Tecan Group

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results for the first half of 2024 with you. With me on the call are our Chief Executive Officer, Dr. Achim von Leo Brechting, and our Chief Financial Officer, Tanja Micki. Before we begin, let's quickly go over a few formalities as usual. The corresponding press release Announcing our financial results was issued this morning at 6 a.m. Central European summertime. Both the press release and the 2024 interim report are available on our company website, teken.com, under the investor relations tab. I'd like to remind you that this call has been webcast live on our homepage. And additionally, the PDF of the presentation slides, which we will be discussing during this call, is available for download. With that, let me now turn the call over to Achim von Leo Prechte.

Achim von Leo Prechte Thank you very much, Martin. Good morning and welcome to the TECAN 2024 half-year results presentation. Before Tanja will discuss the financial results of the first half of 2024 in detail, I will give you, as always, an overview of the financial and operational highlights. Our results for the first half of 2024 reflect the challenging market environment, with sales decreasing by 11.6% in local currencies compared to the same period last year to 467.2 million Swiss francs. As our profitability is highly dependent on volume, this is reflected in an adjusted net profit for the first half of 2024 of 36.5 million Swiss francs resulting in an adjusted earnings per share of 2.86 Swiss francs. Adjusted EBTA is 67.9 million Swiss francs, with an adjusted EBTA margin of 14.5 percent. The decline in sales is due, in large part, to reduced spending in the biopharma sector, where a reduction of more than 25 percent accounts for more than a third of the decline in sales overall. General market weakness in China is another significant factor contributing to more than a quarter of the total sales decline. The market weakness in China affects both our direct sales and our indirect business through its impact on our global OEM customers. Avro components saw a more substantial decline as customers reduced their inventories more slowly due to the weaker end markets. We saw this especially in the life sciences, where many of our OEM CAVO customers experienced the same challenges with their instrumentation businesses. We do now anticipate that these challenging conditions will continue longer than originally expected, and accordingly, we have reviewed our outlook for full year 2024. I will go into this in more detail after the financial part. It's important to note that while the challenges we are seeing in the end markets in life science research and pharma abroad, we do, however, view these as temporary. There's been great interest for our newly launched products. Our book-to-bill ratio has returned to about one, and order entry improved in the second quarter of 2024. Other signs of stabilization include consumable sales in the life science business, which showed only a slight decline compared to the previous year, as well as the robust service business, which grew in 2023 and has remained stable based on a high level of installed instruments. In the partnering business, excluding the impact from market weakness in China, the trend regarding Synergen's IBD systems is encouraging, and sales of the Pyramid product line remained at the high level of the prior year period. New partnerships in the partnering business are an additional positive indication. Turning to our operating highlights for the first half of 2024, we have made significant progress in implementing TCAN's strategy, including the successful commercialization of new products in both business segments. In the area of genomics, the phase separator, which I discussed in March already, has gained further substantial momentum since its launch last year, attracting strong interest from both existing and new customers. This innovative technology represents a significant advance in liquid separation, which is crucial for fast-growing workflows like cell-free DNA sequencing in liquid biopsy applications. Targeting the area of proteomics, earlier this year, TKN launched the Resolvix i300, which automates mass spectrometry sample preparation, cleanup, evaporation, and resuspension, and can be integrated into the fluid platform or corresponding OEM product. Mass spectrometry is essential to most proteomics analysis, and the i300 successfully addresses evolving customer needs for faster throughput and reproducibility. We also had a very good response to the SPARC CYTO3D, which enables the analysis of complex 3D models, such as spheroids, organoids, and organ-on-chip systems. SPARC CYTO3D is allowing researchers to develop drugs and treatments closer to the conditions in the human body. It also enables clinicians to test more patient-specific treatments and drug combinations in, for example, cultivated patient cancer cells. In the partnering business, there's been robust project activity across all three business lines, and what we're seeing as well is the combined strengths of these, where projects have been secured, for example, at Paramit, because of synergies with Cavro and or Synergens. This is what we'd expected, and it's rewarding to see it materialize and to be accelerating our deliveries to new customers. In the first half of 2024, we've also further scaled up our global operations and strengthened our commercial capabilities. We have established a sales office in South Korea by acquiring a longstanding distributor, so we have good continuity there and a deep knowledge of TCAM products. And we are pleased with a successful FDA inspection in Penang, where we've now got an even stronger foundation to produce medical devices in Malaysia, including Class III devices. Our strong sustainability program has continued to make progress in ensuring we're fully compliant with the new legal requirements in Switzerland around transparency and reporting. With this, we are also well set up to meet European requirements. Our focus is on effective management of risks and opportunities, and having a positive impact in line with our business purpose, rather than on compliance only. We describe our sustainability program in more detail on our tecan.com website. Before handing over to Tanja, I would like to note that our Tecan colleagues continue to work with passion and dedication in the first half of 2024, ensuring the best possible support for our customers and partners. It is a testament to the strong corporate culture at Tecan that the energy and engagement is very high, even when the external context is quite challenging. I would like to give my heartfelt thanks to the teams around the world who stayed focused in the first half of the year and who set us up well going forward. And now I'll hand over to Tanja for more details on the 2024 half-year results financials.

