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Edited Transcript of CGM.PA earnings conference call or presentation 20-Mar-20 5:15pm GMT

Q4 2019 Cegedim SA Earnings Call

Boulogne Billancourt Cedex Apr 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Cegedim SA earnings conference call or presentation Friday, March 20, 2020 at 5:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jan Eryk Umiastowski

Cegedim SA - CIO, Head of IR & Director of Financial Communications

* Jean-Claude Labrune

Cegedim SA - Founder, Chairman & CEO

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Conference Call Participants

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* Patrick Jousseaume

Societe Generale Cross Asset Research - Head of Mid and Small caps Europe Research

* Sébastien Bourget

Quaero Capital SA - Head of Quaero Infrastructure and Managing Partner for Infrastructure

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Cegedim 2019 Results Publication. Today's conference is being recorded and will be available on the company website. This presentation will be followed by a Q&A 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.

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [2]

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Thank you. And thank you for joining us for this conference call regarding the full year 2019 earnings. As always, before we begin, I just would like to remind you that this presentation and conference call may constitute forward-looking statements. These forward statements may include comments of our guidance and our expectation and prospect and are based on our view as of today, March 19, 2020.

Having this in mind, I will turn on Page 3 of this presentation. Thank you for joining us. As you know, the conference for tomorrow is canceled regarding the coronavirus and COVID-19 epidemics. So there will be only conference call this evening. Of course, after that, I will be available for any call, responding my e-mails, whatever you want, in order to give you a better understanding if something is missing in this conference call.

During this period -- complicated period, we support our customer, partners and employee, and we hope that you take care of yourself.

So for 2020, the big picture of the company is quite simple. Reported revenue increased by 7.7% to EUR 503.7 million. Reported EBITDA that includes a positive impact from IFRS 16 came to EUR 101.2 million. Restated for that, it's EUR 85 million, so quite significant increase. Capitalization of R&D continue to increase as we continue to invest to EUR 47.6 million, and we have now just a little below 5,000 employees in Europe.

As you know, we have sold our activity in the U.S. So if we look quickly at Cegedim, that is an innovative technology and service company, first, we have an entrepreneurial culture. So we invest on innovation, and we invest also on execution of our products. The second thing is that we have very powerful trends in the health care space but also outside on the payroll and electronic invoicing, as you may see in few minutes. We have a large footprint across all the care continuum that drive our organic growth and value creation.

In terms of R&D, we also have the software factory that gives the agile streamlined R&D organization, and we really focus on R&D. And the second is that we leverage our cloud experience with our data centers that are very secure.

But if we look quickly on Slide 6, you may see that capitalization of R&D increase starting in 2015, once we have made the disposal of CRM and Strategic data, the goal was to catch up with the market and to exceed the market with our product on cloud and SaaS, complete revamp of our product, and we moved from EUR 28 million at this time to EUR 47.6 million in 2019. This represents 12.5% of revenue spent on innovation.

Regarding our products, so we deliver solutions, software databases to providers -- medical providers, 152,000 workstation equipped to those solution for pharmacists. This is 60,000 pharmacists with a workstation into care. So paramedic side has its people, 49,000. Payers, 43 million beneficiaries are managed by our system. We also deliver solutions for pharma company, health authorities, researchers, mainly on the data. So we provide information about rare disease, about prescriptions, about the way of document diagnosis, the way of people react to some prescription, et cetera. And this health database, we have information about 56 million patients, and this is completely anonymous and of course, with respect to the GDPR and all the restriction related to health data. We also deliver solutions for digitalization of all processes, including invoices, and we're dealing with 900 million electronic flows per year, and we're also making 8 million payslip per year for the payroll activity.

In 2019, we have decided also to continue to reorganize our portfolio of solution and this transaction that we have done have bring us some innovation. For example, with BSV, as this is the invoice digitalization solutions for the small markets. We have our scales of business also to be bigger and better positioned like RDV Medicaux in France, the appointment scheduling website. Technology also with Cosytec, this is constrained programming technology. Or also for new market like XimantiX in Germany for electronic invoicing or NetEDI in the U.K. for also solution. And on the same time, our disposal of our U.S. activity for EHR and PMS, practice management software and electronic health care record in the U.S., and this also improved our profitability. So 5 acquisitions, 1 disposal have been done in 2019 for a global amount of EUR 25 million.

