Tecan Group

Thank you for joining our conference call this morning. We are pleased to share and discuss the results for the fiscal year 2024 with you. With me on the call are our Chief Executive Officer, Dr. Achim von Leo Brechting, and our Chief Financial Officer, Sanja Micki. Before we begin, let's quickly cover a few formalities as usual. The press release announcing our financial results was issued this morning at 6 a.m. Central European time. Both the press release and the 2024 annual report are available on our company webpage, tecan.com, under the investor relations tab. Our 2024 sustainability report was also published as part of the annual report this morning. I'd like to remind you that this call is being webcast live on our homepage. 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 Prechting.

Thank you very much, Martin, and a very warm good morning and welcome to the TCAM 2024 full year results presentation. Before Tanja discusses the financial results in full detail, I will provide an overview of the financial and operational highlights. As we navigate through challenging conditions, TCAN has focused on enhancing operational resilience. Throughout 2024 and in our preliminary results earlier this year, we have discussed the market developments that have shaped our performance. Globally, reduced capex spending by the biopharmaceutical industry, along with government and academic customers in the US, has impacted demand. We also observed a general market weakness in China. However, solid demand in clinical diagnostics, particularly from genomic diagnostic companies, provided a positive counterbalance. Additionally, we saw demand normalization in two areas. Firstly, we saw a positive rebound of consumables demand following the destocking after the pandemic. Separately, we saw a negative base effect in 2024 in our largest OEM account after having recorded a boost of demand in 2023 caused by the replenishment of depleted inventories. Turning to TCAN's business divisions, these market developments have had varying impacts. In our life science business, the reduced CAPEX spending in pharma globally, as well as in U.S. academic and governmental accounts, led to decreased demand for life science related instruments. Additionally, the market weakness in China negatively impacted instrument demand, and the announced stimulus had an adverse effect as customers shifted from their normal ordering path to apply for stimulus funds. However, as the implementation of the stimulus program was so slow, we booked virtually no stimulus-related revenues in 2024. Despite these challenges, our service business remains solid, supported by a higher installed base of instruments, which grew over the past years. Consumables sales showed recovery post-pandemic, and we continue to see strong interest and demand for newly launched products. In our partnering business, low demand from customers for life science-related instruments affected our CAVRO and PARAMET product lines, while weakness in China impacted our CAVRO and global Synergens IVD customers with significant China exposure. However, we observed positive developments for Synergens outside of China. In addition, the PARAMET product line was affected by customer-specific factors, including the normalized demand pattern for a key customer that I just mentioned. Turning to our operating highlights for 2024. We have made significant strides across several key areas, demonstrating our focus and ability on driving operational resilience, innovation, global expansion, and corporate sustainability. To enhance our operational resilience, we have implemented a comprehensive cost reduction program and further consolidated sites to optimize our global organizational footprint. After successfully transferring carbon component production to facilities in Morgan Hill, California, and Penang, Malaysia, and closing the San Jose site in 2023, we relocated our genomic reagent site from Redwood City to the expanding Morgan Hill campus at the end of 2024. Simultaneously, we were expanding our global commercial presence with the establishment of a new sales office in South Korea, and we achieved a successful FDA inspection in our manufacturing facility in Penang, Malaysia, laying a strong foundation for future production of medical devices, including Class III medical devices. Innovation remains at the forefront of our strategy, as we drive the commercialization of new products across both business segments. We have advanced our product portfolio with significant launches in genomics, proteomics, and cell biology. Additionally, we previewed the groundbreaking multi-omics liquid handling workstation VEA, which we launched earlier this year at SLAS 2025, the international conference and exhibition of the Society of Laboratory Automation and Screening. Meanwhile, our digital ecosystem continues to expand with products that significantly enhance laboratory productivity and access to automation. We also continued building a robust pipeline in the partnering business, with several new launches across our Synergens, CAVRO and Aramid business lines. These programs include collaborations with key partners in life sciences, lab diagnostics and medtech segments. In advancing sustainability risk management initiatives, we completed a climate scenario risk analysis to proactively address transition and physical risks related to climate change. In preparation for CSRD, the Corporate Sustainability Reporting Directive, ESG data management has been integrated into our finance function. Recognizing the importance of data quality, we implemented an ESG data management platform, and we are proud that our financial auditors conducted a limited assurance audit of key 2024 environmental and social data points. Furthermore, we have increased our purchase of electricity from renewable sources to 87%. These highlights reflect our commitment to driving sustainable growth while enhancing our operational resilience and global reach. And now I'll hand over to Tanja, who will provide more details on the 2024 financial results. Tanja, over to you.

