Earnings Call: H1 2020

Aug 12, 2020

Ladies and gentlemen, welcome to the Half Year Results 2020 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Martin Brandle, Senior Vice President, Corporate Communication and Investor Relations. Please go ahead, sir. Good morning, ladies and gentlemen. Thank you for joining us for our conference call this morning. We are very pleased to discuss with you the financial results for first half year twenty twenty, definitely an extraordinary time for all of us. With me on the call are our Chief Executive Officer, Doctor. Achim von Leo Brechting and our Chief Financial Officer, Tanja Miecki. Before we start, as always, some formalities. The corresponding press release announcing our H1 financial results was issued this morning at 7 am Central European Summer Time. Both this press release as well as the full 2020 interim report are available on the company website, teakan.com, under the Investor Relations tab. The interim report is also available in our IR app for iPads, which can be downloaded from the App Store. The call is being webcast over the Internet on our homepage, and we have also posted the presentation slides for download. With that, let me now turn the call over to Achim van Leeuw Prestige. Achim? You very much, Martin, and good morning and welcome to the TCAM 2020 first half year results presentation. Before Tanja will discuss the financial results of H1 2020 in detail, I will give you an overview of the financial and operational highlights. When we presented our financial results of 2019 in March this year, the world has just become a very different place and any concrete business planning for the year become very hard. Therefore, I am pleased that in the first half of this year, we recorded orders growth of 24.3 percent in local currencies or 20.4% in Swiss francs resulting in a record high order backlog by the end of June. From a revenue perspective, we ended the 1st 6 months at 8% growth in local currencies and 4.7% growth in Swiss francs. As expected and discussed at our call in March, we indeed experienced significant head as well as tailwind from the coronavirus pandemic. But I'm glad to report today that it turned out that the tailwind was stronger than the headwind, leading to overall growth in both the Life Sciences and Partnering Business. Naturally, product lines that are used by our customers to contain the COVID-nineteen pandemic saw a substantial increase in demand. The products in demand were primarily our laboratory automation solutions and our disposable pipette tips for the actual COVID testing. With the strong growth of the pipette tips, our total recurring revenues, which includes sales of services, reagents and consumables increased to 47% of total sales. We are pleased that the reported EBITDA margin increased to 19.4% with the reported net profit growing by 42%. Also, our operating cash flows were strong as we generated CHF 83,000,000 which corresponds to over 27% of sales. Now let me comment on some of the operational and product highlights of H1. As a fast response to the COVID-nineteen outbreak, we activated our pandemic response plan including the implementation of various operational measures and safety protocols at all sites. With this, we aimed to ensure both the health and safety of our employees as well as to secure manufacturing and business operations globally, particularly to support the scaling up of COVID-nineteen related testing. We have been able to respond to the unprecedented shifts in product mix and surge in demand for specific product lines by securing supplies and expanding production especially from certain instrument platforms and disposable tips. Also, we continue to invest in the development of new products to position the business for sustained growth and we saw good progress in key R and D programs. To illustrate one product highlight, we successfully launched DreamPrep NAP beginning of the year complementing the previously launched DreamPrep NGS work or DNA of or DNA of viruses. This new system has received wide attention for use in the COVID-nineteen related workflows. As you know, we are celebrating TCAN's 40th anniversary this year and the company's purpose has always been to positively impact healthcare and the lives of people. But I have to say, TCAM's contribution has probably never been more apparent than during these times. And I couldn't be more proud of our employees as they really stepped up to the challenge presented by the COVID-nineteen pandemic, passionately supporting our customers. Therefore, we thought this contribution is best told and illustrated through some concrete examples of our coronavirus related engagements and collaborations in the first half of the year. As I mentioned before, both divisions actively supported individual labs and diagnostic companies with liquid handling instruments, components and consumables used mostly to scale up testing, but also for research around the virus and vaccine development. As the COVID outbreak started in Asia, we saw a first wave of infrastructure build out starting in China and South Korea where our engineers installed instruments in full protection in testing labs as you can see on this slide. Through our partnering business, we supported local IBD companies with the accelerated supply of OEM instruments and cover components. In the 1st 6 months, we received orders for about 180 OEM instruments for Chinese and South Korean partners related directly to COVID-nineteen. Similarly, we supplied and installed several workstations in Australia to help the Australian government and its partners to deliver 10,000,000 COVID-nineteen tests. In Israel, we work with the Weizmann Institute and the Hebrew University of Jerusalem to also implement an upscale testing on COVID-nineteen significantly. In the United Kingdom, we collaborate with the UK BioCentre and its CEO, Tony Cox refurbishing their existing TECAN instruments and setting up several new automation systems, converting a lab that had a completely different focus before into one of the mega testing labs under the lighthouse program in Milton Keynes. As you can read in Tony's social media posts, this partnership has been rapid and productive, empowering massive scale up of testing volumes. In addition to Tecan's automation workstations, our introspect software solution plays an important role to monitor a lab productivity and success. While the two previous slides have shown examples from our Life Sciences division, we also support several OEM