Cegedim SA

PAR:CGM

Earnings Call Transcript 2021-Q2

[Jan Eryk Umiastowski]

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim First Half 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 our prospects and are based on our view as of today, July 27, 2021. Additional information concerning important factors that may cause our results to differ materially from expectation and underlying assumption, please refer to our universal registration documents in Chapter 7 on risk management.Having this in mind, I will turn on Page 3 of the presentation.As you may see, so we move on Page 4. So the rebound of activity started just after the first lockdown happened in March 2020, has been down by 8%. And then we see some rebound in the third quarter of 2020 with 1.9% then Q4 was 2.3% on organic growth, 1% in the first quarter. And in the second quarter of this year, it was 11.7%, 2021 compared to 2020. If we compare 2021 with 2019, so before the COVID-19 happening, we are up by 2.6% on organic growth in the second quarter of 2019. This 11.7% is a strong rebound. Part of it is, of course, due to the fact that we have a positive base effect. For the second part of the year, we have more negative base effect as already the rebound started in the second half of 2020. So this 11.7% organic growth in the Q4 -- in the second quarter -- yes, lead to, for the first half of this year, to rebound of 6.2% on a like-for-like basis. So there is just a 0.1% impact from acquisitions that we have done in May from Médimust and Kobus. I will come back later on this. No impact from currency.So at the end of this first half, we are up by 6.2% on organic growth. This is 6.3% on a reported basis, and we came to EUR 251.2 million from EUR 236.2 million. This is the first time for a long time that we are more than EUR 250 million for the first half of the year. 90% of this revenue is generated in Europe, 8% from the U.K. and the remaining 1.6% on other currencies.If we look now by division, how this translates for Software & Services, it's up in the first half of 2021 by 4.6%. Remember that at the end of the first quarter of 2021, we've been flat. In the second quarter, revenue increased by 9.7%. There is some decrease last year on this. So this is why we are up on a like-for-like basis by 4.6%. So we're still quite close to the level of the first half of 2019, more or less EUR 2 million. We are quite close to the level that we have seen in 2019.The reason for this result is first that the project-based activity mostly with health insurance company is reborn. So we're seeing strong increase from the project base. I already told during the first quarter that we have been able to sign some of this contract and part of this contract have been translated on revenue already in the second quarter. And of course, this will continue over the year. The second part is also the activity for [ keto ] practice and nurses have been quite strong in the second quarter of this year as also our activity on teleconsultation, scheduling appointment on website and HR management solution. What we have done also during this second quarter is that we have created Cegedim Santé France. This is a completely new unit that combine all activity for health care option in France. So we have activity for doctors, nurses pharmacies, keto practice, et cetera, in the unique company and unique brands seeing something. So this -- by combining different products and services together, we are able to address all hedge operation market. We have a unique brand, a unique sales team and a new management that manages all of this.And Cegedim Santé have already done 2 acquisitions in the second quarter. The first one is Médimust. They make software for doctors. And having made this acquisition, we're now #1 in medical software companies in France, following assessment from [indiscernible]. The second acquisition is a startup called Kobus Tech. They are specialized for patient management for keto practice. And the strength our portfolio of products that we can deliver to practice. So 2 acquisitions. This is small bolt-on acquisition. Médimust, it's around EUR 1.3 million of revenue. Kobus it's a start-up. So they just have a fantastic product. But on revenue, it's more anecdotic. But combining this, this will really strengthen our position. So roughly no impact in the first -- in the second quarter from this acquisition. There will be a little bit in the second half of the year.Then if we move to the Flow business. So very strong rebound on this activity, was 8.7% on a like-for-like basis for the first half of this year. In the second quarter of this year, we're up by 14.7%, a significant increase. Roughly, what we have seen is that electronic invoicing for all kind of companies and all process digitalization have been very strong in the second quarter.And on the same time, when we look on the