bioMérieux – 2017 Financial Results

Regulatory News:

The Board of Directors of bioMérieux (Paris:BIM), a world leader in the field of in vitro diagnostics, met on February 27 under the chairmanship of Alexandre Mérieux and approved the audited consolidated financial statements for the year ended December 31, 2017.

2017 OPERATING HIGHLIGHTS

Operating highlights of the year are described in Appendix 1 below.

FINANCIAL RESULTS

SALES

Consolidated sales came in at €2,288 million for the twelve months ended December 31, 2017, up 10.2% at constant exchange rates and scope of consolidation on the €2,103 million posted for the same period in 2016 and slightly outperforming the objective of 9% to 10%. The negative currency effects reported in the second half as the euro strengthened against a number of currencies, notably the U.S. dollar, dampened growth reported in euros, which nonetheless reached 8.8%.

An analysis of sales growth by region and by application is presented in Appendix 2.

CONSOLIDATED INCOME STATEMENT

• Gross profit

Gross profit for the year stood at €1,212 million or 53.0% of sales, a significant increase from 52.3% the year before. The rise in gross profit was driven by growth in volumes and an improvement in the product mix, with the BIOFIRE FILMARRAY^® product line making remarkable progress. These factors more than offset the increase in depreciation after the commissioning of several new production units (Durham, Salt Lake City and Marcy l’Étoile).

• Contributive operating income before non-recurring items
  
  Contributive operating income before non-recurring items amounted to €335 million for 2017 compared to €298 million reported for the same period in 2016, representing robust 12.4% growth. Contributive operating income before non-recurring items as a percentage of sales came to 14.6% in 2017, up from 14.2% the previous year. The Group’s margins therefore improved despite the €29 million provision recorded in relation to certain share plans payable in cash in the United States and the negative year-on-year currency effect of around €5 million.
  • Selling, general and administrative expenses amounted to €603 million, or 26.4% of sales, compared with €570 million, or 27.1% of sales, in 2016. General and administrative expenses grew less quickly than sales and also benefited from a more accurate reallocation of IT expenses to the various lines in the income statement. The decline in general and administrative expenses as a percentage of sales more than offset the additional selling expenses related to the roll-out of the BIOFIRE FILMARRAY^® product line.
  • R&D expenses came to €304 million in 2017, or 13.3% of sales, representing a significant increase from €272 million, or 12.9% of sales, in 2016. The rise in R&D expenses was driven, as expected, by increased R&D activity relating notably to the BIOFIRE FILMARRAY^® line and to certain microbiology product lines.
  • Research tax credits and grants came to €24 million for the year, unchanged from 2016 despite the increase in research efforts, due to a less favorable credit rate in the United States than in France.
  • As anticipated by the Company, other operating income, which mainly comprises net income from royalties, amounted to just €7 million in 2017 versus €15 million in the prior year, primarily because certain patents licensed to third parties expired during 2016.
• Operating income

BioFire acquisition expenses totaled €18 million in 2017, compared with €25 million in 2016 when the Group had recorded the balance of the retention plan implemented at the time of the acquisition. These expenses primarily comprised the depreciation/amortization charged against assets valued at the acquisition date (stable year-on-year).

Other non-recurring income and expenses from operations amounted to €1.6 million, versus €9.9 million the previous year, when the Group had recycled certain translation adjustments to the income statement.

As a result, operating income ended the year at €315 million, up 11.5% on the €282 million reported in 2016.

• Net income of consolidated companies

Net financial expense remained stable at €22.2 million in 2017, versus €23.2 million in 2016.

The cost of net debt came to €16.2 million, versus €17.6 million in the prior year, and other financial expenses totaled €6.2 million, versus €5.6 million in 2016.

The Group’s effective tax rate at December 31, 2017 stood at 18.6%, compared with 30.8% at end-2016. It benefited in 2017 from the €30 million in non-cash, non-recurring income recorded primarily in relation to the revaluation of deferred tax assets and liabilities resulting from tax reform in the United States. It also benefited, to a lesser extent, from income recorded due to the cancellation in France of a tax on dividends, which was partly offset by the exceptional tax introduced to replace it. Lastly, the Group recorded an additional provision on some outstanding tax litigations. Excluding these non-recurring items, the Group’s effective tax rate would have been stable year-on-year at around 28%.

