Chief Financial Officer’s Report
DR. RUDOLF EUGSTER
Chief Financial Officer (until February 29, 2020)
Reported net profit for the year 2019 rose to CHF 73.2 million.
ORDER ENTRY AND SALES
In the year under review, Tecan grew its order entry by 1.9% to CHF 638.6 million (2018: CHF 627.0 million), or by 2.5% in local currencies. The growth was not as strong as in 2018, when order entry benefited in the second half of the year from a large order in the Life Sciences Business for customized solutions and grew correspondingly at a double-digit rate. Adjusted for this effect, order entry in the Life Sciences Business grew at a good mid-single-digit growth rate, leading to a solid underlying growth at Group level as well.
Order backlog, an important indicator for the current financial year, grew again to reach a record level as at 31 December 2019.
Sales for fiscal year 2019 grew by 7.2% to CHF 636.8 million (2018: CHF 593.8 million), corresponding to growth of 8.0% in local currencies. On an organic basis, adjusted for acquisition effects, sales grew by 5.3% in Swiss francs and by 6.0% in local currencies. The growth trend continued in the second half of the year as well, with sales increasing by 6.4% in Swiss francs and 7.7% in local currencies. On an organic basis, sales rose by 5.8% in local currencies in the second half of the year.
Recurring sales of services and consumables increased in fiscal year 2019 by 5.9% in local currencies and 6.5% in Swiss francs, and therefore amounted to a relatively unchanged 41.3% of total sales (2018: 41.8%).
In Europe, Tecan’s full-year sales increased by 8.4% in local currencies and by 6.4% in Swiss francs, with both business segments performing well. After moderate growth in the first half of the year, the sales growth in local currencies accelerated in the second half of the year to 13.5%. The increase in sales was driven primarily by higher double-digit growth from the Partnering Business. But the Life Sciences Business also recorded solid growth again in the second half of the year.
In North America, sales grew by 8.2% in local currencies and 9.5% in Swiss francs in 2019. The Life Sciences Business performed particularly well, with sales growth of 15.6% in local currencies in this region (organic 12.8%). Sales in local currencies increased by a further 3.9% in the second half of the year despite the high comparative basis from the prior-year period.
In Asia, Tecan generated an increase in sales of 14.6% in local currencies and 11.9% in Swiss francs. Both segments contributed to the sales growth in the region with good performances, the Life Sciences Business with growth in local currencies of 18.5% and the Partnering Business with 8.0%. With a slightly higher growth rate, sales growth in China was even a bit more dynamic as in the entire Asia region. Growth in Asia in local currencies accelerated in the second half of the year to 17.0%.
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 297.3 million Swiss Francs (2018: CHF 278.3 million), which was 18.9 million or 6.8% above the prior-year figure. The reported gross profit margin was at 46.9% – 20 basis points below the prior year (2018: 46.9%).
Several factors impacted the gross profit margin level:
- (-) Impact from acquisitions
- (-) Product and divisional mix
- (+) Price
- (+) Exchange rate impact
- (+) Material cost savings
- (+) Less non-standard cost of sales
OPERATING EXPENSES LESS COST OF SALES
In 2019, operating expenses grew more than sales and totaled CHF 209.4 million or 32.9% of sales, due to acquisition-related costs (2018: CHF 192.6 million or 32.4% of sales). Acquisition-related costs were mostly pre-investments in R&D and the development of sales channels for Tecan Genomics (former NuGen Technologies).
Sales and Marketing increased less than sales despite continued investments in the market units.
At an absolute level, net research and development expenses increased to CHF 59.9 million (2018: CHF 51.1 million). As a percentage of sales, they reached 9.4% of sales (2018: 8.6%). Overall R&D activities and gross expenses (“gross R&D”) were also higher compared to the prior-year period, including customer funding of OEM projects. Gross R&D was at CHF 77.8 million or 12.2% of sales (2018: CHF 72.1 million or 12.2% of sales).
General and administration expenses also increased more than sales, mainly due to acquisition-related costs and the non-recurring additional costs of the CEO change during the fiscal year.
Reported operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 11.3% to CHF 122.8 million in the fiscal year 2019 (2018: CHF 110.3 million). This EBITDA as reported includes influencing factors that reduced the overall result: the net impact of acquisition-related costs amounting to around CHF 10 million as well as, to a far lesser extent, the non-recurring additional costs of the CEO change during the fiscal year. These two effects were more than offset by a strong margin trend in the traditional core business (without newly acquired companies) as well as by a positive recurring profit contribution resulting from the adoption of the new IFRS 16 accounting standard (Leases).
The reported EBITDA margin grew correspondingly by 70 basis points to 19.3% of sales (2018: 18.6%).
The profit before interest and taxes, EBIT, was more or less unchanged at CHF 88.7 million, due to acquisition-related costs and the non-recurring additional costs of the CEO change during the fiscal year (2018: CHF 88.6 million).
NET PROFIT AND EARNINGS PER SHARE
Reported net profit for the year 2019 rose by 3.5% to CHF 73.2 million (2018: CHF 70.7 million). Thanks to a lower tax rate in connection with the tax reform in Switzerland, net profit increased by more than operating profit (earnings before interest and taxes; EBIT). The net profit margin amounted to 11.5% of sales (2018: 11.9%), while earnings per share rose to a new high of CHF 6.18 (2018: CHF 6.02).
BALANCE SHEET AND EQUITY RATIO
Tecan's equity ratio reached 70.1% as of December 31, 2019 (December 31, 2018: 71.4%).
Cash flow from operating activities increased to CHF 98.8 million (2018: CHF 92.7 million), which corresponds to 15.5% of sales.
Net liquidity (cash and cash equivalents minus bank liabilities and loans) reached CHF 312.4 million (June 30, 2019: CHF 264.5 million; December 31, 2018: CHF 289.6 million). The purchase consideration for the acquisition of a supplier was paid fully in cash in the first half of the year (net cash outflow of CHF 21.2 million).
Dr. Rudolf Eugster
Chief Financial Officer (until 2/29/2020)