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Ladies and gentlemen, welcome, and thank you for joining Eurofins Half Year 2022 Results Call. Please note that this call is being recorded. and will be available later for replay on the Eurofins Investor Relations website. [Operator Instructions]
During this call, Eurofins management may make forward-looking statements, including, but not limited to, statements with respect to outlook and the related assumptions. Management will also discuss alternative performance measures such as organic growth and EBITDA, which are defined in the footnotes of our press releases. Actual results may differ materially from objectives discussed. Risks and uncertainties that may affect Eurofins' future results include, but are not limited to, those described in the Risk Factors section of the Eurofins annual and half-year reports.
Please also read the disclaimer on the Page 2 of this presentation subject to which this call and the Q&A session are made.
I would now like to turn the conference over to Dr. Gilles Martin, Eurofins' CEO. please go ahead.
Hello, everybody, and thank you for joining our half year call. I think you should have a little presentation for half year results. I will not go through all the slides, but we can use it for reference.
We can go to Page 5, if you want. And we are on the key operational highlights in H1 2022. Well, we are pleased to have recorded a very good first half of the year with both top line and profitability above our objectives and above the consensus. It is quite pleasing when we consider the state of the world in the -- especially the second quarter of this year, and we have a lot of turmoil, unfortunately, in many supply chains; COVID lockdown that affected us in China; the events in Ukraine, which are severely impacting supply chain, prices of commodities. Eurofins have some activities near the border in Poland and Finland, where, of course, the impact of embargoes and sanctions are being felt. And considering all that, beating our objectives and the consensus in the first half is good.
The outlook for our business remains very good. We see a lot of need for our services, which are vital services for protecting the life of everybody. Of course, BioPharma is very well funded. We are shifting now our laboratories from a lot of the vaccine work that was done in 2020 and 2021 to the other areas of BioPharma, where there's a lot of research and a lot of product development and registration, and we see that very positively the demand is very strong.
So as a result, we continue to invest very significantly in our network. We have shown over the years that our investment, especially our organic investments in expanding our sites and expanding our network have very high rates on return on the capital we deploy. So that remains our priority, to continue to deploy capital.
The difficulties in some markets will also give opportunities for further consolidation. As the leading player in our industries or in the sectors we serve, we certainly should be able to benefit for that -- from that. We'll give a bit more color about the situation in Europe and the few headwinds we've seen that were unexpected when we published our full year results for 2021 and how we are working to mitigate that.
Just on the inflation side, which was a question and is a recurring question, we have the intention to raise our prices to meet the costs that are rising. We have usually delayed hits of cost increase because we usually raise salaries once a year around the beginning of the year. And we also, as a corollary to that, have annual contract with a lot of our clients that were reviewed at the beginning of the year. We have decided to introduce some exceptional half year price increases in some areas, especially in the areas where we work by a contract on projects. And we'll review based on the full year inflation, obviously, our rate for the next year. So we are not really worried about the impact -- the long-term impact of inflation on our business as we will translate that in our fees or in the fees for our services. But obviously, when something very abrupt happens, it takes a bit of time to adjust. So that's a bit the introduction about our business.
COVID testing has continued to be stronger than we thought. Unfortunately, the pandemic is not stopping. We are seeing more waves. Of course, fortunately, people don't end up in the hospital in as large numbers as used to be the case in the first 2 or 3 waves due to vaccination and prior immunity. However, we continue to test, and it is likely we may have to continue to test for a long time, and this is not even counting potential new variants of concerns that could be more toxic or better at evading immunity and causing more hospitalization or death. We hope that won't be the case. So we've raised our objective for COVID testing. We think we'll continue at some level, of course, much reduced from last year throughout the rest of this year and most likely for a number of years. And that will probably at some point be integrated in our normal clinical testing business.
But the other very good news is while we did a lot of COVID testing last year in 2021, we had a record year in 2021, it looks like our revenues will not drop from that peak. It looks like this year, as we've announced, our revenues will still increase. And next year 2023, just -- if we just take into account the currencies as they were in the first half, 2023 will also not see a reduction from the peak year 2021. So -- which means the companies that form Eurofins overall have become much stronger, much larger.
Our M&A is going well. We're adding companies. We're adding many companies, as you saw. We spent about 1.5x revenues in the first half. So we are being disciplined in acquisition. We haven't seen a huge shift in acquisition values because we were disciplined before, but we also see some opportunities there. Those higher interest rates, of course, are impacting whoever we are competing with to acquire companies.
So that's it for the introduction. Laurent Lebras, our Head of Finance, will give you an overview of the financial results from Slide 7.