Thank you, Achim. Good morning, ladies and gentlemen. I will now provide a detailed overview of our financial results for the fiscal year 2024. Starting with order entry and sales. Adam has already covered the key drivers of our order and sales development. It was impacted by last year's weak market environment for instruments and instrument components. Let's review the numbers in detail. Order entry for the full year totaled 903.6 million Swiss francs, reflecting a year-on-year decrease of 12.1% or 10.5% in local currencies. This decline was influenced by a shift in OEM customers' ordering patterns within the partnering business segment, as customers transitioned from larger, long-term orders in 2023 to smaller, more regular orders in 2024, following the full normalization of supply chain disruptions. Meanwhile, the live science business segment experienced moderate order entry growth in local currencies during the second half of 2024, compared to the same period in 2023. I will address more segment-specific details shortly. Overall, the group's order entry in the second half decreased by 11.2% in local currencies. We have already discussed the main drivers impacting sales development. Now let's look at the numbers. Reported sales for the group in fiscal year 2024 decreased by 13% in Swiss francs to 934.3 million Swiss francs in local currencies sales were 11.5% below the prior year period, slightly better than the revised sales outlook from October 2024, which anticipated a decline of 12 to 14%. This was mainly driven by an uplift of instruments and consumables in LSB in Q4. Sales in the second half decreased by 12.3% in Swiss francs and by 11.3% in local currencies compared to the prior year period. The sales results, were previously communicated in our trading statement on January 8, 2025, and have not changed. Let's now look at the sales performance of our two business segments, starting with the Lifescience business segment. For the full year 2024, reported sales decreased by 12.1% in Swiss francs and 10.2% in local currencies. Consumable sales showed recovery following post-pandemic destocking. The service business remained solid and there was continued strong demand for newly launched products. The share of recurring revenues increased to 57.6% of segment sales. The book-to-bill ratio was slightly above one for the full year, with moderate order growth in local currencies during the second half. Reported sales declined by 5% in local currencies in the second half, following a 15.5% decline in the first half. With this improvement in the second half, sequential growth was 13.6% when comparing the second half of 2024 to the first half of the year. The partnering business segment generated sales of 537.3 million CHF in 2024, marking a decrease of 13.7% in CHF and 12.4% in local currency. As anticipated, we did not record any meaningful sales from the pass-through of material costs in the segment for 2024, comparing to the 8 million Swiss francs in 2023. The segment-specific drivers that Achim mentioned previously are listed on the slide again, and all these factors had a more pronounced impact in the second half of the year when segment sales decreased by 15.9% in local currencies. Regarding order entry, I have already mentioned that OEM customers adjusted their ordering patterns. Despite this shift, the book-to-bill ratio remained close to 1. Our next slide addresses our gross profit. Gross profit reached 320.6 million Swiss francs, which was 69.9 million, or 17.9% below 2023 levels. The gross profit margin decreased by 200 basis points, now standing at 34.3%. Several key factors explained this difference and collectively impacted our gross profit performance for the year. The main ones being lower sales volume, as well as increased depreciation, but also some specific one-off cost adjustments, which contributed to the decline. On the positive side, we benefited from a favorable product mix, price increases, and efficiency and cost improvements throughout our cost reduction programs. Let's take a closer look at our cost structure on the next slide. Operating expenses decreased by 9.6 million Swiss francs, while including 8 million Swiss francs in restructuring-related costs. This reduction was driven by tight cost control, lower performance-related compensation, and a decrease in personnel. Sales and marketing expenses decreased by 7.9%, primarily due to lower revenue-based compensation while we maintained readiness to capitalize on market recovery. In research and development, we sustained strong investment in innovation, multiple new products either in the pipeline or relaunched. General and administrative expenses increased, mainly due to restructuring costs, as well as exceptional corporate costs related to IT systems, specifically S4HANA, as well as M&A activities and legal fees. However, underlying costs slightly decreased. The adjusted EBITDA... Sorry. These adjustments reflect our strategic focus on optimizing our cost structure while continuing to invest in key areas for growth. Looking at the EBITDA development in more