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Performance Indicators

(7) Segment reporting

Accounting and measurement policies

The internal organizational and reporting structure of the Group forms the basis of the segmentation of its business operations. It is founded on the business models of the business sectors, which led to homogeneous risk structures within the segments. Resource allocation and the assessment of the segments’ business development are performed by the Executive Board of Merck KGaA, Darmstadt, Germany, as the chief operating decision-maker.

Corporate and Other includes income and expenses, assets and liabilities, as well as cash flows that cannot be allocated to the reportable segments presented. They originate mainly from the central Group functions. Moreover, the column serves the reconciliation to the Group numbers. As these are managed at Group level, the expenses and income as well as cash flows attributable to the financial result and income taxes are also disclosed under Corporate and Other.

Apart from sales, the success of a segment is mainly determined by EBITDA pre (segment result) and business free cash flow. EBITDA pre and business free cash flow are performance indicators not defined by International Financial Reporting Standards (IFRSs). However, they represent important variables used to steer the Group. To permit a better understanding of operational performance, calculation of EBITDA pre excludes depreciation and amortization, impairment losses and reversals of impairment losses, as well as the adjustments presented in the following.

6.03 KBEXCEL
Information by business sector – 2019
           
€ million Healthcare Life Science Performance Materials Corporate and Other Group
Net sales1 6,714 6,864 2,574 16,152
Intersegment sales 21 -21
Operating result (EBIT)2 1,149 1,280 307 -617 2,120
Depreciation 713 784 328 80 1,905
Impairment losses 34 6 2 42
Reversals of impairment losses
EBITDA2 1,896 2,070 637 -537 4,066
Adjustments2 25 59 166 68 318
EBITDA pre (segment result)2 1,922 2,129 803 -469 4,385
EBITDA pre margin (in % of net sales)2 28.6% 31.0% 31.2% 27.1%
Assets by business sector 7,560 21,600 10,784 3,867 43,811
Liabilities by business sector -3,055 -1,519 -716 -20,608 -25,897
Investments in property, plant and equipment3 343 296 125 49 813
Investments in intangible assets3 91 86 12 19 208
Net cash flows from operating activities 1,830 1,867 768 -1,609 2,856
Business free cash flow2 1,252 1,375 641 -536 2,732
1 Excluding intersegment sales.
2 Not defined by International Financial Reporting Standards (IFRSs).
3 According to the consolidated cash flow statement.
5.96 KBEXCEL
Information by business sector – 2018
           
€ million Healthcare Life Science Performance Materials Corporate and Other Group
Net sales1 6,246 6,185 2,406 14,836
Intersegment sales 20 -20
Operating result (EBIT)2 731 1,036 508 -548 1,727
Depreciation 747 696 240 60 1,743
Impairment losses 13 23 21 58
Reversals of impairment losses
EBITDA2 1,492 1,755 769 -488 3,528
Adjustments2 63 85 17 107 272
EBITDA pre (segment result)2 1,556 1,840 786 -381 3,800
EBITDA pre margin (in % of net sales)2 24.9% 29.8% 32.7% 25.6%
Assets by business sector 7,568 20,860 4,046 4,414 36,888
Liabilities by business sector -2,893 -1,333 -489 -14,940 -19,655
Investments in property, plant and equipment3 379 313 119 100 910
Investments in intangible assets3 59 19 13 15 106
Net cash flows from operating activities 1,159 1,621 742 -1,303 2,219
Business free cash flow2 1,025 1,393 588 -497 2,508
1 Excluding intersegment sales.
2 Not defined by International Financial Reporting Standards (IFRSs).
3 According to the consolidated cash flow statement.
5.64 KBEXCEL
Information by country and region – 2019
                     
€ million Europe thereof: Germany thereof: Switzerland North America thereof: United States Asia-Pacific thereof: China Latin America Middle East and Africa Group
Net sales by customer location1 4,735 1,010 212 4,214 4,011 5,599 2,275 1,012 591 16,152
Net sales by company location1 5,233 1,475 389 4,283 4,101 5,298 2,048 965 373 16,152
Goodwill and other intangible assets 5,112 1,643 1,682 20,708 20,697 494 32 2 26,316
Property, plant and equipment 3,386 1,590 746 1,638 1,630 973 352 159 57 6,213
Research and development costs2 -1,997 -923 -945 -164 -160 -79 -34 -18 -11 -2,268
Number of employees 26,714 13,806 2,337 12,829 12,648 12,728 4,110 3,430 1,335 57,036
1 Excluding intersegment sales.
2 Previous year’s figures have been adjusted, see Note (45) “Effects from new accounting standards and other presentation changes”.
5.59 KBEXCEL
Information by country and region – 2018
                     
