Ladies and gentlemen, good morning. Welcome to the Tecan full year 2018 results presentation. I'm David Martyr, with me are Rudolf Eugster, our CFO, Martin Brändle, our VP of Communications and Investor Relations, Achim von Leoprechting, our DVP Head of Partnering Business, as well as being my successor as CEO from later this month. Before we start, as always, some formalities. The corresponding press release was issued this morning at 6:30 A.M., Central European time. Both the press release as well as a preprint of the 2018 financial report are available on the company website, tecan.com, under Investor Relations. The conference is being webcast over the internet on our homepage, and we have posted the presentation slides we're going to use for download. Also, an iPad app for the financial results of the Tecan Group is available from the App Store.
During the presentation, I'll first make some brief introductory comments concerning the highlights of 2018 before handing over to Rudolf, who, as always, will take you through the financial results in detail. Achim will update you on some of the latest developments and product launches in our business, including from our recent genomics business acquisition. Achim will also comment on our outlook for the full year 2019. At the end, all three of us would be very pleased to take your questions either from here in the room or over the webcast. Turning to the financial highlights of 2018, I'm very pleased to report that Tecan was again able to deliver strong financial results for the second half of the year, therefore delivered another very successful full year 2018.
Full-year orders grew by 10.3% in local currency, 11.1% in CHF, the final few months of the year being particularly strong. Organic growth was by far the largest element of this growth at 9.8%. Of particular note was the receipt in the fourth quarter of a large multi-instrument repeat order for highly customized systems in our Life Sciences Business. With total order intake for the year reaching CHF 627 million, even with the strong sales in the second half of the year, we saw a double-digit increase in our order backlog to a new record level. Sales for the year grew by 7.4% in local currency, 8.2% in CHF, including, of course, a small contribution from the acquisition of NuGEN Technologies in September. Organic growth, that is excluding NuGEN, was 6.8% in local currency, comfortably achieving our mid-single-digit growth outlook given in March last year.
Recurring revenue sales grew in line with our overall growth and represented 42% of total annual sales. You'll recall that this ratio has increased considerably in the past few years from 37% in 2016 and only 30% just a few years earlier. EBITDA margin, excluding the NuGEN acquisition, expanded to 19.4%, delivering on our outlook given 12 months ago to exceed 19%. The acquisition effects of NuGEN, together with the initial post-merger integration activities, were well in line with our communicated expectations. EBIT expanded by 11%, net profit expanded by 7.2%, resulting in an earnings per share of CHF 6.02, our highest level to date in the history of the company. Operationally, we also enjoyed many highlights during 2018.
Our Fluent advanced flexible liquid handling robotic platform continues to go from strength to strength, and during the first half of 2018, we launched an important variant of this platform called Fluent Gx. Fluent Gx, which is a Class 1 registered medical device in the U.S., has been developed for users who operate in highly regulated markets. In addition to the wide range of standard features for Fluent for high productivity and ease of use, Fluent Gx offers many extra software features such as sample tracking, electronic signatures, and audit trails to facilitate the confident deployment of automation in critical environments. The uptake of Fluent Gx significantly contributed to the growth of our Life Sciences Business during the second half of 2018, and we saw strong demand from major laboratory chains who installed multiple instruments at the same time.
In mid-August, we announced that we'd reached agreements to acquire NuGEN Technologies based in California. This deal was successfully closed very quickly by the start of September. Integration of the business is proceeding well. The business has already been relocated to expanded facilities in California. The first integrated product offering, combining Tecan hardware and NuGEN reagents, has already been launched. Our Partnering Business also had a very strong year, delivering overall growth in sales of 9.7% in local currency, with growth being driven from established platforms as well as several newly launched instruments. Development and engineering activities on new products is also continuing at a good pace. During 2018, our R&D teams have been further expanded due to the number of projects and the strength of the project funnel.
Now, after this brief introduction, I'd like to hand over, as usual, to Rudolf, who will lead you through the financial results in more detail. Thank you. Rudolf.
Thank you, David. Good morning, ladies and gentlemen. As always, I will now guide you through our financial results for the fiscal year 2018 in more detail. I start with order entry and sales. Order entry increased by 11.1% to CHF 627 million. This corresponds to an increase of 10.3% in local currencies. In the second half, orders increased even by 20% in local currencies. It was pleasing to see that both business segments contributed with double-digit growth rates to that increase in the second half. Thanks to this strong order entry, also the order backlog was sharply higher as of December 31st, 2018. As we mentioned in the press release, the order backlog includes a large order in the Life Sciences Business for customized solutions.
This order was for slightly more than CHF 10 million, and most likely all of the CHF 10 million will be recognized as revenue in 2020. Sales for the fiscal year 2018 climbed by 7.4% in local currencies or 8.2% in CHF to CHF 593.8 million. Organic sales development excludes sales from NuGEN for the last four months of the year. They are now called Tecan Genomics. Organic sales grew by 6.8% in local currencies and 7.7% in CHF. This was also the basis for our guidance in March last year. With +6.8%, we comfortably achieved our annual outlook to grow sales in the mid-single-digit range in local currencies. This growth was driven in particular by two very strong months at the year-end. In H2, sales climbed by 7.8% in local currencies or 8.1% in CHF.
