Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofins nine month 2024 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 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 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 Dispatcher section of the most recent Eurofins annual and after-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.

Hello, everybody, and thank you for joining our quarterly call. We don't have a lot of material to discuss, but we have a short presentation that you can look at, so I'll I'll start on page three, and Laurent and I will be available to answer questions. So we've continued to make good progress in Q3 on all our initiatives, building our hub and spoke lab network. As we wrote, we should be done, we should complete this activity by 2027. We continue to invest massively in our IT infrastructure, both in terms of IT infrastructures, our network, where we are rebuilding a very resilient and compartmented IT structure to be more protected from potential cyber attack, to protect our data and our clients' data better, and in developing and deploying our proprietary suite of IT solutions to be fully digital and fully integrated in what we do. On that level, we start to have a lot of data because we have still some business lines like clinical diagnostics where we have not done that. And we see that the spend intensity in IT in those business lines, which typically represent the industry, a big patchwork of IT solutions, is up to twice as high as what we have in the business lines where we have done that already, like, for example, biopharma product testing. So those investments in digitalization, not only will they bring much better quality of service, performance, ability to detect potential errors, and speed of service to clients, but they're also, on the long term, when they are finalized, very cost effective. So this is something, those are the areas less visible, of course, than our buildings and our labs, where we continue to deploy significant amounts of capital and also operating costs, because it's also a lot of our users who are designing and testing those solutions. So operationally, we continue to make progress. You have seen that our growth in Q3 was a bit less. Maybe I can give a bit of color on that. This is mainly coming, as you can see, by area of activity. Of course, our growth is softer in North America because biopharma is a larger percentage of our activities in North America. This is partly due to some segments of biopharma, the things we have put into this biopharma activity. The biopharma product testing is actually doing quite well. It's mostly working for larger companies and products that are later in their development. The BPT area is still close to mid-single digit. Okay, in the best years, it was close to double digits, but it's still doing fine. The areas of life, so food and environment testing, as you see, are growing above our objective. So is consumer health. Testing diagnostic services and products are growing a bit like their historic growth, around 4%. And within biopharma, the areas where we've seen some really softness is agro-science. The whole industry is very challenged after a number of years of challenging situation in the market for our clients. And uncertainty about the regulations for getting new pesticides, new agrochemicals approved. There is some contraction in demand. This was down more than 10%, almost 15% in Q3. Of course, it will plateau. It will bottom up, so we're optimistic that next year we won't see the same type of decrease, but it is in one quarter quite significant. Another area that maybe we could have flagged a bit more, In biopharma, we have a number of laboratories, our central lab, for example, working for clinical trials of new drugs, doing the testing required for clinical trials. And that can be a bit lumpy because it can be very large studies. We've had a client that had a big success with one study and could cancel a follow-on study because FDA didn't require it. So that was unexpected and a lot of work stopped at the end of Q2 for that client. Then we've got another client which studies completed. We've signed a very large 10-year contract with them that will start in the second half of next year. So we've got a bit of a lull in the clinical part of our business. The clinical part of biopharma is less. Central lab part is much less than biopharma product testing. But when you have an activity, big studies that stop, you can be also minus more than 15% that has an impact on a quarter. We see that as absolutely transient. And actually, when that picks up, it can really boost the other way around. That's why we are confident on our average growth for the five years. And we haven't changed that. But on one quarter, it is visible. Otherwise, all our activities are doing fairly well. We have put a bridge. We're continuing our M&A programs. We've been fortunate to find quite a lot of Bolton deals at quite acceptable multiples. So our spend on M&A compared to the revenues we are buying for the full year might be, and potentially for what's coming for next year, might be that as freight some money for us to buy back our shares that we would have otherwise allocated to M&A. As you can all see, I think our share is the biggest opportunity in the tick market at the moment. So we are investing in buying back our shares at the moment, and we'll step that up if things continue. And that's because we are saving on M&A. On our CapEx program, we are moving as planned. Our reorganization, we are moving as planned. It does cost us a lot of money to build this urban spoke network. But it is also a finite investment in time, and every year we are getting closer to being done on that. On page five, we've discussed a bit our objectives. The profitability is continuing to be above plan, has continued to be above plan in Q3 in terms of margin. The overall revenues for the year will be a bit less than what we anticipated. We have a hit from currency, a significant hit from currency. Of course, we don't know what the currencies will do in the next two months. But assuming there are not some very significant changes, they will be below the target. So that will impact the top line. And transitionally, of course, profits, but our margins are higher than that. And we have a bit of a gap on organic growth in biopharma that I think will continue in Q4, and we thought we should flag it now. So that's our objectives. We think we will deliver on our cash flow, and we're also confirming our objectives for 2027. As we said, we believe this situation in biopharma is very transient. Our clients are positive. We have won a very large with a large biopharma that is going to start also next year, and we believe it could add material volumes. So we are positive over the next couple of years, and we think we can achieve our objective for 2027. So that's it for our objective and for the introduction. I think we can open the microphone to Q&A now, please, operator.

Thank you. Ladies and gentlemen, at this time, we will begin our 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. Thank you. Our first question is coming from Himanshu Agarwal with Bank of America. Your line is live.