Net income of consolidated companies totaled €238 million in 2017, up a strong 32.6% on the €179 million reported in 2016.

CASH MANAGEMENT AND FINANCE

• Net cash from operating activities

Net cash from operating activities ended the year at €357 million, representing a year-on-year increase of nearly 7%.

EBITDA¹ rose by 8% in 2017 to €475 million, from €441 million in the prior year, lifted by the growth in contributive operating income before non-recurring items and net additions to depreciation and amortization of operating items.

Despite robust growth in the Group’s sales, the increase in working capital requirement during 2017 came to just €38 million, close to the €33 million increase recorded in 2016, under the combined impact of the following factors:

• Against the backdrop of growth described above, inventories remained virtually stable in 2017 after increasing by €41 million in 2016, primarily reflecting a year-on-year improvement in inventory turnover of more than 10%.
• Trade receivables were up by just €26 million year-on-year, versus a rise of €10 million in 2016, and the payment collection period improved significantly to end the year at 73 days, versus 80 days a year earlier.
• The change in trade payables was virtually stable year-on-year.
• Other working capital requirement items increased by €4 million in 2017, versus a decrease in 2016, primarily due to outlays relating to the retention plan implemented on the acquisition of BioFire.

Income tax paid stood at €91 million, an increase – driven by the United States – from the €81 million recorded the previous year.

• Net cash used in investing activities

As expected, capital expenditure outlays declined significantly over the period to €183 million, including €106 million in industrial capital expenditure versus €233 million and €154 million respectively in 2016. The decline reflected the completion of capital projects designed to increase capacity at several production sites.

As a result, free cash flow² nearly doubled in 2017 to reach €164 million, from €85 million in 2016.

Purchases of non-current financial assets, net of disposals, amounted to €16 million, versus €30 million in the prior year, and mainly corresponded to purchases of non-controlling interests in Banyan Biomarker and Qvella, and to the transfer to bioMérieux of Sysmex’s stake in Sysmex bioMérieux Co., Ltd.

• Net cash used in financing activities

Net cash used in financing activities totaled €57 million, versus €52 million in 2016. In June 2017, the Company paid €39.4 million in dividends, unchanged from the 2016 dividend, and bought back shares for €1 million under the share buyback program, compared with €14 million the previous year.

• Net debt

Consolidated net debt amounted to €156 million at December 31, 2017 (including €32.8 million in liabilities to employees), versus €275 million a year earlier. The Company has issued €300 million in bonds maturing in October 2020, and holds an undrawn syndicated line of credit for €500 million maturing on January 26, 2023, with an option to extend the facility for an additional year.

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¹ EBITDA corresponds to the aggregate of contributive operating income before non-recurring items, and operating depreciation and amortization.
² Free cash flow corresponds to cash generated from operations, net of cash used in investing activities.

DIVIDEND

The Board of Directors will recommend that shareholders at the Annual General Meeting on May 17, 2018 approve a dividend of €0.34 per share. This would represent a total payout of €40.2 million, to be paid on June 7, 2018 as compared to €39.5 million in 2017.

OTHER INFORMATION

• Installed base

At December 31, 2017, the installed base amounted to approximately 92,800 instruments, versus 86,900 instruments at December 31, 2016.

• Human resources

At December 31, 2017, the Group had around 10,400 full-time-equivalent employees and temporary staff versus 9,800 at December 31, 2016.

SUBSEQUENT EVENTS

• Guillaume Bouhours appointed Corporate Vice-President and Chief Financial Officer of bioMérieux

bioMérieux announced the appointment of Guillaume Bouhours as Corporate Vice-President and Chief Financial Officer and a member of its Executive Committee. He will take over from Claire Giraut, who has decided to retire, and will head up the same departments, namely Finance, Purchasing and Information Systems. A graduate of École Polytechnique and École des Mines ParisTech, Guillaume Bouhours was previously Group President – Access & Mobility at Wabtec. Prior to that, he held the position of Chief Financial Officer for the Faiveley Transport group from 2010 to 2016. The appointment will be effective as from March 2018.

