Eurofins Scientific SE

PAR:ERF

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to the Eurofins Scientific Q1 2020 Interim Management Statement. [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, 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 included, but are not limited to, those described in the Risk Factors section of the Eurofins annual report. Please also read the disclaimer on Page 2 of this presentation subject to which the call and Q&A session are made. Today, I am pleased to present Dr. Gilles Martin, Eurofins' CEO; and Laurent Lebras, Eurofins' CFO. Please begin.

[Gilles G. Martin, Chairman of the Board & CEO]

Hello, everybody, and thank you for joining our quarterly call. So we are in a bit of an unprecedented situation. I wish we could meet in person with many of you, but unfortunately, it looks like for a while we're going to have to do with conference calls. So I will use a presentation. I guess you have all been able to download it from our website. The presentation entitled Eurofins Q1 2020 Management Update, Q1 2020 Results and Outlook. I will go to Page 3. So the -- we were aware of this crisis coming already from January, and we have been preparing for it. So from very early in the process of the development of this pandemic, we started to prepare our laboratories. Our laboratory started to work on R&D and developing tests as early as January. They were not allowed to launch the test until March, but they were already working on many developments. As the drivers in China, we saw the impact on our laboratories and the lockdown that occurs there. So we intensified our R&D efforts in Europe. And we started to organize ourselves for potentially the same situation happening in other parts of the world. So we started to [ make ] contact with authorities to clarify the fact that our operations and what we do is essential, be it food testing, be it environmental testing, et cetera. And we were able to ensure that most of our laboratories, if not all, were considered essential by the various authorities and allowed to continue to operate. Very early on, actually, at our leadership seminar already at the end of January, we had introduced some social distancing and hygiene measures to protect the health of our leaders and employees. So we were reasonably well prepared when the social distancing measures became more general in Europe in March and later in North America. What we have seen in Q1 is that actually, in spite of the impact of the lockdown on our revenues, our activities generally are very resilient. So I will move to Page 4 of the presentation. As you have seen in Q1, our revenues increased 7%, and that includes 4.1% organic growth. And actually, if we exclude Boston Heart, which saw the tail end of the impact of the change of regulations and reimbursements we discussed last year, the organic growth was 4.6%. This is only 0.4% short of our 5% objective. So it looks like considering the massive disruption the world is seeing, our activities are rather resilient. The impact, what would have been organic growth, were it not for those lockdowns, definitely a couple of points higher. So we've had an impact. In Q1, we were initially hit in China and then in several countries in Europe in March and in the U.S. We found this presentation by OC&C that looked at the different activities of all the TIC companies. And as you can see, I think one of the reasons why our revenues stay very resilient is that Eurofins is really very strongly focused on life sciences, food testing, testing for the pharma industry, which are activities -- and clinical testing, which are activities that are always needed. And you see different companies, actually, in Q1 2020, for the first time, Eurofins' revenue exceeded the revenues of Bureau Veritas, as some of you might have noted. We'll see how that continues, that gives an idea of the resilience of our activity. So we are reasonably confident going forward that our activities will withstand the disruptions. And I will switch to Page 5. Nonetheless, not because we are worried about the long-term impact -- the short-term impact, nobody knows where the world economy will stand 2 or 3 years from now. There is a wide range of scenarios, both on the political and economic level, which generate a lot of long-term uncertainty. And not because of the short-term uncertainty of the lockdown, but mostly for the long-term uncertainty, we have taken a number of measures to protect cash and deleverage faster than what we had originally planned when we presented our results for 2019. So the measures we have taken is put most nonessential M&A and CapEx on hold. We have taken measures to control our ongoing costs and personnel costs. And we also will propose to the General Assembly to not distribute a dividend for 2019. We also have received in some countries like France, some help for some of our companies where we've had to do some furloughs. It's a few companies, and it's not -- it's definitely not across the board, but even for smaller amount that imposes actually the absence of paying a dividend in 2020. So basically, we have a number of reasons for doing it. On the cash situation, we are very well. We have been working on the maturity of our financing, so we have long maturities. We have also a large number of committed bilateral bank line that are generally for 5 years at the origin and then are renewed regularly. At the end of March, we had more than EUR 1 billion, either of cash or committed undrawn bilateral facilities. So we are not worried about liquidity in any way. And there is one area -- we reduce CapEx as much as we can, but there is one area where we don't reduce CapEx, it is to invest, to provide solutions for COVID-19. So I will move to Page 6. And basically, this crisis is an example of what a company like Eurofins can do. And we feel very fortunate to not just have to sit and wait and hopefully pray for things to improve, but to be able to contribute in a major way. So not only can we contribute in doing the work we do every day, in testing food, water, biopharma products or doing clinical testing and helping support the population, which is in lockdown but we can have a positive impact in finding solutions and helping the health authorities find solutions to control the spread of this disease. As you have seen, we have had an impact on Q1. We will have an impact in Q2. Some of our laboratories, especially in France, have had to go into lockdown, not a lot, but some of them, especially those doing, for example, some environmental testing. The impact, though, of those lowdown on our laboratories, we believe, will be limited in time. And we already see an increase in volume again in the last week in those laboratories, for example, in France, which had -- for some of them shut down for a couple of weeks early April. So the impact, we believe, as we can see today, should be limited in time. On the other hand, as you have seen in our various press release, we have developed a very large range of solutions, both to help the pharma and the vaccine industry develop new products, but also to provide a whole range of testing capabilities that we do either in our own labs or that we sell as kits to government labs or other private labs. It's very hard to say today how long this COVID crisis will last. I hope, like we all hope, that this will all go away and that maybe after the summer, this won't be a problem. However, the majority of scientists looking at this are rather of the opinion that this crisis may go on for a long, long time. And that's one of the only solution will be scientific one. We'll be testing, testing massively to identify the positives, to isolate the positives and to find their contacts and then isolate their contacts. This has been proven to be one of the most effective ways to limit the spread of the disease and control its reoccurrence. This is why we're investing massively to provide testing capacity for that. We're also investing and working closely with our clients in the pharma industry and the vaccine industry to help them accelerate the research because this is the other way. Vaccines would be, if they work and if they come fast, the best tool to control the spread of the disease. So this has been the focus of Eurofins over the last 2 months. We have daily calls with more than 20 teams around the world who are working to develop new solutions. As you have seen, we've developed already a whole lot of solutions. I think there are not so many companies who have developed so many solutions. And we are now working on things that would be even more meaningful that we hope to release during the next few weeks. So summing up the Q1, we are investing heavily to help the health care authorities fight the COVID-19 pandemic. And at the same time, wherever possible, we are frugal with our spend, and we are doing -- taking several measures to achieve a faster deleveraging than what we had planned when we presented our 2019 results. In terms of objectives for 2020, and for that matter, 2021, we have not removed them. So that means we have confirmed them. It's the best guess we can make as of today, is that the negative impact of lockdown could be more than compensated by the additional work we do to provide solution to fight COVID-19. And the differences, we might be testing for COVID-19 for many months, if not years, whereas a lockdown impact will hopefully be focused on the second quarter of this year and the first quarter, which we've already seen. So I'll go