Condensed Interim Financial Statements

Statement of Profit or Loss

2nd quarter1)
2018
€ in mn
2nd quarter1)
2017
€ in mn
6-month
2018
€ in mn
6-month2)
2017
€ in mn
Sales revenue 393.5 359.4 758.4 702.5
Cost of sales –192.0 –182.0 –368.5 –354.3
Gross profit on sales 201.5 177.3 389.9 348.2
Selling and distribution costs –84.5 –77.6 –162.1 –147.5
Research and development expenses –19.5 –18.4 –41.1 –34.9
General administrative expenses –23.3 –19.8 –46.3 –41.3
Other operating income and expenses3) –6.6 – 7.0 –16.9 –13.0
Earnings before interest and taxes (EBIT) 67.5 54.5 123.3 111.5
Financial income –0.4 1.6 3.1 2.8
Financial expenses –6.5 –12.8 –14.1 –17.6
Financial result –6.9 –11.2 –11.0 –14.9
Profit before tax 60.6 43.2 112.3 96.6
Income taxes –16.4 –12.5 –30.3 –28.0
Net profit for the period 44.3 30.7 82.0 68.6
Attributable to:
Shareholders of Sartorius AG
30.7 19.4 57.3 46.1
Non-controlling interest
13.6 11.3 24.7 22.6
         
Earnings per ordinary share (€) (basic) 0.45 0.28 0.83 0.67
Earnings per preference share (€) (basic) 0.45 0.28 0.84 0.68
         
Earnings per ordinary share (€) (diluted) 0.45 0.28 0.83 0.67
Earnings per preference share (€) (diluted) 0.45 0.28 0.84 0.68

1) The 2nd quarter figures were not included in the auditors’ review.

2) The previous year's figures have been restated due to finalization of the purchase price allocations for the acquisitions of 2017.

3) The item "Other operating income and expenses" includes extraordinary expenses for Group projects and acquisition and integration costs of €13.9 million for the six-month period of 2018 (6-mo. 2017: €14.7 million).

Statement of Comprehensive Income

2nd quarter1)
2018
€ in mn
2nd quarter1)
2017
€ in mn
6-month
2018
€ in mn
6-month2)
2017
€ in mn
Net profit for the period 44.3 30.7 82.0 68.6
Cash flow hedges –12.3 19.1 –9.7 24.8
– of which effective portion of the change in fair value –8.8 18.3 –2.1 22.7
– of which reclassified to profit or loss –3.5 0.8 –7.6 2.1
Income tax on cash flow hedges 3.6 –5.7 2.8 –7.4
Net investment in a foreign operation 20.9 –27.3 10.7 –25.6
Income tax on net investment in a foreign operation –5.7 2.7 –2.9 2.2
Currency translation differences 7.4 –18.4 1.2 –17.0
Items that may be reclassified in the profit or loss statement,
net of tax
14.0 –29.6 2.2 –23.1
Remeasurements of the net defined benefit liability 0.2 2.0 0.2 2.0
Income tax on items that will not be reclassified in the profit or loss
statement
0.0 –0.5 0.0 –0.5
Items that will not be reclassified in the profit or loss statement,
net of tax
0.2 1.5 0.2 1.5
Other comprehensive result after tax 14.2 –28.2 2.4 –21.6
Total comprehensive income 58.4 2.5 84.3 47.0
Attributable to:
Shareholders of Sartorius AG
44.3 –6.6 60.6 25.2
Non-controlling interest
14.2 9.1 23.7 21.8

1) The 2nd quarter figures were not included in the auditors’ review.

2) The previous year's figures have been restated due to finalization of the purchase price allocations for the acquisitions of 2017.

 

 

Statement of Financial Position

Assets June 30, 2018
€ in mn
December 31, 20171)
€ in mn
Non-current assets    
Goodwill 657.6 653.9
Other intangible assets
420.3 427.3
Property, plant and equipment
569.3 508.0
Financial assets
13.7 20.1
Other assets 0.8 0.0
Deferred tax assets 16.1 16.2
  1,677.9 1,625.7
Current assets    
Inventories 282.3 246.1
Trade receivables 312.5 282.2
Other financial assets 23.5 28.2
Current tax assets 24.1 26.2
Other assets 41.3 24.7
Cash and cash equivalents 51.2 59.4
Assets held for sale 5.9 5.2
  740.8 672.0
Total assets 2,418.6 2,297.7
Equity and liabilities June 30, 2018 € in mn December 31, 20171)
€ in mn
Equity    
Equity attributable to Sartorius AG shareholders 644.4 617.8
Issued capital
68.4 68.4
Capital reserves
39.9 39.7
Other reserves and retained earnings
536.1 509.7
Non-controlling interest 200.8 188.8
  845.2 806.6
Non-current liabilities    
Pension provisions 65.1 64.9
Other provisions 7.9 7.7
Loans and borrowings 894.0 869.8
Finance lease liabilities 16.8 17.6
Other financial liabilities 50.8 51.4
Deferred tax liabilities 82.1 86.0
  1,116.6 1,097.5
Current liabilities    
Provisions 10.7 13.4
Trade payables 167.8 139.2
Loans and borrowings 92.9 64.6
Finance lease liabilities 2.7 3.0
Employee benefits 57.3 53.9
Other financial liabilities 39.5 44.1
Current tax liabilities 34.3 35.4
Other liabilities 51.5 40.1
  456.8 393.7
Total equity and liabilities 2,418.6 2,297.7

1) The previous year's figures have been restated due to finalization of the purchase price allocations for the acquisitions of 2017.

