Virbac SA (VIRP) Earnings Call Transcript & Summary

Good afternoon, everyone. We are pleased to welcome you in Paris for the Virbac 2022 Full Year Results Conference and Webcast. Hosting the call today are Manuela Rodriguez, Investor Relations, and my colleague, Sandrine Brunel, Head of Corporate Communication. We will be joined by Sebastien Huron, our Chief Executive Officer; and Habib Ramdani, our Chief Financial Officer. Before we begin, we will -- all these slides and financials are available at our company website. And you will have the possibility to ask for those attending virtually questions through the chat. It is now my pleasure to turn the floor to Sebastien Huron and Habib Ramdani.

Good afternoon, good morning to all of you. As usual, we will start this presentation by sharing a quick summary of our 2022 results before going into more details on the financial dimension of what we have published. And I will then hand over to Sebastien, who will cover more of strategic elements and a few more qualitative elements regarding our results. So first, on the sales, we have posted another very good year with strong organic growth of 9.6% at constant rates. This performance has been driven by all of our regions. We have also benefited from a strong momentum of our key ranges as well as a very nice contribution of some of our new products that have been launched more recently. And to a lesser extent, we have also had slight inventory effects at the end of the year linked to the anticipated price increases. So this has translated nicely into the increase of our EBIT adjusted, which increases by EUR 6.9 million at constant exchange rates, leading to 15.4% of EBITDA ratio at constant rates, which is a 15.3% of EBITDA ratio to sales at real rates. You may remember that last year, we had posted a 16.3% EBITDA ratio and the degradation from 16.3% to 15.4% million is essentially linked to the R&D overinvestments of around 1 percentage points of revenue versus 2021, which means that at constant R&D level, we have even had a slight increase of our EBIT adjusted ratio of 0.1 points at constant rates. And that despite the impact of the inflation on our cost base. So you see that we benefited from a strong gross margin contribution in value. This has been driven, obviously, by our sales growth. However, our gross margin has been lower in percentage of revenue compared to last year, again, essentially linked to the inflation impacting our cost of raw materials. We have also had a higher level of expenses in value, even though relatively stable in percentage of revenue, and this is linked to the rebound on commercial expenses following last year, which has been following 2021 -- compared to 2021, which has been impacted by COVID-19 restrictions. Finally, on that slide, regarding the ForEx impact. You see that we have had a very positive ForEx impact on sales, very favorable. We have added EUR 50 million and it translated also nicely on EBITDA with EUR 6.5 million more of EBIT adjusted. If we continue to go down the profit and loss statement, our net profit has increased, moving from EUR 115.7 million in 2021 to EUR 121.3 million in 2022 at real rates, essentially impacted by first, the higher level of sales and related EBIT adjusted increase. We've also recorded nonrecurring expense linked to a one-off depreciation of some trademarks that are no longer in use for EUR 3.3 million. This obviously has no cash impact. And that has been compensated by lower financial expenses when comparing 2021 with 2022, and I'll come back to that later on. The cash situation of the group continued to be positive at EUR 79.4 million versus EUR 73.8 million at the end of 2021. This is a EUR 5.5 million increase or even a EUR 20 million increase at constant exchange rate and scope. So we have generated a free cash flow of EUR 46.5 million. It is down compared to last year, to 2021, and essentially linked to the working capital, and I will comment that later on during that presentation. Very quickly, our net debt on EBITDA ratio remains very favorable with a negative ratio given our positive net debt situation, obviously. Before going into more details for the top line, I will go very briefly on that slide, just to remind you of our guidance 2022, the last guidance that we have shared and you see that from an actual 2022 perspective, we are globally very much in line on the 3 dimensions, sales growth, EBIT adjusted and net debt. So let's go a little bit more in details regarding our sales performance. We have generated EUR 1,216.2 million of consolidated sales, which is a 14.3% increase at real rates. As I mentioned earlier, we have had a very positive exchange rate impact in 2022 compared to last year. And we have had a 9.6% increase of our top line at constant rate, which is significantly ahead of the market in 2021, which, as you know, has decelerated during the year and is at around 3.5%. So we have, again, performed much better than the markets. So let's have a look at the sales evolution and where the growth is coming from. When we look at our different regions and their contribution to the growth. So we have generated EUR 100 million more of sales in 2022 versus 2021, at constant rates. EUR 20 million is coming from North America. That has performed quite well on all of our product ranges -- on nearly all of our product ranges, including the Dermatology ranges, the Dental, the Specialty as well as a nice contribution from the products that have been launched more recently including Clomicalm and Itrafungol in 2021 and petfood and farm animals products in late 2021 and early 2022. Europe has added EUR 26 million, which is a very nice, around 6% growth when we compare the 2 years, with a nice contribution from countries like U.K., France, Italy, Spain as well and a good -- a very significant contribution on the companion animal segment for all of those countries. And finally, Rest of the World has added more than half of the growth of the group during the period with EUR 56.3 million more of sales. Let's have a look where those EUR 56 million are coming from in the Rest of the World region. We had 2 regions, Pacific and Africa Middle East that have contributed close to 20% growth during the 2 periods with countries such as Australia that has had an excellent performance beyond the very good performance of our teams and product. We have also benefited from some positive weather condition that has helped to sustain a very strong demand in both Australia and South Africa as well. If we look at the Asia region, we had a 10% growth in Asia with a very strong contribution of India where, as you know, we have a leading position, an excellent work that has been done by our teams here to continue to grow as well as a nice demand in India. On the other hand, it has been more difficult in China, essentially linked to the COVID-19-related restrictions that had impacted our performance at the time when we were launching some new products and Sebastien is going to cover that later on. Finally, Latin America has increased by around 6% between 2022 and 2021 with 2 different dynamics in Latin America for us. We had Brazil and Mexico that have had very nice growth, continue to have very nice growth with around 15% growth at constant rate for those 2 countries with nice performance on the Farm Animal segment and a nice contribution as well of the companion animal that is contributing more and more to the performance of those 2 countries. On the other hand, the situation has been much more difficult in Chile, where we have recorded a negative growth of around 15% and Sebastien is also going to cover that later on during the second part of the presentation. Let's have a look now on the sales growth by segment, starting with companion animals. You see that we have had growth in all of the segments. With Petfood leading the way, another excellent performance of our Petfood segment in 2022 with more than 25% growth. We are very close to reaching the symbolic EUR 100 million milestones for our Petfood segment. Specialties segment has contributed nicely as well, adding EUR 16 million with close to 15% growth in that segment. We will have our Virbac buster type of product, our key brands such as Suprelorin. We have a product like Movoflex as well, our anesthetic ranges, Stelfonta products that are part of that Specialty segment. The other segment has done very well as well. You see adding also EUR 16 million, 12% growth, with our Dental subsegment that is really leading that other segment. We have had more than 20% growth within Dental for another year. Finally, Antibiotic, Dermatology and Biologicals have also contributed nicely, respectively, 4% and 9% for the Biologics segment, which is the vaccines. You remember that we are recovering on that segment following our difficulties. We are still in the limitation of our capacity of production. But nevertheless, we've been able to increase it again in 2022. And that helped us to post a 9% growth within that segment. So overall, we have had a 12% growth within our Companion Animals segment. If we move now to the second pillar, the Farm Animals. You see that it's a bit of the same. We are growing