Annual Report • Jan 23, 2017
Annual Report
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MeVis Medical Solutions AG
| FIGURES IN € k | 9M 2016 | 2015 | Change | |
|---|---|---|---|---|
| Revenues | 12,091 | 16,014 | -24 % | |
| of which segment1 | Digital Mammography | 9,519 | 12,566 | -24 % |
| Other Diagnostics | 2,572 | 3,448 | -25 % | |
| of which billing currency1,2 | Euro | 712 | 948 | -25 % |
| US-Dollar | 11,379 | 15,066 | -24 % | |
| EBITDA | 5,246 | 6,408 | -18 % | |
| EBITDA margin | 43 % | 40 % | ||
| EBIT | 3,928 | 4,470 | -12 % | |
| EBIT margin | 32 % | 28 % | ||
| Net financial result | -503 | 483 | -204 % | |
| EBT | 3,425 | 4,953 | -31 % | |
| Net loss/profit | 3,425 | 6,735 | -49 % | |
| Earnings per share in € (basic) | 1.88 | 3.76 | -50 % | |
| Earnings per share in € (diluted) | 1.86 | 3.72 | -50 % | |
| Equity capital | 32,889 | 33,729 | -2 % | |
| Intangible assets | 12,718 | 13,854 | -8 % | |
| Non-current and current liabilities | 10,114 | 11,820 | -14 % | |
| Total assets and liabilities | 43,003 | 45,549 | -6 % | |
| Equity ratio in % | 76 % | 74 % | ||
| Liquid funds3 | 24,356 | 25,621 | -5 % | |
| Employees4 | 89 | 92 | -3 % |
1 Excluding intersegment revenues.
2 Revenues are allocated to the currency according to the location of the customer; comprising indirect sales via industry customers as well as sales to clinical end customers in the segment Distant Services.
3 Comprising cash, cash equivalents and securities available for sale.
4 Average of full-time equivalents in the reporting period.
| As at September 30, 2016 | |
|---|---|
| Industry sector | Software / Medical Technology |
| Subscribed capital | € 1,820,000.00 |
| Number of shares | 1,820,000 |
| Last quotation on September 30, 2016 | € 35.90 |
| Last quotation on December 30, 2015 | € 24.00 |
| High/low in 9M 2016 | € 37.00 / € 24.00 |
| Market capitalization | € 65.338 million |
| Treasury stock | 0 (0 %) |
| Free float | 23.5 % |
| Prime Standard (Regulated market) | Frankfurt and Xetra |
| Over-the-counter markets | Berlin, Dusseldorf, Munich, Stuttgart |
| Indices | CDAX, PrimeAS, TechnologyAS, DAXsector Soft ware, DAXsubsector Software, GEX |
| ISIN / WKN / Ticker symbol | DE000A0LBFE4 / A0LBFE / M3V |
| KEY FIGURES (IFRS)1 | |
|---|---|
| KEY SHARE DATA 1 | |
| LETTER TO THE SHAREHOLDERS4 | |
| REPORT OF THE SUPERVISORY BOARD FOR THE SHORT FISCAL YEAR 20166 | |
| CORPORATE GOVERNANCE REPORT (INCL. DECLARATION OF CONFORMITY) 9 | |
| THE MEVIS SHARE 14 | |
| MANAGEMENT REPORT FOR THE SHORT FISCAL YEAR 2016 17 | |
| Preamble 17 | |
| Company overview 17 | |
| Company structure 17 | |
| Business activities 17 | |
| Research and development 20 | |
| Reporting segments 21 | |
| Economic report 22 | |
| Macroeconomic and industry-based framework 22 | |
| Performance / Sales report 24 | |
| Earnings position 25 | |
| Financial position 26 | |
| Net asset position 26 | |
| Control system 27 | |
| Non-financial performance indicators 27 | |
| Overall statement 29 | |
| Corporate disclosures (Section 289 No. 4 HGB) 30 | |
| Corporate Governance statement (Section 289a HGB) 31 | |
| Remuneration report 31 | |
| Opportunities and risks report 32 | |
| Risk Management 36 Accounting and Auditing 37 |
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| Accounting risk management system and internal control system 37 | |
| Outlook 38 | |
| INCOME STATEMENT 39 | |
| STATEMENT OF COMPREHENSIVE INCOME39 | |
| STATEMENT OF FINANCIAL POSITION 40 | |
| STATEMENT OF CASH FLOWS 41 | |
| STATEMENT OF CHANGES IN EQUITY 42 | |
| NOTES FOR THE SHORT FISCAL YEAR 2016 43 | |
| Basic information on MMS AG 43 | |
| 1. General disclosures 43 |
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| 2. Business activities of MMS AG 44 |
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| 3. Reporting segments of MMS AG 44 |
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| Basic principles of the financial statements 45 | |
| 4. Joint ventures 45 |
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| 5. Currency translation 46 |
| Accounting and measurement policies 47 | ||
|---|---|---|
| 6. | Accounting and measurement policies 47 | |
| 7. | Material judgments and estimates 52 | |
| 8. | Effects of new accounting standards 52 | |
| Notes to the income statement 55 | ||
| 9. | Revenues 55 | |
| 10. | Other operating income 55 | |
| 11. | Cost of materials/services purchased 55 | |
| 12. | Staff costs 55 | |
| 13. | Other operating expenses 56 | |
| 14. | Depreciation, amortization and impairment of intangible assets and property, plant and equipment 56 |
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| 15. | Interest income / interest expense and other net financial result as well as earnings from Equity companies 56 |
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| 16. | Income tax 57 | |
| 17. | Earnings per share 58 | |
| Notes to the statement of financial position 59 | ||
| 18. | Intangible assets and property, plant and equipment 59 | |
| 19. | Trade receivables, other financial assets and other assets 60 | |
| 20. | Cash and cash equivalents 61 | |
| 21. | Shareholders' equity 61 | |
| 22. | Provisions 62 | |
| 23. | Other current liabilities 63 | |
| 24. | Deferred income 64 | |
| 25. | Miscellaneous other liabilities 64 | |
| 26. | Contingent liabilities 64 | |
| 27. | Financial obligations 64 | |
| 28. | Management of financial risks 64 | |
| 29. | Disclosures on the statement of cash flows 69 | |
| 30. | Segment reporting 69 | |
| 31. | Related parties 70 | |
| 32. | Notification of changes in voting rights in accordance with the german securities trading act (WpHG) 70 |
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| 33. | Corporate bodies of MeVis Medical Solutions AG 72 | |
| 34. | Remuneration of Executive Board and Supervisory Board 72 | |
| 35. | Stock option plans 75 | |
| 36. | German Corporate Governance Codex 75 | |
| 37. | Fees paid for services of the statutory auditor, KPMG AG Wirtschaftsprüfungsgesellschaft 76 | |
| 38. | Events after the reporting date 76 | |
| 39. | Appropriation of profits / Allocation of income / Pay compensation 76 | |
| CHANGES IN FIXED ASSETS 77 | ||
| AUDITOR'S REPORT81 RESPONSIBILITY STATEMENT ("BILANZEID")82 |
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| DISCLAIMER 83 | ||
| FINANCE CALENDAR 201784 |
from left: Marcus Kirchhoff, Dr. Robert Hannemann
Dear Shareholders, Customers, Business Associates and Employees,
The nine-month short fiscal year 2016 was characterized by operative stability at a high level.
At € 12.1 million, sales in 2016 stood at almost exactly 9/12 of the previous year's sales of € 16.0 million, which were generated over a period of twelve months. Business with Hologic, which constitutes the Digital Mammography segment, continued to grow slightly in significance and accounted for 79 % of sales. Accordingly, the share of sales accounted for by the Other Diagnostics segment declined slightly from 22 % to 21 %. The share of total sales accounted for by the licensing business fell marginally from 48 % in 2015 to 46 % in 2016. In contrast, the share accounted for by the maintenance business increased slightly from 44 % to 45 %. On a positive note, the share of sales accounted for by services rose from 8 % to 9 %.
Earnings remain highly satisfactory. In nine months of business activities in 2016, the Company generated earnings before interest and taxes (EBIT) of € 3.9 million, compared to € 4.5 million over a period of twelve months in 2015. This corresponds to an increase in the EBIT margin from 28 % to 32 %, which was primarily attributable to the discontinuation of costs incurred in 2015 in connection with the domination and profit and loss transfer agreement as well as to a decline in depreciation and amortization.
The financial result of MeVis is influenced to a considerable extent by the development of the US dollar exchange rate between the reporting dates, as the lion's share of the existing liquidity is held in US dollars. Here the weakening of the US dollar between December 2015 and September 2016 led to a negative financial result, which finds expression in a decline in earnings before taxes (EBT) from € 5.0 million (31 % margin) to € 3.4 million (28 % margin).
In contrast to tax income of € 1.8 million in 2015, which resulted primarily from the release of deferred tax liabilities ahead of the fiscal unity, no tax expenses were incurred in 2016 due to the fiscal unity effective since the start of the year.
This resulted in a net profit of € 3.4 million (28 % margin) in the nine months of 2016 compared to € 6.7 million (42 % margin) in 2015, corresponding to undiluted earnings per share of € 1.88 compared to € 3.76 in 2015.
For fiscal year 2017, a slight rise in revenues to between € 16.5 million and € 17.0 million is expected. At over 75 %, the Digital Mammography business segment will remain the main source of sales. This segment will again exclusively comprise business with the industrial customer Hologic in 2017. In our view, the anticipated slight increase in sales will result from a decline in operating business from new licenses and maintenance contracts, a significant rise in development support for Hologic for the development of its own software and a one-off effect from the sale of comprehensive rights of utilization for the MeVisLab software prototype development tool. EBIT is expected to remain stable year on year at € 4.5 to € 5.0 million.
The medium- and long-term outlook remains significantly dampened by the changed cooperation arrangements with MeVis introduced by Hologic and the associated decline expected in sales with and activities for Hologic.
MeVis continues to face a number of significant challenges. Accounting for a 79 % share of revenues, our dependency on Hologic reached a very high level in 2016. The situation with Hologic, described above, will have a significant negative impact on sales and income in the medium and long term. New business with our products for lung-cancer screening also did not yet live up to our expectations in 2016, which is additionally reflected in the slight decline in the share of sales accounted for by the Other Diagnostics segment. Furthermore, although it was possible to identify first joint projects as part of the collaboration with Varian Medical Systems in 2016, the implementation of said projects will not begin until 2017. What is more, we have been seeing a sustained trend in the market toward PACS suppliers providing complete solutions that are fully integrated in the existing IT environment, making it increasingly difficult to offer added value with our dedicated software that convinces clinical end users of the necessity for separate software applications.
Changes to the group structure of our current major shareholder, Varian Medical Systems, are planned. The Imaging Components business segment, which includes Varian's majority stake in MeVis, is planned to be spun off from Varian Medical Systems and be taken public in the US under the name Varex Imaging. We welcome this plan and hope that it raises the profile of MeVis within the future Varex Imaging Group.
However, we remain confident that MeVis is in a position to meet future challenges. Our experienced, highly qualified employees are the main source of our long-term competitiveness and also guarantee our extensive innovation potential. In Varian Medical Systems, and in the future Varex Imaging, we also have a strong majority shareholder from the medical industry in our corner to support us in every way in rising to the challenges faced.
We should like to take this opportunity to once again thank all employees for their exceptional performance, as well as our business associates, customers and shareholders for their confidence in us.
Marcus Kirchhoff Dr. Robert Hannemann Chairman Member of the Executive Board
With both its past and present members, the Supervisory Board of MeVis Medical Solutions AG once again continued its close and focused cooperation with the Executive Board in the short fiscal year 2016. It diligently performed the duties incumbent on it under the law, its Articles of Association and rules of procedure to monitor and advise the Executive Board on its management of the Company.
The Supervisory Board examined in detail the business and financial development of the Company, as well as the strategic focus, in order to secure its future in the long term. In the reporting period, the main emphasis was on the Company's net assets, liabilities, financial position and earnings situation as well as the expansion of the product portfolio, especially in terms of new technologies, the sales channels, the general market development and the opportunities this creates for the Company.
As such, the Executive Board provided regular and comprehensive reports to the Supervisory Board in oral and written form about the development of MeVis Medical Solutions AG. In particular, the Supervisory Board is briefed by the Executive Board on the current performance and business situation of the Company, including: its net assets, liabilities, financial position and earnings situation; corporate planning; strategic development and potential risks. The reports of the Executive Board were discussed and critically examined at Supervisory Board meetings. The Chairman of the Supervisory Board, in particular, kept the Executive Board constantly informed on business-related matters and events outside of Supervisory Board meetings.
The Supervisory Board was involved at an early stage in all matters and decisions of fundamental importance to the Company and advised the Board on these matters in advance. Transactions requiring the approval of the Supervisory Board were presented to it by the Executive Board in the proper manner, and the Supervisory Board made decisions after thorough review and discussion. Where necessary, the Supervisory Board also passed resolutions by circulation outside meetings.
The Supervisory Board held a total of three meetings during the short fiscal year 2016, at each of which the Executive Board was present: on April 13, June 7, and September 19, 2016. The Declaration of Conformance pursuant to Section 161 of the German Stock Corporation Act (AktG), which is to be issued annually, was passed via written procedure.
The primary objective of this meeting was to review and approve the annual financial statements and management report of the Company for fiscal year 2015, which were prepared in accordance with the accounting provisions of the German Commercial Code (HGB), as well as the individual financial statements and management report of the Company for fiscal year 2015, which were prepared voluntarily in accordance with the International Financial Reporting Standards (IFRS). To this end, the Executive Board submitted the annual financial statements and management report of MeVis Medical Solutions AG, which were prepared in accordance with the provisions of the German Commercial Code (HGB), as well as the individual financial statements and management report of the Company for fiscal year 2015, which were prepared in accordance with International Financial Reporting Standards (IFRS). The relevant individuals from the firm of statutory auditors took part in the meeting and reported in depth to the Supervisory Board on the material results of the audit. Only Mr. Hilton could not attend the meeting in person due to his schedule, but participated via telephone. The documents pertaining to the financial statements were discussed by the Executive Board and the auditors, KPMG AG Wirtschaftsprüfungsgesellschaft, Bremen. Both sets of financial statements were approved by the Supervisory Board. Furthermore, the report of the Supervisory Board was adopted, the agenda for the annual General Meeting of MeVis Medical Solutions AG on June 7, 2016 was approved and the proposals to the Annual General Meeting for required resolutions were adopted. The Company's business situation, including the current risk report, was also discussed in depth.
The second meeting of the Supervisory Board was held as a face-to-face meeting immediately following the Annual General Meeting, in which new members were elected to the Supervisory Board. Topics included the election of a chairman and his deputy by the members of the Supervisory Board. Those in attendance elected Mr. Fässler to serve as chairman and elected Mr. Maar as his deputy. Subsequently, the Executive Board reported on the current business situation of the Company, including a detailed overview of existing business relations as well as new marketing activities. In addition, the Executive Board provided a brief overview of the financial calendar and the schedule of events until the end of the year and the Supervisory Board discussed new targets for the share of women on the Supervisory and Executive Boards.
Besides reports by the Executive Board on the business situation of the Company including net assets, financial position and earnings situation for the first eight months, the main focus of the third meeting of the Supervisory Board, which was held as a video conference, was the analysis and approval of the business plan for fiscal year 2017. In addition, the initial meeting dates for fiscal year 2017 were agreed upon and the new regulations of the EU Audit Reform for the audit of public interest entities that need to be implemented as of June 17, 2016 were discussed. In particular, the more important role of the Supervisory Board in terms of selecting and monitoring the statutory auditor was discussed. The tender process for the audit of the annual financial statements for fiscal year 2017 was also presented in this context and audit services and non-audit services were explained in detail.
The terms of the members of the Supervisory Board elected by the Annual General Meeting, i.e. Jörg Fässler, Dr. Jens Kruse and Glen Hilton, expired at the end of the Annual General Meeting held on June 7, 2016, meaning that an election of Board members was required. Jörg Fässler, Holger Maar and Glen Hilton were appointed to the Supervisory Board. The Supervisory Board would like to take this opportunity to once again thank Board member, Dr. Jens Kruse, who stepped down in the reporting period, for his longstanding, extraordinary commitment to the Company.
Due to the changes in the group structure of the current major shareholder Varian Medical Systems and the related spin-off of the Imaging Components division, which also owns the majority stake in MeVis, the existing Supervisory Board will make its mandates available for the next Annual General Meeting.
Committees were not set up, as the Supervisory Board has only three members in total, and to date there has been no need for committees.
The Executive Board and the Supervisory Board support the initiatives of the Government Commission on the German Corporate Governance Code, which summarizes the principles of good and responsible corporate governance, and issue joint Declarations of Conformance pursuant to Section 161 of the German Stock Corporation Act (AktG), which are regularly updated. A comprehensive description of corporate governance at MeVis, including the wording of the targets of the Supervisory Board for its future composition and the latest Declaration of Conformance dated September 9, 2016, can be found in the Corporate Governance Report in this Annual Report. In addition, all relevant information is available at www.mevis.de/en/investorrelations/corporate-governance.
The Supervisory Board once again points out that since the election of the Supervisory Board in June, the Supervisory Board comprises three members who are all employed by the Group members of Varian Medical
Systems. Varian Medical Systems holds a majority shareholding of the Company via VMS Deutschland Holdings GmbH, who has concluded a domination and profit and loss transfer agreement with VMS Deutschland Holdings GmbH. The Supervisory Board accordingly no longer comprises any independent members. Given that the Company is part of the Varian Group, the Company thinks it is appropriate that all the members of the Supervisory Board belong to the majority shareholder.
In addition, the members of the Supervisory Board do not receive any remuneration for fiscal years beginning after January 1, 2016. It should be pointed out as a precautionary measure that in accordance with the aforementioned, in the upcoming fiscal year contrary to Section 5.4.6 (1) Sentence 2 DCGK, the Chairman and Vice-Chairman of the Supervisory Board are not taken into account in the remuneration, and contrary to Section 5.4.6 (3) Sentence 1 DCGK, remuneration of the Supervisory Board cannot be recognized on an individual basis in the notes to the financial statements or in the management report.
In accordance with the recommendation of Item 5.6 of the German Corporate Governance Code, the Supervisory Board will once more examine the efficiency of its activities. This takes place annually by means of a questionnaire without external support. No conflicts of interest of Executive Board and Supervisory Board members required to be disclosed to the Supervisory Board arose during fiscal year 2016.
The annual financial statements and management report of MeVis Medical Solutions AG for the short fiscal year 2016, which were prepared in accordance with the accounting provisions of the German Commercial Code (HGB), were audited by the auditing firm, KMPG AG Wirtschaftsprüfungsgesellschaft, Bremen, which was elected by the Annual General Meeting and appointed by the Supervisory Board, and an unqualified auditor's report was issued. The same applies to the individual financial statements and management report of the Company for the short fiscal year 2016 prepared voluntarily in accordance with the International Financial Reporting Standards (IFRS). The annual financial statements and the management reports according to the German Commercial Code (HGB) and IFRS, as well as the statutory auditor's reports, were provided to all Supervisory Board members within the required time. The Supervisory Board examined the annual financial statements and the management report for the short fiscal year 2016 prepared by the Executive Board. The relevant individuals from the firm of statutory auditors took part in the meeting of the Supervisory Board and reported in depth to the Supervisory Board on the material results of the audit. The Supervisory Board did not express any reservations as a result of the findings of its audit. The Supervisory Board therefore approved the annual financial statements prepared according to HGB and the individual IFRS financial statements voluntarily prepared as of September, 30 2016 at its meeting on January 11, 2017. The annual financial statements according to HGB are duly adopted. The disclosures stipulated by Section 289 (4 and 5) of the HGB are included in the management reports according to HGB and IFRS. The Supervisory Board has examined and adopted these disclosures and declarations, which it considers to be complete.
The Supervisory Board thanks the members of the Executive Board as well as all Company employees for their outstanding performance. The Supervisory Board thanks clients and shareholders for the confidence shown in the Board during fiscal year 2016.
Bremen, January 11, 2017
For the Supervisory Board
Joerg Faessler (Chairman)
(INCL. DECLARATION OF CONFORMITY)
Corporate governance means responsible, transparent management and control geared to long-term creation of value. The following contains the Corporate Governance Report and the Corporate Governance Statement issued by the Executive Board and Supervisory Board pursuant to Section 289a of the German Commercial Code (HGB). The report forms a supplementary part of the management report. The principles of corporate governance and the Declaration of Conformity are also available on the Company website.
The Executive Board and Supervisory Board of MeVis Medical Solutions AG declared on September 9, 2016 pursuant to Section 161 of the German Stock Corporation Act (AktG) that the recommendations of the "German Corporate Governance Code Government Commission" in the version of May 5, 2015 have been and will in future be met with the following exceptions:
Pursuant to a shareholders resolution dated June 7, 2016 and the corresponding amendment to the bylaws the Supervisory Board members receive no remuneration by the Company for fiscal years after January 1, 2016. As a purely precautionary measure, it is pointed out that accordingly as opposed to section 5.4.6 para. 1 sentence 2 of the GCGC the Chair and Deputy Chair positions in the Supervisory Board are not reflected in the remuneration and as opposed to section 5.4.6 para. 3 sentence 1 of the GCGC no Supervisory Board remuneration can be reported individually in the notes or management report.
The Executive Board, Supervisory Board and shareholders' meeting are the bodies of the Company according to law and statutes. As a public company, the MeVis Medical Solutions AG has a dual management system, which is characterized by a clear separation between the Executive Board, as the management body and the Supervisory Board as the supervisory body.
The Executive Board manages the Company on its own responsibility with the aim of creating sustainable value. It runs the Company in accordance with the statutory provisions, the Company's Articles of Association and the rules of procedure for the Executive Board, and works in good faith with the other executive bodies. The Executive Board sets out the corporate objectives and strategies and, based on them, determines the corporate policy.
The Supervisory Board determines for the period until 30 June 2017 the following target for the share of women on the Executive Board: 0 %.
Currently, the Executive Board of MeVis Medical Solutions AG consists of two male members. Personnel changes or the expansion of the Executive Board are currently neither planned nor foreseen. Therefore, the Supervisory Board has specified the target for the percentage of women on the Executive Board to 0 % until 30 June 2017. For any future appointments of Executive Board members, the Supervisory Board will of course include qualified women early in the selection process for potential candidates.
The principle of overall responsibility applies: the members of the Executive Board share responsibility for management. The Executive Board works in a cooperative manner and the members keep each other up-todate on important measures and events in their respective areas. In addition, internal meetings between the entire Executive Board and mid-level management take place at least once a month. The Supervisory Board has issued rules of procedure for the Executive Board, which documents all the rules of procedure and transactions that require approval.
The Supervisory Board consists of three members, elected by the shareholders, pursuant to the Company's statutes and convenes at least twice in the half year. The members of the Executive Board generally take part in the meetings of the Supervisory Board and report verbally and in writing on the individual items on the agenda, and answer the Supervisory Board members' questions. The members of the Supervisory Board also discuss certain matters outside the official Supervisory Board meetings or pass resolutions by circulation. The Supervisory Board has issued itself rules of procedure and regularly reviews the efficiency of its activities. On an annual basis the Supervisory Board report sums up the activities in the past fiscal year.
