Eurofins Scientific SE (OTCPK:ERFSF) Q2 2024 Earnings Call July 24, 2024 9:00 AM ET
Company Participants
Gilles Martin - Chief Executive Officer
Laurent Lebras - Chief Financial Officer
Conference Call Participants
Suhasini Varanasi - Goldman Sachs
Himanshu Agarwal - Bank of America
Neil Tyler - Redburn Atlantic
Arthur Truslove - Citi
James Rose - Barclays
Allen Wells - Jefferies
Delphine Le Louet - Bernstein
Operator
Ladies and gentlemen, welcome and thank you for joining Eurofins Half Year 2024 Results Call. Please note that this call is being recorded and will later be available for replay on the Eurofins Investor Relations website. Throughout today’s presentation, all participants will be in a listen-only mode. [Operator Instructions]
During this call, Eurofins’ management may make forward-looking statements, including, but not limited to, statements with respect to outlook and the related assumptions. Management will also discuss alternative performance measures such as organic growth and EBITDA which are defined in the footnotes of our press releases. Actual results may differ materially from objectives discussed. Risks and uncertainties that may affect Eurofins future results include, but are not limited to, those described in the Risk Factors section of the most recent Eurofins annual and half year reports. Please also read the disclaimer on Page 2 of this presentation, subject to which this call and the Q&A session are made.
I would now like to turn the conference call over to Dr. Gilles Martin, Eurofins CEO. Please go ahead.
Gilles Martin
Hello, everybody and thank you for joining our half year conference call. We have a small slide show that is online and you can access and I am going to start on Page 5. So we have had quite strong set of results for the first half of the year. We are very pleased with the results. As those of you who have been following Eurofins for a long time now, the first half of the year is by far the weakest part of the year. That’s due to seasonality, mostly in the Northern Hemisphere and clients finishing their budgets in the fourth quarter. Typically, the fourth quarter is usually our strongest quarter.
So considering that, the result of the first half are very good. And they are good on many aspects. Operationally, we are achieving a lot. We are making very strong progress in our digitalization initiatives and developing the tools, the bespoke IT solutions to run our labs most efficiently and in a standardized way and the more we look, the more we find the vast diversity of IT solutions everywhere, and we now have a clear path after successful pilots to rationalize a lot of this variety and of course, achieve better service to clients in many areas. So, that’s one of our main objectives to be the most digital company in our world, which of course, brings a lot of other benefits, because once we are very digital, we can use AI much more with the large amount of data we have and we can use robotization in our labs to streamline things, very efficiently. So that’s very encouraging.
And the results are especially encouraging, because we are carrying a lot of cost. We are carrying a lot of costs that will not go on forever. First, we are rebuilding our IT infrastructure in independent zones with the latest security tooling and the most resilient structure we can find deploying a lot of standardized applications also in the finance, treasury, etcetera. And so after things, we have already completed long ago, like standardizing purchasing. So a lot of investments and in spite of all the spend we have in those investments, in spite of all the money we spend on startups, in spite of all the money we spend on building new labs, moving our labs into those large hubs and building many more spokes to be close to customers for the time-critical assays, in spite of a large spend of M&A, in spite of significant share buybacks that we have been accelerating already in the first half, we still managed overall to reduce our leverage. And that’s quite encouraging and I see that continuing. So, that’s in a nutshell a quick summary of the first half. Of course, we can come back to specific aspects during the question-and-answer session. Laurent will talk more about our financial aspects.
On Slide 6, you see the margin improvement. We already had a 120 bp improvement in the second half of ‘23, this is accelerating. Now we’ve got a 220 bp margin improvement. Again, in spite of all the costs we have in IT and etcetera, that are not CapEx, and they are really spend that we do to reorganize our IT and a lot of development costs and all the engineers deploying the software, designing the software, etcetera. So quite encouraging. We, for those of you, who wanted more details, I think we are probably on that level, one of the most transparent companies in the world, because we give you not only a full segment reporting by geography and we still feel that geography is the best way to give granularity to our results, because there are two differences across continents between the performance in America, where the economy is still quite dynamic and in Europe where it’s also sharing with you the organic growth, the revenues and organic growth performance by type of activity. And so we’ll give you two dimensions in that sense. And what you see there is we are doing quite well overall.
And you probably – those of you who track other companies like Thermo, Danaher, in other sectors or for example, Charles River will know that the pharma industry is a bit soft, has been for a number of quarters. And actually, we’ll continue to grow, so we’re positive. So we are fortunate to be in some of the more resilient areas of service to the pharma industry. It has been a bit softer, especially in Q2. And the pharma industry is well funded. There is a bit of hesitancy on project starts and so on. We think this is temporary and will pick up exactly when it’s hard to say, whether it’s Q3, Q4 or Q1 of next year. But we see – overall, we are still very bullish on that activity. It has been a little bit softer, especially the second quarter. Otherwise, you see the usual higher growth in life, so food and environment testing and consumer products has started, technology has picked up again, nice growth. And the clinical is always low single-digits, low to mid-single digits. So, it’s actually clinical that did relatively well in the first half at 4.5% organic growth. And you have more details in the press release.
