Ladies and gentlemen, welcome to the half year analyst and media conference call and live webcast. I'm Moritz, the conference call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Martin Brändle, Senior Vice President, Corporate Communications and Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone. Thanks for joining us for our conference call this morning. We are very pleased to discuss with you the results for the first half year, 2023. With me on the call are our Chief Executive Officer, Dr. Achim von Leoprechting, and our Chief Financial Officer, Tania Micki. Before we start, as always, very briefly, some formalities. Corresponding press release announcing our financial results was issued this morning at 6:00, Central European Summer Time. Both this press release, as well as the full 2023 interim report, are available on the company website, tecan.com, under the Investor Relations tab. The call is being webcast over the internet on our homepage, we have also posted a PDF of the presentation slides that we will discuss on this call for download.
With that, let me now turn the call over to Achim von Leoprechting.
Thank you very much, Martin, and good morning, and welcome to the Tecan 2023 Half Year Results Presentation. Before Tania will discuss the financial results of the first half of 2023 in detail, I will give you an overview of the financial and operational highlights. Our results show solid underlying sales growth of 6.8% in local currencies, excluding the impact of lower COVID-related revenue and reduced material cost pass-through. Sales in the first half of 2023 totaled CHF 541.5 million, which is a decrease over the same period last year of 3.6% in local currencies, and reflects the higher basis of comparison due to the COVID-related sales last year.
In a very dynamic market environment, we've seen longer sales purchase decisions and cautious investment behavior among many customers. Our teams have done an outstanding job of materializing the opportunities that arose. We can report a half- year profit of 65 million CHF, resulting in an Adjusted EPS of 5.16 CHF. Adjusted EBITDA reached 101.2 million CHF, with an adjusted EBITDA margin of 18.7%. Overall, I'm pleased with our performance in the first half of 2023. I'd like to acknowledge the support of our valued partners and thank our teams around the world for their dedication. They've done a remarkable job.
Underlying sales growth is steady, and we're cautiously optimistic for the second half of the year, and we can confirm the full year outlook previously given for 2023. Looking at some of the operating highlights of the first half of the year, we have expanded our core offering in laboratory automation in key growth markets, including in the rapidly developing field of liquid biopsy, and I will tell you more about this later in this call. We've also broadened our automated genomics portfolio and our reagents offering, and developed unique solutions to meet workflow needs that were previously unaddressed. We were expanding our life sciences partnerships, especially in the growing field of next-generation sequencing. As an example, in addition to existing partnerships in the short-read sequencing space, we now build an alliance with Oxford Nanopore for their specific long-read sequencing library preparation needs.
We've also developed several new partnerships and supported various customers with product launches in the partnering business. This includes customized OEM systems, OEM components, as well as contract development and manufacturing services. These new customers are working in growth areas and key applications in life science research, diagnostics, and the medical market, and we have a rich project pipeline for new development and manufacturing projects. We've continued to scale Tecan's global production and operational footprint in the first half of 2023. Serious production of our Cavro components is now fully established in our facilities at Morgan Hill and Penang, Malaysia, which expands the production capacity for these OEM components and makes it possible to meet the anticipated increase in demand for these products in the future.
Tecan has also opened a new assembly facility in the Shanghai Free Trade Zone, which fulfills local manufacturing requirements for goods destined for the Chinese market and offers new opportunities to advance Tecan's business in China. This new setup will allow us to serve local customers in China even better and meet their specific needs. In the first half of the year, manufacture of liquid handling and detection products was fully underway in this facility. Local production also has the advantage of aligning with our efforts to reduce greenhouse gas emissions, which we've committed to do in line with climate science. Tecan's science-based emissions reduction target was submitted to the Science Based Targets initiative for validation in the first half of 2023, and we've given more detail around this in our annual report and on the sustainability page at tecan.com.
Our focus on sustainability is pragmatic, building initiatives into our ongoing activities to ensure consistent results. We have achieved ISO 14001 certification of our headquarters in Männedorf earlier this year, following an independent audit of our environmental management system. We already have this certification for our Penang facility, and we continue to work to leverage best practices at our sites around the world. With this, let me hand over to Tania for a closer look at the half-year financial results, and then I will say more about our key product launches and the outlook for the rest of 2023. Tania ?
Thank you, Achim, and good morning, ladies and gentlemen, from my side as well. Let's start with order entry and sales. Order entry reached CHF 536.6 million. This was a decline of 10.6% year-on-year, or 7.1% in local currencies. Keep in mind, though, that in the first half of 2022, we recorded a substantial order entry. First, COVID-related orders still contributed significantly, and in addition, higher inventories, for example, of OEM components, were created by customers due to disrupted supply chains. As supply chains largely normalized in the first half of this year, customers no longer needed to place orders as far in advance as they did in the prior year period.
As a result, the book-to-bill ratio also returned to normal at a level of around one. With CHF 541.5 million, reported sales decreased by 7.3% in Swiss francs and 3.6% in local currencies. In the chart, you can see the bridge. Adjusting for the foreign exchange rate, sales in H1 2022 were at CHF 561.8 million when compared in local currencies. As we spelled out in the past, we still booked COVID-related sales of around CHF 50 million in the first half of 2021, or FX-adjusted an amount of CHF 48 million. We also communicated that our sales 2021 benefited from passing through the substantially higher material cost to customers at Paramit.
