Merck Kgaa · XETR:MRK
Merck Kgaa — Investor Presentation (July 2018)
40 slides from Merck Kgaa's investor presentation, Jul 3, 2018
Slide 1: Performance Materials Strategy Update
Performance Materials Strategy Update Kai Beckmann, CEO Performance Materials Marcus Kuhnert, CFO July 3, 2018
Slide 2: Disclaimer
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 3: Executive Summary
Executive Summary MeRck Performance Materials… …is and will continue to be a strong contributor for the Merck Group …is operating in attractive markets and has a relevant position in the electronic materials space …has a strong set of capabilities to address the specific industry needs …is set up wi
Slide 4: A platform of three high-tech & science businesses to compete in attractive markets
A platform of three high-tech & science businesses to compete in attractive markets Performance Healthcare Life Science Materials ~45% ~40% ~15% Q1 2018 net Q1 2018 net Q1 2018 net sales sales sales Leading in specialty Leading life science Leading Company in pharma markets company high-tech solutio
Slide 5: Well-defined business sector priorities to drive long-term success
Well-defined business sector priorities to drive long-term success Focus & Guardrails Portfolio 2011 – 2015 2016 - 2018 2019 - 2022 MeRck Group Diversification of risk HC • Advancing science Market leadership & technology & innovation • Family as majority owner Long-term success LS • Thinking in gen
Slide 6: Performance Materials targets attractive markets – especially in the electronics space
Performance Materials targets attractive markets – especially in the electronics space Automotive Performance Materials Market Electronics • Driven by world GDP growth sales by end market Market • Increasing demand in emerging markets Market size: ~€2,000 bn Market size: Sales ~€1,250 bn ~80% ~20% C
Slide 7: The electronics segment is driven by megatrends and serves various end markets
The electronics segment is driven by megatrends and serves various end markets Digitalization Computer Urbanization Electronics Consumer Market Automotive Mobility Communication Government Affluency Industry / Other Electronics market is highly heterogeneous and therefore sustainable and less cyclic
Slide 8: Performance Materials is a leader in the electronic materials market
Performance Materials is a leader in the electronic materials market 1 ~€1,250 bn ~€380 bn Electronic materials competitor landscape Electronics market Semiconductor market CAGR 18-25: ~4% CAGR 18-25: ~5% ~€38 bn Materials market C4 CAGR 18-25: ~3% C7 C10 C12 C2 C14 C13 C6 C1 MeRck C11 ~€125 bn Disp
Slide 9: Semiconductor Solutions products - key enabler for digital trends
Semiconductor Solutions products - key enabler for digital trends ~€8 bn Wafer production ~€1,250 bn ~€40 bn CAGR 18-25: ~3% Electronics market Equipment CAGR 18-25: ~4% ~€380 bn Semiconductor Core business market ...customer needs ~€38 bn ~€15 bn CAGR 18-25: ~5% Materials Wafer processing - Smaller
Slide 10: Semiconductor Solutions is well positioned in highly attractive market segments
Semiconductor Solutions is well positioned in highly attractive market segments Market landscape of wafer processing and packaging materials Return Patterning Thick film resists Deposition & permanent Market positioning WLP dielectrics Die attach/ conductive paste Thermal intf. Mat. • Positioned in
Slide 11: Semiconductor Solutions is market-leader in crucial areas
Semiconductor Solutions is market-leader in crucial areas market Customer Solutions Speed Quality Requirements Intimacy Enabling solutions for >30 years of experience smaller structures and Proven track record of First mover strategy for Semi- Strategic partnerships 3D chip architecture le
Slide 12: Display solutions offers a healthy portfolio in maturing and growth markets
Display solutions offers a healthy portfolio in maturing and growth markets ~€1.7 bn Liquid crystals ~€1,250 bn CAGR 18-25: Display Solutions sales split and trend Electronics market mid- to high-single digit decline CAGR 18-25: ~4% ~€125 bn Frontplane Display market ~€48 bn ~€800 m CAGR 18-25: ~-1%
Slide 13: Maturing LC business continues to be highly attractive
Maturing LC business continues to be highly attractive TV set shipment development (in units) Strategy – Managing Maturity Liquid Crystals LCD Strengthening footprint in China given strong CRT capacity shift − LC application lab in China OLED − Dedicated resources 2005 2010 2015 2020 2022+ Focus
Slide 14: OLED Materials and Photoresists are set to capture market growth
