Eurofins Core Business Organic Growth Accelerates Above Its Objectives in H1 2023

LUXEMBOURG–(BUSINESS WIRE)–Regulatory News:

Eurofins Scientific SE (Paris:ERF):

Financial highlights

Eurofins continued to demonstrate robust Core Business organic growth in H1 2023:

• Total revenues of €3,209m declined year-on-year by -5.9%, restrained by the sharp year-on-year decrease in revenues from COVID-19 testing and reagents (less than €20m in H1 2023 vs over €470m in H1 2022) and FX headwinds (-0.5%).
• Revenues in the Core Business (excluding COVID-19 testing and reagent revenues) increased organically¹³ by +7.0% in H1 2023 vs H1 2022, driven by a strong development in North America. By quarter and adjusted for public working days, organic growth accelerated to 7.5% in Q2 2023 vs 6.6% in Q1 2023.
• Adjusted¹ EBITDA³ of €640m (19.9% of revenues) declined vs €829m (24.3% of revenues) in H1 2022, mostly impacted by the sharp decrease in revenues from COVID-19 testing and reagents and inflationary headwinds.
• Eurofins generated Free Cash Flow before investment in owned sites¹⁶ of €125m vs €306m in H1 2022, primarily due to lower EBITDA and continued net capital expenditures geared towards capacity expansion, start-ups and the development of bespoke IT solutions.
• Net Profit⁷ amounted to €151m.
• Eurofins’ balance sheet remains very solid at the end of June 2023:
  • Financial leverage (net debt¹¹ to last 12 months adjusted pro-forma EBITDA) was 1.9x, flat vs the end of 2022 and well within its targeted range of 1.5-2.5x.
  • Eurofins has no major financing requirements until the outstanding €448m senior Eurobonds become due on 25 July 2024 and, in addition to a cash position of €682m, has access to over €1bn of committed mid-term (3-5 years) bilateral bank credit lines.

Strategic highlights

Eurofins companies continue to advance on a large number of long-term growth and innovation initiatives:

• The focus has been on reasonably valued smaller bolt-on acquisitions:
  • In H1 2023, Eurofins closed 18 business combinations that generated revenues of about €64m in 2022 at a cost of €83m, reflecting a sales multiple of 1.3x.
• Eurofins added 31,000 m² of net surface area to expand its network in the first six months of 2023. Through a combination of building projects and building purchases, a decrease in leased surfaces and bolt-on acquisitions, Eurofins was able to increase its ownership proportion of the total net floor area of its sites to 31% at the end of June 2023 vs 30% at the end of 2022.
• Eurofins continues its strong pace of start-up activity, launching 20 new start-up laboratories and 29 new blood collection points (BCPs) in the first six months of 2023. The 271 start-ups and 47 BCPs launched since 2000 have made material contributions to the overall organic growth of the Group, accounting for 0.9% out of the 7.0% organic growth achieved in H1 2023.
• The roll-out of automation technologies is accelerating as Eurofins companies begin implementing bespoke modular automation platforms. Based on standardised and proprietary building blocks, each flexible platform can fit numerous applications. Though these automation systems require significant operational expenditures to develop and capital expenditures to deploy, they should be an important contributor to quality, productivity and financial returns in the coming years. In its initial automation wave, for example, the Company targets to automate a sizable proportion of analytical preparation for contaminants testing in its Food and Environment Testing businesses in Europe by the end of 2024.
• Eurofins continues to make meaningful contributions to Testing for Life:
  • Leveraging artificial intelligence and its rich databases of reference samples, Eurofins Alimentaire France SAS recently launched a rapid test to guarantee the authenticity of organic food products.
  • Further expansion of its PFAS testing activities in Environment Testing and Food Testing as well as Clinical Diagnostics, where Eurofins is conducting blood testing on up to 75,000 residents living near a chemical production site in Belgium for the presence of PFAS.
  • Eurofins Discovery, an industry-leading provider of products and services for drug discovery research, contributed human in vitro data from its innovative BioMAP® Platform to advance clinical progression of IOA-289, a novel oral therapy for cancer and fibrotic disease.

Revenue by activity

Following requests by investors for information supplementing already published disclosures on its three reportable segments (Europe, North America and Rest of the World), Eurofins is providing its revenues by activity.

