Virbac S.A.

Good afternoon. We are very pleased to welcome you to the Virbac '24 Half Year Results webcast.

Hosting the call today is Sandrine Brunel, I am Head of Corporate Communications for Virbac; and Sébastien Huron, our Chief Executive Officer; and Habib Ramdani, our Chief Financial Officer. Before we begin, I'll remind you that the slides and additional financial materials are available on the Investor section of our corporate website.

The replay of the meeting will be available at the conclusion of the meeting. You will be able to post your questions by using the chat section 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 all immediately. It is now my pleasure to turn the floor to Habib Ramdani and then Sébastien Huron.

Good morning, good afternoon, good evening to all of you. It is our pleasure with Sébastien to share with you some updates regarding our financial performance.

That will be the first part. And then our more strategic performance that Sébastien, as usual, is going to cover.

So let me start by a brief summary of what we have accomplished during this first semester. First, we have, as you've seen, a very strong organic growth of 11.3% at constant exchange rate and scope, which is reflecting the exceptional momentum that we are having in the context of favorable dynamics on the market, but we are still taking shares.

Sébastien will cover that later on. We have had some very solid performance in all geographies, and we are very proud of that with one exception, which is the Pacific region, it was expected, and we're going to comment that a little bit later.

There is also a very strong demand across all segments within our companion animal segments but also within our farm animal segments. And in addition to the demand, which has driven a very strong volume effect during this semester of more than 7% we also have a positive price effect of around 3.5% during the semester.

And obviously, on top of that, we have had a very strong contribution of our two recent merger and acquisitions operations, i.e., Globion, the Indian poultry vaccine acquisition that we made last year as well as Sasaeah, the Japanese acquisition that we made earlier this year. So those two acquisitions are contributing, delivering around 5 points of additional top line growth during the first semester.

From an EBIT adjusted standpoint, we have had an increase of 40 -- around €40 million, which is close to 40% growth at constant exchange rates, that's extremely solid, and that enabled us to reach an all-time high in terms of EBIT adjusted ratio to revenue of 21.3%. This has been made essentially with the contribution of our gross margin, which have increased by 3 points on the back of volume, volume increase, we are absorbing much more fixed costs, thanks to the very strong volume increase that we have had during this semester.

Favorable mix as well with some vaccines, a strong rebound on our vaccines activities on companion animal as well as pricing, as I mentioned earlier on. The operating expenses have slightly grow, but at a slower pace than our top line.

and the ratio to revenue has reached 44.1% versus 44.7% last year, so a slight improvement. We have had a further acceleration on R&D investment.

It's part of our strategic intent to invest more on R&D. So, R&D investments have increased by 15% year-on-year.

But still, given the acquisition as well as the very dynamic volume that we had on the top line as well as a specific phasing of those investments where it's going to further accelerate during the second part of the year, we have more or less maintained a stable ratio of R&D investment on revenue when we compare with the first semester of 2023. M&A has been accretive on our profitability by 0.5 point.

This is a positive contribution of Globion and Sasaeah. And all of that enable us to significantly uplift our EBIT adjusted ratio before R&D, which has moved from 24.6% in 2023 to 27.9%.

So let me cover briefly the Forex impact. The impact has been quite limited for this semester with around €6 billion unfavorable impact on sales, and a sort of no impact on EBITDA, which is linked to our sort of natural hedging that we have overall.

If we continue to go down our profit and loss statement, the operating profits have increased by 35%. We have had an increase of our financial expenses linked to two elements.

The first one is higher financial debt linked to the increase, obviously, of our debt. And the second one is exchange rates impact during this semester, essentially on CLP.

It was positive in the first semester of 2023, and it’s negative exchange rate impact on CLP for this semester. So, all in all, our net profit is on the rise, reaching slightly below €100 million versus around €75 million in 2023.

Let me finish this summary by sharing with you the net debt situation which obviously has been impacted by the acquisition of Sasaeah in Japan. I remember all of you that the deal has been closed on the first of April 2024.

So, we are now with a net debt of €254 million versus a net debt situation of minus €52 million last -- at the end of December 2023. This also, to a lesser extent, the net debt has been impacted by the Globion.

We have entirely closed the transaction, you remember that we still had the second part for the acquisition to have 100% of Globion, which has been done during the first semester of 2023. So, at the end of June, the net debt on EBITDA ratio is below 1%, so we continue to have a very favorable financial situation.

And we have also renegotiated our syndicated loan facility and we have a line with a potential of going up to €450 million. So, we continue to be very well positioned to potentially finalize some further M&A operation.

So let me move to the sales first and then we'll go through the P&L, and I'm going to share a little bit more details on the balance sheet and the cash flow statement as well later on. So, as I've shared, an extremely solid performance, I can say an exceptional performance for this semester with 16% growth or 15.1% growth on a published growth.

And at constant perimeter and scope, so excluding the benefit of Globion as well as Sasaeah, we have also had a very, very strong performance, double-digit growth of 11.3%. So, this growth is coming from.

I mentioned it earlier, all of our regions, Europe, North America and Rest of the world. As you can see, Europe has done fantastically well with 12.3% growth.

The main affiliates in terms of contribution to the growth in absolute value is U.K., the export zone of Europe, in Eastern Europe has done very well as well. And this is the case also for France and Spain, which have contributed also significantly to the growth.

But all of our affiliates in Europe have posted a positive development during this semester. And I'm going to cover the different segments, but this has been fueled by all of our strategic segments, including the specialty product, the petfood, pet care and a strong rebound, obviously, on the vaccines as well, companion animal vaccines in Europe.

North America, 22.2% growth is very significant. We mentioned when we shared that earlier that we have had a base effect, a positive base effect linked to what happened last year where some of the distributors have decreased their stock.

But even if we restate for that positive base effect that we have recorded, we continue to have a very strong performance, double-digit growth around 14% in market performance in the U.S., driven there as well by our strategic segments. The rest, €50 million, so around half of the growth is coming from Rest of the world, which is made now by four main regions for us.

