136
`
`Merck 2013
`Group Management Report
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`
`
` Report on Risks
`and Opportunities
`
`Group Security is a
`member of the Alliance
`for Cyber Security of the
`German Federal Office
`for Information Security
`
`Quality management
`system certified to ISO
`20000:2005 used to en-
`sure consistent quality
`of IT services
`
`The entire Merck Group has global security guidelines and information protection management for IT and
`“non-IT” areas, each with organizational and technical standards for access rights as well as information and
`data protection. Attention in the IT area is focused on hardening the corresponding systems and, for example,
`identifying cyber attacks. Group Security is a member of the Alliance for Cyber Security of the German Federal
`Office for Information Security. A pilot data leakage prevention project is currently being introduced at Merck
`to protect sensitive business information. The effectiveness of internal (IT) protection measures is monitored
`on an ongoing basis and reviewed by Group Security, Group Internal Auditing and third-party auditors.
`The potential losses resulting from e-crime cannot be generally categorized, not least on account of the
`multitude of different possible ways it can be committed; its impact on the net assets, financial position and
`results of operations would depend on the individual case. Despite the protective measures already being
`taken by Merck to great effect, the occurrence of the risk of e-crime is considered possible, with an estimated
`substantial impact. It is therefore classed as a medium risk.
`
`Risks due to failure of business-critical IT applications or to failure of data center capacity
`IT applications used globally in process steering form the basis for the contractual delivery of products and
`solutions to the customers of the Merck Group around the world. Fluctuations in the quality of internal
`IT services can lead to the failure of business-critical IT applications, which would have a direct influence on
`Merck’s ability to deliver. Similarly, the failure of a data center can impair service quality or trigger the
`complete failure of critical applications.
`The primary objective of Information Services in the Merck Group is to maintain service quality in keeping
`with the service levels agreed with the Group functions and divisions. To achieve this objective, Merck uses a
`quality management system certified to ISO 20000:2005, which comprises steering measures to maintain a
`consistent standard of quality. In addition to day-to-day operating processes, this also provides directives on
`how to act in a crisis situation in the form of a regularly tested crisis management plan. As part of this crisis
`management, Merck operates several redundantly designed data centers so that service quality will be
`maintained even in the event of the failure of one data center.
`Despite the mitigating measures taken, functional continuity plans and the unlikely probability of occur-
`rence, the impact of a failure of business-critical IT applications owing to fluctuations in the quality of internal
`IT services and its influence on the net assets, financial position and results of operations is considered a
`medium risk.
`
`Environmental and safety risks
`
`As a company with global production operations, Merck is exposed to risks of possible damage to people,
`goods and its reputation. Audits, consulting and training on environmental protection and occupational
`health and safety minimize these risks to people and the environment. In order to ensure the continuity of
`plant and equipment, Merck monitors these risks both at our own sites as well as at suppliers and contract
`manufacturers. By adhering to high technical standards, our rules of conduct, and all legal requirements in
`environmental protection and occupational health and safety, we ensure the preservation of goods and
`assets. Sufficient appropriate accounting measures have been taken for the environmental risks known to us.
`Nevertheless, Merck classifies these as a medium risk since a critical negative impact to liquidity cannot be
`ruled out.
`
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` Report on Risks
`and Opportunities
`
`137
`
`Overall view of the risk and opportunity situation and management assessment
`
`Although the number of risks reported is higher than the specific opportunities, Merck considers the distribu -
`tion of risks and opportunities to be balanced. A balanced overall view within the Group is also supported by
`the fact that total revenues and business success are built on a diversity of pharmaceutical and chemical
`products for a variety of industries. As the markets differ in their structure and economic cycles, this diver-
`sification helps to lower risk. The overall view of the opportunity and risk profile of the four divisions would
`also be further balanced by the proposed acquisition of AZ Electronic Materials moving forward. This diver-
`sification also reflects Merck’s strategy to continue its development as an integrated pharmaceutical and
`chemical company.
`The most significant individual risks in the divisions have been named in the report above, with business-
`related risks being the most significant to us alongside legal risks.
