Earnings Call: Q2 2018

Aug 2, 2018

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the DiaSorin First Half twenty eighteen Results Conference Call. At this time, I would like to turn the conference over to Mr. Carlo Roza, CEO of DiaSorin. Please go ahead, sir. Yes. Thank you, operator. Ladies and gentlemen, good morning, and welcome to the quarter 2 conference call. Let me remind you that I will make initial comments at constant exchange rate since as you have seen the currency fluctuation is an impact on the business. And after my remarks, our CFO, Mr. Petrone is going to take you through the numbers. I will focus my comments on 3 points, which are key in my opinion to quarter 2. I will talk about top line, I will talk about margins and I will talk about new product launches. Now let's start from the top line. Let's start from Europe, which is simple, strong growth and in line with plan to incorporate the Siemens customer base and then initiate the transfer of the business from the ELISA technology to the LIAISON technologies. We had good growth in all the different countries. One point I want to make, which has to do with Germany, because of the fact that in the last two months, we hired a significant number of new commercial reps and engineers to support the Siemens business and also to facilitate the transition and installations we expect to come of new instruments. We will move from ELISA to Liaison. What we have seen in Q1 and in Q2 is a slowdown of the development of the new business. This is temporary for Germany, again, because it has to do with the fact that lots of attention was actually dedicated to incorporating the Siemens business. And we expect Q3 and Q4, the CLIA XE business to start to grow again as a net result of the transition of the Siemens customers to our platforms. So Europe, I think, is self explanatory, no concern, and we move forward. Now let's go to APAC. And when it comes to APAC, it's certainly true that we need to discuss China since China does represent the lion's share of the revenues in this area. We see a strong in China, we see a strong reagent growth, which is partially offset by the change of instrument policy in China. What does it mean change of instrument policy? It means fundamentally 2 things. 1st, as we said in the previous quarters, starting from late last year, we are refocusing our distribution network from the current one, which is okay serving Class III hospitals, which do represent the vast majority of our business today into a distribution network that is able to serve all the Class 2, which as you know, as we've discussed with time, does represent the future growth opportunity for DiaSorin in preparation of the launch of the LIAISON XS. 2nd element is that we change our policy in China whereby rather than favoring instrument sales, we are now favoring reagent rental. And the reason why we do that is that with the reagent rental, we can clearly better control where those instruments are actually going. So the net net result is that you don't experience, per se, a decrease of placement, whereas what you see is a decrease on the revenue line, on the instrument line compared to 2017 because of this change in policy. So when we look at China, China is doing well, and China is growing the clear business as expected double digit, and we expect to close the 2018 with double digit growth. What you see in the top line, what seems a non growth top line non growing top line is a cosmetic effect because of this situation with instruments. Now let's talk about the U. S. And when we talk about the U. S, we need to talk about the elephant in Rome, which as you know, for the U. S. For us is vitamin D, which in quarter 2 took a downturn versus the previous quarters. Now as said in the past, it is our expectation that vitamin D decline at a worldwide level ranges between 3% to 5% per year. And that's a combination of declining mature markets like the U. S. And upside in other countries where the adoption rate is still low. What we saw in quarter 2, which we did not expect, is that there has been a volume decline steeper than in previous quarters. And volume decline means utilization of existing customers or some of the existing customers of the vitamin D assay. And this is certainly new compared to what we have been experiencing in previous years because the decline in previous years was mainly an effect of pricing, whereas the volume has always been flat or growing as a consequence of the fact that some of these very large commercial labs were acquiring smaller labs and therefore their volume was growing and or because the utilization, the usage of the vitamin D test in the U. S. Was still slightly growing. Well, starting from quarter 2, we have seen a change in pace. And this is mainly due to a recent policy change with 1 insurance company, which is Cigna. And Cigna changed the reimbursement policy when it come to