detail, our adjusted EBITDA, which represents earning before interest, taxes, depreciation, and amortization, was 164.4 million switch banks, down from 220.6 million in 2023. The adjusted EBITDA margin decreased to 17.6% of sales, aligning with the revised margin outlook of 16 to 18%. Several key factors contributed to this margin development. I've already mentioned the lower sales volumes that resulted in negative economies of scale, impacting profitability, which is very highly volume-dependent. The gross profit margin played this role, along with exchange rate movements in major currencies against Swiss francs, which negatively impacted the margin by approximately 40 basis points. On the positive side, as I already mentioned, effective cost control and efficiency gains supported profitability and partly offset the headwinds, thanks to our comprehensive cost reduction program. Looking at the operating profitability on a segment level, we can observe that key drivers are affecting both business segments similarly, with the EBITDA margin development primarily impacted by negative economies of scale. With that context in mind, let's move on to the figures. In the life science business, reported EBIT reached 39.5 million Swiss francs. The reported operating profit margin decreased to 9.8% of sales. This is primarily due to the negative volume effect which resulted in missing economies of scale. Cost control measures helped alleviate the impact of slower sales volume and adverse exchange rate effects. The adjusted EBITDA for this segment was 79.1 million Swiss francs. This reflects an adjusted EBITDA margin of 19.6% of sales compared to 22.9% in 2023. Moving on to the partnering business segment, reported EBIT amounted to 46.6 million CHF, while the reported operating profit margin reached 8.7% of sales. Similar to the life science business segment, lower sales volume and the resulting negative economies of scale were the main factors affecting margin development. The adjusted EBITDA for this segment was 91.1 million CHF compared to 125.6 million CHF in 2023. This reflects an adjusted EBITDA margin of 16.9% of sales compared to 20.1% in 2023. Now let's turn to the net profit on the next slide. Adjusted net profit was 103.1 million CHF down from 164.4 million in 2023 when earnings were significantly boosted by a one-time positive effect related to transitional measures from the Swiss tax reform. Adjusted earnings per share were 8.08 Swiss francs, comparing to 12.88 Swiss francs in 2023. Several factors contributed to this change. Adjusted EBIT impacted net profit unfavorably, while on the positive side, the financial result helped to improve net profit. Additionally, the tax rate increased to 13.6% compared to 1.3% in 2023, reflecting the impact of the Swiss tax reform I mentioned earlier. As I commented in August last year, the Swiss tax reform and related measures have a significant impact on the tax rate, as well as the OECD's Pillar 2 minimum taxation. However, it's important to 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. Now, to the next slide, earnings per share very briefly. Adjusted earnings per share were 8.08 Swiss francs. The number of shares outstanding remain unchanged at 12%. Regarding dividends, based on the solid cash flows for the full year 2024 and an ongoing positive business outlook, the Board of Directors will propose an unchanged stable dividend of 3 Swiss francs per share at the company's annual general meeting on April 18, 2025. Half of the dividends, or 1 franc and 53 cents, will again 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 15. Cash flow from operating activities, 148.5 million Swiss francs compared to 160.6 million in 2023. The cash conversion improved to 15.9% of sales, up from 14.9% in 2023, and reached 100% of reported EBITDA, compared to 77.5% last year. Base sales outstanding increased to 52 days from 45 days in 2023, mainly based on lower volume, while the absolute value decreased significantly. So the higher DSO number does not reflect more overdue. Cash flow from operating activities includes 66.8 million Swiss francs for amortization and depreciation, with 13.5 million from IFRS 16, 19 million for purchase price allocation, 10.7 million from previously capitalized development costs, and an impairment of 5.6 million. Investments totaled 48.6 million Swiss francs, including 13 million in newly capitalized development costs, 17.7 million in property, plants, and equipment, and other intangibles, and a 20 million increase in time deposit. Cash flow from financing activities included 38.3 million Swiss francs in dividend payments, 28.9 million for the purchase of treasury shares, and 13 million in lease liabilities. Thanks to solid cash flow management, our net liquidity position, which includes cash and cash equivalents plus short-term time deposits, Less bank liabilities, loans, and the outstanding bond increased to 153.7 million Swiss francs as of December 31st, 2024, up from 112.6 million Swiss francs on December 31st, 2023. With this, I now hand back over to Dr. Bonneau-Questing again.

