DiaSorin S.p.A.

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Diasoran Full Year 2021 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, Chief Executive Officer of Diasorin. Please go ahead, sir.

Thank you, operator. Good morning, good afternoon to everybody, and welcome to the year-end results called for Diasorin. I'm going to briefly comment quarter four. as usual at constant exchange rate 2020. And then Mr. Pedron will take you through the numbers. It is noteworthy that Q4 represented a full recovery quarter from a revenue perspective. So it's very interesting that we are going to be, I will compare results to Q4. of last year, and this will, in my opinion, give an indication of how the business is performing. Starting from this quarter, after the Luminex acquisition, I will provide comments in three different buckets that now we are using to represent the business, so three different technology groups. First, I will talk about COVID, which includes immuno and molecular, including also the Luminex COVID business. Second bucket is the immuno ex-COVID. The third bucket is LTGO license technology, which has to do with all those technologies that Luminex developed and licenses through partnership, primarily in the research space. Let's start from COVID. When it comes to COVID, Q4 revenues were roughly 100 million euro, of which 17 million were COVID products coming from Luminex. If we compare, as said, to Q4 2020 revenues, if we look at the diasorian product alone, so excluding the Luminex component, revenues were down 20%. And this is as expected related to the fact that Q4 volume, testing volume of COVID compared to previous year was roughly down by the same number. So we continue to have an extensive installed base of customers that are using our molecular product, although we are certainly today suffering from shift up or down From a price perspective of COVID, what I had to report is that we don't see price pressure in any of the major markets where we operate. If we look at the Omicron effect, I think it's not worthy that compared to 2020, Omicron has created a much narrower peak of testing, which has been concentrated primarily in december january with a very sharp decline that we start to notice in the last few weeks so the peak omicron peak compared to the delta peak they look very different so overall we continue to stand on our covet projection we need to wait and see what is going to happen in 2021 in the next few months about adoption of testing. And then certainly we need to understand what is going to happen in the second half when it comes to, and I don't think anybody wants to see that, but we want to understand how the next season is going to look like starting from after the summer. I have COVID, by the way, and this is why I need to speak a little slowly today. On the immuno side, Q4 was largely in line with Q4 of 2020. So let's talk about immuno non-COVID. Quarrel 4 was up 12% with CLIA XD growing 19% year on year. And CLIA vitamin D flat, notwithstanding the loss of Quest in 2021. which certainly has been well compensated by the surge in vitamin D testing due to COVID. CLIA grew double digits in all geography. Actually, on average, well above 25%, with the exception of China that continues to show a decline due to the known issues related to the lockdowns and strong price decline, which are driven by the adoption has been discussed a few times of regional tenders, which are really affecting price, especially on the MeToo products like thyroid fertility, so the high-volume products. Our CLIA business is solid and is certainly driven as in the past by specialties. And in 2021, notwithstanding, as said, the weakness of China, we achieved another record year of liaison Excel placements over 550 systems worldwide with a record amount in the U.S. So notwithstanding the fact that China, which traditionally has been driving placement of Excel, has been very short in 2021, we really succeeded with Immuno and Excel in the other two main geographies, but primarily in the U.S., where the hospital strategy that was initiated two years ago now is really paying out its dividend and we continue to gain share in this very strategic and important market share. And last comment I would like to make on Immuno has to do with MIMET. We launched the product on the liaison Excel in Europe and we submitted the file to the FDA in mid December. This essay for me is a great fit to the Diasorin portfolio as we discussed at the investor day meeting. Because it's a specialty, it goes naturally on our install base and it completes our infectious disease portfolio. So we have great expectations about the success of this product. Our partner, MiMed, is raising its ability to educate physicians. And we're going to keep you updated throughout 2021. But again, I really believe that this essay will very well fit our growing installed base in the hospital market. Let's now discuss LTG. Please remember that this business is primarily driven by our strategic partners who adopted Luminex technology to develop either research or IVD products. Year on year, the business grew 20%. And this is even more significant if we compare 2021 not to 2020, that clearly 2020 did die because of the pandemic effect. But if we now compare 21 to 19, Still, we have a double-digit growth of this business, indicating that this is a very solid opportunity and is going to be a contributor, both from a margin perspective as well as top-line growth to the growth of DioSonic. Last but not least, in this space, we launched the new platform, the IntelliFlex platform, is the new multiplexing platform for research. And the Book of Orders exceeded by far our expectations. So when it comes to LTG, it's a very nice addition to the traditional diasorium IVD business. Before leaving the podium to Mr. Pedron, excuse me, One more comment, and it has to do with the Eliason Plex, or Verigine 2, as Luminex used to call it. We continue the validation effort to bring on the manufacturing line for the high-volume manufacturing in Chicago. We are focusing on, as we have discussed during Investor Day, the gastroenteric panel and the three blood panels, the gram-positive, negative, and yeast panels. And as discussed, we expect to start clinical studies for IVDR submission in the second part of 2022. And we expect to start initial placements in Europe for customer usability in the early fall. Meanwhile, our traditional multiplexing business, which is mainly driven by the Virgin One, is relatively stable. with ups and downs clearly in the respiratory panel due to the COVID business. But we continue to maintain a very solid in stone base, and we continue to invest in the multiplexing business, developing some of the manual application. You know our manual technology for multiplexing is called NXTEC, and we have launched recently a new updated gastroenteric panel for the European market. So now I'm going to leave the podium to Mr. Pedrone, who is going to drive you to the number. PJ, please.

