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Chief Financial Officer’s Report

DR. RUDOLF EUGSTER

Chief Financial Officer

 

Thanks to the strong order entry, the order backlog was sharply higher as of December 31, 2018.

 

 

ORDER ENTRY AND SALES

In the year under review, Tecan grew its order entry by 11.1% to CHF 627.0 million (2017: CHF 564.1 million), which corresponds to an increase of 10.3% in local currencies. With an increase of 20.0% in local currencies and by 19.9% in Swiss francs, orders grew particularly strongly in the second half of 2018. Both business segments contributed with double-digit growth rates in the second half. Thanks to the strong order entry, the order backlog was sharply higher as of December 31, 2018. The order backlog also includes a large order in the Life Sciences Business for customized solutions which is likely to be recognized as revenues in 2020.

 

Sales for fiscal year 2018 climbed by 7.4% in local currencies or 8.2% in Swiss francs to CHF 593.8 million (2017: CHF 548.6 million). On an organic basis, sales grew by 6.8% in local currencies and 7.7% in Swiss francs.

 

Sales continued their positive trajectory in the second half of the year as well, growing by 7.8% in local currencies and 8.1% in Swiss francs. On an organic basis, excluding sales from NuGEN (now Tecan Genomics) in the last four months of the year, sales grew by 6.8% in local currencies and 7.0% in Swiss francs.

 

Recurring sales of services and consumables increased for the full year 2018 by 5.9% in local currencies and 6.7% in Swiss francs, and therefore amounted to 41.8% of total sales (2017: 42.4%).

 

REGIONAL DEVELOPMENT

In Europe, Tecan’s full-year sales increased by 12.1% in local currencies and by 14.0% in Swiss francs, with both business segments performing strongly. The Life Sciences Business grew particularly strongly in the second half of the year with sales increasing by 17.1% in local currencies.

 

In North America, sales grew by 4.7% in local currencies and 4.2% in Swiss francs in 2018. The Life Sciences Business recorded solid growth in this region. The Partnering Business posted moderate growth, mainly due to the high comparative basis of the prior-year period. With a growth rate of 10.9% in local currencies, sales accelerated markedly in the second half of the year.

 

In Asia, Tecan posted an increase in sales of 2.5% in local currencies and 4.2% in Swiss francs. Sales in the Life Sciences Business were 2.6% below the prior year, while sales in the Partnering Business grew by 18.3%, particularly boosted by strong growth in China.

 

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 278.3 million Swiss Francs (2017: CHF 264.9 million), which was 13.4 million or 5.1% above the prior-year figure. The reported gross profit margin was at 46.9% – 140 basis points below the prior year (2017: 48.3%).

 

Several factors impacted the gross profit margin level:

  • (-) Higher freight and logistics cost
  • (-) Exchange rate impact
  • (-) Product and divisional mix
  • (+) Price
  • (+) Material cost savings

OPERATING EXPENSES LESS COST OF SALES

In 2018, operating expenses grew less than sales and totaled CHF 192.6 million or 32.4% of sales, compared with CHF 186.8 million or 34.0% of sales in the prior-year period. All costs in 2018 include costs from acquired businesses.

 

Sales and Marketing increased less than sales despite continued investments in the market units.

 

At an absolute level, net research and development expenses of CHF 51.1 million were unchanged in 2018 compared to the prior-year level. As a percentage of sales, they reached 8.6% of sales (2016: 9.3%). Overall R&D activities and gross expenses (“gross R&D”) were higher compared to the prior-year period, including customer funding of OEM projects. Gross R&D was at CHF 72.1 million or 12.2% of sales (2017: CHF 59.2 million or 10.8% of sales).

 

General and administration expenses increased less than sales, realizing a positive volume effect.

OPERATING PROFIT

The operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 5.4% to CHF 110.3 million in the fiscal year (2017: CHF 104.6 million), after acquisition-related costs in a mid-single-digit million Swiss franc amount. The reported EBITDA margin thus reached 18.6% of sales (2017: 19.1%; 18.4% excluding non-recurring positive effects). The EBITDA margin excluding all effects related to the NuGEN acquisition increased to 19.4%, delivering on the margin commitment for the year of “more than 19%”.

 

The profit before interest and taxes, EBIT, rose by 11.0% to CHF 88.6 million in the fiscal year (2017: CHF 79.8 million).

NET PROFIT AND EARNINGS PER SHARE

Reported net profit for the year 2018 rose by 7.2% to CHF 70.7 million (2017: CHF 65.9 million). Net profit increased less than operating profit as a lower financial result was recorded due to currency hedging losses. The net profit margin was almost unchanged at 11.9% of sales (2017: 12.0%), while basic earnings per share increased to CHF 6.02 (2017: CHF 5.67).

BALANCE SHEET AND EQUITY RATIO

Tecan's equity ratio reached 71.4% as of December 31, 2018 (December 31, 2017: 68.4%). The company’s share capital was CHF 1,176,637 as at the reporting date of December 31, 2018 (December 31, 2017: CHF 1,166,487), consisting of 11,766,372 registered shares with a nominal value of CHF 0.10.

CASH FLOW

The Cash flow from operating activities reached CHF 92.7 million (2017: CHF 99.4 million), thereby corresponding to 15.6% of sales.

 

Net liquidity (cash and cash equivalents minus bank liabilities and loans) reached CHF 289.6 million, despite having paid the purchase consideration for the NuGEN acquisition fully in cash in the second half of the year (June 30, 2018: CHF 284.1 million; December 31, 2017: CHF 290.7 million).

DR. RUDOLF EUGSTER

Chief Financial Officer

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