€ million Europe thereof: Germany thereof: Switzerland North America thereof: United States Asia-Pacific thereof: China Latin America Middle East and Africa Group
Net sales by customer location1 4,559 1,002 211 3,818 3,627 4,965 1,869 950 544 14,836
Net sales by company location1 5,012 1,407 390 3,871 3,704 4,718 1,659 879 357 14,836
Goodwill and other intangible assets 5,562 575 2,124 14,868 14,857 570 32 2 21,001
Property, plant and equipment 3,031 1,503 647 1,024 1,020 585 266 127 43 4,811
Research and development costs2 -1,938 -921 -902 -186 -185 -69 -30 -17 -14 -2,227
Number of employees 25,791 13,513 2,234 10,978 10,800 10,486 3,550 3,337 1,121 51,713
1 Excluding intersegment sales.
2 Previous year’s figures have been adjusted, see Note (45) “Effects from new accounting standards and other presentation changes”.

The Group is divided into three business sectors: The Healthcare business sector includes the businesses with prescription pharmaceuticals, biopharmaceuticals, allergy products, and medical devices. The customers mainly comprise wholesalers, hospitals, and pharmacies. The Life Science business sector comprises products for scientific institutions and research and analytical laboratories in the pharmaceutical/biotechnology industry and applications for customers manufacturing chemical and biological pharmaceuticals. In accordance with the product portfolio, the customers of this business sector primarily include companies of the pharmaceuticals and biotech sector as well as retailers and universities. The Performance Materials business sector consists of the entire specialty chemicals business and primarily services industrial companies. The fields of activity of the individual segments are described in detail in the sections on the business sectors in the combined management report.

No single customer accounted for more than 10% of Group sales in fiscal 2019 or 2018. Transfer prices for intragroup net sales were determined on an arm’s-length basis. The intersegment sales reported in the above table are valued at group production cost.

The following table presents the reconciliation of Segment results of all operating businesses to the profit before income tax of the Group:

4.37 KBEXCEL
€ million 2019 2018
EBITDA pre of the operating businesses1 4,854 4,181
Corporate and Other -469 -381
EBITDA pre of the Group1 4,385 3,800
Depreciation/amortization/impairment losses/reversals of impairment losses -1,946 -1,801
Adjustments1 -318 -272
Operating result (EBIT)1 2,120 1,727
Financial result -385 -266
Profit before income tax 1,735 1,461
1 Not defined by International Financial Reporting Standards (IFRSs).

The adjustments comprised the following:

4.38 KBEXCEL
€ million 2019 2018
Restructuring expenses -120 -46
Integration expenses/IT expenses -95 -142
Gains (+)/losses (–) on the divestment of businesses -6 -25
Acquisition-related adjustments -84 -2
Other adjustments -13 -58
Adjustments before impairment losses/reversals of impairment losses1 -318 -272
Impairment losses -9 -55
Reversals of impairment losses
Adjustments in the operating result (total)1 -328 -327
1 Not defined by International Financial Reporting Standards (IFRSs).

Restructuring expenses in the amount of € 120 million (2018: € 46 million) resulted mainly from the Bright Future transformation program of the Performance Materials business sector (2019: € 50 million/2018: € 0 million) and the relocation of various tasks to the shared service organization (2019: € 26 million/2018: € 25 million), which were reported under Corporate and Other.

Integration and IT expenses in the amount of € 95 million (2018: € 142 million) resulted substantially from the introduction of new ERP systems (2019: € 54 million/2018: € 50 million) and the integration of Versum Materials, Inc., United States (2019: € 12 million/2018: € 0 million). The acquisition-related adjustments resulting from the takeover of Versum Materials, Inc., United States, amounted to € 80 million (2018: € 0 million).

These adjustments were disclosed in the consolidated income statement as part of the respective functional costs and allocated to them as follows:

5.17 KBEXCEL
2019
€ million thereof:
cost ofsales
thereof:
marketing and selling expenses
thereof:
administration expenses
thereof:
researchand
development
costs
thereof:
other operating income and expenses
Total
Restructuring expenses -20 -10 -40 -29 -22 -120
Integration expenses/IT expenses -70 -25 -95
Gains (+)/losses (–) on the divestment of businesses 1 -6 -6
Acquisition-related adjustments -35 -49 -84
Other adjustments -13 -13
Adjustments before impairment losses/reversals of impairment losses1 -56 -10 -109 -29 -114 -318
Impairment losses -9 -9
Reversals of impairment losses
Adjustments in the operating result (total)1 -56 -10 -109 -29 -123 -328
1 Not defined by International Financial Reporting Standards (IFRSs).
5.25 KBEXCEL
2018
€ million thereof:
cost of sales1
thereof:
marketing and selling expenses1
thereof:
administration expenses1
thereof:
research and development costs1
thereof:
other operating income and expenses1
Total1
Restructuring expenses -1 -6 -39 -46
Integration expenses/IT expenses -39 -3 -99 -1 -142
Gains (+)/losses (–) on the divestment of businesses -25 -25
Acquisition-related adjustments -2 -2
Other adjustments -6 -3 -50 -1 2 -58
Adjustments before impairment losses/reversals of impairment losses2 -45 -13 -190 -2 -23 -272
Impairment losses -18 -14 -19 -3 -55
Reversals of impairment losses
Adjustments in the operating result (total)2 -63 -27 -209 -2 -26 -327
1 Previous year’s figures have been adjusted, see Note (45) “Effects from new accounting standards and other presentation changes.”
2 Not defined by International Financial Reporting Standards (IFRSs).

