Report of the Executive Board

Dear Shareholders and Business Partners,

I am pleased to report that Sartorius continued on its profitable growth track in 2017, with sales up a good 9% to around €1.4 billion and with an underlying EBITDA margin of 25.1%. Our company executed two strategically important acquisitions, moved forward on its extensive investment program and created a considerable number of new jobs.

As in the previous years, we intend to have our shareholders participate adequately in the success of our company. Accordingly, the Supervisory Board and the Executive Board will submit a proposal to the Annual General Shareholders' Meeting on April 5, 2018, to raise dividends to €0.51 per preference share and €0.50 euros per ordinary share. If approved, this would be the eighth dividend increase in succession. Sartorius share prices also showed positive development in the reporting year, with preference shares up 12.8% and ordinary shares rising by 3.6%.

Growth in the Bioprocess Solutions Division, which specializes in single-use products for the manufacture of biopharmaceuticals, normalized as expected following two exceptionally strong years of expansion in 2015 and 2016. Sales development was additionally dampened by several simultaneous effects that, however, were of a temporary nature and weighed particularly on the Americas region. After a strong year-end quarter, the division's full-year sales increased by 4.9% and, despite headwinds due to exchange rates, its underlying EBITDA margin reached the very strong prior-year level of 28.0%.

We expanded the division's portfolio by an attractive component through our acquisition of Umetrics. This Swedish software company is a highly specialized, globally leading provider of data analytics software for modeling and optimizing biopharmaceutical development and manufacturing processes. The acquisition perfectly matches our existing portfolio and comes at the right time: Our biopharmaceutical customers are increasingly driving the automation of their processes by integrating data analytics software to better monitor, automatically control and predict their biomanufacturing processes. Umetrics is a market leader for such applications, and we are highly confident of harnessing the power of this software over the medium term for use in a number of additional process steps beyond its existing applications.

Our Lab Products & Services Division, which offers products and technologies for laboratories primarily in the pharma sector and in life science research, recorded exceptionally dynamic growth due to its strong organic development and to a further key acquisition in the area of bioanalytics. The division's sales revenue rose by 22.0% and its earnings margin climbed to 18.0%. All regions and product areas contributed to this strong growth.

The acquisition of Essen BioScience in bioanalytics sharpened the strategic positioning of the division as a partner to biopharma research yet again and also contributes toward substantially strengthening the division's growth and profitability profile. Faster, more powerful procedures for cell analysis are considered essential prerequisites for achieving further medical progress, for example, in immuno-oncology and in stem cell research. Essen offers a platform of instruments, software and reagents for fully automated, real-time analysis of biological processes in live cells. Based on the data obtained, our customers can now gain new insights into the mechanisms in diseased and healthy cells that will help considerably accelerate the often very time-intensive discovery of new medical drugs.

We continued to move forward on our extensive, multi-year investment program. Besides extending our Group headquarters in Göttingen, Germany, we focused in 2017 on expanding our filter and single-use bag production facility in Yauco, Puerto Rico, which we plan to complete at the end of 2018. Hurricane Maria that hit the country in September of the past year, hardly did any damage to the site's existing buildings or those under construction. We are happy that our staff survived the hurricane without sustaining any physical injuries, and are impressed by, and proud of, how much hard work all contributed toward getting our facility back up and running just after four weeks.

In the reporting year, we created 600 jobs, including substitutes for staff on extended leave, and even more than 1,000 new employees have joined us. Although the majority of our sites are not located in large cities, we continue to succeed in attracting creative, talented and, often, highly specialized, bright people who appreciate the professional level, the freedom and the flexibility at Sartorius and who share our ambitions. It is precisely because of this strong team that I look confidently toward the future.

Which targets has Sartorius set for 2018 and beyond?

The growth prospects for our products are excellent in view of the great innovation dynamics in the biopharmaceutical sector, the high numbers of approvals for new biologics and the scientific progress, such as in cell and gene therapies. The market for replica products of biologics, so-called biosimilars, is making significant strides and is expected to lead to an increase in the quantities of biopharmaceuticals produced over the medium term and thus to an expansion of the market we are addressing.

Looking at our financial targets for the full year of 2018, we plan to increase consolidated sales revenue in constant currencies by about 9% to 12% and our underlying EBITDA margin by about half of a percentage point. Our capex ratio as part of our mid- range expansion plans is projected to be around 15%, at approximately the prior-year level, and thus over our long-term average.

I would like to congratulate our staff members on yet another successful year, despite facing a number of considerable challenges, and to thank them for their extraordinary commitment and important personal contribution they have made to the company's success. Dear shareholders, customers and business partners, I would like to express my appreciation to you for your trust, often extending back many years. We look forward to having you to continue with us on our road to further success as an innovative and highly profitable technology group.

 

Yours sincerely,

Dr. Joachim Kreuzburg
CEO and Executive Board Chairman