OLED Materials and Photoresists are set to capture market growth Announced OLED capacity expansion, [km²] * Strategy – Capturing growth OLED 60 Mobile TV Build on leading positions, established customers, application know-how & IP 50 Expand into further stack layers CAGR ~40% 40 Exploit market
Slide 15: Display Solutions remains partner of choice for the display industry
Display Solutions remains partner of choice for the display industry market Customer Solutions Speed Quality Requirements Intimacy Pioneer within the display materials industry Long-term R&D Effective feedback cycles High-end on-site analytics Display collaborations drive Present in all re
Slide 16: Surface Solutions – highly specialized and diversified product offering
Surface Solutions – highly specialized and diversified product offering serves as a solid backbone with broad customer access Industry footprint Geographic reach Global market access Automotive Cosmetic Other ~30% ~35% ~35% Plastic Printing Painting Diverse industry split Well-balanced footprint
Slide 17: Strong customer relations drive value creating life cycle management
Strong customer relations drive value creating life cycle management market Customer Solutions Speed Quality Requirements Intimacy Global sales force with Global innovation & multi-channel platform application network Strategically located Customer-specific quality Surface logistic and custo
Slide 18: Performance Materials will return to growth
Performance Materials will return to growth Business strategies Expected PM sales development Semiconductor CAGR: Solutions 2-3% Exploit market growth and leading positions of Semiconductor Solutions Surface Solutions Drive value creating life cycle management through strong customer relations Displ
Slide 19: Business portfolio management drives capital allocation and enables future value creation
Business portfolio management drives capital allocation and enables future value creation Profitability Invest for growth Invest for Strong and sustainable market growth Manage for growth Leading positions and attractive growth cash opportunities Semiconductor Display Solutions: LC Solutions Man
Slide 20: "Bright Future" 5-year transformation program drives long-term performance
“Bright Future” 5-year transformation program drives long-term performance 2018 2019 2020 2021 2022+ Back to organic Growth Refocus innovation and life cycle Exploit market growth of Semi & Surface management 2-3% CAGR Manage Liquid Crystal sales decline Explore growth in adjacent technologi
Slide 21: Newly appointed management enables and accelerates change
Newly appointed management enables and accelerates change New Management * New structure • L1 almost entirely new • 8 additional PM external hires CEO • 22 managers changed role Kai Beckmann • Team diversity increased Integrated & market-driven strategy Semiconductor Strategy & Solutions Controlling
Slide 22: New R&D approach addresses evolving end-market requirements
New R&D approach addresses evolving end-market requirements Central portfolio management Adjusting R&D investments towards extensions 1 2 R&D portfolio 2017 Technology 31% New 15% Extension New End- Old markets 54% New R&D portfolio direction Existing Technology Related New ~20-25% New Market ~25-30
Slide 23: Performance Materials builds on its strengths to address the way forward
Performance Materials builds on its strengths to address the way forward Strengths Way forward Customer Strengthened electronics intimacy market footprint Solutions Accelerated growth in China Speed Agile resource allocation Quality Transparent & reliable communication 23
Slide 24: Performance Materials excites customers with innovative high-tech solutions
Performance Materials excites customers with innovative high-tech solutions The high-end specialty chemical solutions provider Focused on application-driven and customized solutions Active in top-notch segments yielding attractive margins Enabling customers to leverage market trends Especially relat
Slide 25: "Bright Future" to deliver upcoming milestones
“Bright Future” to deliver upcoming milestones 1 Update on new PM strategy July 2018 2 R&D pipeline update at Capital Markets Day Q4 2018 3 Business-specific sales disclosure for Q3 2018 results Nov. 2018 +2-3% CAGR 4 Back to sales & earnings growth ~30% margin after 2019 25
Slide 26: Performance Materials will return to sales growth after 2019
Performance Materials will return to sales growth after 2019 Performance Materials sales development, 2019-2022 sales growth trajectory in €m Semiconductor CAGR: Solutions Low single ~2-3% digit decline Mid- to high-single digit Trough growth year Surface Solutions Low-single digit growth Display So
