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Operating Activities

(8) Segment Reporting

Accounting and measurement policies
Segment reporting

The Group’s business activities are broken down into the three operational business sectors of Life Science, Healthcare, and Electronics, as well as the central Group functions. This segment structure reflects the internal organizational and reporting structure. The Life Science business sector encompasses business with tools, chemicals, and equipment for academic labs, biotech, and pharmaceutical manufacturers, as well as the industrial sector. The Healthcare business sector discovers, develops, manufactures, and markets prescription drugs and biopharmaceuticals. The Electronics business sector supplies materials for the semiconductor and display industries and surface design. The three business sectors differ in terms of their products and services, their customers, their sales structures and processes, and the regulatory environment in which they operate. However, the activities that are bundled in each individual business sector are extremely similar in terms of these criteria. The central Group functions also encompass service activities that are the same for all business sectors, such as procurement and human resources, as well as other central Group functions that are not allocated to any of the business sectors. Resource allocation and the assessment of business development are performed at the level of the business sectors by the Executive Board of Merck KGaA, Darmstadt, Germany, as the chief operating decision-maker.

In addition to the direct activities of the central Group functions, Corporate and Other includes income and expenses, assets, and liabilities, as well as cash flows that cannot be allocated to the reportable segments as they are managed at Group level in central Group functions. This relates in particular to expenses and income for the foreign currency hedging of transactions in operating business, financial expenses, and financial income, which include interest expenses and interest income, and income tax expenses and income. Financial liabilities, pension provisions and income tax assets and liabilities are also allocated to Corporate and Other. Moreover, the column serves as the reconciliation to the Group figures.

Apart from net sales, the success of a segment is mainly determined by EBITDA pre (segment result). EBITDA pre is a key figure that is not defined by International Financial Reporting Standards (IFRS). However, it represents the most important variable used to steer the Group. To permit a better understanding of operational performance, EBITDA pre excludes depreciation and amortization, impairment losses, and reversals of impairment losses in addition to specific adjustments presented below.

The segment information is derived from the financial figures, which are based on the IFRSs applied in the Consolidated Financial Statements. Transfer prices for intragroup net sales were determined on an arm’s-length basis for all of the business sectors. Fixed assets are allocated to the segments on the basis of the degree of utilization. Depreciation expenses are allocated on the same basis. Fixed assets are always recognized by the buyer at the amortized Group cost following intragroup transactions. Services performed by the Group functions are allocated on the basis of planning data. Any deviations in the actual costs incurred are not allocated to the reportable operating segments but continue to be recognized in the Corporate and Other column.

Information by business sector – 2023

€ million

 

Life Science

 

Healthcare

 

Electronics

 

Total of reportable operating segments

 

Corporate and Other

 

Group

Net sales1

 

9,281

 

8,053

 

3,659

 

20,993

 

 

20,993

Intersegment sales

 

77

 

 

 

77

 

-77

 

Operating result (EBIT)2

 

1,850

 

2,225

 

248

 

4,322

 

-713

 

3,609

Depreciation

 

848

 

299

 

526

 

1,673

 

109

 

1,782

Impairment losses3

 

34

 

27

 

42

 

103

 

1

 

104

Reversals of impairment losses

 

 

-6

 

 

-6

 

 

-6

EBITDA4

 

2,731

 

2,545

 

816

 

6,092

 

-603

 

5,489

Adjustments2

 

88

 

-1

 

97

 

184

 

206

 

390

EBITDA pre (segment result)2

 

2,820

 

2,543

 

913

 

6,276

 

-397

 

5,879

EBITDA pre margin (in % of net sales)2

 

30.4%

 

31.6%

 

25.0%

 

 

 

28.0%

Assets by business sector

 

23,476

 

8,522

 

10,275

 

42,273

 

6,222

 

48,495

Liabilities by business sector

 

-1,843

 

-3,146

 

-636

 

-5,626

 

-16,115

 

-21,741

Investments in property, plant and equipment5

 

953

 

316

 

394

 

1,663

 

145

 

1,807

Investments in intangible assets5

 

54

 

69

 

58

 

181

 

35

 

216

Non-cash changes in provisions (according to consolidated cash flow statement)6

 

33

 

94

 

100

 

227

 

154

 

381

1

Excluding intersegment sales.

2

Not defined by International Financial Reporting Standard (IFRS).

3

Without impairments on financial assets and inventories.

4

Not defined by International Financial Reporting Standards (IFRS); EBITDA corresponds to operating result (EBIT) adjusted by depreciation, amortization, impairment losses, and reversals of impairment losses.

5

According to the consolidated cash flow statement.

6

Excluding provisions for pensions and other post-employment benefits.