Thank you. It's my pleasure to present you with a good set of results for first half. As you can see on Slide 7, despite strong comparables and difficult market conditions, we generated record high revenues of EUR 3.4 billion thanks to a good organic growth of 5.3%, resilient COVID revenues and also a positive FX impact. As planned, our EBITDA decreased due to COVID revenues decline and PCR test price cuts. But overall, we were able to post an adjusted EBITDA of 24.3%, which is in line with our full year objectives.
Moving to Slide 8. You can see on the revenue bridge that we were able to grow our revenue by 4% in the first half despite a strong comparative, leading to EUR 300 million of decrease of COVID revenues, which were largely offset by EUR 175 million from acquisition, EUR 110 million from positive FX impact and EUR 145 million from organic growth. The slight gap that we had versus the increase objective of 6.5% organic growth of about EUR 35 million was more than triple compensated by the increased COVID revenue that we generated in the first half.
As planned, our net operating cash decreased by about EUR 240 million due to lower EBITDA and higher taxes but was largely sufficient to self-finance increased CapEx spend and also the dividend that we had to pay in early July, confirming the new financing model where we self-finance most of our needs going forward.
Moving to Slide 10. You can see here a CapEx breakdown, which is largely in line with what we announced at the onset of the year, where we spent more or less 6.5% of revenues on net operating CapEx and we have continued to increase amount spent on owned buildings to basically purchase or build out large sites.
Moving to Slide 11 on net working capital. We have enjoyed a very disciplined net working capital in the first half slightly better than last year with DSOs at 61 days, DPOs at 57 days and inventory is largely stable at 2.4% of revenues.
And to conclude, on Slide 12, we have anticipated the refinancing of 2 hybrid bonds, one of August '22 and the one of April '23 with a senior bond in June leading to a mechanical slight increase of our leverage to 1.5x, but which is at the low end of our target range of 1.5 to 2.5 turns of leverage. We have also spread out all the maturities, and we have a very solid balance sheet as is confirmed by the rating -- investment grade ratings from Moody's and Fitch. So overall, a good set of results.
And I will give back the mic to Gilles for the operational review.
Thank you, Laurent. So if I go back to Page 14. As I mentioned earlier, we have continued to test for COVID. We have spent some money to reduce some [indiscernible] [ sampling stations. ] So the activity of COVID testing that were more on travel and getting people safe in offices has been scaled down. We are still testing for COVID in our laboratories. We are keeping the capacity available. We -- all of our equipment has been depreciated by now. So this -- whatever extra COVID comes will be -- although it is now at much lower reimbursement level than it was initially, at least in Europe, whatever comes now will be done on a park of equipment, which is amortized, which is written down. Of course, all our activities are not only about COVID. We continue to develop new technologies because there are a lot of issues with COVID and long COVID. And people will -- some people, unfortunately, will have long-term impact. We are working on developing a range of tests to help the medical practitioners address that and detect better patients who might be at severe risk. So potentially, to get the right therapy, the right treatment, et cetera.
So this is still a very active area, and we are working closely with many pharma companies to be prepared also for further waves of the virus or mutations
[Audio Gap] Programs to test for ground water and wastewater to detect early recurrence of either COVID, new variants or potentially other illnesses. This is also an area that will go on way beyond this current pandemic.
On Page 15, we describe a little bit what we are continuing to do to build the network. We are in attractive industries, which are resilient. We are serving industries that are focused on health, the pharma industry, the biotech industry in the first line, that's our largest business. We help the pharma industry develop products through all the stages of product development. We help the food industry continuing to supply food. And of course, if raw materials become more expensive, there will be the necessity to look for alternatives. All that means testing. So we are continuing to expand our sites to expand our capability to be more efficient to invest in a lot of digitalization programs to make our labs more efficient in automation programs, in artificial intelligence to interpret results automatically to be faster, to be less dependent on human operators or human errors.
So we -- this remains an area of focus to strengthen our competitive advantage and take advantage of our scale because the bigger we are, the more we can finance those investments. And once they have been designed, they can be copied and deployed throughout our network. We are continuing to open new labs. This is a program already flagged that based on our new size and our very strong financial footing and financing, we feel we have opportunities to complement the M&A strategy that we've carried out for the last 20 years with the strategy of opening start-ups.
We are really increasing the number of start-ups because that's where on a -- after 3 or 4 years, we get actually the best return on capital employed because it's all organic. It takes longer, and it's dilutive initially in cash and returns. But overall, Eurofins is always run with a long-term strategy in mind. This is what provides the better returns.
