After a Very Strong 2021, Eurofins Fully Compensates for the Decline in COVID-19 Testing in 2022 and Accelerates the Build-Out of its World-Class Network

LUXEMBOURG--(BUSINESS WIRE)--Regulatory News:

Eurofins Scientific (Paris:ERF):

Financial highlights

Eurofins delivered a solid performance in FY 2022 despite negative consequences of the war in Ukraine, which started two days after objectives were set on 22 February 2022:

• Revenues of €6,712m were stable on a reported basis vs FY 2021 despite the year-on-year decrease in revenues from COVID-19 testing and reagents of more than €800m.
• Revenues in the Core Business (excluding COVID-19 testing and reagent revenues) increased by +5.8% organically¹³ in FY 2022 and +6.7% in H2 2022 (both adjusted for the impact of public working days and +5.3% in FY 2022 and H2 2022 without the adjustment) vs FY 2021.
• As expected, COVID-19 related testing significantly decreased year-on-year:
  • Due to lower COVID-19 testing volumes and reimbursement rates, revenues from COVID-19 testing and reagents declined year-on-year by more than €800m (to just under €600m in FY 2022 from over €1,400m in FY 2021).
• Adjusted¹ EBITDA³ of €1,513m (22.5% of revenues) declined vs €1,902m (28.3% of revenues) in FY 2021, impacted by:
  • The decrease in COVID-19 testing volumes and reimbursement rates
  • Inflationary headwinds for personnel expenses, energy, logistics and consumables and lagging corresponding price increases by Eurofins companies
  • Labour-related effects such as strikes in the French clinical diagnostics sector and COVID-19 related lockdowns and absenteeism
  • Volume challenges faced by some of our clients (food and consumer products industries, especially in Europe) following the start of the war in Ukraine
• Cash provided by operating activities and proceeds from disposals more than fully self-financed capex, acquisitions, lease repayments and interest and hybrid coupons:
  • Net operating cash flow of €1,136m benefitted from a year-on-year improvement in net working capital¹² (4.2% of the Group’s revenues in FY 2022 vs 4.5% in FY 2021) but was restrained by a high level of taxes paid following the higher profits made in FY 2021.
  • Net capital expenditures⁹ of €645m supported growth initiatives including capacity expansion, start-ups and development of bespoke proprietary IT solutions.
  • Divestment of non-core Eurofins’ Digital Testing business for €220m created significant value (over 23% IRR and 6.5x cash multiple).
  • Free cash flow before investment in owned sites¹⁶ of €677m
  • Investment in owned sites of €186m reflect the Company’s long-term strategy of expanding its hub and spoke network including large high-throughput campuses.
• Net Profit⁷ amounted to €606m.
• Eurofins’ balance sheet remains very strong:
  • Financial leverage (net debt¹¹ to adjusted pro-forma EBITDA) was 1.9x at the end of December 2022. Including the issuance of €600m of hybrid bonds in January 2023 and the planned repayment of the outstanding €183m of hybrid bonds callable on 29 April 2023, Eurofins’ pro forma financial leverage is 1.6x, at the lower end of our targeted range of 1.5-2.5x.
  • Outside of the planned repayment of the hybrid bonds callable on 29 April 2023, Eurofins has no major financing requirements until the outstanding €448m senior Eurobonds become due on 25 July 2024.
  • The 1^st tranche of a share buy-back programme that repurchased 121,493 shares was completed on 3 December 2022. It is currently intended that all purchased shares may be used as previously communicated, including to cover the Company’s Long-Term Incentive plans as approved by the Board of Directors at its meeting on 19 December 2022.
  • A 2^nd tranche was launched 22 December 2022 and will run until 3 May 2023 (extended from 3 March 2023). It will cover a maximum volume of up to one million shares or 0.52% of the Company’s current share capital.
• The Board of Directors intends to propose, at the upcoming Annual General Meeting (AGM) on 27 April 2023, an annual dividend of €1.00 per share, corresponding to 33% of FY 2022 reported Basic EPS⁸.

