Tecan Group

Good morning, everyone. Thank you for joining us for our conference call this morning. We are very pleased to discuss with you the results for the fiscal year 2023. With me on the call are our Chief Executive Officer, Dr. Achim von Leo Brechting, and our Chief Financial Officer, Tanja Micki. Before we start, as always, very briefly, some formalities. The corresponding press release announcing our financial results, was issued this morning at 6 a.m. Central European Time. Both this press release as well as the full 2023 Annual Report, including the 2023 Sustainability Report, are available on the company website tecan.com, as always under the Investor Relations tab. I just want to remind you that the call is being webcast over the Internet on our homepage, and we have also posted a PDF of the presentation slides that we will discuss on this call for download. With that, let me now turn the call over to Achim von Leo Breschtig.

Achim von Leo Breschtig Thank you very much, Martin, and good morning, and welcome to the TCAM 2023 full-year results presentation. Before Tanja will discuss the financial results of 2023 in detail, I will give you, as always, an overview of the financial and operational highlights. As you know, we published preliminary topline results for the full year 2023 already in January of this year. I'm glad to be able to say today that TCAM, despite the challenging market environment, delivered a solid performance in 2023. We had already communicated underlying sales growth in January, and I am pleased to report today an increase in profitability and net profit. We generated sales totaling 1 billion 74.4 million Swiss francs, 1.3% below 2022 in local currencies. And as mentioned, we've been able to demonstrate a solid underlying sales growth of 6.3% in local currencies when excluding the effects from lower COVID-related revenues and reduced material cost path through. The second half of 2023, TIKEN reported sales growth of 1% in local currencies, with underlying growth of 5.5%. For the full year, adjusted EBITDA was 220.6 million Swiss francs, and our adjusted EBITDA margin increased to 20.5%. Our adjusted net profit for 2023 increased by 6.5%, to 164.4 million Swiss francs, with adjusted earnings per share of 12.88 Swiss francs, which represents a 6.1 increase over last year. And our operating cash flow increased in 2023 by 25.2% to 160.6 million Swiss francs. We've made substantial progress in the implementation of TCAM strategy during 2023, with a number of successful new product launches and partnerships. We've been able to expand our core offering in laboratory automation in key growth markets and applications. As a standout example is the phase separator, which is an innovative new pipetting capability available on the Fluent Automation Workstation, representing a significant advancement for the strongly growing liquid biopsy application. We also launched the UNO single-cell dispenser, which is a new instrument featuring a unique functional consumable used for isolating single cells in research and drug discovery applications. Another newly introduced module was the MCA96, a pipetting arm with 96 channels for the fluent, which further increases functionality on our flagship platform and that has already seen high demand across all key applications of genomics, proteomics, and cellomics. We added additional new, unique solutions for prorheomic automation with products in the Resolvex product line to further strengthen our position in this important application space. In our partnering business, we've established new partnerships and saw product launches in all our OEM business fields, CAVRO, Synergens, and Paramit. The scaling of our global manufacturing sites has also progressed as planned, with serious production of CAVRO components successfully established at our facilities in Morgan Hill in California and in Penang, Malaysia. We also opened a new final assembly facility in the Shanghai Free Trade Zone in China. An additional benefit of our global manufacturing footprint has been that we've already seen a first reduction in greenhouse gas emissions from the transportation of products. The more localized production has supported our carbon emissions reduction targets. We had those targets validated in 2023 by the science-based targets initiative, which means that our emissions reduction plans have been assessed and found to be credible. This is a significant milestone we have reached as we are moving beyond the stage of having just made the commitment to the initiative and on to implementing the plans and already delivering results. We've progressed in managing our social impact as well with our workplaces in Switzerland, again receiving Great Place to Work certification, and additional workplaces in Germany, in the United States, now achieving that certification as well. There are more details about this and our full sustainability program in the annual report that came out today. At this point, I'd like to share my sincere appreciation for the TCAM teams around the world who've worked closely with our customers and our valued business partners to take us through 2023 and deliver a strong set of results, setting us up well for steady continuation in 2024 and the years ahead. Before I take us into more business updates and the outlook for 2024, I'll hand over to Tanja for more details on the 2023 financial results. Tanja?

