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Eurofins generates strong Free Cash Flows in 2010

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28 February 2011

Eurofins presents a strong set of results for the fourth quarter and full year 2010. Revenues increased by 8% in the fourth quarter to EUR 186m, in line with the growth seen since the start of the recovery in Q2 2010. This pushed full year 2010 revenues to EUR 680m, a 6% uplift from the previous year. Clean1 EBITDA2 improved 11% to EUR 37m in Q4 compared to the same period in 2009, implying a 51bp margin expansion to 19.7%, in-line with guidance provided on the November 8, 2010 press release for similar profitability as that achieved in the previous quarter3. For the full year, clean EBITDA showed a significant increase of 21% to EUR 111m, despite on-going start-up losses and the full benefits of the investment and reorganization programmes yet to be fully realized. Eurofins generated net profit4 of EUR 10m for Q4 and EUR 25m for the full year, versus losses of EUR 14m and EUR 11m for Q4 and full year 2009 respectively. Most notably, the Group generated Free Cash Flows5 after interests and dividend to hybrid holders of EUR 26m in 2010 versus EUR 1.4m in 2009, despite similar levels of non-recurring cash costs related to the reorganization.

Highlights from the 2010 Results

  • Revenues of EUR 680m represent a 6% year-on-year growth, most of which organic
  • 21% growth in clean EBITDA to EUR 111m, implying 195bp underlying margin expansion to 16.4%, the highest in five years; highest ever reported EBITDA of EUR 93m and EBITAS of EUR 52m
  • Financial costs remained flat due to the higher cash balance and improved Group financing
  • Lower effective Group tax rate of 30% implies more evenly spread of profits and the tax efficiency of the Group structure beginning to be realized.
  • Group net profit of EUR 25m is the highest in Eurofins' history
  • Capital expenditures have been reduced by 10% to EUR 41m, in-line with management guidance for a normalized level of 6% capex/sales ratio
  • 32% rise in operating cash flows to EUR 85m, translates to a 27x increase in net cash flows6 to EUR 37m, and a 19x increase in Group Free Cash Flowsafter interests and dividend to hybrid holders to EUR 26m
  • Net debt reduced by 8% to EUR 169m at the end of December 2010, reducing net debt to equity and net debt to clean EBITDA ratios to 0.7x and 1.5x versus 0.9x and 2.0x respectively at end of 2009. Net debt was further reduced to EUR 118m following the Hybrid bond top-up as reported on February 15, 2011, reducing net debt to equity to 0.4x and net debt to clean EBITDA to 1.1x.

Comments from the CEO, Dr. Gilles Martin:

"The solid results in 2010 demonstrate that from 2011, the Group is set to reap the benefits of the five-year investment programme and the two-year reorganization programme, both of which have been successfully concluded at the close of the year. Admittedly, Eurofins has the added benefit that the global economy is stabilizing, but more notably, the return to sustainable top line growth and the strengthening profitability and cash flow generation is the direct result of our team's hard work. Furthermore, our investments in the last five years to build an unparalleled, world-class laboratory infrastructure should allow us to drive revenue growth through winning new customers and increasing our share of our existing customers' testing spend, whilst increased efficiencies from the reorganization programme ensures stronger cash flow generation going forward. Overall, we are optimistic that we are well-positioned to achieve our medium-term targets of achieving EUR 1bn in revenues and 21% EBITDA margin."

Summary of Q4 and FY 2010 results


Q4 2010

Q4 2009

% +/-

FY 2010

FY 2009

% +/-
















Clean EBITDA Margin



51 bps



195 bps











948 bps



449 bps









Clean EBITAS Margin



97 bps



196 bps














450 bps


Group net profit







EPS € (total)








Capital expenditures








Net operating cash flow







Free Cash Flow







Total Assets excl. cash*





Cash & cash equivalents*





Total Assets*





Shareholders Equity (SHE)*





Net debt*





*at 31.12.2010

NM : not meaningful


Consistent with the developments reported at the start of the turnaround in Q2 2010, revenues in Q4 2010 grew 8% to EUR 186m, bringing full year revenues to EUR 680m, versus EUR 640m in 2009, representing growth of 6%, most of which was generated organically. Volumes continued to grow in Q4 2010 on the back of new customers and higher-volume contracts from existing customers. Overall, the revenue developments during the year come on the back of higher capabilities as a result of the investments in the last five years to secure leading positions in most of the markets where the Group operates.

