Interim Report Q1 2008

Transcription

1 Interim Report Q1

2 Contents 3 Interim Management Report of the Merck Group as of March 31, 3 At a glance Highlights 4 Merck Group 7 Merck shares 8 Business sectors 9 Divisions 9 Merck Serono 11 Consumer Health Care 12 Liquid Crystals 13 Performance & Life Science Chemicals 14 Corporate and Other 14 Generics (Discontinued Operations) 15 Risk Report 15 Report on Expected Developments 16 Interim Consolidated Financial Statements as of March 31, 24 Responsibility Statement 25 Executive Board Supervisory Board Capital structure 26 Financial calendar for Publication contributors 27 Business sectors and divisions Cover photo: Basic research for new active ingredients: In a research laboratory in Darmstadt, Germany, Verena Dresing cultivates protein crystals for 3D structural analysis of active ingredients and target proteins. A robot for high-throughput protein crystallization assists in identifying suitable conditions.

3 Interim Management Report of the Merck Group as of March 31, At a glance Highlights 3 at a glance Key figures Pharma ceuticals Chemicals Corporate and Other Total* Total revenues 1, ,857.7 Gross margin 1, ,406.5 Research and development Operating result Exceptional items Earnings before interest and tax (EBIT) EBIT before depreciation and amortization Return on sales (ROS) Free cash flow (FCF) Free cash flow adjusted for acquisitions and disposals *excluding discontinued operations Total revenues by quarter 2,000 Operating result by quarter 400 1, , Q1 Q2 Q3 Q4 100 Q1 Q2 Q3 Q4 Highlights Total revenues increased 8.3% to 1.9 billion, 14% organic growth Operating result rose 49% to 360 million ROS 19.4% vs 14.0% in the year-ago quarter Erbitux sales jumped 33% to 145 million Rebif sales rose 11% to 313 million Liquid Crystals revenues rose 13%, 25% organic growth, to 234 million; ROS at 51.1% Merck remains on track to meet its guidance for

4 4 Merck Group The financial performance of the Merck Group presents a classic picture of quality growth with the gross margin growing faster than total revenues, the operating result increase exceeding that of the gross margin, and so on down the income statement. Likewise, the results are on track with the full-year guidance given in February and exceed market expectations an excellent performance in turbulent times. The Merck Group s total revenues in the rose 8.3% to 1,858 million compared to 1,715 million in the year-ago quarter. All four divisions contributed to the increase. Again in this quarter, currency effects had a considerable negative impact on total revenues. Group total revenues grew organically by 14% but that percentage was reduced by 5.4% due to translation of local currencies into the strong euro. There were no significant acquisitions or divestments in the quarter. Royalty income, mainly from Merck Serono, increased by 14% in the to 74 million. With revenues growing at a faster rate than the cost of sales, the gross margin rose 10% in the to 1,406 million compared to 1,279 million in the year-ago quarter. Research and development costs rose as planned by 6.3% to 288 million in the compared to 270 million in the year-ago period. Merck booked 141 million for amortization of intangible assets, mainly stemming from the Serono acquisition that occurred in. However, with an improved gross margin and operating expenses Components of growth by division in the (continuing operations) Change in total revenues compared to last year in % Merck Serono Consumer Health Care Liquid Crystals Performance & Life Science Chemicals Merck Group Organic growth Currency effects Acquisitions / divestitures Total Total revenues by business sector* Q1 Operating result by business sector* Q % 1,292 70% % % Chemicals Pharmaceuticals *without sector Corporate and Other

