Earnings Call: Q4 2018

Mar 5, 2019

Good day, and welcome to the Eurofins Scientific 2018 Annual Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Gilles Martin, Chief Executive Officer. Please go ahead, sir. Thank you very much. Good day, everybody, and thank you for joining our 2018 conference call. I will give a short introduction, and Laurent Le Bras, our CFO, will add a couple of words on finance. We will keep that short to leave enough time for questions. 2018 is our third year of our five-year program to build a global infrastructure and to build a leading laboratory group in our key markets, which are food testing, environmental testing, and testing for the pharma industry. In 2018, we have made massive progress towards this objective. Actually, we grew much faster than we expected due to the opportunity to buy some leading companies that we did not expect would be for sale. Among others, we bought the food testing activities of LabCorp, which had inherited them from buying Covance, after they decided that they would not be able to basically build a global leader in that market. And we were actually winning a lot of clients from that company, as we saw in the rest of 2018. Also, we were able to buy TestAmerica, the leading environmental testing laboratory group in North America. Also, in 2018, we expanded a different business line. I assume you have access to our slideshow, which is online. I am looking at page 8 of our slideshow. We expanded our leadership in Europe in genomic services, including a lot of next-generation genomic testing and genetic sequencing. We expanded our leadership position in agroscience testing. We also added activities to help seed companies register new seeds. We expanded our leadership in discovery pharmacology. We built a number one global position in cosmetics testing. We have not talked a lot about cosmetic testing over the years, but cosmetics also can have an impact on health. Anything we put on our skin, of course, can end up in our body or part of it. And we had been in that activity for a while, but we added a few more companies, and especially one in North America, which made us a global leader. We have done a lot to build the group. And the reason we are doing that, we can find them on page 9 again. We think we are in extremely attractive markets, which have strong potential for secular growth due to a desire to live healthy and be protected from risk due to innovation. For example, biopharma product testing, antibodies, vaccines, et cetera, have much more biological risk than small molecules used traditionally in pharma. Therefore, the testing requirements are much higher for registration than they can be for traditional pharmaceutical products. Innovation is adding to the growth of our market, as well as outsourcing of our clients' internal laboratories. That happened in Japan last year with Astellas outsourcing their internal laboratory to us. We are in extremely good markets. If I move to slide 10, in those markets, scale matters. If we are big in those markets and if we then build a structure that makes us very efficient, then that creates lasting high barrier to entry and very high profitability, as we can see in many of the markets where we have done that already. In 2018, we've just been continuing that program. In fact, we were a little bit faster than expected in terms of deploying our laboratory network. Some of the buildings we're working on were moving faster towards completion. We will be on plan by 2020 to finish our network, which includes very large central laboratories, the hubs of our model, and many startups, which are local laboratories where required, where we need to do the testing close to our clients for the simple test. Then those local laboratories collect samples, carry out the simple test locally, and send the complex and rare test to our large platform. We made massive progress to do that, both by building the platforms and sometime also spending money to consolidate redundant facilities. We did a lot of that in the U.K., for example, so that we only have as many sites as we need and no more than exactly what we need. This is a program that we should finalize throughout our network by 2020 as planned. On page 12, you can see the change of the company. We achieved a lot in the last six years. We were only a EUR 1 billion company in 2012, present in 34 countries. At the end of last year, we were present in 47 countries with pro forma, more than EUR 4.2 billion revenues and basically multiplying by four many more global leadership positions. We've been moving very fast, both in terms of acquisitions and internal investment, to really take advantage of the potential of our market and it's a bit of a land grab in a way. Because those positions, once we have them, it's going to be very difficult for anybody to reach in those markets, the economies of scale that we are generating. You can see some of that again on slide 16 that you have seen. On slide 16, you see that we have now reached a global leadership position in activities that represent 70% of our revenues. That is quite high, and we achieved that in record time. You will note that we are not number one in clinical diagnostics, and we don't