Regulatory News:
(Paris:ERF)
- Q3 2019 revenues increased 22.3% year-on-year to EUR 1,167m vs.
EUR 955m in Q3 2018. Over the first nine months of 2019, total
revenues grew 23.6% to EUR 3,335m vs. EUR 2,698m during the same
period last year.
- Strong organic growth1 of 6.4% reported in Q3 2019. Excluding
Boston Heart Diagnostics (“BHD”), organic growth was 7.3% in Q3
2019. Due to the lack of comparability of the revenues for the
month of June as a result of the June 2nd cyber-attack on Eurofins
servers, like for like organic growth for the first nine months of
2019 unfortunately cannot be determined.
- Eurofins teams have worked very hard in Q3 2019 to fully
recover from the June 2nd cyber-attack and to further harden our IT
systems. Operations are now generally back to normal with
occasional interferences of new security tools at some companies.
Back office and collection activities were last resume and are now
essentially restored. Eurofins teams are still working hard to
further optimize and strengthen all IT operations and expect to
have all things fully back to normal by year end. As can be judged
today, the estimated impact of the loss of revenue and profit and
the additional expenses resulting from the June 2nd cyber-attack,
as can be derived by different interpolation estimates, is
confirmed to be of the same magnitude as mentioned in our half-year
report published on August 29th, i.e. ca. EUR 62m on revenues and
ca. EUR 51.5m on EBITAS5 and EBITDA4. Those numbers are of course
only estimates. The net financial impact (after insurance
compensation) is expected to be much lower, as business
interruption insurance coverage for this criminal cyber-attack has
been confirmed and a first payment received. Eurofins insurance
coverage exceeds the estimates mentioned above but efforts to
determine and agree on exact damages will be on going for a
while.
Comment from the CEO, Dr. Gilles Martin:
“Q3 2019 was a very positive
quarter for Eurofins as the Group demonstrated prompt recovery
following the June cyber-attack and delivered strong organic
growth. This is concrete evidence of our positioning in attractive
end markets as well as our ability to leverage our scale as we
approach the end of our 2016-2020 strategic investment plan to
build a one-of-a-kind global network of state-of-the-art
laboratories and bespoke IT solutions aimed at offering a unique
outstanding level of service to our customers. We remain confident
on our ability to achieve our objectives for this and next year. By
the end of 2020, this exceptional investment phase started in 2016
will largely be completed and Eurofins clients should benefit from
further improved levels of service from a more efficient network of
Eurofins laboratories. This should enable the group to start
significantly improving cash flow generation and return on
investment from 2021 onwards.”
Table 1: Q3 2019 Organic Growth
Calculation and Revenue Reconciliation
EURm (unless otherwise
stated)
Q3 2018 reported revenues
954.6
+ 2018 acquisitions – Q3 revenue part not
consolidated in Q3 2018 at Q3 2018 FX rates
95.0
- Q3 2018 revenues of discontinued
activities / disposals8
-0.5
= Q3 2018 pro-forma revenues (at Q3 2018
FX rates)
1,049.1
+ Q3 2019 FX impact on Q3 2018 pro-forma
revenues
20.6
= Q3 2018 pro-forma revenues (at Q3
2019 FX rates) (a)
1,069.7
Q3 2019 organic scope* revenues (at Q3
2019 FX rates) (b)
1,138.2
Q3 2019 organic growth rate
(b/a-1)
6.4%
2019 acquisitions – Q3 revenue part
consolidated in Q3 2019 at Q3 2019 FX rates
28.8
Q3 2019 reported revenues
1,167.0
* Organic scope consists of all companies
that were part of the Group as at 01/01/2019. This corresponds to
the 2018 pro-forma scope.
The Group reported 6.4%
organic growth in Q3 2019 as it promptly recovered from the June
cyber-attack, and 7.5% excluding Boston Heart Diagnostics’ and
Eurofins Forensics UK which only restarted its operations at the
end of July 2019. Adjusted for calendar working days’ effect,
organic growth stood at 5.1% in Q3 2019, in line with the Group’s
annual objective, 6%
excluding Boston Heart Diagnostics and 6.2% also excluding Eurofins
Forensics UK.
