Dear Shareholders,

The Tecan Group closed the first half of 2015 with double-digit sales growth and record net profit.

We are pleased with these results, especially with the high growth rate in our Partnering Business. The launch of major new products in both business segments and the successful integration of IBL International, which we acquired last year, both contributed to the company’s strong growth. We are particularly pleased with the strong expansion in profitability. Our results from the first half of the year set a new company record for net profit, earnings per share, and cash flow from operating activities. 

We can look back on a successful first half of the year, not just financially but also as regards the market. We launched important products in two main product lines: the second application-specific Fluent™ solution in liquid handling as well as the next-generation reader platform Spark™ 10M. Feedback from customers has been very positive for both instruments, and we have already received follow-up orders for Fluent™. We have also reached the first anniversary of the acquisition of IBL International. We are pleased by the smooth integration and the successful development of the business, which has managed to exceed our expectations. The level of collaboration with our new colleagues is also very encouraging.

Financial results for the first half of 2015

Order entry increased by 14.6% in local currencies to CHF 220.1 million (H1 2014: CHF 196.6 million) in the first six months of the year, corresponding to growth of 11.9% in Swiss francs. Excluding acquisitions, order entry rose by 9.4% in local currencies and by 6.9% in Swiss francs. Due to the strong order entry figures, the Group recorded a double-digit percentage increase in the order backlog at the end of the reporting period.

Sales climbed by 18.9% in local currencies or 16.2% in Swiss francs to CHF 200.0 million in the first half of the year (H1 2014: CHF 172.0 million). Excluding the IBL International business, which was consolidated on August 1, 2014, Tecan grew by 13.0% in local currencies or 10.5% in Swiss francs.

Operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 21.4% to CHF 32.6 million in the first six months of the year (H1 2014: CHF 26.8 million). The EBITDA margin improved by 70 basis points to 16.3% of sales (H1 2014: 15.6%).

Tecan increased net profit for the first half of 2015 by 39.7% to CHF 26.0 million – thus setting a new company record (H1 2014: CHF 18.6 million). The net profit margin improved by 220 basis points to 13.0% of sales (H1 2014: 10.8%). Earnings per share increased by 37.5% to CHF 2.31 (H1 2014: CHF 1.68). In addition to the positive effect from higher sales volumes, net profit development also benefited from the improved financial result attributable to currency hedging measures, given the weakness of the US dollar against the Swiss franc since the end of 2014. Exchange rate movements versus the euro were not hedged, as costs incurred in euro exceeded sales generated in the same currency. The discontinuation of the exchange rate floor and the resulting depreciation of the euro therefore did not have an impact on the net profit margin. 

Cash flow from operating activities more than doubled to CHF 35.1 million (H1 2014: CHF 16.2 million), representing 17.6% of sales. 

Information by business segments

Life Sciences Business (end-customer business)

Sales in the Life Sciences Business segment increased by 10.7% in local currencies to CHF 107.5 million (H1 2014: CHF 100.9 million) in the first half of the year and were 6.6% above those of the prior-year period in Swiss francs. Excluding IBL International, which has been part of the Life Sciences Business since August 1, 2014, sales in local currencies grew by 0.5% compared to the high base of the prior-year period. In Swiss francs, segment sales were 3.3% below the prior-year level, being negatively impacted by the exchange rate movements of the euro versus the Swiss franc. Order entry in the Life Sciences Business grew overall and organically and clearly exceeded sales in the first half of the year. New product launches contributed considerably to this growth. 

The segment’s operating profit was CHF 11.3 million (H1 2014: CHF 14.8 million), corresponding to an operating profit margin of 9.8% of sales (H1 2014: 14.0%). The decline versus the first half of 2014 was largely due to higher costs and investments during the launch phase of the new instruments as well as the accounting of acquisition-related costs. 

Partnering Business (OEM business)

The Partnering Business segment generated sales of CHF 92.4 million during the period under review (H1 2014: CHF 71.1 million), which corresponds to an increase of 30.2% in local currencies or 30.0% in Swiss francs. Instruments launched in the past two years made a significant contribution to the strong sales growth. Sales with existing large corporate customers also performed well following a weak prior-year period. Order entry in the Partnering Business also grew at a double-digit percentage rate in the first half of 2015. 