want to be. Our interest in clinical diagnostics is more the esoteric, advanced clinical diagnostic testing, the new methods based on genetics, molecular testing, genomic testing. In some of those niches, we are doing quite well. We have, for example, the best non-invasive prenatal testing portfolio that there is. Unfortunately, the reimbursement of those tests is very slow. France is just going to start reimbursement this year for non-invasive prenatal testing. Germany is planning to do it in 2020. It hasn't been as fast as we hoped, but it's still on the horizon, and we see also in our portfolio quite some opportunities for very interesting things that could get reimbursement this year or as of next year. However, we had a disappointment in clinical diagnostics in 2018, especially unexpectedly in the last quarter with the French single payer, the Caisse Nationale d'Assurance Maladie, which cut massively reimbursement in the last part of Q4 to stay within its national spending. They overestimated volume growth, so they overcut, in a way. Therefore the reimbursement in France dropped 1%, while the year before they grew 1%, and in 2019 they have a planned growth of 1.4%. That was all concentrated in Q4, which gave us unfortunately a hit. This combined with our company, Boston Heart Diagnostics in North America, which is facing very strong reimbursement headwinds for a variety of reasons that I can comment later if necessary. So those two things had an impact on our Q4 organic growth and annual organic growth. It's about EUR 16 million revenues that we are missing towards our 5% objective. We believe that impact to be largely one-off. The rest of our activities have an organic growth of more than 6%, so everything is very dynamic and the outlook is quite good. I will give the microphone to Laurent. We comment on slide 21 with our results for 2018 financial terms. Good afternoon, everybody. Yes, we had a very solid 2018 result, like Gilles mentioned on our top-line growth, but also on profitability. Before going into the details, I would like to mention that it was a strong year of investment for us with EUR 1.2 billion spent on acquisition, EUR 360 million spent on CapEx, and EUR 68 million on SDIs, due mostly to startup costs and restructuring costs. It is to be noted that our operating cash flow was quite strong at EUR 540 million, a +34% evolution versus prior year, which enabled us to self-finance our CapEx and SDI and still leave EUR 120 million of free cash flow to equity after service of the debt. In term of profitability, our EBITDA recorded a growth of +27%, in line with our growth of revenue. Our adjusted EBITDA posted an improvement of 30 basis points at EUR 720 million. It is to be noted that these two improvements were despite the dilution caused by our startups or the clinical impact that Gilles mentioned. If I focus a bit more on the mature scope, which now represents about 93% of the revenues of the group, we can see that the profitability adjusted EBITDA of this scope was 20.5%, in line with the profitability last year. But when we break it down by sub-scope, that is to say for the companies which were present in that scope before 2017, we note a significant improvement because this scope posts a 21.2% profitability, an improvement of 50 basis points year on year. Whereas the acquisition from 2017 posted an adjusted EBITDA of 19.5%, which is still dilutive compared to the total profitability of the mature scope, but which is a serious improvement of 160 basis points versus last year, mostly due to the accretion brought by EAG. When we talk about 2018 acquisitions, they were still dilutive as a whole, as they posted a profitability of 16.5%. If you focus a bit on our leverage, our leverage at the end of the year was 3.38 on a pro forma basis, which is below our 3.5 self-imposed limit. We have communicated clearly on strong objectives to deleverage in the coming year, starting in 2019. We are posting an objective of generating EUR 350 million of free cash flow for 2019, which is going to come thanks to self-imposed envelopes of EUR 300 million each on M&A and CapEx for 2019 but also for 2020. Overall, this was a strong year in line with our objectives and our effort to build a unique platform. Okay. This is a short introduction on everything that happened last year. In the slideshow, we added slide on other aspects regarding governance, et cetera. We took comments from investors. We had quite a few questions in the last few months following a lot of short-selling activity. We also did our best in 2018 to disclose as much as possible and take into account our investors' suggestions on all governance aspects. If you read our annual report and the slideshow in addition to the press release, you'll see a lot of improvement there. This is not for us to talk. You've had a lot to read, so I'd like to now turn the microphone over to you for question and answers. