Earnings Call: Q4 2017

Mar 7, 2018

Good afternoon. This is the CorVel conference operator. Welcome and thank you for joining the DiaSorin Full Year 2017 Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir. Yes, thank you, operator. Ladies and gentlemen, good afternoon, and welcome to our full year 2017 conference call. As usual, I will give you some comments about the business on the full year 2017 and some reference to quarter 4 results. And then I will allow Mr. Petrone, our CFO, to take you through the numbers. Well, let me first start saying that we are very satisfied of the 2017, which has been a very successful year in terms of certainly financials, but also the business progression of certain projects that we are carrying out in research and development and in conjunction with other partners as well. First of all, from financial point of view, we achieved the 2017 guidance both in terms of revenue and in terms of EBITDA number. And we are on track to deliver the growth that we have communicated to the market when we had the Investor Day and we presented a 3 year plan, which I remind you covers 2017, 2018 2019. Now, if we talk about some of the business achievement, 2017, in my opinion, has been very rich of events. First one, as you know, has been the acquisition of Siemens, which was actually concluded sorry, the acquisition of an asset from Siemens, the Reliza business, which was concluded in October of last year. And let me remind you that, that acquisition was strategic for DiaSorin and not necessarily because of the technology is an ELISA technology, which we have and we are very well aware of that is a technology that is aging and is a replacement. But that acquisition gave ISS today soaring to few hundreds of customers located in primary geographies, mainly in Europe and other geographies around the world, where we can now access these customers and convert the customers on the LIGO technology to the chemiluminescence technology that we have on the LIAISON and the LIAISON XL platform. Plans are in place and in execution to contact customers and propose the switch. And we expect this conversion to happen within the next 36 months. Let me remind you that this conversion is possible because we do have on our platform all the equivalent products that we have purchased through from Cinex. The second event, which was strategically very relevant for us and was recently disclosed fully at the JPMorgan conference has been the partnership with QIAGEN around latent tuberculosis. As you well know, is a very interesting business. The good majority of this business sits in the U. S. The second geography would be Europe and then the rest of the world. QIAGEN certainly has been spending a lot of time and very successfully in promoting the use of this technology, switching from manual Manta assay into ELISA. And then through this alliance is the intention of the 2 companies and to allow customers to move farther into a different technology and platform, which is the LIAISON platform family starting from the XL and then certainly including the XS when the XS will be made available to the market early late this year, early next year. Pro development is on track and we expect, as we announced in San Francisco, the launch of the CE version of the product in Q3 of this year. And certainly for us, this is an asset because it goes to an existing customer base we have that is using Eliza and they are interested to convert. It goes to it gives us access to a customer base that we don't we are not selling to today, which is part of the Kaizen customer base that is using this technology, but it's not a Daesarean customer. And conversely, it's giving Kaizen access to thousands of systems that they are storing as installed, where the SA is not in use. And from now on, those customers, we do have access to the SA through the ASO platform. So as you can see, both companies are very excited because this is a win win situation for both. Now, the last project which we have announced is the Thai name Group Efficiencies has to do with the fact that in an environment that certainly is becoming very competitive vis a vis pricing on the market. Data Sorting has initiated an effort to streamline its cost base to remain competitive and guarantee the same profitability that we are offering today that, as you know, is premium. And again, in an market environment where price is certainly always under the steel. And as part of the program, we have initiated a redesign of our manufacturing processes. Some of this has already been implemented in our establishment, mainly in Europe. And part of this effort has been communicated as well to the market has been the closure of our Ireland Irish plant. The project is on plan. If you have seen that we do have accrued close to €10,000,000 in 20.17 to front all the expenses that we will incur into for the closure of the plant. But we, as communicated, expect annual savings of roughly €7,000,000 from disclosure and therefore the payback is going to be a little bit over 1 year. And carry forward, this will again allow us to become to stay more focused and with a competitive cost base. Last but not least, before I get into the different geographies, has to do with technology. From a technology point of view, our vitamin D franchise has been relatively flattish in 2017. Actually in Q4, it slightly grew. As said, this is something that it can happen from year to year. We have given an indication to the market that we expect vitamin D usually year on year to decline between 3% 5%. So which means that it can be good one year, it can be worse the following year. But overall, what we see on the market is that certainly because of competition on price is decreasing in volume, but volume is still increasing. So it's due to the vitamin D. 2017 has been a good year for vitamin D. ClearX Vitamin D extremely was extremely good. Revenues grew by 13% in 2017, 12.5% in Q4. So we continue to see double digit growth of this product family. Now we have 118 products available on the box. And we launched last year actually 3 new products on the platform. Last word on the Liaison Excess. Liaison Excess, the plan proceeds as communicated to the market. We are in process of validating the validation to process the validation units in house, and we expect a launch end of this year, beginning of next year. So it's fundamentally on track. Now if we move from immunoassay to molecular, our we continue an effort to expand menu on the platform that we acquired through the Focus acquisition. We have launched 2 new kits, Bordetella