Earnings Call: Q3 2017

Nov 9, 2017

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the DAS remaining results as of September 30, 2017 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 Rocha, CEO of DeAzurin. Please go ahead, sir. Thank you, operator. Ladies and gentlemen, good afternoon, and welcome to our quarter 3 2017 conference call. As usual, I will comment in a qualitative way some of the events that characterized this quarter, and then I will turn the microphone to Mr. Pedro, who is going to go through the financials. Let me say that this quarter was, in fact, full of extraordinary events, and I will take you through each of them. First one is that we acquired and we completed the acquisition of the Siemens Eliiza business. As we have discussed before, the rationale for this acquisition is that we can provide us with access to several 100 customers that they are using Eliza, for which we do have equivalent chemiluminescent products. And this, we have calculated that there is an installed base, potential additional installed base of between 200 to 300 systems that we will be able to base with these customers in the next 3 years, cannibalizing the existing Eliza business of Siemens with our own platforms, The transfer of the business from Siemens to us already started. It's, I would say, flawless so far. And we started to serve from our logistic center all the existing sales account. So I would say that so far, so good. This is something very similar to what happened in Zurich. So let me say we have already done this once before, and I do not foresee any recap with this acquisition. The second item that I would like to cover is to do with the fact that as we have discussed when we presented our 3 years plan, we intended to outsource certain services in order to extract value and synergies and also eliminate from our perimeter of activities certain activities, in fact, that are non core. And if you remember, the first one was it had to do with centralizing logistic and order entry. That has been done and started in quarter 2, in quarter 3. So during the quarter, we had some initial elements of this transition. And what we have seen is that because of the fact that in the at the same time, we are transferring out our inventory to the 3rd party as well as we had to initiate shipments of the Siemens product as part of the Siemens acquisition, we decided on purpose to move to October some of the large shipments to certain distribution areas. And this is why you will see and we will comment it later that on the revenue level, especially on the distribution side and certain geographies, you see a delay in revenues, but that is associated with the fact that with this congestion of activities, we decided to give priority to the direct customers versus distribution, where we know that distribution do have, in fact, a local inventory. The transfer is completed. We also have transferred our employees. We have closed down our call centers, and so we expect moving forward to exert the benefits of this project. Let me remind you that as we have described during the long term plan, starting from next year, we expect $2,000,000 to $3,000,000 savings on the cost line, again, from the outsourcing of these activities. The 3rd element that I would like to discuss and disclose is the fact that we have initiated litigation with a third party in the U. S. And this is intended to get access to the U. S. Market with 1 key essay for store. Litigation started a couple of months ago, and we believe it's going to be concluded in September of 2018. Again, this is not to protect existing sales, but it is to gain access with one product, which we consider strategic to the U. S. Market. The combination of costs associated with the outsourcing of logistics plus combination of the cost associated with this litigation amount to roughly €2,000,000 So in the quarter, you see that there is an outstanding cost of €2,000,000 in the Mr. Petrone will add more color to this. The last element that I would like to discuss is to deal with the fact that we have announced the shutdown of our Irish facility based in Dublin. This already been communicated to the authorities in Ireland and to the employees. The reason for this is very simple. After the Focus assets, it is very clear that the center of gravity for our molecular activities is in fact in California. If you remember, Ireland was under the diasporin perimeter, B Center For Molecular Development. At this point, it's very clear that it would have been this would have created unnecessary duplication. And therefore, we decided to close across the sites. This will be done throughout the next 3 quarters, so we expect to have all done by the second half of next year. We expect that we will incur into certain costs, one off cost in the range of €6,000,000 to €8,000,000 But also, we've calculated that the benefit annual benefit from the closeout are in the range of €7,000,000 So the return of this investment is going to be fairly rapid. So with that, overall, this has been a quarter that certainly has had few extraordinary events in terms of activities, which were already experienced in the STP, but now at least. Now if we move to the revenues for the quarter, as I always do, I'm going to comment, revenues at constant exchange rate And at constant exchange rate, revenue growth in the quarter was 4.3%. Now in this case, what we want to highlight is that there are 2 extraordinary events which have affected this quarter. The first event has to do with the fact that the bad weather situation in the U. S. Has created a delay in sales of vitamin D to the 2 largest accounts we have in the U. S. If you have a follow-up press release from both LabCorp and Quest, they do report a one off effect of a slowdown of revenues related to the bad weather. And clearly, vitamin E that