Chief Financial Officer’s Report

In the second half of 2014, order entry increased by 12.2% in local currencies and in Swiss francs. Excluding the acquisition of IBL International, orders in the second half grew by 7.5% in local currencies and Swiss francs. For the full year, order entry increased by 9.5% in local currencies to CHF 417.4 million (2013: CHF 386.1 million), corresponding to growth of 8.1%. On an organic basis, order entry increased by 7.1% in local currencies and by 5.7% in Swiss francs.

Sales in the second half rose by 10.3% in local currencies and by 10.2% in Swiss francs, corresponding to organic sales growth of 5.8% in local currencies and 5.7% in Swiss francs. Sales in financial year 2014 reached CHF 399.5 million (2013: CHF 388.3 million) and were therefore 4.2% above the prior-year level in local currency terms and 2.9% in Swiss francs. Excluding IBL International, consolidated in the financial statements of the Tecan Group since August 1, 2014, sales increased by 1.8% in local currencies and 0.5% in Swiss francs.

In Europe, full-year sales in local currencies increased 6.5% compared to the previous year, which equates to a rise of 5.9% in Swiss francs. This increase in sales was driven by double-digit growth in the Life Sciences Business, helped by revenue contribution from IBL International. Sales in the Partnering Business were flat for the full year.

For fiscal year 2014, sales in North America declined overall by 3.0% in local currencies and by 3.9% in Swiss francs, with moderate growth in the Life Sciences Business being more than offset by a decline in the Partnering Business.

Sales in Asia increased significantly in 2014 and were up by 19.2% in local currencies and by 14.2% in Swiss francs. China grew more slowly than overall Asia as delays in government tenders and in academic spending were widely noted in the industry and also provided a drag to Tecan’s Life Sciences Business sales. Spending patterns improved in the second half of the year and the Life Sciences Business posted moderate growth again in China. By contrast, sales in the Partnering Business continued to grow strongly in China throughout the year. Overall, sales in China increased to close to CHF 30 million in 2014 (2013: over CHF 25 million).

The acquisition of IBL International marks an important step towards offering fully integrated solutions, including reagents, and thereby adding a new source of recurring revenues. Overall, recurring revenues of services, plastic consumables and reagents increased by 9.8% in local currencies in the year under review, or by 8.4% in Swiss francs. Their contribution to total sales rose to 36.0%, the highest level in the Company’s history (2013: 34.1%).

The reader is referred to the “Life Sciences Business” and “Partnering Business” sections of this Annual Report for a detailed description of the business performance of the individual segments.

Gross profit increased to CHF 197.6 million (2013: CHF 189.6 million), which was 8.0 million or 4.2% above the prior-year figure. The reported gross profit margin increased to 49.5% (2013: 48.8%).

The gross profit margin benefitted from material cost savings, less non-standard costs of sales and lower costs from OEM development programs.

This positive effect was partly offset by a negative exchange rate impact, lower profitability in the launch phase of new instruments and price decreases.

In 2014, operating expenses totaled CHF 142.5 million or 35.6% of sales, compared with CHF 136.7 million or 35.2% of sales in the prior-year period. Overall, operating expenses less cost of sales increased by 5.8 million Swiss francs or 4.2% and include five months of consolidation of IBL International.

Selling and marketing increased by 12.2%, due to increased investments in the sales organization, application specialists, marketing and product management to support the various product launches.

Research and development expenses in 2014 amounted to 9.9% of sales (2013: 11.7%) or CHF 39.5 million (2013: CHF 45.3 million). All told, research and development activities amounted to CHF 84.9 million gross (2013: CHF 104.1 million), out of which CHF 31.7 million are development costs for OEM partners. This total figure also includes the development costs capitalized in the balance sheet of CHF 16.2 million gross, an increase of CHF 6.0 million over 2013 as development projects progressed and were nearing market launch. Several of those products were introduced in the meantime.

General and administration expenses increased by 13.6% due to higher cost on the Corporate level, e.g for corporate development activities related to acquisitions.

Excluding acquisition-related effects, the operating profit margin improved by 50 basis points to 14.6% of sales (2013: 14.1%) in line with original guidance. Assuming exchange rates in line with 2013, this corresponds to an EBIT margin of 14.8% of sales. This development was helped by lower net research and development expenses mainly due to increased capitalization of costs as projects neared market launch. Including acquisitionrelated costs, operating profit before interest and taxes (EBIT) increased by 4.4% to CHF 57.2 million (2013: CHF 54.8 million), corresponding to an EBIT margin of 14.3% of sales. The EBITDA margin (earnings before interest, taxes, depreciation, and amortization as a percentage of sales) increased to 16.9% (2013: 16.8%).

The financial result was CHF -8.1 million (2013: CHF 0.7 million). The decline is the result of a lower financial result attributable to currency hedging measures as the US dollar significantly appreciated towards year end.

Tecan incurs foreign currency risks on sales, purchases and borrowings denominated in a currency other than the functional currency of the respective subsidiaries. On a consolidated basis, Tecan is also exposed to currency fluctuations between the Swiss franc (CHF) and the functional currencies of its subsidiaries. The two major currencies giving rise to currency risks are the euro (EUR) and the US dollar (USD). Tecan centralizes its foreign currency exposure in a few locations only. The hedging policy is to cover the foreign currency exposure to a certain percentage of the operating activities (forecast sales and purchases). Tecan uses forward exchange contracts, currency options and swaps to hedge its foreign currency risk on specific future foreign currency cash flows. These contracts have maturities of up to 18 months. Tecan does not hedge its net investment in foreign entities and the related foreign currency translation of local earnings. A detailed sensitivity analysis regarding foreign currency risks is disclosed in note 29 of the Consolidated Financial Statements.

The tax rate increased to 18.2% (2013: 17.7%).

Net profit reported for the year 2014 reached CHF 40.2 million (2013: CHF 45.7 million). The decline is the result of the lower financial result. The net profit margin was 10.1% of sales (2013: 11.8%). Earnings per share are CHF 3.63 (2013: CHF 4.16). On average, a total of 11.1 million shares were outstanding in 2013 (2013: 11.0 million shares).

Tecan’s equity ratio reached 65.4% as of December 31, 2014 (December 31, 2013: 72.0%). The Company’s share capital stood at CHF 1,144,458 at the reporting date (December 31, 2014), consisting of 11,444,576 registered shares with a nominal value of CHF 0.10 each.

Cash flow from operating activities further improved to CHF 48.2 million (2013: CHF 27.9 million), as the prefinancing of an OEM development project is coming to an end and a first reimbursement of development costs was received from the partner.

Net working capital increased due to extraordinary strong sales in November and December. Despite this effect, the DSO number – the days sales outstanding – was almost unchanged at 52 days.

In 2014 investments amounted to CHF 22.4 million (2013: CHF 19.7 million) which exceeded the 10.3 million for amortization and depreciation (2013: CHF 10.3 million). Investments were mainly development costs capitalized in the balance sheet of CHF 16.2 million gross.

Cash flow from financing activities included the dividend payments made in April 2014 in the total amount of CHF 16.7 million.

Cash and cash equivalents were at 128.7 million Swiss Francs at the end of 2014 compared to CHF 150.4 million at the end of 2013. Net liquidity (cash and cash equivalents minus bank liabilities and loans) amounted to CHF 122.7 million (December 31, 2013: CHF 143.4 million). This figure includes cash outflows for the acquisition of IBL International which amounted to CHF 32.0 million.