EU R&D Scoreboard 2008: R&D Spending Continues to Grow

The European Commission’s annual EU Industrial R&D Investment Scoreboard shows that total R&D spending by 2,000 companies increased by 9% to €379.3 billion ($553.8 billion) in 2007. Half of the companies in the Scoreboard are EU companies, and the other half are non-EU companies. This method allows the Scoreboard to show yearly R&D spending by company, region and sector, with an emphasis on EU companies. For 2007, total R&D investments by the EU companies rose 8.6% to €126.4 billion ($184.5 billion). Total R&D spending in 2007 by the non-EU companies grew 9.2% to €253.0 billion ($369.4 billion). Net sales for the EU and non-EU companies increased 7.2% and 6.8%, respectively. The Scoreboard is based on financial information from companies that were selected due to their high level of R&D spending. In comparison to this year’s results, the 2006 Scorebard, which contained the top R&D spenders for that year, showed a 10% increase in R&D spending. For this year, the Scoreboard consists of 799 publicly-listed EU companies and 201 unlisted EU companies, as well as 956 publicly-listed non-EU companies and 44 unlisted non-EU companies. Non-EU companies include 544 US companies and 244 Japanese companies. US companies accounted for 38.4% of 2007 R&D spending by Scoreboard companies, and Japanese companies represented 18.4%. EU companies in the Scoreboard had 2007 R&D expenditures of at least €4.3 million ($6.2 million). However, non-EU companies had expenditures of at least €24.21 million ($35.4 million). The monetary values used for UK and non-EU companies are based on the conversion of their financial figures to euros based on the exchange rate on December 31, 2007. In 2007, the automobile and parts industry was the biggest R&D spender in the Scoreboard among the nine sectors covered by IBO (see chart below), with €63.4 billion ($92.6 billion) in R&D investments. The automobile and parts industry is one of the best represented sectors on the Scoreboard, accounting for 24% and 27% of EU and Japanese companies in the Scoreboard, but only 10% of US companies. Although automobile companies spent the most on R&D, oil and gas producers’ R&D spending showed the fastest growth last year, increasing 22.9% to €5.7 billion ($8.3 billion). This increase was in part due to EU oil and gas producers, which increased their R&D spending 21.3% last year, in contrast to their three-year compound annual growth rate (CAGR) of -0.2%. Far and away, the sector with the largest capital expenditure as a percentage of sales, at 15.9% for the year, was semiconductor companies. Biotech had the highest R&D intensity, which is the ratio of R&D to net sales, in 2007 of the sectors in the table at 25.2%, almost even with the year before. In contrast, the pharmaceutical sector’s R&D intensity was 13.2%. The pharmaceutical and biotech sectors are notable in that they have the highest R&D spending per employee among the sectors in the table, with R&D spending of €75,100 ($109,646) and €42,700 ($62,342) per employee, respectively. These values are indicative of the ratio of R&D employees to those involved in other operations. The chemical sector was the only industry in 2007 in the table to show a decrease in R&D spending, which fell 0.8% to €16.7 billion ($24.4 billion). EU chemical companies decreased spending