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, 2015.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 10, 2015.
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, 2014, except for the adoption of the following new or revised/amended standards and interpretations, effective as from January 1, 2015:
Standard/interpretation1 |
IAS 19 amended “Employee Benefits” – Defined Benefit Plans: |
Annual Improvements to IFRSs 2010 – 2012 Cycle |
Annual improvements to IFRSs 2011 – 2013 Cycle |
1IAS = 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.
The Group has made a minor presentational change to the financing section of the interim consolidated statement of cash flows to increase the relevance of the information provided. “Proceeds from employee participation plans” are now disclosed as separate line item. Prior year figures have been re-presented accordingly.
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 |
IFRS 10 amended “Consolidated Financial Statements” and IAS 28 amended “Investments in Associates and Joint Ventures” – Sale or Contribution of Assets | Reporting year 2016 |
IFRS 11 amended “Joint Arrangements” – Accounting for Acquisitions of Interests | Reporting year 2016 |
IAS 1 amended “Presentation of Financial Statements” – Disclosure Initiative | Reporting year 2016 |
IAS 16 amended “Property, Plant and | Reporting year 2016 |
IAS 27 amended “Separate Financial | Reporting year 2016 |
Investment Entities: Applying the | Reporting year 2016 |
Annual improvements to IFRSs 2012 – 2014 Cycle | Reporting year 2016 |
IFRS 15 “Revenue from Contracts with | Reporting year 2017 |
IFRS 9 “Financial Instruments” | Reporting year 2018 |
1IAS = 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, 2014.
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 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 |
Sales third | 100,920 | 107,535 | 71,082 | 92,415 | – | – | 172,002 | 199,950 |
Intersegment sales1 | 4,948 | 7,960 | 1,584 | 775 | (6,532) | (8,735) | – | – |
Total sales | 105,868 | 115,495 | 72,666 | 93,190 | (6,532) | (8,735) | 172,002 | 199,950 |
|
|
|
|
|
|
|
|
|
Operating profit | 14,825 | 11,342 | 11,277 | 17,359 | (3,782) | (3,438) | 22,320 | 25,263 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization2 | (2,804) | (4,581) | (1,713) | (2,748) | – | – | (4,517) | (7,329) |
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, CHF 1,000 | 2014 | 2015 |
Reconciliation of reportable segment sales |
|
|
Total sales for reportable segments | 178,534 | 208,685 |
Elimination of intersegment sales | (6,532) | (8,735) |
Total consolidated sales | 172,002 | 199,950 |
|
|
|
Reconciliation of reportable segment profit |
|
|
Total operating profit for reportable segments | 26,102 | 28,701 |
Unallocated costs (business development, investor relations | (3,782) | (3,438) |
Financial result | 95 | 4,789 |
Total consolidated profit before taxes | 22,415 | 30,052 |
4.2 Entity-wide disclosures
Products and services
January to June, CHF 1,000 | 2014 | 2015 |
Products | 108,774 | 128,162 |
Services | 63,228 | 71,788 |
|
|
|
Total sales third | 172,002 | 199,950 |
Sales by regions (by location of customers)
January to June, CHF 1,000 | 2014 | 2015 |
Switzerland | 4,530 | 3,646 |
Other Europe | 71,443 | 84,992 |
North America | 68,478 | 80,999 |
Asia | 22,531 | 25,447 |
Others | 5,020 | 4,866 |
|
|
|
Total sales third | 172,002 | 199,950 |
Non-current assets by regions (by location of assets)
| Property, plant and equipment | Intangible assets | ||
CHF 1,000 | 31.12.2014 | 30.06.2015 | 31.12.2014 | 30.06.2015 |
Switzerland | 9,414 | 8,497 | 81,521 | 80,148 |
Other Europe | 5,942 | 4,935 | 12,946 | 10,822 |
North America | 4,304 | 3,815 | 751 | 685 |
Asia | 454 | 417 | 352 | 274 |
|
|
|
|
|
Balance | 20,114 | 17,664 | 95,570 | 91,929 |
Information about major customers
There are sales to one individual customer (CHF 22.8 million) relating to business segment “Partnering Business” that accumulated exceeded 10% of total sales in the first half of 2015 (first half of 2014: none).
