Merck 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Merck annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 175

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175

Disclaimer Publication of
Merck KGaA, Darmstadt, Germany. In the United States and Canada the
subsidiaries of Merck KGaA, Darmstadt, Germany operate under the
umbrella brand EMD.

Table of contents

  • Page 1
    Disclaimer Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany operate under the umbrella brand EMD.

  • Page 2
    Annual Report 2009

  • Page 3
    ...Statement Free Cash Flow Statement of Comprehensive Income Statement of Changes in Net Equity including Minority Interest 103 Notes Total revenues by business sector* â,¬ million Operating result by business sector â,¬ million 8,000 6,000 4,000 2,000 2005 2006 2007 2008 2009 * excluding Corporate...

  • Page 4
    Pharmaceuticals Merck serono Consumer health Care Chemicals Liquid Crystals performance & Life science Chemicals

  • Page 5
    ... within both Chemicals and pharmaceuticals. we are not interested in engaging in commodity markets or businesses where competition is dictated by price alone. THE HISTORY OF MERCK It all started with a pharmacy in 1668. The Angel Pharmacy, which is still owned by members of the Merck family today...

  • Page 6
    ... In 2004, the company exited from the laboratory distribution and electronic chemicals businesses. In 2006, Merck was debt-free. In 2007, Merck succeeded with the transformational acquisition of Serono. Involving a purchase price of â,¬ 10.3 billion, this was by far the largest acquisition ever made...

  • Page 7
    ... laboratories use our reagents and test kits. Moreover, the division is the market leader for pearl luster effect pigments - a highly specialized niche within the pigment market. THE FUTURE Merck will continue to operate in both Pharmaceuticals and Chemicals and to focus on specialty products. We...

  • Page 8
    5 TO OuR shAREhOLdERs 6 10 Letter from Karl-Ludwig Kley Executive Board

  • Page 9
    6 Merck Annual Report 2009 "Our balanced business model proves its worth, especially in times of crisis." Dr. Karl-Ludwig Kley

  • Page 10
    ... set of financial statements despite the environment in which we operated. Total revenues increased by 2.1%. Return on sales was 8.4% and underlying free cash flow rose to â,¬ 852 million. As a result, underlying free cash flow on revenues (FCR), one of our key financial performance indicators...

  • Page 11
    ...our range of biotech medicines, which accounted for 60% of sales by the Merck Serono division: - Erbitux ® is now a standard first-line therapy for colorectal cancer; it achieved the breakthrough in head and neck cancer, and successfully entered the Japanese market. All three factors contributed to...

  • Page 12
    ... diversity of our business areas. Both these intents are consistent with the corporate strategy entitled "Sustain - Change - Grow", which we continue to actively pursue. Despite setbacks, our current pharmaceutical pipeline is the best in the history of Merck and one of our key growth drivers. With...

  • Page 13
    ... born in 1959, business graduate joined Merck in 2003, Member of the Executive Board since November 2005 Responsibility for Group-wide functions: Pharmaceuticals business sector Regional responsibilities: Europe; United States (Pharmaceuticals); Canada; Latin and Central America; Africa; Middle East...

  • Page 14
    ...Human Resources (global); Legal and Compliance; Patents; Auditing and Risk Management; Strategic Planning; Inhouse Consulting; Corporate Communications; Environment, Health and Safety Dr. Michael Becker Chief Financial Officer born in 1948, lawyer joined Merck in 1998, Member of the Executive Board...

  • Page 15
    12 Merck Annual Report 2009 MANAGEMENT REpORT 13 15 26 29 34 50 56 62 68 70 75 80 Overall economic situation Financial position and results of operations Responsibility Merck shares Pharmaceuticals | Merck Serono Pharmaceuticals | Consumer Health Care Chemicals | Liquid Crystals Chemicals | ...

  • Page 16
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 13 Overall economic situation OVER ALL ECONOMiC siTuATiON Following a steep decline, global economic activity stabilized in the course of 2009. The pharmaceutical market ...

  • Page 17
    ... Merck Annual Report 2009 In the consumer health care business with over-the-counter (OTC) pharmaceutical and health products, both China and Russia moved into the ranks of the top ten countries worldwide. In 2008, sales growth of the OTC market for the first time exceeded that of the prescription...

  • Page 18
    ...REsuLTs OF OpER ATiONs Thanks to its diversified portfolio of innovative pharmaceuticals and chemicals, Merck coped more successfully with the crisis than some other companies. Total revenues increased 2.1% and profit after tax remained virtually constant. Stable business development Total revenues...

  • Page 19
    ... production licenses, which are reported in cost of sales. Royalty and commission income and expenses by division in 2009 Merck Serono Consumer Health Care Performance & Life Liquid Science Crystals Chemicals Corporate and Other â,¬ million Total Royalty expenses Royalty income Total Commission...

  • Page 20
    ...To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 17 Financial position and results of operations Research and development by business sector â,¬ million 1,400 1,050 700 350 2005 Chemicals Pharmaceuticals 2006 2007 2008 2009...

  • Page 21
    ...faced by Merck Serono, but also to Chemicals, mainly the Pigments business. Consumer Health Care was the only division that grew. Merck Group | Sales by region â,¬ million 8,000 6,000 4,000 2,000 2005 * excluding Generics 2006* 2007* 2008 2009 Europe North America Latin America Asia, Africa...

  • Page 22
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 19 Financial position and results of operations In the United States, our sales surpassed the â,¬ 1 billion mark. In 2009, we increased our sales in the U.S. market by 18...

