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, 2018. The financial statements are prepared in accordance with International Accounting Standard (IAS) 34 ‘Interim Financial Reporting’ and should be read in conjunction with the consolidated financial statements 2017 as they provide an update of previously reported information. The interim condensed consolidated financial statements were authorized for issue on August 13, 2018.
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 condensed consolidated 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 consolidated financial statements 2017, except for the adoption of the following new or revised/amended standards and interpretations, effective as from January 1, 2018:
Standard/interpretation1 |
IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’ |
IAS 40 amended ‘Investment Properties’ – Transfers of Investment Properties |
IFRS 2 amended ‘Share-based Payment’ – Classification and Measurement of Share-based Payment Transactions |
IFRS 9 ‘Financial Instruments’ |
IFRS 15 ‘Revenue from Contracts with Customers’ |
- IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)
The impact of these changes on the consolidated financial statements is disclosed below:
2.2.1 IFRS 15 ’Revenue from Contracts with Customers’
a) Impact of adopting the new standard
IFRS 15 ‘Revenue from Contracts with Customers’ supersedes IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue’ and related interpretations. The new standard applies to all revenue arising from contracts with customers and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
The Group adopted IFRS 15 using the full retrospective method. The adoption had the following impact:
| Reported | Adjustment | Restated |
CHF 1,000 |
|
|
|
Consolidated balance sheet at December 31, 2017 |
|
|
|
|
|
|
|
Trade accounts receivable (construction contracts in progress) | 1,514 | (1,514) | – |
Contract assets | – | 1,123 | 1,123 |
Inventories | 158,724 | 1,494 | 160,218 |
Deferred tax assets | 15,342 | 26 | 15,368 |
Current and non-current deferred revenue | (75,294) | 75,294 | – |
Current and non-current contract liabilities | – | (76,643) | (76,643) |
Accrued expenses | 45,176 | (289) | 44,887 |
Current provisions | 15,056 | 289 | 15,345 |
|
|
|
|
Shareholder’s equity (retained earnings) | 550,341 | (220) | 550,121 |
| Reported | Adjustment | Restated |
January to June, CHF 1,000 |
|
|
|
Interim consolidated statement of profit or loss 2017 |
|
|
|
|
|
|
|
Sales | 253,283 | (1,045) | 252,238 |
Cost of sales | (133,423) | 1,417 | (132,006) |
|
|
|
|
Operating profit | 29,557 | 372 | 29,929 |
|
|
|
|
Income taxes | (5,376) | (36) | (5,412) |
|
|
|
|
Profit for the period | 25,702 | 336 | 26,038 |
|
|
|
|
Earnings per share |
|
|
|
Basic earnings per share (CHF/share) | 2.22 | 0.03 | 2.25 |
Diluted earnings per share (CHF/share) | 2.19 | 0.03 | 2.22 |
There was no material impact on the other comprehensive income or the statement of cash flows.
The adoption of IFRS 15 reduced the possibility to use the percentage of completion method and changed the timing of the revenue recognition for engineering services. In addition, the presentation in the balance sheet and certain disclosures were modified.
b) New accounting policies
Accounting policies applied for revenue from contracts with customers:
Elements | Accounting policy applied |
Sale of standard instruments and other goods such as spare parts, trade products, consumables or reagents | The sale of standard instruments and other goods is generally considered as one performance obligation. The Group recognizes revenue at the point in time, when control of the asset is transferred to the customer, generally upon delivery of the instrument. |
Sale of complex instruments | The sale of complex instruments generally follows the same principles as the sale of standard instruments. However, as the sale of a complex instrument requires material installation and application work at the customer’s site, control of the asset is only transferred and accordingly revenue recognized upon the written acceptance by the customer.
For sales orders with multiple instruments and high integrations costs, the Group determines the number of performance obligations individually and assesses whether the performance obligation(s) is/are satisfied over time. For revenue to be recognized over time, the following criteria must be fulfilled cumulatively: The Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. |
Sale of customized instruments (‘Partnering Business’) | The sale of customized instruments comprises the development and supply of instruments with a customer-specific design. The development (adaption of existing Tecan-technology to the customer’s specifications) and supply of the instruments is generally considered as one performance obligation due to the limited usability of and control over the pure development result for the customer.