is a non critical assay, but it's more done in the physical check has suffered the most. And in fact, you will see when we comment my revenues by technology that vitamin D it has been in the last two quarters flattish shows a negative result in the quarter, but is driven completely by this delay in orders in the U. S. The second event that, as I said before, delayed revenues to the quarter 3 is the fact that when we started the implementation of logistics, we had delayed shipments to Q3 in certain geographical areas and namely certain distributors. And this is and this has been done again, to alleviate some of the effort of the logistic team and give priority to the direct customers versus export. For the sake of reference, we believe that the effect of these two phenomenon together in the quarter is in the range of €3,000,000 Now if you go now by revenues by geographies, and we start from Europe. Europe in the Q3 had a very strong performance, 7% growth versus last year. And again, this has to do primarily with 3 with 2 markets. Let me say, one is Germany, where notwithstanding the fact that we have a very strong business there, we continue to see high single digit growth in this market. And the second one, which has been a surprise to us, very positive, is actually Italy. If you remember, until the end of last year, Italy was showing a very weak performance. And that had to do with an extent of the government to curb volume testing. Truth of the matter is that starting from the Q2 and now seeing it still today, Italy is rebounding actually. And in quarter 3, we have growth of 15%. And this takes the 9 month growth of Italy to 6.8%. So that's certainly something that was not necessarily expected, but it is important for us since Italy still represents over around 10% of our overall revenue. So as far as Europe is concerned, we continue the strong growth in this geography. Then let's turn to North America. North America, without considering the one off, let me say, the effect of the Diosori molecular revenues, which do not make the year to date result comparable. And if we just look at our, let me say, prediction immunoassay franchise, the growth in North America has been 3.6%, notwithstanding the fact that vitamin D has been very weak in this quarter. And the reason why it has been weak again has to do with a significant drop in volume in certain states, namely Florida and Texas and Georgia, which were hit by the wet weather and fundamentally, the big reference lab did not see orders for vitamin D for almost 6 weeks. Now we see that it bounced back to normality. We see in the most recent months that we are back to the volumes that we have seen traditionally. So we expect the next quarter to be in line of historical number, but certainly we took a hit on this month. But notwithstanding this, again, we have seen a growth of 3.6%, and this is mainly driven by the infectious disease franchise. We now are full steam at Quest with all our products. It is the Q1 where now all the products have been implemented and in line and offered by Quest, and this clearly makes our revenues extremely strong in the U. S. With these products. Now if we move to Asia Pacific, you see that at constant exchange rate in Q3, there is been a significant slowdown of 1.2 percent. So the growth has only been 1.2%, but this again go back to my initial comment. Within Asia Pacific, there are 2 distributors where we have elected not to ship in quarter 3, again, to alleviate the work of the third party logistic partners. And this is why you see in this region that there is an apparently a slowdown in revenues, but certainly, you will see in the next quarter that things go to normality because this has been simply a move from one quarter to the other. Within Asia Pacific, China continues to perform in line with expectation. There's a 20% growth in Q3 and a 20% growth in the 1st 9 months. So the main geography is doing as okay and as planned. Last but not least, let's discuss about Latin America, where there has been a growth of in the 9 months around 8%. But in Latin America, the most strategic country is Brazil. And in Brazil, we continue to see 5 double digit growth, 17% in Q3 and 17% in 9 stabilization of the country and also stabilization of the currency. So overall, I'm saying that I think the quarter 3 results have to be interpreted correctly because with lots of moving parts. And now I will allow our CFO, Mr. Petrone, to take you through the numbers with more quantitative comments to the quarter. Thank you, Fidgets. Thank you, Carlo. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of PSOren during the 1st 9 months of 2017. And I will also make some remarks on the contribution of the Q3. Before we start, let me please remind you that we began reporting the Focus business since May 2016. And so the perimeter of consolidation up to September 17 is different from the 1 of last year. Besides, as already said by Carlo, please note that the recent Siemensalize acquisition, even though impacting our balance sheet number, does not have any effect on our P and L. You will start we will start seeing the effect of the CMSLIs acquisition starting from Q4, the effect on the P and L. So that, as usual, I would like to start with what we believe are the main highlights of the period. We closed the 1st 9 months of the year with revenues in line with our full year guidance and with a material increase over 2016, €55,000,000 or 13.3 percent constant exchange rate. This is in spite of the impact on Q3 of the 2 one off events that Carlo just mentioned. We closed September year to date EBITDA in line with our full year guidance, with a strong growth over the previous year, 15.5% or about €25,000,000 at constant exchange rate, and with an EBITDA margin just a touch below 39%. Q3 EBITDA at €56,000,000 or 37.5 percent of