On an organic basis, sales grew by 6.8% in local currencies and 7% in CHF in H2. Segment sales. Looking at the sales performance of our two business segments. Sales in the Life Sciences Business segment increased by 7% to CHF 328.2 million. They were 5.6% above the prior year period in local currencies. On an organic basis, excluding sales from NuGEN for the last four months of the year, sales increased by 4.6% in local currencies in 2018. After a moderate start into the year based on a high comparative basis from the prior year period, sales accelerated significantly in the second half and were 11.3% above the prior year period. This corresponds to an increase of 10.8% in local currencies. On an organic basis, sales grew by 8.9% in local currencies in the second half.
Looking at the drivers of this growth, we can clearly name the newly launched Fluent Gx platform variant and also more plastic consumables. Looking at the order entry for the full year in the Life Sciences Business segment, we are pleased with the double-digit rate we saw. Therefore, order entry significantly exceeding sales, resulting in a sharp rise in order backlog. Sales in the Partnering Business segment increased by 9.9% to CHF 265.6 million. They were 9.7% above the prior year period in local currencies. Looking at the drivers of this growth. As already mentioned at the half year, we saw continued strong growth from existing instrument platforms, first contributions from newly launched analyzers, and also the consumables business continued to grow well. As you will recall, Partnering Business was posting significant growth in the first half of the year.
With a high basis from the prior year period, we expected that the growth rate will moderate in the second half, and we're happy to see sales increase by 3.9% in CHF and the same rate in local currencies. Order entry for 2018 also increased at the high rate in the Partnering Business. Looking at the sales development in the different regions. In Europe, full-year sales grew by 12.1% in local currencies and 14% in CHF. Both business segments performed strongly. The Life Sciences Business grew particularly strongly in the second half of the year, with sales increasing by 17.1% in local currencies. In North America, full-year sales grew by 4.7% in local currencies and 4.2% in CHF. The Life Sciences Business recorded solid growth there. The Partnering Business, however, posted only moderate growth.
However, this was mainly due to a high comparative basis of the prior year period and some regional shifts in the ordering pattern of some OEM clients. Looking at the second half of the year, our growth in North America clearly accelerated, and we grew by 10.9% in local currencies. In Asia, full-year sales grew by 2.5% in local currencies and by 4.2% in CHF. Sales in the Life Sciences Business were 2.6% below the prior year, while sales in the Partnering Business grew by 18.3%. This was particularly boosted by strong growth in China. As an additional comment here, sales in China grew faster than in the rest of Asia and came close to CHF 60 million, three times the revenues we had in 2012. Our next slide addresses our gross profit.
Gross profit increased to CHF 278.3 million, which was CHF 13.4 million or 5.1% above the prior year figure. The gross profit margin came down by 140 basis points compared to the prior year. As always, we had several factors impacting the gross profit margin. Starting with the factors that had a negative impact. First, we incurred higher freight and logistics costs. This has various reasons, were widely reported also by other companies and did not only hit us. Second, as already reported at the half year, we faced a negative exchange rate impact. Another negative impact for the gross profit margin was product and divisional mix. Why does the divisional mix have a negative impact? We have discussed this in the past, that our Partnering Business has lower gross profit margins, and it was growing stronger.
On the positive side, we were able to increase prices by a little bit more than 1%, and as a second positive factor, we continued to record substantial material cost savings. Our next slide addresses our cost structure. Overall, our operating expenses, less cost of sales, grew less than sales, and with 32.4%, were 160 basis points better than in the prior year period. Sales and marketing grew less than sales, despite our continued investment in our market unit. R&D was at 8.6% of sales. Keep in mind, though, that only net R&D expenses as percentage of sales were reported lower. This is the cost that is booked in the P&L under R&D. Our overall R&D activities, and therefore gross expenses, were higher compared to the prior year period. In fact, gross R&D increased by 22% and would account for 12.2% of sales.
That means we are working on more projects for partners, typically customer funded, which get booked under engineering income and COGS. We capitalize more R&D based on the progress of the projects. In G&A, we realized volume leverage as costs increased less than sales. Looking at the EBITDA margin development. The 2018 EBITDA margin development is probably best explained with a bridge. Starting with the 2017 reported EBITDA margin of 19.1%. You will remember that a year ago, we called out a one-time positive tailwind of 70 basis points. The largest part of that came from an insurance reimbursement to replace the value of damaged inventory at sales value after a fire at an outsourced warehouse for finished instruments, and the corresponding productivity gains to rebuild them. The real jumping-off point for the operating business was 18.4%.
