DiaSorin S.p.A. (DIA) Earnings Call Transcript & Summary

Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin Full Year 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Carlo Rosa, Chief Executive Officer of DiaSorin. Please go ahead, sir.

Thank you, operator. Good morning, good afternoon to everybody, and welcome to the year-end results call for DiaSorin. I'm going to briefly comment quarter 4. As usual at constant exchange rate 2020 and then Mr. Pedron will take you through the numbers. It is noteworthy that Q4 represented a full recovered quarter from a revenue perspective. So it's very interesting that we are going to be -- I will compare results to Q4 of last year. And this will, in my opinion, give an indication of how the business is performing. Starting from this quarter, after the Luminex acquisition, I will provide comments in 3 different buckets that now we are using to represent the business, so 2 different technology groups. First, I will talk about COVID, which includes immuno and molecular, including also the Luminex COVID business. Second bucket is the immuno ex-COVID. The third bucket is LTG or licensed technology, which has to do with all those technologies that Luminex developed in licenses through partnership, primarily in the research space. Let's start from COVID. When it comes to COVID, Q4 revenues were roughly EUR 100 million, of which EUR 70 million were COVID products coming from Luminex. If we compare, as said to Q4 2020 revenues, if we look at the DiaSorin product alone, so excluding the Luminex component, revenues were down 20%. And this is, as expected, related to the fact that Q4 volume -- testing volume of COVID compared to previous year was roughly down by the same number. So we continue to have an extensive installed base of customers that are using our molecular product, although we are certainly today suffering from shift up or down in volume. From a price perspective, of COVID, what I had to report is that we don't see price pressure in any of the major markets where we operate. If we look at the Omicron effect, I think it's noteworthy that compared to 2020, Omicron has created a much narrower peak of testing, which has been concentrated primarily in December, January with a very sharp decline that we start to notice in the last few weeks. So the peak -- Omicron peak compared to the Delta peak, they look very different. So overall, we continue to stand on our COVID projection. We need to wait and see what is going to happen in 2021 in the next few months about adoption of testing. And then certainly, we need to understand what is going to happen in the second half when it comes to -- and I don't think we -- anybody wants to see that. But we want to understand how the next season is going to look like starting from after the summer. I have COVID, by the way, and this is why I need to speak a little slowly today. On the immuno side, Q4 was largely in line with Q4 of 2020. So let's talk about immuno non-COVID. Quarter 4 was up 12% with CLIA x-D growing 19% year-on-year and CLIA Vitamin D flat, notwithstanding the loss of Quest in 2021, which certainly has been well compensated by the surge in vitamin D testing due to COVID. CLIA grew double digits in all geographies. Actually, on average well above 25% with the exception of China that continues to show a decline due to the known issues related to the lockdowns and strong price declines, which are driven by the adoption, as been discussed a few times, of regional tenders, which are really affecting price, especially on the Me-too products like thyroid, fertility, so the high-volume products. Our CLIA business is solid and is certainly driven as in the past with specialties. And in 2021, notwithstanding as I said the weakness of China, we achieved another record year of LIAISON XL placements over 550 systems worldwide with a record amount in the U.S. So notwithstanding the fact that China, which traditionally has been driving placement of XL has been very short in 2021. We really succeeded with immuno and the XL in the other 2 main geographies, but primarily in the U.S., where the hospital strategy that was initiated 2 years ago now is really paying out its dividend and we continue to gain share in this very strategic and important market share. And last comment I'd like to make on immuno is to do with MeMed. We launched the product LIAISON XL in Europe, and we submitted the file to the FDA in mid-December. This assay for me is a great fit to the DiaSorin portfolio as we discussed at the Investor Day meeting because it's a specialty. It goes naturally on our installed base, and it completes our infectious disease portfolio. So we have great expectations about the success of this product. Our partner MeMed is raising its ability to educate physicians, and we're going to keep you updated throughout 2021. But again, I really believe that this assay very well fits our growing installed base in the hospital market. Let's now discuss LTG . Please remember that this business is primarily driven by our strategic partners who adopted Luminex technology to develop either research or IVD products. Year-on-year, the business grew 20%. And this is even more significantly -- significant if we compare 2021 to 2020, that clearly, 2020 deep-dive because of the pandemic effect. If we now compare '21 to '19, still, we have a double-digit growth of this business, indicating that there is a very solid opportunity and it's going to be a contributor, both from a margin perspective as well as top line growth to the growth of DiaSorin. Last but not least, in this space, we launched the new platform. The Intelliflex is the new multiplexing platform for research and the book of orders exceeded by far our expectations. So when it comes to LTG, it's a very nice addition to the traditional DiaSorin IVD business. Before leaving the podium to Mr. Pedron, one more comment and has to do with LIAISON Plex or VERIGENE II as Luminex used to call it. We continue the validation effort to bring on the manufacturing line for the high-volume manufacturing in Chicago. We are focusing on, as we have discussed during the Investor Day, the gastrointestinal panel and the 3 blood panels, the gram positive, negative and yeast and as discussed, we expect to start clinical studies for IVDR submission in the second part of 2022. And we expect to start initial placements in Europe for customer usability in the early fall. Meanwhile, our traditional multiplexing business, which is mainly driven by the VERIGENE I is relatively stable, with ups and down clearly in the respiratory panel due to the COVID business. But we continue to maintain a very solid installed base, and we continue to invest in the multiplexing business, developing some of the manual application. You know our manual technology where multiplexing is called NxTAG and we have launched recently a new updated gastroenteric panel for the European market. So now I'm going to leave the podium to Mr. Pedron, who is going to drive you to the number. P.G., please.

