Synlab AG

XETRA:SYAB

Earnings Call Transcript 2023-Q1

[Operator]

Dear ladies and gentlemen, welcome to the SYNLAB Conference call. At our customers' request, this conference will be recorded. Today's call will be hosted by Mathieu Floreani, CEO of SYNLAB; and Sami Badarani, CFO of SYNLAB. After the presentation, there will be an opportunity to ask questions.

May I now hand over to Anna Niedl, who will lead you through this conference. Please go ahead, ma'am.

[Anna Niedl, executive]

Good afternoon and good morning to the U.S. My name is Anna Niedl, as you just heard, and I'm the Head of Investor Relations of SYNLAB. And I would like to welcome everybody to today's conference call during which we will discuss the net financial results of the first quarter of 2023. As always, you can find today's presentation for download on our website. And as you heard, this call will be recorded and will also be accessible later on our website in the same place.

I would now like to draw your attention to Slide #2 of our presentation. I would like to, of course, remind you, as usual, that during this conference call, we will present and discuss certain forward-looking statements. And having read this, I would now like to hand over to Mathieu. The stage is yours.

[Mathieu Floreani, executive]

Thank you, Anna. Good morning, good afternoon, ladies and gentlemen, and welcome from my side as well. So as usual, I will begin with the highlights of the first quarter 2023. Sami will then provide a deeper dive into the financials before I conclude with the key aspects of our business review and outlook. And of course, after the presentation, we'll open the floor for your questions.

So before we start, let me briefly touch on the pending Cinven topic. SYNLAB is in active exchange with Cinven regarding its expression of interest in a potential public acquisition offer to all shareholders of the company. The Supervisory Board has set up a Takeover Committee to deal with issues relating to the offer on behalf of the Supervisory Board.

The Takeover Committee does not include any representatives of Cinven. We, Management Board, will continue to execute our fiduciary duties with the support of the investment bank Lilja during the coming weeks. We will inform the capital market and the public about the progress of the development in accordance with the legal requirements. Please understand that we cannot give any further details at the moment.

So on Slide 4, let's move to our highlights for Q1 2023 -- sorry, this is Slide 5. So that's performance overview. We had a strong start in 2023. And this is despite all still challenging macroeconomic elements. Even though revenues from COVID-19 testing continued to decline as expected, the total revenues in Q1 2023 were at the same level as in prior year quarter. A key driver again was our very strong underlying organic growth of 10%, which is well above our yearly goal of more than 3% and the goal for this fiscal year 2023 which is of 4%.

In Q1 2023, the adjusted EBITDA margin of 16.9% shows the recovery from the low point in the prior quarter and is at the midpoint of the fiscal 2023 guidance of 16% to 18%. So this shows that our underlying growth strategy is paying off. And finally, also, we look -- if we look at the unlevered free cash flow before tax, it was stable as well in comparison to the prior quarter.

Moving to Slide 6. This is the implementation of our strategy, which continues. In the first quarter of '23, we successfully continued executing the 4 operational quadrants of our For You transformation strategy. So in Q1, we first strongly grow our base business with 10% organic. We continued our retail initiatives and renewed several hospital contracts. On the second quadrant, the core component of operational excellence is our efficiency program, SALIX, which already resulted in savings of EUR 10 million in the first quarter. And as we continue to position ourselves for the future, we are currently transforming our procurement and technical services, continue to reduce COVID testing capacities and workforce while further developing our activities in Southeast London under the Synnovis brand.

On the third quadrant, we completed to date 4 acquisitions in 2 countries and continue to integrate the businesses in Mexico and Chile. And finally, the last quadrant, we aim to continuously make SYNLAB a better place to work. And we completed our annual employee survey across all countries. On another front, we already issued 141 scientific publications just in the first quarter, which showcases our industry-leading talent and medical leadership.

And finally, also on this quadrant, we published our third ESG report, and that was together with the annual financial report in March, and I will cover one of our ESG projects just on the following slide.

