Eurofins Scientific SE · EURONEXT:ERF
Eurofins Scientific — FY2016 Earnings Presentation
68 slides from Eurofins Scientific's earnings presentation, February 2017
Slide 1: Eurofins Corporate Presentation Full Year 2016 Results
Eurofins A global leader in bioanalytical testing in the food, environment and pharmaceutical sectors Consistently delivering strong, sustainable, profitable growth Doubled revenues more than 3 times (every 3 years on average) since 2005 Sales & EBITDA Multiplied by more than 10 times since 2005 Cor
Slide 2: Disclaimer
Disclaimer The statements made during this presentation or as response to questions during the Question & Answers period that are not historical facts are forward looking statements. Furthermore, estimates and judgements may be made based on market and competitive information available at a certain
Slide 3: Contents
Contents Introduction Market & Strategic Positioning Finance & Outlook Summary Appendix 3
Slide 4: Eurofins' Mission and key figures
Eurofins’ Mission is to contribute to global Health, Safety & Environment with the best in bioanalysis Founded in 1987 Eurofins provides testing IPO in 1997 in Paris at EUR 1.83 per share services in four main areas Network of 310 laboratories in 39 countries that have a strong impact on human
Slide 5: Eurofins ranking
Leading global and local market positions* N°1* N°1 to N°3* N°1* Start-Up worldwide worldwide worldwide Start 2014 Start 1987 Start 2000-2005 Start 2000 Food & Feed Testing for Environment Clinical Testing Pharma/Biotech Testing Diagnostics *Total market size ~ EUR 2-3bn ~ EUR 5bn ~ EUR 4bn ~ EUR 18
Slide 6: Drivers for long-term market growth
Drivers for long-term market growth Secular Underlying Fundamentals General Market Drivers Laboratory Market Drivers Consumer Demand for safe Increasing wealth expectations for pharmaceuticals, quality food and quality of Life protection and clean environment Consolidation of the fragmented laborato
Slide 7: Eurofins is set to reinforce its global market leadership
Eurofins is set to reinforce its global market leadership Eurofins Growth Cycles * Company objectives 7
Slide 8: Lower cyclicality, comparable organic growth to larger peers
In spite of its lower cyclicality, Eurofins generates comparable organic growth to its larger peers in each peak of the cycle, and higher growth when the economy slows TICS Organic Revenue Growth 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% '00-'04 '05-'12 2013 2014 2015 2016 ERF TICS ex ERF Source: Eurofin
Slide 9: Group performance reflects strong underlying fundamentals
Group performance reflects strong underlying fundamentals Strong Revenue Growth Momentum Profit improvements alongside revenue growth acceleration 10% 40% FY 2016 / FY 2013: Adjusted EBITDA margin +102 bp 9% 35% Reported EBITDA 20% margin +275 bp 60% 8% 30% 7% 50% Adjusted EBITDA margin 25% 15% 6% T
Slide 10: Another strong set of results in 2016
Another strong set of results in 2016 Eurofins 5 year Report Card: 2011-2016 CAGR 2016: Strong growth & operating momentum 28% 30% revenue growth to EUR 2.54bn (EUR 2.66bn Pro Forma) Over 9% organic growth versus 5% objective represents highest annual level since 2008 global recession 18.9% Gr
Slide 11: Mid-term plan remains to double revenues in 5 years
Mid-term plan remains to double revenues in 5 years (between 2015 and 2020) Illustration of Eurofins’ 2020 growth objectives assuming constant/linear acquisition volume and growth rate each year * Objective 11
Slide 12: Midterm objective to reach 20% adjusted EBITDA margin
Midterm objective to reach 20% adjusted EBITDA margin, and strengthen cashflow generation In spite of 20 start-ups per year, Eurofins Cashflow Expansion Levers SDI costs reduced as % of EBITDA Objectives: • Reduce relative impact of start-ups and SDI • Bring capex back to 6% of revenues Start-ups &
Slide 13: Investments for future growth have impacted cash flows
Investments for future growth have had an impact on cash flows Cashflow expansion levers: cash investments impacting cashflows FCF invested €80m for the future €75m €81m Reported FCF €57m €126m to Equity €19m €100m €51m €49m €46m 2012 2013 2014 2015 2016 Finance costs related to excess cash and one-
Slide 14: 27 Acquisitions in 2016