As we expected, and also included in our guidance for this year, this pass-through revenue decreased substantially as supply chains have started to normalize again. Net effect of this kind of revenues in the 2 half years, 2022 and 2023, was CHF 7 million. That brought us to the jump of basis for our underlying sales of CHF 506.6 million. Excluding these 2 effects, our underlying sales increased by 6.8% in local currency. Let's now look at the sales performance of our two business segments. Sales in the Life Sciences business segment reached CHF 228.6 million, a decrease of 11.8% in CHF or 7.3% in local currencies compared to the H1 of 2022.
On the upper left, you can see a similar chart as discussed on the previous slide for the Life Sciences business segment. As it is our end- user business, we generate our revenues in the different regions in the respective local currencies. Therefore, the FX impact is higher compared to the partnering business. Also, the majority of COVID-related revenues in H1 2022 were in this segment. We estimate CHF 29 million in local currencies, or 60% of total COVID-related sales. Pass-through revenues were only affecting the partnering business and are not related to this segment. Excluding the impact of lower COVID-related sales, underlying sales increased by 5.1% in local currencies. It was driven by good growth in the service business due to the higher installed base of instruments.
As a result, recurring sales of service, consumables, and reagents increased to 51.5% of segment sales, compared to 50.9% in H1 2022. Overall, we can say that underlying demand for life science research and diagnostic solutions remains solid in many application areas, despite ongoing global economic uncertainties and more cautious spending patterns overall. In addition to good demand for existing products such as DreamPrep NGS, newly launched products for growth areas have already enjoyed strong interest in the market. Achim has already touched upon those and will provide more details later. With order entry at the same level as sales, the book-to-bill ratio reached one. Including COVID-related orders, the Life Sciences business segment recorded its highest ever order entry in the first half year. Moving now to the Partnering business segment.
This generated sales of CHF 312.9 million, which corresponds to a decrease of 3.7% in Swiss francs or 0.7% in local currencies. Going through the same bridge, adjusting for the FX impact and taking into consideration the impact of lower COVID-related sales and the lower pass-through of material costs, underlying sales increased by 8.2% in local currency. The main driver behind this robust underlying growth was Paramit. Here, we reported strong double-digit growth, which was supported by the fulfillment and subsequent revenue recognition of the high order backlog from 2022, and some pent-up demand for medical products. By contrast, sales of Cavro OEM components declined substantially as these products had experienced a significant surge in demand in the prior year period.
This was related to efforts on our customer side to mitigate disruption in the supply chain and in the run-up to the transfer of production to the two Paramit manufacturing sites. As mentioned before, customers no longer needed to place orders that far in advance in the first half of this year. Underlying demand in the Partnering business remained solid, and as order entry was only marginally lower than sales, the book-to-bill ratio was close to one. Now let's look at sales development in the different regions on slide nine. Before discussing the details, I just want to remind you that this regional split and the respective developments are based on the location of our customers. That means it does not necessarily reflect the regions where our products might end up.
This is important as the Partnering business now has a larger share of revenues. In an OEM business, we might ship to a central warehouse of a partner, for example, in Europe, and therefore book revenues in Europe, despite these products being distributed globally, thereafter by our partner. In the life sciences business, on the other hand, the location of the customer on site is the place where the products are used. Starting with Europe. In Europe, our sales in the first six months of 2023 were still characterized by a COVID-related high comparative base from the prior year period, developed accordingly with -18% in CHF and -15.1% in local currency.
Against this high comparative basis, sales in the life sciences business were 20.1% lower than the previous year in local currency, and in the Partnering business, they declined by 11% in local currency. In North America, sales grew by 3.5% in CHF and by 6.9% in local currencies. Despite the high COVID-related basis of comparison and more cautious spending behavior, sales in the Life Sciences business segment declined by only 1.8% in local currencies. The Partnering business segment, on the other hand, reported a 13.2% increase in sales in local currencies, driven by the strong sales growth at Paramit, which more than offset COVID-related sales in other product categories from the first half of 2022.
In Asia, sales decreased by 16.4% in CHF and 10.4% in local currencies, against a high COVID-affected comparative base, particularly in Japan. Due to the high basis of comparison, sales of the Partnering business segment decreased by 26.7% in local currency. Life Sciences business segment, on the other hand, recorded a 9.6% increase in sales in local currencies, with sales in China growing at the same rate as the life sciences business in the Asia region as a whole. In China, we also saw that some of our customers were benefiting from the loan program that was in place, which supported our good, solid growth in the life sciences business. Keep in mind, though, that this was only a temporary program and has ended.
We also believe that some of this investment did not come on top of the regular project. That means we believe some of it was more of a pull-forward effect. Our next slide addresses our gross profit. Gross profit reached CHF 204.6 million, which was CHF 28.3 million below the prior year figure, given that revenues were CHF 42.5 million lower. The reported gross profit margin was at 6.8% of sales, and the main effect between the difference of 2.278 points in the margin, were the volume effect with the corresponding negative economies of scale. The mix effect, including the effects from the strong growth at Paramit.