Excluding the NuGEN acquisition, which was not part of our guidance for 2018, we increased our EBITDA margin by 100 basis points. The EBITDA margin, excluding all effects related to the NuGEN acquisition, therefore increased to 19.4%, delivering on the margin commitment for the year of more than 19%. Taking into account the acquisition-related effects related to NuGEN, the 2018 reported EBITDA margin reached 18.6% of sales. Looking at EBIT and EBITDA development. Our EBIT, earnings before interest and taxes, increased to CHF 88.6 million, up by 11% or CHF 8.8 million. Our EBITDA increased by 5.4% to CHF 110.3 million. Looking at the margin development, the EBIT margin increased to 14.9% of sales, 40 basis points above the prior year period. As you saw on the previous slide, the reported EBITDA margin was down, but the reported EBIT margin is still up.
The main reason here are CHF 3 million less amortization of development costs. We already discussed the EBITDA margin development on the previous slide. Achim will cover the 2019 outlook later in his presentation. However, let me already make a remark regarding the impact of the adoption of the IFRS 16 accounting standard regarding leases on those two financial figures. As you know, the new standard became effective on January 1st, 2019, and its impact will be recurring. For 2019, we estimate the gain on EBITDA will be around CHF 10 million. As only a small part will be booked into interest, it will not have any material impact on EBIT, just a few hundred thousand CHF. Looking at the operating profitability on a segment level. Reported EBIT in the Life Sciences Business segment rose to CHF 51.3 million despite the impact from the NuGEN acquisition.
The corresponding operating profit margin reached 14.8% of sales. As I have shown before, the negative impact of costs related to NuGEN was 80 basis points for the group. With Life Sciences Business contributing 55% of total sales, the impact on the segment margin was about 140 basis points, or in other words, the segment margin excluding NuGEN was about 16.2%. Other effects impacting the segment margin. Also on the negative side, the higher freight and logistics costs that I discussed before, and the exchange rate impact that I mentioned on a previous slide. On the positive, we saw price increases and of course, a volume effect. Reported EBIT in the Partnering Business grows by 15.9% to CHF 48.6 million, and the corresponding operating profit margin improved by 100 basis points to 18.2% of sales.
This positive performance is primarily a result of sales growth and lower acquisition-related integration costs compared to the prior year period. You also see some of the factors that were discussed before. On the negative side for the margin development of the Partnering Business, we also list engineering income, as this funded R&D work for partners comes with a lower margin in this phase of the partnership. In a way, a cost to benefit from the higher margin supply of instruments later on. Our next slide addresses our net profit. Reported net profit for the year 2018 rose by 7.2% to CHF 70.7 million. Net profit rose less than operating profit, as a lower financial result was recorded due to currency hedging losses. The difference on the financial result line compared to the prior year was CHF 4.4 million.
On the positive side, we benefited from a lower tax rate of 15.2%. The net profit margin was almost unchanged at 11.9% of sales. We move ahead to basic earnings per share. Only a brief discussion here. Earnings per share increased to CHF 6.02, the highest value to date. The average number of shares outstanding increased slightly to 11.7 million. On the basis of the increase of the net profit in 2018 and an ongoing positive business perspective, the board of directors will propose at the company's annual general meeting an increase in dividend from CHF 2.00 to CHF 2.10 per share. As you can see on the little table below the graph, it would be the third increase in dividends since 2014. We continue with the cash flow slide. Cash flow from operating activities reached CHF 92.7 million, corresponding to 15.6% of sales.
It was a few million below what we had originally expected. The NuGEN acquisition was a factor. The other major factor was the increased inventory, which was up by CHF 7.8 million. There were a number of factors for that. First, we had some new product lines in both divisions. Second, we saw lead times for certain parts of suppliers increasing with the economy going strong. Therefore, we increased buffer stock to some extent to be able to respond to our customers. As you saw, we had a strong order entry. Lastly, to a smaller extent, we increased inventory in the U.K. for some spare parts and consumables as part of our Brexit preparations. Our DSO number, the days sales outstanding, improved from 50 to 47 days, the lowest number we had to date.
The operating cash flow includes CHF 21.8 million for depreciation and amortization, CHF 8.8 million thereof for development costs we capitalized in the past, and CHF 3.7 million for PPA. On the other hand, we invested a total of CHF 78.4 million. This obviously includes the CHF 43.8 million cash consideration for the NuGEN acquisition. Also included in this figure are CHF 12.8 million for capitalized development costs, CHF 4 million for an equity investment we did at the beginning of 2018, and CHF 4.5 million for an earn-out payment in the context of the SPEware acquisition from 2016. Here, the entire amount was payable as the sales-defined milestones were achieved. Clearly a good sign that the acquisition developed as we had hoped. Cash flow from financing activities includes the dividend payment we made in April 2018 in the total amount of CHF 23.5 million.
Cash and cash equivalents were at CHF 296.8 million at the end of December 2018, compared to CHF 309.4 million at the end of December 2017. Our net liquidity position, after deducting all bank liabilities, was CHF 289.6 million, already a few million more than reported for June 30, despite the NuGEN acquisition in H2. 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 that, let me hand over to Achim von Leoprechting.
