Annual Report • Apr 14, 2015
Annual Report
Open in ViewerOpens in native device viewer
overview of key figures (2008 to 2012) have not been adjusted and are therefore only comparable to a limited extent with the figures stated from the 2013 financial year.
'08 61.0 '08 11.2
'13 128.0 '13 19.5
'11 15.3 '11 503 '11 2,319
'13 15.5 '13 546 '13 2,679
'10 13.0 '10 440 '10 2,281
As the innovative and technological market leader for automation and instrumentation solutions in in-vitro diagnostics, we seek to offer our worldwide partners first class solutions and thereby share responsibility towards their customers and patients.
Our success is based on the talents and skills of our employees and their commitment to always perform the extraordinary. Their performance allows for the successful and sustainable development of our company in the interest of all its stakeholders.
Our partnerships are built on mutual trust, continuity and professionalism and with our partners we share a common mission to develop safe, innovative, marketleading products that consistently fulfill customer expectations.
For STRATEC, partnership means responsibility, passion and commitment, to both our customers and our products, that goes well beyond the duration of the product life cycle.
The STRATEC Group is pleased to report record figures for 2014. During the twelve months of the past financial year, a total of 2,719 systems were supplied to our partners and installed in laboratories, blood banks, hospitals and research institutions worldwide. We are proud to be making an increasingly notable contribution towards growth in the global healthcare system infrastructure.
In the 2014 financial year, we increased our sales by 13.2% from 1128.0 million in 2013 to 1144.9 million and improved our adjusted EBIT margin to 17.0%, up from 15.2% in the previous year. We achieved even higher growth in our adjusted earnings per share, which rose by 29.6% to 11.71. This disproportionate increase in EPS was mainly attributable to currency and tax items.
In view of this very positive overall performance and our confidence in STRATEC's long-term prospects, the management is proposing a further increase in the dividend. After distributing 10.60 per share in the previous year, we are proposing a distribution of 10.70 per share for the 2014 financial year, representing a 16.7% increase in total distribution year-on-year. Subject to approval by shareholders at the Annual General Meeting on May 22, 2015, the STRATEC Group will thus be maintaining its continuity-based dividend policy involving a distribution quota of 40% to 60% of consolidated net income. This way, we aim to remain an attractive investment prospect for those interested in a high-growth company while also offering reliability in terms of our dividend distribution.
In parallel with the publication of this Annual Report, STRATEC is publishing for the first time a detailed report on sustainability and social responsibility, which is available on our homepage. These are important aspects of our corporate strategy. In the coming months, we will be adding further content aimed at making our company more transparent and measurable in this area.
In this Annual Report, we would like to introduce you to a very exciting topic – both for healthcare specialists and patients – namely cancer diagnostics using tumor markers in liquid biopsies. This is a very exciting area of cancer diagnostics that has gained in significance in the recent past.
STRATEC is benefiting from this kind of development, as well as from the ongoing increase in outsourcing in our industry, in the form of further development and supply orders. Although the sales expected for projects in these new areas in our industry or early project phases cannot be planned with adequate precision in quantitative terms, they represent interesting longterm opportunities for STRATEC.
Report of the Supervisory Board Liquid
Share
Group Management Report
f.l.t.r.
Dr. Robert Siegle [47] Member of the Board of Management, Finances and Human Resources Marcus Wolfinger [47] Chairman of the Board of Management Dr. Claus Vielsack [47] Member of the Board of Management, Product Development
Based on our current business and order situation, we stand by our forecast average annual sales growth of eight to twelve percent through to 2017. This company forecast, which is based on sales for the 2013 financial year, also accounts for figures falling below or exceeding this range in individual years, as was most recently the case in 2014.
We are channeling all of our energies into building our company's future and thank you for the trust you are placing in us.
Birkenfeld, April 2015
The Board of Management of STRATEC Biomedical AG
Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack
In the 2014 financial year, the Supervisory Board of STRATEC Biomedical AG accompanied and advised the Board of Management in its running of the company, supervising its management and performing the duties required by law, the Articles of Association, its Code of Procedure and the German Corporate Governance Code. The Supervisory Board was directly involved in all decisions or measures of fundamental significance, particularly those involving the corporate strategy, group-related matters and the net asset, financial and earnings position of the company and the Group, as well as those transactions requiring its approval and listed in the relevant catalog in the Code of Procedure for the Board of Management. The Board of Management provided the Supervisory Board with regular, timely and comprehensive written and oral information concerning all issues of relevance to the company.
Outside the framework of Supervisory Board meetings, individual members were also available to discuss specific topics with the Board of Management in various one-to-one talks held in person or by telephone.
The Supervisory Board held a total of seven meetings in the 2014 financial year. Three of these meetings were held as teleconferences.
In its teleconference on February 2, 2014, the Supervisory Board dealt, among other matters, with the appointment of Dr. Claus Vielsack as a member of the Board of Management. Dr. Vielsack is responsible for the group-wide management of technology development.
In its teleconference on March 17, 2014, the Supervisory Board resolved to rescind the appointment of Bernd M. Steidle to the Board of Management as Director of Marketing and Sales.
At its meetings held in person on April 25, 2014, July 25, 2014, October 20, 2014, and December 5, 2014, the Supervisory Board dealt in particular with the risk handbook, compliance management, the Group's sales and earnings performance, its financial position, and the status of and challenges presented by individual development projects at the company and the Group, and held discussions concerning the subsidiaries, the company's organizational structure, the implications of new legislative requirements, the patent and industrial property right situation, and the Group's long-term corporate strategy.
Furthermore, at its meeting on April 25, 2014 the Supervisory Board discussed and approved the annual financial statements and management report of STRATEC Biomedical AG, as well as the consolidated financial statements and group management report for the 2013 financial year. It discussed and approved the draft resolutions to be proposed to the Annual General Meeting on June 18, 2014, including the proposed appropriation of profit for the 2013 financial year. Moreover, at this meeting the Supervisory Board also discussed the realignment of the marketing and sales department.
In the context of the subsidiaries status report at the meeting held on July 25, 2014, discussions focused in particular on the location at Newbury Park, US, and its future focus on development activities and prototype construction.
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Wolfgang Wehmeyer [56] Deputy Chairman of the Supervisory Board Prof. Dr. Stefanie Remmele [37] Member of the Supervisory Board Fred K. Brückner [72] Chairman of the Supervisory Board
At its meeting on October 20, 2014, the Supervisory Board consented to a Board of Management transaction requiring its approval, namely to further expand the location in Beringen, Switzerland. Furthermore, this location extension was discussed once again in detail at the Supervisory Board meeting on December 5, 2014.
In a teleconference held on November 24, 2014, the Supervisory Board approved the sole agenda item, namely the adjustment and amendment to the company's Articles of Association to account for the shares issued for subscription in 2014 in connection with existing stock option programs.
The corporate governance declaration and corporate governance report were approved by the Board of Management and Supervisory Board at the meeting on April 25, 2014 and then published on the company's homepage.
At its meeting on December 5, 2014, the Supervisory Board addressed the German Corporate Governance Code in its version dated June 24, 2014. To monitor compliance with the German Corporate Governance Code, the Supervisory Board reviewed the implementation of the recommendations at STRATEC Biomedical AG and the efficiency of its own work. As a result, the Supervisory Board and Board of Management renewed their Declaration of Conformity pursuant to §161 of the German Stock Corporation Act (AktG) on this date and made this permanently available to shareholders at the company's homepage.
As it only comprises three members, the Supervisory Board has not formed any committees and thus deviates from the recommendation in the German Corporate Governance Code.
All Supervisory Board meetings were attended by all of its members. No conflicts of interest requiring immediate disclosure to the Supervisory Board arose among members of the Board of Management or Supervisory Board.
There were two changes in the composition of the Board of Management of STRATEC Biomedical AG. Dr. Claus Vielsack was appointed as a member of the Board of Management with responsibility for product development as of February 15, 2014. Dr. Vielsack has already held various senior positions in product development at the company for more than 15 years.
The activity on the Board of Management of Bernd M. Steidle, Director of Marketing and Sales, ended as of March 19, 2014. The Supervisory Board expressed its thanks to Mr. Steidle for his longstanding activity and notable achievements on behalf of the company.
The term in office of all members of the Supervisory Board expired upon the conclusion of the Annual General Meeting on June 18, 2014. The Supervisory Board therefore required re-election by the Annual General Meeting. Prof. Dr. Hugo Hämmerle, who did not stand for re-election, left the Supervisory Board. To succeed him, Prof. Dr. Stefanie Remmele, Landshut, Professor of Medical Technology at the University of Applied Sciences in Landshut, was newly elected to the Supervisory Board. The previous Supervisory Board Chairman, Fred K. Brückner, and the previous Deputy Supervisory Board Chairman, Wolfgang Wehmeyer, stood for reelection and were elected once again. The members of the Supervisory Board thanked Prof. Dr. Hämmerle for his constructive contribution.
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Group Management Report
At its meeting on April 8, 2015, the Supervisory Board dealt in detail with the annual financial statements of STRATEC Biomedical AG and the consolidated financial statements, in each case as of December 31, 2014, as well as with the management report of the company and the Group for the 2014 financial year. Both sets of financial statements had previously been audited and provided with unqualified audit opinions by the auditor elected by the Annual General Meeting, WirtschaftsTreuhand GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Stuttgart. Furthermore, in its assessment of the risk management system the auditor also confirmed that the Board of Management had taken the measures required by the German Stock Corporation Act (AktG) for the early identification of any risks to the company's continued existence.
The annual financial statements of STRATEC Biomedical AG, the consolidated financial statements, the management report of the company and the Group, the proposal submitted by the Board of Management in respect of the appropriation of profit, and the auditor's audit reports were made available to us for our review. Representatives of the auditor attended the discussion of the annual and consolidated financial statements at the Supervisory Board meeting on April 8, 2015 and outlined the key audit findings.
The audit of the annual and consolidated financial statements and of the management report of the company and the Group by the Supervisory Board did not result in any objections being raised. The Supervisory Board concurred with the findings of the audit conducted by the auditor in accordance with legal requirements and approved the annual financial statements and the consolidated financial statements. The annual financial statements are thus adopted. Furthermore, the Supervisory Board discussed the proposed appropriation of profit, which foresees the distribution of a dividend of 10.70 per share with dividend entitlement, in detail with the Board of Management and approved this proposal.
The Supervisory Board would like to thank the members of the Board of Management and all employees of STRATEC Biomedical AG and of all group companies for their achievements in the 2014 financial year.
Birkenfeld, April 8, 2015
On behalf of the Supervisory Board
Fred K. Brückner Chairman
For many years, STRATEC Biomedical AG has been a well-established partner of global market leaders in the diagnostics industry. In its role as a close contact and service provider in development and production, STRATEC is part of its customers' strategic focus on markets and segments with excellent prospects of sustainable future growth. STRATEC is already active in markets that are currently just developing from niches or research activities and consequently offer new potential partners and customers. As a result, STRATEC is closely following the development of such niches to ensure early establishment in these developing markets through research and development cooperation activities.
STRATEC's product portfolio is targeted toward growth segments within the diagnostics and healthcare industries. In addition to systems that are currently significant drivers of growth for the company in markets involving immunoassay and molecular diagnostic applications – and are generating sales for STRATEC's customers in the
hundred-million-dollar range – more recent systems and projects still in development exist in sometimes small, but rapidly growing niche segments, such as projects involving circulating tumor cells. Experts expect average annual growth rates of around 25% between now and 2018 for this application, which is considered the fastest-growing segment of the diagnostics industry. As a result, this segment – a sub-segment of liquid biopsy – will be analyzed in more detail below.
Liquid biopsy is a sensitive non-invasive diagnostic method for the quantification and characterization of biomarker in body liquid samples. Liquid biopsy offers clear benefits compared to invasive methods. It is less stressful to the patient and is faster and more economical than conventional tissue biopsies, making it ideally suited for regular therapeutic monitoring.
of Management
Liquid Biopsy STRATEC's Share
Group Management Report
Since liquid biopsy is a non-invasive diagnostic approach, its importance is increasing, particularly in cancer diagnostics and therapy. This technique also has the potential to revolutionize cancer treatment. It allows physicians significantly faster access to additional information on the molecular level, allowing them to optimize or enhance treatment options.
In particular, biomolecular and cytological methods, such as DNA sequencing, have so far involved prior tedious invasive biopsy (i. e., taking a tumor tissue sample from the living organism).
Liquid biopsy is a very useful tool in cancer diagnostics. In addition to other applications, it offers the unique opportunity to get detailed insights into metastasis formation. As a result, this technique can contribute to the identification and understanding of the mechanisms underlying the infiltration of cancer cells into foreign tissues.
In addition, liquid biopsy allows the search for tumor markers or tumor-specific gene mutations not only in blood, but also in other body liquids, such as blood plasma, saliva and urine, providing high analytical sensitivity and specificity. The results of these analyses make it possible to draw conclusions on a potential increase in size or metastatic activity of a tumor (so-called tumor progression) or to detect a disease before clinical signs appear, for example.
In addition to the cancer diagnostic option discussed above, current applications of non-invasive liquid biopsy include cancer screening, cancer classification and personalized medicine as well as the efficacy evaluation and follow-up monitoring of cancer therapies.
Every year, more than eleven million people worldwide develop cancer; almost eight million people die from the consequences.
Tumor markers can be found in the following three relevant types of liquid biopsies:
TUMOR MARKER
In addition to circulating tumor cells (called CTCs below), blood and other body liquids of cancer patients also contain genetic material released by tumor cells, either free or enclosed in exosomes (small, cell-like membrane structures). Like normal human body cells, which release their (normal) genetic material into blood circulation during regular cell death, cancer cells do the same with their (mutant) genetic material.
As a result, the increased level of mutant circulating DNA and RNA (microRNA, or miRNA) in blood or plasma samples indicates cells released from tumors, making it a suitable diagnostic tumor marker. Consequently, a highly sensitive blood test can detect genetic material from cancer cells before patients show first cancer symptoms. This process allows conclusions on the type of mutation of the cancer cell and the relative tumor size, for example. Newly developed techniques such as "digital droplet PCR" or "next generation sequencing" make this relationship detectable by analyzing cell-free DNA. The current view therefore strongly supports growing future acceptance of these techniques in cancer diagnostics.
In addition, the detection of cell-free DNA in blood is today also used for transplantation monitoring and has become the basis of noninvasive prenatal diagnostics.
Exosomes are the major constituent of the human body's complex communication system. They are used for the transfer of genetic information between body cells by all body liquids, plus they contain and transport substances such as genetic material. It is generally accepted that they are very important for the detection of new biomarkers, which serve as the basis for personalized medicine and diagnostics. Exosomes can be isolated from body liquids such as blood, urine or cerebrospinal fluid. They also allow the extraction and purification of top-quality RNA and DNA for other analyses.
Report of the Supervisory Board STRATEC's Share
Liquid Biopsy
Exosomes are released by both healthy and ill body cells. Exosomes from tumor cells contain tumor-specific RNA, for example, that can be more easily isolated from body liquids than from biopsy tissue samples. Compared to CTCs, exosomes provide the additional benefit that they are released from almost all body cells and could therefore be useful for other pathological applications in addition to cancer diagnostics. As a result, they provide new options in the molecular diagnosis of a wider range of diseases.
It is therefore to be expected that exosomebased tests could become a diagnostic alternative to both tissue biopsies and CTCs.
CTCs are cells that can release themselves from a primary tumor and circulate in the circulating blood and lymph of the affected patients. Consequently, they are part of the metastatic process and responsible for the progress of cancer or the growth of additional tumors far away from the primary tumor.
However, this characteristic alone makes them a valuable early indicator of early cancer or an indicator of individual tumor size and status during cancer therapy.
According to the current state of knowledge, about 80% of all cancer patients die from the consequences of metastases rather than from the actual primary tumor. Cancer formation and the underlying biochemical processes are now well understood, and thanks to progress in CTC isolation and characterization, researchers are also searching for a better understanding of the basis of the formation of metastatic process.
Oddly enough, the most common cancer types – breast cancer, prostate cancer, lung cancer and intestinal cancer – are those that have the ability to form metastases. They account for half of all cases of cancer. As a result, cancer diagnostics includes a wide range of applications with a potential high clinical impact of the analysis of CTCs in blood.
The availability of a diagnostic tool to count individual CTCs in the blood allows physicians to assess the severity of individual cancer cases, since the CTC count in blood correlates with the progress of this disease and the probability of the patient's survival. The number of CTCs per sample is extremely low, and their purification is a very tedious task. Nevertheless, they provide extensive information relating to genetic and cellular conditions. Such information should allow predictions about the efficacy of a specific cancer treatment in the near future.
Today, CTCs are attracting the attention of many biotech companies and researchers because they can be isolated by a relatively simple blood test instead of tedious tissues biopsy procedures. Thanks to their non-invasive and far more patient-friendly approach, they represent a superior tool for cancer diagnostics. In addition, the harvested cells are readily available for state-of-the-art biomolecular analyses, such as real-time PCR, next generation sequencing, immune assays and mutation analyses. Once the biomolecular analyses of CTCs have been fully developed and are available, they could become part of daily medical routine in just a few years. The scope of application even could extend to the screening of subjectively healthy and symptom-free individuals for CTCs, for example, thereby opening the door to the very early identification of potential cancer development.
Some years ago, the U.S. Food and Drug
Administration (FDA) issued a registration for a method and a medical device to isolate and count CTCs. Even now, this system allows prognoses for patients with metastatic breast, intestinal or prostate cancer. This routine blood test can be performed at any time during the course of cancer therapy and has already established itself as a standard method in many diagnostic labs. Together with other test results, the results are assessed by qualified physicians to allow a complete prognosis for individual patients. CTC tests are currently still expensive, with the price for a single test at around USD 150 to USD 300.
Standardized Current Procedural Terminology Codes (CPTs) entered into force in the U.S. in 2013. These CPT codes are used by the American Medical Association (AMA) for diagnostic services and other purposes to ensure a consistent structure of information regarding medical services and methods between health-care professionals, patients and insurance companies and for other administrative, financial and analytical purposes. It is generally accepted that the release of such codes indicates broad clinical applicability. With respect to cancer patients, it indicates the possibility of a more detailed assessment of the probability of cancer patients' survival. This measure also had the effect of attracting other players in the market to this segment that had previously been dominated by the U.S. company Veridex. Today, more than 50 companies offer a number of new methods for detecting, isolating or analyzing CTCs, and other advanced techniques and procedures have been developed for their isolation and characterization.
of Management
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Consolidated Financial Statements
The market size for commercially available CTC-based cancer diagnostics was around USD 25 million in 2013. A study forecasts a fast average annual growth rate of 25% between now and 2018. As a result, the expected growth rate for this segment is even above the growth rates for diabetes tests (15%) and DNA/RNA tests (13%).
As the market leader with respect to innovation and technology in the segment of fully automatic analytical systems for partners in clinical diagnostics and biotechnology, STRATEC expects to play a role in this fastgrowing market segment of in-vitro diagnostics thanks to liquid biopsy projects presently in development.
The objective of cancer research is to transform cancer – like HIV – from an all too often fatal illness into a chronic disease that can be managed with long-term treatment options.
Only 5% to 10% of all cases of cancer are caused by genetic factors.
The key factor driving share prices in 2014 was once again the loose monetary policy on the part of central banks. In Germany, the glut of liquidity announced by the ECB President, the surprising cut in interest rates, and the weakness of the euro pushed the DAX to historic records. Germany's lead index topped the magical 10,000 point mark for the first time in its history in July 2014.
Negative factors, such as investors' concerns about the long-term impact and expiry of the massive bond purchase program in the US, unclear implications of developments in the Crimea crisis and Ukraine conflict, the drop in oil prices, extremist groups and the Ebola epidemic, led to a rollercoaster ride on the markets.
Despite great volatility, in 2014 as a whole the DAX rose by 2.7%, the MDAX by 2.2%, and the SDAX by 5.6%. At 17.5%, the annual performance of the TecDAX far outstripped these figures.
STRATEC's share began the 2014 trading year at 130.25 (Xetra, closing price on December 30, 2013). It reached its annual low at 130.06 (Xetra, intraday) on the fourth day of trading already, and touched this figure once again on March 21, 2014. As the year progressed, STRATEC's share increasingly outperformed its comparative index, the TecDAX.
On August 1, 2014, STRATEC's share topped its all-time high of 1 40.00 dating from February 2013. With high trading volumes, the new all-time high reached this day amounted to 142.39 (Xetra, intraday). After two previous attempts, and following a sharp correction in share prices in the first half of October, the share then exceeded this new high on October 30, 2014. From October 16, 2014, the day on which the downward correction ended, through to December 3, 2014, STRATEC's share surged ahead, rising from 135.33 to its currently valid all-time high of 153.10 (both Xetra, intraday). STRATEC's share closed at a price of 145.75 on December 30, 2014. With share price growth of 51.2% in 2014, the share was thus one of the top-performing stocks in the TecDAX.
STRATEC's Share
Liquid Biopsy Consolidated Financial Statements
| Key figures for STRATEC's share (status: December 31) |
2014 | 2013 | 2012 | 2011 | 2010 |
|---|---|---|---|---|---|
| Year-end price previous year (in 1) | 30.25 | 37.65 | 31.75 | 31.91 | 26.58 |
| Annual low (in 1) | 30.06 | 25.30 | 28.02 | 24.80 | 22.11 |
| Annual high (in 1) | 53.10 | 40.00 | 39.48 | 34.00 | 34.14 |
| Year-end price (in 1) | 45.75 | 30.25 | 37.65 | 31.75 | 31.91 |
| Performance (%) | +51.2 | -19.6 | +18.6 | -0.5 | +20.0 |
| Dividend per share (in 1) | 0.701 | 0.60 | 0.56 | 0.55 | 0.50 |
| Distribution total (1 million) | 8.31 | 7.1 | 6.6 | 6.4 | 5.8 |
| Dividend yield (%) | 1.51 | 2.0 | 1.5 | 1.7 | 1.6 |
| Share capital (1 million) | 11.8 | 11.8 | 11.7 | 11.7 | 11.6 |
| Number of shares issued (million) | 11.8 | 11.8 | 11.7 | 11.7 | 11.6 |
| Market capitalization (1 million) | 540.0 | 356.0 | 441.9 | 370.7 | 369.2 |
| Trading volumes (1 million) | 131.1 | 109.8 | 126.6 | 132.2 | 127.1 |
| Average daily trading volume (in 1) | 520,199 | 433,863 | 498,367 | 514,502 | 496,439 |
Average daily trading volume (number of shares) 13,200 13,275 15,201 17,232 17,643
1 Proposal to Annual General Meeting on May 22, 2015
Since 2004, when a total dividend of 10.3 million was distributed for the 2003 financial year, the company has enabled its shareholders to participate in its success by consistently distributing a higher dividend each year. Given the Group's pleasing operating performance in 2014 and its strong future prospects, the Board of Management and Supervisory Board intend to propose the distribution of a dividend of 10.70 per share with dividend entitlement for approval by the Annual General Meeting on May 22, 2015 (previous year: 10.60). Subject to approval by shareholders, this would correspond to a distribution quota of 41.7 % of consolidated net income and to a distribution total of 18.3 million (previous year: 17.1 million). Based on the year-end closing price on December 30, 2014, the dividend yield would amount to 1.5% (previous year: 2.0%).
The company's shares are listed in the Regulated Market of the Frankfurt Stock Exchange (Xetra and Frankfurt marketplaces) and meet the transparency requirements of the Prime Standard. Furthermore, the shares are also traded on the regional stock exchanges in Stuttgart, Munich, Berlin-Bremen, and Düsseldorf.
Measured in terms of gross order book turnover, STRATEC shares worth 1 131.1 million changed hands on the aforementioned marketplaces in 2014 (previous year: 1109.8 million). Of this total, the Xetra and Frankfurt marketplaces alone accounted for 83.8% (previous year: 90.7%).
Since November 2010, STRATEC's share has been listed in the TecDAX, a select index comprising 30 technology stocks at the German Stock Exchange. In 2014, STRATEC managed to further consolidate its position in the TecDAX. At the end of the year, STRATEC was ranked 23rd (previous year 26th) in terms of market capitalization and 37th (previous year: 33rd) in terms of trading volumes.
| ISIN | DE0007289001 |
|---|---|
| WKN | 728900 |
| Deutsche Börse ticker | SBS |
| Reuters Instrument Code | SBSG,DE |
| Bloomberg Ticker | SBS:GR |
| Sector | DAXsector All Pharma&Healthcare |
| Transparency level | Prime Standard |
| Market segment | Regulated market |
| Select index | TecDAX since November 19, 2010 |
| Currency | 1 |
| Class | Ordinary bearer shares |
| Share capital (in 1) | 11,795,445.00 |
| Share capital (number of shares) | 11,795,445 |
| Initial listing | August 25, 1998 |
| Marketplaces | Xetra; Frankfurt, and further regional stock exchanges in Germany |
| Designated sponsors | Commerzbank AG Oddo Seydler Bank AG |
| Average stock turnover per trading day in 2014 | 13,200 shares/1 520,199 |
A total of 25,200 stock option rights were exercised in the 2014 financial year within the stock option programs introduced for managers and employees. The 25,200 new shares arising as a result increased the share capital by 125,200.
The share capital amounted to 111,795,445 as of December 31, 2014 and was divided into 11,795,445 ordinary bearer shares.
Distribution of share ownership
by investor group
STRATEC's shares are in widespread ownership. The free float share (based on the German Stock Exchange definition) amounts to 61.11% and is spread across a large number of retail and institutional investors in Germany and abroad. Of the shares, 38.89% are in fixed ownership. Of these, 0.10% are treasury stock owned by the company itself and therefore do not have any voting or dividend rights.
41.71% of the shares are attributable to the company's founder Hermann Leistner, his family, and their investment companies.
STRATEC's Share
STRATEC backs up its corporate strategy, which is aimed at achieving sustainable value growth, with continuous and transparent communications with capital market participants. Our aim is to retain investors' trust and to attract new investors. STRATEC's investor relations activities ensure that investors, analysts, journalists, and the business and financial media are actively provided with continuous, up-to-date information about the company's business performance.
Via our financial calendar, which is published in the annual report, quarterly reports, and on our company homepage, interested parties can inform themselves of important dates regularly and with sufficient notice.
Furthermore, capital market participants are kept regularly informed of the company's strategic development and business performance with the publication of financial reports and of ad-hoc announcements and press releases.
One core component of STRATEC's investor relations activities involves holding teleconferences upon the publication of our annual report, our interim reports, and other important company news. As well as holding numerous one-to-one meetings, STRATEC also gives presentations at capital market conferences in which the company and its underlying business model are presented and outlined in great detail to investors from Germany and abroad.
Analysts' recommendations are one of the key instruments in helping shareholders and investors to reach an opinion about a share. Eight institutions currently report on STRATEC in extensive studies and brief analyses issued on a regular basis. These are: Berenberg Bank, Bryan, Garnier & Co, Deutsche Bank, DZ Bank, HSBC Trinkaus & Burkhardt, Kepler Cheuvreux, Landesbank Baden-Württemberg, and Oddo Seydler Bank.
The latest information about STRATEC and its share can be found on the company's website at www.stratec.com.
| Group fundamentals | 19 |
|---|---|
| Business report | 23 |
| vents after the balance sheet date | 30 |
| utlook, opportunity and risk report | 30 |
| Internal control system and risk management system in respect of the financial reporting process |
34 |
| isk reporting in respect of the use of financial instruments | 35 |
| Compensation report | 36 |
| Corporate Compliance | 44 |
| Takeover-relevant disclosures | 45 |
| eclaration on corporate governance (§289a HG B) |
46 |
* This management report contains certain forward-looking statements relating to the development of the STRATEC Group which are based on assumptions and estimates that are subject to uncertainties and risks and May thus lead to variances from the planned results. We assume that these statements are realistic but cannot exclude the possibility of potential variances arising.
of Management
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Group Management Report
19 Letter from the Board Consolidated Financial Statements
STRATEC Biomedical AG is a globally active company that, since its foundation in Birkenfeld, Germany, in 1979, has developed from a provider of specialist automation solutions into a development, service and production partner to leading global providers of diagnostics and life science solutions.
The services offered by STRATEC Biomedical AG and its associates (hereinafter "STRATEC") range from designing and manufacturing fully automated analyzer solutions via sample preparation, quality management and approval services for one-stop solutions through to providing software solutions to control and interlink system solutions in laboratories:
STRATEC Instrumentation: STRATEC's automation solutions are subdivided on the basis of two different development approaches:
larger-scale development expenses or to customers only able to place smaller numbers of systems a year and thus unable to afford the more time-consuming and costintensive individual development process.
STRATEC offers a comprehensive spectrum of services to its partners in the field of instrumentation solutions. These range from design, via feasibility studies, technological development and documentation, through to the compilation of approval documentation and numerous other process steps which the customer would otherwise have to perform itself. Over and above the actual development status, STRATEC also offers additional services ranging from serial appliance production through to providing spare parts and services.
Alongside the core instrumentation solution business, customers and partners are also offered supplementary solutions:
STRATEC Data Management: As well as software solutions integrated into the instrumentation solution, STRATEC also offers its partners flexible software solutions which range from interlinking various systems in one laboratory to controlling work volumes between systems. By providing access to test results and their classifications, these solutions also help laboratory directors in reaching their decisions. They are developed both as standard solutions and as individually developed software adapted in line with the customer's requirements and corporate design. They are then referred to as middleware software.
STRATEC Molecular: STRATEC offers its partners and customers numerous specialist sample preparation solutions. Customers are offered OEM solutions capable of integration into their product ranges. Smaller and medium-sized laboratory operators in particular are also offered finished products either alone or together with instrumentation solutions. Sample preparation is a work step required in molecular diagnostics in particular prior to the execution of the actual test processes.