testing. We're now recommending to all doctors not to use the test for screening purposes, but only to use it for diagnostic purposes. What's the consequence of this? The consequence is that the rejection rate has increased for certain labs, the ones that have patients that do that aren't burst under Cigna. And the testing volume has softened with those physician, we see patients again covered under the Cigna policy. Now we have seen this happening before in other countries, let me remind you, Australia, let me remind you, France. So it is something that does happen when it comes to an assay like vitamin D that is used in high volume. And typically, what we have seen in the past is that it takes the market a couple of quarters to settle down. So there is a decrease in usage and then the market does settle and then it continues at that pace. This certainly was not foreseen in our plan. The Cigna policy was actually changed at the beginning of quarter 2. And so we are recalculating or reassessing the vitamin D opportunity or decline actually in the U. S. For the next two quarters. And that led to the fact that we had to revisit our guidance top line guidance when it comes to 2018. Now otherwise in the U. S, the clear now that the elephant is out of the room, in the U. S, the clear XD continues to grow double digit. And we expect a series which is very important, we expect a series of new products to hit the market in Q2, Q3, Q4 this year when it comes to 2 stool specialty assays that are in the final round of discussion with the FDA to be approved. And also, as you all know, we expect to have the QuantiFERON TB assay coming to the U. S. Next year. And then last but not least, all the hepatitis and HIV panel to hit the market, started in the market next year and then continue into 2020. So from a strategic point of view, I have no concerns about the fact that we do have the U. S. Well covered with new product launches. And certainly, we need to face the short term reality of the fact that there is a vitamin D reassessment. Now let me talk on margins because I think it is very it is not worth it and important to see that the quarter has been very good with in delivering margins. And this has to do with 2 things. First, good mix. If you think about it in the past, the fact that vitamin D was declining did affect margins of the company. And it does, and notwithstanding the fact that, again, in the quarter, we took a hit on vitamin D more than expected, margins didn't suffer. And this shows that, a, we don't have dependence on vitamin D margins any longer because we launched recently many, many products which are highly profitable as well. And so again, vitamin D, our dependency on vitamin D from a margin perspective is not there any longer. The second consideration, which is very important to make is that as we have discussed, we have been working over the last 2 years into operational efficiency, which resulted into 2 things. First one has been heavy investment in the manufacturing side in order to increase automation in manufacturing, decrease the cost of labor, and we start seeing this. And last but not least, also the fact that we decided to consolidate some of our operations and we came to the conclusion of closing Ireland last year. And what is very interesting is that, notwithstanding the fact that Ireland is still active, as you know, we foresee to close pretty much everything by year end. So the net positive effect is not there yet of closing Ireland. Still, margins are good. Again, so from a margins perspective, I am very reassured that we can maintain the profitability as a net net result of innovative products that we launched and continue to launch and the fact that from an operational point of view, the system is becoming extremely efficient. Now last but not least, has to do with new product launches. And certainly, I know questions will come on QuantiFERON. So let me try to give you some answers. We do have this partnership with QIAGEN. You have listened to what QIAGEN's CEO has been saying about the SA per se and the way the 2 companies work together. We are on track to launch the product on the LIAISON in mid September CE Mark and we foresee U. S. FDA submission happening sometimes in early Q4. And so these are very important products for both companies. It is very important for us because it's going to give us access to a set of customers today that are using this product, and it's going to give QIAGEN access to a very large installed base of instruments that we do have in hospitals that today are still doing skin tests. And certainly, we're going to work together to convert and increase adoption of blood test versus skin test. So coltiferon on time and to be delivered is going to hit the market in Europe in a month or so. The last comment I want to make, again is to be with the other 2 products, which are key to us, which are the Stew products that we decided to bring to the U. S. And we are in the we are very close to get approval. Stool is very important because the U. S. Is the last geography that we are missing actually. And especially when it comes to CAL Protecting, it's a growing market and it's a market today that is a high margin, high price market. It's a market that is mainly a send out market from hospitals into the big labs. And we're very well positioned to capture that wave of initial testing and then move downstream adoption into comfortable. And at this point, I will pass the microphone to Mr. Pedro, who is going to take you through the numbers and then we're going to go through Q and A. Thank you. Thank you, Carbo. