Eurofins Delivers Strong Margin Improvement and Cash Generation in H2 2023 and Annual Results in Line With Its 2023 Objectives. Remains Confident to Achieve Its 2027 Objectives.

LUXEMBOURG–(BUSINESS WIRE)–Regulatory News:

Eurofins Scientific SE (Paris:ERF):

Key highlights

H2 2023 represents the first period not affected by prior year comparables including significant contributions from COVID-19 testing and reagents (less than €120m of revenues in H2 2022 vs around €5m in H2 2023) and thus for the first time provides a comparison mostly free from the one-time effects of the pandemic.

• Revenues in H2 2023 of €3,305m increased year-on-year by 0.1%, as organic growth in the Core Business (excluding COVID-19 testing and reagent revenues) of 7.2% (adjusted for the impact of one public working day fewer in H2 2023 vs H2 2022) and contributions from acquisitions more than compensated for the loss of COVID-19 testing and reagent revenues generated in the comparable prior year period as well as FX headwinds.
• The adjusted¹ EBITDA³ margin increased 120bps to H2 2023 (21.9%) from H2 2022 (20.7%). This advancement resulted from pricing initiatives and the first effects of a number of innovation, productivity, digitalisation and automation initiatives.
• Free Cash Flow to the Firm¹⁰ in H2 2023 (€400m) increased by 47.9% vs H2 2022 (€271m).
• Cash conversion (measured in terms of Free Cash Flow to the Firm¹⁰ divided by Reported EBITDA³) increased substantially in H2 2023 (62%) vs H2 2022 (44%).

As a result of this strong improvement in profitability and cash conversion in H2 2023, Eurofins delivered full year results in line with its 2023 annual objectives in an environment that remained challenging in Europe:

Financial highlights in FY 2023

• Revenues in FY 2023 of €6,515m declined year-on-year by -2.9%, impacted by the sharp decrease in revenues from COVID-19 testing and reagents (just over €20m in FY 2023 vs just under €600m in FY 2022) and FX headwinds (-1.9%).

• Revenues in the Core Business (excluding COVID-19 testing and reagents) increased organically¹³ by +7.1% in FY 2023 (adjusted for the impact of one public working day fewer in FY 2023 vs FY 2022):

  • Resilient Core Business organic growth in Europe of +6.2% was led by Environment Testing and a gradual improvement in Food Testing.

  • In North America, strong Core Business organic growth of +8.7% was supported by the continued development of Environment Testing, Food Testing and BioPharma Services.

  • Core Business organic growth in Rest of the World of +6.0% was driven by a strong performance in China, the steady expansion of BioPharma Services in India as well as new start-up laboratories in Australia and New Zealand.

  • Eurofins finalised the reorganisation of its network to the post-pandemic situation in 2023 and can now put the costs and disruptions of these reorganisations behind it and fully focus on the growth and improvement of its Core Business in 2024.

  • Eurofins accelerated its pace of start-up activity, initiating 50 new start-up laboratories and 49 new blood collection points (BCPs) in 2023. The 301 start-ups and 67 BCPs launched since 2000 have made material contributions to the overall growth of the Group, accounting for €629m of revenues and contributing 0.6% of organic growth in FY 2023.

• In spite of unfavourable FX effects, adjusted¹ EBITDA³ of €1,364m (20.9% of revenues) in FY 2023 was in the upper end of Eurofins objectives (€1.32bn to €1.37bn) though lower vs FY 2022 (€1,513m, 22.5% of revenues), mostly impacted by the significant year-on-year decrease in COVID-19 testing and reagent revenues (just over €20m in FY 2023 vs just under €600m in FY 2022).

• Given the uncertain economic and geopolitical outlook, Eurofins remained prudent in FY 2023 with its acquisition strategy, focussing on reasonably valued bolt-on deals that will provide appropriate accretion to return on capital employed. In FY 2023, Eurofins closed 40 business combinations with FY 2023 pro-forma revenues of €122m at a cost of €158m, reflecting an average sales multiple of 1.3x.