Given its activity as a partner to global players, STRATEC is in the special situation of not having to maintain its own worldwide sales and service network.
Due to the presence of its partners and given the nature of its business model, STRATEC's products are found where its partners are present with their solutions. The company therefore cultivates close relationships with leading diagnostics and life science companies in various countries and regions where decision makers at the partners are present. Furthermore, STRATEC has established production and development sites at locations enabling it to perform its services for its worldwide partners with the greatest efficiency and best quality possible. Alongside the headquarters, which has grown over time in Birkenfeld, the company thus has further locations in Germany, Switzerland, the UK, Romania, China, and the US.
Sales volumes in the in-vitro diagnostics (IVD) instrumentation market are currently estimated at around seven billion US dollars a year. Some 65% to 70% of this volume is attributable to projects performed by diagnostics players themselves (IVD in-house market). Experts expect the overall market to grow to well over eight billion US dollars by 2018. Over the same period, the global share of system solutions placed by outsourcing partners such as STRATEC is already set to increase to 40% (IVD OEM market). Due to the high degree of sub-market segmentation, the market relevant to STRATEC has a volume of approximately 10.7 billion to 11.0 billion.
Key factors motivating companies to outsource growing shares of their instrumentation activities to OEM partners include the cost savings resulting from efficient and lean structures, the time savings in development due to the extensive technology pool available, and the high degree of planning reliability achieved by drawing on proven methods, established processes, platform technology, and indepth expertise.
Headquarters Subsidiary Manufacturing Development
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Group Management Report
STRATEC's strategic objective is to generate sustainable, ecologically and socially responsible growth ahead of the sector average and, as an innovation leader, to make a valuable contribution towards further technological advances in the field of medical technology. This will ensure that STRATEC successfully establishes itself as a valuable and cherished partner for an even greater number of customers, employees, and shareholders.
To achieve this objective, STRATEC has in recent years developed consistently from a highly specialized niche provider into a responsible partner to global market leaders. It offers its customers all-round, innovative one-stop solutions whose implementation would otherwise require companies to maintain numerous highly qualified, in-house specialist teams. Some of STRATEC's potential customers and established partners have now completely outsourced these activities or are in the process of assigning individual stages to specialist providers. Together with its focus and innovative strength, STRATEC's ongoing development activities for numerous customers mean that it is always at the forefront of technological developments. This enables it not only to understand its customers' expectations but generally also to satisfy these with a marketable solution in the form of a finished product. Given ongoing technological advances, this is more difficult for diagnostics companies that do not specialize in instrument development and that only address new appliance generation development at the end of system lifecycles.
STRATEC aims to become further established as a leading partner for outsourcing solutions in high-growth segments within the in-vitro diagnostics market, such as molecular diagnostics or freely circulating tumor cells. Not only that, it aims to offer niche solutions, currently performed as additional services, as proprietary product solutions backed up by corresponding property rights. Furthermore, the company is monitoring further markets, in most cases highly regulated niche markets, and evaluating them for its potential expansion.
Not only that, the company still plans to work together with providers of new technologies to transform innovations from development status into market-penetrating products or additions to existing product portfolios. This way, it should be able to complement the value chain and, not least, to offer the results as OEM solutions to global players.
Alongside ongoing adjustments to the company's organization and structures in line with its growth, the key objective of group management is to maintain STRATEC's track record of sustainable sales growth ahead of average growth rates in the in-vitro diagnostics industry while further improving the company's profitability and detecting any inappropriate developments in good time.
The "Instrumentation", "Data Management", and "Molecular" areas of activity form one component of the reporting system within the STRATEC Group. To account for the presence of these activities at various locations, the STRATEC Group has a matrix organization structure. Company management thus largely involves managing the legal units, with the respective measures being implemented at the individual locations by the local management. The most important key figures are compiled, reported and monitored on this basis. The focus here is just as much on the sales and margin performance of individual units as on the respective development, production and supply figures. Alongside this analysis of actual figures, a forecast system based on contractual agreements, current customer forecasts and past experience also serves to manage activities and enables the company to react to any potential inappropriate developments.
As the group management, the Board of Management of STRATEC Biomedical AG lays down the strategic framework for the STRATEC Group in agreement with the Supervisory Board. All business divisions are managed by setting annual sales and earnings targets ("management by objectives"). In agreement with the Board of Management, individual location managers decide under their own responsibility how the objectives can be met by setting strategic and operating targets. As well as via quantitative targets, the company's performance is also increasingly managed by way of qualitative targets.
Alongside quantitative reporting structures, monthly assessments of current project developments and risks are additionally reported by individual location managers and project directors to the respective heads of department or the Board of Management.
Furthermore, the regular exchange of information in telephone conferences and meetings with the management of subsidiaries ensures that all matters relating to the Group's business performance are discussed. These measures also include visits on location.
A further management instrument is the variable compensation paid to local management teams at the subsidiaries, employees in senior or key positions, and sales employees. This variable compensation is largely dependent on the key figures achieved, especially operating earnings, but also on strategic objectives. This raises awareness of cost structures and efficiency enhancements, and thus of the company's long-term business performance, among employees in those company divisions not able to directly influence sales.
For companies driven by innovation, research and development are far more than a product development service for their customers. Alongside STRATEC's wealth of expertise built up over time, the company's research and development are a major competitive advantage over other companies that, due to different salary structures in so-called low-wage countries, might offer technologies developed in the past at lower cost. STRATEC's sustainable growth and reputation are based on the innovations resulting from a combination of the company's experience and the numerous talks its holds with customers concerning present and future challenges and requirements. In view of this, the company accords great value to in-depth expertise and the interaction of complex processes, and that not only when developing analyzer systems that act as interfaces between laboratory work processes and test processing. To develop successful system solutions for this market, all areas – from sample preparation through to test result evaluation with the assistance of complex software solutions – benefit from the knowledge and experience of various engineering and scientific disciplines. This need to specialize in technological developments in the field of medical technology is further intensified by specific regulatory requirements in the most important markets (US, Europe, the BRIC countries, Japan), which only allow limited latitude when documenting development results. STRATEC views this development as an opportunity to extend its head start in terms of innovation and expertise and thus to further differentiate itself from its competitors. The company will therefore continue to invest in research and development.
STRATEC's development activities are based on the following key aspects:
Permanent system modernization is required to facilitate long lifecycles for our systems on the market. This factor is accounted for above all in our software development and verification activities. This is one of the main reasons for the disproportionate growth in these areas within STRATEC's development division.
To boost our competitiveness and leading position as an independent system provider, STRATEC not only observes ongoing changes in our customers' needs in terms of technologies and processes, but also constantly analyzes innovations and developments in the relevant markets. The insights thereby gained are correspondingly factored into the development of new technologies. One key focus here is on gaining early experience with processes resulting from research, and in particular with technologies and processes in which we see potential for routine application in in-vitro diagnostics.
A further focus of STRATEC's development activities involves further developing and enhancing platform technologies for relevant systems. These platform technologies are of key significance. After all, they are not only one of the main factors determining the performance of our systems, but also account for the greatest cost item in their production.
The overall package of proprietary platform technologies, a good understanding of research and the in-vitro diagnostics environment, and the tools and processes optimized for use in this area enable STRATEC to offer all-round solutions with highly attractive development periods and ensure that STRATEC retains control of key industrial property rights for all systems thereby developed. Not least as a result of these factors, the company's long-term cooperation with its partners and customers is ensured. Total expenses for personnel and material outlays for research and development activities at consolidated group companies amounted to 119.4 million in the 2014 financial year (previous year: 117.7 million).
of Management
Report of the Supervisory Board Liquid Biopsy Share
STRATEC's
Group Management Report
The macroeconomic framework generally affects STRATEC's business performance to a far lesser extent than planning and product lifecycles in the markets relevant to the company, such as the diagnostics industry. As healthcare system spending in very many countries, especially developing and emerging economies, is often very closely linked to their economic growth and development in gross national product, several key items of relevant data are presented below.
In western industrialized economies, which still account for a major share of STRATEC's customers' sales markets, the macroeconomic outlook is positive for 2015 as well, with the US and the UK slightly ahead with expected economic growth of almost 3%.
Sources of both political and economic uncertainty remain in Europe and the resultant economic implications cannot easily be assessed. As economic players, the countries more weakly placed in economic terms are of lesser significance for global markets. However, the destabilizing factors are difficult to evaluate and remain a source of uncertainty. Reform efforts in several European countries have led to an increasingly positive outlook. Having said this, other countries, including some heavyweight economies, are still falling short of expectations.
The combination of a low euro exchange rate and persistently low interest rates means that conditions for growth remain positive. Europe is expected to generate economic growth of 1.2% in 2015.
The more aggressive monetary policies adopted by the US and UK have led their economies to recover and unemployment figures to reduce. This is also benefiting exportbased economies such as Germany. Furthermore, the relatively weak oil price is also promoting a positive consumer climate.
The global economy is expected to show growth of around 3% both in 2015 and in the years to the end of the decade. By 2016, emerging markets will already account for one third of global healthcare spending. These economies too will thus continue to gain in significance as lucrative markets for STRATEC's customers.
China, one of the key growth drivers in recent years, has lost a little of its momentum, but will still generate substantial growth in a medium to high single-digit percentage range. Given new reform hopes, India too is expected to see positive economic developments, with growth of almost 6% forecast for 2015.
Political unrest means that the economic framework remains difficult in countries such as Russia and Ukraine, as well as in Middle Eastern and North African countries.
Industry and market data: Based on different estimates, in-vitro diagnostics (IVD) will continue to show average global growth of around 4 1 to 5 2 % in the years until 2018 and 2020 respectively. Some regions, such as the BRIC states, are growing significantly faster, while other regions, such as Europe, are not expected to show any growth. Similar developments can be seen in the various IVD segments. While some areas in which STRATEC consciously does not operate, such as blood sugar self-testing, are expected to decline significantly, other segments are expected to show very strong growth in future as well. STRATEC plans to continue benefiting to a disproportionate extent from these growth rates by deliberately tracking down and developing projects in high-growth niches. The company currently has both customer projects and proprietary platform solutions in development for several of these sub-segments.
The US still represent a special case. While cost savings could have a slightly negative impact on the test volumes handled at laboratories, overall test volumes are nevertheless expected to rise due to the growing number of people with health insurance. On the one hand, the number of people insured has most recently risen slightly due to lower unemployment rates and is expected to remain stable until 2018. On the other hand the Affordable Care Act (Obamacare) is expected to substantially increase the number of people insured from around 217 million in 2015 to around 235 million 3 , unless Obamacare is blocked or restricted by court decisions.
1 Kalorama Information: The Worldwide Market for In Vitro Diagnostic Tests
2 Allied Market Research/ IVD Market
3 Berenberg Bank: Med. Tech/Services
Even though the diagnostics, pharmaceuticals and healthcare industry repeatedly witnesses short-term periods of consolidation at individual market players due to corporate takeovers and new technological development possibilities, several underlying factors will guarantee sustainable growth in future as well:
STRATEC AG can report substantial sales growth accompanied by rising profitability for the 2014 financial year. The company slightly exceeded the targets communicated in its financial forecast dated July 12, 2013, namely of generating sales growth of 8% to 12% based on the 2013 sales of 1128.0 million and of increasing the EBIT margin. The forecast made in the previous year's group management report, namely of achieving rising sales and a slight increase in the EBIT margin, was achieved. Sales for 2014 grew by 13.2% to 1144.9 million. This development was very clear throughout the first three quarters, each of which saw substantial yearon-year sales growth. Sales thus showed year-on-year growth of 13.5% in the first quarter, 16.4% in the second quarter, and 17.8% in the third quarter. Sales for the fourth quarter of 2014 increased by 6.6% compared with the unusually strong final quarter of 2013.
This positive performance was driven by strong demand in all key product areas. The growth share of system sales, i.e. with systems placed in the past 24 months, was low.
Not only that, the spare parts and services business also performed positively in 2014, a development reflected not only in sales, but also in the positive development in margins. Over the year as a whole, the spare parts and service business accounted for a 23.4% share of total sales – an increase of 210 base points compared with the previous year (2013: 21.3%).
Our customers implemented several smaller-scale market launches in 2014. Larger-scale market launches are scheduled for the coming years, for which several major milestones were successfully achieved in 2014.
In contrast to previous plans, construction work on the proprietary company premises in Romania did not yet begin in 2014 due to the building permit not yet being issued. Construction work is now due to begin at the earliest possible opportunity.
| in D thousands | 2014 | 2013 | Year-on year change |
|---|---|---|---|
| Sales | 144,860 | 127,950 | +13.2% |
| Cost of sales | 99,924 | 86,186 | +15.9% |
| Gross margin | 31.0% | 32.6% | -160bps |
| EBIT | 24,052 | 19,493 | +23.4% |
| EBIT margin | 16.6% | 15.2% | +140bps |
| Earnings before taxes | 24,054 | 19,333 | +24.4% |
| Tax rate | 17.8% | 19.9% | -210bps |
bps = base points
STRATEC increased its sales by 13.2% from 1128.0 million in the previous year to 1 144.9 million in the 2014 financial year.
Report of the Supervisory Board STRATEC's Share
Liquid Biopsy
STRATEC's success was due to the success of our partners with end customers. This was driven not least by our objective of supplying innovative, high-quality products to make this success possible for our customers. A large share of the sales growth generated in the past financial year was attributable to the instrument business, as well as to a recovery in the spare parts and services business. The most notable rates of growth were achieved with molecular diagnostics and random access technologies. This development was consistent with the growth rates expected in this in-vitro diagnostics segment.
While the total number of systems sold rose by 1.5%, the sales growth of 9.5% in the "Instrumentation" segment was significantly higher. This is mainly due to the shift seen in sales towards more complex and thus generally higherpriced systems. These particularly include those systems recently launched onto the market. This trend is set to continue for those systems currently in development.
Due in particular to write-downs of proprietary development projects, the gross margin fell to 31.0%, down from 32.6% in the previous year.
The project support input required for systems already launched in previous years has reduced over the years. At the same time, the share of project support services paid for has increased. This factor impacted positively on the sales-related expenses, which showed a further substantial reduction from 17.1 million to 15.9 million in the financial year under report.
Gross development expenses in the development divisions grew from 117.7 million to 119.3 million. As a result of research and services performed to expand industrial property rights, this figure includes non-capitalized development expenses of 15.0 million (previous year: 15.0 million) that are to be viewed in connection with forthcoming product developments. This consistently high volume of expenses with highly qualified development personnel forms the basis for the company's further growth.
The general administration expenses of 111.2 million (previous year: 18.8 million) include personnel and material expenses at head office administration departments. The increase in this item was due to the fact that the Board of Management temporarily consisted of four members in 2014, as well as to the subsequent departure of one member of the Board of Management and the resultant costs. Furthermore, auditing expenses also rose sharply compared with the previous year. Auditing expenses for the year under report include a share of the auditing services relating to the 2013 financial year, which witnessed more extensive auditing activity due to the conversion in the recognition of development cooperations.
Driven largely by the improved margin achieved in connection with the product group mix, operating earnings (EBIT) improved from 119.5 million in the previous year to 124.1 million in the 2014 financial year.
Given the STRATEC Group's low level of net debt, net financial expenses are still of immaterial significance.
Taxes on income totaled 14.3 million in 2014, as against 13.9 million in the previous year. The tax rate for the financial year thus decreased from 19.9% to 17.8%. A higher tax charge is to be expected from the 2015 financial year, as a ten-year tax concession in Switzerland expired at the end of the 2014 financial year.
The reporting segments of the STRATEC Group are as follows:
| in D thousands | 2014 | 2013 | Year-on year change in % |
|---|---|---|---|
| Instrumentation | |||
| Sales | 151,166 | 133,338 | +13.4 |
| EBIT | 25,492 | 21,944 | +16.2 |
| All other segments | |||
| Sales | 7,026 | 7,046 | -0.0 |
| EBIT | -90 | -3,860 | +97.7 |
(Internal and external) sales grew by 13.4% from 1133.3 million to 1151.2 million. Sales growth in this segment was chiefly driven by the factors presented in 3.1.1.
EBIT in this segment amounted to 125.5 million, compared with 121.9 million in the previous year. The improvements in sales and earnings power forecast for 2014 in the previous year's group management report were achieved.
At 17.0 million, sales were at the same level as in the previous year. The earnings situation improved substantially. The sales and earnings performance of this segment is expected to improve further. The disproportionate EBIT margin growth compared with the Group's overall growth forecast for 2014 in the previous year's group management report was achieved. The sharply disproportionate sales growth was not achieved.
The forecasts included in the previous year's group management report with regard to sales and the EBIT margin were achieved and are consistent with management planning. The company's financing continues to ensure that its further growth and necessary investments can be financed from internal resources.
of Management
Liquid Biopsy Group Management Report
27 Letter from the Board Consolidated Financial Statements
| Definition | 12.31.2014 | 12.31.2013 | Year-on year change in % |
|---|---|---|---|
| Cash holdings and bank credit balances | 46,636 | 20,734 | 124.9 |
| Current assets ./. cash and cash equivalents ./. current debt |
27,787 | 36,030 | -22.9 |
| Current assets ./. current debt |
74,423 | 56,764 | 31.1 |
| Cash flow/No. of shares (basic) | 2.45 | 1.84 | 33.2 |
The inflow of funds from operating activities improved substantially compared with the previous year. This was driven by the significant improvement in consolidated net income, as well as by lower outflows of funds for taxes on income due to the conversion in the previous year of the accounting policies used to recognized development expenses. The year-on-year reduction in the outflow of funds for investing activities was due in particular to lower outflows of funds for investments in intangible assets.
Financing activities led to an outflow of funds totaling 18.0 million in 2014 (previous year: 15.8 million). This figure includes a further increase in the dividend distribution for the 2013 financial year to 17.1 million (previous year: 16.6 million) and outgoing payments of 11.6 million for the repayment of financial liabilities (previous year: 11.1 million). Moreover, the issuing of shares in connection with employee stock option programs resulted in inflows of 10.7 million from financing activities (previous year: 10.8 million).
Notwithstanding the dividend payment, shareholders' equity grew from 197.2 million to 1112.1 million. As of December 31, 2014, the company's equity ratio amounted to a solid 81.3% (previous year: 82.5%). Current debt grew year-on-year by 24.1% from 112.6 million to 115.6 million. This increase was driven in particular by higher current provisions and higher other current liabilities. Non-current debt rose year-on-year by 25.7% from 18.0 million to 110.1 million. This increase was in turn due in particular to higher deferred tax liabilities. Following the assessment process for 2013, the implications for deferred taxes of the conversion in accounting methods used to recognize development cooperations were recognized in the 2014 consolidated financial statements. This correspondingly increased deferred tax liabilities.
Due to increased conversion work at the company's real estate in the previous year and lower investments in tools and testing materials in the year under report, investments in property, plant and equipment amounted to 11.5 million (previous year: 12.6 million).
The net total of all inflows and outflows in 2014 led to a currency-adjusted increase in cash and cash equivalents by 1 25.9 million to 1 46.6 million as of December 31, 2014. Furthermore, STRATEC has unutilized credit lines of 18.0 million.
The significant rise in total assets in the 2014 financial year was driven by the increase in cash and cash equivalents. This was in turn mainly attributable to the rise in consolidated net income, the reduction in receivables and lower income tax payments than in the previous year. By contrast, the rise in total assets in the previous year was largely driven by the increase in trade receivables in November and December 2013.
The workforce of the STRATEC Group has grown consistently for years now. Alongside the organizational and structural challenges this growth presents, it also offers opportunities for the company. On the one hand, there is the possibility of generating new expertise and benefiting from the experience of employees newly joining the company. On the other hand, it offers the company the opportunity to establish a dynamic, innovative environment as part of its corporate culture.
As of December 31, 2014, STRATEC had a total of 544 employees, as against 546 employees as of December 31, 2013. Fluctuations within the financial year were offset with personnel from temporary employment agencies. By enhancing efficiency, the company achieved a slight reduction in the number of employees in its production division. Here, the number of temporary employees reduced from 42 to 38.
The number of employees working in the research and development division as of December 31, 2014 decreased from 221 to 215. These employees thus accounted for a 44% share of STRATEC's permanent workforce as of December 31, 2014.
| 2014 | 2013 | Year-on year change in % |
|
|---|---|---|---|
| Total employees | 544 | 546 | -0.36 |
| of which Germany (in %) |
70.4 | 71.4 | -100bps |
| of which international locations ( in %) |
29.6 | 28.6 | +100bps |
| Of which female employees (in %) |
23.5 | 23.8 | -30bps |
Personnel expenses at the STRATEC Group rose overall by 8.0% in the year under report (previous year: 2.4%) to 137.2 million (previous year: 134.5 million). This increase was due both to pay increases, to increased wage and salary costs in the US and UK on account of exchange rate movements, and to costs incurred in connection with the departure of a member of the Board of Management in the 2014 financial year. In this respect, there were two changes in the composition of the Board of Management of STRATEC Biomedical AG. Dr. Claus Vielsack was appointed to the Board of Management with responsibility for product development as of February 15, 2014. Dr. Vielsack has worked for STRATEC since 1998 already and has held various senior positions in product development over this period.
Following many years of activity for the company, for which his colleagues on the Board of Management would like to take this opportunity of thanking him warmly once again, the activity of Bernd M. Steidle on the Board of Management (Director of Marketing and Sales) ended as of March 19, 2014.
The success and consistent growth of the STRATEC Group have been driven by the commitment shown by our highly motivated employees. Our individual employee training schemes and the measures taken to promote both team spirit and assist employees in working independently under their own responsibility will ensure our ability to develop very high-quality products for our customers in future as well.
STRATEC offers permanent positions and training posts in a wide variety of vocations. Our close links to universities, especially Pforzheim University, and the resultant opportunities for internships and on-site bachelor and master dissertations, enable us to get to know potential future employees and frequently result in students being offered a first step on their career ladder once they have completed their studies. Furthermore, in cooperation with Pforzheim University STRATEC partly finances an endowed professorship for the field of "Quality Management and Regulatory Affairs" in medical technology.
Our stock option program enables longstanding employees and managers to participate in the company's long-term value growth. After all, this growth is not least a product of our employees' performance.
STRATEC is continuing to optimize its global network to enable it to offer its customers the entire value chain within an efficient process organization structure.
A number of measures and precautions were thus decided in the 2014 financial year and are due to be gradually implemented:
At the company headquarters in Birkenfeld, Germany, talks are being held to discuss possible extensions around the existing company premises to continue to facilitate the medium-term growth planned at this location.
STRATEC's Share
29 Letter from the Board Group Management Report
The location in Newbury Park, US, has been focusing since the fourth quarter of 2014 on development activities and prototype construction.
At the location in Cluj-Napoca, Romania, an application for a construction permit was submitted and the permit has now been issued. Construction work is due to begin at the earliest possible opportunity. This will enable STRATEC to maintain its growth with its workforce in proprietary premises.
STRATEC still expects its production activities at its Beringen location in Switzerland to grow further in the medium term. An extension to the existing premises is therefore planned. Furthermore, the foundation of a service company has created a basis for optimizing organizational processes between the companies and customers.
STRATEC's competence center for the development of middleware software in the UK will be moving to new premises in the course of the 2015 financial year. This should enhance processes and the working environment.
Having viewed sustainability and social responsibility as components of its corporate strategy for many years already, in parallel with the publication of its 2014 Annual Report STRATEC now plans to introduce sustainability reporting on its website for the first time. This area is to be continually extended and will in future include key figures making STRATEC's activities transparent and measurable.
The company's activities underlining its social commitment are outlined below.
STRATEC deliberately promotes sports activities in various disciplines and team-building measures for its employees. The company covers the costs of participation fees for contests, for example, and provides sports jerseys for STRATEC teams.
Furthermore, the company offers targeted support to smaller-scale projects and organizations in the region. STRATEC supports the voluntary fire brigade with donations and also supports its employees as volunteers at the voluntary fire brigade and the Federal Agency for Technical Relief.
Alongside these projects in the region surrounding the company's headquarters, similar measures are also planned at other STRATEC locations. STRATEC also sees itself as a global player and is therefore meeting its resultant responsibility in selected projects around the world:
STRATEC has successfully supported donation-financed projects implemented by Doctors Without Borders (Médecins sans Frontières – MSF) and Plan International (Plan International e.V.). MSF offers assistance to people in need, victims of natural or manmade catastrophes and armed conflict. Plan International is an international children's charity that campaigns for children's rights in developing economies in Africa, Asia, and Latin America.
In cooperation with Plan International, STRATEC supported the following projects in 2014:
Protecting Kamalari girls in Nepal: here the girls are helped to escape exploitative working conditions and to lead selfdetermined lives. For this project, STRATEC organized an in-house donation campaign. The company then doubled and rounded up the amounts donated by employees.
Protecting children's lives – HIV / Aids prevention in Uganda: to protect children against HIV /Aids, around 80,000 children under five years of age and 25,000 pregnant women are due to take part in a PMTCT (prevention of mother to child transmission) program to reduce the risk of mother to child transmission. Local healthcare services are being boosted to provide children and their families with access to medical care. This provides young children in particular with access to life-saving treatment.
Construction of a nursery school in Rwanda: With STRATEC's support, one of eight planned new nursery schools for 45 children each has been built.
The lifting of the exchange rate peg between the Swiss franc and the euro by the Swiss national bank has also impacted to a limited extent on the STRATEC Group. The appreciation in the Swiss franc will correspondingly increase cost structures, particularly personnel expenses, at the Beringen location in Switzerland. As STRATEC only procures and sells a small share of its goods and services in Swiss francs, the implications are largely limited to this factor. STRATEC has taken several measures to counter this cost item and is closely monitoring the development in the Swiss franc with regard to its further planning for the Swiss location.
All in all, despite the negative impact of this exchange rate movement STRATEC assesses the benefits of its Swiss location as overwhelmingly positive.
STRATEC aims to generate permanent, sustainable growth in all business divisions. We are building on innovative solutions enabling our customers to serve their markets with high-quality products. Alongside the activities within our group of companies, we are also relying on further growth in our target markets, especially in the field of in-vitro diagnostics and on the continuing positive trend towards outsourcing at our partners and potential customers.
STRATEC published its currently valid company forecast on July 12, 2013. This forecasts average annual growth of between 8% and 12% through to 2017 on the basis of 2013 sales (1127,950k). Growth rates May fluctuate in individual years and thus leave the target corridor on a single-year basis. The overall forecast through to 2017 should nevertheless remain intact. This forecast remains valid for the overall period.
For the current 2015 financial year, STRATEC expects to be able to generate slight sales growth accompanied by a slight increase in its EBIT margin. Due to expected planned market launches, the company expects to generate substantial sales growth once again in 2016.
Despite investments in further development projects, in our company in Romania, in the further expansion in our Swiss companies, and in expanding the company in China, rising earnings and optimizations in our working capital management mean that our free liquidity will remain more or less at the level seen at the end of 2014.
STRATEC's company forecast is based on budgets that account for the specific features of its business model, as well as for numerous internal and external factors, and that weight such factors in accordance with their significance. New order figures, our customers' forecasts and their order behavior, and their stocking of spare parts and services play a superordinate role here, as do the numbers of projects in development and negotiation. Alongside the core "Instrumentation" business, the company's growth will also be driven by its other business fields of "Data Management" and "Molecular". This forecast does not account for additional opportunities resulting from external growth.
STRATEC's risk management system is based on three independent pillars that are continually adjusted and optimized in line with the company's growing structures. These are the internal control system (IKS), which is permanently being expanded, a compliance system with a structured training and reporting system, and an early warning risk identification system. The aim is to ensure that the STRATEC Group can react in good time to all kinds of influences. The IKS and compliance systems are presented in greater detail in Sections E and H.
STRATEC's Share
Within the risk management system in place at the STRATEC Group, an early warning risk identification system has been established and implemented in the form of a risk handbook used to assess potential areas of risk. This serves to analyze and assess the risks facing the company and its environment. Consistent with the legal requirements set out in §91 (2) of the German Stock Corporation Act (AktG), the system established at the STRATEC Group represents an all-round instrument for monitoring fundamental processes and for the early detection of potential risks. The system lays downs clear requirements, monitoring actions, specified intervals, the managers responsible, and a specified reporting structure.
The main risks requiring analysis include general operating risks, such as investment risks, logistics risks, IT risks, personnel risks, financial risks and legal risks, as well as market risks and project risks.
Individuals required to report risks compile reports on their respective areas of responsibility at fixed intervals. These are qualified and quantified on the basis of a systematic approach. Exceptional developments require ad-hoc report. At the various levels of aggregation, the decision makers and directors and officers are provided with a risk handbook to serve as a controlling instrument. This enables potential risks to be identified at an early stage and the conceivable consequences of such risks, including those arising over time, to be viewed and assessed alongside any change in their probability of occurrence. Risk analysis and reporting also account for the individual companies within the STRATEC Group, as well as for any interdependencies between group companies. To manage risks, the company generally deploys the following measures:
The risk management system for shareholdings held by STRATEC Biomedical AG is safeguarded by way of integration within the Group's risk management system. Furthermore, alongside structured reporting, ad-hoc reporting is also required at weekly, monthly and quarterly intervals on development, production, marketing and sales levels, as well as for key financial figures.