revenues, grew compared to last year by about 3.5% at constant exchange rate and scope of consolidation, whereas it is flattish at current exchange rate. Again, I believe it is worth underlining that quarter 3 has been affected by those one offs we just discussed about, and I will cover again later more in details. And net of these elements, the profitability of the quarter is in line with what we have recorded so far. Lastly, the Asurion keeps confirming its ability to generate a strong free cash flow, €97,500,000 in the period. This allowed us to close September with a positive net financial position of about €113,000,000 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 ELISA business. As you may recall, the total consideration for this business was about 40 €7,000,000 The remaining balance will be paid in the closing installments during the next 3 years. Let's now go through the main items of the P and L. September year to date revenues at €468,600,000 driven by 13.4% compared to last year. The growth at constant exchange rate is almost the same, 13.3%. Since in Q3, we had about €4,000,000 FX headwind, mainly driven by the depreciation of the U. S. Dollar and the Chinese yuan, which offset the positive effects we experienced in the first half of the year. Let me remind you that the currency to which group is most exposed is the U. S. Dollar, and that for every $0.01 movement of the dollar against the euro, the Australian revenues move of about €2,000,000 on a yearly basis. This is the same number we shared with you a few quarters ago. Considering how the U. S. Dollar closed Q4 2016 and where it is trending now, I think it is fair to say that we will likely experience some FX headwind also in the next quarter. Gross profit at €319,700,000 grew by 13.2% or about €37,000,000 compared to last year, closing the 1st 9 months of 2017 with a ratio of revenues of 68.2 percent, which is basically in line with 2016. This is a result on one side of higher sales of specialty products, vitamin D125 and all these 2 panel to mention a few, some positive effects from manufacturing efficiencies and the lower depreciation rate of revenues, which almost completely offset on the other side price pressure on some clear Mi2 products and the slightly dilutive effects of the Focus business. Again, these elements have already been discussed in the previous quarters. Total operating expense is at €170,100,000 or 36.3 percent of revenues, have increased by 13.8% compared to last year. Please remember that as we saw in the previous quarters and we will see for the next few months, about €3,000,000 of the reported quarterly OpEx is driven by the depreciation of intangible assets coming from the Focus business acquisition. Net of this depreciation, September year to date reported OpEx would have grown by about 11%, and the rational revenues would have been 34.3% against 35% of September year to date September 2016 year to date. If we move now to the other operating expenses at €4,800,000 we see that they are lower than 2016 by €2,300,000 2016 was affected by some material recurring expenses, mostly driven by the costs associated to the Focus business acquisition, which explains the majority of this difference. 2017 number includes some restructuring costs associated with the start up of the European Logistics Hub, the project described by Cargill few minutes ago, some costs related to the Financillizer business acquisition on top of expenses related to the initiation of the rigor action in the U. S. Concerning the future introduction of certain diagnostic tests into that market. As a result of just described, September year to date EBIT at €144,800,000 or 30.9 percent of revenues has increased compared to 2016 by 15% or almost €19,000,000 The tax rate at 32% is 100 basis points better than 2016. This variance is in line with our expectation and is mainly driven by the reduction of the Italian corporate income tax rate from 27.5% to 24%. Net result at €95,700,000 or 20.4 percent of revenues is higher than the previous year by €13,000,000 or almost 15% 16%. Lastly, September year to date EBITDA at €182,200,000 is better than last year by almost €24,000,000 or 15%. The variance at constant exchange rate is positive for 15.6%. EBITDA ratio of revenues of 38.9 percent is 60 basis points better than last year. Moving to quarter 3, we had an EBITDA of €56,000,000 or 37.5 percent of revenues, in line with last year. Again, as I said, in order to better understand the quarter, I believe it is worth underlining that Q3 has been impacted by someone of cost for about €2,000,000 And to be more specific, the cost associated with the start up of the European Electric platforms and these costs are spread across several lines of our P and L. And as just described, the expenses related to the legal action in the U. S. These two elements together with some negative FX headwind in the quarter contribute to explain the EBITDA of the period, which net of this one off would have been in line with the trend of the last few quarters. Going back for one moment to the European logistic platform, I would like to share with you that we will start seeing the benefit of this project from 2018, with a total expected saving in the range of about €2,000,000 to €3,000,000 per year, once this initiative will be fully up and running. Let me please remind you that this plan was anticipated in our Investor Day back in June and is one of the initiatives we are implementing to improve the overall efficiency of the growth. Let me now move to the net financial position and the free cash flow. GSOAR includes the period with a positive net financial position of €113,300,000 and about €152,000,000 in cash. This is the result of what discussed so far and is confirming the ability of the group to generate a predictable and strong cash flow. During the 1st 