Eurofins Scientific Sa

Ladies and gentlemen, welcome and thank you for joining Eurofins' nine-month 2025 trading. I believe 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 zero to register for questions. For operator assistance, please press the star key followed by zero. During this call, Eurofins 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 Eurofins' future results include, but are not limited to, those described in the risk factors 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 over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.

Hello, everybody, and thank you for joining our quarterly call. We have posted a small presentation. For those who are interested, I will refer to some of those slides. I will start on slide three. So I'm happy to report on a good quarter, which is in line with our plans. We've made good progress on all our initiatives. As you know, we are in the middle of our five years plan to build a world-class network of laboratories in our core market. We continue to build laboratories to finalize our hub and spoke network. This is continuing to make good progress. We will be over the next few quarters finalizing a number of labs, for example in CDMO, in our large campus in Toronto in Canada, in Leiden in the Netherlands for our BPT. We're expanding our Lancaster campus. So we see a strong outlook overall for the next few years. Because biopharma, some parts of biopharma have been a bit soft following the COVID peak, but we are bullish about their future expansion. We are getting ready for that. The other big areas where we are investing is our digitalization programs, where we aim at standardizing all the digital solutions for... And we're also making good progress on that. We plan to complete this by 2027, which would make us much more efficient, leaner, faster, and differentiate further the level of service we can offer to our clients compared to what our competition is doing. So this is also making good progress. Of course, when it will be finalized, we will have also a reduction of cost in addition to the benefits we will get operationally from those systems. Throughout the course of this year, things are developing as planned. We have a solid margin progress as planned. And overall, we are looking forward to delivering on our objectives for this year when we report in the beginning of 2026. So overall, things are in line. And we can give a bit more color during questions if you want. The different segments are growing in line with the previous quarters. We have a very significant base effect that is going to flip in Q4 of this year, as we announced, because we had a number of activities that we have in our ancillary biopharma activities, especially the clinical areas or central lab or bioanalysis. where very significant studies ended in Q3 of last year. So we have that in the base until this quarter, and next quarter this should fade away. We also have a similar effect in pricing reduction in the French routine clinical business that will also fade in Q4, so we're looking forward to a strong Q4. The rest of our business is developing well. We continue to acquire businesses. In actuality, we are a bit above our objectives for this year. We will continue over the next few years to add about 250 million revenues each year from acquisition. We continue our startup programs. We have opened a number of startups and the blood collection points, where blood collection points is because we find the cost of that is more attractive than buying existing businesses. We are of course reviewing constantly our portfolio of businesses and may make some decisions on some limited divestments of non-core assets. This is something we are working on and evaluating. On page 7 we have a summary of how we see the outlook. So we simply confirm the objectives we set at the beginning of this year. Of course, we've had a little bit of dilutions on SYNLAB, but there also the restructuring is going as planned. We will remove significant costs in the last quarter of this year and the beginning of next year. We, of course, incur some costs for that, and it creates some dilution, but this dilution will fade in 2026 and 2027, and we believe we will create a lot of value with this acquisition and to the company we already had in Spain in clinical diagnostics. So I'm happy to report that this is developing as planned. We have a small FX effect. Of course, nobody can predict the FX and it could go the other way at some point. Nobody really knows. But since it seems that the US dollar to euro exchange rate is stabilizing somehow at the current level, we gave an indication of what the impact on the full year result of Eurofins would be. And as you can see, it is not much. And the type of margin improvement we can do in our operational business is many times this impact. So we are confident that this will not affect our objectives for 2027 and our objectives for this year. So overall, things are progressing as planned. It's a lot of work. And we are making our business even more competitive, even more effective. And we're very bullish for what we will achieve over the next two years and beyond. As we enter a phase where we are much more cash flow generative, we own our buildings. We will have also less cash to spend for those buildings because we know them. So we are very bullish with the cash we will generate. And we continue to take opportunity of opportunities. Basically, undervaluation, what we believe is undervaluation of our shares to buy back within the range of our leverage commitment, which we intend to keep between 1.5 and 2.5 since we generate a lot of cash and we think we'll generate a lot more cash. We have quite a bit of headroom for that in addition to potential asset divestments if we see opportunities for things that are not necessarily 100% fit for what we do. So this is an overview of the progress of the business and Laura and I will be happy to answer questions if you have some.

