Segment Reporting
(31) Information by business sector /country and region
38 KB EXCELInformation by business sector
Healthcare | Life Science | Performance Materials | Corporate and Other | Merck Group | ||||||
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€ million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
Net sales1 | 6,855 | 6,934 | 5,658 | 3,355 | 2,511 | 2,556 | – | – | 15,024 | 12,845 |
Operating result (EBIT)2 | 1,593 | 1,097 | 556 | 301 | 823 | 878 | – 492 | – 432 | 2,481 | 1,843 |
Depreciation and amortization | 746 | 752 | 797 | 372 | 237 | 242 | 25 | 18 | 1,805 | 1,383 |
Impairment losses | 88 | 122 | 26 | 2 | 17 | 2 | 2 | 3 | 134 | 128 |
Reversals of impairment losses | – 3 | – | – 1 | – | – | – 1 | – | – | – 5 | – 1 |
EBITDA2 | 2,425 | 1,970 | 1,378 | 674 | 1,077 | 1,120 | – 465 | – 411 | 4,415 | 3,354 |
Exceptionals2 | – 297 | 31 | 274 | 182 | 29 | 12 | 69 | 51 | 75 | 276 |
EBITDA pre exceptionals (Segment result)2 | 2,128 | 2,002 | 1,652 | 856 | 1,106 | 1,132 | – 396 | – 360 | 4,490 | 3,630 |
EBITDA margin pre exceptionals (in % of net sales)2 | 31.0% | 28.9% | 29.2% | 25.5% | 44.1% | 44.3% | – | – | 29.9% | 28.3% |
Net operating assets2,3 | 5,600 | 5,813 | 21,853 | 21,624 | 4,146 | 4,170 | 200 | 113 | 31,798 | 31,720 |
Segment liabilities | – 2,427 | – 2,479 | – 953 | – 910 | – 290 | – 290 | – 106 | – 61 | – 3,777 | – 3,739 |
Investments in property, plant and equipment 4 | 315 | 232 | 254 | 133 | 96 | 103 | 51 | 45 | 716 | 514 |
Investments in intangible assets4 | 47 | 146 | 47 | 8 | 13 | 10 | 25 | 15 | 132 | 179 |
Net cash flows from operating activities | 1,723 | 1,683 | 1,417 | 706 | 1,054 | 1,139 | – 1,677 | – 1,333 | 2,518 | 2,195 |
Business free cash flow2 | 1,648 | 1,581 | 1,144 | 676 | 1,011 | 931 | – 485 | – 421 | 3,318 | 2,766 |
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Information by country and region
Europe | thereof: Germany | thereof: Switzerland | North America | thereof: USA | Asia-Pacific | thereof: China | Latin America | Middle East and Africa | Merck Group | |||||||||||
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€ million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
Net sales by customer location1 | 4,735 | 4,103 | 983 | 851 | 238 | 160 | 3,858 | 2,723 | 3,668 | 2,567 | 4,736 | 4,241 | 1,356 | 1,105 | 1,136 | 1,265 | 559 | 513 | 15,024 | 12,845 |
Net sales by company location1 | 5,466 | 4,735 | 1,712 | 1,563 | 327 | 177 | 3,854 | 2,719 | 3,691 | 2,587 | 4,450 | 4,014 | 1,041 | 669 | 1,099 | 1,238 | 154 | 138 | 15,024 | 12,845 |
Intangible assets2 | 7,047 | 7,753 | 372 | 352 | 3,345 | 3,979 | 17,131 | 16,787 | 17,131 | 16,787 | 803 | 871 | 46 | 52 | 2 | 5 | 6 | 6 | 24,989 | 25,422 |
Property, plant and equipment2 | 2,554 | 2,401 | 1,187 | 1,104 | 548 | 527 | 1,015 | 1,026 | 1,013 | 1,024 | 504 | 443 | 172 | 124 | 110 | 93 | 49 | 44 | 4,230 | 4,008 |
Research and development costs | – 1,697 | – 1,510 | – 763 | – 835 | – 840 | – 530 | – 184 | – 124 | – 184 | – 121 | – 61 | – 45 | – 25 | – 12 | – 21 | – 24 | – 12 | – 7 | – 1,976 | – 1,709 |
Number of employees | 24,438 | 23,429 | 12,450 | 11,938 | 2,078 | 1,946 | 10,037 | 9,794 | 9,874 | 9,629 | 10,754 | 11,096 | 2,999 | 2,619 | 4,140 | 4,352 | 1,045 | 942 | 50,414 | 49,613 |
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(32) Information on Segment Reporting
Segmentation was performed in accordance with the organizational and reporting structure of the Merck Group that applied during 2016.
The Healthcare business sector comprises the businesses with prescription and over-the-counter pharmaceuticals and biopharmaceuticals as well 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 large- and small-molecule drugs. The Performance Materials business sector consists of the entire specialty chemicals business. The fields of activity of the individual segments are described in detail in the sections about the business sectors in the combined management report.