So Slide 7. So you already have heard us talking about Synnovis, this Southeast London contract, which is a partnership between SYNLAB U.K. and Ireland, the Guy's and St Thomas' NHS Foundation Trust and King's College Hospital NHS Foundation Trust. So today, we would like to shed some light on our ESG-related efforts within Synnovis. So you have a nice picture on the right side, you can see our new hub laboratory, which is currently being built in a refurbished building. So the building itself has excellent public transportation links and will be sourced by 100% renewable energy. In this hub lab, we will use state-of-the-art equipment for our medical testing services and the latest technology to significantly also reduce plastic throughout the processes.

And regarding logistics, we will mainly deploy electric vehicles and offer digital pathology services, which allows clinicians to review results remotely without needing to visit the hub in person. So just as an example that at SYNLAB, we take ESG efforts very seriously. And I hope this example is telling. Now let me hand over to Sami to touch on the financials of today's presentation.

[Sami Badarani, executive]

Thank you, Mathieu, and good morning, good afternoon, everyone. I'm pleased to walk you through the nonaudited Q1 2023 financial performance of the SYNLAB Group.

Let's start with the revenue on Page 9. The Q1 '23 reported revenue stands at EUR 702 million, stable compared to Q4 2022, and down 34% compared to Q1 2022. For usual drivers, the first one being significant drop of revenue coming from COVID-19 testing, EUR 432 million. In Q1 '23, the COVID-19 organic revenue stands at EUR 26 million, down from the EUR 70 million in Q4. We have delivered EUR 62 million of underlying organic growth in Q1, 10% organic growth, excluding COVID. Price is up 1.5%, reflecting the positive effect of price indexation in most countries of North and East and South segments, with an acceleration in the last 6 months. Excluding France and Switzerland, where prices are down, prices for the rest of the group is up 2.5%.

Volume is up 8.5%, benefiting from a low base, obviously, in Q1 '22, impacted by the Omicron wave, but also a favorable working day effect. But more importantly, an over-delivery of For You growth initiatives in Q1, mostly in the B2B business. We are gaining market share. Slight negative FX impact in Q1 '23, primarily from the GBP and rounded EUR 2 million from the 3 acquisitions completed in Q1 '23.

Looking at Page 10 now on the underlying growth, excluding COVID testing and some perspective over the last 7 quarters -- 9 quarters, sorry, 7 quarters out of the 9 have an underlying organic growth above the 3%, which was the IPO guidance. Organic growth benefits since Q2 '22 from positive price, again, very, very strong volume and price in Q1 '23. 10% is probably not the reference going forward. There is strong growth acceleration after COVID pandemic. This is a message here, supporting a strong organic growth in 2023.

AEBITDA, Page 11. The Q1 2023 reported adjusted EBITDA stands at EUR 119 million versus the EUR 357 million in Q1 '22. The AEBITDA organic evolution explains the bulk of the variance. EUR 243 million organic EBITDA drop, EUR 5 million coming from COVID-19 pricing we have a EUR 9 million positive price from underlying business in Q1. It was EUR 13 million for the full year '22. We have rounded EUR 20 million negative inflation, 3.6% overall on the base business, 6.9% inflation on OpEx, energy and fuel. Inflation on tax is at 3.6%. We have limited inflation on MATEX, again, 1.5%. Our reagent costs are, for the most part, fixed with multiyear contracts. An overall stabilization of inflation in Q1, as expected, EUR 19 million in Q4 and EUR 20 million in Q1.

The rest of the business includes a significant drop of volume with a flow-through of 60%. COVID testing being the main driver. As we mentioned on the prior page, we have a strong underlying volume growth for the rest of the business. SALIX performance is strong at EUR 10 million. SALIX is again our initiative-driven program to improve our productivity. The reduction of COVID capacity is well underway. We still have 326 full-time employees dedicated to COVID-19 at the end of March 2023. It was around for reference 3,000 FTE in Q1 2022. We have a continuous gradual reduction and it's planned in coming months. The Q1 AEBITDA margin of the group stands at 16.9% at the midpoint of the 16%, 18% full year guidance.

