Review of Forecast

Review of Forecast against Actual Business Developments

The forecast of the Group for fiscal 2020 published in the Annual Report for fiscal 2019 comprised the forecast for the Group as well as the forecast for the three business sectors: Healthcare, Life Science, and Performance Materials.

Net sales

We forecast solid organic net sales growth for the Group in 2020. Over the course of the year, the Group reported more dynamic organic sales growth, driven by the strong organic growth of the Life Science business sector in particular. This meant we slightly exceeded our forecast with strong overall organic net sales growth of 6.0% in fiscal 2020. At the start of the year, we still anticipated a slightly negative to slightly positive exchange rate effect on our net sales. However, several currencies saw increasingly unfavorable development as the year progressed, particularly the US dollar. The negative exchange rate effect in 2020 as a whole was -2.6% and thus slightly outside our most recent update in the third quarter, which provided for a range of -3% to -4%. The positive portfolio effect of 5.3% was primarily due to the acquisition of Versum Materials and developed in line with our original assessment.

Healthcare

We originally forecast solid organic sales growth for our Healthcare business sector compared with the previous year. Despite the impact of the Covid-19 pandemic, the business sector recorded moderate organic growth of 3.4% in 2020 as a whole. This was slightly above the forecast we updated in the third quarter, which provided for organic growth of between 2% and 3%. This development was driven in particular by the significant growth contribution of our most recently approved products, especially Mavenclad^®. Together with the positive sales performance of the rest of our base business, this more than offset the downturn in sales in the fertility business in the second quarter as a result of Covid-19.

Life Science

Our Life Science business sector significantly exceeded our original forecast, generating organic sales growth of 11.8% in 2020. Following an especially strong fourth quarter, this was also above the most recently updated range of 9% to 10%. Thanks in particular to the extreme relevance of our product and service range in the context of the pandemic, Process Solutions was the most dynamic business unit, as expected, and delivered the largest contribution to organic sales growth within Life Science. Applied Solutions and Research Solutions also contributed positively to the organic sales performance, as anticipated, albeit to a considerably lesser extent than Process Solutions.

Performance Materials

Since we expected the growth in semiconductor business to exceed the downturn in sales in the Display Solutions business unit, we originally forecast slight organic growth for our Performance Materials business sector. In light of the impact of Covid-19 on our display, automotive, and cosmetics end markets in the first quarter, we were forced to significantly downgrade our forecast to a moderate to strong organic decline. Our key assumption of high growth momentum in the Semiconductor Solutions business unit proved to be correct. Thanks to a particularly strong fourth quarter for Semiconductor Solutions in particular, the business sector closed the year with an organic sales decline of -3.2%, ahead of our most recent forecast of between -4% and -5%. As consistently forecast, the portfolio effect of 35.4% primarily resulting from the Versum Materials acquisition, was in the mid-thirties percentage range.

EBITDA pre

For 2020, we originally forecast strong year-on-year organic growth in EBITDA pre for the Group. This assumption was based on the expectation of strong organic growth in Life Science, supported by solid organic growth in Healthcare and slight organic growth in Performance Materials. Furthermore, because of the expected unfavorable foreign exchange environment, we still expected moderate negative exchange rate effects to burden EBITDA pre by between 0% and -3% compared with the prior year. In 2020, EBITDA pre amounted to € 5,201 million, equivalent to an increase of 18.6% compared with the prior year (2019: € 4,385 million). The organic growth of 16.8% included in this figure was slightly above the forecast range of 14% to 16% we issued in the third quarter of 2020. Both figures included € 365 million from the reversal of a provision for a patent dispute. However, exchange rate effects had a more negative impact than expected at the start of the year, which is why we narrowed our forecast range to between -3% and -5% in our reporting over the course of the year. We ultimately closed 2020 at -4.6%.

