Regulatory News:
Eurofins (Paris:ERF):
In response to the reports by Muddy Waters, LLC (MW) on Eurofins
published on 24 June 2024 and 03 July 2024 and expanding on its
previous press releases on this subject on 25 June 2024 and 03 July
2024, Eurofins is providing further detailed information to refute
the baseless allegations intentionally spread by the short seller
MW, further evidencing and supporting Eurofins’ view that the
entirety of the allegations and insinuations contained in MW’s
reports are either inaccurate, irrelevant, biased and/or
misleading.
Allegations made by MW in its reports are listed below,
referencing the pages and dates of publication of the reports where
the allegations are made.
- MW allegation: “Eurofins’
Cash Accounting Seems Designed to Maximize Confusion and Inaccuracy
– if Not Outright Overstatement” (p. 10 in MW report published on
24 June 2024)
Eurofins response: As
provided in Eurofins’ previous responses, this accusation is false,
misleading and defamatory. Cash is audited each year by Deloitte
and the auditors of all Eurofins local operating companies by
direct confirmations from banks. There is thus no doubt about
Eurofins’ cash position at 31 December 2023. In response to
suggestions by some of its significant long-term institutional
shareholders, Eurofins has mandated Ernst & Young Paris, one of
the leading auditors for CAC40 companies, to perform an additional
independent audit of Eurofins’ cash pooling arrangements and cash
situation in its consolidated financial statements as at 31
December 2023 and will report on the findings when available.
- MW allegations: “Eurofins’
Response About Audit Coverage is Misleading” (p. 27 in MW report
published on 03 July 2024) and “Eurofins’ has at least 18 Auditors
Across the Eurofins Network” (p. 33 in MW report published on 03
July 2024)
Eurofins response: As
provided in Eurofins’ previous responses and made unambiguously
clear on p. 216 of its 2023 Annual Report, to ensure a high degree
of internal control in a decentral organisation, Eurofins has been
commissioning, for more than two decades, local statutory and
independent audits for all its operating subsidiaries worldwide,
even where not required by law, with 97-98% coverage of the
Company’s total external sales, EBITDA and total assets, by four
Tier 1 and seven Tier 2 auditing firms. For the purpose of
comparison, this is significantly higher than SGS’ reported audit
scope of 68% (p. 134 of the SGS 2023 Integrated Report). The
assertion by MW that Eurofins has at least 18 auditors is deeply
shortsighted and misleading as it not only double counts auditing
firms that belong to the same Tier 1 and Tier 2 auditing networks,
but also counts non-Tier 1 or Tier 2 auditing firms, covering less
than 3% of Eurofins’ revenues, EBITDA or total assets, mandated by
recently acquired companies, which cannot be changed in certain
geographies until the expiration of the auditing mandate made by
the acquired company prior to its acquisition.
- MW allegation: “India – we
believe that people performing the consolidation work need stature
within an organization, as they often require ongoing cooperation
from subsidiaries’ finance teams. For this reason alone, India
seems an odd choice for Eurofins’ consolidation function.” (p. 3 in
MW report published on 03 July 2024)
Eurofins response: This
contention by MW is utterly false and no single piece of evidence
was provided by MW to support it. Eurofins’ consolidation teams
have always been based in France since the Company’s IPO in 1997.
Consolidation relies on IBM Cognos Controller to support the close,
consolidation and reporting process by properly eliminating any
intercompany bookings on a monthly basis.
- MW allegations: “[Eurofins
Genomics Europe DTC Population Genetics Products and Services Ltd]
has zero employees, but (among other anomalies) …” and “While there
could be an innocent explanation for this, we believe this
illustrates the hundreds of dials Eurofins could turn to create
revenue and expenses were senior management inclined.” (p. 16 in MW
report published on 03 July 2024).
Eurofins response: MW is
painting a flawed and deeply misleading view of Eurofins Genomics
Europe DTC (DTC) by selectively excluding the extract from the
company’s statutory report that explains how DTC’s business
leverages the synergies of the Eurofins network by assigning
employees from an existing operating company to support the quick
ramp up of this new activity.