globally, slightly below. We are more around 7% growth within the Farm Animal segment with Parasiticides leading the growth. We have added EUR 18 million, 23% growth with, obviously, the very nice contribution of some countries in the Southern Hemisphere such as New Zealand, Australia. I mentioned them, South Africa as well. The Nutritional segment has done very well. We are reaching the EUR 100 million symbolic milestone as well, 15% growth with a very strong contribution on that segment of our Indian business. Finally, on the growth part, vaccines, 8.2%. We have a nice contribution of our ruminant vaccines, both in Latin America and Europe as well. On more of a negative side, Aquaculture with Chile with a negative growth of 16%. Again, Sebastien will cover that later on. And the Antibiotic segment is more or less flat with a decrease on our Antibiotics for swine and poultry essentially in Europe during the period. But overall, a very strong again year for Farm Animals with a 7% growth. So very briefly, the sales breakdown by region and business has not fundamentally changed, as you can see from 1 year to the other. So let's move now to our profit and loss statement, and I will start with top of our profit and loss statement. The net sales, I've already covered it, at real rates 14% growth. The gross margin on material cost has increased also significantly between 2021 to 2022 and moving from EUR 705 million to close to EUR 800 million of gross margin on material cost. However, as you can see, the ratio of gross margin on material cost to net sales has been -- has decreased between 2021 and 2022, moving from 66.2% to 65.4%. And this is essentially the consequence of the inflation on our material costs due to the overall context. We also have a bit of exchange rate impact when comparing the 2 years. The net expenses, however, have been more or less stable in ratio to sales from 46.6% to 46.5%. So we have seen an increase, obviously, of our cost base in absolute value, but the ratio has remained stable despite the fact that within that line, we have -- we recorded the increase of our R&D expenses, the significant increase of R&D expenses, as you remember. We made the strategic decision to accelerate and increase the number of projects that we have within our R&D portfolio. And as such, we have added around 1 point in ratio to sales of R&D. So it means that outside of R&D, our net expenses have increased favorably in ratio to net sales despite the rebound on our commercial expenses, despite the fact that we have inflationary impact as well on some of our net expenses, including transportation, energy, but we've been able to compensate part of that by having a strict control of the increase of our expenses. So overall, our operating profit from ordinary activities has increased from EUR 168.9 million to EUR 182.8 million, which is again a loss of 1 point of ratio. but again, explained essentially by R&D additional investments. If we continue to go down our profit and loss statement, you see that we have recorded a noncurrent expenses for EUR 3.3 million. This is linked, as I mentioned earlier, to a one-off impairment on some trademarks and brands that are no longer in use. The net financial expenses have decreased moving from EUR 8.5 million to EUR 3.1 million. This is a combination of 2 effects. Our net cost of debt has decreased when comparing 2021 to 2022. And at the same time, we have also recorded a negative exchange rate impact. However, it was less negative in 2022 than it was in 2021. If we continue to go down, a quick comment on the income tax expense. You see that those have increased from -- moving from EUR 43.6 million to EUR 55.6 million in 2022. We have a double effect, some one-off tax expenses in 2022. But at the same time, our effective tax rate, excluding those elements, have also increased in percentage, moving from 27% to 29%, and this is essentially linked to 2 effects. The mix effect in our country that generates the contribution to the profit of the group, including countries where the tax rate is higher than the average of the group, including Australia, for instance, at 30%. And at the same time, we have also some impact on deferred tax in France. So the result of all of that is a nice increase of our net results, group's share moving from EUR 113.2 million in 2021 to EUR 122 million in 2022, so another year of growth for profit and loss statements. Let me come back now briefly on the breakdown of EBIT adjusted evolution. We see on this slide, the waterfall and what are the regions and functions that are contributing positively and negatively to the evolution of our EBIT adjusted. So first, we see the strong contribution of Europe, adding close to EUR 19 million more EBITDA when comparing the 2 years. Rest of the World business as well is adding EUR 8 million. North America, EUR 3.3 million. This is including the impact of our launch cost for Petfood and Farm Animals business. And on the more negative impact, obviously, R&D, which is an investment, as we've stated, a strategic investment for the future. We see the consequence of that 1 point increase. We have added EUR 18 million more investment in R&D when comparing the 2 years and our corporate cost as well, with the impact of inflation on salary. We have also the benefit of our good results in terms of bonuses and French tax sharing -- profit sharing, sorry, system that has had a positive impact when comparing the 2 years as well as some IT investment, increase of our IT investments. So let's move to the cash flow evolution. We see the operating cash flow has increased by 9.4%, very close to the EUR 230 million compared to EUR 210 million in 2021. And the net cash flow has also increased close to 8%. So those increase of our cash flow, operating and net is very much aligned with the increase of our EBIT adjusted during the period. Let's have a look now on the evolution of free cash flow. So on that slide, we are comparing the generation of net free cash flow in 2022 and in 2021. So we have generated around EUR 36 million in net free cash flow in 2022 to compare to EUR 67.7 million in 2021, so it's below in 2022 versus -- compared to last year. And as you can see on the slide, there is essentially 1 element of explanation for the decrease, which is the working capital requirements, which has increased when comparing 2022 to 2021 moving from 68.5 -- sorry, moving from EUR 30 million in 2021 to EUR 68.5 million in 2022. So this increase of around EUR 38 million between -- when comparing the 2 years is explained by essentially 2 elements. The first 1 is our receivables that has increased significantly in 2022, at the end of 2022 versus 2021. And this is explained by the dynamic of our sales during the last months of the year, which has been much better in 2022 versus 2021. So it's really a phasing effect that we have here this year. The second element is also a phasing effect. It's a tax effect that we are seeing with a EUR 12 million more tax impact on the working capital requirement when comparing the 2 years. Beyond that, both for 2021 and 2022, it's also to be noticed that we continue to increase our level of stock. We have added around EUR 50 million more stock last year. We have continued in 2021 to add EUR 50 million more stocks. This is linked on 1 hand, to the increase of our activity, obviously. Inflation on our stock as well, which impacts the value of our stock and also our willingness to continue to have enough security stock in most of our production sites in order to manage the situation that continues to be tense in terms of supply, and we want to make sure that we have enough security stock to be able to meet the demand. So the combination of those 3 elements explains the increase of our stock that obviously has an impact on our cash generation. So I've already cover that. This is a little bit more details on the evolution of our net debt. The first part is very similar to what I presented regarding the composition of our net free cash flow. The last part of the graph is more the noncash impact, and you see also the exchange rate impact on our net debt. But bottom line, we continue to have a very positive net debt situation, which has even increased by around EUR 20 million at constant rate and scope when comparing the 2 years. Our balance sheet continues to be very positive and favorable, and there are not that many changes when comparing the 2 years. Maybe 1 word again on our working capital and moving from EUR 151 million to EUR 223 million. I've shared the element of explanation to give some elements to explain this growth. So again, part of it is linked to the activity, and part of it is linked to one-off elements of timing regarding our receivables and tax payment as well. The financial ratios continue to be negative due to our positive net debt situation. And on that slide as well, not much has changed. The situation of the shareholding structure of the group remains more or less the same with Dick family continuing to have around close to 50% of the shares of the group and close to 66% of the voting rights. And I'm going to hand over to Sebastien Huron for the second part of the presentation. Thank you.

