Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofins FY 2024 results presentation. 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 appendices 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 call over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Hello, everybody. Thank you for joining our call regarding our preliminary annual results for 2024. We've decided to move things forward as our company grows, is more mature, and our financial processes further strengthen. And that gives you an overview of our performance for last year. I think we've had a very good year last year, and I'm happy to report strong results. The last few years were impacted by lots of extraordinary events. The COVID pandemic, which had initially negative impact and positive impact for us, and then the very strong impact of the war in Ukraine on supply chains, on inflation. Inflation may not be fully over now, but its impact is much less, and we've been able to make price increases, again, part of our normal operating model. So the impact of inflation is now not significant on our results. So if I go on, we have a slideshow. If I go on page five, we've decided to put things in perspective. and not only discuss the improvements this year in 2024 compared to 2023, but also compare our result to the pre-pandemic 2019. And I'd like to discuss here what we have achieved in the last five years if we somehow not focus on the three years with ups and downs due to COVID. Well, first of all, we've had significant growth of our revenues, on average 9% per annum, And as you can see, our EBITDA, whether it's adjusted or reported, increased faster than our revenues growth. Our EPS increased twice as fast each year on average as our EPS growth since 2019. And on the cash flow side, we've had even more impressive results. And the impressive thing about that is that we are still in the middle of a building phase. A lot of the investments we have made in the last five years have not yet provided beneficial impact. There are costs. It takes a long time to build a building, to validate it for biopharma, to validate it for CDMO, or even for food or environmental testing. We have lots of capex that is being fully underutilized or not utilized at all now that still is weighing on our cash flow and our returns. but that will definitely provide positive benefits. The same thing for large investments in digitalizations that we have made over the last five years and that are only in part providing positive impact. So that's why we feel the last five years have been a very good run for Eurofins. And they are basically the result of 24 show the resumption of a historic growth trend, not only for our top line, but also even more strongly for bottom line and cash flow, although we can still do much better than that as this five years investment phase finalizes by 2027. On page six, we discuss a bit more what we're doing for this investment phase. So we discussed it in greater details elsewhere, but we are building a hub and spoke network with very large central laboratories to do analysis in very large volumes and benefit from economies of scale. And then we have local spoke labs close to customers to do the things that need to be done very close to customers because transportation times might modify the result, like microbiology, for example, or water testing, short all turnaround time samples. And when you buy companies, they don't always fit that model. So there is usually a significant transformation of the assets we've acquired. So they feed this model, which provide much higher leverage and profitability. However, as we can see on this slide six, even though we plan a budget of 400 million per annum for that, we are making progress and we start benefiting from past investments. So as percent of revenues, the capex for that program is starting to trend down. What we... also can observe for the first time this year is also that capex and depreciation start to invert. So basically, this is also good for our cash flow because we start to have to invest less than the depreciation we're benefiting in our cash flow. IT is a very important capex area because for our sector, there are no real full IT solutions one can buy. And laboratories historically have all through a large number of different IT solutions that have different life cycles, have to be bridged, connected, et cetera, and depend on a number of vendors. We are developing for each of our business line our own IT solutions to cover the whole range of needs, and they provide a lot of advantages in quality, performance, TAT, and overall cost. This is probably, has been over the last 10 years, our largest investment. And it's also in some business lines starting to bear fruit and our IT costs, we see it are then reduced and our businesses are much more efficient and reliable. So this is making progress. Startups will continue to make startups, although over the last couple of years of this five-year plan, there will be fewer startups because we want to see the benefits of those and we want our investors to see it too. On page seven, we have presented our results in a way that maybe we should have done before. But that illustrates basically what we are doing. We have two scopes. We have the mature scopes, the businesses that have been in our group for a long time, where we have more or less finished the setup of the hub and spoke network, the alignment of our businesses to our operating model. And then we have the non-mature businesses, which are either startups, businesses we started at Greenfield, or we are basically completely refocusing on a different market. and acquisitions that we've bought and that don't fit this model and that are being reorganized. And you can see the result of both scopes or investments on the startup and non-mature. You can see it cost us on top of the capex about 70 million of losses in EBITDA that are strictly allocated and attributable to that scope. And we have the mature scope. And if you look at the performance of the mature scope, it is pretty big in the meantime. which represents 6.5 billion revenues. We've adjusted EBDA margin of 23.7%, which is very close to a 24% target margin for 2027. And that alone should illustrate where we are confident to get there for whole group. And even the SDI on the component are very close to the 0.5% that we set as a target for 2027. So, and that mature scope, if you valued that mature scope alone, with any kind of metrics that can be used for comparable, one can easily see why we feel