Stratec Biomedical : reports substantial growth in 2016

INSIGHTS

ALONG NEW LINES

Annual Report 2016

MISSION STATEMENT

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, conti- nuity and professionalism and with our partners we share a common mission to develop safe, innova- tive, market-leading 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.

STRATEC'S SHARE

INSIGHTS ALONG NEW LINES

ANNUAL REPORT 2016

GROUP MANAGEMENT REPORT

Letter from the Board of Management 2 Report of the Supervisory Board 4 Insights Along New Lines 8

STRATEC's Share 24

Group Management Report 30

Consolidated Financial Statements 72

CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements 80

Responsibility Statement 142

NOTES

Independent Auditors' Report 143

STRATEC GROUP AT A GLANCE

Group Key Figures

Sales, earnings, and dividend

1 2016 figure adjusted for one-off items resulting from transaction activities and related reorganization expenses

2 2016 figure additionally adjusted for financing expenses and tax expenses in connection with the acquisitions of the Diatron Group and STRATEC Consumables, for one-off items resulting from the tax audit for the 2009 to 2013 assessment periods, and for tax effects relating to reorganization expenses

3 Subject to approval by the Annual General Meeting on June 14, 2017

Balance sheet

Quarterly Overview 2016

resulting from the tax audit for the 2009 to 2013 assessment periods, and for tax effects relating to reorganization expenses

Sales by operating division in 2016

Systems

(€ 101,715k)

0.6 %

Other activities

(€ 1,195k)

SALES

100 % (€ 184,911k)

Development and services

(€ 28,402k)

Service parts & consumables

(€ 55,599k)

Locations of the STRATEC Group

STRATEC Biomedical AG

Birkenfeld / Germany

STRATEC

Consumables GmbH

Cambridge / MA / USA

STRATEC Biomedical (Taicang) Co., Ltd.

Jiangsu / China

Diatron MI Zrt.

Budapest / Hungary

Diatron US, Inc.

Hialeah / FL / USA

STRATEC Biomedical UK, Ltd.

Burton upon Trent / UK

STRATEC Biomedical SRL

Cluj-Napoca / Romania

STRATEC Consumables GmbH

Salzburg / Austria

STRATEC Molecular GmbH

Berlin / Germany

STRATEC Biomedical Switzerland AG

Beringen / Switzerland

2 STRATEC Annual Report 2016

LETTER FROM

THE BOARD OF MANAGEMENT

Dear Shareholders, Partners and Friends of STRATEC,

Last year was another very successful year for our Company.

The diagnostics and research environment in which we operate is very dynamic and continually evolving, with individualized diagnostics and therapy options becoming increasingly significant due to new technologies as well as new application possibilities. Driven both by demographic and infrastructure developments, our target markets are benefiting from megatrends that give ever greater reason to expect consistent long-term growth in our industry.

Driven by longstanding, reliable, and trust-based cooperation with our partners, we have built an invaluable position in a highly sensitive and strictly regulated market. Drawing on expertise gained in nearly 40 years of development activity and our profound knowledge of the relevant market segments, we are able to respond promptly to major developments in the market climate and new technologies, and indeed play a pivotal role in shaping these developments. All the while, we are mindful to balance the associated opportunities and risks in a way that makes best economic sense.

Our strategy of taking targeted steps to enhance our technological capabilities and access new market segments, either with internal development work or external acquisitions, came to fruition in 2016 when we acquired two new companies. We have made great progress in integrating these businesses into our own technology portfolio and the products and services offered by these new subsidiaries have already become part of the STRATEC Group's core business.

Diatron, an international specialist in hematology and clinical chemistry, which we acquired in March 2016, is a valuable addition to our portfolio, and one that complements our activities by targeting a segment of the IVD market we previously did not address. STRATEC has significantly extended its product range through

acquiring Diatron and also gained valuable process-know-how and technologies for developing and producing smaller-scale systems and modules. As well as having diversified our range of products and services, we have gained access to additional new customers in both human and veterinary diagnostics.

In July 2016 we acquired Sony DADC BioSciences in Austria, which has since been renamed as STRATEC Consumables. With this acquisition, we have taken a very important step towards becoming a 'one-stop provider' of systems, software, and consumables. STRATEC Consumables has a reputation as a key source of innovation in what is still a new market for smart consumables, i.e. complex consumables with integrated process steps. In the introductory section to this Annual Report, we will familiarize you with microfluidics, one of the core activities at STRATEC Consumables.

Our growth in the 2016 financial year was driven both organically and by the consolidation of our new sub- sidiaries. Overall, sales grew by 25.9 % to € 184.9 million. Excluding acquisition and associated restructuring expenses, we achieved an adjusted EBIT margin of 17.5 %. Adjusted earnings per share came to € 2.14.

We always strive to ensure our shareholders participate in the company's success, not just from our capacity as a growing company but with the growth potential offered by our shares. We will therefore be proposing a dividend of € 0.77 for approval by the Annual General Meeting.This marks the 13th consecutive increase in our dividend.

INSIGHTS ALONG NEW LINES

3

We expect to see positive developments in the quarters ahead. Given pending market approvals and synergy effects from the acquisitions, we are very optimistic about the company's further growth, in which the latest platform developments are set to play an increasingly important role.

To facilitate this growth, we recently implemented several measures to extend our capacity. Our colleagues in Burton upon Trent, UK, moved into new and larger

premises at the beginning of last year. With the completion of construction activities in Beringen, Switzerland, and Cluj-Napoca, Romania, we have built and occupied new premises for our operations at these locations. Diatron is set to move into an additional building in the first half of the current year.

We view organizational and structural adjustments as part of our continuing development.The years ahead will witness further milestones in this respect, such as the introduction of a group-wide ERP system at an earlier date than originally expected.This will serve as a basis for further growth. It will also further optimize our cross-location processes within the STRATEC Group.

The STRATEC Group had a total of 976 employees at the end of the year and we expect to pass the 1,000 employee mark during the current year. Our employees are the source of our confidence in the company's future. We are aware of the re- sponsibility we bear towards them and their families, just as we are aware of our responsibility towards our customers and partners and towards the people who benefit from the products we develop together.

We would like to extend our sincere thanks to all of STRATEC's employees, part- ners, and customers, as well as to all other interested parties, for the trust they have placed in us. We look forward to mastering the challenges and seizing the opportunities that lie ahead.

Birkenfeld, April 2016

The Board of Management of STRATEC

Biomedical AG

Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack

Marcus Wolfinger (49)

Chairman of the Board of Management

Dr. Robert Siegle (49)

Member of the Board of Management, Finances and Human Resources

Dr. Claus Vielsack (49)

Member of the Board of Management, Product Development

4 STRATEC Annual Report 2016

REPORT OF

THE SUPERVISORY BOARD

Dear Shareholders,

In the 2016 financial year, the Supervisory Board of STRATEC Biomedical AG once again addressed the company's situation and its prospects in great detail. It worked together with the Board of Management on a basis of trust, advised the Board of Management, and exercised its own supervisory function. The Supervisory Board performed the duties required by law, the Articles of Association, and its Code of Procedure at all times in full awareness of its responsibility. With only a few exceptions, it also complied with the recommendations of the German Corporate Governance Code. The Supervisory Board was directly involved in all decisions or measures of fundamental significance, particularly those involving 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 in the Code of Procedure in force 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.

Key focuses of discussion in Supervisory Board

The Supervisory Board held a total of six meetings in the 2016 financial year.Two of these meetings were held as conference calls. All Supervisory Board members basically participated in the Supervisory Board meetings, as did all members of the Board of Management to the extent that the meetings did not address matters relating to the Board of Management or internal Supervisory Board matters.

At its first meeting in the period under report, held on February 17, 2016, the Supervisory Board dealt with the compensation paid to the Board of Management. It determined the level of target achieve- ment for the individual members of the Board of Management for the bonus payment for the 2015 financial year in accordance with the individual additional agreements (mid-term compensation agreement). Furthermore, it also reached agreements with the individual members of the Board of Management for the 2016 financial year.

At its meetings on April 4, 2016, October 13, 2016, and December 9, 2016, the Supervisory Board dealt in particular with the risk handbook, compliance management, the Group's sales and earnings performance, its financial position, the status of the respective development projects, and the company's contract negotiations. Further focuses included discussions on M&A activities, 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.

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5

Furthermore, at the meeting on April 4, 2016 the Supervisory Board discussed the annual financial statements and management report of STRATEC Biomedical AG and the consolidated financial statements and group management report for the 2015 financial year. It discussed and approved the draft resolutions to be proposed to the Annual General Meeting on June 9, 2016, including the proposed appropriation of profit for the 2015 financial year. At this meeting, the corporate governance declaration and corporate governance report of the Board of Management and Supervisory Board were also approved. These were subsequently published on the company's website.

Following the successful acquisition of the hematology system specialist Diatron MI Zrt., the Supervisory Board addressed the progress made with further acquisition options, including the company acquired and renamed as STRATEC Consumables GmbH - one of the world's leading OEM manufacturers of smart consumables for applications in diagnostics, life sciences and medical technology. Finally, the Supervisory Board voted in favor of extending Hermann Leistner's appointment to the Administrative Board and his advisory contract at STRATEC Biomedical Switzerland AG.

In a conference call held on April 11, 2016, in which the representatives of the auditor once again participated and answered questions, the Supervisory Board approved the annual financial statements and management report of STRATEC Biomedical AG and the consolidated financial statements and group management report for the 2015 financial year.

At the Supervisory Board meeting on October 13, 2016, the Supervisory Board addressed the information submitted by the Board of Management concerning the post-acquisition integration process and the Group's short to medium-term financing concept.

In a conference call on November 13, 2016 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 2016 in connection with existing stock option programs.

At the final Supervisory Board meeting in the period under report, held on December 9, 2016, the Board of Management presented the reorganized group structure resulting from the company acquisitions made in 2016. Furthermore, the Supervisory Board addressed the German Corporate Governance Code in its version dated May 5, 2015.

6 STRATEC Annual Report 2016

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. This

is permanently available to shareholders at the company's website.The findings and implications of the regular external audit performed by the tax authorities were also presented to the Supervisory Board. Finally, the Supervisory Board dealt with the employment contracts with members of the Board of Management.Taking due account of the acquisitions made and the structures newly created, these contracts were adjusted within the regular review the Supervisory Board is required to perform on the management board compensation system to calculate short-term and mid-term incentives.

Formation of Supervisory Board committees

As it has only three members, the Supervisory Board has not formed committees and thus deviates from the recommendation in the German Corporate Governance Code.

Review of potential conflicts of interest

No conflicts of interest requiring immediate disclosure to the Supervisory Board arose among members of the Board of Management or Supervisory Board.The Supervisory Board does not include any former members of the Board of Management.

Composition of Supervisory Board and Board of Management

There were no changes in the composition either of the Supervisory Board or of the Board of Manage- ment in the 2016 financial year.

Audit of annual and consolidated financial statements

At its meeting on April 11, 2017, 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, 2016, as well as with the management report of STRATEC Biomedical AG and the STRATEC Group for the 2016 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, Ebner Stolz GmbH & Co. KG 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 STRATEC Biomedical AG and the STRATEC 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

INSIGHTS ALONG NEW LINES

7

annual and consolidated financial statements at the Supervisory Board meeting on April 11, 2017 and outlined the key audit findings.

The audit of the annual financial statements of STRATEC Biomedical AG, the consolidated financial statements, and the management report of STRATEC Biomedical AG and the STRATEC 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 management report, as well as the consolidated financial statements and the group management report, in a conference call held on April 13, 2017.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 € 0.77 per share with dividend entitlement, in detail with the Board of Management and approved this proposal.

Thanks

The Supervisory Board would like to thank the members of the Board of Management and all employees for their great commitment and achievements in the 2016 financial year, especially in connection with the two acquisitions and the integration of these companies into the STRATEC Group.

Birkenfeld, April 2017

On behalf of the Supervisory Board

Fred K. Brückner Chairman

Fred K. Brückner (74)

Chairman of the Supervisory Board

Prof. Dr. Stefanie Remmele (39)

Member of the Supervisory Board

Wolfgang Wehmeyer (58)

Deputy Chairman of the Supervisory Board

8 STRATEC Annual Report 2016

INSIGHTS ALONG NEW LINES

INSIGHTS ALONG NEW LINES

TRAILBLAZING WORK FOR LABORATORY APPLICATIONS OF THE FUTURE

At this point in our annual report each year, we present visions, new technologies and applications. Topics that point the way for our industry and therefore also contribute to our success and to understanding our market. Here, we showcase aspects of everyday processes that are, however, also very important, such as blood sample analysis in a laboratory. We also highlight trends and developments that we see as playing a pivotal role in the future.

One such development is microfluidics. What was still seen as a vision not very long ago, this complex technology has now been put into place in every-day use. This represents an interesting niche, especially since many applications cannot be realized using other technologies. Through the acquisition of a company spe- cialized in microfluidics, STRATEC expanded its range of tech- nology significantly in 2016 in what is a highly attractive growth market. In keeping with the motto of this report,'Insights Along New Lines'' we will introduce you to the fascinating application possibilities of microfluidics on the following pages and will pro- vide you with a glimpse at how this field is on the best path to shifting the boundaries between research and routine applica- tions in laboratories.

10 STRATEC Annual Report 2016

Product example: Microfluidic dPCR-chip

11

INSIGHTS ALONG NEW LINES

WHAT IS MICROFLUIDICS?

Microfluidics deals with the behavior of liquids and gases on the smallest scales. Applied to analysis technology in the lab, microfluidics is the integration of multiple analytical steps on a single chip. Microfluidics allows the process to be accelerated, simplified and, ultimately, also to be completed in a more cost- efficient manner. This is comparable with the hardwiring of miniaturized electronic circuits on a silicon chip in microelectronics. They are therefore often referred to as microfluidic chips.

Plastic -

the Material of Choice

Selecting materials plays an important role in the development and manufac- turing of chips. While availability at short notice and functionality tend to be deci- sive for the first prototypes, costs gain in importance as volumes increase in serial production. Integrating the various func- tions therefore occurs increasingly using plastic. Plastic has cost benefits in com- parison to other materials such as glass or silicon and is also characterized by its very good malleability.

A Head Start Through 30 Years of Experience

STRATEC Consumables benefits from three decades of experience in produc- ing microstructures for CDs, DVDs and Blu-Ray-Discs. A high level of quality and cost awareness also sets it apart from the competition.

Plastics for Microfluidics on the Increase Around the World

6,000

5,000

5,464.6

2020

2015

4,000

Market Size ($ Million)

3,000

2,000

1,000

0

1,987.2

715.0

1,366.2

337.4

567.4

55.767.2

CAGR (2015 - 2020)

Polymer-based Microfluidics

22.4 %

Glass-based Microfluidics

13.8 %

Silicon-based Microfluidics

11.0 %

Other Materials based Microfluidics

3.8 %

Source: MarketsandMarkets (2015), Microfluidics Market Global Forecast to 2020

12 STRATEC Annual Report 2016

WHY MICROFLUIDICS?

Microfluidics represents another step towards comprehensive automation in laboratories and thus also in analyzer systems. In the past, a large portion of micro- fluidic consumables were allocated to completing manual tasks.With the integration of numerous analysis steps on one chip, the spacial density, reaction time, through- put, reliability and specificity can now be improved.This contributes to quicker user acceptance.

While in microelectronics, major im- provements in silicon chips led to increas- ingly faster computers in the eighties and nineties, it took a little longer in medical technology and analysis for the benefits of miniaturization to become established. The splash that it caused first occurred at the beginning of the millennium, though the high expectations could not quite be met. The dominance of the first, very generalized patent applications also caused industry leaders in diagnostics and analysis to shy away from a broader intro- duction of this technology.

Miniaturization - Enduring Megatrend

Since about 2010, there has been a sec- ond wave of start-ups and company formation. A number of these have already been integrated into industry- leading corporations through mergers and acquisitions.The megatrend towards miniaturization and integration of dif- ferent functions on one chip is just get- ting started and is likely to continue for a long time. Increasingly complex processes are continually being implemented on chips that can fulfill more and more func- tions. The market for microfluidics is currently in a phase in which a compre- hensive understanding of the benefits of this technology is forming. This is the foundation for realistic expectations of the wide range of ways it can be imple- mented in many industries, from water purification to diagnostics, for example.

The market for microfluidics applications was estimated at roughly USD 3 billion in 2016. This may seem low in compar- ison to the market for in-vitro diagnostics, which comprises roughly USD 50 billion, but there is, however, a great deal of potential in this area. Annual average growth here of 28 % is anticipated in the period between 2013 and 2018.

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Coating can be used to change the surface of polymer chips to achieve specific chemical, biological, physical, or aesthetic functionalities.

Strong Growth Potential for Microfluidics

Microfluidics Applications

3 billion $

In-vitro Diagnostics

50 billion $

CAGR 2013 - 2018

4.5 %

CAGR 2013 - 2018

28 %

Source:Yole Développement (2015), Microfluidic Applications 2015

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STRATEC Annual Report 2016

CELLS OF THE FUTURE

INSIGHTS ALONG NEW LINES

15

Automated Isolation of Individual Cells

One trailblazing field of application for microfluidic consumables is single-cell isolation, which is the isolation of single cells from blood or bone marrow, for example.This could be any type of cell, such as white or red blood cells, but also tumor cells.

Until now, isolating single cells is generally done manually under a microscope and there are few options for automating this process. Microfluidics opens up great potential here. With the help of microfluidic consumables, individual cells can be isolated from blood or bone marrow through automation and can then be processed further.A process that makes it possible to isolate a large number of individual cells more quickly and cheaply.

This application is currently being used primarily in cancer re- search, though many other areas are suited to application, and promising activities are already taking place.There are different approaches to working with the intact cells that are extracted in this way.

STRATEC Consumables has already developed numerous smart consumables for its partners for isolating individual cells. The following examples show the fascinating opportu- nities presented by this technology.

Close-up view of a T cell

16 STRATEC Annual Report 2016

NEEDLE IN THE HAY STACK

The applications mentioned below are all almost exclusively used in research or just recently in diagnostics. This means that clinical trials with patients are already being carried out, but there is not yet any established treatment.These applications nonetheless give great hope for future diagnostics and treatments.They have the potential to change the healthcare system and the chances for patients in the long term. In particular, the desire to get as much information as possible about one's current and future health can be met through the application of microfluidics.

Immunotherapy

for Cancer Treatment

A STRATEC partner uses a microfluidics technology to isolate T cells.These are a form of white blood cells that play a pivotal role in immune defense by combating pathogens and mutated cells. This property is used in a targeted manner: T cells are isolated and then modified ex vivo, outside of the body, in order to be able to destroy certain other cells.The modified cells are then returned to the patient so that they can destroy the target cells, for example tumor cells. In connection with cancer treat- ment, this type of therapy is often also called immunotherapy as the tumor is targeted by the body's own immune system.

Therapy Tests on Tumor Cells

Another area of application is the isolation of individual tumor cells from the blood of ill patients.The isolated tumor cells can be analyzed precisely. In pharmaceutical research, in particular, this is already used to test how tumor cells and other mutations react to certain types of treatment. It makes it possible to ob- serve the effect of the drugs that are used on healthy and mutated cells early on in treatment. In this context, this is often referred to as liquid biopsy. The cells can also be analyzed by tests such as next generation sequencing (NGS) or a mutation analysis.

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INSIGHTS ALONG NEW LINES

Detecting Individual Proteins

In one application that has already been announced publicly, the STRATEC partner Quanterix uses a microfluidic consumable to detect individual proteins. If certain antibodies are found in a sample, this can be a sign of infection. The microfluidic consumable allows proteins to be measured in a very low concentration on the level of individual molecules.This makes substances visible that cannot be detected using existing immunoassay processes.This is comparable with the proverbial search for the needle in the hay stack.This process can be used, for example, for the early detection of a protein that indicates that a patient will have a heart attack.

Our Vision: Preventative Diagnostics

In the past, diagnostics was used to identify or explain a medical condition that was present. In the future, it should be possible to act before the onset of the disease or potentially to avert an illness through preventative measures. Our shared vision is for diagnostics to be used not only retrospectively, but also preventively.This way, it creates added value and has a greater influence on the healthcare system.

18 STRATEC Annual Report 2016

SEGMENTS AND POTENTIAL

Microfluidics in Diagnostics and Life Sciences

Clinical & Veterinary Diagnostics

Point-of-Care Diagnostics

Flow Chemistry

Life Science Research

Microfluidic Applications

Drug Delivery

Analytical Devices

Industrial Environment

Microfluidics applications can be used in a number of markets. In addition to classic research, these include clinical diagnostics, life sciences and point-of-care labo- ratory diagnostics (POC).

Clinical Diagnostics - Strong Growth Rates Also in the Long Run

The largest and also strongest market in the long term is that of laboratory diagnostics. From major clinical laboratories to the bedside and, ultimately, to self-administered tests at home. This area shows the strongest growth rates in terms of the use of microfluidic consumables.

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INSIGHTS ALONG NEW LINES

Life Sciences -

Great Potential Thanks to Low Obstacles The area of life sciences comprises academic as well as pharmaceutical research. New types of tests are introduced and trialed in this market first. The phar- maceutical industry is the largest commercial outlet for this. Additional markets with lower regulatory requirements can be found in environmental analysis and industrial analysis. Microfluidics is also being used in veterinary diagnostics, food analysis and genetic analysis due to low obstacles.

Point-of-Care Testing - Highly Dynamic Growth

The point-of-care laboratory diagnostics market segment shows a particularly high growth dynamic. Point-of-care testing in medicine refers to diagnostic applications that take place not in a central laboratory but close to the patient. This can be directly in the ward at the hospital or in a doctor's office to determine cardiovascular parameters, for example. Home tests or quick tests that the patients can administer themselves are also POC tests. These include pregnancy tests or quick blood tests for measuring blood sugar and for the diagnosis of or blood clotting.

Economies of Scale Increase Competitiveness

The integration of numerous process steps, ranging from filtration to detection, for exam- ple, represents the strongest trend across all areas.The complex questions that arise from this often lead to very lengthy approval procedures.The established microfluidics process- es often face a manufacturing price that is far above the cost of laboratory diagnostics. Due to the still relatively high costs, these tests can only gain prevalence if the test results are needed very quickly or if the nearest central lab is very far away. A significant improvement of the cost situation and therefore also the price development in the near future should, however, be possible thanks to economies of scale.

20 STRATEC Annual Report 2016

NORTH AMERICA ON TOP

The market for polymer microfluidics applications is currently dominated by North America, with a market share of 38 %. The majority of the patents and innovations are from university centers there, such as Harvard and Stanford University. The high

level of interdisciplinarity benefits these large institutes. Europe only begins to play a larger role when it comes to the imple- mentation of market-ready products and their global roll-out.

Market Volume and Long-Term Market Growth

2,103.5

1,560.0

2020

2015

755.9601.9

1,312.7

North America

22.7 % 1

Europe 21% 1

440.2

Asia-Pacific

24.4 % 1

488.4

189.2

Rest of the World

20.9 % 1

Source: MarketsandMarkets (2015), Microfluidics Market Global Forecast to 2020

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INSIGHTS ALONG NEW LINES

AS A DRIVER OF DEVELOPMENT

Expertise in Storage Media

The company history of STRATEC Consumables, based in Anif, Austria, began about ten years ago. Sony DADC, a subsidiary of the SONY Corporation, entered the biotechnology market in 2007 with the founding of its biosciences division.The com- pany, which had made a name for itself since the 1980s primar- ily as the market leader in optical storage devices and digital solutions for the entertainment, education and software indus- try, thus expanded its portfolio to include complex plastic com- ponents for medical and diagnostic applications. Its many years of experience and expertise in manufacturing storage media allowed it to use its optimized production methods in alter- native applications as well and to develop these further.

Accordingly, tiny structures in the nano and micrometer range were also brought about in the manufacturing of microstruc- tured plastic components for use in medicine and life sciences. But efforts were not limited strictly to the production process. What sets STRATEC Consumables apart is the range it offers along the entire value chain.This begins with the development of consumables and prototyping and continues all the way through to packaging and logistics.

Complex Test as First Joint Project

In July 2016, Sony DADC BioSciences GmbH became part of the STRATEC Group and was renamed STRATEC Consum- ables. The first collaboration between the then independent company with STRATEC Biomedical AG took place years earlier as part of a project for the customer Quanterix. The Disc was produced at the Anif location.The disc comprises 24 test fields with 216,000 micro-wells each and is used as a smart consumable in the analyzer system developed by STRATEC. With a customer project of this type, close cooperation in the development and manufacturing of the sample carrier and analyzer system is of the utmost importance in order to ensure quality, reliability and reproducibility.

1 CAGR (2015 - 2020)

22 STRATEC Annual Report 2016

OPTIMIZED PROCESSES

Certified Quality Management

The processes in the consumables area, which have been estab- lished for many years, are constantly being improved. This in- cludes the optimization of the working environment and con- ditions in order to improve the health and safety of the company's employees. Manufacturing takes place in accordance with the specifications of an ISO 13485-certified quality man- agement system. A high level of quality awareness is shown on all levels of the value chain. From the very beginning, a close collaboration takes place with the customer in order to develop the partner's idea in the design and prototype phase in such a way that it will be suitable for serial production.Tiny structures of 200 nm to 200 µm can be produced using the unique mas- tering process, in which the negative of the component to be formed is produced using injection molding.

Thirty years of experience in manufacturing optical storage media are put to use in producing consumables through injec- tion molding. This ensures the highest level of quality and reli- ability in the highly precise plastic components for medical and diagnostic applications.

High Quality Awareness at All Levels

CONTENT

DESIGN PROTOTYPING MASTERING MOLDING COATING BONDING PACKAGING LOGISTICS

FILLING

Joint System Solutions

The development and production of microstructured plastic components is to be further expanded and the development of the Anif site will be promoted through specific partnerships and investments. Cooperation within the STRATEC Group makes it possible to offer customers joint systems solutions comprising analyzer systems, software and consumables. The aim, as seen in the Quanterix example, is to expand upon core expertise and to offer the customer complete solutions based on these.

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INSIGHTS ALONG NEW LINES

Everything From

Diverse Consumables

a Single Source

An analyzer system developed by STRATEC is made up of a variety of components. Alongside the hardware and software, the consumables are also an important part.

There are a wide variety of consumables used in analyzer systems and these can be divided into numerous categories. For one, there are replacement parts to replace components that are no longer usable at the end of the product life cycle. There are also maintenance kits with parts that need to be exchanged regularly, such as pumps, hoses or valves. Another category comprises compo- nents that are consumed by the instru- ment, such as plastic parts like pipette tips or measuring cells.These have a 1: n ratio with the tests that are performed.

STRATEC has always been responsible for developing the consumables that go with the system, and in many cases also produced them itself. Over the past years, however, there has been a shift with newly developed systems to pro- ducing the consumables in addition to developing them.

There is currently a trend towards using increasingly complex consumables in which a part of the test is shifted from the analyzer system to the consumable. With the company acquisition, STRATEC is now in a position to offer its customers an even more comprehensive range of products. In addition, it provides its part- ners with decisive benefits when the analyzer system and the consumables come from a single source. Develop- ment and production at STRATEC minimizes the often adverse effect on development times.This is because the systems integration of consumables often presents challenges that can only be addressed step by step. The custom- ers also benefit from having a contact for all matters relating to the system.

Product example:

Microfluidic chip,96-well DropPlate, for Trinean

24 STRATEC Annual Report 2016

ANNUAL REPORT 2016

of STRATEC Biomedical AG

STRATEC's Share / 25

Group Management Report / 30

Consolidated Financial Statements / 72

Notes to the Consolidated Financial Statements / 80

25

STRATEC'S SHARE

Stock market year shaped by unexpected events

Various events with unexpected outcomes, such as the Brexit referendum and the US presidential elections, led stock market investors to hold their breath in 2016.These factors were pre- ceded by concerns about the global economy triggered by weak economic data in China and the fall in the oil price, which placed a severe damper on the stock markets at the beginning of the year. The DAX, Germany's lead index, dropped 19 % in the first trading weeks of the year.

The next unexpected event followed in June. In what was for many a surprising development, a marginal majority of UK voters decided in a referendum in favor of the United Kingdom exiting the European Union.This Brexit shock triggered turbu- lence on the currency and stock markets around the world. By contrast, the election of Donald Trump as US President in November only led to short-term fluctuations in stock prices.

Irrespective of these developments, global stock markets con- tinued to be driven in 2016 by the flood of liquidity from major central banks.While interest rates in Japan, the UK, and the euro area remained at record lows, the US Federal Reserve acted to tighten the monetary reins and also signaled further steps in this direction.

Accompanied by a high level of volatility, the DAX rose by 6.8 % over the twelve-month period as a whole. With a negative an- nual performance of 1.0 %, by contrast, the TecDAX technology index posted significantly weaker developments. Given pro- longed financial repression and the ongoing lack of attractive investment opportunities, experts nevertheless expect inves- tors to continue preferring stocks, thus lending further momen- tum to stock markets.

STRATEC'S SHARE

STRATEC's shares

post a volatile performance in 2016

STRATEC's shares began the 2016 trading year at a price of

€ 61.00 (Xetra, year-end price on December 30, 2015) and by the third trading day had already reached a new all-time high at

GROUP MANAGEMENT REPORT

€ 62.85 (Xetra, intraday). In the following weeks, the share price was unable to escape the effects of a weak stock market climate and several times fell below the € 50 mark.

CONSOLIDATED FINANCIAL STATEMENTS

In mid-March, the company was obliged to adjust its medi- um-term financial forecast. The share lost around 15 % of its value on the following day and subsequently marked time in a narrow range of between € 42.10 and € 44.35 (both prices Xetra, intraday). Upon publication of its definitive annual results for the 2015 financial year on April 14, 2016 and the announce- ment of a proposed further increase in the dividend, STRATEC's share price stopped moving sideways and within a few trading days had made up for the weakness seen since March.

The share posted further price gains as the year progressed and recovered to € 56.00 (Xetra, intraday) before coming under significant pressure in mid-September. By the end of September, the share price had slipped to € 48.30 (Xetra, intraday), only to recover again to € 58.50 in just 17 trading days (Xetra, intraday). The publication of the nine-month figures on October 27, 2016 was followed by a marked downward trend, one which led the share price to its annual low of € 41.30 (Xetra, intraday) on December 7, 2016. STRATEC's share the ended the year at

NOTES

€ 45.79 at the close of trading on December 30, 2016. The listed share price was thus 24.9 % lower than the previous year's year-end price and 10.9 % up on its annual low. STRATEC was therefore unable to uphold the very positive share price per- formance seen in previous years.

26 STRATEC Annual Report 2016

49.70 49.60

51.00

48.30

46.80

27

High shareholder presence once again and record dividend resolved at 2016 Annual General Meeting

Listing, stock market turn- over, and index affiliation

The company's shares are listed in the Regulated Market of the Frankfurt Stock Exchange (marketplaces: Xetra and Frankfurt) and meet the transparency requirements of the Prime Standard. Furthermore, the shares are also traded on the stock markets in Berlin, Düsseldorf, Hamburg, Hanover, Munich, and Stuttgart, as well as on Tradegate Exchange.

Measured in terms of simple order book turnover, STRATEC shares worth € 120.7 million changed hands on the aforemen- tioned marketplaces in 2016 (previous year: € 141.0 million). The Xetra and Frankfurt marketplaces alone accounted for around 85.1 % of these volumes (previous year: 84.9 %).

Over-the-counter (OTC) trading volumes decreased compared with the previous year. STRATEC shares worth around € 43 million were traded on so-called multilateral trading systems such as Chi-X Europe, Turquoise, BATS Trading, Sigma X, and Tradegate, in 2016 (previous year: € 50 million).

NOTES

CONSOLIDATED FINANCIAL STATEMENTS

STRATEC's share was listed in the TecDAX, the 30-stock select technology index of the German Stock Market, from Novem- ber 2010 through to March 2017.

STRATEC'S SHARE

On June 9, 2016, STRATEC's Board of Management and Super- visory Board welcomed more than 300 shareholders, voting proxies, and guest to the company's Annual General Meeting held at CongressCentrum Pforzheim.With 71.72 % of the com- pany's share capital represented at the Annual General Meeting (previous year: 72.85 %), shareholder presence remained at a consistently high level.

Items submitted to shareholders for resolution included the appropriation of net profit, the approval of the actions of the Board of Management and Supervisory Board, the election of the auditor, and the approval of a profit transfer agreement.

GROUP MANAGEMENT REPORT

During the two-hour meeting, all five of the agenda items sub- mitted for resolution were approved by shareholders with the necessary majority in each case. The dividend was thus in- creased for the twelfth consecutive year to a new record level. The total distribution came to € 8.9 million, corresponding to around € 0.75 per share with dividend entitlement. In the pre- vious year, the company had distributed a total of € 8.3 million, corresponding to € 0.70 per share with dividend entitlement, to its shareholders.

Following the Annual General Meeting, all voting results and shareholder presence statistics were published on the company's website. The next Annual General Meeting will be held at CongressCentrum Pforzheim on June 14, 2017.

28 STRATEC Annual Report 2016

Key figures for STRATEC's share (status: December 31)

1 Subject to approval by the Annual General Meeting on June 14, 2017

New record dividend beckons for 2017

Notwithstanding the company acquisitions and associated in- vestments made in 2016, STRATEC's Board of Management and Supervisory Board have decided to propose a dividend of

€ 0.77 per share with dividend entitlement for the 2016 finan- cial year for approval by the Annual General Meeting on June 14, 2017.

Subject to approval by shareholders, this dividend proposal cor- responds to a total distribution of € 9.1 million. Based on the year-end closing price on December 30, 2016, the dividend yield would amount to 1.7 %.

Shareholder structure remains stable

The largest shareholders in the company are still its founder, Hermann Leistner, his family and their investment companies, which hold a combined stake of 41.47 %.A further 0.06 % of the shares are held by the company itself, while 58.47 % of the shares are attributable to large numbers of retail and institution- al investors in Germany and abroad.We witnessed a sharp rise in the number of retail shareholders in STRATEC in 2016. Irre- spective of the employee stock option program offered and very well received in 2015 and 2016 - with one in seven share- holders now a STRATEC employee - the number of STRATEC's shareholders rose year-on-year by more than 30 %.

29

Further information about STRATEC's share

GROUP MANAGEMENT REPORT

STRATEC'S SHARE

Investor relations

STRATEC backs up its corporate strategy, which aims to achiev- ing sustainable value growth, with its continuous and transparent communications with capital market participants. Our aim is to uphold our transparent communications with shareholders and gain the trust of new investors.With its investor relations activ- ities, STRATEC keeps investors, analysts, and business and finan- cial journalists continuously and promptly informed about the company's business performance. Interested parties can refer to the company's financial calendar, which provides advance notice of upcoming dates, events, and publications.

Financial calendar

NOTES

Subject to amendment

Furthermore, we keep capital market participants regularly informed about the company's strategic development and bu- siness performance by publishing financial reports, ad-hoc announcements, and press releases.

CONSOLIDATED FINANCIAL STATEMENTS

One core component of STRATEC's investor relations activities involves offering webcast-based conference calls upon the pu- blication of its financial reports and other major developments at the company. As well as holding numerous one-to-one mee- tings, at capital market conferences the company also gives pre- sentations and thus provides investors from Germany and ab- road with a detailed introduction to the company and its underlying business model.

Analysts' recommendations are one of the key instruments re- ferred to by shareholders and investors when forming an opi- nion about a company's share. A total of eight institutions cur- rently report on STRATEC in extensive studies and brief analyses: Berenberg Bank, Deutsche Bank, DZ Bank (until December 22, 2016), HSBC Trinkaus & Burkhardt, Kepler Cheuvreux, Landesbank Baden-Württemberg, Metzler Capital Markets, Oddo Seydler Bank, and Warburg Research.

The latest information about STRATEC and its share can be found on the company's website at www.stratec.com.

30 STRATEC Annual Report 2016

of STRATEC Biomedical AG for the 2016 Financial Year

1. The STRATEC Group / 31

   Business model and strategic alignment / 31 Group structure / 32

   Management of the STRATEC Group / 34 Market / 36

   Research and development / 38

2. Business Report / 40

   Macroeconomic and sector-specific framework / 40 Business performance / 42

   Position / 43

   Earnings position / 43 Financial position / 46 Asset position / 47

   Non-financial performance indicators / 48

   Employees and their interests / 48 Quality management / 50 Sustainability / 52

   Location optimization / 53 Supply chain / 53 Production / 53

3. Outlook / 54

4. Opportunities and Risks / 55

   Opportunities / 55

   Risks / 56

   Risk management system / 59

   Risk report ins respect of use of financial instruments / 62

5. Compensation Report / 63

6. Takeover-Relevant Disclosures / 69

7. Declaration on Corporate Governance / 71

31

A.THE STRATEC GROUP

Business model

GROUP MANAGEMENT REPORT

and strategic alignment

STRATEC makes blood analysis happen! - Building on its reputation and the expertise gained in nearly forty years of automating laboratory processes, STRATEC has succeeded in establishing itself as one of the world's leading providers of automation solutions for research and diagnostics and in permanently growing faster than its relevant target markets.

Over the years, STRATEC has consistently extended its business model and aligned it ever more closely to the needs of its partners - generally global leaders in the fields of diagnostics and research. That is why in addition to pure instrumentation STRATEC now covers virtually the entire value chain for the design, manufacture and approval of complex analyzer system solutions - from initial specifications to developing complex consumables and complementary middle- ware laboratory software.

CONSOLIDATED FINANCIAL STATEMENTS

STRATEC has always been an early mover when it comes to seizing new technologies and applications and integrating these into its existing technology portfolio, whether by way of propri- etary development work or in partnership with its customers. As a result, STRATEC is now able to offer a full range of proven and forward-looking applications to its customers, which largely outsource the development work for this type of solu- tion. The company's key focus is on high-growth segments in the fields of research and in-vitro diagnostics, and in particular on molecular diagnostics, hematology and immunoassay-based applications.

The ongoing trend towards consolidation within the healthcare sector is continuing in the diagnostics industry as well. On the one hand, this tends to increase the size of diagnostics labora- tories, a development which is leading to ever higher require- ments in terms of throughput capacities for analyzer systems in blood banks and central laboratories. On the other hand, there is a need to perform time-critical laboratory activities close to patients (point-o-care). Both these developments will generate new business opportunities and enable STRATEC to further expand its strengths.

STRATEC is reacting to these developments by gradually ex- tending its range of products and services. In 2016, this process was assisted by two targeted acquisitions.

