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Edited Transcript of BIM.PA earnings conference call or presentation 4-Sep-19 12:30pm GMT

Half Year 2019 Biomerieux SA Earnings Call

CRAPONNE RHONE-ALPE Sep 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Biomerieux SA earnings conference call or presentation Wednesday, September 4, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandre Mérieux

bioMérieux S.A. - Chairman & CEO

* Guillaume Bouhours

bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems

* Sylvain Morgeau

bioMérieux S.A. - IR

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Conference Call Participants

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* Catherine Tennyson

BofA Merrill Lynch, Research Division - Analyst

* Christophe-Raphael Ganet

ODDO BHF Corporate & Markets, Research Division - Head of Equity Research

* Daniel Henry Macek-Alwell

Piper Jaffray Companies, Research Division - Research Analyst

* Delphine Le Louet

Societe Generale Cross Asset Research - Equity Analyst

* Maja Pataki

Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector

* Romain Zana

Exane BNP Paribas, Research Division - Research Analyst

* Scott Bardo

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the bioMérieux First Half 2019 Financial Results Conference Call. Today's conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Sylvain Morgeau. Please go ahead, sir.

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Sylvain Morgeau, bioMérieux S.A. - IR [2]

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Good day, everyone, and welcome to all of you. It's a great pleasure to welcome you to this webcast. So before I give the floor to Alexandre and Guillaume who will present bioMérieux half-year results, I would like to make a very short introduction to provide you a couple of information. So first of all, I wanted to inform you that we released our press release this morning at 7 a.m. The press release can be found on the Home page of the website, and if you have not received our news release or if you would like to be added to the company's distribution list, please send your request by an e-mail to Investor Relations at biomerieux-finance.com. In addition, please note that the slides of the meeting are also available on the Home page of the website or can be downloaded directly from the webcast. And promptly after the end of the meeting, the webcast and the call will be available in replay directly on our website.

I will not read the next slide, which is about the disclaimer, but I recommend you to take note of its content that reminds you of the usual disclaimer about the forward-looking statement. And now, going to the presentation floor, Alexandre will start by giving you his main messages after the first 6 months, and then Guillaume will continue with the financial review. And finally, we will hold the Q&A session. We will take first the questions from the conference call and then from the chat of the webcast.

And now Alexandre, the floor is yours.

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [3]

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Thank you, Sylvain, good day. And good afternoon to everyone. So I will start by giving the key takeaway messages for H1. So we announced our results this morning. So basically when you look at sales, so we displayed an organic growth of 5.5%, which is an (inaudible) Compared to Q1 and we also displayed contributed operating income of 15.7 -- 15.5% growing by 7%. All in all, you can see that the main drivers of commercial growth for this last 6 months have been around Molecular biology, which displayed a nice growth of around 21% in H1 with more than 1,200 new systems installed in the last 6 months. And add back the general (inaudible) double digit growth. I would say the key events in terms of M&A business development for the first 6 months was first the acquisition of Invisible Sentinel that we already discussed with you in Q1. And to note that we took a controlling stake at Hybiome where we have previously owned 55%. And now, we move to control 67% of other company. So we believe we had a satisfactory results for the first 6 months, which brings us to confirm our objective of the guidance for 2019 with sales of -- organic growth of sales between 7% to 8.5%, while we keep on the guidance to have a contributed operating income between EUR 385 million to EUR 400 million.

So in bioMérieux, we are all about (inaudible) disease, we're about (inaudible), we're about consumer health, (inaudible) in syndromic testing with FILMARRAY, but I would say one essential fact is the fight around AMR, which is an antimicrobial resistance. And as you know, it is becoming -- it is today a worldwide threat in every country, every MOH is talking about this. (inaudible) on this. To fight AMR, you need education. You need good practices in hygiene. You need new drug development, and you need good diagnostic. There are not so many new drugs under development, so we believe that diagnostics has a stronger role to play to fight AMR through the right identification of the pathogen and also through pushing for the right antibiotic treatment. And I would say that bioMérieux is perfectly suited today to drive this fight because we have the full suite of solutions whether this is using molecular immunoassay or microbiology type of, say, solutions that what we have. Also what we are doing also is we're investing also possible solutions. The key [type] would be around bringing new innovation. As we said, there's a strong (inaudible) communication transport. This is also what we are doing with such initiatives at the Global Point Prevalence Survey all around the world. So we're really pushing the company towards bringing also this medical value around AMR.

Next one. Now if you come back on some key units around the first 6 months. Regarding immunoassay, I would say we can talk about a mixed picture for the first 6 months as we still are under pressure on the U.S. market, mainly with PCT. PCT is still a growing market in the U.S., and today, we are also working to develop our solutions all in the lower or middle size type of hospitals. We faced these first 6 months linked to the lab consolidation, also big pressure on the VIDAS [switching] test in Europe. And the lower part of Europe, Middle East and Africa. And also with the H1 event that we won't see in H2 regarding immunoassay, also we have some credit, logistics issues in some part of the world, mainly Middle East, that impacted us in H1.