Latin America, as you can see, 11% growth with two affiliates driving this performance. Mexico and Chile.

Both of them have had a very, very strong performance. Chile, Sébastien is going to talk about that with a rebound for some of our products, including parasiticide product which has driven the growth during the second part of last year already and continued to fuel the growth of our aquaculture activities during this semester.

And Mexico has done very well as well. If we look at the next region on the slide from the right to the -- from the left to the right.

India, Middle East and Africa has done very, very well, 19% growth. Obviously, we have there the positive contribution of Globion in India, but even outside of Globion, which by the way, is doing very well from a performance and we are progressing also very nicely on the integration.

Sébastien is going to cover that later on. But even beyond Globion, the performance in India for this semester has been very, very good and India has contributed quite significantly to the growth of the group.

Nice rebound. On the Far East Asia region, you remember probably that it was -- we had a difficult 2023 years in this region with some of our countries there that have seen sales decrease.

We have recorded a very nice rebound with affiliates such as China, Vietnam, Korea that have grown during this semester, and that contributed to the growth of the group. We are recording in that region, as you can see obviously, the positive impact of Sasaeah as well.

Last but not least, Pacific. So Pacific is the only region that is negative.

You see slightly negative, which is quite very good performance when you take into account the dynamic of the market, which has been quite difficult during this semester. And again here, Sébastien will cover that later on.

Let me move to the sales by segment. I will be very brief there.

The split between farm animals and companion animals has not fundamentally changed. 40%, 60%.

What is noticeable nonetheless, is the increased weight of swine and poultry linked to the acquisition of Globion and the development of our swine activity as well on vaccine. Let me cover now the sales growth by segment.

So, we are presenting on that slide, the different segment of our companion animals pillars with on the top of the slide, our 2023 revenue, on the bottom of the slide, the 2024 revenue and you see the contribution of all of the segments. What is remarkable is the fact that all of our segments are positive with double-digit growth in many of them.

The dental equine business is growing double digit with a strong contribution of our dental product, pet care product that is part of our Virbac buster, the specialty is doing well, with Suprelorin, Zoletil, the -- some of our key products that are part of that segment and that really are contributing to the continuous growth and development of that segment, the petfood as well, one of our strategic product range. We have continued to grow double digit with 12%.

It has added €7 million, parasiticides, antibiotics have grown as well. And finally, a word on our vaccines activity, which has increased significantly.

You remember that we have had some difficulties last year, especially on the first semester and we have seen a very nice rebound, which has had an impact as well on our gross margin as this activity is essentially made of fixed costs. So let me move to the second pillar, farm animals.

Here, it's also remarkable to see only green all of the segments making farm animals activities within Virbac have grown during this semester, the antibiotics, even if it's a very limited growth, we have seen a contrasted dynamic with some decrease on our cattle antibiotics business and some increase on swine and poultry and also a decrease in Europe and some increase in other regions. And all in all, we managed to keep it slightly increasing during this semester.

Parasiticide has done quite well, nutritional as well with a strong contribution of India. You see a very positive dynamic of vaccines with Europe that is contributing to this growth with some product like [Virbagen] as well as the Latin America region and to a lesser extent, Pacific.

And finally, a quick word on aquaculture. You see the positive development of our aquaculture sales with 40% growth and €7 million more sales essentially on our parasiticide product and on veterinarian, as well an antibiotic product that has done quite well, during this semester.

And again, we are going to provide you with a little bit more color during the second part of this presentation. So, if we look at the breakdown by region and segment, you see the arrows that are pointing to the top, all of them.

So, all of our subsegments are growing with the exception of the other developed countries, including the impact in Australia and New Zealand of our companion animal business and farm animal business that is quite limited in terms of growth. So, let me move then to a couple of words on our profit and loss statement.

So first, again, extremely positive dynamic on our net sales with a 15% growth when we look at the published figures of 2023 and 2024 with a positive impact of the acquisition of Globion and Sasaeah on the top line, obviously. The gross margin on purchasing costs have benefited from that very positive development of our sales.

As you can see, we have increased the ratio to sales of our gross margin on purchasing costs. Net expenses, I mentioned it earlier, we have continued to invest.

It's growing double digits, but nevertheless, slightly below our top line, which enabled us to increase slightly the ratio moving from 44.7% to 44.1% of our ratio of net expenses on net sales, and we have continued to invest in R&D, as I mentioned, in our marketing and commercial activities as well. So, our current operating profit before depreciation of assets arising from acquisitions, the EBIT adjusted has moved in ratio to net sales from 16% to 21.4%, so a significant increase versus last year.

It's the same for the operating profit from ordinary activities. We have some limited other non-current income and expenses, which is made essentially of two elements.

We have had some expenses, one-off expenses linked to the acquisition of Sasaeah notably, as well -- and this has been compensated slightly by the sale of an asset that we had. I commented earlier on the net financial expenses, you remember, made of negative exchange rate impact as well as increased cost of debt.

And finally, income tax expenses has increased, but in line with the increase of our profit and the effective tax rate has not materially changed versus what we had at the end of 2023. So, all in all, we've been able to increase our net results moving from €75 million to close to €95 million, so quite a significant increase.

So let me come back. A couple of seconds on the EBIT-adjusted evolution.

So, you see here the EBIT adjusted from 2023, slightly more than €100 million, moving to €150 million in 2024 with the exchange rate impact, which is quite limited. And we see the positive contribution of all of our regions, fueled obviously by the top line growth in Europe, North America and Rest of the world.

And this has been compensated slightly by the additional R&D investment that we have made during the period in line with our strategic objective. So, this very good performance has translated nicely into operating cash flow increase as well as net cash flow increase.