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DSO Ring during the first half of twenty eighteen, and we'll also make some remarks on the contribution of the second quarter. Before we start, let me please remind you that we began reporting the senior advisor business from Q4 2017. And so the perimeter of consolidation is different from the one of last year. Said that, as usual, I would like to start with what I believe are the main highlights of the period: The strengthening of the euro against all the currencies in which we operate has generated some notable FX headwind on revenues during the 1st 6 months of the year. Even if, as expected, the impact has been less material in quarter 2 compared to quarter 1. We had EUR 6,000,000 in Q2 of headwind and EUR 11,000,000 of so in Q1. The variance has been mainly driven by 2 seasons: the USD, which depreciated by almost 12% and the Brazilian reais, minus 20% in the first half. Considering the U. S. Trend in 2017 and where we are now, I think it is fair to say that this effect will materially decrease in Q3 and Q4 2018. Moving to the second point. We closed half 1 with an increase in revenues at constant exchange rate of 9% or almost €29,000,000 after a strong Q1. The 2nd quarter has been kind of soft for the reasons that Kari just covered, recording a growth at constant exchange rate of 6.7%. We closed half one EBITDA at EUR 128,200,000 with an increase at constant exchange rate compared to last year of about 8% and with better margins than what we expected. 39.1% at constant exchange rate versus 38% implied by our full year guidance. H1 2018 EBITDA margin, net of the expenses we booked for legal action in the U. S. Considering the future introduction of certain products into that market And net of the tail of the Irish site divestiture cost would have been slightly better than last year. Lastly, we closed half with a very strong free cash flow, EUR 69,200,000 versus EUR 61,000,000 EUR 61,000,000 of 2017, with a growth attached better than 13%. The net financial position at about EUR 104,000,000 has been affected by the payment of the ordinary dividend for EUR 46,800,000 in May and by a shares buyback program for about EUR 60,000,000 Please pay attention to the fact that the net financial position does not include about €98,000,000 of debt to shareholders for the extraordinary dividends, which will be paid out in December 2018. Let's now go through the main items of the P and L. H1 revenues at €331,200,000 grew by 3.7% or just shy of €12,000,000 compared to last year. As said, the growth at constant exchange rate is 9% or EUR 29,000,000 Gross profit at €226,800,000 grew by 3.5% compared to last year, closing the first 6 months of 2018 with a ratio of revenues of 68.5%, which is basically in line with 2017 in spite of the dilutive effect of the semen cellulizer sales and of the price pressure on vitamin D. This performance, which is better than what we expected, is mainly driven, as Carlos just discussed, by higher manufacturing efficiencies and better product mix and has been helped by a very good and solid quarter too, which reported a gross profit margin of 69.4%. As you might remember, we had discussed in the previous quarters and during our Capital Market Day about several initiatives aimed at squeezing costs out of our P and L in order to safeguard our EBITDA margin. I believe we are start seeing the payback of those initiatives filtering through our numbers. Total operating expenses at EUR 119,200,000 or 36 percent of revenues have increased by 3.9% compared to the 1st 6 months of last year. Please remember that about €7,200,000 of H1 OpEx have been driven by depreciation of intangible assets coming from the Siemens, Eliza and Focus Business acquisition. Net of these elements, H1 OpEx increased at constant exchange rate versus last year, would have been 8.2%, and the rational revenues would have been 33.6% against 34% of 2017. H1 other operating expenses at almost €5,000,000 have increased by €1,200,000 compared to last year. As said, the period has been affected by some expenses related to the reduction in the U. S. Concerning the future introduction of certain products into that market and by detail of the Irish site divestiture