But when you look at immunoassay also, what is important? I mentioned Hybiome. So we moved to a stronger (inaudible) stake with Hybiome, which is a Chinese immunoassay company, which performed well in the first -- H1 with double-digit growth. And it is becoming -- and even become more and more important for us, thus working on the China market. We launched a new test called VIDAS PTH for the monitoring of chronic kidney disease, and also, we are investing in a pipeline of innovative products that you know -- some of you know, such as Nephrocheck, also latent tuberculosis and also arboviruses.

If I come back on the molecular, remember that in Q1, we had a growth of only 13%. It was linked, I would say, to a mild flu season compared to a strong flu season the year before, and we displayed nice growth of 31% in Q2. Also interesting to note that the sales outside of the U.S. are increasing now to present a 17% of the worldwide sales of the FILMARRAY. We keep having our future growth driver linked around the development of new panels including the construction of test and panels on our platforms, working and growing internationally and developing, investing also, for new panels and also upgrading the BIOFIRE instruments.

(inaudible) to notice also that remember, last year, we talked about Palmetto. I think discussing with the American Medical Association, we were granted PLA codes for FILMARRAY, which are proprietary codes which are overwriting the existing CPT codes. I would say, as you know, it's always -- it's only impacting the outpatients, not -- it's not the majority, of course, of our patients from FILMARRAY because having these billing codes, rivals will negotiate like we did with Palmetto, a new reimbursement. All in all, we believe that the work we're doing is also showing a stronger recognition of the value of single-meter testing (inaudible) our investments are working for 3 years, but outside of the panel reduction. Also I would say, linking some previous restrictions around the doses of the single meter testing. With that being said also, we will start for the Pneumonia Panel, but we're convinced around the stronger medical and the technical value of this new panel for bioMérieux. On this slide is just (inaudible) is on all of the value that FILMARRAY is bringing, basically when you compare the use of FILMARRAY to a classical culture method, you get the results faster. You detect the right resistance, and basically, you have a stronger impact on how to monitor the patient. I think [at this point], I can now leave the floor to Guillaume, who's going to come back on the financial results of H1.

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [4]

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Thank you, Alexandre. And good day, good afternoon, everyone. So let's review our financial and operational performance. We start with total sales. So established growth is 9%. As you can see, the currency effect was favorable this semester with plus EUR 29 million, majority coming from the U.S. dollar. We also have the contribution of our recent acquisition especially Hybiome and Invisible Sentinel in terms of scope additions and an organic growth that we will review together details of plus 5.5%. Let's look now at the organic growth by range of 4 major ranges and applications. So microbiology was up 3.7% in the semester with a good performance of the 2 major ranges inside microbiology, the VITEK identification and antibiotic [sustainability] testing as well as the (inaudible) blood pressure were both performing well inside microbiology.

Immunoassays. Alexandre explained already in detail of minus 3% with the major effects coming from volume in Europe due to lab consolidation, price pressure in the U.S., especially on the PCT parameter. And as mentioned by Alexandre, some nonrecurring effects on logistics and credit issues in Middle East, Africa. BIOFIRE and molecular overall, plus 18% in which 21% sales growth of the BIOFIRE range only. We did very well distributed growth over its 4 major panels. Industry grew 3.7% overall on the semester. Inside this, it's important to note that regions were up 6%, while equipment's on the high base were slightly down. So still a very strong demand from the Pharma industry, as well to note as the ramp up of our new, let's say, molecular biology range for food applications called GENE-UP.

Let's review now the organic growth by geography. Americas, our first region, North and South America together represent 45% of group sales was up 6.7%, which is a mix of, let's say, contrasted elements and trends. Of course, BIOFIRE with its domestic sales in the U.S. was a strong growth driver, double-digits over the semester. Microbiology regions were also up inside these figures for Americas, and this offset, of course, as mentioned already, the price pressure on PCT sales in the U.S.

EMEA was up almost 2%, 1.8% exactly with a solid growth of BIOFIRE in the region as well as industry and to note some one-off decline in Middle East, Africa that are one-off in terms of let's say credit issues with customers or distributors or logistic subjects like customs that we expect to solve actually in the coming months. Asia-Pacific, very regular strong growth at 11%, pretty similar to the last year and still a very solid performance showed by China, India and Southeast Asia.

If we now turn to the P&L we review the 5.5% organic growth on the topline. Gross margin, as you can see, improved from 54.3% to 55.7%. So a pretty significant increase. The first reason is actually the product mix that was favorable, as usual higher growth of BIOFIRE range with the stronger margins than the average of the group helped on the product mix. We can also mention on the gross margin a better operational efficiency. What we mean by that is manufacturing, purchasing, supply chain, all having positive effects.