We have had a 30% improvement of our operating cash flow and the same percentage increase for the net cash flow. So let me cover now how we have used this free cash flow or net cash flow generation during the semester, which translated into the net free cash flow that you can see on the slide.

And we are comparing what happened during the first semester 2024 with what happened during the first semester 2023. So, you see, first, the net cash flow increase moving from €92 million to €116 million CapEx investment, which have increased.

We expect to have an acceleration during the second part of the year, in line with all of the big projects that we have. The working capital requirement has remained more or less stable, I would say, when we compare the two periods, especially given the increase of our activity.

And this amount is essentially explained by the seasonality of our free cash flow generation. We have some significant cash expenses during the first semester linked to end-of-year rebates for instance that are heavily weighted on the first semester and typically, we are generating car during the second semester, and this is a usual pattern that we see every year.

This has been slightly also negatively impacted by one-off elements for this semester, especially on account receivables. And it's linked to the activities that we have had in May and June that has been quite strong, which weighted temporarily on our accounts receivables.

But all in all, we continue to expect to have a very strong cash generation during the second part of the year at constant scope, obviously, outside of any M&A acquisitions, and Sébastien will cover that as well, but we expect now this cash flow generation to be around €60 million for the full year. So, you see that we have had quite around zero net free cash flow during this first semester.

So, this -- the cash generation will happen during the second part of the year. Net debt evolution.

The only thing added on that picture or the main thing that has been added on that picture versus the previous one is obviously acquisitions. You see at the center of this slide, around €300 million spent for acquisition, which is a combination of Sasaeah acquisition and the remaining shares of Globion and this explains the evolution of our net debt, moving from negative €52 million.

So, we are cash positive at the end, net cash positive at the end of December 2023, and we have a net debt of €255 million at the end of June 2024. So very briefly on the condensed balance sheet, I'm not going to cover all of the dimension.

Maybe just a comment on the net debt on operating cash flow ratio that you see at the bottom of the slide, we were negative, we are slightly positive, 0.7%, but it's still an extremely favorable financial situation in which we are. Shareholding structure as of June 30, 2024, nothing has materially changed.

The Dick family continues to remain the majority shareholders and having around 66% of the voting rights. It's now time to give the microphone to Sébastien, who will cover the remaining of the presentation.

Thank you very much, Habib. I'm very pleased to present to you, excellent results.

I don't wish to say exceptional results because I think you may be used to that over the last few years. And hopefully, it will continue.

But excellent results. I'm not going to cover again what Habib explained, but we have a very significant growth.

In fact, what maybe matters the most is we keep gaining market share, and we keep outperforming the market probably around 2x the speed of the market growth. And what is remarkable is this is happening in all the regions.

We have a very strong organic growth across all the geography. Double digit in North America, double digit in Europe and Latin America with a comeback of Chile.

And the only exception, as Habib explained, was Pacific, but Pacific has a very strong rebound in the second quarter after a very weak first quarter, and we know the market is extremely weak. So even there, we are gaining market share, and the situation is much better than the one of our competitors.

So, we could be very proud of the teams all over the world. And this is also good because we see the performance in the key product of Virbac.

You know that we talk about the Virbac buster, trying to develop certain franchise, certain products to a level of sales above €50 million. And we have products like Veggiedent, Zoletil, Movoflex, of course, Milpro and Suprelorin & EasOtic.

All of them are growing quite strongly. Some of them above 30%, some above 10%, but all of them performing extremely well.

So, we are very happy to gain market share. And as we explained in the past, when the sales are growing quickly, there is a leverage effect on the profitability.

And of course, with the current performance, we have now generated the highest level of EBITDA before R&D in all the time -- all these three of your back, we are close to 28% now at constant rate. So, it's an improvement of around 3 points.

And that is, to me, extremely important because it means that the performance is sustainable. We have not improved profitability based on cutting OpEx, cutting expenses.

Our OpEx are going up 10%. So, to support the growth, we are growing sustainably through improvement of the gross margin of our products and the recurring EBITDA is at 21.2%.

So, a very good situation for the Company. And as Habib explained, we have a very low level of net debt, which allows us to keep going on with our programmatic M&A.

I will cover that later. But after Globion and Sasaeah, we are still looking at some dossier and we will keep on with M&A activity, more on the programmatic side, which is a smaller acquisition, as we explained before, but we'll keep doing that.

In terms of geography, we wanted to cover the three large countries, which have been performing very well, and the one which is also a large country for us, but that has been performing less well. So, U.S.A., 22% growth at constant rate.

It's growing all over the category, dermatology, dental specialties. So many of the products are performing well.

The only exception is a bit parasiticide. As you know, we have kind of all parasiticide.

And as you also know, we have increased R&D spending for four years now, increasing very significantly R&D spending in order to develop new products especially in parasiticide and to come once the patent will expire with many new parasiticide products that will be quite innovative. But all the other categories are growing quite nicely, and we have an expectation for the full year of double-digit growth.

In Chile, a very strong comeback with our parasiticide product, which is being widely used now that is supporting the growth. In terms of vaccine sales, they are more or less flat, but the parasiticides are doing extremely well.

You also know that we have a case against a distributor that cut the distribution of one of the products. This is ongoing in the Washington Court, and we hope we'll have positive results.

But this is not accounting here because this is without this product, of course, which we are not selling for the last 18 months. In the U.K., we wanted to highlight the performance in the U.K.

because over the last maybe five or six years, we have said that we were having too much of a low market share in the U.K. in comparison to other markets like France and Germany.

And so, we put a huge level of focus on U.K., and the team has done a fantastic job and we have been growing constantly above European rates across all our geographies in Europe. And so, U.K.

has been a top performer for many years, and we decided to speak about it now because it's one of the biggest markets in the world, and we are pleased that this year with 23.5% growth at constant rate. We passed number five in the local market.

We passed the [indiscernible] in the local market. And we are quite happy, and this is coming from all the very diversified portfolio we have as we have Suprelorin.

