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Merck KGaA bloom despite current economic state


Despite a rapidly deteriorating economic situation, total revenues of the Merck Group rose 7.1% to a record €7,558 million in 2008 due to increased sales of Pharmaceuticals and a 26% increase in royalty income to €356 million. On a currency-adjusted basis, annual revenues rose 11%. For the fourth quarter, Group revenues were up 5.4% to €1,904 million. Merck made no major acquisitions or divestments during 2008.

Research and development costs rose 20% during 2008 to €1,234 million, with the lion’s share spent by the research-driven Merck Serono division. However, other operating expenses and income declined to € –170 million in 2008 from € –340 million in 2007, which included high one-time integration and restructuring expenses due to the Serono acquisition.

Amortisation of intangible assets such as technologies and
licenses, mainly stemming from the Serono acquisition in 2007, totaled € –573 million in 2008 compared to € –557 million in the previous year. Thus, Merck’s full-year operating result rose 16% to €1,131 million. The fourth-quarter operating result fell by 15% to €142 million, mainly due to a sharp decline in the Liquid Crystals division.

The Group’s 2008 core operating result, which excludes amortisation of intangible assets and integration costs for Merck Serono from the operating result, was €1,735 million, a decrease of 1.0% from 2007.

The Group’s return on sales (ROS) in 2008 improved to 15.0% compared to 13.8% in 2007 mainly due to a 7.1% increase in the gross margin. ROS for the fourth quarter of 2008 was 7.5% compared to 9.2% in the year ago quarter due to Liquid Crystals.

Free cash flow (FCF) for 2008, adjusted for acquisitions and disposals, amounted to €601 million compared with €978 million in 2007. This decline is due mainly to an increase of €112 million in working capital. Besides a higher business volume, Merck had higher receivables because it quit selling its receivables in Italy and now discloses the financing on its balance sheet. In addition, the company increased spending on
property, plant and equipment by €131 million. On the other hand, Merck booked about €160 million during 2007 from one-time gains on the sale of financial assets.


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