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Annual Report 2015
STRONGER

Table of contents

  • Page 1
    Annual Report 2015 STRONGER

  • Page 2
    ... States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany, operate as EMD Serono in Healthcare, MilliporeSigma in Life Science and EMD Performance Materials. To reï¬,ect such fact and to avoid any misconception of the reader of the publication certain logos, terms and names of businesses...

  • Page 3
     GROUP Key figures Change â,¬ million 2015 2014 in % Net sales1 Operating result (EBIT) Margin (% of net sales)1 EBITDA Margin (% of net sales)1 EBITDA pre exceptionals Margin (% of net sales)1 Earnings per share (â,¬) Earnings per share pre exceptionals (â,¬) Business free cash flow 1 12,844.7...

  • Page 4
    GROUP Business sectors and businesses Group Healthcare Life Science Performance Materials Business sectors Biopharma Life Science Performance Materials Businesses Consumer Health Allergopharma Biosimilars

  • Page 5
    ... unique combination of highly specialized biopharmaceutical, life science and materials businesses, we are in a position today to offer solutions to support global megatrends such as health and digitalization. Our new brand communicates this new direction to our customers, partners and applicants...

  • Page 6
    ...science andtechnologycompanywhoseideas and productscan reallymakeadifference intheworld.Withourthreebusiness sectorsHealthcare,LifeScienceand  PerformanceMaterials,wearenotonly  successful,butalsoimprovethelives ofpatients,customersandpartners...

  • Page 7
    ... represent a new era in cancer treatment. Together with Pfizer we aim to unlock the potential of this area of research through a strategic alliance. A CLEAR VIEW 8 - 13 At our new to Innovation develop Center in are Darmstadt, working Germany, scientists future-oriented products and solutions...

  • Page 8
    ...Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Net Equity Notes to the Group Accounts Responsibility Statement Auditor's Report Business Development 2011 - 2015 Information and Service Financial Calendar for 2016 * The management report of Merck KGaA, Darmstadt, Germany...

  • Page 9
    ...in recognition of our business success in 2014, making this our highest profitsharing payment ever. The good results of 2014 were mainly due to the successful implementation of the ‟Fit for 2018" transformation and growth program. May 28 Center in Korea the display industry. Opening of the OLED...

  • Page 10
    ... â,¬ 100 billion life science industry and a business with around 20,000 employees, 300,000 products and approximately one million New OLED production unit We laid the cornerstone for a new OLED materials production unit in Darmstadt. Production of high-purity OLED materials for use in state-of-the...

  • Page 11
    8 Magazine A clear view

  • Page 12
    A CLEAR VIEW Unlocking a spirit of curiosity and inquiry: Innovative strength has always been a firm part of our DNA . The new Innovation Center in Darmstadt offers researchers an ideal environment to work on the products and solutions for tomorrow, for example, the ingenious LicriEye lens.

  • Page 13
    ...explains project head Martin Schraub. Whereas most manufacturers have been using plexiglass and its derivatives, we are conducting research on an innovative material that is photochemically targeted to the specific requirements and standards of this future medicinal product. It has to be transparent...

  • Page 14
    ...focus of the artificial lens after cataract surgery non-invasively using a laser, thus correcting potentially poor vision. Our liquid crystals expertise is playing a key... to adjust the lens using a laser and restore the patient's proper eyesight. The LicriEye project team is applying our expertise ...

  • Page 15
    ... Innovation Center. ‟On the other hand, it offers an attractive infrastructure for professional project work, which ideally will lead to futureoriented innovations.″ These could be new products or services, as well as new business models or processes. The teams working in the Innovation Center...

  • Page 16
    ... pressure on costs. This situation requires new, rapid and economical forms of active ingredient analysis in many application fields. The Smart TLC project is conducting research in the modular Innovation Center on advanced solutions and methods designed to make laboratory work easier, application...

  • Page 17
    ...image quality, high efficiency: OLED displays offer captivating advantages, whether for smartphones or large televisions. So far, producing OLED displays has been complex and costly. However, innovative printing processes, which we have been intensively developing for several years, are set to open...

  • Page 18
    Ready for printing Magazine 15 Leticia Garcia Diez, responsible for technology development of OLED inks.

  • Page 19
    ... for printing Costly vapor So why haven't OLED s become the global standard yet? On the one hand, liquid Printer heads crystals, a well-established field in which we are the market and technology leader, continue to meet increasing quality requirements. On the other hand, OLED production poses...

  • Page 20
    ... teams. This creates a highly innovative and stimulating environment. Coupled with our enthusiasm for developing new technologies, this contributes significantly to the success of our products." Herwig Buchholz, Global Head of R&D OLED Chemistry and Strategic Developments Our OLED researchers...

  • Page 21
    18 Magazine Ready for printing Anja Jatsch, Head of the formulation laboratory, preparing an OLED printing ink.

  • Page 22
    ... OLED displays could be possible in 2017," says Remi Anemian, Head of Global Technical Marketing OLED. And in Darmstadt, we laid the cornerstone for a new production plant in June 2015. Production of high-purity OLED materials for use in displays and lighting systems is scheduled to start in the...

  • Page 23
    ... therapies activate the body's own immune system to fight tumors - and they represent a new era in cancer treatment. Through a strategic alliance, Merck KGaA, Darmstadt, Germany, and Pfizer are combining their strengths in order to quickly capture the potential of this promising research area...

  • Page 24
    ... of cancer, and therefore represent a promising opportunity for research-based pharmaceutical companies such as Merck KGaA, Darmstadt, Germany. important milestones in the near term. Our efforts in immuno-oncology and R&D more broadly remain centered on making a meaningful difference in the lives of...

  • Page 25
    ... safety and efficacy data for avelumab point to encouraging therapeutic benefit for patients across multiple types of cancer. We look forward to seeing the full potential of this therapy unfold." Moreover, the professional medical community is also following the research activities of Merck KGaA...

  • Page 26
    ... treated to date, it is Andrew Schiermeier, General Manager of our Immuno-Oncology Alliance with Pfizer and Head of Global Oncology at Merck KGaA, Darmstadt, Germany. " The data presented at ASCO 2015 are the most exciting I've seen in ovarian cancer for this patient population in the last ten...

  • Page 27
    24 Magazine Awareness AWARE NESS A young woman participating in a free diabetes screening offered through our CAP initiative.

  • Page 28
    ... Glucophage ® in Algeria, opened a new office in Nigeria and launched the cell counter Muse® for the detection of HIV. In addition, we support a wide range of initiatives within the health field, one of its Corporate Responsibility strategic spheres of activity. An important goal is to eliminate...

  • Page 29
    ... training program on the treatment of chronic diseases." Rasha Kelej, Head of Global Business Social Responsibility and Market Development Fighting cancer We are also focusing on the fight against cancer. Today, developing countries account for around one-half of all cases of cancer worldwide. And...

  • Page 30
    ... clinical diabetes management. infertility prevention, male infertility and the necessity for a team approach to family building among couples." The ‟More than a Mother" initiative is being accompanied by a social media campaign in order to enable the affected women to share their stories...

  • Page 31
    28 Magazine Growth GROWTH One plus one equals three - that's the objective when two major players within an industry join forces. Having completed the acquisition of the laboratory supply company Sigma-Aldrich, we are now one of the leaders in the global life science industry. Customers will bene...

  • Page 32
    ... operate worldwide under our corporate brand - except for the United States and Canada, where for legal reasons it will operate as MilliporeSigma. Around the globe, our science and technology company Merck KGaA, Darmstadt, Germany, now has around 50,000 employees working at 72 production locations...

  • Page 33
    ... Supply Chain Operations Close to customers In order to solve the toughest problems in the industry, the new team is intensifying its collaboration with the global scientific community, in other words customers. In the dynamically growing international life science market, it's clear that customer...

  • Page 34
    01 TO OUR SHAREHOLDERS Pages 31 - 42

  • Page 35
    TO OUR SHAREHOLDERS Pages 31 - 42 033 038 040 Letter from Karl-Ludwig Kley The Executive Board Our Shares

  • Page 36
    ... the largest proportion of Group sales, but also achieved the highest sales growth. More than half our overall sales growth was achieved in this region. The soaring stock markets at the beginning of 2015 also fueled our shares. On April 10, our share price hit a new all-time high of â,¬ 111.25. At...

  • Page 37
    34 To Our Shareholders Letter from Karl-Ludwig Kley Karl-Ludwig Kley Chairman of the Executive Board

  • Page 38
    ... company's strategic development: • The acquisition of the life science company Sigma-Aldrich is the biggest takeover in our company's history of nearly 350 years. We have thus become one of the world's largest players in the life science industry. We can now offer our customers a broader product...

  • Page 39
    ... the United States and Canada: Here - and only here - we operate as EMD Serono in the Biopharma business, as MilliporeSigma - following the completed acquisition of Sigma-Aldrich - in the Life Science business, and as EMD Performance Materials in the materials business. However, the new brand gives...

  • Page 40
    ...Our nearly 50,000 employees make all of this possible. Across the globe, they seek new solutions and the best answers for our customers. Through their passion for discovery, creativity and personal commitment, they build our success each and every day. I owe my thanks to every single one of them. As...