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take the first question from Will Kirkness from Jefferies. Please go ahead. Thanks. Hi there. I've got three questions, if that's all right. Firstly, just on that French diagnostics cut, you said it came in the back end of the fourth quarter. Thinking about the guidance around organic growth, will that not be an impact for the remaining, well, I guess three quarters at least of this year until it annualizes out? Second question, perhaps for Laurent Lebras around the free cash flow, the guidance. If I look at the EBITDA going up that 130, CapEx coming down about 60, maybe the separately disclosed is coming down as well. So I get to a free cash flow number more than the guidance for 2019. I just wonder whether there's something going against you the other way, perhaps around working capital. My last question is on the margin guidance. It looks like you're effectively guiding for EBITDA margin is 18.9%, which is down year-on-year. I just wonder if you could talk about the moving parts into fiscal 2019. I know sometimes you're using round numbers here, so maybe I'm being too precise on the guidance. Can you just split out maybe the underlying, versus the M&A impact from a margin perspective? That'd be great, thanks. Yes, the French clinical diagnostic, it's a single-payer market, and there are normally two revisions, one in April and sometime one at the end of the year. It's based on a negotiation between all market participants and the state, and the state health insurance. It's really exactly hard to predict on a quarter-by-quarter basis. But yes, there is a small impact of last year's cut, although the cut of Q4 was a one-off cut. So we are starting this year with the results of the prices set in April of 2018, if I understand correctly. There will be another adjustment in April, I think, of 2019, and they try to adjust at the end of the year to stay within their budget, which, as I understand, they are planning for a growth of the total spend by 1.4% in 2019. That's of course based on volume growth adjustments, because the state sets a budget, and they don't exactly know the volume ahead of time, so they try to adjust. Then they'll do another agreement for three years with the suppliers for the next three-year periods, presumably by the end of 2019. The good news in France is there will be reimbursements of non-invasive prenatal testing for at-risk patients in 2019. On the free cash flow, yes, I will let Laurent Lebras answer. On the margin, we do have, of course, a pro forma effect because the acquisitions of 2018, especially TestAmerica, have lower profitability. Laurent? Yeah, on the free cash flow, we did not factor any adverse effect. You are right that we have an increase in our EBITDA and reduction in our CapEx. The rest is mostly the variation of the net working capital due to the growth of the group, but we intend to keep it under 5%, as usual. We do not have any other element in that guidance or objective. Okay. Thanks. Thanks very much. On the margin objective for 2019, which seems a bit too low, it is mostly the effect of a rounded figure. We try to give rounded figures objectives. Also, we have to take into account that the 2018 acquisitions were quite dilutive, so we should not underestimate the time it takes to put them back at the level of the profitability of the group, especially for TestAmerica, which we acquired only at the last month of last year, so it does not show up so much in the accounts of 2018, but will show fully in 2019. Okay, that is clear. Thanks. We will now take the next question from Tom Burlton from Berenberg. Please go ahead. Hi. Yeah, thank you. I've got a couple of questions, if that's okay. The first, I'll just follow on from Will's question regarding the free cash flow. The target you've given of EUR 350 million today is very helpful, I think particularly combined with the CapEx guidance you've given. I appreciate it may be a bit early for this, but looking out into 2020, obviously CapEx as a percentage of sales will be falling further, profitability should be improving. Do you have a sense for what sort of free cash flow range you'd be hoping for in 2020? If not, then when you'd be prepared to give guidance on that? I'll go with that one first, and I'll come back for the second, if that's okay. Yeah, we haven't given a detailed guidance for 2020. We prefer to do that early 2020 when we know exactly what we have acquired, if anything, in 2019, and what's likely to happen in 2020. But obviously, if our EBITDA increases as planned and our CapEx as percent of revenue would fall then close to 6%, that should have a positive impact on free cash flow in 2020, obviously. But frankly, all those results by 2020 stayed pretty bad compared to what our labs are really earning. There's still a huge dilution effect from all the things we are working. We have so many, we have hundreds of programs all over the group to open labs, to develop new IT solutions, to deploy them. When we deploy an IT solution like we do in biopharma at the moment, the productivity for the first 3 to 6 months is much lower than with the previous older system. We get the benefits of a new IT solution in typically 12 months after deployment. All those things, we've got lots and lots of things which are hurting our profitability and cash flow at the moment. I run the group for really long-term benefits. We'll see it trickling little by little, but beyond 2020, I think we should continue to see significant improvements. Okay, perfect. Thank