Therefore, the related customer-specific development costs are capitalized in the position inventories as part of the production costs. Once the development is completed the customer requests the units with individual purchase orders. The Group recognizes the corresponding development costs in cost of sales upon fulfillment of the individual purchase orders. |
Engineering services without delivery of instruments | Engineering services are generally considered as one performance obligation. Revenue is recognized upon finalization of the project (at a point in time).
For larger engineering orders the Group assesses whether the performance obligation is satisfied over time. For revenue to be recognized over time, the following criteria must be fulfilled cumulatively: The Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. |
Performance obligations satisfied over time – method of revenue recognition and presentation (sale of complex instruments and engineering services) | The progress is measured by using a cost-to-cost approach: costs incurred for the work performed to date in proportion to the estimated total project costs. According to the progress, pro rata sales are recognized in the statement of profit or loss. In the balance sheet, projects in progress – netted against customers’ advances – are recognized as net assets (included in the position ‘contract assets’) or net liabilities (included in the position ‘contract liabilities’).
When it is probable that the total costs will exceed contract revenue, the rules of IAS 37 – ‘Onerous Contracts’ are applied. |
Service contracts | Revenue form service contracts is recognized over time based on the time elapsed. |
Warranty obligations | The Group provides standard warranties for the repair of defects that existed at the time of sale, as required by law. These warranties qualify as assurance-type warranties under IFRS 15, which the Group accounts for under IAS 37 ‘Provisions’.
In addition, the Group offers warranty extensions to its customers. Such warranty extensions are accounted for as service-type warranties according to IFRS 15, representing separate performance obligations to which the Group allocates a portion of the consideration based on the relative stand-alone selling price. For these service-type warranties, revenue is recognized over time based on the time elapsed. |
Bundles of goods and services | Typically, instruments are sold together with other goods and services. The sale of other goods such as spare parts or consumables and services such as additional training or application work that are part of the same contract with a customer (bundles of goods and services), but qualify for the identification of separate performance obligations, are recognized separately from the sale of the instrument as revenues. The consideration (including any discounts) is allocated in proportion to the relative stand-alone selling prices of the identified performance obligations. |
2.2.2. IFRS 9 ’Financial Instruments’
a) Impact of adopting the new standard
IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ for all periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting of financial instruments: classification and measurement, impairment and hedge accounting.
The Group applied IFRS 9 retrospectively, with the initial application date of January 1, 2018 and adjusting the comparative information for the period beginning January 1, 2017.
The introduction of IFRS 9 had no impact, neither on the balance sheet as at December 31, 2017 nor on the interim statement of profit or loss and other comprehensive income for the six months ended June 30, 2017. The following table compares the original measurement categories under IAS 39 with the new measurement categories under IFRS 9 for each class of the Group’s financial assets and liabilities as at January 1, 2018.
CHF 1,000 | Original classification under | New classification | Original carrying amount | New carrying amount |
Financial asset classes |
|
|
|
|
Cash and cash equivalents | Loans and receivables | Amortized cost | 309,412 | 309,412 |
Receivables | Loans and receivables | Amortized cost | 112,382 | 112,382 |
Rent and other deposits | Loans and receivables | Amortized cost | 1,107 | 1,107 |
Currency forwards | Derivatives | Mandatorily FVTPL | 1,174 | 1,174 |
|
|
|
|
|
Balance at January 1, 2018 |
|
| 424,075 | 424,075 |
|
|
|
|
|
Financial liability classes |
|
|
|
|
Current bank liabilities | Other financial liabilities | Amortized cost | 4,329 | 4,329 |
Payables and accrued expenses | Other financial liabilities | Amortized cost | 58,904 | 58,904 |
Currency forwards | Derivatives | Mandatorily FVTPL | 1,283 | 1,283 |
Bank loans | Other financial liabilities | Amortized cost | 1,229 | 1,229 |
Contingent considerations | Fair value (IFRS 3) | FVTPL (IFRS 3) | 11,639 | 11,639 |
|
|
|
|
|
Balance at January 1, 2018 |
|
| 77,384 | 77,384 |
b) New accounting policies
Accounting policies applied for financial instruments:
Measurement categories | Accounting policy applied |
Financial assets at amortized cost without significant financing component
– Cash and cash equivalents – Receivables | These financial assets are initially measured at the transaction price (nominal value).