Due to the company's business model and day-to-day work processes, the risks recorded in the risk report include those factors that could result from its ongoing business activities or due to the organizational framework and that can thus be recorded. Past experience shows that risks are often not foreseeable or cannot be recognized in advance, such as the water damages reported in the previous year. Given its numerous cooperations with existing and new partners, its new technologies, and the continuing trend towards outsourcing by customers in changing markets, the future business performance of the STRATEC Group is assessed as sustainably positive. Even though STRATEC also generated substantial growth during past cycles of macroeconomic weakness, and although its business model contains elements offering a high degree of immunity against macroeconomic fluctuations, the possibility of economic and specific risks materializing in future can nevertheless not be fully excluded. Factors such as speed of development, the smooth integration of hardware and software, and the fulfillment of regulatory and market requirements have a considerable impact on the growth and success of the STRATEC Group. Furthermore, the company counters risks such as those arising in connection with project management, procurement and accelerating levels of complexity by ensuring that these are closely monitored. In contrast to these, other factors, such as the definition of market acceptance criteria and the reagents portfolio, a major factor in the success of products at our OEM partners, lie outside the control of the STRATEC Group. Due to our business model, trials, validation, the extent to which minimum purchase volumes are exceeded, and sales structures are in the hands of our customers.
Given STRATEC's business model, which is based on very long periods of cooperation with customers, it is exposed to some risks to a far lesser extent than customary at many other companies in the sector or other industries. As a general rule, customers' long-term planning for the development of an analyzer system takes place independently of macroeconomic cycles or economic crises. The planning periods for development range from around three to five years, while the lifecycle of a system launched onto the market lasts some twelve to 15 years. The following risks nevertheless arise in connection with the company's environment and customer relationships:
One main component of the STRATEC Group's business model is its focus on cooperations with OEM partners who are among the market or technology leaders in their respective fields. By definition, this limits the number of potential partners, a factor that can potentially result in a high degree of dependency. The resultant concentration of sales on a limited number of key customers (key customer risk) and volatilities in the sales of analyzer systems to these customers can lead to fluctuations in STRATEC's performance. The termination of a project by a customer May also lead to a loss of planned sales that cannot be made up for, or only in part. The STRATEC Group will continue to work with existing and new partners in the field of new technologies in order to generate sustainable growth in this area as well and further reduce any "cluster" risks.
The STRATEC Group draws on internal and external supervision to ensure that no third-party industrial property rights are violated. Furthermore, the company has protected its own expertise directly or indirectly with numerous international patents and industrial property right registrations.
The STRATEC Group has reacted to the increase in development expenses, particularly for high complexity and throughput systems, by introducing strict project controlling procedures coupled with an effective target cost management system. The complexity of production processes means that, for reasons of economy and to safeguard quality levels, the STRATEC Group focuses on a small number of suppliers. The high cost of supervising logistics activities, such as safeguarding procurement prices in the long term, and of monitoring quality standards, necessitates this degree of concentration in terms of suppliers. This risk is knowingly entered into in a controlled manner, but is nevertheless minimized with an individual catalog of measures tailored to the respective situations, such as close supplier supervision, maintaining inventory stocks, and forward-looking logistics planning together with clear contract structures and regular supplier audits.
Broadly speaking, STRATEC's competitors can currently be limited to two groups. On the one hand, there are development groups maintained by the diagnostics companies themselves. For a variety of reasons, many diagnostics companies have moved in recent years to outsource these development services to specialist companies such as STRATEC. This move is motivated, among other factors, by the lower costs generally achievable due to the shorter development times resulting from specialization and due to the technology pool available at a company whose everyday business involves offering this kind of solution to numerous customers. On the other hand, STRATEC's competitors also include companies focusing on the development of automation solutions in highly regulated markets. As this specialization requires highly in-depth expertise, the market entry period for potential competitors is relatively long. The number of competitors in both categories remains comparatively low. Based on the information available to STRATEC, the company has gained, rather than lost market share in recent years.
In the past, virtually all major development and supply contracts were settled in euros. This has changed in recent years in that some contracts are now also concluded in US dollars. STRATEC monitors exchange rate movements very closely and agrees hedge transactions to a limited extent. In 2014, the company temporarily hedged its US dollar holdings by purchasing put options. The production and procurement expenses denominated in Swiss francs are limited; due to the appreciation in the franc, however, they have impacted on cost structures within the STRATEC Group. Here too, the company is monitoring developments very closely. Upon the preparation of this Annual Report, however, no hedging transactions had yet been concluded for Swiss francs. Other than the US dollar and Swiss francs, the Group is not exposed to any notable foreign risks in any other foreign currencies.
STRATEC's Share
STRATEC's analyzer systems are deployed in highly regulated markets. Erroneous diagnoses could have drastic implications for the individuals affected. This means that the suppliers and manufacturers of diagnostics products are exposed to liability risks, not all of which can be excluded even by complying with legal requirements and performing extensive quality checks. Although STRATEC would not be the primary addressee for potential liability claims, the company covers itself against liability risks by concluding suitable product liability insurance policies. The possibility of the existing insurance cover being insufficient for potential liability claims can nevertheless not be excluded.
The managers responsible for the early warning risk identification system have identified the following points as potential challenges which should be averted to avoid risks materializing:
Instrumentation and automation in the field of in-vitro diagnostics are highly regulated areas of activity that require extensive expertise to meet requirements and regulations in the respective countries. The test and process structures, which involve close interaction between specialisms as varied as mechanics, software, electronics and biochemical reactions, require the utmost precision and calibration. The corresponding quality assurance and process documentation steps are further foundations for functional development. Successfully combining all these qualities in a complex and reliable, but also user-friendly product, is currently only achieved by a small number of mostly highly specialized companies. As a result, the number of service providers able to cover all areas of the value chain from development through to serial production is very limited. On the other hand, the level of demand is continuing to increase, a development due not least to many diagnostics companies increasingly focusing on developing their reagents and thus not viewing instrumentation solutions as their core business. There are areas outside diagnostics as well where similarly specific qualities are called for and where similar underlying conditions apply. Research laboratories are particularly worthy of mention in this respect. Not only that, pharmaceuticals development processes also require precisely these conditions. As a result, STRATEC continues to benefit from above-average opportunities of participating in this development, and in particular from the trend towards outsourcing. The appearance of new areas of research that move over time from pure research to diagnostics processes and pharmaceuticals products will further increase the demand for laboratory automation solutions.
Alongside its current development and production orders, which involve developing systems using molecular diagnostics, chemi-luminescence, and immune-hematological methods, STRATEC is, as in the past, also pressing ahead with developing further system platforms. By analogy with the automobile industry, the company aims here to facilitate the resource-efficient implementation of future specific system development by working with platform technologies. In parallel, the company is pressing ahead with several development projects within the STRATEC Group in the field of circulating tumor cells. This rapidly growing field within diagnostics currently offers very many opportunities for cooperating in a wide variety of projects with partners from the fields of research and the pharmaceuticals industry.
Further milestones are pending for development projects in the forthcoming quarters and several new products are due to be launched onto the market by STRATEC's customers in the coming years. This will ensure that STRATEC's growth continues.
Furthermore, by making targeted acquisitions, STRATEC is attempting to broaden the range of technologies and services it can offer to its partners.
STRATEC has an internal control system (IKS) which contains audit processes in respect of its (group) financial reporting process and lays down suitable structures and processes and is implemented within the company's organizational structures so as to detect and, where possible, avert any risk of errors. The group financial reporting process is designed to ensure that the Group's financial reports provide a true and fair view of the net asset, financial and earnings position of the STRATEC Group in accordance with the relevant laws and norms. It should nevertheless be noted that no internal control system, regardless of its specific structure, can provide absolute certainty that material accounting misstatements have been avoided or detected.
STRATEC's internal control system is further required to ensure the uniform, correct and prompt accounting treatment of all business transactions to ensure compliance with legal norms, accounting requirements and the company's internal accounting guidelines, which are binding for all of the companies included in the consolidated financial statements.
The following key measures have been introduced to limit risks as far as possible and to detect any misstatements or erroneous disclosures in the consolidated financial statements, or any fraudulent actions:
STRATEC's (group) internal control system is also responsible for ensuring that individual companies within the STRATEC Group prepare their financial statements in accordance with the relevant requirements, while also complying with group-wide standards. Local companies are supported throughout this financial reporting process by trained contact partners at the parent company. These partners also perform a quality check function for the financial data thereby taken over and assist with any complex questions thereby arising. The consolidated accounts are prepared centrally and in line with uniform recognition and measurement requirements based on the data from the subsidiaries included in the scope of consolidation. The specialist managers responsible check the processes in place to monitor compliance with the relevant requirements when this data is included in the consolidated financial statements. The company also draws on expertise from external consulting companies when preparing its consolidated financial statements. As a publicly listed company, STRATEC monitors and analyzes all changes in legislation, IFRS accounting standards and other pronouncements in terms of their relevance and implications for the consolidated financial statements so as to enable these to be implemented promptly. of Management
Report of the Supervisory Board STRATEC's Share
Liquid Biopsy Group Management Report
35 Letter from the Board Consolidated Financial Statements
Our current and future financial strategy is based on the availability of the funds needed to finance substantial organic and external growth, and on an active investment strategy with a well-balanced opportunity/risk profile.
STRATEC Biomedical AG is financed virtually in full by the cash flows generated from its operating activities.
The principal objectives of the STRATEC Group's financial management involve a basically conservative financing policy aimed at guaranteeing permanent availability of the liquidity required, for example for new development and research projects or for external growth, as well as effective risk management. These objectives are chiefly addressed by optimizing our financing costs, and to a lesser extent by optimizing our financing income. Given the objective of creating reserves for potential acquisitions, our investment policies are currently mainly focusing on money market investments. In the short term, these relate to cases where short-term liquidity reserves May be required and in the medium term to cases where corresponding opposing financing items are available.
Financial risks basically arise from currency and interest rate fluctuations.
As mentioned above (please see 2.2. Risks – currency risks), currency risks in procurement and sales markets are on the increase within the STRATEC Group. To counter this risk, the Group is currently making targeted use of derivative hedging instruments. The managers responsible for cash management review the expediency of currency hedging transactions at regular intervals. Due to the Group's structure, the risks resulting from exchange rate movements, and thus the volumes of corresponding hedging transactions concluded, are expected to increase further. The transactions agreed in the 2014 financial year no longer existed as of December 31, 2014. Financial derivatives are generally deployed in cases where it is necessary to hedge risks in the operating business or currency holding risks. The conclusion of such transactions is governed by very strict standards laid down in the Code of Procedure for the Board of Management and was agreed with the Supervisory Board.
Interest rate risks are countered on the basis of the internal requirements of the risk management system in place at the STRATEC Group. Depending on the internal risk assessment, these also involve covering such risks by means of derivative financial instruments. Derivative financial instruments to optimize interest rates May be deployed in cases where financing needs render such measures opportune and where they relate to a general transaction. STRATEC did not conclude any interest rate derivatives in the 2014 financial year.
A financial instrument is a contract simultaneously resulting in a financial asset at one company and in a financial liability or equity instrument at another company. For financial assets, a distinction is made between:
The volume of primary financial instruments can be seen in the balance sheet. Pursuant to IAS 39, the financial instruments on the asset side have been assigned to various categories and recognized either at (amortized) cost or at fair value in line with their respective category.
Changes in the fair value of financial instruments available for sale are recognized in equity (other comprehensive income – OCI) up to the realization of the respective financial instrument. Where the reduction in fair value is deemed material or permanent, however, corresponding impairments are recognized through profit or loss. Changes in the fair value of financial instruments held for trading are recognized through profit or loss.
Further details can be found in Sections G. "Financial instruments" and H. "Risk management" in the notes to the consolidated financial statements.
The Compensation Report of STRATEC AG sets out the basis for determining the compensation of the Board of Management and Supervisory Board, including its amount and structure. The Compensation Report is based on the requirements of § 314 (1) No. 6a) Sentences 5 to 8 and §315 (2) No. 4 of the German Commercial Code (HGB), as well as on the recommendations of the German Corporate Governance Code in the version dated June 24, 2014.
The Supervisory Board lays down the compensation of individual members of the Board of Management, as well as determining and regularly reviewing the compensation system. In determining compensation, the Supervisory Board takes particular account both of the duties and performance of the individual member, as well as of the economic situation and future development of STRATEC AG. The current compensation system for the Board of Management was most recently approved by a majority of shareholders at the Annual General Meeting on June 6, 2013 and consists of the following components:
Fixed compensation for each financial year – This includes a basic amount paid out as a monthly salary, as well as ancillary benefits, such as the use of company vehicles, insurance benefits, and individual contractual arrangements concerning pension provision.
Variable compensation for each financial year (shortterm incentive) – This includes target achievement and extended components. The target achievement component is measured in terms of a given percentage of consolidated earnings before interest and taxes (consolidated EBIT) in accordance with International Financial Reporting Standards (IFRS) and net of a fixed basic amount. The extended component is determined by the Supervisory Board to honor any outstanding performance on the part of the Board of Management. The target achievement component is paid out following the Annual General Meeting of STRATEC AG for the 2014 financial year. Members of the Board of Management are entitled to a mutually agreed monthly prepayment of this component. Payment of the extended component, if granted, is made following expiry of the 2014 financial year. Variable compensation based on the financial year and the two following years (mid-term compensation arrangement or mid-term incentive – MTI) – This compensation consists in equal shares of a linked component, an individual component, and a supplementary component. The linked component consists of two sub-components. The targets determined for the linked components are based on percentage increases in consolidated sales and consolidated EBIT. The individual components are based on various individual targets agreed between the Supervisory Board and the individual member of the Board of Management. These May include targets such as strengthening the Group's organizational structures, optimizing sales structures, enhancing customer and employee satisfaction, and the further integration of subsidiaries.
Target achievement for the mid-term incentive (MTI) scheme is further based in terms of its timing both on achievement of the targets set for the current financial year and the two following years and on a target bonus, i.e. the amount to be paid out in the event of 100% target achievement for all components. The mid-term incentive is paid out following the Annual General Meeting of STRATEC AG for the next year but one, i.e. the mid-term incentive granted for 2012 (and 2013 and 2014 respectively) is paid out in 2015 (and 2016 and 2017 respectively). However, prepayments based on the respective achievement of individual and interim targets are made, subject to the due discretion of the Supervisory Board, at the end of each financial year.
Long-term share-based compensation (long-term incentive) – This compensation consists of stock options within the existing stock option programs. Detailed disclosures concerning the structure of these programs can be found in Section C. "Disclosures on consolidated balance sheet – Stock option programs". Where no stock option program exists, the long-term incentive is replaced at the discretion of the Supervisory Board by a component involving the same targets (such as virtual stock options or the like).
STRATEC's Share
37 Letter from the Board Group Management Report
Consolidated Financial Statements
Caps – Variable compensation components are subject to requirements governing them both individually and in combination in terms of their value and the degree of target achievement. Compensation based on the target components within the "short-term incentive" and "mid-term incentive" schemes, for example, is limited to a maximum of 1.5 times basic salary plus ancillary benefits and pension commitments. Furthermore, the Supervisory Board also has the powers granted by law to limit compensation. Moreover, the employment contracts with members of the Board of Management have been supplemented to include a cap on the long-term incentive as well. Consistent with these additions, the fair value of the options granted in a given financial year May not exceed the fixed compensation paid for that year.
To satisfy the reporting requirements of the German Commercial Code (HGB) and facilitate comparison with the previous year's report, the compensation paid to the Board of Management is presented below in its previous structure.
The individual members of the Board of Management received the compensation set out below for their activities on the Board of Management in the 2014 financial year.
| in D thousands | Marcus Wolfinger | Dr. Robert Siegle | Dr. Claus Vielsack 1 | Bernd M. Steidle 2 | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||
| Non-performance-related components |
|||||||||||||
| Basic amount | 192 | 192 | 174 | 162 | 123 | 0 | 35 | 142 | 524 | 496 | |||
| Other 3 | 16 | 16 | 10 | 9 | 6 | 0 | 7 | 16 | 39 | 41 | |||
| Performance-related components |
|||||||||||||
| MTI compensation claim4 | 158 | 147 | 95 | 88 | 0 | 0 | 39 | 80 | 292 | 315 | |||
| Other performance-related components |
227 | 193 | 176 | 148 | 138 | 0 | 31 | 106 | 572 | 447 | |||
| Components with long term incentive nature |
|||||||||||||
| Share-based compensation 5 |
73 | 65 | 36 | 49 | 36 | 0 | 0 | 49 | 145 | 163 | |||
| Total | 666 | 613 | 491 | 456 | 303 | 0 | 112 | 393 | 1,572 | 1,462 |
1 Member of Board of Management since February 15, 2014.
2 Member of Board of Management until March 19, 2014.
3 The "Other" disclosure includes non-cash benefits due to the use of company vehicles and insurance benefits (excluding contributions made to retirement pensions).
4 The amount disclosed refers to the mid-term incentive agreement for 2012 (2011), which covers 2012, 2013 and 2014 (2011, 2012 and 2013)
and is due for payment in 2015 (2014).
5 The amount disclosed corresponds to the fair value upon issue of stock options issued in the 2014 (2013) financial year, calculated in accordance with IFRS 2 (Share-based Payment), even though these were in some cases not yet vested as of the balance sheet date.
In the 2014 financial year, Marcus Wolfinger was granted 20,000 stock options (previous year: 20,000) at an average exercise price of 131.87 (previous year: 128.09), Dr. Robert Siegle was granted 10,000 stock options (previous year: 15,000) at an average exercise price of 131.87 (previous year: 128.09) and, since his appointment to the Board of Management, Dr. Claus Vielsack was granted 10,000 stock options at an average exercise price of 131.87. Bernd M. Steidle was not granted any stock options in the period through to his departure from the Board of Management (previous year: 15,000; average exercise price: 128.09).
The individual members of the Board of Management did not exercise any stock options in the 2014 financial year. Following his departure from the Board of Management, Bernd M. Steidle exercised 17,500 stock options at an average exercise price of 129.37. In the previous year, the individual members of the Board of Management each exercised 7,500 stock options at an average exercise price of 127.11.
As of December 31, 2014, Marcus Wolfinger had 72,500 stock options outstanding (previous year: 52,500) at an average exercise price of 130.10 (previous year: 129.43) and a weighted remaining contract term of 62.8 months (previous year: 69.9). As of December 31, 2014, Dr. Robert Siegle had 57,500 stock options outstanding (previous year: 47,500) at an average exercise price of 129.97 (previous year: 129.57) and a weighted remaining contract term of 60.0 months (previous year: 68.8). As of December 31, 2014, Dr. Claus Vielsack had 10,000 stock options outstanding at an average exercise price of 131.87 and a weighted remaining contract term of 76.1 months. For Marcus Wolfinger and Dr. Robert Siegle, 20,000 stock options were exercisable at an average exercise price of 129.66 at the balance sheet date on December 31, 2014. In the previous years, no stock options were exercisable for any members of the Board of Management.
The following amounts were recognized as expenses in this respect in the 2014 financial year: 152k for Marcus Wolfinger (previous year: 145k), 141k for Dr. Robert Siegle (previous year: 143k), and, in the period since his appointment to the Board of Management, 17k for Dr. Claus Vielsack. An amount of 110k was recognized as expenses for Bernd M. Steidle for the period through to his departure from the Board of Management (previous year: 143k).
of Management
Report of the Supervisory Board Liquid Biopsy Share
Report STRATEC's
Group Management
Presentation of allocations granted in 2014 financial year – The following tables presenting the allocations granted in the 2014 financial year are based on the recommendations made in the German Corporate Governance Code (DCGK) in its version dated June 24, 2014. The minimum and maximum amounts of compensation achievable have also been presented.
The individual members of the Board of Management were granted the following allocations for their activities on the Board of Management in the 2014 financial year.
| Allocations granted in D thousands |
Marcus Wolfinger Chairman since April 1, 2011 |
Dr. Robert Siegle Director of Finance and HR since February 1, 2011 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2014 | 2014 (min) | 2014 (max) | 2013 | 2014 | 2014 (min) | 2014 (max) | |||||
| Fixed compensation | 192 | 192 | 192 | 192 | 162 | 174 | 174 | 174 | ||||
| Ancillary benefits 1 | 16 | 16 | 16 | 16 | 9 | 10 | 10 | 10 | ||||
| Total | 208 | 208 | 208 | 208 | 171 | 184 | 184 | 184 | ||||
| One-year variable compensation 2 |
193 | 227 | 0 | 227 | 148 | 176 | 0 | 176 | ||||
| Multiyear variable compensation 3 |
260 | 259 | 0 | 378 | 202 | 153 | 0 | 291 | ||||
| MTI 2013 (term 2013 to 2015) |
195 | 0 | 0 | 0 | 153 | 0 | 0 | 0 | ||||
| MTI 2014 (term 2014 to 2016) |
0 | 186 | 0 | 186 | 0 | 117 | 0 | 117 | ||||
| Stock option program | 65 | 73 | 0 | 192 | 49 | 36 | 0 | 174 | ||||
| Total | 661 | 694 | 208 | 813 | 521 | 513 | 184 | 651 | ||||
| Pension expenses 4 | 44 | 43 | 43 | 43 | 42 | 42 | 42 | 42 | ||||
| Total compensation (DCGK) |
705 | 737 | 251 | 856 | 563 | 555 | 226 | 693 |
1 The "Ancillary benefits" disclosure includes non-cash benefits due to the use of company vehicles and insurance benefits
(excluding contributions made to retirement pensions).
2 One-year variable compensation includes the target and extended components based on the respective financial year (short-term incentive).
3 Multiyear variable compensation includes both the allocations granted by the Supervisory Board in the respective financial year for mid-term incentives (MTI) and the allocations granted for long-term incentives with the maximum total target values theoretically achievable. For the maximum values, the cap on total multiyear variable compensation in place on the payment date, amounting to 1.5 times fixed compensation plus ancillary benefits and pension commitments, was not accounted for.
4 Pension expenses include service cost pursuant to IAS 19, excluding interest expenses, as well as contributions paid to external pension providers in connection with retirement pension schemes.
| Allocations granted in D thousands |
Dr. Claus Vielsack | Director of Product Development since February 15, 2014 |
Bernd M. Steidle Director of Marketing and Sales until March 19, 2014 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2014 | 2014 (min) | 2014 (max) | 2013 | 2014 | 2014 (min) | 2014 (max) | ||||
| Fixed compensation | 0 | 123 | 123 | 123 | 142 | 35 | 35 | 35 | |||
| Ancillary benefits 1 | 0 | 6 | 6 | 6 | 16 | 7 | 7 | 7 | |||
| Total | 0 | 129 | 129 | 129 | 158 | 42 | 42 | 42 | |||
| One-year variable compensation 2 |
0 | 138 | 0 | 138 | 106 | 31 | 0 | 31 | |||
| Multiyear variable compensation 3 |
0 | 153 | 0 | 240 | 166 | 0 | 0 | 35 | |||
| MTI 2013 (term 2013 to 2015) |
0 | 0 | 0 | 0 | 117 | 0 | 0 | 0 | |||
| MTI 2014 (term 2014 to 2016) |
0 | 117 | 0 | 117 | 0 | 0 | 0 | 0 | |||
| Stock option program | 0 | 36 | 0 | 123 | 49 | 0 | 0 | 35 | |||
| Total | 0 | 420 | 129 | 507 | 430 | 73 | 42 | 108 | |||
| Pension expenses 4 | 0 | 0 | 0 | 0 | 113 | 28 | 28 | 28 | |||
| Total compensation (DCGK) |
0 | 420 | 129 | 507 | 543 | 101 | 70 | 136 |
1 The "Ancillary benefits" disclosure includes non-cash benefits due to the use of company vehicles and insurance benefits
(excluding contributions made to retirement pensions).
2 One-year variable compensation includes the target and extended components based on the respective financial year (short-term incentive).
3 Multiyear variable compensation includes both the allocations granted by the Supervisory Board in the respective financial year for mid-term incentives (MTI) and the allocations granted for long-term incentives with the maximum total target values theoretically achievable. For the maximum values, the cap on total multiyear variable compensation in place on the payment date, amounting to 1.5 times fixed compensation plus ancillary benefits and pension commitments, was not accounted for.
4 Pension expenses include service cost pursuant to IAS 19, excluding interest expenses, as well as contributions paid to external pension providers in connection with retirement pension schemes.
Presentation of the allocations paid in the 2014 finan-
cial year – The following table presents the compensation paid in or for the 2014 financial year. This consists of fixed compensation, ancillary benefits, one-year, mid-term and long-term variable compensation, broken down into the respective compensation years, and pension expenses. Unlike the above table, this table includes the actual value of multiyear compensation granted in previous years and actually paid in the 2014 financial year.
The individual members of the Board of Management received the following payments for their activities on the Board of Management in the 2014 financial year.
| Letter from the Board | Report of the | Liquid | STRATEC's | Group Management | Consolidated | 41 |
|---|---|---|---|---|---|---|
| of Management | Supervisory Board | Biopsy | Share | Report | Financial Statements |
| Allocations paid 1 in D thousands |
Marcus Wolfinger Chairman since April 1, 2011 |
Dr. Robert Siegle Director of Finance and HR since February 1, 2011 |
|||
|---|---|---|---|---|---|
| 2013 | 2014 | 2013 | 2014 | ||
| Fixed compensation | 192 | 192 | 162 | 174 | |
| Ancillary benefits 2 | 16 | 16 | 9 | 10 | |
| Total | 208 | 208 | 171 | 184 | |
| One-year variable compensation 3 | 193 | 227 | 148 | 176 | |
| Multiyear variable compensation 4 | 175 | 158 | 110 | 95 | |
| MTI 2011 (term 2011 to 2013) | 147 | 0 | 88 | 0 | |
| MTI 2012 (term 2012 to 2014) | 0 | 158 | 0 | 95 | |
| Stock option program | 28 | 0 | 22 | 0 | |
| Total | 576 | 593 | 429 | 455 | |
| Pension expenses 5 | 44 | 43 | 42 | 42 | |
| Total compensation (DCGK) | 620 | 636 | 471 497 |
| Allocations paid 1 in D thousands |
Dr. Claus Vielsack Director of Product Development since February 15, 2014 |
Bernd M. Steidle Director of Marketing and Sales until March 19, 2014 |
||||
|---|---|---|---|---|---|---|
| 2013 | 2014 | 2013 | 2014 | |||
| Fixed compensation | 0 | 123 | 142 | 35 | ||
| Ancillary benefits 2 | 0 | 6 | 16 | 7 | ||
| Total | 0 | 129 | 158 | 42 | ||
| One-year variable compensation 3 | 0 | 138 | 106 | 31 | ||
| Multiyear variable compensation 4 | 0 | 0 | 102 | 39 | ||
| MTI 2011 (term 2011 to 2013) | 0 | 0 | 80 | 0 | ||
| MTI 2012 (term 2012 to 2014) | 0 | 0 | 0 | 39 | ||
| Stock option program | 0 | 0 | 22 | 0 | ||
| Total | 0 | 267 | 366 | 112 | ||
| Pension expenses 5 | 0 | 0 | 113 | 28 | ||
| Total compensation (DCGK) | 0 | 267 | 479 | 140 |
1 The date on which the benefits are paid May differ from the date of payment stipulated by German tax law.
2 The "Ancillary benefits" disclosure includes non-cash benefits due to the use of company vehicles and insurance benefits
(excluding contributions made to retirement pensions).
3 One-year variable compensation includes the payment for the bonus in line with the financial year stated.
4 Multiyear variable compensation includes the benefits paid in the financial year stated for the mid-term and/or long-term incentives now ended based on actual target achievement. The amount stated for the stock option program corresponds to the amount determined in accordance with German tax law at the time stipulated by such.
5 Pension expenses include service cost pursuant to IAS 19, excluding interest expenses, as well as contributions paid to external pension providers in connection with retirement pension schemes.
The following regulations were in place as of the balance sheet date for members of the Board of Management upon the regular termination of their activity:
Pension provision – Members of the Board of Management receive pension provision from STRATEC AG when they have reached pensionable age, i.e. between the age of 60 and the age of 65, and have concluded their activity as members of the Board of Management. Members have the option of receiving a one-off lump sum or ongoing pension payments for the rest of their lives. Pension claims remain valid on a prorated basis in cases where members terminate their employment with the company before reaching pensionable age. STRATEC AG finances the pension claims both as defined benefit and as defined contribution plans. Alongside the aforementioned benefits, the company has also agreed surviving dependants' provision with Marcus Wolfinger. In the 2014 financial year, the company recognized expenses of 144k for Marcus Wolfinger (previous year: 145k), 142k for Dr. Robert Siegle (previous year: 142k), and 10k for Dr. Claus Vielsack in connection with the benefits thereby committed. Expenses of 128k were recognized for Bernd Steidle for the period through to his departure from the Board of Management (previous year: 1113k). The present values of the capital claims acquired in connection with the benefits thereby committed as of December 31, 2014 amounted to 1368k for Marcus Wolfinger (previous year: 1274k), 1162k for Dr. Robert Siegle (previous year: 1 121k), and 1 0k for Dr. Claus Vielsack. Due in particular to future financing amounts, the actual benefits will turn out higher than presented here.
Retrospective prohibition on competition – For the duration of the twelve-month retrospective prohibition on competition, each member of the Board of Management receives compensation amounting to 50% of his most recent contractually agreed compensation excluding the extended component of the short-term incentive. The nominal amounts of compensation payable for the retrospective prohibition on competition are 1316k for Marcus Wolfinger (previous year: 1293k), 1253k for Dr. Robert Siegle (previous year: 1210k), and 1140k for Dr. Claus Vielsack. It can be assumed that actual compensation payments for the retrospective prohibition on competition will differ from the amounts presented here. This is due in particular to the currently indeterminable nature of the respective dates and amounts of compensation involved.
