For Merck, 2007 was a demanding and challenging year, and in many cases, an exciting one as well. The main highlights were the Serono acquisition, the divestment of Generics, the capital increase and our admission to the DAX®.
Chairman of the Executive Board of Merck KGaA
Despite all the changes, it was our most successful year so far, as a look at one of the most important measures of business success shows: Profit after tax was €3.5 billion. This record result is due not least to special factors, which lead us to propose to the Annual General Meeting on March 28 not only a higher dividend of €1.20 per share, but also a special dividend of €2.00 per share. In this way, we want our capital providers to benefit from the proceeds from the sale of the Generics division for €4.9 billion.
In recent years, we have strategically repositioned ourselves. The most important move was the purchase of Serono, which was completed in January 2007 and made us one of the world’s leading biopharmaceutical companies. The achievements of the new Merck Serono division in its first year are impressive. The integration project was concluded in September, three months earlier than planned. On a pro forma basis, meaning including Serono in 2006, total revenues increased by 7.4%. In accordance with statutory requirements, most of the figures in this annual report present the legal view, meaning without Serono in 2006. From this perspective, total revenues more than doubled.
Around 60% of Merck Serono’s sales are attributable to biopharmaceuticals. Such medicines are now considered indispensable for treating a large number of serious diseases. They represent therapeutic advances that can prolong the lives of patients, for example those with advanced stages of cancer. Our oncology drug Erbitux®, which generated strong sales growth again in 2007, is one of these biopharmaceuticals. In multiple sclerosis, modern biopharmaceutical immunomodulators delay the debilitating stages of the disease, thereby not only helping individual patients, but also lowering the costs to society. In 2007, we gained European approval for a new, better tolerated formulation of Rebif® – one of the most successful drugs in this market.
And, of course, Merck is not just a pharmaceutical company. Our successin Chemicals is likewise founded on sophisticated technologies. For many years we’ve held the leadership position in liquid crystals and cover two-thirds of global demand. When we talk about our liquid crystals business, I am often asked how we are dealing with the competition. My answer is: The market is growing. Customer needs are growing. Display sizes – from mobile telephones to LCD televisions – keep on growing. We pride ourselves on our high-quality, modern production technologies, suitable capacities, an innovative product portfolio and above all, superb, long-standing customer relationships. Organic sales growth in 2007 was 14% and returns remained at a very high level.
Sustainable business success makes it necessary to constantly align operational decisions with long-term goals. The title of this annual report – “Sustain. Change. Grow.” – is also the motto of our corporate strategy. When you read the following pages, you’ll get an impression of where we are coming from and where we want to go.
Mass markets in chemicals and pharmaceuticals are not our objective. Therefore, size is not the only thing that matters to us. We want to grow profitably – as an innovative company in specialty businesses.
Nevertheless, in spite of the refocusing, we are adhering to certain principles that enable us to remain true to ourselves. Operating in both pharmaceuticals and chemicals is not in fashion. But it’s the Merck way: We diversify our risk within an integrated company. Apart from the research and product portfolio for strongly expanding markets, we also have stable businesses in mature market segments – for example our Consumer Health Care and Performance & Life Science Chemicals divisions. We don’t bet everything on one horse.
Financially, we’re on solid footing: Adjusted for the effect of acquisitions and divestments, free cash flow was around €1 billion. Net debt as of December 31, 2007 was €355 million. Gearing, the ratio of net debt to net equity, was 0.18.
For our employees, the changes that took place in 2007 weren’t always easy: the largest acquisition in the company’s history, a rapid integration process, more global management of the company. I am therefore particularly pleased that many of our employees recognize the opportunities, enabling us to pursue the same path. And we communicate openly with each other – based on a foundation of shared values such as transparency and respect. For this, I would like to thank all 30,968 people who work for Merck.
I would like to point out two personnel-related items. First, I extend my thanks to the 4,641 people in the Generics division, which was sold in early October, for their contributions. I wish them every success as employees of Mylan. Secondly, the change in the leadership of the Executive Board took effect at the 2007 Annual General Meeting. Here too, I would like to thank Michael Römer for his superb contributions to the company over a period of nearly 30 years.
My Executive Board colleagues and I cordially thank you, the shareholders and friends of Merck, as well as the Merck family of owners, for the trust you have placed in us. We want to achieve entrepreneurial success based on ethical values while constantly creating new economic value. This is what enables us to live up to our responsibility for the community, e.g. through the Merck-Praziquantel Donation Program with WHO, and especially for our customers, employees and owners.
