Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Eurofins full year 2021 results call. Please note, this call is being recorded. Throughout today's presentation, all participants will be in listen only mode. The presentation will be followed by a question and answer session. If you'd like to ask a question, you may press star followed by one on your telephone to register for questions. Please press the star key followed by zero for operator assistance. 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 the 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 Eurofins annual report. Please also read the disclaimer on page two of this presentation, subject to it, subject to which this call and Q&A session are made. I'd now like to turn the conference over to Dr. Gilles Martin, Eurofins Founder and CEO. Please go ahead.
Thanks, guy. Hello, everybody, and thank you for joining our quarterly and annual results call. We will go to page five. Well, I am pleased to report on an excellent year in 2021, where Eurofins exceeded its objectives on all aspects and made a lot of progress on its operational program to build a leading global company in the exciting field of testing for life.
During this year, operationally, not only did we achieve increasing revenues, not only did we contribute to helping many governments fight the COVID pandemic, but we also continued our pivot and made good steps towards our pivot towards positioning Eurofins as a leading biopharma company, a company serving the broader life science sectors with biopharma services, IVD products, genomic services, agroscience services. It is of a significant size, close to a third of Eurofins' food and environmental testing or historic areas of activities together, compared to biopharma. This first part I was mentioning, our life science activities now represent about 85% of food and environmental testing combined, a significant pivot.
We've also made very significant investment in Asia and our objective for this decade is to rebalance Asia compared to Europe and North America. Long term, there is no reason why Asia wouldn't present 1/3 of Eurofins' business, Europe being 1/3, and North America 1/3. We've made very good step operationally over the last two years towards those objectives. Next slide, please. So a very good development in our core business. As you have seen in the fourth quarter, we were up 12.6% compared to 2019. So, very good rebound. Although, I must say, not all of Eurofins' activities were unaffected by COVID.
We still have had lockdowns and a lot of disruptions in Q4 in several areas and still a little bit in environmental testing in the U.S. and some of the food service support services in Europe, et cetera. A very strong year for our core business. Outlook is very good. We continued to innovate, developed many different tests, both for supporting the public health authority in fighting COVID and throughout our core business. The future for Eurofins, as we can judge it today, is very bright. There's a lot of demand in our markets. Our markets are very resilient and we've seen it through the Great Recession and through the COVID pandemic.
Our businesses are very resilient in terms of crisis, but they also have a lot of opportunities that are due to the developments in biotechnology, in analyzing the human genome, in new tools to read the sorts of biomarkers at the same time. We see a lot of opportunities, and we feel that we're taking advantage of those opportunities. We will be massively expanding our biopharma footprint over the next three years. We already had done an investment program to expand our biopharma laboratories over the last five years. Unfortunately, it looks like they could be full within two or three years. We have to now start planning additional capabilities. As you know, building and qualifying biopharma laboratories or CDMO sites takes time.
We've decided to invest quite significantly in this area to open quite a few startups, especially in Asia. A lot of things going on. We made good progress on our digitalization programs in food, environment, and biopharma. We decided to start similar programs in our newer areas of clinical diagnostics, genomics, and clinical genomics, also product testing. Overall, we are very positive and bullish about the future of our markets, and we are investing behind that. Next slide, please. Eurofins has always done a lot to protect our planet and to contribute to safer lives and better lives for everybody, supporting our clients, meeting their ESG objectives. But we might not have been very good about describing what we did and talking about it.
We have started last year to engage with the rating agencies, with the ESG rating agencies. As you can see on page seven, we've received increase and upgrade by pretty much all agencies, and it's just the beginning. Our ESG report this year, I hope you will find is much better than the one we had last year. We have launched many programs that should deliver a meaningful upgrade in those rating over the next few years. More importantly, should enable Eurofins to be a carbon neutral company. I will now ask Laurent Lebras, our Finance Director, to report on the financial results for last year.
Thank you, Gilles, and hello, everyone. I'm very happy to present you with a very strong set of financial results for Eurofins in 2021, ahead of our latest objectives, thanks to a very strong growth in our core business and a continued COVID activity. Moving to slide 9, I will highlight a few metrics. As you can see, we posted record revenues of EUR 6.7 billion, an increase of 24% year-on-year, which translated into a very strong EBITDA progress or adjusted EBITDA of EUR 1.9 billion, a record level also in progression of 35% year-on-year, implying an adjusted EBITDA margin of 28.3%, which is a very significant increase of 230 basis points over the previous year.
All this translated into a record earnings per share at 3.91 EUR in progress of 44% year-on-year, also adjusted EPS of 5.29 EUR in a progression of 46% year-on-year. Moving to slide 10, for a closer look at our revenue bridge. As you can see on the slide, we didn't enjoy the positive currency impact. We had actually a negative FX impact of about EUR 50 million. You can see that the very strong revenue growth that we posted in 2021 was mostly linked to two factors of similar importance. First, a very strong organic growth of our core business at +12%, which brought almost EUR 600 million of additional revenues in 2021.
