Virbac SA (VIRP) Earnings Call Transcript & Summary

Good afternoon, everyone. We are very pleased to welcome you on the Virbac 2023 Half Year Results Conference and Webcast. Hosting the call today are Abderrahman Benouhoud, Investor Relations; and myself, Sandrine Brunel, Head of Corporate Communications. We will be joined by Sebastien Huron, our Chief Executive Officer; and Habib Ramdani, our Chief Financial Officer. Before we begin, I'll remind you that the slides presentation and additional financial materials are available on the Investors' section of our corporate website. The replay of the meeting will be available at the conclusion of the meeting. For those attending virtually, you will be able to post your questions by using the section named Questions on the bottom right-hand corner of your screen. All the questions will be answered during the Q&A session or afterwards if time does not allow us to answer them immediately. It is now my pleasure to turn the floor to Habib Ramdani and Sebastien Huron.

Thank you, Sandrine. Good morning. Good afternoon to all of you. We will cover this presentation with Sebastien. I'm going to start in a couple of seconds with the half year results, financial part of this presentation, and I will then hand over to Sebastien, who is going to cover some elements regarding our perspective, strategy as well 2030. So let me start with the '23 half year results. I'm going to cover an executive summary to start with 2 slides and then we'll go into a little bit more details. So regarding this semester, the keyword is really resilience. We've been very much resilient during this first semester 2023. And we have posted, as you can see, an organic growth of 0.4% at constant rate. So more or less stable sales despite 3 negative elements that we have had to manage. The first one is some manufacturing issues on our vaccines site, dogs and cats, worldwide vaccine site. We've been operating over the past 2 to 3 years with capacity production limitation on our dog and cats vaccine manufacturing sites with absolutely no security stock. And we have had during this first semester of 2023 some rejected batches that have been produced, which is not unusual given the nature of those biological products. But given the fact that we have no security stock, it has had an immediate impact on our top-line. The second element is the cyber attack that we have suffered at the very end of June. And the final one is the dynamic of the market, which has seen a significant flow of the growth of the animal health market during this first semester 2023 versus what we have seen over the past years in 2021 following the COVID impact. So the market has been growing over the past 12 months at around 2% to 3%, which is even a negative volume growth if you take into account probably around 4% to 5% price impact. So in that overall context, we've been resilient on the top-line. We've also been resilient on the bottom-line. As you can see, our EBIT adjusted has decreased slightly by EUR 3.3 million in absolute value. We have posted a solid 18.4% of EBIT adjusted ratio to revenue, which is 18.0% at real rate versus 19% at the end of June 2022. This decrease both in absolute value and in ratio is essentially linked to an acceleration of our R&D spending, an expected acceleration, and we have shared with the market that we've made the decision to increase our R&D spending by around 1 point, and that's what happened during this first semester of 2023. We have increased in absolute value our R&D investment by EUR 6 million approximately, which represent around 1 point. So our earnings before R&D have improved by EUR 3 million in absolute value and by close to 0.5 points moving from 24.6% to 25% at constant rate. And this improvement has been done despite a significant level of inflation that have impacted our cost base, and I'll come back to that later on. Finally on this slide regarding the ForEx impact, you see that we have suffered a negative impact on top-line, on bottom-line EBITDA adjusted as well as on our EBITDA ratio we have lost 0.5 point, around 0.5 point of EBITDA ratio linked to the unfavorable evolution of the exchange rate. And you see on this slide that many currencies have depreciated versus the euro over the course of the semester. If we continue to go down on our financials, down toward the profit and loss statement, you see that our net profit have slightly decreased, moving from slightly more than EUR 77 million to around EUR 75 million in this first semester of 2023 at real rates. And beyond the decrease of the EBIT adjusted that I already commented, we have had for this semester net financial profit of EUR 0.9 million, which is to be compared to losses, net financial losses that we recorded in 2022 that was quite significant because it was at EUR 8 million. And these significant losses was due last year to unfavorable Chilean peso exchange rate impact versus euro and dollars, whereas for this semester, we have seen a positive impact on the Chilean peso. If we look at the debt, we have increased our total net cash position by slightly more than EUR 30 million when we compare to June last year, but we have a decrease versus December 2022 by around the same amount, EUR 30 million. This decrease versus December 2022 is essentially explained by additional working capital needs. A good portion of it is linked to seasonality, normal seasonality that we have every year. There have been also the dividend payment that has been made for slightly more than EUR 10 million during this first semester. And we can say, and we'll come back to that when we will cover the perspective, that we expect cash generation during the second semester, which is again a usual pattern that we have, and we have also increased our perspective net cash position at the end of 2023 versus our previous guidance. We'll cover that later on. So we continue to be cash positive with slightly more than EUR 50 million at the end of June 2023. And obviously, this translates into a negative net debt on EBITDA ratio. So we continue to have a very favorable financial situation. I will move to the sales, starting with evolution of sales at real rates. You see that we have lost 1 percentage point moving from EUR 616 million to EUR 610 million. We have had a negative exchange rate impact of EUR 8 million. But on the constant exchange rate basis, we have had a slight improvement by 0.4%. Let's have a look where this is coming from. We can see here that we have a contrasted dynamics when we look at the region. Europe is growing by 2.7%. We are having a solid performance in many product ranges such as petfood, pet care as well. Our specialty product ranges is doing quite well as well during the first semester of 2023. And our ruminant business in Europe is growing as well. On the contrary, we are suffering on the vaccines, as you know. So we've been able to deliver 2.7% despite the significant impact that we have had on our vaccine business in Europe. And the parasiticide segment has been suffering as well during this semester. North America is decreasing by around 2%, as you can see. There is a base effect when we compare to last year as well as the destocking that has been observed at the distributor level, following into the cyber attack, part of it probably linked as well to the high interest rates. Beyond this destocking effect, when we look at the pure sell-out performance, we have done a good first semester with double-digit growth in the U.S., and Sebastien is going to give a little bit more details on this performance. Finally, Rest of the World, you see that we are more or less stable. For us, Rest of the World is essentially the Southern Hemisphere with 4 main regions. 2 of them are decreasing versus last year. 2 of them are increasing versus last year. You see that the Pacific region has been doing very well with 8% growth driven by Australia and New Zealand with a very good performance on our ruminant business with a good market and a good performance of our own product, and Sebastien is going to give also a little bit more color on this performance. Africa Middle East growing as well by 5%, although it's lower in terms of absolute value versus Pacific. Asia region is slightly decreasing at minus -- around minus 1% with India being the main contributor, having had a stable performance during the first semester after a fantastic first semester of 2022. So we have a base effect year comparison. We had around 20% growth in 2022 versus 2021 and we are stable for this semester. And China, which has been more difficult after we are suffering from a first trimester that has been very low. We are more stable during the second trimester in China. Latin America, you see minus 7%. It's the region that is decreasing the most within Virbac. It's essentially linked to Chile. The rest of the region is doing quite well with Mexico and Brazil, the 2 main countries beyond Chile that continues to grow during this semester 2023. And we're going to cover the Chilean situation during the second part of the presentation. I suggest we move now to some comments regarding the top-line performance when it's split between companion animals and farm animals and also by segment within each of those 2 pillars. So starting with companion animals, you see that we have a contrasted dynamics based on the segment. We have the petfood segment that is doing very well with close to 20% growth during the semester. It's -- we are benefiting from a good dynamic in many markets from a positive -- very positive dynamic on the pricing as well of those products. You remember that we have suffered by a significant raw material increase. So we've been able to adjust our prices there during the semester. Specialty is doing very well as well, has continued to grow during the semester with products such as raw production ranges with Suprelorin, Zoletil as well that has done quite well during the semester. On the other hand, we see the biological segment suffering from the manufacturing issues and the production capacity limitation that we had. We have seen a decrease of our sales, whereas we would have even increased our sales if we would have been able to meet entirely the demand. And parasiticide as well, decreasing by close to EUR 7 million. 