Earnings Call: H1 2020

Sep 17, 2020

Welcome to the 2020 Half Year Financial Results Webcast for Vierbach. Hosting the call today, Manuela Rodriguez, Head of Investor Relations for Vierbach and Sandri Brunel, Head of Corporate Communication. The presentation materials and additional financial tables are currently available on our website at the Investor Store section. A replay will be available after the call, and the forum for your questions will be open 15 minutes before the end of the presentation. You will be able to raise your question on the chat box, which will be below the presentation. And we ask you for the interest of time It is now my pleasure to turn the floor over Sebastien Liron, Chairman of the Executive Board of the Viberg Group and Habib Ramdani, Chief Financial Officer and Member of the Executive Board. Habib, you may begin. Thank you, Manuela. Good morning, good afternoon to all of you. I suggest we start, as usual, with a quick executive summary of the main elements of our publication for the 1st semester financials and then we will go into more details. So first of all, we have generated a very solid organic growth of 5% at the end of the 1st semester at constant rates. With no surprise, after a very high Q1, we had a weaker second quarter in the context of the COVID. But nevertheless, we've been able to grow at 5% with the growth as we will see later on that has been driven by our 5 geographic areas. In the U. S, we have a sales increase of 3% at constant rate with a higher Santina sales growing at 11% in the context of the price increase and a good performance of the product during that semester, whereas the other ranges are decreasing by close to 3%. They have been more affected by the COVID in the geographies. We had a strong increase of our EBIT adjusted during this semester, unusual, plus 22 €1,000,000 versus last year, which is a 30% growth year to year at constant exchange rate. And it's explained by several factors. The first one is a strong gross margin contribution of all of our region and a positive mix effect product and country mixed effect during this semester driven for example by Sentinel which is driving a high gross margin. We also had a positive short term impact of expense in the context of the COVID. We had on several nature of expenses strong reductions with travel ban, with postponement of activities. Some of it has been made voluntarily to be on the cautious side at the beginning of the crisis and some other we've been affected. And this is a case for instance on R and D expenses where we had to postpone or to stop some of our medical studies during the period. We also had a positive one off favorable accrual reversal on R and D tax credit for €1,700,000 which has a positive impact on this semester. Finally, on the ForEx impact, it's been a negative impact this year, unfavorable on sales by €8,000,000 unfavorable as well on EBITDA by €4,000,000 And we expect given the evolution of the Exane Trade to have an even more unfavorable effect on the remaining of the year on the 2nd semester, we expect overall €25,000,000 to €30,000,000 negative impact for the full year. So very briefly on the currency, we had some currency that appreciated versus the euro such as the yen or the USD during the period. But the majority of the other currency especially from our top 5 countries have depreciated versus the euro, which explain why we had such a negative impact on the 1st semester. If we continue to go down the profit and loss statement on the net profit. Similarly, we had a strong increase of our net profit moving from €28,000,000 last year to close to €50,000,000 this semester, obviously driven by the impact, the operational improvement and the reduction of expenses that I mentioned. But we also had a positive impact of the decrease of the net cost of financing linked to the evolution of some rates such as the LIBOR, but at the same time linked to the decrease of our debt. It's more because of the tax impact on the EBITDA, €4,800,000 We made the decision to stop the production and the commercialization some production difficulties and it was no longer worse pushing on that product. So we stopped entirely. And we recorded depreciation of some of the value that we still had on our balance sheet, including equipment as well as one patent. If we look at now the net debt evolution on this semester, as you know, we have usually a seasonality effect. We are either stable or we increased our net debt during the 1st part of the year. And we decreased it usually during the 2nd part of the year. So this year, as you can see, we had a decrease, a slight decrease of €20,000,000 versus end of December, which is slightly less at constant rate. It will be closer to €15,000,000 at constant scope. And it's explained by several elements. Obviously, the level of net cash flow that we've been able to generate, but at the same time, we had some positive impact linked to the COVID. We were able to benefit from postponements of some payments granted by governments such as social contribution in France, for instance, or some value added taxes that have been postponed in terms of payment to later on during the year. So this amount for approximately around €10,000,000 which had a positive impact on the net debt evolution. So when we put all that together, we continue to deleverage the company. Our net debt on EBITDA ratio is now at 1.9, so well below our bank covenant commitment of 4 point €25,000,000 And obviously, we will move I will come back to that to a negative net debt after the collection of the proceeds from the sale of Sentinel. I suggest we move now to some comments on the sales. So as I said, we have posted a 5 percent increase at constant rate on our sales, which is a 3% in real rates, given again the negative impact of the exchange rates. If we look at where this growth is coming from, comparing again the 1st semester 2019 and the 1st semester 2020, we see that out of the 28 €1,000,000 to €23,000,000 additional sales that we have generated, €10,000,000 is coming from Europe, which is having a very solid performance of 5.5%. We have some countries that are suffering and that have suffered during this 1st semester, even a strong reduction of sales. And those are the countries that have been the most hit by the COVID, including U. K. We are doing around minus 10% or Italy, minus 10% as well. But it has been more than compensated by extremely solid performance in other geographies such as Northern Europe, Eastern Europe as well. They have been less impacted by the COVID. Germany and France as well, especially on certain type of products, including pet food, which has performed very well during this semester in France and elsewhere. I've already commented on the U. S. And the remaining growth is coming from rest of the world. I suggest we move to the next slide where we see the details of Rest of the World, which is essentially the southern hemisphere for us. We are growing everywhere, Latin America with very solid 9% growth, which is a continuation of the very good performance from our teams from 2019 and going on in 2020, driven by solid performance in Brazil and in Chile as well as we will see later on. Africa, Middle East and Pacific have posted a growth around 5% to 7%. Those are geographies that have been less impacted by the COVID, where the lockdown was less severe as for other countries. And finally, the region where it has been more difficult, we are used to having growth in this region, which is the Asian region. And as you can see, we are growing very slightly or sort of stable comparing 2020 with 2019 at €75,400,000 But it also we had some contrasted performance if we go into more details in the countries. 