Other operating income to note this semester increased in terms of income, and this reflects higher R&D tax credits as well as a higher rent income from a third party. SG&A, more importantly, was up 11% on a like-for-like basis, reflecting our increased sales and marketing initiative, especially to support the growth of BIOFIRE worldwide and in the U.S. and abroad. R&D was up 7.6% on a like-for-like basis with additional R&D effort in investments in microbiology as well as gross molecular biology. Important to note and not visible on this page, but as mentioned in the press release, some, I would say, special items in H1. To explain, first, phantom shares scheme in the U.S. that we explained already in the past, which is a valuable compensation for our U.S. employees, which amount is linked to the share price of bioMérieux, so it moves up and down with the share price. For the phantom share scheme, we had a provision of EUR 26 million in the first half linked to the strong increase of bioMérieux share price to be compared with EUR 26 million provision to EUR 10 million in the first half of 2018. So this is a positive, let's say, a special item. We have some one-off to mention as well, negative. We decided in the U.S. to -- sorry, sorry, the opposite, of course. The phantom share is a negative EUR 26 million as compared to minus EUR 10 million last year. We had some positive one-offs, too important to mention. We decided to freeze the U.S. pension plan which was on a defined benefit scheme yet, and that has a very [countering] actuarial impact of plus EUR 11 million in our P&L in the first half. And the second one-off, which was actually a litigation win in France on social charges, which has a positive provision release of EUR 6 million. So actually, all-in, these negative (inaudible) and the positive -- the 2 positives one-offs are quite neutral if you take those 3 together. So all-in, contributed operating income is at EUR 198 million, up 11% on an organic basis and a margin of 15.5%. And as you can see, the only reason, actually, why the margin does not increase in terms of percentage is the dilutive effect of our recent acquisitions, especially (inaudible), first quarter of last year, that there was a first time increase, Hybiome and Invisible Sentinel.

Let's move now below contributed operating income. So we have a stable amortization of BIOFIRE acquisition price, mainly at the end of the semester. Net financial expense was slightly up at EUR 14 million due to the slightly higher cost of Chinese financing for the Hybiome acquisition. Income tax is at a pretty low effective tax rate of 20.8% we will see in a minute more details on this. And so overall, net income group share at [144] -- EUR 141 million, that's almost 5%.

So a quick zoom on the tax rate. So from a 32% French tax rate, actually we derive with our mix of countries, recurring effective tax rate still at 23%. The only notable nonrecurring -- major nonrecurring item this first half was the calculation of one of the effects of the U.S. tax reform of 2008. The tax relief was published by U.S. administration this year, which is called FDII, so Foreign Derived Intangible Income, which actually improved our effective tax rate by almost 2 points.

Two words about the cash flow statement. So EBITDA is of course up in line with EBIT. Working capital was, this semester, up by EUR 37 million, primarily driven by a significant increase in our inventory, and this increase of inventory is partially into growth, of course, especially for the molecular activities, and partially into rebuilds of our safety stock on some key raw materials that we decided to do during the first half. Income tax is slightly higher than last year and actually back to normative levels was low for different reasons last year. CapEx is at 10% of sales, EUR 123 million driven by special industrial investments. We add capacity for manufacturing and plants, and we can mention especially for the molecular range future growth. So all-in, the free cash flow, and this is the first line green is at EUR 55 million to be compared last year to EUR 98 million when we exclude, of course, the last year's free cash flow, the exceptional contribution to U.S. pension plan that we did in first half last year. We're slightly down for the reasons I mentioned especially on working capital and the higher CapEx. We used this cash flow for acquisitions, Invisible Sentinel and Hybiome, and overall, our net debt stands at EUR 422 million, which includes the restatement of IFRS 16 for rents, which actually increased accounting wise the debt by EUR 97 million during the half -- the first half. So now our net debt stands at 0.8. So still a very solid and reasonable level giving us headroom for acquisition and additional investment.

Two words about the outlook. Alexandre already explained that we maintained our guidance for the year on organic growth and EBIT. Just to mention that on top of the organic growth guidance for sales, we revised our view on the ForEx impacts, of course, with ForEx moving, actually we said neutral. Six months ago we did it now that on sales the impact should be around EUR 45 million FX impact positive.

On the contributive operating income, so all-in, EUR 385 million to EUR 400 million. Just to mention that the FX impact on EBIT, which we said would be potentially around minus EUR 5 million, we believe now, it will be better than that, so around neutral. And on the opposite side, the acquisition impact, I think we had mentioned around minus EUR 10 million for the year would be probably around minus EUR 15 million for the year, so actually these 2 on ForEx scope tend to offset.

That's it, and I think we can turn to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Catherine Tennyson of Bank of America Merrill Lynch.