On March 16, I mentioned that the pre-one-off Q4 margin is at 18.5% with EUR 70 million COVID-19 revenue for Q4. Adjusting now COVID-19 revenue to the EUR 26 million performed in Q1 with a margin at, let's say, around 50%, probably it's slightly lower now. The Q4 normalized margin is at 16.4%. Here we are in Q1 with a margin of 16.9% with a EUR 26 million COVID-19 revenue. We have also recorded some COVID-19 one-off in Q1 2023 around EUR 3 million.

Page 22 (sic) [ 12 ], the P&L summary. The bridge from EBITDA to net profit and from reported to adjusted financials. EBITDA first, we have a nominal adjustment of EUR 1.1 million acquisitions-related costs only. The adjusted operating profit is at EUR 60.5 million. The adjusted operating profit excludes EUR 14.2 million of customer list amortization. The net finance cost increase reflects higher interest costs and no repeat of last year gains from financial instrument revaluation.

Income tax is normalizing post-COVID and normalized adjusted effective tax rate is up at 28%, in line with the normalized tax rate regularly communicated. The Q1 '23 net profit includes EUR 15 million of profit from FX revaluation following the windup of the last A&S legal entity in the U.K. The Q1 2023 adjusted net profit stands at EUR 25 million. It excludes the FX revaluation just mentioned. Adjusted EPS is at EUR 0.11 per share.

Next page, on Page 13, the cash flow. The Q1 unlevered free cash flow stands at minus EUR 7 million, it is strongly impacted by the timing of tax payments from prior COVID profit, EUR 49 million of income tax paid in Q1. Receivables, DSO is at 63 days, down 6 days compared to Q1 '22. The normalization of the working capital is progressing post COVID-19, even though not yet completed.

Looking over the last 3 years at EBITDA to operating cash flow, excluding income tax payment, the ratio is at 96%. We have EUR 100 million variance only working on inventory reduction and aid receivable mainly COVID. Besides that, the transfer -- our EBITDA transfer into cash. Net CapEx, including leases, is reducing EUR 7 million year-over-year despite EUR 8 million Southeast London, and now we'll call it Synnovis going forward, CapEx increase. Net CapEx, including leases represent 8.6% of revenue. Net interest is lower in Q1 compared to -- '23 compared to last year. That included the payment of the EUR 500 million hedging contract. The average cost of borrowing is at 3% at the end of Q1.

Next page, the balance sheet of the group and expressed capital employed, capital resources. The main changes year-over-year reflects the consolidation of the 3 acquisitions completed in Q1 2023 and the normalization in progress of the working capital. The group has a strong balance sheet with rounded EUR 400 million cash on hand and EUR 500 million of undrawn RCF. EUR 100 million of Term Loan B debt was reimbursed in February '23.

Reduction in adjusted net debt on Page 15. The adjusted net debt is at EUR 1.582 billion. At the end of March, it reduces by EUR 63 million mainly from EUR 94 million lease liability adjustment. Applying the banking documentation to the lease liability definition, we have excluded from the adjusted net debt, some lease options reported in the lease liability balance sheet account as per IFRS. The covenant EBITDA stands at EUR 555 million. The covenant leverage ratio, debt-to-EBITDA per our banking documentation stand at 2.85x, up 78 basis points compared to year-end 2023, still below 3x. And this concludes the financial section of the presentation, and I will now hand it back to Mathieu for the business review.

