Ladies and gentlemen, welcome to the Half Year Results 2020 conference call and live webcast. I am Sandra, the conference 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&A session. You can register for questions at any time by pressing star and one on your telephone. 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 Relation . 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 the first half year 2020. Definitely an extraordinary time for all of us. 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, some formalities. The corresponding press release announcing our H1 financial results was issued this morning at 7:00 A.M., Central European summertime. Both this press release, as well as the full 2020 interim report, are available on the company website, tecan.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 von Leoprechting. Achim?
Thank you very much, Martin. Good morning and welcome to the Tecan 2020 first half-year results presentation. Before Tania will discuss the financial results of H1 2020 in detail, I will give you an overview on the financial and operational highlights. When we presented our financial results of 2019 in March this year, the world had just become a very different place, and any concrete business planning for the year had become very hard. I am pleased that in the first half of this year, we recorded orders growth of 24.3% in local currencies or 20.4% in CHF, resulting in a record high order backlog by the end of June. From a revenue perspective, we ended the first six months at 8% growth in local currencies and 4.7% growth in CHF.
As expected and discussed at our call in March, we indeed experienced significant head as well as tailwind from the coronavirus pandemic. 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-19 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're also pleased that the reported EBITDA margin increased to 19.4% with the reported net profit growing by 42%.
Our operating cash flows were strong as we generated CHF 83 million, which corresponds to over 27% of sales. Let me comment on some of the operational and product highlights of H1. As a fast response to the COVID-19 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-19 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.
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&D programs. To illustrate one product highlight, we successfully launched DreamPrep NAP beginning of the year, complementing the previously launched DreamPrep NGS workstation. DreamPrep NAP has been designed to specifically and significantly simplify nucleic acid extraction, including the RNA or DNA of viruses. This new system has received wide attention for use in the COVID-19 related workflows. As you know, we are celebrating Tecan's 40th anniversary this year, and the company's purpose has always been to positively impact healthcare and the lives of people.
I have to say, Tecan'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-19 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 IVD companies with the accelerated supply of OEM instruments and Cavro components. In the first six months, we received orders for about 180 OEM instruments for Chinese and South Korean partners related directly to COVID-19. Similarly, we supplied and installed several workstations in Australia to help the Australian government and its partners to deliver 10 million COVID-19 tests. In Israel, we worked with the Weizmann Institute and the Hebrew University of Jerusalem to also implement an upscale testing on COVID-19 significantly. In the U.K., 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 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 Cavro components that help to speed up development and launch of novel solutions. For AusDiagnostics, an Australian company, this is an high-throughput test system now adapted for COVID-19. 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-19 related partnerships and collaborations, we are proud to be engaged in many more such scale-up programs aiming to contain the COVID-19 pandemic with testing solutions at scale. 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 Tania, 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 2020 in more detail. We start with order entry and sales. Order entry increased by 24.3% in local currency or 20.4% in CHF. The CHF 374 million orders in the first six 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 CHF to CHF 310 million.
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 two business segments. Both were impacted by this overall demand pattern and experienced pronounced headwinds and tailwinds. A product line in particular high demand were our pipette tips. Demand increased drastically due to the testing needs associated with COVID-19. As a result, also the overall recurring revenues of services, consumables, and reagents increased in the first half of 2020 by 13.9% in local currency and 9.9% in CHF.
