Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofins nine month 2023 trading update. 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 questions, you may press star followed by one on your touch tone telephone to register for questions. For operator assistance, please press the star key followed by zero. During this call, Eurofin's management may make forward-looking statements, including but not limited to statements with respect to outlook 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 most recent 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. I would now like to turn the conference over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Thank you, Bernard, and hello, everybody.

So I'm pleased to report on a good quarter three results for Eurofins. Eurofins has been handicapped by the impact of the disappearance of COVID revenues that we had in a large amount in 2020-21 and lesser amount in 2022. What we see in this quarter, this is behind us. We have very little base effect from COVID and the following quarters will be the same. So now we're moving to a situation where we compare Apple to Apple on our overall reported figures, which is a good thing. Our business is doing well, considering the economic situation, which is still very subdued in Europe. We see some recovery in food testing in Europe. We have an overall continued good growth in America. We've heard comments about biopharma, a lot of misunderstandings about biopharma. We did already answer those questions, but a lot of people apparently haven't. We're not there on the call or forgot. Our biopharma is and to the very early research where biotech is very present, the bulk of our biopharma testing business is biopharma product testing, which occurs either in the later phases or for products that are already in the market. And in the later phases, the products already have high value for the pharma industry, and they are usually no longer Biotech have been sold at this time, or they have licensing agreements with Big Pharma. Big Pharma is very well funded, and when products get, say, beyond phase two, the likelihood of failing is much less. So the interest of Biopharma is not to cut spending on that. If there is a spending cut, it's more in the much earlier riskier phases. And we do see some softness in discovery, the earlier phase, which is about 150 million for us, which we have flagged previously. What we have seen in biopharma, of course, we had also a lot of COVID-related work on vaccines and so on, and that has gone. And we haven't counted that as COVID revenues, so that has a bit handicapped our overall growth over the last, I would say, four quarters since mid of 2022. But that is anyway in our numbers, and nothing changed on that. So we continue to see a good trend in biopharma, a good outlook, maybe not the – The explosive growth that we had in some of our segment discovery, the explosive growth in 2021 and 2022, there's not the same explosive growth in that small segment of our biopharma business. So that's just for reference. So the falling off of the COVID work at Eurofins in biopharma is many quarters back. We've already had that impact for a while. Just to clarify some misunderstanding on all. biopharma business. The biopharma industry is very well funded. They need to get more products to the market. Research is leading to fantastic products, as you have seen with the weight loss products. There are many, many products in the pipeline in oncology. The biopharmaceutical presents a lot of potential, so we don't see the biopharma stopping developing or reducing significantly the development. There may be a bit less money wasted on many, many candidates in the earlier phases by small biotech, But that doesn't change anything to the big trend in biopharma that there are exciting opportunities to make our lives better through very powerful products that are either now in development or will come in the next few years. So that's for biopharma. So good outlook there, except, of course, discovery since five or four or five quarter has been much softer. On the global organic growth, As we discussed, so the situation remains better in North America than Europe. Europe has been facing headwinds from the consumer impact, the impact on consumers of inflation, and it might be getting a little better. We're going to get to a better base effect anyway in Europe in food testing because now the following quarters are going to be compared to quarters which were already affected by that last year. On geographically, we've had questions on what happened in the rest of the world. Well, I think this is like a very small effect. It's a small perimeter, but we had somewhat misclassified some clinical revenues in Asia, probably in Japan into non-COVID that were COVID related. So we've had a few COVID related revenues in Japan and potentially also clinical revenues in Brazil that were less this year than last year that had an impact. We had an impact in discovery in Taiwan, as I just mentioned. We don't think any of those things are trends. It's just more corrections. And we're not talking of a lot of money, but there's a percentage it can show on a small scope. So that explains the slightly softer organic growth in Asia. There are countries doing very well, our biopharma business in India is doing very well. China is doing well for us. Our consumer product is maybe growing a bit less than the other activities at Eurofins, but overall, things are good. So we have a slideshow. I'm not going to go through every page of the slideshow, but that was where my comments on page three. On page four, you see the breakdown. So of course, we're missing a lot of COVID revenues that we had last year, but that's the first time we have that. You see a good chunk of organic growth this year. That question, what