There was also an increased COVID activity which brought additional revenues of EUR 600 million in 2021. As you can see also, the contribution from M&As was rather limited at a bit less than EUR 100 million in 2021. Moving to slide 11, for a detailed look at our cash flow breakdown. We had a record net operating cash flow of EUR 1.5 billion, which enabled us to fully finance our acquisitions or increase CapEx spend for capturing more midterm growth. We also engage in a very significant refinancing exercise, which successfully led us to redeem about EUR 1.1 billion of bonds, which were bearing an interest rate of almost 3%, and refinance them with a ten-year bond with an interest rate of below 1%.
Overall, we were able to self-finance our CapEx, our M&A, our debt service, our dividends, and we also chose to decrease our gross debt by about EUR 400 million with our own cash reserves. Moving to slide 12, for a focus on net working capital. As you can see on the slide, our net working capital remains stable at 4.5% of revenues. We had a very good inventory management. We had a slightly higher trade accounts receivables, which were linked to the COVID activity in the last quarter of the year, but which were fully offset by higher trade accounts payables and other payables, which globally enabled us to have zero net working capital variation in the cash flow statement last year. Moving to slide 13, I'm gonna walk you through our CapEx spends.
As you can see on the slide, I mean, we had an acceleration of our investment in CapEx in 2021, which reached almost EUR 500 million that we can break down into two groups. First, what we call the operational investments, which represented about 77% of the spend and which relates basically to IT, lab equipment or investment in leased sites. The investment in own sites, which relates basically to the purchase of land, of buildings and the fit-out and the further investment in these sites. Which is basically an answer to capture the strong market demands that Gilles mentioned a bit earlier, and which is also adopted by the company in a discretionary logic like we do for M&As while creating tangible value.
You can also see on the slide that we remain very cautious on the COVID CapEx, which have been depreciated or written off for 88% at the end of the year. Moving to slide 14, to take a closer look at our leverage and debt maturity profile. As I mentioned it a bit earlier, we were able to reduce our gross debt by EUR 400 million. We had a net debt at the end of the year, which was stable at EUR 2.2 billion, and we were able to decrease our leverage by 0.4x, reaching a level of 1.2x only, which is well below our comfort zone of 1.5x-2.5x.
We also did a debt refinancing exercise, which successfully enabled us to extend our maturity to 10 years and enjoy lower interest rates going forward. These interest rates will be down. Overall, we conclude the year 2021 with this very solid balance sheet with ample headroom if needed. To conclude this presentation on financial results on slide 15, after a period of very strong M&A activity in 2016 to 2019, you can see that we reached record ROCE level of 22% in 2021, or even 68% if we exclude the goodwill. That makes us very confident to maintain our hurdle rate at 12% for both internal and external investments. Now I'm giving back the mic to Gilles for an update on operational activities, strategy, and future objectives.
Right. We'll move to the next slide, please. Eurofins is all about innovation. It was founded based on innovation, and one of the reasons that we grew so fast is that we were investing over time in developing new tests, developing new modalities to offer those tests, like recently going into direct to consumer, investing in automation, investing in IT and artificial intelligence. We continued along those lines in 2021. On next page 18, you will see a number of examples of innovations which I will not dwell on now, but we can come back during questions. Similarly, we continued to innovate throughout 2021 to help governments find solutions to fight COVID-19. We're one of the largest sequencing providers to identify the variants.
We launched a test to detect Omicron on the same day that it was declared a variant of concern by the WHO. We've been very fast and very proactive in this area. As I mentioned earlier, our strategy continues to become a leader also in Asia, to strengthen our leadership in biopharma services and invest in the high growth areas of life science that we've been already started to be active in. We continue to do M&A to add technologies or add presence in activities where we were less present before, like for example, consumer diagnostics with the DNA Diagnostics Centre we acquired this year. On page 21, you'll see some examples of the large investments we are doing in expanding our campuses. It's in laboratory testing, scale matters.
Having large campuses, large hubs, where we concentrate for each continent, large number of tests of each kind, is a good way to increase margins, to be efficient. We've been doing that for a number of years, and we're continuing to do that with a focus now on Asia for the next 10 years. Still in Europe and North America, there's still a lot we can do. We have, as I mentioned, big plans to expand our biopharma footprint, our CDMO footprint. We have some major campuses in North America and in Europe that we'll be expanding over the next three years, so that we have capacity available two or three years down the road when our current facilities start to be full. On page 22, you see the overview of our M&A.
Definitely we have not come back to the level of 2017 and 2018, where we added about 15% additional revenues from M&A each year. We did exceed last year the target we had for M&A. M&A will add about EUR 250 million revenues on the M&A that we closed last year compared to a target of EUR 150 million. We also think that going forward adding EUR 250 million from M&A compared to the 200 we were targeting before is absolutely achievable while staying conservative on valuation. In order to do those 38 deals last year, we passed on hundreds which were, we thought, overpriced or not appropriate. We are still very prudent and very selective in the companies that we buy.
Nonetheless, overall, our cost was about 2x revenues, which is less than a lot of other multiples I've seen from other buyers. Now the question is, of course, we buy companies, but are we creating value with those companies that we buy? We are at the end of the 36-month period following the acquisitions that we did in 2017 and 2018. I will focus here on the four largest acquisitions we did in that period. The most expensive one, I think over EUR 600 million, was Covance Food Solutions. When we bought Covance Food Solutions, we already had a network of food testing laboratories in North America, and we added nine more laboratories from Covance Food Solutions.