you. Just two more. The first one actually links to the comment you just made around the long-term view. I just wonder if you can clarify the comment in the statement around no plans to issue equity in the short term. Clearly, you obviously have a much longer-term horizon than the market, and it seems, if I'm reading it correctly, that you are self-funded for your 2020 objectives. Can you just confirm that is the case, and we shouldn't be expecting any equity issuance during that period, at least? Well, it makes no sense to issue equity, especially at the current share price. If we look at the value of our assets, we could sell any assets. We have plenty of independent assets that we could sell. It would really make no financial sense whatsoever to issue equity at the current value. We don't need it. We are well-funded. Our spending is discretionary, so there's no need to do that. We have ensured the liquidity with lines of credit, et cetera, that we are well sorted out in terms of debt. Of course, all the time, we review the different sources of funding and instruments. That's why last year we issued a Schuldschein at a record low interest rate. We're also using this commercial paper, things to reduce our cost of funding. We're not a very sophisticated company, but we're getting better at managing our funding sources and managing the cost of our funding and optimizing our balance sheet. We still had too much cash on average last year. Now that we have really clarified the commitment to strictly limit M&A and limit CapEx, our treasurer will be even better able to optimize our cash balances. So we're trying to improve on those matters. In many matters, we're trying to grow into the company size that we have now. Okay, perfect. Thank you. Just the last one, which links into a comment you just made then, actually, regarding the future of the clinical diagnostics business or bits of that business. There were comments on Bloomberg or headlines mentioning that you may consider asset disposals. Under what circumstances would you consider disposals of parts of that clinical diagnostics business? It seems to be the one weak spot across your divisions, and selling it would seem to me would get rid of some of the issues, such as the dilution to organic growth, and it would completely redress the balance sheet in a more positive favor, I guess. Just looking at the headline numbers, French clinical diagnostics, correct me if I am wrong, is probably a EUR 400 million revenue business, and if you were to sell that at 2x sales, you could conceivably raise in the order of EUR 800 million, which I would have thought you could perhaps deploy at higher rates of return elsewhere. But maybe I am way out with those numbers. What would make you consider disposing of parts of that business, at least? Thank you very much. Well, that is a good observation. We have a number of assets which have high value. If I look at our genomics business, EUR 100 million revenues, and there is one company called IDT that was sold to Danaher last year for something like 10x revenues, which is very comparable to what we do. In France, we have clinical diagnostic testing. We have specialty testing, which we like and where we can bring innovation to the market. We also have some local routine testing, a couple hundred million plus of that. Those things go for 3x or 4x revenues when they are sold. So I am not saying we will sell assets. I do not know where this rumor on Bloomberg comes from. We have made no decision to sell anything. But this is something that indeed we mention in the press release as making us very comfortable with our current leverage, because we have plenty of assets that could be considered non-core and wouldn't prevent us from achieving our plans that have a high value and that we could sell if we wanted. But you do not build a group by buying and selling. Of course, that is what our shareholders do, and some of them would like us to do that. I am not saying we will never do that. We will consider things at any moment. But it is true. We do not issue shares. We do not intend to issue shares. So our share price is not of immediate concern for us. But on the other hand, we feel for our shareholders and the volatility and so on, and if the current leverage, which we are very comfortable with, is a cause for concern for some, we take that into account. If there are excesses, we will consider what is the right course of action. We have other peripheral assets which might be also highly valuable outside of clinical diagnostics we could look at. Buying and selling assets is not a thing that a company should normally do, but it is an option if we wanted to do that. I think your analysis on clinical diagnostics is correct. The routine part of it could be worth quite a few hundred millions and is really hitting us in terms of market perception. While there are plenty of options, we could also distribute to our shareholders that division, and there might be some people who like it and understand it very well and would want to own that, while others wouldn't. We have plenty of strategic options we could follow depending on how the market goes. Okay, perfect. Just one last quick one if I