Annual Report 2021

Operating Activities

(8) Segment Reporting

Accounting and measurement policies

Segment reporting

The internal organizational and reporting structure of the Group forms the basis of the segmentation of its business activity. It is founded on the business models of the business sectors, leading to largely identical risk structures within the segments. Resource allocation and the assessment of business development are performed at the level of the segments by the Executive Board of Merck KGaA, Darmstadt, Germany, as the chief operating decision-maker.

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. Moreover, the column serves the reconciliation to the Group figures. As these are managed at Group level, financial expenses and financial income, which include interest expenses and interest income, as well as income tax expenses and income are also disclosed under Corporate and Other.

Apart from net sales, the success of a segment is mainly determined by EBITDA pre (segment result). EBITDA pre is not defined by the International Financial Reporting Standards, but it is the most important performance indicator for 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.

Information by business sector – 2021

€ million

 

Life Science

 

Healthcare

 

Electronics

 

Corporate and Other

 

Group

Net sales1

 

8,990

 

7,089

 

3,608

 

–

 

19,687

Intersegment sales

 

62

 

–

 

–

 

-62

 

–

Operating result (EBIT)2

 

2,479

 

1,823

 

509

 

-632

 

4,179

Depreciation

 

767

 

315

 

528

 

103

 

1,713

Impairment losses3

 

11

 

19

 

36

 

3

 

68

Reversals of impairment losses

 

–

 

-11

 

-3

 

–

 

-14

EBITDA4

 

3,257

 

2,146

 

1,070

 

-527

 

5,946

Adjustments2

 

29

 

8

 

58

 

62

 

157

EBITDA pre (segment result)2

 

3,286

 

2,153

 

1,128

 

-465

 

6,103

EBITDA pre margin (in % of net sales)2

 

36.6%

 

30.4%

 

31.3%

 

–

 

31.0%

Assets by business sector

 

21,917

 

7,809

 

10,306

 

5,329

 

45,362

Liabilities by business sector

 

-2,094

 

-2,807

 

-720

 

-18,326

 

-23,947

Investments in property, plant and equipment5

 

461

 

350

 

237

 

16

 

1,066

Investments in intangible assets5

 

45

 

277

 

19

 

15

 

355

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

 

122

 

176

 

5

 

85

 

387

1

Excluding intersegment sales.

2

Not defined by International Financial Reporting Standard (IFRS).

3

Without impairments on financial assets

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 – 2020

€ million

 

Life Science

 

Healthcare

 

Electronics

 

Corporate and Other

 

Group

Net sales1

 

7,515

 

6,639

 

3,380

 

–

 

17,534

Intersegment sales2

 

46

 

–

 

–

 

-46

 

–

Operating result (EBIT)3

 

1,599

 

1,804

 

240

 

-658

 

2,985

Depreciation

 

786

 

324

 

561

 

84

 

1,756

Impairment losses4

 

3

 

56

 

123

 

–

 

183

Reversals of impairment losses

 

–

 

–

 

–

 

–

 

–

EBITDA5

 

2,387

 

2,184

 

925

 

-573

 

4,923

Adjustments3

 

18

 

83

 

99

 

78

 

279

EBITDA pre (segment result)3

 

2,405

 

2,267

 

1,024

 

-495

 

5,201

EBITDA pre margin (in % of net sales)3

 

32.0%

 

34.1%

 

30.3%

 

–

 

29.7%

Assets by business sector

 

20,145

 

7,358

 

9,735

 

4,558

 

41,796

Liabilities by business sector

 

-1,589

 

-2,494

 

-666

 

-20,030

 

-24,780

Investments in property, plant and equipment6

 

653

 

480

 

230

 

49

 

1,413

Investments in intangible assets6

 

51

 

43

 

46

 

10

 

150

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

 

83

 

-218

 

29

 

124

 

18

1

Excluding intersegment sales.

2

Values adjusted.

3

Not defined by International Financial Reporting Standard (IFRS).

4

Without impairments on financial assets

5

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.

6

According to the consolidated cash flow statement.

7

Excluding provisions for pensions and other post-employment benefits.
Information by country and region – 2021

€ 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

 

5,675

 

1,067

 

385

 

5,397

 

5,145

 

7,020

 

2,887

 

990

 

605

 

19,687

Net sales by company location1

 

6,218

 

1,655

 

529

 

5,478

 

5,253

 

6,640

 

2,549

 

947

 

404

 

19,687

Goodwill and other intangible assets2

 

5,051

 

1,712

 

1,686

 

18,851

 

18,840

 

713

 

67

 

2

 

–

 

24,617

Property, plant and equipment

 

3,902

 

1,717

 

998

 

1,974

 

1,968

 

1,118

 

385

 

167

 

55

 

7,217

Research and development costs

 

-2,016

 

-947

 

-945

 

-304

 

-304

 

-61

 

-24

 

-15

 

-11

 

-2,408

Number of employees

 

27,216

 

13,339

 

2,465

 

14,070

 

13,875

 

14,285

 

4,606

 

3,526

 

1,237

 

60,334

1

 Excluding intersegment sales.

