Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofin's half-year 2025 results presentation. Please note that this call is being recorded and will be later available for replay on the Eurofin's 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 report. 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, and thank you for joining our quarterly and half-year conference call. Well, I am happy to report on a good development in this first half year of 2025. We have achieved the objectives that we're aiming at in terms of growth and in terms of margin improvement, cash flow improvement, and especially on the earnings per share improvement, which is very strong in the first half of this year. So we have a little slideshow, and I'm on page five currently. I'll do a short overview, and then Laurent, our CFO, will go a bit more in the numbers. But overall, we're happy of all developments in the P&L, organic growth and growth of margin. We are still in a phase where we make significant investments. We have acquired also some businesses. We have acquired a business, SynLab, As you see in the publication of our balance sheet, we have details there for a fairly low amount, a very small percentage of revenues. But it starts from a loss-making position. And with our existing teams in Spain and synergies, we believe we can improve the margin significantly over the next two years. So it is for us a good opportunity to create value. It's a little bit dilutive short term, but it should be a good use of cash and provide a good return in our opinion. We started last year with a very high level of networking capital at the end of 2023, which makes sure maybe a bit less growth of the free cash flow from period to period, but that's due to this one-off effect. Overall, our networking capital reduced in this first half year. At the end of the first half year, we were lower than last year. Of course, the second half year, we generate much more net working capital. We have an improvement and we generate cash. So the first half of the year was good. It's not the half of the year where we generate the most cash traditionally, but it is positive on all aspects. One thing that was decided and maybe indicated yet is we will, the company will acquire the companies under analytical by-ventures, my private holding, our private family holding, the company holding all the buildings that Eurofins use or except those that Eurofins doesn't want to use in the future which will be exited. We thought about stretching that over two or three years But our cash position is good. Our leverage is not high. And it will be done. We pulled our investors. It was a formal vote that clearly stated that investors who really own shares at Eurofins would like this to be done and be over with. So we'll do that in the second half of this year. We can afford it. It won't push our leverage too high. Also, it will save Eurofins 36 million cash a year. So by the end of our 2027 five-year plan, a significant part of the purchase price, almost 80 million, will have been paid back anyway by rent savings. So that's something that the company can afford, and we will put that behind us. And with that and the other sites, building or acquisitions that are currently ongoing and we plan to finalize by 2027, We should be done. We're building an incredibly strong and efficient laboratory infrastructure in almost all the countries where we're active, a very nice hub and spoke model that will make us very efficient, provide very good logistics, very fast service to clients, and economies of scale in the large labs. And this is one of the major capital outlay that we are doing in this five-year plan, together with the capital outlay linked to full digitalization of our processes, which is moving ahead, is almost finalized in our biopharma product testing, and is making good progress in our food and environmental testing businesses. Clinical is the last business line where we started those developments. So that was a discussion on basics on the real estate. So we were fairly neutral on that. The financial conditions have been disclosed in the invitation to the General Assembly. So I won't go back on that. But if there are any questions, we can go there. Obviously, I was not involved in that, nor did my holding vote in this decision. So the 95.6% of the positive votes are of non-family investors. On page seven, we are talking a bit again about our site ownership. And we do plan to complete, I already talked about that, but we do plan to complete this building of our hub and spoke network. by the end of 2027. And we will continue to do some in the first half of this year. We will do a few more in the rest of this year. And on page eight, you have more details. We will do a few very large sites in the Netherlands, for example, in Kansas and St. Charles and Mississauga in Canada. So all those buildings have been ongoing. They've been drawing cash. and they should give us the benefits of more efficiencies by 2027. So we'll be pleased to have built a very strong network, very efficient company. And, of course, we should get the benefits of all those investments in our efficiency, in our cash flow, in our growth, by offering better service to clients, creating capacity, et cetera. So I think from now, Laurent will give a few comments on our financial – or what I can say on the overview on page nine first. We disclose our business. Of course, we provide the total results. And the total result, which is on page nine, the last block, you see a nice improvement. But we also provide the result of our core scope or mature scope and the non-mature scope that includes startups and companies that we just acquired and that we are restructuring heavily like SynLab, for example. And as you see, year over year, our mature scope continues to improve. It is already at a level of margin of 24%, which is our target margin. And the dilution from the non-nature scopes becomes smaller and smaller. And the SDI also are reducing. So we think this is all progressing as we plan. And we're looking forward to, by 2027, have a very small residual non-mature scope that will provide a very negligible dilution to the overall results. On page 10, we comment a bit on our startups. We're continuing to open labs. It's always an arbitrage. If we buy a company, maybe it will improve if we don't pay too much. or EPS immediately, it will be immediately relative, but we incur a lot of goodwill. The multiples haven't gone down significantly for large profitable targets. And so we always have the option to start a lab. If we are not in one region or one part of one country and we can't buy something there that we like, We know how a lab looks like. We have the blueprints for a lab. We have good conditions when buying equipment. We can deploy our IT solutions. So sometimes we're just better off opening a lab. So we continue to do that at a more moderate pace compared to the overall size of the company than before. But this is our plan to continue over the next two or three years. On page 11, we discuss acquisitions. As you can see, We are frugal in our acquisition policy. We are spending less than we thought we would spend. Not so much that we are going to get less revenues from those acquisitions because we are almost at the target for this year. But the revenue multiple is less, and we like that, to buy a company that's maybe not fully at its peak in terms of performance, but we have the means from our team, synergies, software, purchasing, to improve performance and create value. This is usually our target for acquisitions. It's not size per se. It's not having a certain percentage of revenues in this geography or that geography. This is only relevant to us. It's making our businesses stronger, buying sometime nice technology businesses that complement what we have or winning new customers. And we like to buy businesses where we can really create value by improving the results over the two or three years following the acquisition. Laurent will now comment a bit on the specifics of the financials.