Subsequently the transaction price is reduced by impairment losses (see below). Foreign exchange gains/losses and impairment are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss.
Accounting for impairment losses on receivables: The Group recognizes an allowance for impairment that represents its estimate of lifetime expected credit losses (previously: estimate of incurred losses), applying the simplified approach according to IFRS 9. The Group has established a provision matrix that is based |
Financial assets at amortized cost with
– Rent and other deposits | These financial assets are initially measured at fair value plus transaction costs that are directly attributable to their acquisition.
Subsequently the financial instrument is measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains/losses and impairment are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss. |
Financial assets and liabilities at fair value through profit or loss (FVTPL)
– Derivatives – Contingent considerations | These financial assets and liabilities are initially measured at fair value without any transaction costs, the latter being directly expensed.
Subsequently these financial instruments continue to be measured at fair value. Net gains and losses are recognized in profit or loss.
The Group uses derivative financial instruments to economically hedge certain exposures to foreign exchange rate risks. Hedge accounting is not applied. |
Financial assets at fair value through other comprehensive income (FVOCI)
– Unquoted equity instrument | This category only includes equity instruments which the Group intends to hold for the foreseeable future. The classification is determined upon initial recognition on an investment-by-investment basis and is irrevocable.
The financial asset is initially measured at fair value plus transaction costs that are directly attributable to its acquisition.
Subsequently the financial instrument continues to be measured at fair value. Net gains and losses are recognized in other comprehensive income and are not recycled to profit or loss on de-recognition. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. |
Financial liabilities at amortized cost
– Current bank liabilities – Payables and accrued expenses | These financial liabilities are initially measured at the transaction price (nominal value).
Subsequently these financial instruments continue to be measured at the transaction price. Foreign exchange gains/losses are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss. |
Financial liabilities at amortized cost with significant financing component
– Bank loans | These financial liabilities are initially measured at fair value plus transaction costs that are directly attributable to their acquisition.
Subsequently these financial instruments are measured at amortized cost using the effective interest method. Interest expenses and foreign exchange gains/losses are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss. |
2.2.3. Other changes
The adoption of the new interpretation and amended standards 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 |
IFRIC 23 ‘Uncertainty over | Reporting year 2019 |
IAS 19 amended ‘Employee benefits’ – Curtailment or Settlement | Reporting year 2019 |
IAS 28 amended ‘Investments in | Reporting year 2019 |
IFRS 9 amended ‘Financial Instruments’ – Prepayment Features with Negative Compensation | Reporting year 2019 |
IFRS 16 ‘Leases’ | Reporting year 2019 |
Annual Improvements to IFRSs 2015 – 2017 | Reporting year 2019 |
Conceptual Framework for Financial Reporting | Reporting year 2020 |
IFRS 17 ‘Insurance Contracts’ | Reporting year 2021 |
IFRS 10 amended ‘Consolidated Financial Statements’ and IAS 28 amended ‘Investments in Associates and Joint Ventures’ – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | To be defined |
- IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)
The Group intends to adopt these standards, if applicable, when they become effective. The impact of these changes on the consolidated financial statements is disclosed below:
2.3.1. IFRS 16 ‘Leases’
IFRS 16 addresses the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (lease liability) and an asset representing the right of use of the underlying asset during the lease term (right-of-use asset). Lessees will be required to separately recognise the interest expense related to the lease liability and the depreciation expense related to the right-of-use asset.
In accordance with IAS 17, all operating lease arrangements are currently reported off-balance. The Group will continue to analyse in detail the impact of IFRS 16 on its consolidated financial statements.
The Group will introduce the new standard on January 1, 2019, applying the modified retrospective method.
2.3.2. Other changes
Other changes, individually and in the aggregate, are not expected to have a significant impact on the balance sheet, results of operations and cash flows of the Group upon adoption.
Follow Tecan