Thank you, Achim. And good morning, ladies and gentlemen, from my side as well. I will now provide you with a detailed overview of our financial results for the first half of 2024, starting with order entry and sales. AHIM has already covered the key drivers of our order and sales development in the first half of the year, primarily focusing on the weak market environment for instruments and the instrument components. Let's review the numbers in detail. Order entry for the first six months of the year was 472.2 million Swiss francs, a decrease of 12% year-on-year, or 9.9% in local currencies. It is important to note that order entry improved sequentially in the second quarter. As a result, orders exceeded sales in the first half of the year, and the book-to-bill ratio returned to a level of above one. Reported sales in the first half of 2024 increased by 13.7% in Swiss francs and 11.6% in local currencies to 467.2 million. This is compared to a higher base than most peers, as we reported a 6.8% increase in underlying sales in local currencies during the prior year period, outperforming the majority of them. We have already discussed the main drivers impacting sales developments. Looking at the sales performance of our two business segments. Sales in the life sciences business segment reached 187.5 million Swiss francs, a decrease of 18% in Swiss francs or 15.5% in local currencies compared to the first half of 2023. The impacts are even more apparent here with nearly three quarters of the decline in segment sales attributable to reduced instrument sales to biopharmaceutical companies in Europe and North America, as well as market weakness in China. Regional sales in China also provided a high basis for comparison, as segment sales there rose by around 10% in the same period of the previous year. Consumable sales in the life sciences business stabilized, with only a slight decline compared to the previous year and the service business remained stable at a high level. On a positive note, order development in the life sciences business improved sequentially in the second quarter, resulting in a book-to-bill ratio above 1. The partnering business segment generated sales of 279.6 million CHF in the period under review, presenting a decrease of 10.6% in CHF and 8.8% in local currencies. No additional sales from the pure pass-through of material costs were recorded in the first half of 2024 compared to the 7 million we recorded last year. As I mentioned on previous calls, this positive development indicates that supply chains have normalized. Sales of in vitro diagnostic systems in the Synergens product line remain stable overall, outside of China, with many customer accounts showing growth. However, market weakness in China impacted both direct sales and global OEM customers for these systems, leading to a moderate overall decline. Savro OEM components saw a more substantial decline as customers in the life science and diagnostic sectors reduced their inventories more slowly due to weaker end markets, which impacted the demand for instruments of our OEM customers. Sales in the Bahamian product line, which primarily serves the medical market, were nearly at the high level of the prior year when adjusted for the pass-through revenues of material costs. New orders in the partnering business were approximately equal to sales, resulting in a book-to-bill ratio of 1. Let me also point out that in partnering, a book-to-bill ratio of 1 is typical as we book orders and sales simultaneously for an increasing share of our segment sales, following the OEM business model. Our next slide addresses our gross profit. Gross profit reached 160.8 million Swiss francs, which was 43.8 million below the prior year figure. The decline is almost exclusively due to the lower sales volume. Price increases, efficiency gains, and cost improvements as well as lower revenue from passing on higher material costs without a margin, compensated only for a smaller part of the resulting decline of the gross margin. On the next slide, some comments regarding our cost structure. Thanks to effective cost control, operating expenses decreased by 5.3 million and amounted to 137.8 million Swiss francs, or 29.5% of sales. In managing costs, we focused on discretionary spending such as travel expenses and personnel costs, for example, not replacing headcounts. Sales and marketing expenses decreased by 4.6%, primarily driven by reduced revenue-based compensation, while staying prepared to leverage market recovery opportunities. In research and development, we have successfully decreased costs through efficiencies and our modular platform approach. we continue to sustain strong investment in innovation with multiple new products currently in the pipeline. Our total growth R&D expenditure, including customer-funded OEM projects, stands at 43.7 million. It's worth noting that customer funding for new OEM development programs has remained at the high level seen in the prior year. General and administrative expenses increased due to one-off corporate costs related to IT systems, M&A activities, and legal fees. However, it's important to highlight that our underlying costs have decreased thanks to the cost-saving measures we have implemented. Looking now at the EBITDA development in more detail, our adjusted EBITDA, the earnings before interest, taxes, depreciation, and amortization, decreased to 67.9 million. As profitability is highly dependent on volume, the decline in profit is almost exclusively due to lower sales volumes. Accordingly, the adjusted EBITDA margin amounted to 14.5% of sales, including a negative effect from foreign exchange rates of around 50 basis points. Looking at the operating profitability on a segment level, what you can observe is that the same key drivers are affecting both business segments similarly, resulting in the EBITDA margin development being primarily impacted by negative economies of scale. With that context in mind, let's move on to figures. Reported EBIT in the life sciences business at earnings before interest and taxes reached 12.6 million Swiss francs, and the operating profit margin amounted to 6.6% of sales. Reported EBIT in the partnering business amounted to 22.5 million Swiss francs, while the operating profit margin reached 8% of sales. Net profit on the next slide. Adjusted net profit amounted to 36.5 million. I would like to add a comment on our tax rate, which has increased to 20.5%. The tax rate is significantly influenced by the Swiss tax reform and related measures, as well as the OECD's Pillar 2 minimum taxation. However, please note that this is an IFRS perspective and does not fully impact our cash flows. On a cash basis, we significantly benefit from the reform. The Swiss tax reform in particular can cause substantial fluctuations in the IFRS tax rate. We have recognized the full benefit of the reform as a deferred tax asset, which is now being amortized linearly each year. This resulted in a write-off of 3.4 million Swiss francs in the first half of the year, independent of sales levels. Consequently, if sales and therefore profit decline, as observed in H1, the tax rate increases more significantly. Again, this pertains to the IFRS tax rate. EPS on the next slide. Very quickly, earnings per share reached 2 Swiss francs and 86 cents. The number of shares outstanding was again at 12.8 million at the end of June. We continue with the cash flow on slide 15. Cash flow from operating equity amounted to 43.4 million Swiss francs. Our DSO, the day sales outstanding, was at 51 days, five days higher compared to the prior year period, mainly due to some payments from large customers arriving in the beginning of July and are therefore not of a concern. The cash flow from investments was at 13 million Swiss francs. You see the key elements on the slide. Moving on to the cash flow from financing activities, this figure includes the dividend payments we made in April 2024 in the total amount of 38.3 million, an increase over the prior year period as the dividend was increased steadily over many years now. Cash flow from financing activities also includes 12.5 million for the purchase of treasury shares. Finally, our net liquidity position stood at 87.6 million Swiss francs as of June 30th, 2024. With this, I now hand back over to Achim von Leopresting again.