Thank you very much, Habib. So let's have an update on the strategic execution and the perspective. So we have never shared this slide with you. It's a little bit detailed, but it is, in fact, 1 tool we have inside the company for the last 4 years. We have built the strategy way back in 2018, at the end of 2018. And then we have since 2020 communicated on 2030, which is said in other words, the transformation plan of the company. And basically, what we have shared internally is strategy is basically 2 questions is where to play and how to win. So where to play is where do we invest our resources, our time, talent, resources, financial resources and how to win, it's how we differentiate from the competition and how we make our product offer, our positioning unique. And so we have many projects which are listed by the bullet point, which allows us to execute quite well. And I just share this slide because we think this is 1 of the reasons why we have such a good performance is the execution plan of the strategy we have shared and outlined here with everyone. So you have the employees where we have worked very much on the purpose of the company, in French, [ Larazondet ]. On the culture side, HAC, we have work, and we are working now on the CSR program with ESG, with the creation of department now that Manuela, by the way, will oversee as a new responsible for this department to help us go to the next step. In fact, back in 2018, we have defined KPIs and a measurable KPI to achieve in the CSR road map for 2025 and thanks to everything we did, and very much helped by the COVID situation, we reached this objective way before it was anticipated. So at the moment, we have decided to set up a new ambition for the next 5 to 7 years until 2030. And that's what we are building at the moment with the team. Great place to work. I will comment it again later. And of course, we have many company compliance program, code of conduct, anticorruption program and things like that. So we have many activities on the transversal mode, taking care of the employees. We have the same thing for the processes. At the bottom part, you can see the key processes. So we try, in fact, to digitalize the company, but not to digitalize it, to simplify as much as possible the processes. So the digitalization is a reason why we try to simplify the process as much as we can. And you can see the ERP, the manufacturing education system, some things we put in the labs, so the LIMS in the laboratory, e-PIMS and things like that. Of course, when you digitalize the company, you also need to take care of cybersecurity. And so we have also many programs around the security of all the digital tools we implement in the company. Once I have said that, then we have the 5 pillars that we have presented in the past in a more summarized way. So where to play, you have the key countries to make it very simple. Virbac is quite strong in all the markets except China and U.S. China, U.S. is 50% of the worldwide market. In these 2 markets, our market share is very, very small, very little. But if you remove China and U.S., which is corresponding to 50% of the worldwide animal health market, we are quite strong. So if we want to grow much further and reach top 5 to 4 to 3, we need to develop in U.S., we need to develop in China, and this is part of the main priority for the group. And in the U.S., we have 3 main projects, the Petfood market entry, the FPA food producing animal market entry and a focus on the margin as we want the U.S. to be very relative, very accretive in terms of margin, and that goes by fulfilling the St. Louis plant that goes by improving our industrial competitivity. In China, we have what we call a GOST project. It's a very broad project going from R&D to eventually local manufacturing to M&A acquisition, registering new product, adding more reps, more sales force, more commercial forces. You will see that a bit later. In species and segment, there is nothing new. We are focusing on most of the species except poultry. We are not in poultry as a strategic species, because we cannot do everything. So we have decided to not be in poultry. And not in Equine as a strategic species. We have very key product in Equine, but they are more opportunistic positioning. But you see, we are in a companion animal, ruminants, aquaculture and swine. And you will, of course, realize that when you look at, Ruminants, Aquaculture and Swine, 1 word come back all the time. It's vaccines. So you cannot be in food policing animal without being very strong in vaccines. And that is why in the territory where Virbac will play mid, long term, you will see the word vaccines coming back more and more, because this is somewhere where we must be stronger and invest more in the coming years in order to be key player in these markets. How to win? So 3 things: one, innovation. We are in a market driven by innovation. So we need to differentiate our product and add more innovation to our pipeline. This is the reason why we have invested EUR 18 million more in R&D last year. We plan to do the same this year, thinking that there is a direct correlation by the number of products we have in the pipeline and the quantity of project or product that will come to the market. So there should be the right correlation if we work properly in R&D. So adding new product, early stage in the pipeline should translate into new product to be commercialized in 6, 7 years from now. So this is a bet we do in order to generate organic growth from 2027, 2028 onwards. This, of course, takes time. And of course, these are bets. Innovation is always risky, and there is always a possibility of failing. But clearly, there is a correlation by the number of projects you put in and the number of projects that will come out. So adding new product should likely translate into more products in the 5 or 6 years from now. And doing so, we try to focus also a larger part on true innovation, through differentiated products and product that could become blockbuster at least we try to do that. Of course, animal health has become very competitive. So all the competitors are moving fast with their own development program and it's a question of being first to market or having markets that are not changing too much. We have seen how, for instance, the Dermatology market has been -- has changed with monoclonal antibodies, and we see how the parasiticide market has evolved with isoxazoline products. So of course, this is also a question of execution. We are actively looking at acquisition. Of course, M&A has been historically a significant part of Virbac's growth before 2015. Over the last 5 to 7 years, it has not been very much activated. So we are really looking at all the possibility, but the targets are there. And we are looking only at good targets at a reasonable price. So we are not in a hurry to do it. We just would like to find a good target. So there are things we are looking at. There are a few options and opportunity, but nothing yet, which is very exciting or very promising. Competitiveness is a second pillar with innovation of what internally we can do to really be very competitive long term. The world in which we compete is consolidating very quickly. So there are more and more consolidation and to win in this market, you have 2 options, either you innovate and you differentiate yourself or -- and you do not necessarily need to say or you could say and, you have to be extremely competitive from a cost structure and cost point of view. And that means going through industrial competitiveness, and we have many programs around that in this dimension. So that's everything we do to over the next few years, try to reach the target 20% EBITDA on which we have communicated. Of course, the 2 years of inflation has done the story a little bit more complex, because we had communicated on the ambition before the inflation and the war in Ukraine started. But we still remain confident in our ability to reach the target 20% before 2030. And the modality being that if there is a significant acquisition or many acquisitions that could be quicker. If there are no acquisitions, we will hope and count on the possibility to get new product from 2027 onwards, so 2028, 2029, among which we expect -- we hope to have some significant product, large product. And otherwise, we will have to keep doing what we do over the last few years, which is to operationally improve and that will be linked to our ability to grow the top line much faster than the cost base. If you look at the market, we are very proud of 2 things. First, over the last 5 years, since 2018, we have been growing much faster than the market. You have the data for '19. But in fact, since last quarter of 2017, we are beating the market. So every quarter, we are growing faster than the market since last quarter of 2017, so more than 5 years. So that's the first element of performance. The second 1 is, over the last 2 years, 2021 and 2022, we have the fastest organic growth in the top animal health company among the biggest one. We have the fastest organic growth. You don't have the data of Q4, but in fact, we have the data of Q4 now, and it's 3.5%. So the market has been growing 3.5% in 2022. And we have -- our growth has been 9.6%. So said in other words, we have grown close to 3x -- almost 3x faster than the market in 2022. It was almost 2x in 2021. We did 18.4% in 2021 on the market who has grown 10.8%. So you see in 2021, it was 18.4%. This year, it's 9.6%. So there is a deceleration of the market from 10.8% to 3.5%, but we are still performing quite above. But there is a sharp deceleration of the market. And