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Review of Forecast against Actual Business Developments

Net sales

For 2016, slight organic sales growth was forecast for the Merck Group. Owing to the acquisition of Sigma-Aldrich, which closed on November 18, 2015, we additionally expected a portfolio effect in the low double-digit percentage range. The positive organic development of net sales in the Healthcare and Life Science business sectors more than offset the slight decline in Performance Materials. Consequently, we generated a moderate organic sales increase of 3.2%. At 16.4%, the additional portfolio effect due to Sigma-­Aldrich was in the low double-digit percentage range as expected. At the beginning of 2016, we had forecast a slightly negative exchange rate effect owing to the decline in the value of Latin American currencies. In the course of the year, we raised the forecast of this effect to – 3% to – 5%. Owing to a weakening of these dynamics and a simultaneous strengthening of the U.S. dollar in the fourth quarter, we incurred an exchange rate effect of – 2.6% on our sales for 2016.

In 2016, our Healthcare business sector showed solid organic sales growth of 4.6%, thus exceeding our forecast for slight organic growth. As expected, sales growth was driven by the continued good dynamics in our growth markets as well as positive effects from the co-promotion of Xalkori® with Pfizer. Yet the Fertility franchise in North America and China as well as Rebif® performed significantly better than expected. Contrary to our original assumptions, Rebif® generated organic sales growth in North America. As forecast, a slightly negative portfolio effect of – 1.1% was incurred in 2016 owing to the return of the Kuvan® rights to ­BioMarin ­Pharmaceutical, Inc.

Our Life Science business sector achieved organic sales growth of 6.3% in 2016. This was significantly stronger than the moderate organic growth we had forecast at the beginning of the year. The more dynamic business performance increasingly manifested itself in the first half of 2016. Our updated forecasts as of the second quarter of the year took this into account accordingly. All the Life Science business areas contributed to the positive development, with Process Solutions accounting for the largest proportion and benefiting from continued healthy demand from customers in the biopharmaceutical industry. In addition, the acquisition of Sigma- Aldrich was responsible for a portfolio effect of 63.1%, thus meeting the forecast we made at the beginning of the year.

As already indicated in the forecasts after the second and third quarters of 2016, the Performance Materials business sector did not meet the original expectation of slight organic growth. The destocking in the display industry, which lasted longer than expected, as well as typical price declines in liquid crystals, could not be offset by growth in the other business units. Overall, this led to an organic sales decline of – 4.7% compared with 2015.

EBITDA pre exceptionals

At Group level, we increased EBITDA pre exceptionals by 23.7% to € 4,490 million in 2016, which was in line with our original forecast of an increase in the low double-digit percentage range.

Contrary to our original expectation of a decline in earnings in the low double-digit percentage range, in 2016 EBITDA pre exceptionals of our Healthcare business sector rose by 6.3% compared with 2015. The positive margin development had already started to become apparent after the second quarter following unexpectedly good sales reported for Rebif® and the Fertility franchise along with the divestment of a minority interest. Additionally, as of the second half of the year we started receiving royalty and license income for a patent granted in the United States in June 2016. Apart from the release of provisions for research projects discontinued in prior years, it became clear in the third quarter that research and development expenses would be below our conservative cost budgeting at the beginning of 2016.

For EBITDA pre exceptionals of the Life Science business sector, we had forecast a moderate increase owing to the expected organic sales growth and an additional portfolio effect in the high double-­digit percentage range due to the acquisition of Sigma-Aldrich. With EBITDA pre exceptionals of € 1,652 million, equivalent to an increase of 93.0%, we met this forecast. This was due not only to the portfolio effect that corresponded to the expected amount, but also to good margin development and the faster than planned realization of the synergies from the aforementioned acquisition.

For the Performance Materials business sector, we assumed that EBITDA pre exceptionals would increase slightly. We aimed for at least the level of 2015. Owing to the significant destocking by the display industry throughout the year and the resulting negative impact on sales, we fell slightly short of this forecast. We applied maximum cost discipline to counteract this development and were able to benefit from the high degree of diversification that now characterizes Performance Materials. Since this could not fully offset the earnings impact of the decline in sales of the Display Materials business, EBITDA pre exceptionals decreased by – 2.3% to € 1,106 million. Yet the EBITDA margin pre exceptionals remained at the high level of 2015.

EBITDA pre exceptionals of Corporate and Other developed in line with our expectations. Owing to the further intensification of strategic Group initiatives, such as the new branding and projects to digitalize the Group, we expected expenses to rise significantly. With EBITDA pre exceptionals of € – 396 million in 2016, we met this forecast, which we had specified in the course of 2016 to lie between € – 370 million and € – 400 million.

