Disclaimer Publication of
`
` Merck KGaA, Darmstadt, Germany. In the United States and Canada the
` subsidiaries of Merck KGaA, Darmstadt, Germany operate under the
` umbrella brand EMD.
`
`Page 1
`
`

`
`More information inside the cover:
`Business sectors and divisions
`Merck 2008 at a glance
`
`Major achievements of 2008
`
`Despite a rapidly deteriorating economic situation, total revenues of the Merck
`Group increased by 7.1% to € 7,558 million in 2008. On a currency-adjusted basis,
`we achieved growth of 11%.
`
`The operating result rose by 16% to € 1,131 million. Return on sales (ROS) improved
`to 15.0%. Profit after tax from continuing operations increased from € –88 million to
`€ 379 million owing to good business performance, the sharp decline in excep tional
`items as well as the nearly full repayment of debt.
`
`The pharmaceutical business achieved double-digit growth rates. Our oncology drug
`Erbitux® was approved in mid-2008 in the European Union for the first-line treat-
`ment of metastatic colorectal cancer, as well as in Japan for second- and third-line
`treatment in this indication. In November, the EU drug regulatory authorities granted
`approval for the first-line treatment of head and neck tumors. Sales of Erbitux®
`increased 20% to € 565 million. Rebif®, our drug to treat multiple sclerosis, further
`expanded its leading position with sales of € 1,331 million, 9.3% more than in 2007.
`
`Annual Report 2008
`Staying the course
`
`Merck
`
`Staying the course
`
`Annual Report 2008
`
`More information inside the cover:
`Business Development 1999 – 2008
`
`www.merck.de
`
`070209
`W 840 525
`
`Publication contributors
`
`Published on February 18, 2009 by Merck KGaA,
`Corporate Communications, Frankfurter Strasse 250, 64293 Darmstadt, Germany
`Fax: +49 (0) 6151-72 5577, e-mail: corpcom@merck.de, Web site: www.merck.de
`Concept, design, and typesetting: XEO GmbH, Düsseldorf, Germany
`Photographs: Pages 4, 8 and 9: Catrin Moritz, Essen; other images: Marco Moog, Hamburg
`Printing: Frotscher Druck GmbH, Darmstadt, Germany
`Paper: FSC-certified FocusArt natural by Classen Papier
`
`Page 2
`
`

`
`More information inside the cover:
`Business sectors and divisions
`Merck 2008 at a glance
`
`Major achievements of 2008
`
`Despite a rapidly deteriorating economic situation, total revenues of the Merck
`Group increased by 7.1% to € 7,558 million in 2008. On a currency-adjusted basis,
`we achieved growth of 11%.
`
`The operating result rose by 16% to € 1,131 million. Return on sales (ROS) improved
`to 15.0%. Profit after tax from continuing operations increased from € –88 million to
`€ 379 million owing to good business performance, the sharp decline in excep tional
`items as well as the nearly full repayment of debt.
`
`The pharmaceutical business achieved double-digit growth rates. Our oncology drug
`Erbitux® was approved in mid-2008 in the European Union for the first-line treat-
`ment of metastatic colorectal cancer, as well as in Japan for second- and third-line
`treatment in this indication. In November, the EU drug regulatory authorities granted
`approval for the first-line treatment of head and neck tumors. Sales of Erbitux®
`increased 20% to € 565 million. Rebif®, our drug to treat multiple sclerosis, further
`expanded its leading position with sales of € 1,331 million, 9.3% more than in 2007.
`
`Annual Report 2008
`Staying the course
`
`Merck
`
`Staying the course
`
`Annual Report 2008
`
`More information inside the cover:
`Business Development 1999 – 2008
`
`www.merck.de
`
`070209
`W 840 525
`
`Publication contributors
`
`Published on February 18, 2009 by Merck KGaA,
`Corporate Communications, Frankfurter Strasse 250, 64293 Darmstadt, Germany
`Fax: +49 (0) 6151-72 5577, e-mail: corpcom@merck.de, Web site: www.merck.de
`Concept, design, and typesetting: XEO GmbH, Düsseldorf, Germany
`Photographs: Pages 4, 8 and 9: Catrin Moritz, Essen; other images: Marco Moog, Hamburg
`Printing: Frotscher Druck GmbH, Darmstadt, Germany
`Paper: FSC-certified FocusArt natural by Classen Papier
`
`Page 3
`
`

