Merck Millipore

Development of total revenues and sales as well as results of operations

The Merck Millipore division generated organic sales growth of 3.7% in the first quarter of 2014. This organic growth was countered by a negative foreign exchange impact of –5.5%, which primarily stemmed from the Japanese yen and the U.S. dollar. Including these effects, divisional sales decreased by € –12 million, or –1.8%, to € 657 million. Royalty and license income, which was mainly generated by the Process Solutions business unit, totaled € 4 million (Q1 2013: € 6 million).

Merck Millipore | Sales by region – Q1 2014

From a regional perspective, sales by the Merck Millipore division developed unevenly in the first quarter of 2014. In Europe, the division’s largest geographic market accounting for 40% of divisional sales (Q1 2013: 38%), organic growth was 4.6% and sales totaled € 266 million (Q1 2013: € 254 million). The Process Solutions and Lab Solutions business units posted strong sales growth particularly in France, Spain and the United Kingdom.

In North America, the division’s sales declined organically by –6.5%. The weaker U.S. dollar lowered sales by a further –3.6%. Overall, the sales in North America decreased to € 170 million (Q1 2013: € 189 million), contributing 26% to Merck Millipore’s overall sales in the first quarter of 2014 (Q1 2013: 28%). The organic sales decline in North America related to all three business units, with Bioscience being particularly impacted by weaker demand due to the continuing U.S. budget sequester.

Sales developed very positively in the Emerging Markets region, which generated organic sales growth of 13.3%. Including currency headwinds of –11.7%, sales rose to € 156 million (Q1 2013: € 154 million). The strong organic sales development was fueled by good demand for products from all the division’s business units. The Process Solutions business unit in particular achieved high organic growth. Consequently, the share of divisional sales generated by the Emerging Markets region increased by 1 percentage point to 24%.

As a result of significant currency headwinds of –15.9%, especially relative to the Japanese yen, sales in the Rest of World region decreased to € 65 million (Q1 2013: € 72 million). With organic growth of 6.4%, this region’s share of divisional sales slipped to 10% (Q1 2013: 11%).

The two top-selling business units, Process Solutions and Lab Solutions, both contributed to organic growth in the first quarter of 2014. The Process Solutions business unit, which markets products and services for the pharmaceutical production value chain, generated organic sales growth of 6.6%, which was the highest rate within the Merck Millipore division. Taking negative foreign exchange effects of –4.4% into account, sales amounted to € 301 million (Q1 2013: € 294 million). The share of divisional sales generated by Process Solutions thus rose to 46% (Q1 2013: 44%). This increase was driven by higher demand from the pharmaceutical industry for products used in biopharmaceutical manufacturing, especially filtration systems and single-use solutions.

Lab Solutions, which accounted for a 39% (Q1 2013: 40%) share of divisional sales, generated organic sales growth of 2.9% with its broad range of products for researchers and scientific laboratories. Taking currency headwinds of –6.9% into account, sales amounted to € 259 million (Q1 2013: € 269 million). Organic growth was mainly driven by higher demand for biomonitoring products as well as lab water instruments.

The Bioscience business unit, which primarily markets products and services for academic and pharmaceutical research laboratories, recorded an organic sales decline of –2.5%. Including adverse foreign exchange effects of –5.0%, sales amounted to € 97 million (Q1 2013: € 105 million). Here, across-the-board health care spending cuts in the United States continued to soften demand. In the first quarter of 2014, Bioscience accounted for a 15% share of divisional sales (Q1 2013: 16%).

The results of operations of the Merck Millipore division developed as follows:

The reduction in cost of sales was primarily attributable to efficiency improvements in production as well as strict cost control. In the first quarter of 2014 this led – despite the negative impact of the strong euro on sales – to a slight increase in gross profit to € 396 million and a higher gross margin of 60.3% (Q1 2013: 59.1%). In comparison with the year-earlier quarter, the operating result (EBIT) of Merck Millipore climbed by 20.3% to € 87 million (Q1 2013: € 72 million). Besides the decline in one-time items, which amounted to € –6 million in the first quarter of 2014 (Q1 2013: € –10 million), efficiency improvements also positively influenced the development of results of operations. EBITDA pre one-time items, our most important earnings indicator, climbed 4.8% to € 170 million (Q1 2013: € 162 million). Consequently, the EBITDA pre margin rose in the first quarter of 2014 to 25.8% (Q1 2013: 24.2%).

Development of business free cash flow

In the first quarter of 2014, the Merck Millipore division generated business free cash flow of € 54 million (Q1 2013: € 81 million). The decrease of € –27 million was mainly due to the increase in trade accounts receivable as well as higher capital spending in the first quarter of 2014, which could not be compensated for by the rise in EBITDA pre one-time items.