On Page 17, we continue to make small bolt-on acquisitions, companies that can be acquired at acceptable prices. The prices remain elevated for some of the larger targets. Sometimes, this is not really justified and so we prefer to pass. But we are involved and sometimes there are opportunities even of larger targets.
On Page 18, a little update on our proprietary test for helping doctors help patients keep their graft, especially kidney graft, but also liver now. As you can see on the graph, the revenues are really starting to ramp significantly. I think the second half of this year will be at a level where absolute numbers will start to be meaningful. And if we continue at that rate in 2023, this will really start to register on our overall numbers. It took a long time during COVID to discuss with the hospital, the Boards that decide on the protocols in each hospital, about the systematic inclusion of patients in our testing protocols. This is making progress.
We have significantly ramped up the teams that are talking to doctors and hospitals to explain the benefits of our test of our proprietary test as opposed to other existing tests that cannot really detect silent rejection and to help them set up the electronic interfaces and all the systems that are required, including sampling, so including drawing blood at patients' homes because they don't necessarily want or should travel to the hospital to do those tests.
The goal of those noninvasive tests is to replace biopsies. So to do biopsy, the patient has to go to the hospital, there is a risk and this costs a lot of money. The benefits of the test that we have developed is that basically the patient can stay at home, have phlebotomist visiting, that takes a sample just from a simple blood draw as for any other test. And based on the information provided, the doctor can remotely decide on any adjustments of the immunosuppression or other treatments so that the patient maximizes the potential of keeping his graft for the longest. And as there are not enough organs available, ensuring people can keep their graft is essential for their survival and for the cost for the insurances overall.
We're also, of course, working to make our ESG efforts more visible. Eurofins is a big ESG enabler. All we do in testing for life has the objective of protecting the environment, protecting the health of all. So obviously, we contribute by the essence of our activity to the world's ESG efforts. But that has to be recognized also and we are continuing our dialogue with the various rating agencies on the ESG level. You see some positive moves also in the first half of this year after many positive moves last year. There will be anyway some legislation coming on this. And of course, we are observing and keeping abreast of where the legislation would go because, of course, we cannot fulfill every single requirement of every single agency. They're not always in line with each other. So we're looking forward to some legislation that will clearly state what are the best KPIs and how they are measured. And we intend to focus on things that are meaningful that not only things that are just nice words. And so we welcome legislation on that and keep our objectives to be carbon neutral by 2025.
On the outlook, [ we ] upgraded the outlook for the second half of this year based on what we could observe in the first half of this year. The main two factors for this upgrade are continued levels of COVID testing and the depreciation of the euro compared to the U.S. dollar. Eurofins, since 2011, has made an objective to balance out North America with Europe. Eurofins was a leader in Europe. And that has been achieved. Eurofins has achieved market leadership in BioPharma product testing, in food testing and environmental testing, in advanced material testing with very significant basis in North America. By the way, all those investments have been made in euro and financed in euro and the dollar, having appreciated, has an impact on our overall revenues and profitability.
So the two factors have led us to raise our objective. We are -- we don't think we can catch the gap that was in the first half because of the -- mostly the very unexpected war in Ukraine and its follow-on impact, but we think we should be able to achieve the 6.5% organic growth that we set as a new target at the beginning of this year in the second half of the year. And so the other elements of the objectives are derived from that.
On the M&A side, we think we will meet our objective of adding EUR 250 million revenues from acquisitions. We might even meet it at a lower cost than we thought, but we will see how that develops. We are continuing to invest. It's slightly difficult to know exactly at which speed we will complete our investment in new sites. That, sometimes, is linked to progress of building or permitting. So we'll see exactly how much CapEx we end up spending for the year. But overall, the direction is clear. We keep on building the network. We keep on investing in things like digitalization, AI and automation that will make us more efficient, more reliable, faster for our clients and will enable Eurofins companies to take advantage of their market leadership to serve their clients better than any other competitors. And we are making very good progress on that level.
If I go to Page 22 to conclude, well, a very good first half, above our objective and the consensus in spite of challenging environment, especially in Europe. We are, of course, working to take into account those changes in Europe and compensate by the right measures. We don't want to take advantage of our leading position by raising prices too much, [ but we're doing it. ] Now that the market knows about the situation of price increase and cost increase so it won't be perceived as bad as if we had been a pioneer in doing that, we believe. We continue to invest in acquisition and our network and the outlook for the next few years.