2/3 of this decrease is in the U.S. So part of it explained by the destocking and part of it also by the dynamic in the market with competition from these oxazolines as well as more difficulties on those product ranges to increase price. If we move to second pillar, farm animals, you see that the picture here is less contrasted with many segments that are driving the growth of this segment with the exception of aquaculture that is decreasing significantly during the period. And again, it's essentially linked to the Chilean situation with a base effect with the product that we lost on the parasiticide segment as well as decrease of sales on the antibiotics, and Sebastien is going to cover that again during the second part of the presentation. Antibiotic that has a sluggish dynamic during this semester, but apart of that, all the other segments are growing; parasiticides with a good dynamics in many markets, Pacific as well as South America; nutritionals, driven by India and many Asian countries as well; our vaccines business that is -- that continues to grow in Europe, but also in South America and also to some extent in Asia with our swine products. So this is for the explanation of the dynamic of our sales by country, by region and by segment. So if we look at now a summary of the split of this, there is nothing much that has changed versus last year. We continue to have 1/3 of our sales coming from emerging countries, 40% from Europe with 1/3 specifically on companion animal in Europe and the rest in North America and other countries such as Asia, Australia and New Zealand. Let's move now to our profit and loss statements to look at the overall P&L. So as we've shared in the executive summary, the operating profit from our -- arising from our activities has decreased slightly comparing 2022 to 2030 -- 2023, sorry. It's essentially linked to our R&D investment. So you see the net expenses line that has increased. A portion of it, as we will see on the next slide, is linked to R&D investment. We have suffered as well from the inflation that weighted on our cost base significantly on our salary mass. We have also reinforced our workforce in industrial, in commercial during the period. And this has been compensated to a certain level by several elements, one of them being a decrease of our transportation costs. You remember that last year it has increased significantly. We have seen for this semester a significant decrease, which contributed to several million euros less of transportation costs. We have also had a phasing of our marketing investment. In 2022, we had some important launches at the beginning of the year. So we have had our marketing expenses phased as well with that, which is less the case for 2023. We see that more during the second part of the year. And finally, we have some positive impact on corporate costs as well, and I'm going to cover that during the second part of the next slide. If we look at the gross margin on material costs, you see that we've had a significant improvement between 2022 to 2030. We are pleased to have been able to increase our price by slightly more than 5% during the semester, which has been -- which has helped us to compensate for a negative mix effect that we had during the semester. So overall, the key takeaway again is resilience. Our operating profit has increased. If we take aside our willingness to invest in our R&D, we've been able to increase our operating profit as a ratio to revenue by 0.5 point -- around 0.5 point during the semester. If we look now at the next line of our profit and loss statement, our net financial expenses, as I mentioned, we have recorded a profit, slight profit for this semester, whereas we used to have a significant loss last year into the CLP evolution. Our income tax has increased as well. A part of it is linked to a one-off provision recording within that line for 2023. Our effective tax rate has more or less remained stable during the period comparing first semester 2022 with first semester 2023. So bottom-line, our net profit has slightly decreased during the period, explained by the different elements that I just covered. Let's come back now to our EBIT adjusted evolution. You see here 2022, 2030 and we see where this evolution decrease is coming from. So you see that the region have been impacted by the sluggish top-line evolution and we've not been able to increase on the different region for the first semester 2023. We have been impacted, but again, it was -- it is as expected and as planned by an increase of our R&D expenses by around EUR 6 million more, which is 1 point of EBIT adjusted as a ratio. And finally, our corporate costs, as you can see, have contributed positively. There is a bit of one-off provision reversal for that, around 1/3 of that. And we have also some phasing of expenses that have moved from the first semester to the second semester that explain this and some savings as well to a lesser extent. Finally, worth to mention that we have suffered from a negative impact from the exchange rates on our EBIT adjusted by around EUR 4 million when we compared to last year first semester. Evolution of cash flow is very much aligned with the evolution of our operating profit. And you see that the operating cash flow is slightly decreasing and the same for the net cash flow during the period. Evolution of free cash flow, we are comparing here the generation of net free cash flow for this semester compared with last semester. So if we start with this semester, so you see that we have had a negative net free cash flow, we are decreasing a little bit or consuming a little bit of net free cash flow during the period. It's essentially explained by the working capital, as you see on the slide, minus EUR 76 million. A good portion of it is linked to accounts receivable, I would say, around EUR 50 million with 2 elements. One of them is the end of year rebates that we are typically paying during the first part of the year. So this has a seasonal type of impact on our cash generation profile. We consume cash during the first semester of 2023. The second one is linked to a timing and the level of activity that we had last year at the end of last year versus the end of this year, which has been quite important. And also to some extent, we are suffering from the cyber attack. We have not been able to collect what we would have collected in terms of accounts receivable during the last day of the month of June. And we have also had an impact from our factoring program. We have decreased our factoring program during the period for slightly less than EUR 10 million. The 2 other elements that are contributing to that, the working capital consumption is, one, on the one hand, the inventory. You remember that we had a significant increase of our inventory last year. It has slowed down significantly, and that's a good news. During the first semester of 2023, we're increasing by only EUR 10 million during the period and a portion of it is linked to the vaccine situation. And finally, accounts payable is also playing for -- contributing to around EUR 10 million. If we compare now this net free cash flow generation profile for this semester versus last semester, you see that the main differences is linked to the working capital. Last year, we had a need for working capital that was much more important than this year. It was essentially linked to a significant increase of our stock in the context of the disruption on all supply chains, if you remember, and our willingness to build security stock in 2021 and 2022. So this translates into the evolution of our net debt. As I shared during the executive summary, we moved from EUR 76 million to slightly more than EUR 51 million of positive net cash situation or negative net debt. So we continue to be positive at the end of this semester. Very briefly on the balance sheet analysis. The main takeaway is that we continue to be in a very favorable financial situation from a balance sheet standpoint with our net cash position. You see the evolution of the working capital. We are comparing with end of 2022 and June 2022. So there is a seasonality effect that you see when we compare to end of 2022. And you see the improvement on the working capital versus 2022 June. I won't spend too much time on the financial ratios. They are -- all of them still negative given our net cash position obviously and we continue to have a favorable net debt on EBITDA ratio. And my last slide before handing over to Sebastien is the shareholding structure, nothing has changed. The majority shareholder, the Dick family still owned 49.7% and slightly less than 66% of the voting rights as of end of June 30, 2023. I'm handing over to Sebastien for the second part of the presentation.