Thank you very much, Tanja. Turning to the financial outlook, I spoke earlier about the general weakness we're seeing in the market and the speed of recovery being slower than we previously anticipated. This has been apparent in the sales development, and it leads us to revise our guidance for the full year 2024 from an anticipated sales outlook of growth in low single digits in local currencies to range from prior year level to a decrease in the mid single digit percentage range. What we've seen in 2024 is that the market weakness is persisting longer than anticipated, with restructurings and reduced capex spending in the biopharma sector, as well as a more pronounced decline of direct and indirect sales in China. We do see positive signs regarding funding in academia and government accounts for the second half of 2024. However, overall, the pace of recovery is slow. Also, we don't expect to see an impact from the stimulus program in China much before 2025. On a positive note, I want to emphasize once again that our various new products and partnerships continue to gain significant traction. As I mentioned before, our profitability is closely tied to sales volume. If sales remain at prior year levels, we anticipate achieving the 20% adjusted EBTA margin we projected in March. However, if sales decline, the margin will be impacted accordingly. This leads us to provide an adjusted EBTA margin outlook range of between 18 and 20 percent of sales. To mitigate the lower sales volumes, rigorous cost management and cost-saving programs have been defined and are already being implemented. Executing a plan that was already in place and in the context of reducing our cost base, we have also further reduced our sites in the U.S. and are consolidating a second site into our Morgan Hill campus. 2024 has proved to be a more challenging year than expected, but we do see these effects as temporary. Because of this, we are confident in reaffirming our midterm outlook. We expect a return to sales growth that outpaces the average growth rate of the underlying end markets, anticipating in the midterm a return to average organic growth rates and in the mid- to high single-digit percentage range in local currencies. normalization of the market potentially beginning as early as 2025. Our strong financials will continue to support our organic and inorganic strategic expansion in the Americas, Europe and Asia. With normalization of the market we expect to grow top line by continuously improving profitability. We will also continue to enhance profitability through further operational efficiencies leveraging synergies across our diverse business areas, vertical integration, and our modular platforms, just to list some of the key drivers of our margin development journey. Based on this, we expect an average annual increase in the adjusted EVTA margin of 30 to 50 basis points. This will reflect our track record over the past decade, where we've consistently brought additional growth over and above that of the underlying market both through organic growth and strategic M&A. If we look at the last decade, TCAN has a proven track record of robust growth, consistently outpacing the average growth rate of our underlying end markets. The underlying market growth rate has been 3% to 5%, whereas TCAN has demonstrated an average organic growth rate of 8.1% in local currencies. With strategic expansion through M&A added in, TK's average growth rate is even higher, bringing the CAGR to 12.8% in local currencies. Our balanced growth strategy involves expanding through a combination of organic growth and strategic M&A. Looking ahead, we are committed to maintaining this growth trajectory and ensuring long-term profitability improvements. Turning to the growth drivers we're looking at, again, it's worth noting the solid foundation the underlying markets provide. Megatrends for life science research and the clinical and medical market segments are fundamentally strong and intact. In fact, I believe we are entering a phase that will bring incredible advances, particularly in disease research, drug development, diagnostics, disease monitoring and treatments, leading to more effective prevention and therapies. Liquid biopsies, for example, can identify cancer occurrence and enable continuous patient monitoring through sequencing using minimally invasive blood testing. Combined with mass spectrometry, which offers additional insights into tumor-relevant proteins, clinicians will be able to obtain more complete fingerprint of a cancer, forming the basis for effective targeted treatments and prevention, leveraging even larger data sets, and possibly artificial intelligence. Many of TCAN's customers and partners are actively developing those research and clinical applications with our solutions as we speak. PENSA, however, is only one of the many healthcare fields where TCAN's competence to scale innovation globally will advance the fields of life science research, diagnostics, treatment and prevention, ultimately improving patient outcomes and healthcare economics. I'm excited about these advances as TCAN is exceptionally well positioned to benefit from them. We are in an excellent position to meet the increased demand for laboratory automation and scaled healthcare solutions, launching innovative new products in the key application areas of genomics, proteomics, cell biology, and medical mechatronics. As you know, our focus extends beyond instruments to encompass the full range including consumables, reagents, services, and an increasingly competitive differentiation through digital solutions. We continue to demonstrate valuable innovation, including through modularity, delivering cutting-edge solutions in key growth applications. I mentioned some of these already at the beginning of the session, and we'll have more to show in terms of new products in the coming months. We're continuing our strong innovation roadmap to expand our competitiveness, and our market reach. Ahead of us are major product launches, and I look forward to sharing more details with you soon at the upcoming Capital Markets Day in October this year. In the partnering business, we continue to develop new strategic partnerships in the life science research, in vitro diagnostics, and medical mechatronics, leveraging synergies across all business offerings. Commercial expansion is being achieved through our increased footprint and channels in key regions. I mentioned already our new direct sales capabilities in South Korea, and we do see additional opportunities to take this step elsewhere, as well as developing the pyramid sales organization beyond the U.S. and continuing to leverage the potential offered by our e-commerce platforms. We are also continuing to focus on leveraging our strong financial position for further inorganic strategic expansion through M&A, M&A will continue to be our primary capital deployment strategy. And yes, 2024 has proven to be more challenging, but for the reasons I just discussed, we have full confidence in our midterm outlook, anticipating a return to our usual growth rate in the mid- to high-single-digit percentage range in local currencies. In fact, I am enthusiastic about the underlying market fundamentals in healthcare and that TCAN is better positioned than ever to benefit from them. Very much like to share more details with you at the Techland Capital Markets Day on October 22nd. We will be hosting the Capital Markets Day here in Menedorf in our lab in Homkrestikon. Registration is now open, and there will be a limited number of spaces for participation in person, so please do register early. The portal is open on techland.com under the Investor Relations tab, and we'd love for you to join us. With this, I thank you very much for your attention, and we can start the Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comments in writing via the relative field. Anyone who has a question may press star and 1 at this time. The first question from the phone comes from Aisha Noor with Morgan Stanley. Please go ahead.