5 Interim Management Report of the Merck Group as of March 31, Merck Group 5 growing at a slower rate, the Group s operating result jumped 49% to 360 million from 241 million in the year-ago quarter. Thus, the Group return on sales (ROS: operating result/total revenues) improved to 19.4% in the of compared to 14.0% in the year-ago quarter. Free cash flow (FCF) improved to 211 million. Free cash flow before acquisitions and divestments was 271 million in the of compared to 313 million in the year-ago quarter. Merck had no exceptional items during the of but posted exceptional items totaling 196 million in the of last year. That sum mainly represented purchase price allocations related to Serono inventories that were completed in. Therefore, earnings before interest and tax (EBIT) in the of amounted to 360 million the same as the operating profit compared to just 45 million in the year-ago quarter. In spite of the 10.3 billion purchase of Serono last year, Merck s financial result is already back to a low level, just 31 million in the of compared to 80 million in the year-ago quarter, which was burdened by interest payments on debt associated with the acquisition. Maintaining an investment-grade credit rating and a strong balance sheet are part of Merck s financial strategy. In February, Moody s Investors Service, which gives Merck s long-term debt rating at Baa1, raised its rating outlook for the company to positive from stable. Profit before tax rose to 329 million in the of this year compared to 35 million in the year-ago quarter. Merck s underlying tax rate was 26.4% for the quarter under review compared to 29.1% in the year-ago quarter. Although Merck completed the sale of its Generics business to Mylan Inc. during the 4 th quarter of last year for 4.9 billion, the buyer still has an option to acquire some smaller operations that are a mixture of Generics and other Merck businesses. These are reported in the income statement as discontinued operations. Merck s profit after tax from continuing operations was 242 million compared to 62 million in the year-ago period. First-quarter profit after tax from discontinued operations amounted to 0.8 million. Profit after tax for the quarter was 243 million compared to 6 million in the year-ago quarter. Number of employees as of March 31, : 31,681 Merck Group Sales by region Q1 6,569 21% 18,842 60% % 2,041 6% 4,229 13% % % % Asia, Africa, Australasia North America Latin America Europe

6 6 The 1st quarter of was marked by major turbulence throughout the entire financial world due to the sub-prime mortgage crisis in the United States, which economists say may lead to a recession in the world s largest economy. In addition, the European currency has continued to gain strength against the U.S. dollar (reaching US $1.58 per 1 on March 26) and oil prices are at record highs. While the currency exchange rate has had a significant impact on Merck s revenues, and to a lesser extent, its operating results, as a producer of pharmaceuticals and specialty chemicals, the company is not highly dependent on petroleum-based raw materials. Merck had 31,681 employees worldwide on March 31,, compared to 30,968 at the end of. Effects of exceptional items (continuing operations) Change in % Operating result Exceptional items Profit before tax before exceptional items Income tax before exceptional items Profit after tax before exceptional items Tax rate before exceptional items in %

7 Interim Management Report of the Merck Group as of March 31, Merck Group Merck shares 7 Merck shares The Merck share price declined 12% during the from on December 28,, to on March 31,, which was the low for the quarter. The high was on January 9. Germany s DAX Index declined 19% during the and the Bloomberg Europe Pharmaceuticals Index fell 6.2%. A survey of Merck shareholders conducted in February received responses representing a total of 49.5 million shares or about 76% of the shares in free float. The results showed that North American-based investors dominated the share holding with 49% of the identified share capital, followed by British and German investors. By investment strategy, about two-fifths of the shareholders were focused on Growth at reasonable price (GARP), followed by Growth and Value oriented investments with about one-quarter each. Very few shares appeared to be held by hedge funds. However, 24% of the free-float shares could not be identified so that actual numbers could vary considerably. Share data 1 Year Earnings per share after tax and minority interest in from continuing operations Earnings per share after tax and minority interest in from continuing and discontinued operations Dividend in One-time bonus in Share price high in (Jan. 9) (June 15) Share price low in (March 31) (Jan. 2) Closing share price in (March 31) (Dec. 28) Actual number of shares in millions Theoretical total number 2 of shares in millions Adjusted weighted average number of theoretical shares outstanding 3 (in millions) Market capitalization 4 in 16,971 19,196 1 Share-price relevant figures relate to the closing price in XETRA trading on the Frankfurt Stock Exchange. 2 The calculation of the theoretical number of shares is based on the fact that the general partner s equity capital is not represented by shares. As the share capital of million was divided into 64.6 million shares, the corresponding calculation for the general partner s capital of million resulted in million theoretical shares on the balance sheet date March 31,. 3 For details, see Consolidated Financial Statements in the Annual Report for, page Based on the theoretical number of shares. Performance of Merck shares compared with the DAX and the BEUPHRM Index in % April June Sept. Dec. March Bloomberg Europe Pharmaceuticals Index DAX Merck

