Chairman's Message

Dear Shareholders,

The publication of our Annual Report is always a good opportunity to stop for a moment and reflect upon the past year, not only from a financial perspective. In my letter to you last year, I explained a couple of effects that temporarily muted our growth in 2017, while our strong finish to the year already signaled that these effects would subside. Within this context, in 2018, our strong underlying growth trends became fully apparent again, and we even performed somewhat ahead of initial expectations. This led us to lift our targets quite substantially at mid-year. We have also been looking beyond our mid-term targets for 2020 and extended our time horizon to 2025 – more on that later.

Let us first turn to what we achieved in 2018: I am pleased to report that we closed the year with revenue growth in constant currencies of 13.7% and an increase in order intake of 12.5%. Operating profit rose by 16.1% to €342.4 million, and was mainly driven by economies of scale; the respective margin stood at 28.2%, 0.9 percentage points over the prior year. Underlying earnings per share were up, to €2.38 a gain of 21.5%. This dynamic performance was broad-based, encompassing both single-use products and equipment. Almost all of the increase in our sales revenue was achieved organically, while the acquisition of the software company Umetrics contributed around 0.5 percentage points of non-organic growth.

Regionally, the Americas led growth, reporting a gain of 16.9% to sales revenue of €508.2 million relative to a moderate previous-year base (reported +14.6%). Asia, especially China, again performed very strongly: Even relative to the high growth in the year-earlier period, sales revenue in Asia | Pacific again increased by double digits, 14.7%, to €281.3 million (reported +11.8%). That underscores the enormous growth potential of this region, where many previously underserved patients now begin to gain access to state-of-the-art medical drugs. The EMEA region recorded a solid gain of 10.7% to €508.2 million of sales revenue (reported +10.3%), which is excellent given the more mature markets and our already relatively high market share.

In light of these positive results, the Board of Directors will submit a proposal to the Annual General Shareholders' Meeting to raise dividends by 23.9% to €0.57 per share. After development had been rather flat during 2017, the company’s stock showed some volatility during 2018 and closed the year with a gain of 44.9%, strongly outperforming relevant indices such as the CAC 40, SBF 120 or NASDAQ Biotechnology.

Besides our strong financial performance, fiscal 2018 was also marked by important operational achievements, such as further development of our portfolio. We are pleased with how well our Umetrics data analytics business has been developing under our umbrella – as a stand-alone business, and regarding the progress we have made by integrating its data analytics technology into our equipment. Our customers are working intensely to better monitor, automate and predict their biomanufacturing processes and our Umetrics tools are helping them to make considerable strides in reaching these objectives.

Towards the end of 2018, we have modified our partnership in the area of cell culture media with our partner Lonza, the Swiss life science company, so that we both have relinquished our mutual exclusivity arrangement. While this modification will affect 2019 sales growth to some extent, it will create additional strategic leeway over the mid- and long term for building an integrated cell culture media franchise.

We significantly progressed in our multi-year investment program designed to nearly double manufacturing capacity of single-use bags and filters at our plant in Puerto Rico, create additional membrane casting capacity at our Göttingen site in Germany, and prepare to extend our aseptic bag site in Aubagne, France, and our cell line development site near Ulm, Germany. These major expansion projects are now nearing completion, and we anticipate lower investment requirements for the coming years. The Capex ratio is already set to decrease in 2019.

Ultimately, we have further developed our organization this year, gained 545 new employees, progressed with our digital agenda and are making strides in establishing our strong Sartorius brand even more firmly in the bioprocessing and life science tools community.

As we advance in 2019, we are striving to raise our sales revenue by about 7% to 11%. Without the effect from modification of the contract with Lonza, we estimate that sales revenue would be approximately 3 percentage points higher. Regarding profitability, we forecast that our operating profit margin will increase by slightly more than one percentage point over the prior-year figure of 28.2%. Both figures are stated in constant currencies. The projected increase in underlying EBITDA is expected to include an operational gain of approximately half a percentage point, whereas the remainder of this growth will result from changes to the IFRS accounting rules. The Capex ratio is projected to be at around 11% after 14.6% a year earlier.

Expectations for 2019 are well in line with our 2020 mid-term plan, which we still adhere to and which forecasts sales revenue to reach around €1.5 billion to €1.6 billion and our operating margin to attain about 29% to 30%. As 2020 approaches, we have extended our time horizon and defined our goals for 2025: we are again aiming to almost double revenue in this 5-year span to €2.8 billion and further expand our operating margin to around 30%.

Our targets remain ambitious because we have positioned ourselves well for the future and address a market with sustainable, fundamental growth drivers. We assume that demand for biopharmaceutical drugs will continuously increase due to a growing and aging population, improved access to medicines in emerging countries, an expanding market for biosimilars and due to completely new, emerging treatment options, such as personalized cell-based therapies. Regionally, the Asian market will play an increasingly important role, primarily China.

At the same time, cost-effective bioprocessing technologies will become even more essential as the biopharma market matures, become increasingly differentiated and also more competitive. Our customers are looking for partners that help them develop and produce innovative medicines faster and more effectively. In this context, we anticipate that the adoption of single-use systems will continue, encompassing a growing number of steps in our customers’ value chain, and that these systems will progressively move from pre-commercial manufacture to commercial scale.

Sartorius Stedim Biotech will remain a prime vendor for this market and will continue to create innovative products and services, constantly enriching its portfolio through acquisitions, alliances and its own R&D. We will also further invest into our processes and systems to make doing business with us as convenient and easy as possible.

We could not have accomplished all this without our employees – now numbering 5.637 worldwide – who again did a remarkable job with their customer-first mentality and their fighting spirit. They drive our success, setting us apart in the bioprocessing world, and were key to making 2018 another successful year for Sartorius Stedim Biotech.

I also appreciate the continued trust of our customers, partners and shareholders, and cordially invite you to continue with us on the road to further achievements.



Joachim Kreuzburg
Chairman of the Board and CEO