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Catherine Tennyson, BofA Merrill Lynch, Research Division - Analyst [2]

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I have 3, if I may. The first is on the molecular division and the final one on guidance. Just if you mind for the first one. Could you please give us a little bit of color on how you've seen the competitive landscape in molecular in the United States change since one of your competitors has ramped up their presence there in Q2? And secondly, within molecular, as you've had a growing contribution, ex U.S. from the BIOFIRE, I believe from 15% to 17%, can you comment on the regional price differences that you see within BIOFIRE? And how we should think about that impact on the margin going forward? And then my final question on the full year guidance. If we look at the H1/H2 split, it implies that there's quite a step up that we should see in H2 for topline growth in order to reach the lower end. How much of this is from molecular rollout? And how much of this is from the offset of the increase in the immunoassay changes?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [3]

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I'll take the first one with the change of landscape in the U.S. So as you know -- okay, we have the details of the promoter of the [machinery] in the U.S., it's an attracting -- attractive space. What has changed in H1? I believe that's the FDA requirement for [Celgene] and also Luminex came with a [reversal]. But, okay -- So basically, we see more players on the scene. That's something we are ready to tackle. All-in-all, I would say the dynamic of BIOFIRE in the U.S. is still very good, and we keep on, I would say, working on the key differentiation that we have. The biggest one, I would say, is around the quality and the (inaudible) for the panel that we have today on the market. So, so far I would say, yes, there are more players but we have not seen indication, I would say, in our market penetration.

The second question was around BIOFIRE prices outside of the U.S. I would say that all-in-all, I think we are able to preserve -- to present, I would say, the medical value of the solution on that. There are no significant price differences on a worldwide basis. Sometimes we adapt -- to adapt. But I would say all-in-all, we -- the positioning is around the medical and the chemical value of the solution. Regarding the ramp up in H2 compared to H1. You will see an acceleration as we -- as Q2 accelerated versus Q1. (inaudible) be a nonrecurring effect as we mentioned in Middle East. I would say also that maybe in the first semester it has been a bit low in terms of sales of instruments. So all in all, at this stage, we confirm the initial guidance between 7% to 8.5%. We said that the regions are going right dynamic, and I think it's -- that's the best indicator for the company.

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Operator [4]

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We will take our next question from Romain Zana of Exane.

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Romain Zana, Exane BNP Paribas, Research Division - Research Analyst [5]

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I have 3. The first one is on industrial application. How do you explain the persisting softness on food testing into Q2 and especially on instruments, if I'm right? And is the acceleration expected into H2 for the group linked to a catch up in that -- in just your application division? The second question is on molecular biology. When we look at the sales organic growth or also the instrument placement, it's not obvious that you perceive any, let's say, new pressure from competition. However, the investment on microbiology and BIOFIRE in particular seems increasing. So is that a fair statement to say that you are able to contend any potential increase in competition, but it requires higher investment on your side in terms of R&D and marketing? And last question just on the cash flow, how should we expect the trend in H2, especially thinking about any material, let's say, seasonal change in working cap or CapEx normalization in the second part of the year?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [6]

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Regarding the industry, (inaudible) on a yearly basis, this last year we were more growing around 7% to 8%. So we are off to a low start. What is performing quite well still is the Pharma applications, very nice growth in that space and I would say on the food side of the (inaudible) is a good growth. We need to monitor a bit more, Q1 wasn't so good, I would say, a bit slow, food in the U.S. And I think also, we should see an acceleration in the AsPac region during H2. But to come back to what I think was said, I think the region sales of industry are around 6% in H1. So if I go to recover these instruments, we should come back to higher growth in H2. I think, at least from my side, no specific worry to have around the (inaudible) dynamics of industry.

Your second question was around investments we do in molecular. Yes, we do investments in molecular. You have seen also recently that last year, that there will be a freeze on our investments in R&D are regarding to molecular. To be frank, they're not so much linked to our competition because we knew that competition would come and regarding to the fact that we believe we want to keep on leading the race, I would say. We believe also that the FILMARRAY and the (inaudible) platform will be started. There's a [bunch of] things that we're working on, we're working on new panels, working on improving instruments, and we just keep having investments in marketing also to make sure we promote the medical value of the solution, but I think that's something we would have done with outside competition because we believe in the evolution this platform. The third question was more for you.

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [7]

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Cash flow, so that the trend in H2 can set you up. Even though we don't, of course, we don't give cash flow guidance but still on the CapEx we are right in line with our guidance of about 10% of sales. I believe we -- and we reiterated (inaudible) of sales for the full year, we are in a pretty solid investment player, especially investing for additional capacity for FILMARRAY growth in the coming years, but not only that, of course, also strengthening our manufacturing footprint and setup everywhere. But on the CapEx, in terms of working capital, I can mention that -- so I mentioned that some of the working capital increased our inventory are quite -- happening in the first half, not quite structural. When I mentioned that we rebuilt some safety stock that we need, our inventory level this year growth safety levels for some key raw materials as we could do in H1. But beyond that, I can mention some seasonality effect. Usually in terms of days, we tend to increase inventory in H1 as some of the activities actually prepare for the next flu season, especially BIOFIRE, but not only. And actually, this reverses as the flu season and not maybe the food stock but actually hospitals buy in for the flu, starts to ramp up in November, December. So we, of course, starts to reduce our inventory level in terms of days in H2. So these are the long explanation I can give with the broad framework that, again, we don't give cash flow guidance.