through some of the slides of the slide show. I'll point you to Slide 8. So as I've mentioned, we've had since January, a number of scientific teams working together, assembling the knowledge of our labs in Asia, in North America and Europe mainly, to develop new solutions. And in the meantime, we've developed a whole range of solutions for combating the disease. I can point you to a page on our website, if you go on Eurofins' COVID-19 response. You have different blocks and different sub menus that will give you an idea of all the things we are doing and explain the differences between all the different tests, et cetera. One thing to know about Eurofins is that we are not only a testing company and we're not only testing in our clinical labs or testing biopharmaceutical labs, but we also have subsidiaries, which produce in vitro diagnostic products. So testing kits, testing machines. And we have, of course, refocused all those activities to develop faster new solutions, new kits and compensate the supply chain issues that many of the labs are facing. I will go to Page 9. So on Page 9, we list the whole range of activities that we are working on or we have already released. And I will go one by one on the different pages. On Page 10, we describe what we do in real-time PCR. This is something we had worked on, as I mentioned already, in January, February. But we had to wait until government authorities would allow private labs to launch their kits on, I think, March 12 or 13th in the U.S., we were able to launch our first kit that was subsequently approved by the FDA. We launched the second one; in the U.S. and then in the meantime, many of our labs around the world have launched their tests. Many of them are, of course, buying tests that are supplied by IVD companies or other life science companies. Of course, we [ do ] have the ambition to produce all our test ourselves, and we have long-term partnerships with those suppliers. But those suppliers cannot provide enough supplies, enough reagents, and therefore, we are happy to have the ability to develop those. What are those abilities? If I go on Page 11, we discuss some. Some of you have visited our Genomics lab in Munich a few years ago. Our Genomics division or business line, Eurofins Genomics, is one of the 3 global companies developing -- large global companies, developing probes and primers that are required for the real-time PCR testing of many things, including viruses. This is a business that has 6 production sites around the world. And it is now already producing for us and other IVD companies, millions of sets and probes and primers and positive controls that are required to produce real-time PCR kits. And of course, they're a safe supply chain for our own laboratories who develop their own PCR kits. I'll move to Page 12. You must all have read that when people are exposed to the disease, they develop antibodies, and there is not a lot of knowledge about it yet. This is just starting. And we are pleased early April to start launching our own antibodies testing capabilities. We now have antibodies testing capabilities at 13 laboratories. And like for PCR testing, we believe we'll be able to produce up to 100,000 tests per day or what would represent 2 million tests per month by the middle of May. I'll go on Page 13. As for PCR, some of those antibody testing possibilities we will produce ourselves. We have 4 clinical diagnostic IVD product companies that we have focused on developing our own range of serology testing kits. We launched the first kits on April 9, and now we are ramping up capacity to be able to produce 10 million tests for our own labs or for government or private labs by the end of May. And we have a number of additional launches that are planned for the next few weeks. On Page 14, you see a picture of the instruments we also produce to carry out those ELISA testing for antibodies. And this is also important because there are not enough equipment. As you probably have heard, the large IVD companies cannot provide all the equipment that is required to carry out the testing needed. And for ELISA, this is probably going to be the same, if it's not the same already. And we are fortunate to have our own design, our own IP and equipment that we can then produce massively, if required. On Page 15, we discuss another major area where we are active, is working for the pharma industry. As you know, there are more than 70 R&D programs to develop or validate pharmaceutical products to act against COVID-19, and even more vaccine programs. Actually, we are working -- we are the largest in the world in doing biopharma product testing, which is required for registration of new pharmaceutical. And we are working with a large number of those companies to support them in those programs. On Page 16, we discuss a couple of other points. The -- one of the problem of this virus is that it mutates. It mutates over time. And so far, the world has been fortunate those mutations have not caused mortality. On the other hand, following the mutations of the virus, can be a very useful tool to trace the outbreaks and find out where they come from. And we've also recently launched a service of high throughput next-generation sequencing to help authorities trace the outbreak and to help all the pharma companies or vaccine companies also understand what their products should be targeted about. This capability is also important for IVD manufacturers like Eurofins, because we -- as the virus mutates, we have to make sure that the sequences we are targeting in our real-time PCR tests are still representative of all the strains of the virus. On Page 17, we discuss another aspect, which is also quite important in the fight against the virus, is looking at our environment. As you probably have read, the virus can be found in hospital rooms, hospital wards, in other areas on surfaces. And it is a possibility that people could get sick by touching those surfaces. Therefore, I think proper decontamination is important. It's also important to make sure that a work environment is a safe area. We also published that we have been working to set up solutions to approve/inspect personal protective equipment and respirators and disinfectants and all the products that are used in the fight against COVID-19. On Page 18, we discussed another aspect that will come -- that we believe will become a major aspect in the fight against COVID-19. Most countries in Europe are starting to plan the so-called deconfinement or people returning to work. And of course, employers are expected to provide a safe working environment. That includes some of the surface testing and environmental testing I just discussed. But it can also involve testing the employees. Eurofins has a number of programs to check the safety of workplaces. Actually, we are a leader in Europe in the bacteriology testing of retail and industry. We have teams of inspectors and auditors that go around to inspect the areas, take samples, and those teams can, of course, be refocused to support their clients and our clients in the testing of their work environment and employees. Of course, we have the laboratories to do that. On Page 19, you will see an example of what Viracor did to do that specifically for transplantation. And overall -- I will turn to Page 21, the last page, that summarizes the different things we are working on. So in very short time, I'm quite amazed by what our scientists have been able to do. They basically were able to develop a complete range of services to support those fighting the disease. The real-time PCR testing that is required to detect acute infections, serology testing, the genomics testing and the biopharma services, which are very important for the search of drugs and vaccines, the probes and primers for the -- for developing the kits. And right now, what we are working on with many, many companies, is to set up programs to help employees returning to work safely. In terms of numbers, we gave you some numbers. Obviously, this is only the capacity. Nobody knows what will happen. Some people are saying that millions of tests have to be done every day. Others are saying the virus will go away after the summer or in the summer, and this will be a non-issue. So it's, of course, very difficult to know what will happen. What is clear is that even today and for the foreseeable future, there are not enough supplies. There are not enough reagents. They are not enough testing machines. And we really benefit from the fact that we have the ability to be vertically integrated and produce our own reagents to complement what we -- what our suppliers can provide us. So our objective is by the end of May to be able to provide the reagents or the probes or the test or carry out the test to help 20 million patients per month, know their status of infection. And that will not stop there. So we hope the virus will be brought under control in as many geographies as possible. We hope there would be vaccines very soon but we're also prepared in case that is not the case to continue to ramp up capacity massively over the next months, quarters, to provide all the testing that might be -- to contribute to providing all the testing that government might decide is required to keep the infection under control. So I'm sorry for the long introduction. But I think what we do is so diverse, and it addresses so many aspects that I prefer to address it now with a slide show than just answering questions. Now I will turn the microphone over to you for questions.