8 8 Business sectors Merck uses a business model that is designed to provide profitable growth and lower risks. The company achieves this balance with a two-pillar structure consisting of the major business sectors of Pharmaceuticals and Chemicals. And, within both the Pharmaceuticals and Chemicals sectors, Merck maintains a mixture of dynamic, higher-risk businesses and more stable businesses. Even within the four divisions, there is a balance between risks and opportunities. The Pharmaceuticals business sector s two divisions are Merck Serono (formerly Ethicals and Serono) and Consumer Health Care. The Generics business was divested last year and is reported under discontinued operations. The Pharmaceuticals business sector generated 70% of the company s total revenues and 54% of the group operating result* during the quarter. The sector s total revenues were 1,292 million during the, a 9.7% increase over the year-ago quarter. In comparison, IMS Health, the world s leading provider of market intelligence for the pharmaceutical and healthcare industries, is predicting the global pharmaceutical market will grow by 5% to 6% this year. The Pharmaceuticals business sector s operating result more than doubled to 202 million from 97 million in the year-ago quarter. The Chemicals business sector also consists of two divisions Liquid Crystals and Performance & Life Science Chemicals. It generates about 30% of total revenues and 46% of the operating profit*, the latter percentage being much larger due to the very innovative and profitable Liquid Crystals division. The business sector s total revenues rose 5.6% to 559 million and the operating profit improved by 7.5% to 173 million. The European Chemical Industry Council (CEFIC) announced in March that European Union chemical sales, excluding pharmaceuticals, increased by 5.3% in but that business confidence in the industry is slipping. Merck announced in March that in order to further improve delivery of innovative solutions to its customers, it is investing 47 million in a new Chemicals research and development center at its headquarters in Darmstadt. The three-building complex will be used by both the Liquid Crystals and Performance & Life Science Chemicals divisions. *without segment Corporate and Other Pharmaceuticals Total revenues by division Q1 Chemicals Total revenues by division Q % 1,182 91% % % Consumer Health Care Merck Serono Performance & Life Science Chemicals Liquid Crystals MERCK SERONO LC CHC PLS 111

9 Interim Management Report of the Merck Group as of March 31, Business sectors Divisions Merck Serono 9 Merck Serono Merck s largest division is Merck Serono, the new division for innovative small molecules and biopharmaceuticals. It was established early in following the acquisition of Serono and the integration of its business with the former Merck Ethicals division. The division accounts for 91% of total revenues within the Pharmaceuticals business sector and for 64% of Merck Group total revenues. Merck Serono s total revenues increased by 9.7% to 1,182 million in the of compared to 1,078 million in the year-ago quarter. Organic revenue growth of 14% was impacted by a negative 4.5% currency effect. Strong sales were due to robust growth across most major brands, including the biologic therapies Erbitux and Rebif, as well as small molecule drugs such as the Concor and Glucophage product families. Worldwide sales of Rebif, for the treatment of relapsing forms of multiple sclerosis, rose 11% to 313 million in the compared to the year-ago quarter. This was driven primarily by solid sales growth in Europe and a 26% organic sales growth rate in the United States. The new formulation of Rebif, which has been shown to improve injection tolerability while providing an improved immunogenicity profile, has now been launched in the 27 countries of the European Union as well as in Canada. Erbitux maintained its strong sales growth trend, jumping 33% in the to 145 million compared to the of, with strong growth in France, Germany, Spain, Portugal, China and Brazil. It now has marketing authorization in 72 countries around the world as a treatment for colorectal cancer or squamous cell carcinoma of the head and neck. In the United Kingdom, NICE recommended reimbursement of costs for Erbitux in the treatment of locally advanced head and neck cancer in patients whose Karnofsky performance-status score is 90% or greater (patient displays few symptoms or signs of disease) and for whom all forms of platinum-based chemo-radiotherapy are contraindicated. During the, sales of Gonal-f, a recombinant hormone used in the treatment of infertility, were 114 million, up 1.3% compared to the year-ago quarter. The next generation of the Gonal-f injection pen has now been rolled out in seven countries, including the United States and major markets in Europe. Total sales of bisoprolol, including the branded Concor products such as Lodoz and Concor COR, increased by 6.2% to 100 million in the. Bisoprolol is Europe s top-selling beta-blocker by sales value. Total sales of the Glucophage (metformin) family of oral anti-diabetic products increased 10% to 72 million. Sales of thyroid medicines such as Euthyrox rose 4.6% to 35 million in the. Merck Serono Key figures Change in % Total revenues 1, , Gross margin 1, R&D Operating result Exceptional items Free cash flow (FCF) ,895.4 Free cash flow adjusted for acquisitions and disposals ROS in % Merck Serono Sales by region Q % % % % Asia, Africa, Australasia North America Latin America Europe Europe % Latin America % North America % Asia, Africa, Australia %