€m	H1 2023	As % of total
Life	€1,257m	39.2%
BioPharma	€976m	30.4%
Diagnostic Services & Products	€652m	20.3%
Consumer & Technology Products Testing	€325m	10.1%

Activities are defined as follows:

• Life, consisting of Food and Feed Testing, Agro Testing and Environment Testing
• BioPharma, consisting of BioPharma Services, Agrosciences, Genomics and Forensic Services
• Diagnostic Services & Products, consisting of Clinical Diagnostics Testing and In Vitro Diagnostics (IVD) Solutions
• Consumer & Technology Products Testing, consisting of Consumer Product Testing and Advanced Material Sciences

2023 to 2027 Objectives

• Eurofins has updated its objectives for FY 2023 which had been announced at the FY 2022 results presentation on 1 March 2023 to reflect the latest FX rates evolution and the current M&A activity. The objectives for FY 2027 have not been updated.

€m	FY 2023 (updated)	FY 2027
Revenues	€6.45bn – €6.55bn	Approaching €10bn
Adjusted EBITDA	€1.32bn – €1.37bn	Margin: 24%
FCFF before investment in owned sites16	€670m – €720m	Approaching €1.5bn

• The updated FY 2023 objective assumes exchange rates prevailing for H1 2023 are constant for the remainder of the year, implying a year-on-year headwind from foreign currency translation of ca. €115m. It also assumes reduced M&A activity in FY 2023 that would contribute revenues of ca. €90m on a consolidated basis and ca. €200m on a full year proforma basis (instead of €125m and €250m, respectively).
• The aforementioned factors reducing the FY 2023 objective by €150m in consolidated revenues translates to a €30m decrease of the FY 2023 adjusted EBITDA and FCFF before investment in owned sites objective.
• The FY 2027 objective assumes exchange rates are stable vs 2022 average and zero contribution from COVID-19 testing and reagents. To 2027, Eurofins targets average organic growth of 6.5% p.a. and potential average revenues from acquisitions of €250m p.a. over the period.
• Continued growth investments in the ownership of large strategic sites, transfer of activities therein, start-ups and bespoke proprietary IT solutions are expected to drive increased profitability and cash generation over the mid-term horizon.
• With the aim of launching 30 new start-up laboratories (50 in FY 2022, 20 in H1 2023) and several new BCPs (18 in FY 2022, 29 in H1 2023) in FY 2023, Eurofins expects Separately Disclosed Items² (SDI) at the EBITDA level to be about €100m in FY 2023 and decline thereafter towards less than 0.5% of revenues.
• Capital allocation priorities in FY 2023 and in the mid-term will continue to include site ownership of high-throughput campuses to complete Eurofins’ global hub and spoke network, start-ups in high growth areas, development and deployment of sector-leading proprietary IT solutions, and acquisitions. Investments in these areas are key to our long-term value creation strategy. From FY 2023, investment in owned sites is assumed to be around €200m p.a., while net operating capex is expected to be ca. €400m p.a. (total net capex⁹ of €600m p.a.).
• Eurofins targets to maintain a financial leverage of 1.5-2.5x throughout the period and less than 1.5x by FY 2027.
• The speed of improvement towards the 2027 adjusted EBITDA margin objective will depend on the timing of the bottoming out of the food and consumer product end markets and how fast pricing can be aligned to cost inflation as well as the speed of execution of innovation, productivity improvement measures, digitalisation and automation initiatives.

Comments from the CEO, Dr Gilles Martin:

“Though the global economic outlook remains uncertain due to lingering inflationary pressures, higher interest rates and the ongoing war in Ukraine, Eurofins continued to demonstrate robust organic growth above its objective in its Core Business activities in the first half of 2023. Growth was particularly strong in North America, where demand trends in our Food Testing, Environment Testing and BioPharma Product Testing activities more than compensated for the substantial year-on-year decline in revenues from COVID-19 testing and reagents in the region. Europe and Rest of the World also demonstrated healthy growth despite challenges in the current economic climate. Pricing initiatives in all regions are starting to be a driver of these results. Overall, we continue to execute well on our long-term value creation strategy while maintaining a sound capital structure.

“In the second quarter of 2023, Eurofins has almost fully compensated the temporary revenues from COVID-19 testing and reagents it achieved between 2020 and 2022 and expects to fully do so on a full year basis as soon as 2024.