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Romain Zana, Exane BNP Paribas, Research Division - Research Analyst [8]

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Just a quick clarification about industrial application. So in the step up, you expect for the second part of the year, industrial application is one of the lever to accelerate the group growth?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [9]

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Industry should do better end of the year than what it did in H1.

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Operator [10]

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(Operator Instructions) We will take our next question from Bill Quirk of Piper Jaffray.

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Daniel Henry Macek-Alwell, Piper Jaffray Companies, Research Division - Research Analyst [11]

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This is Dan on for Bill. First I wanted to piggyback off of an earlier question. BIOFIRE has those propriety codes for respiratory and GI multiplex testing. What is the latest on the multiplex panel reimbursement market in terms of maybe where the market is heading and what your strategy will be given that reimbursement dynamic? And maybe the timing of when we could find out that level of pricing, when we can start to think about that?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [12]

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So the fact that the [PD] code allow us to overrule -- overrun, sorry, the CPT codes. Remember, it's only for outpatient testing. This is not for inpatients, which is the majority of the patients treated with FILMARRAY and when you talk about inpatients, you don't talk so much about reimbursement, you talk about DRG, which is our global envelope, which is allocated to how to treat a patient or maybe, sorry, how to treat a disease. And also, these 2 codes allowed us to enter -- to negotiate, I would say, new reimbursement with Palmetto and some of the Medicare plan might follow and that I would say the reimbursement which are displayed on the side, I think, we believe our good recognition of the value of FILMARRAY and (inaudible) and also it could be for the benefit with this data of other investment. I wish I can add more.

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Daniel Henry Macek-Alwell, Piper Jaffray Companies, Research Division - Research Analyst [13]

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Understood. And one more for me. I saw that a competitor came out with some data on a [PBI Assay]. I was just wondering what's the latest on Banyan from you guys?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [14]

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On business first, it's R&D stage.

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Operator [15]

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We will take our next question from Maja Pataki of Kepler Cheuvreux.

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [16]

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I would like to ask 2 questions, one financial. If we're looking at EBIT that you -- the adjusted EBITDA that you reported in H1 2019, we've seen a bit of margin decline, which you explained with the dilutive impact from acquisitions. However, could you confirm that if we adjust both H1 2018 and H1 2019 for FX, the phantom share provisions and the impact from acquisitions, that the margin decline would be actually greater than 100 basis points? And if that is correct, could you please elaborate why it is? Is it purely the dilutive impact from acquisitions? Or is it the higher investments in BIOFIRE? And then the second question is related to the pipeline and that was mentioned in the slide pack, Alexandre. I have noticed that TB made it in there. I'm not aware of the fact that it was ever in written mentioned somewhere. Could you give us an update on where in the -- where you are in the whole project?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [17]

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Okay, I talk to TB on the year. We'll take the easy question on the [conversion]. Yes, to be frank, I think it's already technologically developed. To be frank, we'd like to communicate on new tests when they're developed or close to FDA or CE marking, but in that case, apparently, it was known that we were working on this latent TB, so officially that we are working on it. But we don't give dates with (inaudible) But R&D, it's development phase.

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [18]

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Okay, fine. But I mean you also don't give date on Nephrocheck when it comes to timing, yet we know that it is going to come. Is that the same for TB? Is it a -- the question mark is behind the timing, but not behind the -- if it comes?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [19]

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Sorry, I lost the last part.

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [20]

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Just on timing, not on visibility.

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [21]

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I said development phase, not R&D phase. So the research is largely done. But you never know when, how or ...

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [22]

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No, of course.

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [23]

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I'm not saying I was forced to communicate but since people communicate on our behalf, it is good that we endorse the fact that we are developing at best.

Okay, coming to EBIT for H1 and your question on adjustments. So just to -- I won't do all the calculation, but I'll give you the elements. So FX, as we mentioned has only minor impact, actually, a positive EUR 1 million on EBIT compared to 2019 as compared to 2018. So hopefully pretty small. So again, just for everyone, it's pretty significant on the topline, FX was plus EUR 29 million, but as you will remember, we have a strong U.S. dollar sale, but also a strong U.S. dollar cost base. So that's why it's much lower or smaller impact on the EBIT than on the topline. So FX, probably EUR 1 million difference. Acquisitions, we actually have around EUR 10 million negative impact when you add the additional quarter of (inaudible) that we had this year, and not last year. Invisible Sentinel contribution, and Hybiome contribution. It's about EUR 10 million negative in terms of EBIT. So that can be taken into account in our calculation. And then, basically, we gave you, of course, minus EUR 10 million last year moving to minus EUR 26 million in terms of provision this year. But we believe that when you do that, you should also take into account other one-offs, and I mentioned the positive ones that we had in H1 this year with the freeing of U.S. pensions for EUR 11 million and the litigation win, French social challenge, 4.6. for plus EUR 6 million. Virtually, if you look at one year compared to the other, pieced off with these 2 effects, change of neutralize. And I hope with all this, that you can have your overview on our margin percentage trend.