Business free cash flow was determined as follows:

4.43 KBEXCEL
€ million 2019 2018
EBITDA pre1 4,385 3,800
Investments in property, plant, and equipment as well as software and advance payments for intangible assets -1,026 -932
Changes in inventories -577 -214
Changes in trade accounts receivable as well as receivables from royalties and licenses -259 -145
Lease payments2 -136  
Elimination of first-time consolidations 346
Business free cash flow1 2,732 2,508
1 Not defined by International Financial Reporting Standards (IFRSs).
2 Excluding payments for low-value leases and for interest components included in lease payments.

(8) Earnings per share

Accounting and measurement policies

Basic earnings per share is calculated by dividing the profit after taxes attributable to the shareholders of Merck KGaA, Darmstadt, Germany, (net income) by the weighted average number of theoretical shares outstanding. The calculation of the theoretical number of shares is based on the fact that the general partner’s equity is not represented by shares. Corresponding to the division of the subscribed capital of € 168 million into 129,242,252 shares (see Note (34) “Equity”), the general partner’s equity of € 397 million equates to 305,535,626 theoretical shares. Overall, equity capital thus amounted to € 565 million or 434,777,878 theoretical shares outstanding.

There were no changes to equity capital in 2019, as in 2018. The weighted average (basic) number of shares was 434,777,878 and thus corresponded to the number of theoretical shares outstanding. In fiscal 2019, there were no shares with a potential diluting effect; as a result, the diluted earnings per share were equivalent to basic earnings per share. The earnings per share attributable to discontinued operation resulted from the divestment of the Consumer Health business as of December 1, 2018.

(9) Net cash flows from operating activities

Accounting and measurement policies

The calculation and presentation of cash flows from operating activities are based on the following principles:

  • The presentation of cash flows from operating activities is determined using the indirect method based on the profit after taxes.
  • The option to recognize interest received and interest payments made is exercised to the extent that such transactions are recognized in cash flow from operating activities.


Tax payments are generally presented in the cash flow from operating activities. Only significant transactions where the associated tax payments can be practically calculated are recognized in the relevant item of the cash flow statement.

In 2019, tax payments totaled € 1,018 million (2018: € 900 million). Of this amount, € 130 million (2018: € 125 million) were attributed to cash flows from investing activities in connection to the divestment of the Consumer Health business.

Tax refunds amounted to € 160 million (2018: € 65 million). Interest paid totaled € 316 million (2018: € 286 million). Interest received amounted to € 60 million (2018: € 34 million).

The change of other assets and liabilities includes an advance payment of € 300 million received from GlaxoSmithKline plc, United Kingdom, within the scope of an agreement for joint development and marketing in the field of immuno-oncology (see Note (6) “Collaboration Agreements”).

In 2019 as well as in 2018, the neutralization of the profits/losses from the disposal of assets and other disposals mainly comprised the effects of the divestment of the Consumer Health business.

(10) Net cash flows from investing activities

Net cash outflows from investments in financial assets amounting to € 196 million (2018: € 75 million) mainly resulted from the purchase of short-term investments in securities not classified as cash and cash equivalents. Net cash outflows from acquisitions less cash and cash equivalents acquired is broken down as shown in the table below. Most of these outflows are attributable to payments made for the acquisition of Versum Materials, Inc., United States (see Note (5) “Acquisitions and divestments”).
The payments made and received from the acquisition and the disposal of other non-financial assets resulted from the short-term application of available funds.

The payments made and received from the sale of assets held for sale were primarily related to payments made in connection with the Consumer Health business divested in 2018 (see Note (5) “Acquisitions and divestments”).

4.25 KBEXCEL
€ million Versum Other acquisitions Total
Purchase price payment -5,279 -99 -5,378
Cash income from hedging transactions 81 81
Purchase price in accordance with IFRS 3 -5,198 -99 -5,297
Cash and cash equivalents acquired 270 8 277
       
Payments for acquisitions less acquired cash and cash equivalents (net) in accordance with the consolidated cash flow statement in 2019 -4,928 -91 -5,020