`
`Pharmaceuticals business sector
`Merck develops, manufactures and markets innovative prescrip-
`tion drugs as well as over-the-counter products. We develop
`therapies for high unmet medical needs. Through their targeted
`effect, these help patients to live a longer and better life. Our
`over-the-counter products help prevent disease and relieve
`minor complaints.
`
`Merck Serono division
`The product portfolio of this division includes leading prescrip-
`tion drugs such as the cancer drug Erbitux® and the multiple
`sclerosis treatment Rebif®. In addition, we offer therapies to
`treat infertility, growth disorders, cardiovascular or metabolic
`diseases, and psoriasis – indications mainly treated by special-
`ists. Our research activities focus on Oncology, Neurodegenera-
`tive Diseases, Fertility, Autoimmune and Inflam ma tory Diseases,
`and Endocrinology.
`
`Chemicals business sector
`Merck offers a wide range of specialty chemicals for techno-
`logically sophisticated applications. Many of these are con-
`tained in products that people encounter in everyday life, such
`as mobile phones, televisions, automotive coatings, drugs and
`cosmetics. Top quality, diversity as well as a customer-centric
`approach to research and product development along with
`extensive service characterize our Chemicals business.
`
`Liquid Crystals division
`Close cooperation in development and production of liquid
`crystals (LC) with the world’s leading display manufacturers
`has made Merck the global leader in this market. Modern life
`would be hard to imagine without LC displays. Merck is tech-
`nology leader and continually invests in research for these
`and new technologies, e.g. OLEDs (organic light-emitting
`diodes) or chemicals for energy-efficient lighting.
`
`Merck 2008 at a glance
`
`Key figures for 2008
`€ million
`Total revenues
`Gross margin
`Research and development
`Operating result
`Exceptional items
`Earnings before interest and tax (EBIT)
`EBIT before depreciation and
`amortization (EBITDA)
`Return on sales in %
`(ROS: operating result/total revenues)
`Free cash flow
`Free cash flow adjusted for acquisitions
`and disposals
`
`Pharma-
`ceuticals
`5,428
`4,485
`1,091
`655
`–354
`301
`
`1,381
`
`12.1
`559
`
`598
`
`Chemicals
`2,123
`1,170
`143
`558
`–46
`512
`
`Corporate
`and Others
`6.6
`–2.7
`0
`–81
`0
`–81
`
`645
`
`26.3
`460
`
`474
`
`–80
`
`–
`–581
`
`–470
`
`Total
`7,558
`5,652
`1,234
`1,131
`–400
`731
`
`1,947
`
`15.0
`438
`
`601
`
`Change
`in %
`7.1
`7.1
`20
`16
`–48
`–
`
`4.8
`
`–
`
`–38
`
`Total revenues by business sector*
`€ million
`8,000
`
`Operating result by business sector*
`€ million
`1,600
`
`6,000
`
`4,000
`
`2,000
`
`1,200
`
`800
`
`400
`
`Business Development 1999 – 2008
`
`€ million
`Total revenues3
`Pharmaceuticals3
` Merck Serono
` Generics
` Consumer Health Care
`
`Imaging4
`Chemicals
` Liquid Crystals
` Performance & Life Science Chemicals
` Electronic Chemicals4
`Laboratory Distribution4
`Intragroup sales
`Corporate and Other
`Generics (Discontinued Operations)3
`
`Operating result3
`Pharmaceuticals3
`Chemicals
`Laboratory Distribution4
`Corporate and Other
`Generics (Discontinued Operations)3
`
`1999
`5,433
`2,924
`1,675
`657
`263
`329
`1,398
`174
`1,089
`135
`1,262
`–151
`–
`–
`
`659
`498
`114
`47
`0
`–
`
`2000
`6,896
`3,035
`1,929
`790
`299
`17
`1,677
`312
`1,173
`192
`2,374
`–190
`–
`–
`
`746
`455
`247
`44
`0
`–
`
`2001
`7,697
`3,469
`2,215
`935
`319
`–
`1,720
`297
`1,207
`216
`2,754
`–246
`–
`–
`
`877
`581
`204
`92
`0
`–
`
`2002
`7,497
`3,244
`1,833
`1,096
`315
`–
`1,788
`383
`1,213
`192
`2,711
`–246
`–
`–
`
`616
`272
`260
`84
`0
`–
`
`2003
`7,343
`3,438
`1,528
`1,584
`327
`–
`1,705
`443
`1,082
`181
`2,427
`–228
`–
`–
`
`736
`389
`316
`79
`–48
`–
`
`2004
`5,994
`3,579
`1,597
`1,625
`357
`–
`1,694
`589
`1,105
`–
`582
`–62
`200
`–
`
`776
`391
`420
`21
`–56
`–
`
`2005
`5,865
`3,885
`1,797
`1,712
`376
`–
`1,905
`741
`1,163
`–
`–
`–
`76
`–
`
`883
`454
`492
`–
`–63
`–
`
`20061
`4,460
`2,314
`1,914
`–
`400
`–
`2,112
`895
`1,217
`–
`–
`–
`34
`1,824
`
`799
`217
`641
`–
`–60
`307
`
`20072
`7,057
`4,877
`4,458
`–
`420
`–
`2,150
`916
`1,235
`–
`–
`–
`29
`1,395
`
`976
`417
`631
`–
`–72
`189
`
` Laboratory
`
`Distribution
` Chemicals
` Pharmaceuticals
`
`Earnings before interest and tax (EBIT)3
`EBIT before depreciation and amortization (EBITDA)3
`Profit before tax3
`Profit after tax5
`
`2008
`7,558
`5,428
`4,987
`–
`442
`–
`2,123
`877
`1,246
`–
`–
`–
`7
`0
`
`1,131
`655
`558
`–
`–81
`0
`
`731
`1,947
`575
`379
`
`Change vs. 2007
`in %
`7.1
`11
`12
`–
`5.2
`–
`–1.3
`–4.2
`0.9
`–
`–
`–
`–77
`–
`
`16
`57
`–12
`–
`14
`–
`
`–
`4.8
`–
`–89
`
`Consumer Health Care division
`Many consumers trust a wide range of well-known over-the-
`counter brands that Merck develops, manufactures and markets
`in its Consumer Health Care division. The portfolio ranges from
`products for everyday health such as Bion®3, or Femibion®,
`which is specially for women, classic cold remedies such as the
`well-known brand Nasivin®, to products that strengthen the
`joints such as Seven Seas® JointCare and Kytta®.
`
`Performance & Life Science Chemicals division
`Our specialty chemicals and our expertise in application
`technologies, quality assurance and approval processes have
`made us a successful supplier in key markets, in particular
`the food, optics, plastics, coatings, printing, cosmetics and
`pharmaceutical industries. Products and services from Merck
`are used throughout the entire process chain, from analysis,
`research and development, through to production. Our port-
`folio includes, for example, effect pigments, cosmetic actives,
`reagents and test kits.
`
`2005
`2004
`*excluding Corporate and Other
`
`2006
`
`2007
`
`2008
`
`2005
`2004
`*excluding Corporate and Other
`
`2006
`
`2007
`
`2008
`
`Free cash flow5
`Capital expenditure on property, plant and equipment5
`Research and development3
`
`Total assets
`Net equity
`Employees (number as of December 31)3
`
`Return on sales3 (ROS) in % (ROS: Operating result/Total revenues)
`
`581
`900
`440
`235
`
`–1,081
`359
`498
`
`7,845
`1,870
`32,721
`
`12.3
`
`747
`1,184
`524
`262
`
`324
`427
`546
`
`8,235
`1,947
`33,520
`
`11.1
`
`1,286
`1,694
`1,078
`655
`
`664
`470
`577
`
`8,255
`2,336
`34,294
`
`11.6
`
`3.66
`1.44
`1.32
`Earnings per share in €
`0.95
`0.90
`0.85
`Dividend per share in €
`–
`–
`–
`One-time bonus per share in €
`1 In order to harmonize accounting practices, as of 2006 the way in which certain customer rebates in the Pharmaceuticals business sector are reported has been changed.
`2 Following its acquisition, the Swiss biopharmaceutical company Serono was integrated with the Ethicals division into Merck Serono in 2007.
`3 The Generics division was sold in October 2007 and is thus reported as a Discontinued Operation. All revenue, profit and employee figures have been adjusted for 2006 and 2007.
`4 Business was divested.
`5 Still including Discontinued Operations (Generics) in 2006 and 2007.
`
`559
`985
`412
`215
`
`441
`377
`608
`
`7,511
`2,054
`34,504
`
`8.3
`
`1.18
`1.00
`–
`
`538
`1,008
`423
`218
`
`442
`281
`605
`
`6,982
`2,363
`34,206
`
`10.2
`
`1.15
`0.80
`–
`
`1,044
`1,419
`961
`672
`
`1,889
`234
`599
`
`5,754
`2,800
`28,877
`
`13.2
`
`3.47
`0.80
`0.20
`
`956
`1,245
`893
`673
`
`657
`268
`713
`
`7,281
`3,329
`29,133
`
`15.3
`
`3.40
`0.85
`–
`
`1,031
`1,334
`982
`1,001
`
`–1,073
`253
`615
`
`8,102
`3,807
`25,531
`
`17.9
`
`5.07
`0.90
`0.15
`
`200
`1,858
`–111
`3,520
`
`–1,473
`283
`1,028
`
`14,922
`8,688
`30,968
`
`13.8
`
`16.21
`1.20
`2.00
`
`438
`395
`1,234
`
`15,645
`9,563
`32,800
`
`15.0
`
`1.69
`1.50
`–
`
`–
`40
`20
`
`4.8
`10
`5.9
`
`–
`–
`–
`
`Page 4
`
`