  • Page 23
    ... generated 55% of the Group operating result (excluding Corporate and Other). Return on sales declined to 6.9% compared to 12.0% in 2008. Pharmaceuticals | Operating result by division â,¬ million 48 12 % 355 88 % Merck Serono Consumer Health Care Chemicals business sector suffers owing to the...

  • Page 24
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 21 Financial position and results of operations Total revenues of the Chemicals business sector fell by 9.0% to â,¬ 1,935 million. Both divisions suffered owing to the ...

  • Page 25
    ... Free cash flow Underlying free cash flow 2006 2007 2008 2009 High underlying free cash flow led to an improvement in FCR. Key financial performance indicators of the Merck Group Return on sales (ROS or the ratio of operating result to total revenues) and underlying free cash flow on revenues...

  • Page 26
    ...Management Report Corporate governance Consolidated Financial statements Further information 23 Financial position and results of operations Key figures of the Merck Group EBITDA â,¬ million Underlying free cash flow â,¬ million FCR % ROS % Pharmaceuticals Chemicals Corporate and Other Total...

  • Page 27
    ... construct new research buildings. Value added Value added is a measure of the economic strength of a company and indicates how the corporate result is achieved and for what it is used. Our corporate result, meaning the sum of total revenues, other income and financial income, amounted to â,¬ 7,918...

  • Page 28
    ... To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 25 Financial position and results of operations Net value added statement â,¬ million 2009 2008 Total revenues Other income Financial income Corporate result Cost of materials...

  • Page 29
    ... 2008. Merck was represented in 61 countries by 176 companies and had 54 production sites located in 26 countries. In several countries, there were significant changes in the number of employees. In China, the workforce increased by 455 employees owing to the expansion of the pharmaceutical business...

  • Page 30
    Company To our shareholders Management Report Responsibility Corporate governance Consolidated Financial statements Further information 27 519 young people were enrolled in vocational training programs in 19 different occupations at the Darmstadt site, the largest of the Merck Group. We are ...

  • Page 31
    ... our work worldwide with the Global Pharma Health Fund (GPHF) in the fight against counterfeit medicines. The GPHF-Minilab ®, a non-profit initiative supported by Merck, is a unique mobile compact laboratory used to reliably and rapidly test over 40 active pharmaceutical ingredients. Through...

  • Page 32
    ... the 30 largest publicly traded German companies by trading volume and market capitalization, closed on December 30 at 5,957 points, which represented an increase of 24% over the end of 2008. The index of European pharmaceutical companies represented by the Bloomberg Europe Pharmaceuticals Index...

  • Page 33
    ... at the close of trading. Merck is working intensively to resubmit the application in the world's largest pharmaceutical market. Nevertheless, at â,¬ 65.16, Merck shares ended the year just slightly above the comparable year-earlier level as a result of developments in the Chemicals business sector...

  • Page 34
    ...To our shareholders Management Report Merck shares Corporate governance Consolidated Financial statements Further information 31 Focus on liquidity On average, around 500,000 shares were traded daily in 2009, which compares with a daily trading volume of around 750,000 shares in 2008. On July...

  • Page 35
    ..., suppliers, employees, and owners. Our efforts in these areas are continually analyzed and assessed by independent capital market institutes. Since 2008, Merck shares have been in the FTSE4Good Index, which comprises companies with highly sustainable business practices. Additionally, Merck shares...

  • Page 36
    ... To our shareholders Management Report Merck shares Corporate governance Consolidated Financial statements Further information 33 Information on capital and shares As of the balance sheet date, the company's subscribed capital is divided into 64,621,125 no par value bearer shares plus one...

  • Page 37
    34 Merck Annual Report 2009 phARMACEuTiC AL s | MERCK sERONO Merck Serono is the largest division of Merck. It markets innovative prescription drugs of chemical and biotechnological origin, including monoclonal antibodies and other therapeutic proteins, and offers its leading brands in around 150 ...

  • Page 38
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 35 pharmaceuticals | Merck serono KEY PRODUCTS BY THERAPEUTIC AREA - Oncology: Erbitux ® (solid tumors) - Neurodegenerative Diseases: Rebif ® (multiple sclerosis) - ...

  • Page 39
    ...the Merck Serono division. These were partly offset by exchange rate gains from currency hedging transactions. Overall, the operating result declined by 40% to â,¬ 355 million. Return on sales (ROS) decreased in 2009 to 6.6%. At â,¬ 867 million, underlying free cash flow was 55% higher than in 2008.

  • Page 40
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 37 pharmaceuticals | Merck serono Merck Serono | Key figures â,¬ million 2009 2008 ∆ in % Total revenues Gross margin R&D Operating result Exceptional items Free cash ...

  • Page 41
    38 Merck Annual Report 2009 Therapeutic areas Research Development Marketing Oncology Neurodegenerative Diseases Autoimmune and Inflammatory Diseases Fertility Endocrinology CardioMetabolic Care and other products ONCOLOGY Our targeted oncology drug Erbitux ® (cetuximab) is approved in ...

  • Page 42
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 39 pharmaceuticals | Merck serono Negative opinion on Erbitux ® in non-small-cell lung cancer In November, the Committee for Medicinal Products for Human Use (CHMP) ...

  • Page 43
    ... the drug regulatory agencies not only in Europe, but also in all our other markets to terminate the supply of Raptiva ® and withdraw the product from the market around the world. As a result of the sales termination and product recalls, sales of Raptiva ® dropped from â,¬ 93 million in 2008 to...