  • Page 41
    ... Affairs & Corporate Responsibility Karl-Ludwig Kley Chairman of the Executive Board Responsibility for Group functions: Group Legal & Compliance; Group Internal Auditing; Group Communications Performance Materials Responsibility for Group functions: Environment, Health, Safety, Security, Quality

  • Page 42
    ... Kuhnert Member of the Executive Board Chief Financial Officer Responsibility for Group functions: Group Accounting; Group Treasury; Group Tax; Group Controlling & Divisional Controlling; Mergers & Acquisitions; Investor Relations; Finance Operations Belén Garijo Member of the Executive Board CEO...

  • Page 43
    ... the opportunity to get to know management representatives from all business sectors and to engage in close dialogue with them. The average daily trading volume of our shares decreased by around 12% from approximately 639,000 in 2014 to 563,000 in 2015. In 2015, North America again accounted for...

  • Page 44
    Our Shares To Our Shareholders 41 OUR SHARES Share price development from January 1, 2015 to December 31, 2015 in % • Merck KGaA, Darmstadt, Germany • DAX ® • MSCI European Pharma Index • Dow Jones European Chemical Index 50 45 Share price high 4 / 10 / 2015 - 4 / 12 / 2015 ➞ 41.43% ...

  • Page 45
    ... 2015 in % 11.2 German Retail / Undisclosed 4.6 Rest of World 15.1 United Kingdom 14.9 Germany 8 Other 7 Hedge 15 Index 14 Growth 17.6 Europe (excl. Germany / UK) GARP (Growth at 30 reasonable price) 36.6 United States 26 Value Source: Orient Capital Total number of shares outstanding...

  • Page 46
    02 Combined Management ReporT Pages 43 - 144

  • Page 47
    ... and Strategies Internal Management System Corporate Responsibility Research and Development People Report on Economic Position Macroeconomic and Sector-Specific Environment Review of Forecast against Actual Business Developments Course of Business and Economic Position Group Healthcare Life Science...

  • Page 48
    ... exceptions are Canada and the United States. In these countries we operate as EMD Serono in the Biopharma business, as MilliporeSigma - following the completed acquisition of Sigma-Aldrich - in the Life Science business, and as EMD Performance Materials in the materials business. With a history of...

  • Page 49
    .... Beyond developing life cycle management products to capitalize on our strong brand equity, we entered into a long-term strategic partnership with Lupin Ltd. of India to broaden the General Medicine portfolio in growth markets to include affordable, high-quality medicines. The main products of the...

  • Page 50
    ... also established a strategic alliances with Dr. Reddy's in India to co-develop multiple cancer drugs and with Bionovis in Brazil to supply the Brazilian market with biological products under the Product Development Partnership (PDP ) policy of the Brazilian Ministry of Health. Allergopharma Our...

  • Page 51
    ..., and a global reach. Following the completion of the Sigma-Aldrich acquisition, we put in place Strategic Marketing & Innovation teams (SMI s) to promote and deliver innovation tailored to our life science customers' needs. These take the place of the previous business areas (Lab Solutions, Process...

  • Page 52
    ... the Group Combined Management Report 49 In 2015, our Lab Solutions business covered demand for products for research as well as analytical and clinical laboratories in a wide variety of industries. The business area accounted for 36% of our Life Science sales in 2015. Laboratory water equipment...

  • Page 53
    ... and tablets, and for which we received the German Innovation Award in 2015. The Display Materials business unit, which was newly formed on January 1, 2015, benefited in 2015 from the established Liquid Crystals business and the complementary former AZ Electronic Materials (AZ) business (Optronics...

  • Page 54
    ... the Group Combined Management Report 51 The new Integrated Circuit Materials (ICM ) business unit was established on January 1, 2015, from the former semiconductor business of AZ. ICM supplies products for integrated circuits. As an important partner to leading global electronics manufacturers...

  • Page 55
    ... strategic change to a science and technology company. These also included the acquisition of AZ Electronic Materials, a leading supplier of high-tech materials for the electronics industry. A milestone in our growth strategy was the successful completion of the acquisition of Sigma-Aldrich in 2015...

  • Page 56
    ...our mid- to long-term goal to further expand our strong market position in growth markets. In 2015, the growth markets of the reported regions Asia-Pacific and Latin America contributed 43% to Group sales. With our three business sectors Healthcare, Life Science and Performance Materials we now hold...

  • Page 57
    ...the Group Objectives and Strategies Business strategies Healthcare business sector Biopharma We aim to be a preferred global biopharmaceutical partner through an enduring commitment to transforming patients' lives with innovative specialty medicines, leading brands and high-value solutions. Global...

  • Page 58
    ... strategy are geographic expansion of existing brands into new markets, such as the market launch of the Bion® brand in Brazil throughout 2015, as well as possible tactical acquisitions, as long as these are in line with the strategic direction. Life Science business sector By adding Sigma-Aldrich...

  • Page 59
    ... to manage regulatory barriers. To best meet the needs of our customers and accelerate innovation, as of 2016 the teams responsible for Life Science innovation and product development are strategically organized around our customers - Research Solutions, Process Solutions and Applied Solutions. Our...

  • Page 60
    ... cornerstone of our financial policy, as it safeguards access to capital markets at attractive financial conditions. Our company currently has a Baa1 rating from Moody's and an A rating from Standard & Poor's (S&P), both with a negative outlook following the acquisition of Sigma-Aldrich. Within the...

  • Page 61
    ... pre exceptionals EPS = Earnings per share MEVA = Value added of Merck KGaA, Darmstadt, Germany BFCF = Business free cash flow ROCE = Return on capital employed NPV = Net present value IRR = Internal rate of return eNPV = expected Net present value PoS = Probability of success M&A = Mergers and...

  • Page 62
    ...balance sheet for investments in property, plant and equipment, software, advance payments for intangible assets, as well as the change in inventories and trade accounts receivable. To manage working capital on a regional and local level, the businesses use the two indicators days sales outstanding...

  • Page 63
    ... and cost of debt, is used as the discount rate. Depending on the type and location of a project different mark-ups are applied to the WACC . Value added of Merck KGaA, Darmstadt, Germany (MEVA ) MEVA gives information about the financial value created in a period. Value is created when the return...

  • Page 64
    ... ratio of operating cash flow to (net) financial debt. Other relevant / non-financial performance measures Apart from the indicators of the financial performance of the businesses, non-financial measures also play an important role in furthering the success of the company. From a Group perspective...

  • Page 65
    ... single day. At the same time, we consolidate our resources in the areas where we can make the biggest difference. We are engaged in three strategic spheres of activity: health, the environment and culture. In doing so, we always focus on securing the future of our company and our competitiveness...

  • Page 66
    ... ). This charter aims to continuously improve the products and services of the chemical industry in terms of environmental protection, health, plant safety, and security. We were among the first companies to sign the revised version of the Responsible Care Global Charter in 2014. In addition, we are...

  • Page 67
    ... ingredient praziquantel to WHO , and in 2015 we donated more than 100 million tablets. Strategic sphere of activity: Health Access to Health (A2H) is one of our strategic priorities. Through our A2H approach, which spans all our businesses, we aim to help improve sustainable access to high-quality...

  • Page 68
    Corporate Responsibility Fundamental Information about the Group Combined Management Report 65 Accessibility We promote initiatives to strengthen supply chains and to develop localized health solutions in order to deliver and reach out efficiently at the point of care. Using heat sensors, for ...

  • Page 69
    ... patients, consumers and customers with extensive information material so that they can use our products in a responsible, safe and proper manner. Through our compliance policies for our Biopharma and Consumer Health businesses, we set standards for responsible marketing activities relating to our...

  • Page 70
    ... the UN Global Compact, and from the Code of Conduct of the BME (German Federal Association for Materials Management, Purchasing and Logistics). Our Group Procurement Policy and Responsible Sourcing Principles define our procurement practices and are integrated into our general terms and conditions...

  • Page 71
    ... management system In our Corporate EHS Policy, we have defined our principles and strategies for the environment, health and safety. It is implemented through internal guidelines and instruction manuals on compliant behavior in day-to-day operations, such as the Group EHS Security and Quality...

  • Page 72
    Corporate Responsibility Fundamental Information about the Group Combined Management Report 69 Energy management plays a key role in our efforts for sustainable energy efficiency and climate impact mitigation. Our production sites in Darmstadt and Gernsheim account for around 40% of our global ...

  • Page 73
    70 Combined Management Report Fundamental Information about the Group Research and Development Research and Development We discover and develop new products and solutions worldwide to improve the quality of life for patients and to meet customer needs. We consistently aim to further optimize ...

  • Page 74
    ... BeiGene. Our Biopharma business provides annual grants for outstanding extramural research in certain fields in oncology. This year's Grants for Oncology Innovation were awarded to three groups (two from Spain and one from Italy) at a ceremony coinciding with the 2015 European Cancer Congress (ECC...

  • Page 75
    ... and safety. A total of 88 patients were enrolled in this study by the third quarter of 2015 at sites across Asia-Pacific, Australia, Europe and North America. It is the largest clinical trial ever performed in this patient population. In the United States, the FDA granted avelumab Orphan Drug...