27 Acquisitions in 2016 27 Acquisitions signed in 2016 Total Annualised Revenues Total Acquisition Spend* 1 Sinensis Life Sciences 2 Biotech Germande 3 ams Laboratories 4 Advantar Laboratories 5 PerkinElmer’s NTD laboratory 6 EAC Corp. 7 Agro-Analyses >€ 220m € 201m 8 Bureau de Wit 9 Exova food and
Slide 15: Meaningful industry consolidation is underway
Meaningful industry consolidation is underway Selection of recent significant transactions in the testing industry Date Company Acquirer Geography Sales (€m) EV (€m) EV/Sales (x) EV/EBITDA (x) 2017 January* Cerba PSP, Partners Group FR 630 1,800 2.9x 12.0x 2016 December* Unilabs Apax IX CH 675 1,500
Slide 16: Start-ups are increasingly attractive investments
Start-ups are increasingly attractive investments as we leverage our scale and experience 110 start-ups between 2007 and 2017 Increasingly meaningful contribution 1) Acceleration in start-up programs Where we are building start-up labs 16 start-ups 2007-2009 18 start-ups 2010-2013 76 start-ups
Slide 17: Network Build-Out to Position for the Future
Network Build-Out to Position for the Future Capex remains driven by network expansion investments Continuous investments in state-of-the-art IT solutions One IT (IT Solutions) First Generation OneIT deployed in ca. 85% of Food and Environment laboratories 2012 2013 2014 2015 2016 New Generation
Slide 18: International network of standardised laboratories
An international network of world class, standardised laboratories is attractive for our customers 2016 revenue split : N. America 31.7% France 24.7% Germany 11.0% Benelux 7.5% Nordic Region 6.8% Entry into high-growth UK & Ireland 4.8% markets with start ups Others 13.5% & acquisitions 80% of the w
Slide 19: Geared towards strong economies and fast-growing markets
Geared towards strong economies and fast-growing markets Geographical breakdown of Eurofins’ revenues in 2016 1.6% 100.0% 24.7% 1.5% 100% 90% 80% 4.8% 72.2% 40.7% 67.4% 70% 60% 50% 40% 30% 14.3% 26.7% 20% 12.4% 10% 0% Germany Benelux Germany USA Germany UK Total France Italy Spain TOTAL Austria Nord
Slide 20: Strategy aims at building long lasting competitive advantages
Eurofins’ strategy aims at building long lasting competitive advantages Leading technology Quality of customer service Competence Centres & R&D activities Extensive expertise in local regulations for all major markets, and one-stop contact for Proprietary technologies for proof of compliance i
Slide 21: Contents
Contents Introduction Market & Strategic Positioning Finance & Outlook Summary Appendix 21
Slide 22: The Food testing market has robust growth drivers
The Food testing market has robust growth drivers Food scares and Globalisation: Raw Consumers’ Outsourcing of crises, widely materials sourced increasing awareness industry’s covered in the from countries and demand for safe internal or state- media with different QC and high quality food owned pra
Slide 23: Food & Feed testing offering is the most comprehensive
Eurofins’ Food & Feed testing offering is the most comprehensive in the market Agricultural production, product Production Retail & Distribution development Microbiology Sensorial Dioxins Veterinary drug Vitamins Quality Control residues Authenticity Pesticides Organic residues POPs Labelling GMO My
Slide 24: High profile food scares have expensive consequences
High profile food scares have expensive consequences for producers… Year Brand/ Contamination Impact Cost Country 2008 Sanlu/ Melamine in 50,000 infants ill, 6 deaths, global recall of Fronterra + dairy products dairy and related products, criminal Unquantified BBC News global brands charges in Chin
Slide 25: Eurofins is meeting the demands of global players
Eurofins is meeting the demands of global players The largest global food & beverage producers and retailers are clients of Eurofins 2016 Sales in 2016 Sales in Food and Beverage Retailers EUR billion EUR billion Nestlé Switzerland 83.8 Wal-Mart Stores USA 437.1 PepsiCo USA 58.7 CostCo USA 106.9 U
Slide 26: The Pharma testing market is healthy and full of potential
The Pharma testing market is both healthy and full of potential Need for big pharma Rapid technological change & companies to expand increasing complexity in testing new drugs pipelines require ongoing investment in technology & expertise The increasing complexity of clinical trials leads to incre
Slide 27: Underlying trends are intact for continued growth