The segment’s operating profit in the first six months of 2015 rose to CHF 17.4 million (H1 2014: CHF 11.3 million). The operating profit margin grew to 18.6% of sales (H1 2014: 15.5%). The impact of lower margins on profitability from some newly introduced instruments, which are normal during launch phase, was more than outweighed by higher sales volumes.

Additional information

Regional development

In Europe, sales in local currencies increased by 25.2% compared to the prior-year period. In Swiss francs, this growth was lower at 16.7% due to the devaluation of the euro. Sales by IBL International were the driver behind growth in the Life Sciences Business, while the Partnering Business was boosted by solid sales figures for instruments and components. 

In North America, sales in the first half of the year grew by 12.6% in local currencies and 18.3% in Swiss francs. The Life Sciences Business posted solid growth in North America, and the Partnering Business also grew at a double-digit percentage rate in this region. 

In Asia, Tecan once again achieved a considerable increase in sales of 21.5% in local currencies and 12.9% in Swiss francs. Both segments therefore recorded growth in the double-digit percentage range. In China, the situation improved in the first half of the year following a period of slow government tenders and academic spending in the prior-year period.

Recurring sales of services and consumables

Recurring sales of services and consumables increased considerably in the first half of 2015 by 31.9% in local currencies and 29.2% in Swiss francs. With the acquisition of IBL International, Tecan was able to add a new source of recurring revenues through its reagents-based business. Overall, recurring revenues accounted for 40.9% of total sales, the highest value in the company’s history (H1 2014: 36.8%). Services (including spare parts) accounted for 25.8% of total sales, while consumables (plastic and reagents) accounted for 15.1%.

Research and development

In the first half of 2015, research and development spending remained unchanged versus the prior-year period at 10.0% of sales or CHF 20.1 million (H1 2014: CHF 17.2 million). All told, research and development activities continued to fall as planned to CHF 30.4 million gross (H1 2014: CHF 47.6 million), as various development projects were successfully concluded or products brought close to launch. The total figure also includes development programs for OEM instrument customers in the Partnering Business (CHF 9.1 million) and development costs capitalized in the balance sheet (CHF 4.7 million). These capitalized costs were almost entirely offset by amortization amounting to CHF 3.5 million.

Tecan started marketing its second application-specific solution at the beginning of 2015 for the Fluent™ laboratory automation family, a new generation of liquid handling platforms which is designed to simplify the automated compound management for drug discovery. Fluent is attracting great interest in the market with strong momentum in orders. 

Tecan also launched a next-generation reader platform called Spark™ at the beginning of 2015 in its second main product line, detection instruments. The Spark™ 10M multimode microplate reader is designed to offer greater flexibility and increased productivity for cell biology and genomics customers. The all-new platform delivers a combination of exceptional capabilities and ease-of-use to simplify routine laboratory tasks. 

Strong balance sheet – high equity ratio

Tecan’s equity ratio increased to 70.0% as of June 30, 2015 (December 31, 2014: 65.4%). Net liquidity (cash and cash equivalents less bank liabilities and loans) amounted to CHF 165.6 million (December 31, 2014: CHF 122.7 million). The increase in net liquidity was the result of the high cash flow from operating activities as well as the sale of 249,331 treasury shares, which was necessary for tax reasons. Sales proceeds totaled CHF 31.6 million, while the company’s share capital was CHF 1,144,603 as at the reporting date of June 30, 2015 (December 31, 2014: CHF 1,144,458), consisting of 11,446,033 registered shares with a nominal value of CHF 0.10.

At the Tecan Group Annual General Meeting on April 16, 2015, shareholders approved an unchanged dividend versus the previous year of CHF 1.50 per registered share. The payout of dividends of CHF 16.9 million in total took place on April 22, 2015. 

Outlook for full-year 2015 confirmed

For fiscal 2015, Tecan continues to anticipate Group sales growth in the double-digit percentage range in local currencies, with an increase in the EBITDA margin of more than 100 basis points. 

The expectations regarding profitability are based on an average exchange rate forecast for full-year 2015 of one euro equaling CHF 1.05 and one US dollar equaling CHF 0.92, and exclude further acquisitions.

Männedorf, August 10, 2015

Rolf A. Classon
Chairman of the Board

Dr. David Martyr
Chief Executive Officer