9 months of 2017, we generated almost €98,000,000 It is worth mentioning that after September, Gasior Inc cashed out about €10,000,000 or more taxes than last year, and this is mainly driven by the tax payment by the tax payment phasing mechanism in Italy, so it's just a timing effect, and invested about €10,000,000 more in CapEx as planned. With this difference being mainly driven by the investments to support the U. S. Segment project, again presented and discussed during the Investor Day, and a few other projects aimed at increasing the efficiency and the productivity of our manufacturing processes. Before moving to the guidance, I would like to share with you the expected financial impact of the divestiture from our manufacturing site in Ireland. As discussed, this initiative is the result of the acquisition of Fortis Diagnostics, now the Surrey Molecular, and is driven by the decision of the group to centralize all of our Molecular business in one single place. This project is going to carry some one off costs, mainly related to people, consultancy and Sunrise talks. We are still working out all the details, but I believe that overall the impact at the EBITDA level would be between €6,000,000 €8,000,000 This is the total impact of the overall projects. We think also that about €4,000,000 to 6 €1,000,000 of these costs will be booked in Q4 2017. And we believe we will be able to repay for these investments in about 12 to 18 months. Said differently, we expect a yearly saving of about 6 €1,000,000 per year once the project will be completed. Firstly, in Europe and Europe operating performance, management confirms 2017 guidance for both revenues and EBITDA, with a growth at constant exchange rate of around 11% for revenues and 13% for EBITDA. Please note that this guidance does not take into account neither the positive impact of the Siemens Eliza deal nor the one off coming from the Irish divestiture project we just discussed about. Now let me turn the line to the operator to open the Q and A session. Thank you. Excuse me. This is a Chorus Call conference operator. We will now begin the question and answer session. The first question comes from the line of Pataki Maia with Kepler Cheuvreux. Please go ahead. Yes, good afternoon and thanks for taking my questions. Carla, I have a question. You were giving us an indication on the negative impact from the two effects, the hurricane effect, so basically the vitamin D hurricane effect and the move of some of the shipments due to distribution agreements. Is it did I correctly understand you that you said both effects taken together have a €3,000,000 negative impact in Q3? Just wanted to clarify that. Then the second question is related to your one off costs. Basically, on your Slide 13, you say that you had €2,000,000 1 off costs related to the new logistics model. Now we're going to have another €4,000,000 to €6,000,000 related to the closing of Ireland. So in total, we should be expecting for the full year EUR 6,000,000 to EUR 8,000,000 one off effect. And then the last question, I'm sorry, I didn't quite understand. Can you elaborate a bit more in detail what the initiation of the legal action is concerning in the U. S? Thank you. Okay. I will take your first and last question and then PG is going to be one off. Yes, indeed, the negative impact combination of the hurricane in the U. S. And the shipment delay is roughly €3,000,000 Please note that these are 2 very different effects. The hurricane vitamin D testing is lost because simply was not done in that quarter and we don't expect it to be postponed to the following quarter. And so what we are seeing in fact today is that the volume are back to where they should be, but not certainly you're not going to get back the testing. Whereas the shipment has been simply a decision of the company to move from one corner to the other. So certainly, that effect you would see in the Q4. When it comes to the legal action is relatively straightforward. We have one product that we distribute in the European environment is a stool product. And we intended to bring this product to the United States and go through FDA approval and start commercializing this product. We are in the phase of filing the approval with the FDA. So the product has not been commercialized yet. We are actually ramping up clinical studies, and then we are planning to commercialize the product sometime next year. Meanwhile, legal action has been brought against the company by a third party claiming that there has been infringement of certain rights of this company. And we have then initiated an action that is supposed to resolve this dispute by and is supposed to be done and over by summer over 2019. So what you have today, you have the one off legal costs, which are money spent in preparation for the hearings, which will happen in the summer of next year. Yes. Hi, This is Pieter Argos speaking. Going back to your questions about the one off, yes, you heard correctly, €2,000,000 1 offs are already embedded in our numbers and they happen in Q3 and they regard both the logistics hub, the European logistics hub project and some one off duplication costs. And then we expect that we have in Q4, so not yet embedded in our actual set, €4,000,000 to €6,000,000 of costs at EBITDA level related to the project to divest of the divestiture of our manufacturing site in Ireland. So 2 already embedded in our numbers, 4 to 6 to happen in Q4. Overall, the total project is going to bring €6,000,000 to €8,000,000 But because of IFRS regulation, we will have to start accrue for most of those costs starting from Q4. Okay. Very clear. Thank you. Thank you. The next question comes from the line of Debele Luigi with Equitasim. Please go ahead. Yes. Good afternoon to everybody. Two questions for me. The first one is related to the Siemens acquisition. Could