[Mathieu Floreani, executive]

Thank you, Sami. So let's cover our main geographies, and we start with France on Page 17. So we reached revenues of EUR 143 million and AOP of EUR 18.6 million. Margin of -- AOP margin came in at 13%. So the Q1 '23 decline in revenue and AOP margin was, of course, mainly driven by the reduction in COVID-19 testing, which is both in volume and price. The underlying growth in France recovered from a weaker first quarter in 2022 and well surpassed long-term growth that we have in this segment. Nevertheless, we were impacted by price decreases as per the last agreement with the authorities starting in February 2023 and also further 2 days of strikes in the diagnostics sector. And as you know, it is planned to renegotiate a new 3-year agreement with the authorities before the end of September this year.

Page 18, Germany. So our revenue for Q1 was EUR 139.8 million. AOP and AOP margin came in at minus EUR 2.6 million and minus 1.9%, respectively, and that's mainly due to lower COVID-19 contribution to inflation and to COVID-19-related one-offs. We saw strong 8.2% underlying growth, again recovering from first quarter last year, which was weaker and well above the long-term growth of this segment.

On Page 19, segment South. Revenues of Q1 at EUR 225 million. AOP EUR 23.2 million, which results in an AOP margin of 10.3% and there -- again, the reduction was mainly due to lower COVID contribution and inflation. Overall, in this segment, we delivered a strong underlying growth of 9.3%, which is driven by robust volumes, that's across all countries and positive price development except for Switzerland. Excluding Switzerland, the underlying organic growth would have been at 12.1% in South.

Moving to Page 20, North and East. And that's closing the segment review. The North and East reported revenues of EUR 193.9 million, AOP at EUR 21.3 million, margin 11%. And in this segment, again, we saw a particularly strong base business growth of 16.8%, which is way above the long-term growth in this segment. And there, the growth was driven by significant increases in volumes, 10.9% and prices, 5.9% positive.

Now moving to Page 20 (sic) [ 22 ], the outlook. Let me confirm or conclude this presentation confirming the outlook for 2023. So in the first quarter, we were already well on track with our published expectations for the fiscal year 2023. And based on our strong core business of routine and specialty testing, we are very well positioned for the future. We continue there to expect group revenues of around EUR 2.7 billion. This assumption is driven by continued underlying organic growth of approximately 4% with accelerated price increases within the base business.

Our 2023 adjusted EBITDA margin is expected to be in the range of 16% to 18%. And this incorporates factors like the overall reduction of COVID-19 testing volume and prices, inflation risks while also considering our goal to double the savings from the SALIX program in 2023 compared to the previous year. And for M&A, SYNLAB will spend up to EUR 100 million in 2023, which is a temporary reduction compared to previous years, while as we already said, we will fully focus on bringing productivity back to pre-pandemic levels. That concludes the presentation, and I would like to now hand back to the operator to start the Q&A.

[Operator]

[Operator Instructions] And our first question today comes from Blanka Porkolab from Barclays.

[Blanka Porkolab, analyst]

Blanka Porkolab from Barclays. I have 2, please. The first one, on the Cinven bid, you mentioned legal requirements. Is there any time line as part of this? What sort of details can we expect in the coming weeks? And then my second question is, you had a solid start to the year on underlying growth. Have these trends continued into Q2? And how should we be thinking about growth across the different regions over the next quarter?

[Mathieu Floreani, executive]

I'm not sure I heard acoustically the first question, but I think it's around Cinven and as I said, I won't comment any further.

[Anna Niedl, executive]

And the question was on time lines and it has no legal binding offer yet, so there are no legal time lines that has to be kept.

[Mathieu Floreani, executive]

And then on the second point, which is about the solid start in the year, it's a bit early to -- I think, to comment on Q2. But so far, we see continued strong underlying growth, I would say, overall across the board. No major change in the dynamics.

[Sami Badarani, executive]

Yes. If you want more color, I mean, we have been reaching in March, our -- the EUR 10 million revenue per day at the group level when we look at by working days, and this is continuing in April. That's already confirmed. We'll have a strong year in underlying growth business.

[Operator]

Our next question comes from Oliver Reinberg from Kepler Cheuvreux.

