The publication of our Annual Report is a good opportunity to reflect for a moment and to take stock, not only from a financial perspective. In my letter to you last year, I explained how we at Merck KGaA, Darmstadt, Germany, want to help shape technological advances. Today we can see that we successfully did so in 2017. More about that later.

Since 2018 is a very special year for our company, let us first take a look at the present. This year, we are celebrating the 350th anniversary of our company. Few companies have roots that date back so far. And in our industry, we are the only ones who have been successful for so long.

For three and a half centuries, we have repeatedly contributed to advances in science. In 1668, Friedrich Jacob Merck laid the foundations with his pharmacy in Darmstadt. In the 19th century, Emanuel Merck was one of the industrial pioneers of modern pharmacy. Today, more than 6,000 scientists are working for our company on cutting-edge health solutions and technologies.

Our company has constantly reinvented itself. But many important things have remained constant. Scientific curiosity has been, is and always will be the force that drives our scientists in Europe, Asia and North America to find new solutions for the most pressing questions facing humanity. In everything we do, we orient towards a clearly defined and binding set of values. For instance, this means we run our business as responsible entrepreneurs.

Stefan Oschmann
Chairman of the Executive Board and CEO

In 2017, we helped shape technological advances and achieved milestones in our markets.

  • We received the first approvals for not one, but two important new medicines – the immuno-oncology drug Bavencio® and Mavenclad® for relapsing multiple sclerosis in patients with high disease activity. Mavenclad® offers patients an innovative dosing regimen. Taken orally for a maximum of 20 days in the first two years, it can deliver and sustain four years of disease control.
  • The acquisition of BioControl Systems has enabled us to expand our offerings for customers in the food industry. We now offer them a comprehensive range of technologies to test for foodborne pathogens. In our new Food Safety Studio, our customers can collaborate with our scientists for instance to develop rapid tests to check their products.
  • We made our debut at the International Motor Show in Frankfurt, where we presented our technologies for future mobility. These include materials for smart headlights that can adapt light distribution as needed, thus providing for greater traffic safety. And liquid crystals for satellite antennas that permit reception of large data volumes nearly anywhere in the world, an important technology for autonomous driving.

These are just a few examples of what we accomplished in 2017 thanks to the curiosity, the imagination, and the engagement of our more than 50,000 employees. On behalf of the Executive Board, I would like to cordially thank them.

In business terms, 2017 was a good year. Our company again grew profitably. For 2017, we will propose to the Annual General Meeting a dividend of € 1.25 per share, an increase of € 0.05. Our sales increased to € 15.3 billion. At the same time, EBITDA pre, the key performance indicator used to steer our operating business, amounted to € 4.4 billion, which was at the lower end of our annual forecast, despite unfavorable exchange rate developments. The impact of higher research and development costs in our Biopharma business as well as a challenging market environment in Liquid Crystals can be seen. We will continue to address both these issues in 2018.

We are investing further in the development and launch of new medicines. Our earnings in 2018 will also reflect these expenses. Here, “investing” is the key term because we firmly believe that our financial commitment will pay off. That’s why investing money now is the right thing to do.

In view of limited resources, making targeted investments always also means setting priorities. That is why we divested our Biosimilars business in 2017. And it is why we announced in 2017 that we are examining strategic options for our Consumer Health business.

In the Liquid Crystals business, we have been the market and technology leader for many years now. However, the market environment has become increasingly difficult. First and foremost in China, the market shares for our liquid crystal technologies normalized, yet remain at a good level. In recent years, our market shares were particularly high owing to the competitive environment in China. By contrast, sales of innovative technologies, for instance of energy-saving UB-FFS materials, are growing sharply. This is why we are driving the launch of new liquid crystal products forward and capturing new application fields in this core business. For example, windows with liquid crystal modules, which raise the energy-efficiency of buildings. At the end of November, we opened a new factory in the Netherlands for this purpose.

This shows we are addressing topics that are important to the success of our company. And we are setting clear business priorities. In our Biopharma business, we are focusing on the development of innovative specialty medicines. Additionally, we want to further expand our highly successful Life Science business in a targeted manner. In our Performance Materials business, we will push forward especially with our rapidly growing businesses, for instance materials for semiconductor production.

We will continue to maintain a high level of financial discipline in all of these efforts in 2018. Reducing our acquisition-related net financial debt remains a priority.

What innovations will be the next to define the industries in which we operate? We are intensively addressing this question and setting the course to ensure that our company prospers tomorrow and beyond as it does today.

We are using complex digital data analytics in the fight against cancer and other serious diseases. For instance, to increase the efficacy of drugs that activate the body’s immune system to fight tumors, we have to have a better understanding of the interactions between the immune system and the tumor. To do so, we are building up a powerful data and analysis platform. We want to recognize meaningful patterns and develop new and effective treatment options.

We are creating new opportunities for scientists and biotech companies, for instance genome editing with CRISPR technology, which enables researchers to alter the genes of living cells more efficiently than with previous methods. For example, CRISPR is a key technology that can help to find new treatment options for serious diseases. We have received patents for a future-oriented CRISPR technology in the European Union, Australia, Canada, and Singapore. Despite our strong passion for discovery, we also know that genome editing touches on fundamental ethical questions. We take these topics very seriously. That is why we have clear policies in place for our research and business operations and an international ethics committee (Bioethics Advisory Panel). This too is responsible entrepreneurship.

Our high-tech materials are an important basis for many technologies of the future. For example, organic photovoltaic materials permit entirely new, clean ways of generating power. They can be used to transform building façades into energy sources. This is creating entirely new options for architects – and perhaps soon also for astronauts since we are cooperating with the European Space Agency (ESA) on future materials for outer space. You can read more on this in the magazine section of this Annual Report.

This is no longer science fiction, but rather is increasingly becoming reality – also with help from us. As a vibrant science and technology company, we are proud to be shaping crucial areas of the world we live in. Yet rest assured that we will always keep our feet on the ground, especially in view of our 350-year history. We will continue to run your company prudently, conservatively and successfully. And true to the motto of our anniversary year, we will remain ‟always curious”. You can count on that.

Sincerely,

Stefan Oschmann Chairman of the Executive Board and CEO