you quantify the impact at the sales and EBITDA level expected from Siemens in Q4? Second question, could you update us on the Italian Patent Box and the potential impact? The third question on China. Could you give us an update on the market trend in China and on to invoicing policy? The last question on the free cash flow generation. Could you provide some indication about the net financial position Siemens, Patent Box and free cash flow, why do China? Yes. So let me start from the Patent Box. So I believe we have some good news here. We have been recently contacted by the Italian tax authorities. Again, you know it works in Italy. Italy. So as long as you don't have a signed piece of paper, everything can change. So said that, I believe we have good news because we have been contacted by the Italian tax authorities. They told us they basically agree with the way in which we did our filing. We did our filing in 2015 and we are hopeful we'll be able to conclude our ruling with the tax authorities by the end of the year. We will have a rollback mechanism. So again, hopefully we will be able by 2017, so this year to have the cumulative effects of 2015, 2016 and 2017 and then we will enjoy the benefit of this patent box also in the next 2 years because this is a 5 year selective tax regime. After that, we will have to refile again. But the good news is that tax authorities told us there is a proposal and I believe the original estimate, which I made, which was €2,000,000 to €3,000,000 could be on the conservative side. If eventually the discussion will go as we hope, potentially the impact could be a little bit better than that per year, which means that in 2017, again, if you will be able to buy the documents to sign documents before the end of the year, we will have an impact, which is, let me say, around €10,000,000,000 beyond EUR0. Going back to Siemens, I believe we said when we bought the business that the early sales of 2016 early sales of this business was around the €46,000,000 as part of those sales are made up of instruments and services and a big chunk obviously in reagents, which is what we are interested in. In Q4, you should not expect that 1 quarter of full year sales because when Siemens when we bought the Siemens when we bought the business from Siemens, they somehow asked their customers to build up a little bit of stock to manage with the transition period. So I believe that if you say that run rate is €10,000,000 per quarter, normal run rate considering that in Q4 we had this startup kind of pace, you should imagine something like €6,000,000 to €7,000,000 In terms of EBITDA, I'm not giving you a exact number, but just to help you think about it. In this business, the manufacturer is Siemens for their products. So the gross margin is going to be a little bit lower than the gross margin we are used to. But in terms of OpEx, this business is carrying lower OpEx ratio compared to our OpEx ratio. That's to say that all in all, I believe that at EBITDA level, this business is not going to be dilutive at all. Then as the conversion will progress, the EBITDA margin will obviously be accretive because we will get clear sales with not a proportional increase of OpEx. In terms of net financial position at year end, not a bother to provide guidance there. We've never provided guidance in terms of net financial position. What I can tell you is that if you take Q4 last year and you consider that we see that some additional CapEx investments we are doing to support our back strategy in the U. S, to support all the operations we're putting in place or the investments are putting in place to increase our manufacturing efficiency, you can find the meaningful ballpark number. Okay. The last point that you wanted us to cover has to do with China. Look, in China, I think that the trend now is fairly clear. And there are 2 elements which are interesting to highlight. The first one has to do with the fact that if you look now at Class III hospitals and Class II hospitals in China, you see a different progression of volumes because it's very clear that the Class III, which is which was saturated before and is showing volume increase, which is low single digit. So 1% to top 3% volume increase. Whereas if you go to the Class 2 segment, you see an increase that goes high double digit between 15% to 20%. And the reason is that, on purpose, the government is pushing people pushing a migration between Class III to Class III to decongest the Class III in favor of the new Class II hospitals, which has been built main cities. So this one interesting element. So depending on where your installed base is, you benefit by this endogenous growth rate. The second one, which is certainly happening, and again, I believe is to do more with an exception in 2016 rather than the 'seventeen, is that the birth rate, so number of newborns that happened last year, which was phenomenal, 17,500,000 newborns versus an average, which is between 15.5 16 certainly has been an outlier. And so what you see in 2017, the newborn to go back to where it should be, so around $60,000,000 That does carry an effect for those companies, for example, like DiaSorin that have been, as you know, a good chunk of our revenues in infectious disease in China are related to products for pregnancy, mainly for prenatal disease, infectious disease testing. And in fact, we see in the dynamics of volumes that in 2016 in certain clinics, maternal clinics, we see this decrease in volume. As far as everything else is concerned, we don't see yet an impact of double invoice policy. We certainly see a new distribution model to be to become more popular that has to do with these GPOs, let me call it that way, on logistics centers or group versus organizations that are today formed as a result of consolidation of distributors that are becoming