Notes to the interim condensed consolidated financial statements
1 Reporting entity
The Tecan Group is a global provider of laboratory instruments and solutions in biopharmaceuticals, forensics and clinical diagnostics. The Group specializes in the development, production and distribution of automation solutions for laboratories in the life sciences sector. Its clients include pharmaceutical and biotechnology companies, university research departments, forensic and diagnostic laboratories. As an original equipment manufacturer, the Group also develops and manufactures OEM instruments and components that are then distributed by partner companies. Founded in Switzerland in 1980, the Group has manufacturing, research and development sites in both Europe and North America and maintains a sales and service network in 52 countries.
The ultimate parent company is Tecan Group Ltd., a limited liability company incorporated in Switzerland, whose shares are publicly traded. Tecan Group Ltd.’s registered office is located at Seestrasse 103, 8708 Männedorf, Switzerland.
2 Basis of preparation and significant accounting policies
2.1 Basis of preparation
These unaudited financial statements are the interim condensed consolidated financial statements of Tecan Group Ltd. and its subsidiaries (together referred to as the “Group”) for the six-month period ending June 30, 2014. The financial statements are prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting” and should be read in conjunction with the Group’s annual financial statements as they provide an update of previously reported information. The interim condensed consolidated financial statements were authorized for issue on August 11, 2014.
The preparation of these interim condensed consolidated financial statements requires management to make assumptions and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities at the date of these interim financial statements. If in the future such assumptions and estimates deviate from the actual circumstances, the original assumptions and estimates will be modified as appropriate in the period in which the circumstances change.
The Group operates in industries where significant seasonal or cyclical variations in total sales are not experienced during the financial year.
Income tax expense is recognized based on the best estimate of the weighted average annual income tax rate expected for the full financial year.
2.2 Introduction of new and revised/amended accounting standards and interpretations
The accounting policies used in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ending December 31, 2013, except for the adoption of the following new or revised/amended standards and interpretations, effective as from January 1, 2014:
Standard/interpretation1 |
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) |
IAS 32 amended ‘Financial Instruments: Presentation’ – Offsetting Financial Assets and Liabilities |
IAS 39 amended ‘Financial Instruments: Recognition and Measurement’ – Novation of Derivatives and Continuation of Hedge Accounting |
IIFRIC 21 ‘Levies’ |
1 IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)
The adoption of these new or revised/amended standards and interpretations did not result in substantial changes to the Group’s accounting policies.
2.3 New standards and interpretations not yet applied
The following new and revised/amended standards and interpretations have been issued, but are not yet effective and are not applied early in these interim condensed consolidated financial statements:
Standard/interpretation1 | Effective date |
IAS 19 amended ‘Employee Benefits’ – Defined Benefit Plans: Employee Contributions | Reporting year 2015 |
Annual Improvements to IFRSs 2010 – 2012 Cycle | Reporting year 2015 |
Annual improvements to IFRSs 2011 – 2013 Cycle | Reporting year 2015 |
IFRS 11 amended ‘Joint Arrangements’ – Accounting for Acquisitions of Interests in Joint Operations | Reporting year 2016 |
IAS 16 amended ‘Property, Plant and Equipment’ and IAS 38 amended ‘Intangible Assets’ – Clarification of Acceptable Methods of Depreciation and Amortization | Reporting year 2016 |
IFRS 15 ‘Revenue from Contracts with Customers’ | Reporting year 2017 |
IFRS 9 ‘Financial Instruments’ | Not yet determined |
1 IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)
These changes are not expected to have a significant impact on the consolidated financial statements except for IFRS 15 ‘Revenue from Contracts with Customers’. However, a comprehensive and profound analysis is yet to be performed.
3 Change in scope of consolidation
There has been no change in the scope of the consolidation since December 31, 2013.
4 Interim segment information
4.1 Segment information by business segments
| Life Sciences Business | Partnering Business | Corporate /consolidation | Group | ||||
January to June, CHF 1,000 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 |
Sales third | 97,605 | 100,920 | 84,205 | 71,082 | - | - | 181,810 | 172,002 |
Intersegment sales1 | 6,382 | 4,948 | 1,426 | 1,584 | (7,808) | (6,532) | - | - |
Total sales | 103,987 | 105,868 | 85,631 | 72,666 | (7,808) | (6,532) | 181,810 | 172,002 |
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Operating profit | 1,083 | 14,825 | 25,017 | 11,277 | (2,978) | (3,782) | 23,122 | 22,320 |
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Depreciation and amortization2 | (3,325) | (2,804) | (1,835) | (1,713) | - | - | (5,160) | (4,517) |
Impairment losses | - | - | - | - | - | - | - | - |
1 Intersegment transactions are conducted at arm’s length.
2 No significant non-cash items other than depreciation of property, plant and equipment and amortization of intangible assets were incurred.