- MW allegation: “Case Study
in Restatement that Nets Related Party Receivables and Payables of
~€75 Million” (pp. 6-10 in MW report published on 03 July
2024)
Eurofins response: The
restatement of the 2017 statutory audit of Eurofins Support
Services LUX Holding S.à r.l was made when PwC recertified all
statutory accounts of Eurofins companies registered in Luxembourg
following unfounded allegations of wrongdoing by local auditors. As
cited by MW on p. 10 of their report published on 03 July 2024, the
reclassifications of Receivables and Payables with affiliated
entities (in companies controlled by Eurofins Scientific SE which
have nothing to do with related parties of Eurofins) impact neither
the result for the financial year ended 31 December 2017 nor the
shareholders’ equity as at 31 December 2017. Furthermore, since all
intercompany positions are fully eliminated in consolidation, such
a restatement of accounts of one subsidiary had no impact on the
Group IFRS consolidated financial statements.
- MW allegation: “Immaterial
Entities - We estimate that in 2022, ~€1.5 billion to €1.7 billion
of Eurofins' revenue was generated by ~800 to ~900 entities that
each generated less than €5 million in revenue” (p. 3 in MW report
published on 03 July 2024)
Eurofins response: The small
size of some of Eurofins’ legal entities is a well-known and
distinctive factor in Eurofins’ decentralised structure of
entrepreneur-led companies that promotes closer relationships with,
and more individualised services for, clients, while fostering
business agility, empowerment, entrepreneurship and scientific
innovation. Eurofins operates in over 60 countries across multiple
business lines, all of which adhere to different and specific
regulation which increases the need for independent companies by
country and area of activity. Eurofins management is of the opinion
that this structure benefits the quality and speed of service
provided to clients, increases employee and leadership satisfaction
and minimises overall risks to the network. As frequently cited in
previous communication, to ensure a high degree of internal control
in a decentral organisation, Eurofins has been commissioning, for
more than two decades, local statutory and independent audits for
all its operating subsidiaries worldwide, even where not required
by law. Results and findings from these local statutory and
independent audits are monitored centrally and reported to the
Audit and Risk Committee of the Eurofins Board of Directors so that
Eurofins can continuously strengthen its internal controls.
- MW allegation: “Eurofins
recently unequivocally denied using any factoring. However, we have
evidence that Eurofins almost certainly factors both receivables
and payables” (pp. 22-26 in MW report published on 03 July
2024)
Eurofins response: Eurofins
has a policy of no factoring. When doing a review of the Company’s
financial notes to the Consolidated Financial Statements in FY21
for better readability, the previous disclosure regarding factoring
was removed, in line with Eurofins’ no factoring policy, as the
IFRS standard clearly mandates a disclosure only if known and
material factoring is used. The allegation that Eurofins would have
financed its growth since 2014 (when Eurofins’ revenues were only
€1.4bn vs €6.5bn in 2023) largely through factoring is wrong and
clearly in contradiction with the debt and equity issuances made
during that period and the fact that the Company’s net working
capital ratios did not materially change throughout that
period.
- MW allegation: “Eurofins
Response about Cash & Equivalents Reclassification is
Misleading” (pp. 28-31 in MW report published on 03 July 2024)
Eurofins response: Eurofins’
auditors in Spain have confirmed to the Company that the
classification of cash pooling amounts as cash and equivalents is
correct and conforms to the local generally accepted accounting
principles (GAAP) requirements given the nature of Eurofins’ cash
pooling arrangements (e.g., upstream only, callable back by the
operating entity without conditions). Eurofins cannot speculate on
the nature of cash pooling arrangements used by the local
subsidiary of another TIC company and why they would trigger
different disclosures.
- MW allegations: Various
purported quotations from supposedly former Eurofins employees,
cited on numerous instances in MW’s reports
Eurofins response: As
already explained in Eurofins’ response on 03 July 2024, MW’s use
of truncated quotations from anonymous purported former employees
from unidentified Eurofins companies and periods of employment
completely lack credibility. Eurofins also cannot trace,
investigate or comment on these extravagant and unfounded
allegations other than to complete disagree with these
statements.