by 9.3% last year to €7.06 billion ($10.3 billion). Although chemical companies only represent 6% of EU companies in the Scoreboard, this decrease, along with an almost 14% decrease in sales, contributed to the decline in chemical companies’ R&D intensity last year. Of all the figures in the table, the R&D per employee value showed the largest fluctuation, especially in the industrial metals and oil and gas sectors. For oil and gas companies, the large increase in R&D spending coupled with 17.3% cut in the number of employees resulted in a 58.8% increase in R&D spending per employee to €2,700 ($3,942). Similarly, the industrial metals sector’s R&D per employee increased 14.3% due to a modest decrease in the number of employees. Unlike the Scoreboard, which is based on 1,000 EU companies and 1,000 non-EU companies, the European Commission report accompanying the Scoreboard is based on the analysis of 1,000 non-EU companies and 402 EU companies. These 402 EU companies represented 95% of EU companies’ R&D investments in 2007. The analysis that follows is based on the €372.9 billion ($544.4 billion) in R&D spending by these 1,402 companies in 2007. In 2007, R&D intensity was 2.7% for EU companies and 3.8% for non-EU companies. This increase is in contrast to the five-year trend of decreasing R&D intensity levels for Scoreboard companies. Among non-EU countries, R&D intensity for the 544 US companies rose 4.5% and rose 3.6% for the 244 Japanese companies. For the 212 rest of world companies, it rose 2.6%. By region, the companies’ sales growth in 2007 did not dramatically deviate from their three-year CAGRs for sales. The 6.7% increase in sales for the EU companies to €4,487.0 billion ($6,651.0 billion) deviated the most from their CAGR of 9.1%. In 2007, net sales for US companies increased 6.8% to €3,190.80 billion ($4,658.57 billion), compared to their CAGR of 8.6%. Japanese companies’s 2007 sales grew 8.3%, to €1,905.70 billion ($2,782.32 billion), compared to their CAGR of 7.4%. Rest of world companies’s 2007 sales, which increased 15.7% to €1,542.0 billion ($2,251.3 billion) was somewhat slower than their CAGR of 16.5%. Last year, R&D investments by EU companies grew faster than R&D investments by US companies for the first time in more than five years. Spending by EU companies increased 8.8%, compared to 8.6% for US companies and 6.3% for Japanese companies. However, rest of world companies showed the highest R&D growth, as their spending rose 16.5%, driven by a 19.3% increase in spending by Swiss companies and a 10.2% increase in spending by South Korean companies. These two countries represented 60% of the rest of world companies’ R&D spending. Nonetheless, US represented the highest percentage of 2007 R&D spending at 38.4%, followed by the EU with 32.2%, and Japan with 18.4%. Rest of world companies represented 10.9% of 2007 R&D spending. Within the EU, German, French and UK companies accounted for 10.9%, 6.7% and 5.2% of EU companies 2007 R&D spending. Pharmaceuticals and biotech companies continued their reign from last year as the largest combined sector within the European Commission’s report, and together made up 19.2% of total R&D expenditures. The combined sector’s R&D expenditures were primarily concentrated among US companies, which accounted for 24% of spending. EU and Japanese companies accounted for 