Good afternoon, everyone. We are very pleased to welcome you on the Virbac 2023 half-year results conference and webcast. Hosting the call today are Abderrahman Benouhoud, Investor Relations, and myself, Sandrine Brunel, Head of Corporate Communications. We will be joined by Sébastien Huron, our Chief Executive Officer, and Habib Ramdani, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented and additional financial materials are available on the investor section of our corporate website. The replay of the meeting will be available at the conclusion of the meeting. For those attending virtually, you will be able to post your question by using the section named "Questions" on the bottom right-hand corner of your screen. All the questions will be answered during the Q&A session or afterwards, if time does not allow us to answer them immediately.
It is now my pleasure to turn the floor to Habib Ramdani and Sébastien Huron.
Thank you, Sandrine. Good morning. Good afternoon to all of you. We will cover this presentation with Sébastien. I'm going to start in a couple of seconds with the half-year results, financial part of this presentation, and I will then hand over to Sébastien, who is going to cover some elements regarding our perspective, strategy as well, 2030. Let me start with the 2023 half-year results. I'm going to cover an executive summary to start with, two slides, and then we'll go into a little bit more details. Regarding this semester, the key word is really resilience.
We've been very much resilient during this first semester, 2023, and we have posted, as you can see, an organic growth of 0.4% at constant rate, so more or less stable sales, despite three negative elements that we have had to manage. The first one is some manufacturing issues on our vaccines site, dogs and cats, worldwide vaccine sites. We've been operated over the past two-three years with capacity production limitation on our dog and cats vaccines manufacturing sites, with absolutely no security stock. And we have had, during this first semester of 2023, some rejected batches that have been produced, which is not unusual given the nature of those biological products. But given the fact that we have no security stock, it has had an immediate impact on our top line.
The second element is the cyberattack that we have suffered at the very end of June. And the final one is the dynamic of the market, which has seen a significant slowdown of the growth of the animal health market during this first semester of 2023 versus what we have seen over the past years and 2021 following the COVID impact. So the market has been growing over the past 12 months at around 2%-3%, which is even a negative volume growth, if you take into account probably around 4%-5% price impact. So in that overall context, we've been resilient on the top line. We've also been resilient on the bottom line.
As you can see, our EBIT adjusted has decreased slightly by EUR 3.3 million in absolute value. We have posted a solid 18.4% of EBIT adjusted ratio to revenue, which is 18.0% at real rate versus 19% at the end of June 2022. This decrease, both in absolute value and in ratio, is essentially linked to an acceleration of our R&D spending, an expected acceleration, and we have shared with the market that we've made the decision to increase our R&D spending by around one point, and that's what happened during this first semester of 2023. We have increased, in absolute value, our R&D investment by EUR 6 million, approximately, which represent around one point.
So our earnings before R&D have improved, by EUR 3 million, in absolute value, and by, close to 0.5 points, moving from 24.6% to 25% at constant rate. And this improvement has been done despite a significant level of inflation that have impacted our cost base, and I'll come back to that later on. Finally, on this slide, regarding the Forex impact, you see that we have suffered a negative impact on top line, on bottom line, EBITDA adjusted, as well as on our EBITDA ratio. We have lost, 0.5 point, around 0.5 point of EBITDA ratio, linked to the unfavorable evolution of the exchange rates. And you see on this slide that many currencies have depreciated versus the euro over the course of the semester.
If we continue to go down on our financials, down toward the profit and loss statement, you see that our net profits have slightly decreased, moving from slightly more than EUR 77 million to around EUR 75 million in this first semester of 2023 at real rates. And beyond the decrease of the EBITDA adjusted that I already commented, we have had for this semester net financial profit of EUR 0.9 million, which is to be compared to losses, net financial losses that we recorded in 2022. That was quite significant, 'cause it was at EUR 8 million. And these significant losses was due last year to unfavorable Chilean peso exchange rate impact versus euro and dollars.
Whereas for this semester, we have seen a positive impact on the Chilean peso. If we look at the debt, we have increased our total, net cash position by 30, by slightly more than EUR 30 million when we compare to June last year. But we have a decrease versus December 2022, by around the same amount, EUR 30 million. This decrease versus December 2022 is essentially explained by additional working capital needs. A good portion of it is linked to seasonality, normal seasonality that we have, every year. There have been also the dividend payment that has been made for slightly more than EUR 10 million during this first semester.
We can say, and we'll come back to that when we will cover the perspective, that we expect cash generation during the second semester, which is again, a usual pattern that we have. We have also increased our perspective on net cash position at the end of 2023 versus our previous guidance. We'll cover that later on. So we continue to be cash positive with slightly more than EUR 50 million at the end of June 2023, and obviously, this translates into a negative net debt on EBITDA ratio. So we continue to have a very favorable financial situation. I will move to the sales starting with evolution of sales at real rate.
You see that we have lost one percentage point, moving from EUR 616 million- EUR 610 million. We have had a negative exchange rate impact of EUR 8 million, but on a constant exchange rate and basis, we have had a slight improvement by 0.4%. Let's have a look where this is coming from. We can see here that we have a contrasted dynamics when we look at the region. Europe is growing by 2.7%. We are having a solid performance in many product ranges, such as pet food, pet care as well. Our specialty product ranges is doing quite well as well during the first semester of 2023, and our ruminant business in Europe is growing as well.
On the contrary, we are suffering on the vaccines, as you know, so we've been able to deliver 2.7%, despite the significant impact that we have had on our vaccine business in Europe. The parasiticide segment has been suffering as well during this semester. North America is decreasing by around 2%, as you can see. There is a base effect when we compare to last year, as well as a destocking that has been observed at the distributor level, part of it linked to the cyberattack, part of it probably linked as well to the high interest rates.
Beyond this, destocking effect, when we look at the pure sellout performance, we have done a good first semester with double-digit growth in the U.S., and Sébastien is going to give a little bit more details on this performance. Finally, rest of the world, you see that we are more or less stable. For us, rest of the world is essentially the Southern Hemisphere with four main regions. Two of them are decreasing versus last year, two of them are increasing versus last year. You see that the Pacific region has been doing very well, with an 8% growth, driven by Australia and New Zealand, with a very good performance on our ruminant business, with a good market and a good performance of our own product.
Sébastien is going to give also a little bit more color on this performance. Africa, Middle East, growing as well by 5%, although it's lower in terms of absolute value versus Pacific. Asia region is slightly decreasing at minus—around -1%, with India being the main contributor, having had a stable performance during the first semester after a fantastic first semester of 2022. So we have a base effect year comparison. We had around 20% growth in 2022 versus 2021, and we are stable for this semester. And China, which has been more difficult, after we are suffering from a first trimester that has been very low. We are more stable during the second trimester in China.
Latin America, you see -7%. It's the region that is decreasing the most within Virbac. It's essentially linked to Chile. The rest of the region is doing quite well with Mexico and Brazil, the two main countries beyond Chile, that continues to grow during this semester, 2023. And we're going to cover the Chilean situation during the second part of the presentation... I suggest we move now to some comments regarding the top-line performance when it's split between companion animals and farm animals, and also by segment within each of those two pillars. So starting with companion animals, you see that we have a contrasted dynamics based on the segment.
