Eurofins Scientific Sa

to decline.

Please note that this call is being recorded and will later be available for replay on the Eurofins Investor Relations website. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone to register for questions. For operator assistance, please press the star key followed by zero. During today's call, Eurofin's management may make forward-looking statements, including but not limited to statements and the related assumptions. Management will also discuss alternative performance measures such as organic growth and EBITDA, which are defined in the footnotes of our press releases. Actual results may differ materially from objectives discussed. Risks and uncertainties that may affect Eurofin's future results include but are not limited to those described in the risk factor section of the Eurofins annual and half-year reports. Please also read the disclaimer on page two of this presentation, subject to which this call and Q&A session are made. Let me now turn you over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Thank you, Bernard. Hello, everybody, and thank you for joining our call. We do have a slideshow that has been put online, and you should have received it. a few pages of that slideshow. If we go to page three.

Including, but not limited to, statements and the related assumptions. Management will also discuss alternative performance measures such as organic growth and EBITDA, which are defined in the footnotes of our press releases. Actual results may differ materially from objectives discussed. Risks and uncertainties that may affect Eurofin's future results include, but are not limited to, those described in the risk factor section of the Eurofins annual and half-year reports. Please also read the disclaimer on page two of this presentation, subject to which this call and Q&A session are made. Let me now turn you over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Thank you, Bernard. Hello, everybody, and thank you for joining our call. We do have a slideshow that has been put online and you should have received, so I will have follow a few pages of that slideshow. If we go to page three of the slideshow, so in Q1, Eurofins developed as we expected, a little bit better, in fact. We are turning the page of COVID. COVID revenues are, as expected, minimal, which will give us, at last, in 2024, proper comparables that are not not influenced by this for the overall figures of the company. We have focused already since a couple of years the disclosure also to include the core business of Eurofins, excluding COVID reagents and COVID testing, which has enjoyed an organic growth of 7.1%. The working days effect is really marginal, below 0.5%, less than 0.3 days or something like that for the quarter. So that's not meaningful. We are listening to our investors' questions, and we are also providing now the organic growth for each of our segments. So in Europe, which was more affected or is still more affected by the impact of the war in Ukraine, our organic growth was a bit lower, 6%. In North America, it stayed strong, and in the rest of the world, 6%. The rest of the world is small, and that might be influenced by some one-off things. that we shouldn't see in the other quarters. Our startups, it's an area where we invest a lot. They continue to show some good contribution to organic growth with 0.9% of the total growth. A question on pricing. For a lot of our businesses, our year with clients stops January 1. And so we have reviewed... terms of a contract in most geographies to include a price impact to reflect as much as possible of the inflation we saw last year. It hasn't kicked in really in January because it affects the sample and the orders we receive after January. There's a bit of overlap of last year's conditions, but we started to see in March some better impact of this price impact. Our finance teams are working to be able to develop a tool that is reliable to measure that and disclose that. We're not there yet, so we can't give you exact price impact. But the price impact in Q1 this year was definitely higher than it was in Q1 last year. But it doesn't really fully offset inflation yet. But we're optimistic that in the course of the year, this will be a stronger impact. So we're optimistic for further developments in that front on organic growth. The food sector was the most affected, in fact, by the war in Ukraine in Europe. If you look at the volumes of the large food manufacturers in Europe, you see that they are often flat or even negative in Q1, slightly. And, of course, we see that. We have an impact also on our revenues. But we see some level of improvement. The comps in Q1 for food testing are still strong because the war in Ukraine... It didn't have an immediate impact. The impact on our food testing business started more in Q2. So the comp should improve for us as the year goes by. In our mix, we, of course, have clinical diagnostics, which is subject to reimbursement and doesn't get a lot of price growth. We can't. But so the rest of our businesses do sufficiently well that we can absorb that. And we are confident in our objective of 6.5 organic growth for the whole of our group for this year and the next few years. So I move to page four, you get a bit of a breakdown of what happens. On acquisitions, you know, we only account on the acquisitions of this year and we do that month by month. So it's normal that in the beginning of the year, the contribution is low. What we want to do is to acquire about companies generating about 250 million on an annual basis. And we still think we will do it this year. A lot of smaller bolt-ons mostly. which we acquired what we think are acceptable multiples. So we are also confident on the M&A contribution, whether it's going to be exactly, on average, 250 million consolidated that mid-year we will see. But for the overall year number, we think it will be there. And it's a quarterly call, so we won't talk about too many things. But you will hear in the news a lot about one topic, which is PFAS. and the impact on PFAS on the health of many of us, and therefore our