Thank you very much, Tanja. Now, turning to our financial outlook for 2025. Let's begin with the market developments that are shaping our expectations. The market environment is showing first signs of stabilization. Yet, new political uncertainties have emerged, notably the announced reductions to the National Institutes of Health NIH budget in the U.S. We also continue to see rather challenging market conditions related to China. As a result, as we enter the year, we anticipate continued softer market conditions with potential improvement as the year progresses. Now focusing on Tecan Sales outlook. Acknowledging the current market conditions, we have initiated our short-term financial outlook for 2025 with a full year guidance range from a low single-digit decline to low single-digit growth in local currencies. We expect sales in local currencies to decline in the first half with a softer first quarter and a sequential improvement in the second quarter. A more positive outlook for the second half is supported by strong reception of recently launched products and new partnerships in both divisions, along with additional launches in 2025. On this slide, we want to share the assumptions underpinning our sales outlook for 2025. Our aim is to provide you with greater transparency, helping you understand how various drivers impact our outlook. Starting with the US academic and governmental account-related sales. For the lower end of the range, we assume the announced NIH budget reduction and overall budget uncertainty in U.S. academic and governmental accounts could nearly halve our 2024 revenues of approximately $50 million generated with academic and governmental accounts in the U.S. across both our life sciences and partnering division. Conversely, for the upper end, we assume this reduction is temporary, resulting in only a decline in the teens percentage range for the year, due to a potential catch-up in the second half. At the lower end, turning to China, we anticipate a further decline of our direct and indirect business, ranging from mid-single-digit to high single-digit percentage decreases. For the upper end, we anticipate a flat performance in China, indicating market stabilization supported still only by minimal stimulus-related orders. Looking at biopharma sales, For the lower end, we foresee no meaningful improvement in sales in the second half. However, for the upper end, we expect an improvement in ordering patterns and funnel mobilization in biopharma during the second half. We are aiming to capture additional growth opportunities in the clinical and genomic testing segments, focus on driving the uptake of new products, and implement a program for replacement of legacy automation platforms. And finally, considering our largest partnering business customer, we anticipate stable sales development from this customer. And also beyond 2025, we continue to see this customer as a very important growth account overall. We hope these assumptions provide you with a clear framework for understanding the potential impacts on our sales outlook. Now turning to our profitability outlook. In 2024, we reinforced our commitment to agile cost management amid evolving economic conditions and revenue trends. We implemented a comprehensive cost reduction program and optimized our global organizational footprint. These efforts are designed to protect profitability while ensuring our growth potential remains intact. As a result, we forecast an adjusted EVTA margin of 17.5 to 18.5% of sales. Our continued focus on realizing cost synergies along with additional potential through supply chain optimization and increased vertical integration of manufacturing supports this outlook. Furthermore, we have achieved a substantially lower breakeven point reflecting increased operational resilience. And as always, this outlook does not account for potential acquisitions during the course of the year. Now turning to our midterm outlook, which we are confidently reaffirming. On sales, we aim to achieve growth that outpaces the average rate of the underlying end markets and return to average organic growth rates in the mid to high single digit percentage range in local currencies under normal market conditions. Our strong financials support both organic and inorganic strategic expansion across the Americas, Europe, and Asia. We are committed to growing the top line by continuously improving profitability. On profitability, we aim to enhance our adjusted EBDA margin through operational efficiencies, synergies, vertical integration, modularity in R&D, and cost reduction initiatives. We aim to achieve an average annual increase in the adjusted EBDA margin of 30 to 50 basis points based on the original 2024 outlook of approximately 20%. Importantly, As I mentioned before, we have reduced our break-even point, which means we are now in a position to reach the 20% level at a sales level of around 1 billion Swiss francs. So let me now wrap up with the key takeaways. We are driving healthcare innovation and profitable growth. Our strategy leverages global megatrends that drive demand for scalable healthcare solutions, positioning us to capitalize on market recovery. TKAN's life sciences and partnering business divisions synergistically empower customers across research, pharma, diagnostics, and medtech sectors. We leverage modular platforms, a leading digital ecosystem, and highly competitive services with key product launches also set for 2025. We have consistently delivered robust financial results over the past decade, providing a strong foundation for continued profitable growth. Our comprehensive cost reduction program enhances financial resilience without limiting our growth potential. Our competitive position is strong and strategy supports our midterm outlook, ensuring above-market growth complemented by further M&A activities while increasing profitability. Now, before turning to the Q&A, let me point out the upcoming events. In addition to our regular events, including the annual general meeting of shareholders on April 10 and the half-year results and interim report on August 12, I want to highlight that we have decided to publish a qualitative update for the first quarter on May 12 and one for the third quarter on October 13. This decision is in response to the special times of heightened uncertainties and requests we have received from the financial community. These updates will offer a qualitative review and assessment, not a full quarterly financial report. We are committed to providing these updates throughout 2025 and will evaluate their effectiveness and value at the year's end. With that, I thank you very much for your attention, and we can now begin the Q&A session.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that 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 disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Webcast viewers may submit a question via the relative field in writing. Anyone who has a question may press star and 1 at this time. The first question comes from Maya Pataki from Kepler-Chevreux. Please go ahead, ma'am.