Now if we move to the market and what is happening today, what we see clearly is that the health care space is becoming a digital business. We see more and more digitalization of all processes using more software, more detailed process. This is true with the access to service. This is also true to the care to delivery and the follow-up part, including all the claim processing system connection with the patient, et cetera. And we think we are well positioned to leverage this new health care digital way. And one of the thing is, as you may see on Slide 10, it's at the Docavenue, our appointing website and telemedicine, is now the new name is Maiia. Maiia, you have the 2 I, that represent the doctor and the patient, also IA represent intelligent artificial in France or artificial intelligence.

And this is the new name of our platform, and starting from today, we are using all of our network of TV that we have at pharmacies to make advertisement on Maiia in order that patients are aware that we have this new platform called Maiia to make telemedicine and appointment with doctors through website. So starting from this morning, all the pharmacy in France that have our TV, are running this advertisement for Maiia. And Maiia, this is a website to make appointments and teleconsultating, as you may see, it's very easy. You just connect on it on smartphone or desktop. And you have the screen, and you clearly can click on the right side, you see teleconsultation, and you may automatically take one teleconsultation right now or you may choose an appointment for a specific time for the appointment with telemedicine.

Some numbers. So on Slide 12, as you may see, we have 4,000 GPs connected to our platform that accept teleconsultation. So we have 4,000 GPs for teleconsultation in our networks. Actually, we have registered 16 million patient on our website, and we also have 400 pharmacy connected to the Maiia network.

On the second side, we have 100,000 health care professionals that are using the agenda part of the Maiia. And this is the number of doctors that we may target in the future to increase the number of users for the teleconsultation users. If we look now on some statistics, for example, in February, we have done 12,000 teleconsultation in February. This is an increase -- this was an increase of 40% compared to January. And if we look on March, in just the first 2 weeks of March, we are already at 15,000 teleconsultation, just for half of the month compared to 12,000 for all the February months. And -- but the digital regulations that we see on health care part of it, with more use of software, detection of rare disease, help to make prescriptions and to make diagnosis, electronic reimbursement system.

This is the way where we are and actually what we do. We're trying to improve the third party payment. So when you go to see a doctor, pharmacist at hospitals you have nothing to pay upfront because we manage after that, all the payment we'll give from the insurance company to the pharmacy doctor or hospitals. And so this is something that we're doing, and this is developing quite significantly, and specifically in the last weeks regarding the COVID-19 epidemic.

On Cegedim e-business, electronic invoicing, we also have strong demand for the solutions. As you may see that during this period, it's more easy to deal with electronic infrastructure instead of the paper. So we have a strong demand also for electronic invoicing. They are not developing quite well because there is quite important governmental reform that encourage companies to move to electronic invoicing, but we have an acceleration since the beginning of March for these kind of products. We have more demand also for our health data -- databases, more information of prescriptions and real-life effect, real-life diagnosis, what will happen to the patient in real life.

Of course, electronic advertisement with C-media, electronic third-party payment, but also the way to subscribe to the insurance coverage by your -- just directly from the website or smartphone. No need to see someone. And of course, also all the payroll process that will be more and more on paper-less and more demand for this outsourcing service. And of course, cegedim.cloud, that is our data centers with very high securities and health security system also of course.

On Page 14, if we summarize what is Cegedim to date. First, following the acquisition and disposal of some of our companies in our portfolio, we now focus on core markets. We have a strong innovation capacity, quite a significant increase on R&D in the past years, and this continued in 2019. And we probably remain a little bit of the same level in 2020. And we have a completely new business model that now focused on digital, cloud, SaaS data and the BPO solutions.

So if we look on the finance part, now as this translate to the finance, and we move to Page 16. So first, since January 1, 2019, we have applied IFRS 16 norm. This -- it's a new norm that applied to lease involving fixed payments. So for Cegedim, it's mostly rents as we are renting all of our buildings. So the rents are now put on debt starting from '19.