`
`Pharmaceuticals business sector
`Merck develops, manufactures and markets innovative prescrip-
`tion drugs as well as over-the-counter products. We develop
`therapies for high unmet medical needs. Through their targeted
`effect, these help patients to live a longer and better life. Our
`over-the-counter products help prevent disease and relieve
`minor complaints.
`
`Merck Serono division
`The product portfolio of this division includes leading prescrip-
`tion drugs such as the cancer drug Erbitux® and the multiple
`sclerosis treatment Rebif®. In addition, we offer therapies to
`treat infertility, growth disorders, cardiovascular or metabolic
`diseases, and psoriasis – indications mainly treated by special-
`ists. Our research activities focus on Oncology, Neurodegenera-
`tive Diseases, Fertility, Autoimmune and Inflam ma tory Diseases,
`and Endocrinology.
`
`Chemicals business sector
`Merck offers a wide range of specialty chemicals for techno-
`logically sophisticated applications. Many of these are con-
`tained in products that people encounter in everyday life, such
`as mobile phones, televisions, automotive coatings, drugs and
`cosmetics. Top quality, diversity as well as a customer-centric
`approach to research and product development along with
`extensive service characterize our Chemicals business.
`
`Liquid Crystals division
`Close cooperation in development and production of liquid
`crystals (LC) with the world’s leading display manufacturers
`has made Merck the global leader in this market. Modern life
`would be hard to imagine without LC displays. Merck is tech-
`nology leader and continually invests in research for these
`and new technologies, e.g. OLEDs (organic light-emitting
`diodes) or chemicals for energy-efficient lighting.
`
`Merck 2008 at a glance
`
`Key figures for 2008
`€ million
`Total revenues
`Gross margin
`Research and development
`Operating result
`Exceptional items
`Earnings before interest and tax (EBIT)
`EBIT before depreciation and
`amortization (EBITDA)
`Return on sales in %
`(ROS: operating result/total revenues)
`Free cash flow
`Free cash flow adjusted for acquisitions
`and disposals
`
`Pharma-
`ceuticals
`5,428
`4,485
`1,091
`655
`–354
`301
`
`1,381
`
`12.1
`559
`
`598
`
`Chemicals
`2,123
`1,170
`143
`558
`–46
`512
`
`Corporate
`and Others
`6.6
`–2.7
`0
`–81
`0
`–81
`
`645
`
`26.3
`460
`
`474
`
`–80
`
`–
`–581
`
`–470
`
`Total
`7,558
`5,652
`1,234
`1,131
`–400
`731
`
`1,947
`
`15.0
`438
`
`601
`
`Change
`in %
`7.1
`7.1
`20
`16
`–48
`–
`
`4.8
`
`–
`
`–38
`
`Total revenues by business sector*
`€ million
`8,000
`
`Operating result by business sector*
`€ million
`1,600
`
`6,000
`
`4,000
`
`2,000
`
`1,200
`
`800
`
`400
`
`Business Development 1999 – 2008
`
`€ million
`Total revenues3
`Pharmaceuticals3
` Merck Serono
` Generics
` Consumer Health Care
`
`Imaging4
`Chemicals
` Liquid Crystals
` Performance & Life Science Chemicals
` Electronic Chemicals4
`Laboratory Distribution4
`Intragroup sales
`Corporate and Other
`Generics (Discontinued Operations)3
`
`Operating result3
`Pharmaceuticals3
`Chemicals
`Laboratory Distribution4
`Corporate and Other
`Generics (Discontinued Operations)3
`
`1999
`5,433
`2,924
`1,675
`657
`263
`329
`1,398
`174
`1,089
`135
`1,262
`–151
`–
`–
`
`659
`498
`114
`47
`0
`–
`
`2000
`6,896
`3,035
`1,929
`790
`299
`17
`1,677
`312
`1,173
`192
`2,374
`–190
`–
`–
`
`746
`455
`247
`44
`0
`–
`
`2001
`7,697
`3,469
`2,215
`935
`319
`–
`1,720
`297
`1,207
`216
`2,754
`–246
`–
`–
`
`877
`581
`204
`92
`0
`–
`
`2002
`7,497
`3,244
`1,833
`1,096
`315
`–
`1,788
`383
`1,213
`192
`2,711
`–246
`–
`–
`
`616
`272
`260
`84
`0
`–
`
`2003
`7,343
`3,438
`1,528
`1,584
`327
`–
`1,705
`443
`1,082
`181
`2,427
`–228
`–
`–
`
`736
`389
`316
`79
`–48
`–
`
`2004
`5,994
`3,579
`1,597
`1,625
`357
`–
`1,694
`589
`1,105
`–
`582
`–62
`200
`–
`
`776