Good morning. Thank you for taking my questions. I have a few actually. So let me just start. First of all, thank you very much for providing the granularity on the assumption underlying your guidance. Since you were providing us some indication on the magnitude of U.S. academia and government Would you be able to tell us where you think China ended at the end of 2024? That's my first question. The second question relates to your largest customer, where you've seen a significant decline in revenues in 2024. I do understand that there has been an inventory buildup in 2023, and therefore you were seeing the impact in 2024. You have also mentioned that there has been a change or that there has been some additional supplier to your largest customer and that the mix is changing. So I was wondering if you could provide some more details on what that means and also maybe more specifically whether there is a lower profitability attached per manufactured instrument. And then lastly, on your biopharma assumptions flat or slightly up. Is that taking into account that there might be some spending hesitancy reflecting the current political turmoil? Thank you very much.

Yeah, thank you very much, Maja, for your questions. Comprehensive as always. So let me start off by maybe just replaying what I said around the academic government accounts. And they are... The way we look at it, representing for 2024, an envelope of around 5 to 6% of our revenues that translates into 50 million in revenues overall, more or less split half-half into the life science business and the partnering business. So we have, in both divisions, quite some exposure there. And this is exactly, as you mentioned, one of the probably higher areas of uncertainty, also leading maybe to big effect on the phasing guidance that we indicated, illustrating now our work we're doing to try to understand ordering patterns throughout the year, because right now, simply due to the uncertainty, we don't even get responses from some of the accounts when they will be back in placing orders. And the same is, of course, affecting, as I said, some of our partnering business customers who are in the same realm, trying to kind of understand the annual kind of phasing and implications of the hesitancy and cuts related to academic and government accounts in the U.S. So that's just to illustrate, you know, the magnitude of what we are kind of looking at right now. In China, we ended China last year at a revenue envelope of around $100 million. That is practically down one-third from 2023 with $50 million, and that is split in life sciences and partnering industries. more or less in the kind of 50 million decline to the category a little bit more on the partnering side than on the life sciences side. And this is just, as I said, the other area that we are working very closely, both with our teams in China to understand now the stimulus funding, as we've seen now in the beginning of the year, the first stimulus-related programs coming through, not on a very high level, but at least we see some momentum building up. right now related to stimulus funds in China. On the parting side, it's too early to say because the situation is that we have still some work to do with our partners to understand their development projections for China in 2025 as it relates to IVD, but also research instruments that had a quite significant contribution to our growth in China overall. Now, on your question on the largest customer, and as always, Just want to be as transparent as I can be with giving you a little bit more context of what we're looking at right now. When you're looking at the recorded sales historically in 2024, we record around 170 million, which was still 70 or 16% above that level of 2022. So 23, as you said, was quite exceptional as it was boosted by the replenishment of depleted inventories which was a reason of supply chain disruptions from the years before. And now in 2024, obviously, we face quite a tough comparison, and sales were hence negatively affected by normalized demand patterns. And in addition, as we also said and anticipated, we did not record any meaningful sales from past through of material costs, which were still $8 million in 2023, and we saw an additional negative FX impact of 4 million in this account. Now, to your second part of the question, this customer is undergoing a model transition, which began impacting us in 2024 and will continue to do so. It is important to note that our sales per unit were higher with the previous generation compared to the new one. And for 2025, our latest discussions and forecasts accounting for the model transition and the exchange suggest a stable sales level compared to 2024. And just important to point out, this is a very long-term stable relationship where we have a preferred supplier status, and we expect also the projections in the outer years to contribute significantly to growth in that account. And that's probably as deep as I can go at the moment for explaining this very, very important relationship, which I know is of course, very, very transparently kind of illustrated in our financial planning and performance.

Thank you very much. Yeah. Sorry.

I just want to briefly comment on biopharma. And biopharma, I mean, of course, has been already in 24 been in a quite, I would say, overall global transition of strategies and re-strategizing on drug discovery, drug development, drug production regimes, locations, programs, impacted partially, I suppose, from political decisions like the Inflation Reduction Act and Biosecurity Act, which kind of forced significant changes in the profitability patterns, but also the supply chains. And what we are seeing from our side, we're starting to see maybe some of the fog is lifting in terms of account strategies where they want to execute drug discovery and development And we're working through that transition with these accounts. But we feel like, and this maybe is also one of the storylines from 24, at the back end of the year, we started to see more and more engagement of pharma companies for smaller scale, but also larger scale automation systems for, like I said, drug discovery and drug development. It continues to also be increasingly impacted by AI infrastructures that drive a very, I would say, new approach to development. Molecule identification, which is a great opportunity for us as well as we automate many of these processes on the back end. So I think overall, Biopharma, again, we're not seeing a kind of, you know, the kind of heavy launch of business kind of progression now beginning of this year, but a gradual improvement throughout the year of 2025.

