Merck 2008 Annual Report Download - page 20

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MANAGEMENT REPORT OF THE MERCK GROUP 15
12 Overall economic situation
14 Economic development
of Merck
15 Financial position and results
of operations
24 Responsibility
26 Merck shares
30 Pharmaceuticals business sector
50 Chemicals business sector
60 Corporate and Other
61 Risk report
64 Report on expected developments
64 Subsequent events
Financial position and results of operations
Return on sales of the Merck Group rises to 15.0%
Total revenues of the Merck Group rose by 7.1% to € 7,558 million in 2008. Negative
currency effects, especially in the Chemicals business sector, lowered growth by 4.2%.
Organically – meaning adjusted for the impact of currency as well as acquisitions and
disposals – growth amounted to 11%. Royalty income, which we disclose as part of
total revenues, totaled € 356 million, 26% more than in 2007. Gross margin grew in
line with total revenues by 7.1%. Marketing and selling expenses rose by 8.5% since
the Merck Serono division intensified its marketing activities. This is closely related to
new therapeutic areas, for which our drugs have been approved (details can be found
starting on page 33). At 28%, the marketing and selling ratio was only one percentage
point higher than in 2007.
We maintained administration expenses at the previous year’s level of € 446 mil-
lion. Other operating income and expenses totaled € 170 million and were thus only
half as high as in 2007, which included high one-time integration and restructuring
expenses following the acquisition of Serono.
Group-wide, we spent € 1,234 million on research and development. This corresponds
to an increase of 20% over 2007 and a research ratio of 16% relative to total revenues.
At € 573 million, amortization of intangible assets was slightly higher than in 2007 and
relates almost exclusively to ongoing amortization resulting from the Serono purchase
price allocation.
The operating result of the Merck Group increased by 16% to € 1,131 million in 2008.
Return on sales (ROS) rose to 15.0% from 13.8%.
Exceptional items for pharmaceuticals and restructuring
In 2008, we booked exceptional items of € 400 million. This related primarily to
impairments of intangible assets in the Merck Serono division: Due to sharply lower
sales expectations for the psoriasis drug Raptiva®, production technology assets were
written off in full. This resulted in an expense of € 195 million. Moreover, the licensing
rights to Enbrel® for the treatment of rheumatoid arthritis and psoriasis were partially
written down due to changes in the estimates of the associated royalty income and the
timing thereof. This resulted in an expense of € 43 million. We completely wrote off
R&D spending increased
by 20%.
5,428
72%
Total revenues by business sector*
€ million
2,123
28%
Laboratory
Distribution
Chemicals
Pharmaceuticals
Total revenues by business sector*
€ million
2004 2005 2006 2007 2008
8,000
6,000
4,000
2,000
*excluding Corporate and Other *excluding Corporate and Other