a reality companies have to deal with, especially in the main diasporin today, we are actually selecting a couple of BPOs with which you would like to form strategic alliances in order to guarantee continuity of distribution in certain key strategic areas. Okay. Just a follow-up, if I may. Could you update us also on the U. S. Tax reform and potentially PAPT for you? Sure. So again, a lot of moving parts here. But on November 2, the U. S. House Tax Committee released its proposed law. We are still going through all the details of the proposed law, but from our first reading, if the bill would pass as is, we are expecting a tax saving in the range of US10 $1,000,000 per year. As you might have read, the federal tax rate has been reduced from 35% to 20% or the proposal to reduce the federal tax rate from 35% to 20%. At the same time, some deduction tax deduction will be taken away and the most important to us is the state tax deduction. If we compound all of these effects and if the law will be approved, we should be able to report starting from next year as the lowest tax bill in the U. S. Again for $10,000,000 And Luigi, going back to your question before on the net financial position, again, I'm not going to provide your guidance as we never did, but you want to do your modeling, remember that we are going to pay back to Entesos and Futuro Bank that financed the acquisition helped us financing the acquisition of the Focus business. We're going to pay back installment of EUR 12,000,000 in Q4 at the end of Q4, and this is reported in our statutory financials. So you can see it there. Thank you very much. Very clear. The next question comes from the line of Bardo Scott with Berenberg. Please go ahead. Thanks very much. It's Scott Bardo from Berenberg. A few questions, please. Firstly, just on the Irish manufacturing facility consolidation. I can't recollect you talking about this initiative during your 3 year plan the summertime. So I just want to understand, is this plan incremental to your initial communication and thus then the cost savings of €6,000,000,000 incremental to the already outlined €10,000,000 to €15,000,000 If you could turn that please. Second question relates to Siemens. Now you've obviously had this business in the organization for a short period of time. Can you just be a little bit clearer please as to what the revenues on a full year basis we should expect from this asset. I think you just mentioned something like €40,000,000 So is it that the revenue contribution differs from how you saw it when you acquired that business? If you could just talk a little bit about the moving parts there so we can model that correctly, please? Last question is molecular. Molecular seemed relatively poor growth this quarter. You say 7% or so constant currency is 1% reported. Can you provide a little bit of justification here? I understood that the expectation was for broadly double digit growth from the Focus business. And can you talk a little bit more about why the trend was a little bit poor in this quarter? Thank you. Okay. Scott, I will color your 3 questions. First one, is it fair to say that our LTP did not include the closure of the plants, because this decision has been taken after that. However, it is also fair to say that our LTP in our Irish site, we actually host 2 types of businesses. We have an Eliza business, manufacturing, which is part of the original business that we had purchased in Ireland from BioThrin and it was actually moved to this facility, as well as we have all the molecular activities related to extraction business and the lamp business. So what we had in the plan were synergies associated with consolidation of Eliza, but we did not have synergies associated with closure of the business. Right. So in to make a long story short, I don't think that you can take what we've indicated in the LTP and then mathematically add roughly €7,000,000 savings. But I would say that a good scenario would be that you could have an incremental €5,000,000 of more savings once this is also in time, okay? The second one, Siemens, is roughly around €40,000,000 in revenues as a combination of reagents and instrumentation. This is what we inherited from Siemens. Keep in mind that again here there is the only reason why we bought this business certainly looking for more Liza, but is to provide to our people between 200 to 300 customers that are suitable for cannibalization and placement of liaisons. Therefore, what we are not going to do moving forward is we are not going to sell instruments any longer as Siemens was doing. And these instruments were because these were systems intended to support the Eliza business. And just to give you a ballpark number and believe me I'm going by memory, we are probably talking about roughly €5,000,000 per year of instrument and service sales, clearly much lower margins that are not going to be continued in our business model. The third question you have is molecular. And again, I understand is unfortunately deceiving, But when we report, let me say, the like for like and then we discuss about what we call molecular. The truth of the matter is that molecular is not only molecular. Molecular is a combination of 2 technologies, truly molecular PCR products, the Simplexa line. And then we have a bunch of Eliza IFA business that still sits there is seasonal, has a lot to do with specialty ticks and is a profitable business, certainly profitable, but certainly not growing. So when we reported the growth of 7%, it's growth of pretty much a combination of the 2. Now if you carve out the non molecular business and you just stick to the molecular part, you have low double digit growth from this business. But again, also when you look at this molecular business, so the low double digit, it's a combination again. And I'm sorry for the confusion, but