Table 2: Geographical Revenue Breakdown
(EUR m)
Q3 2019
As % of total
Q3 2018
As % of total
Growth %
France
216.0
18.5%
188.1
19.7%
14.8%
Germany
120.6
10.3%
110.8
11.6%
8.8%
Benelux
72.7
6.2%
61.9
6.5%
17.5%
Nordic Countries
62.4
5.3%
58.7
6.1%
6.4%
UK & Ireland
67.0
5.7%
62.3
6.5%
7.5%
Total Western Europe
538.7
46.2%
481.8
50.5%
11.8%
North America
441.0
37.8%
322.5
33.8%
36.7%
Rest of the World
187.3
16.0%
150.3
15.7%
24.6%
Total
1,167.0
100%
954.6
100%
22.3%
Western Europe remains the
largest region for Eurofins, representing c.46% of total Group
revenues in Q3 2019, with France generating 18.5% of total Group
revenues, ahead of Germany which accounted for 10% of total Group
revenues, whilst Benelux, the UK & Ireland, and the Nordic
countries each contributed ca.5-6% to Q3 2019 revenues. North
America generated c.38% of total Group revenues and the Rest of the
World the remaining 16%.
By segment, the Group
continued to deliver robust growth across all geographies except
the UK, which continued to be negatively impacted by the June
cyber-attack in July as Eurofins Forensics UK had not received the
green light from authorities for restarting.
In Western Europe, Eurofins’
BioPharma Testing services continued to perform very well, with a
double digit organic growth in Q3 2019 thanks to sustained, above
market, growth overall. Food Testing services also continued to
perform well with organic growth in line with Group average.
Environment testing activities posted a strong performance in Q3
2019 with an organic growth above Group average. The Genomics
business saw negative organic growth as it was one of the most
heavily disrupted activity by the June cyber-attack, leading some
customers to switch suppliers. The business is working to regain
these over the next few quarters with a range of superior new
product launches. In France, Clinical Diagnostics continued to
perform in line with management’s expectations with a positive
organic growth even if below Group average. In North America,
Eurofins’ BioPharma Testing services continued to perform very
well, with a double digit organic growth in Q3 2019 as strategic
outsourcing remains strong in the biopharmaceutical industry. In
particular, the group continues to see strong and increasing demand
in the biologics and gene/cell therapy markets, as it benefits from
a strong and comprehensive service offering for these therapies
both in the U.S. and Europe. We are also seeing commercial leverage
and benefit from the cross selling of services across the business
lines, for example between our GMP testing and product development
services. The business is also benefiting from the increased
capacity that is now on line following several facility expansions
that were completed in the last 12 months. Food Testing services
were also very strong in North America with a strong double digit
organic growth and well above industry rates thanks to the
successful greenfield start-ups of our national food microbiology
laboratory network. Large national clients are starting to find our
network to be advantageous to their supply chains and their
production plants. Clinical Diagnostics organic growth was below
Group average, as the division continued to be negatively impacted
by Boston Heart Diagnostics, which suffered from lower
year-over-year testing volumes, along with lower reimbursement for
the volume received from patients’ third party payers for advanced
preventive cardiology testing.
Eurofins delivered
double-digit organic growth in the Rest of the World, driven by
strong performance in Food Testing services in China and Vietnam,
Environment Testing services in Japan and South Korea, and Food
& Environment Testing services in Singapore and Taiwan. All
these markets continue to benefit from the recent investments made
in expanding and upgrading laboratories, hiring and training
talented staff and improving turnaround times.
On Wednesday 16th October, a
report containing many inaccurate, incomplete, irrelevant and
misleading statements together with sarcastic and defamatory
comments was issued by a party that stands to gain if Eurofins’
share price falls. Eurofins stands firmly behind the reliability of
its Group published financial statements in all material aspects.
It does not appear worthy of the readers time to discuss all typos
and meaningless and insignificant matters that the reports’ author
seems to show great pride having spotted and voluntarily or
involuntarily misinterpreted while scrutinizing 14 years of filings
by hundreds of Eurofins subsidiaries. We addresses below the main
alleged concerns raised in that biased publication. Eurofins shared
this disparaging report with regulatory authorities and its
auditors and is considering further actions with its
advisors.
Liquidity
Over the last two years
Eurofins has significantly improved its financing strategy. As
opposed to carrying a lot of cash received from bonds on its
balance sheet like the Group did until 2017, Eurofins is now using
medium-term (typically five year term) committed bank lines of
credit to fund part of its funding needs. This is a much more cost
effective approach, especially considering European banks now
charge interest to hold large Euro balances for their clients. As
of 30th June 2019, on top of the amount of credit lines used to
back up the outstanding commercial paper (EUR 320.5m) and the
amount used via short-term drawings on its bank credit lines (EUR
410m), Eurofins had access to more than EUR 500m of undrawn and
available bank credit lines, with an average remaining life greater
than three years. The latter remains the case today. Eurofins
liquidity is thus largely sufficient to execute on the Group’s
growth plans for 2019 and 2020 and should significantly improve
from 2021 onwards after the end of Eurofins 2015-2020 investment
programme to build a leading laboratories network in its
markets.