We have the pet food segment that is doing very well, with close to 20% growth during the semester. It's. We are benefiting from a good dynamic in many markets from a positive, very positive dynamic on the pricing as well of those products. You remember that we have suffered by a significant raw material increase, so we've been able to adjust our prices there during the semester. Specialty is doing very well as well, has continued to grow during the semester, with products such as reproduction ranges, with Suprelorin, Zoletil as well, that has done quite well during the semester. On the other hand, we see the biological segment suffering from the manufacturing issues and the production capacity limitation that we had.
We have seen a decrease of our sales, whereas we would have even increased our sales if we would have been able to meet entirely the demand. And parasiticide as well, decreasing by close to EUR 7 million. Two-thirds of this decrease is in the U.S. So part of it explained by the destocking and part of it also by the dynamic in the market with the competition from the isoxazolines, as well as more difficulties on those product ranges to increase price. If we move to second pillar, farm animals, you see that the picture here is less contrasted with many segments that are driving the growth of this segment, with the exception of aquaculture that is decreasing significantly during the period.
It's essentially linked to the Chilean situation, with the base effect, with the product that we lost on the parasiticide segment, as well as decrease of sales on the antibiotics, and Sébastien is going to cover that again during the second part of the presentation. Antibiotic, that has a sluggish dynamic during this semester, but apart from that, all the other segments are growing. Parasiticides with a good dynamics in many markets, Pacific, as well as South America. Nutritionals, driven by India and many Asian countries as well. Our vaccines business, that continues to grow in Europe, but also in South America, and also to some extent in Asia with our swine products.
So this is for the explanation of the dynamic of our sales by country, by region, and by segment. So if we look at now a summary of the split, there is nothing much that has changed versus last year. We continue to have one third of our sales coming from emerging countries, 40% from Europe, with one third specifically on companion animal in Europe, and the rest in North America and other countries such as Asia, Australia, and New Zealand. Let's move now to our profit and loss statement to look at the overall P&L. So as we've shared in the executive summary, the operating profit arising from our activities has decreased slightly comparing 2022 to 2023, sorry.
It's essentially linked to our R&D investment. So this—you see the net expenses line that has increased. A portion of it, as we will see on the next slide, is linked to R&D investment. We have suffered as well from the inflation that weighed on our cost base significantly on our salary mass. We have also reinforced our workforce in industrial, in commercial during the period, and this has been compensated to a certain level by several elements, one of them being a decrease of our transportation cost. You remember that last year it has increased significantly. We have seen for this semester a significant decrease, which contributed to several million EUR less of our transportation costs. We have also had a phasing of our marketing investment.
In 2022, we had some important launches at the beginning of the year, so we have had our marketing expenses phased as well with that, which is less the case for 2023. We see that more during the second part of the year. And finally, we have some positive impact on corporate costs as well, and I'm going to cover that during the second part of the next slide. If we look at the gross margin on material costs, you see that we've had a significant improvement between 2022 to 2023.
We are pleased to have been able to increase our price by slightly more than 5% during the semester, which has helped us to compensate for a negative mix effect that we had during the semester. So overall, the key takeaway, again, is resilience. Our operating profit has increased. If we take aside our willingness to invest in our R&D, we've been able to increase our operating profit as a ratio to revenue by half a point, around half a point during the semester. If we look now at the next line of our profit and loss statement, our net financial expenses, as I mentioned, we have recorded a slight profit for this semester, whereas we used to have a significant loss last year linked to the CLP evolution.
Our income tax has increased as well. A part of it is linked to one-off provision recording within that line for 2023. Our effective tax rate has more or less remained stable during the period, comparing first semester 2022 with first semester 2023. So bottom line, our net profit has slightly decreased during the period, explained by the different elements that I just covered. Let's come back now to our EBIT adjusted evolution. You see here 2022, 2030, and we see where this evolution decrease is coming from. So you see that the region have been impacted by the sluggish top-line evolution, and we've not been able to increase on the different region for the first semester 2023. We have been impacted, but again, it was...
It is as expected and as planned by an increase of our R&D expenses by around EUR 6 million more, which is one point of EBIT adjusted as a ratio. Finally, our corporate costs, as you can see, have contributed positively. There is a bit of one-off provision reversal for that, around 1/3 of that. And we have also some phasing of expenses that have moved from the first semester to the second semester that explain this, and some savings as well, to a lesser extent. Finally, worth to mention that we have suffered from a negative impact from the exchange rate on our EBIT adjusted by around EUR 4 million when we compare to last year first semester.
Evolution of cash flow is very much aligned with the evolution of our operating profit, and you see that the operating cash flow is slightly decreasing, and the same for the net cash flow during the period. Evolution of free cash flow, we are comparing here the generation of net free cash flow for this semester compared with last semester. So if we start with this semester, so you see that we have had a negative net free cash flow. We are decreasing a little bit or consuming a little bit of net free cash flow during the period. It's essentially explained by the working capital, as you see on the slide, a minus EUR 76 million.
A good portion of it is linked to accounts receivable. I would say around EUR 50 million with two elements. One of them is the end-of-year rebates that we are typically paying during the first part of the year. So this has a seasonal type of impact on our cash generation profile. We consume cash during the first semester of 2023. The second one is linked to a timing and the level of activity that we had last year, at the end of last year, versus the end of this year, which has been quite important. To some extent, we are suffering from the cyberattack, where we've not been able to collect what we would have collected in terms of accounts receivable during the last day of the months of June.
We have also had an impact from our factoring program. We have decreased our factoring program during the period for slightly less than EUR 10 million. The two other elements that are contributing to the working capital consumption is, one, on the one hand, the inventory. You remember that we had a significant increase of our inventory last year. It has slowed down significantly, and that's good news, during the first semester of 2023, while increasing by only EUR 10 million during the period, and a portion of it is linked to the vaccine situation. Finally, accounts payable is also contributing to around EUR 10 million.
If we compare now, this net free cash flow generation profile for this semester versus last semester, you see that the main differences is linked to the working capital. Last year, we had a need for working capital that was much more important than this year. It was essentially linked to a significant increase of our stock in the context of the disruption on all supply chains, if you remember, and our willingness to build security stock in 2021 and 2022. So this translate into the evolution of our net debt. As I shared during the executive summary, we moved from EUR 76 million to slightly more than EUR 51 million of positive net cash situation or negative net debt.
So we continue to be positive at the end of this semester. Very briefly on the balance sheet analysis, the main takeaways is that we continue to be in a very favorable financial situation from a balance sheet standpoint with our net cash position. You see the evolution of the working capital. We are comparing with end of 2022 and June 2022, so there is a seasonality effect that you see when we compare to end of 2022, and you see the improvement yeah on the working capital versus 2022 June. I won't spend too much time on the financial ratios.
