Good day. Welcome to the bioMérieux first half 2019 financial results conference. Today's conference is being recorded. All lines will be muted for the duration of the conference, and there will be a question and answer session following the presentation. At this time, I would like to turn the conference over to Mr. Sylvain Morgeau. Please go ahead, sir.
Good day, everyone, welcome to all of you. It's a great pleasure to welcome you to this webcast. Before leaving the floor to Alexandre and Guillaume, who will present bioMérieux half year results, I would like to make a very short introduction to provide you a couple of information. First of all, I wanted to inform you that we released our press release this morning at 7:00 A.M. The press release can be found on the home page of the website, and if you have not received our news release, or if you would like to be added to the company distribution list, please feel free to send an email to investor.relations@biomerieux.com. In addition, please note that the slides of the meeting are also available on the home page of the 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 directly on our website. I will not read the next slide, which is about the disclaimer, but I recommend you to take note of its content that reminds you the usual disclaimer about the forward-looking statement. Now going to the presentation flow, Alexandre will start by giving you his main messages after this first six months, then Guillaume will continue with the financial review. Finally, we will have all the Q&A session. We will take first the questions from the conference call and then from the chat of the webcast. Now Alexandre, the floor is yours.
Thank you, Sylvain. Good day. Good afternoon to everyone. I will start by giving the key takeaway messages for each one. We announced our result this morning. Basically, when we look at sales, so we displayed an organic growth of 5.5%, which is an acceleration compared to Q1, and we also displayed a contributive operating income of 15.5% growing by 7%. All in all, you can see that I would say the main drivers of commercial growth for this last six months have been around molecular biology, FilmArray, which displayed a nice growth around 21% in H1 with more than 1,200 new systems installed in the last six months. ASPAC region also performed well with a fantastic double-digit growth.
I would say the key events in terms of M&A business development for the first six months were first the acquisition of Invisible Sentinel that we already discussed with you, I would say, in Q1. To note also that we took a complete stake at Hybiome. We were previously holding 55%, and now we moved to control 67% of the company. We believe we had a satisfactory result this first six months, which is leading us to confirm our objective of the guidance for 2019 with organic growth sales between 7%-8.5%, while we keep also the guidance to have a contributive operating income between EUR 385 million-EUR 400 million. You know bioMérieux, we are all about infectious disease, we are about sepsis, we are about consumer health. We are of course the leaders in syndromic testing with FilmArray.
I would say one essential flagship of bioMérieux is the fight around AMR, which is antimicrobial resistance. As you know, it is today a worldwide public threat in every country. Every MOH is talking about this or has a plan around this. To fight AMR, you need education, you need good practices in hygiene, you need new drug development, and you need good diagnostics. There are not so many new drugs under development. We believe that diagnostics has a stronger role to play to fight AMR through the right identification of the pathogen, also through pushing for the right antibiotic treatment. I would say that bioMérieux is perfectly suited today to drive this fight because we have a full suite of solution, whether this is using molecular, immunoassay, or microbiology type of solution that we have.
What we are doing is we're investing of course in the solution. The key track will be around bringing new innovation. I would say there's a strong focus also on the medical education and support. This is also what we are doing with such initiatives as the Global Point Prevalence Survey all around the world. We are really pushing the company towards bringing also this medical value around AMR. Next one. If we come back on some key units around the first six months. Regarding immunoassays, I would say we can talk about a mixed picture for the first six months as we are still under pressure on the U.S. market, mainly with PCT. PCT is still a growing market in the U.S., today we are also working to develop our solutions all the lower or middle type of hospitals.
We faced this first 6 months linked to the lab consolidation, also big pressure on the VIDAS routine test in the Europe, Middle East, and Africa. Maybe it's the H1 event that we will see in H2. We get immunoassays, so we have some credit or logistic issues in some parts of the world, mainly Middle East, that impacted us in H1. When you look at the immunoassay also, what is important, I mentioned Hybiome. We moved to a stronger controlling stake. Hybiome is a Chinese immunoassay company, which performed well in the first H1 with a double-digit growth. It is becoming, and it will become more and more important for us, just working on the China market. We launched a new test called VIDAS PTX for the monitoring of chronic kidney disease.
Also we are investing in a pipeline of innovative products that you know, some of them you know, such as the NEPHROCHECK, also latent tuberculosis, and also other viruses. If I come back on the molecular, you remember that in Q1, we had a growth of only 13%, but it was linked, I would say, to mild flu season compared to a strong flu season the year before. We displayed a nice growth of 31% in Q2. Always interesting to note that the sales outside of the U.S. are increasing now to represent 17% of the worldwide sales of the FilmArray. We keep having our future growth driver linked around the development of new panels, increasing the consumption of tests and panels on our platforms, working on growing internationally and developing, investing also for new panels, and also upgrading the BioFire instruments.