To extend its competencies and obtain capacities to design and manufacture smaller-scale systems, STRATEC acquired Diatron, a company with worldwide operations based in Hungary. STRATEC also took over SONY DADC BioSciences GmbH, a company located close to Salzburg and specializing in the development of complex consumables ('smart consumables'). This company has since been renamed as STRATEC Consum- ables. In smart consumables, parts of the analytical process are shifted from the instrument to the consumables, thus facilitating the development of smaller, less complex instruments.

The principal expertise STRATEC has gained by working together with market leaders involves compiling and imple- menting concepts and requirements in the automation and in- strumentation of biochemical processes using hardware and software solutions. Furthermore, the STRATEC has acquired a comprehensive knowledge of quality and documentation requirements, particularly for the approval of medical tech- nology solutions by the relevant national and international authorities. On this basis, STRATEC can accompany its custom- ers in an advisory capacity from the very outset. Drawing on its longstanding experience, it offers valuable tips when it comes to compiling specifications and determining suitable system alignments.These includes tips on user-friendliness, a factor that promotes acceptance of the resultant system among end customers.

At core, the company's strategy involves supporting select cus- tomers in implementing their growth strategies in the fields of in-vitro diagnostics and life sciences. It does this by acting as a competent partner and offering expertise and innovative and safe product solutions to promote the success of our partners' end customer business.The overriding objective here is to be a competent, reliable partner and enable both our customers and STRATEC itself to generate growth that is sustainably ahead of the long-term market average. In this respect, sustainability- related topics, such as environmental protection and social wel- fare, are also playing an increasingly important role at STRATEC. The company is focusing on rapidly growing areas of application within in-vitro diagnostics and on select areas of research and translational research, which involves translating the findings of basic research into clinical applications.

NOTES

One core principle of STRATEC's corporate philosophy is to ensure that the company, while continuously extending its tech- nology, product and service portfolio, should not allow any situation to arise in which it competes with its partners.

32 STRATEC Annual Report 2016

Group structure

When integrating the companies newly acquired in the 2016 financial year, the STRATEC Group reorganized its business units and realigned and optimized its corporate structure accordingly.

The primary objective here is to be able to react to customers' requirements in an efficient and coordinated manner and to offer the Group's solutions and products from across the re- spective business units. Not only that, by fostering group-wide communications and ensuring flat hierarchies, STRATEC aims to be able to react rapidly and across all of its locations to any developments in the market or changes in the regulatory framework. The company's strategic alignment, with its organi- zational structure focusing on four business units, can be presented as follows:

Alongside patents and internally developed technology, it is the company's wide variety of expertise in different scientific and technological disciplines that offers the basis for the success it aims to achieve together with its partners. STRATEC can look back on nearly 40 years of development and production activ- ity. Equally relevant to the subsequent success of jointly devel- oped products is the in-depth understanding which STRATEC's partners have of end customers' requirements and thus of the market, as are their efforts to ensure a suitably prepared market access by means of their own service and sales activities. In view of this, STRATEC focuses on business-to-business and OEM relationships and only maintains a distinct proprietary sales net- work at its Diatron business unit, which focuses in particular on supporting OEM customers, retailers and distributors. The

STRATEC

Instrumentation Diatron

STRATEC

Data Management

STRATEC

Consumables incl. Molecular

STRATEC Instrumentation

The instruments designed and manufactured by STRATEC and marketed to its partners can be found worldwide.

Even though the instrumentation comes from STRATEC, in vir- tually all cases it is the partner's brand name that is displayed on the system itself.While the specifications are in most cases joint- ly defined by the partners, the subsequent development stage of three to four years is characterized by parallel development processes. During this time, STRATEC focuses on developing the automation solution, the corresponding software, consum- ables and quality management, as well as on preparing system approval. New requirements on the part of partners, such as connectivity facilitating secure application of remote access or preventive maintenance, form a key basis for STRATEC's permanently evolving technology portfolio. This means that customers can focus all of their energies on developing their reagent menus, as well as on their market expertise, access to end customers, and subsequent support measures.Throughout the development stage, however, the various activities mostly running in parallel have to be closely coordinated. As soon as the first prototypes are complete, work already begins on inte- grating the reagents into the automation process, and this in turn requires close cooperation between the partners.

product specialists at STRATEC's partners are individually supported in their activities.This particularly takes the form of training, but in exceptional cases also involves providing specific services on location.

Within the Instrumentation segment, a basic distinction is made between two approaches towards developing systems and cooperating with partners.

Partnering Business

With this type of development, STRATEC targets both existing and new customers.The company works together with its part- ner to define the specifications for a new analyzer system for the customer at a very early stage of planning.The cooperation between the company and its partner is very close throughout the entire development phase, which usually lasts between 24 and 48 months. STRATEC is responsible for developing hard- ware and software and draws here on its constantly growing pool of proprietary innovative technologies, patents, rights, and know-how. This way, the development work is faster, more cost-effective and involves fewer risks, an approach from which both partners benefit.This gives rise to systems that are more reliable and require less maintenance. In close cooperation with the partner, the reagents menu is integrated into the automa- tion processes. As soon as the system has been fully developed and approved by the regulatory authorities together with the reagents and software package, it is launched onto the market and serial production begins. In this stage, the partner focuses on marketing and selling the product to end customers, gener- ally laboratories, blood banks, and research institutes, and also

33

provides subsequent customer support and other services. STRATEC provides an ongoing supply of maintenance and spare parts and discusses ongoing improvements in the system with the customer, particularly with regard to the next genera- tion of software applications, user-friendliness and activities to extend the reagents menu.

GROUP MANAGEMENT REPORT

System developments in the partnering business place certain minimum requirements in a customer. On the one hand, a suit- able development budget has to be available for allocation, on the other hand the partner must have appropriate distribution channels enabling it to exploit turnover potential and thus make the project interesting for both partners. By analogy with the printing industry, which works with low-margin printers and high-margin ink cartridges, the partner generates its return on capital employed by selling the tests. STRATEC earns its share from the sale of appliances and service parts (maintenance and replacement parts) to the partner.The success achieved by its partners enables STRATEC to generate the growth targeted for this business field. In view of this, in its production activities the company attaches great value to providing customers with those instruments they need to ensure a favorable cost-input ratio.This approach is reflected in particular at the production locations in Switzerland, Germany and Hungary, where highly qualified employees implement production and testing process- es that are subject to close regulatory definition monitoring and performed in an audited and certified environment.The selec- tion of the right partners and products plays a crucial role in determining STRATEC's growth in this area.

Platform development

CONSOLIDATED FINANCIAL STATEMENTS

A STRATEC platform is a system developed internally up to a certain point that is then adapted in the next phase to the specific requirements of the customer's reagent and corporate design scheme.These platforms are particularly suited to part- ners aiming to enter a market very rapidly - and thus draw on a platform solution - or who on account of their size and mar- ket access are not yet able to place a corresponding volume of internally developed systems and therefore do not wish to make a large-scale development investment. STRATEC chiefly develops such platforms for areas capable of generating multi- plier effects.

In developing proprietary technologies and solutions, STRATEC aims to ensure a calculable balance between innovation and sales potential. Here in turn, it is important to develop the right applications that offer market players relevant additional bene- fits or to cooperate with the right partners to gain early market presence with applicable solutions when it comes to developing next-generation technologies.

STRATEC Data Management

As well as software solutions integrated into instruments, STRATEC also offers its partners flexible application options for deploying and controlling instruments, work processes and test volumes mainly for use in laboratories. Among other function- alities, these software solutions facilitate the interlinking of various systems, enable work volumes to be managed, and pro- vide access to the test results for evaluation by specialist staff. These middleware software solutions optimize and accelerate laboratory work processes and enable appliance capacity utili- zation rates to be optimized. They also assist laboratories in complying with regulatory requirements.

STRATEC Data Management offers its OEM software solutions both as standard versions and as individually customized versions. All-round project management enables us to work closely with the partner to ensure that the solution satisfies customer requirements and also complies with the extensive regulatory framework.

In strategic terms, the development and sale of middleware software should be viewed as an extension to the company's value chain and as a door opener to customers who often also require instrumentation and automation solutions in the fields of diagnostics and research.

STRATEC Consumables

STRATEC's existing consumables activities, which were substan- tially extended by the addition of a company acquired in 2016, have been pooled at the STRATEC Consumables business unit. Smart consumables are a major component of STRATEC's range of technologies, products and services. Due to an acqui- sition executed in 2016, this area of activity has been integrated into the STRATEC Group as a newly created business unit.We can thus offer our customers a major component of the value chain from a single source. This way, we reduce customers' project risks and the associated project supervision input, particularly by assuming responsibility across the various inter- faces involved. Not only that, important aspects of test process development and the corresponding automation components can be harmonized far more closely.

The change in traditional consumables into complex smart con- sumables is making it possible to 'outsource' various test process steps in a targeted manner to the consumable. This 'loss' of process steps on the one hand enables the size and complexity of instruments to be reduced. On the other hand, by offering greater flexibility it opens up new possibilities to develop test processes.

NOTES

This business unit has diverse skills and applications in the fields of nano-structuring and micro-structuring, various coating tech- nologies, polymer science applications, and the automated and industrial production of smart consumables. The business unit can build on its longstanding experience in the high-precision production of optical storage media. Consumables are devel- oped in close cooperation with the relevant partners and in line with their requirements for the development of reagents and instrumentation.

34 STRATEC Annual Report 2016

Management of

the STRATEC Group

Alongside the consumables themselves, in its Consumables segment STRATEC also offers sample preparation products to its customers. These activities were previously located at the STRATEC Molecular business unit. Particularly in the field of molecular diagnostics, sample preparation is an important work step prior to execution of the actual analyses or tests. In partic- ular, it involves purifying the DNA and RNA to be investigated. STRATEC offers solutions for these upstream steps that can then be integrated by customers into their own range of prod- ucts and services. Furthermore, the products are sold with or without accompanying instrumentation solutions to end customers, in this case small and medium-sized laboratories in particular.

Diatron

STRATEC acquired the Diatron Group in July 2016. This new business unit designs and manufactures analyzer systems for use in human and veterinary diagnostics, as well as complementary products such as consumables and services. Diatron's custom- ers include prestigious diagnostics and life science companies with global operations.The system solutions for human diagnos- tics which Diatron predominantly manufactures in Hungary are used in the fields of hematology and clinical chemistry. From a customer perspective, STRATEC's core competencies to date chiefly related to designing and manufacturing systems for mo- lecular diagnostics, immunoassays and immunohematology.The extension of this portfolio to include Diatron's products means that the Group now covers the areas of diagnostic application with the highest volumes. Diatron mainly distributes its solutions as an OEM provider and via distributors, of which a small share is directly marketed under the Diatron brand. Its platform-based development approach and its market access based on OEM partnerships are consistent with STRATEC's approach and business model.

Diatron's OEM portfolio consists in particular of analyzer sys- tems, system components, consumables and tests in the lower throughput segment for hematology. Throughput is the term used to describe the frequency of tests in a given period, typi- cally during a single laboratory shift. To date, STRATEC has focused on the medium to higher throughput range.The extension in the value chain in the field of decentralized laboratory solu- tions - typically small to medium-sized hospitals, group practices, and laboratories - therefore represents a far-reaching addition to STRATEC's expertise and product portfolio. Furthermore, STRATEC expects to benefit from synergies particularly when it comes to designing and manufacturing consumables, modules for complete analyzer systems, and smaller-scale systems.

Given its size and the dovetailing of business fields that are pooled in business units across locations and together reflect STRATEC's value chain, the STRATEC Group is managed by reference to a matrix organizational structure. Following the acquisitions made in the 2016 financial year, the company's structure was amended to the extent that two new business units were added with Diatron and STRATEC Consumables. Furthermore, to optimize project and product management business activities were also transferred from existing business units to the new units.

The existing business unit STRATEC Molecular was assigned in organizational terms to the STRATEC Consumables unit and is now managed as part of that unit. The business units receive targets set by the Group's Board of Management, on which basis they are managed and also report in the course of the financial year. These targets are chiefly of a quantitative nature and relate to sales and profitability. In addition, legal units and divisions are provided with targets that include qualitative, quan- titative, and strategic elements.These are based on factors such as risk management, employee management, customer relation- ships, or M&A activities.

In view of the company's growth and not least to do justice to our claim of being a reliable partner and an attractive employer, traditional management figures such as sales, EBITDA, liquidity, key development, production, and marketing figures, and product quality are increasingly being supplemented by sustainability- related topics such as environmental and social aspects.

In practice, the Board of Management lays down the strategic framework in agreement with the Supervisory Board. Targets are filtered and jointly defined in the extended management teams at individual units. In the Instrumentation segment, man- agement is based on a complex system that accounts for both key financial targets, such as sales and profitability, as well as for customers' requirements.These involve supply chains, and have efficiency enhancements and punctual delivery as their key tar- gets. In development units, the key factors are the milestones and qualitative targets jointly defined in advance, while the tar- gets in production units are regularly updated and agreed in very close cooperation with customers and by reference to forecasts and qualitative key figures.

Alongside ongoing organizational adjustments in the company's structure in line with its growth, the objective of the company's management is to uphold its sustainable sales growth in excess of average growth rates in the in-vitro diagnostics industry while simultaneously improving the company's profitability, safeguard- ing the company's liquidity position at all times, and detecting and averting any risk of erroneous developments in good time.

Alongside quantitative reporting structures, monthly assess- ments of current project developments and risks are addi- tionally reported by individual location managers and project directors to the respective heads of department or the Board of Management.

35

Central support and administration functions are pooled at cor- porate headquarters and work closely together with employees in the relevant specialist departments at the subsidiaries.

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 current business performance are discussed.These measures also include regular visits on location.

A further management instrument is the variable compensation paid to the heads of business units, 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 com- pany divisions not able to directly influence sales.

Group structure

Board of Management of STRATEC

CONSOLIDATED FINANCIAL STATEMENTS

Business Units

GROUP MANAGEMENT REPORT

Diatron

Data Management

Instrumentation Consumables

Diatron US

Diatron MI

STRATEC UK

STRATEC RO

STRATEC AG

STRATEC CH

STRATEC US

STRATEC Mol

STRATEC PSH

STRATEC AT

Legal Entities

NOTES

STRATEC Capital

STRATEC Services

STRATEC China

'STRATEC PS Holding','STRATEC Capital','MAH', and 'REMA Lux' are holding companies without any proprietary operations. Due to materiality considerations, STRATEC China has not been consolidated.The intermediate holding companies 'REMA Lux' and 'MAH' added upon the acquisition of the Diatron Group are expected to be deleted in 2017 and have therefore not been presented in the above chart. Due to materiality considerations, STRATEC Inc. and Sanguin Inc. have also not been presented.

36 STRATEC Annual Report 2016

Market

IVD market

Annual sales volumes in the instrumentation market relevant to the STRATEC Group are estimated at around 1.5 billion US dollars for in-vitro diagnostics (IVD) alone.This figure is derived from relevant throughput segments and technologies, especially the immunoassay, immunohematology, molecular-diagnostic, clinical chemistry, and hematology applications. Alongside these areas, there are also interesting niche markets, both within and outside IVD, in which STRATEC is performing targeted projects or concluding development cooperations with established or innovative partners.

To date, most instrumentation development is still performed by the diagnostics companies themselves (IVD in-house market). Experts expect the overall IVD instrumentation market to grow from around seven billion US dollars currently to well over eight billion US dollars by 2018. The market segment relevant to STRATEC thus stands to grow to around 1.8 billion US dollars. 40 % of the system solutions placed worldwide will already be developed by outsourcing partners, such as STRATEC (IVD OEM market). In 2016, this share amounted to around 36 % 1.

In-house and outsourced instrumentation market

regulatory requirements, broad pool of technology, and long- standing experience mean that it has a strong position in this market.

Alongside increasing regulation, STRATEC also benefits from the fact that there is a shortage of qualified laboratory per- sonnel in many countries.This factor increases demand for au- tomated systems that are easy to use and which do not require highly qualified laboratory staff.

Outsourcing

STRATEC is benefiting not only from increasing regulatory efforts on the part of the relevant authorities, but also in par- ticular from the growing trend towards outsourcing in the diag- nostics industry.Alongside market access, the core competence of large diagnostics groups largely involves developing and pro- viding so-called reagents. These are used to perform the diag- nostic tests in fully automated systems. Acting as an OEM part- ner, STRATEC designs and manufactures the system with all of its hardware and software components. Here, the customers assign almost all of the responsibility for the system, and thus also a large share of the related risk, to STRATEC. Working in close cooperation, a system is developed that is based on jointly compiled specifications and automates all of the analytical pro- cess steps.Within this cooperation, STRATEC assumes activities along the entire value chain - from development of the speci-

2010

2015

2018

73 %

64 %

60 %

27 %

36 %

40 %

fications through to approval of the resultant products by the relevant authorities.

When it comes to the growing trend towards outsourcing in diagnostics, comparisons are often made with the automotive industry, where automakers have long outsourced the develop- ment and production of complex components and modules to specialist partner companies.

General market developments

Alongside the specific developments in the diagnostics industry

In-house Outsourced

Increasing regulation of diagnostics industry

The increasing regulation of the diagnostics industry continues to generate growing demand for automated process solutions. Manual and semi-automated processes are increasingly being superseded by fully automated methods. Due to the routine processes involved and the lower error rate compared with manual processes, such methods offer a higher degree of secu- rity, greater precision, and highly reproducible results. Not only that, fully automated methods enable the tiniest volumes of liquids to be processed. In recent years, ever more countries, such as Brazil, have begun introducing their own control mech- anisms and requirements for IVD products and processes. To meet increasingly strict requirements around the world, many laboratories are opting for automated solutions. Automated instrument solutions are in turn subject to a high degree of regulation, and this presents a barrier to new players entering the market. STRATEC's long track record of dealing with these

outlined above, STRATEC's areas of activity are also expected to benefit in general from ongoing growth due to demographic, worldwide, and global economic developments.The reasons for this can be found in global megatrends that are shown below.

Further growth in the volume of investments channeled into expanding national healthcare systems is leading to an increase in the number of people worldwide with access to healthcare services. Higher numbers of patients are resulting in greater demand for the products and services offered by the diagnos- tics industry.Together with rising life expectancies, the increasing prevalence of diseases such as cancer, diabetes or cardiovascular diseases will also lead to growing demand in healthcare systems and consequently for diagnostics products. Alongside these factors, the rapid progress being made in research and devel- opment for diagnostics methods, such as in the fields of molec- ular diagnostics and next-generation sequencing, is facilitating the introduction of new tests and technologies and giving reason to hope that it will be possible to track down diseases that were previously difficult to diagnose.

37

Veterinary diagnostics

As well as human diagnostics systems, Diatron, which was acquired in 2016, also offers systems for use in veterinary diagnostics.

Turnover in the global veterinary diagnostics market totaled around two billion US dollars in 2016. Average annual growth (CAGR) of around 7 % is expected in the years from 2012 to

2017.2 Veterinary diagnostics has taken over numerous technol- ogies and methods from human diagnostics. A range of key standard diagnostics applications in the fields of immuno- diagnostics, molecular diagnostics, hematology and clinical chemistry is thus available for the veterinary supervision of domestic and farm animals.

GROUP MANAGEMENT REPORT

Within veterinary diagnostics, a distinction is made between the treatment of domestic and farm animals. Domestic animals account for around 65 % of the overall market, and thus for around 1.3 billion US dollars. Of this total, around 61 % is attrib- utable to the US, while Europe contributes 31% and the rest of the world around 8 %.The US and Europe are therefore by far the largest and most important markets in this field.

The farm animal market segment accounts for around 35 % of the overall market, and thus for around 0.7 billion US dollars. Europe makes up around 62 % of the farm animal market, followed by the US with around 17 % and the rest of the world with around 21 %.

Approximately 42 % of the veterinary diagnostics market is attributable to instruments and consumables. Immunodiagnostic test kits and reagents account for a further 42 % of the market, while the remaining 16 % relates to molecular test kits and reagents 3.

Life Sciences

STRATEC Consumables, a company acquired in 2016, has numerous customers in the field of life sciences. Furthermore, the field of translational research, which involves translating the results of basic research into clinical applications, is also increas- ingly significant to STRATEC.

Life sciences particularly comprise academic research and phar- maceuticals research, with the latter area accounting for by far the larger share of the market. This field has more or less the same size as the IVD market and is set to grow to 64 billion US dollars by 20214.

CONSOLIDATED FINANCIAL STATEMENTS

Expansion in healthcare systems, especially in emerging markets

Increase in diagnostics tests

Development of new diagnostics

technologies

Global

megatrends

Aging populations

NOTES

Increase in chronic diseases

1 Berenberg Research Update November 2015

2 Kalorama Information:'The Worldmarket for Veterinary Diagnostics' July 2012

3 Kalorama Information:'The Worldmarket for Veterinary Diagnostics' July 2012

4 Markets and markets 'Life Science Instrumentation Market',August 2016

38 STRATEC Annual Report 2016

Research and development

STRATEC's long story of sustainable success is based on its development of innovative technologies that satisfy the require- ments of strictly regulated markets and those of its partners in terms of safety, reliability and user-friendliness. For the develop- ment of complex systems, consumables, and laboratory soft- ware, STRATEC's development teams comprise numerous employees from various areas of activity who are supplemented by experts from our partners. As a general rule, the inter- disciplinary teams of experts draw on employees from various areas of activity.

In the field of research, where new technologies, processes and software solutions are developed, feasibility and market studies are performed or referred to at an early stage already. These enable qualified assessments to be made while at the same time minimizing any associated risks.

At a new research and prototype laboratory at the Anif loca- tion, the Group is working in cooperation with the University of Salzburg to link state-of-the-art plastic and coating tech- nology with biotechnological processes. This involves manu- facturing and testing biochip prototypes intended for inclusion in customer products at a later date.

In the development projects category, the underlying target processes, development steps, and ultimate targets are all stipulated in detail. The development activities follow precisely defined technical specifications and project plans and involve milestones and target data. In the context of analyzer system development, different appliance generations are supplied to the partner and then accepted once the respective develop- ment milestones have been met. These range from the first development appliance status ('bread boards') via prototypes through to validation and pre-serial appliances on which the tests are validated and whose results are referred to by the relevant authorities when approving the appliances. In the final development stage, the customer then accepts the serial appliance and related service components.

Development activities within the STRATEC Group are based on the following aspects:

• Development of new systems for customers and system platform development

STRATEC's growth is chiefly driven by its constantly growing range of new OEM products.These therefore remain a key focus of development activities. Following the acquisitions made in 2016, STRATEC can now offer a far more extensive range of technologies and services to its customers.

In its development of new systems, STRATEC distinguishes between platform development and the partnering business.

In platform development, STRATEC works in a way similar to the automobile industry by developing a platform or module concept internally and then in the second stage adapting this to individual customer needs. In its partnering business, by contrast, STRATEC works together with the customer from a very early stage of development and, based on a library concept, develops a system precisely tailored to the customer's needs.

• Support for existing systems and product lifecycle management

  Strict regulatory requirements and the resultant expense required to obtain approval are leading to longer system lifecycles, which generally amount to well over 10 years. To facilitate such long lifecycles for systems on the market, permanent system modernization is required.This factor is accounted for above all in software development and

  verification activities.This is one of the main reasons for the disproportionate growth in these areas within STRATEC's development division.

• Development of new technologies

  To boost its competitiveness and leading position as an independent system provider, STRATEC not only observes ongoing changes in its customers' needs in terms of technol- ogies 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 which harbor potential for routine applications in in-vitro diagnostics.

• Development of platform technologies

  A further focus of STRATEC's development activities involves further developing and enhancing platform technologies for relevant systems.These platform technolo- gies 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.They also form the basis for the continually growing technology pool, which significantly reduces the times and costs involved in our partners' market launches of these kinds of systems.

  39

  • Development of (smart) consumables

STRATEC also develops the consumables used with a given analyzer system.This development work is also based on proprietary industrial property rights.The products range from simple consumables through to complex, so-called smart consumables.These complex consumables present part of the test process that is otherwise often performed within the instrument.These consumables may be devel- oped and manufactured together with an analyzer system or on a standalone basis to meet the individual require- ments of our partners.

GROUP MANAGEMENT REPORT

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 what are highly attractive development periods when compared with other approaches. Not only that, this also ensures that STRATEC retains control of key industrial property rights for the systems thereby developed. Not least as a result of these factors, the company's long-term cooperation with its partners and customers is secured.

Overall, research and development expenses amounted to

€ 22.829k in the financial year under report (previous year:

€ 20.980k). Of this total, an amount of € 2.594k related to capitalized internally generated intangible assets (previous year:

CONSOLIDATED FINANCIAL STATEMENTS

€ 2.962k). Accordingly, the capitalization ratio - as a percentage of internally generated intangible assets - came to 11.4 % as of December 31, 2016 (previous year: 14.1 %).

Within the STRATEC Group a total of 488 employees were allocable to research and development at the balance sheet date on December 31, 2016 (previous year: 334 employees).1

NOTES

1 The number of employees allocable to R&D has changed compared with the previous year.This is due to an organizational reclassification under which employees who spend a majority of their time with development activities are allocated to this field.

40 STRATEC Annual Report 2016

1. BUSINESS REPORT

   Macroeconomic and sector-specific framework

   Macroeconomic framework

   The Economic Outlook published by the OECD in November 2016 shows that the global economy has for five years now been trapped in a situation in which its annual growth of around 3 % has fallen roughly 0.75 percentage points short of its long- term average prior to the outbreak of the financial crisis. Based on OECD estimates, global economic growth in 2016 should once again 'only' amount to around 3 %. The reasons cited for this development are unsatisfactory underlying trends on the supply side, subdued levels of overall demand, and a slowdown in governments' efforts to introduce reforms.

   The 'World Economic Outlook' published by the International Monetary Fund (IMF) in October 2016 also sees the global economy as passing through a period of lethargy. For the world's largest economy, the US, the IMF cut its growth forecast for 2016 from 2.2 % to1.6 %. By contrast, the IMF became more optimistic in its growth forecast for the German economy, which it raised from 1.6 % to 1.7 %. Germany has benefited in particular from higher exports in a euro area that is recovering momentum.

   According to the IMF, medium-term growth rates in the indus- trialized economies will remain disappointing. For emerging and developing economies, on the other hand, the IMF expects to see an improvement in macroeconomic developments.

   With regard to the global economy, the IMF has called for leg- islators to provide greater impetus for growth. Key factors here include labor market reforms and steps to lower trade barriers. Furthermore, central banks in industrialized economies should maintain their loose monetary policies and thus continue to assist their economies.

   Given its long-term project and product lifecycles, STRATEC and the decisions its customers take concerning joint develop- ment projects are only affected by macroeconomic fluctuations to a limited extent. Having said this, the macroeconomic climate nevertheless plays a major role in STRATEC's entrepreneurial activity and is therefore extensively factored into the company's assessments and planning.

   Sector-specific framework

   Based on various estimates, in-vitro diagnostics (IVD) is set to remain a growth market, with average annual global growth rates of 4 and 5 %1 through to 2018 and 2020 respectively. By 2018, the IVD market will have an estimated volume of 65 bil- lion US dollars. The various segments within IVD will report different growth rates. STRATEC operates in those segments in particular which are expected to generate high growth rates. Among others, these include molecular diagnostics, where the growth rate is expected to average around 8 % p.a. between 2013 and 2018.

   Other segments, such as blood glucose self-monitoring, are de- clining and are not among STRATEC's areas of activity. Today, STRATEC offers products and solutions in numerous key areas of the IVD market. Consistently aging populations, increased prevalence of chronic diseases based on our current lifestyles, and the ever growing significance of personalized treatment - these are key market growth drivers. Over and above that, the research being performed on innovative technologies, such as specific biomarkers, will create new opportunities for future market growth.

   As a standalone market, the UK is important to STRATEC's customers. Having said this, the implications of exchange rate movements in the wake of any potential Brexit are difficult to forecast. Overall, this factor is nevertheless deemed to be of subordinate significance. STRATEC's subsidiary STRATEC Bio- medical UK, Ltd. develops software solutions in the UK. Here too, the workforce of 40 employees is of subordinate signifi- cance compared with the overall Group. STRATEC does not expect its partners' turnover figures in the UK as an end- customer market to suffer to any significant extent from the effects of Brexit. Consistent with expectations, the US - still the most important individual market for STRATEC's customers -is developing positively. Developments in the healthcare market here have been positive overall for STRATEC in recent years. Not only that, the fall in the unemployment rate seen for several years now has had additional positive effects in terms of the number of people with insurance cover.

   Upon publication of this report, the future direction of healthcare policy under the new US administration was not yet foreseeable.

   41

   IVD market by technologies2

   Blood glucose self-monitoring

   17 %

   Other

   5 %

   Clinical chemistry

   14 %

   Microbiology

   7 %

   Blood banks

   4 %

   Immunodiagnostics

   GROUP MANAGEMENT REPORT

   26 %

   Point-of-Care

   12 %

   Molecular diagnostics

   6 %

   Hematology

   10 %

   CONSOLIDATED FINANCIAL STATEMENTS

   STRATEC's main technologies

   Currently, North America, Europe, and Japan account for 75 %3 of the total IVD market. In the years ahead, emerging markets such as China, Brazil,Turkey, Korea, India, Russia, and Mexico in particular will report growing test volumes as the governments in these countries are investing heavily in healthcare systems. Demand for new tests and processes remains high, with partic- ularly strong demand for cost-effective solutions.

   NOTES

   Due not least to the increasing complexity of IVD tests, it is difficult for any company to develop proprietary products in all technology and market segments. In view of this, diagnostics groups frequently procure specific technologies to maintain their technological leadership and survive in the market. As a result, a process of consolidation has been apparent in the IVD market for years now and is expected to continue in future as well.

   Compound annual growth rate 2013 - 2018

   IVD market 4 - 5 % p.a.

   Immunodiagnostics 4 % p.a.

   Molecular diagnostics 8 % p.a.

   Point-of-care 4 % p.a.

   1 Allied Market Research /IVD Market; Kalorama Information:The worldwide Market for In Vitro Diagnostic Tests

   2 Kalorama:The Worldwide Market for In Vitro Diagnostic Tests, 9th Edition

   3 Kalorama:The Worldwide Market for In Vitro Diagnostic Tests, 9th Edition

   42 STRATEC Annual Report 2016

   At the same time, the constant rise in regulation recently seen in the diagnostics industry also represents an increasingly high barrier to potential competitors to STRATEC entering the mar- ket. There are only very few comparable companies with the ability to offer a comparable range of products and services from compiling specifications, through development, approval, and production of the respective instruments and solutions.The competitive situation therefore remains very limited and, alongside in-house development departments, is restricted to a handful of specialist companies. With the companies acquired

   in 2016, STRATEC has further extended the range of products and services it can offer to customers and has accessed new market segments. This has further improved the company's competitive situation.

   Overall, the markets served by STRATEC's customers are viewed as representing a growth market for the years ahead as well. This growth will be driven in particular by the following factors:

   POLITICAL

   TECHNOLOGICAL

   SOCIAL

   • Development and expansion

     in healthcare systems, especially in developing and emerging economies

   • Expansion in global infrastruc- ture leading to improved access to medical care

   • Fast-growing niche markets

     due to new medical findings and new diagnostics possibilities

   • Development of new tests and treatment options, such as personalized medicine

   • Demographic change towards an increasingly elderly popula- tion with growing diagnostics requirements

   • Rising life expectancy and resultant need for diagnostics

   • Increased prevalence of chro- nic and infectious diseases

   Business performance

   By acquiring two companies, STRATEC acted in a targeted manner to increase the breadth and depth of its product and service offering for its partners and customers in the 2016 financial year. Sales rose year-on-year by 25.9 % to € 184.9 mil- lion (previous year: € 146.9 million).This growth was driven on the one hand by the newly acquired subsidiaries at the Diatron Group and the STRATEC Consumables subsidiary and on the other hand by further growth in the spare parts and consum- ables business and by higher development and services sales. In parallel, the Group's sales excluding the effects of its acquisitions also increased.

   At 17.5 % 1, the EBIT margin for the 2016 financial year fell short of the previous year's figure (previous year: 18.3 %).To facilitate comparison, this key figure has been adjusted to exclude one- off items relating to the company acquisitions and associated reorganization measures.

   STRATEC's liquidity and financing position was at all times se- cured. In the context of the acquisitions, the company took up two bridge financing facilities with a combined total of € 68 million. Major milestones were achieved in development con- tracts and new development and supply contracts were signed.

   The previous year's management report included targets for the company's sales and EBIT margin for the 2016 financial year. On group level, these forecasts are not comparable with the figures now reported, as they were prepared prior to the com- pany acquisitions. A breakdown of key figures on segment level can be found in Section Earnings position.

   For the 2017 financial year, STRATEC expects to post sales of between € 205 million and € 220 million with an EBIT margin (adjusted to exclude one-off items) at the same level as in the previous year. The company sees potential for a slight ongoing improvement in its operating margin.

   The workforce grew from 583 employees at the end of 2015 to 976 employees as of December 31, 2016.This increase was chiefly due to the subsidiaries acquired in the 2016 financial year and the further expansion in development capacities.

   The extension to the building in Switzerland was completed. Furthermore, employees at the subsidiary specializing in devel- opment services in Romania moved into the new building com- pleted in 2016, which now offers potential for further growth.

   The Board of Management of STRATEC views the company's performance in the past financial year and its outlook for the foreseeable future as positive.

   43

   Position

   Earnings position

   Overview of key figures in the consolidated statement of consolidated income (€ 000s)

   2016	2015	Change
   Sales	184,911	146,886	+ 25.9 %
   Gross profit 2	61,636	55,032	+12.0 %
   Gross margin 2	33.3	37.5	-420 bps
   EBIT (adjusted in 2016)	32,273	26,875	+20.1%
   EBIT margin (adjusted in 2016)	17.5	18.3	-80 bps
   Adjusted EBITDA	38,677	34,207	+13.1 %
   Adjusted EBITDA margin	20.9	23.3	-240 bps
   Adjusted consolidated net income (EAT)	25,383	22,084	+14.9 %
   Tax rate	14.7	18.7	-400 bps

   The sales attributable to other activities, the smallest oper- ating division, rose year-on-year by 88.2 % to € 1.2 million.This growth was chiefly due to the inclusion of other sales at the Diatron Group acquired in the 2016 financial year.

   Consolidated sales by operating division (€ 000s)

   2016	20153	Change
   Systems	101,715	82,297	+ 23.6 %
   Service parts & consumables	53,599	38,006	+ 41.0 %
   Development and services	28,402	25,950	+ 9.4 %
   Other activities	1,195	635	+ 88.2 %
   Consolidated sales	184,911	146,886	+ 25.9 %

   bps = base points

   2 The gross profit and gross margin figures for the first time include amortization and costs of sales recognized on the assets measured in the context of the purchase price allocation and on the respective order backlogs and inventories.

   3 The presentation of the previous year's comparative figures has been adjusted in

   GROUP MANAGEMENT REPORT

   that - as for the figures presented for the 2016 financial year - system sales now only include instrument-related sales.

   Development in share of sales of operating divisions

   2016	2015	2014	2013
   Sales in € million	184.9	146.9	144.9	128.0
   Systems share of sales in %	55.0 %	56.0 %	66.3 %	70.9 %
   Service parts & consumables share of sales in %	29.0 %	25.9 %	23.4 %	21.3 %
   Development and services share of sales in %	15.4 %	17.7 %	10.1 %	7.3 %
   Other activities share of sales in %	0.6 %	0.4 %	0.2 %	0.4 %
   Analyzer systems supplied (total number)	7,297	2,395	2,719	2,679

   Sales

   STRATEC increased its sales year-on-year by 25.9 % to € 184.9 million in the 2016 financial year. Alongside the substantial growth generated by the company acquisitions, STRATEC also

   CONSOLIDATED FINANCIAL STATEMENTS

   increased its sales with service parts and consumables as well as its development and services sales.

   STRATEC divides its sales into four operating divisions.

   Sales in systems, the largest operating division, increased year- on-year by 23.6 % to € 101.7 million. Alongside the growth re- sulting from sales of hematology and clinical chemistry systems at the Diatron Group, which was acquired in the 2016 financial year, this sales growth was also driven by the core business at STRATEC AG, with increased sales with fully automated clinical diagnostics and biotechnology systems.

   Following record sales in the previous year, the service parts

   & consumables operating division raised its sales by a further

   41.0 % to € 53.6 million. Alongside higher sales with service parts at STRATEC AG, this division benefited to a significant extent from consumables sales at the Diatron Group and at STRATEC Consumables.

   In the development and services operating division sever- al development projects for partners were at different stages of development in the 2016 financial year. STRATEC received milestone payments for reaching significant milestones in its development projects.Year-on-year, sales in this segment, which also includes consulting sales and development services at STRATEC Consumables, rose by 9.4 % to € 28.4 million.

   Gross profit and gross margin

   Gross profit improved by 12.0 % to € 61.6 million. All operating divisions reported growth in this key figure, with the strongest growth being generated in the maintenance and spare parts business.The gross profit for the 2016 financial year for the first time includes amortization and costs of sales recognized on the assets measured in the context of the purchase price allocation and on the respective order backlogs and inventories. Largely as a result of this factor, the gross margin decreased year-on- year by 4.2 percentage points to 33.3 %.

   NOTES

   1 A reconciliation of EBIT with EBIT adjusted to exclude one-off items can be found from page 45 onwards

   44 STRATEC Annual Report 2016

   Research and development expenses

   Gross development expenses in the development division rose from € 21.0 million to € 22.8 million. This total includes an amount of € 7.3 million for proprietary developments (previous year: € 6.0 million). This consistently high volume of expenses with highly qualified development personnel forms the basis for the company's further growth.

   Sales-related expenses

   The increase in sales-related expenses from € 6.1 million to

   € 12.8 million resulted from increased project support services on account of the market launch of new systems and from the inclusion in the consolidated financial statements of the com- panies acquired in the 2016 financial year.

   General administration expenses

   General administration expenses, which include personnel and material expenses at central administration departments, rose by € 4.2 million to € 16.0 million (previous year: € 11.8 million). This increase was mainly due to legal and advisory expenses in connection with the company acquisitions in the 2016 financial year and their first-time inclusion in the consolidated financial statements, as well as to the hiring of additional staff in the administration departments at STRATEC AG.

   Other operating income and expenses

   Other operating income and expenses mainly include currency gains and losses, which amounted to a net total of € 0.3 million (previous year: € 0.4 million).