We have the microchip. We have the vaccines and the parasiticide.

Australia, very, very complicated first quarter with a very favorable -- unfavorable base effect linked to the very good performance of the last two years. We had a double-digit growth in Australia over the last two years.

The first quarter was very weak for the market, and we have suffered quite strong comeback in the second quarter. So, we are minus 0.3%, flat more or less at the end of June.

We expect that the market start to show some sign of rebound, sign of improvement. So, we expect this to improve.

But here again, despite the performance we are outperforming the market, especially on vaccines for livestock and with the new products we have launched. In terms of acquisition, just a quick update on Globion and Sasaeah.

So globin, as Habib explained, is going extremely well. The team locally has done a fantastic job.

We are number one in India in Animal Health. You know that.

We have more than 1,000 people. We are extremely well equipped but we see now that we managed to add the poultry vaccine to our current product line, and we performed extremely well.

So, the two most important elements for me are the third-party customer, which is a market outside of Suguna. Suguna has been the Company who divested this activity.

We have a contract with them. So, they are obliged in one way to buy a certain level of vaccines so that could catch up during the year.

So, we have a minimum level of purchase guaranteed by contract with them. So, it's not the most important point.

What is important is how well this activity developed outside of Suguna, and here, we have 53% of increase in the third-party customer in India. So, it's extremely a good sign for us, a very dynamic growth.

And in terms of export, which is outside of India, this is also something we wanted to develop. This will take more time because we need to have registration dossier approvals and things like this.

But already, we have 22% improvement of the activity. In Japan, the process will be a bit longer because to the opposite of India, we were much smaller in Japan.

Then there is, of course, the language barrier, but we have sent among our best performer in Japan to manage the Company locally. And the integration road map is fully completed in terms of design, and we are now trying to find the main opportunity that we have acquired through the acquisition, for instance, of the manufacturing site.

We have increased capacity in a tremendous way. We have many opportunities to leverage this on the manufacturing side.

There are many things we could do in Japan in terms of vaccine production that will probably allow us to reduce to reduce CapEx and investment in other parts of the world. We even consider to find synergies by closing some sites to reduce OpEx and transferring some of the products there.

So, there are many opportunities to explore even if this will take time, of course, because you know in pharmaceuticals, the manufacturing transfer takes some years. But today, the current performance is quite good.

The affiliate is growing 6% at constant scope and rate. And with, Sasaeah, of course, the growth is 28%, which is a very significant transformation locating.

So, all that extremely positive and in line with expectations. As you know, because of my resignation, we decided to make just a quick focus on what has been achieved over the last 6.5 years, just because sometimes we look at quarter-after-quarter, but what really matters for Virbac is very long term and sustainable performance.

So, 2017, the Company was heavily indebted. We had €460 million in debt on a turnover of €362 million.

There was a low product margin and so very little room for maneuver. And the R&D expenditure were of €69 million, okay?

And the EBITDA of 9% with €58 million of EBIT and the net income of €29 million. The share price was around €123 million, and there were 4,800 employees around the world.

In 2024, Virbac has very little debt, in fact, following the acquisition of Sasaeah, last year, we finished with €52 million cash at the end of '23. But with the acquisition, we still have a debt-to-EBITDA ratio below 1, [indiscernible].

And therefore, we still have a considerable room for maneuver. And you will probably see in the coming months or years that we keep executing our programmatic M&A approach because we have an intention to keep remaining very active in M&A.

We expect sales above €1.4 billion this year. So, it's quite significant when we recall that we divested Sentinel.

Sentinel was around €70 million. So, we have a very significant growth over the last 6.5 years.

double-digit expected this year, and we will improve margin 7 points above the level of 27%. When I say margin, I'm talking about product margin, which is a part which makes it very sustainable because it's linked to the quality of the product, the price positioning and the product mix.

And we saw that we have been able to improve that line very, very much, and it was not just by managing expenses and OpEx. And so, we have an EBITDA ratio expected to be around 16% for this year.

And as you know, it's 21.4% at the end of June. And we have more than 6,000 employees today, which means that the Company has really grown very nicely over the last six years.

What is probably more important than this figure is the fact that we have gain market share constantly year after year. Every year, we gain market share.

And over the last 6.5 years, I think we have the number one in term of organic growth, if we look just at the organic growth in all the market data, we can find most of the time, petfood is not recorded. But if you consider petfood, which is a significant part of our growth.

We have the strongest organic growth of the animal health market all over the world over the last 6.5 years. We have gained market share in every species despite the huge innovation we have seen in companion animals with monoclonal antibodies new class of parasiticide, it has been a bit more difficult for us over the last few years.

We still have increased from 4.6% to 4.8%, and we expect -- and this is without petfood again, because petfood is most of the time not tracked into this kind of statistic. So, we moved from 4.6% to 4.8% market share, and that is before the arrival of all the new products we will have, in the coming years, with the launch of all our new parasiticide and all the innovation we have put in the pipeline over the last few years.

So, we will probably see even better performance in companion animals moving ahead. In Cattle and Ruminant, we moved from 4.4% to 6.9% market share.

So that is a really great performance across almost all geographies. And even swine, Habib mentioned it, we have started to increase from 2% to 2.5%, but now we see an acceleration in 21 vaccines over the last 18 months, two years.

And we are entering the poultry vaccine segment with a global acquisition, and that is a very dynamic market. So that should also help us very much in the coming years.

In terms of country, most of them, we gain market share. This is a list of countries where we have gained market share significantly.

You have a small country like New Zealand, Vietnam, but you have also a very large country like U.S.A. and many countries in Europe, France, Germany, Spain, and all the region of Latin America, because whether it's Brazil or Mexico or Colombia, in every country, we have gained market share.

And in terms of segment, you have the list below. I will not look at it if I read it, but it goes from parasiticide and endoparasiticide, not ecto.

As you know, in ecto, we have lacked the innovation of the isoxazoline that we will have in a few years, but not yet. And all the other segments we have been outperforming.

