Merck 2008 Annual Report Download - page 24

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MANAGEMENT REPORT OF THE MERCK GROUP 19
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
The division increased its R&D spending by 22%. The research ratio of 22% was two
percentage points higher than in 2007. At € 565 million, the high level of expenses
due to the amortization of intangible assets was at the previous year’s level and was
due almost exclusively to the Serono purchase price allocation. Return on sales for
the Merck Serono division amounted to 11.9% following 8.0% in 2007.
Total revenues of the Consumer Health Care division rose by 5.2% to € 442 million;
the operating result rose by 2.9% to € 61 million compared with 2007. The proceeds of
€ 11 million on the sale of the biManán® brand in Spain had a positive impact on the
operating result. In December, the Belgian company Bio-Fyt was acquired for € 30 mil-
lion. The division maintained its return on sales of 13.9% at nearly the previous year’s
level of 14.2%.
Chemicals strongly affected by falling sales and negative currency effects
Total revenues of the Chemicals business sector were € 2,123 million in 2008, corre-
sponding to a decline of 1.3%. Negative currency effects due to the translation of weak
currencies such as the U.S. dollar and the Korean won lowered our revenue growth rate
of 4.7% by 6.0 percentage points. In the course of the year, and particularly in the fourth
quarter, the economic downturn affected sales in our Chemicals business sector, with
deliveries to manufacturers of goods used by consumers bearing the brunt.
At € 558 million, the operating result was 12% lower than in 2007. The business sec-
tor thus accounted for 46% of the Group operating result* compared with 60% in 2007.
Return on sales amounted to 26.3%, compared with 29.3% in 2007. Research and devel-
opment expenses rose by 4.4% to € 143 million.
Negative currency effects and the recession strongly impacted total revenues of the
Liquid Crystals division. They declined by 4.2% to € 877 million; on a currency-adjusted
basis the growth rate was 5.6%. Since Merck produces the basic materials in Darmstadt,
but generates sales with customers in Asia and bills in local currencies, the unfavorable
currency relationships directly impacted the operating result. Since the fourth quarter,
the economic downturn has led to a sharp decline in sales. At € 391 million, the oper-
ating result was therefore 20% lower than in 2007. Return on sales declined to 44.6%
compared to 53.1% in 2007.
*excluding the segment Corporate and Other
Chemicals business sector
contributes 46% to the Group
operating result*.
391
70%
167
30%
Chemicals | Operating result by division
€ million
877
41%
1,246
59%
Chemicals | Total revenues by division
€ million
Performance & Life
Science Chemicals
Liquid Crystals