Thank you. Thank you, Carlo, and good morning and good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DiaSorin in 2021. And I will also make some comments on the contribution of the fourth quarter and on the impact of the Luminex business. So the acquisition was completed, as you might remember, on July 14 of last year. To better understand the performance of the business, I will refer to adjusted P&L items. Therefore, sterilizing the impact of the following so to say, Luminex dealer-related elements. So the one-off acquisition and integration costs, the effect of the purchase price allocation, cost of financing and lastly, the fiscal impact of all of these components. Both in the presentation uploaded in our website and in the press release, we are providing a line-by-line bridge between adjusted and IFRS items. Having said that, as usual, let me please start with what I believe are the main highlights of 2021. We closed the Luminex transaction in July for a total equity value of approximately $1.8 billion. And starting from Q3 '21, Luminex financials are consolidated into DiaSorin. 2021 total revenues at constant exchange rate grew by 41% in the year, therefore, doing slightly better than the full year outlook, which was calling for a 40% progression. Q4 '21 grew by 36% vis-a-vis 2020 at constant exchange rate. Luminex' contribution to the top line at current exchange rate was EUR 195 million in the year and EUR 104 million in the quarter. This performance is slightly better than what we originally expected with the [indiscernible] mainly driven by the Luminex molecular business. The COVID [ revenue ] contribution at current exchange rate was EUR 378 million in the year and EUR 102 million in the quarter compared, respectively, to EUR 266 million and EUR 101 million in 2020. 2021 full year adjusted EBITDA at EUR 543 million or 44% of sales is slightly better than the outlook, which was set at 43% margin mainly because of the higher top line we just discussed about. We completed the Luminex purchase price allocation and as a result, in Q4 '21, we booked a EUR 24 million hit to our P&L of which EUR 18 million of intangibles depreciation and EUR 6 million of higher cost of goods sold. The latter coming from the revaluation at fair value of Luminex inventory, as dictated by IFRS principles. The quarterly run rate hitting our P&L from Q1 '22 onward, in the intangible depreciation line coming from the PPA is going to be EUR 9 million. You might notice that this number is different from the one we shared during the Capital Market Day, which was EUR 40 million. So the difference is coming from the fact that now we have completed the PPA exercise, whereas back in December, it was still an estimate. We keep confirming our ability to generate a very healthy free cash flow, EUR 301 million in the year. The net financial position is negative for EUR 986 million, with EUR 403 million of cash and the net debt leverage over adjusted EBITDA of EUR 1.8 million. Finally, the Board of Directors approved to propose to the Annual General Meeting to be held at the end of April, the distribution of an ordinary dividend of about EUR 57 million equal to EUR 1.05 per outstanding share and a buyback plan for up to 1.5 million shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Let's now go through the main items of the P&L. 2021 revenues closed just above EUR 1.2 billion compared to EUR 881 million in 2020, therefore, recording a growth of 40%, both in the year and in the quarter. The year has seen some EUR 6 million FX headwind net of which the growth would have been 41%. The growth at constant exchange rate and scope of consolidation, meaning excluding Luminex is 19% in the year and therefore, slightly better than the guidance, which was set at 18% and flattish in the quarter because of lower DiaSorin COVID sales, which Carlo just said, moved from EUR 101 million in Q4 '20 to EUR 81 million in Q4 '21. Q4 '21 ex-COVID, again, same perimeter of consolidation. So without Luminex recorded a solid growth of 10% at constant exchange rate compared to 2020 and 7% compared to Q4 '19, mainly fueled by a very strong performance of our CLIA ex-Vitamin D franchise which