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
`
`

`
`Merck
`Annual Report
`2011
`
`Performance Materials
`
`Merck Millipore
`
`Consumer Health Care
`
`Merck Serono
`
`Page 2
`
`

`
`Contents
`
`
`
`The road to tomorrow
`To our Shareholders
`#01
`023 ➝ Letter from Karl-Ludwig Kley
`026 ➝ The Executive Board
`028 ➝ Merck in the Capital Market
`032 ➝ Key Events in 2011
`#02 Group Management Report
`035 ➝ Overall Economic Situation
`036 ➝ Financial Position and Results of Operations
`050 ➝ Corporate Responsibility
`060 ➝ Merck Serono
`071 ➝ Consumer Health Care
`075 ➝ Merck Millipore
`079 ➝ Performance Materials
`083 ➝ Corporate and Other
`084 ➝ Risk Report
`091 ➝ Report on Expected Developments
`098 ➝ Subsequent Events
`#03 Corporate Governance
`101 ➝ Statement on Corporate Governance
`119 ➝ Report of the Supervisory Board
` Objectives of the Supervisory Board with
`122 ➝
`respect to its composition
`#04 Consolidated
` Financial Statements for 2011
`126 ➝ Consolidated Income Statement
` Consolidated Statement
`127 ➝
`of Comprehensive Income
`128 ➝ Consolidated Balance Sheet
` Consolidated Cash Flow Statement
`129 ➝
` Consolidated Statement of Changes
`130 ➝
`in Net Equity
`132 ➝ Notes to the Group accounts
`#05 More Information
`204 ➝ Responsibility Statement
`205 ➝ Auditor’s Report
`206 ➝ Glossary
` Financial Calendar for 2012
`212 ➝
`
`
`Inside the back cover
` ➝ Business Development 2002 – 2011
` Awards, Service, Publication Contributors
` ➝
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`Page 3
`
`

`
`Contents
`
`The Merck Group
`
` In brief
`
`Key figures of the Merck Group
`
`€ million
`Total revenues
`Gross margin
`Research and development
`Operating result
`Exceptional items
`EBIT before depreciation
`and amortization (EBITDA)
`Earnings before interest
`and tax (EBIT)
`Return on sales in % (ROS:
`operating result/total revenues)
`Free cash flow
`Underlying free cash flow
`
`Pharma­
`ceuticals
`6,416.2
`5,227.0
`1,248.3
`350.3
`25.1
`
`Chemicals
`3,860.2
`2,261.1
`268.8
`751.0
`157.1
`
`Corporate
`and Other
` ­
` ­
` ­
`–116.2
`–30.4
`
`Total
`10,276.4
`7,488.1
`1,517.1
`985.1
`151.8
`
`1,571.7
`
`1,305.1
`
`–141.1
`
`2,735.7
`
`375.4
`
`908.1
`
`–146.6
`
`1,136.9
`
`5.5
`1,515.1
`1,245.0
`
`19.5
`834.0
`801.3
`
`–
`–912.7
`–651.7
`
`9.6
`1,436.4
`1,394.6
`
`Change
`in %
`11
`8.4
`8.6
`–12
`–
`
`11
`
`2.2
`
`–
`–17
`
`Total revenues by business sector
`(excluding Corporate and Other)
`
`€ million
`
`2011
`
`2010
`
`2009
`
`2008
`
`2007
`
`0
`
`0
`
` Chemicals
`
`
`
`
`
`
`
` Pharmaceuticals
`
`Operating result by business sector
`
`€ million
`
`2011
`
`2010
`
`2009
`
`2008
`
`2007
`
`–116
`
`–90
`
`–78
`
`–81
`
`–72
`
`0
`
`0
`
`751 | 350
`
`624 | 579
`
`324 | 403
`
`558 | 655
`
`631 | 417
`
` Chemicals
`
`
`
`
`
`
`
` Pharmaceuticals
`
`
`
`
`
` Corporate and Other
`
`3,860 | 6,416
`
`10,276
`
`3,065 | 6,226
`
`1,935 | 5,812
`
`2,127 | 5,456
`
`2,152 | 4,900
`
`9,291
`
`7,747
`
`7,583
`
`7,052
`
`985
`
`1,113
`
`649
`
`1,131
`
`976
`
`Page 4
`
`

