Merck KGaA announced that Group total revenues rose 2.7% in the third quarter to € 1,944 million from € 1,893 million in the year-ago quarter as the Pharmaceuticals divisions continued to grow and the Chemicals divisions continued to recover from the economic crisis. Royalty income declined 9.7% to € 82 million. Mainly due to inventory adjustments and underutilization of capacities, the gross margin was little changed compared to the year-ago quarter at € 1,422 million.
Research and development costs climbed by 17% to € 333 million in the third quarter. Merck's strength in both Pharmaceuticals and Chemicals is developing innovative and added-value products whether it is a new drug to treat multiple sclerosis or a fast and simple water purity test. The largest share of the R&D increase was due to the number of late-stage clinical trials.
Merck booked € -147 million in the third quarter for amortization of intangible assets, almost all from the 2007 acquisition of Serono, a 4.4% increase compared to the year ago quarter. Due to the increasing and obvious currency risk in Venezuela, Merck booked a provision of € -52 million during the third quarter against potential currency losses on transactions. This amount included € 45 million for the Merck Serono division, € -5 million for Consumer Health Care and € -2 million for Performance & Life Science Chemicals.
Also taking into consideration higher marketing and selling expenses for new pharmaceutical products and the decline in the Chemicals operating result, the Group's operating result declined by 28% to € 222 million in the third quarter. The Group return on sales (ROS: operating result/total revenues) declined to 11.4% in the third quarter compared to 16.3% in the year-ago quarter. Group core ROS (operating result excluding amortization of intangible assets and integration costs from Serono as well as Generics/total revenues) in the third quarter of 2009 was 19.0% compared to 24.4% in the year-ago quarter.
As with the operating result, earnings before interest and tax (EBIT) fell by 28% to € 222 million in the third quarter compared to € 309 million in the year-ago quarter. Merck's financial result remained at a relatively low level, improving by 6.2% to € -32 million from € -34 million in the year-ago quarter.
Profit before tax fell 31% to € 190 million in the third quarter compared to € 275 million in the year-ago quarter. Merck's underlying tax rate was 22.2% for the third quarter compared to 26.1% in the year-ago quarter. This resulted in a third quarter profit after tax of € 148 million, 27% less than the € 202 million recorded in the year-ago quarter.
The Merck Group's free cash flow improved substantially to € 399 million in the third quarter compared to € 209 million in the year-ago quarter. The significant increase was due to good working capital management. In addition, there were almost no tax payments in the third quarter of 2009.
Merck had 32,832 employees worldwide on September 30, 2009, 32 more than at the end of 2008.
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 approximately 33,000 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.