Worth to notice also that, you remember a bit last year, we talked about Palmetto. I think discussing with the American Medical Association, we were granted PLA codes for FilmArray, which are proprietary codes, which are overwriting and deleting CPT codes. I would say, as you know, it's only impacting the outpatients, it's not the majority, of course, of the patients using FilmArray. Still, it's a good signal because having these PLA codes will allow us also to negotiate, like we did with Palmetto, a new reimbursement. All in all, we believe that the work we are doing is also showing, I would say, stronger recognition of the value of the syndromic testing. I think this type of codes or reimbursements are working for three years outside of the panel reduction. Also, I would say limiting some previous restrictions around the use of the syndromic testing.
With that being said, also, we lost out for the pneumonia panel, but we are convinced around the strong medical and economical value of this new panel for bioMérieux. On this slide, just a really great example of the value that the pneumonia panel is bringing. Basically, when you compare the use of FilmArray to a classic culture method, you get the results faster, you detect the right resistance, and basically, you have a stronger impact on how to monitor the patient. I think with this part, I can now leave the floor to Guillaume, who's going to come back on the financial results of H1.
Thank you, Alexandre. Good day. Good afternoon, everyone. Let's review our financial and operational performance. We start with the total sales. Published growth is 9%. As you can see, the currency effect was favorable this semester with plus EUR 29 million, majority coming from the U.S. dollar. We also have the contribution of our recent acquisition, especially Hybiome and Invisible Sentinel in terms of scope additions and organic growth that we will review together in detail of plus 5.5%. Let's look now at the organic growth by range, our four major ranges and applications. Microbiology was up 3.7% in the semester with a good performance of the two major ranges inside microbiology, the VITEK identification and antibiotic susceptibility testing, as well as the BACT/ALERT blood culture, were both performing well inside microbiology.
Immunoassays, Alexandre explained already in detail the -3% with the major effects coming from volume in Europe due to lab consolidation, price pressure in the U.S., especially on the PCT parameter, and as mentioned by Alexandre, some, let's say, non-recurring effects on logistics and credit issues in Middle East/Africa. BioFire and molecular overall +18%, in which 21% sales growth for the BioFire range only, with a very well-distributed growth over its four major panels. Industry grew 3.7% overall on the semester. Inside this, it's important to note that reagents were up 6%, while equipments on a high base were slightly down. Still a very strong demand from the pharma industry. As well to note the ramp-up of our new, let's say, molecular biology range for food applications called GENE-UP. Let's review now the organic growth by geography.
Americas, our first region, North and South America together represent 45% of group sales. It was up 6.7%, which is a mix of, let's say, contrasted elements and trends. Of course, BioFire, with its domestic sales in the U.S., was a strong growth driver, double digits over the semester. Microbiology reagents were also up inside these figures for Americas. These offset, of course, as mentioned already, the price pressure on PCT sales in the U.S. EMEA was up almost 2%, 1.8% exactly, with a solid growth of BioFire in the region as well as industry. To note some one-off declines in Middle East Africa that are one-offs in terms of, let's say, credit issues with customers or distributors or logistic subjects like customs, that we expect to solve actually in the coming months.
Asia Pacific, very regular strong growth at 11%, pretty similar to the last year, still a very solid performance fueled by China, India, and Southeast Asia. If we now turn to the P&L, we review the 5.5% organic growth on the top line. Gross margin, as you can see, improved from 54.3% to 55.7%, was a pretty significant increase. The first reason is actually the product mix that was favorable. As usual, higher growth of BioFire range with, let's say, stronger margins than the average of the group helped on the product mix. We can also mention on the gross margin, a better operational efficiency. What we mean by that is manufacturing, purchasing, supply chain, all having positive effects. Other operating income to note this semester increased in terms of income, this reflects higher R&D tax credits, as well as a higher rent income from third parties.
SG&A, more importantly, was up 11% on a like-for-like basis, reflecting our increased sales and marketing initiatives, especially to support the growth of BioFire worldwide and in the U.S. and abroad. R&D was up 7.6% on a like-for-like basis with additional R&D effort and investment in microbiology, as well as, of course, molecular biology. Important to note and not visible on this page, but as mentioned in the press release, some, I would say, special items in H1 to explain. First, our phantom share scheme in the U.S. that we explained already in the past, which is a variable compensation for our U.S. employees, which amount is linked to the share price of bioMérieux, so moves up and down with the share price. For the phantom share scheme, we had a provision of €26 million in the first half linked to the strong increase of bioMérieux share price.