[Operator]

[Operator Instructions] Our first question is from Edward Stanley from Morgan Stanley.

[Edward Stanley, Equity Analyst]

I've got a few. If I go one by one, it might be easier. We've heard a lot about your COVID capacity, but can you tell us very simply the overall number of PCR tests that you've actually done in Q1? And the average price that you achieved on those tests?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Do you want to ask your question altogether or one by one?

[Edward Stanley, Equity Analyst]

Can we go one by one?

[Gilles G. Martin, Chairman of the Board & CEO]

Sure. Well, as we mentioned, in Q1, we didn't do a lot of tests. I think maybe 100,000 or a few hundred thousand, I don't know. And the average price varies between, I think, EUR 54 or EUR 51 in Europe and $100 in the United States. It used to be also $54 in the United States in Q1, but it has been recently increased to $100, I think in the third or fourth week of April.

[Edward Stanley, Equity Analyst]

Okay. And on serology, I'm interested because you put out a press release on the 17th of April saying that you were developing serology-based antibody tests with affiliates to get up to 10 million kits a month, which sounds brilliant. But then John Hopkins on the 24th of April said that there are 56 tests that are currently either approved for the U.S., approved internationally, or are still in development, and none of these were Eurofins or your affiliates like biotech. So can you explain what's going on here? Is this test, which seems to make up half of these tests that you aim to produce monthly, is it actually accredited? For which countries? How much does it cost? That kind of thing, please?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Of course. Well, in serology, since February, there has been hundreds -- or at least 50, if not hundreds of Chinese producers who have serology tests, be it, what is it called -- so-called natural flow devices that people can use in their homes, or be it ELISA test. The problem of those tests is they have to fulfill 2 conditions: they have to be specific and sensitive. And what most countries that bought some of those tests have come to realize, and of course, that doesn't apply to all tests, but from what I read most of the test -- is that most of those tests do not fulfill those conditions. Now what the countries are doing, they are doing a thorough validation and evaluation of those serology tests. So we didn't launch on test immediately because we wanted to make sure that we launched a test that has high sensitivity and specificity, especially specificity, because otherwise, it can really let people believe that there are -- they have the antibodies and they don't have it. And from what I've seen so far, those evaluation of our kits by independent third parties, also look very good. So we believe we have a good test. It is just currently being launched. We just got the first batches imported in the United States. We have lots of orders. And from what we hear from laboratories, they don't have enough supplies of the high-quality kits that they need. But of course, we have no idea for any of the capacity we are creating, how much we will sell. It's just our duty to provide high-quality products or services. And if the world needs it, it will be sold. If the world finds other solution, we're quite fine with that. We're not into COVID-19 to make money. We are there to provide solutions to everybody, to try to help get this terrible epidemic under control.

[Edward Stanley, Equity Analyst]

Makes sense. And you're ramping up a lot of production and capacity very, very quickly, which is great but there have been news reports earlier in the month that, for example, you provided COVID probes and primers contaminated with COVID to the U.K. government. Can you explain briefly what happened there? And why in your speed to get to 20 million testing kits per month, you know the same quality control problems won't happen again?

[Gilles G. Martin, Chairman of the Board & CEO]

This is a non-issue. This was a few batches, and it happened to pretty much all of the suppliers of probes and primers. Because when you get orders from scientists for positive controls, those positive controls can show a reaction. So the lab affected, that was one lab in Germany, out of our 6 labs, has taken the measures to control that. I don't think it affected anybody in a meaningful way because our other labs were producing. So...

[Edward Stanley, Equity Analyst]

Okay. And just one quick one out of interest. For Q2, are you intending to give an organic growth number, given that the base effect on the revenues will have sort of distorted [ now-where ] effect? Are you planning to give a Q2 organic growth number?

[Gilles G. Martin, Chairman of the Board & CEO]

Well, that's a good question. I guess we'll cross that bridge when we get there. We'll see what is meaningful in Q2. We'll see what is meaningful. We'll do our best to be as transparent as possible, and that the information we give is meaningful.

