Sanofi SA (SNY) 2012 Q2 法說會逐字稿

Welcome to the Sanofi 2012 second quarter results conference call. I now hand over to Mr. Sebastien Martel, sir please go ahead.

Thank you. Hi, everyone and welcome to our second quarter conference call. As always, I must advise you that the information presented today in the call contains forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially. So I'd like to please ask you to refer to our Form 20-F on file with the SEC and also our document de reference for a description of these risk factors.

So with me today on the call are Chris Viehbacher our CEO; Hanspeter Spek our President of Global Operations; Olivier Charmeil, Senior VP for Vaccines; and Jerome Contamine, our CFO. Without any further ado let me turn the call over to Chris.

Good afternoon, good morning everybody. This is a milestone quarter for Sanofi, not so much because of the results but clearly on May 17, the world's largest product, Plavix, lost its exclusivity in the marketplace and that was clearly our biggest product. Of course, that's no surprise. This is something that we have been planning for, for well over three years. But in some ways, and even though Eloxatin is going to lose exclusivity in a few weeks' time, this really, for us, starts a post patent cliff period. So, up to now we've been preparing for the cliff, and now we are coming through the cliff.

So if you look at the numbers on page five, you can see that sales were EUR8.8b which on a constant exchange rate basis were up 0.4%, so essentially flat versus the quarter last year.

If I just make two remarks. First is I personally believe that the best way to look at the underlying performance of the business is at constant exchange rates. So I normally don't make any comments on exchange rate movements, but I will say we've clearly seen a very significant movement in this quarter, as Jerome will show you a little later on. And only time will tell as to whether or not this is the normal volatility of exchange rates or whether we are seeing a structural and more long-term change in the value of the euro versus the dollar. But it certainly had a bigger than normal impact between our reported earnings and at constant exchange rate. That having been said, we obviously are going to continue to discuss everything at constant exchange rates.

Sales were flat, but in actual fact of course we had divested the Dermik dermatology business, and we gave back all the Copaxone marketing rights, which meant that if you put this on a like for like basis on the same constant business structure, actually sales would have grown by 2.5%.

This is contrasted obviously with an earnings per share number. And of course you are all aware that Plavix is, in the United States, not consolidated in the sales. BMS records the sales and we get a profit share of both Plavix and Avapro.

The impact on the quarter was EUR331m in terms of the loss of net income related to those two products, and that resulted in earnings per share declining to EUR1.48, or 17.7% at a constant exchange rate basis.

On the next slide, again this is very much in line with the picture we have been showing now for some time. You are all aware of the ten products that were really going to go off patent between 2010 and 2012.

Three years ago Sanofi was facing the deepest and most concentrated patent cliff in the industry. Both -- the products that I just referred to had cumulative sales of EUR2.2b in Q2 of 2009, so the quarterly number for those ten products was EUR2.2b. Those same products today represent EUR752m, so we've clearly lost EUR1.5b on a quarterly basis. And that's before we lose Eloxatin which is EUR314m. So really by the time we get to the year end we will have 95% of the patent cliff behind us.

Equally, we set out a strategy which was to look for new sources of sustainable growth, through our growth platforms. And you can see in the second quarter of 2009 those growth platforms represented EUR3.3b, or about 45% of our sales. Since then, you've seen very strong growth to EUR5.7b, largely organic but obviously some through acquisitions and those sales now represent approximately two-thirds of our sales.

So how are those growth platforms doing? And I think I am particularly satisfied to see all of the growth platforms performing well. Emerging markets is always a key strength of Sanofi, up close to 10%. Again, actually if you were to put it on a constant structure basis, on the same basis that I mentioned earlier, that would actually be over 10%.

I think if you look at the percentage of sales, we are clearly much stronger in this area than most of our competitors. And I think we just have a business that's well adapted to those markets, and Hanspeter will talk about this more.

Diabetes EUR1.4b, up 13.7%, a very strong performance really across the world,

Vaccines up 3%, and kind of some mixed news in there. We clearly have had an excellent flu season in the Southern Hemisphere and Sanofi is really providing close to three out of four flu vaccines in the Southern Hemisphere and that was very strong.

We have some manufacturing issues on supply for Pentacel. I'll point out right away that the manufacturing issues on Pentacel have nothing to do with the warning letter that was received.

But just to lengthen the lead times of manufacturing means that because we weren't able to approve three batches that we are going to have to -- we are going to face some supply constraints through to the first quarter of 2013. Equally, there is an interesting inactivated polio vaccine opportunity in Japan, and so we believe we'll still be on target for our vaccines this year.

Consumer Health Care continues to grow, certainly in emerging markets. And if you strip out the stocking effect of the initial launch, Allegra continues to grow well in the United States as well. So we saw overall double digit growth of 11.3%.

Animal Health has come back nicely in the second quarter with growth of 9.1% at EUR576m.

The New Genzyme, and you may recall that Genzyme has been redefined as being rare diseases and multiple sclerosis, that business is up 9% largely driven by Fabrazyme, and I'll talk about that in a little bit.

Innovative Products are EUR152m and up 4.5%.

Now the sales picture is one thing, but again coming back to the fact that Plavix and Avapro are not consolidated in sales, we shouldn't lose sight of that impact.

Back at our strategic seminar in September of 2011, we gave guidance on that number. We said that that number would have an impact for 2012 of about EUR1.4b. On an annualized basis that would be EUR2b. You can see that really already in the second quarter we've lost EUR331m as a result of Plavix and Avapro generics and that's very much in line with the guidance that we gave last year.

If I look at Genzyme, you know Genzyme sales are going to be a little choppy for a little while because obviously, a number of batches that were produced even before we acquired the company caused us to have some stocking issues towards the third and the fourth quarter last year. The approval of the Framingham facility has allowed us to now produce Fabrazyme in that facility while producing also a few more batches in the Allston facility.

And most of our focus has been to satisfy Fabrazyme patients, particularly given that Replagal was not approved in the US and we've been keen to get those people who were on the compassionate release program from Shire switched over to Fabrazyme. And you can see that there has been a very strong growth on that.

On Cerezyme everything is going along as planned. The decrease versus last year is really an effect of we acquired the company in that second quarter of 2011, and there is just -- it's just really shipping delays that caused some shipments to go from first quarter into second quarter 2011. But you can see when we look at the last four quarters, that there has been a steady improvement in Cerezyme sales. We've always said we don't really see a significant improvement rapidly in Cerezyme because of the competitive situation, but the production issues are all well underway and under control and Myozyme continues to progress well as well.