On Page 8, we share what we do on buildings. We continue to do that. We continue to build new buildings. We have had discussions with many of you regarding the buildings that my personal holding owns and we are getting them all evaluated by third-parties and we’ll put them up for – we’ll give Eurofins the opportunity to buy them should the non-related shareholders to decide. It doesn’t have to be all in one go. We don’t want to stretch the balance sheet. We can replace some of the things we wanted to do externally by those buildings, if our shareholders want that. Anyway, we will all do that in a very transparent way when all of that is ready.
On Page 9, we talk a bit about start-ups. So we continue to do many start-ups. We still feel acquisitions are expensive, but when Eurofins is trading at 8x or 8.3x EBITDA, obviously, looking at external acquisitions that go for 10 or 12 for the good one, 15 is seems a bit as not the top priority. So we would rather buyback our shares in those circumstances. Until this discount is basically what we feel is certainly not justified is gone. We should rather buyback our shares. And by the way, we are doing that. We announced it and we are doing it, but we don’t have to give you every details of what we do with conditions.
And then acquisitions, we continue to do acquisitions. We have headroom. We will have even more headroom as our profits continue to increase and we are confident that they will continue to increase as per our plans. And so we have a pipeline. We still find acceptably priced acquisition, mostly small. And if they fit well, if they have the right management, we still can find smaller companies that we can buy from 5x to 8x EBITDA or sometimes slightly more. And so we continue to do that. So I think in this quarter, apart from the slight softness in biopharma, which we find is very temporary. Everything is on green or very green and the outlook is quite good.
And Laurent will give you a bit more detail, a little bit more color on the financial aspect.
Laurent Lebras
Thank you, Gilles, and good afternoon. It’s my pleasure to present you with a very good set of results for the first half. As you can see on Slide 12, we had clear improvement on all fronts in the first half. With a revenue growth of 6.5%, a good increase of our EBITDA by 21% year-on-year, reaching €740 million, a very good increase of our adjusted EBITDA margin also 220 bps improvement year-on-year reaching 22.1% ahead of our full year objective, and a decreased SDI to only 6% of EBITDA. So, all this translated in a very strong increase of net profit by 46% year-on-year at €151 million.
Moving to Slide 13, you can see that our revenue growth of 6.5% in the first half was mostly relying on a good organic growth of 5.6% and we had a slight negative FX impact of 0.5% and a good contribution from M&A by 1.1% of revenues.
On Slide 14, our performance by segment shows a very strong improvement of margins in all regions and especially in Europe, with a plus 330 bps increase year-on-year thanks to volume price and cost control measures. This was particularly strong in the DACH Region, and while France remains accretive to the profitability of the region. In North America, despite a slightly more moderate growth of revenues, the margin showed an improvement also of 190 bps year-on-year, thanks to cost discipline. And in the rest of the world, we had overall a good growth and a good margin progress.
Moving to Slide 15. You can see that we had a very strong cash flow in H1. Our free cash flow was almost multiplied by 4 in the first half. It increased by €205 million to €279 million, we had a very good cash conversion at 39% of EBITDA and more than 100% of our net profit. And going forward, we aim at a self-financing all our needs, whether they are M&A, share buyback CapEx or start-ups.
On Slide 16, as mentioned earlier by Gilles, we continue to invest to develop a unique positive advantage. So our CapEx level to 7.4% of revenues. We still spent 25% to purchase and build out our own site, 21% on IT and 44% on lab equipment.
On Slide 17, we had a better net working capital at 6.3% of revenue, thanks to improvement on both the DSOs by 1 day and the DPOs by 2 days.
And to conclude on Slide 18, you can see that we have a very healthy leverage of 1.9 turns in H1, well within our target range. We have no more debt maturity until year-end due to the strong cash generation in the first half and the early redemption of the July bond that we paid in June. And overall, we have a very strong balance sheet, well spread debt maturities and very ample liquidity with over €1 billion of untapped credit lines.
And now I turn back the microphone to Gilles for the conclusion of this presentation.
Gilles Martin
Thank you, Laurent. Another thing where we spend a lot of money on is innovation. So our labs are our pioneers in many areas in test that will have a big impact in the future. We’ll just give you a couple of examples, but we have what we believe is the best prenatal testing test, which covers not only Down syndrome, but many other diseases. And that’s also acknowledged by my peer reviewed the Impera Reviews publication. Another area, everybody talks about AI and AI in biopharma discovery is going to be – starting to be actually a very useful tool. And Eurofins has huge data sets being the largest company in this field or really the top companies serving the very early phase discovery phases we generated over the years, a huge amount of data. And we start to have good traction from clients in our AI-based discovery tools to accelerate their development. And of course, when we do those programs, we can benefit from the follow-on work in our laboratories.
Another thing where we spend a lot of money is TGI. This is, of course, it is part of our separately disclosed spend per annum of over $10 million or probably more than €10 million in clinical trials to the validity of the unique and proprietary test that we have. And of course, those are things we could stop doing tomorrow if we decided not to but we do them and we invest that money because we feel those the results of those clinical trials can lead to very high and very also profitable markets.
So we’re not only a lab company doing route in testing like any other labs, we are really developing unique solutions because we believe in the future, they will generate very significant growth and very significant margin. But of course, we cannot talk about all of them because we have many, many such initiatives throughout our group.
