Review of Forecast against Actual Business Developments

Net sales

For 2017, we had forecast slight to moderate organic net sales growth for the Group. The positive organic development of net sales in our Healthcare and Life Science business sectors more than offset the declining business development in Performance Materials. Overall, we thus generated a moderate organic net sales increase of 3.8%. Furthermore, we expected a neutral exchange rate effect on our net sales. Here we assumed that the positive euro/US$ development would roughly compensate for negative exchange rate developments in various growth markets, yet we expected high volatility of exchange rates owing to political and macroeconomic developments. This assessment was confirmed because as of mid-2017, and in contrast to the previous trend, the euro started to significantly appreciate in value against the U.S. dollar and various emerging market currencies. As a result, for the full year 2017 we saw a slightly negative exchange rate effect of – 1.5% on our net sales, contrary to our original forecast.

In 2017, our Healthcare business sector generated solid organic sales growth of 4.7%, thus exceeding our forecast for slight organic growth. Sales growth in 2017 was again driven by the continued good dynamics in our growth markets, which exceeded our expectations, as well as positive effects from the full takeover of the commercialization of the antidiabetic agent Glucophage® in China from BMS. Our other franchises developed as expected. As forecast, a low negative portfolio effect of – 1.0% stemmed from the divestment of the business in Pakistan.

For our Life Science business sector, at the beginning of the year we had forecast solid organic growth of net sales; slightly above expected market growth of around 4% per year. In fiscal 2017, the business sector achieved organic growth of 5.3%, in line with our forecast. As expected, Process Solutions was the most dynamic business unit, delivering the largest contribution to organic sales growth within Life Science. As expected, Research Solutions and Applied Solutions also contributed positively to organic sales performance, albeit to a lesser extent than Process Solutions. The low positive portfolio effect of + 0.4% met the forecast we gave at the beginning of the year and was mainly due to the acquisition of BioControl Systems.

Contrary to our original expectations of slight organic sales growth, our Performance Materials business sector recorded a slight organic sales decline of – 1.7% in 2017. In the first quarter, signs of a normalization of our market shares in the Liquid Crystals business, particularly in China – which had been unusually high in recent years – intensified. This development became increasingly visible in the following quarters, and the price pressure typical in this industry could no longer be offset by corresponding volume growth. The good organic development in the Integrated Circuit Materials and Pigments & Functional Materials business units could not fully offset the decline in the Display Materials business unit.

EBITDA pre

For the Group, we had forecast an approximately stable EBITDA pre1 in 2017 with either a slightly positive or negative fluctuation from the year-earlier figure. Due to the difficult foreign exchange environment in the second half of the year and because of the adjustment processes in our Liquid Crystals business, in our report on the second quarter we assumed that our EBITDA pre would be at the lower end of this implied range of € 4.4 billion to € 4.6 billion. For 2017 as a whole, EBITDA pre amounted to € 4,414 million, which was – 1.7% below the year-earlier level.

For our Healthcare business sector, we expected a high single-digit percentage decrease in EBITDA pre owing to the continued rise in research and development costs resulting from the ongoing development of our pipeline, particularly in immuno-oncology, a negative product mix due to the continued decline in sales of Rebif®, as well as the absence of one-time income from the previous year. In 2017, Healthcare generated EBITDA pre of € 1,949 million, which corresponded to a decline of – 8.4% and was thus in line with our forecast.

For Life Science, we had expected an increase in EBITDA pre in the high-single digit to low teens range due to the expected organic sales growth and the realization of synergies from the acquisition of Sigma-­Aldrich as planned. With EBITDA pre of € 1,786 million, the business sector delivered growth of 8.1%, which was within the forecast range we had given at the beginning of the year.