A large number of those were redundant or subscale, and we had to move out of the very complex campus of Covance/Labcorp in Madison. In the meantime, we have built a new very large site in Madison that we'll be happy to show you at an investor's day, I hope this fall. We also consolidated all the other sites in the U.S. into our site, except the sensory sites which were small and we didn't have sensory before. This integration is physically complete. As we can see on the next page, the results of these integrations were very good. We were able to have a significant organic growth over the period, over 7% on a compound annual basis.
The margins have increased significantly over the period, as you can see. If we look at the return on capital employed, we are over 16% for that area. We did a couple of additional acquisitions in the meantime. A very good success of this integration. The next large group of companies that we bought is TestAmerica, a network of over 20 environmental testing labs that had to be combined with Eurofins environmental testing network in North America. Same thing, we did that. We moved or renovated seven labs. We did some bolt-on acquisitions. We upgraded the leadership. Again, as you can see, although this business is still affected or was still affected in 2020 and 2021 by COVID, by lockdowns, and restrictions of sampling and so on, we did finalize and achieve this integration.
We've achieved over 13% return on capital employed. Also, we did some additional bolt-on acquisitions over the last couple of years, which are not fully integrated yet and are still a bit dilutive. Next target was EAG. EAG was also a major investment, also more than $600 million. Some said we paid a significant price. Here again, as you can see, we achieved not only significant growth, but also significant margin improvement, and we achieved the return on capital employed target that we had set for ourselves. Here again, we've done more recently some additional bolt-on acquisitions. Last one was DiscoveRx in San Diego and in California, generally. A company specialized in discovery pharmacology to complement our discovery business, so biopharma discovery business.
A very good progression, even higher growth, 12% compound annual growth for that business, and a return on capital employed achieved of 22%. We've got the summary on page 29. I think if we look back, of course, we could do that on every single of our acquisitions. Some of them are difficult to trace because they are immediately integrated. The sites sometimes are closed down, and they are merged in our business. We do that. We look at it as a bulk. We wanted to show you this analysis on the four largest acquisitions we did in 2017 and in 2018 to enable you to see the impact of those acquisitions on our financial numbers.
Another important investment we did is in developing capabilities to support healthcare practitioners in keeping patients who have received an organ transplant alive and keeping their graft alive. We had developed the TruGraf rejection test, which is the only test in the world which can rule out silent subclinical rejection. We were competing with CareDx and Natera, which are a much simpler test to detect acute rejection. We launched, in the meantime, a test called TRAC, which is working in a similar way, cell-free DNA. Now what we are doing, we are combining both tests to launch OmniGraf, which is by far the best test to help doctors support their patients which have undergone a graft.
We are putting this OmniGraf in additional clinical trials, to validate the benefit over time, not only in the couple of years following a graft, but for pretty much the life of the patient, for regular monitoring multiple times per year. We are convinced we will get good data, to expand the use cases where the medical benefit of this very good test is proven. As you can see, this is starting to pick up. TruGraf has increased more than 300% last year compared to 2020. As you can see on page 31, this growth is really picking up.
Of course, we are investing massively in medical liaison officer, in personnel to explain the capabilities of those tests to doctors, to establish the interfaces, the electronic interfaces with the nephrologist offices, so they can order smoothly as part of their patient management protocols. We will continue to invest next year. Of course, we are doing that much more cost-effectively than CareDx or Natera seem to have done in the past. We think now the catch-up will be very interesting over the next couple of years. We are quite optimistic about the development of this test. We have by far the better test, and now we are setting up structures to access the market nationwide of a similar order of magnitude than our competitors. We are very positive about the potential development of our test.
I think it was Natera or CareDx who were talking of a market of $2 billion. We are definitely not there and have quite some way to go. Other example of development is testing for per- and polyfluorinated alkyl substances or PFAS. This is a topic that started to appear and be mentioned in environment. We developed tests already almost 20 years ago in Europe. We developed those tests in the U.S. and Australia. We learned how to industrialize those tests, make them very fast, very efficient. We transferred that know-how to our food testing business over the last few years, and more recently, we even transferred it to our clinical diagnostic business to direct-to-consumer.
Because unfortunately, we don't only find those compounds in the environment or later in our plate, but also it stays in our body, and it is almost not destructible, so we pretty much keep it all our lives. It is now recognized as an issue for a lot of people who unfortunately lived near certain factories. We are offering ways for people, for consumers to self-monitor themselves for those compounds, and we are working on a range of other modalities. ESG, as I mentioned, we are investing to document what we do. We're also investing to scale up the CO₂ reduction programs. We are asking each of our leaders of our companies to develop programs to reduce their emissions.
Our goal is to be carbon neutral by 2025, and we are convinced that we are on the right way to do that. Our EDE initiative, Equality Driving Excellence, is making good progress. We're increasing female leadership in our group, and we have been recognized for several of those actions worldwide. In the governance area, we have now five independent non-executive directors. We have parity, a male/female parity in our board. We have created several committees, and I hope you will appreciate the improvement of our ESG report. Again, we're happy to take a suggestion on how to meet your expectations even better in this area, but we're definitely making significant progress in ESG. To conclude, on page 35, we wanted to look back on organic growth.