Thank you, Achim, and good morning, ladies and gentlemen, from my side as well. I'm happy to be with you this morning to present you our financial results for the full year 2023 in more detail. Let's start with order entry and sales. Full year order entry was 1,028.1 million Swiss francs, down 9.3% year-on-year, or 4.6% in local currencies, compared to the substantial order entry in 2022. As mentioned in August, back in 2022, we still benefited from COVID-related orders, as well as orders related to the material cost pass-through still. With solid inflow of new orders close to the level of sales, the book-to-bill ratio reached a value of 0.96. Excluding the effects of lower COVID-related orders and orders related to the pass-through of material costs, underlying order entry grew in the low single-digit percentage range in local currencies. Order entry improved in the second half of the year and was just 1.9% below the previous year's figure in local currencies after a more significant decline in the first half of the year. Sales, very quickly, as nothing has changed here since we published our preliminary top line results back in January. And going through the wallable chart on the left, with 1,074,000,000 Swiss francs, reported sales decreased by 6.1% in Swiss francs and 1.3% in local currencies. As you can see, the bridge, adjusting for the foreign exchange rate, sales in 2022 were at 1,089,000,000 Swiss francs, when compared to in local currencies, sorry. As we spelled out in the past, we still booked COVID-related sales of around 60 million Swiss francs last year, or FX adjusted an amount of 58.5 million Swiss francs. We also benefited from passing through the substantially higher material costs to customers at Paramit. As we expected, these pass-through revenues decreased substantially as supply chains have normalized again. This happened even sooner and to a much greater extent than anticipated back in March last year. As these sales do not generate a margin from betting on higher material costs, this is a desirable development. The net headwind effect for 2023 was 19.7 million Swiss francs. That brought us to the jump-off basis for our underlying sales of 1.010.8 million Swiss francs. So excluding these two effects, our underlying sales increased by 6.3% in local currencies, which got us to the reported 1 billion 74.4 million Swiss francs. Looking now at the sales performance of our two business segments. Sales in the life sciences business segment reached 451.8 million Swiss francs, a decrease of 8.2% in Swiss francs, or 3% in local currencies, compared to 2022. On the upper left, you can see a similar chart as discussed on the previous slide, now for the life sciences business segment. As it is our end-user business, we generate our revenues in the different regions in the respective local currencies. Therefore, the FX impact is higher as a percentage of sales compared to the partnering business. Also, the majority of COVID-related revenues in 2022 were in this segment, and we estimate the headwind from those revenues as 35.1 million Swiss francs in local currencies. Pass-through revenues were only affecting the partnering business and are not related to this segment. Excluding the impact of lower COVID-related sales, underlying sales increased by 4.9% in local currencies. This was driven by good growth in the service business due to the higher installed base of instruments. As a result, recurring sales of services, consumables, and reagents increased to 52.8% of segment sales compared to 51% in 2022. The partnering business segment generated sales of 622.6 million Swiss francs, which corresponds to a decrease of 4.5% in Swiss francs or just 0.1% in local currencies. Going through the same bridge, adjusting for the FX impact and taking into consideration the impact of lower COVID-related sales and the lower pass-through of material costs, underlying sales increased by 7.4% in local currencies. The increase in underlying sales is primarily due to the double-digit growth in the pyramid product line, driven by the medical business, which also benefited from pent-up demand for certain medical products after the end of the pandemic. By contrast, Sales of scalable OEM components declined substantially, as these products had experienced a significant surge in demand in the prior year period, mitigated disruptions in the supply chain, and in the run-up to the transfer for the production to two new manufacturing sites. Demand for in vitro diagnostic systems for the Synergens product line remained solid, and sales in local currencies were nearly unchanged year on year. New orders in the partnering business for the full year were only slightly lower than sales. The book-to-bill ratio came close to 1. Next, let's look at sales development in the different regions on slide 9. Before discussing the details, I just want to remind you again that this regional split and the respective developments are based on the location of our customers. That means it does not reflect necessarily the regions where our products might end up. This is important as the partnering business. We usually ship products to a central warehouse of a partner, for example, in Europe, and therefore book revenues in Europe, despite these products being distributed globally thereafter by our partner. In the life sciences business, on the other hand, the location of the customer coincides with the place where the products are used. This is why I want to focus here on the life sciences business. You can see the pie chart for the full group on top, And we obviously disclose all the numbers for the partnering business as well in our press release on note 4.1 of the consolidated financial statements. So for the life sciences business segment, starting with North America. In North America, sales in the life sciences business segment increased by 5.1% in local currencies, a very strong performance, considering the high COVID-related basis of comparison and the cautious spending behavior. sales growth in North America accelerated further in the second half of 2023, rising by 13.1% in local currencies. In Europe, sales could not offset the high comparative basis and were 14.1% lower than the previous year in local currencies. In the second half, sales could catch up a bit and decrease by 7.7% in local currencies. In Asia, sales development in the life sciences business segments was very different in the two half-year periods of 2023. As you will recall, the segment recorded a significant increase in sales in local currencies in the first half of the year, but then experienced an almost identical decline in sales of 