If we move now to some key regulatory milestones, Zaltrap we have a PDUFA date of August 4 in 2012 here coming up in a couple of weeks on second line metastatic colorectal cancer with a European approval scheduled for the fourth quarter.

Aubagio, our oral multiple sclerosis drug, also has a PDUFA date of September 12, and a European approval timing of first quarter 2013.

We have Kynamro coming along.

We have Lyxumia where we have a CHMP opinion in the fourth quarter. We would expect to have our interim cardiovascular safety data ready to allow an FDA submission in December of this year.

And, of course, Lemtrada has been filed with a PDUFA date in the second quarter of 2013 and a similar opinion in Europe in the second quarter of 2013 as well. So we'll see how things go, but everything looks to be on track at the moment.

If I look at also now our development, we announced this week the major ODYSSEY program -- which really puts Sanofi as the first company in the race on the PCSK9 target to enter into Phase III. So if all holds well then our PCSK9 product, which we are developing with our partner Regeneron, really has an opportunity to be the first in class compound here. We are talking about a product that is injected subcutaneously every two weeks. This is a major program with 22,000 patients in total.

And we have, really because of the significance of this opportunity, created an entire PCSK9 development and launch unit it brings together everybody from medical, from regulatory, from commercial to manufacturing to ensure that the company has the right focus and sense of urgency behind this very promising project.

So with that, I'll turn it over to Hanspeter Spek who can give us a little bit more color on the quarterly developments in the business. Hanspeter.

Yes, thank you Chris. Good morning, good afternoon. Chris has said that we had a solid quarter, and if you look to my first chart, which is page 13 you see confirmation. We have achieved approximately EUR8.9b sales. This compares with EUR8.5b for the first quarter 2012.

Perhaps more importantly, also something Chris mentioned, that this quarter really has become a kind of turning point for the whole Company and our portfolio trends. You see when you compare the growth platforms with the losses due to genericization and due to the disposal of Copaxone and Dermik, you see then that for the first time the growth platforms more than compensate the losses of genericized products and transfers. We have achieved EUR386m in this quarter coming from growth platforms, whilst in the last quarter, first quarter 2012 they had achieved exactly EUR100m less, EUR287m.

And, yes, finally we also have been helped by the ForEx impact. This has been quite significant with nearly EUR0.5b this quarter compared to EUR187m for the last. So overall, a 6.2% growth, including all of those effects.

Turning the page to look to the emerging markets, yes, we had again record sales in this quarter with EUR2.8b equalizing a growth of nearly 10%; record sales in the sense that this was again EUR200m more of sales than in the first quarter.

Consequently, the share of the emerging markets in our total sales has risen to 31.8%. And to give you a reference, this is approximately 5 points more than for the second and third best positioned companies in those markets, which to my knowledge are Roche and GSK.

On the other side, our exposure to the difficult market of Europe has been reduced now to approximately 24 percentage points of our total portfolio. And to give you once again an approximate reference, this is about 10 points less than for Novartis and 4 points less than for GSK.

So of course we are extremely satisfied with our overall situation in terms of exposure to growth (but also our reducing exposure to potentially negative growth) where we not only maintain our market leading position, but are even able to further expand on this.

Why are we doing so? I believe for a number of reasons. We have historically a very strong foothold. I believe that this Company also has a very strong cultural understanding of those markets.

But if you translate this in figures and facts, it is important to note that, yes, our growth in BRIC countries is even stronger with more than 15%. But I feel it's equally important that BRIC, in terms of emerging markets, is not everything because, the non-BRIC countries represent 65% of our emerging market sales, which evidently means that we are less sensitive to the eventual setbacks of those four BRIC countries. Nevertheless, as you see on the right-hand of the chart number 15, continued to do well with 14%, 9%, 20% and 21% of growth. So we are absolutely able to compensate more moderate growth as we currently see from Eastern Europe and Turkey by a very accelerated and strong growth whether it's coming from Latin America, Asia or Africa and the Middle East.

A look to the major parts of our portfolio, the first one on page 16 with diabetes. You will remember that we had a very strong first quarter. The second quarter is absolutely in line with this, showing for the total diabetes portfolio a growth of 13.7% which compares with the first quarter at 14.4%.

Also, the performance of Lantus is maintained in relative figures, 16.5% compared to 17.2% and evidently in absolute terms on a more important growth. Even we have achieved exactly EUR100m more in the second quarter in terms of Lantus sales as in the first quarter.

And yes, I think it's fair to say that also the recent ADA Congress brought a number of good news for us. Perhaps most important, the confirmation that Lantus, due to everything we know from the data, doesn't represent any increased risk in terms of cancers.

On the following page I look to oncology. We had another good quarter for oncology with sales more or less on the level of the previous quarter EUR751m. It is of course the last of the very good quarters because in the third quarter we are expecting the out of patent situation of Eloxatin in the U.S. as outlined by Chris before.

But in the same quarter we, after years, we expect to have a new approval with Zaltrap, which means a new opportunity to use our experienced sales forces, our experienced marketing teams to bridge into a new future with Zaltrap and other products to be coming in the following years.

Still on portfolio, on page 18, strong Consumer Health sales to be reported for the second quarter. In absolute terms this quarter is approximately EUR17m below the last quarter. This is due mainly to Allegra. Allegra had been stocked in the second quarter 2011 due to its launch into the US market. Evidently, this stocking did not repeat. But Allegra overall shows a very positive growth in terms of sell out in the US and we are extremely content with its performance.

We also see a more and more important impact from the acquisitions in Consumer Healthcare. We have exercised in 2011, mainly in China but not only, where you see then that coming from the emerging markets we have an increase of nearly 27% for Consumer Healthcare, which is a further acceleration because in the first quarter this growth rate has been approximately 22%.

You may remember then on page 19 that for the previous quarter I had predicted that our Animal Health division Merial would come back to growth. I am happy to report that this became true in the second quarter. As you see, we have a growth for the quarter alone of approximately 9%.

This is a growth equally driven by Companion Animals and Production Animals, very much in line with our strategy for this activity which is mainly based on strengthening Production Animal segment, maintaining the important Companion Animal and enlarging our footprint from a geographical point of view, which we can see very nicely also in the second quarter results and for Merial.

This is it on pharma, and saying so, I pass on for Vaccines to Olivier Charmeil. Olivier.