that buying our share at the moment is a very significant opportunity for using the cash of the company. And of course, we believe strongly in our startups that they will generate strong profits once they mature over the next two or three years, and that's why we are making those investments. And that's a new presentation of a result that you also can find in the detailed notes. On page eight, we discuss our investments because, of course, people can say Eurofins invest a lot. And we do that because we believe in the extraordinary potential of our market and our strong market position to generate on a secular basis for a very long time, very high returns, very good margin, and very high cash flow. So over the last five years, we've generated the revenues that have been growing and that now represent almost seven billion. And they generated quite a lot of cash. As you see, the cash generation has significantly improved over the years. It has been about 20 percent of our revenues, which is quite significant. Overall, our operations are very profitable, but we have opted to invest of those six billion, five billion that we could have just kept them if we didn't want to grow. And of course, especially those investments done in the last couple of years, they are not yet providing the benefits, the returns that they should provide because it takes time, as I said earlier, for a building to be commissioned, to be qualified, to be audited by clients and authorities, et cetera. And the same applies for IT solutions. So very significant investments. that we have been doing. And also we invested in buying companies, quite significant amounts. We've also, since our large campuses, we're gonna need forever, and we don't want to be held at ransom by landlords because we make so much investment in those buildings to make them basically into laboratories. We believe owning our laboratories is a very good investment for the long term, and we'll come back to that. Well, on top of that, during this period, we've distributed, we've returned to shareholders more than 1 million euros, which is beginning, it's very modest compared to what we think we can do, but it's still already significant amounts. And on page nine, we've looked at the returns. And again, we're not at a point where we can show peak returns because we, as I mentioned, we're not seeing yet by design, the full benefits of all the investments we have done that there are, of course, in the calculation of returns included only part of them provide full returns yet. But still, since two thousand nineteen, you can see how return have improved. They have significantly improved between twenty, twenty three and twenty, twenty four. And Overall, as you can see on our capital, our net debt has actually been almost constant over the period and our financial leverage, since our margins have increased a lot and our total profit and our size has increased a lot, our leverage has gone down significantly. And the other interesting thing is, you know, for some time people said, yes, but European share count is increasing. Actually, considering what we've done to buy back our shares, We've already bought back 70% of the share that we issued at the beginning of COVID as there was uncertainty and potential need for cash. So our share count actually has been only very modestly. So that means we've pretty much the same capital. We are now generating much better results and we think this trend can only continue and amplify. And the interesting thing about that is, as we've seen, some of our markets have been a bit more challenged in the course of this year, and especially in the second half. And in the second half of 2024, and also in fourth quarter, although our growth was less than our long-term average target, in which we still believe, we still were able in H2 to significantly increase our margins. So we now have a size that We can adjust if growth is a bit less than we had just cost and we still improve our profits and we have a long runway to continue to do that. And on page ten we've looked at historically all the transactions in the sector just to put things into perspective of of how we decide and explain how and why we decide to deploy capital the way we do. And now we have much more free capital to deploy because, as I mentioned, the building of our network is nearing completion. So those are transactions of sizes between 100 and maybe 500 million of smaller tick businesses. And you can see the multiples. And the multiples haven't changed much between the historic period, 2019 pre-COVID, and now, a bit less now, about 15 times EBITDA. We've deployed about 630 million of capital this year to either buy companies or buy our own shares. And you can see that the companies we bought last year, we bought them at an EBITDA multiple of 10. That's the first year. They haven't started being improved by all the measures we are doing to integrate them. And we bought our own shares last year for 290 million at only an EBITDA multiple of 8.7. And so if we had done that to buy assets like others did in the market, which we think are less well invested assets and assets with much less potential than Eurofint as a whole, we would have spent almost 500 million more. So that shows the opportunity. It is very rare that we can buy something for 50 that actually should be worth 100. And we have taken opportunity of that when we buy back our own shares. And if things don't change significantly, On evaluation we will continue and now we have much more cash flow to do that and even last year we could do it while we reduced our leverage. There will be no doubt some discussion about how is biopharma doing and what is the outlook on biopharma and so we wanted to give on page 11 a bit more granularity on the evolution. Because indeed, in the full year and also in Q4, biopharma growth overall are the activity that we describe as biopharma, which contains also other ancillary activities that are related to biopharma, can be also GLP, et cetera, but are not strictly biopharma. So we have a number of verticals in biopharma. And the core vertical, which is biopharma product testing, is doing actually quite well. It's still growing at mid-single digits. And we see that continuing and actually improving. For a long time it was growing a double digit. We don't see why that would not come back. However, we have a small group of companies that represented last year about 400 million that actually decreased 10% last year. There is a number of reasons for that. Agro-science