Ladies and gentlemen, welcome and thank you for joining today's Eurofins Q1 2022 trading update. 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 Q&A session, and 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 will 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, which is defined in the footnotes of our press releases. Actual results may differ materially from objectives discussed.
Risks and uncertainties that may affect Eurofins' future trading results include, but are not limited to, those described in the Risk Factors section of Eurofins annual report. Please also read the disclaimer on page two of this presentation, subject to which this call and Q&A session are being made. I'd like to now turn over the conference call to Dr. Gilles Martin, CEO. Please go ahead.
Okay. Hello, everybody, and thanks for joining our quarterly call. Well, again, we've had a strong Q1 continues on the good trend that we have had last year. We've had actually more revenues from COVID than expected in Q1 because of the Omicron waves. Of course, it had an impact on a lot of companies, unfortunately, and a lot of it impact our business. They were locked down in Shenzhen and Shanghai. That impacted our labs, which was mostly simple people not showing up to work because they were sick or some members of their families were sick or they were contact persons. This has now subsided, unfortunately not in China. Overall, our businesses are strong. We've had a number of very interesting wins.
Eurofins is seen increasingly as a very reliable global partner for large programs for the pharma industry, even for government. We are pleased to participate in the U.K., Our Future Health, one of the largest genotyping programs that ever was undertaken and will give very interesting insight on the impact of genomics on our health and the expression. We're involved in a number of other programs of different scale with pharma companies. We are really blessed to work in a field where science is bringing so many potential innovation that will have a major positive impact for the health of all. Environmental testing is quite strong.
There are more and more compounds that impact our environment and subsequently our health and the health of animals, fish, et cetera, that needs to be managed. Otherwise we will have another disaster in addition to the climate disaster. The world we're facing might face more food risks. When food risks come, there are of course associated authenticity risks that require more testing because of potential adulteration to substitute high quality product with lower quality product. There will be probably a refocus, an increased focus on agriculture.
Eurofins is an important tester for agriculture, and the different countries around the world have definitely not all optimized the output they can have from their soil or from the use of their fertilizers by proper analytical programs, use of fertilizers, which are undergoing a significant shortage, for example, in Brazil at the moment, due to the war in Ukraine and its impact. The use of fertilizers can be reduced and optimized by proper testing. Our Agroscience business might benefit from the shift to different crops to adapt to climate change. There are many areas where Eurofins companies can contribute positively to health and feeding the planet and ensuring our environments remain livable and healthy.
That being said, we continue to invest significantly to build the company, to build the company organically, and to build the company through acquisitions. We have carried out 16 acquisitions in the Q1 . We are in line with our annual objective, so that's. And we're being very selective because the valuations haven't quite come off for private transactions from the peaks. We are being prudent, and we make all efforts to achieve our objective return on capital employed of 12%. Overall, it's just only I'm only reporting about three months, but a very good development over those three months. The outlook, of course, the world is becoming more challenged.
There are more uncertainties, but the outlook for Eurofins companies overall is positive as we can see it. We are active in areas where there is demand, whether the economy goes well or doesn't go well, we need to be protected from risks. Research and innovation in all the areas we're active, being in crop, in food, in biopharma, are the things that create value that for the future will be needed to cope with the challenges that the world will be facing. Overall, we are well positioned and we continue to invest significantly in that market to build a long-term position and generate sustainable returns. That's my introduction for this call, and I'm going to be happy to take questions or our CFO can take some.
Ladies and gentlemen, at this time-
Operator, can we-
Yes, thank you. 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 telephone. If you wish to remove yourself from the question queue, you may press star followed by the 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 the one at this time. We'll take our first question from Patrick Wood with Bank of America.
Perfect. Thank you very much for taking my questions. I'll keep it to two quick ones, please. I guess the first one is, there's been obviously a lot of headlines on the biotech funding environment. I'm just curious what you guys are hearing from your customers, whether it's on the clinical trial side or, you know, the biopharma product testing business. Just any kind of commentary you've got around there, I would be very interested to hear on that. The second one is on pricing. I think you guys have been putting some price increases through like, let's face it, basically everybody has. Did we see much of an effect on that in the Q1 , or is that something that's coming in Q2 or later? Or indeed am I wrong? Awesome. Thank you.
Thank you very much. Yes. Well, we still see very strong demand from our biotech clients who have been well-funded over the last few years. For biopharma, there are sweet spots of investments in new medical approaches. I don't want to use a jargon here, but all the things around biopharma and we don't see any change of mood. We are capacity constrained there, with every hour that we have available, every workday that we have available, we use it to produce things for clients. We have backlog, and we can't take a lot of orders. That hasn't changed. Onto pricing. Yes, it's hard to measure. We don't have a global pricing indicator.