[Oliver Reinberg, analyst]

Oliver Reinberg from Kepler Cheuvreux. Three questions for me. I fully appreciate that you can't say much on Cinven. I was just wondering in theory, if you would be getting kind of fairness opinion, are you allowed to first share this with your major shareholder or you are legally required to make that immediately public?

Second question also on organic growth. I appreciate the color. So the kind of 10% organic growth, even if I would deduct the effect from working days and probably the effect from an easy comp, we are still talking about 6% plus organic growth. So is there any kind of drivers that you're aware of that would slow down this kind of a run rate going forward? I guess there's probably some kind of additional effects from price cuts in France, but that should not be too meaningful on a good basis. Any color around that would be helpful.

And then the third question, please, just on personnel costs, I think you talked about a 3.6% like-for-like increase in personnel cost in the first quarter. And I think in the last call, you guided for 4% in the full year. How much of this kind of inflation have we already seen in Q1? Is that already fully reflected in Q1 in all regions? Or do we see kind of a pickup in terms of phasing when the increases in labor costs will phase in other regions of the group?

[Mathieu Floreani, executive]

Thank you, Oliver. So I don't know the answer to your first question, and I hand to Sami the second.

[Sami Badarani, executive]

Yes. We will not communicate quarterly organic growth for the next 3 quarters. But obviously, we -- if we communicate 4% for the year, and we are at 10% at the end of Q1, it's true that there is a strong year expected in terms of organic growth. That's what I would say. And you can make the math if you assume that it's 4% every quarter, you will have the outcome. But we are keeping our guidance here. As you mentioned, there is still uncertainty on the price development up and down probably in France.

The other elements related to the inflation. We have, for the year, a 4% assumption on our inflation in our budget. So far in Q1, we had 3.6%, but what we are measuring here today is that, that is probably based on -- compared to our assumptions in the budget, we are probably -- we'll see -- we will see some increase in our inflation on tax in the subsequent quarter. Some of the salary increase has not been yet triggered in some countries. But at the same time, we're seeing some feedback coming from the countries that the inflation on the OpEx will be probably lower than what was budgeted. So all in all, we are still confident in our current view on how we have assumed for our budget for the year. So probably a change of mix, but nothing drastically different.

[Oliver Reinberg, analyst]

That's very helpful. But just coming back on the organic growth. I mean, is there any elements that you're aware of that should slow down this, say, 6% plus growth that we've seen, excluding base effect in the first quarter? So excluding price effect any kind of phasing from last year to be aware of or any kind of technical factors?

[Sami Badarani, executive]

No. I mean there is a working day effect in each quarter. But all in all, we have good growth in the subsequent quarters also to come. But really not at the 10%, but in the 4% range, 3% to 5% each quarter. It's something that we could assume.

[Mathieu Floreani, executive]

There is no identified technical factors as you're saying, right?

[Operator]

And the next question comes from Hugo Solvet from BNP Paribas.

[Hugo Solvet, analyst]

I have a few. First on -- since you mentioned legal requirement just to make sure we have -- because I think you didn't tell the previous one. But in terms of when the clock will be ticking and how long it will be ticking for, can you provide some details on that?

Second, on the expected price trend for the remainder of the year, could you give us more detail on when you expect that to trend? And last one on the negotiation in France that are ongoing, can you please maybe share your feedback for what the tone of the negotiation has been so far? And what are you expecting and planning for the next 3 years in France?

[Mathieu Floreani, executive]

Thank you, Hugo. I think I can answer the first one this time. The clock would start ticking would there be an offer that would then be registered at BaFin and then some of the legal clock, I think, starts ticking for the price for the year. Sami?

[Sami Badarani, executive]

I mean overall, we have a budget of around 1% price increase. We started the year at 1.5%. It's above the budget. There is a very strong focus country by country in trying to minimize the impact of inflation net of price and this is our equation. It's not only maximizing price. And here, there is a lot of very, very good work done by the teams to unlock some of the value here that we can get hospital contract price increase, discretionary price that we can get in subsegments. And so this is ongoing. So yes, I mean, we will have a good price -- positive price. I do not quantify for you on a quarterly basis, but it's a stronger price for the year also.