   Earnings performance and tax rate

   Operating earnings (EBIT) adjusted to exclude one-off items incurred in connection with the company acquisitions and as- sociated reorganization measures rose by 20.1 % to € 32.3 mil- lion (previous year: € 26.9 million).This growth was due to the inclusion in the consolidated financial statements of the compa- nies acquired in the 2016 financial year, as well as to the im- provement in the margin for service parts and consumables in particular.The adjusted EBIT margin decreased slightly to 17.5 % (previous year: 18.3 %).

   Segments

   The business activities of the STRATEC Group are divided into three reporting segments.

   In its Instrumentation segment, STRATEC pools its business with designing and manufacturing fully automated analyzer systems for its clinical diagnostics and biotechnology customers.

   The Diatron segment comprises the business with systems, system components, consumables and tests in the low through- put hematology and clinical chemistry segment.

   The Consumables segment includes the business with devel- oping and selling scientific materials, such as nucleic acid puri- fication, and the business with designing and manufacturing so-called smart consumables in the fields of diagnostics, life sciences and medical technology.

   In All other segments, STRATEC reports on the develop- ment in workflow software for networking several analyzer systems and the development and sale of scientific materials and technologies.

   Overview of development

   in reporting segments (€ 000s)

   2016 2015

   Instrumentation

   Sales	138,795	136,182
   EBITDA	29,507	30,838
   PPA write-downs	74	0
   EBIT	24,744	25,213

   Sales	29,850	0
   EBITDA	4,710	-2
   PPA write-downs	3,534	0
   EBIT	855	-2

   Diatron (consolidated from 04.01.2016)

   Development in EBIT and EBIT margin (€ 000s)

   2016 (adjusted)	2015
   EBIT	32,273	26,875
   EBIT margin	17.5 %	18.3 %

   Consumables

   (consolidated from 07.01.2017; sample preparation allocated to segment for 2016; previous year as comparative figure)

   Sales	9,614	2,663
   EBITDA	-368	-128
   PPA write-down	1,521	247
   EBIT	-2,899	-350

   At 14.7 %, the Group's tax rate was lower than in the previous year.The tax rate for 2016 was mainly influenced by the reduc-

   tion in the tax rate in Hungary, which led to deferred tax

   income at a Hungarian subsidiary.

   Consolidated earnings adjusted for one-off items grew by

   14.9 % to € 25.4 million (previous year: € 22.1 million).

   Adjusted basic earnings per share rose to € 2.14 (previous year:

   € 1.87). This corresponds to growth of 15.45 %. The average number of shares came to 11,851,382.

   Sales	6,524	8,345
   EBITDA	1,437	2,523
   PPA write-down	0	0
   EBIT	1,378	2,488

   Other segments

   45

   Instrumentation segment:

   Sales grew from € 136.2 million to € 138.8 million. EBIT in this segment amounted to € 24.8 million, as against € 25.2 million in the previous year.

   Diatron segment:

   Sales in this segment, which arose due to the acquisition of the Diatron Group in the 2016 financial year, came to € 29.9 million. EBIT amounted to € 0.9 million, a figure which includes an amount of € 4.2 million for amortization and costs of sales recognized on the assets measured in the context of the purchase price allocation and on the respective order backlogs and inventories.

   Consumables segment:

   Sales rose from € 2.7 million to € 9.6 million.This increase was mainly due to the acquisition of STRATEC Consumables in the 2016 financial year. EBIT in this segment amounted to € -2.9 million, as against € -0.4 million in the previous year. The 2016 figure includes an amount of € 1.5 million for amortization and costs of sales recognized on the assets measured in the context of the purchase price allocation and on the respective order backlogs and inventories.

   All other segments:

   At € 6.5 million, sales fell compared with the previous year.The increase in the previous year was largely due to a project com- pleted in the workflow software business. Consistent with this development, EBIT in this segment amounted to € 1.4 million compared with € 2.5 million in the previous year.

   Reconciliation of adjusted EBIT and consolidated net income

   CONSOLIDATED FINANCIAL STATEMENTS

   In the interests of comparability, EBIT has been adjusted to exclude advisory and integration expenses (including directly allocable personnel expenses) incurred in connection with the Group's acquisition and integration activities in the 2016 finan- cial year, to exclude scheduled amortization on the intangible assets measured in the purchase price allocation and the cost of sales resulting from hidden reserves discovered within the inventories of the Diatron Group and at STRATEC Consum- ables, and to exclude reorganization expenses. The reconcili- ation of adjusted EBIT is presented in the following table:

   To ensure comparability, EBITDA has been adjusted to exclude advisory and integration expenses (including directly allocable personnel expenses) incurred in connection with the Group's acquisition and integration activities in the 2016 financial year, to exclude the cost of sales resulting from hidden reserves discovered within the inventories of the Diatron Group and STRATEC Consumables, and to exclude reorganization expen- ses. The reconciliation of adjusted EBITDA is presented in the following table:

   € 000s	01.01. - 12.31.2016
   Adjusted EBITDA	38,677

   Adjustments

   Expenses due to company acquisitions	-1,199
   Internal integration expenses	-389
   Recognition of hidden reserves in inventories less reversal of an onerous contract	-823
   Restructuring expenses	-851
   EBITDA	35,415

   Similarly, to enhance comparability consolidated net income has been adjusted to exclude financing expenses incurred due to company acquisitions and tax receivables, to exclude current tax expenses resulting from adjustments to EBIT and tax effects, and to exclude deferred tax income resulting from the reversal of deferred taxes on measurement differences within the purchase price allocation.The reconciliation of adjusted conso- lidated net income is presented in the following table:

   € 000s	01.01. - 12.31.2016
   Adjusted consolidated net income	25,383
   Adjusted earnings per share in € (basic)	2,14

   Adjustments

   € 000s	01.01. - 12.31.2016
   Adjusted EBIT	32,273

   NOTES

   GROUP MANAGEMENT REPORT

   Expenses due to company acquisitions	-1,199
   Internal integration expenses	-389
   Recognition of hidden reserves in inventories less reversal of an onerous contract	-823
   PPA amortization	-4,807
   Restructuring expenses	-851
   Financing expenses due to company acquisitions and tax back-payments	-890
   Current tax expenses	-858
   Deferred tax income	4,005
   Consolidated net income	19,572
   Earnings per share in € (basic)	1.65

   Adjustments

   Expenses due to company acquisitions	-1,199
   Internal integration expenses	-389
   Recognition of hidden reserves in inventories less reversal of an onerous contract	-823
   PPA amortization	-4,807
   Reorganization expenses	-851
   EBIT	24,204

   46 STRATEC Annual Report 2016

   Financial position

   Liquidity analysis

   The cash flow statement of the STRATEC Group presents the origin and utilization of the cash flows generated within the financial year. A distinction is made between the cash flow from operating activities and the cash flows from investing and financ- ing activities.The cash flow records the changes in individual line items in the income statement and the balance sheet.

   Overview of key figures in the consolidated cash flow statement (€ 000s)

   Furthermore, STRATEC also has credit lines of € 13.9 million, of which € 8.0 million had been drawn down.

   Investment and depreciation policies

   STRATEC invested € 10.0 million in 2016 (previous year: € 8.9 million). Investments in property, plant and equipment rose to

   € 7.2 million (previous year: € 5.4 million). Major investments in property, plant and equipment included the extension to the location in Beringen, Switzerland and the new building at the location in Cluj-Napoca, Romania.

   Investments corresponded to a total of 5.4 % of sales (previous year: 6.0 %) and thus significantly exceeded the depreciation and amortization of € 6.4 million adjusted for assets measured

   2016	2015	2014
   Cash flow from operating activities	16,256	26,033	39,752
   Cash flow from investing activities	-86,728	-8,710	-6,818
   Cash flow from financing activities	40,606	-8,661	-8,012
   Cash-effective change in cash and cash equivalents	-29,866	8,662	24,922

   in the context of the purchase price allocation. These invest- ments secure the company's long-term value and expansion,

   thus enabling it to continue making a valuable contribution as an innovation leader to technological advances in the field of

   medical technology.

   The cash flow from operating activities reduced com- pared with the previous year.This was chiefly due to non-cash deferred tax income, an increase in trade receivables, and a reduction in trade payables and other liabilities.

   The cash flow from investing activities amounted to

   € 86.7 million in total in 2016 (previous year: € 8.7 million) and was mainly attributable to payments made in connection with the acquisitions of the Diatron Group and STRATEC Consum- ables.

   The cash flow from financing activities totaled € 40.6 million in 2016 (previous year: € 8.7 million).This increase was due to the taking up of financial liabilities of € 67.6 million in connection with the company's acquisition activities (previous year: € 2.0 million). Outgoing payments included the dividend payment for the 2015 financial year, which increased once again to € 8.9 million (previous year: € 8.2 million), as well as outgoing payments of € 18.3 million for the repayment of financial lia- bilities (previous year: € 4.1 million). Furthermore, the issue of shares within employee option programs led to inflows of funds from financing activities amounting to € 0.3 million (previous year: € 1.7 million).

   The cash-effective change in cash and cash equivalents came to € -29.9 million in total in 2016 (previous year: € 8.7 million).

   Following adjustment for exchange rate movements, the total of all inflows and outflows of funds in 2016 led cash and cash equivalents at the end of the period to reduce by € 29.9 million to € 26.5 million (previous year: € 56.4 million).

   Definition		12.31. 2016	12.31. 2015	Change in %
   Cash and cash equivalents	Cash holdings and credit balances at banks	26,500	56,415	- 53.0
   Net working capital	Current assets ./. cash and cash equivalents ./. current debt	-14,773	33,065	-144.7
   Operating cash flow per share	Operating cash flow / number of shares (undiluted)	1.32	2.12	-37.8
   Capex ratio	Investments in property, plant and equipment ./. consolidated sales	3.9 %	3.7 %	+20 bps

   Key figures on financial position (€ 000s)

   47

   Asset position

   Total assets grew to € 258.0 million as of December 31, 2016 (previous year: € 158.9 million).This was due to the inclusion in the consolidated financial statements of the companies acquired in the 2016 financial year. As a result, intangible assets and prop- erty, plant and equipment rose by € 87.8 million and € 13.2 million.

   Structure of consolidated balance sheet: assets

   2016	2015	2014
   Intangible assets	118,776	30,992	30,262
   Non-current assets (excluding intangible assets)	33,266	19,800	17,477
   Current assets	105,925	108,147	90,009
   Consolidated total assets	257,967	158,939	137,748

   (€ 000s)

   Non-current debt rose year-on-year by € 10.1 million to € 20.1 million (previous year: € 10.0 million).This increase was mainly due to the recognition of deferred taxes on measurement differences arising upon the measurement of assets, order back- logs, and inventories in the context of the purchase price allocation, as well as to the recognition of pension provisions at a company acquired in the 2016 financial year.

   Current debt grew year-on-year by € 75.5 million to € 94.2 million (previous year: € 18.7 million). This resulted from the taking up of short-term bridge financing facilities in connection with the company acquisitions in the 2016 financial year, which led current financial liabilities to rise by € 69.9 million to € 73.7 million. Furthermore, the rise in this line item was also due to increases in trade payables by € 3.7 million and in other liabilities by € 3.3 million, with both developments mainly due to the inclusion in the consolidated financial statements of the compa- nies acquired in the 2016 financial year.

   The increase in non-current assets was mainly driven by the inclusion of the subsidiaries acquired in the 2016 financial year and by investments in new buildings at the locations in Romania and Switzerland.

   Key figures on asset position (€ 000s)

   2016	2015	2014
   Total assets	257,967	158,939	137,748
   Shareholders' equity	143,719	130,280	112,051
   Equity ratio in %	55.7	82.0	81.3
   Financial liabilities	76,729	8,144	9,117
   Financial liabilities as % of total assets	29.7	5.1	6.6
   Debt/equity ratio in %	79.5	22.0	22.09

   Alongside the change in cash and cash equivalents, material changes in current assets as of December 31, 2016 related in

   CONSOLIDATED FINANCIAL STATEMENTS

   particular to the increase in trade receivables by € 14.9 million to € 38.9 million and the increase in inventories by € 8.5 million to € 24.5 million.These increases were mainly due to the inclu- sion in the consolidated financial statements of the companies acquired in the 2016 financial year.

   GROUP MANAGEMENT REPORT

   Structure of consolidated balance sheet: shareholders' equity and debt (€ 000s)

   2016	2015	2014
   Shareholders' equity	143,719	130,280	112,051
   Non-current debt	20,051	9,992	10,109
   Current debt	94,197	18,667	15,588
   Consolidated total shareholders' equity and debt	257,967	158,939	137,748

   The shareholders' equity reported in the balance sheet came to € 143.7 million as of December 31, 2016 and thus grew year-on-year despite the dividend distribution of € 8.9 million (previous year: € 8.2 million). Due to the inclusion in the con- solidated financial statements of the companies acquired in the 2016 financial year, the equity ratio fell to 55.7 % (previous year:

   NOTES

   82.0 %) and thus remains at a solid level.

   48 STRATEC Annual Report 2016

   Non-financial performance indicators

   Employees and their interests

   STRATEC's sustainable success is driven by the performance of its highly qualified and motivated employees, who work in part- nership with global players, often market leaders, to develop innovative technologies and solutions that enable the company's partners to shape their markets with reliable, safe, and user- friendly products.

   Number of employees

   976

   This awareness that their internally developed solutions are contributing to further advances in global diagnostics is a further motivation for STRATEC's team.

   533

   546

   544

   583

   One of STRATEC's primary objectives is to provide its work- force, which has grown consistently in recent years, with a mod- ern and attractive working environment by offering new career challenges and ensuring professional dealings with colleagues

   and partners. This in turn should motivate employees to

   continue giving of their very best and help retain them at the company on a permanent basis.

   2012

   2013

   2014 2015 2016

   Number of employees

   STRATEC had a total of 976 employees at the balance sheet date on December 31, 2016.Year-on-year, the total number of employees therefore grew by 67.4 %. A large share of this in- crease is attributable to the acquisitions made in 2016. Organic workforce growth came to around 7 %.

   Upon the respective acquisitions, Diatron had 219 employees and STRATEC Consumables had 128 employees. As of December 31, 2016, Diatron had 226 employees and STRATEC Consumables had 128 employees.

   Fluctuations within the financial year were offset by deploying temporary employees.

   Development in employee total

   One of STRATEC's core activities and competencies involves developing complex technological systems that combine bio- chemical processes with highly integrated hardware and soft- ware. This is reflected, among other factors, in the fact that nearly 490 of our employees work in research and develop- ment. On an organic basis, the share of employees working in research and development therefore amounts to around 58 %. This share is expected to remain high in the years ahead as well. Given the interdisciplinary nature of this work, the employees in this area contribute both technical and scientific expertise.

   At the balance sheet date on December 31, 2016, the share of female employees at STRATEC amounted to 24.2 % and thus fell slightly compared with the previous year (December 31, 2015: 25.2 %).

   STRATEC offers its employees individual opportunities for further development and promotes a culture of employees working independently under their own responsibility. This is seen as the basis for the positive development in the workforce and for the high level of motivation shown by STRATEC employees.

   Personnel expenses amounted to € 53.9 million in the 2016 financial year.

   49

   Employees at balance sheet date

   Total employees

   Permanent employees

   Temporary employees

   Employees in Germany

   Employees abroad

   Trainees and interns

   Employees working in R&D and development support1

   976

   583 + 67.4 %

   880

   539 + 63.3 %

   96

   44 +118.2 %

   444

   408 + 8.8 %

   532

   175 +204,0 %

   27

   15 + 80,0 %

   488

   334 + 46.1 %

   Share of female employees

   24.2 %

   25.2 % -100 bps

   GROUP MANAGEMENT REPORT

   2016 2015

   Attractiveness as employer

   STRATEC is making every effort to position itself as an attrac- tive employer both for existing and for future employees. One key task for human resources therefore involves offering exist- ing and future specialists an interesting and attractive working environment at STRATEC. We act early to present STRATEC as an attractive employer to young people by taking part in careers' fairs in order to raise awareness of the wide variety of activities on offer at the company and also offer work place- ments and student internships.

   The cooperation with Pforzheim University, where STRATEC on the one hand partly finances an endowed professorship in the field of 'Quality Management and Regulatory Affairs' in medical technology and on the other hand acts as a sponsor to Rennschmiede Pforzheim e.V., also helps raise awareness of STRATEC and its development-related topics among many students at an early stage.

   Occupational health and safety

   NOTES

   STRATEC safeguards the safety of its employees at their respec- tive workplaces with a forward-looking occupational health and safety program.The aim here is to offer a working environment that is free of the risk of injury or disease. A safety officer is responsible for implementing measures aimed at guaranteeing occupational health and safety. All locations have first aid and evacuation assistants who are provided with regular training. A fire protection officer has also been appointed and trained. Work-related accidents are recorded and accident log entries documented to enable suitable measures to be taken.

   Profit participation

   In the 2015 financial year already, STRATEC offered its employ- ees the opportunity to participate in the company's success by way of an employee participation program. Employees can choose between receiving a cash payment and procuring STRATEC shares, a measure partly exempt from tax and social security contributions. A total of 293 employees, and thus around 95 % of those eligible to participate at the time, decided to procure shares and seize the opportunity to invest in STRATEC AG.The possession of shares enables employees to participate in the company's success and further increases their loyalty to STRATEC.

   Within this employee participation program, a further assign- ment of STRATEC shares to the 291 employees now eligible was executed in the 2016 financial year. Furthermore, those employees who had not sold the shares received in 2015 by a certain date in 2016 were rewarded with bonus shares. Ultimately, 99 % of the employees entitled to participate received bonus shares.

   In the 2016 financial year, the company assigned a total of 3,189 treasury stock shares, corresponding to 0.03 % of its share capital at the assignment date, to STRATEC employees in connection with the employee participation program.

   CONSOLIDATED FINANCIAL STATEMENTS

   1 The number of employees allocable to R&D has changed compared with the previous year.This is due to an organizational reclassification under which employees who spend a majority of their time with development activities are allocated to this field.

   50 STRATEC Annual Report 2016

   Quality management

   The quality of the products designed and manufactured by STRATEC forms the basis for the success both of the company and of its partners.

   STRATEC is committed to permanently improving the quality of its processes and services. Most of its products are subject not only to the strict requirements of the German Medical Products Act, but also to numerous national and international regulations that have to be complied with when entering the respective markets.

   To satisfy these requirements, STRATEC has established a high-performance, certified quality management system. This accounts for the increasingly strict regulatory requirements in international markets and the ever more extensive number of requirements on national level. At the same time, it is the pre- requisite for ensuring consistently high product quality.

   Among others, the tasks performed by the Quality Manage- ment and Regulatory Affairs department include ensuring that the products comply with all necessary regulatory requirements for medical products, supplier evaluation and qualification, and continuously improving the quality management system.

   Quality management is based on STRATEC's Quality Policy

   Comprehensibly defined processes throughout the entire value chain - from the first development steps through to serial pro- duction - play a crucial role in safeguarding the company's sus- tainable success in the market.These processes are a means to meet the requirements both of customers and of the regulato- ry authorities.The process model is divided into core processes, which are in turn subdivided into sub-processes. All defined processes are checked by 'process owners' - employees who are responsible for implementing the processes laid down in the relevant descriptions. One advantage of this process-oriented approach is the permanent control it makes possible via the interconnections between individual processes in the process model and their combination and interaction.

   The allocation of key figures, such as the 'first pass yield' or the shipment error quota, enables processes to be measured and serves as a basis for permanently enhancing the system. At the same time, a flexible quality management system facilitates compliance with necessary international requirements and enables new markets to be rapidly and efficiently accessed together with STRATEC's OEM partners.

   STRATEC's complaint handling system supports the service and vigilance process and partners' risk management with cross- departmental error analyses and risk assessments. Furthermore, the company actively involves its partners in the relevant control steps within the change process.

   The Quality Management and Regulatory Affairs department is in close contact with STRATEC's partners and also supports these in submitting, monitoring, and checking worldwide prod- uct approvals and communicating with international authorities. On the product side, quality management is responsible for determining statistics and performing trend analyses to identify sources of errors and take preventive measures.

   The design and manufacture of an analyzer system also involves regular audits by customers, the authorities, certification bodies and internal company departments at our development and production locations.These are prepared and accompanied by our quality management team.

   STRATEC is committed to and certified under the following standards:

   • EN ISO 9001

   • EN ISO 13485

   • ISO 13485 with SCC accreditation (Canada)

   • TCP / Taiwan GMP

   • FDA QSR compliant development and manufacturing processes

   • FDA registered establishment

   • CSA/UL/NEMKO registered

   Consistent with the motto 'one world - one company - one quality', STRATEC has set itself the target of largely harmonizing its quality management system. Due account will be taken of the specific needs of individual locations resulting from their different focuses (product types, development, production, etc.). STRATEC employees at the various locations are forming teams of experts for individual specialisms in order to promote the sharing of information within the company, to support one another with their skills and experience, and to ensure that their actions are coordinated.

   51

   Quality management

   Customer satisfaction

   STRATEC offers outstanding products and services that meet or exceed its partners' and customers' expectations. Maxi- mum possible customer satisfaction is the foundation for our success.

   Quality management

   STRATEC has undertaken to establish a quality management system, to permanently enhance this, and to meet the targets laid down in its quality policy.

   Traceability

   Safeguarding the traceability of products along the entire value chain is one of our key success factors.

   Meeting regulatory requirements

   GROUP MANAGEMENT REPORT

   STRATEC designs, manufactures, and supplies its products in compli- ance with regional and international legislation and is committed to complying with industry standards and proven practice.

   Transparency

   CONSOLIDATED FINANCIAL STATEMENTS

   Innovation and peak performance

   STRATEC is open and transparent. This promotes the mutual trust between our employees, business partners, and investors.

   All activities from product devel- opment, via production and control through to quality and service are subject to permanent innovation at the cutting edge of technology.

   Commitment to employees

   Continuous improvement

   STRATEC's success is crucially driven by the commitment, motivation, and skills of its employees.They are promoted and trained to enable them to permanently improve their work under their own responsibility and thus to meet our quality targets.

   NOTES

   STRATEC's aim is to manufacture top-quality products by making continuous improvements. From suppliers to employees, everyone involved is responsible for achieving a zero-error rate.

   52 STRATEC Annual Report 2016

   Sustainability

   Ever since STRATEC was founded, a responsible mindset and sustainable actions have formed the basis for the company's growth from a small startup into a player with global operations. This way, STRATEC has developed into a responsible partner to global market leaders. Today, we are already thinking about the implications of our actions for future generations.

   Sustainability represents an important and ever growing aspect of the responsibility that is gradually being factored into the company's strategy and adapted in line with changing market and environmental conditions. The company's entrepreneurial activity is based on three dimensions that form the core elements of sustainability at STRATEC:

   Economic operations for long-term growth Ecological responsibility for tomorrow's world Social responsibility towards people

   • Economic operations

     Economic operations are viewed as a prerequisite for the company's long-term growth. Our strategic objective is to generate growth that is sustainable, ecological, socially responsible, and permanently higher than the sector average. As an innovation leader, we aim in parallel to make a valuable contribution towards further technological advances in various segments of the life sciences and diagnostics markets.

   • Ecological responsibility

   STRATEC has implemented extensive measures to do justice to its ecological responsibility. STRATEC performs its business activities in compliance with the latest environmen- tal legislation, local regulations, and recommended guidelines.

   The economical use of resources is implemented in all relevant processes at the company - from forward-looking resource-efficient product design through to environmentally- friendly waste disposal. STRATEC's objective here is to detect potential savings and to make these measurable by reference to defined key figures.To this end, a first energy audit was held in 2015. Consistent with legal requirements, this type of audit will in future be performed no later than every four years.

   Detailed information about our energy consumption figures, emissions, and materials and energy use statistics for our locations can be found in our Sustainability Report.

   • Social responsibility

   STRATEC's success is driven by the individual skills, creativity, and outstanding willingness of its employees to give of their best. It is their achievements and the resultant innovations that form the basis for the company's successful and sustainable development. As a group of companies with operations worldwide and nearly 1,000 employees, STRATEC is aware of its social and ecological responsibilities.

   STRATEC is committed to the protection of human rights. It provides its employees throughout the group of companies with a high degree of social security and performance-based compensation.

   The company views personal and cultural diversity as a great opportunity and competitive advantage. STRATEC's position concerning human rights and employee rights

   is laid down in policies that have group-wide validity. The Corporate Compliance Policy obliges all employees worldwide to act respectfully and lawfully in their dealings with employees, colleagues, business partners, customers, and the authorities. All employees are treated equally and benefit from the same career opportunities irrespective of their gender, age, origin, nationality, skin color, religious affiliation, marital status, health, sexual identity, or of any physical or mental disability. STRATEC does not tolerate discrimination or harassment of any kind. STRATEC is committed to the Human Rights Charter of the United Nations and to the guidelines of the UN Global Compact.

   As one component of its social responsibility, STRATEC promotes the health of its employees and supports them in performing voluntary work.

   'Offering help where it is needed' - consistent with this motto, providing support to regional and international aid projects is a matter close to STRATEC's heart. We see this as offering an ideal opportunity to make a contribution towards protecting and promoting human rights and to improving people's living conditions in developing econo- mies. In the year under report, we provided financial assistance to the organizations Médecins sans Frontières (MSF), Plan International e.V. and Erde der Kinder e.V., as well as to an aid project in Sierra Leone with a charity run by STRATEC employees.

   Extensive details about STRATEC's social activities can be found in the Sustainability Report available on the company's website. Furthermore, this report includes information about the com- pany's supply chain management and environmental protection, as well as facts and figures relating to its energy and water consumptions, its waste volumes and its CO2 emissions.

   53

   Location optimization

   STRATEC is currently represented with its solutions and quali- fied contact partners at ten locations on three continents. To do justice to the rising standards resulting from the company's further growth and to be able to offer its customers the entire value chain within a smooth process organization structure, the company implemented further optimization measures in 2016 as well.

   The acquisition of Diatron and STRATEC Consumables led to the addition of two new locations in the US. STRATEC's activ- ities in the US have now been pooled at two locations on the East Coast. With the Diatron location in Budapest, STRATEC now also has additional production capacities, particularly for manufacturing smaller-scale systems and modules. STRATEC has planned further medium-term growth here as well and to this end needs to obtain suitable space and put the necessary organizational prerequisites and structures into place.

   GROUP MANAGEMENT REPORT

   At the Swiss location in Beringen, work began in 2015 on a multistage extension to the existing building. The first stage of this extension was completed and moved into in the first quar- ter of 2016. Now that the entire extension is complete, an additional total of 3,900 m² of production surface is available. This should guarantee the efficiency-enhancing production of various appliance lines.

   In Cluj-Napoca, Romania, work began in 2015 on the construc- tion of a new development center. The new premises were occupied in the second half of 2016. The new building will enable STRATEC to further expand software development at this location in future as well.

   CONSOLIDATED FINANCIAL STATEMENTS

   Conversion and extension measures are also planned in the medium term at STRATEC's corporate headquarters in Birken- feld, thus enabling the company to generate further growth at this location as well.

   Supply chain

   Even though STRATEC covers almost 100 % of the develop- ment chain, when it comes to production at its Birkenfeld and Beringen locations the company's supply chain continues to be characterized by a low degree of vertical integration. STRATEC thus channels its resources into the complex share of pro- duction generating the greatest value. By contrast, production facilities with a significantly higher degree of vertical integration are available at the Budapest location.

   NOTES

   Our integrated procurement management enables us to pro- cure the necessary functional modules and individual compo- nents from a small number of strategic suppliers distinguished by their quality management systems and a process orientation compatible with STRATEC's. This enables us to focus on the necessary expertise at suppliers. Involving these suppliers at an early stage of product development provides us with market access to the latest production methods and processes. By working with long-term master agreements within the STRATEC Group, we are able to secure price reliability and

   supply capacities. Here, we make use of strategic instruments, such as Kanban supply, C-parts management, and consignment stores. This approach assists STRATEC in its ongoing develop- ment and provides it with the flexibility necessary to offer innovative solutions on economic terms. We aim to intensify and refine this approach in 2017 as well.The necessary assem- bly, quality assurance and inspection processes are performed by highly qualified and excellently trained employees. In our laboratories, we replicate the environments in which the STRATEC analyzer systems will actually be put to use at later dates. In response to the company's focus on production processes that are complex and necessary from a regulatory perspective, we have developed an infrastructure suitable to these requirements.

   This approach enables us to achieve an optimal balance be- tween economic efficiency and high quality, while at the same time ensuring supply reliability to our customers.The companies in the STRATEC Group in many cases forward the analyzer systems they produce directly to the logistics distribution centers of large diagnostics companies, which in turn market the systems together with the relevant reagents as system solutions under their own names and brands. Given that the customers of the STRATEC Group supply their own country outlets and customers on a large scale directly from these distribution centers, the regional sales as reported in the figures of the STRATEC Group do not reflect the actual geographical distri- bution or the final operating locations of the analyzer systems manufactured by the STRATEC Group.

   Production

   The production of STRATEC's products is governed by espe- cially strict quality requirements, compliance with which is reg- ularly audited by internal specialists, our customers, and external authorities. Analyzer systems are produced to the highest stan- dards at the locations in Beringen, Birkenfeld, and Budapest.The aim here is to work as efficiently as possible and continually enhance processes. To this end, production activities at the Birkenfeld location were reorganized in 2015. Production- capacities at the Swiss location were extended in the financial year under report. Processes at the Budapest location are being adjusted and optimized as appropriate.

   Given its high quality standards, STRATEC has deliberately decided to base its production in Germany, Switzerland, and Hungary and also sees this as the basis for the company's ability to comply with all necessary regulations and standards.

   54 STRATEC Annual Report 2016

2. OUTLOOK

   Since the company was founded in 1979, STRATEC has always accorded great priority to generating sustainable organic growth. 2016 was an exceptional year in this respect, as the company's product portfolio, sales and number of employees all grew sharply due to the acquisition of two companies. Not least on account of this factor, targeted investments were made to integrate these companies. Further such investments have been budgeted for the years ahead in connection with restruc- turing and reorganizing the business units. The introduction of an ERP system is also to be viewed in this context. This will initially be launched at the new locations and subsequently on a group-wide basis. Investments in property, plant and equip- ment will be made in 2017 at the Budapest location, among others, in order to extend capacities and thus facilitate further growth. The acquisition of a neighboring piece of land at the Birkenfeld location at the beginning of 2017 has secured the possibility of expanding further.The relevant project is current- ly still in the planning stage. No material investments are planned in this respect for 2017. Investments at the Group's other loca- tions are expected to approximate to the previous year's figures.

   Given the increase in development activities, investments in de- velopment projects are expected to rise.A dividend distribution of around € 9.1 million to the shareholders of STRATEC AG is envisaged.

   STRATEC will continue to review various options for supple- menting its business activities and technology portfolio, but will be focusing in particular on implementing its strategic objectives by drawing on its outstanding position as an established provid- er in various growth markets and thus generating further or- ganic growth in all its business units. Here, the company will be relying on innovative solutions enabling its partners to serve their markets with high-quality products. In implementing these objectives, the company stands to benefit not only from the growth forecast in its target markets, and especially in the field of in-vitro diagnostics, but also from the ongoing positive trend towards outsourcing at its partners and potential customers.

   Given its business model, which involves long-term cooperation with its partners, STRATEC is positive in its assessment of its business prospects. Macroeconomic developments in individual regions are currently difficult to forecast. Particularly in several Asian sub-markets, positive economic developments are being overshadowed to a certain extent by economy policy measures. It is currently difficult to predict the implications of the announced amendments to the Affordable Care Act ('Obamacare') for the US diagnostics industry in particular. STRATEC's management nevertheless does not expect this factor to have any material implications for the company's business performance in the short term.

   For the 2017 financial year, STRATEC still expects to generate sales of between € 205 million and € 220 million. As the adjust- ed EBIT margin achieve in 2016 was at the upper end of the expected range, the EBIT margin adjusted to exclude transac- tion and integration-related activities is expected to remain broadly unchanged in 2017.

   Overall, the average annual sales growth of 6 % forecast for the 2016 and 2017 financial years, excluding the acquisitions made in 2016, is expected to be achieved by the end of the 2017 financial year.

   Further employees are to be hired, particularly in the develop- ment division. Compared with previous years, the total number of employees is only expected to rise slightly in the 2017 financial year.

   STRATEC's financial 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 nego- tiation. This forecast does not account for additional opportu- nities resulting from external growth. Given the long-term na- ture of its business relationships, macroeconomic developments are of subordinate significance for STRATEC. The macro- economic factor is therefore weighted less prominently in the company's forecasts.

   55

   GROUP MANAGEMENT REPORT

3. OPPORTUNITIES AND RISKS

   Sustainable company growth is based not least on responsible company management that achieves a suitable balance of opportunities and risks. At STRATEC, these factors are there- fore regularly assessed and continually monitored within an opportunity and risk management system.

   As the business models of the individual segments, which focus almost exclusively on the OEM business, are highly similar and the resultant opportunities and risks are largely identical or even overlap, no distinction has been made between the individual business divisions in the following presentation of opportunities and risks.

   Opportunities

   Market growth

   At present, the products offered by or in development at STRATEC are largely used in in-vitro diagnostics (IVD). A not insignificant share of products is also deployed in research laboratories in the life science sector. Within the IVD sector, which is expected to show annual growth of around 5 %1 through to 2020, there are some segments that are forecast to generate growth above the sector average in the years ahead. STRATEC has focused on some of these segments with its development projects.The IVD segments of molecular diagnos- tics and immunoassays are particularly noteworthy in this respect.

   Furthermore, in the medium term geopolitical, infrastructure and demographic developments should also help ensure that ever more people around the world have access to a greater number of diagnostics tests. The resultant ongoing rise in the numbers of tests performed should generate sustainable growth in the IVD market.

   Technological opportunities

   In-vitro diagnostics is a market that is highly dependent on the financing provided to healthcare systems. Approval by the au- thorities and financing commitments from health insurance companies or bodies is therefore a highly complex process. As a general rule, technological advances or entirely new applica- tions can therefore not be introduced at short notice. In view of this, STRATEC is largely relying on the further development of proven technologies and process enhancements. Having said this, STRATEC nevertheless also cooperates and conducts its own research in the field of new technologies. Together with partners, various development projects are currently underway that are thought to have the potential to sustainably influence their target markets due to new areas of application or techno- logical advances.

   More specifically, STRATEC is also pursuing point-of-care projects. In this field, STRATEC is benefiting from the trend towards smaller systems working with complex consumables.

   In the years ahead, STRATEC's customers will be launching several new products onto the market that should provide a foundation for the future growth of the STRATEC Group.

   Growth opportunities due to outsourcing Demand for instrumentation solutions is still on the increase, a development due not least to the fact that many diagnostics companies are increasingly focusing on developing their reagents and thus do not or no longer view instrument development as forming part of their core businesses. Outside the diagnostics industry, there are also areas where similarly specific product 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 oppor- tunities of participating in these positive developments, and in particular from the trend towards outsourcing.The emergence of new areas of research that move over time from pure research to diagnostics processes and pharmaceuticals products will further increase demand for laboratory auto- mation solutions.

   NOTES

   CONSOLIDATED FINANCIAL STATEMENTS

   1 Allied Market Research / IVD Market

   56 STRATEC Annual Report 2016

   Consolidation

   The increasing consolidation within the IVD market presents STRATEC with the opportunity to generate higher sales figures with established systems due to its established partners gaining greater market access. In recent years, various diagnostics groups have been seen to enter cooperations or take over competitors in order to offer their customers broader product portfolios or enter new markets. This enables STRATEC's systems to be sold to a broader customer base. At the same time, consolidation nevertheless also involves the risk that the merger of customer product portfolios may result in the discontinuation by customers of individual product series.

   Increasing market regulation

   Increasing regulation of the IVD market is creating ever greater demand for standardized automation solutions. Standards in terms of the precision and reliability of IVD tests have been rising for years now and automated solutions offer clear bene- fits in this respect when compared with manual processes. As a company that operates in highly regulated markets, such as instrumentation and automation and the development and pro- duction of consumables for in-vitro diagnostics, STRATEC requires extensive expertise to meet the requirements and regulations in force in individual countries. Not only that, 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 cali- bration. 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 current- ly only achieved by a small number of in most cases highly specialized companies. As a result, the number of service providers able to cover all areas of the value chain from devel- opment through to serial production is very limited. With its broad technology pool, STRATEC is one of the few companies able to do justice to these requirements. The increasing complexity of instrumentation makes it necessary for com- panies to permanently develop further and research new tech- nologies. On the other hand, it also acts as an ever higher barrier to market entry.

   Risks

   Given its business model, which is based on very long periods of cooperation with customers, STRATEC is exposed to some risk factors to a notably lesser extent than is customary at many other companies that are dependent on macroeconomic cycles, or on technological and demand trends. As a general rule, cus- tomers' long-term planning for the development of an analyzer system is dependent on their market presence and the lifecycles of existing products, but not on macroeconomic cycles and economic crises.The period required for planning, specification and development range from around three to five years, while the lifecycle of a system launched onto the market lasts some 15 to 20 years. A further five to eight years often pass before the final support and service activities are discontinued. The total project lifecycle thus often amounts to more than 25 years.

   The company is nevertheless exposed to risks in connection with its operating business, the environment in which it oper- ates, and its customer relationships. STRATEC evaluates these risks by reference to their estimated probability of occurrence and their potential implications for the company's earnings, assets, financial position, and reputation.

   The evaluation of the probability of the risks occurring is based on the following criteria:

   Assessment of probability of occurrence

   0 % - 25 % Very unlikely

   25 % - 50 % Unlikely

   50 % - 75 % Likely

   75 % - 100 % Very likely

   The evaluation of the potential financial implications is based on the following criteria:

   Estimated damages in event of risk materializing

   Degree of implication Definition of damages

   Low € 0 million - € 0.7 million

   Medium € 0.7 million - € 7 million

   High € 7 million - € 20 million

   Very high > € 20 million

   57

   Overview of risks and their implications

   Probability of occurrence

   Potential implications

   short-term (up to 1 year) medium-term (1-3 years)

   Key customer project loss risks Very unlikely Medium Very high

   Project risks Very unlikely Medium Medium

   Production risks Very unlikely Medium Low

   Patent infringement risks Very unlikely Medium Medium

   Supplier risks Unlikely Medium Low

   Competitive risks Unlikely Low Medium

   Currency risks Likely Medium Medium

   Liquidity risks Unlikely Medium Medium

   Product liability risks Very unlikely Medium High

   CONSOLIDATED FINANCIAL STATEMENTS

   GROUP MANAGEMENT REPORT

   Personnel risks Unlikely Medium Medium

   Individual risks are addressed in detail in the following section:

   Dependency on key customers / risk of key customer project loss

   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 only applies to a limited number of potential partners, a factor that can result in a high degree of dependency in some cases.The resultant concentration of sales on a limited number of key customers and projects (key customer risk) may - in in the event of volatilities in sales of analyzer systems resulting, for example, from macroeconomic weakness - lead to fluctuations in STRATEC's performance.The termination of one or several projects 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 minimize any 'cluster risks'.