Healthcare

For our Healthcare business sector, we originally forecast solid year-on-year organic growth in EBITDA pre thanks to substantial anticipated earnings contributions from our new products, particularly Mavenclad^®, and a decline in marketing and selling expenses and development expenses in relation to sales. This was expected to offset the effect of the forecast downturn in sales of Rebif^®. In light of the impact of Covid-19 on our fertility business in particular in the first quarter, we significantly downgraded our forecast to a slight organic decline. In 2020, EBITDA pre in the Healthcare business sector amounted to € 2,267 million thanks to a rapid recovery from the middle of the year onward (2019: € 1,922 million). This is equivalent to an increase of 18.0% over 2019; the organic rise of 26.6% corresponded to the upper end of the forecast range we issued at the end of the year. Both figures included € 365 million from the reversal of a provision for a patent dispute. By contrast, the foreign exchange effect on EBITDA pre in 2020 as a whole was substantially more negative than expected at the start of the year at -8.5%, although this was within the range of between -7% and -9% to which we had adjusted in the course of our reporting on the third quarter of 2020.

Life Science

For the Life Science business sector, we originally forecast strong organic growth in EBITDA pre on the back of the expected organic sales growth and a slight improvement in margins. However, the impact of the Covid-19 pandemic on the three Life Science business units became increasingly evident as the year progressed. Thanks to a particularly strong fourth quarter, EBITDA pre amounted to € 2,405 million in fiscal 2020 and year-on-year organic growth came in at 17.2%, thereby exceeding the forecast range that had already been significantly raised to between 13% and 15% in the course of our reporting on the third quarter. Foreign exchange development impacted EBITDA pre in the Life Science business sector by -3.8%, thereby developing in line with our most recent forecast.

Performance Materials

Due to the expected sales growth accompanied by the Bright Future transformation program, we also originally forecast slight organic growth in EBITDA pre in the Performance Material business sector. In the light of the impact of Covid-19 on our display, automotive, and cosmetics end markets in the first quarter, we were forced to significantly downgrade our forecast to an organic decline in the low to mid-teens percentage range. Thanks to sustained positive development in our semiconductor business, we most recently raised our forecast to an organic decline of between -6% and -9%. For 2020 as a whole, Performance Materials achieved an EBITDA pre of € 1,024 million (2019: € 803 million). This represented an organic decline of -7.5% compared with the previous year, which was within our most recent forecast range of -6% to -9%. As consistently forecast, the portfolio effect of 36.3% primarily resulting from the Versum Materials acquisition was in the mid-thirties percentage range. The foreign exchange effect of -1.3% was also at the upper end of our forecast range from the third quarter of -1% to -3%.

Corporate and Other

EBITDA pre of Corporate and Other amounted to € -495 million in fiscal 2020, thus exceeding the forecast range of € -460 million to € -490 million that we specified in the reporting on the third quarter of 2020. Compared with the prior-year figure of € -469 million, this corresponded to a rise in costs of 5.5%. The higher expenditures compared to the last forecast were mainly due to higher losses from our currency hedging transactions.

Business free cash flow

We originally expected the business free cash flow of the Group to see an increase in the mid-twenties percentage range in 2020. Even excluding the € 365 million reversal of a provision for a patent dispute, this forecast was achieved with growth of 24.5% to € 3,400 million (2019: € 2,732 million). Including the reversal of the provision in the amount of € 365 million, business free cash flow rose by 37.8% to € 3,765 million.

The year-on-year increase of 22.2% in the Healthcare business sector (less € 365 million from the reversal of provisions) exceeded the growth in the low double‑digit teens percentage range that we forecast at the start of the year. At € 1,895 million (including € 365 million from the reversal of provisions), it was also above the third quarter forecast range of between € 1,625 million and € 1,775 million. At 16.0%, business free cash flow in the Life Science business sector fell below the original forecast range of growth in the low to mid-twenties percentage range. At € 1,595 million, it also fell slightly short of the range of € 1,600 million to € 1,750 million that we forecast in the third quarter. In the Performance Materials business sector, we originally forecast growth rates in the low thirties percentage range, which we achieved with an increase of 32%. At € 847 million, Performance Materials also fell within the third quarter forecast range of between € 770 million and € 870 million.