IR decided to include a couple of slides on that. You know that Eurofins is a world leader in testing for contaminants in our environment, and we do that in a number of matrices, air, soil, water, and we do that either in North America, either in Europe, either in Japan, and in Taiwan, so we have strong positions there. And this is testing for a very large number of contaminants, pesticides, heavy metals, etc. And every few years, there are new contaminants that come. And we continue to test for those that we have been testing for, but there are new contaminants that get identified as dangerous and are added to the list of compounds that need to be monitored. And that's the case of PFAS. And That's going to be the case for many, many years this year, or we know. You have all heard of asbestos. Asbestos started to be identified as something dangerous and the cause of cancer, pulmonary cancer mainly, in the 70s. And every year we still test more and more for asbestos because it's going to take probably another 30 years to clean our buildings from asbestos and our ships and everything. And for PFAS, this is just starting. We're at the very beginning of having to test for this. And this is not one chemical. This is a class of chemicals, thousands of different chemicals. The world is testing maybe for a dozen of those at the moment, and regulations will expand so that we have to test for many more. You see on page 5 an overview of some sites that are considered as potentially contaminated in Europe and North America. We have to be tested and cleaned up. On page 6, you can read of some of the of some of the regulations. And the important thing, and this explains a bit why Eurofins is focused in the market it is focused on, is those environmental contaminants, they don't stay in the environment, unfortunately. They leak into water, so our drinking water may be at risk. And then animals, fish, dairy cattle, they drink water and they breathe air. And overall, we find those components also in food. There's just been a maximum limit set by the European Food Safety Authority in food. And if they're setting a limit, that means it has been found. So those things have not yet gotten public. But all the technologies, the investment we make to develop the best and most sensitive methods for environmental testing, obviously we can transfer to our food testing labs once this will become an issue in our food. And we also need the same test for clinicals. So we've started to be to test people who live near sites which have been manufacturing those chemicals to analyze exposure. And of course, all the big lawsuits haven't really started, but that's going to trigger a lot of testing. And that across our business line. Food environment, it starts environment testing. It's going to flow through at some point to food testing and potentially to clinical testing. So you can read more about it when you follow the links in our slide six. And on slide seven, you see another aspect of this testing is that the sensitivity that is required for testing is increasing all the time. And therefore, being the largest testing company in the world means we have the R&D with the most sensitive methods. And to always be the one that has the best method, the most cost-effective method, And once we have developed that in one of our labs, we can transfer it to 500 labs worldwide and be the first in many, many markets to offer those new capabilities. So that gives you a bit of an idea. I mean, I was even wrong in the number of PFAS. Now we are talking of 6 million different substances. And that's where when you start testing for thousands of compounds, that's when you need also the big data analysis, the expert system, the artificial intelligence to interpret the results that come out of our mass spectrometers. to evaluate some risk or polycompound risk. So we are also working on that to automate more and more both the analysis and the interpretation. And that's why one example of why we are making those huge investments in being fully digital, because we, of course, want to be the first to be able to deploy the best artificial intelligence tools. And for that, you need uniform IT, you need uniform data, and we are very much ahead for that. And on page eight, you see some of the laboratories that we have. And the main important thing is those labs collaborate, work together to exchange their idea and the methods, the equipment, the consumables. We can develop also our own consumables to be more cost-effective and faster in doing those tests. So I think over the next probably decades, you're going to hear about this contaminant more and more. And I hope... not too much of our food chain is contaminated, but it could be that more product that we think are contaminated and will need to be tested. And of course, that compound you also find in things we wear. A lot of the sport jackets and other things we wear, I can't cite a brand, but you will find out online, are also containing some of those products, and they will all have to be reformulated. And right now, the reformulation goes from one product to another, which is not yet on the banished list, but the other will probably get on the banished list too. So a lot of things to do there. On page nine, well, the year is starting well and we're optimistic for the rest of the year. We think the comparables will become better as we go through the year and the effect of our price increase will be shown, which should be showing more in the rest of the year. So we are we're optimistic that we can confirm the objectives we set at the beginning of this year for this year and the next few years on the different levels that we have cited. So that's it for my introduction. We will be continuing to listen to our investors and analysts' requests on topics like disclosure or anything. We just want to disclose things that are meaningful and we will continue to make progress on that and take into account your suggestions. But now we can switch to questions and answer. Thank you.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. And we'll go first to Harry Martin with Bernstein.