Strategic highlights

After a very strong 2021, Eurofins accelerated investments for sustainable long-term growth:

• 2022 was a record year for Eurofins in terms of acquisitions:
  • 59 acquisitions were closed (2021: 38), contributing €150m to consolidated revenues (€269m had the effective dates of these acquisitions been 1 January 2022). The cost of these acquisitions was €430m, equivalent to only 1.6x of their FY 2022 revenues. Indeed, Eurofins focussed on reasonably valued smaller bolt-on acquisitions.
• Accelerated strategic investment initiatives for future value creation:
  • Eurofins added 104,000 m² of surface area to its owned sites in 2022 to expand its hub and spoke laboratory network. Eurofins companies owned 30% of the total net floor area of their sites at the end of 2022. This is a significant increase vs 19% owned at the end of 2018. Additions have been focussed on high growth markets and regions, for example the acquisition of a laboratory in Genome Valley, Hyderabad, India in January 2023 to support pharmaceutical clients and biotech companies. Aside from attractive financial fundamentals, site ownership is key to reducing risks and dependencies on landlords and unlocking economies of scale through high-throughput built-for-purpose campuses. For example, since 2018 Eurofins has increased the ratio of revenue per m² of surface area by 34%.
  • Start-ups have been launched in all key areas of activities and regions of the Group, including 50 new start-up laboratories and 18 new blood collection points (BCPs). The start-up figure also includes the refocussing of existing activities in Eurofins Technologies on molecular testing and in Genomics on BioPharma. This involves significant investment to expand Eurofins Technologies’ product offering and distribution channels as well as to refocus Genomics toward GMP, IVD and BioPharma-related genomic services. The mature start-ups created between 2010 and 2021 generated return on capital employed of more than 45% on revenues of €239m.
  • Sector-leading proprietary IT solutions were further developed and deployed to become fully digital, including proprietary Laboratory Information Management Systems (LIMS), comprehensive suites of bespoke IT solutions specific to each business line as well as the ramp-up of initiatives including artificial intelligence (AI), automation and cyber-security.
• Further cemented Eurofins’ leadership position as an ESG Enabler:
  • 98% of Eurofins’ revenues in FY 2022 contribute to UN Sustainable Development Goals (UN SDGs) that support the environmental, social and economic aspects of sustainable development.
  • The Group continued to make positive progress toward our objective of carbon neutrality by 2025, including a reduction in carbon intensity (measured in tCO₂e/FTE) by 9% vs FY 2021 and 14% vs FY 2019.
  • Eurofins Agro Testing introduced Soil Carbon Check, a suite of testing solutions to measure the levels of carbon storage in fields, supporting the reduction of CO₂ in the atmosphere (including for carbon credit claims) and improvements to soil health.
  • Eurofins Sustainability Solutions was launched to bring together a wide range of Eurofins companies’ sustainability offerings in one place, enabling global customers to benefit from the Eurofins network’s market leading solutions to contribute to product and enterprise sustainability.
• Continued making numerous innovative contributions in the field of Testing for Life, including:
  • Eurofins Transplant Genomics has grown its annual sales from TRAC® and TruGraf® for kidney transplant recipients by over 400% year-on-year, with further revenue expansion expected in 2023.
  • Eurofins Environment Testing launched its BQ.1 and BQ.1.1 Droplet Digital PCR Assay (ddPCR) for SARS-CoV-2 Wastewater Testing, a highly sensitive ddPCR analytical tool to help identify SARS-CoV-2 Variants of Concern BQ.1 and BQ.1.1 in wastewater samples.
  • Eurofins Viracor launched a ground-breaking test that can assess the expansion and persistence of Chimeric Antigen Receptor T-Cell (CAR-T) therapy in 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.

2023 to 2027 Objectives

• Eurofins is updating its objectives for FY 2023 to FY 2027:

• In FY 2023 and to FY 2027, Eurofins targets organic growth of 6.5% p.a. and potential revenues from acquisitions of €250m p.a.
• Continued growth investments in the ownership of strategic sites, start-ups and bespoke proprietary IT solutions are expected to drive increased profitability and cash generation over the mid-term horizon.
• These objectives assume exchange rates are stable vs 2022 average and zero contribution from COVID-19 testing and reagents.
• With the aim of launching 30 new start-up laboratories (50 in FY 2022) and several new BCPs (18 in FY 2022) in FY 2023, Eurofins expects Separately Disclosed Items² (SDI) at the EBITDA level to be about €100m in FY 2023 and decline thereafter toward less than 0.5% of revenues.
• Capital allocation priorities in FY 2023 and 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 toward the 2027 adjusted EBITDA margin objective will depend on the timing of the bottoming out of 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, digitalisation and automation initiatives.