Compared to H1 2022, more of the integration costs had to be booked in the cost of goods sold versus OpEx. That impact of around 40 basis points. On the positive side, we were able to increase prices, and as mentioned before, we reported less pass-through revenues without a margin. On the next slide, some comments regarding our cost structure. Overall, our operating expenses developed in line with revenues and were at CHF 143.1 million or 26.4% of sales. Looking at sales and marketing, here, costs decreased slightly more than revenues, which is mainly reflecting the lower volumes, as this also meant lower revenue-based compensation and less freight costs. Research and development expenses stayed constant in absolute terms as we continued our investments in innovation. As a percentage of sales, R&D increased to 7.1% of sales.
Overall, R&D activities and gross expenses, what we call gross R&D, were CHF 9.5 million higher compared to the prior year period. In absolute terms, gross R&D was at CHF 38.5 million or 8.9% of organic sales. In addition to customer funding of OEM projects, this also includes capitalization of development costs. Amortization of previously capitalized development costs was about CHF 2.4 million higher than what we newly capitalized in the first half of the year. General and administration expenses decreased more than revenues, keeping in mind that H1 2022 included some one-off costs. Looking now at the EBITDA developments in more detail. Our adjusted EBITDA, the earnings before interest, taxes, depreciation, and amortization, decreased by 15% to CHF 101.2 million. The adjusted EBITDA margin amounted to 18.7% of sales.
Reasons are obviously the lower sales volume, the product mix impact that I have already mentioned on the negative side, and on the positive side, we saw the higher prices and efficiency gains that we always strive for. Now, looking at the operating profitability on a segment level, reported EBIT in the Life Sciences business, that's earning before interest and taxes, reached CHF 40.3 million. The operating profit margin amounted to 17.2% of sales, also here, obviously, mainly due to the lower sales volume in the first half of the year. Also, price increases were a positive factor here, and I also want to point out that in the Life Sciences business, we were able to increase our gross profit margin by more than 100 basis points.
Reported EBIT in the Partnering business amounted to CHF 30.8 million, while the operating profit margin reached 9.8% of sales. Keep in mind that the integration costs and amortization of acquired intangible assets in connection with the acquisition of Paramit were recognized for the group in the Partnering business segment. Here we saw an increase of integration costs to CHF 5 million versus CHF 3.3 million in H1 2022. Other factors that negatively impacted the segment margin were also here, the lower sales volume with the corresponding negative economies of scale, and I've mentioned before, a more negative product mix. On the positive side, we also saw price increases in the Partnering business as they contractually kicked in at the beginning of this year for our Synergence instrument business. Let's move on to the net profit on the next slide.
Adjusted net profit amounted to CHF 65.8 million, CHF 14.8 million below H1 2022. Looking at the main factors, adjusted EBIT was already down by CHF 20 million. Positive effects came from the financial results and the lower tax rate, which decreased to 15.1% compared to 16.4% in the prior year period. In the multi-year overview, you can see the very positive development in net profit with the COVID peak in the middle. Let's now move on to earnings per share on the next slide, very quickly. Earnings per share decreased only slightly more than adjusted net profit due to a small increase in the share count. The number of shares outstanding was at 12.8 million on June of this year, compared to 12.7 million last year.
Also here, you can see the positive development over the last years. We continue with the cash flow on slide 16 and the positive development after a period that was affected by supply chain disruptions and higher inventories to ensure our delivery capability. Cash flow from operating activities increased by 17.3% to CHF 82.5 million. As mentioned, in the prior period, we had increased our inventories and safety stocks. These inventories have now been increasingly reduced again, and I expect further reduction by the end of the fiscal year. Also, our DSO, the day sales outstanding, improved to 44 days from 49 days. In addition, looking at our accounts payable, we were able to increase our receivables outstanding to 45 days compared to 33 days in H1 2022. The cash flow from investment was at CHF 27 million.
You see some of the elements on the slide. Cash flow from financing activities, this figure includes the dividend payments we made in April 2023, in the total amount of CHF 37 million, an increase over the prior year period as the dividend was increased again. Thanks to the strong cash flow, our net liquidity position increased to CHF 61.7 million, compared to the CHF 41.2 million on December 31st, and CHF 3.2 million on June 30th, 2022. With this, I now hand back over to Achim von Leoprechting again.
Thank you very much, Tania. I would like to share with you a few details of our key product launches that happened in the first half of 2023. We are excited about the Phase Separator, which represents a significant advance in liquid separation technology for complex samples, including whole blood. With this new offering, Tecan is advancing automation for liquid biopsy, non-invasive prenatal testing or NIPT, as well as for biobanking applications. The Phase Separator is a completely new way of separating biological samples, separating of target sample fractions being an essential key step in the processing of blood samples, for example. This innovative technology is unique to Tecan, and it addresses the critical challenge of detecting liquid-liquid interfaces and effectively separating neighboring sample phases, while avoiding the risk of contamination.
By detecting liquid layers from inside the tube, the Phase Separator enables extraction that is faster and more accurate and more efficient, even when working with fully labeled tubes. The Phase Separator is a feature of the new Air Flexible Channel Arm, so it can be seamlessly integrated into our flagship liquid handling workstation, the Fluent, giving customers all the new benefits without taking up any additional bench space. We see this as a game- changer for labs that have to prepare complex samples. With the mentioned key applications in liquid biopsy, NIPT, and biobanking, the Phase Separator will impact multiple disease areas, including oncology, transplantation monitoring, neurology, and metabolic disorders. Its speed and reliability mean higher throughput, lower cost processing of samples, which ultimately means more affordable operations and broader access to advanced analytics for researchers and clinicians.