`Although the assessment of the individual risks has altered over the fiscal year as a result of changing
`external conditions, the risk situation of the Group as a whole is not significantly different compared to 2012.
`There have been no new additions in the area of high risks in particular. Merck has observed only minor
`changes in the area of medium risks. Thanks to the mitigating measures taken – such as the consistent
`implementation of management action (organizational responsibility and process improvements), the
`increased insurance coverage and accounting precautions – Merck’s significant risks in particular have been
`further minimized in net terms.
`The overall view of the risk situation of the Group, which is derived from the summary of the risks
`described on the basis of their impact and probability of occurrence, leads Merck to the assessment that the
`risks are not of a nature to threaten the existence of the Group as a going concern, either individually or
`collectively. Merck is confident that it will continue to successfully master the challenges arising from the
`above risks in the future as well.
`In terms of opportunities, we feel that the greatest potential lies in the business-related topics of the
`operational areas. Thanks in particular to the expansion of our business in emerging markets, the optimization
`of the Merck Serono R&D organization, the newly founded biosimilars initiative and other activities as part
`of the “Fit for 2018” transformation and growth program, Merck has launched changes that hold significant
`opportunities in the medium to long term beyond the underlying forecast period.
`Merck pursues the opportunities that arise and shows their expected effects in the forecast development
`of its key performance indicators – sales, EBITDA pre one-time items and business free cash flow. Merck will
`actively seek out opportunities beyond this and move ahead their implementation. In the event that oppor-
`tunities arise in addition to the forecast developments, or that these occur more quickly than anticipated, this
`could have correspondingly positive effects on Merck’s net assets, financial position and results of
`operations.
`
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`

`138
`
`Merck 2013
`Group Management Report
`
`Report on Expected Developments
`
`The following report provides a forecast for the development of the Merck Group and its divisions in 2014
`focusing on the three most significant financial key performance indicators (KPIs) for the Merck Group and
`its businesses: sales, EBITDA pre one-time items and business free cash flow. We take into account the
`company’s weighing up of risks and opportunities in accordance with our operational plans and medium-term
`assumptions.
`In December 2013 Merck made an offer to AZ shareholders to acquire AZ Electronic Materials. From
`today’s perspective the acquisition is expected to close in the course of 2014 (the successful completion of
`the transaction is conditional upon antitrust clearance, among other things). The following report provides
`on the one hand the expected developments of the Merck Group excluding the impact from a potential
`acquisition of AZ Electronic Materials. On the other hand, we provide separately a forecast for the Merck
`Group and for the Performance Materials division, which would be affected by the acquisition of AZ Electronic
`Materials assuming the first-time consolidation of AZ Electronic Materials in the Merck Group in the second
`quarter of 2014.
`
`Forecast for the Merck Group
`
`Merck Group | Forecast 2014
`
`€ million
`
`Actual
`results
`2013
`
`Sales
`
`10,700.1
`
`EBITDA pre
`one-time items
`Business free
`cash flow
`
`3,253.3
`
`2,960.0
`
`Forecast
`2014
`
`slight
`organic
`growth
`
`stable
`slight
`decrease
`
`Key assumptions
`Slight organic growth offset by currency headwinds
`in all divisions
`Organic development of the divisions: Merck Serono stable as
`Rebif® sales decline is offset by Emerging Markets growth,
`moderate organic growth in Merck Millipore and Consumer
`Health, volume growth in Performance Materials, which will
`be offset by price erosion
`Positive full-year impact from realized efficiencies offset by
`major investments in Biosimilars and the loss of royalty income
`EBITDA pre one-time items of Corporate and Other stable
`Slight decrease due to higher investments in property, plant
`and equipment driven by strategic growth projects
`
`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.
`
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`Group Management Report
`
`
`
` Report on Expected
`Developments
`
`Despite lower Rebif®
`sales, significant decline
`in royalty income and
`anticipated currency
`headwinds, the aim is to
`achieve the 2013 level of
`EBITDA pre
`
`139
`
`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 unfa-
`vorable 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.
`
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`Group Management Report
`
`
`
` Report on Expected
`Developments
`
`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.