and Clostridium in 2017 and 3 new ASR in the for the U. S. Market. And then we completed our own hematology panel with the last assay and again in 2017. And this will pretty much close the last assay in encephalitis is closing the panel that now is fully available on our LAMP technology. From a sales point of view, we have mid double digit growth for our molecular franchise in the U. S. Market. As you know, our revenues in the U. S. Are skewed forward influenza. And the flu season, well, last year was a good flu season. Certainly, as you have seen, is phenomenal when it comes to 2017, 2018. So we continue to see the franchise of flu growing strongly, but certainly is seasonal dependent. By the same token, we continue to expand access to markets of the platform through our European subsidiaries. If you remember, Focus was fundamental U. S. Company. We've communicated that a value of this acquisition was the ability then to take these products into U. S. Through our own network, this continues. And we have seen strong growth as a result of that in the European market. Now if we discuss now geography briefly, we continue to see in Europe a very strong growth and this is to the contrary of what some other competitors really show about Europe. And also notwithstanding the fact that all the main European markets per se is a net result of consolidation and efficiencies are decreasing in value. And the reason why we continue to see strong growth in Europe is because this consolidation fits very well with our platform and the Aliazone XL, which typically sits in bigger establishments, hospitals and labs. And that benefit from the fact that smaller hospitals are closed and the volume is funded through larger institutions where we sit and therefore we enjoy increasing volume and consequently increase in value. Last but not least, when it comes to Europe, Italy was a very nice surprise. As you know, Italy accounts for 12% of group revenues. And 2016 was very sluggish for the market, whereas there was a strong growth in 2017, which is almost 7% for the year and 7.3% in quarter 4. So our own domestic market is finally getting stronger. If we go to the U. S, in the U. S, we had a 19% growth in 2017, 6% growth in Q4. Certainly, there is an aspect related to this growth, which is which has to do with the change in perimeter because in 2016, we accounted for only for when we accounted for 7 months of sales of Focus, whereas in 2017, it was a full year. But certainly, if I can make a comment on this, we see double digit growth in molecular, where we continue expanding the customer base. And we see low single digit growth in our immuno assay business, which again is good at the time where you have a concentration of business in the large reference labs, namely Quest, LabCorp, BioReference and the Fed that we are positioned in this in these settings allows us to benefit from increasing volumes that comes through these labs. Latin America, very good. Brazil had an outstanding growth in 2017, over 20%, mainly driven by, again, the cumuluminescence strategy that we enjoy that we have in the country where we are well positioned both in central labs as well as in the primary hospital institutions. So Brazil, which it is on a positive cycle these days, and we are enjoying the fact that we're well positioned in the market. Now last but not least, I would like to comment Asia Pacific. Asia Pacific for us is primarily China and Australia. Now in China, notwithstanding the fact that the growth for the year has been strong, 15%. We have seen in quarter 4 a slowdown in growth. And this is explained by the fact that primarily in China, we have our installed base in Class III hospitals, and we are developing the base into the Class II. Now you are well aware of the fact that in class the Class III hospital are now saturated. And the government is making a conscientious effort to move patients away from Class II Class III into Class II. And therefore, we see that the volume growth in Class III, which was strong in previous years, now is not there any longer. So we see that the volume is flat in this institution, whereas we see 15%, 20% growth in volume in Class II. The net effect of this is that our installed base in Class 3, which was generating double digit growth per se just for the fact of being there and enjoying this growth, the growth of the market is not a net growth contributor any longer. And whereas, as I think we've already discussed in the previous quarters, we are making a concession side for now to direct placement into the growing segment of Class 2. The net result is that we foresee in Q1 as well in Q2 of 2018, slower growth than what we had historical. But then we expected because of the fact that now the installed base in Class 2 will pick up and will contribute more to the overall revenues, we expect then that in the second part of the year, we will go back to a double digit growth in the Chinese market. Now, before I turn now the microphone to Mr. Petrone to go through the numbers, I would like to comment on the dividend policy. As you have seen, the Board of Directors have decided to issue the ordinary dividend of $0.85 Last year was 0.80 percent. And historically, we have had a policy of increasing the ordinary dividend, maintaining it to around 38%, forty percent of the net earnings. But by the same token, the Board of Directors has decided to, let me say, in a policy, to increase value for shareholders to pay a special dividend over €1,800,000 with a payment date of December 31, 2019. And you need to I think there is a what I would like to comment on this is have 2 aspects. The first one is that you see for lots of public companies, one of the way to create value for the shareholders is typically a share buyback, which is complicated for Diasporium because as you know, our free float is relatively limited and the liquidity is limited. Therefore, a buyback will not be an option for the company. And the other option certainly is when possible to issue a special dividend, which was a decision made by the Board this year. This, although it's very important to remark, that does not change at all our appetite for M and A and or limited the ability of the company certainly to conduct a wise M and A as we have done in the last few years. Now Mr. Pedro. Thank you, Kevin. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of PSO in 2017. We will also make some remarks on the contribution of the Q4. Before we start, let me please remind you that we began reporting the Focus business since May 2016 and the Siemens Rice Sulfurizer business from this quarter. So 2017 perimeter of consolidation is different from the one of last year. With that, as usual, I would like to start with what I believe are the main highlights of the period. As we said, we closed the year with a revenue increase over 2016 at constant exchange rates in line with our guidance, 11.5% or about €65,000,000 without considering the positive impact of the recently acquired Siemens Eraser business. Contribution in the quarter was about €9,000,000 Coming back to our guidance, I believe it is worth underlining that both the so called like for like business and the recently acquired molecular franchise of the Focus business delivered against our expectations. The first scoring a full year growth of around 6% and the latter with an H2 growth of about 15%. 2017 EBITDA growth at constant exchange rates and adjusted for both the positive effect of the Simeon Serrais acquisition and the negative one of the Einrich divestiture is in line with our full year guidance, increasing by 13% or about €28,000,000 with a ratio of revenues eximitariza of 38.7%. The combined effect of these two events affected Q4 for a total of about negative €3,300,000 Yesorin keeps confirming its ability to generate a strong free cash flow, €132,000,000 in the period. This allowed us to close the year with a net financial position just short of €150,000,000 after having paid in May dividends to our shareholders for about €44,000,000 and in September, about €30,000,000 for the acquisition of the Siemens and Eliza business. As you may recall, the total consideration for this business was around €45,000,000 The remaining balance would be paid in the trading installments during the next 3 years. Last but not least, in January 2018, we signed an agreement with the Italian tax authority granting us a tax relief under the patent box regime, the so called patent box regime. As you might remember from our previous quarter calls, this elective tax regime was introduced in Italy in 2015 and is characterized by a 5 year renewable lock in period. The impact on 2017 will cover 'fifteen, 'sixteen and 'seventeen and amounts to about €19,000,000 which is better than the original estimate I provided to you in the previous quarters. Let's now go through the main items of the P and L. In order for our better understanding of the performance of the underlying business, I would also comment the impact of the 2, let me call them, outliers of Q4, which were not included in our guidance, as we said, in Q3, which are namely the higher risk debenture one off costs on one side and the CMSL as a contribution on the other. We also tried to add a few slides on our website. We tried to bridge the difference between the business before Siemens Life acquisition and the higher risk divestiture cost write off. So 2017 revenues at €657,500,000 drew by 12% or about €68,000,000 compared to last year. The growth at constant exchange rate was 13.1 percent or €74,400,000 including as said the contribution of the Siemensalizer business. The growth at constant exchange rate and without considering Siemens ELISA is 11.5%, in line with the guidance. It is worth mentioning that Q4 has been hit by almost €7,000,000 FX headwind, mainly driven by the U. S. Dollar and the Chinese yuan. Gross profit at €431,900,000 grew by 11% or €42,700,000 compared to last year, closing 2017 with a ratio over revenues of 67.7%. The difference with 2016, which closed at 68.4 percent of revenues, is mainly driven by the Siemens ELISA business, which, as we discussed, is dilutive at gross margin level, but not again, not at EBITDA level 1. The different mix, same price pressure on clear me too products and mainly vitamin D and the slightly dilutive effects of the Focus business, which is again dilutive as we discussed in the gross margin level, slightly dilutive. The senior advisor business diluted FX that is more marked in Q4, which grows with a gross margin incidence of our revenues at 66.5 percent against 68.4% recorded in 2016. Besides, it's fair mentioning that Q4 was also hit by the FX headwind we just talked about. Total operating expenses at €231,500,000 or 36.3 percent of revenues have increased by 11.7% compared to last year. Please remember that as we saw in the previous quarters, about the €13,000,000 of 2017 OpEx, driven by the depreciation of the intangible assets coming from the Focus and Siemens Eliza Business Acquisition. Net of this element, full year OpEx would have grown by about 9.5%, and the ratio of revenues would have been 34% against 35% of 2016. 2017 other operating expenses at €16,000,000 are higher than 2016 by almost €7,000,000 As anticipated during Q3 call, the main reason of such difference is driven by the one off cost associated with the divestiture of our Irish site. On top of these, some expenses related to legal action direction in the U. S. Concerning the future introduction of certain products into that market, again, the same element we discussed in Q3 call. As we will see in a few minutes, the impact of the Irish divestiture at EBITDA level is lower since some of the costs we incurred write off of fixed assets and so are not impacting EBITDA. As a result of what just described, the 20 17 EBIT at €184,400,000 or 28.9 percent of revenues has increased compared to 2016 by 6.8% or almost €12,000,000 If we consider, however, the adjusted EBITDA, excluding the Irish divestiture cost and the CMSLA positive contribution, which accounted for negative €7,700,000 in the year, we would have a result of about €192,000,000 or 30.6 percent of revenues, with an increase over 2016 of slightly more than 11%. Q4 EBIT has been materially affected by the very same elements, thus recording a €39,600,000 or 23.2 percent of revenues. Net of the Irish one off costs and the CIM accelerated contribution, the adjusted EBITDA of the quarter would be in line with the profitability recorded in the previous period. Now let's move to the tax rate. The tax rate at 21.7 percent is 11.3 percentage points better than 20 16, which closed at 33%. This variance is mainly driven by the impact we just said of the Italian Patent Box tax regime, which accounted in 2017 for about €19,000,000 In order to avoid any confusion, let me please clarify that the Patent Box contribution in 2017 is the result of the cumulative effect of 3 years, 'fifteen, 'sixteen and 'seventeen, since we filed the request with Congress and tax authorities back in 2015. Obviously, we cannot expect a similar impact in 2018, which would indeed benefit from the contribution of 1 year only. And that