Thank you very much, Habib. Thank you very much. So I will cover the half year achievement. Then we will do a small tour all around the world with a key affiliate, I will cover 4 affiliates. And then I will remind you a little bit the frame of Virbac 2030 strategy, and I will give you an example of execution within this frame of our 2030 road map. So first of all, Habib already mentioned it, so I'm going to go fast, but we have proven a remarkable resilience during the first half despite difficulty in terms of volumes and the market slowdown. We have seen the market slowing down quite significantly versus the last 2 years. Despite the strong headwinds and despite on top of that 2 unfavorable one-offs, which have been the manufacturing issue we had on vaccines at the beginning of the year, which have been complexified and complicated with cyber attack, we have been able to deliver an improved benefit, improved profits before research and development and licensing, so before RDL at constant rate. And even at actual rate, we are at 24.6%, but at constant rate, we are improving by 0.4 points, which is quite significant, mostly linked to the price increases we have been able to pass in the market. In terms of product focus, among the Virbac buster and the strategic product line, petfood keeps improving very well, almost 20% growth at constant rate. So it's doing very well and that is without too much of the contribution of the U.S. where we have launched recently the product, but it will take time to grow and without yet China because we plan to launch in China now in fact in the coming weeks. The vaccine has been done and that is affecting us. So the top-line growth will have been much more important if we didn't have this manufacturing issue and this cyber attack in the first half of the year on the company animal vaccines. And then we are suffering both in internal parasiticide, not very much structurally, but still this year is a bit tougher with competition there. And on aquaculture, where we have accumulated many bad news and many negative effect this year. I will come later on that when I will talk about Chile. We have launched and we'll keep launching new products on the regular timeframe. So this year, we launched a very innovative product called CortOtic. It's in fact the first-in-class. It's a first ear treatment without antibiotics. You know we are trying the ESG guidelines to reduce the consumption of antibiotics. And so we have been the first company in the world to launch a very efficacious product for ear treatment without antibiotic and with an anti-inflammatory that does a very good job and has been recognized by the agency, by the way, on the claim to be a first intent product. So that should be a very significant product for Virbac. We are quite proud of this innovation. And hopefully, it will do well in the market. Movoflex is a product for the articulation for joint disease. And that also should be -- could be a Virbac buster product on global level. It's already performing very well in the U.S. And we have just launched it in Europe, and we are geo-extending it in the world. So we expect it to be also a very significant growth contributor in the coming years. And then we have added a new product to our petfood HPM line. So first, a wet formulation for kidney and for cats. And then we have a combo dry new petfood, which address 2 pathology, because on the dietetic [ ranges ], sometimes dogs may suffer or the cat may suffer different pathology at the same time, 2 pathology. And so we have developed one for old animals where we address 2 different kinds of pathology at the same time. And then we have launched in India as a petfood and China is to come now in the coming weeks. So now we go all around the world. We have chosen 4 affiliates. One who is performing extremely well. One, who is performing extremely badly, let's say. And 2 significant one to give you a good overview, a balanced overview of the overall geographical situation at that stage. So first is Australia. Australia is performing extremely well for 2, 3 years now, supported by a good market linked to the weather condition. It's sometimes affected because we had a few years ago a lot of drought and fire and a lot of issue with regard to lack of rain. But for the last 2 years, the market has been quite strong. The demand is quite strong. And coupled with our commercial excellence, we have been able to deliver significant growth over the last 2 to 3 years. And so the country is really helping pulling the overall organization in the right direction. And we have delivered close to 9% growth at constant rate in the first half. The perspective for the end of the year is to remain robust. We expect continued growth in 2023 and a profitability improvement to pricing increase and the mix -- the product mix. So Australia is quite positive. Chile, it's the opposite. It's quite negative or very negative. I think we have had accumulation of all bad news that could have been imagined at the same time. First of all, you remember, we have lost -- not really lost, but we have interrupted the distribution of third-party product last year in July because of a regulatory issue. And due to this regulatory issue, there has been an interruption of commercialization of this product that we were supposed to take back this year and commercialize this year, and that has not happened. We have a dispute with the owner of the restoration on this product. So at this stage, we are not commercializing this product anymore. And that has a tremendous impact on our top-line. So we have now 12 months without this product and that was not expected like that. So we lost a third-party distribution product. On top of that, we have a very strong antibiotic sales decline. This is partially due to the fact that we have stocks at a higher price and the market has a bit cooled off and the price went down recently. So we were with very, very low margin. And in part due to our decision to limit the sales of this product because it's very low margin. So it's not helping our overall profitability. And also because we believe that's mid, long-term, there is so much pressure on antibiotics that we need to proactively reduce their use as much as possible when it makes sense and use it more as a service product when it is required because you have now bloom of disease or an outbreak of disease and you have suddenly the need to use it as a treatment, but to really limit its usage as much as possible. So these 2 effects of the loss of the distribution of the third-party product coupled with a strong reduction of antibiotics have led to the 33% sales revenue decline. But the most important and maybe what to keep in mind is the vaccine sales have been stable. So basically, structurally, what is -- what really matters and what is really important moving forward is our ability to develop the vaccine sales because this is in the market, 70%, 75% of the aquaculture business. So in the end, this is what really matters and this is where the profits are made. So what we need to really look at is the vaccines and they have been stable. So despite a 33% decline overall, the most important element, the most important component has remained stable. We are pursuing our R&D effort, both on vaccines and parasiticides, but another type of parasiticide that will be something a bit breakthrough or innovative to have a solution for sea lice; you know this is one of the biggest unmet need in the market. So the first company that will find a solution for sea lice will probably make a very big product out of it. So we work on certain programs for that. And the perspective for 2023 is to have some recovery. We will not catch-up to come back at breakeven. We will not do that this year, but we should in the second half improve significantly. First, because base effect is not the same. We had the third-party distribution product from January to July 2022. We didn't have it from July '22 to December '22. So the base effect of not having this product this year will not be the same, already starting with that. And then we are trying to come back with other products and marketing program in order to compensate for the shortfall. So we expect some recovery. Then the U.S., I did mention it. So again, I will not spend too much time on it. But basically, what the key messages are is the sales out of distribution are quite strong, quite positive. So most of what you are seeing here in the first half is linked to a destocking effect in distribution and we remain confident and positive about the second half. So we think we'll be back to growth in the second half. Most of it was a destocking from distribution, linked to many things, cost of interest increasing, the company try to manage their cash like us. And managing their cash means they try to reduce their stocks in order to have less immobilized capital in their stocks. They try to work on their working capital like us. And so that's part of it. Part of it is the slowing of the market. And part of it was also the different effect of implementation of ERP last year and the cyber attack this year. So all that makes that. The key message is sales out of distribution remains strong, especially in products like Euthasol and Clomicalm, but also on dermatological product like Easotic and EpiOtic Advance. And we have new products we have recently launched like Zoletil and our livestock product ranges. So Tulissin and Tenotryl, which are performing relatively well and supporting the growth. Petfood to the opposite and despite growing double-digit is starting on a very, very low basis. So this is not satisfactory at this stage and we are keeping investments and keeping the strategic decision to keep pushing. That will take time, but we will prevail at the end. India, I mention it because it's top 3 of Virbac country. So it's stable revenue in the first half, but after a very, very strong first half in 2022. So that has to be compared to the -- because of the base effect. We just launched petfood in India. And the profitability of India has been growing very significantly, plus 16% at constant rate with many initiatives, both on the procurement side, but also on the price increase and working of the product mix with a higher share of the therapeutic product which delivers a higher margin than the nutritional product. So the company is very well managed. Because we realize an acquisition, I can share with you that since we have acquired the GlaxoSmithKline, GSK business back in 2006, we have multiplied the revenue by 9%, the EBIT by 18% after the GSK acquisition. So the team is really performing extremely well locally. We have more than 1,200 people and we are a market leader. And we were planning to enter the poultry vaccine arena through distribution agreement. So we have in-licensed 2 vaccines to enter this segment and complete our product range. And then you will see later, we have managed to complete an acquisition on top of that to speed up and ramping up of these sales in this segment. So we expect a more positive outlook for the second half driven by growing demand across all segments and also a boost on the poultry side with this new in-licensed product and acquisition. So after this quick overview of the world and the main affiliates, I'll go back to the 2030 road map. So we have shared with you all the