(8) Segment Reporting
Accounting and measurement policies
Segment reporting
The internal organizational and reporting structure of the Group forms the basis of the segmentation of its business activity. It is founded on the business models of the business sectors, leading to largely identical risk structures within the segments. Resource allocation and the assessment of business development are performed at the level of the segments 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 as they are managed at Group level in central Group functions. Moreover, the column serves as the reconciliation to the Group figures. As these are managed at the Group level, financial expenses and financial income, which include interest expenses and interest income, as well as income tax expenses and income are also disclosed under Corporate and Other.
Apart from net sales, the success of a segment is mainly determined by EBITDA pre (segment result). EBITDA pre is a key figure that is not defined by International Financial Reporting Standards. However, it represents the most important variable used to steer the Group. To permit a better understanding of operational performance, EBITDA pre excludes depreciation and amortization, impairment losses, and reversals of impairment losses in addition to specific adjustments presented below.
€ million |
|
Life Science |
|
Healthcare |
|
Electronics |
|
Total of reportable operating segments |
|
Corporate and Other |
|
Group |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales1 |
|
10,380 |
|
7,839 |
|
4,013 |
|
22,232 |
|
– |
|
22,232 |
||||||||||||||
Intersegment sales |
|
61 |
|
– |
|
– |
|
61 |
|
-61 |
|
– |
||||||||||||||
Operating result (EBIT)2 |
|
2,808 |
|
1,895 |
|
572 |
|
5,275 |
|
-801 |
|
4,474 |
||||||||||||||
Depreciation |
|
845 |
|
303 |
|
545 |
|
1,693 |
|
105 |
|
1,798 |
||||||||||||||
Impairment losses3 |
|
24 |
|
187 |
|
20 |
|
232 |
|
– |
|
232 |
||||||||||||||
Reversals of impairment losses |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||||||||||||
EBITDA4 |
|
3,678 |
|
2,385 |
|
1,138 |
|
7,200 |
|
-696 |
|
6,504 |
||||||||||||||
Adjustments2 |
|
82 |
|
92 |
|
55 |
|
228 |
|
117 |
|
345 |
||||||||||||||
EBITDA pre (segment result)2 |
|
3,760 |
|
2,477 |
|
1,192 |
|
7,428 |
|
-579 |
|
6,849 |
||||||||||||||
EBITDA pre margin (in % of net sales)2 |
|
36.2% |
|
31.6% |
|
29.7% |
|
– |
|
– |
|
30.8% |
||||||||||||||
Assets by business sector |
|
24,196 |
|
8,135 |
|
10,855 |
|
43,185 |
|
5,341 |
|
48,526 |
||||||||||||||
Liabilities by business sector |
|
-2,094 |
|
-3,111 |
|
-744 |
|
-5,949 |
|
-16,571 |
|
-22,521 |
||||||||||||||
Investments in property, plant and equipment5 |
|
694 |
|
344 |
|
397 |
|
1,435 |
|
97 |
|
1,531 |
||||||||||||||
Investments in intangible assets5 |
|
107 |
|
136 |
|
13 |
|
256 |
|
20 |
|
275 |
||||||||||||||
Non-cash changes in provisions(according to consolidated cash flow statement)6 |
|
72 |
|
174 |
|
28 |
|
274 |
|
3 |
|
277 |
||||||||||||||
|
||||||||||||||||||||||||||
€ million |
|
Life Science1 |
|
Healthcare |
|
Electronics1 |
|
Total of reportable operating segments |
|
Corporate and Other |
|
Group |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales2 |
|
8,992 |
|
7,089 |
|
3,606 |
|
19,687 |
|
– |
|
