Forecast for the Merck Group Audited

We foresee stable sales for the Merck Group in 2014 as slight organic growth is offset by an unfavorable impact from foreign exchange developments, which are anticipated to impact the sales of all divisions. While we expect the U.S. dollar-euro exchange rate to remain at around the 2013 level, an unfavorable foreign exchange development for the Merck Group is expected to stem from Emerging Markets and Japan.

Merck Serono sales are expected to remain stable excluding foreign exchange effects. While Rebif® sales are expected to decline, we should see ongoing positive growth momentum from our Emerging Markets region. For the Consumer Health and Merck Millipore divisions, we expect moderate organic growth rates, while the positive volume growth in the Performance Materials division might be offset by price erosion, which is expected to occur next year.

From the second quarter of 2013 onwards, Merck saw the decline in royalty income at Merck Serono, which will fully come through in the course of 2014. The net decrease in EBITDA pre one-time items from expired royalty income and related royalty expenses with respect to Avonex® and Enbrel® amounts to approximately € 75 million. This reduction will be more pronounced due to the settlement agreement on the patent dispute with AbbVie concerning Humira®, which was reached at the beginning of 2014. On the other hand, the commercial agreement reached with Bristol-Myers Squibb in 2012 on the co-promotion of Glucophage® in China is expected to partly mitigate the negative impact.

Despite the Rebif® sales decline, the significant reduction in royalty income and the anticipated unfavorable foreign exchange environment, Merck aims to achieve in 2014 EBITDA pre one-time items at the level of 2013. In the course of 2013 Merck realized most of the efficiencies from the “Fit for 2018” transformation and growth program, which will have a positive incremental effect reducing the cost base on a full-year basis in 2014. EBITDA pre one-time items of Corporate and Other is expected to remain stable. Restructuring costs on the current portfolio are planned to decrease from € 166 million in 2013 to approximately € 100 million in 2014. We expect an underlying improved tax ratio of 23% to 25% in 2014.

As publicly stated over the last two years, Merck has embarked on a transformation journey that will last several years. The focus of this transformation journey will now shift more toward organic and inorganic growth. Therefore, Merck plans to accelerate R&D activities on strategic growth initiatives such as Biosimilars and OLED (organic light-emitting diodes) and to direct marketing and selling resources even more to growth markets. Merck’s ambition to take M&A initiatives has become clear through the announcement of the intention to acquire AZ Electronic Materials. Merck’s business free cash flow is expected to decrease slightly in comparison with 2013 as higher investments in property, plant and equipment in strategic projects such as the construction of a pharmaceutical production facility in China are planned.

The Merck Executive Board decided to transfer two product groups, Neurobion® (a vitamin B-based analgesic) and Floratil® (a probiotic anti-diarrheal), from the Merck Serono division to the Consumer Health division as of January 1, 2014. This move, which transfers the sales and all related expenses for both product groups, will enable a better strategic focus for both divisions, while fostering synergies in the organization. Consequently, approximately € 265 million in sales, around € 100 million in EBITDA pre one-time items and around € 77 million in business free cash flow will be shifted from Merck Serono to Consumer Health based on 2013 results. Within Consumer Health, we expect these two product groups to grow moderately in line with the existing Consumer Health portfolio in 2014.

While the acquisition of AZ Electronic Materials is anticipated to lead to a moderate increase in sales and EBITDA pre one-time items and to a slight increase in business free cash flow of the Merck Group in 2014 compared to 2013, a significant increase is expected in sales, EBITDA pre one-time items as well as business free cash flow for the Performance Materials division.