Welcome to the full year 2019 financial results presentation on the 26th of February 2020. Throughout today's recorded presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. If you would like to ask a question via the phone, please press star one on your keypad. To ask via the web interface, simply type your question in the Ask a Question box and click Send. If any participant has difficulty hearing the presentation, please submit your question via the same tool. I will now hand over the presentation to Mr. Sylvain Moreau. Please go ahead, sir.
Thank you, Molly. Good day, everyone, and thank you for joining us to review bioMérieux's performance for 2019 and our objectives for 2020. Before giving the floor to Alexandre Mérieux, chairman and CEO, and Guillaume Bouhours, CFO, I will make a very short introduction to provide you a couple of information. First of all, our press release was published this morning at 7:00 A.M. This press release can be found on the home page of our website, www.biomerieux-finance.com. In addition, please note that the slides of this meeting are also available on the home page of our website or can be downloaded directly from the webcast. Promptly after the end of the meeting, the webcast and the call will be available in replay on our website. Now going to the presentation content.
After reviewing our 2019 performance and 2020 objectives, we will hold the Q&A session. Questions can come from the conference call and from the chat of the webcast. If you wish to ask a question, please make sure to identify yourself, name and company. A very last word before starting the presentation, I will not read the slide which is currently projected about the disclaimer. I recommend you to take note of its content to remind the usual disclaimer about the forward-looking statement. With this, I hand the call over to Alexandre Mérieux.
Thank you, Sylvain. Good day. Good afternoon to everyone. I will start with the key takeaway messages regarding our 2019. We announced this morning our results for 2019. We announced the sales reaching EUR 2,675 million for bioMérieux, displaying a growth of 7.2%, which is one of the highest growth, if not the highest growth in the IVD industry. We announced a profitability of 14.5% with a CIB of EUR 389 million, in line with the guidance. On this, I would say with a solid underlying performance that Guillaume will detail further after. The key growth driver for bioMérieux in 2019 has been molecular biology with a continued success of BioFire, microbiology doing very well, and also the dynamic in the APAC region.
During the year, we announced a few M&A deals, the first one having been Invisible Sentinel in the field of food, beer, and wine testing and quality. Also, we increased stake in the Chinese company in the field of immunoassay, Hybiome. To notice also, I would say the depth level of bioMérieux that we are displaying. Our leadership in that space. It's okay?
Yeah. We had a blank.
Well, continue. Okay. Cut in the middle. Okay. We reaffirmed our leadership in that space, and I would say diagnostic is more and more recognized as a key weapon to tackle these major threats. Know that 80% of our sales and 75% of our R&D investments are directly or indirectly linked to the fight against AMR. Our clinical sales displayed a growth of 7.7%. I want to insist, I would say, on the complementarity of our offering on that space. bioMérieux was selected last year by the Fleming Fund to strengthen the diagnostic capacity and tackle AMR in low and middle-income countries in Africa and Asia. BioFire are having a continued success. We are now having more than EUR 600 million sales linked to FilmArray. The install base has increased now to reach more than 10,000 instruments sold and placed worldwide.
Worth noticing also that the sales outside the U.S. are increasing to be close to 19%, in line with our expectation to make it a worldwide success. I would say that the future growth driver of BioFire remain the fact that we want to grow the install base and the consumption through enriching the menu of FilmArray, growing international markets, also working on upgrading the BioFire instrument. Last year, we announced the launch of a new panel, which was the pneumonia. Now we announce that we are going under FDA validation for BIOFIRE BCID 2, which is a new version of the BCID, which is a very comprehensive panel with more than 43 targets in one test, including 10 resistant genes. This is totally in line with our strategy to fight AMR, but also to be a key player in the field of sepsis.
It will be also very complementary with the VIRTUO solution we have for hemoculture, as BCID will be tested after a positive blood culture. Clearly, a very innovative and sophisticated panel. Looking at the immunoassay activity, more contrasted situation there. As you know, our positioning is around high medical value markers, but also growing the needs of the fast-growing market. What we have seen this year is an increasing demand in regions such as Middle East, Africa, and Asia Pacific. Decreasing volume in Europe and linked to the lab configuration, and still some price pressure on PCT in the U.S., even if volumes are growing in the U.S. market. We have a busy pipeline to reinvigorate and strengthen the menu on the immunoassay.