Within the Group, the food testing business remained solid, with most markets delivering growth. Within the environmental testing business, the areas impacted by the global economic downturn, namely the industrial and construction sectors, had started to recover, whilst the regulatory-driven water testing remained stable. In the pharmaceutical testing business, the preclinical and clinical areas have started showing signs of stabilization, whilst genomics and quality control (pharmaceutical product testing) activities continued to thrive. Geographically, Eurofins' largest markets, particularly Germany and France, continued to post solid growth, indicating the large growth potential even in the Group's more mature markets. The ramp-up in revenues from Eurofins' new markets demonstrate the increasing importance of the Group's investments in the fast-growing economic zones.


Underlying profitability (clean EBITDA) in Q4 2010 improved 11% to EUR 37m versus the same period in 2009, implying a 51bp margin expansion over the period despite ongoing start-up costs and heavy snowfall in December. In-line with its guidance from the November 8, 2010 press release, the Group managed to maintain the 19.7% clean EBITDA margin achieved in Q3 2010, despite several non-recurring distortions not related to the reorganization programme and therefore not treated as one-off items. In particular, sequential comparison results in a slightly less favourable comparable base for Q4 due to the positive impact on clean profitability from sold or discontinued activities in Q3. The addition of new activities with front-loaded costs and small acquisitions in the last quarter also distorts sequential comparison, as well as year-end discounts linked to large, long-term contracts signed in 2010. The fixed, recurring costs, remain on a downtrend, with personnel costs reduced to 45.3% of sales in Q4 2010, compared to 46.0% in the previous quarter, and 47.7% in Q4 2009. For the full year, this ratio stood at 48.0% versus 49.3% in 2009.

In Q4 2010, the Group booked the last part of the one-off charges (EUR 9m in Q4 versus EUR18m in 2010) related to the completion of the reorganization programme. EBITDA therefore came in at EUR 28m, versus EUR 9.5m in Q4 2009, bringing full year EBITDA to EUR 93m, a 58% increase from 2009. Overall, the solid improvement in underlying profits for the full year 2010, as shown in the 21% increase in clean EBITDA to EUR 111m, is a reflection of the strengthening profitability across the Group, despite losses from start-up/network expansion. In fact, clean EBITDA margins of 19.7% and 16.4% for Q4 and full year 2010 respectively are back to pre-recession levels despite residual start-up losses, implying room for significant expansion of reported EBITDA and EBIT margins starting in 2011, with the removal of one-off costs relating to the reorganization programme and the narrowing of losses from start-up operations. As highlighted in the previous press release (January 28, 2011), full year clean EBITAS margin of 10.3% is the highest since 2006, whilst EUR 52m is the highest EBITAS ever achieved by Eurofins.

Financial costs were largely flat from the previous year due to the higher cash balance and improved overall financing of the Group. Effective Group tax rate has been reduced to 30% in 2010, implying a more evenly spread of profits and the tax efficiency of the Group structure beginning to be realized. Therefore, Eurofins generated net profit for the group of EUR 10m in Q4, and EUR 25m for the full year 2010, versus losses of EUR 14m and 11m in the comparable periods in 2009.

Cash flows

The Group's focus on profitability, the recovery in revenue growth, and the end of the investment and reorganization programmes have started to translate to strong cash generation. Net cash from operating activities grew 26% to EUR 47m in Q4 2010, compared to EUR 37m in Q4 2009. Given the 28% reduction in capital expenditures to EUR 11m, Eurofins generated EUR 32m of Free Cash Flow in Q4 2010, a 64% increase from the level in 2009. For the full year, net operating cash flow grew 32% to EUR 85m, whilst Free Cash Flow after interests and dividend to hybrid holders posted a near-19x increase to EUR 26m. The improvement in cash flow generation is even clearer when adjusting for the non-recurring cash items from the reorganization. After adjusting for these items (EUR 18m in 2010 and 2009), the EUR 44m clean Free Cash Flow generated in 2010 is more than double the level generated in 2009, and implies a FCF yield of 6% on Eurofins' market capitalization as of 31 December 2010.

