When we look back 12 months ago and to the uncertainties at that time, we can now be glad that the impact of the financial and economic crisis on Merck was milder than originally feared. Of course, fiscal 2009 was also a year of highs and lows for us. Overall, however, we are presenting a satisfactory set of financial statements despite the environment in which we operated.
Total revenues increased by 2.1%. Return on sales was 8.4% and underlying free cash flow rose to € 852 million. As a result, underlying free cash flow on revenues (FCR), one of our key financial performance indicators besides return on sales, rose to 11.0%. Our profit after tax remained virtually constant. This ensures a high degree of liquidity and – against the background of low debt – solid balance sheet ratios.
“Our balanced business model proves its
worth, especially in times of crisis.“
Dr. Karl-Ludwig Kley
Were there any special formulas for mastering the crisis?
None that were new for us. First, due to their strong focus on specialty businesses, our Pharmaceuticals and Chemicals business sectors are only moderately affected by fluctuations in economic activity. Second, our well-balanced business model proves its worth, especially in times of crisis. And lastly, our rapid response to the downturn helped. We adjusted our production levels quickly, introduced reduced working hours where necessary, limited hiring to a minimum, and applied the brake on spending. Our employees not only demonstrated their commitment and flexibility, they also behaved in a very cost-conscious manner. For this they deserve my special thanks.
As expected, the Pharmaceuticals business proved to be resilient to economic conditions, generating growth of 6.5%.
While 2009 was a very successful year for the Merck Serono division, we once again realized that the discovery and development of new medicines always involve risk. At the beginning of the year, we had to withdraw Raptiva® from the market. Then we were confronted with a very surprising negative opinion from the European Medicines Agency regarding the use of Erbitux® in the treatment of lung cancer. Lastly, we received a refuse to file letter in response to our regulatory submission of cladribine tablets in the United States. Yet these setbacks are counterbalanced by just as many successes. We further consolidated our position as a leading manufacturer of biopharmaceuticals.
Two products are prominent examples of our range of biotech medicines, which accounted for 60% of sales by the Merck Serono division:
- Erbitux® is now a standard first-line therapy for colorectal cancer; it achieved the breakthrough in head and neck cancer, and successfully entered the Japanese market. All three factors contributed to a 23% increase in sales.
- The success story of Rebif® for the treatment of multiple sclerosis continued, with sales totaling € 1,537 million. The launch of Rebismart®, the first electronic injection device, contributed considerably to growth of 15%.
Our Consumer Health Care business posted sales growth of 5.7%, which significantly exceeded market growth. The focus on four health themes and key regional markets is paying off.
Our Chemicals business sector fared better in the crisis than some competitors and delivered a brilliant finish at year-end.
Above all, the Liquid Crystals division caught up in the fourth quarter, generating a 23% increase in sales, with a return on sales that is still exceptional for a chemicals business. That was despite the substantial drop in demand and intense price competition. Our innovative PS-VA liquid crystal mixtures are increasingly becoming the preferred technology for high-quality displays, primarily in televisions. This enabled us to further secure our market and technology leadership.
For the Performance & Life Science Chemicals division, 2009 was to some extent a highly problematic year. While developments in the Laboratory and Life Science Solutions businesses were for the most part stable, we sustained a 10% decline in sales in our Pigments business – despite a good fourth quarter. We quickly adapted our output at all sites to the order situation, temporarily shut down production units and introduced reduced working hours for the first time. Nevertheless, our faith in the Pigments business did not diminish, also demonstrated by our acquisition of Taizhu, a leading manufacturer of effect pigments in China.
What do we expect in the near future?
The global economic crisis is not over yet. Therefore, we assume that 2010 will also be a difficult year. And unfortunately, at Merck we don’t live on an island of the blessed, around which the rushing waters of the crisis flow. It’s certain that we will focus on innovations, perhaps even to a greater extent than before. They are our elixir of life. It’s also clear that we want to balance the inherent risks of research through the diversity of our business areas. Both these intents are consistent with the corporate strategy entitled “Sustain – Change – Grow”, which we continue to actively pursue.
Despite setbacks, our current pharmaceutical pipeline is the best in the history of Merck and one of our key growth drivers. With ten projects in the final phase of clinical development alone, we do not fear the future. Technological innovations are also tremendously important in the Chemicals business. Here we want to find answers to urgent issues such as the shortage of energy supplies and resource conservation. That’s why we spend far more than € 1 billion on research and development annually.
Achieving growth also involves the regional expansion of our businesses. In 2009, this was primarily the case in Japan, where we grew significantly. The year 2009 was also very successful in China, where we are establishing our Asian pharmaceutical research and development center and plan to create 200 new positions. We see unexploited market potential for Merck in both the United States and India, and we are working on ways to tap this potential.
We can only grow if everyone pulls together. On behalf of the Executive Board, I would therefore like to thank our employees, the Merck family and, last but not least, you – our shareholders – for your support. We appreciate your loyalty and will work further to justify your trust.
