Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofin's FY 2020 call. Please note that this call is being recorded and will later be available for replay. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a Q&A session. If you would like to ask a question, you may press star followed by telephone to register for questions. For operator assistance, please press the star key followed by zero. 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 Eurofin's annual report. Please also read the disclaimer on page two of this presentation, subject to which this call and the Q&A session are made. I would now like to turn the conference call over to Dr. Gilles Martin, Eurofin's CEO. Please go ahead.

Hello, everybody, and thank you for joining our annual result call. We have a presentation, and we can go to slide five. I will give the slide numbers as we go. So what's the story of 2023? Well, it's basically the new year of a time where Europeans won't be affected by COVID comparable. We still were affected in the first half by significant COVID revenues and margin comparables in the first half of 2022. That was not the case in the second half. So you can still see the company more as it will look in the future. Overall, during the year, it was significant lifting, heavy lifting to realign some of our business lines to the situation post COVID, especially our genomics or IVD business lines. And to a lesser extent, our clinical diagnostic business line had refocused a lot to producing reagents, to doing sequencing and other work for COVID. We had started realignment in 2022, but in reality, some of it remained to be done. We still had to have structured. So a lot of reorganization of those business line have taken place. We've started to refill our biopharma labs that we're doing COVID vaccine development work or clinical trials. Now they are moving towards oncology clinical trials, even if they are still working with similar clients. So there has been a lot of change in 2023, but we're happy to put that behind us. So not only will 2024 not be affected by comparables that contain some COVID revenues, but we have a much cleaner and leaner structure and our teams are now focusing already since a few quarter on their core business. We've also started to significantly align revenues and prices with our costs. And we saw that in the second half, we're going to continue to see it in the next year. We have also looked at some of our smaller businesses that might need some work and we will be continuing to review that next year. The one area where we need to improve in the next year is our networking capital. Again, there have been too much management focus on other topics over the last couple of years, and we've slipped a little bit at the end of the year. We thought we would catch up more in the fourth quarter on our networking capital, but we have some work to do there. But overall, as you see for the result of the second half of 2023, things are very encouraging and are moving in the right direction in terms of organic growth, in terms of margin, growth, et cetera. On the next page, we have some comments of the full year, but some summary of the full year result, but we will talk about that in the next slide. On slide seven, you get a breakdown of our various areas of activity. This was an ask by some of the investors. And now that we have comparable data in an auditable manner, as 2024 unfolds, we can give you the evolution of each of those activities. And so you will get also some growth numbers regarding each of those areas of activity. But frankly, the biggest difference is between geographies. As Laurent will explain when he describes the numbers. So basically what have we been doing during COVID and continued last year is continue to build the network. So on slide eight, you see that impact on our site. Our business is very much driven by scale. Once you get the right scale, you can have a very good margin. We saw it during COVID because basically on the COVID test, we had very much scale, high scale for a few tests, and that had a positive impact on margin. This is basically true for all of our activities, but labs are traditionally too diversified. And that's why we build this hub and spoke network. We have very large central platform. We've continued to make very good progress on that owning our own site is somewhat dilutive on return on capital employed. But as we can estimate it for 2023, It's still already yielding 12% return on capital employed, at least the rent savings that are associated to that. We are not yet at our target of 16%, but as the rents increase with inflation for our stock of buildings, their cost doesn't increase and that return can only improve over the years. So we intend to continue to add buildings. We should be done by 2027 because we don't need to convert all buildings to own buildings. It's mostly for our larger sites. because we don't want to move labs. It's very expensive to move labs, and therefore we need to have big sites where we can expand on site and not lose all the investment in this whole improvement. For offices or for site in certain geographies, we need to own the building. So the program we've presented last year for the five years to 23 to 27 should do the job of giving us our own network of labs. On page nine, you have some examples. of new labs that came online last year, and some of the labs that we will add, we plan to add over the next two years. And those labs that will come online over the next two years, they have started to cost us a lot of money already in 23, because usually you start building in year one, you finish building in year two, and you commission the lab in year three after. So it's an expensive program, but on the long term, we think it will be very favorable. We see it already in