Corporate and Other included income and expenses, assets and liabilities as well as cash flows that could not be directly allocated to the reportable segments presented. This related mainly to central Group functions. Moreover, the column served the reconciliation to the Group numbers. The expenses and income as well as cash flows attributable to the financial result and income taxes were also presented under Corporate and Other.
Apart from sales, the success of a segment is mainly determined by EBITDA pre exceptionals (segment result) and business free cash flow. EBITDA pre exceptionals and business free cash flow are performance indicators not defined by International Financial Reporting Standards. However, they represent important variables used to steer the Merck Group. To permit a better understanding of operational performance, EBITDA pre exceptionals excludes depreciation and amortization, impairment losses, and reversals of impairment losses as well as exceptional income and expenses presented in the following. Among other things, business free cash flow is also used for internal target agreements.
In 2016, only the Life Science business sector generated intragroup sales between business sectors. These resulted mainly from transactions with the Healthcare business sector in an amount of € 46 million and with the Performance Materials business sector (€ 2 million). Transfer prices for intragroup sales are determined on an arm’s length basis.
Neither in 2016 nor in 2015 did any single customer account for more than 10% of Group sales.
The following table presents the reconciliation of EBITDA pre exceptionals of all operating businesses to the profit before income tax of the Merck Group:
23 KB EXCEL€ million | 2016 | 2015 | ||||
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EBITDA pre exceptionals of the operating businesses1 | 4,887 | 3,990 | ||||
Corporate and Other | – 396 | – 360 | ||||
EBITDA pre exceptionals of the Merck Group1 | 4,490 | 3,630 | ||||
Depreciation / amortization / impairment losses / reversals of impairment losses | – 1,934 | – 1,511 | ||||
Exceptionals1 | – 75 | – 276 | ||||
Operating result (EBIT)1 | 2,481 | 1,843 | ||||
Financial result | – 326 | – 357 | ||||
Profit before income tax | 2,154 | 1,487 | ||||
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Exceptionals comprised the following:
30.5 KB EXCEL€ million | 2016 | 2015 | ||||
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Restructuring costs | – 22 | – 48 | ||||
Integration costs / IT costs | – 193 | – 78 | ||||
Gains (+) / losses (–) on the divestment of businesses | 304 | – 2 | ||||
Acquisition-related exceptionals | – 153 | – 133 | ||||
Other exceptionals | – 11 | – 16 | ||||
Exceptionals before impairment losses / reversals of impairment losses1 | – 75 | – 276 | ||||
Impairment losses | – 115 | – 92 | ||||
Reversals of impairment losses | – | – | ||||
Exceptionals (total)1 | – 191 | – 367 | ||||
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Exceptionals were included in the consolidated income statement under cost of sales as well as under other operating expenses and income. The exceptionals of € 193 million recorded under integration costs / IT costs (2015: € 78 million) were largely incurred in connection with the integration of the Sigma-Aldrich Corporation, USA (€ 125 million), as well as expenses for ERP systems (€ 40 million). These amounts were recorded under other operating expenses.
The gains from the divestment of businesses amounting to € 304 million (2015: losses from the divestment of businesses amounting to € 2 million) resulted mainly from the sales of the rights to Kuvan® and the associated business transactions. These gains were included in other operating income.
The acquisition-related exceptionals amounting to € 153 million (2015: € 133 million) were due to the acquisition of the Sigma-Aldrich Corporation, USA, and primarily consisted of the step-up of the inventories from the purchase price allocation for the Sigma-Aldrich Corporation, USA, which was recognized six months after the acquisition in the income statement as part of cost of sales.
Business free cash flow was determined as follows:
31 KB EXCEL€ million | 2016 | 2015 | ||||
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EBITDA pre exceptionals1 | 4,490 | 3,630 | ||||
Investments in property, plant and equipment, software as well as advance payments for intangible assets |
– 859 | – 609 | ||||
Changes in inventories according to the consolidated balance sheet2 | 3 | – 950 | ||||
Changes in trade accounts receivable and receivables from royalties and licenses according to the consolidated balance sheet |
– 177 | – 514 | ||||
Adjustment first-time consolidation of Sigma-Aldrich2 | – 149 | 1,210 | ||||
Adjustment first-time consolidation of BioControl Systems | 10 | – | ||||
Business free cash flow1 | 3,318 | 2,766 | ||||
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The reconciliation of operating assets presented in the Segment Reporting to the total assets of the Merck Group was as follows:
23.5 KB EXCEL€ million | Dec. 31, 2016 | Dec. 31, 20151 | ||||
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Assets | 38,251 | 38,081 | ||||
Monetary assets (cash and cash equivalents, current financial assets, loans and securities) |
– 1,123 | – 1,093 | ||||
Non-operating receivables, income tax receivables, deferred taxes and net defined benefit assets |
– 1,542 | – 1,484 | ||||
Assets held for sale | – 12 | – 46 | ||||
Operating assets (gross)2 | 35,575 | 35,458 | ||||
Trade accounts payable | – 2,048 | – 1,921 | ||||
Other operating liabilities | – 1,729 | – 1,818 | ||||
Segment liabilities | – 3,777 | – 3,739 | ||||
Operating assets (net)2 | 31,798 | 31,720 | ||||
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