Although we didn't update objectives for 2023 and 2024, we remain quite positive for the outlook of our various businesses. We think we will be -- if inflation continues at this level and stays permanent, we believe we can offset that by price increase that we do. We probably will have more frequent price increases than once a year going forward in addition, and we'll build that in a relationship, contractual relationship with our clients. And overall, we continue to feel that we are in a very good sector, very good market and that we'll be able to come out of any crisis should predictions of a recession materialize as well as we did in the past.
That's it for our introduction, and we'll be happy to take questions.
[Operator Instructions] Our first question comes from Anvesh Agrawal from Morgan Stanley.
I got 3 questions actually. First, before I asked that, can I just clarify on your full year objective, is that 6.5% organic growth core for the full year? Or now you're saying you're going to do 6.5% in the second half, which means that the full year core will be obviously lower given where the first half is? Just to clarify on that.
Yes, that's for the second half.
Okay. Fine. And then just the question is really on the free cash flow. I mean, it seems like there's a big catch-up that needs to happen in the second half. And I was wondering how do you bridge from EUR 277 million to EUR 900 million for the full year? So you can just sort of provide some of the moving parts on that, that would be great.
Laurent will answer that question.
Yes, it's mostly linked to 2 variations, one on net working capital. We usually have negative impact on the first half and a positive impact on the second half. So that would bring about EUR 200 million more cash flow in comparison. And the rest is on tax paid because the first half is also paying for taxes on high profits of last year. So we should have also a EUR 100 million gain there in the second half.
Okay. And finally, just do you have more of the BioPharma -- within BioPharma, the vaccine-related testing that you've done last year that will go out in the second half that we need to think about from a negative impact perspective. Clearly, in Q2, there was tougher comps on that. I was just wondering how was the phasing last year on that?
Well, we had a discussion with our leaders of BioPharma Lab, and they are very positive on the second half based on their pipeline, and that's what I can say. I'm not sure I understood your question very clearly.
So last year, from what we understand is there was a lot of vaccination testing work that was done that obviously benefited the organic growth, and that drove the tougher comp for Q2. Was there a lot of similar work in the second half? And is that also sort of going out in the second half of this year?
Yes. There was some, I believe, I don't have the exact details. The bulk was in the first half. The other thing is, as this work phase out, we need to replace it by new projects that are not related or maybe related to vaccines but not necessarily COVID vaccine. And so this will play out over the next few months and quarters, but the message from our leaders in that sector is they see a stronger H2 as compared to H1.
Allen Wells, Jefferies.
Just a couple of questions from me, please. Firstly, I just want to kind of dig into the margin dynamics a little bit. Obviously, first half still saw some reasonable COVID revenues historically if you go in last year, that was typically margin accretive. I know obviously, pricing has come down. So I'm just trying to understand the margin dynamics, if I look at the guidance, call it broadly stable margins first half versus second or largely stable margins, first half, second half. But COVID revenue is obviously coming down. What are the offsets there in the second half within there? Is the core business recovering? Just to try and build some confidence in where the margin is because I would have expected the first half margins to be stronger given the COVID revenue. That's my first question.
And the second question is just really, in the comments, you talked a little bit about some of the challenges facing the food business. I wonder if you could provide a bit more granularity on exactly how that's impacting Eurofins? Is it more a growth or a margin perspective? And if you see any kind of thinking about from a timing in terms of that easing.
And then the final question is just you talked a little bit about kind of the delays and the phasing of the price increases. How should we think about the potential kind of step-up in terms of the tailwinds from pricing coming in the second half versus the first half of this year, please?
Thank you. Well, the margin in the first half was actually above our forecast. It was very -- it was our objective to be about 24%. We were above that. So we're not making the same margins in COVID as we used to. Initially, the U.S. priced the test at like $100 reimbursement per test. Europe a reimbursement at EUR 55 or so per test or sometimes higher. And that has come down a lot combined to the other factor, which is we have a significant rundown cost. We've had business markets where we had -- we had losses in Australia. We had massive losses in the U.K. as they were very fast decision by governments to stop testing, stop surveillance, stop requirements for travel. And so we've incurred, on balance, in many countries, not even a lower margin, but even significant losses. So our overall margin for COVID, we can't expect it to be higher than our group margin. There's another factor that maybe is forgotten is our core business has usually higher margins in the fourth quarter than the rest of the year. Not so -- a little bit in the third, but the first quarter is usually by far the weakest. That's typically because clients finish their budgets in the fourth quarter, because the food is often tested after the harvest in the Northern Hemisphere, which means much more testing in the fourth quarter than in the other quarters. So we also have a bit of a seasonality effect in our core business.