There always have been discussions about organic growth. Actually, what we found was very positive. We've had for a long time an organic growth target, a secular long-run organic growth target of 5% per annum. What we found is that actually over the last 11 years, our average organic growth was more than 6.5%, actually 30% higher than our objective. We thought, okay, maybe we should review what we plan for the future. There's definitely upside above that. Maybe we've been a bit too conservative for too long. We decided to raise our organic growth objectives for the next 10 years to 6.5% per annum. Of course, if inflation explodes or stays super high, we will increase our prices and things will be higher.
We're working from the assumption that inflation will normalize in the, at least in the second half of the year, return to the 2% or 3% level, which is what everybody hopes, we shall see. Anyway, on page 36, we've made objectives on that basis. There is a typo in the slide. The only objectives we worked on and modeled are objectives including M&A. Some are IR added free cash flow before investment in own site in the without M&A objectives that we just give for information, but we didn't do any planning. That will be removed. What we wanted to also mention on page 37 is how we think we would spend our cash? Because we've had questions on that, how do we think we would spend our cash?
Obviously, post the pandemic, Eurofins has reduced its leverage very significantly, is starting to generate very significant cash flows, not only very good margins, but also good cash flows. The way we've made the planning, and you can see on the page before of our objectives, of course, it assumes that we meet those objectives, we would on average generate close to EUR 1 billion each year of free cash flow, so about EUR 900 million of free cash flow to the firm. We're giving you a bit of a breakdown on how we think it could be spent.
What's interesting is that you see that we are now in a position to self-finance our M&A, pay a significant dividend, purchase more of our own laboratories, and do that while not increasing our leverage and maintaining a very reasonable level of independence. To conclude, very strong performance in 2021. The outlook, as we can judge today, is excellent for the next few years. We will be investing because we think, going forward, we can do even better than that. It takes a bit of time, of course, for those investments to come online. If we start planning today a new biopharma site and a new CDMO site, of course, we won't generate revenue with that building or that site before 2024 or 2025.
We are very confident that we should do that, and that's why we've planned our CapEx the way it is. We'll continue to do moderate M&A, about EUR 250 million additional revenues per year. That all together we are in a range where we probably confidently could grow our total revenues by 10% per annum by a mix of organic and acquisition while self-financing everything and keeping our leverages very low and distributing a dividend. Eurofins is still has a lot of potential to grow, to expand its network, but is also becoming a more mature company that can serve its shareholders a decent return while continuing to grow and expand significantly. That is for our overview today.
Bit of a long one, I'm afraid, but it's a full year that passed, and Laurent and I will be happy to take some questions.
Ladies and gentlemen, at this time, we'll begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. We will now take our first question from Rajesh Kumar from HSBC. Please go ahead.
Hi. Good morning. Thanks for taking the question. Just thinking through the 6.5% incremental, you know, basically your structural growth guidance has increased from 5%-6.5%. What do you think would be the incremental return on capital and, you know, payback period required for that capital you're going to deploy to drive that faster growth, in the near term? Basically, what sort of return on incremental capital would you expect to generate while you invest for that additional growth? The second question is, obviously, a lot of services you provide are very technical in nature, and one would imagine that, you know, passing through cost inflation and pricing shouldn't be very tricky for you, your business.
That 6.5% organic growth, does that factor in some inflation benefits on pricing as well, or would that be an additional upside? The last question would be, what is your, in terms of the end markets, where do you think you need to augment your existing capacity with M&A the most, for the next five- 10-year strategic journey?
Thank you very much. Increasing our organic growth objective from 5% to 6.5% is not a factor of the future CapEx we will do. It is more the result of the CapEx we did over the last 10 years to build the network that we have. The additional CapEx that we plan to do over the next two or three years, we should see the main benefits more two to three years down the road with potentially even higher organic growth and better margins from automation. On inflation, you know, it includes the same similar level of inflation that we had before. It doesn't include, of course, explosive inflations.
Yes, we as I might have commented before in some areas we are passing significant cost increase to our clients, where obviously there are some more labor shortages in North America and biopharma. There are definitely some tensions on labor costs that we are passing on to our clients. This is very hard to plan, you know. If the Fed and the BCE are still pondering what they think inflation will be, obviously Eurofins is not in a position to plan inflation any better than them. We will be adjusting as time goes. Yes, if there is inflation on top of that, we will increase more our revenues. In terms of end market M&A, all our end markets we like.
We are putting a focus on Asia, but there is not necessarily so much M&A to be done in Asia. Again, in biopharma, there is not necessarily so much M&A to be done either, I mean not proportionally more than in all our other businesses. I think M&A might be spread fairly evenly across our business line. On organic investments, we are definitely making a focus on biopharma and Asia.
Thank you very much.
Our next question comes from Neil Tyler from Redburn. Go ahead.
Yeah. Good afternoon. Thank you. A couple from me. Just returning to your revised guidance and the lifting of that, can you just sort of clarify to what extent does the raised long-term growth guidance reflect a change in approach to framing guidance as opposed to improved end market prospects? That's the first question. Secondly, the increased CapEx to purchase your own sites, is the expectation that ultimately the return generated on these sites will end up being higher than that generated on rented sites? And over what time frame? I.e., is some of the CapEx ultimately going to replace future OpEx, or are these sites sort of all incremental to what's in place already?