Thank you. 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 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. 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 1 at this time.

Thank you.

Our first question today is coming from Suhanasi Varanasi with Goldman Sachs. Your line is live.

Hi, good afternoon. Thank you for taking my questions. Two from me, please. Can you maybe share a little more color on the declines that you saw in discovery genomics and ancillary revenues in Q3? In first half, it was running at minus 4 and minus 10%, respectively. Just wanted to understand whether the declines have been similar in the third quarter to date or has... Has it improved? And do you have any idea when this will stabilize? I suppose that's the first part of the question. The second question is on the biopharma business. I think you mentioned that some large studies were in the base in Q3, which will flip and go away from the base in Q4. Is it possible to give some color on the magnitude of the benefit in the comparatives? Is it like a half a percent, one percent benefit in the comps? Thank you.

Thank you very much for your question. The genomics, unfortunately, is continuing on the same trend, also agro-science. Discovery is more stabilizing. We don't see an explosion, but more stabilization. I think we will also hit bottom in genomics and agro-science, so we don't foresee a continued decline of that order of magnitude in Q4 and especially going in next year. More importantly, we can adjust the cost base to that new level of revenues and also the product mix in agro-science, for example. There are still stronger demands in some areas like biologics or replacement of chemicals bio organic compounds. So we refocus some of our teams on the markets that are more growing in this area. So we're optimistic that this will stabilize, probably not looking at significant growth for next year, but probably a stabilization. So that will also be a positive because it won't be dilutive on our growth. On discovery, there are some positive outlooks, but like others, we don't see it very much. So we're more looking to a stabilization in discovery, so the very early phase, than restart of significant growth in the next quarter. On biopharma, our BPT is doing well. It's growing mid-single digit. But where we were hit is we had very large studies in the central lab and the clinical phases that we do in bioanalysis. And those programs ended in Q3 of 2024. They have not restarted yet, but basically we won't have the base effect next quarter. As to the impact, it is tens of millions of euros. I don't know if it's 10, 20, 30 million. This is something we, and also if it's per year or per quarter, but it is significant. So we will see it. I don't know if Laurent has a number. No, we don't have it here. But we will, it's a good point. We'll try to publish that with Q4 or give some indication with Q4 on that. But it is significant. And of course, there is the other side is we have signed contracts and we think there will be a restart of those contracts. As usual, for clinical research, it's difficult to know exactly when our clients will restart, when they will start recruiting at a significant level. But we do hope in the course of next year to also see a rebound of growth. We have capacity. We have an efficient central lab or an efficient bioanalytical lab that can support a central lab. And we have clients that have selected us and would like to start studies with us. When exactly those studies will start is a question, but they really plan to do it and they are preparing for it.

Thank you very much.

Thank you. Our next question is coming from James Rolland-Clark with Barclays. Your line is live.

Thank you. Just following up on the easing comps in the fourth quarter beyond the biopharma business, I think you also have easing comps in clinical diagnostics and also in consumers. I wondered if you could help quantify what those two could look like as well. And then just on FX, I just wanted to check, would there be any margin dilution from 1.5% headwind on revenue, i.e. is the EBITDA impact larger than that 1.5% or is it similar? And then my final question is on life, which has accelerated in the last two quarters, really good performance in food in particular. Is that now running at what you think is a sustainable rate of growth? Or is the environment business being flattered by easy comps, and so actually want to race down a tiny bit in the future? Thank you.

Thank you very much. Yeah, the clinical business is about, I think, 300 million, and the hit was 8% on an annual basis. So you can more or less calculate per quarter. It's 75 and 5 or 6 or 7 million impact numbers. on the French clinical business. What was the second one you mentioned? Excuse me?

Consumer.

