Expenses Audited

Cost of sales of the Merck Group fell by –5.2% to € 2,993 million (2012: € 3,158 million). Despite lower royalty, license and commission income as well as negative foreign exchange effects, gross profit increased by 1.1% to € 8,103 million (2012: € 8,015 million). Gross margin, i.e. gross profit as a percentage of sales, grew by around one percentage point to 75.7% (2012: 74.6%). This improvement was primarily due to efficiency increases in connection with the “Fit for 2018” transformation and growth program as well as to a more favorable product mix, especially in the Liquid Crystals business unit.

Group marketing and selling expenses declined by –3.5% to € 2,326 million in 2013 (2012: € 2,411 million). Foreign exchange effects, yet also the faster achievement of the savings targets as part of the “Fit for 2018” program initiated in 2012 were primarily responsible for this. The decline in marketing and selling costs was mainly attributable to the Merck Serono division. Consequently, for the Merck Group the proportion of these expenses to sales declined to 21.7% (2012: 22.4%). Administration expenses of the Merck Group increased slightly to € 562 million (2012: € 552 million).

Royalty, license and commission expenses amounted to € 567 million in 2013 (2012: € 580 million), declining by –2.2%, which was largely the result of lower Rebif® co-marketing expenses in the United States.

In 2013, other operating expenses (net) declined by € –408 million to € 718 million (2012: € 1,126 million). This sharp drop in the net expense balance primarily reflects the level of one-time items recorded here. During 2013, one-time items, including impairments, fell by € –277 million to € 387 million (2012: € 664 million). In connection with “Fit for 2018”, € 166 million consisting of restructuring charges of € 130 million and impairments of € 36 million were incurred in 2013. In 2012, one-time expenses amounting € 538 million consisting of restructuring charges of € 504 million and impairments of € 34 million were recorded in this context. In 2013, other operating expenses included an impairment of € 127 million on the intangible asset for Humira® in the Merck Serono division which was classified as a one-time item. The impairment loss resulted from an out-of-court settlement with AbbVie Biotechnology Ltd., Bermudas, and Abbott GmbH & Co. KG, Germany (together referred to as “AbbVie”). Under this settlement, Merck will receive no further royalty payments for this product from AbbVie as of the second half of 2014. Further reasons for the decline in other operating expenses included lower litigation expenses and impairments on receivables as well as gains from operational currency hedges. A detailed presentation of the development of other operating expenses and income can be found in the consolidated financial statements under Note [28].

Research and development (R&D) expenses decreased slightly by –0.5% compared to 2012, amounting to € 1,504 million (2012: € 1,511 million) and thus continued to represent 14.1% of sales. As in 2012, 79% of Group research and development expenses were attributable to the Merck Serono division. The Merck Millipore division accounted for 11%, the second-highest share of Group research and development expenses.

Merck Group | Research and development expenses by division – 2013

Amortization of intangible assets, which resulted primarily from the purchase price allocations for the acquisitions of Serono SA and the Millipore Corporation, decreased by –6.7% to € 813 million (2012: € 872 million). The decline was mainly due to the expiration of the amortization periods for the two intangible assets Avonex® and Enbrel®, which were acquired within the scope of the Serono SA acquisition.