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [24]

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Right. Can you just confirm, was there any one-off last year in 2018, which wasn't put in the press release or something because I mean you have been kind in giving us the impact on phantom shares, the FX was at EUR 31 million negative, impact from acquisition was minus EUR 4 million? If you adjust the reported EBIT for all those impacts, what I see is a slowdown in EBIT margins if I adjust in H '19 as well. So I was just wondering what is the driver behind that?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [25]

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I was disappointed to see the decrease, but we did not know -- except for (inaudible) I don't think that we had any significant major one-offs to mention, not during H1.

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Operator [26]

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We will take our next question from Delphine Le Louet of Societe Generale.

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [27]

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Can we get more color on the BIOFIRE and FILMARRAY specimens in the U.S., but as well as ex U.S., meaning what is the countries driving the growth, what sort of passive growth do you see there? Is it comparable to the one seen in the U.S.? And more specifically for the U.S., can we get more color regarding the usage in terms of panels, the reordering per client? In average, how many FILMARRAY do we have right now on a client base? What is the commercial ramp up that you're seeing now that you have a far more deeper experience with FILMARRAY both in terms of installed based and as well as client terms? Could you share with us more granularity on this performance?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [28]

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Busy questions. Basically, dynamic is good, it's still good. I think that the U.S. have been very well and I would say outside of the U.S. we're doing even better. Of course, (inaudible) is coming, so we'll have to see, we see we have to adapt. So far we believe we are ahead because of the panels, the evolution of the platform. But I think all the durations are good because when you look at the number, the construction of panels per instrument, the value you see that the customers are not choosing one system for one panel, everything goes in the right direction. The differences are, we know that we have been in Europe, now we have to do a different type of promotion also because maybe the markets are different. We've got (inaudible). We also talked with the physicians, and also with the pharmacies. So it takes more time internally, I would say. Recognition of the value of FILMARRAY is stronger where we have good successes in Latin America or even in countries where we don't have reimbursements. So this is why we do this for (inaudible) on marketing investment. But I think for me, it's a nice growth story. We are growing at 20% by the end of (inaudible) acquisitions each year after the launch of FILMARRAY, so I only have good things to say about this launch. (inaudible) Guillaume.

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [29]

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Okay. But you can't, Alexandre, be more specific? I try to understand the evolution of the mix in the future and so get a sense for that, but of course, it's a beautiful story. I mean no one has -- and I'm not sure you were also thinking about that when you acquired BIOFIRE. But it's a wonderful -- it has been a wonderful path so far. So yes, for sure. But the breakdown between the GI, between the new (inaudible)...

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [30]

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We don't give the breakdown...

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [31]

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I know, but even a flavor of that.

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [32]

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(inaudible) number one, Eurozone are growing nicely. We just said so far (inaudible) has a slow start, but we still believe that the dynamics of time, we'll be in the top (inaudible). And I also mentioned that the growth of FILMARRAY is well distributed between the 4 major panels. So [RP], GI, meningitis and blood pressure. They are close to each other in terms of growth rate. That's what I meant. They all fuel strongly the growth. And then of course, they are not the same weight in terms of $1 million, EUR 1 million. But they all grow strongly.

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Operator [33]

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(Operator Instructions) Our next question comes from Scott Bardo of Berenberg.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [34]

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Apologies if I missed the explanation for this, but obviously, we've seen some slight deceleration in microbiology growth, and somewhat lower growth in industrial applications, consistently weak amino acid performance for the first half of the year. And of course, your guidance implies material acceleration in the second half of the year even to reach the lower end of guidance. So could you please explain to me, actually, of those businesses outside of BIOFIRE, why we start to see, if you like, your base business pick up more meaningfully throughout the course of the year? That will be helpful to understand some of the moving elements there, a bit better, please? Also just to understand your reiterated EBIT guidance -- contributive EBIT guidance of EUR 385 million to EUR 400 million. Were you aware of the likelihood of this EUR 17 million French settlement at the time of setting that guidance? Or I see you've reiterated that guidance today, so is that including this benefit that you see in the first half now? If you could clarify that, that would be helpful. And last question, really, just like to understand a little bit better, I appreciate you don't give an awful lot of clarity with respect to the makeup of BIOFIRE, but perhaps you can give us some sense of, given your considerable investments in this area, where are you with respect to consumable automation? What sort of benchmarking metrics are you having for bringing down cost of goods for cartridges for example? Perhaps you could share some feelings there with respect to return on your investment? And also perhaps a sense of what percentage of placements are going into [re-age] of mental? And what percentage you're selling, that would be helpful?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [35]

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Okay, many questions. Maybe I take the one on BIOFIRE automation. We are doing investments in BIOFIRE, I would say (inaudible). We know that also that we are (inaudible) investing in additional site for manufacturing. This (inaudible) to capacity and of course, (inaudible) capacities (inaudible) but also working on bringing more automation on the production line. We (inaudible) get from the price of goods. But I would say, everything we do when you have more volume, you can bring automation, so that's what we are aiming for but I would say that the main driver was to fill the soft capacity and the strong demand.