They are all of them still negative, given our net cash position, obviously, and we continue to have a favorable net debt on EBITDA ratio. And my last slide before handing over to Sébastien is the shareholding structure. Nothing has changed. The majority shareholder, the founding family, still own the 49.7% and slightly less than 66% of the voting rights, as of end of June 30 , 2023. I'm handing over to Sébastien.
Thank-
for the second part of the presentation.
Thank you very much, Habib. Thank you very much. I will cover the half-year achievement, then we will do a small tour all around the world with the key affiliate. I will cover four affiliates, and then I will remind you a little bit the frame of Virbac 2030 strategy, and we'll give you an example of execution within this frame of our 2030 roadmap. First of all, Habib already mentioned it, so I'm going to go fast, but we have proven remarkable, remarkable resilience during the first half, despite difficulty in terms of volumes and the market slowdown. We have seen the market slowing down quite significantly versus the last two years.
Despite these strong headwinds, and despite, on top of that, two unfavorable one-off, which have been the manufacturing issue we had on vaccines at the beginning of the year, which have been complexified and complicated with a cyberattack. We have been able to deliver an improved benefit, improved profits before research and development and licensing, so before RDL, at constant rate, and even at actual rate, we're at 24.6, but at constant rate, we are improving by 0.4 point, which is quite significant, mostly linked to the price increases we have been able to pass in the market. In term of product focus, among the Virbac blockbusters and the strategic product line, pet food keeps improving very well, almost 20% growth at constant rate, so it's doing very well.
You know, and that is, without too much of the contribution of the U.S., where we have launched recently the product, but it will take time to grow, and without yet China, because we plan to launch in China, now, in fact, in the coming weeks. The vaccine have been down, and that is affecting us, so the top line growth would have been much more important if we didn't have this manufacturing issue and this cyberattack in the first half of the year on the companion animal vaccines. And then we are suffering both in internal parasiticide, not very much structurally, but still this year is a bit tougher with competition there, and on aquaculture, where we have cumulated many bad news and many negative effect this year. I will come later on that when I will talk about Chile.
We have launched, and we keep launching new product on a regular, timeframe. So this year, we launched a very innovative product called Cortotic. It's in fact the first in class. It's a first ear treatment without antibiotics. You know, we are, trying under ESG guidelines to reduce the consumption of antibiotics, and so we have been the first company in the world to launch a very, efficacious product for ear treatment without, antibiotic and with an anti-inflammatory that does, a very good job and has been, re-recognized by the agency, by the way, on the claim to be a first intent product. So that should be a very significant product for Virbac. We are quite proud of this innovation, and hopefully, it will do well in the market.
Movoflex is a product for the articulation for joint disease, and that also should be, could be a Virbac blockbuster product on global level. It's already performing very well in the U.S., and we have just launched it in Europe, and we are geo-extending it in the world. So we expect it to be also a very significant growth contributor in the coming years. And then we have added a new product to our pet food HPM line. So first, a wet formulation for kidney and for cats, and then we have a combo dry new pet food, which address two pathology, because, you know, on the dietetic ranges, sometimes the dogs may suffer or the cat may suffer different pathology at the same time, two pathology.
We have developed one for all the animals where we address two different kind of pathology at the same time. And then we have launched in India the pet food, and China is to come now in the coming weeks. Now we go all around the world. We have chosen four affiliates, one who is performing extremely well, one who is performing extremely badly, let's say, and two significant ones to give you a good overview, a balanced overview of the overall geographical situation at that stage. First is Australia. Australia is performing extremely well for two, three years now, supported by a good market, linked to the weather, linked to the weather condition.
It's sometimes affected because we had, a few years ago, a lot of drought, and fire, and a lot of issue with regard to lack of rain. But for the last two years, the market has been quite strong. The demand is quite strong. And coupled with our commercial excellence, we have been able to deliver significant growth over the last two to three years. And so the country is really, helping, pulling the overall organization in the right direction, and we have delivered, close to, 9% growth at constant rate in the first half. The perspective for the end of the year is to remain robust. We expect a continued growth in 2023, and a profitability improvement through pricing increase and the mix, the product mix. So Australia is quite positive. Chile, it's the opposite. It's quite negative or very negative.
I think we have had accumulation of all bad news that could have been imagined at the same time. First of all, you remember we have lost, not really lost, but we have interrupted the distribution of a third-party product last year in July because of a regulatory issue. Due to this regulatory issue, there has been an interruption of commercialization of this product that we were supposed to take back this year and commercialize this year, and that has not happened. We have a dispute with the owner of the registration on this product. So at this stage, we are not commercializing this product anymore, and that has a tremendous impact on our top line. So we have now 12 months without this product, and that was not expected like that. So we lost a third-party distribution product.
On top of that, we have a very strong antibiotic sales decline. This is partially due to the fact that we have stocks at a higher price, and the market has a bit cool off, and the price went down recently, so we were with very, very low margin. In part due to our decision to limit the sales of this product because it's very low margin, so it's not helping our overall profitability, and also because we believe that mid-long term, there is so much pressure on antibiotics that we need to proactively reduce their use as much as possible when it makes sense, and use it more as a service product when it is required.
Because you have a now bloom of disease or an outbreak of disease, and you have suddenly the need to use it as a treatment, but to really limit its usage as much as possible. So these two effects of the loss of the distribution of the third-party product, coupled with a strong reduction of antibiotics, have led to the 33% sales revenue decline. But the most important, and maybe what to keep in mind, is the vaccine sales have been stable. So basically, structurally, what is—what really matters and what is really important moving forward, is our ability to develop the vaccine sales, because this is in the market 70%-75% of the aquaculture business. So in the end, this is what really matters, and this is where the profits are made.
What we need to really look at is the vaccines, and they have been stable. Despite a 33% decline overall, the most important element, the most important component, has remained stable. We are pursuing our R&D effort both on vaccines and parasiticide, but another type of parasiticide that will be something a bit breakthrough or innovative, to have a solution for sea lice. You know, it's this is one of the biggest unmet need in the market. So the first company that will find a solution for sea lice will probably make a very big product out of it. So we work on certain program for that. And the perspective for 2023 is to have some recovery. We will not catch up to come back at break-even.
We will not do that this year, but we should, in the second half, improve significantly. First, because base effect is not the same. We had the third-party distribution product from January to July 2022. We didn't have it from July 2022 to December 2022, so the base effect of not having this product this year will not be the same, already starting with that. And then, we are trying to come back with other products and marketing program in order to compensate for the shortfall. So we expect some recovery. Then the U.S., Habib mentioned it, so again, I will not spend too much time on it, but basically what the key messages are is the sales out of distribution are quite strong, quite positive.
So most of what you are seeing here in the first half is linked to a de-stocking effect in distribution, and we remain confident and positive about the second half. So we think we'll be back to growth in the second half. Most of it was a de-stocking from distribution. Linked to many things, cost of interest increasing, the company tried to manage their cash, like us, and managing their cash means they tried to reduce their stocks in order to have less, immobilized capital in their stocks. They try to work on their working capital like us, and so that's part of it. Part of it is the slowing of the market, and part of it was also the different effect of implementation of ERP last year and the cyberattack this year.