Thank you. Thank you, Carlo. And good morning and good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DSR in 2021. And I will also make some comments on the contribution of the fourth quarter and on the impact of the Luminex business, whose acquisition was completed, as you might remember, on July the 14th of last year. To better understand the performance of the business, I will refer to adjusted P&L items, therefore sterilizing the impact of the following, so to say, Luminex dealer-related elements. So the one-off acquisition and integration costs, the effect of the purchase price allocation, costs of financing, and lastly, the fiscal impact of all of these components. Both in the presentation uploaded in our website and in the press release, we are providing a line-by-line bridge between adjusted and IFRS items. Said that, as usual, Let me please start with what I believe are the main highlights of 2021. We closed the Luminex transaction in July for a total equity value of approximately $1.8 billion. And starting from Q3, 21 Luminex financials are consolidated into the SORIN. 2021 total revenues at constant exchange rate grew by 41% in the year. therefore doing slightly better than the full year outlook, which was calling for a 40% progression. Q421 grew by 36% vis-a-vis 2020 at constant exchange rate. Luminex contribution to the top line at current exchange rate was 195 million euros in the year and 104 million euros in the quarter. This performance is slightly better than what we originally expected, with the overage mainly driven by the Luminex molecular business. The COVID revenue contribution at current exchange rate was 378 million euros in the year and 102 million euros in the quarter, compared respectively to 266 million euros and 101 million euros in 2020. 2021 full year adjusted EBITDA at €543 million or 44% of sales is slightly better than the outlook, which was set at 43% margin, mainly because of the higher top line we just discussed about. We completed the Luminex purchase price allocation. And as a result, in Q421, we booked a €24 million hit to our P&L, of which €18 million of intangibles depreciation and €6 million of higher costs of goods sold, the latter coming from the revaluation at fair value of Luminex inventory, as dictated by IFRS principles. The quarterly run rate hitting our P&L from Q1 2022 onward in the intangible depreciation line coming from the PPA is going to be 9 million euros. You might notice that this number is different from the one we shared during the capital market day, which was 40 million euros. So the difference is coming from the fact that now we have completed the PPA exercise, whereas back in December it was still an estimate. We keep confirming our ability to generate a very healthy free cash flow, €301 million in the year. The net financial position is negative for €986 million, with €403 million cash. And the net debt leverage... over adjusted EBITDA of 1.8. Finally, the Board of Directors approved to propose to the annual general meeting to be held at the end of April the distribution of an ordinary dividend of about €57 million, equal to €1.05 per outstanding share, and a buyback plan for up to 1.5 million shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Let's now go through the main items of the P&L. 2021 revenues closed just above €1.2 billion, compared to €881 million in 2020, therefore recording a growth of 40%, both in the year and in the quarter. the year has seen some 6 million euro FX headwind, net of which the growth would have been 41%. The growth at constant exchange rate and scope of consolidation, meaning excluding Luminex, is 19% in the year, and therefore slightly better than the guidance, which was set at 18%, and flourished in the quarter. because of lower DSR in COVID sales, which Carlo just said, moved from 101 million euro in Q4 2020 to 81 million euro in Q4 2021. Q4 2021 X COVID, again, same perimeter of consolidation, so without Luminex, recorded a solid growth of 10% at constant exchange rate compared to 2020. and 7% compared to Q4 2019, mainly fueled by a very strong performance of our CLIA