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Solid performance for Merck KGaA in "transformation year"

Sales and profits on track amid job cuts and restructuring

Merck KGaA financial results

Germany's Merck KGaA successfully navigated a tricky path in 2012 as it kept sales and profits on target, despite wide-ranging restructuring of its business units.

Overall group revenues rose 8 per cent to €10.7bn, while operating earnings came in at €2.97bn, up almost 9 per cent and at the top end of management expectations, thanks to faster-than-expected cost reductions of €115m rather than €55m.

"Not only did we make progress with one of the most extensive change programmes in the 345-year history of the company, we also succeeded in further expanding our business in a challenging economic environment," said chief executive Karl-Ludwig Kley.

The company's prescription pharmaceutical unit Merck Serono saw sales rise 8 per cent to €6.41bn, thanks to strong performances by multiple sclerosis drug Rebif (interferon beta-1a), fertility treatment Gonal-f (follitropin alfa) and diabetes treatment Glucophage (metformin).

Much of the growth came in the US and emerging markets, with austerity measures in Europe cutting Merck Serono's business in its home continent by 2.1 per cent.

Rebif gained 7.5 per cent to reach €1.89bn in 2012, mainly on the back of US price increases, while Gonal-f benefitted from the roll-out of new pen formulations and Glucophage grew in emerging markets. Growth of cancer drug Erbitux (cetuximab) was modest at a little under 2 per cent to €887m, thanks in part to difficulties in extending the product's approved indications.

Cost-cutting - including the closure of its Geneva headquarters - boosted profitability at Merck Serono throughout the year with operating earnings reaching nearly 33 per cent of sales in the fourth quarter from 27.8 per cent at the start of 2012.

Merck is predicting a more challenging time for pharma in 2013, however, as Rebif will stay largely flat and only modest increases anticipated for its other key pharma brands. Added to that, the company says it is not expecting "any major new product launches in the pharmaceutical business" in either 2013 or 2014.

Merck's consumer health division was punished more severely by the challenging operating environment in Europe, with sales slipping 4 per cent to €473m. Other factors involved in the decline included a pruning of the product portfolio to focus on core brands.

The restructuring programme is already yielding results in terms of Merck's cost base across the group, with 2012 expenses on marketing and selling, R&D and administration all down as a percentage of sales in the year.

Profits are expected to increase faster than sales and rise "significantly" in 2013 and 2014, according to the company.

7th March 2013

From: Sales

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