So all that make that the key message is sales out of distribution remains strong, especially in product like Itrafungol and Clomicalm, but also in dermatological product like Easotic and Epi-Otic Advanced. And we have new product we have recently launched, like Zoletil, and our livestock product ranges, so Tulissin and Tenotryl, which are performing relatively well and supporting the growth... Pet food, to the opposite, and despite growing double-digit, is starting on a very, very low basis, so this is not satisfactory at this stage, and we are keeping investments and keeping the strategic decision to keep pushing. That will take time, but we will prevail at the end. India, I mention it because it's top three of Virbac country.
So it's stable revenue in the first half, but after a very, very strong first half in 2022, so that has to be compared to the, because of the base effect. We just launched pet food in India, and the profitability of India has been growing very, significantly, +16% at a constant rate, with many initiative, both on the procurement side, but also on the price increase and working on the product mixed with a higher share of the therapeutic product, which delivers higher margin than the nutritional product. So the company is very well managed, because we realized in acquisition, I can share with you that since we have acquired, the GlaxoSmithKline, GSK business back in 2006, we have multiplied the revenue by nine, the EBIT by 18, after the GSK acquisition.
The team is really performing extremely well locally. We have more than 1,200 people, and we are market leader. We were planning to enter the poultry vaccine arena through a distribution agreement, so we have in-licensed two vaccines to enter this segment and complete our product range. You will see later, we have managed to complete an acquisition on top of that to speed up and ramp the ramping up of this sales in this segment. We expect a more positive outlook for the second half, driven by growing demand across all segment and also a boost on the poultry side with this new in-licensed product and acquisition. After this quick overview of the world and the main affiliates, I go back to the 2030 roadmap.
So we have shared with you all the initiative we are conducting. We shared with you, the fact that we were trying to, accelerate on three dimension. Number one, the increase of R&D programs. This is, written at the bottom. At the bottom of the slide, you see we have talked to you about increasing R&D programs and partnership, investing more in R&D to generate more organic growth, to support our own, way to go to the target 20% we said we would like to reach before 2030. So there is an increase of R&D programs and partnership to speed up, the pipeline we have. Then there is an improvement and a lot of work being conducted on the manufacturing side to improve competitiveness of our different sites, and we try to mutualize our production.
We try to look how we can optimize the network of production site we have across the world in order to be more competitive, in order to improve our product gross margin. This is really where we need to improve in term of P&L, is to improve the product gross margin, as we are more or less perfectly aligned with the market in term of benchmark, in term of OpEx, in term of overall expenses. So the game is more in the product margin, and that plays also with the product mix. That's why we want to invest in vaccines, for instance. So that's what we have shared with you. The other things we do is to keep building critical mass. So I present the slide bottom up, in fact. We keep increasing critical mass because this is a key element in animal health.
Animal health is really driven by innovation, and so, bigger you are, more proportionally you can invest in R&D and innovation. We have decided strategically to compensate by our size, by over-investing in R&D and increasing the percentage of spend in R&D, in order to be able to compete in many, key field and in many, innovation segment, and try to bring more new product, including Virbac blockbuster or blockbuster. So that's a key element we try to do. We also try to, increase our commercial presence, both in U.S. and China. This is a two key market where we have too low of a market share so far, and this is really important to, gain size and visibility in these two market, U.S. and China. That takes time. That takes much more time.
It's a long journey, but we are doing it. We are committed to do it. And then, to accelerate our programmatic M&A, as we have mentioned that before, it was mentioned as being a key element of the Virbac 2030 roadmap to accelerate programmatic M&A, and the acquisition I will mention in a few minutes is a very good proof, proof of this execution, a very good proof of this intention to deliver and to execute what we said. But what we wanted to share with you also is that as a mid-size player, and that's really key, as a mid-size player, we think we have no competitive disadvantage of any kind of size if we invest in vaccines, in veterinary pet food, or in selected geographies.
So the three dimension where we really focus in term of strategy, in term of resource allocation, in term of R&D pipeline, but also programmatic M&A, is to try to increase the proportion of vaccines in Virbac. As mentioned in the past, we have 14% of our sales come from vaccines. We would like it to be around 30%, so one third, and so we are investing as much as we can, both in innovation, but also in the manufacturing side, in order to improve productivity and capacity, in order to grow faster. And we use the M&A leverage, if we can, when it is possible, to add more vaccines to our strategy. So it's important to understand that because cost of entry is quite high, but it's quite high the first time.
Once you have your platform, when you have your manufacturing ecosystem, when you have your labs, your R&D pilot plant, and everything. So the first step, the first barrier of entry is quite high, but once you have passed that, the incremental cost of developing new vaccines is not very high. And so you can really compete on the same basis with the top four and with the largest company. For pet food, we see strong synergies with veterinarians, who are our key prescribers. And same thing, we believe that health starts with nutrition, and we have a lot of credibility, a lot of legitimacy to play in this field. And because of our unique formula and the benefit of our product, we also believe we have a competitive advantage there, with a unique ability to have pet food, which tomorrow could be medicalized.
Imagine to have pet food combined with some drugs to treat some or address some pathology. So we believe we could be very differentiated from the competition and bring value, add value to the market. So these two segments, vaccines and veterinary pet food, allows us to play as a mid-size player without having anything to envy to the top four, to the largest company. Same thing, we selected geographic. We mentioned India, or it could be aquaculture, where there as well, we are top four in aquaculture. We are number one in India. So where we are strong, where we have a competitive advantage or a very strong position, we want to further invest, like we do in India, in order to keep this advantage and to reinforce our position.
So when I say that, we mentioned programmatic M&A, we mentioned vaccines, we mentioned India, and you will not be surprised if I tell you that the slide you saw before was done much before the acquisition, because this slide was done a few months ago. The acquisition was completed yesterday. So when you see that, you understand that it fit, it fits perfectly what we wanted to do. First of all, it's a poultry vaccine in India. So, Globion is a company who has been founded in 2005, as a joint venture between Suguna Group. Suguna is one of the leading Indian poultry conglomerates, so it's a very large company producing poultry.
They had to build a company doing vaccine because, like, 10, 15 years ago, they had supply issue to import vaccine from outside of India for protective measure, for import permit, for authority regulation. And so in the end, they decided to make a joint venture with Lohmann Animal Health, who was a German poultry vaccine company, and they build Globion with a idea to create a center of excellence for poultry vaccine in India to supply the market. And they have developed robust know-how, expertise. They have developed a broad range of live and inactivated vaccines, targeting a large array of pathology in poultry. And they are really very well-positioned, top four, top four, top five in the local market as a supplier of poultry vaccines.
It is more or less 120 people, EUR 12 million annual revenue. But so far, it is a company selling mostly on the south of India, not covering very well the country because it's linked to the conglomerate of the poultry. So in fact, this company is an appendix of a poultry producer, which mean that competes with other poultry producer. By the carve-out of this activity from this group and Virbac purchasing it, we are opening the possibility to sell to all the poultry producer and possibly to increase market share significantly and grow the business in the coming years. Again, that's what-- that's the what we acquire, who we acquire. The why is there. The why it's India, very easy, very easy.