- MW allegation: Hypothetical
scenario of how a company could potentially alter its accounts
including: “Below, we theorize one way that such a balkanized
structure could be abused to create sham sales. We have no
direct evidence this has occurred, but we find it plausible”
(p. 4 in MW report published on 03 July 2024)
Eurofins response: In all
its communications, MW has never shown any evidence of any errors
in, or unreliability of, Eurofins’ consolidated financial
statements, but instead only formulated “journalistic opinions”,
unsubstantiated hypotheses and theories and baseless accusations.
Even when MW claimed to present facts, these were often blatantly
wrong as demonstrated by Eurofins with public filings and/or were
otherwise irrelevant and proved nothing. It is very unfortunate
that such careless, self-serving and aggressive communication by MW
may have caused damage to some investors, especially passive funds
and individual investors who may be less familiar with the
practices of short sellers.
Comments from the CEO, Dr Gilles Martin:
“Once again Eurofins is proving that the ‘opinion journalism’
contained in Muddy Waters’ reports is nothing more than baseless
allegations and misleading information meant to harm Eurofins’
employees, bondholders, shareholders and other stakeholders. In
this context, we will continue to provide clear explanations and
supportive evidence to comprehensively address MW’s unfounded
claims and insinuations regarding how we conduct our business and
manage our organisation, even though MW itself admits that it lacks
“direct evidence” to defend its opinions. However unnecessary it
may be, we do not preclude taking further actions with external
forensic and accounting experts to demonstrate the integrity of our
systems and controls. In the meantime, we are liaising with our
legal advisors and European regulators and will provide all
necessary assistance required to investigate any possible market
manipulation of Eurofins’ securities by MW, and parties potentially
acting together with MW, that may have allowed them to profiteer
from the disruption of financial markets they caused. Our
shareholders and stakeholders should remain certain that we will
continue to forcefully defend ourselves against these and any
future slanderous allegations from MW and any other sources.”
About Eurofins – the global leader in bio-analysis
Eurofins is Testing for Life. The Eurofins Scientific S.E.
network of independent companies believes that it is a global
leader in food, environment, pharmaceutical and cosmetic product
testing and in discovery pharmacology, forensics, advanced material
sciences and agroscience contract research services. It is also one
of the market leaders in certain testing and laboratory services
for genomics, and in the support of clinical studies, as well as in
biopharma contract development and manufacturing. It also has a
rapidly developing presence in highly specialised and molecular
clinical diagnostic testing and in-vitro diagnostic products.
With ca. 62,000 staff across a decentralised and entrepreneurial
network of more than 900 laboratories in over 1,000 companies in 62
countries, Eurofins offers a portfolio of over 200,000 analytical
methods to evaluate the safety, identity, composition,
authenticity, origin, traceability and purity of a wide range of
products, as well as providing innovative clinical diagnostic
testing services and in-vitro diagnostic products.
Eurofins companies’ broad range of services are important for
the health and safety of people and our planet. The ongoing
investment to become fully digital and maintain the best network of
state-of-the-art laboratories and equipment supports our objective
to provide our customers with high-quality services, innovative
solutions and accurate results in the best possible turnaround time
(TAT). Eurofins companies are well positioned to support clients’
increasingly stringent quality and safety standards and the
increasing demands of regulatory authorities as well as the
evolving requirements of healthcare practitioners around the
world.
The Eurofins network has grown very strongly since its inception
and its strategy is to continue expanding its technology portfolio
and its geographic reach. Through R&D and acquisitions, its
companies draw on the latest developments in the field of
biotechnology and analytical chemistry to offer their clients
unique analytical solutions.
Shares in Eurofins Scientific S.E. are listed on the Euronext
Paris Stock Exchange (ISIN FR0014000MR3, Reuters EUFI.PA, Bloomberg
ERF FP).
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240704725002/en/
Notes to Editors: For more information, please
visit www.eurofins.com or contact: Investor Relations
Eurofins Scientific SE Phone: +32 2 766 1620 E-mail:
ir@sc.eurofinseu.com
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