Statement of Cash Flows

6-month 2018 € in mn 6-month1) 2017 € in mn
Profit before tax 112.3 96.6
Financial result 11.0 14.9
Earnings before interest and taxes (EBIT) 123.3 111.5
Depreciation | amortization of intangible and tangible assets 52.3 46.7
Increase | decrease in provisions –2.8 –0.9
Gains | losses from the disposal of fixed assets –2.0 0.0
Income taxes paid –34.0 –28.7
Other non-cash items 1.1 1.0
Gross cash flows from operating activities 138.0 129.6
Increase | decrease in receivables and other assets –44.1 –35.6
Increase | decrease in inventories –34.8 –14.6
Increase | decrease in liabilities (without loans and borrowings) 32.9 –25.0
Net cash flow from operating activities 92.0 54.3
Capital expenditures –99.0 –79.5
Proceeds from the disposal of fixed assets 2.0 0.0
Other payments –0.3 0.0
Net cash flow from investing activities –97.4 –79.5
Payments for acquisitions of consolidated subsidiaries and other business operations, net of cash
acquired
0.0 –356.6
Net cash flow from investing activities, acquisitions and disposals –97.4 –436.1
Interest received 0.1 0.2
Interest paid and other financial charges –6.9 –10.2
Dividends paid to:
– Shareholders of Sartorius AG
–34.5 –31.1
– Non-controlling interest
–11.7 –10.7
Gross cash flows from financing activities –53.0 –51.9
Loans repaid –19.6 –70.8
Loans raised 71.1 515.0
Net cash flow from financing activities –1.4 392.4
Net increase | decrease in cash and cash equivalents –6.9 10.6
Cash and cash equivalents at the beginning of the period 59.4 62.0
Net effect of currency translation on cash and cash equivalents –1.3 –0.2
Cash and cash equivalents at the end of the period 51.2 72.4

1) The previous year's figures have been restated due to finalization of the purchase price allocations for the acquisitions of 2017.

Statement of Changes in Equity

€ in millions Issued
capital
Capital
reserves
Hedging
reserves
Pension
reserves
Earnings
reserves
and
retained
profits
Difference
resulting
from
currency
translation
Equity attri-
butable to
Sartorius AG
shareholders
Non-
controlling
interest
Total
equity
Balance at January 1, 2017 68.4 38.4 –7.3 –17.7 473.6 24.3 579.7 157.1 736.8
Net profit for the period 0.0 0.0 0.0 0.0 46.1 0.0 46.1 22.6 68.6
Cash flow hedges 0.0 0.0 19.8 0.0 0.0 0.0 19.8 5.0 24.8
Remeasurements of the net defined benefit liability 0.0 0.0 0.0 1.7 0.0 0.0 1.7 0.3 2.0
Currency translation differences 0.0 0.0 0.0 0.0 0.0 –12.5 –12.5 –4.4 –17.0
Net investment in a foreign operation 0.0 0.0 0.0 0.0 –25.6 0.0 –25.6 0.0 –25.6
Tax effects 0.0 0.0 –5.9 –0.4 2.2 0.0 –4.2 –1.6 –5.7
Other comprehensive result after tax 0.0 0.0 13.9 1.3 –23.4 –12.5 –20.9 –0.7 –21.6
Total comprehensive income 0.0 0.0 13.9 1.3 22.6 –12.5 25.2 21.8 47.0
Share-based payment 0.0 0.7 0.0 0.0 0.0 0.0 0.7 0.0 0.7
Dividends 0.0 0.0 0.0 0.0 –31.1 0.0 –31.1 –10.7 –41.8
Other changes in equity 0.0 0.0 0.0 0.0 –0.4 0.0 –0.4 0.1 –0.3
Balance at June 30, 20171) 68.4 39.1 6.6 –16.4 464.7 11.7 574.1 168.3 742.4
                   