initiatives we are conducting. We shared with you the fact that we were trying to accelerate on 3 dimensions. #1, the increase of R&D programs. This is written at the bottom. At the bottom of the slide, you see, we have talked to you about increasing R&D programs and partnerships, investing more in R&D, to generate more organic growth, to support our own way to go to the target 20%, we said we would like to reach before 2030. So there is an increase of R&D programs and partnership to speed up the pipeline we have. Then there is an improvement and a lot of work being conducted on the manufacturing site to improve competitiveness of our different sites. And we try to mutualize our production, we try to look how we can optimize the network of production site we have across the world in order to be more competitive, in order to improve our product gross margin. This is really where we need to improve in terms of P&L, it's to improve with the product gross margin as we are more or less perfectly aligned with the market in terms of benchmark, in terms of OpEx, in terms of overall expenses. So the game is more in the product margin, and that plays also with the product mix. That's why we want to invest in vaccines, for instance. So that's what we have shared with you. The other things we do is to keep building critical mass. So I present a slight bottom up, in fact, we keep increasing critical mass because this is a key element in animal health. Animal health is really driven by innovation. And so bigger you are, more proportionately you can invest in R&D and innovation. We have decided strategically to compensate by our size by over-investing in R&D and increasing the percentage of spend in R&D in order to be able to compete in many key fields and in many innovation segment and try to bring more new products, including Virbac buster or blockbusters. So that's a key element we try to do. We also try to increase our commercial presence both in U.S. and China. This is a 2 key markets where we have too low of a market share so far. And this is really important to gain size and visibility in these 2 markets, U.S. and China. That takes time. That takes much more time. It's a long journey, but we are doing it. We are committed to do it. And then to accelerate our programmatic M&A, as we have mentioned that before, it was mentioned as being a key element of the Virbac 2030 road map to accelerate programmatic M&A. And the acquisition I will mention in a few minutes, is a very good proof of this execution, a very good proof of this intention to deliver and to execute what we said. But what we wanted to share with you also is that as a mid-sized player, and it's really key. As a mid-sized player, we think we have no competitive disadvantage of any kind of size if we invest in vaccines, in veterinary petfood or in selected geographies. So the 3 dimension where we really focus in terms of strategy, in terms of resource allocation, in terms of R&D pipeline, but also programmatic M&A is to try to increase the proportion of vaccines in Virbac. As mentioned in the past, we have 14% of our sales come from vaccines. We would like it to be around 30%, so 1/3. And so we are investing as much as we can, both in innovation, but also in the manufacturing side in order to improve productivity and capacity, in order to grow faster. And we use M&A leverage, if we can, when it is possible to add more vaccines to our strategy. So it's important to understand that because cost of entry is quite high, but it's quite high in the first time. Once you have your platform, when you have your manufacturing ecosystem, when you have your labs, your R&D pilot plant and everything. So the first step, the first buyer venture is quite high. But once you have passed that, the incremental cost of developing new vaccines is not very high. And so you can really compete on the same basis with the top 4 and with the largest company. For petfood, we see strong synergies with veterinarians who are our key prescribers; and same thing, we believe that health start with nutrition. And we have a lot of credibility, a lot of legitimacy to play in this field. And because of our unique formula and the benefit of our product, we also believe we have a competitive advantage there with a unique ability to have petfood, which tomorrow could be medicalized. And imagine to have petfood combined with some drugs to treat some or address some pathology. So we believe we could be very differentiated from the competition and bring value, add value to the market. So these 2 segments, vaccines and veterinary petfood, allows us to play as a mid-sized player without having anything to envy to the top 4 or to the largest company. Same thing with selected geographic. We mentioned India, it could be aquaculture, where there as well, we are top 4 in aquaculture. We are #1 in India. So where we are strong, where we have a competitive advantage or a very strong position, we want to further invest, like we do in India, in order to keep this advantage and to reinforce our position. So when I say that, we mentioned programmatic M&A. We mentioned vaccines. We mentioned India. And you will not be surprised if I tell you that the slide you saw before was done much before the acquisition because this slide was done a few months ago, the acquisition was completed yesterday. So when you see that, you will understand that it fits perfectly what we wanted to do. First of all, it's a poultry vaccine in India. So Globion is the company has been founded in 2005 as a joint venture between Suguna Group. Suguna is one of the leading Indian poultry conglomerate. So it's a very large company producing poultry. And they had to build a company doing vaccine because like 10, 15 years ago, they had supply issue to import vaccine from outside of India for protective measure, for import permit, for authority regulation. And so in the end, they decided to make a joint venture with Lohmann Animal Health, who was a German poultry vaccine company. And they built Globion with an idea to create a center of excellence for poultry vaccine in India to supply the market. And they have developed robust know-how, expertise. They have developed a broad range of life and inactivated vaccines, targeting a large area of pathology in poultry. And they are really very well positioned, top 4, top 5 in the local market as a supplier of poultry vaccines. It is more or less 120 people, EUR 12 million annual revenue. But so far, it is a company selling mostly on the South of India, not covering very well the country because it's linked to the conglomerate of the poultry. So in fact, this company is an appendix of a poultry producer, which means that competes with other poultry producers. By the carve-out of this activity from this group and Virbac purchasing it, we are opening the possibility to sell to all the poultry producers and possibly to increase market share significantly and grow the business in the coming years. Again, that's what we acquire, who we acquire. The why is there. The why it's India, very easy. This is the most populated country in the world with a young population, the purchasing power, the need to eat low-cost protein, chicken has the lowest cost of protein. It's -- we see that there is a bit of protectionism and nationalism when it comes to importation of vaccines and local producers. So we believe that to have a manufacturing site in India is a competitive advantage on the regulatory side, on bringing new products, importing new trends and be faster and more agile in terms of developing new products. And we are #1 in animal health in India with unrivalled commercial footprint. As I mentioned before, we have 1,252 employees as of last year. So we have a very strong presence. We already have EUR 20 million of annual net revenue in poultry business, but mostly nutritional product. And so we had no vaccine. So the fact to add vaccines make perfect sense, and we give a lot of synergies. Poultry, I mentioned before, it's the most attractive protein source. It's a must-have. It's one of the most dynamic market in the world. It has been over the last 10 years, a most dynamic market. Vaccines for poultry has been very supportive. And we were not participating at all in this segment and that is the opportunity to have a low-cost producer, very well located in Hyderabad in India to now compete in this market, both in India, but also in Africa and Middle East and maybe at a later stage in Asia or in Latin America. In vaccines, I don't need to come back on that. It makes perfect sense, as I explained while before. So this is an highly strategic segment for us. And that will allow us to create an ecosystem in India with R&D, quality, manufacturing so that we can develop new vaccines, both in poultry and we -- why not maybe in other species like cattle at a later stage. So all this make this acquisition quite nice. It's clearly part of the programmatic M&A we want to do. It's a small, mid-sized company that we can digest very easily, very quickly, that will not disrupt or disturb the overall activity of Virbac and be a very good complement where we should extract maximum value. To conclude, one slide on the cyber attack. It has happened on June 19 all over the world. It was unprecedented for us. It's the first time at this stage. And a very virulent cyber attack, a ransomware type of virus. We have been extremely fast and agile in reacting. In a few hours, we have cut all the system down. So we have not let the virus propagated to our system. So a very small percentage of our system was affected, but it took time to restart them to not take any risk. So during several weeks, we had to play between business continuity and remediation run concomitantly. We try to do both at the same stage. And of course, this has an impact. We have moved, for instance, all the maintenance activity that were planned in August in France. We moved them in July, thanks to the flexibility of our teams. And we have started -- restarted production in August in order to not let production and manufacturing down too long. But of course, this has an impact, which has not been fully assessed yet, but that has an impact with some [ inter se ] because of course the safety stock you have tend to absorb the first month. And then when production had been stopped for 3 or 4 weeks, it takes a bit of time to rebuild the stock and come back. But today, all priority system and processes are back to normal since August. And so we are operating in a normal situation. And we have done investments that will cost us a little bit more, but to improve the overall infrastructure strength and level of security. In terms of perspective, we have confirmed the guidance we gave previously. So total revenue between 0% and 4% at constant rate and scope. EBIT adjusted, we keep at the moment, 12% to 13% at constant rate. After R&D improvement, we are spending more in R&D, because before R&D, we tried to improve that. And in terms of net cash position, we are pleased to announce an improvement versus what was previously communicated by around EUR 30 million versus the end of 2022. Of course, this is without acquisition; I'll concentrate, without the acquisition and without the impact of the share buy program that we have previously communicated. I thank you very, very much. And I think we can open the Q&A session.