`
`Forecast for the Merck Serono division
`
`Merck Serono | Forecast 2014
`
`€ million
`
`Actual
`results
`2013
`
`Forecast
`2014
`
`Sales
`
`5,953.6
`
`organic stable on a
`comparable basis
`
`EBITDA pre
`one-time items
`
`1,955.0
`
`Business free
`cash flow
`
`1,875.7
`
`slight
`decrease on a
`comparable basis
`
`moderate
`decrease on a
`comparable basis
`
`Key assumptions
`Balanced product portfolio and solid organic growth
`in Emerging Markets expected to offset Rebif® decline
`in the U.S. and Europe and expected biosimilar entries
`for Fertility in Europe
`Unfavorable impact from foreign exchange development will
`lead to slight decrease in nominal sales
`Neurobion® and Floratil® transfer to Consumer Health
`division will reduce sales by ~€ 265 million based
`on actual 2013 results
`Development in line with sales, tight cost management will
`help to balance the reduction in royalties from Avonex®,
` Enbrel® and Humira®
`Higher R&D expenses in Biosimilars unit
`Neurobion® and Floratil® transfer to Consumer Health
`division will reduce EBITDA pre one-time items
`by ~€ 100 million based on 2013 actual results
`Initiation of further investments in growth projects and slight
`decrease of EBITDA pre will lead to lower business free cash flow
`Neurobion® and Floratil® transfer to Consumer Health
`division will reduce 2013 business free cash flow
`by ~€ 77 million based on actual 2013 results
`
`Due to the aforementioned decision to transfer two product groups, Neurobion® and Floratil®, from the
`Merck Serono division to the Consumer Health division as of January 1, 2014, the base for the Merck Serono
`division will decrease by approximately € 265 million in sales, around € 100 million in EBITDA pre one-time
`items and around € 77 million in business free cash flow, based on 2013 results of the transferred brands.
`Accordingly, the 2014 forecast for the Merck Serono division is based on the 2013 results reduced by the
`transfer.
`
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`141
`
`Merck 2013
`Group Management Report
`
`
`
` Report on Expected
`Developments
`
`Strong product portfolio
`and footprint in
`Emerging Markets help
`protect Merck Serono
`sales and balance Rebif®
`sales decline
`
`Strategic growth projects
`in Supply and R&D lead
`to higher investment
`level
`
`Stable organic sales are expected for 2014, while an unfavorable expected impact from foreign exchange
`development might negatively weigh on the reported numbers. We assume that Rebif®, Merck Serono’s
`top-selling product, will continue to face severe competitive pressure in the United States and that it will also
`start to lose market share in Europe as a result of the market entry of new products in the multiple sclerosis
`segment. Sales of the oncology drug Erbitux® are expected to grow moderately fueled by the recent update
`of the metastatic colorectal cancer labeling to patients with RAS wild-type tumors as well as due to continued
`good performance in Japan. For Gonal-f®, the largest drug in the Fertility franchise, Merck expects only a
`marginal improvement in 2014 coming from market expansions in Emerging Markets but offset by expected
`launches of biosimilar products in Europe. Slight growth is assumed for the CardioMetabolic Care and
`Endocrinology franchises.
`We forecast Merck Serono’s EBITDA pre one-time items to decrease slightly compared to 2013 driven by
`the reduction in royalties from Avonex®, Enbrel® and Humira® amounting to a net EBITDA pre one-time items
`effect of € 115 million versus 2013.
`In the United States, Merck distributes Rebif® under a co-promotion agreement with the pharmaceutical
`company Pfizer until end of 2015. Based on the agreement Merck pays commission expenses, which are
`expected to decline in 2014 in line with lower Rebif® sales. From 2016 onwards Merck intends to take over
`the entire Rebif® distribution in the United States and consequently no longer be subject to commission
`expenses.
`While the worldwide pharmaceutical market is expected to recover and to grow at mid-single-digit rates
`in 2014 according to IMS Health, geographic growth remains unevenly distributed. Mature markets show
`tentative signs of recovery, but remain sluggish. Austerity measures are expected to continue to put pressure
`on the health care industry in Europe, which is still Merck’s dominant regional market. By contrast, many
`Emerging Markets such as China and Brazil will grow at double-digit rates and remain growth drivers for the
`pharmaceutical industry.