2018 OBJECTIVES

In 2018, bioMérieux aims to maintain the strong sales momentum achieved over the past two years. The Company has set itself the objective of achieving organic growth in sales of between 8% and 9%, at constant exchange rates and scope of consolidation. Growth reported in euros, however, is expected to be below this range due to strongly negative currency effects estimated at around €120 million, stemming primarily from the decline against the euro of the U.S. dollar and certain emerging market currencies. Given the severity of the flu epidemic in the first two months of 2018, bioMérieux is anticipating further robust growth for its BIOFIRE FILMARRAY^® product line, which is expected to boost sales in the first quarter more than in the following quarters.

The exchange rate fluctuations forecast for 2018 are also expected to have an impact on the Company’s contributive operating income before non-recurring items, of around €40 million. In addition, bioMérieux intends to step up its R&D efforts in the area of syndromic diagnosis of infectious diseases while maintaining its leadership position in its other product lines. As a result, R&D expenses could represent approximately 14% of the Company’s sales in 2018. In light of the above, bioMérieux has set its 2018 target for contributive operating income before non-recurring items at between €325 million and €345 million, at current exchange rates.

INVESTOR CALENDAR

The above forward-looking statements are based, entirely or partially, on assessments or judgments that may change or be modified, due to uncertainties and risks related to the Company’s economic, financial, regulatory and competitive environment, notably those described in the 2016 Registration Document. Accordingly, the Company cannot give any assurance nor make any representation as to whether the objectives will be met. The Company does not undertake to update or otherwise revise any forecasts or objectives presented herein, except in compliance with the disclosure obligations applicable to companies whose shares are listed on a stock exchange.

ABOUT BIOMÉRIEUX

Pioneering Diagnostics

A world leader in the field of in vitro diagnostics for over 50 years, bioMérieux is present in more than 150 countries through 43 subsidiaries and a large network of distributors. In 2017, revenues reached €2.3 billion, with over 90% of sales outside of France.

bioMérieux provides diagnostic solutions (systems, reagents, software) which determine the source of disease and contamination to improve patient health and ensure consumer safety. Its products are mainly used for diagnosing infectious diseases. They are also used for detecting microorganisms in agri-food, pharmaceutical and cosmetic products.

Corporate website: www.biomerieux.com. Investor website: www.biomerieux-finance.com

APPENDIX 1: 2017 OPERATING HIGHLIGHTS

• Governance
  • The bioMérieux Board of Directors’ meeting on December 15, 2017 approved the appointment of Alexandre Mérieux as Chairman and Chief Executive Officer of the Company, effective from that date. Alexandre Mérieux took over from Jean-Luc Bélingard, who had chaired the Company since 2010 and who will remain a director of bioMérieux and Vice-President of Institut Mérieux, where he is responsible for strategy and institutional relations.
  • On May 30, 2017, the Annual General Meeting approved the appointment of two new independent directors: Fanny Letier and Marie-Paule Kieny. In compliance with the law of January 27, 2011 concerning gender equality on boards of directors and supervisory boards and equal opportunity in the workplace, the Board of Directors now comprises 10 members, including 4 women.
• Commercial offer
  
