Eurofins Scientific to reduce M&A spending to focus on margins

(Reuters) - Eurofins Scientific plans to reduce its investment in mergers and acquisitions in coming years in order to improve margins and cash flow, the food and pharmaceutical product testing firm said on Tuesday.

The Luxembourg-based company said it expects to spend less than 300 million euros (£258 million) a year in 2019 and 2020 on M&A, and may not even reach that level if it fails to identify "compelling" assets.

The firm has been expanding rapidly, with about 50 acquisitions last year including LabCorp's Covance Food Solutions and JSTI Group's TestAmerica.

Acquisitions provided a boost in revenue of about 700 million euros in both 2017 and 2018.

"In 2019 and 2020, the focus for the Group will be less on M&A ... and much more on finalising those internal investments and making progress towards operational excellence, and thus on beginning to improve profitability, cash flow and return on investment," CEO Gilles Martin said in a statement.

Last October the company raised its outlook for 2019 and 2020 for the second time that year.

However, its acquisition spree raised market concerns over the quality of Eurofins' growth and its debt.

With its planned slowdown in M&A, the company tweaked this year's outlook with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) expected to reach 850 million euros on revenues of 4.5 billion euros, including 5 percent organic growth.

It targets 1 billion euros in adjusted EBITDA in 2020 on 5 billion euros in revenue.

For 2018, the company reported an adjusted EBITDA of 720 million euros on revenue of 3.78 billion.

Shares in the company were down 5.2 percent at 0802 GMT with organic revenue growth missing expectations and a higher-than-expected debt cited as reasons.

Eurofins raised its dividend for 2018 by 20 percent to 2.88 euros per share.

(Reporting by Piotr Lipinski in Gdynia; editing by Rashmi Aich and Jason Neely)