Executive and Supervisory Boards work closely together in the Company's best interests. During the short fiscal year there were no conflicts of interest.
Pursuant to Section 5.4.1 GCGC, the Supervisory Board must specify concrete objectives regarding its composition, which are reviewed at regular intervals and which will be taken into account when proposing candidates at the Annual General Meeting either in regular elections and in replacement elections of the Supervisory Board:
Given its current composition, the Supervisory Board believes that it has largely fulfilled these named goals. The diversity of the Supervisory Board is mainly reflected in the varying professional careers and activities as well as the varying experiences of the individual members, who complement each other very well in their entirety.
Currently, the Supervisory Board consists of three members with no female representation. The members have been elected until the Annual General Meeting in 2021. Personnel changes are currently neither planned nor foreseen. Therefore, the Supervisory Board has specified the target for the percentage of women on the Supervisory Board to 0 % until 30 June 2017. If considering potential new candidates for a vacant Supervisory Board position, women with the same qualifications and suitability would of course be adequately taken into account.
Corporate governance of MeVis Medical Solutions AG, as a German stock corporation listed in the Prime Standard, is dictated first and foremost by the German Stock Corporation Act and the recommendations of the current Corporate Governance Code.
Being a manufacturer of medical software products, the statutory provisions of the German Medical Devices Act (MPG), the European directive on medical products (93/42/EEC), the Canadian Medical Devices Regulation (SOR/98-282), the US Code of Federal Regulations (21 CFR Part 820 - Quality System Regulation) as well as the requirements of the ISO 13485 standard (Medical devices - Quality management systems - Requirements for regulatory purposes) apply to the Company.
Quality and quality management are cornerstones of our corporate governance. The quality management system is geared toward meeting our quality objectives as well as the quality requirements and expectations of our customers in relation to safety and performance, handling, availability, efficiency and punctuality.
The Company's quality management system is certified to EN ISO 13485:2012 + AC 2012 by the notified body MEDCERT (ID-number 0482) in the development, manufacturing, final inspection and sale of software for diagnostic evaluation of medical image data as well as intervention support.
The management of MeVis Medical Solutions AG is also characterized by flat hierarchies with only one management level below the Executive Board, quick decision-making and team-oriented cooperation.
When filling management positions the qualification of candidates is the decisive criterion for the Executive Board of MeVis Medical Solutions AG. However, MeVis Medical Solutions AG pays attention to diversity and in particular the appropriate consideration of women when filling management positions. MeVis Medical Solutions AG welcomes efforts to increase the proportion of women in management positions and will continue to promote female employees according to their qualifications and skills in all levels and areas of responsibility. The proportion of women of the total number of employees of MeVis Medical Solutions AG is currently 30 %. Already, 27% of the leader-ship positions of the management level below the Executive Board are occupied with women. Our goal by the end of June 2017 is to fill 30 % of the management positions with women.
MeVis Medical Solutions AG follows the recommendation of the German Corporate Governance Code to disclose individually the remunerations for the Executive Board and the Supervisory Board. The remuneration report is an integral part of the management report and also forms part of the Corporate Governance Report. Further explanation on the remuneration of the Executive Board and Supervisory Board are disclosed in the remuneration report in the notes (No. 34).
To ensure maximum possible transparency, MeVis Medical Solutions AG regularly and promptly informs the capital market, the shareholders and the general public of the Company's financial situation as well as new circumstances and events of importance.
The financial statements and any interim reports are published within the deadlines stipulated for companies listed in the Prime Standard of the regulated market: within a period of four months for the annual financial statements and within a period of three months in the case of the semi-annual financial reports. The Company continues to publish quarterly reports instead of quarterly releases and publishes them within a period of two months.
Insider information that concerns the Company is published immediately pursuant to Section 15 of the German Securities Trading Act (WpHG). Shareholders and potential investors can obtain current information about topical events and recent developments on the internet. All press releases and ad-hoc announcements of MeVis Medical Solutions AG are available online at the Company website. In addition, MeVis Medical Solutions AG takes part in at least one analyst conference per year. Significant and semi-regular events in the financial calendar are published on the Company website.
The General Meeting of MeVis Medical Solutions AG is called at least once a year and resolves on all such matters as provided by law, such as appropriation of profit, approval of the actions of the Executive Board and Supervisory Board and the statutory auditor with binding effect upon all shareholders and the Company. Each share carries one vote in shareholders' resolutions.
Each shareholder who registers in time is entitled to attend the Annual General Meeting or has an option of exercising his or her right to vote through a credit institution, association of shareholders, a proxy engaged by and bound by the instructions of Medical Solutions AG or a different proxy.
The invitation to the Annual General Meeting as well as the reports and information required for resolutions are published in accordance with the provisions of the German Stock Corporation Act and made available online on the Company website.
For MeVis Medical Solutions AG, dealing with risks in a responsible manner is a key element of good corporate governance. The Executive Board has installed an appropriate risk management and risk control system in the Company in order to identify, evaluate, monitor and control the risks arising from operating activities at an early stage. The Executive Board informs the Supervisory Board regularly about the current status of significant risks. The risk management system is continuously reviewed in accordance with the latest developments and adjusted where necessary. Further details and information on risk management can be found in the risk report.
MeVis Medical Solutions AG prepares its statutory financial statements and management report in accordance with the German Commercial Code (HGB). The Company also prepares individual IFRS financial statements in accordance with International Financial Reporting Standards (IFRS). The half-year financial report and the interim financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU.
The financial statements are prepared by the Executive Board and reviewed by the Supervisory Board. The Supervisory Board engaged KPMG AG Wirtschaftsprüfungsgesellschaft, Bremen, as the auditors elected by the Annual General Meeting for the short fiscal year 2016, to audit the statutory financial statements for the short fiscal year 2016 and the Executive Board engaged them to audit the individual IFRS financial statements. This approach ensures that no conflicts of interest affect the work of the auditors.
The audits of the financial statements for 2016 were conducted by KPMG AG Wirtschaftsprüfungsgesellschaft, Bremen, in accordance with the generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors (IDW).
Pursuant to Article 19 of the Market Abuse Regulation (EU) No. 596/2014 (MAR), members of the Company's Executive and Supervisory Boards and related parties are required to announce all own transactions involving shares and debt securities of MeVis Medical Solutions AG that are traded on the stock market or related financial instruments (e.g. derivatives) where such transactions total or exceed € 5,000 in a calendar year.
The following transactions with shares/securities or rights that are subject to notification were reported to MeVis Medical Solutions AG by the persons obliged to provide notification:
| Date/ | Person obliged to | Other | Price per | Total | ||
|---|---|---|---|---|---|---|
| place | report | disclosures | Transaction | unit | Quantity | volume |
| Carrying out | ||||||
| June 22, 2016 | stock options | |||||
| over-the | against cash | |||||
| counter | Dr. Robert Hannemann | Executive body | settlement | € 25.18 | 3,000 € 75,540.00 |
As of the reporting date, neither the members of the Executive Board nor the members of the Supervisory Board hold shares of MeVis Medical Solutions AG.
In the first nine months, the German stock gained around 2 % measured by the German benchmark index DAX, closing at around 10,511 points at the end of end of September 2016. Similarly, the MDAX at around +6.5 %, the SDAX at roughly +4 % and the TecDAX at 0 % did not see any considerably higher growth rates either. Overall, the stock market growth was still moderate despite sharp fluctuations in share prices and losses in the first half of the year due to poor economic data, the ongoing decline in the oil price and the Brexit referendum and the related fears of a global recession. Besides the improvement of many economic indicators, the recovery in share prices is ultimately due to the ongoing expansionary policy of central banks. Market participants are now hoping for positive company results, especially in the USA, which should help markets continue to recover.
From the beginning of the short fiscal year 2016 until the publication of the 2015 annual report in mid-April, the share price moved within a range between € 24.00 and 25.00 at low volatility. After that, the share price continued to rise at slightly higher demand to € 37.00 until the end of the short fiscal year. Overall, the peak price of the share in electronic XETRA trading was € 37.00 in the short fiscal year 2016, and the lowest price was € 24.00. MeVis Medical Solutions AG ended the short fiscal year on September 30, 2016 at a share price of € 35.90, compared to € 24.00 at the end of 2015. This represents an increase in the value of MeVis shares at the end of the short fiscal year 2016 of approx. 50 % compared to the closing price at the end of 2015. Market capitalization was around € 65.3 m, taking into account 1,820,000 shares outstanding. The number of registered deposit accounts increased slightly from 624 at the end of 2015 to 681 as at September 30, 2016.
VMS Deutschland Holdings GmbH took over the majority shareholding of 73.52 % of the total share capital in MeVis Medical Solutions AG in April 2015 after a voluntary public tender offer. The domination and profit and loss transfer agreement signed on August 10, 2015 between VMS Deutschland Holdings GmbH and MeVis Medical Solutions AG was entered into the Commercial Register of the Bremen local court on October 20, 2015 and thus came into legal effect. As part of the domination and profit and loss transfer agreement, VMS Deutschland Holdings GmbH undertook to acquire upon the request of any outside shareholder the latter's MeVis shares in return for a cash settlement in the amount of € 19.77 per share. Alternatively, VMS Deutschland Holdings GmbH guarantees those outside shareholders of MeVis Medical Solutions AG who do not wish to make use of the settlement offer, for the duration of the domination and profit and loss transfer agreement, the annual payment of a compensatory amount per fiscal year of MeVis Medical Solutions AG for every registered share of MeVis Medical Solutions AG with a pro rata share in the share capital of € 1.00 per share in the amount of € 1.13 gross / € 0.95 net.
| 9 M 2016 | 2015 | 2014 | |
|---|---|---|---|
| Year-end closing price in € | 35.90 | 24.00 | 18.11 |
| Annual high in € | 37.00 | 24.50 | 22.95 |
| Annual low in € | 24.00 | 17.65 | 12.93 |
| Market capitalization in million € (XETRA year-end) | 65.3 | 43.7 | 31.2 |
| Number of shares | 1,820,000 | 1,820,000 | 1,820,000 |
| Treasury stock | 0 | 0 | 97,553 |
| Price-to-earnings ratio (XETRA year-end) | 14.32 | 6.38 | 8.38 |
| Earnings per share in € (basic) | 1.88 | 3.76 | 2.16 |
| Earnings per share in € (diluted) | 1.86 | 3.72 | 2.16 |
The shareholder structure remained largely unchanged in the short fiscal year 2016. As of the balance sheet date, VMS Deutschland Holdings GmbH headquartered in Darmstadt, an indirect subsidiary of Varian Medical Systems, Inc., Palo Alto, California, USA, held 73.52 % of the share capital of MeVis Medical Solutions AG. Oppenheim Asset Management Services S.à.r.l. is a further institutional investor, at approximately 3.01 % according to shareholder notifications received by us, and around 23.47 % of shares are currently in free float ownership.
Fig.: Shareholder structure as at September 30, 2016 (In accordance with the shareholder notifications received by us.)
This management report was voluntarily prepared in addition to the likewise voluntarily prepared individual IFRS financial statements for the purpose of capital market communications.
As resolved during the Annual General Meeting on June 7, 2016, MeVis Medical Solutions AG, Bremen, (hereafter: "MMS AG" or "Company") has changed the fiscal year and ended the short fiscal year 2016 with the reporting period from January 1 to September 30, 2016, which is the object of these management report. The previous year's figures relate to the full fiscal year from January 1 to December 31, 2015. For this reason, a comparison with the previous year is only possible to a limited extent in these individual IFRS financial statements and management report for the nine-month period as at September 30, 2016 (for period-related statements). In the future, the reporting period will be from October 1 of each year to September 30 of the following year.
Through a joint venture with Siemens Healthcare GmbH, Munich (hereafter: "Siemens"), MMS AG holds 51 % of MeVis BreastCare GmbH & Co. KG, Bremen, (hereafter: "MBC" or "MBC KG").
Since April 21, 2015 MMS AG belongs to the Varian Group under the leadership of Varian Medical Systems, Inc., Palo Alto, California, via VMS Deutschland Holdings GmbH, Darmstadt. MMS AG and VMS Deutschland Holdings GmbH concluded a domination and profit and loss transfer agreement on August 10, 2015, which was approved by the General Meeting of the shareholders on September 29, 2015. The registration in the Commercial Registry dated October 20, 2015.
MMS AG and its affiliate MBC KG (hereafter also collectively: "MeVis" or the "Companies") develop innovative software for analyzing and evaluating image data and marketing it to equipment manufacturers of medical devices and providers of medical IT platforms.
Clinical focuses are the image-based early detection and diagnosis of epidemiologically important diseases such as breast, lung and prostate cancer as well as neurological disorders. The software applications support many of the imaging modalities available. These not only include X-ray modalities such as computed tomography, digital mammography or digital tomosynthesis, but also magnetic resonance imaging, digital sonography and the simultaneous use of multiple modalities (multimodality). MeVis supplies technologies and applications for global medical industry leaders, meeting their needs and helping them to strengthen their leadership positions.
In addition to the sale of software licenses and corresponding maintenance contracts, MeVis offers to a lesser extent, services to clinical end customers. These include three-dimensional technical visualizations ("MeVis Distant Services") and interactive online trainings to improve the diagnostic capabilities of the clinicians ("Online Academy").
The sociopolitical relevance of our business activities is rooted in the already large and still growing impact of cancerous diseases. According to the latest published data from the International Agency for Research on Cancer (IARC), an agency of the World Health Organization, the number of new cancer cases worldwide increased to 14.1 million in 2012; the number of cancer deaths was estimated to be 8.2 million (compared with 12.7 million and 7.6 million respectively in 2008). The most commonly diagnosed cancer cases in men and women worldwide were cancer of the lungs with 1.8 million (13.0 % of the total), of the breast with 1.7 million (11.9 % of the total), the colon with 1.4 million (9.7 % of the total) and the prostate with 1.1 million (7.9 % of the total). The most common causes of cancer deaths were cancers of the lungs with 1.6 million, the liver with 0.8 million and the stomach with 0.7 million. In women, the proportion of breast cancers in new cancer cases was over 25 %. It is estimated that on account of the growing and aging population, the number of new cancer cases will increase to 19.3 million by 2025. More than half of all new cancer cases (56.8 %) and cancer deaths (64.9 %) occur in less developed regions of the world.
Whereas in the early years MeVis devoted its attention to image-based early detection and diagnosis of breast cancer, today MeVis uses clinical expertise, specialist knowledge in the field of breast cancer, technological leadership and its broad network of partner companies to successively develop software applications for use in other oncological diseases. The individual product areas are described in detail below:
The various MeVis software products for breast cancer diagnostics support the analysis and presentation of images from mammography screening and other imaging processes for an early, rapid and reliable diagnosis. Developed through many years of experience in the field of software-based analysis of imaging studies and expertise in workflow, computer-aided diagnosis (CAD) and system integration, these applications offer optimal conditions for detecting and treating breast cancer as early as possible. Aimed at meeting customer needs especially in terms of display and reading speed even when many patients and large amounts of data are involved, MeVis provides programmable workflow capabilities through special keyboards, computeraided diagnosis (CAD) and an optional organization of separate diagnostic opinions linked to RIS and PACS systems. In addition to digital mammography for both screening and diagnosis, other methods such as 3D ultrasound, magnetic resonance imaging (MRI), computed tomography (CT), and tomosynthesis are optimally supported. In particular, the support of tomosynthesis as a three-dimensional development of digital mammography has gained importance in the last few years due to successful market positioning by the respective equipment manufacturers.
MeVis software solutions pertaining to lungs are used to automatically detect anomalies such as lung tumors or pulmonary embolism in computed tomographic images. In this field, multi-slice computer tomography (MSCT) constitutes the state of the art in three-dimensional medical X-ray imaging. Thanks to improved detail resolution, it now plays an important role in modern pulmonary diagnostics. Within a few seconds, the smallest details of the entire lung are mapped in three dimensions. Evaluation of the growing volumes of data sets poses a growing challenge, however. MeVis software enables a time-efficient and safe radiological diagnosis of these MSCT images in clinical practice. State-of-the-art image processing and pattern recognition algorithms for computer-aided diagnosis (CAD) of diseases of the chest make it possible to conduct a detailed segmentation of the anatomical structures of the lung, to fully automate the detection of anomalies (lung tumors, pulmonary embolism), and to assess and quantify these. MeVis CAD technology offers radiologists a supportive, independent and reproducible evaluation of image data and is used worldwide for applications in early detection, clinical diagnosis and treatment of lung diseases.
A more advanced version of the lung-cancer screening product was launched on the market in 2015 based on this technology and on expertise in the area of breast cancer screening. This is aimed especially at the efficient analysis of the large volumes of data sets accruing in connection with the CT-based lung-cancer screening for heavy smokers introduced in the USA. Thanks to consistent close interfacing of the components of workflow support, comparison with preliminary images, integration of CAD results, automatic, reproducible measurement of lesion parameters and reporting in accordance with the newly established Lung-RADS Standard, this software provides significant advantages for the diagnosing radiologist, not only in respect of the time required for the diagnosis, but also the quality of the results and integration with other clinical systems such as patient management.
With its MeVis Distant Services, MeVis creates technical visualizations that are used in further training, publications and presentations as well as for research purposes. Medical technology companies and trained personnel use MeVis Distant Services (MDS) to obtain comprehensive professional visualizations of their cases. Instead of static 2D representations, they obtain interactive 3D visualizations, which they can use for presentations and publications in leading professional journals and other media.
MeVis software for neurological diseases evaluates complex image-based analyses, providing the basis for the safe and careful planning of brain surgery. fMRI (functional Magnetic Resonance Imaging) and diffusion tensor imaging (DTI) are able to capture function areas such as motor or linguistic regions and make fiber tracts visible. Through the simultaneous display (fusion) of such data with other images, relations to brain tumors can be displayed, so that complex relationships are made visible. As a result, MeVis software solutions help neurosurgeons plan for the best possible access to tumors, allowing for the safe, gentle and reliable treatment of patients with neurological diseases. In addition, dynamic imaging allows for the flow of blood to the brain to be measured. The application calculates various metrics (rCBV, rCBF, TTP, etc.) and displays them in color maps, aiding the diagnosis of primary disorders of cerebral circulation (stroke), assessment of tumor malignancy and follow-up exams.
For prostate diagnostics, MeVis software evaluates dynamic images from magnetic resonance imaging (MRI), an important contribution to the diagnosis of suspected prostate cancer. One of the most frequent preventive care procedures is to determine the PSA level (prostate specific antigen) in the blood. This procedure is not very specific, which is why magnetic resonance imaging has become increasingly popular to diagnose abnormalities. A contrast agent is utilized to diagnose prostate cancer using MRI. Dynamic volume data imaging sets are recorded, whereby a looming tumor is indicated by altered blood flow properties in contrast to healthy tissue. This makes possible a very accurate characterization and localization even of the smallest tumors (5 mm).
As MeVis Online Academy, MeVis also offers interactive online training to improve the diagnostic capabilities of clinical end users, both directly and via OEM industrial customers. Web-based radiological case collections provide training opportunities with matching hanging protocols and interactive radiological examination and diagnostics tools. The trainable imaging techniques include digital mammography, tomosynthesis, computed tomography (CT), magnetic resonance imaging (MRI) and ultrasonography. Browser applications which do not need to be installed provide clinical staff with access to a variety of clinical expert casebooks including related solutions, without any time-based or location-based restrictions. The academy represents a unique, high-quality tool for further training and continuous radiological training and monitoring of performance.
The market for software products for use with digital medical imaging processes is characterized by high quality requirements and, in some cases, short innovation cycles in tandem with rising technical complexity. Along the way, the software's user-friendliness and easy integration into the clinical IT environment are becoming increasingly important. For this reason, the product ranges developed by MeVis call for ongoing and forward-looking adjustment in light of new medical and technological developments and the constant increase in data volumes to be processed.
The Company has only limited research capacities of its own. The research activities are mainly performed by Fraunhofer-MEVIS Institute for Medical Image Computing (hereafter: "Fraunhofer MEVIS" or "FME") or other well-known research institutions. Most Company employees are assigned to software development.
In the period under review, the Companies development activities concentrated on the completion of new software applications, such as solutions for lung cancer screening. In addition, we have also significantly focused on the development of existing software products in order to maintain its current strong competitive position and to secure continued maintenance sales for existing products in the long term.
MeVis uses its own MeVisLab research and development environment to rapidly and effectively develop software prototypes. This allows the methods and workflows developed to be quickly tested, evaluated and optimized ("rapid prototyping") in clinical settings. The prototypes that were developed on the basis of MeVisLab can be converted into marketable products in a short time by being linked to product development software technologies. This leads to significantly shorter development and product release periods. This development method was used with great success in the reporting period with the development of various software products, including in particular in the further development of the product Veolity for efficient diagnosis of lung-CT-studies, as well as the MeVis Online Academy training platform.
MeVisAP, a proprietary technology platform, provides basic services such as integration with the hospital network, license management, the management of studies and work lists, preparation of 2D, 3D and 4D image data and the creation of visually appealing reports and findings. Thanks to the client-server technology, users can work on their own cases from any station, seek the advice of other experts and pause or resume work at any time. The modular concept allows MeVis to quickly put together combinations of different clinical questions or imaging procedures required by the customer and link them with one another. On the one hand, MeVisAP serves as a complete diagnostics platform; on the other hand, partial functions from existing systems (RIS, PACS, system platforms) can be integrated into it as well.
As part of its pioneering research and development activities, MMS AG regularly participates in research projects funded by EU and BMBF. In 2015 and 2016, these were the following two projects:
(Adapting Breast Cancer Screening Strategy Using Personalized Risk Estimation)
ASSURE is a research project funded by the European Commission with ten academic and clinical partners and several medium-sized enterprises. ASSURE's goal is to research and develop processes and software tools to personalize today's one-size-fits-all mammography screening. After analysis of individual risk factors such as breast density or genetic status, additional screening measures based on automatic 3D ultrasound or MRI scans are to be performed. From the patient's perspective, the risk of overlooking an early-stage cancer needs to be minimized with personalized screening. This is expected not only to reduce mortality, but also to preserve quality of life by using less drastic treatment options.
As a leading software company in image-based medicine, MeVis Medical Solutions AG is contributing its expertise to this work. In collaboration with other technical and clinical partners, two software prototypes are to be developed, which will support radiologists to the furthest extent possible in a screening context based on ultrasound or MRT images. The first version of the prototypes was further developed in 2015. Innovative screening workflows were implemented for this purpose, which will be validated with radiologists and further optimized. At the conclusion of ASSURE in November 2015, the prototypes were finalized and presented successfully at the Congress of Radiology (ECR) 2016.
Image-based radiation therapy includes the medical use of high-energy radiation to cure or delay the progress of malignant tumors. As part of the SPARTA research project partially financed by the Federal Ministry of Education, MeVis Medical Solutions AG develops and evaluates innovative software technologies to contribute sustainably to secure, high-precision radiotherapy by optimizing treatment plans, ongoing assessments and follow-up care. In this cooperation project, consisting of ten partners in total, MeVis cooperated with leading research institutions, national research centers and oncology clinics. The project could be successfully completed at the end of March 2016 and the commercial exploitation prepared.