So that's for your questions on the margin. On the inflation, this is a bit we are hit by inflation. We are hit by some immediate inflation on, say, for example, energy in some markets where we had variable contracts. We have some suppliers that are hit by inflation immediately. Where we have contracts at fixed price, it's not the case. And of course, our suppliers will want to renew those contracts next year or whenever the anniversary of those contracts come. Of course, we will have negotiations or discussions with our employees or the representatives of our employees at the annual negotiation point, and that is often in the first part of the year, in the first quarter. And that will have an impact depending on where the inflation has been in 2022 when we decide on what we do for 2023.
So we have a number of factors. Of course, we have turnover like all companies, and that has a faster impact potentially, although sometimes we replace leaders with people who are more junior and a different pay scale. So that's general aspect of inflation, and we will -- of course, and we do what we can to pass that on to clients.
Most of our clients -- most of our contracts in the very recurring businesses are negotiated at the back end of the year for the following year. They don't all have indexation clauses that enable price changes in the middle of the year or every quarter. Of course, now the world is confronted with inflation. This will be the case going forward wherever possible. And wherever we have project-based work or sample-based work, which is not part of contracts, obviously, we have already raised -- our business lines have already raised their list prices. So spot work will be charged at a higher rate, where it is possible to do that. We've had twice price increase for this year. And that's why we communicated that we think we'll have already some more visible impact in H2.
It's very difficult for us to track the price effect in our business because we have many, many different relationship with our clients. We have a lot of project-based business where things are simply not comparable from 1 period to the next. Each project is different. It's very difficult to have a meaningful definition of price evolution. But we are working on developing some proxies for that, and maybe we'll be able in a year or 2 to report on that, should inflation become more permanent. So that's a bit the description of how we handle price increases. And as a market leader, we want to do things that our
[Audio Gap]
Understand well. Their costs are increasing too. They see there are other suppliers having -- being faced with that. And therefore, price increases are becoming much more accepted now than it might have been at the beginning of this year. For business-to-business services, price increases are a little bit delayed compared to consumer-facing industries. But we are confident we will push our price increases through because we have essential services that need to be done. And if we are hit by cost increases, the same thing happens to any of our competitors. Did that answer your question, Allen?
Yes. Can I just ask one quick follow-up just on the COVID revenues. If I look at some of the peers, like [ SYNLAB ] reported about 1.5 months ago that the margins were still quite high, but it seemed like they were higher for those businesses. Is there anything different in the way that you supply contracts, et cetera, that would suggest that the mobile or demobilization cost would be higher for you guys than others? Are the contracts run differently, et cetera? Just trying to understand the kind of disconnect between the two.
Yes. If you want to do some research, I'll give you some data points, and you can explore that if you have time. What you can do, you can take the COVID revenues by all the people that reported. I mean there's not so much data available, but you've got Sonic, you've got LabCorp, you've got Quest, you've got SYNLAB, who do report some numbers, and divide that by the clinical revenues of those companies. You will see that Eurofins generated much more COVID revenues per dollar or per euro of clinical revenues than the others. And that's quite remarkable because LabCorp and Quest actually are in America where the reimbursement for COVID testing has been much higher than it has been in Europe, which is the bulk of revenues.
That means Eurofins has tapped different channels than only the clinical channels. And we've been, I believe, on balance because there must be an explanation for that, that we've been much more successful with our safer at work programs, with supporting people traveling and all the direct support to governments that were negotiated in a different way than the public reimbursement. So I think things are not exactly comparable for that reason.
But of course, I'd like more transparency as to what others are doing and so on and exactly. But unfortunately, we don't have that data. And things are coming down. If you look at things in Q4 of last year, it was different than Q1 of this year and Q2 of this year is again different than Q1 of this year. The things are changing all the time. There's also a mix thing between antigen and not antigen. We manage a lot of programs where we are administering antigen testing, for example, to support the cruise lines or travel industry, where we have higher cost of goods sold than if we just do high-volume PCR testing.
The next question comes from Dominic Edridge from Deutsche Bank.
Just two for myself. Just firstly, going back to the pipeline for BioPharma, could you maybe -- if you want, I'm not sure it's possible, to put any kind of figures on what you have at the moment and what sort of visibility you have and in terms of how that compares to first half to second half, just to give us an idea of why is that you're so confident that obviously will hit the utilization in the second half to get your -- to hit your profit targets? And then the second question was just on the core revenue growth targets. In a high inflationary environment like we are at the moment, do you regard that as a real number or as a nominal number, i.e. should we be thinking about maybe next year 6.5% plus inflation, would that be reasonable? Or do you think that's a bit too aggressive?