grew by 19% in the quarter and 22% compared to Q4 '19. H2 '21 Luminex pro forma sales driven nicely vis-a-vis 2020. Let me remind you that we didn't consolidate obviously in 2020 Luminex sales. That's why I'm saying pro forma. As a result of a good performance of the combination of ARIES and VERIGENE molecular platforms paired with a very strong license technology business with a joint growth of about 20%, partially offset by the so-called nonautomated assays, which recorded exceptional COVID-driven sales back in 2020 when the supply of COVID testing in the market was somehow limited and greatly overcome by demand. Full year 2021 adjusted gross margin at EUR 831 million grew by 38% compared to last year with a ratio of our revenues slightly below 2020. 67% vis-a-vis 68%. This difference is mainly driven by the inclusion of Luminex in the scope of consolidation and that is even more clear when we consider the adjusted gross margin ratio of the quarter, which closed at 66% compared to 68% of 2020. This variance is in line with our expectations and modeling, and is reflected in the guidance we gave last December during the Capital Market Day. 2021 adjusted operating expenses at EUR 357 million grew by 34% compared to 2020 with a ratio of the revenues of 29% vis-a-vis 30% of the previous year. The increase in the adjusted OpEx ratio of the fourth quarter from 26% of last year to 30% of 2021 is due to the very same reason highlighted for the gross margin, Luminex consolidation into DiaSorin numbers. Once again, this is in line with our plans and the guidance we gave during the Capital Market Day. We are expecting synergies to reach the level discussed during the Investor Day as the integration process will move forward. Full year adjusted other operating expenses at EUR 9 million decreased by EUR 3 million compared to last year. As a result of what just described, 2021 adjusted EBIT at EUR 465 million or 38% of revenues has decreased compared to 2020 by -- has increased, I'm sorry, compared to 2020 by 43% or EUR 141 million. Adjusted interest income and expenses at EUR 4 million is substantially in line with 2020 and the adjusted tax rate at 23% is in line with 2020 as well. 2021 adjusted net result at EUR 357 million or 29% of revenues is higher than previous year by EUR 109 million or 44%. Lastly, 2021 adjusted EBITDA at EUR 543 million or 44% of revenues is higher than 2020 by 41% or EUR 158 million. The variance at constant exchange rate is positive by 42% with a ratio of revenues of 44%. The adjusted EBITDA ratio in the quarter at 43% is lower than 2020, which closed at 47% because of the expected dilutive -- slightly dilutive effect deriving from the consolidation of the Luminex business, the very same reason which I've discussed a while ago. Now let me please move to the free cash flow. In the course of 2021, the group generated EUR 301 million free cash flow vis-a-vis EUR 232 million of 2020. Therefore, booking an increase of 29% or EUR 68 million. As discussed back in July, I believe it is worth underlining that in 2021, we have had a much higher tax cash out compared to 2020. EUR 118 million vis-a-vis EUR 37 million. This difference has been mainly driven by 2 elements: difference phasing and higher profit compared to previous year. Lastly, let's move to 2022 full year guidance. As usual, at previous year constant exchange rate, the outlook is in line with what I reported during our recent Capital Market Day, and is calling for revenues ex-COVID to grow by about 24%. Total revenues marginally lower than 2021, minus 2%, to be precise because of reduction of COVID sales for which 2022 outlook is about EUR 150 million compared to around EUR 380 million in 2021, and an adjusted EBITDA margin at around 35%. Before concluding, please remember that DiaSorin financials are highly exposed to the U.S. dollar, and even more so now that North America represents about 50% of the total group sales. Therefore, as a rule of thumb, consider that for every $0.01 movement of the dollar against the euro, DiaSorin revenues move by about EUR 6 million on a yearly basis. Now let me please turn the line back to the operator to open the Q&A session. Thank you.