  • Page 76
    ...world. In 2015 the awards were made on the occasion of the 31st congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS ) to four research groups from Finland, Italy, the Netherlands, and the United Kingdom. Fertility Ovidrel® (recombinant-hCG), used to trigger...

  • Page 77
    ... drug that is also designed for the treatment of PKU . The annual Grant for Growth Innovation (GGI ) is awarded by Biopharma for outstanding extramural research projects in the field of growth disorders. In 2015 the GGI was awarded to two research groups from the United Kingdom and the United States...

  • Page 78
    ..., Germany and the United Kingdom, and in growth markets in Latin America, the Middle East and Africa, and Southeast Asia. The focus of our research and development activities is on the continuous improvement of existing formulations as well as on the development of new products and line extensions...

  • Page 79
    ... the development of allergies and are actively working on the next generation of drugs for allergen immunotherapy. Life Science Innovation is core to value delivery to our customers. Our Life Science business sector has more than 650 employees working in various R&D functions around the world...

  • Page 80
    ... an open dialogue within the biotech community and gained insight from executives on the topics of advancing products faster through clinical development and bringing lifesaving drugs to market. We received several major industry awards for our product innovations in 2015: Performance Materials We...

  • Page 81
    ... by several customers in the semiconductor industry for their processes. The shrink technology makes it possible to reduce lithographically generated structures after patterning, thus circumventing resolution limitations of existing exposure equipment in a cost-effective manner. New products are on...

  • Page 82
    ...Information about the Group Combined Management Report 79 Advanced Technologies An outstanding example of our activities in the Advanced Technologies business unit are OLED s, which are used in new lighting techniques and display technologies. OLED s provide brilliant colors and sharp images from...

  • Page 83
    ... throughout our company make extensive use of this offer. Long-term success through employee development The basic and advanced training of our employees remains a special area of focus. In 2015, we maintained a consistently high vocational training rate in Darmstadt, our largest site. More than...

  • Page 84
    ... Our managers are expected to drive our innovative business model. They achieve this by recognizing and making use of the opportunities offered by the diverse cultures and experiences of employees. At the same time, executives are to set an example, for instance by living the company values and...

  • Page 85
    ... in the global job market, which conveys to potential applicants a sense of what makes our company unique: an inspiring, motivating work environment in which innovations thrive; an environment in which everyone has the opportunity to apply their ideas and engagement to benefit customers and the...

  • Page 86
    ...well as occupational health and safety. This key performance indicator describes the number of workplace accidents resulting in lost time of more than one day per one million working hours. In 2010, we had set ourselves the goal of reducing the lost time injury rate to 2.5 by 2015. Our future target...

  • Page 87
    ... to the new environment, our employees can make use of additional offices for parents at the daycare center premises. In 2014 and 2015, around 20,000 of our employees from all business sectors and Group functions took part in the McKinsey Organizational Health Index (OHI ) survey. Using nine health...

  • Page 88
    ... Group Combined Management Report 85 OVERVIEW OF EMPLOYEE FIGURES Group excl. Group incl. Group Sigma-Aldrich Sigma-Aldrich Sigma-Aldrich (Dec. 31, 2014) (Dec. 31, 2015) (Dec. 31, 2015) (Dec. 31, 2015) global, total Asia-Pacific (APAC ) Europe Number of employees by region Latin America Middle...

  • Page 89
    ...Life Science 8.9% 8.0% 2.0% - 7.0% - 1.7% 4.9% 8.7% 19.0% 9.0% 1.0% - 5.8% 4.0% Market for laboratory products Share of biopharmaceuticals in the global pharmaceutical market Performance Materials 3.0% 24.0% 2.8% 23.0% Growth of LC display surface area Global automobile sales volumes Materials...

  • Page 90
    ...8.9% increase in sales for the global pharmaceutical market in 2015 (2014: 8.7%). This sales increase is primarily attributable to Latin America and the United States. The U.S. pharmaceutical market saw growth of 11.4% (2014: 12.6%) and in Latin America, growth was as high as 15.8% (2014: 11.6%). At...

  • Page 91
    ... Developments REVIEW OF FORECAST AGAINST ACTUAL BUSINESS DEVELOPMENTS In the Annual Report for 2014, we gave forecasts of the key financial performance indicators for the Group and our business sectors for 2015. At the time of the forecast, the acquisition of Sigma-Aldrich was still pending due to...

  • Page 92
    ... flow of the Group. Excluding the contribution from Sigma-Aldrich, we can confirm this forecast. While business free cash flows of the Life Science and Performance Materials business sectors of our company showed a sharp increase over 2014, both our Healthcare business sector and Corporate and Other...

  • Page 93
    ... million Forecast for 2015 in the Annual Report for 2014 Group Slight organic growth, slight portfolio effect, moderately positive foreign exchange effect Net sales1 11,363 Forecast incl. Sigma-Aldrich: Double-digit growth rates Slight increase due to operating business developments and positive...

  • Page 94
    ... Management Report 91 Forecast for 2015 in: Q1 / 2015 Interim Report Q2 / 2015 Interim Report Q3 / 2015 Interim Report Results 2015 in â,¬ million (% YoY) â,¬ 12.3 - 12.5 billion â,¬ 12.3 - 12.5 billion Forecast incl. Sigma-Aldrich: Double-digit growth rates Forecast incl. Sigma-Aldrich...

  • Page 95
    ... plan • Life Science: Strong and profitable organic sales growth amid successful completion of the Sigma-Aldrich acquisition • Performance Materials: Market positions in all businesses successfully defended with organic sales at 2014 level • Corporate objectives for 2015 met in full GROUP Key...

  • Page 96
    ... acquisitions of Sigma-Aldrich and AZ. GROUP Net sales by business sector - 2015 â,¬ million / % of net sales 20% Performance Materials 2,555.6 54% Healthcare 26% Life Science 6,933.8 3,355.3 GROUP Net sales components by business sector - 2015 â,¬ million / change in % Exchange rate effects...

  • Page 97
    ...to a growth rate of 1.6%, and Performance Materials with â,¬ 13 million, or 0.6%. The overall change in net sales reflects the benefits of positive exchange rate effects and sales contributions from the acquired businesses. Driven mainly by the first-time consolidation of Sigma-Aldrich, Life Science...

  • Page 98
    ... and development costs as a percentage of sales) declined to 13.3% (2014: 15.0%). Our research spending ratio in our Healthcare business sector was 18.9% (2014: 20.6%). GROUP Research and development costs by business sector - 2015 â,¬ million / in % 11% Performance Materials 12% Life Science 197...

  • Page 99
    ... European Commission, our company and SigmaAldrich had agreed to sell parts of Sigma-Aldrich's solvents and inorganics business in Europe (see also Note [4] ‟Acquisitions, assets held for sale and disposal groups" in the Notes to the Group accounts). Net income, i.e. profit after tax attributable...

  • Page 100
    Group Report on Economic Position Combined Management Report 97 The increase in Group EBITDA pre exceptionals was driven by our Life Science and Performance Materials business sectors. Life Science improved this key performance indicator by â,¬ 198 million or 30.0%, and Performance Materials ...

  • Page 101
    ... position GROUP Balance sheet structure1 Dec. 31, 2015 â,¬ million in % Dec. 31, 2014 â,¬ million in % Change â,¬ million in % Non-current assets of which: 30,657.0 80.7 15,529.7 59.7 15,127.3 97.4 Intangible assets Property, plant and equipment Other non-current assets Current assets of...

  • Page 102
    ... information on the purchase price allocation for the Sigma-Aldrich acquisition can be found in Note [4] ‟Acquisitions, assets held for sale and disposal groups" in the Notes to the Group accounts. The purchase price of â,¬ 15,974 million was financed through cash on our balance sheet, bank loans...

  • Page 103
    ... Combined Management Report Report on Economic Position Group Thanks to the strong internal financing power of the Group, the increase in net financial debt in 2015 was significantly lower than the cash outflow in connection with the acquisition of Sigma-Aldrich. GROUP Working capital Change...

  • Page 104
    ... of a new packaging unit at the Aubonne site in Switzerland (â,¬ 8 million). Within our Life Science business sector, â,¬ 7 million was invested in a new production unit in Spain. In 2015, there were no changes to our long-term credit ratings by the two rating agencies Moody's and Standard & Poor...

  • Page 105
    ... of our pharmaceutical pipeline in 2015. The operating business of our Performance Materials business sector benefited from the successful integration of AZ Electronic Materials. The solid accounting and finance policy of the Group is again reflected by the very good key balance sheet figures. The...

  • Page 106
    ... marketed by the Consumer Health business. However, our two top-selling drugs Rebif® and Erbitux® posted organic sales declines. Commission income, which is also included in net sales, rose to â,¬ 103 million in 2015 (2014: â,¬ 71 million). The agreement reached with Bristol-Myers Squibb in 2013...

  • Page 107
    ... share of the business sector's net sales increased from 16% in 2014 to 19% in 2015. Sales in Latin America amounted to â,¬ 1,022 million in 2015 (2014: â,¬ 1,059 million). This reflects an organic sales increase of 8.4% and negative exchange rate effects of - 11.8%. Organic sales growth was mainly...