17% and 8% of pharmaceutical and biotech R&D spending last year, respectively. Although R&D spending for the combined pharmaceutical and biotech sector is weighted toward the US, R&D intensity is quite similar across the board. The R&D intensity for this sector was the highest for US companies, at 16.7%. However, EU and Japanese companies were not far behind, with R&D intensities for the sector of 15.7% and 15.9%, respectively. R&D intensities for other sectors were also regionally similar. In the chemicals sector, EU companies had an R&D intensity of 2.9%, compared to R&D intensities of 2.4% for US companies and 3.2% for Japanese companies. In the oil and gas sector, US companies’ R&D intensity was 0.3% and Japanese companies’ R&D intensity was 0.2%. Lab Instrument Stock Index S&P 500 Oct-06 530.09 330.37 Nov-06 535.19 335.81 Dec-06 539.64 340.05 Jan-07 564.40 344.83 Feb-07 537.67 337.29 Mar-07 553.46 340.66 Apr-07 568.74 355.41 May-07 576.11 366.98 Jun-07 573.08 360.44 Jul-07 584.65 348.91 Aug-07 604.22 353.40 Sep-07 648.03 366.05 Oct-07 678.52 371.47 Nov-07 654.48 355.11 Dec-07 656.46 352.05 Jan-08 583.13 330.52 Feb-08 607.77 319.03 Mar-08 600.29 317.13 Apr-08 600.29 332.20 May-08 622.99 335.75 Jun-08 602.24 306.89 Jul-08 639.07 303.86 Aug-08 643.46 307.57 Sep-08 590.45 279.64 Oct-08 456.82 232.26 Industry 2007 R&D Chg. CAGR R&D/Net Sales Ratio R&D per Employee Cap. Ex. % Net Sales Location (# of Cos.) (€M) 2006–07 3 Yrs. 2006 2007 2006 (€000) 2007 (€000) Chg. 2006 2007 Aerospace and Defense EU (24) 8,093.89 2.7% 8.4% 6.7% 6.4% 15.7 15.6 -0.6% 4.4% 3.8% Non-EU (26) 7,134.15 12.3% 15.5% 3.2% 3.2% 5.8 6.4 10.3% 2.4% 2.5% Total 15,228.04 7.8% 4.5% 4.4% 8.9 9.3 4.5% 3.2% 2.9% Automobiles EU (45) 28,781.21 4.2% 4.2% 4.5% 4.6% 12.4 12.8 3.2% 11.4% 10.0% Non-EU (55) 34,644.82 9.2% 5.6% 3.7% 3.9% 10.6 11.5 8.5% 6.2% 6.4% Total 63,426.03 7.2% 4.1% 4.2% 11.4 12.1 6.1% 8.4% 7.9% Biotech EU (67) 1,506.93 20.1% 12.3% 21.7% 23.5% 41.6 47.6 14.4% 6.3% 6.7% Non-EU (62) 7,912.61 9.0% 15.4% 25.2% 24.6% 80.6 84.7 5.1% 7.1% 7.6% Total 9,419.54 13.9% 25.3% 25.2% 79.3 75.1 -5.3% 7.0% 7.5% Chemicals EU (45) 7,066.54 -9.3% 0.1% 3.5% 2.8% 12.7 11.7 -7.9% 5.8% 4.7% Non-EU (74) 9,634.10 5.5% 5.0% 2.8% 2.8% 10.5 10.7 1.9% 5.3% 5.7% Total 16,700.64 -0.8% 3.2% 2.8% 11.4 11.1 -2.6% 5.5% 5.3% Food Producers EU (35) 1,888.68 2.5% 0.8% 1.4% 1.3% 3.2 3.3 3.1% 3.9% 4.3% Non-EU (17) 2,467.28 5.7% 8.3% 1.4% 1.3% 4.0 4.0 0.0% 3.7% 3.9% Total 4,355.96 4.5% 1.4% 1.3% 3.6 3.7 2.8% 3.8% 4.1% Industrial Metals EU (12) 842.63 24.2% 6.7% 0.5% 0.4% 1.0 1.3 30.0% 4.1% 5.0% Non-EU (17) 1,680.41 8.4% 7.9% 0.9% 1.0% 3.8 4.3 13.2% 9.5% 8.6% Total 2,523.04 15.8% 0.7% 0.7% 2.1 2.4 14.3% 7.1% 6.7% Oil & Gas Producers EU (11) 2,220.07 21.3% -0.2% 0.2% 0.3% 3.7 4.6 24.3% 7.1% 7.5% Non-EU (15) 3,543.41 23.5% 25.4% 0.3% 0.3% 1.2 2.1 75.0% 9.1% 9.4% Total 5,763.48 22.9% 0.3% 0.3% 1.7 2.7 58.8% 8.2% 8.6% Pharmaceuticals EU (61) 19,413.83 12.7% 15.0% 11.8% 12.4% 34.4 36.9 7.3% 4.3% 4.6% Non-EU (65) 43,466.12 11.2% 12.0% 15.0% 15.3% 42.1 46.0 9.3% 5.1% 5.1% Total 62,879.95 13.2% 13.8% 14.3% 39.4 42.7 8.4% 4.8% 4.9% Semiconductors EU (22) 4,447.92 5.7% 5.7% 16.7% 16.7% 27.0 27.6 2.2% 11.8% 11.8% Non-EU (102) 20,626.23 9.6% 10.5% 13.7% 13.7% 29.9 34.5 15.4% 15.2% 16.6% Total 25,074.15 9.8% 14.2% 14.2% 29.3 33.0 12.6% 14.6% 15.9%

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