  • Page 44
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 41 pharmaceuticals | Merck serono deficiency. Available in Europe since 2007, it is the first drug to allow the simultaneous administration of the two key hormones for ...

  • Page 45
    ... France, our largest market within Europe, the transfer of several products to Daiichi Sankyo in Italy, as well as negative currency effects, especially in Poland and the United Kingdom, were responsible for lower sales in Europe. In Asia, Africa, Australasia and especially in Latin America, however...

  • Page 46
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 43 pharmaceuticals | Merck serono With Glucophage ® Powder, which dissolves immediately, in Europe we introduced an alternative to tablets in May 2009. Successful ...

  • Page 47
    ... research in multiple sclerosis. Merck Serono Ventures is the name of the strategic corporate venture capital fund that we launched in March. It will invest in biotech start-up companies that have the potential to provide innovative products in Merck Serono's core therapeutic areas. The focus is on...

  • Page 48
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 45 pharmaceuticals | Merck serono Status of our innovative compounds Therapeutic area Compound Indications Status Oncology Erbitux ® (cetuximab, monoclonal anti- ...

  • Page 49
    ... the recurrence rate and prolong disease-free survival. The recruitment of 2,566 patients for the PETACC-8 study was completed in 2009. In addition, Merck is investigating the efficacy of Erbitux ® in gastric cancer in the pivotal Phase III EXPAND trial. This trial is investigating the benefit of...

  • Page 50
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 47 pharmaceuticals | Merck serono Further oncology projects in the development pipeline With the development of cilengitide, Merck is focusing on a new class of ...

  • Page 51
    48 Merck Annual Report 2009 Merck Serono will work closely with the FDA to successfully resubmit the application at the earliest possible point in time. The two-year Phase III ORACLE-MS study is investigating cladribine tablets as a treatment for patients with an increased risk of developing MS. ...

  • Page 52
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 49 pharmaceuticals | Merck serono Fibroblast growth factor 18 could be the first disease-modifying treatment for osteoarthritis. Therapeutic target in systemic lupus ...

  • Page 53
    50 Merck Annual Report 2009 phARMACEuTiC AL s | CONsuMER hE ALTh C ARE Our Consumer Health Care division offers high-quality over-the-counter products for preventive health care and self-treatment of minor ailments. Its product range includes global, scientifically based branded products that ...

  • Page 54
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 51 pharmaceuticals | Consumer health Care KEY PRODUCTS - Mobility: Products to strengthen the joints and relieve pain, including the brands Seven Seas ®, Seven Seas ® ...

  • Page 55
    ...-known brands and the long-standing trust consumers place in them with respect to their quality and efficacy. Consumer Health Care | Key figures â,¬ million 2009 2008 ∆ in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow Underlying free cash flow ROS in % 467...

  • Page 56
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 53 pharmaceuticals | Consumer health Care Development of strategic brands Global sales of most of our strategic brands developed well in 2009. Sales of Kytta ® grew 33% ...

  • Page 57
    54 Merck Annual Report 2009 Consumer Health Care | Sales by region â,¬ million 89 19 % 56 12 % 319 69 % Europe Latin America Asia, Africa, Australasia Kytta - a flagship product in Germany Germany is our third largest market. Sales increased by 22% to â,¬ 56 million in 2009. The Kytta ® ...

  • Page 58
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 55 pharmaceuticals | Consumer health Care Partnering with Bracco in Italy Establishing our global strategic brands in Italy is the aim of an enhanced partnership with the ...

  • Page 59
    ... technologies such as OLEDs. In view of climate change and consistently high energy prices, in addition to our core business with display materials we are also active in growth markets. These include the use of solar energy and the development of innovative technologies for energy-saving LEDs.

  • Page 60
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 57 Chemicals | Liquid Crystals KEY PRODUCT - licristal ® - Liquid crystal mixtures for displays OTHER PRODUCT GROUPS - livilux ® - Materials for OLEDs (organic light-...

  • Page 61
    ... on sales decreased to 31.0% in 2009 compared to 44.6% in 2008. At â,¬ 292 million, underlying free cash flow was 28% lower than in 2008. Liquid Crystals | Key figures in â,¬ million 2009 2008 ∆ in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow Underlying free...

  • Page 62
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 59 Chemicals | Liquid Crystals Market conditions recover The major display manufacturers recovered well from the crisis of the first quarter. The high degree of ...

  • Page 63
    ... evaporation process used today, these new materials should significantly improve scalability and coating efficiency in particular. To this end, the NEMO project partners are focusing on soluble, phosphorescent materials for red, green and blue applications. In order to develop marketable solutions...

  • Page 64
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 61 Chemicals | Liquid Crystals www.merck-chemicals.com/ solid-state-lighting Alternatives to incandescent light bulbs Incandescent lights bulbs will be phased out in ...

  • Page 65
    ...innovations have made us a successful supplier to the pharmaceutical, cosmetics, food, plastics, coatings and printing industries. Our goal is to further expand our know-how in regulated markets. The division operates in three business areas: Laboratory Business, Life Science Solutions and Pigments.

  • Page 66
    ...Management Report Corporate governance Consolidated Financial statements Further information 63 Chemicals | performance & Life science Chemicals KEY PRODUCT GROUPS - Laboratory chemicals available in various specifications including the relevant certificates of analysis and safety data sheets...

  • Page 67
    ... business. sales of effect pigments fell sharply and resulted in underutilization of pigment production capacities in the course of the year. The development of total revenues and operating result in the Performance & Life Science Chemicals division reflects the effects of the global economic...

