Cegedim SA

PAR:CGM

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Cegedim Conference Call. Today's conference is being recorded and will be available on the company website. This presentation will be followed by question-and-answer session. At this time, I would like to turn the conference over to Mr. Jan Eryk Umiastowski, Cegedim 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 second quarter 2018 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 expectations and prospects and are based on our view as of today, August (sic) [ July ] 26, 2018. Any such statements and projections reflect various estimates and assumptions by management concerning anticipated results. For additional information concerning important factors that may cause our results to differ materially from expectation and 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 turn on Page 3 of this presentation. So all numbers on this presentation are according to IFRS 5. So we have considered that the Cegelease disposal happened at end of '16, so the numbers for 2017 and the numbers for 2018 can be comparable and this is excluding Cegelease. Cegelease disposal happened on February 28, 2018. Second important fact is that IFRS 15 is -- we applied IFRS 15 and there is no impact on our revenue from the application of this new law.So now I'm going to Slide #4. So coming to second quarter [indiscernible] 2018 revenue and the most important thing is that revenue growth continued over the second quarter. So in the second quarter, revenue came to EUR 115.7 million, an increase of 1.4% on a reported basis and an increase of 1.1% on a like-for-like basis. We get the negative impact from USD and sterling for 0.5% and the positive impact from the acquisition of Rue de la Paye of 0.8%. The Rue de la Paye, is an acquisition, for our AR activities -- HR activities, sorry. So this is an offer dedicated to very small offices between 1 and 100 employees, and this is to increase the coverage of our clients for the HR activities. So Rue de la Paye, this is acquisition done on March 31 -- at the end of March, had a positive impact of 0.8% on our revenue. The Health insurance, HR and e-services division continued to post robust like-for-like growth of 5.6% on a like-for-like basis in the second quarter of 2018. And at the same time, the Healthcare professional division saw a decline of 6.8% on a like-for-like basis in the second quarter, mainly due to demand in quarterly comparison, compared to last year. We've been up last year at the end of June, and the planning [ load ] of new offering U.K. and the U.S., and we came lately on that.Moving now to the half year results. So revenue for the second -- for the first half of the year came to EUR 227.6 million. This is an increase of 1.6% on a reported basis and an increase of 1.8% on a like-for-like basis. We get the negative impact again of -- from the dollars -- U.S. dollar and the sterling of 0.7% and a positive boost of 0.4% from the acquisition of Rue de la Paye at the end of March 2018. So if we look at the division, this means that Health insurance, HR and e-services posted a revenue increase of 6% on a like-for-like basis and Healthcare professionals, a decrease of 5.2%. And most of this decrease lead from the second quarter, and I will explain this in a few seconds. So this is on Slide 6. So the business product transformation is continuing according to our plan and this is why you see this significant increase in the first division. And we'll see positive impact from all of this transformation coming later on Healthcare professionals, mostly in 2019. On the BPO revenue, so the revenue increased by 14, 1-4, percent in the second quarter of 2018 and gained to roughly EUR 18 million for the first half of 2018. So you'll see the different number. This is up by 12%. So you may see that we've been roughly increase -- revenue increased between '15 and '16 and '16 and '17 by 30%, 3-0, with the last year and now we have just an increase of 11% and the reason for that is mainly that the Klesia contract, it's now on the normal level of activity on this division. The ramp up is ending up. And as the ramp up ended, we're beginning to see some normalization of the increase of revenue from the BPO activity. But most of this is coming from the insurance businesses that as we may see also, we see a significant increase from our HR activity on BPO. Turning on Slide 7 -- 8, sorry. This is the headcount. So you'll see that we have a significant increase in 2015. Smaller increase between '16 and '17 and then since the beginning of the year, we have seen just an increase of 1.8% on the headcount of people. This means that we have now the correct number of members to continue our development and to continue to grow the company. And so we've been -- to see a stabilization in the number of headcount, and it's obviously more