1 country has suffered a lot, which is India. For us, it's top of our top five countries. The COVID situation has been quite difficult with a significant impact on the country's economical situation. So we had a decrease of our sales of around 5% in India. And at the same time, in other geographies, countries such as China, we had a good performance with a nice rebound after difficult 1st months of the year. We've been able to grow and Sebastien will comment on that later on. So the dynamic in some of our countries, Asia, is still very positive, but we've been more severely hit in India. If we look at now the performance by segment, we see first on companion animals. We had 3 segments that are growing either close to double digit or double digits. This is a parasiticide segment with again a good performance on products such as Santino in the U. S. Or Milpro elsewhere in the world. Specialties as well with Superlaura growing 13% during the period. Pet Food Activity continuing to have extremely strong growth at close to 27% during the period. We are reaching €30,000,000 for this semester only. 2 other segments have suffered a little bit more from the COVID situation, which is the other segment in antibiotics, dermatology, but still growing at 2% to 3%. And finally, the only hotspot is our biologicals segment, which is decreasing around €6,000,000 or less, which is a combination of the impact of the COVID and also the difficulties that we had in our worldwide production vaccine for dog and cat production facility in Caros in France, which suffer from rupture of some pipes. And we had to stop, as you know, the site for several weeks. Antiparasiticides, especially for the bovine species, which is a long cycle food producing animal in terms of production. The vaccines as well have done very well growing around 14% both in Europe as well as in Southern America. The aquaculture has had a solid performance of 4% growth during the period and more difficult especially driven by the situation in India, our nutritional and other segments have either been stable or slightly decreased sales breakdown by region and business. Nothing has substantially changed. We continue to have 60% of our activity on companion animals, 40 percent on food producing animals and a good portion of our sales around 1 third coming from emerging countries. A quick update on the Sentinel divestment and the accounting impact. So as you know, we have closed the deal as of 1st July 2020, which means that the financial impact on our financial accounts will appear during the 2nd part of the year. At the end of June, the only impact is in accordance with the IFRS 5, we have reclassified as asset held for sale. The asset that will be have been sold, which represents a total of 200 and $89,500,000 and this obviously has an impact on our balance sheet as we will see. The final consideration for the sale is around is at 410,000,000 dollars And as such, we expect a capital gain that will be booked in H2 2020 at around 84 $1,000,000 And this consideration for the sale, this positive cash impact for us obviously enabled us to reimburse or to stop the drawing on some of our credit line, especially the revolving credit facility. And we are as of early July, we are in a negative net debt position or positive cash position for the group linked to this sale. If we look at now the full profit and loss statement, I've already commented on the sales. We can see that the gross margin on material cost is evolving favorably for us with a ratio that is improving versus last year. A comment on the net expenses that are reducing, which is unusual, as I mentioned, 2nd part of the year and obviously next year. But this semester, we are moving from €224,000,000 of expenses to 2 €18,000,000 in expenses with we had an exchange rate impact there as well. I've already commented on the improvement of the operating profit and linked to the CZUR effect, good dynamic on the sales and the reduction of cost, again, unusual. So we've been able to post close to 18% EBITDA ratio to sales. We had non current expenses of €5,400,000 which is essentially the impairment of Canalage that has been recorded and posted in that line. The net financial expenses are stable from one period to the other, but we have 2 effects, a positive effect on the net cost of financing that is decreasing by €3,000,000 and a negative effect of the same magnitude linked to the CLP evolution, so there's a negative exchange rate effect of around €3,000,000 as well. Finally, a quick comment on the income tax expense. If we do the division, you'll see that the apparent tax rate is evolving moving from around 31% to around 24%. So it's a significant decrease and there are several elements which explain that. The main one being first the U. S. As you know, we have deferred tax assets in the U. S. That has not been recognized in our balance sheet, but are still there and we'll be able to use them to offset part or good portion of the capital gain from the Sentinel sales. But also last year, we had negative contribution, profit contribution from the U. S. With no tax impact. And this year, it's the other way around. We had a positive tax positive profit contribution from the U. S. And no tax impact because of the deferred tax losses that we had. So this had had a positive impact on our apparent income tax ratio. 2nd element, which explain a good part of the evolution is the change in tax regulation in India. India is contributing significantly to the profit of the group. It's part of the top five countries. It used to have a 35% around 35% income tax ratio and it has moved following the tax reform of last year to 25%. And obviously, this has a positive impact, which explain why our effective tax rate has decreased during the period. So the effective tax rate is around 28% for this semester and we expect it to remain at this order of magnitude for the coming semesters. So finally, a very positive evolution of our net result when we put all that together, again moving from around €30,000,000 to around €50,000,000 at the end of June 2020. So the improvement of our EBIT adjusted, as you can see on this graph, is coming generated by all region and many functions. So Europe, U. S. And the rest of the world are contributing favorably to the evolution. And at the same time, we see the impact on the cost reduction both at RDL and corporate level. From an R and D standpoint, we are affected by that. We would have preferred obviously to invest, but due to the COVID situation, we had some negative impact and we had to either stop or postpone some of our clinical So very briefly, good illustration of the different effect that I mentioned. If we do a zoom on the U. S. 19 and 20, moving from around €17,000,000 to €21,000,000 A good part of it is linked to the margin improvement, linked to the good performance of our sales, also the price increase on Santinette that had a favorable effect and a good absorption of our fixed cost in St. Louis. We see also the significant OpEx decrease for the U. S. In the context of the COVID linked to travel, meetings that have been postponed, advertising and promotional expenses that have been reduced as well during the periods. Between the two periods, we see a good growth, more than 20%. The operating cash flow is moving from €82,000,000 and reaching more than €100,000,000 at the end of this semester. And parallel to that, the net cash flow is also moving from growing 23%, moving from €61,000,000 to €75,000,000 If we look at now the evolution of the free cash flow, we see comparing 2019 2020, we see a very similar pattern, except that the net cash flow is obviously higher compared to last year. So we end the semester with a positive net free cash flow where it was close to 0 last year. A comment on the CapEx. We are expecting to have a higher level of CapEx investment for 2020. Unfortunately, in the context of the again of the COVID, we had to stop or to postpone similarly some of our initiatives project during the period. So we have spent a limited €12,500,000 amount during the period. The