That's great. Thank you. Achim, just if I may, please, to follow up. China, the 100 million that you've given for 2024, is that direct or is that also including your expectations of your customers' exposure to China?

That is both. That's what we assessed from our partnering clients' exposure. And as you can imagine, we have been in very intimate dialogues with China. the companies that we know have a kind of significant turning point. So it's an all-in envelope of life sciences and partnering accounts.

Okay, and then last, not sure whether you chose not to answer that question, but can you comment whether the profitability per instrument, you said that sales per instrument or per unit is lower for your largest customer. Does that imply also a lower margin or is it stable?

No, I would say at this point it's rather stable.

Thank you very much.

The next question comes from Jan Koch, Deutsche Bank. Please go ahead.

Good morning. Thanks for taking my questions. I also have three, if I may. I would like to come back to your largest customer. Could you confirm whether you expect to return to double-digit growth with that customer in 2026? And then secondly, one of your customers is now banned of selling instruments in China. Do you expect a prolonged time of destocking at that customer now? And then finally, what has driven the better-than-expected earnings performance in H2? Was that purely driven by the better-than-expected top line, or did the cost measurements are more pronounced than you had previously expected?

Well, thank you very much, Jan, for your questions. And just on your first one on the large customer, yes, we do believe – we will return to significant growth rates. I'm not probably guiding for single customers in this environment, but we are very confident that both with the existing relationship we have for the models that we are embedded in, which are more than just one model to say that we are quite engaged in quite a portfolio at this largest customer, as well as a continued discussion on future programs with this client. I believe that very strongly that this will be a very potential and strong growth account for 26 and the years beyond so very happy about this relationship and the long-term uh nature of what we're doing in this very important and as you also know very regulated field of medical devices so very very happy with that relationship um on china you you mentioned one specific customer which again i i have to be a little bit contained how to comment there. Clearly, this was kind of news that we are kind of working with this customer now to see how is it affecting our projections. But clearly, this was part of the unexpected as we went into the 25 guidance and business planning exercise that we're working through right now. Too early to say, but I would say right now, it is, of course, negatively affecting the performance of this customer in this specific area. area of the world. Maybe you can speak briefly about the structure of the earnings.

It's absolutely correct, Jan. There are two impacts on this. It's basically the improved volume, but also the cost measures that we implemented in June that started giving the impact. If you remember, I said that at the time that we had already 6, 7 million in the first half. That was a lot of postponed, you know, hirings and cost reductions. But then we had more the cost measures that we started implementing in June. And that, of course, started giving also the impact in the second half. That amount, this is the amount that we are saying for 25 will be annualized to around 10 million Swiss francs.

And maybe... If I may, just to kind of follow on to the China exposure and the customer question that was very specific. Of course, that is part of our guidance going into 2025. So as much as we can project it right now and what we hear from this customer, this is part of our guidance range.

Makes sense. And one follow-up, if I may. You also mentioned that you expect a safe decline in H1. Should that decline still be within the lower end of your guidance range, or should we assume a stronger decline in H1?

I'd say at the moment, when we look at it right now, we look at a moderate decline. And as probably you would anticipate, it's mostly related about academic government and some of these China uncertainties that we're baking into that assumption and some of the dynamics we ended earlier. with particularly in some partnering programs which are just now kind of going into more kind of ramp phase again for the second half. So it's a combination of things, but it's supposedly kind of far more moderate effect in the H1 versus to the prior year. Thank you.

The next question comes from Aisha Noura, Morgan Stanley.

Hi, good morning, Aqib, Tanya and Martin. Thanks for the question. My first question is also on your largest customer. Could you confirm whether the sales trend was indeed flattish in the first half and then down something like 30% in the second half? Or was the decline more even across the year? I guess what I'm trying to get at is, was the decline in the second half a function of this model transition or supplier diversification that you're calling out? Or had this already been ongoing through the course of 2024? My second question is on the NIH headlines. So could you give a bit more color on how you think these budget developments are going to impact equipment versus consumables separately? And what's your assumption for the guidance, basically? And then on the third question, it was just on the life science business, which you said in the press release saw positive order growth in the second half. Who are these orders from? Because presumably from your commentary, it doesn't sound like it's the U.S. academic segment. Thank you.