`391
`420
`21
`–56
`–
`
`2005
`5,865
`3,885
`1,797
`1,712
`376
`–
`1,905
`741
`1,163
`–
`–
`–
`76
`–
`
`883
`454
`492
`–
`–63
`–
`
`20061
`4,460
`2,314
`1,914
`–
`400
`–
`2,112
`895
`1,217
`–
`–
`–
`34
`1,824
`
`799
`217
`641
`–
`–60
`307
`
`20072
`7,057
`4,877
`4,458
`–
`420
`–
`2,150
`916
`1,235
`–
`–
`–
`29
`1,395
`
`976
`417
`631
`–
`–72
`189
`
` Laboratory
`
`Distribution
` Chemicals
` Pharmaceuticals
`
`Earnings before interest and tax (EBIT)3
`EBIT before depreciation and amortization (EBITDA)3
`Profit before tax3
`Profit after tax5
`
`2008
`7,558
`5,428
`4,987
`–
`442
`–
`2,123
`877
`1,246
`–
`–
`–
`7
`0
`
`1,131
`655
`558
`–
`–81
`0
`
`731
`1,947
`575
`379
`
`Change vs. 2007
`in %
`7.1
`11
`12
`–
`5.2
`–
`–1.3
`–4.2
`0.9
`–
`–
`–
`–77
`–
`
`16
`57
`–12
`–
`14
`–
`
`–
`4.8
`–
`–89
`
`Consumer Health Care division
`Many consumers trust a wide range of well-known over-the-
`counter brands that Merck develops, manufactures and markets
`in its Consumer Health Care division. The portfolio ranges from
`products for everyday health such as Bion®3, or Femibion®,
`which is specially for women, classic cold remedies such as the
`well-known brand Nasivin®, to products that strengthen the
`joints such as Seven Seas® JointCare and Kytta®.
`
`Performance & Life Science Chemicals division
`Our specialty chemicals and our expertise in application
`technologies, quality assurance and approval processes have
`made us a successful supplier in key markets, in particular
`the food, optics, plastics, coatings, printing, cosmetics and
`pharmaceutical industries. Products and services from Merck
`are used throughout the entire process chain, from analysis,
`research and development, through to production. Our port-
`folio includes, for example, effect pigments, cosmetic actives,
`reagents and test kits.
`
`2005
`2004
`*excluding Corporate and Other
`
`2006
`
`2007
`
`2008
`
`2005
`2004
`*excluding Corporate and Other
`
`2006
`
`2007
`
`2008
`
`Free cash flow5
`Capital expenditure on property, plant and equipment5
`Research and development3
`
`Total assets
`Net equity
`Employees (number as of December 31)3
`
`Return on sales3 (ROS) in % (ROS: Operating result/Total revenues)
`
`581
`900
`440
`235
`
`–1,081
`359
`498
`
`7,845
`1,870
`32,721
`
`12.3
`
`747
`1,184
`524
`262
`
`324
`427
`546
`
`8,235
`1,947
`33,520
`
`11.1
`
`1,286
`1,694
`1,078
`655
`
`664
`470
`577
`
`8,255
`2,336
`34,294
`
`11.6
`
`3.66
`1.44
`1.32
`Earnings per share in €
`0.95
`0.90
`0.85
`Dividend per share in €
`–
`–
`–
`One-time bonus per share in €
`1 In order to harmonize accounting practices, as of 2006 the way in which certain customer rebates in the Pharmaceuticals business sector are reported has been changed.
`2 Following its acquisition, the Swiss biopharmaceutical company Serono was integrated with the Ethicals division into Merck Serono in 2007.
`3 The Generics division was sold in October 2007 and is thus reported as a Discontinued Operation. All revenue, profit and employee figures have been adjusted for 2006 and 2007.
`4 Business was divested.
`5 Still including Discontinued Operations (Generics) in 2006 and 2007.
`
`559
`985
`412
`215
`
`441
`377
`608
`
`7,511
`2,054
`34,504
`
`8.3
`
`1.18
`1.00
`–
`
`538
`1,008
`423
`218
`
`442
`281
`605
`
`6,982
`2,363
`34,206
`
`10.2
`
`1.15
`0.80
`–
`
`1,044
`1,419
`961
`672
`
`1,889
`234
`599
`
`5,754
`2,800
`28,877
`
`13.2
`
`3.47
`0.80
`0.20
`
`956
`1,245
`893
`673
`
`657
`268
`713
`
`7,281
`3,329
`29,133
`
`15.3
`
`3.40
`0.85
`–
`
`1,031
`1,334
`982
`1,001
`
`–1,073
`253
`615
`
`8,102
`3,807
`25,531
`
`17.9
`
`5.07
`0.90
`0.15
`
`200
`1,858
`–111
`3,520
`
`–1,473
`283
`1,028
`
`14,922
`8,688
`30,968
`
`13.8
`
`16.21
`1.20
`2.00
`
`438
`395
`1,234
`
`15,645
`9,563
`32,800
`
`15.0
`
`1.69
`1.50
`–
`
`–
`40
`20
`
`4.8
`10
`5.9
`
`–
`–
`–
`
`Page 5
`
`