unfortunately, this is what we bought. Is a combination of 2 type of businesses. One third of that business is pretty much very large contract with Quest. Because if you remember, this company belong to Quest and actually it was supplying to Quest lots of molecular products, especially ASR for Quest to develop their own LTV. And that business, part of the business is relatively flat, because it only grows with growth of Quest volume. So you may expect a better growth of 2%, 3%, which is what I believe Quest is reporting as volume growth overall. And then there are 2 thirds of the Molecular business, which is truly end user business, and that is growing high double digits. Okay. So if you ask me for a qualitative determination of business and expectation, yes, it is growing as we expected. We didn't buy $80,000,000 worth of Molecular, but just a combination of Molecular and Specialty ELISA. And again, within molecular, there is a Quest contract, which follows open dynamics and the non Quest business, which is the business directed to roughly 300 hospitals in the U. S, which follows a completely different dynamic. We may decide moving forward next year to represent this business a little different because I understand is generating confusion sometimes with analysts and investors. Okay. Very good. Thanks very much. So just a follow-up, please, and just to make sure I'm crystal clear here. Because your new or your 2019 guidance framework called for flattish margins by 2019, But with this incremental €5,000,000 as payback from this consolidation, pure math suggests €5,000,000 additional EBITDA, which is 100 basis points margin progression by 2019 as a sustainable improvement rather than flat. So I just want to make sure I understand that correctly that the consolidation you make will lead to 2019 margin improvement. That's basically what you're suggesting, if I understand correctly. Thank you. Scott, this is Sergio speaking. Yes, the 3 years plan guidance did not include the €5,000,000 cargo just talked about coming from the Irish manufacturing site shutdown. At the same time, we are talking about the 2019 guidance and you really should allow us some flexibility there. But from a pure mathematical viewpoint, what you're saying is fair. Our modeling did not include the 5,000,000. Very good. And just very last one, if I may, very quickly. Just on tax, and I appreciate your comments and there's a lot of moving parts here. But just to assume the patent Italian patent box situation and to put that in some sort of sustainable future perspective over the next few years, something like a 30% tax rate makes sense for 2018, 2019. I appreciate it could be lower than that this year depending on your collection. So what's going to happen is that in our group, we have mainly 2 big taxpayers, which are the U. S. And Italy. They represent more or less 80% of our tax bill. In Italy, we are going to have hopefully, again, hopefully the effect of the Patent Box, one off in 2017, cover in 3 years. 2018 2019, we are going to add those €3,000,000 to €4,000,000 we will see. Then the Patent Box is an elect yes, per year. Patent Box is an elective tax regime which lasts for 5 years. So we will have to apply for a new patent box coming 2019. So until 2019 we are covered, then we will have to apply for a new one. We will be able to get it, Will the law still be there? Hopefully so, but I can't commit. And this is definitely not included in our 3 years guidance. Neither these nor the Trump so called Trump tax reform. For the U. S, again, if the law will move on as it is now, no changes, we are going to have a reduction of $10,000,000 per year. So if you pile it on, you have $10,000,000 So let's call the $10,000,000 current exchange rate, €8,000,000 plus the 4 you get from Italy on the Patent Box, if it will be approved, we will have €10,000,000 €12,000,000 less taxes on our group profit starting from 2018 on a recurring basis, if everything will grow as we hope. That's okay. All right. Thanks very The next question comes from the line of Walter Peter of Jefferies. Please go ahead. Hi. Yes. Just a few quick follow-up questions. Firstly, just on the Dublin business. I'm wondering with regards to the California? And secondly, just wanted to confirm that the European costs for the implementation of logistics and the initiation of the legal action, that EUR 2,000,000, they're not excluded from the EBITDA outlook. It's only the Dublin site closure costs that are excluded from the EBITDA CER growth rate outlook. And then just finally, on the U. S. Mitigation, am I right in saying that you've got a similar agreement in the U. K? And I appreciate that the U. K. Market may be quite small, but is there also an endeavor underway to potentially launch the product in the U. K. Market as well? Thank you. Look, yes, U. K. Is also a geography, which is covered by this discussion. Let me mention about extraction and then PG is going to cover the other part of the question. Yes, in fact, you're right, there is a business in the range of €3,000,000 to €4,000,000 which has to do with the ex NordeaC business. We are actually evaluating what to do with that piece of business, if it is worth transferring to the U. S, especially in light of the fact that some of these products may become part of our post transplant strategy for the PCR assays or another opportunity would be to sell this business, if possible, to someone that could guarantee continue to supply to customers. In this case, as Scott, the problem for us is not necessarily to make a significant amount of money out of this sale, but more than just guaranteeing a continuity of supply to a long list of loyal customers. Notwithstanding that, if we cannot find a solution that guarantees continuity, we are going to shut it down and move on with the rest of the business. Yes. And