Information by business sector – 2022

€ million

 

Life Science

 

Healthcare

 

Electronics

 

Total of reportable operating segments

 

Corporate and Other

 

Group

Net sales1

 

10,380

 

7,839

 

4,013

 

22,232

 

 

22,232

Intersegment sales

 

61

 

 

 

61

 

-61

 

Operating result (EBIT)2

 

2,808

 

1,895

 

572

 

5,275

 

-801

 

4,474

Depreciation

 

845

 

303

 

545

 

1,693

 

105

 

1,798

Impairment losses3

 

24

 

187

 

20

 

232

 

 

232

Reversals of impairment losses

 

 

 

 

 

 

EBITDA4

 

3,678

 

2,385

 

1,138

 

7,200

 

-696

 

6,504

Adjustments2

 

82

 

92

 

55

 

228

 

117

 

345

EBITDA pre (segment result)2

 

3,760

 

2,477

 

1,192

 

7,428

 

-579

 

6,849

EBITDA pre margin (in % of net sales)2

 

36.2%

 

31.6%

 

29.7%

 

 

 

30.8%

Assets by business sector5

 

24,203

 

8,135

 

10,857

 

43,195

 

5,341

 

48,535

Liabilities by business sector5

 

-2,094

 

-3,111

 

-744

 

-5,949

 

-16,571

 

-22,521

Investments in property, plant and equipment6

 

694

 

344

 

397

 

1,435

 

97

 

1,531

Investments in intangible assets6

 

107

 

136

 

13

 

256

 

20

 

275

Non-cash changes in provisions (according to consolidated cash flow statement)7

 

72

 

174

 

28

 

274

 

3

 

277

1

Excluding intersegment sales.

2

Not defined by International Financial Reporting Standard (IFRS).

3

Without impairments on financial assets and inventories.

4

Not defined by International Financial Reporting Standards (IFRS); EBITDA corresponds to operating result (EBIT) adjusted by depreciation, amortization, impairment losses, and reversals of impairment losses.

5

Previous-year figures have been adjusted, see note (6) “Acquisitions and divestments”.

6

According to the consolidated cash flow statement.

7

Excluding provisions for pensions and other post-employment benefits.

Information by country and region – 2022

€ million

 

Europe

 

thereof: Germany

 

thereof: Switzer­land

 

North America

 

thereof: USA

 

Asia-Pacific

 

thereof: China

 

Latin America

 

Middle East and Africa

 

Group

Net sales by customer location1

 

6,248

 

1,108

 

469

 

6,361

 

6,025

 

7,697

 

3,157

 

1,231

 

695

 

22,232

Net sales by company location1

 

6,648

 

1,532

 

592

 

6,596

 

6,302

 

7,297

 

2,818

 

1,175

 

516

 

22,232

Goodwill and
other intangible assets2, 3

 

4,930

 

1,568

 

1,768

 

20,163

 

20,152

 

629

 

57

 

2

 

 

25,724

Property, plant and equipment3

 

4,302

 

1,911

 

1,059

 

2,368

 

2,363

 

1,266

 

423

 

211

 

57

 

8,204

Research and development costs

 

-2,051

 

-1,081

 

-835

 

-372

 

-371

 

-69

 

-26

 

-17

 

-12

 

-2,521

Number of employees

 

28,243

 

13,620

 

2,574

 

15,847

 

15,634

 

15,412

 

4,904

 

3,487

 

1,243

 

64,232

1

Excluding intersegment sales.

2

Goodwill and other intangible assets are allocated by currency area.

3

Previous-year figures have been adjusted, see note (6) “Acquisitions and divestments”.

Information by country and region – 2022

€ million

 

Europe

 

thereof: Germany

 

thereof: Switzer­land

 

North America

 

thereof: USA

 

Asia-Pacific

 

thereof: China

 

Latin America

 

Middle East and Africa

 

Group

Net sales by customer location1

 

6,248

 

1,108

 

469

 

6,361

 

6,025

 

7,697

 

3,157

 

1,231

 

695

 

22,232

Net sales by company location1

 

6,648

 

1,532

 

592

 

6,596

 

6,302

 

7,297

 

2,818

 

1,175

 

516

 

22,232

Goodwill and
other intangible assets2, 3

 

4,930

 

1,568

 

1,768

 

20,163

 

20,152

 

629

 

57

 

2

 

 

25,724

Property, plant and equipment3

 

4,302

 

1,911

 

1,059

 

2,368

 

2,363

 

1,266

 

423

 

211

 

57

 

8,204

Research and development costs

 

-2,051

 

-1,081

 

-835

 

-372

 

-371

 

-69

 

-26

 

-17

 

-12

 

-2,521

Number of employees

 

28,243

 

13,620

 

2,574

 

15,847

 

15,634

 

15,412

 

4,904

 

3,487

 

1,243

 

64,232

1

Excluding intersegment sales.