The Phase Separator is ideal for fast-growing applications like liquid biopsy, to scale workflows to meet the high demand. We see testing volumes here growing rapidly for several of our customers, which fuels the need for more efficient and fully automated solutions. It has broad applications beyond the next-generation sequencing, for example, for downstream analysis like PCR, digital PCR, or mass spectrometry. When you look at the liquid biopsy workflow, this really highlights once again, Tecan's capabilities and our special position to scale healthcare from research to the clinic with key innovations. The Phase Separator launch has met great customer interest already, both at existing and competitive accounts, and it broadens the toolbox that we have available to support customers in the Life Science business and to leverage such new modules also into Partnering business for projects going forward.
Another product launched in the first half of 2023, and is boosting lab productivity for high-throughput workflows, is the MCA 96. The MCA 96 is a pipetting arm with 96 channels, or a fluid liquid handler that offers an extremely wide range of volumes, ideal for high-throughput workflows. Because of our focus on software and digital competency, the new product comes with software features that make running the applications truly intuitive and user-friendly. The MCA 96 can be upgraded in the lab and can also be combined with other arms, including other MCA 96 or even MCA 384 heads, to increase lab productivity even further. With this new offering, Tecan had a record product launch demand in our Life Science Lab Automation Markets, with demand across all our target key applications like genomics, proteomics, and cell and tissue applications.
I mentioned earlier the dynamic market environment, that in some customer groups, it is taking longer to make purchase decisions. Despite this, we remain cautiously optimistic for the remainder of this year because of Tecan's especially advantageous positioning, where in addition to the life science, research, and diagnostic markets, we also serve the medical devices market through strong OEM partnerships. Our sales funnel, combined with our new products in the Life Science business and existing and new partnerships in our Partnering business, shows promising potential. Our full year 2023 outlook includes the negative impact from lower COVID-related sales, which mainly affected the first half year, and from reduced pass-through of material costs and remains unchanged from the view given in March of this year. We forecast total sales growth in the low to mid-single- digit % range in local currencies.
Underlying sales, which excludes the negative effects mentioned, are expected to grow in the high- single-digit % range in local currencies. Tecan also continues to expect an adjusted EBITDA margin, excluding acquisition and integration-related costs, at least around 20% of sales. This outlook assumes lower integration costs in 2023 compared to 2022. Therefore, Tecan expects the reported EBITDA margin to increase by 20 basis points-30 basis points in 2023, despite ongoing inflationary pressures. We also confirm our midterm outlook that we published in March 2023. Tecan delivered a solid financial performance in the first half of this year. Our newly launched products and new partnerships underscore Tecan's leading role as a trusted partner for life science research , clinical diagnostics, and the medical device industry .
Our innovation and development pipeline continues to add meaningful growth opportunities in both business divisions, and we're excited to see the positive customer response to those as we progress further into the second half of 2023. Having well-established business in the three attractive market segments is currently proving to be a source of greater resilience, as each area offers distinct growth opportunities and dynamics. Going forward, those segments each represent significant growth opportunities with synergistic channel and product potential. Tecan's product range covers a full spectrum of engineering, product, and support solutions, from accelerating the discovery and scale-up production of novel medications to delivering personalized diagnosis, treatment, and prevention of diseases. We have a strong competitive position that is enhanced more and more by innovative digitization and software solutions. They increasingly differentiate our products and services in terms of usability, productivity, compliance, and cost of ownership.
Tecan's business purpose is to scale healthcare innovation globally. This is what inspires our colleagues around the world to go above and beyond serving our customers and partners. With this, I thank you very much for your attention, and we can now open the lines for Q&A.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone 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 followed by two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comments in writing via the relative field. Anyone who has a question may press star at this time s tar one at this time. One moment for the first question, please. The first question comes from Daniel Buchta from ZKB. Please go ahead.
Yes, thank you much. If I may, I would like to start with three questions. Maybe the first one on the guidance for this year. I mean, if we exclude all the top line one-offs, COVID, and the price pass-through, you basically guide for low double-digit organic growth in the second half. I mean, what makes you so confident that you can deliver on this sequential acceleration, in the second half? Then also, I mean, a little bit in the Life Science business, I mean, the performance, if we exclude the COVID headwinds, was still pretty good. While we see, especially on the biotech side, that development activities is clearly lower, and there you have obviously, development-related activities. I mean, are there any signs that you may also see there a weakening of demand for your products?
Then maybe last but not least, if we look at the regional split, I mean, the difference between Asia and Europe compared to North America is pretty significant. Is this all just related to Paramet, or is there also something else in your old core businesses, basically, that is explaining this very strong growth in North America? Thank you very much.
Hey, thank you. Thank you very much, Daniel, for your questions. Probably I start with your question on guidance. Clearly, I mean, we are, you know, guiding for a range, low single-digit to mid single-digit in local currencies. This obviously covers a variety of outcomes and dynamics. At the lower end of the range, we would probably need to deliver mid single-digit to high single-digit local currency growth in H2, and at the upper end in the low teens.
