The Zurich-based company Tecan found brisk sales of its equipment for medical laboratories during the pandemic. But this business is gone, and now even otherwise wealthy customers from the pharmaceutical industry are postponing investments.
The high investments made by laboratories during the coronavirus pandemic resulted in a flood of orders for Tecan. Now this business has dried up.
Annick Ramp / NZZ
The Zurich laboratory equipment supplier Tecan is hardly known to the general public, but the company has been one of the most successful Swiss industrial companies in recent years. With its analytical devices for automating activities in busy hospital laboratories and as a supplier to research laboratories in the pharmaceutical industry and at universities, the Männedorf-based company achieved high growth rates. It also benefited from a major takeover. Three years ago, Tecan took over its Californian competitor Paramit for 1.1 billion dollars.
Sales exceeded billion mark
In 2022, Tecan reported sales of over one billion francs for the first time. The increase compared to the previous year was 21 percent. As in the two previous years, Tecan’s business was also boosted by large orders related to the corona pandemic.
Due to the feverish efforts to develop vaccines and drugs against Covid-19, large investments were made in upgrading research laboratories. Laboratories in hospitals and diagnostic service providers were also forced to expand their machinery due to the sharp increase in the number of tests to detect the virus.
The boom is followed by disillusionment
But now the company, so used to success, seems to be running out of steam. Last year, Tecan was faced with a 6 percent drop in sales to just over a billion Swiss francs. In the first half of the year, the drop even reached double figures at 14 percent.
While Tecan was still struggling with drying up business in the wake of the pandemic last year, it is now apparently austerity measures at pharmaceutical companies that are hitting the company hard. In a conference call, CEO Achim von Leoprechting referred to the widespread restructuring in the industry. These also included the closure of entire sites, particularly in California. Von Leoprechting added that automation projects had not been canceled, but many customers were currently postponing investments.
Achim von Leoprechting, CEO of Tecan.
PD
Sales of analytical devices that Tecan offers for laboratories in the pharmaceutical industry fell by over 25 percent in the first half of the year. According to the company, this alone accounted for more than a third of the decline in sales. The company attributed a further 25 percent of the decline to the generally weak market situation in China. Sales to customers in the Middle Kingdom shrank by over a fifth, while revenues in the main sales market of North America fell by 11 percent and in Europe by 16 percent.
Hiring freeze and layoffs
The sharp decline in sales volumes weighed heavily on the company’s profitability. The return on sales at the operating result (EBIT) level fell by more than half, from 11.6 to 5.6 percent. In the peak year of 2022, the EBIT margin was still 18.5 percent.
Without countermeasures on the cost side, the earnings situation would probably have deteriorated even more. Tecan saved on travel expenses and refrained from filling vacant positions. In addition, more than a hundred jobs were cut on a full-time basis, mainly at locations in the USA.
Higher tax burden due to OECD minimum tax
The group result shrank by 58 percent to 22.5 million francs in the first half of the year. The higher tax rate also had a negative impact. It reached 20.5 percent, after being just over 15 percent in the same period last year. The company management attributed the significant increase to the introduction of the OECD minimum tax rate in Switzerland.
Analysts reacted with horror to the publication of the figures. Representatives of Bank Vontobel spoke of a “very weak” half-year result. Tecan’s share price collapsed by 17.3 percent to 270 francs on Tuesday. Three years ago, when the high expectations surrounding the booming business in connection with the corona pandemic and the takeover of Paramit had reached their peak, the price had risen to almost 600 francs.
No improvement expected before 2025
In addition to its poor business figures, which fell well short of market expectations, the company also upset investors with revised forecasts. Sales in local currencies for the full year are no longer expected to increase by a low single-digit percentage as previously forecast, but are expected to stagnate at best. The target value for the adjusted EBITDA margin, a key figure that investors pay much attention to, has been cut from “at least 20 percent” to 18 to 20 percent.
Management does not expect any business recovery in the remainder of the year. Stimulus from government measures to support the Chinese economy is unlikely to have a positive impact until 2025, said von Leoprechting. The company also believes there is a good chance that both American and European pharmaceutical companies will then invest more heavily in the automation of their laboratories. “It’s not as if they are cutting back on their research projects,” says the company boss encouragingly.