First, Hybiome, which is our Chinese-based immunoassay company, which displayed a nice growth in 2019, with the expansion of its market access to the grade two hospitals in China. We're also preparing the launch of VIDAS NEPHROCHECK for the acute kidney injury. Ongoing trials for VIDAS latent tuberculosis based on the IGRA method, and also working on the development of VIDAS DENGUE. Moving to industrial microbiology, we displayed organic sales growth around 5%, a bit below our expectations, with good performance in Europe. My main message to say that we have solid fundamentals both in the food and pharma application with our portfolio of solutions.
The fact also that we are pushing forward the key account worldwide strategy, and our expectations are to bring back industry microbiology to higher growth than what we displayed in 2019. With this quick overview of 2019, I will now leave the floor to Guillaume, who will detail our financial results in 2019.
Thank you, Alexandre. Hello, everyone. Let's review our financial and operating performance. We start with total sales growth of 10.5%, which includes a EUR 53 million of positive FX impact, especially with the strengthening of the US dollar. 1% growth, EUR 27 million, coming from acquisitions, Hybiome and Invisible Sentinel, and the bulk being 7.2% of organic growth, that we are going to detail in the coming pages. By application, organic growth by application. Microbiology grew by 5%, solid growth in a market that is growing around 4% or 5%, and when we have solid leadership positions. This growth is driven by blood culture with the success of our VIRTUO instrument, and also by ID/AST with our VITEK range performing very well.
Immunoassay, as you can see, stable sales of our VIDAS immunoassay range with all the, let's say, contrasted effects that Alexandre mentioned, negative on U.S. PCT price and volume in Europe, and positive solid growth in Middle East, Africa, and Asia Pacific. All these coming together in a combined stable overall. Molecular, as Alexandre detailed on FilmArray, very high growth at 20% for FilmArray, 18% overall molecular. The growth of FilmArray, interesting to note, was very balanced on all our major panels of BioFire FilmArray. Industry +5%. We can mention that we were stronger in healthcare and pharma than food. Pretty solid in Europe, but as already mentioned, more mixed performance in Americas and Asia Pacific. Now coming to organic growth by geography. Americas, our first region, grew 7.7%, driven by FilmArray, with 14% growth in the U.S. for FilmArray.
Also interesting to note, very solid performance in Latin America, with a good year for Brazil, who was coming from a difficult base in 2019. Good recovery in Brazil. EMEA, of course, our core region, 4.4% growth, driven by very high growth of FilmArray, very good performance in the Middle East, Turkey, Russia overall for the year, and a solid performance of the industry business. Asia Pacific, highest growth region at 12%, fueled by China, India, and South East Asia cluster, all at very high growth levels. Coming now to the P&L. The growth margin improved from 53.8%- 54.8%. That was thanks to positive product mix, especially coming from FilmArray, but also some operational improvements in terms of quality, productivity, and our freight mix improving to more sea versus air freight. SG&A. SG&A are up 13% on the constant exchange and scope.
This totally reflects our sales and marketing efforts and investments for BioFire growth worldwide, as well as a few, let's say, specific provisions linked to the termination of a few distributors in certain countries. R&D was up 9%, reaching now 14% of sales, with the majority of the R&D increase being dedicated to BioFire, especially on the instrument as well as the panels and the enrich menu, as Alexandre mentioned. Overall, we have a like-for-like EBIT growth of 9% on a like-for-like basis, improved margin when we exclude the scope and the FX effects. We can look at that on the next page in a bit more detail. Sorry, coming back to the bridge. Yes. You see on the right of this page, the slightly positive effect of FX, 2019 compared to 2018, +EUR 3 million.
The negative effect of the scope, the contribution of Hybiome and Invisible Sentinel are negative in 2019. Overall, a pretty dilutive impact of acquisitions. Excluding these effects, you can see that our margin grew from 15% in 2018 to 15.3% in 2019, again, at the same scope, same exchange rates. Despite very negative effect of the phantom share plans. As you might remember, these phantom shares are actually cash-settled plans that are actually linked to the share price. As our share price increased a lot in 2019, the provision for these cash-settled plans had to be booked for significant amounts. Actually, EUR 36 million was booking in 2019 as compared to a positive EUR 7 on phantom shares in 2018. Now coming below contributive EBIT to the net income. Flat acquisition price amortization from BioFire at EUR 18 million, slightly improving net financial expense at EUR 23 million.
