Cost of sales, which included a EUR 43 million write-off of the Millipore inventory step-up, increased at a lower rate than revenues. Therefore, the gross margin in the third quarter improved 27% to EUR 1,818 million from EUR 1,428 million in the year-ago quarter. Other operating expenses and income increased by 19% to EUR -91 million, which included Millipore integration costs of EUR 21 million.
Research and development costs increased 4.7% to EUR 349 million in the third quarter of 2010. R&D spending for the Chemicals divisions, including Merck Millipore, rose but decreased for the Merck Serono division.
Amortization of intangible assets increased by 35% to EUR 198 million. This amount includes for the first time amortization of intangible assets from the Millipore purchase price allocation amounting to EUR 48 million. With total revenues and gross margin rising faster than expenses, the operating result increased substantially by 64% in the third quarter to EUR 363 million from EUR 222 million in the year-ago quarter. Organically, meaning excluding Millipore and currency effects, the Group operating result rose by 97%.
The Group return on sales (ROS: operating result/total revenues) increased to 14.9% in the third quarter of 2010 compared to 11.4% in the year-ago quarter, boosted by the strong operating result of the Merck Serono division. Group core ROS (operating result excluding Serono- and Millipore-related amortization of intangible assets/total revenues) in the third quarter of 2010 was 25.6% compared to 18.9% in the year-ago quarter.
There were no exceptional items in the third quarter of 2010 or in the corresponding quarter of 2009. Therefore, earnings before interest and tax (EBIT) in the third quarter of 2010 rose 64% to EUR 363 million compared to EUR 222 million in the year-ago quarter.
Due to interest on the financing for Millipore, Merck's financial result fell by more than 100% to EUR –74 million in the third quarter of 2010 compared to EUR -32 million in the year-ago quarter.
The Merck Group's third-quarter profit before tax increased 52% to EUR 289 million from EUR 190 million in the year-ago quarter. Merck’s underlying tax rate rose to 25.8% for the third quarter of 2010 compared to very low 22.2% in the year-ago quarter. Profit after tax in the third quarter of 2010 increased 45% to EUR 215 million from EUR 148 million in the third quarter of 2009.
The free cash flow of the Merck Group in the third quarter of 2010 totaled EUR -4,383 million (Q3 2009: EUR 399 million). This includes payments of EUR 4,934 million in connection with the acquisition of Millipore. The purchase price of EUR 5,137 million was lowered by cash of EUR 300 million included in the acquisition. Additional transaction-related payments amounted to EUR 97 million. A final payment of EUR 6.6 million was made for the Suzhou Taizhu China Group, which was acquired in 2009. Adjusted for these effects, underlying free cash flow was EUR 561 million, exceeding the year-earlier period (EUR 429 million) by EUR 131 million or 31%.
Merck had 40,507 employees worldwide on September 30, 2010, an increase of 7,445 compared to 33,062 on December 31, 2009. Most of this gain can be attributed to the acquisition of Millipore.
About Merck KGaA
Merck is a global pharmaceutical and chemical company with total revenues of EUR 7.7 billion in 2009, a history that began in 1668, and a future shaped by approximately 40,000 (including Merck Millipore) employees in 64 countries. Its success is characterized by innovations from entrepreneurial employees. Merck's operating activities come under the umbrella of Merck KGaA, in which the Merck family holds an approximately 70% interest and free shareholders own the remaining approximately 30%. In 1917 the U.S. subsidiary Merck & Co. was expropriated and has been an independent company ever since.