  • Page 68
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 65 Chemicals | performance & Life science Chemicals Differentiated growth in Asia The division performed well in important markets of Asia. In India and Japan, sales ...

  • Page 69
    ... of new chemical entities. We are taking this development into account by supplying the materials and services needed for biotech production along the value chain. Innovative cosmetic active ingredients In 2009, our cosmetic active ingredients business with some of our key global customers declined...

  • Page 70
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 67 Chemicals | performance & Life science Chemicals PIGMENTS Slight recovery in demand at year-end In 2009, the Pigments business was marked by weak global demand ...

  • Page 71
    ... the financial result, taxes as well as certain exceptional items not allocated to the individual divisions. Group administrative costs relate primarily to Merck KGaA and consist of typical holding company functions. These include, for example, the corporate finance and accounting, tax, procurement...

  • Page 72
    ... payments for the Generics business, which was divested in 2007, as well as to subsequent tax payments and legal advisory fees. Corporate and Other | Key figures â,¬ million 2009 2008 ∆ in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow Underlying free cash...

  • Page 73
    ... risk situation is reported to the Executive Board in six-month intervals or, in special cases, on an ad-hoc basis. The risk management system and compliance with the corresponding guidelines are reviewed regularly by the Internal Auditing department. Division-specific opportunities are identified...

  • Page 74
    ... being an integrated pharma- tries and took appropriate measures to minimize the risk of supply disruptions for important ceutical and chemical company. products. Total revenues and the operating result of the Merck Group depend on a large number of pharmaceutical and chemical products for various...

  • Page 75
    ... exchange rate or interest rate fluctuations. Finance transactions in foreign currencies are generally hedged. In certain cases, the company also hedges anticipated sales and future costs for a period of up to three years. More details are available in the consolidated financial statements starting...

  • Page 76
    ... the program is the Merck Code of Conduct, which defines ethical behavior guidelines. This is complemented by a training and testing program, a SpeakUp Line for reporting compliance violations, as well as a global network of compliance officers. Insofar as possible and practical, the company limits...

  • Page 77
    ... application systems and access to business-relevant data - even in the event that individual components fail - by means of redundant structures of technical components, networks and sites, as well as suitable, tested contingency measures. Security guidelines are in place for the entire Merck Group...

  • Page 78
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 75 Risk report Report on expected developments REpORT ON E XpEC TEd dE VELOpMENTs For 2010, Merck assumes that total revenues will grow between 3% and 7%. The operating ...

  • Page 79
    ... for Merck take into account the company's weighing up of risks and opportunities in accordance with our medium-term outlook and operational plans. These assume a moderate development of energy and raw material prices, as well as increasing personnel costs. Since we produce specialty chemicals, we...

  • Page 80
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 77 Report on expected developments The operating result is expected to increase by 20% to 30% in 2010. Forecast for the Merck Group Against the background of forecasts by...

  • Page 81
    ..., accounting for a 21% share of global market volume by 2013. IMS Health expects China to supersede Germany as the world's third-largest pharmaceutical market in 2011. In 2013, the United States will rank first, followed by Japan, China, Germany and France. Forecast for the Merck Serono division For...

  • Page 82
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 79 Report on expected developments Consumer purchasing restraint will continue to impact OTC product sales. Forecast for the Consumer Health Care division For the ...

  • Page 83
    80 Merck Annual Report 2009 Growing market for LCD TVs improves the situation for total revenues and the operating result in Liquid Crystals. Opportunities for the division beyond the outlined developments lie primarily in improved business of the display markets. As Merck is strongly positioned ...

  • Page 84
    ... the Supervisory Board (according to section 3.10 of the German Corporate Governance Code including Statement of Compliance) Information on corporate governance practices Procedures of the Executive Board, Supervisory Board, Board of Partners and its Committees Report of the Supervisory Board 85 86...

  • Page 85
    ... INCLUDING STATEMENT OF COMPLIANCE) The German Corporate Governance Code is geared exclusively toward the conditions at a German stock corporation (Aktiengesellschaft). Merck KGaA has resolved to apply the Code correspondingly to a corporation with general partners (Kommanditgesellschaft auf Aktien...

  • Page 86
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information 83 statement on corporate governance Merck KGaA The general partner E. Merck KG holds around 70% of the total capital of Merck KGaA (equity interest); the shareholders ...

  • Page 87
    ... Corporate Governance Code) The compensation paid to the general partners, who make up the Executive Board of Merck KGaA, is composed of salary payments (fixed portion), profit sharing and additions to pension provisions. Profit sharing is based on the rolling three-year average of profit after tax...

  • Page 88
    ...we operate. Thus, it supports all employees in acting ethically - not only in their dealings with one another, but also outside the company. It applies beyond national borders and for all subsidiaries and employees worldwide. The Code of Conduct is closely linked to Merck's Mission Statement, Values...

  • Page 89
    ... their compliance by all the companies of the Merck Group. The Executive Board provides the Supervisory Board with regular, up-to-date and comprehensive reports about all company-relevant issues concerning planning, business developments, the risk situation and risk management. A Supervisory Board...

  • Page 90
    ..., 2009) (a) - Epigenomics AG, Berlin (Chairman) - Ganymed Pharmaceuticals AG, Mainz (Chairman) - Merz GmbH & Co. KGaA, Frankfurt - Senator GmbH & Co KGaA, Frankfurt - Merz Pharmaceuticals GmbH, Frankfurt (b) - Board of Partners E. Merck KG, Darmstadt - Air Liquide S.A., Paris, France Prof. Dr. rer...