Balance at December 31, 2017 68.4 39.7 11.4 –19.1 513.3 4.1 617.8 188.8 806.6
Adjustment on adoption of IFRS 9         0.4   0.4   0.4
Balance at January 1, 2018                  
Net profit for the period 0.0 0.0 0.0 0.0 57.3 0.0 57.3 24.7 82.0
Cash flow hedges 0.0 0.0 –7.9 0.0 0.0 0.0 –7.9 –1.8 –9.7
Remeasurements of the net defined benefit liability 0.0 0.0 0.0 0.2 0.0 0.0 0.2 0.0 0.2
Currency translation differences 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0.2 1.2
Net investment in a foreign operation 0.0 0.0 0.0 0.0 10.7 0.0 10.7 0.0 10.7
Tax effects 0.0 0.0 2.4 –0.1 –2.9 0.0 –0.6 0.5 0.0
Other comprehensive result
after tax
0.0 0.0 –5.5 0.1 7.8 1.0 3.4 –1.0 2.4
Total comprehensive income 0.0 0.0 –5.5 0.1 65.1 1.0 60.6 23.7 84.3
Share-based payment 0.0 0.3 0.0 0.0 0.0 0.0 0.3 0.0 0.3
Dividends 0.0 0.0 0.0 0.0 –34.5 0.0 – 34.5 –11.7 –46.2
Other changes in equity 0.0 0.0 0.0 0.0 –0.2 0.0 –0.2 0.1 –0.1
Balance at June 30, 2018 68.4 39.9 5.9 –18.9 544.1 5.1 644.4 200.8 845.2

1) The previous year's figures have been restated due to the finalization of the purchase price allocations for the acquisitions of 2017.

Segment Reports

According to IFRS 8, Operating Segments, the identification of reportable operating segments is based on the "management approach"; i.e., the segments are defined analogously to the internal control and reporting structure of an entity. Accordingly, the divisions called Bioprocess Solutions and Lab Products & Services are to be considered operating segments.

“Underlying EBITDA" is the key performance indicator of the operating segments of the Sartorius Group. EBITDA corresponds to earnings before interest (financial result), taxes, depreciation and amortization. “Underlying EBITDA” means EBITDA adjusted for extraordinary items. In this connection, extraordinary items are expenses and income that are of an exceptional or a one-time nature and accordingly distort the sustainable profitability of a segment and, from the Group’s perspective, have a material impact on the net worth, financial position and earnings of the Group.

Apart from that, the recognition and measurement methods for the reportable segments conform to the general Group accounting principles.

Sales revenue Underlying EBITDA
€ in millions 6-mo. 2018 6-mo. 20171) 6-mo. 2018 6-mo. 20171)
Bioprocess Solutions 550.3 510.1 153.9 140.0
Lab Products & Services 208.1 192.4 35.5 33.0
Total continuing operations 758.4 702.5 189.5 172.9
Reconciliation to the profit before tax        
Depreciation and amortization     –52.3 –46.7
Extraordinary items     –13.9 –14.7
Earnings before interest and taxes (EBIT)     123.3 111.5
Financial result     –11.0 –14.9
Profit before tax from continuing operations     112.3 96.6

1) The previous year's figures have been restated due to the finalization of the purchase price allocations for the acquisitions of 2017.

Disaggregation of Revenue: Geographical Information by Segment

Under IFRS 15, revenue recognized from contracts with customers are disaggregated into the categories of the "nature of products and type of customer" as well as "geographical regions" and presented in the following table. The categorization by "nature of products and type of customer" corresponds to the reportable segments as the identification of the reportable segments is based in particular on the different products sold and on customer groups. Regional disaggregation of revenue is according to the customer's location.

6-mo. 2018 6-mo. 20171)
€ in million Group Bioprocess Solutions Lab Products & Services Group Bioprocess Solutions Lab Products & Services
Sales revenue 758.4 550.3 208.1 702.5 510.1 192.4
- EMEA 324.4 229.5 94.9 301.8 208.5 93.3
- Americas 249.6 195.8 53.9 228.5 181.3 47.2
- Asia | Pacific 184.4 125.1 59.3 172.2 120.3 51.9

1) The previous year's figures have been restated due to the finalization of the purchase price allocations for the acquisitions of 2017.

Notes to the Condensed Interim Financial Statements

1.  General Information

Sartorius AG is a listed joint stock corporation established according to German law and is the highest level parent company of the Sartorius Group. The corporation is recorded in the German Commercial Register of the District Court of Göttingen (HRB 1970) and is headquartered at Otto-Brenner-Str. 22 in Göttingen, Federal Republic of Germany.

The Sartorius Group organizes its business in two divisions: Bioprocess Solutions and Lab Products & Services. With its Bioprocess Solutions Division, Sartorius is a leading international supplier of products and technologies for the manufacture of medications and vaccines on a biological basis, so called biopharmaceuticals. As part of its total solutions provider strategy, the Bioprocess Solutions Division offers the biopharmaceutical industry a product portfolio that covers nearly all process steps of the industry's manufacture. These products encompass cell culture media for the cultivation of cells, bioreactors of various sizes for cell propagation, and different technologies, such as filters and bags for cell harvesting, purification and concentration, all the way to filling.

The Lab Products & Services Division focuses on laboratories in the research and quality assurance sectors of pharmaceutical and biopharmaceutical companies and on academic research institutes. It serves further customers in the chemical and food industries. The division's portfolio covers instruments and consumables that laboratories use, for example, in sample preparation or in other standard applications.