Oh, hi. Good morning, everyone. I've got three questions, if I may. The first one is just on environment. I mean, you talk about that leading the growth in Europe and in North America and clearly some benefits already coming through from PFAS there. I wondered how much, if you could characterize, of the growth is Eurofins market share gains, particularly from opening new sites and new space in that arena versus just the market demand rising. A second question, at the full year, we talked a little bit about how smaller players will be even more affected by cost inflation and the macro environment. So could you point to any markets where you're seeing competition easing on that ticket? And then the final one on capital allocation, I wondered if you could give an update on the share buybacks. They've been carrying on in recent weeks. I believe the authorization runs to the end of May. Is there any change in how you view that? shareholder returns to the return that you can get on organic capex or M&A spending as we look to the back end of the year. Thank you.

Thank you very much. I'm not sure environment has been leading the growth. I think biopharma still has stronger growth than environment, but in Europe, at least, environment has grown better than food testing over the last, let's say, four quarters, because food testing has been impacted in Europe by the war in Ukraine, supply chain and product. But the environment is doing good. We don't open a new environmental lab. We open very few. Very few of our startups are in environment. So most of the gains we make would be share gains or volume gains as the market grows. Smaller players, yes. We see a lot of evidence that smaller players are affected. We see it in two ways. Smaller players also have to increase price, so the competition on price is not what it used to be. The cost inflation affects everyone, and we see many more companies that never were willing to consider selling owner-operated laboratories start to feel the pinch. They start to see that... Their margins might be basically hard to sustain against very well-invested companies like Eurofins that have invested for years to be the most cost-effective, the fastest, the better of the better digital. So they find it harder and harder to compete, and then they see their costs increasing. So that increases the pool of companies that will be available for purchase over the next two or three years, I believe, and will accelerate the consolidation of the market. In terms of capital allocations, well, we think all the areas where we invest capital are worthwhile. Obviously, startups are the best. Our return on employed capital in organic development is in excess of 40%. So that's very good. Buying our own sites, we have lower returns. It may be more in the order of 10%, 12%, hopefully at some point 15% there too, as the cost of buildings increase. And buyback is not so much a capital allocation at the moment. We continue. We have the program, and we will get it renewed as we either eat the volumes that were approved or the time is ended for each approval. So this, we think, will be an ongoing program. The main objective is to finance the stock options that we issue every year. And we're not at a point where we lack options. which will provide higher returns on M&A or on organic developments. But of course, if at some point we see that we have really completed our network, I mean, this is something that the market maybe misses. We don't want to forever build our network. At some point, the hub and spoke network is done. I think in countries like France, food and environmental testing, it is done. The U.S. is a huge country, so we still have many more labs to build. But this is a finite time frame. I do think that By 2027, at the pace that we want to go, we will have the footprint we need everywhere. And then it's more incremental, CapEx, because once we have a campus, we don't need to move. We don't need to rebuild the whole lab to re-out everything as we do at the moment when we consolidate labs that we acquired that were in the wrong place or had old infrastructure. So once this capital program is done, once we have basically a lab within reach of of 95% of the addressable market for the time-critical assays, then we have it. We don't need to add more labs. And we are doing it, of course, on a very, very broad geographic basis because it's pretty much worldwide. All the countries where we think the economy is a loser, we are doing it, and we are intent on getting it done by the end of this five-year program that we've just set up. So it's a lot in a short time. It's very fast, but then we will have it. And so at some point, we will... definitely have that question about capital allocation, assuming there's no more M&A that we can do at high returns at this point.

