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Zurich, Switzerland, 13 March 2003 – Tecan, a leading player in the Life Science supply industry, today reported worldwide sales of CHF 332.2 million for the year ended December 31, 2002, a decrease of 8.4% (2001: CHF 362.7 million). In local currencies, sales decreased by 3.3%. Operating profit reached CHF 44.7 million or 13.5% of sales (2001: CHF 62.4 million or 17.2% of sales) and EBITDA reached 18.1% of sales (2001: 20.5% of sales). Net profit amounted to CHF 33.0 million (2001: CHF 45.1 million), a decrease of 26.9%. Cash Flow from operating activities increased by 31.6% to a strong CHF 42.6 million (2001: CHF 32.3 million).
Emile Sutcliffe, Chief Executive Officer of Tecan, commented: “Following very strong sales growth in 2000 and 2001, Tecan has felt the effects of two major factors on its financial performance in 2002. First, an overall slowdown in spending by many companies active in the Life Science sector has impacted sales. Secondly, the fall of the US dollar versus the Swiss Franc not only lowered our sales by about 5%, but also reduced our operating profit by CHF 8 million or the equivalent of 2.4% of sales on our margin.”
Mr. Sutcliffe remarked:” Despite these unfavorable market conditions, our efforts to control costs and manage our business during this downturn have proved very effective. By maintaining our gross profit margin at a high level and implementing a cost reduction program, we were able to keep the level of our operating margin at 13.5% of sales compared
to an average of 11.7% for the Life Sciences supply industry. With an EBITDA of 18.1% we were also able to increase our cash flow from operating activities by 31.6% to CHF 42.6 million. In addition, the number of product launches was the highest in the history of the company and we should be able to see the impact of these launches over the next year.”
2 Fourth quarter sales suffer from a strong base effect, the appreciation of the Swiss Franc and a continued slowdown
Following a record performance in the fourth quarter 2001 (CHF 103.8 million), sales for the three months ending December 31, 2002, reached CHF 84.7 million, a decrease of 18.4% or -12.6% in local currencies. Compared to the third quarter 2002 (CHF 78.8 million) this represents an increase of 7.5%. Compared to the same period in 2001, fourth quarter sales in Genomics/Proteomics increased by 9.1% in local currencies, whereas Drug Discovery and Diagnostics sales decreased by 11.0% and 24.8%, respectively, in local currencies. Net profit reached CHF 9.6 million or 11.3% of sales (2001: CHF17.6 million or 16.9% of sales).
Fourth quarter Biopharma sales cautiously confirmed a positive trend towards a partial recovery. Sales in Genomics/Proteomics/Drug Discovery have increased from quarter to quarter since the second quarter of 2002. From a low of CHF 40.7 million in the second quarter 2002, Biopharma sales increased to CHF 48.9 million and CHF 55.6 million in the third and fourth quarters of 2002, respectively.
Full year results for Drug Discovery and Diagnostic sales impacted by slowdown
Sales in Drug Discovery were negatively affected by the widespread slowdown in the Life Science market. This was primarily due to reduced R&D spending by pharmaceutical and biotechnology companies worldwide. 2002 sales in Drug Discovery reached CHF 118.1 million or 35.5% of total sales (2001: CHF 130.2 million or 36.0% of sales), a decrease of 9.4% or 3.2% in local currencies. Sales in diagnostics decreased by 11.8% or 8.0% in local currencies to CHF 139.1 million or 41.9% of total sales (2001: CHF 157.7 million or 43.5%). This decrease is largely attributable to difficult local market conditions in Latin America, and by lower spending patterns in this market as of the third quarter 2002, especially for corporate accounts.
Increased sales in Genomics/Proteomics
Despite decreased sales in Drug Discovery and Diagnostics, Tecan was able to benefit from its portfolio effect or presence in four of the key Life Science markets. Growth variations in Drug Discovery and Diagnostics were partially compensated by an increase in sales in Tecan’s markets of Genomics and Proteomics. Sales in Genomics/Proteomics increased 0.3% or 6.8% in local currencies to CHF 75.0 million or 22.6% of total sales (2001: CHF 74.8 million or 20.6% of total sales).
Performance by geographic location.
Sales in North America declined by 11.0% or 3.9% in local currencies to CHF 154.0 million. In contrast Europe expanded its business as sales reached CHF 145.9 million (4.0% increase versus 2001 or a 7.0% increase in local currencies). Sales in Asia reached CHF 27.9 million (a decrease of 5.7% but an increase of 2.3% in local currencies). Sales in Tecan’s remaining markets (rest of world) were particularly affected due to difficult market conditions in Latin America. They declined by 77.5% from CHF 19.8 million to CHF 4.5 million.
Market and R&D highlights 2002
In 2002, Tecan launched the highest number of products since the foundation of the company over 20 years ago. In Proteomics, Tecan’s strengthened business model has enabled rapid entry into this new market. This has resulted in the launch of the ProTeam FFE in 2002, the cornerstone of Tecan’s modular ProTeam Suite. The modular ProTeam Suite was unveiled at Tecan’s Innovation Day in Munich, Germany, and was also on display at the first meeting of the Human Proteome Organisation (HUPO) in Versailles, France.