The following regulations were in place as of the balance sheet date for members of the Board of Management upon the premature termination of their activity:
Severance payments – Contracts with members of the Board of Management are concluded for fixed terms. In the event of any premature contract termination in the absence of compelling reason justifying immediate termination, severance payments amounting to two full-year compensation packages based on the most recent full compensation package plus pension commitments are payable, but nevertheless limited to the end of the term of the respective contract with the member of the Board of Management. In the event of the contract being terminated due to change of control pursuant to §315 (4) No. 9 of the German Commercial Code (HGB), the member of the Board of Management receives compensation in accordance with the relevant requirements of the German Corporate Governance Code.
of Management
Report of the Supervisory Board STRATEC's Share
43 Letter from the Board Group Management Report
Retrospective prohibition on competition – For the duration of the twelve-month retrospective prohibition on competition, each member of the Board of Management receives compensation amounting to 50% of his most recent contractually agreed compensation excluding the extended component of the short-term incentive.
Permanent inability to work and fatality – Should a member of the Board of Management become permanently unable to work during the term of the employment contract, his compensation continues to be paid until the conclusion of the sixth month following the month in which such permanent inability to work is established. Should a member of the Board of Management die during the term of the employment contract, then his surviving dependants are entitled to continued payment of the monthly fixed compensation, excluding ancillary benefits, for the month in which the member died and the following five months, nevertheless limited to the expiry of the employment contract irrespective of the death of the respective member. Furthermore, surviving dependants have a prorated claim to the target achievement component of the short-term incentive program.
Departure of Bernd M. Steidle from the Board of Management – STRATEC AG announced on March 19, 2014 that Bernd M. Steidle would be ending his activities on the Board of Management and his operating activities at the company with immediate effect. In connection with the premature termination of his activity on the Board of Management, Bernd M. Steidle was provided with an undertaking that his compensation would be paid through to the regular termination date of his employment contract. The retrospective prohibition on competition to which STRATEC AG is entitled was waived. An amount of 1954k was recognized as expenses or provisions in the 2014 financial year for the claims to which Bernd M. Steidle is entitled. The compensation granted in connection with premature termination amounted to 1220k in the 2014 financial year. The present value of the capital claims acquired in connection with the benefits thereby committed as of December 31, 2014 amounted to 1454k (previous year: 1360k). Due in particular to future financing amounts, the actual benefits will turn out higher than presented here.
The compensation of the Supervisory Board is governed by §13 of the Articles of Association of STRATEC AG and takes due account of the responsibility and scope of activity of Supervisory Board members, as well as of the economic position and performance of the company.
Each member of the Supervisory Board receives fixed compensation of 125,000.00 for each financial year. The Supervisory Board Chairman receives twice and the Deputy Chairman receives one and a half times this amount of fixed compensation. Supervisory Board members only belonging to the Supervisory Board for part of a given financial year receive one twelfth of the fixed compensation for each month of activity commenced.
Furthermore, each member of the Supervisory Board receives a meeting allowance of 1750.00 for each meeting of the Supervisory Board attended in person. Where several meetings are held on the same day, the meeting allowance is paid only once. The meeting allowance is limited to a maximum of six meetings each financial year.
Fixed compensation and the meeting allowance are due for payment upon the conclusion of the respective financial year.
Furthermore, the company reimburses each member of the Supervisory Board for the necessary, appropriate volume of expenses incurred for him or her to perform his or her duties, as well as for any sales tax attributable to compensation or the reimbursement of expenses.
Members of the Supervisory Board May be included in a pecuniary loss liability insurance policy concluded by the company at its own expense, at an appropriate amount, and in its interest. The company assumes the resultant premiums.
The individual members of the Supervisory Board received the following compensation for their Supervisory Board activities in the 2014 financial year.
| in D thousands | Fred K. Brückner | Wolfgang Wehmeyer | Prof. Dr. Stefanie Remmele 1 |
Prof. Dr. Hugo Hämmerle 2 |
Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||
| Fixed compensation |
50 | 50 | 38 | 38 | 15 | 0 | 12 | 25 | 115 | 113 | |||||
| Meeting allowance | 5 | 4 | 5 | 4 | 2 | 0 | 1 | 4 | 13 | 11 | |||||
| Total | 55 | 54 | 43 | 42 | 17 | 0 | 13 | 29 | 128 | 124 |
1 Supervisory Board member since June 18, 2014
2 Supervisory Board member until June 18, 2014
STRATEC Biomedical AG and its group companies operate in various countries, and thus in different jurisdictions. Our business activities therefore have to take due account of the jurisdictions in various countries. As a matter of principle, STRATEC manages its business activities responsibly and in accordance with the requirements imposed by law and the relevant authorities and with its own group-wide internal regulations. For STRATEC, effective compliance represents an indispensable instrument in its international business dealings.
In view of this, STRATEC has summarized the codes of conduct and ethical principles in force across the Group and additional sets of guidelines in its "STRATEC Corporate Compliance Policy". This policy is binding for all employees and is updated at set intervals to account for the latest risk analysis.
For STRATEC as a developer and manufacturer of fully automated analyzer systems for the diagnostics and biotechnology industries, compliance with various kinds of processes and regulations is a factor of far-reaching significance. STRATEC therefore sets very high standards in terms of quality, control and security measures so as to ensure compliance with the relevant regulations. The STRATEC Group has its own Regulatory Affairs department which, together with the company's experienced heads of business divisions, is involved in the development of systems for regulated markets.
The employees of the STRATEC Group receive training in compliance-related matters and are unreservedly committed to the Corporate Compliance Policy and to acting responsibly in line with the relevant requirements. This also involves avoiding any business activities that contravene these principles. These principles and codes of conduct set out in the Corporate Compliance Policy are intended to guide employees in their business activities and assist them and the company in avoiding any misconduct.
Core elements of STRATEC's Corporate Compliance Policy include:
STRATEC's Share
45 Letter from the Board Group Management Report
STRATEC sees compliance not so much as a static program, but rather as an active process of cooperation in terms of the way the business is managed at STRATEC and integrity is thus upheld.
STRATEC's compliance management system is subject to permanent enhancement and optimization and already forms an integral component of the STRATEC Group. The compliance management system enables STRATEC to detect any risks, avert risks by analyzing and developing suitable strategies, enforce prohibitions on specified actions, and take necessary measures. Compliance structures are managed in operative terms by the Chief Compliance Officer, who reports directly to the Board of Management. The Board of Management meets its reporting obligations towards the Supervisory Board. The heads of department are responsible for implementing any organizational measures required to comply with guidelines and to avert any damages at the respective STRATEC companies and for subsequently reporting on this to the management of the respective company within the STRATEC Group. Not only that, the company is also optimizing its existing internal processes and introducing new processes to do justice to ever stricter external requirements, as well as to STRATEC's own regulations. Here, managers in key positions work together closely across their respective divisions and are advised and assisted by specialist departments, such as the legal department, as well as by the Compliance Officer and delegated individuals.
Furthermore, STRATEC expects its managers to act as models of compliance for their employees and to ensure that all decisions and actions taken in their areas of responsibility are consistent not only with the relevant legal requirements, but also with STRATEC's own values and regulations, and that they are in the company's best interests.
The share capital is divided into 11,795,445 ordinary shares with a nominal value of 11.00 each (previous year: 11,770,245 ordinary shares). The shares are bearer shares and are not restricted in terms of their transferability.
The appointment and dismissal of members of the Board of Management are undertaken in accordance with the requirements of stock corporation law. The Articles of Association do not include any opposing provisions in this respect.
The company is managed and represented to third parties by the Board of Management. The Board of Management consists of one or more persons appointed pursuant to § 84 of the German Stock Corporation Act (AktG) by the Supervisory Board for a maximum period of five years. Renewed appointment or the extension of an existing contract is permitted in each case for a maximum period of five years. These measures require a further resolution by the Supervisory Board.
The Supervisory Board May appoint members of the Board of Management as Chairman or Deputy Chairman of the Board of Management.
The Supervisory Board May revoke any appointment to the Board of Management or to the position of Chairman of the Board of Management in the event of compelling reason. Reference is made in this respect to the further comments provided in §84 (3) of the German Stock Corporation Act (AktG).
The Articles of Association May be amended by the Annual General Meeting on the basis of simple majority of the share capital present upon adoption of the resolution, unless a larger majority is mandatory under legal requirements. The Supervisory Board May make amendments only affecting the specific wording.
The Board of Management has been authorized until April 13, 2016 by the Annual General Meeting pursuant to § 4 (4.5) of the Articles of Association and subject to approval by the Supervisory Board to increase the company's share capital by issuing new shares with a nominal value of 11.00 each in return for non-cash or cash contributions on one or more occasions by a maximum total of up to 15,500,000.00 (Authorized Capital). Shareholders must generally be granted subscription rights. In certain circumstances set out in the Articles of Association, however, the Board of Management is entitled to exclude such subscription rights.
In accordance with the provisions of the Articles of Association (§4 Paragraphs 4.6 and 4.7), the company has various conditional capitals with a total value of 11.9 million as of December 31, 2014. Conditional Capitals V and VI (amounting to 11.1 million) only authorize the company to increase its capital to the extent that bearers of stock options exercise their subscription rights. The new shares have profit participation rights from the beginning of the financial year in which they are issued. Conditional Capital IV authorizes the company to increase its share capital by up to 1800,000 by issuing up to 800,000 new ordinary bearer shares. This conditional capital serves exclusively to issue new shares to the bearers or creditors of warrant or convertible bonds issued by the company or by subsidiaries in which the company holds direct or indirect majority shareholdings in accordance with the resolution adopted by the Annual General Meeting on April 14, 2011.
Conditional Capital IV only authorizes the company to increase its capital to the extent that the bearers or creditors of warrant or convertible bonds actually exercise their option or conversion rights, or the conversion obligations underlying such bonds have been met.
By resolution of the Annual General Meeting held on May 21, 2010, the Board of Management was authorized until May 20, 2015 to acquire treasury stock on one or several occasions and in total or in partial amounts up to a total of 10% of current share capital. Together with the treasury stock already acquired and still possessed by the company, the treasury stock acquired under this resolution may not account for more than 10% of the share capital. The treasury stock is acquired via the stock exchange or by way of a public purchase offer addressed to shareholders. The treasury stock should be used for one or several of the purposes provided for in Agenda Item 6 at the Annual General Meeting on May 21, 2010, some of which also permit the exclusion of subscription rights.
The company has concluded significant agreements that are subject to change of control resulting from any takeover bid. With regard to further disclosures, use has been made of the protective clause provided for by §315 (4) No. 8 of the German Commercial Code (HGB).
Individual agreements with the Board of Management and Supervisory Board of the company include change of control provisions pursuant to §315 (4) No. 9 of the German Commercial Code (HGB) in line with the relevant requirements of the German Corporate Governance Code.
Based on the notifications we have received pursuant to § 21 of the German Securities Trading Act (WpHG), no shareholder directly holds more than 10% of the voting rights in the company. Bettina Siegle, Tanja van Dinter, Ralf Leistner, Hermann Leistner, Doris Leistner, Herdor GmbH & Co. KG and Herdor Beteiligungs GmbH (all in Germany) have notified us that they each hold more than 25% of the voting rights in the company due to attribution of the respective voting rights.
The company has published the declaration on corporate governance required by §289a of the German Commercial Code (HGB), including the declaration on the German Corporate Governance Code required by §161 of the German Stock Corporation Act (AktG), in the Investors section of its homepage (www.stratec.com).
Birkenfeld, March 31, 2015
STRATEC Biomedical AG
The Board of Management
Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack
STRATEC's Share
for the 2014 Financial Year of STRATEC Biomedical AG
| Consolidated Balance Sheet | 48 |
|---|---|
| Consolidated Statement of Comprehensive Income | 50 |
| Consolidated Cash F low Statement |
51 |
| Consolidated Statement of Changes in E quity |
52 |
| Notes to the Consolidated F inancial Statements |
54 |
| esponsibility Statement | 104 |
| Auditor's R eport |
105 |
as of December 31, 2014 of STRATEC Biomedical AG
| Assets in D thousands |
Note | 12.31.2014 | 12.31.2013 |
|---|---|---|---|
| Non-current assets | |||
| Intangible assets | (1) | ||
| Goodwill | 4,785 | 4,427 | |
| Other intangible assets | 25,477 | 25,761 | |
| 30,262 | 30,188 | ||
| Property, plant and equipment | (2) | 15,954 | 17,013 |
| Financial assets | |||
| Investments in associates | (3) | 263 | 392 |
| Deferred taxes | (12) | 1,260 | 867 |
| 47,739 | 48,460 | ||
| Current assets | |||
| Inventories | (4) | ||
| Raw materials and supplies | 8,065 | 8,391 | |
| Unfinished products, unfinished services | 6,591 | 7,758 | |
| Finished products and merchandise | 3,410 | 1,942 | |
| 18,066 | 18,091 | ||
| Receivables and other assets | |||
| Trade receivables | (5) | 18,961 | 23,372 |
| Future receivables from construction contracts | (6) | 1,644 | 1,312 |
| Receivables from associates | (7) | 23 | 65 |
| Income tax receivables | (12) | 2,635 | 3,523 |
| Other receivables and other assets | (8) | 1,167 | 1,585 |
| 24,430 | 29,857 | ||
| Other financial assets | (9) | 877 | 646 |
| Cash and cash equivalents | (26) | 46,636 | 20,734 |
| 90,009 | 69,328 | ||
| Total assets | 137,748 | 117,788 |
| Letter from the Board | Report of the | Liquid | STRATEC's | Group Management | Consolidated | 49 |
|---|---|---|---|---|---|---|
| of Management | Supervisory Board | Biopsy | Share | report | Financial Statements |
| Shareholders' equity and debt in D thousands |
Note | 12.31.2014 | 12.31.2013 |
|---|---|---|---|
| Shareholders' equity | (10) | ||
| Share capital | 11,795 | 11,770 | |
| Capital reserve | 18,129 | 17,219 | |
| Revenue reserves | 80,478 | 67,766 | |
| Other equity | 1,649 | 424 | |
| 112,051 | 97,179 | ||
| Debt | |||
| Non-current debt | |||
| Non-current financial liabilities | (13) | 4,483 | 6,643 |
| Provisions for pensions | (11) | 61 | 14 |
| Deferred taxes | (12) | 5,565 | 1,389 |
| 10,110 | 8,045 | ||
| Current debt | |||
| Current financial liabilities | (13) | 2,449 | 1,895 |
| Trade payables | (14) | 2,814 | 4,402 |
| Liabilities to associates | (14) | 41 | 211 |
| Other current liabilities | (15) | 7,140 | 4,520 |
| Current provisions | (16) | 1,731 | 679 |
| Income tax liabilities | (16) | 1,410 | 858 |
| 15,586 | 12,564 | ||
| Total shareholders' equity and debt | 137,748 | 117,788 | |
for the Period from January 1 to December 31, 2014 of STRATEC Biomedical AG
| in D thousands | Note | 2014 | 2013 |
|---|---|---|---|
| Sales | (17) | 144,860 | 127,950 |
| Cost of sales | (18) | -99,924 | -86,186 |
| Gross profit | 44,936 | 41,764 | |
| Research and development expenses | (19) | -19,348 | -17,702 |
| of which capitalized | 14,332 | 12,655 | |
| -5,016 | -5,047 | ||
| Sales-related expenses | (20) | -5,887 | -7,135 |
| General administration expenses | (21) | -11,227 | -8,828 |
| Other operating expenses | (22) | -2,930 | -2,566 |
| Other operating income | (22) | 4,176 | 1,305 |
| Earnings before interest and taxes (EBIT ) |
24,052 | 19,493 | |
| Financial income | 227 | 152 | |
| Financial expenses | -218 | -239 | |
| Other financial income/expenses | -7 | -73 | |
| Net financial expenses | (23) | 2 | -160 |
| Earnings before taxes (EBT ) |
24,054 | 19,333 | |
| Taxes on income | (12) | ||
| a) Current tax expenses | -431 | -2,793 | |
| b) Deferred tax expenses | -3,856 | -1,062 | |
| Consolidated net income | 19,768 | 15,478 | |
| Items that may not be subsequently reclassified to profit or loss | |||
| Remeasurements of defined benefit pension plans | -49 | 14 | |
| Items that may be subsequently reclassified to profit or loss | |||
| Currency translation differences from translation of foreign operations | 1,274 | -379 | |
| Other comprehensive income | 1,225 | -365 | |
| Comprehensive income | 20,993 | 15,113 | |
| Earnings per share in 3 | (24) | 1,68 | 1,32 |
| No. of shares used as basis | 11,769,624 | 11,746,342 | |
| Diluted earnings per share in 3 | (24) | 1,67 | 1,31 |
| No. of shares used as basis (diluted) | 11,834,452 | 11,777,609 |
STRATEC's Share
for the Period from January 1 to December 31, 2014 of STRATEC Biomedical AG
| in D thousands | Note | 2014 | 2013 |
|---|---|---|---|
| I. Operations | |||
| Consolidated net income (after taxes) | 19,768 | 15,478 | |
| Depreciation and amortization | 8,196 | 6,568 | |
| Current income tax expenses | (12) | 431 | 2,793 |
| Income taxes paid less income taxes received | 999 | -3,278 | |
| Financial income | (23) | -227 | -152 |
| Financial expenses | (23) | 218 | 239 |
| Interest paid | -187 | -221 | |
| Interest received | 151 | 83 | |
| Other non-cash expenses | 624 | 1,035 | |
| Other non-cash income | -1,056 | -918 | |
| Change in net pension provisions through profit or loss | (11) | -2 | 1 |
| Cash flow | 28,915 | 21,628 | |
| Change in deferred taxes through profit or loss | (12) | 3,856 | 1,062 |
| - Profit / + loss on disposals of non-current assets | 71 | -12 | |
| - Increase / + reduction in inventories, trade receivables and other assets | 4,807 | 1,373 | |
| + Increase / - reduction in trade payables and other liabilities | 2,103 | -214 | |
| Inflow of funds from operating activities | 39,752 | 23,837 | |
| II. Investments | |||
| Incoming payments from disposals of non-current assets | |||
| Property, plant and equipment | 176 | 27 | |
| Outgoing payments for investments in non-current assets | |||
| Intangible assets | -5,215 | -7,518 | |
| Property, plant and equipment | -1,474 | -2,575 | |
| Financial assets | -82 | -100 | |
| Incoming / outgoing payments from granting / repayment of financial liabilities |
-222 | 0 | |
| Outgoing payments for acquisitions of consolidated companies | 0 | -126 | |
| Outflow of funds for investing activities | -6,818 | -10,292 | |
| III. Financing | |||
| Incoming payments from taking up of financial liabilities | 0 | 1,000 | |
| Outgoing payments for repayment of financial liabilities | -1,649 | -1,068 | |
| Incoming payments from issue of shares for employee stock option programs |
692 | 803 | |
| Dividend payments | -7,055 | -6,566 | |
| Outflow of funds for financing activities | -8,012 | -5,831 | |
| IV. Cash-effective change in cash and cash equivalents (subtotal of I - III) |
24,921 | 7,714 | |
| Cash and cash equivalents at start of period | 20,734 | 13,209 | |
| Change in scope of consolidation | 0 | 84 | |
| Impact of exchange rate movements | 981 | -273 | |
| Cash and cash equivalents at end of period | (26) | 46,636 | 20,734 |
for the Period from January 1 to December 31, 2014 of STRATEC Biomedical AG
| Note | Share capital | Capital reserve | |
|---|---|---|---|
| 11,738 | 16,247 | ||
| 32 | 768 | ||
| 200 | |||
| 4 | |||
| (10) | 11,770 | 17,219 | |
| 25 | 659 | ||
| 250 | |||
| (10) | 11,795 | 18,129 | |
| Letter from the Board of Management |
Report of the Supervisory Board |
Liquid Biopsy |
STRATEC's Share |
Group Management report |
Consolidated Financial Statements |
53 |
|---|---|---|---|---|---|---|
| Other equity | Revenue reserves | |||
|---|---|---|---|---|
| Currency translation Group equity |
Pension plans | Treasury stock | Free net income | Accumulated net income |
| 1,033 87,542 |
-32 | -212 | 19,392 | 39,376 |
| -6,566 | -6,566 | |||
| -379 15,113 |
14 | 15,478 | ||
| 86 | ||||
| 654 97,179 |
-18 | -212 | 19,392 | 48,374 |
| -7,055 | -7,055 | |||
| 1,274 20,993 |
-49 | 19,768 | ||
| 1,928 112,051 |
-67 | -212 | 19,392 | 61,086 |
for the 2014 Financial Year of STRATEC Biomedical AG
STRATEC Biomedical AG (hereinafter "STRATEC AG"), with its legal domicile in Gewerbestrasse 35–37, 75217 Birkenfeld, Germany, designs and manufactures fully automated systems for its partners in the fields of clinical diagnostics and biotechnology. These partners market such systems, in general together with their own reagents, as system solutions to laboratories, blood banks and research institutes around the world. The company develops its products on the basis of its own patented technologies.
STRATEC AG is entered in the Commercial Register in Mannheim under No. HRB 504390.
The Board of Management of STRATEC AG prepared the consolidated financial statements on March 31, 2015 and forwarded these to the Supervisory Board. The Supervisory Board of STRATEC AG will adopt a resolution concerning the approval of the consolidated financial statements at its meeting on April 8, 2015. The consolidated financial statements and group management report as of December 31, 2014 will be published in the electronic Federal Official Gazette (Bundesanzeiger).
The consolidated financial statements compiled by STRATEC AG as the topmost parent company as of December 31, 2014 have been prepared with due application of §315a (1) of the German Commercial Code (HGB) in accordance with the requirements of the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), London, and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) valid and endorsed by the European Union as of the balance sheet date, as well as with the supplementary requirements of German commercial law.
The consolidated financial statements have been compiled in 1 thousands. Unless otherwise stated, the amounts reported in the notes to the consolidated financial statements are denominated in 1 thousands.
The financial year for the consolidated financial statements corresponds to the calendar year. The financial statements of all companies included in the consolidated financial statements have been prepared as of the balance sheet date for the consolidated financial statements and have been based on uniform accounting and valuation principles.
The financial statements have basically been prepared on the basis of amortized cost. One exception relates to financial assets measured at fair value through profit or loss.
The consolidated statement of comprehensive income has been prepared using the cost of sales method.
Liquid Biopsy STRATEC's Share
Group Management report
In the interests of clarity, individual items have been aggregated in the consolidated balance sheet, the consolidated statement of comprehensive income, the consolidated cash flow statement, and the consolidated statement of changes in equity. These are explained in the notes to the consolidated financial statements. The consolidated balance sheet has been structured in line with the maturities of the respective assets and liabilities. All assets and liabilities maturing or due to be sold within the next twelve months are classified as current. Assets and liabilities earmarked for realization in the company's usual course of business are also classified as current, even when their maturities exceed twelve months. In the case of financial liabilities, a distinction has been made between the repayment installments due for payment within the next twelve months (current financial liabilities) and long-term portions (non-current financial liabilities). Pursuant to IAS 1.56, deferred taxes must generally be recognized as non-current items.
The following accounting standards and interpretations required mandatory application for the first time in the 2014 financial year:
| Standard | Title | Effective date 1 | EU endorsement |
|---|---|---|---|
| New and amended standards and interpretations | |||
| IAS 27 | New version: Consolidated and Separate Financial Statements | 01.01.2014 | 12.11.2012 |
| IAS 28 | New version: Investments in Associates and Joint Ventures | 01.01.2014 | 12.11.2012 |
| IAS 32 | Amendments: Offsetting Financial Assets and Financial Liabilities | 01.01.2014 | 12.13.2012 |
| IFRS 10 | Consolidated Financial Statements | 01.01.2014 | 12.11.2012 |
| IFRS 11 | Joint Arrangements | 01.01.2014 | 12.11.2012 |
| IFRS 12 | Disclosures of Interests in Other Entities | 01.01.2014 | 12.11.2012 |
| IFRS 10, IFRS 12 and IAS 27 |
Amendments: Investment Entities | 01.01.2014 | 11.20.2013 |
| IAS 362 | Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets | 01.01.2014 | 12.19.2013 |
| IAS 39 | Amendments: Novations of Derivatives and Continuation of Hedge Accounting | 01.01.2014 | 12.19.2013 |
| IFRIC 21 | Levies | 01.01.2014 | 06.13.2014 |
1 for companies like STRATEC AG whose financial year corresponds to the calendar year
2 STRATEC AG made voluntary premature application of the amendments to IAS 36 in the 2013 financial year.
The application of these standards and interpretations in the 2014 financial year was consistent with the respective transition requirements. Unless explicitly required by individual standards and interpretations and explained separately below, the respective requirements have generally been applied retrospectively, i. e. the information has been presented as if the new accounting methods had always been applied in the past. In these cases – and where called for by the respective standard – the comparative figures have been adjusted accordingly.
Overall, first-time application of the aforementioned requirements did not have any material impact on the presentation of the net asset, financial, and earnings position or on earnings per share. The requirements have nevertheless resulted in extended disclosures in the notes to the consolidated financial statements.
The IASB and IFRIC have issued the following standards, amendments and revisions to standards and interpretations not yet requiring mandatory application. Application of the new and revised standards and interpretations is dependent, among other factors, on their acceptance by the European Union within its IFRS endorsement procedure.
| Standard | Title | Effective date 1 | EU endorsement |
|---|---|---|---|
| New and amended standards and interpretations | |||
| IFRS 9 | Financial Instruments: Revision and Replacement of All Existing Standards (Classification and Measurement) |
01.01.2018 | Expected in 2nd half of 2015 |
| Sundry | Annual Improvements to IFRS, 2010-2012 cycle, published in December 2013 |
07.01.2014 | 12.17.2014 |
| IFRS 14 | Regulatory Deferral Accounts | 01.01.2016 | Still outstanding |
| IAS 16 and IAS 38 |
Amendments: Clarification of Acceptable Methods of Depreciation and Amortisation |
01.01.2016 | Expected in Q3 2015 |
| IAS 16 and IAS 41 |
Amendments: Agriculture: Bearer Plants | 01.01.2016 | Expected in Q3 2015 |
| IFRS 15 | Revenue from Contracts with Customers | 01.01.2017 | Expected in Q2 2015 |
| IFRS 10, IFRS 12 and IAS 28 |
Amendments: Investment Entities: Applying the Consolidation Exception |
01.01.2016 | Expected in Q4 2015 |
1 for companies like STRATEC AG whose financial year corresponds to the calendar year
| Standard | Title | Effective date 1 | EU endorsement |
|
|---|---|---|---|---|
| New and amended standards and interpretations | ||||
| IAS 1 | Amendments: Disclosure Initiative | 01.01.2016 | Expected in Q4 2015 | |
| IFRS 10 and IAS 28 |
Amendments: Sales or Contribution of Assets between an Investor and its Associate or Joint Venture |
01.01.2016 (may still be postponed) |
Still outstanding | |
| IAS 27 | Amendments: Equity Method in Separate Financial Statements | 01.01.2016 | Expected in Q3 2015 | |
| IFRS 11 | Amendments: Acquisition of an Interest in a Joint Operation | 01.01.2016 | Expected in Q3 2015 |
1 for companies like STRATEC AG whose financial year corresponds to the calendar year
STRATEC AG does not intend to make any voluntary, premature application of these standards and interpretations or of the relevant amendments.
In the interests of reporting efficiency, only those standards and interpretations have been outlined below which, based on the information currently available and given the business model and business transactions customary at the STRATEC Group, are very likely to have implications for the accounting policies or for the reporting and disclosure of information in STRATEC's consolidated financial statements in future financial years.
The IASB published IFRS 9, a standard intended to replace IAS 39, in July 2014. IFRS 9 includes requirements governing the classification, recognition and measurement (including impairment) of financial instruments. Furthermore, IFRS 9 includes regulations on general hedge accounting. IFRS 9 will necessitate additional note disclosures that will also involve an amendment to IFRS 7. The investigation of the implications of applying IFRS 9 for the consolidated financial statements has not yet been completed. Given the complexity of the requirements, it is currently not possible to issue any reliable assessment of the implications.
Unlike the requirements currently effective, the new standard provides for a uniform, principle-based five-stage model applicable to all contracts with customers. Under IFRS 15, the amount expected as consideration for the transfer of goods or services to customers must be recognized as revenue. The respective date or period is no longer based on the transfer of risks and rewards, but rather on the transfer to the customer of control over the goods or services. For multiple element arrangements, IFRS 15 explicitly stipulates that the transaction price must be allocated to the individual performance obligations thereby identified in proportion to their relative standalone selling prices. The new standard also includes new requirements governing the costs of performing and acquiring a contract and guidelines as to when such costs must be capitalized. Furthermore, the standard calls for new, more extensive note disclosures. STRATEC expects that these extensive amendments may significantly influence its consolidated financial statements. However, the implications of applying IFRS 15 can only be reliably assessed following the completion of detailed analysis.
The requirements of IAS 16 have been amended to clarify that depreciation and amortization based on revenues resulting from an activity involving the use of an asset is not acceptable. This is because the revenues represent the generation of expected economic benefits rather than the consumption of such.
The requirements of IAS 38 have been amended to include a rebuttable presumption that revenue-based methods of depreciation and amortization are not acceptable for the same reasons as in IAS 16. The IASB nevertheless notes that a limited number of circumstances may pertain in which this presumption may be rebutted:
Guidelines have been included in both standards to explain that expected future reductions in the disposal price may indicate greater consumption of the asset's future economic benefit. The investigation of the implications of these amendments for the consolidated financial statements has not yet been completed.
Capital consolidation at STRATEC AG has been performed using the purchase method by offsetting the carrying amounts of investments against the prorated equity of the subsidiaries. This involves accounting for the assets and liabilities identifiable at the subsidiaries at the time of acquisition at fair value and for deferred taxes pursuant to IAS 12 (Income Taxes). Any remaining credit difference from capital consolidation is recognized as goodwill.