[Mathieu Floreani, executive]

And the negotiations in France, I don't think we will have any color before quite an advanced stage probably by end of the summer, right? So at this point, there is no comment worth it, I think.

[Operator]

Our next question comes from David Adlington from JPMorgan.

[David Adlington, analyst]

Apologies, if this has already been asked. On Germany, I just wondered if you could talk to a path to margin improvements. And what [ possible ] time frame we should be thinking about? And what do you need to happen there from either a pricing or a cost perspective?

[Sami Badarani, executive]

David, I'm not sure that I got it completely. There was -- the line was cut a little bit. So you're talking about margin improvement and price and cost evolution?

[David Adlington, analyst]

In Germany, specifically, to improve the margin in Germany.

[Sami Badarani, executive]

In Germany, sorry. Yes. Yes. So the way to look at Germany, it's true that Germany is negative in Q1, but there is, I would say, a time lag here. I mean, Germany was having much more tail of COVID activity in the group when we look at the volumes they had in Q4 and still early January so -- and we saw how it took some time for some of our countries to adapt, and it was more in the second half where the revenue in COVID has reduced. So I would put a level of the performance in January in Q1 on this lag time on adapting post-COVID. This is the first element.

The second element is there is so far another element of timing which is the price evolution. There is no price change in Germany so far. And we know for the public prices that it takes some time, the formula are there, and we should see some price coming probably more at the end of 2023 and more in 2024. So this is another element. And then so the business -- the strategy that we have to focus on mix management. We know that in Germany, there is -- 1/3 of the activity is hospital where prices are locked for a certain time. And here, the mix management is at the heart of the -- what the local team will be driving in the subsequent quarters here to improve, I would say, the mix of the activities that we have in the country. That's the 3 layers at the end that should bring us back to something that more in line with the rest of the group over time.

[Operator]

Our next question comes from Jan Koch from Deutsche Bank.

[Jan Koch, analyst]

I also have 2, please. The first one is a clarification on the 3.7% price that you expect for France this year. I believe you mentioned on the previous call that the price cuts will be implemented in 2 parts in 2023. Could you remind us of the breakdown of the price cuts we have seen in February and, I believe, in April. And then the second one is on China. Can you speak a bit about the market opportunity, the level of augmentation and the growth dynamics you see there in comparison to the other South American countries? That would be helpful.

[Sami Badarani, executive]

Yes. So for the price drop in France, 3.7% is the average for the year. We have, as you mentioned, and as previously commented here, it's in steps. And in February, we had the big bulk of the price drop coming from the B factor, it's a very technical aspect in France where this is a reference to most of the test prices, and this has been reduced in -- on the 1st of February.

Now there will be some selective tests on specialty reduction in April, which will not affect and drastically the overall performance. And the third one, which was already done, I mean, and I just wanted to repeat it is it's the price drop on COVID, the EUR 250 million cut of the budget for France was split between EUR 180 million on the base business and EUR 70 million on COVID and this COVID price drop was done effective in January. So -- but all in all, for the base business, it's -- so far, there is no change to our assumption at 3.7% drop, and it was 2% in February year-over-year.

[Mathieu Floreani, executive]

And as to the second question, if I heard it properly, acoustically, you were talking about the Chile market and the fragmentation. So it's a highly fragmented market with, say, a very healthy structure also with public and private insurance, steady growth of the market, organic growth, I mean, and so good opportunities for us to further, say, consolidate the market and create value.

[Operator]

Our next question comes from Sezgi Ozener from HSBC.