[Operator Instructions] The first question is from Emanuele Gallazzi of Equita.

I have 3 questions. The first one is on the cost inflation. Can you discuss, let's say, in more details what we are seeing now in terms of cost inflation? And how are you dealing with it? The second one is on the QuantiFERON tuberculosis test. If you can just help us understanding the contribution of this test on 2021 revenues. And I would say, any color on your expectation for 2022 will be useful. And my last one is on the platform and in particular, on new placement made in 2021. Can you give us an idea of the split between new clients and, let's say, replacement ?

Carlo, do you want me to take it since you have COVID, maybe it's easier for me and then please just jump in...

Yes, please. Go ahead, P.G.

Okay. Thanks. So -- thanks Emanuele. I will start with the cost inflation. So we built in our model some cost inflation assumptions when we presented our numbers to the Capital Market Day back in December. Please remember that our business is not very much exposed to energy costs. If I look and if I think to the bill of material of our products, most of the costs are labor driven, and then I will touch labor. And then we have, obviously, our raw materials. And the -- if you want, the energy-driven part is the plastic, which is not, as I said, the majority of the cost of our products. So we built in our assumptions when we prepared the plan some cost inflation there. When we did the plan, obviously, we had no clue about what was going to happen with the Ukraine and Russia conflict, which is likely in the future for -- there's some additional question mark, which is very difficult to forecast now. So we are seeing this inflation. It's very clear when we look at transportation cost and energy costs for our manufacturing site, which again are not that material compared to other costs, I'm talking about labor. And I guess now we have to understand what's going to happen in the next few months, as I said, would be crisis in Ukraine. But so far on top of what I've just said, meaning transportation and some energy and we are not seeing much action. But considering the materiality, I believe we should be able to cope with it. Regarding the latent tuberculosis contribution in 2021 and 2022, I believe I cannot give you the exact number. As you know, this product is a product that has been developing partnership with QIAGEN. What I believe I can tell you is that by all means, this is, as expected, one of the contributor to our growth. As we disclosed in the Capital Market Day, most of the growth is coming from the U.S. market where the product was launched after the European one. Simply because the FDA -- simply because it was approved later compared to Europe. We still have room to go -- a lot of room to grow in 2022 with this product, with the latent tuberculosis. I believe we have disclosed to the market that we also got LabCorp as a customer for which we are very proud of. And this product together with the -- all the other specialty products and very likely MeMed as soon we will get a registrations in the U.S. will be one of the drivers of our hospital strategy in the U.S. So by all means, if I think about our CLIA ex-Vitamin D franchise, latent tuberculosis will play a key role also in 2022. The last question regarding the platform. So the installments that we quoted are net installments, meaning installments -- new installments, so not a replacement of existing machine. I mean if you place a new machine and you take out one from the market, it is 0, so it's not included in the number that Carlo was quoting. Meaning that all of that number is coming either from new business, meaning new customers, or from new business in existing customers simply because volume and menu is increasing. I believe we don't want to disclose exactly how much of those 555, I believe that's the number Carlo quoted, the installment coming from new customers, how much is new business. But as Carlos said, it's very clear that a big driver was of this new placement. It's coming from the U.S. where our hospital strategy is really delivering very nicely for us. And so we're already seeing the results of investments we made a couple of years ago there.

The next question is from Peter Welford of Jefferies.

Firstly, if I could just ask a question on the COVID dynamics that you're seeing. You mentioned that there was a sharp decrease in the last few weeks. I'm curious if you can just comment with regard to -- is this a very U.S.-focused comment? Or are you also seeing similar trends in other geographies? And could you just talk a little bit about perhaps which platforms in particular you're seeing that across all the platforms. I guess I'm just curious with regards to what sort of type of test in particular, you're seeing a change? And are you still seeing roughly stable COVID, I appreciate small, the COVID antibody testing business, which I think historically you've said has been relatively robust. Secondly, then just on China. I wonder if you can just comment with regards to what you're seeing in China. We obviously hear a lot of reports about further lockdowns, obviously a big COVID wave at the moment going on there as well. I guess, I understand that you don't have much exposure, I don't think to COVID testing in China. So is there still from your point of view considerable disruption likely to the Chinese business this year? And I wonder if you can just comment a little bit on what you're seeing there and any change at all to what I think is already a challenging environment. And then just perhaps I have 2 financial quick questions. One, just can you possibly provide an outlook for the total depreciation and amortization we should be thinking about for 2022, just to get the EBITDA from an EBIT number? And secondly, also the financial expenses, any, I guess, in fact you could provide into what sort of finance costs in the P&L we should be thinking for 2022 ?

