Tecan

Notes to the interim condensed consolidated financial statements

1 Corporate information

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 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, 2013. 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 12, 2013.

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 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, 2012, except for the adoption of the following new or revised/amended standards and interpretations, effective as from January 1, 2013: 

Standard/interpretation1

IFRS 7 amended Financial Instruments: Disclosures – Offsetting Financial Assets and Liabilities

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

Consolidated Financial Statements, Joint Arrangements and
Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)

IFRS 13 Fair Value Measurement

IAS 1 amended Presentation of Financial Statements
Presentation of Items of Other Comprehensive Income

IAS 19 revised Employee Benefits

IAS 27 revised Separate Financial Statements

IAS 28 revised Investments in Associates and Joint Ventures

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

Annual Improvements to IFRS – 20092011 Cycle

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 except for the revised version of IAS 19 “Employee Benefits”. Nevertheless their introduction requires a change in the presentation of the ‘statement of profit and loss and other comprehensive income’ and additional disclosures in the notes of the consolidated financial statements.

The revised version of IAS 19 Employee Benefits eliminates the ‘corridor method’ that was previously applied by the Group. All changes in the present value of the defined benefit obligation and in the fair value of the plan assets are recognized in the financial statements immediately in the period they occur. In addition, the revised standard states that risk sharing arrangements shall be reflected in the calculation of the defined benefit obligation. Under the old IAS 19, the employer’s net service costs were determined as the gross service costs for the plan less the cash contributions paid by the employee. Under IAS 19 revised the employer’s net service costs are determined as the gross service costs less the employee contributions calculated using the Projected Unit Credit Method. The new requirement to allocate employee contributions to periods of service in the same way as benefits are allocated to employee’s service has an impact on the defined benefit obligation and service costs for all pension plans for which employee contributions increase with age.

Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount, which is calculated by applying the discount rate to the net defined benefit obligation. This change is increasing the employee benefit expenses of the Group that are recognized in profit or loss. 

Finally the revised standard specifies the presentation of the changes in the net defined benefit liability. Service costs and net-interest amount on the net defined benefit obligation are recognized in profit or loss, whereas the remeasurement of the net defined benefit liability is recognized in other comprehensive income. Before, all recognizable changes were recognized in profit or loss.

The Group has applied the changes retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The effects on the consolidated balance sheet, consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive income are presented below:

CHF 1,000

Reported

Adjustment

Restated

Balance sheet at January 1, 2012

   

Deferred tax assets

10,468

142

10,610

Liability for post-employment benefits

5,720

1,996

7,716

Deferred tax liabilities

2,936

(251)

2,685

Equity

269,313

(1,603)

267,710

 

 

 

 

Balance sheet at January 1, 2013

 

 

 

Deferred tax assets

8,394

1,494

9,888

Liability for post-employment benefits

6,384

11,220

17,604

Deferred tax liabilities

2,998

(501)

2,497

Equity

302,838

(9,225)

293,613

CHF 1,000

Reported

Adjustment

Restated

Statement of profit or loss first half 2012

   

Sales

182,225

182,225

Cost of sales

(91,820)

99

(91,721)

Sales and marketing

(28,299)

57

(28,242)

Research and development

(22,543)

62

(22,481)

General and administration

(17,591)

30

(17,561)

Other operating income

172

172

Operating profit

22,144

248

22,392

 

 

 

 

Financial result

(451)

(78)

(529)

Income taxes

(4,172)

(27)

(4,199)

Profit for the period

17,521

143

17,664

Basic earnings per share (CHF/share)

1.62

0.02

1.64

Diluted earnings per share (CHF/share)

1.60

0.01

1.61

 

 

 

 

Statement of profit or loss and other comprehensive income first half 2012

 

 

 

Remeasurement of defined benefit obligation

(3,058)

(3,058)

Related income taxes

515

515

Translation differences

(12)

(3)

(15)

Other comprehensive loss

(12)

(2,546)

(2,558)

 

 

 

 

Total comprehensive income for the period

17,509

(2,403)

15,106

CHF 1,000

Effect of change in
accounting policy

Statement of profit or loss first half 2013

 

