Merck Kgaa · XETR:MRK
Merck Kgaa — Merck KGaA, Darmstadt, Germany — FY2017 Earnings Presentation
52 slides from Merck Kgaa's earnings presentation, Mar 8, 2018
Slide 1: Performance Amid Headwinds
PERFORMANCE AMID HEADWINDS Merck KGaA, Darmstadt, Germany FY 2017 results Stefan Oschmann, CEO Marcus Kuhnert, CFO March 8, 2018
Slide 2: Disclaimer
Disclaimer Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the group of companies affiliated with Merck KGaA, Darmstadt, Germany operates under individual business names (EMD Serono, Millipore Sigma, EMD Performance Materials). To reflect such fact and to avoid any mis
Slide 3: Disclaimer: Cautionary Note Regarding Forward-Looking Statements
Disclaimer Cautionary Note Regarding Forward-Looking Statements and financial indicators This communication may include “forward-looking statements.” Statements that include words such as “anticipate,” “expect,” “should,” “would,” “intend,” “plan,” “project,” “seek,” “believe,” “will,” and other wor
Slide 4: Agenda
Agenda Executive summary Strategic review Financial overview Outlook and guidance 4
Slide 5: Executive Summary
oO} EXECUTIVE SUMAMARY Sa aan
Slide 6: Highlights 2017
Highlights 2017 Healthcare – sound core business; successful launches of Mavenclad & Bavencio Execution on Life Science – strong performance above the market amid ongoing integration strategy Performance Materials – softness in Liquid Crystals; growth in ICM, Pigments & OLED Organic sales growth of
Slide 7: 2017 financial targets met through stringent business execution
2017 financial targets met through stringent business execution 2017 Guidance FY 2017 Results Net Sales €15.3 – 15.7 bn €15,327 m ✓ EBITDA pre €4,400 – 4,600 m €4,414 m ✓ EPS pre €6.15 – 6.50 €6.16 ✓ 7
Slide 8: Leveraged capabilities to overcome headwinds
Merck KGaA, Darmstadt, Germany leveraged its capabilities to overcome headwinds cOMMENTS Went the • Stringent execution of core activities in all three businesses extra mile… Business Operational Hedging gains • Reduction in travel spend discipline Measures • Increased focus on hiring activity durin
Slide 9: Organic growth in all regions
Organic growth in all regions Regional breakdown of net sales [€ m] Regional organic development Europe +1.1% • Organic growth in Europe driven by org. solid demand in Life Science and CH outweighing decline in Rebif 31% • Growth in North America from Life Science more than offsets Rebif decline Nor
Slide 10: Dividend growth sustained
Dividend growth sustained Dividend1 development 2011-2017 2017 dividend • Dividend of €1.25 (+4% YoY) per share proposed2 for 2017 1.25 • 20.3% of EPS pre 1.20 1.05 • Sustainable dividend growth 1.00 0.95 • Dividend yield3 of 1.4% 0.85 0.75 1 1 1 2 2011 2012 2013 2014 2015 2016 2017 1Adjusted for sh
Slide 11: Strategic Review
STRATEGIC REVIEW
Slide 12: Strategic roadmap is clearly defined
Strategic roadmap is clearly defined future improvements innovative portfolio Leading positions future growth financial situation solid as a rock 12
Slide 13: Healthcare: Solid core business and first new product launches
Healthcare: Solid core business and first new product launches Business performance Sales and EBITDA pre margin Pipeline 2.1% +4.7% organic Mavenclad approved in EU; Safeguarding Rebif and Erbitux in a €7.0 bn first countries successfully launched €6.9 bn competitive environment Bavencio launc
Slide 14: Life Science: Profitable growth amid ongoing Sigma integration
Life Science: Profitable growth amid ongoing Sigma integration Business performance Sales and EBITDA pre margin Innovation 4.0% +5.3% organic Patent approval for CRISPR technology €5.9 bn in Australia, Canada and Singapur Above-market quality growth €5.7 bn TM SMCxPRO highly sensitive protein
Slide 15: Performance Materials: Foster innovation amid a challenging display market
Performance Materials: Foster innovation amid a challenging display market Business performance Sales and EBITDA pre margin Innovation -2.6% LC Windows – opening of Eindhoven -1.7% organic production facility Leadership position in LC maintained, but at lower profitability €2.5 bn €2.4 bn Fros