The 2018 figures have not been restated. So when you compare '18 to '19, you will see a different impact from this IFRS 16 norm. The first impact is on EBITDA with an increase of roughly EUR 16 million because we no longer have on our charters, the rents. So of course, depreciation and amortization expenses decreased by around of EUR 16 million. So on the operating income and recurring operating income, there is roughly no impact. This is why in the following presentation, you will see that I'm now focusing on recurring operating income instead of EBITDA because we no longer have. So this is not affected by the IFRS 16 restatement.

On the tax, well, the small impact of EUR 0.4 million. And on consolidated net profit were a negative impact of EUR 0.9 million.

On the balance sheet, now we need to record, recognize the lease liability. This contract present value of future payments, so this is EUR 64.9 million, an increase on our balance sheet. And on liability, we have the liability. And on the asset side, we have the right-of-use of asset depreciation. And there is no impact on, roughly, shareholder equity. And on the cash flow statement, this is just a trend of presentation.

But if we move to Page 17 -- sorry for this interruption that, as you know, there is quite complicated with telecoms, actually.

So just being on Slide #19. And now talking about the BPO revenue trend with an increase of 20% -- 27% in 2019 to -- this represent around a little less than 10% of the total revenue. So it's beginning a significant partner of our activity. And of course, we have also a small increase of our head count of 8.4% to just below 5,000 peoples. And most of these people that we have hired in 2019 are from the BPO part or from -- for the R&D segment.

Now moving on Slide 20. Revenue. So you'll see that revenue came from to 7% on a like-for-like growth at the group level. This is an increase of 8.6% from the first division and 4.2% from the second one. You'll see that over the quarters for the Health insurance, HR and e-services, we have an increase quarter after quarter. And for Health care professionals, there is a big effect in Q4. But as for that, we have been positive over the period.

If we now move to Slide 21, you see that recurring income we've been quite stable in the first half of the year and we have an increase in the second half. And the margin in the second half came from 8.8% to 9.5%. The fact is that we always get a better margin in the second half compared to the first half. But also this year, we have a higher increase in terms of recurring operating income and on the margin from the second half of the year.

We now move and look by divisions on Page 22. So revenue increased by 8.6%. And you see the trend over the quarters, so an increase quarter-after-quarter, as I mentioned. And you see that the first half was a small increase on margin and in the second half was a higher increase of margin. And this lead to a margin of 10.1% over the prior year. One came from where it's coming is the big activity that I mentioned already is now turning a little bit positive, so we have the impact from the positive fact on the BPO activity. We have the third-party payment at hospital, doctors, pharmacies. That is also developing quite well. The advertisement business in 2019 and all the activity related to the databases, the health databases segment are also developing very well.

The negative trend, I would say, though small, is electronic invoicing and to payroll where we get lot of new contracts. And of course, when we're starting a new contract in the beginning, we are making little bit losses because we need to invest in parameterization of all of this. When it's done, we make, of course, profit. So it's just the fact that we get a lot of new clients in 2019.

In the second division, Health care professional divisions, revenue increased by 4.2%, and this is the first year over the past 3 years when we came positive. As you may see also we have an improvement in the second half of the year -- in the first half of the year. This is related to the fact that we get the impact that the NHS -- we have specific revenue from the NHS in the first half instead of the second half of the year. So in 2018, we get revenue from the NHS into second half. In 2019, this came in the first half. This profit -- this revenue from the NHS is very profitable. So this means this has a positive impact on our profitability in the second half of '18 and a positive impact on profitability in the first half of 2019.

Inside of that, if we look, we get a positive impact from the nurse activity for nurses in France, specifically from doctors in France and Spain, and of course, also a positive impact from the product disposal. And of course, we have some costs related to the fact that the Docavenue, now Maiia, is a start-up business.

If we move further on special items, so it came to EUR 21 million, so it's an increase of 12.7% compared to last year, but EUR 16 million is related only from the disposal of Pulse. So if we exclude the disposal of Pulse, our special item came down to EUR 5 million compared to EUR 18.6 million last year. So most of it is related to Pulse. It's really a one-off impact, some special items, excluding this disposal is really coming down.