This is, you know, of course, you know, backed up by our view on the dynamics as we exited H1, and particularly the conversations we're having on our partnering side with our partners, how they see the dynamic and the funnel and the, the overall creation of opportunities in our Life Science Division that give us quite, quite good, I would say, confidence on the overall demand and interest in our products and services. Tha t's roughly, you know, where we are right now.
Clearly, as I said in my introduction , you know, we see order patterns or behaviors that are probably, you know, are more cautious than we've seen them in the 2021 in the time frame. This is, you know, I think, in line what we also saw already in the second half of 2022. Now, maybe on the on the Life Sciences side, I mean, the general probably comment that I would make, the closer our products are used to generate revenue and save costs for customers in terms of productivity, the more likely is that funding is released.
This is the, the, the case for literally all customers in all applications like genetic testing, and especially like I mentioned, in applications around liquid biopsies, where demand is very, very high and volumes are growing significantly. We help them, you know, to scale their infrastructure. It's mostly around, I would say, high productivity accounts and higher volume accounts. To your point, I mean, of course, you know, there are specific sectors in the biotech industry where we also see kind of a reduction of demand, particularly, I would say, the pharmaceutical biotech clients, which A, have never been kind of large, you know, Tecan customers.
On the other side, B, when, when they were probably more looking at, preserving, you know, cash as they go to more challenging, I would say, funding times so far. I mean, on the regional distribution side, again, just to reiterate what Tania said, careful with the kind of regional view because we are recording ship, ship to addresses or customer locations. When, when there is, for example, one or a few specific, U.S. based partnering clients, and we ship products to, to U.S. locations, that overly kind of, you know, emphasizes, performance in, in the U.S.
However, the products may end up, of course, in the rest of the world, and we sometimes, and mostly don't know the general location o f where they're ending up. Now, having said that, you know, of course, U.S., and North America continues to be, for us, the strongest market overall, both for life science and partnering, just, just because of the overall, you know, funding of the Healthcare market. We also see quite a few and probably also most of these production biotechs being located in, in, in, in the U.S. Some of them are expanding globally right now, but typically they originated in the U.S. They're scaling up a lot of their work right now there.
So, so this is where naturally, also historically, U.S. has always been the strongest market, probably also in our space, with more resilience and more dynamic than some other parts of the world. The only other comment I would make, make regionally, just to repeat what Tania illustrated, in China, we've seen a quite strong H1, that was mostly fueled by the interest-free loans for scientific equipment. We, see that now, now gone, and of course, we participated and benefited from it. We see China, for example, with more, I would say, challenges into the secon half. Now, summarize, like I said, I mean, having taken that all into consideration, we believe that we can, definitely deliver on the growth expectations for the second half.
Okay. That's very clear. Thank you very much, Achim.
The next question comes from Pataki Maja from Kepler Cheuvreux. Please go ahead.
Good morning. Thanks for taking my questions. I have two. Achim, with regards to the product launches that you introduced here, can you help me understand how much of a, or how difficult the decision process is for a lab to integrate those new solutions? Is it like an easy add-on to existing platforms? And how does that work if labs are working with competitor products? Is it, you know, kind of--c an you integrate it with competitive products, or would that then be a switch to Tecan, to a Tecan Fluent? That's my first question.
Now my second question, if we look at the Partnering business, and you've, you've talked very nicely to the Cavro dynamics, you talked about the Paramit dynamics, but can you talk a bit about what you are seeing on the partnering side, where you do the instruments for the Diagnostic industry? Are you seeing there a slowdown in demand as well, or is it just ongoing as usual? Thank you.
Okay, super. Thank you very much.
Ex- COVID, that would be. Sorry, Achim, just to--
Yeah, yeah.
To, yeah.
Okay, perfect. No, I will make general comments on partnering dynamics and the application space and maybe some of the regional differences. I mean, first on the product launches, I mean, what makes now the, I would say, pickup and the launch for us quite elegant is that both the Phase Separator and the MCA 96 are additions to the Fluent range. And like I said, they can also be used because we design and develop them as modular additions, also in upcoming potential partnering programs, wherever they would add value and differentiation.
It is very, I would say, straightforward, for us to integrate both modules on the Fluent base in the field, but also, of course, for new systems. Naturally, they are not available for competitive instruments. We have embedded them very neatly in our software environment, which again, you know, the big push there is to make these applications extremely user-friendly and easy, in research mode, but also with the utilization in LDT and regulated, maybe more in FDA-facing application spaces. This kind of integration of software and hardware makes the value really kind of, you know, come to fruition.
We have seen, you know, to answer your question in a slightly different way, quite good interest of accounts that have been, I would say, historically, preferring competition platforms, where a lot of doors opened now, with accounts that have these type of applications, that, that now allowed us to bring in Fluents for the first time for test evaluations. We've even seen some accounts to, to already order new Fluent platforms with these modules embedded for the build-up of specific purpose. It is both kind of serving, kind of new, new clients, existing clients, but also, I mean, particularly in times like these, it's for us, very important to try wherever we can to gain access to, to competition accounts, and, and it seems to be quite, quite, quite good there.
I mean, for , on your second question on Synergence, I mean, actually, we saw some quite good positive momentum in what we call Synergence. And what you said, you know your question was specific on Synergence, where we, produce and develop instruments for IVD clients mostly. We saw actually quite some positive momentum for some of the established partners, for example, in applications like cancer diagnostics, transfusion medicine, which are probably leading the growth rate. I mean, on the other side, as you said, the big, kind of, you know, challenge there was, of course, on the Cavro side.
