Dear Shareholders

Regarding sales development, despite a strong start to the year by our Life Sciences Business, we had a difficult first half-year in our Partnering Business. However, we saw a solid recovery in our Partnering Business during the second half. Overall, order entry was strong throughout the year and our order backlog at year-end increased to the highest level in at least the last five years. We are also pleased that we achieved our profitability targets for the year.

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 a 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 an 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.

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 the increased capitalization of costs as projects neared market launch. Including acquisition-related 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%).

Net profit reported for the year 2014 reached CHF 40.2 million (2013: CHF 45.7 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. The net profit margin was 10.1% of sales (2013: 11.8%). Earnings per share are CHF 3.63 (2013: CHF 4.16). 

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. 

Details on the course of business of the Life Sciences Business and Partnering Business segments can be found in the relevant sections on pages 22 and 30. Details regarding the regional development of sales are discussed in the Chief Financial Officer’s Report on page 74.

On July 30, 2014, we announced the acquisition of IBL International as an important strategic step to support Tecan’s evolution into a solutions business with a higher share of recurring revenues. IBL International is a leading Company in the field of microtiter plate based immunoassays with one of the widest ranges of tests for specialty diagnostics to be used in research and clinical laboratories. The integration of IBL International is progressing well and sales for the five months consolidation period exceeded initial expectations.

Tecan’s equity ratio reached 65.4% as of December 31, 2014 (December 31, 2013: 72.0%). 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 the acquisition of IBL International with a purchase consideration of EUR 29.0 million (CHF 35.2 million), of which the net payable was fully paid in cash. 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.

The Board of Directors will propose an unchanged dividend of CHF 1.50 per share to the shareholders at the Company’s Annual General Meeting on April 16, 2015.

Tecan has a clear strategy to ensure the long-term success of the Company. This strategy was further developed and refined in the year under review. For details, please refer to pages 4-5 of this report. The deployment of Tecan’s strategy is supported through the deployment of priorities Company-wide. 

For 2014 we defined five top level Company-wide priorities:

The first of our priorities was to focus on the two strategically important partnering development programs Dako Omnis and ORTHO VISION^_TM Analyzer. We gave our partners our full support to achieve their launches in various regions and through the associated increase in serial production. Considerably higher volumes were achieved in serial production of Dako Omnis compared to 2013, while the development of the ORTHO VISION^_TM Analyzer was successfully concluded. In Europe, Japan and Australia, the launch by Ortho-Clinical Diagnostics took place in the fourth quarter of 2014 and serial production started to ramp up.

A further priority for us was the key Chinese market. Despite the challenging environment, combined sales in China in the two business segments rose to nearly CHF 30 million, having amounted to over CHF 25 million in 2013. In addition, we expanded the market organization as well as the structures and possibilities for direct contact with customers. While at the start of 2012, the Company employed less than 30 people in China, this figure had risen to over 70 by the end of 2014. In addition to our main offices in Shanghai and Beijing, a small office in Guangzhou has been added in 2014.

In the Life Sciences Business, we set ourselves the goal to focus on growth in Europe and North America, through strengthening of the organization and through the introduction of new products. Overall, we achieved a significant improvement in performance in the Life Sciences Business compared with 2013 (see also the segment report on page 22). We also were successful in launching several new products, including the first Fluent™ variant. The launch of the Fluent product family marks the latest addition to our extensive portfolio of liquid handling solutions for laboratory automation. 

At the beginning of 2014, we launched a multi-year project to reduce manufacturing costs, which focused in particular on the cost of materials. We have achieved initial savings during 2014 and believe that significant potential remains for 2015 and beyond. Staffing of this activity has also been supplemented through the engagement of an external specialist supply chain consultancy. 

Our fifth priority was linked to our strategy, which aims to evolve Tecan from a highly specialized instrument Company into a solutions business, serving a broader range of applications in both Life Science Research and Clinical Laboratories. Through the acquisition of IBL International in the summer of 2014, we were able to conclude an important first step in the direction to add reagents and diagnostic kits to our product portfolio.

We have again defined five business-wide priorities for 2015, some of which involve continuing previous priorities and activities.

Our first priority is the Life Sciences Business. Tecan is at the start of a new product cycle for two main platforms: the Fluent family in liquid handling and the brand new Spark detection product launched in February 2015. Alongside these two platforms, we are also focusing on the promotion of application solution-based workstations on the popular Freedom EVO liquid handling platform. These include, for example, sample preparation for gene sequencing (next-generation sequencing) and mass spectrometry. In China we plan to further expand our sales and service team, and through the continued integration of IBL International we will focus on offering complete automated solutions for specialty diagnostics.

In the Partnering Business, one of our main tasks in 2015 is to further increase serial production of Dako Omnis and ORTHO VISION™. We are expecting significant growth for both products and want to provide optimum support to our partners Dako and Ortho-Clinical Diagnostics. The product line for Ortho-Clinical Diagnostics is also planned to be expanded through the introduction of the ORTHO VISION™ Max, an instrument variant with a higher sample throughput. 

The comprehensive project to reduce material costs and optimize manufacturing will also keep us busy in 2015. The measures initiated in the year under review, which concern material costs in particular, will be continued in order to exploit the identified cost reduction potential. This is especially the case for the benchmarking process and the resulting price negotiations. 

This priority is also closely linked to our desire to further increase efficiency in product development. In the Life Sciences Business, we are planning to successfully conclude the development of further variants of the Fluent and Spark platforms during the current year. The Partnering Business also has important development projects that are close to completion. 

In Corporate Development, in 2015, we will again examine possible acquisitions and collaborations and undertake market analysis. We have a well-stocked list of attractive takeover targets, which we are examining and with whom we maintain good contacts. We continue to have a strong interest in acquiring companies with specific reagents and consumables, so that we can also offer performance-optimized and potentially closed systems. Instruments to broaden our range, including into adjacent market segments, are also of great interest to us. 

Total Group sales are forecast to increase with a double-digit rate in local currencies. This strong growth will be driven by a continued ramp up of major Partnering Business platforms and further supported by the introductions of additional versions of the Fluent platform, the first launch of the Spark™ multimode reader platform and a full-year contribution of IBL International.

The EBITDA margin is expected to expand by more than 100 basis points, with the EBIT margin to also further increase. Before effects related to the acquisition of IBL International, this corresponds to an EBIT margin above 15%. 

These expectations regarding profitability are based on an average exchange rate forecast for full-year 2015 of one euro equaling CHF 1.05 and one US dollar equaling CHF 0.92 and exclude further acquisitions.

In 2014, we achieved important successes in implementing our strategic priorities, we launched first models of major product platforms and made an important acquisition. The Board of Directors and Management Board would like to thank all employees for their commitment and dedication. We are, of course, also grateful to our new colleagues at IBL International, whom we welcome wholeheartedly to our ranks. We also thank our customers for their loyalty, and our shareholders and business partners for their trust and continued support.

Männedorf, March 12, 2015