could, relating to the redemption of the hybrid 2020 instrument. Are you able to clarify exactly what you have access to in terms of bank facilities when you come to think about redeeming that hybrid instrument? Well, we have obviously enough. We're not publishing that because it varies, of course, month by month. We may get more lines, and we get extended lines and so on, so it will be really permanent disclosure. Obviously, we wouldn't have written that if we didn't have enough to carry out that. Now, of course, we will look at a number of options, and we could issue a new hybrid also. But what we wanted to say is we don't have to. Because there are so many strange rumors that are spread by some people who obviously have some interest of doing it. I even heard some people claiming that our cash on our balance sheet didn't exist, so all kinds of nonsense. Of course, our auditors are checking that and asking the banks for reconciliation when they audit our accounts. We had to dispel any worries about our funding, but we will, of course, review that type of funding when time's come, looking at all the options we should follow at that time. What we do, we favor long-term funding. Things that are long-term, so we can spread our obligations to reimburse over a long period is what we prefer to do. Perfect. Thank you very much. We will now take the next question from Edward Stanley from Morgan Stanley. Please go ahead. Yes. Thank you for taking my question. I have a couple as well, please. On the bank borrowing, it shows that you have increased bilateral credit lines by EUR 490 million at the year-end. I wonder what is behind that. Secondly, you seem to have opened 15 new labs, and yet in your CapEx bridge, it shows that the lab equipment CapEx looks like it has doubled year-on-year with only 15 new labs. There is probably something else going on with the existing labs. Thirdly, I am interested in Boston Heart because the growth has not been as good there as you might have expected. How much goodwill is there on that asset, and why would it not need an impairment if the growth is below what you might have expected? Thank you. I will answer on the last couple of questions, and I will let Laurent answer on the bank lines. We put CapEx not only in our new startups. We also added 64,000 sq m of additional labs. We have organic investments in our labs, in our large platforms, which are not only the startups. We do indeed gear up for growth in those labs. We do also invest in our IT infrastructure throughout our group. On Boston Heart, Boston Heart has unfortunately not performed as we expected. The company is small enough. It has suffered because it is focused on more prevention testing, which is not enjoying very good reimbursement. We are looking for synergies with the rest of our clinical activities in the U.S. Obviously, this is one business. We speak about it as an isolated business. It is part of our overall clinical activity in the U.S., and therefore, the goodwill is considered as a whole. That's what we can say with that. Overall, actually, if you look at the growth of our clinical business, excluding France and excluding Boston Heart, if you do the math, you will see we've had a good organic growth on the rest of that business. Some of our activities there are doing quite well. We are quite optimistic that some of our assays that we are working on or that we are working with other people in co-development will get reimbursements, which could also bring some good surprises. But let's wait and see. So far, we've had quite a disappointment with this Boston Heart investment. Others might make us more happy. Yeah, and coming back to your first question, the bank borrowings have increased indeed at the end of 2018 because the comparison versus 2017 is not very comparable. At the end of 2017, we raised fresh equity and a hybrid towards the end of the year. So we didn't need to draw so much on our credit lines. At the end of 2018, we drew a bit more on these credit lines, but it is to be noted that some of these amounts have been reimbursed already since the beginning of the year. Thank you. We had too much cash at the end of last year, I found out. I was not very pleased with our treasurer, actually, because we had We had EUR 500 million. We shouldn't have ended the year with EUR 500 million cash. Once again, if you would like to ask a question, please press star one. We will now take the next question from Saul Casadio from M&G. Please go ahead. Hello, hi. Thanks for taking my questions. I have a couple, maybe a little bit more if I can. I'll ask them one at a time, if that's okay. The first one is really easy. In terms of EBITDA, could you provide the EBITDA pro forma, taking into account the impact of acquisitions? Can you ask your other question, please? We will look exactly for the number in the meantime. Okay. The other question is on the hybrid. This has been touched on in previous questions. When you say that you are funded for a redemption, are you effectively committing to redeem the 7% coupon hybrid at the first call? Okay. I can answer this question. Of course, we do not commit to anything. We cannot give a free lunch to the hybrid investors. We will, of course, review that