Bachem Group Half-Year Result 2008

Bubendorf, Switzerland, August 15, 2008 - Sales of the Bachem Group (SWX: BANB) reached CHF 98.7 million in the first six months of 2008 and thus lay 4.1% below the halfyear record sales of 2007 in CHF. In local currencies, sales increased slightly by 0.7%. Compared with the second half of 2007, sales grew by 3.5% in CHF and by 8.7% in local currencies.

Rolf Nyfeler, CEO of Bachem, commented: “The result came on the back of three major developments. Basically, the momentum of the overall business portfolio continued in the first half of the year. In the case of a top selling New Chemical Entity (NCE), however, further deliveries had to be delayed because of the customer’s high stock levels, which led to a correspondingly significant shortfall in sales. In addition, the persistent weakness of the US dollar had a negative impact on sales in CHF.”

In geographic terms, the growing dynamics of the European business was confirmed with sales up 19.0% in CHF (19.9% in local currencies), while the sales deficit mentioned affected the USA and led to a sales decline of 37.3% in CHF or 27.4% in local currencies.

Trends in the most important business areas A customer’s adjustment in the required quantity of an NCE for the American market led to a sales decline in the active pharmaceutical ingredients business by 6.6% in CHF and 2.6% in local currencies. This decrease in sales was largely offset by the positive growth of NCEs in the European market, which increased by more than 50%, and of generic peptide and nonpeptide substances, both of which showed double-digit growth.

Research chemicals showed a marked sales increase of 6.8% in CHF and 15.2% in local currencies. The growth was seen in both sub-segments – catalog products and custom synthesis – the latter being the main driver of growth with a very gratifying development not only in Europe but also in the USA.

Operating margin unchanged at a high level In spite of the short-term decline in sales of NCEs and the unfavorable development of currency exchange rates, above all the US dollar, the operating margin in the first half of 2008 remained unchanged at the high level of 37.1%. At the same time, the EBIT fell by 4.3% from CHF 38.2 million the previous year to CHF 36.6 million. Excluding currency effects, the EBIT increased by 2.8% and the operating margin was at 37.9%.

Compared with the corresponding period in the previous year, only minor shifts occurred between the various cost blocks. The cost of goods sold amounted to CHF 44.2 million or 44.8% of sales (first half of 2007: 44.9%). The markedly lower sales of the above mentioned important product for Bachem did not have any impact on the cost structure, so that the gross margin remained almost constant (55.2% compared with 55.1% in the same period the previous year) despite a significant shift on the product mix.

Marketing and sales costs fell from CHF 5.8 million in the previous year to CHF 5.4 million this year, largely as a result of currency exchange rate fluctuations. They thus amount now to 5.4% of sales compared with 5.7% in the same period last year. Research and development costs remained fairly constant at CHF 2.6 million or 2.6% of sales. General administrative costs remained almost unchanged at CHF 10.0 million, slightly increasing as a proportion of sales from 9.8% to 10.1%.

In the first half of 2008, the headcount of Bachem increased by 38 to 689 full-time equivalents. In Switzerland, 26 new positions were created in Bubendorf and 7 at Sochinaz in Vionnaz. In the USA, 5 full-time positions were added in the first six months of the year.

The headcount was thus increased mainly at the Swiss sites which currently show the strongest growth. As a result, personnel costs increased by 5.4% to CHF 36.2 million, which corresponds to 36.7% of sales.

Operating margin unchanged at a high level In spite of the short-term decline in sales of NCEs and the unfavorable development of currency exchange rates, above all the US dollar, the operating margin in the first half of 2008 remained unchanged at the high level of 37.1%. At the same time, the EBIT fell by 4.3% from CHF 38.2 million the previous year to CHF 36.6 million. Excluding currency effects, the EBIT increased by 2.8% and the operating margin was at 37.9%.

Compared with the corresponding period in the previous year, only minor shifts occurred between the various cost blocks. The cost of goods sold amounted to CHF 44.2 million or 44.8% of sales (first half of 2007: 44.9%). The markedly lower sales of the above mentioned important product for Bachem did not have any impact on the cost structure, so that the gross margin remained almost constant (55.2% compared with 55.1% in the same period the previous year) despite a significant shift on the product mix.

Marketing and sales costs fell from CHF 5.8 million in the previous year to CHF 5.4 million this year, largely as a result of currency exchange rate fluctuations. They thus amount now to 5.4% of sales compared with 5.7% in the same period last year. Research and development costs remained fairly constant at CHF 2.6 million or 2.6% of sales. General administrative costs remained almost unchanged at CHF 10.0 million, slightly increasing as a proportion of sales from 9.8% to 10.1%.