Thank you, Hanspeter. Hi everyone. Good morning, good afternoon. So as Chris just mentioned our Vaccine business benefited during Q2 from the seasonal flu campaign in emerging markets. Our Q2 sales reached EUR783m, up 3%. Our growth has been very much driven by our strong performance in the emerging markets, as well as mixed performance in mature markets.

Getting back to emerging markets, we show a very strong growth of 22.9% at constant exchange rate. This is very much driven by another record flu season, and we achieved more than 54m doses during H1 in the Southern Hemisphere after very strong year last year.

While we are on flu and we are getting ready for the flu season in the US, we have the first licensure. We were the first to ship more than 10 days ago, and we have observed solid pre-booking, especially for our differentiated forms both Fluzone high dose and Fluzone Intradermal.

Getting back to H1, mixed performance in the mature markets to date. Very strong Adacel sales showing a growth of more than 30%. And we are very happy about our performance of Menactra where despite the competition we continue to maintain a high market share. We today own more than 80% of the market.

As Chris mentioned, we face and you are aware, temporary order limitation for Pentacel in the US. We, since the beginning of the year, we are facing some manufacturing delays.

We will get back to full supply; meaning that today we continue to ship. We will get back to full supply during Q1 2013. In the upcoming months we will face some shortfall on Pentacel, but they will be partially offset by the fact that we will ship more single entities.

Looking ahead, nice opportunities are taking shape with the IPV that will be added to the Japanese immunization schedule on September 1. It's a significant opportunity for us in Japan.

Another opportunity also is taking shape is the Hexaxim launch. We got the positive opinion of EMA during the month of June and it will open the opportunity of Hexaxim, so our hexavalent combination for the international markets.

Before handing over to Jerome for the financials, on the profitability side nice growth of 19.6% of our business operating income on a reported basis.

We also had very encouraging results on dengue which were announced yesterday.

Jerome, I hand over to you now.

Okay, thank you Olivier. So I am now turning to the P&L. So to start with the P&L, of course the Q2 P&L reflects the impact of the loss of exclusivity of Plavix and Avapro which we see are visible on two lines which are the other revenues, the royalties declining from EUR422m to EUR247m. And also on the share of profit coming from associates, you see the whole line which is hit by the Plavix loss of exclusivity going down from EUR278m to EUR122m.

While at the same time we have also had to take an increase of the reserve, the reserve on the litigation in connection with Ramipril in Canada which in fact is a judgment which has been taken by the court and the amount we owe to generic producers coming back to 2004. We have appealed for this judgment but we have however to take the reserves, which explains the variation on the other operating income.

But there are also a lot of positive elements in this P&L as I will describe later on both in terms of cost of sale, in terms of evolution of R&D declining by 1.2% on a constant exchange rate basis and even more on SG&A which have declined by 4.3% on a constant exchange rate basis between the Q2 2011 and Q2 2012.

You will see as well that including all these effects and including this reserve taken on Ramipril, we have a BOI, a business operating margin, 31.3% which is very much in line with what we gave as a guidance for the overall 2012 year.

Chris mentioned already the positive impacts, or the favorable impact of exchange rates, but you could argue that this is something which is always volatile. But you could also say that having a large part of our cost being generated in euro, we benefit from a weak euro on a strong US dollar as well as strong other currencies such as the Japan yen and the yuan.

So, it's fair to say that in fact when we are -- we have our stock which is denominated in euro, it is only 25% or so of our sales which are generated in euro, so in fact, we are largely exposed to other currencies which are now becoming stronger.

So you see the impact for Q1, and of course even more for Q2. So for Q2 it was plus 5.8% on sales and plus 8% on profit. Of course, we cannot bet on the future and we stick to the constant exchange rate guidance that it's clear that if it goes on as it is today, it will have a favorable impact on the reported sales on profit in the coming quarters.

Cost of sales, well I think it's good news. We are ending, getting to a situation where we get to cost of sales to sales ratio basically flat, which tells that we are now able to compensate through the productivity announcement that we have already launched now for a few years to compensate for the evolution of the mix on the loss of exclusivity on sales of very highly profitable products.

So now we are around 31%. If I take into account the loss of exclusivity of Eloxatin in Q3, I think that I can confirm the guidance we gave at the beginning of the year of having a cost of sales to sales ratio which should be around 31.5%.

Also on R&D, I mean we keep control on R&D cost. R&D expenses have declined from -- by 1.2%. In fact, it's a much further decline in terms of internal expense which has declined by more than 5% over this quarter compared to same quarter last year as a result of the reorganizations we have implemented, also the creation of the Boston hub in the US taking advantage of the acquisition of Genzyme.

But at the same time we are investing somewhat more in late stage phases, which I think is a positive sign in particular on the PCSK9 as well as our new formulation of Lantus and Lyxumia. So all in all, good control on R&D and clearly, R&D to sales ratio is therefore kept lower than the level we had last year.

The same for SG&A. SG&A has gone down by 4.3%. In fact, we have invested more on growth platforms, definitely on diabetes and also in emerging markets. But at the same time we are trimming our organization in mature markets and also we benefit from the synergies that we have implemented now with Genzyme in particular on the G&A side.

So, if I take all that together you now see that the SG&A to sales ratio is 1.4% below the level we had just after the acquisition of Genzyme in Q2 2011, which basically says that we are on track to generate Genzyme synergies which you recall we plan to reach EUR500m, $700m. And we should have generated overall with all synergies by the beginning of 2013.

If I go down to the financial part of the P&L, well one thing which maybe deserves to be mentioned, so I confirm the effective tax rate of 28%. Last year we revised down, the effective tax rate, to 27%. And this was done in Q2 which impacted positively with a double effect I'd say because we did in Q2 the effective tax rate for the second quarter. So as a matter of fact, I mean you see here there is a discrepancy, but the 28% is what has been given at the beginning of the year as a guidance which I confirm today.

So the EPS and this you know has gone down by 17%, but by only around 10% on a reported exchange rate to EUR1.48.

Cash flow, we are continuing to generate strong cash flow. So despite the fact that we had a decrease in profit over the quarter, we had a stable profit on a reported basis. We had an increase of the cash flow which shows that we have a good control of working capital and CapEx. Both have been lower than last year in terms of amount spent for this first half of the year. And therefore, the free cash flow is keeping close to EUR4b over the first half of the year.