Slide 16: Financial Overview
FINANCIAL OVERVIEW
Slide 17: FY 2017 Financials: A year well managed
FY 2017 Financials: A year well managed Key figures Comments [€m] FY 2016 FY 2017 Δ • Net sales growth driven by solid organic performance of Life Science Net sales 15,024 15,327 2.0% and Healthcare despite FX headwinds EBITDA pre 4,490 4,414 -1.7% • EBITDA pre & margin decrease driven Margin (in %
Slide 18: Solid organic growth and Life Science synergies offset by HC investments and LC softness
Solid organic growth and Life Science synergies offset by HC investments and softness in LC • Solid organic growth in Healthcare fueled by FY 2017 YoY net sales strong GM, CH, Fertility as well as Bavencio Organic Currency Portfolio Total • Life Science achieves above market organic Healthcare 4.7%
Slide 19: Reported figures reflect solid business performance & U.S. tax reform effects
Reported figures reflect solid business performance & U.S. tax reform effects Reported results Comments [€m] FY 2016 FY 2017 Δ • EBIT increases mainly due to EBIT 2,481 2,525 1.8% Biosimilars divestment despite lower EBITDA pre and high EBIT LY related Financial result -326 -300 -8.0% to Kuvan dispo
Slide 20: Healthcare: Solid organic growth of core business and investments in future growth
Healthcare: Solid org. growth of core business and investments in future growth Healthcare P&L Comments [€m] Q4 2016 Q4 2017 • Solid organic growth driven by Glucophage China repatriation and double digit growth for Consumer Health across all major regions Net sales 1,766 1,773 • Bavencio and Mavenc
Slide 21: Life Science: Strong sales quarter amid synergy realization
Life Science: Strong sales quarter amid synergy realization Life Science P&L Comments [€m] Q4 2016 Q4 2017 • Process Solutions shows double digit organic growth due to strong 1,441 1,496 demand in single-use & services globally Net sales Marketing and selling -458 -431 • Applied Solutions with stron
Slide 22: Performance Materials: Profitability burdened by LC market share decline
Performance Materials: Profitability burdened by LC market share decline Performance Materials P&L Comments [€m] Q4 2016 Q4 2017 • Organic growth of Integrated Circuit Materials, Pigments and OLED outweighed by Liquid Crystals market share decline Net sales 623 579 -57 -61 • Innovative UB-FFS techno
Slide 23: Balance sheet – continued focus on rapid deleveraging
Balance sheet – continued focus on rapid deleveraging Assets [€ bn] Liabilities [€ bn] 38.3 38.3 Cash & marketable securities 1.1 2.9 35.6 35.6 0.7 Receivables 2.6 2.9 2.6 14.1 Net equity Inventories 14.1 Intangible assets 25.0 21.9 12.6 Financial debt 10.8 2.2 2.0 Payables 2.3 Property, plant & equ
Slide 24: Jump in profit after tax driven by U.S. tax reform
Jump in profit after tax driven by U.S. tax reform Q4 2017 – cash flow statement Cash flow drivers [€m] Q4 2016 Q4 2017 Δ • Profit after tax reflects one time Profit after tax 265 1,016 751 U.S. tax reform effect of ~€900 m D&A 548 511 -37 • D&A down due to FX effects on asset base Changes in provis
Slide 25: Outlook and Guidance
OUTLOOK AND GUIDANCE
Slide 26: Qualitative full-year 2018 guidance
Merck’s KGaA, Darmstadt, Germany qualitative full-year 2018 guidance Net sales: Moderate organic growth; moderate FX headwinds* EBITDA pre: Slight organic decline; -4 to -6% YoY headwinds from FX EBITDA-supporting factors EBITDA-reducing factors • Underlying R&D costs in Healthcare are budgeted abov
Slide 27: Return to profitable growth track from 2019 onwards
Merck KGaA, Darmstadt, Germany to return to profitable growth track from 2019 onwards HC EBITDA pre growth from accelerated top line growth and disciplined cost ∑ management EBITDA pre growth driven by above-market growth and further margin LS expansion from operating leverage PM Trough year for pro
Slide 28: Strong confidence and commitment for future growth