For our Performance Materials business sector, at the beginning of the year we still had assumed a slight increase in EBITDA pre compared with the year-earlier level of € 1,106 million. However, the correction in our Liquid Crystals business that materialized in the course of the year as well as the increasingly difficult foreign exchange environment that particularly affects our Performance Materials business sector, required a reassessment of this original assumption. Stringent cost discipline and the good performance in our other business units could only partly offset the decline in the highly profitable Liquid Crystals business. In our report on the second quarter, we assumed that EBITDA pre of Performance Materials would decline in the mid single-­digit to mid teens range to between € 950 million and € 1,050 million. For 2017 as a whole, Performance Materials achieved EBITDA pre of € 980 million. This corresponded to a decline of – 11.4% compared with the previous year and was thus within the adjusted range we had predicted.

EBITDA pre of Corporate and Other, which had reached a level of € – 301 million in 2017, was 24% below the year-earlier level of € – 396 million. Our expectation at the beginning of the year of a slight improvement over the previous year was thus exceeded. This development was mainly due to currency hedging losses, which were not as high as we had expected at the beginning of the year owing to the more difficult foreign exchange environment as of the second half of the year. Consequently, in the course of the year we had specified our forecast for EBITDA pre of Corporate and Other at € – 300 million to € – 350 million, and reached the lower end of this range.

1Not defined by International Financial Reporting Standards (IFRS).

Business free cash flow

For 2017, we expected business free cash flow of the Group to see a single-digit percentage decline. We exceeded this forecast with stable business free cash flow. This was mainly driven by higher EBITDA pre of Corporate and Other as well as the positive development of inventories and receivables.

  Forecast for 2017 in:
  Actual results 2016 in € million Forecast for 2017 in the Annual Report for 2016 Main comments Q1/2017 Interim Report Q2/2017 Interim Report Q3/2017 Interim Report Results 2017 in € million
Group              
Net sales 15,023.5 Slight to moderate organic growth Neutral exchange rate effect Slight organic sales growth in Healthcare Solid organic growth slightly above market growth in Life Science Slight organic growth in Performance Materials Neutral exchange rate effect due to positive €/US$ development and negative foreign exchange ­developmentsvarious growth markets € ~ 15,500 million to € 16,600 million € ~ 15,300 million to € 15,700 million € ~ 15,300 million to € 15,700 million 15,326.6 (+ 2.0%: + 3.8% Organic, – 0.3% Portfolio, – 1.5% Currency)
EBITDA pre1 4,490.4 Approximately stable compared with the previous year; this comprises a slightly positive or negative percentage fluctuation from the year-earlier figup> Increasing research and development spending in Healthcare Continued realization of synergies from the integration of Sigma-Aldrich in Life Science Slight sales recovery and active cost management in Performance Materials € ~ 4,400 million to € 4,600 million € ~ 4,400 million to € 4,600 million € ~ 4,400 million to € 4,600 million 4,414.5 (– 1.7%)
Business free cash flow1 3,318.2 Single-digit percentage decline Increasing investments in property, plant and ­equipment, as well as digitalization initiatives € ~ 2,930 million to € 3,150 million € ~ 2,960 million to € 3,260 million € ~ 3,040 million to € 3,340 million 3,318 (0.0%)
EPS pre1 6.21   6.15 to 6.50 6.15 to 6.50 6.15 to 6.50 6.16
Healthcare              
Net sales 6,855.0 Slight organic growth Organic sales growth in growth markets offsets the ongoing decline in Rebif sales Continued price pressure in Europe, Asia-Pacific as well as Middle East and Africa Full takeover of the commercialization of the ­antidiabetic agent Glucophage in China from BMS ­contributes slightly to sales growth Slightly negative portfolio effect due to the divestment of the business in Pakistan, which had generated salesthe mid double-digit million range in 2016 Slight organic growth Low portfolio effect due to the ­divestment of our business in ­Pakistan Slight organic growth Slight organic growth Low portfolio effect due to the ­divestment of our business in Pakistan 6,999.0 (+ 2.1%: + 4.7% Organic, – 1.0% Portfolio, – 1.6% Currency)
EBITDA pre1 2,127.9 High single-digit percentage decrease in EBITDA pre compared with 2016 Continued rise in research and development spending due to further pipeline development, ­particularlyimmuno-oncology Negative product mix effect due to the decline in Rebif® sales Absence of exceptional income recorded in 2016, such as the release of provisions for research projects discontinin prior years and the divestment of a minority interest Royalty income for Avonex® due to a patent granted in the United States in 2016 Agreement on a one-time payment for future license payments € ~ 1,900 million to € 2,000 million € ~ 1,900 million to € 2,000 million € ~ 1,900 million to € 2,000 million 1,949.3 (– 8.4%)
Business free cash flow1 1,648.1 Low double-digit percentage decline Decline in EBITD pre Continued investments in property, plant and ­equipment as well as digitalization within the scope of strateinitiatives € ~ 1,340 million to € 1,430 million € ~ 1,340 million to € 1,430 million € ~ 1,320 million to € 1,410 million 1,447.9 (– 12.1%)
1
Not defined by International Financial Reporting Standards (IFRS).

