One-time inventory adjustments booked under cost of sales amounted to € 52 million in the second quarter, with € 39 million stemming from the Performance Materials division and the remainder from Merck Serono. Therefore, second-quarter cost of sales jumped 47%, leading to a gross margin increase of 6.2% to € 1,795 million in the second quarter. For the first half of the year, the gross margin rose 13% to € 3,719 million.
Other operating expenses and income more than doubled in the second quarter of 2011 to € -270 million from € -109 million in the year-ago quarter. Besides Millipore integration costs, this includes among other items an impairment loss of € 161 million due to overcapacity at the Corsier-sur-Vevey Large Scale Biotech (LSB) production plant in Switzerland as well as a provision of € 20 million for the remaining costs associated with halting the development of cladribine, a drug candidate for the oral treatment of multiple sclerosis, as announced in June. Other operating expenses and income in the first half of 2011 rose 50% to € -368 million compared to the year-ago period.
"The Merck Group produced solid revenue figures for the second quarter. While a series of one-time charges adversely affected this quarter's profits, this will give us a healthy basis on which our new management team can build," said Dr. Karl-Ludwig Kley, Chairman of the Executive Board of Merck KGaA. "Because of these one-time items, we expect our operating profit will be approximately one billion euros in 2011. Adjusted for these one time charges, we would be substantially above the year-ago level."
With its two major acquisitions, Serono and Millipore, Merck has strengthened itself and set the course for the future. Yet improvements are still needed, especially with respect to the quality of the pharmaceutical pipeline as well as internal processes and structures.
Kley continued: "We are striving for leaner processes and we are reviewing our cost structures. Generating attractive returns on invested capital and cost management continue to be the top priorities on our agenda. The first steps have already been taken this year. These include the changes in the Merck Executive Board, in Merck Serono and Consumer Health Care as well as decisions resulting from our pipeline review."
About Merck KGaA
Merck is a global pharmaceutical and chemical company with total revenues of € 9.3 billion in 2010, a history that began in 1668, and a future shaped by more than 40,000 employees in 67 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.