For reporting purposes and internal governance, MeVis has two operating segments ("Digital Mammography" and "Other Diagnostics").
The Digital Mammography segment develops and markets software products which support breast diagnostic imaging and intervention. Aside from the original products for digital mammography, new software applications for other imaging modalities such as ultrasound, magnetic resonance imaging and tomosynthesis were added. These products are distributed to the industrial customer Hologic.
In addition to the breast diagnostics business based on magnetic resonance imaging conducted with Invivo Corporation, the Other Diagnostics segment also includes digital radiology products (e.g. magnetic resonance imaging (MRI), computed tomography (CT), etc.) for other types of diseases such as lung, prostate and intestinal disorders as well as general image-based analysis and diagnostics of radiology images. Furthermore, the business with Vital Images for lung diagnostics and general analysis of MR-image data is included in this segment. Other main activities in this segment include the services of "MeVis Distant Services" for technical visualizations, which are used in training, for publications, presentations and for research purposes. In addition, this segment includes interactive online training ("MeVis Online Academy") to improve the diagnostic capabilities of clinical end customers.
Year to date, there have been no major changes in global economic momentum in 2016. The International Monetary Fund forecasts that global growth will decline to 3.1 % by the end of the year. This development in particular reflects a more subdued outlook for advanced economies, uncertainty in the wake of the Brexit vote and considerably weaker-than-expected growth in the US, which is primarily due to political uncertainty following the outcome of presidential election. The more positive development in emerging markets – thanks to more stable oil and commodity prices – could spread to industrialized countries that have close trading ties with them.
The upswing in Germany and the eurozone continues. The ECB's exceptional quantitative easing was largely responsible for this upswing and stimulated private consumption in the eurozone. Although the market's response to the Brexit shock was relatively restrained, the implications still remain very unclear as trade agreements between the United Kingdom and the European Union are uncertain.
Price-adjusted gross domestic product (GDP) increased by just 1.5 % in Germany in the third quarter. After registering stronger growth in the first half of the year, GDP decelerated sharply in summer due to declining exports, a cautious attitude towards investments and uncertainty in the aftermath of the Brexit vote.
Specatris (German Hightech Industry Association) estimates the total global market for medical technology including diagnostics systems at currently 364 billion US dollars. In a report by the Hamburg Institute of International Economics (HWWI), it is assumed that demand for medical technology will continue to grow by 3 % to 4 %. Emerging markets can achieve growth rates of between 9 % and 16 % by 2020. In highlypopulated developing countries and emerging markets in particular, investments in healthcare and medical technology are rising on the back of the growing population and the rapid increase in income per capita. This is also expected to represent considerable growth potential for the German medical technology segment. However, sales in the German medical technology market are expected to be slightly lower than anticipated in the full year 2016 due to weaker global economic momentum.
In MeVis' strongest sales market, the USA, there is a considerable amount of uncertainty regarding the future of the existing healthcare system as a result of the presidential election and the subsequent political realignment.
Digitization, and with it the significance of medical imaging in the medical technology sector continues to grow. Issues such as multi modal imaging / functional imaging, diagnostics support, model-based therapy and new and optimized workflows are important areas of innovation.
If we look at the current situation at MeVis, especially with regard to our areas of focus in 2016 on breast cancer diagnostics and 2D and 3D breast screening (three-dimensional digital tomosynthesis) and lung cancer screening, we recognize various trends. On the technical side, demand for three-dimensional digital tomosynthesis remained high in 2016.
International Monetary Fund - World Economic Outlook (WEO) Updates 2016
2 Sources: German Medical Technology Association – BVMed: Industry Report Medical Technologies 2016 Study on behalf of the HSH Nordbank AG: Global sales markets of the German Medical Technology / Trends and Forecasts 2020 (2009) Study of the VDE Verband der Elektrotechnik Elektronik Informationstechnik e.V.: VDE-Studie MedTech 2020 (2009)
The introduction of this still new technology is leading to stronger demand for the relevant imaging devices. According to statistics provided by the FDA (US Food and Drug Administration) in October 2016,3 there are 8,741 certified breast screening centers in the USA with a total of 16,720 mammography screening devices. Of the 8,741 certified centers, 2,783 centers have also been approved for tomosynthesis diagnostics so far, where 3,826 tomosynthesis modalities are certified. These figures show that the ongoing trend towards switching from 2D to 3D continues and will increase over the next few years. Given the ubiquity of tomosynthesis systems, however, many PACS manufacturers now likewise offer software applications for analyzing tomosynthesis data, which, although not approaching the range of functions of the products developed by MeVis, are nevertheless increasingly popular with clinical end customers due to their complete integration in the IT landscape already existing in the clinical environment. As a result, the outlook for the market of dedicated software solutions that is relevant to MeVis looks somewhat bleak in terms of marketing our mammography and screening solutions.
Since mid-2013, there has been an emerging trend, at least in the USA, to introduce CT-based lung cancer screening programs. It was demonstrated in national studies (Early Lung Cancer Action Project – ELCAP and National Lung Screening Trial – NLST) in the USA that CT lung screening is vastly superior to normal X-ray imaging for detecting lung cancer at an early stage. In December 2013, the US Preventive Services Task Force (USPSTF) therefore issued a corresponding recommendation4 for national lung screening. According to a decision by CMS5 (Centers for Medicare and Medicaid Services), these measures have been refundable since January 2016 and will be reimbursed by health insurance companies in the USA.
Consequently, MeVis assumes that demand will increase for software solutions that simplify and shorten this sophisticated form of examination, and at the same time improve its quality. MeVis is addressing this potentially growing area with the Veolity and Visia Lung CAD products und the e-learning portal MeVis online academy. The first certified lung cancer screening centers have begun investing in new solutions that are required, albeit it to a moderate degree. The certified centers appear to be initially assessing for themselves just how large the demand for the offered services will actually be. Other countries are joining the USA and are conducting their own studies to evaluate whether a government program for the early diagnosis of lung cancer should be introduced. Studies are already underway in Canada, Australia, South Korea and the UK. The introduction of extensive lung screening is still the subject of controversial debate in Germany and the rest of Europe.
MMS AG assumes, based on its specialized product portfolio in the field of breast diagnostics, and its existing industry customers, that the market position it currently occupies can be sustained overall and expanded in some segments in 2017. However, large PACS system suppliers are continuing to develop, also with regard to the market segments relevant to the Company, meaning that it is an ongoing effort to stay ahead of the competition and to widen the technological gap. In view of the sustained reluctance by clinical end users to purchase new products, the future performance of the business will depend to a large degree on the ability of the Company to expand existing distribution channels and to find new ones.
In addition, the further performance of the business with lung products will depend highly upon whether and to what extent the results of the study on the clinical effectiveness of this technology together with health policy issues will lead to new regulations governing the remuneration of methods in which this technology is used.
3 US Food and Drug Administration (http://www.fda.gov/Radiation-
EmittingProducts/MammographyQualityStandardsActandProgram/DocumentArchives/ucm484151.htm#oct)
4 U.S. Preventive Services Task Force – Recommendation for Lund Cancer Screening /2013 (http://www.uspreventiveservicestaskforce.org/Page/Document/UpdateSummaryFinal/lung-cancer-screening)
5 Centers for Medicare and Medicaid Services – Decision Memo on Lung Cancer Screening /2015
(https://www.cms.gov/medicare-coverage-database/details/nca-decision-memo.aspx?NCAId=274)
Sales amounted to € 12,091 k (prev. year: € 16,014 k) in the reporting period. The new license business accounts for 46 % of revenues (prev. year: 48 %) at € 5,527 k (prev. year: € 7,652 k) and 45 % (prev. year: 44 %) is attributable to the maintenance business at € 5,468 k (prev. year: € 7,014 k).
Earnings before interest and taxes developed relatively positively at € 3,928 k (prev. year: € 4,470 k).
The Company's operations consist of two core areas: The development and sale of software licenses and the respective maintenance business as well as providing services relating to technical visualization (Distant Services) and as part of online training.
At approximately 98 % of total sales, the software business, which includes products for industry customers Hologic, Vital Images and Invivo, again made the greatest contribution to the Company's total sales in this nine month reporting period.
In the past short fiscal year, sales in the Digital Mammography segment amounted to € 9,519 k (prev. year: € 12,566 k).
While license sales totaled € 4,508 k in the short fiscal year 2016 (prev. year: € 6,072 k), revenues from maintenance and support services amounted to € 4,492 k (prev. year: € 5,795 k). Total Digital Mammography product sales (licenses and maintenance) amounted to € 9,000 k (prev. year: € 11,867 k) and were relatively stable. Revenues from services in the Digital Mammography segment totaled € 516 k (prev. year: € 692 k) in the reporting period.
In the short fiscal year 2016, as in the previous year, sales in the Digital Mammography segment were reported exclusively in US dollars. Revenues invoiced in US dollars amounted to € 9,519 k (prev. year: € 12,566 k).
Amortization totaled € 1,215 k (prev. year: € 1,779 k) while operating expenses in the Digital Mammography segment stood at € 2,635 k (prev. year: € 3,819 k), with personnel expenses amounting to € 2,532 k (prev. year: € 3,656 k).
The operating result in the segment showed a relatively positive development at € 5,669 k (prev. year: € 6,968 k).
Other operating income in the Digital Mammography segment came in at € 232 k (prev. year: € 275 k) while other operating expenses totaled € 721 k (prev. year: € 1,327 k). As a result, net profit in the segment amounted to € 5,180 k (prev. year: € 5,916 k). The EBIT margin in the Digital Mammography segment accordingly increased to 54 % (prev. year: 47 %).
Relatively speaking, business volume in the Other Diagnostics segment stabilized in the reporting period at € 2,572 k (prev. year: € 3,448 k).
License sales came in at € 1,019 k (prev. year: € 1,579 k). Sales from maintenance and support services, which consist mostly of maintenance of existing software applications, totaled € 976 k (prev. year: € 1,219 k). Total sales with products in the Other Diagnostics segment (licenses and maintenance) amounted to € 1,995 k (prev. year: € 2,798 k). Revenues from services (development services, consulting and training) in the Other Diagnostics segment totaled € 575 k (prev. year: € 650 k) in the reporting period.
In the Other Diagnostics segment, invoices are generated in both Euro and US dollars; in the indirect channel, the invoice currency depends upon the headquarters of the relevant industrial customer, whereas in the direct channel it is based upon the headquarters of the relevant clinical end user. Revenues invoiced in Euro amounted to € 712 k (prev. year: € 948 k) and revenues invoiced in US dollars totaled € 1,860 k (prev. year: € 2,500 k).
The total value of grants in the Other Diagnostics segment declined to € 104 k (prev. year: € 573 k) as the funded projects were completed during the reporting year or at the end of the previous year. This resulted in total segment revenues of € 2,676 k (prev. year: € 4,021 k).
Amortization totaled € 103 k (prev. year: € 159 k) while operating expenses in the Other Diagnostics segment stood at € 3,253 k (prev. year: € 4,204 k), with personnel expenses amounting to € 3,019 k (prev. year: € 3,754 k).
The operating result in the segment came in at € -680 k (prev. year: € -342 k). Other operating income in the Other Diagnostics segment totaled € 277 k (prev. year: € 282 k) while other operating expenses amounted to € 849 k (prev. year: € 1,386 k).
The segment result amounted to € -1,252 k (prev. year: € -1,446 k). The negative EBIT margin in the Other Diagnostics segment has accordingly deteriorated from 42 % auf 49 %.
In the short fiscal year, total sales came in at € 12,091 k (prev. year: € 16,014 k), which corresponds to stable sales in relative terms. The sales in this context were achieved through other sales of € 1,096 k (prev. year: € 1,348 k), license sales of € 5,527 k (prev. year: € 7,652 k) and maintenance contract sales (software service contracts) of € 5,468 k (prev. year: € 7,014 k).
Other operating income fell to € 613 k (prev. year: € 1,130 k) as funded projects were completed during the reporting period or at the end of the previous year.
The cost of materials including cost of services purchased totaled € 337 k (prev. year: € 612 k) and personnel expenses amounted to € 5,551 k in the short fiscal year (prev. year: € 7,411 k). The average number of permanent employees expressed as full-time equivalents fell to 86 (prev. year: 88), and the annual average number of student interns expressed as full-time equivalents declined to 3 (prev. year: 4).
Other operating expenses totaled € 1,570 k (prev. year: € 2,713 k). Other operating expenses mainly comprised rental expenses of € 414 k (prev. year: € 579 k), legal and consulting costs of € 206 k (prev. year: € 658 k), travel expenses of € 162 k (prev. year: € 202 k), costs for maintenance and repair of € 129 k (prev. year: € 128 k), accounting and auditing expenses of € 106 k (prev. year: € 92 k), external work of € 108 k (prev. year: € 19 k) and energy costs of € 51 k (prev. year: € 75 k). Remaining other operating expenses amounted to € 394 k (prev. year: € 960 k).
Earnings before interest, taxes, depreciation and amortization (EBITDA) therefore came to € 5,246 k in the short fiscal year 2016 (prev. year: € 6,408 k). The EBITDA margin improved from 40 % to 43 % compared to the previous year.
Depreciation, amortization and impairments in intangible assets and property, plant and equipment amounted to € 1,318 k (prev. year: € 1,938 k).
Earnings before interest and taxes (EBIT) therefore totaled € 3,928 k in the reporting period (prev. year: € 4,470 k). Accordingly, the EBIT margin increased considerably to 32 % compared to 28 % in the previous year.
The financial result amounted to € -503 k in the reporting period (prev. year: € 483 k). This was largely due to the deterioration in the balance of income and expenses from exchange rate differences in the amount of € -540 k (prev. year: € 124 k).
Earnings before taxes (EBT) came to € 3,425 k in the reporting period (prev. year: € 4,953 k). Accordingly, the EBT margin (return on sales) decreased to 28 % compared to 31 % in the previous year.
Due to the fiscal unity for income tax purposes, no income taxes were incurred in the short fiscal year 2016 (prev. year: income taxes of € 1,782 k).
After-tax earnings in the reporting period therefore totaled € 3,425 k (prev. year: € 6,735 k), which represents basic earnings per share of € 1.88 (prev. year: € 3.76).
Cash flow from current operating activities came to € 3,509 k (prev. year: € 6,581 k) in the period under review. This comprises earnings before interest and taxes (EBIT) of € 3,928 k (prev. year: € 4,470 k), adjusted for depreciation in the amount of € 1,318 k (prev. year: € 1,938 k), changes in provisions in the amount of € -209 k (prev. year: € 157 k), the total of all non-cash expenses and income in the amount of € -246 k (prev. year: € -433 k), the total of interest paid and received in the amount of € 25 k (prev. year: € 196 k), taxes paid in the amount of € -389 k (prev. year: € -514 k), changes in inventories and trade receivables and other assets in the amount of € -381 k (prev. year: € -481 k), and changes in trade payables and other liabilities in the amount of € -537 k (prev. year: € 1,248 k).
Net cash flow from investing activities amounted to € -179 k in the period under review (prev. year: € 7,907 k) and comprised spending on property, plant and equipment and intangible assets in the amount of € 179 k (prev. year: € 116 k). In the previous year payments for the purchase of securities amounting to € 3,683 k as well as payments from the disposal of securities in the amount of € 11,706 k incurred.
Cash flow from financing activities amounting to € -4,742 k (prev. year: € 1,634 k) results from payment of the previous year's profit to the majority shareholder in 2016. In the previous year, this related to payments received for the disposal of shares of € 1,707 k and dividend payments of € 73 k.
The change in cash and cash equivalents came to € -1,412 k in the period under review (prev. year: € 16,122 k).
Liquid funds amounted to € 24,356 k (prev. year: € 25,621 k) as of the reporting date. This solely comprised cash and cash equivalents.
Total assets declined by € 2,546 k in the reporting period to € 43,003 k (prev. year: € 45,549 k). The decline in assets is largely due to the € 1,265 k drop in cash and cash equivalents to € 24,356 k (prev. year € 25,621 k) and the decrease in intangible assets of € 1,136 k to € 12,718 k (prev. year € 13,854 k).
The equity ratio increased to 76 % (prev. year: 74 %).
Non-current assets declined by 4% to € 16,099 k (previous year: € 16,829 k) as of the balance sheet date, which is, for the intangible assets and property, plant and equipment of € 179 k (previous year: € 116 k), mainly due to the scheduled depreciation and amortization of € 1,318 k.
Property, plant and equipment, which primarily consists of acquired office and business equipment, as well as spending on modern IT file server technology, fell by € 3 k to € 316 k in the year under review (prev. year: € 319 k). The 6 % decline in current assets during the reporting period to € 26,904 k (prev. year: € 28,720 k) resulted from the drop in cash and cash equivalents to € 24,356 k (prev. year: € 25,621 k). Trade receivables including non-current trade receivables declined by € 53 k to € 3,657 k (prev. year: € 3,710 k).
Equity declined as of the reporting date to € 32,889 k (prev. year: € 33,729 k). This is mainly due to the fact that the net profit for the short fiscal year 2016, which has been determined according to IFRS, of € 3,425 k is by € 741 k lower compared to the annual net profit of € 4,166 k paid to the majority shareholder. The equity ratio increased to 76 % (prev. year: 74 %) on the back of the disproportionate decline in total assets. Subscribed capital remained unchanged at € 1,820 k (prev. year: € 1,820 k). The capital reserve increased to € 8,219 k (prev. year: € 8,207 k). Retained earnings declined by € 774 k to € 22,524 k (prev. year: € 23,298 k). This corresponds to the total of net income for the year of € 3,425 k (prev. year: € 6,735 k), changes in revaluation reserves of € 78 k (prev. year: € 103 k), the profit transfer from the domination and profit and loss transfer agreement of € 4,166 k (prev. year: € 4,742 k), and actuarial losses of € 111 k (prev. year: losses of € 30 k).
Non-current liabilities amounted to € 269 k as of the reporting date and were € 120 k above the previous year's level (prev. year: € 149 k), which is attributable to the change in interest rate for calculation purposes that relates to pension provisions.
Current liabilities were down 16 % to € 9,845 k (prev. year: € 11,671 k).
Trade payables amounted to € 327 k (prev. year: € 553 k). Deferred income declined by € 179 k to € 3,021 k (prev. year: € 3,200 k). It is attributable to payments received in the reporting period and/or invoiced maintenance revenues from maintenance contracts for which an appropriate maintenance service had not yet been provided as of the balance sheet date.
Other financial liabilities fell by € 362 k to € 5,743 k, of which € 576 k is a result of the recognition of the obligation to transfer profits as a liability, which was lower compared to the previous year. On the other hand, personnel liabilities rose by € 227 k compared with the previous year to € 1,586 k (prev. year: € 1,359 k).
Other liabilities fell to € 144 k (prev. year: € 487 k). Income tax liabilities declined to € 468 k (prev. year: € 855 k). The income tax assessment for 2015 is still outstanding as of the reporting date.
The Company used revenues and earnings before interest and taxes (EBIT) as essential financial planning tools. A deviation analysis of the applicable budget parameters is performed regularly, but at least monthly, in the light of the results of a corresponding risk situation evaluation. This analysis, together with external market and competitor information, forms the basis for ongoing review of the plan and continuous forecast adjustments.
Beyond the defined financial parameters, revenues and EBIT, non-financial performance indicators are also relevant and thus important indicators of MeVis' long-term success. These so-called non-financial performance indicators are explained below. MeVis does not provide a financial assessment of non-financial performance indicators.
MeVis' workforce is an essential part of our capital. Employee expertise and commitment translates into crucial contributions to the Company's success. Their knowledge and experience guarantees the quality of our products and serves to continually optimize processes and services. Flat hierarchies, the freedom to make decisions and a high degree of personal responsibility are an expression of our open corporate culture. Financial recognition of individual performance is as important to MeVis as the availability of flexible work time models, targeted staff development and health promotion measures.
MMS AG had 98 permanent employees as of the reporting date (prev. year: 93) as well as 9 student testers on a temporary basis (prev. year: 5). This equates to a total of 93 full-time equivalents (prev. year: 88), 89 of whom were permanent employees (prev. year: 86) and 3 of whom (prev. year: 2) were student testers on a temporary basis.
The vast majority of employees received a voluntary bonus payment in the past short fiscal year as well as their fixed remuneration.
By resolution of the Annual General Meeting on June 15, 2011, the Executive Board was authorized to issue stock options to MeVis employees and members of management along with the associated conditional increase of the Company's share capital by € 130,000 on December 31, 2015. The stock options have a term of five years and are subject to a four-year vesting period. The performance target is formulated in the form of a market condition. The MMS AG stock price must exceed the TecDAX by at least 15 % at the time the stock option is exercised. Further explanations and information on the stock option program can be found in the note 35.
High-quality processes, including comprehensive expertise in international regulatory processes, is a necessary requirement for the achievement of MeVis' strategic objectives, and thus of very high value. Quality and quality management are both a regulatory requirement and an important product feature.
MeVis has installed an extensive quality management system in accordance with EN ISO 13485. MeVis is certified to EN ISO 13485:2012 + AC: 2012 for the areas of development, manufacture, final inspection and sale of diagnostic software for medical image data and intervention support. Through further certifications and permissions the Company is able to develop products that meet the requirements of Directive 93/42/EEC (Europe), FDA 510k (USA) and CMDCAS (Canada) and bring those products to approval.
This ensures that software components delivered by MeVis meet the applicable standards and legal requirements. In turn, this significantly accelerates the approval process for our customers' medical products, bringing them to market faster.
Innovation and new technologies are essential for the strategic development of MeVis. The market for software products for use with digital medical imaging processes is characterized by high quality requirements and, in some cases, short innovation cycles in tandem with rising technical complexity. For this reason, the product ranges developed by the Companies call for ongoing and forward-looking adjustment in the light of new medical and technological developments and the constant increase in data volumes to be processed. In addition to internal research and development capabilities, MeVis has a wide network of hospitals and research centers at its disposal, enabling us to identify new ideas and market trends early on.
For the rapid development of prototypes tailored to real-life application, MeVis uses its own MeVisLab research and development environment. As a result, newly developed methods and work processes can be tested, evaluated and optimized in clinical environments ("rapid prototyping") to convert developed products into marketable products in a short time. This leads to significantly shorter development and innovation cycles.
MeVis owes its leading market position to its successful long-term cooperation with major international industrial customers. Under the umbrella of the OEM sales model, distribution of software applications is carried out under the industrial customers' respective brand names who are typically also manufacturers of imaging devices. Our major industrial customers include Siemens, Hologic, Invivo (a subsidiary of Philips) and Vital Images (owned by Toshiba). Excellent customer relationships are the basis for MeVis' success. On account of their personal, efficient and competent services, our key account managers contribute to increasing customer satisfaction and promoting a long-term, profitable customer relationship. Moreover, we consider our customers a driving force for innovation, which is reflected in our continuous development of products with new or additional services at the request of our existing customers.