in line with the growth revenue and the development of the company. Moving to Slide 9, this is our focus on Health insurance, HR, and e-services division that account for 66% of the total revenue of the group. So most of this activity is located in France. We have a small activity in the U.K. for insurance company that is beginning to develop. Revenue increased by 6.6% on a reported basis. This is 6% on the like for like and remaining part -- the main difference between reported and like for like. This is the acquisition of Rue de la Paye for our HR activity that have a boost of 0.7%. As you can see, quarterly revenue growth on the right of the slide, we continue to see stock increase by 5.6% in the second quarter. The biggest driver for this increase of revenue is mainly coming from our HR management solutions in SRH that continue to provide double-digit growth as our data flow and cost of digitalization from Cegedim business, so this is really what drives the growth. And data for pharmaceutical products. That data is developing quite well also, and we have a third-party payment system, electronic investment in product is still developing quite well. So this positive performance has being a little bit offset -- vastly offset by the impact of switching health insurance companies to activity of this to a SaaS model. So we're seeing an acceleration to our SaaS solution compared to the license model on the insurance side. So we see more insurance company moving to SaaS and this are going to impact -- a little impact on our revenue in the short term on Health insurance, HR and e-services during the year.On Healthcare professionals division on Slide 10. This is only 1/3 of our revenue. This is the more international activity that France represent only 62% of the revenue of the segment. We've been down by 5.2% on a like-for-like basis and negative impact of 1.7% from mostly the U.S. and the sterlings, and roughly no impact from M&A activity. And as expected, I will say the division was negatively affected by the fact that in the U.S., our product had been released only in May this year, and in the U.K., at the beginning of July. So we now get the product for the U.S. and the U.K. market. But of course, the impact of these new products on our revenue will be seen only in 2019, maybe a little bit at the end of 2018, but most of this -- all this positive impact from this new products will be seen in 2019. So new products are now on the market. We just need time to make promotion from marketing of them to convince people to buy it, make migration to this new product and then we can record revenue. So this would be mostly in 2019. And we still have a good position and good development on revenue on French doctors. On keto practice and nurses visiting patient at home in France and on the Belgium doctor also. So a good development of this activity. But most of this major impact is coming from U.S. and U.K., there -- where we get new products on now. Now moving on Slide 11. So our outlook as of July 26. So we maintain -- while maintaining our guidance, this is a cautious optimistic guidance for 2018, saying that moderate organic revenue growth and an improvement in EBITDA margin. This means that EBITDA margin will -- EBITDA will increase faster than the increase in revenue. The second thing that is important is that most of the improvement on EBITDA in 2017 came in the second half of 2017. And this improvement in EBITDA in the second half of 2017 was structural, so because we have been able to reduce some costs of company. We have been able to be more focused, more organized. We have -- with maximum synergies. [indiscernible] on R&D, on HR et cetera and all of this structural changes that have positive impact in second half of 2017. Of course, we still have positive impact in 2018. So most of -- and we showed last year on the EBITDA margin, you will see that we have seen moderate increase in the first half and a significant increase in second half. So for 2018, we'll see an improvement on EBITDA margin, mostly in the first half of 2018 from the structural improvement that we have made in 2017. And the second half of 2018 in terms of EBITDA improvement will be more or less stable compared to last year.In terms of revenue, we'll probably see higher increase of revenue in the second half of '18 compared to the first half of 2018.This is the most important fact to remember now, coming just to the slide of the impact of Brexit. Just to remember you that this represent 11% of our revenue, 14% of our EBIT. We operate in local currency. So we get cost and revenue in local currency, so we have just a translation impact and there is no major European health program at work in the U.K. actually. So we do not expect any negative impact from this.I'm now open to Q&A session. So I will ask our operator to open the line for the Q&A session.