2. Significant Accounting Policies

The consolidated annual financial statements of Sartorius AG for the period ended December 31, 2017, were prepared in accordance with the accounting standards of the International Accounting Standards Board (IASB) – the International Financial Reporting Standards (IFRS) – as they are to be applied in the EU. In the present interim financial statements that were prepared in conformance with the requirements of IAS 34 “Interim financial reporting,” basically the same accounting and measurement principles were applied on which the past consolidated financial statements of fiscal 2017 were based.

Furthermore, all interpretations of the International Financial Reporting Standards Interpretations Committee (IFRS IC) to be applied effective June 30, 2018, were observed. An explanation of the individual accounting and measurement principles applied is given in the Notes to the Financial Statements of the Group for the year ended December 31, 2017. The material Standards applied for the first time and the amended significant accounting policies are explained in Section 4 below.

A list of the companies included in the scope of consolidation for the Group financial statements is provided in our 2017 Annual Report.

A list of the consolidated companies is provided in the 2017 Annual Report. In the current fiscal year, the newly founded Sartorius Ventures GmbH was included in the consolidated financial statements for the first time in the current fiscal year.

In the previous year, the U.S. company Essen BioScience Inc. headquartered in Ann Arbor, Michigan, USA, was acquired. The purchase price allocation was finalized in present the reporting period. The respective details are provided in Section 5 below.

For calculation of the income tax expenses, the rule of IAS 34.30c was applied to the interim financial statements; i.e., the best estimate of the weighted average annual income tax rate expected for the full financial year, 27%, is applied as a matter of principle.

3. Use of Judgements and Estimates

In preparing these interim financial statements, management has made judgments, estimates and assumptions, based on their best knowledge of the current and future situation, that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates, however. The significant judgments and estimates and the key sources of estimation uncertainty have remained the same as those applied to the consolidated financial statements for the year ended December 31, 2017.

4. Accounting Rules Applied for the First Time in the Current Fiscal Year

Standards to Be Applied for the First Time in 2018

The Group initially applied the following new accounting rules for the reporting period:

  • Annual Improvements to IRFSs – Cycle 2014-2016 (issued in Dec. 2016), Amendments to IFRS 1, IFRS 12 and IAS 28
  • Amendments to IFRS 2, Classification and Measurement of Share-based Payment Transactions
  • IFRS 9, Financial Instruments
  • IFRS 15, Revenue from Contracts with Customers
  • Clarifications to IFRS 15, Revenue from Contracts with Customers
  • Amendments to IAS 40, Transfers of Investment Property
  • IFRIC 22, Foreign Currency Transactions and Advance Consideration

Initial Application of IFRS 9, Financial Instruments

The initial date of application of IFRS 9, Financial Instruments, is January 1, 2018. The Group has applied IFRS 9 retrospectively, without restating the prior-year figures. Therefore, the comparative period is presented in line with previous rules. The aggregated effects from the transition to IFRS 9 are accounted for in equity by an adjustment to the opening balance of retained earnings (earnings reserves and retained profits) as of the initial date of application. The effect from the initial application of IFRS 9 results from the adjustment of the credit impairment approach for trade receivables and amounts to about €0.4 million. As a result, this increased retained earnings from €513.3 million as of December 31, 2018, to €513.7 million as of January 1, 2018.

IFRS 9 replaces the existing guidelines in IAS 39, Financial Instruments: Recognition and Measurement. IAS 9 contains the revised guidance for classification and measurement of financial instruments, including a new model of expected credit losses for calculation of the impairment of financial assets, as well as the new, general guidelines for hedge accounting. This Standard also adopts the guidance of IAS 39 for recognition and derecognition of financial instruments.

Under IFRS 9, the new classification and measurement approach for financial assets reflects both the entity's business model (held-to-collect, held-to-collect-and-sell, other) within the scope of which assets are held and the contractual cash flow characteristics (SPPI criterion). The following table shows the categories according to IAS 39 and IFRS 9, as well as the respective carrying amounts at the date of initial application of IFRS 9.

Carrying amounts of financial assets at the date of initial application of IFRS 9 Category acc. to IAS 39 Carrying amount acc. to IAS 39 Dec. 31, 2017 € in mn Reclassification € in mn Remeasurement € in mn Carrying amount acc. to IFRS 9 Jan. 1, 2018 € in mn Category acc. to IFRS 9
Cash and cash equivalents Loans and receivables 59.4     59.4

Measured at amortized cost

Receivables and other assets Loans and receivables 19.3     19.3

Measured at amortized cost

Derivative financial instruments in hedge relationships n/a 9.0     9.0 n/a
Other financial assets (current)   28.2     28.2  
Trade receivables Loans and receivables 275.2 0.4 275.7 Measured at amortized cost
Amounts due from customers for contract work n/a 7.0   0.07.0 n/a
Trade receivables   282.2   0.4 282.6  
Financial assets Loans and receivables 6.5 –2.3 4.2 Measured at amortized cost
Financial assets Available for sale 1.7 1.9 3.6 Debt instruments at fair value through profit or loss
Financial assets Available for sale 2.1 2.1 Equity instruments at fair value through profit or loss
Financial assets (investments in non-consolidated subsidiaries) n/a 1.3     1.3 n/a (investments in non-consolidated subsidiaries)
Derivative financial instruments in hedge relationships n/a 8.6     8.6 n/a
Financial assets (non-current)   20.1 –0.4   19.8  

There were no effects on the Group's financial liabilities. The few reclassifications of financial assets were determined on the basis of individual assessments of the financial instruments, especially with regard to the contractual cash flow characteristics. For equity instruments that existed as of the date of initial application of the Standard and that were not held for trading, the Group dediced to recognize future changes in the fair value of these instruments in profit or loss. This choice is generally to be made on an instrument-by-instrument basis upon initial recognition of the instrument. Reclassification did not lead to measurement effects. The measurement effects presented result from the adjustment of the impairment approach for trade receivables.