you see it's mostly linked to companion animal. If you look at the 2 slides, that's the 2 graphs. On the left, you have the companion animal. And this is a part which is bringing down the market. In fact, it's sharply decreasing. And the food producing animal, it's already quite low since Q2 of 2022. So you don't have the Q4 here, but it's more or less flat. So what we have seen is a decrease of the food producing, but it's flat over the last 3 or 4 quarters, where companion animal has been decreasing. And so you don't have the Q4 here. But as I mentioned, Q4 was 3.4% for the quarter and 3.5% for the MAT, which is a moving average over the year. So when it will come to the expectation of 2023, we don't know. We just have this last point of reference of 3.5%. Of course, in the 3.5%, you have probably 3% to 4% price increase, price variance. So you could expect that the volume has started to be down or flat or slightly down in a 3.5% of market growth. So I have already commented most of it, so I may go quicker on this. But again, we have the top animal health organic growth for the second consecutive year. So we are quite proud of that. We have been gaining market share over the last 5 years. We are very happy to have been able to improve, even if it's only from 0.1 point, but we improved the EBITDA before R&D, because we consider that R&D is our choice, is a strategic decision to increase R&D expenses, but it is something we could stop tomorrow or do more. It only depends on us to gain an improved EBITDA ratio on the market means that our product offer is competitive, as we have commercially managed to convince the customer to buy our product at the price we have. And so the fact to have an improved EBITDA has been an element of promise in the context of very high inflation last year. I remember we had been hammered by the transportation cost. We have been hammered by the pet food cost. Pet food cost base has increased by 30% to 40%. So we have lost points of margin in petfood, for instance, we have reduced the margin of the pet food in order to protect our customers. And despite that, we have managed to maintain at least the EBITDA before R&D ratio at a high level. Cash positive, I did comment it, so I don't extend myself. In terms of geography, we have been doing extremely well in many geographies, Australia, Brazil, India, U.K. , U.S. and many others. The only very poor performance has been in Chile. So Chile has been a strong deception. China also, but more linked to the macro situation as with zero COVID politics. The plan has been delayed, but it's not a structural issue. It's more a temporary issue in China. We are not worried. Chile, I will comment it a bit later, has been really a difficult year and 2023 will not be easier. Virbac 2030, we have explained this is strategic road map. Until 2030, we have 10 mainstream to transform the company. The 2 main are the innovation in which we have invested more than EUR 40 million. I mentioned below EUR 43.8 million. between 2021 and 2023 at constant rate. But this is a significant increase, and it's 24% more spending in R&D. We think it's the best way to utilize our cash today. There are not too many M&A targets. We are delivering very good organic growth. And we think this is the best way to utilize our cash to make the bet that we will be able to generate a productive pipeline. And as I said before, of course, this will boost the sales from '27, '28 onwards, not before. But we are confident that this is the right way to do it. The second 1 is the competitivity of the manufacturing side. I mentioned that before. We are also investing with a huge ambition on ESG and the corporate social responsibility. So we have developed a road map, a full road map with a lot of work. We have involved more than 300 people in the company to respond to a different questionnaire. We have involved outside people. We have made a different benchmark. There has been a broad internal and external stakeholder interviews. I mean we really did a lot of things, and we are going now to deploy that in 2023 and fix just after very specific KPI in order to, again, further improve on this dimension. We again, already did that in 2018, but we match the objective. So now we want to go to 1 step further. Great place to work. It's really important among the element of performance of the company. This is a culture of the company, the level of engagement of our employees. And so we are very keen in nurturing this kind of very special and very strong engagement of our employees. And so a great place to work is for is very important, and we will conduct a new survey in mid-June, mid-July this year, hoping that the social context and the inflation will not deteriorate too much the overall perception. Of course, there are benchmark. So we will analyze that also versus benchmark. But hopefully, the macro context will not have a negative impact, but we hope that all the actions that have been implemented over the last 2 years will be producing good results. And the digital transformation, I mentioned it before. We have deployed a new ERP in the U.S. last year. We are deploying it now in France in 2023, and we have many cybersecurity programs on the way. In terms of geography, we have a sustained growth in most countries. I mentioned it before, so I don't come back on that. In terms of Buster commercial program, for the last 5 years, we have selected this 3 buster program, Petfood, Veggiedent and Suprelorin you would see that over the last 5 years, we have grown double digit on all of them, Petfood 26% again in 2022. Veggiedent, 37%, Suprelorin, 24%. And these products are becoming a significant franchise for us. They are doing really well. In terms of new product launches, I should say that the first 2 are not product launches. They are market entry. It's a bit different. The Petfood HPM Wet formula in Europe and the tabs at the bottom in Europe are true launches because we have a commercial organization in place. We are very well equipped. So this is classical launches. But the first 2 are more market entry. We didn't have a U.S. organization for food producing animal, the Petfood, it's a new segment, a new market. So it's low, it's difficult as expected, but it is slow and difficult. So now I would like to briefly cover the main geographies, so that you have a clear understanding of what happened in 2022. So first, the 2 main markets. U.S. and China and then the 2 best performing countries and the worst-performing countries, so that we have a very exhaustive or complete overview of our geographical performance. So the U.S. has been growing more than 30% last year due to exchange rate. At constant rate, it was 15.7%. So that has been the best performance ever in the U.S. despite the sentinel divestment. All the segments have been behaving quite nicely, Dental, Dermatology with Easotic following a very good growth and progressing well. The new product, Clomicalm, Itrafungol, has been also performing very well. Cyclavance and of course, the pet food. It's not significant, but it's still adding some sales as EBITDA. We have launched the livestock business unit, which also contribute to the overall growth. And in Canada, we have a very good performance. So for 2023, we -- it's difficult to say. We just know that there is the possibility of a slowdown, a little slowdown in terms of volumes at least. And so we will have to see how the market behaves. But we know that the vets in the vet clinic, there are some difficulty to recruit and to act. So it is possible, at least that the market slow down a little bit versus 2022 and the performance of 2022 has been quite strong. And then the inflation is impacting our capacity to improve profitability. As you know, the salary increase has been quite significant. And then all the raw material and the products also have seen price increases. China has been a significant exception compared to what we were expecting in 2021. I thought this will be a market growing double digits this year. And unfortunately, due to the zero COVID politics in particular, and some of the decision took locally, for instance, regulatory wise, it's more and more difficult to get product approved. We were supposed to have a third-party product register is not yet registered. We are vaccines, which was supposed to be registered. They are not yet registered. So there is a bit of delay in the pipeline due to additional requirements and a list of questions and things like this from the authority. This is probably a bit linked to the willingness to geopolitically protect a little bit more the local production. And that triggers a question of should we be local manufacturing in China more and more, if you want to be in China. Anyway, we have 2 new parasiticide products, Effipro and Milpro, who have been registered at the beginning of the year. But when they were supposed to be launched, it was a confinement, people who will not go outside. And so we have slowed down our recruitment process for the reps. And you will see that we are starting now to do what we were supposed to do last year. So we have moved from 20 reps, 20 commercial sales force to 66 by year-end. At the moment, we have 46. So we plan to add 20 more this year. And we will end up with 66 reps, which is 3x more than we had 2 years ago. We expect that with the 2 new parasiticide product plus the additional sales force, we will start to see the double-digit materialize and significant growth and market share gain in China in the coming 2 to 3 years. So we are very positive about China. The market has been quite strong. It was historically, if you look over 5 years, it's 20% over 