Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong revenue growth of 6.5% in the first half of 2024, with a significant contribution from organic growth at 5.6%.
- EBITDA increased by 21% year-on-year, reaching EUR 714 million, with a 220 basis points improvement in the adjusted EBITDA margin.
- Successful digitalization initiatives and IT infrastructure improvements, which are expected to enhance operational efficiency and service quality.
- Significant reduction in leverage despite high investments in IT, M&A, and share buybacks.
- Strong cash flow generation, with free cash flow nearly quadrupling to EUR 279 million, and a healthy leverage ratio of 1.9 times.
Negative Points
- Softness in the biopharma sector, particularly in Q2, with uncertainty about when this will pick up.
- High costs associated with IT infrastructure rebuilding and digitalization efforts, which are not capital expenditures.
- Continued high investment in start-ups and new labs, which may not yield immediate returns.
- Potential governance concerns related to related-party transactions involving real estate owned by the CEO's holding company.
- Uncertainty about the impact of macroeconomic conditions on future outsourcing trends in the pharma industry.
Q & A Highlights
Q: The softness in pharma, do you expect it to continue through the rest of the year or pick up in the second half of 2024?
A: It's difficult to predict. Some companies are seeing signs of a pickup, possibly in Q4. We think it might improve later this year or early 2025. Overall, we are doing slightly better than other biopharma-exposed companies. (Gilles Martin, CEO)
Q: Can the SDIs (Separately Disclosed Items) be lower than your full-year number of EUR125 million?
A: It depends on the ramp of start-ups and reorganizations. We might come out a bit lower than EUR125 million. (Gilles Martin, CEO)
Q: Should we expect a seasonal pickup in the second half margins?
A: We have no reason to think the second half will be bad. We set our objectives once a year and do not change them unless something significant happens. (Gilles Martin, CEO)
Q: Why was the increased share buyback program not announced today despite good free cash flow performance?
A: We already announced the increase in share buybacks. We disclose our buybacks regularly, and it depends on share price evolution and other factors. (Gilles Martin, CEO)
Q: Can you confirm if you still expect the Crop Science deal with SGS to close?
A: We believe the acquisition contract with SGS is still valid and will pursue our rights to get the transaction to close. (Gilles Martin, CEO)
Q: In a weaker macro environment, do you benefit from more outsourcing by pharma companies?
A: The pharma industry is doing well overall. If the environment gets tougher, they might outsource more. Currently, it's more about hesitancy in starting projects. (Gilles Martin, CEO)
Q: How easy or difficult is it to build a centralized IT infrastructure given your decentralized structure?
A: We have independent companies using the same IT solutions. By the end of '26, we aim for 100% deployment of our IT tools. This will improve productivity, efficiency, and quality of service. (Gilles Martin, CEO)
Q: Should we expect another buyback program to be announced in the future?
A: We will see how the share price evolves and react accordingly. Buying back our shares is a good investment considering the current discount. (Gilles Martin, CEO)
Q: Can you frame how far through the productivity improvements and site rationalizations you are?
A: We have areas that grow fast and add people, while others adjust. We still have some adjustments to do, but it's not massive restructuring. (Gilles Martin, CEO)
Q: Why prioritize purchasing sites owned by related parties?
A: It's more about governance and appearance. Economically, it might not be the best thing to do, but it addresses concerns about related party transactions. (Gilles Martin, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