Comments from the CEO, Dr Gilles Martin:

“2022 was a year of many unexpected challenges, but also one in which Eurofins clearly demonstrated its resilience. Despite inflationary pressures, consequences of the ongoing war in Ukraine, supply chain disruptions for clients, general economic uncertainty and the over €800 million decrease in our COVID-19 testing activities, we were able to meet our objective of €6.7bn in revenues. This was made possible by an acceleration of Eurofins’ organic growth in H2 2022 to 6.7%, above our mid-term objective of 6.5%. We generated strong cash flow that allowed us to further invest in our laboratory network, establish a record number of new start-ups, continue developing world-class IT solutions and make an exceptional number of acquisitions at a reasonable cost. Our ESG performance has also improved, as demonstrated by the decline in our carbon intensity by 9% year-on-year. I would like to thank our leaders and employees for their determination, agility and customer orientation, which made these achievements possible.

Eurofins’ companies remain focussed on continual productivity improvements as well as other operational excellence programmes. We will continue to drive growth with innovative new tests to improve health and sustainability as well as further automate and digitalise our processes. Eurofins companies are entering 2023 with updated terms with most clients to better align prices with cost inflation and intend to recover the 2022 gap between costs and price growth over 2023.

Despite the current economic circumstances, Eurofins remains dedicated to its value creation strategy focussed on sustainable long-term growth and innovation. As the Global Leader in Testing for Life and increasingly as an ESG enabler, with nearly all of our revenues contributing to UN Sustainable Development Goals, Eurofins is in a strong position to address the continuously growing demand for our services. Doing so requires that we remain committed to investing in key elements of our physical and technological infrastructure, including building and owning high-throughput campuses, expanding our hub and spoke network with start-ups and acquisitions and deploying sector-leading proprietary IT solutions. We expect these investments to further increase Eurofins’ leadership in providing the most innovative, high-quality, cost-competitive and secure services our clients expect from us today and into the future, as well as deliver the value creation expected by our shareholders.

Looking forward, I remain very confident in the capabilities and resilience of Eurofins teams and our ability to navigate challenges and achieve our FY 2023 to FY 2027 financial 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.

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:

UK: + 44 330 165 4027
US: + 1 323 794 2423
FR: + 33 176 772 274
BE: + 32 240 406 59
DE: + 49 692 222 134 20

Confirmation Code: 1722525

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 2022. The Full Year Report 2022 can be found on Eurofins’ website at the following link: https://www.eurofins.com/investors/reports-and-presentations/

Table 1: Full Year 2022 Results Summary

Revenues were stable year-on-year at €6,712m in FY 2022 vs €6,718m in FY 2021 despite the decrease in revenues from COVID-19 testing and reagents of more than €800m. The decline was primarily compensated by strong organic growth in the Core Business (excluding COVID-19 related clinical testing and reagents revenues) of 5.8% (adjusted for public working days and +5.3% without the adjustment) vs FY 2021 despite labour-related challenges including strikes, COVID-19 related absenteeism and lockdowns in China as well as supply chain disruptions for clients. Additionally, acquisitions and favourable exchange rates also supported the growth in reported revenues.