And on the outlook on Page 22, maybe something to clarify, we wrote it in our press release, but we don’t give guidance. We are not in the business every quarter of adjusting what we are going to do or what we are not going to do. We try to be transparent for long-term investors. We try to be very transparent about what we do, what our plans are, [indiscernible] period, of course, to achieve certain things, we have to invest and our – and we do invest a lot of money. But we think considering we are in very good sectors with good organic growth, good sector growth potential and a big advantage to the biggest player in the sector and the most efficient players. This sector offers very high return capital employed on organic developments, slightly lower on inorganic developments because we incur goodwill. But we think it’s a very good place to deploy capital.
So the main criteria for us is return on capital employed. We have a hurdle rate that we define and as long as the interest rates remain in a certain range, we don’t change it. So it was long ago, 16%, then the interest rate came down a lot. We brought it down to 12%. We brought it back up to 16%, and that drives most of our decisions. In terms of doing an inorganic investment, buying a company, we want every investment that we make to achieve the 16% hurdle rate in your – at least in year 3.
Then we try to set an objective of organic growth, and that objective depends on the level of inflation and other aspects. So that’s why – that objective is not for each quarter. That’s an objective that we set as what we think we can achieve all long periods and is currently 6.5%. Probably it’s too precise. We should rather revert long-term to what other companies do with high-single digits or mid- to high single digits, etcetera. We might do that at some point once we have achieved those objectives that we have stated.
And every year, we set an objective for the year. We’re not in the business of setting objectives every quarter, changing objectives every quarter unless something very significant happened, we just keep those objectives. And some of you have observed that we are – we have a very significant margin improvement in the first half by not changing our objectives. We’re not saying that we will have a bad in the second half. We’re just simply not changing our objectives. Each of you is totally free to set whatever objectives they want for us or whatever resort they think we’re going to do in the second half, we are saying nothing about it.
So to summarize on Page 23. So we’ve had, as Laurent explained, a very good half year, and we achieved a lot of things operationally. The financial results are very good. The things we can influence, I think our teams did a good job. We think we will continue to do a good job. We don’t know if biopharma will stay a bit soft for much longer or not. But anyway, we can adjust the cost to whatever growth we’re going to have. We have this objective of 24% margin, and we’re convinced we will get there by 2027 or before. And we have those objectives on cash flow. And those objectives on return on capital employed, and that’s what we are sticking to.
The second half might be favored by a bit more working days, but that’s not the main thing. The main thing is that directionally, we think in the current inflation environment of anywhere between 2% and 3% our overall secular organic growth target of 6.5% is in the ballpark of what is achievable over a long-period. And as we do all those investments and we benefit from the efficiencies from all those investments, we have quite some headroom to improve our margins those and the resulting cash flows. So that’s what we can say about the outlook.
And I’m sure you have some questions, and I’m happy to turn over the microphone to you for questions.
Question-and-Answer Session
Operator
Thank you very much. [Operator Instructions] Thank you. The first question will be asked by Suhasini Varanasi of Goldman Sachs. Please go ahead.
Suhasini Varanasi
Hi, good afternoon. Thank you for taking my questions. I have three, please. One on the top line, the softness that was there in pharma, do you get a sense that this softness will continue through the rest of the year? Or do you expect it to pickup in the second half of 2024? Second is on SDIs. They did track a little bit lower year-over-year versus the full year number that you gave of €125 million. So can this be lower than your full year number? Or do you expect it to pickup in the second half? A third question is on margins. I appreciate the color that you gave in the commentary. But just to be clear, there is no reason why we should not expect a seasonal pickup in the second half of the year versus the already strong first half margins? Thank you.
Gilles Martin
Thank you very much. The top visibility on pharma, pharma has a lot of money. The big pharma has a lot of money. Biotech is starting to be also better funded. There’s a bit of hesitancy in starting projects and reviewing a bit the pipeline. It’s very hard to time. I think there are other companies that are in the same boat that are serving the biopharma in a big way. Some of them are saying they see a pickup already, the first sign of a pickup or pointing to Q4 as a pickup. Frankly, it’s difficult to predict the future about that. Maybe later part of this year, early 2025 from what we can tell, but predicting the future is always difficult. I think overall, we are doing slightly better actually than other biopharma exposed companies.
On the SDI, we made an objective that’s what’s in our budget. Maybe we’re going to come out a bit lower than that. It depends on the ramp-up start-ups. We have many start-ups, they are starting, how fast do they ramp is a question. We have some reorganizations and moving also exactly how they land. So we’ve – we opted not to change anything on that or not to change anything of our objectives. It could be we land below 125. Margin, yes, we have no reason to think that the second half would be a bad second half. That’s what I can say. On the other hand, we will not change objectives because we set objective once a year and unless something really terrible happen, we don’t change them. They are already very detailed and very precise, probably too detailed and too precise. But they are like this, and we’ll see how to formulate it maybe next year. So that we have a good outlook on the second half but it’s still the second half. So we’re not going to – otherwise, it’s a lot of work to do, to ask our teams to do update their planning on a rolling basis every month or every quarter, we don’t want to go into that.
Suhasini Varanasi
Okay, thank you.
Operator
Thank you very much. Your next question is coming from [indiscernible] of Morgan Stanley. Zak, go ahead.
Unidentified Analyst
Hi, thank you for taking my questions. I have two, please. So in your recent press release responding to the short seller allegations, you commented on the fact that you might increase the share buyback program quite significantly. So given the good free cash flow performance in the first half, why was this not announced today? And then secondly, given SGS this morning reiterated that they intend to keep their Crop Science business. Could you just confirm please that you still expect the deal to close or whether anything has changed there? Thank you.