  Forecast for 2017 in:
  Actual results 2016 in € million Forecast for 2017 in the Annual Report for 2016 Main comments Q1/2017 Interim Report Q2/2017 Interim Report Q3/2017 Interim Report Results 2017 in € million
Life Science              
Net sales 5,657.9 Solid organic growth, and thus slightly above the expected market growth of approximately 4% per year Process Solutions likely to remain the strongest driver of growth Research Solutions and Applied Solutions also ­contribute positively to organic sales ­development to a smaller extent Low positive portfolio effect due to the acquisition of BioControl Systems, which generated sales of US$ 34 million in 2015 Solid organic sales growth Low portfolio effect due to the ­acquisition of BioControl Systems Solid organic sales growth, slightly above expected market growth of around 4% per year Solid organic sales growth, slightly above expected market growth of around 4% per year 5,881.5 (+ 4.0%: + 5.3% Organic, + 0.4% Portfolio, – 1.7% Currency)
EBITDA pre1 1,652.3 Percentage growth compared with the previous year in the high single-­digit to low teens range Positive development resulting from expected sales growth Realization of additional synergies as planned from the Sigma-­Aldrich acquisition amounting to € 80 million compared with the previous yep> € ~ 1,780 million to € 1,850 million € ~ 1,780 million to € 1,850 million € ~ 1,780 million to € 1,850 million 1,785.8 (+ 8.1%)
Business free cash flow1 1,144.0 Increase in the twenties percentage range Higher EBITDA pre Improved inventory management € ~ 1,310 million to € 1,380 million € ~ 1,350 million to € 1,440 million € ~ 1,400 million to € 1,490 million 1,401.7 (+ 22.5%)
Performance Materials              
Net sales 2,510.7 Slight organic growth Volume increases in all businesses driven, among other things, by a recovery in the display market visible since the end of 2016 Continued price decline typical for the Liquid Crystals business Continued initial signs of a normalization of our high market shares in the Liquid Crystals business cannot be ruled out. Slight organic sales decline Slight to moderate organic decline in sales Slight to moderate organic decline in sales 2,446.0 (– 2.6%: – 1.7% Organic, 0.0% Portfolio, – 0.9% Currency)
EBITDA pre1 1,106.4 Slight increase Recovery in the display market, broader earnings base and active cost management can more than offset the continued price decline in liquid crystals € ~ 1,050 million to € 1,130 million € ~ 950 million to € 1,050 million € ~ 950 million to € 1,050 million 979.8 (– 11.4%)
Business free cash flow 1 1,010.7 Low double-digit percentage decline Higher investments in property, plant and equipment, as well as digitalization initiatives € ~ 820 million to € 890 million € ~ 820 million to € 890 million € ~ 820 million to € 890 million 905.8 (– 10.4%)
Corporate and Other              
EBITDA pre1 – 396.2 EBITDA pre of Corporate and Other should improve slightly in 2017 in comparison with previous year.   € ~ – 350 million to € – 400 million € ~ – 350 million to € – 400 million € ~ – 300 million to € – 350 million – 300.5 (– 24.2%)
Business free cash flow1 – 484.7   € ~ – 540 million to € – 590 million € ~ – 500 million to € – 550 million € ~ –450 million to € –500 million – 437.4 (– 9.8%)
1
Not defined by International Financial Reporting Standards (IFRS).