contribution, I believe, will be in the range of €7,000,000 I will comment later more on 2018 tax rate, expected tax rate. Keep on talking about tax, I would also like to comment on the impact that we will have in 2018 from the recent approval of the U. S. Tax reform. We are still finalizing the calculation, but I believe that we will have a benefit on our financials in 2018 of about $13,000,000 I remind you that U. S. And Italy are the 2 main geographies in which we pay taxes. And both of them are benefiting from recent reform in the U. S, the Patent Box Italy. Going back to the P and L of this period, net result at about €100 and €40,000,000 or 21.9 percent of revenues is higher than the previous year by €27,300,000 or 24.2%. Lastly, 2017 EBITDA at 237 900,000 is better than last year by EUR 20,600,000 or 9%. Again, the variance has constant exchange rate and we now consider the impact of high risk divestiture. The senior advisor benefit is positive for 13% and is in line with our full year guidance. Again, we have provided a slide to bridge this gap and to make it more clear to Gerardo. 2017 EBITDA ratio on revenues is 37.3%, which adjusted for Siemens and Ivermant become 38.4%, in line with what's called in 2017 in spite of some FX headwinds. Q4 EBITDA at €55,800,000 or 33 percent of revenues once adjusted for Ireland and Siemens and the some legal expenses related to the legal action we just discussed about is in line with what we recorded in the previous quarters. Let me now move to the net financial position and the free cash flow. Jesur includes the period with a net financial position just short of €150,000,000 and €173,000,000 in cash. This is confirming the ability of Exos to generate predictable and strong free cash flow, EUR 132,000,000 in 2017, which is further in line with 2016. It is worth mentioning that during 2017, we are sorry, in cash, that was about €8,000,000 more of taxes than in 2016, mainly driven by the tax payment phasing mechanism in Italy and invested about €5,000,000 more in CapEx. Please note that the cash impact coming from the Italian Patent Box regime will start kicking in from 2018. So the free cash flow in 20 18, thanks to the patent box in Italy and to the U. S. Tax reform should be materially better than 20 Lastly, let's move to 2018 guidance. We expect revenues to grow by around 11% and EBITDA to growth by around 13% at 2017 exchange rate. The guidance is given on 2017 reported EBITDA, not the adjusted one. We will not use anymore this adjusted concept in 2018 because now Siemens is embedded in our numbers, such as the Irish the tail of the Irish divestiture cost. Let me please remind you that the historic financials are fairly sensitive to FX fluctuations and in particular to UST. Dollar denominated sales represent indeed about 35% of our total sales. And as we said a few times, for every $0.01 movement of the dollar against the euro, the solven revenues moved by about €2,000,000 on an yearly basis. To conclude, even it's not part of our formal guidance, let me share with you that considering the combined aspects of Italian Patent Box in 2018 and the U. S. Tax reform, I am expecting the group tax rate in 2018 to be around 23%. Now let me please turn the line to the operator to open the Q and A session. Thank you. Excuse me. This is a CorSo conference operator. We will now begin the question and answer session. The first question is from Maja Pataki of Kepler. Please go ahead. Good afternoon. I would actually like to start my questions, and apologies for that, with clarifying some things that were said on the call because my line is really bad. So please excuse me for making you repeat certain statements. Am I correct that you said that organic growth in 2017 was around 6%. That will be my first question. 2nd question would be that the Italian Patent Box impact in 2017 was €19,000,000 for the 3 years together. And I was wondering if you could explain again why the impact of the extraordinary costs on the EBITDA level was lower than on EBIT. I think you said something and my line is just breaking up. I have to keep dialing in. So I'm really sorry for that. Thank you. Hey, Maja, I'm going to take your the course. Yes, you understood right. The growth of the like for like business, and when I say like for like, I mean without the impact of the Focus Molecular business, which we bought in May 2016, And the Siemens one is around 6%, which is what we expected. It's coherent with our budget assumption and plant health plan assumptions. Then you are also right on the second point, the impact of the patent box regime in 2017 is €19,000,000 Again, please do understand that this is the sum of 3 years, '15, 'sixteen and 'seventeen. My expectation is that the impact of the Patent Box, the positive impact we will have on the Patent Box in 20 8,000,000 Going to your third question, which was the one regarding EBITDA and why we have a difference between EBITDA and EBIT of the Irish divestiture cost, the answer is that, in theory, by the fact that some of those costs are actually right off of assets, intangible assets and tangible assets, for which you see no impact at EBITDA level. The next question is from Luigi Develis of Equita SIM. Please go ahead. Yes, good afternoon. Three questions for me. The first one, regarding the top line guidance, how do you expect the technology divisional revenue strength to evolve in 2018 compared to 2017? In particular, if you can separate Siemens and molecular trend and the rest of the business? Second question on Tiogen. How much is the expected contribution from the partnership in 2018 2019? And the last question on your strategic plan. Compared to your target on 2019, what is going better and what's worse compared to your original expectations? Thank you. Hello, Luigi. This is again Cleo Jonas speaking. First question, top line guidance. As you know, we don't provide a full breakdown in terms of technology of what's behind the guidance. But what you should expect, like what we have seen in the past few years, is a fairly flattish vitamin D, so slightly negative, I would say, mainly driven by the price pressure that we have commented so far. As Carlos said a few minutes ago, we still saw also in 2017 a growth in terms of volume, even though eventually that growth in terms of volume didn't translate into a growth of sales. The driver obviously of as it has been in the past few years of our growth will be clear as the vitamin D franchise. We are not giving we are not disclosing the impact, not in 2018, but not even in 2019 of the QIAGEN contribution. But