• Free Cash Flow to the Firm¹⁰ of €474m remained stable year-on-year despite the decrease of EBITDA³:

  • Due to a strong H2 2023 performance, cash conversion increased in FY 2023 (38%) vs FY 2022 (35%).

  • Net operating capex⁹ of €392m declined 15% year-on-year vs €459m in FY 2022, reflecting improved capex discipline for programmes related to capacity expansion.

  • Eurofins invested an additional €152m to own more of its strategic sites, continuing its long-term strategy of completing its global hub and spoke network including large high-throughput campuses.

  • Net working capital¹² intensity (net working capital divided by 4 times the last quarter’s sales) increased from 4.2% at the end of FY 2022 to 5.1% at the end of FY 2023. Measures to improve net working capital intensity are underway.

• Net Profit⁷ amounted to €308m and Basic EPS⁸ was €1.33.

• Adjusted¹ Net Profit⁷ was €568m and adjusted¹ Basic EPS⁸ was €2.71.

• Eurofins’ balance sheet remains very solid, with financial leverage (net debt¹¹ to adjusted pro-forma EBITDA³) of 2.0x at the end of 2023, stable vs 1.9x at the end of 2022.

• At the upcoming Annual General Meeting on 25 April 2024, the Board of Directors intends to propose an annual dividend of €0.50 per share, an increase of 74% vs 2018 (€0.288), the last dividend prior to the COVID-19 pandemic, and equivalent to a CAGR of 11.7%.

Strategic highlights

Eurofins continues to make important advances on its long-term growth, sustainability and innovation initiatives:

• Eurofins added 77,000 m² of net surface area to expand its network in 2023, with 78% of the added area owned by Eurofins. Since the end of 2018, the net floor area of buildings owned by Eurofins has more than doubled from 240,000 m² to 550,000 m², corresponding to an increase in the ownership proportion of the total net floor area from 19% to 32%.

• Further progress was made towards Eurofins’ objective of carbon neutrality by 2025:

  • Total emissions were reduced by 8% from 497 ktCO2e in FY 2022 to 458 ktCO2e in FY 2023.

  • Carbon intensity (tCO2e/m€ revenues) was 70 in FY 2023, 28% lower vs FY 2019.

  • In partnership with Thermo Fisher Scientific Inc., Eurofins is investing in a virtual power purchase agreement (PPA) for a 36 MW portion of the Serbal solar project, located in Spain. From 2025 onwards, the project is expected to deliver 76,000 megawatt-hours of green energy per year to Eurofins, equivalent to over 15% of Eurofins’ total worldwide electricity consumption.

  • Eurofins has committed to setting near-term science-based emissions reduction targets in line with the Science Based Targets initiative (SBTi) Criteria and Recommendations.

• Eurofins made numerous meaningful contributions to Testing for Life in 2023:

  • Eurofins Discovery LeadHunter® Services launched the obesityLITE panel, a one-of-a-kind set of 25 assays for testing anti-obesity therapies against multiple targets in one convenient screen.

  • Eurofins Discovery launched DiscoveryAI™, a tool that accelerates drug discovery through artificial intelligence. Leveraging Eurofins Discovery’s high-quality proprietary dataset of >2,500 compounds and >1m records collected over 10+ years, the DiscoveryAI™ tool provides valuable data analytics to Eurofins Discovery’s clients with the potential to reduce drug-to-market time by at least 20%.

  • Eurofins Viracor launched ExPeCT™, a ground-breaking test for assessing expansion and persistence of CAR-T therapy in cancer patients with pre-B cell acute lymphoblastic leukemia and B cell lymphomas. It is expected to be a valuable tool in helping clinicians to make more informed decisions about the best course of treatment for their patients.

  • DNA Diagnostics Center (DDC), a global leader in genetic relationship and consumer testing, and part of the Eurofins network of companies, launched Peekaboo^TM Click, an exceptionally accurate (99.5%) test utilising a comfortable and simple at-home collection device that enables expecting parents to discover their baby’s gender very early in pregnancy.