The short fiscal year 2016 was again successful for MeVis in view of the financial figures, in which MeVis continued to participate in the outstanding market position of Hologic for tomosynthesis. Due to the still solid cost structure, very good results could be achieved.
The middle- and long-term outlooks remain significantly dampened by the changed cooperation arrangements with MeVis introduced by Hologic and the associated decline expected in sales with and activities for Hologic.
As of the reporting date, the Company had subscribed capital of € 1,820 k, which consisted of 1,820,000 nopar-value registered shares with voting rights. Each registered share carries one vote. In accordance with the statutory provisions and the Articles of Association, the shareholders exercise their voting rights at the General Meeting.
The Executive Board has no information about any restrictions on exercising voting rights or restrictions on the transferability of the shares, which go beyond the statutory requirements of the capital market law.
Based on the information of the Company, the following direct or indirect equity interests existed, exceeding 10 % of the voting rights at the reporting date:
According to the notification of voting rights dated April 21, 2015, the share of voting rights jointly held by VMS Deutschland Holdings GmbH, Darmstadt, Varian Medical Systems International AG, Cham, Switzerland, Varian Medical Systems Nederland BV, Houten, Netherlands, Varian Medical Systems Nederland Holdings BV, Houten, Netherlands, and Varian Medical Systems, Inc., Wilmington, Delaware, USA, stands at around 73.52 %.
The appointment and dismissal of members of the Executive Board is governed by the provisions of Sections 84 and 85 of the German Stock Corporation Act (AktG). In addition, Section 6 (1) and (2) of the Articles of Association of MeVis Medical Solutions AG in the version dated June 7, 2016 stipulates that the Supervisory Board shall appoint the members of the Executive Board and determine their number. Amendments to the Articles of Association are governed by Sections 133 and 179 et seq. of the German Stock Corporation Act. Section 119 (1) No. 5 of that Act stipulates that any amendments to the Articles of Association require a resolution of the shareholders. Under Section 9 (5) of the Articles of Association of MeVis Medical Solutions AG in the version dated June 7, 2016, the Supervisory Board may make amendments to the wording of the Articles of Association.
At the Company's Annual General Meeting held on August 22, 2007, the shareholders passed a resolution, by amendment resolution of the Annual General Meeting on September 28, 2007, authorizing the Executive Board to issue, in one or more tranches before December 31, 2011, subject to the Supervisory Board's approval, subscription rights for a total of up to 130,000 of the Company's registered no-par-value ordinary shares to employees and members of the management of the Company and other entities in which the Company directly or indirectly holds a majority of the capital and to create conditional capital of € 130 k. The Annual General Meeting on June 15, 2011 extended this authorization until December 31, 2015. From 2016, this authorization no longer existed.
In accordance with the resolution passed by the shareholders at the Annual General Meeting on June 9, 2015, the Executive Board is authorized, subject to the Supervisory Board's approval, to increase the Company's share capital on a cash or non-cash basis by a total of up to € 910 k by issuing new registered nopar-value shares in one or more tranches on or before June 8, 2020. The shareholders must generally be granted subscription rights; the statutory subscription right may also be granted in such a way that the new shares of one or more credit institutions or those under Section 186 (5) sentence 1 of the German Stock Corporation Act, be subject to the obligation to offer them to the shareholders of MeVis Medical Solutions AG for subscription. The Executive Board is also authorized, subject to the Supervisory Board's approval, to exclude the subscription rights of shareholders in certain cases.
MeVis Medical Solutions AG has made various agreements, as listed below, consisting of rules in the event of a change-of-control, for example following a takeover bid:
The most recent Corporate Governance Statement can be accessed on the Company website of MeVis Medical Solutions AG at http://www.mevis.de/en/investor-relations/corporate-governance/corporate-governancereport-incl-declaration-pursuant-to-289a-hgb/.
The remuneration for the Executive Board consists of fixed and variable components.
The bonuses for Executive Board members are always measured by the level of achievement of a target catalogue agreed upon with the Supervisory Board. For both Executive Board members the bonus is capped at 1.0 times their fixed remuneration. 75 % of the bonus is calculated according to a fixed formula of the EBITDA adjusted for income from the capitalization of development costs, while the Supervisory Board decides on remaining 25 % at its own discretion. A portion of Executive Board members' bonuses is coupled to the price of the MMS AG share within defined thresholds and deferred for three years.
As a further variable remuneration component with a long-term incentive effect, the members of the Executive Board also enrolled in a stock option program. The options have a maturity of five years from grant date. As of December 31, 2015, this stock option program had expired; therefore no stock options were issued in the reporting year, as in 2015.
The current employment contracts for Executive Board members, which have a term of three years, stipulate transitional payments of up to four monthly salaries should their contracts not be extended and the Company fails to comply with the termination period of four months prior to the end of the contracts. In the event of revocation of appointment, the Executive Board member receives their fixed remuneration (in one case the present value) until the end of their contractual term, unless the revocation of appointment is based on negligence on the part of the Executive Board member.
As explained in the financial statements (Note 34), the total remuneration paid to the Executive Board in the period under review came to € 560 k (prev. year: € 736 k).
The Executive Board of MMS AG believes that the market for medical imaging technology in the extremely important digital mammography segment will be increasingly affected by market saturation. The Executive Board therefore believes that the market environment will become progressively competitive. Key providers of PACS (picture archiving and communication systems) for the archiving and presentation of all clinical patient data are continuing to develop further in market segments relevant to the Company, meaning that it requires an increasing amount of effort to remain one step ahead and continue with its progress. As a result, ongoing activities at MMS AG are based on the conviction that global demand will remain stable, especially when it comes to medical imaging technology and diagnostics support, but that the competitive situation will become more demanding and price pressure will increase. Alongside diagnostic imaging, intervention and treatment planning will also play a more significant role in the optimization of the clinical workflow.
MeVis assumes that its industry customers in the computer-assisted imaging segment will be able to retain the outstanding position of their products on the global market and will be able to generate further growth. MeVis can make a decisive contribution here with its software applications. Against this backdrop of increasing competition, MeVis will continue to focus on maintaining these strong relationships with industry customers and expanding our customer base especially for the Other Diagnostics segment. The relevant market in the Digital Mammography segment for dedicated software applications for diagnosis of images from mammography and tomosynthesis is estimated to decline in the medium- and long-term, since the aforementioned PACS systems increasingly expand its functionality and offer seamlessly integrating more userfriendly complete systems, than would ever be possible through dedicated individual solutions. In addition, the competition for MeVis' most important customer Hologic is increasing by other modal manufacturers, especially in the USA.
Macroeconomic factors and health policy debates, such as on the importance of screening programs for early lung cancer detection, continue to play a key role in the Company's business environment. The Executive Board is therefore unable to rule out that external factors will adversely impact the market environment as well as the Company's sales and distribution expectations for 2017 and beyond.
On the other hand, the Executive Board of MMS AG continues to hope that MeVis will be able to play a leading role, for example, if large-scale lung cancer screening is introduced, even if the current level of sales fell short of expectations.
The Company's maintenance business remains strong and the Company also has an array of general oncology, neuro, prostate and virtual colonoscopy products and technologies, all with relatively moderate sales contributions. As the Company is dependent on the success of existing industrial customers, winning new industrial customers and developing alternative sales channels, it is impossible once again in the current fiscal year to reliably forecast future sales developments. In the future, MeVis will focus on the development and marketing of software solutions and services for diagnostic imaging in breast, lung and liver cancer.
In the past short fiscal year, MMS AG continued its efforts to further enhance its internal risk management processes. Regular extended management meetings continue to be an essential tool for detecting at an early stage any risks to its assets as well as changes in the business performance of the individual segments and Group members or other risks to its going-concern status.
The Company's risk management system is geared toward coordinating the processes for monitoring, early detection and managing all business risks in accordance with the Business Control and Transparency Act. The purpose is to identify at an early stage any risks, in particular risky transactions, accounting misstatements and breaches of the law with a material effect on the assets, financial and earnings of the Company and to minimize potential negative effects.
The Accounting Law Reform Act further states the mandates of Supervisory and Executive Boards of capital market companies in concrete terms. This includes in particular their responsibilities and monitoring duties in relation to internal risk management, including the internal auditing system.
A monitoring system is at the core of the risk management system of MMS AG. It ensures that existing risks are recorded, analyzed and assessed, and also that risk-related information is passed on to the right decision-maker in a systematic manner.
The risk management system documents and regularly updates risk scenarios arising out of operations and based on the environment. At present, the Company has identified the following main opportunities and risks, with the risks being presented in order of importance, starting with the highest significance:
a) Risks arising from dependence on key customers and opportunities arising from acquiring additional key customers
The Company generates a substantial portion of its revenue from business with a small number of key industry customers. These customers are of considerable importance for the commercial success of MMS AG. Some of the contracts concluded with these key customers are fixed term and run for several years. If the Company does not succeed in retaining the positive business relationships with these key customers or if these key customers decide against continuing these relationship for other reasons or become insolvent, this will have a direct detrimental effect on the Company's assets, liabilities, financial position and profit or loss. For this reason, MMS AG makes every effort to increase the number of business relationships such that the existing risk is minimized without impacting the quality or profitability of individual areas.
If MeVis succeeds in acquiring one or more additional key customers and can conclude contracts for license sales of existing or new software products, this would open up new sales contributions. Broadening the customer base would also reduce the risk of dependence on single industrial customers for revenue.
b) Risks related to the expiry of the SecurView™ agreement with Hologic as of December 31, 2017
The existing agreement with industrial customer Hologic for the distribution of the SecurView™ product has been extended in October 2016 by one year and now runs until December 31, 2017. Given the solid business with this product and no visible alternative to SecurView™ for Hologic from the beginning of 2018 according to MeVis, an extension of the agreement or a follow-up contract from January 1, 2018 is assumed. A potential amendment or non-extension of the contract could in turn significantly impair the assets, liabilities, financial position and profit and loss due to the importance of this business for MeVis.
c) Product development-related risks
MeVis has invested heavily in new technologies and products for some years now. Some of these development costs were capitalized and reported as assets. Due to a change in the assessment of the market environment, MeVis already impaired a large portion of these investments in 2010 and 2011. This experience shows that the development of new products and enabling technologies entails a significant risk despite extensive market studies, including in cooperation with new customers. While MeVis increasingly focuses on reducing sales risks relating to the development of products, for example by the participation of large customers in the development costs, there remains a financial risk resulting from necessary technological preliminary developments. Since the issue of a release to Hologic in the fourth quarter of 2014, MeVis has not been able to activate development services, which means that the extent of this risk will be reduced further over the next few years by amortizing the capitalized development expense.
d) Opportunities and risks arising from dependence on customers' success
There are risks and opportunities in conjunction with the success of customers, even if relationships with key customers continue or they remain solvent; this is because the Company, due to existing contractual regulations, is contingent on its key customers' ability to market their own products successfully. The same applies in principle to indirect marketing through sales partners. If such products are not distributed successfully or if the customer is not able to obtain the necessary permits for its products, this will negatively impact demand for MMS AG's products as well as those of its affiliates. As a result, this could lead to an adjustment of the value of goodwill in intangible assets. On the other hand, strong sales performance of industrial customers can have a positive effect on MeVis' licensing business.
e) Product liability risks
Despite consistent quality assurance, the risk of defects in MeVis' products cannot be ruled out. In such cases, MeVis may be exposed to warranty claims on the part of its contractual partners or product liability claims. In addition, disputes relating to warranty or product liability claims could result in a loss of confidence in the market and thus harm the MeVis Group's reputation.
f) Risks in connection with the utilization of brands
It is possible that there are third-party brands, names and company names which are similar to those used or registered as brands by MMS AG or its affiliate for similar or identical goods and services. Therefore there is a possibility of conflicts arising with third parties with respect to brands or designations (e.g. product or company names), which may result in MeVis not being permitted to use the designation or brand name in question. This would also entail the risk of liability for damages on the part of MMS AG or MBC KG.
g) Risks in connection with the utilization of patents and industrial property rights
MMS AG and MBC KG own a number of German, European and US patents and patent applications. In addition, MBC KG holds a German utility patent. The risk of third parties breaching the industrial property rights of the Company or its affiliate cannot be ruled out, nor can the risk of MeVis breaching thirdparty patents and industrial property rights be ruled out. By MeVis being part of an American company, the risk has increased that MeVis will be sued in the US for patent infringement and substantial legal costs will incur for the defense of these lawsuits regardless of their substance.
h) Risks associated with financial instruments
The main financial instruments used by MMS AG are cash and cash equivalents. This is intended to finance operations and purchases. The Company has various other financial instruments such as trade receivables and payables, which arise directly from operations. Significant credit and liquidity risks are so far not seen.
i) Exchange rate risks and opportunities
MMS AG and its affiliate offer their services on an international basis and, hence, outside the euro currency zone, particularly in the US market. The sales of MMS AG and its affiliate are invoiced in the currency of the territory in which the customer has its head office. To date, the vast majority of services of MMS AG are therefore being invoiced in US dollars, while most of the Company's expenses are to be paid in euros. Subsequently, opportunities and risks from exchange rate fluctuations could arise which may have a positive or negative effect on the profit and loss of the Company, particularly in connection with medium- and long-term contracts which it generally enters into with its customers. In addition, a substantial part of the liquidity nominates in US dollars, which could also result opportunities and risks.
When necessary in the past, MMS AG entered into different types of currency contracts to manage exchange rate risk resulting from the cash flow from (expected) business activities denominated in foreign currencies. The transaction risk was measured in each relevant foreign currency. The Company's exchange rate exposure was due to its global business activities, particularly the sale of its products to US customers, which are invoiced in US dollars. In the future there will be no new hedging transactions due to the affiliation to the Varian group and in accordance with its corporate policy.
j) Liquidity risks
A change to the business and market environment of MMS AG and its affiliates could result in the Companies no longer being in a position to meet their financial obligations arising during the course of their operations. Such an erosion of the Company's liquidity position could result in one of the abovementioned risks, such as that with existing key customers, or significant payment delays. Securing liquidity therefore forms an integral part of the ongoing liquidity and debtor management at MMS AG and its affiliates. It is therefore just as important as financial due diligence for new customers. As of the reporting date, MMS AG reported cash and cash equivalents of € 24.4 million (previous year: € 25.6 million). The Company assumes that this liquidity will be sufficient. Additional liquidity needs may arise in years to come, if the planned sales revenues should not be achieved and at the same time the costs of the Company cannot be reduced accordingly. The Company had no credit facilities at banks as of the reporting date. The liquidity risks are significantly reduced by the obligation of VMS Deutschland Holdings GmbH to a possible assumption of losses, as stated in the domination and profit and loss transfer agreement concluded in 2015, backed by a comfort letter from the American parent company.
The following market-related risks are presented in order of importance, starting with the highest significance:
a) Risks arising from the necessity for ongoing product optimization
In order to remain competitive, MeVis must improve its products on an ongoing basis to bring them into line with market trends taking regional requirements into account, and incorporate the latest technological developments in diagnostic, therapy and intervention methods. It is not possible to exclude the risk of future technological advances that could render the software developed by MeVis obsolete. If MeVis is unable to continue updating its software products in line with the swift and dynamic technological advances in the individual areas of application, this may have an adverse effect on order intake and thus on the assets, liabilities, financial position and profit or loss of MMS AG and its affiliates.
b) Risks arising from the further development of PACS systems
If the functional scope of PACS systems should continue to develop to a significant extent in the direction of the software applications offered by MeVis, this could have a negative impact on the market for dedicated software applications operated at work stations. The market for dedicated software applications is of pivotal importance for MeVis.
c) Risks from the increasing importance of fully integrated software applications for clinical end users
If clinical end users place greater value in future on the seamless integration of the software applications used in the IT landscape existing in the hospital, this would result in a market shift from individual suppliers of dedicated applications such as MeVis in favor of fully integrated PACS solutions, with negative consequences for MeVis' assets, financial position and results.
d) Opportunities arising from the introduction of lung cancer screening
Since mid-2013, there has been an emerging trend, at least in the USA, to introduce CT-based lung cancer screening programs. In December 2013, the US Preventive Services Task Force (USPSTF) issued a corresponding recommendation. In the previous year this was defined more accurately and on February 5, 2015 the CMS (Centers for Medicare and Medicaid Services) released a memorandum containing its decision. It can subsequently be assumed that this method will be reimbursed by insurers from the second half of 2015. Due to this development, MeVis expects that there would be a sharp rise in the need for lung CT scans in 2016. In November 2015, the final criteria were published for reimbursement and January 4, 2016 was set as the start date of the reimbursement. Accordingly MeVis expects a sharp rise in CT scans of the lung to be diagnosed in 2016 and resulting from this increasing demand for solutions that simplify, shorten and qualitatively improve this procedure. MeVis was already in a position to serve this potential growth market with its Visia™ Lung CAD product and, for this reason, MeVis launched a dedicated lung screening solution on the market in the second half of 2014 and has concluded a marketing agreement with a major industrial customer. The introduction of broad lung screening programs would result in opportunities for MeVis of a significant increase in revenues.
Risks arising from the availability of qualified executives and staff
The internal and external availability of qualified employees in sufficient numbers to maintain and expand business operations entails a risk in light of the current situation in the relevant segment of the labor market. Particularly important to MeVis are individuals with expertise in specific areas such as software development for medical technical applications, which is essential to the business. This is especially so, given that highly-qualified and specialized employees are not widely available on the open labor market. Despite internal succession plans, knowledge sharing and incentive schemes, the loss of even one of these individuals can have a negative impact on the business and the assets, liabilities, financial position and profit or loss of MMS AG and MBC KG depending on their function.
These risks are of great importance to MeVis.
On the whole, following an extensive review, the Executive Board continues to see no risks to MMS AG and its affiliate as a going concern.
For MeVis Medical Solutions AG, dealing with risks in a responsible manner is a key element of good corporate governance. The Executive Board has installed an appropriate risk management and risk control system in the Company in order to identify, evaluate, monitor and control the risks arising from operating activities at an early stage. The Executive Board informs the Supervisory Board regularly about the current status of significant risks. The risk management system is continuously reviewed in accordance with the latest developments and adjusted where necessary. Further details and information on risk management can be found in the risk report.
MeVis Medical Solutions AG prepares its statutory financial statements and management report in accordance with the German Commercial Code (HGB). The Company also prepares voluntarily individual IFRS financial statements in accordance with International Financial Reporting Standards (IFRS). The half-year financial report and the interim financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU.
The financial statements are prepared by the Executive Board and reviewed by the Supervisory Board. The Supervisory Board engaged KPMG AG Wirtschaftsprüfungsgesellschaft, Bremen, as the auditors elected by the Annual General Meeting for the short fiscal year 2016, to audit the statutory financial statements for the short fiscal year 2016 and the Executive Board engaged them to audit the individual IFRS financial statements. This approach ensures that no conflicts of interest affect the work of the auditors. The audits of the financial statements for 2016 were conducted by KPMG AG Wirtschaftsprüfungsgesellschaft, Bremen, in accordance with the generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors (IDW).
In general, the risk management system and the internal control system also include the accounting processes as well as all risks and controls in relation to accounting. This concerns all elements of the risk management system and internal control system, which may have significant impact on MMS AG's annual financial statements.
The purpose of the risk management system in relation to the accounting processes is the identification and assessment of risks that may conflict with the aim of compliance of the annual financial statements with the standards. Any risks identified must be assessed in terms of their effect on the annual financial statements and management report. The objective of the internal control system in this context is to ensure with sufficient certainty – by implementing appropriate controls – that standards-compliant annual financial statements and management report are prepared in spite of the risks identified.
The Company has an internal control and risk management system covering the accounting process, in which suitable structures and processes are defined, and implemented in the organization. Prompt and accurate accounting is ensured for all transactions. Statutory standards and accounting standards are complied with, and the relevance and impacts on the annual financial statements of amendments to the laws and accounting standards are analyzed, adopted and implemented on a continuous basis. The staff involved is regularly trained in this work.
Essential elements of risk management and control in accounting are clear assignment of responsibilities and controls in the process of preparing the financial statements, transparent guidelines on accounting and the preparation of financial statements, and appropriate access controls for the IT systems of relevance to the financial statements.
The principle of dual control and the division of functions are also important control principles in MeVis' accounting process. The identified risks and measures taken as a result are updated in the quarterly reports and reported to the management. The effectiveness of internal controls for accounting is reviewed at least once a year, primarily as part of the process of preparing the financial statements.
The short fiscal year 2016 developed better than assumed in the guidance for the full fiscal year 2016 issued in April 2016. While a decline in sales to between € 14.5 m and € 15.0 m was expected in the original forecast, sales development was relatively stable in the short fiscal year 2016 (9 months) at € 12.1 m (12 months 2015: € 16.0 m). EBIT shows a similar picture: a decline to between € 2.5 m and € 3.0 m was originally forecast for this key performance indicator in 2016. In fact, a slightly higher EBIT of € 3.9 m was achieved in the short fiscal year (12 months 2015: € 4.5 m). As the positive development of the financial indicators was already apparent during the course of the short fiscal year 2016, the forecast (€ 3.5 m to € 4.0 m) was raised and announced in an ad-hoc press release at the beginning of August 2016.
A slight increase in sales to between € 16.5 m and € 17.0 m is expected for fiscal year 2017. The Digital Mammography business segment will be the main contributor to sales at more than 75 %. This segment will again exclusively comprise business with our industrial customer, Hologic, in 2017. The expected slight increase in sales will most likely result from a decline in the operating activities in new licenses and maintenance contracts, a sharp increase in development support for Hologic for the development of its own software and a one-off effect from the disposal of extensive usage rights to the tool for development of MeVisLab software prototypes. Earnings before interest and taxes (EBIT) is expected to remain stable at between € 4.5 and € 5.0 m compared to 2016.
As in the previous reporting period, the Executive Board will regularly review its expectations during fiscal year 2017 based on current business developments.