health care flows, so the reimbursement part on this activity, there have been some pickups in the second quarter also. So we are not already at the level of 2019 on the health care flows. However, it's quite close. The reform started in June. So combining those 2 elements, electronic invoicing, the implementation of a lot of projects that we have signed at end of 2020 and beginning of 2021, that translate on revenue in the second quarter. And on the same time, the health flow that have some rebound in June lead to an increase of 8.7% in the first half of this year. And you see that on revenue, we are already higher than what we have seen in 2019 in global plus we have new clients.Then we get the data and marketing activities, very strong activity 16.5% on a like-for-like basis in the second quarter. This is an increase by 27%. The reason for the strong rebound is very simple. You will remember that past year in 2020, our activity for at the time that pharmacy had been completely closed in April 2020. So of course, no revenue during 1 month in the second quarter of 2020. So of course, when you compare no revenue in 2020 with some revenue in 2021, the figures are very high from this difference. The advertising business, we are not yet at the level of 2019, but we are more and more close as the months -- months after months, we are more and more close to the level of 2019. So there is some rebound on this activity. So advertisement business, very, very, very positive base effect that lead to the significant increase. And on the other hand, we have the data business that continued strong growth due to the pandemic. This started with the pandemic in 2020 and continued in 2021. In the first quarter, we've been up by around 5% to 6%, and the data continue on the same trend in the second part of this first half.And then we get the BPO activity. For the BPO opportunity, it's down by 4.3%, but there is some improvement. You will remember that in the first quarter, we've been down by 5.2%. We are now down only by 3.2% in the second quarter. This is why we are down by 4.3% during the first half. And the main reason for this decrease is that the French people use less health care system. By using less health care system, there is less to reimburse by insurance companies, so there is less activity for the BPO part that is mostly running on claims -- claim management systems. So less activity on health care lead to less businesses. However, this is improving. As I mentioned, we have noticed the Flow business, that French people returned to the health system in June. So we see some rebound on this activity. And we also will have some base effect -- positive base effect on the BPO activity. So we continue to plan to try to reduce this decrease of revenue over the year. And then we have Corporate and others, no difference, EUR 1.7 million, EUR 1.5 million. There is not a lot of comments on it. So when we look at our numbers, we see that in the first half of 2021, we are up by 6.2% on a like-for-like basis. And our guidance before today was an increase of around 2%. So having already done 6.2%, however, doing this, we have a positive base effect in 2020. In the second half, the base effect will be negative. So this is why we target our new guidance to be between 3% and 5%. This means a very strong first half. The second half will be quite strong. However, we are already seeing some rebound of activities in the second half of 2020. So there is some base effects. And when we combine these 2 numbers, we came to a new guidance between 3% and 5%. Of course, this target may be revised or maybe changed if COVID-19 crisis cause severe tightening of health restriction in Europe in the coming months.The second fact is that having previously -- previous guidance of revenue increase by 2%, we have also said that revenue -- recurring operating income will increase by 4%. We have now raised our target on revenue. And we look on our new target on recurring operating income on September 16, when we release the first half results. And at this moment, we will be -- we will or will not change our guidance on recurring operating income. But as of today, we just say this target will be changed if needed in September 16.So this concludes my presentation. We'll now be able to take some questions from the call. The important point is, you will see on the next slide, the breakdown by sector divisions and how this mix between sector and divisions. You will also see a quarterly revenue organic change. So quarter after quarter, how this moves, et cetera. And the most important part is that in the first half of this year, on a like-for-like basis, increased by 6.2%. It's driven by all divisions, excluding BPO that was down by 2% and this leads to an increase of our guidance to be revenue on a full year basis between 3% and 5%.Thank you. Now I'm ready to take any questions.