Group Legal Structure
Eurofins structure fosters
entrepreneurship through the use of small, agile companies. One
managing director/president is in charge of each entity. Operating
companies are generally focused on one single market and activity
while support functions (accounting, treasury, finance reporting
and financial controlling) are handled by teams in the National
Service Centres (NSCs) which are independent of the leaders of
operating companies, and are reporting to the Group CFO. It is
Eurofins belief that the benefits of empowering business leaders
and their teams to act as real entrepreneurs which speeds up
decision making and responsiveness to clients’ needs far outweigh
the cost of managing a larger number of legal entities and that
strict independent financial supervision by the NSCs balances
potential risks of this operational freedom.
Inorganic growth is part of
Eurofins’ strategy to build scale, acquire new customers and/or
technology, and expand its footprint. Companies acquired are often
too diversified and are therefore often split post-acquisition, or
some of their activities transferred to other Eurofins legal
entities to achieve the desired Eurofins structure, aligned with
Eurofins’ hub and spoke model. This process can last several years
as sometimes new sites must be built or existing sites expanded to
fit the most efficient structure or activities must grow to a
sufficient size to justify a separate legal entity.
Intercompany Transactions and
Reorganisations
As explained above, when a
company is acquired, it comes with its existing sites and legal
structure which generally doesn’t fit Eurofins’ streamlined hub and
spoke model. Oftentimes, the acquisition includes multiple
activities and some of them need to be transferred into the right
business lines and entities within the Eurofins Group post
acquisition. In some cases, this can only be achieved over time. As
long as Eurofins is too small in one country/market, some companies
carry out multiple activities until each activity is large enough
to cover the cost of operating a legal entity.
If the transfer of a part of a
business from a company takes place more than a year after the
acquisition, Eurofins typically must conduct a revaluation to
comply with local fiscal rules (the selling company must sell
assets at fair value - which may come with a profit or a loss for
the seller compared to the original book value of assets to be
transferred). For this, valuation formulas are applied, generally
based mainly on EBITDA which are reviewed by local auditors. Those
transactions are part of an internal reorganisation and given that
the buying and selling companies are both fully consolidated in the
Group accounts, any resulting profit or loss generated locally is
eliminated at Group level and doesn’t have any impact on Eurofins
Group’s consolidated financial statements. Any profit or loss made
by the seller is not reflected either at the seller’s parent level
since the parent isn’t a party to the transaction.
Local vs. Group Impairments and other
accounting observations
Impairments at a local
company’s level when they are required are not automatically
reflected in the Group’s consolidated accounts for a number of
reasons, the main ones being discussed below.
Local statutory accounts are
prepared according to local GAAP (applicable legislation) whereas
Group consolidated accounts are prepared in accordance with IFRS
standards (applicable legislation) and these accounting rules may
differ.
Impairment tests for the
purpose of preparing the local statutory accounts are done for each
local company according to the relevant local materiality
threshold. Impairment tests for the purpose of preparing the Group
consolidated accounts are done at a higher level, so called cash
generating units (defined in accordance with IFRS and reviewed by
auditors). Therefore the applicable legislation, materiality
thresholds and scopes (within which activities may have been
transferred as part of reorganisations to align with Eurofins
standard structure), may differ and lead to different results
between local statutory accounts and consolidated financial
accounts.
Some sites are sometimes
closed after reorganizations and the company who owned them
liquidated. Others are sometimes renamed and reused for other
purposes to save the cost and time required for creating new
companies. Companies tender their statutory audit work from time to
time and local auditors may change as a result. Dividends up
streaming up the corporate structure including with the use of
intercompany loans are standard practice in any group, etc. It is
of course difficult to understand every transaction within a large
group or its purpose from an outside review of filings of
individual subsidiaries only. This is why group consolidated
accounts and their auditors exist. It is hard to comprehend why all
these matters are worthy of being mentioned in a report over
multiple pages, unless it is the intention of the author to give
normal transactions a negative appearance by lacing their
description with disparaging comments.
Related Party
Transactions
Eurofins already mentioned in its 2018 Annual Report that
related party transactions are conducted at arm’s length and
described the work of the independent Corporate Governance
Committee of its board that oversees them. The allegation that the
rent paid by the company Bioservice Scientific Laboratories (“BSL”)
in Germany to a related party real estate company would imply
‘avaricious (sic)’ rental yields and return on equity for the
landlord is entirely false as it is based on wrong assumptions. The
rent amount paid by BSL to a related party real estate company
mentioned and used to calculate these erroneous figures in this
defamatory report includes rent paid to other non-related parties
for two other buildings. The annual rent paid by BSL (including
indexation since 2012) for the building rented from a related party
in 2014 was EUR 494,000 corresponding to 11.9 EUR/m2/ month for a
3,467 m2 mixed office and laboratories building in Planegg near
Munich.