Finally, your introductory comments suggested, well, pointed to the ongoing negative impacts that you had experienced during 2021 in environmental testing and in some food testing activities, I think, as well. Are you able to quantify at all sort of what those might have been and by when you assume those impacts unwind? Thank you.
Thank you very much. Yeah, our guidance is basically because we see our markets are better oriented now than they've ever been. We see more growth in our markets today than we saw five years ago. Our mix also because we have improved our competitive position also because some of our investment in clinical diagnostics, for example, for TGI and TruGraf are starting to pay off. It still does include, in principle, a margin of error like we had before. Of course, forecasting the future is the most difficult exercise as we see how volatile the world is today. We have basically a better outlook on growth today than we had than five or 10 years ago. CapEx purchase on site. Yes.
What we've observed is, and you probably all know that, the cost of building has increased massively over the last five years. We are very pleased to own our own buildings, because where we don't, we see a very significant potential rental cost increases over the next five to 10 years. Now, of course, again, we don't know what inflation will do, and maybe that will reverse. At the moment, with the shortage of raw materials and basically simply more demand than availability for many types of buildings, and especially for laboratory buildings, we are very pleased to own our sites. Of course, a good thing when we own our sites is that at some point they are paid for, and indeed, it increases return because their cost doesn't increase. It's a fixed cost.
We need to maintain them, of course, but we also need to maintain rental property. The other benefit is usually we build campuses. We buy extra land so that when the building is full, we can build an extra wing and then an extra wing and another extra wing, and we don't have to move. We don't lose all the investment we put in the first wing because we have to move to a new site, and we cannot be held at ransom by the landlord. That's a bit the rationale. It's really hard to quantify what the COVID headwinds were last year. They were not the same in every quarter and in every geography, but they were something. I wouldn't be able to give you a number.
It's not a million. It's more than that, much more than that.
Okay. That's helpful. Thank you, Gilles.
Thank you. We will now take our next question from James Rose from Barclays. Please go ahead.
Hello, good afternoon. I've got two, please. First of all, in the biopharma markets, could you be a bit more specific on which areas you particularly want to add capacity? Where are you really trying to build a strong position in that market? Secondly, when more PCR machines become available as COVID testing declines, could you talk a bit more about how they can be repurposed elsewhere in business? Are you seeing any concerns about oversupply or sort of competitive pressures on pricing if there are more of those machines just generally in the marketplace? Thank you.
Yes, thank you very much. In biopharma, our focus will be very much in ATMPs and biologics, both in testing and biosimilars. We're expanding our capabilities, and that's a number of modalities. We are also building our CDMO in those areas. You know, for example, we are a large producer of oligonucleotide, and this is getting into not only more IVD products, but it's getting into therapeutic oligos in a number of usage. We're investing to build factories there, antibodies, other modalities. So that's. Of course, we continue to invest for small molecules, and we have a lot of new small molecule capabilities. But the bulk of our investment, probably at least 70%-80% are planned on the biologics and ATMPs.
As to PCR machine, yeah, that's a question. The world is full of PCR machines. The clinical business is regulated, so the prices for clinical testing are regulated. The real question is whether actually new tests will come to market. Eurofins and many other players have now developed panels, so that when somebody is sick, one doesn't only test for the flu or doesn't only test for COVID, but can test in one run for a number of pathogens. And the price for doing that will fall. And what would be good for patients and doctors if the healthcare systems and the insurances would start to pay for those panels on a routine use basis.
Because it would really help doctors immediately prescribe the right antibiotic if there is resistance or basically prescribe nothing instead of prescribing antibiotics if it's a virus. Of course, in sepsis it's of critical interest, and there are already some panels and they are being used. For the routine management of respiratory or gastrointestinal diseases, all those PCR machines could find good use. Whether this will happen, we'll have to see. It's very difficult to change the reimbursement policies. Definitely the cost of a PCR has now gone down so much that it is a viable option to test everybody who gets sick.
Okay, thank you.
Thank you. We'll now take our next question from Andy Grobler from Credit Suisse. Please go ahead.
Hi, good afternoon. Just a couple from me if I may. Going back to your long-term target and the increase to 6.5%, I just wanted to balance out the two comments 'cause the 6.5% is in line with the last 10 years or so, but you're also saying that the outlook for your market is better than it was historically. Was there a temptation to push that target up a little bit further? Secondly, apologies for a shorter term question, just in terms of revenues from your COVID activities through the end of last year and into this year, kind of what is the run rate as you go through January and into February?
Just trying to work out at what stage that falls pretty much to zero. Thank you very much.
Thank you very much, Andy. Well, I guess by now many of you have noticed that we try to be conservative. We think our duty to investors is to set objectives that we think are achievable. It's always difficult to predict the future, but I think on balance over the last 10, 15, or 20 years, we have a very good track record of hitting our objectives. Maybe our objectives sometimes include a bit of a margin of safety, and sometimes we exceed. Actually, most of the time we exceed. If I look at the organic growth, we exceeded by 30% over the last 10 years our objective. It doesn't mean that some years we didn't come just at the 5% objective.
You know, we are more interested in long-term investors who will wanna stay with us for five or ten years. We're trying to give them an indication of what we think is achievable. Yes, there is some elements, some level of caution to set 6.5%. We think it's a bit our duty. I think the same applies to your second question on COVID. We're a bit conservative in planning EUR 300 million of COVID testing. If I look at what Labcorp, Quest are doing or Sonic or SYNLAB, they are all planning continued COVID testing through 2023 at different levels. Here again, we prefer to err on the side of caution. We might be at about EUR 100 million per month run rate right now.