Intercompany profits and losses, sales, income and expenses have been eliminated, as have receivables and liabilities between the companies included in the consolidated financial statements. The income tax implications of consolidation entries have been accounted for by recognizing deferred taxes.
In accordance with the requirements of IFRS 10 (Consolidated Financial Statements), the consolidated financial statements of STRATEC AG (parent company) basically include all companies controlled by STRATEC AG (subsidiaries).
Shareholdings whose implications for the net asset, financial, and earnings position are of immaterial significance both individually and aggregately are included in the consolidated financial statements at cost, less any impairments, and recognized as investments in associates in the consolidated balance sheet. The financial data of those subsidiaries of immaterial significance cumulatively account for less than 1% of consolidated sales, group equity, group earnings and total group assets respectively.
The first-time application of IFRS 10 (Consolidated Financial Statements) in the 2014 financial year did not lead to any changes in the composition of the scope of consolidation.
As in the previous year, in addition to STRATEC AG the consolidated financial statements as of December 31, 2014 include the following subsidiaries by way of full consolidation:
As in the previous year, the level of shareholding and voting rights held as of December 31, 2014 amounted to 100% of voting capital at all of the companies.
Due to their immaterial significance, the following subsidiaries have not been included in the consolidated financial statements by way of full consolidation:
| Share capital | Shareholding % | Annual earnings 1 | |
|---|---|---|---|
| STRATEC Biomedical Inc., Hamden, CT, US | USD15,000 | 100.0 | USD -8,596 (2013: USD -7,480) |
| Sanguin International Inc., Hamden, CT, US | USD1,000 | 100.0 | USD 15,749 (2013: USD -32,690) |
| STRATEC Biomedical (Taicang) Co. Ltd., Taicang, China | CNY814,940 | 100.0 | CNY -215,469 (2013: CNY -51,917) |
| STRATEC Services AG, Beringen, Switzerland | CHF100,000 | 100.0 | CHF -4,650 (2013: - CHF) |
1 The earnings figures reported are based on the annual financial statements prepared in accordance with respective national accounting requirements as of December 31, 2014 and December 31, 2013 respectively.
STRATEC's Share
Transactions in foreign currencies:
Transactions in foreign currencies have been translated into the functional currency using the rate on the date of the transaction. On the balance sheet date, monetary items have been translated using the reporting date rate, while nonmonetary items have been translated at the rate on the date of the transaction. Differences arising upon currency translation have been recognized through profit or loss in the consolidated statement of comprehensive income.
Translation of financial statements of foreign group companies:
The functional currency of foreign group companies is the respective national currency, as the companies operate independently in financial, economic and organizational terms. Assets and liabilities at foreign companies have been translated into euros at the reporting date rate, while income and expenses have been translated into euros using annual average exchange rates. Equity components have been translated at historic rates upon the respective dates of addition from the Group's perspective. The translation difference arising in annual earnings compared with the reporting date rates has been recognized directly in equity in the "Other equity – Foreign currency translation" item.
| Reporting date rate | Average rate | |||||
|---|---|---|---|---|---|---|
| 1 1/ | 2014 | 2013 | 2014 | 2013 | ||
| GBP UK | 0.78 | 0.83 | 0.81 | 0.85 | ||
| USD US | 1.21 | 1.38 | 1.33 | 1.33 | ||
| CHF Switzerland | 1.20 | 1.23 | 1.22 | 1.23 | ||
| RON Romania | 4.48 | 4.47 | 4.44 | 4.42 | ||
The exchange rates between major currencies and the euro developed as follows:
Other intangible assets are recognized upon addition at cost in accordance with IAS 38.24. In line with IAS 38.27, the purchase costs of a separately purchased intangible asset particularly comprise the purchase price, less any reductions in the purchase price, plus costs directly attributable to preparing the asset for its intended use. In line with IAS 38.66, the construction costs of an internally generated intangible asset comprise all costs directly attributable to create, produce and prepare the asset to be capable of operating in the manner intended by the management.
In line with IAS 38.74, subsequent measurement is based on the cost model. Accordingly, other intangible assets with limited useful lives have been amortized in accordance with these, generally using the straight-line method unless the actual decline in their value requires another form of amortization. Furthermore, account is also taken where necessary of impairments (please see "Impairment tests"). Where the reasons for impairment no longer apply, the respective assets are written back to a maximum of amortized cost.
Amortization of intangible assets has been based on the following useful lives:
Useful lives in years
| Technologies | 3–8 |
|---|---|
| Customer relationships acquired | 5 |
| Current R&D projects acquired | 8 |
| Software and licenses | 3 |
In respect of the accounting treatment of development cooperations, reference is made to the comments in "Recognition of sales, cost of sales, research and development expenses" in this section.
Property, plant and equipment are measured upon initial recognition at cost in accordance with IAS 16.15 et seq.
In line with IAS 16.30, subsequent measurement is based on the cost model. Accordingly, in subsequent periods the costs recognized are reduced by depreciation, where the respective assets are depreciable. Depreciation has generally been performed using the straight-line method, unless the actual decline in value requires a use-based form of depreciation. Furthermore, account is also taken where necessary of impairments (please see "Impairment tests" below). Where the reasons for impairment no longer apply, the respective assets are written back to a maximum of amortized cost.
Costs incurred to repair or maintain items of property, plant and equipment have generally been recognized through profit or loss. Costs incurred for measures leading to the accrual of future economic benefit have been capitalized as retrospective costs.
Scheduled depreciation of property, plant and equipment has been based on the following useful lives:
| Useful lives in years | |
|---|---|
| Buildings | 25–33 |
| Outdoor facilities | 10–15 |
| Technical equipment and machinery | 3–10 |
| Vehicles | 3–5 |
| Tools | 3–6 |
| IT components | 3–5 |
| Other plant and office equipment | 3–10 |
Gains or losses incurred upon the sale, decommissioning or scrapping of items of property, plant and equipment have been recognized under other operating income or expenses in the amount of the difference between the potential proceeds on disposal and the residual carrying amount.
Investment property includes land and buildings held to generate rental income or for capital appreciation, rather than for proprietary performance of services, administration purposes, or sales within customary business activities. STRATEC AG lets out parts of the real estate recognized under property, plant and equipment to third parties external to the Group. Given the immaterial scope of these surfaces, they have not been recognized in a separate item.
Where a significant period of time is required to manufacture a respective asset (so-called qualifying asset), the borrowing costs incurred through to completion are capitalized as a component of cost where the requirements of IAS 23 (Borrowing Costs) are met.
At the STRATEC Group, qualifying assets may relate in particular to property, plant and equipment, intangible assets, and inventories/construction contracts in connection with development cooperations. As the STRATEC Group's borrowing costs are of subordinate significance in terms of their amount, however, no borrowing costs have yet been capitalized pursuant to IAS 23 (Borrowing Costs).
Government grants intended to promote investment and directly allocable to the respective investments have been deducted from the amount capitalized for the object of investment. Non-repayable grants received as project subsidies for research and development projects are linked to the respective expenses and have been recognized through profit or loss under other operating income in the consolidated statement of comprehensive income.
STRATEC's Share
Consolidated
A leasing arrangement is classified as an operating lease in cases where all major risks and rewards relating to ownership remain with the lessor. The STRATEC Group only has operating leases in which the STRATEC Group acts as lessee. In line with IAS 17.33, payable leasing installments have been recognized in the consolidated statement of comprehensive income as expenses over the term of the leasing arrangement.
Impairment tests pursuant to IAS 36 (Impairment of Assets) are performed on goodwill and other intangible assets with unlimited or indefinite useful lives, as well as on intangible assets not yet ready for use, at least once a year and, in the case of other intangible assets with limited useful lives and property, plant and equipment, only if there are specific indications of impairment. Impairment losses have been recognized through profit or loss in the consolidated statement of comprehensive income to the extent that the recoverable amount of the asset, i. e. the higher of its fair value less costs to sell and its value in use, falls short of its carrying amount. In principle, the recoverable amount has been determined for each individual asset. Where this is not possible, the recoverable amount has been determined on the basis of a group of assets representing a cash generating unit. A review is performed at least once a year to ascertain whether there is any indication that the reason for impairment losses already recognized no longer applies or that the amount of impairment has reduced. In this case, the recoverable amount is newly determined and the impairment losses already recognized, unless they involve goodwill, are correspondingly reversed.
The cash generating units determined for goodwill impairment testing are "laboratory automation", "workflow software", "nucleic acid purification" and "contact-free measurement and capacity calculation methods".
The determination of the recoverable amount for the cash generating units as of December 31, 2014 (2013) has been based on their value in use, defined as the present value of future net inflows of cash. The forecast future net inflows of cash have been based on current budgets at the STRATEC Group. As in the previous year, the detailed budget period covers three years. The budgets have in turn been based on assumptions concerning future sales volumes and sales prices, as well as on expected costs. Net inflows of cash beyond the detailed budget period have been presented as perpetuity, taking due account of growth rates based on current market information.
Growth rates of 1.0% (previous year: 1.0%) have been used for those cash generating units attributable overall to the "healthcare products and services" market or industry.
In line with IAS 36.A17 (a), capital costs of cash generating units have been calculated as the weighted average of their equity and debt capital costs (WACC).
Given the risk and return profiles of the cash generating units thereby reviewed, the costs of capital have been calculated on an individual basis. The key parameters are as follows:
| Cash generating unit |
Growth rate beyond detailed budget period in % |
Pre-tax WACC in % |
|---|---|---|
| Laboratory automation 2014 2013 |
1.0 1.0 |
10.96 10.31 |
| Workflow software 2014 2013 |
1.0 1.0 |
14.96 9.91 |
| Nucleic acid purification 2014 2013 |
1.0 1.0 |
16.40 14.59 |
| Contact-free measurement and capacity calculation methods 2014 2013 |
1.0 1.0 |
19.64 12.40 |
Of the goodwill recognized, 1 745k results from the acquisition of STRATEC Biomedical UK, Ltd. in the 2006 financial year, 1 1,488k from the acquisition of STRATEC Molecular GmbH in the 2009 financial year, and 1 2,552k from the acquisition of STRATEC Biomedical USA, Inc. in the 2010 financial year. For impairment testing purposes, the goodwill has been allo-cated to those cash generating units benefiting from the synergies.
For impairment testing purposes, the carrying amounts of the goodwill resulting from the aforementioned acquisitions have mainly been allocated to the "laboratory automation" and "workflow software" cash generating units on the basis of the ratios of the respective EBIT margins. These units have the following characteristics:
| in D thousands | Laboratory automation | Workflow software | ||||
|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | |||
| Carrying amount of goodwill | 4,574 | 4,233 | 109 | 101 | ||
| Carrying amount of CGU, including goodwill | 72,805 | 70,729 | 1,966 | 2,306 |
In line with IAS 36 (Impairment of Assets), the company performed the annual impairment test for these goodwill items as of December 31, 2014 and December 31, 2013 respectively.
The following key assumptions have been used to determine the recoverable amounts of the cash generating units:
| "Laboratory automation": | The budget for the recoverable amount has been based on budgeted average EBIT growth of 17.9% (previous year: 7.6%) and a budgeted average EBIT margin of 13.6% (previous year: 17.0%). This assumption reflects previous management experience. In perpetuity, a growth rate of 1.0% has been assumed (previous year: 1.0%). |
|---|---|
| "Workflow software": | Average sales growth of 32.1% has been assumed (previous year: 16.5%). The EBIT margin has been budgeted at an aver-age of around 5.0% (previous year: 7.3%). These assump tions are consistent with average growth prospects in the sector based on external market data. In perpetuity, a growth rate of 1.0% has been assumed (previous year: 1.0%). |
The sensitivity analysis has assumed a reduction in the future cash flow and an increase in weighted costs of capital by 10% each, as changes on this scale would appear reasonable and possible, especially from a long-term perspective. On this basis, we concluded that there were no indications of any potential impairment in the goodwill reported at the STRATEC Group. As in the previous year, no impairment losses were therefore recognized in the year under report.
An amount of 1 103k, and thus not material compared with the total carrying amount of goodwill, was allocated from the total carrying amount of goodwill to several cash generating units in 2014 (previous year: 1 93k). For the goodwill thereby allocated as well, the annual impairment test did not identify any indications of impairment.
Financial assets consist of investments in associates, loans and receivables, other financial assets, and cash and cash equivalents.
Financial assets are recognized and measured in accordance with IAS 39 (Financial Instruments: Recognition and Measurement). Accordingly, financial assets have been recognized in the consolidated balance sheet when the STRATEC Group has a contractual right to receive cash or other financial assets from third parties. These items are basically recognized as of their respective performance dates. They are initially recognized at fair value plus transaction costs. Transaction costs incurred upon the acquisition of financial assets measured at fair value through profit or loss have been expensed directly in the consolidated statement of comprehensive income.
STRATEC's Share
Subsequent measurement is based on the asset's allocation to one of the following IAS 39 categories (Financial Instruments: Recognition and Measurement), which are governed by different measurement rules in each case:
Financial assets measured at fair value through profit or loss comprise financial assets held for trading and the option rights resulting from the existing development cooperation with Quanterix Corporation, US. Other financial assets have been allocated to this category. Changes in the fair value of financial assets in this category are recognized through profit or loss in the consolidated statement of comprehensive income as of the date of increase or decrease in their value.
Loans and receivables are non-derivative financial assets not listed on any "active market". Trade receivables, future receivables from construction contracts, receivables from associates, and the financial receivables included under other receivables and other assets have been allocated to this category, as have cash and cash equivalents. These items are measured at amortized cost using the effective interest method, accounting for impairments where appropriate. For impairments of trade receivables, a distinction is made between individual allowances and general allowances. These take appropriate account of default risks calculated on the basis of historic experience and individual risk assessments. Impairments of trade receivables are recognized in an allowances schedule. When a receivable is demonstrably in default, its carrying amount is written down directly. Given the short-term nature of the maturities (<1 year), trade receivables are not discounted.
Available-for-sale financial assets include those non-derivative financial assets not allocated to any of the other measurement categories. Changes in the fair value of available-for-sale financial assets are recognized directly in equity. Changes in their fair value are only recognized through profit or loss upon disposal. When the fair value falls either permanently or significantly short of cost, then a corresponding impairment is recognized through profit or loss in the consolidated statement of comprehensive income. Financial assets for which no listed market price is available and whose fair value cannot be reliably estimated are measured at cost, less any impairment losses. STRATEC AG did not allocate any financial assets to the "available-for-sale" category in the 2014 financial year.
The STRATEC Group does not have any financial assets in the financial investments held to maturity category. STRATEC AG has not drawn on the option provided for in specified circumstances of designating financial assets upon initial recognition as financial assets measured at fair value through profit or loss.
When there are objective, substantial indications of impairment in the case of financial assets in the loans and receivables and available-for-sale financial assets categories, then a test is performed to ascertain whether their carrying amounts exceed the present value of the expected future cash flows determined on the basis of the market yields of comparable instruments. In this case, corresponding impairment losses are recognized through profit or loss.
Application is made of the following requirements when the reasons for impairment losses previously recognized no longer apply: Impaired items in the loans and receivables, available-for-sale debt instruments and held-to-maturity financial investments categories may not be written up beyond their respective amortized cost. Impairments of items in the available-for-sale equity instruments category may not be reversed through profit or loss. Impairments of unlisted equity instruments whose fair value cannot be reliably determined may not be reversed.
Financial assets are retired when the contractual rights to payment have expired or the financial assets have been assigned.
Financial liabilities are recognized in the consolidated balance sheet when the STRATEC Group has a contractual obligation to transfer cash or other financial assets to a third party. These items are initially recognized at the fair value of the consideration received, less transaction costs where appropriate. They are subsequently measured at amortized cost using the effective interest method. Financial liabilities are retired when the contractual obligations have been met or cancelled, or have expired. STRATEC AG has not drawn on the option provided for in specified circumstances of designating financial liabilities upon initial recognition as financial liabilities measured at fair value through profit or loss.
Where the STRATEC Group has made use of derivative financial instruments (generally currency futures to manage exchange risks), these have initially been recognized at fair value and subsequently measured at fair value as of each balance sheet date. Gains or losses resulting from measurement have been recognized directly through profit or loss in the consolidated statement of comprehensive income, unless the derivative is designated and effective as a hedge within hedge accounting. However, STRATEC AG has so far not drawn on the possibility of designating such instruments as hedges. Derivatives with positive fair values are recognized as financial assets, while derivatives with negative fair values are recognized as financial liabilities.
Other receivables and liabilities, i. e. deferrals/accruals, prepayments, and other non-financial assets and liabilities have been recognized at amortized cost.
Broadly speaking, inventories include assets held for sale in the normal course of business (finished products and merchandise), assets currently in the process of being manufactured for sale (unfinished products and unfinished services), and assets consumed during the manufacturing process or in the performance of services (raw materials and supplies). These items are measured at their cost of acquisition or at their net disposal value, if lower.
Upon addition, raw materials, supplies and merchandise are measured at their average cost of acquisition.
The manufacturing costs for unfinished and finished products include both directly allocable manufacturing wage and material expenses and a prorated share of material and production overheads, including depreciation. The manufacturing costs for unfinished services include both directly allocable manufacturing wage expenses and prorated production overheads. Administration expenses are also included to the extent that they can be directly allocated to production. Sales-related expenses are not included. Due to materiality considerations, borrowing costs as defined in IAS 23 (Borrowing Costs) have been recognized in full through profit or loss in the consolidated statement of comprehensive income.
Consistent with the business model at STRATEC AG, this balance sheet item also includes development cooperations. In respect of the accounting policies applied for development cooperations, reference is made to the information in "Recognition of sales, cost of sales, research and development expenses" in this section.
The taxes on income reported include the taxes levied on taxable profit and deferred tax items at companies in the STRATEC Group. The income taxes reported have been calculated in accordance with the country-specific tax legislation valid or adopted as of the balance sheet date, and in the amount at which they are expected to be paid or refunded.
Other taxes levied on items other than income have been recognized under other operating expenses in the consolidated statement of comprehensive income.
Deferred taxes have been calculated using the liability method for temporary differences between the amounts recognized for assets and liabilities in the tax balance sheet and those stated in the IFRS financial statements, as well as for consolidation entries and loss carryovers likely to be realized.
Deferred tax assets on temporary differences and tax loss carryovers have been capitalized to the extent that it is likely that future taxable income will be available and that there is sufficient likelihood that the loss carryovers will be utilized. The assessment of the ongoing value of tax loss carryovers has been based on short and medium-term forecasts concerning the future earnings situation of the respective group company. In this assessment, STRATEC AG is further bound by the tax law norms valid as of the balance sheet date. Future legislative amendments may thus make it necessary to adjust the respective values through profit or loss.
Deferred tax assets and liabilities have been reported on a net basis in cases where they refer to the same taxable entity and the same tax authority. Where gains and losses have been recognized directly in equity, the same applies for the relevant deferred tax assets and liabilities.
Company pensions at the STRATEC Group involve both defined contribution and defined benefit schemes.
In defined contribution pension schemes, the company is obliged to pay contributions to state or private pension companies in accordance with statutory or contractual requirements. Apart from these contributions, the company is not subject to any further payment obligations. Current contributions have been recognized as expenses in the consolidated statement of comprehensive income.
The defined benefit pension schemes take the form of pension commitments made by the company. To cover its benefit obligations, the company makes contributions to external plan assets. For accounting purposes, all income and expenses are recognized within the company's operating earnings (EBIT). In line with IAS 19 (Employee Benefits), the present value of pension obligations has been calculated using the projected unit credit method. This involves future obligations being measured using actuarial methods. The calculations at STRATEC AG have mainly been based on statistical data concerning mortality and invalidity rates, on assumptions concerning the discount rate, and the expected income from plan assets. The discount rate and the expected return on plan assets has basically been determined by reference to the yields on congruent company bonds of AA-rated companies, or additionally by reference to the yields on corresponding government bonds. The fair value of the plan assets has been deducted from the present value of the pension obligations. The obligations and plan assets are measured annually. Actuarial calculations are generally performed as of the balance sheet date, unless advance surveys are obtained in order to ensure prompt preparation of the financial statements. Remeasurements have been recognized directly in "Other comprehensive income".
Other provisions have been recognized to cover legal or constructive obligations to third parties resulting from past events which are likely to lead to a future outflow of resources and for which the expected amount of the obligation can be reliably estimated.
Such obligations have been recognized at the present values of the expected outflow of resources where this is expected to occur later than in the following year. Refund claims due from third parties have been recognized separately from provisions to the extent that their realization is virtually certain.
Other provisions include those for guarantee and warranty obligations. The calculation of the scope of obligation has been based on the sales involving such guarantees thereby generated, on the respective contractual warranty periods, as well as on past empirical values, which are adapted on the basis of the implications of currently observable information and data, thus supplementing the implications of the historic values by reference to this current information and data.
The key principles underlying the recognition of sales and the recognition of cost of sales and research and development expenses given the business model at STRATEC AG are as follows:
Development expenses for proprietary development projects are generally recognized as expenses in the period in which they are incurred, with the exception of research and development projects acquired upon company acquisitions, and development expenses cumulatively meeting the criteria stipulated in IAS 38.57. Capitalized development expenses are tested for impairment at least once a year in line with IAS 36 in cases where they are not yet ready for their intended use. Impairment losses are recognized when the carrying amount of the capitalized assets exceeds the recoverable amount.
For development cooperations, it is first assessed whether the respective development cooperation constitutes a construction contract pursuant to IAS 11. This assessment is largely based on the relevant facts and circumstances as to whether a binding agreement for the recovery of the costs of the non-recurring phase already exists upon conclusion of the development agreement.
Where a binding agreement of this nature already exists upon conclusion of the development agreement, sales for these orders are recognized in accordance with the requirements of IAS 11 in the development stage already. Pursuant to IAS 11.32 et seq., however, the sales recognized are limited to the amount of contract costs incurred. No earnings are therefore recognized. Here too, the respective contracts are tested for loss-free measurement (impairment) as a minimum as of each balance sheet date. This test is performed by analogy with the requirements of IAS 36. Development cooperations classified as construction contracts are recognized during the development stage in each case in line with IAS 11 as either receivables or liabilities from construction contracts. Any differential amount arising following completion of the development stage between the development expenses capitalized and the payments received is amortized in the subsequent appliance manufacturing stage within sales over the agreed minimum purchase volume.
Where no binding agreement of this nature already exists upon conclusion of the development agreement, amounts not covered by agreed payments gradually arise for these orders as the relevant development work progresses. Where the requirements of IAS 38.57 are cumulatively met, the (prorated) shortfall determined for these projects using the percentage of completion method is capitalized. These items are recognized as intangible assets within non-current assets pursuant to IAS 38, while the development expenses covered by agreed payments are recognized either as unfinished services pursuant to IAS 2 (Inventories) or as trade receivables. The recognition of sales during the development stage is based on the percentage of completion pursuant to IAS 18.21. In line with IAS 18.24 (c), percentage of completion is calculated as the ratio of the costs incurred as of the balance sheet date to the estimated total costs for the development agreement. In the case of contingent milestone payments pursuant to IAS 18.25 Sentence 2, however, sales may only be recognized when the respective conditions governing the milestone payment have been met. In these cases too, the sales thereby recognized are "capped" at the percentage of completion of the order at that point in time. Unfinished services pursuant to IAS 2 are recognized as costs of sales in each case at the time at which the aforementioned principles governing the recognition of sales are met, while the capitalized shortfall pursuant to IAS 38.97 et seq. is amortized over the expected purchase volume following completion of the development stage and from the beginning of the appliance manufacturing stage. This amortization is also recognized within cost of sales. Furthermore, in line with IAS 36.10 (a) the capitalized shortfall is tested for impairment as a minimum as of each balance sheet date – and also during the financial year should there be any corresponding indications of impairment.
The recognition of sales in the appliance manufacturing stage is treated as a "sale of goods" pursuant to the requirements of IAS 18.14 et seq. This approach is adopted irrespective of whether or not the preceding development stage constitutes a construction contract pursuant to IAS 11.
The following aspects should also be noted:
Cost of sales basically consists of production-related manufacturing expenses for completed development cooperations and sold products. Alongside directly attributable individual material and production costs, they also include systematically attributed production overheads, including depreciation of production-related assets and impairments of inventories.
Development expenses of 1 2,312k were capitalized for proprietary development projects in the 2014 financial year (previous year: 1 2,279k). Pursuant to IAS 38.54, outlays allocable to research expenses have been recognized as expenses in the period in which they are incurred.
The preparation of the consolidated financial statements requires a certain number of discretionary decisions and forwardlooking assumptions to be made which have implications for the method of statement and volume of assets, liabilities, expenses, income and contingent liabilities thereby recognized.
Discretionary decisions and forward-looking assumptions have to be made in particular in connection with the recognition of development expenses as presented in "Recognition of sales, cost of sales, research and development expenses" in this section. Further, such decisions and assumptions also have to be made for establishment of uniform useful lives for non-current assets at the Group, the allocation of goodwill to cash generating units, the determination of the recoverable amount for impairment testing purposes, the measurement of pension provisions, the fair value measurement of stock options granted, the measurement of provisions, the recognition of deferred tax assets on tax loss carryovers, and the determination of the functional currency of foreign business units.
67 Letter from the Board of Management
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Group Management report
Consolidated
The most important discretionary decisions and forward-looking assumptions, as a result of which there may be a substantial risk of significant adjustments being required in the assets and liabilities thereby recognized in the coming financial year, are presented in greater detail below:
The assessment as to whether the requirements for capitalization have been met in each individual case represents a significant discretionary decision. Given the empirical values available in the fields of development and project management, STRATEC AG assumes that the estimates in terms of technical feasibility, expected overall costs and market conditions are reliable. When determining the recoverable amount, assumptions have been made concerning product lifecycles and the resultant future cash flows. The discount rates have been based on the relevant weighted average costs of capital (WACC) of the cash generating unit performing the development work, adjusted where appropriate to account for inherent development risks, and spread over the relevant term.
Within the business model of the STRATEC Group, the adequate recognition of development cooperations including analyzer system production represents one of the core problems, and one that is subject to significant discretionary decisions. Reference is made to the information about "Recognition of sales, cost of sales, research and development expenses" in this section.
The allocation of goodwill acquired upon company acquisitions to cash generating units for impairment testing purposes pursuant to IAS 36 (Impairment of Assets) is subject to significant discretionary decisions. From the takeover date onwards, STRATEC AG allocates the goodwill resulting from any company acquisition to each cash generating unit at the company intended to benefit from the synergies expected to arise on account of the business combination. STRATEC AG works with appropriate key figures (EBIT margins) to determine the potential synergies expected in each case.
When determining the functional currency of a foreign business operation and deciding whether its functional currency is identical with that of the reporting company, reference has to be made to the indicators specified in IAS 21 (The Effects of Changes in Foreign Exchange Rates). When these indicators provide a mixed picture and the functional currency is not immediately apparent, STRATEC AG determines at its own discretion which functional currency best reflects the economic implications of the underlying business transactions, events and circumstances. In the case of foreign group companies, the respective national currencies have accordingly been chosen as the functional currencies.
Due to the large number of variables involved, the goodwill impairment test (carrying amount as of December 31: 1 4,785k; previous year: 1 4,427k) is subject to a difficult assessment involving a significant degree of uncertainty in the estimates used. The principal assumptions underlying the impairment test performed at each balance sheet date are outlined in Section B. "Accounting policies applied – Impairment tests". When performing sensitivity analyses for goodwill impairment tests, a reduction in the future cash flow and an increase in the weighted costs of capital by 10% each has been assumed, as changes on this scale would appear possible from a long-term perspective. On this basis, STRATEC AG has concluded that there are no indications of potential impairment in the goodwill of any of its cash generating units.
Other intangible assets (e. g. capitalized development expenses) are tested for impairment either upon the occurrence of a triggering event (where the respective assets are subject to scheduled amortization) or at least once a year (where the respective assets are not subject to scheduled amortization) (carrying amount as of December 31: 1 25,477k; previous year: 1 25,761k). These impairment tests are also subject to the same difficulties and discretionary scope as the goodwill impairment test. When performing sensitivity analyses for these impairment tests, a reduction in the future cash flows and an increase in the weighted costs of capital by 10% each has been assumed, as changes on this scale would appear possible from a long-term perspective. On this basis, STRATEC AG has concluded that there are no indications of potential impairment in these assets.
The impairment test on capitalized construction contracts and unfinished services in connection with development cooperations is performed by analogous application of the principles set out in IAS 36 (carrying amount as of December 31: 1 1,213k; previous year: 1 1,367k). These impairment tests are thus subject to the same difficulties and discretionary scope as the impairment tests performed on goodwill and other intangible assets. When performing sensitivity analyses for these impairment tests, a reduction in the future cash flows and an increase in the weighted costs of capital by 10% each has been assumed, as changes on this scale would appear possible from a long-term perspective. On this basis, STRATEC AG has concluded that there are no indications of potential impairment in these assets.
The calculation of the fair value of option rights granted, which amount is then distributed as personnel expenses over the vesting period, requires forward-looking estimates. In particular, the selection of the option price model underlying the calculation is made on the subjective assessment of the management. The management is convinced that the Black-Scholes model used represents a suitable valuation model for the stock options granted at the STRATEC Group. The principal parameters involving estimates (expected future volatility, dividend yield, turnover of subscription beneficiaries) have been presented in Section C. "Disclosures on the consolidated balance sheet – Stock option programs".