`
`144 | Merck Annual Report 2008
`
`Financial calendar for 2009
`
`Staying the course
`
`Even in economically difficult times, we have stayed the course.
`Two important factors are to thank for this:
`
`With our strategy “Sustain. Change. Grow.” we are exploiting opportu-
`nities and protecting ourselves against risks. This is because we derive
`our power to grow from the balance between the well established and
`the new, between tradition and innovation, between Pharmaceuticals
`and Chemicals. Our pioneering spirit in research and our experience
`enable us to develop products that improve quality of life.
`
`Our ability to succeed on course has a great deal to do with the corpo-
`rate culture for which Merck stands. We are convinced that our values
`pave the way for our success. Courage, achievement, responsibility,
`respect, integrity and transparency are our compass when it comes to
`our financial and social actions.
`
`Merck’s development over its 340-year history shows that we identify
`strongly with these strengths. And it gives us every confidence to further
`strengthen the value and performance of our company in the future.
`Merck is staying the course – even in economically difficult times.
`
`Annual press conference
`Wednesday, February 18
`
`Annual General Meeting
`Friday, April 3
`
`Interim report 1st quarter
`Monday, April 27
`
`Interim report 2nd quarter
`Friday, July 24
`
`Autumn press conference
`Interim report 3rd quarter
`Monday, October 26
`
`More information
`
`The Merck Annual Report for 2008 is available in German and English. An abridged
`version is also available in German and English. Both reports are available as navigable
`online versions on the Web at www.merck.de/annualreport2008.
`More information about Merck can be found on the Web at www.merck.de and in
`the following publications, which you may read or order (in German and English) at
`www.publications.merck.de:
`
` 2007 Report
`Responsibility for Employees, the Environment and the Community
`Merck — Facts & Figures
` (also available in French and Spanish)
`A Strong Site
` A Global Player Rooted in Darmstadt
`You can order these publications from Corporate Communications, Merck KGaA,
`64271 Darmstadt, Germany, or via the following e-mail address: corpcom@merck.de.
`
`Page 6
`
`