“Supported by higher volumes, contributions from start-ups and market share gains, and further pricing adaptations, we anticipate sustaining our strong organic growth momentum through the second half of 2023. We will also keep accelerating our efforts in technological innovation, in particular the roll-out of automation systems and further digitalisation of processes in the coming quarters, so we can further improve on our industry-leading service quality to clients. Increasing automation also complements other cost efficiency efforts that are underway to improve our competitiveness.

“Despite the current challenges, I remain very confident in the entrepreneurial and innovative spirit of Eurofins teams to continue delivering outstanding, high-quality service to clients, above-market growth and value creation as we progress towards our FY 2023 and FY 2027 objectives.”

Conference Call

Eurofins will hold a conference call with analysts and investors today at 14:00 CEST to discuss the results and the performance of Eurofins, as well as its outlook, and will be followed by a questions and answers (Q&A) session.

Click here to Join Call >>
No need to dial in. From any device, click the link above to join the conference call. Alternatively, you may dial-in to the conference call via telephone using one of the numbers below:

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FR: + 33 176 772 274

BE: + 32 240 406 59

DE: + 49 6966 102 480

Confirmation Code: 1715178

Business Review

The following figures are extracts from the Condensed Interim Consolidated Financial Statements and should be read in conjunction with the Condensed Interim Consolidated Financial Statements and Notes for the period ended 30 June 2023. The Half Year Report 2023 can be found on Eurofins’ website at the following link: https://www.eurofins.com/investors/reports-and-presentations/

Table 1: Half Year 2023 Results Summary

	H1 2023			H1 2022			+/- % Adjusted results	+/- % Reported results
In €m except otherwise stated	Adjusted1 results	Separately disclosed items2	Reported results	Adjusted1 results	Separately disclosed items2	Reported results
Revenues	3,209	–	3,209	3,412	–	3,412	-5.9%	-5.9%
EBITDA3	640	-51	589	829	-29	800	-23%	-26%
EBITDA margin (%)	19.9%	–	18.3%	24.3%	–	23.4%	-440 bp	-510 bp
EBITAS4	397	-69	327	602	-42	560	-34%	-42%
Net profit7	261	-110	151	396	-88	308	-34%	-51%
Basic EPS8 (€)	1.36	-0.57	0.79	2.07	-0.46	1.61	-34%	-51%
Net cash provided by operating activities			333			498		-33%
Net capex9			259			278		-7%
Net operating capex			208			192		+8%
Net capex for purchase and development of owned sites			51			86		-41%
Free Cash Flow to the Firm before investment in owned sites16			125			306		-59%
M&A spend			83			197		-58%
Net debt11			2,588			2,627		-1%
Leverage ratio (net debt/pro-forma adjusted EBITDA)			1.9x			1.5x		+0.4x
Note: Definitions of the alternative performance measures used can be found at the end of this press release

Revenues of €3,209m declined year-on-year by 5.9%, restrained by the sharp year-on-year decrease in revenues from COVID-19 testing and reagents (less than €20m in H1 2023 vs over €470m in H1 2022) and FX headwinds (-0.5%). The decline was partially compensated by strong organic growth in the Core Business (excluding COVID-19 related clinical testing and reagents revenues) of 7.0%.

Table 2: Organic Growth Calculation and Revenue Reconciliation

	In €m except otherwise stated
H1 2022 reported revenues	3,412
+ H1 2022 acquisitions – revenue part not consolidated in H1 2022 at H1 2022 FX rates	93
– H1 2022 revenues of discontinued activities / disposals15	-45
= H1 2022 pro-forma revenues (at H1 2022 FX rates)	3,460
+ H1 2023 FX impact on H1 2022 pro-forma revenues	-16
= H1 2022 pro-forma revenues (at H1 2023 FX rates) (a)	3,444
H1 2023 organic scope* revenues (at H1 2023 FX rates) (b)	3,192
H1 2023 organic growth rate (b/a-1)	-7.3%
H1 2023 acquisitions – revenue part consolidated in H1 2023 at H1 2023 FX rates	16
H1 2023 revenues of discontinued activities / disposals15	2
H1 2023 reported revenues	3,209
* Organic scope consists of all companies that were part of the Group as at 01/01/2023. This corresponds to 2022 pro-forma scope.