The total share of recurring revenues amounted to 46.6% of sales, 220 basis points more than in the prior year period. Moving on to the sales performance of our two business segments. Sales in the Life Science Business segment increased by 4.3% to CHF 169.4 million . 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 tips, products supporting the COVID-19 response. 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-19. 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 140.6 million in H1. This corresponds to an increase of 6.8% in local currency and 5.2% in CHF. We have observed similar patterns to those in the life science business with automation platforms, OEM components, and disposable pipette tips to support COVID-19 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-19 pandemic overall and the timing of the onset in different parts of the world. In Europe, sales in the first six months increased by 6% in local currencies and by 3.3% in CHF. Here, the increase in sales was driven by the Life Sciences Business. As seen in some of the examples Achim has shown, we had various larger instrument installations supporting PCR-based testing as part of the European COVID-19 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 currencies and by 0.1% in CHF. 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 tips for molecular coronavirus testing. By contrast, sales in the Life Sciences 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 CHF. 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-19 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 146.1 million, which was CHF 5.1 million or 3.6% 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 three 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 our focus area for 2019 and that we made significant savings there. The increase seen in the first half 2020 is not a deluge. 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 sales development in North America. 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 increase disproportionately, this mixed 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 CHF 103.5 million or 33.4% of sales, 310 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 continued 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 Achim 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 Tecan Genomics, where sales did not develop as planned due to the shutdowns. The R&D ratio decreased mainly as development projects progressed and new product launch. Therefore, more development costs were capitalized and were not recognized in research and development expenses. Overall, R&D activities and growth expenses were only slightly lower compared to the prior year period. This includes the capitalized cost as well as the customer funding of OEM projects. Gross R&D was at CHF 36.7 million or 11.8% 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 non-recurring 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 CHF 60.2 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-19 pandemic.
An adjustment of the Swiss pension plan resulted in a one-time reduction of past service costs. In addition, as you probably recall, the reported EBITDA margin of the prior year period included non-recurring 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 +29.2%, the profit before interest and taxes, EBIT, grew even faster than EBITDA and came in at CHF 42.6 million, or 13.7% of sales, up by 260 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 22.5 million. This was despite continued acquisition-related costs for Tecan Genomics. As discussed before, this business was impacted negatively by the pandemic.
We continued to invest in R&D as well as in the sales organization. The operating profit margin was 12.6% of sales, up by 140 basis points compared to the prior year. Reported EBIT in the Partnering Business increased to CHF 26.3 million, while the operating profit margin was unchanged at 18.6% of sales. Reported net profit in the first half of 2020 rose by 42.2% to CHF 36 million. 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% 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. Continuing with the cash flow on slide 21.
Cash flow from operating activities more than doubled and reached CHF 82.8 million in the first half of 2020. This corresponds to 26.7% of sales. As discussed this March, we had a very strong year-end finish in 2019. Thus, 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 CHF 17.5 million for amortization and depreciation, CHF 5.5 million thereof from IFRS 16, another CHF 2.4 million for the PPA, the purchase price amortization. CHF 4.3 million from development costs we capitalized in the past. On the other hand, we invested a total of CHF 130.6 million. However, this figure includes an investment of CHF 120 million in time deposits.
Also included in the figures are CHF 9.3 million for newly capitalized development costs, which compares to CHF 5.2 million in the prior year period. Moving on to the cash flow from financing activities. This includes the dividend payments we made in April this year in the total amount of CHF 26.2 million. Cash and cash equivalents were at CHF 189.7 million at the end of the period. Our net liquidity position, adding the cash and cash equivalents, and also the CHF 120 million of short-term time deposits that I have just mentioned, and then deducting all bank liabilities and loans, reached CHF 354 million as of June 30, 2020. This compares with CHF 264.5 million on June 30, 2019, and CHF 312.4 million 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 for more testing again.
Thank you very much, Tania. On August 5th, we announced an agreement with Thermo Fisher Scientific, in which Tecan Automation Technology will be leveraged to enable further scale-up of COVID-19 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. Thermo Fisher will submit the solution to the FDA for Emergency Use Authorization in the United States and for other registrations globally. 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 fiscal 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 forecasts 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&A.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm you've entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use only handsets that are can ask questions. The first question comes from Daniel Bukta from Vontobel. Please go ahead.
Yeah, thank you very much, congratulations to the good results. Three questions, if I may. The first one on the order book growth, obviously quite an impressive number. Can you say a little bit more about the timing when you expect this to turn into revenues? I would assume that the vast part of this growth is coming from orders related to COVID-19. I would assume delivery to take place rather soon in maybe the next 6-1 2 months. Is that realistic to assume? The second on the Thermo deal, which you already mentioned. As I understand, it's only related to COVID-19 testing, that's what the wording was. 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-19 solutions?