Income tax was pretty good at 22%, we will see on the next page. All in, our net income group share reach EUR 273 million, up 6% for the year. Coming back to a few explanations on the tax rate. Our recurring effective tax rate is at 24%, pretty stable, and this reflects our mix of countries. We have this year a few non-recurring items, positive, favorable. The major one being the FDII, U.S. part of the U.S. tax reform with a catch-up on 2018, that we consider non-recurring. Bringing overall the tax rate to 22.4% for 2019. Last subject, important is our free cash flow. To read this slide, we actually start from an opening net debt of EUR 365 million, which includes the IFRS 16 restatement of EUR 98 million.
We generated an EBITDA of EUR 578 million. Working capital was this year a consumption of EUR 69 million, mainly due to inventory increase. This inventory increase was linked to our growth, of course, but also to the rebuild of our inventory on some critical raw materials. This is the main impact on the working capital. Income tax and financial charges overall about EUR 100 million. CapEx reached, as we guided, about 10% of sales.
The major increase of CapEx was for the new plants that we are currently finishing for BioFire in Salt Lake City to increase capacity. Overall, we generated a free cash flow of EUR 150 million for the year, which, even with acquisitions and divestitures of EUR 48 and divisions of EUR 41, helped to reduce our net debt to EUR 317 million at the end of December, reaching a low leverage of 0.5 times EBITDA. With a very solid balance sheet as a consequence.
Thank you, Guillaume. Now we move to the 2020 outlook. Regarding the revenues for 2020, taking into consideration, I would say, the current complex and uncertain context related to COVID-19 and the situation in China, but not alone. Taking also into account the fact that the flu this year is higher than one last year. We project the guidance revenue to be between 5%-7% for 2020 at constant exchange rates and scope of consolidation, which we believe to be higher than the market dynamic. Regarding the contributive operating income, we foresee a project and increase of the EBIT to be between EUR 399 million-EUR 415 million. This will include a negative ForEx impact between EUR 5 million-EUR 10 million and also negative impact related to the externalization of the U.S. pension plan.
The tax rate should be the same as the previous years, between 23%-25%. We maintain CapEx around 10%, as usual, to prepare for the future, support bioMérieux goals on these projects that are linked to capacity and automation. Regarding the coronavirus situation, the current bioMérieux test, whether they are on FilmArray or on ARGENE, tests for some coronavirus, but they do not detect the COVID-19, even if they can be used to rule out other causes of respiratory infections. We have ongoing R&D work to develop specific tests to detect COVID-19, both on the ARGENE solution range and also on the FilmArray range, which will be specific tests. At the same time, today, we are facing a situation in China, reduced hospital traffic in the hospital, reduced access to field forces, and I think also assessing the impact on the supply chain.
All in all, that's the situation today. We are preparing plans to develop new tests on ARGENE and FilmArray on COVID-specific. We have also announced today a new organization for bioMérieux, aiming at leveraging our unique value-based offer that we have both in clinical applications and also in industrial application. It's a new setup, a new setting to tackle the next growth cycle for bioMérieux. This is moving from 13 people to nine people.
The idea is to foster agile decision-making and also keep on driving commercial and operational performance for the company. All in all, that was a mixed take for 2019 and 2020. Just tell you that we are more and more convinced of the value of what bioMérieux is doing. I think the fight against infectious disease is recognized as being extremely important, and we believe we are well-positioned to continue to impact positively patient care and also consumer care.
Thank you, Alexandre. Molly, can we start the Q&A session, please?
Thank you. If you wish to ask a telephone question, please signal by pressing star one on your keypad. Please ensure your mute function is turned off to allow your signal to reach our equipment. As a reminder, to ask a web question, please locate the Ask a Question box, type in your question, and click Send. We will now take our first question from Katherine Tenison of Bank of America. Please go ahead. Your line is now open.
Hi. Thank you so much for taking my questions. I have two, if I may. The first one would be on the organic growth guide. It was perhaps a tad more muted versus street expectations for 2020. How should we think about the levers that brings the organic growth for 2020 closer to the upper range versus the lower? Just so I'm clear, what assumptions for the impact of COVID-19 are already factored into your current guide? My second question would be, could you just give us a little bit of color on why the molecular division saw a slight step down in organic growth in Q4 relative to Q3? Of the 600 new BioFire units placed, how many of those were placed outside of the U.S.A. in this quarter? Thank you.
Okay. Your first question regarding the organic growth, the range is between 5%-7% for next year. I would say with our current assessment of the Chinese situation, you can see that maybe the lower range is also linked to our estimation of the impact in Q1 and potentially Q2. Just to remind that we remain displaying, I would say, a growth that we believe is higher than the market growth in the field of in vitro diagnostics. I forgot the second question.
