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Chief Financial Officer’s Report

DR. RUDOLF EUGSTER

Chief Financial Officer

 

Our recurring revenues have increased in recent years from around 30% to now over 40% of our overall sales.

 

 

ORDER ENTRY AND SALES

In the year under review, Tecan grew its order entry by 12.1% to CHF 564.1 million (2016: CHF 503.2 million), which corresponds to an increase of 11.8% in local currencies. Both business segments contributed with double-digit growth rates. On an organic basis, order entry increased by 9.1% in Swiss francs and by 8.5% in local currencies. Thanks to strong order entry, which exceeded sales, the order backlog was sharply higher as of December 31, 2017. The growth in order entry was also strong in the second half of the year, with an increase of 7.1% in local currencies. 

 

Sales climbed by 8.3% in Swiss francs or 8.0% in local currencies to CHF 548.4 million in 2017 (2016: CHF 506.2 million). Tecan therefore achieved its annual outlook for Group sales growth of more than 6% in local currencies communicated in March 2017. On an organic basis, sales grew by 4.7% in local currencies and 5.0% in Swiss francs. 

 

Sales continued their positive trajectory in the second half of the year as well, growing by 8.0% in local currencies and 8.9% in Swiss francs. This corresponds to organic sales growth of 5.8% in local currencies and 6.7% in Swiss francs. Organic sales growth thus accelerated compared with the first six months of 2017, driven by the double-digit sales growth recorded in the Partnering Business in the second half of the year. 

 

REGIONAL DEVELOPMENT

In Europe, sales in 2017 fell by 3.6% in local currencies and by 3.0% in Swiss francs compared to the previous year. Sales in Life Sciences Business grew and the overall negative trend was primarily due to the positive one-time effect in the first half of 2016 incurred by Partnering Business, which had resulted in a high comparative basis. However, a considerable increase in sales in the second half of the year could offset a large part of the negative developments of the first six months. 

 

In North America, sales grew by 19.6% in both local currencies and Swiss francs in 2017. The Life Sciences Business posted strong growth in this region as a result of the first-time contribution of SPEware products. The Partnering Business also generated significant double-digit growth, including a strong contribution from the components business.

 

In Asia, Tecan achieved a considerable increase in sales of 12.4% in local currencies and 12.6% in Swiss francs. Both segments contributed with a double-digit rise in sales. In China, both ­segments continued to benefit from continuing major investment in healthcare and life science research. 

 

RECURRING SALES OF SERVICES, CONSUMABLES AND REAGENTS

Recurring sales of services and consumables increased in 2017 by 22.0% in local currencies and 22.4% in Swiss francs. This sharp increase in sales was supported both by strong organic growth and the first-time contribution of SPEware consumables. Recurring sales amounted to 42.4% of total sales, their highest level ever for a full year (2016: 37.6%). Services (including spare parts) accounted for 21.6% of total sales, while consumables (plastics and reagents) accounted for 20.8%.

 

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

Gross profit increased to 265.6 million Swiss Francs (2016: CHF 239.4 million), which was 26.2 million or 11.0% above the prior-year figure. The reported gross profit margin was at 48.4% – an increase of 110 basis points compared to the prior year (2016: 47.3%).

 

Several factors impacted the gross profit margin level:

(+) Material cost savings

(+) Impact from acquisition

(-) Product mix with higher share of services and consumables

(-) Price

OPERATING EXPENSES LESS COST OF SALES

In 2017, operating expenses grew in line with sales and totaled CHF 186.8 million or 34.0% of sales, compared with CHF 172.5 million or 34.1% of sales in the prior-year period. All costs in 2017 include costs from acquired businesses. 

 

Sales and Marketing increased slightly more than sales with continued investments in the market units.

 

Research and development expenses in 2017 stayed stable at 9.3% of sales (2016: 9.3%) and increased on an absolute level to CHF 51.1 million (2016: CHF 47.1 million). 

 

General and administration expenses increased less than sales, realizing a positive volume effect. The absolute increase to CHF 51.5 million was almost entirely acquisition-related (2016: CHF 48.9 million). 

OPERATING PROFIT

Operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose strongly by 18.3% to CHF 105.3 million in the fiscal year (2016: CHF 89.0 million). The EBITDA margin reached 19.2% of sales (2016: 17.6%), after acquisition-related costs in a mid-single-digit million Swiss franc amount. Tecan thus comfortably exceeded its communicated outlook of expanding its reported EBITDA margin to more than 18% of sales. The margin improvement in 2017 was driven by positive volume effects as well as substantial efficiency improvements in procurement and production. The majority of these improvements will have a lasting effect beyond the reporting year. In addition, Tecan also benefited from non-recurring positive effects that were not included in the original plan. 

NET PROFIT AND EARNINGS PER SHARE

Net profit reported for the year 2017 increased by 22.0% to CHF 66.5 million (2016: CHF 54.5 million). The rise in net profit was slightly greater than the increase in the operating result due to the financial result. The net profit margin improved by 130 basis points to 12.1% of sales (2016: 10.8%). Earnings per share increased by 20.9% to CHF 5.73 (2016: CHF 4.74).

BALANCE SHEET AND EQUITY RATIO

Tecan’s equity ratio reached 68.5% as of December 31, 2017 (December 31, 2016: 66.2%). The company’s share capital was CHF 1,166,487 as at the reporting date of December 31, 2017 (December 31, 2016: CHF 1,154,137), consisting of 11,664,872 registered shares with a nominal value of CHF 0.10.

CASH FLOW

The cash flow from operating activities was CHF 99.4 million in line with expectations (2016: CHF 118.8 million; including a repayment of development costs by an OEM partner). Cash flow from operating activities corresponded to 18.1% of sales in 2017. 

 

Net liquidity (cash and cash equivalents minus bank liabilities and loans) reached CHF 290.7 million (December 31, 2016: CHF 242.3 million). 

 

DR. RUDOLF EUGSTER

Chief Financial Officer

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