Table 2: Organic Growth Calculation and Revenue Reconciliation

Table 3: Breakdown of Revenue by Operating Segment

Europe

• Reported revenues decreased vs FY 2021 by €492m, primarily due to record comparables in FY 2021 related to COVID-19 testing and reagents revenues. Excluding this impact, Core Business revenues were up year-on-year in almost all areas of activities.
• The BioPharma services business in Europe enjoyed further robust growth in FY 2022 across all activities despite the high comparable base of H1 2021 from projects supporting COVID-19 vaccines. Eurofins Discovery has grown rapidly through start-up activities in biophysics and high throughput screening to help customers quickly characterise and select their most promising candidates. Start-up activities are also progressing in CDMO, with teams in Italy and the UK building up their capabilities and capacities for cell and gene therapies. Investments to add and expand facilities continue to progress with a focus on Italy, Germany and Spain. In parallel, we have several on-going renovation projects focussed on making our laboratories more eco-efficient, digitalised and scalable. Growth was also supported by acquisitions, including Lunaria in the Czech Republic, a laboratory for testing small molecule finished products, and Inpac Medizintechnik in Germany, a company serving the medical device, biotech and pharma industries. In addition, the acquisition of WESSLING Hungary was also completed, extending Eurofins’ position in BioPharma Product Testing.
• Eurofins’ Food and Feed Testing business in Europe faced a challenging macroeconomic environment in FY 2022. With consumer behaviour impacted by inflationary pressures and our clients facing supply chain constraints effecting procurement of raw materials as well as effects linked to the war in Ukraine, food producers have reduced the breadth of their offerings and investments in product development. In response to the situation, Eurofins has started adapting its cost and pricing policies as well as opportunistically consolidating its regional footprint, most notably in Hungary and Spain. In terms of innovation, Eurofins has brought online several automation projects in Germany, France and the Nordics to lower costs and improve quality.
• The Environment Testing business in Europe grew strongly with significant market share gains on the back of strong operational performance and customer-centric efforts. Demand for specialty testing, including for PFAS, asbestos and pesticides, continued to remain robust. We won several PFAS tenders during the year as clients recognise our network of laboratories as a leader in innovation and quality of service. This includes a contract to facilitate the largest European biomonitoring project for PFAS in blood in Antwerp, commissioned by the Agency for Care and Health of the Flemish Government. We received accreditation for our innovative asbestos testing model in France (called CAUMET) which utilises artificial intelligence to automatically clear a large portion of samples, significantly increasing our scientists’ productivity and work satisfaction. This new model is being rolled out everywhere in France as well as to some of our asbestos testing laboratories in Europe.
• The Clinical Diagnostics business in Europe gained momentum through the course of the year as the impacts from COVID-19 related disruptions on hospitals and patient behaviour gradually subsided. Eurofins also expanded its geographic scope through the course of the year by completing acquisitions in France, Italy and Hungary. New offerings have also contributed to growth, including Eurofins Genoma’s launch of niPGT-A, a non-invasive preimplantation genetic aneuploidy screening test that determines chromosomal abnormalities which may lead to complications during pregnancy. Such novel tests are increasingly being adopted by the medical field, with Germany beginning to reimburse non-invasive prenatal testing (NIPT) since 1 July 2022. Consumers are also increasingly embracing testing by themselves, with direct-to-consumer sales increasing in France, the UK and Spain.
• Eurofins continues to expand its presence in innovative fields for life science testing. For example, Eurofins Genomics will be involved in Our Future Health, the UK’s largest ever health research programme, by conducting genotyping for up to 5 million participants. In addition, Eurofins Forensics continues to expand its presence and offerings to law enforcement authorities in the UK, Germany and the Netherlands.

North America

• Reported revenues increased year-on-year by €347m, supported by the appreciation of the U.S. Dollar vs the Euro as well as strong organic growth. COVID-19 related activities represented about 5% of revenues in FY 2022 (mainly in H1 2022) compared with about 10% in FY 2021.
• Growth in Eurofins’ BioPharma business in North America accelerated in H2 2022 as the comparable base normalised from COVID-19 vaccine work completed in H1 2021. Overall demand remains strong as medium and large pharmaceutical players remain focussed on biologics development, including all modalities advanced therapy medicinal products (ATMPs). In particular, central laboratory and bioanalytical services continue to be very much in demand to support early and late phase clinical trials for these modalities. To support further growth in these activities, Eurofins continues to invest in capacities and capabilities at our Lancaster, Columbia and San Diego sites as well as expand our biotherapeutics services in both Discovery and CDMO.
• The softening macroeconomic environment has caused some Food and Feed testing clients in North America to restrain their testing expenses and slow down their development activities in the latter part of 2022. Nonetheless, demand for Eurofins’ specialised offerings remained resilient, with supplements testing continuing to grow strongly and new demand emerging for testing contaminants such as PFAS and enhanced salmonella control in poultry. Increasing demand for more data and testing methods also helped Eurofins further strengthen the market position of its microbiology “spoke” laboratories. Furthermore, Eurofins’ laboratories assisted regulatory authorities with their efforts to solve the shortage of baby formula. Eurofins provides testing services to help its clients make sure that the labels on the back of baby formula cans are correct and that there are no harmful bacteria that could cause an infant to fall ill.
• The Environment Testing business in North America was able to generate stout organic growth based on strong market dynamics related to construction activity, investments to improve infrastructure and the increased focus of state and federal regulators on monitoring PFAS in the environment and drinking water. Growth has also been supported by pricing adaptations. As an additional response to this market demand, Eurofins is significantly expanding its investments in PFAS testing capacity in its specialty testing hubs in Lancaster and Sacramento.

For more information, please visit www.eurofins.com or contact:
Investor Relations
Eurofins Scientific SE
Phone: +32 2 766 1620
E-mail: ir@eurofins.com