Maybe we think of three months of COVID and nothing after that. It would be very extreme if COVID fell to zero so quickly. But it's on the other hand impossible to plan. It's impossible to plan if there will be a new variant. It's impossible to plan what will happen next fall and next winter. So we'd rather tell our investors, "Look, plan for zero. If you're happy with the performance that we think we can achieve with zero, then that might be safe to buy our share." Rather than speculate on what COVID will be in the second half of this year. That's a bit our approach for the long-term target growth. There's no guarantee we'll hit it or there's no guarantee we'll exceed it.
We think it is from what we can tell today. It is definitely achievable.
Excellent. Thank you very much.
Thank you. The next question comes from Geoffroy Michalet from ODDO BHF. Please go ahead.
Hi, good afternoon. Two questions for me. First one is on the market of the direct to consumer. Could you elaborate a bit on how you see that market, the growth, the kind of tests you will target, and the size maybe in the US and Europe? The second question has to do with clinical diagnostic. Do you have, let's say, new ambitions apart from the one on COVID on the routine clinical diagnostic or maybe on the specialty clinical diagnostic? Thank you very much.
Thank you very much. Yeah. The direct to consumer testing market is rather small. You see, DNA Diagnostics Centre in the US we bought was about a EUR 50 million business. It was a leader in that market in size. There are other companies like Everlywell and others that are launching. Amazon is launching. Labcorp and Quest both have DTC business. I think I read somewhere that either the CEO of Quest or Labcorp was thinking they could make it a EUR 200 million business from maybe EUR 50 or EUR 70 now, but that includes a lot of COVID. By the way, the number I mentioned were without COVID. It's gonna be interesting to see how fast this market develops.
We are launching ranges of tests for wellness, for vitamins, for sexually transmitted diseases, for PFAS, for contaminants, for aging, for sport nutrition, supporting sports. We're not really doing the very acute care test on a direct to consumer basis. They are usually needed in hospitals and care settings. We're offering a range of genetic tests also to consumers, to test for predispositions where it is allowed. It's gonna be an interesting evolution for the next two or three years to see how fast the pickup will happen. It's true that people in many countries, like the U.K. or the U.S., are used to ordering a COVID test online.
If they are used to ordering a COVID test online, they could, if they are coughing, they could have a box at home and send it back after they spit in it to see why they are coughing. This would make sense and we'll be launching tests like that. Or if people don't wanna go to the doctor to get tested for STIs, then they could do it from the comfort of their home. Those are things that really make sense and we're gonna see how fast the pickup will be. It probably will start more in the U.S. than in Europe, as usual.
Also in Asia, there's potential in some countries or Southern Europe, Italy, Spain, maybe where it might be more open than the highly regulated countries that are like Germany or France. To your second question, our ambition remains really specialty diagnostics. Most of the investments we made in Japan and in Vietnam this year, for example, were on clinical genetics and IHC oncology. We want to be in clinical diagnostics where we can create new tests, where we can innovate, when we can create value by offering proprietary tests that are better than what is routinely available. We think that's where the growth will be. We think that's where the margin will be, and we don't want to just consolidate the routine clinical diagnostics like others may be doing.
That's very clear. Thank you very much, Gilles.
Allen Wells, Jefferies, please go ahead.
Hey, good afternoon, Gilles. three for me, please. The first one, just a bit of a follow-up on the kinda COVID level question. When you are obviously seeing or planning for a significant ramp down, you talk obviously about the impact of ramp down costs, you know, stranded costs or assets. Is there any way you can potentially quantify or give us indication of how much that's impacting the business from a margin perspective or from a cost perspective in 2022, please? That's the first question. Secondly, just a clarification question on the EUR 100 million investment to acquire labs and land. Is this purchasing buildings on new sites, or is this gonna be purchasing existing labs from current owners?
If it's the latter, how much of that will be kind of the independent owners versus the related parties? The final question, just on the financing, and apologies if I miss this. I think there's a call on the hybrids end of the second half of this year and into 2023. Have you got any thoughts or comments around how you plan to refi these? Is it gonna be traditional debt, or will you stick with the hybrid structure in there as well? Thank you.
Thank you very much. Yeah, we do have some rundown costs, you know, when we have to close sampling station. We're actually in the middle of it in the U.K. right now because the U.K. government has pretty much stopped all testing. It is expensive. There will be other countries where the rundown will be much less expensive if it's mostly central labs. We have a lot of temp personnel, which at some point their contracts run out. That's why we have planned for COVID testing in 2022, a margin equivalent to the rest of our group margin. It's definitely a mix. Of course, if we run at full capacity, we have higher margins, but closing down our U.K. network is actually generating losses this year. Of course, we have a global mix of all those things.
The impact is included in the margin we are planning. There will be some losses, and we think overall, the little bit of COVID testing we'll do this year will be profitable. Investing in labs. Well, it's gonna be a mix of everything. It's new labs we're building on land. It is existing buildings that we're buying from third parties and that we are converting to laboratories. When we can, it is buildings that we are currently leasing that we buy from the owner, not from related parties. From related parties, you know, they are there and they are available, there's no rush for Eurofins to acquire them. What I have said is that, once Eurofins has enough cash flow, I will put it to the vote of our shareholders.
