Merck 2008 Annual Report Download - page 26

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MANAGEMENT REPORT OF THE MERCK GROUP 21
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
our balance sheet. In addition, we increased spending on property, plant and equipment
by € 131 million. In 2007, Merck booked around 160 million from one-time gains
on the sale of financial assets. Free cash flow before acquisitions and disposals as a
percentage of total revenues declined to 8.0% compared to 13.9% in 2007.
Higher equity ratio, lower gearing
Total assets of Merck as of December 31, 2008 were € 15,645 million. This corresponds
to an increase of € 722 million, or 4.8%, as compared with December 31, 2007. The
higher level of working capital was mainly responsible for this development. The equity
ratio increased from 58.2% to 61.1%. This was due to both the improved profit after
tax in 2008 as well as currency effects. Net equity increased by a total of € 875 mil-
lion. In particular, the high level of Serono assets disclosed in the balance sheet after
measurement in Swiss francs increased owing to currency effects as the Swiss franc
strengthened considerably toward the end of 2008.
On December 31, 2008, net debt, defined as financial liabilities less cash, amounted
to € 477 million, as compared with € 355 million on December 31, 2007. At 0.17, gear-
ing (ratio of net debt and pension provisions to net equity) remained at a very low
level (2007: 0.18).
Solid balance sheet ratios reflect the financial strategy
Overall, Merck’s balance sheet ratios and financial indicators remain a very solid
expression of our financial strategy of securing Merck’s liquidity at all times. Merck’s
bank debts are low. In addition, we have issued bonds for refinancing purposes and
have secure investment deposits as well as open credit lines. In terms of business
development, Merck’s performance was satisfactory until October 2008. However, we
sustained declines due to negative currency effects, particularly in the Chemicals busi-
ness sector. In November and December, the economic downturn led to a sharp decline
in sales. This affected liquid crystals and, within the Performance & Life Science
Chemicals division, particularly effect pigments for automotive coatings.
Merck’s bank debts
are low.