EUROFINS SCIENTIFIC : For 2008 Eurofins reports 27% sales growth, net cash from operating activities up 52% and EUR100m EBITDA in a significantly expanded Up-to-Standards business
March 5, 2009
2008 was again a year when Eurofins made a lot of progress on many fronts. Growth remained strong as Eurofins' markets were not affected materially by the difficult global economic conditions. The focus during the year was on integrating and bringing up to standard recently acquired companies. Thanks to this focus the investment programme to build and upgrade its laboratories into large, IT-driven and state-of-the-art facilities is coming towards its end. In almost all its markets the Group now has the large, focused, modern and specialised facilities that are proven to be highly profitable. Closing and consolidating smaller or less-specialised laboratories in the network will continue and provide further cost savings from 2009 onwards. In 2008 the integration of some major acquisitions has proved remarkably successful and was completed much faster than expected. As a result, only 20% of the Group now needs to be brought up to Group operating standards . It thus can receive a much higher degree of management focus.
As a result of this focus on improving its operations in 2008, Eurofins can also report strong performance on many financial metrics:Revenues were ahead of expectations and of 2008 objectives (€620m). They increased by 27% to €632.8m (2007 €497.2m), including 10% organic growth. EBITDA grew to €79.6m (2007 €66.1m). Operating profit (EBITAS*) increased to €45.0m (2007 €40.2m), a 33% increase from 2007 proforma (€33.7m). Up-to-Standards perimeter margins exceeded targets at 15.6% (2007 14.2%) and Under Development improved to -€9.1m from a proforma -€12.5m in 2007, in line with the most recently communicated expectations. ROCE in the Up-to-Standards perimeter exceeded targets at 22%. In 2008 Eurofins made strong progress in its programmes aimed at bringing recently acquired laboratories up to Group standards (large, state-of-the-art laboratory sites, standardised IT, etc.). As a result in 2009 Eurofins will be able to transfer businesses which generated revenues of €154m in 2008 from Under Development (54% of that perimeter) into Up-to-Standards. This results in a new Up-to-Standards scope of 79% of 2008 revenues (€500m), which generated €100m of 'clean' EBITDA in 2008. Net cash from operating activities grew by 52% to €60.0m, up €20.4m from €39.6m in 2007. In Q4 alone Eurofins generated €38.3m net cash from operating activities (2007 €15.5m). 80% completion of programme to transfer the business to large, modern laboratory sites. Setting up of a leadership team and systems appropriate to develop and lead a global €1billion group. Trebling in size since 2005 and addition of operations in 14 new countries.
|Net profit attributable to equity holders||17.7||17.6|
|Total diluted EPS - (€)||1.17||1.17|
|Net cash provided from operating activities||60.0||39.6|
|Liquid funds at end of period||127.9||61.3|
Overall 2008 has been a good year for Eurofins. The top line continued to grow almost as much as in previous years, by 27% to €632.8m (2007 €497.2m), despite a much lower level of acquisitions than in the years before. There was significantly better than expected performance of a large part (almost 80%) of the operations, as detailed below, and EBITAS increased 33% from 2007 proforma (€33.7m) to €45.0m (reported 2007 €40.2m). Finally the Group showed strong cash generation capabilities, before discretionary investment spending. Net cash from operating activities in Q4 alone was €38.3m. For the full year it was €60.0m, a 52% increase from 2007 €39.6m.
As has been customary in the last two years, the Group has split the reporting of its businesses into two parts: firstly the Up-to-Standards perimeter, which represents laboratories that are structured and operating in a way that is in line with Group operational standards (large state-of-the-art laboratory sites, standardised IT etc.) and secondly the Under Development perimeter, which comprises the Group's 17 start-ups (India, China, Brazil, Singapore, Thailand, Poland, Hungary etc), new and loss-making acquisitions and parts of the Group that undergo major restructuring, which would distort any view of how the underlying business was performing. During 2008 Up-to-Standards exceeded expectations by reporting an EBITAS* margin of 15.6% (2007 14.2%) and EBITAS* profits of €54.1m (2007 €44.7m). In Under Development good progress was also made. The reported loss of €9.1m was an improvement on the proforma loss in 2007 (€12.5m), despite the fact that i) the Group stepped up investment in new start up countries and ii) the integration of Operon, acquired in December 2007, took several months more of time and cost than was initially anticipated (its joint-venture status, now simplified, prevented rapid management changes),. The businesses in this perimeter are on track to reach Group-wide standards in the same period of time as expected from the start.
Table 1: Summary of Results by Perimeter: Up-to-Standards & Under Development
|€ million||Up-to-Standards||Under Development*||Group|
* as reported; proforma EBITAS for the Under Development perimeter was -€12.5m in 2007
Due to the success of its integration programme, in 2009 Eurofins will be able to transfer businesses with 2008 reported revenues of €154m from Under Development into the Up-to-Standards perimeter, a number that is considerably ahead of Management expectations and represents 54% of the 2008 Under Development perimeter. This is the first time that a transfer is taking place and is made up of laboratories that are now operationally sufficiently developed to be considered at Group standard. This comprises primarily the following: the whole of Denmark and Slovakia, most of Sweden, MWG in the genomics business and a number of laboratories that have been completely restructured in France, plus some recently acquired Italian and Austrian laboratories. It includes almost all of the 2005 and 2006 acquisitions, except where they have become part of wider reorganisation programmes or combinations, such as in the UK.Table 2: 2008 results of the new 2009 Up-to-Standard scope
|€ million||Up to standard - new 2009 scope||Under Development - new 2009 scope -
Start ups & companies undergoing reorganisation
|Total Group 2008||Total Group proforma 2007|
The 2009 expanded Up-to-Standards scope now includes 79% of 2008 revenues (€500m) and operates in line with the Eurofins performance objectives. In fact, this perimeter would have generated a proforma 'clean' EBITDA for 2008 of over €100m and, as can be seen in the table above, an operating profit of €74m. The €28.7m losses within the Under Development perimeter include i) exceptional costs that will not be incurred in 2009 ii) the initial losses of 17 start-ups and new countries that normally take two to four years to become profitable iii) M&A costs and iv) the losses of businesses undergoing reorganisation. Losses in this last group were mainly caused by a few very specific and clearly identified situations. Management estimates that these reorganisation projects should be resolved and/or finalised within the next two years.