Thank you very much, Sebastien. Thank you, Habib. We have -- yes, we have a lot of questions. So I'm going to start on behalf of Christophe Ganet who had some difficulties to connect, so he sent us a few questions by email, exactly 5. So first question regarding Q3. What are the price and volume trends for Virbac and for markets for the veterinary market?

For Q3?

For Q3, what are the price and volume trends?

We'll meet few weeks or you want to answer?

He's also asking the question by geographical area.

What we can say is that we don't have the data yet for Q3 obviously of the market, the overall market dynamic. We have shared and I've done it, Sebastien has done it. The market dynamic for Q2, that was around 2% to 3%, which is also what we've seen on a rolling basis for the past 12 months. And we'll see for the remainder of the year, whether we remain on this trend, which has been the same for the past 12 months or whether there is an acceleration or deceleration, it's still too early to say. On the price dynamics, we can share what we have done for the first semester, which is slightly above 5%. In terms of price increase, when we compare the average price of the first semester 2023 with the average price of the first semester of 2022, we have no reason to believe that there is a significant difference with the average in the market. So we could expect that in the market, the level of price increase is about the same. Although, there is -- there could be a huge difference on a product-by-product basis. I've mentioned the petfood, what's much easier to increase the price because of the overall situation and the raw material, for instance, that have increased very much. There are some other product categories where it's much more difficult, for instance, the parasiticide. So the 5% is really an average.

Yes. So just to complete, where we see that the price increase, Virbac has been very good in doing the price increase. I think among the size -- the company, mid-sized company, we are probably the one doing it best. Where we see that we see significant price increase is on very differentiated products. So among the top innovative product of the top 4, you have good price increases. But for the rest, it depends on company. So I think we are on the high range -- high end of the range, but volume are down mostly for the market in the first half. So we'll see what happen in Q3 in few days.

And maybe a final...

Yes, final, because we have a list like that.

No, final comment on the region. To mention that we've seen for the first time for a very, very long time a negative evolution of the market in the U.S. in Q2 2023, slightly below 0%, whereas the other regions are still on the positive side.

Semester 2, how will costs be characterized in this semester 2 regarding gross margin, OpEx, et cetera?

Yes. What we can say is that we will have an acceleration of the expenses during the second semester versus what we've seen during the first semester, a little bit similar to what we had last year. This is true on R&D. This is true on some other expenses. And we can confirm that we expect overall to end the year between 12% to 13%. That's our guidance in terms of EBIT adjusted. But yes, we will have more spending during the second part of the year.

I'm not sure to understand because we made the translation by ourselves. I hope you will understand. What are the moving parts to try to project into 2024? Is it correct?