It was about-
I haven't heard.
BioFire slowing down in Q4 and the installation outside of the U.S.
I believe BioFire, if you look at the I think we have displayed a slide where you see the BioFire for this recent year that continued growth. I think we increased this year the revenue of BioFire by EUR 120 million, I believe. It's a very nice and steady growth. We are growing in the U.S. We are growing strongly also internationally. I would say the point around the placements, maybe there were more placements in Q2, Q4, sorry. For us, more placement, it also means the fact that we are linked to volumes and that more consumption of the test. Maybe it's a trend on the market, not only linked to BioFire, but I believe it's good signal for consumption. Regarding the split-
Understood.
Yes. Regarding the split, your question about the installations.
Yeah.
in Q4 of EUR 600, about 35% are outside of the U.S. on the last quarter, which is quite stable as compared to the rest of the year and even the year before.
That's super. Thank you so much.
We will take our next question from Bill Quirk of Piper Sandler. Please go ahead. Your line is open.
Hi, this is Rachel in for Bill. Thanks for taking the questions. A few questions. What is the latest with your new PLA codes for respiratory and GI assays, if you have any colors on pricing? Next, also, we appreciate the comments on Coronavirus. Can you just give us some more color on what you're seeing in China and walk us through your exposure from a revenue standpoint and supply chain standpoint? Thank you.
The point regarding China. China is important to us, and China is 10% of the sales of bioMérieux. This is a fast-growing market for us, displaying this last year the double-digit growth. Clearly, it's important in the dynamic of bioMérieux. What we see today, as we see, I would say, I believe for every type of business, that the patient traffic in the hospital is very limited. It has an impact, of course, on the consumption of tests, so it has an impact on the overall activity of bioMérieux in China, which is not growing, I would say. In term of what else are we facing? I think we are facing also difficulties like other companies in term of sometimes servicing the customers.
We know it's not easy. We have to take care of the install base. Sometimes our field service engineer, they cannot move easily from one province to the other. These are the type of things that we are being impacted with. We have a close look to our supplies, the stock of supplies that we have. At this stage, we are doing the assessment. I believe we are fine for the months to come. As you know, this is a very evolutive situation. We keep monitoring this very closely. Of course, the first thing we take care about is the safety and the health of our people.
In terms of exposure, China is 10% of our revenues. From a manufacturing point of view, we have one plant, which is actually Hybiome plant in China that manufacturers for China. We have no local plant manufacturing for export.
On the other question on the PLA codes. We were granted a specific proprietary PLA codes for BioFire in the U.S. that we believe are showing or recognizing the value of BioFire and the syndromic testing. As you know, this is concerning mainly the outpatients, which is today the population, but not the majority of the population we are serving with the FilmArray. The PLA codes are recognized and I think show the value of what we're doing.
Okay, maybe we can take the next question.
Our next question comes from Maja Pataki of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good afternoon. Thanks for taking my question. Alexandre, just a quick question. You are talking about product and development. You mentioned the latent TB test where you say we are in clinical trials, and you mentioned the COVID-19 test for ARGENE, but also for BioFire. I understand you are not going to give us the exact timing, could you give us an overall range and say where the tests are on the respective time horizon approximately? Is it the COVID-19, is that something of a couple of weeks, or is it something like 6 to 12 months? The same for latent TB. Is it 12 months or further out? Thank you.
Latent TB, we have started end of December, I believe, the clinical trials. That it's an ongoing process. We'll launch it this year, but I don't think we should expect an impact on the sales or even on the launch in 2020. It's more for 2021, I believe. Regarding the development we have on ARGENE and FilmArray for COVID-19, the expectation for us is to be ready in Q2. I don't know yet. I think we launch it, we make it available. This is without the formal regulatory approval or recognition that some regions might want to do. That's our plan to have it around this timing.
Great. Thank you very much. A follow-up question on the guidance. Did I understand it right? The 5% growth guidance implies basically an impact from China in Q1 and Q2, and 7% would be no material impact? Is the 7% also seeing some impact but not full lost sales in China? Just to know whether we are mixing some impact and clear guidance.
No. It's a very evolutive situation. I think the 5% is with the impact. That's what I can say. No, that's what I can say at this stage. I think the other 7% is the high range of the target.
Okay.
Which is still solid. Very solid. Again, things are evolutive.