Is it possible that it becomes like a next Abbott-like client, so to say? 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 break even. 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, Daniel. I will go through the questions in the order and if there's anything I missed, I invite Tania to add any comments. On your question on order backlog conversion. As you know that we are typically reporting orders that have shipment dates within a 12-month period. This is the same case for the orders and the backlog that we discussed in this call. You're absolutely right on. 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. We expect now to wind down the backlog during 2020. This, 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's quite a bit of call-off orders in other areas of backlog in there as well that will ship beyond 2020, so in 2021. 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 Thermo, of course, this is something you may want to ask the team from Thermo Fisher Scientific, but you're absolutely right. This system is designed for COVID testing. It is a station that leverages common PCR technology. 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 at our liberty or even speculation to discuss.
The only thing that I can say, it is an open PCR platform. 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. Again, this is something we are, of course, also interested to see where Thermo Fisher Scientific eventually will take that workstation. Your last question on the NuGEN situation, I believe Tania 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 NuGEN business associated to COVID. 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. 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 we are probably now looking at a 12-month delay in the original case of the development of the NuGEN business as it was discussed in previous sessions.
Okay, thank you very much. That is very helpful.
The next question comes from Maja Pataki from Kepler. Please go ahead.
Good morning. I have a few questions as well, and I would like to start with, is it possible for you to give us 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-19 related. 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 some time end of October.
In this context, is it because you are facing internal manufacturing capacity constraints? The last question is just really on the pension plan impact on EBITDA. If you could quantify that would be really cool. Thank you.
A very good morning to you, Maja. Great questions as always. I will, again, start, and I'm sure that Tania will give you a bit more detail on the pension plan impact for H1. 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. 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 can be used for any other genomic testing, genetic testing procedures. More specifically to your question, and these are really rough numbers.
We look at the magnitude of the headwind for the H1, that roughly amounts in everything that we can see to around CHF 30 million. It is a very significant part of the magnitude. This is why we commented the magnitude of the head and tailwinds as we discussed in April, drastically accelerated throughout H1. Obviously, the tailwind associated to this was a bit higher, 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. This may also change some timing of the call-offs of the instruments and consumables that we think are associated, and know are associated to some extent to the COVID infrastructure build-out. Just on your comment specifically on the flu season and 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. 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.
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. This, of course, to some extent, also comes with some set-up times in itself. 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.
The ease that we've seen pre-COVID, just to give you some flavor, 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. In aggregate, of course, we are working on pretty tight schedules and many of our clients want the deliveries as fast as possible. 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.
Sometimes also the receiving labs have to be prepared for such infrastructure, as I illustrated it by example at the UK Biocentre. This is an already pre-prepped 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 time frame. On the pension plan, I refer to Tania probably to give you the correct numbers and the background on what happened in H1.
Sure. Thank you, Achim. Hi, Maja. 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. The amount is CHF 2.2 million. We also have disclosed it in note six in the operating expenses by nature.
Perfect. Thank you very much. Super helpful. Achim, just to double-check that I get you right. Basically the headwinds that you are seeing of CHF 30 million in H1, you still expect to see some headwinds, but markets are basically opening up, but everything just takes much more time and we are 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 read your-
Yes. Absolutely. That's why I said I just wanted to advise caution for using that number now, projecting it out for the second half. It could be different. I just want to illustrate what happened in H1 and how significant it was. You're absolutely right. 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. It affects two elements of it. One 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.
Secondly, also on the life sciences side, we continue to see limitations of access 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. That's why there will be some limitations as well. However, we are very confident in the second half. 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. 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.
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 Gretler from Credit Suisse. Please go ahead.
Yes. Thank you, operator. Good morning, Achim, Tania. 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 Thermo deal. To what degree is this kind of reflected in the order entry in the first half already? I guess Thermo is probably not at all.
You ask very specific questions 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. Clearly, any existing partner, including Abbott, as you mentioned, were included in the H1 order situation that we reported out. On the other deal, I wouldn't like to comment at this stage, it's something, again, that takes some time to build out. I wouldn't just model too much into it for the short term. We are in very dynamic and constant processes to adapt demand and supply shipments.