Table 3: Breakdown of Revenue by Operating Segment

€m	H1 2023	As % of total	H1 2022	As % of total	Y-o-Y variation %	Organic growth in the Core Business**
Europe	1,622	51%	1,855	54%	-12.5%*	+5.4%
North America	1,243	39%	1,206	35%	+3.1%	+9.6%
Rest of the World	344	11%	351	10%	-1.9%*	+5.8%
Total	3,209	100%	3,412	100%	-5.9%	+7.0%
* Segments most impacted by the sharp decline in revenues from COVID-19 testing and reagents
** Excluding COVID-19 related clinical testing and reagent revenues

Europe

• Reported revenues decreased vs H1 2022 by €233m, primarily due to the year-on-year decline in COVID-19 testing and reagents revenues. Excluding this impact, Core Business revenues were up year-on-year by 5.4%, with almost all areas of activities demonstrating positive growth.
• Despite the elevated comparable base of H1 2022 from projects supporting COVID-19 vaccines, Eurofins’ BioPharma Services business in Europe recorded sound growth in H1 2023. Large clients from the pharmaceutical industry continue to sustain a high level of development activity for future biologics products as well as cell and gene therapies. Pricing attainment to compensate for the inflationary environment also supported growth. On the other hand, a limited number of Eurofins activities have experienced volume development challenges. For example, a decline in the market for early-stage research and development activities, most notably from smaller biotech clients, has resulted in softer demand for services from Eurofins Discovery.
• The business environment for Eurofins’ Food and Feed Testing business in Europe remained challenging in H1 2023. Persisting high inflation in consumer food prices and efforts by food producers and retailers to control costs continue to restrain testing volume growth. Eurofins has responded to the situation with solid gains in pricing as well as cost adaptations. In addition, the Company continues to make investments to improve productivity in its laboratories and in customer service, most notably in digitalisation, automation and artificial intelligence.
• Growth in the Environment Testing business in Europe was driven by healthy demand for asbestos and pesticide testing related to new regulations concerning these substances. New regulations are also a driver of increasing momentum in the PFAS testing business, an area in which Eurofins companies are market leaders in terms of both methods and capacity. Further growth has been achieved through the launch of new direct-to-consumer businesses in Germany offering sampling kits for the identification of PFAS in matrices such as water, construction materials, soil and asbestos.
• With the impacts of COVID-19 related disruptions having subsided throughout the course of 2022, the Clinical Diagnostics business in Europe experienced a strong year-on-year recovery in volumes in H1 2023. Sales growth was also supported by network expansions, including the opening of 29 blood collection points, the awarding of a new outsourcing contract in the Netherlands, and new clinical genetics services, most notably in the prenatal and In Vitro Fertilisation (IVF) segments. Growth was also supported by Eurofins Belgium NV’s biomonitoring project for PFAS in blood in Antwerp, the biggest such project in Europe. Recently Eurofins also started offering testing for PFAS in blood in Spain. On the other hand, reductions in reimbursements for routine diagnostics in France that became effective in H1 2023 restrained the sales development.