revenues per FTE, revenues per square meter. That's because those labs are more efficient, better built. Also in terms of CO2 emissions, isolation, energy efficiency, newer buildings provide a long-term advantage. On page 10, this is a significant development in startups. We always have an arbitrage between startups and M&A. The interest rates have gone up significantly. since 2022, but the multiples for acquisitions on average have not come down. Some of the sellers are waiting, hoping the interest rate will go down fast and they can get higher multiples again, but many are still expecting too high multiples. Therefore, in 2023, we haven't bought as many companies as we could have. We're a bit below the target. We had set a target of 250 million added revenues from M&A. We will be below that. We also had been reasonable in multiples. You see we're only at 1.3 revenue multiple for those acquisitions. But on the other hand, we've added more startups. We have decided to accelerate significantly our startups because they are, of course, short-term, very dilutive in capex. We need capex for no revenues, very dilutive in margin because they make losses for two or three years, and then in cash flow. But from year three, four, five, they can provide a very good return on capital employed, which is much better than acquisitions. Acquisitions, on the other hand, are accretive to earnings on year one. So both have their advantages and disadvantages. But we've shifted a bit in 23 towards startups. On page 11, you have a list of some of the acquisitions we did last year. And we can go back to the amount that we're targeting. And for, but that can change from year to year, because it will depend on how the markets for acquisitions evolve on specific acquisitions opportunities. It could be that we targeted to add 250 million per item on average over five years. It's like for organic growth. It's on average over five years or target. It could be that one year we had 400 million and one year, like last year we had home 22 acquisitions are hard to plan. It doesn't have to be linear and. We don't have to do them. We only do them if they provide the right return on capital employed. I will now ask Laurent to comment on the financial numbers, please.

Good afternoon. It's my pleasure to share with you our financial results for the year 2023. On slide 13, you can see that our results were in line with our objectives. We posted revenues of 6.5 billion euro. which show a slight decrease year on year due to the COVID comparables, but a strong organic growth of 7.1%. We posted and adjusted EBITDA of 1,364,000,000 euro, which gives a 20.9% margin, which was also impacted by the COVID comparables. So overall, we achieved revenues and EBITDA in the upper range of our objectives. On slide 14, You can see the main factors behind the slight decrease of revenues. So first of all, we had a negative FX impact, which weighted for about 1.9%. And we had, of course, a very strong COVID comparable, which created a revenue gap of about 600 million euro. We almost compensated for it via a strong organic growth, which was slightly better in H2 than in H1. And we had a very small contribution from M&A, as Gilles just mentioned. On slide 15, To give you a regional breakdown of organic growth, you can see that Europe was resilient in all verticals via both volumes and pricing increases, except maybe in clinical France, where we had to face some price cuts. North America overall posted a very strong organic growth at 8.7%, which was very strong in all business lines. And in the rest of the world, we had a recovery of our revenues in China and expansion of our business in India. And we also had a very strong demand for PFAS in Japan. Moving to slide 16, you can see here a breakdown of our EBDA margin by semester. And we want to point here the strong margin increase we had in the second semester, 120 bps year-on-year, which is basically the first semester without any COVID comparables. This strong increase in margin was due to a strong organic growth, some very good pricing initiatives, and also some productivity efforts. So all this shows a very positive momentum, which is expected to carry on in the year 2024. On page 17, we had a strong cash flow generation in 23. So our free cash flow to the firm was stable in value, despite a lower EBITDA, thanks basically to lower taxes and CAPEX. We had a very strong cash conversion at 38%, 300 bps year-on-year, and in the second semester alone of 62% cash conversion. We also had fewer M&As, which basically made us focus on Bolton acquisitions. On slide 18, I mean, we already alluded to it. Networking capital was on the high side at 5.1%, a bit far from our best historical performance. This is due to a deterioration by one day of DSO and also by one day of all DPOs. So we are already putting strong measures in place to get back to historical levels, which are more in the range of four and four and a half percent of revenues. On page 19. We were able to maintain a very strong credit profile throughout the year. Our leverage stood at 2.0, stable year-on-year, and we continue to aim for a leverage below 1.5 in the year 2027. You can see also that we have a very balanced debt maturity profile with no big amount to repay in the coming years, and we have enough cash to pay for all of these because we have 1.2 billion euros of cash at the start of the year. On page 20, and to conclude my presentation, our ROC was negatively impacted in 23 by the COVID comparables and also the investment we made to continue to develop our footprint and startups. But we believe we have bottomed out now, and we will basically get back in 24 thanks to a disciplined capital allocation and also a strong margin growth. So now I will give the mic back to Gilles for the rest of the presentation.