X-Vitamin D franchise, which grew by 19% in the quarter and 22% compared to Q4 2019. H221 Luminex pro forma sales grew nicely vis-a-vis 2020, Let me remind you that we didn't consolidate, obviously, in 2020 Luminex sales. That's why I'm saying pro forma. As a result of a good performance of the combination of the Aries and Verige in molecular platforms, paired with a very strong licensed technology business, with a joint growth of about 20%, partially offset by the so-called non-automated assays, which recorded exceptional COVID-driven sales back in 2020. when the supply of COVID testing in the market was somehow limited and greatly overcome by demand. Full year 2021 adjusted gross margin at €831 million grew by 38% compared to last year, with a ratio of revenues slightly below 2020, 67% vis-à-vis 68%. This difference is mainly driven by the inclusion of Luminex in the scope of consolidation, and is even more clear when we consider the adjusted gross margin ratio of the quarter, which closed at 66% compared to 68% of 2020. This variance is in line with our expectations and modeling and is reflected in the guidance we gave last December during the Capital Market Day. 2021 adjusted operating expenses at €357 million grew by 34% compared to 2020, with a ratio over revenues of 29% vis-à-vis 30% of the previous year. The increase in the adjusted OPEX ratio of the fourth quarter from 26% of last year to 30% of 2021 is due to the very same reason highlighted for the gross margin, Luminex consolidation into the sorry numbers. Once again, this is in line with our plans and the guidance we gave during the capital market day. We are expecting synergies to reach the level discussed during the investor day as the integration process will move forward. Full year adjusted other operating expenses at €9 million decreased by €3 million compared to last year. As a result of what just described, 2021 adjusted EBIT at €465 million or 38% of revenues has increased compared to 2020 by 43% or €141 million. Adjusted interest income and expenses at €4 million is substantially in line with 2020. and the adjusted tax rate at 23% is in line with 2020 as well. 2021 adjusted net result at €357 million, or 29% of revenues, is higher than previous year by €109 million, or 44%. Lastly, 2021 adjusted EBITDA at €543 million, or 44% of revenues, is higher than 2020 by 41% or €158 million. The variance at constant exchange rate is positive by 42% with a ratio of revenues of 44%. The adjusted EBITDA ratio in the quarter at 43% is lower than 2020, which closed at 47%. because of the expected slightly dilutive effect deriving from the consolidation of the Luminex business, the very same reason we just discussed a while ago. Now, let me please move to the free cash flow. In the course of 2021, the group generated €301 million of free cash flow vis-à-vis €232 million of 2020, therefore booking an increase of 29% of €68 million. As discussed back in July, I believe it is worth underlining that in 2021, we've had a much higher tax cash out compared to 2020, €118 million vis-à-vis €37 million. This difference has been mainly driven by two elements, a different phasing and higher profit compared to previous year. Lastly, let's move to 2022 full-year guidance. As usual, that previous year constant exchange rate The outlook is in line with what reported during our recent capital market day and is calling for revenues ex-COVID to grow by about 24%, total revenues marginally lower than 2021, minus 2% to be precise, and because of a reduction of COVID sales, for which 2022 outlook is about €150 million, compared to around €380 million in 2021, and an adjusted EBITDA margin at around 35%. Before concluding, please remember that diastolic financials are highly exposed to the US dollar, and even more so now that North America represents about 50% of the total group sales, Therefore, as a rule of thumb, consider that for every one cent movement of the dollar against the euro, the Australian revenues move by about 6 million euros on a yearly basis. Now, let me please turn the line back to the operator to open the Q&A session. Thank you.