  • Page 108
    ....0% to â,¬ 605 million due to competition (2014: â,¬ 698 million). Together, the remaining regions Latin America, Middle East and Africa, and Asia-Pacific accounted for an 8% share of sales (2014: 9%). At â,¬ 899 million, Group sales of the oncology drug Erbitux® in 2015 were at the previous year...

  • Page 109
    ... over-thecounter pharmaceuticals. Including negative exchange rate effects of - 1.4%, sales amounted to â,¬ 833 million (2014: â,¬ 766 million). Organic sales growth was mainly generated in Latin America. Here, the growth rate was 11.6% and was especially bolstered by demand for the strategic brands...

  • Page 110
    ... in growth markets as well as currency effects, marketing and selling expenses were higher in 2015 than in 2014. The business sector's research spending ratio decreased to 18.9% (2014: 20.6%). The decline in research and development costs was mainly due to one-time effects in connection with...

  • Page 111
    ... - 7.1 Investments in property, plant and equipment, software as well as advance payments for intangible assets Changes in inventories Changes in trade accounts receivables as well as receivables from royalties and licenses Business free cash ï¬,ow The development of business free cash flow in the...

  • Page 112
    ... Notes to the Group accounts. Development of sales and results of operations 2015 was another successful year for our Life Science business sector. Net sales grew by 25.1% to â,¬ 3,355 million (2014: â,¬ 2,682 million), stemming from strong organic growth of 6.5%; positive exchange rate effects of...

  • Page 113
    ... Lab Solutions products. Latin America's share of Life Science sales slightly decreased to 6% (2014: 7%). In the Middle East and Africa region, sales showed moderate organic growth of 3.1%, representing 1% (2014: 2%) of Life Science net sales. Sales attributable to the Sigma-Aldrich acquisition had...

  • Page 114
    ...million, accounting for 8% of the business sector's net sales. LIFE SCIENCE Net sales components by business area - 2015 â,¬ million / change in % Exchange rate effects Acquisitions / divestments Net sales Organic growth Total change Bioscience Lab Solutions Process Solutions Sigma-Aldrich 450...

  • Page 115
    ...exchange rate effects and the Sigma-Aldrich acquisition. In addition to the Sigma-Aldrich acquisition, Life Science continued to execute its growth strategy by investing in commercial operations and developing new products. Marketing and selling expenses increased by 20.8% to â,¬ 1,038 million (2014...

  • Page 116
    ... Economic Position Combined Management Report 113 The development of business free cash flow items in the individual quarters in comparison with 2014 is presented in the following overview: LIFE SCIENCE Business free cash ï¬,ow and change by quarter1 â,¬ million / change in % Q1 2015 2014 23 54...

  • Page 117
    ... Materials (ICM ) business unit includes the former AZ business with materials used to manufacture integrated circuits and the SAFC Hitech business of Sigma-Aldrich acquired in November 2015. The business unit recorded a slight organic sales increase - mainly fueled by strong growth of the business...

  • Page 118
    ... the first-time consolidation of AZ on May 2, 2014. Organically, sales declined slightly in 2015, mainly as a result of weaker demand for cosmetic actives as well as pigments for plastics and printing applications. In North America, due to acquisition and exchange rate effects, net sales climbed to...

  • Page 119
    ... Management Report Report on Economic Position Performance Materials PERFORMANCE MATERIALS Net sales components by region - 2015 â,¬ million / change in % Exchange rate effects Acquisitions / divestments Net sales Organic growth Total change Europe North America Asia-Pacific (APAC ) Latin...

  • Page 120
    ...rate effects and good business performance. In addition, the AZ Electronic Materials business acquired in May 2014 and the SAFC Hitech business from the SigmaAldrich acquisition in November 2015 contributed to the improvement in gross profit. Within the scope of the first-time consolidation, in 2014...

  • Page 121
    118 Combined Management Report Report on Economic Position Performance Materials The development of business free cash flow items in the individual quarters in comparison with 2014 is presented in the following overview: PERFORMANCE MATERIALS Business free cash ï¬,ow and change by quarter1 â,¬ ...

  • Page 122
    ..., Communications, and Human Resources. Corporate CORPORATE AND OTHER Key figures 2014 Change in % â,¬ million 2015 Operating result (EBIT ) EBITDA EBITDA pre exceptionals - 432.3 - 411.0 - 360.1 - 421.2 - 245.1 - 226.0 - 166.0 - 214.7 76.3 81.8 116.9 96.2 Business free cash flow In 2015...

  • Page 123
    ... of internal decision-making processes such as short- and medium-term operational planning and intra-year business plans. Group Controlling & Risk Management forms the organizational framework for risk management and reports directly to the Group Chief Financial Officer. Group Risk Management uses...

  • Page 124
    .... Marketing measures for operational planning are usually quantified in relation to sales, EBITDA pre exceptionals and business free cash flow. Net present value, internal rate of return, the return on capital employed (ROCE ), and the amortization period of the investment are primarily used to...

  • Page 125
    ... process at all times within the scope of dual control. For the assessment of balance sheet items, Group Accounting closely cooperates with Group Risk Management in order to correctly present potential balance sheet risks. For special issues, such as the measurement of intangible assets Business...

  • Page 126
    ... for the development of this business unit has already been taken into account in today's planning. Opportunities due to new technologies in the manufacture of displays We see opportunities in the medium- to long-term possibilities of significant market growth of OLED applications in highquality...

  • Page 127
    ... Combined Management Report Report on Risks and Opportunities market launch of liquid crystal antennas could still take a few years. New application opportunities for liquid crystals could have medium- to long-term positive effects on the financial indicators of our Performance Materials business...

  • Page 128
    ... coordination network covering all functions and businesses (‟Merck KGaA, Darmstadt, Germany, Anti-Counterfeiting Operational Network") was set up several years ago. In addition, security measures are in use to protect products against counterfeiting. Innovative technical security solutions and...

  • Page 129
    ... a significant negative non-cash impact on earnings and affect the accounting ratios. This applies in particular to the high level of intangible assets including goodwill, which mainly derive from the purchase price allocations made in connection with past acquisitions (further information can be...

  • Page 130
    ... benefits" in the Notes to the Group accounts). To the extent that pension obligations are covered by plan assets consisting of interest-bearing securities, shares, real estate, and other financial assets, decreasing or negative returns on these assets can adversely affect the fair value of plan...

  • Page 131
    ... prior art and Risks from drug pricing by the divested Generics Group Paroxetine: In connection with the divested generics business, we are subject to antitrust investigations by the British Competition and Market Authority (CMA ) in the United Kingdom. In March 2013, the authorities informed us of...

  • Page 132
    ... occupational health and safety minimize these risks to people and the environment. In order to ensure the continuity of plant and equipment, we monitor these risks both at our own sites as well as at suppliers and contract manufacturers. By adhering to high technical standards, our rules of conduct...

  • Page 133
    ... chemical products for a variety of industries. As the markets differ in their structure and economic cycles, this diversification helps to lower risk. This diversification is being strengthened by the current acquisition of Sigma-Aldrich and the strategic alliance entered into with Pfizer in 2014...

  • Page 134
    ...business sectors: Healthcare, Life Science and Performance Materials. The forecast again covers our key performance indicators as in 2014, namely net sales, EBITDA pre exceptionals and business free cash flow. Subsequent to the successful completion of the Sigma-Aldrich acquisition in November 2015...

  • Page 135
    ... level of 2015. Expenses reported under Corporate and Other are expected to increase significantly in 2016 since we plan to further expand future-oriented Group initiatives such as branding and ONE Global Headquarters and also drive forward the digitalization of the company. operating business. In...

  • Page 136
    ... scope of strategic growth projects. Forecast for our Life Science business sector â,¬ million Actual results 2015 Forecast for 2016 Key assumptions Net sales 3,355.3 - Moderate organic growth - High double-digit percentage portfolio effect due to the acquisition of Sigma-Aldrich - Moderate...

  • Page 137
    ... growth, benefiting from the sustained growth dynamics of the market for biopharmaceuticals. Research Solutions and Applied Solutions are also expected to contribute to organic sales growth, but to a smaller extent. Owing to the acquisition of Sigma-Aldrich, we expect a portfolio effect in the high...

  • Page 138
    ... acquisition. This includes expected cost synergies from the integration of Sigma-Aldrich. In our Healthcare business sector, we will invest further in the research and development of innovative medicines and therefore expect additional expenses for the pharmaceutical pipeline. For our Performance...

  • Page 139
    ... approval of the Supervisory Board, the statutory subscription right of the limited liability shareholders in the case of capital increases against cash contributions if the issue price of the new shares is not significantly lower than the stock exchange price of already listed shares carrying the...

  • Page 140
    ... German Commercial Code (HGB) Combined Management Report 137 approval of the Supervisory Board, the subscription right of the shareholders can be excluded in order to exclude fractional amounts from the subscription right. The Articles of Association also encompass contingent capital. The share...

  • Page 141
    ...GERMAN COMMERCIAL CODE (HGB) The management report of Merck KGaA, Darmstadt, Germany, has been combined with the Group management report. The annual financial statements and the combined management reports of the Group and Merck KGaA, Darmstadt, Germany, for 2015 have been filed with the electronic...