Thank you very much.

Hi there. Good afternoon. Thank you for taking my questions. A couple for me as well. So just on the food part, the food testing part. So, you know, you've talked about a bit of an improvement towards the end of the quarter. I'm just wondering how that tallies with some of the commentary we've had from the food producers in terms of volume weakness in particular. I mean, they've all been raising prices as well to their consumers, but the outlook for consumer demand going through the year looks relatively mixed at best. So I'm just wondering how you think about that as we progress through the year. And then secondly, just on wage increases, you've obviously given margin guidance for this year. I'm just wondering, are all of your sort of negotiations with your employees done in terms of wage increases or some of those conversations ongoing and are sort of the higher end of the potential outcome for those wage increases? Is that baked into the margin guidance? And then lastly, I don't know if you're able to quantify some of the pricing declines that we've seen in clinical diagnostics and remind us sort of when that comes into effect and the magnitude of that would be helpful. Thank you.

Thank you. Food testing. In Europe, the volumes are not really recovering. What we will see, what we have started seeing in March and maybe late February is the start of the impact of our price increases because we run through 2022 with the prices that were set before the war in Ukraine, before the inflation exploded. Now we have, of course, a new price set, but the samples have to start flowing in at this new price and being reported because we build when we report. And so we're starting to see the positive impact on that. On volume, I think the volume will stay subdued, but we are making gains anyway in share, and we might get volumes from our competitors, even if the food industry stays a bit constrained for a year or two. The volume increase of the market, by the way, is also linked not only to volume of production, but to the need to be protected from risks. And that has been an ongoing thing. We just talked about PFAS. Let's say there are new compounds that have to be monitored in food. They will have to be monitored, and that will increase the market, even if the volume stays flat. So that's just something in passing. But in our plans, we're not planning for any significant shifts in the pattern of growth of food testing volumes this year. The only positive, if you want, is the comps last year were already bad from Q2. The wage increase, yes, it's baked in our plans. It's baked in our objective. We got the hit by surprise last year because, frankly, I don't think a lot of people expected inflation of that magnitude in December of 21 or January of 22 when the pricing was set for 22. But for 23, we've taken that into account. And, of course, we need to catch up what we lost in 22, and we think we'll spread that over a couple of years. So... And we don't really have wage negotiations so much. Our labs are not really unionized. There are some discussions, obviously, and maybe in a couple of countries, there are some indexation to, like in Belgium, for example, the government has an index wage for everyone in the country. But that's, and that's, of course, behind us. It's known in advance. But for most of our labs, it's over now. We're in April and the discussions have been done and It's going more or less as we planned. In fact, in the U.S., it's going even slightly better as planned. In clinical diagnostics, well, you know, the prices in most countries are negotiated with insurers and so on. In France, there is a national insurance, and the decline will be something like 3% this year, and a large part was from January of this year, or February. So that is already included in our QR number to some extent. The main prime issue in clinical diagnostics is reimbursement. Unfortunately, we've had a change in the reimbursement for transplant biomarkers in the U.S. that will slow down our growth. We still believe strongly in that company, but that's going to delay, unfortunately, the objectives for maybe a couple years for the growth of this transplant business. But it's sufficiently small that it doesn't change our objectives. So that's what I can say on those points.

Thank you. That's helpful.

Next to Neil Tyler with Redburn.

Good afternoon, Gilles. A couple of questions, please. Firstly, back to the points you were making and explaining on PFAS testing and the market potential there. It's difficult from the outside to really gauge what the supply environment is. That's not the wrong term. It looks like in terms of the technology and capabilities of yourselves, but also competitive. So could you give us an indication of how that market looks from your perspective in terms of your competitive position, technology, and really pricing, I suppose, in terms of the profitability that you think might ensue from that? And then secondly, following on from Annalisa's question about wages, we know that the healthcare industry more but specifically in a lot of biopharma services areas has been pretty competitive. How are things this year versus last in terms of staffing your growth? Can you perhaps give us a bit of insight into how easy or otherwise it has been to find the appropriate staff? Thank you.