Good morning. Thank you for taking my questions. I had two, please. The first one is on the cost improvement measures you talked about. If the sales decline for the full year does indeed end up at the mid to maybe high single digit declines for the full year, would that be a trigger for you to enact more drastic or intensive cost savings measures? or are your existing efforts adequate in your view? And maybe related to this, how does this shape your thinking around the structural margin for the business going into 2025? The second question was just a housekeeping or technical one around the depreciation costs, which I note was around 7% of sales in the first half of the year, which is a little bit above where we saw it in 2023, and indeed almost double what we saw in pre-2020. If you could just kind of... call out any drivers there to the depreciation cost. That would be helpful.

Hi, Aisha. This is Tanya. Thank you for your questions. I mean, from the cost improvements, we have mentioned or we can mention what we did. I mean, we basically focused, as I said, on discretionary spending, such as travel expenses and personnel costs where we did not replace headcounts. but also had a lower round of salary increases. So basically, we excluded the management levels. We also had some sustainable measures, which were strategically implemented in three key areas. We streamlined our portfolio at Seeking Genomics, resulting in headcount reductions in both the US and Europe. And we are now concentrating on higher volume products, serving key account customers, focusing on our MagicBrack NGS and the respective free agents for these instruments. We also adjusted our production workforce to better align with market developments, primarily impacting our California operations. And we realigned our engineered resources in the medical field at our Boston site to better meet market demands. So we are executing a plan that was already in place. And in the context of reducing our cost base, we have also further reduced our sites in the U.S. and consolidated a second site into our home organization. We expect for 2024 a total of around 15 million, and on an annualized basis going forward, around 10 million Swiss francs. So do we need to do more of those in the second half? At this stage, we do not plan for this. But again, if there is a requirement, we've always said that we are fairly flexible on that side, and we will again look at those. So that I hope answers your first question. On the second question, I think the percentage is mainly coming from the lower volume, basically, because from the total, we are very much in line with last year. Of course, we had some things which were more impacting but not so much higher, like a little bit higher amortization in the R&D and a little bit higher depreciation related to the consumables lines that we had. So that would be, for me, the main impact. But, of course, I can take a look a little bit closer to that and come back to you if that doesn't answer the question.

That's perfect. Thank you so much.

Yes, good morning. Thank you for taking my questions. I have three. First of all, please, I was trying to understand what has changed in the environment versus your guidance setting in March that the H1 results came in probably softer than you anticipated. given the arguments that you have stated seem to be very much in line with what you have provided as information in March. The second question is you're talking about destocking at Kavro. Maybe I've missed that earlier on, but it sounded almost like you were talking about stabilization on the Kavro component side when we spoke earlier in the year, like March, and then at conferences as well. And then I was also wondering whether you could provide us a bit of an insight into how July and so far August has shaped up. Are you seeing the recovery that you would need to see to get to the flat sales already? Thank you.

