Q1/2012: Merck Total Revenues Increase 3.2% to € 2.6 Billion

  • Merck Serono and Merck Millipore divisions drive sales growth
  • EBITDA pre declines to € 675 million versus strong year-ago quarter
  • 2012 financial guidance refined for Group and divisions

Darmstadt, May 15, 2012 - The Merck Group’s first-quarter 2012 total revenues rose 3.2% to € 2,645 million compared to € 2,564 million in the first quarter of 2011. Sales for the Group increased 3.5% to € 2,564 million in first quarter compared to € 2,478 million in the year-ago quarter. This performance reflected organic sales growth of 1.2%, a 1.7% positive benefit from changes in foreign exchange rates and a 0.6% boost from acquisitions and divestments. The Group’s organic sales growth was entirely driven by the Merck Serono and Merck Millipore divisions during the quarter.

Key Figures:
Merck Group (€ million)
Q1/2012
Q1/2011
(+/- %)
Total revenues
2,644.9
2,563.8
3.2
Sales
2,563.9
2,477.5
3.5
EBITDA pre one-time items*
674.9
736.7
- 8.4
Margin (% of sales)
26.3
29.7
Profit after tax
176.6
344.2
- 48.7
EPS pre one-time items** (€)
1.67
1.91
- 12.6

* Earnings before interest, taxes, depreciation, amortization and one-time items
** EPS adjusted by net of tax effect of one-time items and amortization of purchased intangible assets. Reconciliation from reported results available on Merck Investor Relations website

“Merck delivered a reasonable operating performance in the face of a difficult year-over-year comparison,” said Karl-Ludwig Kley, Chairman of the Executive Board of Merck. “During the first quarter, we kicked off our efficiency program and announced the first planned initiatives as part of this transformation. Our focus during 2012 will be to deliver a solid operational performance while bringing our cost structure more in line with our competitors and peers.”

Gross profit declined 1.5% to € 1,896 million from € 1,925 million in the first quarter of 2011, resulting in a first-quarter gross profit margin of 74.0% of sales, compared to 77.7% in the first quarter of 2011.

The operating result (EBIT) fell to € 311 million (Q1 2011: € 530), mainly due to lower operational performance and a one-time capital gain of € 157 million generated from the divestment of the Crop BioScience business in the first quarter of 2011. EBITDA pre declined to € 675 million, or 26.3% of sales, in the first quarter of 2012 from € 737 million, or 29.7% of sales, in the year-ago quarter. The Group’s EBITDA pre in the first quarter of 2012 excluded € 30 million in one-time costs recorded under other operating expenses.

Merck’s financial result remained largely in line with last year, improving to € -65 million in the first quarter of 2012 compared to € -68 million in the year-ago quarter. Net financial debt as of March 31, 2012, declined to € 3,017 million from € 3,484 million at the end of 2011. This improvement reflects the ongoing good cash flow generation of the Group.

The Merck Group’s first-quarter 2012 profit before tax declined 47% to € 246 million compared to € 461 million in the year-ago quarter, which was inflated by the € 157 million gain on the divestment of the Crop BioScience business. The reported income tax ratio was 28.2% in the first quarter 2012, increasing from 25.4% in the first quarter of 2011.

Profit after tax declined 49% to € 177 million in the first quarter of 2012 from € 344 million in the first quarter of 2011. Net Profit after non-controlling interest fell 49% in the first quarter to € 174 million from € 341 million in the year-ago quarter. EPS pre one-time items (EPS adjusted by net of tax effect of one-time items and amortization of purchased intangible assets) declined to € 1.67 from € 1.91 due to the lower operational performance previously mentioned. The free cash flow of the Merck Group was € 420 million in the first quarter of 2012 compared to € 645 million in the year-ago period. The change is due primarily to last year’s divestment of the Crop BioScience business and receipt of the purchase price for Théramex.

Merck had 40,542 employees worldwide on March 31, 2012, compared to 40,676 on December 31, 2011.

Merck Divisions
Merck Serono’s first-quarter sales increased 5.4% to € 1,417 million compared to € 1,345 million in the year-ago quarter. This performance reflected organic sales growth of 4.1%. The drivers of the increase included strong performances from its Fertility, Endocrinology, and CardioMetabolic Care & General Medicines businesses, as well as from its two largest products, Erbitux® and Rebif®, both of which benefited from net pricing gains. The division’s EBITDA pre declined 2.0% to € 394 million, or 27.8% of sales, in the first quarter of 2012 compared to € 401 million, or 29.8% of sales, in the year-ago quarter.

Global sales of Merck’s largest single product, Rebif for the treatment of relapsing forms of multiple sclerosis (MS), rose 2.7% organically to € 430 million in the first quarter. Sales of the targeted cancer treatment Erbitux increased 1.3% on an organic basis to € 214 million in the first quarter of 2012.