Thank you very much. Yes, PFAS, it's done with specific mass spectrometers, the test. The question is how you run the test and how you optimize the methods to be as fast as possible on the instruments and how you interpret the result, how much minutes of an expert you need to draw a conclusion, how digitalized and robotized the whole thing is. From what I hear, we are way ahead of competition. We're also way ahead of competition in terms of capacity. I think that stays. from our ability to transfer the best methods across geographies and to be the most efficient in what we do. But it's not going to be a test where we are the only one in the world to do, of course. There will be others, but being the market leader and considering the way we are organized, we have had a good head start on that market, as you can see from the slides. And on pricing, you know, we're going to be making the same margins we make in our overall environmental testing business. It's about Or objectives of margins, you know, you have it, 24% EBITDA. This is something that we think will be within that range, and we should be making the right margin on those tests, and we are already. In wages, it is a little bit easier to recruit. It's anecdotal evidence. We don't have really proper statistics globally on that. What I'm seeing, especially in North America, where the market for biopharma and clinical technicians was very, very tight. It is still tight, but our teams report that anecdotally it's getting a little bit easier. Whether that will stay, nobody knows. I think that's why we were prudent when we set our objectives for 2023. We live in a time where predicting what will happen three months from now is is difficult, so that's why we prefer to err on the side of caution. Okay, thank you.

I've got one more, actually, if you don't mind, and inevitably, you know, giving us more disclosure leads to more questions, but the relative growth rates between the regions, you know, I was reasonably unsurprised by North America against Europe, but the rest of the world, I would have thought, would have been moving forward at a faster pace. Can you perhaps shed a bit of light on the different dynamics there as well, please?

Yes, of course. And you rightly pointed out that more disclosures leads to more questions and more disclosures also leads to things that are not really meaningful because we're starting to talk of things that are very small and a mix of everything. I think from what I heard in Asia, we have different situations, and we had some very big biopharma contracts, I believe, in one year, and shifted more into a later year this year, or we're bigger in Q1 and lower in Q2 and Q3 in Asia last year. We do believe over the whole year, Asia should have the fastest growth overall scope. Now, the rest of the world also includes Japan and Australia and New Zealand, and And of course, we are big in Taiwan, so it's not exactly Asia as most people see it, i.e. China and India. So it's a mix of developed Asia and developing Asia. But still, we would expect for the full year to have a faster growth in Asia than anywhere else. Understood. Okay, thank you very much.

Next to James Rose with Barclays.

Hi there. I've got two, please. The first is on, in January, what price increases have you put through? And so by the second half, what group price level should we expect to see? And then second is coming back on PFAS. When you're doing the PFAS testing, how easy a test is it to do? Is it a fairly standardized one? Is it standardized equipment or is it quite specialist? And is it something you'd you think which companies are able to do in-house or would you say the majority of the work would have to be outsourced?

Thank you. Thank you. Well, the price increase will vary vastly. If we have countries like Eastern Europe, Poland, the Baltics, it can be up to 15% in some areas. What we're doing actually in price increase, we're also reviewing the profitability of all our portfolio. Our teams are doing that lab by lab. And there are some things where we are actually losing money that we are discontinuing or we are just selling clients. That's going to cost you 30% or 40% more if you want it. And other areas, the price increase, like in Asia, hasn't been hit so much by inflation, so it could be 2% or 3%. And if you ask me for a midpoint, it's really hard to say what will have been achieved for the full year. Maybe four, what was the midpoint of our cost increase? We can't even get that. What is the midpoint of inflation that hit us? We could calculate the midpoint of inflation of the revenue way, the presence. Actually, that's something our finance team should do. It's a good point to see and do it on labor separately because labor may not have increased in the same way than the inflation in all those countries. So it would be an interesting proxy to try to compare what price we will have gotten at the end of the year. But that's what I can say in terms of range right now. And PFAS, it's a complex test. You require expensive equipment that costs a few hundred thousand, and you have to do the method well, and you have to be efficient, and you can't miss anything. Calibration is tricky. Of course, if you're a specialist lab, you know how to do it, but it's still considered some of the more complex environmental tests. It's not like super hard to do. Other big and strong environmental labs can do it. But it used to be the type of tests like dioxins and so on that tended to be done by specialists environmental labs, not the, let's say, the local environmental lab.