The investments in acquisitions have been pretty limited, mainly in Pluromed, as you may remember in connection with our biosurgery franchise and also the acquisition of Newport in Animal Health in the Swine area.

The rest of the cash generated has been totally sent back to shareholders, so dividend payment plus share buybacks which we did mainly during the first quarter.

So all in all, as you can see, it's around 100% of the free cash flow which was sent back over the first half of the year to shareholders. Therefore, bringing the debt, net debt, slightly higher than the level we had at the end of 2011 so at EUR11.3b.

So we are clearly now heading to a situation where we should be, if we don't do an acquisition clearly somewhere below EUR10b and if we do some bolt-on acquisitions along our strategy in the EUR10b area which is our medium term objective.

So before turning to questions, I mean I can just summarize the performance for H1. I think that we have clearly posted solid sales growth if we exclude the key genericized products and the fact that we are still in the patent cliff that is starting to fade away, and will be fading away in the coming quarters after the loss of exclusivity on Eloxatin.

We confirm our leadership in emerging markets, obviously and I think that Hanspeter has well described our strength in these areas and the solidity of our positions in many geographic areas.

We clearly continue to focus on management of our cost base and control our costs and invest selectively where we think we have to invest and trim down all the G&A costs.

Of course the net -- the business net income is impacted by Plavix and Avapro, but this is exactly in line with what we had given as a guidance last September.

And all in all I think that despite the fact that we are in a challenging global environment, that we are facing clearly changes in particular in Europe, well we are definitely confident to deliver the guidance we gave at the beginning of the year.

Sebastien?

Thank you very much Jerome. We are now ready to open the call to any questions you may have. As always I'll ask you to just take one question at a time to allow as many people as possible to participate into the discussion. Operator, we are ready for Q&A.

(Operator Instructions). The first question is from Mr. Richard Vosser from JP Morgan. Please go ahead.

Hi, it's Richard Vosser from JP Morgan. Thanks very much for taking my question. The question is around the progression of margins through 2012 and '13. Two elements into that, just wondering what the effect of incremental investments are in terms of building the multiple sclerosis franchise.

Clearly you've mentioned that September you could have Aubagio on the market in the US and Lemtrada maybe on the market by the end of the year too. So just wondering about the effect of the incremental investments on the 2012 and '13 margin.

And also, could you update us on the plans for the restructuring that you've outlined, you know the EUR2b savings, where we are with those and how that might affect the progression of the margin as well. Thanks very much.

Well on your first question on the effect on the investments in particular behind our MS franchise, but I think you could add as well what we'll have too -- we'll invest behind Lyxumia. Well, it's a bit risky. We are going to invest more. We are rolling out our plans. I mean I think it's a bit early to say what will be the exact net impact because on the other hand we are continuing to cut down here and there on our more mature areas. So it will be a balance which will have to be taken into account.

So I just first confirm that the margin for 2012 will be between 31% and 32%. I can confirm as well that medium term we will increase this margin.

But then as you said, I mean the timing of this improvement will somewhat depend upon the investments we'll do and exactly the scope of this improvement will depend somewhat upon the investments we do quarter by quarter on these new franchises. So, I mean that's where we'll -- I mean we'll go more in to detail when we get into the 2013 guidance.

On the restructuring, I mentioned already that the share which was supposed to come from the Genzyme integration is really on its way. The reference base was 2010 base cost. We aim to save $700m (sic). I must say that as early as beginning of 2013 we will have achieved 100% of these savings.

For the rest of the EUR2b, well I think that we should be by the end of the year around one-third of the total. So all in all we'll have achieved, beginning of 2013 the full synergies on Genzyme, and on top of that we will have achieved around one-third of our overall EUR2b cost saving plan.

Brilliant. Thank you very much.

Thank you. The next question is from Mr. Michael Leuchten from Barclays. Please go ahead.

Thank you. It's another one for Jerome along the same line. At the strategic update day Jerome, you did offer a quite detailed guidance on line items in the P&L and I think your aim was to really address the potential impact from Plavix and Avapro. Now, looking how the year has shaped up so far I'm not quite sure those line item guidances' still hold. Could you address that please?

And then also structurally you're keeping your 31% to 32% guidance for the margin even though you seemed to get a bit more benefit from the other lines. So how does that tie in with the guidance as well please?

Well, I think I try to just remember which guidance I gave at the time. But I think that a), we said that the -- once again the operating and net operating margin should increase from this 31% to 32% level onwards. And I think I can confirm that. As I said, answering to the previous question and what really still remains to be adjusted exactly is the base of that depending upon the launch of new products and investments behind these new products.

The second thing which probably you've noticed if you just accumulate the figures I gave you is that clearly, we are -- we will be able to achieve at least in 2012 around 40% of the overall EUR2b plus and over time it will be much more than the average 25% the four year plan, so we are clearly front-loading these -- the savings I mean the Q2 results after the Q1 results confirmed our ability to reduce cost.

Third, I think that I said as well that we should be able when the gro margin will decline around 70% as a result of both the general mix but also the loss of other revenues coming from, in particular from Plavix, it should be somewhat of a floor. So, the 70%, I think we should maintain and then increase. So, the gross margin we increase, keeping in mind that, of course, the Plavix impact will be still visible in the first quarter and beginning of second quarter of 2013 on the like-for-like basis. So, we need all of us to be aware that we are just starting for four quarters and we are just at six weeks. So, the remain 46 weeks to get through before we don't see -- we don't speak any more about the impact of Plavix on a like-for-like basis. So, we need to be somewhat patient in that respect but also, I mean, clearly look forward and look at what is the outlook of the underlying growth of the business.

In terms of R&D expense, I think that we gave the guidance that it should be flat to declining. And I can just confirm that we will maintain an R&D envelope flat to declining, so in the range on where we are this year. And I think last year we were around EUR5b, slightly less, exactly EUR5b. So I think this is pretty precise.

The SG&A ratio was supposed to improve and is already improving. So, I mean, there is not absolute figure. But, if you assume that something like 25%, including G&A, is something which could be a reasonable target, again, it may vary somewhat on a quarter-by-quarter basis either because we invest more on one quarter or less on another quarter, or because we are going to invest to support some launches. We should be somewhere around 25%.

So, all in all, I think that I can, a) confirm this guidance. I mean, you can see from Q2 that we have achieved a lot of that, putting aside the Plavix impact. And I can confirm as well that in the medium term we expect to have the profit growing faster than the sales. So, there's 5% sales so it's transformed into a higher growth in profit on an average CAGR basis from 2012, 2015.