Consumer. Oh, consumer. This is a mix of many different things. We had a lot of orders in our microscopy and material science business because of pre-stocking prior to... prior to our memories and other things, an instrument willing to China, because we also test instrument in the, in the semi industry. And that was a big boost to 2024. And that is easing a little bit. So we do, we do hope to see better numbers on that in Q4 and, and the resumption of growth next year. So that was the second one that it's, we lump it in consumer, but that's, that's mostly of this, uh, on this activity, the rest of consumers is going well, actually. Surprisingly, considering the economic situation. So we don't see that changing very much. Of course, we also have a heavier weight in Asia in that area and Asia is doing well. The economies in Asia are doing much better than in Europe. So that is good. And life, yes, you know, life is essentially a mid to high single digit growth business. We've seen that for a long time. What you have to realize also is in environment we have seasonal impact and depending on weather effects you can have one quarter in Q1 especially which is a lower quarter. If it snows a lot, if everything is frozen or if there is a hurricane or if something happens that can affect one quarter in environment more than the other areas like food. Food is more affected by scandals or contamination events and things like that Although we are so big now that anything happening in one continent wouldn't so materially affect the whole. And so the growth in environment can vary from quarter to quarter without being particularly meaningful on an annual basis.

Thank you.

And sorry, just on FX, is it safe to assume 1.5% headwind on EBITDA as well as revenue?

Yeah, well, we have a slightly higher margin in the U.S. That's why we come on. And, you know, you can do the math yourself. If you take 2024 and you take the split of margin in the U.S. in North America versus Europe, there is a small dilutive margin effect from if the dollar is lower versus the euro. We've quantified it on a full year impact. So that's probably the same order of magnitude on the quarterly impact. that we will see on the margin, but this is more than offset by the things we do operationally to, of course, continue to optimize our margins, and this program is going well.

Great. Thank you very much.

For a strong change in dollar value, the impact of margin, as we calculated, was 0.2%, so on a full year basis. So we're not talking of huge impact of margins. It's mostly translational. And over time, our margins in Europe should catch up in North America as we finalize all our IT standardization program and also the urban spoke model where we cut duplication across countries in Europe. So it shouldn't be that forever we have significantly lower margins in Europe than America. Over time, we've had times where Europe had higher margins than North America. And so we will see how that evolves over the next two or three years.

Great. Thank you.

Thank you. Our next question is coming from Virginia Montorsi with Bank of America. Your line is live.

Good morning. Thank you very much for taking my questions. I just had two quick ones. One is, could you elaborate a little bit more on how you're thinking about buybacks into end of the year and next year. And then just on the FX impact, at total level, if I think about the 1.6% headwind that you're talking about due to the dollar, would it be fair to assume just a little bit more at group level when I consider all of the currency impact, or should we think about that differently? Thank you.

Thank you. Yeah, buybacks, you know, it is the best investment we can do at the moment when I compare to M&A, the quality of M&A on the market, what we pay for M&A, companies we don't always know, and more importantly, what others pay for M&A, which usually we pass on because we think it's quite high. In our sector, transactions go for 15 times and more, 12 times, depending on the sector. And so when we can buy Eurofins at eight times or nine times or depending on what year you look at, we think it's a bargain. Now, of course, we have a leverage range we want to respect. And so we will respect that. But that still leaves a lot of headroom as our EBITDA is growing and it's growing every year. And on top of that, we generate a lot of cash. And our investment in buildings, this will also at some point ease out, because at some point we will have the urban spoke network, we're very far along, so that will generate more cash. Additionally, if things stay completely abnormal as they are now, we could sell a significant asset and use that cash to buy back even more share or to reduce leverage. So we have a number of options, which means we can continue to do buyback opportunistically. And maybe going forward more massively if things continue, maybe not short term, for the rest of this year anyway. And as to FX, well, it's the same thing. It's all mostly translational. We have a slightly higher, slightly, so on your 1.6% was for the dollar. As we pointed out on the top line, on the top line, the dollar represents about 70% of the FX effect. But the effects on other currencies, since the margin is similar to our average group margin in the rest of the world or in the areas covered by the other currencies, that wouldn't necessarily impact the margin. So that's an indication we can give on that level.