Okay. Thank you very much.

We'll go next to Arthur Trulove with Citi.

Good afternoon, everyone. Yes, three from me, if I may. So first one, just back on environmental testing, obviously, that seems to be going well. I just wondered how much of this was being driven by the construction end market doing well as well, or is that a significant element of what's happened? Second question, in terms of from current year acquisitions, I saw only about 3 million in that bridge. I just wondered why that was and, you know, you're still finding it difficult to get value in the M&A market. And then the final one from me was just on the COVID vaccine work, which I think, you know, had a small impact on the comps in Q1. I just wondered if you'd give us any idea how much revenue there was within biopharma associated with COVID vaccines in each quarter of last year to give us an idea of how tough the comps are likely to be. Thank you.

Thank you very much. Very good question. Some of the environment is linked to construction. Some of it is also linked to green buildings. If you have to redo the isolation, well, usually you're going to strip apart a building and you're going to have issues with asbestos that you need to test and things like that. So it can be renovation work, it can be construction. Both have an impact on a part of our environmental business. Of course, testing water, testing the environment, testing soils is something that can be undertaken independently of construction. Infrastructure also play a role. If you build a road, then you get soil and you have to check the soil. And if you bring in soil to basically pour in before you pour the concrete or the asphalt, you need to test that soil. Waste also has to be tested. We put it in environment. Drinking water is often in environment. So it's a range of things. Acquisition, you know, the timing of acquisition is always really hard to say. And maybe we did a lot that we closed at the end of last year, so they were counted in 2022 acquisition. It depends when the closing happens. From what I hear from our teams, we will do the 250 million additional revenues this year from acquisitions. When they fall, Exactly when they close, that I don't know. We're going to have to see. And COVID vaccine, yeah, there was a lot still in Q1, especially in Europe. We had one big program that took a lot of FTEs in Europe. That might explain the slightly softer biopharma growth in Europe in Q1. But it ended. I don't have in memory exactly when they ended, whether they ended in Q2 or Q3, but they didn't run through the full year last year. And in America, I think there was not so much more. We had a lot in 2021, but not so much in 2022 anymore, I believe.

Thank you very much. Thank you.

And as a reminder to ask a question on today's call, that is star 1 on your telephone keypad. We'll go next to Alan Wells with Jefferies.

Hey, good afternoon, Jill. Cover for me, please. Just a quick one on environmental testing again. There's obviously been a little bit, I guess, arguably one of the sleepier areas of the business historically, at least shadowed by pharma and food to some extent. I mean, how much of the solid growth that we're seeing over the past few quarters do you think is still catch up post-COVID? And how much do you think there's been a sustainable and structural shift in market growth and environment? That's my first question. And then secondly, I'd love to just talk a little bit more around kind of the level of growth and activity and get some colour around what's going on in biopharma. Obviously, mindful of Arthur's question around the vaccine work was in the comp, but if I look across some of the broader peers and comps, it feels like in some areas there's a little bit of pressure. I'm thinking about things like the Danaher numbers yesterday, stock off 8%, 9%, cutting growth, citing kind of biotech funding. I mean, anything that you're you're seeing around the broader periphery that will be impacted there will be great. And then third question, just on PFAS, I mean, can you maybe just help us quantify roughly how big the revenue part of the Eurofins businesses is exposed to that at the moment? I mean, just how small or large is PFAS now? Thank you. Thank you very much.