19,687 |
||||||||||||||||
Intersegment sales |
|
62 |
|
– |
|
– |
|
62 |
|
-62 |
|
– |
||||||||||||||||
Operating result (EBIT)3 |
|
2,480 |
|
1,823 |
|
508 |
|
4,811 |
|
-632 |
|
4,179 |
||||||||||||||||
Depreciation |
|
767 |
|
315 |
|
528 |
|
1,610 |
|
103 |
|
1,713 |
||||||||||||||||
Impairment losses4 |
|
11 |
|
19 |
|
36 |
|
66 |
|
3 |
|
68 |
||||||||||||||||
Reversals of impairment losses |
|
– |
|
-11 |
|
-3 |
|
-14 |
|
– |
|
-14 |
||||||||||||||||
EBITDA5 |
|
3,258 |
|
2,146 |
|
1,070 |
|
6,473 |
|
-527 |
|
5,946 |
||||||||||||||||
Adjustments3 |
|
29 |
|
8 |
|
58 |
|
95 |
|
62 |
|
157 |
||||||||||||||||
EBITDA pre (segment result)3 |
|
3,287 |
|
2,153 |
|
1,128 |
|
6,567 |
|
-465 |
|
6,103 |
||||||||||||||||
EBITDA pre margin (in % of net sales)3 |
|
36.6% |
|
30.4% |
|
31.3% |
|
– |
|
– |
|
31.0% |
||||||||||||||||
Assets by business sector |
|
21,917 |
|
7,809 |
|
10,306 |
|
40,033 |
|
5,329 |
|
45,362 |
||||||||||||||||
Liabilities by business sector |
|
-2,094 |
|
-2,807 |
|
-720 |
|
-5,621 |
|
-18,326 |
|
-23,947 |
||||||||||||||||
Investments in property, plant and equipment6 |
|
461 |
|
350 |
|
237 |
|
1,049 |
|
16 |
|
1,066 |
||||||||||||||||
Investments in intangible assets6 |
|
45 |
|
277 |
|
19 |
|
340 |
|
15 |
|
355 |
||||||||||||||||
Non-cash changes in provisions (according to consolidated cash flow statement)7 |
|
122 |
|
176 |
|
5 |
|
303 |
|
85 |
|
387 |
||||||||||||||||
|
||||||||||||||||||||||||||||
€ million |
|
Europe |
|
thereof: Germany |
|
thereof: Switzerland |
|
North America |
|
thereof: USA |
|
Asia-Pacific |
|
thereof: China |
|
Latin America |
|
Middle East and Africa |
|
Group |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales by customer location1 |
|
6,248 |
|
1,108 |
|
469 |
|
6,361 |
|
6,025 |
|
7,697 |
|
3,157 |
|
1,231 |
|
695 |
|
22,232 |
||||||
Net sales by company location1 |
|
6,648 |
|
1,532 |
|
592 |
|
6,596 |
|
6,302 |
|
7,297 |
|
2,818 |
|
1,175 |
|
516 |
|
22,232 |
||||||
Goodwill and other intangible assets2 |
|
4,930 |
|
1,568 |
|
1,768 |
|
20,156 |
|
20,145 |
|
628 |
|
57 |
|
2 |
|
– |
|
25,716 |
||||||
Property, plant and equipment |
|
4,302 |
|
1,911 |
|
1,059 |
|
2,368 |
|
2,363 |
|
1,265 |
|
423 |
|
211 |
|
57 |
|
8,203 |
||||||
Research and development costs |
|
-2,051 |
|
-1,081 |
|
-835 |
|
-372 |
|
-371 |
|
-69 |
|
-26 |
|
-17 |
|
-12 |
|
-2,521 |
||||||
Number of employees |
|
28,243 |
|
13,620 |
|
2,574 |
|
15,847 |
|
15,634 |
|
15,412 |
|
4,904 |
|
3,487 |
|
1,243 |
|
64,232 |
||||||
|
||||||||||||||||||||||||||
€ million |
|
Europe |
|
thereof: Germany |
|
thereof: Switzerland |
|
North America |
|
thereof: USA |
|
Asia-Pacific |
|
thereof: China |
|
Latin America |
|
Middle East and Africa |
|
Group |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales by customer location1 |
|
5,675 |
|
1,067 |
|
385 |
|
5,397 |
|
5,145 |
|
7,020 |
|
2,887 |
|
990 |
|
605 |
|
19,687 |
||||||||
Net sales by company location1 |
|
6,218 |
|
1,655 |
|
529 |
|
5,478 |
|
5,253 |
|
6,640 |
|
2,549 |
|
947 |
|
404 |
|
19,687 |
||||||||
Goodwill and other intangible assets2 |
|
5,051 |
|
1,712 |
|
1,686 |
|
18,851 |
|
18,840 |
|
713 |
|
67 |
|
2 |
|
– |
|
24,617 |
||||||||
Property, plant and equipment |
|
3,902 |
|
1,717 |
|
998 |
|
1,974 |
|
1,968 |