IFRS 9 replaces the incurred loss model for impairment measurement by the expected loss model. Financial assets are generally regarded as credit-impaired when there are objective indications that cast doubt about the full recoverability of the cash flows of the respective financial assets. In the Sartorius Group, the simplified impairment approach is used, in particular, to measure trade receivables. The new impairment model starts with an analysis of the actual historical credit loss rates. These are adjusted, taking into consideration forward-looking information, by the effects of current changes in the macroeconomic environment, if significant. The Group currently determines the expected credit losses for the Group's portfolio of trade receivables as a whole based on the immaterial level of past credit losses. Historical loss rates are analyzed in more detail to apply different loss rates to different portfolios, where appropriate. On the date of initial application of IFRS 9, the allowance for expected credit losses amounted to €0.1 million. This amount includes the expected credit loss in relation to contract assets that do not contain a significant financing component according to IFRS 15. In the course of the transition to IFRS 9, the Group also analyzed and revised its approach for recognition of incurred losses, given its low level of historical losses. Defaults are determined on the basis of individual assessments in which past due status (days overdue) is an important criterion in this context. The opposite effect resulting upon the date of initial application of IFRS 9 led to a total effect of about €0.4 million, which increased the Group's retained earnings as of January 1, 2018. The following table shows the effects resulting from the adjustments to the Group's impairment approach for trade receivables:

 

Valuation allowances at the date of initial application of IFRS 9 Category acc. to IAS 39 Closing loss allowances acc. to IAS 39 Dec. 31, 2017 € in mn Remeasurement due to implementation of IFRS 9 € in mn Opening loss allowances acc. to IFRS 9 Jan. 1, 2018 € in mn Category acc. to IFRS 9
Trade receivables Loans and receivables –5.5 0.4 –5.1Measured at amortized cost
Amounts due from customers for contract work n/a 0.0 0.0 0.0n/a
Trade receivables   –5.5 0.4 –5.1 

Besides trade receivables, cash and cash equivalents are the most significant financial assets on the Group's statement of financial position at the date of initial application of IFRS 9 and as of the reporting date, June 30, 2018. Due to the high creditworthiness of the Group's counterparties and to short-term maturities, the impairment that would have had to be recognized for these financial assets is immaterial. Therefore, no impairment is recognized for cash and cash equivalents.

For the remaining financial assets measured at amortized cost, no impairment is recognized as of the date of initial application of IFRS 9 and for the period ended June 30, 2018, for the 12-month expected credit losses, given the Group's due to immaterial historical losses. In the event of a significant increase in credit risk, which is generally presumed when a payment is more than 30 days past due, the lifetime expected credit losses are recognized for the respective financial asset. A default is generally presumed when there is no reasonable expectation of recovering a financial asset. This is generally presumed when payments are more than 90 days past due.

The Group applies the new hedge accounting rules of IFRS 9 prospectively. As part of its hedge accounting, the Group uses forward transactions to hedge cash flow risks that result from changes in foreign exchange rates in relation to sales of products and the procurement of materials, and designates only the spot element of the hedging instrument. No transition effects result from the application of the new hedge accounting requirements.

Initial Application of IFRS 15, Revenue from Contracts with Customers

IFRS 15, Revenue from Contracts with Customers, defines a comprehensive model to determine when to recognize revenue and which amount. It replaces existing guidelines for recognition of revenue, including IAS 18, Revenue; IAS 11, Construction Contracts; and IFRIC 13, Customer Loyalty Programmes.

The Sartorius Group applied IFRS 15 for the first time as of January 1, 2018, on the basis of the modified retrospective method. Accordingly, the prior-year figures were not restated, and the comparative period is presented in line with previous standards. Any effects of the initial application of IFRS 15 are recorded as an adjustment to the opening balance of retained earnings as of January 1, 2018. Furthermore, upon initial adoption, the Group has been applying IFRS 15 only to contracts that are not considered completed contracts at the date of initial application. Moreover, the group used the practical expedients offered regarding contract modifications that occurred prior to the date of initial application of IFRS 15 and did not retrospectively restate such contracts. As the impact of the new Standard on the Group's consolidated financial statements is low, the use of this practical expedient is expected not to have a material impact.