I think what happened over the last 3 years is we have increased price by 5% or more for 3 consecutive years. That has helped the overall profitability of the company. And when inflation will start to slow down and costs will start to reduce, hopefully, we saw that happening with some raw material. We saw that, for instance, in [indiscernible] Transportation costs have been down. Energy cost, we may negotiate better energy costs moving forward. So we may see an improvement in profitability if the costs reduce while we keep the price at the level we have. But for most of it, it will be driven by the volume. And most of it is driven by the top-line. So where we don't know and where we are a little bit depending is on the market demand and the ability of the animal health market, especially dog and cat, especially companion animal to rebound and be strong enough. Over the last 12 months now it starts to be much weaker than it used to be. So we had 2 years a bit exceptional. But for 12 months now, it's normalizing, but at a much lower level than before. So we are a bit dependent on that. In terms of OpEx, classical OpEx, I think I don't expect any change near in second half or next year versus what we do normally. It's a classical run of the business. There is nothing specific to mention or to comment. It's usual business. The real element we need to monitor is the volume and market demand.

With the rising interest rates, what are the risk regarding impairment?

I will let Habib talk about the risk. He is better than me. I like the opportunity because with a higher interest rate, we see more opportunity in M&A. We see companies struggling. We see company divesting. We see company questioning their plan. And so with the financing becoming a bit tougher, very good financial position of year back and the cash positive position is an opportunity for us in this environment. But for the risk, I'll let you comment.

Yes. No, it's an overall balance between the different parameter, obviously, the WACC, which is driven by interest, but also inflation is playing on it. So if there is a decrease of our WACC, it could generate some impact on the value of some of our assets. The only one that is, as we speak with a little room, headroom is our Chilean business. That's the only one. And we've shared that in our financial report, we still have some headroom. But it's true that if we have a reduction of the WACC, for whatever reason, there might be an impact which will obviously be a non-cash impact, but it could impact our financial statement. That's the only one where the headroom. For the other one, we have a significant headroom ahead of us from an asset standpoint.

The last question from Christophe are about Globion. So listen to the list. What is the operating profit? What are the sales made of? What is the pipeline made of? And is Globion working on Gumboro disease, Newcastle disease, anemia?

So Globion is 98% vaccines, poultry vaccine. So it's very much poultry vaccine, nothing else, to make it simple. Yes, we have a complete range of vaccines. So we have Newcastle, IBH, bronchitis. We have all the full range. In fact, there is one missing vaccine, which is Marek. So we don't have the Marek vaccine. But for all the rest, we have all the range. There is a pipeline of course, not very short-term, but there is a pipeline that will come. We have a recent vaccine we launched in Salmonella, but otherwise, there is a pipeline more 2, 3, 4 years from now, among which Marek vaccine is part of it. The key element to retain about Globion is mostly the fact that, yes, they have a complete range of vaccines, but so far, they were part of end user customer. So the end user customer, the Suguna Group, who produce poultry, were extensively almost exclusively sourcing their vaccine from Globion. And because of that, the competition of Suguna was not sourcing very much. So it was really dependent on Suguna. And the beauty of this acquisition is that not only we have acquired the company to be able to go to other poultry producer, to go to competitors of Suguna and go to other poultry producers, but we will keep Suguna as our main client customer because we have a long-term supply agreement where they have agreed to keep purchasing a comparable level to what they are purchasing today. So that is a way to secure part of the value, and that's I know the next question of the acquisition.

Thank you. We have 3 questions from Arnaud Cadart, CIC. First one, what is the level of loss that you should register in 2023 for the Chilean business? The second one, what will be your R&D intensity in terms of percentage of sales for -- at the Group level from 2023 to 2030? And the third question is what about an increased return to shareholders through share buyback or special dividend or higher payout ratio?

Yes. So on the first question, we don't communicate the details of the profit on the country-by-country basis. So I won't be able to answer that question. What I can say is that we are obviously doing everything we can to optimize the Chilean situation by working also on the cost base given the dynamic that we have shared on the top-line, but I cannot provide further details. The second question was related to...

To the intensity of R&D expenses as a percentage of sales.

Yes. So we have shared that we'd like to move from 7.5% approximately to around 8.5% at the end of the year. So it's a 1 point improvement versus last year. And you remember that last year, we already had around 1 point improvement versus the previous year. And the final question is -- yes, after the benefit of the French Research Tax Credit.

And the last question was about further return to shareholders through share buyback, higher dividend or higher payout ratio.

Yes. No, there is no plan beyond the current program on which we have communicated this summer regarding the share buyback of 100,000 shares on the market.

Nicolas Pauillac from Kepler. He is thanking you for the in-depth presentation and he's asking one question. Could you give us more information on the financials of the acquisition? And when do you expect it to be accretive?

So I can specify that we have not yet closed the deal. We have signed, but it's not closed. We cannot and we will not at this stage provide further details on the profitability of Globion. For instance, what we can say is that we have paid several tens of millions of euros for the acquisition. But at that stage, we are not providing any more information.

And maybe you can say that we'll be closing on November 1. So the target date for closing is November 1. And what we can say because it's a benchmark with the market, and it's not like that. As you know, if we do that, because we search vaccines and vaccines in poultry, like in aquaculture, by the way, are quite high margin products. So the profitability is good and should be accretive at Group level. There is no doubt about that.

We have a series of questions from Laurent Gelebart, Exane. So I will do it one-by-one. The first one is, do you still expect to spend EUR 100 million in CapEx for this year?

No, it will be lower than that. You've seen that we have adjusted our net cash expectation for the -- net cash position expectation for the end of the year and we have increased by approximately EUR 30 million. And it's essentially linked to CapEx delays that we have on some programs, especially real estate, for instance, that have been pushed from 2023 to 2024. So that explains. So we won't spend EUR 100 million, it will be below that.

And what news could you provide as regard to the petfood factory in Nimes?

For the petfood factory, we have submitted building permit this -- in September according to plan. So the permit and the ICP has been submitted according to plan in September. We are now in the next 6 to 9 months expecting the return from the authorities. As most of you know, all of you know, there have been some complaints about some people in the neighborhood of the factory where it will be built. So hopefully, this will not delay. But the next step is for the authority to deliver the building permit. And so we are now in the phase of waiting an expectation of getting all the authorization to be able to develop and start the program. So we will know more in 6 to 9 months probably.

Mr. Gelebart has also some questions about Globion, but I think they have been answered earlier. And a question addressed to you, Mr. Huron. Could you explain why you have acquired EUR 250,000 of Virbac shares in July?

Simply because I'm very confident in the outlook of the company. We have a 2030 road map where we want to execute and go towards a 20% EBITDA. And so considering the situation as of today and with this long-term confidence in the company, I think it was a proof of the confidence in the company and the way we will manage it in the coming years.

Thank you, Sebastien. We had a question from Laurent [indiscernible] about the multiple that you paid for Indian acquisition. Okay. Percentage of EBIT, margin of this acquisition. We will see it later. And potential vaccines for India, for Virbac, we will see it later as well.