Gilles Martin
Thank you very much. Well, we already announced that we will increase our share buyback. So I don’t see the point of announcing it a second time. And that’s all I can say. We’re not – we do disclose every 3 days or every 5 days. I don’t know what we buy back every 5 days, every week, and you will see what we buy back. Now of course, that depends on share price evolution, all kinds of factors. We – and but yes, we intend to do what we said we would do. But we don’t – we have authorization you can look into for buying back shares from the – from the general assembly. We have quite a lot of headroom to do that, depending on share price evolution. And as I said, at the moment, considering the enormous discount that we suffer, I mean it’s close to 50% on an EBITDA basis, EBITDA multiple basis. Obviously, this is something that we have to consider. We also have a lot of good ideas to deploy capital at high rates of return internally. So it’s not our job to buy back or free float or not – but this is something we obviously should consider in going forward. And we announced that we would do it. And so this is what we’re doing and the Crop Science, where we have a difference of opinion of interpreting the contract. We believe the acquisition contract with SDS is still valid, and we’re going to pursue our rights to get this transaction to close. And of course, this will have to be decided by the right bodies and we cannot comment, of course, on the details of that. But as we announced in the press release, we will pursue this deal to closing.
Unidentified Analyst
That’s very clear. Thank you.
Operator
Thank you very much. Your next question is coming from Himanshu Agarwal of Bank of America. Please go ahead.
Himanshu Agarwal
Hi, thank you for taking my questions. Just one follow-up on the pharma business. I think in the past, you have mentioned that in a weaker macro environment, you benefit from more outsourcing by pharma companies. So isn’t that the case in the current environment, if you can clarify on that? And secondly, if you can talk about like given your decentralized structure, and I understand you’re trying to build centralized IT infrastructure, digital infrastructure. So how is your difficult it is for you to build that? And also, how do you locate the associated costs to different subsidiaries that you have?
Gilles Martin
Thank you. More outsourcing and weaker environment. The environment is not so much weaker for the pharma industry. I think they’re doing quite well overall, and they’re making a lot of money. Of course, easy and the medium environment were to get tougher, that’s usually what they do. They look at internal cost and look at what they can outsource. At the moment, I think from what I hear from our pharma team, it’s more which program to prioritize and they are – so overall economic environment is a bit hesitant. It’s doing well, but people are a little bit hesitant and it could actually pick up all of a sudden. It’s more a matter of mood than a bad economic environment.
Yes, maybe some misunderstanding of the centrality. We have independent companies run by indent entrepreneurs who are empowered to take decisions themselves to serve the clients well to decide who they hire, who they fire, when they pay people, what they charge for their test and everything. However, we have clear areas of activities [indiscernible] and within food testing, there are specialties like pesticides, toxins, and they are very different from microbiology. And we develop IT solutions, specifically for each of those activities, Modos IT solutions can be used worldwide. So, all those labs can use the same IT solutions. We have a different level of advancements in the deployment of those IT solutions.
In biopharma product testing, we have a very high level of deployments of the identical solution, maybe 80% worldwide for the Central LIMS systems, maybe 60% for the online access for clients. And of course, there are all the tools that we are finalizing, we do think that by the end of ‘26, we’ll have 100% deployment of the whole suite of tools but then those are the same tools everywhere. So the labs can operate completely autonomously, but they use the same IT tools because you’re talking 50, 100 million, maybe more for a business line, maybe 200 million to develop a complete suite of IT solution one of those business lines. So none of those individual labs could afford it, and you get from that enormous amount of transparency of also efficiency.
And for clients, they get the data in the same format from any lab around the world. So it’s very expensive. So to your question, I mean, our IT costs are running now, maybe overall, not even counting what we sort a little bit that is capitalized, something like 6% of our revenues, maybe more. And it’s at least double what it should be long-term. So we have we are in the middle of a peak investment phase for these digitalization programs. Not only will that go down when we have finalized this IT segregation of our infrastructure in smaller, more resilient zones and also finalize the bulk of all these developments and the associated, let’s say, operational problem linked to the deployment when you change the software for a while, it also reduces the effectiveness of the business that gets in the new software. But once all that is behind us, we expect very significant improvements in productivity, efficiency, quality of service, as we already see where it’s already done. And that also makes us very bullish about the future.
Himanshu Agarwal
Thank you. If I may just ask one more on the share buybacks. I see that in the last 1 month, you have stepped up the buybacks doing around 12 million every peak, and you have almost used half of the 200 million of share buybacks that you announced last October. And so should we expect and given your earlier comments, should we expect another buyback program to be announced in-line with one of your responses in the future?
Gilles Martin
Not possible, we’ll see. I think it’s quite funny what happens in the market. We see it from inside. We see claims that have been labeled against the company that are completely absurd to claim that we invent cash that’s basically claiming that all our accounts are a fraud that we’re like, then we should do another job. It’s really completely crazy. And I think investors are not stupid. At some point, they will realize that this is just nonsense. And while some of those that are not close to the company might have somehow be scared because the water sometimes got it right. Here, they got it very wrong. And some investors know that. So we’re going to have to see how the share price evolves over the next 2 weeks and months, and we react accordingly. What is clear right now is that, we believe that buying back our shares is a very good investment.
Himanshu Agarwal
Thank you.
Operator
Thank you very much. Your next question is coming from Neil Tyler of Redburn Atlantic. Please go ahead.