5 years. So of course, the last year has been complicated. But over the last 5 years, I'm talking companion animal, I'm not talking swine and African swine, but talking companion animal is 20% growth. So we expect the market to support us nicely. And we have the vaccine, we hope that will be registered and launched soon. And then the pet food that will be launched late this year or early next year. So that -- all that combined with the additional sales force should trigger a double-digit growth in China. Among the geography, we have been really performing very well, Australia and India. Australia has been growing 20% -- close to 25%. India, EUR 15 million, close to 15%. So in both countries, really, really good execution. Australia has been helped by a very strong market linked to the rand, the restocking of the cattle, price, so all that has been a positive, but also due to the very good work of our team locally, who has historically a culture of key account management and have been able to be awarded a top animal health supplier for 2022 with a large group over there. So all that has helped us perform very well in Australia. In India, it's -- we are #1. Commercially speaking, we have a very good mastery and we are improving in different dimension on supply and the work with the CMO locally, but we are also, at the moment, launching the pet food. And the start seems to be quite nice, quite strong. So it's a bit too early to judge, but at least we have some nice order coming in pet food, where we are at the moment, launching in India. Chile was a deception of last year, the bad news. So it was 15% decrease at constant rate. So first and foremost, the main reason is first line, the loss of formalin sales since July. So basically, we have a distribution agreement. A few years ago, I talked about that to you, and I was worried about the fact that the distribution agreement was going to expire in 2023. We had renewed the agreement until 2028. So it was secured, and we were quite happy. We had also informed you that. Unfortunately, the registration approval is made by the Ministry, which we call the SAG, but there is another authority, DirecteMar, who is responsible for more impact on the environment and asked some studies from time to renew kind of license. And the study performed by the owner of the dossier of the product or the registration dossier has been performing the study in a human CRO, apparently not exactly according to the standard of the process of the vet CRO and the requirement. And so they lost the license and losing the license, we lost the product sales. So it was not due to a negligence or a fault on our behalf. It was the owner of the dossier, who had this issue. But the consequence of that is the loss of the distribution. And so we lost many million of dollars of sales, and that was a nice margin product for us. So it has a huge impact on Chile. We are, of course, working in order to try to recover the sales sometime this year. But at the moment, nothing is yet guaranteed. The license has not been recovered yet. And so we work on different alternatives to be able to come back. We lost significant sales in antibiotics. The market in antibiotics has been decreasing in Chile by 60% over the last 5 years in tons -- sorry, our sales have been decreasing by 60% over the last 5 years in tons. So we have significantly reduced our exposure to antibiotics. And we even plan to maybe exit over time this category. And where we would like to focus is on vaccines. But unfortunately, even there, we have not performed last year. This is due to a resurgence of SRS. SRS is a local pathology in Chile. And in fact, our main competitor has a vaccine, which is a modify vaccine, who seems to work nicely at the moment, and they are bundling the vaccine. So it's more difficult for us to sell the classical combination vaccine because of this bundling. But we are investing in R&D. We have hired very good people in R&D, and we are investing strongly now in order to bring new vaccines. So again, this development takes time. So it will not solve the year for 2023. So we expect a complex and difficult year ahead of us, but we keep resilient and doing what we have to do in order to bring new vaccines and create value mid-long term. In term of pipeline, you have all the details here. Basically, the last time we shared that with you, you had 2022, and you did not have 2026. So just to explain, 2023 some of the projects have been anticipated in 2022. So that's probably also why we have a good year in 2022. Some of the projects have been launched in the last quarter of 2022 instead of being launched in 2023. Sometimes, we are capable of earning or winning 1 quarter versus what we planned when we are at the late stage of the registration. And we normally put a buffer of 1 quarter when we share information with you. So if we -- everything goes right, we can go 1 quarter before. So that's what happened. So we have some sales that you had in the previous template for 2023, which have moved to 2022. And then for the rest, it's mostly the reverse that happened is a little bit of delayed in the R&D program. So basically, in R&D, you work on a best case scenario where you have your scheme of studies, and you expect them to perform and then you go to the next stage. And when you have a bad study or bad results, you will repeat it or you stop the project. So you will be sometimes exposed to delay or bad news because, of course, this is a pipeline, assuming that the product will the most likely scenario. And even if it's most likely scenario, sometimes it does not materialize. The example of that is a Sea Lice vaccine. You see at the bottom. The Sea Lice vaccine was among the biggest project we had internally in terms of market potential, assuming it will work. We knew it was a high risk high return. High risk because parasiticide vaccine is very rare. We have the experience of CaniLeish. Vaccines are designed to work against virus. They are designed to work against bacteria, but against parasite, which are multicellular organism, it is very difficult. So you have very, very few vaccines against parasites in the world. So that was a huge bet, but that was a bet to not poor parasiticide product in the water and to have a very strong product from a ESG also perspective. Unfortunately, after 3 very positive results in labs, I mean in a lab condition, it worked 3x. When we went to the sea in field condition, and humid condition at sea for the registration dossier, it didn't work. It didn't pass the minimum threshold we needed. So the project has been stopped. And that explains why in food processing, you see a lower number for 2026. In terms of perspective, the -- we have a limited exposure to Russia and Ukraine. We mentioned that before. We don't have any affiliate over there. So the sales have been down this year in 2022, significantly. We, of course, have not engaged at all in this aspect. So the sales have been suffering, but it's just a few million euros. What we want to share with you is more the significant inflationary impact we see. Because last year, the impact on salary was not -- in 2021, sorry, the impact on salary was not so strong in 2022. So the impact on salary was not so strong. But in 2023, we have a much higher impact on salaries. We estimated around 6% across the world. This is 6% in France, for instance. Electricity, we have been covered in 2022. So we had no impact in 2022 for the gas and for the electricity. We have an impact, a significant impact in 2023. And we have, of course, the pressure on supply cost and cost of certain components, also pressure from the CMO. So when we are with CMO, they are increasing their price very significantly. That's also the reason why we will try to reinternalize some of the production we have externally to not suffer so much on this cost pressure from the CMO. Anyway, many, many aspects putting pressure on the cost base that will force us to be very disciplined in terms of pricing and manage the P&L as best as we can in order to keep the trend of the last few years. And that brings me to the last slide, which is the guidance for 2023. So the guidance is 4% to 6% growth at constant rate and scope, assuming a normalized market. I say that because we -- it's very difficult. I know we say that for 2 years, but it's true with the ups and downs of the market. It's very difficult to know what the market will do. We have assumed a flat market in volume with a price around 4%. So we expect the market to be around 4% to 5%. If the market is around 4% to 5%, we expect to do 4% to 6%. Of course, if the market is declining because the volumes are very light or going down, this will put additional pressure on us. And if the market rebound is much stronger, we will see. But at the moment, the assumption is 4% to 6%, hoping the market will normalize. I remember -- I recall to you that it was 3.5% last year with the normalization in the last quarter, but with negative volume probably. EBITDA adjusted, it's 13% to 14%. Thinking that we invest 1 more point in R&D., so that's very important. We over-invest in R&D 1 more point again, and all that bringing the net debt evolution stable versus end of 2022, but there are also with ambition to invest around EUR 11 million of CapEx. As we are growing very fast, we are trying to buy some land for further development. We need to build a new manufacturing site for vaccines, for instance, as we want to develop in vaccines for the next 10 years, we need to acquire some land and to make some investment in order to prepare the company on this dimension. Thank you very much, and we can open the question.