We have acquired a company who has made the vaccine. So we are going to have this portfolio. And again, the game will be for us to geo-extend within all India these vaccines and have a broad coverage, because to give you an example, Globion had 30 reps. We have 1,252 people in India, of which 150 reps in poultry. So we have 5x more reps than they had before. So we expect to be able to have a better coverage. And with that, to increase the sales. The EBITDA proportion, as I mentioned, is quite good for vaccine that we could be expected. So it's nothing surprising. It's a classical for this type of business. And we have not disclosed and we will not disclose that, at least at this stage, the detail of it because it's also something we discuss with the seller. And so at this stage, we can provide more information.

So still on Globion, do you expect major CapEx over there in India or will you remain with your CapEx plan as it is?

So that's a good question. So yes, we expect CapEx in India. In fact, we expect to invest there to make it a global center of excellence for poultry vaccine to be able to export in Africa, Middle East and maybe later Asia and maybe one day Latin America. So we have planned in our modernization CapEx in the manufacturing site as well as we have planned for hiring people. Hyderabad is a fantastic ecosystem for vaccine production, pharmaceutical production. There are many, many PhDs. We think we have a competitive advantage with a manufacturing site that is located in a very good area where there is room to roll by the way or to expand because there is land and where there are many PhD and very good talent. So we expect to invest in OpEx in R&D. We expect to invest in CapEx to prepare for the future and to prepare this. So yes, we plan to do that.

We have a question from Eric [ Bland ]. You said that you decreased the factoring program by EUR 10 million. How much is the amount as of end of June 2023? And why do you keep this deconsolidating program?

Yes, it's around EUR 10 million of factoring. So it's not material. It was around EUR 16 million or EUR 17 million at the end of December 2022. So that's the order of magnitude. So again, not material really at the level of the Group. Why we keep it? It's quite complex to set it up for those of you that have set-up such a system, such a program, it's not an easy set-up. So it's good to have it to continue to operate it even if it's at a low level. Sometimes we may need to leverage it again.

Second question from Mr. Bland as well. Is your target in net debt for the end of 2023 taking into account Globion?

And it's cheap as well, the factoring program. So it's obviously an element that has been taken into account. Regarding the net debt, no, it's excluding acquisitions. So the net cash position that we have provided as a guidance is excluding acquisitions. So excluding the impact of Globion, yes.

Latest question from Mr. Bland. Do you capitalize any R&D?

No.

We'll move to the next set of questions from James from Jefferies. What is the margin differential between vaccines and the rest of the Group? And how does Globion margin compare? What is the margin differential between vaccines and the rest of the Group at Virbac level? And how does this compare with Globion's margin?

Yes. It's not something we can answer like that. It's a bit more complex. So vaccines for dog and cat, for instance, have average sometimes low margin ratio because it's a commodity perceive as such. In food-producing animal market, like aquaculture and poultry, what you need to understand, the food-producing animal, they live very closely to each other. So they pass a lot of virus and bacteria all the time between them. And that creates a lot of pressure and sometimes emerging variant, emerging disease. And because of that, there is a much more value perceived in vaccines for food-producing animals. And because of that, you can have a higher price for it. So we tend to see much higher margin in vaccine for food-producing animal, but it depends on species. Then when you come to India, this is a low-cost production with a very specific way of handling vaccination. There is a little in over-vaccination, for instance, and a lot of vaccination in chick of one day and the reproductors. So the margin is not the same for the chicken than for the reproductors. So it's very complex. What we can say is that the margin of Globion is again very much in line or accretive to what we have globally. And that's the reason why we did it. We of course did an acquisition that will make sense to us. And last but not least because we didn't comment it, but the fact that we will finance the acquisition by the cash we had in the Indian affiliate will avoid us 10% cost of bringing back the money in France, because when you transfer the money, you have to pay 10% of tax on that. So we will use the funds and the money we have in the Indian affiliate to make the acquisition.

Another question from James. You mentioned in your introduction that China had an impact, but there is also an opportunity for petfood. So how we should think about the push and pull dynamics for this particular market, China?

China was supposed to deliver already much better over the last 2 years. When we start to over-invest in China, we have been collided with the COVID situation. And so as soon as we started to recruit new reps, we had the COVID and the zero COVID policy. And so all that has been a bit of a mess over the last 2 years. I think we have changed a bit the management and the local organization. We are now coming back. This year has been or is in the first half, very difficult, where we didn't get the pool expected, but we have new parasiticide which have been launched. We have the petfood that will be launched in the coming weeks. And we expect vaccine to be registered and launched next year. So with all the 3 legs -- 4 legs; pharma, parasiticide, vaccines and petfood, we think we will have a global product range and now be able to extract much more value in China. So we remain very positive about China. We remain very positive about the perspective of growth. Petfood is too early to call. In certain countries, we do extremely well, very rapidly. But the normality normally is that we take 3, 4, 5 years before we can really reach critical mass. I don't know on which side China will play out, but it is likely that we will have a slow start because we don't want to go too quick. For instance, we will be exclusive to veterinarians. We will visit veterinarian. We will not use online sale. We will go offline to veterinarians to explain the science, to explain the formula, to explain the benefits of the product. So that takes time, but that ensure you that you have the good bases for later on, speed up the growth. What you also need to understand is that so far, we are forcing our apps to sell the difficult part of the sales because we provide them only with maintenance petfood. I mean, we don't give them the diet for them to focus on the maintenance petfood, which is the food that you give every day to the adult dogs or the young dogs. And then after 18 months, we provide them with the diets which are the therapeutic petfood. And in many countries, the vets are used to sell only diets. They don't want to sell maintenance or classical petfood because they have been outcompeted by the online channels in the U.S., for instance, Chewy on Amazon and in other countries by online sales. So vets are a bit reluctant to spend time on that. But for us, it's very important to tell them that we have a very differentiated product, a much better product. And so we want to spend the 18 months convincing them of the health benefit of this maintenance petfood. And when we manage that, it is fantastic because once it is done, then it is incremental sales every year, keep going. That's why you saw the 19% sales increase in the first half. Once you have convinced, once you have done the job, then it's for many years, it's growing. And so we want to force that. We don't choose the easy path of giving the diets immediately. We are forcing ourselves to do the job properly, it takes more time. But we are confident that once the good rationale of why purchasing is established, you add the diets and then you see the stuff, the sales ramping up. So that's what we do. It takes more time, but it will bring us much further away.

A question from Mr. Mirza. What can investors and shareholders expect from Virbac in 2024? And could you please provide some information about your share buyback program?

Yes. So too early to tell for the expectation for 2024. Sebastien commented it in the previous questions regarding the main parameter, which is a dynamic of the top-line and the volume for next year and obviously linked to the market. So that is an element we don't control and we don't visibility yet. So again, still too early. On the share buyback program, so it's 100,000 shares that we are buying back. So it's a limited amount versus the overall total. It's around EUR 26 million, EUR 27 million of spending expected. And it will enable the majority shareholder when we will cancel those shares to slightly increase their percentage of ownership of Virbac moving from 49.7% to slightly above 50%. And this will be the same for all of the shareholders. We don't expect any impact on the share price based on the volume that we are considering, which is again, extremely low in the -- versus the overall number of shares that we have within Virbac.