`
`015
`
`046
`
`Merck
`Annual Report
`2011
`
`
`
` The road to tomorrow starts with this
`Annual Report, which offers far more than
`a look back at the year 2011. Continue this
`journey into the future – with our online
`media and our media for tablet PCs. More
`information is available online at:
`➝ www.merckgroup.com
`➝ www.magazine.merck.de
`
`The road
`to
`tomorrow
`
`Page 5
`
`

`
`Merck
`Serono
`Consumer
`Health Care
`Merck
`Millipore
`Performance
`Materials
`
`Merck Serono ➝ discovers, develops and commercializes innovative prescription drugs of
`chemical and biotechnological origin. It is our largest division in terms of sales.
`Consumer Health Care ➝ offers patients and consumers high­quality over­the­counter products
`for a healthy lifestyle.
`Merck Millipore ➝ is a world-class partner to the life science industry with products that make
`life science research easier, more efficient and more economical.
`Performance Materials ➝ offers an extensive range of innovative products, technologies
`and special solutions for consumer electronics, lighting, printing technology, plastic and coating
`applications, and cosmetics.
`Detailed information about our divisions is available starting on ➝ page 60.
`
`Page 6
`
`

`
`015
`
`046
`
`We are on the road to tomorrow
`
`Innovative
`Dynamic
`Future-oriented
`Values-based
`We are a leading pharmaceutical, chemical and life science
`company with four strong divisions: Merck Serono, Consumer
`Health Care, Merck Millipore and Performance Materials.
`We have a clear focus on research and development as well as
`profitable, high-margin specialties. With over 40,000 employees
`in 67 countries, we are committed to living social, economic
`and ecological responsibility – toward people, toward our partners
`in the market and toward our shareholders.
`Four examples show how we are succeeding globally
`with the values that unite us and with our strategy entitled
`“Sustain. Change. Grow.”
`
`“I have experienced myself what people can do [ … ] my ambition was aroused and
`thus I resolved [ … ] that I had to be the best [ … ]. This experience bore me abundant
`fruits later by teaching me that people [ … ] can achieve a great deal if they have
`the determination to do so.”
`
`Emanuel Merck (1794 – 1855) ➝ established the world’s oldest
`pharmaceutical and chemical company out of the Engel-Apotheke
`(Angel Pharmacy), which was founded in 1668. Today we are
`continuing this tradition into the future with pioneering spirit
`and innovative strength.
`
`Page 7
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`

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`Merck 2011
`The road to tomorrow
`
`/41
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`Page 8
`
`

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`015
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`046
`
`The road
`to
`tomorrow
`#1
`Innovative
`thinking
`
`Promoting research ➝ Merck ranks among the world’s leading
`pharmaceutical, chemical and life science companies. Our success is
`based on our unwavering focus on research and innovation.
`
`Page 9
`
`

`
`Merck 2011
`The road to tomorrow
`
` Seeing the world through the eyes of our patients
`is a unique source of inspiration which drives us to
`continuously strengthen our product offerings, taking
`advantage of the latest medical and technological
`advances to ultimately meet patient needs. Over the
`years, we have continuously worked on enhancing the
`product profile of Rebif ®, our leading product for patients
`with relapsing multiple sclerosis, with new formulations,
`new delivery devices and new clinical data showing how
`best the product should be used. Recent achievements
`include the European approval to expand the use of Rebif ®
`in patients with early signs of multiple sclerosis. We
`also extended our range of innovative delivery devices
`for the self-administration of Rebif ® with the approval
`in select markets of Rebidose ™, a single-use pre-filled pen.
`
`The needs of our patients are the focus of our innovation culture. For them,
`we develop pioneering therapies and solutions.
`
`Providing independence ➝ Our Rebidose™ pen gives patients
`more independence, for example when traveling or on vacation.
`
`Page 10
`
`

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`015015
`
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`046046
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`

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`The road to tomorrow
`
`/42
`
`Page 12
`
`

`
`015
`
`046
`
`The road
`to
`tomorrow
`#2
`Dynamic
`change
`
`Transforming ideas into reality ➝ Merck embodies experience
`and pioneering spirit. Our corporate culture is based on the dynamism
`of innovation and the commitment of our employees.
`
`Page 13
`
`