It's not just about gaining market share and financial performance. To us, as we are very much invested in the long term in a sustainable performance, we also look very carefully at the social and ethical performance.

Great Place to Work has been something we launched in 2018, and we have improved more than 11 points over the period. And despite the COVID, despite the inflation, the war in Ukraine, where the mood of the people who have been touched in '23, '24 with inflation penalties.

We have seen a significant improvement in almost all dimension. In particular, with management, which has been perceived as being working to talk and representing the culture of the Company or whether it's on the business conduct and with more than 14 countries, we have been certified Great Place to Work.

So, we are quite proud of this social performance and the fact that the people are really strongly engaged and really highly committed to the Company. We are also improving diversity, 9-point with trying to become more international and with a better representation of women.

This is true in the management bodies. And we have moved from a Group Executive Committee, which now is close to 40% of women versus the Board of Executive Board that were made only of man back in 2017.

The professional in quality index has also improved. The accident frequency rate reduced.

And so, we have tried to maintain a very social approach in Virbac over the last few years with the crisis, with inflation, with all we know and that has paid, as I mentioned before, the team are really engaged. We do that for the people, but we have also to take into account the planet and the environmental performance, we have also performed over the last five years with 16% reduction in the CO2 emission with energy down 13%, the water consumption '23, and we have created a department just in charter of all that setting up a new direction, new objective for 2027 and 2030.

And last but not least, reason my departure, I wanted to insist that the governance of the Company is very strong. When I took over the job back in December 2017 -- sorry, December 2017.

We have created what we call Board office, how we created the Group Executive Committee, of course, that was made of three people. We moved to eight.

So, it's much more diverse much stronger with a better repetition and more competency within the team. We have also created a board office to help us in the execution of the strategic plan and that has probably helped us a lot in being very rigorous and very good in discipline for execution and in speed.

And we have a global network team, which is made of the top 90 people of the group all over the world with all the country managers and all the main functions represented. And this allows a very rapid, very quick and very strong alignment on any strategic plan we want to implement or on any remediation action or any plan we need to put to push in a short period of time.

So, this alignment of all these people we meet once a quarter allows us to have a much more rapid and much stronger execution. And I believe that with this in place, the governance is extremely strong, and we'll keep delivering results in the coming years.

With that, back to what we intend to do. So, I'm going to go quick because this road map to 2030, we will keep presenting it every semester, I guess.

Just a quick update. So, a Great Place to Work, we explained that we have improved on all this dimension, what I would like to remind you is what we intend to do in a very few sentences.

Number one, over the last three years, we have increased the R&D spending very significantly. Remember, we have increased R&D spending by more or less €40 million per year that was intention to move from 6.5% of R&D after tax credit, 7.5% before, 6.5% after back in 2021, 28.5% this year.

That was the plan. But the intention behind that is to have a full pipeline of new products.

Some of them will come next year, and a big quantity of product will start to come in 2027 with large product, in particular, in the field of parasiticide. And so, this innovation was the best way for us to invest our money.

And so, we have now a pipeline extremely rich. The second one was to have a programmatic M&A not to buy a huge company and make it very transformational and complicated to digest and shock of culture.

No, this is not the ambition. The ambition is to make many small acquisitions that we can digest easily that will not slow us down that will not occupy too much of our resources, but to the opposite that will add product, add competency and help us grow faster in the strategic dimension where we want to grow.

And Globion is a good example. Sasaeah is a bit bigger than what we will have targeted but of course, it's a creation of offer and demand.

And we have many projects at the moment we are looking at, and I believe some of them will come through. Competitiveness is the last pillar.

The first two are really engaged. Innovation is reengaged, acquisition is really engaged.

Competitiveness is also truly engaged, but some of the execution remains to be done. So, we have a new logistics and warehouse center that is being built in Carros now.

We have a new plant for petfood in NIM, which is currently being submitted a building permit and the different illustrative dose to get the authorization to do it. We have the transfer of Suprelorin, which is one of our big products from Australia to Carros.

That would be very good because it will absorb fixed cost. And we have the intention to do a new site for biology and vaccines because if you follow Virbac since 2020, we have missed many opportunity of growing during the COVID period and now recently because of the vaccine due to capacity and due to the fact that our manufacturing site becomes a bit old and that we need now to increase with a new site, more capacity, but also more technology to produce at a lower cost of goods with more productivity.

So that's what we'll try to do in the coming years. In term of country, we are to play.

U.S.A., I mentioned it, we have gained market share recently. We are now going to launch new product the therapeutic petfood will be a key element to track and to follow because when we launch only the physiological range, it is difficult to penetrate.

But as soon as you have the therapeutical petfood range, which is what vets, veterinarian are used to sell, it should accelerate the penetration in the petfood market. So that is something that will have to be tracked.

It will be planned for the end of next year. Farm animal entry, same thing, the big products are coming next year.

So that is something that we have to track in the coming two to three years. But we keep developing unfolding the road map to grow and develop more in the U.S.

China, very good news. We launched parasiticide 18 months ago.

The petfood was launched late, late November '23, but as a pilot to test the right approach. It is being expended this year very aggressively.

We have extended the petfood launch to many more countries -- many more cities, sorry, to many more cities. And we have just obtained this quarter the dog vaccine illustration.

So, we are among the top three company with a dog vaccine in China. And now that we have the three legs, parasiticide, petfood and vaccines, we have a complete range -- complete portfolio to be able to accelerate our growth and market share in China.

In terms of segment, products and pipeline, I will not comment too much again. The Virbac buster and the key products are growing very nicely, petfood on 14%, specialty, 21% vaccines, 46%.

That's probably the most important part, the vaccines. That is outside of aquaculture.

But aquaculture is growing. You see in the growth venture at the bottom of the slide, 55%.