P.G., I will take the COVID in China, okay? And you take the other 2. When it comes to COVID, the comment, we have seen already last year that the U.S. is following a complete different perspective in terms of volume drops or volume rise versus Europe, especially for us, and this has a lot to do with the different positioning of the systems in Europe and in the U.S. In Europe, typically, we are not so sensitive to volume drops. And this is because our systems in Europe have been positioned in hospitals for hospital admission and/or for confirmatory assays for antigen positivity and so forth. And therefore, typically, we don't see such a swing. And also now, we are not seeing such a dramatic swing in Europe. In the U.S., it's completely different because our systems are a platform using midsized hospitals as one of the primary platforms. And therefore, we are clearly subject to the volume fluctuation. And as you have seen from all the different statistics and as I discussed before, there was a very -- there was a surge in Omicron testing, which happened in December, January, and then it's really going away. And therefore, we see this sharp decline. As far as China is concerned, the problem with China, I think, has to do with 2 different elements. The first one certainly has to do with lockdowns because which is something we don't experience in Europe any longer. And it did affect the business when it did happen, but since mid of -- since I think the end of 2020, we have not seen pandemic really affecting so dramatically testing volume. In China, we still see that, and it's very obvious from the different provinces where that happens and all of a sudden volume goes almost to 0, and it can last for weeks. The second element, but this, I assume it's going to go away as soon as the lockdown policies will not be set in place any longer. The second element, which I believe, though, is more structural about China is the fact that we like it or not the government is pushing hard on these provincial tenders and adoption of these provincial tenders and the net-net effect is that you see price decrease in the range of 30% up to 50% to the point that I think Western companies decided in certain tenders not to even participate because it doesn't really make any sense. And you see more and more of local suppliers, which are able to cope with the cost structure, price structure and I have to say, in some case, quality it is what it is. But hospitals are forced to buy local, not only because of price, but as you know, also because of the fact that quite often, they are forced to explain if they don't use local, why they're not using local suppliers. Okay. So also and then, this makes China near future, very, very complex. We will continue our effort to stay in China with the manufacturing site. We are, as said, on track with that venture. But how the market is going to shape midterm, long term, I don't think anybody knows at this stage. So I'm very happy today -- to be honest with you, the China does represent less 5% of our turnover. P.G., do you want to take care of the financial questions?

Thank you. Yes, sure. Thank you, Carlo. Peter. So let's start from, I believe, the third question, which was the one about depreciation. So I believe the right way to look at it is the following. You should consider EUR 9 million per quarter of depreciation coming from the purchase price allocation, mainly intangible depreciation to which you should add that more or less EUR 25 million run rate of the depreciation of everything else. So if you want to sum up, the 2 is roughly EUR 35 million per quarter. Obviously, the part of depreciation coming from the PPA is fixed, now that we have completed the purchase price allocation exercise. The one coming from the depreciation of all the other elements is obviously subject to change considering what's going to happen to our investments. But I believe that it's a good run rate that you can also see in Q4. If you look at the interest expenses, I believe we need to distinguish between 2 big buckets. One is the convertible bond interest which is a nonmonetary items based on how the accounting of convertible bonds works, we are anyway booking interest to our P&L, negative interest, obviously, even though it's a zero coupon convertible bond, and we booked in the first 7 months of the year, EUR 5 million give or take. So if you want to have a ballpark for 2022, you can give or take double it. Whereas when you look at the term loan, so the other part of the financing structure we put in place when we bought Luminex where we booked in the first month of the year, EUR 7 million. That amount obviously is declining, considering the fact that the amount -- the principle on which we are paying interest [indiscernible] as we pay back the -- as we reimburse the loan. But again, if you want to have a ballpark number for your modeling, you can take the EUR 7 million and make it EUR 12 million for 2022.

The next question is from Hugo Solvet, BNP Paribas Exane.

A quick follow-up on Luminex. You have received the Form 483 in the U.S. from an inspection in October at the end of last year. Can you maybe discuss the issue here and anything probably out of the scope of what you identified when visiting the sites back in Q3 or in September last year. Second on Luminex. You mentioned, Carlo, if I'm not mistaken, but correct me if I got it wrong, that you will start the clinical trials for submission later in the year. What's actually the level of confidence you have been getting the VERIGENE II on the market before the -- on the U.S. market before the end of 2023, given extended review timelines from the FDA? And last question on the long-term guidance that you gave us at the Capital Market Day. Can you maybe discuss the sensitivity of especially the EBITDA guidance to sustain -- and potentially sustain cost inflation.