As we said, it's 5% with the impact that we would potentially see for H1. It's so difficult to see beyond H1 that we factor the potential, let's say, issue continuing through H1. The impact in our accounts, we have to be careful. In China, we are active through distributors, regional distributors, local distributors. There are effects between the final sale and our sales of a bit of a timing and timeline. The effects we mention is for the full year, then it might be delayed between our sales and the distributor sales and sales, finally adjust, of course, in terms of quarter. Yeah.
More a Q2 impact rather than a Q1 impact for you in that case. Is that what you are saying?
It's a full year thing.
Full year, of course. Just a last question, if I may. In your previous presentations, you were talking about other tests in the pipeline, with the vector-borne diseases for immunoassay and some additional panels coming to BioFire. You're not saying much about that. Is it because it's 2021, 2022, or is it just because you were focusing on something else this time around?
We like to announce things when they are close to be ready. Today we announced the FDA filing for the BIOFIRE BCID2. That is definitely going to be the very important launch for this year. On the previous slide, I think we announced the work on the TB
Dengue. Dengue, which is a vector-borne disease.
Yeah. Dengue, and the idea, I think we said end of this year, the target. Also VIDAS NEPHROCHECK. Important pipeline also in the field of immunoassays.
Brilliant. Thank you so much.
Thank you.
Our next question comes from Hugo Solvet of Exane BNP Paribas. Please go ahead.
Hi. Hello. Thanks for taking my question. I have three on molecular diagnostics and the increased number of placements, compared to sales in Q4. I understand this is mainly driven by Europe, could you share with us the impact of the U.S. in all that, and potentially also update us on the competitive situation? Just a quick one on TB. Can you repeat the timeline for the filing of the test? I'm not sure I got it right. Last, on profitability, what are the main drivers for the 100 basis points difference in between the high end of the sales and EBIT growth guidance for 2020? Thank you.
I'll take the TB question. TB, what we know that we entered in clinical trials with VIDAS latent TB. Now it has to go through the process of clinical trials and validation. We don't see a sales impact in 2020.
Okay.
The other question? The other one question you wanted, Hugo?
No, on placement. The placement of molecular in Q4 were 600. As we said earlier, 35% of this was outside of the U.S., meaning mainly Europe and somehow Asia-Pacific. I'm not sure. Okay. That's it. If it's not clear, let us know if it's different, your questions. Coming back on profitability, I think your question is on the 2020 guidance. The first key element between the high and the low range for the profitability will be the sales, clearly. As we said earlier, the major, of course, there are other things, but the major elements between the low 5% and the high 7% is the COVID impact and the potential lower sales especially in China. Again, sales driving EBIT. On the EBIT, it's also an opportunity to discuss other elements.
We have the FX impact potentially between 5 and 10. FX are moving quite a lot these days with all these financial markets issues with the crisis. That's one. The other element is that we have this phantom shares impact. Just to re-explain, these schemes are going on for already two years, and we still have a year and a half of schemes for the phantom shares, with significant tranches to be paid in April and June this year, and the very last one in June 2021. This year, we still have a significant volatility in our P&L, as one year of change in the share price is about EUR 1.3 million change in our EBIT.
That we factor the certain charge with a certain share price, which is, let's say, in line with our increase in EBIT. Of course, things can move. That's a significant effect on potentially the EBIT. Last element, just to mention it, but that's more certain, is the impact of our U.S. pensions termination that is scheduled for H1, and that will be a -EUR 10 million in our EBIT when we settle, meaning that we sell to insurance companies external, our U.S. pensions.
Okay, thanks.
We will take our next question from Delphine Le Louet of Societe Generale. Please go ahead. Your line is open.
Yeah. Thank you very much. Different type of question, if I may. First, Alexandre, can you come back into the internal organization? To be frank with you, it was not really clear to my mind in the press release how that's going to be more agile apart from having less people around you. To get a clarification on that. Second question would deal with the R&D incremental cost that we have seen over the year. I was trying to understand how much of this incremental growth is dedicated to the immunoassay franchise, and so to the tests that are going to be launched and planned for H2 this year. Thirdly, I know there is a lot of volatility regarding Chinese situation. Most of your peers are impacted already. Nobody has seen anything. Mostly in January.