Cost of net debt on Page 24. It's EUR 8.6 million. It's an increase of 43.7%. And EUR 1.4 million is coming from the IFRS 16 application. And we also moved to the fixed term. We have a new PP&L with higher rate but for the longer maturities, obviously the balance between paying more for longer maturities, but this would probably remain at EUR 8.6 million over the next years. And taxes came to EUR 4.8 million in 2019.

So on Page 25, if we look on the P&L very quickly, we expect that the D&A as recurring income came to EUR 27.1 million (sic) [EUR 37.1 million]. So operating income came to EUR 16.1 million. And we have cost of net debt and taxes and recurring earnings per share come to EUR 0.6 per share and earnings per share came to EUR 0.2 per share.

If we move on Page 26, this is the free cash flow from operations. If we look at all numbers, you'll see that the cash flow before taxes and interest increased from EUR 62 million to EUR 96 million. And after we have corporate tax paid, acquisition of intangible, this is including -- most of it is the capitalization of R&D, acquisition of tangible asset, disposal of tangible -- disposal of tangible is related to the Pulse acquisition -- disposal. So all of these numbers are quite similar, excluding the change in working capital requirement that's been positive of EUR 64 million. And now we need EUR 64.5 million. And why working capital increase? There is 2 impact of it. The first impact is that we have decided to stop the factoring activity -- the nonrecurring factoring that we have put in place in 2018. So this is EUR 30 million. And we've been using EUR 39 million in 2018. So we have EUR 39 million factoring 2018 that we no longer have in 2019.

And the second impact is coming from the advance paid made by clients and the Health insurance business, BPO business. So they pay us some money in order to give us the possibility to make payment to the patient or to the health care professional, depending on and they make this advance payment. So we use this cash to make payments, so this is not really our cash. So the EUR 32.2 million that have been in our cash in 2018 is now excluded from our cash and is now put on the client receivables. So of course, we have a swing. And if you take those 2 trends -- the 2 impacts, you see that the working capital should have been quite flat. Extending working capital, but we have the cancellation of nonrecourse factoring and we also make the change in between cash and client receivables. That's lead to this negative.

So now if we move on Page 27 and we look on our debt. If we look at our debt, it was EUR 108 million in 2018. But if we include the advance -- the factoring EUR 39 million, first, the consolidated factoring, and we also will state the fact that we have this advance payment from the insurance company and we'll take it out of our cash and we'll put it on client receivables. This lead to an -- to the level of debt of EUR 179 million, that's compared to EUR 180.6 million. So quite similar level of net debt between 2018 and 2019, if we really compare the same things. And we see that we have made acquisitions to EUR 25 million, the repayment of lease liability is EUR 63 million. Interest rate, EUR 5.2 million. So if we look at this at the -- with the same standard and restated fact of 2019, we already have generated cash that give us the possibility to make EUR 25 million of acquisition without increasing our debt.

After that, from EUR 180.6 million of net debt, we are adding the fact that we have now the IFRS 16 application and we came to EUR 226 million of net debt.

On Page 28, which is our balance sheet. Very quickly, there is no significant changes on it. There is 2 changes. The first one is the fact that we have now applied IFRS 16 and only this affected the 2019 figures and 2018 have not been restated. And the second impact is on the cash and cash receivables and trade receivables that they have this EUR 32.2 million impact from advance payment by clients.

If we look on outlook for 2019, we told the market that our revenue will increase by more than 5%, and our EBITDA will increase by more than 5%. And if we look, revenue increased by 7% on a like-for-like basis. And EBITDA, excluding the IFRS 16 positive impact, came to an increase of 11%. So really, we are ahead of our outlook with higher revenue growth and higher EBITDA than that we have told to the market early this year.

If we now look quickly at the Brexit. This is 10% of revenue, 8% of recurring operating income, most of our activity in the U.K. in local currency, so we do not expect any impact on our margin from this -- from the BREXIT.