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [36]

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I will come back to your first question, explain as to where your first question was to have more color on the H2 expected acceleration of growth. So again, of course, in H1, Q1 was having the base effect of the flu season. So if we think about acceleration, maybe we should look more at Q2 7.4%. So actually the (inaudible) compared to that recent trend is not that high, I guess, in terms of elements, we mentioned, actually -- Alexandre mentioned that instrument was pretty slow and even lower in H1 is expected to pick up. There is also kind of seasonality sometimes, of the customer on the equipments, but tend to be sold and installed for revenue recognition in H2. So instrument is one reason, the other one that we mentioned is this one-off on nonrecurring effects, actually, that we experienced, several actually, in Middle East, Africa, where we had in some areas some credit issues, other areas some customs logistics issues. Some of these are already solved or will be solved and are expected to, of course, to accelerate and even catch up in these countries in H2. And then of course, as Alexandre mentioned, there is an overall trend of good recurring growth of our reagents in the different areas that is expected to pursue. These are the main macro elements on H2 acceleration that we can give. Your second question was on the EBIT guidance and the elements of one-offs. So (inaudible) litigation, we had, I mean, of course, we did not know when we closed the accounts because if we had known we would have taken this into our contemplating. So we did not know, we were hoping to win but you can never know with litigation. So that was, of course, post-closing event. But, of course, that was a positive event, but on the other side, we were not expecting to have -- and we had said that we are expecting, I think, 10% to 15% increase in the share price and hence we had, including our guidance, the corresponding effect on the phantom shares and the reality was a very strong pickup in the share price in H1, which, of course, went the way of [global] expectation on the phantom shares provision. But again, positive/negative as compared to the guidance given very early March.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [37]

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Okay, I understood. And --- sorry, just to understand a little bit better, I mean, bioMérieux financial guidance and prudence around the financial guidance has always been appreciated historically. But even to get to the lower end of the range, you need to see acceleration in the second half. I mean, would you say that the full range of your topline guidance is still in play? Or is it prudent and cautious to assume more the lower end given some of the impacts that you mentioned already this year? Can you give us some sense there?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [38]

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We will take out the full range.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [39]

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Understood. And maybe just a technical question, please. I see that you had some obviously, pretty favorable and helpful growth in Latin America, which is supported your North American's segment. Can you give us a feeling for how much the devaluation of the Argentinian peso contributed to that growth? Obviously, there has been some enormous currency volatility in Latin America, maybe a sense of what your volume growth was would be helpful?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [40]

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Those are 2 elements to answer. First, you should remember that last year, actually, we had a very negative effect in Brazil, especially -- we had 2 effects in H1 last year, we actually started SAP end of January in Brazil, and we decided not to invoice, actually, before the start, so we had, first quarter of Brazil, it was very low. On top there was a transport strike all over the country in Q2 of 2018. So imagine -- the fact that you understand that the base of '18, (inaudible), which is a big part of Latin America, significant part, was very low. So first, you have to keep that in mind. Whereas the cost in '19 was running normally and we had normal business activities. So there was a big effect there. And then on Argentina, you are very right, that's also a very key element. So actually, we were able -- the local team was able to pretty quickly react to the devaluation with a very strong price increase that to actually follow our own cost, which is a euro and dollar cost. So roughly 30% -- is a rough figure, but 30% price increase in Argentina after the devaluation this year, and actually that -- I'm talking about the August devaluation but we did the same, unfortunately, with the obvious devaluation of '18 as well. But you more or less have this element in the Argentinian part.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [41]

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Got it. And I know I've taken your time, but one bigger picture question. Alexandre, you're clearly comfortable and happy to continue to invest in innovation. After all, that's been a major driver for your share gains in the past as a company. And you've outlined some pipeline you're working on today. But one of your more recent launches, pneumonia, for which you're pretty optimistic as a company, you can drive meaningful opportunity. Can you talk perhaps a little bit about why you're so confident this will materially contribute to the company? Any feelings for what timing or any signals that we can be confident this is working well? And perhaps a little bit on reimbursements, are you managing to get good reimbursements here or premium prices or so? Can you talk a little bit about this?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [42]

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I consider that (inaudible) innovation because it brings medical value which was a very (inaudible) to give up because for the first year, you work with different type of sample, (inaudible) also, (inaudible) and I would say also that we added a registered (inaudible) and then we believe in it a lot because we believe it has an impact on the medical practice. Like every new innovative approach, I believe it might take some time, but the benefits are there. As you know, we're not running the company on a yearly or quarterly basis, so for me, at least for the long term, I think this one is a key differentiated business.

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Operator [43]

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We will take our next question from Christophe Ganet of ODDO.