Okay. I'll take the Luminex 483 and the clinical studies. 483 is -- it is exactly what we due diligence. And this is how we expect the 483 to move forward. We have agreed upon with the agency to enter Luminex into a program that is going to last 18 months. We're going to work with the FDA. It's a pilot program. There are 9 companies, I think, in the U.S. who joined, Luminex is one of them where FDA with external consultants are going to work with the company in the implementation of all the corrective actions that has been identified by the 483 and by the company. So I'm very comfortable with the way this is going. And I'm quite comfortable that within 18 months, that the issue is going to be completely resolved. By the same token, this is not affecting the ability of the company today to make products or submit product through the agency. So there no surprises, to be honest with you, there. When it comes to the clinical studies and the FDA, look, I -- when it comes to the FDA, you know you submit and you don't know when you get out of it. That's certainly a general statement. However, what we have seen so far is the pressure on FDA because of COVID has been released. And so the FDA is going back to regular course of business and is looking at size. Today, we have several products at the agency waiting for approval. We have investigators by the agencies that have been allocated to work with us on the file. So I'm seeing that they are going back to normal. That means that when it comes to panels like the one we discussed, which are fighting case, you would expect a typical 3 to 6 months approval time. So I feel comfortable at this stage with the fact that in 2023, we should see some of these panels are starting in the U.S. market. On the EBITDA, I leave it to P.G.

Thank you, Carlo. Yes, as I said, when we put together the long-term plan, we made some assumptions based on the information we knew back then and that -- those informations did not include obviously what's happening now with Ukraine and what we are seeing with the price of oil and everything which is derived from those [ increase ] is the energy and you name it. So we are monitoring very closely the situation. I believe it's very early for everybody to make projections because we don't know what's going to happen. Most, as I said, of our cost base is labor base. But we know that also there, obviously, you might have some impact on inflation coming -- starting from oil. Early to say, I believe, again, the assumptions we gave when we gave the long-term guidance, took into account some cost inflation by all means, and those assumptions were based on information we had up until November, December last year. What's going to happen and what is going to be the impact of what we are seeing in Ukraine, I believe it's very early to say.

The last question is from Maja Pataki of Kepler.

The last question, Carlo, first to you swift recovery. I hope you don't feel too bad. And then P.G., just a quick question. I'm sorry, I will have to ask again about the cost inflation because obviously, the world has been changing very fast the last 3 weeks, and we don't know how this is going to be impacting raw materials, but it will be really helpful for us to know what kind of wage inflation you have baked into the 35% adjusted EBITDA margin. Because we're seeing companies left and right coming out surprising us with wage inflation saying that inflation isn't transitory, and therefore, they had to adjust wages. So it was just for us to know or to make our own assessment on where the world could move. That would be super helpful.

Yes, Maja, it's very difficult because when we did our exercise, we made some assumptions in terms of wage inflation for each and every country where we do business. That is part of our usual budget forecasting planning process. And that assumption is based on the market data that we get from the different geographies where we do operate. On the top of my head, I believe that, for example, for the U.S. market, we were just below 3.5%, 4%. That's the assumption we made on the top of my head, but it might be wrong because, again, it was back in November, as I said. And usually, we've never gone far when we put those numbers in our plans. What's going to happen now in the last 3 weeks, as you said, I don't know, it's very difficult. It's very difficult to say. As you know, we have plans to streamline our cost base. We have synergies that we presented to the market community. I can say that we are going pretty well according to the plan that we put in front of ourselves -- in front of the market. But it's very difficult for me to say what's going to happen as a result of what we've seen in the last 3 weeks.

Okay. But then would it be a fair assessment to say if things stay status quo or get even worse then additional wage inflation would probably be in the books? Is that the right way to think about it?

Say again if things stay status quo?

Yes. I mean if inflation stays here or goes further up, then it's fair to assume that you would have to make some adjustment on wages during the year. Would that be a fair assessment?

We compete in the market, and we have to deal with the market reality, right? But at the same time, as you know, we are very, very diligent in the way in which we manage our cost base. So what I can tell you is that we will use all the leverages that we have in order to compensate any potential uptick in terms of wage inflation, which was not considered in our vision plan.