Neil Tyler
Thank you. Good afternoon, Gill. A couple left, please. Firstly, in your statement this morning, there are numerous mentions of productivity improvements and site rationalizations I know you’ve never been one for announcing sort of major restructuring initiatives, but it seems as if there’s been quite a substantial response to the margin decline. Can you perhaps frame for us how far through those measures you are and whether in terms of both the costs incurred and the benefits derived from those, if you sort of emphasized it all into one bundle. That’s the first question.
And the second one relating to the investment in owned sites. Can you just sort of help me understand why you see it as a priority to purchase those sites owned by related parties. Is that sort of governance over sort of financial benefit? Because I would have thought that the one of the motivations being to try to avoid sort of egregious rent increases, that would be less of a likelihood for those sites that are owned by your holding company. Thank you.
Gilles Martin
Yes, I couldn’t agree more with you. I think we have to deal with the market and a lot of people in the market don’t have time to do their homework might have opinions that we don’t share. Nonetheless, we take into account everyone’s opinion, I do think that my holding is working very well. And it’s a landlord that’s not going to take advantage of the company. And the current situation for me is probably the best for Eurofins and I would agree with you, we should probably economically from a cash for the company, profits of the company, etcetera, point of view, we probably could wait 2, 3 years do as we had planned before, do the external acquisitions of buildings. It’s not so many that we need, by the way, to finish our plan, 2027 is not so far out anyway, some of that will happen anyway because it started. We are being – we are already constructing site for both sides that we need to redevelop and so on. So some of that will happen anyway.
But yes, it’s more governance. It’s more, how do you say that appearance. I think for a company of our size, it doesn’t look good, and there are related party transaction. We do our best, and there is a special committee in the Board that is tasked with that. We do our best to ensure everything is at arms length and is fair. Well, it’s very easy for short sellers to try to make that look unfair to the company and some of our investors think it’s a nuisance that’s better avoided. And in that sense, if I look at it purely from the volatility of the share price point of view, there is a case to be made to prioritize buying back those buildings. Although economically, I would agree with you, it’s probably not the best thing to do. But we have to consider all point of views. And anyway, we’ll see what the majority of our investors decide because I don’t intend to take the decision myself. We will propose it. We’ll – my holding will give you the options to do it. And then your options can decide what a – non-related shareholders can decide if they think it makes sense or not and how fast.
Now in terms of your first question on product improvement, we are decentral. So I don’t believe in those programs where you say, yes, we’re going to cut 10% of our employees everywhere because it’s not one size fits all. We have areas that grow very fast, which are adding a lot of people. And what our teams did, there were areas that were built up during COVID, especially in clinical diagnostics where, indeed, they had hired a lot during COVID. After COVID, they might not have been fast enough in adjusting and this is not finished. We also have shared that Europe has been soft overall, and especially in food testing for the last 2 years. It’s already picking up a bit. We have some adjustment to do there, and we did it, and it’s not completely finished, but it’s also part of the program. Sometimes we just need to finish building the hub labs before we can consolidate the local labs. So there are things that take time.
So and we break down the amounts in terms of what other cores were structuring because in our SDIs, we have 43 million, I believe the EBITDA level. And the bulk of that is for our start-ups, and TGI is maybe 10 million of it or close to 8 million of it. So a large part is for start-ups in part well lot of structuring, it’s only 50 million. I think SGS was 30 million this quarter – this half year or something like that. So we don’t have massive restructuring but we have one and related to the leaders of our companies to decide or our countries to the decide if that makes sense.
We still have some to go, but it won’t be huge. We still have some to go. And we also have some companies that are really isolated in the market that – where we don’t see them becoming leaders, we can consider selling them. We did small sells here and there over the last 2 or 3 years. We might continue that. Some we might simply close because we don’t see them becoming a leader in their market. So we flagged that over this year, next year. And that’s why on the SDI question, I wasn’t super specific as to the 125 million because it depends on the judgment of our leaders on the ground, whether they should do it, what solutions they find, if they can pivot the companies to better markets, etcetera. So we have for this year, we have quite we’ve planned enough buffer for them to do what is required and in doing this streamlining, although we don’t think we’re going to need all that much money. Sorry that I can’t be more quantitative. But next year, we’ll be when we said…
Neil Tyler
No, that’s helpful. Great. Thank you. And just on four of those businesses that are still under review, I mean I presume there’s sort of fairly de minimis in terms of their contribution currently. But is there any – do you have a perspective on the percentage of revenues that are still under review?
Gilles Martin
We said it’s less than 100 million.
Neil Tyler
Okay, thank you. Thank you very much.
Operator
Thank you very much. Your next question is coming from Arthur Truslove of Citi. Please go ahead.
Arthur Truslove
Thanks very much. Good afternoon, everyone. So three for me, if I may. First question, please. On the margin, you’ve clearly grown the margin really, really well. I guess, biopharma has obviously underperformed growth wise, and I would have understood that, that was higher than the group. North America looks like it’s grown organically at high 2s in Q2. I guess my question here is kind of given those things, can you just provide a bit more detail on how you’ve managed to do this. And if you have done any kind of restructuring when that happened and when the benefit kicked off. Question two. You’ve clearly done very well increasing the payables days and reducing the receivables days. Are you able to just articulate a little bit more on how you’ve done that? And then the third question from the P&L in the first half report, you’ve got finance income of 14.9 million, of which around 13.5 is in separately disclosed items. Are you just able to say what the separately disclosed element of that financing is, please? Thank you.
