we see an increase on a like-for-like basis of 3%. This will mean that we are a little below our normal growth rate on this division that should be around 5%, but we have 3%, so it's not so bad. And we see that most of the activity in this division have seen a very strong growth and increase of revenue. However, we get 2 negative impact. The first and the biggest one is coming from U.K. doctors. That in 2020, we have very specific development for the NHS and so a one-off revenue recorded from NHS. So if we exclude this exceptional revenue generated in 2020 with NHS, revenue in 2021 compared to 2020 could have increased by 1.4% instead of being flat. So this is an impact from a negative base effect from U.K. doctors. What is very encouraging and make us very confident for this division is that all the project-based activities that have been completely stopped since the first lockdown in March -- at the end of March 2020 have recovered. So we have seen picking up again on this activity and we have been able to sign contracts in the first quarter of 2021 on project-based activity that's mostly for health insurance companies in France. Thanks to the investment that we have been made on our technology. So by investing on new solutions, this now translate that we have been able to sign in the first quarter of 2001 (sic) [ 2021 ] very project-based activity on health insurance -- with health insurance companies. That will, of course, start generating some revenue in the second half of the year, but more revenue will be in 2022. So the fact that we see again that the group is able to sign project-based activity and specifically because we have invested in new solution is very encouraging and make us confident for 2021 and 2022. On the Flow divisions, so revenue increased by 3.4% on a like-for-like basis. When we compare 2020, if we compare to 2019, we see an increase of 4.3%. We have made some big acquisition in this division to increase our presence in U.K. and Germany. And we have seen that electronically invoicing and order process of digitalization of all kinds of companies, not only in the health care, have grown very fast in the first quarter, and thanks to the fact that we have signed a contract in the last quarter of 2020. So in the last quarter of 2020, we have signed a lot of contracts. This contract have been implemented in the first quarter and started to generate revenue. So the full revenue of this project, of course, will be seen in the second quarter of 2021. So this also make us confident for all the year in terms of revenue. This is for, I will say, electronic invoicing and all the process digitalization in France. However, in Germany and in U.K., we have seen a very strict lockdown in the first quarter. And there's very strict lockdown in the first quarter, of course, reduce activities for companies and the economy in global. So we have seen less flows and as we dictate the flows, of course, less revenue. On the second part, this is for all kind of company. Now when we look on specifically health care space, on health care flows, we have seen a decrease on volumes on revenue again as every time we see some restrictions, lockdowns, straight or not, et cetera. Every time you see restrictions, we see that the French people avoid medical care during period of COVID-19 restriction. So again, in the end of December and again, in January, February and even in March, we have seen this decrease. And of course, this decrease continue in April. However, we expect that some state -- some rebound in this activity when the restriction will be lift, so probably in the second half. So negatively impacted by activity in Germany and U.K. and in health flows in France. However, all of the activity has been growing by us. And when you came on the mix, it's an increase of 3.4%. So this means that without this negative impact from Germany and U.K. and French health flows, we should have been more than 5% increase on this division. On Data & Marketing division, very strong quarter with an increase of 5.7%. When we compare to 2020 and we compare 2019, we are more than 5% increase. This is really a boost from the data activity. And during the -- all this pandemic, we have seen that all the top stakeholder in the health care field buying from us a lot of data to understand the market, what happened on the COVID, but also on revenue indication, how to make prescriptions, et cetera, et cetera. So very strong boost on our data activity. And the second thing interesting is that at the time pharmacy in France have been picking up again. So we see that the recover continue on the advertisement business. So it's also very encouraging for the coming months. And you remember that last year in April, we have completely shut down this activity. So this year, if we -- it seems to be quite good month. So end of the year, we should have some advertisement at pharmacy, also a good performance. On the BPO side, we see a decrease of 5.2%. When you compare 2019, it's an increase of 8% and this increase of 8% coming from the fact that we have signed a contract -- a new contract at the end of 2019. So give us a boost in 2020. And now when we see -- compare '21 to '20, it seems that we have seen a decrease. And this decrease -- it's not on the same. We have a decrease. And the main reason for that is that, again, French people delay or avoid medical care because of the COVID-19 pandemic. And as we get paid per transaction per reimbursement, of course, if we see less medical flows, we see less BPO activity. So it's just a direct translation of the fact that when people use less health care and avoid medical care during restriction. So again, on this activity, we expect to have stage on recovery mostly in the second half of the year. On Corporate and other division, very small amount, it's EUR 1 million. When you compare it to just EUR 100,000 more revenue, so nothing really to mention on this. So the outlook for the full year we've been up by 1% on a like-for-like basis, Q1 compared to 2020. When we compare 2021 to 2019, it's an increase of 4.2%. So at this stage, we maintain our guidance of an increase of 2% on a like-for-like basis on revenue and a recurring operating income increase of 4%. What is very important is to see what happened in the second quarter of 2021. But we are very confident from the fact that the project base have been recovered. So this will generate more revenue probably in the second half of the year. We are also confident on the flu business outside the health care space. However, if we see the lift on restrictions in the second quarter, can be some compensation, including U.K. and Germany and also for the BPO. So we are confident to achieve our guidance for the full year, and we'll give more color on that once we release our earnings for the full -- the first -- the second quarter revenue in July 2007 (sic) [ 2021 ]. Quickly Cegedim equity story. It's a solid business model. As you have seen, we invest lot of money. And just what we have invested in the past begin to pay here because, for example, on the project-based system, we see a pickup up of activity. It's very encouraging. All product are now in SaaS, strong recurring revenue. This is why we see an increase of 1%. We're well positioned to drive digitalization of the economy and we're unlocking the massive potential of synergies as a group. And you have seen one of the synergies by creating Cegedim Santé, Cegedim Health. It's a combination of all our activity for health care professional in France. So we are combining this activity together. Instead of having 5 different activities independent, we are now combining them together to have one sales team how -- to combine R&D, to combine commercial teams, to combine this product. And this help us to address the market. Enterprise market is trending, so we can address now medical houses, smaller hospitals, a combination of doctors. So we have doctors nurses keep their practice, et cetera, working together. And we can offer a unique solution for that. So it's a very good way to see how we try to combine our activity, how we make synergies on the group by delivering this Cegedim Santé, a new brand that combine all of our activity for health professional in France. Having said that, this conclude my presentation at this stage. So we'll open now the line for any questions that you may have. So you can raise your hand or press the button or ask question by e-mail or directly in the system. Now I open for Q&A. Thank you.