Thank you very much and good morning, Naya, and thanks for your question. I mean, clearly what I try to get through in my introduction, we've seen the dynamics, particularly around the biopharma segment, which affected mostly the life science business and the recovery there, substantially slower than anticipated. And as you recall, our previous discussions, we continue to see very substantial funnels and interest in programs around lab automation for pharmaceutical companies in Europe and North America. However, the release of CAPEX has not if you want, accelerated or project dynamics in the funnel have not improved throughout that period. So that's why we continue to look at the biopharma segment as very slow and the funnel mobility being extremely soft and weaker than we originally anticipated in Q2 and then H2 recovery. You also, of course, have seen quite some restructurings in some pharma companies and even site closures in the first half. And that's why we believe in the second half that recovery and then mobilization of the funds, particularly in the segment, will continue to be slow. We believe it will improve, but not to capture the gaps that we have seen already in the first half of this year. China, I would say, has continued to be soft, but the magnitude of the decline, both in our direct business, but also particularly affecting our partnering customers on the indirect business has again been significantly stronger than we originally thought and also learned from discussions with our partnering clients. So that was another element where we were looking at a scenario where also hopefully the stimulus packages that we and others in our space continue to see and then be very active in quoting the mobilization of the stimulus packages now, we believe, will not materialize before the very end of 24, and if not going to 25 because of process and the focus of the stimulus packages on other industries in the first round. And then lastly, you mentioned it also, CAVRO is affected to some extent, and the destocking is maybe a term that I would need to explain in two layers. One, we had seen some stock up of Cavro accounts ahead of our site move from San Jose into Penang, Malaysia. And that was, of course, affecting already H1. But what we're looking at right now is quite a substantial number of Cavro component accounts, which are predominantly in the life sciences and or biopharma segments, seeing the same softness. And as you know, I mean, we are very exposed to application areas like sequencing there. And you just need to read the report of the affected companies that they've seen similar slowness of demand in that regard, more in academic and governmental accounts. So it's a combination of the previous stocking effect and now a slower, if you want, destocking because the consumption of these existing levels of inventories is affected by the slowness of the respected end markets that our Cabo clients see in their face. And I mean, to your point, of course, you know, I mean, we are very carefully assessing the situation, you know, all the time. So when we now communicate the new range of guidance, the July and early August performance and trajectory was included there, So clearly that's part of now our decision to revise the guidance for the second half of this year.

Okay, thank you.

The next question from the phone comes from Odysseas Manisiotis with Bernberg. Please go ahead.

Hi, thanks for taking my questions. It's a bit of a follow-up to Maya, the first one. I mean, not asking about March, but asking towards June, where I think you were in conference appearances, you were still remaining confident on the four-year target. I just wanted to ask whether there was anything that changed on a short notice around the close of the first half, as in orders being scheduled for June, pushed out for H2, and if you could quantify this. And secondly... I mean, given that the implied margin guidance for H2 does come across quite optimistic, even if we add the sort of 10, 15 million of cost savings that you mentioned, Tanya, could you remind us of, could you help us bridge between the mid-teens in H1 to the low 20s implied in H2, and especially regarding factors of volume and that 10, 15 million? that you get from the cost savings. Thank you.

Hey, good morning. I probably start off and then Tanya will also add additional color on the margin expectation for the year in H2. I mean, clearly to your point, what I tried to communicate also to the question of Maya, we had seen and had expected quite some larger, particularly biopharma programs materialized towards the end of H1, which did not come in, not because we lost them, not because some technical issues, simply because customers were continuing to push out and claiming insecurity of the environment and reluctance of management of these affected companies to release Cupex oils, which were quite substantial amounts of larger programs around our lab works, capabilities in life sciences, I would say, more straightforward automation systems. But this was mostly affecting the biopharma segment. And the other part that, of course, we had been starting to see then, but we were not really aware of the magnitude, were I would call them air pockets in China, where customers in China, although funded and although ready to execute orders, were now pulling back orders in the later weeks of the first half to wait for the stimulus packages to come in and basically pausing orders and then applying for the tender allocations through the Chinese stimulus program. So there is a bit of a double whammy, if you want, on the China side where we expect the stimulus programs not to materialize before end or even starting there or into 25, the reverse is true that quite a few customers are actually deciding to not place direct orders out of their own financials but wait for the stimulus to come through. So that's mostly the deviation that we've seen. And the second part is, of course, also again back to the cargo side in partnering where we have received towards the half year more information from OEM customers indicating a slower pick up and pace of products in their own life sciences instrumentations, and sometimes diagnostic instrumentation, but mostly life science instrumentation that led us to reconsider the outlook for the year in the second half.

And maybe I will take the second question, Odysseus. So basically, I believe what you are or trying to understand if the range of the margin we gave and how it fits with the sales outlook. I mean, with the 20%, of course, it's the upper end of the range and the 18% is the lower end of the range. And there are, of course, any in-between scenarios possible because our profitability is closely tied to the sales volume. So if sales remain at the prior year levels, We anticipate achieving the 20% adjusted VDA margin that we projected in March. Of course, if sales decline, then the margin will be impacted accordingly, which is why we gave that range. And if you consider all the cost savings measures that we put in place, that's mainly also to inform some of the increases that we have seen from the merit increase, from material prices, So this is really to ensure that we can reach the range that we have mentioned.

All clear. Thank you. May I squeeze in a third one as well, a quick one? So you mentioned that there was a significant improvement on Q2 order intake. Could you give us a bit more color on the extent of the improvement? Any chance you have Q2 book-to-bill versus Q1, for example?

I mean, like I said, I mean, it is – combination of things. And I mean, in the first Christmas, we, for good reasons, concentrated on the kind of more challenging and weaker areas of our end markets. On the other side, we had seen, and I tried to also bring that across in some areas in life science, but also our partnering division, some good growth pockets, and if you want, silver linings of the dynamics. For example, the diagnostic testing and lab market, and particularly specialist genomics labs in our life sciences business have done quite well, and they contribute to quite some order intake in the second half. And secondly, also on the partnering side, we had seen some new and also existing customers coming in now with a quite good performance already in H1 and a more positive outlook, which is also in line with what we're hearing from other companies, particularly the diagnostic and medical space where some of these economic uncertainties for some, I would say, financial reasons are not seen as prominent and we see actually quite some good traction. So it was mostly, I would say, in the LDT testing lab space where we saw I would say good pockets of growth and the diagnostic OEM programs, like I said, new and existing on the parking side.