`
`2 | Merck Annual Report 2008
`
`GLOSSARY
`
`143
`
`Contents
`
` 4 Letter from Karl-Ludwig Kley
`
` 8 Executive Board of Merck KGaA
`
`10 Management Report of the Merck Group
`12
` Overall economic situation
`14
` Economic development of Merck
`15
` Financial position and results of operations
`24
` Responsibility
`26
` Merck shares
`30 Pharmaceuticals business sector
`32 Merck Serono
`46 Consumer Health Care
`
`50 Chemicals business sector
`52 Liquid Crystals
`56 Performance & Life Science Chemicals
` Corporate and Other
`60
`61 Risk report
`64
` Report on expected developments
`64
` Subsequent events
`
`65 Corporate governance
`
`67 Board of Partners of E. Merck KG
`
`68 Report of the Supervisory Board
`
`69 Supervisory Board of Merck KGaA
`
`Letter from Karl-Ludwig Kley
`
`Page 4
`
`OLED
`Organic Light-Emitting Diodes. New technology for displays and lighting used, for
`example, in mobile telephones, MP3 players, and recently also in televisions for the
`first time. A further possible use is in lamps.
`OTC
`Over-the-counter drugs is the term used for drugs that are available at stores and
`pharmacies without a prescription.
`Praziquantel
`A vermifuge used to fight flatworms, tapeworms and distoma including the
` schistosoma, the pathogen that causes the tropical disease schistosomiasis.
`Rating
`Rating is an assessment of a borrower’s ability to pay. Borrowers are classified
` according to a bank’s own criteria (internal rating) or the criteria of international
`rating agencies such as Moody‘s or Standard & Poor‘s (external rating).
`REACH
`REACH stands for the Registration, Evaluation, Authorization and Restriction of
` Chemicals. This is an EU regulation that entered into force in mid 2007.
`Research ratio
`Research spending as a proportion of the total revenues of the company or division.
`Return on sales (ROS)
`Ratio of operating result to total revenues.
`Schistosomiasis
`Schistosomiasis, also known as bilharziosis, is a parasitic disease that is spread in
`warm lakes and ponds by snails that serve as intermediate hosts.
`Somatotropin
`A proteohormone occurring as a growth hormone in the human and animal organism.
`Somatotropin is essential to the achievement of normal height.
`Total revenues
`Sum of sales and royalties. Royalties are earned primarily through patents held by the
`Pharmaceuticals business sector.
`Touch panels
`Screens that are sensitive to touch, allowing users to perform operations at the touch
`of a finger, such as at kiosks
`VCI
`The Verband der Chemischen Industrie (German Chemical Industry Association)
` represents the economic-political interests of 1,600 German chemical companies.
`
`Page 7
`
`