`
`Merck 2011
`The road to tomorrow
`
` With our corporate strategy “Sustain. Change.
`Grow.” we are addressing future-oriented sectors in which
`Merck already has extensive experience and a strong
`market position. As a leading global manufacturer of
`materials for liquid crystal ( LC ) displays and for innovative
`organic light-emitting diodes ( OLEDs ), we are working
`on key components for the communication technologies
`of tomorrow. We offer pioneering technologies and
`key products for the displays of televisions, notebooks,
`mobile telephones, digital cameras and navigation
`systems. We are opening up ever new horizons: At our
`technology center in Darmstadt, for example, we have
`realized the world’s largest OLED display to date.
`
`We utilize the dynamism and potential of our employees in order to tap new,
`high-growth markets systematically and successfully.
`
`Setting milestones ➝ The world’s largest OLED display, manufactured
`using materials from Merck, represents an important step forward in
`developing the information technology of tomorrow.
`
`/42
`
`Page 14
`
`

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`0
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`015015
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`65__:_________:__:___4
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`0
`
`046046
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`Page 15
`
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`

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`Merck 2011
`The road to tomorrow
`
`/43
`
`Page 16
`
`

`
`015
`
`046
`
`The road
`to
`tomorrow
`#3
`Future-oriented
`growth
`
`Recognizing potential ➝ Merck is growing in promising
`markets of the future with innovative products and new
`solutions for the world of tomorrow.
`
`Page 17
`
`

`
`Merck 2011
`The road to tomorrow
`
` Forward-looking innovations and future-oriented
`actions have always been the core of our company and
`our entrepreneurial success. At an early stage, Merck
`recognized the tremendous potential of biotechnology,
`using it resolutely and responsibly for research and
`innovation – and not only for developing our own
`biotherapeutic drugs. Today we are among the leading
`suppliers of products and services for research and
`production in the life science industry. In this way, we
`help to make work easier, more efficient and more
`economical for our customers.
`
`With our knowledge and experience we are tapping key markets of the future. We are
`keenly aware of our customers’ needs. For example, we are one of the leading suppliers
`of cell culture media.
`
`Tapping growth markets ➝ Merck is one of the world’s
`leading suppliers of laboratory chemicals and cell culture media
`for use in research and industrial production.
`
`Page 18
`
`

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`
`
`015015
`
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`046046
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`Page 19
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`

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`Merck 2011
`The road to tomorrow
`
`/44
`
`Page 20
`
`

`
`015
`
`046
`
`The road
`to
`tomorrow
`#4
`Values-based
`behavior
`
`Living our values ➝ Merck thinks and acts in a long­term
`and values-based manner. As a company, we actively take on
`responsibility in the communities in which we operate.
`
`Page 21
`
`

`
`Merck 2011
`The road to tomorrow
`
` As a company that is very conscious of its values,
`we feel committed not only to the employees and share-
`holders of Merck but also to the community – at all
`our sites and worldwide. With the drug Cesol ® 600,
`Merck has been cooperating with the World Health
`Organization since 2007 to fight schistosomiasis, an
`infectious disease caused by parasitic worms living in
`tropical water. It is estimated that around 200 million
`people are infected. Since the donation program began,
`Merck has supplied around 80 million tablets to treat
`around 19 million children. In 2011 we decided to expand
`our engagement tenfold. In the medium term we intend
`to provide 250 million tablets per year and to continue
`this donation until the disease has been eliminated
`in Africa.
`
`We apply all our expertise and skills not only to achieve sustainable entrepreneurial
`success, but also to meet our social responsibility.
`
`Taking on responsibility ➝ Merck is supporting
`the fight against schistosomiasis, thereby protecting
`many children in Africa against this serious disease.
`
`/44
`
`Page 22
`
`