[Jan Eryk Umiastowski]

We have one question from Michalet. You can ask your question now.

[Geoffroy Michalet, Research Analyst]

Yes. Can you hear me?

[Jan Eryk Umiastowski]

Yes.

[Geoffroy Michalet, Research Analyst]

Congratulations for those good results, I would say, in line results. Just one question. Could you give us somehow sense on how it's evolving, competitions or what you see regarding Maiia's activities? I know that you've already said in the past that you consider that the figures given by some of your competitors were not matching the total -- maybe the reality and that some figures may be sometime overstated. But how do you feel them -- how your commercial teams are coping with such a level of competition so far? And what is the key message from that?

[Jan Eryk Umiastowski]

Yes. So there is 2 factor. On Maiia, you get the teleconsultation market. And on teleconsultation, what we have seen, we have seen a strong boom in activity on teleconsultation starting with the first lockdown in March last year. Then the decrease over the year, a little rebound at the end of the year with the term -- the second lockdown. And then again, a decrease in January, February and some smooth increase again. So now roughly, I will say that between 20% and 25% of doctors -- I would say, doctors have between 20% and 25% of visit online instead of face-to-face. So around big 20% of visits are now online. So this means that the market is now stabilizing around this level. It should remain under stable, maybe coming up to 25%, 30%. What we see, it's more that this is -- GP is moving on it. Specialists avoid moving to teleconsultation at this stage -- are more reluctant at this stage to move to teleconsultation. This is overall for the market. Competition is still the same. We're one big player on this market, excluding Maiia. So nothing really changed in term of competition for the last -- since the beginning of the year. We have changed activity -- that we have combined all of our activities on Maiia, Cegedim [ Rosi ] Medical, Resip, Smart Rx, the software for pharmacies, software for doctors, software -- a medication database, software for nurses, keto practice, et cetera, under a unique umbrella that is called Cegedim Santé. The part is to address with the unique brand all of this health care professionals. And this is a reaction to the market. What's happened on the market was the new players coming in, et cetera, and to help health care professional better identify Cegedim as a unique player on this. Also in-house by combining all the resources that we get from all of these activities together. So no big change on the market. However, Cegedim is changing. We put all of this brand in a unique umbrella to help address what happened on this market, to be more efficient and by making synergies between our product. And it's true that our Maiia is stronger, the new software for keto practice will be our flagship for all health care professionals that we'll develop in the coming months with a version for GPs, a version for doctors, et cetera.

[Geoffroy Michalet, Research Analyst]

Do you have the first results so far? Or is it really too early to tell?

[Jan Eryk Umiastowski]

No, it's too early as we've started this brand in beginning of April. So we just have 3 weeks of data. What we have seen is that the doctors, et cetera, have been interested by the way we're changing, the way that we are now able to address medical houses with a unique solution, et cetera. So we see a positive reaction from the market. However, to see a real impact on the market is completely -- it's too early. However, in-house, we see that this provided a new dynamics in-house. So people are very happy with this new brand. They say that was something a new story, et cetera. So we see a very strong traction in-house that Cegedim with this new positioning of the company that is very interesting. And probably, we'll see some positive impact of this on the market in the second quarter. So we get the question from Jousseaume.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

A follow-up question on Cegedim Santé. What is the potential in terms of cost synergies? What do you expect on this front?

