Good morning, everyone, and welcome to the CompuGroup Medical Investor and Analyst Conference Call for the full year results 2024. Thanks for joining us today, whether you have dialed in on the phone or are following the webcast online. You'll find all the relevant information, such as this presentation, the annual report, and the press release, which we published early this morning on our website. We will start with the presentation by our CFO, Daniela Hommel, followed by the Q&A session. Before we start, as always, there are some housekeeping remarks. Let me remind you of our Safe Harbor Statement, which is shown at the beginning of the slide presentation and is valid for the entire call. Thank you for your patience. Now, let's start. I will hand over to our CFO, Daniela Hommel. Daniela, over to you.
Thank you, Claudia. Good morning, ladies and gentlemen, and a warm welcome to all of you. 2024 marked a year of transition for CGM. We initiated considerable change. With our new CEO, we were fully focused on enhancing customer centricity, operational excellence, and innovation for the benefit of our customers. Enhancing our product portfolio is an ongoing focus. The acquisition of Pridok strengthens our excellent market position and creates the opportunity to offer a purely web-based solution to customers in Northern Europe. With the acquisition of Emento Apps, we enhanced the organization, digitization, and structured collection of patient data. In France, we acquired our sales and service partner for 25 years, CPS Concept, thus strengthening our sales and distribution capabilities. Looking back at last year, we also focused on IT security. The C5 attestation we received is a testimony to the progress we have made.
Once again, we have proven our innovative strength with further milestones of launching AI and cloud-based solutions like the AI-driven phone assistant, CGM One, or CGM Stella, supporting our ambulatory and pharmacy customers. We remain fully committed to our purpose. Nobody should suffer or die because at some point, medical information was missing. This purpose is more relevant than ever. In several of the countries we are present, medical data is now becoming available through connected products and AI modules in order to prevent patients from suffering or dying. At CGM, this is what drives every one of us to contribute to advancing healthcare, and we aim for adding a new dimension to healthcare. Leveraging our robust platform strategy and an unrivaled presence across 19 countries, we aim to engage our current customers, attract new ones, and ultimately inspire, support, and advance the market for digital health solutions.
This strong foundation, built on over 35 years of experience in the healthcare industry, is further enhanced by the integration of artificial intelligence and data-driven solutions, allowing us to make a significant positive impact on the world. Every day, the employees of CompuGroup Medical work with passion to develop new innovative solutions for the benefit of our customers. At CGM, we are committed to supporting healthcare providers, the everyday heroes who play a vital role in patients' lives, including doctors, dentists, pharmacists, laboratory technicians, nursing staff, and the entire medical team. We recognize the significant responsibility we carry and are dedicated to delivering optimal solutions that enhance the quality of medical care, alleviate the workload of healthcare professionals, ensure patient safety, protect medical data, and drive advancement in healthcare through digital innovation, all while addressing rising costs.
The digitization and continuous evolution of technology have fundamentally changed how medical information is accessed, managed, and shared. We embrace the challenge of navigating these changes and are resolute in our commitment to remain at the forefront of this ongoing transformation. For more than three decades, we support our customers in healthcare with software and IT solutions backed by the founding Gotthardt family. For the next phase of CGM's development, we have found a second anchor investor and strategic partner. In December 2024, CompuGroup Medical entered into an investment agreement with CVC Capital Partners. The investment agreement was subject to the successful closing of a tender offer launched by CVC, offering EUR 22 to CGM shareholders. In January, we, the managing directors, as well as the administrative board and the supervisory board, published a joint recent statement recommending shareholders to accept the offer.
After the first three weeks of the new year 2025, CVC exceeded the minimum acceptance threshold of 17%. After the successful closing of the tender offer, which still depends on several regulatory approvals, a delisting offer is planned, most likely during the second quarter. As already announced in the offer document, our annual general meeting will be postponed, probably to August 1, 2025. As a result of the voluntary tender offer, CGM's shareholder structure has changed considerably. The majority stake held by the Gotthardt family and associated shareholders remains unchanged at over 50%, while the free float has fallen below the mark of 25% due to CVC's almost 22% stake. To deliver against our purpose, we are determined to continue investing on a high level going forward. CVC is fully committed to support our strategy of innovation both in the envisaged partnership.
With CVC's deep healthcare and software expertise, strong commitment, and global network, this potential partnership will provide the support and resources to catalyze the next phase of innovation, growth, and transformation in healthcare. Now, let's take a look at the financial performance of 2024. Two days ago, we announced, and we mean the Managing Directors, the Administrative Board, and the Supervisory Board, that the dividend will be the legal minimum dividend this year, amounting to EUR 0.05 per share. The proposal comes against the backdrop of the company's long-term innovation and growth strategy, including investments in infrastructure and resources for greater customer centricity and AI-based processes and products. Based on the consolidated financial statements, it also takes into account the revenue and profitability development in the 2024 financial year in accordance with the revised guidance. With this decision, we are focusing on customers and employees.