We'll get a valuation done by independent building appraisers, and we'll offer that to Eurofins, and we will let our shareholders vote on it. I will not vote on it, and I'll follow the vote of the rest of the shareholders. That's the intention. I don't think we will do it this year. I don't think there's a big emergency to do it. But if our main shareholders decide that they would like us to do it faster, of course, we have a dialogue with them, large institutional funds, and we could consider it now. It's, I'm not sure if we change very much because they are available if Eurofins need them, and Eurofins enjoys already that protection by the fact that I'm prepared to do it.
It's not on the agenda, at least for today, for this year. Hybrid, yes, that's our treasurer to decide that. It will depend on the conditions on the market when we are able to call that hybrid. We will see. I'm very curious to see what the conditions will be then.
Okay, great. Thank you.
Thank you. We'll now move to our next question from Dominic Edridge from Deutsche Bank. Please go ahead.
Hello, good afternoon. Thanks for taking the question. Just one left for me. It's just regarding employees and employee retention. I know that obviously you've already mentioned that there's been quite a lot of activity and quite a lot of challenges in the labor market, particularly in North America. Can you just maybe discuss what your own churn rates are looking like and also anything that you're doing to try and improve the situation in terms of I know that you're already offering $1,000 bonuses to sign-ons and things like that. Is there much more you can do? I suppose as the last point on that, is it having any negative impact on how fast you can expand the business or any sort of operational impact of sort of the shortages of labor? Thank you very much.
Thank you. Yes. I think labor is a challenge for pretty much everybody, for every company in Europe and North America, probably even more so in North America. The churn numbers vary vastly by business, country, et cetera. Anywhere between 10%-30% is numbers that I've heard, and it's impacting everything. It's impacting efficiency, it's impacting cost, it's impacting operationals. That was compounded last year and in the beginning of this year with a lot of people being off sick with COVID, with Omicron. It's very hard to run a business at the moment. Nonetheless, in spite of all that, we've had a very strong fourth quarter of last year and the first quarter of this year is starting very well. You know, businesses have to cope with adversity. They are.
Of course, we are taking a number of measures to hire more people, to retain our employees, to promote them, to train them, to give them opportunities. Our entrepreneurial model with a lot of independent companies is a good factor in this because a lot of people can be promoted, can be on management track if they want to. I think it's gonna be a challenge for Europe and North America for a while. Maybe it's gonna take a year for everybody who didn't change job during the pandemic to change job and then, okay, they'll be happy for the next two or three years.
Just to follow up, would you say it's having much of an impact in terms of what you can do at the moment in terms of limiting what you can do in terms of maybe expansions or growing the business organically, or have you still got enough room, do you feel, to do that, even with the number of workers you have currently?
Of course, we would have grown faster last year and the year before, and we would grow faster than we planned this year if we had unlimited supply of labor. That is clear.
Thank you very much.
We took that into account in our plans and objectives.
Thank you. We'll now move to our next question from Nicolas Tabor from Stifel. Please go ahead.
Good afternoon. Thank you very much for taking our questions. First one, I would just come back on the acquisition of the laboratories. Just wanted to understand, you seem to say that the EUR 100 million will be allocated to both acquiring new lands and new labs and for existing labs. So how much is in the 6.5% CapEx to sales ratio guidance, and how much is in the EUR 100 million for the new labs and start-up labs investment? Second question would be on the M&A spending. It seems that the EV sales ratio was a bit higher this year, based on what you reported on pro forma basis.
Should we expect this trend to continue over the next years, and how do you see this M&A cost inflation overall at constant acquired revenue? Finally, can you give us an idea of the current gross margin you see in the COVID testing market, considering the recent price cuts and so on? What's your gross margin level excluding all the, let's say, the back office and appointment costs that can be shared with other businesses? Thank you very much.
Thank you very much. Well, the way we have modeled things is, in the 6.5 or so percent CapEx, we have the investment in building that we do not own. Let's say a building in Shanghai, for example, last year that we rented in Shanghai, we don't own it. We still spend significant amount to build labs inside. That is part of CapEx. When, on the other hand, we own a building and where we build a new building for a lab, this would be part of this EUR 100 million envelope. You know, it could be EUR 50 million, it could be EUR 150 million. It really depends on how fast the progress, the project comes and, especially with existing landlord, you know.
We can negotiate with them, but if they don't want to sell. That means we have to move and build a new building. The benefit of building a new building is we can build a green building. I think the bulk of it will be more building new buildings, so they are also more environmentally friendly.
How much of the EUR 100 million do you
Thanks, Nicolas.
Sorry. I just want to follow up on that one quickly.
Yes, please.
On the EUR 100 million you expect to target to spend the whole of the envelope every year if there is no pressure on your cash flow? That's what we have to understand.
Yeah, EUR 100 million per year is what we think is an order of magnitude. As I said, it could be EUR 50 million, it could be EUR 150 million.
Great. Thanks.