We do too many things, and we have too many new tests and things that are not so easy to compare. Sometimes we sell workdays, sometimes we sell programs, sometimes we sell tests. Once a year in our food and environmental testing businesses, which are more sample-based, we get an indication or a measurement of price impact and volume impact, but we don't do it every quarter. It's a fairly significant effort. I would think, yeah, there is some price impact obviously in Q1 and like we have in normal years, probably a bit higher this year. It's hard to say.
Very clear. Thank you for the answers.
Our next question comes from Andy Grobler with Credit Suisse.
Hi, Gilles. Good afternoon. Just a couple from me as well, if I may. Firstly, just on the divisions, which areas were growing above and which below that 6.5% through the Q1 ? Secondly, you've raised your guidance for the COVID- related revenues for the year, but with about implicitly EUR 340 million or so of revenues in Q1 and guidance only for EUR 400 million for the full year. Does that still look a little low in terms of guidance at this stage? Thank you very much.
Yes. Thank you, Andy. I think we've had good growth across most areas. We are organized by region, and so the different areas of activity can behave differently. Our environmental testing business was still challenged in January and February from weather issues and a lot of COVID issues at our clients and our own staff. March was much better, but probably overall for the quarter, that would be below. While environmental testing in Europe was very strong. Food testing was very strong in America, a bit less strong in Europe. Biopharma was strong in most geographies. We've had issues in China with the lockdowns in Shenzhen and now in Shanghai, which are very harsh.
It's a bit of everything. I would say if I had to do global totals, which we do rarely, maybe once a year, to have a look, probably biopharma was the fastest growing area globally for Eurofins. For COVID, we're not at EUR 340 million. We're above EUR 300 million. You know, there are some scope effects with M&A and some currency effects too. You know, I prefer to be conservative. You know, I don't want to disappoint investors, and we try to set objectives that are achievable. Of course, you know, things can always unexpectedly go terribly wrong, but based on what we know, we try to set objectives that we think are achievable.
Obviously, we caveated our objective with the indication that there could be prolonged COVID testing for a number of reasons. A, because doctors will want to know, even though governments don't mandate as much COVID testing as they used to. There's not much COVID required now for travel in Europe at least. Doctors, when people get sick, would want to know. It's really hard to know exactly what volume this will represent, and that could actually be a permanent volume because every winter there will be waves. Of course we are introducing multi-pathogen tests that will enable doctors to know if people have COVID or have the flu or what else they have.
That's for the known things. For the unknown things, of course, this virus has mutated a number of times and nobody knows what the new variants will do. The prevailing majority opinion, and again, it's not no certainty, but that's a majority opinion, is that the viruses get less and less lethal as they evolve. We all hope that to be the case for COVID. Of course, nobody can exclude a much more lethal version of the virus that will also be contagious, and that will require, again, some public health measures and a lot more testing. Nobody knows, but therefore we have set as a target the lowest scenario where COVID would be contained and there would probably be no more testing beyond this quarter.
Okay. Excellent. Thank you very much.
I hope it doesn't take eternity, but it could.
Fair enough. Thank you.
Our next question comes from James Rose with Barclays.
Hi there. Good afternoon. I've got two, please. First is on the inflation cost side. I imagine if freight rates are going up when you're moving samples around, energy costs are higher, and there's more inflation in labor markets than usual. How are you dealing with that, and what mitigating actions can you take? Secondly, on the new investments which you announced at the full four- year, presumably a lot of that means new start-up labs. Should we think of this as the next program, your program four? And if so, could you help us with some of the economics of those? How many start-up labs per annum are you targeting? What size could they roughly be? The maturity curve of those labs, that would be helpful. Thank you.
Thank you very much. Inflation is hitting everywhere and everyone. We have several ways to approach it. Of course, we are getting better at purchasing. We've deployed a global purchasing system that now enables us to cover maybe 90% of our companies. We have better leverage when we know our global quantities and can work to standardize also on better negotiated or semi-insourced or OEM product that we make ourselves or get some companies to make for us in Asia. Those are the measures that are starting to bear fruit. On the labor side, you know, we have to live with whatever the market dictates. In the end, we have to pass on the cost.