[Operator]

[Operator Instructions] We have a question from [ Eric Blah ] from Raymond James.

[Unknown Analyst]

[ Eric Blah ] from Raymond James. I just want to know more about Healthcare professional. You said that the decline is due to U.S. and Great Britain. I just want to know about the French business. That means it's quite stable in the first half? And what about the pharmacist inside the French business?

[Jan Eryk Umiastowski]

Yes, thank you for the question. Moving to the slide on the second division, Healthcare professionals. So yes, on the French market, we are roughly a little bit up mostly from French doctors, French keto practice and French nurses visiting patient at home. This has been a little bit offset by a small decline on French pharmacists and the decline of French pharmacists is coming from the comparison basis. So last year in June, we get a little extra revenue from French pharmacists that we did not see yet this year. You remember that we had boost last year in June 2017 from French pharmacists and in November, December. And of course, when you compare this to 2017 -- '18, so in June, we've been a little bit down on French pharmacists. But overall, on the French market, we are up thanks to the French doctors and nurses and keto practice.

[Unknown Analyst]

And I thought that you launched the new product on the French pharmacists. That means that it's not a great success. We -- you just stabilized, it seems the business in this field in front of [ pharmacists ] or do you hope to come back in the market with gaining market share?

[Jan Eryk Umiastowski]

No, the main reason for -- we expect, of course, to gain market share. The main reason for the decline is that at the end of 2017, we have requested that all of our pharmacists move to the new software for accounting. So in France, we get a new rule called -- I do not exactly remember the name, but we have a new rule on accounting that require that pharmacists need to upgrade the accounting software and this need to be compliance and approved by the government. And most of our competitor have just say to the pharmacists that they need to move to it, but they give them the possibility to do it or not. We have requested that our pharmacists move to this in order to be compliance with the new rule starting from January 1, 2018. This means that most of our pharmacists buy from us this new modules at the end of year 2017. And now [ we just as, ] "okay, your software is great, we love the new software, et cetera, but we'll wait until the end of the year before buying it and making grade -- upgrade on the software side." The real management of the office of pharmacists. Only by the end of the year as we have spent some money in the last month's review. So it's just a time -- a phasing between spending money and [ receiving ] from these pharmacists, and we expect to see an increase of revenue from French pharmacists in the second half of 2018. And combined with the fact that we have now product in the U.S. and in the U.K., we expect to be close to flat on this division at the end of the year.

[Unknown Analyst]

On this one half or for the year?

[Jan Eryk Umiastowski]

For the year.

[Unknown Analyst]

For the year?

[Jan Eryk Umiastowski]

For the year. This means we'll be up -- a little bit up in the second half of 2018.

[Unknown Analyst]

Yes. More than a little bit because you have to compensate a huge decline on the first half.

[Jan Eryk Umiastowski]

Yes. But in terms of seasonality, we make more revenue in the second half than in the first...

[Unknown Analyst]

Yes. Yes, that's right.

[Jan Eryk Umiastowski]

So this is why I just say a little bit. But our goal is -- we probably ended by something like minus 1% at the end of the -- in the second division.

[Unknown Analyst]

And if I understood well, you forecast on the second half, less -- smaller growth in the other business?

[Jan Eryk Umiastowski]

No. We expect that still on the first division, healthcare professionals, HR and e-services revenues will more or less between 5% and 6% in the second half. And so as a group level improvement as I say that we'll see more growth in the second half of the year. We came from the fact that the second division will be up in the second half. This means that we'll be down, say, by 1% on a full year basis for the second division.

[Unknown Analyst]

But in term of earnings, you forecast the main growth of the EBITDA margin on the first half?

[Jan Eryk Umiastowski]

Yes. Yes.

[Unknown Analyst]

And you would have more growth of sales on the second half?

[Jan Eryk Umiastowski]

Yes.

[Unknown Analyst]

That's right?

[Jan Eryk Umiastowski]

Yes. Yes. And the reason for the earnings to be bet to the biggest improvement in the first half is that we have some structural changes in our costs that happened in 2017 and this will have an impact in the first half...

[Unknown Analyst]

That's the growth of the profitability in BPO?

[Jan Eryk Umiastowski]

There is some impact from BPO, but also some -- the fact that we get some synergies on R&D. We have reduced some level of management also at the company. So there is different fact that make this, but BPO, it's also a part of it.

[Operator]

We have a next question from Xavier Regnard, Societe De Bourse.

[Xavier Regnard, Financial Analyst]

Two questions for my side. First one, could you remind us why most of the margin improvement is expected for the first semester? I did not really understand. And then, second point, could you give us some color about your strategy to address the tele-consultation market. Do you have any target or figures? And the third question, could you update us on the performance of C-Media because last quarter, you said the performance was affected by the [ level advertisement ] campaign following unfavorable weather and sales could be delayed from Q1 to Q2 and so forth?