[Operator]

And our next question is from Will Kirkness from Jefferies.

[William Kirkness, Equity Analyst]

Just got a couple of questions, please. So firstly, just going back to the antibody detection kits that you can sell to individuals or labs, the 10 million. Is that price going to be in that $50 to $100 range?

[Gilles G. Martin, Chairman of the Board & CEO]

No, no. Antibodies -- I mean the reimbursement for antibodies' testing as a service has not been defined yet. So it's a bit different in every country, there were reimbursement levels with this testing, for other types of antibodies, other type of diseases, which are -- for each antibodies, what we saw was EUR 12 in some countries. Other -- but for this COVID testing, some laboratories are charging much more. That's for the service. And then usually, you would not test only one antibody, you would test at least IgM and IgG and sometimes IgA, IgM and IgG at the same time on a sample. The kits themselves are -- they have a list price, I think, of EUR 8 or EUR 9. But of course, for very large volume, the prices for per test are much lower than that. So that's -- I mean I can't give commercial information, but I'm sure you can find it. It's lower than the cost for PCR test. The cost at the moment for PCR testing kits as a product is about, let's say, on average, between EUR 10 and EUR 20, including the extraction medium. The cost for antibodies' testing is maybe, on average half that or maybe a bit lower, it depends on the product and which instrument it would work on. Some can be even -- for huge volume it can go much lower.

[William Kirkness, Equity Analyst]

Okay. That's clear. And then secondly, just talking about some of the cash levers. I think it's quite interesting you hope to delever faster through FY '20. So just wondered whether it's reasonable to expect any M&A this year? And then some of the other levers around CapEx and perhaps whether there are any exceptions we should think about related to the shutdown that may just impede the conversion to cash from EBIT?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Well, we still are carrying out most of the work, we are planning to consolidate sites and to basically build our large platforms. When we were building buildings, we're not stopping that because of COVID. So we will, of course, have some level of CapEx this year. Our target in the second half is to divide by 2, so reduce by 50% our CapEx. We will see what we achieve. For the first quarter, it was pretty much committed. So we gave you an objective. I think it was EUR 400 million of CapEx, including the new IFRS lease accounting. So the first quarter might have been, I'm not sure exactly, but more or less in line with that. And then from then on, we aim to reduce to about 50%. That's about the objective. But we haven't finalized all the details because many things are committed, are going on, and we're getting all the information. And some of our businesses actually are investing a lot to build up the COVID-19 testing and research capacity. On M&A, we'll do less. We had planned to do about EUR 200 million -- to add about EUR 200 million of revenues for M&A. We definitely will not do that. Whether we will add EUR 20 million, EUR 50 million from M&A, but maybe the range or we will see how the whole thing develops, but that's definitely not a priority for anybody at the moment, as you would guess.

[William Kirkness, Equity Analyst]

And just to come back on the -- obviously, you're expecting an element of exceptional costs this year. Has your view on that changed because of what's going on at the moment? Or is it just as it was?

[Gilles G. Martin, Chairman of the Board & CEO]

No. I think it will be more or less what it was. The exceptionals that we are seeing are the consolidation program that were initiated anyway, independent of COVID-19, whether we accelerate a couple of those things before, because of COVID-19, it's possible. Of course, in this situation, we'll scrutinize even more thoroughly any operation that's not delivering as it should. And maybe we'll do a little bit more. It's hard to say, but we don't -- I haven't heard of anything meaningfully different.

[William Kirkness, Equity Analyst]

Okay. And then just lastly, coming back on the M&A point. Just how you're thinking about how you view the industry longer-term and whether some -- what's happened here puts larger groups such as Eurofins in a better position?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Well, probably because this will, like many industries, change the landscape, in some segments, some companies will really struggle. We are really fortunate to have many legs to stand on and to be also very geographically spread out. It is clear that some of our business lines will probably do very well in the second half, I mean, throughout the year, our pharma business line will probably do very well. Our clinical labs were a bit affected, but they will return back to normality, and we see that already where we had a little effect initially, or some effect initially. But they might be testing an enormous amount of COVID samples for maybe 6 months, a year, 2 years, that would counterbalance much more than -- that should or could much more than counterbalance any negative developments we would see otherwise. So we should be, yes, in a better position, better funded than many others. And that's also why we want to deleverage because at some point, the economy will stabilize at some point, it will be reasonable to do M&A again, and we want to be well positioned for that. What nobody can say is whether this will be in 2021, 2022, anytime, nobody really knows. But our duty is to be prepared for that. So we are not cautious because we are worried about our own activity. We are cautious because we want to be strong at the end of this crisis.

[Operator]

And our next question is from Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, Equity Analyst]

I have a few, please. If you think about the lockdowns that affected you in France, for example, can you give us some idea of how the declines were, especially in protein clinical diagnostics in the last 2 weeks of March or in early April?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. So initially, it started in France fairly early. That was a very abrupt lockdown and people started not to go to the doctor at all. So initially, I think from first or second week or third week of March, probably the second week, we had reduction of about 50% on our volume in our clinical labs. And that's why actually one of the reasons why our organic growth in Q1 didn't hit our 5% target, is that we've had some labs affected in volume. But then after a point, the governments are starting to be worried that people are not getting the care, older people who have chronic diseases are not getting the care that they need, and now they would be encouraged to visit the doctor again, and we're starting to see some pickup.

[Suhasini Varanasi, Equity Analyst]

I see. And this was basically offset a little bit by the COVID-19 testing, but not a materially affect?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. I mean in the first quarter, as I said, I mean, we're doing, I don't know, 10,000 tests a day for I don't know how many days. That's not huge, maybe 15,000, it depends on the day of the week, et cetera. So that couldn't be material. But now we are gearing up to be doing more than 100,000 tests a day. So I don't know what the price will be, whether Europe will raise the price up from the EUR 54. We're getting now to the $100 that we're getting in the U.S. I don't know what the average price will be, whether that will be EUR 60, EUR 80, EUR 90, whatever, but even if you take a lower number, EUR 65 or so, if you do 2 million tests a month, that's really a lot of revenues. So of course, I hope we don't do those tests. That's why we are very prudent in how we express ourselves in this press release is -- my hope is that things go back to normal. We can all do our normal work again. We do 0 COVID testing. On the other hand, it is quite possible we will have to do a lot of COVID testing for a long, long time.

