FY 2012: Merck Transformation Fuels Performance and Profitability

?Total revenues increased 8.7% to €11.2 billion
?EBITDA pre rose 8.9% to € 2.96 billion, slightly exceeding guidance
?Free cash flow increased 42%; net debt cut by € 1.6 billion to € 1.9 billion
?2012 savings implemented faster than planned: ~€ 115 million compared to planned € 55 million
?Proposed dividend increase of 13%

 

Key Figures:

Merck (€ Million)

Q4/2012

Q4/2011

(+/- %)

FY 2012

FY 2011

(+/- %)

Total Revenues

2,834.8

2,625.7

8.0

11,172.9

10,276.4

8.7

Sales

2,712.1

2,524.5

7.4

10,740.8

9,905.9

8.4

EBITDA pre one-time items*

789.8

680.6

16.1

2,964.9

2,723.8

8.9

Margin (% of sales)

29.1

27.0

27.6

27.5

Net income

271.8

132.9

104.5

566.7

606.5

-6.6

EPS pre one-time items** (€)

2.05

1.66

23.5

7.61

6.79

12.1

Dec 2012

Dec 2011

(+/- %)

Net financial debt

1,925.9

3,484.4

-44.7

 

Darmstadt, March 7, 2013 – “In 2012, Merck continued successfully down the Road to Tomorrow. Not only did we make progress with one of the most extensive change programs in the 345-year history of the company, we also succeeded in further expanding our business in a challenging economic environment,” said Karl-Ludwig Kley, Chairman of the Executive Board of Merck.

Total revenues of the Merck Group rose 8.7% in 2012 to € 11,173 million (2011: € 10,276 million) while fourth quarter total revenues were up 8.0% to € 2,835 million. Full-year sales grew by 8.4% to € 10,741 million (2011: € 9,906 million) reflecting a 4.5% organic increase, 3.6% growth based on changes in foreign exchange rates and 0.3% growth due to acquisitions. Fourth-quarter sales rose 7.4% to € 2,712 million as a result of 5.6% organic growth and 1.8% from changes in foreign exchange rates.

The key operational indicator of the Group, EBITDA pre one-time items, increased by 8.9% to € 2,965 million, or 27.6% of sales, in 2012 (2011: € 2,724 million or 27.5% of sales). All divisions contributed to the increase in EBITDA pre one-time items. In the fourth quarter of 2012, EBITDA pre rose 16% to € 790 million compared to the year-ago period.

During 2012, the Group realized around € 115 million in net savings as a result of the restructuring initiative “Fit for 2018.” The majority of savings (~€ 100 million) were achieved in Merck Serono followed by Consumer Health (~€ 10 million). The Performance Materials division – specifically its Pigments business – contributed about € 5 million. The previously announced Group goal of total annual savings by 2018 of € 365 million is now lifted by € 20 million to € 385 million because of the reorganization that began in the Pigments business.

Two-thirds of the restructuring costs of € 504 million incurred in 2012 were reported in the Merck Serono division.

One-time items (including impairments) of € -664 million weighed on reported net income (profit after tax attributable to Merck KGaA shareholders) of € 567 million (2011: € 607 million) or earnings per share (EPS) of € 2.61 (2011: € 2.79). However, adjusted for one-time items, EPS pre one-time items increased 12% to € 7.61 (2011: € 6.79). In the fourth quarter of 2012, reported net income and EPS more than doubled to € 272 million (Q4 2011: € 133 million) and € 1.25 (Q4 2011: € 0.61), respectively, due to favorable one-time effects on income tax as well as a better operational performance. Fourth-quarter EPS pre one-time items grew 23.5% to € 2.05 (Q4 2011: € 1.66).

Merck’s strong operational performance in 2012 as well as effective working capital management generated a record free cash flow of € 2,040 million (2011: € 1,436 million), up 42 %. Fourth-quarter 2012 free cash flow was € 180 million (Q4 2011: € 56 million). Net financial debt (financial liabilities minus cash and cash equivalents as well as short-term securities and financial assets) decreased to € 1,926 million as of December 31, 2012 (December 31, 2011: € 3,484 million).

As of December 31, 2012, the Merck Group had 38,847 employees (December 31, 2011: 40,676).

Merck’s four divisions

In 2012, Merck Serono’s total revenues rose to € 6,405 million (2011: € 5,920 million), up 8.2%. Sales increased 7.8% to € 5,996 million (2011: € 5,564 million) driven by organic sales growth of 4.9% and 2.8% from changes in foreign exchange rates, primarily owing to a stronger U.S. dollar. In the fourth quarter of 2012, the division’s total revenues increased 6.1% to € 1,638 million (Q4 2011: € 1,544 million) while sales were up 5.0% to € 1,522 million (Q4 2011: € 1,449 million).