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`015
`
`046
`
`Page 23
`
`

`
`Merck 2011
`The road to tomorrow
`
`Merck:
`The road to tomorrow
`
`
`
` New
`leadership structure
`➝ The divisions have full business
`accountability
`➝ Global Group functions help to
`steer the company uniformly and
`provide services
`
`
`
` Efficiency
`enhancement
`➝ Central steering with new targets
`➝ Clear guidelines for
`corporate development
`
`
`
` Performance-oriented
`corporate culture
`➝ Promoting self-initiative
`➝ Results-oriented behavior
`
`Transformation and change are the basis for future growth. With a lean organization, enhanced efficiency and a performance-oriented
`corporate culture, we will secure our position as a leading innovation-driven enterprise and rigorously expand our cutting-edge positions.
`We are making our organization leaner ➝ In the future, the divisions at Merck will assume global responsibility for their businesses.
`The Group will steer corporate development, take over central administrative tasks and services, and consolidate administration, legal
`and compliance tasks. The individual legal entities in the countries will implement the regulations defined by the divisions and Group
`functions.
`We are enhancing our efficiency ➝ Based on investment and cost-cutting targets that will be defined in the first half of 2012, Merck
`will develop specific initiatives to meet these objectives. These activities will be supported by suitable Human Resources measures.
`The implementation and success of the program will be continually monitored and evaluated.
`We are establishing a performance-oriented corporate culture ➝ Merck is fostering a performance­oriented corporate culture –
`by means of clearly defined responsibilities and by promoting self­initiative, commitment, decisiveness and results­oriented behavior.
`
`Page 24
`
`

`
`Merck 2011
`
`#01
`
`To our Shareholders
`
`023
`026
`029
`032
`
` Letter from Karl-Ludwig Kley
` The Executive Board
` Merck in the Capital Market
` Key Events in 2011
`
`021
`
`032
`
`Page 25
`
`

`
`22
`
`Merck 2011
`To our Shareholders
`
`Letter from Karl-Ludwig Kley
`
`» Merck has changed significantly
`in recent years. «
`
`Page 26
`
`

`
`Merck 2011
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`Darmstadt, February 2012
`
`27
`
`Merck performed well in 2011. Total revenues, which increased by nearly 11%,
`exceeded the € 10 billion mark for the first time in the company’s history.
`The milestone we set for ourselves in 2007 has thus been achieved.
`
`In accordance with our strategic objectives, we grew particularly in Asia and
`North America. We will further intensify our activities in both regions since
`they offer our businesses the greatest potential for growth.
`
`The operating result amounted to € 985 million, declining by 11.5%. The main
`reasons for this were the one-time effects in the second quarter. These primarily
`included the impairment loss on our biotech production plant in Corsier-sur-Vevey
`(Switzerland) as well as reassessments of various pharmaceutical projects. In
`addition, we set up provisions for the costs of discontinuing the development of
`cladribine tablets. Consequently, profit after tax declined by 2% to € 629 million.
`
`We are, of course, not satisfied with the development of this result. Our focus in
`2012 will therefore be on improving the operating result.
`
`For our shareholders, 2011 was a good year. With a price increase of 29%,
`Merck shares were the best-performing stock in the DAX  ®. We would like to
`underscore both this excellent development and the sharp decline in debt
`with a suitable dividend payment. We therefore intend to propose to the Annual
`General Meeting on April 20 an increase of € 0.25 in the dividend to € 1.50
`per share. The basis for this proposal is the excellent business performance of
`Merck, the robust underlying operating result as well as the positive future
`prospects for the company.
`
`Merck has changed significantly in recent years.
`
`
`
`
`
`
`
` By acquiring Serono, we became a leading global manufacturer
`of biopharmaceuticals.
` With the divestment of the Generics business, we shifted our focus
`to innovation-driven and higher-margin activities.
` And with the acquisition of Millipore, we established ourselves as
`a leading partner to the global life science industry.
`
`With its new structure, Merck is in a good starting position to sustainably
`exploit the growth opportunities in the pharmaceutical, chemical and life
`science sectors.
`
`Page 27
`
`

`
`22
`
`Merck 2011
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`We will now focus on achieving a lasting improvement in the operating
`result. After all, future growth must also be financed. For this purpose, we
`have initiated the “Fit for 2018” program, which we will be implementing
`in two phases.
`
`In the first phase, which will last until 2013, we will work to enhance our
`efficiency and lower our costs. This also includes implementing a leaner
`management structure.
`
`We have already made good progress at the organizational level. On January 1,
`2012, a new global leadership organization became effective. It replaces the
`former country-based structure with clear leadership by our global businesses.
`
`We will optimize processes and structures especially in those areas where
`our success has not yet met our expectations. This applies specifically to our
`Pharmaceuticals research and development organization, which we largely
`restructured in 2011.
`
`In order to accelerate the ongoing transformation process and to strengthen our
`expertise, we made not only organizational, but also personnel changes.
`
`With three new members, the Executive Board has been complete since mid-2011.
`In January, Stefan Oschmann took over responsibility for our Pharmaceuticals
`business sector. Kai Beckmann followed in April as Head of Group Human
`Resources. And Matthias Zachert has been Chief Financial Officer since June.
`Matthias Zachert succeeded Michael Becker, who retired after 13 successful
`years working for Merck. I’d like to thank Michael Becker for his tremendous
`commitment and achievements. He made great contributions to Merck.
`
`We made new appointments not only to the Executive Board, but also to numerous
`level-two management positions. We recruited executives from well-known
`companies in our sectors, which has enabled us to meaningfully strengthen
`expertise, leadership experience and diversity at Merck.
`
`Since early 2012, we have been working intensely to identify objectives and
`measures that will improve our positioning at our sites in 67 countries around
`the world. The changes introduced will be significant and encompass all areas
`of the company.
`
`Page 28
`
`

