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Review of Forecast against Actual Business Developments

The forecast of the Group for fiscal 2018 published in the Annual Report for fiscal 2017 comprised the three business sectors of Healthcare, Life Science and Performance Materials. On September 5, 2017, our company had announced that it was examining strategic options for its Consumer Health business. This analysis had not been completed by the time the 2017 Annual Report was prepared, and as of December 31, 2017, the Executive Board concluded that a divestment of the Consumer Health business within twelve months was not regarded as highly likely. As a result, the forecast at the time included the Consumer Health business.

On April 19, 2018, we announced the signing of an agreement to divest our global consumer health business to Procter & Gamble (P&G) for around € 3.4 billion in cash. At the time, the transaction was expected to be signed at the end of the fourth quarter of 2018. Signing took place on November 30, 2018. In order to ensure the systematic continuation of the forecast from the 2017 Annual Report and assess the further development with respect to the Consumer Health business, we presented our forecast for the expected sales and earnings of the Group and our Healthcare business sector as of the first quarter of 2018 both with and without the Consumer Health business. In its report on the second quarter of 2018, the Consumer Health business was classified as a “discontinued operation” in accordance with IFRS 5. Consequently, the prior-year figures and the figures for the first quarter of 2018 were adjusted accordingly, as was our forecast. At the same time, the key drivers of the forecast – organic sales and EBITDA pre growth for the Group and for the business sectors together with their exchange rate effects in each case – remained unchanged.

Due to this portfolio change, the following analysis reflects the new structure of the Group: it takes the Consumer Health business into account as “discontinued operation”.

Net sales

For 2018, we had forecast moderate organic net sales growth for the Group. In the second half of 2018, we recorded more dynamic sales growth in all business sectors than expected at the start of the year; this means that for 2018 as a whole we realized a strong organic rise in net sales of + 6.1%, thereby slightly exceeding our forecast.

Due to the emerging unfavorable development of the exchange rate between the euro and the U.S. dollar and various currencies in the growth markets at the start of the year, we anticipated a moderately negative exchange rate effect on our net sales. At the same time, we assumed that the charges would be greater in the first half than in the second half of 2018. This assessment was confirmed: the negative exchange rate effect in 2018 as a whole was –3.9%. From the middle of 2018 onward a perceptible easing of the exchange rate between the euro and the U.S. dollar was observed, as expected, although a number of different currencies in the growth markets, particularly the Latin American currencies, showed a less favorable than expected development in the second half of 2018.

Healthcare

In 2018, our Healthcare business sector generated solid organic sales growth of + 5.2% (or € 324 million), thus meeting our forecast of moderate organic growth. Sales growth in 2018 was supported by the continuation of good organic sales growth in the General Medicine & Endocrinology and Fertility business units in our growth markets (€ 179 million) and the contribution to sales made by our newly approved products Bavencio® and Mavenclad®, which slightly exceeded our expectations. Both products together generated sales of € 160 million in 2018 and thus contributed € 138 million to organic sales growth.

Life Science

For our Life Science business sector, at the beginning of the year we had forecast solid organic sales growth, slightly above expected medium-term market growth of around + 4% per year. The business sector achieved very strong organic growth of + 8.8% in 2018. This means that it exceeded the top end of our forecast of between + 7% and + 8% that we had raised in our report on the third quarter of 2018, thanks to the very positive organic sales development in the fourth quarter of 2018. As expected, Process Solutions was the most dynamic business unit, delivering the largest contribution to organic sales growth within Life Science. As expected, Applied Solutions and Research Solutions also contributed positively to the organic sales performance, albeit to a significantly lesser extent than Process Solutions.

Performance Materials

Contrary to our original expectation of a slight to moderate decline in organic sales, the Performance Materials business sector generated a slight increase in organic sales of + 1.7% in 2018. Since the third quarter of 2018, various capacity expansion projects by our customers in the display industry have prompted an increase in demand for our liquid crystal materials in the Display Solutions business unit. Prompted by this development and by sales growth of Semiconductor Solutions in line with our expectations, we raised our estimate of organic sales growth to between – 1% and + 1% in our report on the third quarter of 2018. This temporary upturn continued in the liquid crystal business in the fourth quarter of 2018, as a result of which organic sales growth of the Performance Materials business sector in 2018 slightly exceeded our updated forecast range, at + 1.7%.

