All in all, the Merck Group performed solidly during the first quarter of 2009. However, Merck is not an island. The recession is affecting the company's results, mainly in the Chemicals business sector. In addition, this year's first quarter is compared to a very strong first quarter in 2008. Total revenues in the first quarter were stable at € 1,854 million. Royalty income, mainly from Merck Serono, jumped 31% to € 97 million in the first quarter. The gross margin was steady at € 1,397 million in the quarter.
The Group's first-quarter operating result dropped 45% to € 198 million, mainly because of the decline in the Chemicals operating result. In addition, research and development costs rose 8.8% to € 313 million, mainly due to increased costs for accelerated late-stage clinical trials and higher marketing and selling expenses for new pharmaceutical products. Merck booked € â147 million in the first quarter for amortization of intangible assets from the 2007 acquisition of Serono, a 4.9% increase compared to the year-ago quarter because of the currency translation from Swiss francs.
The Group's first-quarter core operating result, which excludes amortization of intangible assets and integration costs for Merck Serono from the operating result, was € 343 million, a decrease of 32% from the year-ago quarter.
The Group return on sales (ROS: operating result/total revenues) declined to 10.7% in the first quarter of 2009 compared to 19.4% in the year-ago quarter. Free cash flow (FCF) in the first quarter was € 164 million compared to € 211 million in the year-ago quarter, as the 41% rise in FCF for the Merck Serono division could not offset declines at the other divisions.
Merck booked € â69 million in exceptional items during the first quarter of 2009, including a € â70 million provision to cover costs associated with the suspended psoriasis treatment Raptiva® and a € 1.2 million adjustment to a previous exceptional. There were no exceptional items in the year-ago quarter.
Therefore, earnings before interest and tax (EBIT) in the first quarter of 2009 declined 64% to € 129 million compared to € 360 million in the year-ago quarter. Merck's financial result remained at a relatively low level but did increase in the first quarter by 14% to € â35 million due to higher interest payments.
Merck's underlying tax rate was 24.7% for the quarter under review compared to 26.4% in the year-ago quarter. Merckâs first-quarter profit after tax totaled € 60 million compared to € 243 million in the year-ago period.
The Merck Group had 32,700 employees worldwide on March 31, 2009, i.e. 100 or 0.3% less than the 32,800 at the end of 2008.
"This year will be a challenge for Merck but I am happy to say that our Pharmaceuticals business remains strong. Regarding Liquid Crystals, we are convinced we reached the bottom in the first quarter," said Dr. Karl-Ludwig Kley, Chairman of the Executive Board of Merck KGaA. "As the fog obscuring the future has now lifted enough, we are able to provide guidance for the full year. We expect the Groupâs total revenues will increase from zero to 5% and that our Core ROS will be between 15% and 20%."
Merck KGaA
Merck is a global pharmaceutical and chemical company with total revenues of € 7.6 billion in 2008, a history that began in 1668, and a future shaped by 32,700 employees in 60 countries. Its success is characterized by innovations from entrepreneurial employees. Merck's operating activities come under the umbrella of Merck KGaA, in which the Merck family holds an approximately 70% interest and free shareholders own the remaining approximately 30%. In 1917 the U.S. subsidiary Merck & Co. was expropriated and has been an independent company ever since.