Merck Kgaa · XETR:MRK
Merck Kgaa — Merck KGaA, Darmstadt, Germany — Q2 2018 Earnings Presentation
42 slides from Merck Kgaa's earnings presentation, Aug 9, 2018
Slide 1: Solid Organic Performance
SOLID ORGANIC PERFORMANCE Merck KGaA, Darmstadt, Germany Q2 2018 results Stefan Oschmann, CEO Marcus Kuhnert, CFO Udit Batra, CEO Life Science August 9, 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: 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 Financial overview Business deep dive Guidance 4
Slide 5: Executive Summary
oO} EXECUTIVE SUMAMARY Sa aan
Slide 6: Highlights
Highlights Healthcare – Solid organic sales growth, Mavenclad U.S. submission accepted by FDA (approved in 38 countries) Operations Life Science – Continued strong organic sales performance across all businesses Performance Materials – Strong growth of Semiconductor Solutions and OLED, mitigated by
Slide 7: Strong organic growth in Life Science and Healthcare almost offset by FX
Strong organic growth in Life Science and Healthcare almost offset by FX Q2 2018 YoY net sales • Healthcare driven by solid growth of core business and increasing contribution from Organic Currency Portfolio Total Mavenclad and Bavencio launches Healthcare 4.7% -4.9% 0.0% -0.2% • Life Science’s abov
Slide 8: Organic growth driven by LATAM, APAC, Europe and North America
Organic growth driven by LATAM, APAC, Europe and North America Regional breakdown of net sales [€ m] Regional organic development Europe +5.2% • Solid growth in Europe reflects Mavenclad org. ramp up, Fertility resilience, and solid demand in Life Science 31% • Solid growth in North America from Lif
Slide 9: Financial Overview
FINANCIAL OVERVIEW
Slide 10: Q2 2018: Overview
Q2 2018: Overview Key figures Comments [€m] Q2 2017 Q2 2018 Δ • EBITDA pre & margin reduction mainly Net sales 3,695 3,714 0.5% driven by LY milestone in Healthcare and ongoing LC decline EBITDA pre 1,066 920 -13.7% • Lower EPS pre driven by EBITDA pre Margin (in % of net sales) 28.9% 24.8% decline
Slide 11: Reported figures
Reported figures Reported results Comments [€m] Q2 2017 Q2 2018 Δ • Lower EBIT in line with EBITDA pre EBIT 608 392 -35.4% decrease; LY EBIT included Vevey write- up (~ €70 m) Financial result -66 -65 -1.8% • Profit before tax in line with EBIT Profit before tax 542 328 -39.5% decrease • Effective t
Slide 12: Healthcare: Solid organic performance offsets FX headwinds
Healthcare: Solid organic performance offsets FX headwinds; Profitability burdened by LY’s favorable one-time effect Healthcare P&L Comments • Organic growth supported by strong Fertility, Glucophage (China) [€m] Q2 2017 Q2 2018 as well as Mavenclad and Bavencio launches Net sales 1,587 1,584 • Erbi
Slide 13: Life Science: Strong organic sales growth across all businesses
Life Science: Strong organic sales growth across all businesses, profitability reflects phasing and unfavorable one-time effects Life Science P&L Comments [€m] Q2 2017 Q2 2018 • Double-digit growth of Process Solutions driven by all major businesses, Net sales 1,495 1,543 especially strong demand fo
Slide 14: Life Science: Phasing and one-time effects impact Q2 margin
Life Science: Phasing and unfavorable one-time effects have visible impact on Q2 margin Portfolio mix effect ~ €5 m 1 During H1 2018 strong growth of single-use & hardware with lower margin Consumables with higher margin to follow in H2 2018 after initial hardware investment Start-up costs on st
Slide 15: Life Science: Strong growth in all business segments
Life Science: Strong growth in all business segments across all regions RESEARCH PROCESS APPLIED €518 m €612 m €414 m Business Unit Q2 Sales Outperforming market with mid Outperforming market with Outperforming the market single digit organic growth double digit growth for the 4th consecutive quarte
Slide 16: Performance Materials: Semiconductor and OLED growth compensates LC decline
