Merck Announces Details of Merck Serono Efficiency Program and Introduces Merck Group Mid-Term Financial Targets

Merck Announces Details of Merck Serono Efficiency Program and Introduces Merck Group Mid-Term Financial Targets

    Merck Serono net savings target: € 300 million by 2014 with one-time restructuring costs of ~ € 600 million
    Merck Group 2014 targets: Sales of ~ € 10.35 - € 10.7 billion; EBITDA pre one-time items of ~ € 3.0 - € 3.2 billion

Darmstadt, Germany, May 15, 2012 - Merck announced today details of its planned cost efficiencies for Merck Serono and introduced mid-term financial targets at its Capital Markets Day in Darmstadt. These details are part of the Group's previously announced plan to transform the company through a comprehensive efficiency program.

Merck expects to focus primarily on organizational changes and optimizing its cost structure across all businesses over the next two years. The aim of the program is to make Merck more competitive by closing the gap of its divisional profitability and efficiency levels compared to its peers. Merck will not consider major portfolio divestments or transformational acquisitions prior to completing the efficiency program. Instead, it will exploit its leading market positions to optimize organic sales growth, while continuing to complete bolt-on acquisitions.
Karl-Ludwig Kley, Chairman of the Executive Board of Merck, commented: "Merck faces unprecedented market shifts and increasing competition in key product areas. Today, we are fortunate that we can address these challenges from a position of relative strength. However, if we do not take urgent action, we will face the prospect of tackling these issues from a much weaker position. While our initial focus is on our largest division, Merck Serono, the efficiency program will affect all businesses in all regions. We are convinced that this program will lay the foundation for Merck to better capitalize on future growth opportunities."

The company is introducing mid-term guidance, which includes financial targets through 2014. For the Merck Group, the company expects annual sales (without royalty, license and commission income) should rise from € 9,906 million in 2011 to a range of approximately € 10,350 million to € 10,700 million (+4% to 8%) in 2014. EBITDA pre one-time items should rise from € 2,729 million in 2011 to a range of approximately € 3,000 million to € 3,200 million (+10% to 17%) in 2014. The EBITDA pre margin should climb from 27.5% in 2011 to a range of approximately 29% to 30% in 2014 while earnings per share (EPS) pre one-time items should be in a range of approximately € 8.20 to € 9.00 per share (+20% to 32%) in 2014.

Merck Serono
Priorities for the Merck Serono division are to deliver on the efficiency program, increase R&D productivity, rebuild the pipeline through internal research and early in-licensing, and maximize the return of the current portfolio. Merck Serono will further increase its focus on biologics, shift investments to regions outside of Europe and expand its footprint in Oncology if new products are approved.

With the recently started efficiency program, Merck intends to deliver net cost savings within Merck Serono of € 300 million by 2014. Of this amount, € 180 million are expected to be realized from commercial operations, thus reducing SG&A costs (Marketing, General and Administration). This is planned to be accomplished by reducing headquarter costs, eliminating double functions across the entire division, downsizing administration and marketing while globalizing the organization. In 2011 Merck Serono represented 66% of the Merck Group's SG&A.

Another € 120 million in net cost savings by 2014 will come from the planned closing of the R&D hub in Geneva, reducing R&D infrastructure costs elsewhere and eliminating duplicate functions. In 2011 Merck Serono R&D spending represented 81% of Merck Group R&D spending. One-time costs related to the Merck Serono efficiency program will amount to approximately € 600 million and will be incurred in 2012 through 2014.

These cost savings will improve the profitability of Merck Serono. Sales of Merck Serono should rise from € 5,564 million in 2011 to a range of approximately € 5,700 million to € 5,900 million (+2% to 6%) in 2014. EBITDA pre is expected to increase from € 1,569 million in 2011 to a range of approximately € 1,800 million to € 1,900 million (+15% to 21%) by 2014.

Consumer Health
Priorities for the Consumer Health division are to deliver improved profitability in 2012 and 2013 and grow in-line with the market. The division will also strengthen its presence in core markets including in Asia. Cost containment will be addressed through lower headcount costs, less sales-promotion activities and exiting unprofitable markets. Consumer Health sales should rise from € 494 million in 2011 to a range of approximately € 500 million to € 530 million (+1% to 7%) in 2014. EBITDA pre is expected to increase from € 59 million in 2011 to a range of approximately € 75 million to € 90 million (+27% to 53%) by 2014.

Performance Materials
The Performance Materials division will focus on launching new Liquid Crystal products and improving existing technologies. Other priorities are to foster growth in new businesses such as solid-state lighting and reactive mesogens, and to deliver operational improvements in the Pigments business unit. Assuming negative net pricing effects and no new major technologies, Performance Materials sales should increase from € 1,465 million in 2011 to approximately € 1,500 million in 2014. EBITDA pre is expected to total between approximately € 620 million to € 680 million (-9% to 0%) in 2014.

Merck Millipore
The Merck Millipore division will continue to deliver organic sales growth and complete bolt-on acquisitions to augment its organic growth. The division also expects attractive growth from Asia and higher production of biologic drugs. Another priority is to deliver returns on increased R&D and SG&A spending. Merck Millipore sales are expected to increase from € 2,383 million in 2011 to a range of approximately € 2,650 million to
€ 2,750 million (+11% to 15%) in 2014. EBITDA pre should rise from € 561 million in 2011 to a range of approximately € 620 million to € 650 million (+11% to 16%) in 2014.

Note regarding forward-looking statements
The information in this document contains "forward-looking statements." Forward-looking statements may be identified by words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "will" or words of similar meaning and include, but are not limited to, statements about the expected future outcome or timing of the transactions described above. These statements are based on the current expectations of management of Merck KGaA and E. Merck KG, and are inherently subject to uncertainties and changes in circumstances. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are factors relating to changes in global, political, economic, business, competitive, market and regulatory forces. Merck KGaA and E. Merck KG do not undertake any obligation to update the forward-looking statements to reflect actual results, or any change in events, conditions, assumptions or other factors.

Phyllis Carter
+49 6151 72-7144