In the first half of 2008, the headcount of Bachem increased by 38 to 689 full-time equivalents. In Switzerland, 26 new positions were created in Bubendorf and 7 at Sochinaz in Vionnaz. In the USA, 5 full-time positions were added in the first six months of the year.

The headcount was thus increased mainly at the Swiss sites which currently show the strongest growth. As a result, personnel costs increased by 5.4% to CHF 36.2 million, which corresponds to 36.7% of sales. On the basis of the sustained investment activity, depreciation and amortization increased from 5.6% to 6.2% of sales. In the first six months of 2008, they amounted to CHF 6.1 million compared with CHF 5.7 million in the same period last year.

Net Income margin extended to 29.7% The net income margin further improved in the period under review and amounted to 29.7% versus 29.2% in the first half of 2007. Net income in the first six months of 2008 amounted to CHF 29.3 million versus CHF 30.1 million in the same period of the previous year, resulting in earnings per share (EPS) of CHF 2.19.

The loss from associates in the period under review amounted to CHF 1.1 million. In the same period last year, a negative result amounting to CHF 1.8 million was posted here. At minus CHF 1.5 million, the financial result is markedly lower than the CHF 4.0 million in the previous year. This loss was mainly due to the negative foreign currency result of CHF 1.7 million, without which a positive net financial result of CHF 0.2 million remains. In the previous year, the financial result included larger gains from the sale of securities.

The tax expenditure in the first six months of 2008 amounted to only CHF 4.8 million (first half of 2007: CHF 10.4 million). The tax rate thus stood at 14.0% versus 25.7% in the corresponding period of the previous year. A major contributory factor here was the company tax reform in Canton Baselland, which became effective at the beginning of 2008. The period under review saw not only the sustainable effect of a lower tax rate on the calculation of ongoing taxes, but also a reduction of the deferred tax liabilities. The effect posted in this half-year statement amounts to around CHF 1.8 million and has a positive influence on the tax rate to the tune of 5.3 percentage points. Without this, the tax rate would lie at 19.3%.

Moreover, in the period under review higher profits were posted in tax jurisdictions with a low tax rate as compared to the corresponding period of the previous year, which also had a positive impact on the tax rate.

Cash flow and investments Cash flow from operating activities in the first half-year amounted to CHF 12.1 million or 12.2% of sales. This includes an increase in the net current assets by CHF 24.9 million.

Marked increases were posted both in inventories and also in trade receivables, while liabilities were reduced. By the end of the year, these effects should have returned somewhat to normal. On the basis of the sustained good prospects, the fist half of 2008 saw investments in property, plant and equipment as well as in intangible assets amounting to CHF 18.6 million.

This corresponds to 18.9% of sales. The expansion projects are all on track. The main expansion activity this year again concerns the site in Bubendorf, where CHF 14.5 million had already been invested by the middle of the year. Although a relatively large expansion step is also planned this year at Sochinaz, only CHF 2.3 million was spent on investments in property, plant and equipment during the first half-year in Vionnaz. Most of the investments in Vionnaz will follow in the second half of the year. In the USA, investments in property, plant and equipment amounted to CHF 1.5 million.

Dividends paid in the amount of CHF 40.3 million and sales of own shares amounting to CHF 10.2 million were posted in the area of financing activities. Overall, these activities led to a decline in cash and cash equivalents, as defined in the cash-flow statement, by CHF 36.4 million to CHF 35.2 million.

Outlook In view of the generally sustained growth dynamics in all the company’s business segments, Bachem assumes that business will continue to show a clearly positive trend. Open orders remain at the high level seen at the end of 2007. Successes in the field of custom synthesis form a sound basis for new NCE projects with growing demand for active ingredients and services. In the field of generics, not only the tried and trusted peptide substances, but also the non-peptide substances from Sochinaz are showing an increased contribution to sales growth and profit. Efforts to make greater use of opportunities in the European market also promise to provide further impetus for the business. While the high level of stocks of an important NCE, as mentioned above, is leading to a shortfall of sales in the USA, the overall conditions of the business are nevertheless so positive that the medium to long-term growth targets remain intact. Thus at the beginning of August 2008, the purchase of an adjacent industrial site in Bubendorf was agreed, which will secure the required land reserves for the expected growth at the company’s main site and headquarters after 2012.

For 2008 as a whole, Bachem assumes that sales growth in local currencies will fall just slightly short of the target range of 8% to 12%, barring any unforeseen events. The forecast of 33% to 37% for the operating margin remains intact. The operating margin for the full year 2008 is expected to be a little below the first half year result. The long- term forecast for the development of the company (average annual sales growth in local currencies of 8% to 12%) remains unchanged.

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