In the first half of 2010, sales of the Bachem Group fell to CHF73.9m as a result of the difficult market conditions.
Trends in the most important business areas
Generics in particular showed a sales decline of 27.4% in local currencies (LC) as a result of
various factors, such as delayed approval of some medicines, inventory reductions by
customers and increasing competition.
Sales of new chemical entities (NCEs) were below those in the first half of 2009 as a result
of project delays and concentration in R&D. Customers from the biotech segment continue to
report difficulties raising capital. Nevertheless, Bachem succeeded in acquiring additional
NCE projects and enlarging the portfolio from 120 to 128 projects. Orders were secured for a
series of new organic and highly potent NCEs for the second half-year. The services for NCEs
continued to develop positively.
For research chemicals, a very gratifying increase in non-GMP syntheses and a sales growth
among catalog products contrasted with weaker demand for GMP projects in the early stage of
development. With a slight increase in sales, immunology products again proved resistant to
economic fluctuations, a sign of the sustained demand for innovative offers in this market.
In geographic terms, Europe too is now heavily affected by sales declines. The weakening of
the negative trend in the US suggests a quicker recovery in this important market.
Rolf Nyfeler, CEO of Bachem, commented: “Following the difficult start at the beginning of this
year, demand has clearly gained momentum across all segments from month to month. We
expect this trend to continue for the second half of the year. At the same time we focus on
consistent cost management and measures to increase efficiency. However, we need to
assume that sales and results of the group for 2010 overall will remain below those of the
previous year – albeit with positive prospects for the years to come.”
EBIT margin temporarily falls to 7.9%
In light of the sales gap in the first half-year, the operating income fell to CHF5.8m for the
first six months. This corresponds to an EBIT margin that lies well below the result of the same
period last year. The main reason for this collapse is not only the unsatisfactory sales
development, but also the decision by Bachem not to take radical measures in human
resources and fixed assets in view of a strategy that is geared to long-term success.
Only with highly qualified personnel and state-of-the art production methods are the acquisition
of attractive projects and long-lasting partnerships possible. This is essential to maintain
satisfied customers and the expected level of growth. Bachem will adhere to its high quality
standards even if individual companies try to benefit from the economic situation in the short
term on the basis of low prices.
The difficult situation at present is taken into account with a restrictive approach to the filling of
vacancies, general cost savings and targeted improvements in production processes. In the
first half-year, this resulted in economies with 21 full-time equivalents, and, by the end of the
year, it will be more than 30.
The systematically pursued reduction in inventory increases, the additional depreciation
charges from the investments of previous years and also a temporarily unfavorable product mix
impacted the costs of goods sold. Gross profit was at CHF25.6m resulting in a gross
margin of 34.6%.
One-off costs for the periodical reprint of the Bachem catalog resulted in a slight rise of
marketing and sales costs rose to CHF6.1m. By contrast, research and development costs fell slightly to CHF3.2m. General administration costs fell sharply by CHF0.8m to CHF10.6m. Bachem will continue to cast a critical eye over potential cost savings and will take advantage of any opportunities to this effect.
Net profit margin at 25.4%
Thanks to the realized gain of around CHF17.5m from the previously announced sale of
Bachem’s stake in Polyphor, the net income in the first half of 2010 reached
CHF18.8m despite the weak operating performance and a net profit margin that was still
a high 25.4%.
Cash flow and investments
The cash flow from operating activities amounted to CHF14.6m, or 19.7% of sales, in the
first half of 2010. Thanks to a reduction in the capital tied to net current assets of about
CHF0.9m compared with the end of year versus an increase of CHF13.4m in the corresponding period of the previous year, a large part of the sales-related gap could be offset.
The investments in fixed assets during the first half of 2010 lay at the reduced level envisaged.
Thanks to the investments of previous years, Bachem has a modern infrastructure that enables
it also to competitively produce larger volume orders.
In the field of financing activities, the dividend distribution was somewhat lower than in the
previous year. Part of the dividend was converted into a general business loan.
With a sound equity ratio of currently 77.1%, Bachem will continue in the future to be
independent and flexible in pursuit of its strategic objectives while preserving its own priorities
and values.
Outlook
Against the background of an increasing recovery in demand in the course of the year and
based on the current situation as regards orders, an increase in project inquiries and
forthcoming marketing authorization decisions by the regulatory authorities, Bachem expects a
marked easing of the situation by the end of 2010. However, it has to be assumed that sales
and the operating performance of the group for 2010 overall will remain below those of the previous year.
For the mid- to long-term perspective, Bachem sees an average annual sales growth between
6% and 10% over five years in local currencies in view of the promising prospects for its range of
products and services. In the medium term, Bachem strives to return to an EBIT margin of at
least 25%. The timing of the recovery depends primarily on external factors such as the
financing situation of biotech customers or the decisions of the regulatory authorities.
To achieve its objectives, Bachem is also seeking to further enhance organizational efficiency.
Against the background of forthcoming investments in a shared ERP platform and further
savings potential, it is planned to bring the Swiss sites in Bubendorf and Vionnaz under a
common management. In custom syntheses in the non-GMP area, activities are concentrated
in the very successful competence centre in St. Helens, UK. These measures will allow an
even more efficient customer service and will make a further contribution toward securing
corporate financial objectives.