Okay, so I start off, and if I miss something, Tanja, please step in. On the largest customer, it was actually more H2-pronounced. But the biggest effect was related to the inventory normalization that I mentioned before from 2022, 2023 that was impacting the negative performance in this year. The model transition has actually in our world just started to have an effect and this is what we're working through right now. And there I would refer to you to that customer's own communication. Effectively, it was mostly related to the inventory build-up that we had at this account for the previous version, linking back to the shortage of materials that we experienced in 2022, and that led to that build-up in 2023. But it was more H2 pronounced, but that had to do with the combination of inventories and the model change, I would suppose. On your questions on, if I correctly captured it, the academic government accounts, equipment versus consumers, I mean, clearly we see consumable service going quite normal right now. We also see normally in these situations right now, it's probably a bit of an exceptional period because nothing really moves at any level, but these accounts are more exposed to detections or smaller scale devices. They're not so big exposed into automation and liquid handling. So it's more the kind of smaller range of our instrumentation or the detection range or other specific devices like our UNO dispensers and these kind of novel systems that we launched and so on. But, I mean, then linking back to the third question on the H2 trajectory, it was a combination of things, but actually the strength that we've seen in the second half, particularly in life sciences, was mostly coming from clinical accounts or clinical specialist testing accounts. So both from big lab chains, but also from these very strongly growing clinical genomic testing accounts that kind of test for various kind of disease states. So it was more in that category. I think we continued already to see in the second half of last year that academic government in the U.S. was quite hesitant because more of the political uncertainty. And that's why we also did not, and you probably also heard that from our previous communications, not see any budget flushes of notable size in the U.S., which was something we were hoping for but didn't materialize. So that budget flush, which typically comes from academic and government accounts, did not materialize in 24.

Thank you. And if I can follow up one with Tanya. So around the phasing of the margin for the first half and the second half, any color you can provide would be helpful. Thank you.

Well, I mean, that's a little bit what I answered to Jan. Is that what you wanted to know? I mean, we did have an improvement of the margins. Sorry, your question is on 2025, not on 2024.

Correct. On 2025 margins, because I know that in the second half, 2024, your sales were down 11%, but your margin exited at more than 20%. So how should we be thinking about the margin development or phasing between the first half and second half for 2025?

It would be probably similar in the sense that it follows quite a lot volume and we are at this stage, you know, implying that we will have a little bit of a decline in H1 versus H2, which should be better. So this will follow the volume part. And then from the savings part, that should be fairly even. you will have, of course, the impact of the merit increase, which will a little bit increase then on the second half, but then this will all more or less come to, I would say, a little bit better H2 versus H1.

Understood. Thank you very much.

The next question comes from Sebastian Vogel, UBS.

Please go ahead. Good morning. I have three questions. The first one is if you can share your thoughts If you can share your thoughts on the second half year order progression at partnering, i.e. on a sequential basis. Do you see that over the course of the second half year that the monthly order intake was improving by the end of the year or do you saw any some sort of development over there? That was my first question. The second question is with regard to the SAP migration. What sort of costs you plan for 2025 and is it fair to assume that that will go all into the adjustment line essentially? And then the last thing is when you described previously the developments at BioPharma, I thought that you shortly alluded also to the application of AI in the research process. But moving a bit more on a broader level, you see the uncertainty driven by the use or potential use of AI application on the research side that is starting to clear a bit and therefore also the potential negative implications on demand for your equipment or how do you see the situation Again, more on a broader landscape and less so biopharma focused.

Maybe I start with the SAP question, then we can take it out of the way. I mean, we will actually, we decided or we finalized, you know, that was always the question about capitalizing or not. So we will be capitalizing this cost. So in that sense, they first will go into the six assets, tangible six assets, and then it will be depreciated. So from that perspective, you will not see the adjusted cost, or you will see it actually in the sense of every DA, so in the D of the DA.