And maybe just adding, you know, we have seen Q2 lifting us to the book-to-bill ratio above one. So that's also, you know, adding to Achim's point that that's what we are seeing. Also as improvements coming into the second half. And again, based on those elements, we, you know, This is what our guidance is based on.

Okay, thank you.

The next question from the phone comes from Jan Koch with Deutsche Bank. Please go ahead.

Good morning, and thanks for taking my questions. I also have three if I may. I would also like to start with your H1 performance and a question similar to Maya's. I'm wondering what specifically has changed in the last six to eight months, which could explain the significant declines you have reported in H1. All the external headwinds you have mentioned are not really new. And I'm trying to understand how you were able to still grow in the middle digits in H2 last year and now to show declines in the low double digits. Then my second question is on your new guidance. You already touched on the margin bridge. But the new guidance also implies heightened and digit organic growth in H2. What gives you confidence here that H2 will be so much better? And does your new guidance require a budget flush in Q4? And finally, you mentioned that you could potentially return to your targeted midterm organic growth in 2025. When do you expect to have better visibility on 2025? And what are the most important drivers here, apart from the improvement in demand from pharmaceutical customers?

Yeah, no, and thank you very much, Jan, for your questions. Again, I can probably recapitulate what I said already on the H1 part. I mean, what has changed, and to your point, some of the trends leaving 23 were not entirely new topics, but clearly what we've seen was a much severe delay and deferral of programs particularly around the biopharma world, where, as you remember, you know, when we discussed this kind of in the March scenarios, biopharma was already softer, but the pipelines and the interest in new programs was continuing to build. So we were anticipating a much, I would say, more solid rebound in Q2 that did not happen to that extent in biopharma. And China, as I said, what really changed, again, I can repeat what I said earlier, it's been quite difficult for for the H1 period already, but what we're seeing in addition now, that programs are pushed out, or like I said, I call them air pockets, where customers are actually delaying or canceling programs and projects, hoping for the stimulus packages to come in and then basically leverage them for the business part. And I mean, Cabro, like I said, I mean, The change was a much softer forecast now from life sciences-related OEM customers that are quite substantial in the cargo side of things. And they, I mean, again, I don't want to kind of point you to the respective companies' presentations, but you see clearly also they've seen much more severe softness also in the academic and governmental accounts, which were affecting their instrument revenues in some areas quite drastically. So these are the three elements that I would say changed in H1. And to your point, I mean, what we're looking now at H2, we, of course, continue to look and engage very intimately with our customers on what they see, what the dynamics would look like. Like I said, biopharma, we're getting initial signs now that the situation is indeed easing off. It's not resolving itself. That's why I mentioned earlier the pace of recovery is slower than expected, but we're now seeing some mobility. We're getting some orders in, which were already in Q2, leading to the, I would say, more favorable book-to-bill ratio. And the other part, of course, is also related to some of the dynamic of new products and new programs, which we started to gain traction in Q1 and Q2 this year, with funnel build and project allocations, and now we're getting very good signs that some of these materialize in the second half, pointing to an acceleration of their business. So that is maybe two elements. The other element is, of course, that we are very close to our partnering clients and listening to how they see diagnostics and medical solutions developing in the second half. It's not a transformative, more positive view, but slightly more positive. And particularly on the diagnostic and medical side, things are, I would say, on a more stable ground, which is, again, confirmed by reports of some of the companies in that space in the recent Q2 announcements. And, I mean, one of the reasons why we believe also diagnostics is probably less affected is that many of these systems that we ship to our customers and invoice them by units are actually going into the markets as reagent rental programs. So there's less of a CapEx constraint for the receiving hospitals or labs to accommodate them because they're typically on five-year programs running through their financial systems. So I would say, in general, that's what we're looking at right now. Again, I think we are very careful not to bake in too much of the China stimulus packages. I mentioned this several times. We expect this to come in only in 25, but with all things considered, all the momentum and back to also the question that was asked earlier on what we're seeing in July and August, that leads us to exactly that outlook that I mentioned. It's still a range from where we look at it right now, but the range is perfectly possible. And to your last point, we are typically not counting on a big Q4 budget flush We are, I mean, in previous years after the pandemic, we have not seen it to that extent. There's maybe some of it coming back, and particularly hearing that from academic and governmental accounts in the U.S., that they are considering some of the kind of last-time activities that we've seen prior to the pandemic. But again, it's all baked into our outlook, scenarios, and the range that I mentioned before. And then, sorry, I think your third question was on 2025. I mean, clearly, I mean, the reason why, I mean, you hear me more upbeat and positive around the bitter outlook, and I was trying to phrase it carefully as early as possibly 2025, would mean that we would see a recovery of the biopharma market, which again, I think what we're looking at right now is a more temporary reformatting of some of these strategic roadblocks of these accounts. And automation remains a very important element of their infrastructure and also productivity and profitability play going forward in drug discovery. So we, again, look at very solid and good program funnels. We continue to bring out new products. What I mentioned now several times, we see very good reception of them. Again, leading to the funnel and the project list building. But again, we are looking at the scenario outlook where in the second half, we will see some recovery, but not all of it will be coming in. And that will also indicate that in 2025, we will, of course, reassess the situation as we go through the second half. And then, as I said earlier, we will give you a lot more insights on what's coming, including major new product launches in in this year still to come at the Capital Markets Day in October, which, again, I don't want to be too specific now, but there are some very meaningful, significant new products coming in the life science business, and we continue to also see very good project execution and launch patterns on our popping sites. So in aggregate, again, as we're spending very different end markets from academic government to pharma to ADT, clinical diagnostics, and the medical field, I mean, all of that kind of included, We, I think, see a very, very positive outlook in the mid-term, and again, hoping that this will start already in 2025, where some of the dynamics will ease off, particularly by a pharma and academic government.