if you give Carlos, I might elaborate on that. Regarding the 3 years plan, we just updated the 3 years long term guidance after the Siemens acquisition, which was not a while ago, it was in September. So I would say that we are going more or less according to our original expectations. So we are still fairly aligned with what we believe to the West End in the 3 years plan. I will add a couple of qualitative comments to what PG said. As far as Cajun is concerned, certainly, contribution in 2018 is very limited simply because launch of the products happens in the second part of the year. So we don't expect honestly a lot to happen. Although, I believe and also consider that as said that the market, the relevant market, most relevant market to if we follow what Candid is saying is the U. S. And therefore, we will have access to the U. S. Market later in 2019. However, I think that what is happening today is that the 2 companies are collaborating very well in the sharing customer information and planning thoughtfully for the launch of the product. And therefore, I expect that there is going to be a relatively fast pickup and an effect a positive effect starting from 2019 when we will have 2 players. Clearly, I'm not ready to disclose numbers also because these numbers are also confidential visavis our contract with Caiogen. As far as targets and the plan, the 3 years plan and what goes better and what goes wrong, look, I think that in a qualitative way, I think that today Europe is delivering better than expected. Our view in Europe has always been that is a mature market, consolidating market and is a market where because of the efficiency programs driven by the various countries, it is difficult to grow. You see it from everybody else numbers. I think that you're soaring is exceeding the numbers, exceeding the market growth of everybody else significantly. And again, it's a combination of 2 elements. The first one is that we do have our installed base properly placed where the consolidation is happening. And also consolidation does happen in our specialty business because that carries specialty that today may be done with technologies or in customer base that we cannot reach typically Eliza into central labs where Eliza is not certainly a technology choice and we are there. And therefore, we enjoy also for specialties the transition between smaller hospital and larger institutions. The second element for Europe, which is on the good side is the strong growth in Italy. And if you follow what we said in the previous quarters, we'll be very cautious even last year to comment on Italy. But it looks like that certainly there is a trend in the country that is a combination of more efficiencies or less testing side. But the volume is strong. And certainly for us, that does carry a positive effect because again, it's our home market, 12% of total revenue. So we do benefit from this trend that we see continuing also in 2018. Now what goes differently from expected? Somehow, I think China because what we did not expect was the fact that the contribution given by our 70% by 70% discount base on the Class III hospitals, we would expect that contribution to continue terms of volume growth, and we don't see that happening, right? So we see certainly strong growth for more placements in Class 2, but still that represents only 20% of 20%, 30% of our business today, okay? I think overall, the growth of the business is as expected, as you can see. But certainly, there are these 2 elements, one is positive, the other one is negative. But by the same token, these prove fundamental concepts, they are soaring in terms of revenues and markets. Since we play worldwide in all markets, sometimes bad news are counterbalanced by good news. So there is not a specific exposure to any specific market, but we are well balanced among different geographies. And that helps us out when some geographies have problems to balance it with news coming from other geographies. Okay. Thank you very much. Just a follow-up. Could you give us more color on how do you think to increase your installed base in Class II in China? Well, I can give you a tactical answer and I can give you a strategic answer. From a tactical answer point of view, we are enrolling distributors today that are more oriented toward the Class II market. You need to understand that the Class III versus Class II is fundamentally very different hospital because the Class III is a hospital that does require And so track systems, which are very popular in Europe and in the U. S. Are now picking up as well on that market. And it does require distributors of a certain size, which have the ability also to take upon the self all the costs associated with that kind of equipment. But there is a specialization of distributors in these two segments. And we were certainly working to add to our distribution network more distributor on Class 2, but now certainly we need to focus on that because that is strategically where we want to go. Also in light of the fact that the LIAISON XS, which will be launched in Europe in 2020 because of registration, it was certainly designed, as we have discussed many times, for that segment of the market. Okay. So we see ourselves go into that segment today with the ELIZON XL and new distributors, but also we see that segment, which is the winning segment, growing segment to be strategically we see ourselves strategically position long term very well because of the Liaison XS introduction to the market. Thank you very much. The next question is from Patrick Cook of AGI. Please go ahead. Hello, good afternoon. I have a financial question regarding the foreign exchange impact on EBITDA. Is it are you naturally hedged there? Would you expect the lower U. S. Dollar to have a bigger impact on earnings? And the second question is we are now 2 months in reimbursement cuts in U. S. Can you give some qualitative comments what to expect in 2018 maybe going forward into 2019? Thank you. I will Patrick, can we take the question on PAMA first? Thank you. You're right. We are 2 months into the year. But as I think we did comment in the past, we see that PAMA will strategically affect the U. S, but from a different angle. As you know, and I think has been disclosed for the big, big labs, namely Quest LabCorp that do represent a significant chunk of our U. S. Business. The effect is it's not going to be so dramatic because their top line revenue is only dependent on Medicare and pharma just for less than 10%. Okay. Therefore, yes, we see an attempt of these labs to get