10 10 Sales of Raptiva, for the treatment of moderate-to-severe psoriasis, rose 23% during the to 22 million. This growth is based on long-term efficacy data and market education initiatives. Sales in the recombinant growth hormone family, including Saizen and Serostim, decreased 2.3% to 52 million during the compared to the year-ago period. The division s investment in research and development increased 7.3% to 249 million in the. This is in line with Merck s plan to spend about 1 billion annually for the research and development of innovative specialist-focused drugs to help patients suffering from diseases with unmet needs. Merck s clinical development efforts will be showcased at the prestigious American Society of Clinical Oncology (ASCO) annual meeting being held May 30 June 3 in Chicago. ASCO has announced that from nearly 5,000 abstracts accepted for the meeting, two related to Erbitux have been selected for presentation at its main plenary session. Merck Serono announced in February that it has decided, together with its partner Takeda Pharmaceutical Company Ltd, Osaka, Japan, to no longer jointly pursue development of the cancer treatment matuzumab any further after completion of ongoing studies. The humanized monoclonal antibody has been investigated in Phase II clinical trials in indications such as metastatic colorectal cancer (mcrc), gastric cancer, and non-small cell lung cancer (NSCLC), where it has not met the predefined endpoints of activity. In March, Merck Serono announced the availability of Cyanokit (active ingredient: hydroxocobalamin) in Japan, through its local affiliate Merck Serono Co., Ltd. Cyanokit has been approved by the Japanese Ministry of Health for the treatment of cyanide poisoning caused by hydrocyanic acid and its derivatives in both adults and children. Again in the, the division booked a charge of 139 million for amortization of intangible assets in connection with the Serono purchase price allocation. The division s gross margin rose 13% to more than 1 billion. The operating result more than doubled to 181 million from 89 million in the year-ago quarter due to higher revenues and gross margin, as well as lower integration costs. The Merck Serono ROS was 15.3% in the compared to 8.2% in the year-ago quarter. Core ROS, which Merck defines as excluding Serono-related amortization and integration costs in both periods, improved to 27.5% in the from 22.2% in the year-ago quarter. Free cash flow adjusted for acquisitions and divestments was 161 million.

11 Interim Management Report of the Merck Group as of March 31, Divisions Merck Serono Consumer Health Care 11 Consumer Health Care Total revenues for the Consumer Health Care division rose 9.9% in the to 111 million compared to the year-ago quarter, driven by an excellent performance in Europe and the division s focus on strategic brands, an initiative that began early in. Sales of Bion 3 probiotic vitamins rose 38%, fueled by strong sales in France and Belgium. Sales of Femibion, the vitamins and minerals supplement for pregnant and nursing women, increased 33% with the success in its main market of Germany as well as in Belgium and Poland. Sales of the Kytta brand of plant-based treatments jumped 66%, boosted by a television advertising campaign in its core market of Germany. Sales of Seven Seas products, Merck s flagship OTC brand in the United Kingdom, rebounded in the, with sales up 15% in local currency. Sales drivers were the JointCare and probiotic multivitamin Multibionta products. The division sold its non-strategic brand in Spain, the dietary food supplements business bimanán, for 11 million during the. This was in line with the successful business model established last year of focusing on selected health themes and rebalancing the brand portfolio, Proceeds from the sale will be reinvested in strategic brands during the course of the year to further strengthen the division s overall portfolio. Outlays for R&D and cost of sales increased during the quarter as part of the drive to expand and promote strategic brands. However, a higher gross margin and proceeds from the divestment of the Spanish business helped boost the division s operating result to 21 million compared to 8.4 million in the year-ago quarter. First-quarter ROS was 19.0% compared to 8.3% in the year-ago quarter. Free cash flow was 33 million compared to 11 million a year ago. Consumer Health Care Key figures Change in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow (FCF) Free cash flow adjusted for acquisitions and disposals ROS in % Consumer Health Care Sales by region Q % 15 14% 83 76% Asia, Africa, Australasia Latin America Europe Europe 83 76% Latin America 15 14% North America 0 0% Asia, Africa, Australia 11 10%