   Project risks

   NOTES

   STRATEC generates a major share of its sales with develop- ment projects that may be influenced by numerous factors. Although negative implications resulting from potential damag- es are already accounted for and secured when structuring the respective project contracts, certain risks cannot always be excluded. STRATEC is thus exposed to the risk of a partner cancelling a project once it has started and thus losing the planned short and medium-term sales. Furthermore, project delays may arise that lead, among other consequences, to a postponement in sales. Moreover, it is important for STRATEC to make sure that the costs of a project remain within the stipulated budget. In general, both STRATEC and the respective

   customer have a great interest in the project succeeding and as a general rule therefore allocate the resources necessary for a development project to succeed. Finally, active project manage- ment by experienced project managers also helps to minimize project risks.

   Production risks

   STRATEC is exposed to production risks in connection with its production of analyzer systems at its production sites in Germany, Switzerland, and Hungary. Above all, these risks relate to factors that could potentially lead to temporary downtime or delays in production, such as a loss of personnel, damage to production equipment or infrastructure due to external factors, or a lack of production material resulting from supply bottle- necks. Certain risks are mitigated by emergency plans, which provide for stocking measures or the relocation of production activities to other sites.

   Patent infringement risks

   The STRATEC Group draws on internal and external super- vision 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.

   58 STRATEC Annual Report 2016

   Supplier risks

   The STRATEC Group has reacted to the increase in develop- ment 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 super- vising logistics activities, such as securing 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 neverthe- less 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.

   Competitive risks

   Broadly speaking, STRATEC's competitors can currently be limited to two groups. On the one hand, there are internal development groups maintained by the diagnostics companies themselves. For a variety of reasons, many diagnostics compa- nies have moved in recent years to outsource these develop- ment 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 the company. On the other hand, STRATEC's com- petitors 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 and arduous. The number of competitors is therefore still compar- atively low. As far as STRATEC is aware, the company has gained, rather than lost market share in recent years.

   Foreign currency risks

   In recent years, STRATEC has concluded an increasing number of development and supply contracts in US dollars. Given the positive development in the USD exchange rate, only a very low share of USD transactions has been hedged. The hedging ratio at STRATEC AG is nevertheless set to rise to account for increasing volatility and uncertainty as to future developments in the currency markets. Sales in currencies other than the US dollar and euro only play a subordinate role. The company's sales in currencies other than the US dollar and the euro only play a subordinate role.

   Liquidity risks

   STRATEC's liquidity risks are centrally monitored by the Finance department. The liquidity position is managed with a liquidity planning tool to ensure the company's ability to meet its obligations and its financial flexibility. Given STRATEC's current financial position, the risk of any liquidity default is assessed as low.

   Product liability risks

   STRATEC's analyzer systems are deployed in highly regulated markets. Erroneous diagnoses could have drastic implications for the individuals affected. Before any system is put to use in a laboratory, various tests and validation phases take place to ensure that strict process and safety requirements are fully met. These are supplemented by several levels of process monitor- ing during the sample handling process, such as technical, chemistry-inherent, or software-based supervisory mechanisms. In practice, suppliers and manufacturers of diagnostics products are nevertheless 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 liabil- ity 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.

   Personnel risks

   At STRATEC, personnel risks relate in particular to the attrac- tion and retention of well-qualified specialist and management staff.The company's success is determined to a significant extent by its employees' competence, motivation, and willingness to perform. STRATEC aims to offer its employees an attractive and highly varied working environment and to actively promote their further development.

   Demand for qualified personnel remains high, especially in tech- nical fields. In attracting staff, STRATEC has to compete with other regional and international companies. The company counters this risk by upholding and extending its image as an attractive employer and by establishing contacts with young specialists at an early stage, for example at careers fairs.

   59

   Other risks

   The managers responsible for the early warning risk identifi- cation system have identified the following points as potential challenges which should be averted to avoid risks materializing:

   • Use of suitable IT tools to integrate customer information from the market and other IT systems

   • Implications resulting from displacement of market shares of current and potential STRATEC customers

   • Risk that customers will not be able to place the expected numbers of units on the market and that this may result in potential write-downs of capitalized development expenses

   • Postponement of market launches by STRATEC customers in various geographical markets

   • Supply capacity risks for components relevant for regulatory approval or for highly complex proprietary components.

     Overall assessment of risk situation at the STRATEC Group

     The risk management system and ongoing reporting mean that STRATEC's Board of Management has an overview of risks consistent with the respective areas and their relevance to the business. These risks have not changed materially compared with the previous year.

     Based on the overall assessment of risks, the Board of Manage- ment currently cannot discern any risks that could threaten the company's ongoing existence or have any materially negative impact on its asset, financial, or earnings position.

     GROUP MANAGEMENT REPORT

     Risk management system

     RISK MANAGEMENT SYSTEM

     CONSOLIDATED FINANCIAL STATEMENTS

     INTERNAL CONTROL SYSTEM

     CORPORATE COMPLIANCE

     EARLY WARNING RISK IDENTIFICATION

     STRATEC has established an internal control system to protect the company's assets and informa- tion and to ensure compliance with the relevant legal requirements and the company's business policy.

     The internal control system is based on:

     • Internal guidelines

     • Relevant legislation

   STRATEC has pooled its group- wide codes of conduct, ethical principles, and other guidelines in its Corporate Compliance Policy.

   This is binding for all employees and is regularly supplemented by updated risk analyses.

   This policy is based on:

   • Relevant legislation

   • Norms

   • Internal instructions

     An early warning risk identifica- tion system is established in the risk management system at the STRATEC Group.This has been implemented in a risk handbook enabling potential areas of risk to be assessed. It serves to analyze and assess risks at the company and in its environment.

     Consistent with § 91 (2) AktG, the system in place at the STRATEC Group offers an

     all-round instrument for monitor- ing elementary processes and identifying potential risks at an early stage.

   • Stock Corporation Act

   • Risk handbook

     NOTES

   • Internal instructions

   60 STRATEC Annual Report 2016

   Internal control system

   STRATEC has an internal control system (IKS) which contains audit processes also in respect of its (group) financial reporting process, lays down suitable structures and processes, and is im- plemented within the company's organizational structures.The objective of the IKS system is to detect and, as far as possible, exclude any risk of errors and damages resulting from the com- pany's own personnel or from criminal third parties. In general, the IKS encompasses the following measures:

   • Execution of internal and external audits on the basis of checklists

   • Detection of regulatory omissions and infringements based on a structured, risk-oriented approach

   • Compiling of audit reports to the Board of Management

   • Auditing the implementation of corrective measures.

     This sustainably secures and increases the efficiency of the com- pany's operating processes. Furthermore, it also enhances awareness of control-related topics at the company.

     Internal control system and risk management system in respect of the group financial reporting process

     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:

   • Regular checks integrated into, but independent of processes, such as the segregation of duties, compliance with the dual control principle, and the implementation of access restrictions and payment guidelines

   • Ensuring uniform accounting treatment by way of group-wide standards

   • Inspection and analysis of local financial statements.

     STRATEC's internal control system is also responsible for en- suring that individual companies within the STRATEC Group prepare their financial statements in accordance with the rele- vant requirements, while also complying with group-wide stan- dards. 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 the compa- nies with any complex questions thereby arising. The consoli- dated 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.

     Corporate compliance

     STRATEC's understanding of compliance and its ethical princi- ples are set out in its Corporate Compliance Policy, which requires application throughout the Group.This policy is binding for all employees and is updated at set intervals to account for the regularly updated risk analysis.At STRATEC, an understand- ing of corporate compliance is viewed as a key cornerstone of day-to-day business operations both within the company and in its external dealings. In this respect, compliance with a variety of legal systems and statutory regulations is just as important as compliance with ethical principles.

     These guidelines have been communicated in training sessions to all employees, managers and members of the Board of Management.

     An awareness and understanding of the applicable require- ments is the only way to ensure overall compliance by all of the persons involved and only this way can the company ensure that its international business dealings are compliant with the necessary standards.

     To enhance the group-wide compliance culture, STRATEC's compliance activities were provided with a new and uniform design scheme in the 2016 financial year and newly rolled out with group-wide compliance training sessions held at all subsidiaries.

     Regular training sessions are held for new employees in order to familiarize them with our understanding of compliance.

     61

     Core elements of STRATEC's Corporate Compliance Policy include:

     • Preventing corruption, i.e. upholding the integrity necessary in business dealings, and in particular the prohibition of any illegitimate exercising of influence

     • Regular training of employees and information material on the intranet and bulletin boards

     • Compliance with all requirements set by law and the respective authorities

     • The obligation to ensure fair, respectful working conditions at the company

     • The avoidance of conflicts of interest

     • Compliance with the requirements of capital market and antitrust law

     • Compliance with all internal requirements and instructions.

   STRATEC's compliance system is subject to permanent en- hancement and optimization and forms an integral component of the STRATEC Group.This enables STRATEC's management teams to detect specific risks, avoid risks by analyzing situations and developing suitable strategies, comply with operational imperatives, and take any necessary measures.These processes are supplemented by regular meetings between managers and the relevant compliance officer.These one-to-one talks enable potential conflicts or questionable matters to be identified and clarified at an early stage.The compliance officer reports directly to the Board of Management.The Board of Management meets its reporting obligations towards the Supervisory Board.

   STRATEC expects all its employees to adhere to its compliance requirements and thus ensure that all decisions and actions taken in their areas of responsibility are consistent with the relevant legal requirements and the Corporate Compliance Policy and also serve the company's best interests.

   Early warning risk identification system

   NOTES

   The early warning risk identification system in place at STRATEC is consistent with the legal requirements set out in § 91 (2) of the German Stock Corporation Act (AktG). The main risk categories thereby analyzed are general operating risks, market risks, and project risks.These include, for example, risks in con- nection with investments, logistics risks, IT risks, personnel risks, financial risks, sales market risks, and legal risks. The managers responsible for risks compile reports on their respective areas of responsibility at fixed intervals.These are qualified and quan- tified on the basis of a systematic approach. The resultant reports are assessed by a Risk Committee comprising members of an operating division and of the Finance department, and then summarized and submitted in a risk report to the Board of Management, which in turn reviews and evaluates the risks reported. Exceptional developments require immediate 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.The risk handbook is intended to provide an adequate framework that enables users to imple- ment the steps and measures necessary to meet internal and legal requirements.

   This enables any risks to the company's continued existence to be identified at an early stage and the conceivable consequenc- es of such risks, including those arising over time, to be viewed and assessed alongside any change in their probability of occur- rence. Risk analysis and reporting also account for the individu- al companies within the STRATEC Group, as well as for any interdependencies between group companies.To manage risks, the company generally deploys the following measures:

   • Increased allocation of resources

   • Shorter monitoring intervals

   • Increased management attention

   • Agreement of measures to eliminate risks.

   CONSOLIDATED FINANCIAL STATEMENTS

   GROUP MANAGEMENT REPORT

   The risk management system at STRATEC AG is safeguarded by integrating the shareholdings into the Group's risk manage- ment system. Alongside structured reporting and the collection of key financial figures at weekly, monthly and quarterly inter- vals, the development, production, marketing and sales depart- ments are also required to immediately report any material events.

   62 STRATEC Annual Report 2016

   Risk report in respect of use of financial instruments

   STRATEC's 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 by the cash flows gener- ated from its operating activities and by bank loans.

   The principal objectives of the STRATEC Group's financial man- agement 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. Furthermore, STRATEC has a dividend policy that is based on continuity and the Group's long-term, sustainable business performance, with a distribution quota of 40 % to 60 % of consolidated net income. At the same time, STRATEC will con- tinue to focus on exploiting external and internal growth opportunities, which may also involve temporarily deviating from this quota. In our financial and investment policy, we are currently mainly focusing on repaying financial liabilities and on short-term money market investments.

   Financial risks basically arise from currency and interest rate fluctuations. As mentioned above (please see Section D 'Risks - Foreign currency risks'), currency risks in procurement and sales markets are increasing within the STRATEC Group. To counter this risk, the Group is making targeted use of deriv- ative hedging instruments. The managers responsible for cash management review the expediency of currency hedging trans- actions 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. 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 opti- mize 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 inter- est rate derivatives in the 2016 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:

   • Primary financial instruments, such as trade receivables or payables, or financial receivables and liabilities

   • Derivative financial instruments not involving a hedging relationship with a hedged item

   • Derivative financial instruments, such as hedges used

   to hedge risks resulting from movements in exchange or interest rates.

   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 significant 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.

   No hedging transactions were concluded in the 2016 financial year.

   Further details can be found in Sections G. 'Financial instru- ments' and H. 'Risk management' in the notes to the consoli- dated financial statements.

   63

   GROUP MANAGEMENT REPORT

4. COMPENSATION REPORT

   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

5. No. 6a) Sentences 5 to 8 and No. 6b), as well as on § 315

6. No. 4 of the German Commercial Code (HGB).

7. Basic features of the compensation system for the Board of Management

   CONSOLIDATED FINANCIAL STATEMENTS

   The Supervisory Board lays down the compensation of individ- ual members of the Board of Management, as well as determin- ing and regularly reviewing the compensation system. In deter- mining 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 devel- opment of STRATEC AG. In performing its regular review of the contractual terms set out in employment contracts and the compensation structure, by resolution dated December 9, 2016 the Supervisory Board amended the compensation system for the Board of Management with regard to the calculation of the 'short-term incentive' and the 'mid-term incentive'. The com- pensation system for the Board of Management, which still cor- responds to the system approved by a majority of shareholders at the Annual General Meeting on June 6, 2013, comprises fixed compensation for each financial year, variable compensation for each financial year, variable compensation based on the financial year and the two following years, and long-term share-based compensation.

   Fixed compensation for each financial year This component comprises a basic amount paid out as a monthly salary, as well as ancillary benefits, such as the use of a suitable car, insurance benefits, and individual contractual arrangements concerning retirement, invalidity and surviving dependant pensions. Furthermore, the private use of bonus miles and other benefits gained in a professional context is also expressly permitted to an appropriate extent.

   Variable compensation for each financial year (short-term incentive)

   This component includes target achievement and extended components. The target achievement component is measured in terms of a given percentage of consolidated earnings before interest, taxes, depreciation and amortization (consolidated EBITDA; previously 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 (appreciation bonus). The target achievement component is paid out following the Annual General Meeting of STRATEC AG for the 2016 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 2016 financial year.

   Variable compensation based on the financial year and the two following years (mid-term compensation arrangement or mid-term incentive)

   NOTES

   This component consists in equal shares of a linked component, an individual component, and a supplementary component.The linked component consists of two sub-components. Starting with the mid-term incentive for 2016, the targets determined for the linked components are based on percentage increases in consolidated sales and consolidated EBITDA (previously: 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. Target achievement for the mid-term incentive (MTI) scheme is further based in terms of its timing 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 2014 (and 2015 and 2016 respectively) is paid out in 2017 (and 2018 and 2019 respec- tively). However, prepayments based on the respective achieve- ment of individual and interim targets may be made, subject to agreement between the Board of Management and the Super- visory Board, at the end of each financial year. To date, no use has been made of this prepayment option.

   64 STRATEC Annual Report 2016

   Long-term share-based compensation (long-term incentive)

   Since the 2015 financial year, this comprises contractual agree- ments in which payments are based on the long-term share price performance without any physical or real stocks being actually supplied (stock appreciation rights - SARs). Existing arrangements for past financial years concerning the subscription of stock options and of actual stocks are not affect- ed by this new provision and are being continued accordingly. Detailed disclosures concerning the structure of these programs can be found in Section C. 'Disclosures on the consolidated balance sheet - Stock option programs' in the notes to the consolidated financial statements.

   The stock appreciation rights (SARs) have the following basic structure:

   The rights refer to a payment to be made by the company to the member of the Board of Management, with the amount of payment being determined by reference to the share price per- formance of STRATEC AG (reference share) as documented in XETRA trading on the Frankfurt Stock Exchange over a pre- defined period.

   The SARs should have a minimum term of five years calculated from the issue date, although initial payment of the value of the SARs may be requested after a 'minimum waiting period' of two years. Any such payment prior to the expiry of the term (pre- mature payment request) leads to a corresponding reduction in the terms of the rights. Should the term expire on a date within 30 stock market trading days prior to publication of figures for the quarterly or annual financial statements, the term is extended through to the first stock market trading day after the expiry of this timeframe.

   Any premature payment request must be addressed to the Supervisory Board Chairman in writing and may not be issued within the aforementioned timeframe. Other than this, it is also not permitted to submit a premature payment request to the extent that the requirements of insider trading law or predefined compliance requirements do not permit dealings with shares in STRATEC AG at the given point in time.

   Unless otherwise laid down by the Supervisory Board, the pay- ment claim is determined on the basis of the increase in the XETRA closing price of a reference share through to the end of the term (based on a 30-day average price) compared with the XETRA closing price at the issue date (reference price). In this respect, the annual increase in the reference share price- without reference to the share price performance within the term - must amount to at least eight percent (exercise hurdle). Should the term of the rights not correspond to a full year, the share price increase must be determined on a time-appor- tioned basis.

   The amount of payment claim following expiry of the minimum waiting period or at the end of the term - assuming that the exercise hurdle is met - is calculated, unless otherwise stipulated by the Supervisory Board, as the difference between the refer- ence price determined at the beginning of the term multiplied by the number of rights less the reference price determined at the end of the (abridged) term also multiplied by the number of rights.

   The payment itself is made with the next salary payment made to the member of the Board of Management, and at the latest within two weeks of the end of the (abridged) term. For payment amounts of more than € 100,000.00, STRATEC AG may request that the payment be made in two equal install- ments after six and twelve months respectively, with an obli- gation to pay interest should this option be drawn on.

   Compensation for activity at affiliate companies

   Members of the Board of Management assuming supervisory board, managing director, or similar positions at affiliate compa- nies generally do not receive separate compensation from the respective company for doing so. Any such compensation nevertheless paid by the affiliate companies is imputed to the aforementioned amounts.

   Caps

   Variable compensation components are subject to require- ments limiting 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', 'mid-term incentive', and 'long-term incentive' schemes, for example, is limited to a maximum of 2.0 times basic salary plus certain ancillary benefits and pension commitments. Furthermore, the Supervisory Board also has the powers granted by law to limit compensation.

   65

   Individual compensation of Board of Management

   reported in accordance with the German Commercial Code (HGB)

   The individual members of the Board of Management received the compensation set out below for their activities on the Board of Management in the 2016 financial year.

   Individual compensation of Board of Management (€ 000s)

   GROUP MANAGEMENT REPORT

   Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack Total

   2016	2015	2016	2015	2016	2015	2016	2015
   Non-performance-related components	212 16	192 16	190 10	174 10	173 9	160 9	575 35	526 35
   Performance-related components	169 250	152 243	106 192	119 188	106 164	0 159	381 606	271 590
   Total	647	603	498	491	452	328	1,597	1,422
   Components with long-term incentive nature	227	226	114	113	114	113	455	452

   • Basic amount

   • Other1

   • MTI compensation claim2

   • Other performance-related components

   • Stock appreciation rights (SARs)3

   1 The 'Other' disclosure includes non-cash benefits due to the use of company vehicles and insurance benefits (excluding contributions made to retirement pensions, healthcare, nursing care, and D&O insurance).

   2 The amount disclosed refers to the mid-term incentive agreement for 2014 (2013), which covers 2014, 2015, and 2016 (2013, 2014, and 2015) and is due for payment in 2017 (2016).

   CONSOLIDATED FINANCIAL STATEMENTS

   3 The amount disclosed corresponds to the fair value upon issue of the stock appreciation rights (SARs) calculated in accordance with IFRS 2 (Share-based Payment).

   From the 2015 financial year, the individual members of the Board of Management only participate in the stock option program with regard to stock options already granted, but will not be granted any new stock options.

   In the 2016 financial year, no stock options were exercised by Marcus Wolfinger, Dr. Robert Siegle, or Dr. Claus Vielsack respectively. In the 2015 financial year, Marcus Wolfinger exer- cised 7,500 stock options at an average exercise price of

   NOTES

   € 27.11, Dr. Robert Siegle exercised 7,500 stock options at an average exercise price of € 27.11, and Dr. Claus Vielsack exer- cised 4,750 stock options granted to him prior to his appoint- ment to the Board of Management at an average exercise price of € 29.13.

   As of December 31, 2016, Marcus Wolfinger had 65,000 stock options outstanding (previous year: 65,000) at an average exer- cise price of € 30.44 (previous year: € 30.44) and a weighted remaining contract term of 41.1 months (previous year: 53.3). As of December 31, 2016, Dr. Robert Siegle had 50,000 stock options outstanding (previous year: 50,000) at an average exer- cise price of € 30.40 (previous year: € 30.40) and a weighted remaining contract term of 38.8 months (previous year: 51.0). Similarly, as of December 31, 2016 Dr. ClausVielsack had 10,000 stock options granted to him since his appointment to the Board of Management and outstanding (previous year: 10,000) at an average exercise price of € 31.87 (previous year: € 31.87) and a weighted remaining contract term of 51.7 months (pre- vious year: 63.9).

   66 STRATEC Annual Report 2016

   For both Marcus Wolfinger and Dr. Robert Siegle 25,000 stock options each (previous year: 25,000) were exercisable at an average exercise price of € 31.19 (previous year: € 31.19) as of December 31, 2016, while for Dr. Claus Vielsack, as in the pre- vious year, no stock options granted to him in the period since his appointment to the Board of Management were exercisable.

   The following amounts were recognized as expenses for stock options in the 2016 financial year: € 35k for Marcus Wolfinger (previous year: € 41k), € 21k for Dr. Robert Siegle (previous year: € 27k) and € 9k for Dr. Claus Vielsack (previous year:

   € 9k).

   The stock appreciation rights (SARs) of individual members of the Board of Management showed the following specific devel- opments in the 2016 financial year:

   Stock appreciation rights (SARs) of Board of Management
   Reference price1 €	Fair Value2 €	Balance at 01.01 No.	Added No.	Balance at 12.31. No.	of which exercisable, No.	Fair value 12.31. € 000s	Remaining term3 12.31. Months
   Marcus Wolfinger SARs T1 2015 dated 08.03.2015 SARs T1 2016 dated 04.01.2016	50.53 43.07	11.28 11.36	20,000 0	0 20,000	20,000 20,000	0 0	190 241	43.1 51.0
   Dr. Robert Siegle SARs T1 2015 dated 08.03.2015 SARs T1 2016 dated 04.01.2016	50.53 43.07	11.28 11.36	10,000 0	0 10,000	10,000 10,000	0 0	95 121	43.1 51.0
   Dr. Claus Vielsack SARs T1 2015 dated 08.03.2015 SARs T1 2016 dated 04.01.2016	50.53 43.07	11.28 11.36	10,000 0	0 10,000	10,000 10,000	0 0	95 121	43.1 51.0
   Total / average	46.80	11.32	40,000	40,000	80,000	0	863	47.7

   Note: No stock appreciation rights were exercised, forfeited or lapsed in the 2016 financial year.

   1 The amount disclosed corresponds to the XETRA closing price of the reference share at the SAR issue date.

   2 The amount disclosed corresponds to the fair value upon issue of each stock appreciation right (SAR), calculated in accordance with IFRS 2 (Share-based Payment).

   3 The amount disclosed corresponds to the remaining terms of the stock appreciation rights (SARs) based on their overall terms.

   The following amounts were recognized as expenses for stock appreciation rights (SARs) in the 2016 financial year: € 74k for Marcus Wolfinger (previous year: € 357k), € 37k for Dr. Robert Siegle (previous year: € 179k), and € 37k for Dr. Claus Vielsack (previous year: € 179k).

   67

   Regulations governing regu- lar termination of activity on Board of Management

   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

   GROUP MANAGEMENT REPORT

   Members of the Board of Management receive pension provi- sion from STRATEC AG when they have reached pensionable age, i.e. between the age of 60 and the age of 67, and have concluded their activity as members of the Board of Manage- ment. 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 in cases where members terminate their employment with the company before reaching pension- able 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 lifelong surviving dependants' provision with Marcus Wolfinger. In the 2016 financial year, the company recognized expenses of € 93k for Marcus Wolfinger (previous year: € 93k), € 78k for Dr. Robert Siegle (previous year: € 78k), and € 44k for Dr. Claus Vielsack (previous year: € 44k) in connection with the benefits thereby committed. The present values of the capital claims acquired in connection with the benefits thereby committed as of December 31, 2016 amounted to € 579k for Marcus Wolfinger (previous year: € 461k), € 320k for Dr. Robert Siegle (previous year: € 238k), and € 72k for Dr. Claus Vielsack (previous year:

   € 37k). Due in particular to future financing contributions, the actual benefits will turn out higher than presented here.

   CONSOLIDATED FINANCIAL STATEMENTS

   Retrospective prohibition on competition For the duration of the 24-month retrospective prohibition on competition, each member of the Board of Management re- ceives compensation amounting to 75 % of his most recent contractually agreed total compensation for the first twelve months and 50 % of the same amount for the subsequent twelve months. The amounts payable in connection with the prohibition on competition are disbursed on a monthly basis. STRATEC AG may waive compliance with the retrospective prohibition on competition on a conditional basis.The nominal amounts of compensation payable for the retrospective pro- hibition on competition are € 668k for Marcus Wolfinger (pre- vious year: € 608k), € 507k for Dr. Robert Siegle (previous year:

   € 441k), and € 447k for Dr. Claus Vielsack (previous year:

   € 417k). 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.

   Stock appreciation rights (SARs)

   NOTES

   The stock appreciation rights (SARs) granted to members of the Board of Management remain fully valid, including the right to request premature payment, through to the end of their term.

   Regulations governing prema- ture termination of activity on Board of Management

   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 con- cluded for fixed terms. In the event of the contract being ter- minated prematurely, on the basis of mutual agreement, and without compelling reason justifying immediate termination, severance payments amounting to a maximum of two full-year compensation packages based on the most recent full compen- sation package for the previous financial year are payable. Should the contract be 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 unchanged compensation in accordance with the relevant requirements of the German Corporate Governance Code.

   Retrospective prohibition on competition For the duration of the retrospective prohibition on competi- tion corresponding application is made of the provisions governing the retrospective prohibition on competition upon the regular termination of activity on the Board of Management.

   Permanent inability to work and fatality Should a member of the Board of Management become permanently unable to work during the term of the employ- ment contract, this contract is terminated three months after the end of the month in which the permanent inability to work is ascertained. Compensation is based on the provisions governing regular termination of activity on the Board of Management. 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 fixed compensation, including variable compensation but excluding the appreciation bonus, for the month in which the member died and the following six months, nevertheless limited to the expiry of the employment contract irrespective of the death of the respective member.

   Stock appreciation rights (SARs)

   Should the employment contract with a member of the Board of Management be terminated prematurely, the stock appreci- ation rights (SARs) granted to the respective member of the Board of Management as of the date of his departure are settled on the basis of the average XETRA closing price in the 30 stock market trading days preceding the date of departure and in accordance with the conditions applicable to the rights at the end of their term. Any existing exercise hurdles in the form of specified percentage or absolute share price increases are calculated on a time-apportioned basis.

   68 STRATEC Annual Report 2016

   Basic features of the compensation system for the Supervisory Board

   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 Super- visory Board members, as well as of the economic position and performance of the company.

   Each member of the Supervisory Board receives fixed compen- sation of € 25,000.00 for each financial year. The Supervisory Board Chairman receives twice and the Deputy Chairman receives one and a half times this amount of fixed compensa- tion. Supervisory Board members only belonging to the Super- visory 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 € 750.00 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 pecu- niary 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 2016 financial year.

   Individual Supervisory Board compensation (€ 000s)

   Fred K. Brückner Wolfgang Wehmeyer Prof. Dr. Stefanie Remmele Total

   2016	2015	2016	2015	2016	2015	2016	2015
   Fixed compensation Meeting allowance	50 4	50 5	38 4	38 5	25 4	25 5	113 12	113 15
   Total	54	55	42	43	29	30	125	128

   69

   GROUP MANAGEMENT REPORT

8. TAKEOVER-RELEVANT DISCLOSURES 1

   Composition of share capital

   The company's share capital amounted to € 11,860,995 as of December 31, 2016 and was divided into 11,860,995 individual registered shares.This total includes 6,690 treasury stock shares as of December 31, 2016.All shares involve the same rights and obligations and each share confers one vote.

   Restrictions on voting rights or the transferability of shares

   Restrictions on share voting rights may result in particular from the requirements of the German Stock Corporation Act (AktG). In specific circumstances set out in § 136 AktG, for example, shareholders are subject to a prohibition on voting, while pursuant to § 71b AktG the company is not entitled to exercise any voting rights for treasury stock shares.We are not aware of any contractual restrictions relating to voting rights or the transferability of shares.

   Pursuant to § 67 (2) AktG, only those shareholders registered as such in the Share Register are deemed shareholders from the company's perspective. According to § 4 (4.2) of the Arti- cles of Association, to be entered in the Share Register share- holders must submit their name, address and date of birth if they are natural persons and their company names, commercial address and legal domicile if they are legal entities, as well as the number of shares they hold and their electronic mail address, should they have one, in both cases. Shareholders are required to inform the company without delay of any change in their address. Entries by a shareholder acting under its own name and relating to shares owned by another party are only permitted and effective from the company's perspective when the fact that the shares belong to another party and the name and address of the owner are entered in the Share Register. The same applies when the party thereby entered or the owner transfer their ownership of the shares to another party following such entry. Pursuant to § 67 (4) AktG, the company is entitled to request information from the party entered in the Share Register concerning the extent to which it actually owns the share for which it is entered as bearer in the Share Register and, should this not be the case, to convey the information neces- sary to maintain the Share Register to the party on behalf of which it holds the shares. Should such request for information not meet with any response then, pursuant to § 67 (2) AktG, no voting rights may be exercised for the shares concerned.

   Direct or indirect capital shareholdings exceeding 10 % of voting rights

   Based on the notifications available to us pursuant to § 21 of the German Securities Trading Act (WpHG), as of December 31, 2016 no shareholder directly held more than 10 % of the voting rights in the company. We have received notifications from Bettina Siegle, Tanja van Dinter, Ralf Leistner, Hermann Leistner, Doris Leistner, Herdor Beteiligungs GmbH, and Herdor GmbH & Co. KG (all in Germany) that, due to the allocation of voting rights, they each hold more than 25 % of the voting rights in the company.

   The Board of Management is not aware of any other direct or indirect capital shareholdings exceeding 10 % of voting rights.

   Bearers of shares with special rights conferring powers of control

   There are no shares in the company with special rights confer- ring powers of control.

   Type of voting right control when employees hold shareholdings in the capital and do not directly exercise their control rights

   Any shares granted by the company to its employees within the framework of its employee share program or as share-based compensation are transferred directly to the employees. Like other shareholders, the employees benefiting from such programs can use the control rights resulting from their employee shares in accordance with statutory requirements and the provisions of the Articles of Association.

   NOTES

   CONSOLIDATED FINANCIAL STATEMENTS

   1 (pursuant to § 315 (4) HGB) and explanatory notes

   70 STRATEC Annual Report 2016

   Statutory requirements and provisions of the Articles of Association in respect of the appointment and dismissal of members of the Board of Management and amendments to the Articles of Association

   The appointment and dismissal of members of the Board of Management are governed by § 84 and § 85 of the German Stock Corporation Act (AktG) and § 5 of the company's Articles of Association. Pursuant to § 84 (1) AktG, the Super- visory Board appoints members of the Board of Management for a maximum term of five years and may also dismiss mem- bers; repeated appointments and extensions in terms in office, in each case by a maximum of five years, are permitted. Pursuant to § 5 (5.1) of the Articles of Association, the Board of Manage- ment comprises one or several persons. § 5 (5.2) stipulates that the Supervisory Board determines the number of members of the Board of Management. Pursuant to § 84 (2) AktG and § 5 (5.2) of the Articles of Association, the Supervisory Board may appoint a Chairman and - pursuant to § 5 (5.2) - a Deputy Chairman of the Board of Management.

   Consistent with § 179 AktG, amendments to the Articles of Association require a resolution by the Annual General Meeting.

   § 12 (12.2) of the Articles of Association allows the Superviso- ry Board to make amendments only affecting the respective wording. Furthermore, the Supervisory Board is authorized by resolutions adopted by the Annual General Meetings on May 20, 2009, June 6, 2013, and May 22, 2015 to amend § 4 of the Articles of Associations in line with the execution of Authorized Capital 2015/I and in accordance with utilization of Conditional Capital V/2009, Conditional Capital VI/2013, and Conditional Capital VII/2015 or upon the expiry of the authorization period governing the utilization of conditional capitals.

   Pursuant to § 179 (2) AktG in conjunction with § 15 (15.3) of the Articles of Association, all resolutions adopted by the Annual General Meeting to amend the Articles generally require a simple majority of the votes cast and, unless otherwise mandatorily stipulated in legal requirements, a simple majority of the share capital represented upon the adoption of the res- olution. Legal requirements call for larger majorities of three quarters of the share capital represented upon the adoption of the resolution in several cases, such as for any amendment in the object of the company's activities (§ 179 (2) Sentence 2 AktG), for specific capital-related measures, and for the exclu- sion of subscription rights.

   Powers of the Board of Management to issue or buy back shares

   Pursuant to § 4 (4.5) of the Articles of Association, STRATEC Biomedical AG had authorized capital of € 5.5 million as of December 31, 2016.

   The Annual General Meeting held on May 22, 2015 created authorized capital (Authorized Capital 2015/I). The Board of Management is authorized, subject to approval by the Super- visory Board, to increase the company's share capital by a total of up to € 5.5 million by issuing new shares in return for con- tributions in cash or in kind on one or several occasions up to May 21, 2020. Shareholders must generally be granted subscrip- tion rights. In certain circumstances set out in the Articles of Association, however, the Board of Management is entitled to exclude subscription rights for a total of amount of up to 20 % of the share capital existing upon the authorization taking effect or - if lower - of the share capital existing upon the autho- rization being acted on.To date, no use has been made of this authorization.

   Pursuant to § 4 (4.6) and § 4 (4.7) of its Articles of Association, STRATEC Biomedical AG had conditional capitals amounting to up to around € 1.8 million in total as of December 31, 2016:

   Conditional Capital V/2009 (amounting to up to around € 0.1 million) serves to grant subscription rights (stock option rights) through to May 19, 2014 in accordance with the resolution adopted by the Annual General Meeting on May 20, 2009.The conditional capital increase is only executed to the extent that the bearers of stock options actually 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 VI/2013 (amounting to up to around € 0.9 million) serves to grant subscription rights (stock option rights) through to June 5, 2018 in accordance with the resolution ad- opted by the Annual General Meeting on June 6, 2013. The conditional capital increase is only executed to the extent that the bearers of stock options actually 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 VII/2015 (amounting to up to around € 0.8 million) serves exclusively to grant new shares to the bearers or creditors of convertible or warrant bonds issued in accor- dance with the resolution adopted by the Annual General Meeting on May 22, 2015 in the period through to May 21, 2020 by the company or by a domestic or foreign company in which STRATEC AG directly or indirectly holds a majority of the voting rights and capital. Shares are issued in accordance with the aforementioned resolution and with the resolutions to be adopted by the Board of Management and the Supervisory

   71

   Board in respect of the conversion and option prices to be set in each case. The conditional capital increase is only executed to the extent that the bearers or creditors of the convertible or warrant bonds actually exercise their rights to convert their conversion or option rights into shares in the company or that the conversion obligations relating to such bonds are met. To the extent that they arise due to the exercising of conversion or subscription rights through to the beginning of the company's Annual General Meeting, the new shares have profit partici- pation rights from the beginning of the previous financial year and otherwise from the beginning of the financial year in which they arise due to the exercising of conversion or subscription rights.To date, no use has been made of this authorization.

   CONSOLIDATED FINANCIAL STATEMENTS

   In the cases governed by law in § 71 of the German Stock Corporation Act (AktG), STRATEC AG is authorized to buy back shares and to sell any shares thereby bought back. Further- more, by resolution adopted by the Annual General Meeting on May 22, 2015 the company is authorized until May 21, 2020 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 for every purpose permitted within the statutory limita- tion and consistent with the conditions stipulated in greater detail in Agenda Item 9 of the Annual General Meeting on May 22, 2015. The authorization may not be drawn on to trade in treasury stock.Together with the treasury stock already acquired and still possessed by the company, the treasury stock acquired may not at any time exceed 10 % of the respective share capital. The shares should be usable for one or several of the purposes set out in greater detail in Agenda Item 9 of the Annual General Meeting on May 22, 2015, which in some cases also permit the

   exclusion of subscription rights. To date, the company has not made any use of the authorization to buy back treasury stock.

   Material company agreements subject to change of control as a result of a takeover bid Individual agreements include change of control provisions that entitle the contractual partner to terminate the agreement in the event of a change of control over the company or that grant other special rights potentially detrimental to the company or make the continuation of the contract dependent on approval by the contractual partner.

   Compensation agreements reached by

   the company with members of the Board of Management for the event of a takeover bid Members of the company's Board of Management have special resignation rights in the event of a change of control over the company. They are thus entitled within six months from the change of control taking effect to stand down from their posi- tions with a notice period of three months to the end of the month and to terminate their employment contracts on an exceptional basis with a notice period of three months to the end of the month. Should this special termination right be exercised, then the member's position on the Board of Manage- ment and employment relationship both end prematurely upon expiry of the three-month notice period. The member of the Board of Management receives compensation amounting to 150 % of the severance pay cap agreed for mutually agreed premature termination of activity on the Board of Management.This amounts to a maximum of two annual com- pensation packages.

9. DECLARATION ON CORPORATE GOVERNANCE

10. GROUP MANAGEMENT REPORT

    The company has published the declaration on corporate governance required by § 315 of the German Commercial Code (HGB), including the declaration on the German Cor- porate Governance Code required by § 161 of the German Stock Corporation Act (AktG), together with its corporate governance report in the Investors section of its website (www.stratec.com).