This is the most populated country in the world, with a young population, the purchasing power, the need to eat, low cost protein. You know, chicken has the lowest cost of protein. We see that there is a bit of protectionism and nationalism when it comes to importation of vaccines and local producers. So we believe that to have a manufacturing site in India is a competitive advantage on the regulatory side, on the bringing new product, importing new strains, and be faster and more agile in term of developing new products. And we are number one in animal health in India, with an unrivaled commercial footprint. As I mentioned before, we have 1,252 employees as of last year. So we have a very strong presence.
We already have EUR 20 million of annual net revenue in poultry business, but mostly nutritional product, and so we had no vaccines. So the fact to add vaccines make perfect sense, and will give a lot of synergies. Poultry, I mentioned before, it's the most attractive protein source. It's a must-have. It's one of the most dynamic market in the world. It has been over the last 10 years, the most dynamic market. Vaccines for poultry has been very supportive, and we were not participating at all in this segment, and that is the opportunity to have a low-cost producer, very well located in Hyderabad, in India, to now compete in this market, both in India, but also in Africa, Middle East, and maybe at a later stage, in Asia or in Latin America. And vaccines, I don't need to come back on that.
It makes perfect sense, as I explained why before. This is a highly strategic segment for us... and that will allow us to create an ecosystem in India with R&D, quality, manufacturing, so that we can develop new vaccines, both in poultry and we—why not, maybe in other species like cattle, at a later stage. All this makes this acquisition quite nice. It's clearly a part of the programmatic M&A we want to do. It's a small, mid-size company that we can digest very easily, very quickly, that will not disrupt or disturb the overall activity of Virbac and be a very good complement, where we should extract maximum value. To conclude, one slide on the cyberattack. It has happened on June 19, all over the world.
It was unprecedented for us, it's the first time at this stage, and a very virulent cyberattack, a ransomware type of virus. We have been extremely fast and agile in reacting. In few hours, we have cut all the system down, so we have not let the virus propagated to our system. So very small percentage of our system was affected, but it took time to restart them, to not take any risk. So during several weeks, we had to play between business continuity and remediation run concomitantly. We tried to do both at the same stage, and of course, this has an impact. We have moved, for instance, all the maintenance activity that were planned in August in France, we move them in July, thanks to the flexibility of our teams.
We have started, restarted production in August in order to not let production and manufacturing down too long. But, of course, this has an impact which has not been fully assessed yet, but that has an impact with some inertia, because, of course, the safety stock you have tend to absorb the first month, and then when production had been stopped for three or four weeks, it takes a bit of time to rebuild the stock and come back. But today, all priority system and process are back to normal since August, and so we are operating in a normal situation. And we have done investment that will cost us a little bit more, but to improve the overall infrastructure, strengths and level of security.
In terms of perspective, we have confirmed the guidance we gave previously, so total revenue between 0% and 4% at constant rate and scope. EBIT adjusted, we keep at the moment 12%-13% at constant rate. After R&D improvement, you know, we are spending more in R&D, because before R&D, we tried to improve that. And in terms of net cash position, we are pleased to announce an improvement versus what was previously communicated by around 30 million, versus the end of 2022. Of course, this is without acquisition, at constant rate, without acquisition, and without the impact of the share buy program that we have previously communicated. I thank you very, very much, and I think we can open the Q&A session.
Thank you very much, Sébastien. Thank you, Habib. We have... Yes, we have a lot of questions.
All right.
I'm going to start-
We have some time.
... on behalf of Christophe Ganaye, who had some difficulties to connect, so he sent us a few questions-
All right
... by email, exactly five. So first question regarding Q3: "What are the price and, volume, trends for Virbac and for market, for the veterinary market?
For Q3?
For Q3, what are the price and volume trends?
We'll meet, few weeks, or you want to answer?
Few weeks.
Because-
Today.
He's also asking the question by geographical area.
Yeah. No, what we can say is that we don't have the data yet for Q3, obviously, of the market, the overall market dynamic. We have shared, and I've done it, Sébastien has done it, the market dynamic for Q2, that was around 2%-3%, which is also what we've seen on a rolling basis for the past 12 months. We'd see, during the remainder of the year, whether we remain on this trend, which has been the same for the past 12 months, or whether there is an acceleration or deceleration, it's still too early to say. On the price dynamics, we can share what we have done for the first semester, which is slightly above 5% in terms of price increase.
When we compare the average price of the first semester of 2023 with the average price of the first semester of 2022, we have no reason to believe that there is a significant difference with the average in the market. So we could expect that in the market, the level of price increase is about the same. Although there could be a huge difference on a product-by-product basis. I've mentioned the pet food, which much easier to increase the price because of the overall situation and the raw material, for instance, that have increased very much. There are some other product categories where it's much more difficult, for instance, the parasiticides. So the 5% is really an average.
And so-
And from-
Yeah, so-
Go ahead.
Now, just to complete, where we see is that the price increase. Virbac has been very good in doing the price increase. I think among the, the size, the company, mid-size company, we are probably the one doing it the best. Where we see that we see significant price increase is on very differentiated products. So among the top innovative product of the top four, you have good price increases, but for the rest, it depends on company. So I think we are on the high range, high end of the range, and. But volume are down, mostly, for the market in the first half. So we'll see what happen.
So-
...in Q3, in a few days... and maybe a final
Yes, final, because we have a list like that.
A very long list. No, final comment on the region.
Yeah.
To mention that we've seen for the first time, for a very, very long time, a negative evolution of the market in the U.S., in Q2 2023, slightly below 0%, whereas the other region are still on the positive side.
But with a very positive price variance.
Okay.
With a very positive price variance.
I can't stop them! Semester two, how will costs be characterized in this semester two regarding gross margin, OpEx, et cetera?
Yeah, what, what we can say is that we will have, an acceleration of the, of the expenses during the, the second, second semester, versus what we've seen during the first semester. A little bit similar to what we had last year. This is true on R&D, this is true on some other expenses, and we can confirm that we expect overall to end the year between 12%-13%. That's our, our guidance, in terms of, EBIT adjusted. But yes, we will have more spending during the second part of the year.
Thank you, Habib. I'm not sure to understand because we made a translation by ourself. Hope you will understand. What are the moving parts to try to project into 2024?
The-
Is it correct?
I think what happened over the last three years is we have increased price by 5% or more, for three consecutive year. That has helped the overall profitability of the company, and when inflation will start to slow down and costs will start to reduce, hopefully, we saw that happening with some raw material. We saw that-
Transportation
... for instance, in florfenicol. Transportation costs-
Mm
... have been down. Energy costs-
Mm
... we may negotiate better energy costs moving forward. So we may see an improvement in profitability if the costs reduce, while we keep the price at the level we have. But for most of it, it will be driven by the volume.
Mm.
