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Eurofins posts strong revenue growth in Q3 2018 (EUR 955m, +30.6% yoy including over 5% organic growth) and raises its objectives for 2019-2020 – Revenues objective for 2020 now set at EUR 5bn

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  • Eurofins revenues grew 30.6% in Q3 2018 to EUR 955m. Over the first nine months of 2018, total revenues grew 26.8% to EUR 2,698m (30.9% at constant currency exchange rates).
  • Organic growth1 remains strong at over 5% in Q3 2018, and in line with the Group’s annual objective of 5% for the nine months ended in September 2018.
  • Eurofins continues to make significant progress towards its five year 2015-2020 plan to build a unique, highly efficient hard to replicate state-of-the-art global testing laboratory network. Eurofins is now present in 21 of the world's 25 largest economies and between its three historical business lines, has achieved 21 local leadership positions in those countries. The Group now employs over 40,000 people, performing over 400m tests every year across more than 650 laboratories in 45 different countries.
  • Acquisitions signed and/or closed year-to-date represent ca. EUR 700m* of total annualized revenues.
  • After two exceptional years in 2017-2018 in terms of M&A activity including three of the largest acquisitions completed in Eurofins’ history so far (EAG in 2017, Covance Food Solutions and TestAmerica* in 2018) which shall enable the Group to rebalance its activity between the US and Europe, Eurofins’ leadership expects to carry out significantly fewer acquisitions in the next couple of years and to focus management’s attention on completing its operational excellence programme and using its scale to offer even better and differentiated testing services to its clients. As a result, Eurofins’ objective is that beyond 2020 the large investments of the 2015 to 2020 infrastructure set up programme should lead to sustained market share gains, higher profits and cash flows.
  • As a consequence of these strong developments and assuming acquisitions already signed or imminent* close as planned in 2018, Eurofins upgrades its revenue objectives** for the fourth time since 2015 as follows: from EUR 4.3bn to EUR 4.6bn for 2019 and from EUR 4.7bn to EUR 5bn for 2020. This is based on the assumption of Eurofins achieving its 5% organic growth objective and acquiring laboratories generating ca. EUR200 million revenues per annum in each of 2019 and 2020 (consolidated at mid-year). Those objectives are set at current (30/09/2018) exchange rates. Subject to the same hypotheses, Eurofins’ management is also setting a EUR 1bn Adjusted2 EBITDA3 objective for 2020. Should those objectives be met, the resulting free cash flow over those two years would likely be sufficient to fund the targeted acquisitions of laboratories representing EUR 200m of revenues in each of 2019 and 2020. More detailed profit objectives and updates if any will be released in March 2019 together with Eurofins’ FY 2018 annual results. Should Eurofins grow only organically by 5% in 2019 and 2020 excluding any new acquisitions in those years, this would translate to an objective of achieving EUR 4.7bn revenue and EUR 950m Adjusted EBITDA in 2020. Beyond 2020 as Eurofins’ five years infrastructure programme will have been completed, capex should reduce significantly as a percentage of revenues and cash flow should expand further.

Revenue for the period to September 30

(EUR millions)

2018

2017

% change

Currency effect4

Organic

Q3

955

731

30.6%

-0.9%

over 5%

NM

2,698

2,128

26.8%

-4.1%

ca. 5%

 