2024 and 2027 Objectives

• Eurofins is providing its objectives for FY 2024 and confirming its objectives for FY 2027:

• The FY 2024 and FY 2027 objectives assume same average exchange rates as in FY 2023 and zero contribution from COVID-19 testing and reagents. From FY 2024 to FY 2027, Eurofins targets average organic growth of 6.5% p.a. and potential average revenues from acquisitions of €250m p.a. over the period consolidated at mid-year. As in 2023, Eurofins will remain prudent with its acquisition strategy and only acquire businesses that meet its objectives for return on capital employed.

• Similar to how the improvement in adjusted¹ EBITDA³ margin was achieved in H2 2023 vs H2 2022, the anticipated further improvements in adjusted¹ EBITDA³ margin in FY 2024 and towards the FY 2027 objective are underpinned by programmes that continue to align pricing to cost inflation and include innovation, productivity, digitalisation and automation initiatives as well as better utilisation of its state-of-the-art laboratory network.

• In 2024, Eurofins will also review some of its smaller underperforming businesses.

• In the coming year, Eurofins expects to continue its high intensity of start-up activities, in particular in the areas of In Vitro Diagnostics, Genomics and Clinical Diagnostics Testing. Additionally, due to an unexpected billing article concerning Medicare reimbursement for kidney transplant biomarker testing, Eurofins Transplant Genomics plans to conduct clinical trials to expand data on the medical benefits and applicability scope of its tests. Due to temporary losses related to these start-ups, Separately Disclosed Items² (SDI) at the EBITDA³ level should remain at an elevated level of about €125m in FY 2024. Thereafter, as newly initiated start-ups ramp up and become profitable, SDI at the EBITDA³ level should decline gradually towards about 0.5% of revenues in 2027.

• Capital allocation priorities in FY 2024 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/high return 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. To 2027, 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.

Comments from the CEO, Dr Gilles Martin:

“Thanks to the contributions and focus of Eurofins teams and despite the dynamic and challenging operating environment, especially in Europe, we were able to deliver results in line with our 2023 objectives. Supported by the resilience of our end markets, diverse regional portfolio and long-term investments in infrastructure and innovation, organic growth of 7.1% in our Core Business activities came in above our mid-term target of 6.5%. Adjusted EBITDA came in at the upper end of our target range, thanks to a year-on-year improvement in the adjusted EBITDA margin of 120bps in H2 2023 vs H2 2022, the first comparable period with limited revenues from COVID-19 testing and reagents. In addition, solid operating cash flow and disciplined spending on capital expenditures and acquisitions, together with conservative management of our capital structure, helped to sustain our strong balance sheet. In terms of sustainability, we continue to make substantial improvements, as demonstrated by the absolute decline in our carbon emissions of 8% vs 2022. In terms of carbon intensity relative to revenues, we are now 28% below the 2019 level.

Looking ahead, having finalised in 2023 the readjustment of our organisation to the post-pandemic situation, our keys to long-term success remain unchanged: continue to invest in building out our best-in-class hub and spoke laboratory network, excellence in customer service, further development and deployment of our sector-leading proprietary IT solutions and focus on scientific innovation. We also remain committed to a prudent capital allocation strategy centred on growth investments and reasonably valued bolt-on deals that will provide appropriate accretion to return on capital employed. In conjunction, we remain intently focussed on delivering on our 2027 financial objectives. In 2024, Eurofins teams will continue building on programmes initiated in 2023 and before, in particular those aiming to accelerate digitalisation, productivity improvement, align pricing to cost inflation and ramp up our start-up activities.

Despite the cloudy geopolitical and macro environment, I remain very confident in our ability to continue expanding our market and technological leadership, as well as our financial results and cash flow, towards our 2027 objectives.”

Conference Call

Eurofins will hold a conference call with analysts and investors today at 15:00 CET 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.