To be compared, this EUR 26 million provision, to EUR 10 million in the first half of 2018. This is a positive, let's say, special item. We had some one-off to mention as well. Negative, we decided in the U.S. to Sorry, the opposite, of course. The phantom share is a negative EUR 26 million as compared to minus EUR 10 million last year. We had some positive one-offs too, important to mention. We decided to freeze the U.S. pension plan, which was on a defined benefit scheme yet, and that has a, let's say, very accounting actuarial impact of plus EUR 11 million in our P&L in the first half. The second one-off, which was actually a litigation win in France on social charges, which has a positive provision release of EUR 6 million.
Actually all in with negative on PISA and the two positives one-offs are quite neutral if you take those three together. All in, Contributive Operating Income is at EUR 198 million, up 11% on an organic basis, a margin of 15.5%. As you can see, the only reason actually why the margin does not increase in terms of percentage is the dilutive effect of our recent acquisitions, especially Astute, first quarter of last year, that was for the first time included, Hybiome and Invisible Sentinel. Let's move now below Contributive Operating Income. We have a stable amortization of BioFire acquisition price, EUR 9 million per semester. Net financial expense was slightly up at EUR 14 million due to the slightly higher cost of Chinese financing for the Hybiome acquisition. Income tax is at a pretty low effective tax rate of 20.8%.
We will see in a minute more detail on this. Overall, net income group share at EUR 141 million, up almost 5%. A quick zoom on the tax rate. From a 32% French tax rate, actually, we derive with our mix of countries, recurring effective tax rate still at 23%. The only, let's say notable major non-recurring item this first half was the calculation of one of the effects of the U.S. tax reform of 2008 that actually was, let's say, published by U.S. administration this year, which is called FDII, so foreign-derived intangible income, which actually improved our effective tax rate by almost two points. Two words about the cash flow statement. EBITDA is, of course, up in line with EBIT. Working capital was, this semester, up by EUR 37 million, primarily driven by a significant increase in our inventory.
This increase of inventory is partially linked to growth, of course, especially for the molecular activities, and partially linked to a rebuild of our safety stock on some key raw materials that we decided to do during the first half. Income tax is slightly higher than last year and actually back to normative level. It was low for different reasons last year. CapEx is at 10% of sales, EUR 123 million, driven by especially industrial investments. We add capacity for manufacturing and plants, and we can mention, especially for the molecular range, future growth. All in, the free cash flow, and this is the first line, green, is at EUR 55 million, to be compared last year to EUR 98 million when we exclude, of course, in last year the free cash flow, the exceptional contribution to the U.S. pension plan that we did in the first half last year.
Slightly down for the reasons I mentioned, especially on working capital and higher CapEx. We use this cash flow for acquisitions, Invisible, [Sentinel] and iVium, and overall, our net debt stands at EUR 422 million. It includes the restatement of IFRS 16 for rents, which actually increased accounting-wise the debt by EUR 97 million during the first half. Now our net debt stands at 0.8, so still a very solid and reasonable level, giving us headroom for acquisition and additional investments. Few words about the outlook. Alexandre already explained that we maintain our guidance for the year on organic growth and EBIT. Just to mention that on top of the organic growth guidance for sales, we revised our view on the Forex impacts, of course, with Forex moving. Actually, we said neutral six months ago.
We believe now that on sales, the impact should be around EUR 45 million FX impact positive. On the Contributive Operating Income, all in EUR 385 million-EUR 400 million. Just to mention that the FX impact on EBIT, which we said would be potentially around EUR -5 million, we believe now should be better than that, so around neutral. On the opposite side, the acquisition impact, I think we had mentioned around EUR -10 million for the year, would be probably around EUR -15 million for the year. Actually, these two on Forex and scope tend to offset. That's it, and I think we can turn to questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star followed by one in order to ask a question. We will take our first question from Katherine Tenison of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Thank you for taking my questions. I have three, if I may. The first two is on the molecular division and the final one on guidance. Just if you mind for the first one, could you please give us a little bit of color on how you've seen the competitive landscape in molecular in the United States change since one of your competitors has ramped up their presence there in Q2? Secondly, within molecular, as you've had a growing contribution ex-U.S. from the BioFire, I believe from 15%-17%, can you comment on the regional price differences that you see within BioFire and how we should think about that impact on the margin going forward? My final question on the full-year guidance.