  • Page 142
    ... marketing and selling activities as well as due to legal and advisory expenses in connection with the Sigma-Aldrich acquisition. The investment result declined mainly due to lower dividend payments from Merck Capital Holding Ltd., Malta, a subsidiary of Merck KGaA, Darmstadt, Germany, and Merck...

  • Page 143
    ... position of Merck KGaA, Darmstadt, Germany, in fiscal 2015 was characterized by the acquisition of the Sigma-Aldrich Corporation, USA . The increase in total assets by â,¬ 10,269 million to The increase in other provisions (â,¬ 175 million) was partly due to the repayment of a cash deposit in...

  • Page 144
    ...ratio (research and development costs as a percentage of sales) was 20.1% (2014: 22.7%). In total, an average of 2,186 employees were engaged in R&D activities. Merck KGaA, Darmstadt, Germany, was one of the main research sites of the Group, accounting for 45.7% (2014: 45.5%) of total Group research...

  • Page 145
    ...ordinary activities in 2015 mainly declined compared with 2014 due to a lower investment result and the associated increase in financing costs in connection with the Sigma-Aldrich acquisition. The financial resources for this acquisition were provided through borrowings from Merck Financial Services...

  • Page 146
    ... entity within the Group. The financial statement process of Merck KGaA, Darmstadt, Germany, is based on the accounting provisions of the German Commercial Code with due consideration of key processes and uniform deadlines. The objective of the internal control system for accounting is to implement...

  • Page 147
    .... The financial statements of Merck KGaA, Darmstadt, Germany, prepared in accordance with the German Commercial Code are only affected by this via future dividend payments from subsidiaries. More information can be found in Note [4] ‟Acquisitions, assets held for sale and disposal groups" in...

  • Page 148
    03 Corporate Governance Pages 145 - 168

  • Page 149
    Corporate Governance Pages 145 - 168 147 148 164 166 Capital structure and governance bodies of Merck KGaA, Darmstadt, Germany Statement on Corporate Governance Report of the Supervisory Board Objectives of the Supervisory Board with respect to its composition

  • Page 150
    ..., Germany Corporate Governance 147 CAPITAL STRUCTURE AND GOVERNANCE BODIES OF MERCK KGAA, DARMSTADT, GERMANY Total capital of Merck KGaA, Darmstadt, Germany â,¬ 565,211,241.95 Executive Board of Merck KGaA, Darmstadt, Germany General partners with no equity interest Shareholders hold the share...

  • Page 151
    ... gives a general explanation of the application of German company law at our company with additional references to the General Meeting and shareholder rights. Merck KGaA, Darmstadt, Germany The general partner E. Merck KG, Darmstadt, Germany, holds around 70% of the total capital of Merck KGaA...

  • Page 152
    ...public at any time after the meeting. In this way, we are satisfying the high transparency requirements of the Group. Statement of Compliance In accordance with section 161 AktG, applying the provisions of the German Corporate Governance Code correspondingly, the Executive Board and the Supervisory...

  • Page 153
    ... general partner E. Merck KG, Darmstadt, Germany, and in this capacity they receive profit-based compensation from E. Merck KG, Darmstadt, Germany. Given this context, the stipulations of the German Corporate Governance Code concerning the compensation of management board members of publicly listed...

  • Page 154
    ...which were applicable for the first time in 2014, have been agreed. Long-Term Incentive Plan of Merck KGaA, Darmstadt, One-time payment (â,¬ thousand) Variable compensation (â,¬ thousand) Germany (times the respective total amount) Total variable compensation components (â,¬ thousand) Karl-Ludwig...

  • Page 155
    ... long-term incentive effect Total Expense recorded in the period for share-based compensation4 With a long-term incentive effect Fixed compensation Additional benefits Long-Term Variable Incentive Plan of Merck compensation1 KGaA, Darmstadt, Germany Number of (â,¬ thousand) MSU s2 (units) Time...

  • Page 156
    .... Within certain time limits, E. Merck KG, Darmstadt, Germany, has the possibility to dispense with adherence to the non-competition clause with the consequence that the obligation to make the compensation payments shall cease to apply. The contracts of the Executive Board members further provide...

  • Page 157
    ...). Pension provisions totaling â,¬ 111,812 thousand exist for the pension entitlements of this group of persons (2014: â,¬ 120,674 thousand). Compensation of the Supervisory Board members of Merck KGaA, Darmstadt, Germany The compensation of the Supervisory Board members is defined by Article 20...

  • Page 158
    ... company website. Additionally, some parts of the General Meeting are webcast live on the Internet. Accounting and audits of financial statements Merck KGaA, Darmstadt, Germany, prepares its consolidated financial statements and combined management report in accordance with International Financial...

  • Page 159
    ... Governance statement regarding the scope of the business, financial, personal, and other relationships between KPMG AG, its bodies and head auditors, and Merck KGaA, Darmstadt, Germany, its Group companies and the members of their bodies. The statement also covers the scope of the services...

  • Page 160
    ... the areas of Environment, Health, Safety, Security and Quality. Corporate Responsibility reports are also published at regular intervals. Avoidance of conï¬,icts of interest Within the framework of their work, all Executive Board and Supervisory Board members of Merck KGaA, Darmstadt, Germany, are...

  • Page 161
    ... distribution plan. Each Executive Board member promptly informs the other members of any important actions or operations in his respective business area. The Executive Board is responsible for preparing the annual financial statements of Merck KGaA, Darmstadt, Germany, and of the Group as...

  • Page 162
    ... Corporate Quality Assurance Alexander Putz Michelstadt, Full-time member of the Works Council of Merck KGaA, Darmstadt, Germany, Darmstadt (b) - E. Merck KG, Darmstadt, Germany, Darmstadt1 no board positions no board positions (a) - 4SC AG, Martinsried (since January 2, 2015) - Supervisory Board...

  • Page 163
    ... company by the Supervisory Board according to section 111 (1) of the German Stock Corporation Act (AktG). The Supervisory Board examines the annual financial statements as well as the consolidated financial statements and the combined management report, taking into account in each case the reports...

  • Page 164
    ... times a year. The members of the Executive Board of Merck KGaA, Darmstadt, Germany, are invited to all meetings of the Board of Partners, unless the Board of Partners resolves otherwise in individual cases. The members of the Board of Partners may convene a joint meeting with the Supervisory Board...

  • Page 165
    ... the abridged financial statements and interim management report contained in the half-year financial report for the Supervisory Board's corresponding suggestion to the General Meeting. In addition, the Finance Committee is concerned with the net assets, financial position, results of operations and...

  • Page 166
    ... held by women on these management levels. The deadline set by the Executive Board of Merck KGaA, Darmstadt, Germany, for reaching this target ends on December 31, 2016. In addition, as a global company with correspondingly aligned global (management) structures, our company is continuing to pursue...

  • Page 167
    ... the General Meeting. The Executive Board presented the plans for fiscal 2015. Further topics were the report of Group Internal Auditing and the status of the Sigma-Aldrich acquisition. Annual financial statements The annual financial statements of Merck KGaA, Darmstadt, Germany, the consolidated...

  • Page 168
    ... audit. On completion of its examination, the Supervisory Board raised no objections and thus approved the annual financial statements for Merck KGaA, Darmstadt, Germany, the consolidated financial statements of the Group and the combined management report of Merck KGaA, Darmstadt, Germany, and the...

  • Page 169
    ... the company. General notes on the composition of the Supervisory Board The Supervisory Board of Merck KGaA, Darmstadt, Germany, currently consists of 16 members, eight of whom represent the shareholders and a further eight who represent the employees. The eight employee representative members are...

  • Page 170
    ... the Code. In any case, at least four of the shareholder representatives on the Supervisory Board should be independent. According to the Articles of Association of Merck KGaA, Darmstadt, Germany, six members representing the shareholders are to be elected by the General Meeting and two members are...

  • Page 171
    ... with its duties under German stock corporation law, the Supervisory Board proposes to the General Meeting the candidates it believes to be best suited in each case and will continue to do so in the future. Every year, the Supervisory Board will provide information in the Annual Report on the status...

  • Page 172
    04 Consolidated Financial Statements pages 169 - 261

  • Page 173
    Consolidated Financial Statements pages 169 - 261 172 173 174 175 176 178 Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Net Equity Notes to the Group Accounts

  • Page 174
    To download the tables in the consolidated financial statements as Excel files, please use the following link: ar2015.emdgroup.com/downloads

  • Page 175
    172 Consolidated Financial Statements Consolidated Income Statement Consolidated Income Statement1 â,¬ million Note 2015 2014 Net sales âžž8 âžž9 12,844.7 11,362.8 Cost of sales (of which: amortization of intangible assets)2 Gross profit - 4,076.3 (- 166.6) 8,768.4 - 3,526.4 (- 94.0) ...

  • Page 176
    ... foreign operations Changes taken directly to equity Reclassification to profit or loss Changes recognized in equity Other comprehensive income Comprehensive income of which attributable to to shareholders of Merck KGaA, Darmstadt, Germany of which attributable to non-controlling interests...