12 12 Liquid Crystals Total revenues for the Liquid Crystals division rose 13% to 234 million in the of compared to a relatively weak in. An excellent 25% organic growth rate for total revenues was greatly impacted by a negative currency effect of 12%. All of Merck s liquid crystals are manufactured at its headquarters in Darmstadt and are mixed to final customer specifications in Asia, where currencies generally are pegged to the weak U.S. dollar and Japanese yen. The flat panel display industry is continuing its dynamic growth with the return of optimism following a moderate first half in. This is evident in the announcements of significant investments in additional liquid crystal display (LCD) manufacturing capacity. Growth engines for the LCD industry will be the Asian markets and the continuing consumer demand for ever-larger television sets. DisplaySearch expects LCD televisions will account for half of all televisions sold beginning in. Merck continues to invest significantly in research and development in order to maintain its leading position in display materials, spending 21 million, or about 9% of its total revenues, on R&D during the. Merck also announced during the quarter that it plans to invest 11 million in its Korean Application Technical Center that supports the LCD industry. With most revenues booked in U.S. dollars, Japanese yen and Korean won and a large share of expenses booked in euros, there is only a limited natural hedge for the division. Therefore, the currency effect impacts its profit line as well. The division s operating result rose 5.6% to 119 million in the. ROS maintained its high level, reaching 51.1% in the of compared to 54.8% in the same quarter of. Free cash flow improved to 119 million from 89 million in the year-ago period. Liquid Crystals Key figures Change in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow (FCF) Free cash flow adjusted for acquisitions and disposals ROS in %

13 Interim Management Report of the Merck Group as of March 31, Divisions Liquid Crystals Performance & Life Science Chemicals 13 Performance & Life Science Chemicals Total revenues for the Performance & Life Science Chemicals division rose slightly in the to 325 million compared to 323 million in the year-ago quarter. A 5.1% organic growth rate for total revenues was reduced by a 4.5% negative currency effect due to the division s sizable operations in the United States and Asia. The division achieved double-digit growth rates in major markets such as India, Japan and China, with a stable business development in Europe and Latin America. The product groups solvents and microbiology showed the best sales performances. In addition, the Xirallic effect pigments continued their very successful growth trend. The crop bioscience business is now off to a good start in the United States market, producing a solid double-digit sales growth. During the, the Performance & Life Science Chemicals division acquired another start-up business following its strategy of adding businesses or technologies that enhance existing product or technology portfolios and customer bases. SeQuant AB in Sweden will expand the technology range in the division s already successful chromatography business. Significant progress was made in integrating Solvent Innovation GmbH of Cologne, Germany. This company was acquired in December to expand Merck s opportunities for offering industry-tailored solutions in the new technology field of ionic liquids. With reduced expenses and an improved gross margin, the division s operating result increased 12% to 53 million in the compared to the year-ago quarter. ROS in the rose to 16.5% from 14.8%. Free cash flow was 0.1 million due to the SeQuant acquisition compared to 6.6 million in the year-ago period. Performance & Life Science Chemicals Key figures Change in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow (FCF) Free cash flow adjusted for acquisitions and disposals ROS in % Performance & Life Science Chemicals Sales by region Q % 62 19% 30 9% % Asia, Africa, Australasia North America Latin America Europe Europe % Latin America 30 9%

14 14 Corporate and Other The segment Corporate and Other includes corporate overhead costs incurred by Group holding companies, financial result, taxes and other items that are not allocated to specific divisions. Generics (Discontinued Operations) Merck completed the sale of its Generics business to Mylan Inc. of Canonsburg, Pennsylvania, for 4.9 billion on October 2,. Mylan still has an option to acquire some smaller operations that are a mixture of Generics and other Merck businesses. These remain on Merck s income statement as Discontinued Operations. In addition, the revenues and profits from the entire Generics business, as well as the gain of the sale, are reported under Discontinued Operations. Corporate and Other Key figures Change in % Total revenues Gross margin R&D Operating result Exceptional items 0.4 Free cash flow (FCF) Free cash flow adjusted for acquisitions and disposals

15 Interim Management Report of the Merck Group as of March 31, Corporate and Other Generics (Discontinued Operations) Risk Report Report on expected developments 15 Risk Report All issues concerning business-related risks, financial risks, legal risks, information technology risks and environmental and safety risks as previously stated in the Annual Report remain completely valid in the current reporting period. Therefore, no issues have been identified that pose a risk to the continued existence of the Merck Group. Report on Expected Developments Merck continues to expect total revenues to increase in a range between 5% and 9%. The operating margin (operating result/total revenues), excluding amortization and Merck Serono integration costs, is expected to be 23% to 27%. Revenue growth in the Liquid Crystals division should be between 5% and 10% and the operating margin between 47% and 52%. For the Merck Serono division, revenue growth should be in the range of 7% to 11% and the operating margin, excluding amortization and integration costs, is expected to be between 23% and 27%.