leniency from suppliers and certainly because of the long standing relationship we have with these labs, we made ourselves available to discuss with them business terms in exchange certainly of business as we have done in the past. But let me say, I don't expect that we will have a significant impact on PAMA when it comes to that business. As far as the rest of the business that we have, which is smaller private hospital smaller, sorry, private labs and hospitals, we tend to sell in that setting specialty assays. And I don't expect again that these assays are going to be dramatically impacted by the TAMMAN PAMA reimbursement. Conversely, as I stated before, I see that this PAMA reimbursement is dramatically changing the business scope of some of the hospital market. Today, hospital market does represent over 50%, I think 56% of the total lab testing business in the U. S. And we see more and more the hospital really wondering whether it makes sense to them now that now 30% of their revenue, 35% of their revenue will get significant cuts. Starting to wonder whether they will continue to run the lab or give it one way or the other to one of the commercial labs. And in that sense, certainly, it means that that segment of the market does shrink. But by the same token, if you're well positioned in the last lapse, you do benefit from the fact that they gain volume and they gain market accessibility. By the same token, I see that polarization is happening also on the smaller labs because certainly the business model is big and efficient versus smaller and closer to my patient base. And this is why I see that the decision of Diasporin to invest into physician office labs. So that segment for the market is strategic because as a result of this polarization, the segment in the middle is the one suffering and changing and we really will have to change business attitude, whereas the big and the small eventually will benefit from this. Yes. Maybe just a follow on to that. I mean, you basically mentioned that you're largely exposed to the Quest and the LabCorp's sorry, in the U. S. But is the business that you have with hospitals generally higher margin for you as I mean, keeping it simple as you as smaller hospitals cannot negotiate to the extent than the larger labs can? Just I mean, you mentioned you are not exposed, but in general. Look, certainly, the business with hospitals is higher margin. Okay. Okay. By definition, it's higher margin. But again, as I said, it's mainly specialty. So there we do have a protection there. But I also would like to go back one second to the concept that the commercial led business is lower margin. It depends how you do your calculation because it does drive phenomenal volumes of products to your manufacturing facility. And therefore, it does really have an impact on your cost base and your efficiency. So I keep always challenging our management control team to really consider what is the impact of that business, the commercial business, which I consider extremely beneficial, not only strategically, because they do gain market share and they will get more market share going forward, but also financially because it drives all the synergies and efficiencies. Packaging. Thank you. And the foreign exchange on earnings? Yes, Patrick. I understand that natural hedge there because our 2 biggest trends are in Italy and in U. S. So we also have a significant cost base, which is U. S. Denominated U. S. Dollar denominated. So there, you have obviously some kind of natural risk between our cost and revenues. Okay. Thank you very much for that. Thank you. The next question is from Giuliano Wardour of Exane BNP Paribas. Please go ahead. Yes, good afternoon. It's actually Romain Zana. Sorry, I missed the beginning of the call. I have two questions. The first one is actually a follow-up of Patrick on PAMA. Just trying to quantify, I was wondering if your top line guidance including any impact from PAMA at all. And if yes, what is your assumption, your underlying assumption for that? And the second one, just a clarification on the EBITDA growth guidance for 2018. Is the ForEx assume is the spot rate? Or do you have basically assumption for a good looking assumption for 2018? Thank you. I'll give you the one on the I'll take the one on the farmers. No, we don't. For the 2018 numbers and guidance, sorry, we do we don't the contracts we have with customers in lab. However, I foresee that moving forward, especially with some of the large labs and because of the partnership, we will have with them certain discussions, which I expect to be associated with increasing bulk amount of business, okay? But in the 2018 guidance, we don't expect to have an impact of PAMA. Okay. And just do you think that I'm just curious, but beyond the potential pricing impact on new camp, it could be a limited impact given the small proportion of Medicare investments. But beyond that, do you think that the labs might, let's say, be more inclined to delay some replacement of the equipment just in a wait and see impact to have a clearer picture of the PAMA on their P and L? Did you think it could be a risk? You mean the larger labs or Yes, yes. Look, I see that the larger labs today are continuously engaged into efforts of streamlining their cost base. And there is and one way or the other, but this is true all across the world that they're making significant efforts to move to more efficient systems and platforms and automation and so forth. You would be surprised how little automation as you find in some of these labs, but the reason being that they are so big that the industry per se has not designed solutions that fit their needs to the point that some laboratory chains like Sony, for example, has elected to build their own systems. And I have a feeling that when it comes to Quest and LabCorp, they would have to go into the same direction, but they are certainly committed to streamlining their manufacturing processes. And I see I don't see an effect in delaying CapEx because that CapEx goes against more efficiency. Okay. And Romano, with 61 on EBITDA, the guidance on EBITDA. Every time we provide a guidance on EBITDA and revenue, the guidance is at constant exchange rate of the previous year. So in this case, the guidance is at constant exchange rate for 2017. In 2017, we had exchange rate of the U. S. Dollar, which is the currency to which we are most exposed, was 1.13. I've said that every time there is a movement of EUR 0.01, it means the plus EUR 2,000,000 or minus EUR 2,000,000 revenues. At EBITDA level, give or take, that