If we look at the H1, H2 splits, it implies that there's quite a step-up that we should see in H2 for top-line growth in order to reach the lower end. How much of this is from molecular rollouts, and how much of this is from the offset of the increase in the immunoassay changes? Thank you.
Thank you. We'll take the first one, the change of landscape in the U.S. As you know, okay, we are the leaders, the promoters of the FilmArray in the U.S. It's an attractive space. What has changed in H1, I believe that the FDA clearance for GenMark and also Luminex came with a new version. Okay. Basically, we see more players on the field. That's something we are ready to tackle. All in all, I would say the dynamic of BioFire in the U.S. is still very good, and we keep on, I would say, working on the
The key differentiation we have, the biggest one I would say is around the quality and the breadth of the panel that we have today on the market. So far, I would say, there are more players, but we have not seen a limitation, I would say, in our market penetration. The second question was around BioFire prices outside of the U.S. I would say that all in all, I think we were able to preserve and to present, I would say, the medical value of the solution. There are no significant price differences on a worldwide basis. Sometimes we adapt. I would say all in all, the positioning is around the medical and the economical value of the solution. Regarding the ramp-up in H2 compared to H1, you will see the plan is to see an acceleration as Q2 accelerated versus Q1.
We have some of the non-recurring effect as we mentioned in Middle East. I would say also that maybe the first semester has been a bit low in terms of sales of instruments. All in all, at this stage, we confirm the initial guidance to be between 7% to 8.5%. I would say that the regions are going the right dynamic, and I think that's the best indicator for the company.
Thank you.
We will take our next question from Romain Zana of Exane. Please go ahead. Your line is open.
Yes, good afternoon. Thanks for taking my question. I have three. The first one is on industrial application. How do you explain the persisting softness on food testing into a Q2, and especially on instruments, if I'm right? Is the acceleration expected into H2 for the group linked to a catch-up in that industrial application division? The second question is on molecular biology. When we look at the sales, organic growth or also the instrument placement, it's not obvious that you perceive any new pressure from competition. However, the investment on molecular biology and BioFire in particular seems increasing. Is that a fair statement to say that you are able to contain any potential increase in competition, but it requires higher investment on your side and in terms of R&D and marketing? Last question, just on the cash flow. How should we expect the trend in H2?
I'm especially thinking about any material, let's say seasonal change in working cap or CapEx normalization in the second part of the year. Thank you.
Regarding industry, on a yearly basis, so this last year, we were more growing around 7%-8%, we are off to a low start. What is performing quite well still is the pharma applications. Very nice growth in that space. I would say on the food side, the GENE-UP has a good growth. We need maybe to monitor a bit more, Q1 was not so good, I would say, a bit slow with food in the U.S. I think also we should see an acceleration in the APAC region during H2. To come back on what was said, I think that the region sales of industry are around 6% in H1. I think if we are able to recover a bit with instruments, we should come back to higher growth in H2.
I think at least from my side, there is no specific worry to have around the global dynamic of industry. Your second question was around investment we do in molecular. We do investment in molecular. You have seen also recently that last year also we increased our investment in R&D, they are linked to molecular. To be frank, they are not so much linked towards competition because we knew that competition would come, they are linked to the fact that we believe we want to keep on leading the race, I would say. We believe also that the FilmArray is an evolutive platform. These are the types of things we are working on. We're working on new panels, working on improving the instruments. We, yes, keep having investments in marketing also to make sure we promote the medical value of this solution.
I think that's something we would have done even outside competition because we believe in the evolution of this platform. The third question is more for you, regarding.
Yeah.
Cash flow. About the trend in H2. I can say a few words, even though, of course, we don't give a cash flow guidance, but still. On the CapEx, we are right in line with our guidance of about 10% of sales. I believe we reiterated about 10% of sales for the full year. We are in a pretty solid investment period, especially investing for the additional capacity for FilmArray growth in the coming years. Not only that, of course, also strengthening our manufacturing footprint and set up everywhere. That's on the CapEx. In terms of working capital, I can mention that some of the working capital increase on inventory happening in the first half are quite structural. When I mentioned that we rebuilt some safety stock that we need or inventory levels, if you will, safety levels.
For some key raw materials as we could do in H1. Beyond that, I can mention some seasonality effects. Usually in terms of days, we tend to increase inventory in H1 as some of the activities actually prepare for the next flu season, especially BioFire, but not only. Actually, this reverses as the flu season and not maybe the flu itself, but actually hospitals buying for the flu starts to ramp up in November or December. It, of course, starts to reduce our inventory level in terms of days in H2. These are among explanations I can give with a broad framework that, again, we don't give cash flow guidance.