  • Page 91
    ...BCE) no board positions (a) - Deutsche Bank AG, Frankfurt - ERGO AG, Düsseldorf - E.ON AG, Düsseldorf - Henkel AG & Co KGaA, Düsseldorf (as of April 2009) (b) - Board of Partners E. Merck KG, Darmstadt - Board of Directors DKSH Holding Ltd., Zurich, Switzerland (a) - Evonik Röhm GmbH, Darmstadt...

  • Page 92
    ... the management of the company according to section 111 (1) AktG. The Supervisory Board deals with the quarterly and half-year consolidated financial statements and examines the annual financial statements of the Merck Group as well as of Merck KGaA, taking into account the auditor's reports. The...

  • Page 93
    ... Co KGaA, Frankfurt - Merz Pharmaceuticals GmbH, Frankfurt (b) - Air Liquide S.A., Paris, France (a) - Supervisory Board of Merck KGaA, Darmstadt - Deutsche Bank AG, Frankfurt - ERGO AG, Düsseldorf - E.ON AG, Düsseldorf - Henkel AG & Co KGaA, Düsseldorf (as of April 2009) (b) - Board of Directors...

  • Page 94
    ...discussing the annual financial statements and the respective auditor's report as well as the quarterly and half-year financial reports. In addition, it deals with the financial position, results of operations and liquidity of Merck as well as accounting issues. It examines and gives recommendations...

  • Page 95
    ... GmbH & Co KGaA, Frankfurt - Merz Pharmaceuticals GmbH, Frankfurt (b) - Air Liquide S.A., Paris, France (a) - Supervisory Board of Merck KGaA, Darmstadt (as of July 1, 2009) (b) - Zeton B.V., Enschede, The Netherlands (as of Oct. 15, 2009) (a) - Fortas AG, Rösrath (b) - Travel Asset Group Ltd...

  • Page 96
    ... and verbal reports on the business development of Merck KGaA and the Merck Group. In particular, the Supervisory Board was informed about the market and sales situation of the company against the background of macroeconomic developments, the financial position of the company and its subsidiaries...

  • Page 97
    ... elected Vice Chairman of the Supervisory Board. In a letter dated December 9, 2008, Professor Dr. Wilhelm Simson and Dr. Arend Oetker resigned from their positions as Members of the Supervisory Board effective June 30, 2009. At the Annual General Meeting of Merck KGaA on April 3, 2009, Dr. Wolfgang...

  • Page 98
    ... FiNANCiAL sTATEMENTs 96 97 98 100 101 101 102 103 104 107 116 123 144 145 147 Income Statement Balance Sheet Segment Reporting Cash Flow Statement Free Cash Flow Statement of Comprehensive Income Statement of Changes in Net Equity including Minority Interest Notes Scope of consolidation Accounting...

  • Page 99
    ... Report 2009 iNCOME sTATEMENT Notes to the income statement: see page 116 â,¬ million Note 2009 2008 Sales Royalty and commission income* Total revenues Cost of sales Gross margin Marketing and selling expenses* Administration expenses Other operating expenses and income Research and development...

  • Page 100
    ...shareholders Management Report Corporate governance Consolidated Financial statements income statement Balance sheet Further information 97 BAL ANCE shEE T Notes to the Balance sheet: see page 123 â,¬ million Note Dec. 31, 2009 Dec. 31, 2008 Current assets Cash and cash equivalents Marketable...

  • Page 101
    ... million 2009 2008 France 2009 2008 Switzerland 2009 2008 Rest of Europe 2009 2008 Sales by customer location Sales by company Total revenues Net operating assets Capital spending on property, plant and equipment Investments in intangible assets Research and development Number of employees 708...

  • Page 102
    ... To our shareholders Management Report Corporate governance Consolidated Financial statements segment Reporting Further information 99 Liquid Crystals 2009 2008 Performance & Life Science Chemicals 2009 2008 Chemicals 2009 2008 Corporate and Other 2009 2008 Group 2009 2008 725.0 7.6 732...

  • Page 103
    ...current assets Purchase/sale of marketable securities Changes in financial assets covering pensions Changes in other financial assets Net cash flows from investing activities Dividend payments Capital increase including amounts due to stock option plans Profit transfers to E. Merck KG and changes in...

  • Page 104
    ... To our shareholders Management Report Corporate governance Consolidated Financial statements Cash Flow statement Free Cash Flow statement of Comprehensive income Further information 101 FREE CAsh FLOw â,¬ million Note 2009 2008 Net cash flows from operating activities Purchase of intangible...

  • Page 105
    ... equity â,¬ million Minority interest Total Balance as of January 1, 2008 Profit after tax Dividend payments Profit transfers to/from E. Merck KG including transfers to reserves Capital increase due to the exercise of stock options Other changes in equity Changes in scope of consolidation/Other...

  • Page 106
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements statement of Changes in Net Equity Notes Further information 103 NOTEs preliminary remarks The accompanying consolidated financial statements have been prepared with Merck KGaA, Darmstadt, ...

  • Page 107
    ... of the largest companies in the Chinese market for effect pigments. The acquisition is of high importance to our Pigments business. Within the scope of the transaction, Merck has acquired Taizhu's sales organization for the Chinese and international market, as well as the production site in Taicang...

  • Page 108
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 105 In October 2009, Merck Specialities Private Ltd. acquired a 100% shareholding in Bangalore Genei (Bangalore, India) Private Ltd. The acquisition costs amounted to...