February is a very different situation, and some of your peers are communicating to a low sale as 10% of what they've seen last year, so meaning a 90% decline. I try to understand, if you can give us firstly an idea about February and also regarding possibly more precision on previous comments, meaning that do you expect the trend that you see rolling over, let's say, at the same path up to H1? Or before that to come back into, let's say, a normalized situation. Finally, because I think there is a lot of unclarity, even if it's getting clearer and clearer thanks to the slide 19 of your presentation. If I'm correct, and if I'm taking a normal situation regarding the front-end plan with, let's say, a EUR 20 million-EUR 25 million cost for that would mean a 15.6% contributive operating margin.
Quite an increase compared to last year. I am just trying to understand, considering that concept, why you have a guidance which is just EUR 415 million on the top side of the contributive operating income, because that was more or less what we could have achieved in a normalized situation. Any comments? Do you have more expectation regarding the scope, next scope dilution to come or regarding ForEx? Am I wrong in interpreting that? Thank you.
Okay.
Where do we start?
I will start with this. The increase in R&D spend in the bioMérieux, or the increase we have done this recent year, it's mainly linked to the strong focus on effort we put on molecular, I would say, rather than immuno. Molecular has been driving the increase in our R&D investment.
We do it in the future.
Second question around the new organization. What is changing? We are doing this organization to leverage the full global offer of bioMérieux. I think combining, I would say, the complementarity of our offer, whether it is in the immunoassay, microbiology, and molecular. This is, I would say, the key driver of the new organization regarding the creation of the clinical operations. Sorry for the question. China. China, no, it's a very low start of the year. I think in January, I believe the sales are flat. Flattish so far.
I will have to get the figures for February. As mentioned by Guillaume, we have the sell-in, sell-out dimension in China, we don't have a clear full visibility. Clearly, we are impacted, like the others. We are under close monitoring. I cannot say more at this stage. I will say I come back saying it's a very evolutive situation that we're actually monitoring. Clearly, we will be impacted, and this is part of the guidance that we give today.
You agree with me regarding the timing? The timing, let's say, in your forecast today, you've included sort of the slowdown up to H1 or let's say, sort of an impact till the end of H1.
Yes. With what we know, yes.
Okay. Thank you.
Guillaume, you take the PSOP?
Profitability or PSOP. Profitability, yes, the high end of the guidance includes improved margin when you exclude this FX impact. The major elements are the one we mentioned. Again, just to repeat, our pensions impact is a negative EUR 10 million. Just on pensions, U.S. pensions is to be compared to a positive than in 2019. Both are one-offs. They will all disappear after that. It's really a two-step, let's say, externalization of our defined benefit U.S. pension plans.
From an accounting point of view, the first step in 2019 was generating a plus EUR 10 million-EUR 11 million positive in the P&L. The second step in 2020 is a negative EUR 10 million. That's also to be considered when you do a year-over-year. The other key element again is PSOP. As you saw, as I said earlier, we have -EUR 36 million expense in our 2019 P&L from the PSOP. Let's say the midpoint of the guidance includes approximately -EUR 15 million.
Okay
Also to be included in the way you look at that. Just looking forward, because yes, we are mid long term, and I am sure you are looking at us as well mid long term. I repeat that these PSOP impacts will still be slightly present in 2021 until mid-2021, and after that will totally disappear. The schemes are actually replaced internally by more, let's say, usual schemes of free shares, performance shares that are less cost and more visible cost, meaning that they don't vary with every month or every quarter with the share price, of course.
Okay, super. Thank you very much.
We will take our next question from Peter Welford of Jefferies. Please go ahead. Your line is open.
Hi, thanks for taking my question. A couple. Just on BioFire again, just with regards to the Respiratory Panels. You obviously made some comments about flu. Curious there whether do you think you will see any increased placement of both instruments during the fourth quarter and also Respiratory Panel during the fourth quarter? Is this very much do you think still to come during the early part of this year? Just with regards to the coronavirus or COVID-19, are you seeing at the moment any change in Respiratory Panel, potentially either stock piling or similar due to this, to eliminate obviously the virus as far as a negative test, if you like, goes? At the moment, would you say the volumes you're seeing are very much in line with expectations? Just on the financials, just with regards to cash flows.
Just curious on free cash flow, obviously you made the comment and gave a very helpful explanation of what's happened with the free cash flow this year. It might seem a silly question, but are there a lot of internal efforts at the moment going on to improve your cash flows? It does seem as though perhaps your cash flow conversion is tracking well below perhaps where it could be. Is this a focus for management, or is at the moment the focus more on the operations on the top-line growth side? Thank you.