The swine vaccine is growing 52% constant scope versus last year. And if we had the poultry vaccine from Globion, of course, it goes 228%.

All that to say that we mentioned that vaccines and petfood, pet care, but vaccines is one of the key dimension, key element of the strategy, and we are executing it very well with all that. In terms of processes, just to let you know, we have the successful deployment of our ERP, MES, LIMS and e-PIMS in France at the beginning of this year.

And so now we are expecting the rollout in the other country in 2025, but this has happened nicely without any disruption. And so, we could be quite happy with that.

And the digital business transformation is ongoing with 51% growth of the e-commerce in 2024, more or less in line with what we did last year. I think we are coming to the end, we presented this road map in March, the part in gray.

At that time, we had a guidance of 15% EBITDA, so we say we need 5 points from -- to move from 15% to 20% before 2030. So, we had presented three source of profit improvement.

2 points coming from R&D spending, normalization that we explained, 2 points coming from the margin rate expansion and 2 points coming from the OpEx, 2 plus, 2 plus 26 points versus the 5-point we said we had to go for. We see that this year, we will outperform the guidance in what was expected at the beginning of this year.

So now we have only 4 points to go to reach a 20% EBITDA, only 4 points to go. So, we will adjust this slide by next year to see whether some of it has been -- has already came from the R&D spending of on the margin expansion, but we are very confident that with this free level of performance, we have enough room to guarantee and share the reach of the 20% before 2030.

And so the guidance, which we have reaffirmed at the moment is net revenue growth at constant rate and scope from 7% to 9%. Of course, with the acquisition of Globion and Sasaeah, it will be between 12.5% and 14.5%.

EBITDA ratio is 16%, same thing in constant rate and scope. We have said that the acquisition will be slightly relative accretive, bringing a bit more in terms of ratio and the net debt evolution will be a cash generation of €60 million, which is above the previous guidance.

And with that, we can open the Q&A session. Thank you very much.

So yes, I have some questions from Christophe Ganet. Let me read the first one in two parts.

What is the reason for the phasing in of R&D expenditure? And to what level do you anticipate for 2025 R&D expenditure?

Yes. So, the -- probably the main reason for the phasing of R&D expenditure is our budget cycle, which is an annual one.

So could have an impact, a rolling basis every year. So, we tend to have more expenses during the second part of the year versus the first part of the year.

We expect to be around as a ratio to sales, around 8.5%. And I say expect because it's still too early.

We have not finalized, as you can imagine, the budget. So, it could be below that.

It could be above that. It will very much depend on the projects that we have and the intensity, but it shall be around that percentage as a ratio to sales.

And maybe just to add that with the acquisition, we may have a positive effect on the ratio because some of the Company we have acquired do not require so much R&D in terms of ratio spending. And so, we may have a slightly lower percentage of spending in R&D in some of the acquisitions we do or synergies, if you wish, plus sometimes we develop the same kind of product.

So that will help also the ratio in the mid long term when we will look in the coming years.

Question two. How should the contribution from acquisition behave in '25?

Will we see some accreditive effect or not?

Yes, it's a good question. So, we mentioned with Sébastien positive impact in 2024, 0.5%.

I mentioned the fact that it's still too early to be definitive on the R&D. It's about the same on the acquisition.

There are still works that are being conducting regarding the integration. So, it's difficult to say.

I would say still that we can expect a positive impact. And -- but I would -- I think it shall be in the order of magnitude of what we have seen in 2024, but it could be slightly below that or slightly above that.

And maybe just to complete as well. The current acquisition we are looking at should be accretive if they come to realization.

And we will still have the one more quarter for Sasaeah. So, as you saw, each time the sales are going very nicely, it's easy or easier to leverage on the bottom line.

So, we will have one more quarter, and we know Globion is doing quite well. So hopefully, the dynamic of Globion will remain and help also.

Question number three, how did the headcount evolve?

What do you mean by the headcount? We have added more or less 500 people with Sasaeah.

It's more or less 100 people with Sasaeah. It's much less with Globion, and we keep adding people because the Company is growing very fast.

So, we keep adding people in all the key areas whether it's manufacturing, vaccines, R&D, for instance. We have very good people, very good talent who have joined us in R&D for vaccines, which is one part of our strategy for the long term.

Question number four, you had five. Can we have an update on CapEx for '24 and '25, given your HQ and the petfood manufacturing projects?

Yes. So we are, as you know, and we have extensively discussed or presented that on several occasions.

We have an intense CapEx program that we are conducting with several key projects. They are moving according to plan.

The petfood site is moving. You know that we have some difficulties locally, but we are addressing them.

And we mentioned last time that we will have some more updates at the end of this year and beginning of next year. So, it's we are progressing on those projects, and it's the same for the headquarter.

There is some timing, obviously, and so we expect it to spend around €100 million of CapEx for this year. We will probably spend less than that, but it will translate into a higher CapEx level to be spent in 2025 as some of the spending will move from 2024 to 2025.

But overall, the plan is going according to what we wanted.

And for H2? The same?

The same.

Last question from Christophe Ganet regarding U.S. revenues.

But he asked the question before you talk Sébastien. The question is, do you observe any slowdown as [indiscernible] said?

But you announced the...

No, we don't expect any slowdown to the opposite. What we are trying to do is to transform our U.S.

position. You know that the U.S.

is more or less 35% of the global market. If you look at our market share, we are quite strong in many geographies besides U.S.

and China. So, we are trying to push, push, push alliance in U.S.

and China. And in U.S., we have made many choices and many decisions over the last quarter that should pay.

Hopefully, it will. So, we remain confident and so far so good.

We don't see any slowdown. And it's always difficult when we look at the U.S.

market because there is a type of diversion from the classical vet business where we have data to the online sales Amazon, Chewy and other sites. And we know that because our product range made of pet care product, for instance, we have a very strong dynamic in these segments, which are not always track and reported as classical pharmaceutical product on the vet side.