Thank you, Gilles, and good afternoon, everyone. It's my pleasure to introduce you to the details of our first half financial results. On slide 13, as you can see, we had a sustained growth of revenues at plus 5.7%, and even stronger growth of our EBITDA at plus 8%. We also had reduced SDIs, leading to an adjusted EBITDA margin of 22.4%, an increase of 30 bps year-on-year. Overall, generating a significant year-on-year increase of net profit, plus 12%, and of earning per share at plus 18%. On slide 14, you can find our revenue bridge for the first half. We had a negative FX impact of minus 0.7%, mostly linked to the USD Euro evolution in Q2. We had a solid organic growth of 3.9% and a good contribution from our M&As, 49 million in H1, representing a full year revenues of 210 million euros. On slide 15, you can see the breakdown of organic growth by activity. The life activities were growing at plus 5.7%. This remains a very strong growth both on food and environment in all regions. Biopharma at plus 0.8% remains soft, and I'll share with you more details on this on the next slide. Diagnostics at plus 1.3% was impacted by the tariff cuts in France from September 24. and the acquisition and integration of the diagnostic activities from SYNLAB in Spain, while consumers and technologies at plus 1.5% was mostly affected by strong comps in North America and trade tensions in Asia. On slide 16, you can see a semester-by-semester evolution of biopharma activities around three buckets. We have what we call biopharma product testing, which is the largest bucket, discovery and genomics, and ancillary activities. First of all, you can see that last year we had a decline of ancillary and discovery and genomics activities in H2, while the BPT activities growth remained very solid, but overall leading to a negative growth of 0.9% in H2 last year. While in H1 this year, we were able to renew with growth at plus 0.8% with a strong BPT growth, while discovery and genomics and ancillaries remain in negative territory. So overall, our main activity, BPT, is growing well. It's hard to predict what it will be in H2, but at least we should be able to enjoy better comps going forward. On slide 17, you can find a breakdown of our margins by region. Europe incurred a slight decrease by 20 bps of margins due to the French clinical tariff cuts in September 24 and the integration of SYNLAB Spain in Q2, which remains dilutive to our margins. North America continued to increase its margins by 140 bps to 28.5%, while the rest of the world also continued to increase its margin by 140 bps to 24.8%. On slide 18, you can see the details about our H1 cash generation. So despite a strong improvement of net working capital intensity by 80 bps, we incurred a negative net working capital change due to the exceptional improvement of net working capital position between December 23 and December 24. Our total cap expander remained disciplined and flat, leading to a stable free cash flow to the firm of 276 million euro for the period. On slide 19, looking at our first half capex spend in details, we reduced our NTCT by 50 bps to 6.9% of revenues, and we allocated the capex at 69% to what we call operating capex and 31% to investments in owned sites. On slide 20, you can see that our networking capital intensity improved significantly by 80 bps to 5.5% of revenues. thanks to a reduction of DSOs by three days and stable inventories at 2.1%. And to conclude on slide 21, we have refinanced in the first half of 25 shul shine and hybrid bonds. We have increased our leverage by 0.2 to 2.1 turns following the share buybacks, but remain well within our target of 1.5 to 2.5 turns. And we continue to have access to ample RCFs and enjoy widespread maturities of our depth and hybrid instruments for the future. Now, giving back the mic to Gilles to conclude this presentation. Thank you, Laurent.