|
1,118 |
|
385 |
|
167 |
|
55 |
|
7,217 |
||||||||
Research and development costs3 |
|
-2,038 |
|
-969 |
|
-945 |
|
-300 |
|
-300 |
|
-61 |
|
-24 |
|
-15 |
|
-11 |
|
-2,426 |
||||||||
Number of employees |
|
27,216 |
|
13,339 |
|
2,465 |
|
14,070 |
|
13,875 |
|
14,285 |
|
4,606 |
|
3,526 |
|
1,237 |
|
60,334 |
||||||||
|
||||||||||||||||||||||||||||
The Group divides its business activities into three business sectors: The Life Science business sector comprises products for scientific institutions, research and analytical laboratories in the pharmaceutical and biotechnology industry and applications for customers manufacturing pharmaceuticals. In line with the product portfolio, customers in this business sector primarily include companies in the pharmaceutical and biotechnology sectors as well as retailers and public research organizations. The Healthcare business sector includes business involving prescription pharmaceuticals. Its customers mainly comprise wholesalers, hospitals, and pharmacies. The Electronics business sector bundles all specialty chemical business and almost exclusively serves 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 the Group’s total net sales in fiscal 2022 or 2021. Transfer prices for intragroup net sales were determined on an arm’s-length basis.
The following table presents the reconciliation of segment results of all operating businesses to the profit before income tax of the Group:
€ million |
|
2022 |
|
2021 |
||||
|---|---|---|---|---|---|---|---|---|
EBITDA pre of the operating businesses1 |
|
7,428 |
|
6,567 |
||||
Corporate and Other |
|
-579 |
|
-465 |
||||
EBITDA pre of the Group1 |
|
6,849 |
|
6,103 |
||||
Depreciation/amortization/impairment losses/reversals of impairment losses |
|
-2,030 |
|
-1,767 |
||||
Adjustments1 |
|
-345 |
|
-157 |
||||
Operating result (EBIT)1 |
|
4,474 |
|
4,179 |
||||
Financial result |
|
-187 |
|
-255 |
||||
Profit before income tax |
|
4,287 |
|
3,924 |
||||
|
||||||||
The adjustments comprised the following:
€ million |
|
2022 |
|
2021 |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
Restructuring expenses |
|
-198 |
|
-79 |
||||||
Integration expenses/IT expenses |
|
-88 |
|
-81 |
||||||
Gains (+)/losses (-) on the divestment of businesses |
|
38 |
|
3 |
||||||
Acquisition-related adjustments |
|
-29 |
|
18 |
||||||
Other adjustments |
|
-68 |
|
-19 |
||||||
Adjustments before impairment losses/reversals of impairment losses1 |
|
-345 |
|
-157 |
||||||
Impairment losses2 |
|
-232 |
|
-56 |
||||||
Reversals of impairment losses |
|
– |
|
3 |
||||||
Adjustments (total)1 |
|
-577 |
|
-210 |
||||||
|
||||||||||
Restructuring expenses of € 91 million (2021: € 11 million) were recognized in the Healthcare business sector, a large part of which related to a transformation project in the research and development departments. Furthermore, expenses of € 41 million were incurred for various restructuring measures in the Life Science business sector (2021: € 26 million). Restructuring expenses of € 31 million (2021: € 26 million) were incurred in the Electronics business sector, mainly for the Bright Future transformation program. A further € 36 million was spent on restructuring measures in the Group functions (2021: € 16 million).