So, -- and then talking on us are not exactly on the same product and segment. So, I can't comment for them, but for us, we don't see that so far.

An additional question from Arnaud Cadart. Should we understand when you talk about the guidance of cash position improvement around €60 million over the full year '24 as a net free cash flow which means after dividends?

Yes. This is €60 million after the payment of the dividend, yes.

A question from Guillaume [indiscernible]. Could you please comment on the development of specialized e-commerce platforms, notably in the United States?

Are they gaining market share? What are the impacts on your business model, prices, marketing?

I'm not certain to have understood the question, so I will try to answer, and you tell me if I'm okay. We know it depends segment by segment.

But for many segments to make it simple and to understand the vet the frequency of visit to vet is once a year or twice a year, and people go on the internet every day. Vets don't have a lot of space to store product.

On the internet, you can have warehouse and store a lot of products. So, each time, there is not a prescription each time it's a product which do not require a prescription.

The market tends to overdevelop and grow very fast on Internet. And it's not -- we don't have the choice then to go with it.

And so that's why we have in many countries developed web shop. Why web shop?

Because we want to benefit from that while we keep the vets in the loop historical partner and our purpose is a relationship with the vets, and we want to remain them in the loop. So, what we are developing is web shop that allows us to keeps the vet in the loop while we benefit from the home delivery and all the direct payment, [indiscernible], when you do the shipping, you have a direct payment charge on their credit card and you have the auto ship, the auto ship.

So, it's an auto ship program where you have the home delivery. And we benefit from that while we still have the vets in the loop, recommending, advising prescribing.

And that is very powerful. That's what we do everywhere.

And yes, that is gaining market share when you look at this category of product. which you cannot compare with injectable vaccines, implant anesthesia and other kind of product or prescription products.

So here again, the complexity of animal health force us to divide the product in category to really understand what's going on.

So, a new question from James Vane-Tempest. Given the mix from some of your recent deals.

How should we think about your longer-term margin target? If you can get R&D leverage and b, any benefit from the sustainability of cost reduction that you are targeting?

This is very clear. First, in terms of M&A, which is another part of the question to me, we are trying to bring M&A when we do a livestock vaccine, for instance, we know this is a higher margin.

Vaccines in livestock, we know it's structurally higher margin. So we try to find M&A that will be accretive.

Now when I go to your question, yes, we say that we will -- there is no reason why Virbac is not at or above the average of the market in terms of profitability. So, when we define that, it's a bit -- could be argued because you have some company, which I will not name, but the biggest company with a much higher level of profitability than the smallest company.

So, you have a huge [indiscernible] variance in the profitability level. But we have defined that the average of the industry was around 20%.

And so, what we have said like three years ago, back in 2021, there is no reason why Virbac should not be at or above the average profitability level of the animal health market. And we have targeted 20%.

And we are proving now end of June, that we will manage that. There is structurally, absolutely no reason why we cannot do that or much better than that.

What I was sharing with my friend, Habib is probably over the last two years with the COVID and all what we have seen with inflation, the overall average of profitability of the animal health market is slightly improving. So, we will have to go for the 20%.

And once we get there, we will see what it means and whether the average of the market is still at 20% or is at 22% or whatever, and we will try to outperform that because, in fact, there are two dimensions we are measuring financially, growth and in terms of organic growth, we are really outperforming and financial profitability, profitability. And here, we were below the average, and that is not acceptable to us.

So, we have a clear road map to be at or above the average of the industry. So hopefully, this explains why we want to go at or above 20%.

So still about R&D, a question from Sarah Thirion. Two out of 5 points of margin gain, we are supposed to come from the normalization of R&D in percentage of our revenue, after still 8.5% in '24 and 8.5% in '25.

What would be the normative level of R&D in the long run, not to create a break in the effect of launch?

No, we're not getting any break. I mean, it's I think one of my slides will respond answer to that.

We were spending €69 million back in 2017. And that has been the history of Virbac as we are managing R&D by ratio.

So, we were spending more or less €70 million. We are spending more than €125 million, so way above the €70 million.

And because we wanted to disconnect the R&D spending from the ratio as well make a very long-term company thinking in the long term. The R&D ratio and the level of spending in R&D should depend not only on the sales, but should depend on the opportunities.

And when you have a patent cliff, when you have a family of product that goes off patent, it will be, sorry, a bit stupid to not spend the money in order to benefit from it. And as we have this opportunity to do that, we have decided to overinvest to be ready on day one to be competing against the big guys on all this market of isoxazoline and isoxazoline combination as soon as possible.

Once this product would be off pipeline, I mean, finished developed and launched. There are not so many new behind there as monoclonal antibodies and other category, but some of them come in 2022, some in 2035.

So, we will adjust based on the needs. But what we don't need to spend to spend.

So, it will always be linked to opportunities. We will see the opportunity.

That's why Habib said, it could be a little bit above, a little bit below. It will depend on the program.

Based on M&A, we also accelerate very much the top line. You understand that when you had a €16 million sorry, 16% of top line and you have to spend £8.5 billion of your top line.

It's so much more money you have to spend, you need to have the team, you need to have the space, you need to have the rooms. I mean, you cannot immediately transform that in spending.

So just be reassured, we are not going to cut R&D for cutting R&D. We have accelerated R&D to level.

We never did before. When we took 8.5%, I explained again, it's 9.5%.

8.5% is 9.5% because there is a tax credit in France of more or less 1 point. And we have 1/3 of our turnover coming from petfood and pet care, where the spending in R&D is close to 2% to 3%.

So, if you take into account these two things, tax credit and one further portfolio made of petfood, pet care, in fact, their spending on pharma is way above, way above all the competition. So just be reassured that there is no reduction of R&D that will create a launch back to the opposite.

Thank you, Sébastien. So far, to my knowledge, I am going to ask you the last question, unless some additional arrive from Edward Bottomley.