Underlying trends are intact for continued growth Global Drug R&D Spending (US$ bn) Large pharmas need to refill their product pipeline as the ‘blockbusters’ start to come off patent Drug development expenditures have increased substantially in recent years Total R&D is over USD 120bn and is e
Slide 28: Eurofins Pharma Services
Eurofins Pharma Services Spanning the entire drug development cycle Genomics Discovery Pre-clinical / Clinical Pharma Pharmacology Early (Central Products Development Laboratory) Testing / cGMP QC Sequencing High-throughput- Pharmacology Biomarkers Impurities Analysis Cardiovascular Oligonucleotides
Slide 29: 9 of the top 10 pharma companies are clients
9 of the top 10 largest global pharmaceutical companies are clients of Eurofins Eurofins pharma locations Top 10 pharma companies Country Pfizer USA Sanofi Aventis France GlaxoSmithKline UK Global CRO Market Outlook Novartis Switzerland AstraZeneca UK Merck & Co USA Johnson & Johnson USA Roche Switz
Slide 30: Eurofins Specialized Clinical Diagnostic Evolution
Eurofins Specialized Clinical Diagnostic Evolution “Genomics is one of the key technologies enabling personalized medicine…” Establishing platform to deploy genomics expertise for development of innovative clinical diagnostic tests to serve global healthcare commnunity One of the world’s leaders in
Slide 31: Eurofins Specialized Clinical Diagnostic Footprint
Eurofins Specialized Clinical Diagnostic Footprint Establishing leadership in targeted higher-growth niche areas of the clinical testing market 31
Slide 32: The Environmental testing market continues to grow
The Environmental testing market continues to grow Rise in Progress in epidemiology contamination & & medicine has identified pollution issues more compounds as toxic Increasing demand by citizens for a clean environment EU expanding regulation (e.g. REACH) Increasingly long list of products i
Slide 33: Eurofins serves all the main environmental testing markets
Eurofins serves all the main environmental testing markets Eurofins is the No.1 environmental testing service provider in the world* Lancaster Environmental Consulting and Testing is the laboratory sampling companies of choice for Fortune 500 are natural partners companies in the USA WATER AIR SOIL
Slide 34: Global trends in regulation support the business
Global trends in regulation support the business Strong regulated markets (EU, USA) are still amending and adding regulations Eastern European rules catching up with EU Fast development of regulation in Asia Regulation used for support of trading blocks (e.g. EU, NAFTA, ASEAN) Major pieces o
Slide 35: EU regulations a key driver for the testing industry
EU regulations a key driver for the testing industry – e.g. REACH directive Objectives Examples of affected products or industries Listing and assessing the safety of 30,000 Metals, resins, acids, solvents, oils, fibres in textile, car chemical substances used by industries in components, toys, co
Slide 36: Outsourcing adds to market growth
Outsourcing adds to market growth Examples of laboratories outsourced to Eurofins Company Outsourced Activity Country Danish Hydrology Inst. Official water reference lab Scandinavia Suez/Sita Envirolab The Netherlands Danish farmers association Steins’ water/environment laboratory Denmark Southern W
Slide 37: Strategy builds high Barriers to Entry
Eurofins’ strategy builds high Barriers to Entry Offering a premium quality service … ... and leveraging internal efficiencies Portfolio: over 130,000 validated methods Industrialising the laboratory process: – unique in the world and ahead of rationalisation of sites and personnel competition
Slide 38: Contents
Contents Introduction Market & Strategic Positioning Finance & Outlook Summary Appendix 38
Slide 39: Laboratory Network Investments (1/2): Greenfield projects
Laboratory Network Investments (1/2): 76 Greenfield projects in high-growth markets between 2014 and 2017 Country Market Operational achievements Australia Food, Env Group Last wave of 18 start-ups (launched 2010) New Zealand Food became profitable as a whole in 2014 India Food, Pharma Asia Pacific
Slide 40: Laboratory Network Investments (2/2): Site Expansion
Laboratory Network Investments (2/2): Expansion / Modernization of Laboratory Sites Since 2005, 110 new/expanded large modern state-of-the-art sites to enable consolidation / closure of smaller or old sites Total of ca. 380,000 m2 added or brought to most modern standards between 2005-2016 (46,0