Balance Sheet

Total assets stood at EUR 736m at the end of the year, representing almost a 12% increase from the same period last year. More notably, assets excluding cash of EUR 629m represent an increase of only 4% from the previous year, lower than the revenue increase for the period. Improving profitability, tighter capital management and sound funding mix has resulted in the strengthening of the balance sheet. Net debt had been reduced by 8% to EUR 169m at the end of 2010 implying net debt to clean EBITDA ratio of 1.5x and net debt to equity ratio of 0.7x, versus 2.0x and 0.9x respectively at the end of 2009. At well below its maximum debt covenant limits of 3.5x net debt to clean EBITDA and 1.5x net debt to equity, Eurofins retains substantial headroom in its financing capacity. Additionally, at the beginning of 2011, the Group topped-up its existing Hybrid bond, originally issued in May 2007, by EUR 50m7, bringing its total nominal value to EUR 150m. The additional hybrid further reduces pro-forma net debt as of December 31, 2010 to EUR 118m, implying net debt to clean EBITDA and net debt to equity ratios of 1.1x and 0.4x respectively. The incremental reduction in debt ratios from the Hybrid extension enhances Eurofins' debt profile, which in turn, should also reduce Eurofins' average cost of debt.

Lancaster acquisition: Strengthening scale and service

Eurofins announced on February the 24th that it has signed an agreement to acquire Lancaster Laboratories from Thermo Fisher Scientific, Inc. for c.US$ 200m, subject to post-closing adjustments. Lancaster operates the largest single-site independent pharmaceutical product testing laboratory in the world and one of the largest environmental testing laboratories. In addition, it has a solid reputation for excellence in service quality and reliability and enjoys long standing relationships with many Fortune 500 clients. Lancaster has been growing rapidly over the last 50 years and generated sales of approximately US$115m in 2010. With this bolt on acquisition, the Eurofins Group becomes the global leader in the very stable and recurring pharmaceutical product testing business and gains strong position in environmental testing in North America.

Completion of the transaction is expected in the next 2-3 months and is subject to applicable regulatory approvals and customary closing conditions. Based on Lancaster's historic profitability and budget for 2011, the transaction should be immediately margin and EPS accretive for Eurofins.

Outlook: Reaping the Benefits

The progress and achievements made in 2010 indicate that from 2011, Eurofins is set to reap the benefits from its heavy investments and hard work in the last five years. The Group should be able to deliver even better performance in the medium term as the benefits from the investment and reorganization programs, in addition to stronger revenue growth, will yield their full benefits, and should begin to be realized in 2011. In line with this, management reiterates its medium-term (2013) objectives:

  • Revenue CAGR of c.14% to reach EUR 1bn by 2013
  • 21% EBITDA margin
  • 15% EBITAS margin
  • Capex/Sales below 6%

Successful completion of the Lancaster acquisition will mean that Eurofins already exceeded its acquisition objectives set for 2011, both on revenues and EBITDA. Furthermore, it is a further sign that the revenues and profitability objectives stated above for 2013 are achievable.

1 Clean - excludes one-off costs from reorganization and discontinued operations, but includes losses related to network expansion (17 start-ups)

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

3 Refer to Q3 2010 results press release, 8 November 2010

4 Net profit before minorities and hybrid

5 Free Cash Flow = net cash flow provided by operating activities less net cash used in investing activities, excluding acquisition payments, and including interest payments and hybrid dividend payments

6 Net cash flows = net after tax cash provided by operating activities less cash used in investing activities

7 Nominal value. In real terms, the exercise raised EUR 51m (EUR 48m in net proceeds plus EUR 3m on accrued coupon)

Full disclosure, including consolidated financial statements and related notes, can be found in the Annual Report 2010.

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


Eurofins' reporting calendar for the year can be found on the Group's website: /en/investor-relations/corporate-timetable.aspx

For further information please contact:

Investor Relations