2

 Goodwill and other intangible assets show an allocation by currency area.
Information by country and region – 2020

€ 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

 

4,991

 

979

 

292

 

4,739

 

4,524

 

6,313

 

2,529

 

910

 

581

 

17,534

Net sales by company location1

 

5,515

 

1,501

 

462

 

4,830

 

4,639

 

5,962

 

2,224

 

868

 

361

 

17,534

Goodwill and other intangible assets2

 

4,930

 

1,585

 

1,628

 

17,876

 

17,866

 

804

 

63

 

1

 

–

 

23,612

Property, plant and equipment

 

3,581

 

1,610

 

877

 

1,664

 

1,657

 

973

 

343

 

147

 

56

 

6,421

Research and development costs

 

-1,931

 

-884

 

-905

 

-269

 

-269

 

-63

 

-21

 

-14

 

-10

 

-2,288

Number of employees

 

26,586

 

13,292

 

2,383

 

13,312

 

13,131

 

13,518

 

4,275

 

3,384

 

1,296

 

58,096

1

 Excluding intersegment sales.

2

 Goodwill and other intangible assets show an allocation by currency area.

The Group divides its business activities into three business sectors: The Life Science business sector comprises products for scientific institutions and research and analytical laboratories in the pharmaceutical/biotechnology industry and applications for customers manufacturing pharmaceuticals. In line with the product portfolio, customers in this business sector primarily include companies of the pharmaceutical and biotechnology sector as well as retailers and public research organizations. The Healthcare business sector contains the business with prescription pharmaceuticals. Its customers mainly comprise wholesalers, hospitals, and pharmacies. The Electronics business sector bundles all specialty chemical business and almost exclusively serves industrial companies. The fields of activity of the individual segments are described in detail in the sections on the business sectors in the combined management report.

No single customer accounted for more than 10% of the Group’s total net sales in fiscal 2021 or 2020. Transfer prices for intragroup net sales were determined on an arm’s-length basis.

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

€ million

 

2021

 

2020

EBITDA pre of the operating businesses1

 

6,567

 

5,696

Corporate and Other

 

-465

 

-495

EBITDA pre of the Group1

 

6,103

 

5,201

Depreciation/amortization/impairment losses/reversals of impairment losses

 

-1,767

 

-1,938

Adjustments1

 

-157

 

-279

Operating result (EBIT)1

 

4,179

 

2,985

Financial result

 

-255

 

-354

Profit before income tax

 

3,924

 

2,630

1

Not defined by International Financial Reporting Standard (IFRS).

The adjustments comprised the following:

€ million

 

2021

 

2020

Restructuring expenses

 

-79

 

-162

Integration expenses/IT expenses

 

-81

 

-108

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

 

3

 

-10

Acquisition-related adjustments

 

18

 

10

Other adjustments

 

-19

 

-9

Adjustments before impairment losses/reversals of impairment losses1

 

-157

 

-279

Impairment losses2

 

-56

 

-128

Reversals of impairment losses

 

3

 

–

Adjustments (total)1

 

-210

 

-407

1

Not defined by International Financial Reporting Standard (IFRS).

2

Without impairments on financial assets.

Expenses of € 26 million related to various restructuring measures in the Life Science business sector (2020: € 15 million). A further € 22 million in restructuring expenses in the Electronics business sector related to the Bright Future transformation program in particular (2020: € 20 million).

At € 44 million in fiscal 2021 (2020: € 50 million), integration and IT expenses related to expenses for launching new ERP systems.

As in the previous year, impairment losses related in particular to intangible assets in the Electronics business sector.

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

2021

€ 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

 

-21

 

-17

 

-29

 

-8

 

-5

 

-79

Integration expenses/IT expenses

 

-5

 

-1

 

-53

 

–

 

-22

 

-81

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

 

–

 

–

 

-1

 

–

 

5

 

3

Acquisition-related adjustments

 

–

 

–

 

–

 

–

 

18

 

18

Other adjustments

 

–

 

–

 

–

 

–

 

-19

 

-19

Adjustments before impairment losses/reversals of impairment losses1

 

-25

 

-17

 

-83

 

-8

 

-24

 

-157

Impairment losses2

 

–

 

–

 

–

 

–

 

-56

 

-56

Reversals of impairment losses

 

–

 

–

 

–

 

–

 

3

 

3

Adjustments in the operating result (total)1

 

-25

 

-17

 

-83

 

-8

 

-76

 

-210

1

Not defined by International Financial Reporting Standards (IFRS).

2

Without impairments on financial assets.
2020

€ 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

 

-33

 

-55

 

-28

 

-25

 

-21

 

-162

Integration expenses/IT expenses

 

-1

 

-5

 

-71

 

-1

 

-30

 

-108

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

 

–

 

–

 

–

 

–

 

-10

 

-10

Acquisition-related adjustments

 

-19

 

–

 

–

 

–

 

29

 

10

Other adjustments

 

–

 

–

 

–

 

–

 

-9

 

-9

Adjustments before impairment losses/reversals of impairment losses1

 

-53

 

-60

 

-98

 

-27

 

-41

 

-279

Impairment losses2

 

–

 

–

 

–

 

–

 

-128

 

-128

Reversals of impairment losses

 

–

 

–

 

–

 

–

 

–

 

–

Adjustments in the operating result (total)1

 

-53

 

-60

 

-98

 

-27

 

-169

 

-407

1

Not defined by International Financial Reporting Standards (IFRS).

2

Without impairments on financial assets.

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