Okay. Thank you very much. Very clear.

Thank you. Our next question is coming from Arthur Truslove with Citi. Your line is live.

Thank you very much for taking my questions, please. A couple of them. So the first one, just on the organic growth guidance, obviously mid-single digit you're talking to, my guess would be that that means at least plus 4%. And can you confirm whether that relates to organic growth adjusted for working days or not adjusted. So I guess at nine months, that's whether it's 3.3% or 4%, that would be the reference point. Second question, I don't think it was in the release, but are you able to say how much revenue you've acquired so far this year in terms of deals that you've done and also how much you've paid for it? And I guess just on capital allocation as well, you mentioned in response to a prior question that you could potentially sell a major asset. In what circumstances do you think you would actually do that?

Thank you. Thank you.

Yeah, the organic guidance is adjusted for working days, but it doesn't mean we can't exceed it. So we will see, as I mentioned, the comps should help us in Q4 significantly, and our business is doing well. We see some acceleration in some areas, so we will see what Q4 brings. More importantly, is whether our growth is 7, 6, 5, 4, we will improve margins, and we will improve profits over proportionately, and more and more as we advance, through our digitalization and network expansion program. And we've shown that with less growth than our secular growth targets, we can improve margins significantly. We showed that last year, we showed that in the first half of this year, and we will show it again in the second half of this year, we believe. So that's on that. Also on organic growth, You know, if you look at one quarter, I've heard people saying, oh, yes, but the biopharma organic growth in Q3 is slightly lower. We're talking a very small number. Biopharma is 500 million. And in Q3 of last year, in 2024, there was one building of our CDMO in Canada that started working that added 4 million to our revenues. And that is 0.8% of the biopharma growth. Of course, that is now included in the comps because it started in Q3 of last year, of 2024. So, one should not draw things, over-conclude on things. There are very small numbers we're talking about. So, we don't see any change of trend. Maybe there was this single event that can confuse some people, but overall... We see the evolution in biopharma, as we described, with the BPT doing very well, the CDMO doing very well, and the ancillary activities staying soft and having a base effect for the clinical with studies that ended in Q3 of last year. So overall, we are very confident with our objectives for the rest of the year and on the organic growth level and even more on the margin level. Acquired revenues, I don't think we have published that, so we will Look for it, but it's nothing extraordinary in Q3. We published a number of small acquisitions or we did a number of small acquisitions.

In H1, it was 210 million on a full year basis. So it's going to be 10, 20 million more for Q3. For the revenues. Yeah, for the revenues on a full year basis.

So we didn't do any large deal in Q3. So we do mostly small bolt-ons because we focus on finalizing our hub and spoke network. And capital allocation, you know, this will be, if we ever sell assets, it will be either, it will be mostly opportunistic. If we see an asset that potentially is not 100% fit with our plans and where maybe we will not become number one in the world in that area, we might consider exiting that asset if we get a really good price for it. I think that would be it. And then we arbitrage with the buying of our shares. I don't know how long this undervaluation, in our opinion, will continue. We think it is quite massive. But, of course, the market is always right. And so we will opportunistically arbitrate if we need to. And, of course, those things are done confidentially. So there will be no warning. If we do a deal, we'll announce it when it's signed.

Thank you very much.

Thank you. As a reminder, ladies and gentlemen, if you do have any questions today, you may press star followed by one on your telephone keypad. Our next question is coming from Alan Wells with Jefferies. Your line is live.

Hey, good afternoon, Gilles. A couple for me. Just a clarification question off the back of Sushini's question from the start. I just really want to understand the sequential change in farmer growth. It looks obviously like the sequentially farmer overall growth was weaker in q3 versus q2 um by at least 110 basis points and it also looks like the comp was easier as well as you say there's some trialing that starts to drop out in q3 but in your commentary at the start you talked about genomics and agro science was weak but kind of at the bottom ancillary was kind of stable maybe getting a little bit better discovery was stable so i'm just trying to understand what's actually got worse in q3 you versus Q2 to drive that sequential weakness? That's my first question. And then secondly, just maybe we could also answer some of it as well, is regionally, I just wanted to understand what was going on in North America. Again, sequentially, it's been a good region for you, but sequentially looks weaker by kind of 40 basis points in Q3 versus Q2 against an easier confidence, 100 basis points of decline in North America. Are there particular moving parts in particular pharma or is it food that's driving that North America slowdown as well? So just pharma and North America for me, please.