Okay. Just a quick clarification about industrial application. In the step-up you expect for the second part of the year, industrial application is one of the lever to accelerate the group growth?
Industry should do better end of the year than what it did in H1.
Okay. Thank you.
As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take our next question from Bill Quirk of Piper Jaffray. Please go ahead. Your line is open.
Great. Thanks. This is Dan on for Bill. First, I wanted to piggyback off of an earlier question. BioFire has those proprietary codes for respiratory and GI multiplex testing. What is the latest on the multiplex panel reimbursement market in terms of maybe where the market is heading and what your strategy will be given that reimbursement dynamic? Maybe the timing of when we could find out that level of pricing, when we could start to think about that? Thanks.
In fact, the PLA codes allow us to overrule, not overrun, sorry, the CPT codes. Remember, it's only for outpatient testing. This is not for inpatients, which is the majority of the patients that are tested with FilmArray. When you talk about inpatients, don't talk so much about reimbursement, you talk about DRG, which is a global envelope, which is allocated to how to treat a patient or mainly, sorry, how to treat a disease. Most also, these two codes allowed us to enter to negotiate, I would say, new reimbursement with Palmetto and some other MACs might follow. On the, I would say, the reimbursement which are displayed on the slide, I think we believe there are good recognition of the value of FilmArray, and I would say that there is a medical and also a big medical benefit with this type of reimbursement.
I don't know if you can add something or.
Understood. One more from me. I saw that a competitor came out with some data on a TBI assay. I was just wondering what's the latest on Banyan from you guys. Thank you.
On Banyan for us, it's R&D stage.
Okay, great. Thanks.
We will take our next question from Maja Pataki of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good afternoon. I would like to ask two questions, one financial. If we're looking at EBIT, the adjusted EBIT that you reported in H1 2019, we've seen a bit of a margin decline, which you explained with the dilutive impact from acquisitions. Could you confirm that if we adjust both H1 2018 and H1 2019 for FX, the phantom share provisions, and the impact from acquisitions, that the margin decline would be actually greater than 100 basis points? If that is correct, could you please elaborate why it is? Is it purely the dilutive impact from acquisitions, or is it the higher investment in BioFire? The second question is related to the pipeline, that was mentioned in the slide pack, Alexandre. I've noticed that TB made it in there. I am not aware of the fact that it was ever in written mention somewhere.
Could you give us an update on where you are in the whole project? Thank you.
Okay. I talked with TV earlier, we'll take the easy question on the comparison. To be frank, I think, already we said it was under development. To be frank, bioMérieux, we like to communicate on the new tests when they are developed or close to FDA or CE marking. In that case, apparently, it was known that we were working on this latent TB, so we say officially that we are working on it. That is true. We don't give dates at this stage. It is still at R&D development phase.
Okay, fine. You also don't give data on NEPHROCHECK when it comes to timing, yet we know that it is going to come. Is that the same for TB? Is it a question mark is behind the timing, but not behind the if it comes?
I'll let that answer.
Just on timing, not on feasibility.
I said development phase, not R&D phase.
Yeah.
The research part is done.
Okay.
In IVD, you never know when, how.
No, of course.
I'm not saying I was forced to communicate, but since people communicate on our behalf, it's good that we endorse the fact that we are developing a test.
Okay, good. Thank you.
Coming to EBIT for H1 and your question on adjustments. I won't do the whole calculation, but I'll give you the elements. FX, as we mentioned, has only a minor impact, actually, a positive EUR 1 million on EBIT compared to 2019 as compared to 2018. Actually pretty small. Again, just for everyone, it's pretty significant on the top line, FX with +EUR 29 million. As you all remember, we have a strong U.S. dollar on sale, but also a strong U.S. dollar cost base. That's why it's much lower or smaller impact on the EBIT than on the top line. FX, only EUR 1 million difference. Acquisitions, they actually have around EUR 10 million negative impact when you add the additional quarter of Astute that we had this year and not last year. Invisible Sentinel contribution and IDM contribution.
It's about EUR 10 million negative in terms of EBIT. That's to be taken into account in your calculation. PSOP, I think we gave you, of course, minus EUR 10 last year, moving to minus EUR 26 in terms of provision this year. We believe that when you do that, you should also take into account other one-offs. I mentioned the positive ones that we had in H1 this year with the freed of the U.S. pensions for EUR 11 million and the litigation win French social charges for plus EUR 6. Actually, if you look at one year compared to the other, the PSOP with these two effects kind of neutralize. I hope with all this that you can have your own view on our margin % trend.