cost. Because of what we described, H1 EBIT at €103,000,000 or 31.1 percent of revenues have increased compared to 2017 by 1.9% or about €2,000,000 The growth at constant exchange rate is positive for about 8.5%. H1 tax rate at 22.5 percent is almost 10 percentage points better than 2017, which closed at 32.3% and is in line with what we anticipated and discussed during 2017 year end call. This variance is mainly driven by the positive impact of the Italian Patent Box and the U. S. Tax reform. Net result at almost €81,000,000 or 24.4 percent of revenues is higher than previous year by EUR 14,400,000 or almost 22%. This increase is the result of what described so far and of a lower net financial expenses, mainly driven by minor interest and FX losses compared to last year and by the revaluation of the participation in our Indian subsidiary following the takeover of its full control from the Indian partner. Lastly, H1 EBITDA at EUR 128,200,000 is better than last year by EUR 2,000,000 or 1.6%. The variance at constant exchange rate is positive for just shy of 8%. First half EBITDA ratio on revenues is 38.7% at current exchange rate and 39.1% at constant exchange rate, thus confirming the strong profitability seen in the last quarters and actually improving it. Quarter 2 has done particularly well, closing at almost €65,000,000 or 39% of revenues. Please remind that H2 2017 was materially affected by the Irish site divestiture cost. So the growth of H2 2018 over H2 2017 is going to be more material than what we have recorded in H1. Let me now move to the net financial position and the free cash flow. We closed the period with a positive net financial position of about €104,000,000 and about €118,000,000 in cash. The net financial position has been affected by 2 elements. I've said that the payment of ordinary dividends for €46,000,000 6,000,000 in May and the share buyback program for EUR 60,300,000. The group generated EUR 69,200,000 free cash flow in the first 6 months of the year, visavis €61,000,000 in 2017, reporting an increase of 13%. This variance is the result of the better economic performance of the period and of the lower tax cash out coming from the Patent Box in Italy and the U. S. Tax reform. Lastly, in view of the group operating performance, the management has reviewed its 2018 guidance as follows: revenues growth at constant exchange rate of about 9%, visavis11% of the previous guidance. EBITDA growth at constant exchange rate of about 12% visavis13% of the previous guidance. Now let me please turn the line to the operator to open the Q and A session. Thank you. Excuse me. This is the Corusco conference operator. We will now begin the question and answer session. The first question is from Romain Zana of Exane BNP Paribas. Please go ahead. Yes. Thank you. Can you hear me? Yes, we can hear you well. Yes, perfect. I have three questions, if I may. The first question is rather a clarification. Can you just clarify the pure organic growth reported in Q2, so without the contribution from acquisition? The second question will be on the CLIA, excluding vitamin D. In Q2, you obviously still had a very solid growth. But how should we extrapolate the slowdown? It seems, Mr. Rosa, that you see the slowdown temporarily. Is that fair to say that you expect a return to double digit growth along with the launch of new tests like PCT, would be good to have a flavor on that. And I have a follow-up question on the guidance. I will first let you answer the 2 1. So hello, Romain. I start taking the first question you made about the organic growth. So the organic growth in the first half is around 4%, which means that the organic growth in Q2 is just north of 2%. If you remember in the last call with you guys, we told that Q1 growth was around 6%. And these make all the math that I believe you need to have. Sure. Sure. Okay. When it comes to 3xD, I made some comments before. So let me just summarize. Yes, I see no problems with ClearXD growing by year end at double digit. Year to date is 10.5% growth with 13% in Q1 and 7.some percent in Q2. The difference in quarter 2 versus quarter1 has to do with 2 effects. And mainly, as said, the first one has to do with the fact that in Germany, which was Germany was a contributor in Q1, did not contribute necessarily in Q2 in growth because of the fact that we have been starting we spent the last few months reorganizing the business. And so we saw that our reps are spending more and more time in acquiring the Siemens business rather than developing new business. And certainly, you in Q1 didn't feel much that effect, but you start to seeing it in Q2. It's temporary because of the fact that then the next step now that the business has been solidly in our hands, now it's going to be promoting and converting those Eliza customers to Liaison. Let me remind you that Germany is not is well, is a significant portion of our European