5 Operating expenses by nature
January to June, CHF 1,000 | 2014 | 2015 |
Material costs | 48,209 | 62,096 |
Personnel costs | 72,147 | 73,988 |
Depreciation of property, plant and equipment | 3,042 | 3,081 |
Amortization of intangible assets | 1,475 | 4,248 |
Other operating costs (net) | 50,313 | 38,167 |
|
|
|
Total operating cost incurred (gross) | 175,186 | 181,580 |
|
|
|
Capitalization of development costs in position inventories (see note 7) | (12,762) | (2,153) |
Capitalization of development costs in position intangible assets | (12,742) | (4,740) |
|
|
|
Total operating expenses, according to statement of profit or loss | 149,682 | 174,687 |
6 Income taxes
Due to the sale of all treasury shares in the first half of 2015, the outstanding employee share options and the employee shares are covered only by the conditional share capital (see note 8) and no longer by treasury shares. This change in funding of the employee participation plans is resulting in a one-time tax benefit of CHF 0.8 million, of which CHF 0.6 million was recognized in the statement of profit or loss and the rest in equity.
7 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 capitalized in the position inventories as part of the production costs and amounted to CHF 127.0 million at the end of June 2015 (December 31, 2014: CHF 127.3 million). In October 2014, the first version of the instrument was launched and the customer calls the units with individual purchase orders. The corresponding development costs are 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 2014.
8 Shareholders’ equity and employee participation plans
8.1 Dividends paid
| 2014 | 2015 |
Number of shares eligible for dividend | 11,098,831 | 11,238,250 |
Dividends paid (CHF/share) | 1.50 | 1.50 |
8.2 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, 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 |
|
|
|
|
Balance at June 30, 2014 | 11,444,576 | (311,307) | 11,133,269 |
|
|
|
|
Balance at January 1, 2015 | 11,444,576 | (286,020) | 11,158,556 |
New shares issued based on employee participation plans | 1,457 | – | 1,457 |
Treasury shares issued based on employee participation plans | – | 36,689 | 36,689 |
Sale of treasury shares | – | 249,331 | 249,331 |
|
|
|
|
Balance at June 30, 2015 | 11,446,033 | – | 11,446,033 |
8.3 Conditional share capital reserved for the employee participation plans
Shares (each share has a nominal value of CHF 0.10) | 2014 | 2015 |
Balance at January 1 | 858,636 | 858,636 |
Employee share options exercised | – | (1,457) |
|
|
|
Balance at June 30 | 858,636 | 857,179 |
|
|
|
Employee share options and employee shares, not yet delivered | 306,996 | 303,029 |
8.4 Employee share option plans
(See note 10.4.1 of the consolidated financial statements 2014 for the terms and principal conditions)
Movements in employee share options:
Employee share options | 2014 | 2015 |
Balance at January 1 | 148,704 | 124,379 |
Exercised | (23,505) | (7,199) |
Forfeited and expired | (5,638) | (873) |
|
|
|
Balance at June 30 | 119,561 | 116,307 |
|
|
|
Thereof vested at period-end | 46,242 | 50,915 |
8.5 Employee share plans (Performance Share Matching Plans (PSMP) and other share plans)
(See note 10.4.2 of the consolidated financial statements 2014 for the terms and principal conditions)
Movements in employee shares:
Employee shares (excluding voluntary investments) | 2014 | 2015 |
Balance at January 1 | 223,527 | 234,805 |
Share plan – Board of Directors – shares granted | 3,151 | 2,902 |
PSMP – extended Management Board – initial shares granted | 17,394 | 18,457 |
PSMP – extended Management Board – mandatory shares granted | – | 4'847 |
PSMP – extended Management Board – maximum of matching shares granted | 52,870 | 58,260 |
PSMP – other Management – initial shares granted | 2,902 | 2,270 |
PSMP – other Management – maximum of matching shares granted | 7,255 | 5,675 |
Matching shares forfeited | (40,772) | (62,855) |
Shares deblocked and available to the participants | (7,085) | (8,332) |
|
|
|
Balance at June 30 | 259,242 | 256,029 |
|
|
|
Thereof vested, but blocked until the end of the performance period | 43,514 | 41,149 |
9 Principal exchange rates
|
| Closing exchange rates | Average exchange rates January to June | ||
CHF |
| 31.12.2014 | 30.06.2015 | 2014 | 2015 |
EUR | 1 | 1.20 | 1.04 | 1.22 | 1.06 |
USD | 1 | 0.99 | 0.94 | 0.89 | 0.95 |
On January 15, 2015 the Swiss National Bank announced that it was discontinuing the minimum exchange rate of CHF 1.20 per euro (EUR). As a consequence, the value of the Swiss franc increased substantially.