Thank you. Your first question was cut off, so I'm not sure I understand what you said. I don't see 110 base point going down anywhere, so I don't really understand your numbers. Do you mind rephrasing?

Yeah, sorry. So if I just look at the Q2 growth, at least in my headline numbers working day, what reported was 1.5-ish percent, 1.4, 1.5 percent in Q2. Pharma looks like 0.4 in Q3, so that looks like 100, 110 basis points of decline. Sequentially, maybe that number's wrong, but it looks like pharma got sequentially weaker in Q2 versus Q3, yet the commentary around genomics, agro-science, discovery, all feels like it's weak but stable, but something must have got worse in Q3 versus Q2, unless I'm misunderstanding something.

Yeah, no, I was commenting on that earlier. You know, we have, for example, one in Q3 of 2024, we had one unit of our new CDMO building in Canada that started, and that added 0.8% to the pharma in Q4 of 2024. And of course, that's a base effect for this quarter because this unit is growing, but it's not growing at the same order of magnitude, so doubling in size or whatever. So those are the kind of effects you can have from one quarter to the next, which don't mean anything. So that's basically this question. On the other aspects, I'm not sure. I think I answered already about the different components. that we think the agro-science and part of the agro-science actually, agro-science and genomics are still down and still down meaningfully, but we think they will bottom up in the relatively near future. And we are adjusting the cost to the level where they are. while discovery is soft, but we see the outlook more positive and looking for a stabilization, but it's not significantly down. I think that's a comment I gave. And as to the clinical part of a biopharma, we had very large studies that ended at the end of Q3 of 2024, and therefore were still significant amount of revenues in Q3 of 2024. which are not there in Q3 of 2025. But when we go in Q4 of 2025, the comps will, of course, not include those revenues because those studies ended in Q3 of 2024. I think that's what I said earlier.

Okay, thank you. And just on North America, the change sequentially, what's driving the slightly slower North America growth?

I don't think there is any meaningful explanation other than the one I gave or or biopharma is bigger in North America. The CDMO is a North America effect that happened in Q3 that was a big plus in Q3 2024. I don't think there is anything meaningful in North America, one way or another, that they could extrapolate anyway, any particular way. Frankly, I think, of course, there is not a lot of data in a quarterly release, and maybe it gets over-analyzed and over-extrapolated over 2,000 quarters, a trend of one quarter. That is, of course, possible, but our view from inside is everything is evolving as planned, and we think we will achieve or exceed our objectives for this year, and we're bullish about the evolution for next year. and the achievement of our 2027 objectives.

Thank you.

Thank you. This is all the time we have for today's question and answer session, so we would like to turn the call back over to Dr. Gilles Mertin for any closing remarks.

Right. Thank you, everybody, for your questions. We are available offline for more questions. Andrew and Laurent or myself at investors' conferences will be holding one investors' meeting in Hamburg later this week on Friday. And we will also be holding an investors' meeting in Lancaster. That will give you the opportunity to meet our leaders who lead our different business lines and ask more questions. They are definitely more competent to give you views about how they see the future of in details in their business lines. But overall, we have done a lot internally to improve our business, improve our efficiency. We are continuing to do that, and that makes us very bullish about how well we will do in a sector that's very resilient, that's not too affected by the economic cycles. We build very for our market with our extraordinary efficiencies. And that should help us in the end stages of the consolidation of this market. And we think our competitive advantage in the market can only improve, will improve, and will be more and more appreciated by clients, which will lead to market share gains that are also an important part of the growth that we see going forward. So that concludes this call. Looking forward to meeting some of you in person on Friday and in November in America. Thank you very much.

Thank you. Ladies and gentlemen, the call is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day.