business. So the fact that they don't contribute to clear growth, clearly, you can feel it in a quarter. The second element is to do with the fact that as far as China is concerned, China, and this has a lot to do with timing, because don't forget, in China, we sell to distributors. So depending when they schedule the shipments, you see a shift from one quarter to the other. But it grew 18% Q1 and then it grew single digit in Q2. Overall, it's growing 12%. And I believe the 12% for China growth of PXP is what we should expect from this business. So there are certain one off elements when it comes to the Clear XD that made the quarter too light, but I don't see this to be honestly a problem. Keep in mind that starting from quarter 3 and then quarter 4, you're going to have TB, which is a clear ex DSA. You're going to have the approval of some of these products into the U. S. We just got hepatitis B CE Mark. So as usual, the funnel is delivering, and I'm not at all worried about the performance of the Clear XP. Okay. Very clear. And last one, if I may, about the guidance and the comments you made in the press release about the evolution of the Diagnostics sector. Just wanted to clarify these points. I mean, are you revising the guidance because of the changing guidelines of some payers, as you alluded, on vitamin D? Or is it rather like a PAMA impact or general comments that you are doing about the diagnostic sector as a whole? No. I think that that statement is always there. And it is a general disclaimer, which fundamentally says we don't have a crystal ball when he comes to the overall market. I believe that the revised the fact that we revised the guidance has to do with the business effects we have discussed, certainly vitamin D, which was not expected. 2nd, the fact that contribution of growth of clear revenues in the 2nd largest European market, Germany, did slow down for the reason we have discussed in quarter 2, and we don't expect to recover that. Last but not least, which I did not mention because I don't believe is strategic, is more tactical, but does bear some consequences to the performance of the business, is the fact that when we inherited when we bought actually the Siemens business, there was a part of this business, which is roughly which is €3,000,000, €4,000,000 which had to do with a very large tender that Siemens had in Brazil historically for Zika. And because of the fact that Zika fundamentally disappeared or the infection rate has dramatically decreased, this tender has been postponed by the government. So that base business, which we consider base business, roughly EUR 3,000,000, EUR 4,000,000 which did not which was in our forecast, all of a sudden was canceled. I consider these really tactical because Zika tender in Brazil is very tactical. But certainly, it did somehow impact on the fact that we feel more comfortable decreasing growth from 11% to 9%. Thank you very much. The next question is from Maja Pataki of Kepler Cheuvreux. Please go ahead. Great. Thanks for taking my questions. I would like to start off with the U. S. Sales performance. Could you give us a bit of a feeling of some color on what clear growth was exciting in the U. S? In the past, you have given us a bit of a color to understand what is happening. And the second question relates to the softer performance in molecular test in Q2. Could you give us a bit more color on that? And then the last question would relate to your comments about the change in the vitamin D reimbursement policy with Cigna. Do you think that this is just the beginning of other following suit and hence vitamin D could once again see a deceleration in the trend? Thank you. Okay. I'll take these questions. So let's start from vitamin D. As said, strategically, vitamin D for us can only be a lose lose proposition because of the or two things. First, there's still very relevant market share we have in the U. S. Market, thanks to the fact that we do have contracts with major labs. So from a volume perspective, we still have a very large market share in the U. S. 2nd, that the penetration, if you remember, we stopped talking about it because we consider this history. However, the penetration, which is the number of the percent of population tested by vitamin in the U. S. Is by far one of the highest in the world, next, I believe, to the heydays of Australia and France. So for that reason, it's very, very clear that vitamin D is destiny is to decline. And we always stated, if you remember, you can go from 3% to 5%. And we almost said that and I believe last year was actually less than 3%. It was pretty much flat last year. But if you remember, I warned everybody, don't cork up your champagne because next year can be different. Now vitamin D is unpredictable because of this. Now what Cigna is doing is fundamentally reminding doctors that vitamin D is not a screening assay, which is a fact. I mean, vitamin D