EBITDA pre

For 2018 we expected a slight organic decline in EBITDA pre over the prior year for the Group. Furthermore, because of the difficult foreign exchange environment, we expected negative exchange rate effects to depress EBITDA pre by between –4% and – 6% over the prior year. In 2018, EBITDA pre came to € 3,880 million, equivalent to a decrease of – 10.5% compared with the prior year (2017: € 4,246 million). The organic decline of – 1.6% entailed by this figure was in line with our forecast. By contrast, at – 8.9% the foreign exchange effect on EBITDA pre in 2018 as a whole was substantially more negative than expected at the start of the year, although it was in line with the range of between – 8% and – 10% which we had adjusted in the course of our reporting on the third quarter of 2018. The expected advantageous development of the euro against the U.S. dollar in the second half of 2018 was more than offset by the continuing depreciation of various emerging market currencies versus the euro, particularly of the Latin American currencies. During this period in 2018, the Argentine peso and the Brazilian real performed significantly worse than we had expected at the start of the year.

Healthcare

For our Healthcare business sector we are forecasting a slight organic decrease in EBITDA pre over the prior year due to the continuing rise in research and development expenses to develop our pipeline, particularly in immuno-oncology, and the disappearance of exceptional income from the prior year and a slight decline in organic EBITDA pre over the prior year. In addition, we had expected moderately negative exchange rate effects. In 2018, EBITDA pre in Healthcare amounted to € 1,556 million (2017: € 1,773 million). This is equivalent to a decline of – 12.2% over 2017; the organic drop of – 1.6% corresponded to the forecast we issued at the start of the year. The exchange rate effects had a substantially greater negative impact than expected at the start of the year. As a result, in our reporting on the third quarter of 2018 we changed our forecast range to between – 9% and – 11% and closed out the year 2018 at – 10.7%.

Life Science

For Life Science we had expected organic EBITDA pre growth to be similarly dynamic as in 2017 at around + 8% due to the expected organic sales growth and continuing realization of synergies from the acquisition of Sigma-Aldrich, which remain on schedule. With € 1,840 million, the business sector delivered organic growth of + 7.0% and was thus below the forecast range we had given at the beginning of the year. The exchange rate developments depressed EBITDA pre by – 3.9% and thus corresponded to our forecast of a moderately negative exchange rate effect.

Performance Materials

Owing to the expected corrections in the Display Solutions business we forecast an organic percentage decline in EBITDA pre for the Performance Materials business sector totaling a mid-teen percentage figure at the start of the year. For the exchange rate effects we moreover projected a moderately negative charge on EBITDA pre over 2017. For 2018 as a whole, Performance Materials achieved EBITDA pre of € 786 million. This corresponded to a drop of – 19.8% over 2017, of which – 12.9% was attributable to the organic business performance and a further – 6.9% to exchange rate developments. Both key financial indicators were thus within the ranges we had indicated at the start of the year.

Corporate and Other

EBITDA pre of Corporate and Other, which reached a level of € – 381 million in 2018, was within our forecast range of € –360 million to € –400 million that we specified at mid-year. Compared with the prior-year figure of € – 292 million this corresponded to a rise in costs of 30.6%. This development was primarily attributable to losses from our currency hedging, which were higher in the second half of 2018 than had been expected at the start of the year. We did, however, reach the forecast we issued at the start of the year, which provided for an increase in expenses for Corporate and Other amounting to a low single-digit percentage figure.

Business free cash flow

For 2018, we expected business free cash flow of the Group to see a low double-digit percentage decline. We met this forecast with a decrease of 21.4%. The Healthcare business sector reported a decline of 22.0% compared with the previous year, which was lower than the single-digit percentage fall we had forecast at the start of the year. This development was primarily attributable to the sale of the Consumer Health business, which had not yet been anticipated when the forecast was made at the start of the year. The transfer of the EBITDA pre of the divested business had a particularly significant impact. The business free cash flow of the Life Science business sector was more or less stable, declining by 0.7%. This is in line with the small percentage decrease we had forecast. For the Performance Materials business sector we anticipated a double-digit decline in 2018. The drop of 35.1% – essentially the result of lower EBITDA pre – thus corresponded to our expectations.

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GROUP

Net sales EBITDA pre Business free cash flow EPS pre
Actual results 2017 in € million 14,517 4,246 3,193 € 5.92
Forecast for 2018 in the 2017 Annual Report1

Moderate organic growth

Moderately negative exchange rate effect

Slight organic decline

Moderately negative foreign exchange effect
of – 4% to – 6%

Low double-digit percentage decline
Main comments Moderate organic growth in Healthcare due to strong dynamics in growth markets as well as increasing sales of Mavenclad® and Bavencio®

Solid organic growth in Life Science, slightly above expected market growth

Slight to moderate organic decrease in Performance Materials owing to the ongoing adjustment processes in the Liquid Crystals business

Negative foreign exchange effect, driven primarily by the exchange rate of the U.S. dollar and currencies of various growth markets
In Healthcare continued high investments in research and development as well as in marketing and sales; absence of positive one-time effects from the previous year

Organic sales growth and continued realization of planned synergies from the integration of Sigma-Aldrich in Life Science
Ongoing adjustment processes in the Liquid Crystals business that will not be offset despite the enhanced diversification of Performance Materials and active cost management

