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.