`
`3
`
`137 Responsibility Statement
`
`138 Auditor’s Report
`
`140 Glossary
`
`144 Financial calendar for 2009
`144 More information
`
`
`
`Publication contributors
`
`70 Consolidated Financial Statements
`of the Merck Group
` Income Statement
`72
`73 Balance Sheet
`74 Segment Reporting
`76 Cash Flow Statement
`77
` Free Cash Flow
`77
` Statement of Recognized Income and Expense
`78
` Statement of Changes in Net Equity
`including Minority Interest
`79 Notes
` 84 Accounting policies
` 90 Notes to the income statement
` 98 Notes to the balance sheet
`123 Notes to the segment reporting
`124
` Notes to the cash flow statement
`126 Other disclosures
`
`Pharmaceuticals business sector
`
`Page 30
`
`Chemicals business sector
`
`Page 50
`
`Page 8
`
`

`
`4 | Merck Annual Report 2008
`
`Dr. Karl-Ludwig Kley
`Chairman of the Executive Board of Merck KGaA
`
`Page 9
`
`

`
`LETTER FROM KARL-LUDWIG KLEY
`
`5
`
`We have just ended a year that was increasingly characterized by turmoil in
`the financial and business markets. Nevertheless, we largely achieved the
` objectives for Merck as communicated at the beginning of 2008. On the whole,
`you can therefore be satisfied with Merck’s performance in 2008.
`
`At € 1.1 billion, the operating result reached a new record high for Merck.
`Total revenues increased by 7.1% to € 7.6 billion. We plan to propose a divi-
`dend of € 1.50 per share to the Annual General Meeting.
`
`Although nearly all our divisions were impacted by negative currency effects,
`return on sales grew to 15.0%. The Pharmaceuticals business sector increased
`total revenues by 11% to € 5.4 billion. The Chemicals business sector recorded
`a slight decline of 1.3% in total revenues to € 2.1 billion due to the impact of
`the economic downturn, which affected the liquid crystals business at the end
`of the year. The division just missed its objectives. Although a disappointment,
`we remain confident in the future viability and success of this business.
`
`A well-balanced business model …
`We have good market positions and a strong balance sheet. And we are
`known for our cautious financial policy. This protects us in times of crisis.
`We are solidly positioned as a pharmaceutical and chemical company with
`promising growth opportunities.
`
`We are the market leader in high-tech sectors: In red, or medical, biotechnology,
`we are the leader in Europe. Since we want to not only maintain but also
` expand this position, in November we placed the cornerstone for Europe’s
`most modern biotechnology manufacturing facility, located in Switzerland.
`We are proud of having obtained three new approvals for our oncology drug
`in 2008, which we often refer to as the ‘Year of Erbitux®’.
`
`Page 10
`
`

`
`6 | Merck Annual Report 2008
`
`As a supplier to the display industry, we are the global market and technology
`leader in liquid crystals used in mobile phones, navigation devices, laptops
`and flat-screen televisions.
`
`In addition, we also operate in mature market segments with very stable
`businesses – ranging from classic pharmaceuticals to active ingredients and
`laboratory chemicals.
`
`We therefore see ourselves well equipped to withstand the current economic
`crisis based on our own strengths. In fact, we can even use the situation in
`order to grow and to strengthen our competitive position.
`
`… and a strong management culture ...
`In order to sustain success, it is necessary to have a company management
`based on a common set of values and mutual trust. The stronger these factors
`are and the more solidly a company’s culture is founded on shared values,
`the less the need for central control mechanisms and bureaucracy.
`
`Around the world, 32,800 people from 117 countries work for Merck. Our values
`are the bond that exists between the company and its employees, spanning
`different cultural backgrounds. These values give us the freedom to run our
`businesses in an entrepreneurial way and to shape – as opposed to merely
`administering – the future of our company. Decentralized entrepreneurial
`responsibility is therefore essential for us in order to understand markets
`and reach customers.
`
`Also on behalf of my colleagues on the Executive Board, I thank all employ-
`ees for their untiring and strong commitment to our company – especially
` during difficult times. I would like to take this opportunity to also thank
`Walter W. Zywottek, who retired from the Executive Board in mid-2008.
`He spent 40 successful years working for Merck and made outstanding contri-
`butions to the company thanks to his energy and competence.
`
`Page 11
`
`