[Suhasini Varanasi, Equity Analyst]

And in the press release, you also mentioned that you furloughed some employees. Does that relate to areas like the soil testing, environmental testing in France? And can you give us an idea of what percentage of your employee costs are currently furloughed?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Well, this is again changing by the day. So I wish we could give more information about that on a consolidated basis. I think the biggest hit we will see or we have seen in this -- through those lockdown, occurs in France because the reaction in France were one of the most drastic, and most companies had really difficulties to get their employees to go back to work. We had for a couple of weeks to close down some sites in environmental testing. I think the government is fairly generous. They cover, I think, 90% of the costs of those furloughed employees, when you do that. And those sites are now restarted. I think we're already at probably 50% of the normal sample throughput for that activity. France plans to reopen on 11th of May. It's really hard to say whether -- where we will be at that moment. And that's why we cannot give you any forecast. Fortunately, it's a small part of our overall business, but everything is so much influx that what we know is we will have an impact in Q2. We think this impact, compared to the size of the group and the things that will be well over budget, is not going to be so huge, but it will be there. And as we don't know how fast the COVID-19 will ramp, we cannot say what exactly the net effect will be in Q2. We know what the capacities we will be able to provide, whether all those capacities will be used up, we cannot say. Whether we'll need to run beyond 100,000 tests a day for real-time PCR and beyond 100,000 tests per day for serology, we don't know. That's also something that could happen by the end of the quarter. The problem that the world is facing is right now, the disease is getting under control but at a massive cost for society. This is costing hundreds of billions. And testing costs a fraction of that. So rather than having to bring people back in isolation a second time or a third time or a fourth time, it seems to be much more cost-effective to do very massive testing. And of course, the real problem and the reason why it's not done yet, is that nobody knows how to get all those tests done, how to create the capacity to do the millions of tests that will be required every day to test people frequently enough. There are other aspects with tracing and electronic tracing of contact. So all those things have to be done together to try to detect the new onset of new outbreaks very, very fast. Our view is creating the capacity is our contribution to society to having the tools to fight the outbreaks. How the various countries will use it, we don't know. One thing we also can say is we can ship samples across borders. So if one country is not putting in place the right measures, this capacity can be used for another country who is putting up the right testing and tracing measures.

[Suhasini Varanasi, Equity Analyst]

That's very helpful. And the last one, please. You are doing increased investments in order to create this suite of products to help with the COVID-19 outbreak. And given these kind of investments, you haven't really mentioned anything about your EBITDA outlook for the year. Can you give us an idea, I know it's early days here, but can you give us an idea of how you see that evolving?

[Gilles G. Martin, Chairman of the Board & CEO]

The best guess we can do is we think our objectives are achievable. I think we had set an objective of [ EUR 5 billion ] and EUR 1.1 billion of EBITDA, and that included maybe EUR 100 million for M&A, and the M&A maybe EUR 20 million EBITDA. So that's really marginal. So we think this objective of [ EUR 5 billion ] and EUR 1.1 billion of EBITDA, corrected for whatever M&A doesn't get done, is still an objective we can achieve. But of course, there are so many -- and we could do much more than that, actually. We don't know. I just can say, I hope we don't do much more than that. I mean I hope the world gets this damn disease under control sooner than later and all this testing is not required. But if that's not the case, come the fall and the winter with a lot of other respiratory diseases, a huge amount of testing will be required if this disease is not under control.

[Operator]

And our next question is from Allen Wells from Exane BNP.

[Allen David Wells, Research Analyst]

A couple for me. I guess, just following up on some of the questions we've had so far. Obviously, you've reiterated you've kept the guidance for this year. But I just wonder how I can try and tally the capacity numbers and the potential revenue opportunity, if you back those numbers out with some of the pricing you said to that guidance, and if you assume 20 million tests at the pricing, even at 60% or 70% worth of the capacity being utilized, you get a couple of hundred million pounds per month. Am I right in thinking? What are you assuming in terms of the offset, maybe from some of the headwinds in terms of the other group? Or maybe you can comment on how to think about how you're thinking about utilization, potential averages when you're coming to that decision to keep the guidance in place as it is.

[Gilles G. Martin, Chairman of the Board & CEO]

Thank you very much. Well, you did the math. If we just look at the PCR test, if we do 2 million a month, at EUR 65, that's EUR 130 million a month. So if we were to do that for 8 months, that's EUR 1 billion. So that gives you the order of magnitude, and that's only if we stay at 100,000 tests a day or 2 million a month. Now -- and that doesn't even count the serology. That doesn't count the probe and primers and kits that we will be selling, that doesn't count all the other things we're doing. And actually, it could be much, much more than that. If the world doesn't find other ways to control this disease. Now it's way too early to say anything like this because it could also be nothing. It could be that the disease gets back under control and no testing is needed or very minimal testing is needed. We don't know enough about this disease to say anything. The -- and the -- it just would take one month maybe of this extra testing to compensate whatever effect we think we might have in April or May of this year with the lockdowns. Now what nobody knows either is whether the world economy will go in a disastrous recession. And for years and years, we'll have to live with massive deflation and things like that. So being prudent is always a good idea.

[Allen David Wells, Research Analyst]

Okay. And then maybe just again following up, the 4.1% organic for Q1. Could you comment to what you think you can on what approximate growths or levels you saw in April, how that phased out? Obviously, I'm mindful of the fact that there's some balancing between lockdown impact and the ramping of COVID testing in there as well.