  • Page 177
    ... Consolidated Financial Statements Consolidated Balance Sheet Consolidated Balance Sheet1 â,¬ million Note Dec. 31, 2015 Dec. 31, 2014 Non-current assets Intangible assets Property, plant and equipment Non-current financial assets Other non-current assets Deferred tax assets Current assets...

  • Page 178
    ... of property, plant and equipment Payments for investments in financial assets Payments for acquisitions less acquired cash and cash equivalents Payments from the disposal of other financial assets Payments from the divestment of assets held for sale Net cash ï¬,ows from investing activities thereof...

  • Page 179
    ... Retained earnings Capital reserves (share premium) Merck KGaA, Darmstadt, Retained earnings / Germany Net retained profit â,¬ million General partner's equity Merck KGaA, Darmstadt, Germany Subscribed capital Merck KGaA, Darmstadt, Germany Remeasurement of defined benefit plans Balance as of...

  • Page 180
    ...Net Equity Consolidated Financial Statements 177 Gains / losses recognized in equity Equity attributable to Merck KGaA, Darmstadt, Germany, shareholders Available-for-sale financial assets Derivative financial instruments Currency translation difference Non-controlling interests Total equity...

  • Page 181
    ...THE GROUP ACCOUNTS General (1) Company information The accompanying consolidated financial statements as of December 31, 2015 have been prepared with MERCK Kommanditgesellschaft auf Aktien (Merck KGaA), Frankfurter Strasse 250, 64293 Darmstadt, Germany, which manages the operations of the Group, as...

  • Page 182
    ... financial statements as well as all of the shareholdings of Merck KGaA, Darmstadt, Germany, (see Note [67] ‟List of shareholdings"). (4) Acquisitions, assets held for sale and disposal groups Acquisition of Sigma-Aldrich Corporation, USA On November 18, 2015, the Group obtained control...

  • Page 183
    ... and interest rates. An overview of the outstanding bonds can be found in Note [28] ‟Financial liabilities / Capital management". Business activities as well as sales and earnings contribution of Sigma-Aldrich Sigma-Aldrich manufactures and distributes more than 250,000 chemicals, biochemicals and...

  • Page 184
    Notes to the Group Accounts Consolidated Financial Statements 181 Purchase price allocation Since the obtainment of control over Sigma-Aldrich did not take place until November 18, 2015, and material information for the purchase price allocation was only obtained after that date for legal ...

  • Page 185
    ...The intangible assets identified during the preliminary purchase price allocation and recognized on the date of first-time consolidation as well as the measurement methods applied are presented in the following overview: Fair values on the acquisition date (preliminary) â,¬ million Useful lives in...

  • Page 186
    ... of control. The purchase price allocation had not been completed by December 31, 2015; therefore, the preliminary difference was fully reported as goodwill. Acquisition of AZ Electronic Materials S.A. in 2014 Within the scope of a public takeover offer, on May 2, 2014 the Group had received...

  • Page 187
    ...Xalkori® (crizotinib), a drug for the treatment of non-small-cell lung cancer, in the United States and certain other major markets. During co-commercialization of the product, the Group will receive from Pfizer compensation for marketing activities and a share of the profits. The fair value of the...

  • Page 188
    ...® (active ingredient: metformin hydrochloride) for the treatment of type 2 diabetes in China. In 2015, the Group recorded sales of â,¬ 84.3 million from co-commercialization (2014: â,¬ 59.3 million). Consolidated Income Statement New composition of net sales Since January 1, 2015, royalty...

  • Page 189
    ... were reported separately as the Biopharma business and Consumer Health segments in the previous year. The Life Science business sector comprises the Life Science business as well as the acquired life science business of the Sigma-Aldrich Corporation, USA. The Performance Materials business sector...

  • Page 190
    ... Consumer Health Life Science Performance Materials Most recent financial medium-term planning approved by the Executive Board and used for internal purposes 4 years (2014: 5 years) Net cash flows Long-term growth rate after the detailed planning period Discount rate after tax (Weighted average cost...

  • Page 191
    ... Financial Statements Notes to the Group Accounts The long-term growth rates and weighted average cost of capital (WACC ) used to conduct the goodwill impairment tests were as follows: Long-term growth rate in % 2015 2014 Cost of capital after tax 2015 2014 Cost of capital before tax 2015 2014...

  • Page 192
    ... US and Canada, where it operates as EMD Serono in the Biopharma business, as MilliporeSigma in the Life Science business and as EMD Performance Materials in the materials business. Owing to this, the ‟Millipore" brand, which is recognized as an intangible asset in the balance sheet, was subjected...

  • Page 193
    ...Financial Statements Notes to the Group Accounts Other provisions and contingent liabilities As a global company for high-tech products, the Group is exposed to a multitude of litigation risks. In particular, these include risks from product liability, competition and antitrust law, pharmaceutical...

  • Page 194
    ... last balance sheet date regarding the extent to which the privileged CENCOEX exchange rate mechanism will be available in the future, the Executive Board of Merck KGaA, Darmstadt, Germany, came to the conclusion that for the translation as of July 1, 2015 of local financial statements reported in...

  • Page 195
    ...the cost of materials, personnel and energy, as well as depreciation / amortization. (10) Marketing and selling expenses Marketing and selling expenses comprised the following: â,¬ million 2015 2014 Sales force Internal sales services Sales promotion Logistics Amortization of intangible assets1...

  • Page 196
    Notes to the Group Accounts Consolidated Financial Statements 193 (12) Other operating income Other operating income was as follows: OTHER OPERATING INCOME â,¬ million 2015 2014 Income from milestone payments, rights and royalties Gains on disposal of non-current assets Release of allowances ...

  • Page 197
    ...] ‟Intangible assets". Acquisition costs amounting to â,¬ 101.6 million (2014: â,¬ 24.5 million) were incurred in 2015 in connection with the acquisition and the integration of the Sigma-Aldrich Corporation, USA . In 2014, the expenses were largely attributable to the acquisition of AZ Electronic...

  • Page 198
    ... in August 2015. All the bonds are part of the financing of the acquisition of the Sigma-Aldrich Corporation, USA . More information on bonds issued by the Group can be found in Note [28] ‟Financial liabilities / Capital management". Currency differences from financing activities were mainly the...

  • Page 199
    ... 392.2 Tax ratio according to consolidated income statement 24.8% 25.2% The tax expense consisted of corporation and trade taxes for the companies domiciled in Germany as well as comparable income taxes for foreign companies. The higher tax credits arose primarily in the United States due to the...

  • Page 200
    ...average number of shares in 2015 was likewise 434,777,878. Earnings per share from discontinued operations resulted from the business operations acquired with a view to resale in connection with the acquisition of the Sigma-Aldrich Corporation, USA (see Note [4] ‟Acquisitions, assets held for sale...

  • Page 201
    198 Consolidated Financial Statements Notes to the Group Accounts Notes to the Consolidated Balance Sheet (17) Intangible assets Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other Finite useful life Indefinite useful life ...

  • Page 202
    ... finite useful lives amounting to â,¬ 10,539.1 million (2014: â,¬ 5,398.9 million) mainly included the identified and capitalized assets from the purchase price allocations for the acquisition of the Sigma-Aldrich Corporation, AZ Electronic Materials S.A., the Millipore Corporation, and Serono SA...

  • Page 203
    ...,370.1 5,693.9 1 Carrying amounts of the intangible assets acquired within the scope of the acquisition of the Sigma-Aldrich Corporation, USA , are preliminary. Information on impairment tests of intangible assets with indefinite useful lives In 2015, goodwill was not impaired. The assumptions...

  • Page 204
    ... and Other facilities, advance payments operating and to vendors and office equipment contractors Total Cost at January 1, 2014 2,412.5 3,200.8 925.0 263.5 6,801.8 Changes in the scope of consolidation Additions Disposals Transfers Classification as held for sale or transfer to a disposal...

  • Page 205
    ... paper in 2015 (2014: â,¬ 956.4 million).The decrease results from the liquidation of available-for-sale financial assets to make the purchase price payment for the acquisition of the Sigma-Aldrich Corporation, USA (see Note [4] ‟Acquisitions, assets held for sale and disposal groups"). The loans...

  • Page 206
    ... to â,¬ 1.4 million (2014: â,¬ 12.5 million). In addition, other prepayments were reported under this item. Owing to the completion of the acquisition of the Sigma-Aldrich Corporation, USA , and the realization of hedging transactions in this connection, derivative assets declined. The increase in...

  • Page 207
    ...(2014: â,¬ 45.3 million). As of the balance sheet date, no inventories were pledged as security for liabilities. The increase in finished goods is largely due to inventories acquired from the Sigma-Aldrich Corporation, USA , which were recognized at their fair values. (22) Trade accounts receivable...

  • Page 208
    ... for trade tax and create the basis for the allocation of net profit / loss. (25) Equity Equity capital The total capital of the company consists of the share capital composed of shares and the equity interest held by the general partner E. Merck KG, Darmstadt, Germany. As of the balance sheet date...

  • Page 209
    ...- - 87.2 522.0 - 3.1 - - 21.0 - - 54.2 597.0 Profit transfer to E. Merck KG, Darmstadt, Germany Ratio of general partner's capital to total capital Profit transfer from E. Merck KG, Darmstadt, Germany Ratio of share capital to total capital Trade tax Corporation tax Net income (70.274%) (29.726...

