(32) Information by business sector / country and region

(33) Information on segment reporting

Segmentation was performed in accordance with the organizational and reporting structure of the Merck Group that applied during 2015.

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 includes income and expenses, assets and liabilities as well as cash flows that cannot be directly allocated to the reportable segments presented. This relates mainly to central Group functions. Moreover, the column serves the reconciliation to the Group numbers. The expenses and income as well as cash flows attributable to the financial result and income taxes are 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 specific income and expenses of a one-time nature presented in the following. Among other things, business free cash flow is also used for internal target agreements.

Transfer prices for intragroup sales are determined on an arm’s-length basis.

Neither in 2015 nor in 2014 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:

Exceptionals comprised the following:

Exceptionals are included in the consolidated income statement under cost of sales as well as under other operating expenses. The costs of € 132.7 million reported under acquisition-related exceptionals (2014: € 85.0 million) were largely incurred in connection with the acquisition of the Sigma-Aldrich Corporation, USA. Of this amount, € 41.6 million was attributable to integration planning activities; further expenses of € 60.0 million were incurred directly for the acquisition of the company. Both amounts were recorded under other operating expenses. A further amount of € 31.1 million was related to cost of sales and disclosed accordingly.

Business free cash flow was determined as follows:

The reconciliation of operating assets presented in the Segment Reporting to the total assets of the Merck Group was as follows:

The following tables present the adjustments to the previous year’s figures of the three business sectors owing to disclosure changes to royalty, license and commission expenses as well as royalty, license and commission income (see Note [6] “Changes to accounting and measurement principles and disclosure changes”).