North America

• Reported revenues increased year-on-year by €37m, supported by strong organic growth across almost all areas of activities. Core Business revenues were up +9.6% year-on-year.
• Growth in Eurofins BioPharma Services in North America was resilient in the first half of 2023. By area, BioPharma Product Testing (BPT) recorded a strong development, sustained by robust demand for mid-to-late phase biologics development by the larger-sized and medium-sized sponsors that make up the predominant share of this business activity. The deployment of Eurofins’ proprietary eLIMS-BPT and LabAccess IT solutions also further progressed, with a high percentage of customers now utilising the platform’s industry leading portal to manage the full life cycle of their testing needs from online ordering to complete data deliverables. Demand growth has also been solid for mid-to-late phase clinical trials served by Eurofins Central and Bioanalytical Laboratories. Additionally, Professional Scientific Services® (PSS) continued expanding to meet increased client demand for flexible outsourcing solutions for their laboratory and scientific support operations. On the other hand, Eurofins Discovery has been experiencing more challenging market conditions. In response, it has made adaptations to its organisation and has also increased investments in innovation, such as the deployment of artificial intelligence utilising Eurofins’ own curated data set for bioinformatics-driven applications for drug discovery.
• The Food and Feed Testing business in North America set new monthly sales records in H1 2023. In addition to volume growth and pricing attainment in its existing business areas, Eurofins also started numerous new initiatives to enhance its market presence. Examples include new start-up laboratories in California, Arizona and Idaho to address the stringent turnaround time requirements of produce customers as well as capacities to tap into the growing interest in testing for PFAS in food and food packaging. Furthermore, Eurofins Food and Feed Testing also introduced significant operational innovations in the period. For example, in Iowa, a new automation line for weighing samples has been able to reduce labour intensity by nearly 50%. Eurofins has also deployed new modular laboratories, fully-equipped and operational facilities to perform all microbiology testing on site that also can be quickly and easily relocated depending on market and customer requirements. With these modular laboratories, Eurofins can provide fast turnaround times to clients that are producing perishable products and/or are in remote areas away from major cities and logistics routes.
• The Environment Testing business in North America continued outstripping market growth, underpinned by geographical footprint expansion, the broadening of its technical capabilities, sector-leading service performance and pricing initiatives. Upgrades/expansions in Environment Testing facilities in California, Ohio, Colorado, Florida and Texas have supported processed volume increases. PFAS testing remains a significant growth driver, expanding at approximately twice the growth rate of the overall Environment Testing business. Eurofins operates both a hub and spoke and distributed model for PFAS testing with comprehensive services offered from 8 locations, supported by East and West Coast hubs, with additional expansions in the planning and commissioning phases. Operationally, carbon footprint reduction, productivity and health and safety are being supported by sample miniaturisation and reduction programmes made possible through investment in advanced detection techniques. Digital technologies have also been rolled out, including eCOC (electronic chain of custody) for field samplers and AI tools to assist data integrity checks and chromatographic integrations.
• In Clinical Diagnostics, Eurofins CellTx, a startup laboratory in Arizona, began operations supporting critical testing for living donor derived human tissue, including stem cells, bone marrow, cord blood, birth tissues, oocytes, and sperm donations. At Eurofins Viracor, two new notable tests were launched. ExPeCT™ CAR T a multiplexed, real-time qPCR assay that provides a powerful diagnostic tool to monitor and optimise CAR-T therapy involving patients with pre-B cell acute lymphoblastic leukemia and B cell lymphomas. Eurofins Viracor also introduced a new real-time PCR panel for the rapid identification/detection of Candida species including Candida auris, an emerging species of pathogenic fungus/yeast that has caused outbreaks in healthcare settings in the United States and which are often resistant to most common antifungal drugs. Conversely at Eurofins Transplant Genomics, volumes for kidney transplant biomarker testing have been significantly impacted by a billing article concerning Medicare reimbursement for such tests which became effective on 31 March 2023. Consequently, Eurofins has adapted the cost structure of this business to compensate for the decrease in demand.

Rest of the World

• Core Business revenues were up +5.8% year-on-year due to strong organic growth across most countries in the region.
• Numerous countries contributed to the healthy growth recorded in Asia-Pacific in H1 2023. In China, the low comparable base related to lockdowns in H1 2022 allowed Eurofins to record sizable year-on-year growth in H1 2023, most notably in the Consumer Product Testing business. Additionally, demand for Food Testing and Biopharma Services in China were also robust as Eurofins reaps the benefits of investments to strengthen its local laboratory network through start-ups. In India, an important location for global pharmaceutical R&D value chains, Eurofins’ Biopharma Services business has continued expanding its revenues as well as its market presence, including the addition of a fully equipped, state-of-the-art laboratory campus in Genome Valley, Hyderabad. In Japan, growth in the Environment Testing business was driven by tightening regulations for asbestos testing as well as emerging demand for PFAS testing. In Australia and New Zealand, the addition of new laboratories as well as improvements in capabilities, customer service and logistics support helped Eurofins companies grow faster than the underlying local markets. To further augment Eurofins’ regional footprint and service portfolio, numerous acquisitions in Environment Testing were closed in these countries.
• Eurofins also further developed its network outside Asia. In Latin America, Eurofins has been expanding its footprint into new geographies, establishing activities in the Dominican Republic for Clinical Diagnostics.

Contacts

Investor Relations

Eurofins Scientific SE

+32 2 766 1620

[email protected]

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