`Owing to geographic developments, Merck Serono intends to strengthen its profitability position in
`Europe and the United States, to further redirect its resources to Emerging Markets and to grow in these
`developing economies. At the same time cost development will be monitored closely.
`As part of Merck’s strategy we will forge ahead with the build-up of Merck Serono’s Biosimilars unit and
`therefore plan an increase in our divisional R&D expenses. Driven by the initiation of further growth projects
`such as the construction of a production facility in China, Merck Serono’s investment in property, plant and
`equipment will increase in 2014. As a result of the lower EBITDA pre one-time items and these investments,
`a moderate decrease is expected for Merck Serono’s divisional business free cash flow.
`
`
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` Report on Expected
`Developments
`
`Forecast for the Consumer Health division
`
`Consumer Health | Forecast 2014
`
`€ million
`
`Actual
`results
`2013
`
`Forecast
`2014
`
`Sales
`
`476.9
`
`moderate
`increase on a
`comparable basis
`
`EBITDA pre
`one-time items
`
`moderate
`increase on a
`comparable basis
`
`72.5
`
`Business free
`cash flow
`
`slight increase on a
`comparable basis
`
`83.9
`
`Key assumptions
`Moderate organic growth driven by strategic core brands and
`all geographical markets, slightly offset by unfavorable foreign
`exchange development
`Neurobion® and Floratil® transfer from Merck Serono will increase
`sales by ~€ 265 million based on actual 2013 results; the two
`product groups are expected to grow in line with existing portfolio
`Moderate increase in line with sales development
`Slight increase in marketing and selling as well as
`R&D expenses in order to support growth in
`Emerging Markets and to invest in other growth projects
`Neurobion® and Floratil® transfer from Merck Serono will
`increase EBITDA pre one-time items by ~€ 100 million
`based on actual 2013 results
`Slight increase driven by EBITDA pre one-time items,
`Working capital to increase slightly in line with sales increase
`Neurobion® and Floratil® transfer from Merck Serono
`will increase business free cash flow by ~€ 77 million
`based on actual 2013 results
`
`With the decision by the Merck Executive Board to transfer the two product groups, Neurobion® and Floratil®,
`from the Merck Serono to the Consumer Health division as of January 1, 2014, the base for the Consumer
`Health division will increase by approximately € 265 million in sales, around € 100 million in EBITDA pre
`one-time items and around € 77 million in business free cash flow, based on the actual 2013 results of the
`transferred brands. Accordingly, the 2014 forecast for the Consumer Health division is based on the combined
`2013 result.
`After having set up a new regional operating model and significantly improving its cost structures over
`the past two years, the Consumer Health division will continue to focus its activities on the development and
`selective expansion of core strategic brands and on strengthening its position in key markets. The division’s
`goal is to achieve meaningful market shares in all relevant combinations of strategic core brands and focus
`markets. In doing that, profitable growth is expected from all regions, including Emerging Markets, where
`Consumer Health is presently underrepresented with its main consumer brands such as Bion®, Nasivin® or
`Femibion®.
`
`Course set for profitable
`growth based on core
`strategic brands in key
`markets
`
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` Report on Expected
`Developments
`
`143
`
`As a consequence of a continued effort on focusing the portfolio and marketing efforts on core brands and
`markets, Merck expects sales of the Consumer Health division to increase moderately in 2014 and to develop
`in line with the over-the-counter (OTC) drug market in countries where Merck competes.
`We expect the EBITDA pre one-time items of the Consumer Health division to increase moderately as
`marketing and selling expenses will be slightly increased to support growth in Emerging Markets and R&D
`spending will be raised to invest in developing a robust innovation pipeline beyond 2014. Business free cash
`flow is expected to be slightly above the level of 2013 as it is assumed that the EBITDA pre one-time items
`increase will be partly offset by increases in working capital proportionate to higher sales.