Maybe just to make a comment on that side, particularly the Thermo Fisher agreement is a great example of the collaboration and business model that we're entertaining between the life sciences and the Partnering division, because we were able to supply very rapidly, and are in that process now, to testing systems and validation systems. 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 acceptable regulatory environment. I think that's a very good situation. Just specifically on that agreement, that was not included in the H1 numbers. Yeah, 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. The other question is on your outlook statement. I think you mentioned here that you assume that supply chains remain undisrupted. Is there anything that you are fearing in particular? What is the reason why this is not given here specifically? Have you seen any indication of no such?
I would probably qualify it as my normal disclaimer. Because, as we've seen in H1, 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 so they could go back to work. We were able to manage all these situations, I think, in a very tight and undisrupting manner. I don't foresee any of that happening. As we all know, and Maja alluded to it, the flu season is coming and there is some uncertainty what that means in terms of lockdown restrictions. I just wanted to make it a general statement, of course, we expect it. Then, of course, also, we are not immune to the virus.
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 then there would be potentially an impact. We are protecting ourselves, I think, very professionally via shift systems and then segregating production teams to the best of our abilities. Of course, clearly, that doesn't make us immune. I believe we demonstrated in H1, we have these processes well under control. Just on the freight situation, I think Tania 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 getting more and more back. This, of course, gives more logistics space, both incoming and outgoing.
The logistics situation had been quite challenging, particularly when you think of these large volumes of consumables that require quite some airspace when we ship them across geographies.
Okay. Yeah, no, appreciate that. Maybe one last question on FX. I was somewhat surprised to see that it should have an impact now on margin, this revised now forecast, because if I remember right, at least under Rudolf Eugster, you were pretty well hedged, typically, at least now in the short run. Could you maybe indicate, first of all, what would have been the amount of negative currency effect that you now baked into the overall 20% number? Whether there was any substantial change in your hedging policy now ? Going forward, whether we should expect more volatility from the FX on margin?
Yeah. No, maybe just an introductory comment. We're keeping a very good discipline and you can expect a continuation of what you were experiencing before from our policies and behavior. Maybe I hand over to Tania to fill you a bit more into the details of what we've seen and what to expect, also in our ability to absorb and buffer some of the fluctuations, which of course, are most significant right now in the U.S. environment.
Sure. 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. We've agreed to reduce it to a level that we feel acceptable. We have more of a hedge against the strengthening of the Swiss franc. Now on the impact from H1, from the FX perspective, that was about 20 basis points. 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. Please go ahead.
Yes. Good morning. Thanks for taking my questions. First question, please. Obviously, we've seen Tecan take a very central, high-profile role in COVID-19 testing with your projects in Australia and the Lighthouse Lab project in the U.K., now the Thermo collaboration. 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-19 situation has impacted the Spark Cyto launch in any way. Third question, please. I'm more generally interested in what may emanate as a sustainable longer-term positioning for the company outside of this crisis.
I know you're probably in a situation where you have two years growth in one 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? Do you think that this is now a level that you can sustain going forward? Thank you.
All right. Thank you very much, Scott. I will go through the questions in that order. I think you mentioned the kind of status or the awareness of Tecan as an essential and enabling player in the life sciences and diagnostics space. 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 that, of course, in many cases, very intimately engaged in these infrastructure build-out discussions and the speed of infrastructure build-out.
It's not probably just personal speculation, but I believe, and this may be a testament to the agreement with Thermo Fisher, is 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. 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. Secondly, from our technology standpoint, and 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 we supply.
I mentioned in a couple of my examples, Introspect, that have been instrumental to help, particularly novel labs, to adapt infrastructure at very high confidence levels and monitor what's happening there. I believe that helps us quite a bit to raise the profile, maybe up from a known automation equipment supplier and consumable 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. 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 accredit 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.