also when we got approval for vitamin D with the FDA was never intended to be a screening assay. And it became the success of vitamin D in the U. S. Is related to the fact that it became part of the employment screening and insurance screening program. So it's not a screening, it's not really used as a screening, but part of screening programs, okay, for vitamin D deficiency. And last but not least, there is a strong consensus among the physicians that there is a need of assessing the vitamin D11. So let me tell you my gut feeling. But again, if I had crystal ball, I would play the lotto and retire. My gut feeling when it comes to this is that with Cigna what this will do is going to reassess, we're going to take away some of the misusage, right? Misusage means that you click you check the box even if it doesn't is not needed. So that will go away. And to be honest with you, my expectation is that this now Cigna is a player, but there are many, many different insurance companies that do have that do serve the U. S. Market. So my expectation, to be honest with you, is that this is going to be done also by some other providers. Is this going to be this way is this going to have a dramatic effect on vitamin D? I say, I believe not. I believe, again, as said, as we have seen in other countries, we will see a reassessment of volume testing to testing volume. And then there is going to be a new baseline, which gut feeding tells me maybe 20% of volume will disappear, but the bulk of the volume will continue will continue to be there. What is again, what I would like to remark on this and I draw your attention to this is that vitamin D is still a very profitable assay for us. And notwithstanding the fact that we took this hit in the quarter, did not affect by a bit our margins. So everybody should take note of that in terms of the ability of the company to diffuse that risk, which was certainly there a few years ago. But today, we're not exposed to that any longer, okay? And this is, I hope, is taking care of the Cigna story. Now let's go to molecular. Unfortunately, for a reason that have nothing to do with you, but it had to do with exposing data to competition. We cannot show breakdown of revenues when it comes to molecular. However, we have always indicated that when we bought this business, this business had 2 components. The component which was which is extremely, by the way, profitable, which has to do with ASR. ASR means that we sell our agents to the very large labs and this was done by Quest. Remember, we bought the business from Quest. Quest was using this outfit to develop reagents to then be used in the Quest lab to develop ADTs. And they develop an interesting business, which is significant in the U. S. For in which goes under molecular revenues. Now what's happening in quarter 2, two things about this business. A, it's since they buy reagents and they for internal use, they buy it in big chunks. And what happened in Q2 is that some of the orders did not fall in Q2, some were anticipated in Q1, some will come in Q3. So you see a dive of the ASR component of the business, which is the part that is more tactical and less strategic for us. The underlying business, which is the reason which is why we bought this company, which is the kit, which has to do with the flu, the herpes viruses and the C. Diff and all the other products that we have bought continued it continues to grow strongly double digit as expected, okay. So ASR, what you should look at molecular is doing very well when it comes to the kit and then you have this blip when it comes to the ASR business in the U. S. And we are very exposed to it because of, again, the nature of the asset that we bought. Now last but not least, the U. S. Sales. We don't break down. However, the growth of the our Clear XD in the U. S. Is around 12%, okay. So it's good growth. It does represent today something like 40% of the U. S. Revenues. So it is it used to be almost nothing, then we developed a very good business. And it is the one that is fueled, is going to be fueled by launch of new products, including stool and the TV, okay? Certainly, if 60% of your business declines by 10%, then Houston, you do have a problem And that has to do with the fact that you see the vitamin D there's the vitamin D and then you see the North America revenues overall going down by 4.5%. The math is not complicated. Great. That's very helpful. Just a follow-up on that, Carlos. So you expect actually for the full year Molecular to be in double digits, given you have the lumpiness of the orders of the ASR kits, but shall we expect for the full year that you see double digit growth for the total of Molecular? I do expect the double digit growth, but let me make a fundamental disclaimer, which you know a portion of our business is flu. So with a regular flu season, I do see double digit growth. I don't expect flu to be a great contributor