So any questions in the room?

Thank you for this exhaustive presentation. A few questions, if possible, by markets first. Can you comment a little more on U.S. contribution and the ramp-up of U.S., if we can foresee some trends, and the rate of occupancy probably of the St. Louis manufacturing sites? That would be the first question. Then on China, can you help us consider the ramp up as well in terms of prospects? What can we foresee as a contribution maybe in 2, 3 years? And the pace of registration seems to be difficult. So maybe can you comment on the go or no-go decision regarding a manufacturing site, when should -- when should it be? And how much if there is an investment to do?

U.S., three elements in the U.S. First, the classical organic growth of the classical companion animal products. There, we would like to add new products, more new products. We work hard in doing so. We have some launches. I will say that the graph has been quite nice last year. Difficult to answer the question the way you ask it, because it's on 1 part linked to the market evolution and the other part is more about gaining market share. We don't have a breakthrough innovation. We don't have something huge or new coming to the U.S. So I expect it to be gaining market share. So still correlated to the market, okay? We should beat the market, but it will be correlated to the market. So that's for the first part. The second part will be Petfood and Petfood, we are very much below the radar at the moment. We are not managing to get to where I would like us to be. But again, I knew that. I share that to the team to the commercial team, and I told them he will take probably 5 years. But the question is, how do we start after 1 year because the 5 years will be the same no matter where you start, but I was expecting to start much stronger anyway. So -- but that sometimes, when you have a little bit of success in cluster or in certain places, it will then ramp up a bit quicker. So that will take also a few years. I don't expect to see it in 2023, but it's 1 way to go much faster. If Petfood starts, it will help. And then the last but not least is food producing animal. It's deceiving because we had a lot of product coming in the pipeline. They have all been a little bit delayed. So now we are fighting with tulathromycin, for instance, it's 1 product. So when you go again Zoetis and all the others with 1 product, it's a bit complicated. When you have the full range, it's much easier. So we still expect to have a full range of product or a large range of product -- broad range of products, not full. And that will be helpful, but at the moment, it's delayed. So again, it depends whether you look at 2023 or you look at 2025 and whether it's 1 year vision or 3 years' vision. So again, we are still very positive about the U.S. There is so much to be done. We have many things in the works. We have many things running in parallel. We also look at M&A from eventually. So -- but at the moment, there is nothing either breakthrough material that will make a difference in 2023. That's why I shared the perspective being prudent at the moment after the year of 2022, and we had a very strong finish in the U.S. So with a very strong finish, we may have a slower start in 2023. That's for the U.S. And for China, we have started already to work in local workshop, a small manufacturing workshop for pet care. So nonregulated product in order to have a quicker and easier access there. So that's already in the works for 1 year already, one year we worked on it. So maybe in 2 years from now, we will be able to start a small production locally with partners, with our own workshop. But that's for pet care. Maybe we'll have a partner, a CMO partner for 2 or 3 pharma products. The big question will be what do we do in vaccines? And so we are exploring, but we have nothing defined at the moment, and that will take time because all these are very time and resource consuming. And we have a very lean organization. So we don't want to over put too many resources for something that will not yield results short term. So we look at it. It's not a big problem yet. Yes, there are more and more questions. Yes, there are more and more delays in registration, but there is no interdiction. And we are still confident that we should get the vaccine registered before, I don't know, if it's end of this year or end of next year, but we still expect it to be registered. And we have many things to do in China because with Milpro, Effipro, the pet food and 1 or 2 more product coming. We have like 4 or 5 products to launch and with 40 reps more, which will be able to perform very much. So I expect it to be double digit for the next few years. But it's small today. So to your question on the contribution of China, it will take a bit of time before it really add to the group. It will take some time. But Brazil was 15 affiliate of the group like 4 years ago, it's top 8 now. So some country managed to do it.