Negative currency fluctuations (GBP & SEK) as well as precautionary drawing of part of Eurofins' credit lines unfortunately led to a one-off increase of financial expenses in Q4 2008, which induced the slight drop in the result before income taxes. Overall, in spite of this one-off financial effect and all the heavy investment for the future carried out in 2008, Total diluted Earnings per Share remained constant in 2008 (€1.17). This represents a strong improvement compared to proforma 2007.
Going forward, the Group expects to continue to outgrow the market on an annual basis. The global economic conditions make it more important to ensure that all risks are constantly monitored, costs cut and cash carefully nurtured, but at the same time it presents opportunities. Outsourcing could become a major source of growth as the Group can demonstrate its capabilities as the highest quality, third party service provider in the market, which gives customers the ability to transfer their testing facilities (and the associated fixed cost investment) with confidence. The number of such transactions has grown in the last couple of years, major examples being Southern Water, Raisio and most recently DLG in Denmark in January 2009.
Meanwhile Eurofins continues to invest in optimising its laboratory network. During the last four years the Group has built or bought 35 new, large, state-of-the art laboratory sites, representing 120,000m2 of modern sites. This has and will enable the closing of many small and old sites and should lead to further cost savings from 2009 onwards. In Denmark for example the reduction of the number of laboratories to an optimum and the highly successful integration of Analycen has led to a very sharp and rapid improvement in margins. Looking forward, plans are in place to modernise and expand another 8 large sites and 6 smaller ones (representing 27,000m2) so that all of the Group's significant laboratories are fully up to the latest standards, with room for expansion. This means that Eurofins' mid-term buildings investment plan is now 80% complete.
In the last three years Eurofins trebled in size (from €233m annual sales in 2005 to €633m in 2008) and added operations in 14 new countries. The Group is currently allocating a significant part of its profits to fund 17 start ups that contribute very little to current sales but are investments aimed at generating substantial future growth by fulfilling the very large unmet testing needs of the world's fastest-growing economies.
Cumulative capex in new laboratories, IT and equipment exceeded €127m over the last 3 years. However as Eurofins' sites expansion plan is now 80% complete, capex started decreasing as a percentage of revenues (8.7% in 2008 vs. 9.8% in 2007).
In 2008 Eurofins also further strengthened and expanded its operational and financial leadership teams and heavily invested to build an infrastructure and IT systems commensurate with its ambition to become a €1billion global company.
With gearing (72%) and covenant ratios (0.7x net debt/equity and 2.0x net debt/EBITDA) comfortably within limits, net debt at €158.1m (2007 €108.6m) including cash of €131.7m, and an impressive amount of cash generation in the fourth quarter, the Group considers that it is fully able to fund its existing strategy and expansion plans.
Eurofins approaches 2009 confident that it is on track to achieve its goals. The Group operates in strong and growing markets. People still need to eat, drink and breathe free from safety concerns. Regulation underpins and enforces many areas where the Group has positioned itself. The focus on blue-chip customers provides visibility for the future and reassurance for risk control. However, the impact and scale of the current economic crisis is impossible to predict. Eurofins is in a position where, if needed, it could more aggressively cut costs in the Under Development operations and/or discontinue the very few small businesses that generated large losses in 2008.
Going forward the Group will continue to look for acquisition opportunities in all of the markets in which it operates. This is another area where the economic conditions should benefit Eurofins' prudent, long-term approach to take-overs as the prices of potential acquisitions is going down across the range. However, as in 2008, Eurofins' focus will be in bringing "up to standard" its now smaller "under development" perimeter and acquisitions will only be carried out if they add significant strategic and/or financial value.
Based on the strong results achieved in 2008 and the good orientation of Eurofins' markets, the Group's management has decided to confirm the objectives set before the current financial crisis:Group revenue of €1 billion by 2011, mid-term operating margin of 15% and 20% return on capital employed. Short-term EBITAS margin target for the significantly enlarged new Up-to-Standards business of 15%. Continued investment in start-ups but strong profitability increase of the Under Development perimeter To reach revenues of €1billion by 2011, Eurofins needs to acquire businesses generating over €200m in annual sales. Due to the difficulty in predicting the optimal timing of these acquisitions and future currency fluctuations, Eurofins is not issuing revenue objectives for 2009.
Full disclosure, including consolidated financial statements and related notes, can be found in the Annual Report 2008.
* EBITAS - earnings before interest, tax, amortisation of intangible assets and non-cash charge for share options.
The Annual Report 2008 can be found on the Eurofins website at the following location:
For further information please contact:
Phone: +32-2-769 7383
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 29 countries, Eurofins offers a portfolio of over 25,000 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 (ISIN FR0000038259) and Frankfurt (WKN 910 251) Stock Exchanges (Reuters EUFI.LN, Bloomberg ERF FP, ESF, EUFI.DE).
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 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.Information réglementée
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