of growth, but I don't expect flu to be something that is going to depress revenues. So this is my assumption. So there is a flu component, which has to be same as previous years and then the rest of the business, which is growing strongly. So if that happens, I think double digit and then ASR being flattish pretty much. If that happens, then we will see double digit growth. Thank you very much. Thank you. The next question is from Michael Ruzich of Berenberg. Please go ahead. Yes, guys. Thanks for taking my question. Just 2 from me. 1, I was just recently reading the transcript for Quest over in the U. S. And they seem to allude to the vitamin D slowdown being a miscoding issue and that this might actually be more temporary. It's obviously a bit different than what you were saying and I'm just wondering if you can help me kind of reconcile those two explanations. And secondly, I was just wondering if you had started to see any effect from PAMA. I know a lot of people are talking about this and you guys have spoke about it before, but I was wondering if that had started to bite your ex vitamin D CLIA franchise in the U. S. At all? Look, without really trying to put myself in the shoes of my largest customers in the U. S, So take that as a disclaimer. But what I believe we are saying is very similar simply in different words because mis coding fundamentally means that how do you prescribe vitamin D. And so if you use it for screening or not, and if it is for screening, then under Cigna, you would get some of these assays that are rejected. So why temporary? Because it is the same as I said, temporary because it's going to take away some of the miscodings. But then the legit use of vitamin D, which is a clinical use, will continue to exist. And this is why I think they alluded to the fact that it's temporary. It's pretty much the same way, the same concept that said in different terms. But in fact, you're right. This concept of change of reimbursement recommendation certainly does impact some of the large labs, but because a lot of automated testing today, it is actually with a very large labs. I'm not talking about Quest. I'm talking about the commercial labs in the U. S. Now let's go to PAMA. With PAMA, look, I am very agnostic about PAMA for two reasons. PAMA should, if anything, affect vitamin D testing. But again, as you see and as I said before, vitamin D the vitamin D market is actually has been destroyed by competition, by price. From my perspective, has been completely devastated by some pricing, foolish pricing policy by very large companies. And it has been done. Now PAMA changing reimbursement, not doing much in my very humble opinion. But again, as you see, nothing to do with changing their reimbursement. It has to do with changing the fact that you reimburse for a certain use. That is changing that is affecting volume testing and that does affect the market. Okay. So as far as PAMA is concerned in vitamin D, no problem. As far as everything else in PAMA, look, we sell products that are either very high specialty, and so price is not necessarily a big issue, or our products that are so small. So they are specialty, but so small in terms of the volume that they not draw necessarily the attention of any of the labs because don't affect their math. So as far as diaspora is concerned today, PAMA, I don't see PAMA honestly affecting tremendously our business. Understood. Thanks. The next question is from Patrick Fuchs of AGI. Please go ahead. Hello. I have just a question regarding, again, vitamin D. I mean, when we look at the overall sales development constant -4%. So that's not completely out of the range that we were expected. So would you see the vitamin D slowdown then more in H2, getting at a run rate at the end of the year below the range of that you have given previously on that? And the second question is just to get a view of potential impact to currently what would be your estimate of vitamin D screening in the U. S. Versus really diagnostic use if a patient presents with some maybe vitamin D relevant symptoms or so. So this question basically and then finally, the guidance cut that you've given. So you would basically say German situation and the vitamin D situation is the large explanation or the largest explanation of the cut here? Thanks. Yes, Patrick. I would say, again, three things when it comes to the guidance cut is to do with events that are mainly to do with certain situations that stop growth in our geography but are not permanent. Germany is a good example. The one off tenders which have been canceled, which we didn't comment too much, I just comment before, which is a Zika tender, very sizable business, nonstrategic but sizable. And that's gone because government canceled tender. And the third element is certainly do with vitamin D. I think we killed that bird already 3 times and we discussed vitamin D. Yes, vitamin D in H2 will