Merck Millipore business development Audited

2012 was again a successful year for the Merck Millipore division. Sales grew by 9.0% to € 2,598 million (2011: € 2,383 million), stemming from solid organic growth of 3.8% and positive exchange rate effects of 3.9% primarily related to the U.S. dollar and 1.4% from acquisitions in the areas of cell culture media, cell imaging and microbial testing. All three business units grew organically, driven by the division’s customers from the pharmaceutical industry, which benefited from higher drug volumes, including new drug launches. Consequently, the Process Solutions business unit, which supplies materials and services for drug production, saw the strongest sales increase. The Lab Solutions business unit performed well, driven by Lab Water and BioMonitoring products. The performance of the Bioscience business unit remained affected by softer spending by government and academic institutions, although this customer group only accounts for about 15% of divisional sales. During 2012, Merck Millipore recorded royalty, license and commission income of € 19 million (2011: € 10 million) primarily related to the Process Solutions business unit.

Cost of sales increased 8.2% to € 1,086 million in 2012 (2011: € 1,003 million), below reported sales growth. Accordingly, the division’s gross profit increased 10.2% to € 1,531 million (2011: € 1,390 million) or 58.9% of sales (2011: 58.3%). Higher idle costs as a result of the division’s initiative to reduce inventories were partially offset by stronger pricing.

In 2012, Merck Millipore continued to execute its growth strategy by investing in new product development and commercial operations. As a consequence, total selling, general and administration costs grew 11.9% to € 928 million (2011: € 829 million). Marketing and selling expenses, which are included in this item, increased 11.5% to € 676 million (2011: € 606 million). Part of this increase was also driven by the stronger U.S. dollar since the majority of Merck Millipore’s global marketing operations are located in the United States. In addition, the marketing and selling expenses of the recently acquired businesses were included for the first time. Both factors also contributed to the 9.0% increase in administration expenses to € 113 million (2011: € 104 million). Other operating expenses amounted to € 123 million (2011: € 103 million), corresponding to an increase of 19.3% and including € 28 million one-time items related to the Group’s efficiency program.

To further drive the development of innovative products, the division also increased its R&D spending by 24.5% to € 166 million (2011: € 133 million), representing 6.4% of divisional sales (2011: 5.6%). A significant portion of the increase was directed to Process Solutions, reflecting the division’s expectation that increasing volumes of biopharmaceuticals will remain an attractive growth opportunity. Once again, the strong U.S. dollar contributed to higher costs since the majority of Merck Millipore’s R&D activities are also located in the United States.

The division’s EBIT decreased slightly by 1.0% to € 233 million in 2012 (2011: € 235 million) as a consequence of higher strategic investments in the business as well as higher one-time items related to restructuring (including impairments), offsetting the improved gross profit. The decline also reflects a 7.7% increase in depreciation and amortization to € 309 million (2011: € 287 million), driven primarily by higher amortization of purchased intangible assets following recent acquisitions as well as an asset impairment related to the consolidation of the division’s production sites. Adding this back, however, EBITDA increased by 3.8% to € 542 million (2011: € 522 million), while EBITDA pre one-time items grew 6.2% to € 596 million (2011: € 561 million).