Bremen, December 14, 2016
Marcus Kirchhoff Dr. Robert Hannemann Chairman Member of the Executive Board
for the period from January 1 to September 30, 2016 (previous year: January 1 to December 31, 2015)
| FIGURES IN € k | Notes | 2016 | 2015 |
|---|---|---|---|
| Revenues | 9 | 12,091 | 16,014 |
| Other operating income | 10 | 613 | 1,130 |
| Cost of material | 11 | -337 | -612 |
| Staff costs | 12 | -5,551 | -7,411 |
| Other operating expenses | 13 | -1,570 | -2,713 |
| Earnings before interest, taxes, depreciation and amortization (EBITDA) |
5,246 | 6,408 | |
| Depreciation, amortization and impairment of intangible assets and property, plant and equipment |
14 | -1,318 | -1,938 |
| Earnings before interest and taxes (EBIT) | 3,928 | 4,470 | |
| Income from equity investments | 4 | 7 | 147 |
| Interest income | 52 | 165 | |
| Interest expenses | -12 | -22 | |
| Other net financial result | -550 | 193 | |
| Net financial result | 15 | -503 | 483 |
| Earnings before taxes (EBT) | 3,425 | 4,953 | |
| Income tax (prev year: profit) | 16 | 0 | 1,782 |
| Net profit | 3,425 | 6,735 | |
| Earnings per share in € Basic |
17 | 1.88 | 3.76 |
| Diluted | 1.86 | 3.72 | |
for the period from January 1 to September 30, 2016 (previous year: January 1 to December 31, 2015)
| FIGURES IN € k | Notes | 2016 | 2015 |
|---|---|---|---|
| Net profit | 3,425 | 6,735 | |
| Items that are never recognized as profit or loss | |||
| Actuarial losses from pensions (prev. year: profits) | 22 | -111 | 8 |
| Impacts of the fiscal unity on deferred tax | 0 | -38 | |
| -111 | -30 | ||
| Items that have been or could be recognized as profit or loss |
|||
| Changes in fair value of available-for-sale financial in struments |
0 | -226 | |
| Impacts of the fiscal unity on deferred tax | 0 | 72 | |
| 0 | -154 | ||
| Other comprehensive income | -111 | -184 | |
| Total comprehensive income | 3,314 | 6,551 |
As of September 30, 2016 (previous year: December 31, 2015)
| FIGURES IN € k | Notes | 2016 | 2015 |
|---|---|---|---|
| Non-current assets | |||
| Intangible assets | 18 | 12,718 | 13,854 |
| Property, plant and equipment | 18 | 316 | 319 |
| Joint venture/Equity investments | 4 | 1,611 | 1,718 |
| Trade receivables | 19 | 1,454 | 938 |
| 16,099 | 16,829 | ||
| Current assets | |||
| Trade receivables | 19 | 2,203 | 2,772 |
| Other financial assets | 19 | 202 | 114 |
| Other assets | 19 | 143 | 213 |
| Cash and cash equivalents | 20 | 24,356 | 25,621 |
| 26,904 | 28,720 | ||
| ASSETS | 43,003 | 45,549 | |
| Equity capital | 21 | ||
| Subscribed capital | 1,820 | 1,820 | |
| Capital reserve | 8,219 | 8,207 | |
| Revaluation reserve | 326 | 404 | |
| Retained earnings | 22,524 | 23,298 | |
| 32,889 | 33,729 | ||
| Non-current liabilities | |||
| Provisions | 22 | 269 | 149 |
| Deferred taxes | 16 | 0 | 0 |
| 269 | 149 | ||
| Current liabilities | |||
| Provisions | 22 | 142 | 471 |
| Trade payables | 327 | 553 | |
| Other financial liabilities | 23 | 5,743 | 6,105 |
| Deferred income | 24 | 3,021 | 3,200 |
| Other liabilities | 25 | 144 | 487 |
| Income tax liabilities | 468 | 855 | |
| 9,845 | 11,671 | ||
| EQUITY AND LIABILITIES | 43,003 | 45,549 |
for the period from January 1 to September 30, 2016 (previous year: January 1 to December 31, 2015)
| FIGURES IN € k | Notes | 2016 | 2015 |
|---|---|---|---|
| Earnings before interest and tax (EBIT) | 3,928 | 4,470 | |
| + Depreciation, amortization and impairments |
14 | 1,318 | 1,938 |
| -/+ Decrease/increase in provisions |
22 | -209 | 157 |
| +/- Other non-cash expenses/income |
-246 | -433 | |
| + Interest received |
33 | 201 | |
| - Interest paid |
-8 | -5 | |
| - Tax paid |
-389 | -514 | |
| +/- Decrease/increase in trade receivables and other assets |
-381 | -481 | |
| -/+ Decrease/increase in trade payables and other liabilities |
-537 | 1,248 | |
| = Cash flow from operating activities |
3,509 | 6,581 | |
| - Payments for investments in property, plant and equipment |
18 | -117 | -94 |
| Payments for investments in intangible assets (excl. develop | |||
| - ment costs) |
-62 | -22 | |
| - Payments for the purchase of securities |
0 | -3,683 | |
| + Proceeds from sale of marketable securities |
0 | 11,706 | |
| = Cash flow from investing activities |
-179 | 7,907 | |
| + Proceeds from the sale of treasury shares |
0 | 1,707 | |
| - Payments for dividends |
0 | -73 | |
| - Payments to shareholders (profit transfer) |
23 | -4,742 | 0 |
| = Cash flow from financing activities |
-4,742 | 1,634 | |
| Change in cash and cash equivalents | -1,412 | 16,122 | |
| Effect of exchange rates on cash and cash equivalents | 147 | 232 | |
| + Cash and cash equivalents at the beginning of the period |
25,621 | 9,267 | |
| = Cash and cash equivalents at the end of the period |
20 | 24,356 | 25,621 |
This item comprises cash and cash equivalents.
for the period from January 1 to September 30, 2016 (previous year: January 1 to December 31, 2015)
| Subscribed | Capital | Re valuation |
Treasury | Cumulative change in fair value for sale of available |
Retained | ||
|---|---|---|---|---|---|---|---|
| FIGURES IN € k | capital | reserve | reserve | shares | assets | earnings | Total |
| Note | 21 | 21 | 21 | - | - | 21 | - |
| Balance on Jan. 1, 2015 | 1,820 | 9,784 | 507 | -3,300 | 154 | 21,305 | 30,270 |
| Net profit | 0 | 0 | 0 | 0 | 0 | 6,735 | 6,735 |
| Other comprehensive income | 0 | 0 | 0 | 0 | -154 | -30 | -184 |
| Total comprehensive income | 0 | 0 | 0 | 0 | -154 | 6,705 | 6,551 |
| Issue of stock options | 0 | 16 | 0 | 0 | 0 | 0 | 16 |
| Sale of treasury shares | 0 | -1,593 | 0 | 3,300 | 0 | 0 | 1,707 |
| Dividend payment | 0 | 0 | 0 | 0 | 0 | -73 | -73 |
| Payout from profit transfer | |||||||
| agreement | 0 | 0 | 0 | 0 | 0 | -4,742 | -4,742 |
| Transfer from revaluation re serve to retained earnings |
|||||||
| based on amortization | 0 | 0 | -103 | 0 | 0 | 103 | 0 |
| Balance on Dec. 31, 2015 | 1,820 | 8,207 | 404 | 0 | 0 | 23,298 | 33,729 |
| Balance on Jan. 1, 2016 | 1,820 | 8,207 | 404 | 0 | 0 | 23,298 | 33,729 |
| Net profit | 0 | 0 | 0 | 0 | 0 | 3,425 | 3,425 |
| Other comprehensive income | 0 | 0 | 0 | 0 | 0 | -111 | -111 |
| Total comprehensive income | 0 | 0 | 0 | 0 | 0 | 3,314 | 3,314 |
| Issue of stock options | 0 | 12 | 0 | 0 | 0 | 0 | 12 |
| Payout from profit transfer agreement |
0 | 0 | 0 | 0 | 0 | -4,166 | -4,166 |
| Transfer from revaluation re serve to retained earnings |
based on amortization 0 0 -78 0 0 78 0 Balance on Sep. 30, 2016 1,820 8,219 326 0 0 22,524 32,889
MeVis Medical Solutions AG ("MMS AG", "MeVis" or "Company" for short) was incorporated at the end of 1997 and commenced business in 1998. It has its registered office in Bremen/Germany. Its address is Caroline-Herschel-Str. 1, 28359 Bremen. MMS AG is registered in the Commercial Register of the District Court of Bremen (HRB 23791 HB).
Since April 21, 2015 MMS AG belongs to the Varian Group under the leadership of Varian Medical Systems, Inc., Palo Alto, California, USA, via VMS Deutschland Holdings GmbH, Darmstadt. That company prepares consolidated financial statements for the largest number of entities and MMS AG is included in these. The consolidated financial statements are filed with the U.S. Securities and Exchange Commission (SEC) and can be obtained from the head office of the group parent company.
The individual IFRS financial statements of MMS AG according to IFRS as of September 30, 2016 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The provisions contained in Regulation (EC) No. 1606/2002 on the application of international accounting standards as well as the supplementary provisions of German commercial law pursuant to Section 325 (2a) were observed. The requirements have been complied with in full and result in the presentation of a true and fair view of the assets, liabilities, financial position and profit or loss of MMS AG.
These individual IFRS financial statements have been prepared on a voluntary basis to provide a complete picture of the Company's net assets, financial position and results of operations after the subsidiaries of MMS AG were merged or consolidated on August 1, 2013. It can be seen as an additional information source next to the financial statements prepared in terms of the German commercial law.
As resolved during the Annual General Meeting on June 7, 2016, MeVis Medical Solutions AG has changed the fiscal year and ended the short fiscal year 2016 with the reporting period from January 1 to September 30, 2016, which is the object of these annual financial statements. The previous year's figures relate to the full fiscal year from January 1 to December 31, 2015. For this reason, a comparison with the previous year is only possible to a limited extent in these annual financial statements as at September 30, 2016 (for period-related statements). In the future, the reporting period will be from October 1 of each year to September 30 of the following year.
The currency used in the individual IFRS financial statements is the euro. Unless otherwise stated, all figures are quoted in thousands of euros (€ k). The income statement is prepared using the total cost method. In accordance with IAS 1, the current/non-current distinction is applied to assets and liabilities. Non-current assets and liabilities are defined as those which are not due for settlement in less than one year. Deferred taxes are always recognized as non-current assets or liabilities.
The individual IFRS financial statements as of September 30, 2016 were approved for submission to the Supervisory Board by MMS AG's Executive Board on December 14, 2016. The Supervisory Board is responsible for examining the individual IFRS financial statements and approving them. The individual IFRS financial statements are to be published on the Company website on January 23, 2017.
MMS AG develops innovative software for analyzing and evaluating image data and marketing it to equipment manufacturers of medical devices and providers of medical IT platforms.
MeVis' clinical focuses are image-based early detection and diagnosis of epidemiologically important diseases such as breast, lung, prostate and colon cancer as well as neurological disorders. The software applications support many of the imaging modalities available. These not only include X-ray modalities such as computed tomography, digital mammography or digital tomosynthesis, but also magnetic resonance imaging, digital sonography and the simultaneous use of multiple modalities (multimodality). MeVis supplies technologies and applications for global medical industry leaders, meeting their needs and helping them to strengthen their leadership positions.
In addition to the sale of software licenses and corresponding maintenance contracts, MeVis offers, to a lesser extent, services to clinical end customers. These include three-dimensional technical visualizations ("MeVis Distant Services") and interactive online trainings to improve the diagnostic capabilities of the clinicians ("Online Academy").
For reporting purposes and internal governance, MeVis has two operating segments ("Digital Mammography" and "Other Diagnostics").
The Digital Mammography segment develops and markets software products which support breast diagnostic imaging and intervention. Aside from the original products for digital mammography, new software applications for other imaging modalities such as ultrasound, magnetic resonance imaging and tomosynthesis were added. These products are distributed to the industrial customer Hologic.
In addition to the breast diagnostics business based on magnetic resonance imaging conducted with Invivo Corporation, the Other Diagnostics segment also includes digital radiology products (e.g. magnetic resonance imaging (MRI), computed tomography (CT), etc.) for other types of diseases such as lung, prostate and intestinal disorders as well as general image-based analysis and diagnostics of radiology images. Furthermore, the business with Vital Images for lung diagnostics and general analysis of MR-image data is included in this segment. Other main activities in this segment include the services of "MeVis Distant Services" for technical visualizations, which are used in training, for publications, presentations and for research purposes. In addition, this segment includes interactive online training ("MeVis Online Academy") to improve the diagnostic capabilities of clinical end customers.
MMS AG differentiates the geographical areas USA and Europe due to the local distribution of realized sales.
Shares in entities whose business activities are co-managed by MMS AG and another company (joint ventures) are consolidated at equity. Under the equity method, the respective carrying amount is increased or reduced by the changes in equity of the joint venture as far as they apply to the shares of MMS AG.
The financial statements included under the equity method in the individual IFRS financial statements have been prepared using uniform recognition and measurement principles.
| Name and location of the company | Share in % |
|---|---|
| MeVis BreastCare Verwaltungsgesellschaft mbH, Bremen ("MBC GmbH") | 51.0 |
| MeVis BreastCare GmbH & Co. KG, Bremen ("MBC KG") | 51.0 |
MeVis Medical Solutions AG holds 51 % of MBC KG, a joint venture with Siemens Healthcare GmbH ("Siemens").
The focus of the activities of this company is the development, marketing and distribution of software and consulting services, especially in the area of multi-modal soft copy reading systems for the screening, diagnosis and treatment of breast diseases.
As of September 30, 2016, Siemens continued to hold 49 % of the capital of MBC KG. In addition, Siemens has a call option which it may exercise at any time with respect to a further 2 % share in MBC KG. In accordance with the provisions contained in the deed of partnership, a 2/3 majority is required for material decisions, meaning that the potential exercise of this option will not have any effect on MeVis' scope for exerting influence on the Company. Accordingly, MBC KG is a joint venture and therefore accounted for using the equity method. MBC GmbH is the general partner of MBC KG. The investment ratios and accounting method correspond to those of MBC KG.
The financial information on the MBC KG is as follows:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Non-current assets | 147 | 429 |
| Current assets | 4,251 | 3,792 |
| Thereof: Cash and cash equivalents | (3,058) | (3,223) |
| Non-current liabilities | 49 | 22 |
| Current liabilities | 1,226 | 750 |
| Revenues | 3,371 | 4,688 |
| Net income / total result | 14 | 288 |
| Depreciation, amortization and impairment of intangible assets and | ||
| property, plant and equipment | -306 | -393 |
| Interest income | 0 | 1 |
| Interest expenses | 1 | 2 |
| Income tax | -78 | -8 |
An equity-accounted amount of € 1,593 k (2015: € 1,700 k) can be derived from the assets and liabilities of MBC KG. The difference compared with the statement of financial position relates to the equity of MBC GmbH.
The average exchange rates are the average exchange rates for the respective fiscal year. The USD/EUR exchange rate underlying currency translation is as follows:
| End-of-year exchange rate | Annual average exchange rate |
|||
|---|---|---|---|---|
| Jan. 1 -Sep. 30, | Jan. 1 - Dec. 31, | |||
| Currency | Sep. 30, 2016 | Dec. 31, 2015 | 2016 | 2015 |
| USD/€ | 1.1161 | 1.0887 | 1.1158 | 1.1095 |
Transactions in currencies other than the functional currency are translated at the exchange rate prevailing on the date of the transaction. Currency translation gains and losses arising from fluctuations in exchange rates for foreign currency transactions are reported in the net financial result.
Revenues are recognized when it is likely that the economic benefits from the transactions will flow to the Company and the amount is reasonably assured. As a matter of principle, MeVis distinguishes between the recognition of revenues from the sale of licenses, the provision of services and the sale of hardware.
Revenues from the sale of goods and products are recognized when all of the following conditions are satisfied:
Revenues from the provision of services are recognized when:
As a matter of principle, the above conditions for the sale of goods and products are applied to the sale of software and licenses, i.e. the revenue is recognized once the software is sold. In some cases, contracts for the sale of software include services which are not provided until after the sale of the software. Such "multicomponent contracts" are split into revenue components and the resultant revenue recognized in accordance with the percentage of completion. Revenue components already paid but not yet recognized are deferred.
This has the following specific ramifications for MeVis:
License fees and royalties resulting from the utilization of software are recognized in accordance with the economic purpose of the agreement. In the absence of any agreement to the contrary, revenues are recognized on a straight-line basis over the duration of the license agreement. The granting of unrestricted rights of utilization for a fixed amount (single licenses) constitutes a sale for economic purposes and is recognized as revenue in full.
Revenues from the sale of hardware are recognized upon transfer of risk.
Revenues from the provision of consulting services and software development services are recognized in the period in which the service in question is provided. MMS AG entered into a contract with a customer, in which the fee is based on the revenues that the customer receives from the sale of licenses for its software, which was developed with the support of MeVis. Since it is not possible to determine the revenues for MeVis reliably when preparing the financial statements, those transactions are initially recognized on the basis of the costs incurred.
Revenues from maintenance contracts are recognized in the period in which the service in question is provided. If the selling price of software includes partial amounts for after-sales service (e.g. maintenance), these amounts are deferred and recognized on a pro rata temporis basis over the periods in which the services are provided.
As a matter of principle, the above conditions on the sale of services apply, i.e. the revenues are recognized once the service is provided.
Expenses are recognized in profit and loss in the period in which the corresponding depreciation is caused.
The costs of research activities – that is, for activities undertaken to make new scientific or technical findings – are recognized in full by MeVis as an expense. In contrast, the costs of development activities – that is, when the results of research are incorporated into a plan or a draft for the production of new products and processes – are capitalized, on condition that the development expenses can be reliably measured, that the product or process is technically and economically feasible and that future economic benefit is likely. In addition, MeVis must have the intention and sufficient resources to conclude the development and to utilize or sell the asset. Therefore, the development expenses incurred for MeVis' software products after the software specifications have been defined and agreed upon with the customer are capitalized or when the marketability of the future products has been adequately demonstrated by market analyses and agreement with the industry customers. In connection with this, individual and overhead costs attributable to the development activities are capitalized up until completion of the product and then written down over a period of two to four years. Developments that are not yet ready for use are subject to an annual impairment test. Impairment tests are also conducted in case of indicators of possible impairment (triggering events).
Interest income is recognized when it arises.
Borrowing costs are recognized as expense unless the borrowing costs can be directly allocated to the construction, acquisition or manufacture of a qualifying asset. An asset is regarded as qualifying if it takes more than six months to get ready for its intended use or sale. The borrowing costs of MeVis largely arise from the imputed interest on liabilities and the interest on tax liabilities.
Goodwill acquired through business combinations and continued in the individual IFRS financial statements of MMS AG are not subject to depreciation and amortization; instead, an impairment test of goodwill is carried out once a year. An impairment test is also carried out if events or circumstances (triggering events) occur, which could indicate possible impairment. Goodwill is carried at cost less any accumulated amortization for impairment. The company had previously determined the 31st of December as the date of the annual review. For the first time in 2016, the annual review took place on the 30th of September. Impairment testing of goodwill is carried out at the level of cash generating units ("CGU" for short) the lowest level at which goodwill is monitored by Company management. To test for impairment, the acquired goodwill is allocated to the CGU or group of CGUs which are expected to benefit from the synergy arising from the business combination. For the material goodwill of MeVis, the applicable CGU is identical to MMS AG's continued business with Hologic, after the accretion of MeVis BreastCare Solutions GmbH & Co. KG (hereafter: "MBS KG") in August 1, 2013. If the carrying amount of the CGU or group of CGUs to which the goodwill was allocated exceeds the recoverable value, the excess is written off. The recoverable value is the higher of the fair value less cost to sell and the value in use of the CGU. These values are essentially based on discounted cash flow valuations, on the one hand, based on historical experience, and, on the other hand, taking into account detectable changes – especially from contract changes with important customers. No reversals of amortization of goodwill are conducted in future periods if the recoverable amount exceeds the carrying amount of the CGU or the group of CGUs to which goodwill is allocated.
Other intangible assets consist of software and other intangible assets, patents, licenses and similar rights produced by the Company. The Company amortizes intangible assets with a finite useful life on a straightline basis over the expected useful life to the estimated residual value. The expected useful life of software, patents, licenses and similar rights is generally three to five years. Intangible assets acquired through business combinations relate to customer relationships and technology in particular. Their expected useful lives are between ten years for customer relationships and up to seven years for technology. Intangible assets with an indefinite useful life and intangible assets not ready for use are not subject to scheduled amortization; instead, an impairment test is carried out once a year.
Property, plant and equipment are shown at acquisition or construction cost less scheduled, utilizationrelated depreciation and amortization as well as impairment losses. The cost of acquisition consists of the purchase price plus ancillary and subsequent acquisition costs less discounts received on the purchase price.
Scheduled straight-line depreciation is calculated on the basis of the following estimated useful lives of the assets:
| Useful life in years | |
|---|---|
| IT equipment | 3 |
| Business equipment | 3 - 10 |
| Leasehold improvements | 5 - 10 |
Allowance is made for any impairment losses over and above the depreciation resulting from use of the asset in question. In accordance with IAS 36, such impairment losses are calculated by reference to comparisons with discounted future cash flows. If the reasons for extraordinary depreciation and amortization cease to apply, the assets in question are written up to a maximum of their amortized cost.
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets consist of receivables (excluding income tax receivables) and other financial assets, cash and cash equivalents and derivatives with a positive fair value. They are recognized and measured in accordance with IAS 39. Accordingly, financial assets are recognized in the statement of financial position if they give MeVis the contractual right to receive cash or other financial assets from another entity. Financial assets are derecognized when the contractual obligations are settled, suspended or expire. All customary purchases and sales of financial assets are recognized on the settlement date. Financial assets are initially recognized at their fair value plus transaction costs. Transaction costs arising in connection with the acquisition of financial assets at fair value through profit or loss are immediately taken to the income statement. Receivables which bear little or no interest are initially recognized at the present value of the expected future cash flow. Subsequent measurement is determined in accordance with the following categories of financial assets:
Financial assets at fair value through profit or loss comprise financial assets held for trading or financial assets designated in this category. Derivative financial instruments are assigned to this measurement category. Changes in the fair value of financial assets in this category are recognized in the income statement upon such change arising. No assets have been allocated to this category as of the balance sheet date.
Loans and receivables (LaR) are non-derivative financial assets with fixed or determinable payments, which are not traded in an active market. Loans and receivables are recognized at amortized cost. This category includes trade receivables, financial receivables included in other financial assets and loans as well as cash and cash equivalents.
Available-for-sale (AfS) financial assets are recognized at fair value in equity. Valuation changes are recorded in a separate shareholders' equity item without affecting profit or loss until the assets are disposed of (AfS reserve). No assets have been allocated to this category as of the balance sheet date.
Interest income from items in this category is calculated using the effective interest method.
The Company applies IAS 12, Income Taxes. Income taxes include all taxes imposed on MeVis taxable profit. The item "income taxes" in the income statement includes current and deferred income taxes. Current income taxes primarily comprise domestic trade tax and corporation income tax. According to the liability method stipulated under IAS 12, deferred tax assets and liabilities are recognized for the future tax consequences of differences between amounts included in the financial statements (for income and expenditure and assets and liabilities) and those included in the tax assessment. MeVis recognizes in the income statement the effects of changes in tax rates on deferred taxes in the period in which the legislative process on which the change in the tax rate is based is largely concluded. This also applies to the effects from the fiscal unity for income tax purposes as of January 1st, 2016 resulting from the domination and profit and loss transfer agreement with VMS Deutschland Holdings GmbH. We also refer to note 16.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Movements in the MeVis' equity capital are reported in the statement of changes in equity.
