Report of the Supervisory Board
Dear Shareholders and Business Partners,
For the first time, I am reporting to you as Supervisory Board Chairman about the work of this board in 2017. The change in the office of Chairman had become necessary following the unexpected death of my predecessor, Professor Arnold Picot, Ph.D., in July 2017. Arnold Picot shaped the development of Sartorius throughout more than two decades and was a major driving force in propelling the transformation of the company into one of the most innovative global partners of the biopharmaceutical sector. It is a great honor and, at the same time, a great commitment for me to take up where Dr. Picot left off, both as administrator of Horst Sartorius' estate and as Chairman of the Supervisory Board.
Again, we look back upon a highly successful fiscal year for Sartorius. The company impressively continued its strategic realignment that it had begun in the prior year in the Lab Products & Services Division and strengthened this process by a further promising acquisition. The Bioprocess Solutions Division also saw robust development, with normalized growth following the two exceptionally strong years of growth in 2015 and 2016 and despite a few temporary, dampening effects. This division's strategic positioning was likewise reinforced by a relatively small acquisition.
In fiscal 2017, the Supervisory Board intensively dealt with the situation and prospects of the company. We advised the Executive Board concerning corporate management and performed the tasks assigned by German corporate law and the company’s Articles of Association. The Executive Board kept us informed by providing regular, prompt and detailed reports, both written and verbal, about all relevant corporate planning and strategic development issues, the progress of business in the divisions, the situation of the Group, including its risk situation, risk management and internal control systems, and about compliance. All of the company's significant transactions were discussed in depth by the respective committee responsible, as well as by the full Supervisory Board, on the basis of the reports provided by the Executive Board. Following thorough review of the Executive Board's reports and proposed resolutions, we voted on these to the extent that our vote was required.
Cooperation between the Supervisory Board and the Executive Board was always characterized by openness, constructive dialogue and trust.
Focus of the Supervisory Board’s Conferences
In the reporting year, the Supervisory Board convened at four ordinary meetings and three extraordinary conferences, which the Executive Board also attended, provided these meetings did not concern the latter board's matters. We regularly conferred on the development of sales revenue, earnings and employment for the Group; the financial situation of the company and of its affiliates; and on strategic projects.
The first extraordinary meeting of the Supervisory Board took place on January 30, 2017, which focused on the presentation and discussion of various acquisition projects.
At our meeting on February 21, 2017, we fully reviewed the annual and consolidated financial statements for fiscal 2016 and endorsed them based on the reports given by the Audit Committee and the independent auditors who were present during this item of the agenda. Moreover, we thoroughly discussed and approved the agenda, along with the proposed resolutions, for the 2017 Annual Shareholders' Meeting and the proposal for appropriation of the annual profit. In addition, the Executive Board gave us an oral report on the progress of negotiations for the acquisition projects. We also thoroughly dealt with staffing of the Executive Board and issues concerning remuneration of this board; both topics had been prepared by the Executive Task Committee. Effective March 1, 2017, the Supervisory Board appointed Rainer Lehmann to succeed Executive Board member Jörg Pfirrmann, who had already announced at the end of 2016 that he would no longer extend his mandate. Furthermore, the distribution of the areas of responsibility within the Executive Board was slightly altered, and Executive Board Chairman Dr. Joachim Kreuzburg was appointed Executive for Labor Relations, effective March 1. Following in-depth deliberations, the Supervisory Board also established the compensation of the Executive Board for 2017.
A topic of the extraordinary Supervisory Board meeting on February 27 was the planned acquisition of the U.S. live-cell analysis company Essen BioScience as well as the purchase of the software company Umetrics headquartered in Sweden. The Supervisory Board approved both transactions.
After the previous regular reelections of the shareholder and employee representatives to the Supervisory Board in March and April 2017, the new Supervisory Board was constituted at its meeting on April 6, 2016 and elected the chairman, the vice chairman as his deputy and the members of the committees. We also dealt with topics of Group financing and gave our approval to sign an agreement for a note loan ("Schuldscheindarlehen").
The Supervisory Board also held a further extraordinary meeting following the death of its Chairman, Professor Arnold Picot. Dr. Lothar Kappich was elected to succeed him as Chairman; the necessary supplementary elections of members to the respective committees were also held.
As part of the Supervisory Meeting on August 29, the Executive Board gave us an oral report on the progress of the various investment projects, digitalization initiatives and further Group projects. Beyond this, we also conferred on the subjects of staffing diversity, especially with the development of the percentage of women at the various hierarchy levels of the company. A further topic of our discussion was the implementation of the new law on sustainability reporting at Sartorius. In this context, we decided to enlist the support of an external auditor to perform the required review of the non-financial data.
At the meeting on December 7, 2017, the corporate governance and compliance topics on the agenda were also discussed in depth. After our consultations, the Supervisory Board adopted the wording of the Declaration of Compliance in accordance with the German Corporate Governance Code, with this Declaration confirming that Sartorius complies in full with the recommendations of the current Code. Also, the Supervisory Board reviewed the efficiency of its work, established a gender quota for the Executive Board and, in compliance with the new regulations, also formally approved a competence profile for the Supervisory Board. This profile provides information on the expertise and experience considered necessary, which had already been applied before being set forth in writing. In further items on the agenda, we reviewed the Non-Financial Group Declaration and approved the 2018 budget submitted by the Executive Board.
