Q1/2010: Merck KGaA Net Profit After Tax More Than Triples
2010 Group guidance raised: operating result to improve by +30% to +40%
All four divisions of the Merck Group recorded increases in first-quarter 2010 revenues – most notably the chemicals divisions – indicating that the company weathered the global economic crisis of 2009 and is now back on track.
Merck Group total revenues rose 13% in the first quarter to EUR 2,099 million from EUR 1,859 million in the year-ago quarter as the Chemicals divisions returned to their pre-crisis levels and the Merck Serono prescription drugs division continued on its growth path. Revenues increased at a faster rate than production costs, resulting in a gross margin increase of 15% to EUR 1,612 million.
Research and development costs rose by 11% to EUR 347 million in the first quarter. A major element of the Merck business model is a focus on new, high-value products and solutions, which naturally require a greater investment in R&D. The Merck Serono division currently has a large number of expensive late-stage clinical trials underway. Amortization of intangible assets, mainly stemming from the purchase of Serono in 2007, decreased by 4.7% to EUR –141 million Thus, with improved revenues and an improved gross margin, the operating result rose substantially by 49% in the first quarter to EUR 295 million from EUR 198 million in the year-ago quarter.
The Group’s first-quarter core operating result, i.e. operating result excluding amortization of intangible assets from the Serono purchase, was EUR 432 million, an increase of 26% compared to EUR 343 million in the year-ago quarter. The Group return on sales (ROS: operating result/total revenues) increased to 14.0% in the first quarter of 2010 compared to 10.7% in the year-ago quarter. Group core ROS (operating result excluding Serono-related amortization of intangible assets/total revenues) in the first quarter of 2010 was 20.6% compared to 18.5% in the year-ago quarter.
There were no exceptional items during the first quarter of 2010 but Merck booked a total of EUR –69 million in exceptional items during the first quarter of 2009. Therefore, earnings before interest and tax (EBIT) more than doubled to EUR 295 million in the first quarter of 2010 compared to EUR 129 million in the year-ago quarter.
Merck has already arranged for the financing of the planned acquisition of Millipore Corporation in the United States, leading to a first-quarter decline of 11% in the financial results to EUR –39 million from EUR –35 million. In spite of that, the Merck Group’s first-quarter profit before tax more than doubled to EUR 256 million from EUR 94 million in the year-ago quarter. Merck’s underlying tax rate was 24.0% for the first quarter of 2010 compared to 24.7% in the year-ago quarter. Profit after tax in the first quarter of 2010 more than tripled to EUR 195 million from EUR 60 million in the first quarter of 2009.
The Merck Group’s free cash flow increased in the first quarter of 2010 to EUR 195 million compared to EUR 164 million in the year-ago quarter despite an increase in trade account receivables.
Having completed the first quarter of 2010, Merck is able to refine the guidance for 2010 that it gave in February. The main changes are an improvement in the expectations for the Group operating result and for the total revenues and operating result of the Liquid Crystals division. The guidance for 2010 is now as follows:
Merck Group total revenues for the year 2010 should increase in a range of +3% to +7% from EUR 7,747 million in 2009. The Group operating result of EUR 649 million in 2009 will increase by between +30% and +40% (from between +20% and +30% in February). Core operating result (operating result excluding amortization of intangible assets from Serono) is expected to increase by +5% to +15% (from +3% to +13% in February) from the 2009 level of EUR 1,296 million. Total revenues by division: Merck Serono +2% to +5%, Consumer Health Care +5% to +10%, Liquid Crystals +15 to +20% (from +5% to +10% in February) and Performance & Life Science Chemicals +3% to +8%. Operating result by division: Merck Serono +30% to +40% (Core operating result: 0 to +10%), Consumer Health Care –10% to 0, Liquid Crystals 60% to 70% (from +15% to +25% in February) and Performance & Life Science Chemicals +15% to +20%.
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