Looking at the organic revenue development in 2024 year over year, we were down by 2%, thus ending the year within the guidance range as revised in July 2024 after the ad hoc announcement. As we said back in July, this development has been attributable to the one-off revenues, which have declined. Recurring revenues grew by 5% and exceeded the guided goal of a share between 65%-70% by 4 percentage points. Adjusted EBITDA was down year on year and ended up with EUR 225 million within the revised guidance range. The margin was 3 percentage points below last year at 19%. Free cash flow exceeded the revised guidance and stood at EUR 66 million. Adjusted EPS stood at EUR 1.27 below the revised guidance range due to higher tax payments. Let's take a look at the quality of revenues over the past couple of years.
Recurring revenues have grown with a CAGR of 8% over the past couple of years. As I already mentioned, in 2024, recurring revenues have grown by 5%, and they now account for almost three quarters of total revenues. As we already explained during the last year, the main reason for the revenue decline lies in the development of the one-off revenues, which we have seen a slower progress of where we have seen a slower progress of projects in different areas in 2024, while we had very strong one-time revenues in 2023. For the group and for all three operating segments, it is an identical picture. One-time revenues are down year on year, but represent the smaller part of the overall business.
On the other hand, we see continued growth in recurring revenues in the group and in all three operating segments over the prior year, a strong proof point of the resilience of our business model. Now, let's go into more financial detail, starting with our AIS segment, where we recorded a revenue decline of 5%, which is due to the decline in one-time revenues. The reason for the decline in one-time revenues is mainly the high levels in the TI business in 2023, as well as slower modules across the board. Recurring revenues increased by 3% and now account for 76% of segment revenues. The adjusted EBITDA in the AIS segment was impacted by ongoing investments in product innovation and decreased by 15% with a margin below prior year. Coming to our hospital segment, revenues slightly grew by 1% year on year.
The revenue growth is attributable to growth in recurring revenues. One-off revenues came in lower due to tough comms with large project rollouts in Germany and Poland in 2023. Against this backdrop, the growth in recurring revenues was able to compensate the strong prior year's development. The continued investment into larger projects and G3 technology led to a slightly weaker EBITDA margin. Finally, let's talk about our pharmacy segment. In 2024, the PCS segment was also up against tough prior year comms, where the segment benefited from one-time revenues, especially in the hardware business. The strong development of recurring revenues offset the decline in one-off revenues. Overall revenues in the segment were on the prior year level. As usual in the segment, the margin stood strong at a level above 30%.
In the prior year, 2023, the margin was positively influenced, among other things, by research and development grants in Italy and Germany. Now, let me give you a short update on the R&D development. The investments in our future-oriented product portfolio and innovative solutions are a key to sustainable success and an accompanying improvement in the work of our customers. In 2024, R&D expenses showed a slight increase, while R&D CapEx is below the prior year level. R&D expenses as percentage of revenue remain high at 22%. Let's move on to the free cash flow. With EUR 66 million, free cash flow was below prior year level, but better than anticipated. Due to the decline in one-off revenues, payouts for restructuring, and higher than expected tax payments already mentioned in the summer, free cash flow was below the prior year.
We see an ongoing improvement in our working capital management, which supports us on our path. Talking about finance, we are recording a leverage above three times EBITDA of the last 12 months. Net debt has increased from EUR 710 million to EUR 773 million. This includes the share buyback program in early 2024, as well as acquisitions during the last year. At the same time, we remain well financed with more than 80% of our net debt protected against higher interest rates. On the next slide, you find the guidance for the full year 2025. The organic revenue development is expected in a low- to mid-single digit % growth range. We expect a continued positive development of recurring revenues with light growth year on year.
Looking at the adjusted EBITDA, we expect to return to the growth path again after this year of transition, supported by at least slight organic revenue growth within each segment. With that, thank you for your attention. I'm now looking forward to your questions, and I'm handing over to the operator for the Q&A session.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume of the webcast while asking a question. Anyone who has a question may press star and one at this time.
The first question comes from Knut Woller from Baader Bank. Please go ahead.
Yes, hi, good morning, and a couple of questions. When do you expect to return to margin expansion again? You're guiding for an absolute EBITDA growth again, but when should we expect CompuGroup to return to margin expansion again? The second question on the cash flow. We have seen a burden by tax, but also by a reversal of provisions. You're not guiding on free cash flow anymore, but is it fair to assume that the free cash flow should improve noticeably in 2025? On capitalization, when we look at reported EBITDA, we saw that the quality of EBITDA basically improved, out of my perspective. If we would adjust for the decline of capitalization, reported EBITDA would have been broadly flat. How should we think about capitalization in 2025 and the years beyond? Thank you very much.