Thank you.

Thank you. The next question is from Mr. Tim Anderson from Sanford Bernstein. Please go ahead.

Thank you. A couple of questions. Lantus has been doing very well recently. It obviously faces new competition at some point from Novo. I'm hoping you might be able to -- might be willing to take a best guess at what the recent delay was that that could be related to. I know you've disputed some of their data and their claims in the past. And I'm wondering if you think FDA may share some of those same concerns.

Second question, on the FDA warning letter related to your two vaccine plants, can you frame out what the impact would be from a worse case scenario whereby let's say, you have to shut down the plants? So I'm wondering how much product is theoretically at risk.

And sometimes, once FDA has a company on its radar, it then starts to find more problems. Can you say whether FDA has been through your other vaccine plants recently and signed off on them?

Hanspeter, do you want to take the --

Yes, well first I take the Lantus question. I think there's the evidence and the evidence is so nice that I cannot avoid to talk about it. I think it's evidence that there is a delay. It's evidence that this will help Lantus and I think it's evidence that the fact that there is now a public hearing we'll make everything public which is supposed to be public. So, evidently, we are -- yes, we are content with this situation in each in every respect.

Less evident is all I could speculate about it. And if you go back to our previous conferences, we have managed -- we have at various times, have said we believed that parts of the results are flawed. We have stressed that we believe that part of the results are clinically not very evident and I evidently don't know why the FDA is setting up such a hearing on it.

The fact, we have referred to -- there is the open label study design. There is the question of when Lantus has been dosed. And this we consider as not being really obvious. There is some question on the confidence and the robustness of the hypo reporting. We have raised question marks on the clinical relevance of the improvement of hypos overall. And finally, we have raised question marks on the importance of the calculation of the dose. So, all of this may lead to more complicated labeling discussions. But, once again, all of this is speculation.

The good thing is that everything will be public in relatively short time and then we will see, and we will take note of it.

Olivier, you want to take the warning letter question?

Yes, so, one or two elements. So the FDA warning letter we received addressed some aspects of our quality system management process. To be a little bit more precise, the control of the environment and documentation procedure, as well as record management procedure.

The two -- the warning letter that raised the issue of Toronto and of Marcy are totally unrelated. That is where a routine inspection that, in the vaccine that when biologics, a routine inspection come almost every two years. So, the two inspections that took place were routine inspections. We will continue that inspection in the next couple of months and we are waiting in the next couple of weeks an inspection of Swiftwater, which is a routine inspection.

With regard to impact of supply, the notification that we received from FDA is going to be -- to have an impact on one of our products and which is the BCG Immucyst Theracys . We have decided voluntarily and proactively before we got the warning letter to discontinue the production because we thought that it was the best way in order to be back on the market as soon as possible, which means that we will have stock out situation for 12, a little bit more than 12 months. We'll get back to full -- to supply at the end of 2013.

The impact in terms of sales and the sales of Immucyst Theracys BCG, where in 2011 in the range of EUR40m.

And I'll just maybe add, last year, we had something like 150 external regulatory inspections of our plants worldwide. So, there's somebody inspecting a plant for Sanofi on any particular one given day, including about one to two FDA inspections per month.

We clearly take something like the warning letter seriously, but, at the same time, I think it is also true that we have seen increased vigilance in biological manufacturing and that's just sort of something that everybody has to keep up. We had -- the only previous warning letter we had was -- in recent times was in Frankfurt. And we see that being successfully resolved. So, we will commit to obviously making sure that this doesn't develop into anything more.

But, I think the -- actually, I think there's a trend. If you look at the number of warning letters that the FDA has issued over the last two years, the FDA has doubled the number of inspectors and this is a policy of really becoming tough on quality. And we actually agree with that. It's extremely important that quality be at the top.

But, again, if you look at the number of plants and number of inspections, I think Sanofi has a very strong reputation in quality and we intend to address this warning letter with all due process and speed.

Thank you.

Thank you. The next question is from Mr. Philippe Lanone from Natixis. Please go ahead.

Good afternoon, gentlemen. Two questions, if I may. One on the emerging market, very strong this quarter, plus 10%. But with vaccines up a lot and pharma up 8%, so I wondered whether your comments on double digit over the year can be applied to pharma excluding vaccines and if, going forward, we can also bet on double digits, keeping in mind that some of the competitors have given up on that target, whether we can apply that on Sanofi?

And also, on Merial, very strong performance in the quarter, plus 9%, well above what we had in mind when you bought the company of something like 3% to 4% per year. So, I wondered whether there was an impact from new products in pets especially, and/or if it's the business and what kind of a sustainable growth rate we can factor in for this business.

I'll start with Merial. There is an insignificant impact of new product. There is a little-of an impact. You may remember we have made an acquisition in the US in this during the second quarter and so, sales have been consolidated for the first time, but, once again, it is insignificant.

It is much more seasonal what we see in the second quarter. You should not expect that the business overall will end up with 7% or even 8% for the total year. I think, if you will estimate a growth of 4% to 5%, you are probably closer to reality, and you are definitely close to what we expect in terms of budget.

For COG, I believe that mid-term Merial has better growth perspectives because we worked very actively on new compounds, new products, also combination products, also oral product to replace Frontline and not only to replace it, but to really settle on top of it incremental sales and those products will become available as of the end of 2013 and '14. And then you should see an accelerated growth in the magnitude of, let's say, 7% or 8% without any further external growth coming from acquisition.

Now, on the emerging markets for the pharma piece, I don't want to put the bar too high for Olivier, who will answer for you for vaccines. But, no, honestly, I think I cannot commit that eternally we will grow with two digits because, evidently, the base is permanently growing. And we should start then to look in 2013 more to absolute growth and to relative growth because, if you go back the last three or four years, we have expanded base by billions of sales.

And evidently for just mathematical reasons, we cannot maintain a 10% growth for the years to come.

And on vaccines, Olivier?

So, we always say that we have an accelerating growth in the next couple of years and with a slower growth in the first sales period. In the second phase of the period, the growth will be accelerating due first to the full impact of the launch of Hexaxim in the international market will represent a significant portion of our growth.

You also have the impact of our flu differentiation strategy. We are starting with our flu differentiation strategy. And this will represent in the US a significant portion of our growth.

And the last element towards the end of the period will be the impact of dengue and it will represent in the emerging market a significant portion of our growth.