partners through our partnering business. Both companies shown here are using our innovative cover components that had to speed up development and launch of novel solutions. For Ors Diagnostics, an Australian company, this is an high throughput test system now adapted for COVID-nineteen. And for Codex DNA, a San Diego based company, a gene printer used in the development of vaccines and diagnostics. As these were just a few examples of our ongoing COVID-nineteen related partnerships and collaborations, we are proud to be engaged in many more such scale up programs aiming to contain the COVID-nineteen pandemic with testing solutions at scale. And I would like to take the opportunity again to thank our passionate colleagues, our customers and partners for their contribution. Now let me hand over to Tanja who will take you to the financial results in more detail. Thank you very much, Achim, and good morning, ladies and gentlemen, from my side as well. I'm delighted to present to you our financial results for the first half of twenty twenty in more detail. We start with order entry and sales. Order entry increased by 24.3% in local currencies or 20.4% in Swiss francs. The CHF 374,000,000 orders in the 1st 6 months of the year significantly exceeded the sales realized in the same period. With a book to bill ratio of 121, our order backlog again grew significantly to reach a record high as of June 30, 2020. As Achim has already mentioned, we saw a substantial increase in demand for product lines, supporting the global fight against the coronavirus pandemic. Sales climbed by 8% in local currencies or 4.3% in Swiss francs to CHF 310,000,000. Also, for recognized revenues, we saw the same pattern as for orders with high demand for products used in the context of the coronavirus pandemic. This demand more than offset weaker sales trends in other areas of the portfolio, which were adversely affected by lockdowns as customers closed or restricted access to their facilities. This pattern also applied to the 2 business segments. Both were impacted by this overall demand pattern and experienced pronounced headwinds and tailwinds. Our product line, in particular high demand, were our Pipette Siq. Demand increased drastically due to the testing needs associated with COVID-nineteen. As a result, also the overall recurring revenues of services, consumables and reagents increased in the first half of twenty twenty by 13.9% in local currency and 9.9% in Swiss francs. Thus, the total share of recurring revenues amounted to 46.6 percent of sales, 220 basis points more than in the prior year period. Moving on to the sales performance of our 2 business segments. Sales in the Life Science business segment increased by 4.3 percent to CHF 169,400,000. In local currencies, they were 9% above those of the prior year period. In Life Science Business, we saw strong demand for liquid handling and automation workstations as well as the associated disposable pipette kits, products supporting the COVID-nineteen response. However, other parts of the Life Science business experienced a significant slowdown as customer facilities were closed or access was restricted to slow the spread of COVID-nineteen. The product groups that were adversely impacted included our detection instruments, research reagents for next generation sequencing and consumables for mass spectrometry sample preparation. As for the group, order entry in the Life Science business outpaced recognized revenues significantly in the first half of the year. Thus, order backlog increased at a substantial double digit rate. The Partnering Business segment generated sales of CHF 140,600,000 in H1. This corresponds to an increase of 6.8% in local currency and 5.2% in Swiss francs. We have observed similar patterns to those in the life science business with automation platforms, OEM components and disposable pipette tips to support COVID-nineteen testing being in high demand. By contrast, sales to customers exposed to other areas of routine diagnostic were adversely impacted. Order entry growth also outpaced sales development in the partnering business with the order backlog increasing at a double digit rate as well. Now looking at sales development in the different regions on Slide 14. To no surprise, the regional performance was also significantly impacted by the COVID-nineteen pandemic overall and the timing of the onset in different parts of the world. In Europe, sales in the 1st 6 months increased by 6% in local currencies and by 3.3% in Swiss francs. Here, the increase in sales was driven by the Life Sciences business. As seen in some of the examples that Jim has shown, we had various larger instrument installations supporting PCR based testing as part of the European COVID-nineteen response. Sales of the partnering business, however, declined in Europe as several customers suffered from the decrease in doctor visits and related lower volume in routine diagnostic testing as well as restricted access to labs. In North America, sales rose by 2.9% in local currency and by 0.1% in Swiss francs. Looking at the segment level, here it was the other way around. The partnering business delivered double digit revenue growth, mainly supplying platforms, components and disposable pipette ticks for molecular coronavirus testing. By contrast, sales in the Life Science business declined as the local business suffered from closed facilities and restricted access to labs to perform instrument installations. However, demand for higher throughput automation systems accelerated substantially in the course of the second quarter in North America, and the Life Sciences business recorded a double digit increase in order entry for the first half of the year. In Asia, we recorded a significant increase in sales of 25.3% in local currencies and 18.4% in Swiss francs. This increase was driven by double digit growth rates in both business segments, so much more balanced from a segment perspective compared to Europe and North America. From as early as the beginning of the year, we started to support local in vitro diagnostic companies in China and South Korea, already existing customers of the partnering business, with automation platforms for PCR based COVID-nineteen testing. The Life Sciences business performed particularly well in Australia. Achim also presented examples here. When quarantines and lockdown measures started to be eased, we also saw an accelerating demand for our product portfolio in other markets in the Asia Pacific region. Of particular