Thank you very much, Rudy, and good morning from my side. I am Achim von Leoprechting. I am currently heading the Partnering Business of Tecan, and I am taking over as CEO on April 1st. I would like to share with you some highlights of our future growth related to the markets we serve, key new products, and the outlook of the financial expectations for 2019. Tecan is in a great position, empowering researchers in academic and clinical research to better understand diseases, enabling pharma and biotech companies to find and manufacture new drugs, and working with leading diagnostic companies to diagnose diseases on an increasingly personal level. Altogether, Tecan plays an important role globally to empower disease prevention, and where needed, more individualized healthcare. Many novel technologies and applications that origin in the research environment migrate through laboratory-developed tests and LDT environments into the IVD market.
In all phases of this transition, Tecan plays a key and enabling role, applying innovative technologies and services in an increasingly regulated environment. Tecan's business structure, represented by the LSB and Partnering divisions, has a high level of synergies and builds on leading products and technologies, a commercial and service network, as well as a strong regulatory background. Currently, we see many enabling applications like next generation sequencing, mass spectrometry, and others going through this transition from research over laboratory-developed tests to sample to answer workflows, which are quite routinely used in general clinical practice. In addition, we see sample preparation technologies and techniques like liquid biopsies and advanced tissue analysis following a very similar trajectory. I am convinced Tecan today has a very strong position to continue to grow in those global markets and to further expand as a key partner for research, pharma, LDT, and diagnostic companies.
As mentioned before, we look at genomic applications like NGS as one of those transitioning technologies which continue to be strong growth drivers for us. With the acquisition of NuGEN, now called Tecan Genomics, we are able to offer complete automated solutions for NGS library preparation and quality control for research applications. Both steps are highly critical for the NGS automation process. As a result of the integration of Tecan Genomics NGS library kits with our flagship automation platform, Fluent, we now have launched a few weeks ago at the SLAS conference in Washington, a new variant of the Fluent liquid handling system called GenPrep. GenPrep is our latest addition to the Fluent family, specifically for NGS library preparation applications in the research market.
GenPrep follows the application-centric Fluent launches, starting from 2014 with cell biology, pharma compound management, general genomics and Fluent Gx for regulated market, which is used both in the life sciences and in the Partnering Business environments. We are very pleased with the success of Fluent so far, and I am convinced that GenPrep will add to the success story. What is GenPrep? GenPrep now combines the Fluent platform with the Celero NGS reagents, our Infinite plate reader for quality control, and Tecan's application expertise and support. For Tecan's LSB customers, this means to simply add their samples and GenPrep prepares sequencing-ready libraries in just a few hours with no offline steps and, even more importantly, no sample loss. Another exciting launch in 2019 will be the next version of our Spark plate reader family. This new version will carry highly innovative solutions for cellular imaging and analysis.
Customers in academic research, as well as pharma research and bioproduction, will greatly benefit in their cell analysis work from this new member of the Spark family. We expect the launch of this new Spark version in H1 2019. Expanding our capabilities in the area of lab digitalization is a key focus for us. In order to help customers with their need to analyze and optimize productivity and performance in their lab, we are very excited about the launch of the new Introspect software, which started shipping in Q4 last year. Introspect offers cutting-edge features for remote management of individual instruments or entire labs, including instrument utilization, consumable consumption, and service metrics. Introspect is now adding to the growing range of Tecan's leading software solutions, offering highly innovative digital lab solutions.
On the Partnering business side, we continue to make good progress with expanding the project funnel and advancing programs under development. For 2019, we expect several new platforms to launch, including the flow cytometry sample preparation system for Sysmex, and a fully automated endotoxin testing solution called PyroTec PRO for Lonza. Our other platforms will be launching in addition. Due to confidentiality considerations, we are not in a position to disclose the names or the specific products at this point. We continue to expand our project funnel globally, with molecular diagnostics being the strongest application field we engage in. Geographically, we are particularly pleased with the progress of the development of new concepts and programs under development for new OEM clients in Asia. On to the financial outlook for 2019. From a revenue perspective, we expect to grow in the mid to high single-digit range in local currencies.
This does not take any potential acquisitions into account, but of course includes NuGEN. The reported EBITDA margin is expected to expand to around 19% of sales. As discussed earlier, integration costs and short-term lower margins associated with the NuGEN acquisition will impact the reported EBITDA margins by a high single-digit million amount in 2019. The positive and recurring impact of IFRS 16 will largely offset these costs related to the NuGEN acquisition as well as the CEO transition. I would like to invite you to our upcoming Capital Markets Day, which we will be hosting on June 6th in 2019 in our headquarters in Männedorf, Switzerland, where we will talk about our business context, our customers, and give you more insights about our ongoing developments.
I would be very pleased if you can mark your calendars, and we could see as many of you as possible at our Capital Markets Day in June. Now, before closing, I would like to say a very personal thank you to David for his great leadership over the past six and a half years, transforming the company to what it is today. I'm personally honored and excited to take Tecan over at this time, opening the next chapter of the company with our great employees as well as our current and future customers and investors. Thank you very much for your attention, and I hope to see you soon at our Capital Markets Day. This concludes the presentation of today, and we are now opening up for a Q&A session, and you're welcome to submit your questions online or here in the room.