10 Financial instruments and fair value disclosures
Cash and cash equivalents as per cash flow statement comprise cash and cash equivalents as per balance sheet and bank overdrafts under bank pooling arrangements (December 31, 2014: CHF 0.0 million; June 30, 2015: CHF 0.2 million) that are included in the position “Current bank liabilities and derivatives”.
10.1 Carrying amounts and fair values
| Carrying amount | Fair value | ||||||||
| Financial assets | Financial liabilities |
| |||||||
CHF 1,000 | Cash and cash equivalents | Current derivatives | Trade and other receivables | Non–current financial assets | Total assets | Current bank liabilities and derivatives | Trade and other payables / accrued expenses | Non–current bank loans and derivatives | Total liabilities |
|
Financial instruments measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forwards | – | 1,754 | – | – | 1,754 | (6,410) | – | (1,765) | (8,175) | (6,421) |
Currency options | – | 70 | – | 15 | 85 | (794) | – | (219) | (1,013) | (928) |
|
|
|
|
|
|
|
|
|
|
|
Financial instruments measured at amortized costs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | 128,715 | – | – | – | 128,715 | – | – | – | – |
|
Receivables | – | – | 96,549 | – | 96,549 | – | – | – | – |
|
Rent and other deposits | – | – | 443 | 777 | 1,220 | – | – | – | – |
|
Current bank liabilities | – | – | – | – | – | (2,691) | – | – | (2,691) |
|
Bank loans | – | – | – | – | – | – | – | (3,321) | (3,321) | (3,279) |
Payables and accrued expenses | – | – | – | – | – | – | (48,221) | – | (48,221) |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items2 | – | – | 12,168 | – | 12,168 | – | (11,009) | – | (11,009) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 | 128,715 | 1,824 | 109,160 | 792 | 240,491 | (9,895) | (59,230) | (5,305) | (74,430) |
|
1The carrying amount of financial instruments measured at amortized costs is a reasonable approximation of their fair value due to their short–term nature. bank loans are the only exception due to their long–term nature.
2Receivables/payables arising from POC, VAT/other non–income taxes and social security.
| Carrying amount | Fair value | ||||||||
| Financial assets | Financial liabilities |
| |||||||
CHF 1,000 | Cash and cash equivalents | Current derivatives | Trade and other receivables | Non–current financial assets | Total assets | Current bank liabilities and derivatives | Trade and other payables / accrued expenses | Non–current bank loans and derivatives | Total liabilities |
|
Financial instruments measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forwards | – | 900 | – | 473 | 1,373 | (2,523) | – | (157) | (2,680) | (1,307) |
|
|
|
|
|
|
|
|
|
|
|
Financial instruments measured at amortized costs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | 171,425 | – | – | – | 171,425 | – | – | – | – |
|
Receivables | – | – | 72,365 | – | 72,365 | – | – | – | – |
|
Rent and other deposits | – | – | 301 | 724 | 1,025 | – | – | – | – |
|
Current bank liabilities | – | – | – | – | – | (2,908) | – | – | (2,908) |
|
Bank loans | – | – | – | – | – | – | – | (2,878) | (2,878) | (2,841) |
Payables and accrued expenses | – | – | – | – | – | – | (35,708) | – | (35,708) |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items2 | – | – | 9,024 | – | 9,024 | – | (11,003) | – | (11,003) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015 | 171,425 | 900 | 81,690 | 1,197 | 255,212 | (5,431) | (46,711) | (3,035) | (55,177) |
|
1The carrying amount of financial instruments measured at amortized costs is a reasonable approximation of their fair value due to their short–term nature bank loans are the only exception due to their long–term nature.
2Receivables/payables arising from POC, VAT/other non–income taxes and social security.
10.2 Valuation techniques used
Position | Level | Data source | Model |
Currency forwards | Level 2 | Bloomberg | (forward rate - [spot rate +/- forward points]) * amount in foreign currency |
Currency options | Level 2 | Bloomberg | Black-Scholes model |
Bank loans | Level 2 | Bloomberg | The fair value is estimated by discounting the future contractual cash flows at the current market interest rate that is available |
11 Contingencies and commitments
There have been no significant changes for contingencies and commitments.
12 Events after the reporting period
There were no significant events after the reporting period.