Very helpful. Thank you. One quick follow-up, if I may. Could you help us with a revenue number for your largest customer? In the past, you have provided the sales number, but I couldn't find it in your H1 report.

Yeah, it's around 20%. It hasn't changed. I mean, we are reporting it typically on the annual report side, so it's not changed dramatically. So it's a similar number. Perfect.

Thank you.

The next question from the phone comes from Sebastian Fogel with UPS. Please go ahead, sir.

Hello and good morning. I have three questions. I would ask them one by one. The first one is regarding your sales growth development in the first versus the second quarter and how I have the year-over-year growth rate sort of developed. Are we talking there like 13% and 11% from one Q second quarter or are we talking way different jumps between quarters in terms of the year-over-year growth rate? If you can shed some light over there, that would be appreciated.

I mean, I would say the dynamic in Q2 was more positive. And we typically don't spell it out, you know, in the quarter-to-quarter comparison. But, I mean, as you heard us talk about the book-to-bill ratio and the dynamic overall, I would say we saw in many aspects more positive momentum in some areas, particularly driven, like I said, on the diagnostic, LDT, the medical side. and probably to a lesser extent in China, where I think the dynamic was a little bit more negative, even in the second quarter, and the biopharma side, again, with some exceptions, was more or less the same performance. It was more the clinical LDT and the medical pieces that started to take up more and more traction in the second quarter. So clearly, what you hear me say, there was more growth, momentum and growth de facto growth in the partnering side rather than on the life sciences side. Again, it was quite heterogeneous. The growth element in the life sciences business was particularly lab service providers and the very industrialized genetic testing labs in the second quarter. So that's roughly how the dynamics played out.

Got it. Second question would be on China and these air pockets that you mentioned over there. So does it sort of mean that we're looking definitely rather into sort of more muted growth or sort of flat absolute numbers in the second half versus the first half with regard to your China sales or anything in that regard that you want to add there?

I mean, I expect China sales in the second half not to change material. Like I said, I mean, we don't expect the stimulus packages to come through yet. We have a very high amount of projects quoted in the stimulus package, and maybe I can just mention this is continuing to grow, and it already exceeds 20 million just on the life sciences side of our business. So, I mean, let's see when these programs come through. It's too early to say. I know some of my colleagues are a bit more I would say bullish when it comes to the timing of the stimulus package, but we are not counting on a meaningful material intake of orders and revenue recognition in 2025. If things would change to the positive and programs and tenders would be released earlier, that would be more pointing towards the kind of more positive side of the range that we mentioned, maybe even some upsides.

That actually leads me to my third and last question. With regard to the full year guidance on the top line, so to achieve the higher and lower end, essentially that is pretty much a question of, A, biopharma essentially recovering, and China on the other side. Is that a fair summary, or you would like to add something there as well?

I would say it's mostly biopharma. In China, like I said, I'm not counting too much on the stimulus package that would have a positive swing to the other side, but also China. as I said now several times, affecting our OEM customers to some extent, and there I'm not expecting a kind of major recovery. But in general, you're right. I mean, the range mostly depends on the biopharma recovery, but also the traction and contribution of the growth accounts or growth segments that I now mentioned several times, Diagnostics, LDT, and Medicare, and the traction of new partners in these spaces, which, again, I would attribute it mostly to the synergens and the pyramid lines, but you're right, maybe to that extent excluding China for the time being.

That has been all my three questions. I will go back to you then. Many thanks.

The next question from the phone comes from Dominic Felkes with NZZ. Please go ahead.

Yes, good morning. A question is that you've talked a lot about the peak customers in the biopharmaceutical business and also some of them reduced preparedness for capex, also site closures. How about all these more of biotech companies, are they who are struggling? I mean, are they not really your customers or has that also had an impact? And then again, could you please elaborate a bit more on how you adjust the workforce again, especially if you could also prepare, give some information how much this impacts your operations, both in the U.S. and in Europe, and also, of course, especially here in Switzerland. Thank you.

