Chief Financial Officer`s Report
DR. RUDOLF EUGSTER
Chief Financial Officer
I am particularly pleased with the high operating cash flow.
ORDER ENTRY AND SALES
In the second half of 2015, order entry increased by 13.8% in local currencies and by 10.9% in Swiss francs. On an organic basis, orders in the second half grew by 12.3% in local currencies and by 9.6% in Swiss francs. Organic development excludes any contributions from acquisitions from those months in the reporting period that were not already included in the consolidated financial statements in the prior-year period. For the full year, order entry increased by 14.1% in local currencies to CHF 465.0 million (2014: CHF 417.4 million), corresponding to growth of 11.4%. On an organic basis, order entry increased by 10.9% in local currencies and by 8.3% in Swiss francs.
Sales in the second half rose by 8.7% in local currencies and by 5.6% in Swiss francs against a strong base in the prior-year period. This corresponds to organic sales growth of 7.0% in local currencies and 4.0% in Swiss francs. Sales in financial year 2015 increased by 13.1% in local currencies and 10.2% in Swiss francs to CHF 440.3 million (2014: CHF 399.5 million), setting a new company record. On an organic basis, sales grew by 9.6% in local currencies and 6.8% in Swiss francs.
In Europe, full-year sales in local currencies increased 14.7% compared to the previous year. In Swiss francs, this growth was lower at 7.8% due to the devaluation of the euro. In the Life Sciences Business, the increase in sales was driven by newly launched products and the revenue contribution from IBL International. Sales in the Partnering Business were boosted by solid sales figures for instruments and components.
In North America, sales grew by 13.2% in local currencies and 17.8% in Swiss francs. With a significant contribution from newly launched products, both business segments grew at a double-digit percentage rate in local currencies in this region.
With a significant contribution from newly launched products, both business segments grew at a double-digit percentage rate in local currencies in this region. With both business segments contributing to growth, sales in Asia increased by 12.3% in local currencies and by just 3.6% in Swiss francs due to negative exchange rate movements. Despite a continued challenging market environment in China, the overall situation improved in 2015 and Tecan once again posted growth in the double-digit percentage range.
RECURRING SALES OF SERVICES, CONSUMABLES AND REAGENTS
Recurring sales of services and consumables increased considerably in 2015 by 19.1% in local currencies and 15.9% in Swiss francs. With IBL International immunoassays, Tecan was able to add a new source of recurring revenues through this reagents-based business. Overall, recurring revenues accounted for 37.8% of total sales (2014: 36.0%). Services (including spare parts) accounted for 22.2% of total sales, while consumables (plastic and reagents) accounted for 15.6%.
The reader is referred to the “Life Sciences Business” and “Partnering Business” sections of this Annual Report for a detailed description of the business performance of the individual segments.
Gross profit increased to 215.5 million Swiss Francs (2014: CHF 197.6 million), which was 17.9 million or 9.0% above the prior-year figure. The reported gross profit margin was at 48.9% – 60 basis points lower than in the prior year (2014: 49.5%).
Several factors impacted the gross profit margin level:
- The product and channel mix as well as acquisition-related costs had a negative impact.
- The gross profit margin benefitted from material cost savings, less non-standard costs of sales, a positive exchange rate impact and price increases.
OPERATING EXPENSES LESS COST OF SALES
In 2015, operating expenses totaled CHF 150.0 million or 34.1% of sales, compared with CHF 142.5 million or 35.6% of sales in the prior-year period. Overall, operating expenses less cost of sales increased by 7.5 million Swiss francs or 5.3% and therefore less than sales. All costs include costs from acquired businesses. All expense lines were benefitting from a positive one-time impact from revised pension liabilities according to IAS 19.
Sales and Marketing increased about in line with sales as investments in the sales organization were continued to support product launches.
Research and development expenses in 2015 amounted to 9.1% of sales (2014: 9.9%) or CHF 39.9 million (2014: CHF 39.5 million). All told, research and development activities continued to fall as planned to CHF 56.7 million gross (2014: CHF 84.9 million), as development projects were successfully concluded and various products launched. The total figure also includes development programs for OEM instrument customers in the Partnering Business (CHF 15.8 million) and development costs capitalized in the balance sheet (CHF 9.1 million). These capitalized costs were almost entirely offset by amortization.
General and administration expenses increased less than sales.
Reported operating profit before interest and taxes (EBIT) increased to 66.9 million Swiss francs, 9.7 million Swiss francs or 17% above 2014. The EBIT margin increased to 15.2% of sales (2014: 14.6%). The lower gross margin with a negative impact of 60 basis points more than compensated by the lower expenses – a positive impact of 150 basis points.
Operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 23.5% to CHF 83.4 million in the fiscal year (2014: CHF 67.5 million). The EBITDA margin improved by 200 basis points to 18.9% of sales (2014: 16.9%), thereby exceeding the margin targets for the year of “more than 100 basis points”.
These results include acquisition-related costs. The results development was helped by a positive exchange rate effect and a one-time impact from revised pension liabilities according to IAS 19.
NET PROFIT AND EARNINGS PER SHARE
Net profit reported for the year 2015 increased by 42.1% and reached CHF 57.1 million (2014: CHF 40.2 million). Net profit increased more than operating profit as a result of an improved financial result and a lower tax rate. The net profit margin improved by 290 basis points to 13.0% of sales (2014: 10.1%). Earnings per share increased by 39.1% to CHF 5.05 (2014: CHF 3.63).
BALANCE SHEET AND EQUITY RATIO
Tecan’s equity ratio increased to 68.7% as of December 31, 2015 (December 31, 2014: 65.4%). The company’s share capital was CHF 1,146,758 as at the reporting date of December 31, 2015 (December 31, 2014: CHF 1,144,458), consisting of 11,467,577 registered shares with a nominal value of CHF 0.10.
Cash flow from operating activities more than doubled to CHF 99.1 million (2014: CHF 48.2 million), corresponding to a cash conversion of 22.5% of sales.
Cash and cash equivalents were at 208.4 million Swiss Francs at the end of 2015 compared to CHF 128.7 million at the end of 2014. Net liquidity (cash and cash equivalents minus bank liabilities and loans) amounted to CHF 198.8 million (December 31, 2014: CHF 122.7 million). This figure includes the acquisition of Sias AG with a purchase consideration of around CHF 25 million, of which the net payable was fully paid in cash. The increase in net liquidity was the result of the high cash flow from operating activities as well as the sale of 249,331 treasury shares during the first half of 2015, which was necessary for tax reasons. Sales proceeds totaled CHF 31.6 million.
DR. RUDOLF EUGSTER
Chief Financial Officer