Gilles Martin
Alright. So multiple questions. Yes, but on the margin, we have flagged already last year and maybe after Q1 that we carried a bit too much – too much staff and so on, among others after COVID. And so we indeed our teams and also in some areas of Europe, which were affected by lower growth, and we did – we are working. No, some of it has happened also in the second quarter. And we still have some to do in just adjusting to the slightly lower growth we see in Europe in some areas. And of course, biopharma, if their outlook doesn’t firm up very quickly, we’ll do the same and so they have some room for improvement further. Payable receivable Laurent can answer the other two questions, I think.
Laurent Lebras
Yes, yes. I mean, so the improvement in DSOs was linked to a much better monitoring of collection of receivables and build items. And in terms of DPO, that was also payment terms. Regarding your third question on the finance income in SDI, this is what relates to the income we generate through what we call the excess cash. So the excess cash is basically defined as every cash on top of our average net working capital at about 5%. And we basically allocate to the SDI the income generated from these deposits of excess cash.
Gilles Martin
So, on those two questions, just a general remark from the CFO, I don’t think we are particularly good in managing our net working capital. I think we have room for improvement there. It’s – we build the company from a very small base. We grew very fast, and we are improving in all aspects. We have a large number of initiatives to improve. And indeed, in net working capital, we could do better. Our teams know it and we are going to do our best to improve. It’s a daily fight, of course, with everyone. Everyone who has managed net working capital knows that. It’s about having the right tools, but also staffing it properly and keeping the focus on it. So, that’s there is room for improvement. And also in investing our cash, we come out of a period where the interest rates are very, very low. And maybe we didn’t pay enough attention to investing all our cash at the best rates and the centralization is improving a lot with our cash pooling. So, I think also on that, we are improving a lot and can further improve. Are there more questions?
Operator
Arthur, do you have any further questions?
Arthur Truslove
No, that’s it. Thank you very much.
Operator
Thank you. Your next question is coming from James Rose of Barclays. Please go ahead.
James Rose
Hi. Thank you. I have got two, please. The first is on the margin improvements you have had in the first half. How sustainable are those improvements? Could we expect a similar rate of improvement going through to the second half, for example? And then secondly, for cash conversion, we have had an improved cash conversion rate in the first half. Similarly, can we expect a similar improved level into the second half as well? Thank you.
Gilles Martin
Thank you. Well, I wish I could answer your question, but that would equate to changing our objectives, which we said we don’t want to do. We set our objective once. We have no reason to think H2 will not be good and that we will not have improvements in H2, I can say that. Anyway, I think all of that is a bit of a good point because I think a large part of the market didn’t believe in our objectives for this year anyway. I don’t know whether this has changed now. And apparently, and even if they believe in it, they don’t believe the company really – they can’t really exist, and they don’t believe we have cash. So, there is no point fighting about that. We have a 50% discount to where we should be trading at if people believe in our numbers. So, splitting hair on H2 and whatever it’s going to be or not be, whether it’s going to be 21.5% or 22% or 25%, I don’t know, this is just, I think not the issue. The issue is that basically people do their homework and we are going to spend a bit of money to get result of some audits, there are some remaining questions, but that’s the main thing that needs to happen because otherwise, we can generate 24% margin this year or next year, it’s not going to change anything. So, that’s the main thing. We have to – we will talk to investors and if investors have legitimate questions, we think we addressed all the questions that they are and that’s more important. Yes, I know some companies have the policy to adjust, to give a guidance for each quarter, a very precise guidance on EPS and so on. This is not what we opted to do. Maybe we do that in a couple of years, we will see. I think more likely, we are going to converge about giving objectives in high to mid-single digits and things like that. Anyway, what I can say is there are many things that we are working on to improve. We think the outlook is good and we will be working over the next 2 years or 3 years to improve and we are confident about our objectives for this year and our objectives for 2027. And we will update those objectives when we publish our 2024 results. That’s what we intend to do at this stage.
James Rose
Thank you for the answer.
Operator
Thank you very much. Your next question is coming from Allen Wells of Jefferies. Please go ahead.
Allen Wells
Well. Good afternoon Gilles and Laurent. Most of my questions has been asked, but just two quick ones, please. Firstly, I kind if I missed this earlier, but could you talk a little bit about that organic growth number the pricing versus volume component more broadly. I think we heard from obviously SGS today, broad landscape, but it’s talking about more like 50% of its growth was pricing. It seems like that’s maybe stepping up. Has that been the same for Eurofins, that’s the first question? And the second question, I just want to dig into a little bit on the startup losses just to understand exactly what’s going on there. So, €25 million in the first half, that’s a 35% reduction from what we saw last year. If I look at the numbers in the presentation, like 50 start-ups for last year, 49 blood collection points, the pace slowed slightly in the first half of this year, but given what we have seen over the last couple of years, it’s surprising that, that start-up losses has stepped down by so much. And by its nature, I would assume if a lab has started up, relatively recently, more of its profit will be geared towards volume ramp than anything else. So, just trying to understand what exactly is going on behind that big start-up loss movement here, and if that’s okay?
