2015 was marked in January by the interruption of operations in the St. Louis manufacturing site in the United States, a decision taken at the end of 2014 following an inspection by the FDA (Food and drug administration). This event has, of course, had a significant impact on our profits. Outside the United States, our growth was lower than predicted in Latin America, in Brazil and in Uruguay as well as Chile where our sales of salmon vaccines fell. In France we have experienced, as did all players in the market, a decline in our sales of antibiotics following measures contained in the French agriculture law. Fortunately, we have also had significant reasons to be satisfied.
In the United States, we are particularly pleased at the manner in which we have been able to recruit and integrate certain commercial teams formerly at Novartis, which has allowed us to advance with the Sentinel brand (range of internal parasiticides for dogs), acquired at the start of the year, both in terms of dollars and in market share. We have also experienced very good growth in the Asia-Pacific area: India continues its double-digit growth and now constitutes one of the Group's main subsidiaries, with a sales of around €70 million; our companion animal activities are taking off in China, even if the market remains modest. Lastly, we are very pleased with our new product launches in Europe, particularly Milpro and Effitix, parasiticides for companion animals.
WHAT RESPONSE HAS VIRBAC GIVEN TO THE FDA IN THE UNITED STATES?
The observations made in the inspection report concerned the quality system; they drove us to interrupt operations in order to put in place all the necessary corrective measures. These were, notably, translated into management renewal, substantial reinforcement of the quality assurance teams and manufacturing operations, re-formulation of procedures, implementation of intensive training programmes and new information systems as well as the use of specialised consultants and making regular reports to the FDA. Today, we are continuing our efforts in a number of areas to bring the site up to the required standard. In the meantime, the manufacture of licensed products, Iverhart Plus (internal parasiticide for dogs) and Equimax (broad-spectrum horse wormer) were resumed, although only at the year's end. The resulting decrease in sales, together with the cost of all these measures, led to a significant loss in the United States where we were anticipating, on the contrary, a jump in profitability with the integration of the Sentinel brand in our portfolio.
HOW DO YOU SEE BUSINESS DEVELOPING IN 2016?
In the United States, we are obviously counting on steady growth in sales. Our historical portfolio (excluding Sentinel which will grow modestly) must rebound strongly, without reaching their 2014 level. Some products will not be reintroduced and others must be subject to modification in their regulatory dossiers before their reintroduction onto the market. This requires first that the St. Louis site has been subjected to a new and satisfactory, inspection by the FDA. In Europe, we expect moderate growth, in line with that of the market. Our activities must continue to be well directed in the Asia-Pacific area and we count on an improvement in Brazil notwithstanding the economic crisis. However, we are more reserved in our consideration of aquaculture in Chile, the salmon subsidiary was perturbed by problems both economic (competition with the Norwegian farms in certain key markets, reduction in Brazilian demand, reduction in production) and health-related (considerable use of antibiotics). The result of these different developments will be organic growth of about 7%.
WHAT ARE THE FINANCIAL PERSPECTIVES FOR VIRBAC?
The anticipated rebound of the range of American legacy products will lead to a strong improvement in the margin in the United States, as at group level. We also anticipate stabilisation of quality-associated expenses at group level, after their 2015 increase. We expect to maintain our ratio of R&D expenses to sales. As a result, we envisage a return to a ratio of adjusted operating income to sales of more than 10%. Profitability must again progress substantially in the United States in the coming years with the return to the market of most of our historic portfolio and the launch of new products. In terms of finances, we are targeting an indebtedness of about €50 million by the end of the year, which will occur during the second half of the year taking account of our usual profile of generation and use of cash during the year.