`
`Forecast for the Performance Materials division
`
`Performance Materials | Forecast 2014
`
`€ million
`
`Actual
`results
`2013
`
`Sales
`
`1,642.1
`
`EBITDA pre
`one-time items
`
`Business free
`cash flow
`
`779.7
`
`787.8
`
`Forecast
`2014
`
`at best
`at previous
`year level
`
`at best
`at previous
`year level
`
`moderate
`decrease
`
`Key assumptions
`Slight organic growth of divisional sales offset by slight
`contraction due to foreign exchange development
`Volume growth but normal price erosion in Liquid Crystals unit
`for established products
`Pigments & Cosmetics to increase slightly
`Decline in Liquid Crystal product prices may put pressure
`on the gross margin
`EBITDA pre one-time items expected at best at the previous
`year’s level
`Development driven by EBITDA pre one-time items
`Investments in property, plant and equipment in 2014 will
`be raised to support the “Fit for 2018” transformation and
`growth program
`
`After a strong 2013, the Performance Materials division will be able to maintain its leadership position in the
`liquid crystals market and to deliver slight growth in the Pigments & Cosmetics business unit in 2014.
`
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`Developments
`
`Volumes in the display
`industry are expected
`to increase, but with
`continued pressure on
`prices
`
`We expect in 2014 at best stable sales from the Liquid Crystals business unit. Despite volume growth, prices
`for established products will decline further. Volumes in the display industry are forecast to increase in 2014
`after a moderate development in 2013 according to market researchers from Display Search. LC will remain
`by far the leading technology and display size will remain the main growth driver. New, innovative liquid
`crystal technologies will continue to strengthen the market. For example, Merck is advancing nicely with the
`development of SA-VA technology, which is likely to enter the market in 2015. Display production focus will
`be shifting gradually to China, where Merck’s new facility in Shanghai will be inaugurated in 2014 to support
`growth close to main customers.
`For Merck’s Pigments & Cosmetics business unit, the markets are assumed to continue to offer attractive
`growth rates in the future. As in Merck’s other divisions, the need for innovative products and the shift in
`demand to Emerging Markets and thereby in particular to China, can be observed. Sales by the Pigments &
`Cosmetics business unit are expected to increase slightly driven by Xirallic® effect pigments.
`Overall Merck expects at best stable sales for the Performance Materials division in 2014 as stable organic
`growth might be offset by a slight contraction of reported sales due to an unfavorable foreign exchange
`development. Lower prices in Liquid Crystals and additional volumes will put some pressure on the divisional
`gross margin, whereas marketing & selling expenses and administration costs will be maintained largely at
`the 2013 level. R&D expenses will be slightly increased with a focus on investments in the OLED area and
`future LC technologies. As a result of this, we forecast for 2014 at best an EBITDA pre one-time items for
`Performance Materials at the level of 2013. Business free cash flow is expected to decrease moderately as the
`division raises its investments in property, plant and equipment in 2014 to support the “Fit for 2018” trans-
`formation and growth program and to optimize its capacities.
`If the acquisition of AZ Electronic Materials takes place, Merck expects a significant increase in sales,
`EBITDA pre one-time items as well as business free cash flow for the Performance Materials division in 2014
`compared to 2013.
`
`Forecast for the Merck Millipore division
`
`Merck Millipore | Forecast 2014
`
`€ million
`
`Sales
`EBITDA pre
`one-time items
`
`Business free
`cash flow
`
`Actual
`results
`2013
`
`2,627.5
`
`642.8
`
`493.8
`
`Forecast
`2014
`
`slight increase
`
`slight increase
`
`stable
`
`Key assumptions
`Moderate organic growth, slightly offset by foreign exchange
`development
`Growth fueled by Process Solutions and Lab Solutions,
`Bioscience continues to be challenged by sluggish demand
`Marginal addition to marketing and selling as well as
`R&D expenses, improvement driven by slight sales increase
`Investments in property, plant and equipment in 2014 raised to
`support the “Fit for 2018” transformation and growth program,
`which slightly offsets the EBITDA pre one-time items increase
`
`The Merck Millipore division is expected to remain on a healthy growth path throughout 2014. All business
`units have been forecast to contribute to a slight increase in sales.