note was our sales growth in China, which outpaced that of the Asia region as a whole, an interesting development considering the discussions in March when many people feared a rather negative performance in China. Our next slide addresses our gross profit. Gross profit increased to CHF 146,100,000, which was CHF 5,100,000 or 3.6 percent above the prior year period. The reported gross profit margin was at 47.1%, 50 basis points below the prior year. As always, we had several factors impacting the gross profit margin. I want to highlight the 3 factors that largely led to the 50 basis points lower gross margin. The first negative effect came from higher freight and logistic costs. You might recall that freight costs were a focused area for 2019 and that we made significant savings there. This increase in the first half twenty twenty is not a deja vu, it is merely due to less capacity available due to the pandemic as there's obviously less cargo space with the much lower number of flights. Therefore, we expect this to normalize again when the transport situation normalizes. The second effect came from an under absorption of our service organization due to closed facilities and the restricted access to labs. This especially relates back to my comments regarding the self development in North America. And lastly, as mentioned several times before, we saw a significant increase of our consumable sales. As seen in past reporting periods, when these recurring revenues increased disproportionately, this mix impact comes with lower gross margins. On the other hand, consumables revenues generate nice operating margins. On the next slide, some comments regarding our cost structure. Overall, our operating expenses, less cost of sales, grew less than sales and totaled CHF103,500,000 or 33.4 percent of sales, 3 10 basis points lower than last year. Sales and marketing increased in line with sales as we continued with our investments in the market unit with a focus on further expanding our sales force. We also continue to invest in research and development to position the business for sustained accelerated growth. In fact, our financial strength and ability to commit to these investments could prove to be a competitive advantage in the longer term. As Ahim has already indicated, we made good progress with a number of ongoing development projects in the partnering business as well as in the Life Science business, including at Tech and Genomics where sales did not develop as planned due to the shutdowns. The R and D decreased mainly as development projects progressed and neared product launch. Therefore, more development costs were capitalized and were not recognized in research and development expenses. Overall, R and D activities and gross expenses were only slightly lower compared to the prior year period. This includes the capitalized cost as well as the customer funding of OEM Gross R and D was at CHF 36,700,000 or 11.8 percent of sales. General and administration expenses increased less than sales. Here, we saw some volume leverage from the increased sales. And also, you might recall that last year's figures included nonrecurring additional costs of the CEO change. Looking at the EBIT and EBITDA development in more detail. In the first half of the year, our reported EBITDA, the earnings before interest taxes, depreciation and amortization rose to CHF60.2 million. With an increase of 22%, reported EBITDA grew faster than sales due to several positive factors. As I mentioned on the previous slide, more development costs were capitalized and were not recognized in research and development expenses due to the progress these programs made. Several operating cost items were lower, delayed or they will be shifted to the second half of the year due to the lockdown measures associated with the COVID-nineteen pandemic. And an adjustment of the 3 pension plan resulted in a onetime reduction of past service costs. In addition, as you probably recall, the reported EBITDA margin of the prior year period included nonrecurring costs of around 90 basis points. Acquisition related costs were comparable in both periods. The reported EBITDA margin grew correspondingly by 280 basis points to 19.4% of sales. With plus 29.2%, the profit before interest and taxes, EBIT, grew even faster than EBITDA and came in at CHF 40 2,600,000 or 13.7 percent of sales, up by 20 to 60 basis points compared to the prior year. Now looking at the operating profitability on a segment level. Reported EBIT in the Life Science business rose to CHF 22,500,000. This was despite continued acquisition related costs for Tech and Genomics. As discussed before, this business was impacted negatively by the pandemic. However, we continue to invest in R and D as well as in the sales organization. The operating profit margin was 12.6 percent of sales, up by 140 basis points compared to the prior year. Reported EBIT in the partnering business increased to CHF 26,300,000, while the operating profit margin was unchanged at 18.6 percent of sales. Reported net profit in the first half of twenty twenty rose by 42.2 percent to CHF 36,000,000. Thanks to a lower tax rate of 12.8% in connection with the tax reform in Switzerland, net profit increased by more than EBIT. Net profit margin amounted to 11.6 percent of sales, up by 300 basis points. Only a brief discussion on the next slide. Earnings per share increased to a new high for the first half of the year, reaching CHF 3.02 percent. Continuing with the cash flow on Slide 21. Cash flow from operating activities more than doubled and reached CHF 82,800,000 in the first half of twenty twenty. This corresponds to 26.7 percent of sales. As discussed this March, we had a very strong year end finish in 2019 and that accounts receivables increased significantly. Therefore, we had a special focus on cash collection and cash management. In addition, our DSO, the days sales outstanding went down substantially from 50 days to just 39 days. The operating cash flow includes €17,500,000 for amortization and depreciation, €5,500,000 thereof from IFRS 16 another €2,400,000 for the PPA, the purchase price amortization and €4,300,000 from development costs we capitalized in the past. On the other hand, we invested a total of $130,600,000 However, this figure includes an investment of CHF 120,000,000 in time deposits. Also included in these figures are CHF 9,300,000 for newly capitalized development costs, which compares to €5,200,000 in the prior year end period. Moving on to the cash flow from