Sales

Cost of sales

185

Sales and marketing

106

Research and development

120

General and administration

54

Other operating income

Operating profit

465

 

 

Financial result

(172)

Income taxes

(46)

Profit for the period

247

Basic earnings per share (CHF/share)

0.02

Diluted earnings per share (CHF/share)

0.02

 

 

Statement of profit or loss and other comprehensive income first half 2013

 

Remeasurement of defined benefit obligation

4,200

Related income taxes

(708)

Translation differences

(18)

Other comprehensive income

3,474

 

 

Total comprehensive income for the period

3,721

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
for the Group

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

Reporting year 2014

IAS 32 amended Financial Instruments:
Presentation – Offsetting Financial Assets and Liabilities

Reporting year 2014

IAS 36 amended “Impairment of Assets
Recoverable Amount Disclosures for
Non-Financial Assets

Reporting year 2014

IAS 39 amended“Financial Instruments:
Recognition and Measurement – Novation
of Derivatives and Continuation of Hedge Accounting

Reporting year 2014

IFRIC 21 “Levies

Reporting year 2014

IFRS 9 “Financial Instruments”

Reporting year 2015

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.

3 Principal exchange rates

  

Balance sheet

(closing exchange rates)

Statement of profit or loss

(average exchange rates Jan. to Jun.)

CHF

 

31.12.2012

30.06.2013

2012

2013

EUR

1

1.21

1.23

1.20

1.23

USD

1

0.92

0.94

0.93

0.95

4 Change in scope of consolidation

There has been no change in the scope of the consolidation since December 31, 2012.

In prior year the Group acquired 100% of its Australian sales partner (Tecan Australia Pty Ltd). The first part of the related contingent consideration (earn-out) in the amount of CHF 145,000 was paid in January 2013. The remaining part in the same amount falls due end of 2013 and is expected to be paid in full, without any reductions.

As control was transferred on January 2, 2012, the previous year is fully comparable with 2013. 

5 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 96.6 million at the end of June 2013 (December 31, 2012: CHF 73.7 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 2.2.1 of the consolidated financial statements 2012.

6 Shareholders’ equity and employee participation plans

6.1 Dividends paid

 

2012

2013

Number of shares eligible for dividend and payout

10,825,923

10,991,802

Dividends paid (CHF/share)

0.50

Payout from statutory capital contribution reserve (CHF/share)

1.25

1.00

6.2 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, 2012

11,444,576

(639,631)

10,804,945

Treasury shares issued based on employee participation plans

53,344

53,344

 

 

 

 

Balance at June 30, 2012

11,444,576

(586,287)

10,858,289

 

 

 

 

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

 

 

 

 

Balance at June 30, 2013

11,444,576

(429,691)

11,014,885

6.3 Employee share option plans

Movements in employee share options and SARs:

Employee share options and SARs

2012

2013

Balance at January 1

424,106

264,769

Exercised

(16,525)

(70,615)

Performance plan 2009 all options forfeited

(52,732)

Forfeited and expired (all other plans)

(6,857)

(5,400)

   

Balance at June 30

347,992

188,754

 

  

Thereof vested at period-end

237,857

99,045

6.4 Employee share plans

The terms and conditions of the grants in 2013 are as follows, whereby all shares are delivered physically and free of charge:

Performance share matching plan (PSMP) 2013 – Management Board

Arrangement

Employees entitled / grant date

Number of shares granted

Fair value at grant

Vesting period

Vesting conditions

Initial grant

Extended Management Board on
April 18, 2013

17,742 shares

CHF 83.50

Graded vesting from January 1, 2013 to December 31, 20151

Three years
of service

Matching Shares

Extended Management Board on
April 18, 2013

50,648 shares

(maximum of potential shares granted)

CHF 80.50

January 1, 2013 to December 31, 2015

Three years
of service
and performance
target

1 Vested shares are blocked until the end of the performance period (December 31, 2015).

In addition to the grants listed above, the management was entitled to invest voluntarily up to 50% of its target cash bonus 2012 and the portion of the realized cash bonus in excess of 100% of its target cash bonus 2012 in Tecan shares at a price of CHF 85.67 per unit (average market value from January 1 to April 30, 2013). The voluntary investment could not exceed the realized cash bonus. The shares are blocked until the end of the performance period and are included in the calculation of the matching shares.