9.8% in local currencies in the second half of the year. This was mainly due to the market weakness in China. For 2023 as a whole, segment sales in the Asia dust remained almost unchanged, at minus 0.3% in local currency. Our next slide addresses our gross profits. Gross profit reached 390.5 million Swiss francs, which was 47.6 million, or 10.9% below the prior year figure. The decline is mainly due to the lower sales volume, which was also the primary factor behind the gross profit margin of 36.3% of sales. Price increases. Cost improvements and lower revenue from passing on higher material costs without a margin compensated for the decline in volume, but a less favorable product mix, higher depreciation on production equipment for consumables, and acquisition-related integration costs led to the overall lower gross profit margin. On the next slide, some comments regarding our cost structure. Thanks to effective cost control, operating expenses fell by 10.5%, and amounted to 261.3 million Swiss francs, or 24.3% of sales in 2023. Sales and marketing expenses decreased by 10% to 119.6 million Swiss francs. As a percentage of sales, they reached 11.1% of sales. At an absolute level, net research and development expenses increased to 69.7 million Swiss francs. As the share of partnering business sales has increased in relation to total sales and is less development-intensive, as the activities are largely financed by OEM customers, research and development costs decreased slightly to 6.5% of total sales. Overall, R&D activities and gross expenses, including capitalization of development costs and customer funding of OEM projects, were at 89.6 million Swiss francs. They increased slightly as a percentage of sales to 8.3% of sales with higher customer funding of OEM projects and continued investments in innovation to position the business for sustained accelerated growth. Capitalization of development costs increased to 12.3 million Swiss francs, while amortization from previously capitalized development costs was almost unchanged at 16.7 million Swiss francs. General and administration expenses decreased by 11.5% to 72 million Swiss francs and as a percentage of sales to 6.7%. Looking at the EBITDA development in more detail, our adjusted EBITDA, the earnings before interest taxes depreciation and amortization, was slightly below the previous year level, mainly due to lower sales volume and the negative impact from exchange rate movements in major currencies versus the Swiss franc. The adjusted EBITDA margin nevertheless increased to 20.5% of sales due to effective cost control and further efficiency gains. Now, looking at the operating profitability on a segment level, reported EBIT in the life sciences business, that's earning before interest and taxes, reached 84.4 million Swiss francs. The operating profit margin rose to 18.3% of sales, supported by a higher gross margin, price increases, and cost control, and despite the lower sales volumes and an adverse exchange rate effect. Reported debits in the partnering business amounted to 64.4 million Swiss francs, while the operating profit margin reached 10.3% of sales. Keep in mind that the integration costs and amortization of acquired intangible assets in connection with the acquisition of parameters were recognized for the group in the partnering business segment. Other factors negatively impacting the segment margins were the lower sales volumes with corresponding negative economies of scale and a more negative product mix. On the positive side, we implemented tighter cost controls and we also saw price increases in the partnering business as they contractually kicked in at the beginning of the year for our Synergion instruments Net profit on the next slide. Adjusted net profit increased to 164.4 million Swiss francs, 10 million Swiss francs or 6.5% above 2022. Looking at the main factors, adjusted EBIT has decreased. Positive effects came from the financial results and a lower tax rate, which decreased to 1.3% compared to 15% in the prior year period. Yes, the tax rate was at 1.3 percent due to an acceleration of measures related to the Swiss tax reform. While we originally planned to spread the tax benefits of the Swiss tax reform over two years and hence keep the 15 to 17 percent projected tax rate up to and including 2024, we have decided for an earlier switch to the Swiss tax reform related measures and bring the full impact forward to 2023. This is mainly due to the minimum taxation coming in force in 2024, which we are anticipating to impact us with projected tax rates going forward now in the range of rather 17%, 19% as of 2024 onwards from the previous 15% to 17% before. But please keep in mind these higher rates are an IFRS view and they do not fully impact our cash flows. Very quickly, EPS on the next slide. Earnings per share increased to 12.88 Swiss francs, which is the highest level ever achieved. The number of shares outstanding was at 12.8 million at the end of 2023, compared to 12.7 million the year before. Based on the solid underlying sales growth and an increase in profitability, net profit and cash flows for the full year 2023, and on the basis of an ongoing positive business outlook, a board of directors will propose that the company's annual general meeting on April 18, 2024, an increase in the dividend from 2.93 Swiss francs per share. Half of the dividend, that means 1.5 Swiss francs, will be paid out from the available capital contribution reserve and is therefore not subject to withholding tax. We continue with the cash flow on slide 16, and a very positive development after a period that was affected supply chain disruptions, and higher inventories to ensure our delivery capability. Cash flow from operating activities increased by 25.2% to 164.4 million Swiss francs. Again, keep in mind that in the prior year period, we had increased our inventories and 50 stocks. These inventories have now been increasingly reduced again. Also, our DSO, the base sales outstanding, improved to 45 days from 49 days. The cash flow from investment was at 84.2 million Swiss francs. You see some of the elements on the slide. Moving on to the cash flow from financing activities, this figure includes the dividend payments we made in April 2023 in the total amount of 37 million and increased over the prior year period as the dividend was increased steadily over many years now. Thanks to the strong cash flow, our net liquidity position increased to 112.6 million Swiss francs compared to the 41.2 million on December 31, 2022, and 61.7 million on June 30, 2023. With this, I now hand back over to Achim von Leopresting again.