Dear Shareholders

Tecan’s sales have developed well, once again, in the current financial year, and this has been achieved almost exclusively through organic growth. The performance of the Partnering Business has been particularly pleasing, with considerable demand for a broad range of instrument platforms and consumables. In the Life Sciences Business, we are delighted with the successful market launch of Fluent Gx which is ideal for customers in clinical diagnostics and other highly regulated markets. The newly launched platform variant with its specific functionalities enjoyed strong demand and contributed significantly to the sharp rise in order backlog in the Life Sciences Business, which will have a positive impact on sales in the second half of the year.

We are also delighted, that as a result of the substantial increase in sales in the first half of 2018, net profit for the period rose at a double-digit percentage rate.

Despite a high comparative basis, order entry increased by 2.8% to CHF 298.1 million in the first six months of the year (H1 2017: CHF 290.1 million), thus substantially exceeding sales. This equates to a rise of 1.3% in local currencies. As previously reported, order entry in the first half of 2017 was extraordinarily strong, influenced by the timing of several large orders in the Partnering Business.

Sales climbed by 6.9% in local currencies or 8.4% in Swiss francs to CHF 273.5 million in the first half of the year (H1 2017: CHF 252.2 million). This resulted almost exclusively from organic growth excluding acquisition effects. Growth at Group level was driven by a double-digit sales increase in the Partnering Business, while sales in the Life Sciences Business were virtually unchanged following growth of more than 18% in local currencies in the prior-year period. Recurring sales of services and consumables increased in the first half of 2018 by 6.8% in local currencies and 8.3% in Swiss francs, and therefore amounted to 44.8% of total sales (H1 2017: 44.9%).

The operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 15.5% to CHF 48.1 million in the reporting period (H1 2017: CHF 41.6 million). The EBITDA margin improved to 17.6% of sales (H1 2017: 16.5%) including integration costs associated with acquisitions. The margin improvement of 110 basis points was mainly driven by positive volume effects, lower acquisition-related integration costs compared to the prior-year period and increased operational efficiency in procurement and production. 

Net profit for the first half of 2018 increased by 12.1% to CHF 29.2 million (H1 2017: CHF 26.0 million). Alongside the higher operating result, contributing factors included the lower tax rate, primarily as a result of the tax reform in the US that came into effect in the reporting period. By contrast, the financial result had an inhibiting effect on net profit, falling by CHF 4.6 million year-on-year due to currency hedging losses. The net profit margin in the first half of 2018 thus increased to 10.7% of sales (H1 2017: 10.3%), while earnings per share rose to CHF 2.49 (H1 2017: CHF 2.25). 

Cash flow from operating activities climbed 21.0% to CHF 38.4 million (H1 2017: CHF 31.7 million), thereby corresponding to 14.0% of sales in the first half of 2018 (H1 2017: 12.6%).

Sales in the Life Sciences Business increased by 1.7% to CHF 140.5 million (H1 2017: CHF 138.2 million) in the first half of the year and were 0.6% below those of the prior-year period in local currencies. After the segment generated particularly high growth of 18.2% in local currencies in the first six months of 2017, a smaller sales increase had been expected. Despite a similarly high comparative basis from the prior-year period, order entry in the Life Sciences Business posted moderate growth in local currencies, however, with the order backlog growing at a double-digit rate on the back of orders for new instruments. The newly launched Fluent Gx platform variant enjoyed strong demand on the market and also led to numerous orders, which contributed significantly to this growth. In some cases, customers ordered several of these innovative instruments at once. 

Operating profit in this segment (earnings before interest and taxes; EBIT) rose to CHF 18.1 million (H1 2017: CHF 17.8 million). The operating profit margin was comparable to the prior year period at 12.2% of sales (H1 2017: 12.4%).

The Partnering Business generated sales of CHF 133.0 million in the period under review (H1 2017: CHF 114.1 million), which corresponds to an increase of 16.1% in local currencies and 16.6% in Swiss francs. The segment posted continued strong growth from existing instrument platforms and the consumables business.

Operating profit in this segment (earnings before interest and taxes; EBIT) rose by 32.2% to CHF 25.6 million (H1 2017: CHF 19.3 million). This positive performance is primarily a result of sales growth as well as further efficiency gains. The operating profit margin improved by 230 basis points to 19.1% of sales (H1 2017: 16.8%).

In Europe, Tecan’s sales in the first six months of 2018 increased by 19.9% in local currencies and by 24.4% in Swiss francs, with the Partnering Business performing particularly well in this region. The Life Sciences Business benefited from a stronger euro, and was therefore able to post solid growth in Swiss francs. In local currencies, sales were stable against the high base of the prior-year period.

In North America, sales in the first six months of 2018 fell by 2.5% in local currencies and by 4.5% in Swiss francs compared to the same period of 2017. This development was mainly due to the high comparative basis of the prior-year period, when Tecan posted a sales increase of 31.7% in local currencies in this region, with both business segments contributing clear double-digit growth. 

In Asia, Tecan generated an increase in sales of 5.4% in local currencies and 10.6% in Swiss francs. Both segments contributed to this result with good growth in all of the region’s key national markets.

The Fluent Gx platform variant was launched in various regions in the first half of 2018, after successful registration as a Class I medical device also in the US. Fluent Gx was developed for the automation of laboratory workflows in regulated markets. The last remaining major market segment for Fluent – the market for clinical diagnostics and other regulated sub-markets – has now been developed. Its specific functionalities, which facilitate greater process security, traceability of samples and stricter user management, have met with a lot of interest. Within the space of a few months, prestigious customers in clinical diagnostics have already been acquired who will now be able to benefit from the high level of productivity and performance offered by the Fluent platform.

Overall R&D activities and gross expenses were higher compared to the prior-year period, however due to customer funding of projects and higher capitalized development costs, net R&D expenses were reported lower. Tecan made considerable progress with a number of development projects in the Partnering Business in the first half of 2018. More than five projects are currently in the development phase, the sales potential of which ranges from single-digit to clear double-­digit million amounts in Swiss francs per year. The first market launches are expected within the next six months. 

Tecan’s equity ratio reached 71.1% as of June 30, 2018 (December 31, 2017: 68.4%). Net liquidity (cash and cash equivalents minus bank liabilities and loans) reached CHF 284.1 million (December 31, 2017: CHF 290.7 million). The company’s share capital was CHF 1,175,926 as at the reporting date of June 30, 2018 (December 31, 2017: CHF 1,166,487), consisting of 11,759,259 registered shares with a nominal value of CHF 0.10.

At the Tecan Group Annual General Meeting on April 17, 2018, shareholders approved an increase in the dividend from CHF 1.75 to CHF 2.00 per share. The payout of dividends totaling CHF 23.5 million took place on April 23, 2018. 

The Board of Directors and Management Board would like to thank all employees for their commitment and dedication. We also thank our customers for their loyalty, and our shareholders and business partners for their trust and continued support. 

Männedorf, August 13, 2018