Regarding Respiratory Panel, yes, we indicate that the flu season is stronger than last year, yes, it should have an impact on the dynamic of the RP Panel. Regarding Q4, I believe it will depend when it starts, end of the year, if it starts, and about the intensity of the flu season. That I think we'll have to wait for this. On your question around is BioFire used to rule out coronavirus, I believe that's something we see.
You have to know that FilmArray is not approved in China yet, but it's being used in Taiwan and Hong Kong and some other Asia Pacific country. Yes, we see since the beginning of the COVID-19 crisis, we see that in some cases, yes, people are using the RP panel to rule out different type of infections, but not so much significant at this stage, but at least it's already a tool to help for the diagnosis.
Question on cash flow. Cash flow, coming back to cash flow. Yeah, good question as well. The main levers on the cash flow are obviously the CapEx and the working capital. On CapEx, as we said several times, I think we basically have investments that are aligned with our strategy and our growth, especially to build additional capacity for future growth. Again, for BioFire especially, we need to have significant investments for the future that we are happy to do and to support. That's why also we have this level of CapEx.
To mention, we didn't discuss, but yes, part of our CapEx is linked to placements, slightly increasing actually the placement part. It reached EUR 55 million in our CapEx in 2019 as compared to approximately EUR 45 million the year before. We are increasing, but we believe these are very profitable investments actually to place instrument to rightly selected customers. That's for the CapEx. On working capital, we have I think a very good follow-up on receivables we didn't discuss today. Stable to slightly increasing, but not much today on the receivables ratio. Well under control. On the inventories or inventory part, we mentioned a major increase. Clearly, we wanted to have a rebuilt of inventory on some critical raw materials. Some are sole source, and we needed to increase this raw material to make sure that we are secure on the manufacturing process.
We also had increase on some product lines, especially on BioFire. There are probably areas where we can improve. We need in our industry to make sure that we don't have back orders, because that has a really very tough effect and long-lasting effect when we have back orders with our customers, not even to mention the public health, in some cases, issues. We need to have the right inventory to avoid back orders. We also think that there are maybe some place for improvement there, some optimization of our inventory in some places, and we will work on that.
Thank you.
We will now take our next question from Scott Bardo, Berenberg. Please go ahead.
Yeah, thanks very much for taking my questions. Sorry to stick with China and coronavirus. Link for how you expect any potential impact to operate or to spread across the business. Is there any one particular division that is more sensitive, if you like, to the fallouts here, or do you see this potentially an across the board impact? Also just like to understand a little bit with respect to the BioFire utilization for this outbreak. My understanding is that there are other competitive multiplex systems that are being tested in China that have also now the relevant target for coronavirus.
My understanding is that's not the case yet for bioMérieux, and that you still don't have the right pathogen on your panel. The question is: Is there any consideration for your limitation for approval or use in China? Is there any historic military connection with BioFire, which is causing some prohibition into China given the U.S. military backdrop? Just a little bit of discussion there about your ability to introduce BioFire in China with the right pathogen.
Okay. Your first question, I believe the impact is across the board. It's not one department or the others. Sorry. Because the board, not more clinical than industry, I believe. If that's your question. I believe the impact, it's both by the way, the impact that we have in China. Your question around the FilmArray in China. No, it's a longer registration process. I don't think this is linked to coronavirus. It's a longer registration process in China. There is, I believe, no connection between the history and China. I don't see any impact on this. I'd say it's a matter of public health. It has nothing to do with it.
Okay.
Other. That's it. All right.
Okay, that's helpful. Actually, I think it's pleasing to see that you continue to commit to invest in the business despite anticipated softer dynamic. Obviously, you're trying to position the business for the longer term. My comment really just relates to, there has been various one-offs and currency moves and impacts over the last five years, but the reality has been that your operating margin has been flat over the last five years, which on paper may be somewhat of a surprise given strong growth over that period. What I'm trying to understand is, are you satisfied with the margin today? Do you think this is the right level, or is there any particular driver that we can actually start to see some operational leverage in the business, which we haven't seen for the last five years?
To your question, I don't think we have been flat. I don't give a five-year or 10-year guidance, but I think what we have said a few years ago that we will steadily improve the operating performance of the company, and I believe that this is what we have delivered. I believe we were at 13.2% in 2015, 14.2% in 2016, and 14.6% in 2017, and 15% last year. This year we are on the 9%. We keep on investing to improve the performance. Am I satisfied?
We are progressing. I think what matters is to progress and to prepare the future, because I look a bit naive sometimes, but I think the value of what we're doing, the impact of what we have, I believe it's only the beginning of the value of diagnostics the way it is recognized today. We'll keep on investing. At the same time, my goal is to keep on improving the performance of the company.