Yes, BioPharma, we don't do a lot of clinical work in BioPharma. We do mostly -- we do preclinical and we do BioPharma product testing. We don't manage a pipeline burn like the CROs would do that run clinical trials. Their burn is much longer or we have a central lab. And central lab, we have typically studies that run over 3 or 4 years for the Phase 2 and 3, mostly 3, where which we win a EUR 100 million currently burned over 2 or 3 years, EUR 100 million contract -- for the DPT, the burn is faster. It can be a 1-year contract, 6-month contract, a method development contract. So we don't track our pipeline. It's not so meaningful for what we do. We have too much mix of different activities for having any burn speed indicator that would be meaningful. It's just the assessment of the leadership of that business, and they have a number of tools to assess what the what they see going forward, and they're quite positive about the outlook for the second half. That's that.
Yes, your question is a good one for next year. I think it's impossible to predict anything for next year at this level because, indeed, the 6.5% includes a little bit of price, but not 0 price, but it doesn't include 10% of price. If the world is confronted with 10% inflation, obviously, we're going to have to raise a lot more than what we thought we were, we would raise when we made that objective. So that's why we deferred that decision or that -- to the beginning of 2023 when we will report our 2022 result.
I mean, can you tell me if the inflation this year will be for Europe and North America, which is the bulk of our business, what year 2022 will be? 3%, 5%, 4%, 7%, 8%? I think I don't know. And if I knew, maybe I'd answer your question. And on top of that, what would be the inflation expectations for 2023 for Europe and North America? Nobody knows. So that's why we thought it would not be professional. It would not be whatever honest to make any kind of forecast for 2023. However, what you can do, I mean, simple math, if you take the impact it had on the first half -- let's say, if the exchange rates for 2023 were as they were in the first half of 2022, then our objectives would be upgraded by about EUR 200 million for 2023 or 2024. But who knows what the exchange rate would be and who knows what the inflation on top of that will be. So I must say, I don't know. I don't know how to help you guys figure out what 2023 will be. And if you can help me, I'm very happy to listen.
I think that's above my pay grade, unfortunately. But I just want to sort of follow-up just on pricing. Can you just give us an idea of how it works for yourselves? And I'm assuming you're a very decentralized business and therefore, I'm sure you don't have a diktat that goes out from some head office saying, "Put prices up by X percent." Can you just maybe discuss how you arrive at the price increases and how your units management deals with it? Is it basically -- are they looking at their profits for their -- the budget forecast? Or is it a much more you will sort of give them a nudge as well?
No. We -- our businesses are independent and their prime objective is their profitability development. So the [ profitability ] year-on-year. That's the main thing they're looking at. And then they have to play on the parameters that are appropriate in their markets because they're working on becoming more productive, more efficient. That is a constant -- has been all the time. And then depending on the considerations in their market, so they -- of course, they will push full price increases. But we leave it to them to appreciate what in their local market is appropriate. And you know what might be appropriate in the U.S. for a certain quarter might be very different in Spain for that quarter because inflation has hit countries at different times. We have countries in Poland or in Finland or in the Baltics where inflation is already going through the roof. Inflation is already over 10% in those countries. And it is -- it was much less so far, say, in Spain and France. So we think locally adjusted approach is the best.
[Operator Instructions] The next question comes from Arthur Truslove from Citi.
So just a few from me. So I had a few problems with my connection, so forgive me if some of these have already been answered.
But just to confirm on the first question, just on the guidance. My understanding was that the updated guidance for 2022 continues to incorporate 6.5% organic growth in the core business for the full year. I just wanted to confirm if that had changed.
Second question was around the acceleration of the BioPharma business. So one of your peers, in its relevant vertical, had suggested that organic growth could accelerate by sort of up to 10% in the second half of this year versus the first quarter of this year. Is that something that you would consider -- is that a reasonable way to think about it? Too much, not enough? How would you think about that?
And then finally, yes, apologies for not hearing with the line being dodgy. In terms of seasonality, would you expect to see margins in the core business go up in the second half relative to the first?
Thank you. I think I've already answered those questions, but I will do it again. The objective of 6.5% is for the second half. Might be higher than that, but that's the objective, as we have stated it.
BioPharma, we didn't have a number. But of course, for the reasons we described, first the. [Audio Gap] First half of 2021 because of all the vaccine work we did, among others. And in addition, we are ramping up the capacity. We've expanded our labs. So we -- our leadership for BioPharma is very bullish about the second half of the year.