[Jan Eryk Umiastowski]

I would say synergies and cost savings that we'll get from this new organization is something that's coming in the second line. The first reason what we have done this is to address the changes on the market. The fact that now we have doctors coming again -- in a unique house, you have a doctor at the practice, a nurse or dentists, et cetera. And they need a unique solution to communicate between them, patient, et cetera, et cetera, to take appointment and to exchange and to billing, et cetera. So this is to -- in order to present a unique umbrella of solution for them. In the second level, they will change some synergies in term of commercial team, in term of R&D, in terms of organization, et cetera. But this will come later. And this will be just something more of a cherry on a cake that will come at the end of the year. But the biggest impact is really from the commercial point of view. I think with the same structure, we'll be able to address more doctors, more health care professional with a better solution.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

So we should expect a positive -- a stronger organic growth from this move in the first -- as a first reaction or the first effect?

[Jan Eryk Umiastowski]

Yes, but mostly in the second half of the year.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

Okay. And when you mentioned cost savings, so you say it's later. So it will be 2022, 2023 or much later?

[Jan Eryk Umiastowski]

No, probably somewhere in 2022.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

Okay. Okay. Then I had another follow-on. Maybe on the U.K. So you mentioned U.K. doctors. You have invested a lot in the U.K. And I remember that it was -- it's a difficult market because it's all regulated by the NHS. And I think the price is set by the NHS. Why have you invested so much? And I read in the press that you have won a contract recently with the NHS. But I'm not so sure whether it was true or not. I think there was no obligation on your side. Is it a big contract, not a big contract? Did you win it or not? And what is exactly the potential in the U.K?

[Jan Eryk Umiastowski]

On the U.K., we've been in the past #2 and now we're #3. So the reason of this heavy investment that we're doing in the U.K. is really to come back again to be #2 on this market. So this is what we want to be, #2, to get to a big place on this and to be a significant player on this market. It's important for us. So it's required that we make investment and then it's in time to come in the market that we get the best solution and the doctor and of this to make changes and buy it and then that was spread all over the countries in the U.K. But is that -- the NHS changed a little bit the rules compared to the last year. So yes, we win with the NHS in all of the 4 countries in the U.K. so England, Scotland, Wales and Ireland. So we are present in all of these countries. We have the contract within the terms. Now the economic conditions for this new contract -- it's a little bit below what we get in the past. However, if we are able to increase our market share, this will generate anyway more revenue. So this is why we're saying it's a very big contract because it's the fact that we get compliance with all the NHS regulation. So we are able to implement our solution in all of the GP office in the U.K. And yes, last year, we get some specific revenue from the NHS related mostly to the COVID-19 development that they ask us to do. So we get some boost on revenue last year. And then we signed this contract with NHS. And this contract with NHS will start generating some revenue. But there have been some postponement from the NHS for this new software. So now they are more concentrated on the NHS. And so this has been postponed from the second half of 2019 to probably something like second half of 2021. So we'll be able to promote our solution mostly in the second half of 2021 on the U.K. market. So revenue will be more in 2022 for U.K. market.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

Okay. And the last question for me. In the Software division, so the organic growth is very low or is low -- is rather low. But is there any change below the line or -- I mean, I don't know, SaaS or recurring revenue growing and one-off licenses or service work declining? What is exactly -- is the mix changing? Did the mix change in Q1 or not?

[Jan Eryk Umiastowski]

No, no, the fact that we are flat in this division.is not related to any transition from license to SaaS or whatever different way of recognizing revenue, et cetera. There's absolutely no impact from this side. The 2 impact that we get from the fact that we are flat on this is first from the U.K. As I mentioned before, if U.K. have been at the same level as last year, we've been up by 1.4%. And the second is that all the project-based development have been completely stopped in the first quarter of this year. We did some, of course, last year. And when we compare then second quarter with second quarter, you will see that will be up because our project-based solution on the same level. But what we have seen is that we have been able to sign some contracts for project-based solution in the first quarter. We'll probably start implementing them at the end of the second quarter, beginning of the third quarter, so this will generate some revenue in the second half, but most of this revenue will be generated in 2022. But we already signed some contracts, very encouraging, and make us confident for the coming months.We get some question from Eric Blain.

[Eric Blain]

Hello?

[Jan Eryk Umiastowski]

Hello?

[Eric Blain]

Okay. Eric Blain, Finance Connect. We -- just a few point. About the BPO, the decline is still significative. Is the profitability of this business -- is the expansionally related to the volume? I am wrong on this point or...