`
`Merck 2011
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`27
`
`Once the first phase of the “Fit for 2018” program has been completed, from
`2014 we’ll again focus more strongly on growth – which of course doesn‘t mean
`we‘ll have lost sight of this objective in the meantime. We will continue to
`seize attractive growth opportunities, either by making smaller acquisitions or
`in-licensing pharmaceutical development compounds. Since the speed at which
`the efficiency program will be completed around the world will vary greatly,
`individual businesses or countries could also realize their growth objectives
`sooner than 2014.
`
`Changes such as the current ones are nothing new for Merck. On the contrary.
`One of our recipes for success, which has enabled us to remain in existence for
`344 years, is the ability to change. This has been the only way for Merck to
`survive wars, currency reforms and changes in government systems while
`continuing to operate its businesses successfully.
`
`Whenever changes take place, our employees can rely on the fact that Merck
`remains a community based on a shared set of values, attaches great importance
`to social partnership, and appropriately involves employee representatives in
`the individual steps of the process. This of course also applies to the implemen-
`tation of our efficiency-enhancement and cost-reduction program. The aim
`of “Fit for 2018” is to shape Merck so that we can leverage our strong market
`position to achieve sustainable, profitable growth with innovative products.
`We will fulfill this ambition.
`
`We sincerely thank you for the trust and support you have given us on the
`journey so far. And we’d be pleased if you would continue to accompany Merck
`in that same spirit of trust on the “road to tomorrow.”
`
`Karl-Ludwig Kley
`Chairman of the Executive Board
`
`Page 29
`
`

`
`22
`
`Merck 2011
`To our Shareholders
`
`The Executive Board
`
`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 September 2006
` Responsibility for Group functions: Group Strategy; Group Communications;
`Group Legal and Compliance; Group Auditing
`
`
`
`Kai Beckmann
`Head of Group Human Resources / Chief Administration Officer
`
` Born in 1965, university degree in computer science
`
` Joined Merck in 1989, member of the Executive Board since April 2011
`
` Responsibility for Group functions: Group Human Resources; Group Information
`Services; Site Management Darmstadt and Gernsheim; Inhouse Consulting
` Regional responsibilities: EMEA (Europe, Middle East, Africa)
`
`
`
`Stefan Oschmann
`Head of the Pharmaceuticals business sector
`
` Born in 1957, veterinarian
`
` Member of the Executive Board since January 2011
`
` Responsibility for Group functions: Patents & Scientific Information
`
` Regional responsibility: North America and Latin America
`
`Bernd Reckmann
`Head of the Chemicals business sector
`
` Born in 1955, biochemist
`
` Joined Merck in 1986, member of the Executive Board since 2007
`
` Responsibility for Group functions: Quality Management; Logistics and Supply Chain
`
` Regional responsibility: Asia-Pacific
`
`Matthias Zachert
`Chief Financial Officer
`
` Born in 1967, university degree in business administration
`
` Member of the Executive Board since June 2011
`
` Responsibility for Group functions: Group Accounting & Subsidiaries;
`Group Controlling; Group Finance; Group Taxes; Group Insurance;
`Group Procurement; Investor Relations
`
`Page 30
`
`

`
`Merck 2011
`To our Shareholders
`
`
`
` The Executive Board
`
`27
`
`Bernd Reckmann
`
` Kai Beckmann
`
`Stefan Oschmann
`
`Karl-Ludwig Kley
`
`Matthias Zachert
`
`Page 31
`
`