I think the issue you're raising is one that you've penalized a line of business in emerging markets. And I think you have to get away from a Western Europe/American view of the marketplace.

Emerging markets are not segmented like they are in US. The consumer business, the branded generic business, the branded business, vaccines are all -- for instance, if you take Asia, are all under single management. And quite honestly, if you look at channels and distribution, the way the products are sold, I don't think you can kind of start saying, well, what about your pharma business? What about your consumer business?

We look at it as a marketplace. You've got to look at a China. You look at an India. You don't look at pharma within it because it's an artificial thing to look at pharma versus any other segment.

The other thing is, of course, on a quarterly basis, you've got different countries. Now, you're going to have a Turkey in here somewhere. And you may have a higher percentage of pharma in one market than you do in another.

We have indicated through to 2015 that we expect to see double-digit growth of emerging markets, but that isn't necessarily pharma. That's across the whole piece.

So, we don't really see any change to that. We grew 10% in 2011. We grew over 10% in 2012. We've got a broad mix of business.

Remember, nobody's really got the extensive local manufacturing. Nobody's got really the same adapted product portfolio.

I mean, you've seen us selling product in Brazil. There's Dorflex. We don't sell Dorflex anywhere else, but, it sells great in Brazil. And that's why we are in consumer and branded generics and all of the other businesses.

When you're in Brazil, for example, we -- you're going to go do a tender with the Brazilian government. Well, suddenly, we look at everything, including vaccines, Genzyme, and our pharma business because there it helps to be one single company. In other markets we've got completely different channels of distribution, and we're going to operate differently.

So, I wouldn't get too scientific about trying to pick out different pieces of the business in terms of emerging markets. Look at emerging markets. We tried to give you the piece for each line of business like we've seen with diabetes. You've seen diabetes growing at 21%. I don't see any real reason why that's going to slow down.

But, again, if we're going to -- we have to go into 80 countries and all these different lines of business and say why is (illegible) in one or another? And I think the most important thing that we're trying to do with this business is say here's where we see this business growing to 2015. And that's, to me, where most of our investors are. Where is the longer-term growth coming from? And we're going to be in a business, going to be a lot harder. We've said it before. Analyzing emerging markets on a quarterly basis is just too tricky.

Thank you very much.

Thank you. The next question is from Mr. Graham Parry from Bank of America Merrill Lynch. Please go ahead.

Okay. Thanks for taking my questions. First was on the lack of guidance upgrade following a 5% beat versus consensus in the second quarter and 10% in first quarter, COGS tracking below consensus expectations, and that was only offset in this quarter by a one-off in the other expenses line, which turns into a gain in Q3. So, I was just wondering what is it that's holding back the Company from increasing guidance? What is it that you think that we're being too optimistic about in the second half of the year?

Second question is just on pricing in Europe. Could you give the explicit impacts for your business in the pharma business, pricing in Europe in the second quarter?

And then thirdly, on Aubagio you've disclosed the PDUFA date for the August 12 now, which I think means the FDA would have had to notified you of a panel by now if there was going to be one. So, could you confirm whether there is a panel coming and, if there isn't, how we should read that? Thanks.

All right. You're a little hard to understand there, Graham but, I think we got it. So, I think first question is on guidance. Look, the business is performing well. And we're very happy with the way the business is performing.

Equally, we're in a very challenging macroeconomic environment. Most experts will tell you that big chunks of the world are going to be in recession by October. So, our view is it's no time to be raising guidance until you see what the -- we don't live on an island here. We all live in a big macroeconomic environment. Even though the pharmaceutical industry is largely sheltered from that, I think we want to see how that develops.

We also have Eloxatin coming through in August. And I think it makes sense to see how that plays out. But, in general, we're very happy with the performance of the growth platforms and where the business is going. You've seen we've got clearly tight control over costs and making good progress on the pipeline.

On Aubagio, I'll take that and then let you go on the European one. We've had an extension on the review of the FDA. That's why we've got a new PDUFA date of September 12. But, that's pretty much in line with the expectation that we've given all along, which was Q3.

There is at this point in time no confirmation of an advisory committee. I don't think I would interpret one way or another whether there is going to be one or not. I'm not sure that -- the FDA's not required to have one. But, it's not exceptional that there'd be one if they decide to have one. So, everything we've seen is that Aubagio is doing pretty well.

On European prices, Hanspeter?

Well, on European prices, what we are aware of is that the Italian government is preparing interventions which most likely definitely probably will lead into the second half of 2012. It's a little bit early to assess the magnitude, but, it will be something on an annual basis which may touch us between EUR50m and EUR100m of sales. Our sales in Italy are well above EUR1b. So, it is significant for Italy. For the overall European business, it is not so significant.

Of course there are question marks which we cannot answer, too. One of the important question marks concerns the French market. The French market so far is very much in line with what has been given out as guidance from the previous government. But, of course, this could be subject to change. We have to see what happens as what we call here in France'la rentree', when everybody comes back from holidays in September/October there will be additional projects.

Beyond, we don't see anything significant until the end of the year. We have to see how Europe will be doing overall then in 2013.

I mean, in general, Europe is clearly the most challenging region in the world today. You've got the highest level of government reimbursement. And that's why we've been very happy to see the percentage of our sales drop to 24%.

Longer term, we see that dropping further, in fact, as a percentage of our overall sales. That's why businesses like animal health and consumer health are very important because these are not subject to government price controls.

On average, we've estimated the price impact to be of the order of EUR300m. That's not significantly different than past years. It's things that -- it's kind of part of doing business and what we've always expected.

So, it's unfortunate because I think the pharmaceutical industry is sometimes picked upon too much. When governments are looking for austerity programs, drugs don't represent a big percentage of cost. And at the same time, they all want more investments in research and manufacturing.

So, it's just -- but, you can read the newspapers. You see what a difficult situation Europe is in. But, I think we've taken that into account in our budgets and our guidance.

And can I just follow up very quickly on Aubagio? What it was -- what was it that actually triggered the extension? Did you have to file additional data?

There's just the normal to and fro of questions. And in the responses, they just decided they want a little bit more time. I mean, you know this division, Graham. It's not unusual or exceptional.

Okay. Thank you.

Thank you. The next question is from Jo Walton from Credit Suisse. Please go ahead.