[Jan Eryk Umiastowski]

So a question from Geoffroy Michalet.

[Geoffroy Michalet, Research Analyst]

Can you hear me?

[Jan Eryk Umiastowski]

Yes.

[Geoffroy Michalet, Research Analyst]

Okay. I was just wondering in your new guidance between plus 3% and plus 5%, why in the end, do you expect a sequential slowdown versus H1 in this guidance?

[Jan Eryk Umiastowski]

For 2 reasons. The first one, in the first half of 2020, we had brought new revenue from the advertising business in April, and then we have seen some rebound activity in the second half. So the rebound of activity already started in 2000 -- in the second half of 2020. So -- and in the first half of this year, we see a full rebound of activity. So already, the base effect is quite high in the second half than on first half. So this is why we see probably 6% in the first half and maybe 4% -- between 3% and 4% in the second half due to the fact that some activities have already renewed in the second half of 2020. I have another question from Patrick Jousseaume.

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

Yes. Okay. Perfect. So my question is about, let's say, the margin. Given the fact that the growth is largely focused on let's say, 2 -- sorry about that, about -- on 2 activities, which are flows and data and marketing. Would you say that this is positive for the margin?And second, could you elaborate on BPO, which, well, is still significantly down, let's say, Q1, Q2 versus last year?

[Jan Eryk Umiastowski]

Yes, of course, revenue, mostly increase, came -- the increase of revenue came mostly from the Flow business and the Flow business is a very high fixed cost business. So any decrease of revenue has a strong impact on margin, as you may -- as you have seen last year at the end of the first half of the year. And on opposite, an increase of revenue -- significant increase of revenue has a positive impact on margin. So the fact that most of the revenue came from the Flow business will have a positive impact on margin on this activity.And on data and marketing, most of the increase is coming from the advertisement business that have quite lower margin than other activity on the group. So yes, there will be some positive impact on margin compared to last year. But the biggest impact on margin will come from the Flow business.On the BPO -- on the BPO side, it's really -- last year, we have seen an increase of revenue quarter-after-quarter, mostly because we have signed a contract in 2019, and this translates to additional revenue in 2020. However, the BPO activity is really related to the volume of transaction, the volume of plans that is submitted for reimbursement. And as we have seen that during any restriction, people -- French people go less to the health care systems, so they go to see doctors, opticians, dentists, pharmacies, et cetera. Any reimbursement is lower. So the level of activity of this business is really related to the use of the health care system. And we are beginning to see some rebound in June. So on the BPO side, we may expect to be not close, not so far from flat at the end of the year on this business.We have a question from Eric Blain.

[Eric Blain]

Can you hear me?

[Jan Eryk Umiastowski]

Yes.

[Eric Blain]

Just 3 points quickly. Any color about Maiia situation? Can you give us some idea about how it works and how are you losing market share in front of Doctolib, how it works? My second question is about your United Kingdom business. How was the business in terms of volume?And my last question is about the future of the BPO. This new trend about the less health care spending, is it possible to have a bad effect on the future of the contract you have signed in the past? That's my 3 points.

[Jan Eryk Umiastowski]

Yes. So on Maiia now, it's really integrated with most of our software. So as you have seen for the keto -- the practice software that we have -- that have been releasing last November, which is fully integrated on that. So it is why we do not provide specific numbers for Maiia. However, it's developed quite well, mostly thanks to the vaccination. So we provide -- we have -- you can take appointment for taking vaccine through the Maiia website, and we have seen a boost on this in April and then in July after the French President said that you need to get the vaccine. So a real boost. Of course, we are #2 on this market. #1 is another company. The difference between Doctolib and Cegedim, it's quite -- Maiia is quite stable. So months after months, we are quite stable in the difference. So we're both taking market share. But the market share, we should be able to estimate, however. It's quite similar months after months. And we have seen some small improvement in end of July, where we have been able to gain a little more than Doctolib on some contracts. However, we see 1 big player and outside of that, it's Maiia.On U.K. business, there is still the same effect. I said that in the first half of 2020, we get some boost on revenue coming from the NHS. So NHS required that we develop specific models for them to get paid for that due to the COVID. So we get to boost on this. And of course, we have not just boost in 2021. So when we compare number due to the boost where it could be down, however, excluding this boost, we should be on roughly the same level as last year. So stabilization of activity.The last point on BPO. This trend is really related -- what we have seen is as soon as you get some restructuring on activity, people are going less to the health care system. As soon as this restriction are lift, we see an increase of people going to health care system again. So we're seeing that in the coming -- in the future, the level of activity of BPO will be back at the same level as before. We don't expect any change of attitude of people going less to see doctors or something like that. We're seeing that as soon as restriction had lift, people return to the health care system. So on volume and activity, we will see an increase on revenue from this.In terms of margin, of course, there is some fixed costs related to these activities. So the increase or decrease of revenue had some impact. However, we are able to make more automatization of some tasks on this activity and just increase margins. So on the one hand, I would say, less revenue lead to lower margin. But on the other hand, the fact that we are able to put more automatization, increase margin. So we've been flat last year on the BPO business and the recurring operating income level. And probably at the end of this year, we should be able, as I mentioned, to be quite close in terms of revenue. And maybe some small increase on margin on this business. But on the long term, our goal on BPO is to be at 7% recurring operating income.