Okay. And maybe just quickly, last question. You stated Russia, Ukraine is a small -- it's not important for you, but are you still shipping to Russia? Or have you stopped shipments?

We -- for us, the Russian business is not very material. I believe that if we combine both the Luminex and DiaSorin business and our budget on the top of my head, the number was well below EUR 10 million, to give you a sense of the business we have there.

Listen, Maja, we will -- we are -- we continue to ship for the time being, certainly, there is a list of companies, black listed companies and banks that so far are not preventing us to do business. And we are just waiting. We decided that we're going to follow whatever AdvaMed and the European Medical Association are going to decide, right? We're not going to make a decision ourselves. The real problem moving forward really is not in my opinion to make business but to collect the money. And so what can be the killer here in the collection. And if I can go back 1 second to your -- to your question about the cost. Look, what worries me the most, to be honest with you, today is shipping cost, because -- and complexities of shipping around the globe, which is actually bringing us back to the pandemic time. Certainly, we do have cost of labor increase in the U.S. which certainly much more than Europe and certainly true that we now have an important cost base in the U.S. But I believe that in a way that we can manage, as P.G. said. Don't forget, in 2022, also we expect synergies too so that I believe that a little bit more synergies could actually compensate for a little bit more cost. I'm giving you a rule of thumb explanation here. But the shipping cost is what really we need to understand. Plastic raw material, where usually it's relatively small, so relatively material.

The next question is from Giorgio Tavolini of Intermonte.

Yes. Do you hear me? Sorry. I was wondering if you could provide more visibility on the LTG line that represented roughly 8% of sales in 2021. If you are still confident on doubling the contribution from this line for this year? And the second one is on the indications. If you have any indication on first quarter trends related to the ex-COVID business. So what if we should expect trends in line with the exit of 2021?

P.G. do you want to take it?

Sure. So yes, the first question regarding the license technology business, I believe Giorgio you are referring to the guide that we gave during the Capital Market Day. And yes, I mean that is still our assumption. As Carlos said during his remarks that the business is doing very, very well. We're very positive there. So absolutely, we confirm what we said during our Capital Market Day. On the top of my head, I believe we said that obviously also because the change in perimeter, but we said that from '21 to '22, that franchise was going to grow by 115%, 120% on the top of my head. So I believe your second question was regarding COVID in Q1 '22. Is that what you asked? Giorgio, I'm sorry, the line was a little bit kind of...

No, sorry, actually the ex-COVID business. So if you are still -- if you see a similar pace in terms of growth like in Q4 or also in Q1.

Yes, I mean, absolutely. I mean, as we said, when you say ex-COVID business, now we are much more complex reality. So we have several different pieces. We have the CLIA ex-Vitamin D. We have all the rest of the immunopanel. We have molecular and we have the license technology business that we just discussed about. I would say that the trend we saw in Q4 2021 overall in the business, all of its components will be confirmed in Q1 2022. And those are the days for our guide for 2022 overall guide, which is 24% growth ex-COVID.

The next question is from Andrea Balloni of Mediobanca.

First of all, thanks, Carlo, for taking part of the call and take care of yourself. Very couple of short question. First of all, about COVID sales. You mentioned around EUR 378 million sales from COVID. If you can give us the amount of molecular compared to the [ over ] COVID test sales. And my second question is about the P&L. Below gross profit, if we consider the adjusted number stripping out one-off cost, we see marketing and commercial costs, which are around 17% of sales in second half and R&D expenses of P&L, which are around 5.5% to 5.8%. My question is, can we consider this percentage as quite stable over the business period?

Andrea, let me start with the first one regarding COVID sales for 2021. Out of the EUR 380 million or so sales, we have, let me say, EUR 70 million, EUR 75 million, which are immunodiagnostic driven and the rest is molecular. And when you say molecular, it's a combination, obviously, of our own solution and the solution provided by Luminex. Then when you look at the P&L and you slip out the adjustments, as you said, I believe if you want to have an idea of the rate, you should look at Q4, not the full year. Because in the full year, it's kind of a mixed bag. You have 12 months of DiaSorin and 6 months of Luminex. So I believe you really need to look at Q4 and I don't have those percentage on the top of my mind. And those are the percentage that, give or take, should fairly represent what we expect during 2022.

At this time, there are no more questions registered.

Thank you, operator. Good night.

Thank you. Goodbye. Take care.

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