In the case of defined benefit plans, the cost of provision is determined using the projected unit credit method, and an actuarial valuation is conducted as of each reporting date. Since 2013, actuarial gains and losses are not recognized in profit or loss immediately, but recognized in equity with no effect on profits via other income or offset against this. Past service cost is recognized immediately in profit and loss. For defined benefit plans, the amount recognized in the statement of financial position is the present value of the defined benefit obligation, and reduced by the fair value of existing plan assets. If the calculation of the statement of financial position amount as set out above results in an asset, the amount recognized is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
Provisions are set aside to allow for obligations resulting from past events which will probably lead to a future outflow of resources embodying economic benefits required to settle the obligations, the amount of which can be reliably estimated. Provisions are measured in accordance with IAS 37 on the basis of the best possible estimate of the cost of settling the present obligation as of the reporting date. If the outflow of economic resources required to settle an obligation is not expected to arise until after more than one year, the provisions equal the present value of the expected cash outflow.
Equity-settled share-based payments awarded to the Executive Board and the employees are recognized at the fair value of the equity instrument on the grant date. The fair value of the liability is recognized under personnel expenses. This is also allocated over the vesting period.
The fair value of the payments is calculated in each case using a Monte Carlo simulation. The main determinants of the value of staff options are the value of the shares as well as the price at which the option may be exercised, i.e. the strike price. The difference between the value of the underlying financial instrument and the strike price is the "intrinsic value" of the option.
In addition to modeling movements in the underlying financial instrument, allowance is also made in connection with the measurement of the fair value of the assets for possible exits of option holders from the Company as well as the premature exercise of the options. To cover these eventualities, the Company has derived further relevant input variables for the simulation models on the basis of statistical distribution models which model these decisions.
The Company uses so-called "exponential distribution" to calculate the probability of an option holder leaving the Company prematurely or the holder of an employee option exercising the option prior to the expiry of its term, taking into account the vesting period.
The average service periods, i.e. the service periods of members of the Executive Board and of employees, are analyzed as a basis for determining these probabilities. For this purpose, the Company has utilized freely available market studies. An average service period of 6.2 years for members of the Executive Board was assumed on the basis of this analysis. With respect to the Company's employees, an average service period of 13.3 years is assumed.
Financial liabilities comprise primary liabilities and the negative fair values of derivative financial instruments. Primary liabilities are recognized in the statement of financial position if MeVis has a contractual obligation to transfer cash or any other financial assets to another entity. A primary liability is initially recognized at the fair value of the consideration received or the value of the cash received less any transaction costs. It is subsequently measured at amortized cost using the effective interest method.
Derivative financial instruments are recognized at their fair value through profit or loss. The negative fair values of derivative financial instruments are recognized under other financial liabilities.
Financial liabilities are derecognized when the contractual obligations are settled, suspended or expire.
MeVis receives development grants from public bodies. These are recognized in the income statement as soon as the expenses for which the grants have been received are incurred by MeVis. The installments received are reported under other operating income. If eligible services exceed received grants, these are capitalized under other financial assets.
A lease is classified as an operating lease if, in principle, all risks and opportunities associated with ownership are retained by the lesser. Payments in connection with operating leases are recognized in the income statement as expense on a straight-line basis over the duration of the lease.
The preparation of the individual IFRS financial statements, as adopted in the EU, necessitates the use of estimates and judgments of individual matters by management. The estimates are based on past experience and further relevant factors on the premise of the business as a going concern.
The main items of the statement of financial position subject to management estimates are goodwill of € 10,625 k (2015: € 10,625 k) and intangible assets with a finite useful life (€ 2,093 k; 2015: € 3,229 k). In addition to the development expenses included in the intangible assets with a finite useful life with € 1,073 k (2015: € 1,980 k), the proceeds that can be generated through the use of these developments have to be estimated. With regard to trade receivables (€ 3,657 k; 2015: € 3,710 k), management does not expect any defaults given the limited number of customers and customers' credit ratings. The provisions (€ 411 k; 2015: € 620 k) mainly relate, in addition to pension obligations warranty costs, of which the actual amount is uncertain. Material estimates with respect to the underlying measurement model as well as various parameters such as staff length of service, movements in the stock price or probability of exercise are applied to the stock options reported under shareholders' equity (€ 315 k; 2015: € 303 k).
At least once a year, MeVis tests existing goodwill for impairment (€ 10,625 k; 2015: € 10,625 k). The respective carrying amount of the CGU is compared to the recoverable value of the corresponding CGU, to which the goodwill is allocated. Calculation of the recoverable value of a CGU involves estimates of the corresponding cash flow and appropriate discount interest on the part of the management.
All capitalized development costs were also tested for any impairment as of September 30, 2016, if a triggering event has been identified. The impairment tests did not show any need to recognize impairment losses.
Actual amounts could differ from amounts based on estimates and assumptions.
MMS AG's individual IFRS financial statements as of September 30, 2016 including the previous year's figures have been prepared in accordance with IFRS as adopted by the European Union as of the reporting date in question.
The applied recognition and measurement principles generally correspond to the methods used in the previous year's consolidated financial statements. MeVis has also applied the following new/revised standards relevant to the business activities of the Company, for which application first became mandatory in the short fiscal year 2016. However, they had no or at least no material impact on the individual IFRS financial statements or the consolidated financial statements at the time of first application:
IFRS 11 includes regulations on accounting for and the recognition of the earnings of joint ventures and joint operations. While joint ventures are accounted for at equity, the reporting of joint operations foreseen by IFRS 11 is comparable with proportionate consolidation.
With the amendment to IFRS 11, the IASB regulates the accounting for an acquisition of interests in a joint operation that represents a business operation within the meaning of IFRS 3 Business Combinations. In such cases, the acquirer shall apply the principles for accounting for business combinations in accordance with IFRS 3. Furthermore, the disclosure obligations of IFRS 3 also apply in these cases.
MBC KG and MBC GmbH are also classified as joint ventures according to IFRS and accounted for using the equity method.
The amendments relate to various recognition issues. It is clarified that notes to the financial statements are only necessary if their content is not immaterial. This also explicitly applies when a list of minimum statements under IFRS is required. This includes explanations on aggregation and disaggregation of items in the statement of financial position and the statement of comprehensive income. It also states how shares in companies valued at equity are to be presented in other income in the statement of comprehensive income. The absence of a model structure of the notes to the financial statements is based on its relevance to a specific company.
With these amendments the IASB provides further guidelines for the determination of acceptable methods of depreciation and amortization. In accordance therewith, revenue-based depreciation and amortization methods are prohibited for property, plant and equipment, and are only permitted for intangible assets in specific exceptional circumstances (rebuttable presumption of inappropriateness).
The amendments clarify those regulations that concern the allocation of contributions by employees or third parties to service periods in cases where the contributions are linked to the same period of service. In addition, relief is granted in cases where the contributions are independent of the number of years of service.
Seven standards were amended as part of the annual improvement project. The adjustment to the wording in individual IFRS/IAS aims to clarify the existing rules. There are also amendments which affect the notes. These affect IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38.
The amendments to IFRS 2 and IFRS 3 are applicable to transactions that will take place or have taken place on or after July 1, 2014.
Four standards were amended as part of the annual improvement project. The adjustment to the wording in individual IFRS/IAS aims to clarify the existing rules. The standards affected are IFRS 5, IFRS 7, IAS 19 and IAS 34.
MMS AG does not plan early adoption of the following new or amended standards, adoption of which will only become mandatory in later fiscal years. Unless otherwise stated, the impact on the individual IFRS financial statements is currently under investigation. If new standards are not mentioned, the Executive Board is already assuming that they have no material effect on the individual IFRS financial statements.
IFRS 9 adopted in July 2014 replaces the previous guidelines in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines on rating and measuring financial instruments as well as a new model of loan losses expected to calculate impairments on financial assets as well as new general accounting guidelines for hedging transactions. It also includes guidelines on the recognition and derecognition of financial instruments under IAS 39.
Although the new standard will also be of fundamental importance to MMS AG, but since no derivative financial instruments have been used since 2015 and the key financial instruments are restricted to original receivables and liabilities, the effects are not considered to be so comprehensive.
IFRS 9 is effective for the first time for fiscal years starting on or after January 1, 2018. Earlier application is permissible.
IFRS 15 Revenues from Contracts with Customers defines a framework for determining whether, to what extent and at what point revenues are reported. It replaces the previous guidelines on reporting revenues, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs.
MMS AG has concluded individual contracts with various customers which, in addition to the sale of software and licenses, also include other services, which sometimes include time-related components (multicomponent contracts). The effects on the application of the new regulations on the IFRS individual financial statements are still being analyzed.
The amendments are effective for the first time for fiscal years starting on or after January 1, 2018. Important regulations for the Company including regulations on license sales are currently being debated by the IASB to amend the new standard.
The amendments address a known inconsistency between IFRS 10 and IAS 28 (2011) in the event of the sale or contribution of assets to an associate or a joint venture.
According to IFRS 10, a parent company shall recognize the gain or loss associated with the loss of control in full in profit or loss. By contrast, the currently applicable IAS 28.28 requires gains or losses on sale transactions between an investor and an investment accounted for at equity, no matter whether it is an associate or a joint venture, only to be recognized to the extent of the unrelated investor's interest in this entity.
In the future, the entire gain or loss on a transaction shall only be recognized if the assets sold or contributed are a business within the meaning of IFRS 3. This shall apply irrespective of whether the transaction is structured as an asset deal or a share deal. If the assets do not however constitute a business, only proportionate recognition of the gain or loss is permissible.
The IASB has postponed the date of adoption of the amendment indefinitely.
The IASB issued the final standard IFRS 16 "Leases" on January 13, 2016. The resultant amendments mainly affect the lessee and have the consequence that fundamentally all leases and the associated contractual rights and obligations have to be recognized in the statement of financial position of the lessee.
MMS AG currently has several lease contracts with limited maturities (<5 years) for office space as well as cars and copy stations. Due to the new provisions of IFRS 16, the balance sheet will be extended to the extent that these leases are to be shown in the balance sheet as a financing operation. To the extent that MMS AG is the lessor, the previous accounting standards have largely remained unchanged, in particular with regards to the classification of leasing conditions that are still required.
Subject to its adoption by the EU, IFRS 16 shall be applied for the first time for fiscal years starting on or after January 1, 2019. Earlier application is permissible.
Revenues break down by type as follows:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Software and licenses | 5,527 | 7,652 |
| Maintenance (software service contracts) | 5,468 | 7,014 |
| Services | 1,091 | 1,341 |
| Hardware | 5 | 7 |
| 12,091 | 16,014 |
The breakdown by segments is disclosed in the segment report (see Note 30).
The revenues include service revenues determined using the stage-of-completion-method in the amount of € 516 k (2015: € 692 k). The accumulated costs of the service revenues deferred at the reporting date are € 1,454 k (2015: € 938 k).
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Income from recharges | 362 | 498 |
| Grants | 104 | 573 |
| Income from the release of provisions | 99 | 6 |
| Other | 48 | 53 |
| 613 | 1,130 |
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Cost of services purchased | 276 | 464 |
| Cost of materials | 61 | 148 |
| 337 | 612 |
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 4,664 | 6,270 |
| Social security charges and expenditure on old age pensions and sup | ||
| port | 887 | 1,141 |
| 5,551 | 7,411 |
Social security and old-age pension and related expenses include the employer contribution to the government pension plan for employees of € 346 k (2015: € 479 k). In the reporting period the average headcount was 102 (2015: 104). This is equivalent to an average of 89 full-time positions (2015: 92).
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Rental expenses/Leasing | 414 | 579 |
| Legal and consulting costs | 206 | 658 |
| Travel expenses | 162 | 202 |
| Maintenance/repairs | 129 | 128 |
| External work | 108 | 19 |
| Cost of preparing and auditing financial statements | 106 | 92 |
| Energy costs | 51 | 75 |
| Vehicle costs | 49 | 73 |
| Insurances | 41 | 35 |
| Internet expense | 36 | 44 |
| Cleaning expense | 32 | 41 |
| Training costs | 31 | 54 |
| Catering costs | 28 | 34 |
| Stationary | 24 | 40 |
| Expenses of the Annual General Meeting | 21 | 88 |
| Supervisory Board remuneration | 16 | 80 |
| Telephone expense | 15 | 20 |
| Advertising costs | 14 | 15 |
| Events/Congresses | 10 | 28 |
| Patent lawsuit expenses | 0 | 300 |
| Others | 77 | 108 |
| 1,570 | 2,713 |
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Amortization of purchased industrial property rights | ||
| and similar rights and customer base | 291 | 461 |
| Amortization of capitalized development costs | 907 | 1,330 |
| Depreciation of property, plant and equipment | 120 | 147 |
| Total depreciation, amortization and impairment losses | 1,318 | 1,938 |
All development costs were tested for impairment as of September 30, 2016. The impairment tests did not show any need for impairment.
MMS AG's financial result for the short fiscal year 2016 was € -502 k (2015: € 483 k). This comprises earnings from equity companies of € 7 k (2015: € 147 k), interest income from the investment of cash of € 52 k (2015: € 165 k), interest expense of € 12 k (2015: € 22 k), and the other financial result of € -550 k (2015: € 193 k). The other financial result consists of the revaluation of derivative financial instruments of € 3 k (2015: € 130 k), the balance of exchange rate gains and losses of € -540 k (2015: € 124 k) and other expenses in the amount of € 13 k (2015: € 61 k).
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Current income taxes reporting period | 0 | 630 |
| Current income taxes previous period | 0 | 0 |
| Deferred taxes | 0 | -2,412 |
| 0 | -1,782 |
Deferred tax assets and liabilities for temporary differences are to be calculated on the basis of an income tax rate of 31.9 % (2015: 31.9 %).
Deferred tax assets on loss carry forwards are generally calculated on the basis of the applicable tax rate. In Germany (Bremen), this is 16.1 % for trade tax loss carry forwards and 15.8 % for corporation tax loss carry forwards.
On August 10, 2015 VMS Deutschland Holdings GmbH and MMS AG concluded a domination and profit and loss transfer agreement, which was approved by resolution of the General Meeting of the shareholders dated September 29, 2015. Since financial integration for the entire year did not occur in 2015, the consolidated tax filing arrangement for income tax purposes commenced on January 1, 2016. As a consequence, as at December 31, 2015 the Company continued to be the tax debtor for the current income taxes.
With regard however to the recognition of deferred taxes, they are taken into account as soon as the effectiveness of the consolidated tax filing arrangement can be assumed. In view of the approval already issued by the General Meeting of the shareholders and the entry of the domination and profit and loss transfer pooling agreement in the Commercial Register on October 20, 2015, the future effectiveness of the consolidated tax filing arrangement for income tax purposes was assumed as of December 31, 2015. In accordance with the formal approach, MMS AG did therefore not recognize any deferred taxes on temporary differences in its individual IFRS financial statements as at December 31, 2015. Existing deferred taxes were released through profit or loss or directly in equity in 2015 depending on how they had been set up. Deferred tax assets on tax loss carry-forwards are and were similarly not recognized, because the trade tax loss carry-forwards existing as at the reporting date cannot be used in the foreseeable future on account of the consolidated tax filing arrangement.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Earnings before taxes (EBT) | 3,425 | 4,953 |
| Theoretical tax paid / received 31.9 % | 1,093 | 1,581 |
| Utilization of unrecognized tax loss carry forwards | 0 | -249 |
| Derecognition of remaining deferred tax assets on loss carry forwards | ||
| due to fiscal unity for income tax purposes | 0 | 472 |
| Impact of fiscal unity for income tax purposes on temporary differ | ||
| ences | -1,096 | -3,470 |
| Non-deductible expenses | 3 | 15 |
| Other | 0 | -131 |
| Effective tax expense | 0 | -1,782 |
| Effective tax rate | 0 % | -36.0 % |
Deferred taxes on loss carry forwards break down as follows:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Corporation tax loss carry forwards | 0 | 0 |
| Trade tax loss carry forwards | 1,053 | 991 |
| Deferred tax assets gross | 1,053 | 991 |
| Non-recognized deferred tax assets on loss carry forwards | -1,053 | -991 |
| Deferred tax assets on tax loss carry forwards net | 0 | 0 |
Deferred tax assets on loss carryforwards are recognized to the extent they are expected to be utilized, subject to the minimum tax in the foreseeable future, within 3 years. The loss carry forwards have unlimited duration. Because of the fiscal unity for income tax purposes with VMS Deutschland Holdings GmbH starting from January 1, 2016 the remaining trade tax loss carry forwards cannot be used in the foreseeable future.
Earnings per share equal the profit on continuing activities or profit (after tax) divided by the weighted average number of shares outstanding during the fiscal year. Earnings per share (fully diluted) are calculated on the assumption that all securities, stock options and stock awards with a potentially dilutive effect are converted or exercised.
As the criteria for exercising the options are met as of the reporting date, it can be assumed that the options will be exercised by the employees. Accordingly, they are included in the calculation of the diluted earnings per share.
The weighted average number of shares outstanding is calculated on the basis of shares redeemed and reissued subject to chronological weighting.
| 2016 | 2015 | |
|---|---|---|
| Consolidated net profit in € k | 3,425 | 6,735 |
| Weighted average of shares outstanding during the reporting period - | ||
| basic | 1,820,000 | 1,790,600 |
| Dilution through stock options | 19,237 | 18,068 |
| Weighted average of shares outstanding during the reporting period - | ||
| diluted | 1,839,237 | 1,808,668 |
| Basic earnings per share in € | 1.88 | 3.76 |
| Diluted earnings per share in € | 1.86 | 3.72 |
On February 18, 2015, the Company tendered its entire treasury shares of 97,553 to VMS Deutschland Holdings GmbH, Darmstadt, in the context of the takeover offer. The tender was accepted by VMS Deutschland Holdings GmbH on April 21, 2015.
The development in acquisition and production costs and cumulative amortization of intangible assets (including goodwill) as well as property, plant and equipment for the short fiscal year 2016 and the fiscal year 2015 are shown in the statement of changes in fixed assets in the annexes to the notes.
| FIGURES IN € k | Assets and licenses | |||
|---|---|---|---|---|
| Acquired intangible assets with a finite useful life |
Internally generated intangible assets with a finite useful life |
Goodwill | Total | |
| Balance on Sep. 30, 2016 | 1,020 | 1,073 | 10,625 | 12,718 |
| Balance on Dec. 31, 2015 | 1,249 | 1,980 | 10,625 | 13,854 |
In accordance with IAS 38, no software development costs were capitalized in the short fiscal year 2016, same as in the previous year, as internally generated intangible assets with a finite useful life. As in the previous year, no services that can be capitalized were purchased. Depreciation and amortization of € 907 k (2015: € 1,330 k) was attributable to capitalized development costs in the period under review.
Goodwill was assigned to specific cash generating units (CGUs) on the acquisition date for the purpose of future impairment tests. The annual date for which the impairment test is to be carried out is set for the first time to the 30th of September (until 2015: 31st of December). The cash generating units along with their respective goodwill as of the reporting date are shown at their carrying amounts in the following table.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Goodwill | Goodwill | |
| Digital Mammography | ||
| Hologic-Business | 10,479 | 10,479 |
| Other Diagnostics | ||
| Business unit Distant Services | 146 | 146 |
Goodwill was tested for any indication of impairment as of September 30, 2016. Under IAS 36, an impairment loss must be recognized if the recoverable amount of the cash generating unit is lower than its carrying amount. Fair value less cost to sell of the cash generating unit, calculated using the DCF method, was used as the recoverable amount. This was based on the realizable cash flows forecast by the Company over a detailed planning period of 5 years. The chosen planning period reflects the management expectations for short and medium-term market trends. In addition, a going-concern value was determined for the cash generating unit. The going-concern value equals the present value of the free cash flows after the end of the detailed planning period. The underlying growth rate is 0.0 % (prev. year: 1.0 %). Since cash flows are generated almost entirely in the US dollar area, the calculation was done in US dollars.
The discount rate used in the detailed planning phase was 5.93 % after taxes (2015: 6.58 % after taxes).
Impairment tests according to IAS 36 for CGUs Hologic and Distant Services indicated no impairment losses for the short fiscal year 2016. Not even applying a 1.00 percentage point increase of the discount rate would have resulted in impairment.
Changes in property, plant and equipment in the short fiscal year 2016 were mainly influenced by investment in IT equipment. Spending on property, plant and equipment totaled € 117 k (2015: € 94 k).
Overall, the expenses for research and development totaled € 2,591 k (2015: € 3,486 k) in the short fiscal year 2016.
An adjustment of € 9 k (2015: € 9 k) was made to trade receivables overdue as of the reporting date, which corresponds to the nominal amount of the receivable. No material change in the credit rating of the individual debtors was identified and it is therefore assumed that the unadjusted amounts owing will be paid in due course. The average age of the overdue receivables of € 350 k (2015: € 237 k) is 144 days (2015: 82 days). The Company does not hold any collateral for these outstanding items.
Of the total amount of trade receivables of € 3,657 k (2015: € 3,710 k) € 2,203 k (2015: € 2,772 k) are due for settlement within one year and € 1,454 k (2015: € 938 k) have a remaining term of more than one year.
| FIGURES IN € k | of which: not impaired as of the reporting date and overdue during the following time bands |
|||||||
|---|---|---|---|---|---|---|---|---|
| Carrying amount |
of which impaired |
not overdue |
less than 30 days |
between 31 and 60 days |
between 61 and 90 days |
between 91 and 180 days |
between 181 and 360 days |
|
| Trade receivables | ||||||||
| as of Sep. 30, 2016 | 3,657 | 9 | 3,316 | 48 | 13 | 4 | 132 | 153 |
| as of Dec. 31, 2015 | 3,710 | 9 | 3,482 | 26 | 7 | 128 | 25 | 51 |
As in the previous year, payments for trade receivables, already derecognized, have not been received.
Trade receivables include receivables determined by using the stage-of-completion-method in the amount of € 1,454 k (2015: € 938 k) with a remaining term of more than one year. Discounting is not required.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Loans and receivables | 116 | 64 |
| Eligible expenses | 66 | 48 |
| Other | 20 | 2 |
| 202 | 114 |
Loans and receivables are fully due from MBC KG.
Other financial assets are due for settlement within one year within the following maturity bands:
| FIGURES IN € k | of which: with a term to maturity of |
||||||
|---|---|---|---|---|---|---|---|
| Carrying amount |
of which impaired |
less than 30 days |
between 31 and 60 days |
between 61 and 90 days |
between 91 and 180 days |
between 181 and 360 days |
|
| Other financial assets | |||||||
| as of Sep. 30, 2016 | 202 | 0 | 136 | 0 | 0 | 66 | 0 |
| as of Dec. 31, 2015 | 114 | 0 | 64 | 0 | 0 | 50 | 0 |
The fair value of trade receivables and other financial assets equals their carrying amount.
Other assets primarily include prepaid expenses of € 113 k (2015: € 153 k).
With respect to other financial assets and other assets, there is no evidence as of the reporting date that the debtors will not meet their payment obligations when they mature.
The assets contained in this item comprise demand deposits and overnight deposits of € 24,355 k (2015: € 25,619 k) subject to interest of 0.68 % to 0.91 % p.a.. In addition, there is cash on hand of € 1 k (2015: € 2 k).
The changes in subscribed capital, the share premium, the revaluation reserve and retained earnings are shown in the statement of changes in shareholders' equity.
The share capital of MMS AG totals € 1,820,000 (2015: € 1,820,000) and comprises 1,820,000 (2015: 1,820,000) shares without par value.