[Sezgi Oezener, analyst]

Sezgi Ozener, HSBC. One question on, again, Germany margins, please. What's the recovery outlook that you're looking for? And is it the case that in Germany more of the remaining COVID staff is still there, and that's one of the factors? And second, in terms of the price that might come as a result of the Cinven offer, I'm sure -- I'm not expecting you to comment on the resulting price. But since an expression of interest at EUR 10 was mentioned, what's the likelihood or like what's the possibility that a price -- a different price can be negotiated?

[Sami Badarani, executive]

Okay. So for the first question, the German recovery, I'll let Mathieu prepare for the answer of the second question. The first question is related to the German recovery on the margin. I mean the way I would express it to complement the question, the answers of the prior question is that Q1 probably is a low point for the German market -- German -- our German performance in margin, and we should see improvement in Q2 and onward for Germany. That's the way to look at it. We should be back in positive territory in Q2 and driving back the scale forward.

[Mathieu Floreani, executive]

But there is a component that is absolutely correct in your assessment saying that we had a tail of COVID, say, workforce that is higher than in other countries. And then depending on the nature of the contract, it doesn't make sense to terminate the contract earlier. And so indeed, that's also a factor weighing into the Q1 number that will disappear progressively in Q2.

[Sami Badarani, executive]

And probably one thing on Germany because what will be also helping a lot is recovery on the volume. We had a very strong Q1 in volume in Germany at 8.6%. And this one comes when we look at it in detail from market share gain on the -- on prescriber business and -- which is higher margin than the hospital business. So this is also a very positive development that we have seen in Germany recently.

[Mathieu Floreani, executive]

And thank you for your time, Sami, for the second question. The quick answer is no comment.

[Sezgi Oezener, analyst]

Okay. In that case, maybe just as a follow-up to Germany, you have 0.5 percentage of price increase, what's the outlook for the rest of the year? And how do you expect the price increases to come in Germany? To my knowledge, there's no similar agreements as in France that regulates the pricing.

[Sami Badarani, executive]

Yes. What we know is that there is mechanically an increase of the budget based on the inflation, but it -- it's based on the prior year inflation. So that's why it takes time to trigger. And this will improve the overall budget allocated to the health system, which will float into our reimbursement level. So this is what I mentioned earlier, we should see it probably more in 2024.

[Mathieu Floreani, executive]

For the public prices. Private are fixed. And -- so I think the main component is what Sami mentioned to an earlier question, which is the portfolio management there because with 30% of hospital activity, we have to reconsider some of the -- some of the agreements we have so that, say, we recover the EBITDA that has been challenged by inflation.

[Operator]

And the next question comes from Grace Lee from Jefferies.

[Grace Lee, analyst]

Could I ask 2, please? One on Cinven offer. Just curious if you can comment on that Takeover Committee. You mentioned the Cinven rep is not involved, but what about other large shareholders, are they part of the discussion? If you can comment, that would be really helpful.

Second one is I'm curious about that sort of margin uplift that we've seen. You commented already in Germany, but more about, for example, in France and South, is there any further sort of margin improvement that you could potentially further do like, for example, mix shift recovery or excess capacity utilization and things like that? If you can comment on that, that will also be very helpful.

[Mathieu Floreani, executive]

Yes, Grace, on your first question, indeed, a valid question. The Takeover Committee does not include any other representative of shareholders very clearly.

[Sami Badarani, executive]

Yes. On the margin, I mean, for 2023, the range that we have provided as a guidance 16% to 18% is valid, and it encompassed a number of drivers that can fluctuate, I mean, whether we mentioned the price, but also the inflation that I mentioned earlier that there could be a lower inflation on some of our energy costs with implementation of a number of subsidies that are materializing in some countries now from the states where they have capped the price increases.

So this is a positive development. And then still the volume. I mean having a strong volume like we've seen in Q1 will help the volume leverage and the ability to absorb and to accelerate the absorption of the costs that we had in our structure that will be absorbed over time with volume.

[Mathieu Floreani, executive]

Which is what you call capacity utilization right? You're right on the money there. This is a strong impact on -- positive impact on EBITDA improvement.

