Chief Financial Officer`s Report

In the second half of 2016, order entry in the Life Science Business grew strongly, however Partnering Business was affected by a large order which was shifted by a corporate customer from December 2016 to January 2017. Despite this timing effect, order entry in the second half overall increased by 2.8% in local currencies and by 3.1% in Swiss francs against a strong base in the prior-year period. For the full year, order entry increased by 6.9% in local currencies to CHF 503.2 million (2015: CHF 465.0 million), corresponding to growth of 8.2%. On an organic basis, order entry increased by 1.8% in local currencies and by 3.1% in Swiss francs. Organic development only includes contributions from acquisitions from those months in the reporting period that were already included in the consolidated financial statements in the prior-year period. 

Sales in the second half rose by 12.2% in local currencies and by 12.7% in Swiss francs. This corresponds to organic sales growth of 7.3% in local currencies and 7.8% in Swiss francs. Sales in financial year 2016 increased by 13.5% in local currencies and 15.0% in Swiss francs to CHF 506.2 million (2015: CHF 440.3 million), exceeding the CHF 500 million mark for the first time in the Company’s history. On an organic basis, sales grew by 8.2% in local currencies and 9.6% in Swiss francs.

In Europe, full-year sales in local currencies increased by 12.8% and by 13.3% in Swiss francs. This growth was driven primarily by the Partnering Business, both from the first-time contribution to sales from Sias products and strong organic growth by major platforms. 

In North America, sales grew by 7.6% in local currencies and 9.6% in Swiss francs. The Life Sciences Business and Partnering Business recorded solid growth in this region.

In Asia, Tecan once again achieved a considerable increase in sales of 27.0% in local currencies and 30.2% in Swiss francs. Both segments posted a double-digit increase in organic sales, which was further supported by a first-time contribution to sales by Sias products. Growth in China, where sales grew with more than 50%, was particularly pleasing, bringing the total business to close to CHF 50 million in the year.

In 2016, recurring sales of services and consumables increased by 12.5% in local currencies and 14.1% in Swiss francs, and therefore amounted to 37.6% of total sales (2015: 37.8%). Services (including spare parts) accounted for 20.7% of total sales, while consumables (plastic and reagents) accounted for 16.8%. 

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 239.4 million Swiss Francs (2015: CHF 215.5 million), which was 23.9 million or 11.1.0% above the prior-year figure. The reported gross profit margin was at 47.3% – 160 basis points lower than in the prior year (2015: 48.9%). 

Several factors impacted the gross profit margin level:

• (-) Impact from acquisitions
• (-) Divisional mix with higher revenue share from Partnering Business
• (-) Product mix impact within divisions: higher sales contribution from new products with lower profitability in early life cycle
• (+) Material cost savings and positive exchange rate impact
• (+) Price increases

In 2016, operating expenses grew in line with sales and totaled CHF 172.5 million or 34.1% of sales, compared with CHF 150.0 million or 34.1% of sales in the prior-year period. All costs in 2016 include costs from acquired businesses. In 2015, all expense lines were benefitting from a positive one-time impact from revised pension liabilities according to IAS 19. 

Sales and Marketing increased less than sales despite continued investments in the sales organization to support product launches.

Research and development expenses in 2016 amounted to 9.3% of sales (2015: 9.1%) or CHF 47.1 million (2015: CHF 39.9 million). All told, research and development activities were CHF 51.9 million gross (2015: CHF 56.7 million). The total figure also includes development programs for OEM instrument customers in the Partnering Business (CHF 9.8 million) and capitalized development costs (CHF 6.6 million). However, these costs were clearly exceeded by amortization amounting to CHF 11.6 million.

General and administration expenses increased slightly more than sales due to acquisition-related costs and more costs on the corporate level.

Operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 6.8% to CHF 89.0 million in the fiscal year (2015: CHF 83.4 million). Including acquisition-related costs from two recent transactions and reduced margins associated with the acquisition of Sias AG, the EBITDA margin was 17.6% of sales (2015: 18.9%). By contrast, the underlying EBITDA margin, excluding acquisition-related effects, improved by 140 basis points to 19.5% of sales, thereby comfortably delivering on the margin commitment for the year of “at least 50 basis points”. In 2015, the underlying EBITDA margin reached 18.1% and excludes a one-time positive net impact mainly from revised pension liabilities. The margin improvement in 2016 was driven by positive volume and price effects as well as substantial efficiency improvements in operations and in research and development. 

Despite a higher operating result, net profit for the year 2016 was CHF 54.5 million and therefore below the prior-year period due to non-operational effects (2015: CHF 57.1 million). In addition to acquisition-related costs, the difference is due to the lack of the positive one-time effects from 2015, an increase of the tax rate in 2016 to an again more normalized level and a lower financial result due to currency hedging. The net profit margin therefore reached 10.8% of sales (2015: 13.0%), while earnings per share were CHF 4.74 (2015: CHF 5.05). 

Tecan’s equity ratio reached 66.3% as of December 31, 2016 (December 31, 2015: 68.7%). The company’s share capital was CHF 1,154,137 as at the reporting date of December 31, 2016 (December 31, 2015: CHF 1,146,758), consisting of 11,541,371 registered shares with a nominal value of CHF 0.10. 

Cash flow from operating activities grew strongly to CHF 118.8 million (2015: CHF 99.1 million), including a further reimbursement of development costs by an OEM partner. Thus, cash flow from operating activities corresponded to 23.5% of sales. 

Cash and cash equivalents were at 246.7 million Swiss Francs at the end of 2016 compared to CHF 208.4 million at the end of 2015. Net liquidity (cash and cash equivalents minus bank liabilities and loans) increased to CHF 242.3 million (December 31, 2015: CHF 198.8 million). This figure includes the acquisition of SPEware Corporation with a base purchase consideration of USD 50.0 million (CHF 49.0 million), of which the net payable was fully paid in cash.