When calculating the provision for guarantee and warranty obligations (carrying amount as of December 31: 1 1,588k; previous year: 1 679k), the management takes due account of historic values from the past, which are adapted on the basis of the implications of currently observable information and data, thus supplementing the implications of the historic values by reference to this current information and data. The insights gained in the current financial year led to a recognizable increase in the provision for guarantee and warranty obligations. Actual expenses in future financial years may deviate from the estimated figures.
In its assessment that the – predominantly short-term – differences between the figures recognized for tax purposes and the figures recognized in the IFRS consolidated financial statements will reverse in subsequent financial years, the management is bound pursuant to IAS 12 (Income Taxes) by the requirements of tax law valid as of the balance sheet date. Future legislative amendments could therefore make it necessary to adjust these figures through profit or loss. In its assessment that it will be possible to offset the tax loss carryovers recognized against future profits, the management relies on its short and medium-term budget forecasts. The actual materialization of future profits is based on discretionary estimates. The carrying amounts of the deferred tax assets and liabilities recognized and not recognized in the consolidated financial statements, as well as their arising and changes in the 2014 financial year compared with the previous year have been explained in detail in Section C. "Disclosures on the consolidated balance sheet (12) Taxes on income".
There are no other significant forward-looking assumptions and major sources of uncertainty concerning estimates at the balance sheet date which involve any substantial risk of material adjustments being required in the assets and liabilities thereby recognized within the coming financial year.
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Intangible assets developed as follows in the 2014 financial year:
| in D thousands | Goodwill | Technologies | Current R& D projects acquired |
Internally generated intangible assets |
Other rights and values |
Total |
|---|---|---|---|---|---|---|
| Acquisition and manufacturing costs Balance at 12.31.2013 |
4,427 | 7,236 | 431 | 30,224 | 3,600 | 45,918 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 |
| Additions | 0 | 0 | 0 | 5,060 | 155 | 5,215 |
| Disposals | 0 | 0 | 0 | 2,687 | 0 | 2,687 |
| Currency differences | 358 | 472 | 0 | 146 | 44 | 1,020 |
| Balance at 12.31.2014 | 4,785 | 7,708 | 431 | 32,743 | 3,799 | 49,466 |
| in D thousands | Goodwill | Technologies | Current R& D projects acquired |
Internally generated intangible assets |
Other rights and values |
Total |
|---|---|---|---|---|---|---|
| Accumulated amortization and impairments Balance at 12.31.2013 |
0 | 6,554 | 196 | 5,919 | 3,061 | 15,730 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 |
| Additions | 0 | 291 | 49 | 4,851 | 324 | 5,515 |
| Disposals | 0 | 0 | 0 | 2,562 | 0 | 2,562 |
| Currency differences | 0 | 469 | 0 | 12 | 40 | 521 |
| Balance at 12.31.2014 | 0 | 7,314 | 245 | 8,220 | 3,425 | 19,204 |
| Carrying amounts at 12.31.2014 | 4,785 | 394 | 186 | 24,523 | 374 | 30,262 |
| Carrying amounts at 12.31.2013 | 4,427 | 682 | 235 | 24,305 | 539 | 30,189 |
The goodwill results from the acquisitions of the subsidiaries STRATEC Biomedical UK, Ltd., STRATEC Molecular GmbH, and STRATEC Biomedical USA, Inc., in previous years.
The amount recognized for technologies involves the expertise identified in the context of company acquisitions and was structured as follows at the balance sheet date:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Workflow software (STRATEC Biomedical UK, Ltd.) | 0 | 90 |
| RNA/DNA purification (STRATEC Molecular GmbH) | 394 | 592 |
| Contact-free measurement and capacity calculation methods (STRATEC Biomedical USA, Inc.) |
0 | 0 |
| Total | 394 | 682 |
Current research and development projects acquired are attributable to the acquisition of the STRATEC Molecular GmbH subsidiary in the 2009 financial year.
The amount recognized for internally generated intangible assets includes both development expenses capitalized for proprietary development projects (1 6,517k; previous year: 1 6,415k) and development expenses capitalized for development cooperations (1 18,007k; previous year: 1 17,890k). Reference is made to the information in Section B. "Recognition of sales, cost of sales, research and development expenses".
The other rights and values item includes software and licenses (1 374k; previous year: 1 539k).
In the 2014 financial year, impairment losses of 1 1,358k were recognized on internally generated intangible assets in connection with proprietary development projects. These are attributable to the Instrumentation segment. The business model of STRATEC AG, which due to cooperations customary to the sector also involves multiple party arrangements, means that the events and circumstances leading to this impairment cannot be outlined without further background information. This assumed, the events and circumstances leading to the impairment in this case were as follows: For a platform-based appliance planned for Party A, Party B, which is not in any contractual relationship with STRATEC AG, should have supplied research results representing a major component of the planned system solution to Party A. Based on the information available to STRATEC AG, a substantial delay arose in the provision of these research results by Party B to Party A, as a result of which STRATEC AG received initial indications in the 3rd quarter of 2014 that the project most probably cannot be continued in its existing form. As a result of these circumstances, and to ensure an optimal allocation of resources between specific development work based on contracts with customers and the development of system platforms, the management of STRATEC AG decided to continue development work on this platform, if applicable, at a later date.
In the 2013 financial year, impairments losses of 1 935k were recognized for contact-free measurement and capacity calculation methods.
In the consolidated statement of comprehensive income, amortization and the impairment losses recognized for intangible assets are recognized within the individual functional divisions in line with their causation.
Individual intangible assets with a carrying amount of more than 1 1.0 million at the balance sheet date on December 31, 2014 and thus, alongside goodwill, of material significance for the consolidated financial statements of STRATEC AG comprise the following items: development cooperation A with a carrying amount of 1 7,657k – amortization has not yet begun as the project is still in the development stage; development cooperation B with a carrying amount of 1 4,233k – amortization has not yet begun as the project is still in the development stage; development cooperation C with a carrying amount of 1 2,990k – expected remaining amortization period of 5.0 years; development cooperation D with a carrying amount of 1 1,764k – expected remaining amortization period of 5.0 years.
STRATEC's Share
Intangible assets developed as follows in the 2013 financial year:
| in D thousands | Goodwill | Technologies | Current R& D projects acquired |
Internally generated intangible assets |
Other rights and values |
Total |
|---|---|---|---|---|---|---|
| Acquisition and manufacturing costs Balance at 12.31.2012 |
4,547 | 7,385 | 431 | 23,199 | 3,120 | 38,682 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 50 | 50 |
| Additions | 0 | 0 | 0 | 7,061 | 457 | 7,518 |
| Disposals | 0 | 0 | 0 | 0 | 5 | 5 |
| Currency differences | -120 | -149 | 0 | -36 | -22 | -327 |
| Balance at 12.31.2013 | 4,427 | 7,236 | 431 | 30,224 | 3,600 | 45,918 |
| in D thousands | Goodwill | Technologies | Current R& D projects acquired |
Internally generated intangible assets |
Other rights and values |
Total |
|---|---|---|---|---|---|---|
| Accumulated amortization Balance at 12.31.2012 |
0 | 5,132 | 147 | 3,907 | 2,669 | 11,855 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 23 | 23 |
| Additions | 0 | 1,549 | 49 | 2,015 | 393 | 4,006 |
| Disposals | 0 | 0 | 0 | 0 | 5 | 5 |
| Currency differences | 0 | -127 | 0 | -3 | -19 | -149 |
| Balance at 12.31.2013 | 0 | 6,554 | 196 | 5,919 | 3,061 | 15,730 |
| Carrying amounts at 12.31.2013 | 4,427 | 682 | 235 | 24,305 | 539 | 30,188 |
| Carrying amounts at 12.31.2012 | 4,547 | 2,253 | 284 | 19,292 | 451 | 26,827 |
Property, plant and equipment developed as follows in the 2014 financial year:
| in D thousands | Land, lease hold rights and buildings |
Technical equipment and machinery |
Other equipment, plant and office equipment |
Prepayments made and assets under construction |
Total |
|---|---|---|---|---|---|
| Acquisition and manufacturing costs Balance at 12.31.2013 |
13,912 | 944 | 18,001 | 6 | 32,863 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 0 |
| Additions | 27 | 129 | 1,007 | 312 | 1,474 |
| Disposals | 0 | 26 | 1,601 | 0 | 1,627 |
| Reclassifications | 0 | 0 | 25 | -25 | 0 |
| Currency differences | 99 | 41 | 164 | 1 | 304 |
| Balance at 12.31.2014 | 14,038 | 1,088 | 17,596 | 294 | 33,016 |
| in D thousands | Land, lease hold rights and buildings |
Technical equipment and machinery |
Other equipment, plant and office equipment |
Prepayments made and assets under construction |
Total |
|---|---|---|---|---|---|
| Accumulated depreciation Balance at 12.31.2013 |
2,829 | 505 | 12,518 | 0 | 15,852 |
| Change in scope of consolidation | 0 | 0 | 0 | 0 | 0 |
| Additions | 402 | 118 | 1,936 | 0 | 2,456 |
| Disposals | 0 | 26 | 1,354 | 0 | 1,380 |
| Currency differences | 15 | 19 | 100 | 0 | 134 |
| Balance at 12.31.2014 | 3,246 | 616 | 13,200 | 0 | 17,062 |
| Carrying amounts at 12.31.2014 | 10,792 | 472 | 4,396 | 294 | 15,954 |
| Carrying amounts at 12.31.2013 | 11,083 | 439 | 5,484 | 6 | 17,012 |
As in the previous year, it was not necessary to capitalize any borrowing costs as a component of costs of acquisition pursuant to IAS 23 (Borrowing Costs) in the 2014 financial year.
As in the previous year, it was not necessary to recognize any impairment losses in the 2014 financial year.
Property, plant and equipment developed as follows in the 2013 financial year:
| in D thousands | Land, lease hold rights and buildings |
Technical equipment and machinery |
Other equipment, plant and office equipment |
Prepayments made and assets under construction |
Total |
|---|---|---|---|---|---|
| Acquisition and manufacturing costs Balance at 12.31.2012 |
13,187 | 696 | 17,327 | 238 | 31,448 |
| Change in scope of consolidation | 0 | 45 | 11 | 0 | 56 |
| Additions | 322 | 217 | 1,725 | 311 | 2,575 |
| Disposals | 0 | 2 | 1,043 | 0 | 1,045 |
| Reclassifications | 485 | 0 | 64 | -549 | 0 |
| Currency differences | -82 | -12 | -83 | 6 | -169 |
| Balance at 12.31.2013 | 13,912 | 944 | 18,001 | 6 | 32,864 |
| in D thousands | Land, lease hold rights and buildings |
Technical equipment and machinery |
Other equipment, plant and office equipment |
Prepayments made and assets under construction |
Total |
|---|---|---|---|---|---|
| Accumulated depreciation Balance at 12.31.2012 |
2,450 | 313 | 11,577 | 0 | 14,340 |
| Change in scope of consolidation | 0 | 32 | 7 | 0 | 39 |
| Additions | 385 | 167 | 2,010 | 0 | 2,562 |
| Disposals | 0 | 2 | 1,029 | 0 | 1,031 |
| Currency differences | -6 | -5 | -47 | 0 | -58 |
| Balance at 12.31.2013 | 2,829 | 505 | 12,518 | 0 | 15,852 |
| Carrying amounts at 12.31.2013 | 11,083 | 439 | 5,484 | 6 | 17,012 |
| Carrying amounts at 12.31.2012 | 10,737 | 383 | 5,750 | 238 | 17,108 |
73 Letter from the Board of Management
Liquid Biopsy
The composition of investments in associates has been presented in Section B. "Accounting policies applied – Scope of consolidation". The amounts recognized developed as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Carrying amount at 01.01. | 392 | 363 |
| Addition | 82 | 100 |
| Impairments | -225 | 0 |
| Change in scope of consolidation | 0 | -64 |
| Currency differences | 14 | -7 |
| Carrying amount at 12.31. | 263 | 392 |
The addition relates to the foundation of STRATEC Services AG, Beringen, Switzerland. The impairments were recognized on the carrying amount of the investment in Sanguin International Inc., Hamden, US. The measurement of the shares held in Sanguin International Inc., involve fair value measurements using Level 3 input factors pursuant to IFRS 13 (Fair Value Measurement).
Write-ups of 1 28k were recognized through profit or loss for raw materials and supplies in the year under report (previous year: impairment losses of 1 225k). The resultant earnings items arose on account of stock movements.
These items are structured as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Unfinished products | 5,378 | 6,391 |
| Unfinished services | 1,213 | 1,367 |
| Total | 6,591 | 7,758 |
Information about the accounting treatment of development cooperations can be found in Section B. "Recognition of sales, cost of sales, research and development expenses".
These items are structured as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Finished products | 2,969 | 1,921 |
| Merchandise | 441 | 21 |
| Total | 3,410 | 1,942 |
Of the items recognized within inventories, the overwhelming share is expected to be realized within a period of twelve months after the balance sheet date.
Of trade receivables (1 18,961k; previous year: 1 23,372k), an amount of 1 17,759k (previous year: 1 22,190k) is due for payment within one year. Customer credit balances have been recognized under other current liabilities.
The allowances schedule for trade receivables developed as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Accumulated allowances at 01.01. | 420 | 269 |
| Expenses in period under report | 218 | 162 |
| Utilized | 0 | 0 |
| Currency translation | 55 | -11 |
| Accumulated allowances at 12.31. | 693 | 420 |
The gross amount of receivables for which individual allowances had been recognized at the balance sheet date amounted to 1 613k (previous year: 1 541k).
No expenses were recognized through profit or loss in the 2014 financial year for the complete write-down of trade receivables fully retired (previous year: 1 3k). No write-backs were required on volumes written down either in the financial year under report or in the previous year.
The time band structure of trade receivables has been presented in the following table:
| of which: neither impaired | of which: not impaired at balance sheet date, | but overdue within the following time bands | ||||
|---|---|---|---|---|---|---|
| in D thousands | Carrying amount |
nor overdue at balance sheet date |
up to 30 days |
between 30 and 60 days |
between 60 and 90 days |
more than 90 days |
| 12.31.2014 | 18,961 | 15,566 | 2,398 | 346 | 259 | 393 |
| 12.31.2013 | 23,372 | 17,513 | 5,281 | 360 | 85 | 133 |
There were no indications at the balance sheet date of any default risks in connection with receivables which were not impaired. Furthermore, material receivables are covered by trade credit insurance policies.
Information about the potential recognition of development cooperations as construction contracts pursuant to IAS 11 has been provided in Section A. "Recognition of sales, cost of sales, research and development expenses".
Sales from construction contracts totaling 1 3,715k have been recognized in the consolidated statement of comprehensive income for the 2014 financial year (previous year: 1 1,797k).
The future receivables from construction contracts recognized as of December 31, 2014 and as of the previous year's balance sheet date were neither impaired nor overdue. An amount of 1 1,644k is due within one year (previous year: 1 1,312k).
These receivables are structured as follows:
| Company providing service | Company receiving service | 12.31.2014 in TD |
12.31.2013 in TD |
|---|---|---|---|
| STRATEC AG | STRATEC Biomedical Inc. | 4 | 58 |
| STRATEC AG | STRATEC Biomedical (Taicang) Co. Ltd. | 11 | 0 |
| STRATEC Biomedical UK, Ltd. | Sanguin International Inc. | 8 | 7 |
| Total | 23 | 65 |
The loan receivable due from STRATEC Biomedical Inc. 1 0k; previous year: 1 54k) bears interest at 3% p. a. The loan receivable due from STRATEC Biomedical Inc. was written down by a further 50% in the financial year under report (2012 financial year: 50%). As in the previous year, these receivables have remaining terms of less than one year.
Receivables due from associates are subject to foreign currency risks. Given the amounts involved, however, these do not have any material impact on consolidated earnings.
Other receivables and other assets are structured as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Other tax receivables | 529 | 704 |
| Deferred expenses | 496 | 616 |
| Receivables from employees | 31 | 36 |
| Sundry | 111 | 229 |
| Total | 1,167 | 1,585 |
A write-down of 1 33k has been recognized in the "Sundry" item for a supplier with a debit balance. Apart from this, other receivables and other assets are neither impaired nor overdue. An amount of 1 1,140k is due within one year (previous year: 1 1,557k).
This balance sheet item includes shares in listed companies and the positive fair values of option rights, which amount to 1 608k (previous year: 1 325k).
Shares in listed companies have been measured at their closing prices on the Frankfurt Stock Exchange at the balance sheet date. The expenses of 1 7k resulting from measurement as of the balance sheet date (previous year: 1 14k) have been recognized through profit or loss in the consolidated statement of comprehensive income. As in the previous year, no securities were acquired in the 2014 financial year. Securities were sold at a disposal price of 1 8k in the financial year under report. The loss of 1 37k resulting from this sale was recognized through profit or loss under other operating expenses in the consolidated statement of comprehensive income.
The option rights relate to the existing development cooperation with Quanterix Corporation, US. In the 2014 financial year, STRATEC AG was granted a further total of 350,000 option rights to shares in Quanterix Corporation in return for the achievement of milestones (previous year: 650,000). The value of the 1,300,000 option rights has been determined by STRATEC AG by reference to documents available to it on the basis of a calculation performed by a renowned company. The company's calculation of the fair value of the option rights was performed as of the balance sheet date on December 31, 2014. The calculation has determined the total equity value of Quanterix Corporation, US, using a market approach and an income approach. Both approaches resulted in approximately the same figure. Quanterix Corporation, US, is a company that is not traded on an "active market". At Quanterix Corporation, US, there are liquidation preferences for the different classes of equity instruments. In particular, equity instruments are subdivided into "common stock" and "preferred stock" and into shares in A, B and C series. Shares in the C and B series have precedence over shares in the A series. As STRATEC AG has option rights to shares in the A series at Quanterix Corporation, US, the management of STRATEC AG has accounted for the existing liquidity preferences by way of a discount of almost 38% (previous year: almost 50%) over and above the 13% discount (previous year: 21%) already imposed to account of the lack of marketability of the shares. The discounts thereby recognized are particularly subject to discretionary decisions.
The change in the fair value of the option rights resulted in income of 1 165k in the 2014 financial year (previous year: 1 82k), which has been recognized in the "Other operating income" item in the statement of comprehensive income. The measurement of the Quanterix warrants involves a fair value measurement based on Level 3 input factors pursuant to IFRS 13.
If the management of STRATEC AG had not accounted for the existing liquidation preferences by way of a further discount of almost 38%, internally generated intangible assets would have been 1 441k lower, while sales for the financial year under report and other operating income would have been 1 141k and 1 224k higher respectively.
The individual components of shareholders' equity and their development in 2014 and 2013 have been presented in the consolidated statement of changes in equity.
The share capital of STRATEC AG amounted to 1 11,795k at the balance sheet date (previous year: 1 11,770k). The share capital is divided into 11,795,445 ordinary shares (previous year: 11,770,245 ordinary shares) with a nominal value of 1 1.00 each. The increase in the share capital by 25,200 ordinary shares are due to a conditional capital increase (previous year: 32,500 ordinary shares). The shares have been paid up in full and are bearer shares. Each share entitles its holder to one voting right. The share is listed in the "TecDax" index of the Frankfurt Stock Exchange.
Pursuant to § 4 (4.5) of the Articles of Association, the Board of Management is authorized, subject to approval by the Supervisory Board, to increase the company's share capital on one or more occasions prior to April 13, 2016 by a maximum amount of up to 1 5,500,000.00 by issuing up to a maximum of 5,500,000 new ordinary bearer shares with a nominal value of 1 1.00 each in return for cash or non-cash contributions (Authorized Capital). In general, shareholders must be granted subscription rights. In specific circumstances outlined in the Articles of Association, however, the Board of Management is entitled to exclude such subscription rights for a total amount of up to 20% of existing share capital upon this authorization becoming effective or, if lower, of the equivalent amount upon this authorization being acted on. Authorized Capital amounted to 1 5,500,000 as of December 31, 2014 (previous year: 1 5,500k).
§4 (4.6) Paragraph 1 of the Articles of Association provides for Conditional Capital V. This conditional capital increase serves to grant subscription rights (stock options) up to May 19, 2014 on the basis of the resolution adopted by the Annual General Meeting on May 20, 2009. Pursuant to the resolution adopted by the Annual General Meeting on June 6, 2013, Conditional Capital V was reduced to 1 198,500.00 and the authorization to grant stock options dated May 20, 2009 rescinded to the extent that no further new option rights may be granted; only existing option rights may be exercised. Conditional Capital V amounted to 1 145,350.00 as of December 31, 2014.
§4 (4.6) Paragraph 2 of the Articles of Association provides for Conditional Capital VI. This conditional capital increase serves to grant subscription rights (stock options) up to June 5, 2018 on the basis of the resolution adopted by the Annual General Meeting on June 6, 2013. The conditional capital increase is only exercised to the extent that bearers of stock options actually exercise their subscription rights. The new shares have profit entitlement from the beginning of the financial year in which they are issued. Conditional Capital VI amounted to 1 900,000.00 as of December 31, 2014.
77 Letter from the Board of Management
Report of the Supervisory Board STRATEC's Share
Liquid Biopsy Group Management report
Furthermore, §4 (4.7) of the Articles of Association provides for Conditional Capital IV, which amounts to 1 800,000.00. This conditional capital increase serves exclusively to grant up to 800,000 new ordinary bearer shares to the bearers or creditors of warrant or convertible bonds issued pursuant to the resolution adopted by the Annual General Meeting on April 14, 2011 by the company or by companies in which the company holds direct or indirect majority shareholdings. Conditional Capital IV amounted to 1 800,000.00 as of December 31, 2014.
Total conditional capital thus amounted to 1 1,845,350.00 as of December 31, 2014 (previous year: 1 1,872k).
The company had two stock option programs as of December 31, 2014 (previous year: three). These programs are especially well-suited to provide a sustainable performance incentive for members of the Board of Management and employees of the company, as well as for members of the management and employees of associates. They thus help increase the value of the company in the interests of the company and its shareholders. For members of the Board of Management of STRATEC AG, the stock options allocated to them simultaneously serve as variable components of compensation of a long-term incentive nature.
The following specific conditions apply to stock option programs granted up to June 6, 2013:
Each stock option entitles its bearer to subscribe one STRATEC share at a later date in return for payment of an exercise price determined upon the options being granted. The exercise price is equivalent to the average closing price of STRATEC shares on the five trading days prior to the decision being taken to grant stock options, with the par value of one euro per share representing the minimum possible exercise price. Following the expiry of qualifying periods and the meeting of specified performance targets, the stock options may be exercised in predetermined exercise windows. Up to 50% of the stock options granted may only be exercised at the earliest following a qualifying period of two years and provided that STRATEC's share has risen in value by a least ten percent compared with the exercise price between the date of the option rights being granted and the date marking the expiry of the qualifying period. Following a qualifying period of a further year, up to 100% of the stock options granted may be exercised provided that STRATEC's share has risen in value by at least 15% between the date of the option rights being granted and the date marking the expiry of the qualifying period. Following the expiry of a seven-year term after being granted, the option rights lapse without compensation.
The following specific conditions in respect of qualifying periods and the meeting of specific performance targets apply to stock options granted from June 6, 2013 onwards:
The stock options granted may be exercised in full at the earliest following the expiry of a qualifying period of four years and provided that STRATEC's share has risen in value by at least twenty percent compared with the exercise price between the date of the option rights being granted and the date marking the expiry of the qualifying period. Following the expiry of a seven-year term after being granted, the option rights lapse without compensation.
The individual stock option programs, fair value calculations using the Black-Scholes option pricing model, and the calculation of the related personnel expenses in the individual periods (taking due account of personnel turnover) have mainly been based on the following key parameters (with expected volatility derived from historic volatility figures):
| Granted in | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|---|
| Option rights granted (number of shares) | 56,100 | 92,600 | 96,100 | 58,100 | 17,100 | 117,800 |
| Weighted exercise price (in 1) | 33.04 | 29.75 | 31.39 | 27.47 | 27.88 | 13.48 |
| Expected share price volatility in % |
26.40 to 34.67 |
34.20 to 39.43 |
28.70 to 33.51 |
29.23 to 31.60 |
31.33 to 47.35 |
48.0 to 59.8 |
| Expected dividend yield in % | 1.50 | 1.50 | 1.50 | 1.50 | 1.50 | 1.50 |
| Risk-free interest rate in % | 0.72 to 1.56 |
1.20 to 1.76 |
1.30 to 1.85 |
1.83 to 3.21 |
2.35 to 3.17 |
3.02 to 3.47 |
| Assumed turnover of personnel entitled to subscribe in % |
5.0 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 to 16.5 |
| Fair value of option rights granted in | ||||||
| financial year (in 1 thousands) | 202 | 307 | 258 | 165 | 44 | 226 |
The weighted average share price has been accounted for at 1 34.29 in the fair value calculation (previous year: 1 29.85).
In respect of the exercise behavior shown by the program participants, it has been assumed that they will exercise their options at the earliest opportunity.
The following options schedule provides an overview of the development in stock option rights in the 2013 to 2014 financial years:
| Number of option rights | Weighted exercise price | |
|---|---|---|
| Outstanding on 12.31.2012 | 187,200 | 28.68 |
| Exercisable on 12.31.2012 | 24,450 | 21.19 |
| During the 2013 financial year | ||
| granted | 92,600 | 29.75 |
| exercised | 32,500 | 24.73 |
| lapsed | 1,400 | n. a. |
| forfeited | 5,300 | n. a. |
| Outstanding on 12.31.2013 | 240,600 | 29.71 |
| Exercisable on 12.31.2013 | 14,800 | 23.90 |
| During the 2014 financial year | ||
| granted | 56,100 | 33.04 |
| exercised | 25,200 | 27.46 |
| lapsed | 0 | n. a. |
| forfeited | 1,000 | n. a. |
| Outstanding on 12.31.2014 | 270,500 | 30.62 |
| Exercisable on 12.31.2014 | 79,250 | 29.49 |
Of the stock options granted in the year under report, a total of 40,000 were allocated to members of the Board of Management of STRATEC AG (previous year: 50,000), and 16,100 to employees at STRATEC AG (previous year: 42,600). The average exercise prices amounted to 1 31.87 for members of the Board of Management (previous year: 1 28.09) and 1 35.96 for employees (previous year: 1 31.71).
In the year under report, no stock options (previous year: 22,500; average exercise price: 1 27.11 per share) were exercised by members of the Board of Management. A total of 17,500 stock options were exercised in the year under report (previous year: 0) by former members of the Board of Management of STRATEC AG at an average exercise price of 1 29.37 per share. Employees of STRATEC AG exercised 7,700 stock options (previous year: 10,000) at an average exercise price of 1 23.11 per share (previous year: 1 19.38).
The fair value of the option rights has been expensed over the agreed qualifying periods and has resulted in an endowment of the same amount in the capital reserve. This led to expenses of 1 250k in the 2014 financial year (previous year: 1 200k). Given the consistent, low level of personnel turnover, it has not been necessary in subsequent periods to adjust the expenses calculated upon the respective rights being granted.
The 79,250 stock option rights exercisable as of December 31, 2014 (previous year: 14,800) entitle their bearers to acquire a total of up to 79,250 shares (previous year: 14,800) at a total exercise price of 1 2,337k (previous year: 1 354k).
The weighted average listed price on the Frankfurt Stock Exchange of those stock options exercised in the period under report since their respective issue amounted to 1 42.85 (previous year: 1 31.20).
STRATEC's Share
Group Management report
The weighted exercise prices and weighted average remaining contractual terms of the stock options outstanding at the end of the period under report have been presented in the following table:
| 2014 | |||
|---|---|---|---|
| Range in D |
Number of Stock options |
Weighted exercise price in D |
Weighted remaining contractual term in months |
| 20.01–25.00 | 3,300 | 20.38 | 21.3 |
| 25.01–30.00 | 95,600 | 28.01 | 58.1 |
| 30.01–35.00 | 162,750 | 31.83 | 63.5 |
| 35.01–40.00 | 4,600 | 39.34 | 74.2 |
| 40.01–45.00 | 4,250 | 41.45 | 83.2 |
| Total | 270,500 | 30.62 | 61.6 |
| . . | ||
|---|---|---|
| 2013 | |||
|---|---|---|---|
| Range in D |
Number of Stock options |
Weighted exercise price in D |
Weighted remaining contractual term in months |
| 15.01–20.00 | 2,800 | 17.37 | 21.3 |
| 20.01–25.00 | 4,300 | 20.38 | 33.5 |
| 25.01–30.00 | 108,000 | 27.94 | 68.1 |
| 30.01–35.00 | 123,700 | 31.74 | 70.0 |
| 35.01–40.00 | 1,800 | 38.35 | 74.1 |
| Total | 240,600 | 29.71 | 67.9 |
The capital reserve mainly includes the premium from the issuing of shares, less the costs of equity procurement, after taxes. Moreover, the capital reserve also includes the benefit from the granting of stock options recognized as expenses, as well as the differential amount from the buyback and reissue of treasury stock.
Revenue reserves include accumulated net income generated in the past, to the extent that this has not been distributed, as well as free revenue reserves. The free revenue reserves arose due to allocations made in the context of the statutory authorization of the Board of Management and Supervisory Board of STRATEC AG to determine the appropriation of profit pursuant to §58 (2) of the German Stock Corporation Act (AktG).
Revenue reserves are thus structured as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Free revenue reserves | 19,392 | 19,392 |
| Accumulated net income | 61,086 | 48,374 |
| Total | 80,478 | 67,766 |
Accumulated net income developed as follows in the year under report:
| Accumulated net income at 12.31.2014 | 61,086 |
|---|---|
| Distribution (dividend for 2013) | -7,055 |
| Consolidated net income in 2014 | 19,768 |
| Accumulated net income at 12.31.2013 | 48,374 |
| in D thousands |
Other equity includes the currency translation reserve, remeasurement components from the measurement of pension provisions, and treasury stock.