I would say Synergence was heterogeneous, from a performance standpoint, mostly because, to your point, and you said I shouldn't comment on it, but, but of course, on the PCR platform side, there was probably, particularly when I look at China, a little bit less demand, in infectious disease screening and these kind of things. What I think, again, gives us some, some good confidence is the launch of new partnerships that is, either on the way or is just coming up.
I would say it's heterogeneous, but we saw probably more of the normalization of partnering coming through Cavro, where customers clearly were stocking up ahead of the transfer of the production sites. And like I said, in Synergence, coming back to this, we have a very good pipeline of new systems launching and systems scaling up that, that gives us some good tailwind for the second half.
Great. Thank you very much.
The next question comes from Chris Gretler from Credit Suisse. Please go ahead.
Achim, Tania , I have still a few questions left, you know, maybe first, you know, starting on Paramit, you know. Could you maybe discuss, you know, the margin performance now of that business in the first half?
I will probably hand over to Tania for this question.
Hi, Chris.
Hi.
Basically, what we have seen for H1 2023 is an improvement of around 200 basis points compared to H1 2022. I mean, some of it, of course, or a good portion of it was the result of the lower statue revenues. If you recall, I mentioned that we had about CHF 7 million less, and that's about 70 basis points impact on the Paramit margins.
Also, just, you know, mentioning it, but, it still was a little bit lower than the group average. Of course, for H2, what we are again expecting is an improvement compared to H1, because that's a little bit of the parameter as well, pattern related to volumes and other things. There, their margin is also more geared towards H2. In H1 2023, as I said, it was an improvement of about 200 basis points compared to last year.
This is including or excluding the extraordinary costs?
That's excluding the integration costs.
Okay. Well, that's pretty strong, huh? Okay, the second question is, basically on, you know, your, customer behavior, you know. Maybe could you also discuss, I heard about, you know, the Life Science, you know, business in particular could you also maybe discuss, you know, what you see on the Medical segment, you know, if you see, you know, similar kind of cautiousness or, you know, if there are, you know, some other trends, you know, at work there?
Yeah, I mean, on the medical side, clearly, I mean, when you cross-reference it to the Paramit performance, the demand for select products was very high. I would say similar to what you see in partnering Synergence, it's heterogeneous, so some applications and some, some medical use cases are in higher demand, and some are maybe also seeing the same cautious investment from, from some, some hospitals or clinics, as we, you know, look at the portfolio. Clearly there are some, some very strong drivers, particularly for innovative solutions in the medical space and the surgery space, that drive a lot of demand.
I would say more, I would say commoditized workflows and applications are probably receiving also a bit more of a, what I said earlier, the cautiousness of clinics and hospitals. But it's not one size fits all. I wouldn't say the medical market is immune to the trends and the macro, you know, comments that I made. But clearly there are, as we see in other parts of the business, particularly on the innovation side, there continues to be some very good demand, and we expect that it's , yeah, lasting for longer.
Okay. Then maybe another quick question on, you know, FX, you know. I noticed, you know, it didn't, you know, kind of, you know, wasn't broken out, you know, in your margin bridge, you know, so I guess, you know, it was, you know, immaterial. There are quite some large swings, you know, out in the world, you know. Is there anything, you know, to be concerned, or you would specifically call out for the second half we should be aware of?
No, there's nothing specific that we are calling out for the second half. I mean, as you know, the US dollar is very dynamic. I mean, it does, of course, affect us, which is why, you know, you see the big difference between the local currency and the, and the Swiss franc, or the reported versus the local currency. Again, we are at the moment embedding this.
Okay. Doesn't sound like a big concern, you know. Then, you know, just a last question, I'll come back on China. You know, what's actually baked in your guidance for that, you know, given these uncertainties, you know, we go into H2? That's it. Thank you.
I think you mentioned it, more uncertainty. We are seeing a kind of slowdown of project allocations. Again, it's not just China as one market. It's quite diverse. We see, for example, different dynamics in biopharma and the clinical side, where the clinical side remains relatively strong. Biopharma is a bit more challenged right now with particularly on the CRO side.
I mean, like I said, I mean, we expect, after, I would say, a quite strong and of course, you know, tailwind-driven, you know, performance in China that was maybe above expectations, we, embed in our thinking and guidance for the second half, a significant slower performance in China.
Okay. Sounds good. Thanks, talk to you later.
The next question comes from [audio disortion] from Berenberg. Please go ahead.
Hi, Achim. Hi, Tania. Thanks for taking my questions. First of all, could you please talk more about market and ordering trends towards late H1 and perhaps July? Have you seen any change in the cautiousness of your customers' investment behavior so far? Secondly, on Phase Separator, you mentioned the launch has opened new competitive accounts with strong interest for Fluent. Could you talk a bit more about what type of customers these are? Are we thinking clinical labs in countries where insurance coverage pilots for liquid biopsy have been taking place? Thank you.
No, thank you very much for your questions. I mean, just on the on dynamics, I mean, typically, we don't guide month- by- month, but what, what I can say, and you probably heard me, say that in the beginning, we saw quite steady, you know, performance in H1. Of course, it's not one month is like, like the other, as some of our business, particularly in partnering, can be quite lumpy, where sometimes we ship thousands of instruments in month, you know, one, and, and, and then not so many in month two. Having said that, I think maybe on the life science side specific, I think we had a very, very good, you know, month of June in line with that trajectory.