Of course, we make productivity gains every year by being bigger, by our programs to consolidate labs, to make our labs the most cost-effective in the market. Once we know our labs are the most cost-effective in the market, then, if we see our costs rising, we have to raise our price, and our competitors will do the same anyway. It is sad, but that's how a world of inflation starts. So far, we've seen a varied impact. The impact has been stronger and earlier in North America, maybe a bit in Germany and France, for example, in Southern Europe, less affected. It might change going forward.
We will react in the different markets at the right time because we don't as a market leader want to be seen of taking advantage of our size to push higher prices. If a given country, a given market is affected, we'll react. In terms of startup, yes, we have accelerated. I mean, we haven't communicated on that specifically in terms of quantum. We will do it with half year. It could be that we double the number of startups we start per year, something of that order of magnitude. Overall, we're not talking of huge numbers relative to the overall size of Eurofins. We're not going to multiply it by 10. Compared to maybe 20 startups per year that we did before, we might try to, if we can.
It matters how fast we can really open them. If we could do 40, that might enable us to achieve faster our footprint objectives, especially in Asia, where we want to expand significantly and where there are significant opportunities.
Thank you very much.
Our next question comes from Arthur Truslove with Citi.
Hi there. Arthur Truslove from Citi. Just to follow up on China, I didn't quite understand what you said at the beginning. Did you say that the issues there were starting to ease in terms of activity there, or are they still as severe as they ever were? That's the first question. The second question was just around COVID again and your thoughts on that. Would you consider flu testing to be the correct parallel for COVID testing going forward? Or do you think there's likely to be more the COVID testing relative to flu testing on a longer-term view? Thank you very much.
Maybe what I was referring to regarding China is we have labs in South China, we have labs in Shenzhen and labs in Shanghai and elsewhere, but those are two big areas. Our labs in Shenzhen were affected by lockdown earlier in the quarter and the labs in Shanghai in the later part of the quarter, and they are still affected actually at the moment. Yes, it's very hard to predict again what will happen in China. China is not a huge part of our business. It's unfortunately an area where we more see the future than our current size. But that still impacts, unfortunately. For the people there in Shanghai, for our teams, it is absolutely dreadful, the conditions they have to endure.
Maybe it's for the greater good, but for the individuals concerned, it's very difficult. Flu testing. Yeah, I think the times are changing a bit. Flu testing wasn't done very significantly, but also the tools weren't there necessarily. It's also a matter of cost. Now with the investments that were done, and not only by Eurofins, but by the diagnostic kits makers, by the labs and equipment, it's becoming much easier to do a PCR test, to not only detect the flu, but detect the flu and COVID. I think there will be interest in at least some countries in a significantly higher level of COVID and flu testing than was the case before, just for flu after this pandemic.
Now, each country and each reimbursement system will have to decide what they reimbursed. I don't think that is really clear. This is going to be a changing and a moving target that's going to also be affected by the potential pricing for those tests in the relevant markets. I'm afraid I can't really tell, and that's why we're being conservative in our objectives, because we work when we set an objective from something that is where we already know we think it is likely to happen. In this case, there's too much unknown to set any number, so we set a very low number.
Okay, thank you.
We'll take our next question from Allen Wells with Jefferies.
Hey, good afternoon, Gilles. Allen here. Just a couple of quick ones from me. The impact that you commented on from things like staff absenteeism, you know, the easing of restrictions in Q1, is there any way you can kind of roughly quantify that? I'm just thinking about how this potentially eases into Q2. That's my first question. Second question, I'm sorry if I missed this earlier, but did you comment on the exit rates on COVID testing? So of that, you know, north of EUR 300 million, you talked about what the kind of exit run rate was out of the quarter. Then the final question for me, just on the expansion ambitions you've talked about.
Could you maybe comment on the availability of equipment with things like supply chain challenges in mind and, you know, price inflation? Is there any sort of headwind to those expansion plans because you can't get the kit there? Or, just any comments would just be quite interesting. Thank you.
Thank you. Thank you very much, Allen. Well, staff absenteeism was pretty serious. We've had weeks or number of weeks with 20%, 30% staff absenteeism in some areas. Yeah, we've had a bit of a headwind with working days, significantly less than one day, actually, in Q1. We haven't tallied up all the days missed by our staff, but we believe it's significantly more than that. There could be indeed, and I don't know what you call it in financial terms, but a catch-up or something in the Q2 , but a claw-back. We're going to have to see. Now in Q2 , we are affected with lockdown in China, in Shanghai.
We don't know how this all will pan out in China for the rest of the country. There's still a question mark on that aspect. Otherwise, it goes back to your other question on the COVID run rate. The changes are pretty abrupt in government decisions regarding basically no need for testing. I think in the U.K., for example, the government has decided there's no testing and people can even go to work if they're positive. Other countries are taking a much more prudent approach, or I wouldn't use the word prudent. Let's say more an approach that's a bit more restrictive for letting people go and work.