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division - Head of Equity Research [44]

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Actually I have 3 questions and the one clarifying the EBIT guidance. So just to make sure, as I understand, you were not aware about the phantom effects, and were not aware about the one-off positive effect that be from litigation and so on. So this is why you do maintain your guidance, right? But why does exceptional elements are in the (inaudible)?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [45]

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So yes, you understood well, we were not aware that the phantom shares effect that went beyond what we had expected, negative. We are not aware about the litigation win in France that was a positive to offset. The only thing I can mention is we were aware, of course, because we decided on the U.S. pension plan effect to freeze when we freeze the U.S. pension plan, that it would have a significant effect. So that was already included. Just -- that's it.

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division - Head of Equity Research [46]

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So in the guidance, you have this retirement plan in the U.S. included, right?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [47]

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Yes.

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division - Head of Equity Research [48]

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Okay. Second thing related to the marketing expenses. How long, actually, should we see new sales force and recruitment for BIOFIRE outside U.S.?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [49]

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I think it's -- I think some countries or one country we are still not promoting FILMARRAY. One thing I think it will be for FILMARRAY, but it will be also for the global medical value setting of bioMerieux. FILMARRAY is a key component of this, of course, but maybe, I would say, theoretically, the (inaudible) of bioMerieux grew more into medical solutions area.

I'm not sure (inaudible) is so important, (inaudible).

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division - Head of Equity Research [50]

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Okay. So we should not see necessarily the impact of BIOFIRE and the fact that she -- there is a significant increase in the marketing expenditure on H1?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [51]

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Is BIOFIRE into selling high (inaudible) value with (inaudible), not something to laugh but to put to the physicians. Depending (inaudible) BIOFIRE, as long as we keep only 17% on certain U.S. (inaudible) but I will say any investments we do with BIOFIRE has been used for bioMerieux.

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division - Head of Equity Research [52]

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Okay, understood. And last thing, would you be able to share with us the impacts of the investments in terms of manufacturing capacity in Salt Lake and the impact we should see in next years in terms of gross margin for the FILMARRAY contribution? How much should we see more in terms of improvements given this niche effect? And how much have you already reached in terms of your plans for improving the gross margin of FILMARRAY?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [53]

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Okay, I will give you some elements, but not very detailed figures, sorry for that. So in terms of investments, I -- we have explained that we are actually building a full new manufacturing plant for BIOFIRE in Salt Lake on top of the existing. So it's actually a full additional capacity, and I think given the growth rate that you see, that we've seen for the last 5, 6 years and that we expect to pursue, it's normal that we invest quite massively in new capacity in advance. So that's a significant part of our investment and it will continue. And in terms of cost and (inaudible) in gross margin, that we don't disclose by product or by product line. We said every semester that BIOFIRE is higher than (inaudible) average -- higher than (inaudible) average gross margin. Higher growth of BIOFIRE has a positive effect on the overall group gross margin, and Alexandre also mentioned that, of course, with the volume and the work we're doing in terms of manufacturing, hopefully at some time. At some point, more and more automation, we would, of course, have some positive effects on cost of goods sold.

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Sylvain Morgeau, bioMérieux S.A. - IR [54]

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We don't have any more questions from the call. We have a question from the webcast. So could you confirm that the impact of phantom shares will fade from 2020 onwards?

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [55]

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Yes, a very good question as well. Actually, I didn't have the opportunity to mention, it's important that we paid the first tranche of the phantom shares in July. It's a 4-year scheme, so actually the first grant was in '15. So the first payment was July '19. The effect of that of paying is actually that the volatility impact on EBIT will start to reduce and actually for H2 for example, I can mention to everyone that the EUR 1 change in the share price has EUR 1 million impact on the EBIT, one way or another, of course. And going beyond that, we will see, of course, the phantom shares impact fade. We have another payment in 2020, and another in 2021.

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Sylvain Morgeau, bioMérieux S.A. - IR [56]

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Thank you, Guillaume. And a second question from the webcast is that we are investing in immunoassay, (inaudible), tuberculosis and are we comfortable that VIDAS is a good platform to support the different projects?

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [57]

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Yes. (inaudible) I would differentiate Hybiome from VIDAS. Because Hybiome is a clear type of platform, so (inaudible) mainly at China markets, so (inaudible). On the old VIDAS I'd say there's still a good platform to develop a high (inaudible) and it's also still a good platform to go into emerging fast developing countries where the size of laboratories are small to the region.

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Sylvain Morgeau, bioMérieux S.A. - IR [58]

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Thank you to all of you and so next touch point with you will be for the Q3 results at (inaudible). It will be disclosed on October 22 this year. So thank you very much. And looking forward to discussing the results with you and to talking with you.

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Alexandre Mérieux, bioMérieux S.A. - Chairman & CEO [59]

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Thank you.

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Guillaume Bouhours, bioMérieux S.A. - Executive VP of Finance, Purchasing & Information Systems [60]

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Thank you.

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Operator [61]

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This will conclude today's conference call. Thank you for your participation. You may now disconnect.