And for the margins, I did comment that, indeed, we have some level of seasonality in our business. And historically, you can look over the last 10 years, maybe pre-COVID because COVID distorted things a bit, but until 2019. In 2019, we had a cyberattack, but still, you will see the margin in the second half is better than in the first half in the core business.
[Operator Instructions] The next question comes from Delphine Le Louet from Societe Generale.
I have 2 -- 3 questions, sorry, if I may. The first one, Gilles, what would be a fair assumption for price erosion related to COVID in the second semester?
And then a follow-up regarding the North American situation and especially the one regarding infant and baby formula and the extra testing in a way or extra volume you may have in food and testing for the North American business. What would be the envelope for that out of the EUR 200 million incremental revenue you've been doing in the second -- in the first semester in North America? How much is directly linked to this situation?
And the second question is because when we hear about the pharma industry and the resolution of the case, when do you expect that to go back to a normal situation?
And my third question will deal with your infrastructure program and the huge amount of additional footprint -- manufacturing footprint you have. Can we have a detail on a regional basis of when this, let's say, square meter will be at full capacity?
There's many questions. For COVID, what we have already communicated is we believe on an ongoing basis COVID will be at more or less the same margin than we have in our core business. A bit lower there, a bit higher there, but on balance, we think the best guess is to estimate it's going to operate like our core business. It really depends on the volume and how spread the volumes are, et cetera and the distribution over time. Because there are months where we have very little testing in one country. Then there is a peak; we have more testing. But when we have very little testing, it can even be loss-making because we keep capacity that we don't use. In all the months where we have a lot of volume, it's higher.
Baby formula, it's not so much. It's at the scale of Eurofins, maybe we have 50 people or more doing that testing extra for a few months. But of course, the crisis we -- in the end, it's -- there's certain volume being consumed in North America. So we are one of the leading provider of testing for that industry, and that will not go away. It's, of course, a bit bulky. But we test also baby formula, not only in the U.S. We test it in Asia, we test it in Europe, we test it all over the world.
For BioPharma, I'm not sure I understood your question. For infrastructure, yes, we can provide that off-line where we open our labs. We do provide -- there is a slide where we do in the annual review where we gave a bit of a list all those sites we are opening the main ones, anyway.
The -- how fast do they ramp? Typically, it's about 3 years to fill the new capacity that's -- or to get to a point where it's fully qualified. It really depends. In BioPharma, it's longer because the validation is -- takes a long time. In food and environment, it can be much faster. But of course, then we have to fill the labs, and that depends on the local market. If I just take organic investments, the target for organic investments is to break even in year 3 and hit our 20% EBITDA margin target of 20%, 25% by year 5. And that's for more [indiscernible]. So if it is expanding an existing site, it is usually much faster than that.
We'll now take our next question from Suhasini Varanasi of Goldman Sachs.
Just one for me, please. Sorry to circle back on your guidance of 6.5% organic growth for second half. Just wanted to understand what is incorporated in the 6.5% number? What element of disruptions have you potentially baked in? Just to see if we see on the China lockdown, for example, in second half, should we basically expect maybe a downgrade to this number?
Yes, it's a big average of many things and many, many moving parts. So we have discussions with our leaders, and we see how they see the evolution of their businesses, how their plans are for -- for example, opening new sites, when the sites will become available, winning contracts for their -- what they do on the pricing side. It's -- in the first half, we missed on that element. Of course, had we known that the war in Ukraine would happen 2 weekdays after raising the objective from 5% to 6.5%, we might have waited to do that. But it is what it is. So we get caught by surprise by the impact of the war in Ukraine. It has hit some of our sites that are close to the borders, of course, by disruption more than we thought. There are still some COVID-related disruptions outside of China and especially on staff being unavailable throughout the first half. So that's what I mean with the COVID hedge. And that's why I'm quite pleased about the first half because in the end, what matters for us is that we make our profit objectives and however we make them doesn't matter. So we lose a bit because of staff not showing up for work because they are either a contact person or they are sick, but we compensate by doing COVID testing. In the end, in the first half, we hit our results. We hit our objective. Actually, we did better than our objectives. And I think that's what matters.
For the second half, we think, yes, we have a number of similar hedges. Things can go probably worse in China than people think or things will go better in China than people think, but other things might go better or might go worse. So in the end, we think this objective is a reasonable one for the second half of the year. And that's why we maintain 6.5% for the second half of the year.
We could do better. We -- certainly not to be excluded we do better than that. Or there could be some really, really bad things that happened that could make it worse. It's -- there could be some chain reactions of certain things. The war could get out of control. It's really hard to predict what could happen. The main thing we can see is we are offering vital services, things that need to be done even when the economy is in a downturn. And -- so with the adjustments that are required for inflation, for example, we can also adapt relatively fast our capacities and so on. So we are optimistic, and we think this objective is a reasonable one for the second half. But the model -- we don't model down to every single million that might miss here or there -- we do it once a year for the budget. We don't do a rolling budget every month or every quarter.