financing activities. This includes the dividend payment we made in April this year in the total amount of 26,200,000. Cash and cash equivalents were at CHF189,700,000 at the end of the period. Our net liquidity position, adding the cash and cash equivalents and also the CHF 120,000,000 of short term time deposits that I have just mentioned and then deducting our bank liabilities and loans reached CHF354,000,000 as of June 30, 2020. This compares with CHF264,500,000 on June 30, 2019 312,400,000 at the end of 2019. The next slide shows the key figures. As always, this is just for your reference, as I have already discussed most of the figures on this slide. With this, I now hand back over to Achim on the opening again. Thank you very much, Tanja. On August 5, we announced an agreement with Thermo Fisher Scientific in which Tecan Automation Technology will be leveraged to enable further scale up of COVID-nineteen testing globally. Thermo Fisher Scientific is introducing a new and highly automated real time PCR solution designed to analyze up to 6,000 samples in one day. This molecular diagnostic testing system leverages Thermo Fisher's QuantStudio 7 PCR instruments in combination with Tecan's fluent laboratory workstations and Tecan's introspect software. Turner Fisher will submit the solution to the FDA for emergency use authorization in the United States and for other registrations globally. So now, I would like to give you an update on the financial outlook for 2020. Based on the H1 performance, the high order backlog and the anticipated demand for in H2, we raised the outlook for the full year 2020. However, due to the ongoing pandemic, the outlook is still subject to greater uncertainty than usual. Furthermore, this outlook assumes that supply chains and production sites remain undisrupted and operational. For sales, we now expect growth in the high single digit percentage range in local currencies. As usual, potential additional acquisitions are not taken into account in this outlook. The reported EBITDA margin in year 2020 is now expected to be closer to 20% of sales, previous expectation was around 19.6%. This expectation is also based on revised forecast for average FX rates. That means we are already factoring in a negative currency impact. This projected EBITDA margin also does not take any additional acquisitions during 2020 into account. With this, I thank you for your attention. I would like to open up the lines for Q and A. We will now begin the question and answer session. The first question comes from Daniel Buchta from Vontobel. Please go ahead. Yes, thank you very much and congratulations to the good results. Three questions, if I may. And the first one on the order book growth. I mean, obviously, quite an impressive number. Can you say a little bit more about the timing when you expect this to turn into revenues? I mean, I would assume that the vast part of this growth is coming from orders related to COVID-nineteen. So I would assume delivery to take place rather soon in maybe the next 6 to 12 months. Is that realistic to assume? Then the second on the Thermo deal, which you already mentioned. As I understand, it's only related to COVID-nineteen testing. That's what the wording was. So how much potential revenue do you see from this? And how likely is it, in your view, that Thermo could become like a normal client also that is ordering beyond COVID-nineteen solutions. So is it possible that it becomes like a next Abbott like client, so to say? And then the third one on NuGen. Obviously, not such a difficult time at the moment for NuGen. In the past, you were communicating much more in detail on what you expect in terms of top line growth and when the business can become breakeven? Is this still valid? Or could you update us a bit on how you think here about this business now? Thank you very much. Thank you very much, Tanja. And I will go through the questions in the order. And if there's anything I missed, I invite Tanja to add any comments. Firstly, on your order a question on order backlog conversion. As you know that we are typically reporting orders that have shipment dates within a 12 month period. And this is the same case for the orders and the backlog that we discussed in this call. So absolutely right on. I mean, it's fair to assume there is a significant portion of instrumentation and consumable as well as spare parts orders in that category, but not exclusively, of course, is also part of the reason why of course is also part of the reason why we elevated the guidance for this year. However, it's also fair to assume that there is is quite a bit of call off orders in other areas of backlog in that as well that will ship beyond 2020, so in 2021. And how much of that is, of course, I cannot break down for you, but it is shippable within a 12 month period of time, typically what we record as backlog. The second question on the ThermoD, of course, this is something you may want to ask the team from Thermo Fisher Scientific. But you're absolutely right. I mean, this system is designed for COVID testing. It is a station that leverages common PCR technology. And as such, will be submitted for emergency use approval and registered in other geographies as well. What happens outside of the COVID environment is of course up to Thermo Fisher and it's not our liberty or even speculation to discuss. The only thing that I can say it is an open PCR platform. And of course, any open PCR platform can be used for a variety of applications, if the associated reagents are developed and registered and validated, which is an entirely different venture on its own. But again, this is something we are of course interested to see where Thermo Fisher Scientific eventually will take that workstation. And then your last question on the Nugent situation, I believe Tanja made a couple of comments that due to the lockdown situation, particularly of academic and research facilities, we are facing significant headwinds in the business. There is also, I think, good news and upside for the Nutrien business associated to COVID. But in aggregate, I think we're seeing a bit more of a difficult time for NuGen this year. Despite this, we're making good progress to ramp up our sales teams and then our e commerce and e selling channels, which are very important for this business. But where we stand today and the projection that we have at the moment, and again, this is with all the caveats on the development in H2 of this year and maybe some ease off of lockdowns that we are