Most of it is driven by the top line. So where we don't know and where we are a little bit, depending, is on the market demand and the ability of the animal health market, especially dog and cat, especially companion animal, to rebound and be strong enough. Over the last 12 months, now it start to be much weaker than it used to be. So we had two years a bit exceptional, but for 12 months now, it's normalizing, but at a much lower level than before, so we are a bit dependent on that. In term of OpEx, classical OpEx, I think I don't expect any change neither in second half or next year, versus what we do normally. It's a classical run of the business.
There is not nothing specific to mention or to comment. It's usual business. The real element we need to monitor is the volume and the market demand.
With the rising interest rates, what are the risks regarding impairment?
I, well, I will let Habib talk about the risk. He's better than me. I like the opportunity, 'cause with a higher interest rate, we see more opportunity in M&A. We see companies struggling, we see company divesting, we see company questioning their plan. And, and so with the financing becoming a bit tougher, the very good financial position of Virbac and the cash positive position is an opportunity for us in this environment. But for the risk, I let you comment.
Yeah. No, it's an overall balance between the different parameters. Obviously, the WACC, which is driven by interest, but also, inflation is playing on it. So, if there is a decrease of our WACC, it could generate some impact on the value of some of our assets. The only one that is, as we speak, with a little headroom, is our Chilean business. That's the only one, and we've shared that in our financial report. We still have some headroom, but it's true that if we have a reduction of the WACC for whatever reason, there might be an impact, which will obviously be a non-cash impact, but could impact on our financial statement. That's the only one-
Chile
... where the headroom. For the other one, we have a significant headroom ahead of us from an asset standpoint.
The last question from Christophe are about Globion. So listen to the list. What is their operating profit? What are the sales made of? What is the pipeline made of? And is Globion working on Gumboro disease, Newcastle disease, anemia?
So, Globion is 98% vaccines, poultry vaccines, so it's very much poultry vaccine, nothing else, to make it simple. Yes, we have a complete range of vaccines. So we have Newcastle, IBH, bronchitis. We have all the full range. In fact, there is one missing vaccine, which is Marek. So we don't have the Marek vaccine, but for all the rest, we have all the range. There is a pipeline, of course. Not very short term, but there is a pipeline that will come. We have a recent vaccine we launched in Salmonella, but otherwise, there is a pipeline more two, three, four years from now, among which Marek vaccine is part of it.
The key element to retain about Globion is mostly the fact that, yes, we have a complete range of vaccines, but so far, they were part of a, a end user customer. The end user customer, the Suguna Group, who produce poultry, were extensively, almost exclusively, sourcing their vaccine from Globion. Because of that, the competition of Suguna was not sourcing very much, so it was really dependent on Suguna. The beauty of this acquisition is that not only we have acquired the company to be able to go to other, poultry producer, to go to competitors of Suguna and go to other poultry producer. We will keep Suguna as our main, client, customer, because we have a long-term supply agreement where they have agreed to keep purchasing, comparable level to what they are purchasing today.
So that is a way to secure part of the value, and that I know the next question, of the acquisition.
Thank you. We have three questions from Arnaud Cadart, CIC. First one: What is the level of loss that you should register in 2023 for the Chilean business? The second one: What will be your R&D intensity in terms of percentage of sales for at the group level from 2023 to 2030? And the third question is: What about an increased return to shareholders through share buyback, or special dividend, or higher payout ratio?
Yeah. So on the first question, we don't communicate the details of the profit on a country by country basis, so I won't be able to answer that question. What I can say is that we are obviously doing everything we can to optimize the Chilean situation by working also on the cost base, given the dynamic that we have shared on the top line. But I cannot provide further details. The second question was related to-
Percentage.
To the intensity of R&D expenses-
Yes.
-as a percentage of sales.
So we have shared that we'd like to move from 7.5%, approximately, to around 8.5%, at the end of the year. So it's a 1-point improvement versus last year. And you remember that last year we already had around 1-point improvement versus the previous year. And the final question is-
... Yeah.
Is-
After the CEO.
Yes, after the benefit of the French-
Tax
... research tax credit. Yes, you're right.
The last question was about further return to shareholder through share buyback, higher dividend or higher payout ratio.
Yeah. No, there is no plan beyond the current program on which we have communicated this summer regarding the share buyback of 100,000 shares on the market.
Nicolas Poyarkoff from Kepler is thanking you for the in-depth presentation, and he's asking one question: Could you give us more information on the financials of the acquisition, and when do you expect it to be accretive?
I can specify that we have not yet closed the deal. We have signed, but it's not closed. We cannot, and we will not, at this stage, provide further details on the profitability of Globion, for instance. What we can say is that we have paid several tens of million of EUR for the acquisition. At that stage, we are not providing any more information.
Maybe we can say that we'll be closing on November 1st. The target date for closing is November 1st. What we can say, because it's a benchmark with the market, and it's known like that. As you know, if we do that, it's because we search vaccines, and vaccines in poultry, like in aquaculture, by the way, are quite a high-margin products. The profitability is good and should be accretive at group level. There is no doubt about that.
We have a series of questions from Laurent Gelebart, Exane. So I will go one by one. The first one is: Do you still expect to spend EUR 100 million in CapEx for this year?
No, it will be lower than that. You've seen that we have adjusted our net cash position expectation for the end of the year, and we have increased by approximately EUR 30 million. And it's essentially linked to CapEx delays that we have had on some programs, especially real estate, for instance, that have been pushed from 2023 to 2024. So that explains, so we won't spend EUR 100 million. It will be below that.
What news could you provide as regard to the pet food factory in Nîmes?
That for the pet food factory, we have submitted the building permit in September, according to plan. The permit and the ICPE has been submitted according to plan in September. We are now, in the next six-nine months, expecting the return from the authorities. As most of you know, or all of you know, there have been some complaint about some people in the neighborhood of the factory where it will be built. Hopefully, this will not delay, but the next step is for the authority to deliver the building permit. We are now in the phase of waiting and expectation of getting all the authorization to be able to develop and start the program. We will know more in six-nine months, probably.
Mr. Gelebart has also some questions about Globion, but I think they have been answered earlier. A question addressed to you, Mr. Huron: Could you explain why you have acquired EUR 250,000 of Virbac shares in July?
Well, simply because I'm very confident in the outlook of the company. We have a 2030 roadmap, where we want to execute and go toward the 20% EBITDA. And so considering the situation as of today, and with this long-term confidence in the company, I think it was a proof of the confidence in the company and the way we will manage it in the coming years.
... Thank you, Sébastien. We had a question from Laurence from Oddo about the multiple that you paid for Indian acquisition, but okay. Percentage of EBIT margin of this acquisition, we will see it later. And potential vaccines for India, for Virbac, we will see it later as well.