16 16 Interim Consolidated Financial Statements as of March 31, Income Statement million Change in % Sales 1, , Royalty income Total revenues 1, , Cost of sales Gross margin 1, , Marketing and selling expenses Administration expenses Other operating income and expenses Research and development Amortization of intangible assets Investment result Operating result Exceptional items Earnings before interest and tax (EBIT) Financial result Profit before tax Income tax Profit after tax from continuing operations Profit after tax from discontinued operations Profit after tax Minority interest Net profit after minority interest Earnings per share from continuing operations (in ) basic diluted Earnings per share from continuing and discontinued operations (in ) basic diluted

17 Interim Consolidated Financial Statements as of March 31, 17 Balance Sheet million March 31, December 31, Change in % Current assets Cash and cash equivalents Marketable securities and financial assets Trade accounts receivable 1, , Inventories 1, , Other current assets Tax receivables Assets held for sale , , Non-current assets Intangible assets 8, , Property, plant and equipment 2, , Investments at equity Non-current financial assets Other non-current assets Deferred tax assets , , Total assets 15, , Current liabilities Current financial liabilities Trade accounts payable Other current liabilities Tax liabilities Current provisions Liabilities held for sale , , Non-current liabilities Non-current financial liabilities 1, , Other non-current liabilities Non-current provisions Provisions for pensions and other post-employment benefits 1, , Deferred tax liabilities , , Net equity Equity capital Reserves 8, , Minority interest , , Total liabilities and stockholders equity 15, ,

18 18 Segment Reporting Merck Serono Consumer Health Care Pharmaceuticals Change Change Change million in % in % in % Sales 1, , , , Royalty income Total revenues 1, , , , Gross margin 1, , Selling, general and administration Research and development Operating result Exceptional items Earnings before interest and tax (EBIT) Net operating assets 10, , , , Capital spending on property, plant and equipment Net cash flows from operating activities Net cash flows from investing activities , , Free cash flow , ,884.3 Discontinued Operations (Generics) Reversal Discontinued Operations (Generics) Group/Continuing Operations Change Change Change million in % in % in % Sales , , Royalty income Total revenues , , Gross margin , , Selling, general and administration Research and development Operating result Exceptional items Earnings before interest and tax (EBIT) Net operating assets , , , , Capital spending on property, plant and equipment Net cash flows from operating activities Net cash flows from investing activities ,654.1 Free cash flow ,906.5

19 Interim Consolidated Financial Statements as of March 31, 19 Liquid Crystals Change in % Performance & Life Science Chemicals Chemicals Corporate and Other Change in % Change in % , , , , Change in %

20 20 Cash Flow Statement million Profit after tax Depreciation/amortization and impairment losses (non-current assets) Changes in inventories Changes in trade receivables Changes in trade payables Changes in provisions Changes in other assets and liabilities Gains /Losses on disposal of assets Other non-cash income and expenses Net cash flows from operating activities thereof: Discontinued Operations Purchase of intangible assets Purchase of property, plant and equipment Acquisitions and investments in other financial assets ,190.4 Disposal of non-current assets Changes in securities Changes in other financial assets Net cash flows from investing activities ,660.9 thereof: Discontinued Operations Dividends payments Capital increase 0.3 2,033.9 Profit transfers to E. Merck OHG and changes in reserves Changes in liabilities to E. Merck OHG Changes in current and non-current financial liabilities ,136.1 Net cash flows from financing activities ,159.4 thereof: Discontinued Operations Changes in cash and cash equivalents ,750.6 Changes in cash and cash equivalents due to currency translation Cash and cash equivalents as of January Cash and cash equivalents as of March ,207.3