I've got two questions please. I wonder if you could you tell us a little bit more about why Lantus is doing so well in the US? Prescriptions only seem to be growing at 4% or 5% and yet, your sales are growing at 19%. Is there any stocking in here, or is the IMS data increasingly unreliable?

And Lantus in Europe seems only to be growing at 1% or 2%. Do you think that that is a level which we're likely to continue to see?

And the second question is about your dengue vaccine. I know that you're very excited about that as an opportunity. The main big studies don't seem to conclude until 2014 or beyond. How realistic is it to be able to file, particularly for broad pediatric use, until those have all concluded?

Well perhaps I take Lantus. First, what is the difficulties, which is Europe, yes. But, you see it's moderate and modest in terms of value growth. The volume growth in year to date in Europe by the end of April is 9%, which means the negative difference comes from price. And we had a number of price reductions, the most significant one in Europe -- in France, given the size of the product in France where we had the lowest price, for example, by 5%. But, that's only one example.

We are also struck by a former price decrease in Germany, which we had to execute in 2011 in order to get a further reimbursement situation, similar situation in 2011 also saw that finally all reimbursed in Italy. So, it's the product does well, but, we have made concessions in price.

If those remain the only concessions in price, you will see a very nice increase, close to two digits in 2013. But, of course, this cannot be granted.

Now, the American situation is an overall very healthy situation. We can see that we grow in each and every respect. But, we also have to say very honestly and clearly that this is also supported by price increases.

We have a price increase in approximately 12% in the overall growth in the US. But if you go more into detail, then you see a very nice growth in total prescriptions. You see an even more promising growth in terms of new prescriptions and new patients, which indicates that we probably will see even a further acceleration in the quarters to come.

All other trends are equally positive. We have a continued very nice increase in SoloStar usage. So, the product overall does well I believe because product intrinsically is extremely strong. And as you may remember, we have taken the decision repetitively in 2010 and in 2011 to increase our promotional forces behind it and evidently, also, this is paying off.

The Dengue vaccine, Olivier?

So, dengue, the threat [technical problem] people, there is no treatment, no prevention available against dengue. It's a major public health issue in Latin America and in Asia Pacific. It's the first time that proof of efficacy is demonstrated. But, what is also extremely important is the profile of the product is excellent, in terms of safety and in terms of tolerability.

So, we had said that based on the results of these type of studies, and we'll be discussing with the regulatory authorities obviously between the endemic country, but we will [technical difficulties] and then we will see.

So in terms of the proof of efficacy gives us a lot of comfort. But, more importantly, is the safety profile. As you know that one of the concerns in a new dengue vaccine [technical difficulties] is really good.

Next question, please?

Thank you. The next question is from Mark Clark from Deutsche Bank. Please go ahead.

Yes, good afternoon, gentlemen. I just want to take you back to the investor seminar from September last year, where as you set out the individual components of that 5% sales growth forecast with double digits in emerging markets, Genzyme, high single digit in diabetes and consumer health, and animal health mid-single digits. And I just wondered, has anything in the intervening 12 months, or nearly 12 months, made you revisit any of those assumptions, or do you still remain confident in each and every one of those assumptions?

Clearly, in the last year, we've seen a lot worse pricing in Europe and so on and so forth. The macro environment has worsened. But, I wonder if you could speak to your confidence in those targets.

I don't think really that anything has changed. And I think actually the performance you've seen actually in the three quarters since then have pretty much confirmed those. So, I look at the business, and I see it trending in the same path as when we looked at this time last year before we did the medium-term guidance.

Thank you.

Thank you. The next question is from Mr. Peter Verdult from Morgan Stanley. Please go ahead.

Yes, good afternoon. Peter Verdult here from Morgan Stanley. Chris, we've heard some diverging views from other CEOs this week about the environment regarding business development. So, firstly, I'd be interested in your thoughts on BD and whether you think current valuations out there have become incrementally more or less attractive versus 12 months ago.

And then just part B to the question is essentially use of cash. You've made it clear that dividend is your priority. We're fast approaching your net debt target. So, in the absence of business development I just want to know whether your stance on buybacks and shareholder returns through buybacks has changed at all in the last 12 months. Thanks.

Well, yes, I mean, I think -- I tell you, when I look at BD valuations, I'm glad we did Genzyme when we did. I think we would have had a lot more competition today than what potentially had [in place of] paying a higher price, not that I think we might have done that.

There's no question that some companies have been through their bigger mergers and have become more active. I think a number of companies have had pipeline setbacks and are looking to replace things.

And so, if I look at Europe, US, at least in terms of BD, I think valuations are high. There may be some value to be found. In emerging markets, clearly, prices have gone up.

So, I think you have to go a little further. I mean, I think where we have been able to drive value is actually at a time to buy ahead of the curve. I suspect that you could never buy Medley today for what we paid for Medley in 2009 or even Zentiva for that matter.

So, I'm not going to buy anything that I don't see having a value to the Sanofi shareholders. I get a lot of stuff presented to me by banks. It's immediately evident how I can make someone else's shareholders rich, but, that's not what I'm paid to do.

And I think we also, I should point out, you've got a number of members of the Executive Committee sitting around this table here. All of us have equity compensation programs, half of which is tied to return on investment criteria. So, and I think we're probably the only major pharma company to do that. It's -- every conversation I have with investors is that one of the reasons that they actually ask for buybacks is not so much that they believe the buybacks are going to help the share price, but they don't believe -- they don't have faith in pharma management to handle capital.

So, I'm hoping that when we look at our track record over the last three years, that the acquisitions have not only driven value but have really driven the transformation of this Company towards sustainable growth platforms.

Concerning the use of cash, there, I'd say we do have a targeted net debt of EUR10b. There's EUR3.5b goes to paying the dividend every year. There's about EUR1.5b goes to CapEx requirements for continuing to operate the business. We'll do about EUR1b to EUR2b in bolt-on acquisitions. And of course, that doesn't completely use the cash flow.

So, if we aren't able to find anything that meets our specs, and to give you an example, yes, we looked at Amylin. But, I can tell you we weren't in the final bidding because we didn't think that we could drive value for Sanofi shareholders.

So, unless we can do that, then you look at, okay, what are you going to do? I mean the idea of announcing EUR10b net debt is to say it's not the intention of management to let cash accumulate on the balance sheet unless we can find a good use for cash. Then we need to find an intelligent way of returning it.

My view on buybacks has always been that I didn't believe in buybacks when -- just because our PE was at one time around 7 or 8, largely because at that point, people see your risk profile as being too strong. And generally, companies in that situation who have done buybacks haven't seen that improve.