Slide 27: Positive sales development drives earnings growth after 2019
Positive sales development drives earnings growth after 2019 EBITDA pre development EBITDA pre Guidance: development €725-765 m Trough year • After 2019, EBITDA pre will grow due to positive sales development • Semiconductor & Surface Solutions will overcompensate for Display Solutions EBITDA declin
Slide 28: Margins of PM will remain around 30% in the long-run
Margins of PM will remain around 30% in the long-run EBITDA pre margin indication by business Profitability indication Display Solutions • Display Solutions will adjust above Semiconductor Solutions towards PM average margin • Bottom-line management to support margin ~30% EBITDA pre margin • Strong
Slide 29: Performance Materials margins significantly above industry average
Performance Materials margins significantly above industry average 2017 EBITDA margins of various peer groups PM targeted margin 2017 peer mean: 22% 40% level: ~ 30% Peer benchmark 30% • Extraordinary situation 20% of past years is adjusting • Future profitability will 10% remain very attractive com
Slide 30: Group on a growing and profitable trajectory
Group on a growing and profitable trajectory 2019 Group EBITDA pre increase confirmed 2019 2018 Sales > Sales EBITDA pre > EBITDA pre Margin > Margin Healthcare and Life Science will compensate for Performance Materials’ trough year 30
Slide 31: Conclusion
Conclusion Well positioned in the attractive electronics market Long-term growth perspective with an average annual growth of 2-3% Back to earnings growth in FY 2020 Margin of around 30%, significantly above specialty chemicals peer average Highly cash generating business & valuable pillar within th
Slide 32: Appendix
Slide 33: New structure combines LC with OLED, serving same customer group
Performance Materials: New structure combines LC with OLED, serving same customer group Business allocation within Performance Materials % sales Products Dielectrics, colloidal silica, lithography materials, yield enhancers, edge-bead Integrated Circuit Semiconductor ~20-25% removers Materials Sol
Slide 34: Enabler of key technology trends
Enabler of key technology trends Newest generation of Lithography Dielectric Conductive Pastes smartphones materials materials Electrically conductive Innovation focus: Enabling cost-efficient materials for use in Enabling structures production of the the manufacture of in nodes smaller newest memor
Slide 35: Overcoming technology barriers – supporting continued progression of technological mega trends
Overcoming technology barriers – supporting continued progression of technological mega trends Technological trends Feature sizes in memory market develop • Increasing customer needs for performance, cost and energy as predicted by Moore‘s law1 efficiency have been achieved by ongoing miniaturizatio
Slide 36: Semiconductor Solutions develops dedicated solutions for customer challenges
Semiconductor Solutions develops dedicated solutions for customer challenges, enabling cutting edge innovation Pattern Firm® collapse rinse As lines get narrower and closer together materials in advanced chip generation, they tend to “stick” due to surface tension. Lithography Directed limitation
Slide 37: Developing specific display solutions for the ambitious needs of our customers
Developing specific display solutions for the ambitious needs of our customers Liquid crystals Photoresists LC materials for liquid crystal windows (LCW) • For LCD televisions, monitors, • Materials for flat panel display • Extremely fast, continuous cellphones, and notebooks processes switching bet
Slide 38: Broad portfolio of Decorative Solutions
Broad portfolio of Decorative Solutions to offer new opportunities in enriching customers’ products Applications Industrial Car coatings Printing Plastics Decorative Materials coatings • Developing and marketing innovative effect pigments for various application areas Color Food & • Most important t
Slide 39: Functional Solutions offers a wide portfolio to fulfill very specific industry needs
Functional Solutions offers a wide portfolio to fulfill very specific industry needs Applications Personal Laser Coating & Security care marking Printing Functional Solutions • Developing and marketing functional pigments and additives that offer practical advantages and specific Brands additional b
Slide 40: 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@merckgroup.com svenja.bundschuh@merckgroup.com alessandra.heinz@merckgroup.com ANNETT WEBER NILS V