[Gilles G. Martin, Chairman of the Board & CEO]

Well for April, we don't have any data yet. We have anecdotal data, we talk to our leaders, but we don't consolidate our profit or revenues on a weekly basis. So we do that once a month. For April, we will have a solid view around mid-May or maybe on the 10th of May, we will have our numbers for April. We expect April to be down overall because we have the ramp-up of our COVID and other testing is planned mostly for May when the countries will start reopening. Right now, what happens is the countries are only testing severely-ill patients. So the level of overall testing is very limited overall. It's not only Eurofins, but they know that when they end the lockdown, there will be a need for a lot of testing capacity because that's when the epidemic is likely to pick up again. So I think not only should the testing impact of COVID be mostly on the second half of the year, but also in the second half of the second quarter after the lockdowns are ended.

[Allen David Wells, Research Analyst]

Okay. And very final question. Just thinking about the food and pharma business and how you expect those businesses to trade over the year. I'm guessing there's a level of resilience in there. But are there any particular areas where you're seeing particular headwinds, in either the lockdowns and getting staff into labs or whether it be some of the central lab or CRO work you're doing where trialing is being delayed because of lockdown. Just trying to understand where the puts and takes are in the pharma and the food testing activities, please?

[Gilles G. Martin, Chairman of the Board & CEO]

Thank you. We have moving parts in every direction. We have more work in some of our pharma labs. As you say, the things that are linked to clinical work where patients have to take -- have to be administered drugs, are slowing down because the investigators cannot see the patients. It's all over the place. In food testing, you saw the food consumption in Q1 was very much higher and so we do more testing of certain things. On the other hand, we do hygiene auditing of retail places, which is reduced. Of course, those hygiene teams could be very helpful when employers start to put in place employee testing programs and workplace testing programs. So we'll be very well positioned to do much, much more revenues with that when the lockdowns end and the employers have to put in place those programs. So it's really all over the place, and it's very difficult to make any prediction. I don't want to come out as too bullish in those circumstances, which are extremely sad. But my impression is we will have more work than we can do. The limitation might be more soft than anything else.

[Operator]

And our next question is from Tom Burlton from Berenberg.

[Thomas Edward Burlton]

I've got 3, please. The first one, just following up on the COVID-19 piece and the serology testing where there's been a lot of discussion around the revenue opportunity. But just -- and I appreciate you're probably not going to give us kind of an estimate on the margin. But just roughly, do you expect this to be margin-dilutive or accretive to group margins, based on kind of what you've seen so far or your kind of -- your cost base and some of the capacity numbers that you've given out?

[Gilles G. Martin, Chairman of the Board & CEO]

Thank you very much. I guess your question was not only the serology, but was serology or PCR or all the testing. I think it's really hard to say because we don't really know exactly how the reimbursement will work. We don't know what the prices will end up being. What I can say is the margin of our clinical business is generally higher than the rest of our business. We get EBITDA margin often of 30% in that area, in clinical testing. Whether that will be the case for COVID or not, it's really hard to say. But one could assume there's no reason for it to be significantly different, but we're also giving away tests. We're going to test our own employees. So I don't know what this is going to be. And the -- our IVD business also has EBITDA of around 30%. So our IVD products, if you look at other IVD providers, the margins in IVD are higher than in testing. And actually, this shows that it was -- I'm very pleased to have had this vertically integrated strategy to have the ability to develop our own reagents, our own probes, our own primers because our suppliers are challenged. They cannot deliver enough testing reagents. They cannot deliver enough machines. And as we have all the IP for those things, we can just crank up the production ourselves to complement what they cannot provide. So it's -- I'm very pleased. I mean it's not big. Our IVD and Genomic business is maybe [ EUR 1,200 million ] in revenues, but it's proving a very interesting leg and a very important leg for Eurofins to have in those circumstances. With that, we can crank -- the reagent cost in clinical labs can vary anywhere between 10% to 20% of the revenues as a cost. But if you produce it yourself, this is not a limitation anymore. You can do as many tests as you can have employees to perform.

[Thomas Edward Burlton]

Okay. My second question was on free cash flow. You've talked to the revenue and EBITDA guidance for the full year, and I guess the free cash flow guidance, from what you said, is reaffirmed. But what are you seeing so far in terms of Q1 and early April trends on the working capital side? I'm just wondering whether we should be thinking about a bigger outflow than last year, based on maybe what you're seeing in terms of receivables. Just thinking about how free cash flow might look in the first half. I noted your comment around committed CapEx in Q1. Can you give us a sense of how working capital is looking at this stage?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Thank you. We do reaffirm our free cash flow objective. And actually, our objective is to exceed that since we will be frugal in many expenses and CapEx, and also, we will allocate less of this free cash flow to M&A. And net working capital, of course, it's a bit harder to get paid at the moment. It's -- especially when our clients are in lockdown, they don't make it easy for us to collect. We expect this to, over time, to go back to normal, maybe we'll still see an effect on net working capital at the end of June. We'll see. It also depends how fast the governments pay us for the COVID testing and we do have to store reagents because in order to be sure that we can do the testing, we have to -- when we can to make stocks, so for our own products we are making stocks to produce about 40 million PCR reagents, for example, and that would give us about 6 months of delivery. So all those things cost money, but it's good to be in a position to have our own reagents if we can't -- for the cases we can't access those reagents elsewhere.

[Thomas Edward Burlton]

Okay. My last one was just on the balance sheet, sort of cash and liquidity position, you mentioned EUR 1 billion in cash and undrawn credit facility at the end of March. I think at the full year that number would have been about EUR 800 million, I think you had about EUR 300 million of cash on the balance sheet and EUR 500 million of undrawn credit facility. So can you confirm, have you increased the size of your RCF or extended your credit lines with your banks? Or what's going on there?

[Gilles G. Martin, Chairman of the Board & CEO]

Well, it's an ongoing exercise. We have a permanent dialog with all our banks, and we constantly renew or expand or add-on credit facilities with our banks. I mean it's a mix of everything. We don't always disclose exactly. Actually, we might have more than -- much more than EUR 1 billion. We give some information so that the market knows enough to not be worried unnecessarily, but this is something that changes on a monthly basis. And those are committed credit lines. It's not like something that can be removed from -- like this, they are normally for a 3- to 5-year duration. I think the vast majority for a 5-year duration at the onset, and then we renew them as they get closer to maturity.