    Birkenfeld, April 5, 2017 STRATEC Biomedical AG The Board of Management

    NOTES

    Marcus Wolfinger Dr. Robert Siegle Dr. Claus Vielsack

    72 STRATEC Annual Report 2016

    73

    CONSOLIDATED FINANCIAL STATEMENTS

    of STRATEC Biomedical AG for the 2016 financial year

    Consolidated Balance Sheet / 74

    Consolidated Statement of Comprehensive Income / 76 Consolidated Cash Flow Statement / 77

    NOTES

    CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Statement of Changes in Equity / 78

    74 STRATEC Annual Report 2016

    CONSOLIDATED BALANCE SHEET

    as of December 31, 2016

    Assets

    € 000s	Note	12.31.2016	12.31.2015
    Non-current assets
    Intangible assets Goodwill Other intangible assets	(01)	42,841 75,935	5,125 25,867
    118,776	30,992
    Property, plant and equipment	(02)	32,789	19,595
    Financial assets	(07)	378	184
    Deferred taxes	(11)	99	21
    152,042	50,792
    Current assets
    Inventories Raw materials and supplies Unfinished products, unfinished services Finished products and merchandise	(03)	13,029 5,302 6,188	9,375 3,853 2,791
    24,519	16,019
    Receivables and other assets Trade receivables Receivables from construction contracts Receivables from associates Financial assets Other receivables and assets Income tax receivables	(04) (05) (06) (07) (08) (08)	38,890 2,348 22 5,695 3,870 4,081	24,045 1,470 23 2,779 2,358 5,038
    54,906	35,713
    Cash and cash equivalents	(25)	26,500	56,415
    105,925	108,147
    257,967	158,939

    75

    NOTES

    CONSOLIDATED FINANCIAL STATEMENTS

    Shareholders' equity and debt

    € 000s	Note	12.31.2016	12.31.2015
    Shareholders' equity	(09)
    Share capital		11,861	11,853
    Capital reserve		20,437	20,061
    Revenue reserves		105,033	94,307
    Treasury stock		-118	-172
    Other equity		6,506	4,231
    143,719	130,280
    Non-current debt
    Non-current financial liabilities	(12)	3,035	4,328
    Other non-current liabilities	(14)	434	22
    Provisions for pensions	(10)	1,753	63
    Deferred taxes	(11)	14,829	5,579
    20,051	9,992
    Current debt
    Current financial liabilities	(12)	72,793	3,816
    Trade payables	(13)	7,100	3,436
    Liabilities to associates	(13)	0	14
    Other liabilities	(14)	12,631	8,391
    Provisions	(15)	1,348	1,508
    Income tax liabilities	(15)	325	1,502
    94,197	18,667
    257,967	158,939

    76 STRATEC Annual Report 2016

    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

    for the Period from January 1 to December 31, 2016

    € 000s	Note	2016	2015
    Sales	(16)	184,911	146,886
    Cost of sales	(17)	-123,275	-91,854
    Gross profit		61,636	55,032
    Research and development expenses	(18)	-8,054	-8,336
    Sales-related expenses	(19)	-12,779	-6,607
    General administration expenses	(20)	-15,993	-11,788
    Other operating expenses	(21)	-4,472	-8,300
    Other operating income	(21)	3,866	6,874
    Earnings before interest and taxes (EBIT)		24,204	26,875
    Financial income		81	361
    Financial expenses		-1,043	-180
    Other financial income/expenses		-307	117
    Net financial expenses	(22)	-1,269	298
    Earnings before taxes (EBT)		22,935	27,173
    Taxes on income

11. Current tax expenses

12. Current tax income (previous year: tax expenses)

(11)

-6,537

3,174

-3,959

-1,130

Consolidated net income

19,572

22,084

Items that may not be subsequently reclassified to profit or loss:

Remeasurements of defined benefit pension plans

247

20

Items that may be subsequently reclassified to profit or loss:

Currency translation differences from translation of foreign operations

989

2,350

Changes in value of financial investments

1,040

0

Other comprehensive income

2,276

2,370

Comprehensive income

21,848

24,454

Basic earnings per share in €

(23)

1.65

1.87

No. of shares used as basis (basic)

11,851,382

11,810,284

Diluted earnings per share in €

(23)

1.64

1.85

No. of shares used as basis (diluted)

11,936,660

11,919,473

77

CONSOLIDATED CASH FLOW STATEMENT

NOTES

CONSOLIDATED FINANCIAL STATEMENTS

for the 2016 Financial Year

€ 000s	Note	2016	2015
I. Operations
Consolidated net income (after taxes)		19,572	22,084
Depreciation and amortization		11,211	6,232
Current income tax expenses	(11)	6,537	3,959
Income taxes paid less income taxes received		-6,602	-6,382
Financial income	(23)	-81	-361
Financial expenses	(23)	1,043	180
Interest paid		-604	-142
Interest received		60	282
Other non-cash expenses		1,605	869
Other non-cash income		-1,836	-1,684
Change in net pension provisions through profit or loss	(10)	-65	2
Change in deferred taxes through profit or loss	(11)	-3,174	1,130
- Profit /+loss on disposals of non-current assets		474	48
- Increase /+reduction in inventories, trade receivables, and other assets		-9,862	-4,470
+ Increase /-reduction in trade payables and other liabilities		-2,022	4,286
Cash flow from operating activities		16,256	26,033
II. Investments
Incoming payments from disposals of non-current assets Property, plant and equipment Financial assets		82 104	157 0
Outgoing payments for investments in non-current assets Intangible assets Property, plant and equipment Financial assets		-2,773 -7,206 -50	-3,426 -5,438 -3
Outgoing payments for acquisitions of consolidated companies less cash and cash equivalents thereby acquired		-76,885	0
Cash flow from investing activities		-86,728	-8,710
III. Financing
Incoming funds from taking up of financial liabilities		67,550	2,000
Outgoing payments for repayment of financial liabilities		-18,313	-4,087
Incoming payments from issue of shares for employee stock option programs		254	1.674
Dividend payments		-8,885	-8,248
Cash flow from financing activities		40,606	-8,661
IV. Cash-effective change in cash and cash equivalents		-29,866	8,662
Cash and cash equivalents at start of period		56,415	46,636
Changes in scope of consolidation		51	79
Impact of exchange rate movements		-100	1,038
Cash and cash equivalents at end of period	(25)	26,500	56,415

STRATEC Annual Report 2016 CONSOLIDATED STAT CHANGES IN EQUITY for the 2016 Financial Yea € 000s	MENT O r Note	F Share capital	Capital reserve
December 31, 2014	(09)	11,795	18,129
Equity transactions with owners
Dividend payments
Issue of subscription shares from stock option programs, less costs of capital issue after taxes	58	1,611
Allocations due to stock option plans	144
Allocations due to employee participation program	177
Comprehensive income in 2015
Changes in scope of consolidation
December 31, 2015	(09)	11,853	20,061
Equity transactions with owners
Dividend payments
Issue of subscription shares from stock option programs, less costs of capital issue after taxes	8	247
Allocations due to stock option plans	138
Allocations due to employee participation program	-9
Comprehensive income in 2016
Changes in scope of consolidation
December 31, 2016	(09)	11,861	20,437

78

E

79

Revenue reserves	Other equity
Accumulated	Free revenue	Treasury	Fair value	Currency	Group
net income	reserves	stock	reserve	Pension plans	translation	equity
61,086	19,392	-212	0	-67	1,928	112,051

-8,248	-8,248
1,669
144
40	217
22,084	20	2,350	24,454
-7	-7

NOTES

CONSOLIDATED FINANCIAL STATEMENTS

74,915 19,392 -172 0 -47 4,278 130,280

-8,885	-8,885
255
138
54	45
19,572	1,040	246	989	21,847
39	39
85,641	19,392	-118	1,040	199	5,267	143,719

80 STRATEC Annual Report 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

of STRATEC Biomedical AG for the 2016 Financial Year

1. General Disclosures / 81

2. Accounting Policies Applied / 86

3. Disclosures on the Consolidated Balance Sheet / 101

4. Disclosures on the Consolidated Statement of Comprehensive Income / 121

5. Disclosures on the Consolidated Cash Flow Statement / 125

6. Segment Reporting / 127

7. Financial Instruments / 129

8. Risk Management / 134

9. Other Disclosures / 138

   81

10. GENERAL DISCLOSURES

    General information

    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. Furthermore, STRATEC AG provides sample preparation solu- tions, integrated laboratory software, and complex consum- ables for diagnostics and medical applications. In this, the com- pany covers the entire value chain - from development and design through to production and quality assurance. The part- ners market the systems, software and consumables, in general together with their own reagents, as system solutions to labo- ratories, blood banks and research institutes around the world. STRATEC AG develops its products on the basis of its own patented technologies.

    STRATEC AG is entered in the Commercial Register in Mann- heim under No. HRB 504390.

    The Board of Management of STRATEC AG prepared the con- solidated financial statements on April 5, 2017 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 13, 2017.The consolidated financial statements and group man- agement report as of December 31, 2016 will be published in the electronic Federal Official Gazette (Bundesanzeiger).

    Declaration of conformity

    The consolidated financial statements compiled by STRATEC AG as the topmost parent company as of December 31, 2016 have been prepared with due application of § 315a (1) of the German Commercial Code (HGB) in accordance with the re- quirements 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 (IFRS IC) valid and endorsed by the European Union as of the balance sheet date, as well as with the supplementary requirements of German commercial law.

    Basis of preparation

    The consolidated financial statements have been compiled in thousand euros (€ 000s). Unless otherwise stated, the amounts reported in the notes to the consolidated financial statements are denominated in thousand euros (€ 000s). Due to numbers being rounded up or down and presented in € 000s, it is pos- sible that individual figures in the consolidated financial state- ments of STRATEC AG do not add up exactly to the total stated and that the percentage figures do not correlate exactly to the absolute figures to which they refer.

    The financial year for the consolidated financial statements cor- responds 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 con- solidated financial statements and have been based on uniform accounting and valuation principles.

    The consolidated statement of comprehensive income has been prepared using the cost of sales method.

    NOTES

    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 state- ment, 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 liabili- ties earmarked for realization in the company's usual course of business are also classified as current, even when their matur- ities 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 finan- cial liabilities) and long-term portions (non-current financial lia- bilities). Pursuant to IAS 1.56, deferred taxes must generally be recognized as non-current items.

    82 STRATEC Annual Report 2016

    Accounting standards requiring mandatory application for the first time in the current financial year

    The following accounting standards and interpretations required mandatory application for the first time in the 2016 financial year.

    Standard	Title	Effective date1	EU endorsement
    New and amended standards and interpretations
    Sundry	Annual Improvements to IFRS, 2010 - 2012 Cycle	02.01.2015	12.17.2014
    IAS 19	Amendments to IAS 19: Defined Benefit Plans: Employee Contributions	02.01.2015	12.17.2014
    IAS 16, IAS 41	Amendments to IAS 16 and IAS 41:Agriculture: Bearer Plants	01.01.2016	11.23.2015
    IFRS 11	Accounting for Acquisitions of Interests in Joint Operations	01.01.2016	11.24.2015
    IAS 16, IAS 38	Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization	01.01.2016	12.02.2015
    Sundry	Annual Improvements to IFRS, 2012 - 2014 Cycle	01.01.2016	12.15.2015
    IAS 27	Amendment to IAS 27: Equity Method in Separate Financial Statements	01.01.2016	12.18.2015
    IAS 1	Amendments to IAS 1: Disclosure Initiative	01.01.2016	12.18.2015
    IFRS 10, IFRS 12, IAS 28	Amendments to IFRS 10, IFRS 12, and IAS 28: Investment Entities:Applying the Consolidation Exception	01.01.2016	09.22.2016
    1 For companies like STRATEC AG whose financial year corresponds to the calendar year

    The application of these standards and interpretations in the 2016 financial year was consistent with the respective transition requirements. Unless explicitly required by individual standards and interpretations and explained separately below, the respec- tive 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 compar- ative figures have been adjusted accordingly.

    Overall, first-time application of the aforementioned require- ments at STRATEC AG did not have any impact on the presen- tation of the net asset, financial, and earnings position, on earn- ings per share, or on the disclosures in the notes to the consolidated financial statements.

    83

    Accounting requirements already published but not yet applied

    Standard	Title	Effective date1	EU endorsement
    New and amended standards and interpretations
    IFRS 14	Regulatory Deferral Accounts	01.01.2016	Endorsement rejected by European Commission
    IAS 12	Amendments to IAS 12: Recognition of Deferred Tax Claims for Unrecognised Losses	01.01.2017	Expected in 2nd quarter of 2017
    IAS 7	Amendments to IAS 7: Disclosure Initiative	01.01.2017	Expected in 2nd quarter of 2017
    IFRS 9	Financial Instruments	01.01.2018	11.22.2016
    IFRS 15	Revenue from Contracts with Customers	01.01.2018	09.22.2016
    IFRS 15	Clarifications to Revenue from Contracts with Customers	01.01.2018	Expected in 1st quarter of 2017
    IFRS 2	Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions	01.01.2018	Expected in 3rd quarter of 2017
    IFRS 4	Amendments to IFRS 4:Applying IFRS 9 (Financial Instruments) with IFRS 4 (Insurance Contracts)	01.01.2018	Expected in 3rd quarter of 2017
    Sundry	Annual Improvements to IFRS, 2014 - 2016 Cycle, published in December 2016	01.01.2017, 01.01.2018	Expected in 3rd quarter of 2017
    IFRIC 22	Interpretation on Foreign Currency Transactions and Advance Consideration	01.01.2018	Expected in 3rd quarter of 2017
    IAS 40	Amendments:Transfers of Investment Property	01.01.2018	Expected in 3rd quarter of 2017
    IFRS 16	Leases2	01.01.2019	Expected in 4th quarter of 2017
    IFRS 10, IAS 28	Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture3	01.01.2019	Endorsement postponed by European Commission
    1 For companies like STRATEC AG whose financial year corresponds to the calendar year 2 Early application is only permitted with simultaneous application of IFRS 15 3 The effective date for this amendment has been postponed indefinitely

    The IASB and IFRS IC 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.

    STRATEC AG does not intend to make any voluntary, prema- ture 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.

    IFRS 9 (Financial Instruments)

    The IASB published IFRS 9 (Financial Instruments), a standard intended to replace IAS 39 (Financial Instruments: Recognition and Measurement), in July 2014. IFRS 9 (Financial Instruments) includes a new classification and measurement approach for financial assets. In this respect, the standard basically refers to the cash flow characteristics and the business model by which these are managed. Furthermore, the 'incurred loss model' in IAS 39 (Financial Instruments: Recognition and Measurement) will be replaced by a forward-looking 'expected credit loss' model. Moreover, IFRS 9 (Financial Instruments) amends the application of hedge accounting by requiring risk management

    activities, and especially those relating to the management of non-financial risks, to be presented in detail.

    NOTES

    The investigation of the implications of applying IFRS 9 (Financial Instruments) for the consolidated financial statements of STRATEC AG has not yet been completed. Given the complexity of the requirements, it is currently not possible to issue any reliable assessment of the implications, as these will depend on the financial instruments held by the Group in the 2018 financial year and on economic conditions, as well as on the selection of accounting policies and discretionary decisions.

    84 STRATEC Annual Report 2016

    IFRS 15 (Revenue from Contracts with Customers)

    Published in May 2014, the standard IFRS 15 'Revenue from Contracts with Customers' is intended to unite the numerous regulations governing revenue recognition in various standards and interpretations into a single standard. The new standard provides for a uniform, principle-based five-stage model appli- cable to all contracts with customers. 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 and services. For multiple element arrangements, IFRS 15 (Revenue from Contracts with Customers) explicitly stipulates that the transaction price must be allocated to the individual performance obligations thereby identified in proportion to the relative standalone selling prices.The new standard also includes new requirements governing the costs of performing and ac- quiring a contract and guidelines as to when such costs must be capitalized. Furthermore, the standard includes further require- ments governing detailed issues and extends note disclosure requirements. By announcement published in September 2015, the effective date was postponed from January 1, 2017 to January 1, 2018.

    STRATEC AG has completed its analysis of whether the busi- ness models at its business units are covered by the scope of the standard by referring to contracts typical to its accounting practice. Within the project to introduce IFRS 15 (Revenue from Contracts with Customers), the company is now perform- ing advanced detailed analysis of the implications for its revenue recognition.

    The following implications of IFRS 15 (Revenue from Contracts with Customers) for revenue recognition at STRATEC AG have been identified on the basis of the currently available findings of the detailed analysis:

    • In those business fields in which STRATEC AG performs development services on behalf of its customers (develop- ment cooperations), in cases where a binding agreement to cover costs has been signed revenues are currently

      recognized pursuant to IAS 11 (Construction Contracts) by recognizing revenues at the amount of the contract costs (zero-profit method) during the development phase already (c.f. B. Accounting policies applied).When applying the criteria governing period-based revenue recognition (performance obligations satisfied over time) pursuant to IFRS 15, compared with its current accounting practice pursuant to IAS 11 (Construction Contracts) and depending on the individual case STRATEC AG may be obliged to recognize some revenues over time but also to delay the recognition of other revenues to the time at which the development

      services are completed or to the subsequent appliance delivery phase. Where a development cooperation meets the criteria for period-based revenue recognition and where the services performed exceed the payments received it will be necessary to recognize a contractual asset. Where the customer makes a payment before the development service is performed, then a corresponding contractual liability has to be recognized.

      • In the case of development cooperations without any binding agreement to cover costs, STRATEC currently recognizes revenues in the development phase in accor- dance with the percentage of completion method pursuant to IAS 18 (Revenue). The percentage of completion is determined as the proportion of the total costs of the development contract incurred as of the balance sheet date. Should conditional milestone payments be made, then the relevant revenues may only be recognized once the respective conditions are met, with the amount of revenues thereby recognized being capped at the percentage of completion of the respective order at this point in time. IFRS 15 (Revenues from Contracts with Customers) provides a set of regulations for identifying separate contract performance obligations and requires revenues to be allocated to these individual performance obligations on the basis of their relative standalone selling prices.The contractual bases for the development cooperations at STRATEC AG are being analyzed in detail to assess whether they include separable performance obligations. Should this not be the case, then the development cooperation constitutes a single perfor- mance obligation. Depending on the individual case, revenues would then be recognized upon completion of the development service in its entirety or during any subsequent appliance delivery phase. Compared with current account- ing practice, this would differ due to the capitalization of the development services performed and the later recognition of the relevant revenues. Where the development services agreed within a development cooperation constitute separate performance obligations not particularly linked to other services and supplies provided within the development cooperation, by contrast, then the total revenues resulting from a development cooperation will have to be allocated to the separable performance obligations.This may result

        in the recognition of revenues separately from and inde- pendently to the milestone payments received.

      • Within its development cooperations, STRATEC AG often performs development services over multiyear periods. During the period of the development cooperation, the scope of services provided and relevant conditions are regularly modified. At STRATEC AG, contract modifications made in connection with development cooperations will have to be assessed to ascertain whether these result in separable contracts or performance obligations pursuant to IFRS 15 (Revenue from Contracts with Customers) or whether an additional development is not separable and therefore cannot be treated as part of the services already performed.

        85

        STRATEC AG currently does not intend to make premature application of IFRS 15 (Revenue from Contracts with Custom- ers). First-time application will therefore be made in the consol- idated financial statements as of December 31, 2018.According to the transitional requirements set out in IFRS 15 (Revenue from Contracts with Customers), both full retrospective first- time application and modified retrospective first-time applica- tion are possible. Modified retrospective first-time application offers practical relief for the non-application of the require- ments of IFRS 15 (Revenue from Contracts with Customers) to contracts already satisfied at the beginning of the earliest period presented and to contracts which began and ended in the same comparative period.

        IFRS 16 (Leases)

        The International Accounting Standards Board (IASB) published the accounting standard IFRS 16 (Leases) on January 13, 2016.

        The basic concept of the new standard involves the lessee rec- ognizing basically all leases, and thus all associated contractual rights and obligations, in its balance sheet.The distinction previ- ously required by IAS 17 (Leases) between finance and oper- ating leases will in future no longer apply for the lessee.

        For all leases, the lessee recognizes a lease liability in its balance sheet for the obligation to make future leasing payments. At the same time, the lessee capitalizes a right to use the underlying asset. This basically corresponds to the present value of future leasing payments plus directly allocable costs. Leasing payments include fixed payments, variable payments to the extent that these are indexed, payments expected for residual value guar- antees, and where appropriate the exercise price for purchase options and penalties for the premature termination of lease contracts. During the term of the lease contract, the lease lia- bility is updated in accordance with financial considerations in a manner comparable to that required for finance leases under IAS 17 (Leases), while the right to use the asset is subject to scheduled amortization.This approach generally results in high- er expenses at the beginning of the term of the lease contract. Accounting relief is provided for short-term leases and low- value leased items.

        At the lessor, by contrast, the requirements of the new standard are similar to the existing provisions of IAS 17 (Leases). Lease contracts will continue to be classified either as finance or op- erating leases. Leases in which the risks and rewards associated with ownership are mainly assigned will be classified as finance leases, while all other lease contracts count as operating leases. Classification of finance leases pursuant to IFRS 16 (Leases) has been based on the criteria set out in IAS 17 (Leases).

        NOTES

        IFRS 16 (Leases) includes a number of additional requirements concerning reporting, note disclosures, and sale and leaseback transactions.

        The new provisions require mandatory application in financial years beginning on or after January 1, 2019. Earlier application is permitted provided that application is also made of IFRS 15 (Revenue from Contracts with Customers). In its capacity as lessee, STRATEC can make first-time application of IFRS 16 (Leases) using either the retrospective approach or the modi- fied retrospective approach with optional practical relief mea- sures. Lessees are obliged to make consistent application of the approach thereby selected for all their leases. STRATEC has not yet determined which transitional approach it will apply.

        The new requirement supersedes the current provisions of IAS 17 (Leases) and the associated interpretations IFRIC 4 (Deter- mining Whether an Arrangement Contains a Lease), SIC 15 (Operating Leases - Incentives), and SIC 27 (Evaluating the Substance of Transactions in the Legal Form of a Lease).

        STRATEC does not intend to make any premature application of the standard.Application will have implications for STRATEC's asset, financial, and earnings position on account of the existing operating lease contracts (c.f. Section I. 'Other disclosures - Contingent liabilities and other financial obligations'). Specifically, leased office buildings and leased plant and office equipment will lead to an extension in the balance sheet, as the corre- sponding rights to use the assets will have to be capitalized as assets and the respective obligations as liabilities. Whereas ex- isting operating lease arrangements have generally been based on straight-line expensing, in future the straight-line amortiza- tion of the right to use the assets and reduction over time in the interest charge on the lease liability will result in a declining volume of expenses recognized over the lease term.

        86 STRATEC Annual Report 2016

11. ACCOUNTING POLICIES APPLIED

    Consolidation principles

    Capital consolidation at STRATEC AG has been performed us- ing 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 remain- ing 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.

    Scope of consolidation

    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 state- ments at cost, less any impairments, and recognized as invest- ments in associates in the consolidated balance sheet.The finan- cial 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.

    As in the previous year, in addition to STRATEC AG the con- solidated financial statements as of December 31, 2016 include the following subsidiaries by way of full consolidation:

    • STRATEC Biomedical Switzerland AG, Beringen, Switzerland,

    • STRATEC Biomedical UK, Ltd. Burton upon Trent, UK

    • STRATEC Molecular GmbH, Berlin, Germany

    • STRATEC Biomedical USA, Inc., Newbury Park, US

    • STRATEC Biomedical S.R.L, Cluj-Napoca, Romania

    • STRATEC Services AG, Beringen, Switzerland

    • STRATEC Capital GmbH, Birkenfeld, Germany

      Furthermore, the following subsidiaries were included by way of full consolidation for the first time in the 2016 financial year:

    • RE Medical Analyzers Luxembourg 2 S.à r.l., Luxembourg, Luxembourg (from April 1, 2016)

    • Medical Analyzers Holding GmbH, Zug, Switzerland (from April 1, 2016)

    • Diatron Medicinai Instrumentumok Laboratóriumi Diagnosztikai Fejlesztö-Gyártó Zrt, Budapest, Hungary (from April 1, 2016)

    • Diatron (US), Inc., Delaware, US (from April 1, 2016)

    • STRATEC PS Holding GmbH, Birkenfeld, Germany (from June 1, 2016)

    • STRATEC Consumables GmbH, Anif, Austria (from July 1, 2016)

    • STRATEC Biomedical Inc., Southington, US (from October 1, 2016)

      STRATEC Biomedical Inc., Southington, USA, was previously not fully consolidated due to materiality considerations. The implications of the first-time full consolidation of these compa- nies for the asset, financial, and earnings position of the STRATEC Group are of subordinate significance. As in the pre- vious year, the level of shareholding and voting rights held as of December 31, 2016 amounted to 100 % of voting capital at all of the companies.

      87

      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 earnings1
      Sanguin International Inc., Southington, CT, US	USD 1,000	10 0.0	USD-23.455 (2015: USD -22,363
      STRATEC Biomedical (Taicang) Co. Ltd., Taicang, China	CNY 814,940	100.0	CNY 497,499 (2015: CNY 160,529)
      1 The earnings figures reported are based on the annual financial statements prepared in accordance with respective national accounting requirements as of December 31, 2016 and December 31, 2015 respectively.

      Company acquisitions

      STRATEC PS Holding GmbH

      STRATEC AG acquired 100 % of the shares in Blitz 16-332 GmbH, Munich, Germany, for an amount of € 28k on May 30, 2016. As Blitz 16-332 GmbH is a shelf company that does not constitute a business operation pursuant to IFRS 3.3, its acqui- sition did not result in a company acquisition as defined in IFRS 3 (Business Combinations). By shareholder resolution dated May 30, 2016 Blitz 16-332 GmbH was renamed as STRATEC PS Holding GmbH and the company's legal domicile was relocated from Munich, Germany, to Birkenfeld, Germany.

      Diatron Group

      On March 23, 2016, STRATEC AG announced that an agree- ment had been signed governing the acquisition of all of the shares in Diatron MI, its US associate Diatron US, and the su- perordinate holding structure.The purchase was completed on March 31, 2016. As of March 31, 2016, the STRATEC Group thus acquired a total of 100 % of the shares in RE Medical An- alyzers Luxembourg 2 S.à r.l. (REMA Lux 2), based in Luxem- bourg. REMA Lux 2 is the sole owner of Medical Analyzers Holding GmbH (MAH), based in Zug, Switzerland. MAH is in turn the sole owner of Diatron Medicinai Instrumentumok Laboratóriumi Diagnosztikai Fejlesztö-Gyártó Zrt (Diatron MI), based in Budapest, Hungary, and Diatron US, Inc. (Diatron US), based in Delaware, US.The companies thereby acquired, namely REMA Lux 2, MAH, Diatron MI, and Diatron US, have been fully consolidated.

      With this acquisition, STRATEC AG has extended its product range and customer base in the field of hematology.The Diatron Group's OEM portfolio chiefly comprises analyzer systems, sys- tem components, consumables, and tests for the lower through- put hematology segment. This business combination has been recognized using the purchase method pursuant to IFRS 3 (Business Combinations). Since the acquisition date, the earn- ings of the Diatron Group have been included in the consoli- dated financial statements.

      NOTES

      The Half-yearly Financial Report as of June 30, 2016 stated the fair values of the assets and liabilities identified at the Diatron Group upon acquisition. Based on further information, the pur- chase price allocation has been updated as of December 31, 2016.This results in goodwill of € 28,372k as of the acquisition date. This goodwill is not deductible for tax purposes. The allocation of the purchase price to the assets and liabilities is presented in the following table:

      IFRS carrying amounts upon acquisition	Disclosure of hidden reserves and charges	Corrections in measurement period	Fair values upon acquisition
      Assets	€ 000s	€ 000s	€ 000s	€ 000s
      Other intangible assets1	159	40,965	-4,097	37,027
      Property, plant and equipment	1,194	266	0	1,460
      Deferred tax assets	162	0	0	162
      Inventories	6,888	801	-112	7,577
      Trade receivables	4,601	0	0	4,601
      Other receivables and assets and income tax receivables	1,512	0	0	1,512
      Cash and cash equivalents	1,717	0	0	1,717
      Total assets	16,233	42,032	-4,209	54,056
      1 Excluding goodwill

      88 STRATEC Annual Report 2016

      IFRS carrying amounts upon acquisition	Disclosure of hidden reserves and charges	Corrections in measurement period	Fair values upon acquisition
      Liabilities	€ 000s	€ 000s	€ 000s	€ 000s
      Deferred tax liabilities	340	7,546	-444	7,442
      Current financial liabilities	16,365	0	0	16,365
      Trade payables	3,975	0	0	3,975
      Other liabilities	1,583	0	0	1,583
      Current provisions	105	138	0	243
      Total liabilities	22,368	7,684	-444	29,608

      Upon acquisition € 000s
      Assets
      Other intangible assets	37,027
      Property, plant and equipment	1,460
      Deferred tax assets	162
      Inventories	7,577
      Trade receivables	4,601
      Other receivables and assets and income tax receivables	1,512
      Cash and cash equivalents	1,717
      Total assets	54,056
      Liabilities
      Deferred tax liabilities	-7,442
      Current financial liabilities	-16,365
      Trade payables	-3,975
      Other liabilities	-1,583
      Current provisions	-243
      Total liabilities	-29,608
      Total identifiable net assets at fair value	24,447
      Goodwill arising upon company acquisition	28,372
      Total consideration	52,820
      Breakdown of outflow of funds resulting from company acquisition	€ 000s
      Cash and cash equivalents acquired with subsidiary (included in cash flows from investing activities)	1,717
      Outflow of cash and cash equivalents	-52,820
      Actual outflow of funds	-51,103

      Upon the acquisition, two loans with a total volume of

      € 14,301k at the group of companies thereby acquired were repaid by STRATEC Biomedical AG. The resultant liabilities to STRATEC Biomedical AG at the Diatron subgroup have been eliminated within the debt consolidation.

      The gross amount of receivables acquired comes to € 6,851k. Of the receivables, € 738k were impaired.The receivables rec- ognized are expected to be collectible. Given the short terms of the receivables acquired, their carrying amounts as of the acquisition date did not vary significantly from their fair values.

      The deferred tax liabilities cover the implications of temporary differences between the fair values recognized for the assets and liabilities identified in the purchase price allocation and their carrying amounts in the tax balance sheet.

      Of the goodwill, € 23,288k has been allocated to the Instrumen- tation segment and € 5,681k to the DIATRON segment.

      The goodwill thereby recognized chiefly results from the syner- gies expected in particular in the development and production of consumables, modules for complete analyzer systems and

      smaller systems, and in the supply chain.

      Since the acquisition date, the Diatron Group has contributed

      € 29,850k to the sales and € 3,081k to the earnings of the

      STRATEC Group.

      The transaction expenses of € 665k have been expensed and recognized under administration expenses in the income state- ment and in the cash flow from operating activities in the cash flow statement.

      If the Diatron Group had been acquired as of January 1, 2016, then based on estimates compiled by STRATEC AG consolidated

      sales and consolidated net income would have amounted to

      € 192.6 million and € 18.2 million respectively. In determining these amounts, STRATEC AG has assumed that the adjustments to fair values made upon acquisition would also have applied if the acquisition had been executed as of January 1, 2016. Due to the depreciation and amortization of the assets measured in the purchase price allocation and the inclusion of acquisition-re- lated transaction expenses, the estimated level of consolidated net income is limited in terms of its meaningfulness.

      89

      STRATEC Consumables GmbH

      On June 8, 2016, STRATEC AG signed a contract with Sony DADC Austria AG, based in Anif/Salzburg, Austria, concerning the complete acquisition of Sony DADC BioSciences GmbH, a wholly-owned subsidiary of Sony DADC Austria AG.

      On June 15, 2016, Sony DADC BioSciences GmbH was renamed as STRATEC Consumables GmbH ('STRATEC Consumables'). STRATEC Consumables is a leading manufacturer of smart con- sumables for applications in diagnostics, life sciences, and medi- cal technology and has outstanding capabilities and applications in nano-structuring and micro-structuring, various coating tech- nologies, polymer science applications, and automated production.

      The fair values of the assets and liabilities identifiable at STRATEC Consumables upon acquisition were as follows:

      As no conclusive assessment can be made as of the balance sheet date as to whether all of the information required to determine the fair values in connection with the acquisition is available, the values stated are preliminary pursuant to IFRS

      3.45. This relates to the deferred tax assets, as the volume of existing loss carryovers upon acquisition has not been conclu- sively determined.

      The gross amount of receivables acquired comes to € 2,436k. Of the receivables, € 244k were impaired.The receivables rec- ognized are expected to be collectible. Given the mostly short terms of the receivables acquired, their carrying amounts as of the acquisition date did not vary significantly from their fair values.

      The deferred tax liabilities cover the implications of temporary differences between the fair values recognized for the assets and liabilities identified in the purchase price allocation and their carrying amounts in the tax balance sheet.

      Upon acquisition € 000s
      Assets
      Other intangible assets	18,099
      Property, plant and equipment	8,903
      Financial assets	437
      Deferred tax assets	952
      Inventories	827
      Trade receivables	2,086
      Other receivables and assets and income tax receivables	106
      Cash and cash equivalents	2,209
      Total assets	33,619
      Liabilities
      Deferred tax liabilities	-5,853
      Pension provisions	-2,017
      Other non-current liabilities	-108
      Current financial liabilities	-2,343
      Trade payables	-477
      Other current liabilities	-3,626
      Total liabilities	-14,425
      Total identifiable net assets at fair value	19,194
      Goodwill arising upon company acquisition	8,767
      Total consideration	27,962
      Breakdown of outflow of funds resulting from company acquisition	€ 000s
      Cash and cash equivalents acquired with subsidiary (included in cash flows from investing activities)	2,209
      Outflow of cash and cash equivalents	-27,962
      Actual outflow of funds	-25,753

      Of the goodwill, € 6,350k has been allocated to the Instrumen- tation segment, € 1,723k to the DIATRON segment, and € 694k to the Consumables segment.The goodwill is not deductible for

      tax purposes.

      The goodwill thereby recognized chiefly results from the syner- gies expected in particular in the system development of smart consumables and instruments, the reduction in complexity and integration risks in connection with analyzer systems, smart con- sumables, assays, and cross-selling potential.

      Since the acquisition date, STRATEC Consumables has contrib- uted € 6,912k to the sales and € -1,585k to the earnings of the STRATEC Group.

      The transaction expenses of € 60k have been expensed and recognized under administration expenses in the income state- ment and in the cash flow from operating activities in the cash flow statement.

      NOTES

      If STRATEC Consumables had been acquired as of January 1, 2016, then based on estimates compiled by STRATEC AG con- solidated sales and consolidated net income would have amounted to € 192.6 million and € 17.5 million respectively. In determining these amounts, STRATEC AG has assumed that the adjustments to fair values made upon acquisition would also have applied if the acquisition had been executed as of January 1, 2016. Due to the depreciation and amortization of the assets measured in the purchase price allocation and the inclusion of acquisition-related transaction expenses, the estimated level of consolidated net income is limited in terms of its meaningfulness.

      90 STRATEC Annual Report 2016

      Currency translation

      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 translat- ed using the reporting date rate, while non-monetary items have been translated at the rate on the date of the transaction. Differences arising upon currency translation have been recog- nized through profit or loss in the consolidated statement of comprehensive income, provided that the item in question does not form part of a net investment in a foreign operation.

      Translation of financial statements of foreign group companies

      The functional currency of foreign group companies is the respective national currency, as the companies operate inde- pendently 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 per- spective. 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 trans- lation' item.

      The exchange rates between major currencies and the euro developed as follows:

      Other intangible assets

      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 particu- larly 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 construc- tion 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. As all other intangible assets apart from those not yet ready for use currently have limited useful lives, they 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 'Impair- ment tests').Where the reasons for impairment no longer apply, the respective assets are written back to a maximum of amor- tized cost.

      Amortization of intangible assets has been based on the follow- ing useful lives:

      1 EUR /	Reporting date rate		Average rate
      2016	2015	2016	2015
      GBP UK	0.856	0.734	0.820	0.726
      USD US	1.054	1.089	1.107	1.110
      CHF Switzerland	1.074	1.084	1.090	1.068
      RON Romania	4.539	4.524	4.490	4.445
      HUF Hungary	309.830	315.980	311.2581	310.000
      1 Average rate for period from April 1, 2016 to December 31, 2016.

      Useful lives in years 2016	Useful lives in years 2015
      Acquired technologies	7 - 15	3 - 8
      Acquired R&D projects	8	8
      Internally generated intangible assets	5 - 8 *	5 - 8 *
      Acquired patents	12 - 19	n.a.
      Acquired trademarks	10	n.a.
      Acquired customer relationships	8 - 20	5
      Other rights and values	1 - 8	3 - 8

      • Proprietary development projects

      • Development cooperations

      • Software and licenses

      * The shortfall capitalized for development cooperations pursuant to IAS 38.97 et seq. is amortized from the beginning of the appliance manufacturing stage and is based on expected call-up volumes. 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.

      91

      Property, plant and equipment

      Property, plant and equipment are measured upon initial recog- nition 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 re- quires a use-based form of depreciation. Furthermore, account is also taken where necessary of impairments (please see 'Im- pairment tests' below). Where the reasons for impairment no longer apply, the respective assets are written back to a maxi- mum 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.

      Depreciation of property, plant and equipment has been based on the following useful lives:

      Borrowing costs

      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 com- ponent of cost where the requirements of IAS 23 (Borrowing Costs) are met.

      At the STRATEC Group, qualifying assets may relate in partic- ular to property, plant and equipment, intangible assets, and in- ventories/construction contracts in connection with develop- ment cooperations. As the STRATEC Group's borrowing costs are of subordinate significance in terms of their amount, how- ever, no borrowing costs have yet been capitalized pursuant to IAS 23 (Borrowing Costs).

      Useful lives in years 2016	Useful lives in years 2015
      Buildings	25 - 33	25 - 33
      Outdoor facilities	10 - 30	10 - 15
      Technical equipment and machinery	3 - 20	2 - 20
      Vehicles	3 - 5	3 - 5
      Tools	3 - 7	3 - 6
      IT components	2 - 5	3 - 5
      Other plant and office equipment	1 - 20	3 - 20

      Subsidies and grants

      Government grants intended to promote investment and di-

      rectly allocable to the respective investments have been deduct- ed 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 expens- es and are initially recognized as liabilities and subsequently off-

      set through profit or loss in the consolidated statement of comprehensive income in the financial year in which the asso- ciated expenses are incurred.