Strong confidence and commitment for future growth 1 We offer a unique and promising portfolio with leading market positions and high innovation potential 2 We are highly profitable, invest strongly in our future potential and will generate sustainable profitable growth from 2019 onwards 3 We are fi
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Slide 30: Appendix
APPENDIX
Slide 31: 2018 business sector guidance (including Consumer Health)
2018 business sector guidance (including Consumer Health) Healthcare Performance Life Science Materials Net sales Net sales Net sales ▪ Moderate organic growth: ongoing ▪ Organic growth slightly above ▪ Slight to moderate organic decline organic Rebif decline offset by market; driven by Process Solu
Slide 32: Additional financial guidance 2018
Additional financial guidance 2018 Further financial details Corporate & Other EBITDA pre ~ -€320 – -360 m Interest result ~ -€230 – -240 m Effective tax rate ~ 24% to 26% Capex on PPE ~ €900 – 950 m 2018 hedge ratio ~50-60% Hedging/USD assumption at EUR/USD ~ 1.19 to 1.20 1 2018 Ø EUR/USD assumptio
Slide 33: FX sensitivity per business sector
FX sensitivity per business sector Life Science Performance Healthcare Materials Sales Sales Sales • Global presence • Balanced regional sales split • ~80% of sales in Asia-Pacific between EU, NA and RoW • ~35% of sales in Europe • Industry is USD-driven Costs Costs Costs • High Swiss franc cost bas
Slide 34: Strong focus on cash generation to ensure swift deleveraging
Strong focus on cash generation to ensure swift deleveraging Net financial debt* and leverage development Focus on deleveraging [Net financial debt/ EBITDA pre] • Commitment to swift deleveraging to 4x ensure a strong investment grade credit rating and financial flexibility • Strong cash flow will b
Slide 35: Well-balanced maturity profile reflects Sigma-Aldrich financing transactions
Well-balanced maturity profile reflects Sigma-Aldrich financing transactions Maturity profile as of Dec. 31, 2017 2.4% Coupon 4.5% [€ m/US $] 2.95% 3.25% 750 1.375% 4.25% 2.625% 0.75% 1,000 70 1,600 1.7% 1,350 3.375% 1,000 800 400 1 550 500 2018 2019 2020 2021 2022 2023 2024 2025 2 EUR bonds USD bon
Slide 36: Q4 2017: Overview
Q4 2017: Overview Key figures Comments [€m] Q4 2016 Q4 2017 Δ • EBITDA pre & margin decrease reflects Net sales 3,830 3,848 0.5% LC market share decline, investments in HC and FX headwinds EBITDA pre 1,075 1,005 -6.5% • EPS pre down due to EBITDA pre Margin (in % of net sales) 28.1% 26.1% decrease E
Slide 37: EBITDA pre reflects investments in HC & LC market share decline
EBITDA pre reflects investments in HC & LC market share decline Q4 2017 YoY net sales • Strong organic growth of Healthcare driven Organic Currency Portfolio Total by sound Fertility, GM repatriation in China, Healthcare 5.9% -4.8% -0.7% 0.4% CH and Bavencio offsetting Rebif decline • Life Science s
Slide 38: Reported figures reflect US tax reform effect
Reported figures reflect US tax reform effect Reported results Comments [€m] Q4 2016 Q4 2017 Δ • EBIT reflects decreased EBITDA pre EBIT 405 241 -40.5% due to investments in HC, LC market share decline and FX Financial result -70 -93 33.4% • Financial result contains adverse Profit before tax 335 14
Slide 39: Healthcare: Good organic growth and product mix drive profitability
Healthcare: Good organic growth and product mix drive profitability Healthcare P&L Comments [€m] FY 2016 FY 2017 • Moderate Fertility growth reflects strong demand in China mitigating competition in EU and tough base LY Net sales 6,855 6,999 • Organic decline of Erbitux due to competition as well as
Slide 40: Healthcare organic growth by franchise/product
Healthcare organic growth by franchise/product Q4 2017 organic sales growth [%] FY 2017 organic sales growth [%] by key product [€ m] by key product [€ m] Organic Organic 381 1,611 -7% -6% 441 1,741 Consumer 225 +10% Consumer 911 +8% Health 214 Health 860 215 853 +1% -1% 222 880 177 +82% 662 +75% 10
Slide 41: Rebif: Ongoing decline in line with interferon market