projecting that the we are probably now looking at a 12 month delay in the original case of the development of the Neogen business as it was discussed in previous sessions. Okay. Thank you very much. That's very helpful. The next question comes from Maja Pataki from Kepler. Please go ahead. Yes. Good morning. I have a few questions as well. And I would like to start with, is it possible for you to give us an indication of a very rough indication of where you think the headwinds were from a Swiss franc magnitude in H1. I guess you do have a bit of an understanding how much it hit you in Europe and in the U. S? My second question relates to the orders that you have, the order backlog, the order entry. I guess it's probably fair to say that a big chunk of that is still COVID-nineteen related. And if you follow what is being written in the news and all those platforms, then it seems that everyone is trying to get up to speed to be ready for the flu season, which is supposed to start sometime end of October. In this context, is it because you are facing internal manufacturing capacity constraints? And then the last question is just really on the pension plan impact on EBITDA, if you could quantify that, that would be really cool. Thank you. And then a very good morning to you, Majer. Great questions as always. And I would again start and I'm sure that Tanja will give you a bit more detail on the pension plan impact for H1. So when we look at the business and maybe that's a little bit contrary to other companies. As you are aware, a lot of what we sell and supply are open platforms and open solutions. So it is indeed quite hard for us to sometimes disseminate what is COVID specific and what are molecular testing workstations that are going now in the COVID direction, but of course remain open molecular diagnostic workstations that be used for any other genomic testing, genetic testing procedures. But more specifically to your question, and these are really rough numbers. We look at the magnitude of the headwind for the H1 and that roughly amounts in everything that we can see to around CHF 30,000,000 in Swiss francs. So it is a very significant part of the amplitude and this is why we commented the magnitude of the head and tailwind as we discussed in April drastically accelerated throughout H1. But obviously the tailwind associated to this was a bit higher and this in aggregate maybe gives you a bit of a flavor on what we were seeing in H1. I would be very careful though to project that number out because of course we are seeing already changing dynamics again. I think some of the non COVID related businesses may come in stronger, but also some of the tailwind and this probably is a good segue into your second question, may also change some timing of the call of the instruments and consumables that we think are associated and know are associated to some extent to the COVID infrastructure build out. I mean just on your comments specifically on the flu season and I mean, are we kind of seeing capacity constraints or what limits us to do more in the second half, which is fundamentally your question. I think there's a couple of factors in there. And you have to also probably keep in mind that we of course, we had a drastic shift in the mix that we were, I think, very well managing and quite resilient to react to. And this is now of course ongoing and we are continuing to convert or repurpose some of the production lines here in our instrumentation setting, but also in other facilities in the TECAN infrastructure and also ramping up production for our plastic consumable supplies. And this of course to some extent also comes with some setup times in itself. So there is a bit of an operational ramp up time inherently as well. Secondly, there is of course once instruments are shipped and installed, we see of course also still restrictions in the ability of partners and ourselves to access labs and install equipment and put it to use. So the ease that we've seen pre COVID, just to give you some flavor, has not for our service teams, has now turned into a situation where in many places our service engineers have to test themselves for negative COVID results and have to apply for access and these kind of things, of course sometimes push out normal installation and operational times even for COVID related equipment, which may be a little bit counterintuitive. But in aggregate, of course, we are working on pretty tight schedules and many of our clients want deliveries as fast as possible. But what I'm trying to say with all the production, supply and logistic routes and installation of that type of equipment, there's just a pace that we cannot outgrow even if we wanted to. And sometimes also the receiving labs have to be prepared for such infrastructure as I illustrated it by example at the UK Bio Center. I mean this is already pre prep lab, but it also still took some time to get them ready to accept instrumentation at that scale and then eventually get them operational, which I think we accomplished in a very good timeframe. On the pension plan, I refer to Tanja probably to give you the correct numbers and the background on what happened in H1. Sure. Thank you. Hi, Majel. The adjustment in the Swiss pension plan is basically a one time reduction of past service costs, which was related to a future change in conversion rate. And the amount is CHF 2,200,000. We also have disclosed it in Note 6 in the operating expenses by nature. Perfect. Thank you very much. Super helpful. Arjun, just to double check that I get you right. So basically, the headwinds that you've seen of EUR 30,000,000 in H1, you still expect to see some headwinds despite the fact that markets have basically opened up, but everything just takes much more time. And we're also probably still seeing lower traffic of patients going to physician offices. Therefore routine testing could still be somewhat down in H2. Is that the right way to reach? Yes, yes, absolutely. That's what I said. I just wanted to advise caution for using that number. Now projecting it out for second half, it could be different. I just want to illustrate what happened in H1 and how significant it was. But you're absolutely right. I mean, we as you are aware of the situation in many geographies, including our largest end market, the U. S. Remains to be very challenging. Some level of routine testing is coming back. We see that now. But it affects 2 elements of it. 1 is routine testing and predominantly there, the environment of the