      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.

      NOTES

      Investment property includes land and buildings held to gener- ate rental income (€ 72k; previous year: € 73k) 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.

      Leases

      A leasing arrangement is classified as an operating lease in cas- es where all major risks and rewards relating to ownership re- main 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 ex- penses over the term of the leasing arrangement.

      92 STRATEC Annual Report 2016

      Impairment tests

      Impairment tests pursuant to IAS 36 (Impairment of Assets) are performed on goodwill and other intangible assets with unlim- ited 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 recog- nized, unless they involve goodwill, are correspondingly reversed.

      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).To calculate the weighted cap- ital costs, reference has been made on the one hand to the costs of equity, which comprise the risk-free base interest rate and the risk premium (market risk premium, multiplied by a beta factor based on a peer group analysis) and on the other hand on the cost of borrowing, which corresponds to the av- erage cost of borrowing at the peer group companies. Equity and debt capital costs have been weighted based on the aver- age capital structure at the peer group companies.

      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	Pre-tax WACC %
      Laboratory automation 2016 2015	7.50 7.29
      Manufacturing, parts & services 2016 2015	6.62 n/a
      Diatron 2016 2015	8.43 n/a
      Workflow software 2016 2015	6.92 6.94
      Nucleic acid purification 2016 2015	7.35 7.13
      Smart consumables 2016 2015	6.48 n/a
      Contact-free measurement and capacity calculation methods 2016 2015	n/a 8.93

      The cash generating units determined for goodwill impairment testing are 'laboratory automation','workflow software','nucleic acid purification', 'manufacturing parts & services', 'Diatron', 'smart consumables', and in the previous year also 'contact-free measurement and capacity calculation methods'.

      The determination of the recoverable amount for the cash gen- erating units as of December 31, 2016 (2015) 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. Future net inflows of cash are budgeted in the functional currency. Raw materials prices are accounted for on their given terms. As in

      the previous year, the detailed budget period covers three years. The budgets have in turn been based on assumptions concern-

      ing 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. Should the value in use fall short of the carrying amount of the cash gen- erating unit, then the fair value less costs to sell has to be de- termined.

      93

      Of the goodwill recognized in the amount of € 42,841k (previ- ous year: € 5,125k), € 677k results from the acquisition of STRATEC Biomedical UK, Ltd. in the 2006 financial year (previ- ous year: € 790k), € 1,488k from the acquisition of STRATEC Molecular GmbH in the 2009 financial year (€ 1,488k), € 2,940k from the acquisition of STRATEC Biomedical USA, Inc. in the 2010 financial year (previous year: € 2,847k), € 28,969k from the acquisition of the Diatron Group and € 8,767k from the acquisition of STRATEC Consumables GmbH in the 2016 fi- nancial year.The changes compared with the previous year are due to foreign currency translation. For impairment testing pur- poses, the goodwill has been allocated 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 been allocated to the 'laboratory automation', 'manufacturing, parts & services','Diatron','workflow software','nucleic acid pu- rification', and 'smart consumables' cash generating units on the basis of the respective EBITs.The main units have the following characteristics:

      € 000s	Laboratory automation		Manufacturing, parts & services		Diatron
      2016	2015	2016	2015	2016	2015
      Carrying amount of goodwill	16,548	4,897	18,076	0	7,404	n/a
      Carrying amount of cash generating unit, including goodwill	75,981	70,035	52,077	n/a	54,971	n/a

      NOTES

      In line with IAS 36 (Impairment of Assets), the company performed the annual impairment test for these goodwill items as of October 31, 2016 and October 31, 2015 respectively.

      94 STRATEC Annual Report 2016

      The following key assumptions have been used to determine the recoverable amounts of the cash generating units.

      Assumptions used to calculate recoverable amounts of cash generating units

      Laboratory automation

      The budget for the recoverable amount has been based on average sales growth of 13.3 % (previous year: 10.1 %) and a budgeted average EBIT margin of 10.5 % (previous year: 11.1 %). This assumption reflects previous management experience. In perpetuity, a growth rate of

      1.0 % has been assumed (previous year: 1.0 %).

      Manufacturing, parts & services

      Average sales growth of 4.6 % (previous year: n/a) and a budgeted average EBIT margin of 28.7 % have been assumed.This assumption reflects past management experience. In perpetuity, a growth rate of 1.0 % has been assumed (previous year: n/a).

      Diatron

      The budget for the recoverable amount has been based on average sales growth of 14.0 % and

      a budgeted average EBIT margin of 18.4 %.These assumptions 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.

      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 € 814k, 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 the year under report (previous year: € 228k). For the goodwill thereby allocated as well, the annual impairment test did not identify any indications of impairment.

      Financial assets and liabilities

      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 Measure- ment). 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.

      95

      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 differ- ent 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.The option rights have been classi- fied as measured at fair value. Changes in the fair value of finan- cial 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. The financial assets held for trading and financial instruments classified as measured at fair value are recognized on the trading date.The trading date is taken as the date on which STRATEC AG undertakes to buy or sell the respective assets.

      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 receivables included under financial assets have been allo- cated to this category, as have cash and cash equivalents.These items are measured at amortized cost using the effective inter- est method, accounting for impairments where appropriate. For impairments of trade receivables, a distinction is made between individual allowances and general allowances.These take appro- priate account of default risks calculated on the basis of histor- ic 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, trade receivables are not discounted. Such receivables are only discounted when they are expected to be collected after more than 12 months.

      Available-for-sale financial assets include those non-derivative financial assets not allocated to any of the other measurement categories, as well as the shares in Quanterix Corporation, US. Changes in the fair value of available-for-sale financial assets are recognized directly in equity. Changes in their fair value are gen- erally 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 compre- hensive 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.

      The STRATEC Group does not have any financial assets in the financial investments held to maturity category.

      NOTES

      When there are objective 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 as- certain 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 prof- it 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 pay- ment 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 consider- ation received, less transaction costs where appropriate. They are subsequently measured at amortized cost using the effective interest method. Financial liabilities are retired when the con- tractual 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 finan- cial instruments (generally currency futures to manage ex- change 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 consoli- dated statement of comprehensive income, unless the deriva- tive is designated and effective as a hedge within hedge account- ing. 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, prepay- ments, and other non-financial assets and liabilities have been recognized at amortized cost.

      96 STRATEC Annual Report 2016

      Inventories

      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 con- sumed during the manufacturing process or in the performance of services (raw materials and supplies).These items are mea- sured 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 materi- al 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. Adminis- tration 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 bal- ance sheet item also includes development cooperations. In respect of the accounting policies applied for development co- operations, reference is made to the information in 'Recognition of sales, cost of sales, research and development expenses' in this section.

      Taxes

      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 calcu- lated 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 rec- ognized 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 car- ryovers have been capitalized to the extent that it is likely that future taxable income will be available and that there is suffi- cient likelihood that the loss carryovers will be utilized.The as- sessment of the ongoing value of tax loss carryovers has been based on short and medium-term forecasts concerning the fu- ture 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 respec- tive values through profit or loss.

      Pursuant to German tax law, deferred taxes have been recog- nized on 5 % of the differences resulting from translating foreign financial statements denominated in foreign currencies.

      No further deferred taxes have been recognized in connection with temporary difference for interests in subsidiaries as STRATEC AG is able to manage the timing of any reversal of these differences and these are unlikely to be reversed in the foreseeable future.

      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 rec- ognized directly in equity, the same applies for the relevant de- ferred tax assets and liabilities.

      Provisions for pensions and similar obligations

      Company pensions at the STRATEC Group involve both de- fined contribution and defined benefit schemes.

      In defined contribution pension schemes, the company is obliged to pay contributions to state or private pension com- panies in accordance with statutory or contractual require- ments. Apart from these contributions, the company is not subject to any further payment obligations. Current contribu- tions 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 obli- gations, the company makes contributions to external plan as- sets in some cases. 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 con- cerning mortality and invalidity rates, on assumptions concern- ing 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 con- gruent corporate bonds of AA-rated companies, or

      97

      additionally by reference to the yields on corresponding gov- ernment bonds. The fair value of the plan assets has been de- ducted 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. Remeasurements have been recognized directly in 'Other comprehensive income'.

      Other provisions

      Other provisions have been recognized to cover legal or cons- tructive 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 ob- ligations. 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 referen- ce to this current information and data.

      Share-based payment transactions

      IFRS 2 (Share-based Payment) makes a distinction between transactions that are cash-settled and those that are equity-set- tled. STRATEC AG recognizes three arrangements that are within the scope of IFRS 2 (Share-based Payment):

      Cash-settled stock appreciation rights (SARs), equity-settled stock options for employees, and employee participation pro- grams with the option of settlement in cash or with equity in- struments at the discretion of the counterparty.

      NOTES

      Given the lack of a separately determinable fair value for the services involved, goods and services received for equity-settled share-based payments (stock options) have been measured at the fair value of the equity instruments as of the date of being granted using recognized option pricing models.

      Goods and services received for cash-settled share-based pay- ments (stock appreciation rights - SARs) have been measured at each reporting date and settlement date at the fair value of the respective liability, which is determined using recognized option pricing models. Changes in fair value are recognized through profit or loss.

      Share-based payments with optional cash settlement (employ- ee participation program) at the discretion of the counterparty constitute a financial instrument consisting of a debt component (right of the counterparty to cash payment) and an equity com- ponent (right of the counterparty to equity instruments). The fair value of the financial instrument corresponds to the total of the fair values of the two components. The calculation of the fair value of the debt component is based on the calculation for cash-settled share-based payments. The calculation of the fair value of the equity components is performed as of the date of the instruments being granted by analogy with equity-settled share-based payments.Where the payment is not made in cash, but rather by issuing equity instruments, at the time of the dis- cretionary option being exercised the liability is reclassified to equity as consideration for the equity instruments. Should the payment be made in cash, rather than by issuing equity instru- ments, the liability is deemed to have been fully settled with such payment. All equity components previously recognized remain in equity.

      Where the exercising of equity instruments granted or of the right to cash payment is dependent on the performance by the contractual party of a specific period of service, it is assumed that the services to be performed by the counterparty as con- sideration will be received during the vesting period in future. The payment expenses are therefore recognized over the vest- ing period within which the beneficiaries acquire an unrestrict- ed claim to the instruments thereby committed.

      98 STRATEC Annual Report 2016

      Contingent liabilities

      Contingent liabilities are potential obligations resulting from past events whose existence is conditional on the materialization or otherwise of one or several uncertain future events not fully within STRATEC's control. In this case, an outflow of resources is deemed unlikely or the scope of obligation cannot be reliably estimated.

      Recognition of sales,

      cost of sales, research and development expenses

      The key principles underlying the recognition of sales and the recognition of cost of sales and research and devel- opment expenses given the business model at STRATEC AG are as follows:

      When recognizing development expenses, a distinction is made between proprietary development projects and development cooperations.

      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 stipu- lated in IAS 38.57. Capitalized development expenses are test- ed for impairment at least once a year in line with IAS 36 (Im- pairment of Assets) 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 recover- able amount. Once ready for their intended use, assets are amortized, generally over periods of five to eight years.

      For development cooperations, it is first assessed whether the respective development cooperation constitutes a con- struction contract pursuant to IAS 11 (Construction Contracts). This assessment is largely based on the relevant facts and cir- cumstances 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 (Construction Contracts) in the development stage already. Pursuant to IAS 11.32 et seq., however, the sales recog- nized are limited to the amount of contract costs incurred, as the development stage is viewed as an early stage of the respec- tive contract. 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

      (Impairment of Assets). Development cooperations classified as construction contracts are recognized during the development stage in each case in line with IAS 11 (Construction Contracts) as either receivables or liabilities from construction contracts. Any differential amount arising following comple- tion 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 require- ments of IAS 38.57 are cumulatively met, the (prorated) short- fall determined for these projects using the percentage of com- pletion method is capitalized. These items are recognized as intangible assets within non-current assets pursuant to IAS 38 (Intangible Assets), while the development expenses covered by agreed payments are recognized either as unfin- ished services pursuant to IAS 2 (Inventories) or as trade receivables.The recognition of sales during the devel- opment 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 de- velopment agreement. In the case of contingent milestone pay- ments 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 com- pletion of the order at that point in time. Unfinished services pursuant to IAS 2 (Inventories) 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 devel- opment stage and from the beginning of the appliance manu- facturing 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 bal- ance sheet date - and also during the financial year should there be any corresponding indications of impairment.

      The recognition of sales in the appliance manufactur- ing stage is treated as a 'sale of goods' pursuant to the require- ments 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 (Construction Con- tracts).

      99

      The following aspects should also be noted:

      Cost of sales basically consists of production-related manu- facturing 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 pro- duction-related assets and impairments of inventories.

      Development expenses were capitalized as internally gen- erated intangible assets in the 2016 financial year.These amount- ed to € 2,589k for proprietary development projects (previous year: € 2,779k) and to € 0k for development cooperations (previous year: € 183k). Pursuant to IAS 38.54, outlays allocable to research expenses have been recognized as expenses in the period in which they are incurred.

      Discretionary decisions and forward-looking assumptions

      The preparation of the consolidated financial statements re- quires a certain number of discretionary decisions and for- ward-looking 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 sec- tion. 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 generat- ing units, the determination of the recoverable amount for im- pairment testing purposes, the measurement of pension provi- sions, the fair value measurement of share-based payments, 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.

      The most important discretionary decisions and forward-look- ing 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:

      Discretionary decisions

    • Capitalization of internally generated intangible assets in connection with the development, or development stage, of a proprietary development project

      The assessment as to whether the requirements for capitaliza- tion have been met in each individual case is subject to signifi- cant discretionary decisions. 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 sufficiently reliable. When determining the recoverable amount, assump- tions 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 units performing the development work, adjusted where appropriate to account for the relevant term.

    • Recognition of development cooperations

      Within the business model of the STRATEC Group, the ade- quate recognition of development cooperations including ana- lyzer 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.

    • Allocation of goodwill to cash generating units for impairment testing purposes

      The allocation of goodwill acquired upon company acquisitions to cash generating units for impairment testing purposes pur- suant 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 compa- ny 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 factors) to determine the poten- tial synergies expected in each case.

    • Identification of functional currency

      NOTES

      When determining the functional currency of a foreign business operation and deciding whether its functional currency is iden- tical 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 econom- ic 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.

      100 STRATEC Annual Report 2016

    • Recognition of option rights in Quanterix Corporation, US

    • The calculation of the fair value of the option rights and shares in Quanterix Corporation, US, is subject to substantial discre- tionary decisions, particularly in respect of the probability of the individual scenarios arising, the fungibility of the common stocks, and the consideration of risks and uncertainties. Reference is made to the information in Section C.'Disclosures on the con- solidated balance sheet - (7) Financial assets'.

      Forward-looking assumptions

    • Determination of the recoverable amount

      when testing goodwill for impairment under IAS 36 (Impairment of Assets)

      Due to the large number of variables involved, the goodwill impairment test (carrying amount as of December 31:

      € 42,841k; previous year: € 5,125k) is subject to a difficult assessment involving a significant degree of uncertainty in the estimates used.The principal assumptions underlying the impair- ment 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.

    • Determination of the recoverable amount when testing other intangible assets for impairment under IAS 36 (Impairment of Assets)

      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: € 75,935k; previous year:

      € 25,867k).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. Based on the sensitivity analyses performed for the impairment tests, STRATEC AG concluded that there were no indications of potential impairment in these assets over and above those outlined in Section C.'Disclosures on the consoli- dated balance sheet - (1) Goodwill and other intangible assets'.

    • Measurement of the stock appreciation rights (SARs) granted (carrying amount as of December 31: € 863k; previous year: € 714k) and determination of the resultant personnel expenses pursuant to IFRS 2 (Share-based Payment)

      The stock appreciation rights (SARs) granted have been mea- sured by an independent surveyor specializing in option valua- tion.This surveyor used the binomial tree method to measure the SARs.The principal parameters subject to estimates (term, expected volatility, risk-free interest rate) have been presented in Section C. 'Disclosures on the consolidated balance sheet -

      (12) Non-current and current financial liabilities - Stock appre- ciation rights (SARs)'.

    • Calculation of provision for guarantee and warranty obligations pursuant to IAS 37 (Provisions, Contingent Liabilities and Contingent Assets)

      When calculating the provision for guarantee and warranty ob- ligations (carrying amount as of December 31: € 949k; previous year: € 1,419k), 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 refer- ence to this current information and data.The insights gained in the current financial year did not lead to any material change in the provision for guarantee and warranty obligations. Actual expenses in future financial years may deviate from the estimat- ed figures.

    • Recognition of deferred taxes for temporary differences and tax loss carryovers pursuant to IAS 12 (Income Taxes)

    In its assessment that the - predominantly short-term - differ- ences 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 or adopted 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 2016 financial year compared with the previous year have been explained in detail in Section

    C.'Disclosures on the consolidated balance sheet - (11) Taxes on income'.

    There are no other significant forward-looking assumptions and major sources of uncertainty concerning estimates at the bal- ance sheet date which involve any substantial risk of material adjustments being required in the assets and liabilities thereby recognized within the coming financial year.

    101

12. DISCLOSURES ON THE CONSOLIDATED BALANCE SHEET

13. Goodwill and other intangible assets

    NOTES

    Intangible assets developed as follows in the 2016 financial year:

    Goodwill € 000s	Acquired technologies € 000s	Acquired R&D projects € 000s	Internally generated intangible assets € 000s	Acquired patents € 000s	Acquired trademarks € 000s	Acquired customer bases € 000s	Other rights and values € 000s	Total € 000s
    Acquisition and manufacturing costs Balance at 12.31.2015	5,125	8,153	431	36,278	0	0	405	3,570	53,962
    Company acquisitions	37,139	19,844	0	7	5,023	2,956	27,002	294	92,265
    Change in scope of consolidation	0	0	0	0	0	0	0	0	0
    Additions	0	0	0	2,589	0	0	0	186	2,775
    Disposals	0	0	0	-1,159	0	0	0	-338	-1,497
    Reclassifications	0	0	0	0	0	0	0	0	0
    Currency differences	577	-512	0	-124	0	41	553	8	543
    Balance at 12.31.2016	42,841	27,485	431	37,591	5,023	2,997	27,960	3,720	148,048

    Goodwill € 000s	Acquired technologies € 000s	Acquired R&D projects € 000s	Internally generated intangible assets € 000s	Acquired patents € 000s	Acquired trademarks € 000s	Acquired customer bases € 000s	Other rights and values € 000s	Total € 000s
    Accumulated amortization and impairments Balance at 12.31.2015	0	7,507	294	11,702	0	0	405	3,062	22,970
    Change in scope of consolidation	0	0	0	0	0	0	0	0	0
    Additions to amortization	0	1,830	49	2,471	167	224	2,163	391	7,295
    Impairments	0	0	0	0	0	0	0	0	0
    Write-ups	0	0	0	0	0	0	0	0	0
    Disposals	0	0	0	0	0	0	0	-338	-338
    Currency differences	0	-710	0	18	0	1	28	8	-655
    Balance at 12.31.2016	0	8,627	343	14,191	167	225	2,596	3,123	29,272
    Carrying amounts at 12.31.2016	42,841	18,858	88	23,400	4,856	2,772	25,364	597	118,776

    102 STRATEC Annual Report 2016

    The goodwill results from the acquisition of the subsidiary STRATEC Consumables GmbH and of the Diatron Group in the 2016 financial year and from the acquisitions of the subsid- iaries STRATEC Biomedical UK, Ltd., STRATEC Molecular GmbH, and STRATEC Biomedical USA, Inc., in previous years.

    The carrying amount of technologies includes the technologies for technical solutions for decentralized laboratory analyses in the field of hematology identified upon the acquisition of the Diatron Group and the technologies for smart consumables, particularly in the fields of nano-structuring, micro-structuring, coating, and plastics production, identified upon the acquisition of STRATEC Consumables. In connection with acquisitions made in previous years, the carrying amount of technologies includes expertise in the field of RNA/DNA purification iden- tified upon the acquisition of STRATEC Molecular GmbH and technology in the field of contact-free measurement and capac- ity calculation methods identified upon the acquisition of STRATEC Biomedical USA, Inc.

    Acquired research and development projects are attributable to the acquisition of the STRATEC Molecular GmbH subsidiary in the 2009 financial year.

    The carrying amount for internally generated intangible assets includes both development expenses capitalized for proprietary development projects (€ 9,700k; previous year: € 8,480k) and

    development expenses capitalized for development coopera- tions (€ 13,700k; previous year: € 16,096k). Reference is made to the information in Section 'B. Recognition of sales, cost of sales, research and development expenses'. The carrying amount for other rights and values includes software and licens- es acquired.

    In the consolidated statement of comprehensive income, amor- tization on internally generated intangible assets, technologies, current R&D projects acquired, and other rights and values has been recognized under cost of sales or within the individual functional divisions in line with its causation.

    Individual intangible assets with carrying amounts of more than

    € 2.0 million at the balance sheet date on December 31, 2016 and thus, alongside goodwill, of material significance for the con- solidated financial statements of STRATEC AG comprise the following items: development cooperation A with a carrying amount of € 6,942k - expected remaining amortization period of 5.0 years; development cooperation B with a carrying amount of € 3,727k - expected remaining amortization period of 6.0 years; development cooperation C with a carrying amount of € 2,022k - expected remaining amortization period of 3.0 years.

    Intangible assets developed as follows in the 2015 financial year:

    Goodwill € 000s	Technologies € 000s	Acquired R&D projects € 000s	Internally generated intangible assets € 000s	Other rights and values € 000s	Total € 000s
    Acquisition and manufacturing costs Balance at 12.31.2014	4,785	7,708	431	32,743	3,799	49,466
    Change in scope of consolidation	0	0	0	0	0	0
    Additions	0	0	0	2,962	464	3,426
    Disposals	0	0	0	-60	-390	-450
    Reclassifications	0	0	0	471	0	471
    Currency differences	340	445	0	162	102	1,049
    Balance at 12.31.2015	5,125	8,153	431	36,278	3,975	53,962

    103

    Goodwill € 000s	Technologies € 000s	Acquired R&D projects € 000s	Internally generated intangible assets € 000s	Other rights and values € 000s	Total € 000s
    Accumulated amortization and impairments Balance at 12.31.2014	0	7,314	245	8,220	3,425	19,204
    Change in scope of consolidation	0	0	0	0	0	0
    Additions to amortization	0	198	49	1,953	328	2,528
    Impairments	0	0	0	1,550	0	1,550
    Write-ups	0	-450	0	0	0	-450
    Disposals	0	0	0	-60	-390	-450
    Currency differences	0	445	0	39	104	588
    Balance at 12.31.2015	0	7,507	294	11,702	3,467	22,970
    Carrying amounts at 12.31.2015	5,125	646	137	24,576	508	30,992

    In the 2015 financial year, impairment losses of € 1,550k were recognized under other operating expenses for internally gen- erated assets in connection with development cooperations. These are attributable to the Instrumentation segment. The events and circumstances leading to this impairment relate to a customer's strategic decision not to continue the development cooperation for a platform-based appliance. The cooperation with this customer will be sustainably continued within other development cooperations and supply agreements. Following adjustment for customer-specific requirements, the platform developed up to that point in time can be put to further use by STRATEC AG. In the interests of an optimal allocation of resources in respect of development cooperations based on specific contracts, the management of STRATEC AG never- theless decided to suspend marketing this platform and, if appropriate, only to continue with it at a later date.

    NOTES

    Furthermore, a write-up of € 450k was recognized in the 2015 financial year on a contact-free measurement and capacity cal- culation method previously written down in the 2013 financial year. This write-up was recognized under other operating

    income. The impairment was originally recognized to account for the difficult market entry for contact-free measurement and capacity calculation methods at the time. In the past financial year, a sales agreement was concluded with a company that operates successfully in this market and has the sales structures needed to sustainably place the appliance based on contact-free measurement and capacity calculation methods technology in the market.This technology is attributable to the Instrumenta- tion segment.

14. Property, plant and equipment

    Property, plant and equipment developed as follows in the 2016 financial year:

    Land, leasehold rights and buildings € 000s	Technical equipment and machinery € 000s	Other equipment, plant and office equipment € 000s	Prepayments made and assets under construction € 000s	Total € 000s
    Acquisition and manufacturing costs Balance at 12.31.2015	15,010	1,073	18,702	3,392	38,177
    Change in scope of consolidation	0	0	2	0	2
    Company acquisitions	204	7,914	1,072	1,187	10,377
    Additions	3,945	456	2,149	691	7,241
    Disposals	-3	-291	-1,503	-3	-1,800
    Reclassifications	3,210	537	42	-3,789	0
    Currency differences	76	24	11	2	113
    Balance at 12.31.2016	22,442	9,713	20,475	1,480	54,110

    104 STRATEC Annual Report 2016

    Land, leasehold rights and buildings € 000s	Technical equipment and machinery € 000s	Other equipment, plant and office equipment € 000s	Prepayments made and assets under construction € 000s	Total € 000s
    Accumulated depreciation Balance at 12.31.2015	3,748	497	14,337	0	18,582
    Change in scope of consolidation	0	0	2	0	2
    Additions	610	1,504	1,799	0	3,913
    Disposals	0	-121	-1,082	0	-1,203
    Currency differences	14	1	12	0	27
    Balance at 12.31.2016	4,372	1,881	15,068	0	21,321
    Carrying amounts at 12.31.2016	18,070	7,832	5,407	1,480	32,789

    As in the previous year, it was not necessary to capitalize any borrowing costs as a component of costs of acquisition or man- ufacturing pursuant to IAS 23 (Borrowing Costs) in the 2016 financial year.

    As in the previous year, it was not necessary to recognize any impairment losses in the 2016 financial year.

    Property, plant and equipment developed as follows in the 2015 financial year:

    Land, leasehold rights and buildings € 000s	Technical equipment and machinery € 000s	Other equipment, plant and office equipment € 000s	Prepayments made and assets under construction € 000s	Total € 000s
    Acquisition and manufacturing costs Balance at 12.31.2014	14, 038	1,088	17,596	294	33,016
    Change in scope of consolidation	0	0	0	0	0
    Additions	459	302	1,178	3,499	5,438
    Disposals	-4	-343	-868	0	-1,215
    Reclassifications	0	0	355	-355	0
    Currency differences	517	26	441	-46	938
    Balance at 12.31.2015	15,010	1,073	18,702	3,392	38,177

    Land, leasehold rights and buildings € 000s	Technical equipment and machinery € 000s	Other equipment, plant and office equipment € 000s	Prepayments made and assets under construction € 000s	Total € 000s
    Accumulated depreciation Balance at 12.31.2014	3,246	616	13,200	0	17,062
    Change in scope of consolidation	0	0	0	0	0
    Additions	426	148	1,580	0	2,154
    Disposals	0	-275	-808	0	-1,083
    Currency differences	76	8	365	0	449
    Balance at 12.31.2015	3,748	497	14,337	0	18,582
    Carrying amounts at 12.31.2015	11,262	576	4,365	3,392	19,595

    105

15. Inventories

    Raw materials and supplies

    Expenses of € 389k (previous year: € 55k) were recognized through profit or loss under cost of materials in the year under report for write-downs of raw materials and supplies. The re- sultant earnings items arose on account of stock movements.

    Unfinished products / unfinished services

    These items are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Unfinished products	5,302	3,630
    Unfinished services	0	223 3,853
    	5,302

    Income of € 25k from adjustments made to impairments pre- viously recognized on unfinished products and services was recognized through profit or loss under cost of materials in the year under report (previous year: € 10k).

    Information about the accounting treatment of development cooperations can be found in Section B. 'Recognition of sales, cost of sales, research and development expenses'.

    Finished products and merchandise

    These items are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Finished products	5,873	2,651
    Merchandise Prepayments made	288	140 0
    	27
    6,188	2,791

    Expenses of € 12k from the impairment of finished products were recognized through profit or loss under cost of materials in the year under report (previous year: € 6k).

    NOTES

    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.

16. Trade receivables

    Of trade receivables (€ 38,890k; previous year: € 24,045k), an amount of € 38,890k (previous year: € 22,740k) is due for payment within one year. Customer credit balances have been recognized under financial liabilities.

    The allowances schedule for trade receivables developed as follows:

    2016 € 000s	2015 € 000s
    Accumulated allowances at 01.01.	751	693
    Company acquisitions	982	0
    Expenses in period under report	238	20
    Reversals	-97	0
    Utilized	-608	-25
    Currency translation	14	63
    Accumulated allowances at 12.31.	1,280	751

    The gross amount of receivables for which individual allowances had been recognized at the balance sheet date amounted to

    € 1,574k (previous year: € 751k).

    Expenses of € 58k were recognized through profit or loss in the 2016 financial year for the complete write-down of trade receivables (previous year: € 0k). No write-backs were required in the previous year.

    106 STRATEC Annual Report 2016

    The time band structure of trade receivables has been present- ed in the following table (all figures in € 000s):

    Gross amount

    of which: impaired

    of which: neither impaired nor overdue at balance sheet

    date

    of which: not impaired at balance sheet date, but overdue within the following time bands

    up to 30 days

    between 30

    and 60 days

    between 60

    and 90 days

    more than 90 days

    12.31.2016 40,170 1,574 31,431 6,491 552 68 55

    12.31.2015 24,796 751 18,184 5,079 334 93 355

    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.

17. Receivables from construction contracts

    Information about the necessary recognition of development cooperations as construction contracts pursuant to IAS 11 (Construction Contracts) has been provided in Section B.'Rec- ognition of sales, cost of sales, research and development ex- penses'.

    Sales from construction contracts totaling € 7,282k have been recognized in the consolidated statement of comprehensive income for the 2016 financial year (previous year: € 5,243k).The sales recognized correspond to the costs incurred.

    As in the previous year, the future receivables from construction contracts recognized as of December 31, 2016 were neither impaired nor overdue. An amount of € 850k is overdue (€ 0k) and an amount of € 2,125k is due within one year (previous year: € 1,470k).

18. Receivables from associates

    These receivables are structured as follows:

    Company providing service	Company receiving service	12.31.2016 € 000s	12.31.2015 € 000s
    STRATEC AG	STRATEC Biomedical Inc.	0	1
    STRATEC AG	STRATEC Biomedical (Taicang) Co. Ltd.	13	13
    STRATEC Biomedical UK, Ltd	Sanguin International Inc.	9	9
    22	23

    As in the previous year, these receivables have remaining terms of less than one year. STRATEC Biomedical Inc. has been fully consolidated in the consolidated financial statements since October 1, 2016.

    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.

    107

19. Financial assets

    Financial assets are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Investments in associates	160	184
    Investments in listed companies	1,080	1,387
    Investments in unlisted companies	2,751	0
    Option rights Other	1,481	1,271 121
    	601
    6,073	2,963

    Investments in associates and other financial assets of € 218k (previous year: € 0k) have been recognized under non-current financial assets.

    Investments in associates

    The composition of investments in associates is presented in Section B.'Accounting policies applied - Scope of consolidation'. The amounts recognized in the balance sheet developed as follows:

    2016 € 000s	2015 € 000s
    Carrying amount at 01.01.	184	263
    Change in scope of consolidation	-14	-82
    Currency differences	-10	3
    Carrying amount at 12.31.	160	184

    The change in the scope of consolidation relates to the first- time full consolidation of STRATEC Biomedical Inc., Southing- ton, USA.

    The amendment to the scope of consolidation in the previous year related to the first-time full consolidation of STRATEC Services AG, Beringen, Switzerland.

    Investments in listed companies

    The shares held in listed companies have been measured at their closing prices on the stock market with the highest trading volumes at the balance sheet date. The expenses of € 307k resulting from measurement as of the balance sheet date (pre- vious year: income of € 117k) have been recognized through profit or loss under other financial income/expenses in the con- solidated statement of comprehensive income. No securities were acquired in the 2016 financial year (previous year:

    € 1,001k).

    Investments in unlisted companies and option rights

    The investments in unlisted companies and option rights result from the existing development cooperation with Quanterix Corporation, US. In the 2016 financial year, STRATEC AG was granted 700,000 option rights to shares in Quanterix Corpora- tion, US, in return for the achievement of milestones (previous year: none). Furthermore, in the year under report STRATEC AG exercised 1,300,000 stock options granted in previous years. Quanterix Corporation, US, is a company that is not traded on an active market. For the measurement of the option rights, STRATEC AG has received a survey in which an independent surveyor determined the value of the common stocks and the preferred stocks. This survey, which was compiled during the financial year, has been updated as of December 31, 2016. At the balance sheet date on December 31, 2016, STRATEC AG possessed 700,000 (previous year: 1,300,000) option rights to preferred stocks in the A-3 series and 1,300,000 (previous year:

    0) preferred stocks in the A-3 series. Unlike preferred stocks in the A-1, A-2, B, C, and C-1 series, the stocks in the A-3 series do not have rights to a cumulative dividend. In the event of a liquidation (in the sense used for companies financed by ven- ture capital) of Quanterix Corporation, US, there are liquidation preferences for the different series and classes of shares. B, C, and C-1 series stocks thus have precedence over all others, while A-1, A-2, and A-3 series stocks have precedence over common stocks. In the event of an IPO at Quanterix Corpora- tion, US, with a minimum share price of USD 5.00 per share and gross proceeds of at least USD 40.0 million, the preferred stocks are mandatorily converted at a ratio of 1:1 into common stocks. In measuring the common stocks, the surveyor applied a hybrid method accounting for two scenarios: on the one hand, an IPO scenario that would be followed by crossover financing and on the other a 'remain private' scenario. Measurement for the IPO scenario uses a market-based valuation method, while measure- ment for the 'remain private' scenario has been based on a DCF method. Each scenario was weighted on the basis of its likeli- hood as estimated by the Board of Management of Quanterix Corporation, US. Furthermore, the surveyor accounted for a discount for lack of marketability for the common stocks. The change in the fair value of the option rights resulted in income of € 535k in the 2016 financial year (previous year: € 663k), which has been recognized in the 'Other operating income' item in the consolidated statement of comprehensive income. The change in the fair value of the stocks resulted in income of

    NOTES

    € 1,055k in the 2016 financial year (previous year: € 0k), which has been recognized directly in equity in the 'Changes in value of financial investments' item in the consolidated statement of

    108 STRATEC Annual Report 2016

    comprehensive income. The measurement of the Quanterix option rights and stocks involves a fair value measurement based on Level 3 input factors pursuant to IFRS 13 (Fair Value Measurement). If the Board of Management of STRATEC AG had not accounted in the previous year for the subjective, un- verifiable discretionary decisions by the Board of Management of Quanterix Corporation, US, by way of an additional discount, other operating income for the previous year would have been

    € 425k higher.

    Other

    The 'Other' line item mainly includes loans of € 379k (previous year: € 0k), amounts charged on of € 93k (previous year: € 0k), receivables of € 42k from employees (previous year: € 31k), creditors with debit balances of € 34k (previous year: € 21k), insurance claims of € 8k (previous year: € 8k), and rental depos- its of € 26k (previous year: € 5k). An impairment loss of € 25k has been recognized for one creditor with a debit balance (previous year: € 33k).

20. Other receivables and assets and income tax receivables

    Other receivables and assets are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Deferred expenses	1,106	839
    Sales taxes	2,638	1,478
    Other	126	41
    3,870	2,358

    The other receivables and other assets are neither impaired nor overdue.

    Income tax receivables of € 4,081k result from prepayments and refunds of taxes on income (previous year: € 5,038k).

21. Shareholders' equity

    The individual components of shareholders' equity and their development in 2016 and 2015 have been presented in the consolidated statement of changes in equity.

    Share capital

    The share capital of STRATEC AG amounted to € 11,861k at the balance sheet date (previous year: € 11,853k). Based on the resolution adopted by the Annual General Meeting on May 22, 2015, the shares were converted after the close of trading on August 28, 2015 at a ratio of 1:1 from bearer shares with a nominal value of € 1.00 each into individual registered shares (no-par registered shares). The share capital is divided into 11,860,995 ordinary shares (previous year: 11,852,970 ordinary shares). The increase in the share capital by 8,025 ordinary shares was due to a conditional capital increase (previous year: 57,525 ordinary shares). The shares have been paid up in full and are registered shares. Each share entitles its holder to one voting right.

    Authorized capital

    Pursuant to § 4 (4.5) of the Articles of Association, the Board of Management is authorized, subject to approval by the Super- visory Board, to increase the company's share capital on one or more occasions prior to May 21, 2020 by a maximum amount of up to € 5,500,000.00 by issuing up to a maximum of 5,500,000 new shares in return for cash or non-cash contribu- tions (Authorized Capital 2015/I). 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 € 5,500,000 as of December 31, 2016.

    Conditional capital

    § 4 (4.6) Paragraph 1 of the Articles of Association provides for Conditional Capital V/2009. This conditional capital in- crease 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 res- olution adopted by the Annual General Meeting on June 6, 2013, Conditional Capital V/2009 was reduced to € 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/2009 amounted to € 78,500.00 as of December 31, 2016.

    § 4 (4.6) Paragraph 2 of the Articles of Association provides for Conditional Capital VI/2013. This conditional capital in- crease 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 capi- tal 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 finan- cial year in which they are issued. Conditional Capital VI/2013 amounted to € 900,000.00 as of December 31, 2016.

    109

    Furthermore, § 4 (4.7) of the Articles of Association provides for Conditional CapitalVII/2015 of € 800,000.00.This con- ditional capital increase serves exclusively to grant up to 800,000 new shares to the bearers or creditors of convertible or warrant bonds issued by the company or by direct or indirect majority shareholders of the company by May 21, 2020 on the basis of the resolution adopted by the Annual General Meeting on May 22, 2015. Conditional Capital VII/2015 amounted to

    € 800,000.00 as of December 31, 2016.

    Total conditional capital therefore amounted to € 1,778,500.00 as of December 31, 2016 (previous year: € 1,787,325.00).

    Stock option programs

    The company had two stock option programs (equity-settled share-based payment) as of December 31, 2016 (previous year: two). These programs are especially well-suited to provide a sustainable performance incentive for employees of the com- pany, and 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. Since the 2015 financial year, the individual members of the Board of Management have no longer been granted any stock options. Rather than stock options, they are now granted stock appre- ciation rights (cash-settled share-based payment - SARs) as a variable compensation component of a long-term incentive nature. Further details of the structure of the stock appreciation rights (SARs) can be found in Section E. 'Compensation re- port'in the group management report.