[Operator]

And our next question is from Steven Goulden from Deutsche Bank.

[Steven James Goulden, Research Analyst]

So just to go over the COVID testing guidance again. So I suppose, just in terms of the speed at which you ramp up that capacity, so I mean, kind of back of the envelope, if we assume that clinical diagnostics revenues are kind of ballpark close to EUR 1 billion. And let's say that the average test is being done at roughly EUR 50, that kind of implies you're doing -- pre-COVID, you were doing sort of 20 million tests per year, something in that kind of region. And you're saying that, obviously, by the end of May from the PCR and the antibody tests of 2 million per month each, that kind of implies a run rate of ballpark of 50 million tests a year. So you're more than tripling the capacity within clinical diagnostics. I just -- if you could kind of explain to us how that's possible, what kind of challenges there are, whether you need to have a lot more equipment, maybe you need to build more labs? It just sounds like a lot of capacity to be adding that quickly. And if you could just get -- help us get a bit more comfortable with that, that would be really helpful. And yes, I've got a couple of more follow ups, but if we can tackle that one first, that would be great.

[Gilles G. Martin, Chairman of the Board & CEO]

Sure. Yes. Thank you. I think the ballpark of what you're saying is probably correct for samples, not tests. So you have per specimen whatever, most clinical labs request that corporate or other have an average per specimen income of somewhere between EUR 40 and EUR 50. And the number of tests on that will vary between 4, 5, 6, depending on what you do. So the number of tests is actually more like 4 or 5 times higher than what you're talking about, talking about more like 100 million. But that's one aspect.The -- when you talk about COVID, normally, you talk about one test or offer the ELISA test, potentially 3 tests bulked together on one sample. And then the reimbursement per sample, we don't really know. But if you do 2 ELISA tests or 3 ELISA tests or 1 PCR, maybe the ELISA income will be half of the PCR income on per sample basis. And it is actually a big challenge to ramp up that capacity. So that's why it's not happening so easily. And that's why the government labs are very overwhelmed, and they can't do it generally. The thing that one shouldn't forget is Eurofins has 47,000 employees compared to a lot of the clinical labs of similar size. So we can draw much more resources. So we are building up COVID testing factories, not only at our clinical labs, but we are building COVID testing factories also at labs that were used for something else. We've been building a lot of buildings recently. So we are fortunate to have free capacity in some buildings, on some of our campuses, we have clinical testing, but also food testing or environmental testing or genomic testing. So we can reallocate some of the space. And of course, some of the workers. If we have to fill the workers in environmental testing, they can be retrained fairly easily to do clinical testing. So yes, it is a lot of work, and we have lots of lean people and 5S, Six Sigma people who are working to streamline all this testing and automate it. We also have a lot of experience in automation. And that's why we have not ramped from 10,000 to 100,000 in 2 days. And that's why it took us probably, what, 45 days, something like that, to get there. And it is not easy, but we think we can do it on a global basis, 100,000 a day. For the serology, it's a bit easier because it works on automated machines. But you have also a lot of challenges in registering samples and you need the IT systems to do it. So it's a lot of work, and we are confident we can do that. The biggest bottleneck is the reagents and the testing machines, and so what we are doing, we're also working on developing a range of new testing capabilities that we haven't launched yet, but that we think we can launch relatively soon that makes this testing even faster and more automated. So -- and all this testing needs to get government approvals. It always takes a bit of time, but that's something we hinted at in the press release, and I think nobody picked up on it. But it's not only what we have today in our portfolio that matters, but also the things we think we can launch in the next few weeks.

[Steven James Goulden, Research Analyst]

Sorry, just to pick up on that. So you're saying there the -- so the math I did worked out roughly per specimen, but actually, within that, there's a lot more tests. So are you saying that -- if we think about the PCR price of -- the reimbursement price of ballpark EUR 50, is that per specimen? Or is that per test? And how many tests per specimen, if you see what I'm getting at?

[Gilles G. Martin, Chairman of the Board & CEO]

The PCR, I would say, the global average is probably more around EUR 70 than EUR 50. But that's just in passing. And that's -- in PCR, one test is one specimen, generally. So it's a nasal swab that you get in a tube and you analyze. For serology, one specimen is usually 2 antibodies, it would be usually IgM and IgG. But sometimes it's just IgG, depends what the doctor decides to prescribe. And the reimbursement for serology is not quite known and I couldn't give you an average today of the reimbursement, but it will be lower than the PCR, the average of EUR 65 or EUR 70.

[Steven James Goulden, Research Analyst]

Okay. And I just wanted to check, was there a working day benefit in Q1? And can you just tell us how much that was?

[Gilles G. Martin, Chairman of the Board & CEO]

It's not meaningful. Considering the fact that we've had furloughs and so on, we gave up on calculating the number of comparable working days, considering holidays and shutdowns and things like that.

[Steven James Goulden, Research Analyst]

Okay. Fine. And sorry, just final thing. I know you talked about your liquidity before. Are you able to give us any numbers around what your short-term debt is at this point?

[Gilles G. Martin, Chairman of the Board & CEO]

Laurent, do you want to say something? I don't think we -- if anything has changed in any meaningful way. But we probably cannot say anything more than what is in our press release. We can tell you what it was at the end of December.

[Laurent Lebras, Group Administration & Finance Director]

It didn't change significantly versus December. So...

[Operator]

And then our next question is from Nicolas Tabor from MainFirst Bank.

[Nicolas Tabor, Analyst]

The first one is on the eLIMS deployment. I just wanted to know how much of that has been postponed and how much it is being put in place? Is there a part that has been accelerated due to the COVID-19 investment? How are you doing on that side? And does that [ impact ] those OpEx and CapEx maybe 2021?