The Group uses the practical expedient regarding the existence of a significant financing component. This means that a financing component is only taken into consideration when the length of time between transfer and receipt of consideration is expected to exceed one year and the effect is material. Revenue is recognized when or as control of goods or services is transferred to the customer. If revenue is recognized over time, the progress toward complete satisfaction of a performance obligation is generally measured according to the costs actually incurred in proportion to the total planned costs, unless another method reflects the transfer of goods or services to a customer more appropriately.

For the large majority of the Group's businesses, there are no material effects as a result of the application of this new Standard. Meanwhile, as of the date of initial application, adjustments related to construction contracts in progress need to be made in the Group's project business as a result of this Standard. Revenue of approximately €5 million that used to be recognized over time is now required by IFRS 15 to be recognized at a point in time as the new criteria it introduced for recognition over time for contracts on the construction of customer-specific goods are no longer fulfilled. As a result, these adjustments have led to a balance sheet extension by about €2 million. There were no effects to be recognized in equity. The effects of applying the modified retrospective method on the opening statement of financial position as of January 1, 2018, are shown in the table below.

Effects from the application of IFRS 15 on the opening balances of the statement of financial position as of Jan. 1, 2018 Carrying amount Dec. 31, 2017 € in mn Adjustments on adoption of IFRS 15 € in mn Carrying amount Jan. 1, 2018 € in mn3)
Inventories 246.1 4.1 250.3
Amounts due from customers for contract work1) 7.0 –1.9 5.0
Trade receivables 275.2 275.2
Trade receivables 282.2 –1.9 280.3
 
Trade payables | payments received for orders2) 47.5 2.2 49.7
Trade payables 91.7 91.7
Trade payables 139.2 2.2 141.4

1) Contracts assets according to IFRS 15.

2) Contract liabilities according to IFRS 15.

3) Carrying amounts without consideration of the new impairment model according to IFRS 9.

 

If the Group would have applied the previous IAS 18 and IAS 11 Standards, sales revenue and the cost of sales would have been higher by about €0.5 million, while there would have not been any impact on the net result. In this case, the balance sheet total would have been lower by about €2 million. As for initial application of IFRS 15, these effects have resulted from the revised criteria for revenue recognition over time, which now require that revenue for individual projects be recognized at a point in time instead of over time as in the past.

The following table presents the impacts on the consolidated statement of financial position as of June 30, 2018, that the continued application of the previous Standards would have had in comparison with IFRS 15.

 

Effects from the application of IFRS 15 on the consolidated financial statements as of June 30, 2018 Carrying amount June 30, 2018 (IFRS 15) € in mn Adjustments on adoption of IFRS 15 € in mn Carrying amount June 30, 2018 (IAS 11, IAS 18) € in mn
Inventories 282.3 –4.9 277.3
Amounts due from customers for contract work1) 2.5 2.7 5.2
Trade receivables 310.0 310.0
Trade receivables 312.5 2.7 315.2
 
Trade payables | payments received for orders2) 55.8 –2.2 53.6
Trade payables 112.0 112.0
Trade payables 167.8 –2.2 165.6

1) Contracts assets according to IFRS 15.

2) Contract liabilities according to IFRS 15.

 

Significant New Standards That Have Not Yet Been Applied

IFRS 16, Leases

The Group did not yet apply IFRS 16, Leases, as the application of this Standard was not yet mandatory for the reporting period and will be not be required until 2019 and onwards. IFRS 16 introduces a standardized accounting model according to which leases are generally to be recognized on the lessee's balance sheet. A lessee recognizes a right-of-use asset representing its right to use a lease asset, as well as a liability resulting from the lease, which represents its obligation to make lease payments. There are exemptions for short-term leases and leases of low-value assets. Accounting for the lessor is comparable to that of the current Standard; i.e., lessors continue to classify leases as financial or operating leases.

The Group is currently analyzing the effects of this new Standard on the consolidated financial statements and does not plan to apply it earlier than 2019. The company is planning to recognize the effect from initially applying IFRS 16 in consolidated retained earnings, but not to apply this Standard retrospectively in accordance with IAS 8. Based on the current stage of analysis, the Group plans to use the exemptions for short-term leases and leases of low-value assets and to recognize the corresponding lease payments as an expense generally on a straight-line basis over the particular lease term.

IFRS 16 will likely lead to an increase in fixed assets and financial liabilities. Based on its present level of knowledge, the Group does not expect any significant impacts overall on its key figures, such as equity ratio or underlying EBITDA. On the basis of a survey of relevant lease contracts conducted across the Group in the first half of 2018, a balance sheet extension by about €55 million would be yielded for the period ended June 30, 2018. This would correspond to a reduction in the equity ratio by about 1%. Based on the survey, the calculated full-year EBITDA margin would approximately increase by about 1%. Analysis of these effects has not yet been completed so the information provided above can be considered an update of that given in the 2017 consolidated financial statements.

5. Business Acquisitions and Divestitures 

Acquisition of Essen BioScience

On March 24, 2017, the Group acquired the U.S. company Essen BioScience Inc. headquartered in Ann Arbor, Michigan, purchasing 100% of the voting rights in this company. The acquisition has been strengthening the bioanalytics portfolio of the Lab Products & Services Division, considerably increasing the synergies between the two divisions as a result.