The Consumer Health division reported sales of € 108 million in the first quarter, a 7.4% decline compared to € 116 million in the first quarter of 2011. This performance reflected an organic sales decline of 7.7%. The division’s EBITDA pre for the first quarter of 2012 was € 8.6 million, or 8.0% of sales, compared to € 10.6 million, or 9.1% of sales, in the first quarter of 2011.

The Performance Materials division faced a difficult year-over-year comparison in the first quarter of 2012 after generating a 15% organic sales growth rate in the year-ago quarter due to unusually high customer demand for its liquid crystal materials. First-quarter 2012 sales of the division declined 5.3% to € 386 million compared to € 408 million in the first quarter of 2011. This performance reflected an organic sales decline of 7.9%. The division continues to see healthy demand from its liquid crystals customers and maintained its leading market share in the first quarter. The second business unit, Pigments & Cosmetics, declined in the quarter but showed sequential improvement from a very weak fourth quarter of 2011.

The division’s gross profit dropped 19% to € 214 million from € 265 million in the year-ago quarter. This decrease was due to lower sales and a negative mix effect (lower sales of polymer-stabilized vertical alignment [PS-VA] liquid crystals materials, which carry high margins). Largely due to the one-time capital gain of € 157 million for the Crop BioScience divestment in 2011, the division’s operating result decreased 61% to € 129 million in the reporting period. The division’s EBITDA pre for the first quarter of 2012 was € 160 million, or 41.5% of sales, down 19% from the € 198 million, or 48.5% of sales, in the first quarter of 2011. This decline was due to lower sales and a comparably lower gross profit.

The Merck Millipore division’s first-quarter 2012 sales rose 7.3% to € 653 million compared to € 608 million in the year-ago period, driven by solid results from its Lab Solutions and Process Solutions business units. This performance reflected organic sales growth of 2.7%. The Lab Solutions business unit reported 3.3% organic sales growth, boosted by an increasing number of tests for environmental, drug and food quality and higher demand for consumables and instruments sold into laboratories. The Process Solutions business unit reported 2.7% organic sales growth and is benefiting from higher levels of biotech drug production. The organic sales growth of Process Solutions was lower due to the loss of a contract to re-sell insulin into the biopharmaceutical manufacturing market. Finally, the Bioscience business unit generated 1.3% organic sales growth as research markets remained soft due to lower funding of academic research and weaker demand from pharmaceutical customers.

Merck Millipore’s EBITDA pre for the first quarter of 2012 was € 161 million, or 24.7% of sales, compared to € 158 million, or 26.0% of sales, in the year-ago quarter. The modest growth of EBITDA pre reflects the investments the division is making for future growth.

Merck Guidance for 2012
After having already provided a first indication of the current business year in March, the Executive Board is now further refining its forecast for 2012. In general, the guidance for the Group reflects the modest recovery rate of the global economy.

Merck Divisions
Sales Growth
Merck Serono
+ ~ 2%
Consumer Health
+0% - 2%
Performance Materials
+2% - 3%
Merck Millipore
+4% - 6%

Merck Group
Expectations
Total revenues
~ € 10.5 bn
EBITDA pre one-time items*
€ 2.8 bn - € 2.9 bn

* Includes € 50 million in savings from the efficiency program.

Division Profitability Expectations
Merck Serono: Modest increase before efficiency savings
Consumer Health: Slight improvement in a moderate market environment
Performance Materials: Close to 2011 level
Merck Millipore: Improving in line with sales growth

The net financial debt of the Merck Group resulting from the 2010 acquisition of Millipore continues to decrease at an excellent pace.

Notes to Editors:
The complete interactive online version of the Q1-2012 Report, as well as the related presentations, is available at: Merck Q1-2012-E

Merck KGaA stock symbols:
Reuters: MRCG, Bloomberg: MRK GY, Dow Jones: MRK.DE
Frankfurt Stock Exchange: ISIN: DE 000 659 9905 - WKN: 659 990

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.
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Merck is a leading company for innovative and top-quality high-tech products in the pharmaceutical, chemical and life science sectors. With its four divisions Merck Serono, Consumer Health, Performance Materials and Merck Millipore, Merck generated total revenues of € 11.1 billion in 2013. Around 39,000 Merck employees work in 66 countries to improve the quality of life for patients, to further the success of customers and to help meet global challenges. Merck is the world’s oldest pharmaceutical and chemical company – since 1668, the company has stood for innovation, business success and responsible entrepreneurship. Holding an approximately 70 percent interest, the founding family remains the majority owner of the company to this day. Merck, Darmstadt, Germany is holding the global rights to the Merck name and brand. The only exceptions are Canada and the United States, where the company is known as EMD.

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