  • Revenues from North America, where the Group continues to expand rapidly, and where it generated 32% of its overall sales in NM 2018, increased 32% in NM 2018 (+42% at constant currency exchange rates). Organic growth in North America was well above the Group average. The BioPharmaceutical, Environmental and Food testing business lines continued to be the main drivers of this growth, together with EAG laboratories. France grew its revenues by 14% and represented 21% of Group revenues in NM 2018. The strong organic growth performance achieved by some business lines such as Agroscience and Environment testing services was partially mitigated by Clinical Diagnostics Services posting organic growth well below Group average, in line with expectations as absolute clinical tests reimbursements are capped by the state insurance. Germany saw strong growth with revenues up 30% and now generates 12% of Group revenues. Organic growth was above the Group average in NM 2018 in this country, primarily driven by Genomic and BioPharmaceutical testing services businesses. In Benelux, revenues grew 20% to represent 7% of Group revenues in NM 2018. Organic growth in Benelux was well above the Group average, driven by strong performance in BioPharmaceutical and Environment testing services. UK & Ireland revenues increased 64%, representing 6% of Group revenues in NM 2018. Organic growth was below the Group average there, impacted by ongoing sites-reorganization in some BioPharma and Food testing activities following recent acquisitions. In Asia Pacific, organic growth was well above the Group average, driven by all main business lines – Food, Environment and BioPharmaceutical testing services.
  • Following the acquisitions of Covance Food Solutions and TestAmerica* in 2018, Eurofins will reach new leadership positions in both Food and Environment testing services in the U.S., the largest testing market in the world. Eurofins will thus have established leadership positions across its three core historic business lines, both globally and in its two main markets - Europe and North America. Furthermore, it has achieved global leadership positions in three smaller business lines - Discovery Pharmacology laboratory services, Agroscience CRO services and Cosmetics testing, and strong positions in many markets with high growth potential: Genomics testing, Specialized Clinical testing (including Clinical Genetics), Forensics, Pharma Contract Development and Manufacturing Organization (CDMO) and Advanced Material Science services.
  • These leadership positions should enable the Group to provide best-in-class services to its clients across the globe, in a one-stop shop approach, and with unique competitive advantages in terms of scale, geographical footprint, portfolio of tests, innovation capabilities, IT solutions, costs and turnaround times. Since the start of this five years infrastructure development program in 2015, Eurofins has increased its footprint from 225 to more than 650 laboratories, spanning 45 countries. It has increased its portfolio of validated analytical tests from 130,000 in 2015 to well over 150,000 today. Since 2015, the Group has added over 260,000m2 of state-of-the-art laboratory surface in Eurofins’ large campuses (hubs) and 76 start-up laboratories (spokes) in high growth markets where there were limited viable or affordable options for acquisitions.
  • To further strengthen its market leading quality and depth of service, the Group continues as planned to invest in its laboratory footprint and IT infrastructure and bespoke solutions. In 2019-2020, Eurofins plans to add an additional 140,000m2 of large high throughput laboratory hubs which will complete its five years infrastructure development programme and strongly reinforce its competitive position in most markets where it operates. These investments should further reinforce Eurofins ability to offer the best service and the most advanced testing methods at the lowest cost and shortest turnaround times to its customers, and as a result have a positive impact on Eurofins’ growth, its margins and cash generation.
  • While it invests massively for building network effects and competitive advantage, Eurofins is committed to maintaining its strict financial discipline. In 2017 and 2018, Eurofins has significantly lengthened the maturity of its bonds. Since 2017 Eurofins also initiated several measures to lower its cost of financing which, with the repayment of the November 2018 bond, should be reduced to below 2% on senior debt. The average cost of coupons on Hybrid capital should also be further reduced from 4.86% to 3.95% in February 2020 after the call date of its Hybrid instrument issued in 2013, thus freeing EUR 20m cash per year.
  • Going forward, the Group intends to maintain a strong financial discipline and moderate leverage. For example, Eurofins’ management would not be in favour of net debt to pro forma last twelve months (L12M) adjusted EBITDA to exceed 3.5x. Eurofins leadership also focuses on generating returns above its 12% hurdle rate5 for its organic and inorganic investments. By way of example after only one year, thanks to good organic performance and bolt-on acquisitions, Eurofins has already significantly reduced the acquisition multiple paid on EAG’s scope. The Group is confident in meeting its hurdle rate also on its recent large acquisitions.
  • In 2012 as it reached EUR 1bn annual revenues and leadership in most of its markets in Europe, Eurofins developed plans to grow faster in North America and achieve similar leadership positions there. After six years of strong organic growth and intense M&A activity, this objective has been achieved. Eurofins has now reached a global leadership position in most of its historic markets (Food, Environment and BioPharma Product testing, as well as, Agroscience CRO services) and now also local leadership in these fields in North America. It also has created strong platforms in fast growing markets (Genomics, Forensics, Advanced Material Sciences, Specialized Clinical testing and Clinical Genetics for example) where technological changes should bring significant growth opportunities. The Group will now be focused on finalizing its five year (2015-2020) plan in terms of laboratories footprint (hub and spoke model) and bespoke IT solutions mainly. As a result, in 2019 and 2020 M&A should revert to the EUR 200m annual revenues objective as achieved in 2016. This objective is not detrimental to Eurofins’ growth as the Group now has the market positions it needs to serve its clients well in most markets and there are extremely few targets of the size of EAG, Covance Food Solutions and TestAmerica in Eurofins’ small markets.

Post-closing events: as announced on October 1st, 2018, Eurofins signed an agreement to acquire TestAmerica, the leader in U.S. Environmental testing services expected to generate over US$ 230m of revenues in 2018. The transaction is expected to close in the fourth quarter of 2018 subject to the fulfilment of regulatory and customary closing conditions.

Comments from the CEO, Dr. Gilles Martin:

“I am very pleased with the developments of the Group for the first nine months of the year. We remain focused on delivering our five-year expansion plan to build a unique, hard to replicate global testing laboratory platform by 2020. Our sustained organic growth this year, shown again in Q3, is a clear consequence of our strong market position and the quality of our infrastructure and teams. This enabled us to once again raise our objectives for 2020. After 2020, when Eurofins’ five year infrastructure development plan will have come to completion, the company should be able to leverage its unique global network of state-of-the-art laboratories, market leadership positions, scale and scientific excellence to offer even better, faster, more cost effective and more differentiated services to its clients and as a result significantly improve its market share, profitability and cash flow generation to benefit its long-term oriented shareholders for years to come.”