partnering business where of course we have significant scale partners that are non COVID related for what we supply them with. And then secondly, also on the Life Sciences side, we continue to see limitations of excess in laboratories and still in the U. S. Many research sites and academic sites are either closed or working under very tight restrictions, access to lab for sales and service remains extremely difficult. So that's why there will be some limitation as well. However, I mean we are very confident in the second half. And then back to again your second question on the backlog, and we've shown that we have been a lot of resilience not just in our supply and operational footprint, but also in our commercial teams that were able in very short amount of time to adapt to the new situation. So that's why we elevated the guidance and remain positively that we can accommodate whatever the changes will be in the second half, where we may have a bit more preparation time. But you're right, the effects will stay in place, but the magnitude remains to be seen. Thank you very much. The next question comes from Christoph Greitler from Credit Suisse. Please go ahead. Yes. Thank you, operator. Good morning, Achim, Tanja. I have also a few questions, maybe starting off on orders. I think Abbott on its earnings call mentioned very strong demand for the M2000 and also now this Telmo deal. To what degree is this kind of now reflected in the order entry in the first half already? I guess Telmo is probably not at all. You asked a very specific question that as you know from our previous discussions are very difficult to answer on that level because we are of course bound to confidentiality when it comes to the business projections of any of such partners. But clearly, I mean, any existing partner including Abbott, as you mentioned, were included in the H1 order situation that we reported out. And on the other deal, I wouldn't like to comment at this stage. But it's something again that takes some time to build out. So I wouldn't just kind of model too much into it for the short term, but we are in very dynamic and constant processes to adapt demand and supply shipments. And maybe just to make that comment on that side, I mean, particularly the Thermo Fisher agreement is a great example of the collaboration and business model that entertaining between the Life Sciences and the Partling division because we were able to supply very rapidly and are in the process now to testing systems and validation systems. And of course now transferring that business transaction into the partnering environment where we are able under very tight regulated environment supply these type of infrastructures into an FDA except to the regulatory environment. So I think that's a very good situation. And just specifically on that agreement that was not included in the H1 numbers. But yes, I probably don't want to get more specific on this because it's of course at liberty of Thermo Fisher Scientific to discuss any business impact on their side. No, I understand. And then the other question is on your outlook statement. I think you mentioned here that you assume that supply chains remain undisrupted. Is there any thing kind of that you're fearing in particular? Or what's the reason why this is given here specifically? Have you seen any indication of no such? I would probably qualify it as my normal disclaimer, because I mean as we've seen in H1, I mean there were very, I would say challenging situations for our operations teams and I may have commented to this where very ad hoc lockdown situations, particularly in California and other regions caused our operations team to rally around and equip our suppliers with exempt letters, they could go back to work. And we were able to manage all these situations, I think, in a very tight end and undisrupting manner. So I don't foresee any of that happening. But as we all know, I mean the and Maja alluded to it, the flu season is coming and there is some uncertainty what that means in terms of lockdown restrictions. So I just wanted to make it a general statement, of course we expect it. And then of course also we are not immune to the virus. So knock on wood, we have not seen any significant disruption or challenges in our production staff, but that is something that can also happen and there would be potentially an impact. So we are protecting ourselves I think very professionally by shift systems and segregating production teams to the best of our abilities. But of course, clearly that does make us immune, but I believe we demonstrated in H1, we have these processes well under control. And just on the freight situation, I think Tanja alluded to this as well. We've seen very challenging situations in H1. We expect this now to get a little bit easier in the second half as passenger airplanes are back more getting more and more back and this of course gives more logistics space both incoming and outgoing. But the logistics situation had been quite challenging, particularly when you think at these large volumes of consumables that require quite some airspace when we ship them across geographies. Okay. I appreciate that. And maybe one last question on FX. I think I was somewhat surprised to see that kind of it should have an impact on margin, these revised forecast because if I remember right, at least under Rudolf Ochsner, you were pretty well hedged typically, at least in the short run. So could you maybe kind of indicate, 1st of all, what would be have been the amount kind of negative currency effect that you now baked into kind of the overall 20% number and whether there was any kind of substantial change in your hedging policy. So going forward, whether we should expect more volatility from the FX on margin? Yes. No, and maybe just an introductory comment. So we're keeping a very good discipline and you can expect continuation of what you were experiencing from our policies and behavior. But maybe I hand over to Tanja to fill a bit more into the details of what we've seen and what to expect also and our ability to absorb and buffer some of the fluctuations, which of course are most significant right now in the U. S. Environment. Sure. And to answer part of your question, yes, of course, we do continue hedging, although maybe on a little bit reduced level compared to past years as the cost of hedging at the time was quite high. So we've agreed to reduce it to a level that we feel acceptable. And we have more of a hedge against the strengthening of the Swiss