Slide 41: Market Share: Eurofins is the leader in its industry
Market Share: Eurofins is the leader in its industry – and we continue to reach new market leadership positions* New Markets 2001 2002 20032004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 X = Market Entry Denmark: Food & Env. X No 1 Brazil: Food Testing X No 1 France Environment Test
Slide 42: Heavy investment in high-growth markets for future profits
Heavy investment in high-growth markets and resources for future profits Building corporate resource Bringing recently acquired Network Investments for future size and growth labs to group standards € 883m total laboratory Recruitment of top Deploy IT systems network investments over the leade
Slide 43: Positive trends drive solid operating results
Positive trends drive solid operating results 2016 2015 Year on EUR m Adjusted Separately Reported Adjusted Separately Reported year Results disclosed results Results disclosed results evolution of items items Adjusted Results (%) Revenues 2,536.6 2,536.6 1,950.1 1,950.1 30.1% EBITDA 479.6 -18.5 461
Slide 44: Cost of financial flexibility: month-end cash balance
Month end cash balace in EURm 1200 1000 -200 0 200 400 600 800 January-13 February-13 March-13 April-13 May-13 June-13 July-13 August-13 September-13 Interest expense on excess cash Average Month-end Excess Cash October-13 November-13 December-13 January-14 February-14 March-14 EUR 205m H1 2014 EUR
Slide 45: Evolution of tax structure in-line with Group developments
Evolution of tax structure in-line with Group developments Review of Group Tax Structure Not capitalised tax losses carry forward (NOLs) of over EUR 450m as of 31.12.2016 2012 2013 2014 2015 2016 Theoretical tax rate: Tax calculated at domestic rates applicable to profits in the respective countries
Slide 46: Growth and Profitability are critical objectives
Growth and Profitability are critical objectives Group Profitability Objectives 4,500 3-tiered margin support towards mid-term 20.0% profitability objective 4,000 Group Adjusted EBITDA margin (%) 3,500 1. Start of profit contribution from start-ups Group Revenues (EURm) 2. Exceptional costs and lo
Slide 47: Solid Balance Sheet
Solid Balance Sheet Hybrid Dec 2016 Dec 2015 EUR 300m hybrid issued in Jan 2013/Jul 2014, callable at par by Eurofins in Jan 2020. Net Debt/ LTM Adjusted EBITDA 1.16 x 2.54 x Bears a fixed coupon of 7.00% until first call, Euribor 3m + 818 bp thereafter if not called Net Debt/ProForma LTM 1.13
Slide 48: High Degree of Financial Flexibility
High Degree of Financial Flexibility Strong Balance Sheet Leverage ratio significantly decreased after two successful equity transactions and remains well 3.50 x below historical levels despite EUR 433m* cash invested in the business in 2016 3.00 x Large financial flexibility with fairly long de
Slide 49: Outlook: becoming the world leader in bioanalytical testing
Outlook: becoming the world leader in the bioanalytical testing market Sustainable Market Growth Drivers + Key Success Factors = Solid Outlook Food safety & contamination Unique technological portfolio of 2017 Objectives* issues over 130,000 methods EUR 2.9bn of revenues New regulations (e.g
Slide 50: Contents
Contents Introduction Market & Strategic Positioning Finance & Outlook Summary Appendix 50
Slide 51: Conclusion: our sustainable competitive advantage
Conclusion: our sustainable competitive advantage Best in class technology and quality give best brand High-growth, non-cyclical markets driven by secular protection mega-trends No. 1 or 2 worldwide in most business lines Advancing globalisation but with very few global Strong international presence
Slide 52: Appendix / Back up slides
e% eurofins Appendix / Back up slides 52
Slide 53: Consolidated Income Statement
Consolidated Income Statement 2016 2015 Separately Reported Adjusted Separately Reported EUR Thousands Adjusted results disclosed items results results disclosed items results Revenues 2,536,608 - 2,536,608 1,950,074 - 1,950,074 Operating costs, net -2,056,984 -18,547 -2,075,532 -1,589,272 -15,768 -
Slide 54: Consolidated Balance Sheet
Consolidated Balance Sheet EUR Thousands 2016 2015 Property, plant and equipment 506,818 427,541 Goodwill 1,584,644 1,411,896 Other intangible assets 383,209 351,469 Investments in associates 3,373 14,926 Financial assets and other receivables 34,154 32,074 Deferred tax assets 37,804 36,020 Total no
