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Dear Shareholders

During 2018, Tecan recorded another year of strong sales growth, a further increase in underlying pro tability and a higher net profit. Of particular note is our high order entry in the second half of the year, leading to a substantial increase in order backlog – a solid basis to head into 2019.

 

Tecan is in a strong position to benefit from the tremendous opportunities that the ‘Century of Biology’ has to offer. With an end-user as well as an OEM business, Tecan has a unique position to bridge from research to diagnostics settings and thereby help our customers with the discovery of novel medications all the way to better diagnosis of diseases.

Financial results full-year and ­second half of 2018

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%).

 

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%”.

 

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).

 

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

 

Details on the course of business of the Life Sciences Business and Partnering Business segments can be found in the relevant sections on pages 30 and 38. Details regarding the regional development of sales are discussed in the Chief Financial Officer’s Report on page 86.

 

Tecan Management

DR. LUKAS BRAUNSCHWEILER

Chairman of the Board

DR. ACHIM VON LEOPRECHTING

EVP and designated Chief Executive Officer

DR. DAVID MARTYR

Chief Executive Officer

Strong balance sheet – high equity ratio

Tecan’s equity ratio reached 71.4% as of December 31, 2018 (Dec­ember 31, 2017: 68.4%). 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). 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.

 

On the basis of the increase of net profit in 2018 and an ongoing positive business perspective, the Board of Directors will propose at the Company’s Annual General Meeting an increase in the dividend from CHF 2.00 to CHF 2.10 per share.

Priorities

Tecan has a clear strategy to ensure the long-term success of the Company. For details, please refer to pages 20-21 of this report. The implementation of Tecan’s strategy is supported through the implementation of Company-wide priorities.

 

Success in implementing priorities for 2018

Our first priority was to increase operational efficiency and achieve additional savings on material costs. Considerable progress has been made in recent years, and we can also report further successes for the reporting year, with a savings of several million francs. In R&D, several projects were successfully concluded. These include new instruments and in particular software solutions that open up completely new opportunities for our customers.

 

In the Partnering Business, which was our second priority, we concluded new development agreements and therefore are currently working on more than five customer projects. In addition, we were actively involved in more than 25 concept developments, which form the basis for future development projects. The growth of this business segment in the reporting year shows that we were able to successfully ramp up series production for our existing customers, including for our customers in China.

 

Our third priority was the Life Sciences Business. The recently launched Fluent Gx platform variant for customers from the clinical diagnostic and other regulated markets enjoyed great demand on the market and was therefore an important growth driver for this business segment. Other instruments, such as the Spark reader as well as the service business and consumables also made an ­important contribution – a priority we had defined for the reporting year. The products of Tecan SP for mass spectrometry sample preparation, which had been sold primarily in the USA, were launched successfully in Europe and generated a lot of interest on the market. 

 

In the area of Corporate Development, which was our fourth priority, we successfully concluded another acquisition. With the US-based NuGEN Technologies (now Tecan Genomics), we are accelerating the implementation of our comprehensive genomic strategy and expanding the offering of dedicated total solutions in the new marketing segment of reagents for gene sequencing. We also acquired a minority interest in Andrew Alliance, an innovative company developing affordable benchtop liquid handling robots that use conventional hand pipettes. We continue to have a healthy funnel of other possible M&A targets.

 

As part of the fifth priority we established a comprehensive customer satisfaction program in the reporting year. In addition to the regular comprehensive survey, since 2018 customers are also surveyed directly after transactions, service interventions or at set intervals. This feedback forms the basis for ongoing improvements.

 

Priorities for 2019

As in recent years, we have again defined five business-wide operational priorities for 2019. 

 

We will focus on the ongoing implementation of our comprehensive strategy in the area of Development and Operations as well as ensuring a high level of customer satisfaction. In addition, we continue to work on more efficient processes in procurement and logistics as well as on reducing material and production costs. The ultimate goal remains, however, to ensure that we deliver the highest standards of quality to our customers. The continuous measurement at different points of contact ensures that we can react quickly to customer feedback and make improvements where necessary. In R&D, we aim to achieve a continuously high level of innovation output through the further development of a promising technology portfolio.

 

A key factor for success in our Partnering Business is the timely development of new instruments for our partners. We also plan to sign new development agreements in our focus areas. For our existing customers, we continue to be a reliable partner in all phases of the market launch of the instruments we have developed and we want to continue our successful expansion into the growth markets of Asia. 