At € 77 million in fiscal 2022 (2021: € 44 million), integration and IT expenses related to expenses for launching new ERP systems.
Other adjustments include the losses on the net position of monetary assets and liabilities resulting from hyperinflationary accounting in Argentina and Turkey, which are reported in other operating expenses (see Note (2) “Reporting principles”).
Impairment losses were attributable in particular to intangible assets in the Healthcare business sector (see Note (19) “Other intangible assets”).
The adjustments are reported in the consolidated income statement as part of the respective functional costs and allocated to them as follows:
€ million |
|
thereof: |
|
thereof: marketing and selling expenses |
|
thereof: administration expenses |
|
thereof: research and development expenses |
|
thereof: |
|
Total |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Restructuring expenses |
|
-27 |
|
-32 |
|
-38 |
|
-74 |
|
-28 |
|
-198 |
||||||
Integration expenses/IT expenses |
|
2 |
|
– |
|
-77 |
|
-1 |
|
-12 |
|
-88 |
||||||
Gains (+)/losses (–) on the divestment of businesses |
|
– |
|
– |
|
– |
|
– |
|
38 |
|
38 |
||||||
Acquisition-related adjustments |
|
-7 |
|
– |
|
– |
|
– |
|
-22 |
|
-29 |
||||||
Other adjustments |
|
– |
|
– |
|
– |
|
– |
|
-68 |
|
-68 |
||||||
Adjustments before impairment losses/reversals of impairment losses1 |
|
-32 |
|
-32 |
|
-115 |
|
-75 |
|
-91 |
|
-345 |
||||||
Impairment losses2 |
|
– |
|
– |
|
– |
|
– |
|
-232 |
|
-232 |
||||||
Reversals of impairment losses |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||||
Adjustments in the operating result (total)1 |
|
-32 |
|
-32 |
|
-115 |
|
-75 |
|
-323 |
|
-577 |
||||||
|
||||||||||||||||||
€ million |
|
thereof: |
|
thereof: marketing and selling expenses |
|
thereof: administration expenses |
|
thereof: research and development expenses |
|
thereof: |
|
Total |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Restructuring expenses |
|
-21 |
|
-17 |
|
-29 |
|
-8 |
|
-5 |
|
-79 |
||||||
Integration expenses/IT expenses |
|
-5 |
|
-1 |
|
-53 |
|
– |
|
-22 |
|
-81 |
||||||
Gains (+)/losses (–) on the divestment of businesses |
|
– |
|
– |
|
-1 |
|
– |
|
5 |
|
3 |
||||||
Acquisition-related adjustments |
|
– |
|
– |
|
– |
|
– |
|
18 |
|
18 |
||||||
Other adjustments |
|
– |
|
– |
|
– |
|
– |
|
-19 |
|
-19 |
||||||
Adjustments before impairment losses/reversals of impairment losses1 |
|
-25 |
|
-17 |
|
-83 |
|
-8 |
|
-24 |
|
-157 |
||||||
Impairment losses2 |
|
– |
|
– |
|
– |
|
– |
|
-56 |
|
-56 |
||||||
Reversals of impairment losses |
|
– |
|
– |
|
– |
|
– |
|
3 |
|
3 |
||||||
Adjustments in the operating result (total)1 |
|
-25 |
|
-17 |
|
-83 |
|
-8 |
|
-76 |
|
-210 |
||||||
|
||||||||||||||||||