Business free cash flow

In 2016, we expected business free cash flow of the Merck Group to develop positively in the high single-digit percentage range. We exceeded this forecast with business free cash flow increasing by 20.0%. The key drivers of this were the unexpectedly high growth of EBITDA pre exceptionals of our Healthcare business sector as well as, to a smaller extent, the positive development of inventories in Performance Materials. As expected, due to the Sigma-Aldrich acquisition the Life Science business sector made a high double-­digit percentage contribution to the development of business free cash flow.

35.5 KB EXCEL
      Forecast for 2016 in:  
  Actual results 2015 in € million Forecast for 2016 in the ­Annual Report for 2015 Q1 / 2016 Interim Report Q2 / 2016 Interim Report Q3 / 2016 Interim Report Results 2016 in € million
Merck Group            
Net sales 12,845 Slight organic growth Portfolio effect in the low
double-­digit percentage range
€ 14.8 – € 15.0 billion € 14.9 – € 15.1 billion € 14.9 – € 15.1 billion 15,024
(+ 17.0%:
+ 3.2% Organic
+ 16.4% Portfolio
– 2.6% Currency)
EBITDA pre exceptionals 3,630 Low double-digit percentage increase taking into account the Sigma-Aldrich portfolio effect € 4.1 – € 4.3 billion € 4.25 – € 4.4 billion € 4.45 – € 4.6 billion 4,490
(+ 23.7%)
Business free cash flow 2,766 High single-digit
percentage increase
€ 3.1 – € 3.3 billion € 3.14 – € 3.25 billion € 3.25 – € 3.36 billion 3,318
(+ 20.0%)
Healthcare            
Net sales 6,934 Slight organic growth Slightly negative portfolio effect due to the divestment of Kuvan ® Slight organic growth,
slightly negative portfolio effect
due to the divestment of Kuvan ®
Solid organic growth,
slightly negative portfolio effect
due to the divestment of Kuvan ®
Solid organic growth,
slightly negative portfolio effect
due to the divestment of Kuvan ®
6,855
(– 1.1%:
+ 4.6% Organic
– 1.1% Portfolio
– 4.6% Currency)
EBITDA pre exceptionals 2,002 Low double-digit percentage decline taking into consideration commercialization costs, especially for avelumab (excluding market launch costs: decline in the high single-­digit to mid-teens percentage range) Negative portfolio effect in the ­medium double-digit million range due to the divestment of Kuvan ® € 1.8 – 1.9 billion € 1.95 – 2.05 billion € 2.1 – 2.2 billion 2,128
(+ 6.3%)
Business free cash flow 1,581 Low double-digit
percentage decline
€ 1.4 – 1.5 billion € 1.49 – 1.59 billion € 1.59 – 1.67 billion 1,648
(+ 4.2%)
Life Science            
Net sales 3,355 Moderate organic growth High double-digit ­percentage ­portfolio effect due to the ­acquisition of Sigma-Aldrich Organic growth in the mid-single-­digit percentage range, high ­double-digit portfolio effect due
to the acquisition of Sigma-Aldrich
Organic growth in the mid to high single-digit percentage range, ­portfolio effect in the high ­double-digit percentage range due to the acquisition of Sigma-Aldrich Organic growth in the mid to high single-digit percentage range, ­portfolio effect in the high double-­digit percentage range due to the acquisition of Sigma-Aldrich 5,658
(+ 68.6%:
+ 6.3% Organic
+ 63.1% Portfolio
– 0.8% Currency)
EBITDA pre exceptionals 856 Moderate increase due
to organic sales growth Additional high double-digit ­percentage portfolio effect due to the acquisition of Sigma-Aldrich
€ 1.62 –1.67 billion € 1.62 – 1.67 billion € 1.64 – 1.67 billion 1,652
(+ 93.0%)
Business free cash flow 676 High double-digit
percentage increase
€ 1.22 – 1.27 billion € 1.18 – 1.23 billion € 1.18 – 1.23 billion 1,144
(+ 69.3%)
Performance Materials            
Net sales 2,556 Slight organic growth Organic stable Moderate decline Moderate decline 2,511
(– 1.8%:
– 4.7% Organic
+ 2.7% Portfolio
+ 0.2% Currency)
EBITDA pre exceptionals 1,132 Slight increase,
yet at least at the 2015 level
€ 1.1 – 1.15 billion € 1.1 – 1.15 billion € 1.1 – 1.15 billion 1,106
(– 2.3%)
Business free cash flow 931 Moderate increase € 0.95 – 1.0 billion € 0.93 – 0.98 billion € 0.93 – 0.98 billion 1,011
(+ 8.6%)
Corporate and Other            
EBITDA pre exceptionals – 360 Significant increase € – 370 – – 400 million € – 370 – – 400 million € – 370 – – 400 million – 396
(+ 10.0%)
Business free cash flow – 421 € – 460 – – 490 million € – 460 – – 490 million € – 460 – – 490 million – 485
(+ 15.1%)