From a geographic perspective, the percentage of sales Merck Serono generated outside of Europe climbed to 58% in 2012 (2011: 54%). This was driven by the strong performance in North America, which reported an organic sales increase of 17% to € 1,335 million, and represented 22% of the division’s sales. Sales in the Rest of World regions grew 12% organically to € 422 million while organic growth in the Emerging Markets grew by 6.8% and represented € 1,737 million of total sales for the division. Challenging business conditions in Europe, impacted by lower pricing as well as healthcare budget cuts, resulted in a 2.1% organic decline in sales to € 2,502 million.

Merck’s largest single product, Rebif®, for the treatment of relapsing forms of MS grew 7.5% organically to € 1,893 million (2011: € 1,691 million), primarily as a result of price increases in the United States. Sales of the targeted cancer treatment Erbitux® grew 1.9% organically in 2012, amounting to € 887 million (2011: € 855 million).

Adjusting for one-time items, divisional EBITDA pre one-time items increased 13.8% to € 1,785 million (2011: 1,569 million) reflecting a margin (in % of sales) of 29.8% (2011: 28.2%). This increase includes around € 100 million net savings related to the efficiency program.

The Consumer Health division reported sales of € 473 million in 2012, compared to € 494 million in 2011. To fundamentally improve its operational profitability, Consumer Health began the process of restructuring its operations in 2012 and has decided to re-focus investments on profitable products with leading positions in a number of important markets. For example, Seven Seas in the UK will be outsourcing manufacturing and packaging of its cod liver oil products and relocating commercial operations to London. As a consequence of these interventions, sales declined organically by 6.2% owing to softer sales of local and non-core brands and in some cases the complete exit from unprofitable markets and brands. Positive exchange rate effects of 1.8% were only partly able to compensate for this decline. The division’s fourth-quarter sales declined 5.0% to € 121 million (Q4-2011: € 128 million).

EBITDA pre one-time items grew 8.4% to € 63 million (2011: € 59 million). This increase includes structural net savings of around € 10 million from the efficiency program. The EBITDA pre margin (as % of sales) climbed to 13.4% (2011: 11.8%).

Performance Materials performed strongly in 2012, generating record sales of € 1,674 million (2011: € 1,465 million), an outstanding increase of 14.3%. The division benefited significantly from the stronger U.S. dollar as a dominant portion of its sales is booked in this currency. As a result, changes in foreign exchange rates added 7.0%. Organically, the division grew by 7.4% as robust growth trends in the flat panel display industry stimulated strong demand for liquid crystal materials, which contribute more than 70% to divisional sales. The Pigments & Cosmetics business unit also increased its sales in 2012. The division’s fourth-quarter sales rose 21% to € 416 million (Q4 2011: 343 million).

Adjusted for one-time items, the division’s EBITDA pre rose by 7.0% to € 731 million in 2012 (2011: € 683 million), representing 43.6% of sales (2011: 46.6%).

2012 was again a successful year for the Merck Millipore division. Sales grew by 9.0% to € 2,598 million (2011: € 2,383 million), stemming from solid organic growth of 3.8% and positive exchange rate effects of 3.9% primarily related to the U.S. dollar, and 1.4% from acquisitions in the areas of cell culture media, cell imaging and microbial testing. The division’s fourth-quarter sales rose 8.1% to € 653 million (Q4 2011: 604 million).

EBITDA pre one-time items of Merck Millipore grew 6.2% to € 596 million (2011: € 561 million) or 22.9% of sales (2011: 23.6%).

Dividend

For fiscal 2012, Merck will propose to the Annual General Meeting on April 26 that the dividend payment be increased by 20 cents to € 1.70 per share, an increase of 13%.

Outlook

Sales of the Merck Group are expected to grow organically at a moderate pace in both 2013 and 2014. Merck assumes neither any major new technology introductions in its chemical businesses nor any major new product launches in the pharmaceutical business in either year. On a reported basis, a stronger Euro may lead to negative currency effects in comparison to 2012.

At Group level, EBITDA pre one-time items (EBITDA pre) will increase faster than sales as a result of net cost savings realized from the Group-wide restructuring program “Fit for 2018”. With one-time costs peaking in 2012, this should lead to a significant increase in net income in 2013 and 2014.

Notes to Editors:

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

Click here to follow the press conference live at 10 a.m. CET. Click here for the analysts call at 2 p.m. CET, as well as the charts used for the call.

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”, “sees” 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.

Posted: March 2013


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