Matching shares

The number of matching shares is determined based on the following formula: number of shares from initial grant plus number of shares from voluntary investments (if applicable) times the matching share factor. The matching share factor is dependent on the achievement of specific economic profit targets. In any case, the matching share factor will not be lower than 0.0 and not higher than 2.5.  

Movements in employee shares

Employee shares (excluding voluntary investments)

2012

2013

Balance at January 1

204,323

222,660

Granted

116,011

68,390

Forfeited

(67,738)

(64,710)

Deblocked

(8,545)

(353)

   

Balance at June 30

244,051

225,987

 

 

 

Thereof vested, but blocked until the end of the performance period

47,864

41,919

7 Contingencies and commitments

There have been no significant changes for contingencies and commitments.

8 Interim segment information

8.1 Segment information by business segments

 

Life Sciences Business

Partnering Business

Corporate / consolidation

Group

January to June, CHF 1,000

2012

Restated

2013

2012

Restated

2013

2012

Restated

2013

2012

Restated

2013

Sales third

100,846

97,605

81,379

84,205

182,225

181,810

Intersegment sales1

7,633

6,382

2,098

1,426

(9,731)

(7,808)

Total sales

108,479

103,987

83,477

85,631

(9,731)

(7,808)

182,225

181,810

         

Operating profit

4,756

1,083

21,402

25,017

(3,766)

(2,978)

22,392

23,122

         

Depreciation and amortization2

(3,136)

(3,325)

(1,693)

(1,835)

(4,829)

(5,160)

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

2012
Restated

2013

Reconciliation of reportable segment sales:

  

Total sales for reportable segments

191,956

189,618

Elimination of intersegment sales

(9,731)

(7,808)

Total consolidated sales

182,225

181,810

   

Reconciliation of reportable segment profit:

  

Total operating profit for reportable segments

26,158

26,100

Unallocated costs (business development, investor relations and other corporate costs) and consolidation entries

(3,766)

(2,978)

Financial result

(529)

(2,706)

Total consolidated profit before taxes

21,863

20,416

8.2 Entity-wide disclosures

Products and services

January to June, CHF 1,000

2012

2013

Products

123,061

118,041

Services

59,164

63,769

   

Total sales third

182,225

181,810

Sales by regions (by location of customers)

January to June, CHF 1,000

2012

2013

Switzerland

4,343

4,178

Other Europe

76,033

73,983

North America

74,837

76,006

Asia

22,225

22,776

Others

4,787

4,867

   

Total sales third

182,225

181,810

Non-current assets by regions (by location of assets)

 

Property, plant and equipment

Intangible assets

CHF 1,000

31.12.2012

30.06.2013

31.12.2012

30.06.2013

Switzerland

11,811

10,763

37,847

40,706

Other Europe

3,805

3,887

1,396

1,421

United States

3,273

3,343

Asia

655

568

621

516

     

Total

19,544

18,561

39,864

42,643

Information about major customers

There are no sales to individual customers in the first half of 2013 that accumulated exceeded 10% of total sales (first half of 2012: one individual customer with sales of CHF 21.3 million).

9 Operating expenses by nature

January to June, CHF 1,000

2012

Restated

2013

Material costs

52,606

55,115

Personnel costs

67,502

70,262

Depreciation of property, plant and equipment

2,989

3,162

Amortization of intangible assets

1,840

1,998

Other operating costs (net)

59,785

55,264

   

Total operating cost incurred (gross)

184,722

185,801

   

Capitalization of development costs in position inventories (note 5)

(22,978)

(22,897)

Capitalization of development costs in position intangible assets

(1,911)

(4,216)

   

Total operating expenses, according to statement of profit or loss

159,833

158,688

10 Related party transaction

The Group recognized termination benefits amounting to CHF 0.2 million in the first half of 2013 for one member of the Management Board (first half of 2012: CHF 0.8 million for one member of the Management Board). They relate to contractually agreed fixed and variable salaries as well as contributions to social security that are payable for the period in which the member was released from work prior to the termination of his employment.

11 Events after the reporting period

There were no significant events after the reporting period.

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