Merck: Profit After Tax Jumps 53%

28.10.2005

Merck Group sales rose by 8.8% to EUR 1,472 million in the third quarter, with all six divisions – led by Liquid Crystals and Ethicals – making positive contributions to this growth.

Income of EUR 60 million from Takeda Pharmaceutical and EUR 10 million from Organon boosted an already excellent operating result to EUR 291 million, a 36% increase. Return on sales (ROS: operating result/sales) rose to 19.7% from 15.8% while return on capital employed (ROCE) improved to 26.4% from 20.0%.

Under exceptional items, Merck made a settlement of EUR 10 million to resolve a dispute with an Electronic Chemicals customer. Another EUR 3.1 million involved legal fees. Earnings before interest and tax (EBIT) increased 31% to EUR 277 million from the year-ago figure of EUR 212 million. Merck’s financial result continued to improve, declining 35% to just EUR –11 million.

Profit before tax rose 37% to EUR 267 million from EUR 195 million the year before. Profit after tax increased 53% to EUR 185 million from EUR 121 million as Merck’s underlying tax rate remained at a lower level, dropping to 30.0% in the third quarter of 2005 compared to 38.1% in the year-ago quarter.

The number of Merck employees worldwide decreased 0.2% to 28,888 as of September 30, 2005, compared to the same date last year.

Highlights

Erbitux sales in the third quarter amounted to EUR 59 million, a 15% increase compared to sales of EUR 52 million in the second quarter of 2005. Merck launched Erbitux in the European Union in July 2004 and now has marketing authorization for this targeted cancer treatment in 45 countries around the world, with Guatemala, Panama, Bulgaria, Ecuador, Malaysia and the Philippines joining the growing list during the third quarter.

Liquid Crystals Division sales jumped 40% to a record EUR 199 million in the third quarter compared to the year-ago quarter, driven mainly by demand for large-screen televisions. Compared to the second quarter of this year, third quarter sales were up 8.6%, indicating the liquid crystal display (LCD) market has picked up significantly. Despite a 50% jump in research and development expenses and continued ramping up of the new production facility in Darmstadt, the division’s third quarter operating result improved by 34% to EUR 92 million – also a record. ROS declined slightly year-on-year but was still at a very good 46.4%, well above the 42.7% in the previous quarter.

Outlook

Merck’s third quarter sales of Erbitux reached EUR 59 million and nine-month sales totaled EUR 153 million, leading the company to expect that full-year sales should exceed EUR 200 million.

As expected, the sales growth rate of the Liquid Crystals division picked up in the third quarter and recent public statements by leading LCD manufacturers would indicate that this trend should continue for at least the next several months. The division’s second quarter return on sales did not quite meet the very high expectations set for it but ROS for the third quarter, 46.4%, is moving in the right direction.

Merck expects its positive business development trend to continue and is upgrading its guidance for the full year. The company is confident that sales for the Group, excluding VWR International, should have a growth rate in the high single-digit range. The full-year operating result should improve by a double-digit rate compared to last year.

Source: Merck KGaA

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