 

Definitions of non IFRS measures as follows:

1Organic growth for a given period (Q1, Q2, Q3, Half Year, Nine Months or Full Year) - non-IFRS measure calculating the growth in revenues during that period between 2 successive years for the same scope of businesses using the same exchange rates but excluding discontinued operations. For the purpose of organic growth calculation for year Y, the relevant scope used is the scope of businesses that have been consolidated in the Group’s income statement of the previous financial year (Y-1). Revenue contribution from companies acquired in the course of Y-1 but not consolidated for the full year are adjusted as if they had been consolidated as from 1st January Y-1. All revenues from businesses acquired since 1st January Y are excluded from the calculation.

2Adjusted - reflect the ongoing performance of the mature and recurring activities excluding “separately disclosed items”. Separately disclosed items - includes one-off costs from integration, reorganisation, discontinued operations and other non-recurring income and costs, temporary losses and other costs related to network expansion, start-ups and new acquisitions undergoing significant restructuring, share-based payment charge, impairment of goodwill, amortisation of acquired intangible assets, negative goodwill, loss/gain on disposal and transaction costs related to acquisitions as well as income from reversal of such costs and from unused amounts due for business acquisitions, net finance costs related to borrowing and investing excess cash and one-off financial effects (net of finance income) and the related tax effects.

3EBITDA – Earnings before interest, taxes, depreciation and amortisation, share-based payment charge, impairment of goodwill, amortisation of acquired intangible assets, negative goodwill, loss/gain on disposal and transaction costs related to acquisitions as well as income from reversal of such costs and from unused amounts due for business acquisitions.

4Currency effect – defined as the difference between the percentage of change in revenues for a given period as published and the percentage of change in revenues for the same period if calculated at constant currency exchange rates.

5Hurdle rate set for Return on capital employed – defined as adjusted EBITAS divided by average capital employed over the previous 4 quarters. EBITAS – Earnings before interest, taxes, share-based payment charge, impairment of goodwill, amortisation of acquired intangible assets, negative goodwill, loss/gain on disposal and transaction costs related to acquisitions as well as income from reversal of such costs and from unused amounts due for business acquisitions. Capital employed – Property, plant and equipment, Goodwill, other intangible assets, financial assets and other receivables and net working capital.

* including TestAmerica (closing still pending fulfillment of regulatory and customary conditions).

** at 30th September 2018 exchange rates.

 

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

Investor Relations

Eurofins Scientific

Phone: +32 2 766 1620

E-mail: ir@eurofins.com

Notes for the editor:

Eurofins a global leader in bio-analysis

Eurofins Scientific through its subsidiaries (hereinafter sometimes “Eurofins” or “the Group”) believes it is a scientific leader in food, environment and pharmaceutical products testing and in agroscience CRO services. It is also one of the independent market leaders in certain testing and laboratory services for genomics, discovery pharmacology, forensics, CDMO, advanced material sciences and for supporting clinical studies. In addition, Eurofins is one of the emerging players in specialty clinical diagnostic testing in Europe and the USA. With over 40,000 staff in more than 650 laboratories across 45 countries, Eurofins offers a portfolio of over 150,000 analytical methods for evaluating the safety, identity, composition, authenticity, origin and purity of biological substances and products, as well as for innovative clinical diagnostic. The Group objective is to provide its customers with high-quality services, accurate results on time and expert advice by its highly qualified staff.

Eurofins is committed to pursuing its dynamic growth strategy by expanding both its technology portfolio and its geographic reach. Through R&D and acquisitions, the Group draws on the latest developments in the field of biotechnology and analytical chemistry to offer its clients unique analytical solutions and the most comprehensive range of testing methods.

As one of the most innovative and quality oriented international players in its industry, Eurofins is ideally positioned to support its clients’ increasingly stringent quality and safety standards and the expanding demands of regulatory authorities around the world.

The shares of Eurofins Scientific are listed on the Euronext Paris Stock Exchange (ISIN FR0000038259, Reuters EUFI.PA, Bloomberg ERF FP).

Important disclaimer:

This press release contains forward-looking statements and estimates that involve risks and uncertainties. The forward-looking statements and estimates contained herein represent the judgment of Eurofins Scientific’s management as of the date of this release. These forward-looking statements are not guarantees for future performance, and the forward-looking events discussed in this release may not occur. Eurofins Scientific disclaims any intent or obligation to update any of these forward-looking statements and estimates. All statements and estimates are made based on the information available to the Company’s management as of the date of publication, but no guarantee can be made as to their validity. All statements, objectives and estimates are made according to currently applicable accounting standards.

Published: 23 October 2018