Thank you very much, Dominique, for your questions. I would start off by answering them in this additional color that Talia wants to bring in. We will do that in the next round. I mean, to your point on pharma, I mean, I think I made this point quite several times. I mean, for us, when I talk about biopharma, we typically talk about the large global pharma companies, not so much the single compound chasing biotech companies, which are typically not taking customers. So when I talk about biopharma software, this is truly the large pharmaceutical companies, household names that are basically deferring investments at the moment. And some kind of bigger site closures had actually been going through the press in the first half, particularly affecting sites in California from one of the major global pharmaceutical developing companies. So I think, again, just to be clear, this is, in our world, biopharma is mostly large global pharma companies. that comprise quite a significant portion of our life sciences business at around 40, 45% total business volume of our life sciences division. That's why it is quite meaningful there. As you can imagine, biopharma companies are very heavily automated in drug discovery, drug development, but also we have been increasingly engaged in drug production and quality assurance of, for example, biological. It's been a quite meaningful market and growth driver for our life science division. And clearly, I would say in aggregate, most, if not all, of the large pharma companies, even the one with the kind of blockbuster GLP-1 drugs, by the way, are very cautious on spend and cost programs at the moment. On the other side, and this again, what I mentioned several times, the interest in pipeline and projects are there. So they are not kind of canceled. They are not abandoned. They are just sitting idle. And the release and the decision on when these typically bigger automation infrastructures are released and implemented is not yet clear. So that's roughly what we're seeing in the biopharma side. And again, it's mostly affecting North America and Europe. And I think just to flip back to the China question, I mentioned that also in previous calls, you know, China biopharma is an entirely different topic. This is more related to kind of the repatriation of preclinical programs by U.S. companies out of service-providing labs in China. That is something, indeed, we saw coming. But, again, the severity of the slowdown of some of these service programs company demands in China was stronger than I think we initially anticipated. Now, back to your question on workforce reduction and cost control, but maybe also, you know, flipping back to the question that Aisha asked, why don't you give a bit more color, Tanja, on what we did and also which sites and geographies were mostly affected?

No, sure. So basically, you know, if we look at the workforce, we reduced by a bit more than 100 FTEs. And the majority of that was affecting the U.S., but we did do some of the adjustments in Europe as well. We mainly streamlined our portfolio, as I mentioned before, at Ticken Genomics. That affected the headcount reduction in both the U.S. and Europe. We adjusted, as I mentioned, also the production workforce to better align with market developments, but that was primarily impacting our California operations. And then from the engineering resources that we realigned, that was mainly in the medical field at our Boston site, also to better meet market demands. So I hope that answers your questions from the measures that affected, as I said, mostly U.S.

Yes, and is this now it, or will the workforce be reduced in the third or in the second half?

No, so this all has happened mainly in July, June-July. And Manitoba was not at all in focus.

So that's it, that's about it for the moment?

Yes.

Okay, thank you.

We have a follow-up question from Maya Pataki. Please go ahead.

Yes, thank you very much. I was just wondering quickly on your streamlining in the genomics portfolio. Does that change anything strategically on the outlook for this segment? Because you've been highlighting genomics as one of your key areas of growth. And then the second question comes to your commentary around product launches that you will talk to at the Capital Markets Day. Achim, without giving us any details, but could you provide us with the information on when those launches will enter the market? Are they going to have an impact in 2024, or are these things that are only going to impact 2025 numbers? Thank you.

Thank you very much for your follow-on questions. And maybe quickly on the genomic side, As you absolutely highlighted, genomics is a key application area for us of growth, and the capabilities we have in California are essential to the roadmap. However, we have now strategically decided to focus our activities, also based on market observations and also our strategic direction, on two elements of these portfolios. One is strategic key accounts. So we are quite successful with the genomics products in large production accounts, and this is what we want to strengthen and build on. And the second element is the MagicPrep product that, again, was launched not so long ago and receives a very, very good, if you want, traction. And these are the two elements where we want to build out, if you want, the content on the MagicBox, but also focus the organization operations on the strategic key accounts, which are typically now more and more in the diagnostic, LDT diagnostic field. So the area that we did not feel where we could substantially grow and also competitively position ourselves over the last years is the area of research and academic research, but simply the portfolio of the channel were subscale and it would have taken too much effort and also the competitive nature of this market was not indicating that this is a kind of wild strategic move. So this is effectively why we streamline the organization now, focus in on these strategic elements and where we see substantial growth opportunities for the periods to come. And again, to just maybe to demystify some of the comments we made earlier, also we are migrating the genomic side into the Morgan Hill campus. which is the additional consolidation move, again, saving on overhead and infrastructure costs going forward from 2025. But the Morgan Hill campus is now in a very nice shape, critical mass, where after the move of the capital business into that site and campus, they're now moving off of the genomics business, including in a very nice production environment into the Morgan Hill facility. Wonderful. And I mean, the product launches, I mean, again, I want to reserve a little bit of thunder for the capital markets, but we will be talking about a major life sciences product launch and a platform launch for life sciences in October. So it's something we don't have in our portfolio, but it will, to your other question, only contribute to volume and profit in 2025. So we are If you want, you know, launching it at the Capital Markets Day in October, we will be starting to drive lead generation and activities around this new platform, including other products, by the way. But there's some major things coming. And the parking launches, I mean, as always, they happen continuously. And like I said several times, they're also adding quite nicely already to the more positive momentum that we're also anticipating to take hold in the second half, but then also into 2025 for sure. And there will be also additional launches both in Cabro, Synergins, and Paramit in the second half. And, I mean, let's see what we can disclose at the capital market. As you know, typically our partners are quite keen on confidentiality, but if there would be something we can mention, clearly we will outline and quantify what we're doing at the moment in partnering to our best abilities. We will talk about it in October as well. But most of what we'll be talking on the life sciences side in major new programs other than the ones that I mentioned now several times in liquid biopsy and proteomics will be affecting 25 revenues.

Understood. Thank you.

Okay. I think that brings us to the end of this session. And with this, again, thank you very much for your participation. And Yeah, we look forward to engage with you in the upcoming weeks and months. Thank you very much and have a good day.