Yes, environment. I wouldn't say that environment is growing faster than it was or anything. It's just by contrast in Europe, our food testing was growing faster than environment for a number of years and pretty much most of the time. It just happens that since the war in Ukraine, the food testing has been flat or close to flat and environment has continued to grow in the mid 5 to 10 percent growth organic levels. Food testing in America is, I think, still growing faster than environment, for example, and biopharma is growing faster. But yes, I mentioned it in this call, and I focus on PFAS more as an example, as an example that what you find in environment today, you will find in your plate tomorrow, or you'll find in your bodies the day after tomorrow. And that explains why we feel it's interesting that we are in all those verticals, It's exactly the same test, same technology. We transfer it from A to B. And the cost advantage we have in consumables, the cost advantage we have in buying equipment and the IT tools that we develop, we use exactly the same limbs in food testing and environmental testing. So that's maybe the reason why today we decided to focus a little bit on PFAS and the type of contaminants. I talked about it already a few years ago in the context of REACH. REACH has led to the re-evaluation of toxicity of a very large number of chemicals. We test for very few of those today. And more and more, they will be regulated. They will have to be tested. They will have to be tested in the environment. And if they find their way in our clothes, if they find their way in our food, they are going to have to be tested also there. But overall, you know, will start growing again. Even if the volumes don't change, the type of issues we find in food will continue to increase and the range of tests that will have to be done in food will continue to increase. So we'll see food testing growth bounce back at some point. I can't say which quarter or when it will be, and it should go back again to this mid-single-digit range of organic plus whatever share gains or whatever new labs we open as we've enjoyed before. Biopharma, yes. Biopharma, where we see the biggest impact is on very early stage. Early stage is where the biotech has the most spend, and they try many, many things, many new molecules. And we have a small discovery business, which is of the order of 100 million. That's where we see, or maybe 150 today, that's where we see a little bit of softness. The bulk of our biopharma is biopharma product testings. And that's for things that are already in the clinical trials, in the clinical phases. I don't think the clinical phases are affected or will be affected because once a product is in clinical, it is fairly close to being registered and it's very close to making a lot of money for its owners. So that is not going to stop. And our biopharma leaders who have been in that space for 30 years or more, they never saw softness in the later stages because that's where the money is. Of course, The very, very risky early stages, they are a little bit more dependent on the flavor of the day and the mood of investors to invest in biotech. So that's maybe, I don't know exactly what data are reported or where they are focused, but that early discovery and research might be what they talk about. And PFAS, I don't know the exact number. We don't analyze it by type of test or by test, but we could look into that a bit more for the first half to But it's not like a material number. It's still the very beginning. We haven't even hit the inflection point. We are doing enough tests to help the authorities identify that there is an issue. The whole work that's going to be involved with cleanup and remediation, that has not really started. Great. Thank you, Gilles. Not in a significant way.

We'll go next to Delphine Leilouet with Associate General.

Yes, hello. Hi, good afternoon. Most of my questions have been asked already, but I was willing to get a clarification, and thank you, Gilles, for the precision on the biopharma or, let's say, the biobusiness. I was willing to dig a bit more into the evolution of the mix and the difference between Europe and the U.S., because I You're very much active in the U.S. in some of the niche testing with iValue, which I think is less the case in Europe. But confirmation will be needed just to understand what are the dynamics in terms of testing over there, especially in Europe, because Europe sounds to be a bit weak to me, but, you know, not that clear. When I read the press release this morning, I thought, It was almost a double-digit growth in environment, but apparently it's not that clear, and biopharma is not that far. So happy to have your thoughts on this one. Back to the wages also, you said that most of the wages were gone and done according to your plan. Was your plan around the 5% across the board increase, let's say, more or less every country's? that be of interest. Thank you.

Thank you. Biopharma, the mix is not so different in Europe and North America of what we're doing. We do maybe slightly more biologics in the U.S. than Europe, and we're investing actually in biopharma. We have a very large investment plan to add 100,000 square meters of labs So we're continuing that, but they won't be ready until two or three years from now. It takes a very long time to get capacity. So we're still very bullish on biopharma, especially on the biologics and ATMP areas. And we have those both in Europe and North America. So on the mix, there's no real difference. I think it's more a base effect for Europe. We probably did a lot more vaccine work still early in the early part of 2022 in Europe than in the US that we have to replace. And wages, no, I don't think we give 5% across the board. There are many countries where we're still giving more like 3%. But, of course, you have countries like India or maybe Poland where traditionally it has been closer to 10%. It has been for a number of years. So it's a mix.