Many thanks, Knut, for all your questions. I start with the first one on the margin expansion. We stated already in November that it is important that we invest and not overly steer the margin to do not miss market chances. That is why for us, it is a balance of where do we invest and what do we want to obtain in the margin. That is why, yes, we aim for increase, but not for an overall margin increase. We do not want to miss investment chances, especially now with soon a strong partner on board. That is the answer that I can give you. It will be a balancing of investments and operational excellence measures that we have in place at the same time. For free cash flow, yes, we did not guide this explicitly.
We also looked at our peers for day guide, but your implicit assumption that free cash flow will rise is correct. We assume this; we need to steer free cash flow in that direction. We have working capital measures in place, and that's why, yes, we expect a higher free cash flow. With regard to capitalization, and thanks for your comment on improvement of the EBITDA, we really appreciate this. With regard to capitalization, you know that we are impacted there by IAS 38, which requires a certain cost to capitalize. Yes, you are also right; there is some management decision beyond this, which we can either choose or not choose. Our expectation is that capitalization will be around flattish because we put always new products that we want to churn out into the market in that phase of development where we can capitalize cost.
Thank you very much, Nia. Maybe just one quick follow-up. Is there any plan of a restructuring this year? Or just asking in different terms, how should we think about the adjustments? Will there be any extraordinary expenses this year or a larger restructuring program or not? Thank you.
Knut, as of now, I'm not aware of any restructuring programs planned for 2025. However, it's equally important to note that our focus remains on driving operational efficiency. I stated this in my speech and also when I explained the margin question. We want to enhance our strategic initiatives. With these initiatives, we continuously assess our business landscape, and we want to become better and leaner every day. That's also our strategy now. We do not want to hinder ourselves from growing and not counting on the best people we can find.
Therefore, from time to time, yes, there may be layoffs, but as I said, I'm not aware of a restructuring program planned for 2025 as of now.
Thank you very much.
The next question comes from Wolfgang Specht from Berenberg. Please go ahead.
Yes, hello, good morning. Two additional ones from my end. First, on the segment, you stated expecting organic growth in all three verticals. Could you elaborate a little bit on the ambulatory business, which is obviously your most important one? Do you have any idea in which directions growth could come from regarding regions or countries, or do you expect that the growth to return in most of the countries you're operating? The second question would be on the buyout process. Which approvals are currently still missing when you look at the process?
Many thanks, Wolfgang, for those questions. I start with the second question.
I also state which approvals we have to provide you with a full picture, and we have also announced them. To remind you, merger control clearance has been obtained for Germany and Austria. Regarding the foreign direct investment clearance, approval has been obtained in Belgium, Denmark, France, Italy, and Sweden. With that, FDI clearance is still outstanding for Germany, Austria, Romania, and Spain. With regard to your first question on the ambulatory business, first of all, I want to remind you what the usual value or business drivers are: its churn, its price increases, its new customers, its upsell, its downsell. With those KPIs, we steer the business, and we expect indeed similar growth trends in the regions. The growth will come from the enhancement of our G2 products, from the rollout of G3 products, and also from churning out AI modules.
Thanks a lot.
As a reminder, if you wish to register for a question, please press star followed by one. We have a follow-up question from Knut Waller from Baader Bank. Please go ahead.
Yeah, thank you. Maybe just on the growth. I think there have been some delays, for example, in harvesting the Ségur tailwinds, which would be relatively high margin. Also, in terms of Hospital Future Act, we have seen a lagging of the monetization or at least turning backlog into revenues. What kind of expectations for Ségur and the Hospital Future Act have you factored into your guidance 2025? Thank you.
Thanks, Knut, also for these questions. I want to remind you that we generally are facing several regulatory initiatives, of which Ségur is only one. This year, we have considered all of them with risk adjustment in the budget and our guidance.
The second wave of Ségur specifically is expected to either start late this year or move to 2026 entirely. Please be reminded that we are dependent here on the decision of the French government, and it's not entirely in our hand. With regard to your observation on HIS, the observation is correct. There was a delay in churning out the KHZG products, the Hospital Future Act products last year. We stated this also when we discussed the downturn in the one-time revenues. However, the good news is that is part of our 2025 plan, so we can catch up here, and we are looking forward to doing this with our customers.
Thank you very much.
Okay. Since there are no further questions, we would like to thank you very much for dialing in today.
As always, investor relations is available for further questions, so do not hesitate to shoot an email or give a call to Frederic or myself. Thank you very much for dialing in and have a nice day.
Ladies and gentlemen, the conference is now over. Thank you for choosing CompuGroup Medical and thank you for participating in the conference. You may now disconnect your lines. Goodbye.