working capital requirements is consuming around €40,000,000 for the period. This is very usual, I may say. Every 1st semester, we have the same evolution. It was very similar last year as well. And it's due to the seasonality that I mentioned earlier and also the evolution of our inventory position in line with our sales that is growing. Two additional comments, we had this year positive impact linked to the postponement of some payments, social and tax contribution in the context of the COVID, which had a positive €10,000,000 impact. And on the negative side, we had a reduction of our factoring program during the period, which moved from around slightly more than €40,000,000 42,000,000 at the end of December that has been factored to around 35 €1,000,000 at the end of June. So obviously, this reduction has an impact on our working capital requirements. So if we do now the reconciliation of all of that with our balance sheet position in terms of net debt at the end of June, you see the first part of the graph, which is similar to what we've just seen. And all of that enabled us again to decrease by around €20,000,000 our net debt position during the period. And as of 30th June, again, with the proceed from the sale of Sentinel, we have collected $410,000,000 which enabled us as of early July to have a negative net debt position. But it was around €350,000,000 at the end of June. Balance sheet analysis. The only material impact comparing 2019 to 2020 is obviously the assets had for sale in the context of the divestment of Sentinel. So we have isolated 289,500,000 euros of assets that have disappeared from our balance sheet as of 1st July 2020 and have been classified as asset held for sale at the end of June. This also, obviously, explain the decrease of our fixed asset from €860,000,000 to €550,000,000 If we look at the balance sheet and the financial ratios very briefly, just hear your attention that the net debt on operating cash flow that continues to decrease significantly semester after semester. You remember that was one of our objectives to improve on the net on the operating cash flow and to decrease our net debt. So we continue to implement that, And this will change drastically again with the sale of Sentinel during the 2nd semester. Shareholding structure have not changed. It's still the same. The DICK family has close to 50% of shares and 63% of the voting rights. So no material changes there. And this is it for the 2020 half year results. I'm going to hand over to Sebastien, and I will let him clean before he's using the remote control. Thank you. Thank you, Habib. So good morning. Good morning to and good afternoon to all of you. Let's briefly discuss about, as usually, the strategic execution and the perspective. Among the main value of the Airbag, we always put choosing sustainability. And that is important to us because we really are in the mindset, in the DNA of building for the long term and building on strong foundation. We are prepared to make trade off when it is a short term gain versus a long term investment to really choose for the long term and the sustainability. So what we have done over the last 2 years in 2018 'nineteen, it was proving that we were capable of coming back. And we had, for 2 years, focused very much on organic growth, trying to beat the market and gain market share. We have proven to be able to do that. We have launched many new products. We have done product margin improvement, and we have tried to optimize our cost structure. And we have improved the profitability and reduced the debt quite nicely. Now looking ahead, we would like to not pause necessarily, but try to make a transition with some investment. First, we have decided to divest Sentinel. This is in order to diversify more our portfolio that was highly concentrated. We had, in fact, many products in one segment, in one country, the hardware market in the U. S. And so we thought that looking and I will comment that later, looking at the arrival of the combination and the dynamic of the segment, it was much better for us to divest the product and invest differently in coming years. So that will impact our profitability very significantly. On a pro form a basis, on a full year basis, we have more or less $55,000,000 impact. Why $55,000,000 You will see it is because it's more or less $70,000,000 product, we keep the manufacturing for Santander Spectrum. So we'll keep the value of the manufacturing for Merck. So that's one subject. The second subject is we realized that we need to make significant investment, both in manufacturing and some informatics systems. So we are prepared over the next 3 years to able invest in ERP, MES, LEMS. This is the definition below for the one who don't know it. But we are prepared to really invest in Informatic System because over the last 5 years, since 2015, we have not been able to do everything we would have liked to do. And so we think now it's a time to invest there. And last but not least, we have explained 2 years ago, 3 years ago that we wanted to geo extend and have a global coverage for our different product line, including pet food, including food producing animals. We have many geographical gaps that we would like to close. And that means entry, for instance, in the U. S. With food producing animal, launching pet food in the main market. We are still not in China, still not in the U. S, not in Brazil, not in Canada. And that, of course, in the 1st 2 years or 3 years, will mean significant investment because there will be a cost of entry. You don't go into this huge market without initially a cost of entry. So there would be significant investment in order to be able to just sometime later be able to run, as I put here. We believe we will then after 2, 3 years of investment, once we get the sales force, get the organization, get the initial market share, we'll be again able to focus on organic growth to gain market share. We will boost the U. S. Performance because once we will be installed, it will be much easier to grow. And we believe we'll be able to leverage the different commercial investment we will be making. During this time, over the coming 2 to 3 years, we will try to look at programmatic M and A. So not transformational M and A, but programmatic M and A. It means small company that we may be able to buy and digest. To be honest, they are not on the radar today, and there are not so many things available in Animal Health. So we should not expect something short term or transformational, but we will be searching very alert and prepared in case we can find nice opportunity. And as soon as we feel confident enough, we will set the timing for going back to 15% EBITDA. That was our ambition, our target before the divestment of Sentinel. But as I mentioned before, this will impact us on a pro form a basis of 3 points, so we need to adjust the timing. Just an update on September. So 3 major elements have affected us or impacted us in the 1st 9 months. The Sentinel divestment, so why it was done? I already explained it. It was to capture maximum financial value because we were expecting the trend of the product to go down. We have been communicated extensively on that. It was dilutive in terms of growth for us. Sartinel was slowing us down. And so we thought it would be in better hands with Merck, who could combine it with their hectopariticide product, and they could extract more value than us from this product. So it was a way to capture maximal financial value before the mega combination or the triple combination arrived. Zoetis launched their Simparica Trio, but many other combination will come over the next 2 to 3 years. So we thought that at 3, 4, 5 years horizon, it would have been very difficult for us to keep the product. So that was a financial reason. But strategically, it was also the ambition to diversify the product portfolio. We were highly focused, highly