francs. So now on the impact from H1, from the FX perspective, that was about 20 basis points. And as we mentioned, we factored the negative potential impact of the currency into our outlook. Okay. Thank you. Appreciate that. The next question comes from Scott Bardo from Berenberg. So first question, please. Obviously, we've seen TCAM take a very central high profile role in COVID-nineteen testing with your projects in Australia and the LIGHT Health project in the UK, now the Thermo collaboration. So the question is, do you think that as a result of this COVID crisis, Tecan's status has improved and that you maybe see a higher mix coming from larger diagnostic type deals than perhaps you would have seen before? Second question, I wonder if you could please comment on the trend that you've seen in your microplate reader business and whether this COVID-nineteen situation has impacted the Spark Cyto launch in any way? And third question, please. I'm more generally interested in what make M and A as a sustainable longer term positioning for the company outside of this crisis. But I know you're probably in a situation where you have 2 years growth in 1 year or certainly towards the upper end of the range. Could you share some thoughts whether things normalize next year such that in 2021, we're back to a more subdued growth on a higher base? Or do you think that this is now a level that you can sustain going forward? Thank you. All right. Thank you very much, Scott. And I will go through the questions in that order. So I think you mentioned the kind of the status or the awareness of Tecan as an essential and enabling player in the life sciences and diagnostic space. And I believe we had a very good position before. Clearly in a lot of things that we do including lab automation, we have been in the market leading position. However, I would tend to agree with you that with the engagement and the speed of response in some of the demands and the build outs, I believe we have received quite good feedback from partners, including the ones that you mentioned, but also from governmental agencies. And of course, in many cases, very intimately engaged in these infrastructure build out discussions and the speed of infrastructure build out. So I mean it's not probably just personal speculation, but I believe and this may be a testament to the agreement with Thermo Fisher raising the awareness not just for the short term period, but I believe gives us a lot of credibility also to engage in future projects and collaborations, including larger diagnostic companies where I think we have a very good position as well. But I believe the COVID situation could prove that A, we are very resilient in terms of our ability to supply and respond to changes and cover up any potential risks in supply chain and production. But secondly, from our technology standpoint, there I would probably point out not just the automation workstations and our engineering that we do on the partnering side, but also increasingly the software solutions that supply. And I mentioned in couple of my examples, introspect, they have been instrumental to have particularly model labs to adapt infrastructure at very high confidence levels and monitor what's happening there. So I believe that has us quite a bit to raise the profile, maybe up from a loan automation equipment supplier and consumables supplier to also a player in the area of lab connectivity and digital tool development, which I think I'm particularly proud of. Second question you had was on the microplate reader. And yes, the business was also to some extent handicapped by the close down of laboratories. However, I think we've seen particularly good interest and continued interest and I would credit this also to a lot of creativity in the Life Sciences division in creating leads and then even doing remote and virtual demonstrations for customers, and that led to quite a good, I would say, recovery after certain lockdown situations, particularly in China, where these efforts were yielding fruit right after the universities and institutes were opening up again. So short term in H1, we've seen a bit of a headwind on the Micro Plate Reader business simply because of lockdown situations and access limitations, but we have drastically ramped up our e marketing and e demonstration capabilities that have quite a bit. And I can just say SparkSaito, which was a new product and the flagship product that we launched last year, received very good credits from the users. And I think proves that we have really developed a highly competitive system that is able to gain share in the cell analytical markets. I'm very confident on this as well. Yes, your second question of course is to be expected the ask for guidance for 2021, which I will refrain of issuing at this moment and we will do this in due course. But of course, we are seeing a bit of kind of influx right now due to the COVID crisis. But also keep in mind that we had seen significant headwinds on other parts of the business, which I'm sure will recover and rebound as the COVID acute situation will evolve. I should also say that, I mean, one of the good news that I'm looking at is or good factors is that our systems and solutions are typically not one trick pony. So a lot of what we do and exclusively what we do are open platforms that can accommodate a variety of applications. So we expect that quite a few, probably not all of the instruments and the infrastructure that we put in place right now will be continue to be used in some level of testing and increasing apparent gaps in some testing in infrastructures in geographies where this was significantly under scaled, which gives us also I think a very good outlook of mid term utilization both from an instrumentation standpoint from spare parts and consumables and other elements associated to the infrastructure. To what extent that will play out remains to be seen that also I think is a direct correlation to when the COVID situation will eventually add off and the vaccine will be effectively being deployed. But I think we have a very, very good and in situation with these open scenarios that we can accommodate quite a variety of assays. And yes, and to your point, we also of course continue to be very active on the M and A side. And this is again something where we see some handicaps right now in terms of being able to advance processes again due to limitation of doing due diligence and these kind of things. But again, we are sitting on a very, very good funnel of opportunities and we continue to do everything that we can right now remotely to advance that funnel. But clearly that is something we are also looking as an additional deployment of our capital opportunity after the COVID crisis as of starting off hopefully in Q1, Q2, 2021. The next question comes from Daniel Jellofkan from Mirabeau. Please go ahead. Yes. Hello, also from my side. Just one three questions, but one very short one. The headwind, I wasn't sure, 1.3 or 3.0? 