Gilles Martin
Thank you very much. Yes, I wish I could give you a precise split on growth with pricing and volume. We get a good measurement in the sample-based businesses where we have price list. And there, maybe it’s 60-40 volume-price. But the problem is for the project based, it’s very difficult to measure price if you quote projects. So, we are still working on it. We are doing some pilots, it’s going to get some – take some time until we can really measure price evolution. Startup pluses yes, we have start-ups, but there are various sizes. So, we are going to have big start-ups, small start-ups. And some of those start-ups are profitable already. They are not all loss-making. They might not be at the group target margin. But if we have completely restarted the new activity, sometimes they get profitable after 1 year or 2 years already. So, it’s not really linear at all with the number of start-ups. And for H2, it also depends – some of those are very early. So, very early, the losses are also very low. There is not a lot of stuff, then we add the staff to get the validation of the methods and each one has a specific cycle. We could put more controllers. If we wanted to really precisely know what is going to be next quarter. We have the data somewhere. But also an activity we are planning is harder. The visibility on the speed of ramp is, of course not as good as for an established activity. So, they grow well. And of course, some startups don’t do as well as we expect. Unfortunately, some do better. Overall, we think it’s a place where the capital we invest gets good returns and that’s why we continue to do it. And we have planned a significant buffer when we gave this total number of 125 million to do a lower for variations on this as well as on the restructuring side. But we are pleased with the first half. I agree with your comments.
Allen Wells
Great. And then maybe just a very quick follow-up on I think Arthur’s question earlier on the margin improvement. I think you talked about you are particularly calling out personnel expenses and consumables, but you also talk about pricing attainment and volume. Is there any way you can maybe look at that 220 basis points and maybe split the margin improvement, is it like 50% is the reduction in costs and largely personnel costs. And just to be clear on that personnel cost reduction, is that purely headcount reduction. So, when we see full year results, the 56-odd thousand average FTEs will see that decline year-on-year from that, or are there other measures around payment that you can move around there? Thank you.
Gilles Martin
Thank you. Yes, we haven’t looked exactly at your question the way you are asking it. So, I would have to really dig into that to answer precisely. Certainly, some of our divisions have activities have reduced headcount significantly, but others are adding some. The startups are adding some. Overall, indeed, our instruction is to be prudent. There is still some level of economic uncertainty. So, it’s – I am sorry, I can’t be more specific on that. You can see, of course, personnel cost and how it’s improved compared to the same period last year. And you can look at it on headcount. I will take the question offline or Laurent, if it’s possible because.
Laurent Lebras
You can have it, Allen, from the financial statements because our personnel costs grew only by 3.4% year-on-year, the first half, and our top line grew by 6.5%. So, you have a mechanical reduction there and you can also divide it by the FTE after that because we published the FTE. So, there is a slight improvement. But it’s sometimes due to mix effects, and you have to be careful with the geographic mix, so the cost…
Gilles Martin
Vary. We have inflation on employee costs. So, I have to look at it on the headcount level and so on. Also, we have different prices. I mean employees get paid better in North America than in Europe. It’s – I usually look at the numbers, activity-by-activity and its continent.
Allen Wells
Great. Thank you.
Gilles Martin
Thank you. Operator.
Operator
We will – apologies, yes. We have our last question…
Gilles Martin
If we have any more questions.
Operator
Yes. We have our last question from Delphine Le Louet of Bernstein. Delphine, Your line is live.
Delphine Le Louet
Yes. Thank you very much. Well done on the results first. A follow-up, Gilles, on this one and more specifically regarding this pricing attainments that you mentioned several times in the press release on the EBITDA. So, just wondering if by default, if you can’t really talk per division, but if we can get a flavor, it would be very useful. But probably also, if you can give us a flavor regarding what is the evolution compared to last year and how this H1, so I presume you attain this 100% price adjustment versus last year. But how does that compare to H1 last year and H2 last year? Where are we in terms of achieving that? Second question, probably more for you also, Gilles, what about the timing regarding let’s say, the consultation and possibly the extraordinary shareholder meeting you are going to hold regarding the related party real estate. Is it something that we can wait for October, November? Is it too early due to all the work you need to be done, but can you give us a bit of an idea of what might be the calendar now for your shareholder to decide?
Gilles Martin
Yes. On the first question, I am not sure I understand your question. Do you mind reformulating it?
Delphine Le Louet
Yes. Regarding – so we had 220 EBITDA improvement in H1 versus last year, and so wondering specifically on this pricing attainments because you are mentioning that several times, trying to figure out how big it is in terms of contribution. And so as you can’t say anything, probably to give us a flavor what was the achievement, and how does that compare to H1 last year? Where you already at 40% of the this price achievement when you talk about your service and contract, was it 60% already? Did you gain this 40% remaining more or less, or can you give us a bit of a sense of how would that develop over the course of ‘23 and now how we get there to this 100% price attainment?
