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Dear Shareholders

Tecan ended fiscal year 2017 with a significant increase in sales and profit as well as strong growth in order entry. Over the last three years our sales have increased by a total of around CHF 150 million or 37%, underpinning our focus on both organic growth as well as contributions from synergetic M&A. Of particular note are our recurring revenues which have increased in recent years from around 30% to now over 40% of our overall sales.

 

Another key success during 2017 was the rapid integration of the two most recently acquired companies. We also see continued potential in terms of our existing products, which is being underpinned by the by strong growth in order entry we had in 2017. Coupled with new products, both in the Life Sciences Business and the Partnering Business, and the possibility of further acquisitions, Tecan is in a good position for further dynamic growth going forward.

Financial results full-year and second half of 2017

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 target 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.

 

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 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).

 

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. 

 

ROLF A. CLASSON

Chairman of the Board

Dr. David Martyr

Chief Executive Officer

Details on the course of business of the Life Sciences Business and Partnering Business segments can be found in the relevant sections. Details regarding the regional development of sales are discussed in the Chief Financial Officer’s Report.

Strong balance sheet – increase in the dividend proposed

Tecan’s equity ratio reached 68.5% as of December 31, 2017 (December 31, 2016: 66.2%). Net liquidity (cash and cash equivalents minus bank liabilities and loans) reached CHF 290.7 million (December 31, 2016: CHF 242.3 million). 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.

 

The Board of Directors will propose an increase in the dividend from CHF 1.75 to CHF 2.00 per share to the shareholders at the Company’s Annual General Meeting on April 17, 2018.

Priorities

Tecan has a clear strategy to ensure the long-term success of the Company. The implementation of Tecan’s strategy is supported through the implementation of Company-wide priorities.

 

Success in implementing priorities for 2017

As in recent years, we again defined five Company-wide priorities for 2017, to continue the implementation of our strategic priorities and activities.

 

Our first priority was to further increase operational efficiency, reduce material costs and maintain the fast pace of innovation. We achieved significant improvements through continued supplier relocation and consolidation, global alignment of our procurement activities and by strategically leveraging our established sourcing hub in Singapore. In terms of material costs, we were able once again to save a mid-single-digit million Swiss franc amount due to these activities. Together with further reductions in manufacturing times for our instruments, we were therefore able to boost our efficiency once again. With regard to development, we also achieved a strong innovation output due to strengthened global R&D governance and optimized R&D processes.

 

The second priority focused on the Partnering Business. In the year under review, we also supported our partners with a further ramp-up of serial production as well as with upcoming market launches for several new instruments. For example, there was a significant increase in serial production with respect to the platform family for the ORTHO VISION™ Analyzer for our partner Ortho Clinical Diagnostics. In January 2017, our partner celebrated the 1,000th installation worldwide of an ORTHO VISION™ analyzer platform. We are also pleased that in January 2018, it was announced that another approximately 900 instruments were installed during 2017. During the year under review, we concluded new development agreements as the basis for future growth. For example, Tecan launched a joint project with Italian partner DiaSorin to develop a new platform for molecular diagnostics. With Japan-based Sysmex Corporation we signed an agreement for the development of an instrument to be used in the area of flow cytometry. More details on various projects can be found in the segment report. 

 

The third priority addressed the Life Sciences Business and centered around the successful market launch of our Fluent® and Spark® instrument platforms. The Fluent platform expanded its position as an industry-leading, application-focused automation solution. At the same time, development of the Fluent® Gx variant for regulated markets was stepped up and preparations were made for the market launch in 2018. We launched new options for the Spark reader platform, such as a stacker to enable longer operating times without user interaction. The integration of the US company SPEware (now Tecan SP), part of the Tecan Group since October 2016, was successfully completed in 2017. With the market launch of these products in Europe, we can now use the global sales and service infrastructure of Tecan.