Thank you very much.
For questions, star and one.
Two CEOs for the price of one. Maja, you were very fast to get your hand up there.
Thanks for taking my question. I do have three questions. I hope that's not crossing my limits. I would like to start with, I know you're going to cut me off, but that's okay. Can you please elaborate a bit what the CEO transition costs are? That sounds very vague in the guidance. I would like just to understand.
That's pretty straightforward. We're in a very fortunate position that we have a great candidate to take over from inside the company. Obviously there are naturally some overlapping contractual costs. If we had gone ahead with an external recruitment, then obviously I would have stayed in position for somewhat longer. We have this overlap period of some months, there are just contracts are being respected.
Okay.
Nothing more than that.
Good. Clear. Thank you very much. Then if we look at your pipeline or your product portfolio, great. There are a lot of growth opportunities there, yet, we're looking at Tecan that obviously is doing, as a small company, as much as possible. I'm just wondering, we're still stuck in the same dilemma that you're accruing cash on your balance sheet, we're talking again about CHF 300 million net cash. Another 12 months by, we haven't seen a transformational acquisition, which might not be possible because of the way that the industry is. What other ways could there be to use cash? Would there be something, could you return it to shareholders? At what point of time would that be something that you take seriously? What additional areas could you spend your money in? Maybe just thinking outside of the box.
Sure. Look, it's a fair question. I think the cash has not actually increased because we deployed cash on the NuGEN acquisition. You're right that a very large acquisition has not taken place. It's not that we missed out on deals and certainly the targets we have in mind, and we'd be very interested in, have not transacted yet. That's not to say anything about how near or how far off those transactions may be. We still have a very clear funnel of what we'd like to do. I think we've operated, I think, a very appropriate and cautious and careful approach to M&A. I'm very pleased with the acquisitions we've made over the past four years. The five acquisitions that we've done, all have been very successful. Very pleased with the NuGEN acquisition, which we've done during the course of the past year.
If, of course, cash continued to accumulate and we were not to make a particularly large transformative deal, say, in the next couple of years, then I can imagine that there would be pressure for returning that cash. At the moment, we continue to think about different options. We still think M&A is the most appropriate way to do that. We're continuing with our dividend. The board of directors are recommending again an increase of the dividend. We've made several increases in dividend over the past few years. We're sharing some of that back to investors at this stage. Of course, we look at whether or not to do a share buyback. We're not saying we're in favor or against. It continues to be under review.
Right now, our current plans are to continue to look for the appropriate M&A acquisitions, and we still have some large potential transactions which could occur. Say, timing is not always in the hands of those that would like to buy. The seller has to be willing to sell.
Just quickly to double-check. Last year, at the full year results, you were elaborating or indicating that there is a potential larger target that could actually also lead to the fact that you would have to leverage your balance sheet. When you say the deals haven't gone through yet, are you referring to that to potential these kind of candidates? Are we-
Well, look, we always have to be very careful, and I think I've always been very consistent over the past six and a half years, never to give a timeline upon when deals could be done. Sometimes that has meant we've been in situations like this where we've actually been very close to deals, and announced even subsequently some small bolt-on deals. We won't give a forecast because one always has to have the ability to walk away. We haven't walked away from a large deal. Those deals are there. Who can say whether they will happen in the very near future or not? Sometimes sellers get close to the point and then maybe back away a little bit.
That can always be the case, but we've always been very careful not to give any explicit guidance around timing because that is not entirely within our grasp. Was that three questions or two? Okay, there's more. Okay. Do we have some more questions in the room? I think we see if there are questions on the webcast.
The first question from the phone comes from the line of Scott Bardo, Berenberg. Please go ahead.
Yeah. Thanks very much for taking my questions. Just like to say, Dave, David, thank you very much for the ride and obviously wish you well in your retirement, and Achim, in your new role. Question just on the growth drivers, please. Historically, I think Asia had represented a pretty strong growth opportunity for Tecan. I appreciate your comments as to China doing okay, it seems like that region is tracking a little bit below expectation given you're still relatively subscale in that area. Can we talk a little bit about if anything is changing in that region or anything you can do there to accelerate growth? Just following on, you mentioned about the Spark launch in the first half of fiscal 2019, which I'm looking forward to. It feels that that's been a little bit delayed from your expectation of launching that in 2018.
Can you talk a little bit about that, whether a few development issues popped up? Last question from me, please, for Rudy, a financial question. I hear you're calling out the NuGEN-related cost to be high single digit CHF millions. Would you be good enough to break that down for us to what is one-off cost, if you like, in integration cost? How much of that do you expect to come from dilution? Thank you.