[Jan Eryk Umiastowski]

Yes. So on the third question, the performance of C-Media, C-Media is window dressing for French pharmacists. So we put TV screen in front of the window of the French pharmacists or inside the French pharmacists. And we put also some posters. And we've been down in term of revenue in the first quarter, and we have recovered in the second one. So more or less, we're stable compared -- in '18 compared to '17 on C-Media. And we expect a little bit of improvement in the second half of the year for this activity. So we have recovered what have been sold. This was really postponed from the first quarter to the second one, and we have recovered but have missed in the first quarter. On the first question, the improvement of margin in the first half of the year, it's really that if you look on our margin improvement in 2017. If I simplify the fact, in the first half of '17, our margin do not improve and the improvement of margin was quite strong in the second half of 2017. This is why our margin increased in 2017. The fact that the margin increased in the second half of 2017 came from 2 facts. First, we get more revenue. So of course, this lead to an increase of margin and the second fact was that we have really improved the profitability of the company by managing better our costs. So we have been able to reduce the cost of R&D by making more synergies on the cost. We have been able to reduce some level of management. So this also lead to some improvement on profitability. So reduced costs. So a lot of improvement at the company on the way of managing on reducing some costs. And this reduction of costs that have a positive impact in the second half of 2017. Now what we think their impact first half '18. Yes, sorry?

[Xavier Regnard, Financial Analyst]

I mean -- and so it's just a matter of comparison basis, right?

[Jan Eryk Umiastowski]

Yes. Yes. But significant reduction of cost in second half, and of course, if you compare, you will have this positive impact in the first half of '18. And of course, this impacts already on the figures when you compare for the second half. This is why most of the improvement that you will see on our margin in '18, which came from the first half. On term of revenue, this is the opposite. You will see stronger growth rate in second half than in the first half. And you have another question, Xavier?

[Xavier Regnard, Financial Analyst]

Yes. My third question was about your strategy for the tele-consultation market. Do you have any target or figures, would be helpful.

[Jan Eryk Umiastowski]

We have no targets. We have no figures, but we have a strategy. This is the most important thing. Yes, we have a strategy on Telemedicine that we, as you know, there is a new regulation in place that will start in September this year. So we have decided that our Docavenue platform, that it's an appointment platform on Internet that will be -- help us to develop the Telemedicine. And in Telemedicine you need to get doctors, you need to get nurses, you need to get patients. And this is -- I'm saying that at the center of this, we can combine all of this expertise. Now the question mostly is how fast people -- the patient will adopt Telemedicine, we do not know. How fast the doctors will accept to do some Telemedicine, we do not know. We have done some -- have asked some doctors, and we get mixed figures from them. It's not really -- doctors are not really aware of this, et cetera. So it will probably take some time before doctors accept to do some Telemedicine and the patient also accept it. But we'll have -- we have an offer for that. We have announced that on Docavenue. We want to hire 100 people in order to make more sales and more -- to be more present in the market to come in patients, but also doctors to move on this platform. So we're really investing on Telemedicine at Cegedim. We get the product. It's now ready. We'll make announcement in September on it. But I can't give you at this stage, some figures or expectation and the main reason for that, that is nobody know how fast patients and doctors will accept Telemedicine.

[Operator]

No other questions for the moment. [Operator Instructions]

[Jan Eryk Umiastowski]

As there is no any additional questions, we'll end this presentation, but before I would like to remind you that the main key -- the main takeaway of this conference is that revenue continue to increase and being quite robust at Health insurance, HR, and e-services division that increased by roughly 6% on a like-for-like basis. On Healthcare professionals, we expect an improvement in the second half and the main reason for that, you have the new product that's just coming onto market. We confirm our outlook, so the revenue and EBITDA margin will increase on a full year basis. And we'll release earnings for the second -- for the first half of 2018 on September 17 after the market close. Have a happy and relaxing holiday times and thank you. Bye.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's web conference. Thank you all for your participation. You may now disconnect.