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Q3 2012: Merck?s Good Performance Continues During Transformation

Date: November 15, 2012 
•    Revenues grow 12%, EBITDA pre grows 16% on efficiency program
•    Strong organic sales growth of 6%; sales in Emerging Markets surpass Europe
•    Free cash flow increases by 69% - reduces net financial debt to € 2.1 billion
•    Total revenue guidance raised, EBITDA pre guidance narrowed to the upper end of the previous range 
Key Figures:   
Merck             (€ Million)  Q3/2012    Q3/2011    (+/- %)      1-9/2012         1-9/2011    (+/- %)
Total Revenues   2,841.0      2,531.6        12.2        8,338.1  7,650.7          9.0
Sales  2,721.7      2,434.3        11.8        8,028.7  7,381.4          8.8
EBITDA pre one-time items*           754.2         652.5        15.6        2,175.1  2,043.2          6.5
   Margin (% of sales)  27.7           26.8    27.1  27.7   
Net income  185.5         223.9       -17.2  294.9  473.6       -37.7
EPS pre one-time items** (€)  1.98
1.62        22.2  5.56  5.12          8.6
           Sep 2012       Dec 2011    (+/- %)
Net financial debt               2,126.8  3,484.4       -39.0 
*     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   
*     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  
Darmstadt, November 15, 2012 – “Even in these tough economic times and while in the midst of our own business transformation, Merck is performing well operationally,” said Karl-Ludwig Kley, Chairman of the Executive Board of Merck. “We are especially pleased with the excellent results from our Merck Serono and Performance Materials divisions. We are on track to have a solid  year  of  financial  performance  in  2012,  while  making  our  profitability  levels  more competitive with our peers.”  
Investor Relations Information