Right. Can you just confirm, was there any one-off last year in 2018, which wasn't put in the press release or something? You have been kindly giving us the impact from phantom shares. The FX was a EUR 31 million negative, impact from acquisition was minus EUR 4 million. If you adjust the reported EBIT for all those impacts, what I see is a slowdown in EBIT margins if I adjust in H19 as well. I was just wondering, what is the driver behind that?
I'm surprised that you see a decrease, but no, except the PSOP, I don't think that we had any significant major one-offs to mention last year in H1.
Okay. Great. Thanks.
We will take our next question from Delphine Leloup of Société Générale . Please go ahead. Your line is open.
Thank you very much. Can we get more color on the BioFire and FilmArray performance in the U.S., as well as ex-U.S., meaning what are the countries driving the growth? What sort of path of growth do you see there? Is it comparable to the one seen in the U.S.? More specifically for the U.S., can we get more color regarding the usage in terms of panels, the reordering per client? On average, how many FilmArray do we have right now on a client base? What is the commercial ramp-up that you're seeing now that you have a far more deeper experience with the FilmArray, both in terms of install base and as well as client terms? Could you share with us more granularity on this performance? Thank you.
Big question. Basically, the dynamic is good. It's still good. I think that the U.S. are doing very well, and I would say outside of the U.S., we are doing even better. Of course, competition is coming, so we have to see. We see after that. So far, we believe we are ahead because of the panel, because of the evolution of the platform. No, I think that the ratios are good. When you look at the number, the consumption of panels per instrument, the variety that the customers are not using one system for one panel, I think everything goes for me in the right direction. Differences are, we know that maybe in Europe, now we have to invest to do a different type of promotion also because the markets are different.
We have to work with biologists, we also work with the physicians and also with the pharmacies. It takes more time in term of education. I would say the recognition of the value of FilmArray is stronger. We have good successes in Latin America or even in countries where we don't have a reimbursement. This is why we do this pretty cool on marketing investment. I think for me, it's a nice growth story. We are growing at 20% 5 years after the acquisition, 8 years after the launch of FilmArray. I only have good things to say about this in terms of volume.
Okay. You can't, Alexandre, be more specific. I try to understand the evolution of the mix in the future and to get a sense for that. Of course, it's a beautiful story. No one has, and I'm not sure you were also thinking about that when you acquire BioFire, but it has been a wonderful path so far. Yes, for sure. The breakdown between the GI, between the new pneumo-
No, we don't give the breakdown.
I know, even a flavor of that.
Our number 1, the others are growing nicely. We just said that so far, pneumonia has a slow start, but we still believe that pneumonia in the course of time will be in the top 3 blockbusters. I also mentioned that the growth of FilmArray overall is well distributed between the 4 major panels. RP, GI, meningitis, and blood culture, they are close to each other in terms of growth rate. That's what I meant. They all fuel strongly the growth, even though, of course, they are not the same weight in terms of million EUR or million EUR, but they all grow strongly. Okay.
As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Our next question comes from Scott Bardo of Berenberg. Please go ahead. Your line is open.
Thanks very much for taking my questions. Apologies if I missed the explanation for this, obviously we've seen some slight deceleration in microbiology growth and somewhat lower growth in industrial applications, consistently weak immunoassay performance for the first half of the year. Of course, your guidance implies material acceleration in the second half of the year, even to reach the lower end of guidance. Could you please explain to me actually, of those businesses outside of BioFire, why we start to see, if you like, your base business pick up more meaningfully throughout the course of the year? That'll be helpful to understand some of the moving elements there a bit better, please. Also, just to understand your reiterated contributive EBIT guidance of EUR 385-EUR 400.
Were you aware of the likelihood of this EUR 70 million settlement at the time of setting that guidance? I see you've reiterated that guidance today, so is that including this benefit that you see in the first half now? If you could clarify that would be helpful. Last question really. I'd just like to understand a little bit better, and I appreciate you don't give an awful lot of clarity with respect to the makeup of BioFire. Perhaps you can give us some sense of, given your considerable investments in this area, where are you with respect to consumable automation? What sort of benchmarking metrics are you having for bringing down cost of goods for cartridges, for example? Perhaps you can share some feelings there, with respect to return on your investment.
Also perhaps a sense of what percentage of placements are going into reagent rental and what percentage you're selling, that would be helpful. Thank you.