Makes sense. Maybe just quickly, you historically commented on your interest to move into rapid antibiotic susceptibility testing and identification, which is a pocket of the market which is growing today. I think you've been working on this area. Can you maybe give us some sense of how far along you are with this initiative, whether this is something that you think could contribute to growth in the near term?
I think this is part of the DNA of the history of bioMérieux. With the investment we are doing in R&D, and also linked, of course, to our positioning in the fight against antibiotic resistance. We keep on investing with Menu. We are working on time to results. You have seen also that maybe we have made some agreements or strategic investment in companies in that field. I think the idea for us, it's a key topic, and there's still a lot of unmet needs in the field of AST, mainly linked to time to result of detection. We keep on working on this.
Very good. Thanks for my questions.
We will take our next question from Alex Koller of Kempen. Please go ahead. Your line is open.
Hi. I have two questions on the immunoassays. Could you share a bit the launch strategy for NEPHROCHECK in H2, whether it's global or certain geographies? Is there any meaningful revenue baked into the guidance from that? Then the second one on the PCT assay. How would you classify the pricing pressure, maybe in H2, and how do you see that developing over 2020? Thanks.
Okay. For NEPHROCHECK, the goal is to do CE marking. I don't see an impact on the sales dynamic this year. Regarding PCT, we still see some price pressure on PCT. I need to say also that it's a high medical value marker. Even if we are not alone, as we were a few years ago, there has been price pressure. This test is still positioned by us and by our competitors as a high medical value markers. I think it's not a commodity test. I think the value is recognized by us, by the physicians, and by the competitors. Some pressure, not too much pressure, I would say. Not drastic.
Yeah. Would you say there's still room for the price to fall, or are we now seeing the bottom?
It will depend on market dynamics, I would say. I don't know.
Okay, thanks.
We will now take a follow-up question from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Alexandre, could you give us a bit more information about your non-controlling interest in Specific Diagnostics? I'd be interested how it fits your portfolio and how you think it differentiates from other technologies in the market. On NEPHROCHECK, it's very helpful that you give us a timeline on CE mark. When do you think you will have the FDA approval? Thank you.
Specific Diagnostics, it's a very smart, innovative company. We have a partnership on a small stake in this company. That's part of our, I would say, our focus on AST. I think that this company is working on a solution to have a fast AST after also positive blood culture. This is in line with our flagship, which is the fight against AMR. Regarding NEPHROCHECK, I mentioned we are planning for CE marking end of this year. FDA, we have not started. I think we'll do the CE first, and we'll work after on the FDA. I have no indication date for the FDA approval at this stage.
Okay. We don't have any more questions from the call, but we have a couple of questions from the webcast, so that I read to you. First of all, but I think we already gave a bit of an answer on that, is how long would you need to develop a test active on the current coronavirus strain, the new coronavirus timeline for the test?
We said that the goal is Q2, if we can.
Yes.
Q2 for research use only, yeah.
Exactly. Okay. We have a question, maybe more for you, Guillaume. To be clear, the phantom sharing pack is a provision as such, it is included in the EUR 578 million EBITDA?
Yes, it is.
Yes, it is.
For EUR 36 million impact negative in 2019.
Last one is about IFRS number 16. Can you give us more color on the impact of IFRS 16 on EBITDA 2019? It has been.
Yes.
it's on that.
The restatements are all available in our press release.
Okay
In our appendix. Basically, to make it simple, it's a significant impact on our balance sheet. As you have seen, IFRS 16 increases the net debt by EUR 98 million, and this is, of course, the discounted value of the future rental expenses. It has a minimal, very minimal impact on our P&L. It was actually slightly positive, about EUR 2.5 million on the EBIT in 2019, and that was restated. All the figures we commented today are all comparable at restated IFRS 16 for the previous year or for the balance sheet, so that we compare apples to apples.
Okay, thank you. The last question from the webcast. Would you consider to buy a company which already has an approved coronavirus test?
No, we have our test ongoing.
No, we have our ongoing work on the No.
Okay. The answer is no.
I think that with that, we've cleaned all the questions, both from the call and from the webcast. Thank you everyone for your participation. We look forward to meeting you in the several meetings in the next month. The next formal presentation will be mid-April for the Q1 results.
Thank you.
Thank you.
Bye.
This will conclude today's conference call. Thank you all for your participation. You may now disconnect.