2

Goodwill and other intangible assets are allocated by currency area.

3

Previous-year figures have been adjusted, see note (6) “Acquisitions and divestments”.

No single customer accounted for more than 10% of the Group’s total net sales in fiscal 2023 or 2022.

The following table presents the reconciliation of segment results of all operating businesses to the profit before income tax of the Group:

€ million

 

2023

 

2022

EBITDA pre of the operating businesses1

 

6,276

 

7,428

Corporate and Other

 

-397

 

-579

EBITDA pre of the Group1

 

5,879

 

6,849

Depreciation/amortization/impairment losses/reversals of impairment losses

 

-1,880

 

-2,030

Adjustments1

 

-390

 

-345

Operating result (EBIT)1

 

3,609

 

4,474

Financial result

 

-125

 

-187

Profit before income tax

 

3,484

 

4,287

1

Not defined by International Financial Reporting Standard (IFRS). Please refer to the following table for the components of the adjustments.

The adjustments comprised the following:

€ million

 

2023

 

2022

Restructuring expenses

 

-249

 

-198

Integration expenses/IT expenses

 

-118

 

-88

Gains (+)/losses (-) on the divestment of businesses

 

51

 

38

Acquisition-related adjustments

 

-18

 

-29

Other adjustments

 

-56

 

-68

Adjustments before impairment losses/reversals of impairment losses1

 

-390

 

-345

Impairment losses2

 

-88

 

-232

Reversals of impairment losses

 

1

 

Adjustments (total)1

 

-477

 

-577

1

Not defined by International Financial Reporting Standard (IFRS).

2

Without impairments on financial assets and inventories.

Restructuring expenses in the year under review primarily related to a program to further improve processes and align the Group functions more closely with the businesses (€ 126 million; 2022: € 20 million; see Note (27) “Other provisions”).

As in the previous year, integration and IT expenses in fiscal 2023 related to expenses for the enhancement of ERP systems.

Other adjustments include the losses on the net position of monetary assets and liabilities resulting from hyperinflationary accounting in Argentina and Turkey, which are reported in other operating expenses (see Note (2) “Reporting principles” and Note (14) “Other operating expenses”).

Impairment losses were attributable in particular to intangible assets in the Electronics and Life Science business sectors (see Note (14) “Other operating expenses” and Note (19) “Other intangible assets”).

The adjustments are reported in the consolidated income statement as part of the respective functional costs and allocated to them as follows:

2023

€ million

 

thereof:
cost of sales

 

thereof: marketing and selling expenses

 

thereof: adminis­tration expenses

 

thereof:
research and development expenses

 

thereof:
other operating income and expenses

 

Total

Restructuring expenses

 

-42

 

-44

 

-135

 

-6

 

-21

 

-249

Integration expenses/IT expenses

 

-1

 

 

-110

 

-1

 

-6

 

-118

Gains (+)/losses (-) on the divestment of businesses

 

 

 

 

 

51

 

51

Acquisition-related adjustments

 

 

 

 

 

-18

 

-18

Other adjustments

 

 

 

 

 

-56

 

-56

Adjustments before impairment losses/reversals of impairment losses1

 

-43

 

-44

 

-246

 

-7

 

-50

 

-390

Impairment losses2

 

 

 

 

 

-88

 

-88

Reversals of impairment losses

 

 

 

 

 

1

 

1

Adjustments in the operating result (total)1

 

-43

 

-44

 

-246

 

-7

 

-138

 

-477

1

Not defined by International Financial Reporting Standards (IFRS).

2

Without impairments on financial assets and inventories.

2022

€ million

 

thereof:
cost of sales

 

thereof: marketing and selling expenses

 

thereof: adminis­tration expenses

 

thereof: research and development expenses

 

thereof:
other operating income and expenses

 

Total

Restructuring expenses

 

-27

 

-32

 

-38

 

-74

 

-28

 

-198

Integration expenses/IT expenses

 

2

 

 

-77

 

-1

 

-12

 

-88

Gains (+)/losses (-) on the divestment of businesses

 

 

 

 

 

38

 

38

Acquisition-related adjustments

 

-7

 

 

 

 

-22

 

-29

Other adjustments

 

 

 

 

 

-68

 

-68

Adjustments before impairment losses/reversals of impairment losses1

 

-32

 

-32

 

-115

 

-75

 

-91

 

-345

Impairment losses2

 

 

 

 

 

-232

 

-232

Reversals of impairment losses

 

 

 

 

 

 

Adjustments in the operating result (total)1

 

-32

 

-32

 

-115

 

-75

 

-323

 

-577

1

Not defined by International Financial Reporting Standards (IFRS).

2

Without impairments on financial assets.

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