Okay. Many questions. Maybe I take the one on BioFire automation. We are doing investments in BioFire, I would say in every space. We announced that also that we are with Antacia, we said that we are investing in an additional site for manufacturing. This one is mainly linked to capacity and of course, when we invest for capacity, it's an innovative platform, but we're also working on bringing more automation on the production lines. We won't communicate on the cost of goods. I would say everything we do, when you have more volume, you can bring automation. That's what we are aiming for. I would say that the main driver was to answer the capacity and the strong demand. I come back to your first question. If I understood well, your first question was to have more color on the H2 expected acceleration of growth.
Again, of course, in H1, Q1 was having the base effect of the flu season. If we think about acceleration, maybe we should look more at the Q2, 7.4%. Actually the step compared to that recent trend is not that high. Again, in terms of elements, Alexandre mentioned that instruments was pretty slow and even lower in H1, is expected to pick up. There's also kind of a seasonality sometimes of customers on equipment that tend to be sold and installed, for revenue recognition, in H2. Instruments is one reason. The other one that we mentioned is these one-off or non-recurring effects actually, that we've experienced several actually in Middle East Africa, where we had, in some areas, some credit issues, other areas, some customs logistics issues.
Some of these are already solved or will be solved and are expected of course, to accelerate and even catch up on these countries in H2. Of course, as Alexandre mentioned, there's an overall trend of a good recurring growth of our reagents in the different areas, that is expected to pursue. These are the main macro elements on H2 acceleration that we can give. Your second question was on the ROC guidance and the elements of one-offs. Any litigation we had, of course we did not know when we closed the accounts, because if we had known, we would have taken this into our accounts. We did not know. We were hoping to win, you can never know with the litigation. That was, of course, a post-closing event. Of course, that was a positive event.
On the other side, we were not expecting to have, and we had said that we were expecting, I think, a 10%-15% increase in the share price, and hence we had included in our guidance the corresponding effect on the phantom shares. The reality was a very strong pickup in the share price in H1, which of course, went way above our expectation on the phantom shares provision. Again, positive, negative as compared to the guidance given very early March.
Okay, understood. Thank you. Sorry, just to understand a little bit better. bioMérieux's financial guidance and prudence around the financial guidance has always been appreciated historically. Even to get to the lower end of the range, you need to see acceleration in the second half. Would you say that the full range of your top-line guidance is still in play, or is it prudent and cautious to assume more the lower end, given some of the impacts that you mentioned already this year? Can you give us some sense there?
We communicate on the full range.
Understood. Maybe just a technical question, please. I see that you had some obviously pretty favorable and helpful growth in Latin America, which supported your North American segment. Can you give us a feeling for how much the devaluation of the Argentine peso contributed to that growth? Obviously, there's been some enormous currency volatility in Latin America. Maybe a sense of what your volume growth was would be helpful. Thank you.
Those are two elements to answer. First, you should remember that last year, actually, we had a very negative effect in Brazil. Especially we had two effects in H1 last year. We actually started SAP end of January in Brazil, and we decided not to invoice actually before the start. We had the first quarter of Brazil that was very low. On top, there was a transport strike all over the country in Q2 of 2018. Imagine if you understand that the base of 2018 for Brazil, which is a big part of Latin America, a significant part, was very low. First you have to keep that in mind. Whereas, of course, in 2019, everything was, let's say, running normally and with normal business activity. There's a base effect there. Then on Argentina, you are very right, that's also a very key element.
Actually, the local team was able to pretty quickly react to the devaluation with a very strong price increase to actually follow our own cost, which is EUR and dollar cost. Roughly 30%, it's a rough figure, but 30% price increase in Argentina after the devaluation this year. Actually, that I'm talking about the August devaluation, but we did the same, unfortunately, with the August devaluation of 2018 as well. You more or less have this element in the Argentinian part.
Got it. Thank you. I know I've taken up your time, but one bigger picture question. Alexandre, you're clearly comfortable and happy to continue to invest in innovation. After all, that's been a major driver for your share gains, in the past as a company. You've outlined some pipeline you're working on today. One of your more recent launches, pneumonia, for which you're pretty optimistic as a company, you can drive meaningful opportunity. Can you talk perhaps a little bit about why you're so confident this will materially contribute to the company? Any feelings for what timing or any signals that we can be confident this is working well? Perhaps a little bit on reimbursement. Are you managing to get good reimbursement here or premium prices or so? Can you talk a little bit about this?
I'm confident that pneumonia, because it's a real innovation, because it brings medical value. It was a very sophisticated test to develop, because for the first, you work with different type of sample, sputum, BAL also. It was deep I would say. I would say also that we added a resistance marker. For me, we believe in it a lot because we believe it has an impact on the medical practice. On like every new innovative approach, I believe it might take some time, but the benefits are there. As you know, we're not running the company on a yearly or quarterly basis. For me, for the mid-long term, I think this one is a key differentiated test.