when the time comes. We are just saying that should we decide to do that, which most people would think is quite likely, we are funded to do it. It does not preclude us from issuing a hybrid or issuing a bond. What do you mean you are funded? Did you have lines in place, some sort of backstop line specifically negotiated for refinancing the hybrid? What do you mean exactly, you have financing in line? Well, we have made a number of objectives and hypotheses for the development of the business in 2019 and 2020. Based on those hypotheses and the spend and the cash flow generated and our existing bank lines and facilities, we would have the cash at that time to pay back. That is what it means. Okay, I understand. I can continue asking questions, if that is okay, if you want to take time for the first one. Sure, the first one, it is in the note 3.19 in our annual report. If you take our EBITDA of EUR 651 million, you have to add EUR 62 million. That would give you a pro forma EBITDA published of EUR 713 million. I understand that. That is pro forma for, let us say, non-recurring items, not pro forma for the full year impact of acquisitions. Yes. I just want to give you credit for the acquisitions. This is the full year pro forma. It is not adjusted. Okay. It will be adjusted at the end. So the 719 is actually pro forma with acquisitions. That is the 719 adjusted. 719. I will move to the next question, and then Laurent Le Bras will take the numbers and get back to you. Okay, fine. This is a question that I have asked in the past, but it is just to check if there is any update in the way management is thinking. Since the new plan is basically M&A, it is fully funded through the cash flow. What are your thoughts in terms of evolution of the capital structure? As I said, I have asked this question before, wondering whether there is any update on your thinking on this point. No, we do not plan to change anything. Definitely not to issue equity, as I mentioned earlier. Okay. On the EBITDA, to come back to your question. If you take the adjusted EBITDA, which we published in 2018, which is EUR 719, we can project that the adjusted EBITDA pro forma would be around EUR 785. 785. Okay. Thanks. That is helpful. On IFRS 16, sorry, I did not have a chance to go through the whole annual report. Have you published somewhere the adjustments that might be impact of IFRS 16? Yes, we did. We did it in the first section of the notes with regard to F18 methodologies. We have made an estimate, but you have to be careful, this is made on the situation at the end of 2018. Okay. The standard will come into application 1st of January this year, and we will have to re-estimate this based on the leases at the end of June and then at the end of December. If you look at this note, you will find an adjustment, which is the following, which is probably EUR 481 million of net debt in addition, and EUR 105 of EBITDA in addition as well. Okay. One last, if I can, otherwise I will go back in the queue, is just what you mentioned on your cash balance, that you think that EUR 500 million is too high, and clearly the strategy is to have M&A basically fully funded through cash flow. I would agree with that. What are your plans in terms of ending cash balance for 2019? I don't know. I guess we'd say maybe 5% of our revenues or something like that would be a reasonable amount. We always need a little bit here and there. It's not necessarily all in the holding. All right. Well, thank you. I think we'll take other questions so everybody can ask questions, and then maybe at the end, you can come back with more questions, if you don't mind. Okay. Sure. I'll take the next question from Maciej Szargolez from Goldman Sachs. Please go ahead. Yes, hello. Good morning. A few questions from my side. First question on just separately disclosed items. Just to clarify what's your, say, guidance there for 2019. As you have fewer startup costs, presumably the startup costs, separately disclosed items, will be lower in 2019, if you could confirm that. Secondly, also on the separately disclosed items on your page 22, just fairly large investments in IT, which I think was EUR 33 million last year, I think it's an internal IT. What was that exactly, and should we expect that to step down? Another question, which is a little bit of a follow-up to the cash management, but I'll actually bring it to the working capital. It seems that quite a few of the other, say, testing companies have been very successful in recent years in reducing working capital to sales. You've been clearly very much focused on growth, but how much room do you think that you have to reduce the working capital? Is that going to be a material focus for this year or not? Previously, you actually mentioned that working capital will be a bit of a net absorption for this year. Just lastly, still on the free cash flow generation. You mentioned that EUR 300 million is a self-imposed limit on CapEx. This will make your lowest CapEx to sales, I think, since 2011. How rigid is that limit on the CapEx specifically, not on M&A? Thank you very much. Thank you very much. On the SDIs, it's a little bit hard to plan because half of it is our start-up cost. Start-ups as they ramp, in