Moderately negative foreign exchange effect, particularly owing to the development of the U.S. dollar and currencies of various growth markets
Lower EBITDA pre and investments in property, plant and equipment, as well as digitalization initiatives, higher inventories due to changes in the product mix and volume growth
Forecasts for 2018 in the interim report:
Q1/2018

Organic growth + 3% to + 5%

Exchange rate effect – 4% to – 6%

~15,000 to 15,500
(excluding Consumer Health ~14,000 to 14,500)

Organic decline – 1% to – 3% vs. 2017

Exchange rate effect – 5% to – 7%

~3,950 to 4,150(excluding Consumer Health~3,750 to 4,000)
~2,460 to 2,770(excluding Consumer Health~2,310 to 2,620) EPS pre € 5.30
to € 5.65(excluding Consumer Health business € 5.00 to € 5.40)
Q2/2018

~14,100 to 14,600

Organic growth + 3% to + 5% vs. 2017

Moderately negative foreign exchange effect – 3% to – 5%

~3,750 to 4,000

Organic decline – 1% to – 3% vs. 2017

Exchange rate effect – 5% to – 7%
~2,380 to 2,670 € 5.00 to € 5.40
Q3/2018

~14,400 to 14,800

Organic decline + 4% to + 6% vs. 2017

Moderately negative foreign exchange effect – 3% to – 5%

~3,700 to 3,900

Organic decline – 1% to – 3% vs. 2017

Exchange rate effect – 8% to – 10%
~2,340 to 2,630 € 5.00 to € 5.30
Results 2018 in € million 14,836
(+ 2.2%: +6.1% Organic, 0.0% Portfolio,
– 3.9% Currency)
3,800
(– 10.5%: – 1.6% Organic,
0.0% Portfolio,
– 8.9% Currency)
2,508
–21.4%
5.10
– 13.9%
1
The 2018 forecast in the 2017 Annual Report included the Consumer Health business.
Figures in € million unless otherwise specified.
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Healthcare

Net sales EBITDA pre Business free cash flow
Actual results 2017 in € million 6,190 1,773 1,314
Forecast for 2018 in the 2017 Annual Report1

Moderate organic growth

Moderately negative exchange rate effect

Single-digit percentage
decline
Main comments

Organic sales growth in growth markets will compensate for the organic decline in Rebif® sales, which is expected to be in the high single-digit percentage range

Continued price pressure in Europe and also in the Asia-Pacific as well as Middle East and Africa regions

Bavencio® and Mavenclad® will contribute visibly to sales growth

Solid organic growth of our Consumer Health business

Negative foreign exchange effect, driven primarily by the exchange rate of the U.S. dollar and currencies of various growth markets

Continued high investments in research and development as well as in marketing and sales; absence of positive one-time effects from the previous year

Negative foreign exchange effect, particularly owing to the development of the U.S. dollar and currencies of various growth markets

Decline in EBITDA pre

Increase in working capital due to product mix effects
Forecasts for 2018 in the interim report:
Q1/2018

Moderate organic growth

Moderately negative foreign exchange effect

Organic decline of – 1% to – 2%

Exchange rate effect – 5% to – 7%

~1,770 to 1,830
(excluding Consumer Health
~1,580 to 1,650)
~1,140 to 1,240
(excluding Consumer Health
~1,000 to 1,080)
Q2/2018

Moderate organic growth
+ 3% to + 5%

Moderately negative foreign exchange effect
– 4% to – 6%

~1,580 to 1,650

Organic decline of – 1% to – 2%

Exchange rate effect – 5% to – 7%
~1,060 to 1,140
Q3/2018

Solid organic growth
+ 4% to + 5%

Moderately negative foreign exchange effect
– 4% to – 6%

~1,540 to 1,600

Organic decline of – 1% to – 2%

Significantly negative foreign exchange effect
– 9% to – 11%
~1,030 to 1,110
Results 2018 in € million 6,246
(+ 0.9%:
+ 5.2% Organic,
0.0% Portfolio,
– 4.3% Currency)
1,556
(– 12.2%:
– 1.6% Organic,
0.0% Portfolio,
– 10.7% Currency)
1,025
– 22.0%
*
The 2018 forecast in the 2017 Annual Report included the Consumer Health business.
Figures in € million unless otherwise specified.
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Life Science

Net sales EBITDA pre Business free cash flow
Actual results 2017 in € million 5,882 1,786 1,402
Forecast for 2018 in the 2017 Annual Report1 Solid organic growth,
slightly above expected market growth
Moderately negative foreign exchange effect
Organic earnings growth with a similar dynamic as in 2017
Moderately negative foreign exchange effect
Slightly below the
prior-year level
Main comments

Process Solutions is likely to remain the strongest growth driver, followed by Applied Solutions

Research Solutions will also contribute positively to organic sales development, albeit to a smaller extent

No significant portfolio effect from the acquisition of Natrix Separations

Negative foreign exchange effect, particularly owing to the development of the U.S. dollar

Positive development resulting from expected sales growth

Continuation of the planned realization of synergies from the Sigma-Aldrich acquisition

Negative foreign exchange effect, particularly owing to the development of the U.S. dollar

Improved EBITDA pre

Higher inventories reflect the expected sales growth and changed product mix

Forecasts for 2018 in the interim report:
Q1/2018

Organic growth slightly above the medium-term market average of 4% p.a.