`
`28
`
`Merck 2011
`To our Shareholders
`
`Merck Shares
`
` At a glance
`
`Share data 1
`
`Dividend
`Share price high (July 22, 2011/Sept. 10, 2010)
`Share price low (Sept. 12, 2011/Feb. 25, 2010)
`Year-end share price
`Market capitalization2 (at year-end)
`Market capitalization3 of free float (at year-end)
`1 Share-price relevant figures relate to the closing price in XETRA  ® trading on the Frankfurt Stock Exchange
`2 Based on the theoretical number of shares (217.4 million) on December 31
`3 Based on the number of shares in free float (64.6 million) on December 31
`
`/ in €
`/ in €
`/ in €
`/ in €
`/ in € million
`/ in € million
`
`2011
`1.50
`78.47
`56,82
`77.03
`16,745
`4,978
`
`2010
`1.25
`72.28
`57.62
`59.85
`13,011
`3,868
`
`WKN: 659990 ISIN: DE0006599905
`
`The performance of Merck shares vs. the DAX ®
`and the Bloomberg Europe 500 Pharmaceuticals Index (BEPHARM) in 2011
`Jan.
`Feb.
`March
`April
`May
`June
`July
`Oct.
`Aug.
`Sept.
`
`Nov.
`
`Dec.
`
`140%
`120%
`100%
`80%
`60%
`
` Merck
`
`
`
` DAX  ®
`
`
`
` BEPHARM Index
`
`The performance of Merck shares vs. the DAX ®
`and the Bloomberg EMEA Chemicals Index (BEUCHEM) in 2011
`Feb.
`March
`April
`May
`June
`July
`Jan.
`Aug.
`
`Sept.
`
`Oct.
`
`Nov.
`
`Dec.
`
`140%
`120%
`100%
`80%
`60%
`
` Merck
`
`
`
` DAX  ®
`
`
`
` BEUCHEM Index
`
`Page 32
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`

`
`Merck 2011
`To our Shareholders
`
`29
`
`Merck in the Capital Market
`
`Merck shares rose by 29% in 2011, outperforming the DAX  ® as well as the relevant pharmaceutical and
`chemical indices. Value-oriented investors are rewarding our business model.
`
`Best-performing stock in the DAX  ®
`In 2011, the Merck share price moved in a range of € 57 to € 78, clearly outperforming the DAX  ®, Germany’s
`blue chip index, and the Bloomberg Europe 500 Pharmaceuticals Index (BEPHARM). Merck shares finished
`the year as the DAX  ® stock with the highest growth rate. Merck shares had already performed in line with
`or better than these indices in the first quarter. After a decline in mid-March, the share price recovered and
`hit an annual high of € 78.47 on July 22, 2011. On July 27, the share price fell by nearly 5% from € 77.49
`to € 73.76 following the publication of our second-quarter results, in which we recorded substantial one-
`time expenses and lowered our earnings guidance for the full year. Due to the financial crisis, share prices
`fell worldwide. Merck shares were not immune to this trend and therefore declined further in value, like
`many other shares as well. The share price hit an annual low of € 56.82 on September 12, 2011. Afterwards,
`our share price performance remained stable until the spike on October 26, 2011. This was the date on
`which Merck announced its results for the third quarter of 2011. The high share price level rose again slightly
`and was maintained until year-end, and Merck shares closed the year with a considerable gain. During the
`same period, the DAX  ® declined by 15%. The BEPHARM rose by 13%, whereas the BEUCHEM, the Bloomberg
`EMEA Chemicals Index, performed negatively, declining by 14%.
`
`At nearly 500,000, the average number of Merck shares traded daily was 13% lower in 2011 than in 2010.
`
`Identified investors by region
`
`6
`
`5
`
`4
`
`3
`
`2
`
`1
`
`1 United States
`2 United Kingdom
`3 Germany
`4 Rest of Europe
`5 France
`6 Rest of world
`
`Source: King Worldwide (Status: October 2011)
`
`Identified investors by type
`
`4
`
`3
`
`5
`
`2
`
`1
`
`1 Value
`2 GARP (Growth at reasonable price)
`3 Index
`4 Growth
`5 Other
`
`Source: King Worldwide (Status: October 2011)
`
`54%
`14%
`12%
`11%
`6%
`3%
`
`37%
`34%
`13%
`9%
`7%
`
`Page 33
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`