decline compared to last year more than expected because of this phenomenon in Cigna in the U. S. And I believe that is going to as I said before, it's going to take couple of quarters to settle down and then we have better visibility. What does screening means? It's a very difficult question to answer because if you go on Cigna, I mean, if you look at the Cigna recommendation, it says, well, you should be testing for if you suspect intoxication, if you suspect any issue with osteoporosis or you suspect any clinical condition associated with vitamin D deficiency. Vitamin D for screening purposes should not be used. What the heck does it mean? I don't know. It is interpreted saying if you are just curious about vitamin D volume and you cannot justify vitamin D level and you cannot justify without reimbursed. That increase the rejection rate. And it's going to actually, in my opinion, drive doctors to be more precise in terms of indication why they test for vitamin D. It's going to take away some of the fluff that today is certainly there, not only for vitamin D, but for a lot of the products when there is a lot of flexibility in the reimbursement. As far as I can say, this is it. Okay. Thanks a lot. The next question is from Alex Cogut of Kempen. Please go ahead. Hi, thank you for taking my question. In the context of your reaffirm 2019 guidance, could you help me understand what you see offsetting vitamin D decline to be able to basically reconfirm your guidance? Thanks. Hi. Hello, Alex. So we have a few elements, which we believe will offset the vitamin D thing that we just mentioned above. On one side, there is TB, which definitely will start to play a role in our numbers. Then we have the we will see the full effect of the conversion of the Siemensalizer business we just bought because so far, it is true that we started converting a lot of customers to our clear technology, but still volume have not started. And what we see is that every time we convert a customer, we are able to gain much more revenues than the original Eliza revenue we bought from Sines. Then we have the impact another element is the impact of these 2 menu that Carlo just mentioned about, for which we are expecting some decent growth, especially in the U. S. And eventually, as you know, we also have in 2019 the launch of the new platform, the Liaison XS, which is going to be addressed also to new customer settings and which will we believe will bring additional growth to our revenues. All this compounded plus the normal growth we have on the like for like business on the, let me say, ClearX franchise without considering what I've just mentioned, makes us comfortable on our 2019 guidance. Yes. Hello? And that's assuming vitamin D drops like 30% this year and then sort of stays stable over 2019 going forward, right? We will be more precise in terms of our guidance for 2019 and when we will do our 2019 guidance. The 2019 numbers we have now is the one we gave to the market when we do when we did the Capital Investor Day. But all things considered, we still believe that 2019 is achievable because of what I just said. So the vitamin D, the additional decline in vitamin D is going to be offset by the elements all the elements which I just mentioned. Okay. Thank you. Thank you. The next question is a follow-up from Yagat Pataki of Kepler Cheuvreux. Please go ahead. Yes, thank you very much. Carlo, just quickly to double check, did you say that the Zika tender was EUR 3,000,000? I wasn't sure whether I got that right. And then just quickly, you've really highlighted very well what has been driving the strong margins in H1. Is there anything that we should be focusing that could represent a risk to margins in H2? Or should it just improve from here? Thank you. No, I don't think sorry, let me just the quick one. The Zika tender was close to €4,000,000 when it was done under the Siemens watch. Clearly, it was not in our numbers last year because we bought the business at the end of it, but we assume it would actually be reissued this year, and it did not happen. When it comes to margin, no, I don't see I don't see any to be honest with you, I don't see any issue why in H2 margins should necessarily be affected. What I and again, now more on the midterm, again, don't forget, margins so far are where they are still with all the cost associated with the Irish plan, which is still active because we are actually transferring we are transferring manufacturing from that site to other sites. And so when it comes to the 2019, then we're going to have the benefit of the shutdown of Ireland, which if I remember correctly, we have indicated to be in the range of EUR 7,000,000 to EUR 8,000,000. That's great. Thank you so much. Thank you. For any further questions, Mr. Rosa, there are no more questions registered at this time. Thank you, operator. Take care. Bye bye. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.