concentrated in the power city side, which in the U. S. Is the number one segment, but make it also the most competitive segment. And what we wanted with our size and our capabilities to diversify more and enter other segment that will be more accretive in term of growth. Then we, of course, have reduced the debt, but we will also gain flexibility in trying to acquire either a company or product line if we can find a nice opportunity. Last but not least is what I mentioned just before. We will enter the pet food market in the U. S, again, the veterinary pet food market. But that is a long term gain. It's not a short term sales. You see, when you sell a generic, you can capture 10%, 15%, 20% market share in 1 or 2 years. With pet food, you only get the puppies. So if you think that the puppies will renew in one way every 8% of the population every year because the dog will live 12 years, it takes a lot of time before you can have significant market share. And it's a long sell. It's a difficult sell. So that is not a short term impact to be expected. But once you get there and once you have established market share, you keep it normally. And same thing, we will have a food producing animal entry in the U. S, a very progressive one. Here again, it will not be a huge impact. It will be progressive and slow, but we have a plan to enter this market. So that was one of the main elements of this year. The second one was the COVID crisis, but we talked about it quite nicely before. We believe we have been very privileged to be in the industry we are because we know what the coronavirus is. We have vaccines against coronavirus, so it's not something strange to us. We have been able to put together a fast collective and adaptive answer. We have been able to preserve the team and to operate almost normally, except in the main site because at the worst time of the crisis, we had some case in the main manufacturing site. And of course, with the rules of contacts, we had to have some absenteeism and have to slow down the production speed and the quality control department. But beside that, we had, I believe, emerged from this first wave, at least, in good shape. What we have seen from the COVID is a strong, strong reduction of OpEx. And as operating expense has been really, really very low, very depressed. We don't have any merit for that. It was not something we drive. It's not something we pilot. In one part, maybe initially because we have been very cautious when we enter the crisis. But later on, we saw that because of no events, no travel, no seminars, no Congress, We had a huge reduction of OpEx, and that is, of course, responsible for around 1.5. Of OpEx on net revenue of EBITA, sorry, on net revenue. And so that is something to see as being a one off, and we should expect a rebound. Maybe not in H2, it's difficult to say, but at least next year and onwards. And then the COVID had some negative midterm or long term impact. On the food policy animal side, like the salmons, for instance, just I give this as an example, they are what we call long cycle production. A poultry or chicken, it's a very short cycle. So when you have a crisis, you can kill the animal and sell the meat. It's very quick. For salmon, it's 3 year cycle. So when you have a crisis like that, you normally keep the salmon in the water. And instead of selling them at 4 or 5 kilo, you will keep them until 6 or 7 kilo. And then during this time, we have many, many fishes. They get bigger and so they consume more antibiotics or more products. And so you have a positive effect. But then the year after, we realize that they are putting less salmon in the water. So already we know that for next year, we will have 20% less salmon in the water. This is a kind of small salmon that they put now. We see that there is 20% less smalt, and that will have a 2021 impact. And then we had, as we mentioned before, some delay in R and D program that will probably affect us also in 2021. The vaccine manufacturing disruption in back order, we would have really liked not to have it now in the middle of the COVID crisis, but that's what happened. So we had a cannibalization that was broken, and that has stopped the manufacturing for 2 months. And that is, of course, inducing a significant backorder that will have impact in Q3 and in the coming months because we are operating close to full capacity. So we will need many, many months before we can resolve them. So we should expect impact until 2021. This slide is more to be read than to be completely commented because we have a lot of information. Basically, the key point is that we have a very strong hands on management. We are very much involved in the operation to ensure our results orientation and to deliver on our commitment. We had a very, very nice EBITDA increase. But again, I explained that there is a 3 third if we make it simple. One part is coming from the sales growth and the product mix helped by Sentinel price increase. And the product mix of Sentinel, we have sold the most profitable version of the 2 with a price increase. The second one was what I just explained, no traveling, no event, no congress, no meeting, much less marketing expenses. And so a strong reduction of operating expense that has also helped for onethree of the profit increase, but all this is one off. And then the R and D delayed, which has also helped for almost onethree. And this also is one off. In terms of the main element of focus, we have well, I'll let you read it, but we have keep going on everything we have said, particularly an acceleration of the digital transformation. We see and I will comment it in the last slide that we see more sales online and home delivery and auto ship program. So we are trying to convert some of our web shops with this ability to do these things in certain countries in order to benefit from that. And we are keeping with really the initial strategy to deliver on what we said. And so among other things, we keep reviewing our competitivity from a manufacturing point of view, and we keep looking at all the sites to see if it makes sense in terms of manufacturing strategy to be where we are with the capacity we have. In terms of geography, 26 out of 34 geography have grown in the first half of the year. As Abi mentioned, the country that has been the most affected by the COVID pandemic has been the one who has suffered the most in terms of sales. So the U. K. Was down 10%, Italy was down 11%, India 5%. And so we saw that there was a direct correlation between the real strict rules of confinement and the impact on sales. Spain is not there because we had a good year. But if we were looking at Spain versus what it could have been without the COVID, it will be on the chart because we are close to flat, and we should have been much, much higher with the execution of the plan we're in Spain. So already, the country affected by COVID were clearly on the chart of the bottom performance. But we have been able to grow quite nicely in China, in Brazil. We have been entering the crisis later. So in the first half of the year, you don't see so much impact in Brazil. And in Northern Europe, Benelux, Scandinavia, Poland has been less impacted and we have been able to perform quite nicely. Here it's a bit of stocks because we talk about distributors. And in this part of the world, the distributors were purchasing also worried about supply issue. And so there is a bit of effect of that in this part of the geographies. In terms of product ranges, we are systematically presenting the 3 busters. And you see that the 3 busters, the commercial busters are keeping performing well. Pet food is growing close to 30% again. So it will deliver close to €60,000,000 this year. Dentals have suffered much more in the U. S. With COVID and the distribution, it's not it's a nice to have product, so the sales have been affected. And supranolarine is