Now if we look on 2020 outlook on Page 31, and this is a situation as of today. With the COVID-19 epidemic, it's really too early to say anything below 2020 outlooks for 2 reasons. First, we have some negative impact as some of the company. And the second one, also positive impact from electronic payment, electronic invoicing. We have high demand from this kind of product, from telemedicine, for doctor using more software, et cetera. So we have some positive trends. We have some smaller trends on this hand. And at the end of the balance of all of this, complicated to assess, it will also depend on how long this will take, how long we'll need to stay at home, et cetera.

So as I said, it's really too early to make any comments for 2020. And we'll try to update you at the end of April when we'll release the Q1 revenue. But at this stage, we can't provide you more visibility. So revenue for the first quarter 2020 will be released on April 27. And I will now ask our operator to open the line for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Well, we already have a question from Patrick Jousseaume, Societe Generale.

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Patrick Jousseaume, Societe Generale Cross Asset Research - Head of Mid and Small caps Europe Research [2]

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And then I have 2 or 3 questions. First one on coronavirus. What I understand that is very difficult to make any forecast and so on. But you mentioned some positive impact. Could you update us on what could be a negative one? Or what -- how much -- which part of your employees are currently working and so on and so forth? That's my first question.

Second question is about the debt situation. Could you confirm that you have no repayment before 2023? And could you comment a bit about liquidity and about your 2.5x covenants, which probably compare to the 2.1 that you have at the end of December 2019? If I make a quick calculation, if your EBITDA was dropping by something like 15%, 20%, you would be above 2.5, which I think is your covenant. So could you commend that? And finally, you gave us some elements, which are quite interesting on Maiia. Do you have any figures from competitors to understand how is the market currently about teleconsultation? Which part -- what part of the market you have and so on?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [3]

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Yes. Thank you, Patrick. So first, on the coronavirus. Of course, very complicated to make any assessment at this stage. However, the negative impact that we may say is quite easy to understand. The first one is on the advertisement business and pharmacies that we have seen a little bit slowdown on-demand from advertisement at pharmacies. Now more people are less going outside. So there's less need to make advertisement at pharmacies. So this is the real impact on selling. And the second one, it's more complicated to assess, it's more that. It's complicated to get new clients on board actually. But this is just moving from the first half to the second half, probably, et cetera. But of course, getting new clients now, it's more complicated.

So the 2 negative impact are on electronic advertisement part and on new clients. For all the rest, we have seen more positive trends from all of this. And for example, where people are going to see doctors and pharmacies to try to convince to use our solutions. We take these people, and we affect them to the Maiia project. So we are using our resources that are underused on some of the park. So we're using them on all the park growing. So we're reallocating, depending on the situation. This is the first question.

The second was on debt situation. So on the covenant side, you are wrong, I need to say that. Because the covenant, it's right 2.5, but we need to restate the calculation for that. Because on the net debt, we have to exclude the IFRS 16, and we have to exclude the EUR 45 million of the FCB debt, the debt from the shareholder. So if we really made calculation, the covenant is at 1 compared to 2.5, at 1.4 (inaudible). So we have a significant headroom. It's maximum headroom we may have. And there is absolutely no (inaudible) on it. So...

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Patrick Jousseaume, Societe Generale Cross Asset Research - Head of Mid and Small caps Europe Research [4]

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Okay. Where I was thinking that the 2.1 was the covenant under -- I mean then there's a close that you have?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [5]

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No, the covenant, it's really -- you take EBITDA, excluding IFRS 16. And from the net debt, we will have to exclude the shareholder loan, EUR 45 million. And the employee sharing plan that is around EUR 7 million. So if you exclude around EUR 52 million from this EUR 180 million of net debt. And you came to a covenant of 1.4. That's improved the limit of 2.5.