    The following specific conditions apply to stock option pro- grams 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 per- formance targets, the stock options may be exercised in prede- termined exercise windows. Up to 50 percent 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 peri- od. Following a qualifying period of a further year, up to 100 percent of the stock options granted may be exercised provid- ed that STRATEC's share has risen in value by at least fifteen percent between the date of the option rights being granted and the date marking the expiry of the qualifying period. Fol- lowing 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 earli- est 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.

    NOTES

    The individual stock option programs, fair value calculations us- ing the Black-Scholes option pricing model, and the calculation of the related personnel expenses in the individual periods (tak- ing due account of personnel turnover) have mainly been based on the following key parameters (with expected volatility derived from historic volatility figures):

    Granted in:	2016	2015	2014	2013	2012	2011
    Option rights granted (number of shares)	24,050	19,850	56,100	92,600	96,100	58,100
    Weighted exercise price (in €)	48.52	47.85	33.04	29.75	31.39	27.47
    Expected share price volatility in %	34.88 bis 42.29	31.93 bis 39.77	26.40 bis 34.67	34.20 bis 39.43	28.70 bis 33.51	29.23 bis 31.60
    Expected dividend yield in %	1.23	1.50	1.50	1.50	1.50	1.50
    Risk-free interest rate in %	-0.02 bis 0.19	0.12 bis 0.79	0.72 bis 1.56	1.20 bis 1.76	1.30 bis 1.85	1.83 bis 3.21
    Assumed turnover of subscription beneficiaries in %	5.0	5.0	5.0	5.0	5.0	5.0
    Fair value of option rights at date of being granted (€ 000s)	123	101	202	307	258	165

    110 STRATEC Annual Report 2016

    The weighted average share price has been accounted for at €

    47.28 in the fair value calculation of the option rights granted in the financial year (previous year: € 48.57).

    In respect of the exercise behavior shown by the program par- ticipants, it has been assumed that they will exercise their op- tions at the earliest opportunity.

    Number of option rights	Weighted exercise price
    Outstanding on 12.31.2014	270,500	30.62
    Exercisable on 12.31.2014	79,250	29.49
    During the 2015 financial year	19,850 57,525 0 2,000	47.85 29.09 n.a. n.a.
    Outstanding on 12.31.2015	230,825	32.37
    Exercisable on 12.31.2015	76,550	31.47
    During the 2016 financial year	24,050 8,025 0 2,400	48.52 31.82 n.a. n.a.
    Outstanding on 12.31.2016	244,450	33.91
    Exercisable on 12.31.2016	78,500	31.63

    • granted

    • exercised

    • lapsed

    • forfeited

    • granted

    • exercised

    • lapsed

    • forfeited

    The following options schedule provides an overview of the development in stock option rights in the 2015 to 2016 financial years:

    As in the previous year, all of the stock options granted in the year under report were allocated to employees at STRATEC AG.

    In the year under report, no stock options were exercised by members of the Board of Management (previous year: 15,000 stock options at an average exercise price of € 27.11 per share). No stock options were exercised by former members of the Board of Management of STRATEC AG in the year under re- port (previous year: 15,000 stock options at an average exercise price of € 31.27 per share). Employees of STRATEC AG exer- cised 8,025 stock options in the financial year under report (previous year: 27,525) at an average exercise price of € 31.82 per share (previous year: € 28.98). Of the stock options exer- cised by employees of STRATEC AG in the 2016 financial year, no stock options related to stock options exercised by any member of the Board of Management prior to his appointment to the Board of Management (previous year: 4,750 stock op- tions at an average exercise price of € 29,13).

    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

    € 138k in the 2016 financial year (previous year: € 144k). Given the consistent, low level of personnel turnover, it has not been necessary in subsequent periods to adjust the expenses calcu- lated upon the respective rights being granted.

    The 78,500 stock option rights exercisable as of December 31, 2016 (previous year: 76,550) entitle their bearers to acquire a total of up to 78,500 shares (previous year: 76,550) at a total exercise price of € 2,483k (previous year: € 2,409k).

    The weighted average listed price on the Frankfurt Stock Ex- change of those stock options exercised in the period under report since their respective issue amounted to € 49.46 (pre- vious year: € 51.19).

    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 follow- ing table:

    2016
    Range in €	Number of Stock options	Weighted exercise price in €	Weighted remaining contractual term in months
    25.01 - 30.00	66,300	28.13	41.9
    30.01 - 35.00	128,500	31.82	40.8
    35.01 - 40.00	3,800	39.55	52.5
    40.01 - 45.00	15,250	42.61	71.2
    45.01 - 50.00	12,050	46.77	65.6
    50.01 - 55.00	18,550	52.39	78.2
    Total	244,450	33.91	47.3

    111

    2015
    Range in €	Number of Stock options	Weighted exercise price in €	Weighted remaining contractual term in months
    25.01 - 30.00	69,100	28.19	52.8
    30.01 - 35.00	134,525	31.87	53.0
    35.01 - 40.00	4,600	39.34	62.1
    40.01 - 45.00	4,250	41.45	71.0
    45.01 - 50.00	12,850	46.77	77.6
    50.01 - 55.00	5,500	50.63	83.2
    Total	230,825	32.37	55.5

    Employee participation program

    In August 2015, the Board of Management decided to offer an employee participation program (share-based compensation with the option of cash or equity settlement) to all permanent and temporary employees at STRATEC Biomedical AG, Birken- feld, Germany.This is intended to enable them to participate in the future success of STRATEC AG.The program comprises the subscription of eight employee shares each in October 2015 and March 2016. Furthermore, those shareholders who did not sell the eight shares assigned to them in October 2015 by Feb- ruary 28, 2016 received an additional three shares. Employees opting not to participate in the employee participation program automatically received one-off payments corresponding to the value of eight employee shares in each case in October 2015 and March 2016. In October 2015 and March 2016, a total of 2,344 and 3,189 treasury stocks respectively in STRATEC AG were assigned to the accounts of the employees participating in the program.

    An amount of € 48k was recognized as expenses (previous year: € 254k) and an amount of € 45k (previous year: € 217k) was recognized in the capital reserve in connection with the employee participation program in the 2016 financial year. Due to the assignment of treasury stock, the capital reserve was subsequently reduced by € 54k (previous year: € 40k).

    Capital reserve

    The capital reserve mainly includes the premium from the issu- ing of shares, less the costs of equity procurement, after taxes. Moreover, the capital reserve also includes the benefit from the granting of stock options and from the employee participation program recognized as expenses, as well as the differential amount from the buyback and reissue of treasury stock.

    Revenue reserves

    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 autho- rization of the Board of Management and Supervisory Board of STRATEC AG to determine the appropriation of profit pursu- ant to § 58 (2) of the German Stock Corporation Act (AktG).

    Revenue reserves are thus structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Free revenues	19,392	19,392
    Accumulated net income	85,641	74,915 94,307
    	105,033

    NOTES

    Accumulated net income developed as follows in the year under report:

    € 000s
    Accumulated net income at 12.31.2015	74,915
    Change in scope of consolidation	39
    Consolidated net income in 2016	19,572
    Distribution (dividend for 2015)	- 8,885
    Accumulated net income at 12.31.2016	85,641

    112 STRATEC Annual Report 2016

    Other equity

    Other equity includes the currency translation reserve, the fair value measurement reserve, the Quanterix shares classified as available for sale, accumulated actuarial gains and losses from the remeasurement of pension provisions, and the resultant deferred taxes.

    The currency translation reserve of € 5,267k reported as of the balance sheet date (previous year: € 4,278k) relates to currency differences arising upon the translation of the separate financial statements of companies with functional currencies other than the euro, as well as to the translation of group-internal net in- vestments within equity as of the balance sheet date.

    The amounts recognized in equity through other comprehen- sive income (OCI) are structured as follows:

    Balance at 1.1.2015 € 000s	OCI € 000s	Balance at 12.31.2015 € 000s
    Pensions	- 67	1	-66
    Deferred taxes on pensions	0	19	19
    Available-for-sale instruments	0	0	0
    Deferred taxes on available-for-sale instruments	0	0	0
    Currency reserve	1,928	2,556	4,484
    Deferred taxes on currency reserve	0	-206	-206
    Total	1,861	20	4,231

    Balance at 1.1.2016 € 000s	OCI € 000s	Balance at 12.31.2016 € 000s
    Pensions	- 66	240	174
    Deferred taxes on pensions	19	6	25
    Available-for-sale instruments	0	1,055	1,055
    Deferred taxes on available-for-sale instruments	0	-15	-15
    Currency reserve	4,484	1,032	5,516
    Deferred taxes on currency reserve	-206	-43	-249
    Total	4,231	2,276	6,506

    113

    Treasury stock

    By resolution of the Annual General Meeting held on May 22, 2015, the company was authorized until May 21, 2020 to ac- quire 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 22, 2015 and to use this for every purpose permitted within the statutory limitation and consistent with the respective conditions.The authorization may not be drawn on to trade in treasury stock.Together with the treasury stock already acquired and still possessed by the company, the trea- sury stock acquired on the basis of this authorization may not at any time account for more than ten percent of the respective share capital.The treasury stock may be acquired on the stock market, by way of a public offer, by way of a public request to submit sales offers, or by issuing pre-emptive rights to share- holders. As well as being sold on the stock market or by way of a public offer addressed to all, the treasury stock acquired on the basis of this and earlier authorizations may also be used as follows:

22. Subject to approval by the Supervisory Board, and without any further resolution being required, the treasury stock may be retired.

23. The treasury stock may be used to the exclusion of shareholders' subscription rights to service subscription rights in connection with stock option programs based on authorizations adopted by the Annual General Meeting.

24. The treasury stock may be sold to third parties to the exclusion of shareholders' subscription rights in return for contributions in kind in the context of business combina- tions, or to acquire companies, parts of companies or shareholdings in companies.

25. The treasury stock may be sold to third parties to the exclusion of shareholders' subscription rights in ways other than via the stock market. In this case, the selling price (excluding disposal-related costs) may not fall significantly short of the share's average closing price in XETRA trading on the Frankfurt Stock Exchange on the five trading days preceding the substantiation of the disposal obligation.

26. The treasury stock may be issued to the exclusion of shareholders' subscription rights for the purpose of implementing a stock dividend.

    In the case of authorizations b) to e), the number of stocks to be disposed of to the exclusion of shareholders' subscription rights may - together with new shares issued to the exclusion of shareholders' rights since the granting of this authorization pursuant to § 186 (3) Sentence 4 of the German Stock Corpo- ration Act (AktG) - not exceed a total of ten percent of the company's share capital either at the time of this authorization becoming effective or, if lower, being exercised.

    NOTES

    Authorizations a) to e) may be exercised in whole or in part, individually or collectively, and on one or several occasions.They also include the use of shares acquired on account of § 71d of the German Stock Corporation Act (AktG).

    As in the previous year, STRATEC AG made no use of this au- thorization to acquire treasury stock in 2016. 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.

    The development in treasury stock is as follows:

    Number
    Treasury stock at 12.31.2015	9,879
    Acquisition of treasury stock	0
    Surrender of treasury stock	-3,189
    Treasury stock at 12.31.2016	6,690

    The surrender of treasury stock was executed in connection with the employee participation program.

    The treasury stock has been recognized at cost at a total amount of € 118k (previous year: € 172k) as a separate item within other equity.

    Appropriation of earnings

    The German Stock Corporation Act (AktG) requires the divi- dends to be distributed to shareholders to be calculated on the basis of the net income reported in the annual financial state- ments of STRATEC AG prepared in line with the German Com- mercial Code (HGB).

    In the 2016 financial year, a dividend of € 0.75 (previous year:

    € 0.70) was paid per share with dividend entitlement for the 2015 financial year, corresponding to a total distribution of

    € 8,885k (previous year: € 8,248k).

    With the approval of the Supervisory Board, the Board of Man- agement proposes that, of the net income of € 45,646k calcu- lated for STRATEC AG in line with the German Commercial Code, an amount of € 9,127,814.85, equivalent to € 0.77 per share with dividend entitlement, should be distributed, and that the remaining amount of € 36,518k should be carried forward. The proposed dividend is dependent on approval by the Annu- al 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 Commer- cial Code (HGB) as of December 31, 2016, the Board of Man- agement and Supervisory Board did not allocate any amount from the net income for 2016 to the free revenue reserves.

    114 STRATEC Annual Report 2016

27. Provisions for pensions

    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 € 3,272k in the financial year under report (previous year: € 2,777k).This total includes employer contribu- tions of € 1,953k to the German state pension system (previous year: € 1,758k).

    Furthermore, as of the balance sheet date capital allowance commitments had been made to one member of the Board of Management in Germany and to employees in Austria (sever- ance obligations). Reinsurance policies have been concluded in some cases to cover the pension obligation.

    Actuarial surveys have been obtained to ascertain the corre- sponding 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.

    The calculation of the present value of pension obligations has been based on the following assumptions:

    As in the previous year, the main life expectancy assumptions for Germany have been taken from the biometric '2005G Guidelines' published by Prof. Dr. Klaus Heubeck. For Austria, these assumptions have been based on the'AVÖ 2008-P Pagler

    & Pagler Generationentafel'.

    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.

    € 000s 2016	€ 000s 2015
    Present value of defined benefit obligations (DBO) as of 01.01.	242	226
    Company acquisitions	2,017	0
    Current service cost	62	14
    Compounding of pension obligations	19	5
    Payments made	-152	0
    Remeasurement of pension obligations Actuarial gains (-)/losses (+) due to changes in	-100 0 -141	-3 0 0
    Present value of defined benefit obligations (DBO) as of 12.31.	1,947	242

    • financial assumptions

    • demographic assumptions

    • experience adjustments

    The present value of the vested defined benefit obligations (DBO) and plan assets changed as follows in the financial year under report:

    Germany 12.31.2016	Austria 12.31.2016
    Discount factor	1.73 %	1.75 %
    Future income increases	0.00 %	3.00 %
    Future pension increases	0.00 %	0.00 %
    Personnel turnover rate	0.00 %	10.00 %
    Average duration (in years)	15.5	15.8

    € 000s 2016	€ 000s 2015
    Fair value of plan assets as of 01.01.	179	165
    Employer contributions to plan assets	12	12
    Interest income on plan assets	4	4
    Remeasurement of plan assets	-1 0	-2 0
    Fair value of plan assets as of 12.31.	194	179

    • expenses for plan assets (excluding interest income)

    • other

    Germany 12.31.2015

    Discount factor 2.28 %

    Future income increases 0.00 %

    To calculate the financing status or the net obligation, the pres- ent value of the externally financed obligations is compared with the fair value of the plan assets:

    Future pension increases	0.00 %
    Average duration (in years)	16.4

    115

    € 000s 12.31.2016	€ 000s 12.31.2015
    Present value of pension obligations	1,947	242
    Fair value of plan assets	194	179
    Financing status = net obligation	1,753	63

    The following amounts have been recognized in equity under 'Other comprehensive income' in the statement of comprehen- sive income:

    € 000s 2016	€ 000s 2015
    Remeasurement of net obligation:
    Expenses for plan assets (excluding interest income)	1	2
    Actuarial gains (-) / losses (+) due to changes in	-100 0 -141	-3 0 0
    Amounts recognized in OCI	-240	-1

    • financial assumptions

    • demographic assumptions

    • experience adjustments

    The net obligation developed as follows in the past financial years:

    € 000s 2016	€ 000s 2015
    Net obligation as of 01.01.	63	61
    Company acquisitions	2,017	0
    Share of pension expenses recognized in income statement	77	15
    Amounts recognized in OCI	-240	-1
    Payments made	-152	0
    Employer contributions to plan assets	-12	-12
    Net obligation at 12.31.	1,753	63

    The plan assets relate exclusively to capital commitments in Germany. These reinsurance policies predominantly invest in fixed-income securities.When selecting such securities, the rat- ing 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 preser- vation with a low degree of volatility. No prices listed on an 'active market' are available for the reinsurance policies.

    Germany	€ 000s 2016	€ 000s 2015
    Discount factor +0.50 %	-21	-19
    Discount factor -0.50 %	23	22
    Austria
    Discount factor +0.50 %	-124
    Discount factor -0.50 %	137
    Future income increases +0.50 %	147
    Future income increases -0.50 %	-135

    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:

    € 000s 2016	€ 000s 2015
    Current service cost	62	14
    Compounding of pension obligations	19	5
    Interest income on plan assets	-4	-4
    Share of pension expenses recognized in income statement	77	15

    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.

    At STRATEC AG, the discount factor is the key actuarial as- sumption used to calculate the pension obligation, while in Austria (severance obligations) reference is additionally made to future income increases. The following sensitivity analysis shows how the net defined benefit obligation would have been influenced by potential changes in the corresponding assump- tions if all other assumptions had remained unchanged.

    NOTES

    Plan asset endowments by STRATEC AG of € 12k (previous year: € 12k) are expected for the following 2017 financial years. No outgoing payments from plan assets are expected.

    116 STRATEC Annual Report 2016

    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 'eco- nomic interpretation' as defined contribution plans, as the refi- nancing 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 € 688k as of December 31, 2016 (previous year: € 1,053k). If the rein- sured pension fund models had been classified as defined obli- gation 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 € 200k in the 2016 financial year (previous year: € 288k).These contributions were all made for retirement pensions of members of the Board of Manage- ment of STRATEC AG.

28. Taxes on income

    Taxes on income comprise the income taxes paid or owed and deferred taxes in the individual countries. Interest on back payments and reimbursements in connection with tax audits are recognized under net financial expenses.

    € 000s 2016	€ 000s 2015
    Income taxes paid or owed	3,846 2,691	1,615 2,344
    6,537	3,959
    Deferred taxes	-69 -3,105	646 484
    -3,174	1,130
    Income tax expenses	3,363	5,089

    • Germany

    • International

    • Germany

    • International

    Income tax expenses can be broken down in terms of their origin as follows:

    Deferred taxes are recognized for the following balance sheet items and factors:

    12.31.2016 12.31.2015

    Deferred tax assets € 000s	Deferred tax liabilities € 000s	Deferred tax assets € 000s	Deferred tax liabilities € 000s
    Intangible assets	899	14,332	1,913	7,015
    Property, plant and equipment	57	1,166	17	15
    Non-current financial assets	63	688	4	337
    Inventories	49	89	39	116
    Trade receivables	133	254	196	112
    Receivables from construction contracts	5	0	0	0
    Receivables from associates	0	787	104	368
    Current financial assets	0	51	18	256
    Non-current financial liabilities	123	0	16	0
    Provisions for pensions	480	0	14	0
    Current financial liabilities	111	28	144	0
    Trade payables	66	0	0	0
    Current other liabilities	298	0	258	0
    Provisions	0	120	21	4
    Loss carryovers	740	0	116	0
    Net investment in foreign operation	0	172	0	145
    Currency translation	48	115	39	89
    Subtotal	3,072	17,802	2,899	8,457
    Netting	-2,973	-2,973	-2,878	-2,878
    Amount recognized in consolidated balance sheet	99	14,829	21	5,579

    117

    2016 € 000s	2015 € 000s
    Earnings before taxes on income	22,935	27,173
    Overall tax rate	27.52 %	27.53 %
    Expected tax expenses (-) / income (+)	-6,312	-7,483
    Deviations in German and foreign tax rates	2,267	1,993
    Impact of increase (-) / decrease (+) in effective tax rates	3,228	-44
    Tax-exempt income (+) / expenses (-) from investments, securities price gains / losses, and dividends	-338	795
    Expenses not deductible for tax purposes less tax settlements	-225	-34
    IFRS personnel expenses (stock options)	-38	-40
    Tax back payments / refunds for previous years and non-period tax expenses / income	-1,487	-161
    Write-down of deferred tax assets on tax loss carryovers	-426	-131
    Sundry	-32	16
    Reported tax expenses (-) / income (+)	-3,363	-5,089

    Of the deferred tax income of € -3,174k recognized in the consolidated statement of comprehensive income (previous year: expenses of € 1,130k), € -2,984k (previous year: € -1,001k) is attributable to temporary valuation differences, € 1k (previ- ous year: € 2k) to the costs of capital increases, and € -191k (previous year: € 2,129k) to the recognition through profit or loss of deferred tax assets (previous year: deferred tax liabilities) on tax loss carryovers. Of the change in deferred tax assets recognized on loss carryovers, an amount of € 619k (previous year: € 0k) involves income resulting from the recognition of deferred tax assets on loss carryovers, € 2k (previous year: € 2,102k) involves expenses resulting from the utilization of de- ferred tax assets on loss carryovers, € 426k (previous year: € 131k) relates to impairment losses, and € 47k (previous year: € 104k) involves income resulting from currency translation.The remaining increase of € 386k (previous year: € 0k) is attributable to the recognition through equity of additions resulting from company acquisitions and changes in the scope of consolidation.

    In the 2016 financial year, deferred tax assets on loss carryovers were recognized for three subsidiaries (previous year: one sub- sidiary) in an amount of € 740k (previous year: € 116k). In the 2016 financial year, deferred tax assets of € 426k on loss carry- overs were written down (previous year: € 131k), of which € 361k related to STRATEC Biomedical USA, Inc. (previous year:

    € 131k). Given the existence of deferred tax liabilities, the de- ferred tax assets still recognized at this company are deemed to have retained their value.The nominal amount of loss carry- overs for which no deferred tax assets were recognized amounts to € 5,486k (previous year: € 3,742k).The unused tax loss carryovers for which no deferred tax assets have been recognized in the balance sheet mainly relate to STRATEC Bio- medical USA, Inc. Their eligibility to be carried forward is as follows:

    Up to 7 years	20 years	Unlimited	Total
    Loss carryover	189	5,256	41	5,486

    The tax expenses of € 3,363k reported for 2016 (previous year:

    NOTES

    € 5,089k) deviate by € 2,949k (previous year: € 2,394k) from the tax expenses of € 6,312k (previous year: € 7,483k) expect- ed to result from application of the overall tax rate for STRATEC AG (27.52 %; previous year: 27.53 %) to the Group's earnings

    before taxes. The overall tax rate results from the corporate income tax rate of 15.00 % (previous year: 15.00 %), the solidar- ity surcharge of 5.50 % of corporate income tax (previous year:

    5.50 %), and an average trade tax rate of 11.69 % (previous year:

    11.70 %).

    The difference between the tax expenses expected and those reported is attributable to the following items:

    118 STRATEC Annual Report 2016

29. ) Non-current and current financial liabilities

    Non-current financial liabilities are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Liabilities to banks	2,505	3,614
    Liabilities for personnel-related items Accrued trade payables	483	714 0
    	47
    3,035	4,328

    Current financial liabilities are structured as follows:

    Obligations for profit participation schemes include obligations for short-term performance-related compensation for employ- ees (€ 364k; previous year: € 401k), and obligations for short, medium, and long-term performance-related compensation for the Board of Management (€ 2,115k; previous year: € 1,788k). The obligations for long-term performance-related compensa- tion for the Board of Management (€ 863k; previous year:

    € 714k) correspond to the fair value of the payments expected for the stock appreciation rights (SARs) granted.The fair value has been determined as an arbitrage-free valuation using the Black/Scholes method and with application of the binomial tree method. Further information about the structure of the short, medium, and long-term performance-related compensation for the Board of Management can be found in Section E.'Compen- sation report' in the group management report.

    12.31.2016 € 000s	12.31.2015 € 000s
    Liabilities to banks	69,008	1,492
    Liabilities for personnel-related items	2,021	1,511
    Accrued trade payables	1,638	697
    Supervisory Board compensation	124	84
    Other	2	32
    72,793	3,816

    Stock appreciation rights (SARs)

    The fair value of the stock appreciation rights (SARs) as of the measurement date on December 31, 2016 has been deter- mined on the basis of the following parameters:

    Stock appreciation rights (SARs) model parameters	Tranche 2 2016 financial year	Tranche 1 2015 financial year
    Issue date	04.01.2016	08.03.2015
    Average share price on issue date	€ 43.07	€ 50.53
    Term
    Overall term	60.0 months	60.0 months
    Remaining term as of 12.31.	51.0 months	43.1 months
    Minimum qualifying period
    Overall term	24.0 months	24.0 months
    Remaining term as of 12.31.	15.0 months	7.1 months
    Share price at measurement date	€ 45.79	€ 45.79
    Expected volatility	35.2 %	37.2 %
    Risk-free interest rate	-0.62 %	-0.70 %
    Fair value on issue date	€ 11.36	€ 11.28
    Fair value as of 12.31.	€ 12.07	€ 9.50

    Financial liabilities to banks

    As of December 31, 2016, the Group had total unutilized cred- it lines of € 5,900k (previous year: € 13,900k).

    Financial liabilities for personnel-related items

    Financial liabilities for personnel-related items chiefly comprise obligations of € 2,479k in connection with profit participation schemes (previous year: € 2,206k).

    119

    The development in the total number of stock appreciation rights (SARs) in the reporting period is presented below:

    Absolute figures	Total at 01.01.2016	Granted	Exercised, lapsed, forfeited	Total at 12.31.2016	Of which exercisable
    Tranche 1 2015	40,000	0	0	40,000	0
    Tranche 2 2016	0	40,000	0	40,000	0
    Total	40,000	40,000	0	80,000	0

    The total expenses recognized in the 2016 financial year for equity-settled share-based payments amounted to € 183k (pre- vious year: € 361k) - further information can be found in '(9) Shareholders' equity' in this section - while total expenses for cash-settled share-based payments amounted to € 152k (pre- vious year: € 751k).

    Maturities

    Financial liabilities have the following maturities:

    Maturity1	12.31.2016 € 000s
    2017	72,793
    2018	1,460
    2019	389
    2020	389
    2021	389
    2022 and later	408
    Total	75,828
    1 The calculation of the maturity of stock appreciation rights (SAR) has been based on the shortest possible term for the rights in each case.

    Maturity1	12.31.2015 € 000s
    2016	3,816
    2017	1,823
    2018	971
    2019	383
    2020	383
    2021 and later	768
    Total	8,144

30. Trade payables / liabilities to associates

    Trade payables mostly involve goods and services provided in November and December 2016. As in the previous year, these items are due for payment within one year.

    NOTES

    The liabilities to associates reported in the previous year were all due to STRATEC Biomedical (Taicang) Co. Ltd. and all related to the ongoing exchange of services and goods. These items were due for payment within one year.

    120 STRATEC Annual Report 2016

31. ) Non-current and current other liabilities

    Maturity	12.31.2015 € 000s
    2016	8,391
    2017	22
    2018	0
    2019	0
    2020	0
    2021 and later		0
    Total	8,413

    Other liabilities are structured as follows:

    12.31.2016 € 000s	12.31.2015 € 000s
    Liabilities for personnel-related items	3,259	1,610
    Other tax liabilities	1,692	1,242
    Social security liabilities	989	461
    Prepayments received on orders	5,894	4,815
    Other	1,231	285
    13,065	8,413

    Of the 'Other' amount, € 434k has been recognized under non-current other liabilities (previous year: € 22k).

    Liabilities for personnel-related items mainly consist of liabilities for outstanding vacation (€ 1,761k; previous year: € 1,044k) and employee working time credits (€ 1,461k; previous year:

    € 448k).

    The tax liabilities relate to transaction taxes and employee pay- roll settlement. Social security liabilities chiefly relate to social security contributions still to be transferred.

    2016 € 000s	2015 € 000s
    01.01.	1,508	1,731
    Company acquisitions	105	0
    Currency translation	1	-5
    Utilized	-402	-1,651
    Reversed	-627	0
    Added	763	1,433
    12.31.	1,348	1,508

    Of prepayments received on orders, an amount of € 3,838k (previous year: € 4,815k) relates to development cooperations. Reference is made to Section B. 'Recognition of sales, cost of sales, research and development expenses'.

    In the 2016 financial year, STRATEC AG received government grants of € 444k. These grants relate exclusively to grants for research purposes and are not bound by any conditions. Total accrued liabilities for government grants amount to € 410k (previous year: € 0k).

    Other liabilities have the following maturities:

32. Provisions and income tax liabilities

    Current provisions relate to provisions for guarantees and war- rantees (€ 949k; previous year: € 1,419k), litigation risks (€ 399k; previous year: € 0k), and in the previous year to an onerous rental agreement (€ 89k).These items developed as follows:

    Maturity	12.31.2016 € 000s
    2017	12,631
    2018	434
    2019	0
    2020	0
    2021	0
    2022 and later	0
    Total	13,065

    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 (€ 325k; previous year: € 1,502k) relate to current income tax obligations.

    121

33. DISCLOSURES ON THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

34. Sales

    Sales mainly relate to:

    2016 € 000s	20151 € 000s
    1. Systems	101,715	82,295
    2. Service parts and consumables	53,599	38,006
    3. Development and services	28,402	25,950
    4. Other activities	1,195	635
    	184,911	146,886

    1 The presentation of the previous year's comparative figures has been adjusted in that - as for the figures presented for the 2016 financial year - system sales now only include instrument-related sales.

    Sales can be broken down by geographical region (customer location) as follows:

    The allocation of sales generated with analyzer systems to oth- er 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, how- ever, 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 ser- vices by the STRATEC Group.

    List of major customers pursuant to IFRS 8.34: € 39.1 million (previous year: € 31.6 million), € 35.3 million (previous year:

    € 35.6 million), € 18.8 million (previous year: € 22.3 million). These figures in all cases include sales for several analyzer system lines, development activities, and services and consum- ables, and sales executed by the companies acquired in the 2016 financial year. The sales generated with these customers are allocable to the Instrumentation and Diatron segments.

    2016 € 000s	2015 € 000s
    1. Germany	24,450	21,158
    2. European Union	58,402	54,276
    3. Other	102,059	71,452
    184,911	146,886

35. Cost of sales

    Substantial sales generated with analyzer systems in other coun- tries are structured as follows:

    Cost of sales, amounting to € 123,275k (previous year:

    NOTES

    € 91,854k), include production-related manufacturing expenses incurred for the products, maintenance and spare parts sold, and for development and services.

    2016 € 000s	2015 € 000s
    Italy	5,616	5,928
    France	4,467	3,956
    Belgium	26,688	15,086
    US	25,168	19,797
    China	6,101	5,485
    UK	1,244	6,888

    122 STRATEC Annual Report 2016

36. Research and development expenses

37. Research and development expenses not meeting the criteria for capitalization pursuant to IAS 38 (Intangible Assets) totaled

    € 8,054k (previous year: € 8,336k) and mainly involved cost of materials and personnel expenses.

    Gross development expenses were structured as follows:

38. General administration expenses

    At € 15,993k (previous year: € 11,788k), administration expenses include the personnel and material expenses incurred in central administration departments (including corporate management, controlling, finance and accounting, legal affairs, investor rela- tions, personnel and quality management) that are not directly attributable to production, sales, or R&D.

    2016 € 000s	2015 € 000s
    Research and development expenses	22,829	20,981
    of which development expenses recognized as revenues or capitalized	-14,775	-12,645
    8,054	8,336

39. Other operating income and expenses

    In the financial year under report, an amount of € 386k from grants was expensed as a reduction to research and develop- ment expenses (previous year: € 0k).

    (19) Sales-related expenses

    The other operating income of € 3,866k (previous year:

    € 6,874k) and other operating expenses of € 4,472k (previous year: € 8,300k) mainly consist of income and expenses for currency translation.

    Furthermore, other operating income includes an amount of

    € 535k (previous year: € 663k) resulting from the measurement at fair value through profit or loss of the Quanterix options.

    Other operating expenses also include amounts of € 537k for

    losses due to disposals of assets, € 384k from the increase in

    individual allowances on receivables, and € 308k for expected

    Sales-related expenses amounted to € 12,779k (previous year:

    € 6,607k) and included direct sales expenses and sales over- heads.These basically include all expenses incurred for person- nel, 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.

    tax audits.

    In the previous year, other operating income also included write-ups of € 450k for write-ups, while other operating ex- penses included impairment losses of € 1,550k.

    Other than that, other operating income and other operating expenses also include numerous expenses items that, viewed individually, are only of subordinate significance.

    123

40. ) Net financial expenses

    2016 € 000s	2015 € 000s
    Interest income on cash and cash equivalents	41	278 4 70
    Interest income on receivables from associates	0
    Interest income from compounding of receivables	18
    Other interest income	22	9
    81	361

    Financial income is structured as follows:

41. ) Earnings per share

    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.

    Financial expenses are structured as follows:

    2016 € 000s	2015 € 000s
    Interest expenses on loan liabilities to banks	819	139
    Interest expenses for compounding of pension provisions	19	5 20 16
    Interest expenses for compounding of liabilities and provisions	22
    Other interest expenses	183
    1,043	180

    2016 € 000s	2015 € 000s
    Gains/losses on financial assets measured at fair value through profit or loss:	0 -307	0 117
    Other financial income / expenses	-307	117

    • Gains / losses on retirement

    • Gains / losses on measurement at balance sheet date

    Other financial income/expenses include gains and losses for financial assets and financial liabilities measured at fair value and are structured as follows:

    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 with- in 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 11,851,382 (previous year: 11,810,284).

    Pursuant to IAS 33 (Earnings per Share), the consolidated net income of € 19,572k (previous year: € 22,084k) 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, 2016, both basic earnings per share (€ 1.65; previous year: € 1.87) and diluted earnings per share (€ 1.64; previous year: € 1.85) have been calculated. Diluted earnings per share have been calculat- ed on the assumption that all outstanding options not yet ex- ercised 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.

    NOTES

    The allocation or exercising of option rights within the financial year has been accounted for using prorated weighting.The re- sultant weighted average number of outstanding shares with a diluting effect accounted for in the calculation of (diluted) earnings per share amounts to 11,936,660 (previous year: 11,919,473).

    124 STRATEC Annual Report 2016

42. Additional disclosures on the consolidated statement of comprehensive income

    Cost of materials

    The functional divisions include the following cost of materials:

    Disclosures concerning the auditor's fee pursuant to § 314 (1) No. 9 HGB

    2016 € 000s	2015 € 000s
    Costs of raw materials and supplies	81,283	61,229
    Costs of purchased services	5,763	2,543
    87,046	63,772

    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:

    2016 € 000s	2015 € 000s
    Fee for	242 0 0 0	249 0 0 0
    Total auditor's fee	242	249

43. Auditing

44. Other certification services

45. Tax advisory services

46. Other services

47. Personnel expenses

    The functional divisions include the following personnel expenses:

    2016 € 000s	2015 € 000s
    Wages and salaries	42,266	32,917
    Social security contributions and pension and welfare expenses	7,923	5,016
    50,189	37,933

    The total fee for 2016 includes an amount of € 7k for auditing services relating to the 2015 financial year.

    The total fee for 2015 includes an amount of € 52k for auditing services performed by the former auditor,Wirtschaftstreuhand GmbH, Stuttgart.These relate to the 2014 financial year.

    Furthermore, expenses of € 3,745k (previous year: € 2,395k) were incurred for wages and salaries for third-party employees (personnel leasing).

    Number of employees

    The average number of individuals employed by the Group during the financial year (including temporary employees from personnel agencies) was as follows:

    2016 Number	2015 Number
    Employees	833	496
    Trainees	30	15
    Employees in permanent employment	863	512
    Temporary employees	94	43
    Total	957	555

    Of permanent employees, 377 (previous year: 343) were in Germany, and 456 (previous year: 153) abroad. Of temporary employees, 36 (previous year: 34) were in Germany, and 58 (previous year: 9) abroad.

    125

48. DISCLOSURES ON THE CONSOLIDATED CASH FLOW STATEMENT

    General disclosures

    The consolidated cash flow statement shows how the liquidity of the STRATEC Group has changed due to inflows and out- flows 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 gen- erally 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 ex- change rate on the reporting date. The impact of changes in exchange rates on cash and cash equivalents is presented separately.

    Inflow of funds from operating activities

    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 ac- counted for:

    2016 € 000s	2015 € 000s
    Expenses:
    Currency translation losses from measurement of cash and cash equivalents at balance sheet date	115	291
    Personnel expenses in connection with the granting of stock option rights	138	144
    Personnel expenses in connection with employee participation programs	45	217
    Exchange rate differences for foreign currency receivables / liabilities	271	26
    Increase in impairment of inventories	376	136
    Expenses for fair value measurement of securities held for trading	364	3
    Allocations to impairments of receivables	238	20
    Losses on receivables	58	0
    Other	0	32
    	1,605	869

    NOTES

    The following other non-cash income items have been ac- counted for:

    2016 € 000s	2015 € 000s
    Income:
    Currency translation gains from measurement of cash and cash equivalents at balance sheet date	39	32
    Exchange rate differences for foreign currency receivables / liabilities	267	296
    Reduction in impairments of inventories	0	85
    Fair value measurement of shares / options in connection with development cooperations	532	663
    Income from fair value measurement of securities held for trading	57	120
    Write-ups to non-current assets	0	450
    Income from reversal of other provisions and liabilities	775	32
    Reversal of impairments of receivables	140	0
    Other	26	6
    1,836	1,684

    126 STRATEC Annual Report 2016

    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 pre- sented 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 compre- hensive income. After this, the interest and income taxes paid or received are reported separately.

    Inflow / outflow of funds from investing activities

    A total of € 86,728k was expended on investing activities (pre- vious year: € 8,710k). Of this sum, € 9,979k was channeled into the acquisition of property, plant and equipment (previous year:

    € 8,864k).

    Inflow / outflow of funds from financing activities

    Financing activities led to an inflow of funds of € 40,606k (previous year: outflow of € 8,661k). Net new borrowing amounted to € 49,237k (previous year: net repayments of

    € 2,087k). Dividend payments accounted for an outflow of

    € 8,885k (previous year: € 8,248k).

49. ) Cash and cash equivalents

50. The 'Cash and cash equivalents' items comprises cash holdings and credit balances at banks with original maturities of up to three months. As of December 31, 2016, cash and cash equiv- alents amounted to € 26,500k (previous year: € 56,415k).

    127

51. SEGMENT REPORTING

52. The STRATEC Group is managed by reference to a matrix organizational structure which aggregates individual areas of activity in business units across various locations. Business units are aggregated on the basis of the products and services there- by offered. These units therefore basically constitute operating segments pursuant to IFRS 8 (Operating Segments). Separate segment reporting is provided where the quantitative thresh- olds pursuant to IFRS 8 (Operating Segments) are exceeded. Due to the acquisitions made in the past financial year, manage- ment reporting has been extended by two further business units. The Diatron Group, which has extended the STRATEC Group's offering to include products and customer services for analyzer systems, system components, consumables and tests in the lower throughput segment for hematology applications rep- resents a standalone business unit (Diatron). STRATEC Con- sumables has been combined with STRATEC Molecular to form the Consumables business unit. STRATEC Consumables has extended the STRATEC Group's product portfolio to include the development and production of smart consumables in the fields of diagnostics, life sciences, and medical technology.