  • Page 109
    ... after tax* â,¬ million Net equity* â,¬ million Employees Germany/Europe Merck KGaA, Darmstadt, Germany Ares Trading SA, Aubonne, Switzerland Merck Serono SA, Coinsins, Switzerland Merck Serono S.p.A., Rome, Italy Merck Santé S.A.S., Lyon, France Merck Serono S.A.S., Lyon, France Merck Serono GmbH...

  • Page 110
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 107 ACCOUNTING POLICIES With the exception of the presentation changes described below, the accounting policies have remained unchanged in comparison with the ...

  • Page 111
    ... of the Merck Group conduct their operations independently. The functional currency of these companies is generally the respective local currency. In accordance with IAS 21 "The Effects of Changes in Foreign Exchange Rates", assets and liabilities are translated at the closing rate, and income and...

  • Page 112
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 109 Research and development The breakdown of research and development costs by divisions and regions is presented under Segment Reporting. In addition to the costs ...

  • Page 113
    ..." are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortized cost. If there is objective evidence that such assets are impaired, an impairment loss is recognized in the income statement. Subsequent...

  • Page 114
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 111 Reversals of impairment losses on previously impaired debt instruments are recognized in profit or loss up to the amount of the ...

  • Page 115
    .... Intangible assets with indefinite useful lives acquired in the course of business combinations are recognized at fair value on the date of acquisition. This includes purchased goodwill and intangible assets used in products that have not yet reached market maturity. Intangible assets with...

  • Page 116
    ... the recoverable amount of income from licensing agreements capitalized during the purchase price allocation for Serono. Future product cash flows that were calculated using external market data are discounted to their present value. The discount rate amounts to 8.25% (2008: 9.68%) and is determined...

  • Page 117
    ... tax assets are recorded in particular for tax loss carryforwards if and insofar as their utilization is probable in the foreseeable future. In accordance with the liability method, the tax rates applicable or enacted as of balance sheet date are used. investment property Leasing deferred taxes

  • Page 118
    ...of service and salary of the employees. Pension obligations of the Merck Group include both defined benefit and defined contribution plans and comprise both obligations from current pensions and accrued benefits for pensions payable in the future. In the Merck Group, defined benefit plans are funded...

  • Page 119
    116 Merck Annual Report 2009 NOTES TO THE INCOME STATEMENT [1] sales Sales are generated primarily from the sale of goods and to a limited degree include revenues from services rendered. Merck Group sales totaled â,¬ 7,377.7 million in 2009, which represents an increase of 2.4% over the previous ...

  • Page 120
    ... To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 117 [6] Other operating expenses and income Other operating expenses and income comprise the following: â,¬ million 2009 2008 Litigation Project costs Bonuses, fees and...

  • Page 121
    ... of â,¬ 39.7 million to withdraw the psoriasis drug Raptiva ® after the suspension of marketing authorization. This item also includes income totaling â,¬ 10.6 million from the divestment of the natural substances business of the Performance & Life Science Chemicals division in Brazil, along with...

  • Page 122
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 119 [11] Financial result â,¬ million 2009 2008 Interest income and similar income Interest expenses and similar expenses Interest component from currency hedging...

  • Page 123
    ... future. Based on the tax planning data for subsequent fiscal years, deferred tax assets totaling â,¬ 16.1 million were recognized for tax loss carryforwards for individual companies of the Merck Group. The vast majority of the loss carryforwards either has no expiry date or can be carried forward...

  • Page 124
    ... Report Corporate governance Consolidated Financial statements Notes Further information 121 Deferred tax assets and liabilities correspond to the following balance sheet items: Dec. 31, 2009 â,¬ million Assets Liabilities Dec. 31, 2008 Assets Liabilities Intangible assets Property, plant...

  • Page 125
    122 Merck Annual Report 2009 â,¬ million 2009 2008 Consolidated profit before tax Exceptional items Consolidated profit before tax and exceptional items Theoretical tax rate Theoretical tax expense before exceptional items Tax effect of companies with a negative contribution to consolidated ...

  • Page 126
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 123 NOTES TO THE BALANCE SHEET [15] Cash and cash equivalents This item comprises: â,¬ million Dec. 31, 2009 Dec. 31, 2008 Cheques, cash and bank balances Short-term...

  • Page 127
    124 Merck Annual Report 2009 Trade accounts receivable past due are as follows: â,¬ million Dec. 31, 2009 Dec. 31, 2008 Neither impaired nor past due Past due, but not impaired up to 3 months up to 6 months up to 12 months over 1 year Impaired Book value 1,327.8 214.8 89.6 68.7 87.6 0.2 1,788.7...

  • Page 128
    ... Report Corporate governance Consolidated Financial statements Notes Further information 125 [18] inventories This item comprises: â,¬ million Dec. 31, 2009 Dec. 31, 2008 Raw materials and production supplies Work in progress, finished goods and goods purchased for resale Advance payments...

  • Page 129
    ..., as of the reporting date there are no indications that the debtors will not meet their payment obligations. [20] Tax receivables Tax receivables amounted to â,¬ 55.3 million (2008: â,¬ 139.1 million) and resulted from tax prepayments that exceed the actual amount of tax payable for 2009 and prior...

  • Page 130
    ... shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 127 [21] intangible assets Patents, licenses and similar rights, brands, trademarks and other Finite useful life Indefinite useful life Goodwill Software Advance payments Total...

  • Page 131
    ...& Life Science Chemicals division. These impairment losses are recorded under other operating expenses. The changes in goodwill caused by currency effects result almost exclusively from translating the goodwill for Serono from Swiss francs into euros, the reporting currency of the Merck Group. Since...