In terms of liquidity, the first repayment, we have extended the maturity of our credit revolver facility that being in 2023 at the beginning, and now it's at 2024. So until October 2024, we have no repayment to do on our debt. Then on Maiia, we provide you with some figures. What we have seen on different newspapers, et cetera, is that all players claim that they've seen some increasing demand for teleconsultation. And -- but it's complicated to get a clear view of market share, et cetera, on this. What we see is that many doctors are requesting more teleconsultation. And the patients starting to follow-up. In the same time, teleconsultation, it's okay when you have a chronic disease. When you have, maybe the coronavirus or something like that, when it's something more complicated, you, anyway, need to see the doctor. So there is, of course, a positive impact on teleconsultation, people using it more and more and this gives us the opportunity to show the interest of teleconsultation that you will continue to see in the future, anymore, some doctors. I hope that I have given you the answer for all of your questions.

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Operator [6]

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(Operator Instructions) I have a question from [Eric Blanc] from [Finance Connect].

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Unidentified Analyst, [7]

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I just want to have some idea about the loss of Maiia -- the losses, it's a kind of investment, of Maiia on your profitability in 2019?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [8]

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Yes. Maiia, a negative contribution to our profitability in 2019. We'll not give you precise figures, but it's more than EUR 4 million.

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Unidentified Analyst, [9]

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Yes. You have accelerated your level of spending in this field?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [10]

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Now we have already make an increase on spending on this activity by hiring more people on the commercial side and the second for having more R&D people to develop this new platform called Maiia. Because as we changed the name, we also changed the technology for the platform. So this is a completely new technology that have been completely re-engineered. And so the increase on spend have been down in 2019, but in 2020, we do not see any increase on spending from the same at this stage.

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Unidentified Analyst, [11]

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And I have heard that Doctolib is giving, for free, teleconsultation business. It's right or it's cosmetic?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [12]

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I don't know how -- what's different between right or cosmetics. But yes, there's the claim to say that the offering teleconsultation. We have made something different. Even if this is -- you need to pay for our teleconsultation, we have attracted a lot of doctors to our platform. And so I see in the future what will happen. But for any services, I give you some value, you need to pay for that.

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Unidentified Analyst, [13]

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Okay. And what about -- I'm sorry, because of my connection was interrupted during the time. So I hope that you don't spoke about that, but I have seen that [SRH] is considered as a negative point for 2019. And what happened on SRH ?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [14]

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Now on the [SRH] as Cegedim e-business, it's just that we get a lot of new clients for our payroll activity and our electronic invoicing. And of course, we need to have some setup costs for these new clients. So -- and we need to hire some people to answer all of this demand. So of course, this brings a little pressure on profitability.

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Unidentified Analyst, [15]

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Okay. It was on profitability.

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [16]

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Which is not a problem, but there have been a little bit of pressure in the first -- in 2019 because of this high demand for our products.

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Unidentified Analyst, [17]

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And the sales of [SRH] on 2019, what is the amount?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [18]

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This is not disclosed.

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Unidentified Analyst, [19]

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I have seen the number in newspaper recently. So I thought that you have an idea perhaps to spin-off [SRH] or something like that, it's a stupid idea.

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [20]

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You are not stupid. So I will not say it's stupid idea, but we have absolutely not, in our mind, make any spin-off to sell SRH in anyway. This is a core activity for us, and we'll continue to invest on it. And this is core for Cegedim and will remain shoulder at 100% of the company. There are new reasons for that, the advertisement done at the press release on at SRH is just to convince our client that this is a strong company and connected to Cegedim.

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Unidentified Analyst, [21]

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Because I have seen the sales amount around EUR 70 million. It's not so stupid?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [22]

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It makes sense. It makes sense.

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Unidentified Analyst, [23]

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And the last point is more -- I thought that you were entering a period where capitalized R&D are going to decline. And in 2019, the R&D is increasing once again. It's on a BPO or it's also Maiia, it's -- or where is coming with this increase?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [24]

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It's coming from different part of the company, but it's coming from Maiia. It's coming from software for U.K. doctors for e-business also by connecting different platform in U.K. and Germany to the French platform. And yes. So we have different space where we have seen an increase of the R&D on -- at the end of the year compared to what we have expected to be quite flat. And anyway, we have an increase by the end of the year.

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Unidentified Analyst, [25]

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And what about 2020? On this point, it's going to increase once again? Or...