Slide 55: Consolidated Cashflow Statement
Consolidated Cashflow Statement EUR Thousands 2016 2015 Cash flows from operating activities Profit before income taxes 242,607 132,358 Adjustments for: Depreciation and amortisation 141,696 111,031 Non-cash stock option charge and acquisition-related expenses, net 37,433 35,873 Other non-cash effec
Slide 56: Eurofins has vastly outperformed the market since its IPO
Eurofins has vastly outperformed the market since its IPO and each of its 6 equity offerings (based on share price of EUR 405.00 as of 30 December 2016) Total equity raised in 6 offerings: only EUR 553m June 2016 Private placement CDPQ Since IPO Eurofins: +22,039% (33% CAGR) CAC 40: +76% (3% CAGR) S
Slide 57: We have built a hard-to-replicate world-class infrastructure
We have built a hard-to-replicate world-class infrastructure Eurofins has been consistently investing more than its peers 10% 120% 9% 100% 8% 7% 80% Excess Investment Capex to Sales 6% 5% 60% 4% 40% 3% 2% 20% 1% 0% 0% 00-'04 05-'08 09-'10 '05-'12 2010 2011 2012 2013 2014 2015 2016* ERF TICS ex ERF E
Slide 58: Post acquisition and integration, sales and profits increase
Post acquisition and integration into Eurofins, both sales and profits often increase significantly Illustration Growth drivers post acquisition: 1) Sales increase through cross selling of Actual example of an acquired lab: Eurofins lab specialities internationally 2) Cost reduction – focus on most
Slide 59: Shareholder Returns: TICS & Clinical Diagnostics Companies
Shareholder Returns: TICS & Clinical Diagnostics Companies Based on share prices as of close 31.12.2016 Shareholder Returns Based on share prices Total Shareholder Returns 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 Eurofins
Slide 60: Shareholder Returns: TICS & Clinical Diagnostics Companies
Shareholder Returns: TICS & Clinical Diagnostics Companies Historical Share Price Development (Y vs Y-1) Compounded Growth 2Y 3Y 4Y 5Y 5Y 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 Growth 2015-2016 2014-2016 2013-2016 2012-2016 Eurofins 117.5% 60.4% 7.9% 51.8% 25.8% 619.0% 38% 27% 35% 48% SGS
Slide 61: Eurofins Valuation
Eurofins Valuation Scenario for potential Eurofins EV/EBITDA 2017 and 2018 assuming achievement of objectives No of Shares ('000) 16,957 Hybrid Capital (m) EUR 600 Earn-outs (m) as of 31/12/2016 EUR 224 Net debt 31 December 2016 (m) EUR 558 "…net debt to adjusted EBITDA could well remain below 1.5x
Slide 62: Valuation multiples overview
Valuation multiples overview EV/EBITDA 2017 and Consensus Earnings Growth Estimates Source: Bloomberg, Eurofins 62
Slide 63: Growth prospects could provide additional upside
Growth prospects could provide additional upside EV/EBITDA 2017 and PEG Multiples Source: Bloomberg, Eurofins 63
Slide 64: Growth prospects could provide additional upside
Growth prospects could provide additional upside PEG Ratios (P/E to EPS Growth 2016-2019) Source: Bloomberg 64
Slide 65: Valuation multiples overview
Valuation multiples overview EV/EBITDA Multiples EV/EBITDA Currency Close 2017 2018 Eurofins EUR 417.7 15.3x* 13.8x* Intertek GBPp 3506 13.4x 12.1x Exova GBPp 215 11.0x 10.5x ALS AUD 6.06 13.3x 11.2x Applus EUR 10.925 11.2x 11.0x SGS CHF 2120 13.6x 12.8x BV EUR 18.675 12.1x 11.6x Quest USD 95.87 10.
Slide 66: Comparable financial discipline to TICS peers
Eurofins has comparable financial discipline to TICS peers TICS Leverage Ratios 2.20x 1.97x 1.16x 0.61x Eurofins SGS Bureau Veritas Intertek (Dec 31,2016) (Dec 31, 2016) (Dec 31,2016) (June 30, 2016) Source: Company accounts 66
Slide 67: Strong financial discipline at all times – 1/2
Strong financial discipline at all times – 1/2 Year end net debt/LTM adjusted EBITDA and pro-forma adjusted EBITDA to fully account for contribution of companies paid for during the year Leverage ratio well below historical levels Continued profitability improvement of existing businesses, in ad
Slide 68: Strong financial discipline at all times – 2/2
Strong financial discipline at all times – 2/2 Average net debt/LTM EBITDA 21 acquisitions with total annualized revenue contribution of over EUR 570m. Entry into 3 new countries 10 start-ups 55,000m2 of lab surface added Acceleration of internal restructuring and reorganization programme during eco