January to June, CHF1,000 | 2013 | 2014 |
Reconciliation of reportable segment sales |
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Total sales for reportable segments | 189,618 | 178,534 |
Elimination of intersegment sales | (7,808) | (6,532) |
Total consolidated sales | 181,810 | 172,002 |
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Reconciliation of reportable segment profit |
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Total operating profit for reportable segments | 26,100 | 26,102 |
Unallocated costs (business development, investor relations and other corporate costs) and consolidation entries | (2,978) | (3,782) |
Financial result | (2,706) | 95 |
Total consolidated profit before taxes | 20,416 | 22,415 |
4.2 Entity-wide disclosures
Products and services
January to June, CHF 1,000 | 2013 | 2014 |
Products | 118,041 | 108,774 |
Services | 63,769 | 63,228 |
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Total sales third | 181,810 | 172,002 |
Sales by regions (by location of customers)
January to June, CHF 1,000 | 2013 | 2014 |
Switzerland | 4,178 | 4,530 |
Other Europe | 73,983 | 71,443 |
North America | 76,006 | 69,752 |
Asia | 22,776 | 21,257 |
Others | 4,867 | 5,020 |
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Total sales third | 181,810 | 172,002 |
Non-current assets by regions (by location of assets)
| Property, plant and equipment | Intangible assets | ||
CHF1,000 | 31.12.2013 | 30.06.2014 | 31.12.2013 | 30.06.2014 |
Switzerland | 10,721 | 9,323 | 46,720 | 58,596 |
Other Europe | 4,884 | 4,527 | 1,419 | 1,404 |
United States | 3,814 | 3,588 | - | - |
Asia | 436 | 424 | 432 | 409 |
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Total | 19,855 | 17,862 | 48,571 | 60,409 |
Information about major customers
There are no sales to individual customers in the first half of 2013 and 2014 that accumulated exceeded 10% of total sales.
5 Operating expenses by nature
January to June, CHF 1,000 | 2013 | 2014 |
Material costs | 55,115 | 48,209 |
Personnel costs | 70,262 | 72,147 |
Depreciation of property, plant and equipment | 3,162 | 3,042 |
Amortization of intangible assets | 1,998 | 1,475 |
Other operating costs (net) | 55,264 | 50,313 |
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Total operating cost incurred (gross) | 185,801 | 175,186 |
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Capitalization of development costs in position inventories (see note 6) | (22,897) | (12,762) |
Capitalization of development costs in position intangible assets | (4,216) | (12,742) |
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Total operating expenses, according to statement of profit or loss | 158,688 | 149,682 |
6 Inventories
In 2010, the Group entered into an OEM agreement with a global diagnostics company. The agreement comprises the development and supply of a dedicated diagnostic instrument. The related customer-specific development costs are currently capitalized in the position inventories as part of the production costs and amounted to CHF 123.0 million at the end of June 2014 (December 31, 2013: CHF 110.4 million). Once the instrument is launched and the customer calls the units with individual purchase orders, the corresponding development costs will be recognized in cost of sales.
Further information regarding this critical accounting estimate and judgment can be found in note 2.2.4 of the consolidated financial statements 2013.