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Business Review

The following figures are extracts from the Consolidated Financial Statements and should be read in conjunction with the Consolidated Financial Statements and Notes for the year ended 31 December 2023. The Annual Report 2023 can be found on Eurofins’ website at the following link: https://www.eurofins.com/investors/reports-and-presentations/

Table 1: Full Year 2023 Results Summary

Revenues declined year-on-year to €6,515m in FY 2023 vs €6,712m in FY 2022 due primarily to the substantial decrease in revenues from COVID-19 testing and reagents from just under €600m in FY 2022 to a negligible level in FY 2023. This decline was largely compensated by strong organic growth in the Core Business (excluding COVID-19 related clinical testing and reagents revenues) of 6.6% (adjusted for public working days: +7.1%) vs FY 2022. A year-on-year headwind of 1.9% from foreign currency also impacted reported revenues. Eurofins has also been prudent with its acquisition strategy, focussing on reasonably valued bolt-on deals that will provide appropriate accretion to return on capital employed. Due to this approach, the contribution to consolidated revenues from acquisitions made in FY 2023 was only €59m. In FY 2022, the contribution to consolidated revenues from acquisitions made in FY 2022 was €150m.

Table 2: Organic Growth Calculation and Revenue Reconciliation

Table 3: Breakdown of Revenue by Operating Segment

Europe

• Reported revenues decreased in FY 2023 vs FY 2022 by -5.7%, primarily due to the substantial year-on-year decline in COVID-19 testing and reagents revenues. Excluding this impact, Core Business revenues grew year-on-year by over 5%, 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 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. In France, a new site in Lyon was activated to increase capacity to serve the market. In the meantime, nearshoring programmes have also contributed to growth, especially in France, due to an increase in testing requirements for traditional synthesis API. 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 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 the partial transfer of cost inflation to clients 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, where applicable, artificial intelligence. Furthermore, Eurofins has invested in innovations to improve its testing and service offering in order to make a difference for its customer base.
• Growth in the Environment Testing business in Europe was driven by market share gains from good quality service and turnaround times, as well as 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 both in terms of methods and capacity. Positive price impacts across Europe also contributed to the strong growth of the Environment Testing business. Further growth was achieved through the launch of innovative digital services including a new web customer portal for asbestos customers in France and new direct-to-consumer businesses in Germany offering sampling kits for the identification of PFAS in matrices such as water, construction materials and soil.
• With the impacts of COVID-19 related disruptions having mostly subsided throughout the course of 2022, the Clinical Diagnostics business in Europe experienced a strong year-on-year recovery in volumes in 2023. Due to an overall shortage of qualified nurses and technicians in most countries, this recovery was served by reassigning employees previously assigned to COVID-19 testing. Sales growth was also supported through network expansion, including the acceleration of efforts to open new blood collection points (49 opened in 2023 vs 18 in 2022), 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 largest 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 came into effect in H1 2023 restrained sales developments. A change in this trend is foreseen for the coming 3 years as tariff agreements in France allow for slight year-on-year revenue increases in diagnostics spending.

North America

• Reported revenues increased year-on-year by +0.5%, supported by strong organic growth in the Core Business of +8.3% but restrained by FX headwinds and the year-on-year decline in COVID-19 testing and reagents revenues.
• Growth in Eurofins BioPharma Services in North America was resilient in 2023. By area, BioPharma Product Testing (BPT) recorded a strong development, sustained by robust demand for mid-to-late phase biologics development by the large- 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. Further collaboration with large global sponsors was also driven by the Lab Access Web Services (LAWS) platform which enables fully digital integration with the customer’s IT environment. Demand growth has also been solid for mid-to-late phase clinical trials served by Eurofins Central and Bioanalytical Laboratories, supported by Eurofins’ extensive expertise in infectious disease and vaccine trials. Additionally, Professional Scientific Services® (PSS) continued expanding to meet increased client demand for flexible outsourcing solutions for their laboratory and scientific support operations. Eurofins Discovery, which experienced more challenging market conditions starting in late 2022, has seen stabilisation in overall market demand. In addition, demand has increased for Discovery’s expanded biologics offering, while the pipeline and interest is strong for the DiscoveryOne integrated discovery solutions.
• The Food and Feed Testing business in North America continued to set new monthly and annual sales records in 2023.

Contacts

For more information, please visit www.eurofins.com or contact:
Investor Relations

Eurofins Scientific SE

Phone: +32 2 766 1620

E-mail: [email protected]

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