EUROFINS SCIENTIFIC : Sustained operating momentum boosts Eurofins’ earnings by 93%

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8 November 2010

Eurofins reports solid growth of nearly 8% in operating revenues and EBITAS* expansion of 52% in the third quarter of 2010. Year to date, EBITAS has climbed 64% on revenue growth of close to 6%. Higher efficiency as a result of the accelerated reorganization and the five year investment programme has positioned Eurofins to start maximising operating momentum and strengthen profit margins. The Group remains committed to completing its "homework" this year and is on course to benefit from gradual economic recovery, positive operating trends, and a streamlined operation starting 2011.

(EUR m) Q3 2009 Q3 2010 % +/- NM 2009 NM 2010 % +/-
Revenues 163.1 175.4 7.6% 468.1 494.0 5.5%
Clean** EBITDA*** 27.5 34.5 25.7% 59.2 74.6 25.9%
Clean EBITDA Margin 16.8% 19.7% 290 bp 12.7% 15.1% 240 bp
EBITDA 22.5 30.3 34.7% 49.4 65.2 32.0%
EBITDA Margin 13.8% 17.3% 348 bp 10.5% 13.2% 265 bp
Clean EBITAS 18.0 24.0 33.7% 30.8 43.8 42.1%
EBITAS 13.0 19.7 52.4% 21.0 34.4 64.0%
Net Profit 5.9 11.4 93.2% 3.0 15.8 426.7%
Net Cash from operating activities 15.6 19.0 22.2% 27.4 38.3 39.7%

Q3 2010 Results Highlights

- Revenues grew 8% relative to Q3 2009 to EUR 175.4m, and is in-line with the growth rate achieved during the inflection point in the previous quarter. Year to date, revenues stand at EUR 494.0m, representing a 6% growth from the same period last year. Organic growth for Q3 2010 was 5%, and for NM 2010 was 4%.

- EBITDA is up 35% in Q3 2010, at EUR 30.3m, on the back of a 348 basis point margin expansion, despite residual one-off reorganization costs. Adjusting for these non-recurring costs, clean EBITDA (before one-off reorganisation charges but after losses related to the Group's start-up operations) increased to EUR 34.5m, a 19.7% margin, versus EUR 27.5m and 16.8% margin in the same period last year. For NM 2010, EBITDA is at EUR 65.2m, implying a 13.2% margin, versus EUR 49.4m and 10.5% respectively for NM 2009.

- EBITAS increased 52% to EUR 19.7m in Q3 2010 versus EUR 13.0m in Q3 2009. In NM 2010, the increase was 64% (NM 2010 EUR 34.4m versus NM 2009 21.0m). Clean EBITAS also improved materially from EUR 30.8m in NM 2009 to EUR 43.8m in NM 2010.

- Net profit in Q3 2010 was EUR 11.4m, a 93% growth from Q3 2009 profit of EUR 5.9m. Year to date, net profit of EUR 15.8m for NM 2010 is five times the EUR 3.0m net profit for NM 2009. Significantly, these results were achieved despite the costs of expanding the network, including 15 start-ups in fast growing economies, and ca. EUR 10m in one-off charges incurred year to date from the reorganization programme, including discontinued operations.

- Net debt of EUR 197m as of September 30, 2010 implies net debt/equity of 0.90x and net debt/clean EBITDA of 1.8x, substantially improved from September 2009 levels of 0.94x and 2.3x respectively. This keeps the Group well within its debt covenant limits of 1.5x net debt to equity and 3.5x net debt to clean EBITDA.

- Net cash flow from operating activities increased by 40% to EUR 38.3m in NM 2010 (EUR 27.4m in NM 2009). Total Group Free Cash outflow**** narrowed significantly to just EUR 5.4m for NM 2010, compared to the EUR 18.1m outflow in NM 2009. Adjusting for the cash flow impact of the reorganization (EUR 14.5m in NM 2010 versus EUR 9.6m in NM 2009), the Group generated positive clean Free Cash Flow**** of EUR 9.1m versus a clean Free Cash outflow of EUR 8.5m in the same period last year.


 

During the third quarter, Eurofins maintained operating momentum, delivering revenue growth of almost 8% to EUR 175.4m, largely the same growth rate achieved during the turnaround in Q2 2010. Organic growth of 5% for Q3 2010 and 4% for NM 2010 are also in line with the organic growth posted in the previous quarter. The food testing business continues to strengthen, posting robust growth across most markets as volumes continued to pick up ahead of a seasonally strong Q4. The uptick in demand that was seen in the previous quarter in the environmental testing business has been sustained, and should hold through in Q4 as well, as private and public agencies complete testing activities prior to the thick of the cold season. Results from the pharma business show a turnaround in order backlog, and general improvement in the project pipeline. Overall, the strong revenue growth is consistent with the gradual improvement in the broader economic activity across the world, but also highlights the Group's ability to benefit from the economic turnaround by leveraging its market position. 

The wide margin expansion during the quarter, and in NM 2010, demonstrates the increased efficiency following the intensive investment programme in large, modern facilities over the last 5 years, and the acceleration in reorganization in the last 24 months to rationalize the network of laboratories and streamline costs. The investments are starting to pay-off with Q3 2010 delivering the highest EBITDA margin since 2006 at 17.3%, despite losses related to the rapid network expansion (15 start-ups), and the residual one-off costs from the reorganization and from discontinued operations.