But we have acquired a company who has made a vaccine, so we are going to have this portfolio. And again, the game will be for us to geo-extend within all India, these vaccines, and have a broad coverage. Because to give an example, Globion had 30 reps. We have 1,252 people-
Yes
... in India, of which 150 reps in poultry. So we have five times more reps than they had before, so we expect to be able to have a better coverage, and with that, to increase the sales. The EBITDA proportion, as I mentioned, is quite good for vaccine that we could be expected, so it's nothing surprising. It's classical for this type of business. And we have not disclosed, and we will not disclose at least at this stage, the detail of it, because it's also something we discussed with the seller, and so at this stage, we cannot provide more information.
Still on Globion, do you expect major CapEx over there in India, or will you remain with your CapEx plan as it is?
So that's a good question. So yes, we expect CapEx in India. In fact, we expect to invest there, to make it a global center of excellence for poultry vaccine, to be able to export in Africa, Middle East, and maybe later, Asia, and maybe one day, Latin America. So we have planned in our modelization CapEx in the manufacturing site, as well as we have planned for hiring people. Hyderabad is a fantastic ecosystem for vaccine production, pharmaceutical production. There are many, many Ph.D.s. We think we have a competitive advantage with a manufacturing site that is located in a very good area, where there is room to grow, by the way, or to expand, because there is land, and where there are many Ph.D.s and very good talent. So we expect to invest in OpEx, in R&D.
We expect to invest in CapEx to prepare for the future and to prepare this. So yes, we, we plan to do that.
We have a question from Eric Bleines. You said that you decreased the factoring program by EUR 10 million. How much is the amount as of end of June 2023? And why do you keep this deconsolidating program?
Yeah, it's around EUR 10 million of factoring, so it's not material. It was around EUR 16 million or EUR 17 million at the end of December 2022, so that the order of magnitude. So again, not material, really, at the level of the group. Why we keep it? It's quite complex to set it up. For those of you that have set up such a system, such a program, it's not an easy setup, so it's good to have it to continue to operate it, even if it's at a low level. Sometimes we may need to leverage it again.
A second question from Mr. Bleines as well: Is your target in net debt for the end of 2023, taking into account Globion?
It's cheap as well, the factoring program, so it's obviously an element that has been taken into account. Regarding the net debt, no, it's excluding acquisitions. So the net cash position that we have provided as a guidance is excluding acquisition, so excluding the impact of Globion. Yes.
Latest question from Mr. Bleines: Do you capitalize any R&D?
No.
No.
We'll move to the next set of questions from James from Jefferies. What is the margin differential between vaccines and the rest of the group, and how does Globion margin compare? What is the margin differential between vaccines and the rest of the group at Virbac level, and how does this compare with Globion's margin?
Yeah. It's not something we can answer like that. It's a bit more complex. So, vaccines for dog and cat, for instance, have average, sometimes low margin ratio, because it's a commodity, perceived as such. In food-producing animal market, like aquaculture and poultry, what you need to understand is the food-producing animal, they live very closely to each other. So they pass a lot of virus and bacteria all the time between them, and that's create a lot of pressure and sometime, emerging variant, emerging disease. And because of that, there is a much more value perceived in vaccines for food-producing animal. And because of that, you can have a higher price for it. So we tend to see much higher margin in vaccine for food-producing animal, but it depends on species.
Then when you come to India, this is a low-cost production with a very specific way of handling vaccination. There is a little in ovo vaccination, for instance, and a lot of vaccination in chick of one day and the reproductor. So the margin is not the same for the chicken than for the reproductors. So it's very complex. What we can say is that the margin of Globion is, again, very much in line or accretive to what we have globally. And that's the reason why we did it. We, of course, did an acquisition that would make sense to us.
Last but not least, because we didn't comment it, but the fact that we will finance the acquisition by the cash we had in the Indian affiliate, will avoid us a 10% cost of bringing back the money in France. Because when you transfer the money, you have to pay 10% of tax on that. So we will use the funds and the money we have in the Indian affiliate to make the acquisition.
Another question from James. You mentioned in your introduction that China had an impact, but there is also an opportunity for pet food. So how we should think about the push and pull dynamics for this particular market, China?
... China was supposed to deliver already much better over the last two years. When we start to over-invest in China, we have been collided with the COVID situation. And so as soon as we started to recruit new reps, we had the COVID and zero-COVID policy, and so all that has been a bit of a mess over the last two years. I think we have changed a bit the management and the local organization. We are now coming back. This year has been or is in the first half very difficult, where we didn't get the pool expected. But we have a new parasiticide which have been launched. We have the pet food that will be launched in the coming weeks, and we expect a vaccine to be registered and launched next year.
So with all the three legs, four legs, pharma, parasiticide, vaccines and pet food, we think we will have a global product range and now be able to extract much more value in China. So we remain very positive about China. We remain very positive about the perspective of growth. Pet food is too early to call. In certain country, we do extremely well, very rapidly, but the normality normally is that we take, three, four, five years before we can really reach critical mass. I don't know, on which side China will play out, but it is likely that we will have a slow start because we don't want to go too quick. For instance, we will be exclusive to veterinarians. We will visit veterinarian. We will not use an online sale.
We will go offline to veterinarians to explain the science, to explain the formula, to explain the benefits of the product. So that takes time, but that ensure you that you have the good basis for later on speed up the growth. What you also need to understand is that so far, we are forcing our reps to sell the difficult part of the sales because we provide them only with a maintenance pet food. I mean, we don't give them the diet for them to focus on the maintenance pet food, which is the food that you give every day to the adult dogs or the young dogs, and then after 18 months, we provide them with the diets which are the therapeutic pet food. And in many countries, the vets are used to sell only diets.
They don't want to sell, maintenance or classical pet food because they have been outcompeted by the online channels, in the U.S., for instance, Chewy and Amazon, and in other country, by online sales, Zooplus or others. So vets are a bit reluctant to spend time on that. But for us, it's very important to tell them that we have a very differentiated product, a much better product, and so we want to spend the 18 months convincing them of the health benefit of this maintenance pet food. And when we manage that, it is fantastic, because once it is done, then it is incremental sales every year. It keep going. That's why you saw the 19% sales increase in the first half. Once you have convinced, once you have done the job, then it's for many years, it's growing. And so we want to force that.
We don't choose the easy path of giving the diets immediately. We are forcing ourselves to do the job properly, it takes more time, but we are confident that once the good rationale of why purchasing is established, you add the diets, and then you see the stuff, the sales ramping up. So that's what we do. Takes more times, but it will bring us much further away.
A question from Mr. Mirza: What can investors and shareholders expect from Virbac in 2024? And could you please provide some information about your share buyback program?
For you? Yes, so too early to tell for the expectation for 2024. Sébastien commented it, in a previous questions regarding the, main parameter, which is the dynamic of the, of the top line and the volume for next year, and obviously linked to the, to the market. So, that is, that is an element we, we don't control, and we don't have visibility yet. So again, still too, too early. On the, share buyback program, so it's 100,000 shares, that we are buying back, so it's a limited amount, versus the overall total. It's, aroundEUR 26-EUR27 million , of spending expected.