And maybe to the other two questions, Sebastian, and thanks for placing those. For H2 partnering orders, and I think we mentioned it throughout the discussion today, I mean, partners have kind of for quite some time, but also more pronouncedly than in the second half of 24, reverted from larger scale order placements to kind of more monthly or biweekly placements, which is mostly an effect of supply security, I would say. So, and then because customers know we can deliver the supply shortages of 22 and 23 are behind us. So there's nothing I would say to call out. I think we were working through no more kind of longer range projections and we have been in constant dialogue with our partners. And I can say the outlook for what we're gathering right now, particularly on the clinical side, I would say outside of China, is rather promising. So it is nothing to be worried about. It's more kind of mechanistic change from quarterly or half-year frame orders or top-up orders to that, I would say, more shorter-term ordering pattern, which is more reflected of the supply chain situation, as I said. The other part on the biopharma side, I mean, we have maybe just when looking at the observations, we have seen quite good improvements in order entry and funnel activity over the last four months in particular, which makes us cautiously optimistic about increased pharma spending in 25. But it is, of course, too early to say when things will more kind of substantially because it's increased, because it's an account by account conversation. And clearly, you know, just to make that point at the sideline, we have also a very high focus on safe execution on pharma, but also even more so on clinical testing labs. which we see as very well-funded, and particularly the specialist genomic labs, some of them show tremendous growth opportunities for us. So we are, A, catering still very strongly to pharma, but maybe shifted a bit our safe execution focus on where we see short-term, even higher growth potential in the clinical segments. And on your question on AI, I mean, AI is in everyone's mouth right now, also in the pharma environment. I think it's started to take inroads quite many years ago in synthetic chemistry. It's now kind of branching into the area of proteomics and protein design with the advancements, particularly from DeepMind, AlphaFold, offers kind of unprecedented opportunities to streamline early drug discovery and then funnel even more potential candidates of a variety of classes from small molecule to large molecule to mRNA to cell and gene therapy approaches into the drug development pipeline. So we work with quite a few large pharma companies right now on that coexisting ecosystem between in silico testing that requires, of course, more fundamental also wet lab testing to generate the high data quality that you need to leverage AI models more productively. So we see that as actually growth momentum once it's fully implemented. And the second element that I can say from a trend perspective, which I believe we are extremely well positioned, is the trend to use more humanized disease models in drug evaluations and drug testing to avoid the high levels of attrition in the clinical phases. And this is where you remember a lot of our discussions covering cellular technology, cellular imaging with our new spark readers, and the handling of cells and organoids and spheroids in these high-throughput environments. So I think we are... really well positioned to cater to the, I would say, new world of drug design, drug discovery, and drug development with our solutions. And now it's up to the pharma companies to really kind of decide where to do these kind of regimes in which geographies, but also which drug classes and disease areas to focus on, which is Back to the earlier discussion we had on this topic, maybe the more larger scale re-strategizing that is ongoing right now. But we are seeing more and more productive discussions coming our way with both the AI-driven drug discovery and the cell and organoid and serial-driven late-stage drug validation regimes.

Covering quickly a question from the webcast, which is relating to the 2025 outlook and the H1, H2 facing. And the question is if that is mainly related to the NIH uncertainty.

I mean, from what I said earlier, I think NIH, I mean, it's maybe too narrow. I would say U.S. governmental and academic account uncertainty is is a big portion, but also the dynamics in China, which again points to a kind of phasing in that direction. So I would say these are probably the most pronounced elements that I would call out.

There's one more question from the webcast. Operator, please.

The next question comes from Rumberga Henry at the AWP. Please go ahead.

Yes, good morning. I think you more or less answered my question already. It was related to the U.S. government and, you know, apart from the NIH, what kind of implications you're expecting and, you know, whether there's more uncertainty coming from that apart from budget insecurity. Thank you.

Yeah, no, and thanks again for the question. But as I said, I think we are kind of working maybe what I would dub a bit of a quiet period where We are not even having the information from some of our clients when they expect budgets to flow more and maybe particularly around the existing budgets, but also how they think about the new budget cycle starting in September. It's too early to say. What I can say, we are also working with our partnering clients that I have exposure to to see how they see the world developing in the scenarios that we laid out. But clearly it is right now one of the elements where not a lot, if any, decisions are taken on CapEx equipment. We see continuation, some triggers of service orders and consumables and more recurring nature continues to be kind of working relatively okay. But new CapEx decisions are right now not expected in the next few weeks to come. So there's a big element. Other than that, I think we covered most of the points. And I can just say for our outlook, we have taken a very prudent view on what to expect from U.S. governmental accounts, and then we will, as I said earlier, give you more regular updates in May and then the half-year results presentation as we learn about the trends and dynamics, how they ease off. But they are fully kind of baked into our assumptions, which you can imagine we take very cautiously right now.

There's one last question. I get the signal on the phone very quickly. Sibylla, please.

Thank you very much. I have only a question about efficiency measures. So in 2024, you had costs of 8 million. Could you tell us how many savings you realized are these 10 million coming through now in 2025 and in 2025? Besides the SAP migration, how many costs you will have for efficiency measures booked in P&L and how many savings additional? Thank you.

The savings that we are expecting are around the 10 million that I mentioned that will be coming into 25 annualized. We will have some more potentially costs around... let's call it efficiency improvement measures. Those will be probably in the low to mid-single digits. They are more related to transfer of technology, so they take a little bit longer time. But there will be also some effects starting in 2025, and then will also be more in 2026 as well. Thank you.

With that, we close up.

I would again like to thank you very much for being part of this webcast this morning. I'm looking forward to see some and many of you on our upcoming roadshows and interactions. With this, I thank you again and wish you a very good day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Goal and thank you for participating in the conference. You may now disconnect your lines. Goodbye.