The currency translation reserve of 1 1,929k reported as of the balance sheet date (previous year: 1 654k) relates to currency differences arising upon the translation of the separate financial statements of companies with functional currencies other than the euro.
By resolution of the Annual General Meeting held on May 21, 2010, the Board of Management was authorized until May 20, 2015 to acquire treasury stock on one or several occasions and in total or in partial amounts up to a total of ten percent of existing share capital as of May 21, 2010. Together with the treasury stock already acquired and still possessed by the company, the newly acquired treasury stock may not account for more than ten percent of the share capital. Alongside sale on the stock market or by way of a public tender addressed to all, the newly acquired treasury stock and treasury stock already acquired on account of earlier authorizations may also be used as follows:
As in the previous year, the company made no use of this authorization to acquire treasury stock in 2014. The company currently has no plans to retire the shares already acquired, but rather intends to retain the financial scope to make acquisitions and safeguard its growth strategy. Furthermore, the company reserves the right to use the treasury stock already acquired for other purposes consistent with the authorization provided by the Annual General Meeting.
As in the previous year, the company held a total of 12,223 treasury stocks as of December 31, 2014. The treasury stock has been recognized at cost at a total amount of 1 212k (previous year: 1 212k) within other equity.
Liquid Biopsy
The German Stock Corporation Act (AktG) requires the dividends to be distributed to shareholders to be calculated on the basis of the net income reported in the annual financial statements of STRATEC AG prepared in line with the German Commercial Code (HGB).
In the 2014 financial year, a dividend of 1 0.60 (previous year: 1 0.56) was paid per share with dividend entitlement for the 2013 financial year, corresponding to a total distribution of 1 7,055k (previous year: 1 6,566k).
With the approval of the Supervisory Board, the Board of Management proposes that, of the net income of 1 41,704k calculated for STRATEC AG in line with the German Commercial Code, an amount of 1 8,248,255.40, equivalent to 1 0.70 per share with dividend entitlement, should be distributed, and that the remaining amount of 1 33,455k should be carried forward. The proposed dividend is dependent on approval by the Annual General Meeting and has not been recognized as a liability in the consolidated financial statements.
As in the previous year, upon preparing the annual financial statements of STRATEC AG in line with the German Commercial Code (HGB) as of December 31, 2014, the Board of Management and Supervisory Board did not allocate any amount from the net income for 2014 to the free revenue reserves.
The company pension scheme can basically be divided into defined contribution plans and defined benefit plans. In defined contribution plans, the company does not enter into any legal or constructive obligations over and above its obligation to pay contributions to an external state or private pension provider. These contributions are recognized within personnel expenses upon becoming due for payment. Defined contribution pension expenses totaled 1 2,711k in the financial year under report (previous year: 1 2,525k). This total includes employer contributions of 1 1,682k to the German state pension system (previous year: 1 1,568k).
Furthermore, one capital allowance commitment had been made to one member of the Board of Management of STRATEC AG as of the balance sheet date. Vested rights to this capital allowance come into force upon the individual reaching the age of 65.
Reinsurance policies have been concluded to cover the pension obligation. Actuarial surveys have been obtained to ascertain the corresponding asset values as of the balance sheet date. This pension obligation is offset against the pledged assets of the reinsurance policies and stated on a net basis in the consolidated balance sheet.
The present value of pension obligations is calculated using the projected unit credit method, the actuarial method stipulated by IAS 19.67 to measure the respective provisions. In this, the future obligations are measured on the basis of the prorated vested claims attained by the end of the financial year, taking due account of assumed trends. Alongside life expectancy assumptions, which have been taken from the biometric "2005G Guidelines" published by Prof. Dr. Klaus Heubeck, the calculation of the present value of pension obligations has been based on the following assumptions:
| 12.31.2014 | 12.31.2013 | |
|---|---|---|
| Discount factor | 2.21% | 3.68% |
| Future income increases | 0.00% | 0.00% |
| Future pension increases | 0.00% | 0.00% |
The assumptions stated for the calculation of the present value of pension obligations as of the previous year's balance sheet date also apply for the calculation of interest expenses and current service cost in the following financial year.
The present value of the vested defined benefit obligations (DBO) and plan assets changed as follows in the financial year under report:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Defined benefit obligations (DBO ) as of 01.01. |
162 | 163 |
| Current service cost | 10 | 11 |
| Compounding of pension obligations | 6 | 5 |
| Remeasurements of pension obligations | ||
| Actuarial gains (-)/losses (+) due to changes in | ||
| financial assumptions | 50 | -17 |
| demographic assumptions | 0 | 0 |
| experience-based adjustments | -2 | -1 |
| Defined benefit obligations (DBO ) as of 12.31. |
226 | 162 |
| in D thousands | 2014 | 2013 |
| Fair value of plan assets as of 01.01. | 148 | 135 |
| Employer contributions to plan assets | 12 | 12 |
| Interest income on plan assets | 6 | 4 |
| Remeasurement of plan assets | ||
| Income from plan assets (excluding interest income) | -1 | -4 |
| Other | 0 | 0 |
| Fair value of plan assets as of 12.31. | 165 | 148 |
To calculate the financing status or the net obligation, the present value of the externally financed obligations is compared with the fair value of the plan assets.
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Present value of pension obligations | 226 | 162 |
| Fair value of plan assets | 165 | 148 |
| Financing status = net obligation | 61 | 14 |
The net obligation developed as follows in the past financial years:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Net obligation as of 01.01. | 14 | 28 |
| Share of pension expenses recognized in income statement | 10 | 12 |
| Amounts recognized in OCI | 49 | -14 |
| Employer contributions to plan assets | -12 | -12 |
| Net obligation as of 12.31. | 61 | 14 |
of Management
The pension expenses recognized through profit or loss in the income statement for defined benefit commitments in the period under report comprise the following items:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Current service cost | 10 | 11 |
| Compounding of pension obligations | 6 | 5 |
| Interest income on plan assets | -6 | -4 |
| Share of pension expenses recognized in income statement | 10 | 12 |
Service cost is included in personnel expenses, while other components of the share of pension expenses recognized in the income statement are included in net financial expenses.
The following amounts have been recognized in equity under "Other comprehensive income" in the statement of comprehensive income:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Remeasurement of net obligation: | ||
| Income from plan assets (excluding interest income) | 1 | 4 |
| Actuarial gains (-)/losses (+) due to changes in | ||
| financial assumptions | 50 | -17 |
| demographic assumptions | 0 | 0 |
| experience adjustments | -2 | -1 |
| Amounts recognized in OCI | 49 | -14 |
The plan assets relate exclusively to STRATEC AG, which covers the acquired pension claims via reinsurance policies. These reinsurance policies predominantly invest in fixed-income securities. When selecting such securities, the rating and equity resources of the issuer are accounted for, among other factors. The investment strategy predominantly aims to generate ongoing interest income and to ensure capital preservation with a low degree of volatility. No prices listed on an "active market" are available for the reinsurance policies.
At STRATEC, the discount factor is the key actuarial assumption used to calculate the pension obligation. The following sensitivity analysis shows how the defined benefit obligation would have been influenced by potential changes in the underlying assumptions. Accordingly, if the discount factor had been 0.50 percentage points higher or lower then, assuming all other assumptions remained unchanged, the present value of the defined benefit obligations (DBO) would have fallen by 1 8k (previous year: 1 13k) or risen by 1 20k (previous year: 1 15k) respectively.
The average duration of the pension obligation amounted to 17 years at the end of the period under report (previous year: 18 years).
Plan asset endowments by STRATEC of 1 12k (previous year:1 12k) are expected for the following 2015 and 2016 financial years.
Furthermore, STRATEC AG also has congruently reinsured pension fund models. Consistent with an approach frequently adopted in practice, these are considered on the basis of "economic interpretation" as defined contribution plans, as the refinancing risk borne by the employer is generally negligible. STRATEC AG has also adopted this approach for its accounting. The fair value of the insurance contracts amounted to 1 757k as of December 31, 2014 (previous year: 1 594k). If the reinsured pension fund models had been classified as defined obligation plans, then pursuant to IAS 19.115 the present value of the obligations can be assumed to be at the same level. STRATEC AG paid contributions of 1 164k in the 2014 financial year (previous year: 1 164k). As in the previous year, these contributions were all made for retirement pensions of members of the Board of Management of STRATEC AG.
The following table provides an overview of income tax expenses broken down by origin:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Income taxes paid or owed | ||
| Germany | -1,211 | 1,853 |
| International | 1,642 | 940 |
| 431 | 2,793 | |
| Deferred taxes | ||
| Germany | 3,827 | 1,103 |
| International | 29 | -41 |
| 3,856 | 1,062 | |
| Income tax expenses | 4,287 | 3,855 |
Deferred taxes are recognized in balance sheet items as follows:
| 12.31.2014 | 12.31.2013 | |||
|---|---|---|---|---|
| in D thousands | Deferred tax assets |
Deferred tax liabilities |
Deferred tax assets |
Deferred tax liabilities |
| Intangible assets | 830 | 6,871 | 1,296 | 1,879 |
| Property, plant and equipment | 0 | 27 | 0 | 35 |
| Financial assets | 0 | 70 | 0 | 76 |
| Inventories | 82 | 93 | 28 | 44 |
| Receivables and other assets | 439 | 684 | 272 | 216 |
| Pension provisions | 14 | 0 | 1 | 0 |
| Other liabilities and provisions | 63 | 36 | 12 | 80 |
| Loss carryovers | 2,245 | 0 | 249 | 0 |
| Consolidation items | 126 | 323 | 160 | 210 |
| Subtotal | 3,799 | 8,104 | 2,018 | 2,540 |
| Netting | -2,539 | -2,539 | -1,151 | -1,151 |
| Amount recognized in consolidated balance sheet | 1,260 | 5,565 | 867 | 1,389 |
Of the deferred tax expenses of 1 3,856k recognized in the consolidated statement of comprehensive income (previous year: 1 1,062k), 1 1,858k (previous year: 1 420k) is attributable to temporary valuation differences, 1 2k (previous year: 1 2k) to the costs of capital increases, and 1 1,996k (previous year: 1 640k) to the recognition through profit or loss of deferred tax assets on tax loss carryovers.
The sharp year-on-year increase in deferred tax assets recognized on tax loss carryovers is due to the change in accounting policies in the previous year, which meant that the resultant income tax losses asserted in the context of the corporate income tax and trade tax returns for the 2013 assessment period were only included in group accounting for the 2014 financial year. In parallel with this, deferred tax liabilities recognized on intangible assets also rose sharply. As a result, current taxes on income in Germany in the 2014 financial year show a surplus of taxes received over taxes paid.
In the 2014 financial year, deferred tax assets on loss carryovers were recognized for STRATEC AG (1 1,938k; previous year: 1 0k) and for two (previous year: two) subsidiaries (1 307k; previous year: 1 249k). At STRATEC Biomedical USA, Inc., deferred tax assets on tax loss carryovers amounting to 1 451k were written down (previous year: 1 310k). Given the existence of deferred tax liabilities, the deferred tax assets still recognized at this company are deemed to have retained their value.
STRATEC's Share
The tax expenses of 1 4,287k reported for the 2014 financial year (previous year: 1 3,855k) deviate by 1 2,336k (previous year: 1 1,465k) from the tax expenses of 1 6,623k (previous year: 1 5,320k) expected to result from application of the overall tax rate for STRATEC AG (27.5%; previous year: 27.5%) to the Group's earnings before taxes.
The difference between the tax expenses expected and those reported is attributable to the following items:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Expected tax expenses (-)/income (+) | -6,623 | -5,320 |
| Deviations in German and foreign tax rates | 3,541 | 1,842 |
| Impact of increase in foreign tax rates | -300 | 0 |
| Tax-exempt income (+)/expenses (-) from the disposal of shareholdings, securities price gains/losses, and dividends |
-312 | -4 |
| Expenses not deductible for tax purposes less tax settlements | -46 | -30 |
| Personnel expenses IFRS (stock options) | -69 | -55 |
| Tax back payments/refunds for previous years and non-period tax expenses / income | -16 | 25 |
| Write-down of deferred tax assets on tax loss carryovers | -451 | -310 |
| Sundry | -11 | -3 |
| Reported tax expenses (-) / income (+) | -4,287 | -3,855 |
The Group has financial liabilities of 1 6,932k due to banks (previous year: 1 8,537k). Of financial liabilities, 1 2,079k (previous year: 1 2,117k) are denominated in Swiss francs.
As of December 31, 2014, the Group had total credit lines of 1 8,032k at its disposal (previous year: 1 17,731k). Of this total, an amount of 1 8,032k (previous year: 1 15,731k) was unutilized and thus available for borrowing.
Financial liabilities have the following maturities:
| Maturity | 12.31.2014 in D thousands |
Maturity | 12.31.2013 in D thousands |
|---|---|---|---|
| 2015 | 2,449 | 2014 | 1,894 |
| 2016 | 1,234 | 2015 | 2,936 |
| 2017 | 851 | 2016 | 1,172 |
| 2018 | 713 | 2017 | 726 |
| 2019 | 125 | 2018 | 588 |
| 2020 and later | 1,560 | 2019 and later | 1,221 |
| Total | 6,932 | Total | 8,537 |
The company land in Switzerland is encumbered with land charges of 1 2,911k (previous year: 1 2,851k) as security for a mortgage loan taken up to cover the costs of constructing a company building.
Trade payables mostly involve goods and services provided in November and December 2014. As in the previous year, these items are due for payment within one year.
Liabilities to associates, amounting to 1 41k (previous year: 1 211k), were due to STRATEC Biomedical (Taicang) Co. Ltd. (1 41k; previous year: 1 11k) and in the previous year to Sanguin International Inc. (1 200k). All of these liabilities relate to the ongoing exchange of services and goods (previous year: ongoing exchange of services and goods 1 11k; granting of loans: 1 200k). As in the previous year, these items are due for payment within one year.
These liabilities are structured as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| Wage and salary liabilities | 3,022 | 2,314 |
| Other tax liabilities | 432 | 639 |
| Social security liabilities | 226 | 223 |
| Prepayments received on orders | 2,371 | 320 |
| Supervisory Board compensation | 111 | 95 |
| Other liabilities | 978 | 929 |
| Total | 7,140 | 4,520 |
As in the previous year, these liabilities have remaining terms of less than one year.
The wage and salary liabilities mainly consist of outstanding vacation (1 943k; previous year: 1 1,107k), employee working time credits (1 412k; previous year: 1 428k), and profit participations (1 1,295k; previous year: 1 745k).
Social security liabilities chiefly relate to social security contributions still to be transferred. The tax liabilities relate to employee payroll settlement.
Of prepayments received on orders, an amount of 1 1,282k (previous year: 1 87k) relates to development cooperations. Reference is made to Section B. "Recognition of sales, cost of sales, research and development expenses".
Other liabilities chiefly relate to liabilities of 1 473k for accounting and financial reporting (previous year: 1 481k).
Current provisions relate to provisions for guarantees and warrantees (1 1,587k; previous year: 1 679k) and for an onerous rental agreement (1 144k; previous year: 1 0k). These items developed as follows:
| in D thousands | 12.31.2014 | 12.31.2013 |
|---|---|---|
| 01.01. | 679 | 608 |
| Currency translation | 27 | -5 |
| Utilized | -683 | -601 |
| Reversed | 0 | 0 |
| Added | 1,708 | 677 |
| 12.31. | 1,731 | 679 |
Given the immaterial sums involved, the amounts reported have not been discounted or compounded. There is uncertainty in respect of the amount and maturity of the provisions recognized. This has been duly accounted for by way of best estimates.
Income tax liabilities (1 1,410k; previous year: 1 857k) relate to current income tax obligations.
STRATEC's Share
Sales mainly relate to:
| in D thousands | 2014 | 2013 |
|---|---|---|
| 1. Product range | 96,109 | 90,721 |
| 2. Maintenance and spare parts | 33,839 | 27,317 |
| 3. Development and other services | 14,564 | 9,401 |
| 4. Sundry | 348 | 511 |
| Total | 144,860 | 127,950 |
Sales can be broken down by geographical region (customer location) as follows:
| Total | 144,860 | 127,950 |
|---|---|---|
| 3. Sundry | 70,799 | 49,685 |
| 2. European Union | 57,901 | 54,110 |
| 1. Germany | 16,160 | 24,155 |
| in D thousands | 2014 | 2013 |
Substantial sales generated with analyzer systems in other countries are structured as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Italy | 7,911 | 8,570 |
| France | 5,451 | 5,591 |
| Brazil | 1,152 | 1,474 |
| Belgium | 17,978 | 19,371 |
| US | 22,069 | 17,187 |
| China | 1,517 | 2,314 |
| UK | 13,644 | 8,312 |
The allocation of sales generated with analyzer systems to other countries has been based on the delivery locations from the perspective of the STRATEC Group. In view of the fact that the customers of the STRATEC Group partly supply their country outlets and customers from central distribution centers, however, this breakdown of sales does not necessarily reflect the geographical distribution of the final operating locations of the analyzer systems supplied by the STRATEC Group. For the same reason, it would not be meaningful to compile any country-specific breakdown of the supply of spare parts and other services by the STRATEC Group.
In the financial year under report, the STRATEC Group generated more than 10% of its total sales with each of three customers (1 40.4 million; 1 34.1 million; 1 27.4 million). In the previous year, the STRATEC Group generated more than 10% of its total sales with each of five customers (1 32.9 million; 1 25.4 million; 1 21.5 million; 1 16.2 million; 1 13.6 million). They in all cases include sales for several analyzer system lines, development activities, and services and consumables. The sales generated with these customers are mainly allocable to the Instrumentation segment.
Cost of sales, amounting to 1 99,924k (previous year: 1 86,186k), includes production-related manufacturing expenses incurred for the products, maintenance and spare parts sold, and for development and other services.
Research and development expenses not meeting the criteria for capitalization pursuant to IAS 38 (Intangible Assets) amounted to 1 5,016k (previous year: 1 5,047k) and mainly involved cost of materials and personnel expenses. The calculation of the gross development expenses recognized in the statement of comprehensive income has been modified and the comparative figures adjusted.
Sales-related expenses amounted to 1 5,887k (previous year: 1 7,135k) and included direct sales expenses and sales overheads. These basically include all expenses incurred for personnel, materials, and other expenses incurred for sales (including prorated depreciation and amortization). A major share relates to expenses arising in connection with product launches and support.
At 1 11,227k (previous year: 1 8,828k), administration expenses include the personnel and material expenses incurred in central administration departments (including corporate management, controlling, finance and accounting, legal affairs, investor relations, personnel and quality management) that are not directly attributable to production, sales, or research and development.
The other operating income of 1 4,176k (previous year: 1 1,305k) and other operating expenses of 1 2,930k (previous year: 1 2,566k) mainly consist of income and expenses for currency translation. Other than that, other operating income and other operating expenses also include numerous items that, viewed individually, are only of subordinate significance.
Financial income is structured as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Interest income on cash and cash equivalents | 145 | 66 |
| Interest income on receivables from associates | 4 3 |
|
| Interest income from compounding of receivables | 67 68 |
|
| Other interest income | 11 15 |
|
| Total | 227 | 152 |
Financial expenses are structured as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Interest expenses on loan liabilities to banks | 182 | 216 |
| Interest expenses on liabilities to associates | 6 | 5 |
| Interest expenses for compounding of pension provisions | 6 | 5 |
| Interest expenses for compounding of liabilities and provisions | 24 | 12 |
| Other interest expenses | 0 | 1 |
| Total | 218 | 239 |
89 Letter from the Board of Management
Consolidated
Other financial income/expenses include gains and losses for financial assets and financial liabilities measured at fair value and are structured as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Gains/losses on financial assets measured at fair value through profit or loss: | ||
| Gains/losses on retirement | 0 | -59 |
| Gains/losses on measurement at balance sheet date | -7 | -14 |
| Other financial income / expenses | -7 | -73 |
Earnings per share have been calculated pursuant to IAS 33 (Earnings per Share) by dividing the consolidated net income by the average weighted number of shares in STRATEC AG in circulation in the past financial year.
The treasury stock held by STRATEC AG has been excluded from the calculation of the number of shares in circulation. The year-on-year increase in the number of shares was due to the issue of new shares upon the exercising of option rights within stock option programs. Changes in the number of shares within the financial year have been accounted for by weighting the respective figures on a prorated basis. The resultant weighted average number of outstanding shares used to calculate (basic) earnings per share amounts to 11,769,624 (previous year: 11,746,342).
Pursuant to IAS 33 (Earnings per Share), the consolidated net income of 1 19,768k (previous year: 1 15,478k) reported in the consolidated statement of comprehensive income has been used as the unaltered basis for the calculation.
Due to the option rights outstanding as of December 31, 2014, both basic earnings per share (1 1.68; previous year: 1 1.32) and diluted earnings per share (1 1.67; previous year: 1 1.31) have been calculated. Diluted earnings per share have been calculated on the assumption that all outstanding options not yet exercised are actually exercised. The number of additional shares to be accounted for is calculated by comparing the proceeds generated by such exercising of options with the proceeds which could theoretically be generated by issuing new shares on customary market terms.
The allocation or exercising of option rights within the financial year has been accounted for using prorated weighting. The resultant weighted average number of outstanding shares with a diluting effect accounted for in the calculation of (diluted) earnings per share amounts to 11,834,452 (previous year: 11,777,609).
The functional divisions include the following cost of materials:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Costs of raw materials and supplies | 70,462 | 64,931 |
| Costs of purchased services | 2,351 | 1,950 |
| Total | 72,813 | 66,881 |
The functional divisions include the following personnel expenses:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Wages and salaries | 32,145 | 29,943 |
| Social security contributions and pension and welfare expenses | 5,067 | 4,519 |
| Total | 37,212 | 34,462 |
Wages and salaries include expenses of 1 1,791k (previous year: 1 1,993k) for third-party employees (personnel leasing).
The average number of individuals employed by the Group during the financial year (including temporary employees from personnel agencies) was as follows:
| Number | 2014 | 2013 |
|---|---|---|
| Employees | 486 | 477 |
| Trainees | 12 | 13 |
| Employees in permanent employment | 498 | 490 |
| Temporary employees | 42 | 47 |
| Total | 540 | 537 |
Of permanent employees, 334 (previous year: 330) were in Germany, and 152 (previous year: 147) abroad. Of temporary employees, 39 (previous year: 45) were in Germany, and 3 (previous year: 2) abroad.
Expenses of 1 954k (previous year: 1 999k) were incurred for operating leases in the year under report. Leasing contracts at the STRATEC Group mainly relate to buildings, IT and vehicle leasing agreements.
The total fees recorded for the group auditor in the financial year under report pursuant to §314 (1) No. 9 of the German Commercial Code (HGB) are structured as follows:
| Fee for in D thousands | 2014 | 2013 |
|---|---|---|
| a) Auditing | 476 | 255 |
| b) Other certification services | 0 | 2 |
| c) Tax advisory services | 0 | 30 |
| d) Other services | 8 | 9 |
| Total auditor's fee | 484 | 296 |
The total fee for 2014 includes an amount of 1 255k for auditing services relating to the 2013 financial year.
The total fee for 2013 includes an amount of 1 33k for auditing services and an amount of 1 23k for tax advisory services, in both cases relating to the 2012 financial year.
STRATEC's Share
The consolidated cash flow statement shows how the liquidity of the STRATEC Group has changed due to inflows and outflows of funds during the financial year. A distinction is made between the cash flows from operating, investing and financing activities.
The amounts reported for foreign group companies have generally been translated at annual average exchange rates. One exception involves cash and cash equivalents which, like in the consolidated balance sheet, have been recognized at the exchange rate on the reporting date. The impact of changes in exchange rates on cash and cash equivalents is presented separately.
The cash flow from operating activities has been calculated using the indirect method. This involves eliminating non-cash earnings components from consolidated net income after taxes.
The following other non-cash expense items have been accounted for:
| Expenses in D thousands | 2014 | 2013 |
|---|---|---|
| Currency translation losses from measurement of cash and cash equivalents at balance sheet date |
20 | 393 |
| Personnel expenses in connection with the granting of stock option rights | 250 | 200 |
| Exchange rate differences for foreign currency receivables/liabilities | 15 | 21 |
| Increase in impairment of inventories | 0 | 226 |
| Expenses for fair value measurement of securities held for trading | 7 | 14 |
| Allocations to impairments of receivables | 242 | 181 |
| Write-down of loan to STRATEC Biomedical Inc. | 53 | 0 |
| Loss from sale of securities | 37 | 0 |
| Total | 624 | 1,035 |
The following other non-cash income items have been accounted for:
| Income in D thousands | 2014 | 2013 | |
|---|---|---|---|
| Currency translation gains from measurement of cash and cash equivalents at balance sheet date |
421 | 5 | |
| Exchange rate differences for foreign currency receivables/liabilities | 250 | 1 | |
| Reduction in impairments of receivables | 29 | 0 | |
| Fair value measurement of options in connection with development cooperations | 165 | 302 | |
| Income from reversal of other provisions and liabilities | 159 | 586 | |
| Reversal of impairments of receivables | 25 | 17 | |
| Sundry | 7 | 7 | |
| Total | 1,056 | 918 |
Interest income and expenses have been allocated to operating activities, as have the components of other financial income/expenses. Dividend payments are presented in the cash flow from financing activities.
Tax payments have been reported under operating activities in their entirety, as their allocation to individual business divisions is not practically feasible.
The interest paid/received and income taxes paid/refunded items in the cash flow from operating activities have been presented using the direct method. In the first stage, this involves adjusting consolidated net income to account for income and expenses recognized in the consolidated statement of comprehensive income. After this, the interest and income taxes paid or received are reported separately.
A total of 1 6,818k was expended on investing activities (previous year: 1 10,292k). Of this sum, 1 6,690k was channeled into the acquisition of property, plant and equipment and intangible assets (previous year: 1 10,093k).
Financing activities led to an outflow of funds of 1 8,012k (previous year: 1 5,831k). Net repayments of loans amounted to 1 1,649k (previous year: 1 1,068k). Dividend payments accounted for an outflow of 1 7,055k (previous year: 1 6,566k).
The "Cash and cash equivalents" item comprises cash holdings and credit balances at banks with original maturities of up to three months. As of December 31, 2014, cash and cash equivalents amounted to 1 46,636k (previous year: 1 20,734k).
Report of the Supervisory Board Liquid Biopsy
Share
report STRATEC's
For internal management purposes, reference is chiefly made to the individual legal entities within the STRATEC Group. These therefore basically represent the operating segments as defined in IFRS 8 (Operating Segments). Apart from STRATEC Biomedical UK, Ltd, STRATEC Molecular GmbH, and STRATEC Biomedical S.R.L., the Group's operating segments are comparable in terms of their economic characteristics, products and services, types of production processes, customers, sales methods, and regulatory framework, and have therefore been aggregated into one operating segment – "Instrumentation". Separate reporting has been provided for the segments to the extent that they exceed the quantitative threshold values set out in IFRS 8 (Operating Segments).
The segments of the STRATEC Group subject to reporting requirements are as follows:
| in D thousands | Instrumentation | All other segments |
Reconciliation | Total |
|---|---|---|---|---|
| Sales | 151,166 | 7,026 | -13,332 | 144,860 |
| of which inter-segmental | 563 | 1,449 | ||
| Depreciation, amortization, and impairment |
7,655 | 282 | 259 | 8,196 |
| EBIT | 25,492 | -90 | -1,350 | 24,052 |
| Assets | 149,251 | 6,991 | -18,494 | 137,748 |
The accounting policies applied to the reporting segments are consistent with the accounting policies set out in Section B. "Accounting policies applied". Of non-current assets at the reporting segments, excluding financial instruments and deferred taxes, 1 36,797k are located in the country of origin of STRATEC AG and 1 6,303k in other countries.
Further disclosures on company level have been presented in Section D. "Disclosures on the consolidated statement of comprehensive income – (17) Sales".
| in D thousands | Instrumentation | All other segments |
Reconciliation | Total |
|---|---|---|---|---|
| Sales | 133,338 | 7,046 | -12,434 | 127,950 |
| of which inter-segmental | 806 | 1,210 | ||
| Depreciation, amortization, and impairment |
6,070 | 155 | 343 | 6,568 |
| EBIT | 21,944 | -3,860 | 1,409 | 19,493 |
| Assets | 130,614 | 9,984 | -22,810 | 117,788 |
The accounting policies applied to the reporting segments requiring report are consistent with the accounting policies set out in Section B. "Accounting policies applied". Of non-current assets at the reporting segments, excluding financial instruments and deferred taxes, 1 37,614k are located in the country of origin of STRATEC AG and 1 6,408k in other countries. Further disclosures on company level have been presented in Section D. "Disclosures on the consolidated statement of comprehensive income – (17) Sales".
The following table presents the carrying amounts and fair values of individual financial assets and liabilities for each class of financial instruments and reconciles these with the corresponding balance sheet items. Classification has been based on the underlying valuation method, with a distinction made between financial instruments measured at amortized cost and those measured at fair value. Furthermore, within those instruments measured at fair value, a further distinction has been made between instruments measured at fair value through profit or loss, and those measured at fair value in equity.