up 14%, which in the current first half of the year was quite a nice performance. And then several product launches were delayed because of COVID. I will come back to that when I will talk about China. In the U. S, so we have performed in fact 3% at concentrate, but mostly thanks to Sentinel. Sentinel was a focus for the first half. Of course, none of the commercial organization was aware of the divestment. So they were keeping performing as usual, and they were focusing on Sentinel until the moment of the divestment. And because of the COVID and the confinement and the closure of the vet clinic, we had on the rest of the line, a decline of 3%. We relaunched ISOTIQ, which has helped the rest of the range, by the way. And DENTAL, ZAN TIBUTIC, as I mentioned before, was were affected by the COVID. The sales of Santenet, it's important to note that despite trying to decline over the last 4 or 5 years, I've increased in the first half of twenty twenty, mostly probably also because of the confinement. What happened is when the confinement was the lockdown, so if the lockdown was declared, some website have also purchased products to stock because they were thinking to sell online for the people that were not going anymore to the vet clinic. And so we saw a little bit of different pattern of sales, but we had a very good year to be compared to last year, dollars 4,000,000 more, 11% growth. And also with a favorable product mix because we sold more of the flavor taps, which had a higher margin than the spectrum. And so next year, once we will not have any more of this close to $40,000,000 we will have an impact on a pro form a basis of $55,000,000 less and a decrease of 3 points on the EBITDA. But this year, because of what I just explained, very good sales in the first half, even more than the year before, we expect only 1 point decrease this year. So the impact has been really much limited this year. China, I mentioned before. So we explained that back in 'nineteen, we're planning to launch a pet food. The pet food was delayed due to the African swine fever and the fact that the pet food were containing pork meat. So that has slowed down a little bit our China growth plan. The 2nd launch, which has been postponed and delayed, has been Shuperetoin. We were planning to launch Shuperetoin at the very, very beginning of this year. And we have a really good plan. I don't give much more detail, but with a local partner. And we were planning a very aggressive launch. And because of the COVID, everything was stopped. And so the product is now being launched now, but we lost 6 months. And of course, with the COVID situation that has affected the clinic and everything, it has not become anymore the top priority that it was supposed to be back in January. So we are, of course, deceived, but that's something we'll keep working on and push stronger. But the boost effect we were expecting at the beginning of the year has not happened, has not materialized. And now it will be taking a bit more time before we manage to do from this product what we would like to do. Despite that, we still have grown 21%, so we should not totally complain. We had a 20% growth in China first half. And the digital part you see has grown 42% at the end of June. So we see that there is more and more importance of the digital in China, including for cell solitaire and our product. Chile. So in Chile, we had quite good growth, 7.6% at constant rate. It is a bit linked to what I just explained. The salmon were kept in the water. They are growing and they are using product and consuming product. The second reason why we have a good growth was the launch of a new product. We launched a more concentrated version of Veterin, which is the antibiotic. And that has many advantage. You have less stock, less product to carry on. You have less cost, so you can sell it a bit cheaper versus the other version, which was at 50%. And that makes that this product has replaced the other one with a better margin. And that has helped quite significantly in the first half of this year. But vaccines have suffered because, of course, vaccines you use when the salmon goes into the water, in the seawater, and you don't vaccinate them anymore later on. So the fact that they stay later or longer is not helping for the vaccines. We are continuing to invest in R and D. As we mentioned in a previous presentation, we have a primary focus is to manage to pass the registration of the vaccines in 2022. You know there is a new regulation that has been established 2 years ago, changing completely the rules of the registration of vaccines in Chile and asking for additional studies. And so we need it's not for us, it's for all the industry. And so to comply with any regulation, we are spending a lot of resources to conduct the studies to comply with the new regulation. So this is expected to be done by 2022 in order to maintain the sales of the vaccines. Then we wanted to share with you that we have a significant distribution of 3rd party product, 25 percent of our sales. And this is something ongoing. But this year over the last 2 years, we have been quite successful. So the sales have grown quite nicely. And there is a product, for instance, around $6,000,000 which we were distributing for a company, and the company was sold to another company. And the other company has an organization in the country. So we are discussing whether this agreement will be renewed, and that's a risk at the moment, not knowing exactly if we will be renewed or not. And then there is a new regulation also, not from the Ministry of Health, but for the Ministry of Environment, which take care of the impact environmental impact in the water. And this direct malregulation has been recently published. And some of the product we have, not too much, too many, not too many, but some of them may be at risk because of this new regulation of product in the water. So all to say that we have, of course, a huge interest in Central Valley because it's strategic aquaculture is very strategic to us. It's one of the segment poised to have the most growth in the coming years. That's clear. Centrovert is a strategic position because it's number 2 in the 2nd largest market in the world for salmon in Chile, just after Norway. It is a strong basis for R and D and manufacturing capability. So it has very much a strong strategic value. It should also help us to because we are very attractive to partners, biotech, startup who have technology. So for all this reason, we would like to keep invested. But because of all this risk, we will decide what we do in 2021 about the share acquisition. Then we propose to quickly cover to explain to you what are the main impact of COVID on the current situation. It's a bit of a requirement to give the maximum transparency and clarity on where do we stand. So there are still many unknowns regarding the outlook. I just explained it when we talk about the species, salmon and cattle for next year. It is also true when we talk about the country because we have a different position than most of our competitors. They are very strong in China, in U. S, in China and Brazil. We are very strong in India and Chile. So we have a different geographic position. And India and Chile are being quite affected by COVID. So it's still a bit of unknown as far as outlook. Some of the country have also entered very late in the crisis or in the confinement like Brazil, Mexico and India. So it is a bit too early also to see the real impact there. We will see this in Q3 and Q4. So far, we have limited the impact on the supply side. We have been able to manage all the supply, but we see that there are some pressure. I'll just comment an example. If tomorrow there will be a vaccine for COVID-nineteen for the human, there may be a lot of shortage on Flask and all the virus, for instance, for vaccine. So of course, this everybody knows and