Total costs came in at EUR 145.2m; a growth of 3% compared to Q3 2009, and represents less than half the rate of revenue growth for the period. One-off costs related to the reorganization during the quarter was EUR 4.3m, bringing total one-off costs year to date to EUR 9.4m. As previously communicated, the Group endeavours to complete the reorganization programme in 2010. Indeed, as part of its budgetary exercise, management is conducting a thorough review of the reorganization measures this month to ensure completion of the programme on schedule. The reorganization programme for Norway, which has received approval from the competition authority after a long delay and uncertainty, will be decided on in Q4. The consolidation of the Norwegian activities should contribute to sustained margin expansion from next year onwards. Any incremental one-off costs from this new development should be readily offset by strong top line performance in a seasonally strong Q4. This prudent strategy should contribute to continued margin expansion and improved profitability from 2011 onwards.

Improving profitability is also reflected in the strengthening of the Group's balance sheet. Cash and cash equivalents stood at EUR 105m at the end of September 2010, versus EUR 50m at the end of the same period last year, despite having deployed over EUR 50m from the OBSAAR proceeds to repay bilateral bank debts, thereby freeing up credit lines and further widening the Group's debt capacity. At the end of September 2010, net debt was EUR 197m, implying net debt/equity of 0.90x and net debt/clean EBITDA of 1.8x, having steadily improved in the past four quarters, from 0.94x and 2.3x respectively at the end of September 2009.

The Group's focus on profitability continues to translate to stronger cash generation. Higher revenues and stronger margins have resulted in a 22% rise in net cash from operating activities in Q3 2010 (EUR 19.0m versus EUR 15.6m in Q3 2009). The higher cash generated from operations has allowed the Group to generate Free Cash Flow of EUR 6.6m, 11% higher than in Q3 2009. Year to date, cash generated from operations has risen 40% relative to NM 2009, at EUR 38.3m. Higher operating cash flow, in addition to stable capital expenditures, has allowed the Group to cut total Free Cash outflows to just EUR 5.4m for NM 2010, compared to the EUR 18.1m outflow in NM 2009, despite having the bulk of the cash flow impact of one-off reorganization costs as planned. Adjusting for non-recurring costs (EUR 14.5m in NM 2010 versus EUR 9.6m in NM 2009), the Group actually generated clean Free Cash Flow of EUR 9.1m for NM 2010, compared to an outflow of EUR 8.5m in NM 2009.

The robust Q3 2010 results show that the intensive investment programme of the last five years and the benefits from the accelerated reorganization over the last 24 months are starting to come to fruition. The Group still has some way to complete its "homework" and is diligently reviewing measures to ensure the completion of the reorganization programme by the close of the year. For the remainder of 2010, the Group expects, at a minimum, to maintain the strong profitability achieved in Q3 2010. 

The intensive investment and reorganization programs position Eurofins well to benefit from the secular growth trends in the markets in which it operates in. The narrowing of costs as the Group comes to the tail-end of its intensive reorganization programme, and the steady reduction in start-up losses, should impact margins positively regardless of top line growth from 2011 onwards. The investments in a network of large, state of the art laboratories ensure Eurofins' leading market position is maintained, whilst the comprehensive reorganization will gradually and sustainably drive profitability. As the results of the last two quarters demonstrate, the Group is on track to be able to self-finance organic growth, as focus on maximising returns is now translating to material improvement in Free Cash Flow generation. 

*              EBITAS - Earnings Before Interest, Tax, Amortization of Intangible Assets related to acquisitions and impairment of goodwill and non-cash accounting charge for stock options

**            clean - a proforma presentation excluding one-off costs from reorganization and discontinued operations, but including losses related to network expansion (15 start-ups)

***            EBITDA - Earnings before interest, tax, depreciation and amortization

****          Free Cash (out)Flow - net cash flow provided by operating activities, less cash used in investing activities (but excluding acquisition payments) and interest and hybrid interest paid


 

Full disclosure can be found in the Nine Month Report 2010, including further management commentary, consolidated financial statements and accompanying summary notes.

The Nine Month Report 2010 can be found on the Eurofins website at the following location:

http://www.eurofins.com/en/investor-relations/reports--presentations.aspx

For further information please contact:

Investor Relations   

Phone:    +32-2-769 7383   

E-mail:     ir@eurofins.com                                             

Notes for the editor:

Eurofins - a global leader in bio-analysis

Eurofins Scientific is a life sciences company operating internationally to provide a comprehensive range of analytical testing services to clients from a wide range of industries including the pharmaceutical, food and environmental sectors.

With 8,000 staff in more than 150 laboratories across 30 countries, Eurofins offers a portfolio of over 40,000 reliable analytical methods for evaluating the authenticity, origin, safety, identity, composition and purity of biological substances and products. The Group is committed to providing its customers with high quality services, accurate results in time and, if requested, expert advice by its highly qualified staff.

The Eurofins Group is the world leader in food testing and one of the global market leaders in pharmaceuticals and environmental testing. It intends to pursue its dynamic growth strategy and expand 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 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 demands of regulatory authorities around the world.

The shares of Eurofins Scientific are listed on the NYSE 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 judgement of Eurofins Scientific' 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 data available to the Company as of the date of publication, but no guarantee can be made as to their validity.

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