- Sales rise in the second quarter by 1.9%, AZ acquisition compensates for negative foreign exchange effects
- EBITDA pre one-time items up 2.3% to € 846 million despite lower royalty, license and commission income; EBITDA pre margin improves to 30.3%
- All businesses contribute to double-digit organic sales growth in Emerging Markets
- Net income down -4.1% due to one-time effects of AZ inventory revaluation
- Full-year forecast confirmed – despite negative foreign exchange effects and lower royalty, license and commission income
Darmstadt, Germany, August 13, 2014 – Merck, a leading company for top-quality high-tech products in the pharmaceutical and chemical sectors, generated organic sales growth of 3.4% in the second quarter of 2014. In addition, the company reported an acquisition-related sales increase of 3.0%, which was countered by negative foreign exchange effects of -4.5%. Overall, sales thus increased moderately by € 52 million or 1.9% to € 2.8 billion in the second quarter (Q2 2013: € 2.7 billion). Despite considerably lower royalty, license and commission income, EBITDA pre one-time items grew to € 846 million, equivalent to an EBITDA margin pre one-time items of 30.3% (Q2 2013: 30.1%).
“We had a solid second quarter,” said Karl-Ludwig Kley, Chairman of the Executive Board of Merck. “This was primarily due to our healthy operating business. Especially in Emerging Markets, all our divisions performed well. Merck’s stronger focus on this attractive region is visibly paying off. The completed acquisition of AZ is also having a positive effect on Group sales and EBITDA pre one-time items.”
Royalty, license and commission income fell sharply by -30.4% to € 68 million in the second quarter (Q2 2013: € 97 million). This was mainly due to the decline in royalty and license income in the Merck Serono division. Total revenues, in other words sales plus royalty, license and commission income, nevertheless increased by 0.8% to € 2.9 billion (Q2 2013: € 2.8 billion), reflecting the strength of the operating business.
The operating result (EBIT) of the Merck Group declined by € -24 million to € 441 million in the second quarter. This was largely attributable to the higher level of one-time items, especially from acquisitions, lower royalty, license and commission income, as well as negative foreign exchange effects in comparison with the year-ago period. The operating business and the efficiency improvement measures implemented within the scope of the “Fit for 2018″ transformation and growth program had a positive effect.
After adjusting for depreciation, amortization and one-time items, EBITDA pre one-time items, the key financial indicator used to steer operating business, grew by 2.3% to € 846 million (Q2 2013: € 826 million), resulting in an EBITDA margin pre one-time items relative to sales of 30.3% (Q2 2013: 30.1%). Taking into account the 1:2 share split, earnings per share pre one-time items amounted to € 1.16 in the second quarter of 2014 (Q2 2013: € 1.13).
Emerging Markets are a key driver of organic growth
From a regional perspective, dynamic business in Emerging Markets contributed first and foremost to the organic sales growth of the Merck Group. Very strong growth of 11.1% was mainly driven by the Merck Serono and Merck Millipore divisions. Including negative foreign exchange effects of -8.5% and increases of 5.9% from the AZ acquisition, Merck generated sales of € 1.0 billion in the Emerging Markets region (Q2 2013: € 967 million), equivalent to an increase of 8.5%. The Emerging Market region’s share of Group sales thus grew to 37% in the second quarter (Q2 2013: 35%), exceeding Europe (36%) despite stronger foreign exchange effects.
All four divisions of the Merck Group delivered organic sales growth in the second quarter. In particular, Consumer Health generated a good organic sales increase of € 15 million, equivalent to a growth rate of 8.5%. Delivering an absolute increase of € 44 million (3.0%), Merck Serono made the largest contribution to organic sales growth.
“At Merck Serono, we want to further expand our business with existing medicines this year. To this end, we are focusing on Emerging Markets with a high number of underserved patients. The past quarters have already confirmed the success of this approach,” said Kley.
For the Merck Serono division, slight organic sales growth over the previous year is assumed. It can be expected that the well-balanced product portfolio as well as organic growth in the Emerging Markets region will offset the declines in sales of Rebif resulting from the competitive situation in the United States and Europe. EBITDA pre one-time items of Merck Serono should decrease slightly in 2014 as forecast, particularly as a result of the expected decline in royalty, license and commission income, which will have a net effect of approximately € -100 million versus 2013. For the Consumer Health division, Merck forecasts moderate organic sales growth in 2014. Merck expects that all regions and especially the core strategic brands will contribute to sales growth. EBITDA pre one-time items should likewise increase moderately in 2014 as a result of positive sales developments. Merck assumes that the Performance Materials division will achieve slight organic sales growth in 2014. Overall, the acquisition of AZ Electronic Materials will lead to a substantial increase in the sales of the Performance Materials division despite negative foreign exchange effects. EBITDA pre one-time items of the division should therefore also increase considerably in 2014. The integration costs resulting from the acquisition of AZ Electronic Materials are estimated to amount to around € 50 million, approximately € 10 million of which will be incurred in 2014. For Merck Millipore, moderate organic sales growth is expected in 2014, which will however be partly offset by foreign exchange effects. Based on forecast sales growth, EBITDA pre one-time items should increase slightly in 2014.
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