the first year, we have not so much cost because we are incurring the build-out cost, but we have very little staff. Then we staff the lab to get the accreditations of all the tests we are offering. The peak year of spend is probably year 2. Then we start to generate revenue. Our objective is to break even in year 3. Year 4 is sometimes still dilutive to our 16% EBIT target. We usually hit our target of close to 20% EBITDA or 15% EBIT in year 4 or 5. So of all the start-ups we did in 2017 and 2018, they still will be ramping up in terms of cost. It's really hard to predict the ramp-up of revenues of the others. That's why we don't give a specific guidance for that. On realization, it also depends a bit on how fast we are rationalizing the sites that we acquired. We don't rationalize everything, obviously, but there is some duplication here and there, and those programs are not really exactly easy to plan on a quarter by quarter. To be conservative, we got the question today at the analyst meeting in Paris, and we said maybe the same order of magnitude that we had in 2018 could be a number for 2019. It's not a guidance. It's a best guess, not an objective. Okay. Working capital to sales, we think 5% is not bad. Others are higher. Others are better, but we are quite conservative. Others are also doing things like factoring and all kinds of practices that can reduce their working capital, which are expensive. I think 5% is a reasonable objective. We have a mix of activities, and TestAmerica was not as good as the rest of our group. Some of our 2018 acquisitions, it will take a couple of years. It takes a lot of work. Long term, yes. We're not focusing on it as much as we should. We're growing so fast that there are many low-hanging fruits that we haven't really addressed. Purchasing, we are making progress in rolling out a global purchasing platform, but we're still only halfway in Europe, so we have quite some things to do. On CapEx, again, the lab investment CapEx, we normally can time, because the time between order and delivery is max three to six months. Sometimes we are not exactly sure when certain large CapEx item will be delivered by one or two months. Buildings are slightly harder to time, whether they be delay or things will be done on time. But we think EUR 300 million is good. This clinical diagnostics business, for example, in France, has been a problem on growth, but it requires very little CapEx. We did quite a bit of CapEx last year to renew the equipment part, to get better terms with the different vendor. But that is behind us. Beyond that, we were not going to spend so much. So we think the EUR 300 million is achievable. If we had to cut, we could cut further, but that would not be a good thing, I think. Thank you. I am sorry, just to follow up on the IT spending, the EUR 33 million that you have- Yes That is EUR 30 million per annum. Is that expected to come to a completion in 2019/2020, and then we should assume zero after 2020? No. What is there is development of our new IT platforms. Indeed, for the core of our group, our biopharma product testing division, our food testing division, our environment testing division, we think those programs will tail off by 2020. There will be a remainder because there are always needs for new functionalities, but we believe this will be at a significantly lower level than the spend that we've incurred and we're still incurring since a couple of years. That's internal, right? That's internal, yeah. We have also some licenses that we buy, and whenever we can buy software, we buy it. We don't try to reinvent the wheel in our CRMs, our accounting systems, of course, we buy. But the systems to manage our laboratories, to manage our logistics, to make sure all our labs work together, the interpretation systems, the huge databases we develop and the genomics data management, all those things we have to develop ourselves because there's nothing that works for our scale. Thank you very much, Mathieu. Thank you. We will now take the next question from Mr. Christophe Jeanner from Oddo. Please go ahead. Hello, good afternoon. Christophe from Oddo. Actually, maybe three questions. One on M&A. When you say you will be more selective, can you be more precise? Should we understand that you will pay less in terms of multiples your acquisition? Should we understand that it will be less in total amount, so in total absolute value, or should we consider that you will be more focused on high profitability targets? That's the first question. The second question relates to diagnostics, and if I'm not wrong, you mentioned that you were about to get the reimbursement for your prenatal test, notably I understand, in France. So how much could we expect and how much does it represent in the U.S. just to compare things, and maybe it should compensate for the organic growth in your biological testing in France, medical testing. Third question, can you come back again on what you've said on the fourth quarter, notably on, again, France clinical testing activities? I don't really understand when you say that there won't be any remaining effects on 2019, because once you've got a sécurité sociale new tariff, it should be the same for the next year. So