Performance Materials: Organic growth of Semiconductor Solutions and OLED compensates ongoing LC decline Performance Materials P&L Comments [€m] Q2 2017 Q2 2018 • Flat PM due to strong growth of Semiconductor Solutions and OLED compensating LC decline Net sales 612 587 -64 -61 • Above-market growth
Slide 17: Balance sheet – deleveraging remains focus
Balance sheet – deleveraging remains focus Assets [€ bn] Liabilities [€ bn] 35.6 35.8 35.8 35.6 Cash & marketable securities 0,7 0,7 2,9 3.0 Receivables 2,6 2,7 Net equity 14,9 14,1 Inventories Intangible assets 21,9 21,5 10,8 Financial debt 11,4 2,2 Payables 2,1 2,3 Property, plant & equipment 4,5
Slide 18: Operating cash flow impacted by higher working capital
Operating cash flow impacted by higher working capital Q2 2018 – cash flow statement Cash flow drivers [€m] Q2 2017 Q2 2018 Δ • D&A increase due to low base LY related Profit after tax 427 251 -176 to write up of Vevey site (~ €70 m) D&A 380 448 68 • Changes in other assets/liabilities driven by inc
Slide 19: Guidance
GUIDANCE
Slide 20: Group: Full-year 2018 guidance
Group Full-year 2018 guidance* Net sales: Organic +3% to +5% YoY FX ~ -3% to -5% YoY ~ € 14.1 – 14.6 bn EBITDA pre: Organic -1% to -3% YoY FX -5 to -7% YoY ~ € 3,750 – 4,000 m EPS pre: ~ € 5.00-5.40 20 *Excluding Consumer Health
Slide 21: 2018 business sector guidance
Group 2018 business sector guidance* Healthcare Performance Life Science Materials Net sales Net sales Net sales ▪ Moderate organic growth +3% to ▪ Organic growth ~+5% to +6%, ▪ Slight to moderate organic decline of +5%: ongoing organic Rebif decline slightly above market -2% to -4% offset by growth
Slide 22: Slide 22
Slide 23: Appendix
APPENDIX
Slide 24: Additional financial guidance 2018
Additional financial guidance 2018 Further financial details Corporate & Other EBITDA pre ~ -€360 – -400 m Interest result ~ -€230 – -250 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 2018 Ø EUR/USD assumption
Slide 25: Strong focus on cash generation to ensure swift deleveraging
Strong focus on cash generation to ensure swift deleveraging 1 Net financial debt and leverage development Focus on deleveraging [Net financial debt/ EBITDA pre] • Commitment to swift deleveraging to ensure a strong investment grade credit rating and financial flexibility 4x • Cash flow will be used
Slide 26: Well-balanced maturity profile
Well-balanced maturity profile reflects Sigma-Aldrich financing transactions Maturity profile as of June 30, 2018 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 1 350 3.375% 1 000 800 550 500 2019 2020 2021 2022 2023 2024 2025 1 EUR bonds USD bonds Private place
Slide 27: H1 organic growth driven by Healthcare and Life Science, offset by FX
Organic growth driven by Healthcare and Life Science but more than offset by FX H1 2018 YoY net sales • Healthcare reflects strong Fertility & Glucophage, Rebif decline partially offset by Organic Currency Portfolio Total Mavenclad Healthcare 2.8% -6.0% 0.0% -3.2% • Organic above-market performance
Slide 28: H1 2018: Overview
H1 2018: Overview Key figures Comments [€m] H1 2017 H1 2018 Δ • EBITDA pre & margin reduction Net sales 7,352 7,199 -2.1% reflects LY one-time effects in Healthcare, FX headwinds and ongoing EBITDA pre 2,261 1,885 -16.6% LC decline Margin (in % of net sales) 30.8% 26.2% • Operating cash flow driven
Slide 29: Reported figures
Reported figures Reported results Comments [€m] H1 2017 H1 2018 Δ • Lower EBIT reflects decreased EBITDA EBIT 1,320 895 -32.2% pre, one-time effects, FX headwinds and LC decline; LY EBIT driven by write- Financial result -134 -126 -6.5% up of Vevey site (~ -€70 m) Profit before tax 1,186 769 -35.2%
Slide 30: Healthcare: Solid organic sales growth while profitability declines
Healthcare: Solid organic sales growth while profitability declines in relation to FX headwinds and LY’s substantial favorable one-time effects Healthcare P&L Comments • Organic growth supported by strong Fertility and Glucophage; Mavenclad and Bavencio contribution on track [€m] H1 2017 H1 2018 • R
