Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofins Q1 2025 Trading Update 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 factors section of the most recent Eurofins 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 over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Thank you for joining our brief quarterly update call. Well, the first quarter has proceeded as we expected it. We've had longer discussions with many of you when we published our annual result for 2024. We've had good organic growth in most of our business. Our food testing, environmental testing business did very well. We were a bit affected in the US in environment due to the very extreme weather that we saw in Q1 and a couple of phasing in large programs, but we're We're very positive about the growth of that area. It remains a nicely oriented market, and we have a strong leading position in Europe and North America. In biopharma product testing, we continue to do well and register good organic growth. The areas that we had flagged as being affected continue to some extent to be affected. We have a very negative base effect in our central laboratory in biopharma. and our bioanalysis, where we've had some very large studies that ended in Q2 or Q3 of last year, but still are in the base, in the comparison base in 2024 for Q1. Agro-science continues to be soft and we flag that that might not change for a while. But of course, as we go towards the end of this year, the comparison base will be much lower. Overall, we are positive about our markets Of course, the world is undergoing a lot of change, a lot of uncertainty. To some extent, we've been there before. I've had the privilege, if you want, to go through a few economic crises or some, and I've observed through those crises that our core business is very resilient. Testing food, water, pharmaceuticals, those are important things that need to get done. And And we don't see that changing. We have had in the first quarter no sign of all the tariffs or other geopolitical aspects affecting our business. It is, of course, it's a war in Ukraine and the difficulty in Germany, for example, the German economy has not been doing well the last two years and we have less growth there than we used to, but still our business is solid. So overall, we are positive about the future evolution of our business and prepared to adjust to things that might affect our clients. But normally, wherever food comes from, it has to be tested. Whether it's imported or not imported, it's something that has to be tested. So we have no significant causes for worries, also clinical diagnostics, a very local business that needs to be done because people get sick and they need to be tested, and there is a lot of innovation, and new tests can help people stay healthy. So that's for the general presentation of the organic growth. On the pages four and five of the presentation, we give a bit more color on that. Of course, FX is very volatile too, so it's really hard to know what FX will be in Q2, Q3, Q4. We've seen very unexpected swings before in directions we didn't expect, sometimes positive, sometimes negative. So we cannot change or update anything regarding FX on a quarterly basis. We did it a bit last year, but actually Q4 of last year turned out to have a better FX result than what we thought when we adjusted our objectives for Q4 of last year. So we're not doing that guessing game anymore. Maybe you know better than us what effects will be in two, three, or four quarters. Organic growth, as I discussed on page five, you get a bit more color on this. Overall, we're still affected by these base effects, especially in the clinical parts of our biopharma business. But the bulk of our business is doing very well. And this thing in biopharma should pick up at some point. We're still bullish on the overall biopharma midterm orientation and growth and our positioning and the capacity that we have that will come online. Also in clinical diagnostics, we're adding capacity and that will lead to growth and profitability growth. We incur very significant costs when we launch new laboratories. capex cost and operating losses cost, and as those labs fill, we see the benefit of that. We've made a significant acquisition in Spain, and we closed that acquisition in the first quarter, at the end of the first quarter. It is probably the largest clinical laboratories network in Spain, added to our position, which was number two and number three. We are a strong leader. That network was not profitable. So we are going to have to make very significant integration to bring the two networks together. But we paid very little for it. So the upside for us in terms of value creation is very significant. Once we integrate our two networks and remove the very significant overlap and override overlap. So we're optimistic that we can create a lot of value over the next two to three years on that acquisitions. Although short term, it will cause us, and that's part of our budget for SDI this year, some significant one-off reorganization cost and some dilutive effect in the short term. But the impact, we think, within year two or three will be quite positive in terms of return on capital employed. So those are the significant news of Q1. We continue to make small Bolton acquisitions everywhere. So we are on plan and we think we will achieve our objectives in terms of acquisitions for this year, including this large acquisition in Spain. We might be above the target for this year. On page seven, we describe a bit where our cash goes to. And so we continue to build the group. We make every five year a plan. And now we are... well ahead in the third year of this five-year plan. By 2027, on our current markets, we will have built our complete laboratory network with hub and spoke network. We will have developed and deployed a complete new portfolio of IT solutions to fully digitalize your business, remove a lot of duplication, remove causes for errors, for potential mistakes, miscommunication. It is causing a lot of disruptions in our business, the rollout of such a new suite of IT system when you have IT changes. So we have costs for that. We have costs that are basically we can't even calculate them. They're not development costs. They're just disruptions to our business, people being busy learning, deploying a new system, entering the core data in a new system, fixing all the glitches and so on. Especially since at the same time, we are completely rebuilding our infrastructure, our IT infrastructure in a much more resilient manner. So we will end 26, probably 25 actually for the infrastructure with a completely new, super modern IT infrastructure, more resilient, more compartmentalized. And by 27, we are optimistic that we'll have deployed all those new IT solutions, which on the one hand mean less cost, and on the other hand mean much more efficient, faster, better run business. So this is a core of what we're doing, actually. You don't really see it in the numbers, except you see the cost in the numbers. And it impacted also a little bit on the top line from all those disruptions. that occur when you deploy a set of new IT solutions on a very broad network. But we think that will be very positive. In terms of balance sheets, Laurent can talk more about it if you have questions, but we are committed to our investment grade rating and to keep our leverage in the range that we have stated, 1.5 to 2.5. We reissued a new hybrid to replace the one we had in the same amount. This is about $1 billion of hybrid, which we think is a good component in our total balance sheet. And we are returning a lot of money to our shareholders. We are of the opinion that our share price is very depressed, has been very depressed for a while, for reasons we don't quite understand. And we have decided to deploy a significant part, not insignificant part, of our cash flow and our capabilities, our finance capability, within this leveraged to buy back shares. And as you see, we even canceled a significant amount of shares in the last few weeks. We will propose a dividend for payment at the end of this month for General Assembly, which is taking place this week. And Eurofins is slowly coming into a phase where we should generate a lot of cash and return a lot of that cash to our shareholders in different channels. Some people might ask, what about your leverage? And as I mentioned, we also have the possibility to raise the funds should the share price anomaly be sustainable by disposing some non-core assets. Not in a huge way, but it can be part of the financing if required. On page eight, we just repeated our objectives as they were When we published our 2024 results, based on what we see today, we don't see a reason to change them. And as nobody knows what the effects will be, we wouldn't be able to do anything for that. And on the operating, we see pluses and minuses of potential changes. And there again, it's very hard to know whether those changes will happen, when will they happen, how much it will affect our clients. And what are the positives? Because you know, in the way testing, the more duplication there is in production, the more testing you have to do. If you have three factories making the same thing rather than one factory, the three factories have to do testing. That's a very global and macro view, but testing is required. So if you centralize testing in one country for the whole world, you have in fact less testing than if you produce in three different places. Now, this is a bit science fiction because nobody knows exactly what will happen, but that gives a bit also some, if I look at the three to 10-year view, some color on how we think. We think actually if the world is efficient and produces in a single place, which is the most cost-effective, that reduces the need for testing rather than producing everything everywhere, which then need to be tested on smaller batches. That's a very general view, and I don't know how applicable this will be or come to be, but that's how we see. So overall, we don't see, in spite of the lot of changes in the world, the economy, the macroeconomy, geopolitics, we don't see major changes now from what we saw when we published our 2024 results. But of course, if you have specific questions, we'd be happy to answer. And now I'll turn back the microphone to you for questions.

Thank you very much. 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 your question from the 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 very much. Your first question is coming from Remy Granu of Morgan Stanley. Remy, your line is live.