Gilles Martin
Thank you. Yes, I understand. I think I understand what you are referring to. Indeed, in 2022, we have got a big hit because we got caught by surprise. We caught of some in ‘23. And I think this year, we are going to catch up some more. I don’t think it’s quite 100%. It will depend – really, the main thing is a gap between the actual inflation of our costs, so mostly labor and what we charge to our clients, how we bridge that gap. And if the second half – if inflation in the second half of this year is very muted, I think will catch up. Whether we catch up 100% this year, it’s really hard to know. Again, we don’t have all the metrics to measure it across the board. We have it country-by-country. We have it in the activity of sample based. We have to run the analysis. We do it usually at budget time. At budget time people have to forecast in the way that you are asking the question. So, they have to tell us how much they are catching up of the price gap. So, that’s when in October, when we – October, November, when we had those meetings that we do a deep dive by activity. And it’s still on a consolidated basis, a bit anecdotal evidence because we don’t have that for some project-based business line. And we have, again, on the consultation for the shareholder meeting. When we said we would do that, we always said we would do it. There is nothing new. And the intention was more to do it maybe in ‘26 or 2026, 2027. We are we are happy to bring it forward. But let’s keep things in perspective. We are talking 35 million of rent. We disclosed – we have disclosed for years what the rent per square meter is compared to other building, the list of building concern is not a secret. I don’t know what this is going to change. It’s going to change, I think, in reality, very little. And I don’t know – I mean maybe psychologically or governance point of view is going to alleviate some worries or worries that there could be more attacks on using this as a pretext for attack. Economically, it’s not going to be a game changer out of the 1.5 billion or 1.6 billion of EBITDA whatever it’s going to be next year. To do that, we need to get everything evaluated, maybe even evaluated twice. We need to ask all our companies, which buildings they want to keep long-term because obviously, there is no point for Eurofins buying a building, or Eurofins wants to move out. I would tend to say we will offer Eurofins the opportunity to do it step-by-step, focusing first on the large campuses where Eurofins want to continue to build because that would be trickier in the current situation. And more we don’t have timelines for that. We have mandated people to do it. It takes effort and resources because it’s, I don’t know, 50 or I don’t know many 30 to 60 buildings. And reasonable timeline, maybe we can publish that with our results for this year and put it to the vote to the general assembly where we get results approved and do an AG, an extraordinary assembly for that. That could be an objective. Whether we get there and get it done by then remains to be seen. If we have data before, we will published before. We are – and while doing that, we are doing other audits. Obviously, we are not happy with some of the claims that were made that are totally disrespectful and really slandering. But that’s a secondary for us. I am not – I don’t care what people call me. They can call me any names they want. And there to make sure our investors get a good return on investment, and that’s the main thing I am doing. And that’s why we are focusing on the real areas of concern for our investors, but we still will get that – to that at some point as part of all those audits. We will get the results of the audit on cash, I hope in the fall. I am not sure exactly when, as early the better, but we have to give the auditors a time to all the investigation they want and access to everything they want. We want them to be really very free to check everything that might be a question. So, they are going to – they are going to need the time, they have been appointed. We have announced that. They need the time to do their work. And same thing for valuing all those buildings and providing all the data again to verify for the – so the end time, the length [ph] nature of everything that should be part of the package. So, I would rather have it done well, but our investors should know well. They know the quantum. They know what it cost to Eurofins. It’s more maybe governance and optical than really economically, the impact is nothing. And but that’s – we are doing our best. And you know we are going to meet with investors, if they have suggestions, we prioritize. The way we deal with that is we listen to our investors and we prioritize what they see as priorities and we deal with things one-by-one, and we are trying to be transparent about everything we are doing. And I think from what I hear, we have addressed pretty much all the concerns. People will be happy to see a report to say that Pricewaterhouse and Deloitte did a good job in auditing our accounts, okay. We are going to have a third. We are going to have [indiscernible] on the on-go, check the cash. For me, it’s totally unnecessary, but okay, we are going to do it anyway. And if there are other things that come up where our investors say it’s important, we will do it. And but things take time, because obviously, anything we could do ourselves, like looking at documents and so on, we have done it. The rest, we need external parties to look at it and that takes time.
Delphine Le Louet
Okay. Got it. And probably a final one regarding working capital management, just wondering if – that was something that was happening in, let’s say, every country, every region, every business or if there is a stronger contribution for one of the business versus another one.
Laurent Lebras
No, there was a stronger contribution in Europe for the network capital movement. After that, there is a lot of mix effects overall. So, those are not very significant. But like Gilles said, we have to improve further because these improvements are small compared to where we should be.
Delphine Le Louet
Okay. Is that due to a new organization, sorry, or new software or anything specific or just a...
Gilles Martin
It’s more tuned to me and we are also – it’s more scrutiny overall, and we also are putting in place some dedicated functions to look after net working capital in some geographies to get better traction.
Delphine Le Louet
Thank you very much.
Gilles Martin
Doing things one-by-one, doing things one-by-one. We have a 5% net working capital, 5% of 7 billion, 350 million. If we invested those 350 million, whatever we borrow at 4%, the impact is not enormous. So, we have been focusing on many other aspects that have a much higher financial impact. No, we can – it’s not bad 5% net working capital, if you look at other companies, but we can do better, whether we w ill land at 2%, 3%, 4%, I don’t know. We would try to do everything we do well and to focus on things that have the biggest impact first. That’s what we are doing. But I am always for continuous improvement. So, we are striving to improve on that too, and Laurent will give it a bit more resources, a bit more people in the different geographies, and we think we can improve. I think the time is up for this call. Unfortunately, what I can confirm is we are positive for the rest of the year. We are positive for achieving our objectives. We are positive for achieving our objectives for 2027. And we will be happy to meet some of you in person, maybe tomorrow in London. And we wish you all a nice summer, and thank you very much for tuning in.
Operator
Ladies and gentlemen, the call is now concluded. You may disconnect your telephone. Thank you for joining and have a pleasant day.