As of December 31, 2015 the conditional capital of MMS AG totaled € 130 k. Originally valid until 31 December 2011, the conditional capital was extended by decision of the General Meeting of June 15, 2011 until December 31, 2015. As of September 30, 2016 no conditional capital exists.
As at September 30, 2016 there is an authorized capital in the amount of € 910 k as in the previous year. In accordance with the resolution passed by the shareholders at the Annual General Meeting on June 9, 2015, the Executive Board is authorized, subject to the Supervisory Board's approval, to increase the Company's share capital by a total of up to € 910 k on or before June 8, 2020.
The share premium of € 8,219 k (2015: € 8.207 k) primarily comprises the premium on the equity issue of € 28,080 k arising from the MMS AG stock market flotation in 2007. Net flotation expenses of € 1,139 k were deducted from shareholders' equity. This includes tax relief of € 505 k. The sale of treasury shares in 2007 resulted in an increase of € 1,314 k. In addition, the capital reserve includes an amount of € 315 k (2015: € 303 k) attributable to stock options. The stock options have a term of five years as of the date on which they are granted and may only be exercised after a vesting period of four years. The exercise price payable by the option holder equals the average closing price of the share in XETRA trading for the last five trading days period to the end of the subscription period in which the options in question were granted. As a result of the surrender of treasury stock worth less than the acquisition costs in 2011, € 434 k was offset against the capital reserve.
As at December 31, 2013, € 18,325 k was withdrawn from the capital reserve to compensate the accrued losses of MMS AG.
On February 18, 2015, the Company tendered its entire treasury shares based on the voluntary public takeover offer of VMS Deutschland Holdings GmbH at the offer price of € 17.50 per share. The tender was accepted by VMS Deutschland Holdings GmbH on April 21, 2015. The difference of € 1,593 k resulting from book value of treasury shares totaling € 3,300 k and the selling price in the amount of € 1,707 k, reduced the capital reserve to € 8,207 k.
The capital reserve of MMS AG, which amounts to € 8,219 k as of the balance sheet date, is not available for dividend distribution.
The assets and liabilities of MBS KG had to be completely revalued in connection with the acquisition of the 49 % interest in MBS KG from Siemens AG and the subsequent full consolidation of MBS KG in 2008. To the extent that this increase in value was attributable to the 51 % interest in MBS KG already held by the Company, the difference had to be allocated to the revaluation reserve. The amount of € 1,688 k allocated comprised intangible assets of € 2,411 k less deferred taxes of € 723 k thereon. Amounts corresponding with the amortization recognized on these assets are transferred proportionately to retained earnings.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Status as at Jan. 1 | 404 | 507 |
| Transfer to retained earnings within equity without impacting profit or | ||
| loss of the amount corresponding with the amortization and the de | ||
| ferred taxes thereon | -78 | -103 |
| Status as at Sep. 30 (2015: Dec. 31) | 326 | 404 |
Retained earnings include statutory reserves pursuant to Section 150 of the German Stock Corporation Act of € 5 k. In accordance with Section 150(2) of the Stock Corporation Act no further statutory reserves are necessary. In addition, this item includes accumulated gains and losses from previous years and the earnings for the current short fiscal year as well as actuarial gains and losses (net of deferred tax).
The retained earnings were reduced by the transferred profits in favor of VMS Deutschland Holdings GmbH in the amount of € 4,166 k (2015: € 4,742 k) due to the domination and profit and loss transfer agreement effective since October 20, 2015.
Provisions for pensions reported in the statement of financial position break down as follows:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Defined benefit obligation | 635 | 515 |
| Reinsurance | -366 | -366 |
| Reported in statement of financial position | 269 | 149 |
Provisions for pensions relate to defined benefit plans. Retirement capital from reaching the age of 63 years and surviving dependents' capital have been promised. The extent of the benefits varies in principle according to the conversion of remuneration and an annual interest rate of 4 %. The underlying discount rate is 1.35 % (2015: 2.40 %). Pension and related benefits as well as the expenditure necessary to cover these obligations are valued and accounted for according to the projected unit credit method stipulated in IAS 19 "Employee Benefits". Future annual increases in income and entitlements by the time a pension can first be drawn are not taken into account if the entitled party does not have a corresponding claim. The plan was completed in 2013.
The change in the present value of entitlements determined pursuant to IAS 19 is shown in the following table:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Defined benefit obligation at the beginning of the fiscal year | 515 | 514 |
| Interest cost of acquired rights | 9 | 9 |
| Actuarial losses | 111 | -8 |
| Defined Benefit Obligation at the end of the fiscal year | 635 | 515 |
A reduction of 0.5 percentage points in the interest rate for calculation purposes, to 0.85 % (2015: 1.90 %), would increase the defined benefit obligation (DBO) disclosed above to € 697 k (2015: € 566 k) as of the September 30, 2016 valuation date. An increase of 0.5 percentage points in the interest rate for calculation purposes, to 1.85 % (2015: 2.90 %), would decrease the defined benefit obligation (DBO) disclosed above to € 579 k (2015: € 470 k) as of the September 30, 2016 valuation date.
Total expenses on defined benefit plans reported within staff costs break down as follows:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Interest expense: interest on the entitlements already vested | 9 | 9 |
| Net pension expenditure on benefit obligations | 9 | 9 |
To secure the employees' pension claims, MeVis has taken out reinsurance, which is pledged to the individual employees. The employees are entitled to the higher of the pension claim or reinsurance coverage. As of September 30, 2016 the fair value of reinsurance amounted to € 366 k (2015: € 366 k), and thus remained as in the previous year below the defined benefit obligation amount.
The development of claims under reinsurance policies is shown in the following table:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Status at the beginning of the reporting year | 366 | 356 |
| Added value | 0 | 10 |
| Status at the end of the reporting year | 366 | 366 |
The profits from the appreciation in value of the reinsurance were charged to staff costs. Over the next five years, pension obligations are payable only to a small extent. Because of the reinsurance policies, the liquidity exposure of the Company from this is minor.
Movements in current provisions were as follows in the short fiscal year 2016:
| Status at | Accrued | Status at Sep. | ||||
|---|---|---|---|---|---|---|
| FIGURES IN € k | Jan. 1, 2016 | Utilization | Addition | interest | Release | 30, 2016 |
| Warranty provisions | 171 | 0 | 0 | 0 | 29 | 142 |
| Provision for lawsuit costs | 300 | 262 | 0 | 0 | 38 | 0 |
| Other provisions | 471 | 262 | 0 | 0 | 67 | 142 |
The warranty provisions relate to contractual warranty obligations to customers.
The provision for lawsuit costs were set up in 2015 for two patent lawsuits filed in the US.
Other financial liabilities contain the following items:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Liabilities to affiliated companies | 4,157 | 4,742 |
| Staff liabilities | 1,586 | 1,359 |
| Derivatives | 0 | 3 |
| Miscellaneous other financial liabilities | 0 | 1 |
| Other financial liabilities | 5,743 | 6,105 |
The liabilities to affiliated companies comprise the transfer of commercial profit in accordance with the domination and profit and loss transfer agreement with VMS Deutschland Holdings GmbH effective as of October 20, 2015.
Staff liabilities primarily comprise the cost of bonuses.
This item comprises income components paid but not recognized under multi-component contracts. In addition, payments received under maintenance contracts are deferred if the corresponding maintenance services have not yet been provided.
Miscellaneous other liabilities contain the following items:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Current tax liabilities | 84 | 80 |
| Payments received | 20 | 371 |
| Other | 40 | 36 |
| Miscellaneous other liabilities | 144 | 487 |
The payments received relate mainly to payments for maintenance from Hologic, Inc.. The current tax liabilities relate to income tax and church tax.
MMS AG is under an obligation to grant a loan of up to € 820 k to the MBC KG joint venture at standard bank conditions in the event that the latter company's capital requirements exceed the capital contributions paid in by the partners. Given the economic situation of MBC KG a claim is currently not expected.
| less than | ||||
|---|---|---|---|---|
| FIGURES IN € k | Total | 1 year | 1 to 5 years | over 5 years |
| Rental contracts | 648 | 432 | 216 | 0 |
| Leasing contracts | 88 | 48 | 40 | 0 |
| Total financial obligations as of | ||||
| Sep. 30, 2016 | 736 | 480 | 256 | 0 |
| Rental contracts | 971 | 432 | 539 | 0 |
| Leasing contracts | 77 | 49 | 28 | 0 |
| Total financial obligations as of | ||||
| Dec. 31, 2015 | 1,048 | 481 | 567 | 0 |
The rental contracts comprise solely leases for office space for limited periods of time. In the short fiscal year, rental expenses of € 324 k (2015: € 431 k) were incurred by the Company and are shown within other operating expenses.
All of the leases for passenger vehicles and copiers of MMS AG in 2016 are operating leases. Economic ownership of these leased assets remains with the respective lessor. MMS AG recognizes lease payments as expense. In 2016, other operating expenses totaled € 28 k (2015: € 51 k).
In the course of its operations, MMS AG is primarily exposed to exchange rate fluctuations due to its international business activities.
Besides, MMS AG is exposed to financial risks in the form of liquidity and default risk.
MMS AG provides the details stipulated by IFRS 7, such as the source of risks from financial instruments and the methods used to manage risk, in the management report.
When necessary in the past, MMS AG entered into different types of currency contracts to manage exchange rate risk resulting from the cash flow from (expected) business activities denominated in foreign currencies. The transaction risk was measured in each relevant foreign currency. The Company's exchange rate exposure was due to its global business activities, particularly the sale of its products to US customers, which are invoiced in US dollars. Due to the affiliation to the Varian Group and in accordance with its corporate policy, no new such hedging transactions will be concluded.
The Company requires sufficient cash and cash equivalents to settle its financial obligations. Liquidity risks arise when customers are unable to meet their obligations to the Company in the course of normal business. As of the reporting date the Company has cash and cash equivalents of € 24,356 k (2015: € 25,621 k).
Liquidity risk is managed on the basis of rolling liquidity planning.
Default risk, i.e. the risk of counterparties failing to meet their payment obligations, are managed by means of credit approvals, the definition of maximum limits and monitoring processes.
To manage this risk, the Company periodically reviews its customers' solvency.
The Company does not expect any defaults on the part of those business partners with a favorable credit rating. As five customers account for most of the Company's revenues, credit risk is concentrated to a significant extent on the one customer group. As the Group has maintained business relations with these customers, all of which have a very good credit rating and enjoy high renown, for several years and no defaults have arisen to date, the Executive Board does not see any significantly enhanced risk of default. Provision has been made in the statement of financial position for the maximum default risk.
Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction (except in the case of foreclosure or liquidation proceedings).
A three-stage system is used to measure fair value, which must be implemented in this particular sequence (fair-value hierarchy):
Listed market prices (category 1) are currently not used by the Company. Other observable information (category 2) is available for derivatives. The third category applies to the other financial instruments of the Company.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Category 3 (other financial assets) | 3,859 | 3,824 |
| Financial assets | 3,859 | 3,824 |
| Category 2 (derivatives) | 0 | 3 |
| Category 3 (other financial liabilities) | 6,070 | 6,655 |
| Financial liabilities | 6,070 | 6,658 |
The following methods and assumptions are used to estimate the fair value of the individual classes of financial instruments:
The carrying amounts of cash and cash equivalents, other financial assets and financial liabilities are more or less equal to their fair values on account of the relatively short settlement period for these items. Where no listed market prices are available, the fair value of the publicly traded financial instruments is estimated on the basis of the listed market prices of identical or similar assets. In the case of all other financial instruments, the fair value is based on the expected cash flow or the net asset value of the item in question. All carrying amounts are more or less the same as the fair value of the items in question.
Derivatives used as hedging instruments with positive (negative) fair values are classed as other current or non-current financial assets or liabilities depending on their term. They are recognized based on market prices on the reporting date.
The carrying amounts, measurement and fair values of the financial instruments are presented below by valuation categories:
| Recognized in accordance with IAS 39 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying | |||||||
| amount as | Fair value | ||||||
| IAS 39 | of Sep. | Amor | Fair value | Fair value | as of Sep. | ||
| FIGURES IN € k | category | 30, 2016 | tized cost | Cost | in equity | in P/L | 30, 2016 |
| Assets | |||||||
| Trade receivables | LaR | 3,657 | 3,657 | 0 | 0 | 0 | 3,657 |
| Other financial assets | LaR | 202 | 202 | 0 | 0 | 0 | 202 |
| Cash and cash equivalents | 24,356 | 24,356 | 0 | 0 | 0 | 24,356 | |
| Equity and liabilities | |||||||
| Trade payables | FLAC | 327 | 327 | 0 | 0 | 0 | 327 |
| Other current financial liabilities | FLPL | 0 | 0 | 0 | 0 | 0 | 0 |
| Other current financial liabilities | FLAC | 5,743 | 5,743 | 0 | 0 | 0 | 5,743 |
| Of which aggregated by IAS | |||||||
| 39 category: | |||||||
| Loans and receivables | LaR | 3,859 | 3,859 | 0 | 0 | 0 | 3,859 |
| Financial liabilities measured at | |||||||
| amortized costs | FLAC | 6,070 | 6,070 | 0 | 0 | 0 | 6,070 |
| Financial liabilities at fair value | |||||||
| through profit or loss | FLPL | 0 | 0 | 0 | 0 | 0 | 0 |
| Recognized in accordance with IAS 39 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying | |||||||
| amount as | Fair value | ||||||
| IAS 39 | of Dec. | Amor | Fair value | Fair value | as of Dec. | ||
| FIGURES IN € k | category | 31, 2015 | tized cost | Cost | in equity | in P/L | 31, 2015 |
| Assets | |||||||
| Trade receivables | LaR | 3,710 | 3,710 | 0 | 0 | 0 | 3,710 |
| Other financial assets | LaR | 114 | 114 | 0 | 0 | 0 | 114 |
| Cash and cash equivalents | 25,621 | 25,621 | 0 | 0 | 0 | 25,621 | |
| Equity and liabilities | |||||||
| Trade payables | FLAC | 553 | 553 | 0 | 0 | 0 | 553 |
| Other current financial liabilities | FLPL | 3 | 0 | 0 | 0 | 3 | 3 |
| Other current financial liabilities | FLAC | 6,102 | 6,102 | 0 | 0 | 0 | 6,102 |
| Of which aggregated by IAS | |||||||
| 39 category: | |||||||
| Loans and receivables | LaR | 3,824 | 3,824 | 0 | 0 | 0 | 3,824 |
| Financial liabilities measured at | |||||||
| amortized costs | FLAC | 6,655 | 6,655 | 0 | 0 | 0 | 6,655 |
| Financial liabilities at fair value | |||||||
| through profit or loss | FLPL | 3 | 0 | 0 | 0 | 3 | 3 |
The contractually agreed (non-discounted) interest and capital payments for the primary financial liabilities break down as follows as of the reporting date.
| FIGURES IN € k | Cash flow 2017 | Cash flows 2018-2021 | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Carrying amount Sep. 30, 2016 |
Fixed interest rate |
Floating interest rate |
Repay ment |
Fixed interest rate |
Floating interest rate |
Repay ment |
Fixed interest rate |
Floating interest rate |
Repay ment |
|
| Other financial liabilities |
5,743 | 0 | 0 | 5,743 | 0 | 0 | 0 | 0 | 0 | 5,743 |
| FIGURES IN € k | Cash flow 2016 | Cash flows 2017-2020 | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Carrying amount Dec. 31, 2015 |
Fixed interest rate |
Floating interest rate |
Repay ment |
Fixed interest rate |
Floating interest rate |
Repay ment |
Fixed interest rate |
Floating interest rate |
Repay ment |
|
| Other financial |
||||||||||
| liabilities | 6,102 | 0 | 0 | 6,102 | 0 | 0 | 0 | 0 | 0 | 6,102 |
Net gains/losses by category break down as follows:
| From subsequent measurement | Net result | ||||||
|---|---|---|---|---|---|---|---|
| Derecog | |||||||
| nition of | |||||||
| From divi | receivables | ||||||
| dends and | Currency | and | |||||
| FIGURES IN € k | interests | at fair value | translation | liabilities | 2016 | 2015 | |
| Loans and Receivables (LaR) | 52 | 0 | -540 | 0 | -488 | 135 | |
| Financial Assets Available for | |||||||
| Sale (AfS) | 0 | 0 | 0 | 0 | 0 | 154 | |
| Derivatives | 0 | 3 | 0 | 0 | 3 | 130 | |
| Financial Liabilities measured | |||||||
| at Amortized Costs (FLAC) | -12 | 0 | 0 | 0 | -12 | -22 | |
| -497 | 397 |
To reflect market risks, IFRS 7 prescribes sensitivity analyses showing the effects of hypothetical changes in the relevant risk variables on earnings and shareholders' equity. MMS AG is mainly exposed to exchange rate risk, but not to interest rate risk since the financial liabilities bear interest at fixed rates. Securities bearing interest at fixed rates can also be sold at short notice in case of corresponding general interest rate changes. Examining the receivables portfolio as of September 30, 2016 indicates elasticity of € 530 k (2015: € 544 k) for a 10 % change in the US dollar exchange rate on the reporting date. On the basis of these measurement bands, there is elasticity of € 4,615 k (2015: € 1,609 k) for cash and cash equivalents as of September 30, 2016.
The objectives of capital management are derived from the financial strategy and include the provision of liquidity and access to the capital markets at all times.
The capital structure is managed to take account of any changes in economic conditions and risks arising from the underlying assets.
To this end, equity is viewed in the light of prevailing risk and, if necessary, adjusted by means of dividend policy, capital repayments and equity issues. Capital is monitored by reference to the ratio of net financial liabilities/receivables to economic capital. Net financial liabilities/receivables comprise cash plus financial assets net of financial liabilities. Economic capital equals the equity reported in the statement of financial position.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Other financial liabilities | 5,743 | 6,105 |
| Gross financial liabilities | 5,743 | 6,105 |
| Cash and cash equivalents | 24,356 | 25,621 |
| Other financial assets | 202 | 114 |
| Gross financial receivables | 24,558 | 25,735 |
| Net financial receivables | 18,815 | 19,630 |
| Economic capital | 32,889 | 33,729 |
Given the international nature of MeVis' activities, different regional legal and regulatory requirements must be observed in the individual jurisdictions. The status of and any changes in these rules are monitored both locally and centrally and taken into account in capital management.
The statement of cash flows breaks down into cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Net cash inflow from operating activities is calculated using the indirect method.
Cash and cash equivalents comprise cash on hand and demand deposits.
As of September 30, 2016, the activities of the Company continued to be subdivided into the reportable segments of Digital Mammography and Other Diagnostics. The management of each of these segments reports directly to the Executive Board of MMS AG in its function as the responsible corporate entity.
Segment net profit and loss, which corresponds to earnings before interest and tax (EBIT), constitutes the key benchmark for assessing and controlling the earnings position of a particular segment.
Segmentation is as follows:
| Mammography | Digital | Other Diagnostics |
MMS AG | ||||
|---|---|---|---|---|---|---|---|
| FIGURES IN € k | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Revenues | 9,519 | 12,566 | 2,572 | 3,448 | 12,091 | 16,014 | |
| Grants | 0 | 0 | 104 | 573 | 104 | 573 | |
| Total segment | |||||||
| revenues | 9,519 | 12,566 | 2,676 | 4,021 | 12,195 | 16,587 | |
| Depreciation and | |||||||
| amortization | -1,215 | -1,779 | -103 | -159 | -1,318 | -1,938 | |
| Operating expenses | -2,635 | -3,819 | -3,253 | -4,204 | -5,888 | -8,023 | |
| Result of operating | |||||||
| activities | 5,669 | 6,968 | -680 | -342 | 4,989 | 6,626 | |
| Other operating | |||||||
| income | 232 | 275 | 277 | 282 | 509 | 557 | |
| Other operating | |||||||
| expenses | -721 | -1,327 | -849 | -1,386 | -1,570 | -2,713 | |
| Segment net profit | |||||||
| and loss | 5,180 | 5,916 | -1,252 | -1,446 | 3,928 | 4,470 |
The assets and liabilities are no longer part of internal reporting to the Executive Board.
Transactions between segments are carried out at market prices.
Revenues in the Digital Mammography and Other Diagnostics segments are predominantly achieved with one customers accounting for more than 10 % of the total revenues.
Segmentation of external revenues by geographical regions is as follows:
| Digital Mammography |
Diagnostics | Other | MMS AG | ||||
|---|---|---|---|---|---|---|---|
| FIGURES IN € k | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| USA | 9,519 | 12,566 | 1,860 | 2,500 | 11,379 | 15,066 | |
| Europe | 0 | 0 | 712 | 948 | 712 | 948 | |
| External revenues | 9,519 12,566 |
2,572 | 3,448 | 12,091 | 16,014 |
The Company enters into transactions with related parties, the details of which are set out below. These transactions form part of its usual business activities and are subject to arm's length conditions.
Related parties and companies include the joint ventures, MBC KG and MBC GmbH, VMS Deutschland Holdings GmbH and, via this entity, the affiliated companies of the Varian Group, as well as the Executive Board and Supervisory Board and their close family members.
As of the reporting date, the following receivables were due from and the following liabilities owing to related parties:
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Joint Ventures | ||
| Receivables | 116 | 64 |
| Income (from services) | 915 | 1,150 |
| Expenses | 9 | 19 |
| Affiliated companies | ||
| Liabilities | 4,157 | 4,742 |
Information on the remuneration of Board members are included in note 34.
As of the reporting date, MMS AG had received the following compulsory disclosures in accordance with Section 21 et seq. of the German Securities Trading Act (WpHG) concerning changes in the voting rights held in MMS AG:
1) On March 30, 2015, Oppenheim Asset Management Services S.à.r.l., Luxembourg, Luxembourg, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 % threshold of the voting rights on March 24, 2015 and on that day amounted to 3.012 % (corresponding with 54,820 voting rights).
On March 30, 2015, TBF Gesellschaft mit beschränkter Haftung, Singen, Germany, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 % threshold of the voting rights on March 24, 2015 and on that day amounted to 3.012 % (corresponding with 54,820 voting rights). 3.012 % of voting rights (corresponding with 54,820 voting rights) are attributed to the company in accordance with Section 22 (1) Sentence 1 No. 6 in connection with sentence 2 WpHG. Attributed voting rights are held by the following shareholders, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: Oppenheim Asset Management Services S.à.r.l.
On March 30, 2015, TBF Global Asset Management GmbH, Singen, Germany, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 % threshold of the voting rights on March 24, 2015 and on that day amounted to 3.012 % (corresponding with 54,820 voting rights). 3.012 % of voting rights (corresponding with 54,820 voting rights) are attributed to the company in accordance with Section 22 (1) Sentence 1 No. 6 WpHG. Attributed voting rights are held by the following shareholders, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: Oppenheim Asset Management Services S.à.r.l.
On March 30, 2015, Mr. Peter Dreide, Germany, informed us according to Section 21 (1) WpHG that his share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 % threshold of the voting rights on March 24, 2015 and on that day amounted to 3.012 % (corresponding with 54,820 voting rights). 3.012 % of voting rights (corresponding with 54,820 voting rights) are attributed to Mr. Dreide in accordance with Section 22 (1) Sentence 1 No. 6 in connection with sentence 2 WpHG. Attributed voting rights are held by the following shareholders, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: Oppenheim Asset Management Services S.à.r.l.