Essen BioScience develops and markets novel cell imaging and analysis systems for medical drug research, which are increasingly becoming standard equipment in pharmaceutical laboratories. These systems represent a platform of instrumentation, software and reagents for real-time live-cell imaging and fully automated data analysis. The information delivered by these systems provides new insight and understanding into the mechanisms of healthy and diseased cells, which helps significantly accelerate often time-consuming discovery and development of new drugs.

Founded in 1996, the company currently employs approximately 200 people and, in addition to its headquarters in the USA, has sales companies in the U.K. and Japan.

Determination of the acquisition-date fair values of the assets acquired and liabilities assumed had not yet been completed when the 2017 consolidated financial statements were prepared. Therefore, the purchase price allocation was preliminary based on the current knowledge of management for the prior-year statements and has now been finalized for the reporting period. The final valuations are presented as follows:

Final purchase price allocation € in mn
Other intangible assets 173.1
Property, plant and equipment1.3
Inventories 12.5
Trade receivables 9.9
Other assets 0.7
Cash and cash equivalents 14.9
Deferred taxes - net –50.4
Other liabilities –18.5
Net assets acquired 143.6
   
Purchase price 312.2
Goodwill 168.6

Based on the final measurement, the deferred tax liabilities were approximately €9.4 million lower than the provisional amount. Apart from this, an additional purchase price liability of about €9.4 million was included at the time of acquisition and did not have to be repaid until the periods following the acquisition. After considering the U.S. tax reform announced at the end of 2017, deferred tax liabilities were approximately €6 million lower and other financial liabilities were higher in the reporting period than were reported on the consolidated statement of financial position for the period ended December 31, 2017. The finalized purchase price allocation did not impact consolidated earnings in 2017.

The converted total purchase price primarily paid in cash was now calculated at €312.2 million. The expenses of €1.1 million directly attributable to the acquisition were recognized as other operating expenses in the year-earlier period. Expenses resulting from hedging of the foreign currency risk exposure related to payment of the purchase price were €5.9 million, which was recognized in the previous year in the financial result. Goodwill is not tax-deductible. The intangible assets to be recognized were primarily technology-based, customer-related and brand-based.

Besides being attributable to the synergies realized by the acquiree's use of the Group's sales and distribution network, the resulting goodwill of the Essen BioScience acquisition recorded is attributed to extension of the product portfolio of the Lab Products & Services Division and expansion of the Group's position with respect to biopharmaceutical customers. It is expected that this positioning of the Group will primarily benefit the Bioprocess Solution Division's business in early-stage biopharmaceutical discovery and development.

6. Financial Instruments

The two following tables present the carrying amounts and fair values of the Group's financial instruments as of June 30, 2018 according to IFRS 9 and as of December 31, 2017, according to IAS 39.

Category acc. to IFRS 9 Carrying amount June 30, 2018 € in mn Fair value June 30, 2018 € in mn
Investments in non-consolidated subsidiaries n/a 1.6 1.6
Financial assets Equity instruments at fair value through profit or loss 2.1 2.1
Financial assets Debt instruments at fair value through profit or loss 3.6 3.6
Financial assets Measured at amortized cost 3.6 3.6
Derivative financial instruments in hedge relationships1) n/a 2.8 2.8
Financial assets (non-current) 13.7 13.7
Amounts due from customers for contract work n/a 2.5 2.5
Trade receivables Measured at amortized cost 310.0 310.0
Trade receivables 312.5 312.5
Receivables and other assets Measured at amortized cost 18.0 18.0
Derivative financial instruments in hedge relationships1) n/a 5.5 5.5
Other financial assets (current) 23.5 23.5
Cash and cash equivalents Measured at amortized cost 51.2 51.2
       
Loans and borrowings Financial liabilities at cost 986.9 1,000.8
Finance lease liabilities IAS 17 19.6 29.9
Trade payables Financial liabilities at cost 112.0 112.0
Trade payables | payments received for orders n/a 55.8 55.8
Trade payables   167.8 167.8
Derivative financial instruments in hedge relationships1)n/a2.1 2.1
Derivative financial instruments Held for trading 0.8 0.8
Other financial liabilities Financial liabilities at cost 87.2 92.1
Other financial liabilities   90.2 95.0

1) These amounts include the non-designated part of the derivatives in the amount of €3.5 million.

Category acc. to IAS 39 Carrying amount Dec. 31, 20171) € in mn Fair value Dec. 31, 20171) € in mn
Financial assets Available for sale 5.0 5.0
Financial assets Loans and receivables 6.5 6.5
Derivative financial instruments in hedge relationships2) n/a 8.6 8.6
Financial assets (non-current) 20.1 20.1
Trade receivables Loans and receivables 282.2 282.2
Receivables and other assets Loans and receivables 19.3 19.3
Derivative financial instruments in hedge relationships2) n/a 9.0 9.0
Other financial assets (current) 28.2 28.2
Cash and cash equivalents Loans and receivables 59.4 59.4
       
Loans and borrowings Financial liabilities at cost 934.4 945.1
Finance lease liabilities IAS 17 20.6 31.4
Trade payables Financial liabilities at cost 91.7 91.7
Trade payables | payments received for orders n/a 47.5 47.5
Trade payables   139.2 139.2
Derivative financial instruments in hedge relationships2) n/a 1.4 1.4
Derivative financial instruments Held for trading 1.7 1.7
Other financial liabilities Financial liabilities at cost 92.4 97.6
Other financial liabilities   95.5 100.7

1) The previous year's figures have been restated due to finalization of the purchase price allocations for the acquisitions of 2017.