[Jan Eryk Umiastowski]

It's true that the BPO business is very high fixed business in term of cost. So of course, any decline of revenue have a big impact on profitability. So profitability in the first quarter as we have looked at the BPO business have declined. However, we also implement some automatization processes. We automate some processes, et cetera. So the total impact will be lower than what we may expect -- or you may expect. However, of course, if we get less revenue, we get less profitability on this segment.

[Eric Blain]

But I mean that there is no -- in the contract, there is no indexation on the volume. When you sign a contract in the BPO, you have not a minimum guarantee or something like that, no?

[Jan Eryk Umiastowski]

No.

[Eric Blain]

It's totally related to volume?

[Jan Eryk Umiastowski]

Yes.

[Eric Blain]

Okay. And Doctolib have got a huge success -- marketing success probably, but with the registration for test, the PCR. Did my -- do so -- something in this field or nothing?

[Jan Eryk Umiastowski]

Yes. We are #2 on the segment for COVID-19 vaccine and appointment to COVID-19 vaccine. We are quite strong on this activity. We have set up on the south of France some cars or buses. So this is -- you get the buses that are going on a small village and you can take appointment and then receive your vaccine, et cetera. So we are moving on it. And that we are quite active on all things related to vaccine. But it's true that the player that you mentioned before are #1 on this appointment for vaccine, but we are #2 on that. And we have quite good results and some innovative solutions.

[Eric Blain]

I know that you don't give a number about Maiia. But do you think that you are not gaining market share, but keeping your market share? Or can you give us some indication on -- is where Maiia is doing right now?

[Jan Eryk Umiastowski]

Maiia is developing quite well. I will say that revenue double in the first quarter of this year compared to last year. So it's quite a good thing. The second is that in term of positioning, in term of appointment, we are still #2. And of course, Doctolib is #1. But we are maintaining our market share, which means that Doctolib has stopped gaining market share from Maiia on appointment, but from other new doctors that are already not on the system. So quite encouraging to see that we maintain. And then on teleconsultation, we are gaining market share in the market. I think that we get good traction on teleconsultation for Maiia.

[Eric Blain]

Okay. And my last question is I wonder U.K. business is highly profitable or higher than the group? And is there a lot of synergies between U.K. and France?

[Jan Eryk Umiastowski]

No, the U.K. business is not really profitable at this stage as we have made a lot of investment and our market share reduced quite significantly over the past years. So we're getting profitability in France at this stage. However, our goal is to regain market share in U.K. and to restore our margin on this market. But this will happen over the next 2 years. This is our goal to regain market share, to improve our margin in U.K. but it's a low profitability market at this stage. Outlook for us -- but there is some big potential on this market. Specifically, with all the change happening at the NHS, et cetera, that give us very confident on the market that we can win some market share. Then in term of synergies, there is some synergies, but not a lot of synergies. For example, on software development, if you take the U.K. software and the French software, the common part of between the French and the U.K. software, it's around 40%, 4-0. So there is some synergies, but they are not so high. But what is interesting to be in the U.K. market that -- with our software is that we can collect data and resell this data to the pharma companies, for example. So if you come to the pharma company saying you have a data set for the French market, they are interested. When you say that you have a set, which include U.K., Germany, Italy and Spain, they are very interested. So one way is to say, okay, the software business, et cetera, and the second is when you add the data business it makes sense also to be in the U.K.

[Eric Blain]

In fact, it is the growth of the profitability you expect for the year...

[Jan Eryk Umiastowski]

Hello?

[Eric Blain]

Hello?

[Jan Eryk Umiastowski]

Hello? Yes.

[Eric Blain]

Yes. You hear me?

[Jan Eryk Umiastowski]

Yes, no right.

[Eric Blain]

Oh, sorry. I said that if I want to simplify the increase of the profitability this year, which is not huge, 4% in front of 2% for sales, it's mainly due to the growth in the Data & Marketing business.

[Jan Eryk Umiastowski]

Yes. With the assumption that we have done in March when we released our guidance, this was the case. And now we see that also the project-based are picking up in the first quarter. So this will also have a positive impact on profitability on the full year. And of course, we'll see what happen on the health flows so for the Flow segment and for the BPO segment for the full year. And then we'll see that we have stronger-than-expected positive impact from electronic invoicing in France also. So all of this may lead to higher profitability than expected, but we'll see more one to release the second quarter revenue. If there is no more questions, I will end this presentation. I will remind you that revenue increased by -- on a like-for-like basis by 1%, but more important by 4.2% compared to 2019. That make us confident for the full year and specifically for the second quarter with some project-based solution picking up in software business. On the Flow, we may expect that if restriction are lifted that we see some recovery and on the health segment, but also from other industry in Germany and the U.K. And then we'll have a new conference call in July 2000 -- 27. And you have any more questions, please feel free to give me a call or to send me an email. Thank you. This conclude my presentation. Have a happy day and happy evening. Thank you. Bye.