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` Report on Expected
`Developments
`
`Healthy growth of
`Merck Millipore is
`driven by the Process
`Solutions and Lab
`solutions business units
`
`145
`
`The pharmaceutical market is expected to recover and to grow at middle single-digit rates compared to 2013
`according to IMS Health, strongly driven by sales of biotech products. After two years of decline, R&D
`spending by the pharmaceutical industry is expected to resume according to Evaluate Pharma. The Process
`Solutions business unit, which supplies consumables and services to major pharmaceutical and biotech
`manufacturing companies, is expected to deliver solid organic sales growth fueled by these favorable market
`dynamics.
`Merck expects solid performance in the Lab Solutions business unit in 2014 as the global laboratory
`products market is expected to grow by +1.5% to +2.0% compared to last year (Frost & Sullivan market
`research).
`The Bioscience business unit, whose main customer groups are academic and government laboratories and
`institutions as well as pharmaceutical and biotechnological research organizations, is likely to continue to face
`a challenging economic environment in 2014. Sluggish development is forecast in the major markets of Europe
`and North America due to budget sequestration measures, while Emerging Markets are expected to drive
`growth.
`Marketing and selling expenses and R&D expenses are planned to develop in line with sales, leading to a
`further slight improvement of divisional EBITDA pre one-time items. Investments in property, plant and
`equipment will be at higher levels in 2014 as the division is in the process of enhancing its production and
`supply network. As a result business free cash flow is projected to remain stable at the level of 2013.
`
`Summary
`
`The Merck Executive Board continues to see neither any major technology shifts in its Chemical businesses
`nor any major new product launches in the Pharmaceutical business in 2014. Merck will continue with the
`implementation of the “Fit for 2018” transformation and growth program and enter a phase of continuous
`improvement. We plan to accelerate our R&D activities on strategic business initiatives such as Biosimilars
`and OLED and to direct our marketing and selling resources to growth markets.
`We forecast slight organic sales growth for the Merck Group driven by the Merck Millipore and Consumer
`Health divisions for 2014. Despite the Rebif® sales decline, the significant reduction in royalty income and an
`anticipated unfavorable foreign exchange environment, we aim to achieve the 2013 level of Group EBITDA
`pre one-time items. Business free cash flow is expected to decrease slightly as several strategic growth
`projects will require investments in property, plant and equipment.
`
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`Report in accordance with Section 315 (4)
`of the German Commercial Code (HGB)
`
`The following information is provided in accordance with Section 315 (4) of the German Commercial Code
`and the explanatory report pursuant to Section 176 (1) sentence 1 of the German Stock Corporation Act
`(AktG).
`As of the balance sheet date, the company’s subscribed capital is divided into 64,621,125 no-par bearer
`shares plus one registered share. Each share therefore corresponds to € 2.60 of the share capital. The holder
`of the registered share is E. Merck Beteiligungen KG. It is entitled and obliged to appoint one-third of the
`members of the Supervisory Board representing the limited liability shareholders. If the holder of the regis-
`tered share is a general partner, he or she has no such right of appointment. The transfer of the registered
`share requires the company’s approval. The approval is granted at the sole discretion of the personally liable
`general partner with an equity interest, namely E. Merck KG.
`On December 31, 2013, no shareholders owned direct or indirect investments exceeding more than 10%
`of the voting rights.
`According to the Articles of Association of Merck, the general partners not holding an equity interest who
`form the Executive Board are admitted by E. Merck KG with the consent of a simply majority of the other
`general partners. A person may only be a general partner not holding an equity interest if he or she is also a
`general partner of E. Merck KG. In addition, at the proposal of E. Merck KG and with the approval of all general
`partners not holding an equity interest, further persons who are not general partners not holding an equity
`interest may be appointed to the Executive Board.
`The Articles of Association can be amended by a resolution by the Annual Meeting that requires the
`approval of the general partners. The resolutions of the General Meeting are, notwithstanding any statutory
`provisions to the contrary, adopted by a simple majority of the votes cast. Where the law require