Given the very strong margin development in the first semester, your full year guidance implies and abnormally high drop in margin in the second semester versus first semester. Is there any particular reason that will drive this decline?

Or is your guidance being conservative?

It's a good question. Maybe a bit of a reminder of the seasonality that we have that Virbac has when we compare H1 with full year.

So, I mentioned the seasonality on cash flow. We also have a seasonality on profit generation.

Historically, if you look at 2021, 2022, we had around 4 points of margin drop, and I talk about EBIT adjusted, comparing H1 with full year -- last year, if you look at, it was only 3 points when you compare H1, we're at 18%, 18%, and we finished the year around 15%, so 3 points. But if you remember, we had a very special first semester last year with the impact of the cyber plus the cyber crisis that we had, the vaccine as well.

So, this year, it's slightly above. If you do the math, has been done, we'll have a higher drop.

But there is also a very special configuration that we have. We have a very strong first semester in terms of dynamic of sales.

We expect to have still growth but less for the second semester. And we will have a first second half in terms of sales that would be below the first half, which was not the case last year, for instance.

So, we have a bit of a Caesar effect with acceleration of the cost. We have more cost during the second part of the year to the first part of the year.

I mentioned the budget cycle. This plays a role.

We are very prudent as well, and that's part of the culture of the Company, making sure that we invest if the sales are there, so that has also that shaped a little bit this seasonality. So, we'll have a sort of a Caesar effect with less sales and more cost, which explain why this year, it will be slightly above what we typically see on the sort of a normal year for Virbac.

I have additional question just to second for me two seconds for me to be able to read it question. I love this question.

I love the first coming question. It's for you, Sébastien.

Sébastien, if I may, if we may, you still seem very ends on. Are you really sure you want to retire?

Yes. But it's not a retirement.

It's a break. I really need to break maybe because I am too much hands on.

So, I really need a break. I explained the reason, it's a personal reason.

It has nothing to see with Virbac. Virbac is just an amazing company.

It has been my professional love. It's 18 years with the Company.

And yes, except my wife who was 25 years. This one has been the longest relationship I ever had 18 years.

So, it's been my professional love, and it's only for personal reason, but I need a break. But I'm too young.

So yes, probably I will come back, and I will do something in the future, but I don't know yet to what and how, but I remain confident on.

So, the two following questions are still on the same topic, Sébastien. So, Laurent Saglio said what, Sébastien is really leaving Virbac on top form.

So, are you, whom do you do replace you or who is going to replace you? You've done a great job.

Thank you very much. The most difficult part in this is a decision to leave many, many friends.

It's a temporarily leave. As I say, hopefully, I will come back at one stage, but the people, the employees of Virbac, it's very painful.

Many, many friends, it's like a huge family to me. And the investors and the relationship we have developed over the time it becomes very close relationship and with sometimes some jobs and things like this.

So, all this atmosphere, I will be missing very much. So, I don't know how long it will last without it, six months, one year when, I don't know, but certainly, who will replace me is Habib.

Habib has been working with me for eight years. We have been collaborating very, very closely, and if there is one person in the world that I will trust to endorse what we are doing that is very well aware of the strategic plans, the mission, the road map, the ratio and has been always next to me, helping me, supporting me is Habib.

So yes, I deposit my full trust and confidence in him. And I'm sure that you will see the level of execution you have seen so far.

The strategy was built altogether. It's clear.

It's well communicated. We just have to execute and I think the team is really prepared for that.

Otherwise, I will not have left to be honest, I have a professional conscience that make that -- if I would have thought that the team was not prepared, I would not have leave now. But if I leave this because, as you said, the Company is doing extremely well.

The dynamic is very strong. He has been robust for many years, and it's just to keep on going.

Sébastien, may I add that is a temporary situation?

Yes.

So, I'm replacing Sébastien on an interim basis just to be 100% clear, I'm very honored, obviously, to have been given that responsibility, and you can count on me to continue what we have done together. I know the full support for that interim period from the Board of Directors, from my colleagues, a lot of colleagues within the Company from the executive committee, but also from all over the place.

As you said, we have a very clear road map. So, I will continue to endorse that with a lot of passion, enthusiasm and serenity.

I'm not a candidate for that position on the medium to long-term basis, and I have a full trust on the Board of Directors that are conducting a search to find our new CEO, who will fully embrace all of the Virbac cultures and values. I'm 100% sure of that, and I'm extremely serine.

Just maybe to complete. They are very active for the last three months in the search, so we already have identified some short list, and we are collaborating, Habib, the Board of Directors.

You mean the appointment...

And myself to find the right profile as the next CEO. So, we should be confident that this will be well done.

Last question because there is a small detail in that question always regarding your departure, Sébastien. From Alexander [indiscernible].

Are there any particular reasons for the CEO departure and will this have an impact on M&A strategy?

No, I will not have any impact before my departure, we have created a fantastic profile really fantastic profile in M&A. It will be announced in due time, but it's a fantastic profile.

It will help us a lot. And the reason my departure is purely personal.

So, there is absolutely no -- nothing related to Virbac, nothing related to the status of the Company, anything like this is. I think I shared that in the past.

I spent 25 years married, I got painful divorce, which finalized in June. I want to take a bit of time for myself after 30 years of dedicating myself to my family and to Virbac.

And I think it's now time to do it for me because I will have to work again for 8 or 10 years later, so I want to make a break for 1 year, 1.5 years now and try to come back with a lot of energy, which is important and passion and willingness to do so.

Thank you, guys. I guess we have come to the end of the meeting.

I don't have any additional question. It has been a privilege, Sébastien to work with you during this year.

It is our last webcast. So, I want to thank you all, Bruno, Florian, Habib and Sébastien.

And thank you all, you attendees, on behalf of the Virbac team, and for your adherence, of course, and for your loyalty to our company, and I wish you a very good end of day.

Thank you very much. All the best to all of you.

Thank you.

Bye-bye.