[Eric Blain]

And -- do you hear me still?

[Jan Eryk Umiastowski]

Yes.

[Eric Blain]

If -- I am wondering if there is no recovery in the spending, you are related in terms of business as the volume only. You have no pressure on your customer on that. You can't renegotiate contract and so on.

[Jan Eryk Umiastowski]

You can always renegotiate contract. But in our contract, we get paid because there is some -- yes, we get paid for volume with a minimum level anyway.

[Eric Blain]

Okay. It's even better...

[Jan Eryk Umiastowski]

But of course, you can always renegotiate the contract. It's a question just of -- but we do not expect any slowdown on this activity as soon as restriction will be lift. So yes, there is some restriction in September or October, we'll see another decrease of revenue on BPO. However, if there is no restriction, we'll probably see an increase of revenue. I think we have another question from Geoffroy Michalet.

[Geoffroy Michalet, Research Analyst]

Yes. Sorry, my question was already asked.

[Jan Eryk Umiastowski]

Okay. So maybe you have a question -- another question from Patrick Jousseaume.

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

Yes. Can you hear me?

[Jan Eryk Umiastowski]

Yes.

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

Okay. No, my question was about the, let's say, what you say regarding the EBIT margin guidance for the EBIT evolution guidance. The -- is there a risk that the losses at Maiia are bigger than what you commented, let's say, 1 quarter ago? I think that 1 quarter ago, you mentioned EUR 10 million losses and you said that it should be more or less stable this year.

[Jan Eryk Umiastowski]

Yes. There is no reason why, at this stage, why we'll see more losses at Maiia than expected, something different to what has been provided in the first quarter. Activity developed quite well. We have the boost from the vaccine, some more revenue on the way. And the investment is some technological investment, but most of the investment is to get to hire sales team, sales force. So we need to hire more people. Those have been done. And it's not really -- so they generate more additional revenue. So the losses, there is no specific risk that the losses will be wider than what we have expected at the beginning of the year.

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

Okay. And regarding the structural impact. So in H1, there is almost no structural impact. What should we expect at this stage for H2?

[Jan Eryk Umiastowski]

As I mentioned, the only acquisition that we have done at this stage is Médimust, that generate in 2020, EUR 1.3 million of revenue. The acquisition had been done in May so probably EUR 1.3 million is something like EUR 0.7 million for the second half. So there was a small one. If there is no more questions, we will end this presentation. Of course, I remain -- you can still send me e-mails, so call me until the end of this week to get some answer if you have any more questions or need explanation.The key takeaway are an increase of revenue by 6.2%, driven mostly by the flows software business project base are coming again. And the marketing activity that was seen, a strong rebound activity. Having said that, I wish you -- and the increase of our guidance from 2% to between 3% and 5% on a full year basis. Having said that, I wish you, in case you have not already taken any vacation, a fantastic summer break and see you in September 16 for the earnings from the first half of this year. Thank you very much. Have a happy day and evening. Bye.