is anticipated. But that's just an example that we may see some disruption in supply in certain situation, and we see some difficulties sometimes in India, for instance. In terms of production, all the sites are now operating close to normal levels, except with the exception of Chile, which is still operating at around 80% because of absenteeism and the crisis locally. With regard to production, we have not been able to maintain the safety stock in the Q2 because of the reduction of production during the crisis. So we have been using the safety inventories. And so for some of them, we may we will have it's not may, we will have back orders, significant back orders in the coming months. We try to come back as quickly as we can, but it takes also time in the quality control department to liberate all the products. So we should see higher than usual level of backorder in H2 2020. That's for all the product in general, but more precisely for vaccines. The stoppage of the site, the worldwide production side of our vaccines for dog and cat for more than 2 months has induced very significant shortage on vaccine. You saw a little bit of the impact in H1 on the chart of EBIT. That was the only part that was in red. All the rest was growing nicely, but vaccines were decreasing. And that will affect us very much in the H2 as well. And then I mentioned before the delay in the R and D program and the launch postponement. This is for the impact of COVID in the short term, let's say, short or mid term. In term of structural changes, we don't see any structural change linked to COVID. We don't believe that the pandemic has changed anything in the dynamics of Animal Health, which is so significant at this stage. Of course, it has helped accelerate some trend. I talked before about the home office, of course, people working from home and being used to video conference and meeting virtually. That is being seen everywhere, but across all industry, I guess. But in term of our industry, we see a little bit more consolidation of the industry, the digitalization, like in many industry. But what we see growing very much is home delivery and auto ship programs in companion animal. So that's something that chewy.com, for instance, has done very, very well. And we try to stick to that approach in order to be able to partner with veterinarians, organizing home delivery and auto ship programs in order to get to capture the pet owner and put in place loyalty program that will make them more loyal and more captive. And in food producing animal, we see an increase of biosecurity measure. In fact, animal health has suffered from 2 pandemia in 2 years. The African swine fever that hit the swine market 18 months ago and now the COVID-nineteen. So we see as a consequence that the small producer in many countries like China, for instance, disappearing. And we see a consolidation of this producer and increasing level of biosecurity and hygiene and quality programs. And to conclude, I will say that Vierbach is very well positioned with a strong balance sheet to invest, develop itself from an innovation point of view and organic growth and take advantage of an interesting opportunity, M and A. So we have a strong balance sheet. And whatever will happen in the coming months or years, we will be very attentive to take all the opportunity. I finish on this slide before moving to the agenda of the publication, saying that I always try we always try to be quite conservative when we present innovation pipeline because we know that structurally, we know what we know and we don't know what we don't know, which means that in innovation, they are always delayed. So normally, we try to be a bit conservative. Despite that, I have to recognize that we have in this chart see many products moving from 2021 to 2022 and from 2022 to 2023. And that's a pity, but that's a real situation as of today. So it means that 2021 will be a weak year in term of product launch versus the normative level we had historically with some delayed that would be catch up in 2022 and some unfortunately that will move behind, so 2023 and behind. And I have we give quite a lot of detail. So without entering too much in detail, but you see that some of these have been delayed to the next year and some have been moving from Q1 to Q4, for instance, within the same year. But we had had some delay in most of the studies. Each time we had an animal studies to be run, for instance, this was delayed because of COVID, not only always but mostly because of COVID in many situations. So a week 2021 in term of pipeline. In term of guidance, as Habib already mentioned, I guess, we are planning to be at the high end of the range at constant rate. Now this guidance includes the sale of Sentinel of €39,000,000 in H1. So you need to understand that for 2021. But also it has real perimeter, which means it's the sales of Santinil H1 and nothing in H2. The ForEx impact, which is not in this guidance, is expected to be negative by €25,000,000 to €30,000,000 at mid July rate. The EBITDA is between 12% 13%, taking into account the 1 point negative investment impact of the divestment of Santenel. And as we explained before, the cash positive we will be cash positive at the year end. And the financing, we are kept with initial maturity at the moment, and we will look at that early next year. Maybe we can open the questions session. First of all, in telling that we will not circulate any microphone for a sanitary reason. So you can stand up and speak loud so that everyone can hear you. If it is possible, it would be more safe for everyone. That you expect for the coming semesters including 'twenty one, if you can provide some views regarding your forecast for The first one, if you ask me about the market in 2021, I don't have a crystal ball, so it will be difficult to answer. What I can tell you is normally the market over the last 10 years has been running around 4% to 5% off, between 4% and 5%, a little bit closer to 4% than 5%, if you look at the last 10 years. This year, it will be running around 3%. So it's more 3% this year. With 5%, we are above the market. So we are beating the market. But there is no way we beat the market next year simply because we will lose $39,000,000 of Sentinel. So if we look at constant perimeter, there is no reason why we will not beat the market. If you look at rig perimeter, there is no reason why we could beat the market because we will lose 39,000,000 sales in the first half of the next year. So I don't know if the market will be running weekly weak on a weak side of 3% or on the strong side of 5%. That, I don't know. But what I know is that with 39,000,000 sales that we will be losing because of the divestment of Santenelle, there is no way we can beat it next year. And the second question on the expenses. It's difficult. Intuitively, we would like to say yes. Reasonably, I would prefer to say no because when I see our people in September were willing to get back on seminars, meeting, lunch, dinner and that we had to stop everywhere to do that, the human nature really wants to get back to leave. And the best way to prove that we are back in a normal situation is to take again the habits we had in the past. So the human reflex to go back to the normal situation first. So if we were to manage structurally savings, it will be by a very voluntary decision. It will have to be driven, decided and managed. And the truth is that what we have learned is that the virtual exposure or the video conferences we're adding to, not necessarily replacing everything. So if we expect structurally to save on the OpEx, it will be on the travel. I believe travel may be less, and that we could expect to see savings. But to be honest, in ViaBank, we have been over the last 5 years very, very lean on travel already because we were reducing these expenses very, very much to try to get back the comeback we did. It