  • Page 132
    ... Report Corporate governance Consolidated Financial statements Notes Further information 129 The book values of patents, licenses and similar rights, brands, trademarks and other as well as goodwill can be attributed to the divisions as follows: â,¬ million Merck Serono Consumer Health Care...

  • Page 133
    ... payments to vendors and contractors â,¬ million Plant and machinery Other facilities, operating and office equipment Total Acquisition cost January 1, 2008 Currency translation Changes in scope of consolidation Additions Disposals Transfers Reclassification of assets held for sale December...

  • Page 134
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 131 Impairment losses totaled â,¬ 6.7 million in fiscal 2009. These were particularly attributable to impairment losses on production units in the Merck Serono and ...

  • Page 135
    ...Loans and other non-current financial assets â,¬ million availablefor-sale affiliates availablefor-sale companies Total Acquisition cost January 1, 2008 Currency translation Changes in scope of consolidation Additions Disposals Transfers December 31, 2008 Accumulated depreciation and impairment...

  • Page 136
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 133 As of December 31, 2009, non-current financial assets available-for-sale (investments) with a book value of â,¬ 48.2 million were carried at cost since fair value...

  • Page 137
    134 Merck Annual Report 2009 [25] Financial liabilities This item comprises: â,¬ million current noncurrent Dec. 31, 2009 current noncurrent Dec. 31, 2008 Bonds Bank loans and overdrafts Liabilities to related parties Loans from third parties and other financial liabilities Liabilities from ...

  • Page 138
    ... the European debt capital market. The issue volume of the bond, which has a maturity of 4.5 years and pays a coupon of 4.875% , was â,¬ 750 million. It was issued at a price of 99.697%. In addition, under the debt issuance program, we made three private placements via Merck Financial Services GmbH...

  • Page 139
    ... general partner E. Merck KG and result from profit entitlements as of the balance sheet date. Liabilities due to third parties include liabilities in connection with non-income-related taxes as well as obligations in connection with duties and import fees. Liabilities due to insurance companies as...

  • Page 140
    ... balance sheet date, provisions exist in connection with the legal dispute with the company Israel Bio-Engineering Project Limited Partnership (IBEP), in which IBEP claims intellectual property rights and license fees in connection with the funding and developing Rebif ® and other products. A Merck...

  • Page 141
    ...executives and employees of the Merck Group a long-term, profit-related compensation component. The program was resolved upon in 2008. The Executive Board is excluded. The amount paid depends on the achievement of the two ratios "Underlying Free Cash Flow on Revenues (FCR)" and "Return on Sales (ROS...

  • Page 142
    ... Report Corporate governance Consolidated Financial statements Notes Further information 139 The balance sheet item "Provisions for pensions and other post-employment benefits" can be broken down as follows: â,¬ million Dec. 31, 2009 Dec. 31, 2008 Present value of benefit obligations funded...

  • Page 143
    ... million 2009 2008 Present value of all defined benefit obligations on January 1 Currency translation differences Current service cost Interest cost on pension obligations Other effects recognized in income Actuarial gains/losses Pension payments in the reporting period Transfers/Changes in scope...

  • Page 144
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 141 The fair value of the plan assets can be allocated to the individual asset categories as follows. Weighted average values are used here. in % Dec. 31, 2009 Dec. ...

  • Page 145
    ..., this results in a profit transfer to Merck KGaA of â,¬ 0.6 million (2008: â,¬ 1.8 million). For 2008, a dividend of â,¬ 1.50 per share was distributed. The dividend proposal for fiscal 2009 will be â,¬ 1.00 per share, corresponding to a total dividend payment of â,¬ 64.6 million to shareholders.

  • Page 146
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 143 The following tables show the development of changes taken directly to equity as a result of recognizing financial instruments at fair value in accordance with ...

  • Page 147
    ... organizational and reporting structure of the Merck Group. Within the Merck Serono division, we focus on specialist therapeutic areas and markets innovative prescription drugs of chemical and biotechnological origin. The Consumer Health Care division comprises Merck's business with high-quality...

  • Page 148
    ... shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 145 NOTES TO THE CASH FLOW STATEMENT [32] Net cash flows from operating activities [33] Net cash flows from investing activities Tax payments in 2009 totaled â,¬ 260.1 million (2008...

  • Page 149
    146 Merck Annual Report 2009 [34] Net cash flows from financing activities Disclosed dividend payments and transfers of profits in accordance with the Articles of Association were broken down as follows in the fiscal year: â,¬ million 2009 2008 Dividends to shareholders Dividends to minority ...

  • Page 150
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 147 OTHER DISCLOSURES [37] derivative financial instruments Merck uses derivative financial instruments exclusively to hedge currency and interest rate positions, and...

  • Page 151
    ... value measurement of the interest rate swap led to an expense of â,¬ 0.3 million. This amount was recognized in equity at 100% effectiveness. [38] Management of financial risks Fluctuations in the price of currencies and interest rates can result in significant profit and cash flow risks for Merck...

  • Page 152
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 149 Foreign currency risks Transaction risks: Owing to its international business focus, Merck is subject to currency risks within the scope of both ordinary ...

  • Page 153
    ... Annual Report 2009 Translation risks: Many Merck companies are located outside the euro zone. The financial statements of these companies are translated into euros. Exchange differences in the assets of these companies resulting from currency fluctuations are recognized in equity. interest rate...