It will enable the majority shareholder, when we cancel those shares, to slightly increase their percentage of ownership of Virbac, moving from 49.7% to slightly above 50%, and this will be the same for all of the shareholders. We don't expect any impact on the share price based on the volume that we are considering, which is, again, extremely low versus the overall number of shares that we have within Virbac.
Thank you, Habib. We have still a couple of questions, but we are arriving to the end of the list, and we have still 10 minutes, so I'm going to be quick.
Good.
A question from Arnaud Cadart: Could you give a bit more color on the current profitability of the pet food business? What it could be with your own factory? Okay, so, we said in the past that the pet food profitability was much more—very much in line with the overall, business of Virbac. But it depends always how you look at it. If you look before R&D, after R&D, and, whether you look at ROCE, return on capital employed. 'Cause what we have said is, in term of ROCE, return on capital employed, the pet food is quite accretive. It's quite good because we have much less CapEx. It's not a pharmaceutical product, so we have much less CapEx in pet food than we have on the other part of the business.
In R&D, we spend 2-3%, maximum 4% of sales in R&D. After R&D, it's also, quite profitable. Over the last two years, or since the war in Ukraine, with impact on the cost of material, of oil, cereals, and also meat, this has affected the margin of pet food. In 2022, we lost a significant margin. In 2023, we are bouncing back a little bit, but we have been affected over the last two years. What we expect is it to normalize more and more, and if we manage well the business, it should go back to what it used to be two years before, or three years before the crisis and the war in Ukraine.
What we also expect is the manufacturing site will add few points of margin once we will fully operated it. So we are targeting 2026 at this stage, but once we will have our manufacturing site of pet food fully operating, we should gain-- we should gain few points of margin because we will have less intermediary in the business. Today, we are outsourcing many of the production to intermediaries, so once we will directly operate our own manufacturing site, we will improve profitability. And that's one of the reason we do it. One is capacity, 'cause as of today, we cannot grow further and faster because of lack of capacity, and secondly, because we want to improve profitability. So that's the two main driver of this CapEx investment in Nîmes, produce more and produce better or at lesser cost.
The last set of questions on Globion as well. Which level of R&D shall we expect? No, it's not on Globion, sorry. Which level of R&D shall we expect for the next five years?
Yeah. So what we have said was, we will accelerate R&D. Also, because there was no M&A targets, there was no good M&A target, or when there were an M&A target, the price were totally unreasonable, and we refused in the past to purchase at a higher multiple or higher price. So now, with the interest rates ramping up, we see some company being more challenged with their debt and their financial situation, so we start to see more opportunity for M&A. So we are very attentive to that, and we will try to accelerate M&A if opportunity are confirmed.
But two years ago, three years ago, when we saw that, we said that the best use of our cash was to plan for organic growth and plan for our own—to master our own destiny, to master own future, and to invest in R&D in order to generate new products. So that's what we have decided to do. We have discussed of a ramp-up of two, three years of R&D. So now we are coming to close to the plateau, where we will be. And then, it of course, the question has been asked to me many times: Why have you not done it before? Why do you do it now? Et cetera. It comes because of the opportunity.
Before, the dogma of spending 7% of the top line in R&D was forcing us to be extremely selective and to miss some opportunity. Allowing us to increase R&D has allowed us to plan many programs in very attractive segments, and you know, this kind of opportunity, they are linked to the patent expiry of many products, and you have wave, you have wave of that. It doesn't—It's not a linear way. So sometimes you have many patents that will expire between 2027 and 2030. So you have a window where you can develop a lot of product to come between 2027 and 2030 to compete and gain market share on these segments. And then later on, it will become between 2035 and 2037. So it's not a very linear.
There are opportunity that need to be seized, and we discussed two years ago to go for that. We have a significantly increased pipeline with many programs. In parasiticide, for instance, we have eight big project in parasiticide, but we have also a very diversified pipeline with vaccines, pet food, parasiticide, pharma. To be able to accommodate all that, it was an obligation to increase the spending. We have increased the spending, we are reaching the plateau, and the idea will be to decrease it after what, coming back in five years, probably close to the level we had before we start to increase.
So if we manage, because there are a bit of inertia, if no other big opportunity comes into play, because we may find new, great opportunity, but if none of that materialize, the plan is to go back to close to 7%, 7.5% R&D. Well, before I talk always before improve the tax break from France, but let's say around 7%.
Yes.
P&L version, five years from now.
So we are going to close the question section within the webcast because-
Just one comment to complete something. The 20% EBITDA target, we always explained it was more or less at a 7% normalized R&D. In our current performance, we have two points above-
Right
... the 7%, and we should normally, in four or five years, go back to around the 7%.
Yeah.
Because we have five minutes to go, and we have five additional very last question. How long is the supply agreement with Suguna? How much of Globion sales is made with Suguna?
Don't answer that, so it will be quick.
Okay.
Okay, it's quick.
Very long term, very long term.
Can you talk about the size of Globion market in India and in other country? Is, Globion selling in other countries?
Very few, they have little bit of export in some African country, but very, very limited. So Globion is mostly India and mostly south of India-
South of India
... because of historical. So we, we try to geo extend, and the market is big. The market is big, so they are a nice player, but the market opportunity is large.
How long should it take to address the Latam and ASEAN poultry vaccine market?
... So after we close on November first, we will go and do a gap analysis of what the registration dossier needs to be done. So what kind of study needs to be performed in order to get the registration approval in the other country? And so I will be able to provide more light on that in six months time, probably, but not immediately.
Okay. Yes, I understand.
We should be quite straightforward for Africa and Middle East. Asia, it's heterogeneous, so depending on the country, it could be fast or long. Latin America may be a bit longer, except maybe Mexico. Again, it's very specific country by country.
Abderrahman, I have a last question. This is the very last one, this one? We said it is the last one. Okay. Could you comment on your product pipeline? Are you still working on the sea lice pathology?
Yes.
Could you comment?
Well, the comment is we have a very rich pipeline, very diversified. We play on pet food, vaccines, pharma, parasiticide, and pharma. So we are trying to have a mix of everything. We have certain generic, generic-plus products. So trying to be fast followers or first, first followers. Then we have very differentiated, unique products. We have some product, not so many, but some product that could become a Virbac blockbuster, and we try to have more and more larger product. All the pipeline, I think, should make the top 50 product of Virbac. The question was asked to me this morning, so I think in the pipeline, everything we have should be in the top 50 product of Virbac.
We have few blockbuster or Virbac blockbuster potential, but when I say potential, is for instance, some of them, if we are first to market with it, for sure, they will become blockbuster. But if we are number three or four after the top three guys, so it is Merck and Elanco, they may become a $20 million product instead of $80 or $100 million. So that we don't know. It's part of the game, and we will see. We do our best to come first or to come quick.
It is 3:44 P.M. We have come to the end of the meeting. Thank you very much on behalf of the Virbac teams for your attendance and your loyalty to our company, and we wish you all a good afternoon. Thank you, Abderrahman, for this conference. Thank you to-
Thank you.
My friends from the communication department, and thank you to you, Sébastien and Habib.
Thank you very much. Thank you very much. Have a good afternoon. Have a good day.