was done through managing OpEx. So in terms of marketing, we're always so low that I don't expect we can do more savings on marketing. What is happening this year is okay for 6 months or 9 months, but it's not okay for 5 years. So structure in marketing, I don't believe we can save. To the opposite. I believe we will have to invest more for pet food, for food producing, for entering new markets. So I believe we will have much, much more expense in marketing in the coming year than we had in the past. Travel maybe a bit less, yes, but it was already very low or little in Vrbaq. So honestly, I prefer to say no. I don't think that we will manage to reduce OpEx. But honestly, our bottom line is very much driven by the top line, so that's where we should try to improve. And the investment in marketing will be to prepare additional top line 3, 4 years later. So when I talk pet food and food processing, for instance. Thank you, Sebastien. We have a question through the chat. So regarding antibiotics, they seem to grow again, especially in livestock. Is it driven by volume or price increase? And what is the view on this market? Could you acquire assets companies in this segment? No. We will not acquire a company in this segment because this is a segment which doesn't have good fundamentals. But yes, we have gone, and we will keep going. I did say that 2 years ago. I had informed that despite what everybody was talking about antibiotics, I thought we will grow in antibiotics, and I believe we will keep growing in the coming years. And it's mostly volumes, and it's mostly linked to launch of new products that were in the pipeline. So in Chile, for instance, I explained that we launched a new product, which has in part substituted the old product, but replaced it gaining market share. So that's mostly driven by volumes. And when it's a new product, of course, you may have a price effect as well, but because it's a different formulation or different presentation. But it's not that we increase price on the old products. Another question from the chat. You mentioned that Virbac might have under invested over the last 5 years in the facilities and in IT manufacturing. Can you share with us the amount you plan to spend on CapEx over the coming years? The normative level of CapEx in ViaBank has been around €40,000,000 per year. We have not done the budget for next year yet. We will start the session in October, November. So we have not communicated and decided what we'll do and what we'll do. We'll have to review everything. I'm not sure I said we had underinvested. I said that we have decided to invest more, which is slightly different. We have always done the investment that needed to be done. But in terms of systems, we want to accelerate because also the need for digital and more precise information and management, we think we need to do more. So that's what I said, we need to do more, and we will do that in the coming 3 years because, again, we plan for the long term. In term of manufacturing, it's a different story. The main site of Karos has started 50 years ago. Many of the production site within the site of Caros has been renewed, has been some of them have been built a few years ago, so are totally new. But the vaccine site is close to 30 years old in many aspects. And so there, we need to have also additional investment. You want to comment? No. I just wanted to say that in CapEx investment, you have cycles, obviously, on Information System and manufacturing as well at times where you need to invest a bit more and we are probably entering, as Sebastien said, a cycle where we need to invest more. We have another question. And if you may repeat the question in the room so that everybody online can hear them. It would be helpful. Thank you. So we have a question from Laurent J. Lebar. The 3rd party agreement for CentroAT in Chile covers what kind of products? Is it 25% of CentroAT sales? So it's not one agreement. It's different agreements. Some of them have different timings to be renewed. Some of the agreement were renewed last year because they were short duration. But there is a big one, which is ending at the end of next year, which is the one I mentioned as being at risk, and we need to discuss and negotiate, and that is not being done yet. And I don't want to disclose a precise product, but it covers different kind of product, some parasiticides and some disinfectant and product like that. So it's pharmaceutical product. And Sebastien or Habib, when do you see our production your production output for vaccines be back to normal? Back to normal, it is now back to normal. I guess it is now back to normal. But because of the fact that we operate at 1% capacity, all the backlog of backorder, we are not able to resolve. So we can attend the demand, but we cannot catch we cannot resolve the back orders, and the back order would be resolved over many, many months. So that's the issue I was mentioning before. And if we talk about creating additional capacity or additional productivity, that is a CapEx I was mentioning before and that will take many years because in the pharma industry, when you have to build additional capacity and or a new building or a new capacity, it takes many years before you build, you qualify and you can use it. So that would be unfortunately taking a bit more time. Now we are back to normal with the production. The problem is the production is back to normal, but the sales level is not back to normal because the vets have been confined for 2.5 months. So they have not been using vaccines. And now they are using significant amount of vaccine trying to catch back to catch up. So they are bringing back the customer to the clinic. And so the sales have been depressed by 30%, 40% over the Q2. And we see the market going up very much, and we cannot enjoy the ride. So we let our friends enjoy it. So the question is on the tax rate. What do we expect for the coming years, 2021 2022 and also on the financial cost? So on the tax rate, the effective tax rate, which is calculated outside of the U. S, because you know that in the U. S, we don't have any tax impact because of the net losses that we have accumulated. So outside of the U. S, when we retreat for that, the effective tax rate will be around 28% as we move forward. So we expect to be at the order of magnitude of 28% into 2021 2022 effective tax rates. Regarding the financial costs, obviously, it will decrease significantly because we are reimbursing part of our debt. We are reviewing as we speak all of our lines and deciding beyond the revolving credit facility of €420,000,000 that we are keeping, obviously, open. We are not going to draw on it, at least definitely not at the same level of magnitude as it used to be drawn, but we will keep it. Beyond that, we are looking at all of our line and deciding which one we will keep and which one we could reimburse, but it's obviously smaller line. We continue to have credit in some of our countries. In Centre Vets, for example, we have local credit line in place. Some of them could not be reimbursed easily because of duration. And so we continue to have financial cost, but we will see a significant decrease as we move forward, several millions decrease. Question regarding Sentinel. Is the disposal of Sentinel set to be tax free, or Abid? Yes. Again, because of the accumulated losses, We will finalize all of the calculation during the 2nd semester, but we expect it to be either tax free or a significant portion of it to be tax free. And do you contemplate doing a generic product such as prefixes? The question is if we plan to launch a generic of Trifexis? Yes. No. No, we don't. We cannot contemplate. Could we not contemplate? No. I don't believe the future of this product is good. Let's put it this way. No, I don't think so. I think that in Q1, yes. We had increased the sales by 14% at the end of Q1 for VR