`
`LETTER FROM KARL-LUDWIG KLEY
`
`7
`
`… make us confident in difficult times as well.
`In spite of everything: A global economic crisis is something that Merck too
`cannot ignore. While we have a robust business model and an entrepreneurial
`culture, this doesn’t protect us against declining customer demand. We too
`must tighten our belts and respond to this situation by reducing costs and
`capital spending. Yet the concrete impact on Merck cannot be expressed in
`figures. At least not yet. The Executive Board of Merck considers it irrespon-
`sible to make forecasts today that might need to be adjusted in two months’
`time. Therefore, we will refrain from providing an outlook this year. The
` reactions to this decision by our capital providers confirm our stance.
`
`We will continue with our strategy of profitable growth. Here we are focus-
`ing on three main elements:
`– We continue to concentrate on research-oriented specialty businesses and
`on driving innovations forward.
`– We will exploit our potential for organic growth more strongly in order to
`improve our market position. To this end, we will invest further in regional
`markets, particularly China, India, Japan and the United States.
`– External growth through alliances and acquisitions is also part of our strategy.
`
`Even in difficult times, our values help us to do the right thing. Especially
`now, our two core values of courage and achievement have special meaning.
`
`In this spirit, we want to continue the 340-year Merck success story. My
` Executive Board colleagues and I would like to thank you for your trust and
`support as we continue along the chosen course.
`
`Page 12
`
`

`
`8 | Merck Annual Report 2008
`
`Executive Board of Merck KGaA
`
`Dr. Bernd Reckmann
`Head of the Chemicals business sector
`Born in 1955
`Biochemist
`joined Merck in 1986,
`Member of the Executive Board
`since January 2007
`Responsibility for
`Group-wide functions:
`Chemicals business sector;
`Site Management Darmstadt and Gernsheim;
`Production, Engineering, Process Development
`
`Regional responsibilities:
`Germany (including Human Resources);
`Asia; United States (Chemicals); Australia;
`New Zealand
`
`Elmar Schnee
`Head of the Pharmaceuticals
`business sector
`Born in 1959
`Business graduate
`joined Merck in 2003, Member of the
`Executive Board since November 2005
`Responsibility for
`Group-wide functions:
`Pharmaceuticals business sector
`Regional responsibilities:
`Europe; United States (Pharmaceuticals);
`Canada; Latin and Central America; Africa;
`Middle East
`
`Page 13
`
`

`
`EXECUTIVE BOARD OF MERCK KGAA
`
`9
`
`www.merck.de/management
`
`Dr. Karl-Ludwig Kley
`Chairman of the Executive Board
`Born in 1951
`Lawyer
`Member of the Supervisory Board and
`Board of Partners of Merck from March 2004
`to June 2006, Member of the Executive Board
`since joining Merck in September 2006
`Responsibility for
`Group-wide functions:
`Human Resources (global); Legal, Patents,
`Trademarks; Auditing, Risk Manage ment;
`Strategic Planning; Inhouse Consulting;
` Corporate Communications; Environment,
`Health and Safety; Information Services
`
`Dr. Michael Becker
`Chief Financial Officer
`Born in 1948
`Lawyer
`joined Merck in 1998, Member of the
` Executive Board since January 2000
`Responsibility for
`Group-wide functions:
`Accounting, Controlling, Finance, Taxes,
` Insurance; Mergers and Acquisitions;
` Investor Relations; Purchasing
`
`Page 14
`
`

`
`10 | Merck Annual Report 2008
`
`Management Report of the Merck Group
`
`Page 15
`
`

`
`11
`
` Overall economic situation
`12
` Economic development of Merck
`14
` Financial position and results of operations
`15
` Responsibility
`24
` Merck shares
`26
`30 Pharmaceuticals business sector
`32 Merck Serono
`46 Consumer Health Care
`50 Chemicals business sector
`52 Liquid Crystals
`56 Performance & Life Science Chemicals
` Corporate and Other
` Risk report
` Report on expected developments
` Subsequent events
`
`60
`61
`64
`64
`
`Page 16
`
`

`
`12 | Merck Annual Report 2008
`
`Overall economic situation
`
`Global economy weakens significantly
`The financial crisis that was triggered in summer 2007 by the problems in the U.S.
`housing market resulted in recessionary trends in the global economy in 2008. In many
`countries, these led to weak demand in industrial production sectors and were reflected
`in real gross national product (GNP) of the last two quarters of 2008. While 2007
`was still marked by global GNP growth of 5%, this value declined to 3.7% in 2008
`according to the International Monetary Fund (IMF). The German Council of Economic
`Experts registered global economic growth of 2.8% in 2008. The Organization for
`Economic Cooperation and Development (OECD) reported a 1.4% increase in GNP for
`its 30 members in 2008.
`According to the IMF, raw material prices, which fell in the second half of 2008,
`reflect the global economic downturn, the strengthening of the dollar and the finan-
`cial crisis.
`In addition, during the second half of 2008, consumer confidence fell, leading to
`declining consumption and postponed investments, and thus lower product volumes.
`While the United States saw a 2.0% increase in GNP in 2007, this number decreased
`to 1.4% in 2008. In the euro zone, GNP grew by 2.6% in 2007 and, according to the
`IMF and Eurostat, by 1.2% in 2008. Major European economies such as Germany,
`France, Italy and Spain all registered a decline in GNP