`
`30
`
`Merck 2011
`To our Shareholders
`
`
`
` Merck in the
`Capital Market
`
`Owing to lower investor assessments of Merck’s growth potential, in particular the proportion of GARP
`investors increased in 2011 (GARP: growth at reasonable price). The proportion of value investors remained
`at a high level.
`
`As of December 31, 2011, the following shareholders reported their holdings in Merck shares to the
`company in accordance with the German Securities Trading Act:
`
`Sun Life Financial Inc., Toronto (Canada)
`Templeton Global Advisors Ltd., Nassau (Bahamas)
`Templeton Investment Counsel LLC, Wilmington, DE (USA)
`BlackRock Inc., New York, NY (USA)
`Capital Research and Management Company, Los Angeles, CA (USA)
`Deutsche Bank, Frankfurt (Germany)
`MFS Institutional Advisors Inc., Boston, MA (USA)
`
`Number of
`shares held
`6,175,369
`3,271,264
`3,312,537
`3,270,245
`3,160,836
`2,894,577
`1,955,336
`
`% of
`free float
`9.56
`5.06
`5.13
`5.06
`4.89
`4.48
`3.03
`
`Reported on
`1/21/10
`9/9/10
`3/30/11
`4/15/11
`7/1/11
`4/10/10
`11/9/11
`
`Around 57% of shares represented at the Annual General Meeting
`At the Annual General Meeting on April 8, 2011 in Frankfurt, 56.6% of the share capital was represented.
`In 2010, the figure was 58.2%. With the exception of agenda item 7, which concerned a resolution on
`the approval of a compensation system for members of the Executive Board and passed with 70.3% of the
`votes, more than 99% of the votes were in favor of each of the other five agenda items. Further details
`can be found on our website at www.merckgroup.com/investors.
`
`Dividend
`Owing to the good full-year results, the Executive Board will propose the payment of a dividend of € 1.50
`for 2011, corresponding to an increase of 20% compared with 2010 and equivalent to a distribution ratio
`(total dividend payment as a proportion of net income) of 53%. Based on the closing price of Merck shares
`on December 30, 2011 of € 77.03, this corresponds to a dividend return of 1.95%. An update to our dividend
`policy is currently being discussed. We plan to present the outcome to the Annual General Meeting.
`
`Merck bonds
`In 2011, the capital market showed high volatility particularly owing to the turmoil over the stability of the
`common European currency and the economic situation of several eurozone countries. This volatility was
`also reflected in the price development of Merck’s outstanding bonds.
`
`After having issued a euro bond of € 3.2 billion in the course of the Millipore acquisition, the largest
`euro bond issue by a company in 2010, Merck did not make any new emissions in 2011. As the financing of
`the acquisition in 2010 led to a sharp rise in financial liabilities, it was announced in 2010 that the level of
`debt would be reduced again as quickly as possible. Merck successfully achieved this objective in 2011 on a
`net basis (when financial liabilities are offset against liquid assets). On a gross basis, however, only minor
`changes occurred as there were no maturities from the bond issue in 2011. The changes relate primarily to the
`convertible bond placed by Millipore in 2006. Merck took over this convertible bond within the scope of the
`
`Page 34
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`

`
`Merck 2011
`To our Shareholders
`
`
`
` Merck in the
`Capital Market
`
`31
`
`acquisition. The majority of the investors in the convertible bond exercised a conversion right resulting from
`the acquisition in 2010. The still outstanding total nominal amount of US$ 27.2 million was repaid in the
`fourth quarter of 2011, which slightly reduced financial liabilities.
`
`Neither Standard & Poor’s nor Moody’s adjusted their credit ratings for Merck in 2011. While Standard &
`Poor’s issued Merck a BBB+, Moody’s issued a Baa2 rating. Both agencies issued a stable outlook on this
`long-term rating.
`
`Page 35
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`