is price? What is volume? I would say price is playing now a bigger role. We're mainly at 50-50, although we can't really quantify it. We can start to quantify it in our sample-based business, but our project-based business like Biopharma, it's quite hard to find the proper metrics of organic volume growth and price growth, because each project is different. They're not comparable between each other. But we're working on something, and we do hope to have that through our systems in a way that is reliable and auditable in the future. On M&A, contribution is less than we potentially thought we would consolidate. For the full year, we have a target of 250 million. pro forma revenues that might not be consolidated in the full year. We haven't given up on that. It could be that we do hit the pro forma. It depends on timing of certain deals we're working on. Anyway, you know, when we gave our objectives for organic growth 6.5 and M&A 250 million per annum, it's on average over five years. And our view is that the price of acquisition is going to become more attractive going forward. We see many deals that were supposed to close with competitors that didn't close, that come back to the market. So people, but the prices overall have not yet come back to where they should be. So we prefer to stay disciplined and on the sideline. And we know those opportunities are going to come back because very few companies have the right IT digital infrastructure and the tools to really extract synergies from lab networks. So a tougher economic environment is going to be very attractive for us on the M&A side over the next two or three years, we believe, especially if the subdued growth continues in Europe. And so we are very well placed to take advantage of that. But we're not rushing into that. We're disciplined. Our focus is return on capital employed. So we will see. But over the next five years, we still think we can on average, acquire 250 million revenues from acquisition per annum. And the timing of that for external things like acquisitions, of course, is slightly difficult to know. But we'll see what we can close or sign in Q4. On page five, we just give a few examples of innovation. We continue to invest a lot in R&D to launch new technologies, new tests. and deploy new tools, automation, digitalization, artificial intelligence. We have more and more areas where we can deploy artificial intelligence. We talked about our environment business with asbestos testing previously on page six. You see also what we do in discovery for developing or identifying which molecules is likely to be successful in the later phase. And we have a vast database of data of early stage discovery data that we start to apply AI models to for clients to reduce time to market and help them choose better, faster, the candidates they work on. So Eurofins has amassed over the years a huge amount of data in all our verticals and all our activities. And now we start to be able on various areas to apply AI models to make the work faster or faster. give better predictive information to our clients. On page seven, we're basically, we just, we confirm our objectives where we think we'll achieve the, what we had planned for this year. Of course, one bigger and biggest unknown is what currencies will do. And I think I'm not the only one to not know what currencies will do in the future. It was debatable after H2, we adjusted the, the objectives for the currency. Maybe we should not have adjusted objectives for currency after H2. I think potentially it's something we should not have done. So it surprised some people because anyway, we don't know what currencies will be in H2 until the end of the year. So that's why we give a range for revenues just so you have a number. In terms of organic growth, we continue to believe in this objective and also in terms of profitability and margin. And going forward, we think this objective of 6.5% organic growth is achievable and for a number of years as a secular objective already commented on M&A. And we have a lot of assets that will come online. We have a lot of investments in either being built or waiting for validation. We have a lot of startups that are underutilized and costing us money, and some of them also are in our mature, very mature, but they have not yet hit the level of 20% or 25% EBITDA. So we're confident to be able to increase our margins over the next four years or five years until 2027. So there's no change to our outlook. And, of course, with the uncertainties in Europe, et cetera, we've been more frugal within the When we're doing our budgets for next year, we are, of course, asking our leaders to focus more on cost. We can always add cost and people and capacity later. So we are confident that even in more troubled economic environments, we can continue to deliver very well, to deliver significant organic growth. Even in economies that don't grow, we think we can continue to deliver good growth and gradually improve our margins and our cash flow. All those investments we do, once they are done, they are done. We have very little investment in maintenance capex. Our maintenance capex is 2% to 3% of revenues. So all the things we invest, they are there because they have capacity or they make us leaner or more efficient. So that's it for my introduction. I think I've addressed the questions that I had received. I had a question of one public working day. What does it mean in terms of correction? Well, I think most of you will know that in a quarter we have anywhere between 62 and 65 working days. So one day of that is about 1.5%. I think you probably got that. And for the nine months, 0.5%. That's it for that question. I think I've addressed most of the questions I've received so far, I've heard about, but I'd be happy to answer any other question. Thank you.