Slide 31: Healthcare organic growth by franchise/product
Healthcare organic growth by franchise/product Q2 2018 organic sales growth [%] H1 2018 organic sales growth [%] by key product [€ m] by key product [€ m] 383 732 -4% -5% 425 841 203 403 +0% -1% 213 431 184 350 -0% +2% 193 365 180 329 +14% +5% 164 330 120 219 +1% +0% 125 230 93 174 +2% -0% 94 183 Q2
Slide 32: Rebif: Ongoing decline in line with interferon market
Rebif: Ongoing decline in line with interferon market Rebif sales evolution Q2 2018 Rebif performance North America Q2 drivers • Rebif sales of €383 m in Q2 2018 [€ m] reflect organic decline of 4.2% and -2.5% org. negative FX effect of -5.7% 300 Price increase Price Price • Market shares within int
Slide 33: Erbitux: A challenging market environment
Erbitux: A challenging market environment Erbitux sales by region Q2 2018 Erbitux performance +0.2% Q2 YoY • Sales organically about stable, absolute [€ m] organic growth decrease to €203 m due to FX headwinds 250 mainly from LATAM and APAC • Europe impacted by competition, price +5.4% 200 reduction
Slide 34: Solid organic growth of Fertility, General Medicine and Endocrinology
Solid organic growth of Fertility, General Medicine and Endocrinology Sales evolution Q2 2018 organic drivers Fertility [€ m] • Fertility with strong growth across all 274 301 major regions, especially in Europe, 300 292 263 265 200 Organic North America and APAC 100 +8.0% org. 0 • Gonal-f shows sli
Slide 35: Clinical pipeline
Clinical pipeline August 1, 2018 Phase I Phase II Phase III M2698 avelumab tepotinib sprifermin avelumab - anti-PD-L1 mAb p70S6K & Akt inhibitor anti-PD-L1 mAb c-Met kinase inhibitor fibroblast growth factor 18 Non-small cell lung cancer 1L1 Solid tumors Solid tumors Non-small cell lung cancer Osteo
Slide 36: Life Science: Strong organic performance across all businesses
Life Science: Strong organic performance across all business; Profitability reflects Q2 phasing and one-time effects Life Science P&L Comments [€m] H1 2017 H1 2018 • Process Solutions with double-digit growth driven by all major businesses, especially high demand for single use and cell-culture medi
Slide 37: Performance Materials: Adjusting margin level due to LC decline
Performance Materials: Adjusting margin level due to ongoing LC decline Performance Materials P&L Comments [€m] H1 2017 H1 2018 • Strong growth of Semiconductor Solutions and OLED more than offset by ongoing LC decline Net sales 1,257 1,151 -126 -121 • Stronger demand for innovative UB-FFS technolog
Slide 38: Cash flow statement
Cash flow statement H1 2018 – cash flow statement Cash flow drivers [€m] H1 2017 H1 2018 Δ • Profit after tax reflects lower EBIT Profit after tax 952 593 -359 • D&A increase due to low base LY related to write up of Vevey site (~ €70 m) D&A 828 876 48 • Changes in other assets/liabilities reflects
Slide 39: Adjustments in Q2 2018
Adjustments in Q2 2018 Adjustments in EBIT [€m] Q2 2017 Q2 2018 Adjustments thereof D&A Adjustments thereof D&A Healthcare -56 -68 40 0 Life Science 46 3 26 16 Performance Materials 16 7 5 1 Corporate & Other 16 -3 26 0 Total 22 -61 97 17 39 Totals may not add up due to rounding
Slide 40: Adjustments in H1 2018
Adjustments in H1 2018 Adjustments in EBIT [€m] H1 2017 H1 2018 Adjustments thereof D&A Adjustments thereof D&A Healthcare -52 -67 43 2 Life Science 62 3 39 16 Performance Materials 23 7 9 1 Corporate & Other 31 0 50 0 Total 63 -57 140 19 40 Totals may not add up due to rounding
Slide 41: Financial calendar
Financial calendar Date Event November 14, 2018 Q3 2018 Earnings release March 7, 2019 FY 2018 Earnings release April 26, 2019 Annual General Meeting May 14, 2019 Q1 2019 Earnings release 41
Slide 42: 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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