services was probably, or crop sciences, was probably the hardest hit. This is an area where we do research for the launch of new agrochemicals, for registration of agrochemicals, registration of new seeds or biostimulants, and that industry has been struggling a bit. They've suffered the challenges in registration of new agrochemicals, and they are now in a phase where they are reducing their spend. So what we've done there, we've adjusted our cost. This will not go to zero. We don't expect things to worsen, but they might not pick up immediately. So we've adjusted our costs so that in spite of that, we can continue to increase our profits. We had some challenges due to project ends in our CDMO in France and Italy and India. And there is another thing we discussed already. We have an activity that is central laboratories running tests for the usually phase three clinical trials, and related by analysis testing, which depend on studies. And studies can be very large. They can represent tens of millions of euros, but they're a bit lumpy. So until the new study starts. And that's exactly what we are on a couple of very large studies, what we have been experiencing recently. So overall, we had a 10% contraction of revenues on what is a fairly small part of biopharma in total and of the group. And so if we didn't have this impact, organic growth last year for the whole group would have been 5.8, and for the biopharma area, 4.1%, which is not bad and very close to our long-term objectives. So that was an impact. We think it is temporary. There's no absolute certainty of when things will exactly pick up, but we see things on the long term going back to the trends we've seen for a very long time. We had also softer, but not negative, but flat growth in discovery, which are the very early phase of biopharma product development, and in genomics. And we see those things also returning to historic growth rates. biotech funding is starting to pick up. So we think it's hard to say exactly which quarter this will trend up, but our leaders are positive that they see very good outlooks ahead of them. So that's for the things that impacted, especially the second half in terms of organic growth and particularly in Q4. But we are, although it's, of course, a negative blip for a very small part of the group, we think this is temporary and will pick up. And that's why we've maintained our objective for 6.5% organic growth on average over long periods. So that's it for my introduction. Laurent will now discuss in a bit more detail the financial results. Thank you, Gilles.

Good afternoon. I'm happy to present our 2024 financial results, which show a very solid improvement versus last year in line or above our latest objectives. If we turn to page 13, You can see that we delivered a very solid set of results on all fronts. Our revenues were able to grow by 6.7% year-on-year. We have increased our EBITDA margin by 180 bps year-on-year. We have reached an adjusted EBITDA level of 22.3%. We have reduced our SDI. And if you look at our net profits have increased by 32% versus last year and our earning per share by 41% versus last year. Moving to slide 14 on our revenue bridge, you can see that we had a very limited slightly negative FX impact. Our organic growth amounted to 4.7%, stronger in H1 at 5.6 than in H2 at 3.9. And we had contribution from M&A in the magnitude of 132 million euros. Going into more details on page 15 into the analysis of organic growth by activity, you can see that our life segment of activity, which regroups of food and environment testing, was very dynamic. They posted an organic growth of 7.4%. They were very strong in all geographies. As Gilles mentioned it, you can see that pharma was subdued at 0.9% organic growth, but a very contrasted picture because BPT was mid-single-digit organic growth, which is a bulk of the segment, whereas we suffered from trends in ancillary segments such as agro-science or early-stage pharma activities. On the other hand, the clinical growth was in line with our expectation, and that despite tariff cuts that happened in France, which is a large market for us in September, and the consumer and products line of activities was in line also with our expectations for organic growth. Turning to page 16. Looking at the profitability improvement by region, so you can see the most significant factor was a very good progress for margins in Europe. They grew by 280 bps, and they are catching up with the rest of the group. And the growth was especially significant in the dark region, and this was all achieved through price increases, volume growth, and contained cost. At the same time, you can see that in the North American region, we were still able to progress our margins by 100 bps year on year, despite a very high level of margins already, thanks to the contribution from the environmental activities. And in the rest of the world, we were also able to increase our margins by 200 bps, and we continue to be accretive to the group in Asia and Pacific and the Middle East. Turning to slide 17, maybe the most significant achievement for the year is a very strong progress of our free cash flow to the firm, It grew by 69% year-on-year, thanks, of course, to our very good margin improvement, but also to a strong improvement of networking capital and a very disciplined CapEx plan. This resulted in a very strong cash conversion of 56%, and that enabled us basically to self-finance all needs, I mean here CapEx, M&A, interest, dividends, before any share buyback. Going to slide 18. Coming back to the networking capital improvement, you can see that it decreased from 5.1% to 3.8% thanks to stable inventories and DPOs, but also reduced DSOs, which improved by five days year-on-year following the internal actions that we launched earlier last year. Now moving to... The CAPEX analysis on slide 19, so as Gilles mentioned, we were able to reduce our CAPEX spend by 80 bps to 7.5% of our revenues. We are halfway through the infrastructure programs that we are building, and we have allocated our CAPEX spend by 30% to build our own sites, and 34% to lab equipment, 20% to IT, and 16%. And to conclude on page 20, You can see that our financial leverage improved slightly by almost 0.1 turns to reach 1.9 turns, despite all the significant share buybacks we did, thanks to a very strong cash generation in 24. And overall, we still maintain a very balanced debt maturity profile with ample and untapped liquidity access. Thank you for listening, and I now turn the mic back to Gilles.