Excuse me. This is the course call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. We pause one moment while participants join the queue. The first question is from Emanuele Galazzi of Equita. Please go ahead.

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

Carlos, do you want me to take it since you just called?

Maybe it's easier for me, and then please just jump in. Yes, please.

Go ahead.

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

Very clear. Thank you very much.

The next question is from Peter Welford of Jefferies. Please go ahead, sir.

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

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

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

Thank you.

The next question is from Hugo Solveig, the BNP Paribas Exane. Please go ahead.

Hi, hello. Thank you for taking my question. A quick follow-up on Luminex. You have received the form 483 in the US from an inspection in October at the end of last year. Can you maybe discuss the issue here and anything probably out of the scope of what you identified when visiting the site back in Q3 or in September last year. Second, on Luminex, you mentioned, Carlo, if I'm not mistaken, but correct me if I got it wrong, that you will start the clinical trials for submission later in the year. What's actually the level of confidence you have in getting the VIRIGINE 2 on the market on the U.S. market before the end of 2023, even extended review timelines from the FDA. And last question on the long-term guidance that you gave us at the Capital Market Day. Can you maybe discuss the sensitivity of especially the guidance to sustain and potentially sustain cost inflation? Thank you very much.

Okay. I'll take the Luminex 483 and the clinical studies. 483 is exactly what we do diligence, and this is how we expect the 483 to move forward. We have agreed upon with the agency to enter Luminex into a program that is going to last 18 months. We're going to work with the FDA. It's a pilot program. There are nine companies, I think, in the U.S. who join. Luminex is one of them. We are the FDA with external consultants. Consultants are going to work with the company in the implementation of all the corrective actions that have been identified by the 483 and by the company. So I'm very comfortable with the way this is going, and I'm quite comfortable that within 18 months the issue is going to be completely resolved. By the same token, this is not affecting the ability of the company today to make product or submit product through the agency. So I don't know surprises, to be honest with you, there. When it comes to the clinical studies in the FDA, look, when it comes to the FDA, you know when you submit and you don't know when you get out of it. That's certainly a general statement. However, what we have seen so far is that pressure on FDA because of COVID has been released. And so the FDA is going back to regular course of business and is looking at files today. We have several products at the agency waiting for approval. We have investigators by the agencies that have been allocated to work with us on the file. So I'm seeing that they are going back to normal. That means that when it comes to panels like the one we discussed, which are fight and case, you would expect typical three to six months approval time. So I feel comfortable at this stage with the fact that in 2023 we should see some of these panels starting in the U.S. market. On the EBITDA, I leave it to PG.

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

Thank you very much.

The last question is from Maja Pataki of Kepler. Please go ahead.

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

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

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

Say again, if things stay status quo?

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

You know, we compete in the market and we have to deal with the market reality, right?

Yeah, okay, fine.

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

Okay. And maybe just quickly, last question. You state that Russia-Ukraine is not important for you, but are you still shipping to Russia? stop shipments.

Yeah. We, you know, for us, the Russian business is not very material. I believe that if we combine both the Luminex and the Asor in business in our budget on the top of Maeda, the number was well below 10 million euro to give you a sense of, you know, the business we have there.

Okay.

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

Okay, thank you very much.

The next question is from Giorgio Tavolini of Intermonte. Please go ahead. Mr. Tavolini, your line is open, sir.

Perhaps you have your phone on you.

Yes, do you hear me? Sorry. Hi, good evening. Thanks for taking my questions. I was wondering if you could provide more visibility on the LTG line that represented roughly 8% of sales in 2021, if you are still confident on doubling the contribution from this line for this year? And the second one is on the indication, if you have an indication on first quarter trends related to the COVID business. So what if we should expect trends in line with the exit of 2021? Thank you.

Luigi, do you want to take it?

Sure.

So, yes, the first question regarding the licensed technology business, I believe, Giorgio, you are referring to the guide that we gave during the Capital Market Day. And, yes, I mean, that is still our assumption. As Carlos said during his remarks, the business is doing very, very well. We're very positive there. So, absolutely, we confirm what we said during our Capital Market Day. On the top of my head, I believe we said that obviously also because of the change in perimeter, but we said that from 2021 to 2022, that franchise was going to grow by 115%, 120% on the top of my head. So I believe your second question was regarding COVID in Q1 2022. Is that what you asked, Giorgio? I'm sorry, the line was a little bit... Yes.

No, sorry. Actually, the ex-COVID business. So if you see a similar case in terms of growth like in Q4, also in Q1.

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

Thank you very much.

The next question is from Andrea Baloni of Mediobanca. Please go ahead.

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

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

Thank you, Pitchy.

Gentlemen, at this time, there are no more questions registered.

Thank you, operator. Good night. Thank you. Goodbye. Take care.