    The 'Instrumentation' business unit has been identified as a fur- ther reporting segment: Here, the STRATEC Group designs and manufactures fully automated analyzer systems for its clinical diagnostics and biotechnology customers.

    The accounting policies applied to the reporting segments are consisting with the accounting policies set out in Section

53. 'Accounting policies applied.' The reconciliation of segment data to the relevant group data therefore mainly involves accounting for consolidation entries.

    Segment data by operating segment for 2016

    Instrumen- tation (includes service parts and consumables allocable to business unit) € 000s	Diatron (includes service parts and consumables allocable to business unit) € 000s	Consumables € 000s	Other Activities € 000s	Total € 000s	Recon- ciliation € 000s	Total € 000s
    Sales with external customers	138,795	29,850	9,614	6,524	184,783	128	184,911
    Inter-segmental sales	2,385	5	28	2,009	4,427	-4,427	0
    Depreciation and amortization	4,763	3,855	2,531	59	11,208	0	11,208
    EBIT1	24,744	855	-2,899	1,378	24,078	126	24,204
    EBITDA1	29,507	4,710	-368	1,437	35,286	126	35,412
    Interest income	1,719	0	2	0	1,721	-1,640	81
    Interest expenses	1,001	1,565	103	15	2,683	-1,640	1,043
    Assets	269,517	62,611	33,730	6,745	372,603	-114,636	257,967
    Additions to non-current assets2	37,127	45,912	28,157	1,465	112,660	0	112,660

    1 Prior to consolidation and accounting for amortization in connection with purchase price allocation

    NOTES

    2 Also includes additions due to company acquisitions and additions due to first-time inclusion of subsidiaries previously unconsolidated

    128 STRATEC Annual Report 2016

    Of non-current assets at the reporting segments, excluding fi- nancial instruments and deferred taxes, € 34,538k are located in the country of origin of STRATEC AG and € 117,027k in other countries. Further disclosures on company level have been presented in Section D. 'Disclosures on the consolidated statement of comprehensive income - (16) Sales'.

    Segment data by operating segment for 2015

    Instrumen- tation (includes service parts and consumables allocable to business unit) € 000s	Diatron (includes service parts and consumables allocable to business unit) € 000s	Consumables € 000s	Other Activities € 000s	Total € 000s	Recon- ciliation € 000s	Total € 000s
    Sales with external customers	136,182	0	2,663	8,345	147,189	-303	146,886
    Inter-segmental sales	2,107	0	102	1,405	3,614	-3,614	0
    Depreciation and amortization	4,525	0	222	35	4,782	-100	4,682
    EBIT1	25,213	-2	-350	2,488	27,349	-473	26,875
    EBITDA1	30,838	-2	-128	2,523	32,131	-573	32,658
    Interest income	383	0	0	3	387	-26	361
    Interest expenses	170	4	9	23	206	-26	180
    Assets	161,013	1,116	2,572	6,090	170,791	-11,852	158,939
    Additions to non-current assets	8,156	0	419	739	9,314	-450	8,864

    1 Prior to consolidation

    As a result of the acquisition of the Diatron Group and STRATEC Consumables, STRATEC Biomedical AG has amend- ed its organizational structures and the composition of its re- porting segments.The disclosures on the operating segments as of December 31, 2015 have been amended accordingly.

    Of non-current assets at the reporting segments, excluding fi- nancial instruments and deferred taxes, in the previous year € 35,726k was located in the country of origin of STRATEC AG and € 14,861k in other countries.

    Furthermore, an impairment loss of € 1,550k and a write-up of

    € 450k were recognized in the previous year, both of which are allocable to the Instrumentation segment. Information about these can be found in Section C.'Disclosures on the consolidat- ed balance sheet - (1) Goodwill and other intangible assets'.

    129

54. FINANCIAL INSTRUMENTS

    The following table presents the carrying amounts and fair val- ues of individual financial assets and liabilities for each class of financial instruments and reconciles these with the correspond- ing 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

    Abbreviations for IAS 39 measurement categories (Financial Instruments: Recognition and Measurement):

    LaR Kredite und Forderungen

    AfS Available-for-sale financial assets

    between instruments measured at fair value through profit or loss, and those measured at fair value in equity.

    FVTPL

    Assets measured at fair value through profit or loss

    As financial liabilities also include the financial instruments cov-

    FAHfT Financial assets held for trading

    ered by IFRS 2 (Share-based Payment), which are exempted from the scope of IFRS 7 (Financial Instruments: Disclosures), the 'Not covered by IFRS 7' column provides a corresponding reconciliation of these items.

    NOTES

    FLAC

    Financial liabilities measured at amortized cost

    130 STRATEC Annual Report 2016

    Disclosures in € 000s 12.31.2016 (12.31.2015)	IAS 39 category	Carrying amount	Amortized cost	Fair value through profit or loss	Fair value in equity	Total	Not covered by IFRS 7	Fair value
    Non-current assets
    Financial assets	378 (184)	481 (184)	481 (184)
    AfS	160 (184)	263 (184)	263 (184)
    LaR	218 (0)	218 (0)	218 (0)	218 (0)
    Current assets
    Trade receivables	LaR	38,890 (24,045)	38,890 (24,045)	38,890 (24,045)	38,890 (24,045)
    Receivables from construction contracts	LaR	2,348 (1,470)	2,348 (1,470)	2,348 (1,470)	2,348 (1,470)
    Receivables from associates	LaR	22 (23)	22 (23)	22 (23)	22 (23)
    Financial assets	5,695 (2,779)	384 (121)	2,561 (2,658)	2,751 (0)	5,695 (2,779)	5,695 (2,779)
    AfS	2,751 (0)	2,751 (0)	2,751 (0)	2,751 (0)
    FVTPL	1,481 (1,271)	1,481 (1,271)	1,481 (1,271)	1,481 (1,271)
    FAHfT	1,080 (1,387)	1,080 (1,387)	1,080 (1,387)	1,080 (1,387)
    	LaR	384 (121)	384 (121)	384 (121)	384 (121)
    Cash and cash equivalents	LaR	26,500 (56,415)	26,500 (56,415)	26,500 (56,415)	26,500 (56,415)
    Non-current debt
    Financial liabilities	FLAC	3,035 (4,328)	2,552 (3,614)	2,552 (3,614)	483 (714)	2,554 (3,646)
    Current debt
    Financial liabilities	FLAC	72,793 (3,816)	72,413 (3,799)	72,413 (3,799)	380 (17)	72,524 (3,873)
    Trade payables	FLAC	7,100 (3,436)	7,100 (3,436)	7,100 (3,436)	7,100 (3,436)
    Liabilities to associates	FLAC	0 (14)	0 (14)	0 (14)	0 (14)

    • Investments in associates

    • Other financial assets

    • Financial instruments available for sale

    • Financial instruments measured at fair value through profit or loss

    • Assets held for trading

    • Loans and receivables

    Investments in associates are allocated to the available-for-sale financial assets category. Pursuant to IAS 39.46 (c), investments in associates have been measured at cost.

    The fair value of loans, receivables, and 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. Discounting is based on a market interest rate with a congruent term and risk structure.

    Given the predominantly short-term maturities of loans and receivables and of trade payables and liabilities to associates, their carrying amounts as of the balance sheet date do not deviate significantly from their fair values.The fair value of finan- cial liabilities is determined by discounting future cash flows.

    131

    The net results on financial instruments broken down into their respective measurement categories were as follows:

    From subsequent measurement

    Figures in € 000s 2016	IAS 39 category	From invest- ments	From interest	At fair value through profit or loss	At fair value in equity	Currency translation	Impair- ment	From disposals	Net result
    Available-for-sale financial assets	AfS	0	0	0	1,055	0	0	0	1,055
    Loans and receivables	LaR	0	58	0	0	209	-191	-33	43
    Financial assets measured at fair value	FVTPL	0	0	535	0	0	0	0	535
    Financial assets held for trading	FAHFT	16	0	-308	0	0	0	0	-292
    Financial liabilities measured at amortized cost	FLAC	0	-831	0	0	74	0	0	-757
    Total	16	-773	227	1,055	283	-191	-33	584

    From subsequent measurement

    Figures in € 000s 2015	IAS 39 category	From invest- ments	From interest	At fair value through profit or loss	At fair value in equity	Currency translation	Impair- ment	From disposals	Net result
    Available-for-sale financial assets	AfS	0	4	0	0	0	0	0	4
    Loans and receivables	LaR	0	348	0	0	319	-20	0	646
    Financial assets measured at fair value	FVTPL	0	0	663	0	0	0	0	663
    Financial assets held for trading	FAHFT	4	0	117	0	0	0	0	121
    Financial liabilities measured at amortized cost	FLAC	0	-159	0	0	55	0	0	-104
    Total	4	192	780	0	374	-20	0	1,330

    NOTES

    No interest income or interest expenses were generated or incurred in connection with financial instruments measured at fair value through profit or loss. Of the net result for financial instruments measured at fair value, an amount of € -307k has been recognized in other financial income/expenses (previous year: € 117k) and an amount of € 535k (previous year: € 663k) in other operating income.The interest income from impaired financial assets amounts to € 0k (previous year: € 4k). Reference is made to the information in Section C. 'Disclosures on the consolidated balance sheet - (7) Financial assets' and with re- gard to the individual components of net financial expenses to Section D.'Disclosures on the statement of comprehensive in- come - (22) Net financial expenses'.

    The income and expenses resulting from translation through profit or loss of financial assets and liabilities at average ex- change 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 € 39k (previous year:

    € 32k) recognized through profit or loss under other operating income. Currency expenses of € 115k (previous year: € 291k) have been recognized under other operating expenses in con- nection with the translation of cash and cash equivalents at the balance sheet date.

    132 STRATEC Annual Report 2016

    Fair value hierarchy

    To ensure the comparability and consistency of fair value mea- surements and related disclosures, IFRS 13 (Fair Value Measure- ment) 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 follow- ing 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:

55. The risk involved in a specific valuation method used to calculate fair value (such as a price model),

    and

56. 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.

    Financial assets measured at fair value have been allocated to the three input factor levels as follows:

    Figures in € 000s 12.31.2016 (12.31.2015)	Total carrying amount	of which Level 1	of which Level 2	of which Level 3
    Current assets	5,312 (2,658)
    Financial assets		1,080 (1,387)	0 (0)	4,232 (1,271)

    No items were reclassified within the three input factor levels in the 2016 financial year. However, financial assets with carrying amounts and fair values of € 1,387k were reported in Level 3 as of December 31, 2015 even though given their listing on active markets they should have been reported in Level 1. In the above table, the figures reported as of December 31, 2015 have been adjusted accordingly.The financial assets allocated to Level 1 involve shares in listed companies, which have been measured at the closing price on the stock market with the highest trading volumes as of the balance sheet date.

    A reconciliation of the financial assets subject to recurring mea- surement in Level 3 of the fair value measurement hierarchy is presented below:

    € 000s
    Balance at 01.01.2015	877
    Total gains or losses recognized through profit or loss
    Other operating income	663
    Other financial income / expenses	117
    Purchases / additions	1,000
    Reclassifications into or out of Level 3	-1,387
    Balance at 12.31.2015	1,271
    Total gains or losses recognized through profit or loss
    Other operating income	535
    Total gains or losses recognized in OCI
    Impairments of financial investments	1,055
    Purchases / additions	1,371
    Balance at 12.31.2016	4,232

    Observable input factors: Input factors derived from mar- ket 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.

    Information about the fair value measurement of derivative fi- nancial instruments recognized under other financial assets can be found in Section C.'Disclosures on the consolidated balance sheet - (7) Financial assets'.

    133

    Maturity analysis

    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 liabil- ities. Future payments are structured as follows:

    Carrying amount 12.31.2016	Cash flows 2017		Cash flows 2018		Cash flows 2019 - 2020		Cash flows 2021 ff.
    Figures in € 000s	Interest	Principal	Interest	Principal	Interest	Principal	Interest	Principal
    Financial liabilities	75,828	172	72,893	35	1,460	31	778	11	797
    Trade payables	7,100	0	7,100	0	0	0	0	0	0
    Liabilities to associates	0	0	0	0	0	0	0	0	0
    Total	82,928	172	79,993	35	1,460	31	778	11	797

    Carrying amount 12.31.2015	Cash flows 2016		Cash flows 2017		Cash flows 2018 - 2019		Cash flows 2020 ff.
    Figures in € 000s	Interest	Principal	Interest	Principal	Interest	Principal	Interest	Principal
    Financial liabilities	8,144	87	3,816	58	1,823	53	1,354	24	1,151
    Trade payables	3,436	0	3,436	0	0	0	0	0	0
    Liabilities to associates	14	0	14	0	0	0	0	0	0
    Total	11,594	87	7,266	58	1,823	53	1,354	24	1,151

    NOTES

    Loans with remaining terms of up to five years charge interest at a weighted average of 0.79 % (previous year: 2.94 %). Loans with remaining terms of more than five years charge interest at a weighted average of 1.28 % (previous year: 1.28 %).This calcu- lation has been based on the nominal interest rates applicable as of the balance sheet date.

    134 STRATEC Annual Report 2016

57. RISK MANAGEMENT

58. Risk management principles

    The assets, liabilities and future activities of STRATEC AG are subject to liquidity risks and market 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 management policies are presented in Section D 'Opportunities and risks' 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 individ- ual 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 objec- tive 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 assess- ments made by the Board of Management.

    Financial instruments could in principle give rise to the following risks for the company:

    Liquidity risks

    For the STRATEC Group, liquidity risks involve the risk of not being able to meet payment obligations due to insufficient cash and cash equivalents.To safeguard the company's solvency, suf- ficient liquid funds are reserved on the basis of rolling liquidity planning, as are unlimited and limited credit lines.

    The STRATEC Group had cash and cash equivalents of

    € 26,500k at the balance sheet date (previous year: € 56,415k).

    Foreign currency risks

    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 trans- lation of the financial statements of foreign subsidiaries into the group currency (€) also involves foreign currency risks (transla- tion risks). Pursuant to IFRS 7.B23, these latter risks do not re- quire separate analysis for IFRS 7 (Financial Instruments: Disclo- sures) purposes.

    The principal foreign currency transactions performed by the STRATEC Group relate to export transactions in US dollars and intercompany loan relationships in US dollars. 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), Romanian leis (RON), and Hungarian forints (HUF) into the group reporting currency (€).

    With regard to the disclosures required by IFRS 7.31-42 con- cerning the type and scope of risks resulting from financial in- struments, 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 follow- ing sections of that report: Section C. 'Outlook' and Section

59. 'Opportunities and risks - Risk report in respect of use of financial instruments'.

    135

    Sensitivity to exchange rate movements (transaction risk):

    The Group had the following transaction risk exposure as of the balance sheet date:

    Foreign currency item translated into € 000s	12.31.2016				12.31.2015
    GBP	CHF	EUR	USD	GBP	CHF	EUR	USD
    Cash and cash equivalents	4	105	462	2,050	38	9,333	863	0
    Trade receivables and other receivables	0	0	0	14,518	0	0	0	0
    Receivables from associates	0	616	254	14,366	477	0	0	0
    Financial assets	0	0	0	4,232	0	0	0	0
    Trade payables	156	46	0	613	0	0	0	0
    Liabilities to associates	0	0	4,608	5,126	0	0	-1,021	0
    Net risk exposure	-152	675	-3,892	29,427	515	9,333	-158	0

    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:

    Foreign currency item translated into € 000s	12.31.2016				12.31.2015
    GBP	CHF	EUR	USD	GBP	CHF	EUR	USD
    Change in currency by +10 %, Change in consolidated net income (€ 000s)	14	-61	354	-2,675	-47	-848	14	0
    Change in currency by -10 %, Change in consolidated net income (€ 000s)	-17	75	-432	3,270	57	1,037	-32	0

    In the 2016 financial year, the translation of transactions with third parties and within intercompany relationships led to the recognition through profit or loss of income from currency translation totaling € 2,617k (previous year: € 5,081k) and ex- penses for currency translation totaling € 2,334k (previous year:

    NOTES

    € 4,701k).These have been recognized under other operating income and other operating expenses respectively.

    136 STRATEC Annual Report 2016

    Interest rate risks

    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 interest-bearing / interest-charging 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 signif- icance. This item has therefore not been accounted for in the following analysis. However, any rise in interest rates would have a positive impact on earnings.

    2016 € 000s	2015 € 000s
    Interest-bearing medium and long-term financial assets	203 0 203	20 0 20
    Interest-bearing financial liabilities	74,019 59,900 2,505	5,106 0 5,106

    • of which with floating interest rates

    • of which with fixed interest rates

    • of which with floating interest rates

    • of which with fixed interest rates

    The Group reported the following interest-bearing assets and interest-charging liabilities as of the balance sheet date:

    Sensitivity of fair values for fixed-interest financial instruments

    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 using the effective interest method.The fair values based on market interest rates as of the balance sheet date have been presented in Section G.'Financial instruments'.

    Sensitivity of cash flows for floating-interest 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 using the effective interest method. Unlike fixed-interest financial liabilities, however, finan- cial liabilities with floating interest rates involve the risk of fluc- tuations in future cash flows for payments of interest and prin- cipal due to changes in market interest rates. The STRATEC Group had financial liabilities with a nominal volume of € 60,000k with floating interest rates at the balance sheet date as of December 31, 2016 (previous year: € 0k).

    (€ 000s)	Carrying amount 12.31.2016	Cash flows 2017	Cash flows 2018	Cash flows 2019 ff.
    Interest	Principal	Interest	Principal	Interest	Principal
    Financial liabilities with floating interest rates (1-month EURIBOR)
    Actual	59,900	103	60,000	0	0	0	0
    + 100 base points	59,900	198	60,000	0	0	0	0

    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 figures are based on the market interest rate prevalent at that time.

    The increase in the cash flow from interest presented here si- multaneously corresponds to the hypothetical impact on profit or loss in the consolidated statement of comprehensive income.

    Any increase in the floating interest rate by 100 base points would have led consolidated net income to deteriorate by € 284k. As the 1-month EURIBOR was negative at the end of the 2016 financial year and the loan agreement in this case provides for application of a floating interest rate of 0.00 %, a reduction in the floating interest rate by 100 base points would not have had any impact on consolidated net income.

    137

    Other price risks

    The financial assets requiring measurement at fair value are subject to price risks. Had fair values been 10 % higher (lower) than their balance sheet date levels, then consolidated net in- come would have been € 256k (previous year: € 266k) higher (lower) and OCI would have been € 275k higher (lower).

    Default risks

    The principal default risks faced by STRATEC AG are to be found in its operating activities.They involve the risk of contrac- tual 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 pol- icies. Remaining default risks are accounted for with suitable allowances.

    Liquid funds are invested solely in the form of short-term monthly deposits (with maximum terms of six months) at finan- cial 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.

    Capital management

    The objectives of capital management at STRATEC are:

    • To safeguard the company's continued existence to enable it to continue generating income for shareholders and benefits for other stakeholders,

      and

    • To generate an adequate return for shareholders by setting prices for products and services that are suitable to the market and the degree of risk involved.

      STRATEC determines its level of capital in proportion to risk. To this end, STRATEC manages its capital structure and makes adjustments to be able to react to changes in the macroeco- nomic 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 or make repayments to reduce debts.

      NOTES

      The main key figures referred to by the management are share- holders' equity and the equity ratio. Shareholders' equity amounted to € 143.7 million as of December 31, 2016, as against € 130.3 million at the equivalent date in the previous year. The equity ratio amounted to 55.7 % at December 31, 2016 (previous year: 82.0 %).The medium-term target corridor for this figure amounts to between 50 percent and 75 percent.

      138 STRATEC Annual Report 2016

    • OTHER DISCLOSURES

    Related party disclosures

    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 subsid- iaries or subject to control or significant influence by STRATEC AG or its subsidiaries. Such parties include unconsolidated sub- sidiaries, members of the Board of Management and Supervi- sory 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 2016 financial year, STRATEC AG generated revenues of

    € 2k (previous year: € 2k) from transactions with STRATEC Biomedical (Taicang) Co. Ltd. and purchased services of € 466k (previous year: € 427k) from this company.

    Due to the presumption regulation set out in IAS 28.5, the company's founder Hermann Leistner, his family, and their in- vestment 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 re- ceived compensation of CHF 60k via Hermann Leistner in the financial year under report (previous year: CHF 68k). As Her- mann Leistner is a member of the Supervisory Board of DITA- BIS Digital Biomedical Imaging Systems AG and Managing Di- rector of LITRON GmbH through to the deletion of that company in the 2016 financial year, these companies count as related parties pursuant to IAS 24 (Related Party Disclosures) via the Leistner family. In the 2016 financial year, STRATEC AG generated revenues of € 2k from transactions with DITABIS Digital Biomedical Imaging Systems AG (previous year: € 2k) and purchased services of € 14k (previous year: € 0k) from this company. As of the balance sheet date, the company had no receivables (previous year: € 0k) due from and liabilities of € 9k (previous year: € 0k) due to DITABIS Digital Biomedical Imaging Systems AG. As in the previous year, STRATEC AG generated no revenues from transactions with LITRON GmbH and pur- chased no services from this company. Services were per- formed on customary contractual conditions.

    Directors and officers

    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) Graduate in Chemistry

      The Chairman of the Board of Management, Marcus Wolfinger, is authorized to solely represent the company.

      Marcus Wolfinger has been a member of the management of STRATEC Capital GmbH since November 2015 and a member of the management of STRATEC PS Holding GmbH since May 2016.

      Dr. Robert Siegle has been a member of the management of STRATEC Molecular GmbH since December 2012, a member of the Administrative Board of STRATEC Biomedical Switzer- land AG since March 2014, a member of the Administrative Board at STRATEC Services AG since November 2014, and a member of the management of STRATEC PS Holding GmbH since May 2016.

      Dr. Claus Vielsack has been a member of the management of STRATEC PS Holding GmbH since May 2016.

      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 individ- ual performance targets. More detailed comments on the basic features of the compensation system for the Board of Manage- ment and the disclosures required by § 314 (1) No. 6a) Sen- tences 5 to 8 of the German Commercial Code (HGB) can be found in Section E.'Compensation report' in the group manage- ment report.

      Moreover, members of the Board of Management are entitled to participate in the stock option program subject to the lim- itation that no further stock options may be granted to them from the 2015 financial year onwards. Among other conditions, the exercising of the options is dependent on the achievement of performance targets outlined in greater detail in Section C. 'Disclosures on the consolidated balance sheet - (9) Sharehold- ers' equity - Stock option programs'. Rather than being granted stock options, members of the Board of Management now re- ceive stock appreciation rights (SARs). Detailed information about the structure of this program can be found in Section E. 'Compensation report' in the group management report.

      139

      The members of the Board of Management received total com- pensation of € 2,267k for their activity on the Board of Man- agement in the 2016 financial year (previous year: € 2,089k). As of December 31, 2016, the net balance of performance-related payments outstanding for members of the Board of Manage- ment amounted to € 2,115k (previous year: € 1,788k).

      2016 € 000s1	2015 € 000s1
      Short-term benefits	1,216	1,151
      Post-employment benefits2	215	215
      Other long-term benefits3	381	271
      Share-based compensation4	455	452

      1 The amounts disclosed refer to members of the Board of Management active in the respective reporting year and to their activities on the Board of Management.

      2 The amount disclosed refers to the service cost recognized in the 2016 financial year and the insurance contributions made to the pension provision of members of the Board of Management.

      3 The amount disclosed refers to the mid-term incentive agreement for 2014 (2013), which covers 2014, 2015, and 2016 (2013, 2014, and 2015) and is due for payment in

      2017 (2016).

      4 The amount disclosed corresponds to the fair value upon issue of the stock appreciation rights (SARs) granted in 2016 (2015) and calculated in accordance with IFRS 2 (Share-based payment.

      One former member of the Board of Management received total compensation of € 193k in the 2016 financial year (previ- ous year: € 318k).

      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 Care Innovation, Fresenius Medical Care Deutschland GmbH

      • Prof. Dr. Stefanie Remmele, Landshut

    fessor of Medical Technology at the University of Applied Sciences in Landshut

    The Supervisory Board members Fred K. Brückner and Prof. Dr. Stefanie Remmele do not hold positions on any other su- pervisory boards or supervisory bodies as defined in § 125 (1) Sentence 5 of the German Stock Corporation Act (AktG). Wolfgang Wehmeyer is a member of the Advisory Board of NMI TT GmbH, Reutlingen.

    The Supervisory Board members received total compensation of € 125k in the 2016 financial year for their activities on the Supervisory Board (previous year: € 128k). The specific struc- ture of overall compensation was as follows:

    2016 € 000s	2015 € 000s
    Fixed compensation	113	115
    Meeting allowance Total	12	13
    	125	128

    In addition to this total compensation, each member of the Supervisory Board also has his or her expenses reimbursed and benefits from a pecuniary damage liability insurance policy tak- en out at the company's expense at suitable terms customary to the market.

    Contingent liabilities and other financial obligations

    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 € 83,442k (previous year: € 76,948k). Of this total, € 1,328k relates to property, plant and equipment (previous year: € 350k), and € 10k to intangible assets (previous year: € 14k).

    NOTES

    The rental and leasing contracts for buildings, vehicles, and office and other equipment have terms of up to 9.9 years.The leasing contracts provide for conditional leasing payments dependent on the number of kilometers traveled or the number of copies made. Payments of € 991k were made for rental and leasing contracts in the 2016 financial year (previous year: € 954k). The contracts provide for extension and purchase options in some cases.

    140 STRATEC Annual Report 2016

    The income and expenses recognized for rental and leasing contracts are structured as follows:

    2016 € 000s	2015 € 000s
    Minimum leasing payments	991	954
    Conditional leasing payments	11	3
    Less leasing income from subletting arrangements	-92	-446
    Total	910	511

    Undiscounted future minimum leasing and rental payments in connection with operating leases amounted to € 9,004k as of the balance sheet date (previous year: € 3,362k). Key individual items within operating leases are the rental agreement for the company buildings used by STRATEC Biomedical UK, Ltd., STRATEC Molecular GmbH, Diatron Medicinai Instrumentu- mok Laboratóriumi Diagnosztikai Fejlesztö-Gyártó Zrt, and STRATEC Consumables GmbH. By contrast, the rental agree- ment reported in the previous year for STRATEC Biomedical USA, Inc. no longer existed as of the balance sheet date.The re- maining terms of the rental agreements amounted to up to 9.9 years at the balance sheet date. Price adjustment clauses and extension and purchase options have been agreed in some cases.

    The future leasing payments resulting from rental agreements for company buildings are structured as follows:

    2016 € 000s	2015 € 000s
    Future minimum leasing payments
    Due within one year	1,523	335
    Due in between one and five years	5,022	1,175
    Due in more than five years	1,926	0
    Total future minimum leasing payments	8,471	1,510
    Less leasing income from subletting arrangements	0	-446
    Net minimum leasing payments	8,471	1,064

    Part of the company building used by STRATEC Biomedical USA, Inc. was sublet in the 2016 financial year. The subletting arrangement no longer existed as of December 31, 2016.

    The income from the subletting contract were structured as follows:

    2016 € 000s	2015 € 000s
    Future minimum leasing payments
    Due within one year	0	99
    Due in between one and five years	0	347
    Due in more than five years	0	0
    Total future minimum leasing payments	0	466

    STRATEC AG lets out sections of some properties recognized under property, plant and equipment. Future leasing income from non-terminable rental agreements are structured as follows:

    2016 € 000s	2015 € 000s
    Future minimum leasing payments Due within one year
    	28	74
    Due in between one and five years Due in more than five years	110	53 0
    	0
    Total future minimum leasing payments	138	126

    Other financial payment obligations mature as follows:

    2016 € 000s	2015 € 000s
    Due within one year	65,465	62,591
    of which for operating leases	1,798	950
    Due in between one and five years	25,886	17,694
    of which for operating leases	5,280	1.860
    Due in more than five years	1,926	582
    of which for operating leases	1,926	582
    Total	93,278	80,867
    of which for operating leases	9,004	3,392

    There are no contingent liabilities relating to the provision of security for third-party liabilities.

    Contingent receivables and liabilities

    As in the previous year, the Group has no contingent receiv- ables or liabilities.

    141

    Disclosures pursuant to § 160 (1) No. 8 AktG

    STRATEC Biomedical AG received the following voting right notifications from shareholders holding at least 3 % of the voting rights:

    Notifying party	Date on which threshold was met	Share of voting rights		Attributable share of voting rights (at least 3 %)
    in %	absolute
    Threadneedle Investment Services Limited, London, UK	01.19.2012	4.71	550,051	Threadneedle Investment Funds ICVC
    Threadneedle Investment Funds ICVC, London, UK	01.19.2012	4.71	550,051
    Threadneedle Asset Management UK Limited, London, UK	04.18.2013	5.35	628,462	Threadneedle Investment Funds ICVC
    Allianz SE, Munich, Germany	12.10.2013	5.11	601,001	Allianz Europe B.V.,Allianz Holding France SAS, Allianz France S.A. and Allianz I.A.R.D. S.A.
    Allianz Europe B.V.,Amsterdam, Netherlands	12.10.2013	5.10	600,000	Allianz Holding France SAS,Allianz France S.A. and Allianz I.A.R.D. S.A.
    Allianz Holding France SAS, Paris, France	12.10.2013	5.10	600,000	Allianz France S.A. and Allianz I.A.R.D. S.A.
    Allianz France S.A., Paris, France	12.10.2013	5,10	600,000	Allianz I.A.R.D. S.A.
    Allianz I.A.R.D. S.A., Paris, France	12.10.2013	5.10	600,000
    Herdor GmbH & Co. KG, Unterschleißheim, Germany	04.27.2014	25.40	2,990,000	Tanja van Dinter, Bettina Siegle, and Ralf Leistner
    Herdor Beteiligungs GmbH, Unterschleißheim, Germany	04.27.2014	25.40	2,990,000	Herdor GmbH & Co. KG,Tanja van Dinter, Bettina Siegle, and Ralf Leistner
    Hermann Leistner, Germany	04.27.2014	25,79	3,035,456	Herdor GmbH & Co. KG, Herdor Beteiligungs GmbH,Tanja van Dinter, Bettina Siegle and Ralf Leistner
    Doris Leistner, Germany	04.27.2014	25.74	3,030,235	Herdor GmbH & Co. KG, Herdor Beteiligungs GmbH,Tanja van Dinter, Bettina Siegle and Ralf Leistner
    Tanja van Dinter, Germany	04.27.2014	29.53	3,476,286	Herdor GmbH & Co. KG, Bettina Siegle and Ralf Leistner
    Bettina Siegle, Germany	04.27.2014	29.68	3,493,954	Herdor GmbH & Co. KG,Tanja van Dinter and Ralf Leistner
    Ralf Leistner, Germany	04.27.2014	29.73	3,499,343	Herdor GmbH & Co. KG,Tanja van Dinter and Bettina Siegle
    Allianz Global Investors Europe GmbH, Frankfurt am Main, Germany	07.21.2014	7.14	842,323	Allianz I.A.R.D. S.A.
    BNP Paribas Investment Partners UK Limited, London, UK	03.30.2015	3.06	360,672	BNP Paribas Investment Partners Belgium S.A.
    BNP Paribas Investment Partners Belgium S.A., Brussels, Belgium	03.30.2015	3.06	360,672
    Ameriprise Financial, Inc., Minneapolis, Minnesota, US	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Threadneedle Asset Management Holdings SARL, Luxembourg, Luxembourg	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Threadneedle Holdings Limited, London, UK	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    TAM UK Holdings Limited, London, UK	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Threadneedle Asset Management Holdings Limited, London, UK	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    TC Financing Limited, London, UK	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Threadneedle Asset Management Limited, London, UK	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Ameriprise International Holdings GmbH, Zug, Switzerland	10.29.2015	5.0003	592,361	Threadneedle Investment Funds ICVC
    Oppenheimer International Small-Mid Company Fund, Centennial, Colorado, US	11.29.2016	5.19	615,133
    OppenheimerFunds, Inc., Denver, Colorado, US	11.29.2016	5.19	615,133	Oppenheimer International Small-Mid Company Fund

    NOTES

    Information about voting right notifications can also be found in the Investors section of the company's website at www.stratec.com.

    142 STRATEC Annual Report 2016

    Events after the balance sheet date

    The company concluded a master loan agreement with a five-year term with several banks on February 28, 2017. This has converted two bridge financing facilities which were taken up in the context of the company acquisitions in the 2016 financial year into a long-term master loan agreement with a total volume of up to € 70 million, thus improving the plannability of the company's liquidity and financial situation.

    Other than this, no events of particular significance expected to materially impact on the company's earnings, financial, or net asset position have occurred.

    Declaration in respect of the German Corporate Governance Code

    The declaration in respect of the German Corporate Governance Code ('Declaration of Conformity') required by § 161 of the German Stock Corporation Act (AktG) has been submitted by the Board of Management and Supervisory Board of STRATEC AG and made permanently available to shareholders in the Investors section of the company's website (www.stratec.com).

    Birkenfeld, April 5, 2017

    STRATEC Biomedical AG The Board of Management

    Marcus Wolfinger

    Dr. Robert Siegle

    Dr. Claus Vielsack

    RESPONSIBILITY STATEMENT

    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, April 5, 2017

    STRATEC Biomedical AG The Board of Management

    Marcus Wolfinger

    Dr. Robert Siegle

    Dr. Claus Vielsack

    143

    INDEPENDENT AUDITORS' REPORT

    We have audited the consolidated financial statements pre- pared by STRATEC Biomedical AG, Birkenfeld, compris- ing the balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows, segment reporting and the notes to the consolidated financial statements, together with the Group Management report, of STRATEC Biomedical AG, for the financial year from January 01 to December 31, 2016.The preparation of the consolidated finan- cial statements and Group management report in accordance with IFRSs as adopted by the EU, and the additional require- ments of German commercial law pursuant to section 315a (1) HGB and supplementary provisions of the articles of asso- ciation is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and the Management report based on our audit.

    We conducted our audit of the consolidated financial state- ments in accordance with section 317 HGB and the generally accepted German standards for the audit of financial state- ments promulgated by the Institute of Public Auditors in Ger-

    Our audit has not led to any reservations.

    In our opinion, based on the findings of our audit, the consoli- dated financial statements comply with IFRS as adopted by the EU, the additional requirements of German commercial law pursuant to sect 315a (1) HGB and supplementary articles of association and give a true and fair view of the net assets, finan- cial position and results of operations of the Group in accor- dance with these requirements. The Management report is consistent with the consolidated financial statements , com- plies with legal requirements and as a whole provides a suitable view of the Group's position and suitably presents the oppor- tunities and risks of future development.

    Stuttgart, April 5, 2017

    Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

    NOTES

    many (IDW).Those standards require that we plan and perform the audit in a way that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements and in the combined Management report in accordance with the applica- ble financial reporting framework are detected with reasonable assurance. Knowledge of the business activities and the eco- nomic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determi- nation of audit procedures. The effectiveness of the accounting- related internal control system and the evidence supporting the disclosures in the combined Management report are examined primarily on a test basis within the framework of the audit.The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolida- tion principles used and significant estimates made by Manage- ment as well as evaluating the overall presentation of the con- solidated financial statements and the Management report.We believe that our audit provides a reasonable basis for our opinion.

    Christian Fuchs

    Chartered Accountant

    Linda Schwachulla Chartered Accountant

    144 STRATEC Annual Report 2016

    FINANCIAL CALENDAR

    04 05 06

    April 20, 2017

    Annual Financial Report 2016

    May 4, 2017

    Quarterly Statement Q1|2017

    June 14, 2017

    Annual General Meeting, Pforzheim, Germany

    07 10 11

    July 25, 2017

    Half-yearly Financial Report H1|2017

    October 26, 2017

    Quarterly Statement 9M | 2017

    November 28, 2017

    German Equity Forum, Frankfurt / Main, Germany

    Subject to amendment

    CONTACT

    STRATEC Biomedical AG

    Gewerbestr. 37

    75217 Birkenfeld Germany

    Phone: +49 7082 7916-0

    Fax: +49 7082 7916-999

    info@stratec.com www.stratec.com

    Corporate Communications

    Andre Loy

    Phone: +49 7082 7916-190

    a.loy@stratec.com

    Investor Relations

    Sandra Eberle

    Phone: +49 7082 7916-197

    s.eberle@stratec.com

    IMPRINT

    Published by STRATEC Biomedical AG Gewerbestr. 37

    75217 Birkenfeld Germany

    Phone: +49 7082 7916-0

    Fax: +49 7082 7916-999

    info@stratec.com www.stratec.com

    Board of Management

    Marcus Wolfinger (Chairman),

    Dr. Robert Siegle and Dr. Claus Vielsack

    Supervisory Board Chairman

    Fred K. Brückner

    Registration Court

    Mannheim HRB 504390

    Value Added Tax Identification Number

    DE812415108

    Editorial Responsibility

    STRATEC Biomedical AG

    Concept and Design

    STRATEC Biomedical AG

    Bartenbach AG, Mainz, Germany

    Illustrations

    STRATEC Biomedical AG is the exclusive holder of all image rights.

    Photography

    mphoto, Salzburg, Austria

    All images not previously mentioned have been taken from the film

    "Science for Innovation: spoc laboratories" published by Wissenstransferzentrum (WTZ West), Salzburg, Austria.

    Cover picture: Microfluidic chip,Trinean DropPlate D+ Photographer: © Sebastian Mayrhofer, www.mphoto.at

    Notice

    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 that from an economic point of view are not required by the relevant accounting standards. These disclosures should be regarded as a supplement, rather than a substitute for the IFRS disclosures.

    Apparent discrepancies may arise throughout this annual report on account of mathematical rounding up or down in the course of addition.

    This annual report is available in both German and English. Both versions can be downloaded from the company's website at www.stratec.com. In the event of any discrepancies between the two, the German report is the definitive version.

    STRATEC Biomedical AG STRATEC Biomedical AG Gewerbestr. 37

    75217 Birkenfeld Germany

    Phone: +49 7082 7916-0

    Fax: +49 7082 7916-999

    info@stratec.com www.stratec.com