  • Page 154
    ... on financial liabilities and derivative financial instruments with a negative market value: Cash flows 2009 â,¬ million as of Dec. 31, 2008 Book value Interest Repayment Cash flows 2010-2014 Interest Repayment Cash flows 2015-2020 Interest Repayment Debt securities and commercial paper Bank...

  • Page 155
    ... measurement according to IAS 39 Book value Dec. 31, 2009 Amortized cost Carrying value according to IAS 17 Non-financial items â,¬ million At cost Fair value Assets Cash and cash equivalents Marketable securities and financial assets Held for trading (non-derivatives) Non-hedging derivatives...

  • Page 156
    ... To our shareholders Management Report Corporate governance Consolidated Financial statements Notes Further information 153 Subsequent measurement according to IAS 39 Fair value Dec. 31, 2009 Book value Dec. 31, 2008 Amortized cost Carrying value according to IAS 17 Non-financial items Fair...

  • Page 157
    ... of â,¬ 11.4 million). Income totaling â,¬ 3.1 million was recorded for hedging transactions in operating business (2008: expenses of â,¬ 18.2 million). Exchange rate losses of â,¬ 3.7 million (2008: losses of â,¬ 18.4 million) were booked for financial receivables/payables and measures to secure...

  • Page 158
    ... of stocks and bonds used to cover pension obligations and to manage liquidity are mainly based on the official market prices and market values quoted on the balance sheet date. The fair value of interest-bearing securities is determined by discounting future cash flows using market interest rates...

  • Page 159
    .... 31, 2009 thereof subsidiaries Dec. 31, 2008 thereof subsidiaries Obligations to acquire intangible assets Orders for capital expenditure on property, plant and equipment Future operating lease payments Long-term purchase commitments Other financial obligations 1,207.5 211.0 133.3 8.8 18.6 1,579...

  • Page 160
    ...Management Report Corporate governance Consolidated Financial statements Notes Further information 157 Obligations to acquire intangible assets exist in particular within the scope of research and development collaborations. Here Merck has obligations to make milestone payments when its partner...

  • Page 161
    ... of the auditors of the financial statements of the Merck Group (KPMG) can be broken down as follows: 2009 thereof KPMG AG and related parties 2008 thereof KPMG AG and related parties Cost in â,¬ million for Merck Group Merck Group Audits of financial statements Other audit-related services Tax...

  • Page 162
    ... as funded defined benefit plans in accordance with IAS 19, are also related parties within the meaning of IAS 24. Members of the Executive Board and the Supervisory Board of Merck KGaA, the Board of Management and the Board of Partners of E. Merck KG as well as close members of their families are...

  • Page 163
    160 Merck Annual Report 2009 (48) Executive Board and supervisory Board compensation The compensation of the Executive Board of Merck KGaA is largely paid by the general partner, E. Merck KG, and recorded as an expense in its income statement. For January to December 2009, fixed salaries of â,¬ ...

  • Page 164
    ... Report Corporate governance Consolidated Financial statements Notes Further information Responsibility statement 161 REspONsiBiLiT y sTATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements of the Merck Group give...

  • Page 165
    ... Merck Annual Report 2009 AudiTOR's REpORT "We have audited the consolidated financial statements prepared by Merck Kommanditgesellschaft auf Aktien, Darmstadt, comprising the balance sheet, the income statement, the statement of comprehensive income, the cash flow statement, statement of changes...

  • Page 166
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information Auditor's Report 163 Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs,...

  • Page 167
    ...proportion of total revenues. European Chemical Industry Council. Committee for Medicinal Products for Human Use: a scientific committee of the European Medicines Agency. It prepares the Agency's opinions and handles the authorization and risk assessment of medicinal products. The financial scope up...

  • Page 168
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information Glossary 165 F FCR Underlying free cash flow on revenues: FCR is calculated from the underlying free cash flow as a percentage of total revenues. This is a key performance ...

  • Page 169
    ... cell division and blood formation and therefore the development and growth of new life. Highly specialized targeted antibodies synthesized using biotechnological methods. What makes them special is their ability to activate the body's natural mechanisms to fight disease. Monoclonal antibodies have...

  • Page 170
    Company To our shareholders Management Report Corporate governance Consolidated Financial statements Further information Glossary 167 OTC Over-the-counter drugs is the term used for drugs that are available at stores and pharmacies without a prescription. P praziquantel A vermifuge used to ...

  • Page 171
    ... www.merck.de/publications). Responsibility - 2009 Corporate Resonsibility Report Merck - Facts & Figures (also available in French and Spanish) You can order these publications from Corporate Communications, Merck KGaA, 64271 Darmstadt, Germany, or via the following e-mail address: [email protected]...

  • Page 172
    ...) Profit before tax Profit after tax Free cash flow Capital expenditure on property, plant and equipment Research and development Total assets Net equity Employees (number as of December 31) Return on sales in % (ROS: operating result/total revenues) Earnings per share in â,¬ Dividend per share in...

  • Page 173
    2004 2005 20061 20071 2008 2009 Change vs. 2008 in % 6,017 3,601 1,619 1,625 357 - 1,696 589 1,107 - 582 -62 200 - 776 391 420 21 -56 - 1,044 1,419 961 672 1,889 234 599 5,754 2,...

  • Page 174
    ... the cover: Business development 2000 - 2009 Publication contributors Published on February 23, 2010 by Merck KGaA, Corporate Communications Frankfurter Strasse 250, 64293 Darmstadt, Germany Tel.: +49 (0) 6151-72 0, fax: +49 (0) 6151-72 5577 E-mail: [email protected] Website: www.merck.de Concept...

  • Page 175
    www.merck.de