Again, we expect now, of course, like we always seen in the second half, the dynamics being potentially more skewed again towards Q4 or what we've seen prior to COVID. Expecting a quite, quite strong pickup after the holiday season in the remaining four months of the year. I would say from that dynamic, nothing, I would say, remarkable to be called out in terms of how H1 went and what the, you know, dynamics into H2 would, would entail. Having said that, I think overall, the, a lot of the basis for our, you know, H2 thinking is, of course, around the funnel creation, how many projects we see coming in, what the customer response and interest in our product is.
Also, of course, discounting, you know, on this, the sometimes slower decision-making, and that's the basis of how, how we think, you know, about the business. It can be, like I said, quite spotty. We also have, even in our Life Sciences business, seen quite large deals coming in H1, in one block. It's really also customer type specific. I mean, we, for example, see some, some industrial biotechs, and that, that may lead us to the second question, be, be very well funded, and then even some smaller accounts being well funded. We see productivity accounts like lab service providers continuing to, to automate their infrastructure to also, on their side, gain productivity and save costs.
Like, like I said, I mean, it's not a one-size-fits-all answer, maybe, but we have good, confidence based on our feedback from partnering clients and the funnels we see in life sciences for the second half. On the, Phase Separator, and then maybe also the, the MCA 96, but Phase Separator, you have specifically around liquid biopsy. I mean, we see, of course, now specialized labs really, you know, coming up in terms of volumes and, and both in NIPT, in oncology monitoring, but also in transplantation monitoring, and volumes seem to be generating quite high demand for these type of applications, particularly in North America.
We see some of it now coming, coming up in Europe and in Asia as well, but I think the strongest is in North America. The type of accounts are, like I said, production, biotech, specialized lab service provider companies, but it is also the more, I would say, general lab service providers, and are starting to pick up some of the liquid biopsy work for specific applications, in their more, I would say, mainstream kind of workflow. I think what we're seeing is a quite, quite good adoption for specific applications by clinicians and patients, and this is now moving increasingly from the specialist labs or specialist companies into, into the more kind of generalist lab service providers.
All clear. Thank you.
The next question comes from Bischofberger Sibylle from Vontobel. Please go ahead.
Good morning, everybody. I had a question about the COVID-19. In COVID-19, sales in the first half were down by around CHF 48 million. I would like to understand how much sales were generated in the first half, and if so, were there only consumables? Then in the second half, to reach the outlook also for COVID-19 sales, is it fair to assume that you don't expect any sales? Why I ask, because the big vaccine producers, Pfizer, Moderna, BioNTech, they all have forecast CHF 2 billion sales in the second half of this year. Would this mean that vaccines, yes, but no tests? Just to see what is your scenario for the COVID-19 sales for this year. Thank you.
Yeah, yeah. Thank you very much for your question, Sibylle, and good morning. Probably I start off and then Tania can give a bit more, again, color on the specifics on H1 and H2, how we split up. I mean, in our reality, there's probably two dynamics at work. Of course, we are kind of seeing on the bioproduction side or vaccine production side, which also we're supporting to some extent, for some analytical workers. We see vaccines continuing to be in demand, and which is probably also a good, good thing for preparing for the next seasons.
On the COVID testing side, I mean, we also try to say-- I mean, we always guesstimated our volumes there because we are kind of supporting general kind of PCR testing infrastructure, which includes COVID tests as well. Now, now, I would say, because we're not calling it out anymore, doesn't mean there are no COVID tests happening, but they are just now a general part of the menu of PCR test machines, and we cannot really carve them out anymore because it's more kind of general testing that is happening. There may be percentages of COVID tests still being kind of applied on , for example, the m2000 or some other machines.
I mean, that, that's roughly why we're not spending it out, because it's not, like I said, meaningful in addition to what we do for other tests that typically run on these machines, as, as well. That why we're not calling it out anymore. Tania, you can probably.
Yeah, I can add a few words. Good morning, Sibylle. Basically, you know, as you said, H1 2022 last year, we said around CHF 50 million COVID-related sales, which, FX adjusted, is around CHF 48 million. H2 2022 was around CHF 10 million. We actually did not plan any for 2023, and we are therefore considering that we have zero COVID sales in 2023, whether it is H1 or H2. Mainly, you know, we were able, as Achim said, to identify at the time, COVID-related instruments. Well, those we obviously do not sell anymore. So mainly, as you mentioned, it could have been some consumables, but they are, again, they are not material and we do not identify them anymore. That's the reason for the view from a COVID perspective for 2023.
Thank you very much.
The next question comes from Vogel Sebastian from UBS. Please go ahead.
Hello, good morning. I have three questions I would ask them one by one. The first one is on destocking.
Hi, Sebastian. I'm assuming you mean that, how are we affected by destocking, and how do we see, that from, the customer perspective? I mean, as Achim mentioned, we do have some impact from the Cavro component side, for example. You can hear us, right?
Or did we actually.
Mr. Vogel, your line is open. Mr. Vogel just disconnected.
Oh, okay. Well, maybe let's wait for him to come back. I thought there was one last question.