Activity Report of the Committees
Four committees support the work of the Supervisory Board. They prepare topics that are then dealt with by the full Supervisory Board and, in individual cases, take decisions in lieu of the full board, as far as permitted. The committee chairpersons reported regularly to the Supervisory Board on the details of their committee work.
The Executive Task Committee met three times during the reporting year. These meetings revolved around various strategic measures for the company. In addition, this committee dealt with Executive Board and personnel matters, preparing, in particular, for the pending appointment of a new member to the Executive Board and for decisions to be made about Executive Board remuneration. The committee also received information on the progress of various Group projects.
Furthermore, the Executive Task Committee thoroughly considered succession planning for top managers, as well as amendments to the Corporate Governance Code, to prepare resolution proposals to be approved by the full Supervisory Board.
In the year under review, the Audit Committee held four meetings. The committee prepared for the full Supervisory Board's conference on endorsement and approval of the consolidated annual financial statements for fiscal 2016 and discussed the quarterly and first-half financial reports of 2017. A further focus was on monitoring the effectiveness of in-house auditing and the Group-wide risk management and internal control system, as well as on measures for further improvement of compliance. The committee also conferred on the subjects of Group financing.
Beyond these items, the committee reviewed the Internal Auditing department report, which did not indicate any material discrepancies in business transactions, and also considered the department's plans for the upcoming months. With respect to the audit of the annual financial statements for fiscal 2017, the committee confirmed the independence of the auditors and deliberated in detail on selecting auditors to recommend at the Annual Shareholders' Meeting for appointment and commissioning to perform an audit review, as well as on defining and monitoring the audit procedure and the focal points of the audit.
The Nomination Committee that draws up election proposals to be submitted to the Annual Shareholders' Meeting for shareholder representatives on the Supervisory Board met four times in the year under review. With respect to the required appointment to succeed Professor Arnold Picot who had passed away, the committee prepared a corresponding proposal for an appointment by the court.
Audit of the Annual and Consolidated Financial Statements; Review of the Non-Financial Group Declaration
The annual and consolidated financial statements prepared by the Executive Board for fiscal 2017 and the management report of Sartorius AG were reviewed by the independent auditing company KPMG Wirtschaftsprüfungsgesellschaft based in Hanover, Germany. This company had been commissioned by the Audit Committee of the Supervisory Board pursuant to the resolution passed at the Annual Shareholders’ Meeting on April 6, 2017. The independent auditors issued an unqualified audit certificate.
They attended the Audit Committee meeting on February 19, 2018, and the Supervisory Board Meeting on February 20, 2018, and reported on the essential results of their audits. Sufficient time was allotted for discussion of all issues with the auditors. Written information and audit reports had been sent to all Supervisory Board members on time and were discussed in detail during the meetings mentioned. On the basis of its own examination of the annual Sartorius AG and consolidated financial statements, the Sartorius AG management report and the Group management report, the Supervisory Board concurred with the results of the audit conducted by KPMG and, at the meeting on February 20, 2018, endorsed the financial statements of Sartorius AG and the Group on recommendation by the Audit Committee. The annual financial statements were thus approved. The Supervisory Board and the Executive Board will submit a proposal at the Annual Shareholders’ Meeting on April 5, 2018, to pay dividends of €0.50 per preference share and €0.51 per ordinary share from the retained profit to shareholders.
Moreover, due to the German Transparency Directive Implementation Act (European CSR Directive requiring implementation) in the reporting year, the Executive Board extended the combined Group Management Report to include a Non-Financial Group Declaration for the first time. This Declaration was voluntarily submitted as a limited assurance engagement to a full content review by the independent auditing company KPMG AG Wirtschaftsprüfungsgesellschaft. Based on this review, KPMG issued an unqualified opinion. The auditing company attended the Supervisory Board meeting on February 20 and reported on the results of the audit review. Following intensive discussions and examination, the non-financial Group report was endorsed by the Supervisory Board members. Composition of the Supervisory Board and the Executive Board.
Composition of the Supervisory Board and the Executive Board
In fiscal 2017, regular new elections of the shareowner and employee representatives to the Supervisory Board were held. Representing the shareholders, Dr. Dirk Basting and Professor Gerd Krieger, Ph.D., retired from the Supervisory Board at the end of the Annual General Shareholders' Meeting on April 6, 2017, on the grounds of age. We would like to thank Dr. Basting and Professor Krieger for their many years of dedicated service on this board. We gained the services of Ms. Hildegard Panzer and Dr. Daniela Favoccia as their successors, who took up their new posts at the Supervisory Board meeting on April 6. The other shareholder representatives as well as all employee representatives were reelected. Furthermore, after Professor Picot had passed away, Dr. Guido Oelkers was appointed a member of the Supervisory Board by the court, effective November 6.
Regarding the Executive Board, Jörg Pfirrmann resigned from office on the best of terms and by mutual agreement as of February 28, 2017. At its meeting on February 21, 2017, the Supervisory Board appointed Rainer Lehmann as his successor to the Executive Board, who took office effective March 1, 2017. In addition, Executive Board Chairman Dr. Joachim Kreuzburg was appointed the Executive for Labor Relations as of March 1.
The Supervisory Board would like to thank the Executive Board and all employees across the globe for their great commitment and successful hard work throughout the fiscal year ended. In addition, the Supervisory Board expresses its appreciation to its shareholders for the confidence they have shown yet again in the company.
Hamburg, February 2018
For the Supervisory Board
Dr. Lothar Kappich