can you come back on this? Again, when you mix this growth plus lower pace of growth for TestAmerica, can you elaborate on what will be the initiative that helps you to bring the organic growth to this 5%? Thanks. Thank you. In M&A, when we say more selective, I think the main reason is we have done the acquisitions that they were to be done. There are very few large laboratories doing food testing or biopharma product testing in the world. Covance, the big one, EUR 150 million, but what is around? Maybe SGS does EUR 200 million of food testing, pure testing, Bureau Veritas, EUR 100 million, Intertek, EUR 50 million. There are very few players that do more than EUR 50 million in that activity. There is not so much around to buy. In biopharma product testing, there are a couple more players with assets of size. The scale effects are bigger actually in food and environmental testing. We do not need to buy every biopharma product testing asset that moves. When I say more selective, we would focus on assets that really bring a strong advantage. We have time to go in more countries. We do not have to build our footprint, and there are many countries where we are not yet market leader. We have time to become market leader in those countries. We can definitely take a pause of a couple of years to expand in some markets if we want to focus on getting the benefit of what we have. Doing all those acquisitions for two years, it was much more than we expected. EUR 700 million additional revenues in 2017, EUR 700 million in 2018. That will also keep our teams busy to deploy our IT systems, to move their IT systems on our infrastructure, to transfer their accounting teams to our centralized national accounting service center. It is not necessarily bad to take a bit of a pause there and do all that. It is not really a matter of whether we focus on more profitable or less profitable. It has to really fit and bring a strong benefit. The things that can be delayed, we can delay. In France, we have not really quantified the total market because the reimbursement at the moment is for at-risk patients only, not every mother. Germany is much more promising. In 2020, the reimbursement in Germany should be for all patients, so all pregnancies, and that will open a much bigger market. But it is meaningful. It is a few tens of million in total, so we will not be the only one, but obviously we think we are going to have a nice share. It also depends on the exact wording, which test will exactly be reimbursed because we have a whole range of tests in our portfolio. Some with a very broad genetic covering for a whole range of diseases, some just for trisomy 21. It will depend on the fine print. To your next question on the fourth quarter, the French. What happened in the fourth quarter was a one-off cut that lasted only for the last part of the fourth quarter. In addition, there is each year a tariff cut in April, and we had that every year and throughout the year, and the cut of April will continue. But the cut at the end of the year was a one-off, and then we go back in January to the April 2018 prices. There will be another revision in April. TestAmerica has lower profitability. It is quite dilutive in profitability. As you see, the acquisition from 2018 has a lower EBITDA than the rest of our group. But in terms of growth, actually last year, it grew at our average group growth. The market was dynamic in environmental testing last year in North America. Thank you. So maybe we- That concludes- Sorry. That concludes today's question and answer session. Mr. Martin, at this time, we return the conference back to you for any additional remarks. Right. Well, thank you very much to all of you for joining our conference call. Thank you to all of you who are shareholders. We empathize with you. There has been quite some volatility on our share over the last six months. There's nothing we can do to prevent the short-selling activity. We respect, of course, every opinion about what our share price should be. What we try to do is whenever we hear of information which is wrong or which is misleading or which is basically erroneous, we try to correct it. As you have seen also, we've done our best in our annual report and press release to provide additional disclosure, and we're listening to our investors' recommendation on those. I think the market outlook is very good. Things remain very exciting, and we think we will complete our five-year program as planned by 2020, and that we will enjoy a very strong barriers to entry in what we think is a very attractive market. The good thing about all the money we spent in all those acquisitions and the money we spent in building our labs, it has been spent now, so we have the facilities. We are not going to have to spend again that money, and therefore, long-term, that should also show in our cash flow. We will benefit for that for a long time. That is about it for today. We are welcoming questions and comments on a one-on-one. You are welcome to call our IR team. I am looking forward to meeting some of you tomorrow in London. Thank you very much, and have a good evening. Bye-bye. This concludes today's call. Thank you for your participation. You may now disconnect.