Then that means they have to be tested if people have to know if they should go to work or not go to work. Hospitals and several areas are testing people as a matter of course, anyway, when they come in. The exit run rate was still high, and I mean, we have had a decrease. January was higher, then February and March were lower, but April is falling significantly due to those measures. It's more like a week-by-week change, which is steep. It doesn't reach zero, as I speak now, by any stretch of the imagination.
It's just difficult to extrapolate anything because it is the mix of a number of local decisions by so many countries where we are present that are very difficult to guess. We don't even try to guess them. On expansion and CapEx, yes, we have to plan with more delays. Things we would get in two weeks, sometimes we have to wait two or three months to get. It's not so much scientific testing kit, although there are areas, for example, during COVID, there were a lot of shortages, but they weren't necessarily due to the supply chain issues, also to demand. I think also buildings are delayed or some of our building projects are delayed sometimes because of scarcity of raw materials.
The world is just becoming more uncertain. That's why your question on the startups, we have plans, but we're going to have to see by which time we can start building. You know, it's a process to ask for quotes, to get the design done, then to get companies to bid for it. Some we might even decide to delay a little bit until the costs are abating a bit. We have so many countries where we can invest, and we can decide to focus on areas which are less affected by those shortages. We have a number of options. I do think we will do significantly more startups in this year than in the previous couple of years.
Right. Thank you very much.
As a reminder, that is star one to ask a question. Our next question comes from Suhasini Varanasi with Goldman Sachs.
Hi. Good afternoon. Thank you for taking my questions. Just a couple, please. Is it possible to quantify the impact of the China lockdowns in the Q1 ? Given it's continuing into Q2, that will help us anticipate what the Q2 impact can be as well. The second one is, what's the tailwind from the trading days, please, Q1 ? Thank you.
Thank you. China lockdown. Well, it's really hard to say. It's a number of millions, obviously, but our China total is of the order of 100 million, so it's not all that huge. It was never fully affected. We were usually able to shift between South China and North China, the samples, but obviously the overall capacity is reduced. That's going to be an impact. On the total numbers, you know, 100 million out of 6 billion is also not so much. I don't think we would lose half of it. I think, I mean, for a period. China can take pretty radical decisions sometimes, so it's difficult to guess again.
Q1, the impact of days was minimal, and it's less than one day. The impact on a global basis. We just mentioned it for the sake of transparency. The numbers problem is it's very hard to tally up on a global basis how many missed work days we've had due to COVID and those lockdowns. Our impression is that it is significantly superior to any calendar working day impact. Anyway, I don't think it really matters. The trend is very good overall and we're positive about our annual objective for organic growth. Maybe some of you were setting much higher targets. We're going to have to see.
We've never encouraged anybody to deviate too much upwards or downwards from our objectives, but time will tell what happens. There is of course if a lot of inflation, that's also something we said with our annual results, is that we don't want to gouge our customers. Obviously if we see that during the year the inflation is really taking hold on a permanent basis, we're going to have to do something on price which will have an impact.
Thank you.
We have no further questions at this time.
Well, thank you everybody and thanks for supporting us. I'm really blessed to lead a company which has so much to offer for helping everybody to live better and healthier. We are facing a very large number of opportunities of areas where we can deploy capital with very good rates of return because this is based on innovation, on new markets, on helping our customers develop drugs or categories or classes of drugs that never existed before. It's really blue ocean opportunities in many areas for our customers and for us that we're investing towards. We're going to deploy very significant capital in biopharma over the next two or three years.
The needs of that industry for producing all the components that they need for testing it are going to be enormous. There are very promising results for many clinical studies on many areas, which will mean more research will be undertaken, and there will be work on more drugs. We see the need with the world facing energy crisis, the world facing food crisis. Those means more testing will be required, as I mentioned. There will be also a lot more innovation on the type of foods we eat, on the seeds we use, where they are planted, which type of fertilizers we use, which type of non-pesticide so biopesticides we use on them.
There are a number of challenges the world is facing where Eurofins companies are contributing and can contribute even more going forward. I thank you for your support with the capital you grant us to deploy in those sectors because I think they really have a positive impact. Well, thank you very much, everybody, and I'm looking forward to meeting you in person as I see that now we are starting to have again investor conferences in person. I know a couple in London and in Paris are at hand, so looking forward to meeting you again in person. Have a very good day.
Ladies and gentlemen, this conference call has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.