Okay. Thank you very much indeed.
Yeah.
We will take our next question from Christophe Gahan of Oddo. Please go ahead. Your line is open.
Hello, good afternoon. Actually I have three questions and one clarifying the EB guidance. Just to make sure, as I understand, you were not aware about the phantom effect and were not aware about the one-off positive effects, notably from litigation and so on. This is why you do maintain your guidance, right? Why those exceptional elements are in the ROC actually, in the ROC contributive?
Yes, I think you understand well. We are not aware about the phantom share effect that went beyond what we had expected, negative. We are not aware about the litigation win in France that was a positive to offset. The only thing I can mention is that we were aware, of course, because we decided on the U.S. pension plan effect, when we freeze the U.S. pension plan, that it would have a significant effect. That was already included. I guess, that's it.
In the guidance, you have this retirement plan in the U.S. included, right?
Yes.
Okay. Second thing, related to the marketing expenses. How long actually should we see new sales force and recruitment for BioFire outside U.S.?
I think there are some countries, one country we are still not promoting FilmArray. One thing I think it will increase, it will be for FilmArray, but it will be also, I would say, for the global medical value selling of bioMérieux. FilmArray is a key component of this, of course, but maybe I would say FilmArray, maybe the enabler for bioMérieux to go more into a medical solution setting.
All right.
I'm not sure this is so important, David.
Okay.
Okay.
We should not see necessarily the impact of BioFire in the fact that there is a significant increase in the marketing expenditure on H1.
It's BioFire, it's selling high medical value, with turning our sales effort, not only to the lab but also to the physicians.
All right. Progressively.
We keep on investing in BioFire, as long as we keep up, we are still only 17% outside of the U.S., and some panels are quite new, no, it will require more effort. I would say every money investment we do for BioFire is good news for bioMérieux.
Okay, understood. Last thing, would you be able to share with us the impact of the investments, in terms of manufacturing capacities in Salt Lake, and the impact we should see in the next years in terms of gross margin for the FilmArray contribution? How much should we see more in terms of improvements, given this mix effect, and how much have you already reached in terms of your plans for improving the gross margin of FilmArray?
I will give you some elements, but not very detailed figures. Sorry for that. In terms of investment, we have explained that we're actually building a full new manufacturing plant for BioFire in Salt Lake City, on top of the existing. It's actually a full addition of capacity. I think given the growth rate that you see, that we've seen for the last five, six years, and that we expect to pursue, it's normal that we invest quite massively in a new capacity in advance. That's a significant part of our investment, and it will continue. In terms of cost and gross margin, that we don't disclose by product or by product line. We've said, I think every semester that as BioFire has a higher than bioMérieux average gross margin, the higher gross of BioFire has a positive effect on the overall group gross margin.
Alexandre also mentioned that, let's say, of course, with the volume and the work we are doing in terms of manufacturing, hopefully at some point, more and more automation, we would, of course, have some positive effects on cost of goods sold.
Okay. Thank you.
Do you want to take the last question?
We don't have any more questions from the call. We have a question from the webcast. Could you confirm that the impact of phantom shares will fade from 2020 onwards?
Yes, a very good question as well. Actually, I didn't have the opportunity to mention, and it's important that we paid a first tranche of the phantom shares in July. It's a four-year scheme, actually, the first tranche was in 2015. The first payment was July 2019. The effect of that, of paying, is actually that our volatility or impact on the EBIT will start to reduce. Actually, for H2, for example, I can mention to everyone that the EUR 1 change in the share price has a EUR 1 million impact on the EBIT, one way or another, of course. Going beyond that, we will see, of course, the phantom shares impact fade. We have another payment in 2020 and another in 2021.
Thank you, Guillaume. The second question from the webcast is that we are investing in immunoassays, IGRA, [Matthew,] tuberculosis, and are we comfortable that VIDAS is a good platform to support the different projects?
Yes. For the thing you must say, I would differentiate IgY from VIDAS, because IgY there is a clear type of platform, so [audio distortion] essence, aiming first mainly at China market. It's a different approach. On the old VIDAS, I would say is still a good platform to develop high medical value test. It's also still a good platform to go into emerging, fast-developing countries, where the size of laboratories are small to medium.
Thank you, Alexandre.
Thank you to all of you. Next touchpoint with you will be for the Q3 results, sales results. This will be disclosed on October 22nd this year. Thank you very much, and looking forward to discussing the results with you and to talking with you.
Thank you.
Thank you.
This will conclude today's conference call. Thank you for your participation. You may now disconnect.