Any other questions?

You are a leader in India. Could you please tell us a little bit more about why you are desired in India? And can we expect the development of the industry of India as in China, for example? And is it only production animals or also companionship animals?

Okay. I will share some of the recipe, but not all. So the first thing I would say, not to share the recipe is that, in fact, I believe we are a leader because when we acquired the GSK Animal Health business unit back in 2006, we had been able to free a team from any corporate pressure and let them develop by themselves. And these people were just amazing. They were great, and they have done a fantastic job being empowered and being trusted by us. And one of the things that makes the Virbac culture unbelievable is these words of freedom, trust and empowerment, which created a level of engagement, which is way above what you would see in the industry. And that's what happened in India. So I think the recipe of the success was there. it's true that now we are really big. To your question, it's mostly cattle for us. But now we are launching pet food, and we have starting to have a significantly nice companion animal business, so it's developing. I don't expect it to grow as quickly as it grows in China. But yes, I think India is poised to be 1 of the biggest markets in the world. It was last year, I have not checked in 2022, but the year before it was 11 biggest market in the world, but we don't have all the local players reporting. So probably it's top 10 animal market in the world. normally, it should be top 5. So I expect it to further develop. And yes, I think that the company will market will also further develop very quickly, maybe not to the extent of China or maybe it's a bit behind China, but I expect to see it as a nice market for us.

Congratulations on the results. So I have 2 quick questions. The first one, at the end of the first quarter, you mentioned that you had a good performance that was caused by the massive stockpiling by the consumer that we are scared of price increase in the start of 2023. So now that we are close to the first -- the end of the first quarter, do you have more insight on the impact on the sales in the first quarter? And the second question is most of the growth that the company might be linked to the -- your ability to increase the price of your product in 2023 since the market might have a slower growth. So how confident are you in your ability to make the price increase?