21 Interim Consolidated Financial Statements as of March 31, 21 Free Cash Flow million Net cash flows from operating activities Purchase of intangible assets Purchase of property, plant and equipment Acquisitions and investments in other financial assets ,190.4 Disposal of assets Changes in securities Free cash flow ,872.5 thereof: Discontinued Operations Free cash flow before acquisitions and divestments Statement of Recognized Income and Expense million Profit after tax Gains/Losses recognized immediately in equity Unrealized gains/losses from the fair value measurement of financial instruments Actuarial gains/losses from defined benefit pension commitments and similar obligations Deferred taxes on gains/losses recognized immediately in equity Currency translation difference Comprehensive income Statement of Changes in Net Equity including Minority Interest million Balance as of January 1 8, ,807.4 Profit after tax Dividend payments Profit transfers to /from E. Merck OHG including transfers to reserves Capital increase 0.2 2,033.7 Other comprehensive income Changes in companies consolidated/other Balance as of March 31 8, ,907.3

22 22 Notes to the Interim Consolidated Financial Statements Accounting policies The unaudited interim consolidated financial statements of the Merck Group dated March 31, comply with IAS 34. They have been prepared in accordance with the International Financial Reporting Standards (IFRS) in force on the reporting date and adopted by the European Union. The notes to the consolidated financial statements of the Merck Group for, particularly the accounting policies, thus apply accordingly. Discontinued operations In, Merck sold its Generics division to Mylan Inc., United States. Within the scope of the agreement, Mylan was granted an option to purchase the Generics business still remaining with the individual Merck companies. This option was already reflected in the purchase price. The earnings contribution of these businesses is immaterial and continues to be reported under discontinued operations. Companies consolidated The consolidated financial statements of the Merck Group have been prepared with Merck KGaA as the parent company. As of March 31,, a total of 185 companies were fully consolidated. As of February 29,, Merck acquired a 100% interest in SeQuant AB, Sweden, at a purchase price of 7 million. This acquisition is a strategic measure to further expand the chromatography business. Notes to the financial position and results of operations Total revenues from continuing operations of the Merck Group rose in the first three months of fiscal by 8.3 % to 1,858 million. When adjusted for currency effects, total revenues climbed by 14%. At 10%, gross margin grew stronger than revenues. By contrast, selling expenses grew moderately by 6.5%. In the, 288 million was invested in research and development, which corresponds to an increase of 6.3%. The decline in other operating expenses is mainly the result of integration and restructuring expenses recorded in. At 141 million, amortization of intangibles remained at the previous year s level and relate primarily to the additional amortization resulting from the Serono purchase price allocation in. The operating result of continuing operations totaled 360 million in the first three months, which corresponds to an increase of 49% over the previous year. Following the divestment of the Generics division in the 4 th quarter of and the use of the proceeds for debt repayment, with a net expenditure of 31 million the financial result of the of was considerably better than in the previous year. Profit after tax of continuing operations was 242 million in the first three months. The previous year s figure was negative due to the exceptional items recorded within the scope of the Serono purchase price allocation. The tax rate was 26.4% compared to 29.1% in.

23 Interim Consolidated Financial Statements as of March 31, 23 The total assets of the Merck Group amounted to 15,267 million as of the balance sheet date. This corresponds to an increase of 345 million, or 2.3%, as compared with December 31,. The equity ratio was 58.8 % as of the balance sheet date, compared to 58.2% as of December 31,. Gearing (ratio of net debt and pension provisions to net equity) remained at a very low level, that is 0.23, compared to 0.18 at the end of. In the of, the Merck Group s free cash flow was 211 million. Adjusted for acquisitions and divestments, the free cash flow including discontinued operations was 271 million compared to 313 million in. General information on subscription rights of executive body members and employees Within the scope of the stock option program resolved by the Merck KGaA Annual General Meeting in 2000, senior executives hold 18,000 Merck KGaA stock options as of the balance sheet date (December 31, : 20,000 stock options). Additional information on this stock option program can be found on page 130 of our Annual Report for. Related party disclosures As of March 31,, there were liabilities by Merck KGaA and Merck & Cie, Altdorf, to E. Merck OHG in the amount of 583 million. In addition, as of March 31,, Merck KGaA was owed receivables of 6.2 million by E. Merck OHG. The balances result mainly from the profit transfers by Merck & Cie to E. Merck OHG as well as the reciprocal profit transfers between Merck KGaA and E. Merck OHG. They include financial payables of 564 million, which are subject to standard market interest rates. In the of, Merck KGaA performed services for E. Merck OHG and E. Merck Beteiligungen OHG with a value of 0.2 million and 0.1 million, respectively. In the, the companies of the Merck Group supplied goods with a value of 0.1 million to associates.