 

In the area of Corporate Development, we maintained contact with numerous interesting companies, taking a closer look at a selection of them. We are pleased that we were able to expand our technology portfolio in the Partnering Business with the acquisition in February of the French company Pulssar Technologies. The relocation of Pulssar production from Paris to Tecan’s existing manufacturing site for components in San Jose, California, was undertaken rapidly and has already been completed.

 

The fifth priority was a continuation of the very successful activities to grow our plastic consumables business. We benefited to an even greater extent in the year under review from our broad base of installed instruments. We were able to expand our business with existing customers and to convince new customers to count on the excellent reliability of our systems. The plastic consumables business now comprises more than 13% of total sales. 

 

Priorities for 2018

As in recent years, we have again defined five business-wide operational priorities for 2018.

 

With our first priority for the year, we are maintaining our focus on operational efficiency and material cost savings. We are once again anticipating savings in the mid-single-digit million Swiss franc range in 2018 compared with 2017. In R&D we are aiming to further optimize processes and to have an ongoing high level of innovation output.

 

As in the prior year, our second priority is the Partnering Business. We want to sign new development agreements in our focus areas. We support existing partners with market launches of the instruments we have developed and with increasing serial production. We want to capture additional growth potential by also expanding our components and service business as well increasing sales of consumables and bolstering our activities in the Asian growth markets, in China in particular.

 

Our third priority is once again the Life Sciences Business. With the introduction of Fluent® Gx in the current year, we are offering a promising platform variant for regulated markets. The associated activities are a focal point in sales and marketing. We also see potential in customer-specific, integrated automation solutions, and we want to exploit this potential more effectively. Genomics is rapidly expanding around the world, and we are working across platforms to expand our strong position in this area. In the area of applications for cell biology, which is also growing rapidly, we see major opportunities to profit from this momentum, in particular with the Spark platform. We anticipate that the business with services and consumables will continue to expand. At Tecan SP we are introducing new products for mass spectrometry sample preparation solutions and also marketing these products in Europe for the first time. We are building a team of dedicated specialists in sales and in application support for this purpose. 

 

In line with our strategy, we want to complement organic growth going forward through acquisitions. Corporate Development will therefore remain a priority in the current year. The list of M&A targets continues to be well filled, and it includes companies that would be an optimal addition to our business, as well as potentially larger, transformative deals. 

 

Our new fifth priority is to strengthen even more the core brand and corporate culture of Tecan. In a comprehensive brand refresh project in 2015, we defined the common guidelines, values and principles of conduct that underpin our corporate culture and the Tecan brand. We believe that this is a key factor for the Company’s success. In the current year, we also want to sharpen the focus on our promise to customers of “Always There For You.” Based on a survey conducted during the year under review, we are establishing a comprehensive customer satisfaction program as an additional important pillar.

Outlook 2018

Tecan expects organic sales growth for full-year 2018 to be in the mid-single-digit percentage range in local currencies. This forecast does not take account of potential additional acquisitions.

 

After the significant margin increase in 2017, partly on the back of non-recurring positive effects, we anticipate that the EBITDA margin will once again exceed 19% of sales in 2018.

 

These expectations regarding profitability include integration costs for already completed acquisitions in a low single-digit million Swiss franc amount and are based on an average exchange rate forecast for full-year 2018 of one euro equaling CHF 1.15 (2016: 1.07) and one US dollar equaling CHF 0.96 (2016: 0.99). Again, no contributions or costs linked to further acquisitions are taken into account.

Our gratitude

We had a successful 2017, and we laid the foundation for continued growth at Tecan with new products. Together with our new colleagues at SPEware and Pulssar, we worked intensively so that this recent acquisition could quickly become a part of the Tecan family. The Board of Directors and Management Board would like to thank all employees for their commitment and dedication. We are also grateful to our customers for their loyalty, and to our shareholders and business partners for their trust.

 

Männedorf, March 8, 2018

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