taking the further regarding the cost, you got it right. So the logistic the setup cost linked to logistic European logistic platform and the legal claim are already included in Q3 actuals. And so you don't have to deduct them from the EBITDA guidance we gave. Whereas for the shutdown cost of the Dublin site, you should, as we said in the press release, take them out from the guidance. At the same time, as I believe I said, please remember that we did not incorporate in our guidance the positive effect coming from the ELISA business, the Siemens Eliza business, which is going to partially offset the negativity you're going to have from the Dublin shutdown. Very clear. Thank you. Thank you. We have a follow-up question from the line of Mr. Bartusch Cote with Berenberg. Please go ahead. Thanks very much. Just a quick follow-up. Conor, I just wondered if you could share some thoughts on the Zika market. This was potentially a bit of a wildcard for DiaSorin. And I understand we're in somewhat white female. I wonder if there's any dynamics you can talk about in that category. And also just a general sort of high level discussion about the pipeline, how that's progressing, you've outlined some clients, ambitious plans for progressing the specialty pipeline. I wonder if you could talk a little bit about that, please. Okay. Interesting that you mentioned this. Zika when it comes to Zika, we I think we've been always fair saying that it is a bit unknown was the space of ZYPACT. Today, it is we have our product approved in the U. S. For emergency use and we are following suit with the FDA to get the formal FDA approval. Today, we do have a central number of customers in the U. S. Using the product, mainly Department of Health because today, in most of the states in the U. S, it's mandatory to provide these samples to the Department of Health for testing because it's a reportable disease. However, the volumes are still relatively low. It did not become yet part of routine testing. I think that these can go to waste. And if you talk to different operators in microbiologists in the U. S, you get both opinions. One way would be that this becomes part of the prenatal testing. And that would immediately create in the U. S. App market of roughly 4,000,000 tests. Pretty much in the U. S. On a annual basis, we have 4,000,000 newborns. And that would be certainly a very favorable scenario for Verastoreum because as you know, with our specialty infectious disease isolates, we do have very significant market share also in the U. S. The other scenario is that it becomes a regional disease, concentrated more in those areas where you have risk of mosquitoes. So you go down more in the southern areas of the country and Florida. And that would leave Zika as a relatively small opportunity. On top of this, what is very interesting is that through the acquisition of Siemens, we do actually have acquired we got access to the Liza product that Siemens was carried specifically designed for Brazil. And Siemens has been awarded by the Brazilian government to a very large tender in the range of 3 €1,200,000 but you're talking about a couple of 1,000,000 tests of Zika, which is the kind of testing that today is done in Brazil, where depending again on the season, wet season, dry season, you see an incidence of Zika, which varies dramatically. By the way, it is very counterintuitive. On a dry season, you have a very high Zika prevalence. On a wet season, you have no Zika prevalence, which is not simple to understand, but it is the way how it goes. As far as the pipeline of specialty, today, I think we need to distinguish between molecular and immunoassay. When it comes to the immunoassay, 70% of the DiaSorbing Research and Development Resources, as we speak in 2017, and this will continue until Q1 next year, are dedicated to support the registration of the hepatitis HIV in the U. S. As part of the Beckman program. And this is simply because we had a full catalog of products that we distribute ex U. S. But then when we decided to move it to the U. S, we made products we made few modifications to these products to make them more U. S.-oriented. And that certainly took away a lot of capacity from immunoassay product development, notwithstanding that we will launch this year 3 to 4 products as specialties in immunoassay. When it comes to the molecular pipeline, we have stated that it is our intention to have 2 assays FDA cleared every year and 4 ASRs launching in the U. S. Market. So far, we got the C. Diff launch Europe and U. S. We got the HSV monoclonal strain approved in Europe, and we are submitting this in the U. S. And we have been using with yesterday our Bordetella Fructures, I'd say CE Mark and then is going to be filed with the FDA. So to make a long story short, Scott, yes, we had 12 months where we put a humongous effort to support our U. S. Strategy with the CapEx. We are at peak right now in Q3 Q1, sorry, next year is when most of these efforts will be completed, and then we will resume back to regular cost of business. We new OSI products vis a vis the generation of 5 to 6 new products, period. Very good answer. I appreciate it. There was so much internal results going into the HIV and hepatitis. So that's interesting. Thank you very much indeed for the comments. Yes. Keep also in mind, Scott, that we did as we announced, we set up a manufacturing site in England for HIV, for hepatitis B and hepatitis B. And in that site, we are actually making products that are fully dedicated for the U. S. Market. And even if products are the same, it does require a hell of a lot of validation work that has been allocated to R and D to support operation. So that's the reason. Mr. Rosa, there are no more questions registered at this time. You may now proceed with your closing statements. Thank you. Thank you, operator. Bye.