Moderately negative foreign exchange effect

Organic growth at around the previous year’s level of + 8%

Exchange rate effect – 4% to – 6% ~1,820 to 1,870

~1,310 to 1,400
Q2/2018

Organic growth of + 5% to + 6%, slightly above medium-term average market growth of 4% p.a.

Moderately negative foreign exchange effect– 3% to – 5%

~1,830 to 1,880

Organic growth of around + 8%

Exchange rate effect – 3% to – 5%

~1,310 to 1,400
Q3/2018

Organic growth + 7% to + 8%, considerably above medium-term average market growth of 4% p.a.

Moderately negative foreign exchange effect – 3% to – 5%

~1,830 to 1,880

Organic growth of around + 8%

Exchange rate effect – 3% to – 5%
~1,300 to 1,390
Results 2018 in € million

6,185

(+ 5.2%: + 8.8% Organic, 0.0% Portfolio, – 3.6% Currency)

1,840

(+ 3.0%: + 7.0% Organic, 0.0% Portfolio, – 3.9% Currency)

1,393

– 0.7%
1
The 2018 forecast in the 2017 Annual Report included the Consumer Health business.
Figures in € million unless otherwise specified.
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Performance Materials

Net sales EBITDA pre Business free cash flow
Actual results 2017 in € million 2,446 980 906
Forecast for 2018 in the 2017 Annual Report1

Organically slightly to moderately below the year-earlier level

Moderately negative foreign exchange effect

Organic percentage decline in the mid teens range

Moderately negative foreign exchange effect

Double-digit percentage decline
Main comments

Volume increase in all businesses; strong dynamics particularly in Advanced Technologies and IC Materials

Market share adjustment and price decline in the Liquid Crystals business

Negative exchange rate effect, especially due to the forecast development of the U.S. dollar and currencies in key Asian markets

The decline in market shares and prices in the Liquid Crystals business cannot be offset by growth of the other businesses and active cost management

Negative foreign exchange effect, particularly owing to the development of the U.S. dollar and currencies in key Asian markets

Decline in EBITDA pre, sustained high investments in property, plant and equipment and higher inventory levels due to volume increases
Forecasts for 2018 in the interim report:
Q1/2018

Slight to moderate organic decline

Moderately negative foreign exchange effect

Organic decline – 14% to – 16% vs. 2017

Exchange rate effect – 8% to – 10%~725 to 765

~ 480 to 550
Q2/2018

Slight to moderate organic decline

– 2% to – 4%

Moderately negative foreign exchange effect – 3% to – 5%

~745 to 785

Organic decline – 14% to – 16%

Exchange rate effect – 6% to – 8%

~510 to 580
Q3/2018

Organic sales performance at the level of 2017, i.e.
– 1% to + 1%

Moderately negative foreign exchange effect
– 3% to – 5%

~745 to 785
Organic decline – 14% to – 16%

Exchange rate effect – 6% to – 8%
~510 to 580
Results 2018 in € million

2,406

(– 1.7%: + 1.7% Organic,
0.0% Portfolio,
– 3.4% Currency)

786

(– 19.8%: – 12.9% Organic,
0.0% Portfolio,
– 6.9% Currency)

588

– 35.1%
1
The 2018 forecast in the 2017 Annual Report included the Consumer Health business.
Figures in € million unless otherwise specified.
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Corporate and Other

EBITDA pre Business free cash flow
Actual results 2017 in € million – 292 – 429
Forecast for 2018 in the 2017 Annual Report1 Low double-digit percentage increase
Main comments The increase in costs is attributable to investments in innovation and digitalization initiatives; these costs were previously incurred in the business sectors and are now recorded centrally under Corporate and Other
In contrast, expected currency hedging gains should have a compensating effect in 2018
Forecasts for 2018 in the interim report:
Q1 2018 ~–360 to –320 ~–490 to –440
Q2/2018 ~–400 to –360 ~–550 to –500
Q3/2018 ~–400 to –360 ~–500 to –450
Results 2018 in € million – 381
30.6%
– 497
15.9%
1
The 2018 forecast in the 2017 Annual Report included the Consumer Health business.
Figures in € million unless otherwise specified.