Scott, good morning, and thank you for your comments. Maybe if I start off, then Achim will add some comments, then we'll turn to the question to Rudolf as well. Your first question, Scott, was around Asia region, and it's true that the whole Asia region was somewhat slower than Europe and North America. The reason behind that was our growth in Japan and in Southeast Asia had been somewhat more challenging during the year, for a variety of reasons. What we saw actually was China was much stronger than the rest of the whole Asia region. In fact, we saw the performance accelerating during the year. In fact, China, in the second half of the year, was growing again at a double-digit rate, boosted by a particularly strong Partnering Business.
I think there, having the dual approach in China of partnering with local companies there, particularly on the diagnostic side, we have a number of companies now who we partner with where we're supplying our platforms to them, as well as selling directly, is paying dividends, I believe, in China. You asking, Scott, around the Spark upcoming launch. You will see in the coming weeks, as we go out and start talking to our customers around the availability of that product. We're certainly intending to launch that in the first half of the year. I think it's the first announcement today, the marketing machine will be kicking in in the coming weeks. This is a very exciting addition to the Spark product range. Spark is being positioned as a very effective multi-mode reader, already with certain imaging capabilities.
What we're bringing forward is a very high-end imaging product, which is particularly good for cell biology and living cell applications. Researchers will really be able to gain benefit from all the features they've seen on Spark with productivity, but now with extremely high-end fluorescent imaging capabilities. Achim, you have something to add?
Good morning, Scott. It's Achim. Maybe just a quick comment on Spark and probably rather looking at it as a kind of delay in the development program. We looked at it as just another round to make sure that all the features that we have on board at the launch are really kind of competitively at the highest level and standard. That's why we deliberately, as you know, we're not first to market with this type of product, had another round of refinement of the development program. That's why now coming out with the system in H1, I think gives us a very confident view on the competitiveness of the system.
Scott, you had a question for Rudolf as well.
Regarding the high single-digit CHF millions, let's say negative impact of the NuGEN acquisition. You asked about the breakdown in, let's say, business and integration costs. We actually do not like to split it up in two numbers. The reason is, it's not black and white for this acquisition. NuGEN is a growth case. For example, we are investing heavily in people in the street or to accelerate certain R&D projects. Of course, we also have things like HASP introduction, but we would not like to split it in two numbers because that just gives us not the flexibility we need. We clearly have said that in the year 2021, we will pass breakeven in a month. 2022, the whole thing will be fully breakeven, and after that, we catch up to the Tecan margins. I think from this you can quite well make a model.
Okay, thank you. Just one quick follow-up, Rudolf, if I may. If I understand correctly, having some positive impact in your EBITDA guidance related to IFRS 16, I just wanted to understand this fully. Should we now then expect higher interest costs for Tecan in fiscal 2019? Perhaps you can give us some sense of what that figure will now be. Thank you.
Yes, I can help you on that one. As I've said, the impact is around CHF 10 million. On the EBITDA, then I said on the EBIT, it's only a few hundred thousand CHF. That's exactly the interest that will be posted. The interest will go up by a few hundred thousand CHF.
Understood. Thanks.
Thank you, Scott. We have another question in the room, at the front of the room.
Could you tell us the number of-
You need the microphone so they can hear you on the web
Could you tell us the number of employees, how this has changed over the period? I don't find them anywhere.
Over the period of 2018?
Yeah.
The primary increase in employees was due to the acquisition of NuGEN. NuGEN had around 75 employees at the time that we acquired it. Don't shoot me if I'm wrong by three or four people on that. The overall headcount of the company has increased by around 100 people during the time. We're now about 1,600 in total.
Thank you.
We have two more questions in the room. Daniel, I think you were first. Yep.
Two questions, if I may. The first one on the order entry, also on the underlying acceleration we have seen in the organic growth now in the second half. Can you just share a little bit more light what the trends here are, whether with, I don't know, slowdown in the macro environment, which we have seen, whether this has caused investments to increase even at your customer side to improve their cost position or what are the underlying driver here for that? The second one on the guidance, mid single digit to high single digit local currency growth. Can you break that up a little bit? What of that is organic, and what you may expect from NuGEN to contribute in 2019?
Thank you.
Okay. Maybe I'll start off with some comments, Achim, please feel free to add. You're asking around the strong order momentum that we saw in the year, and you were saying that the economy has perhaps in some segments had slowed down a little bit. I have to say, in the second half of the year, we haven't seen overall a slowdown. We've seen a good, solid business on both our Life Sciences Business and the Partnering Business through the whole year. As we called out and Rudolf highlighted in his part of the presentation, that we received at the end of the year, a large order, slightly in excess of CHF 10 million. We can't disclose the name of the customer at this stage because of the confidentiality. It's actually highly customized systems that we've built before, for this client.
They have a long lead time because it's not off-the-shelf equipment. Therefore, there are parts which require quite some months to be ordered, and it's a multiple delivery. This will be mostly recognized as we go into the beginning of 2020. It's possible that some of the shipment, as it's in a number of stages, will occur towards the end of 2019. Even when you take out this sort of slightly more than CHF 10 million order, you see that the underlying business is also performing extremely well on both the Life Sciences Business side and the Partnering Business side. We saw a lot of strength in Europe and North America, and double digits again in China in the second half of the year. We come into the year, even accounting for this large customized system with a very healthy order book.