Rebif: Ongoing decline in line with interferon market Rebif sales evolution Rebif performance North America Q4 drivers • Rebif sales of €381 m in Q4 2017 [€ m] reflect organic decline of -7.2% as well -7.2% org. Price as FX headwinds 300 Price increase increase Price • U.S. organic decline due to co
Slide 42: Erbitux: Almost stable in a challenging market environment
Erbitux: Almost stable in a challenging market environment Erbitux sales by region Erbitux performance +0.8% Q4 YoY • Sales decrease to €215 m impacted by [€ m] organic growth FX headwinds mainly from APAC & LatAm 250 • Europe impacted by competition, price 23.3% reductions and shrinking market size
Slide 43: Strong organic growth in General Medicine and Fertility
Strong organic growth in General Medicine and Fertility Sales evolution Q4 drivers Fertility [€ m] • Fertility shows ongoing growth 300 especially in APAC 260 Organic 220 • Gonal-f driven by double digit growth 7.2% org. 180 in APAC due to increased demand Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 • L
Slide 44: Clinical pipeline
Clinical pipeline February 15, 2018 Phase I Phase II Phase III Registration M2698 avelumab tepotinib avelumab - anti-PD-L1 mAb cladribine tablets p70S6K & Akt inhibitor anti-PD-L1 mAb c-Met kinase inhibitor Non-small cell lung cancer 1L1 lymphocyte targeting agent Solid tumors Solid tumors Non-small
Slide 45: Healthcare Upcoming catalysts
Healthcare Upcoming catalysts Cladribine US submission Q1 2018 Q2 2018 Q3 2018 Q4 2018 Anti-PD-L1/TGF-ß trap Atacicept Avelumab Preliminary ph Ib data Ph III initiation (subject Ph III data read-out (e.g. PDx-naïve NSCLC 2L) to external financing) (ovarian plat. res/ref)1 1 Note: timelines are event
Slide 46: Life Science: Strong top-line growth and fast synergy realization
Life Science: Strong top-line growth and fast synergy realization Life Science P&L Comments [€m] FY 2016 FY 2017 • Strong growth of Process Solutions driven by increasing production of large molecules across global and regional accounts Net sales 5,658 5,882 -1,706 -1,734 • Applied Solutions shows s
Slide 47: Performance Materials: Topline affected from LC softness but profitability kept intact
Performance Materials: Topline affected from LC softness but profitability kept intact Performance Materials P&L Comments • Organic growth of Integrated Circuit Materials, Pigments and OLED [€m] FY 2016 FY 2017 cannot offset Liquid Crystal market share decline Net sales 2,511 2,446 • Sales decline d
Slide 48: Healthy operating cash flow reflects solid business performance
Healthy operating cash flow reflects solid business performance FY 2017 – cash flow statement Cash flow drivers [€m] FY 2016 FY 2017 Δ • Profit after tax reflects one time U.S. Profit after tax 1,633 2,610 977 tax reform effect and Biosimilars divestment D&A 1,934 1,758 -177 • D&A lower mainly due t
Slide 49: Adjustments in Q4 2017
Adjustments in Q4 2017 Adjustments in EBIT [€m] Q4 2016 Q4 2017 Exceptionals thereof D&A Exceptionals thereof D&A Healthcare 20 0 109 33 Life Science 93 27 123 0 Performance Materials 25 16 34 19 Corporate & Other 27 1 43 4 Total 165 44 308 56 49 Totals may not add up due to rounding
Slide 50: Adjustments in FY 2017
Adjustments in FY 2017 Adjustments in EBIT [€m] FY 2016 FY 2017 Exceptionals thereof D&A Exceptionals thereof D&A Healthcare -225 71 -257 -51 Life Science 301 27 209 3 Performance Materials 46 16 59 26 Corporate & Other 69 1 103 4 Total 191 115 114 -19 50 Totals may not add up due to rounding
Slide 51: Financial calendar
Financial calendar Date Event April 27, 2018 Annual General Meeting May 15, 2018 Q1 2018 Earnings release August 9, 2018 Q2 2018 Earnings release November 14, 2018 Q3 2018 Earnings release 51
Slide 52: Investor Relations contacts
CONSTANTIN FEST SVENJA BUNDSCHUH ALESSANDRA HEINZ Head of Investor Relations Assistant Investor Relations Assistant Investor Relations +49 6151 72-5271 +49 6151 72-3744 +49 6151 72-3321 constantin.fest@emdgroup.com svenja.bundschuh@emdgroup.com alessandra.heinz@emdgroup.com ANNETT WEBER NILS VON BOT
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