Actually, there are currently no more questions on the phone.
There's one question that came in through the chat on M&A, the M&A environment and, and our plans to engage in, in M&A. So maybe Achim-
Yeah, may- maybe I can take this one, then, then we, we see if Sebastian comes back, or we, we call him back later. Yeah, on the M&A side, I mean, clearly, we are very pleased with the progress of the Paramit integration. Paramit is really working well, both in the California and the Malaysia facilities, and we also very, very happy with the successful transfer of our Cavro production into Paramit. Having said that, we are very actively engaged, again, I would say, in the M&A pipeline discussions and final discussions. Just I think there was a specific question on size. I mean, we of course, I mean, we consider size, but it's not like we're going out with a specific frame of acquisitions.
It's probably fair to assume that we are looking at more, more kind of bolt-on acquisitions at the moment in the infrastructure that we created and with a strategically kind of a focus point, particularly on the life sciences side. Having said, I mean, both bolt-on acquisitions, of course, now can have a kind of different size compared to what we discussed before. Of course, they should also, and they will be always be strategically motivated. We are back in M&A discussions. We see some kind of, you know, mobility in that market, and the pipeline is actually quite good.
We're working our way through, like, the normal kind of scrutiny of projects and programs and engaging, again, on various levels and also geographies where, that these potential targets are sitting at the moment.
Sebastian is back.
Yes, Mr. Vogel has returned. Your line is open. Please go ahead.
Perfect. I hope you can hear me now?
Yeah.
Great. Perfect. I've got three questions I would ask, and one by one again. The first one is on destocking. Also what sort of headwinds you're still seeing for the second half for the sub-business where it is really applying?
Hi, Sebastian. I started actually answering your question before. Then we realized that you disconnected. Well, we've mentioned that some of the headwinds that we have seen for H1 2023 are related to the Cavro OEM components. There, I mean, there was a little bit, as you know, surge in demand last year because of the of some pent-up demand, as well as stocking from the customers because of the move of the Cavro component to the two facilities in Paramit. What we believe is that in H2, this would, or rather, that this normalize now, and that in H2, we would go back to a more, a normal demand for the Cavro components. There was probably also some destocking on the consumables.
This also, we believe there was a little bit of normalization towards the end of H1, and therefore, it should also be more normal in H2. That's how we see it.
Yeah, maybe just an add-on comment, Sebastian, if I may. I mean, on the kind of inventory situation of clients, as Tania said, on the component side, that was triggered by the transfer mostly, consumers was maybe an aftermath from supply challenges during COVID. I think that is now back to normal, we are seeing customers, I would say, kind of turning back to just-in-time deliveries and reducing their inventories where they can, because they know that we can deliver very rapidly now, they are kind of less concerned about even safety stocks anymore.
so that is, of course, you know, something we are kind of working through this year, where in addition to maybe the, the extended, safety levels and inventories we have seen in COVID, they are now reduced back to just-in-time deliveries.
Got it. Many thanks. The second question would be, again, coming back to the ethics side of things. I somewhere noted myself down that I saw that you have, like, 50% of your costs in US dollar and like 56% of revenues. Is that still something like a ballpark area which it makes sense with regard to the U.S. dollar, or how have things evolved in the meantime?
Yeah, in the ballpark. I mean, the USD is a little bit higher, closer to the 60% for the sales, and 53% for the cost. The EUR is around 15% for sales and 17% for cost. It's ballpark, more or less, but there is a little bit more exposure on the U.S. dollar side.
Got it. The third and last question again on, on the FX side of things. If the, the current spot FX rate would still prevail at that sort of level till the end of the year, how confident would you remain on your margin guidance?
You know, the FX does not affect us that significantly on the margin because we are relatively well-balanced between the sales and the cost. I mean, you have heard me saying from the U.S. dollar, that's where the main impact is, 62, 53. But we are embedding, let's say, in the guidance, the current state of FX.
Got it. Many thanks. That had been all my three questions.
We do have one final question from the line of Henriette Rumberger from AWP. Please go ahead.
Good morning. I have just a clarification question on China. With the reopening during the first quarter, has that had any effect on your business? Did you see a pickup in demand during the following months? Thank you.
Yeah. Good, good morning. Maybe I can just close, close us out here and answer your question. I mean, with the kind of reopening, things didn't change too much for us because we already had a, I think, very good performance in 2022, which I think I commented on in the last, you know, earnings call, that we were actually positively surprised about how our team was able to serve customers even during through the lockdown and their kind of lock in, lock-in period. We, we didn't see that the team is changing coming now into 2023, but what did change was what I mentioned before, the stimulus, or the interest-free loans for scientific equipment that the Chinese government launched in Q1.
That kind of, you know, drove up quite, quite some, some projects and demand in our life science space or life science division, which was ending in Q2. It's now, of course, you know, something that haven't had an impact on H1. I think it won't have an impact on H2, and we see China in general now also becoming a bit more cautious due to the current geopolitical situation and their own domestic, I would say, economic development. That's roughly what we see, but it wasn't due to the lockdown ending in Q1 that we saw the pickup. It was the interest-free loans that, that drove some stimulus.
Okay, thank you.
Thank you very much. I think this is the end of this call, and we're looking forward to, yeah, engage with you on one-on-one discussions. Thank you very much for your time and for your attention. We can close the call now.
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