Domain: Accounting
Question:
Using the Q4 2024 Financial Statement, assess how changes in EBITDA pre margins for each business sector (Life Science, Healthcare, and Electronics) between FY2023 and FY2024 contributed to the Group's overall EBITDA pre margin improvement. Quantify the year-over-year margin change for each sector, discuss which sector had the largest positive or negative impact, and explain the strategic implications for Merck KGaA's FY2025 profitability planning.

Expected points in a correct answer:
State that EBITDA pre margin is calculated using EBITDA pre by group net sales and multiply by 100. (EBITDA pre margin= ((EBITDA pre / Group net sales) *100)
State that EBITDA pre margin is critical financial metric for measuring profitability.
State that EBITDA pre margin is critical financial metric for measuring operating performance.
State that EBITDA pre margin is calculated before Depreciation, amortization and certain non recurring adjustments.
State that the reason for largest increase in healthcare sector EBITDA pre margin is mainly on account of organic growth in net sales.
State that the reason for largest increase in healthcare sector EBITDA pre margin is mainly on account of efficiently managing research and development cost.
State that the Company should continue its organic growth in healthcare sector net sales in 2025
State that the reason for increase in electronics sector EBITDA pre margin is mainly on account of organic growth in net sales
State that the reason for increase in electronics sector EBITDA pre margin is mainly on account of  efficiently managing cost of sales
State that the reason for increase in electronics sector EBITDA pre margin is mainly on account of  efficiently managing research and development expenses
State that the Company should continue its measures in electronics sector to improve its organic net sales
State that the Company should continue its measures in electronics sector to maintain active cost management to improve operational leverage
State that the Company should continue its measures in electronics sector to convert net sales growth into 2025 EBITDA pre growth.
State that the reason for largest decrease in Life science sector EBITDA pre margin is mainly account of drop in net sales in 2024 compared to 2023.
State that the reason for largest decrease in Life science sector EBITDA pre margin is also on account of higher SG&A expenses in 2024 compared to 2023.
State that the Company should focus its efforts in improving Life Science sector organic net sales in 2025
State that the Company should explicitly forecast positive effect from cost discipline to support Life science 2025 EBITDA pre growth
State that Corporate expenses should be managed to reduce volatility and improve predictability (example effects of foreign exchange risk management etc.)
State that, Company should align EBITDA growth with organic net sales expansion at segment levels
State that, Company should implement disciplined cost management that protects operational earnings while enabling strategic growth.
State that, Company should prioritize investments in high-return products and markets
State that, Company should manage currency and corporate costs proactively
State that, Company should align EBITDA growth with organic net sales expansion at group levels
State that for Healthcare business sector, for FY 2024 EBITDA pre margin is €2,994.6 / €21,155.8 = 14.2%
State that for Healthcare business sector, for FY 2023 EBITDA pre margin is €2,543.1 / €20,992.9 = 12.3%
State that the Healthcare business sector EBITDA pre margin increased by approximately 1.9 % in FY2024 compared to FY2023.
State that for Electronics business sector, for FY 2024 EBITDA pre margin is €969.6 million / €21,155.8=4.5%
State that for Electronics business sector, for FY 2023 EBITDA pre margin is €913 / €20,992.9 = 4.3%
State that the Electronics business sector EBITDA pre margin increased by approximately 0.2 % in FY2024 compared to FY2023.
State that for Life science business operating segment, for FY 2024 EBITDA pre margin is €2,589.2 million / €21,155.8=12.3%
State that for Life science business sector, for FY 2023 EBITDA pre margin is €2,819.6 million / €20,992.9 = 13.4%
State that the Life science business sector EBITDA pre margin decreased by approximately 1.1 % in FY2024 compared to FY2023.
State that, Corporate/Others admin expenses increased, which resulted in largest decrease in group EBITDA pre margin by 0.3%
State that net impact of all the business sectors and corporate/other admin expenses is 0.7% increase in group EBITDA pre margin
State that the YoY change in healthcare business sector EBITDA pre margin is €451.6 m
State that the YoY change in Electronics business sector EBITDA pre margin is €56.6 m
State that the YoY change in Life science business sector EBITDA pre negative margin is €230.5 m (decrease)