  • Page 210
    ...-employment benefits, such as accrued future health care costs for retirees in the United States. In order to limit the risks of changing capital market conditions and demographic developments, for many years now the Group has been offering newly hired employees plans that are largely structured as...

  • Page 211
    ... as the relevant plan assets was based on the following actuarial parameters: Germany in % 2015 2014 Switzerland 2015 2014 United Kingdom 2015 2014 Other countries 2015 2014 Discount rate Future salary increases Future pension increases Future cost increases for health care benefits 2.40 2.50...

  • Page 212
    ...: Group companies in Germany accounted for â,¬ 2,560.2 million of the defined benefit obligations (2014: â,¬ 2,692.5 million; due to the acquisition of the Sigma-Aldrich Corporation, USA , the obligations increased by â,¬ 21.4 million in 2015) as â,¬ 599.8 million of the plan assets (2014: â,¬ 391...

  • Page 213
    210 Consolidated Financial Statements Notes to the Group Accounts During the reporting period, the present value of the defined benefit obligations changed as follows: â,¬ million Funded benefit obligations Benefit obligations funded by provisions 2015 Funded benefit obligations Benefit ...

  • Page 214
    ... or real estate used by Group companies. The plan assets serve exclusively to meet the defined benefit obligations. Covering the benefit obligations with financial assets represents a means of providing for future cash outflows, which occur in some countries (e.g. Switzerland and the United Kingdom...

  • Page 215
    ... Quoted market price in an active market Dec. 31, 2014 No quoted market price in an active market â,¬ million Total Total Cash and cash equivalents Equity instruments Debt instruments Direct investments in real estate Investment funds Insurance contracts Other Fair value of the plan assets 27...

  • Page 216
    ... and growth program was established. The aim of this program is to secure the competitiveness and the growth of the Group over the long term. The provisions of â,¬ 92.0 million as of December 31, 2015 (2014: â,¬ 136.5 million) in this connection mainly consist of commitments to employees from...

  • Page 217
    ... key parameters as well as the development of the potential number of Share Units of Merck KGaA, Darmstadt, Germany, (‟MSU s") for the individual tranches: 2013 tranche 2014 tranche 2015 tranche Performance cycle Term Reference price of shares of Merck KGaA, Darmstadt, Germany, in â,¬ (60-day...

  • Page 218
    ... to the Group Accounts Consolidated Financial Statements 215 (28) Financial liabilities / Capital management The composition of financial liabilities as well as a reconciliation to net financial debt are presented in the following table: Book value Dec. 31, 2015 â,¬ million Book value Dec. 31...

  • Page 219
    ...with a volume of â,¬ 1.35 billion Capital management The objective of capital management is to secure financial flexibility in order to maintain long-term business operations and to realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks...

  • Page 220
    ... and provisions for tax liabilities resulted in total income tax liabilities of â,¬ 1,011.3 million as of December 31, 2015 (2014: â,¬ 849.8 million). The increase in tax liabilities was primarily due to the acquisition of the Sigma-Aldrich Corporation, USA , higher income tax expenses in fiscal...

  • Page 221
    ... consolidated cash flow statement. INFORMATION BY COUNTRY AND REGION Europe â,¬ million 2015 2014 thereof Germany 2015 2014 thereof Switzerland 2015 2014 North America 2015 2014 Net sales by customer location1 Net sales by company location1 Intangible assets Property, plant and equipment Research...

  • Page 222
    ... to the Group Accounts Consolidated Financial Statements 219 Performance Materials 2015 2014 Corporate and Other 2015 2014 Group 2015 2014 2,555.6...thereof USA 2015 2014 Asia-Pacific 2015 2014 thereof China 2015 2014 Latin America 2015 2014 Middle East and Africa 2015 2014 Group 2015 2014 ...

  • Page 223
    ... as allergy products. The Life Science business sector offers solutions to research and analytical laboratories in the pharmaceutical / biotechnology industry or in academic institutions, and customers manufacturing largeand small-molecule drugs. The Performance Materials business sector consists...

  • Page 224
    ... Sigma-Aldrich Corporation Adjustment first-time consolidation of AZ Electronic Materials S.A. Business free cash ï¬,ow - 609.0 - 960.1 - 514.2 1,219.7 - 2,766.2 - 527.5 - 185.5 - 214.2 - 144.6 2,605.1 The reconciliation of operating assets presented in the Segment Reporting to the total assets...

  • Page 225
    222 Consolidated Financial Statements Notes to the Group Accounts HEALTHCARE 2014 Adjustment â,¬ million 2014 old structure 2014 adjustment 2014 adjusted Net sales 6,549.4 71.2 6,620.5 Royalty, license and commission income Total revenues 194.4 6,743.8 - 194.4 - - - Cost of sales (of...

  • Page 226
    ...to the Group Accounts Consolidated Financial Statements 223 PERFORMANCE MATERIALS 2014 Adjustment â,¬ million 2014 old structure 2014 adjustment 2014 adjusted Net sales 2,059.6 0.2 2,059.8 Royalty, license and commission income Total revenues 0.9 2,060.5 - 0.9 - - - Cost of sales (of...

  • Page 227
    ...[4] ‟Acquisitions, assets held for sale and disposal groups". (35) Net cash ï¬,ows from investing activities and financing activities The payments for the major acquisitions in fiscal 2015 were as follows: â,¬ million Sigma-Aldrich Other Acquisitions Total Purchase price payment Cash income...

  • Page 228
    Notes to the Group Accounts Consolidated Financial Statements 225 In 2014, a hedging gain of â,¬ 95.4 million in connection with the acquisition of the Sigma-Aldrich Corporation, USA , had already been reclassified from other comprehensive income to financial assets. Consequently, the payment for...

  • Page 229
    ... in the consolidated income statement either in the operating result or in the financial result. The strategy to hedge interest rate and foreign exchange rate fluctuations arising from forecast transactions and transactions already recognized in the balance sheet is set by a Group risk committee...

  • Page 230
    ... the acquisition of the Sigma-Aldrich Corporation, USA in 2015. The nominal amount of the forward exchange and currency option contracts for this purpose was US$ 9,900 million (â,¬ 7,689 million). Based on the translation of the purchase price into euros at the exchange rate on the acquisition date...

  • Page 231
    ... Financial Statements Notes to the Group Accounts Foreign exchange risks Owing to its international business focus, the Group is exposed to foreign exchange-related transaction risks within the scope of both ordinary business and financing activities. Different strategies are used to limit...

  • Page 232
    ... in the reporting period with the entry into an offsetting transaction. Additionally, the level of interest-bearing securities declined significantly in comparison with 2014 and was immaterial as of the balance sheet date. Share price risks The shares in publicly listed companies amounting to...

  • Page 233
    ... is limited by establishing the required financial flexibility and by effective cash management. Information on bonds issued by the Group and other sources of financing can be found in Note [28] ‟Financial liabilities / Capital management". Liquidity risks are monitored and reported to management...

  • Page 234
    ... with banks and industrial companies with good credit ratings, and on the other hand, the broad-based business structure with a large number of different customers results in a diversification of credit risks within the Group. The credit risk from financial contracts is monitored daily on the basis...

  • Page 235
    ... cost At cost Fair value Non-financial items Assets Cash and cash equivalents Current financial assets Held for trading (non-derivatives) Derivatives without a hedging relationship Held to maturity Loans and receivables Available for sale Derivatives with a hedging relationship Trade accounts...

  • Page 236
    Notes to the Group Accounts Consolidated Financial Statements 233 Subsequent measurement according to IAS 39 Carrying Fair value, amount Dec. 31, 2015 Dec. 31, 2014 Carrying amount according to IAS 17 Amortized cost At cost Fair value Non-financial Fair value items Dec. 31, 2014 832.2 - 32.7...

  • Page 237
    ... into account. The planning relates to a period of five years. Cash flows for periods beyond this are included by calculating the terminal value using a long-term growth rate of 0.5%. The discount rate used (after tax) was 7.0%. Level 3 liabilities consist of contingent purchase price components...

  • Page 238
    ... Group Accounts Consolidated Financial Statements 235 The fair value of available-for-sale investments in equity instruments with a carrying amount of â,¬ 82.0 million (2014: â,¬ 66.9 million) could not be reliably determined since there is no quoted price for an identical instrument in an active...

  • Page 239
    ... comprehensive income in the consolidated statement of comprehensive income under the item ‟fair value adjustments" related to ‟available-for-sale financial assets". If the discount rate used for the determination of the fair value of the noncontrolling interests in a partnership had been one...

  • Page 240
    ... to purchase the entire share capital of Sigma-Aldrich Corporation Obligations to acquire intangible assets and to pay due to collaboration agreements Obligations to acquire property, plant and equipment Future operating lease payments Long-term purchase commitments Other financial obligations...

  • Page 241
    ... 2,630.9 376.6 157.4 3,164.9 As of December 31, 2015, the Group had 49,613 employees (2014: 39,639). The average number of employees during the year was 41,511 (2014: 38,930). The increase was mainly due to the acquisition of the Sigma-Aldrich Corporation, USA , which was completed on November 18...