In fact, by far the strongest order book we've had, starting a year at any stage. Achim?
On the outlook. From a contribution standpoint with NuGEN, as you are well aware, NuGEN has been with us for nearly 4 months in 2018. There is a contribution of an additional 8 months that we will benefit from in 2019. We calculate roughly below 2% contribution from the NuGEN acquisition to that growth profile.
In fact, in the financial report, you'll see that there is an accounting requirement that we show what would be the effect of the acquisition as if it had been part of the company since the 1st of January. You will see in that financial report that whilst we booked sort of CHF 3.1 million-
Yeah
I think it was, since the company was part of our business, if it had been with us for the full year, it would've been CHF 12 million, approximately CHF 12 million, during 2018. You can see already that there is a step-up of at least CHF 9 million plus growth, during 2019. Yes, Carla.
Carla Bänziger with Vontobel Asset Management. I have a question related to the two platforms that you have shown in the presentation. Can you maybe elaborate a bit, what the potential of these products are and how long-term this? Just to give us a bit, a feeling about the contracts. Thanks.
Sure. As always, I'm not at liberty to talk about the business case of our partners, but you can probably assume that both platforms are not as transformative as an Ortho Clinic or the Agilent Dako business. They're probably smaller size contributions. I think in the past we refer to them at peak time, we expect a few single-digit CHF million contribution to the top line from similar projects, which are typically quite fast turnaround platform development projects.
Maja, you have a follow-on question.
Yes. Coming back to the announcement on the latent TB testing that came out last week.
Could you please help us understand a bit what the potential impact could be on your Life Sciences Business? Knowing that the latent TB market is growing 5%, the blood market proportion is growing. Qiagen is talking about 20% growth for the latent TB franchise.
What is it exactly that you are doing, and how much is that going to add to your growth going forward? Thank you.
Sure. What we're doing, we're basically adding a pre-analytical workstation to the QuantiFERON workflow that will then be downstream processed by other systems. We are debottlenecking the industrial scale TB screening market by adding these kind of highly complex sample preparation systems. The TB market is still kind of divided up in really large-scale laboratory testing and still quite a bit of manual testing that is going on for similar applications and processes. We will work with Qiagen on a part of this business. Of course, we are one partner that they choose to help them in accelerating their growth in that market, but we are not the only one. We look at it as an exciting partnership and opportunity.
At this point, I would probably not be able or willing to give you a kind of hard number that is associated to this opportunity. It's clearly an exciting collaboration that we're looking at.
Which is great. If you can't give us a number, could you help us understand how that's going to happen? We know right now the Qiagen TB testing is still done a lot manually. They have the partnership with the DiaSorin to put it all on the LIAISON platform, which will make it automated. Shall we think about that in every lab that the Qiagen TB test is being performed, your instrument will move in as a sample prep, or are you already present in those labs? Is it only going to be when it's the LIAISON platform with the Qiagen test? Just to understand how is the process going so we know that it is.
As very often in this market, it depends. I think that what you see is the announcement fits very much that Fluent is being very successful in the large reference labs, where exactly as Achim was saying, they have to deal with where the bottlenecks are ahead of applying the samples onto other analytical and diagnostic devices. Therefore, I think what you will see is Fluent being used as a tool to take out those bottlenecks in front of excess systems, et cetera, but mostly in the large reference labs. You will not necessarily see a one-to-one relationship between Fluent and all of the other diagnostic platform, because it depends exactly on the bottlenecks and the flow in those laboratories. I think you see, we look at it from the point of view of Fluent as being very successful in those large reference labs.
I think it's rapidly becoming the standard that the labs would like to work with. Therefore, I think, again, Qiagen has seen the opportunity to deepen their penetration into the marketplace and reduce the bottlenecks by enabling this collaboration to put the samples, the QuantiFERON samples, onto the standard instrument. As you correctly pointed out, this is something that is worked through our Life Sciences Business. This is not a partnering deal as such. It's not a Qiagen-branded version of Fluent. It is taking a standard Fluent in a particular configuration for this pre-analytical workflow, and then using the benefit of that. Where most of these labs will have Fluent doing other jobs, so their lab staff are very familiar with the Fluent already.
Sybille.
Sybille Bischoff, ZKB. I have a question about services and disposable. The percent of the total sales has decreased a little. Could you then tell us why was that? Secondly, the tax rate for 2019. I thought you mentioned earlier that the NuGEN acquisition could have an influence on the tax rate in 2019. If you could tell us how big it will be. Thank you.
Let me take the first part of that question, and then Rudolf, I think you talk about the tax. I think on the recurring revenue split, I think we're talking in the decimal place, in terms of split, sort of between 42 point something and 41.9 or something. We're talking of tenths of places. I think what you see is the very strong instrument sales that we had, particularly in the second half of 2018. There was some mix. I think also you saw, I think if I recall correctly, at the end of 2017, we had a particularly high consumable shipment. I wouldn't read anything into it. I think if you look at the bigger picture development of those recurring revenues, as I think I commented in my own comments, we've gone from 30% just a few years ago to now 42% or thereabout.