Merck’s third quarter of 2012 saw a continuation of solid business trends that the Group has seen  throughout  2012.  Total  revenues  rose  12.2%  to  €  2,841  million  compared  to  € 2,532 million in the third quarter of 2011. Sales also grew by 11.8% to € 2,722 million in third quarter compared to € 2,434 million in the year-ago quarter. This performance reflected organic sales growth of 5.9%, a 5.7% positive benefit from foreign exchange rates and a 0.2% increase from acquisitions and divestments. 
The key operational indicator of the Group, EBITDA pre one-time items, increased by 15.6% to €  754  million,  or  27.7%  of  sales  compared  to  €  653  million,  or  26.8%  of  sales  in  the  third quarter  of  2011.  This  margin  improvement  reflects  the  stronger  top-line  growth  and  more efficient resource allocation throughout the Group.
The increase in one-time costs (including impairments) of € 98 million weighed on reported net income (profit after tax attributable to Merck shareholders) of € 185 million (Q3 2011: € 224 million) or earnings per share (EPS) of € 0.85 in the third quarter of 2012 (Q3 2011: € 1.03). However, adjusted for one-time costs, EPS pre one-time items increased 22.2% to € 1.98 (Q3 2011: € 1.62).
Merck’s  strong  operational  performance  in  the  third  quarter  of  2012  as  well  as  effective working capital management generated a free cash flow of € 815 million, a 69% increase from the € 482 million reported in the year-ago quarter. As a result, Merck was able to reduce its net financial debt by 39% to € 2,127 million.
At  the  end  of  the  third quarter  2012,  Merck  had  39,545  employees  worldwide,  compared  to 40,676 on December 31, 2011.
Merck’s four divisions
Merck Serono’s third-quarter total revenues rose 10.5% to € 1,623 million from € 1,469 million in the year-ago quarter. This included an increase in sales of 9.9% to € 1,511 million from € 1,375  million.  This  solid  performance  was  driven  by  an  organic  sales  growth  of  5.3%  and improved a further 4.6% by changes in foreign exchange rates. 
From a geographic perspective, the percentage of sales Merck Serono generated outside of Europe climbed to 60% in the third quarter of 2012 (Q3 2011: 56%). This was driven by the strong performance in North America, which reported an organic sales increase of 18.3% to € 357 million (Q3 2011: € 271 million), and represented 24% of the division’s sales (Q3 2011: 20%). Sales in the Rest of World regions grew 9.9% organically to € 108 million (Q3 2011: € 92 million) while organic growth in the Emerging Markets softened to 4.4% and represented € 439  million  of  total  sales  for  the  division  (Q3  2011:  €  406  million).  Challenging  business conditions in Europe, impacted by lower pricing as well as healthcare budget cuts, resulted in sales of € 606 million (Q3 2011: € 605 million).
Global sales of Merck’s largest single product, Rebif® for the treatment of relapsing forms of multiple sclerosis (MS), rose 10.2% organically to € 499 million in the third quarter (Q3 2011: € 426 million), driven by US price increases and slight volume and sales increases in Europe. Sales  of the  targeted  cancer  treatment  Erbitux® remained flat  on  an  organic  basis  at  € 224 million in the third quarter of 2012 (Q3 2011: € 218 million). 
Adjusting  for  €  83  million  in  one-time  items,  primarily  relating  to  the  division’s  restructuring efforts, EBITDA pre one-time items increased by 16.1% to € 456 million, representing 30.2% of sales  (Q3  2011:  €  393  million  or  28.6%  of  sales).  This  margin  improvement  is  the  result  of strong operational performance and lower discretionary spending.
The Consumer Health division reported sales of € 122 million, a decrease of 7.7% from € 133 million  in  the  third  quarter  of  2011.  This  reflected  a  10.3%  reduction  in  organic  sales  and  a 2.6%  increase  from  changes  in  foreign  exchange  rates.  The  organic  decline  was  driven primarily  by  lower  European  sales,  the  division’s  biggest  market.  Consumer  Health  is  in  the process of restructuring the business in 2012 and 2013, an effort that also may include site closures. While some of these activities are affecting the division’s top-line performance, the division’s EBITDA margin pre one-time items continued to improve year-on-year as a result of lower costs and more efficient resource allocation. 
Adjusted for one-time restructuring costs of € 8 million, EBITDA pre one-time items declined 2.1% to € 18 million in the third quarter of 2012 from € 19 million in the year-ago quarter but climbed to 15.0% of sales compared to 14.2% of sales in Q3 2011.
In the third quarter of 2012, the Performance Materials division posted exceptionally strong sales of € 446 million, up 31.1% from the € 340 million posted a year ago, driven by record sales  for  liquid  crystal  materials,  which  benefited  from  strong  demand  for  PS-VA  and  IPS technologies  and  from  increased  sales  in  China.  Sales  of  Pigments  and  Cosmetics  also increased.  Performance  Materials’  sales  growth  benefited  the  most  among  all  Merck’s divisions from the stronger US dollar since a significant portion of its sales are recognized in this  currency.  In  summary,  Performance  Materials  reported  organic  sales  growth  of  19.7% while changes in foreign exchange rates contributed 11.4%. 
Adjusted for € 3 million in one-time items, the division’s EBITDA pre improved by 38.8% to € 195 million, or 43.7% of sales, compared to € 140 million, or 41.3% of sales, in the year-ago quarter.
The Merck Millipore division continued to benefit from solid demand across all its business units,  increasing  its  sales  by  9.5%  to  €  643  million  in  the  third  quarter  of  2012  from  €  587 million  in  the  year-ago  quarter.  Reported  sales  reflected  3.0%  organic  growth,  which  was
driven primarily by higher volumes. Additionally, top-line results reflected a 5.8% benefit from foreign exchange rates and a 0.7% increase from acquisitions. 
Adjusted  for  one-time  charges  of  €  7  million,  the  division’s  EBITDA  pre  grew  11.6%  to  € 148 million, or 23.0% of sales, compared to € 132 million, or 22.6% of sales, in the third quarter of 2011, mainly due to a higher gross margin.
Merck’s Guidance for 2012 
Given the performance in the third quarter of 2012, Merck is updating its forecast for the full year 2012. Merck expects the markets for pharmaceuticals as well as over-the-counter drugs to grow, driven  by  volumes  in  Emerging  Markets.  The  company  expects  demand  for  its  liquid  crystals
products  in  the  fourth  quarter  to  soften  sequentially,  resulting  in  the  Performance  Materials division’s  EBITDA  pre  being  around  last  year’s  fourth  quarter.  Finally,  Merck  continues  to  see solid demand for Life Science products, driven also by continued volume growth in biologic-based drugs.
Based on these assumptions, Merck expects the following financial performance by the Group and its divisions for 2012:   
Merck   2012 Expectations
Total revenues   ~ € 10.9 bn – € 11.0 bn
EBITDA pre *   € 2.90 bn – € 2.95 bn
 Includes € 55 million in savings from the efficiency program.
Merck Divisions
2012 EBITDA pre
Merck Serono  ~ € 1,750 m – € 1,800 m
Consumer Health   ~ € 60 m
Performance Materials  ~ € 700 m
Merck Millipore  ~ € 590 m – € 600 m
Corporate and Other  ~ € -200 m
FX assumptions for FY 2012:
€/US$ = 1.29
€/CHF = 1.20
The  complete  interactive  online  version  of  the  Q3-2012  Report,  as  well  as  the  related presentations, is available at: Merck Q3-2012-E 
Click here for the analysts call at 2 p.m. CET, as well as the charts used for the call.
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.
Best regards
Joshua Young & the Investor Relations Team
Tel: +49 6151 72 3321 

Merck KGaA    Germany
Frankfurter Straße 250
64293 Darmstadt
Phone   +49 6151 72-0
Fax       +49 6151 72-2000
Corporation with General Partners
Commercial Register AG Darmstadt HRB 6164
Registered Office: Darmstadt
Chairman of the Supervisory Board:
Rolf Krebs
Executive Board
and General Partners:
Karl-Ludwig Kley (Chairman),
Kai Beckmann, Stefan Oschmann,, Bernd Reckmann,
Matthias Zachert 
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Posted: November 2012