Cash flow
Eurofins communicated consistently that its 2016-2020 plan to
build a world class global infrastructure in its attractive markets
enjoying secular high growth profiles implies significant Capex and
costs for reorganization of acquired companies as well as funding
of operational losses of more than 100 startup laboratories until
they reach a critical size. Developing bespoke IT solutions to make
Eurofins fully digital and able its customers to benefit from the
resulting efficiencies and from the large amount of data it
generates is also very costly. Taking this into account it should
be no surprise to anyone who followed the company’s publications
for a while or visited the group’s new campuses that free cash flow
reflects these investments. Eurofins is now nearing the end of this
investment phase and is starting to see its benefits on speed,
quality, efficiency and reliability of service in the countries and
laboratories where this has been completed already for over a year
and initial inefficiencies are ironed out. Eurofins is confident
that as investments reduce and bear their fruits more broadly from
2021 cash flow should increase significantly. Due to seasonality,
profits and cash flow are always lower in H1 than in H2. In
addition, H1 2019 was also significantly affected by the criminal
cyber-attack that hit many Eurofins laboratories on June 2nd 2019
and led to much reduced revenues and profits in June and H1 than
would be normally the case.
Other allegations in the report appear to be mainly spinning
erroneous, out-dated or immaterial facts or inconsequential typos,
to create a negative impression around Eurofins which the
publishing third party expects to profit of at the expense of
Eurofins shareholders. It is Eurofins belief that all transactions
mentioned in the report are properly accounted for in Eurofins
Group consolidated accounts and were done with the best interest of
the company and all its shareholders in mind.
1 Organic 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 (of year Y) but
excluding discontinued operations8.
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.
2 Adjusted - reflect the ongoing performance of the mature7 and
recurring activities excluding “separately disclosed items3”.
3 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 charge6,
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.
4 EBITDA – 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.
5 EBITAS – EBITDA less depreciation and amortisation.
6 Share-based payment charge and acquisition-related expenses,
net – Share-based payment charge, impairment of goodwill,
amortisation of acquired intangible assets, loss/gain on disposal,
negative goodwill and transaction costs related to acquisitions as
well as income from reversal of such costs and from unused amounts
due for business acquisitions.
7 Mature scope: excludes
start-ups and acquisitions in significant restructuring. A business
will generally be considered mature when: i) The Group’s systems,
structure and processes have been deployed; ii) It has been
audited, accredited and qualified and used by the relevant
regulatory bodies and the targeted client base; iii) It no longer
requires above-average annual capital expenditures, exceptional
restructuring or abnormally large costs with respect to their
current revenues for deploying new Group IT systems. The list of
entities classified as mature is reviewed at the beginning of each
year and is relevant for the whole year. In FY 2018, 93% of total
Group revenues were included in the mature scope up from 91% in FY
2017.
8 Discontinued activities /
disposals: discontinued operations are a component of the Group’s
core business or product lines that has been disposed of, or
liquidated; or a specific business unit or a branch of a business
unit that has been shut down or terminated, and is reported
separately from continued operations. Disposals correspond to the
sale by Eurofins of business assets to a third party. For more
information, please refer to Note 3.19 of the Consolidated
Financial Statements for the year ended 31 December
2018.
Conference Call
Eurofins will hold a conference call with analysts and investors
today at 15:00 pm CET to discuss the results and performance of
Eurofins, as well as its outlook, followed by questions and answers
(Q&A).
No need to dial in. From any device, click the link below
(becomes active 15 minutes prior to start time), then simply enter
your details and phone number to have the system call you:
Click here to Join Call >>
If you want to ask a question during the Q&A session please
join the conference call using the dial-in numbers below:
Access code for all countries: 85378205#
UK +44 3333 00 08 04
USA +1 631 913 14 22
France +33 1720 400 35
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, pharmaceutical and cosmetics products
testing and in agroscience CRO services. It is also one of the
global 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 leading global emerging players in
specialty clinical diagnostic testing. With about 45,000 staff in
more than 800 laboratories across 47 countries, Eurofins offers a
portfolio of over 200,000 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20191027005053/en/
Investor Relations Eurofins Scientific Phone: +32 2 766 1620
E-mail: ir@eurofins.com
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