`
`32
`
`Merck 2011
`To our Shareholders
`
`Merck:
`Key Events in 2011
`01/11
`
`January ➝
`
`China:
`Expansion in biotechnology
`In January, Merck acquired 100% of the share
`capital of Beijing Skywing Technology Co., Ltd,
`a leading supplier of cell culture media products,
`related technical services and bioreactors
`for the Chinese biopharmaceutical industry.
`
`03/11
`
`Japan:
`Pigment production continues
`The devastating March earthquake in Japan
`caused damage to Merck facilities in Onahama,
`resulting in a pigment production stoppage, but
`production resumed on May 8. Executive Board
`Chairman Karl-Ludwig Kley provides assurance
`that “Merck will continue investing in research,
`development and production in Japan.”
`
`06 /11
`
`Pharmaceuticals:
`Cladribine tablets discontinued
`In June, Merck decided to no longer pursue the
`global approval process for cladribine tablets as a
`treatment for multiple sclerosis. Merck discontinued
`market supply of cladribine tablets in Australia and
`Russia, where the product had already been approved.
`
`08 /11
`
`Merck Millipore:
`New microbiology business
`The microbiology business of Biotest AG became
`an official part of Merck on August 1. 300 new
`employees celebrated “Day 1”.
`
`10 /11
`
`Merck Serono: Important
`collaboration agreements
`Merck and Ono Pharmaceutical agreed to
`co-develop an oral multiple sclerosis drug
`as well as a cancer immunotherapy in Japan,
`signing two collaboration agreements in
`October.
`
`11/11
`
`Liquid crystals:
`First application lab in China
`In November, Merck opened its first liquid crystals application
`laboratory in China, which is intended to provide flat panel
`display manufacturers in the Chinese market with compre-
`hensive technological support and customer services.
`
`February ➝
`
`March ➝
`
`April ➝
`
`May ➝
`
`June ➝
`
`July ➝
`
`August ➝
`
`September ➝
`
`October ➝
`
`November ➝
`
`December ➝
`
`Page 36
`
`

`
`Merck 2011
`
`#02
`
`Merck
`Group Management Report 2011
`
`035
`036
`050
`060
`071
`075
`079
`083
`084
`091
`098
`
` Overall Economic Situation
` Financial Position and Results of Operations
` Corporate Responsibility
` Merck Serono
` Consumer Health Care
` Merck Millipore
` Performance Materials
` Corporate and Other
` Risk Report
` Report on Expected Developments
` Subsequent Events
`
`033
`
`098
`
`Page 37
`
`

`
`34
`
`Merck 2011
`Group Management Report
`
`The Year 2011 in Figures
`
`Merck Group
`
`Total revenues
`
`EBITDA
`
`EBIT
`
`€ 10,276 million
`
`€ 2,736 million
`
`€ 1,137 million
`
`Underlying free
`cash flow
`€ 1,395 million
`
`R&D costs
`
`€ 1,517 million
`
`Return on sales
`(ROS)
`9.6%
`
`Employees
`
`40,676
`
`Global presence
`
`67 countries
`
`Merck Serono ➝ page 60
`
`Consumer Health Care ➝ page 71
`
`R&D costs
`€ 23 million
`
`Operating result
`€ 46 million
`
`Return on sales
`(ROS)
`9.3%
`
`Total revenues
`€ 496 million
`
`Employees
`1,226
`
`Underlying free
`cash flow
`€ 40 million
`
`Pharmaceuticals
`
`Total revenues
`€ 5,920 million
`
`R&D costs
`€ 1,225 million
`
`Employees
`16,867
`
`Operating result
`€ 304 million
`
`Underlying free
`cash flow
`€ 1,205 million
`
`Return on sales
`(ROS)
`5.1%
`
`Merck Millipore ➝ page 75
`
`Performance Materials ➝ page 79
`
`R&D costs
`€ 134 million
`
`Operating result
`€ 525 million
`
`Return on sales
`(ROS)
`35.8%
`
`Total revenues
`€ 1,467 million
`
`Employees
`5,071
`
`Chemicals
`
`Underlying free
`cash flow
`€ 492 million
`
`Total revenues
`€ 2,393 million
`
`Employees
`8,544
`
`Underlying free
`cash flow
`€ 309 million
`
`R&D costs
`€ 135 million
`
`Operating result
`€ 226 million
`
`Return on sales
`(ROS)
`9.4%
`
`Page 38
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`

`
`Merck 2011
`Group Management Report
`
`35
`
`Growth of the global economy weakened significantly in 2011. Emerging markets and developing countries
`are the engines of global growth.
`
`Although the German economy grew by another 3%, growth impetus tapered off especially in Europe owing
`to the debt and euro crisis, as governments reduced measures to stimulate the economy. Private demand
`was unable to offset this, particularly as consumers faced the risks and turmoil stemming from the debt
`crisis, the Japanese earthquake in March, and the Arab