translates to €1,000,000, €1,200,000,000, €1,300,000,000 it depends. But our guidance is provided constantly since then we have our own assumption for the budget in terms of what will happen to the U. S. Dollar and the other currencies. But I guess, my estimate is as good as yours. Okay. Thank you. The next question is from Scott Bardo of Berenberg. Please go ahead. Yes. Thanks very much for taking my questions. So first question, please, just on with respect to the revenue growth of 11% constant currency. Would you be kind enough to call out please what the expected acquisition contribution is within that? Is your implicit assumption something like 3% or 4%? Just to help us better understand what that implies for organic growth expectations. Also on financial guidance, please. A little bit surprised given that you call out an adjusted EBITDA for the first time that you don't provide guidance based upon it, given there's lots of one off costs here. So I just wonder if you can clarify that it is still your expectation to track alongside your midterm guidance framework that you've outlined for the market, I think, in September last year. I think the last conference call, you highlighted that the Irish restructuring should provide an additional potentially 100 basis points EBITDA margin improvement on top of the 38.5 year isolated for 2019. I just wonder if that's still the expectation from the Board today. So just a couple of questions there and then a couple of strategic ones then please for Carlo. Thank you. Hey, hello, Scott. I will start taking the one again in the financials. So let's start with the revenues. More or less the impact of the difference in perimeter considering the fact that we had a €9,000,000 euros of SNS sales in 2017, considering what we are factoring in, in 2018, the delta should be around €30,000,000 actually less. I would say revenue is coming from the Siemens ELISA business. Remember that as we discussed in the last call, we are not selling Siemens instruments, but we are focusing on reagents because our strategy is to convert Siemens customer base, which is analyzer customer base to clear customer base. Regarding the EBITDA and the guidance, so what's happening is that in 2018 in 2017, the impact of the Irish divestiture shutdown was very material, and it was not included in our 2017 guidance. And that's why we thought it would have been better to help you out guys to understand what was happening to sterilize the impact of the Irish site shutdown. In 2018, we will just have a small tail of the shutdown cost related to the Irish facility. And that tail is already embedded in our guidance. But the figure is not as material as it was in 2017. So we thought it would have been better just to give a simple guidance to make LifeVisa for everybody. So that every time we will comment our quarterly numbers, we just have one EBITDA to comment, which is the one we will have a 4th and the one you will see. Then just on this question of midterm targets then. I think you were highlighting that the benefits of these restructuring activities should mean even better margins than the 38.5 percent you isolated in your last plan. I just wondered if you could still confirm that statement by 2019. Is that still the expectation? Yes. So what we said is that the impact of the savings, we think we're going to get out from this Irish site shutdown with the €6,000,000 to €8,000,000 once the whole operation is completed, which will be done by the end of 2018, beginning of 2019. So that's when you will see the real saving, the full asset of the saving kicking in. But what we said in our 3 year guidance is that nevertheless, we still stick to our 38 0.5% EBITDA contribution even after this taking into account the Irish closure, the shutdown. And here, you really have to allow me a little bit of flexibility. I don't have the possibility to tell you it will be 50 basis points better. We are talking about a $2,000,000 $3,000,000 more EBITDA, dollars 4,000,000 more EBITDA in 2019. And even though our business is fairly predictable, it's very solid to say that it would be 39. I wouldn't be surprised, but I stick to the guidance, which is 38.5. Yes. By the same token, if I may just add a comment. As said, I think today, companies that do not see what's coming and what has been happening in the last few years, which is on one side consolidation, concentration on the other side, certainly more and more price attention. Companies that are blind to this and do nothing to improve their efficiency are actually companies that are doomed to fail in this market. So from our point of view, if you think about it, you look at our EBITDA margin and that's probably in the top 5% of the industry, almost unbeatable. The in the top 5% of the industry, almost unbeatable. But I believe that in order to preserve these very high margins, there are 2 things that need to happen. And they need to happen together at the same time. 1, you need to be innovative and develop new products that provide advantages to your customers because I believe that the market today is shifting and is more and more available to pay for innovation. The second thing that you have to do is that you need to fight for efficiency. And these two things have to go together. This is why I'm saying closure of the Irish plant and streamlining an operation in Europe is for us a crucial investment in order to be able to sustain profitability to the levels which are top of the industry. Understood, Brian. Just a couple of very quick follow ups and if I may. If I understood your comments on top line growth guidance, it implies around a 5% acoustic contribution than around a 6% organic growth. Just if that math is correct, I just wondered if you could sort of help us understand why that growth wouldn't accelerate on the prior year given that you're placing the ASR XL instruments very well, which are higher throughput. Vitamin D is diminishing as a percentage of contribution for the group. And you've got some other growth contributors coming in. So I just wanted to understand, is this conservatism from your side? Or is this a few sort of one off effects or impacts that we should be mindful of? So that's a question quick follow-up question 1. Follow-up question 2, 23% tax rate, does that make sense going forward in your opinion as an ongoing assumption? I understand the U. S. Seems more structural, but what would your guidance be for the midterm? I'll leave it at those 2. Thank you. Yes. So I'll start taking the tax one. Yes, 23% tax percent is sustainable in 2018 because the patent