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. Short term in H1, we've seen a bit of a headwind on the microplate reader business simply because of lockdown situations and access limitations. We have drastically ramped up our e-marketing and e-demonstration capabilities that help quite a bit. I can just say Spark Cyto, which was a new product and a flagship product that we launched last year, receives very good credits from the users. I think proves that we have really developed a highly competitive system that is able to gain share in the cell analytical market. I'm very confident on this as well.
Yeah, your second question, of course, is to be expected, the ask for a guidance for 2021, which I will refrain of issuing at this moment, and we will do this in due course. Of course, we are seeing a bit of an influx right now due to the COVID crisis. 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 one of the good news that I'm looking at is, or good practices, that our systems and solutions are typically not one-trick ponies. A lot of what we do, and exclusively what we do, are open platforms that can accommodate a variety of applications.
We expect that quite a few, probably not all, of the instruments and the infrastructure that we put in place right now will 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 midterm 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 ebb off and the vaccine will be effectively being deployed. I think we have a very good and situation with these open scenarios that we can accommodate quite a variety of assays.
To your point, we also, of course, continue to be very active on the M&A side. 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 diligences and these kind of things. Again, we are sitting on a very good funnel of opportunities, and we continue to do everything that we can right now remotely to advance that funnel. Clearly, that is something we're also looking in as an additional deployment of our capital opportunity after the COVID crisis ebbs off, starting off hopefully in Q1, Q2 2021.
Thanks very much for the detailed answer. Congratulations.
The next question comes from Daniel Jelovcan of Vontobel. Please go ahead.
Yeah. Hello. Also from my side, just one of three questions, but one very short one. The headwind, I wasn't sure, one three or three zero?
Three zero.
I'm sorry, three zero?
Yeah.
Okay. Yeah, it was quite clear, but just to double-check. Thanks. 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. The question is, how much was pent-up demand from academias coming back, after the lockdown, April, May, June, whatever, and ordering detection and, yeah, to get some more color on the pent-up demand built in the backlog. The third question would be, typically, the LSB margin are much better in the second half than the first half because of the fourth quarter, like always. Now with the substantial double digit order backlog in LSB, is it possible 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. That's all my questions.
Okay. Super. Thank you very much. Again, I will start and Tania will probably jump in on the margin side. On the backlog situation, clearly, the largest implications and 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. 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, these type of customers don't order multiples of instruments at one point from our detection facilities or any of the other pieces.
I think it's fair to assume that a lot of the backlog build is centered around consumables and automated workstations at this point that made the big delta compared to previous periods. We are again, very confident. That's what we illustrated in the update of our guidance, both from a top and bottom line. As I said before, COVID is still with us. 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 absolutely not back to normal. This is something we also have to factor in in our projection of backlog conversion, and we will do everything we can to accommodate and drive this.
There are also, in addition to the conversion rate and our ability to turn that into revenues, other factors that affect the bottom line right now. There, I would probably hand over to Tania that can give a bit more color on this.
Sure. Thank you, Daniel, for your questions. I think the H2 margins will be a little bit more balanced than maybe in the past. You have seen some of the effects in H1 will not be recurring in H2. 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 lowest level situation. 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 balancing between H1 and H2 than in the previous years.
Okay. 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 Christoph Gretler from Credit Suisse. Please go ahead.
Hi. Yes. Thank you. It's just basically to come back on your M&A comment. 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 now, I guess, would not become more attractive? I don't know. How do you think about the value of your cash flow and to allocate that in an environment where essentially the multiples of your target companies have gone up very substantially?
Listen, because there's no change in our current thinking and what we discussed before. We will stay very focused on our M&A pipeline. That is our absolute 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. Yeah. I think we continue to be very clear and level-headed on evaluations. We do very clear and deep due diligences to see what happens there. If there is a profitable target that in our thinking and in our projections justifies investment that is needed to incorporate that target, we will do so.
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. 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. Yeah. No, I just thought, I guess the price expectation of the potential sellers now have gone up very dramatically, I guess, over the last couple of quarters. I was just interested in any thoughts you had on that.
Yeah.
Thank you.
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