[Gilles G. Martin, Chairman of the Board & CEO]

Thank you very much. Of course, the COVID-19 is closing disruptions on many fronts. So last year, we had a virus, a computer virus, not computer virus but cyber attackers, criminal cyber attackers that took us back 3 months in our IT deployment plans. And I think this year, the COVID is also going to cost us 2 or 3 months of delay in our IT deployment plan. Of course, we are focusing, our employees on getting the testing done and some of our labs of employees that don't report to work and so on. So it's a challenge like for any other company. So I think indeed that's going to cost us a delay of maybe 3 months in our IT deployment programs this year.

[Nicolas Tabor, Analyst]

And thank you again for the disclosure regarding the different geographies within Europe, North America, and rest of the world. And so I was reading through your press release and you said that you had double-digit decline in China versus low single-digit in France and the U.K. and Ireland. So is it because France was only affected for the last 2 weeks of March, that you would have seen the same kind of impact as in China? Or do you expect it will have a lower impact in Europe and North America than you had in China because you were more prepared? Do you have any granularity to give us on that point?

[Gilles G. Martin, Chairman of the Board & CEO]

It's really a mix. It depends on how each country manage their lockdown. There are countries where we can essentially continue to operate in all activities, and there are countries where it's really shutdown. In China, from -- in the peak of the outbreak, the shutdown was almost an absolute shutdown, a complete shutdown. That has been the case for a couple of our labs in France for a few weeks or 2 or 3 weeks. But is -- in the meantime, they are back at work. I don't know it might have happened in other things. We had a lab in California that probably shut down for a few days or one week, but restarted. It's really hard. We'll know when the dust settles at the end of April or at the end of May, we'll know better exactly the impact of everything.

[Nicolas Tabor, Analyst]

And then -- so for M&A, you were saying that you're waiting to see where the economy lands. But do you know already, if you're going to start again doing some bolt-ons in 2021? Or is it too early for you to have an opinion on that?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. Right now, our focus is to help the world fight COVID-19. I think Eurofins is in a unique position to do that. We have resources to do things that are really meaningful. This is my personal commitment. I sit in lots of conference calls every day with scientists from around the world to discuss the new tests we'll be launching, and all the things we're trying to do. This is our priority. The rest of our business is running. And okay, maybe some labs are down a bit for a month or so, but that's not really a problem. So M&A, it's not a financial question. M&A is more a question of time. We don't have the time to deal with M&A at the moment. We're just focused on -- as one of you pointed out, ramping to produce 2 million PCR tests a month is a massive undertaking. It's not something -- I mean it's like one sentence on a piece of paper, but to do it requires mobilization of lots of resources, not only from our clinical labs and many others are trying. And even the whole countries have not been able to ramp up 200,000 tests a day. So it's not like it's easy to do. It's a very challenging thing. So that's our focus. And actually, the impact of that, if it's needed, if those tests are needed, will be much higher than anything that M&A could do in terms of revenue. And if we're doing 200,000, and those tests are needed, that will teach us how to go from 100,000 to 200,000 a day. So it is our primary focus. And yes, we had some discussions going on in M&A with lots of people. So when some of them have to happen, we don't close the door completely, and we're still in the pursuit of discussions, but anything that can be postponed is postponed.

[Nicolas Tabor, Analyst]

And last question would be on CapEx. Could you give us some kind of indication of what you see as a floor level in percentage of sales in terms of maintenance CapEx? So obviously, excluding any investment in the COVID-19 suite and portfolio, but really to see what's the most you get in terms of ongoing investments?

[Gilles G. Martin, Chairman of the Board & CEO]

Yes. That will only be possible from 2021. And because in 2020, we had many things that had started, especially buildings, and there's really no point to leave a building half finished, it's much better to finish it, so we can exit the site we are renting and move into those buildings. But if we target 2021 and if the economic outlook were to be horrible for everybody in 2021, and we have to say, okay, we have to be very prudent. I think probably, once we've done all those building things, we could do with a 2% or 3% CapEx spend, or even less if we don't plan any growth, which is unlikely, maybe we could do a 1% CapEx.

[Nicolas Tabor, Analyst]

Okay. And so that means that for this year, we will have the cut in CapEx, but that will not be dramatically below the previous guidance that you had in mind, right?

[Gilles G. Martin, Chairman of the Board & CEO]

Well, what we said is we target for the second half to be at 50% of what we had planned to do. That's our target. We haven't had the final feedback from all our businesses, but that's more or less what we're shooting for H2 of this year. And so it will be a meaningful cut compared to what we plan to do, but it won't be as big as just a maintenance CapEx because, as you say, we have a COVID CapEx and we also have all the buildings we are in the middle of building that cannot be stopped or should not be stopped. And frankly, we don't have any liquidity issue. So the reason we are conserving cash is mainly to be stronger at the end of the pandemic. It's not because we dramatically need cash today. We have what we need, and we're not worried on that aspect.

[Operator]

[Operator Instructions]

[Gilles G. Martin, Chairman of the Board & CEO]

All right. So it looks like we have no more questions. So I will then conclude. So thank you very much to all of you who have joined this conference call. Those are very difficult times, and we're all in the same boat and having to stay at home and work from home and commute, so -- I'm sorry, and teleconference. So I wish us all that this will improve. What I can assure you is we are working very, very hard and we're mobilizing thousands of our employees to help your government and the governments of the countries you live in, to find solutions on testing and vaccines and other areas to fight this disease. This is our focus. I know investors' calls are to talk about money, but frankly, for us, the priority is to make sure we do everything we can at all level to -- at all levels to support the public health authorities in keeping this disease under control. I think we've made a lot of progress. I think we have a lot that we can develop still. And hopefully, we will announce in the next few weeks. That will be meaningful in helping the public health authorities and companies and employers keep their employees and everybody safe. And I hope to be able to report on that. And I would like to thank you again, all of you, for your support and your time, and wish you all the best personally, stay safe. And I'm looking forward to meeting you again in person in the not-too-distant future. Thank you.