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Jean-Claude Labrune, Cegedim SA - Founder, Chairman & CEO [26]

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No, probably we'll stay at this. So before any impact from the COVID-19, et cetera, we expect to -- spending at R&D to remain flat. Now depending on the trend, what happened, how long it take, et cetera. But at this stage, what we can say is, probably the budget for R&D will be quite the same in 2020 compared to 2019.

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Unidentified Analyst, [27]

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But with the higher level of amortization?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [28]

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Yes, amortization will continue to increase roughly at the same speed like between '18 and '19.

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Unidentified Analyst, [29]

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That means EUR 3 million to EUR 4 million?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [30]

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So if you look on Page 25, you see that this was an increase of EUR 4 million, yes.

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Unidentified Analyst, [31]

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Okay. And just one last point. Advertising from pharmacist, what is the weight of -- in term of sales of this field? And I really don't need a number, but...

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [32]

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Can you just repeat your question, there's been some trouble in the line.

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Unidentified Analyst, [33]

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Advertising from pharmacist is the point where you say you are a little -- it could be affected by coronavirus. What is the amount of sales, an idea of the amount of sales you are doing in this field?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [34]

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In this field, we are doing around 40, 4-0, EUR 40 million of revenue.

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Unidentified Analyst, [35]

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Okay. And BPO is a trend on the second half. We can assume a continuing increase of profitability on 2020?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [36]

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Yes, excluding any new contract, profitability will increase in BPO in 2020.

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Operator [37]

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(Operator Instructions) I have a question from (inaudible) from (inaudible).

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Unidentified Analyst, [38]

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Jan Eryk, I have just a question. If you could come back just a bit on what happened in Q4 for Health care professionals, regarding the growth that was negative? And another question would be how could we split the D&A between the Health Insurance business and the Health care professional business, just so that we would be able to reconstruct the kind of an EBITDA margin for both of those business units?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [39]

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Yes. so in terms of G&A, EBITDA for both divisions, you will have all of this on the annexes of the slide that will be on our website in -- 1 or 2 hours from now, as we'll get some trouble with different players that were not in the same office, so we have to play with this. But anyway, tomorrow morning, if you connect our website, you will see all the details for all divisions. I can tell you that for the first division, Health insurance, HR and e-services, the depreciation came to EUR 32 million in 2019, 32.0. And on Health care professionals, this came to EUR 21.8 million.

On the first question about Q4, and we get 2 impact in Q4. The first is the NHS. In 2018, we get some specific revenue from NHS that have been recorded in the last quarter of 2018. So this is why when you look on Slide 23, you see that in the last quarter of '18, our revenue came up by 2.3%, and this is due to the fact that we get a boost from the NHS in the U.K. In 2019, we recorded this revenue from NHS in the second quarter of 2019. This is why in the second quarter of 2019, you have a boost of 10% on revenue on this division. This is the first impact on revenues. Now if you compare Q4 to '19 to Q4 '18, in one side, we have the boost; on the second side, we have no boost. So this is why we are down by 2.5%. That will -- excluding any impact from the coronavirus, we should be up by around 4% -- 4%, 5% in the second division.

The second impact is as we get this revenue, this revenue has a very good margin. So of course, this gets a boost on margin in the second half of 2019, a negative impact, I would say, on margin in 2019 when you compare '18 to '19. But it's really related only to the NHS items.

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Unidentified Analyst, [40]

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Okay. Very clear. Last question, if I may. In terms of working capital, now that we have, let's say, a clearer view on the structure, what kind of working capital variation could we expect for 2020 since you want to change now factoring or anything else?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [41]

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Yes. So we have no longer any factoring. So there will be no impact from that. And now all the advance payment they make by clients on the BPO is recorded on client receivables. So there will be no impact from that on working capital. So the trend in working capital requirement in 2020, the change of it, the variation should be at 0.

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Operator [42]

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I have a question from Sébastien Bourget.