7 Shareholders’ equity and employee participation plans
7.1 Dividends paid
| 2013 | 2014 |
Number of shares eligible for dividend and payout | 10,991,802 | 11,098,831 |
Dividends paid (CHF/share) | 0.50 | 1.50 |
Payout from statutory capital contribution reserve (CHF/share) | 1.00 | - |
7.2 Movements in shares outstanding
Number (each share has a nominal value of CHF 0.10) | Shares issued | Treasury shares | Shares outstanding |
Balance at January 1, 2013 | 11,444,576 | (546,590) | 10,897,986 |
Treasury shares issued based on employee participation plans | - | 90,874 | 90,874 |
Sale of treasury shares | - | 26,025 | 26,025 |
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Balance at June 30, 2013 | 11,444,576 | (429,691) | 11,014,885 |
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Balance at January 1, 2014 | 11,444,576 | (362,840) | 11,081,736 |
Treasury shares issued based on employee participation plans | - | 51,408 | 51,408 |
Sale of treasury shares | - | 125 | 125 |
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Balance at June30, 2014 | 11,444,576 | (311,307) | 11,133,269 |
7.3 Employee share option plans
(See note 10.4.1 of the consolidated financial statements 2013 for the terms and principal conditions)
Movements in employee share options
Employee share options | 2013 | 2014 |
Balance at January 1 | 264,769 | 148,704 |
Exercised | (70,615) | (23,505) |
Forfeited and expired | (5,400) | (5,638) |
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Balance at June 30 | 188,754 | 119,561 |
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Thereof vested at period-end | 99,045 | 46,242 |
7.4 Employee share plans (Performance Share Matching Plans [PSMP] and other share plans)
(See note 10.4.2 of the consolidated financial statements 2013 for the terms and principal conditions)
Movements in employee shares
Employee shares (excluding voluntary investments) | 2013 | 2014 |
Balance at January 1 | 222,660 | 223,527 |
Share plan - Board of Directors – shares granted | - | 3,151 |
PSMP – extended Management Board – initial shares granted | 17,742 | 17,394 |
PSMP – extended Management Board – maximum of matching shares granted | 50,648 | 52,870 |
PSMP – other Management – initial shares granted | - | 2,902 |
PSMP – other Management – maximum of matching shares granted | - | 7,255 |
Matching shares forfeited | (64,710) | (40,772) |
Shares deblocked and available to the participants | (353) | (7,085) |
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Balance at June30 | 225,987 | 259,242 |
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Thereof vested, but blocked until the end of the performance period | 41,919 | 43,514 |
8 Principal exchange rates
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| Closing exchange rates | Average exchange rates January to June | ||
CHF |
| 31.12.2013 | 30.06.2014 | 2013 | 2014 |
EUR | 1 | 1.23 | 1.21 | 1.23 | 1.22 |
USD | 1 | 0.89 | 0.89 | 0.95 | 0.89 |
9 Fair value measurement and disclosures
(See note 25 of the consolidated financial statements 2013 for definitions and the valuation techniques used)
9.1 Assets and liabilities measured at fair value on a recurring basis after initial recognition
CHF 1,000 | Fair value hierarchy | Net carrying amount in balance sheet measured at fair value | |
Position |
| 31.12.2013 | 30.06.2014 |
Currency forwards | Level 2 | 2,739 | 2,529 |
Currency options | Level 2 | (70) | - |
There have bee no transfers between the levels in 2013 and 2014.
9.2 Fair value disclosures of assets and liabilities measured at amortized cost
CHF 1,000 | Fair value hierarchy | Net carrying amount in balance sheet measured at amortized cost | Fair value disclosure | ||
Position |
| 31.12.2013 | 30.06.2014 | 31.12.2013 | 30.06.2014 |
Receivables | n/a | 75,798 | 62,300 | 75,798 | 62,300 |
Payables | n/a | 10,301 | 10,155 | 10,301 | 10,155 |
Bank loans | Level 2 | 4,824 | 4,772 | 4,741 | 4,742 |
10 Contingencies and commitments
There have been no significant changes for contingencies and commitments.
11 Events after the reporting period
Acquisition of IBL International Group
The Tecan Group acquired 100% of the voting rights of IBL International Group as of July 31, 2014 (closing date) consisting of the following companies:
Company | Domicile | Participation in % | Activities |
IBL International Holding B.V. | Deventer (NL) | 100% | S |
• IBL International GmbH | Hamburg (DE) | 100% | R/P/D |
• IBL International B.V. | Nijkerk (NL) | 100% | D |
• IBL International Corp. | Toronto (CA) | 100% | D |
S = services, holding functions, R = research and development, P = production, D = distribution
The IBL International Group develops, manufactures and offers a comprehensive portfolio of immunoassays for the life science research and routine clinical diagnostics. The acquired Group will become part of Tecan’s Life Sciences Business, leveraging Tecan’s global presence and strong position in immunoassay instruments.
Established over 30 years ago, the IBL International Group employs staff of over 80 and has its main operations located in Hamburg, Germany. Further, the Group has dedicated sales teams in Germany, North America and the Benelux as well as an extensive distributor network. In 2013, the IBL International Group generated total sales of approximately EUR 16 million (CHF 20 million) with an EBITDA margin at a similar level to the Tecan Group.
The provisional consideration was EUR 29.0 million (CHF 35.2 million) on a cash- and debt-free basis. The initial purchase price was paid in cash and is subject to final adjustments based on completion statements that are prepared within the next weeks after the closing. Financial statements of the acquired Group in accordance with IFRS are currently not available and the purchase price allocation is yet to be performed.