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Zurich, Switzerland, 23 July 2002 - Tecan, a leading player in the Life Science supply industry, reported today sales of CHF 166.8 million for the first half of 2002, compared with CHF 174.5 million in the same period of 2001. This represents a decrease of 4.4% or 0.2% in local currencies. Operating profit reached CHF 23.6 million or 14.2% of sales (2001: CHF 28.2 million or 16.2% of sales), a decrease of 16.1%. Net profit for the first half amounted to CHF 16.2 million or 9.7% of sales (2001: CHF 20.9 million or 12.0% of sales), a decrease of 22.1%.
"The general slowdown in the Life Science market, which is being experienced by many sectors of the industry, continued to impact our results in the second quarter of this year. The worsening of the market conditions hit particularly our sales in Drug Discovery, but we could see some resilience in our two other markets of Genomics/Proteomics and Diagnostics. The continuing appreciation of the Swiss franc against the US Dollar and the Euro also affected our business negatively," said Emile Sutcliffe, CEO of the Tecan Group.
Mr Sutcliffe added: "While the implementation of our cost stabilisation program has allowed us to reduce our expenses to CHF 90 million for the first half of 2002, this effort is not sufficient with regard to our current level of business. Accordingly, Tecan has decided to implement immediately a cost and headcount reduction program that will affect between 8 to 10% of the company's workforce on a worldwide basis."
Second quarter: sales impacted by Drug Discovery
For the three months ending June 30, 2002, worldwide sales reached CHF 81.5 million, compared with CHF 90.3 million in the same period in 2001, a decrease of 9.7% or 3.3% in local currencies. This lower than anticipated sales level is largely attributable to a 29.6% decline in sales in Drug Discovery (-23.5% in local currencies) to CHF 23.0 million (2001: CHF 32.7 million), as well as by a shortfall in Diagnostics sales in Latin America due to local market conditions. Net profit reached CHF 6.3 million or 7.8% of sales (2001: CHF 9.8 million or 10.9% of sales), a decrease of 35.3%. Second quarter results include a one-time capitalization of CHF 2.7 million after the first successful implementation of the SAP system.
First Half: Resilience in Genomics and Diagnostics - Decline in Drug Discovery
Despite a difficult market environment, sales in Genomics/Proteomics increased by 0.9%, or 5.8% in local currencies, to CHF 36.7 million in the first half of this year (2001: CHF 36.3 million). Taking into account a strong base effect in 2001 and the shortfall in sales in Latin America, a positive performance was also registered in Diagnostics as sales reached CHF 78.6 million (2001: CHF 77.7 million), an increase of 1.1% or 4.8% in local currencies.
Drug Discovery sales declined by 14.7%, or 10.3% in local currencies, in the first half of 2002 to CHF 51.5 million (2001: CHF 60.4 million). The reduction in sales in Drug Discovery is attributable to a general contraction in demand as customers are postponing investment decisions and delaying orders.
Slight improvement in the US - Further decline in Latin America
For the first half of 2002, sales in the United States, Tecan's largest geographical market by location of customers, reached CHF 82.4 million (2001: CHF 85.8 million), an increase of 0.6% in local currencies (-3.9% in CHF). The growth in local currencies recorded in the United States in the second quarter more than compensated for the negative trend seen in the first quarter.
During the first half of 2002 sales in Europe reached CHF 66.6 million (2001: CHF 63.9 million) an increase of 7.9% in local currencies (4.2% in CHF). Sales in Asia reached CHF 14.1 million from CHF 15.0 million in the first half of 2001, an increase of 2.5% in local currencies (-5.7% in CHF). Sales in the remaining markets (rest of the world, mainly Latin America) reached 3.7 million (2001: CHF 9.8 million) a decrease of 61.9% in local currencies (-62.7% in CHF).
Stable gross margin and operating expenses offset by negative currency fluctuations
Tecan's gross margin remained stable at a high level of 68.5% of sales (2001: 67.9%) and indicates that Tecan was able to maintain the price level for its products during the entire period. Tecan's gross profit margin reached 55.1% of sales (2001: 57.0%) reflecting mainly a decrease in sales and an under utilisation of some of the company's production capacity.
During the first half of 2002, R&D expenditures reached CHF 19.2 million (2001: CHF 23.2 million) and represented 11.5% of sales (2001: 13.3%). Substantial R&D resources were allocated to the development of Tecan's revolutionary microfluidics platform, the Lab CDTM, that has many potential applications in Tecan's businesses, and to the field of Proteomics, which represents the single greatest business opportunity for the company.
Expenses (operating expenses and production costs excluding material costs) were under tight control at CHF 90.6 million, due to the continued implementation of Tecan's cost stabilization program. Operating profit reached CHF 23.7 million, or 14.2% of sales, during the first half 2002, compared to CHF 28.2 million, or 16.2% of sales, a year earlier. The continuing appreciation of the Swiss franc against the US Dollar and the Euro had a -0.5% of sales impact on the operating profit.
The net financial result was negative during the period (CHF -0.8 million compared to CHF 2.4 million in 2001), mainly due to the impact of currency exchange losses. The income tax rate for the first half 2002 could be reduced to 29.0%, compared to 32.5% in the first half of last year. Tecan's net profit for the first half reached 9.7% of sales at CHF 16.2 million (2001: 12.0% and CHF 20.9 million), a decline of 22.1%. Earnings per share declined by 22.2% to CHF 1.26 from CHF 1.62.
Strong balance sheet
At 30 June 2002, shareholders' equity grew by 13.9% to CHF 187.0 million versus CHF 164.1 for the same period last year, despite large translation differences. Cash and cash equivalents increased by 39.9% to CHF 68.7 million from CHF 49.1 million in 2001.
At the end of June 2002, Tecan employed 924 employees compared to 861 a year earlier.
Taking into account the continuing slowdown in the Life Sciences industry and the reduced visibility in the Life Sciences market, Tecan assumes, for the time being, that spending by the pharmaceutical and biotech industry will remain weak for the remainder of the year and possibly early next year. Accordingly, the company has decided to implement immediately a cost and headcount reduction program that will adjust its cost base to its current business level.
While taking a cautious short-term approach, Tecan takes into account the view of many industry experts that an improvement is likely late 2002 or early 2003. To take advantage of any upturn, the company continues to develop a strong pipeline of new products and will be introducing significant products and new applications during the second part of the year.
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