bike and among which a huge portion was Pet Food because of the lockdown people anticipate purchase. But of course, this has been regulating by now. And by September, we don't there is an overstock at home in the customer. So no, we don't believe that. We think that the 27% or 30% growth you see, it's something strong recurrent. We believe it would be sustainable long term because of the geo expansion. So maybe what we will see is a lowest growth in current geography where we are, but you will be relayed by additional growth because of geo extension. So we are quite confident that pet food will keep growing nicely and strongly over the coming 3 to 4 years. A question regarding the margin. Given a strong H1 margin of 17.9% and 12% to 13% guided for the full year. How should we think about the exit margin going into next year? Can you repeat? Sorry, with the mask. Given a strong H1 margin of 17.9% and 12% to 13% guided for the full year, How do you do we think about the exit margin going into next year? I can take this one. No, it's very difficult. It's already a difficult exercise to try to anticipate how the 2nd semester will look like. Sebastian commented on the net sales. I mentioned that a good portion of the improvement is obviously linked to the operational improvement, which is linked to the evolution of the net sales. So it's a difficult exercise for us to anticipate what will be next year. What is for sure is that we will have a rebound unless the COVID crisis is continuing and we continue to be extremely limited in terms of what we are doing, but we shall expect a rebound in terms of cost next year versus what we have experienced this year. And to complete, I will say that the only thing we know for sure is that EBITDA contribution and ratio in the first half of next year will be much, much lower because we have benefiting from Santenel this year of 39,000,000 sales that we will not have next year. And we are benefiting from what David just explained, the full effect on the OpEx, R and D delayed and everything of the COVID. So you have a double effect. You will have a sales based effect and an OpEx based effect. So we do not project for the full year of next year, but what is for sure is the first half of next year year will be complicated versus because of the base effect versus this year. How much do you think that the extra margin comes from the We didn't say Sentinel, but we said that because of the product mix and a huge part of the product mix, Santinel and the sales, it's one third of the improvement. I think we said that. That'll become too complicated for me. It's for you, Eben. Yes, please. Except that we didn't say Sardinia. We didn't say Sardinia. I say from the sales and product mix, which large part comes from Sardinia. Yes. Now the difficulty is that it's an improvement versus last year, 29 versus 20. We are looking at delta, improvement between 2 periods. And now if you want to do 2020 versus 2021, it's a different exercise. I wouldn't do it that way. You shall take the $39,000,000 of sales that we have and make an assumption on the margin of Sentinel. The only thing we know, the market knows and we have shared is Sentinel was very dilutive in terms of growth because we were underperforming, but was accretive in terms of margin. And that's why we have spent a lot of time to decide what we do with asset before we decide to divest it. No. No. No, we have no obligation to do a pro form a basis. So we won't do a pro form a basis on the disposal Sentinel. A question for Sebastien on the U. S. Your business is very diverse and has had a good performance in all our areas, except U. S. In constant currencies, which declined, excluding Sentinel. How should we think about the recovery of this region and level of infrastructure required post Sentinel? That will be our main challenge is to be able to deliver and to execute the plan. So the belief is that the assets we purchased was not so much Sentinel, but was the sales force because what has really much value is the relationship between the vets and the sales force. When you disrupt that, when you have a merger and acquisition, why you lose so much value is because normally you have to redesign the territory. You break the relationship between the vets and the reps, the sales reps. And that takes years to build and has a lot of value. So the reason why we decided to keep the sales force while divesting Santinelle is because we believe the value is in the sales force, not in the asset Santinelle anymore. So Santinelle was divested, but we decided to keep the sales force and try to extract maximum value from everything that we will do in the coming year or 2. And again, I mentioned initially, we are choosing sustainability. That is not just a nice word on the paper. It's working the talk. It's doing what we say. And that means accepting to depress EBITDA and profitability for 1 year and be able to rebound or be much stronger 3 years from now. And that's what we do. We will launch pet food. We will launch new products. Not now, not tomorrow because there are delays. But 3 years from now, we believe that if we were to reduce the sales force, we will be marginalized, and then we will never come back in the U. S. So the U. S. Being the number one market in the world, we must be there. We must succeed. So it's an act of faith. We will have to prove we can execute. We'll have to prove we can deliver. It will be difficult. It's the most competitive market in the world, and the top 4 are very strong there. So it's not it's their backyard. But we play with the willingness to be strong in 3 to 5 years from now. And so we are prepared to spend more money and to degrade the EBITA ratio for 1 year or 2 in the U. S. In order to manage that. I'm still in the U. S. With the last question, we said that we are going to close the question on the chat because timing is raining. So the last question from the chat is about the U. S. When could we expect the first launch of a FPA product in the USA? Next year. Next year, a quick answer. Excellent. But as I mentioned, it is very important. We mentioned and we put the word each word I thought progressive. It means one product doesn't mean many product and one product may be small and not do a lot of things. But if there is no bad news and everything runs smoothly, the ambition is to manage to get it next year. Of course, it's R and D, it's development, so we may have bad news and not be able to execute. So it's what the ambition is. It's not a guarantee. Thank you very much. So the question on the chat are closed. Thank you. Thank you. And what about here? We are still recording, but we said that we are about 2 clubs. Yes. Brazil is some years away. We have not started because of what I said. We are going so fast and so quickly. We don't have the teams yet to operate properly the manufacturing transfer in the organization. So Brazil is not on the radar yet. China is on a catch up mode because since 2019, we want to launch, but we have been delayed. And we are delayed by regulation and mainly the crisis on swine and then there is another crisis. And so it's linked to sanitary problem and regulation between China, Europe and importexport. It's not linked to the pet food. So we are depending on this kind of things. And so because we don't have a local manufacturing side, of course. So we are pretty much depending on this regulation. So it's difficult to give you a date. And there, I will not even even if I was for sure, I may not share it because of competitive reason. And same reason for the U. S. I prefer to keep it a secret. The reason why I shared for FPA is that if the competition do their job, and I think they do it, they know. So there was no secret. This was the last question. So we are ending today's session. And on behalf of all the VIABAC team, we want to thank you for your time and interest. Thank you very much. Bye bye.