If you can get - and I've said this the last couple years - if you get to a situation where there is a stable to perhaps positive outlook in the business, then there may be an advantage in actually doing that. And we've said we'll do this on an opportunistic basis. I'd really like to ensure that we see the share price progress and that people really become as confident in the future of the Company as we are.

And I think we'll take it from there. But, again, bottom line is the executive management is neither to go spend money on things that we don't see as driving value for Sanofi shareholders, and we can't get to our own equity compensation programs if we don't meet certain hurdle rates. And two is that we're not going to allow the cash to accumulate on the balance sheet.

Thanks.

Operator, we're going to take the last question please.

The last question is from Mr. Vincent Meunier from Exane BNP. Please go ahead.

Good afternoon, gentlemen. Thank you for taking my question. A very simple one. The restructuring in France, can you please make an update on the situation with unions? And is there any risk you could not reach your target of cost cutting given the upcoming negotiations with the French government? You were talking about la rentree and the fact that there will be also negotiations for drug prices. It could weigh in the balance during the negotiations also with unions.

I mean, what we're doing in France is what we've already done in the rest of the world. And I won't do the whole model. I think you all understood where we want to go with our research model. This is really research, not development. We do want to align that with the key research ecosystems in the world and the creation of hubs. Genzyme has allowed us to take a much more transformative approach to research.

The reality is that our research in France hasn't really come up with a new medicine in 20 years and therefore, we have to take a much more productive approach to how we do this. It is a reorganization within France. It's not externalizing research to other countries. It is applying the model. And our -- and all of the discussions we've had are that people really understand that.

I mean, there's no point having a national champion in research and development unless everybody sees that as being a very strong national champion.

We clearly have to. We are in France. We have to be seen to do this the way we do things in France here. And we are. Sanofi has a long tradition of social dialogue and treating our employees with care and we continue to do that.

But, it's not really related to our cost reduction program per se. It's really about changing the R&D paradigm, which we've seen I think become successful in other countries.

So, where we continue to -- we have not announced a formal plan. The idea was to have a period of dialogue and discussion. And that is going well so far. So, we'll keep you updated as progress occurs.

Thank you very much.

All right, we're now ready to just conclude. I'll ask Chris whether he wants to say any points to wrap up.

Yes, I mean, I think Q2 is really just further evidence of management's execution of what we have said we wanted to do. You've got a fairly -- you've got a very stable business perimeter. I think the Genzyme integration has gone extremely well. We're now on a like-for-like basis as we look at quarters with Genzyme.

So, you have an opportunity to look at the growth platforms on an organic basis. And I think the growth platforms have all done I think very well. And I think we've been able to demonstrate some outperformance even in some areas versus our competitors.

Certainly, I think the fundamental strength of Sanofi in emerging markets I think can be seen. We're not subject to a few countries. We are probably more geographically diversified than anybody else and we do have strength in many markets, including more relevant product portfolios and production levels.

I think you've also seen us be very disciplined on cost management. I think what I'm particularly proud of is that our commercial teams have been able to deliver sales performance while we have been actually executing tight cost performance because we are clearly also investing in things like pre-launch.

I mean, the multiple sclerosis investment, for example, doesn't start next year. We have been investing already this year significant amounts in things like multiple sclerosis. There is significant new investment going on in the PCSK9 Phase III program. We are clearly funding a very ambitious Phase III program in the dengue vaccine. We have a very important Phase III program ongoing in U300. So, it's not hard to actually cut costs. What's really difficult is to be able to fund the things that are for growth in the medium term and still meet your short-term objectives. And I think management teams here are showing that ability to deal with those trade-offs.

I do think we have some promising new vaccines and medicines coming along. The dengue vaccine is -- I was reading a Forbes article this morning quoting a specialist who had nothing to do with the trial, but a specialist at John Hopkins, who described the results as exciting. I mean, we've been working on this vaccine for 20 years. All efforts to develop a vaccine in the past have failed on the basis of safety. And so, we've not only been able to demonstrate a proof of efficacy on this study, but I think the safety profile may not be appreciated by everybody. But, if you look at the history of dengue vaccines, this is where everything has ended up on the rocks. So, the fact that we have this strong safety profile is extremely important.

Being -- potentially having the first in class on the PCSK9, the launches of Lemtrada and Aubagio are clearly very important. I think in particular Lemtrada is the potential game changer in multiple sclerosis and Aubagio probably an underestimated opportunity as well.

Lyxumia coming along is important for our diabetes franchise. And we have an opportunity to add to our cancer portfolio with Zaltrap.

So, growth platforms coming on, tight cost management, good progress on R&D, and as I was saying earlier, I mean, I think Q2 is very much in line with our medium-term guidance. We're looking to return to growth with a forecast of 5% compound annual growth rate on sales between 2012 and 2015.

And I think when you look at a constant structure basis -- and remember, even on the top line, we lost EUR163m still on generic erosion. Now, it's not the EUR500m that we've seen in past quarters, but we're not even adjusting for that.

Just take like-for-like businesses and include the generic erosion, the fact that we could get to 2.5% sales growth is for me an important sign that we can get back to growth. I think we're in fundamentally strong businesses with diabetes and consumer and animal health, where there are huge growth potentials still there. So, it's not like we're dealing with a lot of mature businesses. All of these have an opportunity to go.

I think the cost management then leads to credence that we can have a leveraged P&L going forward. So, the questions on margins, we believe that we can do better than the 31% to 32% over time.

And of course, I think we've demonstrated that we are also very interested in making sure that our shareholders benefit from the progress of the Company and we continue our commitment to increasing the dividend payout to 50% of our business earnings per share. And we would expect to achieve that with the payment of our 2013 dividend in 2014.

So, all in all, here in France, we're in -- it's a little like end of term at school many years ago. I mean, everybody's ready to go on vacation. And I think we're all ready for that. But, I would say that, as we go on vacation here, I think we can say the Company is doing well.

We've come through the patent cliff. When I think about how nervous everybody was around Plavix back in 2009 and how confidently have come through this quarter, I think the Company's made huge progress. And I'm certainly looking forward to coming back in September and continue to build the business further.

So, I wish all of you a very good summer and safe vacations and we'll talk to you in the fall. Thanks very much.

Ladies and gentlemen, this now concludes our conference call. Thank you all very much for attending.