On Thursday (29/11/2018) I attended the EMIS Group (EMIS) Capital Markets Day at the London Stock Exchange. Having held shares in the company since 2011, this was a great opportunity to get an update on the situation of the company and its future plans.
First some background. EMIS is best known as the provider of software that general practitioners use – EMIS Web (primary care). That has more than 50% of the UK GP market. But the company also has many other solutions for other healthcare sectors such as secondary and acute care, pharmacy services and diabetic eye screening. Many of these services are sold to the NHS but there is also private income. The company has also been investing in development of a Patient app and web site for providing information and services directly to the general public (https://patient.info/ ).
It goes without saying that the healthcare sector is growing as the population increases and the age profile rises – particularly now the baby boomers are entering retirement. The population seems to be becoming generally less healthy and one example of this is the growth in diabetes sufferers.
EMIS has certainly managed to grow revenue both as a result of increasing demand for medical services but also because of the provision of new services and minor acquisitions over the years. Revenue has almost doubled in the last 5 years £160 million, but profits have not shown the same growth. Reported profits fell in 2017 to £8.8 million mainly due to £5.8m of reorganisation charges, £11.2m of “Service Level” charge provisions (see below) and high amortisation charges of £15.2m mainly relating to past software development costs. Perhaps that is why this event barely covered the financials of the business, either historic or future projections, but concentrated on software and business developments. That was somewhat surprising considering the audience must have been mainly investment professionals.
The share price has been trending down since January 2016 and is now on a prospective p/e of 20.3 for the current year ending in December according to Stockopedia (analyst consensus forecasts are actually given on the company’s web site).
What was the exceptional Service Level provision of £11.2 million for? That arose because the company discovered that it had not been meeting the service level agreement terms for EMIS Web with the NHS. They expect to conclude a settlement soon within the terms of the provision. I asked the CFO about this matter because my own GP was certainly not aware of any failings in support of EMIS Web. His answer was that certain reports of minor bugs had simply been lost rather than been progressed. This all seems rather odd to me that this had ever happened yet alone required financial compensation when the client was not apparently aware of it.
There were a number of demonstrations of the software and solutions on display for attendees both before and after the presentation. The latter was very slick and well-rehearsed with two very professional videos on trends in healthcare (ppt slides available from the company’s web site). It covered:
- Financial progress of the business since IPO which of course looks a lot better than over the last 5 years.
- Improved relationship with NHS Digital which is good to hear as future renewal of the EMIS Web contract is very important.
- Current leadership team including relatively new CEO Andy Thorburn appointed in May 2017. Also clear they have added substantially to the team lately.
- Intention is to build sales momentum including rapid growth of private sector business to 50% of group and margin improvement.
- Acceleration of technology roadmap which is to be “self-funded” (by customers and “operational leverage”).
Comment it is clear that the company has committed to very substantial development in software and technology with staff numbers growing as a result (will be up by 150 this year). The focus is to transition from just being number 1 or 2 in lots of individual healthcare sectors to providing an integrated platform where applications can communicate with each other – including partner or even competitor solutions. So for example, EMIS Web is to become EMIS-X and enable an integrated view of multiple practices so you could book appointments with other GPs in your local area. In addition the Patient App will provide access to GP appointments and other services such as repeat prescriptions (it was noted that 45% of the UK population have such prescriptions which helps to explain why the NHS is so costly to run).
The objective is to make EMIS the centre of healthcare. They also see opportunities to grow by entering new markets. They expect their addressable market to double by 2022. The plans are aligned with NHS initiatives and the provision of more “joined-up” healthcare which everyone is demanding – there is still too much paper in the NHS and lots of independent systems and medical practitioners who cannot easily communicate, e.g. hospital systems with GPs and social care providers.
EMIS-X will be an “open” platform and enable the sharing of information between “tenants” (i.e. authorised users) and will help to reduce development costs and be a scalable solution. Technically it will be a cloud-based service using Amazon Web Services (AWS). This raised one question concerning security concerns which might be a roadblock to wide adoption. Certainly there are concerns about this in the healthcare professionals I know and by some patients.
As regards the Patient App, it was noted that we have been “patient” with the Patient App but “next year will be the year”. Personal note: I had an old copy of the Patient App on my i-Phone which I could not update for unknown reasons. Had to delete and download a new version which I did after the event – but was unable to do so without entering credit card info so gave up. Don’t see why that should be required until needed.
Included in the presentations was one on the management of medicines where there is an opportunity. Some 23,000 deaths per annum are from prescribing errors which cost £1.6 billion, but only one third of patients adhere to taking their prescriptions after a few weeks.
Another question raised was how are they going to compete with Babylon which I covered in a previous blog post: https://roliscon.blog/2018/11/13/should-you-give-up-fags-and-booze-plus-coverage-of-babcock-and-babylon/ . Babylon is providing a GP service and triage capability. They have been receiving a large amount of venture capital funding. The answer was that EMIS does not need external funding because they already have the customers so don’t need to spend on customer acquisition and on people. They claim to have more App users also. EMIS is not going to provide GP services themselves, but solutions to support GPs. An interesting comment from CEO Andy Thorburn at this point was that the EMIS model will be similar to BTs (where he used to work) where they will have both wholesale and retail customers where wholesale provides the infrastructure which other suppliers might use. The focus will be on development of a “partner ecosystem”.
It was disappointing that insufficient time for Q&A was given.
Demonstrations included the new video GP appointment service which will be available very soon in some GP practices, and booking appointments using AI capabilities in EMIS-X. Another one was talking to a smartwatch to access GP services via the Patient App.
In conclusion, the event provided good coverage of the technology direction that EMIS is pursuing. It was unclear though how that would be turned into revenue and profits. It was more of a technology presentation than a business presentation with little mention of target markets and segmentation.
However, the company already has a dominant and key position in the NHS and in medical services in the UK in general. Their future plans should enhance that position and be in alignment with NHS priorities. Profits are forecast to grow but the rate of growth is not great (revenues are expected to provide “mid-to-high single-digit annual growth” according to one presentation slide which seems to be relatively unambitious to me and analysts forecast is for only 5.9% this year).
Bearing in mind the cost pressures in the NHS and the reliance by the company on that one customer to such a large degree, you can see why the company is keen to develop its private sector business and why the shares are not currently more highly rated.
But for heavy personal users of medical services like myself, it gave a useful overview of what we soon might be seeing in the real world. Not having to repeat one’s past medical history to numerous medical professionals could save the NHS an enormous amount of money alone, and improve safety in many areas. The key for EMIS is how to turn that and other opportunities into profits.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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