Thank you, Habib. We have still a couple of questions, but we are arriving to the end of the list. And we have still 10 minutes, so I'm going to be quick. A question from Arnaud Cadart. Could you give a bit more color on the current profitability of the petfood business? What it could be with your own factory?

Okay. So we said in the past that the petfood profitability was much more -- very much in line with the overall business of Virbac, but it depends always how you look at it. If you look before R&D, after R&D and whether you look at ROCE, return on capital employed, because what we have said is in terms of ROCE, return on capital employed, the petfood is quite accretive, it's quite good because we have much less CapEx. It's not a pharmaceutical product. So we have much less CapEx in petfood than we have on the other part of the business. And in R&D, we spend 2% to 3%, maximum 4% of sales in R&D. So after R&D, it's also quite profitable. Over the last 2 years or since the war in Ukraine with impact on the cost of material of oil, cereals and also meat, this has affected the margin of petfood. So in 2022, we lost a significant margin. In 2023, we are bouncing back a little bit, but we have been affected over the last 2 years. What we expect is it to normalize more and more. And if we manage well the business, it should go back to where it used to be 2 years before or 3 years before the crisis and the war in Ukraine. What we also expect is the manufacturing site will add few points of margin once we will fully operate it. So we are targeting 2026 at this stage. But once we will have our manufacturing site of petfood fully operating, we should gain a few points of margin because we will have less intermediary in the business. Today, we are outsourcing many of the production to intermediaries. So once we will directly operate our own manufacturing site, we will improve profitability. And that's one of the reasons we do it. One is capacity, because as of today, we cannot grow further and faster because of lack of capacity. And secondly, because we want to improve profitability. So that's the 2 main driver of this CapEx investment in Nimes, produce more and produce better at lesser cost.

And the last set of questions on Globion as well. Which level of R&D shall we expect -- no, it's not on Globion, sorry. Which level of R&D shall we expect for the next 5 years?

Yes. So what we have said was we would accelerate R&D. Also because there was no M&A targets, there was no good M&A target or when they were M&A target, the price were totally unreasonable and we refused in the past to purchase at a higher multiple or higher price. So now with the interest rates ramping up, we see some company being more challenged with their debt and their financial situation. So we start to see more opportunity for M&A. So we are very attentive to that and we will try to accelerate M&A if opportunities are confirmed. But 2 years ago, 3 years ago, when we saw that, we said that the best use of our cash was to plan for organic growth and plan for our own -- to master our own destiny, to master our own future and to invest in R&D in order to generate new products. So that's what we have decided to do. We have discussed of a ramp up of 2, 3 years of R&D. So now we are coming to close to the plateau where we will be. And then it of course -- the question has been asked to me many times. Why have you not done it before? Why do you do it now, et cetera? It comes because of the opportunity before the dogma of spending 7% of the top-line in R&D was forcing us to be extremely selective and to miss some opportunity. Allowing us to increase R&D has allowed us to plan many programs in very attractive segments. And you know this kind of opportunity, they are linked to the patent expiry of many products and you have wave of that. It doesn't -- it's not a linear way. So sometimes you have many patents that will expire between 2027 and 2030. So you have a window where you can develop a lot of product to come between '27 and 2030 to compete and gain market share in these segments. And then later on, it will become between 2035 and 2037. So it's not a very linear. There are opportunity that need to be seized. And we discussed 2 years ago to go for that. And so we have significantly increased pipeline with many programs in parasiticide. For instance, we have 8 big projects in parasiticide, but we have also a very diversified pipeline with vaccines, petfood, parasiticide pharma. And to be able to accommodate all that, it was an obligation to increase the spending. So we have increased the spending. We are reaching the plateau. And the idea will be to decrease it after what, coming back in 5 years, probably close to the level we had before we start to increase. So if we manage because there are a bit of inter se. If no other big opportunity comes into play, because we may find new great opportunity. But if none of that materializes, the plan is to go back to close to 7%, 7.5% R&D before -- I talk always before the tax break on France. But let's say, around 7% P&L version 5 years from now.

So we are going to close the question section within the webcast...

Just one comment to compete, Sandrine. So the 20% EBITDA target, we always explained it was more or less at a 7% normalized R&D. So in our current performance, we have 2 points above the 7%. And we should normally in 4 or 5 years go back to the around 7%.

Because we have 5 minutes to go and we have 5 additional very last questions. How long is the supply agreement with Suguna? How much of Globion sales is made with Suguna?

Don't answer that. So it will be quick.

Okay. It's quick.

Very long-term. Very long-term.

Can you talk about the size of Globion markets in India and in other countries? Is Globion selling in other countries?

Very few. They have a little bit of export in some African country, but very, very limited. So Globion is mostly India and mostly South of India. So because it's historical. So we will try to geo-extend. And the market is big, the market is big. So they are a nice player, but the market opportunity is large.

And how long should it take to address the LatAm and ASEAN poultry vaccine market?

So after we close on November 1, we will go and do a GAAP analysis of what the registration dossier needs to be done. So what kind of study needs to be performed in order to get the registration approval in the other country. And so I will be able to provide more light on that in 6 months' time probably, but not immediately. We should be quite straightforward for Africa and Middle East. Asia, it's heterogeneous. So depending on the country, it would be fast or long. And Latin America may be a bit longer, except maybe Mexico. So again, it's very specific country-by-country.

Abderrahman, I have the last question. Is this the very last one, this one? We said it is the last one. Okay. Could you comment on your product pipeline? Are you still working on the sea lice pathology?

Yes.

And could you comment?

The comment is we have a very rich pipeline, very diversified. We play on petfood, vaccines, pharma, parasiticide and pharma. So we are trying to have a mix of everything. We have certain generic, generic plus products are trying to be fast followers or first followers, then we have a very differentiated unique products. We have some products, not so many, but some products that could become a Virbac buster and we try to have more and more larger products. All the pipeline I think should make the top 50 product of Virbac, it's the question was asked to me this morning. So I think in the pipeline, everything we have should be in the top 50 product of Virbac. We have a few blockbusters or Virbac buster potential. But when I say potential, it's for instance, some of them. If we are first to market with it, for sure, they will become blockbuster. But if we are #3 or 4 after the top 3 guys, so it is Merck and Elanco, they may become a $20 million product instead of $80 million or $100 million. So that we don't know. It's part of the game and we will see. We do our best to come first or to come quickly.

It is 3:44. We have come to the end of the meeting. Thank you very much on behalf of the Virbac teams for your attendance and your loyalty to our company, and we wish you all a good afternoon. Thank you, Abderrahman, for this conference. Thank you, my friends from the communication department. And thank you to, Sebastien and Habib.

Thank you very much. Have a good afternoon.

Thank you very much. Have a good day.