Dear Shareholders

During 2016, Tecan recorded another year of double-digit sales growth and a further improvement in underlying profitability. Importantly, we posted strong sales growth in both divisions and all regions, with China bein g a specific highlight. Once again, the high operating cash flow of over 23% of sales was particularly satisfactory.

Our new platforms had a strong market uptake, with Fluent quick ly becoming the industry-leading automation solution and Spark setting new standards for multimode readers regarding sensitivity, speed and accuracy. In our Partnering Business, we saw a substantial increase in serial production of major platforms and we successfully concluded several new development agreements, providing the basis for continued growth. We fully integrated Sias AG, which we acquired at the end of 2015 and relocated our new colleagues and the production lines into the Tecan site in Maennedorf. In August, we were delighted to a nnounce the acquisition of US-based SPEware Corporation, which further expands our solutions offering into the sample preparation for mass spectrometry market.

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, total order entry in the second half 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.

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. 

In August 2016, we announced the acquisition of SPEware, a leading provider for mass spectrometry sample preparation solutions based in Baldwin Park, California (USA), to further expand Tecan’s dedicated solutions offering into a new market segment. From October 1, 2016, SPEware is included in the consolidated financial statements of the Tecan Group as a part of the Life Sciences Business segment. With over 70% of revenues generated with smart consumables, the acquisition of SPEware will further expand Tecan’s overall recurring revenues.

Tecan’s equity ratio reached 66.3% as of December 31, 2016 (December 31, 2015: 68.7%). 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. 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.

The Board of Directors will propose an unchanged dividend of CHF 1.75 per share to the shareholders at the Company’s Annual General Meeting on April 11, 2017.

Tecan has a clear strategy to ensure the long-term success of the Company. The implementation of Tecan’s strategy is supported through the implementation of Company-wide priorities.

For 2016 we had again defined five Company-wide priorities, some of which involve continuing previous longer-term priorities and activities.

Our first priority was to increase operational efficiency. Within the framework of the project launched in 2014, we aimed to focus even more closely on material cost savings and productivity projects while maintaining the fast pace of innovation. After realizing a low single-digit million Swiss franc amount of net material cost savings in 2015, we were successful in increasing those savings to a mid single-digit million Swiss franc amount in 2016. In addition, we were able to achieve significantly shorter manufacturing times for our new instruments, helped by a new production setup, management and organization. Those changes also freed up enough production floor space to enable the integration of the acquired Sias business, including all production lines, into the existing space at Tecan’s site in Maennedorf, Switzerland. Another highlight of the year was the successful completion of our third consecutive FDA inspection with zero formal observations, this time at our largest production site in Maennedorf. Concurrently to these activities, we launched a further wave of new platforms and products in both business divisions which enjoy a strong market uptake. More information on these products can be found in the respective segment reports.

The second priority focused on the Partnering Business. Here, we saw a substantial increase in serial production, especially for the ORTHO VISION™ Analyzer family of platforms for our partner Ortho Clinical Diagnostics. We were particularly excited, when our partner celebrated the 1000th installation of an ORTHO VISION™ Analyzer platform worldwide in January 2017. 

We also significantly grew our sales in China, with several of our local components and instrument customers now successfully commercializing their respective platforms. Partnering Business received a further boost through the first-time contribution from the fully integrated Sias product lines as our new colleagues became an integral part of Tecan Partnering. As a basis for future growth, we were supporting various partners with upcoming market launches and we concluded several new development agreements. More details on these new projects can be found in the segment report.

The third priority addressed the Life Sciences Business and centered around the successful market launch of our Fluent and Spark instrument platforms. Fluent quickly became the industry-leading, application-focused automation solution, convincing customers with more capacity, increased speed, superior precision, throughput and walkaway time – and yet, offering extraordinary ease of use. Also, our Spark multimode microplate reader platform saw a strong market uptake and with additional modules and technologies introduced in 2016, it sets new standards for sensitivity, speed and accuracy. Our specialty immunoassay business continued to grow above the market rate. We introduced new tests to the broad portfolio and now offer 75 assays adapted to our automation platform.

In Corporate Development we supported the integration work of the Sias business, which we had acquired at the end of 2015. At the same time, we maintained contact with numerous interesting companies, again, taking a closer look at a selection of them. We were therefore delighted to announce the acquisition of US-based SPEware Corporation in August – our third transaction within two years. SPEware is a leading provider for mass spectrometry sample preparation solutions. This acquisition follows very much the rationale of our acquisition of IBL International in 2014, which supported our evolution into a solutions business for dedicated applications.

The fifth priority was newly defined, but was based on a well-established Tecan business as we aimed to achieve a significant increase in recurring revenues with plastic consumables. With a newly created central management position and a dedicated organization for the consumables business, we were able to grow sales by 20% during 2016. Plastic consumable products now account for over 11% of total sales and we have laid the foundation for further growth. 

As in recent years, we have again defined five business-wide operational priorities for 2017.

With our first priority for the year, we maintain our high focus on operational efficiency and material cost savings. We see further significant potential through continued supplier relocation and consolidation, global alignment of our procurement activities and by strategically leveraging our established sourcing hub in Singapore. Together with further reductions in manufacturing times for our instruments, we expect an even higher savings contribution than in 2016. At the same time, we will continue our strong innovation output with strengthened global R&D governance and processes. 

As in 2016, our second priority focuses on the Partnering Business. We are supporting our partners with a further ramp-up of serial production as well as with upcoming market launches for several new instrument projects. Concluding new development agreements and driving forward our expanding business in Asia again remain a priority for us in 2017.

The third priority addresses the Life Sciences Business. The successful commercialization of our Fluent and Spark platforms continues to be a major focus for us in 2017. We will again launch new options and further expand the capabilities of those flagship platforms. We will also bring more application-focused solutions to the market, especially in the areas of specialty immunoassays and sample preparation for mass spectrometry where we can offer optimized instruments together with reagents and functional consumables. We continue to work on the integration of SPEware as we are excited about the opportunity to leverage Tecan’s global sales and service infrastructure to build on their momentum and further accelerate growth. 

In Corporate Development we continue to screen the markets as acquisitions remain an important contributor to our overall growth and a key element of our corporate strategy. We continue to look for bolt-on acquisitions, similar to the three transactions we have already completed recently. Our M&A funnel, however, also includes potential larger, rather transformative deals. 

The fifth priority is a continuation of the very successful activities to grow our plastic consumables business. We continue to see significant opportunities for further expanding the business with existing products as well as through the introduction of new products, thereby expanding our portfolio, for example with special microplates. We are convinced that we can benefit to an even greater extent from our broad base of installed instruments by assuring optimum system performance for our customers.

As previously communicated, Tecan expects in the mid-term to continue to organically outgrow of the market average and increase this growth rate through acquisitions. For 2017, total Tecan Group sales are forecast to increase by at least 6% in local currencies. The reported EBITDA margin is expected to further expand to at least 18% of sales, including acquisition-related costs in a mid single-digit million Swiss franc amount.

These expectations regarding profitability are based on an average exchange rate forecast for full-year 2017 of one euro equaling CHF 1.07 and one US dollar equaling CHF 0.99 and exclude future acquisitions. 

In 2016, we achieved further important successes in implementing our strategic priorities, launched new products and made another 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 SPEware, 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.

Maennedorf, March 10, 2017