24 24 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements of the Merck Group give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Darmstadt, April 23, Karl-Ludwig Kley Michael Becker Bernd Reckmann Elmar Schnee Walter W. Zywottek

25 Responsibility Statement Executive Board Supervisory Board Capital structure 25 Executive Board of Merck KGaA Dr. Karl-Ludwig Kley, Chairman Dr. Michael Becker Dr. Bernd Reckmann Elmar Schnee Walter W. Zywottek Supervisory Board of Merck KGaA Prof. Dr. Wilhelm Simson, Chairman Heiner Wilhelm*, Vice Chairman Johannes Baillou Frank Binder Dr. Daniele Bruns* Judith Delp* Claudia Flauaus* Michael Fletterich* Edeltraud Glänzer* Michaela Freifrau von Glenck Frieder Kaufmann* Prof. Dr. Dr. h.c. Rolf Krebs Albrecht Merck Dr. Arend Oetker Prof. Dr. Theo Siegert Osman Ulusoy* * Employee representative Capital structure of Merck KGaA as of March 31, (for more information, please see the Annual Report for, p. 74 et seq.) Total capital Merck KGaA 565,195, Share capital 167,999, Equity interest 397,196, Limited liability shareholders General partner E. Merck OHG (with equity interest) Annual General Meeting Supervisory Board 16 members (sections 1, 7 MitbestG) Board of Partners E. Merck OHG, 9 members Human Resources Committee Finance Committee General partners with no equity interest (with power of management and representation) = Executive Board Merck KGaA

26 26 Financial calendar Interim Report 2 nd quarter Wednesday, July 23 Interim Report 3 rd quarter Autumn press conference Monday, October 27 Publication contributors Published on April 23, by Merck KGaA Corporate Communications, Frankfurter Str. 250, Darmstadt, Germany Fax: , corpcom@merck.de, Web site: Design: XEO GmbH, Düsseldorf, Germany Typesetting: typowerkstatt Dickerhof & Schwarz, Darmstadt, Germany Photographs: Marco Moog, Hamburg, Germany Printing: Frotscher Druck GmbH, Darmstadt, Germany

27 Pharmaceuticals business sector Chemicals business sector Merck develops, manufactures and markets innovative pre scription drugs as well as over-the-counter products. We develop therapies for high unmet medical needs. Through their targeted effect, these help patients to live a longer and better life. Our over-the-counter products help prevent disease and relieve minor complaints. Merck offers a very wide range of specialty chemicals for technologically sophisticated applications. Many of these are contained in products that people encounter in everyday life, such as mobile phones, televisions, automotive coatings and cosmetics. Top quality, diversity and a customer-centric approach to research and product development characterize our Chemicals business. Merck Serono division The product portfolio of this division includes leading prescription drugs such as the cancer drug Erbitux and the multiple sclerosis treatment Rebif. In addition, we offer therapies to treat infertility, growth disorders, cardiovascular or metabolic diseases, and psoriasis. The focus of our research activities is on Oncology, Neurodegenerative Diseases, Fertility, Autoimmune and Inflammatory Diseases. Liquid Crystals division Close cooperation in development and production of liquid crystals (LC) with the world s leading display manufacturers has made Merck the number one company worldwide in this market of the future. Modern life would be hard to imagine without LC displays. In order to meet the growing demand, we continuously invest in research for customized LC mixtures and OLEDs (organic light-emitting diodes). At the same time, we adapt our production capacities to the dynamic market development. Consumer Health Care division Many consumers trust a wide range of well-known over-thecounter brands that Merck develops, manufactures and markets in its Consumer Health Care division. The portfolio ranges from products for everyday health such as Bion 3, or Femibion, which is specially for women, classic cold remedies such as the well-known brand Nasivin, to products that strengthen the joints such as Seven Seas JointCare and Kytta. Performance & Life Science Chemicals division Our specialty chemicals and our expertise in application technologies, quality assurance and approval processes have made us a successful supplier in key markets, in particular the food, optics, plastics, coatings, printing, cosmetics and pharmaceutical industries. Products and services from Merck are used throughout the entire process chain, from analysis, research and development, through to production and quality control. Our portfolio includes, for example, effect pigments, cosmetic actives, reagents and test kits. W

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