  • Page 242
    Notes to the Group Accounts Consolidated Financial Statements 239 The breakdown of personnel by function was as follows: Average number of employees 2015 2014 Production Logistics Marketing and Sales Administration Research and Development Infrastructure and Other 11,563 2,581 12,871 6,763 ...

  • Page 243
    ...Darmstadt, Germany, for the Long-Term Incentive Plan totaled â,¬ 9.9 million (2014: â,¬ 12.7 million), and additions to the pension provisions of E. Merck KG, Darmstadt, Germany, include current service costs of â,¬ 4.2 million (2014: â,¬ 2.1 million) for members of the Executive Board of Merck KGaA...

  • Page 244
    ... Accounts Consolidated Financial Statements 241 (49) Subsequent events At the beginning of January 2016, two contracts entered into with BioMarin Pharmaceutical Inc., USA (BioMarin), became effective. Firstly, the sale of the rights to Kuvan®, a drug used to treat the metabolic disorder known...

  • Page 245
    ... Measurement policies The main assets and liabilities disclosed in the consolidated balance sheet are measured as follows: Balance sheet item Measurement principle Assets Intangible assets With finite useful life With indefinite useful life Property, plant and equipment Financial assets (current...

  • Page 246
    ... financial statements of the consolidated companies as of the balance sheet date, which were prepared applying consistent accounting policies in accordance with IFRS . Acquisitions are accounted for using the purchase method in accordance with IFRS 3. Subsidiaries acquired and consolidated...

  • Page 247
    ... Science and Performance Materials business sectors, products are largely sold to business customers, and to a lesser extent to distributors. include commission income, and in the Life Science business sector revenue from services, but the volume involved is insignificant. In the case of long-term...

  • Page 248
    ...risks existing up until market launch, development expenses in the Life Science and Performance Materials business sectors can likewise not be capitalized. Reimbursements for R&D are offset against research and development costs. Financial assets and financial liabilities at fair value through pro...

  • Page 249
    ...been met. Intangible assets acquired in the course of business combinations are recognized at fair value on the acquisition date. If the development of intangible assets takes a substantial period of time, the directly attributable borrowing costs incurred up until completion are capitalized as part...

  • Page 250
    ... costs in the consolidated income statement. An impairment test is performed if there are indications of impairment. Impairment losses are USEFUL LIFE OF PROPERTY, PLANT AND EQUIPMENT Useful life Production buildings Administration buildings Plant and machinery Operating and office equipment...

  • Page 251
    ... the inventories are not manufactured within the scope of long-term production processes, the manufacturing cost does not include any borrowing cost. (65) Provisions and contingent liabilities Provisions are recognized in the balance sheet if it is more likely than not that a cash outflow will be...

  • Page 252
    ... of the shares of Merck KGaA, Darmstadt, Germany, in Xetra® trading during the last 60 trading days prior to January 1 after the performance cycle. The payment amount is limited to three times the reference price. The fair value of the obligations is recalculated on each balance sheet date using...

  • Page 253
    ... Financial Statements Notes to the Group Accounts List of Shareholdings (67) List of shareholdings The shareholdings of Merck KGaA, Darmstadt, Germany, as of December 31, 2015 are presented in the following table: Country Company Registered Office Equity interest (%) Thereof: Merck KGaA...

  • Page 254
    Notes to the Group Accounts Consolidated Financial Statements 251 Country Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Company Merck Performance Materials GmbH, a subsidiary of Merck KGaA, Darmstadt, Germany Merck Schuchardt OHG , a ...

  • Page 255
    ...Merck KGaA, Darmstadt, Germany Sigma-Aldrich Italia S.r.l. Sigma-Aldrich S.r.l. Merck Serono SIA , a subsidiary of Merck KGaA, Darmstadt, Germany Merck Serono, UAB , a subsidiary of Merck KGaA, Darmstadt, Germany AZ Electronic Materials (Luxembourg) S.a.r.l. AZ Electronic Materials Group S.a.r.l. AZ...

  • Page 256
    ... Merck KGaA, Darmstadt, Germany Merck Chemicals B.V., a subsidiary of Merck KGaA, Darmstadt, Germany Merck Holding Netherlands B.V., a subsidiary of Merck KGaA, Darmstadt, Germany Serono Tri Holdings B.V. Sigma-Aldrich B.V. Sigma-Aldrich Chemie B.V. Merck Life Science AS, a subsidiary of Merck KGaA...

  • Page 257
    ... GmbH Sigma-Aldrich International GmbH Sigma-Aldrich Production GmbH Merck Ilac Ecza ve Kimya Ticaret AS, a subsidiary of Merck KGaA, Darmstadt, Germany Aldrich Chemical Co. Ltd. AZ Electronic Materials (UK) Ltd. BioReliance Limited BioReliance U.K. Acquisition Limited Epichem Group Limited Lamberts...

  • Page 258
    ... Marque Corporation Cerilliant Corporation EMD Accounting Solutions & Services America, Inc. EMD Finance LLC EMD Holding Corp. EMD Millipore Corporation EMD Performance Materials Corp. EMD Serono Holding Inc. EMD Serono Research & Development Institute, Inc. EMD Serono, Inc. KL Acquisition Corp...

  • Page 259
    ...100.00 100.00 Sigma-Aldrich Oceania Pty. Ltd. Sigma-Aldrich Pty. Ltd. AZ Electronic Materials (Hong Kong) Finance Ltd. Beijing Skywing Technology Co., Ltd. Merck Chemicals (Shanghai) Co., Ltd., a subsidiary of Merck KGaA, Darmstadt, Germany Merck Display Materials (Shanghai) Co., Ltd., a subsidiary...

  • Page 260
    ...of Merck KGaA, Darmstadt, Germany Merck Performance Materials Manufacturing G.K., a subsidiary of Merck KGaA, Darmstadt, Germany Merck Serono Co., Ltd., a subsidiary of Merck KGaA, Darmstadt, Germany Sigma-Aldrich Japan G.K. Merck Sdn Bhd, a subsidiary of Merck KGaA, Darmstadt, Germany Sigma-Aldrich...

  • Page 261
    .... InterPharm Industries Ltd. InterPharm Laboratories Ltd. Merck Serono Ltd., a subsidiary of Merck KGaA, Darmstadt, Germany Qlight Nanotech Ltd. Sigma-Aldrich Israel Ltd. Millipore Mauritius Ltd. Merck (Pty) Ltd., a subsidiary of Merck KGaA, Darmstadt, Germany Merck Pharmaceutical Manufacturing (Pty...

  • Page 262
    ... 100.00 100.00 Sigma-Aldrich Global S.a.r.l. Merck Window Technologies B.V., a subsidiary of Merck KGaA, Darmstadt, Germany MS Ventures B.V. Laquifa Laboratorios S.A. Chemical Trade Limited MedChem Limited SAF -LAB Asceneuron SA Calypso Biotech SA B-Line Systems Limited Bristol Organics Ltd. Fluka...

  • Page 263
    ....00 100.00 100.00 65.78 Thereof: Merck KGaA, Darmstadt, Germany (%) Midwest Consultants Co. Research Organics Foreign Trade Corporation S and F Properties, Inc. Second President Properties Company Sigma Chemical Corp. Sigma-Aldrich China, Inc. Sigma-Aldrich Subsidiary I Corp. Techcare Systems, Inc...

  • Page 264
    Notes to the Group Accounts Consolidated Financial Statements 261 Country Latin America Dominican Republic MEA Company Registered Office Equity interest (%) Thereof: Merck KGaA, Darmstadt, Germany (%) Merck Dominicana, S.R.L., a subsidiary of Merck KGaA, Darmstadt, Germany Santo Domingo ...

  • Page 265
    ... principles, the consolidated financial statements of the Group give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the combined management report includes a fair review of the development and performance of the business and the position...

  • Page 266
    ...German Commercial Code"] and supplementary provisions of the articles of association are the responsibility of the parent company`s management. Our responsibility is to express an opinion on the consolidated financial statements and on the Combined Management Report based on our audit. We conducted...

  • Page 267
    ... in intangible assets4 Investments in property, plant and equipment4 Business free cash flow Net financial debt Other key data Equity ratio (in %) Research and development costs Dividend per share before share split (in â,¬)5 Dividend per share after share split (in â,¬)5 Employees (number as...

  • Page 268
    Business Development 2011 - 2015 265 2011 2012 2013 2014 2015 Change in % 9,922 1,132 11.4 2,731 27.5 7 2,724 27.5 839 618 1.39 10,756 964 9.0 2,360 21.9 - 605 2,965 27.6 709 579 1.30 10,735 1,...

  • Page 269
    ...and Service The Annual Report for 2015 was published in German and English. A fully navigable online version of the report along with the consolidated financial statements is available on the Web at ar2015.emdgroup.com. It has been optimized for mobile devices. More information about our company can...

  • Page 270
    ... on the third quarter DISCLAIMER Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany, operate as EMD Serono in Healthcare, MilliporeSigma in Life Science and EMD Performance Materials. To reflect such fact and to avoid...

  • Page 271
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