[Operator Instructions] Our next and follow-up question from Allen Wells from Jefferies.
Sorry, I realized I forgot to follow up and get an answer on the food question I asked. Just looking for a bit more granularity about the comments in the release just on the food business impacting kind of -- how much of it is impacting growth versus margin in the first half? And then how really you see that kind of playing out for the rest of the year?
Yes. Thank you. I apologize. Indeed, I missed answering that point. Well, our food business in the U.S. is doing quite well. And in Asia, it's growing fine. In Europe, we've had less growth than expected. And it's a bit -- our clients have been hit by many factors. They've been hit by disruptions in their factories due to staff being [ healed ] during the year due to COVID or a contact person -- and in a situation like that, they go to the most urgent. Then they've been hit with their own supply chain problems with getting raw materials that they need. And so it might have not prioritized some new product development that sometimes require a lot of testing. They might have sometimes smaller portfolio of products or shorten their portfolio of products, if they couldn't get certain raw materials. Overall, they were also busy with other things, which might have delayed some testing. So I guess that's the qualitative information I'm getting.
Of course, the countries that are closer to the border are hit a bit more. In Finland, for example, or Poland, it's -- the disruptions have been higher. The inflation impact has been higher in the Baltics. Those are -- some of those companies were exporting to Russia. Of course, what was exported to Russia is going to be lost for good. That's not huge amounts. Each element is relatively small, but -- that's -- and then it's going to be lost for good, but probably it will go somewhere else. And if Russia can't take it or if there are sanctions that means it can't be exported to Russia, then it probably will be exported to another country that is not under sanctions, but those -- our clients have to first find ways to repackage, reroute and reorient their distribution chains.
So it's a bit of a very abrupt, very fast change that has impacted our clients' ability to see to readjust capacity quickly. But on the -- in the end, there is a food shortage globally. There will be, unfortunately, a bigger food shortage, which means more of the alteration, more problems, more testing, more people experimenting with subpar ingredients that are maybe not labeled properly. And we think in the long run, this will average out or resorb, but it was a very abrupt thing. It was -- who would have -- I mean, there were not so many people who were certain that there would be an invasion and that invasion will -- would cause the type of disruption that we've seen. So we were, of course, caught a bit of guard like everyone else, but we will adjust and will adapt to whatever the situation is on an ongoing basis, unfortunately.
And there are currently no further questions in queue. Over to you, Mr. Gilles.
Thank you very much, and thank you for all the questions. And so to recap, especially considering the state of the world and the war and everything, we are quite pleased that we have gone through H1 [ encased ]. We have achieved our revenues -- actually, we have exceeded our revenues and profit objectives. We think there are sufficient upside and hedges in what we do to continue to be positive about the future development. The fact that the euro is lower, provides our investors with -- who are investing in euro, of course, with more value for their investment. And so our revenue if things stay the way they are, actually, if they go back to what they were on average in H1, would be actually not below the high mark we've achieved in 2021 in the peak of the COVID, which is a positive. We think we will continue to generate very significant cash this year and next year and going forward, and we're putting that cash to good use.
The return on capital employed on our organic investment has been for years and years of the order of 50%. And so we continue to improve our capital in our business. We could decide to distribute it, of course, but we think it's a very good investment for our shareholders that we invest in our infrastructure. And more and more, we get the benefits of our scale. Our digital investments are huge. They are the type of investments that will be very difficult to duplicate for smaller players long term. We have a very strong advantage in terms of quality of service and efficiency. We remain very positive with the development of the group over the next few years. There are very unexpected developments in the world. It's very hard to predict what will happen in the next 6 to 24 months on a number of factors. But we have proven to be very adaptable in the past and fortunate to be providing vital services. So we are optimistic that we will navigate those challenges as we did in the past, and we will come out stronger, because in the end, it's an industry that is needed. And there are winners and there are losers in any market. So in our industry, we think we are very well positioned to be among the winners and to consolidate the industry, continue to consolidate the industry and from the scale we get, provide advantages for our clients when they choose us that the less and less can get elsewhere. So that's what we intend to do, and we thank you for your support of that.
Have a very good evening. I will see some of you in London tomorrow. And otherwise, I hope to see the rest of you on other occasions. Have a very good morning or afternoon.
Ladies and gentlemen, the call has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.