Report on Expected Developments

With the publication of the results of 2013, Merck provided a forecast of expected sales, EBITDA pre one-time items and business free cash flow for the Merck Group and its divisions for 2014. Owing to business performance in the first half of 2014, Merck confirms its forecast for the full year 2014 despite anticipated negative foreign exchange effects. The latter will stem mainly from a significant drop in the value of the U.S. dollar and the Japanese yen, yet also from the Latin American currencies. Relative to the sales of the Merck Group, we therefore continue to assume negative exchange rate effects of approximately 3–4% compared to the previous year.

Merck expects for 2014 slight organic sales growth, which will be cancelled out by the aforementioned negative foreign exchange effects. Due to the successful acquisition of AZ Electronic Materials (AZ) and the related portfolio effect, Merck assumes that sales will increase to around € 10.9 – € 11.1 billion. With respect to EBITDA pre one-time items, the planned efficiency increases should be able to offset the effects of the decline in royalty, license and commission income as well as the negative impact of foreign currency. Merck therefore expects EBITDA pre one-time items to grow moderately in comparison with the previous year as a result of the acquisition of AZ Electronic Materials. Business free cash flow is forecast to decrease slightly in 2014 due to investments in growth projects, as well as against the background of the high level of repayments of overdue trade accounts receivable of southern European hospitals in the previous year.

For the Merck Serono division, slight organic sales growth over the previous year is assumed. It can be expected that the well-balanced product portfolio as well as organic growth in the Emerging Markets region will offset the declines in sales of Rebif® resulting from the competitive situation in the United States and Europe. EBITDA pre one-time items of Merck Serono should decrease slightly in 2014 as forecast, particularly as a result of the expected decline in royalty, license and commission income, which will have a net effect of approximately € –100 million versus 2013. In addition, the Biosimilars initiative will be driven forward and pipeline activities will be focused on the most promising projects.

For the Consumer Health division, we forecast moderate organic sales growth in 2014. We expect all regions and especially the core strategic brands to contribute to sales growth. EBITDA pre one-time items should likewise increase moderately in 2014 as a result of positive sales developments.

We assume that the Performance Materials division will achieve slight organic sales growth in 2014. We continue to assume the expected volume increase in the Liquid Crystals business unit amid the price decline for established products. The Pigments & Cosmetics business unit should benefit from the positive development of the global automotive market and generate a slight organic increase in sales. As a result of the acquisition of AZ Electronic Materials, overall Merck expects sales of the Performance Materials division to increase substantially despite negative foreign exchange effects. EBITDA pre one-time items of the Performance Materials division should therefore also increase considerably in 2014. We estimate that the integration costs resulting from the acquisition of AZ Electronic Materials will amount to around € 50 million, approximately € 10 million of which will be incurred in 2014.

For Merck Millipore, we expect moderate organic sales growth in 2014, which will however be partly cancelled out by foreign exchange effects. Supported by the continued recovery of the pharmaceutical market, the Process Solutions business area should remain the main growth driver. Based on sales growth, we expect EBITDA pre one-time items of the Merck Millipore division to increase slightly in 2014.

The assumptions of market and exchange rate developments lead to the following forecast of business performance for the full year 2014:

Earnings per share pre one-time items ~ € 4.50 – € 4.75 (based on the number of shares following the share split, which was approved by the Annual General Meeting on May 9, 2014).

Full-year FX assumptions for 2014:
€ 1 = US$ 1.36
€ 1 = JPY 140