2) These amounts include the non-designated part of the derivatives in the amount of €4.1 million.

 

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of the financial instruments were determined on the basis of the market information available on the reporting date and are to be allocated to one of the three levels of the fair value hierarchy in accordance with IFRS 13.

Level 1 financial instruments are calculated on the basis of prices quoted on active markets for identical assets and liabilities. In Level 2, financial instruments are calculated on the basis of input factors, which are derivable from observable market data or on the basis of market prices for similar instruments. Level 3 financial instruments are calculated on the basis of input factors that cannot be derived from observable market data.

The financial instruments to be recognized at fair value on the reporting date are exclusively derivatives in the form of forward contracts, interest rate swaps and structured forward contracts. They were measured on the basis of their quoted exchange rates and market yield curves (Level 2).

The fair values to be disclosed for financial liabilities recognized at amortized cost, especially liabilities to banks and those related to note loans ("Schuldscheindarlehen"), as well as finance lease liabilities, were measured on the basis of the market interest rate curve, taking the current indicative credit spreads into account (Level 2).

The fair values of the remaining financial assets and liabilities to be disclosed approximate the carrying amounts on account of their predominantly short-term maturity.

The maximum credit loss risk is reflected by the carrying amounts of the financial assets recognized in the statement of profit or loss.

The Group recognizes transfers between the levels of the fair value hierarchies at the end of the reporting period during which the change has occurred. In the current reporting period, there were no transfers between the levels.

7. Related Companies and Persons

The Group companies included in the consolidated financial statements carry out business activities and transactions in related party relationships as defined by IAS 24. In particular, this concerns transactions with non-consolidated subsidiaries and are generally concluded according to the customary market terms.

In the reporting period, sales revenue of €5.0 million (H1 2017: €4.6 million) was generated by these companies; there were liabilities from loans and borrowings as well as trade payables, both totaling €14.9 million (H1 2017: €11.9 million). A long-term service contract exists with an affiliate for which expenses of €3.8 million (H1 2017: €3.5 million) were incurred in the reporting period.

For further details, also on related companies and persons, see page 172 in our 2017 Annual Report.

8. Other Disclosures

In the interim reporting period, no asset impairments were identified. Generally, asset impairment tests need to be performed for goodwill and other assets with indefinite useful lives.

Exchange differences arising from net investments in foreign operations are recognized in other comprehensive income. In connection with the acquisitions in 2017, these net investments increased significantly, which led to a respective impact on the Group's other comprehensive income.

In the reporting period, Sartorius AG paid dividends totaling €34.5 million, of which €17.1 million were for ordinary shares and €17.4 million for preference shares.

Independent, certified auditors performed an audit review of this consolidated sixmonth report. The figures of the individual second quarter in the statement of profit or loss, as well as the statement of comprehensive income, were not part of this review.

Independent Auditors' Review Report

To Sartorius Aktiengesellschaft, Goettingen

We have reviewed the condensed interim consolidated financial statements of the Sartorius Aktiengesellschaft, Goettingen – comprising the condensed statement of profit or loss, statement of comprehensive income, statement of financial position, statement of cash flows, statement of the changes in equity and selected explanatory notes – together with the interim group management report of the Sartorius Aktiengesellschaft, Göttingen, for the period from 1 January to 30 June, 2018 that are part of the semi annual according to § 115 WpHG („Wertpapierhandelsgesetz“: „German Securities Trading Act“). The preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard IAS 34 "Interim Financial Reporting" as adopted by the EU, and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on the condensed interim consolidated financial statements and on the interim group management report based on our review.

We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU, and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report.

Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports.

Hanover, Germany, July 24, 2018

KPMG AG Wirtschaftsprüfungsgesellschaft

Thiele
Wirtschaftsprüfer

Jacob
Wirtschaftsprüfer

Responsibility Statement of the Legal Representatives

Declaration of the Executive Board

We declare to the best of our knowledge that the condensed interim consolidated financial statements for the first half ended June 30, 2018, present a true and fair view of the actual net worth, financial situation and profitability of the Group in accordance with the accounting standards to be applied in preparing these statements. We also certify that the progress of the Group’s business, including its business performance and its situation, are represented accurately in the Group interim report in all material respects and describe the most important opportunities and risks of the Group’s projected development for the remaining six months of the financial year.

Goettingen, July 20, 2018

Sartorius AG

Dr. Joachim Kreuzburg

Rainer Lehmann

Reinhard Vogt