We always see a shift between the half year results and the full year results because you tend to find consumables are more consistent through the year, and instruments tend to be more in the second half. That's why it's down compared to H1, but I think you see the same pattern every single year over the past few years. Of course, in 2019, you will see a full year contribution of NuGEN, which is entirely recurring revenue. Again, you'll be seeing that percentage ratio, I'm sure, continuing its upward trend. Rudolf, you want to comment on the tax?
Yes. First, on a comparable basis, I would expect a tax rate of around 16%. Then we have to add, as you said, we announced it with the NuGEN acquisition, a potential exit tax of up to CHF 3 million for NuGEN. I cannot give a more precise number currently because we still have to do all the work related to that with the expertise and calculation. So this is the second element. Third, please do not forget that we have a Swiss tax reform upcoming. I cannot say the outcome yet, as the votes and everything is still open. We have several scenarios regarding that. Some lead to a lower tax rate, some to the same tax rate. I do currently not have a scenario that would increase our tax rate, but that said, there's still a lot open with the Swiss tax reform.
Do we have any further questions in the room? I have a signal that perhaps there is a question on the web.
We have a follow-up question from Scott Bardo. Please go ahead.
Thanks very much. Me again. I just wonder if we could talk a little bit about the reference labs, large reference labs, and what Tecan's exposure is to those laboratories, both in the Life Sciences Business, and the overall group. The reason for the questioning, some large reference laboratories have talked about consolidating vendors to drive efficiencies. I just want to understand how Tecan is positioned there and whether that's an opportunity.
Question, Scott. I think we got the most important parts of it. Are you able to hear us, Scott?
Yeah, I did. No question.
Okay, good. Okay, Achim.
Reference labs, of course, a very important client base for us. As you say, Scott, we've seen quite a good uptake of our products in particularly this market with the consolidation requiring more and more sophisticated automation solutions. As we just discussed for some applications like latent TB screening, I think we are focusing even more on debottlenecking some of these lab flows that are used in the reference lab. I think, when we also look at areas like personal genomics, that's been a great kind of enroll for us, as well as adding capabilities in these type of laboratories. For us, it is a very important play and certainly with our products, and particularly also, the Fluent as a really high-end production platform for these labs.
We are, I think, seeing this in the future as, very prominent driver for our growth, both for instrumentation, but also very importantly, of course, for consumables.
I mean, without naming names, you could go into any of the larger reference labs, it won't take you many minutes to come across a lot of Tecan equipment. I think we're very well penetrated across that group. I think that what we've been doing, Achim mentioned in his part of the presentation earlier, Introspect, one of the exciting software as a service products that we've recently launched, which is very attractive for multi-user installations, for them to monitor lab productivity across a fleet of different instruments. Certainly as many of the other features we've launched with our Fluent instruments, again, enabling users with large numbers of instruments to very effectively manage that fleet of instruments to drive productivity.
I think overall as a business, I think we're very well positioned, with particularly the medium and large size reference labs across all of the geographies around the world.
Thank you. I just want to come on to one of the slides that Achim presented surrounding the innovation cadence of the Fluent system since 2014. Obviously, this has been quite impressive in increasing the addressable opportunity for that platform. Can we talk a little bit about are we done now, or is there still many more markets that you can enter and expand into? Maybe some flavor for where you're prioritizing capital for innovation at the moment, what sort of fields and areas you work in.
Thank you very much, Scott. Great question. Probably you heard from our introduction that for sure we're not done with the innovation cycle, particularly around products like Fluent, but many others as well. I think the way I look at it, just take the workflow on genomics, for example. I mentioned that one of the areas that we are still addressing and continue to address is debottlenecking some aspects of the sample preparation aspects flowing into these workflows. I mentioned liquid biopsies, our ability to extract DNA and RNA from very large volumes of blood. That has become increasingly important, particularly for diagnostics of oncology samples and these kind of things. I also mentioned the area of tissue analysis and sampling from tissue into various workflows.
Just to name these two, the other segment that I believe I mentioned, and it continues to be a very strong emphasis for us, is also this transition of mass spectrometry from the research environment into the clinical utility, not just for small molecules, but also increasingly for large molecules, peptides, and proteins. That's something where I think our total combined strength, not limited to the Fluent platform, but also including consumables, reagents, and particularly, the software environment that we're looking at, is a very rich field of innovation and new products to come over the next couple of years. I think there's just a lot of opportunities, and typically the way we go about this, through our applications, experts in the field, is really identifying these bottlenecks and then addressing them by innovating solutions, either on hardware, software, or the consumable side in these areas.
Thank you very much.
I think I got a signal that there are no more questions on the web. I'll just check if there are any more questions in the room. Looks like we're all done. Ladies and gentlemen, thank you very much for your attention and for your good questions, and that finishes the presentation this morning. Thank you.
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