  During 2017, bioMérieux enhanced its commercial offer in several areas:
  • In February 2017, bioMérieux received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the expanded use of VIDAS^® BRAHMS PCT™, making it the first procalcitonin test to receive FDA clearance to help encourage appropriate use of antibiotics in respiratory infections and sepsis.
  • In April 2017, bioMérieux announced that BACT/ALERT^® VIRTUO™ had received 510(k) clearance from the FDA, making this system available in the United States after its launch in Europe. The BACT/ALERT^® VIRTUO™ system is a fully automated blood culture system which enables faster detection of pathogens by clinical microbiology laboratories to help deliver optimal patient care.
  • On April 20, 2017, bioMérieux announced that its BIOFIRE FILMARRAY^® RP2plus test, a new generation of FILMARRAY^® respiratory panels, was CE-marked. The BIOFIRE FILMARRAY^® RP2plus simultaneously tests for 22 pathogens responsible for respiratory tract infections in a reduced processing time of 45 minutes and offers improved overall sensitivity. On June 1, 2017, bioMérieux announced that its BIOFIRE FILMARRAY^® RP2 panel, which includes the same pathogens as the RP2plus test except for MERS-CoV, had received FDA clearance in the United States.
  • On April 27, 2017, bioMérieux obtained FDA clearance to market and sell RAPIDEC^® CARBA NP, a manual, high medical value test used to confirm the detection of carbapenemase-producing bacteria in agar cultures. The test gives reliable results in under two hours, making it a quick and easy way to improve patient management and control healthcare-associated infections. Carbapenemases are a group of enzymes that hydrolyze carbapenems, a sub-class of antibiotics with the broadest spectrum of antibacterial activity, used primarily for the treatment of multi-drug resistant bacterial infections, exclusively in hospital settings.
  • As of June 2017, the automated VIDAS^® D-DIMER test, cleared to exclude the diagnosis of deep vein thrombosis and pulmonary embolism in outpatients, is authorized for extended use. It can now be used to help guide the duration of long-term oral anticoagulant therapy in women with a first unprovoked venous thromboembolism (VTE).
  • In July 2017, bioMérieux announced that its rapid pathogen identification system VITEK^® MS had received 510(k) clearance from the FDA for the identification of new pathogens. The expanded database includes more than 15,000 distinct strains and, for the first time, enables the safe identification of the Mycobacterium tuberculosis (TB) group, the most frequent non-tuberculous mycobacteria (NTM), Nocardia and the most medically important molds.
  • During the year, bioMérieux launched two new test strips to determine the susceptibility of multi-drug resistant organisms (MDROs) to antibiotics.
    ETEST^® Ceftolozane/Tazobactam and ETEST^® Ceftazidime/Avibactam strips are used to assess the susceptibility of Gram-negative aerobic bacteria such as Enterobacteriaceae and P. aeruginosa to new antibiotics indicated in the treatment of infections in adult patients for whom there are limited therapeutic options.
  • During the fourth quarter, bioMérieux expanded its hepatitis panel, which already included diagnostic tests for hepatitis A, B and C, with the launch of two VIDAS^® hepatitis E tests. Hepatitis E is a widely underdiagnosed liver disease that is prevalent all over the world. It is caused by infection with the hepatitis E virus which is mainly transmitted by the fecal-oral route, particularly through contaminated water and some undercooked meats. It is a serious pathology, since it can lead to fulminant or chronic hepatitis which can prove fatal if not properly treated.
• Business development
  • In January 2017, bioMérieux and Banyan Biomarkers, an innovative biomarkers company specializing in traumatic brain injuries, announced that they had entered into a partnership. Under the terms of the agreement, bioMérieux obtains the rights to develop and market Banyan’s proprietary tests worldwide for use on the VIDAS^® platform in the field of in vitro diagnostics.
  • bioMérieux and Lumed, a leading-edge software firm specialized in healthcare, signed a partnership for the distribution of the APSS (Antimicrobial Prescription Surveillance System) and DATA software suites designed by Lumed. Drawing on data imported from each patient’s electronic health record, the APSS is a computerized clinical decision support system designed for hospital pharmacists and antimicrobial stewardship teams. It enables them to monitor clinical information, be alerted as soon as important information becomes available, and verify that the ongoing treatment remains appropriate. The agreement gives bioMérieux the rights to market the software in Canada, the United States and Europe, and thereby enrich its line-up of solutions for the prevention of antibiotic-resistant infections, which are a major global healthcare threat.
  • In November 2017, bioMérieux joined other investors in a series B financing round for Qvella, a Canadian molecular biology company with the primary goal of dramatically reducing time to results in the diagnosis of infectious diseases. It is developing new electrical lysis and sample treatment technology which would allow patients’ blood samples to be analyzed directly. Following its investment, bioMérieux owns less than 10% of Qvella and will record these shares in its balance sheet.
• Quality
  • During the third quarter, bioMérieux received the closeout letter from the FDA related to the 2012 warning letter of its Durham, North Carolina facility dedicated to the manufacturing of the BACT/ALERT^® blood culture bottles.

APPENDIX 2: SALES BY REGION AND APPLICATION

APPENDIX 3: BIOMÉRIEUX CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017

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