As the other receivables, other assets and other current liabilities balance sheet items include both financial instruments and non-financial assets and liabilities (e. g. tax receivables and liabilities, prepayments received for orders), the "Not covered by IFRS 7" column provides a corresponding reconciliation of these items.
| Measurement standard | ||||||
|---|---|---|---|---|---|---|
| Carrying amount |
Fair value | Fair value | ||||
| Financial assets in D thousands |
12.31.2014 (12.31.2013) |
Amortized cost |
through profit or loss |
in equity | Not covered by IFRS 7 |
12.31.2014 (12.31.2013) |
| Investments in associates | 263 (392) |
263 (392) |
263 (392) |
|||
| Trade receivables | 18,961 (23,372) |
18,961 (23,372) |
18,961 (23,372) |
|||
| Future receivables from construction contracts |
1,644 (1,312) |
1,644 (1,312) |
1,644 (1,312) |
|||
| Receivables from associates | 23 (65) |
23 (65) |
23 (65) |
|||
| Other receivables and other assets | 1,167 (1,585) |
143 (265) |
1,024 (1,320) |
1,167 (1,585) |
||
| Other financial assets | 877 (646) |
877 (646) |
877 (646) |
|||
| Cash and cash equivalents | 46,636 (20,734) |
46,636 (20,734) |
46,636 (20,734) |
|||
| Total | 69,571 (48,106) |
67,670 (46,140) |
877 (646) |
0 (0) |
1,024 (1,320) |
69,571 (48,106) |
| Measurement standard | ||||||
|---|---|---|---|---|---|---|
| Carrying amount |
Fair value | Not covered by IFRS 7 |
Fair value | |||
| Financial liabilities in D thousands |
12.31.2014 (12.31.2013) |
Amortized cost |
through profit or loss |
in equity | 12.31.2014 (12.31.2013) |
|
| Financial liabilities | 6,932 (8,537) |
6,932 (8,537) |
7,972 (9,390) |
|||
| Trade payables | 2,814 (4,402) |
2,814 (4,402) |
2,814 (4,402) |
|||
| Liabilities to associates | 41 (211) |
41 (211) |
41 (211) |
|||
| Other current liabilities | 7,140 (4,520) |
4,023 (3,285) |
3,117 (1,235) |
7,140 (4,520) |
||
| Total | 16,927 (17,670) |
13,810 (16,435) |
0 (0) |
0 (0) |
3,117 (1,235) |
17,967 (18,523) |
The fair value of receivables, loans and primary liabilities is calculated as the present value of future cash flows. Where a listed price is available, this has been taken as the fair value.
Given the short-term maturities of the overwhelming majority of trade receivables and payables, other receivables and liabilities, and cash and cash equivalents, their carrying amounts as of the balance sheet date do not deviate significantly from their fair values.
Liquid Biopsy
| 2014 (2013) in D thousands |
From interest and dividends |
Fair value | Currency translation |
Discount ing/com pounding |
Impairment | From disposals |
Net result 2014 (2013) |
|---|---|---|---|---|---|---|---|
| Loans and receivables | 11 (8) |
247 (-20) |
67 (68) |
-270 (-164) |
0 (-3) |
55 (-111) |
|
| Financial assets held for trading | 4 (10) |
158 (68) |
-37 (-59) |
125 (19) |
|||
| Cash and cash equivalents | 145 (66) |
401 (-388) |
546 (-322) |
||||
| Financial liabilities measured at amortized cost |
-188 (-221) |
-1 (0) |
-30 (-12) |
166 (593) |
-63 (360) |
||
| Total | -28 (-137) |
158 (68) |
637 (-408) |
37 (56) |
-270 (-164) |
129 (531) |
663 (-54) |
The net results on financial instruments broken down into their respective measurement cat-egories were as follows:
Interest expenses and interest income resulting from financial instruments measured at amortized cost have been recognized under net financial expenses. Total interest income on financial assets not measured at fair value through profit or loss amounts to 1 223k (previous year: 1 152k). Total interest expenses on financial liabilities not measured at fair value through profit or loss amounts to 1 218k (previous year: 1 234k). The net result of 1 -7k on financial instruments measured at fair value has been recognized under other financial income/expenses (previous year: 1 -14k). Information about the individual components of net financial expenses can be found in the disclosures on the consolidated statement of comprehensive income under (23) Net financial expenses.
The gains and losses resulting from translation through profit or loss of financial assets and liabilities at average exchange rates on the balance sheet date have been recognized under other operating income or expenses, as have the results of foreign currency translation performed within the financial year. The translation of cash and cash equivalents at the balance sheet date resulted in currency income of 1 421k (previous year: 1 5k) recognized through profit or loss under other operating income. Currency expenses of 1 20k (previous year: 1 393k) have been recognized under other operating expenses in connection with the translation of cash and cash equivalents at the balance sheet date.
To ensure the comparability and consistency of fair value measurements and related disclosures, IFRS 13 stipulates a fair value hierarchy that allocates the input factor used in valuation methods to calculate fair value to three levels. The hierarchy grants the highest priority to prices (taken over without amendment) on active markets for identical assets or liabilities (Level 1 input factors) and the lowest priority to non-observable input factors (Level 3 input factors). The following specific definitions apply:
Input factor: Assumptions that would be used by market participants when determining the price of an asset or liability, including risk assumptions, such as:
(a) The risk involved in a specific valuation method used to calculate fair value (such as a price model), and (b) The risk involved in the input factors used in the valuation method.
Input factors may be observable or non-observable.
Level 1 input factors: Listed prices (taken over without amendment) on active markets for identical assets or liabilities to which the company has access on the valuation date.
Level 2 input factors: Input factors other than the listed prices included in Level 1 that are either directly or indirectly observable for the asset or liability.
Level 3 input factors: Input factors not observable for the asset or liability.
Observable input factors: Input factors derived from market data, such as publicly available information about actual events or transactions, which reflect those assumptions that would be used by market participants when determining the price of the asset or liability.
Non-observable input factors: Input factors for which no market data is available and which are derived from the best information available concerning the assumptions that would be used by market participants when determining the price of the asset or liability.
The liquidity risk to which the STRATEC Group is exposed in connection with its financial instruments consists of obligations due to future interest and principal payments for financial liabilities. Future payments are structured as follows:
| Carrying amount |
Cash flows 2015 |
Cash flows 2016 |
Cash flows 2017-2018 |
Cash flows 2019 et seq. |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in D thousands | 12.31.2014 | Interest | Principal | Interest | Principal | Interest | Principal | Interest | Principal | |
| Financial liabilities | 6,932 | 123 | 2,449 | 75 | 1,234 | 80 | 1,564 | 33 | 1,685 | |
| Trade payables | 2,814 | 0 | 2,814 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Liabilities to associates |
41 | 0 | 41 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Other financial liabilities |
7,140 | 0 | 7,140 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Total | 16,928 | 123 | 12,444 | 75 | 1,234 | 80 | 1,564 | 33 | 1,685 |
| Carrying amount |
Cash flows 2014 |
Cash flows 2015 |
Cash flows 2016–2017 |
Cash flows 2018 et seq. |
|||||
|---|---|---|---|---|---|---|---|---|---|
| in D thousands | 12.31.2013 | Interest | Principal | Interest | Principal | Interest | Principal | Interest | Principal |
| Financial liabilities | 8,537 | 181 | 1,894 | 116 | 2,936 | 103 | 1,898 | 31 | 1,809 |
| Trade payables | 4,402 | 0 | 4,402 | 0 | 0 | 0 | 0 | 0 | 0 |
| Liabilities to associates |
211 | 5 | 211 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial liabilities |
3,285 | 0 | 3,285 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 16,435 | 186 | 9,792 | 116 | 2,936 | 103 | 1,898 | 31 | 1,809 |
Loans with remaining terms of up to five years charge interest at a weighted average of 2.59% (previous year: 2.63%). Loans with remaining terms of more than five years charge interest at a weighted average of 0.67% (previous year: 0.75%). 97 Letter from the Board of Management
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
Group Management report
The assets, liabilities and future activities of STRATEC AG are subject to risks resulting from changes in exchange rates, interest rates and stock market prices. The objectives and methods used by the STRATEC Group to deal with the financial risks listed below form the object of the Group's risk management activities. The principles underlying the Group's risk man-agement policies are presented in the "Opportunity and risk report" section of the group management report.
The objective of financial risk management is to limit these risks primarily by means of its operating activities. In assessing individual risks the management takes account of the volume of such risks arising across the Group as a whole. These activities are supplemented by finance-based measures. The primary objective is to limit the risks of relevance to the cash flow. The basic principles of the company's financial policy are reviewed by the Board of Management annually and revised to account for new developments. The Supervisory Board is informed at regular intervals of the financial position of the Group and the assessments made by the Board of Management.
Financial instruments could in principle give rise to the following risks for the company:
On account of its international business activities, the STRATEC Group is exposed to foreign currency risks resulting from the impact of exchange rate movements on business transactions and the foreign currency receivables and liabilities as of the balance sheet date (transaction risks). Furthermore, the translation of the financial statements of foreign subsidiaries into the group currency (1) also involves foreign currency risks (translation risks). Pursuant to IFRS 7.B23, these latter risks do not require separate analysis for IFRS 7 (Financial Instruments: Disclosures) purposes.
The principal foreign currency transactions performed by the STRATEC Group relate to export transactions in US dollars, intercompany loan relationships in US dollars, and loan liabilities in Swiss francs. Translation risks arise due to the translation of the financial statements of foreign group companies from Swiss francs (CHF), British pounds (GBP), and US dollars (USD), and Romanian lei (RON) into the group reporting currency (1).
With regard to the disclosures required by IFRS 7.31-42 concerning the type and scope of risks resulting from financial instruments, to avoid redundancies STRATEC AG makes partial use of IFRS 7.B6 by making the disclosures thereby required in its group management report. Reference is made to the following sections of that report: Section D "Outlook, opportunity and risk report; 2.2 Risks; Foreign currency risk" and Section F "Risk reporting in respect of the use of financial instruments".
The Group had the following transaction risk exposure as of the balance sheet date:
| Foreign currency item | 12.31.2014 | 12.31.2013 | ||||
|---|---|---|---|---|---|---|
| translated into D thousands |
GBP | CHF | USD | GBP | CHF | USD |
| Cash and cash equivalents | 100 | 1,783 | 14,171 | 214 | 638 | 13,365 |
| Trade receivables and other receivables | 10 | 500 | 2,270 | 429 | 680 | 2,825 |
| Receivables from associates less liabilities to associates |
0 | 0 | 12 | -13 | 0 | 54 |
| Financial liabilities | 0 | -2,079 | 0 | 0 | -1,725 | 0 |
| Trade payables | -35 | -166 | -294 | -19 | -637 | -234 |
| Other liabilities and provisions | -226 | -1,215 | -393 | -143 | -970 | -255 |
| Net risk exposure | -151 | -1,177 | 15,766 | 468 | -2,014 | 15,755 |
Exchange rate gains and losses resulting from the measurement of financial assets and financial liabilities as of the balance sheet date have been presented in Section G. "Financial instruments".
Any change in the exchange rate of these key currencies and the euro by +10%/-10% would have impacted as follows on consolidated net income as of the balance sheet date:
| 12.31.2014 | 12.31.2013 | |||||
|---|---|---|---|---|---|---|
| in D thousands | GBP | CHF | USD | GBP | CHF | USD |
| Change in currency by +10% Change in consolidated net income |
14 | 107 | -1,393 | -43 | 183 | -1,423 |
| Change in currency by -10% Change in consolidated net income |
-17 | -131 | 1,703 | 52 | -224 | 1,751 |
In the 2014 financial year, the translation of transactions with third parties and within inter-company relationships led to the recognition through profit or loss of income from currency translation totaling 1 3,273k (previous year: 1 613k) and expenses for currency translation totaling 1 600k (previous year: 1 1,174k). These have been recognized under other operating income and other operating expenses respectively.
Interest rate risks involve the risk of fluctuations in the value of a financial instrument as a result of changes in market interest rates.
The STRATEC Group is subject to interest rate risks in terms of its medium and long-term interest-bearing/interestcharging financial instruments. Interest rates are extremely low by historical standards. As a result, the cash and cash equivalents at the STRATEC Group now only generate interest income of immaterial significance and the resultant interest rate risk is also of subordinate significance. This item has therefore not been accounted for in the follow-ing analysis. However, any rise in interest rates would have a positive impact on earnings.
The Group reported the following medium and long-term interest-bearing assets and interest-charging liabilities as of the balance sheet date:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Interest-bearing financial assets | 20 | 21 |
| of which with floating interest rates | 0 | 0 |
| of which with fixed interest rates | 20 | 21 |
| Interest-charging financial liabilities | 4,483 | 6,643 |
| of which with floating interest rates | 1,248 | 1,221 |
| of which with fixed interest rates | 3,235 | 5,422 |
Changes in market interest rates have no implications for the measurement of fixed-interest financial instruments at the STRATEC Group as of the balance sheet date, as these items are measured at amortized cost. The fair values based on market interest rates as of the balance sheet date have been presented in Section G. "Financial instruments".
Changes in market interest rates have no implications for the measurement of floating-interest financial instruments at the STRATEC Group as of the balance sheet date, as these items are measured at amortized cost. Unlike fixed-interest financial liabilities, however, financial liabilities with floating interest rates involve the risk of fluctuations in future cash flows for payments of interest and principal due to changes in market interest rates.
The following table presents the future interest and principal payments assumed for the remaining term of the floating-rate loan liability as of the balance sheet date. The table presents the figures based on the market interest rate prevalent at this time and compares them with the payments that would result were the market interest rate to rise by 100 base points:
| Carrying amount |
Cash flows 2015 |
Cash flows 2016-2017 |
Cash flows 2017 ff. |
||||
|---|---|---|---|---|---|---|---|
| in D thousands | 12.31.2014 | Interest | Principal | Interest | Principal | Interest | Principal |
| Financial liabilities with floating interest rates (3-month LIBO R) |
|||||||
| Actual | 1,248 | 11 | 0 | 11 | 0 | 11 | 1,248 |
| + 100 base points | 1,248 | 21 | 0 | 21 | 0 | 21 | 1,248 |
The increase in the cash flow for interest payments presented here simultaneously corre-sponds to the hypothetical impact on earnings in the statement of comprehensive income. As the 3-month LIBOR rate was below 0.3% both at the end of the 2013 financial year and at the end of the 2014 financial year, no "downward" sensitivity analysis has been presented.
The situation was as follows as of the previous year's balance sheet date:
| Carrying amount |
Cashflows 2014 |
Cashflows 2015 |
Cashflows 2016 ff. |
||||
|---|---|---|---|---|---|---|---|
| in D thousands | 12.31.2013 | Interest | Principal | Interest | Principal | Interest | Principal |
| Financial liabilities with floating interest rates (3-month LIBO R) |
|||||||
| Actual | 1,221 | 9 | 0 | 9 | 0 | 9 | 1,221 |
| + 100 base points | 1,221 | 21 | 0 | 21 | 0 | 21 | 1,221 |
Financial assets in the "financial assets held for trading" category are subject to the risk of changes in fair values. Had fair values been 10% higher (lower) than their balance sheet date levels, then consolidated net income would have been 1 88k (previous year: 1 53k) higher (lower).
The principal default risks faced by STRATEC AG are to be found in its operating activities. They involve the risk of contractual partners failing to meet their obligations. At STRATEC AG, this risk relates in particular to receivables from customers. The risk volumes considered for default risk management purposes includes all creditor items due from customers in connection with supplies and services. Default risk is countered by means of receivables management, such as trade credit insurance policies. Remaining default risks are accounted for with individual and general allowances.
Liquid funds are invested solely in the form of short-term monthly deposits (with maximum terms of six months) at financial institutions with high-quality ratings.
The maximum default risk is reflected on the one hand by the carrying amounts of the financial assets reported in the balance sheet. However, these figures do not account for the hedging measures outlined above.
The objectives of capital management at STRATEC are:
STRATEC determines its level of capital in proportion to risk. To this end, STRATEC manages its capital structure and makes adjustments to react to changes in the macroeconomic framework and the risk characteristics of its underlying assets. To maintain or adjust its capital structure, the STRATEC Group may adjust the level of dividends paid to its shareholders, repay capital to its shareholders, issue new shares or sell assets to reduce debts.
The main key figures referred to by the management are shareholders' equity and the equity ratio. Shareholders' equity amounted to 1 112.1 million as of December 31, 2014, as against 1 97.2 million at the equivalent date in the previous year. The equity ratio amounted to 81.3% at December 31, 2014 (previous year: 82.5%). The medium-term target corridor for this figure amounts to between 50% and 75%.
Closely related companies and persons as defined in IAS 24 (Related Party Disclosures) are legal or natural persons in a position to exert influence on STRATEC AG and/or its subsidiaries or subject to control or significant influence by STRATEC AG or its subsidiaries. Such parties include unconsolidated subsidiaries, members of the Board of Management and Supervisory Board of STRATEC AG and persons and companies closely related to such.
The receivables and liabilities due to and from unconsolidated subsidiaries as of the balance sheet date have been presented under the respective balance sheet items.
In the 2014 financial year, STRATEC AG generated interest income of 1 4k from a loan granted to STRATEC Biomedical Inc., Hamden (previous year: 1 3k). This loan receivable was written down by a further 50% in the 2014 financial year.
In the 2014 financial year, STRATEC AG generated revenues of 1 4k from transactions with STRATEC Biomedical (Taicang) Co. Ltd. and purchased services of 1 396k (previous year: 1 31k) from this company.
In the 2014 financial year, STRATEC Biomedical USA, Inc. paid interest expenses of 1 6k (previous year: 1 5k) for a loan received from Sanguin International Inc.
In the 2014 financial year, STRATEC Biomedical Switzerland AG performed services of 1 4k (previous year: 1 0k) for STRATEC Services AG.
Due to the presumption regulation set out in IAS 28.5, the company's founder Hermann Leistner, his family, and their investment company count as related parties pursuant to IAS 24 (hereinafter "the Leistner family"). In Hermann Leistner's capacity as a member of the Administrative Board and advisor of STRATEC Biomedical Switzerland AG, the Leistner family received compensation of CHF 133k via Hermann Leistner in the financial year under report (previous year: CHF 220k). As Hermann Leistner is a member of the Board of Management of DITABIS Digital Biomedical Imaging Systems AG and Managing Director of LITRON GmbH, these companies count as related parties pursuant to IAS 24 via the Leistner family. In the financial year under report, STRATEC AG generated revenues of 1 5k from transactions with DITABIS Digital Biomedical Imaging Systems AG (previous year: 1 28k). In the financial year under report, STRATEC AG generated revenues of 1 8k from transactions with LITRON GmbH (previous year: 1 6k) and purchased services of 1 2k (previous year: 1 0k) from this company.
Consolidated
The company's Board of Management comprised the following members in the year under report:
Marcus Wolfinger, Remchingen (Chairman) Graduate in Business Administration
Dr. Robert Siegle, Birkenfeld (Director of Finance and Human Resources) Attorney
Dr. Claus Vielsack, Birkenfeld (Director of Product Development, since February 15, 2014) Graduate in Chemistry
Bernd M. Steidle, Oberboihingen (Director of Marketing and Sales, until March 19, 2014) Businessman
The Chairman of the Board of Management, Marcus Wolfinger, is authorized to solely represent the company. Dr. Robert Siegle has been a member of the management of STRATEC Molecular GmbH since December 2012 and a member of the Administrative Board of STRATEC Biomedical Switzerland AG since March 2014. Dr. Robert Siegle was a member of the Board of STRATEC Biomedical UK, Ltd. until July 2014.
The compensation of members of the Board of Management consists of fixed basic compensation and variable components dependent, among other factors, on the achievement of individual performance targets. More detailed comments on the basic features of the compensation system for the Board of Management and the disclosures required by §314 (1) No. 6a) Sentences 5 to 8 of the German Commercial Code (HGB) have been presented in Section G. "Compensation report" of the group management report.
Moreover, members of the Board of Management are entitled to participate in a stock option program. Among other conditions, the exercising of the options is dependent on the achievement of performance targets determined at the time of issue. These are outlined in greater detail in Section C. "Disclosures on the consolidated balance sheet – Stock option programs".
The members of the Board of Management received total compensation of 1 1,572k for their activity on the Board of Management in the 2014 financial year (previous year: 1 1,462k).
A total of 40,000 stock options (previous year: 50,000) with an average exercise price of 131.87 (previous year: 128.09) and an arithmetical total value of 1 145k (previous year: 1 163k) were issued to members of the Board of Management in the 2014 financial year. As in the previous year, no stock options were issued to former members of the Board of Management in the 2014 financial year.
Former members of the Board of Management received total compensation of 1220k in the 2014 financial year (previous year: 10k).
The company's Supervisory Board comprised the following individuals in the year under report:
Fred K. Brückner, Marburg (Chairman) Chemical Engineer and Independent Management Consultant
Wolfgang Wehmeyer, Tübingen (Deputy Chairman) Graduate in Mechanical Engineering, BBA, MBA, Senior Vice President Business Expansion, Fresenius Medical Care Deutschland GmbH
Prof. Dr. Stefanie Remmele, Landshut (since June 18, 2014) Professor of Medical Technology at the University of Applied Sciences in Landshut
Prof. Dr. Hugo Hämmerle, Weil der Stadt (until June 18, 2014)
Graduate in Biology and Director of the Natural and Medical Science Institute (NMI) at the University of Tübingen
The Supervisory Board members Fred K. Brückner, Wolfgang Wehmeyer, and Prof. Dr. Stefanie Remmele do not hold positions on any other supervisory boards or supervisory bodies as defined in §125 (1) Sentence 5 of the German Stock Corporation Act (AktG). Prof. Dr. Hugo Hämmerle is a member of the Supervisory Boards of TETEC AG, Reutlingen, and Retina Implant AG, Reutlingen.
The Supervisory Board members received total compensation of 1128k in the 2014 financial year for their activities on the Supervisory Board (previous year: 1124k). The specific structure of overall compensation was as follows:
| in D thousands | 2014 | 2013 |
|---|---|---|
| Fixed compensation | 115 | 113 |
| Meeting allowance | 13 | 11 |
| Total | 128 | 124 |
In addition to this total compensation, each member of the Supervisory Board also has his expenses reimbursed and benefits from a pecuniary damage liability insurance policy taken out at the company's expense at suitable terms customary to the market.
Other financial obligations primarily relate to acceptance obligations (basic contracts with suppliers concerning modules and contractual obligations), and obligations in connection with operating leases and development orders.
Obligations for orders placed amounted to 150,468k (previous year: 137,110k).
Undiscounted future minimum leasing and rental payments in connection with operating leases amounted to 12,270k as of the balance sheet date (previous year: 12,515k). Of this sum, 11,848k related to the rental agreement for the company building used by STRATEC Biomedical USA, Inc. (previous year: 11,923k).
The corresponding payment obligations mature as follows:
| Due in | in D thousands | Due in | in D thousands |
|---|---|---|---|
| 2015 | 46,498 | 2014 | 35,050 |
| of which for operating leases | 645 | 752 | |
| 2016 | 5,027 | 2015 | 3,205 |
| of which for operating leases | 418 | 392 | |
| 2017 | 370 | 2016 | 335 |
| of which for operating leases | 364 | 335 | |
| 2018 | 339 | 2017 | 296 |
| of which for operating leases | 339 | 296 | |
| 2019 and later | 504 | 2018 and later | 740 |
| of which for operating leases | 504 | 740 | |
| Total | 52,738 | Total | 39,626 |
There are no contingent liabilities relating to the provision of security for third-party liabilities.
of Management
Report of the Supervisory Board Liquid Biopsy Share
103 Letter from the Board report STRATEC's
Group Management
On January 15, 2015, the Swiss national bank communicated the lifting of the minimum CHF/1 exchange rate. In the wake of this announcement, the Swiss franc appreciated sharply, particularly against the euro. Compared with the USD, a currency also relevant to STRATEC, this appreciation relativized once again by early March. Should the parity between the Swiss franc and the euro continue to apply at the end of 2015 as well, this appreciation in the Swiss franc will significantly increase the accumulated translation differences recognized in equity in STRATEC's consolidated financial statements on account of the subsidiary whose financial statements are denominated in Swiss francs. The implications for the operating business, and in particular for sales and individual functional divisions in the consolidated income statement and for cash flows currently cannot be conclusively assessed.
The declaration in respect of the German Corporate Governance Code ("Declaration of Conformity") required by §161 of the German Stock Corporation Act (AktG) was submitted by the Board of Management and Supervisory Board of STRATEC AG on December 5, 2014 and has been made permanently available to shareholders in the Investors section of the company's homepage (www.stratec.com).
Birkenfeld, March 31, 2015
STRATEC Biomedical AG
The Board of Management
Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack
To the best of our knowledge, and in accordance with the applicable reporting principles for financial reporting, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.
Birkenfeld, March 31, 2015
STRATEC Biomedical AG
The Board of Management
Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack
of Management
Report of the Supervisory Board Liquid Biopsy STRATEC's Share
105 Letter from the Board Group Management report
We have audited the consolidated financial statements compiled by STRATEC Biomedical AG, Birkenfeld, which consist of the consolidated balance sheet, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement and the notes to the consolidated financial statements, as well as the group management report, for the financial year from January 1 to December 31, 2014. The compilation of the consolidated financial statements and group management report in accordance with IFRS as adopted by the EU, as well as with the provisions of German commercial law requiring supplementary application pursuant to Section 315 a (1) of the German Commercial Code (HGB), lies within the responsibility of the board of management of the company. It is our responsibility to submit an opinion on the consolidated financial statements and the group management report on the basis of our audit.
We conducted our audit of the consolidated financial statements in accordance with Section 317 of the German Commercial Code (HGB), taking due account of the principles governing the proper auditing of financial statements promulgated by the German Institute of Auditors (IDW). These standards require the audit to be planned and executed such that any inaccuracies and infringements with a material impact on the presentation of the net asset, financial and earnings situation provided by the consolidated financial statements, taking due account of applicable accounting standards, and by the group management report are identified with reasonable assurance. When determining the audit procedures, account was taken of our knowledge of the business activities and economic and legal environment of the group, as well as of expectations as to any possible misstatements. The effectiveness of the internal accounting controlling system and the evidence supporting the disclosures made in the consolidated financial statements and the group management report were examined within the framework of the audit, principally on the basis of trial samples. The audit includes an assessment of the annual financial statements of the companies included in the consolidated financial statements, the delineation of the scope of consolidation, the accounting and consolidation principles thereby applied, and the principal estimates made by the board of management, as well as an appraisal of the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonably secure basis for our opinion.
Our audit did not give rise to any qualifications.
On the basis of the findings of our audit, it is our opinion that the consolidated financial statements are in accordance with IFRS as adopted by the EU, as well as with the provisions of German commercial law requiring supplementary application pursuant to Section 315 a (1) of the German Commercial Code (HGB), and that they provide a true and fair view of the net asset, financial and earnings situation of the Group, taking due account of the aforementioned requirements. The group management report is consistent with the consolidated financial statements and provides a suitable overall portrayal of the situation of the group and adequately presents the opportunities and risks relating to its future development.
Stuttgart, April 8, 2015
WirtschaftsTreuhand GmbH Chartered Accountants Tax Consultants
(Prof. Dr. Heni) (Richter) Wirtschaftsprüfer Wirtschaftsprüfer
| April 14, 2015 | 2014 Consolidated/Annual Financial Statements |
|---|---|
| April 29, 2015 | Interim Report as of March 31, 2015 |
| May 22, 2015 | Annual General Meeting, Pforzheim, Germany |
| July 29, 2015 | Interim Report as of June 30, 2015 |
| October 28, 2015 | Interim Report as of September 30, 2015 |
Furthermore, based on current planning, STRATEC will also be taking part in the following capital market conferences in 2015:
| May 2015 | Deutsche Bank – 40th Annual Health Care Conference, Boston, USA Berenberg Diagnostics Conference, London, UK UBS Pan European small & midcap Conference, London, UK Berenberg European Conference, Tarrytown, USA |
|---|---|
| June 2015 | Jefferies 2015 Global Healthcare Conference, New York City, USA |
| September 2015 | Commerzbank Sector Conference, Frankfurt/Main, Germany 12th Annual Goldman Sachs European Medtech and Healthcare Services Conference, London, UK Berenberg Bank&Goldman Sachs German Corporate Conference, Munich, Germany |
| November 2015 | HSBC Healthcare Day 2015, Frankfurt/Main, Germany German Equity Forum, Frankfurt/Main, Germany |
| December 2015 | Berenberg Bank European Conference, Pennyhill Park, UK |
Subject to amendment
STRATEC Biomedical AG Gewerbestr. 37 75217 Birkenfeld Germany
Andreas Künzel Phone: +49 7082 7916-185 Fax: +49 7082 7916-999 [email protected]
| Andre | Loy | |||||
|---|---|---|---|---|---|---|
| Phone: +49 7082 7916-190 | ||||||
| Fax: | +49 7082 7916-999 | |||||
| [email protected] |
Concept and Design Whitepark GmbH&Co., Hamburg, Germany Text STRATEC Biomedical AG, Birkenfeld, Germany
Forward-looking statements involve risks: This annual report contains various statements concerning the future performance of STRATEC. These statements are based on both assumptions and estimates. Although we are convinced that these forward-looking statements are realistic, we can provide no guarantee of this. This is because our assumptions involve risks and uncertainties which could result in a substantial divergence between actual results and those expected. It is not planned to update these forward-looking statements.
This annual report contains various disclosures from an economic point of view that are required by the relevant international financial reporting standards (IFRS). These disclosures should be regarded as a supplement, rather than as a substitute for the notes to be disclosed under IFRS.
Discrepancies may arise throughout this annual report on account of mathematical rounding up or down in the course of addition.
This annual report is also available in German.
STRATEC Biomedical AG
Gewerbestr. 37 75217 Birkenfeld Germany
Phone: +49 7082 7916-0 Fax: +49 7082 7916-999
[email protected] www.stratec.com
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.