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Sébastien Bourget, Quaero Capital SA - Head of Quaero Infrastructure and Managing Partner for Infrastructure [43]

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I understand that you don't want to give us guidance considering the current environment. But because negative impacts are only, if I may say, on your advertisement business, that is quite small, but on your group level. Could you help us, so in terms of finances, something that could make you don't have revenue growth in 2020 because before that, I think that more than 5% is going to continue. And also considering that profitability is increasing in BPO, in SRH, in e-business. I'm talking about long-term profitability, not just the short-term impact of (inaudible) So could you help us in terms of what could be your profitability in 2020, excluding the advertisement business or maybe in a more midterm or long-term perspective?

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [44]

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Yes. On advertisement business, this is an impact that we already see from our clients. Now it's true that depending on how long this epidemics will take, when we'll be able to come back at offices, when normal life will restart, et cetera, et cetera. This is more affecting the fact of convincing new clients trying our -- to sell our product to new clients. So I'd say about 80%, 85% of our revenue are recurring with existing clients. They pay monthly fees for the right of using our software, et cetera. So this will absolutely not change. Now it's (inaudible) more or less if we can (inaudible). The part of this 15% that remain on one side, is specific product. So we continue to sell some specific product to some clients, et cetera. But of course, any way, any -- every year, we need to attract a little bit of new clients in all of our product. So it will take -- probably we'll do all this gain in the second half. If we look just on the beginning of the year, in the first weeks of the year or in any -- even in February, we've been up in revenue and profitability.

So we may assume that excluding these dynamics, we probably have done something like 5% increase on revenue and 5% increase on recurring income. But as I mentioned, we'll prefer to wait until the revenue from the first quarter to give you more updates on -- if we can, on our outlook for 2020. It's very (inaudible). It's really a complete new environment. We have not -- never worked with this kind of situation. All people tried to learn how to work and think. It's more complicated. But in a way, a lot of -- part of our business recurring. We see positive trend on -- very positive trend on some of our specific part of the business. And this give also that for clients, so probably the future, more demand for our product also. But at this stage, I will not give any more color.

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Sébastien Bourget, Quaero Capital SA - Head of Quaero Infrastructure and Managing Partner for Infrastructure [45]

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And I understand that you prefer to be very prudent, but a 5% increase in revenue and 5% increase of recurring income seems very prudent, especially for your recurring income considering that you sold the (inaudible) that was loss-making. And presumably, your Maiia business as you onboard new doctors and with no additional costs comparing to 2019, should have a significant impact on your profitability.

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [46]

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Good, yes. I agree, but we are in the new situation, and it will make no sense to make any outlook as we absolutely do not know how the situation will move in the coming days, weeks or months. One that we have -- I agree that we have a resilient business that we have very recurring activities that we have moved to SaaS make that most of our clients are now paying monthly fees for using the business. We'll get some positive trend on some part of our activity. We are focused on digital, et cetera. So yes, we -- and probably should move on the positive way during this period, even after.

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Sébastien Bourget, Quaero Capital SA - Head of Quaero Infrastructure and Managing Partner for Infrastructure [47]

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Yes. And maybe last point to add on [Eric Blanc] commented that also image in the U.K. is -- giving is there are 3 consultation software for free. And I think that it could have a very positive impact in terms of marketing, but also in terms of sentiment about Cegedim.

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Jean-Claude Labrune, Cegedim SA - Founder, Chairman & CEO [48]

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We have discussed this plan, this topic internally. And at this stage, we do not see any reason to offer this software. But this can change in the future, we'll see. But really -- we will see.

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Operator [49]

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(Operator Instructions) Well, it seems that we have no further question for the moment. So I give back the floor to the speaker.

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Jan Eryk Umiastowski, Cegedim SA - CIO, Head of IR & Director of Financial Communications [50]

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Thank you. If you have any more questions, do not hesitate to drop me an e-mail or give me a call on my mobile. It's more easy to reach me at this time. I'll just remind you that we exceed our guidance for 2019. Of course, we do not give you anything for 2020 as regarding the current situation of the -- what's happened on the economy, et cetera. But anyway, we have a resilient business and we see positive trend on some of our activity. And so this will conclude my presentation and take care of yourself and your families. Thank you. Bye.

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Operator [51]

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