[Operator]

And the next question comes from Christophe Ganet from ODDO.

[Christophe-Raphael Ganet, analyst]

Can you hear me correctly?

[Mathieu Floreani, executive]

We can.

[Christophe-Raphael Ganet, analyst]

I have 2. One on the mix. Can you elaborate a bit more when talking about volume and prices when talking or separating specialty testing and routine testing? Is it possible to have more granularity on mix? And second question is, if I'm not wrong, Mathieu, I heard you saying we are well on track. But actually, when looking at volumes and pricing, you are above expectations. So my question is, do you have a specific way to pilot volumes? Or -- can you maybe provide more data on a number of blood collection centers openings and the closure maybe so that we can have an idea of how you can measure the evolution for the rest of the year between volume and prices?

[Mathieu Floreani, executive]

Okay. Let's try this. So on your first question, the mix evolution, we track some of our specialty activity, of course. And -- and there, there is usually over time, not dramatic variations. It's a continuous, say, faster development of specialty testing versus routine on average in every market that has a progressive, say, enrichment effect on the mix. When we talk about portfolio or mix recently, it's more the mix of our activities in the sense of a contract or different profitability of different contracts with customers.

Then on piloting volumes, basically, at this point, we are rather optimizing our blood collection point infrastructure rather, I would say, post pandemic, we're now looking at what has been sticking and the ones that we have opened in terms of good performance and what needs to be changed and closed, which is the activity in which we are currently. So we don't expect to have any significant openings of blood collection points. And so I don't know if that answers your question of piloting volumes, but this is how we look at it.

[Operator]

[Operator Instructions] We have Christophe Ganet back in the line.

[Christophe-Raphael Ganet, analyst]

Can you hear me correctly? Actually, I have another question on the prices in France and the -- let's say, the negotiation regarding the 3 years' agreements. Do you have specific reasons to be more optimistic or more pessimistic about the pricing evolution of the nature of the future agreements than at the beginning of the year, notably prior to the strikes?

[Sami Badarani, executive]

Yes, I think it's pure speculation. And at the end, what we think -- I don't know whether it will change something. So we are neutral. We are preparing. We are looking for all the drivers and how to approach this with selling the inflation factors that is impacting us. But besides that, we don't have any strong view on whether we will be better than what we were before or equal or whatever. From a planning perspective, we know that we have made an assumption that we should come back to the similar trend that what was in the past, which is a containment of the growth of the market with a relatively limited growth. That's the way to look at it.

[Mathieu Floreani, executive]

We would say in the wisdom of the regulator, we trust.

[Christophe-Raphael Ganet, analyst]

Good. But do you believe that your -- the main argument from -- for the industry will be inflation? Or do you bet on something more specific?

[Mathieu Floreani, executive]

When I said, joke aside, the wisdom of the regulator, I think they have shown over 3x, 3 years' agreement that the piloting of, say, our activity was based on facts and on a common, say, understanding of the key trends and the evolution and inflation is obviously a key trend. Volume growth is another one and enrichment of the mix is another one. So we'll see how all these factors play together to come to something that is, say, reasonable and wise.

[Sami Badarani, executive]

But it's fair that there is an uncertainty here, and we will communicate around it as soon as we know more.

[Operator]

As there are no further questions, I will turn the conference back to you.

[Mathieu Floreani, executive]

Sorry, yes. I was about to say it looks like we have exhausted the question. So probably I hand over to Anna.

[Anna Niedl, executive]

Yes. So thank you, everyone, for your participation. Please note that today, also the registration for our upcoming annual shareholder meeting will close. So if you want to register, today is the last opportunity. And if you have any questions regarding this or any follow-up questions on this call, just feel free to reach out to me or to us anytime.

So with this, I will now close today's call and talk to me here again in our half year conference call, which takes place on 9 August 2023, so the 9th of August. Goodbye, everyone.

[Operator]

This now concludes our presentation. Thank you all for attending. You may now disconnect.