box will still be there and the recent U. S. Tax reform is there. And it is the same for 2019 because the elective tax regime will last until 2019. But again, this is a 5 years tax regime, which means that after these 5 years, we will have to go back and renegotiate with tax authorities. What will happen for the Patent Box after 2019? I really don't know. It's a big question mark. We have had recently new elections in Italy. So I really don't know what is going to happen after 2019. Now it is a law. It's a law of the state. So until 2019, we are set. For the U. S. Tax reform, again, you will be you tell me what's going to happen for the U. S. Tax. So from as long as this will last, we will enjoy this tax benefit, obviously. But until 2019 is locked, let me say, to summarize. After 2019, at least for the Patent Box, I will have to wait and see. And I will take the first one. Look, it's difficult to say if there is a conservative forecast. I think it's a very pragmatic expectation. It's a combination of events of continuous change in the environment and what we see are the strength of diasering in the different geographies. So as if we see the trends could improve as we have done in 2017, we will let the market know and increase our guidance. But for the time being, I think this is a sustainable number. Very good. And perhaps very last one for me. Gross margin contracted 60 bps for the year, which sort of broke the trend of improvement that you've seen in recent times. Anything to get concerned about there? Or what is the expectation going forward? I believe Scott would have always said in the last Q4s, and none of you believe me. And we also said it during the 3 years then in Milan is that we were expecting to see some gross margin deterioration. The point that we also disclosed the price pressure that we saw on the 3 different buckets of the products, how we classify them, the need to and the differentiating specialties and so on and so forth. So what we are seeing is what we are expecting and all the initiatives we are putting in place in terms of getting some operating leverage out of our operations, streamlining some of those activities are specifically meant to offset the gross margin pressure and to keep on delivering an EBITDA margin, so at EBITDA level around 38.5%. And being more specific, what you saw in 2017 and more or even more in Q4 2017 is the impact of the Siemens business, which is a very good business for us. As I said, it's dilutive gross margin level, but it's accretive at EBITDA margin level because of a lower level of work acceleration. So this is going just to summarize, this is going exactly where we are expecting it to go. Thanks, The next question is a follow-up from Scott Bardo of Berenberg. Please go ahead. Thank you very much for taking my follow-up. Yes, just very quickly on the Liaison excess. I think if I look back to your Capital Markets Day in 2017, you had a picture or had some communication around commercial activities commencing towards the end of 2018 and contributing into 2019. If I correct, you said that you don't expect European approval now till 2020. I wonder if this is a delay. If so, could you talk a little bit as to why or whether this is my misunderstanding? Thank you. No, actually, Scott, this is due to the fact that 5 hours board this morning. So if I when I was referring to 2020, it's China, it's not Europe. So sorry for the mistake, you picked it as usual. So it's let me rephrase it. We will expect launch late 2018, early in 'nineteen. And what I'm saying, the difference in quarters is simply to do with the fact that you do have a soft launch. So the product, the system is made available, but then you start placements with selected number of customers and effective launch starting from next year. But in Europe, C marking launch is foreseen as explained at the Investor Day in Medan. Very good. And very lastly then, please. Obviously, there's been a lot of heavy R and D lifting to develop the infectious disease portfolio for the North American market, the HIV and hepatitis products. I think you referred to previously that some of this R and D will get reallocated, if you like, this year into other areas. I just wondered if you could give us a bit of a status update how that program is developing and also how some of the other development programs that you have for new biomarkers and specialties are progressing within the organization? Okay. As far as the program HIV, hepatitis is progressing as expected. We are conducting clinicals. So we initiated the clinical studies for some of the markers that the first wave is expected to be filed with the agency by the end of this year. And then you will have hepatitis C and then finally you have HIV. So the program is growing as we have expected. Now as far as strategically where we are going to, I think that there are 2 areas where we will refocus our attention. The first one has to do with tick borne diseases. And this is because it's a very interesting market that today we are dominating with our Lyme disease assay. But also, when we bought FOCUS, and to be honest with you, we completely missed this because we both focus for the molecular line. But focus lab and focus diagnostic, they were known for specialties in the infectious disease area. And this, by the way, was one of the reason why FocusLab was actually bought by Quest. And in this portfolio of products, we found a very interesting set of products for tick borne diseases, which are which where they are dominating the market in the U. S. And these are older technologies that we plan to reconvert to the LIAISON because our true specialties, they follow the Lyme disease and they go exactly in the same setting where we are today. The other area where we continue to invest, but now it's more on the clinical side is CKD. This is today is a product development, meaning that we have the FTX-twenty three has been launched. We have sclerostim that is going to be made available for clinical studies. And then we have vitamin K. Now today, we are spending quite a lot of money in clinical studies in order to prove the validity of certain algorithms that include vitamin D, vitamin D125, FZH23. And now we will add the scleroste into this. So stay tuned, as we have discussed previously, this is basic fundamental clinical research, but it takes time in order to see the benefit of this. Very good. Thank you very much, David. Mr. Raza, there are no more questions registered at this time. Okay. Thank you, operator. Bye bye. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.