3.0. I'm sorry, 3.0? Yes. Yes, it was quite clear, but just to double check. And the second question, you particularly the wording for the order backlog was for OEM double digit and especially for LSB substantial double digit, So obviously, much better than the OEM. So the question is, how much was pent up demand from Academia's coming back after the lockdown, April, May, June, whatever, and ordering detection? And yes, to get some more color on the pent up demand built in the backlog? And the 3rd question would be typically the LSB margin are much better in the second half than the first half because of the Q4 like always. But now with the double digit the substantial double digit order backlog in LSB, is it possible that I mean, you have given the group margin EBITDA guidance, of course, which is clear. But still, are there any effects in the second half we have to consider that despite the significant order backlog, maybe the margins will be as in the past because of some mix effects or that's all my questions? Okay. Super. Thank you very much. Again, I will start and Tanja will probably jump in on the margin side. But on the backlog situation, I mean, clearly, I mean, the largest implications in orders that we booked in H1 were associated to automated workstations either on the partnering or the Life Sciences side, consumables and spare parts to some extent. So in that mix, there wasn't some unusual or something I would call out that really drove more of this. Of course, we've seen some level of recovery in academia, but not to that extent and that would also be not to be expected because typically, I mean, these type of customers don't order multiples detection facilities or any of the other pieces. So I think it's fair to assume that a lot of the backlog is centered around consumables and automated workstations at this point that made a big delta compared to previous periods. And we are very, very again, very confident. That's what we illustrated in the update of our guidance both from a top and bottom line. But as I said before, I mean, COVID is still with us. And what I mentioned before, some of the challenges that we see in accessing labs, installing equipment, the time it takes to install equipment and get it fully operational is something we are planning out right now. I think these situations will improve. They are not absolutely not back to normal. This is something we also have to factor in our projection of backlog conversion and we will do everything we can to accommodate and drive this. But they are also in addition to the conversion rate and our ability to turn that into revenues, other factors that affect the bottom line And there I would probably hand over to Tanja that can give a bit more color on this. Sure. And thank you, Daniel Schokers for your question. So I think the H2 margins will be a little bit more balanced than maybe in the past. I mean, you have seen some of the effects in H1 will not be recurring in H2. Also, the underutilization of the service organization will be now turning into overtime most likely, and we will again pay a little bit more compared to the low level situation. So we probably won't see that same hockey stick in December as well. And that is why we believe that it will be much more balanced in between H1 and H2 than in the previous years. Okay. And by the way, all the best, Tania, for the new job. It's the first time we have heard you in public. Well done. Thanks. Thank you. Thank you very much. The last question is a follow-up question from Christophe Grechke from Credit Suisse. Please go ahead. Hi. Yes. Thank you. It's just basically to come back on your M and A comment. I mean, given the fact that apparently multiples have increased very substantially year to date in your industry, is there any kind of change in your attitude on the use of cash and whether basically buybacks, I guess, would not become more attractive. I don't know. I mean, how do you think about kind of the value of your cash flow and to allocate that in an environment where essentially kind of the multiples of your target companies have gone up very substantially? No, listen, Chris, I mean, there is no change in our account seeking and what we discussed before. I mean, we will stay very focused on our M and A pipeline. That is our absolute kind of means to deploy capital at the moment and we don't see any reasons to deviate from that strategy. We have a very good pipeline of assets that we are looking at, which are a variety of privately owned or other assets that we are cultivating and working on in various geographies, by the way. And yes, so I think we continue to be very clear and level headed on evaluations. We do very clear and deep due diligence to see what happens there. And if there is a profitable target that in our thinking and our projections justifies an investment that is needed to incorporate their target, we will do so. So, but it's not a change from previous plans or policies and we remain very focused on deploying capital there and not at the moment discussing any other means, which as you can imagine is an ongoing and very active discussion with our Board of Directors. But at the moment, we have very good confidence that once the due diligence restrictions or I would say operational restrictions lift off, we have a very good pipeline to call upon and convert the cash into very productive assets for Tecan. Okay. Yes. No, I just thought, I guess, the price expectation of your of the potential sellers now have gone up very dramatically, I guess, over the last couple of quarters. And also I was just kind of interested in kind of any thoughts you had on that. Thank you. Thank you very much. I believe we have to come to an end now. We have already passed the hour. So, with this, I would all like to thank you very much for your participation and great questions. So I refer you back to our web portal for additional information. And with this, I would like to close the call and thank you very much. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.