And what's about the employee base? Is it fairly stable?

I think the turnover, again, we don't have a consolidated measure of turnover. Maybe we should, and we will get it. We will get there with the ESG reporting we are working on. On the ESG, we're also expanding all the things we report and work on. We're also waiting for the final FRAG recommendation or what will become the law in Europe in terms of what has to be disclosed and reported because there are so many different agencies that want different things. That's an important aspect. But again, anecdotally, I think we have the turnover is slowing down a bit. So we had a huge peak of turnover in 22 and a lot of absenteeism. So we suffer a bit less from absenteeism. There are fewer people getting sick with COVID. So it looks like, at least on those aspects, the world is becoming a bit more normal.

Right. And just probably a follow-up on the PFAS testing. how big is that in terms of investment up front, R&D, OPEX, or anything that you have to put up front? Is it something that is on top of the regular budget, or is it something that is already feathering into your five-year plan?

No, it is there. Well, we have planned, we announced it, and some analysts don't like it, but that's what it is. We have a very large CapEx budget for the next few years, Our business is all about scale. It's about efficiency. And we think this will carry us through for decades. The efficiency we are getting from our past investments and we will get from those investments will give us very strong competitive advantage. But I think we're planning something like 600 million spend, including quite a bit in new buildings. that we will own, and that includes also a lot of capex for equipment, including the equipment we use for PFAS. And you know, there are things we, some of you know and some don't, but we depreciate equipment, we depreciate software over three years, we use it for 15, 20 years. We depreciate equipment over five years, I believe. And we use those, if you go to our labs, you'll see equipment that is 15 years old. So we are quite a conservative in our accounting. And of course, it's very front-loaded because we strongly believe in our market and we see a huge potential. And that's a lot of capex, but we wouldn't do it if we didn't know the very large return capital employed we are getting from that capex and we will get.

So you should take it more as a sign of optimism. Thank you very much.

By the way, this objective of growth, we could do better than 6.5%. If we stay, and I've said that before, if we stay in an inflationary environment, we will do better than 6.5% organic growth because the volume growth, the food testing will bottom up. We're still a bit damage and growth by the clinical testing, but also there at some point the industry has to exist, so it cannot also go down forever. So if price continues to increase, we'll be above that. That's also something. Sorry, operator, you wanted to say something.

At this time, there are no further questions.

All right. Well, thank you, everyone, for for listening to this call and tuning in and all for your questions. Uh, they're all very helpful. And again, if you have suggestions on how we can report better, disclose more or better, we'll, uh, we're always interested and we, we do want to improve on all those aspects as, as a company matures. The, um, the year is starting. Well, we are optimistic that are what we set as conservative objectives at the beginning of the year in view of the, uh, macro uncertainty, um, our, our, realistic and that we have good opportunities to achieve or even exceed those. Again, there hasn't been, for example, any big food contamination scandal lately. People were worried by other things. And those things also fueled the growth of the market. So it has been pretty subdued in that matter. So there are other external things that could, or any sanitary crisis or other things of that kind. So there are also some things some of those external events that could have a positive impact. But, of course, we will see. And we are continuing to invest to be the most competitive, to have the best offering. And at some point, we see it in some markets. Clients really want to work with us. They don't see really equivalent alternatives, and especially on an international and global basis. So we think all those investments will really give us superior returns, continue to give us superior returns. It's not a big job for the next five years. We're really doing things on a global basis, and we're building software and IT and artificial intelligence that's going to be truly unique and that very few people will be doing or either know how to do or will have the scale and the resources to afford and to justify. And we think on the very long term, for the next 10 years and so on, it will really show in our results. But of course, it's a lot of investment. We're building first. But we have now the resources and the means to do it, and we think it's going to lead to satisfactory results for all our shareholders. And, of course, throughout those five years, we still intend to gradually improve margins and cash flows, et cetera, in spite of all those investments. Thank you very much.

Ladies and gentlemen, this call is now concluded, and you may disconnect your telephone. Thank you for joining. Have a pleasant day.