On M&A, last year, we were about at 2x revenues. I think it's a good deal. If I look what SGS paid for, what was it? The SYNLAB labs at 2.7x revenues and 18x the EBITDA, I think we're fairly frugal and prudent on that spend. If you look at what we disclosed for the first two months of this year, I think we're at 1.5 times revenues for what we bought so far. You know, it's very difficult to predict what we will pay for M&A going forward because it depends on what we buy, their margin, where they are, so many different factors. At least it gives you two numbers.
I think we're maybe. I don't know where we were in 2020, 1.6, maybe. For COVID gross margin, it's all over the place. It depends on the country. It depends if we have to do the sampling or we just get the samples in our labs. It's very different. Each country reimbursement value is different. I wouldn't be able to answer on the gross margin. I think it's not bad because we manufacture our own reagents. Anyway, the real problem on COVID is not the lab testing, the whole sampling and getting the kits to the consumers and getting the kits back to the lab. In some countries, you have to have a nurse or a doctor do the sampling.
In the UK, people are allowed to sample themselves, also in many other countries, but not in every country. It's really very hard to do any average because the numbers are so vastly different from country to country.
Great. Thank you very much.
Thank you. We will now take our next question from Arthur Truslove from Citi. Please go ahead.
Thanks very much. Just a couple from me on margins. First one, you know, when I think about the margins within the mature scope and indeed within the core business, are you able to give an idea of what that looked like in 2021? And if you can't disclose that, it would be helpful to just confirm that it was above the 22% that you delivered in 2019 on that basis. The second question, just around the COVID testing again, obviously you've sort of talked previously about how the revenue per COVID test ultimately has fallen a little bit, and that's been less positive for margins.
Is it reasonable to assume that margins from COVID testing in the second half of the year were lower than they were in the first half, or would that not be the right assumption? Thank you.
Thank you very much. You know, it's very hard to define the margin of core and COVID. Revenues is easy. COVID is COVID, and something else is something else. We do it in the same lab, the same personnel to a large extent. It's really a question of how do you allocate overhead, how you consider it, the COVID, as marginal extra revenues, where which we did still build some specific units for COVID, so we don't attempt to track the margin in a way that we could disclose and that could withstand audit. On orders of magnitude, yes, our core business, as we mentioned, we did write that I believe, had increased margin. We wouldn't have come out and set objectives.
I think it's something like 24% EBITDA margin for our core business going forward, which is quite a nice margin. I think it's industry-leading margin for the tech industry. If we're not confident, we are now reasonably close to it already. That's for the core business margin. Yes, it was lower in H2, the COVID margin. It's no secret there were significant reimbursement cuts in many countries. Of course, we also have institutional customers that buy in bulk, so they negotiate prices and they have negotiated better prices over time. We're getting much less now than we were getting in the beginning of the crisis on a significant part of our turnover.
The other thing is, as I mentioned, in some countries, we organize the sampling ourselves, so we have to manage. You know, when we set up together with partners 1,000 sampling stations, that is a lot of extra cost. In some countries, we even made a loss on our network of sampling stations in the second half of last year, because they were only utilized at the very back end of the year. That's why we are planning, also including ramping costs, that the COVID margin now will be more or less at the level of our overall group margin. Of course, it's very hard to predict because we don't know how much COVID will do, and we don't know what utilization we'll have where.
Over time, you know, if COVID continues, and that's something we haven't planned for, but it's quite a possibility, that COVID testing will continue through 2022 and 2023. It will continue mostly probably for people who are sick. It will go through our normal hospital business or our normal clinical business, and it will probably be at the same margin than our normal clinical business. That's, I mean, it's very hard to guess and forecast, but that's the best guess we can make.
Great. Thank you very much.
Thank you. We'll now take our last question, I think from Rajesh Kumar from HSBC. Please go ahead.
Oh, just a quick follow-up on the lab CapEx that you're planning. Have you already been in discussion with the current or future landlords of these labs you're procuring? And if so, how do you ensure that the valuation you're paying on these labs are not inflated by the demand you are sort of stoking by your stated objective of expansion?
Well, you know, we always have the make or buy option. Whenever we buy a building, whether it's a building we already occupy. That's rare. It's rare that we can buy a building we currently occupy, to be frank. I think last year was maybe one building in that category. We look at other buildings on the market in the area that we're interested in because usually, we have a benefit of moving. If we're gonna spend money for a building, our first choice is to build a new one because it can be environmentally friendly. It can be more of a green building. We have land for expansion, which is rare in our existing premises that we were renting. We have third-party evaluation also.
We know where the market is, and we try to get a good deal.
Understood. Thank you.
All right. Well, I guess we are getting through this long list of questions. Thanks a lot for staying with us for so long. Sorry that we ran over a little bit. Well, as I said, I think we've had an outstanding year in 2021, exceeding our targets in all areas and making a significant contribution to society. The outlook for the next two or three years seems very positive for us. If we are investing more, it's not so much for those next two or three years, it's that beyond those two or three years, we think we could potentially have even more growth and more potential for our business. Digitalization is very powerful. It should help us to serve our clients better. It should increase the gap with our competitors.
It should enable us to launch new services with big data, with this huge amount of genomics data that we are collecting every day, that certainly will have an impact for treating diseases, for oncology, et cetera. It all looks very promising and very exciting. I thank you very much for your support. I hope that soon now we will be meeting in person again. Thank you very much.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.