2) On April 21, 2015, VMS Deutschland Holdings GmbH, Darmstadt, Germany, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 % and 50 % threshold of the Voting Rights on April 21, 2015 and on that day amounted to 73.52 % (corresponding with 1,337,995 Voting Rights).
On April 21, 2015, Varian Medical Systems International AG, Cham, Switzerland, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 % and 50 % threshold of the voting rights on April 21, 2015 and on that day amounted to 73.52 % (corresponding with 1,337,995 voting rights). 73.52 % of voting rights (corresponding with 1,337,995 voting rights) are attributed to the company in accordance with Section 22 (1) Sentence 1 No. 1 WpHG. Attributed voting rights are held by the following companies under its control, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: VMS Deutschland Holdings GmbH.
On April 21, 2015, Varian Medical Systems Nederland BV, Houten, Netherlands, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 % and 50 % threshold of the voting rights on April 21, 2015 and on that day amounted to 73.52 % (corresponding with 1,337,995 voting rights). 73.52 % of voting rights (corresponding with 1,337,995 voting rights) are attributed to the company in accordance with Section 22 (1) Sentence 1 No. 1 WpHG . Attributed voting rights are held by the following companies under its control, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: VMS Deutschland Holdings GmbH, Varian Medical Systems International AG.
On April 21, 2015, Varian Medical Systems Nederland Holdings BV, Houten, Netherlands, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 % and 50 % threshold of the voting rights on April 21, 2015 and on that day amounted to 73.52 % (corresponding with 1,337,995 voting rights). 73.52 % of voting rights (corresponding with 1,337,995 voting rights) are attributed to the company in accordance with Section 22 (1) Sentence 1 No. 1 WpHG. Attributed voting rights are held by the following companies under its control, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: VMS Deutschland Holdings GmbH, Varian Medical Systems International AG, Varian Medical Systems Nederland BV.
On April 21, 2015, Varian Medical Systems, Inc., Wilmington, Delaware, United States, informed us according to Section 21 (1) WpHG that its share of the voting rights on MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 % and 50 % threshold of the voting rights on April 21, 2015 and on that day amounted to 73.52 % (corresponding with 1,337,995 voting rights). 73.52 % of voting rights (corresponding with 1,337,995 voting rights) are attributed to the company in accordance Section 22 (1) Sentence 1 No. 1 WpHG. Attributed voting rights are held by the following companies under its control, whose share of the voting rights in MeVis Medical Solutions AG amounts to 3 % or more: VMS Deutschland Holdings GmbH, Varian Medical Systems International AG, Varian Medical Systems Nederland BV, Varian Medical Systems Nederland Holdings BV.
3) On November 10, 2016 the HANSAINVEST Hanseatische Investment-GmbH, Hamburg, Germany, informed us according to Section 21 (1) WpHG that its share of the voting rights in MeVis Medical Solutions AG, Bremen, Germany, exceeded the 3 % threshold of the voting rights on November 9, 2016 and on that day amounted to 3.01 % (corresponding with 54,712 voting rights).
| Marcus Kirchhoff Chairman Dassendorf |
from Mar. 1, 2012 |
Member of the Shareholders' Committee of MeVis BreastCare GmbH & Co. KG Member of the Board of Trustees of Fraunhofer MEVIS Chairman of the Supervisory Board of Varex Imaging Deutschland AG (since October 20, 2016) |
|---|---|---|
| Dr. Robert Hannemann Bremen |
from Oct.1, 2010 |
No membership in supervisory boards or other control bodies within the meaning of section 125 (1) sentence 5 AktG |
| Joerg Faessler Chairman Baar, Switzerland |
from June 9, 2015 |
Senior Director Finance & Controller Europe at Varian Medical Systems International AG, Cham, Switzerland |
|---|---|---|
| Holger Maar Vice-Chairman Heddesheim |
from June 7, 2016 |
Managing Director Commercial & Senior Finance Man ager at Varian Medical Systems Deutschland GmbH, Darmstadt |
| Glen A. Hilton Alpine, Utah, USA |
from June 9, 2015 |
Vice President / VIC Business Controller at Varian Medi cal Systems, Inc., Salt Lake City, Utah, USA |
| Dr. Jens J. Kruse Vice-Chairman Braak |
from Jan. 11, 2011 until June 7, 2016 |
Head of Corporate Finance of private bank M.M.Warburg & CO, Hamburg Member of the Supervisory Board of Biesterfeld AG, Hamburg Member of the Supervisory Board of MAX AG, Dussel dorf |
As of September 30, 2016, members of the Executive Board and Supervisory Board held no shares in the Company.
The bonuses for Executive Board members Marcus Kirchhoff and Dr. Robert Hannemann are always measured by the level of achievement of a target catalogue agreed upon with the Supervisory Board. Part of these bonuses is linked to the MeVis share price trend in defined bandwidths and paid after three years to provide a long-term incentive.
The minimum amount of the part of the bonus linked to the future share price trend is stated as a bonus with share price-related leverage. This could increase by around 86 % if the share price were to develop accordingly over the next three years.
The members of the Executive Board received the following remuneration in the period from January 1 to September 30, 2016:
| FIGURES IN € | Fixed remune ration |
Perfor mance related re muneration |
Components with long term incentive characteristic |
Pecuniary benefits from non-cash benefits |
Stock options |
Total |
|---|---|---|---|---|---|---|
| Salary | Bonus | Bonus with share price dependent lever |
||||
| Marcus Kirchhoff | 167,699.97 | 82,500.00 | 57,750.00 | 7,826.00 | 0.00 | 315,775.97 |
| Dr. Robert Hannemann | 132,300.00 | 65,025.00 | 45,517.50 | 1,132.87 | 0.00 | 243,975.37 |
| Total | 299,999.97 | 147,525.00 | 103,267.50 | 8,958.87 | 0.00 | 559,751.34 |
The members of the Executive Board received the following remuneration in 2015:
| FIGURES IN € | Fixed remune ration |
Perfor mance related re muneration |
Components with long term incentive characteristic |
Pecuniary benefits from non-cash benefits |
Stock options |
Total |
|---|---|---|---|---|---|---|
| Bonus with | ||||||
| share price | ||||||
| dependent | ||||||
| Salary | Bonus | lever | ||||
| Marcus Kirchhoff | 218,450.00 | 107,500.00 | 75,250.00 | 10,045.04 | 0.00 | 411,245.04 |
| Dr. Robert Hannemann | 176,400.00 | 86,700.00 | 60,690.00 | 1,132.87 | 0.00 | 324,922.87 |
| Total | 394,850.00 | 194,200.00 | 135,940.00 | 11,177.91 | 0.00 | 736,167.91 |
According to the criteria of the German Corporate Governance Code, the Executive Board remuneration is as follows:
In the years 2015 and 2016 the Executive Board members were granted the following benefits:
| FIGURES IN € k | Marcus Kirchhoff Executive Board Chairman |
Dr. Robert Hannemann Executive Board Member |
||||||
|---|---|---|---|---|---|---|---|---|
| Benefits received | 2016 | 2016 (Min) |
2016 (Max) |
2015 | 2016 | 2016 (Min) |
2016 (Max) |
2015 |
| Fixed remuneration | 168 | 168 | 168 | 218 | 132 | 132 | 132 | 176 |
| Additional benefits | 8 | 8 | 8 | 10 | 1 | 1 | 1 | 1 |
| Total | 176 | 176 | 176 | 228 | 133 | 133 | 133 | 177 |
| Annual variable remuneration | 82 | 0 | 82 | 108 | 65 | 0 | 65 | 87 |
| Multi-year variable remuneration | ||||||||
| Bonus on a share dependent lever | 58 | 0 | 58 | 75 | 46 | 0 | 46 | 61 |
| Stock options | 0 | 0 | n.a. | 0 | 0 | 0 | n.a. | 0 |
| Total variable remuneration | 140 | 0 | 140 | 183 | 111 | 0 | 111 | 148 |
| Pension expenses | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total remuneration | 316 | 176 | 316 | 411 | 244 | 133 | 244 | 325 |
In the years 2015 and 2016 the following inflows were received by the Executive Board members:
| FIGURES IN € k | Marcus Kirchhoff Executive Board Chairman |
Dr. Robert Hannemann Executive Board Member |
|||
|---|---|---|---|---|---|
| Inflow | 2016 | 2015 | 2016 | 2015 | |
| Fixed remuneration | 168 | 218 | 132 | 176 | |
| Additional benefits | 8 | 10 | 1 | 1 | |
| Total | 176 | 228 | 133 | 177 | |
| Annual variable remuneration | 108 | 66 | 87 | 58 | |
| Multi-year variable remuneration | |||||
| Bonus on a share dependent lever | 1 | 0 | 70 | 0 | |
| Stock options | 0 | 0 | 76 | 0 | |
| Total variable remuneration | 109 | 66 | 233 | 58 | |
| Pension expenses | 0 | 0 | 0 | 0 | |
| Total remuneration | 285 | 294 | 366 | 235 |
Until June 7, 2016, the remuneration for the members of the Supervisory Board was regulated in Section 10 of the Articles of Association of MMS AG. Thereafter, the members of the Supervisory Board received a fixed remuneration of € 17,500.00 payable after the end of the fiscal year. The chairman of the Supervisory Board twice this amount and his deputy one-and-a-half times this amount. Members of the Supervisory Board who have only belonged to the Supervisory Board during a part of the fiscal year received a pro rata remuneration.
Pursuant to a shareholders resolution dated June 7, 2016 and the corresponding amendment to the bylaws the Supervisory Board members receive no remuneration by the Company for fiscal years after January 1, 2016. It is pointed out that accordingly as opposed to section 5.4.6 para. 1 sentence 2 of the GCGC the Chair and Deputy Chair positions in the Supervisory Board are not reflected in the remuneration and as opposed to section 5.4.6 para. 3 sentence 1 of the GCGC no Supervisory Board remuneration can be reported individually in the notes or management report.
The members of the Supervisory Board are reimbursed for all expenses which they incur in attending meetings of the Supervisory Board plus any VAT due on the reimbursed amount.
As members of the Supervisory Board, the members received the following remuneration for 2016:
a. Dr. Jens J. Kruse
As Vice-Chairman of the Supervisory Board of MMS AG until June 7, 2016, Dr. Kruse received in 2016 remuneration in the amount of € 11 k (2015: € 26 k). He received expense reimbursements amounting to € 0 k (2015: € 0 k).
b. Joerg Faessler
As Chairman of the Supervisory Board of MMS AG, Mr. Faessler waived his remuneration in 2016. He received expense reimbursements amounting to € 0 k (2015: € 0 k).
c. Holger Maar
As a member of the Supervisory Board of MMS AG since June 7, 2016, Mr. Maar waived his remuneration in 2016. He received expense reimbursements amounting to € 0 k.
As a member of the Supervisory Board Mr. Hilton was entitled to a remuneration of € 5 k (2015: € 11 k) in 2016. He received expense reimbursements amounting to € 0 k (2015: € 0 k).
Pecuniary damage liability insurance was concluded at the expense of the Company for the benefit of the members of the Executive Board and Supervisory Board.
At MMS AG's Annual General Meeting of August 22, 2007, the shareholders passed a resolution to create contingent capital of € 130 k in order to issue up to 130,000 stock options to staff or members of the Executive Board on or before December 31, 2011. The Annual General Meeting on June 15, 2011 extended the stock option program until December 31, 2015. The vesting period was also extended from a minimum of two years to at least four years in light of new statutory requirements.
MMS AG is entitled to settle the stock options in cash form – in other words, a combination model is in place. At the date of issue, a fulfillment in equity instruments was preferred, therefore the evaluation was made based on the principles for equity-settled options. The options granted are forfeited if an employee leaves the company. All outstanding stock options have a term of five years from the date of grant. The options granted prior to 2013 have now expired or have been exercised for the first time in 2016. For options granted after 2013 a waiting period of four years applies, this determines the vesting period of the options. Correspondingly, the expense associated with the granting of stock options is distributed over 4 years. The fair value of the employee options granted in 2013 was determined based on a Monte Carlo simulation, estimating the normal distribution of the yield on the future stock price. The nominal distribution is described by the parameters "mean value" and "variance", which were derived from the MeVis share price trend and volatility. This simulation put the total fair value of stock options of the 28,089 options granted in 2013 at € 65 k, € 2.31 per option. Expense equaling the fair value was spread over the vesting period of four years. For fiscal year 2016 year the expense totals € 12 k (2015: € 16 k).
Since the stock option program of MMS AG expired on December 31, 2015, the maximum term of the outstanding options is until December 31, 2020.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Beginning of | Beginning of | |||||||
| reporting | End of report | reporting | End of report | |||||
| period | Change | ing period | period | Change | ing period | |||
| Outstanding stock | ||||||||
| options | 0 | 0 | 0 | 58,975 | -58,975 | 0 | ||
| Options granted | 71,510 | 0 | 71,510 | 71,510 | 0 | 71,510 | ||
| Options forfeited | -17,600 | 0 | -17,600 | -17,112 | -488 | -17,600 | ||
| Options exercised | 0 | -3,000 | -3,000 | 0 | 0 | 0 | ||
| Options lapsed | -24,764 | 0 | -24,764 | -24,764 | 0 | -24,764 | ||
| Total | 29,146 | -3,000 | 26,146 | 88,609 | -59,463 | 29,146 | ||
| of which exercisable | ||||||||
| options | 0 | 0 | 0 | 0 | 0 | 0 |
The Executive Board and Supervisory Board of MeVis Medical Solutions AG support the initiative of the "Government Commission on the German Corporate Governance Code" and thus have issued a joint declaration of conformity pursuant to Section 161 of the German Stock Corporation Act (AktG), confirming that the recommendations of the "Government Commission on the German Corporate Governance Code" in the version dated May 5, 2015 have been and will be generally complied with, disclosing which recommendations have not been and will not be followed. The current declaration of conformity is dated September 9, 2016. Shareholders can view it on the Company website as a PDF.
| FIGURES IN € k | 2016 | 2015 |
|---|---|---|
| Audit of financial statements | ||
| (from prior periods € 21 k; prev. year € 0 k) | 94 | 63 |
| Other assurance services | 8 | 0 |
| Tax advisory | 14 | 29 |
| Other services | 0 | 203 |
| Total | 116 | 295 |
With the exception of the events described in the management report, no material events occurred after the reporting date.
The profit according to German commercial law of € 4,166 k will be transferred to VMS Deutschland Holdings GmbH because of the domination and profit and loss transfer agreement effective since October 20, 2015.
Under the domination and profit and loss transfer agreement, VMS Deutschland Holdings GmbH has committed itself to pay the outside shareholders for the duration of the contract an annual compensation payment for each fiscal year. Per fiscal year this amounts to € 1.13 gross / € 0.95 net per registered share.
Bremen, December 14, 2016
Marcus Kirchhoff Dr. Robert Hannemann Chairman & CEO Member of the Executive Board
for the period January 1 through September 30, 2016
| Cost of acquisition or construction | ||||||
|---|---|---|---|---|---|---|
| FIGURES IN € k | Balance on Jan. 1, 2016 |
Additions | Reclassifi cations |
Disposals | Balance on Sep. 30, 2016 |
|
| I. | Intangible assets | |||||
| Purchased industrial property rights | ||||||
| and similar rights | 2,605 | 62 | 0 | 0 | 2,667 | |
| Customer base / contract relations | 4,091 | 0 | 0 | 0 | 4,091 | |
| Development expenses | 11,349 | 0 | 0 | 0 | 11,349 | |
| Goodwill | 10,625 | 0 | 0 | 0 | 10,625 | |
| 28,670 | 62 | 0 | 0 | 28,732 | ||
| II. | Property, plant and equipment | |||||
| Other equipment, furniture and | ||||||
| office equipment | ||||||
| IT-equipment | 1,213 | 101 | 0 | 2 | 1,312 | |
| Furniture and office equipment | 433 | 16 | 0 | 0 | 449 | |
| 1,646 | 117 | 0 | 2 | 1,761 | ||
| 30,316 | 179 | 0 | 2 | 30,493 |
| Accumulated depreciation and amortization | Carrying amounts | |||||
|---|---|---|---|---|---|---|
| Balance on Jan. 1, 2016 |
Depreciation and amortization |
Reclassifi cations |
Disposals | Balance on Sep. 30, 2016 |
Balance on Sep. 30, 2016 |
Balance on Dec. 31, 2015 |
| 2,434 3,013 |
70 221 |
0 0 |
0 0 |
2,504 3,234 |
163 857 |
171 1,078 |
| 9,369 | 907 | 0 | 0 | 10,276 | 1,073 | 1,980 |
| 0 | 0 | 0 | 0 | 0 | 10,625 | 10,625 |
| 14,816 | 1,198 | 0 | 0 | 16,014 | 12,718 | 13,854 |
| 928 | 98 | 0 | 2 | 1,024 | 288 | 285 |
| 399 | 22 | 0 | 0 | 421 | 28 | 34 |
| 1,327 | 120 | 0 | 2 | 1,445 | 316 | 319 |
| 16,143 | 1,318 | 0 | 2 | 17,459 | 13,034 | 14,173 |
for the period January 1 through December 31, 2015
| Cost of acquisition or construction | ||||||
|---|---|---|---|---|---|---|
| FIGURES IN € k | Balance on Jan. 1, 2015 |
Additions | Reclassifi cations |
Disposals | Balance on Dec. 31, 2015 |
|
| I. | Intangible assets | |||||
| Purchased industrial property rights | ||||||
| and similar rights | 2,643 | 22 | -60 | 0 | 2,605 | |
| Customer base / contract relations | 4,091 | 0 | 0 | 0 | 4,091 | |
| Development expenses | 11,349 | 0 | 0 | 0 | 11,349 | |
| Goodwill | 10,625 | 0 | 0 | 0 | 10,625 | |
| 28,708 | 22 | -60 | 0 | 28,670 | ||
| II. | Property, plant and equipment | |||||
| Other equipment, furniture and | ||||||
| office equipment | ||||||
| IT-equipment | 1,081 | 81 | 51 | 0 | 1,213 | |
| Furniture and office equipment | 411 | 13 | 9 | 0 | 433 | |
| 1,492 | 94 | 60 | 0 | 1,646 | ||
| 30,200 | 116 | 0 | 0 | 30,316 |
| Accumulated depreciation and amortization | Carrying amounts | |||||
|---|---|---|---|---|---|---|
| Balance on Jan. 1, 2015 |
Depreciation and amortization |
Reclassifi cations |
Disposals | Balance on Dec. 31, 2015 |
Balance on Dec. 31, 2015 |
Balance on Dec. 31, 2014 |
| 2,330 2,718 |
166 295 |
-62 0 |
0 0 |
2,434 3,013 |
171 1,078 |
314 1,373 |
| 8,039 | 1,330 | 0 | 0 | 9,369 | 1,980 | 3,309 |
| 0 | 0 | 0 | 0 | 0 | 10,625 | 10,625 |
| 13,087 | 1,791 | -62 | 0 | 14,816 | 13,854 | 15,621 |
| 767 | 132 | 29 | 0 | 928 | 285 | 314 |
| 351 | 15 | 33 | 0 | 399 | 34 | 60 |
| 1,118 | 147 | 62 | 0 | 1,327 | 319 | 374 |
| 14,205 | 1,938 | 0 | 0 | 16,143 | 14,173 | 15,995 |
We have audited the individual IFRS financial statements, comprising the income statement, the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity and the notes to the financial statements, together with the bookkeeping system, and the management report of MeVis Medical Solutions AG, Bremen, for the abbreviated financial year from January 1 to September 30, 2016. The maintenance of the books and records and the preparation of the individual IFRS financial statements and management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 325 (2a) of the German Commercial Code [HGB] are the responsibility of the Company's Executive Board. Our responsibility is to express an opinion on the individual IFRS financial statements and the management report based on our audit.
We conducted our audit of the annual financial statements in accordance with Section 317 of the German Commercial Code [HGB] and German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors [IDW]. Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the individual IFRS financial statements in accordance with the applicable financial reporting framework and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the individual IFRS financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Executive Board, as well as evaluating the overall presentation of the individual IFRS financial statements and the management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the individual IFRS financial statements comply with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 325 (2a) of the German Commercial Code [HGB] and give a true and fair view of the net assets, financial position and results of operations of MeVis Medical Solutions AG in accordance with these requirements. The management report is consistent with the individual IFRS financial statements, complies with the German statutory requirements and as a whole provides a suitable view of the Company's position and suitably presents the opportunities and risks of future development.
Bremen, December 16, 2016
KPMG AG Wirtschaftsprüfungsgesellschaft [Original German version signed by:]
Fahlbusch Moritz Wirtschaftsprüfer Wirtschaftsprüferin [German Public Auditor] [German Public Auditor]
Responsibility statement required by Section 37w (2) and (3) WpHG (German Securities Trading Act) in conjunction with Sections 264 (2) Sentence 3 and 289 (1) Sentence 5 HGB (German Commercial Code) for the financial statements and the management report:
"To the best of our knowledge, and in accordance with the applicable reporting principles, the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the management report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal opportunities and risks associated with the expected development of the Company."
Bremen, December 14, 2016
MeVis Medical Solutions AG
Marcus Kirchhoff Dr. Robert Hannemann Chairman & CEO Member of the Executive Board
This report contains forward-looking statements which are based on management's current estimates of future developments. Such statements are subject to risks and uncertainties, which MeVis Medical Solutions AG is not able to control or estimate with any precision, e.g. future market conditions and the general economic environment, the behavior of other market participants, the successful integration of new acquisitions and government acts. If any of these uncertainties or imponderabilities materialize or if the assumptions on which these statements are based prove to be incorrect, this may cause actual results to deviate materially from those expressly or implicitly contained in these statements. MeVis Medical Solutions AG does not intend and is under no obligation to update the forward-looking statements in the light of any events or developments occurring after the date of this report.
Deviations may occur between the accounting data contained in this report and that submitted to the Bundesanzeiger (German Federal Gazette) for technical reasons (e.g. conversion of electronic formats). In the case of any doubt, the version submitted to the Bundesanzeiger will prevail.
This report is also available in a German-language version. In case of any doubt, the German-language version takes priority over the English-language one.
The report is available for downloading in both languages on the Internet at:
http://www.mevis.de/en/investor-relations/financial-reports/
| January 23, 2017 | Annual Report 2016 (Short fiscal year) |
|---|---|
| February 21, 2017 | Interim Report for Q1 2017 |
| March 8, 2017 | Annual General Meeting, Bremen |
| May 18, 2017 | Interim Report for H1 2017 |
| Aug./Sep. 2017 | Small Cap Conference, Frankfurt am Main |
| August 22, 2017 | Interim Report for Q3 2017 |
Caroline-Herschel-Str. 1 28359 Bremen Germany
Phone +49 421 22495 0 Fax +49 421 22495 999 [email protected]
www.mevis.de
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