I will start with the second part because last year, we talked about price increase between 4% and 5%. And we were at 5.4 -- 4.5 sorry, 4.5% in June, we have 4.7% in October, and we vision 5%. So we have been -- we have been proud of being able to execute. We were then finishing in the high end of what we were saying to the market, but we finished at 5% last year. So it was way above expectation. We have planned for the same kind of increase this year. But you're perfectly right. It's difficult to imagine that we will do that every year. At the same time, inflation and the context should help, but it's difficult because if all the competitors are doing plus 3 and you do plus 5, of pays a point in time where it becomes complex. So to be honest, I think we are among the best in executing there, and I would like it not to be the case, but -- so at the moment, we are confident that the answer on the price increase. But you're right, it's a big part of this growth. So we have planned between 0% and 2% of volume growth in our assumption and the rest was price increase. So we'll see whether the volume will be negative or positive and how this thing will unfold. As far as -- I'll let Habib answer.

Yes, I can take the second one. So regarding the inventory effects, so it's not a massive one. We had a slight inventory effect at the end of the year linked to the price increases. It's difficult because, obviously, we don't have all of the data to measure it, but we think we would still have been within the -- at the top end of the guidance without that effect. It's also difficult to really measure what it will be at the end of the first quarter, because it depends on the level of stock at the end of March of this year, but it's true we've stated that we could have an impact on the first trimester, obviously, but it will phase out during the full year, and we have not changed our guidance. Sebastien stated, it's still 4% to 6% for the entire year.

But what happened is that there was -- there is a base effect on the Q1 versus last year. There is this strong price increase, which some of them has been anticipated. So that has also compounded the effect. And the last but not least, we launched some of the products I mentioned in the Q4. So you have many effects that will, of course, make it -- and we lost the formalin product in July last year. So in the base effect, you have always taken. So -- but it's too early, and we are going to publish the first quarter soon.

So mid April.

Could you comment on the size of the formalin products? And are you confident you will be able to get it back on track during the second part of the year?

Confident being above 50% or below 50%. So I have no true conviction on the ability to get it back. We are working on it. And so I don't know, I will say maybe 50% chance to get it back in 1 way or another. And it was...

Above 5% and below 10%.

One question on inflation. You have shared with us what is embedded in terms of wages for 2023. Is it possible to share what is the embedded effect of inflation on the rest of the cost structure and thinking notably on gross margin and cost of goods or any other significant line of expenditure that should be relevant? Another question on M&A regarding valuation and interest rates. Have you seen a change in the seller stance regarding the interest rate hike? And probably 1 point on launches for 2023. How should we think about the fluidity of your launches and the impact we should see on organic growth for 2023?

I can take the first 1 regarding inflation. It's complicated to give 1 answer. Obviously, the impact of inflation is very different depending on the countries. Some of them has been more impacted. It's also linked to the type and nature of the contract that we have, obviously. What we've shared is some of the big impact or significant impact, energy, for instance, it's 0.5 point of profitability that we've lost only linked to energy with EUR 5 million more. We -- Sebastien mentioned the salary increase impact in France, which is a good portion of our cost base, obviously, at 6%. And on the rest, as I mentioned, it's a mix of several, but it's definitely in terms of assumptions, 1 of the highest impact of inflation that we've seen recently, I'm not surprised with that given the context.

Then maybe slightly above 6. And then I forgot the other question. So the pipeline launches, I think there is no specific indication of any change there. It should be according to expectation. One of the things we measure, for instance, is the vitality index of the company, which is the proportion of sales coming out of the product being less than 3 years. And this index is flat above 10%. So flat being if we keep performing every year in the same way, as a ratio of sales, which means as the sales grow from EUR 800 million to EUR 1 billion to EUR 1.2 billion is not a bad performance. 10% -- above 10% of our sales are coming from products less than 3 years old. So that's the vitality index, and we have seen it more or less flat. Of course, we like it to improve, but it's difficult. At least it does not degrade over the last 3 years. So that's 1 part. I expect it as planned at the moment for 2023, nothing special. We don't see anything there are a bit of inertia on that. I mean, first, we are not too many targets. Someone was mentioning to me this morning that the targets being not very numerous, they still want to expect price -- quite high price for this. So at the moment, it's slowing down in terms of number of those [indiscernible], but not in terms of valuation yet. Now this being said, I still expect that the inflation rate going up will probably put pressure on the balance sheet and -- of the company will have a lot of debt. So I still expect to see more things in the coming 2 years, but there are a bit of inertia. So it takes a bit of time. So we are patient. That's also why we don't give too much dividend to keep the cash in case an opportunity will come that we will be able to size it.

I have 2 questions online. We have 56 persons being connected. So how do you explain that 2023 sales guidance means a performance in line with the market despite 5 years of over performance? Is it cautious? Or is it -- or is there any reason behind that?

Two reasons for me -- 2 reasons for me. The first 1 is we have a very strong finish of 2022. And so the base effect for us should be more unfavorable than others. What I mean by that is we grew 14.3% last year or 9.6% at constant rate. So we are comparing 2023 to a very, very good year. That has been the best year. I remember that we just passed the EUR 1 billion mark -- the EUR 1 billion mark in September 2021 on MAT. And in end of 2022, we are EUR 1.26 billion, I mean EUR 1.2 billion. So okay, the trees don't go to the sky. So there will be a point in time where it becomes more and more difficult to be outperforming everyone. So that's one, the base effect, and the fact that we have had a really, really good performance. The second 1 is, we don't have any specific breakthrough launch this year. We don't have any specific new product. We had Clomicalm, Itrafungol that help us. We had a few things that was quite evident. We still have it. We are launching pet food in India. We are launching pet food in China. We are in the second year of pet food in the U.S. So all this should create traction. So I'm not saying we should not beat the market, I still expect, and we are working hard, very hard to beat the market again this year. But I guess that our colleagues and competitors are doing the same. So we are just -- we don't have a clear evidence that we will beat the market no matter what. So we will do everything to do it again. And there is no reason that we don't do it, but there is no guarantee, we do it. So at this stage, it would be logic that would be more or less in line or slightly above market. Because again, we say 5% and we say 4% to 6%.

Okay. Thank you, Sebastien. So the second question is very technical, very specific to IFRS. So we decided to give with a bit to context, that we will answer directly. So I have no additional questions so far. And it's 10 to 4. So perhaps it's time to close the session. Boss, if you agree?

So we have come to the end to the session.

Thank you very, very much.

Thank you.

Thank you very much for your attendance and for those attending virtually. Thank you so much. Bye.

Thank you.