 

We are building on our efforts from previous years, with targeted investments and priority projects in our Life Sciences Business. Here we plan to push ahead with our development towards ­becoming a provider of integrated total solutions in selected ­areas of application. This includes in particular the consumables and reagents that we added through acquisitions. We are optimally combining these products with dedicated automation platforms and are expanding the marketing of these products worldwide, and in some regions launching new marketing efforts. 

We are also focused on expanding the marketing of our innovative and successful Fluent and Spark platform families, with new variants and with additional functions.

 

We are also aiming to make some acquisitions in 2019. We have a healthy list of potential M&A targets. Some of the targets we have in mind would be optimal bolt-on additions to our business; others would lead to more transformative transactions. On top of potential new additions, we continue to focus on the careful integration of the most recent acquisitions. In addition, we will continue to develop our strategy further, and in particular with regard to the rapidly advancing digitalization in the laboratory world. 

 

The area of genomics is one of the largest and fastest growing segments in our two main markets. As a result, we placed greater emphasis on business development in this area. Both, our Life Sciences Business and our Partnering Business will benefit from these activities. With the acquisition of the US-based company NuGEN in September 2018, we were able to accelerate our comprehensive genomic strategy. With new dedicated as well as new modular automation platforms that are already under development, we can optimally cover the new client needs that arise due to greater dissemination of genomic technologies.

 

We will also continue our efforts to further strengthen our corporate culture across all business activities and as a part of all priorities. We believe that doing this is a key factor for the Company’s success.

Outlook 2019

We expect sales growth for full-year 2019 to be in the mid- to high single-digit percentage range in local currencies. This forecast does not take account of potential additional acquisitions during the course of the year.

 

As previously communicated, integration costs together with lower margins associated with the NuGEN acquisition will have an impact on Tecan’s reported EBITDA margin. These ­acquisition-related costs are expected to add up to a high single-digit million Swiss franc amount in 2019. 

 

However, we anticipate that costs related to the NuGEN acquisition as well as the CEO transition will be largely offset by gains in profitability due to the adoption of the IFRS 16 accounting standard regarding leases that becomes effective in 2019. The IFRS 16 gains will be recurring.

 

We therefore anticipate that the overall reported EBITDA margin will expand to around 19% of sales in 2019. 

 

The expectations for profitability are based on an average exchange rate forecast for full-year 2019 of one euro equaling CHF 1.14 (2018: 1.15) and one US dollar equaling CHF 0.99 (2018: 0.96). Again, no contributions or costs linked to further acquisitions are taken into account. 

Our gratitude

We can look back on 2018 as yet another very successful financial year, which was only made possible by the exemplary commitment of our employees. On behalf of the Board of Directors and the Management Board, we extend our thanks to all our dedicated and talented colleagues around the world for their important contributions. And that of course includes our new colleagues at Tecan Genomics (formerly NuGEN), whom we welcome wholeheartedly to our ranks. We are also grateful to our customers for their loyalty, and to our shareholders and business partners for their trust.

 

Männedorf, March 7, 2019

Changes at the top of the company

At the Annual General Meeting on April 17, 2018, Rolf Classon, Chairman of the Board of Directors since 2009, and Gérard Vaillant, a member of the Board of Directors since 2004, did not stand for re-election. On behalf of the Board of Directors, I wish to again warmly thank the departing members for their service over many years. Both Rolf Classon and Gérard Vaillant made an extraordi- narily valuable contribution to putting Tecan where it is today, in an outstandingly good strategic position to perform well over the coming years. Operationally, too, Tecan has performed very well in recent years and achieved profitable growth well above the market average.

 

As announced in mid-January 2019, Tecan’s Board of Directors has promoted Dr. Achim von Leoprechting to CEO of the Tecan Group with effect from April 1. In this position, he succeeds Dr. David Martyr, who is retiring after another very successful financial year. Achim von Leoprechting, who has been a member of Tecan’s Man- agement Board since 2013, is the ideal candidate to take over as CEO. This internal appointment ensures the utmost continuity in terms of corporate strategy. This is the first time in Tecan’s history that the Board of Directors has elected an internal successor, which is firm evidence that a strong management team has been built up in recent years.

 

The Board of Directors extends its sincere thanks to David Martyr for his outstanding achievements and wishes him all the very best in his retirement. It was under his leadership that Tecan found its way back to strong growth and sharply higher profitability. Some two-thirds of the 50%-plus sales growth since 2012 was generated organically, largely through product innovation and regional growth. The significant increase in the percentage of recurring sales is par- ticularly noteworthy. These recurring revenues also include sales of functional consumables and reagents from acquisitions, which are optimal additions to our product range.

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