In Drug Discovery/Genomics, Tecan launched its LabCD-ADMET system, a revolutionary microfluidics platform, and completed its Gene Expression Suite with the launch of the HS 4800 Hybridization Station. The launch of the LabCD-ADMET system marked the successful development and implementation of new core competencies in miniaturization and microfluidics. In Diagnostics, two major partnerships in molecular diagnostics were established with Abbott Laboratories and Chiron Corporation.
In 2002, Tecan also established Tecan Europe to further integrate its European subsidiaries and to increase efficiencies. The acquisition of CST Logic GmbH, a company specializing in software development for laboratory automation and data management, was also completed last year.
Cost reduction program implemented to protect EBIT
Tecan’s gross margin remained almost stable at a high level of 69.1% of sales (2001: 68.9%) indicating that Tecan was, on average, able to maintain the price level for its products during the entire period. Tecan’s gross profit margin reached 54.4% of sales (2001: 56.7%) reflecting mainly the impact of negative currency fluctuations (representing 1% of sales) and an under-utilisation of some of the company’s capacity.
R&D expenditure in 2002 reached CHF 39.5 million (2001: CHF 43.7 million) and represented 11.9% of sales (2001: 12.1%). This amount does not include CHF 5.1 million for the amortization of intangible assets, largely in R&D. R&D resources were allocated to position Tecan in Proteomics and miniaturization and also to strengthen its existing core competencies.
The savings from Tecan’s cost reduction program, which was announced in July 2002, showed their first effects in the fourth quarter of 2002. Amongst others, personnel numbers were reduced by 8%. This was realized without reducing staff in R&D. Operating profit reached CHF 44.7 million or 13.5% of sales (2001: CHF 62.4 million or 17.2% of sales). The appreciation of the Swiss Franc against the US Dollar and the Euro had an impact of CHF 8 million on Tecan’s operating profit, representing 2.4% of sales, which amounts to almost half of the decrease in EBIT.
Improved tax rate
The implementation of a new tax strategy allowed Tecan to reduce its tax rate to 24.1% (2001: 29.4%). This improvement was partially offset by currency exchange losses. Tecan’s net profit for 2002 reached 9.9% of sales at CHF 33.0 million (2001: 12.4% and CHF 45.1 million). Diluted earnings per share amounted to CHF 2.57 (2001: CHF 3.48).
Strong balance sheet
At 31 December 2002, shareholders' equity represented 71.4% of total assets or CHF 172.0 million (2001: 180.2 million), even after the buy-back of shares for CHF 21.0 million. Cash flow from operating activities increased by 31.6% to CHF 42.6 million (2001: 32.3 million). This cash flow was primarily utilized for the company’s share buy back program. Cash and cash equivalents represented CHF 58.9 million at year-end 2002 (2001: CHF 64.4 million).
On July 30, Tecan announced a share buy back program for the repurchase of registered shares up to a value of CHF 40 million over a two-year period. At the year end, 348’943 shares had been purchased on the open market, representing 39.2% of the authorized amount.
Change in accounting policies
With the consolidated financial statements 2002, Tecan reports the income from engineering services as sales instead of as other operating income. The change is due to the increasing importance of Tecan as a solution provider. The incremental sales from engineering services in 2002 compared to 2001 were CHF 2.3 million or +0.6% of total sales. The net profit is not affected by these changes.
Due to the increasing importance of services in our products (i.e. installations), Tecan decided effective 1 January 2003 to recognize sales based on acceptance rather than on delivery. Such a change in revenue recognition is purely a deferral in time of the recognition of sales, and results in a decrease in equity in the balance sheet on 1 January 2003 of CHF 11.8 million.
At the Annual Shareholders meeting on 16 April 2003, the Board of Directors will propose an unchanged dividend of CHF 0.45 per registered share.
Tecan will remain cautious as long as the Life Science industry continues to experience unpredictable spending patterns by the pharmaceutical and biotech industries, a cyclical period of lower investments and a weak economy. Managing its business according to the criteria that reflect the current, uncertain, market conditions will remain the company’s priority in 2003.
In 2003, the company will benefit from the full-year impact of the cost and headcount reduction programs implemented in the middle of last year. Tecan also expects to take advantage of any upturn in the market conditions by continuing to develop a strong pipeline of new products and maintaining the pace of its introduction of new products.
Longer term, Tecan remains convinced that the need for increased efficiencies is paramount for a Drug Discovery industry that has to deliver much needed new therapeutics to the market. This should imply a gradual acceleration in pharmaceutical spending over time.
An analyst presentation to comment on the Fourth Quarter and Full Year 2002 results will take place today March 13, 2003 in Zurich. This event will also be relayed by live audio web cast which interested parties may access via Tecan’s Corporate home page at www.tecan.com. A link to the web cast will be provided immediately prior to the event. Additionally, the web cast will be available for replay until close of business on March 15, 2003.
Please find enclosed the press release in 3 languages.
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